Kauno Energija

Annual Report (ESEF) • Apr 5, 2023

529900RB20XIQK6NOQ502022-01-012022-12-31529900RB20XIQK6NOQ502022-12-31529900RB20XIQK6NOQ502021-12-31529900RB20XIQK6NOQ502021-01-012021-12-31529900RB20XIQK6NOQ502020-12-31ifrs-full:IssuedCapitalMember529900RB20XIQK6NOQ502020-12-31ifrs-full:StatutoryReserveMember529900RB20XIQK6NOQ502020-12-31ifrs-full:OtherReservesMember529900RB20XIQK6NOQ502020-12-31ifrs-full:RetainedEarningsMember529900RB20XIQK6NOQ502020-12-31iso4217:EURiso4217:EURxbrli:shares529900RB20XIQK6NOQ502021-01-012021-12-31ifrs-full:IssuedCapitalMember529900RB20XIQK6NOQ502021-01-012021-12-31ifrs-full:StatutoryReserveMember529900RB20XIQK6NOQ502021-01-012021-12-31ifrs-full:OtherReservesMember529900RB20XIQK6NOQ502021-01-012021-12-31ifrs-full:RetainedEarningsMember529900RB20XIQK6NOQ502021-12-31ifrs-full:IssuedCapitalMember529900RB20XIQK6NOQ502021-12-31ifrs-full:StatutoryReserveMember529900RB20XIQK6NOQ502021-12-31ifrs-full:OtherReservesMember529900RB20XIQK6NOQ502021-12-31ifrs-full:RetainedEarningsMember529900RB20XIQK6NOQ502022-01-012022-12-31ifrs-full:IssuedCapitalMember529900RB20XIQK6NOQ502022-01-012022-12-31ifrs-full:StatutoryReserveMember529900RB20XIQK6NOQ502022-01-012022-12-31ifrs-full:OtherReservesMember529900RB20XIQK6NOQ502022-01-012022-12-31ifrs-full:RetainedEarningsMember529900RB20XIQK6NOQ502022-12-31ifrs-full:IssuedCapitalMember529900RB20XIQK6NOQ502022-12-31ifrs-full:StatutoryReserveMember529900RB20XIQK6NOQ502022-12-31ifrs-full:OtherReservesMember529900RB20XIQK6NOQ502022-12-31ifrs-full:RetainedEarningsMember AB Kauno energija Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania SET OF CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS 2022 PREPARED IN ACCORDANCE WITH THE INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ADOPTED BY THE EUROPEAN UNION IS SUBMITTED WITH THE CONSOLIDATED ANNUAL REPORT CONTENTS Page Management's approval of the financial statements 3 SET OF CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR 2022 4 – 52 Statements of financial position 4 – 5 Statements of profit (loss) and other comprehensive income 6 – 7 Statements of Changes in Equity 8 Cash Flow Statements 9 – 10 Notes to the set of financial statements 11 – 52 CONSOLIDATED ANNUAL REPORT 53 -106 3 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) Management's approval of the financial statements In accordance with the provisions of Article 23 of the Law on Securities of the Republic of Lithuania and Disclosure Rules approved by Resolution of the Board of the Bank of Lithuania No. O3-223 of 13 December 2019, we hereby certify that the separate and consolidated annual financial statements have been prepared in accordance with International Financial Reporting Standards as adopted for application in the European Union. In our opinion, the accounting principles applied are appropriate and the financial statements give a true and fair view in all material respects in accordance with the International Financial Reporting Standards adopted for application in the European Union. The Consolidated Annual Report of 2022 provides a fair review of the development and performance of the business and the overall position of the Company and the consolidated entities, together with a description of the principal risks and uncertainties encountered. We recommend that the Annual financial statements be approved by the General Meeting of Shareholders. Kaunas, 4 April 2023 On behalf of the management: Director General of AB Kauno energija Tomas Garasimavičius Financial Director of AB Kauno energija Edmundas Damanskis Chief Accountant of AB Kauno energija Rita Plančiūnienė 4 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) Statements of financial position Group Company Notes 2022-12-31 2021-12-31 2022-12-31 2021-12-31 ASSETS Fixed assets Intangible fixed assets 3 98 77 98 77 Property, plant and equipment 4 Land and buildings 6 468 6 115 6 403 5 731 Buildings 127 521 121 810 127 521 121 348 Machinery and equipment 15 020 15 514 14 975 14 263 Vehicles 397 445 397 445 Plant and tools 2 763 1 997 2 761 1 996 Constructions in progress and prepayments 13 519 8 089 13 477 8 072 Investment property 1 114 1 273 - - Total property, plant and equipment 166 802 155 243 165 534 151 855 Right of use assets 6 1 141 1 207 884 1 006 Non-current financial assets Investments in subsidiaries 5 - - 2 763 3 498 Amounts receivable after one year 39 111 - - Other financial assets 7 75 75 75 518 Financial fixed assets, total 114 186 2 838 4 016 Non-current assets, total 168 155 156 713 169 354 156 954 Current assets Inventories and prepayments Inventories 8 2 694 1 756 1 879 1 407 Prepayments 2 162 4 407 1 851 4 055 Total inventories and prepayments 4 856 6 163 3 730 5 462 Amounts receivable within one year Short-term deposits 2 000 - 2 000 - Trade receivables 9 18 169 11 529 17 978 11 662 Other amounts receivable 9 5 156 1 833 5 130 1 794 Amounts receivable within one 25 325 13 362 25 108 13 456 year, total Cash and cash equivalents 10 5 550 3 696 4 891 2 782 Current assets, total 35 731 23 221 33 729 21 700 Assets, total: 203 886 179 934 203 083 178 654 (continued on the next page) 5 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) Statements of financial position (continued) Group Company EQUITY AND LIABILITIES Notes 2022-12-31 2021-12-31 2022-12-31 2021-12-31 Property Capital 11 74 476 74 476 74 476 74 476 Legal reserve 11 7 447 7 447 7 447 7 447 Other reserves 11 3 000 3 000 3 000 3 000 Current year profit 6 356 72 6 299 457 Profit (loss) of the previous years 4 822 4 750 4 620 4 910 Total retained profit (loss) 11 178 4 822 10 919 5 367 Total equity 96 101 89 745 95 842 90 290 Amounts payable and liabilities Amounts payable after one year Financial debts 12 43 949 32 658 43 949 32 658 Lease (financial lease) 13 1 151 1 316 887 1 113 Deferred profit tax liabilities 22 5 819 5 633 5 819 5 924 Grants and subsidies 14 32 211 32 715 32 211 32 229 Employee benefit obligations 15 374 465 363 455 Amounts payable after one year, total 83 504 72 787 83 229 72 379 Accounts payable within one year Financial debt and leasing 12,13 2 891 3 014 2 889 2 445 Trade debtors 24 18 548 11 376 18 487 10 701 Employee related liabilities 695 649 686 632 Received prepayments 773 570 660 464 Tax payable 500 609 435 588 Employee benefit obligations 15 90 122 89 122 Other provisions 16 78 577 78 577 Accrued costs and deferred income 337 210 322 187 Other amounts payable and liabilities 369 275 366 269 Amounts payable within one year, total 24 281 17 402 24 012 15 985 Total accounts payable and liabilities 107 785 90 189 107 241 88 364 Total equity and liabilities 203 886 179 934 203 083 178 654 The following notes to financial statements are an integral part of these financial statements. 6 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) Statement of profit (loss) and other comprehensive income Group Notes Operating income 2022 2021 Sales revenue 17 87 992 50 963 Other operating income 19 1 441 4 543 Total operating income 89 433 55 506 Operating expenses Fuel and purchased energy (58 119) (32 998) Salaries, social insurance (7 931) (7 376) Depreciation and amortisation (6 447) (7 333) Repair and maintenance (870) (680) Change in impairment of receivables 111 587 Taxes, other than income tax (2 249) (2 130) Electricity (2 537) (1 265) Raw materials and goods used (1 460) (1 065) Water (1 048) (1 086) Change in realisable value of inventories and impairment of fixed assets 7 (44) 51 Other costs 18 (2 122) (1 984) Other operating expenses 19 (747) (434) Operating expenses, total (83 463) (55 713) Operating profit (loss) 5 970 (207) Other interest and similar income 20 247 673 Loss from disposal of securities 21 - (208) Interest and other similar expenses 21 (299) (117) Income from financing and investment activities, net (52) 348 value Profit before taxation 5 918 141 Income tax 22 (75) (20) Deferred income tax income (loss) 22 15 (120) Profit for the reporting period 5 858 1 Other provisions to be reclassified subsequently to profit 16 498 71 or loss Gross income 6 356 72 Profit attributable to: Owners of the Company 5 858 1 Non-controlling interests - - Total comprehensive income attributable to: Owners of the Company 6 356 72 Non-controlling interests - - Earnings per share (EUR) 23 0,14 0,01 The following notes to financial statements are an integral part of these financial statements. 7 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) Statements of profit (loss) and other comprehensive income (continued) Company Notes 2022 2021 Operating income Sales revenue 17 87 013 50 981 Other operating income 19 903 3 808 Total operating income 87 916 54 789 Operating expenses Fuel and purchased energy (57 847) (33 223) Salaries, social insurance (7 798) (7 265) Depreciation and amortisation (6 293) (6 756) Repair and maintenance (859) (658) Change in impairment of receivables 114 587 Taxes, other than income tax (2 182) (2 074) Electricity (2 529) (1 160) Raw materials and goods used (682) (545) Water (1 048) (1 081) Change in realisable value of inventories and impairment of fixed assets 7 (44) 51 Other costs 18 (2 420) (2 020) Other operating expenses 19 (754) (441) Operating expenses, total (82 342) (54 585) Operating profit (loss) 5 574 204 Other interest and similar income 20 250 671 Loss from disposal of securities 21 258 (208) Interest and other similar expenses 21 (296) (100) Income from financing and investment activities, net value 212 363 Profit before taxation 5 786 567 Income tax 22 - - Deferred income tax income (loss) 22 15 (181) Profit for the reporting period 5 801 386 Other provisions to be reclassified subsequently to profit or loss 16 498 71 Gross income 6 299 457 Earnings per share (EUR) 23 0,14 0,01 The following notes to financial statements are an integral part of these financial statements. 8 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) Statement of Changes in Equity Group Notes Capital Legal Other Retained Total reserve reserves earnings Balance on 31 74 476 7 447 2 900 4 850 89 673 December 2020 Formed reserves 11 - - 3 000 (3 000) - Reversed reserves 11 - - (2 900) 2 900 - Profit for the reporting period - - - 1 1 Other comprehensive income - - - 71 71 Balance on 31 74 476 7 447 3 000 4 822 89 745 December 2021 Formed reserves 11 - - - - - Profit for the reporting period - - - 5 858 5 858 Other comprehensive income - - - 498 498 Balance on 31 74 476 7 447 3 000 11 178 96 101 December 2022 Company Notes Capital Legal reserve Other reserves Retained earnings Total Balance on 31 December 2020 74 476 7 447 2 900 4 953 89 776 Formed reserves 11 - - 3 000 (3 000) - Reversed reserves 11 - - (2 900) 2 900 - Profit for the reporting period - - - 837 837 Other comprehensive income - - - (780) (780) Balance as at 31 December 2021 74 476 7 447 2 900 5 010 89 833 Formed reserves 11 - - - - - Result of legal merge with AB Petrašiūnų katilinė 5 - - - (747) (747) Profit for the reporting period - - - 5 801 5 801 Other comprehensive income - - - 498 498 Balance on 31 December 2022 74 476 7 447 3 000 10 919 95 842 The following notes to financial statements are an integral part of these financial statements. 9 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) Cash Flow Statements Group Company 2022 2021 2022 2021 Cash flows from operating activities Comprehensive income 6 356 72 6 299 457 Adjustments to non-cash items: Depreciation and amortisation 8 560 9 416 8 360 8 734 Write-offs and changes in impairment of receivables (111) (587) (114) (587) Interest expenses 299 117 296 100 Change in fair value of derivative financial instruments - (6) - - Loss (gain) on sale and write-down of fixed assets and securities (17) (74) (17) (74) Grants and subsidies (amortisation) (1 778) (1 750) (1 291) (1 589) Change in realisable value of inventories and impairment of fixed assets 44 (51) 44 (51) Change in employee benefits obligation (91) - (125) - Profit tax expense 60 140 (15) 181 Change in accruals 71 150 10 144 Change in the value of the lease liability (172) - (66) Change in provision liabilities (313) 22 (499) (70) Elimination of other results from financing and investing activities (247) (673) (502) (1 726) Total adjustment to non-cash items 6 305 6 704 6 081 5 062 Changes of working capital: Decrease (increase) in inventories (982) (319) (516) (28) Decrease (increase) in prepayments 2 245 (3 834) 2 204 (3 570) Decrease (increase) in trade receivables (6 529) (4 502) (6 011) (4 635) Decrease (increase) in other amounts receivable (3 323) (1 590) (3 336) (1 600) Increase (decrease) in long-term trade debts 72 (111) - - Increase (decrease) in trade debtors and advances received 7 405 5 246 8 276 5 142 Decrease (increase) in employee related liabilities 46 49 54 43 Increase (decrease) in taxes payable (109) 222 (153) 221 Decrease (increase) in received prepayments 203 (75) 196 (180) Increase (decrease) in other current liabilities 34 27 97 161 Total changes in working capital (938) (4 887) 811 (4 446) Net cash flows from operating activities 11 723 1 889 13 191 1 073 (continued on the next page) The following notes to financial statements are an integral part of these financial statements. 10 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) Cash flow statements (continued) Group Company 2022 2021 2022 2021 Cash flows from (to) investing activities Acquisition of intangible fixed assets and property, plant and equipment (20 252) (14 667) (20 220) (14 236) Sale of property, plant and equipment 56 563 61 563 Interest received on overdue receivables 252 621 252 621 Acquisition of investments (2 000) - (3 539) (1 000) Net (used) cash flows from investing (21 944) (13 483) (23 443) (14 052) activities Cash flows from (to) financing activities Loans received 14 000 12 000 14 000 12 000 Loans repaid (2 816) (2 833) (2 532) (2 255) Interest paid (285) (116) (284) (101) Lease payments (98) (60) (96) (57) Subsidy received 1 274 4 499 1 273 4 499 Net cash flows from (used in) financing 12 075 13 490 12 361 14 086 activities Net increase (decrease) in cash flows 1854 1 896 2 109 1 107 Cash and cash equivalents at the beginning 3 696 1 800 2 782 1 675 of the period Cash and cash equivalents at the end of the period 5 550 3 696 4 891 2 782 (end) The following notes to financial statements are an integral part of these financial statements. 11 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) Explanatory notes to financial statements 1. General information AB Kauno energija (hereinafter referred to as the Company) is a public limited liability company registered in the Republic of Lithuania. It’s headquarters address: Raudondvario pl. 84, Kaunas, Lithuania. Data about the Company is collected and stored in the Registry of Legal Entities. The Company is engaged in the supply of heat and hot water, production and sale of electricity and maintenance of collector-tunnels. The Company also provides heating system maintenance service s. The Company was registered on 1 July 1997 following the reorganisation of AB Lietuvos energija. The Company's shares are traded on the Baltic Additional Trading List of the Nasdaq Vilnius Stock Exchange. As at 31 December 2022 and 31 December 2021 the Company's shareholders were: 2022-12-31 2021-12-31 Number of Number of held Ownership held shares, Ownership shares, units (%) units (%) Kaunas city municipality 39 736 058 92,84 39 736 058 92,84 Kaunas district municipality 1 606 168 3,75 1 606 168 3,75 Jurbarkas district municipality 746 405 1,74 746 405 1,74 Other small shareholders 713 512 1,67 713 512 1,67 42 802 143 100,00 42 802 143 100,00 The Company's authorised capital is equal to EUR 74,475,728.82 and is divided into 42,802,143 ordinary shares with a nominal value of EUR 1.74 each. As at 31 December 2022 and 31 December 2021 the Company had no treasury shares. As at 31 December 2022 and 31 December 2021, all shares were fully paid up. On 31 December 2022 the Company and its subsidiary UAB GO Energy LT form a group (the Group): Company Part of the Profit (loss) Company's Company home Company- Cost of for the Equity main owned investment reporting address shares period activities Innovative UAB GO Savanorių pr. 100 per energy Energy LT 347, Kaunas cent. 2 763 411 3 033 projects, consultations, lease During 2022, the Company's shareholding in the Group companies changed as a result of the reorganisation of AB Petrašiūnų katilinė, which was merged into the Company (Note 5). The average listed number of employees of the Group in the reporting period was 383 (380 in 2021). The average listed number of employees of the Company in the reporting period was 354 (355 in 2021) . 12 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 1. General information (continued) Legal regulation Pursuant to the Law of the Republic of Lithuania on the Heat Sector, the Company's activities are licensed and regulated by the State Energy Regulatory Council (hereinafter referred to as the Council). On 26 February 2004 the Council granted the Company a heat supply licence. The licence is valid for an unlimited period, but may be revoked by an appropriate decision of the Council depending on compliance with certain conditions. The Council also sets price caps for heat supply. On 13 September 2018 the Council, by its Resolution No. O3E-283, established new components of the basic heat price for the Company, which were in force during the audited period. In accordance with the price-setting methodology, the Council recalculates the price components after the first year of the basic price and the rate is adjusted prospectively. The recalculated components became applicable on 1 November 2020. Economic activities The Company's production capacities consist of the Petrašiūnai power plant, 4 regulated and 10 automated boiler houses in the integrated network of Kaunas city, 7 regional boiler houses in Kaunas district, 1 in Jurbarkas, 11 isolated network and 26 local (household) boiler houses in Kaunas city, as well as 2 boiler houses for water heating in Sargėnai district. The boiler house under the ownership of AB Kauno energija became a division of the Company in March 2022. In July 2022, the Petrašiūnai power plant's capacity was reduced due to environmental requirements. The total installed thermal capacity of the Company as at 31 December 2022 is approximately 596 MW (of which 53 MW are condensing economizers), electrical, 8.75 MW, including 220 MW thermal capacity of the Petrašiūnai power plant (of which 17.8 MW is condensing economizer) and 8 MW electrical capacity, in Jurbarkas 39.4 MW thermal capacity (including 4.4 MW – a condensing economizer). The total power generation capacity of the Company as a whole is approximately 605 MW (of which 53 MW are condensing economizers). The Company makes investments based on an assessment of the economic situation, the competitive environment and the availability of financing. Investment plans are approved by the shareholders and coordinated by the Regulatory Council. The Company's management approved these financial statements on 4 April 2023. The Company's shareholders have a statutory right to approve these financial statements or disapprove them and require the management to draft new financial statements. 2. Summary of significant accounting policies 2.1. Confirmation of Conformity The separate and consolidated financial statements (hereinafter the "financial statements") have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and interpretations thereof. Standards have been issued by the International Accounting Standards Board (IASB) and interpretations have been issued by the International Financial Reporting Interpretations Committee (IFRIC). 2.2. Basis of preparation of the financial statements These financial statements are prepared on an historical cost basis, except for financial assets and liabilities for which changes in fair value are recognised as profit or loss. Historical cost is essentially based on the fair value of the consideration paid for an asset. These financial statements are prepared based on a presumption that the Company and the Group will continue as a going concern in the foreseeable future. The financial year of the Company and other Group companies coincides with the calendar year. 13 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.2. Basis of preparation of the financial statements (continued) All amounts in these financial statements are recorded and presented in euro (rounded to the nearest thousand euro, unless otherwise stated) – the functional and presentation currency of the Group and the Company. 2.3. Application of new and/or amended IFRS International Financial Reporting Interpretations Committee’s (IFRIC) interpretations (a) New and/or amended standards and interpretations applicable from 1 January 2022: The following amended standards issued by the International Accounting Standards Board (IASB) and adopted by the EU, as well as additions and clarifications to existing standards, are currently in force and have been applied by the Company and the Group during this year: • Amendments to IFRS 3 Business Combinations, IAS 16 Property, Plant and Equipment, IAS 37 Provisions, Contingent Liabilities and Contingent Assets and Annual Improvements 2018-2020 (effective for annual periods beginning on or after 1 January 2022); • IFRS 16 Leases: Covid-19 - Related Rent Concessions beyond 30 June 2021 (effective for annual periods beginning on or after 1 April 2021). The application of the standards, amendments and interpretations listed above did not materially affect the financial statements of the Company and the Group. (b) Standards, amendments to existing standards and interpretations issued by the IASB, adopted by the EU but not yet effective: As at the date of these consolidated financial statements, the Company and the Group has not early adopted the following new and revised IFRS standards, amendments and interpretations that have been endorsed but not yet effective: • IFRS 17 Insurance Contracts; including Amendments to IFRS 17 (effective for annual periods beginning on or after 1 January 2023); • Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies (effective for annual periods beginning on or after 1 January 2023); • Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates (effective for annual periods beginning on or after 1 January 2023); • Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction (effective for annual periods beginning on or after 1 January 2023); • Amendments to IFRS 17 Insurance contracts: Initial Application of IFRS 17 and IFRS 9 – Comparative Information (effective for annual periods beginning on or after 1 January 2023). The management of the Company and the Group does not expect that the adoption of these standards, amendments and interpretations will have a material impact on the Company's and the Group's financial statements in the period of initial application. (c) Standards, amendments to existing standards and interpretations that are not yet effective and have not yet been endorsed by the EU: IFRSs currently endorsed by EU are not significantly different from the standards, endorsed by IASB, except the standards, amendments and interpretations that were not endorsed by EU (the effective dates are applicable to IFRS to full extent). These standards, amendments and interpretations are listed below: 14 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.3. Application of new and/or amended IFRS International Financial Reporting Interpretations Committee’s (IFRIC) interpretations (continued) • Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non- current Date; Classification of Liabilities as Current or Non-current – Deferral of Effective date; Non-current Liabilities with Covenants (effective for annual periods beginning on or after 1 January 2024); • Amendments to IFRS 16 Leases: Lease Liability in a Sale and Leaseback (effective for annual periods beginning on or after 1 January 2024). The management of the Company and the Group does not expect that the adoption of these standards, amendments and interpretations will have a material impact on the Company's and the Group's financial statements in the period of initial application. 2.4. Consolidation principles Consolidation principles The consolidated financial statements of the Group include AB Kauno energija and its subsidiaries. The financial statements of the subsidiaries are for the same reporting period as those of the Parent Company. The consolidated financial statements are prepared on the basis of uniform accounting principles for like transactions and other events in similar circumstances. Businesses acquired or disposed of during the year are included in the consolidated financial statements from the date of the transfer of control or until the date on which control is lost. Intercompany transactions, balances and unrealised gains and losses are eliminated on consolidation. The gross income of subsidiaries is attributable to the owners of the enterprise and to the non-controlling interest, even if the result of the non-controlling interest is negative. A subsidiary is an undertaking controlled, directly or indirectly, by its parent undertaking. Typically, a company is controlled when the Group directly or indirectly owns more than 50 percent of the company's share capital carrying the voting rights and/or when it is able to control the financial and operating activities so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements at the beginning and end of the control dates. Changes in the Group's equity interest in subsidiaries Changes in the Group's equity interest in subsidiaries that do not result in a loss of control of the Group by the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interest and non- controlling interest are adjusted to reflect changes in their respective interests in subsidiaries. Any difference between the adjustment for the non-controlling interest and the fair value of the consideration paid or received is recognised directly in equity and attributable to the owners of the entity. When the Group loses control of a subsidiary, the gain or loss on disposal is calculated as the difference between (i) the sum of the fair value of the consideration received and the aggregate of the fair value of any retained interest; and (ii) the previous carrying amounts of the subsidiary's assets (including goodwill) and liabilities and non- controlling interests. When a subsidiary's assets are accounted for by remeasuring the fair value amount and the related gain or loss has been included in comprehensive income and accumulated in equity, the amounts previously included in other comprehensive income and accumulated in equity are accounted for in the same way as the disposal of the related asset (i.e. reclassified to profit or loss or transferred directly to retained earnings, as specified in the relevant IFRS). The fair value of the remaining investment in the former subsidiary at the date of the loss of control is treated as the fair value at initial recognition for subsequent accounting purposes in accordance with IFRS 9 Financial Instruments, or, if appropriate, as the acquisition cost of the investment in an associate or jointly controlled entity at initial recognition. 15 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.5. Investments in subsidiaries In the statement of financial position of the company, investments in subsidiaries are accounted for using the acquisition cost method. Dividends received from subsidiaries are recognised in profit or loss and other comprehensive income. IAS 36 “Impairment of Assets” applies impairment criteria to determine whether it is necessary to recognise impairment losses in respect of the Company's investment in a subsidiary. When necessary, the full carrying amount of an investment (including goodwill) is tested for impairment in accordance with IAS 36 as a single asset by comparing its recoverable amount (the higher of its value in use and its fair value less costs to sell) with its carrying amount. Any impairment losses recognised shall form part of the carrying amount of the investment. Any reversal of an impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases. 2.6. Intangible Assets Intangible assets acquired separately Intangible assets acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over the estimated useful lives. The useful life and depreciation method are reviewed at each reporting date, prospectively recording any changes in the estimate assessment. The amortisation calculation shall be discontinued from the first day of the month following the disposal of the asset or when the total cost of the acquisition of an intangible asset is transferred to cost or to the value of another asset. Intangible assets with an indefinite useful life acquired separately are carried at cost less impairment losses. Derecognition of intangible assets An intangible asset is derecognised when it is sold or when no future economic benefit is expected from the use or sale of the asset. Gains or losses arising from the derecognition of an intangible asset, calculated as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss when the asset is derecognised. Licenses Amounts paid for licenses are capitalized and amortized over the term of validity (3 to 4 years). Software The new software acquisition costs are capitalized and recognized as an intangible fixed asset if these costs are not an integral part of the hardware. Software is amortized over a period no longer than 3 years. Costs incurred in order to restore or maintain the future economic benefits that the Company expects from the originally assessed standard of performance of existing software systems are recognised as an expense when the restoration or maintenance work is carried out. 16 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.7. Accounting for emission allowances Emission allowances received shall be accounted for using the net commitment method. Under this approach, the Group and the Company account for emission allowances at nominal value. Commitments to acquire additional emission allowances are recognised when they arise (e.g. commitments are not accounted for on the basis of expected future emissions) and are accounted for only when the actual emissions of the Group and the Company exceed the amount of available emission allowances. Under the net commitment approach, the Group and the Company assess the lack of emission allowances by comparing the quantity of emission allowances available with the actual annual emissions. Sales of emission allowances are recorded at the amount of the sales transaction. Any differences between the fair value of the sale and the carrying amount of the allowances held shall be recognised as profit or loss, regardless of whether there is an actual or expected shortfall in the allowances at the time of the transaction. Where the sale of emission allowances results in an actual shortfall of emission allowances, the financial position reports shall recognise additional liabilities, including profits or losses that affect the relevant costs. 2.8. Property, plant and equipment Property, plant and equipment is carried at acquisition cost, which does not include routine maintenance costs, less accumulated depreciation and estimated impairment losses, if any. The cost of acquisition includes the cost of replacing property, plant and equipment when they are incurred, provided that these costs qualify for the recognition of the asset. Property classified as construction in progress, under construction for production, supply or administrative purposes, or for other purposes not yet determined, is carried at acquisition cost less impairment losses. The cost includes professional fees and capitalised borrowing costs of long run assets in accordance with the accounting policies of the Group and the Company. Depreciation of these assets shall begin using the same method of depreciation as for other immovable property when the property is ready for its intended use. Depreciation is recognised in such a way that, over the useful life of the asset, its cost (excluding land and construction in progress) less its residual value is written off on a straight-line basis. The estimated useful lives, residual values, and depreciation methods are reviewed at each year-end, with any changes in the accounting estimate accounted for prospectively. The useful service lives are reviewed every year to ensure that the period of depreciation is consistent with the expected useful life of the long-term tangible asset. Depreciation is computed on a straight-line basis over the following estimated useful lives: Years Buildings 15 – 50 Investment property 50 Buildings 15 – 70 Machinery and equipment 5 – 20 Vehicles 4 – 10 Plant and tools 3 – 16 Land is not depreciated. 17 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.8. Property, plant and equipment (continued) An asset is recognised as non-current when it has a useful life of more than one year and the acquisition cost exceeds EUR 144.81. Property, plant and equipment acquired under finance leases are depreciated over their useful lives using the same useful lives as own assets. Property, plant and equipment are derecognised when they are sold or when no future economic benefits are expected from the use or sale of the asset. Any gain or loss arising on the sale or write-down of an item of property, plant and equipment is calculated as the difference between the net disposal proceeds and the carrying amount of the asset and is recognised in profit or loss in the profit (loss) statement and other comprehensive income. Subsequent repair costs are added to the cost of an asset if it is probable that future economic benefits will flow to the Group and the Company from the expenditure and the cost of the expenditure can be measured reliably. The carrying amount of the modified portion is derecognised. All other repair costs are recognised as an expense that affects profit or loss for the period when they are incurred. Construction-in-progress is stated at cost. This includes the cost of construction, plant and equipment and other directly attributable costs. Depreciation is not charged on construction in progress until the asset is placed in service or is ready for use. Fixed assets for resale Property, plant and equipment, or groups of saleable assets that consist of assets and liabilities that are expected to be recovered primarily through sale and not through continuing use, are classified as held for sale. Immediately before classifying an asset as held for sale, the asset (or parts of a pool of available-for-sale assets) is measured in accordance with the applicable International Financial Reporting Standards as adopted for application in the European Union (non-current assets held for sale are accounted for at the lower of their carrying amount and fair value less the cost of selling such assets). Impairment losses on assets held for sale measured at the time of initial classification and subsequent gains and losses related to the revaluation of assets shall be included in profit or loss. Revenue from the reversal of depreciation is not recognised at a higher amount than accumulated impairment losses. When property, plant and equipment is recorded as held for sale, depreciation is no longer charged. 2.9. Impairment of property, plant and equipment and intangible assets other than goodwill At each date of preparation of the statement of financial position, the Group and the Company shall review the residual value of property, plant and equipment and intangible assets to determine whether there is any indication that these assets are impaired. If any such indication exists, the Group and the Company assesses the recoverable amount of the asset in order to be able to assess the impairment loss (if any). Where it is impossible to assess the recoverable value of assets, the Group and the Company estimates the recoverable amount in the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, the assets of the Group and the Company are also allocated to separate income-generating groups of assets, or alternatively, they are allocated to the lowest cash-generating unit for which a reasonable and consistent basis of allocation can be identified. 18 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.9. Impairment of property, plant and equipment and intangible assets other than goodwill (continued) The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments conditions, time value of money and the risks associated with the assets, which was not taken into account in estimating the future cash flows. If the estimated recoverable amount of the asset (or cash-generating unit) is less than its carrying amount of this asset, the carrying amount of the asset is reduced to the recoverable value of this asset (or cash-generating unit). Impairment losses are recognised immediately through profit or loss. The Group and the Company have one group of cash-generating units for the heat business. If after the recognition of impairment loss the value of the asset increases, the carrying amount of the asset (cash- generating unit) is increased to the newly estimated recoverable amount, but so that the increase does not exceed the carrying value of the asset (cash-generating unit) if the losses due to value impairment in previous years had not been recognized. Reversals of impairment losses are recognised immediately in profit or loss. 2.10. Investment property Property, plant and equipment are assets that the Company manages and controls in order to generate rental income and/or increase the value of these assets. Assets that are used for the production of goods, services or for administrative purposes, and the sale of which is classified as a typical activity of the Company, not included in property, plant and equipment. Investment property is initially valued at acquisition cost, including related transaction costs. Subsequent to initial recognition, buildings are carried at cost less accumulated depreciation and impairment losses, if any. Depreciation is calculated on a straight-line basis so as to write off the cost of the asset on a straight-line basis over the asset's useful life of 8-50 years. Depreciation of investment property is accounted for in the cost item of the profit or loss and other comprehensive income statement. 2.11. Financial assets The Group and the Company classify their financial assets in the following groups: • financial assets that are measured at fair value in subsequent periods, with the change in fair value recognised in other comprehensive income or profit or loss; and • financial assets measured at amortised cost. The classification depends on the financial asset management model and the contractual cash flow conditions. Recognition and initial measurement Trade receivables are initially recognised when they arise. On initial recognition, all other financial assets and financial liabilities are recognised when the Group and the Company become a party to the contractual provisions of the instrument. Financial assets (other than trade receivables without a significant financing component) or financial liabilities are initially measured at fair value plus, if the instrument is not measured at fair value through profit or loss, transaction costs directly attributable to the acquisition or issue. Trade receivables without a significant financing component are initially recognised at transaction price. 19 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.11. Financial assets (continued) Classification and subsequent assessment At initial recognition, financial assets are classified and measured as follows: • amortised cost; • at fair value through profit or loss. Financial assets are not reclassified in subsequent periods unless the Group and the Company change their financial asset management model. In this case, all related financial assets shall be reclassified on the first day of the first reporting period following the change in business model. A financial asset is measured at amortised cost if it meets both of the following criteria and is not classified as an asset measured at fair value through profit or loss: • the entity intends to hold the asset for contractual cash receipts; • contractual cash flows on specific dates include only payments of principal and interest on the amount due. Write-off The carrying amount of a financial asset is written down, in whole or in part, if there is no realistic prospect of its recovery. This usually occurs when the Group and the Company determine that the debtor does not have sufficient assets or sources of income to generate sufficient cash flows to repay the amounts written off. However, financial assets that are written off may be recovered to meet debt collection requirements imposed by the Group and the Company. Assessment of significantly increased credit risk The Group and the Company assess the probability of default at the initial recognition of financial assets and at each balance sheet date, taking into account whether there has been a significant increase in credit risk since initial recognition. In order to assess whether there has been a significant increase in credit risk, the Group and the Company compare the risk of default on assets at the date of preparation of the statements with the risk of default on initial recognition. In analysing whether credit risk has increased significantly, the following factors shall be assessed: • significant changes in the internal credit rating; • significant changes in the external credit rating (if any); • actual or foreseeable material adverse changes in the business environment, financial or economic situation which may materially affect the ability of the customer to meet its obligations; • actual or anticipated significant changes in the client's performance. Based on the Group's and the Company's debt recovery statistics, management considers that the credit risk has increased from the time of initial recognition only if the contractual payments are delayed by more than 30 days. ECL valuation – trade receivables and other contract assets The Group and the Company apply a simplified approach to the calculation of lifetime expected credit losses over the lifetime of the asset, using the provisioning matrix for all trade receivables and other receivables. In order to calculate expected credit losses using the provisioning matrix, trade receivables and other receivables are classified into separate groups according to the general characteristics of credit risk. The amounts of each group are analysed on the basis of the number of days past due and a loss indicator shall be assigned to each group of amounts past due. Loss ratios are calculated using management's expert judgement using statistical recovery information for the last 2 years. For receivables from customers that do not have a significant financing component, the estimated credit loss is accounted for over the entire term of the debt. 20 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.11. Financial assets (continued) Such information shall be adjusted, if necessary, in the light of forward-looking information. The table below provides information on the expected credit losses calculated for the Group and the Company for each group of overdue amounts. As trade receivables and other receivables generally do not include collateral or other credit protection, the expected loss ratio corresponds to the probability of default. Trade receivables: Not Overdue in days Group overdu from 1 to from 31 from 91 from 181 from 271 from 361 more e 30 to 90 to 180 to 270 to 360 up to 720 than 721 Expected credit loss rate 0 0 20 50 60 80 90 100 % Company Expected credit loss rate 0 0 20 50 60 80 90 100 % 2.12. Derivative financial instruments Till 2022, the Group and the Company used derivative financial instruments such as interest rate swaps to hedge interest rate risk. Such derivatives are recognised at fair value on the trade date and remeasured at fair value in subsequent periods. Derivative financial instruments are accounted for as financial assets when their fair value is positive and as financial liabilities when their fair value is negative. Any gain or loss arising from a change in the fair value of derivatives during the year is accounted for directly in profit or loss. The fair value of interest rate swaps is determined by reference to the market value of similar instruments. 2.13. Inventories Inventories are stated at the lower of cost or net realisable value. Net realisable value refers to the estimated selling price of inventories less any estimated selling costs. The cost of inventories is calculated using the FIFO method. The cost of inventories is reduced by discounts and write-downs received from suppliers during the reporting period and applied to inventories held in stock. 2.14. Provisions A provision is recorded when, as a result of a past event, the Company has a present obligation (legal or constructive) and it is probable that the Group and the Company will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. The amount recognised as a provision is the best estimate at the end of the reporting period of the consideration that will be required to settle the present obligation, taking into account the risks and uncertainties arising from the obligation. When a provision is valued using the estimated cash flows to cover a liability, its carrying value is the present value of these cash flows. 21 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.14 Provisions (continued) Where it is expected that part or all of the economic benefits needed to cover the provision will be recovered from a third party, the amount receivable is covered by the asset if it is certain that the compensation will be received and that the amount receivable can be measured reliably. 2.15. Cash and cash equivalents Cash consists of cash in bank accounts and in cash in hand, and cash in transit. Cash equivalents are short-term, highly liquid investments that are readily converted to known amounts of cash. The term of such investments does not exceed three months, and the risk of value changes is very insignificant. 2.16. Employee benefits Recognition of post-employment benefits is recognised as an expense when the employees have performed the service that entitles them to the benefits. The post-employment benefit liabilities recognised in the statement of financial position reflect the present value of the defined benefit obligations in the collective agreement, adjusted by unrecognised actuarial gains or losses and unrecognised past service costs, and reduced by the fair value of the plan assets. Any assets arising from this calculation may not exceed the cost of unrecognised actuarial losses and past service plus the present value of repayments and reductions in future plan contributions. 2.17. Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset the preparation of which for the intended use or sale takes a long time are included in the cost of the asset until the asset is prepared for the intended use or sale. Investment income earned on a temporary investment of a specific amount borrowed that has not yet been used for a qualifying asset shall be deducted from the borrowing costs allowed for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. 2.18. Financial liabilities and equity instruments The Group and the Company recognise financial liabilities at the acquisition cost of the liabilities. The Group and the Company classify financial liabilities into the following categories: • measured at amortised cost, • measured at fair value through profit or loss, • hedging financial instruments. The Group and the Company classify trade debts, financial debts, leasing liabilities, interest liabilities and other payables as financial liabilities measured at amortised cost. Derecognition of financial liabilities The Group and the Company derecognise financial liabilities when, and only when, the obligations of the Group and the Company are discharged, cancelled or expire. 22 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.19. Lease The Group and the Company are the lessee At the commencement date, the lessee shall measure the lease liability at the present value of the lease payments outstanding at that date, including the following: • fixed charges (including those assimilated to fixed charges) less any rental incentives receivable; • variable rents that depend on an index or rate initially measured using an index or rate at the start date; • the amounts that the tenant should pay under the liquidation value guarantees; • penalties for terminating the lease if it is assumed that the tenant will exercise its option to terminate the lease during the lease term. Rents is discounted using the interest rate provided for in the lease agreement, if that rate can be easily determined. If that rate cannot be easily determined, the tenant shall use the borrowing rate calculated by the lessee. The interest rate specified in the lease is the interest rate that results in the present value of the lease payments and the unguaranteed residual value being equal to the sum of the fair value of the leased asset and any initial direct costs incurred by the lessor. The lease liability is measured at amortised cost using an imputed interest rate consistent with the discount rate used to discount the lease payments. Interest expense relating to a lease liability is allocated over the lease term and recognised in profit or loss. The cost of an asset held under right of use at initial recognition comprises: • the amount of the initial measurement of the lease liability; • any lease payments made on or before the commencement date less any lease incentives received; • any primary direct costs incurred by the lessee; and • an estimate of the cost of restoring the asset. Thereafter, the lessee shall measure the right-of-use asset at cost less any accumulated depreciation and any accumulated impairment losses. If, before the end of the lease period, the ownership of the leased asset is transferred to the tenant , or if the price of the asset managed under the right of use indicates that the tenant will exercise the right to purchase, the tenant shall calculate the depreciation of the asset managed under the right of use from the beginning to the end of the useful life of the leased asset. Alternatively, the lessee shall calculate the depreciation of the right-of-use asset from the commencement date to the earlier of: the end of the useful life of an asset held under a right-of-use arrangement, or the end of a lease term. Payments relating to short-term leases or leases of low-value assets are recognised as an expense through profit or loss on a straight-line basis. Short-term leases are considered to be leases with a term of 12 months or less. Low-value assets include tools and small items of office furniture. The Group and the Company are the lessor In transactions where the Company is a lessor, the assessment of whether the concluded Agreement is a finance or operating lease are carried out on the date of commencement of the lease. For the purpose of determining the type of lease assignment, all risks and rewards of ownership of the leased asset are assessed jointly or substantially transferred from the lease. 23 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.19 Lease (continued) If substantially all the risks and rewards of ownership of the leased asset are transferred, such leases are treated as finance leases. Otherwise, as operating leases. In transactions in which the Company acts as an intermediate Lessor, the sublease shall be classified on the basis of the right-of-use assets specified in the main agreement. 2.20. Grants and subsidies Government grants are not recognised until there is sufficient assurance that the Group and the Company will comply with the requirements associated with them and that the grants will be received. Government grants are recognised in profit or loss on a systematic basis over the period in which the Group and the Company recognise the related reimbursement of the costs for which they are intended. Government grants, the principal condition whereof is that the Group and the Company should purchase, construct or otherwise acquire non-current assets, are recognised as deferred income in the statement of financial position and are recognised in a systematic and rational manner in profit or loss over the useful life of the related assets. Grants that are received in the form of long-term assets, plant and equipment or intended to purchase, construct or otherwise acquire, are considered to be asset-related grants. The Company classifies assets acquired free of charge in this group of grants. Assets received for no consideration are carried at fair value on initial recognition. Receivables for reimbursement of expenses or income foregone during the reporting period or prior period, as well as all other grants not attributable to grants related to assets, shall be treated as grants that reduce costs. Grants related to revenue are recognised as part of the utilised portion to the extent that costs are incurred during the period (by reducing the proportion of costs incurred) or to the extent of the estimated foregone revenue for which the grant is intended to compensate. The unused balance of the grant is shown in the Grants (deferred income) line of the statement of financial position. 2.21. Income tax Income tax expense reflects current year tax and deferred tax. Current year's tax Tax of the current year is payable based on taxable profit for the year. Taxable profit differs from the profit reported in the statement of comprehensive income because of the income or expense that is taxable or deductible in the following year and the income or expense that is never taxable or deductible. Income tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. The Group and the Company are subject to a corporate income tax rate of 15 per cent in 2022 (15 per cent in 2021). Deferred tax Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Such assets and liabilities are not recognised if the temporary differences relate to goodwill, or to the initial recognition of assets or liabilities (other than in a business merger) that are not affected by either taxable or financial profit at the time they arise (transactions). 24 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.21. Income tax (continued) Deferred tax liabilities are recognised to offset temporary tax differences. Deferred income tax assets are recognised for deductible temporary differences only to the extent that it is probable that sufficient taxable profit will be available to realise the benefit of the temporary differences and is expected to be realised in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered by the Group and the Company. Deferred tax assets and liabilities are measured using the tax rates that will apply to the Group and the Company in the year in which those temporary differences are expected to be recovered or settled, based on tax rates (and tax laws) that have been or will be approved before the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group and the Company expect, at the reporting period, to recover or to settle the carrying amount of its assets and liabilities. Current and deferred tax for the period Current and deferred tax is accounted for in profit or loss unless they relate to items not recognised in profit or loss (in other comprehensive income or directly in equity). In such a case, the tax is also recognised outside profit or loss, or when it arises on initial recognition of the business combination. In the case of a business combination, the tax effect is included in the accounting for the business combination. 2.22. Basic and diluted earnings per share The basic and diluted earnings per share shall be calculated by dividing the profit for the reporting period attributable to shareholders by the weighted average of the ordinary shares issued. There is no difference between basic and diluted earnings per share. 2.23. Recognising revenue The Group and the Company recognise revenue to reflect the transfer of the committed goods or services to the purchasers in an amount that is consistent with the consideration that the entity expects to receive in exchange for the said goods or services, less value added tax, discounts and rebates. An entity shall recognise revenue on the basis of this core guiding principle in the following steps: Step 1: identification of the contract (s) with the buyer – the contract is an agreement between two or more parties that defines their enforceable rights and obligations. Step 2: identification of performance obligations under the contract – obligations under the contract to transfer the goods or services to the buyer. If these goods or services can be distinguished, such liabilities are treated as operating liabilities, which are accounted for separately. Step 3: the transaction price is determined – the transaction price is equal to the contracted amount of consideration that the entity expects to receive in exchange for the goods or services transferred to the buyer. The transaction price may consist of a fixed amount of consideration paid by the buyer, but may sometimes also include variable consideration or consideration other than cash. The transaction price is also adjusted for the time value of money if the contract includes a significant funding component, as well as for any consideration payable to the buyer. 25 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.23. Recognising revenue (continued) Step 4: The transaction price is attributable to the contracted performance obligation – as a rule, an entity attributes the transaction price to each performance obligation on the basis of the relative stand-alone selling prices of each good or service contracted to be transferred. If data on individual selling prices is not observable in the market, the entity makes an estimate. Step 5: revenue is recognised when the entity discharges the performance obligation by transferring the committed goods or services to the buyer (i.e. when the buyer obtains control of those goods or services). The amount of revenue recognised is equal to the amount attributed to the settled performance obligation. An operating liability may be settled at a certain point in time or over a certain period of time. Revenue is recognised when the amount of revenue can be measured reliably and it is probable that the economic benefits associated with the transaction will flow to the Group and the Company, and when specific criteria have been met for each type of revenue as described below. The Group and the Company rely on historical performance, taking into account the type of customer, the type of transaction and the specifics of each arrangement. Revenue is recognised using the methods described below: Revenue from sales of heat and hot water Revenue from the sale of heat is recognised on the basis of bills issued to residential customers and other customers for heat and hot water heating. Consumers are billed once a month according to the readings of the heat meter. At the end of the period, revenue not invoiced for services rendered is accrued on an accrual basis. Income from the sales of goods Proceeds from the sale of goods are recognized when all of the following conditions are met: • The Group and the Company transferred ownership control to the buyer; • The Group and the Company do not maintain either continuing management of goods sold at the level normally associated with ownership or effective control; • the amount of such revenue can be measured reliably; • it is probable that the Group and the Company will obtain the economic benefits associated with the transaction and the costs incurred or to be incurred in connection with the transaction can be measured reliably. Financing elements The Group and the Company do not have, and do not expect to have, any contracts where the period between the provision of goods or services and payment by the customer exceeds one year. For this reason, the Group and the Company do not account separately for the financing element. Other income Lease income is recognised on an accrual basis when it is probable that the economic benefits associated with the transaction will flow to the Group and the Company and can be measured reliably Late payment fee is recognized as income when it is received. 26 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.23. Recognising revenue (continued) Dividend income from investments is recognised when the shareholders' right to receive payment is established (if it is likely that the economic benefits associated with the item will flow to the Group and the Company and the amount of the income can be measured reliably). Interest income is recognized when it is probable that the Group and the Company will receive economic benefits and the amount of revenue can be measured reliably. Interest income is accrued over the period, according to the outstanding part and the applicable effective interest rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset up to the net carrying amount on initial recognition. 2.24. Expense recognition Expenses are recognised on the basis of the accrual and comparability principles in the reporting period in which the related income is earned, regardless of the time of spending the cash. In those cases when costs incurred cannot be directly attributed to the specific income and they will not generate income during the future periods, they are recognised as incurred. Amount of costs is usually accounted in the amount of paid and payable, excluding VAT. When long period of settlement is provided, and interest is not distinguished, the amount of costs is assessed by discounting the settlement amount at the market interest rate. 2.25. Foreign currency transactions For the purpose of preparing the financial statements of individual Group entities, transactions in currencies other than the Company's functional currencies (foreign currencies) are accounted for at the exchange rates prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are converted at the daily exchange rate of that day. Non-monetary items that are carried at fair value and denominated in a foreign currency are converted at the exchange rate at the date of fair value measurement. Non-monetary units carried at the cost of acquiring a foreign currency are not converted. The presentation currency shall be the euro (EUR). Operations denominated in foreign currency shall be converted into euro at the official rate of the European Central Bank on that date. Monetary assets and liabilities are converted into euro at the exchange rate at the date of the statement of financial position. Exchange differences arising from operations in foreign currencies shall be included in profit or loss at the time when they arise. Gains and losses arising from exchange rate changes in the conversion of monetary assets or liabilities into euro shall be included in profit or loss when they arise. 2.26. Application of assessments in preparation of financial statements In preparing the financial statements, management is required to make certain judgements, estimates and assumptions that affect the amounts of income, expenses, assets and liabilities that are disclosed and to disclose uncertainties at the date of preparation of the report. However, the uncertainty of these assumptions and estimates may affect the results, which may require significant future adjustments to the carrying amounts of assets or liabilities. Estimates and assumptions The main assumptions and other significant sources of measurement uncertainty that affect the future at the date of preparation of the statements of financial position and which give rise to material risks and which may require a material adjustment to the carrying amounts of assets or liabilities in the next financial year are discussed below: 27 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.26. Application of assessments in preparation of financial statements (continued) Property, plant and equipment – useful life The main assumptions used to determine the useful lives of property, plant and equipment are: • the expected life of the asset, • anticipated technical, technological or other obsolescence due to service innovation or changes in services, • legal or similar restrictions on the use of assets, such as the date of validity of finance lease agreements. Investments in subsidiaries – impairment losses To assess the recoverability of investments in subsidiaries, the Company's management calculates the recoverable amount of the investment by discounting the future cash flows of the subsidiaries to their present value using a weighted average discount rate on capital costs reflecting current market assumptions about the time value of money (Note 5). Realisable value of inventories The Company's management forms a 100% impairment charge on inventories (except for the process fuels) acquired earlier than one year ago (Note 8). Impairment of receivables The Group and the Company recognise a loss allowance for expected credit losses (ECL) on financial assets measured at amortised cost as follows: trade receivables, other receivables and accrued income. Loss ratios are calculated using management's expert judgement using statistical recovery information for the last 2 years. In determining whether the credit risk of a financial asset has increased significantly since initial recognition and in assessing the amount of the ECL, the Group and the Company consider reasonable and supportable information that is relevant and accessible without excessive cost or effort. This information includes both quantitative and qualitative data and analysis based on the Group's historical experience and reasoned credit assessment, including prospective information. Provisions for losses on financial assets measured at amortised cost are deducted from the total carrying amount of such assets. The provision for impairment losses is presented in the income statement and included in operating expenses as an impairment charge. Deferred profit tax assets Deferred income tax assets are recognised for all unused tax losses, with a statement of what is expected to be the tax profit before the losses are offset. Significant management judgements are required to determine the amounts of deferred tax assets that may be recognised based on estimates of the expected future amounts and periods of taxable profits and based on future tax planning strategies (Note 22). Fair value of financial instruments Fair value is the amount for which an asset or service could be exchanged, or a liability settled between knowledgeable, willing parties in an arm’s length transaction. 28 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.26. Application of assessments in preparation of financial statements (continued) Fair value of financial assets and financial liabilities are valued based on quoted market prices, discounted cash flow models or option pricing models, depending on the circumstances. In determining the fair value of assets or liabilities, the Company focuses on available market data, as much as possible. The fair values are presented in three levels of the fair value hierarchies on the basis of the variables used in the valuation methods: • Level 1: prices quoted at active markets of similar assets or liabilities (unadjusted); • Level 2: other variables except the quoted prices of assets and liabilities included in Level 1 that are observed directly (i.e., as prices), or indirectly (i.e., derived from prices); • Level 3: variables of assets and liabilities not based on the observable market data (non-observable variables). Where for the purpose of measuring the fair value of assets or liabilities the variables may be attributed to the different levels of the fair value hierarchy, the hierarchy level of the fair value to which the entire fair value established is attributed shall be established on the basis of the lowest level variable material for the measurement of the entire fair value. The Company recognizes the amounts of the fair value hierarchy levels transferred to the end of the reporting period in which the change occurred. 2.27. Contingencies Contingent liabilities are not recognised in the financial statements. They are disclosed unless the possibility of an outflow of resources generating economic benefits is small. A contingent asset is not recognised in the financial statements but is disclosed when an inflow of economic benefits is probable. 2.28. Subsequent events Post-reporting events that provide additional information about the situation of the Group and the Company at the date of preparation of the statements of financial position (adjusting events) are reflected in the financial statements. Events after the date of the balance sheet that are not corrective events, are described in the notes when they are significant. 2.29. Offsetting and comparative information When preparing the financial statements, assets and liabilities, income and expenses are not offset unless the specific International Accounting Standards specifically require such offsetting. 2.30. Segment reporting Segment information shall be reported in the same manner as other internal reporting to the chief operating decision maker. The chief operational decision maker responsible for allocating resources and assessing the performance of the segments is the Board, which takes strategic decisions. The activities of the Group and the Company are carried out in a single segment, therefore, these financial statements do not provide additional disclosures about the segments. 29 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 3. Intangible fixed assets Movements in intangible fixed assets during the reporting period and prior periods: Group Company Acquired rights and software Acquired rights and software Acquisition value: Balance as at 31 December 2020 1 547 1 546 Acquisitions 2 2 Reclassification from construction in progress 13 13 Balance on 31 December 2021 1 562 1 562 Acquisitions 84 84 Disposals, writes-off - - Balance on 31 December 2022 1 646 1 646 Amortization: Balance as at 31 December 2020 1 429 1 429 Amortisation per year 56 56 Balance on 31 December 2021 1 485 1 485 Amortisation per year 63 63 Disposals, writes-off - - Balance on 31 December 2022 1 548 1 548 Book value: Balance as at 31 December 2020 117 117 Balance on 31 December 2021 77 77 Balance on 31 December 2022 98 98 The amortisation charge for intangible assets is included in operating expenses in the profit (loss) and other comprehensive income. Part of the Company's fixed intangible assets with an acquisition value as at 31 December 2022 was 988 thousand euro (on 31 December 2021: EUR 907 thousand), was fully amortised, but still used in the business operations. 30 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 4. Property, plant and equipment Details of the Group's and Company's property, plant and equipment: Machinery Constructions Investme Group Land and Buildings and Vehicles Plant and in progress nt Total buildings equipment tools and property prepayments Acquisition value: Balance as at 31 18 100 192 616 62 449 1 957 13 580 12 191 679 301 572 December 2020 Acquisitions - 1 212 234 102 13 783 333 14 665 Sold and written off assets (346) (326) (85) (268) (474) - (297) (1 796) Transfer to intangible assets - - - - - (14) (14) Reclassifications (601) 17 362 5 (12) 388 (17 871) 729 - Impairment losses (-) 69 4 - 1 - - 74 Balance on 31 17 222 209 657 62 581 1 912 13 596 8 089 1 444 314 501 December 2021 Acquisitions 25 544 1 309 19 23 18 248 - 20 168 Sold and written off assets - (102) (236) (15) (256) - - (609) Transfer to intangible assets - - - - - - - - Reclassifications 280 10 262 903 73 1 300 (12 818) - - Impairment losses (-) 10 6 - 1 - - - 17 Balance on 31 17 537 220 367 64 557 1 990 14 663 13 519 1 444 334 077 December 2022 Accumulated depreciation: Balance as at 31 10 955 83 338 43 708 1 569 11 342 - 278 151 190 December 2020 Depreciation during the year 391 4 688 3 417 134 641 - 30 9 301 Sold and written off assets (239) (179) (58) (236) (384) - (137) (1 233) Balance on 31 11 107 87 847 47 067 1 467 11 599 - 171 159 258 December 2021 Depreciation during the year 374 4 901 2 440 142 555 - 33 8 445 Reclassifications (412) 158 257 (1) 1 218 221 Sold and written off assets - (60) (227) (15) (255) - (92) (649) Balance on 31 11 069 92 846 49 537 1 593 11 900 - 330 167 275 December 2022 Book value: Balance as at 31 7 145 109 278 18 741 388 2 238 12 191 401 150 382 December 2020 Balance on 31 6 115 121 810 15 514 445 1 997 8 089 1 273 155 243 December 2021 Balance on 31 6 468 127 521 15 020 397 2 763 13 519 1 114 166 802 December 2022 31 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 4. Property, plant and equipment (continued) Constructi Machine Plant ons in Company Land and Buildings ry and Vehicles and progress Investment Total buildings equipme tools and property nt prepayme Acquisition value: nts Balance as at 31 December 15 807 191 784 57 266 1 619 13 513 12 191 297 292 477 2020 Acquisitions - 1 131 234 102 13 766 - 14 234 Sold and written off assets (346) (326) (85) (268) (474) - (297) (1 796) Transfer to intangible assets - - - - - (14) - (14) Reclassifications 86 17 291 106 - 388 (17 871) - - Impairment losses (-) 69 4 - 1 - - - 74 Balance on 31 December 2021 15 616 208 754 57 418 1 586 13 529 8 072 - 304 975 Acquisitions - 544 1 309 14 21 18 248 - 20 136 Sold and written off assets - (102) (236) (10) (256) - - (604) Assets acquired in the reorganisation 1 531 654 4 043 106 22 - - 6 356 Reclassifications 280 10 262 928 73 1 300 (12 843) - - Impairment losses (-) 10 6 - 1 - - - 17 Balance on 31 December 2022 17 437 220 118 63 462 1 770 14 616 13 477 - 330 880 Accumulated depreciation: Balance as at 31 December 9 792 82 960 40 319 1 244 11 277 - 137 145 729 2020 Depreciation during the year 332 4 625 2 894 133 640 - - 8 624 Sold and written off assets (239) (179) (58) (236) (384) - (137) (1 233) Balance on 31 December 2021 9 885 87 406 43 155 1 141 11 533 - - 153 120 Depreciation during the year 333 4 902 2 323 141 555 - - 8 254 Depreciation of assets acquired 816 349 3 236 106 22 - - 4 529 in a reorganisation Sold and written off assets - (60) (227) (1) (255) - - (557) Balance on 31 December 2022 11 034 92 597 48 487 1 373 11 855 - - 165 346 Book value: Balance as at 31 December 6 015 108 824 16 947 375 2 236 12 191 160 146 748 2020 Balance on 31 December 2021 5 731 121 348 14 263 445 1 996 8 072 - 151 855 Balance on 31 December 2022 6 403 127 521 14 975 397 2 761 13 477 - 165 534 The amounts of the Group's and the Company's depreciation expenses were included in operating expenses in the profit and loss and other comprehensive income (under depreciation and amortisation). Investment property income in 2022 amounted to EUR 121 thousand, the amounts were included in the sales income, the direct costs of these assets amounted to EUR 73 thousand. Part of the Group's property, plant and equipment with an acquisition value of EUR 35 085 thousand as at 31 December 2022 (on 31 December 2020: EUR 28 820 thousand), the Company's – EUR 35 085 thousand (31 December 2021: EUR 27 353 thousand) – has been fully depreciated but is still used in the operations. 32 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 4. Property, plant and equipment (continued) The Group and the Company have recorded assets not yet ready for use of EUR 313 thousand in the machinery and equipment group as at 31 December 2022 (on 31 December 2021: EUR 339 thousand). On 31 December 2021 and 31 December 2022 the Group's and the Company's construction in progress consists mainly of the reconstruction and overhaul of boiler plants and heat supply networks. As at 31 December 2022 Group property, plant and equipment with a residual value of EUR 8 548 thousand (on 31 December 2021: EUR 11 945 thousand) and the Company's EUR 8 548 thousand (on 31 December 2021: EUR 9 300 thousand) was pledged to banks as collateral for the loans (Note 12). 5. Investments in subsidiaries and loans to group companies Legal merger In order to simplify the Group's structure, in November 2021, the Company's Management Board prepared the Reorganisation Terms and Conditions, the preparation whereof was approved at the Extraordinary General Meeting of Shareholders of AB Kauno energija held on 25 November 2021 and on 26 November 2021 by decision of the sole shareholder of AB Petrašiūnų katilinė. The shareholders of both companies have decided to reorganise the companies by merger. On 2 March 2022 AB Petrašiūnų katilinė, 100% of whose shares were owned by the company, was merged into AB Kauno energija, in accordance with Article 2.97(3) of the Civil Code of the Republic of Lithuania, pursuant to the Reorganisation Terms and Conditions and the shareholders' decision approved on 15 December 2021. The authorised capital of AB Kauno energija remained unchanged after the reorganisation and amounts to EUR 74 476 thousand. The shareholder's property and non-property rights of the company have not changed either. Subsidiary data Carrying amount as at 2 March Less net of assets 2022 investment acquired in the merger Long term tangible assets 1 828 - 1 828 Deferred income tax asset 89 - 89 Inventories, raw materials 23 - 23 Advances paid 3 - 3 Cash and cash equivalents 187 - 187 Owners equity (245) 992 747 Grants, subsidies (446) - (446) Provisions (9) - (9) Trade and other debtors (1 430) - (1 430) Result of legal merger loss – EUR (747) thousand, was accounted for in the Company's statement of changes in equity. 33 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 5. Investments in subsidiaries and loans to group companies (continued) Movements in investments in subsidiaries: Group Company 2022 2021 2022 2021 At the beginning of the year - - 3 498 2 064 - - - 1 434 Acquisition of subsidiaries/capital increase Impairment reversal for subsidiaries - - 257 - Legal merger - - (992) - At the end of the year - - 2 763 3 498 On 31 December 2022, an expert management assessment of investments in UAB GO energy LT was carried out. The growth of the Company's financial indicators, the portfolio of future orders, the 3-year strategic plan, the impact of changes in financial indicators on changing planning assumptions were assessed and no indications of impairment were identified. The value of investment was determined on the basis of projected cash flows for a period of 5 years together with the terminal (perpetual) value. 2022-12-31 2021-12-31 Investments in Acquisiti Impairment Book value Acquisiti Impairment Book value subsidiaries on price on price UAB GO Energy LT 2 763 - 2 763 2 763 (257) 2 506 AB Petrašiūnų katilinė - - - 1 894 (902) 992 Total: 2 763 0 2 763 4 657 (1 159) 3 498 As a result of the impairment testing carried out at 31 December 2022, the impairment of the investment in UAB GO Energy LT of EUR 258 thousand recognised in prior periods was reversed. The cash flow projections used in the calculations are based on the 2022 results of UAB GO Energy LT, long-term business plans, signed contracts and management expectations. The terminal value (cash flows over a period of more than five years) was calculated by applying a constant growth factor of 1%. When forecasting cash flows, the Company also predicted that the forecasted costs would increase annually by the amount of the planned annual inflation. Loans to the companies of the group of companies As at 31 December 2022 the Company had no issued loans. As at 31 December 2021 the Company had granted a working capital loan of EUR 443 thousand to its subsidiary AB Petrašiūnų katilinė. The interest rate is 6 months EURIBOR plus 1.2 %. 34 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 6. Assets managed under the right of use Movements of right-of-use assets during the reporting period and previous periods: Group Company Assets managed under Assets managed under the right of use the right of use Acquisition value: Balance as at 31 December 2020 1 351 1 137 Recognition of the right to use an asset - - Balance on 31 December 2021 1 351 1 137 Recognition of the right to use an asset - - Disposals, writes-off (96) (96) Balance on 31 December 2022 1 255 1 041 Amortization: Balance as at 31 December 2020 85 77 Amortisation per year 59 54 Balance on 31 December 2021 144 131 Amortisation per year 52 43 Disposals, writes-off (82) (17) Balance on 31 December 2022 114 157 Book value: Balance as at 31 December 2020 1 266 1 060 Balance on 31 December 2021 1 207 1 006 Balance on 31 December 2022 1 141 884 7. Other financial assets Other financial assets consist of unquoted ordinary shares. As at 31 December 2021 and 31 December 2022, it consisted of 75 460 units. Shares in UAB Kauno miesto paslaugų centras. On 4 December 2020, the Company signed an agreement on the establishment of UAB Kauno miesto paslaugų centras. The share of the Company's subscribed shares accounted for 22 per cent, the number of ordinary registered shares subscribed was 75 460 units. The value of the share is EUR 1. UAB Kauno miesto paslaugų centras was registered on 15 January 2021, but did not operate in 2021. In 2022, the company generated a net profit of EUR 53 thousand. Group Company Other financial assets: 2022-12-31 2021-12-31 2022-12-31 2021-12-31 Financial assets carried at fair value through profit or loss 75 75 75 75 Value of loans to subsidiaries - - 443 75 75 75 518 35 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 8. Inventories Group Company 2022-12-31 2021-12-31 2022-12-31 2021-12-31 Technological fuel 1 602 1 254 1 602 1 177 Spare parts 1 515 927 700 655 Materials 346 300 346 300 3 463 2 481 2 648 2 132 To be deducted: write-down to net realisable (769) (725) (769) (725) value at the end of the period Carrying amount of inventories 2 694 1 756 1 879 1 407 The write-down of the Group's and the Company's inventories to net realisable value as at 31 December 2022 amounted to EUR 769 thousand (on 31 December 2020: EUR 725 thousand). The change in the write-down of inventories to net realisable value in 2021 and 2022 is included in the Group's and the Company's statements of profit or loss and other comprehensive income under the item of costs of changes in the realisable value of inventories and fixed assets. The Group and the Company respectively incurred impairment losses of EUR 163 thousand and reversed impairment losses of EUR 119 thousand during the reporting period. 9. Amounts receivable within one year Change in impairment of doubtful receivables in 2021 and 2022 in the Group's and the Company's Statements of Profit and Loss and Other comprehensive income included in the item of impairment charges on receivables. Impairment of doubtful receivables is measured at expected credit losses. Group Company 2022-12-31 2021-12-31 2022-12-31 2021-12-31 Trade receivables 22 995 16 473 22 764 16 596 To be deducted: expected credit losses (4 826) (4 944) (4 786) (4 934) 18 169 11 529 17 978 11 662 Change in the Group's and Company's expected credit losses on trade receivables: Group Company Balance as at 31 December 2020 6 009 6 009 Recognised (reversed) probable credit losses (558) (568) Written off (507) (507) Balance on 31 December 2021 4 944 4 934 Recognised (reversed) probable credit losses (80) (110) Written off (38) (38) Balance on 31 December 2022 4 826 4 786 During 2022, the Group and the Company wrote off bad debts of EUR 38 thousand and EUR 38 thousand, respectively (in 2021: EUR 507 thousand and EUR 507 thousand). 36 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) The Group's and the Company's receivables from customers are interest-free and normally have a maturity of 30 days or individually agreed. On 31 December 2022 and 31 December 2021 the Group's and the Company's other receivables consisted of taxes receivable from the State, debt owed by municipalities for compensation to low-income families, receivables for inventories sold (scrap metal, heating system equipment) and services rendered (collector maintenance services, etc). Other receivables of the Group and the Company consisted of: Group Company 2022-12-31 2021-12-31 2022-12-31 2021-12-31 Taxes 550 1 085 550 1 051 Amount of VAT receivable 2 570 82 2 570 77 Other 2 351 981 2 325 981 To be deducted: expected credit losses (315) (315) (315) (315) 5 156 1 833 5 130 1 794 Movement in impairment in value of other receivables of the Group and the Company: Group Company Balance as at 31 December 2020 296 335 Recognition of expected credit losses 19 (20) Balance on 31 December 2021 315 315 Recognition of expected credit losses - - Balance on 31 December 2022 315 315 The Group's and the Company's other receivables are interest-free and are generally due within 30 to 45 days. No impairment is taken on unmatured receivables as management considers the risk that debtors will not be able to meet their obligations to be low. 10. Cash and cash equivalents Group Company 2022-12-31 2021-12-31 2022-12-31 2021-12-31 Cash in transit 619 166 619 166 Cash in the bank 4 931 3 530 4 272 2 616 5 550 3 696 4 891 2 782 The Group's bank balances that at 31 December 2022 amounted to EUR 1 480 thousand (EUR 708 thousand on 31 December 2021) and the Company's EUR 1 480 thousand (on 31 December 2021: EUR 549 thousand) are pledged to banks as collateral for loans (Note 12). 11. Changes in equity Statutory The statutory reserve is required under the legislation of the Republic of Lithuania. At least 5% of net profits, calculated in accordance with International Financial Reporting Standards, must be transferred to the reserve 37 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) annually until it reaches 10% of the authorised capital. The statutory reserve may not be distributed as dividends but can be used to cover future losses. Other reserves By the decision of shareholders of 30 April 2021, the Company cancelled other reserves (EUR 2 900 thousand) and transferred EUR 3 000 thousand from retained earnings to other reserves, i.e. a reserve of EUR 2 950 thousand for the execution of investments and a reserve of EUR 50 thousand for support was formed. Annual allowances No annual payments were made in 2021 and 2022. Dividends In 2021 and 2020, the result was left in retained earnings. 12. Financial debts All loans of the Group and the Company are accounted for and repaid in euro. At the end of the year, the weighted average interest rate on outstanding loans (as a percentage) was: Group Company 2022-12-31 2021-12-31 2022-12-31 2021-12-31 Long-term 0,84 0,73 0,84 0,72 On 7 August 2020, the Company signed a EUR 55 million loan agreement with the European Investment Bank. The signing of the agreement was approved by the Extraordinary General Meeting of Shareholders of AB Kauno energija on 4 August 2020. The loan will be used to finance the Company's investment programme and repay other loans over 5 years. Over the next 5 years, the Company plans to invest in the deployment of innovative heating and cooling plants using renewable energy sources, the digitalisation of processes, as well as the modernisation of pipelines and the construction of new pipelines. On 22 August 2022, a loan tranche of EUR 14 million was taken out. The Company used part of the loan to repay the existing loans. On 16 August 2021, a loan tranche of EUR 12 million was taken out. The Company used part of the loan to repay the existing loans. In 2022, EUR 113 thousand of interest expense was capitalised. Group Company 2022-12-31 2021-12-31 2022-12-31 2021-12-31 Long-term financial debts (loans): 43 949 32 658 43 949 32 658 Payable between 2 and 5 years 17 414 10 380 17 414 10 380 Payable after 5 years 26 535 22 278 26 535 22 278 Current portion of long-term loans 2 769 2 876 2 769 2 309 46 718 35 534 46 718 34 967 38 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 12. Financial debts (continued) Details of the Group’s and Company's loans as at 31 December 2022: Balance as To be at refunded in Credit institution Date of Amount, Maturity 2022.12.31 2023, contract thousands EUR in thousand thousands EUR EUR 1 Ministry of Finance of the 2010-04-09 2 410 2034-03-15 1 123 94 Republic of Lithuania 2 Ministry of Finance of the 2010-10-26 807 2034-03-15 462 38 Republic of Lithuania 3 EIB 2021-08-16 12 000 2036-08-18 12 000 453 4 Ministry of Finance of the 2014-01-15 793 2034-12-01 499 42 Republic of Lithuania 5 Ministry of Finance of the 2014-03-31 7 881 2034-12-01 4 963 414 Republic of Lithuania 6 EIB 2020-08-07 15 000 2035-08-24 12 750 1 000 7 EIB 2022-08-07 14 000 2037-08-24 14 000 - 8 AB SEB bank 2016-12-22 4 127 2024-11-30 921 728 46 718 2 769 * Ministry of Finance; ** European Investment Bank. AB SEB bank has determined that the Company must comply with the net financial debt to EBITDA ratio set for the quarter, which must not exceed 4.5. Under the loan agreements, the Company's equity ratio (total equity/total assets) must be at least 35%. The European Investment Bank's requirements also stipulate that the Company must comply with both of these indicators. On 31 December 2022 and 31 December 2021, the Company has complied with the terms of the aforementioned agreements. Loan agreements contain certain restrictions. The Company may not grant dividends, issue and/or obtain new loans, make grants, sell or lease mortgaged assets without the written consent of the banks. Such written consents were obtained from the banks. The Group's and the Company's property, plant and equipment (note 4), funds in bank accounts (note 10) and land leases were pledged to banks as collateral for loans. 39 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 13. Lease Finance leases and lease liabilities of the Group and the Company: Group Company 2022-12-31 2021-12-31 2022-12-31 2021-12-31 Within one year 68 96 68 96 after one year 19 87 19 87 Total, financial lease obligations 87 183 87 183 Lease liabilities are accounted for as: short-term 54 43 52 40 long-term 1 132 1 229 868 1 026 Total lease liabilities 1 186 1 272 920 1 066 Under the lease agreements, the leased assets of the Group and the Company consist of vehicles and land. Vehicle rental term is 3-4 years, and land leases are 26-84 years. The Group and the Company, having considered all the circumstances, decided not to adjust the discount rate and not to recalculate the value of the previously determined right-of-use assets and liabilities. In accordance with IFRS 16, the Group and the Company recognised depreciation and interest costs associated with the lease in question, rather than operating lease costs. For the 12-month period ended 31 December 2022, the Group recognised depreciation costs of EUR 52 thousand and rental interest of EUR 11 thousand, the Company recognised depreciation costs of EUR 43 thousand and rental interest of EUR 11 thousand. Undiscounted lease payments are disclosed in Note 24. For the 12-month period ended 31 December 2021, the Group recognised depreciation costs of EUR 59 thousand and rental interest of EUR 36 thousand, the Company recognised depreciation costs of EUR 54 thousand and rental interest of EUR 31 thousand. 14. Grants and subsidies Group Company 2022-12-31 2021-12-31 2022-12-31 2021-12-31 Opening balance at the beginning of the reporting period 32 715 29 966 32 229 29 319 Received during the period 1 274 4 499 1 273 4 499 Amortization (1 778) (1 750) (1 291) (1 589) Closing balance at the end of the reporting period 32 211 32 715 32 211 32 229 During 2022, the Group has accrued depreciation (amortisation) of grants relating to property, plant and equipment of EUR 1 771 thousand, EUR 7 thousand – related to costs (EUR 1 730 thousand and EUR 20 thousand in 2021), The Company – EUR 1 284 thousand and EUR 7 thousand respectively (EUR 1 569 thousand and EUR 20 thousand in 2021). 40 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 15. Employee benefit liability Every worker who leaves their job and reaches retirement age is entitled to receive between 0.5 and 2 months' salary, in accordance with the laws of the Republic of Lithuania and the Collective Agreement. The Group's and the Company's employee benefits liability were as follows: Group Company Employee benefit commitment at the beginning of 2022 2021 2022 2021 the period 587 499 577 499 Paid (101) (242) (101) (242) Formed (22) 330 (24) 320 Employee benefit obligation at the end of the period: 464 587 452 577 Long-term portion 374 465 363 455 Short-term portion 90 122 89 122 When calculating long-term employee benefits, the Group and the Company assessed the mortality rate in Lithuania, discount rate, retirement age, age and turnover of employees, salary growth, inflation rate and other factors. The key assumptions used to determine the planned benefit obligation of the Group and the Company are set out below: 2022-12-31 2021-12-31 Discount rate 1.728 per cent. 0.161 per cent. Staff turnover rate 9.019 per cent. 14.813 per cent. Planned annual salary increase 8.50 per cent. 4.150 per cent. The actuarial gains and losses related to these liabilities are presented under the item of operating expenses, remuneration and social security and in the Statements of Financial Position under the current portion of the liability for long-term employee benefits and the liability for employee benefits. 16. Other provisions The cost of the heat production capacity reservation service is included in the basic heat price as one of the components in accordance with the methodology established by the Regulatory Council. As a result of the installation of new generation facilities and the modernisation of existing generation facilities by the Company in recent years, the thermal capacity reservation service has not been purchased from 2020 onwards, and consequently no thermal capacity reserve costs are incurred. At the end of 2019, the Company applied to the Regulatory Council to exclude the costs of the power reserve from the heat price, but the Regulatory Council only approved the recalculation of the heat price from November 2020. The Company made a provision from the beginning of the year to reimburse the unrecovered, but over-priced, costs of the power reserve, and from the beginning of the autumn 2020 heating season started to reimburse the provision for this accumulated overpayment through a reduction in the price to consumers. The Company has made a power reserve tax provision of EUR 959 thousand in 10 months of 2020 to cover future price reduction obligations. In October to December 2020, EUR 312,000 was returned to consumers as a result of price cuts. During the months of January and August 2021, the remaining part of EUR 647 thousand was returned to consumers. In 2021, the Company was awarded an additional amount of power reserve from Kaunas Clinics, which will have to be compensated by Kaunas Clinics in future periods. This amicable settlement agreement was confirmed by the ruling of the Kaunas District Court on 2 June 2021. The Company will have to compensate consumers for the additional revenues from the power reserve and has accordingly made a provision of EUR 577 thousand as at 31 December 2021. During January-April 2022, a portion of EUR 498 thousand was refunded to consumers, with the remainder of the provision carried forward to 2023. 41 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 17. Sales income The Group and the Company are engaged in the supply of thermal energy, maintenance of building heating and hot water supply systems, electricity generation, and other activities. These activities are closely interlinked and, for management purposes, the Group and the Company are considered to be organised in a single segment – the supply of thermal energy. The Group's and the Company's activities are seasonal, with the majority of revenue generated during the heating season, which starts in October and ends in April. Sales revenues by the Group and the Company activities are presented below: Group Company 2022 2021 2022 2021 Heat supply 81 338 47 125 81 458 47 133 Hot water supply 5 742 3 014 4 643 3 024 Maintenance of hot water metering devices 487 456 487 456 Maintenance of collectors 348 348 348 348 Maintenance of heating and hot water systems in buildings 17 12 17 12 Cooling supply 10 2 10 2 Sale of tradable emission allowances 50 6 50 6 87 992 50 963 87 013 50 981 Sales revenues by consumer groups of the Group and the Company are presented below: Group Company 2022 2021 2022 2021 Residents 65 236 38 640 65 236 38 640 Other users 8 846 5 138 8 846 5 138 Budgetary organisations financed from the state budget 6 044 3 579 6 044 3 579 Budgetary organisations financed from municipal budgets 4 203 2 447 4 203 2 447 Institutions financed by territorial sickness funds 2 182 957 2 182 957 Industrial users 1 481 202 502 220 87 992 50 963 87 013 50 981 42 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 18. Other costs Group Company 2022 2021 2022 2021 Maintenance of collectors 362 361 362 361 Equipment inspection and testing 234 177 234 177 Consulting Services 181 132 181 132 Ash recovery costs 173 162 173 162 Money collection costs 126 143 126 143 Employee-related costs 118 87 118 87 Transport costs 104 90 104 90 Invoicing costs 98 74 98 74 Membership fee 97 100 97 100 Debt collection costs 91 52 91 52 Maintenance of fixed assets and related services 86 65 86 65 Information Technologies costs 80 64 80 64 Rental of equipment and machinery 56 63 56 63 Sponsorship 53 1 53 1 Insurance 49 57 49 57 Costs for advertising 35 36 35 36 Communication costs 32 25 32 25 Audit costs 23 27 23 27 Other costs 124 268 422 304 2 122 1 984 2 420 2 020 19. Other operating income and expense Group Company Other operational incomes 2022 2021 2022 2021 Inventories sold 213 829 213 242 Miscellaneous services rendered 987 387 449 240 Compensation received - - - - Revenue from previous periods - 5 - 5 Profit from the sale of fixed assets 11 117 11 117 Other 230 3 205 230 3 204 1 441 4 543 903 3 808 The Group and the Company lease real estate, supply technical water, perform maintenance of heating equipment and provide transport services. Other operating income was accounted for on 4 March 2021. The case on award of compensation for heat reserve power won in the Court of Appeal of Lithuania (Case No: e2A-151-370/2021) for EUR 2 519 thousand. An additional settlement agreement has also been concluded, agreeing on compensation of EUR 570 000. Group Company Other operational expenses 2022 2021 2022 2021 Cost of miscellaneous services rendered (306) (166) (306) (166) Inventories sold (214) (35) (214) (35) Cost of previous periods (30) (20) (30) (20) Sale of fixed assets, write-off (119) (164) (119) (164) Other (78) (49) (85) (56) (747) (434) (754) (441) 43 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 20. Other interest and similar income Group Company 2022 2021 2022 2021 Default interest received on overdue receivables 228 622 228 622 Change in market value of derivatives - 5 - - Gains on transactions in securities - 46 - 46 Interest 19 - 22 3 247 673 250 671 21. Loss on sale of securities, interest and other similar charges Group Company 2022 2021 2022 2021 Interest (299) (117) (296) (100) Impairment of non-current financial assets - - 258 - Loss on bonds sales - (208) - (208) (299) (325) (38) (308) 22. Income tax As at 31 December 2021 and 31 December 2022, deferred income tax assets and liabilities were accounted for using the 15 per cent rate. All changes in deferred income tax are accounted for in the Group's and Company's Statements of Profit or Loss and Other Comprehensive Income. The reported income tax expense for the year can be reconciled with the income tax expense resulting from the application of the regulatory corporate income tax rate to profit before tax: Group Company 2022 2021 2022 2021 Profit before tax, before accrual of employee benefits 5 661 778 5 661 645 Gains (losses) on the accrual of employee benefits 125 (78) 125 (78) Profit tax income (expense) calculated on profit before accrual of employee benefits at the statutory rate (849) (117) (849) (97) Income tax (expense) calculated on the accrual of employee benefits at the statutory rate (19) 12 (19) 12 Effect of permanent and temporary differences 914 210 914 210 Change in unrecognised deferred income tax assets (31) (245) (31) (306) Adjustment of income tax for previous periods - - - - Income (expense) from income taxes recognised in the statement of comprehensive income 15 (140) 15 (181) Effective corporate tax rate (%) -0,26 17,99 -0,26 28,06 44 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 22. Income tax (continued) Group Company 2022 2021 2022 2021 Components of income tax expense Income tax expenses (costs) of the reporting year (75) (20) - - Deferred profit tax expense (income) 15 (120) 15 (181) Income (expense) from income taxes recognised in the statement of comprehensive income (60) (140) 15 (181) All changes in deferred income tax are accounted for in the Group's and Company's profit (loss) statement. As at 31 December 2022, deferred income tax consisted of: Group Company Deferred income tax assets 2022 2021 2022 2021 Tax losses 3 647 4 023 3 647 3 936 Accruals 69 86 69 84 Change in value of assets 833 1 051 833 849 Investment allowance 5 - 5 - Deferred income tax assets 4 554 5 160 4 554 4 869 Deferred profit tax liabilities Depreciation differences (10 373) (10 793) (10 373) (10 793) Revaluation of assets transferred to a subsidiary - - - - Deferred profit tax liabilities (10 373) (10 793) (10 373) (10 793) Deferred profit tax, net value (5 819) (5 633) (5 819) (5 924) Deferred tax assets arising from tax losses are recognised because the Group's and the Company's management expects that they will be realised in the foreseeable future, taking into account forecasts of taxable profits. 23. Basic and diluted earnings per share The Group's basic and diluted earnings per share calculations are presented below: Group Company 2022 2021 2022 2021 Profit for the reporting period 5 858 1 5 801 386 Number of shares (thousands), beginning of period 42 802 42 802 42 802 42 802 Number of shares (thousands), end of period 42 802 42 802 42 802 42 802 Weighted average number of ordinary shares in issue 42 802 42 802 42 802 42 802 (thousands) Basic and diluted earnings per share (EUR) 0,14 0,00 0,14 0,01 45 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 24. Financial assets and liabilities and risk management Credit risk The Group and the Company are not exposed to significant concentrations of credit risk as they deal with a large number of customers. Group Company Number of unique clients (units) 2022-12-31 2021-12-31 2022-12-31 2021-12-31 Natural persons 119 493 117 557 119 301 117 514 Other legal entities 3 454 2 800 3 378 2 782 Legal entities financed from municipal and state 658 530 648 526 budgets 123 605 120 887 123 327 120 822 Receivables due from customers of the Group and the Company by customer groups: Group Company Number of unique clients (thousand EUR) 2022-12-31 2021-12-31 2022-12-31 2021-12-31 Natural persons 16 805 12 941 16 794 12 916 Other legal entities 3 513 1 810 3 297 1 959 Legal entities financed from municipal and state 2 674 1 722 2 673 1 721 budgets Recognition of expected credit losses (4 826) (4 944) (4 786) (4 934) 18 166 11 529 17 978 11 662 As at the date of the financial statements, for trade and other receivables that are neither past due nor impaired, management believes that there is no indication that the debtors will not meet their payment obligations as the receivable balances are under constant control. The Group and the Company consider that the maximum exposure is the amount of trade and other receivables less any impairment losses recognised at the statement of financial position date (Note 9). Cash and cash equivalents in banks rated on a long-term basis : Group Company 2022-12-31 2021-12-31 2022-12-31 2021-12-31 AA- 2 077 1 270 2 077 1 111 A+ 2 795 2 237 2 136 1 482 A - - - - Unrated bank 59 23 59 23 4 931 3 530 4 272 2 616 - external borrowing ratings by Standard & Poor's agency. The credit risk arising from the Group's and the Company's other financial assets consisting of cash and cash equivalents and available-for-sale financial investments is related to the possible default of the counterparties, with the maximum potential exposure being equal to the carrying amount of these instruments. 46 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 24. Financial assets and liabilities and risk management (continued) The fair values are presented by hierarchy level in 2022 and 2021: Group 2022 Level of the fair value hierarchy Total book Assets Level 1 Level 2 Level 3 value: Other financial assets - - 75 75 Short-term deposits 2 000 2 000 Trade receivables - - 18 169 18 169 Other amounts receivable - - 5 156 5 156 Cash and cash equivalents - - 5 550 5 550 Total financial assets - - 30 950 30 950 Liabilities Long-term financial debt and leasing - (47 991) - (47 991) Trade debts and other current liabilities - - (19 332) (19 332) Total financial liabilities - (47 991) (19 332) (67 323) Company 2022 Level of the fair value hierarchy Total book Assets Level 1 Level 2 Level 3 value: Other financial assets - - 75 75 Short-term deposits 2 000 2 000 Trade receivables - - 17 978 17 978 Other amounts receivable - - 5 130 5 130 Cash and cash equivalents - - 4 891 4 891 Total financial assets - - 30 074 30 074 Liabilities Long-term financial debt and leasing - (47 725) - (47 725) Trade debts and other current liabilities - - (19 253) (19 253) Total financial liabilities - (47 725) (19 253) (66 978) 47 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 24. Financial assets and liabilities and risk management (continued) Group 2021 Level of the fair value hierarchy Total book value: Assets Level 1 Level 2 Level 3 Other financial assets - - 75 75 Short-term deposits - - - - Trade receivables - - 11 529 11 529 Other amounts receivable - - 1 833 1 833 Cash and cash equivalents - - 3 696 3 696 Total financial assets - - 17 133 17 133 Liabilities Long-term financial debt and leasing - (36 988) (36 988) - Trade debts and other current liabilities - - (12 438) (12 438) Total financial liabilities - (36 988) (12 438) (49 426) Company 2021 Level of the fair value hierarchy Total book Assets Level 1 Level 2 Level 3 value: Other financial assets - - 518 518 Short-term deposits - - - Trade receivables - - 11 662 11 662 Other amounts receivable - - 1 794 1 794 Cash and cash equivalents - - 2 782 2 782 Total financial assets - - 16 756 16 756 Liabilities Long-term financial debt and leasing - (36 216) - (36 216) Trade debts and other current liabilities - - (11 734) (11 734) Total financial liabilities - (36 216) (11 734) (47 950) 48 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 24. Financial assets and liabilities and risk management (continued) Interest rate risk The Group's and the Company's long-term loans, other than those with the Ministry of Finance of the Republic of Lithuania, are at variable interest rates (3 months EURIBOR). The Group and the Company are exposed to interest rate risk. The Company's long-term loans, with the exception of loans received from the Ministry of Finance of the Republic of Lithuania, have a variable interest rate, which depends on EURIBOR fluctuations. The Company eliminates this risk of changes in interest rates by including interest costs in the heat price, which is allowed by the heat price methodology. Liquidity risk Liquidity risk is the risk that the Company or the Group will not be able to meet its financial obligations when they fall due. Liquidity risk is very low as the Group and the Company are both active in state-regulated heat supply activities. Heat generators have a 30-day settlement period. The contractual maturity of the Group's and the Company's financial liabilities to banks and suppliers based on undiscounted payments: Group On request Up to 3 3 months to From 1 to After 5 Total months 1 year 5 years years Amounts receivable - 25 325 - 39 - 25 364 Cash and cash equivalents - 5 550 - - - 5 550 Trade debtors - (18 548) - - - (18 548) Loans received - (692) (2 077) (7 080) (36 869) (46 718) Finance lease - (30) (91) (231) (921) (1 273) 2022-12-31 - 11 605 (2 168) (7 272) (37 790) (35 625) Company On request Up to 3 3 months to From 1 to After 5 Total months 1 year 5 years years Amounts receivable - 25 108 - - - 25 108 Cash and cash equivalents - 4 891 - - - 4 891 Trade debtors - (18 487) - - - (18 487) Loans received - (692) (2 077) (7 204) (36 745) (46 718) Finance lease - (30) (89) (223) (665) (1 007) 2022-12-31 - 10 790 (2 166) (7 427) (37 410) (36 213) Group Up to 3 3 months to From 1 to After 5 Total On request months 1 year 5 years years. Amounts receivable - 13 362 - 111 - 13 473 Cash and cash equivalents - 3 696 - - - 3 696 Trade debtors - (11 376) - - - (11 376) Loans received - (719) (2 157) (7 067) (25 591) (35 534) Finance lease - (35) (104) (255) (1 061) (1 455) 2021-12-31 - 4 928 (2 261) (7 211) (26 652) (31 196) 49 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 24. Financial assets and liabilities and risk management (continued) Company On request Up to 3 3 months to From 1 to After 5 Total months 1 year 5 years years Amounts receivable - 13 456 - 443 - 13 899 Cash and cash equivalents - 2 782 - - - 2 782 Trade debtors - (10 701) - - - (10 701) Loans received - (577) (1 732) (7 204) (25 454) (34 967) Finance lease - (34) (102) (247) (866) (1 249) 2021-12-31 - 4 926 (1 834) (7 008) (26 320) (30 236) Foreign currency risk All purchases, sales and financial debts of the Group and the Company are denominated in euro, therefore, there is no significant foreign currency risk. Capital management The main objective of capital management is to ensure that the Group and the Company meet the external capital requirements and that they maintain appropriate capital ratios in order to sustain their business and maximise the benefits for shareholders. The Group and the Company manages its capital structure and makes adjustments to it in the light of changes in economic conditions and in accordance with their operational risk characteristics. In order to maintain or change the capital structure, the Group and the Company may issue new shares, repay the capital to the shareholders. There were no changes to the capital management objectives, policy or process as of 31 December 2021 and 31 December 2022. The Law on Joint-Stock Companies of the Republic of Lithuania requires that the Group's and the Company's shareholders' equity shall not be less than 50% of its share capital. The Group and the Company meet the requirements of the Law on Companies of the Republic of Lithuania with respect to equity capital. There are no other externally imposed capital requirements for the Group and the Company. The Group and the Company measure capital using the ratio of liabilities to equity. Equity consists of ordinary shares, reserves and retained earnings attributable to equity holders of the parent company. The Group's and the Company's management have not set a specific target ratio for the ratio of liability to equity, however, the following current indicators are considered to be sufficiently good performance indicators: Group Company 2022-12-31 2021-12-31 2022-12-31 2021-12-31 Non-current liabilities (including deferred taxes and grants and subsidies) 83 504 72 787 83 229 72 379 Current liabilities 24 281 17 402 24 012 15 985 Liabilities, total: 107 785 90 189 107 241 88 364 Equity 96 101 89 745 95 842 90 290 Ratio of liabilities to equity (%) 112,16 100,49 111,89 97,87 Liabilities include all non-current (including deferred income tax liability and grants (deferred income)) and current liabilities. 50 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 24. Financial assets and liabilities and risk management (continued) Market risk External risk factors affecting the Group's and the Company's core business: the economic crisis, rising fuel prices, unfavourable legislation and regulations from the government and other authorities, local government decisions, pricing policies for products sold, inflation and the general economic downturn reducing the income of heat consumers, cyclical nature of operations, environmental requirements. To mitigate risks, the company applies a risk management model that includes risk identification, assessment, management and monitoring. An additional debt administration plan on the management of potential consumer insolvency risks has been prepared and implemented. The planned plan of additional measures is consistently implemented on a monthly basis, with good results and above projections. 25. Commitments and contingencies not included in the balance sheet In 2022, the main impact on the Company’s activity was the outbreak of the war in Ukraine on 24 February 2022, which led to higher electricity and natural gas prices, disruptions in supply chains, higher inflation and rising prices for other materials. Risks related to climate change and regulatory risks have been identified and management measures have been defined in the development strategy of AB Kauno energija for the period from 2021 to 2026. In 2022, the thermal output of the Petrašiūnai power plant's combustion units PTVM-100 No 1 and PTVM-100 No 2 was reduced in order to mitigate risks. From 2022 onwards, the rated thermal input operating on gas fuel (natural gas) and combustion plant PTVM-100 No 1 – 49.12 MW, operating on liquid fuel (fuel oil) – 48.22 MW and the rated thermal input for gas fuel (natural gas) combustion plant PTVM-100 No 2 – 49.16 MW, operating on liquid fuel (fuel oil) – 48.17 MW. On 25 September 2020, the Regulatory Council adopted Resolution No O3E-880 "On unilateral determination of heat price components of AB Kauno energija", unilaterally determining the Company's heat price components for the 2nd year of validity of the base price, including the interest of EUR 509,530 calculated in accordance with Clause 77 1 of the Heat Price Determination Methodology, which the Regulatory Council had calculated to be paid by the Company for the additional revenues from the returns to its consumers, taking into account the fact that the return of such revenues was delayed by over one year (i.e. 4 years). Disagreeing with the calculation of interest, the Company filed a complaint with the Vilnius Regional Administrative Court, but the court dismissed the Company’s complaint by the decision of 22 April 2021. In view of the above, the Company has lodged an appeal to the Supreme Administrative Court of Lithuania. On 19 October 2022, the Supreme Administrative Court issued a decision reversing the decision of the Vilnius Regional Administrative Court of 2 June 2022. The complaint of the complainant public limited liability company Kauno energija was partially satisfied . The part of sub-paragraph 1.11 of the Resolution of the State Energy Regulatory Council of the Respondent No O3E-761 of 31 August 2020 “On recalculation of heat price additives of AB Kauno energija” , by which it recognised the infringement of point 771 of the Heat Price Determination Methodology of the State Commission for Control of Prices and Energy No O3-96 approved by the State Commission for Control of Prices and Energy of 8 July 2009 for the period between December 2018 and November 2019 was annulled. (inclusive). The remaining part of sub-paragraph 1.11 of the Resolution of the State Energy Regulatory Council of 31 August 2020 No O3E-761 “On recalculation of heat price additives of AB Kauno energija” remained unchanged. Sub-paragraph 4.2 of Resolution No O3E-880 of 25 September 2020 of the Respondent State Energy Regulatory Council and the State Energy Regulatory Authority “On unilateral determination of heat price additives for AB Kauno energija” was annulled. Following the court decision, the amount of interest to be refunded to consumers is reduced by EUR 124,780 and the amount to be refunded to consumers is EUR 384,750. DNSB Rotušės 10 has filed a claim against the Company for the removal of the heat supply network from the building at Rotušės a. 10, Kaunas, and for compensation for damages in the amount of EUR 86 139.74. 51 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 25. Commitments and contingencies not included in the balance sheet (continued) In its decision of 7 February 2023, the Kaunas Regional Court dismissed the claim. On 6 March 2023, DNSB Rotušės 10 lodged an appeal, which is pending. Leases and contracts for the purchase of works The Group's and the Company's future obligations under the purchase contracts in force at 31 December 2022 amount to EUR 33,494 thousand. Guarantees As at 31 December 2022 the Group and the Company have not issued any guarantees. 26. Related party transactions The parties are considered to be related if one party can control the other party or has significant influence over the other party in making financial or operational decisions. On 4 December 2020, the Company and other companies controlled by Kaunas City Municipality signed an agreement on the establishment of UAB Kauno miesto paslaugų centras. (Note 7) In 2022 and 2021, the Group and the Company did not have any significant transactions with other companies controlled by Kaunas City Municipality, except for the purchase or provision of utility services. Transactions with Kaunas City Municipality and companies controlled by Kaunas City Municipality were carried out at market prices. A list of countries related to Kaunas City Council can be found here: http://www.kaunas.lt/administracija/struktura-ir-kontaktai/pavaldzios-imones-ir-istaigos/. In 2022 and 2021, the Group's and the Company's transactions with Jurbarkas City Municipality, Kaunas City Municipality and companies financed and controlled by Kaunas City Municipality, and their debts and liabilities as at the end of the periods were as follows: 31 December 2022 Purchases Sales Amounts Amounts payable receivable Kaunas City Municipality, companies 1 234 8 345 3 105 253 financed and fully managed by it Jurbarkas district municipality 15 292 14 3 31 December 2021 Purchases Sales Amounts Amounts payable receivable Kaunas City Municipality, companies 897 3 120 826 206 financed and fully managed by it Jurbarkas district municipality 10 132 2 2 Sales include the amounts of reimbursements for housing heating costs, cold water and sewage costs, and hot water costs for financially challenged residents. The Group and the Company have made an impairment allowance of EUR 253 thousand as at 31 December 2022 (on 31 December 2021: EUR 253 thousand) in respect of receivables from companies financed from municipal budgets. Receivables are not secured by collateral or other instruments and will be settled in cash. No guarantees have been obtained for receivables. On 31 December 2022 and 31 December 2021 the Company's transactions with subsidiaries and the balance sheet balances at the end of the period were as follows: 52 AB „KAUNO ENERGIJA“ Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company's financial statements for the 12 months of 2022 (in thousands euro, unless specified otherwise) 26. Related party transactions (continued) AB Petrašiūnų katilinė Purchases Sales Amounts Amounts payable receivable 31 December 2022 839 - - - 31 December 2021 746 10 644 - Amounts UAB GO Energy LT Purchases Sales receivable Amounts payable 31 December 2022 426 162 65 83 31 December 2021 77 12 43 - UAB GO Energy LT provides real estate management services to AB Kauno energija and participates in unregulated energy development projects together with its parent company. Management's salary and other benefits On 31 December 2022 the Group's and the Company's management consists of 2 and 1 persons (3 and 1 at 31 December 2021) respectively. Group Company 2022-12-31 2021-12-31 2022-12-31 2021-12-31 Wages and salaries charged to the management 103 89 97 78 Reimbursements of employee benefits calculated for the management - - - - During 2021 and 2022, there were no loans, guarantees, other disbursements or accruals to the management of the Group and the Company, or transfers of assets. 27. Events after the date of the balance sheet There have been no other events after the reporting date that could have a material effect on the financial statements or that should be disclosed in the financial statements. *** AB Kauno energija Code of legal entity 235014830 Raudondvario av. 84 Kaunas, Lithuania AB KAUNO ENERGIJA CONSODATED ANNUAL REPORT OF THE YEAR 2022 AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 54 CONTENTS 1. Reporting period of the consolidated annual report ................................................................................ 55 2. Companies composing the group of companies and their contact details .............................................. 55 3. Nature of core activities of the companies composing the group of companies ..................................... 56 4. Issuer’s agreements with credit institutions ............................................................................................. 56 5. Trade in securities of companies composing the group of companies in regulated markets .................. 56 6. Overview of the condition, performance, and development of the group of companies ......................... 57 6.1. Overview of the condition, performance, and development of the group of companies ......................... 57 6.2. Description of exposure to key risks and uncertainties the company confront with and their impact on activity results ................................................................................................................................................... 60 7. Analysis of financial and non-financial performance results, information related to environmental issues 62 8. References and additional explanations .................................................................................................. 68 9. Significant events after the end of the reporting period ........................................................................... 68 10. Plans and forecasts of activities of the group of companies ................................................................... 68 11. Information on research and development activities ............................................................................... 69 12. Information on own shares acquired and held by the issuer ................................................................... 71 13. Information on the aims of financial risk management, hedging instruments in use ............................... 71 14. Information on the issuer’s subsidiary undertakings ............................................................................... 71 15. Structure of authorized capital ................................................................................................................. 72 16. Data on shares issued by the issuer ....................................................................................................... 72 17. Information on the issuer’s shareholders................................................................................................. 74 18. Employees ............................................................................................................................................... 76 19. Procedure for amending the issuer’s statutes ......................................................................................... 78 20. Issuer’s management bodies ................................................................................................................... 78 21. Information on significant agreements ..................................................................................................... 82 22. Information on agreements of the issuer and its managerial body members or employees ................... 82 23. Information on major transactions with related parties ............................................................................ 83 24. Information on harmful transactions concluded on behalf of the issuer during the reporting period ...... 83 25. Information on compliance with the governance code of companies and the company’s corporate social initiatives and policies ....................................................................................................................................... 83 26. Data on publicised information ................................................................................................................ 83 Annex 1 – AB Kauno Energija Remuneration Report for 2022......................................................................85 Annex 2 – Company’s report on the compliance with the Governance Code for the companies listed on the Stock Exchange Nasdaq Vilnius.............…………………………………………………….……............…….. 87 AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 55 1. Reporting period of the Consolidated Annual Report Reporting period for which the AB Kauno Energija Consolidated Annual Report has been prepared is January 1, 2022 – December 31, 2022. 2. Companies consisting the Group of companies and their contact details AB Kauno Energija (hereinafter – the Company or the Issuer) prepares both the Company’s and the Consolidated Financial Statements. The group of companies (hereinafter referred to as the Group) consists of AB Kauno Energija and its subsidiary – UAB GO Energy LT in which the Issuer directly controls 100 per cent of the shares. Main details of the Company: Name of the Company: AB Kauno Energija Legal-organizational form: Public Limited Liability Company Headquarters’ address Raudondvario av. 84, 47179 Kaunas Code of legal entity: 235014830 Telephone (8 37) 305 650 Fax (8 37) 305 622 E-mail: info@kaunoenergija.lt Webpage www.kaunoenergija.lt Registration date and place August 22, 1997, Kaunas, Order No 513 Register manager State Enterprise Centre of Registers Kaunas Branch VAT payer code LT350148314 Main information about the subsidiaries: Company name UAB Go Energy LT Legal-organizational form Limited Liability Company Headquarters’ address Savanorių pr. 347, 49423 Kaunas Code of legal entity 303042623 Telephone (8 37) 305 693 E-mail kent@kaunoenergija.lt Registration date and place April 16, 2013, Kaunas Register manager State Enterprise Centre of Registers Kaunas Branch AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 56 3. Nature of core activities of the companies composing the group of companies The nature of core activities of the Group is manufacture and rendering of services. The Company is the parent company of the Group. The Company generates and supplies heat to consumers (for the purposes of heating and hot water production) in the cities of Kaunas and Jurbarkas and in Kaunas district Akademija town, Ežerėlis town, Domeikava village, Garliava town, Girionys village, Neveronys village, Raudondvaris village, (hereinafter referred to as Kaunas district). Also, following provisions of the Law on Heat Sector, the Company supplies hot water (is engaged in hot domestic water supplier activities) from May 1, 2010 for consumers in the cities of Kaunas and Jurbarkas and Kaunas district, who chose the Company as a hot water supplier. As of December 31, 2022, the Company supplied hot water to 786 residential buildings in Kaunas and Kaunas district, and 7 in Jurbarkas city. In addition, the Company maintains engineering structures (collectors – manifolds) and operates heat and electricity production facilities. The Group and the Company carries out a supervision of indoor heat and hot water supply systems, maintenance of heat unit equipment, repairs of heat units and other heating equipment, provides premises rental services under agreements. The Group and the Company are engaged in licensed activity in accordance with the licenses held. On February 26, 2004 the National Commission for Energy Control and Prices (hereinafter – the Commission) issued a heat supplier licence to the Company. The licence is valid indefinitely. Maintenance of indoor heat and hot water supply systems is pursued following the provisions of Article 20 of The Law on Heat Sector of the Republic of Lithuania. The vision of the Group and the Company is to be an innovative, competitive, and added value for shareholders creating Company engaged in heat and cooling generation and their centralized supply, maintenance of indoor heating and hot water systems. Values of the Group and the Company: • More than 50 years of experience in heat production and supply. • Responsibility towards consumers for reliable heat and hot water supply. • High qualification of employees allowing to reach the highest efficiency indicators. • Ability to apply innovative solutions in everyday activities. Strategic goals of the Group and the Company: AB Kauno Energija is the most advanced and innovative district heating (hereinafter – DH) company in Lithuania. Principled guidelines of Company’s heat economy strategy are as follows: • Increase of safety and reliability of heat supply – the Company intends to formulate an expert assessment of safety / vulnerability of heat supply system, to implement update and modernization of system of parameters data transfer, collection and evaluation, to implement optimization of the network hydraulic mode and increase of speed of parameters reaction / change, to reconstruct and optimize sections of termofication pipelines and elements (average age of DH pipelines reaches approximately 30 years), to implement update and development of the system of DH network water reserve – emergency replenishment, to implement technical solutions and / or use a good practice increasing reliability and safety, ensuring stability of thermofication mode; • to actively participate in formation of policy of Kaunas city supply with heat and in increase of Company’s desirability and in expansion of district heating market. • formation of good practice and its publicizing. 4. Issuer’s agreements with credit institutions On September 13, 2018 the Issuer Service Agreement was signed with AB SEB Bankas (company code 112021238, Gedimino pr. 12, Vilnius). 5. Trade in securities of companies composing the Group of companies in regulated markets 20,031,977 (twenty million thirty-one thousand nine hundred seventy-seven) of the Issuer’s ordinary registered shares (VP ISIN code LT0000123010) with the total nominal value equal to EUR 34,855,639.98 (thirty-four million eight hundred fifty-five thousand six hundred thirty-nine euro and 98 cents) were listed in the secondary trade list of Nasdaq Vilnius Baltic stock exchange as of December 31, 2022. The beginning of listing of the Company’s shares is December 28, 1998. AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 57 6. Overview of the condition, performance, and development of the Group of companies 6.1. Overview of the condition, performance, and development of the Group of companies In 2022, the company's focus was on achieving its strategic objectives by providing innovative, efficient, safe, economical, and sustainable heating solutions. The company's financial and non-financial objectives are to ensure the safety and reliability of its core activities; improve production efficiency; enhance the efficiency of the heat transmission system; improve access to district heating; and utilize modern, innovative tools and methods for organizing and managing heat supply and operations. The "Development Strategy of AB Kauno energija for the period of 5 years, covering the years 2022–2026, by implementing the directions of development of the energy sector" was approved by the Company's Supervisory Board on 11 July 2022. A summary of the strategy is available on the Company's website at a specific address: https://www.kaunoenergija.lt/apie-bendrove. The Company covers a major part of heat production and supply market in the cities of Kaunas and Jurbarkas and Kaunas district. Company’s generation capacities consist of Petrašiūnai power plant, 5 boiler- houses in Kaunas integrated network, 7 district boiler-houses in Kaunas district, 1 boiler-house in Jurbarkas city, 14 boiler-houses of isolated networks and 26 local gas burning boiler-houses in Kaunas city (25 of them are gas burned and 1 of them – burned with pellets), also 8 local water heating boiler-houses in Sargėnai catchment. Total installed heat production capacity of the Company consists of approx. 596 MW (including 53 MW capacities of condensational economizers), electricity generation capacities – 8.75 MW. From them 220 MW of heat generation capacities (including 17.8 MW capacities of condensational economizers) and 8 MW of electricity production capacities are in Petrašiūnai power plant. 39.4 MW of heat generation capacities (including 4.4 MW capacities of condensational economizer) is in Jurbarkas city. Total Company’s power generation capacity is 605 MW (including 53 MW of condensational economizers’ capacities). 28 per cent of heat supplied to consumers in the year 2022 was produced in Company’s heat production facilities. The rest of required quantity of heat was purchased from independent heat producers (hereinafter – IHP) in monthly auctions, according to legal acts. Starting from May 2018 an electronic heat purchasing auctions are arranged by the Energy Stock Exchange operator UAB Baltpool. Electronic auctions are carried out in accordance with the Regulations of the Heat Auctions approved by the National Energy Regulatory Council. The Schedule of the Procedure and Conditions for the Purchase of Heat from Independent Heat Producers, the Methodology for Determining Heat Prices, the Rules for the Provision of Information on Energy, Drinking Water Supply and Wastewater Treatment, Sewage and Surface Water Treatment Companies, a Summary of Conditions of Usage of Heat Transfer Networks, and a schedule of the Procedure for Publicly Disclosed Information were changed respectively. Fuel used by the Company for heat production in the year 2022 is presented in Chart 1. Chart 1 The Company purchased heat during the year 2022 from 12 IHP in Kaunas and Kaunas district as follows: from UAB Kauno Termofikacijos Elektrinė, UAB Idex Taika, UAB Idex Taika Elektrinė, UAB Lorizon Energy, UAB Ekoresursai, AB Petrašiūnų Katilinė, UAB Aldec General, UAB ENG, UAB Idex Biruliškių, UAB 29.43 23.91 21.1 33.4 12.1 70.42 75.84 78.61 64.4 85.2 0.15 0.25 0.29 2.2 2.7 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2018 y. 2019 y. 2020 y. 2021 y. 2022 y. Fuel structure, per cent Natural gas Solid biofuel Biogas and other fuels AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 58 “Ekopartneris”, UAB Foksita and UAB Kauno Kogeneracinė Jėgainė. Total purchases consisted of 1017 thousand MWh of heat, i.e., 72 per cent of heat supplied to the. Amounts of heat purchased from IHP and produced with Company’s equipment during the period of the years 2018–2022 are presented in chart 2, thousand MWh: Chart 2 The Company supplied this produced and purchased heat with integrated and local heat supply networks to 4,026 businesses and organizations as well as to 119,301 households, in total – to 123,327 consumers (objects by addresses) as of December 31, 2022. Chart 3 Investments Investments are made in accordance with Company’s investment plan for the year 2022, which has been approved by decision No T-221 of Kaunas City Municipality Council of April 26, 2022 “Regarding investment plan of AB Kauno Energija for the year 2022 and its financing” (hereinafter – Investment plan). The Company makes investments based on an assessment of the economic situation, the competitive environment and the availability of financing. Investment plans are approved by the Board of Directors and coordinated by the Kaunas City Municipal Council. 571.7 515.6 442.4 483.8 396.8 872.9 847.6 869.4 1104.7 1017.1 0 200 400 600 800 1 000 1 200 1 400 1 600 1 800 2018 y. 2019 y. 2020 y. 2021 y. 2022 y. Heat purchase and production, thous.MWh Heat productions in own facilities Heat purchsased from IHP 96.74% 3.26% Repartition of Company's heat consumers by groups Units of residential households (inhabitants) Other consumers AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 59 The Company implements trunk pipeline replacement projects, optimizes pipeline diameters, connects new objects to the DH network and modernises heat production facilities according to Investment plan. 2022 February 10 The company has signed a grant agreement with the Environmental Project Management Agency of the Ministry of Environment of the Republic of Lithuania for the financing of the project “Utilization of Solar Heat Energy in the Neveronių DH System” by providing a subsidy for the financing of projects with the funds of the climate change program. Up to EUR 0.086 million will be allocated for this project subsidy, financing up to 25 percent of the project eligible costs. The Petrašiūnai Power Plant now has some of the tallest objects in Kaunas – the new 80.6 metre high chimney. The reconstruction of the old brick chimney of Petrašiūnai Power Plant, which has been in operation for more than 70 years, started in the spring of 2022. The new 80.6 metre high chimney, weighing 76 tonnes, is made of sheet steel and incorporates an oscillation damper. It’s outer diameter reaches 2.7 metres. Inside, the chimney is fitted with a stainless steel liner with an internal diameter of 2 metres. The value of the chimney reconstruction amounts to EUR 960 thousand. The company has successfully implemented another modernisation project, which has increased the efficiency of the biofuel boiler plant at the Petrašiūnai power plant. This was accomplished using a 2.4 MW absorption heat pump with a second stage smoke condensing economiser. After the implementation of the modernisation project, the efficiency of the biofuel boiler plant was raised by about 10%. Even more purified smoke, predominantly water vapour, is now discharged into the environment as a result of the installation of a second-stage smoke condensing economiser. According to current research, they contain extraordinarily low amounts of particulate matter, only 20 mg/m3. In 2022, the Company acquired a biofuel boiler plant in Garliava with a capacity of 6.5 MW. Additionally, the Company reconstructed 14.4 km of worn-out heat networks and installed 3.8 km of new ones in the city. These projects amount to a total of EUR 16.3 million. The dynamics of consumers’ heating capacities connections to Company’s DH network and disconnections from them in 2018–2022 is shown in Chart 4. Chart 4 Dynamics of consumer’s connections and disconnections A total capacity of objects disconnected from DH network in 2022 was approx. 0.26 MW. Disconnection of heat equipment from centralized heat supply networks and the change of heating method is pursued following the order determined by the Civil Code of the Republic of Lithuania, the Law on Heat Sector of the Republic of Lithuania, the Law on Construction of the Republic of Lithuania and sub statutory legal acts implementing these Laws. Company’s investments by funding sources of the years 2018–2022 are presented in Chart 5. 0.86 0.31 0.95 0.35 0.26 4.22 14.63 14.14 7.12 25.21 0 5 10 15 20 25 30 2018 y. 2019 y. 2020 y. 2021 y. 2022 y. Capacities disconnected, MW Capacities connected, MW AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 60 Chart 5 6.2. Description of exposure to key risks and uncertainties the Company confront with and their impact on activity results External risk factors affecting the Company’s core business: • Increase in competition between heat producers in Kaunas. • Increase in final (i.e., including all expenditures) price of natural gas and biofuel. • Ever-changing legal environment. • Heat production pricing policies. Competition environment risk factors. To operate effectively and reliably in creation the added value for shareholders, the Company is facing threats specific to the sphere of its activity, but also takes advantage of opportunities to work efficiently and effectively by exploiting the available potential. One of the biggest threats that the Company may face is a relatively high price for heat purchased from IHP, who are ranked as private business units committed to profit generation. Purchase of heat is pursued following valid law and the Description of procedure for purchase of heat from independent suppliers of heat approved by NERC. In turn, the Company invests extensively in modernization and construction of its own manufacturing facilities, to reduce the comparative costs of heat production. Thus, it takes advantage of the regulatory environment and reduces the energy purchase price. Together with coming of new IHP the Company faced additional technical, economical, legal and other issues that needs to solve: management of heat supply network and balancing of power of these producers in case of emergency stop of them, retaining of optimum working parameters of the network, regulation, change and applying of heat purchase from IHP order. Commercial risk factors The Company is a major supplier of the heat produced centrally to the city of Kaunas, part of Kaunas district and the city of Jurbarkas. To retain this market, it is necessary to implement modern and efficient heat production technologies in own production facilities and to focus on production at the lowest cost, benefiting from private differences of different types of fuel. Company’s heat sales are directly dependent on heat demand, i.e., heat consumption, which is mostly affected by the average outdoor air temperature, the amount of investment of consumers in energy-saving and rational use of heat and the pace of development of the heat sales. Changes in fuel prices and the price of heat, produced by IHP have an impact on cost of Company’s heat and electricity production. 2.597 12.111 3.883 2.685 10.082 1.486 1.082 10.538 6.834 10.134 8.799 6.922 4.497 0.108 4.083 21.992 21.343 14.016 20.324 0 5 10 15 20 25 0 5 10 15 20 25 2018 y. 2019 y. 2020 y. 2021 y. 2022 y. Implementation of investments by funding sources, million euro Company funds Loans Different funds Total AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 61 Company’s performance is affected by the decrease in sales due to reduced and further decreasing heat demand (in pursuance of residential buildings renovation and by installing a heat saving equipment), due to consumer’s disconnections from DH network (due to the various reasons). Risks can be mitigated by Company’s current and further investments in heat and electricity production facilities, using renewable energy sources, reducing heat production expenditures and the price heat, purchased from IHP as well as the price of heat supplied for consumers, and continually reasonably informing customers on the benefits of DH network systems (safety, reliability, correlation with one sort of fuel, fuel conversion, local pollution sources in residential areas, total environmental pollution, etc.) in comparison with autonomous heating. Operational risk During the year 2022 in comparison with the year 2021 heat consumers’ debts decreased by approx, 3.0% and consisted of EUR 4.786 million. Decrease was affected by application of effective methods of debts administration. To recover these debts as soon as possible, the Company actively uses a variety of legal debt management measures, such as pre-trial actions, judicial recovery, and cooperation with law Companies. In addition, when a debt becomes big, a restriction of heat supplies is applied as a prevention measure (if there are technical possibilities and according to the law). On January 2, 2018 the Kaunas Unified Service Center “Mano Kaunas” started its operations in Statybininkų str. 3, Kaunas, at the premises of UAB Kauno Švara. Here residents can get immediate information / consultation about Kaunas city services provided by municipality owned companies – AB Kauno Energija, UAB Kauno Švara, UAB Kauno Autobusai, UAB Kauno Butų ūkis, UAB Kauno Gatvių Apšvietimas and UAB Kauno Vandenys, as well as conclude contracts, pay invoices, requests, certificates, etc. Activities of the Company are cyclical. During the heating season (October – April) a major operating income is earned. During the non-heating season, the Company’s revenues are at their lowest since only heat for hot water is used. In addition, during the non-heating season, the Company incurs more costs because it must prepare for the upcoming heating season, i.e., to carry out the repairs and reconstruction of heat supply networks and heat production facilities. Legal conformity risk Energy activities are governed by the Law on Heat Sector, the Law on Energy, the Law on Electricity, the Law on Natural Gas, the Law on Drinking Water Supply and Wastewater Management, Government resolutions, Heat supply and consumption rules, Methodology of heat prices and payments for heat of NCC and other legislation. Their amendments affect the heating industry. With new amendments of articles 2, 3, 20, 22, 28, 31, and 32 of the Law on Heat Sector No XI-1608 of the Republic of Lithuania that came in affect from November 1, 2011 in accordance with Article 7, the heat and hot water prices may not include any costs related with the indoor building heating (including heat units), and hot water systems. In implementing the legislation, from November 1, 2011 all these costs directly reduce the profit of the Company. Legal conformity risk is a risk of increase in losses and (or) loss of prestige, an (or) decrease in confidence, which can be determined by the external environment factors (for example, violation of external legal acts, non-compliance of requirements of supervising institutions, etc.) or internal factors (for example, violation of internal legal acts and ethical standards, cases of employee’s abuse, etc.). Technical and process factors The biggest process risks are related to the condition of heating systems. Company’s trunk pipelines are an average about 30 years old. Modernization rate of them is determined by lack of funds – it is necessary to reconstruct more than 13.5 km of pipelines per year to condition of age of heat supply system and the minimum investments should consist of approximately 6 million euros. Hydraulic testing identifies their weakest points. Every year, about 200 points where cracks occur are identified during the tests. Upon discovery of defects, pipes are exposed and promptly repaired. Main heating networks in the most worn-out places are reconstructed using support from the EU Structural Funds. New industrially (polyurethane foam insulation in polyethylene shell) insulated pipes not requiring AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 62 concrete channels are mounted in the reconstructed sections of the heat supply network. Heat loss is very low in reconstructed sections (process level), while the pipelines no longer pose a threat of rupture and ensure reliable heat supply to consumers. One of the technical risk factors for heat generation facilities is their age. Some of heat generation facilities are already renewed now. Every year boiler repairs, and preventive work is carried out during the non- heating season. They are necessary to ensure secure heat supplies and reliability, i.e., securing of heat production facilities and fuel reserves. More detailed information on Company’s production facilities modernization is provided in chapters on operations and development. Ecological factors With respect to the Company, they may be divided into those affecting the Company and affected by the Company’s operations. In order not to adversely impact the environment and comply with the pollution limits, vibration and noise values, the Company is guided by the requirements of the Kyoto Protocol, the Helsinki Commission (HELCOM) and environmental constraints of Helsinki Convention, as well as the European Parliament and Council Directive 2001/80/EB of regulating energy emissions and Lithuanian environmental normative document LAND 43-2013 for the use of natural resources, and releases and emissions of air pollutants to the environment in its activities. Main sources of pollution of the Company: burning fossil fuel in the Company's heat sources, production of heat and wastewater, are used in the industrial processes. The Company pays taxes for atmospheric and water pollution. If allowable emission rate limits or annual limits are exceeded, the Company would pay the fines under the applicable laws of the Republic of Lithuania. The Company was not imposed any penalties in the year 2022. Main Company’s emission reduction measures: modernization of heat generation facilities, heat transfer loss reduction by replacing the existing pipes with the pipes with polyurethane foam insulation, installation of new technology and improvement of existing technological equipment, use of less polluting fuels, and continuous emission monitoring. Additional efforts by the company to reduce CO2 emissions: • Green procurement. We choose suppliers not only on the basis of the price and the quality of goods, services or works, but also on the basis of the reduced impact they have on the environment. • The Company is currently implementing an environmental management system (ISO 14001:2015). It assists in the systematic management of the direct and long-term environmental impact of the activities and consistently addresses the relevant environmental issues of the Company. With this system in place, we will be able to increase green procurement. • We are renewing our fleet of vehicles giving preference to electric and hybrid cars. We have purchased 8 electric cars. • We sort waste generated in production and administrative activities and transfer it to waste managers in accordance with the established procedure. We have also removed rubbish bins in the offices in the administration building and dispose rubbish in the sorting bins in the common corridors. This encourages employees to recycle and has reduced the amount of bins and bags (plastics) used. • The company is taking the initiative to inform the public about energy-saving measures in order to reduce air pollution. We regularly raise the awareness of the public by writing informative articles about renewable energy sources, their benefits for nature and people, informing what modern technologies are used by our company and how they contribute to climate change mitigation. • Employees of the Company are also encouraged to come to work with less polluting vehicles, to cooperate as much as possible and to travel to work with a single vehicle for several colleagues. 7. Analysis of financial and non-financial performance results, information related to environmental issues Company’s sales revenue of the year 2022 was EUR 87,013 thousand and in comparison, with the year 2021 increased by 70.7 per cent (in the year 2021 it consisted of EUR 50,981 thousand). Sales revenue of AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 63 the Group of the year 2022 was EUR 87,992 thousand (in the year 2021 it consisted of EUR 50,963 thousand). The average price of heat sold increased by 96.4 percent (in the year 2022 it was 7.13 ct/kWh, and in the year 2021 – 3.63 ct/kWh). Comparison of financial indicators of the Group of the year 2022 with the indicators of the years 2018–2021 is presented in Table 1. Table 1 No Indicator of the Group 2018 2019 2020 2021 2022 1 Revenue from sales, thousand euros 61,316 54,649 42,030 50,963 87,992 1.1 Including: Heat energy 57,387 49,711 37,147 47,125 81,338 1.2 Cooling supply 0 0 0 2 10 1.3 Maintenance of indoor heating and hot water supply systems, heating substation facilities 11 12 11 12 17 1.4 Income from the maintenance of collectors 250 251 268 348 348 1.5 Hot water supply including cold water price 3,260 3,228 2,935 3,014 5,742 1.6 Income from maintenance of hot water meters 408 422 433 456 487 1.7 Revenue from the sale of trading emission allowances - 1,025 1,236 6 50 2 Profit, thousand euros 3,963 933 -152 72 6,356 3 EBITDA (earnings before interest, taxes, depreciation and amortization), thousand euros 12,417 8,816 8,202 7,541 13,177 4 Profitability of core business, per cent (operating profit / sales and services) * 100 6.4 1.2 -5.7 -0.6 6.6 5 Net profitability, per cent (net profit / sales and services) 100 6.5 1.7 -0.4 0.1 7.2 6 Assets, thousand euros 148,266 154,096 162,903 179,934 203,886 7 Equity, thousand euros 89,967 89,829 89,673 89,745 96,101 8 Return on equity (ROE), per cent (net profit / average equity) 100 4.7 1.1 -0.2 0.1 6.9 9 Return on assets (ROA), per cent (net profit / average assets) 100 2.8 0.6 -0.1 0.0 3.6 10 Asset turnover ratio (sales and services / assets) 0.41 0.36 0.26 0.28 0.43 11 Return on tangible assets, per cent (net profit / average value of tangible assets) 100 3.2 0.7 -0.1 0.1 4.3 12 Debt ratio (liabilities /assets) 0.39 0.42 0.45 0.50 0.37 13 Debt-to-equity ratio (liabilities / equity) 0.6 0.7 0.8 1.0 0.8 14 General liquidity ratio (short-term assets / short-term liabilities) 1.58 1.03 0.86 1.33 1.46 15 Quick ratio ((short-term assets- inventory) / short-term liabilities) 1.47 0.92 0.75 1.23 1.34 16 Cash ratio (cash in hand and at bank / short-term liabilities) 0.60 0.16 0.14 0.21 0.21 17 Net earnings per share (net profit / average weighted number of shares in issue) 0.09 0.02 0.01 0.00 0.14 18 Equity per share, euros 2.1 2.1 2.1 2.1 2.1 AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 64 No Indicator of the Group 2018 2019 2020 2021 2022 19 Last share market price of the year /net profit /number of shares at year- end (P / E ratio) 10.80 45.97 -232.31 656.89 7.44 20 Share capital, thousand euros 74,476 74,476 74,476 74,476 74,476 21 Share capital-to-assets ratio 0.5 0.49 0.46 0.41 0.37 22 Return on equity (capital), per cent (net profit / capital and reserves) 100 4.9 1.1 -0.2 0.1 7.5 23 Dividend pay-out ratio (dividend per share / earnings per share) 0.28 0.0 0.0 0.0 Comparison of financial indicators of the Company of the year 2022 with the indicators of the years 2018– 2021 is presented in Table 2. Table 2 No Indicator of the Company 2018 2019 2020 2021 2022 1 Revenue from sales, thousand euros 61,328 54,659 42,036 50,981 87,013 1.1 Including: Heat energy 57,399 49,721 37,153 47,133 81,458 1.2 Cooling supply 0 0 0 2 10 1.3 Maintenance of indoor heating and hot water supply systems, heating substation facilities 11 12 11 12 17 1.4 Income from the maintenance of collectors 250 251 268 348 348 1.5 Hot water supply including cold water price 3,260 3,228 2,935 3,024 4,643 1.6 Income from maintenance of hot water meters 408 422 433 456 487 1.7 Revenue from the sale of trading emission allowances - 1,025 1,236 6 50 2 Profit, thousand euros 4,414 747 57 457 6,299 3 EBITDA (earnings before interest, taxes, depreciation and amortization), thousand euros 12,227 7,946 7,811 7,170 12,873 4 Profitability of core business, per cent (operating profit / sales and services) * 100 6.8 0.7 -2.8 0.2 6.2 5 Net profitability, per cent (net profit / sales and services) 100 7.2 1.4 0.1 0.8 7.2 6 Assets, thousand euros 145,402 151,595 161,250 178,654 203,083 7 Equity, thousand euros 90,099 89,776 89,833 90,290 95,842 8 Return on equity (ROE), per cent (net profit / average equity) 100 5.12 0.87 0.07 0.43 6.61 9 Return on assets (ROA), per cent (net profit / average assets) 100 3.1 0.5 0.0 0.2 3.0 10 Asset turnover ratio (sales and services / assets) 0.42 0.36 0.26 0.29 0.43 11 Return on tangible assets, per cent (net profit / average value of tangible assets) 100 3.7 0.6 0.0 0.3 4.0 12 Debt ratio (liabilities /assets) 0.38 0.41 0.44 0.49 0.37 13 Debt-to-equity ratio (liabilities / equity) 0.6 0.7 0.8 1.0 0.8 14 General liquidity ratio (short-term assets / short-term liabilities) 1.65 1.07 0.91 1.36 1.40 AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 65 No Indicator of the Company 2018 2019 2020 2021 2022 15 Quick ratio ((short-term assets- inventory) / short-term liabilities) 1.54 0.95 0.80 1.27 1.33 16 Cash ratio (cash in hand and at bank / short-term liabilities) 0.62 0.14 0.14 0.17 0.20 17 Net earnings per share (net profit / average weighted number of shares in issue) 0.10 0.02 0.02 0.01 0.14 18 Equity per share, euros 2.11 2.1 2.1 2.11 2.1 19 Last share market price of the year / net profit / number of shares at year- end (P / E ratio) 9.70 57.3 619.5 103.49 7.51 20 Share capital, thousand euros 74,476 74,476 74,476 74,476 74,476 21 Share capital-to-assets ratio 0.51 0.49 0.46 0.42 0.37 22 Return on equity (capital), per cent (net profit / capital and reserves) 100 5.4 0.9 0.1 0.5 7.4 23 Dividend pay-out ratio (dividend per share / earnings per share) 0.25 0.0 0.0 0.0 The more detailed analysis of financial indicators of the Group and the Company is provided in the Consolidated and Company’s financial statements for the year 2022. Environmental impact on operations The Company’s performance can be affected by changes in sales turnovers caused by changed heat demand, which can be caused by consumer investments in the renovation of buildings, heat saving and rational consumption, average higher of lower outdoor temperature during the heating season, changes in fuel prices, heat purchase price from IHP. Company’s reconstructed heat production facilities changing fossil fuel to biofuel will make a serious competition with their costs of production to IHP, operating in Kaunas. The dynamics of heat price of the Company in the years 2018–2022 is provided in Chart 6. Chart 6 Constituents of Company’s heat price structure of December of the years 2018–2022 are provided in Chart 7. 4.99 4.57 3.55 3.63 7.13 0 1 2 3 4 5 6 7 8 2018 y. 2019 y. 2020 y. 2021 y. 2022 y. Average price of heat, supplied by AB Kauno energija, ct/kWh AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 66 Chart 7 The prices of heat and hot water are calculated and approved in accordance with the Methodology for the determination of heat prices, approved by the resolution of NERC No. O3-96 of July 8, 2009. Constituents of a base heat price are determined for a period of 3-5 years. In the case of regulated pricing services (products), the mechanism of long-term prices applies to heat pricing, i.e., for the base period, the base heat price (price constituents) is determined, which is adjusted for the second and subsequent years by setting the recalculated heat price (price constituents). On September 25, 2020 the NERC determined unilaterally by the Resolution No. O3E-880 the heat price constituents of AB Kauno Energija for the second year of validity of the basic heat price. The constant constituent of the heat price, valid until October 30, 2020 amounted to 1.81 ct/kWh, and the new constant constituent that entered into force from November 1, 2020 and is currently in force is 1.88 ct/kWh. Chart 8 The Company recalculates values of heat price variable constituents and final heat prices every month, considering changes in prices of fuel and purchased heat. 3.09 2.58 1.55 2.98 7.10 1.42 1.42 1.33 1.41 1.41 0.39 0.39 0.47 0.47 0.47 0 2 4 6 8 10 2018.12 2019.12 2020.12 2021.12 2022.12 Structural constituents of the heat price, ct/kWh Variable component Constant component Profit Current Expenses of repair and maintenance; 0.17 Depreciation (amortization); 0.42 Personnel expenses; 0.64 Return on Investments; 0.47 Tax expenses; 0.12 Expenses of sales and marketing; 0.01 Administrative expenses; 0.02 Financial expenses; 0.02 Other distributable expenses; 0.01 Heat price constant constituent, euro ct/kWh AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 67 Details of variable heat price constituent valid on December 2022 are provided in Chart 9. Chart 9 Information related to environmental issues In carrying out their activities, the Group and the Company seek to prudently use natural resources, install fewer polluting technologies, and follow the environmental legislation and apply preventive measures to minimize the negative impact on the environment. Waste management The Group and the Company have organized the waste collection, sorting, and disposal of them to waste managers, i.e., to licensed waste management businesses. In 2022, the Group and the Company disposed for recycling 1,552 tons of various waste (absorbents, filter materials, packages containing hazardous chemicals or that are contaminated with them, paper and carton, insulation materials containing asbestos, used tyres, bituminous mixes, batteries and accumulators, fluorescent lamps, concrete, bottom ash, iron, and steel. The Company successfully transferred 574.9 tonnes of production waste ash from the Ežerelis and Nemunas boiler house and the Petrašiūnai power plant to be used as a by-product for the production of road base mix and fertilization of plantation forests, in accordance with the agreed by-product plans with the Environmental Protection Agency. Wastewater management In accordance with the schedule agreed with the Environmental Protection Agency (EPA), the Group and the Company constantly monitor that the effluent discharges from stationary sources are within the permissible limits set out in the integrated pollution prevention and control permits. Air pollution The measurement laboratory of stationary air pollution sources of the Group and the Company, in possession with the permit issued by the EPA and following the schedule agreed with EPA, continuously monitors the emissions to the atmosphere from stationary sources to would not exceed the permissible limits established in integrated pollution prevention and control permits. Company’s Šilkas, Ežerėlis, Girionys and Noreikiškės boiler-houses, and starting from 2015 – Inkaras boiler-house and Petrašiūnai power-plant use biofuel, thus reducing atmospheric pollution. The comparison of the amount of pollutants emitted into the atmosphere in 2022 from the Company’s stationary facilities with the amount of the years 2018–2021 is presented in table 3 below. Fuel for technology; 33.29% Expenses of purchased heat; 46.69% Expenses of transfer technological losses; 18.76% Electric energy for technology; 1.13% Expenses of heat, used for self purposes; 0.14% Heat price variable constituent in December 2022, per cent AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 68 Table 3 Period Particulates, t Nitrogen oxides, t Carbon monoxide, t Sulphur dioxide, t Hydrocarbons, t Other pollutants, t 2022 51.5130 159.8142 796.3571 60.3571 2.0144 0.3117 2021 72.9579 196.5479 781.2462 158.4375 1.2315 0.2966 2020 98.6841 217.8864 884.9974 102.9845 1.1430 0.2801 2019 86.0888 253.4443 1090.2436 0.2746 1.1978 0.4313 2018 48.7984 283.0412 1082.9366 31.6210 1.1982 0.1509 Cyclones for smoke cleaning from particulates are installed in Šilkas, Ežerėlis, Girionys, Noreikiškės, Inkaras boiler-houses and Petrašiūnai power-plant. Their working efficiency is checked every year. The Company is involved in the greenhouse gas emissions trading system. 8. References and additional explanations Main financial data of the Group and the Company are provided in the Consolidated and Company’s Financial Statements of AB Kauno Energija for the year 2022. The financial statements are prepared in accordance with the International Financial Reporting Standards as adopted by the European Union and their interpretations. Standards have been issued by the International Accounting Standards Board and interpretations have been issued by the International Financial Reporting Interpretations Committee. Internal control over consolidated statements When preparing its consolidated financial statements, the Company combines the itemised financial statements of the Company and its subsidiaries, by summing up the items of assets, liabilities, equity, revenue, and expenses. Afterwards, it eliminates the book value of the Company’s investment in the subsidiary and Company’s share of equity in the subsidiary; amounts on balance sheets, transactions, income and expenses inside the Group (for this purpose, it prepares a reconciled report of all transactions, income and expenses for the period); difference in depreciation of contribution in kind measured at market value as compared to its book value. For composing of the consolidated financial statements of the Group, the financial statements of the Company and subsidiaries are composed for the same date. It’s controlled if the accounting policy of the Company and its subsidiaries for accounting of similar transactions is the same. The subsidiaries’ income and expenses are included into the Consolidated Financial Statements as of the date of acquisition. 9. Significant events after the end of the reporting period On 4 April, 2023 the audit of the set of Financial Statements for 2021 has been completed. It was performed by audit company UAB ROSK Consulting. A candidacy of the company performing audit of the Financial Statements of the Company for 2022 was nominated to the General Meeting of Shareholders by the Management Board of the company following the results of the procurement carried out in 2021. 10. Plans and forecasts of activities of the group of companies As investments allow continual business development and profitability, the aims of the Group’s and the Company’s investment program for the year 2022 is further increase in volumes of heat production and effectiveness, expansion of heat selling market, through increase of use of biofuel for heat production, development of heat transmission and distribution increasing safety and reliability, developing services of maintenance of engineering systems and further improvement of consumers services quality. AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 69 In compliance with the provisions of the plan for the facilities on the implementation of the National Renewable Energy Development Strategy, in order to implement the Company’s key business objectives and the provisions of the National Energy Independence Strategy related to the assurance of technical requirements for reliability of heat facilities and heat supply networks, to guarantee the quality keeps apply to consumers, Kaunas city municipality decided to approve Company’s investment plans with the decision No. T-221 “Regarding Investment Plans of AB Kauno Energija for the Year 2022 and Their Financing” on April 26, 2022. In 2022 the implementation of Company’s investment program will involve further modernization of boiler- houses owned by the Company automating the production process and installing condensational economizers; reconstruction of heat networks; replacement of heat meters. It’s important to notice, that implementation of these measures will allow to reduce losses of heat transmission and to perform optimization of heat supply to the consumers and to ensure heat supplies reliability. 11. Information on research and development activities In September 2021 the Company performed its rebranding. The new Company’s brand is associated with constant movement, which requires constant, never-ending energy. The circles on the new sign symbolize the Perpetuum mobile model, known to many, in which a side ball, when it strikes the inside, transfers the energy of motion to another side ball. And so, it goes on constantly. The new Company’s brand is this: Company’s representatives are constantly invited to work in committees of preparation of Energy Engineering studies programs of Kaunas University of Technology and in groups of external and self- evaluation. Working in these groups and committees Company’s representatives analyse aims of programs and goals of studies, composition of training plans, appropriateness of staff, material basis, process, and evaluation of studies, as well as program management. Performing external and self-evaluation, committees apply recommendations for improvement of program structures and implementation process, to satisfy the needs of employers and to meet the requirements of national and European legal acts in the field of higher education. On January 15, 2019 the European Commission has proposed EUR 1.66 million support for project No. 847056 “Residential Building Energy Renovations with On-Bill Financing” (Ren-on-Bill). The application for financing of the project was submitted under the Horizon 2020 program. The Company participates in the project as a partner with 8 other companies from Lithuania, Italy, Germany, Belgium, and Spain. The project is coordinated by Creara Consultores SL (Spain). EUR 71.5 thousand of EU support is allocated for the Company. The aim of the Ren-on-Bill project is to increase investment in residential renovation by promoting the use of OBF (On-Bill Financing) utility schemes based on cooperation between energy suppliers and financial institutions. The Company, which supplies district heating to Kaunas, responding to the changes of the warming climate, enters a new district cooling market, which is still poorly tested in Lithuania. District cooling is the production and supply of district cooling by converting heat energy into cool and using the existing district heating infrastructure. One of the latest technologies to produce cooling from heat is absorption heat pumps. During a rather sophisticated technological process in them, heat energy is converted into cool, which is supplied to the premises by other devices. One of such absorption heat pumps was also acquired by the Company. The first project of the Company entering the cooling supply market is two refrigerating machines with a total power of 1576 kW, which will supply the Mokslo Sala science museum, being built on the island of Nemunas in Kaunas, with cooling facilities. The coolness of the Mokslo Sala island, with an area of 11.5 thousand square meters, will be produced by absorption heat pumps. This innovative technology, which is still in its infancy in Lithuania, converts the heat energy from the heat network's cogeneration water into cooling through a rather complex technological process. An important factor is that absorption-type machines do not use greenhouse gases The Aleksotas Innovation Industrial Park (AIPP) project in Kaunas includes plans for the installation of absorption pumps to generate heat from the city to keep it cool. The cooling equipment has AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 70 already been implemented in the Basketball House in Kaunas Old Town and an apartment building in Kęstučio Street in the city centre. Kaunas became Lithuania's first city to effectively install the breakthrough Internet of Things (IoT) network LoRa. The company created and customised one of the world's most popular IoT solutions to the demands of residents and businesses. Remote metre reading, filling of waste containers, parking lot occupancy, tree growth monitoring, and fire protection are just a few of the many uses of IoT. LoRa (Long Range) is an ultra- low-power wireless networking technology that uses radio waves to gather and transmit data from smart end devices such as hot water metres. Currently, this innovation has been successfully implemented and developed in 177 countries around the world. The major objectives for implementing the IoT network are to enhance customer service by providing smart remote reading hot water metres, removing the need for consumers to manually write off and declare metre readings, and to increase the efficiency of regulating the parameters of heating networks. Apartment buildings who have chosen Kauno energija as their hot water supply receive free smart metres. The LoRa network in Kaunas is intended to suit the demands of not just the heat supplier, but also other enterprises in the city providing maintenance or other services. The Darius and Girėnas Stadium, the largest stadium in Lithuania and one of the most modern stadiums in the Baltic States, was opened in 2022 and is exclusively and sustainably heated by the Company's city heat. This is the first heated turf project not only in the history of Lithuanian stadiums, but also in the country as a whole. The construction of the course was a joint effort between Lithuanian scientists and Swiss specialists. The lawn is comprised of several layers: a water-permeable base of crushed rock and sand, a compacted drainage system, 23 cm of heating pipes, and 20 cm of topsoil. The year-round heated hybrid lawn will enable the football season to be extended, which has been hampered by rainy weather in the past. The new lawn is designed to dry out within a few hours, even in heavy rain. The stadium area is equipped with a 1500 kW steel plate heat exchanger, and heat is distributed to the stadium just like it to the city's inhabitants – through pipelines, using heat recovery water. Once the heat reaches the heat exchanger, the energy is transferred to the water-propylene glycol mixture. It heats the lawn by circulating through 33 km of polyethylene pipes. The company has set a goal to completely eliminate the use of natural gas in heat production with gas consumption to be halved in the next three years to only 5% of total energy consumption for heat production. This will increase the use of green heat from biofuels and reduce CO2 emissions, helping to achieve the Company's long-term goals of supplying more consumers with cheaper biofuel-based heat, reducing CO2 emissions and enabling new customers to connect to the city's heat network. Minimising gas consumption will help achieve the Company's long-term goals: to supply more consumers with cheaper biofuel-based heat through more optimal utilisation of Kaunas Energy's heat production capacity; reducing emissions of CO2, which contribute to the greenhouse effect; enabling new customers to connect to the city's heat network. In 2022, two isolated networks in Aleksotas, which used to be supplied by large gas-fired boiler houses in Antanava Street and Lakūnų Plente, were connected to the Kaunas city's common (integrated) heat network via a 4-kilometre-long route. This connection accounted for about 10.5% of the Company's total gas consumption in the last heating season. In 2022, the Company plans to connect six individual boiler houses in Sargėnai, which accounted for nearly 5% of its total gas consumption, to the city's heat network. In 2023, the Company will undertake a significant heat network infrastructure development project, connecting Panemunė to the Kaunas city integrated network. The Company's three gas-fired boiler plants in Panemunė accounted for approximately 22% of the Company's total gas consumption during the 2021-2022 heating season. In Kaunas, some consumers who are located far from the common district heating network receive heat from individual gas boilers that are installed in their buildings by the Company. The Company has evaluated the feasibility of connecting each of these buildings to the common district heating network, but in cases where it is not economically viable, gas boilers will be replaced by heat pumps. Heat pumps have an advantage over gas boilers because they are more efficient and do not emit CO2 into the environment when producing heat. The Company has made consistent investments in solar power plants and Organic Rankine Cycle (ORC) power plants to reduce the annual cost of electricity that is heavily used for heat generation and supply. The ORC turbines in the biofuel boilers will generate electricity using steam from an organic liquid. In the period 2021-2022, solar photovoltaic power plants will be installed in Kaunas city and district, with a combined capacity of 600 kW. The power plants will be installed on the roofs of Petrašiūnai power plant, Plento g. 28, and Smetonos al. 65A boiler house in Kaunas city, and on the roofs of Neveronys and Raudondvaris boiler houses in Kaunas district. The total investment for this project is almost EUR 394.2 thousand, with EUR 123.6 thousand coming from the Environmental Project Management Agency (EPA). AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 71 In spring of 2023, the Company will add four building rooftop PV plants and two solar parks, which will increase the total capacity of its solar power plants to over 2 MW. There are plans to install an additional 3 MW of solar power plants by 2025, as well as ORC power plants with a total capacity of about 1.45 MW at the Company's three largest biofuel boiler plants: Petrašiūnai Power Plant, Šilko Power Plant, and Inkaro Power Plant. 12. Information on own shares acquired and held by the Issuer The Company does not hold the shares of its own. The Company’s subsidiaries have not purchased any of the Company’s shares. Neither the Company nor its subsidiaries purchased or sold own shares during the reporting period. 13. Information on the aims of financial risk management, hedging instruments in use All relevant information on this issue is provided in Explanatory Notes 2.11, 2,12, 24 to the Consolidated and Separate Financial Statements for the year 2023 of AB Kauno Energija. 14. Information on the Issuer’s subsidiary undertakings The name of Company’s subsidiary UAB Kauno Energija NT was changed by the decision of company’s shareholders. Starting from August 19, 2020 the name of the company is UAB GO Energy LT. Other details of the company remain unchanged, all concluded contracts remain valid. The authorised capital of UAB GO Energy LT registered in the Register of Legal Entities on December 31, 2022 is 2,762,958 euros and it is divided into 95,406 ordinary registered shares with par value of 28.96 euros each. UAB GO Energy LT has no holdings directly or indirectly managed in other companies. Activities of UAB GO Energy LT include the real estate development, management, leases, purchase, and sale. As of December 31, 2022, company UAB GO Energy LT had 30 employees. Comparison of financial indicators of UAB GO Energy LT for the year 2022 with the indicators of the years 2018–2021 is provided in Chart 10. Chart 10 On 2021-11-26, the Board of AB Kauno energija, which performs the functions of the sole shareholder of AB Petrašiūnų katilinė, adopted a decision to approve the reorganisation of the limited lability company Petrašiūnų katilinė by way of merger, by merging the limited lability company Petrašiūnų katilinė (company 125 146 -21 126 123 3 139 125 13 738 607 111 1646 983 411 -200 0 200 400 600 800 1000 1200 1400 1600 1800 Turnover from sales Sales costs Comprehensive income Activity results of GO Energy LT, thous. euros 2018 y. 2019 y. 2020 y. 2021 y. 2022 y. AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 72 code 304217723), which after the reorganisation will cease operating as a legal entity, to the limited lability company Kauno energija (company code 235014830), which is participating in the reorganisation. On 2 March 2022, the reorganisation process was completed, AB Petrašiūnų katilinė was deregistered and merged with the Company. 15. Structure of authorized capital The authorised capital of the Company registered in the Register of Legal Entities of the Republic of Lithuania as of December 31, 2022 is EUR 74,475,728.82 (seventy-four million four hundred seventy-five thousand seven hundred twenty-eight euros and 82 cents). Structure of authorized share capital of the Issuer by types of shares is specified in Table 4. Table 4 Type of shares Number of shares, units Nominal value, euros Total nominal value, euros Municipal share in the authorised capital, per cent Share of private shareholders in the authorised capital, per cent Ordinary nominal shares 42,802,143 1.74 74,475,728.82 98.33 1.67 16. Data on shares issued by the Issuer The authorised capital of AB Kauno Energija was registered on May 18, 2015 by the decision of General Meeting of Shareholders held on April 28, 2015 and amounts to EUR 74,475,728.82 (seventy-four million four hundred seventy-five thousand seven hundred twenty-eight euros and 82 cents) and it is divided to 42,802,143 (forty-two million eight hundred and two thousand one hundred forty-three) ordinary shares of par value of 1.74 euros each. There are no limitations on the transfer of securities. Main characteristics of shares released into free circulation of securities (as of December 31, 2022). Securities registration No A01031430 ISON code of securities LT0000123010 Number of shares 20 031 977 ordinary nominal shares Nominal value EUR 1.74 Total nominal value of shares EUR 34,855,639.98 Main characteristics of shares issued and registered for non-public trading (as of December 31, 2022). ISON code of securities LT0000128407 Number of shares 22,770,166 ordinary nominal shares Nominal value EUR 1.74 Total nominal value of shares EUR 39,620,088.84 History of trade in Company’s securities in the years 2018–2022 is provided in Table 5. Table 5 Indicator 2018 2019 2020 2021 2022 Opening price, euro 1.18 1.01 0.98 0.82 1.11 Highest price, euro 1.24 1.32 1.03 1.19 1.12 Lowest price, euro 1 0.905 0.77 0.80 0.76 Last price, euro 1 0.98 0.925 1.11 0.89 Circulation, units 147,516 40,868 89,524 147,659 64,193 AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 73 Circulation, million euro 0.16 0.04 0.07 0.15 0.06 Historical data on share prices (in euro) and turnovers in the years 2018 – 2022 is provided in Chart 11. Chart 11 Comparison of Company’s share price with the index of own sector (utility services) and OMX Vilnius index is given in Chart 12. Chart 12 AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 74 17. Information on the Issuer’s shareholders The number of Company’s shareholders as of December 31, 2022 was 630. Information on Shareholders of the Issuer who owned more than 5 per cent of the authorised capital of the Company registered on May 18, 2015 (42,802,143 ordinary nominal shares) as of December 31, 2022 is provided in Table 6 and Chart 14. Table 6 Full name of shareholder (company name, type, headquartered dress, code) Number of ordinary nominal shares owned by the shareholder, units Owned share in the authorised capital, per cent Share of votes carried by owned shares. per cent Share of votes owned by the shareholder together with acting entities, per cent Kaunas City Municipality Laisvės al. 96, 44251 Kaunas Code 111106319 39,736,058 92.84 92.84 - Other shareholders 3,066,085 7.16 7.16 - Total: 42,802,143 100 100 - Chart 13 The distribution of the Company’s shareholders by groups at the end of the reporting period is presented in Table 7. 92.84% 3.75% 1.74% 1.67% Structure of shareholders as of December 31, 2022 Kaunas city municipality Kaunas district municipality Jurbarkas district municipality Other shareholders AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 75 Table 7 Group Number of shares owned by the group, pcs. Available share of the authorized capital, per cent of the total number of shares Local authorities 42 088 631 98.33 Households 500 720 1.17 Other shareholders 212 792 0.50 Total 42 802 143 100 17.1. The shareholders, who owned more than 5 per cent of the shares (20,031,977 ORS) issued for public trading (reg. No. A01031430, VP ISIN code – LT0000123010) as of December 31, 2022 are listed in Table 8. Table 8 Name Type of shares Number of shares, units Total nominal value of shares, euros Percentage of shares from those released into the public circulation Share of the authorise d capital (%) Kaunas City Municipality Laisvės al. 96, 44251 Kaunas Code 111106319 Ordinary registered shares 16,965,892 29,520,652 84.69 39.64 Kaunas District Municipality Savanorių pr. 371, 49500 Kaunas, Code 111100622 Ordinary registered shares 1,606,168 2,794,732 8.02 3.75 Other shareholders Ordinary registered shares 1,459,917 2,540,256 7.29 3.41 Total: 20,031,977 34,855,640 100 46.80 17.2. The shareholders, who owned more than 5 per cent of the shares (22,770,166 ORS) issued for non- public trading (VP ISIN code – LT0000128407) as of December 31, 2022 are listed in Table 9. Table 9 Name Type of shares Number of shares, units Total nominal value of shares, Euro Percentage of shares from those released into the public circulation Share of the authorise d capital (%) Kaunas City Municipality Laisvės al. 96, 44251 Kaunas Code 111106319 Ordinary registered shares 22,770,166 39,620,089 100 53.20 None of the shareholders of the Issuer holds any special rights of control. The rights of all shareholders are the same; they are specified in article 4 of the Law on Companies of the Republic of Lithuania. The number of shares carrying votes at the General Meeting of Shareholders of the Company is 42,802,143 units. The Company has not been notified on the limitations of voting rights or any other mutual agreements of shareholders which may limit the transfer of securities and / or voting rights. AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 76 In 2018, the dividends from the profit of the year 2017 were allocated and paid to the shareholders of the Issuer. Dividend per share was 0.078 euro, in total – 3.339 million euro. The profit was allocated to the statutory reserve, other reserves, and bonuses for employees. A total of 0.1 million euros was allocated for sponsorship. In 2019, the dividends from the profit of the year 2018 were allocated and paid to the shareholders of the Issuer. Dividend per share was 0.025 euro, in total – 1.070 million euro. The profit was allocated to the statutory reserve, other reserves, and bonuses for employees. A total of 0.05 million euros was allocated for sponsorship. In 2020, no dividends from the profit of 2019 were allocated and paid to the Issuer’s shareholders. In 2021, no dividends from the profit of 2020 were allocated and paid to the Issuer’s shareholders. In 2022, no dividends from the profit of 2021 were allocated and paid to the Issuer’s shareholders. 18. Employees 383 employees were employed in the Group as of December 31, 2022. Changes in the number of employees of the Group in year 2018 – 2022 are provided in Table 10. Table 10 Actual number of employees Group 31/12/2018 Group 31/12/2019 Group 31/12/2020 Group 31/12/2021 Group 31/12/2022 Total: 441 402 365 379 383 management 3 3 3 3 2 specialists 238 214 203 212 203 workers 200 185 159 164 178 Changes in number of employees of the Company in year 2018 – 2022 are provided in Table 11. Table 11 Actual number of employees Company 31/12/2018 Company 31/12/2019 Company 31/12/2020 Company 31/12/2021 Company 31/12/2022 Total: 427 389 354 350 353 management 1 1 1 1 1 specialists 234 210 200 197 189 workers 192 178 153 152 163 Education of employees of the Group as at the end of the reporting period. Table 12 No Education Group 31/12/2018 Group 31/12/2019 Group 31/12/2020 Group 31/12/2021 Group 31/12/2022 1 Secondary incomplete 3 3 1 1 1 AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 77 No Education Group 31/12/2018 Group 31/12/2019 Group 31/12/2020 Group 31/12/2021 Group 31/12/2022 2 Secondary 156 139 124 176 150 3 College 62 59 49 38 34 4 Higher 220 201 191 164 198 Total: 441 402 365 379 383 Education of employees of the Company as at the end of the reporting period. Table 13 No Education Company 31/12/2018 Company 31/12/2020 Company 31/12/2020 Company 31/12/2021 Company 31/12/2022 1 Secondary incomplete 3 3 1 1 1 2 Secondary 151 135 121 156 135 3 College 60 57 47 38 34 4 Higher 213 194 185 155 183 Total: 427 389 354 350 353 Company’s management pays a lot of attention on increase in work efficiency, working conditions improvement, supply with latest working tools, professional development, planning of internal activities and control implementation, also for improvement of consumer service quality. Executive and professional qualification levels suit their positions, and work experience and practical knowledge of subject of other employees makes them possible to work in their positions. To increase work efficiency, the Company conducts an annual work performance evaluation of structural units’ managers, the main goal of which is to evaluate the employee’s qualifications and abilities of functions performance assigned in job regulations, to properly evaluate employees' activities, provide feedback on the goals execution in order to increase employee loyalty, satisfaction with conducted work, encouraging them to improve. The result of this process is information allowing better coordination of the Company's activities and for encouraging employees to improve their working activities. The Company actively cooperates with educational institutions and enables high school students to apply theoretical knowledge and gain practical skills. When there is a need for new employees, the most active and best students are given the opportunity to get a job in the Company. The salary of employees of the Issuer consists of the constant part of salary, variable part of salary, benefits and allocations paid according to the Labour Code of the Republic of Lithuania and other laws, Collective agreement of the Company, and bonuses. Bonuses are paid from net profit, if the General Meeting of Shareholders allocates part of the profit for the bonuses of the Company employees. The collective agreement provides for special rights and obligations of the issuer's employees or part of them. In accordance with the Company's new Collective agreement effective from 1 January 2019 and subsequent amendments there to: 1. For continuous employment within the Company employees are granted additional paid leave. 2. The record of service of employees who worked in Lithuanian energy system companies and who were redeployed to the Company according to the corporate employer agreement, i.e., when the transfer was carried out according to the Labour Code or the Law on Employment Contract, is considered uninterrupted and those employees are granted an additional paid leave for an uninterrupted record of service within the Company. 3. At the agreement of the employer and employee, the employee may be granted unpaid leave for family related issues and other important reasons. 4. Company’s employees are entitled to additional paid leave. The employer obligates: 1. To ensure the conditions of preventive health check and, if necessary, to provide free health services at the Company’s occupational health unit. AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 78 2. In the event of the death of an employee, the Company grants a benefit in the amount of 4 minimum monthly salaries of the Republic of Lithuania (hereinafter referred to as the MMS), free transport, or covers transport costs (the benefit is granted to the person burying the deceased); 3. In the event of the death of the employee's close relative (parent (adoptive parent), child (adoptive child) or spouse), the Company grants the employee an MMS benefit, free transport or covers transport costs; 4. In the event of the birth of one or more children, the Company grants the employee a gift in the amount of 50 per cent MMS for each child; 5. Upon registration of the marriage, the employee is granted a gift in the amount of 50 per cent MMS; 6. A cash gift of EUR 50 is granted when an employee reaches the age of 25, 35, 45, 55, 65, and a cash gift of EUR 100 when the employee reaches the age of 20, 30, 40, 50, 60, 70; 7. In other cases, when the employee needs financial support (in case of losses due to natural disasters and other reasons beyond the control of the employee), the Company grants a benefit of up to 3 MMS; 8. In the event of a serious illness or accident, a benefit of up to 5 MMS is granted. The sickness benefit is paid once a year (within 12 months). 19. Procedure for amending the Issuer’s Statutes The Statutes of the Issuer say that the General Meeting of Shareholders of the Company has the exceptional right to amend the Statutes other than the exceptions provided in the Law on Companies of the Republic of Lithuania. The resolution on the amendment of the Company’s Statutes 2/3 qualified majority of votes of the members participating in the meeting of shareholders is needed. The Statutes of the Company were amended on February 9, 2022 by the decision of the Management Board. The new wording of the Statutes was registered on February 22, 2022 in the Register of Legal Entities of the Republic of Lithuania. It can be found on Company’s website at www.kaunoenergija.lt. 20. Issuer’s management bodies According to the Statutes of the Company, the management bodies of the Company include the General Meeting of Shareholders, a collegial management body – the Supervisory Board, a collegial management body – the Management Board, and a sole management body – General Manager. Decisions of the General Meeting of Shareholders made on the issues within the competence of the General Meeting of Shareholders provided for in the Statutes of the Company are binding to its shareholders, the Supervisory Board, the Management Board, and the General Director, and to other employees of the Company. All persons who are the shareholders of the Company on the date of the General Meeting of Shareholders have the right to attend the Company’s General Meeting of Shareholders personally or by proxy or be represented by persons with whom they had entered into the agreement on the transfer of the voting right. The record date of the meeting of the Company is the fifth working day before the General Meeting of Shareholders or the fifth working day before the repeat General Meeting of Shareholders. A person attending the General Meeting and entitled to vote shall provide a document which is a proof of his personal identity and sign the registration list of the Meeting of Shareholders. A person who is not a shareholder shall additionally provide a document attesting to his right to vote at the General Meeting of Shareholders. 1 (one) General Meeting of Shareholders was convoked in the year 2022. Company’s General Manager and the Chief Finance Officer attended it. Issuers’ shareholders can ask questions and can get answers or explanations from Company’s managers and speakers. The collegial management body – Supervisory Board is elected by the General Meeting of Shareholders according to the procedure specified in the Law on Companies of the Republic of Lithuania. The Supervisory Board consists of 7 (seven) members. The Supervisory Board is elected for a term of 4 (four) years. The Supervisory Board elects the chairman of the Supervisory Board from among its members. The General Meeting of shareholders may remove from office the entire Supervisory Board or its individual members General Meeting of Shareholders Supervisory Board Management Board General Director AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 79 before the expiry of the term of office of the Supervisory Board. Where individual members of the Supervisory Board are elected, they shall be elected only until the expiry of the term of office of the current Supervisory Board. The Supervisory Board elects and dismisses the Management Board members and supervises the activities of the Board and the General manager of the Company; submits its comments and proposals to the General Meeting of Shareholders on the Company’s operating strategy, set of annual financial statements, draft of profit / loss allocation and the annual report of the Company as well as the activities of the Board and the General Manager of the Company; submits proposals to the Board and the General Manager of the Company to revoke their decisions which are in conflict with laws and other legal acts, the statutes of the Company or decisions of the General Meeting of Shareholders; addresses other issues assigned to the scope of powers of the Supervisory Board by decisions of the General Meeting of Shareholders regarding the supervision of the activities of the Company and its management bodies. The Supervisory Board shall not be entitled to assign or delegate the functions assigned to the scope of its powers by the Law on Companies of the Republic of Lithuania and the statutes of the Company to other bodies of the Company. The Supervisory Board, following the resolution No. 1K-18 of August 21, 2008 of the Securities Commission of the Republic of Lithuania “Regarding The Requirements For Audit Committees”, as well as “Guidelines For The Application Of Requirements For Audit Committees” which were approved by the decision of the Securities Commission of November 28, 2008 approves the internal rules of procedure for forming the Audit Committee and elects the Audit Committee members. The Supervisory Board of the Company approved on May 21, 2019 a new wording of the internal rules of procedure of the Audit Committee of the Company. The Management Board is a collegial management body of the Company. The Management Board is comprised of 5 (five) members. The Management Board is elected for the period of 4 (four) years by the Supervisory Board. The Supervisory Board can remove from office the entire Management Board or its individual members before the expiry of their term. If individual members of the Management Board are elected, they shall serve only until the expiry of the term of office of the current Management Board. The Management Board elects the chairman of the management Board from among its members. The General Manager is the manager of the Company. The manager of the Company is a sole person management body of the Company organising its activities. Authority and responsibilities of the administration members of the Company are established by the order of the General Manager. 20.1. Data on the committees in the Company The members of Audit Committee appointed by the decision No. 2019-4 of the Supervisory Board of May 21, 2019: Full name Position Beginning of term End of term* Mr. Mindaugas Šimkus Independent member of Audit Committee May 21, 2019 April 26, 2023 Mr. Artūras Aladaitis Member of Audit Committee December 6, 2019 February 23, 2022 Ms. Violeta Kavaliauskienė Independent member of Audit Committee November 25, 2021 April 26, 2023 Ms. Edita Girdvilienė Member of Audit Committee May 5, 2022 April 26, 2023 * The term of office of the Audit Committee coincides with the term of office of the Supervisory Board of the Company. In carrying out its activities, the Audit Committee follows the internal rules of procedure of the Company’s Audit Committee approved by decision No 2019-4 of May 21, 2019 of the meeting of the Supervisory Board of the Company. The Audit Committee performs its functions provided for in article 52 of the Law on Audit of the Republic of Lithuania. The Audit Committee performed the monitoring of the process of financial statements audit performed by independent auditor in the year 2022. AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 80 20.2. Information on the members of the Company’s Supervisory Board: Members of the Supervisory Board of the Company as of December 31, 2022: Full name Position Beginning of term End of term Mr. Antanas Etneris Chairman of the Supervisory Board April 26, 2019 April 26, 2023 Mrs. Rūta Šimkaitytė - Kudarauskienė Deputy chairman of the Supervisory Board April 2, 2020 April 26, 2023 Mr. Konstantinas Pesenka Member of the Supervisory Board April 26, 2019 April 26, 2023 Mr. Mindaugas Šimkus Member of the Supervisory Board April 26, 2019 April 26, 2023 Mr. Saulius Lazauskas Member of the Supervisory Board April 2, 2020 April 26, 2023 Mr. Justas Limanauskas Member of the Supervisory Board April 2, 2020 April 26, 2023 Company’s Supervisory Board comprised of five independent members and of one member of Kaunas City Municipality administration, as he partially represents the controlling shareholder, i.e., Kaunas City Municipality, holding 92.84 per cent of the Company’s voting shares. 3 session of the Supervisory Board was held during the year 2022. More than ½ of the members of the Supervisory Board attended the session. Mr. Antanas Etneris Mr Antanas Etneris, director of UAB Wisewood (code 302527538, Ringuvos str. 74, LT-45245 Kaunas), director of UAB Mana Grupė (code 303991865, Kruonio str. 16, Kaunas), director of UAB Airhotel (code 302598948, Oro Uosto str. 2, Karmėlava, LT-54460 Kaunas distr.), member of the Board of UAB Stoties Turgus, member of the Board of UAB Kauno Vandenys. Holds no shares of the company. Holds the shares of the companies UAB Wisewood, UAB Mana Ranga, UAB Mana Grupė, UAB Airhotel, UAB Dramart, UAB Ukraineičių 4, UAB Vėjo Dukra, UAB Plėtros Fondas, UAB Aguonų Projektai, LLC My Group. Mrs. Rūta Šimkaitytė-Kudarauskienė Head of the Legal and Consulting Department of Kaunas City Municipality (company code 111106319, Laisvės av. 96, LT-44251 Kaunas); Director of UAB Centrinis Knygynas (company code 133607044, Laisvės av. 81, LT-44297 Kaunas). Holds no shares of the Company. No interest in the capital of other Lithuanian companies. Mr. Saulius Lazauskas General Director of UAB Kauno Švara (company code 132616649, Statybininkų str. 3, LT-50124 Kaunas), Member of the Board of UAB Kauno Vandenys, Member of the Board of PI Kaunas Region Waste Management Centre”. Holds no shares of the Company. No interest in the capital of other Lithuanian companies. Mr. Justas Limanauskas Director of the budgetary institution Parkavimas Kaune (company code 134929849, Puodžių str. 24-1, LT- 44295 Kaunas); director of the budgetary institution “S. Dariaus and S. Girėno Aerodromas” (company code 135087311, Veiverių str. 132, LT-46337 Kaunas). Holds no shares of the company. No interest in the capital of other Lithuanian companies. Mr. Konstantinas Pesenka Member of the Management Board of UAB Windex Group (code 303522864, Draugystės str. 17-1, Kaunas), chairman of the Management Board of UAB Kauno Vandenys. Holds no shares of the Company. No interest in the capital of other Lithuanian companies. AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 81 Mr. Mindaugas Šimkus Head of economics of UAB Vičiūnų Grupė (code 303211678, V. Krėvės av. 97, LT-50369 Kaunas), member of the Board of UAB Kauno Švara, member of the Board of UAB Kauno Vandenys. Holds no shares of the Company. No interest in the capital of other Lithuanian companies. 20.3. Information on the members of the Company’s Management Board Members of Company’s Management Board as of December 31, 2022: Full name Position Beginning of term End of term Nerijus Mordas Chairman of the Management Board May 21, 2019 May 21, 2023 Paulius Keras Deputy chairman of the Management Board May 21, 2019 May 21, 2023 Algimantas Stasys Anužis Member of the Management Board May 21, 2019 May 21, 2023 Karolis Šiugžda Member of the Management Board May 21, 2019 May 21, 2023 26 sessions of Company’s Management Board were held in the year 2022. More than 2/3 members of the Management Board attended all the sessions. Mr. Nerijus Mordas Chief finance officer of UAB Vičiūnų Grupė (code 303211678, V. Krėvės av. 97, LT- 50369 Kaunas). Member of Company’s Management Board from June 1, 2015. Holds no shares of the Company. No interest in the capital of other Lithuanian companies. Mr. Nerijus Mordas charged EUR 26.9 thousand of remuneration under agreement of activity of member of the Management Board. No bonuses estimated, nor any assets were transferred or guarantees issued during the reporting period. Mr. Paulius Keras Deputy Director of Kaunas city municipality (code 111106319, Laisvės av. 96, LT- 44251 Kaunas). Member of the Management Board of the Company from May 21, 2019. Holds no shares of the Company. No interest in the capital of other Lithuanian companies. Mr. Paulius Keras charged EUR 16.2 thousand of remuneration under agreement of activity of member of the Management Board. No bonuses estimated, nor any assets were transferred or guarantees issued during the reporting period. Mr. Algimantas Stasys Anužis Member of the Council of Kaunas Chamber of Commerce, Industry and Crafts, president of Lithuanian Veterans Basketball League. Member of Company’s Management Board from June 1, 2015. Holds no shares of the Company. No interest in the capital of other Lithuanian companies. Mr. Algimantas Stasys Anužis charged EUR 16.2 thousand of remuneration under agreement of activity of member of the Management Board. No bonuses estimated, nor any assets were transferred or guarantees issued during the reporting period. AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 82 Mr. Karolis Šiugžda Lawyer of UAB Vičiūnų Grupė (code 303211678, V. Krėvės av. 97, LT-50369 Kaunas), lawyer of UAB Groward Group (code 302764932, V. Krėvės av. 97, LT-50369 Kaunas). Member of Company’s Management Board from May 21, 2019. Holds no shares of the Company. No interest in the capital of other Lithuanian companies. Mr. Karolis Šiugžda charged EUR 16.2 thousand of remuneration under agreement of activity of member of the Management Board. No bonuses estimated, nor any assets were transferred or guarantees issued during the reporting period. 20.4. Information on the General Manager and Chief accountant of the Company: Mr. Tomas Garasimavičius General Director of the Company from March 30, 2020. Education - higher university, Vilnius University in 2003, Bachelor of Political Science, Vilnius University in 2005, Master of Political Science, Creighton University, USA 2005, Master of Political Science. Workplaces during the last 10 years and positions: Head of the Sustainable Energy Development Division of Energetikos Agentūra, PI (June 2010 – December 2012), Adviser to the Prime Minister of the Republic of Lithuania on Energy (December 2012 – December 2016), Member of the Supervisory Board of UAB Lietuvos Energija (July 2013 – July 2017), Member of the Nomination and Remuneration Committee of the Supervisory Board of UAB Lietuvos Energija (July 2013 – July 2017), Member of the Risk Management Supervisory Committee of the Supervisory Board of UAB Lietuvos Energija (September 2013 – July 2017), Member of the Support Fund Council of UAB Lietuvos Energija (September 2014 – September 2017), Adviser to the Prime Minister of the Republic of Lithuania on Energy and the Environment (January 2017 – March 2018), Adviser to the Mayor of Kaunas city on Energy (June 2018 – March 2020). Holds no shares of the Company. No interest in the capital of other companies. Rita Plančiūnienė Chief Accountant of the Company from 14 March 2021. Education – higher university degree, Vytautas Magnus University, Master's degree in Accounting and Finance. Workplaces in the last 10 years, and job positions: Chief Accountant at UAB Agrochema since 2011, Chief Economic and Financial Officer at UAB Agrochema since November 2013, Chief Financial Officer at UAB Agrochema plius since December 2018, Chief Financial Officer at UAB Doresta from April 2021 to March 2022. Company’s General Manager and the Chief Accountant charged 133.40 thousand euros of remuneration in the year 2022, and the average amount per member is 66.70 thousand euros. No other assets had been transferred; no guarantees granted. 21. Information on significant agreements There are no significant agreements that would come into force, change or termination in case of change in controls of Issuer (their impact as well, except cases when due to the character of agreements the disclosure of them would make a significant harm). 22. Information on agreements of the Issuer and its managerial body members or employees There are no agreements of the Issuer or its managerial body members or employees (which provide for compensation in case of their resignation or termination of employment on no grounds or in case their employment is terminated due to changes in controls of the Issuer). AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 83 23. Information on major transactions with related parties There were no larger individual transactions. More detailed information is provided in the Note 25 of the Explanatory Notes to the Financial Statements. 24. Information on harmful transactions concluded on behalf of the Issuer during the reporting period There are no harmful transactions concluded on behalf of the Issuer during the reporting period (not complying with the Company's objectives, normal market conditions, detrimental to the interests of shareholders and other interest groups etc.) which were or are likely to have an adverse effect on the Issuer's activities and (or) performance in the future, as well as information on transactions entered into in a conflict of interest between the Issuer’s management, controlling shareholders or other related parties' obligations to the Issuer and their private interests and (or) other duties. 25. Information on compliance with the Governance Code of Companies and the Company’s corporate social initiatives and policies Information on compliance with the corporate governance code is provided in Annex 2 to this Annual Report. Annual reports on the Company’s corporate social initiatives and policies are announced on the Company’s website. 26. Data on publicised information In performing its obligations under the applicable legislation regulating the securities market, the Issuer has announced the following information starting from January 1, 2022 over the GlobeNewswire news distribution service, in which notices are disseminated within the European Union. This information was also posted on the website of the Issuer. All the information is available on website of Nasdaq Vilnius (http://www.nasdaqbaltic.com/market/?lang=lt) and Issuer’s website (http://www.kaunoenergija.lt). Title Announcement category Language Time Activity results of 12 months of the year 2022 Interim information EN, LT 03/02/2023 12:00 Resolutions of the Extraordinary General Meeting of Shareholders of AB Kauno Energija General meeting of shareholders EN, LT 11/01/2023 12:35 Update: Convening the Extraordinary General Meeting of Shareholders of “Kauno Energija” AB General meeting of shareholders EN, LT 30/12/2022 13:20 Convening the Extraordinary General Meeting of Shareholders of “Kauno Energija” AB General meeting of shareholders EN, LT 16/12/2022 09:40 Business activity results of the 9 months of the year 2022 Interim information EN, LT 03/11/2022 16:00 AB Kauno Energija half-yearly reports and unaudited financial statements for the 1 half of the year 2022 Half-Yearly information EN, LT 29/09/2022 13:15 Business activity results of the 1 half of the year 2022 Notification on material event EN, LT 29/07/2022 08:02 Resolutions of the General Meeting of Shareholders of AB Kauno Energija General meeting of shareholders EN, LT 29/04/2022 16:00 Audited annual information of AB Kauno Energija for the year 2021 Annual information EN, LT 29/04/2022 16:00 Activity results of the 1 quarter of the year 2022 Interim information EN, LT 28/04/2022 07:53 Correction: Convocation of General Meeting of Shareholders of AB Kauno Energija, agenda and the resolution projects General meeting of shareholders EN, LT 08/04/2022 14:06 AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2022 84 Title Announcement category Language Time Activity results of 12 months of the year 2022 Interim information EN, LT 03/02/2023 12:00 Resolutions of the Extraordinary General Meeting of Shareholders of AB Kauno Energija General meeting of shareholders EN, LT 11/01/2023 12:35 Update: Convening the Extraordinary General Meeting of Shareholders of “Kauno Energija” AB General meeting of shareholders EN, LT 30/12/2022 13:20 Convening the Extraordinary General Meeting of Shareholders of “Kauno Energija” AB General meeting of shareholders EN, LT 16/12/2022 09:40 Business activity results of the 9 months of the year 2022 Interim information EN, LT 03/11/2022 16:00 AB Kauno Energija half-yearly reports and unaudited financial statements for the 1 half of the year 2022 Half-Yearly information EN, LT 29/09/2022 13:15 Convocation of General Meeting of Shareholders of AB Kauno Energija, agenda and the resolution projects General meeting of shareholders EN, LT 08/04/2022 11:54 Activity results of 12 months of the year 2022 Interim information EN, LT 01/02/2022 12:21 Regarding the resignation of member of the Management Board Notification on material event EN, LT 04/01/2022 13:04 85 Annex 1 AB KAUNO ENERGIJA REMUNERATION REPORT FOR 2022 GENERAL INFORMATION ON THE REMUNERATION REPORT The Remuneration Report of AB Kauno Energija (hereinafter – the Company) has been prepared for the reporting financial period of 2022, which coincides with the calendar year. The Remuneration Report (hereinafter - the Report) was prepared in accordance with the Law on Financial Statements of Entities of the Republic of Lithuania, the Remuneration Policy of AB Kauno Energija (hereinafter - the Remuneration Policy) and other legal acts. On April 30, 2020 the General Meeting of Shareholders approved the Remuneration Policy of AB Kauno Energija. This Remuneration Policy applies to the General Director and members of the Management Board and Supervisory Board of the Company insofar as it relates to the payment of monetary remuneration for activities in the management and / or supervisory bodies of the Company. The Remuneration Report shall include information on remuneration of each member of the management and supervisory bodies, information on other (un) received benefits, other data. INFORMATION ON THE REMUNERATION RECEIVED BY MEMBERS OF THE MANAGEMENT AND SUPERVISORY BODIES According to the Remuneration Policy approved by the Company’s General Meeting of Shareholders, the specific remuneration is paid only to the Company’s General Director and members of the Management Board. Members of the Supervisory Board do not receive remuneration. Report on the remuneration of the Company’s General Director in 2022 The remuneration accrued and paid to the Company’s General Director during 2022, determined by the Management Board, complied with the remuneration forms provided for in the Remuneration Policy (Item 3.1). The amount of remuneration for the General Director of the Company was determined by the decision of the Management Board No. 2021-24-3 of December 23, 2021 and No. 2022-15-1 of July 8, 2022. As a reward for excellent performance, remarkable efforts in carrying out the assigned duties and initiatives, by the decision No 2022-6 as of 6 April 2022, the Management Board of the Company granted a bonus equal to his three months average salary.The General Director of the Company was paid with EUR 97.3 thousand remuneration during 2022 (the General Director started working for the Company on March 30, 2020). The Head of the Company – the General Director - did not receive any remuneration from the companies referred to the group of companies, as defined in the Law on Consolidated Financial Statements of Companies of the Republic of Lithuania. The salary of the Head of the Company was paid in accordance with the procedure, scope and terms provided for in the Employment Contract, the General Director did not receive other property benefits during 2022, including the award of shares or other transactions in favour of and in the interests of the Head. Report on the remuneration of the members of the Management Board of the Company in 2022 The Company has 5 (five) independent members of the Management Board. During 2022 the Company accrued EUR 75.4 thousand to independent members of the Management Board under activity agreements. The average EUR 15.1 thousand per one independent member of the Management Board per year. The members of the Management Board did not receive payments from the subsidiaries. Information on the remuneration of each individual member of the Management Board is provided in the Annual Report. No bonuses were paid to the members of the Company’s Supervisory board and Management Board. During the reporting period, no guarantees or sureties were given to the members of the Supervisory Board, Management Board and the Head of the Company, no assets or other property rights were transferred, no other benefits were received from the Company. 86 Members of the Supervisory Board and Management Board, the General Director of the Company and members of the Audit Committee have no significant material obligations to the Company (Issuer), just as the Company (Issuer) has no obligations to these persons. Guarantees and sureties and / or other measures to secure the fulfilment of the obligations of the Head of the Company, members of the management bodies and Supervisory Board were not granted on behalf of the Issuer during 2022, the Issuer did not grant loans and Company shares to these persons. The remuneration paid to the Head of AB Kauno Energija, members of the Management Board and the Supervisory Board in 2022 complied with the principles, grounds and conditions approved in the Remuneration Policy. FINAL PROVISIONS OF THE REMUNERATION REPORT The Report approved by the Management Board of the Company is submitted to the General Meeting of Shareholders, which decides whether to approve the Remuneration Report or not. Such (non) approval does not release the Management Board from the responsibility for the decision taken. The Remuneration Report for 2022 is an integral part of the Consolidated Annual Report and is published on the website of the Company http://www.kaunoenergija.lt and www.nasdaqomxbaltic.com in accordance with the procedure established by legal acts. 87 Annex 2 PLLC KAUNO ENERGIJA, PURSUE THE GOVERNANCE REPORT PLLC Kauno Energija (hereinafter – the Company), following Article 21 paragraph 3 of the Law on Securities of the Republic of Lithuania and item 24.5 of the Listing Rules of PLLC NASDAQ Vilnius, discloses its compliance with the Corporate Governance Code for the Companies, whose securities are traded on the regulated market, as approved by the NASDAQ Vilnius PLLC, and its specific provisions and recommendations. If any of the provisions or recommendations of the Codex are not respected due to any reasons, the explicable information is provided herein. Summary of the Corporate Governance Report: Specifics of the Company’s activities: The Company is listed on the secondary list of the Nasdaq Vilnius Stock Exchange starting from December 28, 1998. The main activities of the Company are production, rendering of services. The Company is the parent company of the Group consisting of LLC GO Energy LT. The Company produces and supplies heat to consumers (for heating and hot water preparation purposes) in the cities of Kaunas and Jurbarkas and in the Kaunas district (Akademija, Ežerėlis, Domeikava, Garliavos, Girioniai, Neveronys, Raudondvaris). Company’s governance structure: - The Company’s managing bodies consists of the Management Board, elected for the 4 years term of office, and the General Manager, elected by the Management Board (for further information on the Issuer's governing bodies and the composition of the committees please refer to the Article 20 “Issuer's bodies” of this Consolidated Annual Report). The Management Board’s and the manager’s activities are concentrated on the fulfilment of the Company’s strategic objectives taking count of the shareholders’ equity value increase. - A supervisory body – the Supervisory Board acts in the Company. The Management Board and the general Manager acts in close cooperation seeking to obtain the maximum benefit for the Company and its shareholders. The Management Board periodically reviews and assesses Company’s activity results. - The Chairman of the Management Board of the Company is not and was not the Head of the Company. The duties he holds or held in the past shall not prevent independent and impartial supervision. - The members of the Management Board elected by the General Meeting of Shareholders are independent and act for the benefit of the Company and its shareholders. - The Audit Committee acts in the Company. 1 independent member act in this committee. There are no nomination and remuneration committees in the Company. Accountability to the Company's shareholders: - Information on the General Manager, composition of the Supervisory and Management Boards, members education, work experience, competence and participation in activities of other companies is disclosed and constantly updated in Company’s periodical reports as well as website. - The Company discloses all regulated information through PLLC Nasdaq Vilnius news distribution system. This ensures access to the broadest public in the Republic of Lithuania and other EU countries. The information shall be provided simultaneously in Lithuanian and English. The company publishes the information before or after the trading session of PLLC Nasdaq Vilnius. The Company shall not disclose information that may affect the price of the issued securities in the form of comments, interviews or in any other manner until such information is made public through the news distribution system of PLLC Nasdaq Vilnius. 88 - All shareholders of the Company have equal access to and participate in the decision-making process important for the Company. The procedures for convening and conducting general meetings of shareholders shall comply with the provisions of the legal acts and shall provide equal opportunities for shareholders to participate in the meeting, to acquaint themselves in advance with draft resolutions and decision-making materials, as well as to ask. PRINCIPLES/ RECOMMENDATIONS YES/NO /NOT APPLICABLE COMMENTARY Principle 1: General Meeting of Shareholders, equitable treatment of shareholders, and shareholders’ rights The corporate governance framework should ensure the equitable treatment of all shareholders. The corporate governance framework should protect the rights of shareholders. 1.1. All shareholders should be provided with access to the information and/or documents established in the legal acts on equal terms. All shareholders should be furnished with equal opportunity to participate in the decision-making process where significant corporate matters are discussed. Yes All shareholders have equal access to the information and / or documents provided for in legal acts and participate in making important decisions for the Company. The Company provides information through the Nasdaq Vilnius Stock Exchange Central Regulated Information Base in Lithuanian and English simultaneously. The information is published immediately at once, thus ensuring the simultaneous provision of information to all. 1.2. It is recommended that the Company’s capital should consist only of the shares that grant the same rights to voting, ownership, dividend and other rights to all of their holders. Yes The authorized capital of the Company consists of ordinary registered shares, which grant equal voting, ownership, dividend and other rights to all shareholders of the Company. 1.3. It is recommended that investors should have access to the information concerning the rights attached to the shares of the new issue or those issued earlier in advance, i.e. before they purchase shares. Yes The Company enables investors to familiarize themselves with the rights granted by the new or already issued shares well in advance. 1.4. Exclusive transactions that are particularly important to the Company, such as transfer of all or almost all assets of the Company which in principle would mean the transfer of the Company, should be subject to approval of the General Meeting of shareholders. Yes According to the Statutes of the Company, important transactions, such as decisions on the execution, assignment, lease, pledge and mortgage of long-term assets the book value of which exceeds EUR 3 million, an approval of General Meeting of Shareholders or Supervisory Board must be received Due to extremely important transactions, such as the transfer of all or almost all the Company's assets, the Company would be guided by the Law on Companies of the Republic of Lithuania and other legal acts establishing requirements for the approval of such transactions. 1.5. Procedures for convening and conducting a General Meeting of Shareholders should provide shareholders with equal opportunities to participate in the Yes All shareholders of the Company are informed about the date, place and time of the General Meeting of Shareholders in accordance with the established 89 General Meeting of Shareholders and should not prejudice the rights and interests of shareholders. The chosen venue, date and time of the General Meeting of Shareholders should not prevent active participation of shareholders at the General Meeting. In the notice of the General Meeting of Shareholders being convened, the Company should specify the last day on which the proposed draft decisions should be submitted at the latest. procedure in advance, in accordance with the terms established by legal acts, announcing the General Meeting of Shareholders, agenda, and draft resolutions in the Central Regulated Information Base of PLLC Nasdaq Vilnius Stock Exchange. The Company specifies the date of the General Meeting of Shareholders and may propose draft resolutions in the Notice of the General Meeting of Shareholders to be convened on the Company's website www.kaunoenergija.lt In the notice of the convention of the General Meeting of Shareholders, the Company shall indicate when the shareholders may supplement the agenda of the General Meeting of Shareholders and propose draft resolutions. 1.6. With a view to ensure the right of shareholders living abroad to access the information, it is recommended, where possible, that documents prepared for the General Meeting of Shareholders in advance should be announced publicly not only in Lithuanian language but also in English and/or other foreign languages in advance. It is recommended that the minutes of the General Meeting of Shareholders after the signing thereof and/or adopted decisions should be made available publicly not only in Lithuanian language but also in English and/or other foreign languages. It is recommended that this information should be placed on the website of the Company. Such documents may be published to the extent that their public disclosure is not detrimental to the Company or the Company’s commercial secrets are not revealed. Yes The documents prepared for General Meeting of Shareholders including draft resolutions of the meeting are available not later than 21 day prior the date of General Meeting of shareholders as required by the Law on Joint stock companies. The documents placed on the website of NASDAQ Vilnius security exchange and the Company website are available in Lithuanian and English languages. Resolutions accepted by the General Meeting of Shareholders including financial reports, the audit report, annual report, amendments of the Statutes etc. are announce in Lithuanian and English languages are announced via the central base of regulated information of NASDAQ Vilnius security exchange and the Company website www.kaunoenergija.lt 1.7. Shareholders who are entitled to vote should be furnished with the opportunity to vote at the General Meeting of Shareholders both in person and in absentia. Shareholders should not be prevented from voting in writing in advance by completing the General voting ballot. Yes The shareholders of the Company have the right to participate in the General Meeting of Shareholders both personally and through a representative, if the person has the appropriate authorization or the contract of transfer of voting rights concluded with him/her in accordance with the procedure established by legal acts, as well as the conditions for the shareholders to vote by filling in the General voting bulletin as provided by the Law on Companies of the Republic of Lithuania. 1.8. With a view to increasing the shareholders’ opportunities to participate effectively at General Meetings of Shareholders, it is recommended that companies should apply modern No The Company does not comply with the provisions of this recommendation as there is no possibility to ensure the security of the information transmitted 90 technologies on a wider scale and thus provide shareholders with the conditions to participate and vote in General Meetings of Shareholders via electronic means of communication. In such cases the security of transmitted information must be ensured, and it must be possible to identify the participating and voting person. and it is not possible to identify the person who participated and voted. 1.9. It is recommended that the notice on the draft decisions of the General Meeting of Shareholders being convened should specify new candidatures of members of the collegial body, their proposed remuneration and the proposed audit Company if these issues are included into the agenda of the General Meeting of Shareholders. Where it is proposed to elect a new member of the collegial body, it is recommended that the information about his/her educational background, work experience and other managerial positions held (or proposed) should be provided. Yes When announcing the General Meeting of Shareholders, and if the agenda of the General Meeting of Shareholders includes the issue of electing new members of the collegial body or electing the audit firm, it shall disclose in the draft resolutions the nominations of the proposed new members of the collegial body and the proposed election Company. Information about the candidates to the members of the collegial body shall be provided in advance by publishing this information on the Nasdaq Vilnius Stock Exchange website, on the website of PLLC Kauno Energija, www.kaunoenergija.lt, or by publishing it to the shareholders participating in the General Meeting during the meeting if the shareholders, whose shares give at least 1/20 of all votes, propose an additional candidate during the meeting. In its annual and six-month interim report, the Company publicly informs about the positions held by the collegial body, work experience and education. 1.10. Members of the company’s collegial management body, heads of the administration 1 or other competent persons related to the company who can provide information related to the agenda of the general meeting of shareholders should take part in the general meeting of shareholders. Proposed candidates to member of the collegial body should also participate in the general meeting of shareholders in case the election of new members is included into the agenda of the general meeting of shareholders. Yes Members of the Company's collegial body and heads of administration participate in the General Meetings of Shareholders. Proposed nominees for members of the collegial body are also present if possible, if the election of new members is included on the agenda of the General Meeting. Principle 2: Supervisory Board 2.1. Functions and liability of the Supervisory Board The Supervisory Board of the Company should ensure representation of the interests of the Company and its shareholders, accountability of this body to the shareholders and objective 1 For the purposes of this Code, heads of the administration are the employees of the company who hold top level management positions. 91 monitoring of the Company’s operations and its management bodies as well as constantly provide recommendations to the management bodies of the Company. The Supervisory Board should ensure the integrity and transparency of the Company’s financial accounting and control system. 2.1.1. Members of the Supervisory Board should act in good faith, with care and responsibility for the benefit and in the interests of the Company and its shareholders and represent their interests, having regard to the interests of employees and public welfare. Yes According to the knowledge of the Company all the members of the Supervisory Board are acting in good faith in the interests of the Company following the Company’s but not the own interests or interests of the third persons. 2.1.2. Where decisions of the Supervisory Board may have a different effect on the interests of the Company’s shareholders, the Supervisory Board should treat all shareholders impartially and fairly. It should ensure that shareholders are properly informed about the Company’s strategy, risk management and control, and resolution of conflicts of interest. Yes The Company's Supervisory Board in its work aim to behave honestly and impartially with all the Company's shareholders and by the knowledge of the Company, there was no such kind of the contrary case. The Chairman of the Company's Supervisory Board and the Chairman of the Management Board harmonizes and coordinates interaction with Company’s General Manager and in the name of Supervisory and Management Boards communicates with shareholders, informs the shareholders about the Company’s strategy, activity and other essential questions. 2.1.3. The Supervisory Board should be impartial in passing decisions that are significant for the Company’s operations and strategy. Members of the Supervisory Board should act and pass decisions without an external influence from the persons who elected them. Yes The Supervisory Board of the Company acts impartially when taking decisions that are significant for the Company's activities and strategy. 2.1.4. Members of the supervisory board should clearly voice their objections in case they believe that a decision of the supervisory board is against the interests of the company. Independent 2 members of the supervisory board should: a) maintain independence of their analysis and decision-making; b) not seek or accept any unjustified privileges that might compromise their independence. Yes According to the information available to the Company, all members of the Supervisory Board act in the best interests of the Company and shareholders, are guided by the interests of the Company and not by themselves or by third parties, trying to maintain their independence in decision making. 2.1.5. The Supervisory Board should oversee that the Company’s tax planning strategies are designed and implemented in accordance with the legal acts in order to avoid faulty practice that is not related to the longterm interests of the Company and its shareholders, which may give rise to reputational, legal or other risks. Yes In exercising its competence to supervise the activities of the Company's management bodies, the Supervisory Council performs the duties specified in the recommendation and submits its opinion on tax planning issues. 2 For the purposes of this Code, the criteria of independence of members of the supervisory board are interpreted as the criteria of unrelated parties defined in Article 31(7) and (8) of the Law on Companies of the Republic of Lithuania. 92 2.1.6. The Company should ensure that the Supervisory Board is provided with sufficient resources (including financial ones) to discharge their duties, including the right to obtain all the necessary information or to seek independent professional advice from external legal, accounting or other experts on matters pertaining to the competence of the Supervisory Board and its committees. Yes Based on the Company’s opinion, the Supervisory Board are provided with sufficient resources, including their right to get all the necessary information, especially from the employees of the Company. 2.2. Formation of the Supervisory Board The procedure of the formation of the Supervisory Board should ensure proper resolution of conflicts of interest and effective and fair corporate governance. 2.2.1. The members of the Supervisory Board elected by the General Meeting of Shareholders should collectively ensure the diversity of qualifications, professional experience and competences and seek for gender equality. With a view to maintain a proper balance between the qualifications of the members of the Supervisory Board, it should be ensured that members of the Supervisory Board, as a whole, should have diverse knowledge, opinions and experience to duly perform their tasks. Yes Pursuant to the Law on Companies of the Republic of Lithuania, the Supervisory Board is elected, and the qualification of its members is assessed at the General Meeting of Shareholders. 2.2.2. Members of the Supervisory Board should be appointed for a specific term, subject to individual reelection for a new term in office in order to ensure necessary development of professional experience. Yes The Supervisory Board is elected for the term of 4 (four) years. The term of office of members on the Supervisory Board is the maximum term of office prescribed by the Lithuanian Law on Companies. A General Meeting of Shareholders may remove from office both the entire Supervisory Board and individual members thereof before the end of their term of office. 2.2.3. Chair of the Supervisory Board should be a person whose current or past positions constituted no obstacle to carry out impartial activities. A former manager or Management Board member of the Company should not be immediately appointed as chair of the Supervisory Board either. Where the Company decides to depart from these recommendations, it should provide information on the measures taken to ensure impartiality of the supervision. Yes The Chairman of the Company's Supervisory Board and the CEO of the Company is not the same person. The members of the Supervisory Board and the Chairman have not been members of the Management Board of the Company or the CEO of the Company. 2.2.4. Each member should devote enough time and attention to perform his duties as a member of the Supervisory Board. Each member of the Supervisory Board should undertake to limit his other professional obligations (particularly the managing positions in other companies) so that they would not interfere with the proper Yes Members of the Supervisory Board are active participants of the meetings of the collegial body and devote enough time to perform their duties as members of the collegial body. In 2022 there were 3 (three) Supervisory Board’s meetings, and all of them were attended by more 93 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. than 2/3 of all the members of the Supervisory Board. 2.2.5. When it is proposed to appoint a member of the Supervisory Board, it should be announced which members of the Supervisory Board are deemed to be independent. The Supervisory Board may decide that, even though a particular member meets all the criteria of independence, he/she cannot be considered independent due to special personal or Company related circumstances. Yes Information on the candidates to the Company's Supervisory Board members (as well as information on the candidate's compliance with the independence requirements) is provided to the General Meeting of Shareholders in accordance with the Law on Companies of the Republic of Lithuania (see commentary on recommendation 1.9). 2.2.6. The amount of remuneration to members of the Supervisory Board for their activity and participation in meetings of the Supervisory Board should be approved by the General Meeting of Shareholders. Not applicable The members of the Supervisory Board are not remunerated from the Company’s funds. So, this provision is not relevant for the Company. 2.2.7. Every year the Supervisory Board should carry out an assessment of its activities. It should include evaluation of the structure of the Supervisory Board, its work organization and ability to act as a group, evaluation of the competence and work efficiency of each member of the Supervisory Board, and evaluation whether the Supervisory Board has achieved its objectives. The Supervisory Board should, at least once a year, make public respective information about its internal structure and working procedures. No There was no practice of assessment of the activity of Supervisory Board at the Company and of informing shareholders about that up to now because the controlling shareholder who proposes candidates to the Supervisory Board exhaustively knows the experiences and competences of each candidate. Principle 3: Management Board 3.1. Functions and liability of the Management Board The Management Board should ensure the implementation of the Company’s strategy and good corporate governance with due regard to the interests of its shareholders, employees and other interest groups. 3.1.1. The Management Board should ensure the implementation of the Company’s strategy approved by the Supervisory Board if the latter has been formed at the Company. In such cases where the Supervisory Board is not formed, the Management Board is also responsible for the approval of the Company’s strategy. Yes The Company's Management Board carries out the duty of implementation of the Company's strategy approved by the Company's Supervisory Board. 3.1.2. As a collegial management body of the Company, the Management Board performs the functions assigned to it by the Law and in the Statutes of the Company, and in such cases where the Supervisory Board is not formed in the Company, it performs inter alia the Supervisory functions Yes As the Supervisory Board is formed in the Company, the Management Board performs the functions of the Company's collegial management body. The obligation to consider the Company, the shareholders, the employees and other interest groups is established in the 94 established in the Law. By performing the functions assigned to it, the Management Board should consider the needs of the Company’s shareholders, employees and other interest groups by respectively striving to achieve sustainable business development agreement on performance of the Management Board signed by each member of the Management Board. 3.1.3. The Management Board should ensure compliance with the laws and the internal policy of the Company applicable to the Company or a group of companies to which this Company belongs. It should also establish the respective risk management and control measures aimed at ensuring regular and direct liability of managers. Yes The Management Board ensures that the laws and Company internal policies applicable to the Company and its entire group are respected. The Company also operates a risk management and control program. Risk management is carried out by the management of the Company. 3.1.4. Moreover, the management board should ensure that the measures included into the OECD Good Practice Guidance 3 on Internal Controls, Ethics and Compliance are applied at the company in order to ensure adherence to the applicable laws, rules and standards. Yes The Company has a policy of internal control and business ethics. The Company has adopted a Business Ethics Policy that clearly and publicly declares a negative attitude towards bribery and corruption. The provisions of this policy apply to all employees, agents, intermediaries, suppliers and subcontractors of the Company. 3.1.5. When appointing the manager of the Company, the Management Board should consider the appropriate balance between the candidate’s qualifications, experience and competence. Yes When appointing the CEO of the Company the Management Board considers the balance of his/her qualifications, experience and competence as well as the opinion of the Company's Supervisory Board. 3.2. Formation of the Management Board 3.2.1. The members of the Management Board, elected by the Supervisory Board or, if the Supervisory Board is not formed, by the General Meeting of Shareholders should collectively ensure the required diversity of qualifications, professional experience and competences and seek for gender equality. With a view to maintain a proper balance in terms of the current qualifications possessed by the members of the Management Board, it should be ensured that the members of the Management Board would have, as a whole, diverse knowledge, opinions and experience to duly perform their tasks. Yes The members of the Management Board are elected by the Supervisory Board of the Company. The members of the Management Board of the Company are qualified and competent to perform their functions, having a long experience in management. 3.2.2. Names and surnames of the candidates to become members of the Management Board, information on their educational background, qualifications, professional experience, current positions, other important professional obligations and potential conflicts of interest should be disclosed without violating the requirements of the legal acts regulating the handling of Yes Information about candidates to the Company’s Management Board is provided to the shareholders together with the documents of the shareholders’ meeting following the requirements of the Law on Public Limited Liability Companies of the Republic of Lithuania. Shareholders may see the documents prior the meeting. Information about the 3 Link to the OECD Good Practice Guidance on Internal Controls, Ethics and Compliance: https://www.oecd.org/daf/anti- bribery/44884389.pdf 95 personal data at the meeting of the Supervisory Board in which the Management Board or individual members of the Management Board are elected. If the Supervisory Board is not formed, the information specified in this paragraph should be submitted to the General Meeting of Shareholders. The Management Board should, on yearly basis, collect data provided in this paragraph on its members and disclose it in the Company’s annual report. members of the Management Board (names, education, qualifications, professional experience, participation in the activities of other companies, other important professional obligations) is provided in the periodical reports. 3.2.3. All new members of the Management Board should be familiarized with their duties and the structure and operations of the Company. Yes All new members of the Management Board are familiarized with their duties, Company structure and activities. 3.2.4. Members of the Management Board should be appointed for a specific term, subject to individual re-election for a new term in office in order to ensure necessary development of professional experience and sufficiently frequent reconfirmation of their status. Yes The members of the Management Board are elected for a 4-year term. The number of terms is unlimited. Members of the Management Board are elected by the General Meeting of Shareholders. Shareholders who nominate and vote for the Management Board follow their own approach, which candidates are best to represent the interests of the shareholders. 3.2.5. Chair of the Management Board should be a person whose current or past positions constitute no obstacle to carry out impartial activity. Where the Supervisory Board is not formed, the former manager of the Company should not be immediately appointed as chair of the Management Board. When a Company decides to depart from these recommendations, it should furnish information on the measures it has taken to ensure the impartiality of supervision. Yes The Chairman of the Company’s Management Board hasn’t been the General Manager of the Company. His current or past position is not an obstacle for independent and impartial supervision. 3.2.6. Each member should devote enough time and attention to perform his duties as a member of the Management Board. Should a member of the Management Board attend less than a half of the meetings of the Management Board throughout the financial year of the Company, the Supervisory Board of the Company or, if the Supervisory Board is not formed at the Company, the General Meeting of Shareholders should be notified thereof. Yes Each member of the collegial body fulfils his/her functions properly: actively participates at the meetings of collegial body and devotes enough time to perform his / her duties as a member of the collegial body. The quorum of each meeting was regulated so the Management Board would be enabled to accept decisions constructively. In 2022, 26 meeting of the Management Board had been held. All the meetings were attended by more, than 2/3 members of the Management Board. 3.2.7. In the event that the management board is elected in the cases established by the Law where the supervisory board is not formed at the company, and some of its members will be independent 4 , it should be announced Yes Al the members of the Management Board are independent. 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. 96 which members of the management board are deemed as independent. The management board may decide that, despite the fact that a particular member meets all the criteria of independence established by the Law, he/she cannot be considered independent due to special personal or company-related circumstances. 3.2.8. The General Meeting of Shareholders of the Company should approve the amount of remuneration to the members of the Management Board for their activity and participation in the meetings of the Management Board. Yes Remuneration is paid for the work on the Management Board to its members, by decision of the General Meeting of Shareholders in accordance with the Law on Companies of the Republic of Lithuania. The members of the Management Board are not remunerated for their performance and participation in the meetings. 3.2.9. The members of the Management Board should act in good faith, with care and responsibility for the benefit and the interests of the Company and its shareholders with due regard to other stakeholders. When adopting decisions, they should not act in their personal interest; they should be subject to noncompete agreements and they should not use the business information or opportunities related to the Company’s operations in violation of the Company’s interests. Yes By the Company’s information, all Management Board members should act in good faith, with care and responsibility for the benefit and in the interests of the Company and its shareholders. They are guided by the Company’s interests but not their own or any third parties seeking to maintain their independence in decision-making, and they do not accept any unjustified privileges that would compromise their independence. 3.2.10. Every year the Management Board should carry out an assessment of its activities. It should include evaluation of the structure of the Management Board, its work organization and ability to act as a group, evaluation of the competence and work efficiency of each member of the Management Board, and evaluation whether the Management Board has achieved its objectives. The Management Board should, at least once a year, make public respective information about its internal structure and working procedures in observance of the legal acts regulating the processing of personal data. No There was no practice of assessment of the activity of Management Board at the Company and of informing shareholders about that up to now because the controlling shareholder who proposes candidates to the Management Board exhaustively knows the experiences and competences of each candidate. Principle 4: Rules of procedure of the Supervisory Board and the Management Board of the Company The rules of procedure of the Supervisory Board, if it is formed at the Company, and of the Management Board should ensure efficient operation and decision-making of these bodies and promote active cooperation between the Company’s management bodies. 4.1. The Management Board and the Supervisory Board, if the latter is formed at the Company, should act in close cooperation 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 Yes Legal acts, Statutes and rules of procedure governing activities of the Company’s Supervisory and management bodies lay down the principles and procedure of cooperation between Supervisory and management bodies of the Company and ensure that 97 Board. The Management Board should regularly and, where necessary, immediately inform the Supervisory Board about any matters significant for the Company that are related to planning, business development, risk management and control, and compliance with the obligations at the Company. The Management Board should inform he Supervisory Board about any derogations in its business development from the previously formulated plans and objectives by specifying the reasons for this. management and Supervisory bodies cooperate to attain the greatest possible benefit to the Company and its shareholders. 4.2. It is recommended that meetings of the Company’s collegial bodies should be held at the respective intervals, according to the pre- approved schedule. Each Company is free to decide how often meetings of the collegial bodies should be convened but it is recommended that these meetings should be convened at such intervals that uninterruptable resolution of essential corporate governance issues would be ensured. Meetings of the Company’s collegial bodies should be convened at least once per quarter. Yes The Company follows the order foreseen in the work regulations of the Supervisory Board and the Management Board and the information about the convened meeting is presented in advance together with an agenda and all the necessary information and documents related to the meeting agenda. The Supervisory Board and the Management Board meeting agenda may be changed or added during the meeting, in the presence of all members of the collegial body, or when there is an urgent need to deal with Company’s certain key issues. 4.3. Members of a collegial body should be notified of the meeting being convened in advance so that they would have enough time for proper preparation for the issues to be considered at the meeting and a fruitful discussion could be held and appropriate decisions could be adopted. Along with the notice of the meeting being convened all materials relevant to the issues on the agenda of the meeting should be submitted to the members of the collegial body. The agenda of the meeting should not be changed or supplemented during the meeting, unless all members of the collegial body present at the meeting agree with such change or supplement to the agenda, or certain issues that are important to the Company require immediate resolution. Yes According to the Company’s Statutes and the working procedure regulations of the Supervisory Board and the Management Board, the members of the collegial body and persons that are invited to such meetings, are informed of them in advance. They are also provided with all the information and materials, needed to examine the questions, presented in the agenda. 4.4. In order to coordinate the activities of the Company’s collegial bodies and ensure effective decision-making process, the chairs of the Company’s collegial supervision and management bodies should mutually agree on the dates and agendas of the meetings and close cooperate in resolving other matters related to corporate governance. Meetings of 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 Yes The chairmen of Company's Supervisory and management bodies coordinate dates of the meetings, their agendas and cooperate in solving other issues of corporate governance. The Chairman of the Management Board and members of the Management Board are invited to the meetings of the Supervisory Board of the Company. 98 Board members, their responsibility or remuneration are discussed. Principle 5: Nomination, remuneration and audit committees 5.1. Purpose and formation of committees The committees formed at the Company should increase the work efficiency of the Supervisory Board or, where the Supervisory Board is not formed, of the Management Board which performs the Supervisory functions by ensuring that decisions are based on due consideration and help organise its work in such a way that the decisions it takes would be free of material conflicts of interest. Committees should exercise independent judgment and integrity when performing their functions and provide the collegial body with recommendations concerning the decisions of the collegial body. However, the final decision should be adopted by the collegial body. 5.1.1. Taking due account of the company- related circumstances and the chosen corporate governance structure, the supervisory board of the company or, in cases where the supervisory board is not formed, the management board which performs the supervisory functions, establishes committees. It is recommended that the collegial body should form the nomination, remuneration and audit committees 5 . Yes/No The Audit Committee is formed by the Supervisory Board from March 31, 2009 and the term of office of this committee coincides with the term of office of the Company's Supervisory Board. 5.1.2. Companies may decide to set up less than three committees. In such case companies should explain in detail why they have chosen the alternative approach, and how the chosen approach corresponds with the objectives set for the three different committees. Yes/No The Audit Committee is an independent, and objective committee carrying out the functions of supervision, analysing, evaluation and consultation in order to improve General organization and create value added. The main function of the Committee is systematic and versatile evaluation, as well as encouragement of better risk management, and enough control and maintenance procedures resulting in submission of recommendations to the Management Board and management regarding implementation of the objectives and tasks, risk management procedure and internal control functioning. The nomination and remuneration committees are not formed at the Company. As the Management Board of the Company is composed of competent members and they perform their activities efficiently, the Company does not currently see the need for other committees. 5.1.3. In the cases established by the legal acts the functions assigned to the committees formed at companies may be performed by Not applicable The Management Board of the Company does not perform the functions assigned to the Audit Committee. 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). 99 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. 5.1.4. Committees established by the collegial body should normally be composed of at least three members. Subject to the requirements of the legal acts, committees could be comprised only of two members as well. Members of each committee should be selected on the basis of their competences by giving priority to independent members of the collegial body. The chair of the Management Board should not serve as the chair of committees. Yes The Audit Committee consists of 3 members, two of whom are independent, with at least 5 years of experience in accounting, with relevant experience in finance and accounting in listed companies. The Chairman of the Management Board is not a member of the Committee. 5.1.5. The authority of each committee formed should be determined by the collegial body itself. Committees should perform their duties according to the authority delegated to them and regularly inform the collegial body about their activities and performance on a regular basis. The authority of each committee defining its role and specifying its rights and duties should be made public at least once a year (as part of the information disclosed by the Company on its governance structure and practice on an annual basis). In compliance with the legal acts regulating the processing of personal data, companies should also include in their annual reports the statements of the existing committees on their composition, the number of meetings and attendance over the year as well as the main directions of their activities and performance. Yes The Audit Committee follows the regulations of the Committee approved by the Supervisory Board. These Regulations establish the rules defining the rights and duties of the Audit Committee, the size of the Audit Committee, the period of membership of the Audit Committee, the requirements for the education, professional experience and independence principles of the members of the Audit Committee. The Audit Committee annually submits an annual activity report to the General Meeting of Shareholders, announcing the composition of the Committee, the number of meetings and the attendance of the members, describing the work performed and presenting the results. 5.1.6. With a view to ensure the independence and impartiality of the committees, the members of the collegial body who are not members of the committees should normally have a right to participate in the meetings of the committee only if invited by the committee. A committee may invite or request that certain employees of the Company or experts would participate in the meeting. Chair of each committee should have the possibility to maintain direct communication with the shareholders. Cases where such practice is to be applied should be specified in the rules regulating the activities of the committee. Yes The members of the collegial body take decisions at the meetings of their members, but in certain cases the committee invites the head of the Company and the responsible employees of the Company to attend its meetings, who are responsible for the areas of activity of the issues under discussion. The Chairman of the Audit Committee is also provided with the opportunity to communicate with the shareholders. 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 No The Nomination Committee is not formed in the Company. 100 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. 5.2.2. When dealing with issues related to members of the collegial body who have employment relationships with the Company and the heads of the administration, the manager of the Company should be consulted by granting him/her the right to submit proposals to the Nomination Committee. No See article 5.5.1 5.3. Remuneration committee The main functions of the remuneration committee should be as follows: 1) submit to the collegial body proposals on the remuneration policy applied to members of the Supervisory and management bodies and the heads of the administration for approval. Such policy should include all forms of remuneration, including the fixed rate remuneration, performance-based remuneration, financial incentive schemes, pension arrangements and termination payments as well as conditions which would allow the Company to recover the amounts or suspend the payments by specifying the circumstances under which it would be expedient to do so; 2) submit to the collegial body proposals regarding individual remuneration for members of the collegial bodies and the heads of the administration in order to ensure that they would be consistent with the Company’s remuneration policy and the evaluation of the performance of the persons concerned; 3) review, on a regular basis, the remuneration policy and its implementation. No There is no Remuneration Committee in the Company. The Company has implemented a remuneration policy that includes all forms of remuneration, including fixed salary, performance-based benefits and severance payments. The Company is approved by the Company's management in coordination with the Trade Union Committee operating in the Company. 5.4. Audit committee 101 5.4.1. The key functions of the audit committee are defined in the legal acts regulating the activities of the audit committee 6 . Yes The Audit Committee follows the regulations of the Audit Committee approved by the Supervisory Board of the Company. The Audit Committee carries out independent, objective monitoring, investigation, evaluation and advisory activities to improve the Company's performance and create added value. 5.4.2. All members of the committee should be provided with detailed information on specific issues of the Company’s accounting system, finances and operations. The heads of the Company’s administration should inform the audit committee about the methods of accounting for significant and unusual transactions where the accounting may be subject to different approaches. Yes All members of the Committee are provided with detailed information on the specific accounting, financial and operational characteristics of the Company and, upon request, information on the execution of important transactions. 5.4.3. The audit committee should decide whether the participation of the chair of the Management Board, the manager of the Company, the chief finance officer (or senior employees responsible for finance and accounting), the internal and external auditors in its meetings is required (and, if required, when). The committee should be entitled, when needed, to meet the relevant persons without members of the management bodies present. Yes The Audit Committee decides on the participation of other persons in its meetings and, if necessary, the Audit Committee invites the head of the Company and the responsible employees of the Company to its meetings, who are responsible for the areas of activity of the issues under consideration. The Chairman of the Audit Committee is also provided with the opportunity to communicate with the shareholders. 5.4.4. The audit committee should be informed about the internal auditor’s work program and should be furnished with internal audit reports or periodic summaries. The audit committee should also be informed about the work program of external auditors and should receive from the audit firm a report describing all relationships between the independent audit firm and the Company and its group. Yes The Audit Committee is informed about the work performed by the Internal Auditor and receives conclusions about the research performed. Each year, the Audit Committee receives reports from external auditors describing all relationships between the independent auditor and the Company and its group. 5.4.5. The audit committee should examine whether the Company complies with the applicable provisions regulating the possibility of lodging a complaint or reporting anonymously his/her suspicions of potential violations committed at the Company and should also ensure that there is a procedure in place for proportionate and independent investigation of such issues and appropriate follow-up actions. Yes The Company has provided employees with the opportunity to submit complaints or anonymous reports about violations committed in the Company, however the Company has not received such complaints or reports during the reporting period. 5.4.6. The audit committee should submit to the Supervisory Board or, where the Supervisory Board is not formed, to the Yes The Audit Committee analyses and evaluates the Company's annual and semi-annual financial statements, makes 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. 102 Management Board its activity report at least once in every six months, at the time that annual and half-yearly reports are approved. recommendations to the Management Board for their approval, together with its activity reports for that period. Principle 6: Prevention and disclosure of conflicts of interest The corporate governance framework should encourage members of the Company’s supervisory and management bodies to avoid conflicts of interest and ensure a transparent and effective mechanism of disclosure of conflicts of interest related to members of the supervisory and management bodies. Any member of the Company’s Supervisory and management body should avoid a situation where his/her personal interests are or may be in conflict with the Company’s interests. In case such a situation did occur, a member of the Company’s Supervisory or management body should, within a reasonable period of time, notify other members of the same body or the body of the Company which elected him/her or the Company’s shareholders of such situation of a conflict of interest, indicate the nature of interests and, where possible, their value. Yes Members of the Company's management bodies behave in such a way that there is no conflict of interest with the Company. During the reporting period, there is no known conflict of interest between the Company and the member of its management body. Principle 7: Remuneration policy of the Company The remuneration policy and the procedure for review and disclosure of such policy established at the Company should prevent potential conflicts of interest and abuse in determining remuneration of members of the collegial bodies and heads of the administration, in addition it should ensure the publicity and transparency of the Company’s remuneration policy and its long-term strategy. 7.1. The Company should approve and post the remuneration policy on the website of the Company, such policy should be reviewed on a regular basis and be consistent with the Company’s long-term strategy. Yes/no The Company has implemented and operates a remuneration policy approved by the Company's management, but it is not published on the Company's website. The Company will follow the recommendations of Principle 7 when the respective laws and other legal acts of the Republic of Lithuania are adopted. 7.2. The remuneration policy should include all forms of remuneration, including the fixed-rate remuneration, performance-based remuneration, financial incentive schemes, pension arrangements and termination payments as well as the conditions specifying the cases where the Company can recover the disbursed amounts or suspend the payments. Yes The Company has implemented a remuneration policy that includes all forms of remuneration, including fixed salary, performance-based benefits and severance payments. This procedure is approved by the management of the Company in agreement with the Trade Union Committee. 7.3. With a view to avoid potential conflicts of interest, the remuneration policy should provide that members of the collegial bodies which perform the Supervisory functions should not receive remuneration based on the Company’s performance. Yes See article 3.2.8 7.4. The remuneration policy should provide enough information on the policy regarding termination payments. Termination payments should not exceed a fixed amount or a fixed number of annual wages and in General should not be higher than the non- Yes Termination benefits shall be granted in accordance with the provisions of Chapter 5 of the Labour Code of the Republic of Lithuania and the provisions of the Collective Agreement in the Company. 103 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. 7.5. If the financial incentive scheme is applied at the Company, the remuneration policy should contain enough information about the retention of shares after the award thereof. Where remuneration is based on the award of shares, shares should not be vested at least for three years after the award thereof. After vesting, members of the collegial bodies and heads of the administration should retain a certain number of shares until the end of their term in office, subject to the need to compensate for any costs related to the acquisition of shares. No The Company does not apply a system of financial incentives. 7.6. The Company should publish information about the implementation of the remuneration policy on its website, with a key focus on the remuneration policy in respect of the collegial bodies and managers in the next and, where relevant, subsequent financial years. It should also contain a review of how the remuneration policy was implemented during the previous financial year. The information of such nature should not include any details having a commercial value. Particular attention should be paid on the major changes in the Company’s remuneration policy, compared to the previous financial year. No See article 7.1. 7.7. It is recommended that the remuneration policy or any major change of the policy should be included on the agenda of the General Meeting of Shareholders. The schemes under which members and employees of a collegial body receive remuneration in shares or share options should be approved by the General Meeting of Shareholders. No See article 7.1. Principle 8: Role of stakeholders in corporate governance The corporate governance framework should recognize the rights of stakeholders entrenched in the laws or mutual agreements and encourage active cooperation between companies and stakeholders in creating the Company value, jobs and financial sustainability. In the context of this principle the concept “stakeholders” includes investors, employees, creditors, suppliers, clients, local community and other persons having certain interests in the Company concerned. 8.1. The corporate governance framework should ensure that the rights and lawful interests of stakeholders are protected. Yes The corporate governance framework assures the rights of stakeholders that are protected by law are respected. The Company applies a Corporate Contract with employees, and the contract is signed by the CEO and Trade Union. The Company pursues the maximum possible transparency in its relations with 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 104 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. all stakeholders and the compliance with the highest ethical requirements and principles – in its activities, because honest and open business activities are one of the key elements of impeccable business reputation. The Company takes into account the changing customer needs, constantly improving its operational processes, empowering employees, taking care of the safety and health of its employees, seeking to maintain a close relationship with investors and ensure information accessible to all, continuously updating the information and posting it in the “Investors” section of its website. 8.3. Where stakeholders participate in the corporate governance process, they should have access to relevant information. 8.4. Stakeholders should be provided with the possibility of reporting confidentially any illegal or unethical practices to the collegial body performing the Supervisory function. Principle 9: Disclosure of information The corporate governance framework should ensure the timely and accurate disclosure of all material corporate issues, including the financial situation, operations and governance of the Company. 9.1. In accordance with the Company’s procedure on confidential information and commercial secrets and the legal acts regulating the processing of personal data, the information publicly disclosed by the Company should include but not be limited to the following: Yes The information contained in this recommendation shall be disclosed in the annual and semi-annual reports of the Company in accordance with the requirements of legal acts regulating data processing and confidential information procedures. This information is published on the website of PLLC Nasdaq Vilnius. Stock Exchange and on the Company's website. 9.1.1. operating and financial results of the Company; 9.1.2. objectives and non-financial information of the Company; 9.1.3. persons holding a stake in the Company or controlling it directly and/or indirectly and/or together with related persons as well as the structure of the group of companies and their relationships by specifying the final beneficiary; 9.1.4. members of the Company’s Supervisory and management bodies who are deemed independent, the manager of the Company, the shares or votes held by them at the Company, participation in corporate governance of other companies, their competence and remuneration; 9.1.5. reports of the existing committees on their composition, number of meetings and attendance of members during the last year as well as the main directions and results of their activities; 9.1.6. potential key risk factors, the Company’s risk management and supervision policy; 105 9.1.7. the Company’s transactions with related parties; 9.1.8. main issues related to employees and other stakeholders (for instance, human resource policy, participation of employees in corporate governance, award of the Company’s shares or share options as incentives, relationships with creditors, suppliers, local community, etc.); 9.1.9. structure and strategy of corporate governance; 9.1.10. initiatives and measures of social responsibility policy and anti-corruption fight, significant current or planned investment projects. This list is deemed minimum and companies are encouraged not to restrict themselves to the disclosure of information included into this list. This principle of the Code does not exempt companies from their obligation to disclose information as provided for in the applicable legal acts. 9.2. When disclosing the information specified in paragraph 9.1.1 of recommendation 9.1, it is recommended that the Company which is a parent Company in respect of other companies should disclose information about the consolidated results of the whole group of companies. Yes The Company discloses information on the Company’s and the Group’s consolidated results. The information is disclosed in the consolidated annual report and consolidated financial statements. 9.3. When disclosing the information specified in paragraph 9.1.4 of recommendation 9.1, it is recommended that the information on the professional experience and qualifications of members of the Company’s Supervisory and management bodies and the manager of the Company as well as potential conflicts of interest which could affect their decisions should be provided. It is further recommended that the remuneration or other income of members of the Company’s Supervisory and management bodies and the manager of the Company should be disclosed, as provided for in greater detail in Principle 7. Yes The information specified in the recommendation is presented in the Company's annual and semi-annual reports. The Company will implement the recommendations of Principle 7 once the legislation governing is adopted. 9.4. Information should be disclosed in such manner that no shareholders or investors are discriminated in terms of the method of receipt and scope of information. Information should be disclosed to all parties concerned at the same time. Yes The Company discloses all regulated information through the news distribution system of PLLC Nasdaq Vilnius. This ensures that it is accessible to the widest possible public. The information is simultaneously available in Lithuanian and English. In addition, the Company publishes information before or after the Nasdaq Vilnius trading session so that all shareholders and investors of the Company have equal access to information and make 106 appropriate investment decisions. The Company shall not disclose information that may affect the price of the securities issued by it in the comments, interviews or other ways until such information is made public through the Central Regulatory Information base. Principle 10: Selection of the Company’s audit firm The Company’s audit firm selection mechanism should ensure the independence of the report and opinion of the audit firm. 10.1. With a view to obtain an objective opinion on the Company’s financial condition and financial results, the Company’s annual financial statements and the financial information provided in its annual report should be audited by an independent audit firm. Yes An independent audit Company performs auditing of the Company’s and its subsidiaries individual and consolidated (the group) annual financial reports in accordance with International Accounting Standards applicable in the EU. An independent auditing Company also evaluates conformity of annual report to the audited financial statements. 10.2. It is recommended that the audit firm would be proposed to the General Meeting of Shareholders by the Supervisory Board or, if the Supervisory Board is not formed at the Company, by the Management Board of the Company. Yes The Management Board proposes an audit Company to the General Meeting of Shareholders. 10.3. If the audit firm has received remuneration from the Company for the non- audit services provided, the Company should disclose this publicly. This information should also be available to the Supervisory Board or, if the Supervisory Board is not formed at the Company, by the Management Board of the Company when considering which audit firm should be proposed to the General Meeting of Shareholders. Yes Information on remuneration to the audit Company is made public in the decisions of the General Meeting of Shareholders. The audit firm provides non-audit services only with the approval of the Audit Committee. In 2022, the audit firm did not receive any remuneration for the non-audit services provided.