Vilkyskiu Pienine

Annual Report (ESEF) • Apr 29, 2022

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ifrs-full:SeparateMember 5299005NNDRP09PFOY81 2021-12-31 ifrs-full:IssuedCapitalMember ifrs-full:SeparateMember 5299005NNDRP09PFOY81 2021-12-31 ifrs-full:SharePremiumMember ifrs-full:SeparateMember 5299005NNDRP09PFOY81 2021-12-31 ifrs-full:RevaluationSurplusMember ifrs-full:SeparateMember 5299005NNDRP09PFOY81 2021-12-31 ifrs-full:StatutoryReserveMember ifrs-full:SeparateMember 5299005NNDRP09PFOY81 2021-12-31 ifrs-full:RetainedEarningsMember ifrs-full:SeparateMember iso4217:EUR iso4217:EUR xbrli:shares Consolidated and the parent company’s separate financial statements for the year ended 31 December 2021 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 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. Table of contents Company details 1 Management’s statement on the consolidated and parent company’s separate annual financial statements 2 Consolidated and separate statements of financial position 3 Consolidated and separate statements of profit or loss 4 Consolidated and separate statements of other comprehensive income 5 Separate statement of changes in equity 6 Consolidated statement of changes in equity 7 Consolidated and separate statements of cash flows 8 Notes to the consolidated and separate financial statements 10 Annual report of “Vilvi Group” for 2021 75 AB Vilkyškių pieninė corporate governance report form 112 Independent auditor‘s report 134 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 1 Company details VILKYŠKIŲ PIENINĖ AB Telephone: +370 441 55330 Telefax number: +370 441 55242 Company code: 277160980 Registered office address: P. Lukošaičio g. 14, Vilkyškiai, LT-99254 Pagėgiai municipality, Lithuania Board Gintaras Bertašius (Chairman) Sigitas Trijonis Rimantas Jancevičius Vilija Milaševičiutė Andrej Cyba Linas Strėlis Management Gintaras Bertašius, General Manager Vaidotas Juškys, Executive Director Sigitas Trijonis, Technical Director Rimantas Jancevičius, Director for Purchasing Raw Materials Arvydas Zaranka, Production Director Vilija Milaševičiutė, Director for Economic and Financial Affairs Rita Juodikienė, Director for Corporate Governance and Quality Auditor PricewaterhouseCoopers UAB Banks SEB Bankas AB Swedbank AB Luminor Bank AB Šiaulių Bankas AB OP Corporate Bank plc Lithuania branch VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 2 Management’s statement on the consolidated and parent company’s separate annual financial statements On this day the management has discussed and authorised for issue the following set of separate and consolidated annual financial statements. The separate and consolidated annual financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. In our opinion, the accounting policies applied are appropriate and the separate and consolidated annual financial statements give a true and fair view, in all material respects, in accordance with International Financial Reporting Standards as adopted by the European Union. We recommend that the General Meeting of Shareholders approve the separate and consolidated annual financial statements. Vilkyškiai, 8 April 2022 Gintaras Bertašius General Manager (The document is signed by a qualified electronic signature) Vilija Milaševičiutė Director for Economic and Financial Affairs (The document is signed by a qualified electronic signature) VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 3 Consolidated and separate statements of financial position EUR ‘000 GROUP At 31 December Note COMPANY At 31 December 2021 2020 Assets 2021 2020 - - Investment property 12,14 6,780 5,395 48,771 46,207 Property, plant and equipment 12 11,090 13,196 1,108 968 Right-of-use assets 12,13 1,129 960 4,186 6,935 Intangible assets 15 14 20 - - Investments in subsidiaries 16 10,984 10,713 288 226 Non-current amounts receivable 17 1,116 226 304 890 Deferred income tax assets 26 470 890 54,657 55,226 Non-current assets 31,583 31,400 17,625 11,693 Inventories 18 8,046 6,436 14,271 9,062 Trade and other receivables 19 18,600 10,147 622 736 Prepayments 20 456 705 799 181 Cash and cash equivalents 21 579 155 33,317 21,672 Current assets 27,681 17,443 87,974 76,898 Total assets 59,264 48,843 Equity 3,463 3,463 Share capital 3,463 3,463 3,301 3,301 Share premium 3,301 3,301 2,174 2,347 Reserves 1,445 1,513 30,510 25,809 Retained earnings 28,841 18,954 39,448 34,920 Equity attributable to owners of the Company 22 37,050 27,231 133 53 Non-controlling interest - - 39,581 34,973 Equity 22 37,050 27,231 Liabilities 17,050 2,951 Borrowings 23 2,285 2,779 403 323 Lease liabilities 23 414 345 4,125 4,664 Government grants 24 685 873 53 - Trade and other payables 25 - - ___ _ _ 21,631 7,938 Non-current liabilities 3,384 3,997 6,420 18,083 Borrowings 23 3,941 3,996 290 303 Lease liabilities 23 301 312 179 1 Income tax payable - - 19,873 15,600 Trade and other payables 27 14,588 13,307 26,762 33,987 Current liabilities 18,830 17,615 48,393 41,925 Liabilities 22,214 21,612 87,974 76,898 Total equity and liabilities 59,264 48,843 The notes on pages 10 to 74 are an integral part of these separate and consolidated financial statements. General Manager Gintaras Bertašius Director for Economic and Financial Affairs Vilija Milaševičiutė 8 April 2022 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 4 Consolidated and separate statements of profit or loss EUR ‘000 The notes on pages 10 to 74 are an integral part of these separate and consolidated financial statements. Gintaras Bertašius Vilija Milaševičiutė General Manager Director for Economic and Financial Affairs GROUP COMPANY 2021 2020 EUR ’000 Note 2021 2020 156,045 120,873 Revenue 1 196,442 148,738 -138,849 -110,244 Cost of sales 2 -187,411 -147,825 17,196 10,629 Gross profit 9,031 913 228 197 Other operating income 3 10,959 7,669 -3,167 -3,182 Distribution expenses 6 -2,987 -3,182 -4,301 -3,185 Administrative expenses 7 -3,064 -2,320 -2,749 - Impairment of goodwill 15 - - -118 -79 Other operating expenses 4 -2,908 -1,516 45 -48 Other gain (loss) – net 5 419 -170 7,134 4,332 Results of operating activities 11,450 1,394 209 26 Finance income 208 14 -1,187 -1,216 Finance costs -464 -768 -978 -1,190 Finance costs, net 9 -256 -754 6,156 3,142 Profit (loss) before income tax 11,194 640 -656 730 Income tax 10 -420 731 5,500 3,872 Profit (loss) for the reporting year 10,774 1,371 Attributable to: 5,536 3,870 Shareholders of the Company 10,774 1,371 -36 2 Non-controlling interest - - 5,500 3,872 Profit (loss) for the reporting year 10,774 1,371 0.46 0.32 Basic and diluted earnings per share (in EUR) 11 0.90 0.11 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 5 Consolidated and separate statements of other comprehensive income EUR ‘000 GROUP COMPANY 2021 2020 EUR ‘000 2021 2020 5,500 3,872 Profit (loss) for the reporting year 10,774 1,371 Other comprehensive income - - Items that will not be reclassified to profit or loss - - - - Items that are or may be subsequently reclassified to profit or loss - - - - Other comprehensive income for the year, net of income tax - - 5,500 3,872 Total comprehensive income for the year 10,774 1,371 Attributable to: 5,536 3,870 Shareholders of the Company 10,774 1,371 -36 2 Non-controlling interest - - 5,500 3,872 Total comprehensive income for the year 10,774 1,371 The notes on pages 10 to 74 are an integral part of these separate and consolidated financial statements. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 6 Separate statement of changes in equity EUR ‘000 Note Share capital Share premium Revaluation reserve Legal reserve Retained earnings Total Balance at 1 January 2020 3,463 3,301 1,239 346 17,511 25,860 Profit for the year - - - - 1,371 1,371 Other comprehensive income Depreciation, write-off of revalued assets 12 - - -72 - 72 - Total other comprehensive income - - -72 - 72 - Total comprehensive income for the year - - -72 - 1,443 1,371 Transactions with owners recognised directly in equity , Total transactions with owners - - - - - - Balance at 31 December 2020 22 3,463 3,301 1,167 346 18,954 27,231 Balance at 1 January 2021 22 3,463 3,301 1,167 346 18,954 27,231 Profit (loss) for the period - - - - 10,774 10,774 Other comprehensive income Depreciation, write-off of revalued assets 12 - - -68 - 68 - Total other comprehensive income - - -68 - 68 - Total comprehensive income for the year - - -68 - 10,842 10,774 Transactions with owners recognised directly in equity - - - - - 955 - 955 Total transactions with owners - - - - -955 -955 Balance at 31 December 2021 22 3,463 3,301 1,099 346 28,841 37,050 The notes on pages 10 to 74 are an integral part of these separate and consolidated financial statements. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 7 Consolidated statement of changes in equity Equity attributable to owners of the Company EUR ‘000 Note Share capital Share premium Revalua- tion re- serve Legal reserve Retained earnings (deficit) Total Non- con- trolling inte- rest Total equity At 1 January 2020 22 3,463 3,301 2,109 346 21,831 31,050 51 31,101 Comprehensive income for the year Net profit (loss) - - - - 3,870 3,870 2 3,872 Other comprehensive income Depreciation, write-off of revalued assets - - -108 - 108 - - - Total other comprehensive income - - -108 - 108 - - - Total comprehensive income for the year - - -108 - 3,978 3,870 2 3,872 Contributions by and distributions to owners: Total contributions by and distributions to owners - - - - - - - - Changes in the Group not resulting in a loss of control Total transactions with shareholders - - - - - - - - At 31 December 2020 22 3,463 3,301 2,001 346 25,809 34,920 53 34,973 At 1 January 2020 22 3,463 3,301 2,001 346 25,809 34,920 53 34,973 Comprehensive income for the year Net profit (loss) - - - - 5,536 5,536 -36 5,500 Other comprehensive income Depreciation, write-off of revalued assets - - -173 - 173 - - - Total other comprehensive income - - -173 - 173 - - - Total comprehensive income for the year - - -173 - 5,709 5,536 -36 5,500 Contributions by and distributions to owners: Total contributions by and distributions to owners - - - - -955 -955 - -955 Change in fair value of put option - - - - -53 -53 - -53 Total contributions by and distribution to owners - - - - - 1,008 -1,008 - - 1,008 Changes in the Group not resulting in a loss of control Non-controlling interests on acquisition of subsidiary 16 - - - - - - 116 116 Total transactions with shareholders - - - - -1,008 -1,008 116 -892 At 31 December 2021 22 3,463 3,301 1,828 346 30,510 39,448 133 39,581 The notes on pages 10 to 74 are an integral part of these separate and consolidated financial statements. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 8 Consolidated and separate statements of cash flows EUR ‘000 GROUP COMPANY 2021 2020 EUR ‘000 2021 2020 Cash flows from operating activities 5,500 3,872 Profit (loss) for the year 10,774 1,371 Adjustments for: 4,813 4,505 Depreciation of property, plant and equipment 1,804 1,785 - - Loss (gain) on change in fair value of investment property -375 173 16 13 Amortisation of intangible assets 13 13 -590 -579 Amortisation and write-off of grants -188 -198 37 -39 Change in inventory write-down allowance 37 -4 2,749 - Impairment of goodwill - - -11 -13 Loss (gain) from disposal and write-off of property, plant and equipment -71 11 - - Other operating income -7,373 -5,651 656 -730 Income tax expenses 420 -731 978 1,190 Finance costs, net 256 754 14,148 8,219 5,297 -2,477 -5,755 -497 Change in inventories -1,648 -289 -62 132 Change in non-current amounts receivable -890 132 -3,396 -418 Change in trade and other receivables and prepayments -5,984 1,847 2,794 1,381 Change in trade and other payables 5,993 6,291 7,729 8,817 2,768 5,504 -687 -908 Interest paid -321 -477 - - Income tax paid - - 7,042 7,909 Net cash flows generated from operating activities 2,447 5,027 Cash flows from investing activities -1,474 -2,121 Payments for acquisition of property, plant and equipment -750 -1,113 -17 -12 Payments for acquisition of intangible assets -7 -12 400 70 Proceeds from sale of property, plant and equipment 341 13 - - Acquisition of ownership interest in subsidiary -271 - -2,125 -210 Loans granted -2,955 -210 51 - Government grants received - - - - Dividends received 2,571 - 1,044 70 Repayment of loans 1,044 74 -271 - Outflow of cash to acquire subsidiary, net of cash acquired - - -2,392 -2,203 Net cash flows generated used in investing activities -27 -1,248 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 9 Consolidated and separate statements of cash flows (continued) EUR ‘000 GROUP Note COMPANY 2021 2020 EUR ‘000 2021 2020 Cash flows from financing activities 4,475 7,887 Proceeds from borrowings 23 1,951 6,199 -7,058 -13,303 Repayments of borrowings 23 -2,500 -9,664 -535 -407 Lease payments -533 -390 -914 Payment of dividends -914 - -4,032 -5,823 Net cash flows generated from (used in) financing activities -1,996 -3,855 618 - 117 Net increase (decrease) in cash and cash equivalents 424 -76 181 298 Cash and cash equivalents as at 1 January 155 231 799 181 Cash and cash equivalents as at 31 December 21 579 155 The notes on pages 10 to 74 are an integral part of these separate and consolidated financial statements. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 10 Notes to the consolidated and separate financial statements General information The following companies are part of the Vilvi Group (hereinafter the “Group”): x VILKYŠKIŲ PIENINĖ AB, a parent company (hereinafter the “Parent” or the “Company”); x Modest AB, a subsidiary (hereinafter the “subsidiary Modest AB” or “Modest AB”); x Kelmės Pieninė AB, a subsidiary (hereinafter the “subsidiary Kelmės Pieninė AB” or “Kelmės Pieninė AB“). x Kelmės Pienas UAB, a subsidiary (hereinafter the “Kelmės Pienas UAB). x Pieno Logistika AB, a subsidiary (hereinafter the “subsidiary Pieno Logistika AB” or “Pieno Logistika AB”). x Baltic Dairy Board SIA, a subsidiary (hereinafter the “subsidiary Baltic Dairy Board SIA“ or “Ba ltic Dairy Board SIA“). VILKYŠKIŲ PIENINĖ AB was established in 1993. The Parent has no branches or representative offices. VILKYŠKIŲ PIENINĖ AB is a Lithuanian company listed on Nasdaq OMX Vilnius AB stock exchange. As at 31 December 2021, the Company’s shareholder structure was as follows: Shareholder Number of shares held Nominal value, EUR Total value, EUR Swisspartners Versicherung AG Zweigniederlassung Österreich 6,067,206 0.29 1,759,490 Multi Asset Selection Fund 2,035,729 0.29 590,361 Mr. Gintaras Bertašius 927,110 0.29 268,862 Other minority shareholders 2,912,955 0.29 844,757 Total capital 11,943,000 0.29 3,463,470 As at 31 December 2020, the Company’s shareholder structure was as follows: Shareholder Number of shares held Nominal value, EUR Total value, EUR Swisspartners Versicherung AG Zweigniederlassung Österreich 6,067,206 0.29 1,759,490 Multi Asset Selection Fund 2,035,729 0.29 590,361 Other minority shareholders 3,840,065 0.29 1,113,619 Total capital 11,943,000 0.29 3,463,470 As from April 2018, Mr Gintaras Bertašius, the main shareholder of Vilkyškių Pieninė AB, together with related persons concluded a joint life insurance policy with Swisspartners Versicherung AG Zweigniederlassung Österreich, by contributing in total 6,067,206 (50.8%) of ordinary registered shares held in Vilkyškių Pieninė AB. The insurance company had irrevocably granted powers to exercise all non- property rights of a shareholder, including the right to vote at the meeting of shareholders of the issuer, to Mr Gintaras Bertašius and the related persons for the entire validity period of the insurance policy. The Company’s ultimate controlling party is Mr Gintaras Bertašius and persons related to him. The Parent’s core line of business is production and sale of different types of cheese. The Company also produces and sells whey products, raw milk and cream. Business activities are carried out at the main production facilities located in Vilkyškiai, Pagėgiai region municipality. The Parent also has a milk distribution centre located in Eržvilkas, Jurbarkas region municipality. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 11 Notes to the consolidated and separate financial statements General information (continued) The Parent controls the subsidiary Modest AB, which is engaged in milk processing and production of milk products. The Company owns 99.7% of shares with voting rights in the subsidiary Modest AB. Modest AB produces Mozzarella cheese, blue-veined cheese, other cheese products. The Parent also controls the subsidiary Kelmės Pieninė AB, which is engaged in whey processing and production of dried milk products. The Company owns 100% of shares with voting rights in the subsidiary Kelmės Pieninė AB. Before 28 February 2021, Kelmės Pieninė AB was engaged in two types of activities: production of fresh milk products; whey processing and production of dried milk products. For the purpose of ensuring a more efficient operation of those two types of activities, at the end of 2020 Kelmės Pieninė AB founded the subsidary Kelmės Pienas UAB, which acquired the business of production of fresh milk products (curd, yougurt, sour cream, cream, butter) as continued business activities and a complex. Kelmės Pieninė AB transferred to Kelmės Pienas UAB the agreements, assets and related rights and obligations solely pertaining to fresh milk products. The transfer was completed on 28 February 2021. Kelmės Pieninė AB owns 100% of shares of Kelmės Pienas UAB. The Parent also controls the subsidiary Pieno Logistika AB, which is engaged in lease of buildings. The Company owns 58.9% of shares with voting rights in the subsidiary Pieno Logistika AB. Since 1 April 2021, the group also includes the subsidiary Baltic Dairy Board SIA, which is engaged in production of milk products with high value-added dairy ingredients (GOS), as well as in milk and whey separation, which involves separation of proteins and lactose, resulting in two different types of products. The Company owns 70% of shares with voting rights in the subsidiary Baltic Dairy Board SIA. As at 31 December 2021, the Group had 867 (31 December 2020: 830) employees. As at 31 December 2021, the Company had 440 (31 December 2020: 459) employees. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 12 Notes to the consolidated and separate financial statements Basis of preparation Statement of compliance The Group’s consolidated and the Company’s separate financial statements (hereinafter the “financial statements” or the “consolidated and separate financial statements”) have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (hereinafter “the EU”). Pursuant to the Law on Companies of the Republic of Lithuania, the annual financial statements prepared by management have to be approved by the General Meeting of Shareholders. The shareholders of the Company have a statutory right to approve these financial statements or not to approve and to require preparation of a new set of the annual financial statements. These financial statements include the consolidated financial statements of the Group and the separate financial statements of the Company. Measurement basis The financial statements have been prepared on a historical cost basis except for: x buildings that are a part of property, plant and equipment and measured at fair value, less any subsequent accumulated depreciation and impairment losses; x buildings that a part of investment property and measures at fair value. Functional and presentation currency All amounts in these financial statements are presented in the euros (EUR) and they have been rounded to the nearest thousand. Foreign currency transactions Foreign currency transactions are translated into the euros using the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in a foreign currency are translated in the euros using the exchange rate prevailing at the date of the preparation of the statement of financial position. All foreign currency transactions have been translated in accordance with the provisions of the Law on Accounting using the exchange rate of the euro against the foreign currency prevailing at the date of the transaction. Foreign exchange differences arising from the settlement of such transactions are recognised in the statement of profit or loss. Non-monetary assets and liabilities that are measured at historical cost in a foreign currency are translated into the euros using the official exchange rate prevailing at the date of the transaction. Consolidation Subsidiaries are all entities (including structured entities) over which the Group has control. The Group c ontrols an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of the subsidiaries are included in the Group’s consolidated financial statements from the date on which the Group obtains control, and continue to be included until the date that such control ceases All intra-group transactions and balances are eliminated for the purpose of the consolidated financial statements. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 13 Notes to the consolidated and separate financial statements Basis of preparation (continued) Consolidation (continued) The acquisition method is used to account for business combinations. The consideration transferred in return for the acquisition of the subsidiary is the fair value of the assets transferred, the liabilities assumed and the Group‘s equity interest. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed when incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Under the acquisition method, the Group recognises the non-controlling interest in the acquiree either at the fair value or at the non-controlling interest’s proportionate share of net assets in the acquiree. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the Group’s share of net assets in the acquiree, the difference is recognised directly in the statement of profit and loss as negative goodwill. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 14 Notes to the consolidated and separate financial statements Summary of significant accounting policies The accounting policies, set out below, have been consistently applied by the Group and the Company to all the periods presented in these financial statements, except for those which have changed due to the IFRS amendments and the new IFRS, as presented in the section below ‘Effect on financial statements of application of new standards and amendments and new interpretations to standards’. Property, plant and equipment Property, plant and equipment, excluding buildings, is stated at acquisition cost, less subsequent accumulated depreciation and impairment losses. Costs related to the acquisition of the assets are included in the acquisition cost. The cost of assets pro duced internally by the Parent and the subsidiaries comprises the cost of materials, direct labour costs and indirect labour costs allocated on a proportionate basis. When parts of the items of property, plant and equipment have different useful lives, the y are accounted for as separate items of property, plant and equipment. The net book value of the item of property, plant and equipment of the Group and the Company includes the cost of the replaced parts of such asset, only when it is probable that futur e economic benefits associated with the item will flow to the Group and the Company and the cost of the item can be measured reliably. Other expenses related to property, plant and equipment are recognised in the statement of profit or loss during the reporting period in which they are incurred. Buildings are recorded at revalued amounts, being their fair value at the date of the revaluation less any subsequent accumulated depreciation and impairment. Revaluations are carried out at regular intervals, i.e. at least every five years, to ensure that the carrying amount of buildings does not materially differ from their fair value at the date of the preparation of the statement of financial position. The fair value of buildings is determined by certified independent property valuers. Depreciation is calculated on a straight-line basis over the estimated useful lives of assets. The revaluation reserve for buildings is transferred to retained earnings in proportion to the depreciation of revalued buildings. In case of revaluation, when the estimated fair value of an asset is lower than its net book value, the net book value of the asset is immediately reduced to the fair value and such impairment is recognised as expenses. However, such impairment is deducted from the previous revaluation increase of the asset accounted for in the revaluation reserve, to the extent it does not exceed the amount of such increase. In case of revaluation, when the estimated fair value of an asset is higher than its net book value, the net book value of the asset is increased to the fair value and such increase is recorded in the revaluation reserve of property, plant and equipment under the shareholder’s equity in the statement of other comprehensive income. Depreciation is recognised on a straight-line basis to write down the cost of the asset over its useful life, less its residual amount. Depreciation is recognised in the statement of profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives are as follows: Buildings 8-40 years Plant and machinery 4-20 years Other assets 3-15 years VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 15 Notes to the consolidated and separate financial statements Summary of significant accounting policies (continued) Property, plant and equipment (continued) The useful lives, residual values and depreciation methods are reviewed regularly to ensure that the deprecation period and other estimates are consistent with the expected pattern of economic benefits from property, plant and equipment. Investment property Property that is held for long-term rental yields or for capital appreciation or both, and that is not occupied by the Company, is classified as investment property. Investment property also includes property that is being constructed or developed for future use as investment property. Investment property is measured initially at its cost, including related transaction costs and where applicable borrowing costs. After initial recognition, investment property is carried at fair value. Investment property that is being redeveloped for continuing use as investment property, or for which the market has become less active, continues to be measured at fair value. Investment property under construction is measured at fair value if the fair value is considered to be reliably determinable. Investment properties under construction for which the fair value cannot be determined reliably, but for which the Company expects the fair value of the property will be reliably determinable when construction is completed, are measured at cost less impairment until the fair value becomes reliably determinable or construction is completed - whichever is earlier. It may sometimes be difficult to determine reliably the fair value of the investment property under construction. In order to evaluate whether the fair value of an investment property under construction can be determined reliably, management considers the following factors, among others: x the provisions of the construction contract; x the stage of completion; x whether the project/property is standard (typical for the market) or non-standard; x the level of reliability of cash inflows after completion; x the development risk specific to the property; Fair value is based on active market prices, adjusted, if necessary, for differences in the nature, location or condition of the specific asset. If this information is not available, the Company uses alternative valuation methods, such as recent prices on less active markets or discounted cash flow projections. Valuations are performed as at the financial position date by professional valuers who hold recognised and relevant professional qualifications and have recent experience in the location and category of the investment property being valued. These valuations form the basis for the carrying amounts in the Company’s financial statements. The fair value of investment property reflects, among other things, rental income from current leases and other assumptions market participants would make when pricing the property under current market conditions. Subsequent expenditure is capitalised to the asset’s carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced, the cost of the replacement is included in the carrying amount of the property, and the fair value is reassessed. Changes in fair values are recognised in the statement of profit and loss. Investment properties are derecognised when they have been disposed of. Where the Company disposes of a property at fair value in an arm’s length transaction, the carrying value immediately prior to the sale is adjusted to the transaction price, and the adjustment is recorded in the income statement within net gain from fair value adjustment on investment property. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 16 Notes to the consolidated and separate financial statements Summary of significant accounting policies (continued) Investment property (continued) If an investment property becomes owner occupied, it is reclassified as property, plant and equipment. Its fair value as at the date of reclassification becomes its cost for subsequent accounting purposes. If an item of owner-occupied property becomes an investment property because its use has changed, any difference resulting between the carrying amount and the fair value of this item as at the date of transfer is treated in the same way as a revaluation under IAS 16. Any resulting increase in the carrying amount of the property is recognised in the income statement to the extent that it reverses a previous impairment loss, with any remaining increase recognised in other comprehensive income and increased directly to equity in revaluation surplus within equity. Any resulting decrease in the carrying amount of the property is initially charged in other comprehensive income against any previously recognised revaluation surplus, with any remaining decrease charged to the income statement. Where an investment property undergoes a change in use, such as commencement of development with a view to sell, the property is transferred to inventories. A property’s deemed cost for subsequent accounting as inventories is its fair value at the date of change in use. Goodwill Goodwill is an asset representing the future economic benefits arising from assets that cannot be separated from other assets and recognised on a business combination. Goodwill arising on acquisition of subsidiaries is recognised as intangible assets. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses (tested on an annual basis). For the purposes of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Cash-generating units are operations of Modest AB relating to production and sale of cheese and cheese products, and operations of Kelmės Pienas UAB relating to production and sale of fresh milk products. Where goodwill is a portion of a cash-generating unit, and a portion of an operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the carrying amounts of the operation disposed of and the portion of the cash-generating unit retained. Non-controlling interest Non-controlling interest is the equity in a subsidiary not attributable directly or indirectly to the Parent. Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognised as a result of such transactions. Adjustments to non- controlling interest not resulting in a loss of control are based on a proportionate amount of the controlled net assets of the subsidiary. Non-controlling interest in Baltic Dairy Board SIA is measured at fair value. The Group decided to recognise non-controlling interest in proportion to its share of net identifiable assets acquired. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 17 Notes to the consolidated and separate financial statements Summary of significant accounting policies (continued) Non-controlling interest (continued) Non-controlling interest’s put option The Group has signed a written put option, under which the non-controlling shareholders of Baltic Dairy Board SIA have a right to sell the shares of Baltic Dairy Board SIA to AB Vilkyškių Pieninė AB as from 1 April 2023. The transaction price was determined with reference to the fair value estimated by an independent expert at the date of execution. The terms do not provide a present ownership interest in the shares subject to the put. The amount that may become payable upon exercising the put option is initially recognised at the present value of redemption amount and accounted for in the Parent’s liabilities and equity. For as long as the put option remains not exercised, the non-controlling interest is recognised at the end of each reporting period, whereas the changes in liabilities relating to non-controlling interest’s put option are accounted for in the Parent’s equity. In case the put option remains not exercised, the liability is derecognised and the Parent‘s equity is adjusted accordingly. Investments in subsidiaries Investments in the subsidiaries in the separate financial statements are stated at acquisition cost, less impairment losses. Inventories Inventories comprise finished products, work in progress, and goods and materials. Inventories are initially measured at acquisition or production cost. The production cost includes direct labour costs, costs of materials and conversion costs incurred during the production period. Production costs also include a systematic allocation of fixed and variable production overheads. At the end of the reporting period inventories are measured at the lower of cost or net realisable value, less any write- downs. Net realisable value is the estimated selling price, less the estimated costs of completion and selling expenses. Write- downs of inventories to net realisable value are included in the cost of sales. The utilisation of inventories is determined using the first-in, first-out (FIFO) method. Financial assets and liabilities The Group and the Company classify their financial assets into the following categories: x financial assets subsequently measured at fair value (either at fair value through other comprehensive income or at fair value through profit or loss), and the Group and the Company have no such assets; x financial assets measured at amortised cost. The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. The Group reclassifies debt instruments when and only when its business model for managing those assets changes. All regular way purchases and sales of financial assets are recognised on trade-date, the date on which the group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the group has transferred substantially all the risks and rewards of ownership. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 18 Notes to the consolidated and separate financial statements Summary of significant accounting policies (continued) Financial assets and liabilities (continued) On initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Financial assets measured at amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses. Trade receivables Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within 30 to 60 days, and therefore, are all classified as current. Trade receivables are recognised initially at the amount of consideration that is unconditional. The Group and Company holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. The carrying amounts of the trade receivables include receivables which are subject to a factoring arrangement. Under this arrangement, Group and Company has transferred the relevant receivables to the factor in exchange for cash and is prevented from selling or pledging the receivables. Under factoring with recourse agreements, Group and Company has retained late payment and credit risk. The Group and Company therefore continues to recognise the transferred assets in their entirety in its statement of financial position. The amount repayable under the factoring agreement is presented as secured borrowing. The Group and Company considers the held to collect business model to remain appropriate for these receivables and hence continues measuring them at amortised cost. Under factoring without recourse agreements Group and Company does not retain any risks, therefore these assets are derecognised from statement of financial position and at year-end there is no balances outstanding. Impairment The Group and Company assess on a forward-looking basis the expected credit losses associated with its debt instruments measured at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the trade receivables and contract assets. To measure the expected credit losses, trade and other receivables have been grouped based on shared credit risk characteristics and the days past due. The expected loss rates are based on the profiles of receivables from sale of goods over the period of 48 months before 31 December 2021 or 31 December 2020, respectively, and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to the amounts due. Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, failure of a debtor to engage in a repayment plan with the Group, and contractual payments past due more than 180 days. Impairment losses on trade receivables are presented as net impairment losses within operating profit. Subsequent recoveries of amounts previously written off are credited against the same line item. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 19 Notes to the consolidated and separate financial statements Summary of significant accounting policies (continued) Trade and other payables These amounts represent outstanding liabilities for goods and services provided to the Group prior to the end of financial year. The amounts payable are unsecured and are usually paid within 30 days after their recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. Borrowing costs General and specific borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale. Other borrowing costs are expensed in the period in which they are incurred. Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest rate method. Costs incurred in relation to collateralisation of borrowing facilities are recognised as transaction costs of the borrowings to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the related costs are capitalised as a prepayment for liquidity services and amortised over the period of the loan facility to which it relates. Financial assets or financial liabilities at fair value through profit or loss Financial assets and financial liabilities at fair value through profit or loss are recorded at fair value in the statement of financial position. Gains or losses on reassessment are recognised directly in profit or loss. Interest income and expense and di vidends on such investments are recognised as interest income and dividend income or interest expenses, respectively. Interest-bearing amounts Interest-bearing amounts are recognised initially at fair value, plus transaction costs. Subsequently, interest - bearing amounts are recognised at amortised cost using the effective interest method. Reversal of impairment An impairment loss on amounts receivable carried at amortised cost is reversed, if, in a subsequent period, the increase in the recoverable amount c an be related to an event occurring after the impairment loss was recognised. The impairment loss is reversed to the extent that the carrying value of the asset does not exceed its value that would have been determined had no impairment loss been recognised. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 20 Notes to the consolidated and separate financial statements Summary of significant accounting policies (continued) Fair value measurement The fair value of investments traded in an active market is based on quoted market prices at the reporting date. If the market for a financial asset is not active (and for unlist ed securities), the Group and the Parent establish fair value by using valuation techniques. These include the use of recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis or other valuation models. In determining the fair value of assets or liabilities the Group and the Company use as much as possible inputs that are observable in the market. A fair value hierarchy categorises into three levels the inputs to valuation techniques used to measure fair value: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); Level 3: inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs). The inputs used to measure the fair value of an asset or a liability might be categorised within d ifferent levels of the fair value hierarchy. In those cases, the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Group and the Company recognise the amounts transferred within the fair value hierarchy levels at the end of the reporting period in which the change occurred. Fair values measured for the purposes of assessment and (or) disclosure are calculated using the below presen ted methods. When applicable, further information on assumptions used in determining fair values is disclosed in the note related to specific assets or liabilities. Derecognition of financial assets and financial liabilities Financial assets A financial asset (or a part of a financial asset or part of a group of similar financial assets) is derecognised when:  the rights to receive cash flows from the asset have expired; or  the Group and the Company have retained the right to receive cash inflows from the asset, but have assumed an obligation to pay them in full without material delay to a third party under a “pass through” arrangement; or  the Group and the Company have transferred their rights to receive cash flows from the asset and/or (a) have transferred all the risks and rewards of the asset, or (b) have neither transferred nor retained all the risks and rewards of the asset, but have transferred control of the asset. Where the Group and the Company have transferred their rights to receive cash flows from the asset and have neither transferred nor retained all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Parent’s/subsidiary’s continuing involvement in the asset. Financial liabilities A financial liability is derecognised when the obligation under the liability is settled, cancelled or expires. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 21 Notes to the consolidated and separate financial statements Summary of significant accounting policies (continued) Cash and cash equivalents Cash and cash equivalents comprise cash on hand and cash at bank. Cash equivalents are 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. For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand, demand deposits in bank accounts and other short-term liquid investments. Bank overdrafts are recognised in the statement of financial position as current borrowings and are not attributed to cash equivalents in the statement of cash flows as usually their balance is negative. Interest and dividends received are attributed to cash flows of investing activities, interest paid are attributed to cash flows from operating activities, whereas dividends paid – to cash flows from financing activities. Impairment Non-financial assets Non- financial assets, except for inventories and deferred tax assets, are reviewed for impairment whenever events or changes in circumstance indicate that the asset may be impaired. If such an indication exists, the asset's recoverable amount is estimated. The recoverable amount of an asset or cash-generating unit is the higher of its value in use and its fair value, less costs to sell. The asset’s value in use is calculated by discounting future cash flows to their present value using a pre-tax discount rate reflecting current market assumptions regarding time value of money and risk specific to the asset concerned. For the purpose of impairment testing, assets that cannot be tested individually are grouped into the smallest group of assets that generates ca sh inflows through the asset’s continuous use and is independent from cash flows generated by other assets or the groups of assets (“the cash generating unit” or “CGU”). Whenever the net book value of an asset exceeds its recoverable amount, an impairment loss is recognised in the statement of profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of goodwill allocated to the unit and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. Reversal of impairment losses recognised in prior years is recorded when there is an indication that the impairment losses recognised for the asset no longer exist or have decreased. Reversal is accounted for in the statement of profit or loss under the same caption as impairment loss. An impairment loss allocated to goodwill is not reversed. Provisions Provisions for liabilities are recognised in the statement of financial position when there are commitments as a result of past events and it is probable that additional funds will be required to settle these obligations. If the impact is material, provisions are estimated by discounting future cash flows to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. Leases Where the Group/Company is a lessee The Group and the Company lease out buildings, motor vehicles, plant and machinery, and other assets. The Group‘s term of lease ranges up to 8 years, but they contain an extension option. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 22 Notes to the consolidated and separate financial statements Summary of significant accounting policies (continued) Leases (continued) As the management determines the lease term, it considers all relevant facts and circumstances that create an economic incentive for the lessee to exercise the option to extend the lease, or not to exercise the option to terminate the lease. The extension option is included in the lease term only when it is reasonably certain that the lease will be extended (or will not be terminated). The lease terms and conditions are negotiated individually, however, there are no non-standard terms and conditions. The lease contracts do not stipulate any financial performance covenants that the Group and the Company would be required to comply with. The lease liabilities arising from a lease are measured by a lessee at the commencement date on a present value basis, including the following payments: x fixed payments (including in-substance fixed payments), less any lease incentives receivable x variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date x amounts expected to be payable by the group under residual value guarantees x payments of penalties for terminating the lease, if the lease term reflects the group exercising that option. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, the lessee’s incremental borrowing rate is used. The interest rate implicit in the lease is the interest rate as a result of which the present value of the lease payments and unguaranteed residual value is equal to the sum of fair value of leased assets and any other initial direct costs of the lessor. The lease liability is measured at amortised cost using the effective interest rate, which represents the discount rate used in discounting of lease payments. Interest expenses relating to the lease liability are allocated over the lease period and recognised through profit or loss. Right-of-use assets are initially measured at cost comprising the following: x the amount of the initial measurement of lease liability; x any lease payments made at or before the commencement date less any lease incentives received; x any initial direct costs incurred by a lessee; and x restoration costs. Subsequently the right-of-use assets are recognised by the lessee at cost less accumulated depreciation and impairment losses. When the title of ownership is transferred to the lessee at the end of the lease period or when the price of the right-of-use assets shows that the lessee will exercise the buy option, then the lessee estimates depreciation of right-of-use assets from the commencement date to the end of the useful life of the leased assets. Otherwise, the lessee estimated depreciation for right-of-use assets from the commencement date to the end of the useful life of the right-of-use assets or the end of the lease period, depending on which occurs earlier. Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases that, at the commencement date, have a lease term of 12 months or less, and that do not contain a purchase option. Low-value assets mostly represent milk products. Operating lease -– where the Group/Company is a lessee Operating lease payments are recognised as expenses in profit or loss using the straight-line method over the lease term. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 23 Notes to the consolidated and separate financial statements Summary of significant accounting policies (continued) Dividends Dividends are recorded as a liability or an amount receivable in the period in which they are declared. Government grants Grants received as a compensation for the costs incurred are recognised in profit or loss over the period in which the costs are incurred. Government and the European Union grants and third-party compensations received in the form of non- current assets or intended for the purchase of non-current assets are considered as asset-related grants. Grants are initially recorded at the fair value of the asset received and subsequently amortised. Amortisation costs of grants are included in the cost of production or administrative expenses as well as in the depreciation charge of property, plant and equipment for which the grant was received. Revenue The Group and Company manufactures and sells a range of cheese and milk products in the wholesale market. Sales are recognised when control of the products has been transferred, being when the products are delivered to the wholesaler, the wholesaler has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the wholesaler’s acceptance of the products. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the wholesaler, and either the wholesaler has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or the Group and the Company has objective evidence that all criteria for acceptance have been satisfied. Income from transport services is recognised in the period in which the services are rendered. The goods are sometimes sold with retrospective volume discounts based on aggregate sales over a month or a 12-months period. Revenue from these sales is recognised based on the price specified in the contract, net of the estimated volume discounts. Accumulated historical experience is used to estimate and provide for the discounts, using the expected value method, and revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur. A refund liability is recognised for expected volume discounts payable to customers in relation to sales made until the end of the reporting period. It is considered that there is no significant financing component, since customers are offered a credit period of 30 days to settle their obligations, which is in line with the market practice. Receivable is recognised when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due. The Group and Company does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust any of the transaction prices for the time value of money. Contract liabilities are recognised and presented as advance amounts received. Cost of sales Cost of sales consists of direct and indirect costs, including depreciation and remuneration expenses incurred in order to achieve the turnover set for a respective year. Expenses are reco gnised on an accrual basis and matching principle. Distribution and administrative expenses Distribution and administrative expenses comprise expenses related to transportation, administrative staff, coordination activities, office supplies, etc. and als o comprise depreciation and amortisation expenses. Operating expenses are recognised on an accrual basis. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 24 Notes to the consolidated and separate financial statements Summary of significant accounting policies (continued) Other operating income and expenses Other operating income and expenses comprise gain or loss from the disposal of non-current assets as well as other income and expenses not directly related to the principal activities of the Group and the Company. Finance income and costs Income and expenses of financing activities include interest receivable and payable, realised and unrealised foreign exchange gain and loss related to borrowings and financial liabilities denominated in foreign currencies. Interest income is recognised in profit or loss using the effective interest method. Interest expenses on leases is recognised in profit or loss using the effective interest method. Employee benefits Short-term employee benefits are recognised as current expenses of the period in which the services have been rendered. Such employee benefits include wages and salaries, social security contributions, extra pays, paid vacation, contributions to pension funds, and other benefits. There are no long-term employee benefits. The Group and the Company pay 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 Group and the Company pay 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. The Group and the Company also pay contributions to Pillar III investment fund on behalf of its employees based on the defined contribution plan. The contributions are recognised as expenses on an accrual basis and included in general and administrative expenses. Income tax Income tax comprises current and deferred tax. Income tax is recogni sed in the statement of profit or loss, except to the extent that it relates to line items recognised directly in equity or through other comprehensive income, in which case the tax is recognised in equity through other comprehensive income. Current income tax is calculated in accordance with the tax legislation, using the tax rates enacted and effective as at the reporting date in the countries where the Company and its subsidiaries generate revenue. A standard income tax rate of 15% is applied to companies registered in the Republic of Lithuania. Tax losses, except for those arising on disposal of securities and/or derivative financial instruments, can be carried forward for unlimited period, provided the entity continues the operations, which generated these tax losses. Tax losses available for carry forward cannot exceed 70% of income for the tax period, calculated by deducting non-taxable income, allowable deductions and limited allowable deductions. The procedure of carrying forward losses arising on disposal of securities and/or derivative financial instruments has not changed, therefore, these losses can be carried forward for the period of 5 years and can only be used to reduce taxable income earned from transactions of the similar nature. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 25 Notes to the consolidated and separate financial statements Summary of significant accounting policies (continued) Income tax (continued) The Group companies operating in the Republic of Latvia pay income tax upon distribution of profit for the reporting year. Income tax rate of 20% is payable on distributed profit (calculated dividends, dividend equivalent income and conditional dividends) and conditional distributed profit (non-operating expenses, etc.). Income tax rate of 20% is applied to gross taxable amount. Gross tax base for the tax period is calculated as net tax base (distributed profit and conditionally distributed profit) divided by 0.8 coefficient. Deferred income tax is calculated on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts reported in the financial statements. Deferred income tax is not calculated on temporary differences arising on initial recognition of an asset or liability, which at the time of the transaction affect neither accounting nor taxable profit. Deferred income tax is determined using the tax rates that are expected to apply when the related temporary differences are expected to reverse and that are known at the date of the preparation of the statement of financial position. Deferred income tax assets are recognised only when the Group and the Company and expect that future taxable profit will be available against which tax assets can be utilised. Deferred income tax is reviewed at each date of the statement of financial position and reduced by the amount of tax assets that will not be utilised. Earnings per share The Group and the Company disclose information on basic and diluted earnings per share. Basic earnings per share are calculated by dividing profit or loss attributable to the shareholders of the Parent by the weighted average number of ordinary shares during the period. Diluted earnings per share are calculated by adjusting profit or loss attributable to the shareholders, and the weighted average number of ordinary shares during the year, for the effects of all potential ordinary shares. During the reporting periods the Group and the Company did not issue potential ordinary shares. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board making strategic decisions, and the General Manager. An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including intra-segment revenues and expenses. The Group has three reportable segments established on the basis of different groups of products (cheese, cheese products and other, dry milk products, fresh milk products). Impact on the financial statements of adoption of new standards, amendments and interpretations Except for the changes described below, accounting policies applied in the current financial year are consistent with those of the previous financial year. The accounting policies set out below have been consistently applied by the Group and the Company to all the periods presented in these consolidated financial statements. The Group and the Company adopted the following new standards and amendments, including the respective amendments to the existing standards with effect from 1 January 2021: - Interest rate benchmark (IBOR) reform – phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (issued on 27 August 2020 and effective for annual periods beginning on or after 1 January 2021). IBOR reform had no impact for the Group, as all borrowings are either EURIBOR linked, or have fixed interest rates, therefore there was no need to transition to alternative benchmark interest rates. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 26 Notes to the consolidated and separate financial statements Summary of significant accounting policies (continued) Impact on the financial statements of adoption of new standards, amendments and interpretations (continued) 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 overnight (EONIA), three months and six 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 23. - 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 Company and the Group have assessed the impact of the amendments and concluded that they have no impact on their financial statements. Standards, interpretations and amendments to existing standards that are not yet effective A number of amendments to new standards and interpretations are effective for annual periods beginning on 1 January 2022 and have not been adopted in the preparation of th ese consolidated financial statements. Standards, interpretations and amendments that may be relevant to the Group and the Company are presented below. The Group and the Company do not intend to early adopt these standards. - 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). The Company and the Group have preliminary assessed the impact of the amendments and concluded that they have no impact on their financial statements. - Proceeds before intended use, Onerous contracts – cost of fulfilling a contract, Reference to the Conceptual Framework – narrow scope amendments to IAS 16, IAS 37 and IFRS 3, and Annual Improvements to IFRSs 2018-2020 – amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41 (issued on 14 May 2020 and effective for annual periods beginning on or after 1 January 2022). The Company and the Group have preliminary assessed the impact of the amendments and concluded that they have no impact on their financial statements. There are no other amended IFRSs, IASs, or IFRIC interpretations that are not yet effective and that would be expected to have a significant impact on the Company and the Group. Contingencies Contingent liabilities are not recognised in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognised in the financial statements but disclosed when an inflow of economic benefits is probable. Events after the reporting period Events after the reporting period that provide additional information about the Group’s and the Company’s position at the reporting date (adjusting events) are reflected in the financial statements. Events after the reporting period that are not adjusting events are disclosed in the notes to the financial statements when material. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 27 Notes to the consolidated and separate financial statements Summary of significant accounting policies (continued) Offsetting financial assets and financial liabilities Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty. Accounting estimates and assumptions The preparation of financial statements in conformity with IFRS as adopted by the European Union requires the use of accounting estimates and assumption by management that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. The accounting estimates and the related assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements about the net book amounts of assets and liabilities that are not readily apparent from other sources. The actual results may ultimately differ from those estimates. The accounting estimates and underlying assumptions are regularly reviewed and are based on historical experience, other factors reflecting a current situation and reasonably possible future events. The Group and the Company make estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant effect on the amounts of assets and liabilities and can cause a significant adjustment to these amounts within the next financial year are addressed below. Impairment losses on property, plant and equipment The Company and the Group did not identify any impairment indications in respect of property, plant and equipment as at 31 December 2021 and 2020, and therefore, no impairment test was performed. Assumptions and results of impairment test performed by the Group in respect of goodwill as at 31 December 2021 and 2020 are disclosed in Note 15. Measurement of inventories The Group and the Company review the movement in the inventory account, assess carrying amount on a quarterly basis. The carrying amount of inventories should not exceed future economic benefits expected to be received from the disposal or use of inventories. Loss of inventory write-down to net realisable value is recognised in the statement of profit or loss during the period in which the inventory measurement, write-down were performed. Inventory write-down is assessed taking into account historical data and actual sales of inventories below cost. For more information refer to Note 18 ‘Inventories’. Useful life of property, plant and equipment Useful lives of the assets are reviewed annually and revised when there are grounds for believing that the remaining useful lives do not reflect technical conditions, economic utilisation or physical conditions of the assets. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 28 Notes to the consolidated and separate financial statements Summary of significant accounting policies (continued) Financial risk management The use of the financial instruments exposes the Group and the Company to the following risks: x credit risk; x liquidity risk; x market risk. Information on each type of the above-mentioned risks to which the Group and the Company are exposed, objectives, policies and processes for managing the risk and the methods used to measure the risk is set out in this section. Note 30 ‘Financial instruments and risk management’ discloses quantitative information on each type of the above-mentioned risks and on the Group’s and the Company’s capital management. Risk management framework The Board is responsible for the development and monitoring of the Group’s and the Company’s overall risk management programme. The Group’s and the Company’s risk management policy defines and analyses risks to which the companies are exposed, establishes appropriate risk limits, controls risks and adherence to risk limits. The risk management policy and systems are reviewed on a regular basis to reflect market conditions and the Group’s and the Company’s operational changes. The Group and the Company, through training and management standards and procedures, aim to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Credit risk In conducting trading activities, the Group and the Company apply deferred payment in respect of sale of products and services, and therefore, a risk may arise that clients will not pay for products and services provided by the Group and the Company. The Group and the Company aim to minimise credit risk through credit limit approach, based on which the amounts of credits granted to clients and the types of credit enhancements are established as follows: x limit, x guarantees, x insurance. At the end of 2017, the Group and the Company insured its sales to foreign clients under the credit insurance agreement concluded with the company Euler Hermes for the term of two years. On November 2021, the insurance was extended for additional two years. For each client, the credit risk is assessed individually. Trade receivables are regularly monitored by the Finance Department. In the event of overdue amounts receivable, the sale is suspended and debt recovery procedures are initiated. Liquidity risk Liquidity risk is a risk that the Group and the Company will not be able to meet their financial liabilities in due time. The Group and the Company manage liquidity risk with the aim to achieve the best possible liquidity of the Group and the Company which enables to settle obligations both in the ordinary course of business and under complicated operating conditions and prevents from incurring unacceptable losses and damaging the Group’s and the Company’s reputation. The Group’s and the Company’s policy is aimed at maintaining sufficient cash and cash equivalents or ensuring funding through an adequate amount of committed credit facilities in order to meet their commitments at a given date in accordance with the strategic plans. The Group’s and the Company’s objective is to maintain balance between the continuity and flexibility of funding. The Group and the Company generate a sufficient amount of cash form their activities, therefore management is responsible for ensuring a sufficient level of the Group’s and the Company’s liquidity. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 29 Notes to the consolidated and separate financial statements Summary of significant accounting policies (continued) Market risk Market risk is a risk that changes in market prices, e.g. foreign exchange rates and interest rates, will affect the Group’s and the Company’s results of operations or the value of financial instruments held. The aim of market risk management is to manage open risk positions in order to optimise rate of return. The Group and the Company manage foreign exchange risk by minimising the open position in a foreign currency. Further information on hedging against foreign exchange risk is disclosed in Note 30 ‘Fin ancial instruments and risk management’. The Group’s and the Company’s income and operating cash flows are substantially independent of market interest rates. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 30 Notes to the consolidated and separate financial statements Notes 1 Segment information The Group consists of 6 legal entities: Vilkyškių Pieninė AB, Kelmės Pieninė AB, Kelmės Pienas UAB, Modest AB, Baltic Dairy Board SIA, and Pieno Logistika AB. The principal activity of each entity (operating segment) is the production of milk products, except for Pieno Logistika AB, which is engaged in lease of buildings. The Group has several operating segments which are as described below. The segments represent different product groups, which are managed separately because they require different technology and marketing strategies. Since Baltic Dairy Board SIA became part of the Group with effect from 1 April 2021 and its revenue from GOS activities was immaterial and accounted for less than 5% of total revenue, therefore, no new operating segment was distinguished. Revenue was added to the operating segment – Cheese, cheese products, etc. The Board and the General Manager review internal management reports prepared for each operating segment on a monthly basis. The following summary describes the products in each operating segment of the Group: x Cheese, cheese products and other. The segment comprises cheese, cheese products, cream, and liquid whey that stays during the process of cheese production, GOS products; x Dried milk products. The segment comprises WPC, skimmed-milk, permeate and whey powder produced by the subsidiaries; x Fresh milk products. The segment comprises fresh milk products produced by the subsidiaries (kephir, yoghurt, sour cream, butter, curd products); Information on the results of each operating segment is presented below. Performance is assessed based on the gross profit of the segments, which is presented in the internal management reports reviewed by the Board and the General Manager. The segment’s gross profit is used to assess performance as management believes that this indicator is the most appropriate for the assessment of the results of operations. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 31 Notes to the consolidated and separate financial statements Notes (continued) 1 Segment reporting (continued) Results of operations of the operating segments at 31 December 2021: GROUP EUR ‘000 Cheese, cheese products and other Dried milk products Fresh milk products Total Revenue 109,199 28,136 18,710 156,045 Cost of sales -99,370 -22,628 -16,851 -138,849 Gross profit 9,829 5,508 1,859 17,196 Other operating income 228 Distribution, administrative and other operating expenses - 7,586 Impairment of goodwill -2,749 Other gain (loss) – net 45 Operating result 7,134 Finance income 209 Finance costs -1,187 Finance costs, net -978 Profit (loss) before income tax 6,156 In 2021, gross profit of the Group‘s operating segment Cheese, cheese products and other increased by EUR 8,056 thousand compared to 2020 due to higher demand and price for cream and overall growth of prices. Results of operations of the operating segments at 31 December 2020: EUR ‘000 Cheese, cheese products and other Dried milk products Fresh milk products Total Revenue 84,134 20,487 16,252 120,873 Cost of sales -82,361 -14,675 -13,208 -110,244 Gross profit 1,773 5,812 3,044 10,629 Other operating income 197 Distribution, administrative and other operating expenses - 6,446 Other gain (loss) – net -48 Operating result 4,332 Finance income 26 Finance costs -1,216 Finance costs, net -1,190 Profit (loss) before income tax 3,142 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 32 Notes to the consolidated and separate financial statements Notes (continued) 1 Segment reporting (continued) Information on the segments’ assets, liabilities, interest income and interest expenses, depreciation, results of operations before tax, income tax and other non-cash line items is not provided to the Board and the General Manager. In management’s opinion the allocation of these line items to the operating segments is not reasonable. Revenue, cost of sales and gross profit are the same as reported in the financial statements. All revenue in 2021 and 2020 was recognised at the point in time. For the purpose of disclosure by geographical location, revenue is recognised with reference to the place of registration of a client. Assets are allocated according to their geographical location. Disclosure by geographical location in 2021: EUR ‘000 Revenue Assets Lithuania 21,748 73,288 European Union (excluding Lithuania) 80,647 10,237 Other countries 53,650 4,449 156,045 87,974 Disclosure by geographical location in 2020: EUR ‘000 Revenue Assets Lithuania 20,234 70,248 European Union (excluding Lithuania) 63,745 3,783 Other countries 36,894 2,867 120,873 76,898 Information on major clients. The Group had no clients with sales revenue representing more than 10% of its total revenue. 2 Cost of sales (EUR ’000) GROUP COMPANY 2021 2020 2021 2020 -107,460 -86,930 Raw materials -95,156 -76,247 - - Resale cost of goods produced by the subsidiaries -77,455 -59,245 -8,213 -5,688 Employee expenses, including social security contributions -2,855 -2,516 -3,818 -3,298 Depreciation and grants’ amortisation -1,148 -1,177 -4,872 -4,575 Milk collection and transportation costs -4,853 -4,575 -8,150 -4,292 Gas, electricity, water -2,227 -1,230 -1,590 -1,180 Transport costs -1,590 -1,180 -4,746 -4,281 Other -2,127 -1,655 -138,849 -110,244 -187,411 -147,825 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 33 Notes to the consolidated and separate financial statements Notes (continued) 3 Other operating income (EUR ’000) GROUP COMPANY 2021 2020 2021 2020 119 42 Income from rendering of services 3,341 1,841 - - Dividends 7,371 5,651 16 15 Income from accounting services 183 112 32 71 Income from transport services rendered to other entities 18 7 32 27 Amounts due not yet claimed 32 - 29 42 Other income 14 58 228 197 10,959 7,669 4 Other operating expenses (EUR ’000) GROUP COMPANY 2021 2020 2021 2020 -41 -78 Cost of services rendered -2,907 -1,515 -77 -1 Other expenses -1 -1 -118 -79 -2,908 -1,516 5 Other gain (loss) – net (EUR ’000) GROUP COMPANY 2021 2020 2021 2020 45 -48 Gain (loss) from disposal of raw materials, non-current assets 44 3 - - Gain (loss) from fair value change of investment property 375 -173 45 -48 419 -170 6 Distribution expenses (EUR ’000) GROUP COMPANY 2021 2020 2021 2020 -1,197 -1,352 Logistics and transport services -1,064 -1,411 -342 -177 Marketing and advertising services -326 -177 -967 -808 Personnel expenses, including social security contributions -967 -808 -46 -54 Depreciation expenses -29 -34 -615 -791 Other selling expenses -601 -752 -3,167 -3,182 -2,987 -3,182 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 34 Notes to the consolidated and separate financial statements Notes (continued) 7 Administrative expenses (EUR ’000) GROUP COMPANY 2021 2020 2021 2020 - 1,802 - 1,416 Personnel expenses, including social security contributions and change in vacation reserve - 1,376 - 1,196 -123 -192 Depreciation and amortisation, including amortisation of subsidies -126 -133 -458 -266 Services received -201 -119 -193 -123 Taxes, other than income tax -168 -105 -125 -118 Veterinary services -79 -81 -235 -154 Consultation services -150 -117 -37 -33 Inventory write-down, reversal -37 -43 -123 -113 Security -47 -45 -86 -15 Fines and interest paid on late payments -10 -16 -94 -1 Write-off of bad debt expenses -94 -1 -145 -63 Computer expenses -133 -54 -59 -38 Fuel -31 -28 -35 -30 Repair expenses -25 -20 -36 -26 Fee for membership in association -36 -26 -30 -33 Stock exchange expenses -27 -30 -65 -32 New product development expenses -2 -7 -45 -44 Insurance -21 -23 -21 -30 Bank charges -18 -18 -589 -458 Other -483 -258 -4,301 -3,185 -3,064 -2,320 In 2021, the Group’s and the Company’s social security contributions payable by an employer amounted to EUR 307 thousand and EUR 135 thousand, respectively (2020: EUR 181 thousand and EUR 122 thousand, respectively). Social security amount includes social security contributions for vacation and pension reserves. 8 Services provided by the audit firm to the Company and the Group in 2021 (EUR ’000) GROUP COMPANY Audit of the financial statements under the agreements 93 55 Other services 1 1 Total 94 56 9 Finance costs, net (EUR ’000) GROUP COMPANY 2021 2020 2021 2020 Finance income 178 13 Dividends 179 13 31 13 Other 29 1 209 26 Total finance income 208 14 Finance costs -987 -822 Interest -299 -386 -15 -16 Interest on lease -15 -17 -121 -144 Factoring charges -121 -144 - -164 Foreign exchange loss - -164 -64 -70 Other -29 -57 -1,187 -1,216 Total finance costs -464 -768 -978 -1,190 -256 -754 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 35 Notes to the consolidated and separate financial statements Notes (continued) 10 Income tax expenses (EUR ’000) Recognised in profit or loss GROUP COMPANY 2021 2020 2021 2020 Current year income tax expenses -179 -1 Reporting period - - Deferred income tax expenses -477 731 Change in deferred income tax -420 731 -656 730 -420 731 Reconciliation of effective income tax rate (EUR ’000) GROUP COMPANY 2021 2020 2021 2020 6,156 3,142 Profit for the year 11,194 640 923 471 Income tax calculated at a rate of 15% 1,679 96 443 - Gain from inter-company disposal of business - - - - Dividend income -1,106 -848 -246 -53 Other non-taxable income -8 -2 412 - Impairment of goodwill - - -5 -1 Charity expenses deductible twice for tax purposes -4 - - 56 - 25 R&D expenses deductible thrice for tax purposes - - -727 -1,167 Investment project relief -174 - -107 - Tax loss carry forward - - 93 58 Other expenses not deductible for tax purposes 33 23 -74 -13 Other expenses deductible for tax purposes - - 656 -730 Income tax expenses (benefit) 420 -731 Pursuant to the effective laws, the State Tax Inspectorate may at any time inspect the books and accounting records of the Group/Company for 3 years preceding the reporting tax period and may assess additional taxes or fines (a 5-year period is applied to some types of transactions). The Company’s management is not aware of any circumstances that might result in a potential material tax liability in this respect for the Group/Company. 11 Earnings per share GROUP COMPANY 2021 2020 2021 2020 11,943 11,943 Number of issued shares calculated based on the weighted average unit cost method, in thousands 11,943 11,943 5,500 3,872 Net profit attributable to holders of ordinary shares of the Parent, EUR ‘000 10,774 1,371 0.46 0.32 Basic earnings (loss) per share (EUR) 0.90 0.11 The diluted earnings per share are the same as basic earnings per share. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 36 Notes to the consolidated and separate financial statements Notes (continued) 12 Property, plant and equipment GROUP EUR ‘000 Right-of- use assets Land and buildings Plant and machinery Other assets Construction in progress Total Cost/revalued amount Balance at 1 January 2020 1,920 15,183 55,494 3,403 3,006 79,006 Additions - 4 260 115 1,621 2,000 Disposals - - -1008 -115 - -1,123 Reclassifications -119 1,882 2,411 49 -4,227 -4 (a) Balance at 31 December 2020 1,801 17,069 57,157 3,452 400 79,879 Balance at 1 January 2020 1,801 17,069 57,157 3,452 400 79,879 Additions 519 2,369 4,474 316 246 7,924 Disposals - - -692 -171 - -863 Reclassifications -334 - 531 87 -291 -7 (b) Balance at 31 December 2021 1,986 19,438 61,470 3,684 355 86,933 Depreciation and impairment losses Balance at 1 January 2020 617 2,822 23,800 2,012 - 29,251 Depreciation charge for the year Impairment 241 17 531 - 3,382 - 351 - - - 4,505 17 Disposals - - -958 -111 - -1,069 Reclassifications -42 - 42 - - - Balance at 31 December 2020 833 3,353 26,266 2,252 - 32,704 Balance at 1 January 2021 833 3,353 26,266 2,252 - 32,704 Depreciation charge for the year 214 672 3,527 375 - 4,788 Impairment 28 - - - - 28 Disposals - - -315 -151 - -466 Reclassifications -197 - 197 - - - Balance at 31 December 2021 878 4,025 29.675 2,476 - 37,054 Net book amounts At 1 January 2020 1,303 12,361 31,694 1,391 3,006 49,755 At 31 December 2020 968 13,716 30,891 1,200 400 47,175 At 31 December 2021 1,108 15,413 31,795 1,208 355 49,879 * For more details on right-of-use assets, see Note 13. (a) Amount of EUR 4 thousand is related to the completed project of intangible assets, which was reclassified directly from construction in progress to intangible assets. (b) Amount of EUR 7 thousand was reclassified from construction in progress to repair expenses in the statement of profit and loss. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 37 Notes to the consolidated and separate financial statements Notes (continued) 12 Property, plant and equipment (continued) COMPANY EUR ‘000 Right-of-use assets Land and buildings Plant and machinery Other assets Construction in progress Total Cost/revalued amount Balance at 1 January 2020 1,892 5,998 22,000 1,395 1,21 32,406 Additions - 4 120 46 1,019 1,189 Disposals - - -397 -87 - -484 Reclassifications -119 1,800 196 17 -1,898 -4 (a) Balance at 31 December 2020 1,773 7,802 21,919 1,371 242 33,107 Balance at 1 January 2021 1,773 7,802 21,919 1,371 242 33,107 Additions 549 - 406 67 182 1,204 Increase in value 1 - - - - 1 Disposals -53 - -634 -65 - -752 Reclassifications -255 -1,010 442 - -187 -1,010 (b) Balance at 31 December 2021 2,015 6,792 22,133 1,373 237 32,550 Depreciation and impairment losses Balance at 1 January 2020 600 1,065 14,718 1,230 - 17,613 Depreciation charge for the year Impairment 238 17 250 - 1,228 - 69 - - - 1,785 17 Disposals - - -379 -85 - -464 Reclassifications -42 - 42 - - - Balance at 31 December 2020 813 1,315 15,609 1,214 - 18,951 Balance at 1 January 2021 813 1,315 15,609 1,214 - 18,951 Depreciation charge for the year 217 311 1,226 50 - 1,804 Impairment 28 - - - - 28 Disposals -23 - -364 -65 - -452 Reclassifications -149 - 149 - - - Balance at 31 December 2021 886 1,626 16,620 1,199 - 20,331 Net book amounts At 1 January 2020 1,292 4,933 7,282 165 1,121 14,793 At 31 December 2020 960 6,487 6,310 157 242 14,156 At 31 December 2021 1,129 5,166 5,513 174 237 12,219 * For more details on right-of-use assets, see Note 13. (a) Amount of EUR 4 thousand is related to the completed project of intangible assets, which was reclassified directly from construction in progress to intangible assets. (b) Amount of EUR 1,010 thousand is related to reclassification of assets to investment property (Note 14). Prepayments made for non-current assets are classified under additions. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 38 Notes to the consolidated and separate financial statements Notes (continued) 12 Property, plant and equipment (continued) Pledges of assets To secure the repayment of its bank borrowings, the Group has pledged the following PP&E: - buildings with the carrying amount of EUR 11,503 thousand as at 31 December 2021 (31 December 2020: EUR 10,809 thousand); - production plant and machinery, fixtures and equipment with the net book amount of EUR 28,561 thousand as at 31 December 2021 (31 December 2020: EUR 29,916 thousand) (Note 23). To secure the repayment of its bank borrowings, the Company has pledged the following PP&E: - buildings with the carrying amount of EUR 3,344 thousand as at 31 December 2021 (31 December 2020: EUR 4,062 thousand); - production plant and machinery, fixtures and equipment with the net book amount of EUR 4,786 thousand as at 31 December 2021 (31 December 2020: EUR 5,773 thousand) (Note 23). The acquisition cost of the Group’s property, plant and equipment fully depreciated but still in use amounted to EUR 14,002 thousand as at 31 December 2021 (31 December 2020: EUR 10,936 thousand). The acquisition cost of the Company’s property, plant and equipment fully depreciated but still in use amounted to EUR 8,281 thousand as at 31 December 2021 (31 December 2020: EUR 7,834 thousand). Depreciation Depreciation was included in the following line items: GROUP COMPANY 2021 2020 EUR ‘000 2021 2020 4,583 4,259 Cost of finished products 1,525 1,568 205 246 Distribution and administrative expenses 159 176 - - Other operating expenses 120 41 4,788 4,505 1,804 1,785 Valuation of buildings The Group and the Company account for the buildings at a revalued amount, less subsequent accumulated depreciation and impairment. In 2021, the Group and the Company evaluated part of their buildings, as a result of which it was concluded that the value of the assets included in the Group’s and the Company’s valuation did not differ significantly from the potential market price of the assets . On 1 December 2021, the independent property valuation corporation Matininkai UAB performed a valuation of the Group‘s and the Company‘s buildings with the net book amount of EUR 3,827 thousand as at 31 December 2021. The value of general-purpose buildin gs was determined using the market approach (based on analogous sales prices). The value of assets included in the special-purpose category was determined using the cost approach. Based on the evaluation as at 1 December 2021, the fair value of the evaluated buildings did not differ significantly from their carrying amounts, and accordingly, no revaluation of assets was performed. The fair value of the Group‘s buildings acquired in the course of business combination (Note 16) was determined on 1 April 2021. As at 31 December 2021, the net book amount of those buildings was EUR 5,777 thousand. The fair value was determined by an independent property valuer Newsec. The value of the buildings was determined using the discounted cash flow approach. Cash flows ov er the period of 2 years, discount rate of 11.0% and capitalisation rate (yields) of 10.20% were used to determine the value. In the opinion of the Group’s management, there were no significant changes in the fair value of buildings until 31 December 2021. The valuation of other buildings of the Group and the Company, the fair value of which was not determined in 2021, was performed on 23 September 2020 (the Group‘s buildings attributed to the operating segment of dried milk products) and on 1 December 2019. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 39 Notes to the consolidated and separate financial statements Notes (continued) 12 Property, plant and equipment (continued) The revaluation of the Group’s and the Company’s buildings was performed on 1 December 2019. In 2021, no revaluation was performed for the Group’s and the Company’ s assets because, in the management‘s opinion, there were no significant changes in the domestic real estate market and in the Group‘s and the Company‘s operations, nor were there any significant changes in the fair value of buildings. As at 31 December 2021, the net value of the Group’s revaluation reserve amounted to EUR 1,828 thousand (31 December 2020: EUR 2,001 thousand). As at 31 December 2021, the net value of the Company’s revaluation reserve amounted to EUR 1,099 thousand (31 December 2020: EUR 1,167 thousand). If the Group’s buildings were stated at cost, their net book amount would be EUR 9,388 thousand (revalued amount would be EUR 11,473 thousand) as at 31 December 2021 (31 December 2020: net book amount – EUR 9,722 thousand, revalued amount – EUR 11,924 thousand). If the Company’s buildings were stated at cost, their net book amount would be EUR 2,776 thousand (revalued amount would be EUR 3,978 thousand) as at 31 December 2021 (31 December 2020: net book amount – EUR 3,902 thousand, revalued amount – EUR 5,177 thousand). 13 Leases Amounts recognised in profit or loss were as follows: EUR ‘000 GROUP COMPANY 202 1 2020 202 1 20 20 214 241 Depreciation of right-of-use assets 217 238 28 - Impairment of right-of-use assets 28 - 15 16 Interest expenses (included in finance costs) 15 17 46 56 Expenses related to short-term leases (included in cost of sales and general and administrative expenses) 46 23 13 48 Expenses related to leases of low-value assets not included in the above short -term leases (included in cost of sales, general and administrative expenses, other operating expenses) 13 19 40 53 Expenses related to variable lease payments not included in lease liabilities (included in cost of sales, general and administrative expenses, other operating expenses) 40 40 356 414 359 337 Movements in right-of-use assets during 2021 and 2020 are disclosed in Note 13. Lease liabilities, including the breakdown of lease liabilities by maturity are disclosed in Note 23. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 40 Notes to the consolidated and separate financial statements Notes (continued) 14 Investment property EUR ‘000 2021 2020 Balance at 1 January 5,395 5,568 Additions - - Disposals - - Net gain/(loss) on fair value adjustment 375 -173 Reclassification from/(to) inventories and owner-occupied PP&E 1,010 - Balance at 31 December 6,780 5,395 () Amount of EUR 1,010 thousand is related to reclassification of investment property from owner- occupied PP&E (Note 12). Investment property is leased out to tenants under operating lease contracts. The costs incurred in relation to maintenance of investment property are covered by the tenants. The lease payments are fixed. The contracts do not contain variable lease payments that depend on an index or a rate. Investment property consists of production facilities leased out to the subsidiaries. Based on the terms and conditions of the lease contracts, the assets have been leased for the term of 5 to 8 years, and the lease term expires by 31 December 2023- 2026. The fulfilment of lease contracts has not been secured with any collateral, guarantees or other pledges. Fair value of investment property Below is allocation of the Company‘s investment property to hierarchy levels for fair value measurement purposes: EUR ‘000 At 31 December 2021 At 31 December 2020 Hierarchy level 2 (a) 1,546 1,649 Hierarchy level 3 (b) 4,161 3,655 5,707 5,304 Assets with no fair value determined (c) 1,073 91 6,780 5,395 (a) The Company‘s investment property, the fair value of which was determined using the market approach are attributed to level 2 in the fair value measurement hierarchy. The fair value was determined with reference to the valuation performed on 1 December 2021 by an independent property valuation corporation Matininkai UAB. The market approach was used to evaluate the general-purpose buildings. The market approach was used to evaluate the differences between the subject asset and analogous or similar asset to which the subject asset is being compared, and to make adjustments (if necessary) to the transaction prices of analogous or similar asset in terms of timing, location, and other circumstances conveying the differences between the subject asset and analogous or similar comparable asset. For the purpose of valuation, the assets selected were similar to the specific subject asset. The inputs used included data on the purchase and sale transactions that occurred over the last thirty-six months. (b) The Company’s buildings leased to produce processed whey products (whey protein concentrate WPC80 and permeate) are evaluated using the income approach and attributed to level 3 in the fair value measurement hierarchy. The fair value was determined with reference to the valuati on performed on 1 December 2021 by an independent property valuation corporation Matininkai UAB. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 41 Notes to the consolidated and separate financial statements Notes (continued) 14 Investment property The valuation of assets encompasses fair value measurement of a complex of assets of whey processing facilities (including buildings, plant and machinery, and other assets) constituting a cash- generating unit. The measured fair value is attributed to each item of property, plant and equipment, and accordingly, the fair value of buildings is known. The value of assets is determined using a discounted cash flow model. The value in use is determined by discounting the post-tax future cash flows to their presen t value based on a discount rate that reflects current market conditions, the existing time value of money and the risks specific to the asset, which was not taken into consideration. The adjusted weighted average cost of capital (pre- tax) was 12.19%. Key assumptions used in calculation of value of in use were as follows: • Future cash flows are estimated based on historical experience and 2021- 2026 business forecasts based on the existing long-term contracts with the consumers of the products, and the expe cted expansion of sales (production) in view of growth in demand for whey processing products on a domestic and global markets. The forecasts covering later periods 2027-2036 include the expected average annual production decline rate of 2% (in non-monetary measures) in view of the probable deterioration of production efficiency due to technological obsolescence and based on the prudential principle. • Forecasts of production costs are estimated on the basis of factual production, including the expected fluctuations therein due to growth of production. • Depending on the current physical condition of the assets (expected intensity of use of equipment – utilisation of production capacity), capital expenditures will be up to 40% from depreciation expenses (EUR 511 thousand) annually during 2022-2026, and up to 80% (EUR 1,033 thousand) - starting from 2027 to support the business activities (equipment repairs, reconstruction). (c) The value at the valuation date of the Company’s investment property that has or has not been acquired/created recently, approximated the fair value of the assets . As at 31 December 2021, the fair value was not determined for the Company’s investment property that had been acquired/created during 2021, because in the opinion of management, there were no significant changes either in the domestic real estate market or the Company’s operations, nor were there any significant changes in the fair value of investment property. Minimum lease payments receivable on lease of investment property: EUR ‘000 31 12 2021 31 12 2020 Within one year 292 195 Between 1 and 5 years 832 600 After 5 years - 105 1,124 900 In 2021, the Company‘s rental income amounted to EUR 292 thousand (2020: EUR 195 thousand). Rental income is included in other operating income. There were no direct operating expenses from investment property that generated rental income during 2021 and 2020. The Company‘s investment property with the carrying amount of EUR 6,780 thousand as at 31 December 2021 (31 December 2020: EUR 5,395 thousand) was pledged to the banks as a security for bank borrowings. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 42 Notes to the consolidated and separate financial statements Notes (continued) 15 Intangible assets GROUP EUR ‘000 Goodwill Computer software Other intangible assets Total Cost Balance at 1 January 2020 6,915 545 12 7,472 Additions - 8 - 8 Disposals - - - - Reclassifications - 4 - 4 (a) Balance at 31 December 2020 6,915 557 12 7,484 Balance at 1 January 2021 6,915 557 12 7,484 Additions - 11 5 16 Disposals - -22 - -22 Reclassifications - - - - Balance at 31 December 2021 6,915 546 17 7,478 Amortisation and impairment Balance at 1 January 2020 - 532 4 536 Amortisation charge for the year - 10 3 13 Disposals - - - - Balance at 31 December 2020 - 542 7 549 Balance at 1 January 2021 - 542 7 549 Amortisation charge for the year - 13 3 16 Disposals - -22 - -22 Impairment 2,749 - - 2,749 Balance at 31 December 2021 2,749 533 10 3,292 Net book amounts At 1 January 2020 6,915 13 8 6,936 At 31 December 2020 6,915 15 5 6,935 At 31 December 2021 4,166 13 7 4,186 (a) Amount of EUR 4 thousand is related to the completed project of intangible assets, which was reclassified directly from PP&E category construction in progress. Amortisation charge for the year was included in administrative expenses. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 43 Notes to the consolidated and separate financial statements Notes (continued) 15 Intangible assets (continued) BENDROVĖ EUR ‘000 Goodwill Computer software Other intangible assets Total Cost Balance at 1 January 2020 - 642 12 654 Additions - 8 - 8 Disposals - - - - Reclassifications - 4 - 4 (a) Balance at 31 December 2020 - 654 12 666 Balance at 1 January 2020 - 654 12 666 Additions - 2 5 7 Disposals - - - - Reclassifications - - - - Balance at 31 December 2021 - 656 17 673 Amortisation and impairment Balance at 1 January 2020 - 626 7 633 Amortisation charge for the year - 10 3 13 Disposals - - - - Balance at 31 December 2020 - 636 10 646 Balance at 1 January 2021 - 636 10 646 Amortisation charge for the year - 10 3 13 Disposals - - - - Balance at 31 December 2021 - 646 13 659 Net book amounts At 1 January 2020 - 16 5 21 At 31 December 2020 - 18 2 20 Balance at 31 December 2021 - 10 4 14 (a) Amount of EUR 4 thousand is related to the completed project of intangible assets, which was reclassified directly from PP&E category construction in progress. Amortisation charge for the year was included in administrative expenses. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 44 Notes to the consolidated and separate financial statements Notes (continued) 15 Intangible assets (continued) Recoverable amount of cash-generating units to which goodwill is attributed Goodwill is attributed to the following cash-generating units of the Group (Modest AB‘s business activities relating to production and sale of cheese and cheese products; Kelmės Pienas UAB‘s business activities relating to production and sale of fresh milk products), as specified below: EUR ‘000 31 12 2021 31 12 2020 Kelmės Pienas UAB (fresh milk products) 3,867 6,616 Modest AB (cheese, cheese products) 299 299 4,166 6,915 * Before 1 March 2021, the business activities of fresh milk products were conducted by the subsidiary Kelmės Pieninė AB. As from 1 March 2021, the business activities of fresh milk products have been transferred to Kelmės Pienas UAB. Goodwill arising on business combination is attributable mostly to synergy, which has resulted from the integration of the Companies into the existing operations of the Group relating to production of milk products. These cash-generating units were tested for impairment when calculating the recoverable amount. Recoverable amount of cash-generating unit of Kelmės Pienas UAB The recoverable amount of cash-generating unit (production of fresh milk products) of Kelmės Pienas UAB was determined by an independent property valuation corporation Matininkai UAB. The date of valuation was 31 December 2021. The recoverable amount was calculated by discounting future cash flows to their present value based on a five-year financial forecast approved by the management. Key assumptions used in the calculation of the recoverable amount were as follows: x The future cash flows were calculated based on historical experience and a 5-year business plan. Cash flows in a long-term perspective were estimated by extrapolating the fifth-year cash flows at a projected long-term growth rate of 1% (2020: growth rate of 1%). x The recoverable amount was calculated using a pre-tax discount rate that reflects current market conditions, the existing time value of money and the risks specific to the asset, which was not taken into consideration. Pre-tax rate of weighted average cost of capital was 12.18% (2020: 14.38%). x The projected revenue decline by 1% in 2022 compared to 2021 (see table below). The decline in revenue is related to projected decrease in the volume of processed milk in 2022 (projected decrease in the volume of processed milk by 2.8%). As the Lithuanian and global economy started recovering after the Covid-19 pandemic, the demand for fresh milk products increased in 2021: sales of fresh milk products increased by 28% in 2021 compared to 2020 (23,064 tons sold in 2021; 18,009 tons sold in 2020). In the opinion of the management, in case of a moderate economic growth the sales will decrease by 2-3% in 2022. Nevertheless, the continuing growth of prices of fresh milk products will offset the negative impact of decline in projected sales on revenue. The projected revenue growth rate is 4.4% in 2023, and 3.7-3.8% in subsequent years. Revenue is projected to increase due to the growing prices of products, placing of new products on the market, and expansion to new markets. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 45 Notes to the consolidated and separate financial statements Notes (continued) 15 Intangible assets (continued) The projected revenue from sales of fresh milk products (EUR ‘000): Financial year 2021 2022 2023 2024 2025 2026 Revenue 19,693 19,500 20,359 21,119 21,898 22,723 Projected growth rate -1.0% 4.4% 3.7% 3.7% 3.8% x The projected decline in gross profit margin in 2022 is 1.51% (down to 7.06%). The gross profit margin is expected to decrease due to further growing prices of raw materials, payroll and energy costs, and inflation: - Milk is the basic raw material, and therefore, the company’s performance depends and is sensitive to the fluctuations in the market price of raw milk. Based on the market forecast, the price of milk is expected to growth in 2022. - Growth of energy costs. Energy costs (electricity, water, gas) have increased since September 2021. Because the growth in energy costs started only in the third quarter of 2021, a higher growth of energy costs is expected in 2022. Based on the forecast, no decline in energy tariffs is expected in 2022. - Growth of payroll costs. Based on the market forecast, salaries are expected to grow by 6% in 2022. In the opinion of the management, the growth of sale prices of products will be slower than the projected growth of the costs, and therefore, the gross profit margin is expected to decline in 2022. During 2023-2026, gross profit margin is projected to grow by 0.47–1.34% annually. The growth of gross profit margin is related to the increasing sale prices of products and projected lower growth of raw material and energy costs and tariffs. The projected gross profit from sales of fresh milk products (EUR ‘000): Financial year 2021 2022 2023 2024 2025 2026 Gross profit 1,688 1,377 1,710 1,873 2,142 2,434 Pross profit margin, % 8.6% 7.06% 8.40% 8.87% 9.78% 10.71% Change in gross profit margin -1.51% 1.34% 0.47% 0.91% 0.93% x During 2022-2026, capital expenditures of EUR 180 thousand are projected annually to support production-technological assets. When calculating the terminal value (capitalising the last cash inflows), the amount of deducted capital expenditures is equal to the aggregate amount of depreciation of capital expenditures. x The basic components of working capital: required inventory, trade receivables and payables are taken as the factual amounts at the end of 2021. Subsequently (starting from 2022), the required working capital is calculated in view of the production growth and the required inventory, trade receivables and payables, as a proportionate share of the cost of sale and revenue. Based on the above assumptions, the calculated recoverable amount of the cash-generating unit was EUR 2,749 thousand lower than the carrying amount, and therefore, impairment of goodwill in amount of EUR 2,749 thousand was recognised in 2021. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 46 Notes to the consolidated and separate financial statements Notes (continued) 15 Intangible assets (continued) The sensitivity analysis of the recoverable amount of investment in Kelmės Pienas UAB shows the impact of changes in assumptions used in the impairment test on the result of calculation: EUR ‘000 Impact on recoverable amount Discount rate – 1% increase -788 Discount rate – 1% decrease 943 Long-term growth rate – 1% increase 619 Long-term growth rate – 1% decrease -517 In the event of the above changes in assumptions, the recoverable amount of goodwill becomes lower than the carrying amount. The recoverable amount test performed at 31 December 2020 showed that the recoverable amount of the cash-generating unit was higher than the carrying amount and no impairment of goodwill was recognised as at 31 December 2020. The change in the calculated recoverable amount was mostly affected by the projected gross profit margin updated by the company. During 2021-2025, gross profit margin of 13-14% was projected. In the financial forecast for 2020, the Group‘s management expected no significant changes in the sale prices of fresh milk products compared to 2020. In addition, no significant changes were expected in the price of raw milk compared to second half of 2020. The targets for the fresh milk product business activities were not achieved in 2021: even though the factual revenue was EUR 1,981 thousand or 10% higher than the budgeted (due to increased volume of sales), the factual gross profit margin was 5.63% lower. The results for 2021 showed that the sale prices of fresh milk products decreased compared to 2020, and the price of the basic raw material used in the production (raw milk) increased significantly. Compared to 2020, decrease in sale price of cream was 5%, curd products – 12%, and yogurts – 5%. In 2021, the price of raw milk increased by 17% compared to 2020. Based on the market outlooks, the management expects no decline in the price of the raw material, and that the pace of growth of the sale price of products will not be like that of the price of raw material. Accordingly, gross profit margin is expected to be lower than projected as at 31 December 2020. Decline in gross profit margin was also caused by significant growth of energy costs (electricity, water, gas). Compared to 2020, energy costs increased by 64% in 2021. For the purpose of the cash flow forecast as at 31 December 2020, the management did not take into account the significant increase in energy costs. Recoverable amount of cash-generating unit of Modest AB For Modest AB, the value in use was calculated using the future cash flows discounted to their present value. Key assumptions used in the calculation of the value in use were as follows: x The future cash flows were calculated based on historical experience and a 5-year business plan. Cash flows in a long-term perspective were estimated by extrapolating the fifth-year cash flows at a projected long-term growth rate of 1% (2020: growth rate of 1%). x The value in use was calculated using a pre-tax discount rate that reflects current market conditions, the existing time value of money and the risks specific to the asset, which was not taken into consideration. Pre-tax rate of weighted average cost of capital was 12.18% (2020: 14.38%). x Based on the budget prepared by management for Modest AB, revenue budgeted for 2022 amounts to EUR 31,500 thousand. Compared to 2021, revenue is expected to decrease by 4%. Annual revenue growth of 1-3% is expected during 2023-2026. x During 2022-2025, gross profit margin is expected to remain at a level similar to 2021 and will range between 5.08% and 5.71%. The projected EBITDA margin ranges between 5.13% and 5.38% during the entire project period. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 47 Notes to the consolidated and separate financial statements Notes (continued) 15 Intangible assets (continued) x During 2022-2026, capital expenditures of EUR 100 thousand are projected annually to support production-technological assets. When calculating the terminal value (capitalising the last cash inflows), the amount of deducted capital expenditures is equal to the aggregate amount of depreciation of capital expenditures. x The required working capital is calculated in view of the production growth and the required inventory, as a proportionate share of the cost of sale. This results in an assumption that the impact of amounts receivable and payable on the working capital is neutral. Based on the above assumptions, the value in use of cash-generating unit of Modest AB was higher than the carrying amount, and accordingly, no impairment was recognised. The analysis of sensitivity to key assumptions was not presented since a probable shift in those assumptions would have no significant impact on the estimated value of goodwill. 16 Investments in subsidiaries EUR ‘000 31 12 2021 31 12 2020 Cost of shares of Modest AB 1,991 1,991 Cost of shares of Kelmės Pieninė AB 8,656 8,656 Cost of shares of Pieno Logistika AB 66 66 Cost of shares of Baltic Dairy Board SIA 271 - 10,984 10,713 The Company acquired control over Modest AB in 2006. The ownership interest held by the Company was 99.7% as at 31 December 2021 (31 December 2020: 99.7%). On 30 April 2008, the Company acquired the shares of Kelmės Pieninė AB. The ownership interest held by the Company was 100% as at 31 December 2021 (31 December 2020: 100%). As at 31 December 2021, the Company owned 58.9% (31 December 2020: 58.9%) of shares with voting rights in subsidiary Pieno Logistika AB. On 1 April 2021, Vilkyškių Pieninė AB completed the acquisition transaction of 70% of shares in Baltic Dairy Board SIA. Transaction of acquisition of Baltic Dairy Board SIA In order to strengthen and expand the Group’s range of high value-added milk ingredients, the decision was made to acquire Baltic Dairy Board SIA operating in Latvia. Baltic Dairy Board SIA one of the few companies in Northern Europe engaged in the development and production of products intended for baby food (galacto-oligosaccharides - GOS). The Group will also benefit from the emerging synergies between the current Group companies and Baltic Dairy Board SIA in the processes of whey separation and procurement of raw materials. Overall, 544,446 shares were acquired for the total acquisition cost of EUR 271 thousand. The shares were acquired from a number of former shareholders in 3 stages during a short period. The acquisition of shares was completed on 1 April 2021, and from that date the Company became a controlling shareholder of Baltic Dairy Board SIA. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 48 Notes to the consolidated and separate financial statements Notes (continued) 16 Investments in subsidiaries (continued) The non-controlling interest of Baltic Dairy Board SIA was measured at fair value. The fair value of the non- controlling interest was determined as a proportionate share of consideration paid by the Company for 70% of shares. In the opinion of the Company’s management, the consideration paid by the Company for acquisition of 70% of shares approximated the fair value at the business acquisition date. The fair value of the non-controlling interest amounted to EUR 116 thousand. An agreement was signed between the Company and non-controlling shareholder of Baltic Dairy Board SIA, under which the controlling shareholder had a right to call option, whereas the non-controlling shareholder had a right to put option. Information on put option is provided in Note 25. Assets and liabilities recognised on acquisition of Baltic Dairy Board SIA were as follows: Acquisition-related costs of EUR 50 thousand were included in administrative expenses in the statement of profit and loss, and cash flows from operating activities in the cash flow statement. As at 31 December 2021, there were no indications of impairment for investments in subsidiaries. Key financial indicators of Pieno Logistika AB: EUR ’000 31 12 2021 31 12 2020 Total assets 177 179 Shareholders’ equity 109 111 Net profit (loss) -2 2 Key financial indicators of Modest AB: EUR ’000 2021.12.31 2020.12.31 Total assets 10,746 7,745 Shareholders’ equity 3,702 2,458 Net profit (loss) 1,244 422 Fair value EUR ’000 31 12 2021 Property, plant and equipment 6,033 Inventories 214 Trade and other receivables 199 Prepayments 74 Cash and cash equivalents 1 Borrowings -4,793 Income tax payable -1 Trade and other payables -1,231 Deferred income tax liability -109 Net identifiable assets acquired 387 Less: non-controlling interest -116 Added: goodwill - Net assets acquired 271 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 49 Notes to the consolidated and separate financial statements Notes (continued) 16 Investments in subsidiaries (continued) Key financial indicators of Kelmės Pieninė AB: EUR ’000 2021.12.31 2020.12.31 Total assets 29,193 31,381 Shareholders’ equity 8,473 8,951 Net profit (loss) 6,893 7,720 Key financial indicators of Baltic Dairy Board SIA: EUR ’000 31 12 2021 Total assets 7,760 Shareholders’ equity 510 Net profit (loss) for 01 04 2021 – 31 12 2021 -185 17 Non-current amounts receivable (EUR ’000) GROUP COMPANY 31 12 2021 31 12 2020 Note 31 12 2021 31 12 2020 Financial instruments 13 - 29 Loans granted to related parties (a) 843 - 13 - 843 - Non-financial assets 214 127 29 Prepayments made to related parties (b) 214 127 59 98 Non-current amounts receivable from farmers (c) 59 98 2 1 Other non-current amounts receivable - 1 275 226 273 226 288 226 1,116 226 (a) The loan (EUR 830 thousand) was granted to the subsidiary Baltic Dairy Board SIA, to be repaid by 31 January 2024. The loan (EUR 13 thousand) was granted to other related party, to be repaid by 31 December 2023. (b) The prepayment to be settled in full by 31 December 2023. Administration fee is charged on the outstanding balance of the prepayment. (c) Non-current amounts receivable from farmers comprise prepayments made to milk suppliers for milk. An administration fee is charged on these prepayments. The Group’s and the Company’s exposure to credit and foreign exchange risks, impairment losses related to trade and other amounts receivable are disclosed in Note 30. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 50 Notes to the consolidated and separate financial statements Notes (continued) 18 Inventories (EUR ’000) GROUP COMPANY 31 12 2021 31 12 2020 31 12 2021 31 12 2020 13,656 8,724 Finished products 6,662 5,343 13,656 8,724 6,662 5,343 349 263 Raw materials 64 43 3,208 2,507 Consumables 1,251 1,050 343 199 Work in progress - - 69 - Non-current assets held for sale 69 - 17,625 11,693 8,046 6,436 Raw materials include milk and other materials used in the production. As at 31 December 2021, the Group’s materials (packaging, auxiliary materials, etc.) written down to net realisable value amounted to EUR 37 thousand (31 December 2020: none). As at 31 December 2021, the Company’s materials (tare, packaging, auxiliary materials, etc.) written down to net realisable value amounted to EUR 37 thousand (31 December 2020: none). The write-down of inventories (finished products) to net realisable value and its reversal are accounted for in the cost of sales. In 2021, there was no write-down of inventories (finished products) to net realisable value or reversal for the Group and the Company. As at 31 December 2021, the Group’s inventories (cheese, cheese products and other, dried milk products and fresh milk products) with the net book amount of up to EUR 7,404 thousand (2020: up to EUR 7,418 thousand) were pledged to the financial institutions (Note 23). As at 31 December 2021, the Company’s inventories (cheese, cheese products and other) with the net book amount of up to EUR 4,448 thousand (2020: up to EUR 5,948 thousand) were pledged to the financial institutions (Note 23). 19 Trade and other receivables (EUR ’000) GROUP Note 31 12 2021 31 12 2020 Trade receivables 10,630 7,607 Impairment losses -59 -95 Trade receivables from related parties - - Loans granted to related parties, including interest charged and administration fee 29 1,640 415 Financial assets 12,211 7,927 Taxes receivable (other than income tax) 2,025 1,073 Other receivables from related parties 12 12 Other receivables 23 50 Total trade and other receivables 14,271 9,062 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 51 Notes to the consolidated and separate financial statements Notes (continued) 19 Trade and other receivables (continued) COMPANY 31 12 2021 31 12 2020 Trade receivables 10,498 7,573 Impairment losses j -59 -95 Trade receivables from related parties 29 4,556 1,180 Loans granted to related parties, including interest charged and administration fee 29 1,639 415 Financial assets 16,634 9,073 Taxes receivable (other than income tax) 1,954 1,042 Other receivables from related parties 29 12 17 Other receivables - 15 Total trade and other receivables 18,600 10,147 Trade and other receivables are non-interest bearing and their settlement term is 30 days. Taxes receivable consist of VAT receivable. As at 31 December 2021, the Group’s and the Company’s receivables in amount of EUR 50 thousand (31 December 2020: EUR 115 thousand) were pledged (Note 28). The Group’s and the Company’s exposure to credit and foreig n exchange risks, impairment losses related to trade and other receivables are disclosed in Note 30. The ageing analysis of trade receivables is disclosed in Note 30. 20 Prepayments (EUR ’000) GROUP COMPANY 31 12 2021 31 12 2020 Note 31 12 2021 31 12 2020 600 545 (a) Prepayments 434 514 22 191 29 Prepayments to related parties 22 191 622 736 456 705 (a) Prepayments consist of prepayments made to the companies for goods and services and to the farmers for milk. 21 Cash and cash equivalents (EUR ’000) GROUP COMPANY 31 12 2021 31 12 2020 31 12 2021 31 12 2020 764 135 Cash at bank 545 110 35 46 Cash on hand 34 45 799 181 579 155 As at 31 December 2021, all cash balances on bank accounts were pledged to secure repayment of bank borrowings (Note 28). In addition, cash inflows to bank accounts were pledged to secure repayment of bank borrowings (Note 28). The Group’s and the Company’s exposure to interest rate risk arising from cash and cash equivalents is disclosed in Note 30. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 52 Notes to the consolidated and separate financial statements Notes (continued) 22 Capital and reserves As at 31 December 2021 and 2020, the Company’s authorised share capital was divided into 11,943,000 ordinary shares with the nominal value of EUR 0.29 each. All the shares are fully paid. Ordinary shares are stated at their nominal value. Consideration received for the shares sold in excess over their nominal value is shown as share premium. Incremental external costs directly attributable to the issue of new shares are accounted for as a deduction from share premium. Pursuant to the Law on Companies, the holders of ordinary shares have one vote per share at the Company's shareholders' meeting, the right to receive dividends, and the right to receive payments in the event of liquidation of a company. Legal reserve Pursuant to the Law on Companies of the Republic of Lithuania, annual transfers of 5% from distributable profit are required until the legal reserve reaches 10% of the authorised share capital. Pursuant to the Law the legal reserve may be used to cover accumulated losses only. As at 31 December 2021, the Company’s and the Group’s legal reserve amounted to EUR 346 thousand (31 December 2020: EUR 346 thousand). Share premium Share premium is the difference between the nominal value and issue price of the shares. Revaluation reserve Revaluation reserve is related to the revaluation of the buildings and is stated net of deferred income tax liability. The reserve is reduced in proportion to the depreciation and disposal of the revalued assets. Transfers from the revaluation reserve to retained earnings are performed when the revalued buildings are being depreciated. The amount transferred is determined as a difference between depreciation calculated from the revalued amount and depreciation calculated from the initial cost of the buildings. Revaluation reserve can be used to increase the share capital. Other reserves Other reserves are formed by the decision of the annual meeting of shareholders on profit appropriation, and they are established in the Company‘s Articles of Association. These reserves can be used only for the purposes approved by the general meeting of shareholders. The Group and the Company have no other reserves. Dividends In 2021, dividends of EUR 0.08 per share were paid out to the shareholders (2020: no dividends were paid out to the shareholders). VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 53 Notes to the consolidated and separate financial statements Notes (continued) 23 Borrowings and lease liabilities GROUP COMPANY 31 12 2021 31 12 2020 Note 31 12 2021 31 12 2020 17,050 2,951 Non-current borrowings 28, 29 2,285 2,779 403 323 Lease liabilities 13 414 345 17,453 3,274 Non-current 2,699 3,124 6,420 18,083 Current bank borrowings and other borrowings 28, 29 3,941 3,996 290 303 Lease liabilities 13 301 312 6,710 18,386 Current 4,242 4,308 24,163 21,660 Total borrowings and lease liabilities 6,941 7,432 As at 31 December 2021, under the agreements signed with the banks the Company’s and the Group’s balance of undrawn short-term credit limits amounted to EUR 1,134 thousand (2020: the Company’s EUR 1,628 thousand and the Group’s EUR 4,128 thousand). As at 31 December 2021, the Company and the Group had no long-term credit limits, but the Group had an undrawn balance of a long-term credit limit OP Corporate bank plc amounting to EUR 1,600 thousand. Under the agreements signed with the banks, the Company’s and the Group’s credits are subject to the following interest rates: 6-month EURIBOR + margin and 3-month EURIBOR + margin; the interest rates set for overdrafts are as follows: 3-month EURIBOR + margin and EONIA + margin. Under the agreements signed with the banks, the Company and the Group have committed to comply with certain covenants, such as financial debt and net financial debt to EBITDA ratio, debt service coverage ratio and equity ratio. These ratios are calculated according to the data reported in the consolidated financial statements. Borrowings by maturity (EUR ’000): GROUP COMPANY 31 12 2021 31 12 2020 31 12 2021 31 12 2020 6,420 18,083 Within 1 year 3,941 3,996 17,050 2,951 Between 1 and 5 years 2,285 2,779 23 ,470 21,034 6,226 6,775 In 2021, the Group’s borrowings were subject to annual effective interest rate of 4.15% (2020: 3.86%). In 2021, the Company’s borrowings were subject to annual effective interest rate of 4.52% (2020: 5.36%). Lease liabilities (EUR ‘000): GROUP COMPANY 31 12 2021 31 12 2020 31 12 2021 31 12 2020 290 303 Within 1 year 301 312 403 323 Between 1 and 5 years 414 345 693 626 715 657 The right-of-use assets recognised in relation to lease liabilities is disclosed in Notes 12 and 13. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 54 Notes to the consolidated and separate financial statements Notes (continued) 23 Borrowings and lease liabilities (continued) Cash flows from financing activities COMPANY Liabilities arising from financing activities Total Current portion of lease liabilities Non - current portion of lease liabilities Current portion of non- current borrowings, current borrowings Credit lines and over- drafts Non - current portion of non - current borrowings At 1 January 2021 312 345 2,754 1,242 2,779 7,432 Cash inflows - proceeds from borrowings - - 1,166 493 292 1,951 Cash outflows - repayments of borrowings - - -2,500 - - - 2,500 Additions - lease - 651 - - - 651 Repayments – lease -533 - - - - -533 Other non-cash changes (reclassification of current/non - current portion, impairment, write-offs) 522 -582 786 - -786 - 60 At 31 December 2021 301 414 2,206 1,735 2,285 6,941 GROUP Liabilities arising from financing activities Total Current portion of lease liabilities Non-current portion of lease liabilities Current portion of non- current borrowings, current borrowings Credit lines and over- drafts Non-current portion of non - current borrowings At 1 January 2021 303 323 16,841 1,242 2,951 21,660 Cash inflows - proceeds from borrowings - - 1,166 493 2,816 4,475 Cash inflows – loan offsetting - - - - 226 226 Cash outflows - repayments of borrowings - - -6,308 - -750 -7,058 Additions - lease - 630 - - - 630 Repayments – lease -535 - - - - -535 Outstanding balance of borrowings of subsidiary at 1 April 2021 - - - - 4,793 4,793 Other non-cash changes (reclassification of current/non- current portion, impairment, write-offs) 522 -550 -7,014 - 7,014 -28 At 31 December 2021 290 403 4,685 1,735 17,050 24,163 Borrowings acquired on business combination (Note 16). VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 55 Notes to the consolidated and separate financial statements Notes (continued ) 23 Borrowings and lease liabilities (continued) COMPANY Lease liabilities Current portion of lease liabilities Non - current portion of lease liabilities Current portion of non- current borrowings, current borrowings Credit lines and over- drafts Non - current portion of non - current borrowings Total At 1 January 2020 375 672 7,392 2,768 80 11,287 Cash inflows - proceeds from borrowings - - 3,420 - 2,779 6,199 Cash outflows - repayments of borrowings - - -8,138 -1,526 - -9,664 Additions - lease - - - - - - Repayments – lease -390 - - - - -390 Other non-cash changes (loan repayment offset against amounts receivable) 327 -327 80 - -80 - At 31 December 2020 312 345 2,754 1,242 2,779 7,432 GROUP Lease liabilities Total Current portion of lease liabilities Non - current portion of lease liabilities Current portion of non-current borrowings, current borrowings Credit lines and over- drafts Non - current portion of non - current borrowings At 1 January 2020 391 642 9,721 4,421 12,308 27,483 Cash inflows - proceeds from borrowings - - 5,108 - 2,779 7,887 Cash outflows - repayments of borrowings - - -8,220 - 3,179 - 1,904 -13,303 Additions - lease - - - - - - Repayments – lease -407 - - - - -407 Other non-cash changes (loan repayment offset against amounts receivable) 319 -319 10,232 - - 10,232 - At 31 December 2020 303 323 16,841 1,242 2,951 21,660 24 Government grants EUR ’000 GROUP COMPANY 31 12 2021 31 12 2020 31 12 2021 31 12 2020 4,664 5,243 Opening net book amount 873 1,071 51 - Grants received - - - 34 Grant receivable - - -486 -607 Amortisation recognised in profit or loss and write-off of grants -188 -198 -104 -6 Write-off of grants upon disposal of assets - - 4,125 4,664 Closing net book amount 685 873 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 56 Notes to the consolidated and separate financial statements Notes (continued) 24 Government grants (continued) During 2007-2014, the Group and the Company received support from the EU funds under the Lithuanian Rural Development Programmes from the National Paying Agency under the Ministry of Agriculture. The support was received for the acquisition of non-current assets. The support is amortised in proportion to the depreciation of the related assets. Under the 2014-2020 programme financed from the EU funds, the Group received support of EUR 3.98 thousand during 2017-2019 for the acquisition of the technological lines intended for the production of dried whey milk products. The support is amortised in proportion to the depreciation of the related assets. On 8 July 2020, Kelmės Pieninė AB and public enterprise Lithuanian Business Support Agency signed an agreement for the project No. 01.2.1-LVPA-K-856-02-0037 for the Development of an innovative food supplement for the elderly to prevent senile weakness syndrome and malnutrition. For the implementation of the project, the Company will receive support in total amount of EUR 277 thousand during the period of 36 months. During 2020–2021, the amount used from the support was EUR 123 thousand (out of which EUR 101 thousand was used in 2021), whereof the grant for non-current assets amounted to EUR 51 thousand. 25 Non-current trade and other amounts payable GROUP COMPANY 31 12 2021 31 12 2020 EUR ‘000 31 12 2021 31 12 2020 53 - Put option - - The Group has signed a put option, under which the non-controlling shareholders of Baltic Dairy Board SIA have a right to sell the shares of Baltic Dairy Board SIA to the Company as from 1 April 2023. The transaction price will be determined with reference to the fair value estimated by an independent expert at the date of exercise. The terms do not provide a present ownership interest in the shares subject to the put. It was determined that the fair value of put option amounted to EUR 53 thousand as at 31 December 2021. The put option was accounted for at the present value of redemption amount within non-current liabilities and equity of the Company. 26 Deferred income tax assets (liabilities) Deferred income tax assets and liabilities calculated using a 15% tax rate in 2021 (2020: 15%) relate to the following line items: COMPANY Assets Liabilities Net value EUR ‘000 31 12 2021 31 12 2020 31 12 2021 31 12 2020 31 12 2021 31 12 2020 Property, plant and equipment - - 1,832 1,820 1,832 1,820 Vacation reserve -117 -98 - - -117 -98 Inventories -6 - - - -6 - Government grants -103 -131 - - -103 -131 Tax loss carry forward -2,076 -2,481 - - -2,076 -2,481 Deferred income tax (assets)/liabilities -2,302 -2,710 1,832 1,820 -470 -890 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 57 Notes to the consolidated and separate financial statements Notes (continued) 26 Deferred income tax assets (liabilities) (continued) In the Company‘s statement of profit and loss, decrease in deferred income tax assets amounted to EUR 420 thousand. The Group’s deferred income tax assets and liabilities were calculated at the effective tax rate of 15% in accordance with the Lithuanian laws and the effective tax rate of 25% in accordance with the Latvian laws. Tax rate 25% is applicable to deferred tax assets and liabilities relating to Baltic Dairy Board SIA. The Group‘s deferred tax assets and liabilities relate to the following line items: GROUP Asset Liabilities Net value EUR ‘000 31 12 2021 31 12 2020 31 12 2021 31 12 2020 31 12 2021 31 12 2020 Property, plant and equipment - - 1,903 1,820 1,903 1,820 Vacation reserve -145 -98 - - -145 -98 Inventories -6 - - - -6 - Government grants -103 -131 - - -103 -131 Tax loss carry forward -2,076 -2,481 - - -2,076 -2,481 Fair value adjustment to assets and liabilities of Baltic Dairy Board SIA - - 123 - 123 - Deferred income tax (assets)/liabilities -2,330 -2,710 2,026 1,820 -304 -890 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 58 Notes to the consolidated and separate financial statements Notes (continued) 26 Deferred income tax assets (liabilities) (continued) COMPANY EUR ‘000 01 01 2021 Recognised in profit or loss Recognised in equity 31 12 2021 Property, plant and equipment 1,820 12 - 1,832 Vacation reserve -98 -19 - -117 Inventories - -6 - -6 Government grants -131 28 - -103 Tax loss carry forward -2,481 405 - -2,076 Deferred income tax (assets)/liabilities -890 420 - -470 EUR ‘000 01 01 2020 Recognised in profit or loss Recognised in equity 31 12 2020 Property, plant and equipment 1,867 -47 - 1,820 Vacation reserve -90 -8 - -98 Inventories -1 1 - 0 Government grants -159 28 - -131 Tax loss carry forward -1,776 -705 - -2,481 Deferred income tax (assets)/liabilities -159 -731 - -890 The difference between the tax base and the reported net book amount of property, plant and equipment occurred mainly due to revaluation of the buildings, different depreciation periods and recognition of tax losses as at 31 December 2021. GROUP EUR ‘000 01 01 2021 Recognised in profit or loss Recognised in equity 31 12 2021 Property, plant and equipment 1,820 83 - 1,903 Vacation reserve -98 -47 - -145 Inventories - -6 - -6 Government grants -131 28 - -103 Tax loss carry forward -2,481 405 - -2,076 Adjustment to assets and liabilities of Baltic Dairy Board SIA - 14 109 123 Deferred income tax (assets)/liabilities -890 477 109 -304 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 59 Notes to the consolidated and separate financial statements Notes (continued) 26 Deferred income tax assets (liabilities) (continued) GROUP COMPANY 31 12 2021 31 12 2020 EUR ‘000 31 12 2021 31 12 2020 Deferred income tax assets/(liability) 254/ -206 181/ -47 Deferred income tax assets (liability), which will be realised within 12 months 157 /-12 181 /-47 2,076 / - 1,820 2,529 / - 1,773 Deferred income tax assets (liability), which will be realised after 12 months 2,145 / - 1,820 2,529 / - 1,773 304 890 Net deferred income tax assets (liability) 470 890 The Group and the Company do not recognise deferred income tax assets on income tax relief for investment projects. As at 31 December 2021, the amounts of such income tax reliefs not utilised were EUR 1,433 thousand and EUR 305 thousand, respectively. 27 Trade and other amounts payable GROUP COMPANY 31 12 2021 31 12 2020 EUR ‘000 31 12 2021 31 12 2020 Financial instruments Note 12,980 8,547 Trade payables 10,238 6,696 47 32 Trade payables to related parties 29 2,428 4,951 13,027 8,579 12,666 11,647 Non-financial instruments 2,600 2,900 Employment-related liabilities 1,547 1,422 302 175 Advance amounts received 225 175 74 74 Dividends payable - - 3,599 3,097 Taxes payable (other than income tax) 56 39 271 40 Accrued expenses and provisions 94 24 - 735 Other amounts payable - - 6,846 7,021 1,922 1,660 19,873 15,600 14,588 13,307 * Based on Order of 26 March 2020 of the State Tax Inspectorate under the Lithuanian Ministry of Finance (the “Tax Authority“) On support measures for the taxpayers affected by the negative impact of the coronavirus, in 2020 the Group was eligible to tax-related measures as a businesses affected by COVID-19 pandemic. Those measures encompassed deferral of tax payments by entering into a tax credit (interest-free) agreement. In 2021, the Group received the Tax Authority‘s resolution regarding entering into a tax credit agreement for the amount of EUR 3,807 thousand (whereof: personal income tax of EUR 487 thousand; value added tax of EUR 3,311 thousand, and other taxes of EUR 9 thousand). The credit repayment dates are during the period between 25 March 2021 and 25 December 2022. As at 31 December 2021, the Group‘s outstanding balance of the tax credit amounted to EUR 2,945 thousand (31 December 2020: EUR 3,807 thousand). The Group‘s and the Company‘s foreign exchange and liquidity risks arising from trade and other amounts payable are disclosed in Note 30. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 60 Notes to the consolidated and separate financial statements Notes (continued) 28 Contingent liabilities Significant contractual commitments as at 31 December 2021: GROUP COMPANY 31 12 2021 31 12 2020 EUR ‘000 31 12 2021 31 12 2020 428 206 Acquisition of property, plant and equipment 428 62 6,809 6,262 Purchase of raw materials 6,809 6,262 7,237 6,468 7,237 6,324 As at 31 December 2021, the Group’s and the Company’s assets pledged to secure the repayment of bank borrowings and other collaterals were as follows (Note 23): GROUP: x cash inflows to bank accounts with Luminor Bank AS; x immovable property with the carrying amount of EUR 11,503 thousand; x movable property with the carrying amount of EUR 28,561 thousand; x inventories with the carrying amount of up to EUR 7,404 thousand; x amounts receivable from one retail chain; x lease rights to state-owned land x Based on agreement signed on 29 December 2021 between Baltic Dairy Board SIA and Citadele bank, all movable and immovable property of Baltic Dairy Board SIA must be pledged in 2022 with the carrying amounts of EUR 2,402 thousand and EUR 4,723 thousand as at 31 December 2021, respectively. COMPANY: x cash inflows to bank accounts with Luminor Bank AS; x the Company’s immovable property located at address: P. Lukošaičio g. 14, Vilkyškiai, P. Lukošaičio g. 3, Vilkyškiai and Sodų g, 13, Eržvilkas, Jurbarko r. sav., with the carrying amount of EUR 3,194 thousand – to secure fulfilment of the Company‘s obligations to Swedbank AB; x the Company‘s immovable property located at address: Gaurės g. 23, Tauragė, with the carrying amount of EUR 150 thousand, to secure fulfilment of obligations of Kelmės Pieninė AB to OP Corporate Bank plc. x the Company‘s investment property located at address: Gaurės g. 23, Tauragė, with the carrying amount of EUR 6,780 thousand, to secure fulfilment of obligations of Kelmės Pieninė AB to OP Corporate Bank plc and to secure fulfilment of obligations of Modest AB to Luminor Bank AS; x the Company‘s lease rights to state-owned land; x the Company‘s movable property located at address: P. Lukošaičio g. 14, Vilkyškiai, with the carrying amount of EUR 4,786 thousand to secure fulfilment of the Company‘s obligations to Swedbank AB; x the Company‘s inventories with the carrying amount of up to EUR 4,448 thousand to secure fulfilment of the Company‘s obligations to Swedbank AB and Luminor Bank AS; x the Company‘s amounts receivable from one retail chain. Other collaterals: x sureties issued by Kelmės Pieninė AB, Modest AB and Kelmės Pienas UAB to Luminor Bank AS to secure fulfilment of overdraft obligations in amount of EUR 1,736 thousand as at 31 December 2021 (the surety agreements were signed in 2021); x sureties issued by Kelmės Pieninė AB, Modest AB and Kelmės Pienas UAB to secure a proper fulfilment of obligations of the Company under a loan agreement with Swedbank AB. The outstanding balance of the loan was EUR 3,071 thousand as at 31 December 2021 (the surety agreements were signed in 2021); VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 61 Notes to the consolidated and separate financial statements Notes (continued) 28 Contingent liabilities (continued) x sureties issued by Kelmės Pieninė AB and Modest AB to UAB OP Finance leasing company to secure fulfilment of finance lease obligations in amount of EUR 105 thousand (the net book amount of leased assets was EUR 362 thousand as at 31 December 2021); x a complex of property pledged by Pieno Logistika AB and Kelmės Pieninė AB and equipment and motor vehicles pledged by Modest AB to Luminor Bank AS to secure fulfilment of the Company‘s overdraft liabilities. Sureties and guarantees issued: x surety issued to OP Corporate Bank plc to secure fulfilment of financial liabilities of Kelmės Pieninė AB in amount of EUR 12,779 thousand as at 31 December 2021 (31 December 2020: EUR 12,248 thousand); x surety issued to Luminor Bank to secure fulfilment of financial liabilities of Modest AB in amount of EUR 171 thousand as at 31 December 2021 (the surety agreements were signed in 2020). The Group’s and the Company’s management is aware that pursuant to the effective laws, the State Tax Inspectorate may at any time inspect the books and accounting records of the Group and the Company for 5 years preceding the reporting tax period and may assess additional taxes or fines. The Group’s and the Company’s management is not aware of any circumstances that might result in a potential material tax liability in this respect. 29 Transactions with related parties and management personnel The parties of the Group and the Company are related when one party has a power to exercise control over the other party or make significant influence on its financial and operation decisions. The main related parties of the Group and the Company are as follows: Kelmės Pieninė AB, Modest AB, Kelmės Pienas UAB, Pieno Logistika AB, Baltic Dairy Board SIA, Management personnel, Other related parties. In 2021, one of the related parties bought up the debts of Baltic Dairy Board SIA. At the end of 2021, Baltic Dairy Board SIA entered into agreements with the Parent and AS „Citadele banka“ regarding the issue of loans to refinance the debts to the related party. The Parent issued the loan to SIA „Baltic Dairy Board“ at the end of 2021, and AS „Citadele banka“ issued loan to SIA „Baltic Dairy Board“ in 2022. (i) Transactions with related parties: Purchases of raw materials, products, non-current assets and services, interest expenses GROUP COMPANY 2021 2020 EUR ‘000 2021 2020 - - Kelmės Pieninė AB 29,756 35,215 - - Kelmės Pienas UAB 15,595 - - - 31 - - 64 Modest AB Baltic Dairy Board SIA Management personnel 32,316 79 31 24,656 - 64 2,971 2,300 Other related parties 2,678 2,300 3,002 2,364 80,455 62,235 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 62 Notes to the consolidated and separate financial statements Notes (continued) 29 Transactions with related parties and management personnel (continued) (ii) Transactions with related parties: Sale of raw materials, products, non-current assets and services, interest income GROUP COMPANY 2021 2020 EUR ‘000 2021 2020 - - Kelmės Pieninė AB 10,764 11,196 - - Kelmės Pienas UAB 7,277 - - - - 6 - - - 11 Modest AB Pieno Logistika AB Baltic Dairy Board SIA Management personnel 30,321 1 126 6 20,795 1 - 11 204 61 Other related parties 204 61 206 72 48,699 32,064 (iii) Year-end balances of transactions with related parties: GROUP COMPANY 31 12 2021 31 12 2020 EUR ‘000 31 12 2021 31 12 2020 - - Loan payable (Kelmės Pieninė AB) - 80 - - - - Trade and other amounts payable (Kelmės Pieninė AB) 2,381 - 4,919 4,919 - - (Kelmės Pienas UAB) 2,381 - - - Trade and other amounts receivable 4,555 1,185 - - (Kelmės Pieninė AB) - 5 - - (Modest AB) 4,365 1,180 - - (Baltic Dairy Board SIA) 189 - - - Loan receivable (Baltic Dairy Board SIA, including interest) 831 - - 500 Loan payable (including interest to management personnel) - 500 23 301 Loan receivable (including interest from management personnel) 23 301 12 12 Other amounts receivable (from management personnel) 12 12 47 32 Trade and other amounts payable (to other related parties) 47 32 236 318 Advance amounts receivable (from other related parties) 236 318 1,631 114 Loan receivable (including interest and administration fee from other relatd parties) 1,631 114 4,567 - Loan payable (including interest to other related parties) - - VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 63 Notes to the consolidated and separate financial statements Notes (continued) 29 Transactions with related parties and management personnel (continued) Assets pledged, guarantees/sureties issued by the Group and the Company to secure the fulfilment of financial liabilities of related parties, and assets pledged, guarantees/sureties issued by related parties to secure the fulfilment of financial liabilities of the Company are disclosed in Note 28. The main terms and conditions for the Group‘s and the Company‘s amounts payable and receivable under the loan agreements are as follows: - In 2021, the Company granted a loan of EUR 830 thousand to the subsidiary Baltic Dairy Board SIA. The loan has to be repaid by 31 January 2024. The outstanding balance of the loan was EUR 830 thousand as at 31 December 2021. Interest is charged on the outstanding balance of the loan. - In 2020, the Group and the Company granted a loan of EUR 210 thousand to a member of management personnel. The outstanding balance of the loan was EUR 21 thousand and interest receivable was EUR 2 thousand as at 31 December 2021. Interest is charged on the outstanding balance of the loan. - The Group‘s and the Company‘s loans receivable from other related parties amounted to EUR 1,631 thousand as at 31 December 2021. Loan of EUR 13 thousand has to be repaid by 31 December 2023. Interest is charged on the outstanding balance of the loan. Administration fee and interest receivable amount to EUR 101 thousand. Loan of EUR 1,517 thousand has to be repaid by 31 December 2022. Interest is charged on the outstanding balance of the loan. - The Group‘s outstanding balance of loans payable to other related parties amounted to EUR 4,567 thousand as at 31 December 2021. The loan repayment date is 31 December 2023. Interest is charged on the outstanding balance of the loan. In 2021, personnel expenses included payments of EUR 943 thousand and EUR 564 thousand to the Group‘s and the Company‘s management personnel, including social security contributions (2020: EUR 755 thousand and EUR 497 thousand, respectively In 2021, the Group‘s and the Company‘s payments for personnel under the defined plan for contributions to Pillar III investment funds amounted to EUR 253 thousand and EUR 231 thousand, respectively (2020: EUR 118 thousand and EUR 68 thousand, respectively). 30 Financial instruments and risk management Credit risk The maximum exposure to credit risk is the net book amount of financial assets designated as at 31 December 2021 as financial assets measured at amortised cost. The maximum exposure to credit risk as at the reporting date was as follows: GROUP EUR ‘000 Net book amount Note 31 12 2021 31 12 2020 Non-current amounts receivable 17 13 - Trade and other amounts receivable, net of tax 19 12,211 7,927 Cash and cash equivalents 21 799 181 13,023 8,108 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 64 Notes to the consolidated and separate financial statements Notes (continued) 30 Financial instruments and risk management (continued) The table below analyses by geographical region the maximum exposure to credit risk as at the reporting date arising from trade receivables: EUR ‘000 Net book amount 31 12 2021 31 12 2020 Lithuania 2,706 856 Great Britain 319 1,571 Israel 859 576 Saudi Arabia 2,174 1,464 Portugal 408 355 Italy 497 276 Poland 975 596 Latvia 91 147 Estonia 312 376 Republic of Korea 157 73 Kazakhstan 101 103 China - 146 Taiwan - 273 Albania 104 109 Denmark 138 40 The Netherlands 794 126 Azerbaijan 78 1 Cameroon 3 4 Croatia - 89 Thailand 69 53 Germany 1,019 387 Libya 146 - Lebanon 70 - Ireland 2 2 Greece 160 15 Bosnia-Herzegovina 250 - Slovakia - 75 Finland 61 63 Spain 50 17 Czech 224 68 South Africa 140 58 Malta 68 - Norway 20 - Georgia 58 - UAE 87 - Vietnam 63 - Other 8 8 12,211 7,927 As at 31 December 2021, significant credit risk concentration was related to five customers, the receivables from which accounted for 31% of total trade receivables (31 December 2020: 33%). VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 65 Notes to the consolidated and separate financial statements 30 Financial instruments and risk management (continued) COMPANY EUR ‘000 Net book amount Note 31 12 2021 31 12 2020 Non-current amounts receivable 17 843 - Trade and other receivables 19 16,634 9,073 Cash and cash equivalents 21 579 155 18,056 9,228 The table below analyses the maximum exposure to credit risk at the reporting date arising from trade receivables by geographical regions: EUR ‘000 Net book amount 31 12 2021 31 12 2020 Lithuania 6,950 2,422 Great Britain 319 1,151 Israel 859 576 Saudi Arabia 2,174 1,464 Portugal 408 355 Italy 497 276 Poland 975 596 Latvia 279 147 Estonia 312 376 Republic of Korea 157 73 Kazakhstan 101 103 China - 146 Taiwan - 273 Albania 104 109 Denmark 138 40 The Netherlands 794 126 Azerbaijan 78 1 Cameroon 3 4 Croatia - 89 Thailand 69 53 Germany 1,019 387 Libya 146 - Lebanon 70 - Ireland - 2 Greece 160 15 Bosnia-Herzegovina 250 - Slovakia - 75 Finland 61 63 Spain 50 17 Czech 224 68 South Africa 140 58 Malta 68 - Norway 20 - Georgia 58 - Vietnam 63 - UAE 87 - Other 1 8 16,634 9,073 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 66 Notes to the consolidated and separate financial statements Notes (continued) 30 Financial instruments and risk management (continued) As at 31 December 2021, a significant credit risk concentration was related to three customers, the receivables from which accounted for 36% of total trade receivables (31 December 2020: 35%). Impairment losses The Group and the Company establish the provision for impairment losses which represents estimate of incurred losses in respect of trade and other receivables. Such a provision includes only specific losses associated with individual significant items of trade and other receivables. The ageing analysis o f trade and other receivables and non-current amounts receivable as at the reporting date is as follows: GROUP Total amount Impairment Total amount Impairment EUR ‘000 31 12 2021 31 12 2021 31 12 2020 31 12 2020 Related parties: Not past due 1,559 - 307 - Past due 0-30 days - - - - Past due 31-60 days - - 1 - More than 60 days 94 - 107 - 1,653 - 415 - Not past due 9,598 - 6,462 - Past due 0-30 days 902 - 709 - Past due 31-60 days 55 - 90 - More than 60 days 75 -59 346 -95 10,630 -59 7,607 -95 12,283 -59 8,022 -95 Impairment losses related to trade and other receivables amounted to EUR 59 thousand as at 31 December 2021 (2020: EUR 95 thousand). VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 67 Notes to the consolidated and separate financial statements Notes (continued) 30 Financial instruments and risk management (continued) COMPANY Total amount Impairment Total amount Impairment EUR ‘000 31 12 2021 31 12 2021 31 12 2020 31 12 2020 Related parties: Not past due 6,357 - 1,487 - Past due 0-30 days 419 - - - Past due 31-60 days 168 - 1 - More than 60 days 94 - 107 - 7,038 - 1,595 - Other parties: Not past due 9,474 - 6,431 - Past due 0-30 days 899 - 706 - Past due 31-60 days 52 - 90 - More than 60 days 73 -59 346 -95 10,498 -59 7,573 -95 17,536 -59 9,168 -95 Impairment losses related to trade and other receivables amounted to EUR 59 thousand as at 31 December 2021 (2020: EUR 95 thousand). Movements on the account of provision for impairment of trade and other receivables during the year were as follows: GRUOP EUR ‘000 Net book amount 2021 2020 Balance at 1 January -95 -98 Impairment losses recognised -59 -1 Write-off of bad debts 95 1 Impairment losses reversed - 3 Balance at 31 December -59 -95 COMPANY EUR ‘000 Net book amount 2021 2020 Balance at 1 January -95 -98 Impairment losses recognised -59 -1 Write-off of bad debts 95 1 Impairment losses reversed - 3 Balance at 31 December -59 -95 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 68 Notes to the consolidated and separate financial statements Notes (continued) 30 Financial instruments and risk management (continued) Based on historical payment statistics and detailed analysis of customer solvency, the Company’s management considers that the amounts which are past due more than 30 days and not impaired are still recoverable. During the recent five years, the Company recognised amounts receivable of EUR 95 thousand as bad debts. Liquidity risk The table below analyses financial liabilities, including interest charged thereon, based on their contractual maturities: GROUP At 31 December 2021 Net book amount Contractual cash flows Less than 6 months 6- 12 months 1-2 years 2-5 years EUR ’000 Financial liabilities Bank borrowings 17,758 -18,864 -1,391 -3,113 -2,496 -11,864 Other borrowings 4,293 -5,036 -648 -628 -3,760 - Lease liabilities 693 -716 -161 -141 -217 -197 Factoring 1,419 -1,426 -1,426 - - - Trade payables 13,027 -13,027 -13,027 - - - 37,190 -39,069 -16,653 -3,882 -6,473 -12,061 At 31 December 2020 Net book amount Contractual cash flows Less than 6 months 6- 12 months 1-2 years 2-5 years EUR ’000 Financial liabilities Bank borrowings Other borrowings 17,394 500 -18,001 -525 -1,671 -13 -13,172 -512 -1,910 - -1,249 - Lease liabilities 626 -641 -164 -150 -324 -5 Factoring 3,140 -3,171 -3,171 - - - Trade payables 8,579 -8,579 -8,579 - - - 30,239 -30,917 -13,598 -13,834 -2,234 -1,254 COMPANY At 31 December 2021 Net book amount Contractua l cash flows Less than 6 months 6- 12 months 1-2 years 2-5 years EUR ’000 Financial liabilities Bank borrowings 4,807 -5,039 -460 -2,190 -845 -1,544 Lease liabilities 715 -737 -167 -146 -227 -197 Factoring 1,419 -1,426 -1,426 - - - Trade payables 12,666 -12,666 -12,666 - - - 19,607 -19,868 -14,719 -2,336 -1,072 -1,741 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 69 Notes to the consolidated and separate financial statements Notes (continued) 30 Financial instruments and risk management (continued) At 31 December 2020 Net book amount Contractu al cash flows Less than 6 months 6- 12 months 1-2 years 2-5 years EUR ’000 Financial liabilities Bank borrowings Other borrowings Borrowings from Kelmės Pieninė AB 4,743 500 80 -5,116 - 526 - 80 -4,16 -13 -80 -1,716 - 513 - -1,735 - - -1,249 - - Lease liabilities 657 -673 -167 -155 -346 -5 Factoring 1,452 -1,466 -1,466 - - - Trade payables 11,647 -11,647 -11,647 - - - 19,079 -19,508 -13,789 -2,384 -2,081 -1,254 As at 31 December 2021, the Group‘s and the Company‘s current assets exceeded the current liabilities by EUR 6,555 thousand and EUR 8,851 thousand, respectively. As at 31 December 2021, the Group‘s borrowings and lease liabilities totalled EUR 24,164 thousand and EUR 6,941 thousand, respectively. Under the currently effective loan and other agreements with the banks, the outstanding balances of the Group and the Company to be repaid in 2021 amounted to EUR 5,852 thousand and EUR 4,242 thousand, respectively (see Note 23). The export is particularly important for the Group, since it accounts for 86% of total annual turnover. During the quarantine period due to COVID-19 in 2020 many countries in Europe suspended the activities of hotels, restaurants and public catering, which resulted in decline in consumption of milk products in this industry. The Hotel, Restaurant and Cafe (HoReCa) industry recovered in 2021 due to recovery of tourism in the beginning of summer, and accordingly, the focus will be further given to the following areas: - geographical expansion of export in HoReCa industry; - increasing the sales of cheese and cheese products; - geographical expansion of export of industrial products and increasing the number of customers. It is expected that in 2022 the sale prices of products will remain at the same level as in 2021. The increase in prices is likely to continue, which will amortise the higher prices of raw materials and energy. Borrowings and lease liabilities are expected to amount to EUR 21,867 thousand as at 31 December 2022. In view of all the projections for 2022, the Group’s net debt to EBITDA ratio will be 1.8 as at 31 December 2022. In 2022 the Group’s management expects to repay its non-current borrowings in amount of EUR 2,996 thousand. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 70 Notes to the consolidated and separate financial statements Notes (continued) 30 Financial instruments and risk management (continued) Foreign exchange risk Exposure to foreign exchange risk, at the exchange rates effective as at 31 December 2021, was as follows: Exposure to foreign exchange risk, at the exchange rates effective as at 31 December 2020, was as follows: During the year the exchange rates against the euro were as follows: Average 2021 2020 USD 1.1831 1.1418 PLN 4.5650 4.4419 The exchange rates applied against the euro as at 31 December were as follows: 2021 2020 USD 1.1334 1.2281 PLN 4.596 4.5565 Analysis of sensitivity to changes in the exchange rates The Company’s foreign exchange risk arises from purchases and sales denominated in currencies other than the euro. In 2021, the major portion of the Company’s transactions were conducted in the euros, and therefore, the Company was not exposed to significant foreign exchange risk. GROUP (COMPANY) ( EUR ‘000) USD PLN Trade and other receivables, net of tax 2,174 121 Cash and cash equivalents 4 1 Trade payables - -2 Net exposure 2,178 120 GROUP (COMPANY) ( EUR ‘000) USD PLN Trade and other receivables, net of tax 1,612 127 Cash and cash equivalents - 22 Trade payables -2 -1 Net exposure 1,610 148 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 71 Notes to the consolidated and separate financial statements Notes (continued) 30 Financial instruments and risk management (continued) Interest rate risk The Group’s and the Company’s borrowings bear variable interest rates linked to EURIBOR + margin. Interest rates applied to the Group’s and the Company’s financial instruments as at 31 December 2021 were as follows: GROUP COMPANY Net book amount EUR ‘000 Net book amount 31 12 2021 31 12 2020 31 12 2021 31 12 2020 Financial instruments with fixed interest rates - - Loan granted to Baltic Dairy Board SIA 830 - 1,350 - Current portion of loan granted 1,350 - 21 290 Short-term loan granted to management personnel 21 290 - -500 Current borrowings of management personnel - -500 1,371 -210 2,201 -210 GROUP COMPANY Net book amount EUR ‘000 Net book amount 31 12 2021 31 12 2020 31 12 2021 31 12 2020 Financial instruments with variable interest rates -22,051 -17,394 Bank borrowings -4,807 -4,743 - - Kelmės Pieninė AB - -80 -1,419 -3,140 Factoring -1,419 -1,452 -693 -626 Lease liabilities -715 -657 -24,163 -21,160 -6,941 -6,932 -22,792 -21,370 -4,740 -7,142 Analysis of sensitivity of cash flows to instruments bearing variable interest rates A shift in interest rates by +/- 100 basis points (bps) would increase/decrease equity and profit/(loss) by the amounts set out in the table below. This analysis assumes that all other variables, in particular exchange rates, are held constant. The analysis for 2020 was performed using the same basis. GROUP COMPANY Profit (loss) Impact (EUR ’000) Profit (loss) 100 bp increase 100 bp decrease 100 bp increase 100 bp decrease At 31 December 2021 -228 228 Financial instruments bearing variable interest rates -47 47 At 31 December 2020 -214 214 Financial instruments bearing variable interest rates -71 71 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 72 Notes to the consolidated and separate financial statements Notes (continued) 30 Financial instruments and risk management (continued) Fair value of financial instruments / Fair value hierarchy Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the main (or most advantageous) market between market participants at the measurement date, regardless of whether the price is directly observed or determined using a valuation methodology. The table below analyses financial instruments carried at fair value, by valuation method. The following methods and assumptions are used by the Group and the Company to determine the fair value of these financial instruments: Financial instruments that are not measured at fair value The main financial instruments of the Group and the Company that are not measured at fair value are trade and other amounts receivable, term deposits, trade and other amounts payable, non-current and current borrowings. The Group’s and the Company’s management is of the opinion that the carrying amounts of these financial instruments approximate their fair values because borrowing costs are linked to an interbank lending rate EURIBOR, and other financial assets and liabilities are of short-term nature; therefore, their fair value variation is not significant. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement hierarchy has three levels: Level 1 includes fair value of assets based on quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 includes fair value of assets based on directly or indirectly observable inputs; Level 3 includes fair value of assets based on unobservable inputs. Financial instruments measured at fair value The Group and the Company have no financial instruments measured at fair value. GROUP At 31 December 2021 EUR ’000 Level 1 Level 2 Level 3 Total Non-current amounts receivable - - 13 13 Trade and other receivables - - 12,211 12,211 Cash and cash equivalents 799 - - 799 Borrowings and lease liabilities - - -24,163 -24,163 Trade and other payables - - -13,027 -13,027 799 - -24,966 -24,167 At 31 December 2021 EUR ’000 Level 1 Level 2 Level 3 Total Non-current amounts receivable - - - - Trade and other receivables - - 7,927 7,927 Cash and cash equivalents 181 - - 181 Borrowings and lease liabilities - - -21,660 -21,660 Trade and other payables - - -8,579 -8,579 181 - -22,312 -22,131 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 73 Notes to the consolidated and separate financial statements Notes (continued) 30 Financial instruments and risk management (continued) BENDROVĖ At 31 December 2021 EUR ’000 Level 1 Level 2 Level 3 Total Non-current amounts receivable - - 843 843 Trade and other receivables - - 16,634 16,634 Cash and cash equivalents 579 - - 579 Borrowings and lease liabilities - - -6,941 -6,941 Trade and other payables - - -12,666 -12,666 579 - -2,130 -1,551 At 31 December 2020 EUR ’000 Level 1 Level 2 Level 3 Total Non-current amounts receivable - - - - Trade and other receivables - - 9,073 9,073 Cash and cash equivalents 155 - - 155 Borrowings and lease liabilities - - -7,432 -7,432 Trade and other payables - - -11,647 -11,647 155 - -10,006 -9,851 Capital management The Board's policy is aimed at maintaining a significant portion of equity compared to borrowed funds in order to avoid damaging trust of investors, creditors and the market and ensuring the development of operations in the future and compliance with externally imposed capital requirements. Capital is defined as equity attributable to equity holders The Board also aims to maintain balance between a higher rate of return, which could be achieved by obtaining more borrowed funds, and security, which is ensured by a larger amount of equity. The Group and the Company manage the capital structure and make adjustments to it in the light of changes in economic conditions and the risk characteristics of their activities. To maintain or adjust the capital structure, the Group and the Company may adjust the dividend payment to shareholders, return capital to the shareholders or issue new shares. There were no changes in the objectives, policies or processes during the financial years ended 31 December 2021 and 31 December 2020. The Law on Companies of the Republic of Lithuania require that the Group and the Company keep equity at no less than 50% of the share capital. The Group has a commitment to comply with the external capital requirements set by the banks. Based on the requirements of the banks (equity – revaluation reserve) / (total assets) ratio should not be less than 30 %. Management monitors the compliance with the requirements set for the Group. Further details are given in Note 22. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2021 74 Notes to the consolidated and separate financial statements Notes (continued) 31 Events after the reporting period At the end of February 2022, the Russian Federation announced a military operation in Eastern Ukraine. The regimes of Russia and Belarus were subject to economic and financial sanctions. The Group‘s and the Company's management performed a preliminary assessment of the potential effects of the invasion of Ukraine on the Group‘s and the Company's operations. In the opinion of the Group‘s and the Company‘s management, the geopolitical changes will have no significant impact on the Group‘s and the Company's operations. In 2021, the Group‘s and the Company‘s revenue from sales in the markets of Russia, Belarus and Ukraine accounted for 1.84% and 1.44% of the Group’s and the Company’s total revenue, respectively. The Group’s and the Company’s revenue from sales in Russia amounted to EUR 1,771 thousand, Belarus – EUR 87 thousand, Ukraine – EUR 973 thousand. In 2022 the Group and the Company terminated sales in the markets of Russia and Belarus, and sales in the market of Ukraine decreased due to the current situation. The expansion of the range of products planned in Ukraine in 2022 will be suspended. Since 2020, the Group and the Company have been working in this market with the distribution company, and have been supplying yogurts and sour cream. One of the largest shopping centres in Ukraine expressed interest in the Group and the Company. It was agreed to expand the range of products and supply not only edible yogurts, drinkable yogurts and sour cream. When the situation changes, the project will be renewed. At the date of issue of the financial statements, sales to Ukraine were restored. Since the Group‘s and the Company‘s sales in those markets are insignificant and demand for milk products has increased, it‘s been possible to diversify promptly the markets, and accordingly, the management does not expect any significant impact on the Group‘s and the Company‘s operations. The management has not identified any additional threats for the Group‘s and the Company's ability to continue on a going concern basis. The management monitors on a daily basis the developing situation, and makes decisions, if necessary, to ensure stable operation of the Group and the Company. In the opinion of the management, it is a non-adjusting post-balance sheet event. There were no other significant events after the end of the financial year. “Vilvi Group” annual report for 2021 75 Annual report of “Vilvi Group” for 2021 I. ISSUER OVERVIEW 1. Reporting Period for this Report This consolidated Report is for 2021. 2. Issuer Information and Contact Details Name of Issuer Vilkyškių pieninė AB (hereinafter – Company or Issuer) Legal Form Public limited company (Lith. Akcinė bendrovė) Date and place of registration 18 May 1993, VĮ Registrų centras Date and place of re-registration 30 December 2005, VĮ Registrų centras Head office address P.Lukošaičio str. 14, Vilkyškiai, LT-99254, Pagėgių savivaldybė Registration No. 060018 Company Register Code 277160980 Telephone +370 441 55330 Fax +370 441 55242 E-mail info@vilvi.eu Website www.vilvigroup.lt 3. Information on Subsidiaries and Contact Details: “Modest” AB Name of subsidiary “Modest” AB (hereinafter – “Modest” AB) Legal form Public limited company Date of registration 25 March 1992 Date of re-registration 31 December 2009, VĮ Registrų centras Registration No. 017745 Company register code 121313693 Head office Gaurės str. 23, LT-72340 Tauragė Telephone +370 446 72693 Fax +370 446 72734 E-mail modest@vilvi.eu Website www.vilvigroup.lt Kelmės pieninė AB Name of subsidiary Kelmės pieninė AB (hereinafter – Kelmės pieninė AB) Legal form Public limited company Date of registration 3 August 1993, VĮ Registrų centras Date of re-registration 4 July 2007 Head office Gaurės g. 23, LT-72340 Tauragė Registration No. 110109 Company register code 162403450 Telephone +370 427 61246 Fax +370 427 61235 E-mail kelmespienine@vilvi.eu Website www.vilvigroup.lt “Vilvi Group” annual report for 2021 76 “Kelmės pienas” UAB Name of Kelmės pieninė AB subsidiary “Kelmės pienas” UAB (hereinafter – “Kelmės pienas” UAB) Legal form Public limited company Date of registration 17 November 2020, VĮ Registrų centras Date of re-registration 4 July 2007 Head office Raseinių str. 2, LT-86160 Kelmė Company register code 305658215 Telephone +370 427 61246 E-mail kelmespienas@vilvi.eu Website www.vilvigroup.lt “Pieno logistika” AB Name of subsidiary “Pieno logistika” AB (hereinafter – “Pieno logistika” AB) Legal form Public limited company Data and place of registration 10 December 2013, Šiauliai Division of VĮ Registrų centras Head office Pagojo str. 1, Pagojo km., Kelmės raj. Company register code 303203457 Telephone +370 427 61246 Fax +370 427 61235 E-mail stasys.stanevicius@vilkyskiu.lt Website www.vilvigroup.lt “Baltic Dairy Board” SIA Name of subsidiary “Baltic Dairy Board” SIA (hereinafter – “Baltic Dairy Board” SIA) Legal form Public limited company Data and place of registration 21 July 2008, Commercial register of Republic of Latvia Head office Stacijas str. 1, Bauska, LV-3901, Latvia Company register code 43603036823 Telephone +371 63026899 E-mail info@bdb.lv Website http://www.bdb.lv/ 4. Main Types of Activity The main business activity of “Vilvi Group” is production and sale of dairy products (EVRK 10.51). The main business activity of Vilkyškių pieninė AB is production and sale of fermented cheese, cream and whey products. Subsidiary company “Modest” AB makes mozzarella cheese, mould cheese, smoked, melt cheese and other cheese products. Subsidiary company Kelmės pieninė AB produces dry milk products – WPC, SMP, permeate and whey powder. “Kelmės pienas” UAB produces fresh dairy products: kefir, sour cream, yogurts, cottage cheese, glazed curd bars, butter. Subsidiary company “Pieno logistika” AB mainly engages in the lease of buildings. Subsidiary company “Baltic Dairy Board“ SIA specializes in production of high value-added components of milk – GOS (Galactooligosaccharides) and processing of whey and milk, which separates protein and lactose into two separate products. “Vilvi Group” annual report for 2021 77 5. Agreements with Brokerages for Securities Public Turnover “Vilvi Group” has an underwriting agreement with FMĮ Orion Securities UAB brokerage (address A. Tumėno str. 4, B korp., LT-01109, Vilnius) on the accounting of Vilkyškių pieninė AB, Modest AB, Kelmės pieninė AB. AB shareholders and services associated with the accounting of the Company’s securities. FMĮ Finasta AB brokerage manages shareholder accounts for “Pieno logistika” AB. 6. Trading in the Issuer’s Securities on Regulated Exchanges The name of securities: Vilkyškių pieninė AB common registered shares. The number of securities issued: 11,943,000 units. Share face value: EUR 0.29 per share. The Company’s issue is included in the Official List of AB NASDAQ OMX Vilnius. The ISIN code of the securities: LT0000127508, Ticker symbol: VLP1L. The Company’s shares have been listed since 17 May 2006. The securities of the subsidiary companies are not publicly traded. II. OVERVIEW OF OPERATIONS “Vilvi Group” produces a wide range of delicious dairy products based on original recipes, many of them acknowledged for their taste and quality at international trade fairs. We are proudly continuing the long- standing traditions of cheese production that originated in the picturesque region of Lithuania surrounded by wonderful nature. The lush flood-meadows of the Nemunas River inspire us to create and share what nature has so generously bestowed on us. Our mission is to provide people across the whole world more opportunities to enjoy dairy products. Our Values: Quality – we produce high-quality dairy products and abide by the highest standards. Innovations – we continually delight our consumers by introducing new products and providing opportunities to experience new taste sensations. We constantly invest in new technologies and expand our product range. We are interested in creating and sharing the results of our work. After all, it is how new traditions are being born, is not it? Competence – in the hands of our dairy masters dairy foods turn into exclusive and original high-quality products. Honesty – we are open and reliable. Our customers’ trust and respect are extremely important to us. The basis of our activity includes the time-proved relations with our business partners and professionalism of our employees. 7. Issuer’s Jurisdiction In its operations, “Vilvi Group” follows the Lithuanian law, government resolutions and legal acts on companies, in particular the Lithuanian law on the securities market, as well as the Company’s own Statutes. 8. Brief History of Issuer Vilkyškių pieninė AB was revived in 1993, when a limited liability company called Vilkyškių pieninė was founded in the premises of an old dairy bearing the same name, built in 1934. The old dairy had stopped production in 1985, and all equipment had been dismantled. In 1993, the new owners of the dairy privatised the buildings and brought new production equipment from Eastern Germany. Initially, there was no other owners’ equity apart from the privatized buildings, and bank loans were taken to provide with the needed working capital. “Vilvi Group” annual report for 2021 78 Key Events in Issuer’s History 1993 – 1995: the dairy’s water tower, boiler house and milk separation unit were renovated, and milk separation was launched. The cheese production department started making of low-fat fermented cheese Peptatas. A butter production unit was also launched. Since 1997, the cheese production department started making the Tilsit-type cheese, also launching production of Gouda-type fermented cheese a year later. 1997-2000: buildings and production equipment were renovated, boiler house BWE and cold warehouse were built, also renovated electricity power substation. 1999- 2000: 2.5 MEUR was invested into the new TetraPakTebel cheese production facility. As a result, new fully computerised and automated cheese production line was installed, enabling the company to make EU- compliant products. In the same year, the Company was issued with a license to export its products to the European Union. 2001 : The Company acquired the Tauragė dairy facility of the Mažeikiai branch of Pieno žvaigždės AB. Since 2007, it houses the head office of “Modest” AB, a subsidiary of Vilkyškių pieninė AB. 2003-2005: The Company adopted accounting and enterprise resource planning solution Microsoft Dynamics Nav. An EU-compliant wastewater treatment facility, made by the Dutch company NewWaterTechnology, was installed, and investments were made into cheese packaging equipment in the same year. Boiler house of Tauragė production facilities was reconstructed to use new fuel type. As of 17 May 2006, a total of 9,353,000 common registered shares of Vilkyškių pieninė AB were listed on the Current List of the NASDAQ OMX Vilnius exchange. As of 1 January 2008, the shares are listed in the Official list of NASDAQ OMX Vilnius exchange. In 2006, the Issuer acquired an 80.25 percent stake in “Modest” AB. Now Vilkyškių pieninė AB holds 99.7 percent of the “Modest” AB stock. In 2009, the share capital of “Modest” AB was increased from EUR 37,190 up to EUR 178,730 through the issue of 488,710 new common registered shares. Meanwhile, the share capital of “Modest” AB was raised from EUR 178,730 to EUR 1,626,830 by Vilkyškių pieninė AB contribution in cash in 2010. In 2006, the Company’s cheeses production facility was expanded significantly. Maximum production capacities of the Company increased from 10,000 to 14,000 tonnes per year. The Company used the support from the EU funds. In 2007, a new modern whey processing facility was launched. The total value of the whey processing facility was more than 2.3 MEUR. The investment increased the Company’s productivity, improved quality controls and reduced waste considerably. The Company had no whey processing until then. The Company used the support from the EU funds. 2007: “Modest” AB was allocated 0.6 MEUR in support from EU structural funds. “Modest” AB used the funds to upgrade its fleet of refrigerated vans for product transportation and to modernise its production processes. It installed new milk processing technologies and packaging line for its main product Mozzarella cheese. 2008: Vilkyškių pieninė AB took over Kelmės pieninė AB by acquiring 99.09 percent of the company’s stock. At present Vilkyškių pieninė AB controls 100 percent of the Kelmės pieninė AB stock. As a result of the acquisition, “Vilvi Group” entered the market of fresh dairy products. 2009: 9.5 MEUR in EU support was under an agreement with the Lithuanian National Paying Agency/ The support was awarded under the Lithuanian Rural Development Programme for 2007-2013, measure “Adding Value to Agricultural and Forestry Products”, activity “Processing and Marketing of Agricultural Products”. 2011: was invested into new cold storage equipment, expand the existing wastewater treatment and equipment washing capacities. Also, investments were mainly made into refrigeration equipment, a cheese cutting and packaging line. The installation of the Equinox warehouse management system was also started. 2012: a new cheese production line was assembled (4.6 MEUR in value), increasing output by 30 percent. In addition, 2.7 MEUR packaging and plastic-coating line was installed. “Vilvi Group” annual report for 2021 79 2013: the trademark of Vilkyškiai was recognized as Brand of the year 2013 in Lithuania. 2013: among other investments, about 1.5 MEUR was invested to expand the whey processing unit’s daily capacity to 600 tonnes. By the end of the year, the whey ultrafiltration project was also completed — it is a technology that breaks whey proteins into their basic components. In 2013 Kelmės pieninė AB installed a new TetraTop packaging line for liquid dairy products. This packaging is innovative and preserving environment. Reliable carton packaging protects product from environmental effects – light, air, microorganizms and it is more comfortable to use. 2013: after “Modest” AB completed the modernisation of its blue cheese production facility, its output is about 300 tonnes per year. 2014: Vilkyškių pieninė AB launched a new cheese-slicing line, allowing to cut the cheese in slices, and acquired new storage tanks for milk products. The project was financed from the EU funds. In 2014- 2015, Kelmės pieninė AB and “Modest” AB renovated its compressor station. In 2015, Vilkyškių pieninė AB signed a contract to connect to a gas distribution system with Lietuvos dujos AB as dry milk products production factory need gas. In 2015 the trademark of Vilkyškiai was recognized as Brand of the year 2015 in Lithuania. In 2016 Kelmės pieninė AB started the Project of dry milk products factory. For the implementation of it, Kelmės pieninė AB signed a support agreement with the National Paying Agency under the Ministry of Agriculture of the Republic of Lithuania for 4 million EUR support. On April 2017, Vilkyškių pieninė AB has been announced as the Lithuanian investor of the year 2016. The title has been gained for investing to the whey processing factory in Tauragė. In the end of 2017 production was started in the new dry milk products factory in Tauragė. Over the past two years the company invested about 28 million EUR to this project. The project was also funded by EU funds, with a budget of 4 MEUR. Kelme Pieninė AB dry milk products factory is currently the most modern in the region, with a fully automated production process and packaging line. 2017: Vilkyškių pieninė AB was awarded as “Lithuanian Export Prize 2017” winner. The Company was recognized as the most contributing to the growth of the economy and exports. 2018 Vilkyškių pieninė AB was announced as winner of prestigious award “Golden Phenix” and received nomination “Sponsor of Culture of the Year” for cultural activities. 2019 “Modest” AB has implemented the Mozzarella cheese grating line, which allows to produce large quantities of grated Mozzarella and to meet customers’ needs both in Europe and in other world markets. Company invested 0.55 MEUR. 2019 Kelmės pieninė AB has reconstructed boiler house to use natural gas instead of diesel fuel. The new boiler house is fully automated and more energy efficient therefore it is more economical and ecological. 2020: In order to strengthen the brand's global recognizability, it was decided to unify the business group’s identity in all of the markets across the world. Since September 15, 2020 AB Vilkyskiu Pienine Group begins operations under the “Vilvi Group” brand name uniting the whole group. 2020: In the largest Europe’s brand study on sustainability – Sustainable Brand Index Vilkyškių pieninė brand was 12 th in overall ranking among Lithuanian brands. It was ranked among top 5 out of 19 brands in the food and beverage category in Lithuania. 2020: In order to better manage Kelmės pieninė AB activities, its subsidiary company “Kelmės pienas” UAB (in Kelmė town) was founded which in 2021 took over fresh milk products (cottage cheese, yogurts, sour cream, cream, butter and other) business. Kelmės pieninė AB after transfer of the business segment continue production of dry milk products in Tauragė. 2020: Kelmės pieninė AB started research and experimental development project Creation of innovative food supplement for elderly people to prevent senescence weakness and insufficient nutrition. The project is carried out in cooperation with Lithuanian University of Health Sciences. Successful research and significant results are ensured by long-term experience and partnership of the Company and the University. The project “Vilvi Group” annual report for 2021 80 is financed according to 2014 – 2020 European Union investment programme Research and experimental development and innovation promotion No 01.2.1-LVPA-K-856 Experiment. In 2021 Vilkyškių pieninė AB completed the acquisition of 70% equity share stake of “Baltic Dairy Board” SIA. The investment of Vilkyškių pieninė AB to “Baltic Dairy Board” SIA share capital strengthens and develops current “Vilvi Group” high value-added product basket of milk components. “Baltic Dairy Board” SIA is company based in Latvia which specializes in production and sale of high value-added components of milk and processing of whey and milk, which separates protein and lactose into two separate products, joined the group. It also develops and produces products that are used in production of baby food – galactooligosaccharides. 2021: In the largest Europe’s brand study on sustainability – Sustainable Brand Index – Vilkyškių pieninė brand was among the most sustainable in Lithuania and was 10 th in overall ranking, and 3 rd in food category. 9. Main Investments of “Vilvi Group” During Reporting Period During 2021 the Group of companies invested 1.87 MEUR. 10. Patents & Licenses Product quality, customer needs satisfaction and food safety requirements are priorities at “Vilvi Group”. To maintain high product quality, Quality management and Food safety systems are constantly monitored, revised and improved. On 8 May 2000, Vilkyškių pieninė AB received a license to export its products to the European Union member states. The Company operates a quality management system (HACCP system). Vilkyškių pieninė AB has obtained certification of its Quality Management and Food Safety systems under the international standard ISO 22000/ FSSC 22000. This certification scheme is part of the Global Food Safety Initiative (GFSI) and is equivalent to such internationally recognised standards as BRC and IFS. Since 2013 Kelmės pieninė AB worked in accordance with ISO 22000/ FSSC 22000 standards, but in 2015 it extended the scope of certification and now covers the processing of all products. Kelmės pieninė AB in 2021 transferred fresh products business part consequently food safety management system certificates ISO 22000/FSSC 22000 related to fresh products production were transferred as well. “Modest” AB is also certified under iso 22000/FSSC 22000 certification scheme for product development, production and sale. The quality management and food safety systems are subject to continuous monitoring, review and improvements with a view to maintaining the high quality of the Company’s products. Every year “Vilvi Group” audits according to ISO 22000 / FSSC 22000 certification schemes. In order to attract buyers in Islamic countries, Vilkyškių pieninė AB, “Modest” AB and Kelmės pieninė AB (dry milk products) have been certified according to Halal rules. From year 2015 certification for Halal products continues every year. Halal products are associated with product safety, health, quality, ecology. These products are used by people of other religions as well. In 2017, factory of dry milk products of Kelmės pieninė was registered and started to operating. It received the veterinary approval number, which granted the right to export production to all EU and other third countries. The factory has established a physicochemical research laboratory equipped with state-of-the-art ultra-reliable equipment for ensuring the quality control of products. The laboratory carries out research using analyzers operating on the basis of infra-red analyzers and using reference (classical) methods of investigation. In 2018 Kelmės pieninė AB, dry milk products certified according to ISO 22000/FSSC 22000 Certification Scheme. In 2019 the laboratory of Vilkyškių pieninė AB received Food business operator laboratory approval permit. In 2020, Kelmės pieninė AB dry milk products production was certified according Kosher certificate. In 2021 the certificate was renewed. “Vilvi Group” annual report for 2021 81 To maintain high product quality, Quality management and Food safety systems are constantly monitored, revised and improved. Every year all “Vilvi Group” companies are certified according to ISO 22000/FSSC 22000 certification schemes. In 2021 Kelmės pieninė AB renewed certificates with updated versions ISO 22000:2018, FSSC 22000 and the scope of certificates was expanded including protein drink production. Vilkyškių pieninė AB, Modest AB, “Kelmės pienas” UAB were certified by updated FSSC 22000 certification scheme. 11. Human Resources One of the foundations of success of “Vilvi Group” are employees therefore in the companies of the Group exceptional focus is on their health, development of competencies, career planning. Human resource policy is oriented to fostering cooperation, openness, personal and professional development. The Group's companies create conditions for knowledge sharing and skills development through internal and external training, create a supportive, open environment, and encourage employees to come up with ideas and participate in improving business processes. In order to attract employees with the necessary qualifications, intensive cooperation is established with educational and employment institutions, presentations of vocational information and career planning are organized, participation in career fairs, thematic lectures are given, and cognitive excursions to the factories of the group companies are organized. The Group is implementing a Career Management System (QMS) project with a sample of more than 200 administrative staff. The aim of the project is to assess the prospects of existing employees to pursue a career within the company In order to ensure the health and well-being of employees, every year employees are provided with the opportunity to have a free health check, vision, use of a gym, dentist, rehabilitation services, and get vaccinated against the flu. The occupational safety specialist and the medical specialist constantly monitor and ensure that workplaces comply with safety and health requirements in accordance with legislation and regulations. Special attention is paid to the analysis of psychosocial risk factors and reduction of stress at work. In the event of the spread of coronavirus (COVID-19) infection in the country, “Vilvi Group” companies regularly examine and monitor their health in order to protect their employees from the threat of the virus, frequent cleaning, ventilation and surface disinfection in all production and administrative premises. protective face masks and other personal protective equipment are worn at all times. “Vilvi Group” has an approved “Remuneration Policy”, which ensures equal and transparent remuneration conditions. In order to ensure appropriate compliance of the processing of confidential information and personal data of employees with the provisions of the General Data Protection Regulation (BDAR), the "IT Security Policy", "Rules for the Processing of Personal Data", etc. have been approved. 12. Environmental Protection “Vilvi Group” has an environmental protection policy aimed at reducing the environmental impact of its operations, ensuring integrated pollution prevention measures, minimizing the use of resources and waste generation, so that its operations do not affect air, water and soil. “Vilvi Group” performs regular environmental impact analysis and assessment. Based on the European Parliament and Council IPPC Directive 2008/1/EC, Vilkyškių pieninė AB is attributable to the Annex I installations and is required to have an IPPC permit. The Company obtained its first IPPC permit from the Klaipėda Regional Environmental Protection Department on 10 August 2004, which was renewed on 4 December 2020. Kelmės pieninė AB IPPC permit was revoked according to the criteria of the Order of the Minister of the Environment of the Republic of Lithuania D1-330 "On the Rules for Updating and Eliminating the Issues of Integrated Pollution Prevention and Control Authorization". The activities performed by the company do not meet the criteria specified in the annexes to the order, therefore the IPPC permit is revoked, instead of it was “Vilvi Group” annual report for 2021 82 issued boiler pollution permit No. (30.3) - A4-33. in accordance with the provisions of Paragraphs 40 and 41 of the Rules. In 2021 Kelmės pieninė AB transferred fresh products business part to “Kelmės pienas” UAB, consequently Environment Protection Agency transferred boiler pollution permit to “Kelmės pienas” UAB. “Modest” AB IPPC permit was revoked according to the criteria of the Order of the Minister of the Environment of the Republic of Lithuania D1-330 "On the Rules for Updating and Eliminating the Issues of Integrated Pollution Prevention and Control Authorization". The activities performed by the company do not meet the Based on the existing legal requirements, programmes have been put in place at Vilkyškių pieninė AB to monitor the impact of water source and fuel storage on underground waters and to monitor air pollutant emissions and sources of wastewater. In 2015 Vilkyškių pieninė AB finished modernisation of its wastewater treatment plant in order to boost treatment efficacy. This is being done in line with the main national strategies and legal acts on wastewater treatment: the Baltic Marine Environment Protection Strategy, the Lithuanian Law on Waters, the National Long-Term Development Strategy and the National Sustainable Development Strategy. Production wastewater is treated at the Company’s own combined biomechanical treatment facility. In 2021, Vilkyškių pieninė AB treated 436 tho m3 of wastewaters. The resulting sludge is given to local waste management bodies and is used as fertiliser in agriculture. Wastewater treatment efficacy has been estimated to be up to 99 percent. In 2020, an automatic wastewater disposal control system was installed to prevent excess sewage sludge from entering the environment together with treated waste water. “Kelmės pienas” UAB wastewater occurring during production of fresh milk products is discharged to Kelmės vanduo UAB water treatment facilities. In 2021, 94,813 m3 wastewater was discharged. Kelmės pieninė AB Tauragė Division produces powdery, dusty products therefore it is very important to minimize hard particle and waste emissions to air and environment. Air polluted with hard particles is directed towards filters and cleaned there is emitted to environment. According to drying factory equipment manufacturers’ data whey, permeate, skimmed milk are odorless materials therefore no odors are released into environment. Wastewater generated during the production is discharged to Tauragės vandenys UAB water treatment facilities. In 2021, 266,572 m3 wastewater was discharged “Modest” AB has implemented the best available techniques (BAT), and its running costs and emissions are in line with the prescribed EU levels. Wastewater of “Modest” AB is discharged into the urban wastewater system operated by Tauragės vandenys UAB. Monitoring is carried out by Tauragės vandenys UAB. Wastewater meter was installed in order to account wastewater more accurately. Rain water is collected and cleaned with oil product filter and afterwards released to Beržė river. The Companies of the “Vilvi Group” invest in environment-friendly solutions. In production we responsibly choose packaging designs and materials. We encourage consumers to sort packaging of milk products by clearly labelling the type of waste it is. Also sorting of packaging is facilitated by marking places of multilayer packaging by perforations. Production waste is managed and accounted according to approved environment requirements in GPAIS (product, packaging, and waste accounting information system). In all Companies of the Group waste is disposed according to Republic of Lithuania regulatory norms therefore there is no negative impact on environment. 13. Company Results of Operations In addition to the key indicators defined and applied in the financial statements in accordance with International Financial Reporting Standards (IFRS), AB Vilkyškių Pieninė also presents financial performance indicators not provided for in IFRS - alternative performance indicators (API), which the Company considers important, provide additional information to investors and other users of the financial statements. Alternative performance indicators should be treated as additional information prepared in accordance with IFRS. Taking into account the Guidelines on Alternative Performance Indicators published by the European Securities and Markets Authority (ESMA/2015/1415), AB Vilkyškių pieninė provides comparable historical API data, the procedure for their calculation and what useful information they provide. “Vilvi Group” annual report for 2021 83 2017 m. 2018 m. 2019 m. 2020 m. 2021 m. Revenue (EUR tho) 130,325 126,242 140,492 148,738 196,442 Gross profit (EUR tho) 13,088 3,282 325 913 9,031 Gross profit margin, pct 10.0% 2.6% 0.2% 0.6% 4.6% EBITDA (EUR tho) 7,124 -1,055 -2,504 2,994 13,079 EBITDA margin, pct 5.5% -0.8% -1.8% 2.0% 6.7% EBIT (operating profit) (EUR tho) 5,272 -2,974 -4,322 1,394 11,450 EBIT margin, pct 4.0% -2.4% -3.1% 0.9% 5.8% EBT (profit before tax) (EUR tho) 7,044 -2,712 -5,061 640 11,194 EBT margin, pct 5.4% -2.1% -3.6% 0.4% 5.7% Net profit (EUR tho) 6,202 -2,028 -4,059 1,371 10,774 Net profit margin, pct 4.8% -1.6% -2.9% 0.9% 5.5% Net profit per share (EUR) 0.52 -0.17 -0.34 0.11 0.90 Share market price and net profit per share ratio - P/E ratio - - - - - Return on equity (ROE), pct 20.0% -6.4% -14.6% 5.2% 33.5% Return on assets (ROA), pct 7.6% -3.7% -7.7% 2.8% 19.9% Return on Capital employed (ROCE), pct 13.0% -9.1% -15.6% 4.5% 28.3% Debt ratio 0.39 0.45 0.49 0.44 0.37 Debt to equity ratio 0.26 0.32 0.44 0.27 0.19 The liquidity ratio 1.53 1.04 0.83 0.99 1.47 Turnover of assets 2.38 2.32 2.77 3.05 3.31 The capital to assets ratio 0.61 0.55 0.51 0.56 0.63 Financial debt (EUR tho) 8,648 9,430 11,287 7,432 6,941 Net debt (EUR tho) 8,417 9,093 11,056 7,277 6,362 Net debt /EBITDA 1.18 -8.62 -4.42 2.43 0.49 Gross profit is indicator that is in company‘s profit/loss statement. It is sales revenue minus cost of goods sold. Usually, this profit is biggest among other profit types. Gross profit margin shows how much profit is for one unit of sales revenue. Indicator is calculated by dividing gross profit by sales revenue. EBITDA – earnings before interest, taxes, depreciation and amortization, it shows company‘s earnings before evaluating the effect of company‘s financial policies as well as profit tax. Vilkyškių pieninė AB calculates this indicator by adding long-term assets depreciation, amortization to and subtracting subsidies from operating profit. When calculating EBITDA elements that are not directly influenced by activities of the company may be eliminated. EBITDA margin is a profitability indicator that can be used to compare the profitability of companies (in the same sector), to monitor changes in the profitability of the same company. The higher the value of the indicator is, the higher the profitability of the company is. The indicator is calculated by dividing EBITDA by revenue. EBIT (operating profit) is profit before interest and taxes. It shows the company's profit earned during the operating and investment cycle (before assessing the impact of the company's financing policy on profit and before deducting the income tax). This indicator reflects the company's ability to generate cash flow. The indicator is calculated by adding financial operating expenses to pre-tax profit and deducting the financial activity income “Vilvi Group” annual report for 2021 84 EBIT margin is indicator that shows operating effectiveness, it is calculated by dividing operating profit by sales revenue. EBT (profit before tax) is profit before taxation. The indicator is calculated by adding profit tax expense to net profit. EBT margin is calculated by dividing EBT by income. Shows the company's profit before taxes to sales ratio. A higher value of the indicator indicates a higher profitability of the company. Net profit (loss) is the financial indicator which is calculated by deducting all expenses and taxe s from income. Net profit margin is indicator of a company's profitability. Calculated by dividing net profit by income. Net profit per share is one of the most popular stock valuation indicators that shows the company's profit per share. The indicator is calculated by dividing net profit by the number of shares in the stock turnover. The P / E ratio is the ratio of the stock market price to pr ofit per share. The indicator shows how much the company’s shares cost as compared to the net profit. The P / E indicator provides information on whether a company is expensive as compared to its earned profits. The higher the net profit is, the lower the P / E ratio is, and, therefore, the more attractive such shares are for investment. The indicator is calculated by dividing the market price of the share by the net profit per share. Return on equity (ROE) is the net profit to equity ratio. The indicator s hows how efficiently the company uses shareholders' assets to earn profit. This indicator is important for shareholders in assessing the return on their investment in the company in the previous period. The higher the return on equity is, the more efficien t the company's operations are, the more profit it earns for its shareholders. The ratio is calculated by dividing net profit by the average of equity at the beginning and end of the reporting period. Return on assets (ROA) is the net profit to assets rati o. Return on assets shows how much net profit a company earns per euro of assets. This value can be used as a measure of the efficiency of the use of a company's assets. The higher the ROA value is, the more efficiently the assets are employed, the more pr ofit is earned. The indicator is calculated by dividing the net profit by the average of the assets at the beginning and end of the reporting period. Return on capital employed (ROCE) is the profitability indicator measuring the return on funds necessary for the company's continuous operations. It is often compared to the interest rates on loans in the market at that time. The company’s ROCE ratio is considered to be higher than the price of borrowed capital at that time. The indicator is calculated by dividing EBIT by the difference between total assets and short-term liabilities Debt ratio reflects the part of the company’s assets that has acquired with borrowed funds. The indicator is calculated by dividing all liabilities of the company by assets. Debt to equity ratio. This is one of the key indicators of financial leverage. The debt to equity ratio shows the amount of short-term and long-term debt in euros per euro of equity. The ind icator is calculated by dividing the financial debt by the equity. The liquidity ratio shows the company's ability to meet its short-term liabilities by using its owned short- term assets. The higher the ratio is, the better the liquidity position is. The indicator is calculated by dividing short - term assets by short-term liabilities. Turnover of assets . It is an efficiency indicator that shows the sales revenue to assets ratio. This indicator shows how efficiently a company uses its capital. A higher value indicates a higher degree of overall asset management efficiency and vice versa. The indicator is calculated by dividing the sales revenue by total assets. The capital to assets ratio shows the proportion between private capital and total assets. This indi cator shows the share of private capital in the capital structure. The lower this ratio is, the more the company is dependent on borrowed funds. The ratio is calculated by dividing private capital by total assets. Financial debt is the sum of short-term and long- term debt, which shows the amount of indebtedness of the “Vilvi Group” annual report for 2021 85 company. The indicator is calculated by adding long-term and short-term lease liabilities to long- term and short-term loans. Net debt is all the financial liabilities of the company with the d eduction of the available cash and cash equivalents. This indicator can be used during in a credit rating review. The indicator is calculated by deducting cash and cash equivalents from financial debt. Net debt / EBITDA shows the company's ability to repay debts from earned profits. This indicator can also be used in a credit rating review. The indicator is calculated by dividing net debt by EBITDA. 14. “Vilvi Group” Results of Operations Key financial consolidated indicators of “Vilvi Group”: 2017 m. 2018 m. 2019 m. 2020 m. 2021 m. Revenue (EUR tho) 113,939 103,162 114,581 120,873 156,045 Gross profit (EUR tho) 16,488 5,773 7,096 10,629 17,196 Gross profit margin, pct 14.5% 5.6% 6.2% 8.8% 11.0% EBITDA (EUR tho)* 10,882 3,140 3,698 8,271 14,122 EBITDA margin, pct 9.6% 3.0% 3.2% 6.8% 9.0% EBIT (operating profit) (EUR tho) 8,113 -884 -206 4,332 7,134 EBIT margin, pct 7.1% -0.9% -0.2% 3.6% 4.6% EBT (profit before tax) (EUR tho) 7,560 -1,870 -1,448 3,142 6,156 EBT margin, pct 6.6% -1.8% -1.3% 2.6% 3.9% Net profit (EUR tho) 6,686 -1,186 -446 3,872 5,500 Net profit margin, pct 5.9% -1.1% -0.4% 3.2% 3.5% Net profit per share (EUR) 0.56 -0.10 -0.04 0.32 0.46 Share market price and net profit per share ratio - P/E ratio 6.70 - - 7.59 7.95 Return on equity (ROE), pct 21.2% -3.6% -1.4% 11.7% 14.8% Return on assets (ROA), pct 8.6% -1.5% -0.6% 5.0% 6.7% Return on capital employed (ROCE), pct 13.2% -1.7% -0.4% 10.1% 11.7% Debt ratio 0,58 0.62 0.60 0.55 0.55 Debt to equity ratio 0.82 0.88 0.88 0.62 0.61 The liquidity ratio 1.00 0.81 0.72 0.64 1.24 Turnover of assets 1.40 1.25 1.47 1.57 1.77 The capital to assets ratio 0.42 0.38 0.40 0.45 0.45 Financial debt (EUR tho) 28,097 27,824 27,483 21,660 24,163 Net debt (EUR tho) 27,780 27,417 27,185 21,479 23,364 Net debt /EBITDA 2.55 8.73 7.35 2.60 1.65 * 2021 The amount of goodwill impairment was eliminated in the calculation of EBITDA - 2,749 thousand. Eur. “Vilvi Group” production output, tonnes: 2017 2018 2019 2020 2021 Cheese, cheese products and other 87,370 86,702 112,877 109,266 104,978 Fresh milk products 14,576 15,120 12,277 12,696 14,048 Dry milk products 2,966 8,321 15,310 19,006 21,416 “Vilvi Group” annual report for 2021 86 In 2021 cheese, cheese product and other production output 105 tho tonnes, down by 3.9 percent comparing to 2020. Production of fresh milk products 14 tho tonnes, up by 10.6 percent comparing to 2020. Production of dry milk products 21.4 tho tonnes in 2021 up by 12.7 percent comparing to 2020. Basic indicators milk purchases by “Vilvi Group”: 2017 2018 2019 2020 2021 Basic indicators milk, tonnes 249,992 267,785 268,555 287,370 309,474 Cost of basic indicators milk, EUR tho 65,713 67,695 68,720 70,747 88,938 Milk price, EUR/t 262.9 252.8 255.9 246.2 287.4 In 2021, a total of 309 tho tonnes of basic indicators milk was purchased, an increase by 7.7 percent as compared with 2020. The price of milk in 2021 increased by 16.7 percent from the year 2020. 15. Sales and Marketing “Vilvi Group” sales by product segment, EUR thousand: 2017 m. 2018 m. 2019 m. 2020 m. 2021 m. Cheese, cheese products and other 94,111 76,870 81,909 84,134 109,199 Fresh milk products 18,731 18,721 17,803 16,252 18,710 Dry milk products 1,097 7,571 14,869 20,487 28,136 Total revenue 113,939 103,162 114,581 120,873 156,045 In 2021 “Vilvi Group” sales revenue grew by 33.4 % in export markets and by 7.5% in Lithuania market compared to year 2020. In 2021 exports amounted to 86% of total group sales, which is 3% more than in previous year. As in the previous years the largest part of export are sales of cheese, cheese products, cream and dry milk products. The main reasons for sales growth: - Cheese category. In 2021, sales of cheese and cheese products remained very similar in terms of volume, and sales revenue increased by 9.3% compared to 2020. In 2020, “Vilvi Group” refined strategy to work only with a diversified portfolio in the HoReCa segment. The Group followed this strategy consistently in 2021 as well, as the demand for cheese and cheese products remained high in the HoReCa sector due to the recovery in tourism in early summer. Market diversification also yielded particularly good results in the last quarter of 2021, when global dairy prices began to rise in the markets. The crisis in China, which did not have a significant impact on sales volumes, as the activity in other markets was sufficient to control the situation, is also worth mentioning. 54,4 57,9 63,3 21 22 22 2019 m. 2020 m. 2021 m. Turnover, million Eur Turnover, thous. tons “Vilvi Group” annual report for 2021 87 The condition for market diversification is further maintained at no more than 15% of total sales to a single market. The optimal number of markets (~ 60 different countries) to which the Group-produced cheeses and cheese products were exported in 2020 remained stable in 2021. There were also no major changes in key customers, except China, and, under the situation developed, only sales volumes from one country to another are changing. - Dry dairy products . The production volumes, which increased in 2 020, remained similar in 2021. Although sales increased by only 5% in quantity terms, they increased by 37.3% in monetary terms. This was due to the already mentioned global rise in prices and the shortage of products in the market. This has kept sales of dry dairy products stable and regular. The number of markets remained the same, with the largest sales going to the European Union region (the activities of one of the largest buyers of dry dairy products from the Vilvi Group as a raw material for further production also moved to Poland from the United Kingdom). The sales to China were increasing in the first six months of 2021 pretty rapidly, but were closed down due to the political situation and therefore other directions had to be searched for and temporary problems had to be dealt with. - Industrial cream . The increased demand for cream resulted in that the amount of cream sold during the reporting period was higher by 4.6 thousand tons. The sales price also increased - in 2021, the average price of cream was by 28.4% or 0.46 EUR / kg higher than that of the previous year. This generated MEUR 9.6 more sales revenue. “Vilvi Group” sales revenue by geographical segments, EUR thousand: 2017 m. 2018 m. 2019 m. 2020 m. 2021 m. European Union 63,531 55,865 61,591 63,745 80,647 Lithuania 24,891 24,585 22,526 20,234 21,748 Other countries 25,517 22,712 30,464 36,894 53,650 Total revenue 113,939 103,162 114,581 120,873 156,045 15 19 20 14,9 20,5 28,1 2019 m. 2020 m. 2021 m. Turnover, million Eur Turnover, thous. tons 0% 20% 40% 60% 80% 100% 2017 m. 2018 m. 2019 m. 2020 m. 2021 m. 56% 54% 54% 53% 52% 22% 22% 26% 30% 34% 22% 24% 20% 17% 14% Lithuania Other countries European Union “Vilvi Group” annual report for 2021 88 16. Exhibitions and Awards Since 2011, the Company takes part in one of the largest exhibitions ANUGA in Germany, SIAL in France and Gulfood in United Arab Emirates, where the products presented have repeatedly been among the most innovative, i.e. they have won the SIAL Innovation Award. In 2014 Vilkyškių pieninė AB named as Exporter of the Year 2014 in the Lithuanian Business Leaders 2014 contest. In 2015 Company participated in the exhibitions Food Ingredients Beijing 2015 took place in China and Food Ingredients Paris 2015. The Company introduced whey powder products (protein concentrate (WPC 80) and the permeate) in both exhibitions. Our participation in this trade fair coincided with an important event of Lithuania and China signing a protocol that permits the export of dairy products. Since 2016 Vilkyškių Pieninė AB participated in the exhibition SIAL China. It is the largest exhibition of food innovations held in Asia. The Company introduce cheese products, the whey protein concentrate (WPC 80), permeate and other dry milk products. Since 2016 Vilyškių pieninė AB participated in the exhibition Summer Fancy Food Show in New York, where presented its cheese products. The main purpose of participation was to analyse the US retail market and to establish new business contacts. In 2017-2018 Dry milk products and GymON protein powder were presented at the international sports exhibitions in Germany, Frankfurt – FIBO and Food Ingredients, GymOn products were presented and tasted, new customer search was conducted. GymON star Žydrūnas Savickas met with fans. In 2018 Vilkyškių pieninė AB participated in exhibition Food West Africa for the first time. The company was searching for new partners during it, Company also participated for the first time in Amsterdam at PLMA's World of Private Label private label exhibition and Food Taipei 2018exhibition in Taiwan, where presented mozzarella cheese. In 2019 Vilkyškių pieninė AB traditionally participated in the food exhibitions Gulfood 2019 in Dubai, United Arab Emirates and ANUGA 2019 in Cologne, Germany. In both exhibitions the Company presented cheese and dry milk products. In 2019 Vilkyškių pieninė AB took part in Gulfood Manufacturing, in Dubai, The United Arab Emirates and Food Ingredients 2019 in Paris, France and presented its industrial products. In November 2019 Vilkyškių pieninė AB participated in the exhibition FHC China 2019 in Shanghai in China. The mozzarella cheese and dry milk products were presented to Chinese market. In February 2020 Vilkyškių pieninė AB traditionally took part in the international exhibition of food industry “Gulfood 2020” in Dubai, The United Arab Emirates. The main focus was on mozzarella cheese and milk/whey powder. The Company did not take part in other exhibitions because of Covid-19 pandemic. In October 2021 “Vilvi Group” traditionally participated in the "ANUGA" exhibition in Germany and took part in the international exhibition of food industry "Gulfood 2021" in Dubai, The United Arab Emirates. The main focus was on mozzarella cheese and milk/whey powder, met with a customer. In November 2021 “Vilvi Group” participated in "WorldFood Ukraine", the largest annual food and beverage exhibition in Ukraine, where we presented products of the Vilkyški ų black cat line and Memel blue melted cheese. In November 2021 “Vilvi Group” participated in the largest exhibition of food industry, equipment, processing and packaging and food logistics "Gulfood Manufacturing" in Dubai, United Arab Emirates. We delivered dry milk products. In November 30-December 2 2021 “Vilvi Group” participated in the international exhibition "Food ingredients Europe" in Frankfurt. Dry milk products and cheese products with vegetable fat were presented at the exhibition. “Vilvi Group” annual report for 2021 89 17. Risk Factors Associated with Issuer ‘s Business The core activity of the group of companies is milk processing. The main factors that could adversely affect the Group's cash flows and activity results and create business risk for the company are possible changes in the raw materials and products markets, as well as other economic, technological, social and business environment changes directly or indirectly related to Vilvi Group's business. The Group companies operate in accordance with the approved ISO standards and the requirements of the regulatory enactments of the Republic of Lithuania, which help to identify risks and establish risk management procedures. Within the group of companies, risk identification, preventive and corrective actions are the responsibility of the company's employees involved in the respective activities, who are each responsible for their own area. Risks are assessed in internal and external aspects, taking into account stakeholders. Depending on the type, origin and complexity of the risk, preventive and / or corrective actions are identified, which are integrated into the business plan and their outcome is monitored. Supply of raw materials: Raw milk. The main raw material in the production of the Group's companies is cow milk, the supply of which is relatively limited due to its short shelf life. The Group confronts with the seasonality of raw milk – small dairy farms produce more milk in summer than in winter, and there is also competition to purchase milk, which affects milk purchase prices and the amount of milk purchased. ¾ Risk management. This risk is managed by diversifying the purchase of raw milk from suppliers of different sizes in Lithuania and by importing additional raw milk from Latvia. The company enters into purchase and sale agreements with suppliers for raw milk. Milk suppliers are paid a bonus to the basic milk purchase price. Whey concentrate. Kelmės pieninė AB main raw material is whey concentrate which further is processed into whey protein concentrate and whey permeate concentrate which subsequently are processed into dry milk products. Since whey concentrate is made of milk whey and milk supply quantity is seasonally affected, the supply quantity of whey concentrate decreases in winter. As supply of whey concentrate decreases, competition on buying side increases that has effect on prices and quantity for it. ¾ Risk management. Risk is managed by diversifying purchasing of whey concentrate from suppliers in Latvia and Estonia. 50 per cent of the raw material necessary for production of dry milk products provides Vilkyškių pieninė AB. Product (non) sales risk: The production of matured cheese is a long process that can take 1-18 months. This specificity of production does not allow us to react quickly to sudden changes in the cheese market, which may adversely affect the Company's cash flow and activity results. However, this category accounts for a small share of sales. Cheese and cheese product. Sales channels cover all regions of the world. There are dominant markets, but if necessary, the Vilvi group can relocate sales to other countries, which are over 60 at this moment. In this case, the prices would have to be reduced. There is a risk of adverse changes in the demand for and / or price of the cheese on the cheese market. As the cheese-making process is short, taking up to 1 month, it is possible to switch to the production of another type of cheese very quickly once sales of this product have stopped. The risk of sales of fresh milk products arises from keeping both excessive and deficient stocks of products in storage. In the first case, a product with a shorter validity period may have to be sold cheaper, in the second case, penalties may be paid for non-delivery. The risk of sales of dry dairy products is that the products may become down on demand in the markets where they are currently sold. At this moment, the level of diversification in the category of dry dairy products is not extremely high. MANAGEMENT OF ECONOMIC RISK FACTORS “Vilvi Group” annual report for 2021 90 ¾ Risk management. The Group is constantly looking for new customers in both Lithuanian and foreign markets. The risk that partners will not meet their obligations for the purchased goods is controlled by establishing control procedures. Only guaranteed payment terms are used with all customers. Deferred payment applies only to customers to whom our partner - credit insurance company Euler Hermes - grants credit limits. Those who do not have credit limits make advance payments, we also work with such solvency risk management instruments as letters of credit, CAD, incaso, factoring, and we also have pledge of property cases. The increase in the price of energy (natural gas, fuel, electricity) increases not only the production costs of the Group companies, but also the costs of transportation of products, resulting in that the final product cost increases. In the final product cost, energy costs are up to 10%. ¾ Risk management. The Group's companies are streamlining production to maximize equipment utilization, as well as plan logistics routes efficiently. Noise. Non-compliance with minimum general requirements for work equipment. ¾ Risk management. In the Group's companies, work equipment is installed and designed to minimize the risk to the employee. Constant maintenance of such facilities is carried out. Collective protective equipment that can reduce the level of noise emitted is applied, protective, sound-insulating enclosures and partitions are made. Employees use personal protective equipment. Constant health examinations of employees are carried out. Staff training is organized. Lighting. Insufficient or poorly equipped, poorly maintained lighting in the workplace is one of the main factors of occupational risk, which directly affects the employee's emotional state, work efficiency, the number of accidents at work. ¾ Risk management. A professional workplace risk assessment has been performed in all Vilvi Group companies. Measurements of natural and artificial lighting have been performed. In order to improve the working conditions of employees, old luminaires have been replaced by new LED luminaires after the measurements. Their advantage is lower energy consumption, longer service life and higher efficiency. Chemical factors. Use of chemicals in manufacturing, washing processes and laboratory testing. All the specifics of the production of dairy products are inextricably linked to the use of chemicals in cleaning, washing and disinfection processes. ¾ Risk management. All production workshops are equipped with high-pressure cleaning equipment, which feeds, doses and controls the supply of chemicals for disinfection and room washing, thus improving and facilitating the working conditions of employees. Health examinations and use of personal protective equipment are mandatory for all employees at whose workplaces chemicals are used. Employees are trained to handle hazardous chemicals and are familiar with SDLs (safety data sheets). Wherever chemicals are used, an artificial ventilation system is installed. Ergonomic factors. Work of staff involved in manual handling of loads. ¾ Risk management. An occupational risk assessment of all workplaces has been performed to assess ergonomic risk factors. Production department managers constantly make suggestions to reduce ergonomic risk factors. Where manual work is predominant, efforts are made to use machinery (manual, electric hoists-trucks for transporting products). A robotic cheese head pallet line has been installed to prevent lifting heavy weights. A new strip packaging line for cheese blocks is being installed. All the listed measures allow avoiding heavy manual work, increase productivity and reduce the risk of accidents at work. All staff involved in manual handling of loads are trained and subjected to a mandatory medical examination Information security. Information assets are stored in physical facilities that may be lost or damaged. MANAGEMENT OF OCCUPATIONAL RISK FACTORS MANAGEMENT OF INFORMATION SECURITY RISK FACTORS “Vilvi Group” annual report for 2021 91 ¾ Risk management. All devices use legal software that is constantly updated. Changes to the business management system are tested first, and only then they are transferred to the production base. Access to company systems and data is limited to the rights that are necessary to perform the work. To protect the data from loss, we do backups that we store for 1-2 weeks, depending on the priority of the software. All computers and servers have a centrally managed antivirus software that is constantly updated. All personal data of employees is processed and stored in accordance with the general data protection regulation (GDPR). There is a risk of cyber-attacks. ¾ Risk management. A firewall is used to protect against unauthorized access from the outside. Its maintenance and constant updating is performed by certified specialists. Damage to reputation / image. Reputation and trademark risk are mainly related to the activities of employees and the decisions they make. Reputation can be damaged by low-quality dairy products, for the production and quality control of which decisions are made by employees, wrong word in public or cooperation with partners, as well as inadequate communication / advertising actions, etc. ¾ Risk management. Food safety and management standards (ISO 22000 / FSSC 22000) are used to manage product quality risks. The position of the group of companies may be expressed publicly only by the general director or, in financial matters, by the economics-financial director. All other announcements in the public space shall be coordinated with the general director in accordance with the established procedure. Cooperation with external partners is based on the strategy and values of the group of companies, which act as the basis for business relations. Communication and advertising activities are coordinated with the responsible employees in advance, thus avoiding conflict with the group's goals, activities and vision. Staff shortage. The risk of staff shortage is related to the shortage of employees in the regions (where the group companies are established: in Tauragė, Vilkyškiai, Kelmė) which are far from the big cities. The shortage in highly qualified (engineering) employees is particularly apparent. ¾ Risk management. The shortage of employees is directly related to ensuring the smooth operation of the company, therefore various measures are applied and special attention is paid to managing staff shortages: close cooperation with the Employment Service, educational institutions (participation in career fairs, thematic lectures) takes place, various employee search channels are used. Much attention is paid to the process of selection and introduction of employees. The company's internal resources are used: existing employees are given the opportunity to improve, acquire new competencies by organizing internal and external training, and employees' careers are planned. Employees are additionally motivated by various health measures. Employee loyalty is valued in the company - long-term employees are given additional incentives. Unfair work / corruption and bribery. ¾ Risk management. Vilvi Group does not tolerate any corruption, including bribery, and follows the principles of fair business and transparent cooperation with state institutions and other stakeholders. Vilvi Group pays all taxes transparently, keeps records fairly and follows a transparent payroll policy. The group of companies trades its products in accordance with the principle of transparency, does not participate in any transactions where bribes are requested or it is offered to act in a non- transparent manner. The group evaluates the observations and suggestions of the responsible authorities, takes this into account and improves the processes. It is also politically neutral and does not provide any financial support to political parties, groups or politicians. Ensuring human rights. ¾ Risk management. Vilvi Group does not tolerate human rights violations and discrimination. Equality and non-discrimination of employees are ensured by the company's internal equal opportunities policy - every employee is given equal opportunities for employment, professional development and career, regardless of their gender, age, social status or other circumstances unrelated to the employees' business qualities. MANAGEMENT OF SOCIAL RISK FACTORS “Vilvi Group” annual report for 2021 92 The Group's companies use a lot of energy and natural resources in their operations, which poses a risk of environmental pollution. There is also a risk that the activities carried out may cause undesired noise and odours for the surrounding population or businesses. As the wastewater generated during the production at AB Vilkyškių pieninė is treated in the own treatment facilities, there is a risk that in case of technical problems pollutants will be emitted into the environment. Improper management of operational waste poses a threat of environmental pollution. ¾ Risk management. Vilvi Group companies are analysed and assessed for the environmental impact from time to time. In accordance with the established procedure, AB Vilkyškių pieninė has prepared a monitoring programme for the impact of the reservoir on groundwater and is carrying out observations and, under the monitoring programme, controls the potential impact of the own filling station on groundwater, carries out the monitoring of the pollutants emitted into the ambient air and pollution sources with wastewater. AB Vilkyškių pieninė has an automatic wastewater control system for emitted wastes, which prevents the release of excess wastewater sludge into the environment together with the treated wastewater. From AB Kelmės pieninė dryers, the air contaminated with solid particles is directed to the cyclones and then, purified, is emitted into the environment. Waste generated during production is managed and accounted for in accordance with the established environmental requirements in the product, packaging and waste accounting information system - GPAIS. Politics of the country and surrounding countries, unrest. Potential financial losses that may result from the loss of sales revenue due to certain political decisions or political events. ¾ Risk management. The company maintains a sufficiently wide range of markets without focusing on one market. A sufficiently wide geography of markets can protect against adverse effects in any given country. We constantly monitor the percentage distribution of markets. Due to the diversification of markets, the loss of a market, such as China, did not result in a large loss for the “Vilvi Group”, as sales were reallocated to other markets fairly quickly. When using financial instruments, the Group companies are exposed to credit, liquidity and market risks , the management of which is presented in the summary of the Significant Accounting Principles – Financial Risk Management, given in the Financial Statem ents of AB Vilkyškių pieninė as of 31 December 2021, and in para 30 thereof. 18. Competition Vilkyškių pieninė AB estimates that it has a 16 percent share of the Lithuanian market as measured by quantity of processed milk, i.e. it is in fourth place behind competitors Rokiškio sūris AB, Pieno žvaigždės AB and Žemaitijos pienas AB. On foreign markets, “Vilvi Group” has to compete against local manufacturers, who have the advantage of lower transportation costs. However, “Vilvi Group” compensates it by offering a range of higher value- added cheese products. “Vilvi Group” offers industrial products in dry milk product segment, which are oriented to exports. Company has developed its own brand GymOn of whey protein powder concentrate for athletes that is offered to end-consumer. This product is distributed to supermarkets, sports shops, pharmacies and sold via own internet shop www.gymon.lt. It is also sold via Amazon online platform to reach Western European consumers, it is offered in German, Spanish, Italian and French Amazon platforms. UNCERTAINTY IN THE BUSINESS ENVIRONMENT FINANCIAL RISK MANAGEMENT MANAGEMENT OF ENVIRONMENTAL PROTECTION RISK FACTORS “Vilvi Group” annual report for 2021 93 19. Key Events After Fiscal Year-End Information regarding key events after the end of fiscal year is provided in the Vilkyškių pieninė AB financial statements for the year ended 31 December 2021, in Chapter 31. 20. Business Plans and Forecasts In 2021, facing global pandemic, “Vilvi Group” successfully achieved its tasks. The Group managed to increase sales volume and gain strong positions in new markets, and expand markets for dry milk products and shredded cheese. All these actions allowed for creation of greater value for shareholders of the Company. In 2022 the main goal is further create greater value for company shareholders. To achieve this goal main tasks are as follows: • To keep the same level of sales volume as 2021 and to seek 3% growth in volume; • To keep production facilities at maximum utilization rate; • To deepen knowledge of the most modern milk processing technologies that can be applied in production of healthier products with higher value-added; •Internally seek for greater effectiveness of activities; • Keep and further develop markets diversified; • In “Baltic Dairy Board” SIA to develop production and sales of GOS products. A lot of attention in the Companies of the Group will be in the area of innovative product development, environment protection, personnel management, safe and healthy working conditions and risk management. III. OTHER INFORMATION ABOUT ISSUER 21. Structure of Issuer‘s Share Capital „Vilvi Group“ Share Capital: Type of share Number of share Share face value, EUR Total face value, EUR Type of share Vilkyškių pieninė AB Common registered shares 11,943,000 0.29 3,463,470 Kelmės pieninė AB Common registered shares 2,457,070 0.29 712,550 “Modest” AB Common registered shares 5,617,118 0.29 1,628,964 “Pieno logistika” AB Common registered shares 371,333 0.29 107,687 “Kelmės pienas” UAB Common registered shares 2,500 1.00 2,500 “Baltic Dairy Board” SIA Common registered shares 777,778 1.00 777,778 22. Information on Treasury Stock The Company does not hold its own shares. 23. Rights of Shareholders Shareholders have these non-proprietary rights: - to attend and vote in general meetings of shareholders; - to receive information about the Company as set out in Article 18 (1) of the Law on Public Companies; - to lodge a claim in a court of law for compensation of damages caused to the Company through inaction or inappropriate actions of the Company‘s director, also in other cases set out by the law; “Vilvi Group” annual report for 2021 94 - other non-proprietary rights stipulated by legal acts. Shareholders have the following proprietary rights: - to receive a share of the Company‘s profit (dividend); - to receive a share of the assets of the Company in liquidation; - to be granted shares free of charge where the Company‘s share capital is increased from its own capital, save exceptions set out by the Law on Public Companies; - to have priority to buy new shares and share options in the Company, except for cases where a general meeting of shareholder has legitimately voted to revoke this right for all; - to transfer all or part of their shares to other persons, using a procedure set out in the Law on Public Companies; - other proprietary rights granted by the law. None of the Company‘s shareholders has any special control rights. The rights of all shareholders are equal. One common registered share grants one vote in a general meeting of shareholders. 24. Restrictions on Transfer of Securities There are no restrictions on the transfer of securities. 25. Information About Shareholders The total number of shareholders of Vilkyškių pieninė AB on 31 December 2021 was 1316. The following are the major shareholders, who own more than 5 percent of the Issuer‘s stock: Shareholder Number of shares held, units Percent of share capital, pct Share of votes at shareholder meetings, pct Swisspartners Versicherung AG Zweigniederlassung Österrreich 6,067,206 51% 51% Multi Asset Selection Fund 2,035,729 17% 17% Gintaras Bertašius 927,110 8% 8% Minority shareholders 2,912,955 24% 24% Total stock 11,943,000 100% 100% Vilkyškių pieninė AB shareholder structure by legal subject Natural person 27% Legal person, funds 73% “Vilvi Group” annual report for 2021 95 Kelmės pieninė AB shareholders The total number of shareholders of Kelmės pieninė AB on 31 December 2021 was 1. The major shareholder, who owns more than 5 percent of the Issuer‘s stock was 1: Shareholder Number of shares held, units Percent of share capital, pct Share of votes at shareholder meetings, pct Vilkyškių pieninė AB 2,457,070 100% 100% Total stock 2,457,070 100% 100% “Kelmės pienas” UAB shareholders The total number of shareholders of “Kelmės pienas” UAB on 31 December 2021 was 1. The major shareholder, who owns more than 5 percent of the Issuer‘s stock was 1: Shareholder Number of shares held, units Percent of share capital, pct Share of votes at shareholder meetings, pct Kelmės pieninė AB 2,500 100% 100% Total stock 2,500 100% 100% “Modest” AB shareholders The total number of shareholders of “Modest” AB on 31 December 2021 was 85. The major shareholder, who owns more than 5 percent of the Issuer‘s stock was 1: Shareholder Number of shares held, units Percent of share capital, pct Share of votes at shareholder meetings, pct Vilkyškių pieninė AB 5,601,277 99.7% 99.7% Minority shareholders 15,841 0.3% 0.3% Total stock 5,617,118 100% 100% “Pieno logistika” AB shareholders The total number of shareholders of “Pieno logistika” AB on 31 December 2021 was 169. The major shareholder, who owns more than 5 percent of the Issuer‘s stock was 2: Shareholder Number of shares held, units Percent of share capital, pct Share of votes at shareholder meetings, pct Vilkyškių pieninė AB 218,781 58.9% 58.9% ŽŪB „Repšiai“ 35,032 9.4% 9.4% Minority shareholders 117,520 31.7% 31.7% Total stock 371,333 100% 100% “Vilvi Group” annual report for 2021 96 “Baltic Dairy Board” SIA shareholders The total number of shareholders of “Baltic Dairy Board” SIA on 31 December 2021 was 2. The major shareholder, who owns more than 5 percent of the Issuer‘s stock was 2: Shareholder Number of shares held, units Percent of share capital, pct Share of votes at shareholder meetings, pct AB Vilkyškių pieninė 544,446 70.0% 70.0% KIK Asset Management SIA 233,332 30.0% 30.0% Total stock 777,778 100% 100% 26. Agreements Between Shareholders, Known to Issuer, Which May Lead to Restrictions on Securities Transfers or Voting Rights The Company is not aware of any direct agreements between shareholders that might result in restrictions on the transfer of securities and/or on voting rights. 27. Trading in Issuer‘s Securities on Regulated Markets The change of price of Vilkyškių pieninė AB shares and trade volume in 2019-2021. 0 20 40 60 80 100 120 0,00 0,50 1,00 1,50 2,00 2,50 3,00 3,50 4,00 Share price, EUR Turnover, thsd., EUR “Vilvi Group” annual report for 2021 97 Comparison of Vilkyškių pieninė AB share price and Nasdaq OMX Vilnius Index, 2019-2021. Security trading history of Vilkyškių pieninė AB during 2017-2021: Price 2017 m. 2018 m. 2019 m. 2020 m. 2021 m. Open 2.34 3.72 2.09 2.26 2.46 High 3.94 3.76 3.13 2.48 3.68 Low 2.25 1.95 2.07 1.39 2.40 Average 3.12 3.09 2.47 1.93 2.90 Last 3.75 2.05 2.24 2.46 3.66 Traded volume 1,045,396 472,421 762,071 1,138,435 1,060,431 Turnover, million 3.26 1.46 1.88 2.20 3.08 Capitalisation, million 44.79 24.48 26.75 29.38 43.71 28. Dividend Vilkyškių pieninė AB approved a dividend policy in 2012. The following is an extract from that dividend policy: Dividends and the size of them 1. The Law on Public Companies of the Republic of Lithuania stipulates that the dividend constitutes a share of profit payable to a shareholder in proportion to the face value of the stock held by the shareholder. 2. The Company‘s shareholders cannot vote to pay a dividend at a general meeting of shareholders, if 1) the Company is insolvent 2) the distributed result for the fiscal year ended is negative 3) the Company‘s equity is smaller than the sum of its authorised capital and reserves, or in cases where it would become smaller following a dividend payout. 3. The Company‘s Board shall submit to the General Meeting of Shareholders an amount of dividend based on the audited net profit result for the fiscal year ended. 4. If the Company has been profitable, the Company‘s board shall allocate a certain part of revenue for dividend as set out in Clause 2.6, reinvesting the rest of the revenue so as to increase the Company‘s capitalisation. 40% 60% 80% 100% 120% 140% 160% 180% 200% OMX Vilnius VLP1L “Vilvi Group” annual report for 2021 98 5. The Company shall pay dividend in cash. 6. The Company‘s Board should establish the amount of dividend after taking into account the consolidated net profit of the Company for the year ended. The dividend amount must be not less than 25 percent of the consolidated net profit of the Company for the year ended, but not larger than the Company‘s annual consolidated net profit 7. The Company reserves the right to diverge from the criteria for the amount of dividend, provided it gives reasons for such divergence. Vilkyškių pieninė AB dividend payments in the past 5 years: Dividends 2017 (for 2016) 2018 (for 2017) 2019 (for 2018) 2020 (for 2019) 2021 (for 2020) Dividend (EUR) 1,433,000 1,672,020 - - 955,440 Dividend per share (EUR) 0.12 0.14 - - 0.08 Number of shares 11,943,000 11,943,000 11,943,000 11,943,000 11,943,000 Kelmės pieninė AB dividend payments in the past 5 years: Dividends 2017 (for 2016) 2018 (for 2017) 2019 (for 2018) 2020 (for 2019) 2021 (for 2020) Dividend (EUR) 2,285,075 786,262 1,719,949 5,651,261 7.371.210 Dividend per share (EUR) 0.93 0.32 0,70 2.30 3.00 Number of shares 2,457,070 2,457,070 2,457,070 2,457,070 2,457,070 “Modest” AB and “Pieno logistika” AB did not pay any dividend in the last five years. 29. Employees On 31 December 2021, there were 867 employees working at “Vilvi Group”. Employee category Number of employees Education Average monthly salary (EUR) higher vocational secondary secondary incomplete Managers 30 23 7 - - 4,261 Specialists 310 119 89 98 4 1,434 Workers 527 18 164 298 47 1,020 867 160 260 396 51 1,281 On 31 December 2020, there were 830 employees working at “Vilvi Group”. Employee category Number of employees Education Average monthly salary (EUR) higher vocational secondary secondary incomplete Managers 29 24 5 - - 3,997 Specialists 301 112 83 99 7 1,311 Workers 500 13 148 297 42 924 830 149 236 396 49 1,166 Employees work on the basis of labour contracts, while their rights and duties are set out in their job descriptions. Employees do not have any special rights or duties, and all work is organised in compliance with the Labour Code of the Republic of Lithuania. “Vilvi Group” annual report for 2021 99 30. “Vilvi Group” Governing Bodies According to the Articles of Association of Vilkyškių pieninė AB, the Company‘s governing bodies are the General Meeting of Shareholders, the Board and the Chief Executive Officer. No supervisory council is set up. The Board of the Company represents the shareholders and performs oversight and control functions. The decisions taken by the General Meeting of Shareholders, where they concern issues falling within the remit of the General Meeting of Shareholders as specified in the Articles of Association, are binding to all shareholders, the Board, the CEO and other employees of the Company. Board members are elected for a term of four years. The Chairman of the Board is elected for a tenure of four years by the Board from among its own members. Members of the Board are elected by a General Meeting of Shareholders in accordance with the Law on Public Companies. The Board sets up two committees – Audit Committee and Salaries Committee – each consisting of three members. The Board elects and dismisses the Chief Executive Officer. The CEO is the head of the Company. The head of the Company is a single governing body in charge of organising the current business operations of the Company Under the Articles of association of Kelmės pieninė AB, „Kelmės pienas“ UAB, “Baltic Dairy Board” SIA AB and “Modest” AB, both companies are governed by a general meeting of shareholders, the Board and CEO. The structure of “Vilvi Group” management “Vilvi Group” annual report for 2021 100 “Vilvi Group” annual report for 2021 101 One-person management body “Pieno logistika” AB - Director 31. Procedure of Amendments to “Vilvi Group” Articles Amendments to the Group‘s Articles of Association can be adopted at a General Meeting of Shareholders. Decisions on changes to the Articles are considered adopted, if approved by two-thirds of shareholder votes. 32. Activities of the Board In 2021, Board meetings were held regularly according to the schedule, required quorum was present at each of them. During 2021, 11 ordinary board meetings took place. The Board approved the 12-month financial statements for 2020, the 2021 three-month, six-month and nine-month interim financial statements, the 2020 annual financial statements and annual report; it also called an ordinary meeting of shareholders, offered the distribution of the 2020 profit (loss) for an ordinary meeting of shareholders. In regular meetings the Board discussed separation of business activities of Kelmės pieninė AB, acquisition of “Baltic Dairy Board” SIA, investment opportunities, granting/extension of loans, and other current issues. Kelmės pieninė AB, “Kelmės pienas” UAB, “Baltic Dairy Board” SIA and “Modest” AB hold their board meetings regularly to discuss issues that are within their scope. 33. Board & Administration Members Vilkyškių pieninė AB Board Members Gintaras Bertašius – a Board Chairman since 30 January 2006, re-elected for a four-year term on 27 April 2018, CEO of Vilkyškių pieninė AB. Has higher education diploma in mechanical engineering. Membership in other companies’ governing bodies: board chairman of “Modest” AB, Kelmės pieninė AB and “Kelmės pienas” UAB, “Baltic Dairy Board” SIA member of the board. On 31 December 2021 had 927,110 shares in Vilkyškių pieninė AB, however he had 58.55 percent voting rights in shareholder’s meetings (since April 2018, ownership rights of 6 067 206 shares (50.8 per cent of total) of Vilkyškių pieninė AB have been taken by Swisspartners Versicherung AG Zweigniederlassung Österreich). Sigitas Trijonis – a Board Member since 30 January 2006, re-elected for a four-year term on 27 April 2018, Chief Technology Officer of Vilkyškių pieninė AB. Has higher education degree in mechanical engineering. As of 31 December 2021, he held 425,607 shares of Vilkyškių pieninė AB, 3.56 percent of the stock and voting rights. Has no seats in other companies’ governing bodies. “Vilvi Group” annual report for 2021 102 Rimantas Jancevičius – a Board Member since 30 January 2006, re-elected for a four-year term on 27 April 2018. Has college diploma in livestock engineering. Chief Purchasing Officer at Vilkyškių pieninė AB. As of 31 December 2021, he held 339,863 shares of Vilkyškių pieninė AB, 2.85 percent of the stock and voting rights. Has no seats in other companies’ governing bodies. Vilija Milaševičiutė – a Board Member since 30 April 2009, re-elected for a four-year term on 27 April 2018. Has higher education in finance and credit. Chief Economics and Financial Officer of Vilkyškių pieninė AB. Membership in other companies’ governing bodies: A board member of “Modest” AB, Kelmės pieninė AB, “Kelmės pienas” UAB and Šilumos tinklai UAB (CRN 179478621, address: Paberžių g. 16, 72324 Tauragė). As of 31 December 2021, she held 9,588 shares of Vilkyškių pieninė AB, 0.08 percent of the stock and voting rights Linas Strėlis – a Board Member since 7 March 2008, re-elected for a four-year term on 27 April 2018. Has higher education. Membership in other companies’ governing bodies: Director of LS Capital UAB (CRN 133118295, address: V. Kudirkos g. 9, Kaunas) and Biglis UAB (CRN 133688345, address: V. Kudirkos g. 9, LT-50283 Kaunas), council chairman of Association of Social Enterprises (Socialinių imonių asociacija) (CRN 300542018, address: Raudondvario pl. 107, Kaunas), board member of Umega AB (CRN 126334727, address: Metalo g. 5, LT-28216 Utena) and East West Agro AB (CRN 300588407, adrdress: Tikslo g. 10, Kumpiai, LT-54311 Kauno r.), a member of the supervisory board in SIA Preses nams. A member of EISME fund committee of Lords LB Asset Management UAB (CRN 301849625, address: Jogailos g. 4, LT-01116 Vilnius.). As of 31 December 2021, did not have any shares in Vilkyškių pieninė AB. Andrej Cyba – a Board Member since 7 March 2008, re-elected for a four-year term on 27 April 2018. Has higher degree in business administration and management. Membership in other companies’ governing bodies: Chief Business Development Officer of INVL Asset Management UAB (CRN 126263073, address: Gynėjų g. 14, LT-01109 Vilnius); chairman of the Board in FMĮ INVL Finasta UAB (CRN 304049332, address: Gynėjų g. 14, LT -01109 Vilnius); chairman of the board of “Baltic Dairy Board” SIA chairman of the supervisory Board at IPAS INVL Asset Management (CRN 40003605043, address: Smilšu iela 7-1, LV1050, Rīga) and AS Pirmais atklātais pensiju fonds (CRN 40003377918, address: Rīga, Smilšu iela 7-1, LV-1050); board member and audit committee chairman of Auga Group AB (CRN 126264360, address: Konstitucijos pr. 21C, Quadrum North, LT-08130 Vilnius); CEO of PEF GP1 UAB (CRN 302582709, address: Maironio g. 11, Vilnius), PEF GP2 UAB (CRN 302582716, address: Maironio g. 11, Vilnius), Piola UAB (CRN 120974916, address: Mindaugo g. 16-52, LT-03225 Vilnius) and Ymmalu UAB (CRN 305765142, address: Šaltinių g. 24-10, LT-03233, Vilnius). As of 31 December 2021, did not have any shares in Vilkyškių pieninė AB. Vilkyškių pieninė AB Members of Administration Gintaras Bertašius – CEO and Chairman of the Board. Works at the Company since 1993. Has higher education diploma in mechanical engineering. Membership in other companies’ governing bodies: board chairman of “Modest” AB, Kelmės pieninė AB and “Kelmės pienas” UAB, member of the board of “Baltic Dairy Board” SIA. On 31 December 2021 had 927,110 shares in Vilkyškių pieninė AB, however he had 58.55 percent voting rights in shareholder’s meetings (since April 2018, ownership rights of 6 067 206 shares (50.8 per cent of total) of Vilkyškių pieninė AB have been taken by Swisspartners Versicherung AG Zweigniederlassung Österreich). Vilija Milaševičiutė – Chief Economics and Financial Officer, a Board Member, working at the Company since 2000. Has higher education in finance and credit. Membership in other companies’ governing bodies: a board member of “Modest” AB, Kelmės pieninė AB, “Kelmės pienas” UAB and Šilumos tinklai UAB (CRN 179478621, address: Paberžių g. 16, 72324 Tauragė). As of 31 December 2021, she held 9,588 shares of Vilkyškių pieninė AB, 0.08 percent of the stock and voting rights. Vaidotas Juškys – Executive Officer, working at the Company since 2010. Has higher education in information technology. As of 31 December 2021, he held 12,279 shares of Vilkyškių pieninė AB, 0.10 percent of the stock and voting rights. Has no seats in other companies’ governing bodies. Sigitas Trijonis – Chief Technology Officer, a Board Member, working at the Company since 1993. Has higher education in mechanical engineering. As of 31 December 2021, held 425,607 shares of Vilkyškių pieninė AB, 3.56 percent of the stock and voting rights. Has no seats in other companies’ governing bodies. “Vilvi Group” annual report for 2021 103 Rimantas Jancevičius – Chief Purchasing Officer, a Board Member, working at the Company since 1996. Has college diploma in livestock engineering. As of 31 December 2021, held 339,863 shares of Vilkyškių pieninė AB, 2.85 percent of the stock and voting rights. Has no seats in other companies’ governing bodies. Arvydas Zaranka – Chief Production Officer, working at the Company since 1995. Has college degree in dairy technology. Membership in other companies’ governing bodies: a board member of “Modest” AB, CEO of Kelmės pieninė AB. As of 31 December 2021, held 1,933 shares of Vilkyškių pieninė AB, 0.02 percent of the stock and voting rights. Rita Juodikienė – Management and quality director. Woking at the company since 2002. Has a master degree in business management. Membership in other companies’ governing bodies: a board member of Kelmės pieninė AB and “Kelmės pienas” UAB. As of 31 December 2021, held 2,175 shares of Vilkyškių pieninė AB, 0.02 percent of the stock and voting rights. The bonuses to the CEO and CFO totaled in 2021 137,0 tEUR, or 68,5 tEUR per person on average. The salaries were paid out to Vilkyškių pieninė AB board members in 2021: Board members (4 members), EUR tho Average size per month, EUR salary 322,9 6,727 In 2021, the Company did not issue any loans, guarantees or letters of credit to members of its governing bodies which would ensure their duties. Also, the Company did not pay its board members or employees any salaries, bonuses or other payments from the profits of the Company’s subsidiaries. Members of Kelmės pieninė AB board and administration Gintaras Bertašius – Chairman of the Board, re-elected for a four-year term on 29 April 2020. Participation in the governing bodies of other companies: board chairman and CEO of Vilkyškių pieninė AB; board chairman of “Modest” AB, and “Kelmės pienas” UAB; board member of “Baltic Dairy Board” SIA. Holds higher education degree in mechanical engineering. On 31 December 2021 had 927,110 shares in Vilkyškių pieninė AB, however he had 58.55 percent voting rights in shareholder’s meetings (since April 2018, ownership rights of 6 067 206 shares (50.8 per cent of total) of Vilkyškių pieninė AB have been taken by Swisspartners Versicherung AG Zweigniederlassung Österreich). Vilija Milaševičiutė – a member of the board, re-elected for a four-year term on 29 April 2020. Holds higher degree in finance and credit. Participation in the governing bodies of other companies: Chief Economics and Financial Officer and a board member of Vilkyškių pieninė AB, a board member of “Modest” AB, “Kelmės pienas” UAB and Šilumos tinklai UAB (CRN 179478621, address: Paberžių g. 16, 72324 Tauragė). As 31 December 2021, held 9,588 shares in Vilkyškių pieninė AB, i.e., 0.08 percent of the stock and voting rights. Rita Juodikienė – a member of the Board, re-elected for a four-year term on 29 April 2020. Has master degree in business management. Participation in the governing bodies of other companies: Quality and management director of Vilkyškių pieninė AB and a board member of “Kelmės pienas” UAB. As of 31 December 2021, held 2,175 shares of Vilkyškių pieninė AB, 0.02 percent of the stock and voting rights. Arvydas Zaranka - CEO of Kelmės pieninė AB. Has college degree in dairy technology. Membership in other companies’ governing bodies: Chief Production Officer of Vilkyškių pieninė AB, a board member of “Modest” AB. As of 31 December 2021, held 1,933 shares of Vilkyškių pieninė AB, 0.02 percent of the stock and voting rights. In 2021, Kelmės pieninė AB did not allocate any bonuses, loans, guarantees or letters of credit to members of its governing bodies which would ensure their duties. Members of “Kelmės pienas” UAB board and administration Gintaras Bertašius – Chairman of the Board, elected for a four-year term on 17 November 2020. Participation in the governing bodies of other companies: board chairman and CEO of Vilkyškių pieninė AB, board chairman of “Modest” AB and Kelmės pieninė AB; board member of “Baltic Dairy Board” SIA. Holds higher education degree in mechanical engineering. On 31 December 2021 had 927,110 shares in “Vilvi Group” annual report for 2021 104 Vilkyškių pieninė AB, however he had 58.55 percent voting rights in shareholder’s meetings (since April 2018, ownership rights of 6 067 206 shares (50.8 per cent of total) of Vilkyškių pieninė AB have been taken by Swisspartners Versicherung AG Zweigniederlassung Österreich). Vilija Milaševičiutė – a member of the Board, elected for a four-year term on 17 November 2020. Holds higher degree in finance and credit. Participation in the governing bodies of other companies: Chief Economics and Financial Officer and a board member of Vilkyškių pieninė AB, a board member of “Modest” AB, Kelmės pieninė AB and Šilumos tinklai UAB (CRN 179478621, address: Paberžių g. 16, 72324 Tauragė). As 31 December 2021, held 9,588 shares in Vilkyškių pieninė AB, i.e., 0.08 percent of the stock and voting rights. Rita Juodikienė – a member of the Board, elected for a four-year term on 17 November 2020. Has master degree in business management. Participation in the governing bodies of other companies: Quality and management director of Vilkyškių pieninė AB and a board member of Kelmės pieninė AB. As of 31 December 2021, held 2,175 shares of Vilkyškių pieninė AB, 0.02 percent of the stock and voting rights. Jolita Valantinienė - CEO of “Kelmės pienas” UAB. Has master degree in management and business administration. As of 31 December 2021, did not have any shares in Vilkyškių pieninė AB. Has no seats in other companies’ governing bodies. In 2021, “Kelmės pienas” UAB did not allocate any bonuses, loans, guarantees or letters of credit to members of its governing bodies which would ensure their duties. Members of “Modest” AB board and administration Gintaras Bertašius – Chairman of the Board, re-elected for a four-year term on 29 April 2021. Holds higher education degree in mechanical engineering. Participation in the governing bodies of other companies: board chairman and CEO of AB Vilkyškių pieninė AB, a board chairman at Kelmės pieninė AB and “Kelmės pienas” UAB; board member of “Baltic Dairy Board” SIA. On 31 December 2021 had 927,110 shares in Vilkyškių pieninė AB, however he had 58.55 percent voting rights in shareholder’s meetings (since April 2018, ownership rights of 6 067 206 shares (50.8 per cent of total) of Vilkyškių pieninė AB have been taken by Swisspartners Versicherung AG Zweigniederlassung Österreich). Arvydas Zaranka – a member of the board, re-elected for a four-year term on 29 April 2021. Has college degree in dairy technology. Participation in the governing bodies of other companies: Chief Production Officer of AB Vilkyškių pieninė; CEO of Kelmės pieninė AB. As of 31 December 2021, held 1,933 shares in Vilkyškių pieninė AB, i.e., 0.02 percent of share capital and voting rights. Vilija Milaševičiutė – a member of the board, re-elected for a four-year term on 29 April 2021. Participation in the governing bodies of other companies: Chief Economics and Financial Officer and board member in Vilkyškių pieninė AB, Kelmės pieninė AB, “Kelmės pienas” UAB and Šilumos tinklai UAB (CRN 179478621, address: Paberžių g. 16, 72324 Tauragė). Has higher education in finance and credit. As of 31 December 2021, held 9,588 shares in AB Vilkyškių pieninė, i.e., 0.08 percent of the stock and voting rights. Matas Pozingis – CEO of “Modest” AB, working at the company since 2020. Has higher education degree in management and business administration. As of 31 December 2021, did not have any shares in Vilkyški ų pieninė AB. Has no seats in other companies’ governing bodies. In 2021, “Modest” AB did not allocate any bonuses, loans, guarantees or letters of credit to members of its governing bodies which would ensure their duties. Members of “Baltic Dairy Board” SIA board and administration Andrej Cyba – Chairman of the Board. Has higher degree in business administration and management. Participation in other companies’ governing bodies: board member of Vilkyškių pieninė AB; Chief Business Development Officer of INVL Asset Management UAB (CRN 126263073, address: Gynėjų g. 14, LT-01109 Vilnius); Chairman of the Board in FMĮ INVL Finasta UAB (CRN 304049332, address: Gynėjų g. 14, LT- 01109 Vilnius); chairman of the supervisory Board at IPAS INVL Asset Management (CRN 40003605043, address: Smilšu iela 7-1, LV1050, Rīga) and AS Pirmais atklātais pensiju fonds (CRN 40003377918, address: Rīga, Smilšu iela 7-1, LV-1050); board member and audit committee chairman of Auga Group AB (CRN 126264360, address: Konstitucijos pr. 21C, Quadrum North, LT-08130 Vilnius); CEO of PEF GP1 “Vilvi Group” annual report for 2021 105 UAB (CRN 302582709, address: Maironio g. 11, Vilnius), PEF GP2 UAB (CRN 302582716, address: Maironio g. 11, Vilnius), Piola UAB (CRN 120974916, address: Mindaugo g. 16-52, LT-03225 Vilnius) and Ymmalu UAB (CRN 305765142, address: Šaltinių g. 24-10, LT-03233, Vilnius). As of 31 December 2021, did not have any shares in Vilkyškių pieninė AB. Gintaras Bertašius – Member of the Board. Participation in the governing bodies of other companies: board chairman and CEO of Vilkyškių pieninė AB, board chairman of “Modest” AB, Kelmės pieninė AB and “Kelmės pienas” UAB. Holds higher education degree in mechanical engineering. On 31 December 2021 had 927,110 shares in Vilkyškių pieninė AB, however he had 58.55 percent voting rights in shareholder’s meetings (since April 2018, ownership rights of 6 067 206 shares (50.8 per cent of total) of Vilkyškių pieninė AB have been taken by Swisspartners Versicherung AG Zweigniederlassung Österreich). Kaspars Kazāks – CEO and board member, manages company since 2008. Participation in the governing bodies of other companies: board member of SIA „KIK Asset Management“ (CRN. 43603083832, address: Mazā Salātu g. 4-7, Bauska, Latvija). As of 31 December 2021, did not have any shares in Vilkyškių pieninė AB. 34. Committees Members of the Audit Committee: Aušra Lobinienė (The Head of Internal Audit of Tauragė Credit Union), Vilma Morkaitienė (chief accountant of Bonus Modus UAB) and Milana Buivydienė (Vilkyškių pieninė AB employee). None of the Committee members hold senior positions in the Company’s administration or have shares in the Company. In 2021, 5 meetings of the Audit Committee were held. The Audit Committee discussed and approved the following: the Company’s 2020 financial statements, the draft 2020 annual report, the draft 2020 profit (loss) distribution report, the 2021 internal audit plan and the 2021 budget, 2 times reviewed the salaries of the company's employees. Each meeting was attended by all members of the Committee. No committees are formed in subsidiary companies. 35. Agreements Enacted by Change of Control, Where Issuer is a Party There are no agreements, to which the Issuer is a party, that would take effect if control of the Issuer changed. 36. Information about Agreements Between the Issuer and its Governing Members or Employees on Compensation Payouts in Case of Their Resignation, Unfair Dismissal or Discharge Upon Change in the Control of the Issuer The Board Rules of Procedure do not provide for any compensation or payouts if a member of the Board resigns before the Board’s term has expired. All employees are employed and dismissed in conformity with the provisions of the Lithuanian Labour Code. 37. Information About the Company’s Transactions With Related Parties Information about transactions with parties that are related to the Company has been included in the Vilkyškių pieninė AB financial statements for the year ended 31 December 2021, in Chapter 29. 38. Information About Detrimental Acts Concluded by the Issuer that Could Affect Issuer’s Operations The Issuer has not concluded any detrimental transactions that had or could in the future have any negative impact on the Issuer’s operations or results. Nor has the Issuer concluded any transactions involving conflict of interest on behalf of the Issuer’s top management, major shareholders or other 39. Social responsibility report “Vilvi group“ 2021 social responsibility report is available on the company's website (link: https://vilvigroup.lt/wp-content/uploads/2022/03/EN-Socialines-atsakomybes-ataskaita-2021.pdf) “Vilvi Group” annual report for 2021 106 AB VILKYŠKIŲ PIENINĖ REMUNERATION REPORT FOR 2021 General information AB Vilkyškių pieninė remuneration report has been prepared for the reporting financial period of 2021, which coincides with the calendar year. The remuneration report (hereinafter referred to as - the Report) was drawn up in accordance with the Law of the Republic of Lithuania on Financial Statements of Companies, the Employee Remuneration Policy of joint -stock company “Vilvi Group” group of companies (hereinafter referred to as - the Remuneration Policy) and other regulatory enactments. The Employee Remuneration Policy of “Vilvi Group” group of companies was approved at the general meeting of shareholders on 30 April 2020. The remuneration report contains information about the remuneration of each member of the management and supervisory bodies, as well as information on other (non -)received benefits and other data. Remuneration principles Members of the Board of the Company may be paid shares of profits, which are granted by the decision of the General Meeting of Shareholders of the Company in accordance with the procedure established by regulatory enactments. Following the decision of the General Meeting of Shareholders on the payment of a share of profits, the share of profits due to a particular member of the Board is determined by the decision of the Board, taking into account the contribution of a particular member of the Board to the Company's activities. The remuneration of the manager of the Company, i.e. the General Director, is determined by the decision of the Board of the Company. When determining the amount of salary, the level of remuneration of the managers of companies of a similar size is assessed, taking into account the level of the position, as well as the personal competence, experience, knowledge and abilities of the manager. The remuneration of “Vilvi Group” group of companies: top management, II-tier management, middle-tier management and other employees - consists of two main parts: fixed and variable. Incentives may also be paid. Employees of the Company are paid: fixed part of remuneration (FPR) - the basic or hourly monthly cash salary of the employee specified in the employment contract, variable part of remuneration (VPR) - additional employee cash remuneration, determined based on the quality and results of work, achievement of goals raised by the Company and individual goals of the employee, level of competencies and compliance with the values of the Company and the Group of Companies. Other benefits (OB) are other potential benefits provided to employees as incentives. Remuneration of the members of the Board for 2020 - 2021 In AB Vilkyškių pieninė, two members of the Board do not work at the company and four members of the Board work under employment contracts; during 2021, no permanent or additional remuneration was paid to them for their work in the Board. The members of the Board working under an employment contract received remuneration only on the basis of employment. Salaries accrued and paid during 2021 correspond to the amounts provided for in the remuneration policy approved by the company. “Vilvi Group” annual report for 2021 107 Annual pre -tax remuneration of the members of the Board working under an employment contract, in thousand euros. Name, surname, position Year of 2020 Year of 2021 Fixed salary Variable salary In total Fixed salary Variable salary In total Gintaras Bertašius, general director 98,3 98,3 101,3 101,3 Vilija Milaševičiūtė, director for economy and finance 58,7 10,9 69,6 62,9 11,0 73,9 Sigitas Trijonis, technical director 58,8 10,8 69,6 62,8 11,1 73,9 Rimantas Jancevičius, director for procuring raw materials 58,5 11,2 69,7 62,5 11,3 73,8 The manager of the company, i.e. the General Director, and the members of the Board did not receive any remuneration from the companies belonging to the group of companies. The salary was paid in accordance with the procedure, scope and terms provided for in the employment contract; they did not receive any other property benefits during 2021, including the award of shares or other concluded transactions in favour of and in the interests of the managers. During the period reported on (year of 2021), no guarantees or sureties were given to the members of the Board, the manager of the Company, no assets or other property rights were transferred. Remuneration of employees of the parent company and the group of companies The salary fund of the group of companies in 2021 was equal to EUR 12.966 million (in 2020 - EUR 11.418 mi llion). The table below shows the average monthly salary of employees in 2017- 2021 before taxes, in euros. The average monthly salary of corporate group‘s employees before taxes, in euros. Employee group Year of 2017 Year of 2018 Year of 2019 Year of 2020 Year of 2021 Number of employe es Average salary Number of employ ees Average salary Number of employ ees Average salary Number of employ ees Average salary Numbe r of employ ees Average salary Managers 27 3.425 30 3.616 28 3.919 29 3.997 30 4.261 Specialists 310 1.070 332 1.166 298 1.258 301 1.311 310 1.434 Workers 593 768 572 822 502 872 500 924 527 1.020 930 937 934 1.026 828 1.107 830 1.166 867 1.281 “Vilvi Group” annual report for 2021 108 The average monthly salary of AB “Vilkyškių pieninė” employees before taxes, in euros. Employee group Year of 2017 Year of 2018 Year of 2019 Year of 2020 Year of 2021 Number of employe es Average salary Number of employ ees Average salary Number of employ ees Average salary Number of employ ees Avera ge salary Number of employee s Average salary Managers 22 3.502 23 3.693 22 4.020 21 4.198 19 4.565 Specialists 165 1.139 183 1.215 170 1.304 155 1.338 147 1.506 Workers 343 804 319 890 285 930 283 948 274 1.059 530 1.010 525 1.125 477 1.197 459 1.228 440 1.365 The remuneration paid to the members of the Board and employees of AB Vilkyškių pieninė in 2021 was in accordance with the principles, grounds and conditions approved in the Remuneration Policy. No fixed or additional remuneration was paid to the members of the Company's Audit Committee and Remuneration Committee for their work in the committees. Final Provisions The remuneration report for 2021 is an integral part of the consolidated annual report and is published on the Company's website https://vilvigroup.lt and https://nasdaqbaltic.com in accordance with the procedure established by regulatory enactments. “Vilvi Group” annual report for 2021 109 AB VILKYŠKIŲ PIENINĖ MANAGEMENT REPORT The Companies’ management report has been compiled according to the Law on Financial Reporting by Undertakings of the Republic of Lithuania. 1. Reference to the applicable code of corporate management and where it has been published and/or a reference to a public source of all the necessary information on corporate management practice: The Company’s management report for 2021, audited financial statements of the Company and its group, consolidated annual report, are published on the Company’s website www.vilvigroup.lt and on AB Nasdaq Vilnius securities exchange website www.nasdaqbaltic.com. 2. In case of deviations from and (or) non-compliance to the provisions of the applicable code of corporate management, the said provisions and the reasons for deviations and (or) non-compliance: Information on the Company’s non-compliance to the provisions of the code of the corporate management is provided in clauses 1.8 and 3.2.5. 3. Information on the scale of the risk and risk management – description of management of the risk, related to financial accountability, risk mitigation measures and internal control system, applicable at the company: The Company’s information on the scale of the risk and risk management, risk mitigation measures and the internal control system, applicable at the company, is provided in the clause 17 of the consolidated annual statement for 2021 and the note 30 of the financial statement. 4. Information on significant directly or indirectly managed shareholdings: Information on significant directly or indirectly managed shareholdings is provided in clause 25 of the consolidated annual statement for 2021. 5. Information on transactions with related parties, as established in the article 37 2 of the Law on Joint Stock Companies (indicating the parties of the transaction (legal form, title and code of the legal entity register, which collects and stores data on the said entity, domicile (address); name, surname and address for correspondence of a natural person) and the value of the transaction): In 2021, the company has not had any transactions with related parties, based on the criteria, indicated in the article 37 2 . More detailed information on transactions with related parties and financial relations with the company’s managers, is provided in note 29 of the financial statement for 2021. 6. Information on shareholders with special rights of control and description of these rights: The company has no shareholders with special rights of control. 7. Information on all current voting rights’ limitations, such as a limitation of voting rights for persons that have a certain percentage or number of votes, terms, when the voting rights can be used, or systems, based on which the material rights, granted by securities, are separated from the holder of the securities: The company does not apply any voting rights’ limitations. All shareholders have equal material and immaterial rights. 8. Information on rules on election and replacement of board members, also amendments of the company’s articles of association: The company has no rules on amendments of the Company’s articles of association, or election and replacement of the Company’s board members. The Company conducts its business in accordance with the Law on Joint Stock Companies of the Republic of Lithuania, the Company’s articles of association and other “Vilvi Group” annual report for 2021 110 legislation. The Company’s articles of association are amended in accordance with the law of the Republic of Lithuania. 9. Information on the power of attorney of the board members: Board members have not granted any powers of attorney to other persons with the purpose to conduct the functions, attributable to the competence of the board. The Company’s board members act in accordance with the Law on Joint Stock Companies, the Company’s articles of association and the board’s work regulations. 10. Information on the competence of the general meeting of shareholders, the shareholders’ rights and their implementation, if this information has not been established by the law: The competence of the general meeting of shareholders, the shareholders’ rights and duties are established in the legislation and the Company’s articles of association. 11. Information on the composition of the management, control bodies and their committees, also their fields of activity and that of the head of the company: General meeting of shareholders. The competence, rights and obligations of the general meeting of shareholders virtually does not differ from the competence, rights and duties of a general meeting of shareholders, established in the Law on Joint Stock Companies of the Republic of Lithuania and other legislation, as well as the Company’s articles of association. Board – a collegial management body, representing the Company’s shareholders for a period between their meetings, making decisions on the major issues of the Company’s economic activity, and implementing the company’s control. The board members act in accordance with the Law on Joint Stock Companies of the Republic of Lithuania and the Company’s articles of association. Currently, the board consists of 6 (six) members, the number of their terms of office is unlimited. Board members are elected by the General meeting of shareholders for no more than four years. There is no applicable rule on the election of the board members of the Company, the Company follows the provisions of the Law on Joint Stock Companies and the Company’s articles of association. There is no policy, related to age, gender, education, professional experience, applicable to the elections of the board members – they are elected based on their competence. The head of the Company is a director general, who follows the Company’s articles of association, decisions of the general meeting of shareholders and decisions of the board. The head of the Company is elected by the board of the Company. The head of the Company organises the Company’s daily operations and conducts actions, necessary to ensure its functions, the implementation of the decisions, adopted by the Company's bodies and to ensure the Company’s business. 12. Description of the diversity policy, applicable to the election of the head of the Company, management and control bodies in terms of such aspects as, for example, age, gender, education, professional experience, methods of implementation and results in the reporting period. If a diversity policy is not applicable, reasons for non-application: The Company does not have a diversity policy, applicable to the election of the head of the Company, management and control bodies. Candidates to members of the Company’s management bodies are not subject to discrimination for their age, gender, education or professional experience. The Company draws no limitations for candidates in terms of gender or age. The major criterion in the election of the members of the management bodies is the candidate's competence. 13. Information on the salary of each member of the management, control body (average salaries, paid during the reporting period, indicating premiums, allowances, bonuses and other payments individually): Information on average salaries, paid to the management bodies during the reporting period is provided in the Company’s remuneration report. “Vilvi Group” annual report for 2021 111 14. Information on all mutual agreements between shareholders (their essence and conditions): The Company has no data on mutual agreements between its shareholders. In 2021, the Company has not entered into any agreements with its body members or employees that would result in compensations should they resign or be dismissed without a reasonable cause, or if their employment would cease due to a change in control of the issuer. During the reporting period there were no harmful transactions that do not comply with the goals of the Company or the Group, common market conditions, violate the interests of the shareholders or other persons, or that had or could have a negative impact on the Company's business or results in the future. VILKYŠKIŲ PIENINĖ AB Corporate governance report for the year that ended on 31 December 2021 112 AB VILKYŠKIŲ PIENINĖ CORPORATE GOVERNANCE REPORT FORM FOR THE YEAR THAT ENDED ON 31 DECEMBER 2021 The public limited liability company AB”Vilkyškių pieninė” (hereinafter referred to as the “Company”), acting in compliance with Article 22 (3) of the Law of the Republic of Lithuania on Securities and paragraph 24.5 of the Listing Rules of AB Nasdaq Vilnius, hereby discloses how it complies with the Corporate Governance Code for the Companies listed on Nasdaq Vilnius as well as its specific provisions or recommendations. In case of non-compliance with this Code or some of its provisions or recommendations, the specific provisions or recommendations that are not complied with must be indicated and the reasons for such non-compliance must be specified. In addition, other explanatory information indicated in this form must be provided. 1. Summary of the Corporate Governance Report: According to the Articles of Association of the Company, the bodies of the Company are the General Meeting of Shareholders, the Management Board, and the Manager of the Company. The Company does not have a Supervisory Board, but the supervisory functions, provided for in the Law on Companies of the Republic of Lithuania (hereinafter referred to as the ,,Law”), are actually performed by the Management Board (although at the moment these supervisory functions is not legalized in the Articles of Association of AB Vilkyškių Pieninė, however, this issue will be resolved at this year's ordinary annual general meeting of shareholders), which is not an executive body of the Company and consists of four representatives of the Company and two independent members. The Management Board elects and removes the Manager of the Company, determines his/her remuneration and other terms of the employment agreement. The company is managed by the Manager of the Company. The Company has two committees - Audit Committee and Nomination and Remuneration Committee. The Nomination and Remuneration Committee shall perform the functions of the Remuneration and Nomination Committees. The Company does not currently comply with the requirement established by Paragraph 1.8 of the Corporate Governance Code, because does not provide the possibility for the shareholders to participate and vote in the general meeting of shareholders by means of electronic communication, the Company also does not comply with the requirement established by Paragraph 3.2.5., because the Chairman of the Management Board is the Manager of the Company. Also, the Articles of Association of the Company do not establish the supervisory functions performed by the Management Board laid down by Law (the term of the Board has not expired). These requirements will be taken into account during the election of the new management bodies of the Company and amending the Articles of Association of the Company at this year's ordinary annual general meeting of shareholders. More information on the Company’s Governance, shareholders’ rights, activities of the Management Board and Committees, Management Board members, as well as systems of internal control and risk management is provided in the Company’s Consolidated Annual Report for the year that ended on 31 December 2021. VILKYŠKIŲ PIENINĖ AB Corporate governance report for the year that ended on 31 December 2021 113 2. Structured table for disclosure: PRINCIPLES/ RECOMMENDATIONS YES/N O/ NOT APPLI CABLE COMMENTARY Principle 1: General meeting of shareholders, equitable treatment of shareholders, and shareholders’ rights The corporate governance framework should ensure the equitable treatment of all shareholders. The corporate governance framework should protect the rights of shareholders. 1.1. All shareholders should be provided with access to the information and/or documents established in the legal acts on equal terms. All shareholders should be furnished with equal opportunity to participate in the decision - making process where significant corporate matters are discussed. Yes Shareholders are furnished with equal opportunity to access the and documents established in the legal acts, as well as to participate in the corporate decision - making process. The Company’s documents and information established in the legal acts are publicly available on the Company’s website and through the information disclosure system used by Nasdaq Vilnius in Lithuanian and English. 1.2. It is recommended that the company’s capital should consist only of the shares that grant the same rights to voting, ownership, dividend and other rights to all of their holders. Yes The capital of the Company consists of ordinary registered shares, which grant their owners equal personal property and non- property rights. Each share grants one vote at the general meeting of shareholders. 1.3. It is recommended that investors should have access to the information concerning the rights attached to the shares of the new issue or those issued earlier in advance, i.e. before they purchase shares. Yes The Articles of Association of the Company, which set out the rights conferred to the holders of Company’s shares, are publicly available on the Company’s website. 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 shareholde rs. Yes Transactions shall be approved in accordance with the procedure set forth in the Law on Companies of the Republic of Lithuania and the Articles of Association of the Company. Where necessary, important transactions are subject to approval of the general meeting of shareholders, despite the fact that such a procedure is not established in the Articles of Association of the Company. We plan to clearly establish this during the amendment of the articles of association of the Company. VILKYŠKIŲ PIENINĖ AB Corporate governance report for the year that ended on 31 December 2021 114 1.5. Procedures for convening and conducting a general meeting of shareholders should provide shareholders with equal opportunities to participate in the general meeting of shareholders and should not prejudice the rights and interests of shareholders. The chosen venue, date and time of the general meeting of shareholders should not prevent active participation of shareholders at the general meeting. In the notice of the general meeting of shareholders being convened, the company should specify the last day on which the proposed draft decisions should be submitted at the latest. Yes The Articles of Association of the Company provide that all persons, who on the day of the meeting are the shareholders of the Company, their authorized representatives, or persons with whom the voting rights transfer agreement has been concluded shall have the right to participate and vote in the general meeting of shareholders. A shareholder who has the right to vote and is familiar with the agenda may also inform the general meeting of shareholders in writing about his or her “for” or “against” choice with respect to each resolution individually. These notifications shall be credited to the quorum of the general meeting of shareholders as well as the voting results. Meetings of the Company’s shareholders are held at the registered office of the respective company of the Company Group (during quarantine shareholders are encouraged to vote in writing). Ordinary meetings of shareholders are held in the second half of April. The notice convening the general meeting of shareholders shall state that the proposed new draft resolutions must be submitted in writing at any time before the general meeting of shareholders. 1.6. With a view to ensure the right of shareholders living abroad to access the information, it is recommended, where possible, that documents prepared for the general meeting of shareholders in advance should be announced publicly not only in Lithuanian language but also in English and/or other foreign languages in advance. It is recommended that the minutes of the general meeting of shareholders after the signing thereof and/or adopted decisions should be made available publicly not only in Lithuanian language but also in English and/or other foreign languages. It is recommended that this information should be placed on the website of the company. Such documents may be published to the extent that their public disclosure is not detrimental to the company or the company’s commercial secrets are not revealed. Yes All documents and information related to the general meeting of shareholders, including notice of the meeting convened, draft resolutions, resolutions and minutes of the meeting, are announced publicly and at the same time in two languages - Lithuanian and English - through the Nasdaq regulated notice distribution system and on the Company’s website 1.7. Shareholders who are entitled to vote should be furnished with the opportunity to vote at the general meeting of shareholders both in person and in absentia. Shareholders should not be prevented from voting in Yes Shareholders of the Company may exercise the right to participate in the shareholders’ meeting either in person or through a representative, if the person has a proper Power of Attorney or a voting rights transfer VILKYŠKIŲ PIENINĖ AB Corporate governance report for the year that ended on 31 December 2021 115 writing in advance by completing the general voting ballot. agreement has been concluded in accordance with the procedure established by legal acts. The Company shall also furnish the opportunity to shareholders to vote by filling out a genera l ballot as required by law. 1.8. With a view to increasing the shareholders’ opportunities to participate effectively at general meetings of shareholders, it is recommended that companies should apply modern technologies on a wider scale and thus provide shareholders with the conditions to participate and vote in general meetings of shareholders via electronic means of communication. In such cases the security of transmitted information must be ensured and it must be possible to identify the participating and voting person. No The Company does not comply with the provisions of this recommendation as the Company does not provide the possibility for the shareholders to participate and vote in the general meeting of shareholders by means of electronic communication. The company is considering this issue and the need for its implementation, possibilities, etc. 1.9. It is recommended that the notice on the draft decisions of the general meeting of shareholders being convened should specify new candidatures of members of the collegial body, their proposed remuneration and the proposed audit company if these issues are included into the agenda of the general meeting of shareholders. Where it is proposed to elect a new member of the collegial body, it is recommended that the information about his/her educational background, work experience and other managerial positions held (or proposed) should be provided. Yes The Company informs about the educational background, work experience, and position of the candidates to the members of the collegial body during the general meeting of shareholders by submitting the curriculum vitae of the candidates in the material of the meeting. The name of the proposed audit firm shall be submitted to the general meeting in advance as a draft resolution. During the election a new member to the collegial body, the Company will publish the above information on each member in the draft resolutions of the general meeting. 1.10. Members of the company’s collegial management body, heads of the administration or other competent persons related to the company who can provide information related to the agenda of the general meeting of shareholders should take part in the general meeting of shareholders. Proposed candidates to member of the collegial body should also participate in the general meeting of shareholders in case the election of new members is included into the agenda of the general meeting of shareholders. Yes Members of the company’s collegial management body, heads of the administration or other competent persons related to the company who can provide information related to the agenda of the general meeting of shareholders, as well as candidates proposed to members of the collegial body participate in the general meeting of shareholders. VILKYŠKIŲ PIENINĖ AB Corporate governance report for the year that ended on 31 December 2021 116 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 applic able The Supervisory board is not formed in 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 applic able 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 applic able 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 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 applic able 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 applic able VILKYŠKIŲ PIENINĖ AB Corporate governance report for the year that ended on 31 December 2021 117 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 applic able 2.2. Formation of the supervisory board The procedure of the formation of the supervisory board should ensure proper resolution of conflicts of interest and effective and fair corporate governance. 2.2.1. The members of the supervisory board elected by the general meeting of shareholders should collectively ensure the diversity of qualifications, professional experience and competences and seek for gender equality. With a view to maintain a proper balance between the qualifications of the members of the supervisory board, it should be ensured that members of the supervisory board, as a whole, should have diverse knowledge, opinions and experience to duly perform their tasks. Not applica ble The Supervisory board is not formed in the Company. 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 applica ble 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 applica ble VILKYŠKIŲ PIENINĖ AB Corporate governance report for the year that ended on 31 December 2021 118 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 applica ble 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 applica ble 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 applica ble 2.2.7. Every year the supervisory board should carry out an assessment of its activities. It should include evaluation of the structure of the supervisory board, its work organization and ability to act as a group, evaluation of the competence and work efficiency of each member of the supervisory board, and evaluation whether the supervisory board has achieved its objectives. The supervisory board should, at least once a year, make public respective information about its internal structure and working procedures. Not applica ble 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. VILKYŠKIŲ PIENINĖ AB Corporate governance report for the year that ended on 31 December 2021 119 3.1.1. The management board should ensure the implementation of the company’s strategy approved by the supervisory board if the latter has been formed at the company. In such cases where the supervisory board is not formed, the management board is also responsible for the approval of the company’s strategy. Yes As the supervisory board is not formed in the Company, the Company’s strategy is approved by the management board. 3.1.2. As a collegial management body of the company, the management board performs the functions assigned to it by the Law and in the articles of association of the company, and in such cases where the supervisory board is not formed in the company, it performs inter alia the supervisory functions established in the Law. By performing the functions assigned to it, the management board should take into account the needs of the company’s shareholders, employees and other interest groups by respectively striving to achieve sustainable business development. Yes The functions specified in the recommendation are performed by the management board (except for AB Pieno logistika of the Company Group, where the management board is not formed), taking into account the needs of the Company, shareholders, employees, and other interest groups. The Management Board of Vilkyškių Pieninė AB actually performs the supervisory functions provided for in the Law on Companies of the Republic of Lithuania. Although at present these supervisory functions is not established for the Management Board in the Articles of Association of Vilkyškių Pieninė AB, however, this issue will be resolved during the election of the new management bodies of the Company and amending the Articles of Association of the Company at this year's ordinary annual general meeting of shareholders. The Management Board of LTD ,,Baltic dairy board“ of the Company Group, located in Latvia, performs the functions provided for by the laws of Latvia and the Articles of Association of this company. 3.1.3. The management board should ensure compliance with the laws and the internal policy of the company applicable to the company or a group of companies to which this company belongs. It should also establish the respective risk management and control measures aimed at ensuring regular and direct liability of managers. Yes The management board ensures that the Company complies with laws and internal policies of the Company (e.g. Remuneration Policy, Procurement Process and Procedures, Equal Opportunities Policy, Personal Data Processing Rules, etc.), and, it also ensures the accountability of the management in accordance with the established internal measures of governance and control. 3.1.4. Moreover, the management board should ensure that the measures included into the OECD Good Practice Guidance on Internal Controls, Ethics and Compliance are applied at the company in order to ensure adherence to the applicable laws, rules and standards. Yes The management board ensures compliance with applicable laws, regulations, and standards. VILKYŠKIŲ PIENINĖ AB Corporate governance report for the year that ended on 31 December 2021 120 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 Company follows the recommendations of this paragraph. The members of the management board have the necessary variety of knowledge, opinions, and experience to perform their tasks properly (2 board members have economic education, 2 board members have technical education, 1 board member has management education and one board member has education related to agriculture.) There is one woman on the management board of AB Vilkyškių pieninė and one on the management board of AB Modest of the Company Group; and two women on the management board of AB Kelmės pieninė and on the management board UAB Kelmės pienas of the Company Group and there are no women on the management board of LTD ,,Baltic dairy board“ of the Company Group. 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 curriculum vitae of the candidates to become members of the management board and information on the candidates‘ participation in the activities of other companies is submitted at the shareholder meeting together with draft resolutions without violating the requirements of the legal acts regulating the handling of personal data. In the annual report, the company indicates the necessary information about the members of the Management Board: education, qualifications, professional experience, current posit ion, etc. 3.2.3. All new members of the management board should be familiarized with their duties and the structure and operations of the company. Yes After the election, all members of the management board shall be familiarized with their rights and obligations under the legal acts of the Republic of Lithuania and the Articles of Association of the Company. Members of the management board are regularly informed 3.1.5. When appointing the manager of the company, the management board should take into account the appropriate balance between the candidate’s qualifications, experience and competence. Yes When ppointing the manager of the company, the management board takes into account the candidate’s qualifications, experience, and competence. VILKYŠKIŲ PIENINĖ AB Corporate governance report for the year that ended on 31 December 2021 121 at the Board meetings and individually, as required or per own request of the members, about the Company’s activities and its changes, material changes in the legal acts regulating the Company’s activities, and other circumstances affecting the Company’s activities. 3.2.4. Members of the management board should be appointed for a specific term, subject to individual re - election for a new term in office in order to ensure necessary development of professional experience and sufficiently frequent reconfirmation of their status . Yes According to the Articles of Association of the Company, the members of the management board are elected for a term of four years, without limiting the number of their terms. The Articles of Association of the Company provide for the possibility of r e- election of the entire management board or its individual member. 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. No AB Vilkyškių pieninė does not comply with the recommendation of Paragraph 3.2.5. as the chairman of its management board is the manager of the company. The impartiality of supervision is ensured by other five members of the management board. 3.2.6. Each member should devote sufficient time and attention to perform his duties as a member of the management board. Should a member of the management board attend less than a half of the meetings of the management board throughout the financial year of the company, the supervisory board of the company or, if the supervisory board is not formed at the company, the general meeting of shareholders should be notified thereof. Yes In 2021, the management board members attended the management board meetings (a quorum was present during all meetings), with each member devoting sufficient time to perform the duties of the management board member. Most board meetings were held remotely (due to quarantine restrictions). There were no management board members who attended less than half of the management board meetings during fiscal year of 2021. 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, 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 Currently the management board of the Company (the term of which will expire in 2022) has 2 independent members. The election of a new management board will take into account the independence criteria set out in the Law. VILKYŠKIŲ PIENINĖ AB Corporate governance report for the year that ended on 31 December 2021 122 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 Members of the management board of AB Vilkyškių pieninė, AB Modest, AB Kelmės pieninė, UAB Kelmės pienas and LTD ,,Baltic dairy board“ may be compensated for their work in the management board with tantiemes approved by the general meeting of shareholders. No tantiemes were paid to management board members in 2021. 3.2.9. The members of the management board should act in good faith, with care and responsibility for the benefit and the interests of the company and its shareholders with due regard to other stakeholders. When adopting decisions, they should not act in their personal interest; they should be subject to no- compete agreements and they should not use the business information or opportunities related to the company’s operations in violation of the company’s interests. Yes According to the information available to the Company, the members of the management board act in good faith with respect to the Company, following the interests of the Company and not their own or those of third parties, adhering to the principles of honesty, reasonableness, confidentiality, and responsibility, trying to remain independent during the decision -making. 3.2.10. Every year the management board should carry out an assessment of its activities. It should include evaluation of the structure of the management board, its work organization and ability to act as a group, evaluation of the competence and work efficiency of each member of the management board, and evaluation whether the management board has achieved its objectives. The management board should, at least once a year, make public respective information about its internal structure and working procedures in observance of the legal acts regulating the processing of personal data. Yes Every year the management board is carry out an assessment of its activities, review the management board’s annual performance goals and evaluate their achievement. The management structure of the Company is published annually in the annual report of the Company. Principle 4: R ules 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 Not applica ble The Supervisory board is not formed in the Company. VILKYŠKIŲ PIENINĖ AB Corporate governance report for the year that ended on 31 December 2021 123 significant for the company that are related to planning, business development, risk management and control, and compliance with the obligations at the company. The management board should inform he supervisory board about any derogations in its business development from the previously formulated plans and objectives by specifying the reasons for this. 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 Management board meetings are held at least once a month at the end of the month, and more frequently if the need arises. 4.3. Members of a collegial body should be notified of the meeting being convened in advance so that they would have sufficient time for proper preparation for the issues to be considered at the meeting and a fruitful discussion could be held and appropriate decisions could be adopted. Along with the notice of the meeting being convened all materials relevant to the issues on the agenda of the meeting should be submitted to the members of the collegial body. The agenda of the meeting should not be changed or supplemented during the meeting, unless all members of the collegial body present at the meeting agree with such change or supplement to the agenda, or certain issues that are important to the company require immediate resolution. Yes The members of the management board shall be provided in advance with the information of the meeting convened, the agenda of the meeting, and any material related to the issues to be discussed at the meeting. Each member of the governing body shall have access to the materials of the meeting before the date of the meeting. As a general rule, the published agenda of a meeting shall not be changed, unless otherwise decided at a meeting where all the members of the management board of the Company are present, and the material submitted for the meeting shall be sufficient for the additional issue to reach a decision on the issue that is not announced in the agenda. 4.4. In order to coordinate the activities of the company’s collegial bodies and ensure effective dec ision- 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 Not applic able The recommendations of paragraph 4.4. cannot be applicable in the Company as no supervisory board is formed. VILKYŠKIŲ PIENINĖ AB Corporate governance report for the year that ended on 31 December 2021 124 remuneration are discussed. Principle 5: Nomination, remuneration and audit committees 5.1. Purpose and formation of committees The committees formed at the company should increase the work efficiency of the supervisory board or, where the supervisory board is not formed, of the management board which performs the supervisory functions by ensuring that decisions are based on due consideration and help organise its work in such a way that the decisions it takes would be free of material conflicts of interest. Committees should exercise independent judgment and integrity when performing their functions and provide the collegial body with recommendations concerning the decisions of the collegial body. However, the final decision should be adopted by the collegial body. 5.1.1. Taking due account of the company - related circumstances and the chosen corporate governance structure, the supervisory board of the company or, in cases where the supervisory board is not formed, the management board which performs the supervisory functions, establishes committees. It is recommended that the collegial body should form the nomination, remuneration and audit committees. Yes AB Vilkyškių pieninė has 2 committees: Nomination and Remuneration Committee and Audit Committee. Nomination and Remuneration Committee is formed by the management board. The members of the Audit Committee and the Regulations of the Committee is approved by the general meeting of shareholders on the recommendation of the management board. AB Modest, AB Kelmės pieninė, AB Pieno logistika, UAB Kelmės pienas and LTD ,,Baltic dairy board“ have no committees. The functions of the Nomination and Remuneration Committee shall be carried out by a formed single Nomination and Remuneration 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 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 applic able 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 Each committee of AB Vilkyškių pieninė is composed of 3 members. All members of the Audit Committee have financial education, and 2 of them are independent members. All members of the Nomination and Remuneration Committee shall have managerial experience and one of them shall be an independent member. VILKYŠKIŲ PIENINĖ AB Corporate governance report for the year that ended on 31 December 2021 125 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 activities of the Nomination and Remuneration Committee of AB Vilkyškių pieninė are regulated by the Regulations approved by the management board. Regulations of the Audit Committee of AB Vilkyškių pieninė are approved by the general meeting of shareholders. Both committees regularly inform the collegial body about their activities and results. Information on Committee activities and attendance of Committee meetings is presented in the consolidated annual report of 2021. 5.1.6. With a view to ensure the independence and impartiality of the committees, the members of the collegial body who are not members of the committees should normally have a right to participate in the meetings of the committee only if invited by the committee. A committee may invite or request that certain employees of the company or experts would participate in the meeting. Chair of each committee should have the possibility to maintain direct communication with the shareholders. Cases where such practice is to be applied should be specified in the rules regulating the activities of the committee. Yes The members of the collegial body, who are not members of the Committee, shall participate in the meetings of the committees, if necessary, at the invitation of the respective Committee. If necessary, the Committee may invite relevant Company personnel, responsible for the matters discussed in the Committee, to attend the meeting. The chairman of the committee is also provided with the possibility to communicate with the shareholders as necessary. 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, Yes The functions of the Nomination Committee specified in this recommendation are essentially performed by the Nomination and Remuneration Committee of AB Vilkyškių pieninė. VILKYŠKIŲ PIENINĖ AB Corporate governance report for the year that ended on 31 December 2021 126 size and composition of the supervisory and management bodies as well as the skills, knowledge and activity of its members, and provide the collegial body with recommendations on how the required changes should be sought; 3) devote the attention necessary to ensure succession planning. 5.2.2. When dealing with issues related to members of the collegial body who have employment relationships with the company and the heads of the administration, the manager of the company should be consulted by granting him/her the right to submit proposals to the Nomination Committee. Yes 5.3. Remuneration committee The main functions of the remuneration committee should be as follows: 1) submit to the collegial body proposals on the remuneration policy applied to members of the supervisory and management bodies and the heads of the administration for approval. Such policy should include all forms of remuneration, including the fixed- rate remuneration, performance - based remuneration, financial incentive schemes, pension arrangements and termination payments as well as conditions which would allow the company to recover the amounts or suspend the payments by specifying the circumstances under which it would be expedient to do so; 2) submit to the collegial body proposals regarding individual remuneration for members of the collegial bodies and the heads of the administration in order to ensure that they would be consistent with the company’s remuneration policy and the evaluation of the performance of the persons concerned; 3) review, on a regular basis, the remuneration policy and its implementation. Yes The functions of the Remuneration Committee specified in this recommendation are essentially performed by the Nomination and Remuneration Committee of AB Vilkyškių pieninė. The Nomination and Remuneration Committee submits proposals to the collegial body on the remuneration policy, reviews it regularly, and monitors its implementation. 5.4. Audit committee 5.4.1. The key functions of the audit committee are defined in the legal acts regulating the activities of the audit committee. Yes The functions of the Audit Committee are defined in the Regulations of the Audit Committee approved by the General Meeting of Shareholders. VILKYŠKIŲ PIENINĖ AB Corporate governance report for the year that ended on 31 December 2021 127 5.4.2. All members of the committee should be provided with detailed information on specific issues of the company’s accounting system, finances and operations. The heads of the company’s administration should inform the audit committee about the methods of accounting for significant and unusual transactions where the accounting may be subject to different approaches. Yes The members of the Committee shall be provided with all the detailed information necessary for the performance of its functions. 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 After the members of the Audit Committee decide who must attend the meeting of the Committee, these persons shall be invited, ensuring possibility that the members of the managerial bodies would not be present at the same meeting. 5.4.4. The audit committee should be informed about the internal auditor’s work program and should be furnished with internal audit reports or periodic summaries. The audit committee should also be informed about the work program of external auditors and should receive from the audit firm a report describing all relationships between the independent audit firm and the company and its group. Yes Internal and external auditors shall regularly present their activity plans and reports to the Audit Committee. 5.4.5. The audit committee should examine whether the company complies with the applicable provisions regulating the possibility of lodging a complaint or reporting anonymously his/her suspicions of potential violations committed at the company and should also ensure that there is a procedure in place for proportionate and independent investigation of such issues and appropriate follow-up actions. Yes The Audit Committee shall have the opportunity to periodically verify whether employees have the possibility to lodge a complaint or report anonymously any suspected violations by the Company. Complaints are submitted to an authorized employee of the Company's HR Department, which must ensure the anonymity of the complaint. 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 Reports of the Audit Committee are presented at management board meetings twice a year. 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 VILKYŠKIŲ PIENINĖ AB Corporate governance report for the year that ended on 31 December 2021 128 management bodies. The Corporate Governance Framework should recognize the rights of the stakeholders as established by law and promote active cooperation between the company and its stakeholders in the creation of the well -being, jobs, and financial stability of the Company. Within the context of this principle, the term “stakeholders” includes investors, employees, creditors, suppliers, customers, the local community, and oth er persons with interests in a particular company. 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 Management board members avoid situations where their personal interests may be in conflict with the company’s interests. 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 remuneration policy approved by the management board is published on the Company’s website and is regularly reviewed. 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 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 approved Remuneration Policy does not provide for the possibility to receive remuneration depending on the Company's performance. VILKYŠKIŲ PIENINĖ AB Corporate governance report for the year that ended on 31 December 2021 129 7.4. The remuneration policy should provide sufficient information on the policy regarding termination payments. Termination payments should not exceed a fixed amount or a fixed number of annual wages and in general should not be higher than the non -variable component of remuneration for two years or the equivalent thereof. Termination payments should not be paid if the contract is terminated due to inadequate performance. Yes The Company adheres to the requirements of applicable laws (provisions of the Labor Code of the Republic of Lithuania) regarding termination payments. 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 applic able The Company has no system of employee incentivisation or remuneration with Company shares. 7.6. The company should publish information about the implementation of the remuneration policy on its website, with a key focus on the remuneration policy in respect of the collegial bodies and managers in the next and, where relevant, subsequent financial years. It should also contain a review of how the remuneration policy was implemented during the previous financial year. The information of such nature should not include any details having a commercial value. Particular attention should be paid on the major changes in the company’s remuneration policy, compared to the previous financial year. Yes The implementation of the Remuneration Policy is disclosed in the Remuneration Report, which is published on the Company's website. 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 In the event of a material change in the remuneration policy, such change shall be included in the agenda of the general meeting of shareholders. The Company does not employ schemes under which the remuneration is provided in shares or share options, or other rights to purchase shares or receive remuneration based on the changes in the share price. Principle 8: Role of stakeholders in corporate governance The corporate governance framework should recognize the rights of stakeholders entrenched in the laws or mutual agreements and encourage active cooperation between companies and stakeholders in creating the company value, jobs and financial sustainability. In the context of VILKYŠKIŲ PIENINĖ AB Corporate governance report for the year that ended on 31 December 2021 130 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 All stakeholders are provided with the possibility to participate in corporate governance and access to the necessary information. 8.2. The corporate governance framework should create conditions for stakeholders to participate in corporate governance in the manner prescribed by law. Examples of participation by stakeholders in corporate governance include the participation of employees or their representatives in the adoption of decisions that are important for the company, consultations with employees or their representatives on corporate governance and other important matters, participation of employees in the company’s authorized capital, involvement of creditors in corporate governance in the cases of the company’s insolvency, etc. Yes All stakeholders are provided with the possibility to participate in corporate governance in the manner prescribed by law 8.3. Where stakeholders participate in the corporate governance process, they should have access to relevant information. Yes The stakeholders involved in the corporate governance process shall be granted access to the necessary information, without prejudice to the interests of the Company and other related parties. 8.4. Stakeholders should be provided with the possibility of reporting confidentially any illegal or unethical practices to the collegial body performing the supervisory function. Yes The Company provides the possibility to confidentially report any illegal or unethical practices to the collegial body performing the supervisory function. Principle 9: Disclosure of information The corporate governance framework should ensure the timely and accurate disclosure of all material corporate issues, including the financial situation, operations and governance of the company. 9.1. In accordance with the company’s procedure on confidential information and commercial secrets and the legal acts regulating the processing of personal data, the information publicly disclosed by the company should include but not be limited to the following: Yes 9.1.1. operating and financial results of the company; Yes On a quarterly basis, the Company reports its operating and financial results on the Company’s website and through the information disclosure system used by Nasdaq Vilnius. 9.1.2. objectives and non- financial information of the company; Yes Information on the Company’s activities, objectives and corporate governance is disclosed through press releases and VILKYŠKIŲ PIENINĖ AB Corporate governance report for the year that ended on 31 December 2021 131 notifications on material events, as well as on the Company’s website, and the information disclosure system used by Nasdaq Vilnius. 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 Information is provided on the Company’s website and in its interim and annual reports. 9.1.4. members of the company’s supervisory and management bodies who are deemed independent, the manager of the company, the shares or votes held by them at the company, participation in corporate governance of other companies, their competence and remuneration; Yes Information is provided on the Company’s website and in its interim and annual reports. 9.1.5. reports of the existing committees on their composition, number of meetings and attendance of members during the last year as well as the main directions and results of their activities; Yes Information on the composition of committees and the number of meetings is provided in the annual reports. 9.1.6. potential key risk factors, the company’s risk management and supervision policy; Yes The information is provided in interim and annual reports 9.1.7. the company’s transactions with related parties; Yes Information is provided on the Company’s website and in its interim and annual reports. 9.1.8. main issues related to employees and other stakeholders (for instance, human resource policy, participation of employees in corporate governance, award of the company’s shares or share options as incentives, relationships with creditors, suppliers, local community, etc.); Yes The information is provided in interim and annual reports. 9.1.9. structure and strategy of corporate governance; Yes Information is provided on the Company’s website and in its interim and annual reports. 9.1.10. initiatives and measures of social responsibility policy and anti- corruption fight, significant current or planned investment projects. This list is deemed minimum and companies are encouraged not to restrict themselves to the disclosure of information included into this list. This principle of the Code does not exempt companies from their obligation to disclose information as provided for in the applicable legal acts. Yes Information is provided in interim and annual reports, notifications on material events, on the Company’s website, and in the Company’s social rep ort. VILKYŠKIŲ PIENINĖ AB Corporate governance report for the year that ended on 31 December 2021 132 9.2. When disclosing the information specified in paragraph 9.1.1 of recommendation 9.1, it is recommended that the company which is a parent company in respect of other companies should disclose information about the consolidated results of the whole group of companies. Yes When disclosing the information specified in paragraph 9.1.1 of recommendation 9.1, the company which is a parent company in respect of other companies discloses information about the consolidated results of the whole group of companies in the interim and annual reports. 9.3. When disclosing the information specified in paragraph 9.1.4 of recommendation 9.1, it is recommended that the information on the professional experience and qualifications of members of the company’s supervisory and management bodies and the manager of the company as well as potential conflicts of interest which could affect their decisions should be provided. It is further recommended that the remuneration or other income of members of the company’s supervisory and management bodies and the manager of the company should be disclosed, as provided for in greater detail in Principle 7. Yes The Company discloses in its consolidated annual report information on the amount of annual remuneration and other income paid to the Company’s key management and members of the managerial bodies, as well as education, qualifications and participation in the activities and capital of other companies. 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 AB Vilkyškių pieninė submits information via the information disclosure system used by Nasdaq Vilnius in Lithuanian and English at the same time, thus ensuring simultaneous disclosure of information to everyone. The Company seeks to publish the information before or after the Nasdaq Vilnius trading session and simultaneously submit it to all markets where the Company’s securities are traded, and also makes it publicly available on the website. Principle 10: Selection of the company’s audit firm The company’s audit firm selection mechanism should ensure the independence of the report and opinion of the audit firm. 10.1. With a view to obtain an objective opinion on the company’s financial condition and financial results, the company’s annual financial statements and the financial information provided in its annual report should be audited by an independent audit firm. Yes The Company adheres to this recommendation because the Company’s annual consolidated financial information is audited by an independent audit firm. 10.2. It is recommended that the audit firm would be proposed to the general meeting of shareholders by the supervisory board or, if the supervisory board is not formed at the company, by the management board of the company. Yes The management board of the Company (manager in AB Pieno logistika of the Company Group) submits the candidacy of the audit company to the meeting of shareholders. The Audit Company shall be approved by the general meeting of shareholders of the Company. VILKYŠKIŲ PIENINĖ AB Corporate governance report for the year that ended on 31 December 2021 133 10.3. In the event that the audit firm has received remuneration from the company for the non -audit services provided, the company should disclose this publicly. This information should also be available to the supervisory board or, if the supervisory board is not formed at the company, by the management board of the company when considering which audit firm should be proposed to the general meeting of shareholders. Yes In 2021, the audit company did not provide non -audit services to the Company. Should the audit company provide non- audit services, then the Company would inform about it publicly. _____ PricewaterhouseCoopers UAB, J. Jasinskio str. 16B, 03163 Vilnius, Lithuania +370 (5) 239 2300, lt_vilnius@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 VILKYŠKIŲ PIENINĖ AB Report on the audit of the consolidated and separate financial statements Our opinion In our opinion, the consolidated and separate financial statements give a true and fair view of the consolidated and separate financial position of VILKYŠKIŲ PIENINĖ AB (the “Company”) and its subsidiaries (together - the “Group”) as at 31 December 2021, and of the Group’s and of the Company’s consolidated and separate financial performance and consolidated and separate 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 8 April 2022. What we have audited The Group’s and the Company’s consolidated and separate financial statements comprise: ● the consolidated and separate statements of financial position as at 31 December 2021; ● the consolidated and separate statements of profit or loss and statements of other comprehensive income for the year then ended; ● the consolidated and separate statements of changes in equity for the year then ended; ● the consolidated and separate statements of cash flows for the year then ended; and ● the notes to the consolidated and separate 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 Group and 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 separate and consolidated 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 Group and 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 Group and the Company, in the period from 1 January 2021 to 31 December 2021, are disclosed in note 8 to the financial statements. Our audit approach Overview ● Overall Group and Company materiality: Euro 1,068 thousand and Euro 800 thousand respectively x We conducted audit at 3 Group entities, all operating in Lithuania, covering 99% of the Group’s revenues and 89 % of the Group’s total assets. x Impairment testing of goodwill. x Inventory write-down to net realisable value. As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated and separate financial statements (together “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. 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 Group and 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 800 thousand (in 2020 – EUR 800 thousand). Overall Group materiality EUR 1,068 thousand (in 2020 – EUR 884 thousand). How we determined it 0.68% of the Group’s and 0.41% of the Company’s total revenue. Materiality Group scoping Key audit matters Rationale for the materiality benchmark applied Significant fluctuations in the Group’s and the Company’s profit depend on the prevailing trends in global dairy markets. We have, therefore, chosen revenue as a benchmark for determining the materiality because, in our view, it provides the stakeholders consistent information year-on-year basis, reflecting the Group’s and the Company’s growth. Revenue and market share are also considered to be important business performance indicators. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above EUR 53 thousand and EUR 40 thousand for the Group and the Company, respectively, 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 Impairment testing of goodwill Refer to accounting policy on impairment testing on page 2 1 , accounting estimates and assessments on pages 27-28 and note 15 ‘Intangible assets’ in the financial statements. We focused on this area because of the significance of the goodwill bala nce (The Group has goodwill balance of EUR 4,166 thousand as at 31 December 2021) and because the impairment assessment involved significant management’s judgements about the future results and the discount rates applied to future cash flows forecasts. Under the requirements of IAS 36 Impairment of assets goodwill has to be tested for impairment at least on an annual basis. The determination of recoverable amount, being the higher of value in - use and fair value less costs of disposal, requires judgment fro m management when identifying and valuing the relevant cash - generating units. Recoverable amounts are based on management’s view of internal and market conditions such as future prices and volume growth rate, the timing of future operating expenditure and the most appropriate discount and long -term growth rates. We focused on goodwill attributable to the cash generating unit from fresh milk products of Kelmės pienas UAB, which represents 93% (in 2020 – 96% ) of the entire goodwill balance of the Group. Our audit procedures included challenging management on the appropriateness of the impairment models and the reasonableness of the assumptions used by performing the following: - Assessing the reliability of the cash flow forecast by checking the actual past performance and comparing to previous forecasts and by inspecting internal documents, such as budget forecasts for 202 2–2026; - Benchmarking market related assumptions like discount rate and long - term growth rate against external data. Where it was considered necessary, we involved our valuation experts; - Testing the mathematical accuracy of the model and assessing the sensitivity of the impairment test to key inputs. We found the assumptions used by management in the calculation of discounted cash flows to be within acceptable range of our expectations. We also reviewed the disclosures in the financial statements regarding i mpairment tests. As at 31 December 2021, based on the impairment test performed for that day, an impairment loss was recognized for cash generating unit of Kelmės pienas UAB related to fresh milk products. The Group estimated that carrying amount of this cash generating unit has exceeded its recoverable amount by 2,749 thousand EUR. No impairment was identified as at 31 December 2020. Inventory write -down to net realisable value Refer to accounting policy on inventory on page 17, accounting estimates and assessments on page 27-28 and note 18 ‘Inventories’ in the financial statements. We focused on this area due to the size of the inventory balance (EUR 1 7,625 thousand and EUR 8,046 thousand as at 31 December 20 21 at the Group and the Company, respectively), and because the management’s assessment of the net realisable value of inventory involved estimates about the future discounts and sales of goods below their cost. During 2021 the Group and the Company sold in ventory at higher prices, therefore inventory write -down to net realisable value was not recognized. As at 31 December 2021 the Group’s and the Company’s w rite- down to net realisable value allowance amounted to EUR 37 thousand and EUR 37 thousand, respectively. We obtained the Group’s and the Company’s policies and methodology in respect of inventory write -downs to net realisable value, evaluated their compliance with the requirements of IFRSs, and found them to be consistent. We analysed sales prices of the finished goods items sold after the balance sheet date and compared results with the figures used in the management’s calculation of inventory write - down allowance. We analysed the aging of inventories other than finished goods, by periods, to identif y slow- moving or obsolete items. We also verified the reliability of the inventory ageing report and compared our estimated inventory write - down allowance to the management’s calculations. We found the assumptions used by management in the calculation of inventory write- down to net realisable value to be within acceptable range of our expectations. How we tailored our Group audit scope 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 Group, the accounting processes and controls, and the industry in which the Group operates. The Group comprises of parent and 4 subsidiaries three of which operate in Lithuania and one in Latvia. Based on our risk and materiality assessments, we determined which entities were required to be audited, by taking into account the relative significance of each entity to the Group as a whole and in relation to each material line item in the consolidated financial statements. We performed audits of parent entity VILKYŠKIŲ PIENINĖ AB and subsidiaries Kelmės Pieninė AB and Modest AB. Our audits addressed 99% of the Group’s revenues and 89% of the Group’s total assets. The remaining components of the Group was not material. Reporting on other information including the consolidated annual report Management is responsible for the other information. The other information comprises the consolidated annual report, including the corporate governance report and renumeration 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 consolidated 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 consolidated annual report, we considered whether the consolidated annual report includes the disclosures required by the Law of the Republic of Lithuania on Consolidated Financial Reporting by Groups of Undertakings, 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 consolidated annual report for the financial year for which the financial statements are prepared, is consistent with the financial statements; and ● the consolidated annual report has been prepared in accordance with the Law of the Republic of Lithuania on Consolidated Financial Reporting by Groups of Undertakings and the Law of the Republic of Lithuania on Financial Reporting by Undertakings. The Group has prepared the social responsibility report that was presented as a separate report. In addition, in light of the knowledge and understanding of the Group and the Company and their environment obtained in the course of the audit, we are required to report if we have identified material misstatements in the consolidated 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 Group’s and 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 Group and the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s and 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 Group’s and 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 Group’s and 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 Group and 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. ● Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and 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 threads 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 consolidated and separate 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 Group’s consolidated and the Company’s separate financial statements, including the consolidated annual report, for the year ended 31 December 2021 (the “Single Electronic Reporting Format of the separate and consolidated financial statements”). Description of a subject matter and applicable criteria The Single Electronic Reporting Format of the consolidated and separate 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 consolidated and separate 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 consolidated and separate 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 consolidated and separate 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 consolidated and separate 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 consolidated and separate 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 consolidated and separate 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 consolidated and separate 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: x obtaining an understanding of the internal control system and processes relevant to the application of the Single Electronic Reporting Format of the consolidated and separate financial statements, including the preparation of the XHTML format and marking up the separate and consolidated financial statements; x verification whether the XHTML format was applied properly; x evaluating the completeness of marking up the consolidated and separate financial statements using the iXBRL markup language according to the requirements of the implementation of single electronic format as described in the ESEF Regulation; x evaluating the appropriateness of the Company’s and the Group’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 x 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 consolidated and separate 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 Group and the Company on 28 April 2017. Our appointment has been renewed by shareholder resolution representing a total period of uninterrupted engagement appointment of 5 years. The key audit partner on the audit resulting in this independent auditor’s report is Rimvydas Jogėla. On behalf of PricewaterhouseCoopers UAB /signed with electronic signature/ Rimvydas Jogėla Partner Auditor's Certificate No.000457 Vilnius, Republic of Lithuania 8 April 2022 The auditor's electronic signature is used herein to sign only the Independent Auditor's Report