Litgrid AB

Annual Report (ESEF) • Jun 17, 2022

529900CTIUKTEFNNH1572021-01-012021-12-31529900CTIUKTEFNNH1572021-12-31iso4217:EUR529900CTIUKTEFNNH1572020-12-31529900CTIUKTEFNNH1572020-01-012020-12-31iso4217:EURxbrli:shares529900CTIUKTEFNNH1572019-12-31ifrs-full:IssuedCapitalMember529900CTIUKTEFNNH1572019-12-31ifrs-full:SharePremiumMember529900CTIUKTEFNNH1572019-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember529900CTIUKTEFNNH1572019-12-31ifrs-full:StatutoryReserveMember529900CTIUKTEFNNH1572019-12-31ifrs-full:OtherReservesMember529900CTIUKTEFNNH1572019-12-31ifrs-full:RetainedEarningsMember529900CTIUKTEFNNH1572019-12-31529900CTIUKTEFNNH1572020-01-012020-12-31ifrs-full:IssuedCapitalMember529900CTIUKTEFNNH1572020-01-012020-12-31ifrs-full:SharePremiumMember529900CTIUKTEFNNH1572020-01-012020-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember529900CTIUKTEFNNH1572020-01-012020-12-31ifrs-full:StatutoryReserveMember529900CTIUKTEFNNH1572020-01-012020-12-31ifrs-full:OtherReservesMember529900CTIUKTEFNNH1572020-01-012020-12-31ifrs-full:RetainedEarningsMember529900CTIUKTEFNNH1572020-12-31ifrs-full:IssuedCapitalMember529900CTIUKTEFNNH1572020-12-31ifrs-full:SharePremiumMember529900CTIUKTEFNNH1572020-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember529900CTIUKTEFNNH1572020-12-31ifrs-full:StatutoryReserveMember529900CTIUKTEFNNH1572020-12-31ifrs-full:OtherReservesMember529900CTIUKTEFNNH1572020-12-31ifrs-full:RetainedEarningsMember529900CTIUKTEFNNH1572021-01-012021-12-31ifrs-full:IssuedCapitalMember529900CTIUKTEFNNH1572021-01-012021-12-31ifrs-full:SharePremiumMember529900CTIUKTEFNNH1572021-01-012021-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember529900CTIUKTEFNNH1572021-01-012021-12-31ifrs-full:StatutoryReserveMember529900CTIUKTEFNNH1572021-01-012021-12-31ifrs-full:OtherReservesMember529900CTIUKTEFNNH1572021-01-012021-12-31ifrs-full:RetainedEarningsMember529900CTIUKTEFNNH1572021-12-31ifrs-full:IssuedCapitalMember529900CTIUKTEFNNH1572021-12-31ifrs-full:SharePremiumMember529900CTIUKTEFNNH1572021-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember529900CTIUKTEFNNH1572021-12-31ifrs-full:StatutoryReserveMember529900CTIUKTEFNNH1572021-12-31ifrs-full:OtherReservesMember529900CTIUKTEFNNH1572021-12-31ifrs-full:RetainedEarningsMember LITGRID AB The Company’s financial statements, annual report and independent auditor’s report for the year ended 31 December 2021 CONFIRMATION OF RESPONSIBLE PERSONS 18 March 2022, Vilnius Following the Law on Securities of the Republic of Lithuania and the Rules on Information Disclosure approved by the Bank of Lithuania, we, Rokas Masiulis, Chief Executive Officer of LITGRID AB, Vytautas Tauras, Director of the Finance Department of LITGRID AB and Asta Vičkačkienė, Head of the Accounting Division of LITGRID AB, hereby confirm that, to the best of our knowledge, the attached financial statements of LITGRID AB for the year 2021 prepared in accordance with the International Financial Reporting Standards adopted by the European Union give a true and fair view of the Company’s assets, liabilities, financial position, profit and cash flows; the annual report for the year 2021 presents a fair overview of the business development and performance, the Company’s financial position together with the description of its exposure to key risks and contingencies. Rokas Masiulis Chief Executive Officer (The document is signed by a qualified electronic signature) Vytautas Tauras Director of the Finance Department (The document is signed by a qualified electronic signature) Asta Vičkačkienė Head of the Accounting Division (The document is signed by a qualified electronic signature) TABLE OF CONTENTS Translation note: This version of the accompanying documents is a translation from the original, which was prepared in Lithuanian. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of the accompanying documents takes precedence over this translation. Annual report 4 The Company’s statement of financial position 90 The Company’s statement of comprehensive income 91 The Company’s statement of changes in equity 92 The Company’s statement of cash flows 93 Notes to the Company’s financial statements 94 Independent auditor’s report 135 The financial statements were approved on 18 March 2022. Rokas Masiulis Chief Executive Officer Vytautas Tauras Director of the Finance Department Asta Vičkačkienė Head of the Accounting Department ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 4 Statement of the Chairman of the Board Dear all, We will remember the beginning of 2022 for a long time to come. The war in Ukraine has caused a lot of anxiety, but it has also the effect of mobilization. It recharged everyone personally, brought together the teams and the organizations. In late February and early March, in a matter of hours and days, we resolutely made and changed the decisions that have been our guidelines for many months and years before. Most importantly, however, during this period it became clear that Lithuania had been steadily and successfully moving towards the energy independence for many years already. Litgrid's contribution to energy independence last year is obvious and visible - last year the two projects of infrastructure, important for synchronization with the continental European networks were successfully completed: the connection with Poland through the LitPol Link connection to was expanded, and the network in North-Eastern Lithuania was optimized. All other synchronization projects that the company will complete by 2025 are also being successfully implemented. A test carried out in December last year showed that LitPol Link would allow Lithuanian electricity system to operate in synchronous mode with the Polish electric energy system and, at the same time, with the continental European network. In 2021, Litgrid maintained and improved the reliability in electricity transmission, and the largest amount of electricity transmitted in the last three decades signals the ongoing economic recovery after the pandemic. Almost the half of the electricity generated in Lithuania was generated by solar, wind and other renewable energy sources. The company invested more than EUR 53 million last year. Two thirds of this amount were allocated to the strategic and important electricity projects for Lithuania, the rest was dedicated to the renewal and development of the transmission network. Rokas Masiulis, who joined the Litgrid team last year, took over the lead of the company. The first goals set by the Board were the timely implementation of synchronization projects and the prevention of electricity generated at the unsafe Astrave NPP. Both goals were achieved. Lately, I have had many opportunities to admire the Litgrid team's focus, motivation, and determination to meet the challenges. Both during the implementation of the most important projects throughout 2021 and in response to the drastic overnight changes of the situation at the end of February 2022. Therefore, first I would like to thank Litgrid's customers, as well as the company's employees, managers, and partners for their joint work in 2021. I wish all of us further focus and determination. We are on the right track. Yours faithfully, Algirdas Juozaponis Chairman of the Board of Litgrid ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 5 Statement of the Chief Executive Officer Dear all, I hereby present Litgrid report for 2021. Last year we continued to make steady progress in the synchronization, ensured key security guarantees from Western partners, increased the reliability of the electricity transmission system, laid the foundations for future energy, planned the development of the renewable resources and integration of the battery technologies. In 2021 we implemented three important projects for the synchronization with the continental European networks, including the expansion of LitPol Link, the connection with Poland, which is one of the most important preparations. The result of this project is preparedness with the synchronous connection with the continental Europe. Shortly after the expansion of LitPol Link, we successfully tested assistance from the Polish system, which showed that in the event of an unplanned disconnection from the Russian-operated IPS / UPS system, we would receive assistance from our partners in the West and through the NordBalt connection to Sweden, which we did test the last year. The thorough preparation allows us to say that the security of the Lithuanian electricity system is ensured. Last year we implemented another synchronization project – Optimization of the electricity transmission network in North-Eastern Lithuania. We did reconstruction of the Ignalina NPP and Utena transformer substations and the overhead lines for the system needs in preparation for the synchronization. Last year we also signed a contract for the purchase and installation of three synchronous condensers. These devices are designed to ensure the reliable operation of the grid when a large part of the electricity consumed is generated in renewable power plants or obtained through direct current connections. At the beginning of this year, together with our partners - Poland, Latvia, and Estonia - we secured additional funding from the European Union – EUR 170 million. EU grants for the synchronization exceeds EUR 1.2 billion. In total, 6 out of 20 synchronization projects are already completed, and the completion of the entire programme is more than 40 percent. This year, we are steadily progress on other important synchronization projects - the installation of the undersea connection with Poland Harmony Link and synchronous condensers while at the same time carrying out the development and renewal of the electricity transmission network. All this brings us closer to the full integration into the electricity system of the continental European countries, which we plan to implement in 2025. In terms of the security last year, we continued to take care that electricity generated in the unsafe Astravets NPP would not reach Lithuanian electricity consumers by applying additional restrictions between the Baltic States and the third countries. 2021 Litgrid has demonstrated significantly improved the system reliability. The average interruption time (AIT) attributed to the operator's liability was 0.112 minutes last year, compared to 0.209 minutes the previous year. Meanwhile the amount of the energy not supplied (ENS) in 2021 amounted to 3.356 MWh in 2020 - 6.213 MWh. The qualitative indicators also exceed the 2021 values approved by the National Energy Regulatory Council. Litgrid aims to keep the AIT below 0.29 minutes per year and the ENS at 6.300 MWh. Last year we commenced laying the foundations for the expansion of the renewable energy. We have started the preparations for the offshore wind energy with a technical and economic evaluation study. Already in 2023 an offshore wind auction is planned to integrate the first 700 MW offshore wind capacity into the Lithuanian electricity system. We are also creating conditions for onshore wind farms, by 2025 we observe the additional opportunities to connect another 140 MW of renewable power capacity, and after the implementation of the synchronization in 2025, we plan to connect another 960 MW of renewable energy. As we continue to prepare for the energy challenges of the future, we have our clear focus on innovations. Last year we were the first in the Baltic States to connect a 1 MW pilot battery to the transmission network. We have successfully tested it in various transmission network functions and are ready to integrate powerful energy storage devices into the system. In our opinion, batteries will help Lithuania achieve its goals of security of the electricity supply, energy security and the development of the renewable resources. The Company's financial results are a solid base for the implementation of our strategic projects. According to the audited data Litgrid's revenue in 2021 amounted to EUR 270.6 million and was by 30% higher than in 2020. The Company's profit before interest, taxes, depreciation, and amortization (EBITDA) was EUR 46.2 million, 10.28 percent lower than in 2020. The results were mainly affected by the higher market electricity prices and as a result there occurred a significant increase in the costs of electricity compensation in the technological grid facilities. This year's geopolitical situation is a perfect proof that we have chosen the right strategic direction and the work that has already been done makes us feel safer. This year we will continue working consistently to become a part of the continental European electricity system together with the other Baltic countries. Among the most important works are the signing of the Harmony Link cable purchase agreement with Poland, the strengthening of internal networks, and the integration of 200 MW ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 6 of energy storage into the electricity system. This year, we will also test the operation of the entire Lithuanian energy system in isolated mode: for the first time, we will independently manage all the system, as well as the frequency, independently from the neighbouring countries. I firmly believe that Litgrid team will successfully achieve all its goals and overcome any challenges. Yours faithfully, Rokas Masiulis CEO Litgrid ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 7 The main Litgrid’s KPI’s: 2021 2020 Change +/- % Revenue EUR 270,6 million EUR 207,5 million EUR 63,1 million 30,4 EBITDA EUR 46,2 million EUR 51,8 million EUR 4,6 million -10,8 NET PROFIT EUR 20 million 26,6 million EUR 7,1 million -24,8 Return on equity 9,1 % 12,9 % Amount of energy transmitted GWh 10 936 GWh 10 089 GWh 850 GWh 8,4 ENS 3,356 MWh 6,213 MWh -2,857 MWh AIT 0,112 min. 0,209 min. -0,097 min. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 8 1. GENERAL INFORMATION The report has been prepared for the period ended 31 December 2021. The Issuer and its contact details: Name Litgrid AB ( Litgrid or the Company) Legal form Public limited liability company Date and place of registration 16 November 2010, the Register of Legal Entities of the Republic of Lithuania Company code 302564383 Registered office address Karlo Gustavo Emilio Manerheimo str. 8, LT-05131, Vilnius Address for correspondence Karlo Gustavo Emilio Manerheimo str. 8, LT-05131, Vilnius Telephone +370 707 02171 Email info@ Litgrid .eu; www. Litgrid .eu Litgrid is a part of the EPSO-G group of companies: EPSO-G is a state-owned group of energy transmission and exchange companies. The rights and obligations of the shareholder of the holding company EPSO-G UAB are implemented by the Ministry of Energy of the Republic of Lithuania. EPSO-G UAB owns 97.5 % of shares of Litgrid. Shares of other companies owned by Litgrid and changes during 2021: Name LitPol Link Sp.z.o.o TSO Holding AS (former name Nord Pool Holding AS) Country of incorporation Republic of Poland Kingdom of Norway Registered office address Warszawska 165, 05-520, Konstancin-Jeziorna, Poland PO Box 121, NO-1325 Lysaker, Norway Shares owned by Litgrid 50% of shares and voting rights attached thereto. 2% of shares and voting rights attached thereto. Changes during 2021 The liquidation process finalized. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 9 1.2. Activities of Litgrid Litgrid, the Lithuanian electricity transmission system operator (the TSO), secures stable operation of the national electricity system, controls electricity flows and creates conditions for competition in the open electricity market. Litgrid has implemented the strategic projects on electricity cross-border links NordBalt (Lithuania–Sweden) and LitPol Link (Lithuania– Poland). Main activities of Litgrid: responsibility for maintaining the balance between electricity consumed and produced in the system and reliable transmission of electricity, implements strategic national electricity projects. Its vision and strategic operating guidelines are based on the long-term goals identified in the National Energy Independence Strategy (the NEIS). The most important activity areas and responsibilities of the Lithuanian TSO include: maintenance of the country’s electricity infrastructure and its integration with the Western and Northern European electricity infrastructure; development of the electricity market and participation in the creation of a single electricity market of the Baltic and European countries; and integration of the electricity systems of Lithuania and continental Europe for synchronous operations. In implementing the programme on the synchronisation with the European continental networks, the Company carries out 20 projects of strategic importance approved by the Government of the Republic of Lithuania. The EPSO-G UAB Group prepares the Sustainability report which will be published on the Group‘s and the Company‘s websites. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 10 2. BUSINESS ENVIRONMENT 2.1. Business model Litgrid is a Lithuanian-wide electricity transmission system operator. The company is in charge of high-voltage electricity transmission network and maintains the stable operation of the country's electricity system, manages electricity flows and creates conditions for competition in the free electricity market, is responsible for the integration of the Lithuanian electricity system into the European electricity network and the common electricity market. Electricity transmission is an intermediate link between electricity generation and distribution to consumers. The voltage of transmission networks is high or very high (110-440 kV). Electricity transmission networks consist of electricity transmission lines with substations. Power lines are connected in power substations with higher and lower voltage switchgear and transformers connecting them. In substation transformers, the voltage is reduced to the voltage of the distribution networks. Electricity transmission activities are licensed. The prices of the electricity transmission service are regulated by the National Energy Regulatory Council (NERC), setting price caps for these services. 2.2. Services provided by electricity transmission system operator Litgrid Electricity transmission over high voltage (110-400 kV) electrical installations The electricity transmission service is electricity transmission over high voltage (330 kV and 110 kV) electrical installations. The transmission system operator transmits electricity from producers to consumers that are connected to the transmission network, and to the operators of the distribution networks. Electricity transmission is an activity regulated by the state. The main activities of the TSO include management of the high voltage electricity transmission network and securing reliable, effective, high-quality, transparent, and safe transmission of electricity. System services In order to maintain reliable system operations, Litgrid purchases from energy generating companies the services for the capacity reserve assurance at the electricity generation facilities, reactive power and voltage management, and emergency, disruption prevention and response services, and provides consumers with system services. The capacity reserve is needed when electricity production suddenly and unexpectedly falls or its consumption increases. Trade in imbalance and balancing electricity to ensure a balance between production and consumption Litgrid ensures a balance between production and consumption of electricity in the country. Imbalance electricity is electricity that is consumed or produced outside of established electricity consumption or production schedules. Litgrid organises trade in imbalance electricity, buys and sells imbalance electricity that is necessary to ensure the country’s electricity production and consumption balance. Balancing electricity is electricity that is bought and/or sold on instruction of the transmission system operator as electricity necessary for performing the function of balancing the country’s electricity consumption and production. Litgrid organises trading in balancing electricity by auction. The auction participants are the suppliers of balancing energy and the TSOs of other countries possessing technical facilities that enable them to quickly change the electricity generation and consumption conditions and having concluded a relevant agreement with Litgrid . Services under public service obligation (PSO) scheme Public service obligations (PSO) in the electricity sector are services that ensure and enhance the national energy security and promote integration and use of electricity produced from renewable energy sources. The list of PSO services, their providers and procedures for the provision of PSO services are approved by the Government of the Republic of Lithuania, or an institution authorised by it, having regard to the public interests in the electricity sector. PSO funds are funds that are paid to the providers of PSO services. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 11 Litgrid provides the following PSO services: Connection of power generation equipment that uses wind, biomass, solar energy, or hydropower to the transmission network as well as the transmission network’s optimisation, development and/or reconstruction related to the acceptance and transmission of electricity generated by producers that use renewable energy sources; Balancing of electricity produced from renewable energy sources. Granting and removal of guarantees of origin A guarantee of origin is a certificate proving that the energy is produced from renewable sources. The guarantee of origin is valid for 12 months from the date of issue. Guarantees of origin can be of two types: Guarantee of the origin of renewable energy sources for the purpose of verifying the origin and quantity of electricity. A guarantee of origin is proof that all or part of the energy has been produced from renewable energy sources. Guarantee of the origin of efficient cogeneration for the origin and quantity of electricity produced from high - efficiency cogeneration. 2.3. Customers of the transmission system operator Litgrid’s direct customers are the electricity transmission network’s users and suppliers of imbalance and balancing electricity. Users of the transmission network include: ESO and Dainavos Elektra UAB the distribution network operators; Electricity consumers whose electrical installations are connected to the electricity transmission network and who purchase electricity for use; Electricity producers connected to the electricity transmission network. Suppliers of imbalance and balancing electricity include electricity producers and suppliers. 2.4. Operating indicators of electricity transmission and the network’s reliability In accordance with the requirements approved by the National Energy Regulatory Council (the NERC) for reliability and quality of service of electricity transmission, the following indicators are used to determine the transmission reliability level: ENS (energy not supplied), i.e. the quantity of electricity not transmitted due to interruptions, and AIT (average interruption time), i.e. the average interruption duration in electricity transmission. TSO’s operating indicators 2021 2020 2019 Electricity transmission quantity, million kWh 10 936 10 089 10 277 Technological costs in the transmission network, % 2,67 2,88 2,98 ENS (Energy Not Supplied due to interruptions), Mwh ** 3,356 6,21 32,30 AIT (Average Interruption Time), min. ** 0,112 0,21 1,13 ** Only due to the operator’s fault or due to undetermined causes. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 12 In 2021, ENS and AIT indicators attributable to the operator’s responsibility were better than in the prior year. In 2021 the transmitted energy for the needs of the country was 10.9TWh, by 8.4 percent bigger than in 2020, 10.1 TWh. 2.5. Electricity interconnections Reliably functioning interconnections are an essential part of the system enabling to operate together with the energy systems of other western and northern European countries and develop a single European market. LitPol Link is a double-circuit transmission line from Alytus in Lithuania to Elk in Poland and the Alytus back-to-back converter. The LitPol Link interconnection was available to the market 92.4% of the time throughout 2021. The biggest impact for unavailability came from planned works of finishing the “LitPol Link” expansion. The NordBalt electricity interconnection is one of the longest submarine cables in the world, the operation of which significantly increases safety of energy supply to Lithuania and the Baltic countries. The NordBalt interconnection was available to the market 95.6% of the time throughout 2021. The biggest impact on unavailability cane from planned maintenance works. 2.6. Maintenance of the electricity network In Lithuania, Litgrid employees maintain 7,245.4 km of high-voltage lines (6,986.1 km of overhead lines and 259.3 km of cables) and 236 transformer substations and switchyards, 2 HVDC stations. In order to maintain a stable service life of overhead lines and ensure a stable operation of installations, repairs of installations were carried out in 27 transformer substations with the voltage of 110-330 kV, check-ups, all planned maintenance works finished, overhead lines with the voltage of 110 kV and higher were repaired (1399.5 km) and 381 towers were replaced during the repair. In order to protect the overhead lines an area of 627 hectares was cleaned, 65 300 potentially dangerous trees for the reliability of electricity y transmission were removed. Regular repair and maintenance of the transmission network’s objects have impact on reliability of operation of the electricity system and electricity transmission. Scheduled works within the transmission network are carried out at the intervals established by the legal acts of the Republic of Lithuania, however when assessing the quantity and scope of works the actual condition of installations as well as the need to secure reliable operation of the network and efficient use of funds are taken into consideration. In order increase efficiency of the network’s maintenance and the related processes, the aero scan project of the 110-400 kV overhead lines was successfully completed on time and in best natural conditions: all 110 kV overhead lines (4745 km) were scanned by unmanned gliders and manned helicopters using Lidar and photo cameras. The specialists will use the collected information to assess actual and recalculated safe distances of overhead lines from wires of electricity transmission lines to the ground, roads, vegetation, and water bodies. Information received on the geographical location of towers of lines, heights of towers, spacing between towers and edge wire to the axis of the line will update the GISS data base and characteristics of wire and towers in the Company’s asset management system. The obtained photos of towers and routes of overhead lines will enable the line engineers to identify defects of overhead lines by observing line installations from workplaces. The vegetation reports obtained will help identify dangerous trees along the routes of overhead lines and allow removing them immediately. Based on the database of induced voltage of overhead lines and a GIS application model created in 2020, developed using the mathematical calculation model of induced voltage power transmission overhead lines, application was develop which allows reviewing induced voltage sections and modelled induced voltage values. This information allows safely organize work when repairing overhead lines when the lines are induced in areas of voltage exposure. In the first quarter of 2021, using the 2020 the data of accurate geodetic measurements of 110 - 400 kV overhead line support points were performed, the spatial data of the transmission network were updated, which are transferred to surveyors, designers and responsible institutions for the preparation of planning documents and design of individual objects. This allows to plan and design facilities without compromising airline security zones. This model is used as a basis for the preparation of the induced voltage map which will made available on the Company’s website and accessible to all contractors. By sharing such data and maps we are contributing to the creation of safer working environment in the electricity networks. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 13 The company has successfully introduced drones to determine the location and causes of damage of overhead lines. The high- resolution cameras installed in the drones allow to see small damages of the line wires, supporting structures and other line elements without disconnecting the line. Overhead line engineers appreciate this innovation as time saving and maintaining high reliability on the lines. According to the data of December 2021, out of 1276 managed transmission system devices, 75.6% were remotely controlled - about 965 connections in total. 2.7. International cooperation and membership in organisations ENTSO-E Litgrid is an active participant of the European Network of Transmission System Operators for Electricity (ENTSO-E), which brings together 39 electricity transmission operators from 35 countries. Representatives of the Company participate, as permanent members, in the activities of ENTSO-E committees and working groups that at the expert level assure secure and reliable European transmission system development while implementing common projects, preparing, and discussing regulations, methodologies and other tasks relevant for all the EU Member States. Participation in the activities of ENTSO-E, strengthens cooperation with other European transmission network operators and is crucial for Litgrid to implement priority tasks of the Lithuanian energy sector - the integration into the synchronous zone of the continental Europe and transmission grid preparation for National and Regional energy sector transformation. BEMIP The purpose of the Baltic Energy Market Interconnection Plan (BEMIP) is to develop operating and integrated electricity and gas market, as well as to ensure the necessary energy infrastructure, by developing a competitive, sustainable, safe energy market in the Baltic Sea region. The obligations of Lithuania to the BEMIP related to electric energy are implemented by “Litgrid” by means of projects facilitating integration into the synchronous zone of continental Europe and putting in place the preparatory works for the development of offshore wind energy in Lithuania. Baltic Sea system development steering committee In 2020 Litgrid with other six transmission system operators in the Baltic Sea region signed a cooperation memorandum on the development of offshore wind energy in the region. As a result of the memorandum, TSOs established Baltic Sea system development steering committee which with the help of dedicated working groups will focus on regional systema adequacy assurance, harmonized onshore and offshore grid development, and will seek to develop common principles for the planning of the Baltic Sea network and to conduct studies that would help to form a common vision for offshore wind network development in the region. Liutauras Varanavicius, Director of Strategy department, is appointed as a vice-charman of this steering group. TEPCO 2021-2022 Lithuanian electricity transmission system operator Litgrid continues cooperation with Japanese energy company TEPCO Power Grid and implements a study intended to assess technical and economic alternatives for offshore wind integration. The purpose of the study is to evaluate the possible different configurations of the grid, their technical parameters, reliability of the system, the newly emerging market opportunities, socio-economic benefits of such projects. BRELL There are five synchronous zones in Europe: the Nordic Area, IPS/UPS, continental Europe, the British and the Irish Area. A synchronous zone is a geographic area in which power generators are connected and operate under the same frequency and at the same rhythm. Lithuanian energy system is currently synchronously operating within the IPS/UPS system of Belarusian, Russian, Estonian, Latvian, and Lithuanian power ring (BRELL). BRELL is an agreement between national electricity transmission system operators regulating dispatcher control issues within their energy systems. The PSO of the Baltic States seek that BRELL decisions would be compliant with the provisions of the Directives of the European Union. The interests of the parties to BRELL are represented by Belenergo (Belarus TSO), SO EES, Rosseto and FSK EES (Russian TSO), Elering (Estonian TSO), Augstspriegumatīkls (Latvian TSO) and Litgrid. Other associations at which the interests of the company are represented: Lithuanian Polish Commerce Chamber Association CIGRE ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 14 As a member of the above-mentioned associations, Litgrid maintains closer cooperation with regional and national partners, ensures the representation of the interests of the Company, more fluent implementation of strategic projects and communication on issues relevant to the Company. International practice and the opportunity to contribute to the solutions implemented at the level of European transmission network operators increase Litgrid responsibility by bringing together experts in the Lithuanian electricity sector. The company is a member of the National Energy Association of Lithuania, which actively communicate with the competent authorities to improve the regulatory environment of the sector, examines various social, political, technical, tax, legal and other issues directly and indirectly related to the activities of its members. Also, a great deal of attention is paid to the promotion of the energy profession - Energy Day events are organized for the staff and the public, participate in the activities of the Lithuanian Energy Seniors Club. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 15 3. Operating and regulatory environment The strategic goal of Litgrid is the integration into the European market. The development of the country's economy also has an impact on the company's operations, goals and targets of the European Union. 3.1. Energy sector environment, regulatory changes in EU energy sector and changes The European Union energy policy has a great impact on for the activities of Lithuanian TSO Litgrid. The European Green Deal (transition towards renewable energy) gained further momentum in 2021 when after successful implementation of objectives set for Europe in the field of renewable energy for 2020 the objectives set for the next decade are being reviewed and updated to include even more ambitious goals. The previous Europe’s emission reduction target of 40% by 2030 has been increased to 55% and entitled Fit for 55. The new proposal package includes not only emission reduction, but also covers wider economic and social guidelines for Europe. However, changes in carbon dioxide (CO2) emissions market will be one of the most important factors affecting the energy sector and further trends in this market will have significant impact in giving a signal to the existing polluters and to investors in new technologies. The EU trading scheme of emission allowances, which has been used for two decades, entered new phase 4 in 2021. This scheme enables trading in a CO2 equivalent, the purchase of which is mandatory for the polluters under the EU environmental requirements. Next phase 4 was introduced with the aim to promote renewable investments even more and to reduce emissions of greenhouse gases through market mechanisms by setting a price on carbon dioxide emissions. This objective can be achieved by giving a stable signal related to CO2 prices, therefore the aim is to make requirements more stringent for beneficiaries of unpriced emission allowances where the annual reduction of the quantity of unpriced emissions will reach 2.2% instead of a former 1.7% indicator. Attention is also devoted to the development of the sectors that participate in this trading mechanism and introduction of reserves that would stabilise the market in case of excess supply of allowances in the market. These regulatory changes and prevailing market situation caused a sharp rise in CO2 price from 30 EUR per tonne of CO2 at the beginning of the year to more than 80 EUR per tonne of CO2 at the end of the year. High CO2 prices create favourable conditions to make investments in new electricity generation capacities and carbon capture technologies as well as enhance transition from high polluting electricity generators. Current trends indicate that high CO2 prices is a necessary factor to encourage as fast as possible transition to renewable energy. Fig. 1 Prices of emission allowances over the 2012-2021 period (Source: EEX) The EU’s objective is to reach net zero carbon emissions by 2050. Significant efforts have been made to achieve this objective by focusing on the quickest possible development of electricity generation capacities from renewable sources, mainly wind and solar power plants. Attention is also devoted to the development of sustainable investment environment and promotion of investments in sustainable growth and ensurance of economy's neutral impact on economy. The Council has adopted the regulation establishing the EU wide classification system (taxonomy) that will enable companies and investors speak the same language in establishing which types of economic activities can be regarded as sustainable in terms of the environment. The taxonomy will help investors direct their investments towards more sustainable technologies and companies. This will have a very important role in creating conditions to ensure that by 2050 the EU’s impact on the climate would become neutral and that it would achieve the objectives set for 2030 in the Paris Agreement. One of these objectives is a 40% reduction in greenhouse gas emissions. Prospects of the development of thermal gas-fired power plants and nuclear energy, particularly during a transition period until 2050, will determine the energy sector's development. The taxonomy was completed in 2021 and it is expected to be applied by the end of 2022. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 16 3.2. Market trends in the electricity and gas sectors The year 2021 saw not only changes in regulatory environment but also witnessed new developments in the energy market. Along with the recovery of economies of the countries at the beginning of the year there has been an increase in demand for energy resources. The situation was even more complicated in the sense that generation capacities and consumption declined due to the quarantine measures applied in 2020 to control the COVID-19 pandemic. Such a sudden rise in demand took local gas extraction companies and importers by surprise as they didn’t have time to refuel. Therefore, starting already from the middle of the year gas prices began to rise sharply across Europe. Fig. 2 The gas price index in the Baltic countries (Source: GetBaltic) Rising gas prices had an impact on the electricity sector where threshold generators usually are gas-fired power plants and the market situation became even more intense with the start of autumn months when temperature dropped, yet power generation from wind remained lower than usual. This contributed to further increase in demand and exerted pressure on the prices of electricity causing them to rise. The price situation reached the peak in the middle of December when the prices of gas in the Baltic countries exceeded EUR 100 per MWh and in Europe before Christmas holidays it was even equal to EUR 174 per MWh. Such all-time record high gas prices translated to record prices of electricity throughout Europe. Poland that prevailed as the most expensive trading market due to ineffective and highly polluting power generation by coal power plants became competitive with gas-fired thermal power plants and increase in the prices of electricity was more moderate in the markets where the annual average price was lower than in Lithuania, Latvia and Germany. In the Baltic Sea region, Germany became the most expensive price zone and the average annual price reached EUR 97 per MWh. In the Scandinavian region, the price in 2021 in the Nordpool system reached EUR 62 per MWh and was the highest on record from 1996 when the liberalised electricity market started to operate. Fig. 3 Electricity prices in the region over the 2019-2021 period (Source: Nordpool) The price of electricity in 2021 in Lithuania also reached record highs with an annual increase in the electricity price by 166% and the annual price of EUR 90 per MWh, while the maximum price per hour had reached the limit of EUR 1.000 per MWh as in Latvia, Estonia, and Finland. Another all-time-high record has been observed in Lithuania when electricity consumption continued to grow in 2021 as well and has reached the highest level since restoration of Lithuania’s independence. The annual growth rate reached 4.2% ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 17 compared to 2020 when a lower than usual consumption was recorded due to changes in consumer habits after the start of the COVID-19 pandemic, and compared to 2019 the annual growth was 2.7% when consumption rose for six years in a row. Irrespective of exceptionally high prices of electricity, Lithuania together with other countries of the Baltic Sea region has remained the lowest price region throughout Europe where the average annual electricity prices exceeded the limit of EUR 100 per MWh while in the entire Baltic Sea region prices were lower than EUR 97 per MWh and dropped below the limit of EUR 50 per MWh in trading zones of the Nordic countries. Fig. 5 Average annual electricity prices by country (Source: ENTSOE- Transparency) 3.3. Regulatory environment in Lithuania Litgrid's electricity transmission activities are licensed. The license grants exclusive rights to provide transmission services in Lithuania, so the prices of services are regulated by the state. The National Energy Regulatory Council (hereinafter - the NERC) performs the regulatory function and supervision of the performance of licensed activities in Lithuania. The financial results of Litgrid, the funds allocated for the necessary operating costs, investments to ensure the reliability of electricity and gas transmission systems, as well as the possibility to finance strategic projects with own or borrowed funds directly depend on the decisions made by the regulatory authority. Electricity transmission prices are regulated by setting price and / or revenue caps. The allowable income level consists of reasonable necessary costs, including a reasonable return on investment. The specific prices of the services, which do not exceed the established ceilings, are set by Litgrid, and the Council, having verified and determined that they have been calculated in accordance with the price and / or tariff setting requirements, in the methodologies for calculating the price and / or revenue ceilings, do not discriminate against consumers and are not misleading. The price and / or revenue caps for electricity transmission services shall be set for a five-year regulatory period (the duration of the period may be changed by a reasoned decision of the NERC) and may be adjusted in the event of significant changes in one or more of the factors volume, inflation, taxes, other objective factors beyond the control of the operators. Electricity transmission price caps may be adjusted no more than twice a year. 2021 January 1 Electricity transmission prices set by Litgrid and approved by the NERC entered into force on The average price of electricity transmission service through high-voltage networks in 2021. decreased compared to 2020. (0.814 ct / kWh), about 11 percent. - up to 0.721 ct / kWh. This was mainly due to the higher return on investment than in the previous period set by the Council, part of which will be repaid in 2021. From 2022 January 1 st the approved average price of electricity transmission service was 0.684 ct / kWh (5.1% lower than in 2021). Factors reducing the price: the amount of electricity transmitted to Lithuanian consumers (9.5 per cent) was forecasted to be higher (than forecasted for 2021), in 2018-2020. Return on investment higher than the one set by the NERC (-7.4%), lower return on investment due to the new return rate methodology from 2022 onwards. application and the situation in the financial markets (influence -7.4%). The price-increasing factors were in the 2022 The level of income includes projected higher costs for technological needs due to the situation in the electricity markets (+9.9%), higher other costs (+7.3%), lower other revenues from regulated activities (+2%). From 2022 January 1 the approved price of system services was 0.589 ct / kWh (22.7% lower). The main reasons for the change: about 10% was forecast. the amount of system services to be provided is higher (than forecasted when setting the price of system services in 2021), and about 15% are forecasted. lower (compared to 2021) costs of system services for 2022 due to lower costs for ensuring the isolated operation of the electricity system and due to 2020. lower costs of system services (compared to the forecast for the price of system services in 2020). ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 18 4. THE STRATEGY OF THE COMPANY AND STRATEGIC PRIORITIES, PLANNING 4.1. Strategy A client-oriented organization and energy competence centre, state-of-the-art technological and digital solutions, sustainable energy development that will double the current generation of electricity, and opportunities for market participants to exchange electricity freely at a competitive price. Such goals are set out in Litgrid's strategy for 2021, approved by the Board of the Company. The strategy envisages Litgrid's long-term vision to become one of the most advanced electricity system operators in Europe. Litgrid plans to expand in several priority areas. One of the most important is the fight against climate change by developing and adapting the transmission system for the production of electricity from renewable sources and reducing the environmental impact of Litgrid's own infrastructure. Litgrid is also striving for Lithuania's energy independence by synchronizing the country's electricity system with the continental European networks. After the completion of this project in 2025, after more than 80 years, Lithuania will again have the opportunity to independently manage the frequency of the electricity system. The company starts to develop a digital transformation and implementing a culture and ecosystem of data-driven solutions. One of the components of this change is a service portal that will bring together customers and enable more efficient digital delivery. With the additional development of the transmission network, Litgrid sees additional opportunities until 2025 for additional 140 MW of renewable resources to be connected to the 110 kV network in Western Lithuania. After the synchronization of the system with the networks of continental Europe is completed in 2025 and the additional development of the 110 kV transmission network is carried out, Litgrid could connect another 960 MW of installed capacity of continental renewable resources in Western Lithuania. All this will allow Lithuania, as provided for in the national energy strategy, to become a country using renewable energy sources. The strategy also pays special attention to the development of the organization. Litgrid aims to become an efficient exchange platform that enables and encourages market participants and consumers to freely exchange electricity, choose to produce or consume climate-neutral energy and obtain it at a competitive price. The strategy is published at https://www.litgrid.eu/index.php/apie-litgrid/strategija-vizija-misija-ir-vertybes/452 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 19 4.2. Stakeholders Litgrid addresses such key stakeholders: ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 20 4.3. Strategic priorities ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 21 4.4. Measures for the implementation of the strategy The Company’s strategy is reviewed and updated annually taking into consideration the NEIS, the Company’s activities and amendments to the legal acts regulating the electricity sector, the strategy of EPSO-G, a holding company of the group, significant events in the Lithuanian and foreign electricity systems and electricity markets, works performed during the year as well as by assessing new external circumstances beyond the Company’s control. The strategy comprises a ten-year (long-term) implementation period based on the main and long-term objectives in the electricity sector laid down in the NEIS. Each year the Company updates and prepares a ten-year development plan of the transmission network which is an integral part of the strategy. In order to regularly assess the efficiency and application of the measures selected by the Company, the Company’s operational plan is reviewed after the end of each quarter. The implementation of the strategic objectives and the operational plan, performance of the divisions and employees are monitored. The measures stipulated in the operational plan are included in the operating objectives of the divisions and personal performance objectives of employees, the achievement of which at the end of the year determines a variable part of remuneration. The strategic planning and control mechanism at the Company is based on the Integrated Planning and Monitoring Policy of the EPSO-G Group of Companies which is applied in the activities of Litgrid to a full extent. 4.5. Long-term development plan of the electricity transmission networks According to the Law on Electricity of the Republic of Lithuania, an electricity transmission system operator (TSO) manages electricity transmission networks, ensures the operation, development, maintenance and long-term capacity of these networks to meet justified electricity transmission needs, and is responsible for the interconnection of the electricity system of the Republic of Lithuania with electricity systems of other countries, performs balancing and dispatch control of the electricity system and has a corresponding operating licence. The Plan for the Development of 400-110 kV Networks of the Lithuanian Electricity System for 2021–2030 was updated by LITGRID in 2021. The plan presents forecasts of electric power and energy consumption needs, capacities of power plants (generation facilities), assessment of the electricity system adequacy, forecast of electric power and energy balances of the electricity market and system, as well as information on the electricity transmission network, its development and restoration, innovations introduced and planned investments. The Ten-Year Network Development Plan stipulates that: In 2021-2030, investments required for the development of the electricity transmission network may total to around EUR 1.35 billion. Slightly more than a half of the planned investments will be designated for the implementation of strategic projects of national significance. The remaining half (around 52%) of the planned investments is intended to be allocated for an effective development and systemic renewal of the network, physical and information security, development of the information systems as well as research and innovations; During the preparation for connection to Europe, the following synchronisation projects will be completed: the construction of the submarine electricity link with Poland Harmony Link, internal electricity transmission lines with the length of around 430 km will be built and reconstructed, two new 330 kV switchgears will be installed, new synchronous compensators and electricity system’s frequency stability assessment and automatic generation control systems will be installed; In addition to the network’s development to ensure connection to Europe, LITGRID plans to construct 84 km of new lines in order to secure reliability of the electricity network; it also plans to complete, continue or start the reconstruction of about 118 units of 330-110 kV transformer substations in 2021–2030; Irrespective of short-term decline in electricity consumption caused by the COVID-19 pandemic, it is projected that the total electricity consumption will increase by 1.9% annually on average over the next ten years and in 2030 will reach 13.7 TWh (11.97 TWh in 2021). Electricity consumption will be mainly affected by general economic tendencies, increasing efficiency of electricity consumption, number of electric cars and thermal pumps, and railway electrification; The number of electric cars may exceed 230 thousand in 2030 in the country and they will consume around 507 kWh of electricity per year in comparison with around 2,548 electric cars in Lithuania at the end of 2020. LITGRID estimates that no difficulties will arise with regard to the transmission system even if the number of electric cars in the country would be higher than projected - the transmission system will be prepared for this; Particular attention is paid to the assessment of the network’s ability to adapt for the integration of renewable energy sources and introduction of energy storage technologies. A trial battery energy storage system with the power capacity of 1 MW and with the storage capacity of 1 MWh was installed in the transformer substation in Vilnius at the end of ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 22 2021. It will allow testing possibilities for the use of the battery storage systems under actual conditions of the Lithuanian electricity system. Results and knowledge obtained will help LITGRID develop competences and install energy storage means and define additional services that could be provided by the batteries; For the development of renewable energy resources, it is planned that in order to achieve more ambitious RES development goals, the share of RES in consumption may reach up to 90% in 2030; For contributing to the implementation of the objectives of the green energy policy, it is planned to use the Baltic Sea regional cooperation in the development of offshore wind energy and international energy transmission. Therefore, in the future, LITGRD will pay special attention to the connection of offshore wind farms to the onshore transmission network. The Ten-Year Electricity Transmission Network Development Plan of LITGRID is available at https://www.litgrid.eu/index.php/tinklo-pletra/lietuvos-elektros-perdavimo-tinklu-10-metu-pletros-planas-/3850 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 23 5. IMPLEMENTATION OF STRATEGIC PROJECTS One of the fundamental directions of the implementation of the National Energy Independence Strategy of the Republic of Lithuania adopted by the decision of the Parliament on 21 June 2018 establishes the connection of the electricity system of the Republic of Lithuania with the European continental networks for operation in a synchronised mode (the “Synchronisation”). The other Baltic countries also set the same objectives with the support from the EU institutional and regional partners of Poland and the Nordic countries. Following a full-fledged integration of Lithuania into the European electricity system in 2025, the European system management standards will be introduced in the electricity sector ensuring management of electricity flows based on market principles and participation in maintaining the system’s frequency. A timely implementation of the synchronisation programme in the most economically efficient manner is one of the most important goals of Litgrid. The synchronous work with the continental European network will ensure: reliable operation of energy systems and secure transmission of electricity; coordinated actions in facility maintenance and network development planning; common rules for the management of energy systems - network codes, which will be applied uniformly in all European Union countries; access to electricity from Western European energy systems. On July 2021 the Government of Lithuania approved the list of energy projects to be implemented during the synchronization of the electricity system. From 2021 the synchronization programme has been supplemented by a few projects, Litgrid is now responsible for the implementation of 20 projects. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 24 5.1. The status of the implementation of the main strategic projects The detailed information about every project status is published at www.litgrid.eu, Synchronization. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 25 5.2. The most important finished projects in 2021 Expansion of the LitPol Link interconnection Lithuanian electricity transmission system operator Litgrid has successfully completed the Lithuanian-Polish electricity interconnection project LitPol Link. This is the most significant of the five synchronization projects implemented so far, as the upgraded LitPol Link connection near Alytus now has the possibility to operate in synchronous mode with the continental European networks, if necessary. The project for the extension of the LitPol Link connection consisted of the reconstruction of the LitPol Link switchyard, Alytus transformer substation, 330 kV and 110 kV power transmission overhead lines. One of the main elements of the reconstructed LitPol Link switchyard is installation of three 410/345 / 10.5 kV, 600 MVA autotransformers. These are the most powerful devices of their kind in the Baltic States. They will allow the interconnection of the electricity networks of the Baltic States and continental Europe in one frequency. Litgrid, together with the Polish operator PSE, made a test of the synchronous operation via the LitPol Link connection in case the synchronization would be necessary until 2025 due to unforeseen reasons. The total value of the LitPol Link expansion project is LTL 22.5 million. The project is co-financed by the EU Connecting Europe Facility. After synchronization, a 700 MW Harmony Link connection will be available for sale on the existing 500 MW LitPol Link, and a LitPol Link connection from 2025 onwards. will be used for system purposes only. The 500 MW LitPol Link connection now consists of two 163 km long 400 kV power transmission lines Alytus–Elk and a converter station in Alytus. The connection became operational in 2015. Optimisation of the North-East Lithuanian electricity transmission network In 2021 Lithuanian electricity transmission system operator Litgrid successfully implemented the North-East Lithuania electricity transmission network optimization project. The company prepared Ignalina NPP and Utena transformer substations and related transmission lines for synchronization with the continental European networks. The implemented project not only brings the state closer to the strategic goal, but also contributes to the efficiency and reliability of the Lithuanian electricity system. The North-East Lithuania network optimization project consisted of the reconstruction of the 330 kV and 110 kV switchyards of the Ignalina NPP and Utena transformer substations and the reconstruction of the 330 kV switchyard of the Lithuanian power transformer substation by moving the controlled shunt reactor from the Ignalina NPP substation to the Elektrėnai complex. All construction works on the project were completed in October 2021 and the reconstructed facilities are already operational. The value of the entire North-East Lithuania transmission network optimization project is about 24 million euros. The project is co-financed by the European Union Regional Development Fund “Modernization and Development of the Electricity Transmission System”. Complex implementation of the project will save about 6 million euros in investments in the electricity transmission network and 0.6 million euros annually due to lower operating costs of electrical equipment 5.3. Financing of the strategic projects The European Commission has provided € 170 million for the second phase of synchronization to support for the project of synchronization of the Baltic States with the networks of continental Europe. The funds will be allocated for network renewal, frequency management equipment and information systems projects, and in 2025 will allow the Baltic States to operate independently on the same frequency as Poland and other European countries. The allocated support for the Lithuanian projects is 41 million euros, 49 million euros for Latvian projects and 37 million euros for Estonia, 111 million euros for Poland. Lithuania received funding for four projects: the building of Darbėnai substation, the reconstruction of the 330 kV power transmission line Klaipėda-Grobinė on the border with Latvia, the transmission system information technology systems and the Lithuanian-Swedish interconnection NordBalt information technology systems. Support is provided under the Trans-European Energy Networks Facility for Trans-European Energy Infrastructure 2021-2027. 5.4. Research and development (innovations) The Company’s actions in the field of innovations aim to contribute to the effective implementation of the strategy of LITGRID and the National Energy Independence Strategy. This objective is being achieved by developing an effective ecosystem of innovations where innovative ideas are initiated, experts’ time is allocated for their analysis and testing, they are implemented and introduced to daily activities. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 26 The Company’s activities in the field of innovations are conducted in accordance with the Guidelines for Scientific Research and Experimental Development and Innovative Activities of the EPSO-G UAB Group approved by the Board of EPSO-G UAB (the “SREDI Guidelines”). The purpose of the SREDI Guidelines is to ensure continuity and efficiency, the competitiveness or facilitation of competition of the companies of the UAB EPSO-G group through research, innovation and new solutions, as well as to contribute to the implementation of the National Energy Independence Strategy and the creation of added value for society. The SREDI Guidelines set out common concepts of scientific research and experimental development, and innovations and innovative activities across the Group, common directions and priorities of the SREDI activities, classification principles and recommendations for transmission system operators regarding the allocation of funds for SREDI activities not included in regulated activities. Development of the ecosystem of innovations The System of Scientific Research and Experimental Development and Innovations (SREDI) was introduced at the Company. The system establishes the key principles of environment favourable to creativity and introduction of innovations and presents innovation processes. Innovation activities are directed towards the implementation of objectives and tasks laid down in the Climate Change Strategy and the National Energy Independence Strategy as the reliable operation of the electricity system without innovations is hard to imagine or even impossible when moving away from the power plans using fossil fuels to renewable energy sources and creating a competitive economy of the country in the region of the Baltic, Scandinavian and Central and Eastern European countries. Along with the implementation of the EPSO-G functional action plan for innovations, to which the Company acceded on 17 June 2020, in 2021 the Company implemented activities stipulated in this plan and developed the ecosystem for innovations: organised innovation workshops to develop new innovative ideas; prepared criteria for the selection of innovative projects and the procedure for the promotion of innovations according to which the Company’s employees who implement projects on innovations were awarded; introduced changes to the Company’s organisational structure by including a separate division responsible for the development of the ecosystem of innovations and coordination of the implementation of innovations with the allocated resources for the performance of innovation-related activities; organised knowledge sharing sessions with the operators of distributions networks and other Lithuanian and foreign companies on issues of the development and management of innovations; initiated new and implemented innovation projects according to the directions and priorities of the SREDI activities. In June 2021, the Company’s specialists of various fields participated in innovation workshops regarding the work organisation in the future and the development of digital transformation topics. The workshops were attended by 50 participants who were divided into 7 teams. Following a full-day workshop, during which the teams used a creative thinking method to identify strengths and weaknesses of the development of the above-mentions topics, categorised challenges, generated ideas to address them and prepared prototypes of the ideas that gained the highest scores, we have selected three innovation ideas for further implementation: A mobile application for the organisation of hybrid work (the idea was nominated in the category of the nearest-term implementation); A specialised IT system for collecting data managed by the Company (the idea was nominated in the category of the highest potential); Application of the artificial intelligence algorithm for the removal of IT systems failures (the idea was nominated in the category of the breakthrough). Another innovation workshop was conducted in October, during which possibilities of the use of four-legged robots were investigated together with other companies of the EPSOG Group. After this session the meeting with National Grid (US) that already uses such robots in operating substations was held. It appears that the Lithuanian companies are also engaged in the development of such robots, therefore LITGRID considers the possibility to adapt four-legged robots in the operation of high voltage direct current interconnections. The Company’s Description of the Procedure for Promotion of Innovations was approved in August 2021. The document specifies the criteria for the selection of innovative projects, benefits created by the project, implementation speed, application of the idea by other companies of the Group, aspects of multi-nationality and partnerships as well as quality of the project’s implementation. Based on these criteria, four innovation projects implemented by the Company were selected in the categories of radical, breakthrough and small-scale innovations, the team members of which were awarded with incentive benefits. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 27 The portfolio of innovation projects managed by the Company in 2021 according to the SREDI priorities comprised as follows: Advanced and efficient asset management (seven projects): Usage of drones for the identification of the location of breakdown in the transmission network’s overhead line. Scanning of the electricity networks and creation of the digital data base of spatial data (LIDAR). Pilot project for the cooperation between ENTSO-E and ESA for the usage of satellite images for the maintenance of overhead lines. Study on the reconstruction of substations by using smart digital technologies and discontinuing the use of SF6 gas. Optimisation of the management activity related to technological assets. Study on the offshore electricity network development alternative Offshore Grid Planning and Design for the Introduction of Offshore Wind Power in Lithuania. Usage of four-legged robots in the activities of LITGRID for the operation of the direct current interconnections. Advanced and efficient management and monitoring of the systems (thirteen projects): Smart identification of the location of breakdown of the NORDBALT cable. Load management through the aggregation of consumers. Installation of the energy storage system containing 1 MW power batteries in the Lithuanian electricity system. Reduction of the impact of the introduction of high power transformers to the electricity network. Management of the system with 100% operation of renewable energy sources (the joint study of the Baltic countries and Japanese TEPCO). International project OneNet for the development of flexible services. Introduction of innovative smart electricity metering equipment in the Company’s electricity metering systems. Usage of electric vehicle charging stations in balancing the electricity system. Solution for the analysis, imitation of IEC61850 protocol, operative detection of the issues and integrated testing within the limits of the entire substation. System for the monitoring of electricity quality parameters. Pilot project on the technology for the real-time assessment of capacity of electricity transmission lines. Study on the application of innovative measures in integrating power plants using renewable energy sources (RES) and the methodology for the establishment of optimal solutions. Pilot project on intersectoral integration (power-to-heat). ITT and digitalisation (six projects) Project of digitalisation of the relay protection and automation equipment regulations. Mobile application for the organisation of hybrid work. Specialised IT system for obtaining data managed by the Company. Application of the artificial intelligence algorithm for the removal of IT systems failures. Digitalisation of transmission of telephonic instructions of the relay protection and automation between substations. Introduction of the data base for the centralised intelligent electronic device with a set of advanced programs. The radical and breakthrough innovations completed in 2021 were as follows: Installation of the energy storage system containing 1 MW power batteries in the Lithuanian electricity system. Management of the system with 100% operation of renewable energy sources (the joint study of the Baltic countries and Japanese TEPCO). Smart identification of the location of breakdown of the NORDBALT cable. Load management through the aggregation of consumers. Reduction of the impact of the introduction of high power transformers to the electricity network. Installation of the energy storage system containing 1 MW power batteries in the Lithuanian electricity system The project was initiated in Q1 of 2019. The project was completed in Q4 of 2021. The aim of this experimental battery project is to test possibilities of the usage of the battery energy storage systems under real conditions of the operation of the Lithuanian electricity system, to identify the areas suitable for the installation and use of high power battery storage systems in Lithuania, to establish requirements for batteries that would provide services of various types. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 28 It is also focused on acquiring competences by the transmission system operator that are necessary for the connection and operation of the battery energy storage systems. The project allowed gaining valuable knowledge about the operation of the battery energy storage system in managing the electricity transmission system’s regimes. The high-speed of the battery energy storage system (BESS) was of a pleasant surprise – the process of a full charge of the BESS until generation in full power (a full power reverse from -1 MW to 1 MW) lasted only 157 ms. Overhead lines’ relay protection that ensures the elimination of breakdowns functions within this time limit. In this case we have a technology (a tool) that can immediately substitute the generated power regime and materially contribute towards the electricity system management allowing to avoid disconnection of electricity consumers. Experience acquired during the project implementation is shares by LITGRID with another company of the EPSOG Group Energy Cells that is developing the project on the 200 MW battery energy storage systems. Following the testing, the standard requirements for the BESS equipment and functionalities were prepared that can be used in drafting connection terms and conditions for the connection of new batteries to be developed by the market participants. Management of the system with 100% operation of renewable energy sources (the joint study of the Baltic countries and Japanese TEPCO) The project was initiated in Q2 of 2020. The project was completed in Q2 of 2021. The main objective of the study is to develop an economically reliable model and establish technical measures related to the possibilities of the Baltic countries to balance generation and consumption and to ensure frequency control. By 2050, 98–100% of active energy in each country will be generated by renewable energy sources. TEPCO analysed the application of the method on the formation of voltage of the synthetic inertia and alternating current network through a smart management of direct current interconnections, new battery energy storage systems and power plants using renewable energy sources such as wind and sun. The study results showed that the best solution for the Baltic countries is the battery energy storage systems that will compensate the shortage of inertia and will allow ensuring smooth supply of electricity when up to 100% of electricity is produced from sun, wind energy and another renewable sources. Power of the battery system is to reach 240–400 MW depending on whether batteries are managed using the method for the formation of the voltage of the alternating current network (grid forming control) or the network’s “following” method, i.e. the current’s control method (grid following control). Smart localisation of breakdown of the NORDBALT cable The project was initiated in Q4 of 2019. The project was completed in Q1 of 2021. With the aim to ensure the reliable operation of the NORDBALT interconnection and increase the cable’s availability, the automatic equipment for the identification of the location of the cable’s breakdown was tested. No such equipment is currently available in the interconnection. The real-time identification of the location of a breakdown was carried out with the help of the transient recorder HiRES Locator. The producer indicates that the location of the cable’s breakdown is determined up to 200 km by installing the equipment only at one end of the high voltage direct current (HVDC) interconnection. This experimental project was conducted with the aim to test the functioning of such equipment in the cable of the NordBalt interconnection, which is two times longer (400 km). The results obtained were as follows: The measurement was successfully conducted in the 300 kV HVDC Norbalt interconnection with the length of 448 km. By using a HirES type recorder and a voltage divider we were able to measure an average speed of the impulse emanation in the cable with the direct voltage being approximately equal to 7 kV. The measurement from one side of the interconnection results in great inaccuracy. The installation of two systems at each end of the Nordbalt cable would reduce inaccuracy at least twice. The relative uncertainty of breakdown is around 1% of the cable’s length. The equipment could be assigned the eighth level of technological preparedness. Provided that two devices were installed at both ends of the interconnection, this level of preparedness could be higher. Load management through the aggregation of consumers The project was initiated in Q1 of 2020. The project was completed in Q3 of 2021. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 29 Until June 2020, only electricity producers and aggregators, which also supply electricity to consumers, were allowed to participate in the balancing market. Following the approval of the amendments to the Law on Electric Energy by the Parliament, the participation in the balancing market is open to independent aggregators which are not related to electricity supply to consumers. The objective of aggregators is to bring the largest consumers into a single system. Upon the occurrence of electricity demand such consumers would have the possibility to reduce consumption and free up capacity necessary at that time thus contributing to the management of the system’s balance. The transfer of balancing services to the aggregators is considered to be an advanced, innovative solution which will create more possibilities to manage the system effectively, flexibly and operatively. The completely new aspect is that aggregation enables the largest electricity consumers to participate in balancing. Conclusions of the pre-qualification: The information systems of LITGRID AB are fully prepared for the participation of load aggregators in the management of the system’s balance; Fluctuations of power activated by the aggregator are too high, therefore it is difficult to maintain the same activated power; Too low level of activation power, therefore the establishment of consumption is very sensitive to real-time changes in consumers’ consumption profile. This results in distortions during the pre-qualification testing; It serves the purpose to continue the pre-qualification testing with the aggregators within the scope of the independent demand aggregation. Reduction of the impact of the introduction of high power transformers to the electricity network The project was initiated in Q2 of 2020. The project was completed in Q4 of 2021. To reduce the impact of magnetisation currents when turning on high power transformers, due to which noises, interruptions and voltage drops occur in the system, the pilot project on the implementation of the turning on moment control system was initiated. Voltage drops are caused by magnetisation currents that occur upon turning on of transformers and the scale of a negative impact depends on the point of the connection to the system, i.e. location of the facility, and the moment of the voltage angle at which the facility is connected. During the performance of the first partial testing of isolated operation we noted that problems occur due to the size of the magnetisation current upon the introduction of transformers to the system. In our system, voltage drops are usually noted upon turning on of the transformer of the combined cycle block of the Lithuanian power plant. The principle of the turning on moment control has been applied worldwide approximately since 1997, however the introduction of the machine learning methods, which analyse the condition of the circuit-breaker and perform corrections at the turning on moment, record data to be used later for analysis and conclusions, was started quite recently. Thus, this pilot project allowed testing a full functionality of the system and assessing the system’s advantages and deficiencies. The smart equipment installed during the project implementation significantly reduced the impact of the turning on of the combined cycle block of the Lithuanian power plant on the Lithuanian electricity system. Voltage change due to the turning on of this power plant declined around 12 kV. This result significantly contributed towards another remarkable testing conducted by LITGRID when the Lithuanian power plant successfully operated in a synchronised mode with Poland. During this experiment the smart system for the control of the turning on moment ensured that the voltage drop of the Lithuanian power plant during synchronisation did not exceed 5 kV. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 30 6. FINANCIAL INFORMATION The Company’s key financial indicators 2021 2020 2019 Company Company Company Financial indicators, EUR ’000 Revenue from electricity sales 267,258 206,399 183,297 Other operating income 3,330 1,117 616 EBITDA 46,206 51,789 22,342 Profit/(loss) before tax 24,101 30,881 3,146 Profit/(loss) for the period 20,013 26,603 2,959 Cash flows from operating activities 66,303 27,103 26,784 Ratios EBITDA margin, % 17.1 25.0 12.1 Operating profit margin, % 9.1 14.5 1.0 Annual return on equity, % 9.1 12.9 1.5 Annual return on assets, % 4.4 6.7 0.8 Shareholder’s equity / Assets, % 45.2 52.6 52.0 Financial liabilities / Equity, % 29.6 36.6 48.1 Liquidity ratio 1.01 0.59 0.46 Total assets turnover ratio 0.60 0.52 0.50 * EBITDA = operating profit + depreciation and amortisation + impairment expenses of assets + write-off expenses of assets. calculated based on the average at the beginning of the year and at the end of the year. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 31 Revenue Revenue earned by LITGRID in 2021 increased by 30.4% from 2020 and amounted to EUR 270.6 million. Revenue from electricity transmission decreased by 4% from 2020 and amounted to EUR 80.1 million representing 29.6% of the Company’s total revenue. Decline in revenue was driven by a 11.4% lower average actual electricity transmission price, while the quantity of transmitted electricity increased by 8.4% due to a lower temperature in the winter season and a higher temperature in the summer season compared to the multi-annual average and due to the economic growth and was equal to 10,936 million kWh. NERC established a 11.4% lower price cap. The main reason is that in determining the limit for 2021 permitted revenue was reduced at the Company’s request by EUR 10 million – a part of the Company’s investment return (profit) for 2018-2020 in excess of the amount permitted by NERC. Revenue for 2020 was not adjusted for excess of the return on investments because under the NERC’s methodology the results of the transmission service within revenue are assessed after the first two years of the regulatory period (the regulatory period started in 2016, i.e. the results for 2016-2017 were assessed by adjusting the cap for 2019) and after the end of the regulatory period (they can also be partially assessed in the earlier years based on the Company’s reasoned request). Permitted revenue from the transmission service is determined as the sum of necessary expenses of the transmission service and the permitted return on investments. The permitted return on investments is calculated by multiplying the value of the regulated assets at the beginning of the year (EUR 290.9 million at the beginning of 2021) by the rate of return on investments determined by NERC (5.34% was established for 2021). Revenue from imbalance and balancing electricity increased 3.4 times to EUR 71.7 million due to higher sales volumes (+30.8%) and 2.6 times higher average sale price. Change in revenue does not affect the Company’s profitability because according to the regulated imbalance pricing the current year revenue compensates expenses, including the Company’s internal expenses, attributable to this activity according to the description of the regulation accounting. Revenue from system services increased by 5.7% and amounted to EUR 91.7 million representing 33.9% of the Company’s total revenue. Revenue from the system services rose due to a 6.7% higher taxable quantity of electricity. According to the regulated pricing of the system services, revenue must compensate expenses, including the Company’s internal expenses, attributable to this activity according to the description of the regulation accounting. Difference between revenue and expenses for the N- year is taken into consideration when determining the price of the system services for the n+2 year. Revenue for 2021, taking into consideration the compensation of the 2019 year difference included in revenue, exceeded expenses by EUR 27.2 million and revenue for 2023 will be reduced by this amount. Other revenue related to the transmission activity include: Fee for electricity imported from or exported to countries other than the EU and inter-EU transit compensation revenue from ITC fund (ITC income – income resulting from participation in the European Inter-Transmission Operator Compensation Mechanism) – EUR 1.6 million and reactive energy income – EUR 1.5 million. This revenue group is assessed by determining the price of the transmission service and calculating the actual return on investments in the transmission service. 69.3 83.4 80.1 26.4 21.2 71.7 70.8 86.7 91.7 16.9 15.1 23.8 0.6 1.1 3.3 .0 50.0 100.0 150.0 200.0 250.0 300.0 2019Y 2020Y 2021Y Company's revenue structure, million euros Rent and other revenue Other electricity-related revenue System services revenue Balancing energy revenue Transmission revenue ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 32 Revenue from PSO services amounted to EUR 20 million. Change in revenue does not affect the Company’s profitability because the current year revenue compensates expenses, including the Company’s internal expenses, attributable to this activity according to the description of the regulation accounting. Revenue from connection of new producers/consumers and replacement of electrical installations amounted to EUR 0.0 million. The value of assets (or a part thereof), the acquisition of which is financed using this revenue, is not included in the value of regulated assets, on the basis of which the permitted return on investments is calculated. Revenue from congestion management services amounted to EUR 0.6 million. Change in revenue does not affect the Company’s profitability because revenue compensates expenses incurred in ensuring the use of allocated capacity of the interconnections. Revenue from administration of guarantees of electricity origin amounted to EUR 0.1 million. Other income increased three times to EUR 3.3 million due to a EUR 2.4 million increase in default charges calculated in respect of the contractors for delays in the performance of works. Expenses The Company’s operating expenses totalled EUR 246.1 million in 2021, which is 38.7% more compared to 2020. Expenses of purchase of electricity and related services accounted for a major portion of the Company’s operating expenses: EUR 194.5 million (79% of the Company’s total expenses). These expenses increased by 51.5% compared to 2020. Expenses for system services decreased by 24.3% to EUR 61.9 million mainly due to a EUR 17.9 million decrease in expenses regulated by NERC related to ensuring the isolated operation and a EUR 2.2 million decrease in voltage control expenses resulting from more efficient management of the transmission network. Imbalance and balancing electricity expenses increased 3.4 times and amounted to EUR 71.1 million due to increase in sales volumes and the average purchase price. Expenses of compensating for electricity purchase technological losses in the transmission network increased 2.6 times and amounted to EUR 40.2 million due to 2.85 times higher average purchase price of electricity. The average electricity price on the exchange in 2021 was 2.66 times higher than in 2020, while in the last quarter of the year when technological losses comprised 31% of the annual amount, the price was 3.6 times higher Transit (ITC) expenses totalled EUR 0.8 million, expenses for provision of PSO services equalled EUR 19.9 million and expenses of ensuring the allocated capacity of the interconnections totalled EUR 0.6 million. Depreciation and amortisation expenses increased by 4.8% and amounted to EUR 21.3 million. Repair and maintenance expenses of the electricity network decreased by EUR 1.4 million due to a smaller scope of annual scheduled repair and maintenance 25.9 20.8 71.1 74.4 81.7 61.9 22.2 15.2 40.2 12.4 10.6 21.3 20.4 20.4 21.3 9.7 11.2 12.4 9.2 9.4 8.1 7.8 8.1 9.8 .0 50.0 100.0 150.0 200.0 250.0 300.0 2019Y 2020Y 2021Y Company's cost structure, million euros Other costs Electricity network repair and maintenance costs Wages & related costs Depreciation Other electricity-related costs Costs of compensating losses in the grid System services costs Balancing energy costs ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 33 works performed that are carried out under the multi-annual work plan. Increase in remuneration expenses by EUR 1.2 million compared to 2020 was affected by the increase in the average number of employees due to the implementation of the synchronisation project and a higher average salary. Other expenses increased by EUR 1.5 million. Profit and return indicators EBITDA for 2021 decreased by EUR 5.6 million or 10.8% compared to 2020 and amounted to EUR 46.2 million. The EBITDA margin decreased from 25% to 17.1%. The Company’s net profit decreased from EUR 26.6 million to EUR 20 million. The main reasons for decrease in the Company’s EBITDA are as follows: Increase in expenses of compensating technological losses by EUR 25.0 million; Decline in transmission revenue by EUR 3.3 million; EUR 1.7 million lower result of other transmission activity (including a EUR 1.7 million transit (ITC) result); Increase in operating expenses by EUR 2.6 million. The main reasons for increase in the Company’s EBITDA are as follows: Improvement in the balance of revenue and expenses of system services by EUR 24.8 million (EUR +29.8 million in 2021, EUR +5 million in 2020); Increase in other income by EUR 2.2 million. In 2021, the ROE and ROA ratios decreased from 12.9% and 6.7% and to 9.1% and 4.4%, respectively, compared to 2020. 22.3 51.8 46.2 3.0 26.6 20.0 .0 10.0 20.0 30.0 40.0 50.0 60.0 2019Y 2020Y 2021Y EBITDA and net profit, million euros EBITDA Net profit 1.5% 12.9% 9.1% 0.9% 6.7% 4.4% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 2019Y 2020Y 2021Y Return ratios, % Return on equity (last 12 months) Return on assets (last 12 months) ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 34 Balance sheet and cash flows During the year the Company’s assets increased by EUR 75.5 million (18.2%) and amounted to EUR 489.8 million as at 31 December 2021. Non-current assets representing 75% of the Company’s total assets decreased by EUR 8.1 million (2.1%). Due to investments in the transmission network, property, plant and equipment and intangible assets increased by EUR 5 million, deferred income tax assets increased by EUR 5.5 million, whereas due to the transfer of a non-current portion of accumulated funds balance of congestion revenue received to current assets (funds were linked to the Group account and loaned to EPSO- G), non-current assets decreased by EUR 18 million. Current assets increased by EUR 83.6 million (3.1 times). Due to significantly higher revenue in December, trade receivables increased by EUR 35.5 million, grants receivable from the EU structural funds rose by EUR 6.7 million, loans granted (fee funds were linked to the Group account and loaned to EPSO-G) increased by EUR 42.6 million, and a current portion of accumulated funds balance of congestion revenue decreased (funds were loaned to EPSO-G) by EUR 6.9 million. Shareholders’ equity increased by 1.6% during the year and accounted for 45.2% of the total assets at the end of 2021. As at 31 December 2021, the Company’s financial liabilities to credit institutions amounted to EUR 65.7 million (declined by EUR 14.2 million during the year). Financial liabilities to equity ratio was 29.6%. Borrowings repayable within one year accounted for 21.7% of the total borrowings. Other non-current liabilities increased by EUR 30.8 million (47.7%), of which a non-current portion of accumulated funds balance of congestion revenue increased by EUR 32.6 million and advance amounts received declined by EUR 1.7 million. Current liabilities increased by EUR 55.4 million (83.9%), including a EUR 14 million increase in a current portion of accumulated funds balance of congestion revenue, a EUR 34.2 million increase in trade payables, a EUR 4.9 million increase in advance amounts received, a EUR 3.5 million increase in other current amounts payable and liabilities, whereas income tax decreased by EUR 2.8 million. Accumulated congestion revenue balance amounted to EUR 104 million as at 31 December 2021, of which EUR 43.6 million were linked to the EPSO-G Group account and EUR 60.4 million were temporarily used for the financing of LITGRID’s activities. Cash and cash equivalents amounted to EUR 1.8 million. The Company’s net cash flows (excluding cash flows from financing activities and from loans granted by the Company and their repayments) totalled EUR 76.3 million in 2021. Investments in non-current assets In 2021, investments of transmission system operator Litgrid (works performed and assets acquired, irrespective of payment deadlines) amounted to EUR 53.1 million, of which 64% were earmarked for the implementation of strategic electricity projects of national significance, and 36% for the reconstruction and development of the electricity transmission network and ensuring the continuity of the Company’s activities. The largest share of investments during the year was into the following projects: Optimization of the North-East Lithuanian Electricity Transmission Network EUR 7.9 million (the project is partially financed under the European Union Funds Investment Program 2014–2020), the extension of the LitPol Link interconnection EUR 9.7 million, Construction of 330 kV electricity transmission line Vilnius-Neris EUR 4.9 million, EUR 3.4 million for the construction of the Harmony Link connection (all these projects are co-financed by the European Network Infrastructure Facility). The share of the EU support funding in 2021 for the investment projects amounted to EUR 16.2 million and the congestion revenue part in the financing investments made up EUR 11.8 million. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 35 7. COMPANY TARGETS AND THEIR IMPLEMENTATTION The implementation of the strategy is assessed in view of the implementation of the Company’s three-year operational plan and the Company’s annual objectives that prioritise measures referring to the priorities identified in the Company’s strategy. The evaluation of the implementation of the targets is made the Board of the Company. The CEO of Litgrid reports to the Board on the targets’ achievement status. The financial and non-financial goals set for the company are identical to those of the CEO of Litgrid. The variable part of the remuneration of all employees and the CEO depends on the assessment of the achievement of the targets. The implementation of Company’s targets for 2021 was confirmed was confirmed by the Board at 96.5 percent. Implementation of the operational plan The Company prepares the three-year operational plan in accordance with the widely known Lean business tool Hoshin Kanri. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 36 The main results of the 3 year operational plan were as follows: ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 37 8. REMUNERATION POLICY AND EMPLOYEES In order to ensure proper formation, monitoring and management of the wage bill, the Remuneration and Nomination Committee has been established and operates at the EPSO-G group which is composed of three members the majority of whom are independent members. 8.1. Formation and monitoring of the Remuneration Policy When performing this function the Remuneration and Nomination Committee of EPSO-G: Provides recommendations regarding the terms and conditions of the contracts entered into with the members of the Board and/or executives, including the maximum amount of the remuneration for these persons, the maximum annual operating budget for their remuneration; Prepares the main criteria of the assessment of the performance of the executives of the companies of the group and the remuneration guidelines applicable when establishing the remuneration for the activities at the Board, the Remuneration and Nomination Committee, the Audit Committee, other specialised committees, if they are formed, of the Company and the subsidiaries of the group. The Committee reviews their implementation at least once a year. Submits proposals to the management bodies regarding the individual salaries for the management personnel and the members of the bodies in order they would meet the remuneration guidelines and the assessment of the performance of these persons; When performing this function the Remuneration and Nomination Committee is informed about the total remuneration received by the management personnel and the members of the bodies from the other related companies; Ensures that the individual salaries paid to the management personnel and/or to the members of the management body would be in proportion with the salary of other management personnel or members of the bodies of the Company and/or the group and of other employees of the Company and/or the subsidiaries of the group; Provides recommendations regarding the policy established by the Board of payment for the work of the executives, deputy executives and other management personnel of the Company’s subsidiaries and lower-tier subsidiaries, also regarding the review of the policy and its implementation at least once a year; Monitors and provides conclusions on how the Company and the companies of the group comply with the valid provisions concerning the publication of information related to salaries; Provides the management personnel of the companies and/or the members of the bodies general recommendations regarding the amount and structure of the salaries of these employees and/or members of the bodies, also recommendations to monitor the amount and structure of their salaries based on the information provided by the Company and the subsidiaries of the group; Collects and systematises all information collected and received in the areas of its competence, and on the basis of such information provides recommendations to the relevant body of the group and, when necessary, directly to the Supervisory Board; Once a year the Remuneration and Nomination Committee reports in writing to the Board about its activities covering one calendar year. The Board and other bodies of the Company and/or of the subsidiaries of the group shall have the right to apply to the Remuneration and Nomination Committee and to provide conclusions on the specific issues raised by them if such issues fall within the competence of the Remuneration and Nomination Committee. 8.2. The Remuneration Policy and additional benefits Litgrid has adopted the uniform Remuneration Policy of the EPSO-G Group and applies it to all employees of the Company. The Remuneration Policy is approved and amended by the decision of the Company’s Board taking into consideration recommendations of the Remuneration and Nomination Committee of EPSO-G. The Remuneration and Nomination Committee of EPSO-G regularly reviews provisions of the Remuneration Policy, its effectiveness, implementation and application. The aim of the policy is to effectively manage remuneration expenses and create motivational incentives in order to directly link the amount of remuneration to the implementation of the objectives set to the Company and each employee. This means that the performance of the employee is taken into account when determining the remuneration. The principles of the Remuneration Policy applied by Litgrid: The identical principles of the Remuneration Policy are applied for both executives and employees. The wage bill is approved by the Boards of the companies. The Remuneration and Nomination Committee monitors whether there is a balanced control of remuneration expenses with motivation of the employees who are properly performing their duties. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 38 The remuneration of executives and employees consists of two components: fixed and variable. A fixed component depends on the responsibility level related to the position held. It is determined according to a methodology recognised and widely used in international practice. A variable component of remuneration is paid when the individual objectives established during the annual assessment are achieved and the Company reports to the Board on the achievement of the annual objectives of the Company. Annual goals for executives and employees are set in accordance with the Employee Performance Assessment Policy. A variable component of remuneration is not paid to the employee if performance results do not meet the expectations according to the established evaluation criteria or the Company’s operating and financial results are assessed as unsatisfactory. The variable component of remuneration is not a bonus. It cannot exceed 20-30 percent of the fixed component of remuneration. The amount of a variable remuneration is established in the Company’s budget and recorded in the financial result, which is audited and announced publicly. A variable component of remuneration of the Company’s Chief Executive Officer depends on the implementation of the goals set in the Company’s strategy, which are announced publicly on the Company's website. A variable component of remuneration is not paid to the members of the collegial bodies. Termination benefits of executives and employees do not exceed the amount established by the legal acts of the Republic of Lithuania. It is established that an incentive benefit not exceeding the amount specified in the policy may, in exceptional cases, be paid for the achievement of particularly important results not included in the employee’s annual objectives. The Company’s Board must be informed on above-mentioned benefits at its nearest meeting. Advance agreements on termination benefits, except for the executives of the companies whose employment terms are determined by the Board, are not concluded. Termination benefits are paid to employees in accordance with the procedure laid down in the Labour Code of the Republic of Lithuania and in employment contracts. The Remuneration Policy does not provide for any remuneration by granting the Chief Executive Officer, a member of the collegial body or an employee the right to shares, share options or the right to receive remuneration based on changes in share prices other financial instruments. The Company provides an emotional non-financial form of consideration to employees to promote their engagement and loyalty. Indirect remuneration includes events for employees, recognition and appreciation for exceptional performance. In order to ensure the effectiveness of the Remuneration Policy, in compliance with the Transparency Policy, fixed and variable components of remuneration by categories of positions are announced on the Company’s website on a quarterly basis. Litgrid offers to its employees the package of additional benefits focused on the following directions:   Insurance of working conditions and welfare of employees;   Attention given to personal events, family and social activities of employees;   Investments in professional improvements of employees; Health insurance. Litgrid is proud of being able to provide emotional rewards to employees that consist of:     Meaningful activities of the Company, the sense of stability and security;   The team of professionals and working environment promoting operational efficiency;  The value-based organisational culture;  Interesting, challenging work, international projects and unique experiences;   Recognition and growth.     8.3. Assessment of employee performance The employee performance assessment is one of the most important conditions of management and effective leadership that helps achieve the Company’s objectives and create professional relationships between executives and employees, allows planning the career of the employees, increasing their motivation and involvement. The annual and semi-annual conversations are intended to assess the achievement of the objectives that have been set for the employee and to set the new ones. They form a feedback culture between the leader and the team members. The need for the employee’s training, development of competences and further professional development and career opportunities are also discussed during the conversation. Individual goals are discussed with each employee and set annually. Their implementation has a direct impact on a variable component of remuneration, which also depends on the achievement of the Company’s general objectives. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 39 The Company is able to successfully fulfil its objectives due to dedicated work of the team of employees with the highest competencies. It consists of around 335 specialists, 95% of whom have acquired higher education. The percentage of men and women employed at the Company is equal to 76% and 24%, respectively. The average age of the Company’s employees is 42 years. Three quarters of the Litgrid’s team members are experienced engineers on whose work smooth operation of the TSO is dependant. The average length of service of employees in the energy system is 10 years. In 2021, the Company’s employee turnover rate was 8.2%, whereas it was equal to 11.7% in 2020 and 2019. The voluntary turnover rate decreased from 9% to 7.2%. 8.4. Professional development and upskilling An innovative organisation cannot be imagined without the highest-level professionals thanks to whom Litgrid can be called a centre of excellence. The Company seeks to create conditions for employees to learn and improve, expand their knowledge and horizons and participate in the implementation of Litgrid’s strategic objectives as effectively as possible. All employees are given the opportunity to acquire or update the knowledge and skills required to perform their direct functions. Both employees personally and the organisation take care of the development of competencies that are important for the activities of the employee and the organisation, and the development system includes not only formal training, but also other forms of improvement and learning. Employees as usually were able to take part in conferences, seminars, courses, upgrade their qualification at mandatory, qualification and general competences training courses. The Covid-19 pandemic has affected the organisation of professional development, as a result in 2021, in around 90% of cases employees attended remote training courses. The proportion of investments in different competence areas has remained similar as in the previous year, i.e. 70% were directed towards professional qualification trainings and 30% were allocated for the enhancement of general, leadership and managerial competences. 8.5. Selection and introduction of employees Litgrid has adopted the Selection Policy which is applied to all selection processes of the Company. Litgrid pays great attention to the professional selection of employees and smooth start of their work. In 2021, the meaningful initiative New colleague’s day was re-introduced which involves familiarisation meetings for recent new hires, attendance of presentations on core activities of Litgrid and topics of organisational culture. The Company is continually looking for both experienced specific field professionals and early-stage specialists who want to improve and grow to joint its team. The most important thing is a right set of core values possessed by candidates, because for Litgrid it is very important not only what has been done, but also how it was done - professionally, collaboratively, progressively. Aiming to attract new members of the electricity team a particular focus was placed on the improvement of cooperation with Kaunas University of Technology in order to increase the level of practical knowledge of students and present Litgrid as a potential employer that helps develop acquired competences. Despite of challenges caused by the pandemic; recruiting was successfully carried out online. In 2021, 55 employees (51 in 2020) joined the Litgrid team. Special attention was devoted to remote introduction of new employees. More attention was given to familiarisation with new colleagues through remote video communication to create informal, friendly and sustainable environment, to strengthen engagement of a new employee and his/her sense of belonging. Litgrid also welcomes motivated trainees who want to gain knowledge and learn from professionals in their field. The Company had 7 such young specialists in 2021. 8.6. Equal opportunities In implementing the requirements of the Labour Code of the Republic of Lithuania in the fields of equal opportunities and non- discrimination, on 30 December 2019 Litgrid approved the Description of the Equal Opportunities Procedure and the Equal Opportunities Implementation Plan for 2020-2021. The topic of equal opportunities was actively developed at Litgrid in 2021. November was announced as the Month of Equal Opportunities. Over the course of this month lectures for executives and employees were conducted, active employees formed the Equality team on a voluntary basis. In its activities, Litgrid follows the principles of non-discrimination in all areas: Establishment of objective, non-stereotypical criteria during staff search, selection and dismissal procedures. Creation of a working environment and equal working conditions for all employees. The aim is to create an open, flexible and inclusive working environment hoping that this will help all Litgrid’s employees successfully balance work and family responsibilities. Employee sports and volunteering initiatives are encouraged and contributed to. The ideas of each employee are heard, and their implementation is encouraged. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 40 The principles of integrity and gender equality are followed in the development and implementation of the Remuneration Policy. After the approval of measures for the implementation of equal opportunities, Litgrid has committed to respond to everyday manifestations of undesirable behaviour operatively and effectively and to ensure uniform conditions for all employees and job applicants. The aim is for equal opportunities to exist not only in documents, but also for the Litgrid community to be modern, caring, tolerant and open. In 2021, Litgrid was assigned a high score of 9 in the Equal Opportunities Ruler survey conducted by the Office of the Equal Opportunities Ombudsperson. 8.7. Trade union Litgrid closely cooperates with the Trade Union of Employees of the Electricity Transmission Network operating at the Company. Cooperation is based on the principles of respect and social partnership. The collective agreement of Litgrid AB was signed on 20 February 2018. The benefits laid down in this agreement are applicable to all employees of the Company. The collective agreement includes as follows: Long-term collective agreement confirming the existence of high-level, sustainable and balanced relationship; Agreement on the system of additional benefits applicable to the Company’s employees that ensures socially responsible and competitive work conditions for employees, engagement of employees, guarantees and implementation of the Company’s strategy. There were 98 trade Union members at Litgrid on 31 st December 2021. 8.8. The Ethics Committee The Ethics Committee has been established in the Company, the Code of Ethics and Conduct (published on the Company's website, www. Litgrid .eu) is upheld, the values of which are respected in a principled manner not only within the Company but also in cooperation with the third parties. 8.9. Information on employees The fixed and variable remuneration components of the Company’s CEO are established by the Company’s Board, and those of the top-level managers are established by the Company’s CEO in accordance with the Company’s Remuneration Policy approved by the Company’s Board. A variable remuneration component is paid to the CEO and management personnel once a year after the approval of the implementation of objectives set for the Company’s CEO by the Company’s Board. 8.10. Corruption prevention measures We encourage our employees, customers, business partners and other stakeholders report the breaches of legal acts. The Company has a trust line, where is the possibility to make round-the-clock calls by the indicated phone number. The phone number and e-mail address are published on the Company’s website and the intranet. In its activities in the field of corruption prevention the Company follows the Corruption Prevention Policy of the EPSO-G UAB Group of Companies (which is published on the website www.Litgrid.eu). Employees conduct their daily activities in compliance with the Code of Ethics and Conduct. Employees of Litgrid observe the requirements of this code in communication with each other as well as the suppliers, contractors, electricity producers, consumers, business partners, state and municipal institutions and the society. The Company has implemented the principles of the Lithuanian Law on the Protection of Reporting Persons, i.e. internal reporting channels have been created, internal legal regulation has been updated and technical measures ensuring a full compliance with the requirements of the above-mentioned law have been introduced. The report on information received via internal reporting channels and actions performed is presented to parent company EPSO-G UAB. The Company pays special attention to the management of conflicts of interests. In compliance with the Lithuanian Law on the Adjustment of Public and Private Interests and the Policy of Management of Interest of Members of Collegial Bodies, Executives and Employees of the EPSO-G Group of Companies, the Company applies the control measures of the prevention of conflicts of interests and declaration of private interests: the internal electronic system for the declaration of interests has been developed that, in accordance with the requirements of Law on the Adjustment of Interests, was used by all employees of the Company, who have the obligation under the law (140 employees), for a public declaration of interests; the content of the submitted declarations of interests (internal and those submitted to the Chief Official Ethics Commission) has been analyzed and preliminary recommendations to the heads and employees of the divisions who declared potentially real or probable conflicts of interests have been prepared; preventive inspections have been carried out to assess the implementation of the provisions of the Law on the Adjustment of Interests (no violations were identified). Employee trainings are conducted and, when necessary, individual consultations are provided. A corruption risk assessment was conducted in 2021, which identified that the greatest risks of corruption are in procurement and project implementation. It should be noted that corruption risk factors are minimal and manageable, as most areas of the ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 41 company's activities (processes) are regulated in detail by external and internal administrative legislation, which provides for external and internal control measures and the possibility to appeal against decisions. The probability of corruption in the field of preparation of the technical specifications of the Company's procurement was determined and recommendations on the reduction of identified risk factors were prepared (submitted to the parent company EPSO-G UAB). In order to ensure that only persons of impeccable reputation work in the Company, the measures for ensuring the reliability of personnel provided for in the Laws on Prevention of Corruption and Protection of Objects Important for National Security of the Republic of Lithuania are implemented (lists of positions for which applicants are inspected each post was contacted by the responsible authorities (requests were made for 51 person); statutory verification procedures for staff of contractors / suppliers were in progress). Employees are motivated to act honestly and to report observed corruption. The risks arising from nepotism and chronism are managed, and there are no relatives in the Company who have a relationship of direct subordination or control. Anti-corruption training of employees was carried out regularly. In 2021, electronic anti-corruption training was completed by all employees of the Company, both long-term employees and the new employees (100% of employees). In order to ensure proper management of conflicts of interest, two trainings were organized on the topic: “Declaration of Private Interests to the COEC from January 2021”, led by representatives of the Company and the Chief Official Ethics Commission (approximately 60% of employees participated) and a training how to to report on acts of a corrupt nature was conducted by the officials of the Special Investigation Service of the Republic of Lithuania (“The Concept and Manifestation of Corruption in Lithuania. Conflicts of interest), where 40% of employees participated. 8.11. Information security The Company's organizational and technical information security measures are in line with globally recognized best practices. 2021 an information security management audit was performed and the Company was granted an ISO / IEC 27001: 2017 certificate. The certification process covered risk management, security policy principles, standards and procedures, physical and environmental security, access control, communications and operations management, incident management, business and business continuity management, resource and asset management, and compliance. During the information security management audit, it was performed an additional audit of compliance with the information security requirements for the members of the International Organization of Transmission System Operators for Electricity, ENTSO-E. After evaluating the audit results, ENTSO-E confirmed that the Company's activities comply with the compliance information security requirements for ENTSO-E members. In 2021, the Company's employees helped to organize and successfully participated in the Core21-Baltic exercise organized by the NATO Energy Security Competence Center (36 institutions from 12 countries participated) and the Cyber Security Exercise 2021 organized by the National Cyber Security Center under the Ministry of National Defense. As in the last few years, the training of the Company's employees on cyber security issues has been carried out consistently and purposefully. Electronic training has been prepared and completed for all employees on the topics: “Basic Information Security Training”, “Social Engineering Training” and “Cyber Security Training for Industrial Systems”. 2021 October month. The month-long October - Cyber Security Month initiative was launched to focus on the perception and identification of hybrid threats. Representatives of the Ministry of National Defense read a report on hybrid threats, social engineering tests and other measures were carried out.    8.12. Covid-19 situation at Litgrid Litgrid took steps to protect the health and safety of employees already before the declaration of the quarantine in the country. By the decision of the Emergency Operations Committee remote work was introduced which has extended throughout 2021. Employees unable to work remotely were provided with personal protection means and the safest possible work environment was created, as the health of employees is the priority for the Company. The Emergency Operations Committee has worked continually by making the best possible decisions regarding the organisation of the Company’s activities and achievement of the strategic objectives in view of the dynamics of the pandemic, because safety and health of employees is a priority of the Company. During the pandemic, Litgrid devoted special attention to a physical and emotional health of employees, enhancement of the sense of community even when nearly all employees were working remotely. All usual events for employees were held online, internal communication was intensified. Events, sports initiatives preferred by employees, courses on the topics of personal efficiency, health and healthy way of living were organised. Regularly conducted virtual exercises were focused on maintaining physical health of employees. Immunization of workers from Covid-19 in December 2021 was 97.5 percent ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 42 From July 15 2020 an added benefit of health insurance was very well received, used and made available to Litgrid employees in 2021. 9. INFORMATION ON THE SHARE CAPITAL AND THE SHAREHOLDERS AND THEIR RIGHTS Since 22 nd December 2010, Litgrid’s shares are traded on the Secondary List on the NASDAQ OMX Vilnius exchange, ISIN code of securities: LT0000128415. Litgrid has not acquired its own shares. During the reporting period Litgrid neither acquired nor disposed of its own shares. The share capital of Litgrid amounts to EUR 146,256,100.2, and it is divided into 504,331,380 ordinary registered shares with the nominal value of EUR 0.29 each. EPSO-G UAB (Gedimino pr. 20, LT-01103 Vilnius, company code 302826889), a company wholly owned by the Ministry of Energy of the Republic of Lithuania, controls 97.5% of Litgrid ’s shares. EPSO-G UAB possesses a decisive vote in making decisions at the general meeting of shareholders. The Company has not received any information on mutual agreements between the shareholders due to which restrictions on transfer of securities and/or voting rights may be imposed. There are no restrictions regarding voting rights at the Company. SEB Bankas AB was the provider of accounting and related services for Litgrid ’s securities for the period from 8 September 2017 until 7 September 2020. Data on trading in Litgrid ’s securities on the regulated markets: Indicator 2019 2020 2021 Opening price, EUR 0,64 0,59 0,58 Highest price, EUR 0,705 0,63 0,89 Lowest price, EUR 0,575 0,49 0,575 Closing price, EUR 0,58 0,585 0,795 Turnover, units 187 620 680 371 894 468 Turnover, EUR million 0,12 0,39 0,67 Capitalisation, EUR million 292,51 295,03 400,94 9.1. Turnover and prices of Litgrid ’s shares during the reporting period, in EUR: https://nasdaqbaltic.com/statistics/lt/instrument/LT0000128415/trading ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 43 9.2. Benchmark of LGD1L,OMX Baltic Benchmark GI (OMXBBGI) and OMX Vilnius (OMXV) 9.3. Dividends On 18 August 2017, the Board of Litgrid passed a decision regarding the application of the EPSO-G UAB Group Dividend Policy, which was approved by the Board of EPSO-G UAB on 14 July 2017, at Litgrid in its entirety. Based on the EPSO-G UAB Dividend Policy the amount of dividends payable was directly linked with the effective use of the company’s equity, i.e. the higher benefits created by the Company for the shareholders are, the larger portion of profit can be allocated by the Company for a further development or implementation of other significant projects. On 20 April 2021, the Ordinary General Meeting of Shareholders of Litgrid was held, during which it was decided to pay out dividends amounting to EUR 0.0328 per share. The EPSO-G Dividend Policy, which establishes the procedure for the determination of the amount of dividends, the payment and announcement of dividends for all companies of the group, provides clear guidelines for expected return on equity and investments for existing and potential shareholders, while ensuring sustainable long-term growth of the value of the companies, timely implementation of strategic projects of national significance, and consistent increase of confidence in the entire energy transmission and exchange group of companies. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 44 10. GOVERNANCE 10.1. The Company’s management bodies The system of the Company’s management bodies is defined in the Articles of Association and it consists of the following bodies: the General Meeting of Shareholders, the Board and the Chief Executive Officer (a single-person management body). The Company’s Articles of Association stipulate that since the Company is part of the group of companies and the Board of the parent company carries out the review of the functioning of the internal control system and risk management at the group level, the Company’s General Meeting of Shareholders and the Board may take into consideration proposals and comments of the Board of the parent company that are presented on the issues relating to the competence of the respective management body of the Company. The Audit Committee is formed at the parent company EPSO-G UAB operates as the Group committee, also performs functions of the Company Audit committee. 10.2. Governance principles The main principles of the company's management are established by the Civil Code of the Republic of Lithuania, the Law on Companies and the Company's Articles of Association. The General Meeting of Shareholders of the Company resolves the amendment of the Articles of Association and the authorized capital of the Company, conversion of shares, elects the Board and the auditor, approves the annual financial statements and distributes the profit, makes decisions on the most important transactions and other issues. The Board of the Company determines the organizational structure of the Company, elects the General Director, approves the business strategy, budget, investments, makes decisions on concluding important transactions and other important management issues. The General Director is the sole management body of the Company, he organizes the activities of the Company and concludes the transactions of the Company. The competence of the Company's bodies is described in detail in the Company's Articles of Association. The Company complies with the Corporate Governance Code for Listed Companies. 10.3. The articles of Association The Articles of Association of Litgrid are amended in accordance with the procedure established by the Law on Companies of the Republic of Lithuania. The Articles of Association of the Company did not change during the reporting period. 10.4. General shareholders meeting The General Meeting of Shareholders is the highest governing body of the Company. The competence of the General Meeting of Shareholders, the rights of the shareholders and their implementation are provided for in the Articles of Association of the ABĮ and the Company. The competence, convening and decision-making procedure of the General Meeting of Shareholders shall be established by laws, other legal acts and the Articles of Association. 10.5. The Board of Litgrid AB Information about the members of the Board, the Chief Executive Officer and the Chief Financial Officer of Litgrid as at 31 December 2021: CVs of the members of the Board and the Company’s Chief Executive Officer (information is also published on the website at www.litgrid.eu). Position Full name Start date End date Number of the issuer’s shares held Chairman of the Board (from 18/08/2020) Algirdas Juozaponis 07/09/2018 Independent member of the Board Domas Sidaravičius 29/07/2016 - Independent member of the Board Artūras Vilimas 20/04/2020 Member of the Board Jūratė Marcinkonienė 20/04/2020 CEO Rokas Masiulis 21/02/2021 Chief Financial Officer Vytautas Tauras 01/03/2019 76 shares ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 45 10.6. Management and control 10.6.1. The Board The Board of the Company consisting of five members, is elected for a four-year term. The term of office of the Board begins at the end of the General Meeting of Shareholders that elected the Board and ends on the day of the Ordinary General Meeting of Shareholders to be held in the year of the end of the term of office of the Board. If the Board or a member of the Board is revoked, resigns or for other reasons ceases to hold office before the end of the term of office, a new Board or a member of the Board shall be elected for the remaining term of office. According to the requirements of the amended new Articles of Association, the election of the members of the Board ensures that the Board consists of at least 2 (two) independent members, determining their independence taking into account the requirements of the applicable legislation; it is ensured that at least 3 (three) members of the Board are not related to the employment relationship with the Company, and if possible, the aim is not to appoint employees of the Company to the Board. The Board elects the Chairman of the Board from its members. In its activities, the Board follows the laws, other legal acts, the Articles of Association, the decisions of the General Meeting of Shareholders and the Rules of Procedure of the Board. The Board is a collegial management body of the Company. The competence of the Board, the decision-making procedure and the procedure for election and removal of members shall be established by laws, other legal acts and the Articles of Association. The Board is accountable to the General Meeting of Shareholders. 10.6.2. The areas of activities of the Board The Board of the Company considers and approves the Strategy, three-year action plan, 10-year development plan, the budget, charity and sponsorship, other Company’s documents of strategic importance. The Board makes decisions for the Company to start a new type of activity or to terminate a specific activity, when it does not contradict the purpose of the Company's activity. Also, the decisions related to the issuance of bonds, transfer of shares held by the Company to other persons, decisions on financial transactions with a value of more than EUR 3 million must be approved by the Board. The Board also resolves other issues assigned to it in the Company's Articles of Association. 10.6.3. The members of the Board Algirdas Juozaponis Chairman of the Board (from 31 st August 2020). The Chief Financial Officer of EPSO-G UAB, the member of the Board (2016-2018). Started as the Chairman of the board from August 2020,temporarity acting CEO of EPSO-G UAB FROM January 6, 2022. Other positions: Chairman of the board at Amber grid AB (reg. code 303090867, Savanorių pr. 28, Vilnius LT-03116). Mr Algirdas Juozaponis does not hold any shares of Litgrid. Jūratė Marcinkonienė Member of the Board CEO of GET Baltic UAB (UAB GET Baltic (reg. code 302861178, Geležinio Vilko g. 18A, LT-1810, Vilnius). Mrs Jūratė Marcinkonienė does not hold any shares of Litgrid. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 46 Domas Sidaravičius Independent member of the Board Other position: Tuvlita UAB Strategy and development director (reg. code 1105840917, Lentvario g. 7A, LT-02300, Vilnius). Mr Domas Sidaravičius does not hold any shares of Litgrid. Artūras Vilimas Independent member of the Board The member of the Innovation and Development Committee under the Board of EPSO-G. Mr Vilimas does not hold any shares of Litgrid. During 2021, 31 Board meeting was held. Attendance of the meetings of the Board of LITGRID AB in 2021: No Meeting date Algirdas Juozaponis Domas Sidaravičius Jūratė Marcinkonienė Artūras Vilimas 1 07/01/2021 + + + + 2 15/01/2021 + + + + 3 21/01/2021 + + + + 4 28/01/2021 + + + + 5 05/02/2021 + + + + 6 05/02/2021 + + + + 7 09/02/2021 + + + + 8 22/02/2021 + + + + 9 26/02/2021 + + + + 10 09/03/2021 + + + + 11 10/03/2021 + + + + 12 26/03/2021 + + + + 13 23/04/2021 + + + + 14 21/05/2021 + + + + 15 07/06/2021 + + + + 16 18/06/2021 + + + + 17 14/07/2021 + + + + 18 23/07/2021 + + + + 19 29/07/2021 + + + + 20 10/08/2021 + + + + 21 13/08/2021 + + + + 22 02/09/2021 + + + + 23 17/09/2021 + + + + 24 08/10/2021 + + + + 25 26/10/2021 + + + + 26 03/11/2021 + + + + ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 47 27 11/11/2021 + + + + 28 19/11/2021 + + + + 29 25/11/2021 + + + + 30 17/12/2021 + + + + 31 28/12/2021 + + + + Material decisions adopted by the Board of LITGRID AB during 2021 Month Meeting date Decisions January 07/01 The plan of risk management measures for 2021 of LITGRID AB was supplemented. 15/01 The strategy of LITGRID AB for 2020-2030 was discussed. 21/01 The implementation of objectives set to LITGRID AB for 2020 and establishment of objectives for 2021 were discussed. 28/01 The best candidate to the position of the CEO of LITGRID AB was selected. February 05/02 The issue of voting at the General Meeting of Shareholders of LitPol Link was addressed. 05/02 The Action Plan of LITGRID AB aimed at preventing flow of unsafe electricity produced in Belarus to Lithuania was discussed. 09/02 The CEO of LITGRID AB was selected. 22/02 The development of non-current assets was approved by concluding the agreement on the design and construction works for the transformation of the 330 kV single-circuit overhead line Jurbarkas-Bitėnai (LN 531) to a double-circuit line. 26/02 The major terms of the cashpool agreement between LITGRID AB and EPSO G UAB were approved. The major terms of the transaction conclusion between LITGRID AB and EPSO G UAB (purchase of management holding services) were approved. Independence of the Board members was assessed. The presentation on the activities of the Innovation and Development Committee was heard. March 09/03 Accession to the amended Project Management Policy of the EPSO-G UAB Group. Accession to the amended Integrated Planning and Monitoring Policy of the EPSO-G UAB Group. Accession to the amended Business Transparency and Communication Policy of the EPSO-G UAB Group. The standard terms of the trilateral agreement on the services of the connection of electricity equipment to the electricity transmission networks / relocation (reconstruction) were approved. The standard terms of the agreement on the electricity transmission service were approved. 10/03 The plan of risk management measures for 2021 of LITGRID AB was supplemented. The joint acquisition of the systematic studies and consultation services for the Baltic transmission system operators from a single provider was approved. 26/03 The implementation of the objectives of the activities of the CEO of LITGRID AB was established. The report on the implementation of the strategy of LITGRID AB for 2019-2028 during 2020 was approved. The annual report of LITGRID AB for 2020 and the remuneration report of LITGRID AB for 2020 were approved; the set of the 2020 financial statements of LITGRID AB and the proposed profit appropriation of LITGRID AB for 2020 were approved. The Ordinary General Meeting of Shareholders was convened. The amended budgets of investments, cash flows and balance sheet of LITGRID AB for 2021 were approved. The procedure for the electricity transmission services prices and their application was amended. The plan for the implementation of the internal audit recommendations related to the personnel management was approved. April 23/04 The objectives of the CEO of LITGRID AB for 2021 were approved. For the achieved operational results of the Company for 2020 the variable remuneration amount was allocated to employees, the Company’s acting CEO. The investment solution for the implementation stage of the Harmony Link interconnection construction project was approved. The Extraordinary General Meeting of Shareholders was convened. The reports on the progress of the synchronisation programme, the risk management plan, limited competition procurement control were discussed. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 48 May 21/05 The presentation on the results of the implemented audit recommendations for Q1 of 2021 was heard. A new organisational structure of LITGRID AB from 1 July 2021 was approved. June 07/06 The conclusion of the agreement with EPSO-G UAB on the transfer and acceptance of tax losses relating to 2020 was approved. 18/06 The plan for the development of the 400-110 kV networks of the Lithuanian electricity system for 2021-2030 was approved. The updated grades of positions of the top-level and medium-level managers of LITGRID AB were approved. Accession to the Employee Remuneration, Performance Assessment and Development Policy of the EPSO-G UAB Group. The issue of voting at the General Meeting of Shareholders of TSO Holding AS was addressed. July 14/07 The strategy of LITGRID AB for 2030 was approved. The updated strategic 3-5 year priorities of the 2021-2023 Action Plan of LITGRID AB and objectives of the operational plan for 2021 were approved. 23/07 Consultations on the major terms of the agreement and purchase of works of design, supply, construction and transfer for use of the HVDC cable system (the Harmony Link interconnection) were conducted. Consultations on the procedure for the calculation and allocation of transmission capacities of the interconnection Lithuania-Belarus were conducted. The reports on the progress achieved with the implementation of the synchronisation programme, the risk management plan, limited competition procurement control were discussed. The results of the implemented audit recommendations for Q2 of 2021 were discussed. The implementation of the operational results for Q1-Q2 of 2021 was discussed. 29/07 The submission of the draft Methodology on cross-zonal capacity calculation and allocation with third countries to the NERC for the announcement of a public consultation was approved. Consultations on the major terms of the agreement and purchase of works of design, supply, construction and transfer for use of the HVDC cable system (the Harmony Link interconnection) were conducted. August 10/08 Consultations on the major terms of the agreement and purchase of works of design, supply, construction and transfer for use of the HVDC cable system (Harmony Link interconnection) were conducted. 13/08 The development (acquisition) of non-current assets was approved by concluding the agreement on the design and construction works for the reconstruction of the 330/110/10 kV Neris transformer substation. The Extraordinary General Meeting of Shareholders was convened. September 02/09 The Methodology on cross-zonal capacity calculation and allocation with third countries and its submission to the NERC for approval was confirmed. Accession of LITGRID AB to the association INFOBALT was approved. 17/09 The development of non-current assets was approved by concluding the agreement with the related party on the design and construction works for the construction of the 330 kV Darbėnai switchgear. October 08/10 The development of non-current assets was approved by concluding the agreement on the design and construction works of the 110 kV switchgear at the Kaunas power plant. The conclusions of the audit of the process of the application of default charges and dispute resolution were heard. The action plan of LITGRID AB for 2021 for the implementation of the internal audit recommendations related to default charges and disputes was approved. 26/10 The standard terms of the agreement on provision of guarantees on origin, the sale-purchase agreements of imbalance services were approved. The prices of the energy transmission services for 2022 were established and the procedure of their application was approved. The development of non-current assets was approved by concluding the agreement on the design and construction works for the construction of a new section from LN531 to LN 447 of the 330 kV overhead line. The development of non-current assets was approved by concluding the agreement on the design and construction works for the 330 kV overhead line Darbėnai-Bitėnai construction works. The Extraordinary General Meeting of Shareholders was convened. A new organisational governance structure of LITGRID AB was approved. November 03/11 The development of non-current assets was approved by concluding the agreement on the design, production and installation works for the installation of ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 49 new synchronous compensators in the Lithuanian electricity system and the Extraordinary General Meeting of Shareholders was convened. 11/11 The draft strategy of LITGRID AB for 2030 was approved and its submission to the public institution Management Coordination Centre for review was confirmed. 19/11 Accession to the Integrated Planning and Monitoring Policy of the EPSO-G UAB Group. The reports on the progress achieved with the implementation of the synchronisation programme, the risk management plan, limited competition procurement control were discussed. The need to establish the Baltic Regional Coordination Centre was discussed. 25/11 The standard terms of the sale-purchase agreement of imbalance services were approved. December 17/12 The budget of LITGRID AB for 2022 was approved. The plan of risk management measures for 2022 of LITGRID AB was approved. The updated levels of remuneration of the top-level and medium-level managers were approved. The updated list of the compliance priority areas was approved. The acquisition of additional works under the design and construction agreement of 10 April 2018 “Optimisation of the North-East Lithuanian electricity transmission network and preparation for synchronous work with the energy system of continental Europe” was approved. The conclusion of transactions with related parties was approved. 28/12 The submission of the updated draft Methodology on cross-zonal capacity calculation and allocation with third countries to the NERC for the announcement of a public consultation was approved. 10.6.4. Areas of activities of the CEO The CEO is the sole governing body of the Company. The CEO organizes the activities of the Company, manages it, acts on behalf of the Company and has the right to conclude transactions unilaterally. The competence of the CEO, the procedure of election and revocation shall be established by laws, other legal acts and the Articles of Association. Rokas Masiulis CEO Other positions: independent board member at „Connect Pay“ UAB (reg, nr. 304696889 Algirdo g. 48, LT-03218 Vilnius). R. Masiulis does not hold Litgrid shares. 10.6.5. Governance and control The requirements for the governance of the Company are set forth by the Lithuanian Government’s resolutions on the governance of state-owned or state-controlled companies, insofar as they apply to the EPSO-G group companies, and the Governance Code, insofar as the Company’s Articles of Association do not state otherwise. In accordance with the Integrated Planning and Monitoring Policy of the EPSO-G Group of Companies, which was approved at the meeting of the Board of the Company No 12 held on 19 May 2017 and which is directly applied at the Company in its entirety, the Company is preparing the strategy of the Company for a period of 5–10 years. The period of the strategy must coincide with the period of the parent company’s strategy. The prepared strategy of the Company currently covers the period of 10 years up to 2028. The implementation of the strategic objectives set out in the strategy of the Company is ensured by the Company’s performance, control, and risk management systems. The strategy of the Company is approved and its implementation is controlled by the Board. The Board of the Company prepares (updates) and approves the operational plan for a period of 3 years before the end of the current year. A monthly strategy implementation supervision system is introduced at the Company and is linked with the Company’s administrative staff remuneration system. The composition of the Company’s Board is disclosed on the Company’s website. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 50 The Company’s activities of the transmission system operator are regulated by the national regulatory authority, i.e. the National Energy Regulatory Council. Within its competence, the Council performs the functions of the state regulation in the electricity sector in the Republic of Lithuania, by ensuring, inter alia, the supervision of and control over the performance of regulated activities in the energy sector, as well as the proper implementation of the rights and duties of electricity undertakings and consumers. The strategy and operational plan of the Company are implemented by and the activities of the Company’s administrative staff are organised by the Company’s Chief Executive Officer. The Company’s administrative management personnel consists of the Chief Executive Officer, the Finance Department Director, the System Department Director, the Transmission Network Department Director, the Strategic Infrastructure Department Director, the Strategy Department Director, and the ITT and Administration Department Director. The composition of the Company’s management is disclosed on the Company’s website. Corporate governance accommodates the principles of good governance practice and the policies on the governance of state- controlled companies. The Board of the Company approves the following policies, the implementation of which is to be ensured by the administrative staff of the Company: corruption prevention, remuneration, remuneration for activities in the management bodies of the group companies, assessment of employees' performance, project management, integrated planning and monitoring, corporate governance, accounting, support, dividends, transport, technological property, transparency and communication, protection of sensitive information, management of interests of collegial management bodies, executives and employees, treasury management and financial risks, risk management, social responsibility and other policies, the content of which is published on the Company’s website. The internal control systems of the Company are supported by the organisational structure, management culture and implemented good governance practices, as well as process management which is currently being implemented. It should be noted that the supervisory functions are carried out by the Board of EPSO-G UAB, meanwhile recommendations, proposals and conclusions on matters which are key to the Company’s activities are provided by the Remuneration and Nomination Committee and the Audit Committee. The internal control system is initiated by the Company’s Board and implemented by the administrative staff, assisted by the Audit Committee of EPSO-G UAB, the external independent audit, and divisions supporting the principal activity. The procedures and policies effective at the Company ensure the reliability of accounting and financial reporting, the compliance of the Company’s activities with legal acts, operational efficiency, and achievement of operational objectives. The Minister of Energy of the Republic of Lithuania by Order No 1-212 of 7 September 2015 approved the Corporate Governance Guidelines for the State-Owned Group of Energy Companies (the “Guidelines”). The Guidelines establish uniform principles of corporate governance to be applied to the entire EPSO-G group of companies and prescribe the purpose of the group of companies, its operational objectives, corporate governance organisation model, governance structure, as well as the system for accountability, supervision and control of operations. These Corporate Governance Guidelines are intended to support and further improve the procedures and policies of good governance practice applied at the Company. Good governance practice of the EPSO-G group of companies upon the approval of the Guidelines by the Minister of Energy, the company controlling the EPSO-G group of companies is improving the governance practice in its operations and the operations of the group of companies, with reference to the recommendations set forth in the Governance Code and by implementing the recommendations of the international organisations, such as the OECD, intended to enhance the governance of state-controlled companies. The basis for the practical realisation of these Guidelines was created on 17 December 2015, with the approval of the newly revised Articles of Association of EPSO-G (the “Articles of Association of EPSO-G”), as the company controlling the entire EPSO-G group of companies, by the Ministry of Energy, which is the owner of the shares of EPSO-G. The newly revised Articles of Association of EPSO-G laid down the foundations for the establishment of the new management bodies at the level of EPSO-G, i.e. the Board, the Audit Committee, and the Remuneration and Nomination Committee, which, in turn, perform certain supervisory and management functions at the level of the entire group of companies. Related-party transactions are disclosed in the notes to the financial statements as at 31 December 2021. All related party transactions were at arm’s length, including transactions as per para 37(2) of the Lithuanian Law on Companies. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 51 11. REMUNERATION REPORT 11.1. Employees The Company is able to successfully fulfil its objectives due to dedicated work of the team of employees with the highest competencies. It consists of around 335 specialists, 95% of whom have acquired higher education. The growth of the number of the employees is caused by increased efforts to implement Synchronisation project and accumulating the critical competencies within the Company. The percentage of men and women employed at the Company is equal to 76% and 24%, respectively. The average age of the Company’s employees is 42 years. Three quarters of the Litgrid’s team members are experienced engineers on whose work smooth operation of the TSO is dependant. The average length of service of employees in the energy system is 10 years. In 2021, the Company’s employee turnover rate was 8.2%, whereas it was equal to 11.7% in 2020 and 2019. The voluntary turnover rate decreased from 9% to 7.2% and considering the higher number of the Company’s employees. Average wages in EUR, in 2017-2021 2021 2020 2019 2018 2017 Chief Executive Officer 9 403 13 729 12 980 12 291 12 149 Top-level managers 8 957 8 697 8 560 8 249 7 599 Medium-level managers 4 778 4 482 4 326 4 041 4 331 Experts-specialists 3041 2 792 2 556 2 403 2 175 Total 3 421 3 167 2 972 2 818 2 564 2021 2020 2019 2018 2017 Company’s net profit/loss, EUR thousand 20 013 26 603 2959 (38 090) 7 724 Information on the Remuneration Policy, the Employee Performance Assessment Policy, salaries paid and the Company’s targets are published on the Company’s website. 11.2. Remuneration of the collegial management bodies At the EPSO-G UAB group the remuneration principles applied in respect of the members of the management bodies are established according to the Guidelines on the Establishment of Remuneration for Activities at the Bodies of the Companies of the Group which are approved by the decision of the sole shareholder of EPSO-G UAB. During the Extraordinary General Meeting of Shareholders of Litgrid held on 17 December 2019, decisions were adopted on the determination of the annual remuneration budget for the independent members of the Board, and the budget for expenditures relating to fulfilment of functions at the Board as well as on the standard terms and conditions of agreements concluded with the independent members of the Board on the fulfilment of functions at the Board of Litgrid. Company’s Remuneration policy approved on 20 Aril 2020: (https://www. Litgrid .eu/uploads/files/dir523/dir26/dir1/16_0.php) No remuneration is paid to the members of the Board delegated by the shareholder. Litgrid Board member remuneration, EUR 2021 2020 2019 2018 2017 Domas Sidaravičius (from 07 2016) 16 800 16 800 8 820 9025 8375 Algirdas Juozaponis (from 09 2018) - - - - - Artūras Vilimas (from 04 2020) 21 000 14 197 - - - Jūratė Marcinkonienė (from 04 2020) - - - - - Total 37 800 37 414 18 307 12 225 8375 No other bonuses, tantjemes or other benefits were paid to the members of the Board. The fixed and variable remuneration of the head of the CEO is determined by the Board of the Company, for the top managers by the CEO in accordance with the remuneration policy approved by the Board of the Company. The variable part of the remuneration is paid to the manager and the management once a year, after the Board of the Company approves the implementation of the objectives of the CEO of the Company (they are also same for the Company). ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 52 12. SPECIAL OBLIGATIONS There are no special obligations for Litgrid. 13. RISK FACTORS AND THEIR MANAGEMENT The Company follows the EPSO-G Group’s Risk Management Policy approved by Decision VLD-19-02 of 25 January 2019 of the Board of EPSO-G UAB (the “Policy”). To ensure the application of an effective and uniform risk management process, the Board of Litgrid AB adopted Decision No 7.1 of 8 March 2019 (Minutes No 5) whereby mandatory compliance with the provisions of the Policy in the Company’s activities was established. By Decision No VLD-20-02 of 7 February 2020 the Board of EPSO-G UAB approved the Risk Management Methodology of EPSO-G UAB (the “Methodology”) that gives a detailed description of the Policy's provisions and processes of risks managed at the Group level. By Decision No 7 (Minutes No 7) of 24 April 2020 of the Board of Litgrid AB, the Methodology was approved, with which the Company complies in its activities when managing risk and exchanging information with EPSO-G UAB. The Company applies the risk management model (the Policy and the Methodology) prepared in accordance with the COSO ERM (Committee of Sponsoring Organisations of the Treadway Commission Enterprise Risk Management) methodology, which is recognised in the international practice and the standard AS/NZS ISO 31000:2009 (Risk management - Principles and guidelines), which sets out the risk identification, assessment and management guidelines and responsibilities. Responsibilities of the Company’s bodies in the risk management system The EPSO-G Board The Audit Committee Assesses management of risks, is responsible for an effective risk management system at the Group. An advisory committee of the EPSO-G Board – oversees management of risks at the Group level, assesses effectiveness of the risk management system. The Chief Executive Officer of EPSO-G Organises the implementation of the Risk Management Policy and other decisions of the Board, within the area of his/her competence aims to achieve a proper management of risks of the companies. Risks at the Group level Risks at the level of the Group companies The Board The Audit Committee Responsible for a proper management of risks at the company. An advisory committee of the Board – oversees management of risks. The Chief Executive Officer Responsible for the implementation of risk management measures The Policy lays down the key principles followed by the Company in managing risks: ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 53 1. Preservation and creation of the Company’s value. This principle means that risk management directly contributes to the implementation of the Company’s strategy and achievement of performance objectives as well as improvement of performance by helping to properly prepare, address negative events, reduce their impact and (or) probability. 2. Integrity. This principle means that risk management is an integral part of management, control and planning of the Company’s daily activities and change management processes. 3. Information relevance and reliability. This principle means that risk management is based on reliable historical data, observation, experience and expert judgement. 4. Timely management of risks. This principle means that the Company’s management bodies, executives and other responsible employees should be informed timely and properly and involved in the risk management process to ensure its relevance. 5. Independence of companies. This principle means that each company and its collegial bodies in compliance with the Methodology act independently within the area of their competence by assuming responsibility for the adoption of decisions attributed to their competence regardless whether respective activity areas are regulated by the Group’s risk management documents. The companies of the Group and their collegial bodies are obliged to independently assess whether compliance with the Group’s risk management policy does not harm the interests of a respective company of the Group, its shareholders, shareholders or other stakeholders. 6. Transparency. This principle means that the companies provide information on major risks to stakeholders aiming to disclose reasons of decisions being adopted and increase trust in the companies. The key principles of risk management not only help achieve the Company’s strategic objectives, but also contribute to: higher stability of the Company’s performance and efficiency of processes; provision of accurate information to decision makers, shareholders and other stakeholders; building public and state confidence in the Company, protection of the Company’s reputation; anticipation of threats and coordinated implementation of threat management measures that would prevent the occurrence of threats or reduce their negative impact and (or) the probability of occurrence; To ensure the implementation of the objectives set to the Company, each year during a specified time period the process of the Company’s risks identification and assessment is conducted and the risk management measures are specified. The monitoring of existing and new risk factors is additionally conducted once a quarter. If needed, additional measures for managing risk factors are operatively established (ongoing control over the measures planned for risk management is carried out). Risk appetite and risk tolerance limits are established at the Company, the values of the main risk indicators are regularly monitored. Risk management model under the COSO ERM standards Mission Vision Values Strategic planning Establishment of operational objectives Introduction and monitoring Higher value of business Leadership and culture Strategy and setting of objectives Activities Performance monitoring and review Communication and accountability Risk management directions for 2021 As every year, during the risk assessment for 2021 at the Company, certain risks were identified which are focused on by the Company in managing threats. The main risks identified, their management measures for 2021 are listed below. Risk Description Main measures of risk management Risk level Risk of failure to implement strategic projects The Company must ensure a timely preparation for a full synchronisation of the Lithuanian electricity system with the continental European networks. This risk may realise if at least one measure or action stipulated in the Plan for the Actions and Measures of the Qualified specialists, if necessary, external as well, are involved in the project implementation; Timely monitoring and control over project implementation deadlines and performance of works; Resource planning and monitoring of the project portfolio at the level of the Company’s Board; Extremely high level of risk ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 54 Electricity System Synchronisation Project will not be performed by the established deadline. Zero- tolerance approach to delay in project implementation is applied with respect to the synchronisation projects. Timely performance of necessary procurements along with a responsible planning of procurement needs; Compliance with good project management and quality management practices; Qualification requirements applicable to the highest-quality and experience standards; Internal audits and controls of project management. Operational risk One of the main functions and responsibilities of the Company’s activities is to secure reliability of electricity transmission and prevent disruptions of of energy supply. Main operational risks that could affect the reliability of the transmission are caused by external environmental factors: natural disasters, disruptions in the operations of the main contractors, criminal acts of third parties, as well as internal factors such as information systems’ failures. Ensurance of capacity reserves; Performance of equipment testing, successful performance of the testing of isolated operation and trainings of operative employees; Monitoring of frequency parameters; Preparation of the plan on the continuity of the operation of the energy system of the Baltic countries; Preparation and regular renewal of the emergency situation and business continuity plans. Very high level of risk Risk of technological failures Faults or failures of the most important technological equipment can have a negative impact on the Company’s operations and financial result. In order to avoid disruptions in the electricity supply, the Company continuously monitors the condition of the transmission network, develops respective maintenance plans and timely plans necessary new investments in the network and ensures the reliability of the interconnections. Defects of the construction of the interconnections have been removed; It has been prepared for the ensurance/restoration of operation of the interconnections after the guarantee period and upon the occurrence of the impact from the third parties; Available resources are monitored and maintained in order to remove failures when necessary; High-quality operation and availability of the interconnections have been ensured; Regular maintenance of the interconnections is performed. Medium level of risk Employee morbidity risk A large number of residents being infected with COVID-19 and other infectious diseases leads to a risk that the Company’s employees (among them those holding critical positions) will also fall ill. Remote work is mandatory aiming to minimise the number of contacts; Education of employees and continuous communication about protection measures applied; Work organisation principles and rules have been established both to employees holding critical positions and to those conducting ordinary activities; Employees are provided with personal protection measures; Vaccination against flu, measles; Disinfection and regular cleaning of premises; Measurement of body temperature of visitors; Medium level of risk ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 55 Register of employees working in the office in order to identify employees who had contacts with infected persons. Risk of non-compliance with environmental requirements In case of failure of the Company's facilities or occurrence of other incident or event, during which oil can be spilled, damage to environment may occur, environmental requirements may be breached. There is also a risk that the Company’s objects may exceed the established noise thresholds. Environmental requirements for work at the Company’s facilities have been prepared that are applied to contracting companies as well, actions and measures in case of unexpected spills of oil have been developed; Systems for the treatment of potentially contaminated rainwater and collection of oil that spilled during the accidents are being installed at the objects where the autotransformers are located; Regular technical maintenance of the existing oil collection systems; Noise emanation modelling is carried out during the reconstruction or building of new objects/substations and, if necessary, noise reduction measures are established; Control of contracting companies with regard to compliance with environmental requirements; Regular cooperation with the environmental institutions. Very high level of risk Non-compliance risk Aiming to ensure sustainability, stability of its performance and protect reputation as well as to avoid financial losses, the Company must comply with the applicable regulatory requirements. Ambiguity of the provisions of the legal acts or disruptions caused by external factors, negligence of employees may lead to a risk of failure to implement or breach of regulatory requirements. Timely management of the compliance area which is conducted in a centralised manner at the Group level, cooperation with the specialists of the Group companies and supervisory institutions to ensure timely implementation of the requirements of the legal acts; Performance of audits, operative removal of detected gaps; Employee training, timely monitoring of the legal acts in the register of legal acts and draft legal acts; High level of risk Risk of failure to ensure information security By observing external factors and situation, the Company understands its strategic importance for the country’s security and aims to ensure that the Company’s strategic information and the main management systems are protected from any external/internal impact, illegal disclosure. Improvement of resilience through scanning and isolation of technological networks, tests/trainings/internal audits; Processes related to cyber threat monitoring/detection are being further strengthened by installing new and updating existing systems; Information security training courses for users; The Operations Centre for Internal Security has been established; Monitoring of the application of ISO standard No 27001; Incorporation of cyber security requirements into the contracts with the contracting undertakings and other operational documents; The plan for auditing compliance with the main third-party requirements has been prepared and implemented; Trainings on electronic information security for third parties have been prepared and are being conducted. High level of risk ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 56 14. SIGNIFICANT EVENTS OF THE REPORTING PERIOD As the Company fulfils its obligations set forth in the legal acts regulating the securities market, it publishes notices of its material events and other regulated information on the EU-wide basis. The information is available on the Company’s official website (www.litgrid.eu) and on the official website of NASDAQ Vilnius stock exchange (www.nasdaqbaltic.com). Summary of the significant achievements and events in the Litgrid’s activities in 2021 January On 1 January 2021, the electricity transmission price, approved by the National Energy Regulatory Council (NERC), entered into force. The approved average price of the electricity transmission service decreased by nearly 11% from 1 January 2021 to 0.721 ct/kWh. This change is caused by bigger investment return in previous periods, the part of it being returned in 2021. 2021 January 11 The Extraordinary General Meeting of Shareholders of LITGRID adopted the decision on the total annual budget for 2021 for the remuneration of the members of the Board of the Company and additional expenses for the Company to ensure the activities of the Board is EUR 41,580. Also, the decision No1 to the agreement dated April 30 2020 for the „Reconstruction of 330 kV voltage overhead line Lithuanian E - Alytus (LN 330)” design and contract works procurement contract number 20VP- SUT47 was approved. 2021 January 12 LITGRID has completed an important stage in the project "Optimization of the network in the Northeast and preparation for synchronous operation with the networks of continental Europe". After the reconstruction, 330 kV switchyards of Utena and Ignalina NPP transformer substations were switched on. Utena 330 kV autotransformer also started operations. Similar device was switched on at the Ignalina NPP substation, completing all project works in the 330-kV network. The project is planned to be completed by the end of 2021. 2021 January 18 Lithuanian electricity transmission system operator LITGRID has signed an agreement on the design and construction of the 330-kV electricity transmission overhead line Klaipėda – Grobinė. February 2021 February 3 LITGRID and the Polish electricity transmission system operator PSE started a seabed survey for Harmony Link. During the research, a 290 km long and 300 m wide route in the Baltic Sea will be explored, soil samples will be examined, and objects identified on the seabed, including dangerous wreckage or explosives, will be analysed. The data from the study report will be used to develop a cable construction and protection strategy. 2021 February 9 Having evaluated the results of the selection and the candidate's competence and experience, the Board of LITGRID appointed Rokas Masiulis as the General Director of LITGRID. He started this position on February 22, 2021. 2021 February 18 LITGRID presented the development plans of two synchronization projects - the overhead lines Darbėnai – Bitėnai and Kruonis HPP–Bitėnai. During the public hearings people were introduced to the solutions of the prepared development plans, and people were provided with the possibility to submit the proposals for the solutions of the territorial planning document. February 24, 2021 The State Energy Regulatory Council approved the grid development plan submitted by LITGRID in the middle of the last year. Lithuanian electricity transmission system operator LITGRID anticipates that the development of the electricity transmission network will require an investment of EUR 1.3 billion over the next decade, both for the synchronization with the continental European networks and for the further development of the transmission network. March 2021 March 4 LITGRID entered into a management holding agreement with its parent company, EPSO-G. The maximum price of the contract (excluding VAT) is EUR 425,000, the term of the contract is 36 months. 2021 March 4 Harmony Link, a project implementation study commissioned by LITGRID and PSE, has been completed. It provides the basis for the conditions of the planned purchase of converter stations and the cable. The study conducted by ILF Consulting Engineers Polska indicates the optimal solution of the technical parameters of the connection, the recommended installation method, on the basis of which a detailed technical specification of the connection is prepared, which includes such parameters as voltage, conductor materials, etc. 2021 March 16 the seabed survey of the Harmony Link connection in the Swedish EEZ has been authorized. 2021 March 24 LITGRID has completed the project of relocating a 180 MVar controlled shunt reactor from Ignalina to Elektrėnai. This device for voltage control in the system ensures the quality of electricity supply by regulating the voltage and reactive power in the transmission network. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 57 2021 March 31 While Lithuania is synchronizing its electricity networks with the continental Europe, LITGRID and the Lithuanian Road Administration have signed a cooperation agreement on the exchange of information in the construction, maintenance, reconstruction and erection of engineering networks, projects and long-term plans. April 2021 April 2 LITGRID has started the reconstruction works of the 330 kV power transmission line connecting the 330 kV switchyard of the Lithuanian power plant and the Alytus transformer substation. During the reconstruction, 210 overhead line supports, and wires will be replaced, and a lightning protection cable with a fibre optic cable will be installed. The reconstruction of the airline will contribute to ensuring the reliable and stable operation of the electricity system transmission network, uninterrupted supply of electricity to the consumers of this region and the whole of Lithuania. Reconstruction works will be partially financed by European Union funds. EUR 15.088 million will be invested in the network upgrade. According to the contract signed in April 2020 works will be performed by a group of companies - AB Kauno tiltai and UAB Litenergoservis. 2021 April 14 LITGRID announced public procurements for design and construction works for the construction of 330 kV transmission lines Darbėnai – Bitėnai and Kruonis HPP – Bitėnai. These lines will ensure reliable operation of the transmission network after Harmony Link is built and high-voltage electricity transmission lines in the Kaliningrad region of Russia and Belarus are disconnected. 2021 April 21 LITGRID has signed a contract for the installation of additional sound management measures at the LitPol Link converter station and transformer substation in Alytus district. Construction is planned to be completed by the end 2021. The Alytus substation is currently equipped with two sound management devices - a wall and an embankment. After the implementation of additional technical solutions, the noise level will be ensured to be in accordance with the requirements of the Hygiene Standards near the electrical equipment. It is planned to invest 1.8 million. euros. 2021 April 21 LITGRID has signed the contract with APS grupė for the reconstruction of Salotė transformer substation in Vilnius, Bitėnų Street. In the scope of the reconstruction, Vilniaus Bitėnų str. 110 kV switchyard will be renewed, the transformer substation scheme will be changed. Reconstruction of the switchyard will help to increase the reliability of electricity transmission in the eastern part of Lithuania and reduce the network operating costs. The value of the design and contract is EUR 889 thousand. The project is financed by LITGRID. The reconstruction is planned to be completed in May 2023. May 2021 May 13 The autotransformer for the expansion of the Lithuanian-Polish electricity system connection LitPol Link was delivered to Klaipeda port. The high-voltage direct current connection LitPol Link is being expanded by installing three 400/330 kV autotransformers, expanding 400 kV and 330 kV switchyards, reconstructing power lines, and reorganizing the 400 kV self- supply power switchyard. The total investment of the project amounts to EUR 22.5 million., the project is co-financed by the EU's Connecting Europe Facility. 2021 May 17 The Extraordinary General Meeting of Shareholders of LITGRID approved the investment decision of the implementation phase of the Harmony Link connection construction project. 2021 May 19 LITGRID has completed the territorial planning of the 330 kV power transmission line Vilnius-Neris. This is one of the strategic projects necessary for the synchronization of the Lithuanian electricity system with the continental European networks. The new line will significantly strengthen the electricity network of the Vilnius region and ensure a reliable supply for residents and businesses. 2021 May 31 The shareholders of LITGRID and PSE approved the investments for the construction of the Harmony Link submarine connection. This is the largest of all projects that will ensure the synchronization of the Baltic electricity networks with continental Europe. Once the financing decision has been made, both countries will move to the project implementation phase and the work scheduled for the project will start. The investments planned for the Harmony Link project amount to EUR 680 million, of which EUR 493 million is the largest possible support from the Connecting Europe Facility (CEF). June 2021 June 4 LITGRID informed the other parties to the BRELL agreement, including the Belarusian operator, about the initiation of legal proceedings regarding the control of electricity connections between Lithuania and Belarus. LITGRID has taken these actions in compliance with the provisions of the Law on Necessary Measures to Protect Against Unsafe Threats of Nuclear Power Plants in Third Countries. The provisions of this law prohibit access to the Lithuanian electricity market for the electricity from the third countries with production in unsafe nuclear power plants. 2021 June 11 Three Baltic electricity transmission operators - LITGRID, AST in Latvia and Elering in Estonia - have launched a new Baltic Transparency Dashboard. The new solution will be more convenient for the market participants, and operators will have more flexibility and will be able to publish even more data. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 58 2021 June 30 LITGRID submitted 10-year grid development plan to the National Energy Regulatory Council a for 2021-2030. Over the next decade, investment in the network and strategic energy system projects may reach up to EUR 1.38 billion. By renewing and developing the network, LITGRID will intensively expand the possibilities to connect power plants producing electricity from renewable sources. LITGRID ensures that by 2030, the capacity of wind power plants planned for in the state targets will be able to be connected to the onshore grid. July July 15, 2021 Lithuanian electricity transmission system operator Litgrid informed BRELL operators about the planned reduction of the maximum transmission capacity from Belarus to Lithuania. The aim of this action was to ensure that Lithuanian power lines are not used for trade in electricity produced in Belarus and to implement the provisions of the Law on Necessary Measures to Protect Against the Threats of Unsafe Nuclear Power Plants in Third Countries. It was expected that the maximum electricity transmission capacity from Belarus to Lithuania will be reduced from 1250 MW to the maximum required for system security. The new 400 MW capacity is scheduled to enter into force in 2021. September 15, when the rules establishing this will be agreed with the National Energy Regulatory Council. July 16, 2021 Litgrid announced it will install a new electricity quality monitoring system in half a hundred substations, which will continuously monitor the parameters of the transmission network system, collect and analyze data and ensure timely transmission network quality control. Electricity substation will be installed in 46 substations and an information system will be installed, the data of which will be available to the company's specialists in real time at any time of the day. Remote monitoring of the entire Lithuanian electricity system will be launched. July 27, 2021 Litgrid has completed the territorial planning of the new 330 kV switchyard Mūša planned for Joniškis district. This is one of the strategic projects necessary for the synchronization of the Lithuanian electricity system with the networks of continental Europe. The new switchyard will increase the reliability of supply in the Lithuanian electricity system, as well as ensure higher interconnection capacity for the electricity market with Sweden and Latvia. August August 16, 2021 in the process of the implementation of the largest synchronization program project Harmony Link and in preparation for the construction of the electricity connection between Lithuania and Poland, the Lithuanian electricity transmission system operator Litgrid announced the purchase of a 700 MW high-voltage direct current (ANS) connection cable. The construction of this cable is the key part of the Harmony Link project. The announced public procurement stipulates that the contractor will have to lay a high-voltage direct current cable that will connect the Žarnoviec substation in the Pomeranian region of Poland with the Darbenai substation in the Kretinga district of Lithuania. An underground cable will be laid from Darbėnai to the Baltic coast. August 17, 2021 Litgrid delivered a third autotransformer to the LitPol Link converter station near Alytus to expand the connection between the Lithuanian and Polish electricity systems. The total of three such autotransformers are required for the expansion of LitPol Link. The first autotransformer reached Lithuania in May and the second in mid-June. August 25, 2021 Litgrid has completed scanning of all 110-400 kV overhead power lines. All 110 kV overhead lines with a total length of over 4.7 thousand were scanned using a helicopter equipped with advanced LiDAR (Light Detection and Ranging) laser scanning equipment and cameras. km. Another 1.7 thousand. km of overhead lines (330 kV and 400 kV) were smartly scanned last year. The data obtained will allow for the prompt removal of potential obstacles and threats, the maintenance of the network and devices, and the use of artificial intelligence to prevent incidents. August 27, 2021 Litgrid successfully completed the first commissioning of the three new autotransformers at the LitPol Link converter station near Alytus. September September 14, 2021 Litgrid has announced an auction of the tertiary active power reserve for 2022. September 15, 2021 following the approval of the new methodology for electricity transmission capacity from Belarus to Lithuania by the National Energy Regulatory Council, the electricity transmission system operator Litgrid changed the maximum electricity transmission capacity from Belarus to Lithuania from Wednesday, 15 September to ensure the technical parameters of the system. The change in the technical capacity of the connections ensured that Lithuanian power lines are not used for trade in electricity produced in Belarus and that the provisions of the Law on Necessary Measures to Protect Against Unsafe Threats of Nuclear Power Plants in Third Countries were implemented. September 24, 2021 Litgrid has completed the site planning for the Harmony Link connection and the 330 kV Darbėnai switchyard. Harmony Link is the largest Baltic synchronization project in the Baltics. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 59 September 28, 2021 Litgrid has agreed with the updated Tertiary Active Power Reserve Auction Regulation with the Ministry of Energy of the Republic of Lithuania and is organizing a Tertiary Active Power Reserve Auction in order to secure the supply of 519 MW of tertiary active power reserve service by 2022. October October 5, 2021 Litgrid presented the updated Strategy of the Company. A customer-oriented organization and energy competence centre, state-of-the-art technological and digital solutions, sustainable energy development that will double the current generation of electricity, and opportunities for market participants to exchange electricity freely at a competitive price. The full document is published here: https://www.litgrid.eu/uploads/files/dir586/dir29/dir1/4_0.php October 8, 2021 Lithuanian and Polish electricity transmission system operators Litgrid and PSE have completed about a six- month survey of the Baltic Sea bed in the area where the Harmony Link electricity interconnection cable is planned. October 19, 2021 The Baltic and Polish electricity transmission system operators Litgrid, AST, Elering and PSE submitted a joint application for funding to the Connecting Europe Facility (CEF) on Monday, 18 October. The requested additional funding is foreseen for the second part of the synchronization of the Baltic States with the networks of continental Europe. Four states are seeking investment in projects with a total value of $ 238 million. euros. The value of Lithuanian projects is 41 million. EUR 49 million in Latvia. EUR 37 million in Estonia. EUR 111 million for Poland. euros. October 20, 2021 Litgrid has announced the purchase of the development of the 330 kV Bitėnai transformer substation (TP). The expansion of this switchyard is important for the continuation of two synchronization projects, which are building two new 330 kV lines, Kruonis PSHP-Bitėnai and Darbėnai-Bitėnai. November November 9, 2021 The Baltic electricity transmission operators - Litgrid, Estonian Elering and Latvian AST - have agreed to jointly establish a Baltic Regional Coordination Centre in Tallinn. The supervisory authorities of each country have been contacted for this. November 26, 2021 Lithuanian electricity transmission system operator Litgrid has announced the purchase of design and construction works for the 330 kV switchyard Mūša. A new switchyard in Joniškis district will be built in order to strengthen the electricity transmission network in Northern Lithuania and ensure its reliable operation in preparation for the synchronization of the Baltic States with continental Europe. December December 1, 2021 To have more focus and dedication for the Synchronisation, Litgrid made internal structural reorganization - the implementation centre of the Synchronization Program was a newly established unit in the company. It’s employees will implement projects of the synchronization program and will be responsible for the progress of the . synchronization. In the structure of the company, the refinement of the synchronization program implementation function is aimed at the most efficient work organization and smooth execution of the priority program. December 1, 2021 The general meeting of Litgrid shareholders approved the conclusion of a contract for the design, production and installation of synchronous compensators with the public procurement tender winning company Siemens Energy. Litgrid and Siemens Energy plan to sign a contract of Euro 87.4 million (excluding VAT), under which the contractors will also have to provide after-sales service and spare parts necessary to ensure the availability and reliability of synchronous compensators. December 4, 2021 Lithuanian and Polish electricity transmission system operators Litgrid and PSE performed an exceptional test, during which part of the Lithuanian electricity system worked for the first time in history synchronously with the Polish system and at the same time with the synchronous zone of continental Europe. During it, a situation was modelled when the large Lithuanian power plants, which have the possibility to start up after a systemic accident ("black start"), are supplied with electricity from Poland. The half-day test went smoothly and the electricity supply to consumers was uninterrupted, the population did not feel the effects of the test. December 14, 2021 Litgrid announced that it has performed an information security management audit and obtained the ISO / IEC 27001: 2017 certificate, which confirms that the company's information security management system meets the highest standards. December 22, 2021 Litgrid has successfully implemented the North East Lithuania Electricity Transmission Network Optimization Project. The company prepared Ignalina NPP and Utena transformer substations and related transmission lines for synchronization with continental European networks. The implemented project not only brings the state closer to the strategic goal, but also contributes to the efficiency and reliability of the Lithuanian electricity system. The North East Lithuania network optimization project consisted of the reconstruction of the 330 kV and 110 kV switchyards of the Ignalina ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 60 NPP and Utena transformer substations and the reconstruction of the 330 kV switchyard of the Lithuanian power transformer substation by moving the controlled shunt reactor from the Ignalina NPP substation to the Elektrėnai. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 61 15. MATERIAL EVENTS 2021 DAY SUBJECT 17 Dec Regarding the opinion of the Audit Committee 3 Dec Regarding the publication of LITGRID AB interim information and Investor's Calendar for 2022 1 Dec Decisions taken in the extraordinary general meeting of shareholders of LITGRID AB 17 Nov Decisions taken in the extraordinary general meeting of shareholders of LITGRID AB 5 Nov LITGRID AB publishes results for the nine months of 2021 3 Nov Convocation of the Extraordinary General Meeting of LITGRID AB shareholders 29 Oct Regarding the prices of electricity transmission services for 2022 26 Oct Convocation of the Extraordinary General Meeting of LITGRID AB shareholders 5 Oct Litgrid plans - evolution of the organization and the possibility to integrate 4,900 MW of renewable energy 1 Oct National Energy Regulatory Council set the price cap for electricity transmission 27 Sep Regarding the change of LITGRID AB registered and correspondence address 15 Sep LITGRID AB is planning to enter into 330 kV Darbėnai switchyard construction design and contract works agreement with UAB “TETAS” 6 Sep Decisions taken in the extraordinary general meeting of shareholders of LITGRID AB 16 Aug Convocation of the Extraordinary General Meeting of LITGRID AB shareholders 6 Aug LITGRID AB publishes results for the first six months of 2021 2 Jun Concerning the opinion of the Audit Committee 31 May Nasdaq event "CEO Meets Investors 2021" 17 May Decisions taken in the extraordinary general meeting of shareholders of LITGRID AB 5 May Litgrid results for the three months of 2021 29 Apr Procedure for the Payment of LITGRID AB Dividends for 2020 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 62 DAY SUBJECT 23 Apr Convocation of the Extraordinary General Meeting of LITGRID AB shareholders 20 Apr Ex-Dividend Date 20 Apr Decisions taken in the ordinary general meeting of shareholders of LITGRID AB 31 Mar Correction: LITGRID AB publishes Financial statements and Annual report for the year 2020 in ESEF format 26 Mar Convocation of the Ordinary General Meeting of LITGRID AB shareholders 23 Mar LITGRID AB publishes Financial statements and Annual report for the year 2020 in ESEF format 16 Mar Audited financial statements and annual report of LITGRID AB for the year 2020 5 Mar LITGRID AB entered into the Management Holding Services Agreement with UAB EPSO-G 3 Mar LITGRID AB entered into a mutual lending and borrowing agreement with EPSO-G 23 Feb Concerning the opinion of the Audit Committee 18 Feb Concerning the opinion of the Audit Committee 9 Feb Rokas Masiulis has been appointed as Director General of LITGRID AB 4 Feb Unaudited financial results of Litgrid AB for the twelve months of 2020 3 Feb Regarding the selection of the General Director of LITGRID AB 2 Feb Regarding media report about the selection of the director general of LITGRID AB 11 Jan Decisions taken in the extraordinary general meeting of shareholders of LITGRID AB 16. SIGNIFICANT EVENTS AFTER THE END OF THE REPORTING PERIOD 2022 January 1 the prices confirmed by the State Energy Regulatory Council entered into force: the approved average price of the electricity transmission service was 0.721 ct / kWh, and the price of system services was 0.762 ct / kWh. The price of electricity transmission services was set at 11.4% less than in 2020 (0.814 ct / kWh). The price of system services was 2.9 percent less than in 2020 (0.785 ct / kWh.). The National Energy Regulatory Council has also set the price for the use of interconnection services at EUR 5.76 / MWh, which is also applicable from 1 st January 2022. The price of using interconnection services is 2 percent lower than the one set in 2020 ( 5.87 Eur / MWh.). February 21, 2022 a Collective Agreement was signed between Litgrid and the Trade Union. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 63 17. TRANSPARENCY REPORT Litgrid AB complies with the Business Transparency and Communication Policy of the EPSO-G UAB Group (approved by the Board of Litgrid AB on 23 October 2017 in its entirety), which considers in detail the requirements set forth in the Transparency Guidelines, and defines their applicability to the companies of the EPSO-G group. The implementation of the Transparency Guidelines is largely ensured by Litgrid AB through disclosure of information in the annual report and on the official website of the Company and through notices on the NASDAQ stock exchange, where information is disclosed in the format that is acceptable and comprehensible to the stakeholders. Article 3 of Resolution No 1052 of 14 July 2010 of the Government of the Republic of Lithuania On the approval of the Description of Guidelines for Ensuring the Transparency of State-owned Enterprises (the “Transparency Guidelines”) stipulates that a state- owned enterprise (the “SOE”) complies with the provisions of the Corporate Governance Guidelines for the Companies Listed on Nasdaq Vilnius AB that are related to public disclosure of information. Structured information on implementation of the Transparency Guidelines is presented below: The following information must be published/other requirements must be implemented on the official website of Litgrid AB www.litgrid.eu: Company’s name, code, registered address, and a register in which data on the Company is compiled and stored Implemented Legal form, in case Litgrid AB is restructured, reorganised (the way of reorganisation is to be indicated), under liquidation, in the process of bankruptcy or bankrupt Not applicable Information on the authority representing the State, i.e. the Ministry of Energy, and link to its official website Implemented Goals, vision and mission of the activities Implemented Structure Implemented Data on the chief executive officer Implemented Data on the chairperson and members of the board Implemented Data on the chairperson and members of the supervisory board Not applicable Names of the committees, data on their chairpersons and members Not applicable * The following data must be provided: name, surname, start date of the term of office, other executive positions in other legal entities, education, qualification, and professional experience; indication of whether a member of a collegial body has been elected or appointed as an independent member. Sum of the nominal values (in euros and cents) of shares and interest (in percentage) held by the State in the share capital of Litgrid AB under the title of ownership Implemented Information on initiatives and measures of social responsibility, significant ongoing or planned investment projects Implemented If Litgrid AB is a member of other legal entities (not applicable to subsidiaries and second-tier subsidiaries), the name, code, and register in which data on the Company is compiled and stored, registered address, and official websites of such legal entities Implemented A set of Litgrid AB annual financial statements, Litgrid AB annual report, as well as an auditor’s report on Litgrid AB annual financial statements must be placed on Litgrid AB official website within 10 working days from the date of approval of the set of annual financial statements Implemented The sets of Litgrid AB interim financial statements and Litgrid AB interim reports must be placed on the official website not later than within 2 months after the end of the reporting period Implemented The following documents must be provided/other requirements must be implemented on the official website of Litgrid AB www.litgrid.eu: Articles of Association of Litgrid AB Implemented Operational strategy or its summary in cases when the operational strategy contains confidential information or information that is treated as a commercial (industrial) secret Implemented Remuneration policy that covers determination of remuneration for CEO and members of the collegial bodies and the committees of Litgrid AB Implemented ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 64 18. Litgrid AB NOTICE OF COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE FOR THE COMPANIES LISTED ON NASDAQ OMX AB In line with Article 23(3) of the Law on Securities of the Republic of Lithuania and paragraph 24.5 of the Listing Rules of Nasdaq Vilnius AB, public limited liability company Litgrid AB (the “Company”) discloses its compliance with the Corporate Governance Code for the Companies Listed on Nasdaq Vilnius and its specific provisions or recommendations. In case of non-compliance with this Code or some of its provisions or recommendations, the specific provisions or recommendations that are not complied with must be indicated, the reasons of such non-compliance must be specified and other explanatory information indicated in this form must be presented. 2 When information is treated as a commercial (industrial) secret or as confidential information of the SOE, the SOE is allowed not to disclose such information; however, in its annual report the SOE must indicate such non-disclosure and provide the reasons for non-disclosure. Annual and interim reports of Litgrid AB Implemented Data disclosure is performed in accordance with the requirements of Lithuanian legal acts and good practice Implemented The sets of annual and interim financial statements for at least 5 years and the auditor’s reports on the annual financial statements Implemented The above-mentioned documents must be provided in a PDF format with a technical possibility to be printed out Implemented The following information must be provided/other requirements must be implemented in the sets of financial statements: Litgrid AB keeps its accounting records in a way that ensures preparation of the financial statements in accordance with the International Accounting Standards Implemented Litgrid AB prepares a set of financial statements for the period of 6 months Implemented In addition to the annual report, Litgrid AB prepares an interim report for the period 6 months Implemented In addition to the content requirements set in the Law on Financial Reporting by Undertakings of the Republic of Lithuania, the following information must be disclosed in the annual report of Litgrid AB 1 : Brief description of the business model of Litgrid AB Implemented Information on significant events occurring during the financial year and after the end of the financial year (until the date of preparation of annual report) that had material impact on the activities of Litgrid Implemented Results of implementation of the objectives set in the operational strategy Implemented Profitability, liquidity, asset turnover, and debt ratios Implemented Implementation of special obligations Implemented Implementation of the investment policy, ongoing and planned investment projects, and investments implemented during the reporting year Implemented Implementation of the risk management policy applied by Litgrid AB Implemented Implementation of the dividend policy Implemented Implementation of the remuneration policy Implemented Total annual wage bill, average monthly salary by category of employees and/or business units Implemented The SOEs that are not required to prepare the social responsibility report, are recommended to provide information related to environmental, social and personnel, human rights, anti-corruption and anti-bribery matters in their annual report or annual activity report Implemented The consolidated annual report includes the following information: structure of the group, name, code and register in which data on the company is compiled and stored, registered address of each of the group companies, interest (percentage) held in the share capital of a subsidiary, financial and non-financial performance during the financial year Not applicable The interim report of Litgrid AB includes the following information: analysis of financial performance during the reporting period, information on significant events occurring during the reporting period, profitability, liquidity, asset turnover and debt ratios and changes therein compared to the respective period in the previous year Implemented ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 65 Free-form summary of the Company’s corporate governance report Litgrid AB is part of the EPSO-G UAB group of companies (the “Group”). The Company’s corporate governance structure and the governance model are established by the Company’s Articles of Association, the Corporate Governance Guidelines of the EPSO-G Group of Companies approved by the Ministry of Energy (the ME), the sole shareholder of the parent company EPSO-G UAB, on 24 April 2018 and the Corporate Governance Policy of the EPSO-G Group of Companies. All the above-mentioned documents are published on the Company’s website and the website of EPSO-G UAB. Chart 1. Main scheme of the implementation of corporate governance at the Group level. Being part of the Group does not deny the Company’s independence. The Company operates independently aiming to achieve the objectives set in the Company’s Articles of Association and has the obligation to independently assess whether compliance with the Group’s corporate governance documents does not harm interests of the Company, its creditors, shareholders or other stakeholders. The corporate governance structure established in the Company’s Articles of Association is as follows: The General Meeting of Shareholders; The Board (five members, two of whom are independent members, the other three members are nominated by the shareholder EPSO-G UAB); The committees operating at the Group level: o The Remuneration and Nomination Committee (mainly composed of independent members); o The Audit Committee (mainly composed of independent members). The Chief Executive Officer. The Group has a centralised internal audit function. In order to ensure the independence of the internal audit, it is established that the head of the internal audit function is appointed and dismissed by the Board of EPSO-G UAB, which is mainly composed of independent members. The internal audit is also accountable to the Audit Committee, which is also mainly composed of independent members. The internal audit recommendations are analysed by the Company’s Board, which also approves the plan of measures for the implementation of audit recommendations. On the basis of the Risk Management Policy of the EPSO-G UAB Group of Companies, the uniform risk management system of the Group is implemented at the Company according to the COSO ERM standards applicable in the international practice setting out risk identification, assessment and management principles and responsibilities. Risk management coordination is performed at the Group level. The aim of the Group’s operating policies is to introduce a consistent and effective management system of the organisation helping employees successfully implement important strategic projects and create value to residents and businesses of the country in a transparent and effective manner. To ensure the effectiveness of the operating policies, the Company annually reports on the progress of the implementation of the operating policies. On the basis of the Compliance Management Policy of the EPSO-G UAB Group of Companies, the uniform compliance management system of the Group is implemented at the Company. Compliance management coordination is performed at the Group level. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 66 The policies that are currently effective at the Company are presented below Dividend policy Personal data protection policy Transport policy Private Interest managing policy Public procurement policy Collegiate members, managers and employee private interest management policy Reqruitment policy CEO and Board member remuneration policy Charity policy IT and telecommunications policy Iždo ir finansinių rizikų valdymo politika Veiklos skaidrumo ir komunikacijos politika Social responsibility policy R&D policy Non audit service policy Neskelbtinos informacijos apsaugos politika Contracts with related parties policy Projektų valdymo politika Risk management policy Technlogical assets management policy Share sale/purchase policy Environment protection policy Emplyee remuneration and evaluation policy Integrated plannind and monitoring policy ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 67 Structured table: 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 infor- mation 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 Pursuant to the Law on Companies of the Republic of Lithuania and Chapter IX of the Company’s Articles of Association, information on general meetings of shareholders being convened, their draft decisions and decisions made is published on the Company’s website and on NASDAQ OMX Vilnius stock exchange in the Lithuanian and English languages. 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 their holders. YES Paragraphs 13–15 of the Company’s Articles of the Association define that all shares of the Company are ordinary registered shares with the nominal value of EUR 0.29 each. All shares are intangible and recorded in the personal securities accounts of the shareholders managed by the securities account manager contracted to manage the share accounting. 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 Please refer to the commentary in paragraph 1.2. Chapter IV of the Company’s Articles of Association also establishes shareholders’ rights and obligations. 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 Paragraph 38 of the Company’s Articles of Association specifies the cases when the Board’s decision regarding the transfer of the Company’s assets is subject to the approval of the General Meeting of Shareholders. 1.5. Procedures for convening and conducting a general meeting of shareholders should provide shareholders with equal opportunities to participate in the general meeting of shareholders and should not prejudice the rights and interests of shareholders. The chosen venue, date and time of the general meeting of shareholders should not prevent active participation of shareholders at the general meeting. In the notice of the general meeting of shareholders being convened, the company should specify the last day on which the proposed draft decisions should be submitted at the latest. YES Each time the General Meeting of Shareholders is convened, the general rights of the shareholders are published on the Company’s website. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 68 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 Please refer to the commentary in paragraph 1.1. 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 A standard notice on convening of the General Meeting of Shareholders always indicates a possibility for shareholders to vote in writing by filling in the attached form of a voting ballot. 1.8. With a view to increasing the shareholders’ opportunities to participate effectively at general meetings of shareholders, it is recommended that companies should apply modern technologies on a wider scale and thus provide shareholders with the conditions to participate and vote in general meetings of shareholders via electronic means of communication. In such cases, the security of transmitted information must be ensured and it must be possible to identify the participating and voting person. NO A standard notice on convening of the General Meeting of Shareholders always indicates that the participation and voting by electronic means of communication will not take place. So far there is no need to vote by electronic means of communication. Upon requests by the shareholders, the introduction of such a voting option would be considered. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 69 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 A standard notice on convening of the General Meeting of Shareholders always indicates draft decisions containing information required by the Law on Companies of the Republic of Lithuania, including candidatures of members of new collegial bodies, their proposed remuneration, a proposed audit company and its proposed remuneration. Information on the collegial body member who is proposed to be elected is not released publicly, however, the standard notice on convening of the General Meeting of Shareholders always specifies that the shareholders may additionally familiarise with documents related to the agenda of the meeting, draft decisions, a general voting ballot at the premises of LITGRID AB at the registered office during specifically indicated hours. 1.10. Members of the company’s collegial management body, heads of the administration 2 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/NO Relevant competent persons who can provide information related to the agenda of the General Meeting of Shareholders always attend the General Meeting of Shareholders. Meanwhile the proposed candidates to the members of the collegial body not always attend the General Meetings of Shareholders. 2 For the purposes of this Code, heads of the administration are the employees of the company who hold top level management positions. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 70 Principle 2: Supervisory board 2.1. Functions and liability of the supervisory board The supervisory board of the company should ensure representation of the interests of the company and its shareholders, accountability of this body to the shareholders and objective monitoring of the company’s operations and its management bodies as well as constantly provide recommendations to the management bodies of the company. The supervisory board should ensure the integrity and transparency of the company’s financial accounting and control system. 2.1.1. Members of the supervisory board should act in good faith, with care and responsibility for the benefit and in the interests of the company and its shareholders and represent their interests, having regard to the interests of employees and public welfare. NOT APPLICABLE The Supervisory Board is not formed at the Company. 2.1.2. Where decisions of the supervisory board may have a different effect on the interests of the company’s shareholders, the supervisory board should treat all shareholders impartially and fairly. It should ensure that shareholders are properly informed about the company’s strategy, risk management and control, and resolution of conflicts of interest. NOT APPLICABLE - 2.1.3. The supervisory board should be impartial in passing decisions that are significant for the company's operations and strategy. Members of the supervisory board should act and pass decisions without an external influence from the persons who elected them. NOT APPLICABLE - 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 3 members of the supervisory board should: a) maintain independence of their analysis and decision-making; b) not seek or accept any unjustified privileges that might compromise their independence. NOT APPLICABLE - 2.1.5. The supervisory board should oversee that the company’s tax planning strategies are designed and implemented in accordance with the legal acts in order to avoid faulty practice that is not related to the long-term interests of the company and its shareholders, which may give rise to reputational, legal or other risks. NOT APPLICABLE - 2.1.6. The company should ensure that the supervisory board is provided with sufficient resources (including financial ones) to discharge their duties, including the right to obtain all the necessary information or to seek independent professional advice from external legal, accounting or other experts on matters pertaining to the competence of the supervisory board and its committees. NOT APPLICABLE - 3 For the purposes of this Code, the criteria of independence of the 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. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 71 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 mem- bers of the supervisory board, it should be ensured that members of the supervisory board, as a whole, should have diverse knowledge, opinions and experience to duly perform their tasks. NOT APPLICABLE - 2.2.2. Members of the supervisory board should be appointed for a specific term, subject to individual re-election for a new term in office in order to ensure necessary development of professional experience. NOT APPLICABLE - 2.2.3. Chair of the supervisory board should be a person, whose current or past positions constituted no obstacle to carry out impartial activities. A former manager or management board member of the company should not be immediately appointed as chair of the supervisory board either. Where the company decides to depart from these recommendations, it should provide information on the measures taken to ensure impartiality of the supervision. NOT APPLICABLE - 2.2.4. Each member should devote sufficient time and attention to perform his duties as a member of the supervisory board. Each member of the supervisory board should undertake to limit his other professional obligations (particularly the managing positions in other companies) so that they would not interfere with the proper performance of the duties of a member of the supervisory board. Should a member of the supervisory board attend less than a half of the meetings of the supervisory board throughout the financial year of the company, the shareholders of the company should be notified thereof. NOT APPLICABLE - 2.2.5. When it is proposed to appoint a member of the supervisory board, it should be announced which members of the supervisory board are deemed to be independent. The supervisory board may decide that, despite the fact that a particular member meets all the criteria of independence, he/she cannot be considered independent due to special personal or company-related circumstances. NOT APPLICABLE - 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 - 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 organisation 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 operational procedures. NOT APPLICABLE - ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 72 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 Paragraph 36 of the Company’s Articles of Association defines that the Company’s Board approves the Company’s strategy. In addition, in carrying out its supervisory function the Board regularly reviews reports on the implementation of the strategy. 3.1.2. As a collegial management body of the company, the management board performs the functions assigned to it by the Law and in the articles of association of the company, and in such cases where the supervisory board is not formed in the company, it performs inter alia the supervisory functions established in the Law. By performing the functions assigned to it, the management board should take into account the needs of the company’s shareholders, employees and other interest groups by respectively striving to achieve sustainable business development. YES Paragraph 7.3 of the Company’s Articles of Association provides that the Company’s Board performs supervisory functions. 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 Point (xi) of Paragraph 36 of the Company’s Articles of Association defines that the Company’s Board deliberates the documents of the group of companies (guidelines, policies, procedures, etc.) and decides on the scope of their application by the Company. In addition, by separate decisions, the Board instructs the CEO to provide regular reports on the indi- cators to be followed by the Board (e.g. the Company’s strategy, activity plan, budget, etc.). 3.1.4. Moreover, the management board should ensure that the measures included into the OECD Good Practice Guidance 4 on Internal Controls, Ethics and Compliance are applied at the company in order to ensure adherence to the applicable laws, rules and standards. YES The Company applies the following various documents in its activities that ensure implementation of the highest level internal control, ethics and compliance management tools: - internal audit is accountable to the Board which is formed from external members (2 members are independent); - the Audit Committee is mainly composed of independent members to whom internal audit is also accountable; 4 Link to the OECD Good Practice Guidance on Internal Controls, Ethics and Compliance: https://www.oecd.org/daf/anti- bribery/44884389.pdf ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 73 - The Company applies the Code of Conduct and the Corruption Prevention Policy of the EPSO-G UAB Group of Companies, the Sponsorship and Charity Policy of the EPSO-G UAB Group of Companies, the Policy of Management of Interests of the EPSO-G UAB Group of Companies, the Risk Management Policy of the EPSO- G UAB Group of Companies, the Transparency and Communi- cation Policy of the EPSO-G UAB Group of Companies, the Compliance Management Policy of the EPSO-G UAB Group of Companies, etc. 3.1.5. When appointing the manager of the company, the management board should take into account the appropriate balance between the candidate’s qualifications, experience and competence. YES Paragraph 54 of the Company’s Articles of Association establishes that the Company’s CEO is appointed by the Board taking into account the recommendations of the Remuneration and Nomination Committee. Paragraph 56 of the Company’s Articles of Association defines that in assessment of suitability of the candidate for the position of the CEO the Board shall consider his/her compliance with the requirements specified by these Articles of As- sociation and the legal acts, and therefore may require that the candidate submit documents supporting this compliance and/or contact competent authorities for obtaining necessary information about the candidate. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 74 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 selection of the members of the Company’s Board is carried out in compliance with the procedure set by the Government of the Republic of Lithuania. Paragraph 28 of the Company’s Articles of Association stipulates that in the process of selection of the Board members it is ensured that the Board consists of at least 2 (two) independent members. Their independence is established in accordance with the criteria laid down in the Corporate Governance Code and the Policy of Management of Interests of Members of Collegial Bodies, Executives and Employees of the Group of Companies (the “Policy of Management of Interests”) as well as the require- ments set forth by other applicable legal acts. It is ensured that at least 3 (three) members of the Board have no employment relationship with the Company and, when possible, it is aimed that employees of the Company are not appointed to the Board and that the Board members have competences taking into account the areas of responsibility and functions of the Board. The selection of Company’s Board members is carried out by the Remuneration and Appointment Committee in accordance with the approved matrix of the Board competences. The Board members carry out an assessment of their activities every year. In addition, the Remuneration and Nomination Committee evaluates the performance of the Board on an annual basis and provides recommendations on performance improvement. 3.2.2. Names and surnames of the candidates to become members of the management board, information on their educational background, qualifications, professional experience, current positions, other important professional obligations and potential conflicts of interest should be disclosed without violating the requirements of the legal acts regulating the handling of personal data at the meeting of the supervisory board in which the management board or individual members of the management board are elected. In the event that the supervisory board is not formed, the information specified in this paragraph should be submitted to the general meeting of shareholders. The management board should, on yearly basis, collect data provided in this paragraph on its members and disclose it in the company’s annual report. YES The indicated information is published and updated on the Company’s website. This information is not repeatedly disclosed in the Annual Report, however the Annual Report contains the information on the chairperson of the Board, the CEO, the chief accountant and the head of the Internal Audit Unit. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 75 3.2.3. All new members of the management board should be familiarised with their duties and the structure and operations of the company. YES The members of the Board are in- troduced to the structure and ac- tivities of the Company during the first sitting. The key corporate documents of the Company are shared. 3.2.4. Members of the management board should be appointed for a specific term, subject to individual re-election for a new term in office in order to ensure necessary development of professional experience and sufficiently frequent reconfirmation of their status. YES Paragraph 27 of the Company’s Articles of the Association defines that the Board is a collegial management body of the Company consisting of 5 members. The Board members are elected for a term of 4 years by the General Meeting of Shareholders, for which the Board is accountable, taking into account recommendations of the Remuneration and Nomination Committee. A member of the Board may continuously serve maximum 2 subsequent full terms of office, i.e. no longer than 8 years in a row. 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 Paragraph 29 of the Company’s Articles of Association provides the criteria according to which a person cannot be elected as a member of the Board. One of the measures for ensuring the impartiality of the chairperson of the Board is established in paragraph 46 of the Company’s Articles of Association which states that the chairperson of the Board cannot be elected from among the Company’s employees elected to the Company’s Board. 3.2.6. Each member should devote sufficient time and attention to perform his duties as a member of the management board. Should a member of the management board attend less than a half of the meetings of the management board throughout the financial year of the company, the supervisory board of the company or, if the supervisory board is not formed at the company, the general meeting of shareholders should be notified thereof. YES The Company’s minutes record the attendance and voting of the Board members during a decision-making process. As it is specified in paragraph 52 of the Company’s Articles of the Association, each year the Board members perform an assessment of their activities, the results of which are submitted to the shareholders and the Remuneration and Nomination Committee. The participation of the Board members in the sitting is disclosed in the annual report. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 76 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 5 , it should be announced which members of the management board are deemed as independent. The management board may decide that, despite the fact that a particular member meets all the criteria of independence established by the Law, he/she cannot be considered independent due to special personal or company related circumstances. YES The Company’s website and the annual report contain information about the members of the Company’s Board specifying the independent members. 3.2.8. The general meeting of shareholders of the company should approve the amount of remuneration to the members of the management board for their activity and participation in the meetings of the management board. YES Paragraph 34 of the Company’s Articles of Association provides that the General Meeting of Shareholders may adopt a decision regarding the payment of remuneration to the Board members. 3.2.9. The members of the management board should act in good faith, with care and responsibility for the benefit and the interests of the company and its shareholders with due regard to other stakeholders. When adopting decisions, they should not act in their personal interest; they should be subject to no-compete agreements and they should not use the business information or opportunities related to the company’s operations in violation of the company’s interests. YES Taking into account the objective to monitor the absence of conflicts of interest of the members of the Company’s Board, each year the members of the Board renew their declarations of interests. In addition, paragraph 33 of the Company’s Articles of Association stipulates that the Board members may have another job or occupy another position compatible with their activities in the Board, including but not limited to executive positions in other legal entities, a job in a state or statutory service, duties at the Company and other legal entities (in conformity with restrictions set by Article 29 of the Articles of Association), as well as in legal entities, where the Company or the parent company acts as a participant, only by providing a prior notice to the Company’s Board. The Company has adopted the Policy of Management of Interests of Members of Collegial Bodies, Executives and Employees of the EPSO-G Group of Companies. The Board members have signed commitments to protect confidential information. No-compete agreements are not concluded with the members of the Board. The need for such agreements was not established because the Company conducts a monopoly business. 5 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. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 77 3.2.10. Every year the management board should carry out an assessment of its activities. It should include evaluation of the structure of the management board, its work organisation and ability to act as a group, evaluation of the competence and work efficiency of each member of the management board, and evaluation whether the management board has achieved its objectives. The management board should, at least once a year, make public respective information about its internal structure and working procedures in observance of the legal acts regulating the processing of personal data. YES The Board carries out an assessment of its activities every year and prepares a performance im- provement plan on its basis. In addition, the Remuneration and Nomination Committee and the Audit Committee acting at the level of the EPSO-G UAB group of companies evaluate annually decisions made by the Board and provide recommendations on performance improvement The results of the assessment of the Board’s performance are presented in the Company’s annual report. Principle 4: Rules of procedure of the supervisory board and the management board of the company The rules of procedure of the supervisory board, if it is formed at the company, and of the management board should ensure efficient operation and decision-making of these bodies and promote active cooperation between the company’s management bodies. 4.1. The management board and the supervisory board, if the latter is formed at the company, should act in close cooperation in order to attain benefit for the company and its shareholders. Good corporate governance requires an open discussion between the management board and the supervisory board. The management board should regularly and, where necessary, immediately inform the supervisory board about any matters significant for the company that are related to planning, business development, risk management and control, and compliance with the obligations at the company. The management board should inform the supervisory board about any derogations in its business development from the previously formulated plans and objectives by specifying the reasons for this. NOT APPLICABLE The Supervisory Board is not formed at the Company. 4.2. It is recommended that meetings of the company's collegial bodies should be held at the respective intervals, according to the pre-approved schedule. Each company is free to decide how often meetings of the collegial bodies should be convened but it is recommended that these meetings should be convened at such intervals that uninterruptable resolution of essential corporate governance issues would be ensured. Meetings of the company’s collegial bodies should be convened at least once per quarter. YES Paragraph 45 of the Company’s Articles of Association stipulates that the Board takes its decisions at the Board’s meetings that are usually convened as often as it is necessary for the Board to be able to properly perform its functions and take decisions attributed to its competence, however not less than 12 times during a calendar year. At the beginning of each year, the Company’s Board approves the schedule for the current year meetings and the activity plan (preliminary questions for a respective meeting of the Board). ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 78 4.3. Members of a collegial body should be notified of the meeting being convened in advance so that they would have sufficient time for proper preparation for the issues to be considered at the meeting and a fruitful discussion could be held and appropriate decisions could be adopted. Along with the notice of the meeting being convened all materials relevant to the issues on the agenda of the meeting should be submitted to the members of the collegial body. The agenda of the meeting should not be changed or supplemented during the meeting, unless all members of the collegial body present at the meeting agree with such change or supplement to the agenda, or certain issues that are important to the company require immediate resolution. YES According to the Regulations of the Board, the material is submitted to the Board five working days before the date of the ordinary meeting. 4.4. In order to coordinate the activities of the company’s collegial bodies and ensure effective decision-making process, the chairs of the company’s collegial supervision and management bodies should mutually agree on the dates and agendas of the meetings and close cooperate in resolving other matters related to corporate governance. Meetings of the company’s supervisory board should be open to members of the management board, particularly in such cases where issues concerning the removal of the management board members, their responsibility or remuneration are discussed. NOT APPLICABLE The Supervisory Board is not formed at the Company. Principle 5: Nomination, remuneration and audit committees 5.1. Purpose and formation of committees The committees formed at the company should increase the work efficiency of the supervisory board or, where the supervisory board is not formed, of the management board which performs the supervisory functions by ensuring that decisions are based on due consideration and help organise its work in such a way that the decisions it takes would be free of material conflicts of interest. Committees should exercise independent judgment and integrity when performing their functions and provide the collegial body with recommendations concerning the decisions of the collegial body. However, the final decision should be adopted by the collegial body. 5.1.1. Taking due account of the company-related circumstances and the chosen corporate governance structure, the supervisory board of the company or, in cases where the supervisory board is not formed, the management board which performs the supervisory functions, establishes committees. It is recommended that the collegial body should form the nomination, remuneration and audit committees 6 . YES The Company has the Remuneration and Nomination Committee formed by the Board of EPSO-G UAB acting in accordance with the regulations approved by the body that forms it; and the Audit Committee operating at the Group level formed by the sole shareholder EPSO-G UAB and acting in accordance with the regulations approved by the body that forms it. Given that the issues of remunera- tion and nomination are closely related and experts with the same qualifications are required to deal with these issues, it was decided to form a single Remuneration and Nomination Committee. 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 6 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). ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 79 5.1.3. In the cases established by the legal acts the functions assigned to the committees formed at companies may be performed by the collegial body itself. In such case, the provisions of this Code pertaining to the committees (particularly those related to their role, operation and transparency) should apply, where relevant, to the collegial body as a whole. NOT APPLICABLE Please refer to the commentary in paragraph 5.1.1. 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 Chapters 7.8 and 7.9 of the Articles of Association of EPSO-G UAB regulate the formation of the committees within the EPSO-G group of companies and the areas of their competence. The aforementioned Articles of Association stipulate that the Remuneration and Nomination Committee and the Audit Commi- ttee shall consist of not less than three members. It is ensured that from among three members there is at least one independent member in the Remuneration and Nomination Committee and at least two independent members in the Audit Committee. Not all members of the Remune- ration and Nomination Committee and the Audit Committee are appointed from the Board of EPSO- G. One member to each of the committees is appointed on the basis of competence when performing the external selection of an independent 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 authority of the committees is determined in the Articles of Association of EPSO-G UAB and under the decision of the body for- ming the committee – the Regulations of the Remuneration and Nomination Committee are approved by the decision of the Board of EPSO-G UAB, and the Regulations of the Audit Committee are approved by the decision of the sole shareholder EPSO-G UAB, as it is permitted by the Requirements for Members of the Audit Committee approved by the Bank of Lithuania (Article 5). The Regulations of the committees are published on the EPSO-G website. Information about the composition, activities of the committees and other information is presented in the consolidated Group’s annual report. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 80 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 Regulations of the Committees provide for the right of the members of the Committees to invite, at their discretion, to their meetings the members of the bodies of the companies of the EPSO-G UAB group of companies, employees, rep- resentatives, candidates for certain positions or other persons and to obtain from them the necessary explanations within their compe- tence as well as require for that purpose that necessary actions would be carried out needed for the performance of the functions of the Committees. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 81 5.2. Nomination committee 5.2.1. The key functions of the nomination committee should be the following: 1) to select candidates to fill vacancies in the membership of supervisory and management bodies and the administration and recommend the collegial body to approve them. The nomination committee should evaluate the balance of skills, knowledge and experience in the management body, prepare a description of the functions and capabilities required to assume a particular position and assess the time commitment expected; 2) assess, on a regular basis, the structure, size and composition of the supervisory and management bodies as well as the skills, knowledge and activity of its members, and provide the collegial body with recommendations on how the required changes should be sought; 3) devote the attention necessary to ensure succession planning. YES The Remuneration and Nomination Committee of EPSO-G UAB serves as the advisory body to the Board of EPSO-G UAB and to the Company’s Board. The main functions of the Committee are as follows: - assistance in the selection of candidates for members of the bodies in all entities of the group of companies; - provision of recommendations for the entities of the group of companies on the appointment of members of the management bodies, conclusion of contracts with them and determination of remuneration for them; - provision of recommendations on the policies of the group of companies that govern the remuneration policy and employee performance assessment; - provision of recommendations on the planning system of succession of critical positions. 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. YES The Regulations establish that the right of initiative to convene the Remuneration and Nomination Committee is exercised by the boards or general managers of the group of companies that also propose the agenda of the meeting by submitting issue-related materials and draft resolutions. Currently, this provision is not practically relevant, as employees of the Company are not included in the composition of the Board. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 82 5.3. Remuneration committee The main functions of the remuneration committee should be the following: 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. YES Please refer to the commentary in paragraph 5.2.1. 5.4. Audit committee YES The Audit Committee of EPSO-G UAB serves as the advisory body to the Board of EPSO-G UAB and to the Company’s Board. The main functions of the Committee are as follows: - supervision of the preparation of the financial statements of the companies of the Group and performance of their audit; - responsibility for ensuring compliance with the principles of independence and objectivity by the auditors and audit firms of the companies of the Group; - responsibility for the supervision of the internal control, risk management and internal audit systems, effectiveness of operational processes of the companies of the Group; - responsibility for control of provision of non-audit services by the auditor and/or audit firm of the companies of the Group; - ensurance of the functioning of the complaints system and complaints handling; - evaluation of transactions with related parties. 5.4.1. The key functions of the audit committee are defined in the legal acts regulating the activities of the audit committee 7 . 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. 7 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. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 83 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 Regulations of the Audit Committee stipulate that the members of the Committee, at their own discretion, may invite to their meetings the members of the bodies of the companies of the group, their employees, representatives, candidates for certain positions or other persons, and obtain from them the necessary explanations within their competence, as well as require for that purpose that necessary actions would be taken for the performance of the functi- ons of the Committee. 5.4.4. The audit committee should be informed about the internal auditor’s work programme and should be furnished with internal audit reports or periodic summaries. The audit committee should also be informed about the work programme 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 regularly, at least quarterly, informed about the internal audit reports and at least once every six months, with the internal audit plan and it may provide recommendations with regard to them to the boards of the companies of the EPSO-G UAB group. The Audit Committee organises meetings with the external auditors to discuss the auditors’ work program and uncertainties arising during the audit, and after the performance of the external audit, their conclusions and recommendations are discussed with the external auditors. Each year before the start of annual audits the audit firm submits its declaration of independence to the Audit Committee and to the com- panies. 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 Regulations of the Audit Committee stipulate that the Audit Committee ensures the effective functioning of the complaints system and the proportionate and independent investigation of sub- mitted complaints. In the implementation of this function, the Chairperson of the Audit Committee is immediately informed about significant complaints received. In addition, the Audit Committee is regularly reported on all complaints received by the companies of the EPSO-G UAB group, their investigation and decisions made on the basis of the findings of investigations carried out. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 84 5.4.6. The audit committee should submit to the supervisory board or, where the supervisory board is not formed, to the management board its activity report at least once in every six months, at the time that annual and half-yearly reports are approved. YES The Regulations of the Audit Committee stipulate that the Audit Committee shall submit a quarterly activity report to the Board. In addition, it shall submit a consolidated activity report to the Ordinary General Meeting of Shareholders and to the Board of EPSO-G UAB. Principle 6: Prevention and disclosure of conflicts of interest The corporate governance framework should encourage members of the company’s supervisory and management bodies to avoid conflicts of interest and ensure a transparent and effective mechanism of disclosure of conflicts of interest related to members of the supervisory and management bodies. The corporate governance framework should recognise the rights of stakeholders established in the laws and encourage active cooperation between the company and stakeholders in creating the company value, jobs and financial sustainability. In the context of this principle, the concept “stakeholders” includes investors, employees, creditors, suppliers, clients, local community and other persons having certain interests in the company concerned. Any member of the company’s supervisory and management body should avoid a situation where his/her personal interests are or may be in conflict with the company’s interests. In case such a situation did occur, a member of the company’s supervisory or management body should, within a reasonable period of time, notify other members of the same body or the body of the company which elected him/her or the company’s shareholders of such situation of a conflict of interest, indicate the nature of interests and, where possible, their value. YES This obligation is set out in paragraphs 57-58 of the Company’s Articles of Association, the regulations of the management bodies and the Policy of Mana- gement of Interests of Members of Collegial Bodies, Executives and Employees of the EPSO-G Group of Companies. Principle 7: Remuneration policy of the Company The remuneration policy and the procedure for review and disclosure of such policy established at the company should prevent potential conflicts of interest and abuse in determining remuneration of members of the collegial bodies and heads of the administration, in addition it should ensure the publicity and transparency of the company’s remuneration policy and its long-term strategy. 7.1. The company should approve and post the remuneration policy on the website of the company; such policy should be reviewed on a regular basis and be consistent with the company’s long-term strategy. YES The Company applies the Guidelines on the Establishment of Re- muneration for the Activity at the Bodies of EPSO-G UAB and the Companies of the EPSO-G UAB Group of Companies, which are approved by the sole shareholder of EPSO-G UAB and available in a public domain. The Company applies the Remu- neration Policy of the EPSO-G UAB Group of Companies and the Employee Performance Assessment Policy of the EPSO-G UAB Group of Companies in full. The Remuneration Policy is available in a public domain. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 85 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 All possible forms of remuneration of the collegial bodies and employees are established in the Guidelines on the Establishment of Remuneration for the Activity at the Bodies of EPSO-G UAB and the Companies of the EPSO-G UAB Group of Companies and the Remuneration Policy of the EPSO-G UAB Group of Companies. Both these documents are available in a public domain. 7.3. With a view to avoid potential conflicts of interest, the remuneration policy should provide that members of the collegial bodies which perform the supervisory functions should not receive remuneration based on the company’s performance. YES The Company applies the Guidelines on the Establishment of Remuneration for the Activity at the Bodies of EPSO-G UAB and the Companies of the EPSO-G UAB Group of Companies that regulate a fixed remuneration for members of the collegial bodies. The members of the Board do not receive remuneration based on the Compa- ny’s performance. 7.4. The remuneration policy should provide sufficient information on the policy regarding termination payments. Termination payments should not exceed a fixed amount or a fixed number of annual wages and in general should not be higher than the non- variable component of remuneration for two years or the equivalent thereof. Termination payments should not be paid if the contract is terminated due to inadequate performance. YES/NO The Remuneration Policy of the EPSO-G UAB Group of Companies stipulates that the companies of the Group do not conclude advance agreements on the amounts of termination benefits (except for the CEOs whose terms of employment are determined by the Board). The amounts of benefits related to the termination of employment relationships are determined by taking into account the mandatory minimum amounts of such benefits established by the norms of labour law, except for exceptional cases when there are objective reasons for the agreement on higher benefits. The relevant Board of the Group company shall be informed of the disbursement of such benefits and the grounds for their payment at its forthcoming meeting. 7.5. In the event that the financial incentive scheme is applied at the company, the remuneration policy should contain sufficient information about the retention of shares after the award thereof. Where remuneration is based on the award of shares, shares should not be vested at least for three years after the award thereof. After vesting, members of the collegial bodies and heads of the administration should retain a certain number of shares until the end of their term in office, subject to the need to compensate for any costs related to the acquisition of shares. NOT APPLICABLE Such schemes are not applied at the Company. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 86 7.6. The company should publish information about the implementation of the remuneration policy on its website, with a key focus on the remuneration policy in respect of the collegial bodies and managers in the next and, where relevant, subsequent financial years. It should also contain a review of how the remuneration policy was implemented during the previous financial year. The information of such nature should not include any details having a commercial value. Particular attention should be paid on the major changes in the company’s remuneration policy, compared to the previous financial year. YES General information on the implementation of the Company’s Remuneration Policy and average salary levels of individual employee groups are publicly disclosed in the Company’s annual report. According to Article 25(5) of the Law of Energy of the Republic of Lithuania, the Company discloses remuneration established to the members of the Company’s management bodies and other benefits related to the functions of the members of the management bodies. Information on remuneration of employees is published on the Company’s website on a quarterly basis. 7.7. It is recommended that the remuneration policy or any major change of the policy should be included on the agenda of the general meeting of shareholders. The schemes under which members and employees of a collegial body receive remuneration in shares or share options should be approved by the general meeting of shareholders. YES The remuneration of the members of the Company’s Board is de- termined by the General Meeting of Shareholders of the Company. Such schemes are not applied at the Company. Principle 8: Role of stakeholders in corporate governance The corporate governance framework should recognise the rights of stakeholders entrenched in the laws or mutual agreements and encourage active cooperation between the company and stakeholders in creating the company value, jobs and financial sustainability. In the context of this principle, the concept “stakeholders” includes investors, employees, creditors, suppliers, clients, local community and other persons having certain interests in the company concerned. 8.1. The corporate governance framework should ensure that the rights and lawful interests of stakeholders are protected. YES The Company has adopted the Transparency and Communication Policy of the EPSO-G UAB Group of Companies, which establishes goals to increase awareness and unders- tanding of stakeholders about the activities of the EPSO-G UAB group of companies and individual group companies; to ensure employee engagement; to create and main- tain sustainable relationship with stakeholders based on mutual respect. 8.2. The corporate governance framework should create conditions for stakeholders to participate in corporate governance in the manner prescribed by law. Examples of participation by stakeholders in corporate governance include the participation of employees or their representatives in the adoption of decisions that are important for the company, consultations with employees or their representatives on corporate governance and other important matters, participation of employees in the company’s authorised capital, involvement of creditors in corporate governance in the cases of the company's insolvency, etc. YES The Company, together with the representatives of the Company’s employees, conducts consultations, negotiations and briefings on the processes for improving efficiency of the Company’s activities. Under the Company’s collective agreement signed with the representatives of the Company’s employees, the Company informs the representatives of the trade unions about projected changes in the Company, the Company’s financial position, etc. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 87 Stakeholders can take part in the corporate governance to the extent permitted by law. 8.3. Where stakeholders participate in the corporate governance process, they should have access to relevant information. YES Please refer to commentary in paragraphs 8.1. and 8.2. 8.4. Stakeholders should be provided with the possibility of reporting confidentially any illegal or unethical practices to the collegial body performing the supervisory function. NO The Company’s website contains the Company’s Code of Conduct that indicates the Trust Line contacts. The Audit Committee operating at the level of the EPSO-G group of companies ensures the functioning of the system of lodging complaints and their handling. It is expected that a system will be developed in the near future to provide information to the Audit Committee operating at the Group level. 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 Transparency and Communication Policy of the EPSO- G UAB Group of Companies has been adopted by the Company. Information indicated in this Policy is presented in the Company’s annual report and on the Company’s website. 9.1.1. operating and financial results of the company; YES 9.1.2. objectives and non-financial information of the company; YES 9.1.3. persons holding a stake in the company or controlling it directly and/ or indirectly and/or together with related persons as well as the structure of the group of companies and their relationships by specifying the final beneficiary; YES 9.1.4. members of the company’s supervisory and management bodies who are deemed independent, the manager of the company, the shares or votes held by them at the company, participation in corporate governance of other companies, their competence and remuneration; YES 9.1.5. reports of the existing committees on their composition, number of meetings and attendance of members during the last year as well as the main directions and results of their activities; YES ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 88 9.1.6. potential key risk factors, the company’s risk management and supervision policy; YES 9.1.7. the company’s transactions with related parties; YES 9.1.8. main issues related to employees and other stakeholders (for instance, human resource policy, participation of employees in corporate governance, award of the company’s shares or share options as incentives, relationships with creditors, suppliers, local community, etc.); YES 9.1.9. structure and strategy of corporate governance; YES 9.1.10. initiatives and measures of social responsibility policy and anti-corruption fight, significant current or planned investment projects. This list is deemed minimum and companies are encouraged not to restrict themselves to the disclosure of information included into this list. This principle of the Code does not exempt companies from their obligation to disclose information as provided for in the applicable legal acts. YES 9.2. When disclosing the information specified in Item 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 EPSO-G UAB, as a parent company, discloses consolidated information in the consolidated annual report. 9.3. When disclosing the information specified in Item 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 This information is disclosed in the Company’s annual report and on the Company’s website. 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 publishes information through the information system of the Vilnius Securities Exchange in Lithuanian and English at the same time. The Company publishes information prior to or after a trading session at Vilnius Securities Exchange and presents it at the same time to all markets in which the Company’s securities are traded. The Company does not disclose information that may influence the price of its securities in any comments, interviews or by any other means until such information is published in the information system of the securities exchange. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 89 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 auditor is appointed by the General Meeting of Shareholders. 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 Audit Committee operating at the Group level is actively involved in the selection process of an audi- tor. The Audit Committee provides a recommendation to the Company’s Board on the auditor’s nomination. The final decision is made by the General Meeting of Shareholders convened by the Board, which also proposes draft decisions. 10.3. In the event that the audit firm has received remuneration from the company for the non-audit services provided, the company should disclose this publicly. This information should also be available to the supervisory board or, if the supervisory board is not formed at the company, by the management board of the company when considering which audit firm should be proposed to the general meeting of shareholders. YES The audit firm provides non-audit services in accordance with the EPSO-G UAB policy on the pro- curement of non-audit services by EPSO-G UAB group of companies from an audit firm or from any other firm that is part of the audit firm network. The latter policy is approved by the Audit Committee. The provision of non-audit services is supervised by the Audit Commi- ttee operating at the Group level, which, as mentioned in paragraph 10.2, is actively involved in the selection process of an auditor. Therefore, the Audit Committee, when submitting a recommendation to the Board on the auditor, has all the necessary information on the auditors. THE COMPANY’S STATEMENT OF FINANCIAL POSITION (All amounts are in EUR thousands unless otherwise stated) 90 CONFIDENTIAL INFORMATION Notes At 31 December 2021 At 31 December 2020 ASSETS Non-current assets Intangible assets 5 4,952 6,248 Property, plant and equipment 6 338,051 331,709 Right-of-use assets 7 4,509 4,795 Deferred income tax assets 25 18,994 13,506 Financial assets 9 781 1,089 Non-current portion of unused funds balance of congestion management revenue 22 - 18,041 Total non-current assets 367,287 375,388 Current assets Inventories 10 7 26 Prepayments 1,127 988 Trade receivables under contracts with customers 11 50,463 22,944 Trade receivables 12 10,200 2,211 Other amounts receivable 13 9,969 3,284 Loans granted 8 43,594 1,000 Current portion of unused funds balance of congestion management revenue 22 - 6,860 Other financial assets 14 5,359 1,619 Cash and cash equivalents 15 1,819 33 Total current assets 122,538 38,965 TOTAL ASSETS 489,825 414,353 EQUITY AND LIABILITIES Equity Share capital 16 146,256 146,256 Share premium 16 8,579 8,579 Legal reserve 17 14,626 14,626 Other reserves 17 32,034 23,144 Retained earnings/(deficit) 17 20,013 25,432 Total equity 221,508 218,037 Liabilities Non-current liabilities Non-current borrowings 20 51,452 65,677 Lease liabilities 21 4,414 4,590 Congestion management revenue 22 88,267 55,659 Provisions 23 352 2,597 Other non-current amounts payable and liabilities 24 2,270 1,677 Total non-current liabilities 146,755 130,200 Current liabilities Current portion of non-current borrowings 20 14,225 14,225 Current portion of lease liabilities 21 180 267 Trade payables 26 59,454 25,234 Current portion of congestion management revenue 22 20,820 6,860 Advance amounts received 27 10,328 5,399 Income tax payable 3,162 5,938 Provisions 23 2,507 795 Other current amounts payable and liabilities 28 10,886 7,398 Total current liabilities 121,562 66,116 Total liabilities 268,317 196,316 TOTAL EQUITY AND LIABILITIES 489,825 414,353 The accompanying notes are an integral part of the financial statements. THE COMPANY’S STATEMENT OF COMPREHENSIVE INCOME (All amounts are in EUR thousands unless otherwise stated) 91 CONFIDENTIAL INFORMATION Notes 2021 2020 Revenue Revenue from electricity transmission and related services 29 267,258 206,399 Other income 30 3,330 1,117 Total revenue 270,588 207,516 Operating expenses Expenses attributable to electricity and related services 31 (194,460) (128,391) Depreciation and amortisation 5,6,7 (21,337) (20,354) Wages and salaries and related expenses (12,365) (11,151) Repair and maintenance expenses (8,058) (9,449) Telecommunications and IT system expenses (1,952) (1,703) Write-off expenses of property, plant and equipment (127) (590) Impairment of property, plant and equipment 6 - (233) Reversal of impairment of inventories and amounts receivable 97 227 Impairment of investments 9 (307) (719) Other expenses (7,554) (5,097) Total operating expenses (246,06 3) (177,460) Operating profit/(loss) 24,525 30,056 Finance income 21 63 Finance costs (752) (964) Dividend income 307 895 Disposal of associate 1 - 831 Profit/(loss) before income tax 24,101 30,881 Income tax Current year income tax expenses 25 (9,576) (9,313) Deferred income tax income/(expenses) 25 5,488 5,035 Total income tax (4,088) (4,278) Profit/(loss) for the period 20,013 26,603 Other comprehensive income that will not be reclassified to profit or loss Change in fair value of financial assets - (61) Effect of deferred income tax - 9 Total other comprehensive income that will not be reclassified to profit or loss - (52) Total comprehensive income/(expenses) for the period 20,013 26,551 Basic and diluted earnings/(deficit) per share (in EUR) 0.040 0.053 The accompanying notes are an integral part of the financial statements. THE COMPANY’S STATEMENT OF CHANGES IN EQUITY (All amounts are in EUR thousands unless otherwise stated) 92 CONFIDENTIAL INFORMATION Share capital Share premium Reserve for changes in fair value of financial assets Legal reserve Other reserves Retained earnings/(deficit) Total Balance at 1 January 2020 146,256 8,579 52 14,626 23,099 2,959 195,571 Comprehensive income/(expenses) for the period - - (52) - - 26,603 26,551 Transfer to reserves 17 - - - - 45 (45) - Dividends 18 - - - - - (4,085) (4,085) Balance at 31 December 2020 146,256 8,579 - 14,626 23,144 25,432 218,037 Balance at 1 January 2021 146,256 8,579 - 14,626 23,144 25,432 218,037 Comprehensive income/(expenses) for the period - - - - - 20,013 20,013 Transfer to reserves 17 - - - - 8,890 (8,890) - Dividends 18 - - - - - (16,542) (16,542) Balance at 31 December 2021 146,256 8,579 - 14,626 32,034 20,013 221,508 The accompanying notes are an integral part of the financial statements. THE COMPANY’S STATEMENT OF CASH FLOWS (All amounts are in EUR thousands unless otherwise stated) 93 CONFIDENTIAL INFORMATION Notes 2021 2020 Cash flows from operating activities Profit/(loss) for the period 20,013 26,603 Adjustments for non-cash items: Depreciation and amortisation expenses 5,6,7 21,337 20,354 Impairment of financial assets 307 719 Impairment/(reversal of impairment) of assets (97) (227) Impairment of property, plant and equipment 6 - 233 Income tax expenses 25 4,088 4,278 (Gain)/loss on disposal/write-off of property, plant and equipment 127 590 Elimination of results of financing and investing activities: Interest income (11) (42) Interest expenses 749 945 Disposal of associate 1 - (831) Dividend income (307) (895) Other finance costs/(income) (7) (2) Changes in working capital: (Increase)/decrease in trade receivables and other amounts receivable (28,210) (7,627) (Increase)/decrease in inventories, prepayments and other current assets (9) (348) Increase/(decrease) in amounts payable, grants, deferred revenue and advance amounts received 39,583 (592) Changes in other financial assets 21,161 (12,253) Income tax (paid) (12,351) (3,802) Net cash flows generated from operating activities 66,373 27,103 Cash flows from investing activities (Acquisition) of property, plant and equipment and intangible assets (57,457) (51,776) Grants received 19 22, 49 6 9,788 Loans granted to related parties 8 (43,594) - Loan repayments received 8 1,000 1,203 Congestion management revenue received 22 44,505 30,748 Disposal of subsidiaries and associate 1 - 1,652 Interest received 29 47 Dividends received 307 895 Other cash flows from investing activities - 46 Net cash flows used in investing activities (32,714) (7,397) Cash flows from financing activities Repayments of borrowings (14,225) (14,225) Settlement of lease liabilities 21 (333) (344) Interest paid (817) (1,019) Dividends paid (16,498) (4,115) Net cash flows used in financing activities (31,873) (19,703) Increase/(decrease) in cash and cash equivalents 1,786 3 Cash and cash equivalents at the beginning of the period 15 33 30 Cash and cash equivalents at the end of the period 15 1,819 33 The accompanying notes are an integral part of the financial statements. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 94 1. General information LITGRID AB (the “Company”) is a public limited liability company registered in the Republic of Lithuania. The address of its registered office is Karlo Gustavo Emilio Manerheimo g. 8, LT-05131, Vilnius, Lithuania. The Company was established as a result of the unbundling of Lietuvos Energija AB operations. The Company was registered with the Register of Legal Entities on 16 November 2010. The Company’s code is 302564383. LITGRID AB is an operator of electricity transmission system, operating electricity transmissions in the territory of Lithuania and ensuring the stability of operation of the whole electric power system. The Company is also responsible for the integration of the Lithuanian electric power system into the European electricity infrastructure and the single electricity market. On 27 August 2013, the National Commission for Energy Control and Prices granted a licence to the Company to engage in electricity transmission activities for indefinite term. The principal objectives of the Company’s activities include ensuring stability and reliability of the electricity system in the territory of Lithuania within the areas of its competence, creation of objective and non-discriminatory conditions for the use of the transmission networks, management, use and disposal of electricity transmission system assets and its appurtenances. As at 31 December 2021, the Company’s share capital amounted to EUR 146,256,100.20. It was divided into 504,331,380 ordinary registered shares with the nominal value of EUR 0.29 each. All shares are fully paid. As at 31 December 2021 and 31 December 2020, the Company's shareholder structure was as follows: The Company’s shareholders Number of shares held Number of shares held (%) EPSO-G UAB 491,736,153 97.5 Other shareholders 12,595,227 2.5 Total 504,331,380 100.0 The ultimate controlling shareholder of EPSO-G UAB (company code 302826889, address: Gedimino pr. 20, Vilnius) is the Ministry of Energy of the Republic of Lithuania. As from 22 December 2010, the shares of the Company are listed on the additional trading list of NASDAQ OMX Vilnius Stock Exchange, issue ISIN code LT0000128415. The Company’s investments in the joint venture were as follows: Company Address of the company’s registered office Shareholding as at 31 December 2021 Shareholding as at 31 December 2020 Profile of activities LitPol Link Sp.z.o.o Warszawska 165, 05-520, Konstancin-Jeziorna, Poland - 50% Liquidated On 19 June 2019, the Polish and the Lithuanian transmission system operators Polskie Sieci Elektroenergetyczne and LITGRID, the sole shareholders of subsidiary LitPol Link, each holding 50% of the company’s shares, decided to liquidate the company. The Company’s share of monetary funds equal to EUR 45.6 thousand was received on 15 October 2020. LitPol Link Sp.z.o.o was liquidated on 10 March 2021. On 7 July 2020, the Company together with Ignitis Grupė AB disposed shares of Duomenų Logistikos Centras UAB. After the sale of shares held (20.36%), the Company received EUR 1,652 thousand. Gain on the disposal of shares amounting to EUR 831 thousand was accounted for in the statement of comprehensive income. As at 31 December 2021, the Company had 335 (31 December 2020: 308) employees. 2. Summary of principal accounting policies The principal accounting policies applied in the preparation of the Company’s financial statements for the year ended 31 December 2021 are summarised below. 2.1 Basis of preparation The Company’s financial statements for the year ended 31 December 2021 have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 95 The financial statements have been prepared on a historical cost basis, except for property, plant and equipment which is recorded at revalued amount, less accumulated depreciation and estimated impairment losses, and financial assets measured at fair value through other comprehensive income. Amounts in these financial statements are presented in thousands of euro (EUR) unless otherwise stated. The Company's financial year coincides with the calendar year. The Company’s management approved these financial statements on 18 March 2022. The shareholders of the Company have a statutory right to approve or not to approve these financial statements and require that management prepare a new set of financial statements. Accounting policies applied in the preparation of the financial statements are consistent with those of the previous financial year except as follows: a) Adoption of new and/or amended IFRS and interpretations of the International Financial Reporting Interpretations Committee (IFRIC) The following IFRSs, amendments thereto and IFRIC interpretations were adopted by the Company for the first time in the financial year ended 31 December 2021: COVID-19-related rent concessions – Amendments to IFRS 16 (issued on 28 May 2020 and effective for annual periods beginning on or after 1 June 2020). The amendments provided lessees (but not lessors) with relief in the form of an optional exemption from assessing whether a rent concession related to COVID-19 is a lease modification. Lessees can elect to account for rent concessions in the same way as they would if they were not lease modifications. The amendment is to be applied retrospectively in accordance with IAS 8, but lessees are not required to restate prior period figures or to provide the disclosure under paragraph 28(f) of IAS 8. COVID-19-related rent concessions – Amendments to IFRS 16 (issued on 31 March 2021 and effective for annual periods beginning on or after 1 April 2021). In May 2020, an amendment to IFRS 16 was issued that provided an optional practical expedient for lessees from assessing whether a rent concession related to COVID-19, resulting in a reduction in lease payments due on or before 30 June 2021, was a lease modification. The amendment issued on 31 March 2021 extended the expiry date of this practical expedient (exemption) from 30 June 2021 until 30 June 2022. This amendment had no effect on the Company’s financial statements. Interest rate benchmark reform – Amendments to IFRS 9, IAS 39 and IFRS 7 (issued on 27 August 2020 and effective for annual periods beginning on or after 1 January 2021). The amendments were triggered by replacement of benchmark interest rates such as LIBOR and other inter-bank offered rates (‘IBORs’). The Phase 2 amendments address issues that arise from the implementation of the reforms, including the replacement of one benchmark with an alternative one. IBOR reform had no impact for the Company, as all borrowings are either EURIBOR linked, or have fixed interest rates, therefore there was no need to transition to alternative benchmark interest rates. Changes in how EURIBOR is determined (determination has shifted from a quotes-based to a transactions-based methodology) had no impact on interest rates applied, as for all EURIBOR linked borrowings three months EURIBOR is subject to a 0% floor. Before and after the changes in how EURIBOR is determined EURIBOR was negative, therefore 0% floor was applicable to arrive at interest rate and therefore those changes had no impact on interest rate itself and no effect on future cash flows. The financial liabilities denominated at EURIBOR based interest rate are disclosed in Note 20. Amendment to IFRS 4 – deferral of IFRS 9 (issued on 25 June 2020 and effective for annual periods beginning on or after 1 January 2023). This amendment had no effect on the Company’s financial statements. b) Standards, amendments and interpretations that have been endorsed by the European Union, but are not yet effective and have not been early adopted by the Company Proceeds before intended use, Onerous contracts – cost of fulfilling a contract, Reference to the Conceptual Framework – narrow scope amendments to IAS 16, IAS 37 and IFRS 3, and Annual Improvements to IFRSs 2018-2020 – amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41 (issued on 14 May 2020 and effective for annual periods beginning on or after 1 January 2022). ● The amendment to IAS 16 prohibits an entity from deducting from the cost of an item of PPE any proceeds received from selling items produced while the entity is preparing the asset for its intended use. The proceeds from selling such items, together with the costs of producing them, are now recognised in profit or loss. An entity will use IAS 2 to measure the cost of those items. Cost will not include depreciation of the asset being tested because it is not ready for its intended use. The amendment to IAS 16 also clarifies that an entity is ‘testing whether the asset is functioning properly’ when it assesses the technical and physical performance of the asset. The financial performance of the asset is not relevant to this assessment. An asset might therefore be capable of operating as intended by management and subject to depreciation before it has achieved the level of operating performance expected by management. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 96 ● The amendment to IAS 37 clarifies the meaning of ‘costs to fulfil a contract’. The amendment explains that the direct cost of fulfilling a contract comprises the incremental costs of fulfilling that contract; and an allocation of other costs that relate directly to fulfilling. The amendment also clarifies that, before a separate provision for an onerous contract is established, an entity recognises any impairment loss that has occurred on assets used in fulfilling the contract, rather than on assets dedicated to that contract. ● IFRS 3 was amended to refer to the 2018 Conceptual Framework for Financial Reporting, in order to determine what constitutes an asset or a liability in a business combination. It was also clarified that the acquirer should not recognise contingent assets, as defined in IAS 37, at the acquisition date. ● The amendment to IFRS 9 addresses which fees should be included in the 10% test for derecognition of financial liabilities. Costs or fees could be paid to either third parties or the lender. Under the amendment, costs or fees paid to third parties will not be included in the 10% test. ● Illustrative Example 13 that accompanies IFRS 16 was amended to remove the illustration of payments from the lessor relating to leasehold improvements. The reason for the amendment is to remove any potential confusion about the treatment of lease incentives. ● IFRS 1 allows an exemption if a subsidiary adopts IFRS at a later date than its parent. ● The requirement for entities to exclude cash flows for taxation when measuring fair value under IAS 41 was removed. This amendment is intended to align with the requirement in the standard to discount cash flows on a post-tax basis. The Company and the Group are currently assessing the impact of these amendments on the financial statements. IFRS 17 Insurance contracts (issued on 18 May 2017 and effective for annual periods beginning on or after 1 January 2021). IFRS 17 replaces IFRS 4, which has given companies dispensation to carry on accounting for insurance contracts using existing practices. As a consequence, it was difficult for investors to compare and contrast the financial performance of otherwise similar insurance companies. IFRS 17 is a single standard establishing recognition, measurement, presentation and disclosure requirements for all types of insurance contracts, including reinsurance contracts that an insurer holds. The standard requires that similar principles are applied to reinsurance contracts held and to investment contracts containing a discretionary participation feature. Amendments to IFRS 17 and an amendment to IFRS 4 (issued on 25 June 2020 and effective for annual periods beginning on or after 1 January 2023). The amendments include a number of clarifications intended to ease implementation of IFRS 17, simplify some requirements of the standard and transition. The Company and the Group are currently assessing the impact of these amendments on the financial statements. c) Standards, interpretations and amendments that have not yet been endorsed by the European Union and that have not been early adopted by the Company IFRS 14 Regulatory deferral accounts (effective for annual periods beginning on or after 1 January 2016. The adoption of the standard was deferred until the preparation of its final version). IFRS 14 will permit first-time adopters to recognise amounts related to rate regulation in accordance with their previous GAAP requirements when they adopt IFRS. However, to enhance comparability with entities that already apply IFRS and do not recognise such amounts, the standard requires that the effect of rate regulation must be presented separately from other items. An entity that already presents IFRS financial statements is not eligible to apply the standard, i. e. it must present the effect of rate regulation separately from other items. The new provisions of the standard are not relevant for the Company and the Group, since IFRS transition occurred in the previous periods. Sale or contribution of assets between an investor and its associate or joint venture – Amendments to IFRS 10 and IAS 28 (effective for annual periods beginning on the date which will be established by the International Accounting Standards Board (IASB) or on the later date). These amendments address an inconsistency between the requirements in IFRS 10 and those in IAS 28 in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business. A partial gain or loss is recognised when a transaction involves the sale of the assets that do not constitute a business, even if these assets are held by a subsidiary. The Company and the Group believe the amendments will have no significant impact on the Company’s and the Group’s financial statements. Classification of liabilities as current or non-current – Amendments to IAS 1 (issued on 23 January 2020 and effective for annual periods beginning on or after 1 January 2022). These narrow scope amendments clarify that liabilities are classified as either current or non-current, depending on the rights that exist at the end of the reporting period. Liabilities are non-current if the entity has a substantive right, at the end of the reporting period, to defer settlement for at least twelve months. The guidance no longer requires such a right to be unconditional. Management’s expectations whether they will subsequently exercise the right to defer settlement do not affect classification of liabilities. The right to defer only exists if the entity complies with any relevant conditions as of the end of the reporting period. A liability is classified as current if a condition is breached at or before the reporting date even if a waiver of that condition is obtained from the lender after the end of the reporting period. Conversely, a loan is classified as non-current if a loan covenant is breached only after the reporting date. In addition, the NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 97 amendments include clarifying the classification requirements for debt a company might settle by converting it into equity. ‘Settlement’ is defined as the extinguishment of a liability with cash, other resources embodying economic benefits or an entity’s own equity instruments. There is an exception for convertible instruments that might be converted into equity, but only for those instruments where the conversion option is classified as an equity instrument as a separate component of a compound financial instrument. Classification of liabilities as current or non-current, deferral of the effective date – Amendments to IAS 1 (issued on 15 July 2020 and effective for annual periods beginning on or after 1 January 2023). The amendment to IAS 1 on classification of liabilities as current or non-current was issued in January 2020 with an original effective date 1 January 2022. However, in response to the Covid-19 pandemic, the effective date was deferred by one year to provide companies with more time to implement classification changes resulting from the amended guidance. The Company is currently assessing the impact of these amendments on its financial statements. Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of accounting policies (issued on 12 February 2021 and effective for annual periods beginning on or after 1 January 2023). IAS 1 was amended to require companies to disclose their material accounting policy information rather than their significant accounting policies. The amendment provided the definition of material accounting policy information. The amendment also clarified that accounting policy information is expected to be material if, without it, the users of the financial statements would be unable to understand other material information in the financial statements. The amendment provided illustrative examples of accounting policy information that is likely to be considered material to the entity’s financial statements. Further, the amendment to IAS 1 clarified that immaterial accounting policy information need not be disclosed. However, if it is disclosed, it should not obscure material accounting policy information. To support this amendment, IFRS Practice Statement 2, ‘Making Materiality Judgements’ was also amended to provide guidance on how to apply the concept of materiality to accounting policy disclosures. The Company is currently assessing the impact of these amendments on its financial statements. Amendments to IAS 8: Definition of accounting estimates (issued on 12 February 2021 and effective for annual periods beginning on or after 1 January 2023). The amendment to IAS 8 clarified how companies should distinguish changes in accounting policies from changes in accounting estimates. The Company is currently assessing the impact of these amendments on its financial statements. Deferred tax related to assets and liabilities arising from a single transaction – Amendments to IAS 12 (issued on 7 May 2021 and effective for annual periods beginning on or after 1 January 2023). The amendments to IAS 12 specify how to account for deferred tax on transactions such as leases and decommissioning obligations. In specified circumstances, entities are exempt from recognising deferred tax when they recognise assets or liabilities for the first time. Previously, there had been some uncertainty about whether the exemption applied to transactions such as leases and decommissioning obligations – transactions for which both an asset and a liability are recognised. The amendments clarify that the exemption does not apply and that entities are required to recognise deferred tax on such transactions. The amendments require companies to recognise deferred tax on transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences The Company is currently assessing the impact of these amendments on its financial statements. Transition option to insurers applying IFRS 17 – Amendments to IFRS 17 (issued on 9 December 2021 and effective for annual periods beginning on or after 1 January 2023). The amendment to the transition requirements in IFRS 17 provides insurers with an option aimed at improving the usefulness of information to investors on initial application of IFRS 17. This amendment will have no impact on the Company’s financial statements since it is not engaged in any insurance activities. 2.2 Assets held for sale The Company classifies non-current assets and disposal groups as held for sale, if their carrying amount is recovered through a disposal rather than through continuing use. Such non-current assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fair value, less costs to sell. An asset or disposal group can qualify for recognition as held for sale only when the sale is highly probable and as asset or disposal group is available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that the sale will be withdrawn. Management must be committed to implement a probable sale within one year after the date of the reclassification. Assets and liabilities classified as held for sale are presented separately in the statement of financial position as current items. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 98 2.3 Investments in a joint venture Joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control (the venturers). 2.4 Property, plant and equipment and intangible assets Assets with the useful life over one year are classified as property, plant and equipment. All property, plant and equipment is shown at revalued amounts, based on periodic (at least every 5 years) property valuations, less the amounts of accumulated depreciation, recognised grants and impairment losses. Any accumulated depreciation and impairment losses at the date of revaluation are eliminated against gross carrying amount of the asset and net amount is restated to the revalued amount of the assets. Increases in the carrying amount arising on the first revaluation of property, plant and equipment are credited to revaluation reserve directly in equity and decreases are recognised in the profit and loss account. During the first revaluation each object of the asset and the item within that object were evaluated by indicating the remaining useful life established for that item of the asset. Decreases in the carrying amount arising on the subsequent revaluation of property, plant and equipment that offset previous increases of the same asset are charged against revaluation reserve directly in equity, and all other decreases are charged to the profit and loss account. Increases in property plant and equipment value are allocated in proportion to the net book amount of each item of the asset by indicating the remaining useful life established for that item, by eliminating capitalised interest, assets in respect of funds of new consumers from 2015 to 2018 accounted for as revenue, assets depreciated to residual value through the reduction of the items’ accumulated impairment of the previous years. Revaluation increases in property plant and equipment value that offset previous decreases are taken to the profit and loss account. All other increases in the carrying amount arising on subsequent revaluations of property, plant and equipment are credited to revaluation reserve. Decreases in property plant and equipment value are allocated in proportion to the net book amount of each item of the asset by indicating the remaining useful life established for that item, by eliminating capitalised interest, assets in respect of funds of new consumers from 2015 to 2018 accounted for as revenue, assets depreciated to residual value through the reduction of accumulated increases of the previous years which were accounted for as a revaluation reserve. Each year the difference between depreciation based on the revalued carrying amount of the asset charged to the statement of comprehensive income and depreciation based on the asset’s original cost is transferred from revaluation reserve to retained earnings taking into account the effect of deferred income tax. After the sale or write-off of a property unit, any balance of the revaluation reserve related to this property is transferred to retained earnings. Construction in progress represents non-current fixed assets under construction. The cost of such assets includes design, construction works, plant and equipment being installed, and other directly attributable costs. Property, plant, and equipment is recorded at acquisition (production) cost, less grants received/receivable for the acquisition of property, property, plant, and equipment. Grants comprise financing from the EU support funds, a portion of congestion management revenue designated for the financing of investments, payments for the expenses incurred during the connection of producers to the transmission network and performance of works for the relocation/reconstruction of the transmission network’s installations initiated by customers. Intangible assets Intangible assets are initially recognised at cost. Intangible assets are recognised only when it is probable that future economic benefits associated with these assets will flow to the Company and the value of assets can be measured reliably. After initial recognition, intangible assets are carried at cost, less accumulated amortisation and accumulated impairment losses, if any. Goodwill at initial recognition is measured as a positive difference between the historical cost and acquired net asset value and after the initial recognitions it is carried at acquisition value less accumulated impairment, if any. Depreciation and amortisation Depreciation of property, plant and equipment and amortisation of intangible assets, except for land, construction in progress, statutory servitudes and protection zones of the transmission network, is calculated using the straight-line method over estimated useful lives of the asset. The estimated useful lives, residual values and depreciation/amortisation method are reviewed by the Company at each year-end to ensure that they are consistent with the expected pattern of economic benefits from these assets. The effect of changes in estimates, if any, is accounted for on a prospective basis. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 99 Estimated useful lives of property, plant and equipment and intangible assets are as follows: Categories of property, plant and equipment and intangible assets Useful lives (in years) Buildings 20 – 75 Structures and machinery, whereof - Constructions of transformer substations 30 - Structures, machinery and equipment, whereof: - 400, 330, 110, 35 kV electricity transmission lines 40 – 55 - 400, 330, 110, 35, 6-10 kV switchgear’s electrical installations 30 – 35 - 400, 330, 110, 35, 6-10 kV capacity transformers 35 - electricity and communication devices 20 – 25 - electrical installations, whereof: 15 – 35 - relay security and automation equipment 15 – 35 - technological and dispatch control equipment 8 - other equipment 5 – 20 Other property, plant and equipment, whereof: - computer hardware and communication equipment 3 – 10 - inventory, tools 4 – 10 Intangible assets, whereof: 3 – 4 - statutory servitudes and protection zones of the transmission network Not subject to amortisation Statutory servitudes and protection zones of the transmission network have an indefinite useful life because the right to use the established zones is unlimited in time. Gain or loss on disposal of non-current assets is calculated as the difference between the proceeds from sale and the book value of the disposed asset and is recognised in the statement of comprehensive income of the reporting year. Subsequent repair costs incurred when performing major improvements are included in the carrying amount of property, plant and equipment, only when it is probable that future economic benefits associated with these costs will flow to the Company and these costs can be measured reliably. Repair costs for the asset category of overhead lines and cables are accounted for as a component of the item of assets by estimating the useful life of the new asset. The carrying amount of the replaced part is derecognised. All other repair and maintenance costs are recognised as expenses in the statement of comprehensive income during the financial period in which they are incurred. 2.5 Impairment of property, plant and equipment and intangible assets At each reporting date, the Company reviews the carrying amounts of property, plant and equipment (including right-of-use assets) and intangible assets to determine whether there are any indications that those assets have suffered an impairment loss. If any such indication exists, the recoverable value of the asset is estimated in order to determine the extent of the impairment loss (if any). The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use. In assessing value in use, the expected future cash flows are discounted to their present value using the discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying value, the carrying value of the asset (cash-generating unit) is reduced to its recoverable value. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a decrease of revaluation reserve. Where an impairment loss subsequently reverses, the carrying value of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying value does not exceed the carrying value that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase (without exceeding the amount of previous impairment). Each year the Company estimates the recoverable amount of intangible assets with indefinite life in order to estimate the impairment of such assets (if any). NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 100 2.6 Financial assets As a result of the adoption of IFRS 9 Financial instruments, the Company classifies its financial assets into the following three new categories: - financial assets subsequently measured at amortised cost; - financial assets subsequently measured at fair value through other comprehensive income; and - financial assets subsequently measured at fair through profit or loss. Subsequent to initial recognition, financial assets are classified into the afore-mentioned categories based on the business model the Company applies when managing its financial assets. The business model applied to the group of financial assets is determined at a level that reflects how all groups of financial assets are managed together to achieve a particular business objective of the Company. The intentions of the Company’s management regarding separate instruments has no effect on the applied business model. The Company may apply more than one business model to manage its financial assets. The business model for managing financial assets is a matter of fact and not merely an assertion. It is typically observable through the activities that the Company undertakes to achieve the objective of the business model. The Company recognises a financial asset in its statement of financial position when, and only when, the Company becomes party to the contractual provisions of the instrument. The purchase or sale of financial assets is recognised and derecognised, as applicable, using the trade date accounting. At initial recognition, the Company measures financial assets at fair value, except for trade receivables that do not have a significant financing component. At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs comprise all fees and commission that the Company would not have paid if it had not entered into an agreement on the financial instrument. If the fair value of the financial asset at initial recognition differs from the transaction price, the difference is recognised in profit or loss. In view of the business model applied for managing the group of financial assets, the accounting for financial assets is as follows: Financial assets measured at amortised cost Cash and cash equivalents comprise cash balances in the Company’s bank accounts and their equivalents in various currencies the use of which is not restricted. Cash equivalents comprise short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less and that are subject to an insignificant risk of change in value. Loans granted by the Company and amounts receivable are accounted for under the business model the purpose of which is to hold financial assets in order to collect contractual cash flows that can contain cash flows related to the payment of the principal amount and interest inflows. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the date of the statement of financial position. These are classified as non-current assets. Loans and receivables are initially recognised at cost (the fair value of consideration receivable) and subsequently carried at amortised cost using the effective interest rate method. Gains or losses are recognised in the statement of comprehensive income when the loans and receivables are derecognised, impaired or amortised Financial assets measured at fair value through profit or loss The Company measures financial assets, which are stated at fair value in subsequent periods, through profit or loss, using the business model whose objective is achieved by both collecting contractual cash flows and selling financial assets. The Company does not have any financial assets held for trading and acquired for the purpose of selling in the near term and attributes to this category only financial assets arising from the disposal of business or investments classified as non-equity contingent consideration. Financial assets measured at fair value through other comprehensive income The Company had equity securities that were classified under the category of financial assets measured at fair value through comprehensive income. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 101 Effective interest method The effective interest method is used in the calculation of the amortised cost of a financial asset and in the allocation of interest income over the relevant period in the statement of comprehensive income. The effective interest rate is the rate that exactly discounts estimated future cash inflows through the expected life of the financial asset to the gross carrying amount of the financial asset that shows the amortised cost of the financial asset, before adjusting for any loss allowance. When calculating the effective interest rate, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) but does not consider the expected credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts. There is a presumption that the cash flows and the expected life of a group of similar financial instruments can be estimated reliably. However, when it is not possible to reliably estimate the cash flows or the expected life of a financial instrument (or group of financial instruments), the Company uses the contractual cash flows over the full contractual term of the financial instrument (or group of financial instruments). Expected credit losses Credit losses incurred by the Company are calculated as the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the Company expects to receive (i.e. all cash shortfalls), discounted at the original effective interest rate. The Company estimates cash flows by considering all contractual terms of the financial instrument through the expected life of that financial instrument, including cash flows from the collateral held or other credit enhancements that are integral to the contractual terms. Expected credit losses show the weighted average of credit losses with the respective risks (probability) of a default occurring as the weights. Lifetime expected credit losses are the expected credit losses that result from all possible default events over the period from the date of initial recognition of a financial asset to the subsequent date of settlement of the financial asset or ultimate write- off of the financial asset. The Company seeks for lifetime expected credit losses to be recognised before a financial instrument becomes past due. Typically, credit risk increases significantly before a financial instrument becomes past due or other lagging borrower-specific factors (for example, a modification or restructuring) are observed. Consequently when reasonable and supportable information that is more forward-looking than past due information is available without undue cost or effort, it must be used to assess changes in credit risk. Expected credit losses are recognised by taking into consideration individually or collectively assessed credit risk of loans granted and trade receivables. Credit risk is assessed based on all reasonable and verifiable information including future oriented information. The lifetime expected credit losses of trade receivables are assessed based on the individual assessment basis. The Company’s management decides on the performance of the assessment on an individual basis reflecting the possibility of obtaining information on the credit history of a particular borrower, its financial position as at the date of assessment, including forward- looking information that would allow to timely determine whether there has been a significant increase in the credit risk of that particular borrower, thus enabling making judgement on the recognition of lifetime expected credit losses in respect of that particular borrower. The lifetime expected credit losses of trade receivables are recognised at the recognition of amounts receivable. When granting the loan the Company assesses and recognises 12-month expected credit losses. In subsequent reporting periods, in case there is no significant increase in credit risk related to the borrower, the Company adjusts the balance of 12-month expected credit losses in view of the outstanding balance of the loan at the assessment date. Having determined that the financial position of the borrower has deteriorated significantly compared to the financial position that existed upon the issue of the loan, the Company records all lifetime expected credit losses of the loan. The latest point at which the Company recognises all lifetime expected credit losses of the loan granted is identified when the borrower is late to pay a periodic amount or the total debt for more than 30 days. In case of other evidence available, the Company accounts for all lifetime expected credit losses of the loan granted regardless of the more than 30 days past due presumption. Loans for which lifetime expected credit losses were calculated are considered credit-impaired financial assets. Credit-impaired financial assets A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired include observable data about the following events: a) significant financial difficulties of the borrower; b) a breach of contract, such as failure to pay the debt or regular payment in due time; NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 102 c) a concession granted to the borrower due to economic or contractual reasons relating to the borrower’s financial difficulties, which otherwise would not be granted by the lender; d) it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; e) the disappearance of an active market for that financial asset because of financial difficulties; f) financial assets are purchased or granted at a deep discount that reflects the incurred credit losses. The combined effect of several events that may occur simultaneously or subsequently throughout the term of validity of the agreement on the financial assets may have caused financial assets to become credit-impaired. The lifetime expected credit losses of loans receivable and trade receivables is recognised in profit or loss through the contrary account of doubtful receivables. The Company derecognises loans receivable and trade receivables when it loses the right to receive contractual cash flows from financial assets. Derecognition of financial assets The Company derecognises financial assets in case of the following: - the rights to receive cash flows from the asset have expired; - the Company has retained the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass through” arrangement; or - the Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset: - if the Company has not retained control, it shall derecognise the financial asset and recognise separately as assets or liabilities any rights and obligations created or retained in the transfer; - if the Company has retained control, it shall continue to recognise the financial asset to the extent of its continuing involvement in the financial asset. Whether the Company has retained control of the transferred asset depends on the transferee's ability to sell the asset. If the transferee has the practical ability to sell the asset in its entirety to an unrelated third party and is able to exercise that ability unilaterally and without needing to impose additional restrictions on the transfer, the Company has not retained control. In all other cases, the Company has retained control. 2.7 Inventories Inventories are initially recorded at acquisition cost. Subsequent to initial recognition, inventories are stated at the lower of cost and net realisable value. Acquisition cost of inventories includes acquisition price and related taxes that are not subsequently recovered from tax administration authorities and costs associated with bringing inventory into their current condition and location. Cost is determined on the first-in, first-out (FIFO) basis. Net realisable value is the estimated selling price, less the estimated costs of completion and selling expenses. Inventories required to be stored as a reserve and the management does not expect these inventories to be used over the normal business cycle of the Company or 12 months are classified as non-current assets. Depreciation is calculated for reserve inventories that are classified as non-current assets. The depreciation rate applied reflects an expected useful life of such inventories. 2.8 Trade payables and other financial liabilities, borrowings Financial liabilities, borrowings Financial liabilities, including borrowings, are recognised initially at fair value, less transaction costs. In subsequent periods, financial liabilities are measured at amortised cost using the effective interest rate method. Interest expense is recognised using the effective interest rate method as disclosed in paragraph 2.6 of the notes to the financial statements. If a financing agreement concluded before the date of the statement of financial position proves that the liability was non- current as of the date of the statement of financial position, that financial liability is classified as non-current. Derecognition of financial liabilities A financial liability is derecognised when the obligation under the liability is settled, cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts of financial liabilities is recognised in the statement of comprehensive income. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 103 Trade payables Trade payables represent commitments to pay for goods and services acquired from suppliers in the ordinary course of business. Trade payables are classified as current liabilities if the term of their settlement is not longer than one year; otherwise they are included in non-current liabilities. 2.9 Dividend distribution Dividend distribution to the Company’s shareholders is recognised as a liability in the Company’s financial statements in the period in which dividends are approved by the Company’s shareholders. If dividends for equity holders (as laid down in IAS 32 Financial instruments: Disclosure and presentation) are recognised and declared after the date of the statement of financial position, the Company is not required to recognise these dividends as liabilities as at the date of the statement of financial position. If dividends are recognised and declared after the date of the statement of financial position but before the date when the management is authorised to issue financial statements, in such a case dividends are not recognised as a liability as at the date of the statement of financial position because they do not meet the criteria of a present obligation according to IAS 37. Such dividends are disclosed in notes to the financial statements based on IAS 1 Presentation of financial statements. 2.10 Foreign currency The line items included in the Company’s financial statements are measured using the national currency of the primary economic environment in which the entity operates, i.e. the euros. All financial information presented in the euros has been rounded to the nearest thousand unless otherwise stated. Due to rounding effects, some of the tabular amounts may not add up. Foreign currency transactions are recorded in the euros using the exchange rates of the euro against foreign currencies prevailing at the dates of transactions as established by the European Central Bank and the Bank of Lithuania. Monetary assets and liabilities are translated into the euros using the exchange rate prevailing at the date of preparation of financial statements. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities are recognised as the profit or loss of the reporting period. 2.11 Grants Asset-related grants The government and the EU grants received in the form of non-current assets or designated for the purchase of non-current are treated as asset-related grants. Public service obligation (“PSO”) service fees allocated to the Company for the preparation and implementation of the strategic projects and a portion of congestion management revenue, which is designated to finance investments, are recognised as asset-related grants. These grants are accounted for by reducing by the carrying amount of respective non-current assets. In the statement of comprehensive income grants are recognised over the useful life of the asset by reducing depreciation expenses. Grants received in advance related to the acquisition of non-current assets are stated as non-current liabilities until the moment of acquisition of such assets. Grants receivable are included in other amounts receivable when the agreement whereby the European Commission commits to finance the strategic projects provides firm evidence confirming that the financing will be received. Income-related grants Grants received as a compensation for expenses or unearned income of the current or previous reporting period, also, all grants, which are not grants related to assets, are defined as grants related to income. Income-related grants are recognised as used in parts to the extent of expenses incurred during the reporting period or unearned income to be compensated by that grant. Income-related grants are recognised in profit or loss by increasing other income over the period in which the grant is received or when there is reasonable assurance that the grant will be received and that the Company complies with the conditions for the allocation of the grant established in the grant agreement. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 104 2.12 Connection of new consumers and producers From 1 January 2020, the connection of producers is accounted for similarly to the principle applicable to grants by offsetting the acquisition cost of assets created for the connection of the producer against the compensation receivable from the connected producer. In case of relocation works of the electricity transmission network when major improvements are performed and when the assets are created by the Company, the grant principle is applied and the cost of the created assets is offset against the amount of compensations receivable from the customer, and when the assets are created by the customer and transferred to the Company free of charge, the assets received from the third parties are offset against the value of the assets. If the major improvement was not performed during the relocation and the asset was created by the Company, such asset is not recognised, i.e. compensation income from the customer and expenses for the creation of such asset are accounted for. When no major improvement is performed and the asset is created by the customer, the asset received from the customer free of charge is not recognised and accounted for in off-balance sheet accounts. Revenue received from connection of new consumers is accounted for by the Company over the useful life of the created asset because the connection of a new consumer is related to further consumption and related revenue. 2.13 Lease liabilities Initial measurement of lease liability The amount of the initial measurement of lease liability is calculated as the present value of lease payments not paid at the commencement date. Lease payments are discounted using the incremental borrowing rate, which is applied when the contractual interest rate is not known. The incremental borrowing rate is determined by the rate at which the Company would be able to borrow funds for the purpose of acquiring certain assets for a respective period. At the commencement date, lease payments included in the measurement of a lease liability include: - fixed lease payments less any lease incentives receivable; - variable lease payments that depend on an index or a rate; - amounts expected to be payable by the Company under residual value guarantees; - the exercise price of the purchase option, if exercise of that option by the Company is reasonably certain; - fines for the termination of the lease, if it is assumed that the Company will exercise the option to terminate the lease during the lease term. Subsequent measurement of lease liability Subsequent to initial recognition, changes in the value of the Company’s lease liability are reflected by: - increasing the value of the liability by the amount of interest charged; - reducing the carrying amount by the lease payments made; - remeasuring the liability for lease modifications or revised payments. Remeasurement of lease liability Subsequent to initial recognition, the lease liability is remeasured to reflect changes in lease payments. The Company treats remeasurements as adjustments to the right-of-use assets. If the carrying amount of the right-of-use assets is reduced to zero and the lease liability is reduced as well, the Company recognises any remaining amount of the remeasurement in profit or loss. Revised discount rate The Company remeasures the lease liability by discounting the revised lease payments using the revised discount rate if the lease term changes. The Company calculates the revised lease payments on the basis of the revised lease term or whenever there is a change in the option to purchase the leased property, depending on events and circumstances, in the context of the option to purchase. In the event of a change in the lease term or a change in the assessment of a purchase option, the Company sets the revised discount rate as the lessee's incremental borrowing rate at the remeasurement date. Unchanged discount rate The Company determines the revised lease payments for the remaining lease term on the basis of the revised contractual payments. When discounting revised rents, the Company uses the unchanged discount rate unless lease payments change due to changes in variable interest rates. In this case, the Company uses a revised discount rate that reflects changes in the interest rate. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 105 Lease modifications The Company treats a lease modification as a separate lease if both of the following conditions are met: - the modification increases the scope of the lease by adding the right to use one or more underlying assets; and - the consideration for the lease increases by an amount equivalent to the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract. For a modification that is not a separate lease, at the effective date of the modification the Company: - allocates the consideration in the modified contract; - establishes the term of the modified lease; and - remeasures the lease liability by discounting the revised lease payments using the revised discount rate. When a lease modification is not accounted for as a separate lease, the Company accounts for the adjustment to the lease liability: - by decreasing the carrying amount of the right-of-use assets to reflect the full or partial termination of the lease due to lease modifications by which the scope of the lease is reduced. Any gain or loss related to a full or partial termination of the lease is recognised by the Company in profit or loss; - by making a corresponding adjustment to the right-of-use asset for all other lease modifications. The Company presents lease liabilities separately from other liabilities in the statement of financial position. Interest expenses related to lease liabilities are reported separately from the depreciation of the right-of-use assets. Interest expenses related to lease liabilities is a component of finance costs which is presented in the statement of comprehensive income. 2.14 Provisions Provisions are recognised only when the Company has a legal obligation or irrevocable commitment as a result of the past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, the amount of provision is discounted using the effective pre-tax discount rate set based on the interest rates for the period and taking into account specific risks associated with the provision as appropriate. Where discounting is used, the increase in the provision due to the passage of time is recognised as borrowing costs. 2.15 Employee benefits (a) Social security contributions The Company pays social security contributions to the state Social Security Fund (the “Fund”) on behalf of its employees based on the defined contribution plan in accordance with the local legal requirements. A defined contribution is a plan under which the Company pays fixed contributions into the Fund and will have no legal or constructive obligations to pay further contributions if the Fund does not hold sufficient assets to pay all employees benefits relating to employee service in the current and prior period. Social security contributions are recognised as expenses on an accrual basis and included in payroll expenses. (b) Bonus plans The Company recognises a liability and an expense for bonuses where contractually obliged or where there is a past practice that has created a constructive obligation. (c) Pension benefits to employees of retirement age Each employee of retirement age who terminates his/her employment with the Company upon retirement is entitled to receive a payment equal to 2 monthly salaries as stipulated in the Lithuanian laws. A liability for such payments is recognised in the balance sheet and it reflects the present value of these payments at the date of the financial statements. At each reporting date, the long-term employee benefit obligation is estimated with reference to actuary valuations using the projected relative unit method. The present value of the defined long-term employee benefit obligation is determined by discounting the estimated future cash flows using the effective interest rates as set for government debentures denominated in a currency in which payments to employees are expected to be made and with maturity similar to that of the related liability. 2.16 Congestion management revenue The Company acquires the right to congestion management revenue when different electricity market prices occur in Lithuania, Sweden, Poland and Latvia as a result of insufficient capacity of electricity lines. Revenue that was received as a result of price differences at different bidding areas is distributed equally by the power exchange operator (Nord Pool AS) to the transmission system operators of the countries which operate the interconnections. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 106 Regulation (EU) No 2019/943 of the European Parliament and of the Council of 5 June 2019 on conditions for access to the network for cross-border exchanges in electricity stipulates that congestion management revenue may be used for the following purposes: a) guaranteeing the actual availability of the allocated capacity of the interconnections; b) maintaining or increasing networks’ capacities through network investments, in particular in new interconnections; c) if revenue cannot be efficiently used for the purposes set out in points a) and/or b) they may be used, subject to approval by the regulatory authorities of the Member States concerned, up to a maximum amount to be decided by those regulatory authorities, as income to be taken into account by the regulatory authorities when approving the methodology for calculating network tariffs and/or fixing network tariffs. In line with the provisions of the EU Regulation, congestion management revenue is recognised in the following order of priority: a) When revenue is used for guaranteeing availability of the allocated capacity of the interconnections, it is recognised as income in the period during which the related expenses are incurred. In case of unplanned disconnection of the electricity interconnection and when the trade in the interconnection’s capacities has already been completed at the electricity exchange (i.e. when they have already been allocated), the operators of the line ensure that the capacities traded are available to the market participants. In such a case, the operators incur costs that arise as a result of the price difference between the price of electricity traded by the operators and the price of balancing and (or) imbalance electricity purchased/sold by the Company. b) When revenue is used for maintaining or increasing the interconnections’ capacities, congestion management revenue is accounted for using the accounting policies applicable to grants, i.e. initially congestion management revenue is recognised as liability and recorded by reducing the value of the asset concerned, and subsequently it is recognised by reducing depreciation expenses of the related asset over the useful life of that asset. c) When revenue is used for reducing the tariff, revenue is recognised as income in the period during which the Company generates lower revenue due to lower tariffs. As of May 2019, the account of the accumulated congestion management funds was linked to the EPSO-G Group account and is used to finance the Company's operations until there is no need to finance investments. Upon the receipt of the permission of the National Energy Regulatory Council (NERC), the Company and EPSO-G UAB concluded the group account (cashpool) agreement on 26 February 2021, under which free congestion management revenue is used for intercompany lending and borrowing purposes, therefore non-current and current portions of unused funds balance of congestion management revenue within assets were accounted for as loans granted in current assets. In the statement of financial position, the Company accounted unused congestion management revenue as non-current and current liabilities. 2.17 Right-of-use assets Right-of-use assets are assets that the Company has the right to manage during the lease term. As of 1 January 2019, the Company recognises right-of-use assets for all types of leases, including the lease of a right-of-use asset in case of sublease, but excluding leases of intangible assets, short-term leases and leases of low value assets. Initial measurement of right-of-use assets At the commencement date, the Company measures right-of-use assets at cost, which consists of: • the sum of the lease liabilities at the initial measurement; • initial direct costs incurred related to the underlying asset; • lease payments at the commencement date, less receive and receivable lease incentives; • expenditures which the Company incur dismantling and utilising leased assets, managing the place of the assets or restoring the leased assets as is anticipated in the agreement. The sum of the lease liabilities at the initial measurement is calculated as the present value of the lease not paid at the commencement Date, using the estimated discount rate of the agreement. Subsequent measurement of right-of-use assets After the initial recognition, the Company applies a cost method for right-of-use assets: the carrying amount of the asset at the respective date is calculated as the difference between the acquisition cost and the accumulated depreciation, plus any subsequent adjustments for the remeasurement of lease liability. The calculation of depreciation of right-of-use assets is started from the date on which the assets are transferred for the use (the commencement date) until the earlier of these dates: the end of the lease term and the end of the useful life. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 107 The Company calculates depreciation of right-of-use assets using the following rates: Land 99 years Motor vehicles from 2 to 4 years Buildings from 2 to 3 years Other property, plant and equipment from 2 to 3 years The useful life of right-of-use assets related to lease of land is established in view of standard validity terms of the land lease contracts. 2.18 Leases (The Company is a lessor) Operating lease income is recognised on a straight-line basis over the lease term. 2.19 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the Board of directors, which is strategic decision-maker for allocating resources and assessing performance of the operating segments. 2.20 Revenue and expense recognition The Company’s revenue comprises as follows: - Revenue from electricity transmission and related services; - Other income. Revenue is recognised when it is probable that economic benefits associated with a transaction will flow to the Company, and when a reliable estimate of the amount of revenue can be made. Revenue is measured at the fair value of the consideration received or receivable, net of value added tax and discounts. Revenue from electricity transmission and related services This group of the Company’s revenue comprises revenue from electricity transmission, provision of system services, trade in imbalance and balancing electricity, congestion revenue, revenue from connection of new consumers, PSO services and other revenue related to electricity transmission and system services. Revenue from contracts with customers comprises revenue from electricity transmission, system services, trade in imbalance and balancing electricity and revenue from connection of new consumers, PSO services and other revenue related services. The Company recognises revenue from contracts with customers over the reporting period in which the performance obligation is satisfied, i.e. the control of the good is transferred or the service is provided, except for revenue from connection of new consumers which is recognised by the Company over the useful life of the created asset (Note 2.12). When recognising other related to electricity transmission and system services income the Company takes into consideration the terms of contracts signed with customers and all significant facts and circumstances, including the nature, amount, timing and uncertainty relating to cash flows arising from the contract with the customer. The main sale contracts are signed for the term of one year and coincide with the reporting period. All subsequent value adjustments for previous periods are not made, and contract modifications are rare. Prices of the electricity transmission services are regulated by NERC which establishes the upper limits of the prices for the transmission service. Specific prices and tariffs for the transmission services are established by the Company’s Board within the limits approved by NERC. When establishing prices for the next year, deviations of the current year (the year not yet ended) and deviations of the previous year (the year that already ended) and various forecasts for the upcoming year are assessed, i.e. they increase or decrease the prices for the next year, i.e. the prices are not adjusted retrospectively. All possible price adjustments in the future periods for excess profit/higher loss incurred in the previous/current years are not treated as a variable part of the price under IFRS 15. Such decrease (due to excess profit earned) or increase (due to higher expenses incurred) in future revenue does meet the general accounting criteria for the recognition of liabilities or assets because it depends on the Company’s operations in the future and is treated as regulatory assets or liabilities and therefore, in the opinion of the Company’s management, it does not fall within the scope of IFRS 15. The Company purchases system services from the producers and later provides this service to the distribution network operators and electricity consumers using the tariff established by NERC. The Company recognises the gross amounts of revenue as it acts as a principal in the provision of system services. PSO service funds are the fees paid to the suppliers of electricity under the public service obligations scheme, with the list of such suppliers established by the Lithuanian Government or other institution authorised by it. The annual quantities of PSO funds are established by NERC. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 108 PSO service funds allocated by NERC are accounted for by the Company as grants related to income as they are designated to compensate for the loss of revenue from services provided by electricity producers using renewable energy sources. Such grants are recognised as income: - PSO service funds allocated by NERC to the Company for balancing electricity produced from the renewable energy resources. - when NERC allocates PSO service funds to the Company for the connection of electricity generation installations using wind, biomass, solar energy or hydro energy in the process of electricity generation to transmission networks, for the optimisation, development and/or reconstruction of transmission networks in relation to acceptance and transmission of electricity from producers using the renewable energy resources. Other income Interest income is recognised on accrual basis considering the outstanding balance of debt and the applicable interest rate. Interest received is recorded in the statement of cash flows as cash flows from investing activities. Gain from disposal of property, plant and equipment, lease income, income from default charges and fines collected from the contractors as a result of late fulfilment of work, including tangible fixed assets under construction, are recognised by the Company as other income. Default charges and fines collected from the contractors as a result of late fulfilment of work are calculation upon the completion of a project or a stage thereof and upon notifying a supplier, and they are offset against the supplier’s debt. In case of a legal dispute over the amount of default charges or fines and when it is more likely than unlikely that the amounts of default charges or fines will be reduced or annulled, provisions are recognised. Dividend income is recognised when the right to receive payment is established. Recognition of expenses Expenses are recognised in the statement of comprehensive income as incurred by the accrual method. 2.21 Borrowing costs Borrowing costs that are directly attributable to the production, getting ready for use or sale of an asset that necessarily takes a substantial period of time to produce, get ready for its intended use or sale, are capitalised as part of the cost of that asset until the asset is ready for use or sale in full. Interest income related to temporary investment of borrowed funds until their use for the acquisition of the assets are deducted from the acquisition cost of the assets. Other borrowing costs are recognised as expenses in the statement of comprehensive income as incurred. 2.22 Income tax Income tax expenses for the period comprises the current year income tax and deferred income tax expenses. Income tax Income tax expenses for the current year are calculated on the current year profit before tax, as adjusted for certain non- deductible expenses/non-taxable income. Income tax is calculated using the tax rate effective as at the date of issue of the financial statements. Income tax rate was 15% in 2021 and 2020. Tax losses can be carried forward for an indefinite period, except for the losses incurred as a result of disposal of securities and/or derivative financial instruments. Such carrying forward is disrupted if the Company changes its activities due to which these losses were incurred except when the Company does not continue its activities due to reasons which do not depend on the Company itself. The losses from disposal of securities and/or derivative financial instruments can be carried forward for 5 consecutive years and only be used to reduce the taxable income earned from the transactions of the same nature. Tax losses carried forward can be used to reduce the taxable income earned during the reporting year by a maximum of 70%. In addition, the Company can take over tax losses of the group companies if the requirements laid down in the Law on Corporate Income Tax are met. Deferred income tax Deferred income tax is accounted for using the balance sheet liability method. Deferred income tax assets and deferred tax liability are recognised for future tax purposes to reflect differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax liabilities are recognised on all temporary differences that will increase the taxable profit in future, whereas deferred income tax assets are recognised to the extent it is probable that they will reduce the taxable profit in future. Deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting, nor taxable profit or loss. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 109 Deferred income tax assets are reviewed at each reporting date and if it is not probable that the Company will generate sufficient taxable profit to realise these assets, they are reduced to an amount which is likely to reduce the taxable profit in future. Deferred income tax assets and liabilities are estimated using the tax rate that has been applied when calculating income tax for the year when the related temporary differences are to be realised or settled. Deferred income tax assets and liabilities are offset only where they relate to income taxes assessed by the same fiscal authority or where there is a legally enforceable right to offset current tax assets and current tax liabilities. Current income tax and deferred income tax Current income tax and deferred income tax are recognised as income or expenses and included in net profit or loss for the reporting period, except for the cases when tax arises from a transaction or event that is recognised directly in equity or in other comprehensive income, in which case taxes are also recorded in equity and in other comprehensive income respectively. 2.23 Earnings per share Earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary registered shares issued. The Company has no dilutive share options, therefore, basic and diluted earnings per share do not differ. 2.24 Related parties Parties are considered to be related if: a) A person or a close member of that person’s family is related to a reporting entity if that person: 1) has control or joint control of the reporting entity; 2) has significant influence over the reporting entity; or 3) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity; b) An entity is related to a reporting entity if any of the following conditions applies: 1) The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others); 2) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member); 3) Both entities are joint ventures of the same third party; 4) One entity is a joint venture of a third entity and the other entity is an associate of the third entity; 5) The entity is controlled or jointly controlled by a person identified in point a; 6) A person identified in subpoint 1) of point a has a significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); 7) The entity, or any member of a group of which it is a part, provides key management personnel services to the reporting entity or to the parent of the reporting entity. 2.25 Contingencies Contingent liabilities are not recognised in the financial statements. They are disclosed in the financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the financial statements but disclosed when an inflow of income or economic benefits is probable. 2.26 Events after the end of the reporting period Events after the end of the reporting period that provide additional information about the Company’s position at the date of the financial statements (adjusting events) are disclosed in the financial statements. Events after the end of the reporting period that are not adjusting events are disclosed in the notes when material. 2.27 Intercompany offsetting For the purpose of the financial statements, assets and liabilities, income and expenses are not offset, except for the cases when such offsetting is specifically required by an individual standard. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 110 2.28 Fair value measurement Fair value is the amount for which parties of agreement are willing to sell asset or services or transfer liability under usual market conditions on the day when the value is set. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: in the principal market for this asset or liability, or in the absence of a principal market, in the most advantageous market for this asset or liability. The principal or the most advantageous market must be available to the Company. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 — Quoted (unadjusted) prices in active markets for identical assets or liabilities; Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable in the market. For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. Valuations are performed by the management at each reporting date. For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of assets or liabilities and the level of the fair value hierarchy as explained above. In the financial statements as at 31 December 2021 and 2020, the Company did not have significant assets or liabilities measured or re-measured at fair value, except for financial assets measured at fair value through other comprehensive income (Notes 2.6 and 9) and property, plant and equipment (Notes 2.4 and 6). The Company’s principal financial assets not at fair value comprise cash and cash equivalents, trade and other receivables, trade and other payables and borrowings. Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. The fair value of a financial asset is not less than the amount discounted from the first day, on which payment may be required. 3. Accounting estimates and assumptions Significant accounting estimates and assumptions The preparation of financial statements according to International Financial Reporting Standards requires management to make estimates and assumptions that affect the accounting policies applied, the reported amounts of assets, liabilities, income and expenses, and the disclosures of contingencies. Actual results may differ from those estimates. The significant management estimates and assumptions and the main sources for uncertainties used in the preparation of these financial statements that might cause substantial changes in the carrying amounts of the related assets and liabilities in the next financial year are described below: Valuation of property, plant and equipment As described in Note 6, the Company tested the value of property, plant and equipment to determine whether it is consistent with its fair value. The determination of the assets’ fair value is mainly affected by assumptions used in assessing the transmission service income for the future periods. The assumptions used in determining the fair value of property, plant and equipment are described in more detail in the above-mentioned note. Depreciation rates of property, plant and equipment The useful life of property, plant and equipment is determined separately for each item (component) of the asset by estimating future economic benefit in view of the expected period of use in the Company’s activities, the intensity of use, the environment of use, changes in the asset’s original standard performance over its entire useful life, technological and economic progress morally outdating the asset, legal and similar factors restricting the useful life of property, plant and equipment. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 111 Useful lives are reviewed annually to ensure that the depreciation period would correspond to the expected useful life of property, plant and equipment. The effect of changes in estimates, if any, is accounted for on a prospective basis. Congestion management revenue Based on the accounting policies described in Note 2.16, accounting for congestion management revenue depends on the purpose for which revenue is used. These purposes are described in Regulation (EU) No 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity. The Company estimates that a congestion revenue balance as at 31 December 2021 will be used to finance investments into the projects, including the synchronisation projects, agreed with NERC by 2025. Deferred income tax assets arising from congestion revenue will be realised over the useful life of the asset acquired using congestion revenue. In the long term, the regulation ensures the Company’s profitability, therefore, in the management’s opinion, deferred income tax assets will be realised in the future by reducing income tax. Measurement of statutory servitudes Statutory servitudes comprise the Company’s rights to use the land plots owned by third parties in which before 10 July 2004 electricity networks were installed on the basis of statutory servitudes. The indefinite use life is established because the rights to use the predefined lands plots are granted for an unlimited period of time according to the provisions of the agreement on payments of servitude and point 4.130 of the Civil Code. According to the requirements of IAS 37 a provision for non-current liabilities is also established with respect to this intangible asset as described in Notes 5 and 23. Upon the change in the value of intangible assets, this change is accounted for by reducing/increasing the value of servitude assets. Assets and liabilities with respect to statutory servitudes were recognised by taking into consideration: ● expected settlement time and the number of applicants; ● expected compensation amount using a 0.1 coefficient set out in the methodology; ● effective discount rate - a borrowing rate for similar liabilities. Each year or in cases when there are indications of impairment, the Company tests intangible assets related to statutory servitudes for possible impairment by comparing their recoverable value with the carrying amount taking into consideration: ● expected number of applications to be received by analysing the number of compensations already calculated, paid and rejected according to the applications received; ● expected amount of compensations referring to the amounts of compensations paid according to the applications received and using the coefficients provided in the methodology: 0.1-96% of applications expected to be received assuming that the electricity distribution equipment was installed before 10 March 1990 and the ownership right to the land was acquired at the time when the predefined land use limitations already existed; 0.5-one third of 4% of applications expected to be received assuming that the electricity distribution equipment was installed after 10 March 1990; 0.1-two thirds of 4% of applications expected to be received assuming that the electricity distribution equipment was installed after 10 March 1990; ● effective discount rate - a borrowing rate for similar liabilities; ● amount of compensations paid. Measurement of protection zones A protection zone means a territory set by Law designated for the protection of the electricity transmission network installed on the land plot not owned and in which special land use conditions are applied. Certain limitations or prohibitions of economic activities in the predefined protection zone for an indefinite period. Under the Law on Special Land Use Conditions that became effective from 2020 the Company has the obligation to register the protection zones established for the protection of operated engineering networks by 31 December 2022. The initial provision, as intangible assets and non-current liability, was established based on the amendments to the provisions of the property cadastre adopted in 2020 that are necessary for the obligation established by the Lithuanian Law on Special Land Use Conditions to form the register of protection zones by 1 December 2022 and taking into consideration the description of the procedure for the setting up and approval of protection zones approved by Order No 1 -339 of the Minister of Energy of the Republic of Lithuania of 13 October 2020. The provision was calculated, as described in Notes 5 and 23, by estimating: ● expenses expected to be incurred for the formation of protection zones and fees for the registration of entries multiplying them by the number of protection zones; ● effective discount rate - a borrowing rate for similar liabilities. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 112 In 2021, the Company revised the established provision in consideration of: ● expenses expected to be incurred for the formation of protection zones and fees for the registration of entries multiplying them by the number of protection zones according to the information on already effected purchases of services; ● effective discount rate - a borrowing rate for similar liabilities. 4. Impact of COVID-19 on key accounting estimates and assumptions The main areas considered by the Company’s management when assessing the effect of the coronavirus (COVID-19) are presented below. Going concern basis In line with the declaration of a state of emergency in Lithuania due to the threat of the spread of COVID-19, already during the first wave of COVID-19 LITGRID AB reviewed and implemented additional business continuity and preventive measures. The Company’s activities are regulated by the state authorities and it is the sole enterprise in Lithuania that provides electricity transmission services, therefore no threat arises for the Company’s ability to continue its business activities. Impairment of property, plant and equipment The management reviewed the main assumptions used for the measurement of the fair value of property, plant and equipment. The management estimates that the COVID-19 pandemic will not significantly affect the value of the Company’s non-current assets because the assets are measured using the income method by applying the discounted cash flow calculation technique and the Company’s activities are regulated, and possible short-term changes in services rendered and revenue are assessed and compensated in the upcoming year. Other accounting estimates Based on the management’s estimates, at the present time the COVID-19 pandemic has no impact on trade and other amounts receivable because the main clients are the large enterprises that are often also regulated and/or are not included into the list of companies with risk (around 64% of trade receivables comprise amounts receivable from the companies of Ignitis Grupė AB). The Company has entered into the credit insurance agreement for amounts receivable under the transmission and imbalance contracts. In addition, the participants of the imbalance market have provided the bank guarantees of the established amount or have paid deposits. At the time of preparation of the financial statements settlements were conducted as usual. There were no overdue payments arising from COVID-19. The COVID-19 pandemic has no impact on the repayment of the Company’s borrowings as cash flows generated by the Company are sufficient to ensure the fulfilment of financial liabilities. The Company operates in one of the state’s strategic and most secure sectors. Services provided by the Company are necessary and regulated based on the monopoly principle. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 113 5. Intangible assets Patents and licences Computer software Other intangible assets Statutory servitudes and protection zones Total At 31 December 2019 Acquisition cost 507 6,763 110 1,600 8,980 Accumulated amortisation (396) (3,716) (11) - (4,123) Net book amount 111 3,047 99 1,600 4,857 Net book amount at 31 December 2019 111 3,047 99 1,600 4,857 Additions 11 433 - 1,909 2,353 Reclassification between categories 82 (99) 17 - - Value adjustment due to a change in assumptions - - - 165 165 Amortisation charge (93) (1,007) (27) - (1,127) Net book amount at 31 December 2020 111 2,374 89 3,674 6,248 At 31 December 2020 Acquisition cost 600 7,087 127 3,674 11,488 Accumulated amortisation (489) (4,713) (38) - (5,240) Net book amount 111 2,374 89 3,674 6,248 Net book amount at 31 December 2020 111 2,374 89 3,674 6,248 Additions 21 1,025 - - 1,046 Reclassifications from PP&E - - 37 - 37 Reclassification between categories 4 (182) 178 - - Value adjustment due to a change in assumptions - - - (1,188) (1,188) Amortisation charge (75) (1,059) (57) - (1,191) Net book amount at 31 December 2021 61 2,158 247 2,486 4,952 At 31 December 2021 Acquisition cost 624 7,931 342 2,486 11,383 Accumulated amortisation (563) (5,773) (95) - (6,431) Net book amount 61 2,158 247 2,486 4,952 * As at 31 December 2021, a provision for statutory servitudes amounted to EUR 840 thousand (assumptions used according to the methodology described in Note 3: number of applications expected to be received - 830, an average compensation amount per application - EUR 229, discount rate - 0.62%), and as at 31 December 2020, the provision amounted to EUR 1,765 thousand (assumptions used according to the methodology described in Note 3 : number of applications expected to be received - 2,716, an average compensation amount per application - EUR 279, discount rate - 0.62%). * As at 31 December 2021, a provision for protection zones amounted to EUR 1,646 thousand (assumptions used according to the methodology described in Note 3: expected value of services according to purchases effected, discount rate - 0.62%), and as at 31 December 2020, the provision amounted to EUR 1,909 thousand (assumptions used according to the methodology described in Note 3: expected value of services according to conducted surveys of the potential suppliers, discount rate - 0.62%). NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 114 6. Property, plant, and equipment Land Buildings Structures and machinery Other property, plant and equipment Construc- tion in progress Total At 31 December 2019 Acquisition cost 520 18,054 295,944 10,828 14,960 340,306 Accumulated amortisation - (460) (16,611) (1,795) - (18,866) Accumulated impairment - - - - (239) (239) Net book amount 520 17,594 279,333 9,033 14,721 321,201 Net book amount at 31 December 2019 520 17,594 279,333 9,033 14,721 321,201 Additions - - 173 1,501 51,172 52,846 Prepayments for PP&E - - - - (1,160) (1,160) Write-offs - - (811) (2) - (813) Impairment - - (233) - 250 17 Reclassification to inventories - - - (12) - (12) Reclassification between categories 388 853 17,740 1,279 (20,260) - Off-set of connection revenue against non- current assets - - (733) - - (733) Off-set of grants against non-current assets - - - - (20,714) (20,714) Depreciation charge - (560) (16,458) (1,905) - (18,923) Net book amount at 31 December 2020 908 17,887 279,011 9,894 24,009 331,709 At 31 December 2020 Acquisition cost 908 18,907 312,238 13,594 24,009 369,656 Accumulated amortisation - (1,020) (32,994) (3,700) - (37,714) Accumulated impairment - - (233) - - (233) Net book amount 908 17,887 279,011 9,894 24,009 331,709 Net book amount at 31 December 2020 908 17,887 279,011 9,894 24,009 331,709 Additions - 54 903 778 51,242 52,977 Prepayments for PP&E - - - - 3,641 3,641 Write-offs - - (1,965) - - (1,965) Reclassification to inventories - - - (171) 47 (124) Transfer to intangible assets - - - - (37) (37) Reclassification between categories (388) 1,823 23,883 1,063 (26,381) - Off-set of connection revenue against non- current assets - (54) (958) (74) - (1,086) Off-set of grants against non-current assets - - - - (27,210) (27,210) Depreciation charge - (551) (17,379) (1,924) - (19,855) Net book amount at 31 December 2021 520 19,159 283,495 9,566 25,311 338,051 At 31 December 2021 Acquisition cost 520 20,731 333,194 15,189 25,311 394,945 Accumulated amortisation - (1,572) (49,466) (5,623) - (56,661) Accumulated impairment - - (233) - - (233) Net book amount 520 19,159 283,495 9,566 25,311 338,051 Write-offs mainly represent derecognition of replaced parts of the assets during reconstruction. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 115 Prepayments for property, plants, and equipment (PP&E): 2021 2020 Carrying amount at the beginning of the period 906 2 066 Prepayments for PP&E 6 828 1 566 Transferred to construction work in progress (3 187) (2 726) Carrying amount at the end of the period 4 547 906 Interest capitalised at the Company during the period ended 31 December 2021 amounted to EUR 46 thousand (EUR 49 thousand during the period ended 31 December 2020). The annual interest rate of capitalisation was 1.14% during the period ended 31 December 2021 (1.15% during the period ended 31 December 2020). In 2021, major investments were made in the strategic projects of national significance (around 62%) (2020: around 61%) and in the projects on the restoration and modernisation of the electricity transmission networks (around 26%) (2020: around 24%). The Company performed the last revaluation of its property, plant and equipment on the basis of valuation of its property, plant and equipment as at 31 December 2018. During 2021, the following significant regulatory decisions that could affect the value of assets were adopted: the adjusted LRAIC model was approved (a negative impact on the value of the assets compared to the 2020 LRAIC model), an additional component was established for the financing of investments (a positive impact on the value of the assets) and the updated methodology for the determination of the rate of return on investments was approved (a positive impact on the value of the assets). The Company performed the valuation of property, plant and equipment (including construction in progress) as at 31 December 2021 and 31 December 2020 and established that the carrying amount of the assets within the materiality limits corresponds to their fair value. The valuation corresponded to Level 3 of the fair value hierarchy (Note 2.28), it was performed using the Company’s internal resources and not engaging an independent external valuer. The Company estimated the fair value of the assets as at 31 December 2020 and 31 December 2021 under the income method using the discounted cash flows calculation technique. The value of assets was determined as the present value of net future cash flows. The Company assesses the assets as a business, but its assessment excludes all activities related to the transmission network development (and not related to the present assets being assessed), i.e. investments in development projects, connection of new consumers/producers, grants to development projects. The value of the assets as at 31 December 2021 was calculated using the following main assumptions: • The updated LRAIC model is applied in the regulatory pricing from 2022 setting the regulatory asset base and capital costs. Capital costs consist of amortization expenditures of regulatory assets and return on investment, which is calculated multiplying regulatory asset base with a rate of return on investment. During 5 years of regulatory period the capital costs under optimisation (planned to be restored) are determined using the present (replacement) value and investments in the optimised assets during the regulatory 5 years period are consistent with the replacement value of assets calculated under the LRAIC model. Capital costs of non-optimised assets are calculated using historical value. Furthermore, taking into consideration available financing sources and aiming to retain a sustainable level of the Company’s debt, an additional component was established for the financing of investments increasing the level of revenue from regulated activities. • The amounts of investments until 2031 from the ten-year investment plan adjusted according to the actual data with all development investments eliminated from it. • All operating expenses attributable to the regulated activities are compensated through transmission revenue, except for the compensation of remuneration expenses, the compensation assumption of which is 92-95%. • The refund of the 2018-2021 investment return and the result of the system services in excess of the amount permitted by NERC (excess profit), following the assessment of efficient saving of operating expenses that increases the permitted investment return, to the network consumers (lower transmission price and revenue) was estimated when calculating the 2022- 2024 cash flows. • The rate of return on investments (WACC before tax) is equal to 4.03% for 2022-2026 (equivalent to a 3.42% WACC after tax) and from 2027 it is the same as the discount rate, i.e. 4.09% (equivalent to a 3.48% WACC after tax). In the calculations of the assets’ value as at 31 December 2020 – the rate of return on investments (WACC before tax) was equal to 3.92% for 2022-2026 (equivalent to a 3.34% WACC after tax), and from 2027 it is the same as the discount rate, i.e. 4.17% (equivalent to a 3.55% WACC after tax). ● Net cash flows generated from the assets were discounted using the discount rate calculated by the Company (WACC after tax) which was equal to 3.48%. As at 31 December 2020, net cash flows generated from the assets were discounted using the discount rate calculated by the Company (WACC after tax) which was equal to 3.55%. As at 31 December 2021, the Company’s commitments to be fulfilled in the upcoming periods for the purchase of property, plant and equipment amounted to EUR 150,653 thousand (31 December 2020: EUR 35,093 thousand). NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 116 The table below presents the net book amounts of the Company’s property, plant and equipment, which would have been recognised had the historical cost method been used as at 31 December 2021 and 31 December 2020: Land Buildings Structures and machinery Other property, plant and equipment Construction work in progress Total At 31 December 2021 520 19,448 397,230 9,635 20,765 447,598 At 31 December 2020 908 18,190 405,553 10,000 23,102 457,753 Property, plant, and equipment is stated at acquisition cost, less grants received/receivable for the acquisition of property, property, plant, and equipment. Grants comprise financing from the EU support funds, a portion of congestion management revenue designated for the financing of investments, payments for the expenses incurred during the connection of producers to the transmission network and performance of works for the relocation/reconstruction of the transmission network’s installations initiated by customers. Had the value of property, plant and equipment not been reduced by the amount of grants, its carrying amount would have been EUR 334,264 thousand higher as at 31 December 2021 (31 December 2020: EUR 315,178 thousand). The following table shows information on property, plant and equipment, the value of which was reduced by the amount of grants received/receivable: 2021 2020 Carrying amount at the beginning of the period 315,178 302,254 Additions 28,296 21,447 Depreciation (9,141) (8,451) Write-offs (11) (72) Carrying amount at the end of the period 334,322 315,178 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 117 7. Right-of-use assets As indicated below, the Company leases land, office premises, motor vehicles and other property, plant and equipment. The lease terms of the lease contracts (except for the lease of land) is 2-4 years. The lease terms of the land lease contracts is 99 years. When recognising right-of-use assets and lease liabilities and determining the lease terms the Company assessed extension and early termination options of the lease contracts. The Company’s right-of-use assets comprise as follows: Land Buildings Motor vehicles Other property, plant and equipment Total At 31 December 2019 Acquisition cost 4,465 25 684 138 5,312 Accumulated depreciation (45) (12) (202) (49) (308) Net book amount 4,420 13 482 89 5,004 Net book amount at 31 December 2019 4,420 13 482 89 5,004 Additions - 47 59 - 106 Write-offs - - - (11) (11) Depreciation charge (45) (13) (197) (49) (304) Net book amount at 31 December 2020 4,375 47 344 29 4,795 At 31 December 2020 Acquisition cost 4,465 47 714 127 5,353 Accumulated depreciation (90) - (370) (98) (558) Net book amount 4,375 47 344 29 4,795 Net book amount at 31 December 2020 4,375 47 344 29 4,795 Additions - - 6 - 6 Depreciation charge (45) (16) (202) (29) (292) Net book amount at 31 December 2021 4,330 31 148 - 4,509 At 31 December 2021 Acquisition cost 4,465 47 720 - 5,232 Accumulated depreciation (135) (16) (572) - (723) Net book amount 4,330 31 148 - 4,509 The contracts for the lease of motor vehicles will expire in 2022. A new public tender for the lease of motor vehicles will be organised using the criteria of green procurements. 8. Loans granted At 31 December 2021 At 31 December 2020 Loan to TETAS UAB - 1,000 Loan to EPSO-G UAB (under the cashpool agreement) 43,594 - Carrying amount 43,594 1,000 On 25 June 2018, the Company granted the loan of EUR 1 million to TETAS UAB, which was repaid by TETAS UAB on 1 July 2021. The loan of EUR 1,203 thousand granted on 25 October 2017 was repaid by TETAS UAB on 23 October 2020. The amount of loans granted to TETAS UAB amounted to EUR 0 as at 31 December 2021 (31 December 2020: EUR 1,000 thousand). Upon the receipt of the permission of NERC, the Company and EPSO-G UAB concluded the group account (cashpool) agreement on 26 February 2021. The agreement establishes the possibility to use free congestion management revenue for intercompany lending and borrowing purposes. Due day of agreement is 26 February 2022. There is a possibility to prolong the agreement two times by 12 months with fixed interest rate of 0%, which corresponds market conditions. Under the cashpool agreement and loan agreement the positive funds balance of the company transferred for the disposal of EPSO-G UAB in the statement of financial position is accounted as amounts receivable (loans granted) and is not included in the line item of cash and cash equivalents. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 118 9. Financial assets The Company’s financial assets measured at fair value through comprehensive income comprise shares of TSO Holding AS: At 31 December 2021 At 31 December 2020 TSO HOLDING AS (2%) 781 1,089 Total 781 1,089 On 15 January 2020, the Company together with other shareholders of Nord Pool Holding AS, i.e. TSOs of the Nordic and Baltic countries, through a jointly controlled entity TSO HOLDING AS (the Company holds 2% of shares) sold 66% of shares of Nord Pool Holding AS to Euronext. The fair value of investment was set according to this transaction. The fair value of later periods will be set according to dividends received. After the receipt of dividends of EUR 307 thousand from TSO Holding AS in 2021, the Company adjusted the value of shares of TSO Holding AS by the same amount: accounted for EUR 307 thousand in operating expenses. After the receipt of dividends of EUR 895 thousand from TSO Holding AS in 2020, the Company adjusted the value of shares of TSO Holding AS by the same amount: accounted for EUR 834 thousand in operating expenses and EUR 61 thousand in other comprehensive income and reduced the revaluation reserve. At 31 December 2021 the fair value of shares of TSO HOLDING AS corresponded to Level 2 of the fair value hierarchy when the value was determined on the basis of the transactions performed in 2020. 10. Inventories The Company’s inventories comprise as follows: At 31 December 2021 At 31 December 2020 Materials, spare parts and other inventories 180 186 Less: impairment (173) (160) Carrying amount 7 26 Movements in write-down allowance for inventories in 2021 and 2020 are indicated below: 2021 2020 Carrying amount at 1 January 160 278 Change in impairment 13 (118) Carrying amount at 31 December 173 160 In 2021 and 2020, the Company established additional provisions for inventory write-down to net realisable value in relation to inventories stored at the warehouse and not moving or slow moving inventories and accounted for in operating expenses in the statement of comprehensive income. The Company’s inventories recognised as expenses in 2021 amounted to EUR 316 thousand (2020: EUR 218 thousand). 11. Trade receivables under contracts with customers Trade receivables under contracts with customers comprise as follows: At 31 December 2021 At 31 December 2020 Amounts receivable for electricity transmission and related services 49,776 22,766 Accumulated amounts receivable for electricity services 732 333 Less: expected credit losses of trade receivables (45) (155) Carrying amount 50,463 22,944 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 119 As at 31 December 2021, amounts receivable for electricity transmission and related services increased compared to 31 December 2020 because the price of balancing services increased 4.5 times as at 31 December 2021 compared to December 2020 and the volume increased by 72%. The fair value of trade receivables under contracts with customers approximates their carrying amount. In 2021, the Company restored a EUR 110 thousand of expected credit losses with regard to amounts paid (31 December 2020: EUR 108 thousand). 12. Trade receivables Trade receivables comprise as follows: At 31 December 2021 At 31 December 2020 Amounts receivable for electricity transmission and related services 143 388 Congestion management revenue receivable 3,741 737 PSO funds receivable 3,189 516 Other trade receivables 3,127 570 Carrying amount 10,200 2,211 The fair value of trade receivables approximate their carrying amount. 13. Other amounts receivable Other amounts receivable comprise as follows: At 31 December 2021 At 31 December 2020 Grants receivable 9,900 3,191 Other amounts receivable 92 116 Less: impairment of other receivables (23) (23) Carrying amount 9,969 3,284 The fair value of other amounts receivable approximates their carrying amount. 14. Other financial assets At 31 December 2021 At 31 December 2020 Funds deposited for guarantees 3,000 700 Deposits received (Note 28) 2,359 919 Carrying amount 5,359 1,619 The fair value of other financial assets as at 31 December 2021 and 2020 approximated their carrying amount. 15. Cash and cash equivalents At 31 December 2021 At 31 December 2020 Cash at bank 1,819 33 Carrying amount 1,819 33 The fair value of cash and cash equivalents approximates their carrying amount. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 120 16. Share capital and share premium As at 31 December 2021 and 31 December 2020, the Company’s share capital amounted to EUR 146,256,100.20 and it was divided into 504,331,380 units of ordinary registered shares with the nominal value of EUR 0.29 each. All the shares have been fully paid. Share premium represents a difference between the nominal value of shares and consideration received for shares, they were formed in 2010 and amount to EUR 8,579 thousand. Capital management Capital consists of the equity capital disclosed in the statement of financial position. According to the Law on Companies of the Republic of Lithuania, the equity of the Company must account for at least ½ of the amount of the authorised share capital. The Company complied with this requirement as at 31 December 2021 and 31 December 2020. No other external capital requirements have been imposed on the Company. Dividends are allocated pursuant to the approved dividend policy, under which dividends payable are directly linked with the effective use of the company’s equity, i.e. the higher benefits created by the Company for the shareholders are, the larger portion of profit can be allocated by the Company for a further development or implementation of other significant projects. The Company’s main objectives when managing capital are to safeguard the Company’s ability to continue as a going concern. In order to maintain or change the capital structure, the amount of dividends to be paid to the shareholders may be adjusted, capital may be returned to the shareholders, or new shares may be issued. 17. Legal reserve, reserve for changes in fair value of financial assets and other reserves Legal reserve A legal reserve is a compulsory reserve under the Lithuanian legislation. The legal reserve should not be less than 10% of the authorised share capital and can only be used to cover the Company’s losses only. The legal reserve accumulated by the Company complies with the requirements of the legal acts of the Republic of Lithuania and represents 10% of the authorised share capital. Reserve for changes in fair value of financial assets The reserve of changes in fair value of financial assets arises from revaluation of financial assets due to the value increase. In accordance with the Lithuanian legislation, this reserve can be used to increase the share capital. However, this reserve cannot be used to reduce losses. Other reserves Other reserves are formed based on the decision of shareholders and can be redistributed on the distribution of the next year’s profit. The Ordinary General Meeting of Shareholders of LITGRID AB held on 20 April 2021 approved the proposed profit appropriation and resolved to transfer EUR 8,890 thousand from profit to be appropriated to other reserves. The Ordinary General Meeting of Shareholders of LITGRID AB held on 20 April 2020 approved the proposed profit appropriation and resolved to transfer EUR 45 thousand from profit to be appropriated to other reserves. 18. Dividends The Ordinary General Meeting of Shareholders of LITGRID AB held on 20 April 2021 adopted the decision to pay dividends of EUR 16,542,069. Dividends per share amounted to EUR 0.0328. The Ordinary General Meeting of Shareholders of LITGRID AB held on 20 April 2020 adopted the decision to pay dividends of EUR 4,085,084. Dividends per share amounted to EUR 0.0081. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 121 19. Grants The grants at the Company are mainly designated for the acquisition of non-current assets. Movements in grants in 2021 and 2020 were as follows: 2021 2020 Carrying amount at 1 January - - Grants received and grants received in advance 22,496 9,788 Transfer from grants to grants received in advance (Note 27) (9,705) (80) Transfer from grants received in advance to grants (Note 27) 4,756 - Grants receivable (Note 13) 9,900 3,191 Transfer from grants receivable (Note 13) (3,191) - Congestion revenue (Note 22) 2,954 8,005 Assets received after connections (Note 6) 1,086 733 Transfer to property, plant and equipment (Note 6) (28,296) (21,447) Grants used for compensation of expenses - (190) Carrying amount at 31 December - - * Grants received in advance related to the acquisition of non-current assets are stated as non-current liabilities until the moment of acquisition of such assets (Note 2.11). ** the assets are created by the customer and transferred to the Company free of charge, the assets received from the third parties are offset against the value of the assets (Note 2.12). 20. Borrowings The Company’s borrowings comprise as follows: At 31 December 2021 At 31 December 2020 Non-current borrowings Bank borrowings 51,452 65,677 Current borrowings Current portion of non-current borrowings 14,225 14,225 Total borrowings 65,677 79,902 Non-current borrowings grouped by maturity profile: At 31 December 2021 At 31 December 2020 From 1 to 2 years 14,225 14,225 From 2 to 5 years 19,227 29,452 After 5 years 18,000 22,000 Total 51,452 65,677 As at 31 December 2021 and 2020, no assets were pledged as collateral by the Company. As at 31 December 2021 and 31 December 2020, the weighted average interest rate on the Company’s borrowings was 0.97%. As at 31 December 2021, the outstanding balance of the Company’s borrowings with the fixed interest rate amounted to EUR 46.57 million (31 December 2020: EUR 52.71 million). As at 31 December 2021 and 2020, the Company had no unwithdrawn borrowings or overdrafts. Under the loan agreements signed with the Nordic Investment Bank and the European Investment Bank, the Company is committed to comply with the net debt to EBITDA ratio, which should not exceed 6.5 in 2021 and 6.5 in 2020. The outstanding balance of non-current borrowings, which are subject to this requirement, from the Nordic Investment Bank amounted to EUR 19,106 thousand as at 31 December 2021 (31 December 2020: EUR 27,188 thousand), and the outstanding balance of non-current borrowings, which are subject to this requirement, from the European Investment Bank amounted to EUR 46,571 thousand as at 31 December 2021 (31 December 2020: EUR 52,714 thousand). As at 31 December 2021 and 31 December 2020, the Company complied with the requirement laid down in the loan agreements. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 122 In addition, under the above-mentioned loan agreements with both banks, the Company is committed to comply with interest coverage ratio, which should be above 3. The Company complied with this requirement. Reconciliation of net debt balances and cash flows from financing activities in 2021 and 2020: At 31 December 2021 At 31 December 2020 Cash and cash equivalents 1,819 33 Non-current borrowings (51,452) (65,677) Lease liabilities (4,414) (4,590) Current portion of non-current borrowings (14,225) (14,225) Current portion of lease liabilities (180) (267) Net debt (68,452) (84,726) Cash and cash equivalents 1,819 33 Net debt with fixed interest rate (46,571) (52,714) Net debt with variable interest rate (23,700) (32,045) Net debt (68,452) (84,726) Cash Borrowings Leases Total Net debt as at 31 December 2019 30 (94,128) (5,041) (99,139) Acquisition of leases - - (106) (106) Increase in cash and cash equivalents 3 - - 293 Repayment of borrowing - 14,226 - 14,226 Net debt as at 31 December 2020 33 (79,902) (4,857) (84,726) Acquisition of leases - - (6) (6) Increase/(decrease) in cash and cash equivalents 1,786 - 269 2,055 Repayment of borrowing - 14,225 14,225 Net debt as at 31 December 2021 1,819 (65,677) (4,594) (68,452) 21. Lease liabilities The Company’s lease liabilities and their movements: 2021 2020 Carrying amount at the beginning of the period 4,857 5,041 Concluded lease contracts 6 106 Restatement - (12) Expenses of interest charged 64 66 Lease payments (principal and interest) (333) (344) Carrying amount at the end of the period 4,594 4,857 Non-current lease liabilities 4,414 4,590 Current lease liabilities 180 267 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 123 The Company’s lease liabilities comprise as follows: At 31 December 2021 At 31 December 2020 Current portion 180 267 Repayment terms of non-current liabilities: From 1 to 2 years 44 177 From 2 to 3 years 22 44 From 3 to 5 years 46 45 After 5 years 4,302 4,324 Total 4,594 4,857 The Company’s interest calculated on lease liabilities and included in finance costs amounted to EUR 64 thousand in 2021 (2020: EUR 66 thousand). The Company’s short-term lease (up to 12 months) and low value lease (up to EUR 4,000) expenses amounted to EUR 172 thousand in 2021 (2020: EUR 166 thousand) and were accounted for in expenses. The Company had no leases with variable payments not included in the value of lease liabilities. The Company’s lease payments made (capital value paid) in 2021 amounted to EUR 333 thousand (2020: EUR 344 thousand). 22. Congestion management revenue At 31 December 2021 At 31 December 2020 Non-current portion of congestion management revenue included in liabilities 88,267 55,659 Current portion of congestion management revenue included in liabilities 20,820 6,860 Total congestion management revenue 109,087 62,519 2021 2020 Congestion management revenue at 1 January 62,519 39,135 Congestion management revenue received during the period 50,112 32,381 Transferred to property, plant and equipment (2,954)) (8,005) Congestion management revenue recognised as income during the period (590) (992) Congestion management revenue at 31 December 109,087 62,519 The principles of receipt and use of congestion management revenue are set out in Note 2.16. As at 31 December 2021, the unused balance of congestion management revenue presented as part of liabilities amounted to EUR 109,087 thousand. The projected use is specified in Note 3. The current portion of liabilities is expected to be settled (used) within 12 months. As explained in Note 2.16, the difference between the balance of congestion revenue included in liabilities and in assets resulted from the loan of EUR 43,594 thousand granted to EPSO-G UAB (under the cashpool agreement) (Note 8) and from a temporary use of remaining congestion funds for the financing of the Company’s activities. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 124 23. Provisions At 31 December 2021 At 31 December 2020 Provisions for pension benefits to employees 275 218 Provisions for servitude liabilities ** 277 1,250 Provisions for registration of protection zones 1,646 1,909 Provision for settlement of current liabilities 661 15 Carrying amount 2,859 3,392 Non-current provisions 352 2,597 Current provisions 2,507 795 Provisions for pension benefits represent amounts payable calculated according to the Lithuanian laws and payable under the collective employment agreement effective at the Company (Note 2.15). As explained in Note 5, as at 31 December 2018, the Company recognised intangible assets and provisions amounting to EUR 2,300 thousand. In 2020, provisions for servitude liabilities were increased by EUR 165 thousand (a non-current portion of liabilities was reduced by EUR 180 thousand and a current portion was increased by EUR 345 thousand). In 2021, provisions for servitude liabilities were reduced by EUR 925 thousand (a non-current portion of liabilities was reduced by EUR 393 thousand and a current portion was reduced by EUR 532 thousand). As explained in Note 5, liability established in 2020 in respect of the provision for protection zones was reduced by EUR 263 thousand in 2021 according to the revised estimate (a non-current portion of liabilities was reduced by EUR 1,909 thousand and a current portion was increased by EUR 1,646 thousand). Provisions for litigations and claims as at 31 December 2021 comprise a provision for a potential payment under the court’s ruling to Šiaulių Energija AB (Note 39). Movements in provisions were as follows: Provisions for pension benefit obligations to employees Provisions for servitude liabilities Provisions for registration of protection zones Provisions for litigations and claims Total Carrying amount at 31 December 2019 173 1,161 - 636 1,970 Calculated - - 1,909 - 1,909 Revised estimate 45 165 - (621) (411) Payments made - (76) - - (76) Carrying amount at 31 December 2020 218 1,250 1,909 15 3,392 Calculated - Revised estimate 57 (925) (263) 646 (485) Payments made (48) (48) Carrying amount at 31 December 2021 275 277 1,646 661 2,859 24. Other non-current amounts payable and liabilities At 31 December 2021 At 31 December 2020 Non-current trade payables 430 - Deferred revenue 163 - Grants received in advance 1,677 1,677 Carrying amount 2,270 1,677 Grants received in advance mainly consist of funds received from the CEF (Connecting Europe Facility) fund for the implementation of the synchronisation programme. Expenditures for which a grant was received are planned to be incurred in 2023. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 125 25. Current income tax and deferred income tax Income tax expenses comprise as follows: 2021 2020 Income tax expenses of the current year 11,395 9,313 Income tax expenses of the previous year (1,819) - Deferred income tax income/(benefit) (7,307) (5,035) Deferred income tax income/(benefit) of the previous year 1,819 - Income tax expenses/(benefit) of the current year 4,088 4,278 On 5 June 2020, the Company’s Board adopted the decision to conclude the agreement between parent company EPSO-G UAB and LITGRID AB on the take-over of tax losses (EUR 2,567 thousand) for a consideration. In 2020, under this agreement the Company paid to EPSO-G UAB 15% of the amount of tax losses taken over, i.e. EUR 385 thousand. Income tax payable to the State Tax Inspectorate was reduced by the amount of tax losses taken over. On 11 June 2021, the Company’s Board adopted the decision to conclude the agreement between parent company EPSO-G UAB and LITGRID AB on the take-over of tax losses (EUR 2,533 thousand) for a consideration. In 2021, under this agreement the Company paid to EPSO-G UAB 15% of the amount of tax losses taken over, i.e. EUR 380 thousand. Income tax payable to the State Tax Inspectorate was reduced by the amount of tax losses taken over. In 2021, the Company decided to account for congestion management revenue under the same accounting policies for financial reporting and tax purposes and revised the income tax return for 2018. The income tax return for the following years will be revised in subsequent periods. The movement in deferred income tax assets and liabilities prior to offsetting the balances related to the same fiscal authority was as follows: Deferred income tax assets Revaluation of property, plant and equipment and financial assets (decrease in value) Impairment of assets Congestion revenue Statutory servitudes and protection zones Other Total At 31 December 2019 1,398 20 8,412 174 370 10,374 Recognised in profit and loss (26) 127 4,667 300 127 5,195 Recognised in other comprehensive income 9 - - - - 9 At 31 December 2020 1,381 147 13,079 474 497 15,578 Recognised in profit and loss 44 (9) 5,532 (186) 180 5,561 At 31 December 2021 1,425 138 18,611 288 677 21,139 Deferred income tax liabilities Revaluation of property, plant and equipment and financial assets (increase in value) Differences in depreciation rates Tax relief on acquisition of PP&E Statutory servitudes and protection zones Effect of capitalisation of interest Total At 31 December 2019 - 155 (1,545) (240) (282) (1,912) Recognised in profit and loss - 31 119 (311) 1 (160) At 31 December 2020 - 186 (1,426) (551) (281) (2,072) Recognised in profit and loss - (392) 138 178 3 (73) At 31 December 2021 - (206) (1,288) (,373) (278) (2,145) Deferred income tax assets, net, at 31 December 2020 15,578 Deferred income tax assets, net, at 31 December 2021 21,139 Deferred income tax liability, net, at 31 December 2020 (2,072) Deferred income tax liability, net, at 31 December 2021 (2,145) Deferred income tax, net, at 31 December 2020 13,506 Deferred income tax, net, at 31 December 2021 18,994 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 126 The analysis of movements in deferred income tax assets and liabilities over time is as follows: At 31 December 2021 At 31 December 2020 Deferred income tax assets: Deferred income tax assets to be realised after more than 12 months 20,990 15,453 Deferred income tax assets to be realised within 12 months 149 125 Total 21,139 15,578 Deferred income tax liabilities: Deferred income tax liabilities to be settled after more than 12 months (2,032) (1,909) Deferred income tax liabilities to be settled within 12 months (113) (163) Total (2,145) (2,072) The table below presents reconciliation of income tax expenses reported in the statement of comprehensive income to income tax expenses calculated at a statutory income tax rate on profit before income tax: At 31 December 2021 At 31 December 2020 Profit/(loss) before income tax 24,101 30,881 Income tax calculated at a rate of 15% 3,615 4,632 Income tax expenses/(benefit) for the previous year 41 15 Effect of non-allowable deductions and non-taxable income 432 (369) Income tax expenses/(benefit) recognised in profit or loss 4,088 4,278 26. Trade payables At 31 December 2021 At 31 December 2020 Amounts payable for electricity 42,280 13,123 Amounts payable for contractual works, services 7,691 1,714 Amounts payable for property, plant and equipment and inventories 9,483 10,397 Carrying amount 59,454 25,234 Amounts payable for electricity comprise amounts payable for balancing and regulation energy, the increase of which was caused by the increase in the price and volume of the balancing service by several times. Amounts payable for balancing and regulation energy totalled EUR 29.9 million as at 31 December 2021 (31 December 2020: EUR 3.2 million). The fair value of trade payables approximates their carrying amounts. 27. Advance amounts received At 31 December 2021 At 31 December 2020 Deferred revenue 11 - Advance amounts received from new consumers and producers 581 611 Grants received in advance 9,736 4,787 Other advance amounts received - 1 Carrying amount 10,328 5,399 Advance amounts received from new consumers and producers include advance amounts received from new consumers and producers for connection to electricity networks and for electricity infrastructure relocation services. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 127 28. Other amounts payable At 31 December 2021 At 31 December 2020 Employment-related liabilities 227 196 Accrued expenses relating to vacation reserve 1,131 988 VAT payable 3,762 1,946 Real estate tax payable 512 467 Dividends payable 514 470 Accrued other expenses and deferred revenue 2,014 2,062 Guarantee to secure fulfilment of obligations 2,359 919 Other amounts payable and current liabilities 367 350 Carrying amount 10,886 7,398 * The Company’s guarantees for the fulfilment of obligations comprise deposits received. The fair value of other amounts payable approximates their carrying amount. 29. Revenue from electricity transmission and related services Electricity revenue comprises as follows: 2021 2020 Electricity transmission services 80,070 83,363 Trade in balancing/imbalance electricity 71,720 21,217 System services 91,653 86,702 Revenue from other sales of electricity and related services 3,113 4,863 Revenue from PSO services 19,978 8,959 Revenue from connection of new consumers 8 184 Congestion revenue 590 991 Revenue from administration of guarantees of origin 126 120 Total 267,258 206,399 Revenue from electricity transmission and related services under contracts with customers amounted to EUR 246,061 thousand in 2021 (EUR 195,626 thousand in 2020). Revenue from electricity transmission and related services increased by 30% in 2021 compared to 2020. Revenue growth resulted mainly from a EUR 50.5 million (+238%) increase in revenue from imbalance and balancing energy due to an increase in the average sale price by 160% and increase in volume by 31% as well as due to growth of revenue from PSO services by EUR 11 million caused by the price increase by 171%. 30. Other income 2021 2020 Income from lease of assets 512 488 Other income 2,818 629 Total 3,330 1,117 Interest on late payment and default charges for a delayed performance of works by the contractors represented the major portion of the Company’s other income (EUR 2,786 thousand) in 2021 (Note 2.20) (EUR 417 thousand in 2020). NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 128 31. Expenses of electricity transmission and related services Electricity expenses comprise as follows: At 31 December 2021 At 31 December 2020 Electricity expenses for compensation of technological losses 40,165 15,190 Expenses for system services 61,860 81,740 Expenses for PSO services (balancing of generation using renewable energy sources) 19,893 8,855 Expenses for balancing/regulating electricity 71,114 20,833 Expenses for the participation in the ITC mechanism of the European Network of Transmission System Operators for Electricity (ENTSO-e) 838 781 Expenses for guaranteeing the availability of allocated capacities of the interconnections 590 992 Total 194,460 128,391 In 2021, expenses of purchase of electricity and related services accounted for a major portion of the Group’s operating expenses: EUR 194.5 million (78.8% of the Company’s total expenses). These expenses increased by 51.5% compared to 2020. Expenses for system services decreased by 24.3% to EUR 61.9 million mainly due to a EUR 17.9 million decrease in expenses regulated by NERC related to ensuring the isolated operation and a EUR 2.2 million decrease in voltage control expenses resulting from more efficient management of the transmission network. Imbalance and balancing electricity expenses increased 3.4 times and amounted to EUR 71.1 million due to increase in sales volumes and the average purchase price. Expenses of compensating for electricity purchase technological losses in the transmission network increased 2.6 times and amounted to EUR 40.2 million due to 2.85 times higher average purchase price of electricity. The average electricity price on the exchange in 2021 was 2.66 times higher than in 2020, while in the last quarter of the year when technological losses comprised 31% of the annual amount, the price was 3.6 times higher Transit (ITC) expenses totalled EUR 0.8 million, expenses for provision of PSO services equalled EUR 19.9 million and expenses of ensuring the allocated capacity of the interconnections totalled EUR 0.6 million. 32. Segment information The Company is engaged in the provision of electricity transmission and related services and its business activities are organised as a single segment. The main indicator for the segment’s profit or loss is a net profit. All non-current assets of the Company are allocated in Lithuania where the Company conducts its business activities. In 2021, revenue from the Lithuanian clients accounted for 89% of the Company’s total revenue (95% in 2020). In 2021 and 2020, the Company’s revenue by geographical location of customers: 2021 2020 Lithuania 242,169 196,646 Estonia 10,176 4,915 Sweden 7,231 3,151 Poland 5,823 1,157 Latvia 2,192 226 Norway 2,304 1,057 Other countries 693 364 Total 270,588 207,516 The Company’s revenue from the major clients in 2021: Company name 2021 Energijos Skirstymo Operatorius AB 158,956 Ignitis UAB 23,756 Ignitis Gamyba AB 13,687 The Company’s revenue from the major clients in 2020: Company name 2020 Energijos Skirstymo Operatorius AB 154,900 ORLEN Lietuva AB 7,753 Ignitis Gamyba AB 6,002 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 129 33. Related-party transactions EPSO-G UAB was the parent company as at 31 December 2021 and 2020. The parent entity of this company was the Republic of Lithuania represented by the Ministry of Energy of the Republic of Lithuania. For the purposes of the related-party disclosure the Republic of Lithuania excludes central and local government authorities. The disclosures comprise transactions with the companies of the EPSO-G UAB group, associates and all entities controlled by or under a significant influence of the state (transactions with these entities are disclosed only if the amount of the transactions exceeds EUR 100 thousand during a calendar year) and with the management, and balances arising from these transactions. The list of entities controlled by or under a significant influence of the state, with which the transactions are disclosed, is presented at address: https://vkc.sipa.lt/apie-imones/vvi-sarasas/. The Company’s related parties in 2021 and 2020 were as follows: - The Company’s parent EPSO-G, which is wholly owned by the Ministry of Energy of the Republic of Lithuania; - The EPSO-G group companies: - Amber Grid AB (jointly controlling shareholders); - Tetas UAB (jointly controlling shareholders); - Baltpool UAB (jointly controlling shareholders); - The companies of Ignitis Grupė AB: - Duomenų Logistikos Centras UAB (associate until 7 July 2020); - Energijos Skirstymo Operatorius AB; - Ignitis UAB; - Ignitis Gamyba UAB; - Energetikos Paslaugų ir Rangos Organizacija UAB (liquidated on 16 July 2021) Other state-owned entities: - State Enterprise Ignalina Nuclear Power Plant; - Other state-owned companies or those under significant influence. - Management. Transactions with related parties are carried out in accordance with the public procurement requirements or the tariffs approved by the legal acts. The Company’s transactions conducted with related parties in 2021 and balances arising from these transactions as at 31 December 2021 were as follows: Related parties Amounts receivable and accrued revenue Amounts payable and accrued expenses Loans granted Purchases Sales Finance income EPSO-G UAB group companies EPSO-G UAB - 53 43,594 628 - - TETAS UAB 618 958 11,522 89 13 BALTPOOL UAB 3,189 - - 203 10,527 - State-owned companies Energijos Skirstymo Operatorius AB 20,543 273 - 3,907 159,142 - Ignitis Gamyba AB 4,620 19,003 - 82,846 13,687 - Ignitis Grupės Paslaugų Centras UAB 30 - - - 278 - Ignitis UAB 13,543 - - 3,151 23,756 - Vilniaus Kogeneracinė Jėgainė UAB - 175 - 243 396 - Kauno Kogeneracinė Jėgainė UAB - 43 - 262 125 - Transporto Valdymas UAB - 18 - 181 - - Projektų Ekspertizė UAB - 46 - 103 - - State Enterprise Lithuanian Road Administration - 321 - - - - State Enterprise Ignalina Nuclear Power Plant 94 10 - 128 923 - LTG Infra AB 69 - - - 499 - 42,706 20,900 43,594 103,174 209,422 13 The Company’s transactions with the state-owned enterprises mainly comprise sales of electricity transmission, balancing, imbalance and system services, purchase of electricity. EPSO-G UAB provides management services, TETAS UAB provides services under construction contracts, Baltpool UAB transfers PSO funds allocated to the Company. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 130 The Company’s transactions conducted with related parties in 2020 and balances arising from these transactions as at 31 December 2020 were as follows: Related parties Amounts receivable and accrued revenue Amounts payable and accrued expenses Loans granted Purchases Sales Finance income EPSO-G UAB group companies EPSO-G UAB - 27 - 136 - - TETAS UAB 155 825 1,000 11,994 191 42 BALTPOOL UAB 516 - - 203 5,070 - State-owned companies Energijos Skirstymo Operatorius AB 18,050 379 - 857 154,900 - Ignitis Gamyba AB 777 8,548 - 80,884 6,002 - Duomenų Logistikos Centras UAB 25 - - 8 240 - Ignitis Grupės Paslaugų Centras UAB 27 - - - 261 - Ignitis UAB 721 - - 2,137 4,867 - Vilniaus Kogeneracinė Jėgainė UAB - 100 - - 32 - Kauno Kogeneracinė Jėgainė UAB 28 - - 192 282 - Energetikos Paslaugų ir Rangos Organizacija UAB - - - 712 - - Transporto Valdymas UAB - 18 - 181 - - State Enterprise Lithuanian Road Administration - 321 - - - - State Enterprise Ignalina Nuclear Power Plant 107 23 - 177 1,058 - LTG Infra AB 52 - - - 492 - 20,458 10,241 1,000 97,481 173,395 42 Payments to key management personnel 2021 2020 Employment-related payments 802 897 Whereof: termination benefits 37 92 Number of key management personnel (average annual) 7 7 * - including payments of employer to The State Social Insurance Fund Board (SODRA). No loans, guarantees or any other benefits were paid or calculated, nor any assets were transferred to the Company’s management in 2021 and 2020. Key management personnel consists of the Company’s heads of administration, directors of the departments and members of the collegial management bodies. In 2021, payments to the members of the collegial management bodies amounted to EUR 38 thousand (2020: EUR 37 thousand). 34. Basic and diluted earnings per share In 2021 and 2020, the Company’s basic and diluted earnings/(deficit) per share were as follows: 2021 2020 Profit/(loss) for the period attributable to the Company’s shareholders (EUR thousands) 20,013 26,603 Weighted average number of shares (units) 504,331,380 504,331,380 Basic and diluted earnings/(deficit) per share (in EUR) 0.040 0.053 35. Additional information on cash flows The change in the Company’s payables for non-current assets amounting to EUR 841 thousand (2020: EUR 305 thousand) and capitalised interest amounting to EUR 46 thousand (2020: EUR 49 thousand) were taken into account when calculating cash flows from investing activities in 2021. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 131 36. Financial risk factors The Company is exposed to financial risks in its operations. In managing these risks, the Company seeks to mitigate the effect of factors which could make a negative effect on the financial performance of the Company. Financial risk management is conducted by the Company’s Finance Planning and Analysis Division in accordance with the Treasury and Financial Risk Management Policy of the EPSO-G UAB Group approved by the Board of LITGRID which is published on the website of EPSO-G UAB www.epsog.lt. Financial instruments by category (as per the statement of financial position): Financial assets At 31 December 2021 At 31 December 2020 Trade receivables under contracts with customers 50,463 22,944 Trade receivables 10,200 2,211 Other amounts receivable 69 93 Loans granted 43,594 1,000 Portion of unused funds balance of congestion management revenue - 24,901 Other financial assets 5,359 1,619 Cash and cash equivalents 1,819 33 Financial assets measured at amortised cost 111,504 52,801 Other financial assets Financial assets measured at fair value through other comprehensive income 781 1,089 Total financial assets 112,285 53,890 Financial liabilities At 31 December 2021 At 31 December 2020 Borrowings 65,677 79,902 Lease liabilities 4,594 4,857 Trade payables 59,454 25,234 Dividends payable 514 470 Accrued other expenses and deferred revenue 2,014 2,062 Guarantee to secure fulfilment of obligations 2,359 919 Total 134,612 113,444 Credit risk As at 31 December 2021 and 31 December 2020, credit risk was related to the following line items: At 31 December 2021 At 31 December 2020 Financial assets, except for assets measured at fair value through other comprehensive income 111,504 52,801 The Company has a significant credit risk concentration, because exposure to credit risk is shared among 10 main customers, amounts receivables from which accounted for around 94% of the Company’s total trade and other receivables as at 31 December 2021 (31 December 2020: 97%). As at 31 December 2021, amounts receivable from the major customer, i.e. distribution network operator Energijos Skirstymo Operatorius AB, accounted for 36% of the Company’s total amounts receivable (31 December 2020: 74%). When entering into imbalance contracts with participants of the electricity market, the Company requires to pay a cash deposit of the established amount or to provide a bank guarantee in accordance with the terms and conditions set out in the imbalance contract. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 132 The Company holds unused cash and cash equivalents at the banks assigned with a credit rating not lower than AA-. The table below provides the long-term credit ratings of the parent banks of the banks at which the Company holds cash and cash equivalents (Note 15): Swedbank A+ SEB AA- OP Corporate Bank AA- Trade and other receivables are mainly from the state-owned entities and large manufacturers with no history of significant defaults. Liquidity risk The main objective of the Company’s liquidity policy is to ensure funding of its operations, i.e. to ensure that the Company will have sufficient cash and/or committed credit facilities and overdrafts to meet its contractual obligations at any time. The liquidity risk is managed by making forecasts of cash flows of the Company. The Company’s cash flows from operations were positive in 2021, therefore its exposure to liquidity risk is not significant. The Company’s current ratio (total current assets / total current liabilities) and quick ratio ((total current assets – inventories) / total current liabilities) as at 31 December 2021 were 1 (31 December 2020: 0.59). As described in Note 2.16, the Company may use congestion management revenue when necessary. The next year’s liquidity will be ensured by the next year’s operating profit and congestion funds received which, when necessary, will be used for the financing of the activities. The table below summarises the contractual maturity dates of the Company’s financial liabilities. This information has been prepared based on undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay. Balances of trade and other amounts payable with repayment terms up to 12 months are equal to their carrying amounts, because the impact of discounting is insignificant. Up to 3 months Between 4 months and 1 year Within the second year Within third – fifth year After five years At 31 December 2021 Trade and other amounts payable 64,341 - - - - Borrowings 1,262 13,559 14,675 19,989 18,415 Lease liabilities 75 165 107 253 7,671 At 31 December 2020 Trade and other amounts payable 28,685 - - - - Borrowings 1,299 13,669 14,822 30,467 22,612 Lease liabilities 87 254 240 275 7755 Market risk a) Interest rate risk The Company’s income, expenses and cash flows from operating activities are substantially independent of changes in market interest rates. The Company has non-current borrowings with interest rates linked with EURIBOR repriced every 3 months. If the interest rate was 0.1% higher or lower, interest before tax on the Company’s borrowings would increase or decrease by EUR 22 thousand as at 31 December 2021 (31 December 2020: EUR 32 thousand). b) Foreign exchange risk To manage the foreign exchange risk, the Company enters into purchase/sale contracts only in the euros. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 133 37. Fair value of financial assets and financial liabilities The Company’s principal financial assets and liabilities not carried at fair value are trade and other amounts receivable, cash and cash equivalents, loans, trade and other amounts payable and other financial assets. The following methods and assumptions are used to estimate the value of each category of financial instruments that are not measured at fair value: ● The carrying amount of current trade and other amounts receivable, other financial assets, cash and cash equivalents, loans to the related parties, current trade payables and other amounts payable approximates their fair value (Level 3). ● The fair value of non-current borrowings is based on the quoted market price for the same or similar issues or on the current rates available for borrowings with the same maturity profile. The fair value of non-current borrowings with variable interest rates approximates their carrying amounts (Level 3). The fair value of the Company’s non-current borrowings with fixed interest rates was approximately EUR 306 thousand lower than their carrying amount as at 31 December 2021 (31 December 2020: EUR 384 thousand). 38. Regulation of prices and profitability of the Company As at 31 December 2021, the result of electricity transmission services for the years 2018-2020 already approved by NERC, which was accrued at the Company (a difference between revenue and expenses to be repaid in the next year, i.e. when establishing the price of electricity transmission services revenue will be reduced by the amount of the difference) was 23.6 mln Eur. A part of this amount, i.e. 15.1 mln Eur, has already been assessed (revenue was reduced) in establishing the price of electricity transmission services for 2022 and the remaining part of 8.5 mln EUR will be assessed in establishing the price for 2023. The result of electricity transmission services for the year 2021 was negative due to significantly higher prices of electricity in electric energy markets and also due to higher costs of electricity purchase for compensating technological losses in transmission grid. The result has not yet been approved by NERC. In establishing the price of electricity transmission for 2023, it should be assessed by increasing the price of services. As at 31 December 2021, the result of system services for the year 2020 already approved by NERC, which was accrued at the Company (a difference between revenue and expenses to be repaid in the next year, i.e. when establishing the price of system services, revenue will be reduced by the amount of the difference) is 4.4 mln Eur. The result has already been assessed (revenue was reduced) in establishing the price of system services for 2022. The result of system services for 2021 is positive and has not yet been approved by NERC. In establishing the price for 2023, it should be assessed by reducing the price of services. 39. Litigations On 12 March 2020, claimant Šiaulių Energija AB brought a claim against Energijos Skirstymo Operatorius AB for compensation of damages amounting to EUR 1,272 thousand, a procedural interest of 6% on the amount of EUR 1,272 thousand starting from the date of the filing of this claim with the court until a full execution of the court’s ruling. The dispute arose over the accident that occurred on 25 March 2019 at the Šiauliai cogeneration power station managed by claimant Šiaulių Energija AB, during which, as stated in the claimant’s claim, the three-phase synchronous generator installed in the power station went out of operation. The status of LITGRID AB in the case was changed to the status of a defendant additionally requesting to award the amount claimed solidarily from defendants Energijos Skirstymo Operatorius AB and LITGRID AB. Under the ruling of Vilnius Regional Court of 6 April 2021 the claim was satisfied in part: losses of EUR 590 thousand were awarded from LITGRID AB and the annual interest of 6% on the awarded amount from the date of the initiation of the court proceedings (12 March 2020) until a full execution of the court’s ruling. Litigation expenses of EUR 8 thousand were also awarded for the benefit of Šiaulių Energija AB. The claim was rejected in respect of the part of Energijos Skirstymo Operatorius AB. The court’s ruling is objected to a full extent. LITGRID AB filed an appeal on 7 May 2021. The date for investigation by the instance of appeal has not been set yet. The Company has formed a provision for a full amount awarded. On 30 March 2021, claimant Žilinskio ir CO UAB filed a claim with Kaunas Regional Court against defendant Grid Solutions SAS for the awarding of interest on late payment amounting to EUR 923 thousand. The Company is involved in the case as a third party because the circumstances recognised in the case may have an impact on the resolution of the issue of default charges with respect to contractor Žilinskio ir CO UAB as the latter company is late to perform works under agreement No 19SUT-65 of 20 March 2019 Agreement on environmental impact assessment, design and construction works of phase I of the expansion of the LitPol Link interconnection. On March 2022 the case has been examined, a decision has been made to dismiss the claim. But the decision has not yet been entered into force and may be appealed. The company is currently assessing whether there are reasons for reviewing already recognized interest on delayed performance of Žilinskis and CO. NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated 134 40. Services provided by the audit firm In 2021, the audit firm provided non-audit services to the Company in the amount of EUR 3,172. 41. Environmental, social and governance (ESG) issues Litgrid AB, as many other advanced companies in the world, devotes large attention to ESG issues in its operational plans. Dropping prices of technologies, rising prices of fossil fuel and higher prices of emission allowances as well as the common determination of the society to choose sustainable solutions change the attitude towards sustainability and sustainable investments. According to the targets set by the Ministry of Energy, the total solar and wind generation capacity is expected to reach 7,000 MW in Lithuania by 2030, of which 3,600 MW will be generated by onshore wind farms, 1,400 MW – by offshore wind farms and 2,000 MW - by solar power plants. Litgrid AB aims to adapt and increases its attention to ESG issues in developing the business and investment strategies: 1) One of the priorities of the restoration and expansion of the transmission network is the fight against climate change through the development and adaptation of the transmission system for electricity generation using renewable energy sources and the reduction of the impact of Litgrid’s infrastructure itself on the environment; 2) Starting from 2021 when performing public procurements for the acquisition of goods, works and services Litgrid AB gives priority to green procurements. A green procurement means a procurement during which the procuring entity aims to acquire goods, services or works with a low as possible impact on the environment in one, several or all stages of the lifecycle of the good, service or work. The implementation of the ESG policy will not significantly affect financial indicators of Litgrid, according to the regulation effective in Lithuania all substantiated expenses of regulated activities of Litgrid are compensated by revenue from regulated activities. 42. Events after the end of the reporting period In 2022, Litgrid AB plans to sell shares of TSO Holdingas (the Company holds 2% of shares). On 24 February 2022, Russia together with Belarus started a military aggression against Ukraine. Considering that the Company has no suppliers or buyers in the above-mentioned states, the war started by Russia against Ukraine is not expected to have a significant impact on the Company’s financial performance. Indirect impact could be caused by: ● fluctuations in the price of electricity in the market (affects technological loss expenses incurred by the Company). In case such fluctuations would occur, the impact would be of a short-term nature because the regulator would compensate incurred losses in the subsequent periods. ● increase in the prices of certain elements used by our contractors for the performance of the network’s repair works and in the investment projects which were previously acquired in the above-mentioned states. Considering the fact that the share of such elements is very small, the impact of the change (change of the suppliers of such elements) on the Company’s financial indicators would be insignificant. _ PricewaterhouseCoopers UAB, J. Jasinskio str. 16B, 03163 Vilnius, Lithuania +370 (5) 239 2300, ltvilnius@pwc.com, www.pwc.lt Company code 111473315, registered with the Legal Entities’ Register of the Republic of Lithuania Independent auditor’s report To the shareholders of LITGRID AB Report on the audit of the financial statements Our opinion In our opinion, the financial statements give a true and fair view of the financial position of LITGRID AB (the “Company”) as at 31 December 2021 and of the Company’s financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union. Our opinion is consistent with our additional report to the Audit Committee dated 18 March 2022. What we have audited The Company’s financial statements comprise: ● the statement of financial position as at 31 December 2021; ● the statement of comprehensive income for the year then ended; ● the statement of changes in equity for the year then ended; ● the statement of cash flows for the year then ended; and ● the notes to the financial statements, which include significant accounting policies and other explanatory information. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Company in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA Code) and the Law of the Republic of Lithuania on the Audit of Financial Statements that are relevant to our audit of the financial statements in the Republic of Lithuania. We have fulfilled our other ethical responsibilities in accordance with the IESBA Code and the Law of the Republic of Lithuania on the Audit of Financial Statements. To the best of our knowledge and belief, we declare that non-audit services that we have provided to the Company are in accordance with the applicable law and regulations in the Republic of Lithuania and that we have not provided non-audit services that are prohibited under Article 5(1) of Regulation (EU) No 537/2014 considering the exemptions of Regulation (EU) No 537/2014 endorsed in the Law of the Republic of Lithuania on the Audit of Financial Statements. The non-audit services that we have provided to the Company, in the period from 1 January 2021 to 31 December 2021, are disclosed in note 40 to the financial statements. Our audit approach Overview Materiality ● Overall materiality: EUR 2,670 thousand Key audit matters ● Value of Property, plant and equipment As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including, among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud. We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the financial statements as a whole, taking into account the structure of the Company, the accounting processes and controls, and the industry in which the Company operates. Materiality The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Company materiality for the financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, if any, both individually and in aggregate on the financial statements as a whole. Overall Company materiality EUR 2,670 thousand (EUR 2,070 thousand) How we determined it 1% of total revenue Rationale for the materiality benchmark applied We chose revenue as the benchmark for the Company because it is the measure against which the performance of the Company is assessed by the regulatory bodies as well as external creditors and other stakeholders. The Company’s results depend on approved tariffs for regulated activities, therefore the Company‘s profit before tax fluctuate widely year over year, whereas its revenue is more stable and growth-oriented indicator which can be compared to other market participants. We chose 1%, which is within the range of acceptable quantitative materiality thresholds. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above EUR 180 thousand, as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.] Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter How our audit addressed the key audit matter Value of Property, plant and equipment (refer note 2.4 and 6) The Company applies the revaluation model for subsequent recognition of property, plant and equipment (‘PPE’). As at 31 December 2021 the carrying value of PPE amounted to EUR 338,051 thousand, being its fair value at the date of the revaluation less subsequent accumulated depreciation and less subsequent accumulated impairment losses. The management has assessed whether the carrying value of PPE does not materially differ from that which would be determined using fair value at the end of the reporting period. The Company used the income approach using the discounted cash flows technique and concluded that carrying amount of the PPE is the reasonable approximation of the fair value and therefore no valuation adjustments have been recognised as at 31 December 2021. We focused on this area due to significance of the PPE balance for the statement of financial position and because the management’s assessment of values of PPE is an area of significant management judgements. We understood and evaluated management’s policies, processes and controls in determination of fair value of PPE. We have examined management’s valuation methodology and their assessment of incurred 2021 changes in tariff setting regulations. We obtained the cash flow models used by the management to assess the value of assets. We checked the models and tested that they are mathematically accurate and that the results are accurately compared to the carrying values of assets. We examined the management’s assumptions which have material impacts on valuation results: rate of return on regulated assets and discount rate, expected capital expenditures, additional tariff component to finance investments, values of regulated assets and values of assets at historic cost. As appropriate, we traced them to Company’s internal budgets and investment plans, or market information. We involved our internal valuation specialists to assist us in discount rate assessment. Also, we assessed sensitivity of the cash flow model to changes in the rate of return, discount rate, additional tariff component to finance investments and to changes in congestion income. We considered whether the overall estimate is reasonable and whether the management judgement that no valuation adjustments are needed is appropriate to the circumstances. We have considered the adequacy of disclosures in Notes 2.4 and 6. Reporting on other information including the annual report Management is responsible for the other information. The other information comprises the annual report, including the corporate governance report and the remuneration report (but does not include the financial statements and our auditor’s report thereon). Our opinion on the financial statements does not cover the other information, including the annual report. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. With respect to the annual report, we considered whether the annual report includes the disclosures required by the Law of the Republic of Lithuania on Financial Reporting by Undertakings. Based on the work undertaken in the course of our audit, in our opinion: ● the information given in the annual report for the financial year for which the financial statements are prepared, is consistent with the financial statements; and ● the annual report has been prepared in accordance with the Law of the Republic of Lithuania on Financial Reporting by Undertakings. In addition, in light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we are required to report if we have identified material misstatements in the annual report which we obtained prior to the date of this auditor’s report. We have nothing to report in this regard. Responsibilities of management and those charged with governance for the financial statements Management is responsible for the preparation of the financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: ● Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. ● Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. ● Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. ● Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. ● Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence and have communicated with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on other legal and regulatory requirements Report on the compliance of the format of the financial statements with the requirements of the European Single Electronic Reporting Format We have been engaged based on the amendment to our audit agreement by the management of the Company to conduct a reasonable assurance engagement for the verification of compliance with the applicable requirements of the European single electronic reporting format of the Company’s financial statements, including the annual report, for the year ended 31 December 2021 (the “Single Electronic Reporting Format of the financial statements”). Description of a subject matter and applicable criteria The Single Electronic Reporting Format of the financial statements has been applied by the management of the Company to comply with the requirements of art. 3 and 4 of the Commission Delegated Regulation (EU) 2019/815 of 17 December 2018 supplementing Directive 2004/109/EC of the European Parliament and of the Council with regard to regulatory technical standards on the specification of a single electronic reporting format (the “ESEF Regulation”). The applicable requirements regarding the Single Electronic Reporting Format of the financial statements are contained in the ESEF Regulation. The requirements described in the preceding sentence determine the basis for application of the Single Electronic Reporting Format of the financial statements and, in our view, constitute appropriate criteria to form a reasonable assurance conclusion. Responsibility of the management and those charged with governance The management of the Company is responsible for the application of the Single Electronic Reporting Format of the financial statements that complies with the requirements of the ESEF Regulation. This responsibility includes the selection and application of appropriate markups in iXBRL using ESEF taxonomy and designing, implementing and maintaining internal controls relevant for the preparation of the Single Electronic Reporting Format of the financial statements which is free from material non- compliance with the requirements of the ESEF Regulation. Those charged with governance are responsible for overseeing the financial reporting process, which should also be understood as the preparation of financial statements in accordance with the format resulting from the ESEF Regulation. Our responsibility Our responsibility was to express a reasonable assurance conclusion whether the Single Electronic Reporting Format of the financial statements complies, in all material aspects, with the ESEF Regulation. We conducted our engagement in accordance with International Standard on Assurance Engagements 3000 (Revised) ‘Assurance Engagements other than Audits and Reviews of Historical Financial Information’ (“ISAE 3000 (R)”). This standard requires that we comply with ethical requirements, plan and perform procedures to obtain reasonable assurance whether the Single Electronic Reporting Format of the financial statements complies, in all material aspects, with the applicable requirements. Reasonable assurance is a high level of assurance, but it does not guarantee that the service performed in accordance ISAE 3000 (R) will always detect the existing material misstatement (significant non-compliance with the requirements). Summary of the work performed Our planned and performed procedures were aimed at obtaining reasonable assurance that the Single Electronic Reporting Format of the financial statements was applied, in all material aspects, in accordance with the applicable requirements and such application is free from material errors or omissions. Our procedures included in particular: • obtaining an understanding of the internal control system and processes relevant to the application of the Single Electronic Reporting Format of the financial statements, including the preparation of the XHTML format and marking up the financial statements; • verification whether the XHTML format was applied properly; • evaluating the completeness of marking up the financial statements using the iXBRL markup language according to the requirements of the implementation of single electronic format as described in the ESEF Regulation; • evaluating the appropriateness of the Company’s use of XBRL markups selected from the ESEF taxonomy and the creation of extension markups where no suitable element in the ESEF taxonomy has been identified; and • evaluating the appropriateness of anchoring of the extension elements to the ESEF taxonomy. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion. Conclusion In our opinion, the Single Electronic Reporting Format of the financial statements for the year ended 31 December 2021 complies, in all material aspects, with the ESEF Regulation. Appointment We were first appointed as auditors of the Company on 24 April 2015 and had an uninterrupted engagement appointment of 3 years. After a 2-year break our appointment was renewed on 18 September 2020, representing a total period of engagement appointment of 5 years. The key audit partner on the audit resulting in this independent auditor’s report is Rasa Radzevičienė. On behalf of PricewaterhouseCoopers UAB Rasa Radzevičienė Partner Auditor's Certificate No. 000377 Vilnius, Republic of Lithuania 18 March 2022 The auditor's electronic signature is used herein to sign only the Independent Auditor's Report