Annual Report (ESEF) • Apr 22, 2022
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1 2021 AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ADOPTED BY THE EUROPEAN UNION, INDEPENDENT AUDITOR’S REPORT AND CONSOLIDATED ANNUAL REPORT FOR THE FINANCIAL YEAR ENDED ON 31 DECEMBER 2021 AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 2 CONTENT STATEMENT OF FINANCIAL POSITION ............................................................................................................................................................................. 3 STATEMENT OF COMPREHENSIVE INCOME .................................................................................................................................................................. 5 STATEMENT OF CHANGES IN EQUITY .............................................................................................................................................................................. 6 CASH FLOW STATEMENT ....................................................................................................................................................................................................... 8 EXPLANATORY NOTES TO FINANCIAL STATEMENTS .............................................................................................................................................. 10 CONFIRMATION OF RESPONSIBLE PERSONS ............................................................................................................................................................. 58 2021 YEAR AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT ........................................................................................................... 59 AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 3 STATEMENT OF FINANCIAL POSITION Notes Group Company 31-12-2021 31-12-2020 31-12-2021 31-12-2020 ASSETS Non-current assets Intangible assets 456 496 279 288 Property, plant and equipment 3 150,686 201,845 150,565 201,719 Right-of-use assets 3 338,256 357,053 338,232 357,053 Non-current contract assets 8 - 349 - 349 Investment in subsidiaries 5 - - 4,578 4,553 Investment in associates 226 256 226 256 Deferred tax asset 23 3,616 - 3,616 - Total non-current assets 493,240 559,999 497,496 564,218 Current assets Inventories 6 1,798 2,415 1,796 2,397 Trade receivables and other receivables 7 11,643 10,646 10,636 9,941 Contract assets 8 612 1,311 612 1,311 Prepaid income tax - 349 - 349 Short term deposits 9 - 24,000 - 24,000 Other financial assets 10 3,271 1,898 3,271 1,898 Cash and cash equivalents 11 61,517 51,076 57,148 47,433 Total current assets 78,841 91,695 73,463 87,329 Total assets 572,081 651,694 570,959 651,547 (Cont’d on the next page) Explanatory notes are an integral part of these financial statements. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 4 STATEMENT OF FINANCIAL POSITION (CONT’D) Group Company Notes 31-12-2021 31-12-2020 31-12-2021 31-12-2020 EQUITY AND LIABILITIES Equity Share capital 1,12 110,315 110,505 110,315 110,505 Share premium 4,002 4,002 4,002 4,002 Own shares (-) 1 - (267) - (267) Reserves 12 94,604 68,947 94,604 68,947 Foreign currency translation reserve (82) (72) - - Retained earnings (64,126) 33,211 (64,971) 33,272 Total equity 144,713 216,326 143,950 216,459 Non-current amounts payable and liabilities Deferred tax liability 23 - 8,605 - 8,605 Non-current employee benefits 13 707 632 707 632 Loans 14 116,044 92,704 116,044 92,704 Deferred government grants 2.21 5,771 5,817 5,771 5,817 Lease liabilities 14 243,430 265,339 243,412 265,339 Total non-current amounts payable and liabilities 365,952 373,097 365,934 373,097 Current amounts payable and liabilities Current employee benefits 13 49 43 49 43 Loans 14 3,879 3,806 3,879 3,806 Lease liabilities 14 43,675 40,280 43,668 40,280 Trade payables and other liabilities 15 3,695 7,946 3,513 7,720 Derivatives 17 15 1,946 15 1,946 Payroll related liabilities 18 2,669 2,731 2,517 2,677 Provisions 16 3,596 1,709 3,596 1,709 Contract liabilities 27 3,838 3,810 3,838 3,810 Total current amounts payable and liabilities 61,416 62,271 61,0 75 61,991 Total equity and liabilities 572, 081 651,694 570,959 651,547 Explanatory notes are an integral part of these financial statements. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 5 STATEMENT OF COMPREHENSIVE INCOME Notes Group Company 2021 2020 2021 2020 Revenue from contracts with customers 19 61,811 80,114 58,633 77,474 Cost of sales 20 (53,109) (50,960) (52,144) (50,191) Gross profit (loss) 8,702 29,154 6,489 27,283 Operating expenses 21 (61,928) (9,811) (61,160) (8,787) Other income and (expenses) 61 36 61 36 Profit (loss) from operating activities (53,165) 19,379 (54,610) 18,532 Income from financial activities 22 1,987 28,897 1,969 28,896 Expenses from financial activities 22 (24,557) (4,550) (24,456) (4,438) Share of the associate‘s profit or (loss) (32) 113 (32) 113 Profit (loss) before tax (75,767) 43,839 (77,129) 43,103 Income tax (expenses) 23 11,756 (9,881) 12,212 (9,608) Profit (loss) for the year (64,011) 33,958 (64,917) 33,495 Other comprehensive income Items that will not be subsequently reclassified to profit or (loss) - - - - Items that are or may be reclassified subsequently to profit or (loss) - - - - Actuarial gain (loss) (63) (353) (63) (353) Exchange differences on translation of foreign operations (10) (72) - - Related taxes 9 53 9 53 Total other comprehensive income (64) (372) (54) (300) Total comprehensive income (loss), net of tax (64,075) 33,586 (64,971) 33,195 Profit attributable to: The shareholders of the Company (64,011) 33,958 (64,917) 33,495 Non-controlling interests - - - - Total comprehensive income (loss) attributable to: The shareholders of the Company (64,075) 33,586 (64,971) 33,195 Non-controlling interests - - - - Basic and diluted earnings (losses), in EUR 24 (0.17) 0.09 - - Explanatory notes are an integral part of these financial statements. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 6 STATEMENT OF CHANGES IN EQUITY GROUP Notes Share capital Share premium Own shares (-) Legal reserve Reserve for own shares Other reserves Foreign currency translation reserve Retained earnings Total Balance as at 31 December 2019 110,476 3,993 (267) 11,038 15,929 42,057 - 7,423 190,649 Net profit for the year - - - - - - - 33,958 33,958 Other comprehensive income (loss) - - - - - - (72) (300) (372) Total comprehensive income (loss) - - - - - - (72) 33,658 33,586 Dividends declared 25 - - - - - - - (7,947) (7,947) Increase in share capital 1, 12 29 9 - - - - - - 38 Transfer between reserves - - - 10 - (87) - 77 - Balance as at 31 December 2020 110,505 4,002 (267) 11,048 15,929 41,970 (72) 33,211 216,326 Net profit (loss) for the year - - - - - - - (64,011) (64,011) Other comprehensive income (loss) - - - - - - (10) (54) (64) Total comprehensive income (loss) - - - - - - (10) (64,065) (64,075) Dividends declared 25 - - - - - - - (7,538) (7,538) Decrease in share capital 1, 12 (190) - 267 - - - - (77) - Transfer between reserves - - - 3 - 25,654 - (25,657) - Balance as at 31 December 2021 110,315 4,002 - 11,051 15,929 67,624 (82) (64,126) 144,713 AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 7 STATEMENT OF CHANGES IN EQUITY (CONT’D) COMPANY Notes Share capital Share premium Own shares (-) Legal reserve Reserve for own shares Other reserves Retained earnings Total Balance as at 31 December 2019 110,476 3,993 (267) 11,038 15,929 42,057 7,947 191,173 Net profit for the year - - - - - - 33,495 33,495 Other comprehensive income (loss) - - - - - - (300) (300) Total comprehensive income (loss) - - - - - - 33,195 33,195 Dividends declared 25 - - - - - - (7,947) (7,947) Increase in share capital 1, 12 29 9 - - - - - 38 Transfer between reserves - - - 10 - (87) 77 - Balance as at 31 December 2020 110,505 4,002 (267) 11,048 15,929 41,970 33,272 216,459 Net profit (loss) for the year - - - - - - (64,917) (64,917) Other comprehensive income (loss) - - - - - - (54) (54) Total comprehensive income (loss) - - - - - - (64,971) (64,971) Dividends declared 25 - - - - - - (7,538) (7,538) Decrease in share capital 1, 12 (190) - 267 - - - (77) - Transfer between reserves - - - 3 - 25,654 (25,657) - Balance as at 31 December 2021 110,315 4,002 - 11,051 15,929 67,624 (64,971) 143,950 Explanatory notes are an integral part of these financial statements. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 8 CASH FLOW STATEMENT (Cont‘d on the next page) Explanatory notes are an integral part of these financial statements. Group Company Notes 31-12-2021 31-12-2020 31-12-2021 31-12-2020 Cash flows from operating activities Net profit (loss) (64,011) 33,958 (64,917) 33,495 Adjustments for non-cash items: Depreciation and amortization 3 25,646 26,489 25,565 26,459 Impairment of non-current assets 54,338 (1) 54,338 (1) Change in vacation reserve (312) (1) (319) (42) Change in provisions 16 1,887 1,637 1,887 1,637 Change in non-current liabilities for employees 13 18 41 18 41 Contract assets 8 1,048 469 1,048 469 Income tax expenses 23 (11,755) 9,881 (12,211) 9,608 Share of (profit) or loss of equity-accounted investees 32 (113) 32 (113) Change in allowance for doubtful trade and other receivables 7 (711) 1,855 (711) 1,855 Interest income 22 (13) (53) (13) (53) Interest expenses 22 2,279 2,456 2,278 2,404 (Gain) or loss of derivative financial instruments 22 (1,898) 2,092 (1,898) 2,092 Currency impact from lease liabilities 22 22,073 (28,765) 22,073 (28,765) Other non-cash adjustments 942 782 922 790 29,563 50,727 28,092 49,876 Changes in working capital (Increase) decrease in inventories 6 617 (10) 600 8 Decrease (increase) in trade and other accounts receivable 7 (1,610) (252) (1,392) 493 Increase (decrease) in trade and other payables (4,377) (627) (4,231) (597) Increase (decrease) in contract liabilities 27 28 390 28 390 Increase (decrease) in payroll related liabilities 18 (672) (777) (735) (723) 23,549 49,451 22,362 49,447 Income tax (paid) (440) (27) - - Interest received 13 53 13 53 Net cash flows from (used in) operating activities 23,122 49,477 22,375 49,500 Cash flows from investing activities (Acquisition) of property, plant, equipment and intangible assets 3 (9,030) (6,926) (8,989) (6,573) Income from sales of non-current assets 27 - 27 - Short term deposits (placed)/received 9 24,000 (3,000) 24,000 (3,000) (Acquisition) of other investments (2) - (27) - Dividends received - 54 - 54 Grants, subsidies received 2.20 302 289 302 289 Net cash flows from (used in) investing activities 15,297 (9,583) 15,313 (9,230) AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 9 CASH FLOW STATEMENT (CONT’D) Explanatory notes are an integral part of these financial statements. Notes Group Company 31-12-2021 31-12-2020 31-12-2021 31-12-2020 Cash flows from financing activities Dividends (paid) 25 (7,538) (7,947) (7,538) (7,947) Loans received 14 26,829 26,829 26,829 26,829 Loans paid 14 (3,492) (3,387) (3,492) (3,387) Interest and fee related to loans (paid) 14 (255) (156) (255) (156) Guarantee fees (paid) 14 (146) (474) (146) (474) Lease liabilities (paid) 14 (41,459) (43,548) (41,455) (43,548) Interest on leasing liabilities paid 14 (1,917) (2,000) (1,916) (2,000) Net cash flows from (used in) financing activities (27,978) (30,683) (27,973) (30,683) Net increase (decrease) in cash flows 10,441 9,211 9,715 9,587 Cash and cash equivalents on 1 January 11 51,076 41,865 47,433 37,846 Cash and cash equivalents on 31 December 11 61,517 51,076 57,148 47,433 Other non-financial information related to cash flows: Liability for property, plant and equipment outstanding as at year end 740 726 740 726 AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 10 EXPLANATORY NOTES TO FINANCIAL STATEMENTS 1 GENERAL INFORMATION AB Klaipėdos nafta (hereinafter “the Parent Company” or “the Company”) is a public limited liability company registered in the Republic of Lithuania. The address of its registered office is as follows: Burių str. 19, 92276 Klaipėda, Lithuania. These consolidated financial statements comprise the Company and its subsidiaries (together referred to as “the Group”). The subsidiaries are these: • UAB SGD logistika, a subsidiary (hereinafter “the subsidiary UAB SGD logistika”). The address is as follows: Burių g. 19, 92276 Klaipėda, Lithuania. • UAB SGD terminalas, a subsidiary (hereinafter “the subsidiary UAB SGD terminalas”). The address is as follows: Burių g. 19, 92276 Klaipėda, Lithuania. • UAB SGD SPB, a subsidiary of UAB SGD logistika (hereinafter “the subsidiary UAB SGD SPB”). The address is as follows: Burių g. 19, 92276 Klaipėda, Lithuania. • KN Acu Servicos de Terminal de GNL LTDA (hereinafter “the subsidiary KN Acu Servicos de Terminal de GNL LTDA”). The address is as follows: F66 Fazenda Saco Dantas s/n, Distrito Industrial, Area 1 and Area 2, 28200-000 São João da Barra, State of Rio de Janeiro The associates are these: • Sarmatia Sp. z o.o. – as at 31 December 2021 and 2020 the Group and the Company owns 1% of the authorised capital of the international pipeline company. As a result of associate financial performance 100% impairment for investment to Sarmatia Sp. z o.o was accounted for as at 31 December 2021 and 2020. The Group and the Company is entitled to appoint one of five board members to the management of Sarmatia Sp. z o.o., thus it can have significant influence. Therefore, this investment was classified as an associate and measured using the equity method. The unaudited equity of the associate as at 31 December 2021 amounts to EUR 54 thousand (EUR 220 thousand as at 31 December 2020). • BALTPOOL UAB – as at 31 December 2021 and 2020 the Group and the Company owns 33% of BALTPOOL UAB shares and their voting rights at the General Meeting of the Shareholders of BALTPOOL UAB. The unaudited equity of the associate as at 31 December 2021 is EUR 675 thousand (EUR 771 thousand as at 31 December 2021). The main activities of the Group and the Company include operation of oil terminal, oil products transhipment services and other related services, as well as operation of the liquefied natural gas terminal (hereinafter referred to as “LNGT”) primarily dedicated to receive and store liquefied natural gas, regasify it and supply it to Gas Grid. National Energy Regulatory Council (hereinafter referred to as “NERC”) issued Natural Gas Regasification License to the Company on 27 November 2014. The Company was established by AB Naftos Terminalas (Lithuania) and Lancaster Steel Inc, (USA) acquiring 51% and 49% of shares respectively, The Company was registered on 27 September 1994. As of 11 January 2021 a new version of the Company's Articles of Association was registered within the Register of Legal Entities of the Republic of Lithuania following the decrease of the authorised capital of the Company, which is now equal to EUR 110,315,009.65 and divided into 380,396,585 units of shares, which grant 380,396,585 votes. The Ministry of Finance of the Republic of Lithuania granted the Company permission to decrease the authorised capital of the Company by cancelling 655,808 units of Company’s acquired own shares which each nominal value EUR 0.29 During the year of 2021 and 2020 the Company has not acquired any own shares. The Company’s shares are listed in the Baltic Main List on the NASDAQ Vilnius Stock Exchange (ISIN code LT0000111650, abbreviation KNF1L). As at 31 December 2021 and 31 December 2020 the shareholders of the Company were: 31 December 2021 31 December 2020 Number of shares held (thousand) Part of ownership (%) Number of shares held (thousand) Part of ownership (%) State of Lithuania represented by the Ministry of Energy (Gediminas av, 38/2, Vilnius, 302308327) 275,687 72.47 275,687 72.35 UAB koncernas Achemos grupė (Jonalaukis village, Jonava district, 156673480) 39,663 10.43 39,663 10.41 Other (less than 5% each) 65,047 17.10 65,702 17.24 Total 380,397 100.00 381,052 100.00 As at 31 December 2021, all the shares were owned by 4,926 shareholders (as at 31 December 2020 all the shares were owned by 3,444 shareholders). The average number of employees of the Group on 31 December 2021 was 388 (400 – on 31 December 2020). The average number of employees of the Company on 31 December 2021 was 355 (372 – on 31 December 2020). AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 11 2 ACCOUNTING PRINCIPLES The financial statements of the Group and the Company are presented in Euro and all values are rounded to the nearest thousand (EUR 000), except when otherwise indicated. These financial statements of the Group and the Company have been prepared on a historical cost basis unless otherwise stated in the accounting policies below. The financial year of the Group and the Company coincides with the calendar year. The numbers in tables may not coincide due to rounding of particular amounts to EUR thousand. Such rounding differences are not material to these financial statements. 2.1. Basis for preparation of the financial statements Statement of compliance Annual financial statements of the Group and the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (hereinafter the EU). They were authorized for issuance by the management on 23 March 2022 and are subject to the approval of the shareholders. The shareholders of the Company have the power to reject these financial statements and request for the new ones to be prepared. IFRSs and their interpretations, announced and adopted by the European Union, effective for the current reporting period The following new Standards, amendments to Standards and new Interpretations approved by the International Accounting Standards Board (IASB) and adopted by the EU are applicable for the reporting period: • COVID-19-Related Rent Concessions (Amendment to IFRS 16) • Interest rate benchmark reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) The Group and the Company anticipates that the adoption of these standards, revisions and interpretations had no material impact on the financial statements. Standards and Interpretations in issue not yet adopted At the date of authorisation of these financial statements the following standards, amendments to existing standards and interpretations were issued, however the Group and the Company does not plan to adopt these standards early. • Onerous Contract – Costs of Fulfilling a Contract (Amendment to IAS 37) • Deferred tax related to assets and liabilities arising from Single Transaction (Amendments to IAS 12) • Covid-19 Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16) • Annual Improvements to IFRS Standards 2018-2020 • Property, Plant and Equipment – Proceeds before Intended Use (Amendments to IAS 16) • Reference to the Conceptual Framework (Amendments to IFRS 3) • Classification of Liabilities as Current or Non-Current (Amendments to IAS 1) • IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance. • Definition of Accounting Estimates (Amendments to IAS8) • Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice statement 2) The Group and the Company has elected not to adopt these standards, revisions and interpretations. The Group and the Company anticipates that the adoption of these standards, revisions and interpretations will have no material impact on the financial statements of the Group and the Company in the period of initial application. COVID 19 pandemic The Group's and the Company’s management has assessed the impact of COVID-19 pandemic uncertainty to the following key areas: • Going concern • Fair value, impairment, residual value and useful life of property, plant and equipment • Fair value, impairment of investments and other non-current assets • Assessment of expected credit losses • Classification of financial instruments as current and non-current • Lease contracts The Group's and the Company’s management has not identified any significant threats in assessing the potential impact of key COVID-19 factors on the Group’s results. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 12 2 ACCOUNTING PRINCIPLES (CONT’D) 2.2. Foreign currency Functional currency The amounts shown in these consolidated and separate financial statements are measured and presented in local currency, euro (EUR), which is the functional currency of the Group and the Company. The Group and the Company have decided to use EUR as a functional currency considering the structure of revenue, costs, equity, and debt instruments. Despite the fact that lease liabilities are denominated in US dollars, the major part of revenues and cost are denominated in EUR. Most of the Group’s and the Company’s sales prices and costs are influenced by competitive forces, acting in Lithuania and in the Euro-zone countries. The equity of the Company is formed in EUR. Transactions and balances Foreign currency transactions are converted into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the conversion of monetary assets and liabilities denominated in foreign currencies using the exchange rate available at the reporting date are recognised in the statement of profit or loss and comprehensive income as finance income or expenses. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are converted using the exchange rate available at the date of the transaction. Group companies On consolidation, the assets and liabilities of foreign operations are translated into euros at the rate of exchange prevailing at the reporting date and their statements of profit or loss and comprehensive income are translated at average exchange rates observed during reporting period. The exchange differences arising on translation for consolidation are recognised in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is reclassified to profit or loss and comprehensive income. 2.3. Going concern The management of the Group and the Company assessed the going-concern assumptions, during the preparation of the Group’s and the Company’s Consolidated financial statements. The management believes that no events or conditions, including those related to the current COVID-19 pandemic and war in Ukraine, give rise to doubt about the ability of the Group to continue in operation in the next reporting period. This conclusion is drawn based on knowledge of the Group and the Company, the estimated economic outlook and identified risks and uncertainties in relation thereto. Furthermore, this conclusion is based on a review of the expected developments in liquidity and capital, current credit facilities available including contractual and expected maturities and covenants. Consequently, it has been concluded that it is reasonable to apply the going- concern concept as the underlying assumption for the financial statements. For further details on the impact of the Covid-19 pandemic and war in Ukraine to Annual report. 2.4. Basis for consolidation Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company or the Group obtains control and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full. Total comprehensive income within a subsidiary is attributed to the non-controlling interest even if that results in a deficit balance. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it: • Derecognises the assets (including goodwill) and liabilities of the subsidiary; • Derecognises the carrying amount of any non-controlling interest; • Derecognises the cumulative translation differences, recorded in equity; • Recognises the fair value of the consideration received; • Recognises the fair value of any investment retained; • Recognises any surplus or deficit in profit or loss; • Reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss or retained earnings, as appropriate. Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 13 2 ACCOUNTING PRINCIPLES (CONT’D) 2.4. Basis for consolidation (cont’d) If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognised in accordance with IFRS 9 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity. Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognised for non- controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. 2.5. Operating segments Operating segment is a separated business constituent part, the business risks and profitability of which differ from other business constituent parts. Chief executive officer of the Group is responsible for making strategic decisions for distribution of the Company’s resources and evaluation of activity’s results of the segments. The management of the Group has identified the following segments (Note 4): ▪ LNGT – LNG terminal in Klaipėda which receives and stores liquefied natural gas, regasifies and supplies it to Gas Main pipeline; ▪ OT – Oil terminal in Klaipėda and Subačius oil terminal in Kupiškis who are providing oil products transhipment, services of long-term storage of oil products and other services related to oil products transhipment; ▪ comLNG – LNG commercial activities - includes LNG reloading station and execution of other LNG projects. 2.6. Investment in subsidiaries and associates Investments in subsidiaries are carried at cost, less impairment in separate financial statements of the Company. The Company determines at each reporting date whether there is any objective evidence that the investment in the subsidiary is impaired. If this is the case the Company calculates the amount of impairment as the difference between the recoverable amount of the subsidiary and it’s carrying value and recognises the amount in the profit (loss) in the statement of comprehensive income. The Group and the Company accounts for investments in associates using the equity method. An associate is an entity in which the Group and the Company has significant influence, but no control over the financial and operating policies. Significant influence is presumed to exist when the Group and the Company holds between 20% and 50% of the voting rights of another company. Under the equity method the investment in the associate is carried in the Statement of Financial position at cost plus post acquisition changes in the Group’s and the Company’s share of the associate’s net assets. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. The share of profit (loss) of an associate is shown on the face of the statement of comprehensive income (loss). The financial statements of the associate are prepared for the same reporting period as the Group and the Company. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group and the Company. After application of the equity method the Group and the Company determines whether it is necessary to recognise an additional impairment loss on the investment in associate. The Group and Company determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case the Group and the Company calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in the caption “Share of the associate‘s profit or (loss)” in the statement of comprehensive income. Unrealized gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s and the Company’s interest to investee. Unrealized losses are eliminated the same way as unrealized gains, but only to the extent that there is no evidence of impairment. 2.7. Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. The Group and the Company did not have assets with indefinite useful lives (as at 31 December 2021 and 31 December 2020). Intangible assets with finite lives are amortized over the useful economic lives of 3-15 years and assessed for impairment whenever there is an indication that the intangible asset may be impaired. Amortisation periods and methods for intangible assets with finite useful lives are reviewed at least at each financial year-end. Calculation of amortization is discontinued as at the first day of the next month after the disposal of asset or when the whole acquisition cost is expensed or reclassified as a part of another asset. Costs associated with maintaining computer software programs are recorded as an expense as incurred. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 14 2 ACCOUNTING PRINCIPLES (CONT’D) 2.8. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The initial cost of property, plant and equipment comprises its purchase price, including non-refundable purchase taxes, capitalised borrowing costs and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after property, plant and equipment have been put into operation, such as repair and maintenance costs, are normally charged to profit or loss in the period the costs are incurred. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. The useful lives, residual values and depreciation method are reviewed periodically to ensure that the period of depreciation and other estimates including borrowing costs are consistent with the expected pattern of economic benefits from items of property, plant and equipment. In case external and (or) internal impairment indications exist at the date of the statement of financial position, the Group and the Company perform detailed impairment testing in order to ensure that property, plant and equipment are accounted for at value not higher than their recoverable amount. Construction-in-progress is stated at cost. This includes the cost of construction, plant and equipment and other directly attributable costs including borrowing cost. Construction-in-progress is not depreciated until the relevant assets are completed and available for their intended use. The Group and the Company determine at each reporting date whether there is any objective evidence that the construction-in-progress is impaired. The Group and the Company calculate the amount of impairment for suspended construction-in-progress. When property, plant and equipment are retired or otherwise disposed, the cost and related depreciation are removed from the financial statements and any related gains or losses are included in the statement of comprehensive income. Gains and losses on disposal of property, plant and equipment are determined as a difference between proceeds and the carrying amount of the property, plant and equipment disposed and recorded in profit (loss). Subsequent repair costs are included in the asset’s carrying amount, only when it is probable that future economic benefits associated with the item will flow to the Group and the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repair and maintenance costs are charged to profit or loss during the financial period in which they are incurred. The estimated useful life (in years) of different groups of property, plant and equipment is as follows: Group and Company Description Estimated useful life Property, plant and equipment Buildings and structures 10-60 Machinery, plant and equipment 5-55 Other non-current assets 4-15 2.9. Financial instruments Financial instruments – initial recognition and subsequent measurement A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. i) Financial assets Initial recognition and measurement The Group and the Company qualify financial assets to one of the following categories: - measured at amortised cost; - measured at fair value through other comprehensive income (FVOCI) – debt instruments; - measured at fair value through other comprehensive income (FVOCI) – equity instruments; - measured at fair value through profit or loss (FVTPL). The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s and the Company’s business model for managing them. Except for trade receivables that do not contain a significant financing component, the Group and the Company initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component are measured at the transaction price determined under IFRS 15. For a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 15 2 ACCOUNTING PRINCIPLES (CONT’D) 2.9. Financial instruments (cont’d) The Group’s and the Company’s business model for managing financial assets refers to how the Company manages its financial assets to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. A regular way purchases or sales of financial assets are recognised on the trade date, i.e., the date that the Company commits to purchase or sell the asset. Subsequent measurement After initial recognition, the Group and the Company measures a financial asset at: • Amortised cost; • Fair value through OCI with recycling of cumulative gains and losses upon derecognition (debt instruments). The Company did not have such items as at 31 December 2021 and 2020; • Fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments). The Company did not have such items as at 31 December 2021 and 2020; • Fair value through profit or loss. The Company did not have such items as at 31 December 2021 and 2020. Financial assets at amortised cost (debt instruments) This category is the most relevant to the Group and the Company. The Group’s and the Company’s financial assets at amortised cost includes trade, other current and non-current receivables and contract assets. The Group and the Company measures financial assets at amortised cost if both of the following conditions are met and is not designated as of FVTPL: • The financial asset is held within a business model with the objective to hold financial assets to collect contractual cash flows; and • The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in the statement of comprehensive income when the asset is derecognised, modified or impaired. Impairment of financial assets Further disclosures relating to impairment of financial assets are also provided in the following notes: • Trade receivables and contract assets (Notes 7 and 8). The Group and the Company performs the assessment for all debt instruments on an individual basis. The management considers a financial asset in default (credit impaired) when contractual payments are long overdue due or when indications exist that the debtors or a group of debtors are experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. The lifetime expected credit losses of loans receivable and trade receivables is recognised in profit or loss through the contrary account of doubtful receivables A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows. ii) Financial liabilities Initial recognition and measurement Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss (FVTPL) or at amortised costs. Financial liability is classified as of FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss in the statement of other comprehensive income. The Group’s and the Company’s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts and finance lease liabilities, as well as derivative financials instruments. iii) Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, i.e. to realize the assets and settle the liabilities simultaneously. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 16 2 ACCOUNTING PRINCIPLES (CONT’D) 2.9. Financial instruments (cont’d) iv) Derivative financial instruments and hedge accounting The Group and the Company holds derivative financial instruments to hedge its foreign currency risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if the host contract is not a financial asset and certain criteria are met. Derivatives are initially measured at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are generally recognised in profit or loss in the statement of other comprehensive income. 2.10. Derecognition of financial instruments Derecognition of financial assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Group’s and the Company’s statement of financial position) when: i) The contractual rights to receive cash flows from the asset have expired; or ii) The Group and the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group/Company has transferred substantially all the risks and rewards of the asset, or (b) the Group/Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group and the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group and the Company continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group and the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group and the Company could be required to repay (amount of the guarantee). Derecognition of financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expired. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability at fair value, and the difference in the respective carrying amounts is recognised in the statement of comprehensive income. 2.11. Employee benefits Social security contributions The Group and the Company pays social security contributions to the State Social Security Fund (hereinafter the Fund) on behalf of its employees based on the legally defined contribution plan in accordance with the local legal requirements. A defined contribution plan is a plan under which the Group and the Company pays fixed contributions into the Fund and will have no legal or constructive obligations to pay further contributions if the Fund does not hold sufficient assets to pay all employees benefits related to employee service in the current and prior period. The social security contributions are recognised as an expense on an accrual basis and are included within staff costs. Non-current employee benefits The past service costs are recognised as an expense on a straight-line basis over the average period until the benefits become vested. Any gains or losses appearing as a result of curtailment and/or settlement are recognised in the statement of comprehensive income as incurred. The past service costs are recognized in the statement of comprehensive income as incurred. The above-mentioned employee benefit obligation is calculated based on actuarial assumptions, using the projected unit credit method. Obligation is recognized in the statement of financial position and reflects the present value of these benefits on the preparation date of the statement of financial position. Present value of the non-current obligation to employees is determined by discounting estimated future cash flows using the discount rate which reflects the interest rate of the Government bonds of the same currency and similar maturity as the employment benefits. Actuarial gains and losses are recognized in the statement of other comprehensive income as incurred. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 17 2 ACCOUNTING PRINCIPLES (CONT’D) 2.12. Inventories Inventories are stated at the lower of cost and net realisable value. Net realizable value is estimated taking the selling price in the ordinary course of business, less the costs of completion, marketing and distribution. The cost of inventories consists of purchase price, transport, and other costs directly attributable to the cost of inventories. The costs of inventories are determined by the first-in, first-out (FIFO) method. 2.13. Cash and cash equivalents Cash includes cash in bank accounts. 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 (Note 11). For the purposes of the cash flow statement, cash and cash equivalents comprise cash, deposits held at call with banks, and other short-term highly liquid investments with maturities of less than three months. 2.14. Short term deposits Short term deposits include short-term bank deposits at the commercial banks with maturity of more than 3 months. Initially short-term bank deposits are recognised at cost. Subsequently short-term deposits are stated at acquisition cost less any allowance for impairment. 2.15. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. The borrowing costs, which represent a part of the cost price of a qualifying asset, the Group and the Company begins to capitalize from the start of construction. Capitalization start is considered to be the day when the company meets the following conditions for the first time: incurs costs in respect of the asset, incurs borrowing costs, carries out activities required to prepare the asset for its intended use or sale. The Group and the Company discontinues the capitalization of borrowing costs when virtually all the activities necessary to prepare a qualifying asset for its intended use or sale have been completed. Commonly, an asset is prepared for its intended use or sale when its physical construction has been completed, even if the routine administrative work is still carried out. Although small changes are still possible, such as finishing of the asset in accordance with the instructions of a purchaser or user, it indicates that, essentially, all the activities have already been completed. During the year 2021 and 2020 the Group and the Company did not capitalize borrowing costs due to the reason that all outstanding borrowings were related to assets which were not qualifying for borrowing costs capitalization in accordance with IAS 23. 2.16. Lease At inception of contract, a Group and the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use if an identified asset for a period of time in exchange in consideration. The Group and the Company as a lessee At commencement or on modification of a contract that contains a lease component the Group and the Company allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices. The Group and the Company recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group and the Company by the end of the lease term or the cost of the right-of-use asset reflects that the Group and the Company will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group‘s and the Company’s incremental borrowing rate. Generally, the Group and the Company uses its incremental borrowing rate as the discount rate. The Group and the Company determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased. Lease payments included in the measurement of the lease liability comprise the following: AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 18 2 ACCOUNTING PRINCIPLES (CONT’D) 2.16. Lease (cont’d) - Fixed payments, including in-substance fixed payments; - Variable lease payments that depend on an index or a rate, initially measured using the index or rate as of the commencement date; - Amounts expected to be payable under a residual value guarantee; and - The exercise price under a purchase option that the Group and the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Group and the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group and the Company is reasonably certain not to terminate early. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in the future lease payments arising from a change in an index or rate, if there is a change in the Group‘s and the Company’s estimate of the amount expected to be payable under a residual value guarantee, if the Group and the Company’s changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. The Group and the Company presents right-of-use assets that do not meet the definition of investment property in Right-of-use assets’ and lease liabilities inlease liabilities` in the statement of financial position. Short-term leases and leases of low-value assets The Group and the Company has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets and short-term leases, including IT equipment. The Group and the Company recognises the lease payments associated with the leases as an expense on a straight-line basis over the lease term. The Group and the Company as a lessor At inception or on modification of a contract that contains a lease component, the Group and the Company allocates the consideration in the contract to each lease component based on their relative stand-alone prices. When the Group and the Company acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease. To classify each lease, the Group and the Company makes an overall assessment of whether the lease transfers substantially all the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Group and the Company considers certain indicators such as whether the lease is for a major part of the economic life of the asset. When the Group and the Company is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Group and the Company applies the exemption described above, then it classifies the sub-lease as an operating lease. If an arrangement contains lease and non-lease components, then the Group and the Company applies IFRS 15 to allocate the consideration in the contract. 2.17. Income tax Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities, also including adjustments in respect of prior years. The tax rates used to compute the amount are those that are enacted by the date of the Statement of Financial position. Income tax charge is based on profit for the year and considers deferred taxation. Income tax is calculated based on the Lithuanian tax legislation. The standard corporate income tax rate in the Republic of Lithuania is 15% as at 31 December 2021 and 31 December 2020. The Group’s subsidiary KN Açu Serviços de Terminal de GNL Ltda applies Brazilian Tax System and subsidiary´s administration has elected the Real Profit Regime that is calculated on quarterly basis. The official rates are 25% for Income tax and 9% Social Contribution on Net Profit. As to Law on Corporate Income Tax of the Republic of Lithuania starting from 1 January 2014 deductible tax losses carried forward can be used to reduce the taxable income earned during the reporting year by maximum 70%. Tax losses can be carried forward for indefinite period, except for the losses incurred as a result of disposal of securities and/or derivative financial instruments. Such carrying forward is disrupted if the Group and the Company stops its activities due to which these losses were incurred except when the Group and the Company does not continue its activities due to reasons which do not depend on the Company itself. The losses from disposal of securities and/or derivative financial instruments can be carried forward for 5 consecutive years and only be used to reduce the taxable income earned from the transactions of the same nature. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 19 2 ACCOUNTING PRINCIPLES (CONT’D) 2.17. Income tax (cont’d) Deferred income tax is recognized in respect to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse based on tax rates enacted or substantively enacted at reporting date. A deferred tax asset is recognised in the Statement of Financial position to the extent the management of the Group and the Company believes it will be realised in the foreseeable future, based on taxable profit forecasts. If it is believed that part of the deferred tax asset is not going to be realised, this part of the deferred tax asset is not recognised in the financial statements. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority. 2.18. Dividends Dividends are recorded in the financial statements when they are declared by the Annual General Shareholders’ Meeting. 2.19. Basic and diluted earnings per share Basic earnings per share are calculated by dividing the net profit attributable to the shareholders by the weighted average of ordinary registered shares issued. Provided that the number of shares changes without causing a change in the economic resources, the weighted average of ordinary registered shares is adjusted in proportion to the change in the number of shares as if this change took place at the beginning of the previous period presented. Since there are no instruments reducing profit (loss) per share, there is no difference between the basic and diluted earnings per share (Note 24). 2.20. Provisions General Provisions are recognised when the Group and the Company has a present legal or constructive obligation in respect of past events and it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Where the Group and the Company expects the provision to be reimbursed the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Expenses related to provisions are recorded in the statement of comprehensive income. Greenhouse gas (GHG) emissions The Company applies a 'net liability' approach in accounting for the emission rights received. It records the emission allowances granted to it at a nominal (null) amount, as it is allowed by IAS 20 “Accounting for Government Grants and Disclosure of Government Assistance”. Liabilities for emissions are recognised only as emissions are made (i.e. provisions are never made on the basis of expected future emissions) and only when the reporting entity has made emissions in excess of the rights held. Costs of allowances are recorded under cost of sales caption in the other comprehensive income. 2.21. Deferred government grants Asset-related grants Asset-related government and the European Union grants and third-party compensations comprise grants received in the form of non-current assets or intended for the acquisition of non-current assets. Grants are initially recognised at fair value of the asset received and subsequently accounted for in the statement of comprehensive income by reducing the depreciation charge of related asset over the expected useful life of the asset. The Group and the Company 2021 2020 Balance as at 1 January 5,817 5,988 Received during the year 302 223 Amortisation (348) (394) Balance as at 31 December 5,771 5,817 Amortisation of grants related to assets of EUR 348 thousand for 2021 (EUR 394 thousand for 2020) has been included into cost of sales in the statement of comprehensive income. The Group and the Company has no unfulfilled conditions or contingencies attached to these grants as at 31 December 2021 and as at 31 December 2020. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 20 2 ACCOUNTING PRINCIPLES (CONT’D) 2.21. Deferred government grants (cont’d) Income-related grants Government and the European Union grants received as a compensation for the expenses or unearned income of the current or previous reporting period, also, all other grants, which are not asset-related grants, are treated as income-related grants. The income-related grants are recognised as used in parts to the extent of the expenses incurred during the reporting period or unearned income to be compensated by that grant. These grants are recognised in the statement of comprehensive income, net of related expenditure. 2.22. Revenue recognition Revenue from Contracts with Customers The Group and the Company recognizes revenue at the time and to the extent that the transfer of goods or services to customers would reflect an amount that the Group and the Company expects to receive in exchange for those goods or services. In applying this Standard, the Group and the Company considers the terms of the contract and all relevant facts and circumstances. Revenue is recognized using the 5-step model: Step 1 – Identification of the contract with the customer. The contract acknowledges an agreement between two or more parties (subject to purchase / sale conditions) that creates enforceable rights and enforceable obligations (not applicable if a joint venture agreement is signed). A contract that is subject to IFRS 15 is recognized only if the following criteria are met: • the parties have approved the contract (in writing, orally or in accordance with other usual business practices) and are bound by the obligations under the contract, • there is a possibility to identify the rights of each party in respect of the goods and / or services to be transferred, • there is a possibility of identifying the payment terms provided for the goods and / or services to be transferred, • the contract is of a commercial nature, • there is a possibility of getting a reward in return for the goods and / or services that will be transferred to the customer. Contracts with the customer may be combined or separated into several contracts, while retaining the criteria of the former contracts. Such interconnection or separation is considered a change of contract. Step 2 – Identification of operational commitments in the contract. The contract establishes a commitment to deliver goods and / or services to the customer. When goods and / or services can be distinguished, liabilities are recognized separately. Each commitment is identified in one of two ways: • the product and / or service is separate, or • a set of individual goods and / or services that are essentially the same and passed on to the customer in a uniform model. Step 3 – Determination of a transaction price. The Group and the Company considers the terms of the transaction and the usual business practices. The transaction price is the amount of consideration that the Group and the Company expects to receive after delivering promised goods and services to the Customer, except for amounts collected on behalf of third parties. The fee provided for in a contract with a client may include fixed amounts, variable amounts, or both. Step 4 – The transaction price is attributable to the contractual performance obligations. The Group and the Company attributes the portion of the transaction price to each operating obligation in an amount that reflects the amount of consideration to which the Group and the Company expects to be entitled in exchange for the promised goods or services transferred to the customer. The transaction price is allocated to each operating obligation based on the relative individual selling prices of the good or service promised in the contract. If the contract does not specify the price of the service or product separately (for example, one price for two products), the Group and the Company determines it. Similar transactions are treated equally. Step 5 – Revenue is recognised when the Group and the Company performs operating obligations. Revenue is recognised when the operating obligation is settled by the transfer of goods or services to the customer (i. e. the customer acquires control over the mentioned goods or services). Revenue is recognized as an amount equal to the transaction price that was determined for the respective operating obligation. The recognised amount of revenue is attributed to the settled liability that can be settled at a particular point of time or over a period. Revenue is recognized when the amount of revenue can be measured reliably and when it is probable that the economic benefits associated with the transaction will flow to the Company, and when specific criteria have been met for each type of income. The Company relies on historical results, considering the customer type, the transaction type and the terms of each agreement. Revenue is recognised by classifying it as per customer contracts, other income and finance income. Revenue from contracts with clients is only recognized when the control of goods or services is transferred to the client to the extent that reflects the remuneration which the Group and the Company expects to receive in return for these goods or services. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 21 2 ACCOUNTING PRINCIPLES (CONT’D) 2.22. Revenue recognition (cont’d) The Group and Company has following main revenue streams (Note 19): - Income from LNGT services (47% from total sales revenue in 2021, 46% in 2020) One performance obligation exists – to ensure the compensation of for all fixed operating costs of LNGT infrastructure. The Group and the Company acts as a principal in service provision. Revenues are recognized at the over the point of time when the services were rendered based on amount collected from the users of the natural gas transmission system due to the following reasons: ✓ The Group and the Company has a present right to payment for the rendered LNGT services; ✓ Significant risks and rewards of ownership have been transferred to the client; ✓ The client has accepted the service. - Oil products transhipment services (33% from total sales revenue in 2021, 35% in 2020) One performance obligation exists – to provide oil product loading service for which the loading rate is specified. Company acts as a principal in service provision. Revenues are recognized over time due to the following reasons: ✓ By providing the services of loading of oil products, the Group and the Company does not create an alternative use of the assets, which it could sell as goods. ✓ The Group and the Company shall have the unconditional refund right for the performed share of production. In the event the client does not perform or is behind the schedule in performing his obligations, the Company, having notified the client, has the right to suspend the provision of services and/or to detain the oil products within the terminal until the client’s obligations are fulfilled. All the consequences and losses arising from the detention of oil products and/or suspension of the provision of services shall be borne by the client. ✓ With the client’s delay in dispatching the oil products from the terminal, additional storage fees shall be applied. This way the Group and the Company shall not only compensate the expenses of storage of oil products, but also obtain income. ✓ In the event the client terminates the agreement in a unilateral manner, he usually must pay the take-or-pay fee, if such was specified in the contract, or the difference in the oil product quantity between the planned minimum annual amount of reload and the reloaded amount. Calculation of percentage of completeness of performance obligation already satisfied at year end is calculated in the following way. The Group and the Company recognises revenues from oil transhipment taking into account the level of fulfilment of a service. The level of service provided is measured as percentage of transhipment cost expenses from the total cost of services. In the case reliable evaluation of the service agreement is impossible, the revenues are recognised only as a part of expenses incurred that can be recoverable. Service provided at certain level of completion is already received and consumed by the customer and the customer benefits from it (it would not incur the whole loading service cost in service reperformance case), therefore management believes that percentage of completion accounting method applied by the Group and the Company is in line with IFRS 15 requirements. - Income from other LNG terminal activities (15% from total sales revenue in 2021, 15% in 2020). Main source of other LNG terminal activities income: • Small-scale LNG reloading station in Klaipėda: Small-scale LNG reloading station activities have one performance obligation exists – to provide LNG reloading station services. Company acts as a principal in service provision. Revenues are recognized over the point of time when services are rendered. ✓ The Group and the Company has a present right to payment for the rendered LNG reloading station services; ✓ Significant risks and rewards of ownership have been transferred to the client; ✓ The client has accepted the service. • Operation of LNG terminal in Açu port in Brazil: Operation of LNG terminal in Açu port in Brazil has one performance obligation exists – to provide LNG terminal management and operation services. Company acts as a principal in service provision. Revenues are recognized over the point of time based on services provided. ✓ The Group and the Company has a present right to payment for the rendered LNG terminal operation services; ✓ Significant risks and rewards of ownership have been transferred to the client; ✓ The client has accepted the service. - Other activities Revenues from other activities consist of sales of goods and other services rendered (mainly storage of oil products, consulting services). The Group and the Company acts as a principal in service provision. Revenues from sales of goods are recognized when the control of the goods is passed to customer (at point in time), revenues from other services – when the services are provided (over the point in time). Revenues are recorded in the statement of comprehensive income under the item “Revenues from contracts with customers”, and the assets resulting from contracts with customers are accounted for as short-term assets under the item “contract assets” in the statement of financial position. Related costs are accounted for in the statement of comprehensive income under the item “Cost of sales”. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 22 2 ACCOUNTING PRINCIPLES (CONT’D) 2.22. Revenue recognition (cont’d) Due to the Group’s and the Company’s business nature the management did not make any other significant accounting judgments, estimates or assumptions relating to revenue from contracts with customers recognition except for take or pay transactions described below. Take-or-Pay The Company calculates monthly, quarterly or annual Take-or-Pay fees to certain customers once the loading quantities specified in the contract with customer are not achieved. Since the most probable loading quantity is agreed with the customer in the contract and only due to certain unforeseen circumstances arisen in the market, the loading quantity cannot be reached. Take-or-Pay is calculated at the period-end. There is no significant impact on financial statements for year ended 31 December 2021 as no significant Take or-Pay transactions occurred in 2021 and 2020. Contract assets – accrued income Contract assets mean the right to the remuneration for goods or services, which were delivered or provided to the client, but not invoiced yet. If the Company renders services to the Client before the Client pays for these services or before the payment term, the contractual assets are calculated by the amount equal to the earned contingent remuneration. The assets resulting from contracts with clients, i.e. the accumulated income, after all the contractual obligations are fulfilled and the invoice is issued, are recognised as a trade receivable. Contract liabilities – prepayments received Contract liabilities include advances received from customers for services to be delivered in the future. Contract liabilities also include interest and fees paid by AB Ambergrid on behalf of AB Achema (as disclosed in Note 27). Income from liquefied natural gas terminal services regulated by National Energy Regulatory Council Income from LNGT services are regulated by NERC. Based on LNG terminal law clause 5.2, all users of the natural gas transmission system, including final consumers, are obliged to pay the Additional Security supplement together with their other payments for the natural gas transmission service. The revenue of the LNG terminal activity comprises from: i) LNG regasification tariff; ii) LNG reloading tariff and iii) liquefaction price fixed part which is collected through additional security supplement to the natural gas transmission price (hereinafter – LNG security supplement). Regasification and reloading revenue are collected directly from the clients after services are provided based on quantities. For the actual tariffs see the LNGT services in the annual report. The LNG security supplement is collected by the transmission service operator (hereinafter referred to as “TSO”) either directly from the user or from suppliers of natural gas in case the user has no direct contractual obligations with the TSO. The additional Security Supplement is calculated by the NERC on an annual basis in proportion to the planned natural gas consumption capacities as set out in National legislation in relation to gas market. Prices set for the LNGT services for the year 2021 and 2020: • LNG regasification service price fixed part is approved by the NERC based on LNG regasification service price cap set by NERC: - price of variable part for the year 2021 set by the resolution No. O3E-1207 on 23 November 2020, is 0.41 EUR/MWh - price of variable part for the year 2020 set by the resolution No. O3E-724 on 15 November 2019, is 0.35 EUR/MWh • NERC on 23 November 2020 adopted decision on reloading service prices for the year 2021. Differentiated LNG reloading tariff was set based on size of LNG cargos to be reloaded (general tariff 1.11 EUR/MWh in 2020): • Small scale cargos up to 15,000 m3 LNG – 0.53 EUR/MWh; • Medium scale cargos from 15,000 up to 50,000 m3 LNG – 0.41 EUR/MWh; • Large scale cargos from 50,000 m3 LNG – 0.30 EUR/MWh. • LNG regasification service price fixed cap is being adjusted on yearly basis. Sales of goods Revenues from sales of goods are recognised upon delivery and transfer of risks of products and customer acceptance. Interest income Interest income is recognised in profit (loss) on accrual basis (using the effective interest rate method). Dividend income Dividend income represents gross dividends from investment and recognised when the shareholder’s rights to receive payment is established. Rent income Rent income is recognised over the lease term on a straight-line basis. Income from fines and penalties Income from fines and penalties is recognized when the Company has evidence that fines and penalties will be received and the probability that it would not be received is low or when money is already received. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 23 2 ACCOUNTING PRINCIPLES (CONT’D) 2.23. Expenses recognition Expenses are recognised based on accrual and revenue and expense matching principles in the reporting period when the income related to these expenses was earned, irrespective of the time the money was spent. In those cases when the costs incurred cannot be directly attributed to the specific income and they will not bring income during the future periods, they are expensed as incurred. The amount of expenses is usually accounted for as the amount paid or due, excluding VAT. In the cases when a long period of payment is established and the interest is not distinguished, the amount of expenses shall be estimated by discounting the amount of payment using the market interest rate. 2.24. Impairment of non-financial assets The Group and the Company reviews at least at each reporting date the carrying amounts of non-financial assets, excluding inventories and deferred income tax assets, to assess whether an indication of impairment exists. If such indication exists, the Company estimates the asset’s recoverable amount. Non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that carrying amount of an asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised in the profit (loss). 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. The reversal is accounted in the same caption of the profit (loss) as the impairment loss. Recoverable amount of an asset or cash-generating unit is its value in use or fair value less costs to sell depending on which is greater. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For impairment testing the asset that cannot be assessed individually is grouped into the minimum asset’s group generating cash inflows during continuous use and that is independent from other asset or asset’s groups generating cash flows (cash generating unit or CGU). Where the carrying amount of an asset exceeds its recoverable amount the impairment loss is recognised in the profit (loss). Impairment losses related to the value of CGU are proportionally attributed to decrease the carrying amount of the asset, prescribed to the unit (unit group). Previously recognised impairment losses are reversed only if there is any indication that such losses no longer exist or have decreased. The reversal is limited so that the carrying amount of the asset does not exceed the carrying amount that would have been determined net of depreciation or amortisation had no impairment loss been recognised for the asset in prior years. The reversal is accounted in the same caption of the profit (loss) as the impairment loss. 2.25. Use of estimates and judgements The preparation of the financial statements in accordance with IFRS as adopted by the EU, requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from the estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively. Significant accounting judgements Information about judgements made in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is included in the following notes: - Lease term: whether the Group and the Company is reasonably certain to exercise the option to purchase FSRU (Note 14) - Provision for acquisition of emission allowances (Note 16); - The deferred tax (Note 23). Assumptions and estimation uncertainties Information about assumptions and estimation uncertainties as at 31 December 2021 that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities in the next financial year is included in the following notes: - Impairment evaluation of property, plant and equipment and right of use asset: key assumptions underlying recoverable amounts of identified cash generating units (Note 3); - Useful life of property, plant and equipment and intangible assets (Note 3); - Residual value and useful life of FSRU (Note 3); - Impairment evaluation of investments to subsidiaries: key assumptions underlying recoverable amounts (Note 5); - Net realisable value of inventory (Note 6) - Assessment of expected credit losses and impairment losses on receivable amounts: key assumptions determining the impairment allowance (Note 7); AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 24 2 ACCOUNTING PRINCIPLES (CONT’D) 2.25. Use of estimates and judgements (cont’d) - Recognition of deferred tax assets: availability of future taxable profit against which deductible temporary differences and tax losses carried forward can be utilized (Note 23); - Measurement of non-current employee benefits: key actuarial assumptions (Note 13); - Recognition and measurement of provisions and contingencies: key assumptions about the likelihood and magnitude of an outflow of resources (Note 27). 2.26. 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. A contingent asset is not recognised in the financial statements but disclosed when an inflow of economic benefits is probable. 2.27. Financial guarantee contracts Financial guarantee contracts issued by the Company are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount recognised less cumulative amortisation. 2.28. Subsequent events Subsequent events that provide additional information about the Company’s position at the date of the statement of financial position (adjusting events) are reflected in the financial statements. Subsequent events that are not adjusting events are disclosed in the notes if material (Note 29). 2.29. Offsetting When preparing the financial statements, assets, and liabilities, as well as income and expenses are not set off, except the cases when certain International Financial Reporting Standard specifically allows such set-off. 2.30. Fair value Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (Note 26). However, the objective of a fair value measurement in both cases is the same: to estimate the price at which an orderly transaction to sell the assets or to transfer the liability would take place between market participants at the measurement date under current market conditions (i.e., an ultimate price at the measurement date from the perspective of a market participant that holds the asset or owes the liability). In determining the fair value of non-financial assets, market participant’s ability to derive economic benefit from the assets in using it in the highest and best use or selling the asset to another market participant, who would use it according to the highest and best use, is considered. In determining the fair value, a business entity should determine all the following: ▪ the specific assets or liability, the fair value of which is determined (together with the appropriate unit of account); ▪ when non-financial asset is valuated, the valuation assumption, which is fit for the purpose of determining the fair value (along with the corresponding highest and best use of the non-financial asset); ▪ the principal (or most advantageous) market for the assets or liability; ▪ the valuation technique(s) appropriate for the measurement, considering the availability of data with which to develop inputs that represent the assumptions that market participants would use when pricing the asset or liability and the level of the fair value hierarchy within which the inputs are categorised. The objective of using a valuation technique is to estimate the price at which an orderly transaction to sell the assets or to transfer the liability would take place between market participants at the measurement date under current market conditions. Three widely used valuation techniques are the market approach, the cost approach and the income approach. Market approach. A valuation technique that uses prices and other relevant information generated by market transactions involving identical or comparable (i.e., similar) assets, liabilities or a group of assets and liabilities, such as a business. Cost approach. A valuation technique that reflects the amount that would be required currently to replace the service capacity of an asset (often referred to as current replacement cost). AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 25 2 ACCOUNTING PRINCIPLES (CONT’D) 2.30. Fair value (cont’d) Income approach. Valuation techniques that convert future amounts (e.g., cash flows or income and expenses) to a single current (i.e., discounted) amount. The fair value measurement is determined based on the value indicated by current market expectations about those future amounts. Fair value hierarchy. To increase consistency and comparability in fair value measurements and related disclosures, the IFRS 13 establishes a fair value hierarchy that categorises into three levels the inputs to valuation techniques used to measure fair value. Level 1 inputs. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2 inputs. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs. Level 3 inputs are unobservable inputs for the asset or liability. For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Group and the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing classification (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. 3 PROPERTY, PLANT AND EQUIPMENT GROUP Land Buildings and structures Machinery, plant and equipment Other non- current assets Construction in progress Total Acquisition cost Balance as at 31 December 2019 38 163,502 177,677 21,520 34,696 397,433 Acquisitions - 25 157 754 5,913 6,849 Advance payments - - - 7 - 7 Retirements and disposals - - (1,613) (312) - (1,925) Transfers from inventories - - - - 7 7 Reclassification of stock - 18,129 12,669 3,646 (34,444) - Transfers from construction in progress - - - - (134) (134) Transfer to inventory - - - - (82) (82) Effect of foreign currency translation - - (2) (9) - (11) Balance as at 31 December 2020 38 181,656 188,888 25,606 5,956 402,144 Acquisitions - 374 250 613 7,473 8,710 Advance payments - - - - 225 225 Retirements and disposals - (39) (232) (204) - (475) Transfer from construction in progress - 81 185 41 (307) - Transfer from construction in progress to intangible assets - - - - (98) (98) Effect of foreign currency translation - - 1 - - 1 Balance as at 31 December 2021 38 182,072 189,092 26,056 13,249 410,507 Accumulated depreciation and impairment: Balance as at 31 December 2019 - 79,488 97,038 12,871 212 189,609 Depreciation for the year - 4,596 5,990 1,641 - 12,227 Retirements and disposals - - (1,610) (310) - (1,920) Impairment for the year (reversal) - - - - 384 384 Effect of foreign currency translation - - - (1) - (1) Balance as at 31 December 2020 - 84,084 101,418 14,201 596 200,299 Depreciation for the year - 4,308 5,494 1,606 - 11,408 Retirements and disposals - (9) (168) (172) - (349) Impairment for the year (reversal) - 26,796 16,308 1,885 3,473 48,462 Effect of foreign currency translation - - 1 - - 1 Balance as at 31 December 2021 - 115,179 123,053 17,520 4,069 259,821 Net book value as at 31 December 2019 38 84,014 80,639 8,649 34,484 207,824 Net book value as at 31 December 2020 38 97,572 87,470 11,405 5,360 201,845 Net book value as at 31 December 2021 38 66,893 66,039 8,536 9,180 150,686 AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 26 3 PROPERTY, PLANT AND EQUIPMENT (CONT’D) COMPANY Land Buildings and structures Machinery, plant and equipment Other non- current assets Construction in progress Total Acquisition cost Balance as at 31 December 2019 38 163,502 177,677 21,520 34,696 397,433 Acquisitions - 25 123 637 5,913 6,698 Advance payments - - - 7 - 7 Retirements and disposals - - (1,613) (312) - (1,925) Transfers from inventories - - - - 7 7 Reclassification of stock - 18,129 12,669 3,646 (34,444) - Transfers from construction in progress - - - - (134) (134) Transfer to inventory - - - - (82) (82) Balance as at 31 December 2020 38 181,656 188,856 25,498 5,956 402,004 Acquisitions - 374 236 602 7,473 8,685 Advance payments - - - - 225 225 Retirements and disposals - (39) (232) (204) - (475) Transfer from construction in progress - 81 185 41 (307) - Transfer from construction in progress to intangible assets - - - - (98) (98) Balance as at 31 December 2021 38 182,072 189,045 25,937 13,249 410,341 Accumulated depreciation and impairment: Balance as at 31 December 2019 - 79,488 97,038 12,871 212 189,609 Depreciation for the year - 4,596 5,987 1,629 - 12,212 Retirements and disposals - - (1,610) (310) - (1,920) Impairment for the year (reversal) - - - - 384 384 Balance as at 31 December 2020 - 84,084 101,415 14,190 596 200,285 Depreciation for the year - 4,308 5,486 1,584 - 11,378 Retirements and disposals - (9) (168) (172) - (349) Impairment for the year (reversal) - 26,796 16,308 1,885 3,473 48,462 Balance as at 31 December 2021 - 115,179 123,041 17,487 4,069 259,776 Net book value as at 31 December 2019 38 84,014 80,639 8,649 34,484 207,824 Net book value as at 31 December 2020 38 97,572 87,441 11,308 5,360 201,719 Net book value as at 31 December 2021 38 66,893 66,004 8,450 9,180 150,565 The Group’s and the Company’s depreciation of property, plant and equipment amounts to EUR 11,408 thousand and EUR 11,378 thousand for the year 2021, respectively (EUR 12,227 and 12,212 thousand – in 2020). In 2021 the depreciation EUR 348 thousand was reduced by amortisation of related grant (EUR 394 thousand – in 2020). EUR 11,199 thousand and EUR 11,169 thousand of depreciation charge has been included into cost of sales of the Group and the Company, respectively (EUR 11,955 and 11,940 thousand – in 2020). The remaining amount EUR 209 thousand (EUR 272 thousand – in 2020) has been included into operating expenses in the Statement of comprehensive income of both, the Group and the Company. Part of the Group’s and the Company’s property, plant and equipment with the acquisition cost of EUR 40,537 thousand as at 31 December 2021 was completely depreciated (EUR 40,019 thousand on 31 December 2020), however, it was still in operation. The Group’s and the Company‘s property, plant and equipment attributed to Liquefied natural gas terminal (net book value amounted to EUR 43,353 thousand) was pledged to the Ministry of Finance of Republic of Lithuania for the state guarantee, given to European Investment Bank (hereinafter – EIB) and Nordic Investment Bank (hereinafter – NIB) as at 31 December 2021 (net book value amounted to EUR 43,274 thousand as at 31 December 2020). The Group’s and the Company's property, plant and equipment attributed to Subačius oil terminal, with net book value amounting to EUR 4,483 thousand, was pledged to the Ministry of Finance of the Republic of Lithuania for the state guarantee, given to NIB as at 31 December 2021 (net book value of pledged property, plant and equipment amounted to EUR 4,807 thousand as at 31 December 2020). The management of the Group and the Company has assessed the internal and external indications of impairment for property, plant and equipment as at 31 December 2021 and 31 December 2020: - Analysis showed that there were impairment indications of property, plant and equipment attributed to LNG reloading station as at 31 December 2020 due to loss making activities. The estimated recoverable amount of the assets exceeded carrying amount as at 31 December 2020. - Due to uncertainty in regional LNG market development and LNG reloading station operation extent after the end of long-term capacity rent agreement the management of the Group and the Company performed an impairment test as at the end of the year 2021. Based on the results of the test no impairment were recognised as at 31 December 2021. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 27 3 PROPERTY, PLANT AND EQUIPMENT (CONT’D) - Net book value of property, plant and equipment and right of use asset attributed to LNG reloading station amounted to EUR 24,787 thousand as at 31 December 2021 (EUR 26,336 thousand as at 31 December 2020); - As at 31 August 2021 the management of the Group and the Company identified that there are indications that property, plant and equipment and right-of-use asset attributed to oil terminal (OT) segment in Klaipėda might be impaired. Accordingly, impairment loss was recognised as of this date as described below. As at 31 December 2021 no indications for additional impairment (or reversal of the recognised) were identified. Net book value of assets attributed to OT segment amounted to EUR 91,024 thousand as at 31 December 2021 (EUR 140,329 thousand as at 31 December 2020). Impairment of property, plant and equipment and right of use asset attributed to Klaipėda oil terminal assets During 2021, the Group’s and the Company’s management carried out an impairment test in order to determine whether Klaipėda oil terminal CGU’s recoverable amount may differ from its carrying amount. The recoverable amount of CGU has been determined at the higher of an asset's fair value less costs of disposal and its value in use. Independent valuator carried out fair value less cost of disposal valuation of Klaipėda oil terminal CGU as of 31 August 2021. Based on the impairment testing procedures performed it was identified that the value in use is higher and set as a recoverable amount. Main indicators for performing impairment test and reassessing possible impairment indications within the Group and the Company are related to a complex of risks that have materialized throughout the year and are expected to significantly impact future cashflows of CGU of Klaipėda oil terminal: - Due to sanctions to Belarus introduced by Council Regulation (EU) 2021/1030 of 24th June 2021 no more transit of oil products flows from Belarus are possible and not expected in the future. - KN client AB Orlen Lietuva plans to invest into deeper crude oil processing. Implementation of mentioned project would enable client to refine higher portion of lighter petroleum products to replace high-sulphur residue products, which currently makes a signification portion of oil products, transshipped via Klaipėda oil terminal. Subsequently after occurrence of the abovementioned events, the Management of the Group and the Company has revised the projections of future cash flows of Klaipėda oil terminal. Value-in-use assessment cash-flow projections were based on the long-term financial plan and assumptions that were aligned with the Group’s and the Company’s Board in August 2021. CGU’s cash-flows were projected for the period of 2022-2047 based on estimated remaining useful life of key assets. Additionally, segment is operating in asset-heavy and stable industry, relying on long-term contracts, allowing to execute long term cash flow projections. Overall oil product transshipment was expected to increase by 9 percent by 2025, compared to quantity forecasted for 2021, and drop by 23 percent after expected implementation of AB Orlen Lietuva investment. Oil product transshipment during the period of 2027-2030 was expected to remain at the similar level and start gradually decreasing by on average 1.7 percent p.a. afterwards. Oil product storage income was expected to increase by approx. 22 percent by 2023, relative to the amount forecasted for 2021, further increase by 26 percent in 2026 and grow steadily by 2 percent afterwards, mainly due to indexed growth rates. Restorative and maintenance investments into Klaipėda oil terminal assets were assumed to reach EUR 55,061 thousand during the forecasted period. Cash flows up to 2026, used in the assessment, were projected based on the assumption made by the management that AB Orlen Lietuva investment would be finished till that date, significantly impacting scope of CGU activity and cash flows in subsequent periods. Operating assumptions used in cash flow calculations are projected based on global oil market forecast from the year 2030, meanwhile, income and expense assumptions for the remaining periods are projected based on 2% growth rate, which is aimed inflation target in order to maintain price stability over the medium term, according to the decision of ECB Governing Council in July 2021. To determine the value in use of CGU, future pre-tax cash flows are calculated and discounted with a pre-tax discount rate that represents current market valuation of time value of money as well as the significant risks allocated to related assets. The discount rate was calculated as the weighted average cost of capital using data of a selected peer group of companies, as well as other commonly used indicators such as – risk-free rate of Lithuanian government bonds, country risk premium, corporate credit spread and effective tax rate that reflects market that CGU is generally based in. To reflect risks and uncertainty arising from the Company’s business environment, additional risk premium of 1.3% was estimated and added directly to pre-tax WACC estimate. Accordingly, the estimate of value in use was determined using a pre-tax discount rate of 6.65 % (31 December 2020 – 5.8%). As a result of impairment testing carried out as at 31 August 2021 for Klaipėda oil terminal CGU, the impairment loss of EUR 54,206 thousand for the CGU’s assets with the carrying amount of EUR 139,326 thousand as of that date was recognized and allocated as follows: Impairment loss recognized in the statement of comprehensive income attributed to the assets during 2021 Property, plant and equipment and intangible assets (45,049) Construction in progress (3,342) Right-of-use assets (5,815) (54,206) AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 28 3 PROPERTY, PLANT AND EQUIPMENT (CONT’D) Sensitivity analysis of Klaipėda oil terminal assets value in use within an impairment test carried out as of 31 August 2021 The major elements impacting the amount of the value in use of Klaipėda oil terminal assets within the individual CGU are income generated from terminal operation and the discount rate applied. The sensitivity of changes of the elements mentioned above on the impairment are presented below. Reversal of impairment loss / (additional impairment loss) Change in discount rate -1.0 p.p. -0.5 p.p. 0.0 p.p. +0.5 p.p. +1.0 p.p. Change in income projection (other assumptions held constant) (10.0)% (21,178) (25,188) (28,896) (32,329) (35,510) (5.0)% (5,221) (10,015) (14,448) (18,552) (22,357) 0.0% 10,735 5,158 - (4,776) (9,203) 5.0% 26,691 20,331 14,448 9,001 3,950 10.0% 42,648 35,504 28,896 22,777 17,104 The Group and the Company has additionally assessed annual investments and income level from key client as major elements impacting value in use of Klaipėda oil terminal assets. Under the base scenario EUR 55,061 thousand of capital investments are assumed during the valuation period. It is estimated that a 10 percent proportional increase in annual capital expenditure would result in additional impairment of EUR 3,529 thousand, meanwhile, a 10 percent decrease would result in lower impairment by EUR 3,529 thousand. In case of reloading quantities from main client would not significantly change from 2026 EUR 19,180 thousand positive impact to value in use would be identified. Future financial projections are based on several assumptions, a part of which concern macroeconomic factors such as: commodity prices, regional and global market demands, global oil business development will remain beyond the control of the Group and the Company. Changes in mentioned assumptions can affect impairment test results of non-current assets and may result to changes in the financial position and financial results of the Group and the Company. Accordingly, the CGU of Klaipėda oil terminal remains very sensitive to further impairment losses (or reversal of impairment losses) in the future reporting periods. Separately from major impairment recognition in 2021, the Group and the Company accounted impairment of EUR 214 thousand for the construction in progress (in 2020 the Group and the Company reviewed property, plant and equipment and accounted impairment of EUR 384 thousand). The impairment of such non-current asset items was included into operating expenses in the Statement of comprehensive income during the year 2021 and 2020. The management has not identified any indications, that the remaining property, plant and equipment as at 31 December 2021 and 31 December 2020 might be impaired. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 29 3 PROPERTY, PLANT AND EQUIPMENT (CONT’D) Right-of-use assets GROUP Land Buildings and structures Machinery, plant and equipment Other non- current assets Total Acquisition cost Balance as at 31 December 2019 21,042 732 392,961 43 414,778 Acquisitions / disposals 378 233 - 1 612 Balance as at 31 December 2020 21,420 965 392,961 44 415,390 Acquisitions / disposals 1,172 100 74 1 1,347 Balance as at 31 December 2021 22,592 1,065 393,035 45 416,737 Accumulated depreciation and impairment: Balance as at 31 December 2019 556 315 43,015 20 43,906 Depreciation for the year 554 323 13,535 19 14,431 Balance as at 31 December 2020 1,110 638 56,550 39 58,337 Depreciation for the year 510 274 13,539 6 14,329 Impairment for the year (reversal) 5,759 45 11 - 5,815 Balance as at 31 December 2021 7,379 957 70,100 45 78,481 Net book value as at 31 December 2019 20,486 417 349,946 23 370,872 Net book value as at 31 December 2020 20,310 327 336,411 5 357,053 Net book value as at 31 December 2021 15,213 108 322,935 - 338,256 COMPANY Land Buildings and structures Machinery, plant and equipment Other non- current assets Total Acquisition cost Balance as at 31 December 2019 21,042 732 392,961 43 414,778 Acquisitions / disposals 378 233 - 1 612 Balance as at 31 December 2020 21,420 965 392,961 44 415,390 Acquisitions / disposals 1,172 71 74 1 1,318 Balance as at 31 December 2021 22,592 1,036 393,035 45 416,708 Accumulated depreciation and impairment: Balance as at 31 December 2019 556 315 43,015 20 43,906 Depreciation for the year 554 323 13,535 19 14,431 Balance as at 31 December 2020 1,110 638 56,550 39 58,337 Depreciation for the year 510 269 13,539 6 14,324 Impairment for the year (reversal) 5,759 45 11 - 5,815 Balance as at 31 December 2021 7,379 952 70,100 45 78,476 Net book value as at 31 December 2019 20,486 417 349,946 23 370,872 Net book value as at 31 December 2020 20,310 327 336,411 5 357,053 Net book value as at 31 December 2021 15,213 84 322,935 - 338,232 The Group’s and the Company’s depreciation of right-of-use asset amounts to EUR 14,329 thousand and EUR 14,324 thousand for the year 2021, respectively (EUR 14,431 thousand in 2020). EUR 14,052 thousand of depreciation charge has been included into cost of sales of both, the Group and the Company (EUR 14,096 thousand in 2020) and the remaining amount of EUR 277 thousand and EUR 272 thousand has been included into operating expenses in the Statement of comprehensive income of the Group and the Company, respectively (EUR 335 thousand in 2020). Since right of use assets do not generate separate cash flow, the management of the Group and the Company has assessed the internal and external indications of impairment of right-of-use assets along with other tangible assets as common CGU as at 31 December 2021 and 31 December 2020. The impairment related to Klaipėda oil terminal business segment for EUR 5,815 thousand accounted as at 31 December 2021 and has been included into operating expenses in the Statement of comprehensive income of both, the Group and the Company. The management did not identify impairment of the right-of-use assets as at 31 December 2020. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 30 4 INFORMATION ABOUT SEGMENTS The management of the Group and the Company has identified the following segments: • LNGT – LNG terminal in Klaipėda which receives and stores liquefied natural gas, regasifies and supplies it to Gas Main pipeline; • OT – Oil terminal in Klaipėda and Subačius oil terminal in Kupiškis who are providing oil products transhipment, services of long-term storage of oil products and other services related to oil products transhipment; • comLNG – LNG commercial activities - includes LNG reloading station and execution of other LNG projects. The Group includes its investments in subsidiaries and associates to the specific segments according to which activities these entities are involved in: UAB SGD logistika, UAB SGD SPB and KN Açu Servicos de Terminal de GNL LTDA – comLNG, UAB SGD terminalas – LNGT, BALTPOOL UAB and Sarmatia Sp. z. o. o. – OT. As at 31 December 2021, there were three customers each of which generated revenues exceeding 10% of total Company’s revenues and in total amounted to EUR 45,079 thousand: Customer A – EUR 27,732 thousand (LNGT segment); Customer B – EUR 12,841 thousand (OT segment); Customer C – EUR 4,506 thousand (OT segment). As at 31 December 2020, there were three customers each of which generated revenues exceeding 10% of total Company’s revenues and in total amounted to EUR 56,901 thousand: Customer A – EUR 35,731 thousand (LNGT segment); Customer B – EUR 10,806 thousand (OT segment); Customer C – EUR 10,364 thousand (OT segment). Main indicators of the segments of the Company included in the statement of comprehensive income and statement of financial position for the financial year 2021 and 2020 are described below: Group For the year ended 31 December 2021 LNGT OT comLNG Total Revenues from contracts with customers 34,831 21,427 5,553 61,811 Profit (loss) before income tax (20,584) (55,700) 517 (75,767) Segment net profit (loss) (16,510) (47,563) 62 (64,011) Interest revenue - 13 - 13 Loan interest expense 481 - - 481 Interest on financial lease liabilities 1,484 303 13 1,800 Depreciation and amortisation 3,172 6,737 1,408 11,317 Depreciation of right-of-use-assets 13,745 464 120 14,329 Write-off of non-current assets - 19 - 19 Impairment of non-current asset (reversal) - 54,338 - 54,338 Acquisitions of tangible and intangible assets 210 8,764 97 9,071 Segment total assets 377,049 106,872 26,643 510,564 Loan and related liabilities 119,985 (20) (42) 119,923 Lease liabilities 270,594 14,872 1,639 287,105 Segment total liabilities 398,655 20,782 7,931 427,368 For the year ended 31 December 2020 LNGT OT comLNG Total Revenues from contracts with customers 43,395 31,414 5,305 80,114 Profit (loss) before income tax 37,443 6,945 (549) 43,839 Segment net profit (loss) 29,169 5,812 (1,023) 33,958 Interest revenue 9 44 - 53 Loan interest expense 349 - - 349 Interest on financial lease liabilities 1,737 309 9 2,055 Depreciation and amortisation 3,313 7,253 1,559 12,125 Depreciation of right-of-use-assets 13,752 567 112 14,431 Write-off of non-current assets - 5 - 5 Impairment of non-current asset (reversal) - 384 - 384 Acquisitions of tangible and intangible assets 156 6,423 405 6,984 Segment total assets 394,341 154,827 27,450 576,618 Loan and related liabilities 96,572 (20) (42) 96,510 Lease liabilities 289,798 15,432 389 305,619 Segment total liabilities 406,923 22,299 6,146 435,368 Segment total assets - total assets of the Group, excluded Cash and cash equivalents and short-term deposits at the period end. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 31 4 INFORMATION ABOUT SEGMENTS (CONT’D) Reconciliation of information on reportable segments to the amounts reported in the financial statements I. Revenues 2021 2020 Total revenues for reportable segments 61,811 80,114 Consolidated revenue 61,811 80,114 II. Profit (loss) before tax 2021 2020 Total profit (loss) before tax for reportable segments (75,767) 43,839 Consolidated profit (loss) before tax from continuing operations (75,767) 43,839 III. Net profit (loss) 2021 2020 Total net profit (loss) for reportable segments (64,011) 33,958 Consolidated net profit (loss) (64,011) 33,958 IV. Interest on financial lease liabilities 2021 2020 Total interest on financial lease liabilities for reportable segments 1,800 2,055 Consolidated interest on financial lease liabilities 1,800 2,055 V. Depreciation and amortization 2021 2020 Total depreciation and amortization for reportable segments 11,317 12,125 Consolidated depreciation and amortization 11,317 12,125 VI. Depreciation of ROU assets 2021 2020 Total depreciation of ROU assets for reportable segments 14,329 14,431 Consolidated depreciation of ROU assets 14,329 14,431 VII. Acquisitions of tangible and intangible assets 2021 2020 Total acquisitions of tangible and intangible assets for reportable segments 9,071 6,984 Consolidated acquisitions of tangible and intangible assets 9,071 6,984 VIII. Assets 2021 2020 Total assets for reportable segments 510,564 576,618 Consolidated total assets 510,564 576,618 IX. Loan and related liabilities 2021 2020 Total loan and related liabilities for reportable segments 119,923 96,510 Consolidated loan and related liabilities 119,923 96,510 X. Lease liabilities 2021 2020 Total lease liabilities for reportable segments 287,105 305,619 Consolidated financial lease liabilities 287,105 305,619 XI. Liabilities 2021 2020 Total liabilities for reportable segments 427,368 435,368 Consolidated total liabilities 427,368 435,368 Segment total assets - total assets of the Company, excluding Cash and cash equivalents and short-term deposits at the period end. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 32 4 INFORMATION ABOUT SEGMENTS (CONT’D) The Group’s and Company’s customers are both Lithuanian and foreign. Sales revenue by geography is as follows: Majority of property, plant and equipment is located in Lithuania and only less than 1% - in Brazil. 5 INVESTMENT IN SUBSIDIARIES The Company 31-12-2021 31-12-2020 Cost of shares of UAB SGD logistika 4,540 4,540 Cost of shares of UAB SGD terminalas 38 13 4,578 4,553 The Company indirectly controls subsidiaries UAB SGD SPB and KN Açu Servicos de Terminal de GNL LTDA. UAB SGD logistika UAB SGD logistika was established by AB Klaipėdos nafta acquiring 100% of shares. The subsidiary was registered on 20 November 2015. The main activity – expansion of operation of international LNG terminal activities, LNG transportation activities, other economic activities. The authorised capital of UAB SGD logistika is equal to EUR 4,540 thousand and is divided into 4,540 thousand units of shares, which grant 4,540 thousand votes. Nominal value per share – EUR 1.00. As KN has been appointed as the operator of a liquefied natural gas (LNG) terminal in the Brazilian Port of Açu, on 13th of December 2019, UAB SGD logistika together with UAB SGD SPB established KN Acu Servicos de Terminal de GNL LTDA. As to the long-term contract with Gas Natural Açu (GNA), KN, through its subsidiary, assumes the responsibility for the provision of safe, reliable and efficient operations, including maintenance of the jetty and its installations, gas pipeline and gas metering stations as well as supporting the commissioning of the LNG Terminal. The management of the Company has assessed indications of impairment of investment to subsidiary 31 December 2021 and 31 December 2020, assessment showed, that investment to subsidiary might be impairment. As at 31 December 2021, the Company performed the impairment test of investment to subsidiary UAB SGD logistika by comparing discounted future cash flows forecasted for the project, implemented by established KN Açu Serviços de Terminal de GNL Ltda to carrying value of investment. Impairment test was prepared for the period until the year 2033, as to initial 13-year agreement with GNA. The main assumptions used to perform the test were income level, which is based on different main project phases and agreed in the long-term contract, possible operating costs, which were estimated based on actual LNG terminal operation business activity expenses and adjusted as to local inflation and discount rate, estimated as weighted average cost of capital (WACC) of Brazil market that as at 31 December 2021 was assumed to be 8.9% (as at 31 December 2020 was assumed to be 11.3%). Based on impairment test results no impairment should be recognized for investment to UAB SGD logistika as at 31 December 2021. Unaudited financial position of UAB SGD logistika is as follows: UAB SGD logistika 2021 2020 Non-current assets 151 151 Current assets 4,012 3,893 Non-current liabilities - - Current liabilities 1 1 Equity 4,162 4,043 Unaudited comprehensive income of UAB SGD logistika is, as follows: UAB SGD logistika 2021 2020 Income 154 26 (Expenses) (34) (4) Profit (loss) 120 22 Group Company 2021 2020 2021 2020 Lithuanian clients 53,272 59,050 53,272 59,050 Foreign clients 8,539 21,064 5,361 18,424 61,811 80,114 58,633 77,474 AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 33 5 INVESTMENT IN SUBSIDIARIES (CONT’D) UAB SGD terminalas The subsidiary of AB Klaipėdos nafta – UAB SGD terminalas (Burių str. 19, 92276 Klaipėda, 304139242) was established and registered on 27 December 2018. UAB SGD terminalas objective is to perform activities of operating and managing a whole structure of LNG terminal in Klaipėda. The subsidiary is currently inactive. In 2021 the share capital of subsidiary was increased by EUR 25 thousand. Unaudited financial position of UAB SGD terminalas is as follows: UAB SGD terminalas 2021 2020 Non-current assets - - Current assets 27 6 Non-current liabilities - - Current liabilities - - Equity 27 6 Unaudited comprehensive income of UAB SGD terminalas is, as follows: UAB SGD terminalas 2021 2020 Income - - (Expenses) (4) (3) Profit (loss) (4) (3) 6 INVENTORIES Group Company 31-12-2021 31-12-2020 31-12-2021 31-12-2020 Diesel fuel for the LNG Terminal purpose 234 269 234 269 Oil products for sale 23 499 23 499 Liquefied natural gas 47 48 47 48 Fuel for transport and other equipment 48 39 48 39 Spare parts, construction materials and other inventories 1,446 1,560 1,444 1,542 Total inventories 1,798 2,415 1,796 2,397 No write down to net realisable value accounted as at 31 December 2021 and 31 December 2020. In 2021 the Group and the Company recognised inventories for EUR 3,153 thousand (in 2020: EUR 2,143 thousand) in cost of sales and EUR 30 thousand in operating expenses (in 2020: EUR 24 thousand). Inventories recognised as costs during the year were included into following captions under costs of sales and operating expenses: 2021 2020 Natural gas 2,119 1,449 Oil products 599 - Repair and maintenance of assets 205 358 Services for tankers 136 139 Work safety costs 53 142 Transport 40 34 Tax on environmental pollution - 19 Other 1 2 Total recognised as cost of sales 3,153 2,143 Expenses for transport 20 20 Donations - 3 Other 10 1 Total recognised as operating expenses 30 24 AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 34 7 TRADE RECEIVABLES AND OTHER RECEIVABLES Group Company 31-12-2021 31-12-2020 31-12-2021 31-12-2020 Trade receivable 9,411 9,551 8,939 9,167 Prepayments 553 391 523 371 Other receivables 1,679 704 1,174 403 11,643 10,646 10,636 9,941 Trade and other receivables are non-interest bearing and are generally settled on 6 - 15 days payment terms. Trade receivable disclosed below: Group Company 31-12-2021 31-12-2020 31-12-2021 31-12-2020 Receivables from LNG terminal activities 7,435 8,126 7,435 8,202 Receivables for transhipment of oil products and other related services 2,902 3,187 2,902 3,187 Receivable for operating and management services 585 460 113 - Less: impairment allowance (1,511) (2,222) (1,511) (2,222) 9,411 9,551 8,939 9,167 Group Company 31-12-2021 31-12-2020 31-12-2021 31-12-2020 Receivables from third-party customers 2,067 2,133 1,580 1,674 Receivables from related parties (Note 28) 7,344 7,418 7,359 7,493 9,411 9,551 8,939 9,167 The Group and the Company has recognized impairment allowance in the amount of EUR 1,511 thousand on 31 December 2021 (EUR 2,222 thousand on 31 December 2020). Change in allowance (reverse) for trade receivables for 2021, amounting to EUR (711) thousand (for 2020 – EUR 1,494 thousand) has been included into operating expenses in the statement of the comprehensive income. A part of impaired trade receivables were covered by paying back or taking over the client’s surplus of fuel oil – total covered amount EUR 122 thousand. Remaining part was reversed after credit invoices to two clients were issued by the decision of the management. Movements in the allowance for impairment in respect of trade receivables The movement in the allowance for impairment in respect of trade receivables during the year was as follows: Group and Company 31-12-2021 31-12-2020 Balance at 1 January 2,222 728 Impairment of the year - 1,817 Reversal of impairment (711) (323) Balance at 31 December 1,511 2,222 The age analysis of trade receivables of the Group and the Company as at 31 December 2021 and 2020 is as follows: Group Trade neither past due nor impaired Trade receivables past due but not impaired Total Less than 30 days 30 – 59 days 60 – 89 days 90 – 359 days More than 360 days 2021 5,341 2,770 1,300 - - - 9,411 2020 5,845 3,530 176 - - - 9,551 AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 35 7 TRADE RECEIVABLES AND OTHER RECEIVABLES (CONT’D) Company Trade neither past due nor impaired Trade receivables past due but not impaired Total Less than 30 days 30 – 59 days 60 – 89 days 90 – 359 days More than 360 days 2021 4,869 2,770 1,300 - - - 8,939 2020 5,461 3,530 176 - - - 9,167 Accounts receivable impairment losses are usually recognized on an individual basis after the delay of payment in according to overdue payment. All receivable amounts from the liquefied natural gas terminal services are pledged to UAB Hoegh LNG Klaipėda for 10 years period (agreement concluded on 2 March 2012, Note 27). Other receivables disclosed below: Group Company 31-12-2021 31-12-2020 31-12-2021 31-12-2020 VAT receivable 820 151 820 151 Other receivable taxes (1) 505 284 - - Excise duty receivable 354 216 354 216 Receivable grant - 16 - 16 Other receivables - 37 - 20 Total 1,679 704 1,174 403 (1) Other receivable taxes related to subsidiary KN Acu Servicos de Terminal de GNL Ltda receivable social security taxes (INSS). Any employee on a Brazilian payroll is subject to social security contributions. According to the current legislation, the monthly social security contribution in Brazil is due on the total amount of the remuneration at rates of 7.5% up to 14%. 8 CONTRACT ASSETS The Group and the Company 31-12-2021 31-12-2020 Non-current contract assets: Accrued rent income (1) - 349 - 349 Current contract assets: Accrued rent income (1) 349 624 Accrued income (2) 263 687 612 1,311 (1) As at 31 December 2021 and 31 December 2020 contract assets amounts long-term rent revenue accrual arising from Subačius fuel storage reservoirs rent agreement. Subačius fuel storage reservoirs rent agreement signed with the Lithuanian petroleum products Agency in 2012 for the duration of 10 years is treated. The rent tariffs are different for the first 5 years and for the remaining period. Therefore, the income is recognized on a straight-line basis over the term of an agreement, i.e., the income is calculated on average tariff of all agreement term (10 years), balances as at 31 December 2021 and 2020 respectively amounted to EUR 349 thousand and EUR 973 thousand. As at 31 December 2021 total amount of the accrued income is presented under short-term contract assets (EUR 624 thousand as at 2020). In 2021 accrued income from Subačius fuel storage reservoirs rent reduced by EUR 624 thousand (for 2020 – EUR 565 thousand). (2) Accrued income for storage of oil products as at 31 December 2021 and 31 December 2020 calculated as percentage of completion based on expenses incurred from the total estimated cost of contracted services. Upon completion of transhipment of oil products and acceptance by the customer, the amounts initially recognized as contract assets are reclassified as trade receivables. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 36 9 SHORT TERM DEPOSITS The Group and the Company 31-12-2021 31-12-2020 Short-term bank deposits at the commercial banks - 24,000 As at 31 December 2021 the Group and the Company had no deposits at banks. As at 31 December 2020, the Group and the Company had 6 term deposits at banks, amounted to EUR 24,000 thousand, with maturity of more than 3 months. Annual interest rate was 0.07% for all 6 agreements signed. 10 OTHER FINANCIAL ASSETS Group Company 31-12-2021 31-12-2020 31-12-2021 31-12-2020 Excise duty guarantee receivable 3,271 1,271 3,271 1,271 Receivable from SEB bank - 594 - 594 Derivatives - 33 - 33 Total 3,271 1,898 3,271 1,898 In 2020 the Group and the Company paid a guarantee to the Excise Administration Department for tax which may arise from the movement of excise goods under suspension of excise duty. The additional excise duty guarantee paid in September 2021 for the amount of EUR 2,000 thousand. The guarantee agreement is without a fixed term. In 2020 the Group and the Company signed a performance guarantee agreement with SEB bank by depositing amount of USD 729 thousand in favour of Brazil subsidiary’s KN Açu Serviços de Terminal de GNL Ltda. client UTE GNA I GERACAO DE ENERGIA S.A. As of 1 January 2021, the amendment signed to reduce the guarantee amount to USD 665 thousand, the deposit was returned and guarantee issued from the Company’s credit limit. The maturity term of guarantee agreement was 31 December 2021. 11 CASH AND CASH EQUIVALENTS Group Company 31-12-2021 31-12-2020 31-12-2021 31-12-2020 Cash at banks 61,517 51,076 57,148 47,433 Cash and cash equivalents are not pledged as at 31 December 2021 and 31 December 2020. Calculated values of cash and cash equivalents are denominated in the following currencies showed in EUR: Group Company Currency 31-12-2021 31-12-2020 31-12-2021 31-12-2020 EUR 60,827 46,347 57,145 43,133 USD 3 4,300 3 4,300 BRL 687 429 - - 61,517 51,076 57,148 47,433 Management of the Group and the Company considered potential impairment losses on cash held in banks as per IFRS 9 requirements. Assessment is based on official Standard & Poor’s long–term credit ratings: Group Company 31-12-2021 31-12-2020 31-12-2021 31-12-2020 A+ 6,061 7,246 2,379 4,032 AA- 27,337 34,717 27,337 34,717 BBB+ 27,432 8,684 27,432 8,684 BB- 687 429 - - 61,517 51,076 57,148 47,433 Based on management’s assessment performed and best estimate cash and its equivalents are presented at fair value and no indications of cash impairment exist as at 31 December 2021 and 31 December 2020. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 37 12 ISSUED CAPITAL AND RESERVES As of 11 January 2021, a new version of the Company's Articles of Association was registered within the Register of Legal Entities of the Republic of Lithuania following the decrease of the authorised capital of the Company, which is now equal to EUR 110,315,009.65 and divided into 380,396,585 units of shares, which grant 380,396,585 votes. The Ministry of Finance of the Republic of Lithuania granted the Company permission to decrease the authorised capital of the Company by cancelling 655,808 units of Company’s acquired own shares which each nominal value EUR 0.29. All shares are paid. 72.47% of the shares (275,687,444 shares) are owned by the State of Lithuania, represented by the Ministry of Energy. The Company has not acquired any own shares and has arranged no deals regarding acquisition or transfer of its own shares during the year 2021 and 2020. A legal reserve is a compulsory reserve under Lithuanian legislation. Annual transfers of not less than 5% of net profit, calculated in accordance with International Financial Reporting Standards, are compulsory until the reserve reaches 10% of the share capital. The legal reserve is fully formed as at 31 December 2021. Other (distributable) reserves are formed based on the decision of the General Shareholders’ Meeting on profit distribution. These reserves can be used only for the purposes approved by the General Shareholders’ Meeting. The largest portion of the Company’s other reserves are formed for investments. 13 NON-CURRENT EMPLOYEE BENEFITS Provisions for non-current employee benefits represent payable amounts calculated in accordance with the Lithuanian laws. Each employee at retirement age is entitled to receive a payment of 2-6 monthly salaries upon retirement. As at 31 December 2021 and 31 December 2020 the Company and the Group has recognised employee benefits related to the length of service of employees, which is described in collective agreement. Depending on time spent in the Company, the employer is entitled to a higher benefit payment than the one prescribed by the law. As at 31 December 2021 and 31 December 2020, the Company and the Group reclassified a portion of non-current employee benefits under short term liabilities. On 31 December 2021 the liabilities related to the defined benefit obligations to the employees terminating the employment on the normal retirement date were EUR 756 thousand (EUR 675 thousand – in 2020) as follows: Group and Company 2021 2020 Start of period 675 281 Calculated per year 99 435 Paid per year (18) (41) End of period 756 675 Current 49 43 Non-current 707 632 The main preconditions applied to assess long-term employee benefit liability are presented below: Group and Company 31-12-2021 31-12-2020 Discount rate 0.11% 0.22% Staff turnover rate 8.30% 6.50% Future salary increases 4.80% 2.80% AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 38 14 LOANS AND LEASE LIABILITIES Loans The Group and the Company 31-12-2021 31-12-2020 Nordic Investment Bank’s loan (b, c) 70,733 45,481 European Investment Bank’s loan (a) 49,175 51,133 Guarantee payment to the Ministry of Finance to the Republic of Lithuania (132) (134) Payable loan interest 147 30 119,923 96,510 (a) A credit contract dated at 9 July 2013 was concluded by the Company with European Investment Bank (EIB) to grant a credit up to EUR 87,000 thousand to implement LNGT project. According to the contract, EIB financed up to 50% of necessary funds for the project implementation. According to the contract, credit tenor is up to 20 years (5 years grace period, 15 years linear repayment scheme applied), interest rate is variable comprising bank margin with inclusion of 3 months EURIBOR rate, and whose margin was submitted by the EIB in payment offers. The contract also provided that minimum credit tranche was EUR 15,000 thousand, and the whole credit sum had to be paid out to the Company over no more than 6 tranches. The performance of 100% Company’s contractual financial liabilities is ensured by the State Guarantee and aligned with EU commission. The Finance ministry of the Republic of Lithuania being issuer of the state aid guarantee has pledge on all property, plant and equipment created during LNGT project (Note 3). Above credit was facilitated in several tranches: i. First tranche. On 20 December 2013, the 1 st tranche amounting to EUR 15,000 thousand was received with full principal amortization till 20 December 2033. The principal repaid by EUR 3,197 thousand as at 31 December 2021. First tranche loan balance as at 31 December 2021 – EUR 11,745 thousand (as at 31 December 2020 – EUR 12,725 thousand). ii. Second tranche. On 28 November 2014, the 2 nd tranche amounting to EUR 15,000 thousand was received with full principal amortization till 28 November 2034. The principal repaid by EUR 2,212 thousand as at 31 December 2021. Second tranche loan balance as at 31 December 2021 – EUR 12,730 thousand (as at 31 December 2020 – EUR 13,708 thousand). iii. Third tranche. On 15 December 2017, the 3 rd tranche amounting to EUR 24,700 thousand was received with full principal amortization till 20 September 2034. Third tranche loan balance as at 31 December 2021 – EUR 24,700 thousand (as at 31 December 2020 – EUR 24,700 thousand). The Company complied with covenants prescribed in the loan agreement as at 31 December 2021 and as at 31 December 2020. (b) On 27 November 2014, the Company has concluded the Credit Agreement with the Nordic Investment Bank (NIB) regarding granting a credit of up to EUR 34,755 thousand for the implementation of the LNGT project (the same). According to the contract, credit tenor was up to 20 years (5 years grace period, 15 years linear repayment scheme applied, interest: floating, which rate was provided in the NIB disbursement offer (a fixed margin + 6 months EURIBOR). The Loan contract also provided that the minimal payable amount of credit was EUR 7,000 thousand, and all the credit had to be paid out to the Company in no more than 5 tranches. On 10 November 2015 there was signed NIB loan agreement amendment to reduce the loan principle to EUR 22,000 thousand. On 31 August 2017, the Company withdrew the amount of EUR 22,000 thousand. Resulting in requirement of full principal amortization till 19 June 2034. The principal repaid by EUR 4,258 thousand as at 31 December 2021. NIB loan balance as at 31 December 2021 – EUR 18,074 thousand (as at 31 December 2020 – EUR 19,152 thousand). The performance of 100% Company’s contractual financial liabilities is ensured by the State Guarantee and aligned with EU commission. The Finance ministry of the Republic of Lithuania being issuer of the state aid guarantee has pledge on property, plant and equipment created during LNGT project. (c) On 19 November 2019, the Company concluded the Credit Agreement with the Nordic Investment Bank (NIB) regarding granting a credit of up to EUR 134,145 thousand for restructuring of the lease payments of the FSRU. According to the Loan contract, the term of the credit was up to 25 years (5 years grace period, 20 years linear repayment scheme), interest: floating (a fixed margin + 6 months EURIBOR). The Loan contract also provides that the minimal payable amount of credit is EUR 5,000 thousand with the annual tranche cap EUR 26,829 thousand (making total 5 annual tranches). Loan balance as at 31 December 2021 – EUR 52,658 thousand (as at 31 December 2020 – EUR 26,329 thousand). The performance of 100% Company’s contractual financial liabilities is ensured by the State Guarantee and aligned with EU commission. The Finance ministry of the Republic of Lithuania being issuer of the state aid guarantee has following collateral structure: Subačius oil terminal and all existent and future receivables from security supplement till 2044. Pledge of receivables from security supplement is postponed till 31 Jan 2025 as performance bank guarantee of EUR 20,000 thousand is issued for 5 years tenor in favour of the Finance ministry of the Republic of Lithuania for credit support. For issuance of the state guarantee, likewise historically, a guarantee administration payment of 0.1% to the Ministry of Finance to the Republic of Lithuania was incurred. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 39 14 LOANS AND LEASE LIABILITIES (CONT’D) On 31 March 2021, the Company withdrew the amount of EUR 6,707 thousand, followed by three consecutive tranches on 30 June 2021, 30 September 2021 and 31 December 2021 respectively, each amounting to EUR 6,707 thousand. The principal repaid by EUR 1,525 thousand as at 31 December 2021. The withdrawal schedule in 2020 was the same as in 2021: on 31 March 2020, the Company withdrew the amount of EUR 6,707 thousand, followed by three consecutive tranches on 30 June 2020, 30 September 2020 and 31 December 2020 respectively, each amounting to EUR 6,707 thousand. Total withdrawn amount by 31 December 2021 was EUR 53,658 thousand. The Company had EUR 26,829 thousand of undrawn loans as at 31 December 2021 and the amount fully consisted of Nordic Investment Bank (NIB) loans. LEASE LIABILITIES Group Company 31-12-2021 31-12-2020 31-12-2021 31-12-2020 Lease liabilities 287,105 305,619 287,080 305,619 Lease liabilities as at 31 December 2021 can be specified as follows: Group FSRU lease Land rent Jetty rent Other Total Long term lease liabilities 222,380 15,966 5,011 73 243,430 Short term lease liabilities 43,119 352 75 129 43,675 265,499 16,318 5,086 202 287,105 Company FSRU lease Land rent Jetty rent Other Total Long term lease liabilities 222,380 15,966 5,011 55 243,412 Short term lease liabilities 43,119 352 75 122 43,668 265,499 16,318 5,086 177 287,080 Lease liabilities as at 31 December 2020 can be specified as follows: Group and Company FSRU lease Land rent Jetty rent Other Total Long term lease liabilities 245,026 15,167 5,101 45 265,339 Short term lease liabilities 39,596 320 74 290 40,280 284,622 15,487 5,175 335 305,619 * Other comprises lease of transport vehicles, office rent. The interest rate for lease liabilities varies from 0.5% to 2% as at 31 December 2021 and as at 31 December 2020. The main characteristics of rent agreements by asset group, as well as the movement of the lease liability can be presented as follows: GROUP, denominated in euros Currency Year of maturity Carrying amount as at 31-12-2020 Interests Interest payments Payments Reclassifi- cation Additio- nal disbur- sement Reas- sessment Exchan- ge rate effect Carrying amount as at 31-12- 2021 FSRU lease USD 2024 284,623 1,381 (1,426) (40,797) (355) - - 22,073 265,499 Land rent EUR 2055 15,487 310 (316) (260) (89) - 1,188 - 16,320 Jetty rent EUR 2065 5,175 102 (170) (102) 96 - (15) - 5,086 Other EUR 2021-2022 334 7 (5) (300) (9) 27 146 - 200 305,619 1,800 (1,917) (41,459) (357) 27 1,319 22,073 287,105 COMPANY, denominated in euros Currency Year of maturity Carrying amount as at 31-12-2020 Interests Interest payments Payments Reclassifi- cation Additio- nal disbur- sement Reas- sessment Exchan- ge rate effect Carrying amount as at 31-12- 2021 FSRU lease USD 2024 284,623 1,381 (1,426) (40,797) (355) - - 22,073 265,499 Land rent EUR 2055 15,487 310 (316) (260) (89) - 1,188 - 16,320 Jetty rent EUR 2065 5,175 102 (170) (102) 96 - (15) - 5,086 Other EUR 2021-2022 334 5 (4) (296) (10) - 146 - 175 305,619 1,798 (1,916) (41,455) (358) - 1,319 22,073 287,080 * Reclassifications of lease liabilities include impact of changes in unpaid invoices for leases as at 31 December 2021 and 31 December 2020. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 40 14 LOANS AND LEASE LIABILITIES (CONT’D) As at 31 December 2021 and 31 December 2020 the Group and the Company did not have residual value guarantees related to lease agreements or leases not yet commenced to which the Group and the Company is committed. Only one agreement, FSRU lease, contains purchase option, which is described below. Floating Storage and Regasification Unit (FSRU) lease On 2nd March 2012 the Company has signed the 10 years Build, Operate and Transfer (BOT) lease contract with Hoegh LNG Ltd. regarding LNG Floating Storage and Regasification Unit (FSRU) with a purchase option. FSRU has arrived at the Seaport of Klaipėda at 27th October 2014 and has been taken over by the Company on 27th November 2014. There have been no changes in the BOT lease contract with Hoegh LNG Ltd. regarding LNG Floating Storage and Regasification Unit (FSRU) in the year 2021 and 2020. The terms and condition of the BOT lease contract do not provide any restrictions on the Company’s activities, associated with dividends, additional borrowings or additional rent. FSRU operating lease payments include such elements: • Charter Hire Element • OPEX Element (Services, spares, consumables, insurance in FSRU mode, ship radio and communication) • Management Fee • Crew Costs or Maritime personnel expenses At the lease period end the Group and the Company has an option to purchase FSRU Independence. On 25 February 2022 the General Shareholders’ Meeting approved the decision to acquire the floating storage regasification unit “Independence” (for further information see subsequent events disclosure, Note 29). RECONCILIATION OF MOVEMENTS OF LIABILITIES TO CASH FLOWS ARISING FROM FINANCING ACTIVITIES In accordance with IAS 7 Disclosure Initiative requirements, the following table provides disclosure that enable users of financial statements to evaluate changes in liabilities arising from financing activities (loans taken), including both changes arising from cash flows and non-cash changes: Group Company Loans Lease liabilities Loans Lease liabilities Non-current interest-bearing loans and borrowings, including interest payable as at 1 January 2020 73,373 376,877 73,373 376,877 Additional loan disbursements (Cash flows) 26,829 - 26,829 - Loan repayments (Cash flows) (3,387) - (3,387) - Repayment of lease liabilities (Cash flows) - (43,145) - (43,145) Interest and loan administration fee charged 349 2,055 349 2,055 Interest and loan administration fee paid (Cash flows) (156) (2,000) (156) (2,000) Guarantee payments (Cash flows) (474) - (474) - The effect of changes in foreign exchange rates - (28,765) - (28,765) Other payments / reclassifications (24) 597 (24) 597 Non-current interest-bearing loans and borrowings, including interest payable as at 1 January 2021 96,510 305,619 96,510 305,619 Additional loan disbursements (Cash flows) 26,829 27 26,829 - Loan repayments (Cash flows) (3,492) - (3,492) - Repayment of lease liabilities (Cash flows) - (41,459) - (41,455) Interest and loan administration fee charged 481 1,800 479 1,798 Interest and loan administration fee paid (Cash flows) (255) (1,917) (255) (1,916) Guarantee payments (Cash flows) (146) - (146) - The effect of changes in foreign exchange rates - 22,073 - 22,073 Reassessment of lease liabilities - 1,319 - 1,319 Other payments / reclassifications (4) (357) (2) (358) Non-current interest-bearing loans and borrowings, including interest payable as at 31 December 2021 119,923 287,105 119,923 287,080 AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 41 15 TRADE PAYABLES AND OTHER LIABILITIES Group Company 31-12-2021 31-12-2020 31-12-2021 31-12-2020 Trade payables 3,053 6,544 3,045 6,511 Other payables and current liabilities 642 1,402 468 1,209 3,695 7,946 3,513 7,720 Trade payables disclosed below: Group Company 31-12-2021 31-12-2020 31-12-2021 31-12-2020 Payable to contractors 740 726 740 726 Payable for rent of land 322 333 322 333 Payable for gas services 313 231 313 231 Other payments related FSRU 257 285 257 285 Payable for railway services 86 65 86 65 Payables for FSRU - 4,558 - 4,558 Other trade payables 1,335 346 1,327 313 3,053 6,544 3,045 6,511 On 31 December 2021 trade payables of EUR 3 thousand were denominated in USD (EUR 5,249 thousand – on 31 December 2020). Trade payables are non-interest bearing and are normally settled on 30-day payment terms. Other payables and current liabilities disclosed below: Group Company 31-12-2021 31-12-2020 31-12-2021 31-12-2020 Accrued expenses and liabilities 327 335 327 335 Other taxes payable 205 - 31 - Real estate tax payable 90 215 90 207 Subsidies payable to partners - 532 - 532 Other liabilities 20 320 20 135 642 1,402 468 1,209 Other liabilities are non-interest bearing and have an average payment term of one month. 16 PROVISIONS Greenhouse gas emission allowances in advance is distributed for the periods covering the next few years. The first period started from 2005 and ended in 2007, the second period started from 2008 and ended in 2012, the third period started from 2013 and ended in 2020, and the current period started from 2021 and will end in 2025. Companies that participate in the project from 2005 are obliged to report about real extent of pollution of each calendar year. When available allowances are not sufficient to cover actual pollution, then a penalty should be paid for each ton of excess carbon dioxide. Emission rights are accounted for when evaluating the deficit between the emission allowances allocated under the national allocation plan for emission allowances and the actual pollution for the particular year. The quantity of used emission allowances is audited by external auditors each year. As at 31 December 2021, the Group and the Company has accounted for a provision of EUR 3,596 thousand regarding the emission made which exceed available emission rights (as at 31 December 2020 – EUR 1,709 thousand). Movement of provision in 2021: Group and Company Balance as at 31 December 2020 (1,709) Emission allowances used 1,709 Additional provision made (3,596) Balance as at 31 December 2021 (3,596) AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 42 17 DERIVATIVES Derivatives disclosed below: Group and Company 31-12-2021 31-12-2020 Derivatives 15 1,946 Due to the specifics of the business, the Group and the Company are exposed to the risk of EUR/USD foreign exchange rate fluctuations due to FSRU lease payments in US dollars and EUR/BRL foreign exchange rate fluctuations due to intercompany transactions with the Group company KN Acu Servicos de Terminal de GNL Ltda. The Group and the Company hedge against changes in EUR/USD and EUR/BRL exchange rates by using futures contracts. When derivatives are realized, the result is recorded in the statement of profit (loss) each calendar month. The fair value as at the end of reporting period is confirmed by SEB bank. The maturity term of future USD agreements is 31 December 2021. The maturity term for the BRL agreements is 15 June 2022. 18 PAYROLL RELATED LIABILITIES Group Company 31-12-2021 31-12-2020 31-12-2021 31-12-2020 Accrual of annual bonuses 977 646 930 646 Accrued vacation reserve 818 1,130 759 1,077 Salaries payable 451 518 450 517 Social insurance payable 262 249 217 249 Income tax payable 158 185 158 185 Other deductions 3 3 3 3 2,669 2,731 2,517 2,677 19 REVENUE FROM CONTRACTS WITH CUSTOMERS Group Company 31-12-2021 31-12-2020 31-12-2021 31-12-2020 Income from LNGT services regulated by NERC 1 (1) 27,732 35,729 27,732 35,729 Sales of oil transhipment services (2) 19,066 28,247 19,066 28,247 Other sales related to LNG terminals activity (3) 12,431 11,808 9,050 9,168 Other sales related to transhipment (4) 1,303 2,830 1,304 2,830 Sales of inventories 1,066 344 1,066 344 Sales of consulting services 213 1,156 415 1,156 61,811 80,114 58,633 77,474 (1) The significant factor, which has influenced the decrease in Group’s and Company‘s revenue in 2021, is lower regasification volumes compared to the previous year. Also decrease in revenue was affected by the reduction of LNG security supplement income in 2021 due to proportionally recognised repayment of the excess returns (surplus income) from regulated activities during the period 2014-2019 and repayment related to LNG reloading revenue for 2019. Income from LNGT services regulated by NERC contains income from LNG regasification service, LNG reloading service and Additional Security supplement (largest component). LNG regasification price cap is being adjusted on yearly basis. Since 2020 LNG reloading price is adjusted annually. LNG terminal additional security supplement tariff is applied to Terminal users, who regasify gas via LNG terminal and use gas transmission system. LNG terminal additional security supplement tariff is set by NERC by the resolutions annually and is dedicated to cover operating costs of LNG terminal, its infrastructure and tie-in, independently from gas volumes regasified and submitted to gas transmission system. LNG terminal supplement tariff is calculated according to the formula and methodology set out in NERC Resolution No. O3-367 issued on 13 September 2013 and its subsequent amendments. (2) In December 2020 the client of the Company BNK (UK) Limited has informed about the temporary suspension of oil products sales through Klaipėda. In the future tenders announced by BNK (UK) Limited will not be indicated as their sales point. (3) Other sales related to LNG terminals activity includes LNG liquefaction services, LNG small scale generated income as well as income generated by KN Acu Servicos de Terminal de GNL Ltda in the Group numbers. 1 NERC – National Energy Regulatory Council AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 43 19 REVENUE FROM CONTRACTS WITH CUSTOMERS (CONT’D) (4) Other sales income related to transhipment include services of moorage, sales of fresh water, transportation of crew and other transhipment related income. 20 COST OF SALES Group Company 2021 2020 2021 2020 Depreciation of right-of-use asset (14,052) (14,096) (14,052) (14,096) Depreciation and amortisation (incl. amortisation of grants) (11,076) (11,815) (11,001) (11,785) Wages, salaries and social security (7,720) (8,076) (7,177) (7,646) Expenses related to FSRU rent (OPEX element, management, crew cost) (5,641) (5,496) (5,641) (5,496) Emission allowances and tax on environmental pollution (4,274) (1,805) (4,274) (1,805) Natural gas (2,184) (1,560) (2,184) (1,560) Port charges (1,541) (1,545) (1,541) (1,545) Electricity (1,314) (838) (1,314) (838) Railway services (934) (1,458) (934) (1,458) Repair and maintenance of assets (818) (707) (745) (700) Cost of oil products sold (599) (75) (599) (75) Contribution for National Energy Regulatory Council (NERC) (595) (972) (595) (972) Tax on real estate (490) (407) (490) (407) Insurance (397) (443) (343) (398) Cleaning expenses (287) (208) (287) (208) Work safety costs (235) (320) (235) (330) Services for tankers (155) (193) (155) (193) Transport (123) (284) (112) (248) Other expenses related to FSRU (112) (118) (112) (118) Research costs (57) (82) (57) (82) Impairment of inventories (reversal) - 6 - 6 Other (505) (468) (296) (237) (53,109) (50,960) (52,144) (50,191) AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 44 21 OPERATING EXPENSES Group Company 2021 2020 2021 2020 Impairment of non-current assets (1) (54,338) (384) (54,338) (384) Wages, salaries and social security (4,963) (4,688) (4,667) (4,254) Consulting and legal costs (2) (930) (472) (839) (349) Telecommunication and IT expenses (384) (258) (355) (252) Depreciation of right-of-use asset (277) (335) (272) (335) Administration of bank accounts (277) (191) (270) (189) Expenses for operating taxes (227) (463) (68) (55) Depreciation and amortization (241) (310) (240) (310) Salaries and other related expenses to governing bodies (161) (156) (161) (156) Advertising and external communication (95) (54) (88) (44) Expenses for utilities (89) (96) (87) (95) Expenses for refresher courses (87) (58) (81) (58) Long-term employee benefits (61) (41) (61) (41) Expenses for business trips (43) (60) (43) (60) Impairment of doubtful receivables (reversal) 711 (1,855) 711 (1,855) Other (466) (390) (301) (350) (61,928) (9,811) (61,160) (8,787) (1) Impairment of non-current assets. Reconciliation of Impairment recognised under operating expenses: Property, plant and equipment 48,462 Right of use assets 5,815 Intangible assets 61 Total impairment recognised under operating expenses 54,338 (2) Remuneration to auditors. Consulting and legal costs contain EUR 68 thousand and EUR 55 thousand expenses incurred for financial statutory audit performed by external auditor of the Group and the Company for the year ended 31 December 2021, respectively (EUR 57 thousand and EUR 40 thousand – for the year ended 31 December 2020, respectively). Remuneration to the independent audit firms for other services amounts to EUR 13 thousand for both, the Group and the Company, (EUR 7 thousand – for the year ended 31 December 2020). 22 INCOME (EXPENSES) FROM FINANCIAL AND INVESTMENT ACTIVITIES – NET Group Company 2021 2020 2021 2020 Gain from derivatives 1,898 - 1,898 - Fines income 30 75 30 75 Interest income 13 53 13 53 Income from currency exchange on the lease liabilities - 28,765 - 28,765 Other financial income 46 4 28 3 Financial activity income, total 1,987 28,897 1,969 28,896 Losses from currency exchange on the lease liabilities (22,073) - (22,073) - Interest on the lease liabilities (1,800) (2,055) (1,798) (2,055) Interest expenses (481) (349) (479) (349) Losses from currency exchange (174) (256) (105) (164) Loss from financial derivatives - (1,869) - (1,869) Fines and penalties expenses (19) (2) - (1) Other financial activity expenses (10) (19) (1) - Financial activity expenses, total (24,557) (4,550) (24,456) (4,438) AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 45 23 INCOME TAX Group Company 2021 2020 2021 2020 Current income tax expense (456) (273) - - Previous year income tax expense - - - - Deferred tax (expenses) income 12,212 (9,608) 12,212 (9,608) Income tax (expense) income recorded in the profit (loss) 11,756 (9,881) 12,212 (9,608) Reconciliation between income tax expense of the Group and Company and the result of taxable income of the Group and the Company multiplied by income tax rate for the years 2021 and 2020 is as follows: Group 2021 2021 2020 2020 Accounting profit (loss) before tax (75,766) 43,839 Applying 15% profit tax 15.00% (11,365) 15.00% 6,576 Effect of tax rates in foreign jurisdictions (0.35)% 264 0.63% 273 Tax effect of: Tax-exempt income 0.00% - (0.13)% (55) Deductible expenses of income tax (charity) 0.00% - (0.08)% (36) Non-deductible expenses of income tax (0.06)% 48 1.57% 688 Realized derivatives 0.00% 3 0.64% 280 Different depreciation rates of non-current assets 0.00% - 1.24% 543 Recognition of previously unrecognised tax losses 0.00% - (2.50)% (1,094) Investment projects‘ relief 0.00% - 4.32% 1,896 Adjustments in respect of prior years 0.90% (680) 0.00% - Other deductible temporary differences 0.03% (26) 1.85% 810 15,52% (11,756) 22.54% 9,881 Company 2021 2021 2020 2020 Accounting profit (loss) before tax (77,128) 43,103 Applying 15% profit tax 15.00% (11,569) 15.00% 6,465 Tax effect of: Tax-exempt income 0.00% - (0.08)% (36) Deductible expenses of income tax (charity) 0.00% - 1.62% 712 Non-deductible expenses of income tax (0.04)% 31 0.39% 171 Realized derivatives 0.00% 3 1.24% 543 Different depreciation rates of non-current assets 0.00% - (2.50)% (1,094) Recognition of previously unrecognised tax losses 0.00% - 4.32% 1,896 Investment projects‘ relief 0.00% - 1.66% 726 Adjustments in respect of prior years 0.88% (680) 0.00% - Other deductible temporary differences 0.00% 3 0.51% 225 15.83% (12,212) 22.29% 9,608 AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 46 23 INCOME TAX (CONT’D) Movements of deferred tax balances: Group and Company Balance as at 31 December 2021 2021 Net balance at 1 January Recognised in profit or loss Recognised in OCI Recognised directly in equity Other Net Deferred tax assets Deferred tax liabilities Non-current asset (right-of-use asset) (7,715) (818) - - - (8,533) - (8,533) Accelerated depreciation for tax purposes 207 (10) - - - 197 197 - Vacation reserve 162 (48) - - - 114 114 - Accrued annual bonuses 96 43 - - - 139 139 - Emission allowances 256 283 - - - 539 539 - Other temporary differences 59 1 - - - 60 60 - Impairment of non-current assets 38 7,996 - - - 8,034 8,034 - Long-term employee benefit liability 101 3 9 - - 113 113 - Associates’ equity method - 5 - - - 5 5 - Different depreciation rates of non-current assets (752) (11) - - - (763) - (763) Accrued income (146) 93 - - - (53) - (53) Accrued taxable losses 1,094 4,563 - - - 5,657 5,657 - Investment incentive of non-current assets under the law previously in force (2,005) 112 - - - (1,893) - (1,893) Tax assets (liabilities) before set-off (8,605) 12,212 9 - - 3,616 14,858 (11,242) Set-off of tax - - - - - - (11,242) 11,242 Net tax assets (liabilities) (8,605) 12,212 9 - - 3,616 3,616 - Group and Company Balance as at 31 December 2020 2020 Net balance at 1 January Recognised in profit or loss Recognised in OCI Recognised directly in equity Other Net Deferred tax assets Deferred tax liabilities Investment projects’ relief 1,896 (1,896) - - - - - - Right-of-use asset and lease liability 901 (8,616) - - - (7,715) (7,715) Accelerated depreciation for tax purposes 217 (10) - - - 207 207 - Vacation reserve 158 4 - - - 162 162 - Accrued annual bonuses 131 (35) - - - 96 96 - Emission allowances 85 171 - - - 256 256 - Other temporary differences 41 18 - - - 59 59 - Impairment of non-current assets 41 (3) - - - 38 38 - Long-term employee benefit liability 42 6 53 - - 101 101 - Associates’ equity method 9 (9) - - - - - - Write-offs of inventories to realizable value 1 (1) - - - - - - Different depreciation rates of non-current assets (209) (543) - - - (752) - (752) Accrued income (231) 85 - - - (146) - (146) Accrued taxable losses - 1,094 - - - 1,094 1,094 - Investment incentive of non-current assets under the law previously in force (2,132) 127 - - - (2,005) - (2,005) Tax assets (liabilities) before set-off 950 (9,608) 53 - - (8,605) 2,013 (10,618) Set-off of tax - - - - - - (2,013) 2,013 Net tax assets (liabilities) 950 (9,608) 53 - - (8,605) - (8,605) AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 47 23 INCOME TAX (CONT’D) As at 31 December 2021 the Group and the Company did not recognise as deferred tax asset in total amounting to EUR 319 thousand: EUR 227 thousand from allowance of trade accounts receivable and EUR 92 thousand from Group companies’ tax losses carried forward (UAB “SGD logistika”, UAB “SGD SPB”, UAB “SGD terminalas”). As at 31 December 2020 the Group and the Company did not recognise as deferred tax asset in total amounting to EUR 418 thousand: EUR 333 thousand from allowance of trade accounts receivable and EUR 85 thousand – from tax losses carried forward. As at 31 December 2021 and 31 December 2020 the Company’s management’s judgement was not to recognize as deferred tax asset amounting up to EUR 263 thousand from the investment incentive in the amount of up to EUR 1,756 thousand, whose expiry date is 2024, up to EUR 2,828 thousand from the investment incentive in the amount of up to EUR 18,850 thousand, whose expiry date is 2023, up to EUR 867 thousand from the investment incentive in the amount of up to EUR 5,778 thousand, whose expiry date is 2022, and up to EUR 4,284 thousand from the investment incentive in the amount of up to EUR 28,562 thousand, whose expiry date is 2021 as the management does not expect to use the investment incentive to set off against taxable profit in the future. In the Statement of Financial position deferred income tax asset and deferred income tax liability are set-off as they both are related to the same tax authority. While assessing deferred income tax asset and liability components as at 31 December 2021 and 2020 the Company has used the domestic Lithuanian income tax rate of 15%. The Group’s subsidiary KN Açu Serviços de Terminal de GNL Ltda applies Brazilian Tax System and subsidiary´s administration has elected the Real Profit Regime that is calculated on quarterly basis. The official rates for Income tax rate is 25% and Social Contribution on Net Profit is 9%. 24 BASIC AND DILUTED EARNINGS (LOSSES) PER SHARE Basic earnings per share are calculated by dividing net profit (loss) of the Group by the weighted average number of ordinary shares outstanding. Diluted earnings per share equal to basic earnings per share as the Group has no instruments issued that could dilute shares issued. Basic and diluted earnings per share are as follows: Group 2021 2020 Net profit (loss) attributable to shareholders (63,929) 33,958 Weighted average number of outstanding ordinary shares (thousand) 380,416 381,000 Earnings and reduced earnings (in EUR) (0.17) 0.09 25 DIVIDENDS 2021 2020 Dividends declared (7,538) (7,947) Weighted average number of shares (thousand) 380,416 381,000 Dividends declared per share (expressed in EUR per share) 0.02 0.02 The General Meeting of the Shareholders held on 30 April 2021 approved profit appropriation for the year 2020 and allocated to the Shareholders dividends in the amount of EUR 7,538 thousand for 2020. The General Meeting of the Shareholders held on 28 April 2020 approved profit appropriation for the year 2019 and allocated to the Shareholders dividends in the amount of EUR 7,947 thousand for 2019. The outstanding amount of declared dividends to the shareholders, who were not reached from the stated addresses, is accounted as current amounts payable and liabilities in the Statement of financial position as at 31 December 2021. As at 31 December 2021, the outstanding number of dividends not paid during the previous financial year amounted to EUR 157 thousand (EUR 164 thousand as at 31 December 2020). 26 FINANCIAL ASSETS AND LIABILITIES AND RISK MANAGEMENT Credit risk The Company has significant concentration of trading counterparties. Trade receivables from the main customer A of the Company accounted for approximately 69% as at 31 December 2021 (about 64% as at 31 December 2020), customer B – on 31 December 2021 accounted for approximately 14% (13% as at 31 December 2020), customer C – on 31 December 2021 accounted for approximately 6% (about 5% as at 31 December 2020), customer D – on 31 December 2021 accounted for approximately 5% (about 2% as at 31 December 2020) of the total Group’s and Company’s receivables from all its customers. The average payment term for the main customer mentioned above varies from 20 to 10 calendar days, whereas the usual payment terms for all other customers is 5 days. A possible credit risk for the Group’s and the Company’s customers is managed by a continuous monitoring of outstanding balances. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 48 26 FINANCIAL ASSETS AND LIABILITIES AND RISK MANAGEMENT (CONT’D) Credit risk (cont’d) The Group’s and Company’s procedures are in force to ensure on a permanent basis that services are provided to reliable customers and do not exceed an acceptable credit exposure limit. The Company trades only with reputable third parties, so there is no requirement for collateral. The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, if any, in the Statement of Financial position. Consequently, the Group and the Company considers that its maximum exposure is reflected by the amount of trade receivables, net of allowance for doubtful accounts and cash and other short-term deposits recognized at the date of Statement of Financial position. In the management’s opinion there were no reasonably likely circumstances, which would raise additional obligations to the Group and the Company. The following table provides information about the exposure to credit risk for trade receivables from the customers: Group 31-12-2021 Gross carrying amount Loss allowance Credit impaired Current (not past due) 5,341 - No 1-30 days past due 2,770 - No 31-60 days past due 1,300 - No 61-90 days past due - - No More than 90 days past due 1,511 (1,511) Yes 10,922 (1,511) Company 31-12-2021 Gross carrying amount Loss allowance Credit impaired Current (not past due) 4,869 - No 1-30 days past due 2,770 - No 31-60 days past due 1,300 - No 61-90 days past due - - No More than 90 days past due 1,511 (1,511) Yes 10,450 (1,511) Group 31-12-2020 Gross carrying amount Loss allowance Credit impaired Current (not past due) 5,845 - No 1-30 days past due 3,530 - No 31-60 days past due 792 (616) Yes 61-90 days past due 144 (144) Yes More than 90 days past due 1,462 (1,462) Yes Company 11,773 (2,222) 31-12-2020 Gross carrying amount Loss allowance Credit impaired Current (not past due) 5,461 - No 1-30 days past due 3,530 - No 31-60 days past due 792 (616) Yes 61-90 days past due 144 (144) Yes More than 90 days past due 1,462 (1,462) Yes 11,389 (2,222) AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 49 26 FINANCIAL ASSETS AND LIABILITIES AND RISK MANAGEMENT (CONT’D) Interest rate risk The Group’s and the Company’s income and operating cash flows are influenced by changes in market interest rates, which are linked to EURIBOR base. Overall, 56% of loan portfolio is exposed to floating interest rate risk no hedging derivative instruments were used. Thus, such standing has implications on financial results. EIB facility with 3 tranches is exposed to 3 months EURIBOR with zero-floor applicable on EURIBOR base. In contrast, NIB facilities are exposed to 6 months EURIBOR with no zero-floor applicable on EURIBOR base. Maturity date Carrying amount as at 31-12-2021 Carrying amount as at 31-12-2020 Interest rate Floating interest rate exposure EIB loan: 1 st tranche 20-12-2023 11,746 12,725 fixed margin + 3 months EURIBOR Negative total interest rate is set at zero 2 nd tranche 28-11-2034 12,730 13,708 fixed margin + 3 months EURIBOR Negative total interest rate is set at zero 3 rd tranche 20-09-2034 24,700 24,700 fixed margin + 3 months EURIBOR Negative total interest rate is set at zero NIB loan: Reloading station 19-06-2034 18,074 19,152 fixed margin + 6 months EURIBOR Negative interest is accrued and offset on the repayment date as part of the loan FSRU loan 31-12-2044 52,658 26,329 fixed No exposure to floating interest rate 119,908 96,614 Fixed margin varies from 0,066% to 0,78% as at 31 December 2021. The Group and the Company is constantly assessing its possibilities to hedge interest rate risks on its loans. Thus, the loans related with long- term LNG terminal solution with high probability in future are expected to be with partially or fully fixed interests. The Group’s and the Company’s excess liquidity in forms of money and time deposits are distributed across the accounts of major Lithuanian banks, which are granted with Standard Poor’s or equivalent long-term term borrowing BBB- or better external rating according to the foreign rating agencies. Partner bank’s rating is assessed either on a stand-alone or applying a bank group logic into which exposure is present. Also, the Group and the Company is monitoring recommendation of the Central Bank of Lithuania. Retrospectively, risk related to the funds security in banks was limited, because the Group and the Company carried out transactions with the banks that have high ratings provided by the foreign rating agents. As at 31 December 2021 increase in EURIBOR interest rate by 10 basis points would increase yearly interest expenses amount by EUR 19 thousand (as at 31 December 2020 – EUR 28 thousand). Exchange rate risk The Group and the Company is exposed to foreign currency fluctuations primarily related to the U.S. dollar. Foreign exchange risk arises from future commercial transactions as well as recognized liabilities including impact arising from IFRS 16 “Leases”. Because the highest part of lease payments is denominated in US dollars, as a result changes in exchange rates occur in the statement of comprehensive income, the Group and the Company incurred the currency exchange loss amounting to EUR 22,073 thousand for 2021 arising from IFRS 16 “Leases” and profit amounting to EUR 28,765 thousand for 2020. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 50 26 FINANCIAL ASSETS AND LIABILITIES AND RISK MANAGEMENT (CONT’D) In 2020 the Group and the Company started to use derivative instruments in order to manage the risk arising from the USD and BRL currency rate fluctuations. Summary of exchange rates as at 31 December 2021 and 31 December 2020 to EUR: Exchange rate as at 31-12-2021 Average exchange rate in 2021 Exchange rate as at 31-12-2020 Average exchange rate in 2020 USD 1.1334 1.1833 1.2281 1.1411 BRL 6.3734 6.3773 6.3574 5.8823 Group (denominated in euro) 31-12-2021 EUR USD BRL Total Cash and cash equivalents 60,827 3 687 61,517 Trade receivables 8,925 - 486 9,411 Lease liabilities (21,581) (265,499) (25) (287,105) Trade payables (3,026) (3) (24) (3,053) Total 45,145 (265,499) 1,124 (219,230) Company (denominated in euro) 31-12-2021 EUR USD BRL Total Cash and cash equivalents 57,145 3 - 57,148 Trade receivables 8,939 - - 8,939 Lease liabilities (21,581) (265,499) - (287,080) Trade payables (3,042) (3) - (3,045) Total 41,461 (265,499) - (224,038) Group (denominated in euro) 31-12-2020 EUR USD BRL Total Cash and cash equivalents 46,347 4,300 429 51,076 Trade receivables 9,167 - 384 9,551 Lease liabilities (20,997) (284,622) - (305,619) Trade payables (2,303) (4,208) (33) (6,544) Total 32,214 (284,530) 780 (251,536) Company (denominated in euro) 31-12-2020 EUR USD BRL Total Cash and cash equivalents 43,133 4,300 - 47,433 Trade receivables and other receivables 9,167 - - 9,167 Lease liabilities (20,997) (284,622) - (305,619) Trade payables and other liabilities (2,303) (4,208) - (6,511) Total 29,000 (284,530) - (255,530) As at 31 December 2021 increase in USD currency rate by 10 basis points would increase yearly loss from currency exchange amount by EUR 234 thousand (as at 31 December 2020 – EUR 232 thousand). As at 31 December 2021 increase in BRL currency rate by 10 basis points would increase yearly income from currency exchange amount by EUR 1 thousand (as at 31 December 2020 – EUR 1 thousand). Liquidity risk The Company’s and Group’s policy is to maintain sufficient cash and cash equivalents or have available funding through an adequate amount of committed credit facilities to meet its commitments at a given date in accordance with its strategic plans. The Group’s liquidity (total current assets / total current liabilities) and quick ratios ((total current assets - inventories) / total current liabilities) as at 31 December 2021 were 1.28 and 1.25, respectively (1.47 and 1.43 as at 31 December 2020). The Company’s liquidity (total current assets / total current liabilities) and quick ratios ((total current assets - inventories) / total current liabilities) as at 31 December 2021 were 1.20 and 1.17, respectively (1.41 and 1.37 as at 31 December 2020). AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 51 26 FINANCIAL ASSETS AND LIABILITIES AND RISK MANAGEMENT (CONT’D) Liquidity risk (cont’d) The Group’s and Company’s objective is to maintain a balance between continuity of funding and flexibility. The Groups and the Company's activities generate sufficient amount of cash, therefore, the managements' main responsibility is to monitor that the liquidity ratio of the Company is close or higher than 1. The table below summarizes the maturity profile of the Group’s and Company’s financial liabilities as at 31 December 2021 assessed on contractual undiscounted payments: Group Carrying amount On demand Less than 3 months 3 to 12 Months 1 to 5 years More than 5 years Total Trade and other payables 3,695 - 3,346 349 - - 3,695 Lease liabilities 287,105 - 10,376 31,689 211,983 29,045 283,093 Loan and interest 119,923 - 630 3,439 27,969 92,379 124,417 Derivatives 15 - - 15 - - 15 Balance as at 31 December 2021 410,738 - 14,352 35,492 239,952 121,424 411,220 Company Carrying amount On demand Less than 3 months 3 to 12 Months 1 to 5 years More than 5 years Total Trade and other payables 3,513 - 3,164 349 - - 3,513 Lease liabilities 287,080 - 10,374 31,684 211,965 29,045 283,068 Loan and interest 119,923 - 630 3,439 27,969 92,379 124,417 Derivatives 15 - - 15 - - 15 Balance as at 31 December 2021 410,531 - 14,168 35,487 239,934 121,424 411,013 The table below summarizes the maturity profile of the Group’s and Company’s financial liabilities as at 2020 assessed on contractual undiscounted payments: Group Carrying amount On demand Less than 3 months 3 to 12 Months 1 to 5 years More than 5 years Total Trade and other payables 6,544 - 6,544 - - - 6,544 Lease liabilities 305,619 - 10,349 31,610 252,086 24,352 318,397 Derivatives 1,946 - 316 1,630 - - 1,946 Loan and interest 96,510 - 503 2,926 19,655 74,458 97,542 Balance as at 31 December 2020 410,619 - 17,712 36,166 271,741 98,810 424,429 Company Carrying amount On demand Less than 3 months 3 to 12 Months 1 to 5 years More than 5 years Total Trade and other payables 6,511 - 6,511 - - - 6,511 Lease liabilities 305,619 - 10,349 31,610 252,086 24,352 318,397 Derivatives 1,946 - 316 1,630 - - 1,946 Loan and interest 96,510 - 503 2,926 19,655 74,458 97,542 Balance as at 31 December 2020 410,586 - 17,679 36,166 271,741 98,810 424,396 EUR 740 thousand of the Company’s EUR 3,513 thousand trade and other payables as at 31 December 2021 (EUR 726 thousand of the EUR 6,511 thousand amount as at 31 December 2020) is the retention amounts under contracts, which are paid for when all work under a contract has been completed. There is no possibility to forecast these payment terms. Fair value of financial assets and liabilities The Company’s and Group’s principal financial instruments not carried at fair value are trade and other receivables, trade and other payables, non-current and current borrowings. Fair value is stated 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. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 52 26 FINANCIAL ASSETS AND LIABILITIES AND RISK MANAGEMENT (CONT’D) Fair value of financial assets and liabilities (cont’d) The following methods and assumptions are used to estimation the fair value of each class of financial assets and liabilities as at 31 December 2021: Group Carrying amount Fair value Fair value - hedging instruments Financial assets at amortised cost Financial liabilities at amortised cost Total Level 1 Level 2 Level 3 Total Financial assets not measured at fair value Trade receivables - 9,411 - 9,411 Cash - 61,517 - 61,517 Short-term accrued income - 612 - 612 - 71,540 - 71,540 Financial liabilities measured at fair value Derivatives (15) - - (15) - (15) - (15) (15) - - (15) Financial liabilities not measured at fair value Loan and interest - - (119,923) (119,923) - (119,923) - (119,923) Financial lease liabilities (287,105) (287,105) - (287,105) - (287,105) Trade payables - - (3,053) (3,053) - - (410,081) (410,081) Company Carrying amount Fair value Fair value - hedging instruments Financial assets at amortised cost Financial liabilities at amortised cost Total Level 1 Level 2 Level 3 Total Financial assets not measured at fair value Trade receivables - 8,939 - 8,939 Cash - 57,148 - 57,148 Short-term accrued income - 612 - 612 - 66,699 - 66,699 Financial liabilities measured at fair value Derivatives (15) - - (15) - (15) - (15) (15) - - (15) Financial liabilities not measured at fair value Loan and interest - - (119,923) (119,923) - (119,923) - (119,923) Financial lease liabilities (287,080) (287,080) - (287,080) - (287,080) Trade payables - - (3,045) (3,045) - - (410,048) (410,048) AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 53 26 FINANCIAL ASSETS AND LIABILITIES AND RISK MANAGEMENT (CONT’D) The following methods and assumptions are used to estimation the fair value of each class of financial assets and liabilities as at 31 December 2020: Group Carrying amount Fair value Fair value - hedging instruments Financial assets at amortised cost Financial liabilities at amortised cost Total Level 1 Level 2 Level 3 Total Financial assets measured at fair value Derivatives 33 - - 33 - 33 - 33 33 - - 33 Financial assets not measured at fair value Trade receivables - 9,551 - 9,551 - - - - Short term deposits - 24,000 - 24,000 - - - - Cash - 51,076 - 51,076 - - - - - 84,627 - 84,627 Financial liabilities measured at fair value Derivatives (1,946) - - (1,946) - (1,946) - (1,946) (1,946) - - (1,946) Financial liabilities not measured at fair value Loan and interest - - (96,510) (96,510) - (96,510) - (96,510) Trade payables - - (6,544) (6,544) - - - - - - (103,054) (103,054) Company Carrying amount Fair value Fair value - hedging instruments Financial assets at amortised cost Financial liabilities at amortised cost Total Level 1 Level 2 Level 3 Total Financial assets measured at fair value Derivatives 33 - - 33 - 33 - 33 33 - - 33 Financial assets not measured at fair value Trade receivables - 9,167 - 9,167 - - - - Short term deposits - 24,000 - 24,000 - - - - Cash - 47,433 - 47,433 - - - - - 80,600 - 80,600 Financial liabilities measured at fair value Derivatives (1,946) - - (1,946) - (1,946) - (1,946) (1,946) - - (1,946) Financial liabilities not measured at fair value Loan and interest - - (96,510) (96,510) - (96,510) - (96,510) Trade payables - - (6,511) (6,511) - - - - - - (103,021) (103,021) No transfers occurred between levels in the hierarchy by re-assessing categorization as at 31 December 2021 compared to 31 December 2020. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 54 26 FINANCIAL ASSETS AND LIABILITIES AND RISK MANAGEMENT (CONT’D) Capital management The primary objectives of the Company’s capital management are to ensure that the Company complies with externally imposed capital requirements. Capital includes equity attributable to equity holders. The Company manages its capital structure and adjusts it in the light of changes in economic conditions and the risk characteristics of its activities. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. In 2021 the decrease on authorized capital of the Company was amounting to EUR 190 thousand. In 2020 the increase on authorized capital of the Company was amounting to EUR 29 thousand (Note 1). The Company must keep its equity at least up to 50% of its share capital, as imposed by the Law on Companies of Republic of Lithuania as at 31 December 2021 and as at 31 December 2020. The Company’s activities are financed using its equity and loan capital. 27 COMMITMENTS AND CONTINGENCIES The Tax Authorities have not performed full-scope tax investigations at the Company and the Group. The Tax Authorities may inspect accounting, transaction and other documents, accounting records and tax returns for the current and previous 3 calendar years at any time, and where appropriate, for the current and previous 5 or 10 calendar years and impose additional taxes and penalties. Management of the Group and The Company is not aware of any circumstances which would cause calculation of additional significant liabilities due to unpaid taxes. The Customs of the Republic of Lithuania and the Tax Authorities have granted to the Company the exemption from the obligation to provide guarantees for possible tax liabilities. The total amount of exemptions amounts to EUR 363,000 thousand as at 31 December 2021. Material contractual liabilities (acquisition of property, plant and equipment) amounted to EUR 1,884 thousand as at 31 December 2021 (EUR 6,389 thousand as at 31 December 2020). The Company has an agreement on assignment of claim rights and a maximum pledge agreement with UAB Hoegh LNG Klaipėda which maximum amount of USD 50,000 thousand per one year as at 31 December 2021 and as at 31 December 2020. The said agreements are intended to secure obligations of the Company to Hoegh LNG Klaipėda under the Time Charter Party (Lease of a Floating Storage and Regasification Unit in conjunction with maintenance and operation services) agreement concluded on 2 March 2012. Legal disputes ▪ The Company is defending an action brought in 2014 by UAB “Naftos grupė“, which allegedly incurred loss in the amount of EUR 5 million and additionally aims to recover the surplus of oil products allegedly owned by UAB “Naftos grupė“ and stored by the Company. Competition Council is involved in the process, however there is a lack of evidence for the Court and the case is suspended until the criminal case (described in the next bullet point) is resolved. Based on judgement of legal advisors, the management of the Company believes that the defence against the action will be successful. In the opinion of the Company's management, the Company will not incur any significant additional costs related to this case, therefore no provisions for this ongoing case have been formed in the preparation of the financial statements of 31 December 2021. ▪ The Company is a civil plaintiff in a criminal case on the accusations against the former managers of the Company and against companies UAB “Naftos grupė“ and UAB “Artilona”. In 2017 the court of the first instance issued a verdict to award the payment of EUR 20.9 million and 5% annual interest in favour of the Company and, additionally, to cover the court representation costs. However, all accused persons appealed against the first instance court decision and the case was transferred to the appellate instance, Court of Appeal of Lithuania. Currently, the case is still on-going. Since the Company is a plaintiff in the case, no significant additional costs related to this case will be incurred. ▪ Since 2015 the Company is involved as a third interested party in the legal case with AB Achema, which has submitted 10 complaints regarding the resolutions of the NERC to the court. AB Achema requests the court to annul NERC resolutions related to the additional security component of natural gas supply transmission price. As a result of this dispute, AB Amber Grid calculates fine and interest for AB Achema for overdue payments for security component. As at 31 December 2021 the amount of the fine and interest calculated by AB Amber Grid and paid to the Company amounts to EUR 3,837 thousand (as at 31 December 2020 – EUR 3,554 thousand). The Company does not recognise the received payments for fines and interest as income until a court decision is rendered. Payments received are presented under Contract liabilities caption in the statement of financial position. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 55 27 COMMITMENTS AND CONTINGENCIES (CONT’D) The recent unappealable decision was received on 29 September 2021, which resulted in received payment of EUR 1.267 thousand from AB Amber Grid (see Note 29). In the opinion of the Company's management, the Company will not incur any significant additional costs related to this case, therefore no provisions for this ongoing case have been formed in the preparation of the financial statements of 31 December 2021. ▪ On 27 September 2021 the Company filled a notice of arbitration to the Vilnius Commercial Arbitration Court, regarding the award of EUR 1,409 thousand debt and EUR 120 thousand interest from Verum Plus AG. On 10 January 2022 the Company submitted the claim. Decision of the court going to be adopted not later than 30 days after 7 March 2022. In the opinion of the Company's management, the Company will not incur any significant additional costs related to this case, wherefore no deferrals for this ongoing case have been formed in the preparation of the financial statements of 31 December 2021. ▪ The Company applied to the court with a statement regarding the establishment of the fact of acquisition of the right of ownership under the acquired statute of limitations, requesting to establish that it had acquired the right of ownership to the 731 tons of fuel oil stored at the Klaipėda oil terminal. On 30 December 2021 District Court of Klaipėda decided to establish a fact of legal significance that the Company acquired ownership under the acquired statute of limitations to the 731 tons of fuel oil. The decision has already entered into force. Based on the court decision come into force the Company accounted the fuel oil under stock in the statement of financial position and respectively recognised income of other activities, amounting to EUR 331 thousand, in the statement of comprehensive income in January 2022. ▪ In July 2021 a civil claim of the prosecutor of the Klaipėda Regional Prosecutor Office was received in defense of the public interest concerning the annulment of the decisions of the Company's bodies and employees’ Shares Granting Contracts, and the application of restitution. The Company is involved in the case as a defendant. Prosecutor requests the court: - to apply interim measures prohibiting the Company's employees from transferring the ownership rights to the Company's shares acquired in accordance with the Shares Granting Contracts of 04-26-2019 (hereinafter – the Contracts) and suspending the validity of the Company's Rules for Granting Shares No. PRC020 (hereinafter – the Rules) until the court judgement enters into force; - to declare the Rules null and void; - to declare the respective decisions of the Company’s Board minutes No. J3-10 of 10-09-2018 null and void; - to declare the Contracts null and void from the moment of their conclusion and apply restitution in kind – to oblige the Company's employees to return the shares to the Company's ownership. The Company does not agree with the submitted civil claim on the merits and will present its respective position in the court proceedings. Shareholders of the Company on 8 November 2018 approved a proposal of the Board to change payment form of annual bonuses and to pay employees of the Company up to 50% of the annual award for the results of 2018 in shares of the Company. Accordingly, official share buy-back was announced by the Company in January 2019, 1,463,414 shares were acquired for the total amount of EUR 600 thousand. Management of the Company has considered accounting for share-based payments under IFRS 2 Share-based Payment. In the opinion of the Company's management, the Company will not incur any significant additional costs related to this case, therefore no deferrals for this ongoing case have been formed in the preparation of the financial statements of 31 December 2021. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 56 28 RELATED PARTY TRANSACTIONS A related party is a person or entity that is related to the Company and the Group: 1) A person or a close member of that person's family is related to the Company and the Group: • has control or joint control over the Company; • has significant influence over the Company; or • is a member of the key management personnel of the Company and the Group. 2) An entity is related to the Company and the Group, if any of the following conditions applies: • The entity and the Company / Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others). • One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member). • One entity is a joint venture of a third entity and the other entity is an associate of the third entity. • The entity is controlled or jointly controlled by a person identified in (1). • The entity is a post-employment defined benefit plan for the benefit of employees of either the Company / Group or an entity related to the Company / Group. If the Company is itself such a plan, the sponsoring employers are also related to the reporting entity. Transactions with Lithuanian State controlled enterprises and institutions, and other related parties Group: Purchases Sales Receivables Payables State Enterprise Klaipeda State Seaport Authority 2021 2,442 - - 257 2020 2,334 - - 328 AB "Amber Grid" 2021 - 27,732 7,005 - 2020 - 35,729 7,240 - UAB „Ignitis“ 2021 4 1,930 339 - 2020 293 2,905 178 - Public Institution Lithuanian Energy Agency 2021 - 3,329 - - 2020 - 3,133 - - Energijos skirstymo operatorius, AB 2021 429 - - 55 2020 459 - - 64 AB LTG CARGO 2021 966 - - 86 2020 1,529 - - 65 Other related parties 2021 31 - - 1 2020 67 - - - Transactions with related parties, in total: 2021 3,872 32,991 7,344 399 2020 4,682 41,767 7,418 457 Company: Purchases Sales Receivables Payables State Enterprise Klaipeda State Seaport Authority 2021 2,442 - - 257 2020 2,334 - - 328 AB "Amber Grid" 2021 - 27,732 7,005 - 2020 - 35,729 7,240 - UAB „Ignitis“ 2021 4 1,930 339 - 2020 293 2,905 178 - Public Institution Lithuanian Energy Agency 2021 - 3,329 - - 2020 - 3,133 - - KN Acu Servicos de Terminal de GNL Ltda 2021 - 294 15 - 2020 - 879 75 - Energijos skirstymo operatorius, AB 2021 429 - - 55 2020 459 - - 64 AB LTG CARGO 2021 966 - - 86 2020 1,529 - - 65 Other related parties 2021 31 - - 1 2020 43 - - - Transactions with related parties, in total: 2021 3,872 33.285 7,359 399 2020 4,658 42,646 7,493 457 AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 57 28 RELATED PARTY TRANSACTIONS (CONT’D) Other related parties are following: UAB Tetas, VĮ Registrų centras, Vilniaus metrologijos centras, AB, UAB GET Baltic, Smiltynės perkėla, AB, Lietuvos paštas, AB, Klaipėdos prekybos, pramonės ir amatų rūmai, UAB Projektų ekspertizė. • Purchases from State Klaipėda State Seaport Authority include land rent, jetty usage and FSRU port fee. • Sales to AB Amber Grid include income from additional security supplement to the price of natural gas’ transmission. Sales to AB Amber Grid do not include interest and fines for AB Achema for delayed payments of the security component to the upper ceiling of the natural gas transmission price. These amounts are recognized and accounted for as contract liabilities (as at 31 December 2021 – EUR 3,837 thousand, as at 31 December 2020 – EUR 3,554 thousand) (Note 27). • Purchases from UAB Ignitis include purchases of natural gas. Sales to UAB Ignitis include income from LNG regasification and reloading services as well as income from customs brokerage services. • In 2021 and 2020 sales to Public Institution Lithuanian Energy Agency include income from rent of tanks. • Purchases from AB LG Cargo comprise purchase of railway services. • Purchases from AB Energijos skirstymo operatorius include acquisition of electricity power. • Sales to KN Acu include consulting services and bank guarantees. Management salaries and other payments The Company's management consists of the Chief Executive Officer (CEO) and Directors. The Groups’ management consists of the Chief Executive Officer (CEO), Directors and Directors of subsidiaries. Group Company 2021 2020 2021 2020 Payroll related costs 648 691 570 588 Number of managers 10 10 6 6 During 2021 and 2020 the management of the Group and the Company did not receive any loans, guarantees, and no other payments or property transfers occurred. 29 SUBSEQUENT EVENTS • On 19 January 2022 the Company received the payment, amounting to EUR 1,267 thousand, from AB Amber grid based on the court decision rendered on 29 September 2021 (see note 27 Commitments and contingencies, paragraph Legal disputes). • Extraordinary General Meeting of Shareholders of the Company, held on 25 February 2022, adopted the resolution to approve: the Company’s Board decision to acquire the floating storage regasification unit (FSRU) INDEPENDENCE. • On 24 February 2022 Russia started a military invasion of Ukraine. The military action affects not only the economies of Ukraine, Russia and Belarus, but also those of Europe and the world. The Group and the Company has not been trading with Russian or Belarusian companies as at 31 December 2021 and no trading activities have been planned for 2022 with entities registered in aforementioned countries. Moreover, the Group and the Company does not receive key supplies or services from these countries. For detailed description refer to Annual report. After the end of the financial year and until the approval of these financial statements, there were no subsequent events, which would have influence on the financial statements or require disclosure in the annual report for the year ended 31 December 2021. AB KLAIPĖDOS NAFTA CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2021 (all amounts are in EUR thousand unless otherwise stated) www.kn.lt | 58 CONFIRMATION OF RESPONSIBLE PERSONS 23 March 2022 Following Article 22 of the Law on Securities of the Republic of Lithuania and the Rules on Preparation and Submission of Periodic and Additional Information of the Lithuanian Securities Commission, we, Darius Šilenskis, Chief Executive Officer of AB Klaipėdos nafta, Mindaugas Kvekšas, Chief Financial Officer of AB Klaipėdos nafta, and Rasa Tamaliūnaitė, Chief Accountant, hereby confirm that to the best of our knowledge the above-presented consolidated and separate Financial Statements of AB Klaipėdos nafta for the year 2021, prepared in accordance with the International Financial Reporting Standards as adopted to be used in the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss and cash flows of AB Klaipėdos nafta. Chief Executive Officer Darius Šilenskis Chief Financial Officer Mindaugas Kvekšas Chief Accountant Rasa Tamaliūnaitė AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 59 2021 AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT FOR THE FINANCIAL YEAR ENDING ON 31 DECEMBER 2021 AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 60 CONTENT GENERAL INFORMATION ABOUT THE GROUP AND THE COMPANY .............................................................................................................. 61 A FOREWORD OF THE CEO ................................................................................................................................................................................................. 66 BUSINESS CONTINUITY – OPERATIONS IN, DEPENDENCE ON, OR OTHER EXPOSURE TO RUSSIAN/BELARUSSIAN OR UKRAINIAN ECONOMIES ..................................................................................................................................................................................................... 68 BUSINESS CONTINUITY – IMPACT OF COVID – 19 ................................................................................................................................................... 69 INFORMATION ABOUT THE GROUP AND THE COMPANY AND ITS ACTIVITIES ......................................................................................... 70 THE CORPORATE STRATEGY ............................................................................................................................................................................................... 77 SIGNIFICANT EVENTS OF THE REPORTING PERIOD ................................................................................................................................................. 81 SIGNIFICANT EVENTS OCCURRED AFTER THE END OF THE REPORTING PERIOD ...................................................................................... 82 BUSINESS ENVIRONMENT AND MARKET ..................................................................................................................................................................... 83 FINANCIAL RESULTS OF GROUP’S ACTIVITY ............................................................................................................................................................... 89 CONSOLIDATION .................................................................................................................................................................................................................... 90 FINANCIAL RESULTS OF THE GROUP’S AND THE COMPANY’S ACTIVITY ...................................................................................................... 91 ALTERNATIVE PERFORMANCE MEASURES................................................................................................................................................................... 92 ALTERNATIVE PERFORMANCE MEASURES (CONT.) ................................................................................................................................................. 94 INVESTMENTS ......................................................................................................................................................................................................................... 103 ACTIVITY PLANS AND FORECASTS ................................................................................................................................................................................ 104 INFORMATION ABOUT THE SHAREHOLDERS AND SHARES OF THE COMPANY ..................................................................................... 105 INFORMATION ABOUT THE EMPLOYEES OF THE GROUP ................................................................................................................................... 110 GROUP’S SOCIAL RESPONSIBILITY ................................................................................................................................................................................ 115 RISK FACTORS AND RISK MANAGEMENT .................................................................................................................................................................. 120 OTHER INFORMATION ........................................................................................................................................................................................................ 124 2021 YEAR AB KLAIPĖDOS NAFTA REPORT ON REMUNERATION ................................................................................................................... 125 2021 YEAR AB KLAIPĖDOS NAFTA GOVERNANCE REPORT ................................................................................................................................ 129 Abbreviations: KN – AB Klaipėdos nafta KOT – Klaipėda oil terminal SOT – Subačius oil terminal OT – Oil terminals LNGT – regulated LNG activities comLNG – commercial LNG activities LNG terminal – Klaipėda LNG terminal BDP – Segment of LNG related business development and consulting OP – Oil Products HFO – Heavy Oil Products LP – Light Products NERC – National Energy Regulatory Council. 25 March 2021 AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 61 GENERAL INFORMATION ABOUT THE GROUP AND THE COMPANY 1. REPORTING PERIOD AB Klaipėdos nafta Consolidated Annual Report for the year 2021 is prepared for the period from 1 January 2021 until 31 December 2021. Annual Report for the year 2021 also includes Management Report and Report on Remuneration for the year 2021. 2. CONFIRMATION OF RESPONSIBLE PERSONS Referring to the Article 22 of the Law on Securities of the Republic of Lithuania and the Rules on Preparation and Submission of Periodic and Additional Information of the Bank of Lithuanian, Responsible Persons Darius Šilenskis, Chief Executive Officer of AB Klaipėdos nafta, Mindaugas Kvekšas, Chief Financial Officer of AB Klaipėdos nafta, and Rasa Tamaliūnaitė, Chief Accountant of AB Klaipėdos nafta, hereby confirm that to the best of our knowledge the Annual Report of AB Klaipėdos nafta for 2021 includes a fair review of the development and performance of the business and the present state of the Company together with the description of the main risks and uncertainties that are encountered. 3. PERSONS RESPONSIBLE FOR THE INFORMATION SUBMITTED IN THE ANNUAL REPORT JOB TITLE FULL NAME TELEPHONE NUMBER AB Klaipėdos nafta, Chief Executive Officer Darius Šilenskis +370 52 127 733 AB Klaipėdos nafta, Chief Financial Officer Mindaugas Kvekšas +370 46 391 772 AB Klaipėdos nafta, Chief Accountant Rasa Tamaliūnaitė +370 61 888 260 4. ISSUER INFORMATION AND CONTACT DETAILS Name of the Company: AB Klaipėdos nafta (hereinafter – the Company, KN or Issuer) Legal status: Stock Company Authorized share capital: 110,315,009 Eur Date and place of registration: 27 September 1994, State Enterprise Centre of Registers Company code: 110648893 Address: Burių Street 19, 92276 Klaipėda Register of the Company: State Enterprise Centre of Registers Telephone numbers: +370 46 391772 Fax numbers: +370 46 311399 E-mail address: [email protected] Internet site: www.kn.lt 5. INFORMATION ON SUBSIDIARIES AND CONTACT DETAILS: Name of the Company: UAB SGD terminalas Legal status: Private Limited Liability Company Authorized share capital: 37,500 Eur Date and place of registration: 27 December 2018, State Enterprise Centre of Registers Company code: 304977459 Address: Burių Street 19, 92276 Klaipėda Register of the Company: State Enterprise Centre of Registers Telephone numbers: +370 46 391772 Fax numbers: +370 46 311399 E-mail address: [email protected] Internet site: www.kn.lt AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 62 Name of the Company: UAB SGD logistika Legal status: Private Limited Liability Company Authorized share capital: 4,540,000 Eur Date and place of registration: 20 November 2015, State Enterprise Centre of Registers Company code: 304139242 Address: Burių Street 19, 92276 Klaipėda Register of the Company: State Enterprise Centre of Registers Telephone numbers: +370 46 391772 Fax numbers: +370 46 311399 E-mail address: [email protected] Internet site: www.kn.lt 6. INFORMATION ON SUBSIDIARIES OF UAB SGD LOGISTIKA AND CONTACT DETAILS: Name of the Company: UAB SGD SPB Legal status: Private Limited Liability Company Authorized share capital: 25,000 Eur Date and place of registration: 9 October 2019, State Enterprise Centre of Registers Company code: 305278800 Address: Burių Street 19, 92276 Klaipėda Register of the Company: State Enterprise Centre of Registers Telephone numbers: +370 46 391772 Fax numbers: +370 46 311399 E-mail address: [email protected] Internet site: www.kn.lt Name of the Company: KN Acu Servicos de Terminal de GNL LTDA Legal status: Limited Liability Company Authorized share capital: 642,600 BRL (Brazilian reals) Date and place of registration: 13 December 2019, State Register of Legal Entities of Rio de Janeiro Company code: NIRE 33.210.894.765; CPNJ 35.785.170/0001-03 Address: F66 Fazenda Saco Dantas s/n, Distrito Industrial, Area 1 and Area 2, 28200-000 São João da Barra, State of Rio de Janeiro Register of the Company: State Register of Legal Entities of Rio de Janeiro Telephone numbers: +370 46 391772 Fax numbers: +370 46 311399 E-mail address: [email protected] Internet site: www.kn.lt 7. GROUP STRUCTURE AND MAIN TYPES OF ACTIVITY Structure of the AB Klaipėdos nafta Group (hereinafter – Group) on 31 December 2021: AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 63 The Group’s Capital on 31 December 2021: NAME OF THE COMPANY TYPE OF SHARE NUMBER OF SHARES (UNIT) SHARE FACE VALUE TOTAL FACE VALUE AB Klaipėdos nafta Common registered shares 380,396,585 0.29 EUR 110,315,009 EUR UAB SGD terminalas Common registered shares 37,500 1.00 EUR 37,500 EUR UAB SGD logistika Common registered shares 4,540,000 1.00 EUR 4,540,000 EUR UAB SGD SPB Common registered shares 25,000 1.00 EUR 25,000 EUR KN Acu Servicos de Terminal de GNL LTDA Common registered shares 642,600 1.00 BRL 1) 642,600 BRL 1) 1) BRL - Brazilian real. The companies of the Group and their main activities: NAME OF THE COMPANY ADDRESS OWNERSHIP PART, % ACTIVITIES AB Klaipėdos nafta Burių Street 19, 92276 Klaipėda 100 The business activity of AB Klaipėdos nafta can be divided into three segments: Oil terminals, regulated LNG activities, and commercial LNG activities. Oil terminals include activities of Klaipėda Oil terminal and Subačius Oil terminal. Regulated LNG activities stand for Klaipėda LNG terminal. Commercial LNG activities include small-scale LNG station in Klaipėda, operation of LNG terminal in Açu port in Brazil, and other business development projects. UAB SGD terminalas Burių Street 19, 92276 Klaipėda 100 Operation (management) and development of the infrastructure of the liquefied natural gas terminal in Klaipeda, other economic activities. The subsidiary is currently not operating. UAB SGD logistika Burių Street 19, 92276 Klaipėda 100 Expansion of operation of international LNG terminal activities, LNG transportation activities, other economic activities. UAB SGD SPB Burių Street 19, 92276 Klaipėda 100 owned by UAB SGD logistika Expansion of operation of international LNG terminal activities by investing and establishing project companies in Lithuania and foreign countries (holding activities). KN Açu Serviços de Terminal de GNL LTDA (KN Acu) F66 Fazenda Saco Dantas s/n, Distrito Industrial, Area 1 and Area 2, 28200-000 São João da Barra, State of Rio de Janeiro 90 owned by UAB SGD logistika and 10 owned by UAB SGD SPB LNG terminal operation and maintenance services in the port of Açu, Brazil, including the technical and commercial operation of the installation of the quay and its facilities, gas pipeline and gas metering stations. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 64 8. AGREEMENTS WITH INTERMEDIARIES OF PUBLIC SECURITIES TRADING The Company has an agreement with Financial Markets Department of AB SEB Bankas for accounting of the Company’s securities and related services. AB SEB BANK FINANCIAL MARKETS DEPARTMENT: Company code 112021238 Address J. Balčikonis Street 7, LT-08247 Vilnius, Lithuania Telephone 1528 E-mail [email protected] Website www.seb.lt 9. AGREEMENTS WITH BROKERAGES FOR PUBLIC ISSUE The Company’s shares are traded on the regulated market; they are listed in the Baltic Main List of the Stock Exchange of AB NASDAQ Vilnius. THE MAIN DATA ABOUT THE SHARES OF THE COMPANY: ISIN code LT0000111650 Abbreviation KNF1L Share emission 380,396,585 The Company's shares have been listed on the Nasdaq Vilnius Secondary List since 16 th January of 1996 and since 4 th April of 2016 The Company's shares are listed on the Nasdaq Vilnius Main List. The securities of the subsidiary companies are not publicly traded. Details of the shares and shareholders are provided in 2021 Annual Report’s chapter “Information about the shareholders and shares” of the Company”. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 66 A FOREWORD OF THE CEO Dears, If at the beginning of 2022 someone had asked me to summarize the keywords or phrases which would describe previous year, the first ones to come to my mind were “uncertainty”, “perfect storm” and “mitigation of risks”. As it was predicted, 2021 was indeed a challenging year for KN. Perhaps even more challenging than we could have anticipated, as the amount of negative, largely unpredictable factors and circumstances affecting the operations of our oil terminals really broke any previous "anti-records", forming a so-called "perfect storm". At the beginning of the year, the loss of the flow of oil products from the East due to geopolitical reasons meant that we had not only to adjust to a significant drop in revenues, but also to live with much more modest turnover from our remaining major oil terminal customers due to the still record low refining margins caused by COVID-19 pandemic. In the second half of the year, we faced yet another challenge, which was the unprecedented level of energy prices and emission allowance costs. These have largely wiped out our tremendous efforts to improve the efficiency of the organisation's operations and processes, although we have made occasional improvements in some areas of activity. The same reason led to a significant reduction in regasification volumes at the Klaipėda LNG terminal. In accordance with international accounting standards and in response to the dramatic changes in the assumptions and circumstances of KN oil business segment, which historically was most profitable, we had to recognise an impairment of the assets of this business segment. On the other hand, in 2021 we also had several breakthroughs: better than expected performance in KN Açu and other LNG commercial activities; fully operational new infrastructure at Klaipėda Oil Terminal, which allowed us to attract new customers, products, and launch entirely new services at oil terminals, as well as contributed to the significant progress in energy efficiency. I can confidently say that in 2021, KN has become a regional hub for biofuel handling, storage, and production. And even with the decrease in transhipment volumes, we have maintained our market share among the Baltic oil terminals, staying in the top three, competing with terminals in Latvia and Estonia with much larger capacities. And then there is the successful maintenance of the ISO certification, and the acknowledgements for the great progress in environmental sustainability and emission reduction from communities and institutions. Also, in 2021 we were chosen as the most desirable employer in the Lithuanian logistics segment by main Lithuanian business newspaper “Verslo žinios”. The scope and scale of the changes in the business and the aforementioned "perfect storm" conditions have led us to devote a lot of time and energy in the Company to the process of reviewing our core document - the strategy - focusing mainly on refining the strategic assumptions and objectives in the near term, as well as on negative circumstances mitigation tactics. Although 2021 was a very challenging year, latest geopolitical developments superseded everything imaginable, and it appears that we will have to face the consequences of the war in Ukraine. Intolerable military invasion by Putin’s regime into sovereign Ukraine will have a significant impact for the entire world. Various supply chains are already broken and many of them will brake soon, if this bloody and brutal war will not be stopped. Energy markets are already breaking anti records in terms of prices and disbalances of supply – demand. This means that level of uncertainty in all KN activities will also remain high. On the other hand, in the light of above- mentioned market disruptions and emerged risks, importance of our infrastructure becomes crucial for the entire region’s energy security. Therefore, our short-term mission will shift towards maximisation of capacity availability and assurance of operational continuity for our customers in all our terminals until situation stabilises. Also, one cannot remain indifferent to everything what is going in Ukraine and to suffering of Ukrainian people. We are with Ukrainian nation with our hearts and minds, and we will contribute with our competences and resources at hand to support them. Ukraine is fighting not only for their freedom and independence, but also for Europe’s values and safe future of the region. Therefore, every input from socially responsible businesses – with direct support or encouragement for employees - is much needed and important and we will strive to do our part. When sailing in a storm, it is important not to concentrate on the distant horizon, but on each of the nearest waves, closely monitoring their direction and height. As well as being able to assess any potential threat or probability of a threat promptly and to make the most appropriate decisions and communicate them to the crew as quickly as possible in a comprehensible form. This is the only way to safely tackle tough and big challenges. This parallel is a good one to reflect the context of KN activities in 2021 and for sure beginning of 2022. I am proud of the entire KN "crew" and our common achievements in 2021 as well as commitment and motivation to face and overcome new challenges, brought by a war in Ukraine. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 67 I also sincerely believe that all storms and wars sooner or later come to an end. I hope, that for the end of 2022 we will finally have an opportunity to lift our eyes back to the peaceful horizon. To focus again on purifying our new strategic directions, improvement of productivity and transformation of organisation for value generation for those who care about us and the ones who matters to us. Sincerely, Darius Šilenskis Chief Executive Officer AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 68 BUSINESS CONTINUITY – OPERATIONS IN, DEPENDENCE ON, OR OTHER EXPOSURE TO RUSSIAN/BELARUSSIAN OR UKRAINIAN ECONOMIES The management of the Group and the Company has evaluated the potential impact of operations in, dependence on, and other exposure to Russian/Belarussian or Ukrainian economies, and the Group’s and the Company’s ability to continue as a going concern as at the date of the issue of the consolidated financial statements for the year ended 31 December 2021. The Group and the Company had not been trading with entities in Russia/Belarus and in Ukraine as at 31 December 2021 and no trading activities have been planned for 2022 with entities registered in aforementioned countries. The Group and the Company has no trading relationships with Belarus since February 2021 and no trading relationships with Russian entities. Therefore, no significant impact to the Group’s and the Company’s accounts receivables as at 31 December 2021 and for the future cashflows. The Group and the Company do not have material contracts/sales with entities in Russia/Belarus or Ukraine and does not receive key supplies or services from these countries. Still, the Group and the Company could potentially suffer from the increase in commodity prices such as gas and electricity. Furthermore, sanctions imposed on persons from Russia/Belarus could have an indirect effect on the Group’s and Company’s business. The Group and the Company do not have significant contracts that may no longer be enforceable (e.g., due to force majeure) in the foreseeable future. The Group and the Company do not have significant indirect exposure through trade with entities in other countries which may have significant exposure to Russia/Belarus or Ukraine. On 3 March 2022, the Company announced that acceptance of Novatek's cargo at the Klaipėda LNG terminal is suspended. In Company’s view, Gennady Nikolayevich Timchenko, included in the EU sanctions list (EU Council Regulation 2022/336 implementing Regulation No. 269/2014), can be considered a controlling person of the Novatek group under the EU law. According to the available data, Novatek group companies supply LNG cargo to LNG terminal users. The sanctions imposed prohibit entities from engaging in activities the object or effect of which is to circumvent restrictive measures. Although the Group and the Company do not have contracts with Novatek or its related entities, the Company contacted Klaipėda LNG terminal clients on its own initiative and asked to ensure compliance with the sanctions in their operations. In the absence of information that Klaipėda LNG terminal users are complying with the sanctions in respect of LNG cargoes scheduled to be unloaded at the Klaipėda LNG terminal, acceptance of Novatek's cargo at the Klaipėda LNG terminal is suspended. As at the date of the issue of the consolidated financial statements for the year ended 31 December 2021 the Group and the Company have not identified any other links in any way to organisations (including banks) or other individuals targeted for sanctions, or other politically exposed people in the region. As LNG activity is regulated, sanctions introduced have no impact on payments and liquidity/access to capital for the Group and the Company. The Group and the Company should not suffer potential material impacts (quantitative or qualitative) of sanctions introduced to Russia/Belarus and sanctioned individuals. As the Group and the Company operate the Klaipėda LNG terminal, it is stated that organization is in potential scope of malicious activities on the internet because of the importance of infrastructure to Lithuanian gas independence. Management is in charge that appropriate measures should be taken to respond to dynamic change of the situation in cyber space. Government institutions evaluate the readiness of the most important entities for cyber defence and give additional instructions what is the most important to implement and check as well as provide threat intelligence communication channels for preventive cyber defence. The Group and the Company do not outsource operational business processes (e.g., IT services) to Ukrainian or Russian/Belarussian service providers. The Company’s management has concluded that under current circumstances at the date of financial statements there is no significant doubt on the Group’s and the Company‘s ability to continue as a going concern in the foreseeable future. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 69 BUSINESS CONTINUITY – IMPACT OF COVID – 19 During 2021, Coronavirus COVID-19 and the decisions taken to stop the pandemic continued to complicate the normal operations of industries and maintained a significant level of uncertainty around the world. As in 2020, in 2021 the worldwide pandemic continued to: • Disrupt business operations and economic activity in Lithuania, with a cascading impact on both upstream and downstream supply chains. • Significantly disrupt businesses in certain sectors, both within Lithuania and in markets with high dependence on a foreign supply chain as well as export-oriented businesses with high reliance on foreign markets. The affected sectors include trade and transportation, travel and tourism, entertainment, manufacturing, construction, retail, insurance, education and the financial sector. • Significantly decrease demand for non-essential goods and services. • Increase economic uncertainty, which reflected in more volatile asset prices and currency exchange rates. The Company continued to notice a negative global and regional impact of COVID-19 during first half of 2021. Starting with the third quarter of 2021, travel restrictions began to decrease which boosted fuel consumption as well as increased the profit margins of oil refineries. All these factors had a positive impact on oil products transhipment in Klaipėda oil terminal during the second half of 2021. As an outcome of negative impact of COVID-19, impairment allowance for doubtful accounts receivables has reached EUR 2,222 thousand as at 31 December 2020 (EUR 728 thousand as at 31 December 2019). While as at 31 December 2021 allowance for doubtful accounts receivable reduced to EUR 1,511 thousand. The credit limits policy has been revised and respective actions to mitigate credit risk have been taken. The Group and the Company is monitoring the situation since the beginning of the spread of COVID-19 and maintains close communication with major clients on regular basis concerning their plans and fulfilment of contractual obligations. The Group and the Company on its side have continued their operations as usual - the services provision for the clients of the Group and the Company takes place according to the agreed schedules and plans. Reacting to the changed environment, the management of the Company has activated business continuity and risk mitigation plan of the Group and the Company already in the first half of 2020, the risk management team has been set up to monitor the situation of the Group and the Company and main partners on a daily basis. One of the main risks identified at the beginning of the COVID-19 – inability to operate the infrastructure in case of the infection of critical number of its employees - has been managed by introducing remote work and continuously providing employees with information on COVID-19 vaccination, making vaccination available in the Company’s medical room, holding virtual meetings with medical professionals. All the Group’s and the Company’s terminals have continued their operations as usual. Another source of risk for the Group and the Company lies in the disruption of a supply chain – starting from IT/telecommunications services that are necessary to ensure proper functioning of IT systems and remote work mode and ending to goods and services that are necessary to finalize investment programs on time. The management of the Company is constantly communicating with its suppliers in order to follow their situation and possibilities to fulfil their obligations on time. To mitigate this risk of supply during the future periods, the Group and the Company creates and updates the list of alternative suppliers for critical procurements and puts its best efforts to ensure timely implementation of all Group and Company goals. As at the financial statements issue date, there have been no indications from current suppliers that could have impact to the financial statements of the Group and the Company as at 31 December 2021 and as at 31 December 2020. The management of the Company is carefully monitoring global economic situation and possible long-term financial impact for the Group and the Company. As at 31 December 2021, the Group’s and the Company’s working capital amounts to EUR 17,425 thousand and EUR 12,388 thousand respectively (as at 31 December 2020 EUR 29,424 thousand and EUR 25,338 thousand respectively), the available Nordic Investment Bank credit facilities amount to EUR 240 million. Taking into account the high liquidity of the Group and the Company, preventive measures taken, activated business continuity and risks mitigation plans, from a cash flows point of view the Group and the Company are in a secure position to continue their business operations in unfavourable conditions. The Company’s management has concluded that under current circumstances at the date of financial statements there is no significant doubt on the Group’s and the Company‘s ability to continue as a going concern in the foreseeable future. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 70 INFORMATION ABOUT THE GROUP AND THE COMPANY AND ITS ACTIVITIES AB Klaipėdos nafta is the Company of strategic importance for the energy security of Lithuania and the surrounding region, which ensures the import of liquefied natural gas into Lithuania and neighbouring countries, the storage of the obligatory oil product reserve of the Republic of Lithuania, as well as reliable and efficient transhipment of oil products in Klaipėda port. Besides the activities mentioned above, the Company has started small scale LNG activities in 2017 and in 2020 became the operator of LNG terminal in Açu Port in Brazil, becoming the Group. Currently, the Group's activities can be divided into three main segments: commercial LNG activities, regulated LNG activities, and oil terminals. The Management of the Group and the Company evaluates the financial results of each segment and sets separate strategic goals. MAIN ACTIVITIES: INFORMATION ABOUT INVESTMENT INTO ASSOCIATES The Company has investments into the following associate companies as of 31 December 2021: NAME OF THE COMPANY ADDRESS OWNERSHIP PART, % ACTIVITIES UAB BALTPOOL 9 A. Juozapavičiaus str., LT-09311, Vilnius 33 Development of activity of energy resources (biofuel, gas) exchange, administration of Public Interest Services (PIS) funds. Sarmatia Sp. z o.o. ul. Nowogrodzka 68, Prima court, 02-014 Warsaw, Poland 1 Analysis and engineering of possibilities to construct oil pipeline between Asian states and the Baltic Sea. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 71 OIL TERMINALS Oil terminals segment (OT) includes activities of Oil Terminal in Klaipėda and Oil Terminal in Subačius which are providing services of oil products transhipment, long- term storage of oil products, and other services related to oil products transhipment. KLAIPĖDA OIL TERMINAL The Company is one of the largest oil transhipment terminals in the Baltic States. The terminal’s main activity is to tranship oil products delivered by rail tanks into tankers. CHARACTERISTICS OF KLAIPĖDA OIL TERMINAL Location Territory of AB Klaipėdos nafta oil terminal, address: Burių Street 19, Klaipėda Oil product tanks 51 tanks Volume of the tanks 571 thousand m 3 total volume The capacity of the oil terminal 8 - 10 million t / year Jetty berths 2 (in 2019 started to modernize the jetty berths and construct an additional multi-functional berth. After the reconstruction will be completed the terminal will be capable to service three oil tankers simultaneously instead of two. The total length of all three berths after reconstruction will be about 750 m) Harbour entrance depth: 14.5 m Max. draught at the jetty 13.5 m Max. length of serviced tankers Up to 275.0 m Railway Two double-track rail tank loading racks: • Two tracks for petroleum products that do not require maintaining of specific temperature conditions (up to 2 x 30 tank wagons are services simultaneously); • Two tracks for oil products that require maintaining of specific temperature conditions (up to 2 x 32 tank wagons are services simultaneously); • One of the tracks is adapted to oil products of all types; • 124 tank wagons can be loaded at the same time. Road tanker loading 4 loading points at the same time Modern laboratory Equipped to inspect main quality parameters of oil products Total capacity of three boilers of own boiler station 100 MWh The Company’s Oil Terminal handles these oil and chemical industry products: • Light Oil Products (hereinafter – LFO): Different types of diesel fuel. Different types of gasoline. Jet fuel. • Heavy Oil Products (hereinafter – HFO): Different types of fuel oil. Technological fuel. Vacuum gas oil (VGO). Crude oil. Bitumen. • Bio-fuels: Ethanol. Fatty acid methyl ester. Hydrotreated vegetable oil. • other products of the chemical industry: Monoethylene glycol. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 72 The processes of oil products transhipment service in the Company’s oil terminal mainly include the following operations: i) reloading of oil products from rail tanks, ii) temporary storage of oil products in the terminal’s shore tanks and iii) loading oil products into tankers. To supply the clients with imported oil products delivered to Klaipėda seaport by tankers, the Company is using trucks loading station located in its terminal. Klaipėda Oil terminal provides the following services: • Transhipment of crude oil and oil products from rail tanks into tankers. • Transhipment of crude oil and oil products from tankers into rail tanks. • Reloading of crude oil and oil products into trucks. • Accumulation and storage of crude oil and oil products. • Collection of wastewaters from sea vessels which is contaminated with oil products. • Mooring services. • Inspection of quality parameters of oil products. • Adding bio-additives and marking substances to oil products. • Blending of heavy and light oil products. • Supply of fuel and water to vessels. SUBAČIUS OIL TERMINAL After the approval of the share emission agreement with the Republic of Lithuania on 11 June 2012, the Company has started to manage Subačius oil terminal (hereinafter - SOT). After the takeover of Subačius oil terminal infrastructure the Company’s activity and services have been diversified and expanded including services of long- term oil product storage. SUBAČIUS OIL TERMINAL'S CHARACTERISTICS Location In Kunčiai village, Kupiškis district Volume of the tanks Total 66 tanks Volume of the tanks Almost 338 cub. m thousand total volume Railway The rail trestle which can simultaneously handle 14 rail tanks Road trucks loading Modern loading station of auto trucks Modern laboratory Able to detect the main quality parameters of oil products Subačius oil terminal provides the following services: • Storage of oil product (fuel) stocks of the Lithuanian State to ensure the national energy security under the relevant legal acts. • Long-term storage of oil products (gasoline, diesel fuel). • Short-term storage and handling of oil products (gasoline and diesel fuel) to the customers. • Adding bio-additives and marking substances to oil products. The results of activities of Subačius oil terminal for 2021 are present in the Explanatory note “Information about segments” of the Company’s audited financial statements for 2021. The infrastructure of Subačius oil terminal is continuously upgraded to ensure proper provision of high-quality services to customers, as well as safe and reliable operation of the facility. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 73 REGULATED LNG ACTIVITIES Regulated LNG activities (LNGT) segment includes activity of LNG terminal in Klaipėda which receives, and stores liquefied natural gas, regasifies, and supplies it to main gas pipeline. KLAIPĖDA LNG TERMINAL Ensuring long-term operation of Klaipėda LNG terminal At the end of 2019 Board of KN took necessary decisions regarding implementation of measures for ensuring long- term (until 2044) activities of the Klaipeda LNG Terminal, including principal decision on the FSRU acquisition after 2024. At the end of 2019, Parliament approved state guarantee for Stage I (optimization of LNG security supplement) and Stage II (purchase of FSRU) of the long- term LNG supply project, which enabled AB Klaipėdos nafta to sign agreement with NIB on the loan for the purpose of Stage I. Consequently, security supplement reduction (by almost 40 % since 2020) was proposed to National Energy Regulation Council (NERC). Based on NERC decision security supplement has been reduced and is applicable to all gas consumers starting January 2020. Loan agreement for Stage II (FSRU acquisition) has been signed with NIB on 2020-03-09. On 2020-11-20 the European Commission (EC) approved the state aid to be provided in the form of state guarantee for the FSRU acquisition loan. By this, principal issues related to FSRU acquisition financing are solved. Preparatory work for FSRU selection and purchase has been started. In accordance with the Law on LNG Terminal, which provides that LNG activities must be carried out until at least 2044-12-31 and the LNG terminal operator acquires FSRU and becomes an operator no later than 2024-12-31. During 2021, KN, as part of a project of long-term LNG import infrastructure solution, organised intensive discussions with market participants, a market consultation on the procurement documents and launched a public international tender for the acquisition of the FSRU in mid-year. Potential FSRU suppliers actively participated in the preparation of the tender, but after assessing the stated value of the purchase, technological aspects, and other circumstances, decided not to participate in the further stages of the tender. The market research, the market consultations, and the public tender results have clearly shown that the existing purchase option to acquire FSRU “Independence” is the most economically advantageous solution for KN. By December 2022, KN must inform the Norwegian company Höegh LNG of its decision to execute the right of FSRU Independence buy-out option as indicated in the time charter agreement. In 2021, five users have been using LNG terminal in Klaipeda; one company – from Estonia and four companies – from Lithuania. 72 LNG carriers have arrived at the LNG Terminal and 16.42 TWh of LNG have been regasified and reloaded during 2021. In 2021, Lithuania's natural gas consumption was about 24.26 TWh, of which about 15.11 TWh was served through Klaipėda LNG terminal. In 2021, utilization of LNG terminals decreased because less LNG was coming to Europe YoY. The average utilization of Klaipeda’s LNG terminal was 37% (vs 49% year ago); in comparison, based on data from GIE ALSI, the average European utilization of LNG terminals was 39% (vs 45% year ago). The LNG Terminal complements and extends the existing natural gas supply infrastructure of the country, creates opportunities for supply diversification, eliminates dependence on the only external natural gas supplier, ensures the security of natural gas supply and fulfils the EU Directive N-1 Infrastructure Standard, i.e., creates preconditions for Lithuania to independently supply itself with the natural gas needed to meet the demand of the first necessity. Infrastructure of the Liquefied Natural Gas Terminal LNG Terminal of AB Klaipėdos nafta is based on a Floating Storage with Regasification Unit (FSRU) technology. The terminal is connected to the gas transmission network of the natural gas transmission system operator AB Amber Grid by an 18-kilometre connecting gas pipeline. LNG Terminal functions - receive liquefied natural gas from LNG carriers, store them, regasify, and supply liquefied natural gas to transmission network or reload into other LNG carriers. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 74 LNG terminal infrastructure LNG Floating Storage with Regasification Unit The LNG floating storage with regasification unit is an LNG tanker (Independence), which at the Klaipeda Seaport receives liquefied natural gas from the LNG vessels – LNG carriers, which are moored at the FSRU. According to the schedules of the Terminal users, LNG is passed through special equipment in order to return the LNG to a gaseous state and supply it to the gas transmission system. In 2012 10-year lease (with purchase option) of LNG floating storage with gasification unit has been signed with Norwegian company Höegh LNG Ltd. The builder of this ship is South Korean shipyard Hyundai Heavy Industries Co. Ltd. TECHNICAL CHARACTERISTICS OF THE FSRU INDEPENDENCE Klaipeda seaport jetty 157 The volume of the tanks 170,000 m³ Maximum LNG filling level 98% at 70 kPag Maximum LNG loading capacity 9,000 m³/h LNG Maximum LNG reloading capacity 5,000 m³/h LNG when LNG regasification is performed during LNG reloading FSRU capabilities 3.75 billion m³ of natural gas per year (10.24 million m³ per day) Minimum operative LNG heel 3,500 m 3 LNG Maximum gas flow into the gas pipeline 10.24 million m³ per day Terminal’s technical specifications are given according to the current normative conditions: combustion/measurement temperature - 25/0 °C, pressure - 1.01325 bar. Jetty and its facilities There is a permanently moored FSRU at the jetty, which receives LNG from the LNG carriers that deliver them. Special offshore equipment includes high pressure platform, service platform, mooring and berthing dolphins, catwalks, fire extinguishing towers, control room, fire protection equipment, service cranes and high- pressure gas loading arms, and other necessary equipment and systems. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 75 Connecting pipeline of the LNG terminal The terminal is connected to the gas transmission network of the natural gas transmission system operator Amber Grid SC by an 18-kilometre-long and 700 mm diameter connecting gasoline. A gas metering station is built at the point of connection to the transmission network. Services of the LNG terminal The Terminal provides the following services: i) LNG regasification, ii) LNG reloading. The LNG regasification service consists of the following related services: • Acceptance of LNG cargo from the LNG carrier that arrived, physical (up to 60 days) and virtual (up to 12 months) storage of the cargo and LNG regasification in the rate specified in the Terminal user schedule. The LNG reloading service consists of the following related services: • Acceptance of LNG cargo from the LNG carrier that arrived, physical and virtual storage of the cargo and reload (re-export) of LNG to an LNG carrier of not less than 5,000 m 3 . The following prices apply to the services provided by the terminal: • The fixed part of the price of the LNG regasification service is approved annually by the National Energy Regulatory Council. This part of the price shall be included in the additional component of the natural gas supply security to the transmission price. • The variable part of the price of the LNG regasification service shall be paid by the users of the terminal for the regasified gas volume and shall be approved annually by the National Energy Regulatory Council (hereinafter – NERC). SERVICES OF THE TERMINAL SERVICE PRICE NERC DECREE LNG regasification service price (2021) 0.41 EUR/MWh excluding VAT 23 November 2020 No. O3E-1207 LNG regasification service price (2022) 0.41 EUR/MWh excluding VAT 16 November 2021 No. O3E-1496 LNG reloading service price (2021): - Small scale LNG cargo, up to 15,000 m3 - Medium scale LNG cargo, from 15,000 m3 to 50,000 m3 inclusive - Large scale LNG cargo, from 50,000 m3 0.53 EUR/MWh excluding VAT 0.41 EUR/MWh excluding VAT 0.30 EUR/MWh excluding VAT 23 November 2020 No. O3E-1206 LNG reloading service price (2022): - Small scale LNG cargo, up to 15,000 m3 - Medium scale LNG cargo, from 15,000 m3 to 50,000 m3 inclusive - Large scale LNG cargo, from 50,000 m3 0.56 EUR/MWh excluding VAT 0.44 EUR/MWh excluding VAT 0.31 EUR/MWh excluding VAT 16 November 2021 No. O3E-1495 * Terminal users transporting natural gas through the internal outlet of the natural gas transmission system shall also pay the additional security component of the natural gas supply price to the natural gas transmission price set by the NERC. The LNG terminal fully ensures the third-party access requirements in accordance with EU laws. The terminal’s activities are organized in observance with the Rules for Use of the Liquefied Natural Gas Terminal (hereinafter - Terminal rules), adopted after public consultations with market parties and agreed by NERC. The terminal’s capacities are provided to the potential users on the same conditions in the way of public and transparent annual capacity allocation procedure or during the on-going period if there are any free capacities left. LNG terminal can be used by multi users. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 76 COMMERCIAL LNG ACTIVITIES Commercial LNG activities (comLNG) segment includes activities of small-scale LNG reloading station in Klaipėda, operation of LNG terminal in Açu port in Brazil, and other business development projects and consultations. KLAIPĖDA SMALL SCALE LNG TERMINAL During 2021 7 cargoes were delivered to Klaipėda small- scale LNG terminal (hereinafter - LNG reloading station or ssLNG). The entire LNG cargo was loaded to LNG Trucks and distributed to consumers in Lithuania, Latvia, and Poland. A total of 527 LNG trucks were loaded at Klaipėda Small scale terminal in 2021. July 2021 was recorded as a record month from the start of operation of LNG reloading station – 82 LNG trucks were loaded. AB Klaipėdos nafta has opened an onshore LNG reloading station in the autumn of 2017. The purpose of the LNG reloading station project is to develop small-scale LNG infrastructure in the Baltic States and Poland, which not only increases energy security for areas that are further away from the gas pipeline, but also provides the benefits of alternative and clean energy to a significant number of consumers. This infrastructure also contributes to ensuring the availability of LNG as a clean fuel for shipping and heavy road transport. On April 1 st , 2020, the Polish state oil and gas company PGNiG commences commercial operations at KN- operated Klaipeda Small scale LNG terminal. The capacities of the station were allocated to PGNiG for a five-year period. The LNG reloading station is designed to receive cargo from small-scale LNG carriers, store LNG, load LNG into LNG Trucks, ISO containers or bunker LNG-powered vessels. The LNG reloading station is a commercial project of the Company financed by the Company and partly by the European Union support funds under the CEF-Transport program for the implementation of the HEKLA 1) and Blue Baltics 2) projects. 1) Completion of the project - 30 June 2018. 2) Completion of the project – 16 April 2020. TECHNICAL CHARACTERISTICS OF THE LNG RELOADING STATION Klaipeda seaport jetty 2 Technology Five pressure tanks Volume of the tanks 5 x 1,000 m 3 Fill level 86% LNG receiving speed (from ship) up to 1,250 m 3 /h Daily loading capacity for LNG Trucks 24 Loading of LNG Trucks 2 LNG Truck loading bays (possible simultaneous loading) LNG Truck loading speed up to 100 m 3 /h Bunkering speed up to 500 m 3 /h Utilization of boil of gas Gas pipeline connection to the Company’s boiler house AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 77 LNG TERMINAL IN AÇU PORT IN BRAZIL In 2020 KN became the operator of liquefied natural gas (LNG) terminal at Açu Port, Brazil. Under the contract concluded with Gas Natural Açu (GNA), a joint venture of Prumo Logistica, BP and Siemens, KN as the operator of the LNG Terminal is responsible for the smooth operation of the LNG Terminal, including the technical and commercial operation of the installation of the quay and its facilities, gas pipeline and gas metering stations. KN established a company KN Açu Serviços de Terminal de GNL Ltda., which is responsible for the execution of this project in Brazil, has gathered a team of local professionals, and has begun the activities in 2020. The contract is concluded for a period of 13 years and can be extended with a mutual agreement. THE CORPORATE STRATEGY On 13t February 2020 the Supervisory Council of the Company approved the corporate strategy of KN until 2030, which analysed the Company’s business environment factors and established common strategic goals for the entire Group. However, shortly after, the environment, in which the Group operates, began to change significantly starting October 2020, when the EU imposed several packages of sanctions on Belarus. On June 24, 2021, the Council Regulation (EU) 2021/1030 was introduced, due to which no more transit of oil product flows from Belarus were possible. The Company started to adapt the oil business segment to the changing environment, acting with no Belarus cargoes from the beginning of 2021. Moreover, current worldwide climate is leading to further transformation which should also be reflected in strategic goals. Due to aforementioned geopolitical circumstances, some of the goals, in particular for the oil business segment of the Group, are no longer relevant and need revision. Accordingly, the Group’s management intends to continue a revision of the strategy throughout 2022. Meanwhile, in this annual report we report KN’s progress based on the goals laid out in the corporate strategy approved on 13 February 2020. The mission of the Group and the Company is to ensure safe, reliable, and efficient access to global energy markets by sustainable development, investment, and operation of multi-functional liquid energy terminals worldwide. Changing energy markets and energy transition also acquired new competencies in management of LNG floating terminal in Klaipėda has led to the major change in the Company’s vision and mission. From being local and regional player, providing one type of service, the Company for 2020 - 2030 is targeting to diversify its activities, to expand provided services and be less dependent on one source of income. As a result, the Company will continue to develop four business lines: international LNG projects, oil and refined products handling services, management of Klaipeda LNG floating terminal and small-scale LNG reloading services. The Company sees the biggest potential for growth and net profit generation in LNG business development and investments into LNG import terminals internationally. AB Klaipėdos nafta believes that floating LNG import- based solutions will account for almost a half of the new regasification capacity in the decade ahead and sees the possibility to achieve that by 2030 the profit from oil product handling services is identical to that from LNG business development projects. Company’s vision for the oil business segment is to expand the range of products that can be handled and increase the operational excellence through investing in environmentally sustainable and more efficient technologies as well as digitization. Increased capacities will enable the Company to meet changing demands and improve quality of services provided. The strategy of state-regulated Klaipeda LNG terminal activity is to maintain operation after 2024 ensuring long- term access to LNG import for the country and constantly increase flexibility of the usage of the terminal in order to increase the net value for gas consumers. The growing demand for LNG which is transported by road and ships to the off-grid locations in the Baltics and northern Poland, the growing pressure to reduce global emissions and the promotion of LNG as a cleaner energy source give the LNG distribution station a significant role in the Company’s portfolio. AB Klaipėdos nafta together with its strategic partners has an aim to stimulate LNG market creation and to increase share of this much cleaner fuel consumption in marine and heavy transport as well as off-grid industry within a region. FSRU AT THE PORT OF AÇU. COURTESY BY GNA AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 78 The Strategy foresees that significant attention of the Company’s management will also be dedicated to the key asset of the Company – people, focus on direct and indirect business impact on the society - social responsibility, major digitization, and innovation directions of activities, carried out by the Company. MAIN BUSINESS LINES BY 2030 OIL BUSINESS By 2030 we aim to become the region’s top and most efficient oil throughput and storage hub of liquid petroleum, petrochemical products, and refining feedstock for regional and global refineries, traders, and other customers. WHAT WE PLAN TO ACHIEVE BY 2030: A. Sustain and increase volumes and profitability of oil terminals under consideration of changes to the market structure. B. Enter market for transhipment of petrochemicals and other new products. C. Ensure environmentally sustainable activities of KN oil infrastructure. • Full compliance with environmental regulations and reduction of emissions D. Ensure secure, reliable, and efficient operation of oil terminal. • No critical accidents. STRATEGIC DIRECTIONS OF OIL BUSINESS Oil business strategy is to ensure high rate of profitability and attractiveness by: • Investing into expanding of technological capacities, acceptance of larger tankers, and ship to ship loading and blending operations. • Reducing the number of personnel and related costs by automatization and digital measures. • Handling niche products like petrochemicals, alcohols, octane boosters, and other. OIL TERMINALS • Handle any oil product without limitation to transhipment mode, provide smart throughput, storage and blending services. • Be fully capable of working with products that go beyond traditional oil or petroleum products range. • Invest in sustainable and more efficient technologies and processes to reduce emissions from our activities. KLAIPĖDA LNG HUB • Assure the region’s access to the global LNG market at least till 2044 and benefit for Lithuanian consumers through commercial activities. • Assure highest quality bunkering and truck loading services, contribute to innovation development through the LNG cluster. INTERNATIONAL LNG PROJECTS • See the net profit from international LNG projects higher than from oil products transhipment services, which is the largest portion today. • Become the preferred partner for new LNG import terminal projects globally. • Be within the top three leading floating LNG import terminal companies. OIL BUSINESS DIRECTIONS GROWTH & COMPETITIVENESS ENVIRONMENTAL SUSTAINABILITY & SECURITY AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 79 KLAIPĖDA LNG HUB We aim to provide access to global LNG markets and competitive gas prices for traders and consumers in the Baltic Sea region and beyond, and to become the main small-scale LNG import terminal in the Baltic States and Poland. WHAT WE PLAN TO ACHIEVE BY 2030: A. To become regional LNG hub that increases liquidity and flexibility of the interconnected natural gas systems. • Ownership of FSRU, full O&M. • Implemented long term LNG import solution. • >30% FSRU revenues from international counterparties. • Provision of quality LNG services under the sustainable business model and for the benefit of the whole region. B. Profitable small-scale terminal with a proven value in the growing regional small-scale LNG (ssLNG) market. ACTIONS TO BE MADE KN will continue growing its market share and make impact by: • Generating revenue from long-term agreements to small-scale terminal by upstream partnering with strong players in the market who could ensure stable supplies to the reloading station on competitive prices. • Becoming effective and efficient terminal for the partners, being available when necessary and capable to do significant number of loads. • Improving business environment in Lithuanian LNG market by continuing spreading awareness in the market, cooperating with institutions and other players, promoting LNG-in-favour legislations, cooperating with Port Authorities to improve bunkering conditions and start bunkering operations in the Port of Klaipėda. INTERNATIONAL LNG PROJECTS We aim to become the preferred partner for new LNG import terminal projects globally and be within the top three leading floating LNG import terminal companies by 2030. WHAT WE PLAN TO ACHIEVE BY 2030: A. Operator of at least 5 LNG terminals by 2030 B. Shareholder in at least 4 LNG terminals by 2030 LNG VALUE CHAIN AND KN BUSINESS While natural gas is globally abundant cleanest burning fossil fuel and a highly competitive source of energy, many energy-hungry countries are at a considerable distance from the extraction locations. KN draws on the experience in developing and advising more than ten new LNG import projects in Europe, Latin America, and Asia since 2015 and has a track record of on- time and on-budget delivery of floating LNG terminal. Company seeks to: • Engage in early development to capture new projects. • Monitor and respond to public and private tenders for LNG import terminal development and O&M services. • Develop and strengthen partner network of FSRU owners, LNG traders, suppliers, and other relevant counterparties. • Develop market facing innovative solutions and concepts. • Actively seek and evaluate acquisition opportunities. REGASIFICATION DISTRIBUTION SHIPPING EXPLORATION AND PRODUCTION TREATMENT AND LIQUEFACTION AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 80 STATUS OF ACHIEVEMENT OF STRATEGIC GOALS The view of the management and evaluation of possibilities to achieve 2020-2030 strategic goals based on assumptions as at 31 December 2021: * Achievement of this goal is at risk due to the absence of Belarus cargo. STRATEGIC GOALS STATUS OIL TERMINALS Increase volumes and profitability of oil terminals. At risk for achievement * Enter the market for transhipment of petrochemicals and other new products and increase their share from overall oil business revenue In line with expectations Full compliance with environmental regulations and reduction of emissions In line with expectations No critical accidents, secure, reliable, and efficient operations In line with expectations KLAIPĖDA LNG HUB Ownership of FSRU, full O&M In line with expectations Implemented long term LNG import solution In line with expectations >30% FSRU revenues from international counterparties In line with expectations Provision of quality LNG services In line with expectations Profitable small-scale terminal In line with expectations INTERNATIONAL LNG PROJECTS Operator of at least 5 LNG terminals by 2030 In line with expectations Shareholder in at least 4 LNG terminals by 2030 In line with expectations AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 81 SIGNIFICANT EVENTS OF THE REPORTING PERIOD 11 th January 2021. The new wording of Articles of Association of AB Klaipėdos nafta were registered within the Register of Legal Entities of the Republic of Lithuania following the decrease of the authorized capital of the Company (by 190 TEUR), which is now equal to EUR 110,315,009 and divided into 380,396,585 units of shares. 7 th April 2021. The Government of the Republic of Lithuania adopted a resolution which provides, inter alia, that the LNG operator shall calculate the share of profits to be paid for dividends for 2020-2024 by eliminating unrealized impact of changes in foreign currency exchange rates and other amounts of unrealized gains (losses). 8 th April 2021 KN announced a consultation with market participants regarding the purchase of floating storage and regasification unit (FSRU) for Klaipėda LNG terminal. 20 th April 2021 KN and the Swedish company AFRY have signed an agreement on the long-term capacity allocation and pricing model study of the Lithuanian LNG terminal. 29 th April 2021 European Court of Justice (ECJ) has adopted the decision, by which State aid granted in 2013 by the Republic of Lithuania to AB Klaipėdos nafta for implementation of the Klaipėda LNG terminal, is declared compatible with the internal market of EU. ECJ‘s decision is final and indisputable. 30 th April 2021 KN held a General Meeting of Shareholders. Agenda of the meeting: approval of the audited Financial Statements of the Company for the year 2020, approval of the appropriation of profit (loss) for the year 2020, approval of Report on the remuneration, and election of audit firm for 2021 and 2022. 6 th May 2021 AB Klaipėdos nafta closed the list of shareholders for dividend payment on 14-05-2021. KN has paid dividend 0.0198 euros per share. Total amount of dividends paid 7.5 MEUR. 10 th May 2021 Board of the Company adopted the following decision: from 08-05-2021 to elect Linas Kilda as a Director of UAB SGD Logistika subsidiary and from 08-05-2021 to elect Mindaugas Navikas as a Director of subsidiaries UAB SGD terminalas and UAB SGD SPB. 7 th June 2021 After the closure of annual terminal capacities allocation procedure and conclusion of respective agreements, for the period from the 1 st of October 2021 until the 30 th of September 2022, LNG regasification capacities were allocated. Part of the terminal capacities was ordered by the new terminal user, the Norwegian energy company Equinor ASA. 15 th June 2021 With the permission of the Ministry of Finance of the Republic of Lithuania, obtained by AB Klaipėdos nafta, came into force the Company’s board decision to increase the authorized capital of the Company's subsidiary UAB SGD terminalas in the amount of EUR 25,000. The new wording of the Articles of Association of the subsidiary has been registered on July 15 th . 9 th July 2021 To ensure long-term operation of the LNG terminal in Lithuania KN announced the public procurement of a FSRU (floating storage regasification unit). 28 th July 2021 The Board of the Company has approved the renewed Dividend Policy. The renewed Dividend Policy provides that the amount of dividends for the years 2021-2024 is calculated by eliminating from the Company’s distributable profit unrealised foreign exchange rates impact and other unrealised gains (losses). 3 rd August 2021. AB Klaipėdos nafta informed that, according to the information published on the website of the National Energy Regulatory Council on 3 rd August 2021, the rate of return on regulated asset base of the Company equals 4.14% for 2022 (3.46% for 2021). 19 th August 2021. The Company by the decision of the Supervisory Council of the Company announced a selection of candidates for independent Board members of the Company. 10 th September 2021. KN received a formal notice by the independent Board Member Ian Bradshaw regarding his resignation from the position as the Board member of KN from 1 st of October 2021. 16 th September 2021. Gas Natural Açu (GNA) LNG-to- power project in port of Açu, Brazil has launched commercial operations and KN became an operator of the two fully operational LNG terminals worldwide. 24 th September 2021. A civil claim of the prosecutor of the Klaipėda Regional Prosecutor Office was received in defence of the public interest concerning the annulment of the decisions of the Company's bodies and employees’ Shares Granting Contracts, and the application of restitution. The Company is involved in the case as a defendant. 1 st October 2021. New 2022 gas year of the liquefied natural gas (LNG) terminal operated by KN began with 6 terminal users from Lithuania and foreign countries who booked LNG terminal’s capacities (total of 8 TWh) and 17 LNG carriers to be received. 25 th November 2021. The Supervisory Council adopted a decision to elect Guy Mason as an independent Board Member of the Company to serve from 1st December 2021 until the term of office (24 th April 2022). Guy Mason also will be elected as a Board member for the new term of office. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 82 SIGNIFICANT EVENTS OCCURRED AFTER THE END OF THE REPORTING PERIOD 5 th January 2022 AB Klaipėdos nafta received a formal notice by the independent Board member Bjarke Pålsson regarding his resignation from the position as the Board member of KN from 1 st of February 2022. 5 th January 2022 The Supervisory Council of KN adopted a decision to elect independent Board members for a new four-year term of office: Guy Mason, Edvinas Katilius, Alfonso Morriello, Jūratė Lingienė. The new Board of the Company will take office from 25 th April 2022. More information about each of the elected members can be found here. 3 rd February 2022 KN has announced a notification about Extraordinary General Meeting of Shareholders. The agenda of the meeting consists of the approval of AB Klaipėdos nafta Board decision to acquire the floating storage regassification unit Independence. 11 th February 2022 Laura Garbenčiūtė-Bakienė has submitted a notice of resignation from the Audit Committee of the Company as of 25 th February 2022. 25 th February 2022 Extraordinary General Meeting of Shareholders of the Company has adopted the resolution and approved AB Klaipėdos nafta’s Board decision to acquire the floating storage regasification unit (FSRU) Independence. The price for the FSRU Independence shall be 153.5 million USD, excluding VAT. The FSRU Independence sale and purchase agreement shall be signed no later than 6 December 2024. INFORMATION ABOUT PUBLIC ANNOUNCEMENTS Following the requirements of the Law of the Republic of Lithuania, all main events concerning the Company and information about the time and venue of the General Meeting of Shareholders are published on the website of the Company www.kn.lt and in AB NASDAQ Vilnius (www.nasdaqomxbaltic.com) Stock Exchange. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 83 BUSINESS ENVIRONMENT AND MARKET OIL TERMINALS’ BUSINESS ENVIRONMENT AND MARKET The Company’s oil products’ transhipment activities are mostly affected by: - Company's infrastructure (number of jetties, water depth at jetties) and suprastructure for transhipment and storage of oil products (number of tanks, pipelines, trestles, etc.). - Oil terminals’ economic attractiveness from logistical point of view (both transhipment tariffs and costs of the entire logistic chain). - Macroeconomic, geopolitical environment in the regional and global oil refining and trade markets, overall market situation. Main KN Oil business clients – crude oil refineries and traders operating in the regional and global oil and petroleum product markets. Strategic oil refinery (hereinafter – Refinery) in the region, part of which oil products are transhipped through Company's oil terminals are located in southeast direction - it is Mažeikiai plant in Lithuania (managed by AB ORLEN Lietuva, hereinafter - Orlen). Main Company’s competitors are oil terminals operating along the eastern coast of the Baltic Sea and those located at Odesa (Ukraine) port. Company's oil terminals activity results in 2021 were affected by geopolitical factors in the region, due to sanctions to Belarus introduced by Council Regulation (EU) 2021/1030 of 24th June 2021 as no more oil product transit flows from Belarus were transhipped nor expected in the future. It is also important Russia’s overall aim to tranship both Belarussian and Russian origin oil and chemical products mainly through its own seaports located on the coast of the Gulf of Finland (St. Petersburg, Primorsk, Ust-Luga), as well as new target to handle petrochemicals, which are currently being handled in Finnish and Baltic ports. Activities in the regional oil terminals, including KN Oil Terminal, were also affected by the slowdown in the global economy caused by the coronavirus COVID-19 pandemic, leading to a drop in demand for petroleum products and pushing oil refining margins to record lows. As a result of the above-mentioned negative factors, Estonian and especially Latvian ports lost part of their oil product flows, making them more active competitors for the Company's oil terminal. According to the statistical data, in 2021 ports of the eastern Baltic Sea coast transhipped approximately 92.7 million tons of oil products, i.e., 0.9 million tons or 0.97% less compared to the same period in 2020. In 2021, port of Klaipėda handled about 4.4 million tons of oil products, i.e., 1.4 million tons or 23.6% less than in 2020. The total amount of oil product transhipment through the Baltic ports in 2018-2021 decreased by 32% and their overall market share decreased by around 3%. As shown in the chart “Dynamics of oil products transhipment at the eastern Baltic Sea coast ports in 2018 2021” below, Russian’s ports share in total eastern Baltic Sea coast oil product transhipment market increased from 75.4% to 78.4%. During last 3 years total transhipment volumes in Russian ports increased by approximately 9.5%. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 84 * Figures are based on Klaipėda Port Authority data * Figures based on Klaipėda Port Authority data 30,9 16,1 11,3 11,4 7,8 5,7 6,3 2,7 0,9 0,5 32,3 16,7 11,9 11,5 5,5 4,4 8,0 2,2 0,4 0,4 0 5 10 15 20 25 30 35 Ust-Luga Primorsk Vysotsk St Petersburg Ventspils Klaipėda Tallinn and other Estonian ports terminals Riga Kaliningrad Liepaja Millions of tons 2020 2021 +4.3% +0.5% +5.4% +3.8% -29.7% -23.6% +26.4% -18.5% -60.3% -10.9% DYNAMICS OF OIL PRODUCTS TRANSSHIPMENT AT THE EASTERN BALTIC SEA COAST PORTS IN 2020 – 2021 66,4 7,4 14,2 8,0 68,4 6,9 13,8 7,3 70,6 6,3 11,0 5,7 72,7 8,0 7,7 4,4 0 10 20 30 40 50 60 70 80 Russia Estonia Latvia Lithuania Millions 2018 2019 2020 2021 DYNAMICS OF OIL PRODUCTS TRANSSHIPMENT AT THE EASTERN BALTIC SEA COAST PORTS, 2018 – 2021 AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 85 TRANSHIPMENT OF OIL PRODUCTS During 2021 Company’s Klaipėda and Subačius Oil terminals transshipped 3,651 kt of oil products compared to 5,149 kt in 2020. The transhipment of both terminals for 2021 is 29.1% lower than during 2020. The decrease was a result of the negative global and regional factors mentioned in the section “Oil Terminals’ Business Environment And Market”. At the same time, almost 2.4 times higher oil product, petrochemical and biofuel import volumes and storage services allowed to mitigate the impact of decreased export volumes. In 2021 part of Klaipėda Oil terminal’s storage tank park was reconstructed (8.5 thousand cubic meters in total) and successfully adapted for bitumen handling and storage. The supply of bitumen to the new tanks started in Q4 of 2021 while in January 2022 the first tanker was loaded with this product. The handling of oil products through KN Oil terminal’s infrastructure has evolved from 8 types of oil products at the beginning of 2021, to 13 different types of oil products, including 3 types of biofuels (FAME, ethanol, biodiesel (HVO), which are today being handled together with bitumen. In 2021, the terminal’s handling of the latter products increased significantly, with as much as 40 % more biofuels being handled in 2021 (in comparison to 91.3 kt in 2020). In 2021 Company’s transhipment by auto trucks increased about 15.4% and reached more than 566 thousand tons per year. In order to further expand the scope of activities and diversify products portfolio in Klaipėda and Subačius Oil terminals, the Company continues to develop business relationships with international and regional market players. * Figures based on KN data 7 086 7 177 6 694 5 749 5 149 3 651 2016 2017 2018 2019 2020 2021 TRANSHIPMENT IN OIL TERMINALS, THOUSAND TONES Transit Export Others AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 86 OVERVIEW OF KLAIPĖDA LNG TERMINAL OPERATING ENVIRONMENT During 2021 NERC adopted the following resolutions related to the operating environment of Klaipėda LNG terminal: • On 16 November 2021, decree no. O3E-1496 - NERC approved LNG regasification prices valid from 1 January 2022. The fixed part of the LNG regasification price approved by the decree (included in the security supplement to the natural gas transmission price) decreases by 0.99% to 149.88 EUR / (MWh / day / year), the variable part remains the same (0.41 EUR / MWh). • On 16 November 2021, decree no. O3E-1495 - NERC has set prices for liquefied natural gas reloading services, effective from 1 January 2022. This resolution established differentiated LNG reloading prices based on the methodology for setting state regulated prices in the natural gas sector. • On 19 November 2021, decree no. O3E-1522 - NERC has revised an additional component to the security supplement to the natural gas transmission price applicable from 1 January 2022 - EUR 252.86 / (MWh / day / year). • On 29 December 2021, decree no. O3E-1787 – NERC has approved new edition of the AB Klaipėdos nafta Regulations for use of liquefied natural gas terminal which simplifies the access to the terminal services: a. Established framework contract with the indefinite validation term – capacity bookings are executed by signing additional annex to the existing contract (“Special provisions”); b. Definition of “Spot cargo” is included in the Regulations. c. Terms and conditions of Spot cargo delivery are provided. d. separate LNG carrier arrival periods are determined for LNG load and LNG reload. e. Operator’s performed Due diligence procedure of interested parties of legal entities and evaluation of transactions of interested parties is included in the contents of the Regulations. f. Other technical corrections are made. Other relevant 2021 events related to the operation of the LNG terminal: • On 17 November 2021 the Resolution of the Government of the Republic of Lithuania No. 966 amended by the Government of the Republic of Lithuania November 7 Resolution no. 1354 “On the Approval of the Description of the Procedure for the Supply of the Required Quantity of the Liquefied Natural Gas Terminal and the Determination of the Natural Gas Consumption Capacity”, which establishes the minimum quantity of natural gas (3,867,500,000 kWh (+-5%) per each year) required for LNG terminal in the period of 2022-2024. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 87 LNG terminal capacity allocated for the Gas Year 2021 (period from 1 October 2020 to 30 September 2021): ALLOCATED CAPACITY AMOUNT OF ALLOCATED CAPACITY, GWh PERIOD LNG regasification capacity 8,364 From 1 October 2020 to 30 September 2021 920 From 30 September 2020 to 21 November 2020 63 From 1 October 2020 to 30 November 2020 61 From 1 October 2020 to 30 November 2020 242 From 1 November 2020 to 31 December 2020 62 From 20 November 2020 to 18 December 2020 63 From 18 December 2020 to 30 December 2020 9,879 From 24 December 2020 to 30 September 2021 62 From 5 January 2021 to 31 January 2021 14 From 2 December 2020 to 15 December 2020 63 From 4 December 2020 to 31 December 2020 158 From 1 February 2021 to 28 February 2021 60 From 1 February 2021 to 28 February 2021 99 From 17 February 2021 to 31 March 2021 63 From 14 March 2021 to 13 April 2021 62 From 13 March 2021 to 4 April 2021 62 From 13 March 2021 to 23 April 2021 125 From 1 May 2021 to 7 June 2021 138 From 1 May 2021 to 30 June 2021 123 From 1 May 2021 to 24 June 2021 30 From 1 June 2021 to 30 June 2021 102 From 1 July 2021 to 31 August 2021 40 From 1 August 2021 to 31 August 2021 63 From 1 September 2021 to 30 September 2021 *Combustion / measurement temperature 25/0 °C, pressure 1.01325 bar, natural gas gross calorific value 11.90 kWh/nm3, expansion factor 1: 578 m3 LNG / nm3 of gas). During Gas Year LNG regasification capacity may be changed to LNG reloading capacity. LNG terminal capacity allocated for the gas year 2022 (period from 1 October 2021 to 30 September 2022): ALLOCATED CAPACITY AMOUNT OF ALLOCATED CAPACITY, GWh PERIOD LNG regasification capacity 8,892 From 1 October 2021 to 30 September 2022 62 From 1 October 2021 to 31 October 2021 62 From 1 October 2021 to 30 November 2021 62 From 1 October 2021 to 31 October 2021 122 From 1 November 2021 to 31 December 2021 31 From 1 November 2021 to 31 December 2021 79 From 1 November 2021 to 30 November 2021 113 From 5 January 2022 to 28 February 2022 63 From 15 February 2022 to 31 March 2022 10 From 9 January 2022 to 28 January 2022 309 From 1 February 2022 to 31 March 2022 949 From 15 February 2022 to 12 April 2022 105 From 15 April 2022 to 2 May 2022 20 From 20 February 2022 Combustion / measurement temperature 25/0 °C, pressure 1.01325 bar, natural gas gross calorific value 11.90 kWh/nm3, expansion factor 1: 578 m3 LNG / nm3 of gas). During Gas Year LNG regasification capacity may be changed to LNG reloading capacity. Total 20,915 GWh LNG regasification capacities of LNG terminal were allocated for the Gas Year 2021 (period from 1 October 2020 to 30 September 2021). Meanwhile, total 10,878 GWh LNG regasification capacities of LNG terminal were allocated for the Gas Year 2022 (period from 1 October 2021 to 30 September 2022). LNG terminal users can book LNG terminal capacities during a Gas Year. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 88 16,337 GWh of LNG have been regasified and transmitted to AB “Amber Grid” transmission system in 2021. It should be noted that in 2021 LNG terminal has been used by 5 users (one company from Estonia). Starting from the Gas Year 2022 new terminal user From Norway will start to use services of the Terminal. During 2021 the LNG terminal: • Performed 71 ship-to-ship operations (73 ship-to- ship operations in 2020). • 1,122.4 thousand tonnes of LNG were received (1,429.6 thousand tonnes in 2020). • 1.436 billion nm 3 of natural gas were regasified and supplied to the natural gas transmission system (1.887 billion nm 3 in 2020). • 5.6 thousand tonnes LNG was reloaded into small scale LNG carriers (none were reloaded in 2020). • Accepted LNG origin was 58% from USA, 20% from Russia, 6% from Egypt and Equatorial Guinea each, 10% from Trinidad and Tobago. The need for LNG terminal capacity depends on several key criteria: • Joint gas demand of Lithuania and other Baltic States. • Pricing offered by competing natural gas supply sources (gas supplied by pipeline) and quantity of gas supplied. • Limitations of the Lithuanian natural gas infrastructure (transmission system capacity); • Supply of LNG in the global market. • LNG prices in the region and worldwide. • Duration and terms of gas supply contracts. • Availability and freight costs of LNG carriers. GAS PIPELINES PROJECTS IN THE BALTIC STATES Energy projects implemented in the Baltic region would enable the development of the LNG market and more efficient use of the available capacity of the LNG terminal. At the beginning of 2022, the GIPL gas transmission pipeline between Lithuania and Poland will increase demand for the LNG terminal. UPDATE ON KLAIPĖDA LNG TERMINAL CAPACITY ALLOCATION AND TARIFFICATION MODEL During the first half of 2021 the Company decided to implement changes on Klaipėda LNG terminal capacity allocation and tariffication model by ensuring a possibility for terminal users booking capacity for a long-term period and by applying cost-reflective tariff. In line with potential changes, Swedish company AFRY prepared study on the long-term capacity allocation and tariffication models applicable in LNG terminals in Europe. During few workshops AFRY presented results of the study to stakeholders and had discussions with market participants. Based on the study results, KN is currently updating principles of the LNG terminal capacity allocation and tariffication model. LNG Terminal Regulations will be amended accordingly. Main terms and conditions of the Regulations will be submitted to National Energy Regulatory Council (NERC) and public consultation will be announced. After approval of main terms and conditions of Regulations, long-term capacity allocation procedure will be announced in summer of 2022. Capacity will be allocated for up to 10 years period counting from 2023. 1,4 1,9 1,9 1,4 2,4 2,1 2,2 1,3 1,9 1,7 1,7 2,1 0,9 1,0 1,8 1,6 2,3 1,7 1,3 1,4 1,5 0,9 1,1 0,9 2020 2021 LNG REGASSIFICATION AND RELOADING, TWh 12,6 9,2 20,1 21,9 16,4 2017 2018 2019 2020 2021 TOTAL LNG REGASSIFICATION AND RELOADING, TWh AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 89 FINANCIAL RESULTS OF GROUP’S ACTIVITY 37,9 35,2 32,1 31,4 21,4 68,2 64,4 70,9 43,4 34,8 106,5 100,0 104,4 80,1 61,8 2017 2018 2019 2020 2021 Commercial LNG activities Regulated LNG activities Oil terminals Total SALES REVENUE, MEUR 17,0 11,6 7,6 34,0 -64,0 12,7 11,5 -47,2 2017 2018 2019 2020 2021 Net profit (loss) Net profit (loss) adjusted NET PROFIT (LOSS), MEUR 23,7 17,4 20,8 29,2 8,7 31,6 26,4 71,0 48,2 26,1 2017 2018 2019 2020 2021 Gross profit EBITDA GROSS PROFIT AND EBITDA, MEUR 205 202 581 560 493 96 91 82 92 79 301 293 663 652 572 2017-12-31 2018-12-31 2019-12-31 2020-12-31 2021-12-31 Non-current assets Current assets Total assets ASSETS, MEUR AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 90 CONSOLIDATION The financial results of the Group consist of the financial results of the parent company AB Klaipėdos nafta and its directly and indirectly controlled subsidiaries. According to IFRS 10, the parent company controls an entity when the parent company 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. Control is generally obtained by holding more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. The financial statements of subsidiaries have been prepared using uniform accounting policies and for the same reporting period as that covered by the financial statements of the Group. On consolidation, all inter- company transactions, balances, and unrealized gains and/or losses on transactions among the Group companies are eliminated. On consolidation, the revenue and expenses are translated into euros at an average exchange rate observed during reporting period. The assets and liabilities of foreign operations are translated into euros at the rate of exchange prevailing at the reporting date. The exchange differences arising on translation for consolidation are recognised in other comprehensive income. CONSOLIDATED FINANCIAL RESULTS OF THE GROUP INCLUDE THE FOLLOWING COMPANIES: NAME OF THE COMPANY ADDRESS OWNERSHIP PART, % AB Klaipėdos nafta Burių Street 19, 92276 Klaipėda 100 UAB SGD terminalas Burių Street 19, 92276 Klaipėda 100 UAB SGD logistika Burių Street 19, 92276 Klaipėda 100 UAB SGD SPB Burių Street 19, 92276 Klaipėda 100 owned by UAB SGD logistika KN Açu Serviços de Terminal de GNL LTDA (KN Acu) F66 Fazenda Saco Dantas s/n, Distrito Industrial, Area 1 and Area 2, 28200-000 São João da Barra, State of Rio de Janeiro 90 owned by UAB SGD logistika and 10 owned by UAB SGD SPB More information about the structure of the Group and its subsidiaries can be found in the Annual Report section “General Information About the Group and the Company”. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 91 FINANCIAL RESULTS OF THE GROUP’S AND THE COMPANY’S ACTIVITY THE KEY FINANCIAL RATIOS OF THE GROUP (IN EUR THOUSAND, IF NOT INDICATED OTHERWISE) * adj. - adjusted financial indicators/data are recalculated and presented by eliminating from net profit (loss) the following amounts: (1) the impact of unrealised foreign currency exchange rates (forex) arising from IFRS 16 requirements, (2) respective impact of deferred income tax arising from forex and (3) impact of financial derivatives. THE GROUP 2021 2021 adj. 2020 2020 adj. 2019 2019 adj. 2018 2017 Transhipment of oil products, thousand t 3,651 3,651 5,149 5,149 5,749 5,749 6,694 7,177 LNG regasification and reloading, GWh 16,569 16,569 21,987 21,987 20,237 20,237 9,213 12,646 Investments of non-current assets 9,080 9,080 7,163 7,163 22,051 22,051 13,156 32,858 FINANCIAL FIGURES Sales 61,811 61,811 80,114 80,114 104,363 104,363 99,998 106,484 Gross profit 8,702 8,702 29,154 29,154 20,834 20,834 17,369 23,745 EBITDA (APM) 26,108 26,108 48,168 48,168 70,979 70,979 26,406 31,555 EBIT (APM) -73,486 -53,342 46,275 19,456 8,304 14,386 12,065 17,711 Financial and investment activities -22,602 -2,458 24,460 -2,359 -8,314 -2,232 -8 -94 Profit before income tax (EBT) -75,767 -55,623 43,839 17,020 6,002 12,084 11,857 17,513 Net profit (loss) -64,011 -47,178 33,958 11,454 7,561 12,731 11,577 17,031 Current assets 78,841 78,841 91,695 91,695 81,946 81,946 90,654 96,268 Non-current assets 493,240 493,240 559,999 559,999 581,351 581,351 202,473 204,977 Total assets 572,081 572,081 651,694 651,694 663,297 663,297 293,127 301,245 Equity 144,713 144,212 216,326 198,992 190,649 195,819 195,490 200,344 PROFITABILITY Return on assets (ROA) (APM) -10.5% -7.7% 5.2% 1.7% 1.6% 2.7% 3.9% 6.3% Return on equity (ROE) (APM) -35.5% -27.5% 16.7% 5.8% 3.9% 6.5% 5.9% 8.7% Return on Capital Employed (ROCE) (APM) 0.17% 0.17% 6.9% 7.3% 5.1% 5.0% 4.2% 6.4% Gross profit margin (APM) 14.1% 14.1% 36.4% 36.4% 20.0% 20.0% 17.4% 22.3% EBITDA margin (APM) 42.2% 42.2% 60.1% 60.1% 68.0% 68.0% 26.4% 29.6% EBIT margin (APM) -118.9% -86.3% 57.8% 24.3% 8.0% 13.8% 12.1% 16.6% EBT margin (APM) -122.6% -90.0% 54.7% 21.2% 5.8% 11.6% 11.9% 16.4% Net profit margin (APM) -103.6% -76.3% 42.4% 14.3% 7.2% 12.2% 11.6% 16.0% FINANCIAL STRUCTURE Debt ratio (D/E) (APM) 295% 296% 201% 219% 248% 241% 50% 50% Debt ratio (D/E) – excluding IFRS 16 liabilities (APM) 97% 97% 60% 65% 50% 49% 50% 50% Debt to EBITDA (APM) 16 16 9 9 7 7 4 3 Debt (excluding IFRS 16) to EBITDA (APM) 5 5 3 3 1 1 4 3 Debt service coverage ratio (DSCR) (APM) 4 4 8 8 12 12 9 67 Leverage ratio (D/A) (APM) 0.75 0.75 0.67 0.67 0.71 0.71 0.33 0.33 Leverage ratio (D/A) (excluding IFRS 16) (APM) 60% 60% 44% 44% 33% 33% 33% 33% Interest coverage ratio (EBITDA/interest expense) 11 11 20 20 31 31 127 159 Effective tax rate 16% 15% 23% 33% -26% -5% 2% 3% Capital to assets ratio (APM) 25% 25% 33% 31% 29% 30% 67% 67% Gross liquidity ratio (current ratio) (APM) 1.28 1.28 1.47 1.47 1.27 1.27 4.87 4.78 Quick ratio (APM) 1.25 1.25 1.43 1.43 1.24 1.24 4.77 4.72 Quick ratio (excluding IFRS 16) (APM) 4.34 4.34 4.06 4.06 3.98 3.98 4.77 4.72 MARKET VALUE RATIOS Price-Earnings Ratio (P/E) -1.8 -2.5 3.6 10.7 18.3 10.9 13.4 11.4 Earnings per share (EPS) -0.168 -0.124 0.089 0.030 0.020 0.033 0.030 0.045 AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 92 THE KEY FINANCIAL RATIOS OF THE COMPANY (IN EUR THOUSAND, IF NOT INDICATED OTHERWISE) * adj. – adjusted financial indicators/data are recalculated and presented by eliminating from net profit (loss) the following amounts: (1) the impact of unrealised foreign currency exchange rates (forex) arising from IFRS 16 requirements, (2) respective impact of deferred income tax arising from forex and (3) impact of financial derivatives. THE COMPANY 2021 2021 adj. 2020 2020 adj. 2019 2019 adj. 2018 2017 Transhipment of oil products, thousand t 3,651 3,651 5,149 5,149 5,749 5,749 6,694 7,177 LNG regasification and reloading, GWh 16,569 16,569 21,987 21,987 20,237 20,237 9,213 12,646 Investments of non-current assets 9,080 9,080 7,163 7,163 22,051 22,051 13,156 32,858 FINANCIAL FIGURES Sales 58,633 58,633 77,474 77,474 104,138 104,138 99,998 106,484 Gross profit 6,489 6,489 27,283 27,283 21,241 21,241 17,369 23,745 EBITDA (APM) 24,582 24,582 47,291 47,291 71,396 71,396 26,406 31,555 EBIT (APM) -74,852 -54,708 45,508 18,689 8,690 14,772 12,065 17,711 Financial and investment activities -22,519 -2,375 24,571 -2,248 -8,345 -2,263 -8 -94 Profit before income tax (EBT) -77,129 -56,985 43,103 16,284 6,388 12,470 11,857 17,513 Net profit (loss) -64,917 -48,084 33,495 10,991 7,947 13,117 11,577 17,031 Current assets 73,463 73,463 87,329 87,329 77,917 77,917 90,654 96,268 Non-current assets 497,496 497,496 564,218 564,218 585,904 585,904 202,473 204,977 Total assets 570,959 570,959 651,547 651,547 663,821 663,821 293,127 301,245 Equity 143,950 143,449 216,459 199,125 191,173 196,343 195,490 200,344 PROFITABILITY Return on assets (ROA) (APM) -10.6% -7.9% 5.1% 1.7% 1.7% 2.7% 3.9% 6.3% Return on equity (ROE) (APM) -36.0% -28.1% 16.4% 5.6% 4.1% 6.7% 5.8% 8.7% Return on Capital Employed (ROCE) (APM) -0.4% -0.4% 6.6% 7.0% 5.2% 5.1% 4.2% 6.4% Gross profit margin (APM) 11.1% 11.1% 35.2% 35.2% 20.4% 20.4% 17.4% 22.3% EBITDA margin (APM) 41.9% 41.9% 61.0% 61.0% 68.6% 68.6% 26.4% 29.6% EBIT margin (APM) -127.7% -93.3% 58.7% 24.1% 8.3% 14.2% 12.1% 16.6% EBT margin (APM) -131.5% -97.2% 55.6% 21.0% 6.1% 12.0% 11.9% 16.4% Net profit margin (APM) -110.7% -82.0% 43.2% 14.2% 7.6% 12.6% 11.6% 16.0% FINANCIAL STRUCTURE Debt ratio (D/E) (APM) 297% 298% 201% 218% 247% 241% 50% 50% Debt ratio (D/E) – excluding IFRS 16 liabilities (APM) 97% 98% 60% 65% 50% 49% 50% 50% Debt to EBITDA (APM) 17 17 9 9 7 7 4 3 Debt (excluding IFRS 16) to EBITDA (APM) 6 6 3 3 1 1 4 3 Debt service coverage ratio (DSCR) (APM) 4 4 8 8 12 12 9 67 Leverage ratio (D/A) (APM) 0.75 0.75 0.67 0.67 0.71 0.71 0.33 0.33 Leverage ratio (D/A) (excluding IFRS 16) (APM) 60% 60% 44% 44% 33% 33% 33% 33% Interest coverage ratio (EBITDA/interest expense) 11 11 20 20 31 31 127 159 Effective tax rate 16% 16% 22% 33% -24% -5% 2% 3% Capital to assets ratio (APM) 25% 25% 33% 31% 29% 30% 67% 67% Gross liquidity ratio (current ratio) (APM) 1.20 1.20 1.41 1.41 1.21 1.21 4.87 4.78 Quick ratio (APM) 1.17 1.17 1.37 1.37 1.17 1.17 4.77 4.72 Quick ratio (excluding IFRS 16) (APM) 4.12 4.12 3.91 3.91 3.77 3.77 4.77 4.72 MARKET VALUE RATIOS Price-Earnings Ratio (P/E) -1.8 -2.4 3.6 11.1 17.4 10.5 13.4 11.4 Earnings per share (EPS) -0.171 -0.126 0.088 0.029 0.021 0.034 0.030 0.045 AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 93 ALTERNATIVE PERFORMANCE MEASURES MEASURE CALCULATION Capital to assets ratio total capital at the end of the period / total assets at the end of the period Adjusted capital to asset ratio total adjusted capital at the end of the period / total assets at the end of the period Debt (excluding IFRS 16) to EBITDA (total current and non-current liabilities at the end of the period – current and non-current IFRS lease liabilities) / EBITDA Debt ratio (D/E) total current and non-current liabilities at the end of the period / total equity at the end of the period Adjusted debt ratio (D/E) (total current and non-current liabilities) / total adjusted equity at the end of the period Debt ratio (D/E) – excluding IFRS 16 liabilities (total current and non-current liabilities at the end of the period – total current and non-current IFRS 16 lease liabilities) / total equity at the end of the period Adjusted Debt ratio (D/E) – excluding IFRS 16 liabilities (total current and non-current liabilities at the end of the period – total current and non-current IFRS 16 lease liabilities) / total adjusted equity at the end of the period Debt service coverage ratio (DSCR) EBITDA / (total current loan obligations at the end of the period + interest expenses of the period) Debt to EBITDA total current and non-current liabilities at the end of the period / EBITDA EBIT earnings before interest and taxes Adjusted EBIT earnings before interest and taxes – unrealised foreign exchange rates impact – impact of financial derivatives EBIT margin EBIT / revenue Adjusted EBIT margin adjusted EBIT / revenue EBITDA earnings before taxes – financial activity income + financial activity expenses + depreciation and amortization expenses + impairment expenses and reversals EBITDA margin EBITDA / revenue EBT margin (earnings before taxes) / revenue Adjusted EBT margin (earnings before taxes– unrealised foreign exchange rates impact – impact of financial derivatives) / revenue Gross liquidity ratio (current ratio) total current assets at the end of the period / total current liabilities at the end of the period. Gross profit margin (revenue – COGS) / revenue * 100 Leverage ratio (D/A) total current and non-current liabilities at the end of the period / total assets at the end of the period Leverage ratio (D/A) (excluding IFRS 16) (total current and non-current liabilities at the end of the period – current and non-current IFRS lease liabilities) / (total assets at the end of the period – right of use assets) Net profit margin net profit (loss) for the period / revenue Adjusted net profit margin adjusted net profit (loss) for the period / revenue AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 94 ALTERNATIVE PERFORMANCE MEASURES (CONT.) MEASURE CALCULATION Quick ratio (excluding IFRS 16) (total current assets at the end of the period – inventories at the end of the period) / (total current liabilities at the end of the period – total current IFRS 16 lease liabilities) Return on assets (ROA) net profit (loss) of the last twelve months / (assets at the end of the period + assets at the beginning of the period) / 2 Adjusted return on assets adjusted net profit (loss) of the last twelve months / (assets at the end of the period + assets at the beginning of the period) / 2 Return on Capital Employed (ROCE) (EBITDA – depreciation and amortization expenses) / (total equity + total long-term loans and deferred government grants at the end of the period) Return on equity (ROE) net profit (loss) of the last twelve months / (equity at the end of the period + equity at the beginning of the period) / 2 Adjusted return on equity adjusted net profit (loss) of the last twelve months / (adjusted equity at the end of the period + adjusted equity at the beginning of the period) / 2 Quick ratio (total current assets at the end of the period – inventories at the end of the period) / total current liabilities at the end of the period AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 95 FINANCIAL RESULTS KN uses alternative performance measures (APM) in order to provide better understanding of the Group and the Company business operations. Currently, net profit (loss) of the Group and the Company is affected by material non-cash items. Therefore, the adjusted financial indicators are recalculated and presented by eliminating from net profit (loss) the following amounts: (1) the impact of unrealised foreign currency exchange rates (forex) arising from IFRS 16 requirements, (2) respective impact of deferred income tax arising from forex and (3) impact of financial derivatives. KN’s financial results of 2021 and 2020 have mainly been affected by IFRS 16 “Leases” - a new standard which came into effect on 1 January 2019 and by the reduction of LNG security supplement from 1 January 2020 by EUR 26.8 million per annum. These changes have significantly affected KN’s statement of financial position, statement of comprehensive income, and financial indicators. When the standard has become effective, the lease obligations are recognized in the statement of financial position as an asset and a liability (right-of-use assets and a lease liability). As most lease payments are denominated in USD, the negative impact of unrealized USD/EUR exchange rate in amount of EUR 22,073 thousand has been recognized in the statement of comprehensive income in 2021 (in 2020 - EUR 28,765 thousand positive impact). However, it is a non-cash item, which has no impact to the Group’s and the Company’s actual earnings. The reduction of the LNG security supplement reduced revenue of the Group and the Company for 2021 and 2020 in amount of EUR 26.8 million per annum. The LNG security supplement reduction is financed by NIB loans; therefore, the cash flows of the Group and the Company are not affected. The calculation of net profit (loss) adjusted of the Group and the Company is presented below: INCREASE/(DECREASE) IN EUR THOUSAND 31-12-2021 31-12-2021 THE GROUP THE COMPANY Net profit (loss) -64,011 -64,917 Unrealised foreign exchange rates impact 22,073 22,073 Impact of financial derivatives -1,929 -1,929 Deferred tax impact from unrealised forex -3,311 -3,311 Net profit (loss) adjusted -47,178 -48,084 -47 178 -22 073 1 929 3 311 -64 011 Net profit (loss) adjusted Unrealised foreign exchange rates impact Impact of financial derivatives Deferred income tax impact from unrealised forex Net profit (loss) IMPACT OF IFRS 16 ON GROUP'S NET PROFIT (LOSS) IN 2021, EUR THOUSAND AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 96 In year 2021 the main KN financial indicators have changed compared to 2020 as follows: 2021 2021 adj. 2020 2020 adj. CHANGE, 2021adj. VS 2020 adj. +/- % GROUP Gross profit 8,702 8,702 29,154 29,154 -20,452 -70.2% Net profit (loss) -64,011 -47,178 33,958 11,454 -58,632 -511.9% EBITDA (APM) 26,108 26,108 48,168 48,168 -22,060 -45.8% Gross profit margin (APM) 14.1% 14.1% 36.4% 36.4% -22.3% -61.3% Net profit margin (APM) -103.6% -76.3% 42.4% 14.3% -90.6% -633.6% EBITDA margin (APM) 42.2% 42.2% 60.1% 60.1% -17.9% -29.8% Earnings per share (EPS) -0.168 -0.124 0.089 0.030 -0.154 -513.3% Financial activity result -22,602 -2,458 24,460 -2,359 -99 4.2% Return on assets (ROA) (APM) -10.5% -7.7% 5.2% 1.7% -9.4% -552.9% Return on equity (ROE) (APM) -35.5% -27.5% 16.7% 5.8% -33.3% -574.1% COMPANY Gross profit 6,489 6,489 27,283 27,283 -20,794 -76.2% Net profit (loss) -64,917 -48,084 33,495 10,991 -59,075 -537.5% EBITDA (APM) 24,582 24,582 47,291 47,291 -22,710 -48.0% Gross profit margin (APM) 11.1% 11.1% 35.2% 35.2% -24.1% -68.5% Net profit margin (APM) -110.7% -82.0% 43.2% 14.2% -96.2% -677.5% EBITDA margin (APM) 41.9% 41.9% 61.0% 61.0% -19.1% -31.3% Earnings per share (EPS) -0.171 -0.126 0.088 0.029 -0.155 -534.5% Financial activity result -22,519 -2,375 24,571 -2,248 -127 5.6% Return on assets (ROA) (APM) -10.6% -7.9% 5.1% 1.7% -9.6% -564.7% Return on equity (ROE) (APM) -36.0% -28.1% 16.4% 5.6% -33.7% -601.8% In 2021 the Group’s adjusted net profit (loss) is EUR (47,178) thousand and is EUR 58,632 thousand lower compared to 2020 (EUR 11,454 thousand). The Group’s adjusted net profit margin (APM) for 2021 is -76.3%, the adjusted gross profit margin (APM) is 14.1% (in 2020 respectively 14.3% and 36.4%). The adjusted profit (loss) per one share amounts to EUR (0.124)/share in 2021 (EUR 0.030/share in 2020). In 2021 the Company’s adjusted net profit (loss) is EUR (48,084) thousand and is EUR 59,075 thousand lower compared to 2020 (EUR 10,991 thousand). The Company’s adjusted net profit margin (APM) for 2021 is -82.0%, the adjusted gross profit margin (APM) reached 11.1% (in 2020 respectively 14.2% and 35.2%). The adjusted profit (loss) per one share amounts to EUR (0.126)/share in 2021 (EUR 0.029/share in 2020). -3 445 -3 445 -1 023 -1 023 62 62 6 207 1 037 6 665 29 169 323 -16 510 9 969 9 969 5 812 5 812 -47 563 -47 563 2019 adjusted 2019 2020 adjusted 2020 2021 adjusted 2021 Commercial LNG activities Regulated LNG activities Oil Terminals THE GROUP'S PROFIT BY BUSINESS SEGMENTS, TEUR AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 97 The main reasons for the decrease of the Group’s adjusted net profit (loss) by EUR 58,632 thousand compared to 2020 are - EUR 53,375 thousand lower adjusted net profit from Oil terminals, commercial LNG activities net profit was EUR 1,085 thousand higher, and EUR 6,342 thousand lower adjusted net profit (loss) of regulated LNG activities. For detail explanations see below: • Adjusted net profit (loss) of Oil terminals is lower by EUR 53,375 thousand mainly due to a recognized impairment of Klaipėda Oil terminal in amount of EUR 54.2 million and a respective deferred income tax asset impact of EUR 8.1 million. The total impact from recognition of this impairment loss on net profit (loss) amounts to EUR 45.2 million. EUR 10 million lower revenue from oil business segment also contributes to the net loss for 2021. More information concerning impairment of KOT assets can be found in the Note 3 of the Explanatory Notes in the financial statements. • The adjusted net profit from commercial LNG activities is EUR 1,085 thousand higher because in the beginning of 2020 the Company has signed a long-term contract with the Polish state gas company PGNiG to reserve capacity of Klaipeda small-scale LNG station for the next 5 years, starting from Q2 2020. Furthermore, on 16 September 2021 Gas Natural Açu (GNA) LNG-to-power project in port of Açu, Brazil has launched commercial operations and KN became an operator of two fully operational LNG terminals worldwide. • Adjusted net profit of regulated LNG activities (EUR 323 thousand) is lower by EUR 6,342 thousand due to (i) EUR 2,369 thousand or 162% higher emission allowances and tax on environmental pollution expenses and (ii) lower revenue - main reasons: (1) LNG security supplement in 2021 has been reduced with the surplus of LNG return from the period 2014- 2019 and repayment of reloading revenue for 2019 in total amount of EUR 2.6 million, (2) EUR 1.9 million lower revenue from fixed part due to lower consumption capacities, (3) LNG security supplement level set by NERC for 2021 is EUR 1.2 million lower compared to 2020, (4) EUR 3.2 million lower revenue from variable part from LNG security supplement, (5) fines for unused capacity in amount of EUR 0.4 million received in 2021 (no such in 2020). Moreover, changes in deferred income tax balance have a EUR 4.7 million positive impact on adjusted net profit of LNGT. In 2021 Group’s EBITDA (APM) is EUR 26,108 thousand and is lower by 45.8% or by EUR 22,060 thousand compared to 2020 (EUR 48,168 thousand). EBITDA margin (APM) is 42.2%, for 2020 – 60.1%. In 2021 Company’s EBITDA (APM) is EUR 24,582 thousand and is 48.0% or EUR 22,709 thousand lower compared to 2020 (EUR 47,291 thousand). EBITDA margin (APM) is 41.9%, for 2020 – 61.0%. The adjusted Group’s return on assets (ROA) (APM) is -7.7% in 2021 (1.7% in 2020), the Company’s adjusted return on assets (ROA) (APM) is -7.9% (1.7% in 2020). In 2021 the Group’s adjusted annual return on equity (ROE) (APM) is -27.5% (5.8% in 2020), the Company’s adjusted annual return on equity (ROE) (APM) is -28.1% (5.6% in 2020). SALES REVENUE The Group’s sales revenue in 2021 (EUR 61,811 thousand) is lower by 22.8% or by EUR 18,303 thousand compared to 2020 (EUR 80,114 thousand). The Company’s sales revenue in 2021 (EUR 58,633 thousand) is lower by 24.3% or by EUR 18,841 thousand compared to 2020 (EUR 77,474 thousand). The main reason is 31.8% or EUR 9,987 thousand lower revenue from sales of oil terminals operations and EUR 8,564 thousand lower revenue from regulated LNG activities. The total revenue of the regulated LNG activities in 2021 amounts to EUR 34,831 thousand and is EUR 8,564 thousand or 19.7% lower compared to 2020. The activity of LNG terminal is regulated and has a price cap; therefore, return from LNG activity does not depend on regasification volume. For more information, concerning regulated revenues refer to the article “Regulated profit of LNG terminal”. Sales revenue from oil terminals in 2021 amounts to EUR 21,427 thousand and is EUR 9,987 thousand or 31.8% lower compared to 2020 (EUR 31,414 thousand). The decrease of revenue was influenced by COVID-19 pandemic, related worldwide lockdowns, and geopolitical situation resulting in no Belorussian cargoes. Sales revenue from commercial LNG activities in 2021 (EUR 5,553 thousand) is 4.7% or by EUR 248 thousand 21,427 34,831 5,553 Oil terminals Regulated LNG activities Commercial LNG activities 2021 THE GROUP'S SALES REVENUE, TEUR 31,414 31 414 43 395 5 305 2020 AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 98 higher than in 2020 (EUR 5,305 thousand) because a long-term contract with the Polish state gas company PGNiG was signed for reserving capacity of Klaipeda LNG distribution station for the next 5 years, starting from Q2 2020. Sales revenue by geography is provided bellow. Sales revenue from foreign clients is revenue from the clients not registered in Lithuania. EXPENSES 2021 and 2020 cost of sales and operating expenses for the Group and the Company: 2021 2020 CHANGE 2021 VS 2020 2021 2020 CHANGE 2021 VS 2020 GROUP GROUP +/- % COMPANY COMPANY +/- % Cost of sales 53,109 50,960 2,149 4.2% 52,144 50,191 1,953 3.9% Operating expenses 61,928 9,811 52,117 531.2% 61,160 8,787 52,373 596.0% Total costs 115,037 60,771 54,266 89.3% 113,304 58,978 54,326 92.1% Total cost of sales of the Group of 2021 comprises EUR 53,109 thousand and is higher by 4.2% or by EUR 2,149 thousand comparing to 2020 (EUR 50,960 thousand), due to higher emission allowances and tax on environmental pollution by EUR 2,469 thousand and higher variable costs (natural gas, electricity, railway services, other) by EUR 538 thousand. Depreciation and amortisation expenses attributable to cost of sales are lower by EUR 739 thousand. Total cost of sales of the Company of 2021 comprises EUR 52,144 thousand and is higher by 3.9% or by EUR 1,953 thousand compared to 2020 (EUR 50,191 thousand) due to higher emission allowances and tax on environmental pollution by EUR 2,469 thousand and higher variable costs (natural gas, electricity, railway services, other) by EUR 538 thousand. Depreciation and amortisation expenses attributable to cost of sales are lower by EUR 784 thousand. The Group’s operating expenses of 2021 comprise EUR 61,928 thousand and are 6.3 times or EUR 52,117 thousand higher compared to 2020 (EUR 9,811 thousand). The main reason for the increase in Group’s operating expenses is impairment for assets recognised in 2021 in amount of EUR 54,337 thousand. Impairment of doubtful receivables reversal amounts to EUR 711 thousand for 2021 compared to impairment of doubtful receivables expenses of EUR 1,855 thousand recognised in 2020 – giving the positive effect of changes in such expenses of EUR 2,566 thousand. The Company’s operating expenses of 2021 comprise EUR 61,160 thousand and are 7.0 times or EUR 52,373 thousand higher compared to 2020 (EUR 8,787 thousand). The main reasons and the figures are the same as per above explanation for the Group’s operating expenses. 59,050 53,272 59,050 53,272 18,424 5,361 21,064 8,539 The Company, 2020 The Company, 2021 The Group, 2020 The Group, 2021 Lithuanian clients Foreign clients SALES REVENUE BY GEOGRAPHY, TEUR AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 99 The listing of the Group’s major expenses is presented below: 2021 2020 CHANGE 2021 VS 2020 OT LNGT comLNG TOTAL OT LNGT comLNG TOTAL +/- % Impairment of assets 54,338 - - 54,338 384 - - 384 53,954 14,050.5% Wages, salaries, and social security 7,608 2,845 2,230 12,683 7,609 2,697 2,458 12,764 -81 -0.6% Depreciation and amortization 6,737 3,172 1,408 11,317 7,253 3,313 1,559 12,125 -808 -6.7% Depreciation of right- of-use asset 464 13,745 120 14,329 567 13,752 112 14,431 -102 -0.7% Expenses related to FSRU rent (OPEX element, management, crew cost) - 5,753 - 5,753 - 5,615 - 5,615 138 2.5% Variable costs (natural gas, electricity, railway services, other) 4,528 - 59 4,587 3,981 42 26 4,049 538 13.3% Emission allowances and tax on environmental pollution 439 3,835 - 4,274 339 1,466 - 1,805 2,469 136.8% Port charges - 1,541 - 1,541 4 1,541 - 1,545 -4 -0.3% Repair and exploitation expenses 558 159 101 818 520 152 39 711 107 15.0% Cost of oil products sold 599 - - 599 75 - - 75 524 698.7% Work safety costs 209 19 7 235 274 26 20 320 -85 -26.6% Contribution for National Energy Regulatory Council (NERC) - 595 - 595 - 972 - 972 -377 -38.8% Reversal of trade debtors impairment -711 - - -711 1,855 - - 1,855 -2,566 -138.3% Impairment of inventories (reversal) - - - - -6 - - -6 6 -100.0% Other cost of sales and operating expenses 2,100 1,563 1,016 4,679 1,516 1,136 1,474 4,126 553 13.4% Total costs 76,869 33,227 4,941 115,037 24,371 30,712 5,688 60,771 54,266 89.3% In 2021 regulated LNG activity expenses amount to EUR 33,228 thousand and are higher by EUR 2,516 thousand or by 8.2% compared to 2020 (EUR 30,712 thousand). Major part of regulated LNG activity expenses is depreciation of right-of-use asset expenses, which amount to EUR 13,745 thousand and are lower by EUR 7 thousand comparing to 2020. Expenses related to FSRU rent (OPEX element, management, crew cost) amount to EUR 5,753 thousand that are higher by 2.5% or by EUR 138 thousand comparing to 2020, emission allowances and tax on environmental pollution amount to EUR 3,835 thousand and are higher by 162% or by EUR 2,369 thousand. Contribution for National Energy Regulatory Council expenses decreased by EUR 377 thousand. Other LNG terminal’s expenses amount to EUR 9,301 thousand and are higher by 4.4% or by EUR 394 thousand comparing to 2020 (EUR 8,907 thousand). In 2021 the total amount of Oil terminal’s expenses amount to EUR 76,868 thousand (2020 – EUR 24,371 thousand) and are higher by 3.2 times or by EUR 52,497 thousand due to higher impairment of assets by EUR 53,954 thousand. The Oil terminals variable costs (gas, electricity, and railroad costs, vessel service expenses and other) are higher by 13.7% or by EUR 547 thousand. OT’s depreciation and amortization expenses are lower by EUR 516 thousand due to (1) the impact of fully depreciated assets and the impact of oil terminal’s impairment recognised in 2021, resulting lower depreciation expenses, giving lower depreciation and amortisation expenses by EUR 955 thousand compared to 2020, and (2) depreciation and amortization expenses were higher by AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 100 EUR 439 thousand due to finished investments and acquisitions of assets. Impairment of doubtful receivables reversal amounts to EUR 711 thousand for 2021 compared to impairment of doubtful receivables expenses of EUR 1,855 thousand recognised in 2020 – giving the positive effect of changes in such expenses of EUR 2,566 thousand. In 2021 the total amount of commercial LNG activity expenses amounted to EUR 4,941 thousand (2020 – EUR 5,688 thousand) and was lower by EUR 747 thousand mainly due to lower subsidiary’s KN Acu Servicos de Terminal activity expenses. REGULATED PROFIT OF LNG TERMINAL LNG terminal, its infrastructure and connection implementation as well as exploitation costs fully or partially are included into the natural gas transmission service price in accordance with the rules and guidance’s set by NERC based on the regulations set in the Energy Law, Natural Gas Law and other laws of the Republic of Lithuania related with energy prices regulation. The total level of LNG terminal revenue is confirmed by NERC based on the approved methodology of Government regulated prices in the natural gas sector (hereinafter – Methodology). According to this Methodology, the level of LNG terminal revenue is calculated for upcoming year by summing 2 components: 1) Estimated necessarily costs for the LNG terminal exploitation and operational assurance; 2) Estimated return on investment of LNG terminal infrastructure. The revenue of the LNG terminal activity comprises of 3 components: • Fixed part of LNG regasification service price is approved annually by NERC. This part of the price is included into the additional Security Supplement added to the gas transmission price. • Variable part of LNG regasification service price is received for the regasified volume directly from the clients. The regasification tariff is approved annually by NERC. • LNG reloading service revenue for reloaded LNG quantity. The tariff of the LNG reloading service is also approved annually by NERC. Revenue from LNG regasification (variable part) and LNG reloading service revenue are recognized at the moment of providing the services according to the tariffs approved by NERC. The tariff of LNG Security Supplement is set annually by NERC based on the amount required to be collected (estimated LNG terminal revenue) and proportionally allocated for the forecasted gas consumption capacities. LNG security supplement is paid by the users of natural gas transmission system, including the end users, together with the other payments for the natural gas transmissions services. The payments are collected by the transmission service operator (hereinafter - TSO) either directly from the user or from suppliers of natural gas in case the user has no direct contractual obligations with the TSO. Actual LNG Security Supplement contributions and payments may differ from planned ones (calculated at the approval of Security Supplement) due to the variation of consumption capacities or other differences. The differences between the net profit of LNG terminal segment (non-regulated) and the profit of the regulated activity are determined by different calculation principles. Financial accounting is in accordance with IFRS, while the result of regulated activities is calculated in accordance with the methodology approved by NERC. LNG operating expenses are recognized in the relevant period when they are incurred. The regulated profit of LNG terminal is calculated by adjusting the determined return on investment by income and expenses not attributable for the regulated activity in terms of regulation (which have an effect on financial results). During the 1st regulatory period (2014-2019) a surplus has been calculated by NERC after the third and the fifth regulatory years. The surplus after third full regulatory year (2014-2017) has reduced the level of LNG terminal revenue of 2019 and surplus after fifth regulatory year (2014-2019) reduces the level of LNG terminal revenue of 2021. The identified surplus has reduced LNG terminal revenue of 2019 by EUR 787 thousand and revenue of 2021 by EUR 2,589 thousand. For the 2nd regulatory period (2020-2024) NERC will calculate the surplus of regulated profit after two periods (2020-2021) and will reduce the level of LNG terminal revenue of 2023. However, due to significant net excess income earned in 2020, the Company’s LNG terminal revenue of 2022 has already been reduced by EUR 7,105 thousand. Assess the impact of regulated activities, the Company in management accounting calculates normalized profit. Normalized profit is adjusted for temporary regulatory differences. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 101 LNG REGULATED ACTIVITY TEMPORARY REGULATORY DIFFERENCES 2014-2019 surplus 2020 2021 Regulated Asset Base (RAB) 47,047 44,176 Weighted Average Cost of Capital (WACC) 2.90% 3.46% Return on Investments (RAB x WACC) 1,364 1,528 Total temporary regulatory adjustment -7,501 2,663 1) adjustment related to prior years: payback of excess net income / (compensation of excess net cost) -130 2,254 2) adjustment related to the current year: (excess net income) / excess net cost -2,459 -7,371 409 Payback / (compensation) in: Year 2020 -130 Year 2021 2,589 -335 Year 2022 7,105 Year 2023 600 -409 Year 2024 Total amount to be compensated / (paid back) in future periods as of the end of the year -2,459 -9,960 -7,297 IMPACT OF IFRS 16 AND CAPITALISATION OF PURCHASE OPTION As at 31 December 2019 the Group and the Company has capitalized purchase option under the lease agreement. According to IFRS 16 requirements, lessee should remeasure lease liability of each agreement upon the occurrence of either a significant event or a significant change in circumstances at each financial statements’ date. It is the duty of the management to re-evaluate the probability to realise the purchase option at each financial statements’ date in the upcoming reporting periods and in circumstances if any changes occur, it has to be reflected in the financial statements respectively. During the year 2020 no significant events and circumstances have occurred that would have the impact and respectively no changes in finance lease accounting under IFRS 16 requirements have been made as at 31 December 2020. During the year of 2019 the following significant events have happened that determined the need to reassess the probability of realizing the purchase option: • On 1st March 2019 amendments of the Republic of Lithuania Law on Liquefied Natural Gas Terminal No XI-2053 Article 5 and 9 (further – the Law) entered into force stipulating obligation to the Company as a Liquefied Natural Gas terminal operator to acquire ownership of FSRU (by selecting the most economic option) not later than by 31st December 2024; • On 19th September 2019 European Commission has approved state aid consent regarding LNG security supplement reduction; • On 24th October 2019 the Board of the Company has adopted a decision to acquire FSRU no later than by 31 December 2024 with the conditions that 1) loan to finance the purchase is arranged and 2) Parliament approves the State guarantee for the loan; • On 19th December 2019 a binding offer from NIB to finance the 100 % purchase price of FSRU (up to 160 MMEUR) has been received; • On 19th December 2019 Parliament has approved granting State guarantees for NIB loans for LNG security supplement reduction and purchase of FSRU; • On 20th December 2019 a loan agreement with NIB has been signed for the LNG security supplement reduction. While evaluating the probability to realize the purchase option the management of the Company has considered a number of economic, size and FSRU technological circumstances, which has shown that: • Currently used FSRU is economically most favourable when compared to the 1) availability; 2) price factors of the same size and functionality of new and used FSRUs and conversions of LNG carriers and 3) possible additional investments needed for any other FSRU; • In terms of size the industry is currently being equipped by modern 170-180 tm3 FSRUs and LNG carriers, enabling to unload to FSRU full cargo of conventional size LNG carriers (140-180 tm3) and not limiting LNG suppliers’ interest in using the terminal; • Current terminal size and parameters are needed in order to meet N-1 criteria for energy security, i.e. to ensure gas supply in the event of failure of the largest supply infrastructure during highest daily demand; AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 102 • Technologically currently used FSRU has the technology that is still regarded as advanced/not obsolete in comparison with other developments and can easily accept “green gases” and remain functional in the context of the EU “green policy” decisions in a long term; • In 2020 implemented dry-dock has confirmed that currently used FSRU is in good condition and is designed to be operative for at least 25 more years. • On 20th November 2020 European Commission has approved state aid consent regarding acquisition of LNG floating and storage unit. The decision of the European Commission secures Company’s ability to make a withdrawal of funds under the Loan agreement concluded between the Company and Nordic Investment Bank on 9 March 2020. As at 31 December 2021 the aforementioned conditions are still applicable and have not changed. Moreover: • During 2021, KN, as part of a project of long- term LNG import infrastructure solution, organised intensive discussions with market participants, a market consultation on the procurement documents and launched a public international tender for the acquisition of the FSRU in mid-year. • In February 2022 the Board of KN has taken a decision on the acquisition of the FSRU Independence at the end of its lease agreement. • On 25 th of February 2022 Extraordinary General Meeting of Shareholders has adopted the resolution and approved the decision of the AB Klaipėdos nafta Board to acquire the floating storage regasification unit (FSRU) Independence. Therefore, from the current point of view, the management of the Company is reasonably certain that the purchase option of lease contract will be realized. As a result, no changes in purchase option accounting as at 31 December 2021 have been made. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 103 INVESTMENTS The most important investment projects of 2021: NO. PROJECT INVESTMENTS IN 2020 (INCL. PREPAYMENTS) PROJECT DESCRIPTION 1. Modernization of jetty No. 1 and No. 2 EUR 4.6 million Reconstruction of berth No. 1 phase I construction works have reached the completion phase – testing and commissioning works of newly constructed jetty were carried out and preparation for trial vessel loading operation initiated. 2. Bitumen storage and handling reconstruction project EUR 1.8 million Reconstruction and adaptation of two existing storage tanks for bitumen loading. Project have reached the completion phase in 2021 - first vessel loading with bitumen and other marine related operations were handled without any issues. 3. Energy consumption monitoring and efficiency improvement EUR 0.3 million More accurate gas, steam and electricity monitoring equipment installation and integration into a general control system was fully implemented during the year 2021. 4. Boiler No. 1 and No. 2 fuse replacement EUR 0.2 million Replacement of fuses of heat production boilers, used in oil terminal activities due with new ones to comply with the new regulations of emission limit requirements for combustion plants. Project was finalized during 2021 – equipment installed, and all tests performed at the end of the year indicated emission limits with the requirements. 5. Vapor collection from railway trestles and HFO tank park EUR 0.3 million Environmental safety related project for the purpose of collecting vapor generated during transshipment process in railway trestle and HFO tank park and transition to new vapor filtration unit. All works were completed during 2021, trial operation is ongoing. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 104 ACTIVITY PLANS AND FORECASTS On 13th February 2020 the Supervisory Council of the Company has approved corporate strategy of KN until 2030. The main directions of the strategy are international LNG projects, strengthening the competitiveness of oil terminals and developing Klaipėda as an LNG service centre in the Baltic region. KN corporate strategy until 2030 is available at: 2030.kn.lt/en. For the Group and the Company year 2021 presented many challenges. Due to sanctions to Belarus introduced by Council Regulations (EU) 2021/1030 on June 24 th , 2021, no more transit of oil product flows from Belarus were possible. Transhipment of Belarusian oil products has stopped in February 2021; therefore, no Belarus cargo is forecasted for the future. Subsequently the Management of the Group and the Company has revised the projections of future cash flows of Klaipėda Oil Terminal and recognised impairment of KOT assets in amount of EUR 54,2 million. A decrease in transhipment of oil products from Belarus is partially compensated by oil products’ storage services, the demand for which has remained stable during 2021. The management of the Group and the Company anticipates a continuity of demand for the lease of oil terminal tanks for medium and long-term storage of products. Several contracts for such services, including contracts for the lease of petrol tanks, which will allow the Group and the Company to employ infrastructure used for transhipment of oil products from Belarus, are already concluded. The management of the Group and the Company see this as a stable alternative to the handling of oil products. Reacting to the decrease in transhipment of oil products, the Company has reviewed its investment plans for 2021 and 2022, deferring investments that are not related to business continuity. Furthermore, the revision of long- term corporate strategy has been initiated and will be completed during 2022. The Company undertakes projects related to cost reduction and operational efficiency and will continue its main focus on diversifying the portfolio of services and products in oil terminals activities and activities in international LNG projects. In light of the events of 2021, the aforementioned goals set in the corporate strategy 2030 are as important as never before and have proven to be the right ones. However, the Company will have to transform its activities faster than it has been expected in the initial strategy assumptions (for more details on the strategic goals please see the section “the corporate strategy” of the 2021 annual report). The Group and the Company aims at having several equivalent activities that contribute to the return for the shareholders, thus reducing the potential short-term negative impacts on one or another business segments. Therefore, innovations and exploring new business opportunities, diversification of business activities are high on the agenda for 2022, as well as environmental, social and governance aspects of business management. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 105 INFORMATION ABOUT THE SHAREHOLDERS AND SHARES OF THE COMPANY SHAREHOLDERS AND SHARES OF THE COMPANY The Company’s shares are traded on the regulated market; they are listed in the Baltic Main List of the Stock Exchange of AB NASDAQ Vilnius. SHAREHOLDERS OF THE COMPANY As at 31 December 2021 all the shares of the Company were owned by 4,926 shareholders (on 31 December 2020 – 3,444) 2 . All shares of the Company are of one class ordinary registered shares granting their owners (shareholders) equal rights. One ordinary registered share of the Company grants one vote in the General meeting of Shareholders. An ordinary registered share of the Company shall grant the following economic rights to its owners (shareholders): 1. To receive a part of the Company’s profit (dividends); 2. To receive funds of the Company in the event the Authorized Capital of the Company is being reduced in order to pay funds of the Company to the shareholders; 3. To receive a part of the assets of the Company in case of liquidation; 4. To receive shares free of charge if the Authorized Capital is increased out of the funds of the Company (except in the cases specified by the imperative norms of the valid laws); 5. To have the preferential right in acquiring shares or convertible bonds issued by the Company except in cases when the General Shareholders’ Meeting by a qualified majority of votes that shall not be less than 3/4 of the participating and voting shares for solution of this matter, resolves to withdraw the preferential right in acquiring the Company’s newly issued shares or convertible bonds for all the shareholders; 6. To lend to the Company in the manner provided by law, however, when borrowing from its shareholders the Company has no right to pledge its assets to the shareholders. When the Company borrows from its shareholder, the interest rate may not be higher than the average 2 According to AB SEB bankas data. interest rate offered by commercial banks of the location where the Lender has his place of residence or business, which was in effect on the day of conclusion of the Loan Agreement. In such a case the Company and its shareholders shall be prohibited from negotiating a higher interest rate; 7. Other economic rights established by the laws. An ordinary registered share of the Company shall grant the following non-economic rights to its owner (shareholder): 1. To attend the General Shareholders’ Meetings and to vote according to voting rights carried by their shares (unless otherwise provided for by the laws); 2. To receive information on the Company to the extent allowed by the imperative norms of the valid laws; 3. To file a claim with the court for reparation of damage resulting from misconduct by the Manager of the Company and Board members or noncompliance with their obligations prescribed by the laws and the Articles of Association of the Company as well as in other cases laid down by laws. 4. The right to vote at General Shareholders’ Meetings may be withdrawn or restricted in cases established by laws, also in case share ownership is contested; 5. Other non-economic rights established by the laws and the Articles of Association of the Company. The Company has not been informed about mutual agreements of its shareholders which could limit the transfer of securities and (or) right of vote. THE MAIN DATA ABOUT SHARES OF THE COMPANY: ISIN code LT0000111650 Abbreviation KNF1L Share emission 380,396,585 AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 106 Major shareholders of the Company having more than 5% of shares (each) of the Company as at 31 December 2021 and 2020: SHAREHOLDER’S NAME (COMPANY’S NAME, ADDRESS, COMPANY CODE OF REGISTRATION) 31 DECEMBER 2021 31 DECEMBER 2020 NUMBER OF OWNED SHARES (UNIT) PART OF AUTHORIZED CAPITAL (%) NUMBER OF OWNED SHARES (UNIT) PART OF AUTHORIZED CAPITAL (%) The Republic of Lithuania, represented by the Ministry of Energy of the Republic of Lithuania (Gediminas Ave. 38/2, Vilnius, 302308327) 275,687,444 72.47% 275,687,444 72.35% Concern UAB Achemos grupė (Vykinto st. 14, Vilnius, 156673480) 39,662,838 10.43% 39,662,838 10.41% Other (each owning less than 5%) 65,046,303 17.10% 65,702,111 17.24% Total 380,396,585 100.00% 381,052,393 100.00% SHAREHOLDERS STRUCTURE BY CATEGORIES AND BY THE REGIONS: 72,47% 1,05% 11,43% 15,05% 31-12-2021 Lithuanian Government Financial institutions incl. funds Other companies Natural persons SHAREHOLDER STRUCTURE BY CATEGORY 88% 90% 92% 94% 96% 98% 100% 31-12-2020 31-12-2021 Lithuania Estonia USA Latvia United Kingdom Cyprus Other countries SHAREHOLDER STRUCTURE BY REGION 72,35% 1,30% 12,05% 14,30% 31-12-2020 AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 107 Dynamics of KNF1L share price at NASDAQ Vilnius during 2017 – 2021: 2021 2020 2019 2018 2017 Highest share price in EUR 0.359 0.414 0.444 0.574 0.572 Lowest share price in EUR 0.298 0.301 0.357 0.386 0.428 Price per share at the end of the period in EUR 0.307 0.320 0.362 0.410 0.508 Average share price in EUR 0.320 0.331 0.393 0.502 0.490 Traded volume, pcs. 19,004,133 23,934,244 5,908,666 6,936,769 10,501,664 Turnover in EUR thousand 6,110 7,928 2,296 3,552 5,083 Capitalisation in EUR thousand 116,782 121,920 137,875 156,049 193,348 0 200 400 600 800 1 000 1 200 1 400 0,00 0,10 0,20 0,30 0,40 0,50 Volume in thousand pcs. Price per share in EUR Share price in EUR Volume (thousands units) TRADING IN KNF1L SHARES ON NASDAQ VILNIUS STOCK EXCHANGE IN 2019-2021 60% 80% 100% 120% 140% 160% 180% 200% OMXBBGI OMXVGI KNF1L KNF1L SHARE PRICE COMPARISON WITH OMX VILNIUS GI AND OMX BALTIC BENCHMARK GI IN 2019 - 2021 AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 108 AUTHORIZED SHARE CAPITAL OF THE COMPANY The Company’s authorized share capital amounted to EUR 110,315 thousand as of 31 December 2021 (EUR 110,505 thousand as of 31 December 2020). All the shares of the Company are fully paid. The authorized capital is divided into 380,396,585 ordinary shares with a nominal value of 0.29 Eur. On 11 January 2021 amended Articles of Association of the Company were registered in the Register of Legal Entities of the Republic of Lithuania after the reduction of authorized capital to EUR 110,315 thousand. The Ministry of Finance of the Republic of Lithuania granted the Company permission to decrease the authorised capital of the Company by cancelling 655,808 units of Company’s acquired own shares which each nominal value is EUR 0.29 During 2021 the Company did not acquire any of its own shares. DIVIDENDS On 30 th April 2021, the ordinary General Meeting of Shareholders has been held which approved the audited financial statements and profit distribution of 2020. In 2021 the Company has paid dividends in amount of EUR 7,538 thousand or EUR 0.0198 for one share from the profit of 2020 (in 2020 the Company paid EUR 7,947 thousand dividends or EUR 0.0209 for one share). Below is the historical information about dividends paid in the period for the prior financial year: 2021 2020 2019 2018 2017 Dividends paid in EUR thousand 7,538 7,947 11,577 17,031 9,656 Dividends per one share in EUR 0.0198 0.0209 0.0304 0.0447 0.0254 Net profit per 1 share in EUR 0.03 0.02 0.03 0.04 0.04 Dividends for net profit (of previous FY), % 70% 100% 100% 100% 70% DIVIDEND POLICY On 28th July 2021 the Board of AB Klaipėdos nafta has approved the renewed Dividend Policy. The Dividend Policy provides that the Board of the Company shall, in accordance with the Company's audited financial statements which are prepared in accordance with IFRS, present the draft decision of dividends allocation to the Company’s shareholders for approval. The amount of dividends is proposed taking into account the Company's return on equity for the reporting period. The Company sets the goal to increase the shareholders’ value and pay stable dividends. The main objectives for a Dividend Policy are: • compliance with the applicable laws of the Republic of Lithuania, secondary legislation, the Articles of Association, and internal documents of the Company. • assurance of the Company’s shareholders interests. • commitment to high corporate governance standards. • enhance of the Company’s market value. • definition of the Company’s procedures relating to transparent publication and payment of dividends. AB Klaipėdos nafta Dividend Policy is based on the existing legislation of the Republic of Lithuania (regulation effective starting since 28th December 2021 (Lithuanian Government Resolution of 6th June, 2012 No. 655 on approval of the description of the procedure for the exercise of the state property and non-property rights in state-owned entities (hereinafter - the Resolution) – the regulation has replaced the Lithuanian Government Resolution of 14th January, 1997 No. 20 on the dividends for the state-owned shares, however all the principles and regulations on dividends allocation are valid and have been placed into Resolution), the Company's Articles of Association and other Company's internal documents. According to the art. 4.4. of the Company’s Dividend Policy the amount of dividends for the years 2021-2024 is calculated by eliminating from the Company’s distributable net profit (loss) unrealised foreign exchange rates impact and other unrealised gains (losses). The Company’s return on equity is calculated based on the data of the set of audited annual financial statements, net profit (loss) of the reporting period by eliminating the impact of unrealised foreign exchange rates and other unrealised gains (losses) divided by the average equity at the beginning and end of this period. Equity at the beginning of the reporting period is adjusted by estimating the impact of unrealised foreign exchange AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 109 rates and other unrealised gains (losses) accumulated before the reporting period. Equity at the end of the reporting period is adjusted by estimating the impact of unrealised foreign exchange rates and other unrealised gains (losses) of the reporting period and those accumulated before the reporting period. According to the art. 4.5 of the Company’s Dividend Policy, the Board of the Company shall consider the following on a yearly basis: • the financial indicators for assessment of the Company's current financial position (net debt / EBITDA, DSCR, ISCR, Equity ratio). • the Company's performance of the current period, in order to ensure the scope of funds needed for the smooth operation. • the scope of equity and loan necessary for strategic and investment projects’ implementation. • any financial and non-financial liabilities for the Company investors. • the stock market situation related to dividend income. • implementation of the Company’s Strategy; • a change in plans of strategic, investment projects, their scope or their financing. According to the art. 4.7. of the Company’s Dividend Policy dividends for the financial year should be allocated as follows: • Not lower than 85% from the Company’s distributable profit if ROE of the financial reporting year is not higher than 1%. • Not lower than 80% from the Company’s distributable profit if ROE of the financial reporting year is higher than 1% but not higher than 3%. • Not lower than 75% from the Company’s distributable profit if ROE of the financial reporting year is higher than 3% but not higher than 5%. • Not lower than 70% from the Company’s distributable profit if ROE of the financial reporting year is higher than 5% but not higher than 10%. • Not lower than 65% from the Company’s distributable profit if ROE of the financial reporting year is higher than 10% but not higher than 15%. • Not lower than 60% from the Company’s distributable profit if ROE of the financial reporting year is higher than 15%. Dividend rate, as a rule, should not be less than presented in the article 4.7. of the Company’s Dividend Policy, however, based on criteria in article 4.5., lower dividend rate could be proposed. The full Company’s Dividend Policy is available on Company’s website. AGREEMENTS WITH INTERMEDIARIES OF PUBLIC SECURITIES TRADING The Company has an agreement with Financial Markets Department of AB SEB Bankas for accounting of the Company’s securities and related services. AB SEB BANK FINANCIAL MARKETS DEPARTMENT: Company code 112021238 Address J. Balčikonis Street 7, LT-08247 Vilnius, Lithuania Telephone 1528 E-mail [email protected] Website www.seb.lt AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 110 INFORMATION ABOUT THE EMPLOYEES OF THE GROUP PERSONNEL The Company's main asset is its employees who are the most important link to the achievement of Company’s goals. Company's personnel policy is focused on the development of teamwork, constant progress in professional development and process efficiency, the optimal use of work resources, training of qualified staff, and development of the Company’s culture that empowers personal growth, succession planning, and creates additional value for the company and its stakeholders. Number of the Group employees at the end of the year: 31-12-2021 31-12-2020 CHANGE, % AB Klaipėdos nafta 342 383 -10.7 UAB SGD terminalas 2 2 - UAB SGD logistika 2 2 - UAB SGD SPB 2 2 - KN Acu Servicos de Terminal de GNL LTDA 27 22 22.7 Total 375 411 -8.8 Remarks: - The number of employees does not include employees on maternity/paternity leave. The breakdown of the number of the Group and the Company employees by gender as at 31 December 2021: FEMALES % MALES % AB Klaipėdos nafta 87 25.4% 255 74.6% UAB SGD terminalas 1 50.0% 1 50.0% UAB SGD logistika 1 50.0% 1 50.0% UAB SGD SPB 1 50.0% 1 50.0% KN Acu Servicos de Terminal de GNL LTDA 4 14.8% 23 85.2% Total 94 25.1% 281 74.9% AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 111 The average age of the Group’s employees – 44 years. Detailed information about employees’ age, work experience, and education are provided in figures bellow in years. Education of the Group’s employees by categories: EMPLOYEE CATEGORY EMPLOYEES ON 31-12-2021 UNIVERSITY VOCATIONAL SECONDARY AND OTHER EMPLOYEES ON 31-12-2020 UNIVERSITY VOCATIONAL SECONDARY AND OTHER Managers 1) 58 56 2 0 50 48 2 0 Specialists 192 169 16 7 215 183 17 15 Workers 125 19 78 28 146 15 49 82 Total 375 244 96 35 411 246 68 97 1) The managers of the Company include: Chief Executive Officer (CEO), Directors and Heads of Divisions 9,8 6,9 8,1 13,3 9,9 6,6 8,4 13,7 Total Managers Specialists Workers 2020 2021 DISTRIBUTION OF GROUP'S EMPLOYEES BY WORK EXPERIENCE, YEARS 10 139 147 76 3 13 145 157 89 7 18-24 25-39 40-54 55-64 65 and more 2021 2020 NUMBER OF THE GROUP'S EMPLOYEES BY AGE GROUPS 42,1 40,6 41,9 50,7 44,0 42,0 41,0 49,4 Total Managers Specialists Workers 2020 2021 AVERAGE AGE OF THE EMPLOYEES OF THE GROUP AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 112 PAYROLL SYSTEM AND REMUNERATION POLICY The Company seeks to create motivating, efficient, fair, transparent, and easy to understand compensation system which aims to attract, retain, and motivate employees whose skills and work results help the Company to successfully develop and implement its mission and achieve strategic business objectives. Therefore, in September of 2016 the Employee Remuneration Policy has been formed and approved, on September of 2017 The Procedure of Remuneration System Formation has been approved. The Employee Remuneration Policy defines the principles of determination and payment of remuneration as well as the incentives of employees. The Remuneration policy applies to all employees of the Company. The goals of the Remuneration Policy are to: • Establish clearly understandable, fair, and transparent procedures for the determination and payment of remuneration as well as the incentives of employees, aiming at ensuring the Company’s competitiveness in the labour market; • Encourage the employees to achieve the objectives set in the corporate strategy, to create value added and increase the returns to shareholders while fostering the values of the Company. The remuneration of the employee may consist of the following components: a fixed component, i. e. a monthly salary (or a wage) and a variable component payable for either short-term performance results or the annual results of the Company’s/the employee’s performance. The Company’s remuneration system is based on job structure framework, created using the Hay Methodology by determining the weight of each position (to ensure fair remuneration for work within the Company). The amount of the monthly remuneration for the position is determined by assessing the level of knowledge and work experience required to perform the functions of each position, the complexity of the functions, the degree of responsibility and management level, the impact / risk on the Company's performance, working conditions. In order to ensure the competitiveness of the remuneration of the Company's employees and to promote the achievement of results, the remuneration (fixed and variable remuneration components) focuses on the range of the 50th and 75th%iles of the remuneration market of foreign capital companies operating in Lithuania. Employees in the same position can receive different monthly pay depending on qualifications, experience, capabilities, and functions and responsibilities assigned to the employee. The variable component is set according to the procedure laid down in the Remuneration Policy. Employee’s base salaries are usually reviewed once a year taking into account: Lithuanian labour market trends; the Company's performance results; The results of the evaluation of the Company's employees; demand - supply situation for jobs important to the company in the labour market. Detailed information on the remuneration system of the Company's management is provided in 2021 AB Klaipėdos nafta Report on Remuneration. The breakdown of employee related expenses (EUR thousand) of the Group: 2021 2020 CHANGE, % AB Klaipėdos nafta 11,845 11,900 -0.5 UAB SGD terminalas 3 3 - UAB SGD logistika 3 3 - UAB SGD SPB 3 3 - KN Acu Servicos de Terminal de GNL LTDA 829 855 -3.0 Total 12,683 12,764 -0.6 AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 113 Employees according to categories: EMPLOYEE CATEGORY AVERAGE NUMBER OF EMPLOYEES GROUP GROUP CHANGE, % COMPANY COMPANY CHANGE, % 2021 2020 2021 2020 Managers 1) 58 48 20.8 47 42 11.9 Specialists 200 210 -4.8 179 188 -4.8 Workers 130 142 -8.5 129 142 -9.2 Total 388 400 -3.0 355 372 -4.6 1) The managers of the Company include: Chief Executive Officer (CEO), Directors and Heads of Divisions The Company’s 2021 average monthly salary of all employees did not change compared to 2020 (2021 – 2,570 EUR/month, 2020 – 2,574 EUR/month). EMPLOYEE CATEGORY AVERAGE MONTHLY SALARY (GROSS), EUR GROUP GROUP CHANGE, % COMPANY COMPANY CHANGE, % 2021 2020 2021 2020 Managers 1) 5,061 5,507 -8.1 5,459 5,719 -4.5 Specialists 2,445 2,511 -2.6 2,553 2,552 0.0 Workers 1,614 1,741 -7.3 1,614 1,741 -7.3 Total 2,506 2,543 -1.5 2,570 2,574 -0.2 1) The Company‘s managers include: Chief Executive Officer (CEO), Directors and Heads of Divisions. The following sums were calculated for the remuneration to the Group‘s managers in 2021: EUR 3,684 thousand, in that amount taxes paid by the employer included EUR 177 thousand (when in 2020 were EUR 3,137 thousand from which EUR 103 thousand of taxes paid by the employer). The average annual salary of manager of the Group amounted to EUR 63.5 thousand in 2021 (in 2020 - EUR 65.3 thousand). 2) The average monthly salary is calculated according to the average monthly wage calculation procedure as stated in the State companies’ employees’ average monthly salary calculation procedure approved by the Government of Lithuania on 23 August 2002, resolution No. 1341 and its subsequent changes. 2021 average monthly salary (gross) of employees by gender, EUR: EMPLOYEE CATEGORY GROUP COMPANY 2021 2021 TOTAL MALE FEMALE TOTAL MALE FEMALE Managers 1) 5,061 5,021 5,210 5,459 5,544 5,210 Specialists 2,445 2,587 2,208 2,553 2,747 2,255 Workers 1,614 1,635 1,217 1,614 1,635 1,217 Total 2,506 2,509 2,523 2,570 2,569 2,573 1) The Company‘s managers include: Chief Executive Officer (CEO), Directors and Heads of Divisions. 2) The average monthly salary is calculated according to the average monthly wage calculation procedure as stated in the State companies’ employees’ average monthly salary calculation procedure approved by the Government of Lithuania on 23 August 2002, resolution No. 1341 and its subsequent changes. EMPLOYEE PERFORMANCE EVALUATION AND ANNUAL BONUS ALLOCATION The Company has implemented the procedures for annual employee performance evaluation and annual bonus allocation. These bonuses depend on the achievement of the goals set directly for the person, service director or for the Company. Annual employee performance review together with periodic and frequent one to one meetings throughout the year are one of the most effective management and leadership techniques that increase employee engagement and help to achieve the organizational goals. Such practice creates collaborative and positive relationships between managers and their subordinates that allow to make it clear with employees while planning their careers, increasing their motivation, and promoting continuous improvement in their professional field. Employees of all categories - workers, specialists, and managers - are assessed and rewarded annual bonus for achieving pre-set annual goals (WHAT) and evaluation on AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 114 their compliance to Company’s values (HOW). In 2020 implementation of Asaichi methodology being one of the three LEAN tools initiated in the Company brought even better performance management when KPIs have been reviewed and actioned with personal accountability daily. Annual performance review meetings, on the other hand, allow to reflect on entire year through the lens of competence development, safety-minded behaviour, learning opportunities, career-advancement, and aspirations. EMPLOYEE SELECTION AND RECRUITMENT Since April 2020 the Company implemented Employee Selection and Recruitment procedure whose purpose is to standardize the employee selection process and ensure efficient and effective procedures for organizing the selection of KN personnel (employees and trainees) in order to successfully achieve the objectives of KN - to select employees who recognize the values of KN and have the greatest potential to achieve the objectives set for them. In order to ensure that the objectives set out in KN’s strategy are met, an assessment and planning of staffing needs is carried out. Each year management of the Company draws up a staffing plan for the upcoming year. The plan takes into account the workload of staff, the need for new posts (due to organizational changes or legal requirements), staff mobility (transition from one staff post to another) and natural change (retirement, parental leave, etc). The main steps of the recruitment process include the evaluation of need for employee, determination of required competencies, search and attraction of potential candidates, job interviews, final decision, and preparation of the offer. EMPLOYEE SATISFACTION AND ENGAGEMENT For the last seven years the Company conducts personnel surveys to determine the level of employee satisfaction with the work environment and the Company and the level of engagement as well as to improve relevant areas and working conditions of employees. The personnel surveys in 2021 revealed that 61% of employees (in 2020 – 67%) are fully satisfied with their work environment, the Company, and its culture. This indicator exceeds average result of Lithuania organizations employee satisfaction of satisfaction with the work (59%). The Company is measuring the level of engagement as it believes that colleagues who are engaged in their job, are more likely to do it easier, feel happier, are more innovative and accordingly generate greater returns to shareholders by effectively implementing corporate strategy and achieving the goals. Engagement level went down (from 75% to 69%) and returned to the same level as in 2019. The result of KN still exceeds the average level of work engagement in Lithuanian organizations (63%) in 2021 and the same time indicates that reduction of employees and other organizational challenges during the year did have the effect on employee engagement. PRINCIPLES OF EMPLOYEE COMPETENCE DEVELOPMENT KN education system is designed to promote the development of employees both independently and through the learning processes of strategically important knowledge and skills that are part of the curricula. All employees are given the opportunity to participate in the programs. The implementation of KN education system is based on 6 principles: link with business strategy, cooperation between departments, identification of needs based on assessment of employees' competencies, measurement of learning effectiveness, integration of education with other processes and selection of appropriate educational tools. Up to 15% of annual learning and development budget is allocated to fund employees with various formal studies at different Universities. For the last three years Company conducts 360-degree feedback study for managers. Following the method, KN Managers receive feedback on their behaviour according to the Company’s values and leadership competencies from people who work with them. Based on survey results Managers create their Personal development plans and thus grow to be even better leaders for their teams. In 2021 the Company launched internal Mentoring Program, which aims to find competencies within the company and share them with those who need them. 17 pairs were formed, which worked according to the proposed model for several months - setting goals, looking for ways to achieve them and measuring progress together. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 115 GROUP’S SOCIAL RESPONSIBILITY From the perspective of KN, to be a successful and responsible member of the society in the long-term perspective, the principles of business sustainability shall go hand in hand with the way we operate. Every organisation can create both positive and negative impacts through its activities, and we aim to be a model of a business that creates a positive impact. Stakeholder dialogue is one of our principles of open and responsible operation, which enables us to identify the key issues that matter to the stakeholders. KN is guided by the Stakeholder Policy adopted by the Company in 2021, which is published transparently on KN's website. The Company's activities, including stakeholder relations, are guided by the highest standards of good governance practices. Our main stakeholders are: employees, shareholders, business partners, customers, communities and society in general, decision-makers at national and regional level. Topics relevant to our target groups include the safety of our operations, economic impact, environmental performance improvement and good corporate governance practices. The Company's activities aim at environmental and social awareness and the application of good governance. In this context, KN considers social responsibility and sustainability as key aspects of its operations and develops its business in accordance with these guidelines: • Economic Responsibility, • Transparent and ethical business practices, • Attractive employer, • Sustainable partnership with customers, • Reducing and preventing the Company’s environmental impact. As a Company, which is important not only for Klaipėda and Kupiškis districts, but also nationally in terms of its activities and size, we can use our influence to contribute to different aspects of social responsibility - not only by promoting dialogue with communities in Klaipėda, but also by contributing to the promotion of the use of liquefied natural gas (LNG) as a cleaner fossil-fuel alternative, and by getting involved in education and science, healthy lifestyle, environmental initiatives inside and outside the organisation. The areas of impact of KN have so far been determined by the nature of the Company's activities and long-term strategy, business risks and opportunities. In addition, in Q4 2021 and Q1 2022, KN has initiated a materiality assessment, which includes KN stakeholders. This analysis is expected to be finalised in Q1 2022 and it is expected that the results will provide valuable insights for the Company on the further development of its sustainability directions and sustainability policy. ECONOMIC RESPONSIBILITY KN is a company of strategic importance for the energy security of Lithuania and the surrounding region, ensuring the ability to import oil and liquefied natural gas to Lithuania and neighbouring countries, keeping the storage of the mandatory reserve of petroleum products of the Republic of Lithuania, and the reliable and efficient transhipment of petroleum products at the port of Klaipėda. The Company is also responsible for the operation and maintenance of the LNG terminal at the Port of Açu in Brazil, which supplies natural gas and electricity to the Brazilian market. We understand the direct and indirect role of our activities through taxation, employment policies, educational initiatives, business innovation and other contributions to sustainable economic growth in the regions where we operate. Given the strategic function of the Company, KN has the objective to enhance shareholder value and represent best business practices. The Company continuously strengthens its corporate governance competencies and implements the highest governance standards and principles to create tangible benefits for the country and its people. The Company is consistently listed as a major taxpayer. Despite the global pandemic and geopolitical challenges, according to the Lithuanian State Tax Inspectorate, in 2021, KN retained its 4th position among the 500 hundred other companies. In 2021, KN was also recognised as one of the 10 best investor relations companies listed on Nasdaq Baltic. The Nasdaq Baltic Awards assess companies' excellence in transparency, corporate governance, and investor relations. KN supports free and fair competition in the market, while striving to provide the highest quality commercial solutions to its clients. The Company's good governance practices have been reinforced by the major overhaul in 2021 of a key good practice tool for preventing irregularities and promoting transparency - the "Report/Speak - up" reporting channel. Following the implementation of the changes, the reporting channel is curated by Internal Audit, which is functionally subordinate to the Audit Committee and administratively subordinate to KN CEO. The change was initiated in order to comply with the best practices, to increase transparency, to promote awareness among KN staff and third parties and to promote intolerance of non- compliance with the Code of Conduct or any form of corruption that may negatively affect or damage the reputation and image of KN. The change is expected to further facilitate anonymous reporting of illegal and unethical practices, while ensuring the confidentiality and integrity of the persons submitting the reports. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 116 The Company does not tolerate corruption of any kind or its manifestations and is committed to open competition, ethical business conditions and adequate transparency and publicity in its operations. The Group is guided by a policy of zero corruption tolerance. It explicitly and publicly declares its rejection of bribery, fraud, extortion, the creation of unofficial accounts, the execution of unofficial and improperly documented transactions, the recording of fictitious expenses, the use of false documents and other forms of corruption as referred to in the United Nations Convention Against Corruption. The Company has control mechanisms in place that are designed to identify, assess, and monitor potential corruption risk factors. In assessing corruption risks, KN analyses the activities and processes of each business segment, compiling a list of corruption risks. Once a year, KN carries out an assessment of the likelihood of corruption occurrence. In 2021, the Company's preparation of technical specifications for the procurement procedures was analysed to assess the likelihood of corruption occurrence. Corruption risk is also assessed in the development of international projects, looking at both external and internal factors, as well as the level of corruption risk in the country. Additional control measures include due diligence procedures for business partners, anti-corruption clauses in contracts, application of KN's anti-corruption policy and Code of Conduct in subsidiaries and in relations with business partners. In 2021, KN provided anti-corruption training to KN employees on potential conflicts of interest and their management, the concept and manifestation of corruption in Lithuania, corruption risks in public procurement. In 2021, 3 internal trainings and 2 external trainings were organised for 152 employees. In 2021, there were no cases of corruption in the Company. KN is also involved in the Transparency Academy initiative initiated by the Office of the President of the Republic of Lithuania. The aim of the Academy is to encourage companies to share best practices in the area of corruption prevention and to receive expert insights and practical advice. RESPONSIBILITY TOWARDS EMPLOYEES The main asset of KN is its employees, who are the most important link in achieving the Company's objectives. They are at the heart of our technology activities. The Company's HR policy is focused on fostering teamwork and unity, continuous progress, optimal use of human resources, strengthening employee competencies and developing an engaged culture that creates greater added value and enables personal and Company growth. We promote employee diversity and an inclusive working environment. Achieving long-term success requires diverse ideas, perspectives, and talents, and we support diversity as an important asset and a key resource for innovation and competitiveness, enabling each of us to fully participate and contribute to the success of KN and to help ensure that the business operates efficiently and takes advantage of the right growth opportunities. The Company evaluates, promotes, and compensates based on qualifications, experience, competencies, and performance, not on bias or personal preference. We reject all forms of discrimination. We are guided by the values of KN and adhere to the principles of respect, cooperation, professionalism, and progress. Our values guide how we operate anywhere in the world and what we expect from ourselves, our colleagues, our customers, our management, and other key stakeholders. We foster an environment where every employee is treated equally, respected, and empowered to reach their potential. The Company's remuneration system is based on a work structure developed using the Hay methodology and by comparing salary values with foreign-capital companies in the Lithuanian market, to ensure that every KN employee is rewarded fairly and competitively. The Company's objective is to ensure the competitiveness of the employees' remuneration in the market, internal fairness of remuneration and to eliminate the possibility of discrimination on any grounds (age, gender, etc.). The Company provides a working environment that meets strict standards of safety and well-being. As a terminal operator, KN provides and maintains a health and safety management system aimed at ensuring safety performance based on legislation and industry best practice, with clear commitments, targets, and responsibilities. The Company's objective is to create an environment in which occupational health and safety risks are controlled to prevent injuries, accidents, and occupational diseases, and to identify, assess and control risks arising from unsafe conditions, occupational injuries and illnesses related to work processes or the working environment. It also focuses on educating workers so that they better understand their role in reducing negative environmental impacts and so that the health and safety of themselves and others is the highest value of every worker. In 2020, KN got certified for ISO 45001:2018 standard for all terminal activities in Lithuania, including international business development, and an audit in 2021 confirmed existing and new achievements. The ongoing certification process of KN Açu terminal operations for ISO 45001:2018 is scheduled to be completed in Q2 2022. One of the Company's key strategic objectives is the continuous improvement of the safety and health system by ensuring compliance and enhancing the safety culture to achieve a rate of 0 significant safety incidents and accidents. In 2021 KN has established clearly measurable indicators to monitor safety and health, which are process AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 117 safety incident, LTIR - frequency of workplace accidents, and IR - frequency of near misses or potential safety incidents. The above indicators are relative indicators of OSH performance and by using these indicators the Company can benchmark its OSH performance against other companies both in Lithuania and worldwide. Accordingly, in 2021, a strong focus was placed on the importance of a safe and healthy working environment, fostering a culture of occupational safety and health, and enhancing employees' awareness of the need to protect themselves and to comply with safe working requirements. The Company has placed great emphasis on the recording of near misses, which is a widely used accident prevention system in the global practice. In 2021, the Company succeeded in achieving the target set for the frequency of near misses and near misses. Also in 2021, the Company had no critical incidents. In 2021, KN focused on promoting the well-being and wellness of its employees, with a particular focus on the importance of movement, which was significantly reduced during the pandemic period: • From 11 March 2021 to 09 May 2021, the Company ran an activity challenge called "KN Moves!", which encouraged employees to collect kilometres by walking or running. 44 colleagues took part in the challenge and together they walked 7,827.9 kilometres between 11 March and 9 May. • In 2021, two virtual meetings were held with one of Lithuania's leading sports scientists, Albert Skurvydas, PhD in Biology, who shared his scientific and practical experience and the importance of movement with KN employees. • On the occasion of the European Mobility Week from 16 to 22 September, KN encouraged sustainable transport choices among its employees. KN employees were encouraged to go car-free for at least one day and to find other means of transport to get to work, such as walking, public transport, cycling, scooters or roller skating. • Also, in 2021, KN colleagues in Lithuania and Brazil were invited to take part in a study on fatigue, carried out by professional researchers from the „Pozityvios sveikatos komanda“ (Positive Health Team). The researchers measured different forms of fatigue, including general fatigue, physical fatigue, reduced activity, reduced motivation and mental fatigue. The results were presented to employees and later tips on how to overcome fatigue were shared. CORONAVIRUS PREVENTION KN has continued to focus on the prevention of coronavirus and has taken various health protection measures to protect its employees and partners. The Company continued to promote the hybrid working model, encouraging employees who can work remotely to choose this way of working. Additional health precautions are in place for employees who are unable to work remotely, and appropriate health safety practices are in place at the Company's terminals. All measures are regularly reviewed and updated. The Company has consistently provided employees with information on COVID-19 vaccination in 2021, made vaccination available in the Company's medical room, and expanded employees' knowledge by holding two virtual meetings with medical professionals in 2021 to provide up-to-date information on the vaccination and to answer the most frequently asked questions. In 2022, KN is among the organisations with more than 90% of their employees immunised against coronavirus. In 2021, the Company initiated internal training sessions to strengthen psychological and emotional resilience of its employees. This has contributed to the psychological and emotional safety of employees in the workplace. Psychological safety in the Company was rated high at 71 out of 100 in the annual engagement survey. In the survey, employees revealed that one of the most rewarding aspects of the Company is the good working atmosphere. KN is proud to be among the top 5 employers in Lithuania in 2021. The ranking is compiled annually by the newspaper Verslo žinios. Among transport and logistics companies, KN ranked first. SOCIAL RESPONSIBILITY As part of our international operations, we strive for sustainability and take social and environmental responsibility. We work to maintain strong and long- lasting relationships with the local communities where KN operates and strive to be a good business partner through our business initiatives. KN has been engaging in a dialogue with neighbouring communities for a number of years. In 2021, a total of five meetings were held to discuss topics of interest to the communities and to answer questions from community representatives. In 2021, KN's social activities focused on educational initiatives, not only by presenting the Company's activities, but also by getting young people interested in science and engineering professions. During the year, KN was involved in six educational initiatives: • In February 2021, in a virtual lecture to the students of the Klaipėda Žemynos Gymnasium, a representative of KN's HR department gave a presentation on how to prepare and perform well in a job interview and advised on how to prepare a professional curriculum vitae (CV). • In March 2021, KN Chief Operations Officer took part in a remote event initiated by Klaipėda ID on AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 118 engineering specialities "Engineering and Creativity. What is the connection?" The aim of the event, which was attended by pupils from various schools in Klaipėda, was to introduce the field of engineering and to encourage young people to think about choosing an engineering specialty. • During March-June 2021, KN participated in the pilot project "Research works of students in business enterprises", which was initiated by the public enterprise "Klaipėda ID", the aim of which was to contribute to the vocational guidance of pupils, to introduce them to the advanced enterprises operating in the region and to inform them about career opportunities in Klaipėda region. A laboratory technician from KN Wastewater Unit helped a student from Klaipėda's Ąžuolynas Gymnasium to carry out a research project. • During March-July 2021, KN was involved in a series of experiential activities at Klaipėda University (KU) to celebrate the 30th anniversary of the University. The Company contributed to the university's anniversary events by inviting people to experience the Liquefied Natural Gas (LNG) terminal. In addition to registering for the experience, candidates had to send cover letters and justify why they should be invited to the "Learn how natural gas is supplied from LNG terminal" experience. The selected participants were: a student from the Lithuanian Maritime University majoring in nautical science and a tour guide working with groups of foreigners. • In 2021, KN also took part in the thirteenth year of the project "Schoolchildren - to the Government", which aims to give the best final year students a first- hand insight into the activities of the Government and its institutions, to encourage young people to take part in the country's governance processes, and to contribute to the formation of civil society. Participants of the "Students to Government" project took part in a virtual meeting with the Chief Administrative and Corporate Governance Officer of KN and the LNG Terminal Operations Manager. KN colleagues introduced the pupils to the activities of our Company and talked about KN-operated LNG terminal. • In November 2021 a student excursion to the Klaipėda Oil Terminal was organised by the Lithuanian Maritime School (LAJM). The students were introduced to the processes and technologies at the heavy fuel oil terminal. As in previous years, in 2021 the Company continued its tradition of not giving regular Christmas gifts to the customers and partners, and instead used the planned funds to improve the environment of the community of Vite, situated near the Klaipėda Oil Terminal, by planting trees in their neighbourhood. ENVIRONMENTAL RESPONSIBILITY The Company's objective is to avoid, mitigate and manage the environmental and social impacts of our activities. We strive to be a good neighbour and member of society and to look after the interests of the communities directly or indirectly affected by the Company's activities. We feel responsible for our ecological footprint, and we strive to minimise the Company's potential negative environmental impacts. Environmental protection is one of the priority areas of KN's corporate social responsibility. Both in the routine operations of existing oil and LNG terminals and in the planning of new activities, KN complies with the basic principles of environmental protection set out in the National Environmental Strategy, the conditions set out in the environmental permits, and the norms set out in the environmental regulations and standards. The Company aims to be socially responsible in a result- oriented rather than a declarative manner. In view of the global concern about climate change, the Company feels responsible for its ecological footprint and therefore aims to balance the Company's impact on the environment through clearly defined indicators. In 2021, KN has clearly defined environmental targets to reduce volatile organic compound (VOC) emissions by 35% by 2024 and 45% by 2030 compared to the current period. We have also set ourselves clear targets to reduce the direct CO2 emissions from Klaipėda Oil Terminal's operations by increasing energy efficiency through rational use of energy resources. The aim is to reduce these emissions by 20% by 2024 and by 50% by 2030. We are doing our utmost to ensure that the environmental impact is measured and controlled. One of KN's strategic objectives is to ensure that KN terminals operate in an environmentally sustainable manner and are fully compliant with environmental requirements. The company has clearly identified the significant environmental aspects, their impact on the environment, control, and management measures. KN strives to improve its environmental performance by continuously monitoring the environmental impact of its activities and by aiming at pollution prevention, waste minimisation, water and energy efficiency, and efficient use of raw materials. We are proactive in monitoring our impact on environmental quality, assessing our impact on the environment, and not just seeking to meet norms or requirements. KN regularly monitors air pollution from stationary sources and the quality of wastewater discharged into the natural environment. The data collected is available on the Company's website. The public can obtain real-time information on loading operations in real time by calling a dedicated line, available on Company’s website. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 119 The Company is constantly looking for new technical solutions to reduce waste emissions, introducing them and carrying out regular testing and maintenance. As of 2018 KN is implementing an Environmental Action Plan, which sets out measures and a commitment to continue to operate sustainably and ensure the highest environmental standards. Once fully implemented, the action plan will contribute to the reduction of volatile organic compound (VOC) emissions, ensuring minimal emissions to the environment and more efficient neutralisation of VOCs. As part of this plan, in 2021 KN has implemented environmental projects such as the modernisation of the burners of the boiler house, which is expected to reduce the one-off emissions of carbon monoxide and nitrogen oxides to ambient air by 3 times. A new air pollutant treatment plant has also been commissioned to treat pollutants collected from 16 tanks and a railway loading rack. The main purpose of this treatment plant is to reduce odours, and thus emissions of volatile organic compounds (VOCs), from the loading and storage of heavy oil products. At the same time, efforts are being made to continue looking for the solutions to further reduce emissions of VOCs to the environment. A draft Environmental Action Plan 2022-2030 has also been prepared, which includes measures to reduce further the potential negative environmental impacts of the activities of the Company. In 2020, KN's environmental management system got certified for ISO 14001:2015 standard, which was confirmed by an audit in 2021. KN is actively involved in the debate on the future of fossil fuels and the transition to a more climate neutral economy. LNG offers an opportunity to move away from fossil fuels towards more sustainable forms of energy, including hydrogen, which is why KN has joined the Lithuanian Hydrogen Platform and the Lithuanian Shipowners' Association. We support and promote the use and development of environmentally friendly technologies, products and services to contribute to sustainable development - like hydrogen, also potential of technologies like carbon capture. KN, Larvik shipping (LS) and Mitsui O.S.K. Lines Ltd (MOL) have launched a feasibility study to develop liquefied CO2 loading facilities that could be implemented using the existing KN infrastructure in Klaipėda. For this purpose, the entire concept shall be to develop a CO2 logistics and value chain from Lithuania and potentially Baltic region with Klaipeda seaport at the centre. In 2021, KN initiated a roundtable discussion on "Clean air in Klaipėda: what can we do today to improve its quality tomorrow". The aim was to stimulate dialogue between authorities responsible for air quality monitoring and control, experts, and businesses, to share knowledge and best practices, to promote cooperation and to contribute to improving air quality. Constructive dialogue, experience sharing and cooperation with other industrial and port companies in the city are beneficial as we all share the common goal of minimising the impact of our activities on the lives of citizens. KN Group's full Corporate Social Responsibility Report for 2021, prepared in accordance with the Global Reporting Initiative (GRI) guidelines, will be published on www.kn.lt and on the Nasdaq Vilnius platforms on the date scheduled in the Investor Calendar. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 120 RISK FACTORS AND RISK MANAGEMENT The Company’s Board has approved Risk Management Policy that regulates risk management, defines risk management principles and responsibilities, functions and responsibilities of the Chief Risk Officer as well as sets risk appetite and tolerance limits. The risk management system is developed in accordance with the ISO 31000 guidelines. The list of principal risks and the risk management plan are provided to and approved by the Company’s Board each quarter. The Board actively participates in the principal risk management process by continuously monitoring the risk level changes and the risk management measures’ action plans. The Company’s high-level management is responsible for shaping the personnel’s attitude towards risk management, setting the risk management goals in the managed area, implementation of the control measures, implementation and monitoring the efficiency of the risk management measures. The medium level managers are responsible for implementation of the risk management process and provision of the results, as well as for reliability, correctness, and impartiality of information. The Audit Committee reviews financial reporting process as well as audit execution process and oversees internal control environment, risk management and internal audit framework. Primary risk categories that the Group and the Company are exposed to while conducting business: • Business risk. It is a risk category that is generally related with the environment where the Group and the Company operate and has an impact on financial results: competitiveness of the Group and the Company comparing with other players in the market of oil products transhipment, economic viability of the key customers of the Group and the Company, political and economic environment in the neighbouring countries, changes in legal regulation of the LNG related activities etc. • Operational risk is probably the widest risk category covering potential loss resulting from inadequate or failed procedures, systems or policies, employee errors, systems failures, fraud, or other criminal activity, as well as any event that disrupts business processes. • Reputational risk. It is a risk mostly related with the decisions of the Group and the Company and behaviour of the employees. • Project risks. The Company is engaged in several large investment projects; therefore, effective risk management throughout the whole lifecycle is critical when achieving goals. COMMENTS ON THE RISK CATEGORIES OF THE GROUP AND THE COMPANY ARE PROVIDED BELOW: Business risk The Company works with several big clients in the area of oil products transhipment. The main client of the Company is AB ORLEN Lietuva. The Company has signed a long-term transhipment agreement with ORLEN Lietuva and guarantees stable flows of oil products from the client. The Company continuously looks for other potential clients, flows of shipments and alternative activities. Also, the Company reviews existing expenses and constantly searches for costs optimization possibilities. In 2021, the Company increased total transhipment of biofuels segment cargo by approx. 40 % compared to 2020. In 2021, Company’s transhipment by auto trucks increased about 15.4% compared to 2020 and reached more than 500 tons per year. The Company is striving to manage its business risks by diversifying its income sources and widening the range of services, communicating and cooperating with potential clients, who are interested in blending services, storage and transhipment of petrochemical products such as monoethylene glycol, ethanol, methanol and loading of new product bitumen. The main factors of the Company's business environment: • The increase of vacant tanks volumes supplies in the beginning of the year intensified competition in oil products storage (especially dark heated) market, which remained intense throughout the first half of the year. • Part of the vacant capacity of Klaipėda Oil Terminal was rented for petrol storage until the end of 2021 Q2. Cooperation with the customer has been extended by concluding a new contract - for the storage of fuel oil, at the same time almost doubling the storage volume. • Travel restrictions in European countries which were imposed due to COVID-19 pandemic began to decrease and boosted fuel consumptions up to the same level as seen in 2019 as well as increased the profit margins of oil refineries during Q3 2021. All these factors had a positive impact on oil products transhipment in Klaipėda oil terminal. • Loading of new product - bitumen - was started at the end of 2021. The Company is striving to manage its business risks by diversifying its income sources and widening the range of services it provides: the Company operates liquefied natural gas (LNG) terminal, consults and participates in AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 121 international investment projects related with the development of LNG terminals, provides small-scale LNG services to clients: • KN is the operator of the liquefied natural gas (LNG) terminal in the Brazilian port of Açu. KN, as the operator of the LNG terminal, is responsible for the operations of the LNG terminal, which includes the technical and logistical operations of the jetty and its facilities, gas pipeline and gas metering stations. The most focus is to ensure demands of the clients, so for these reasons, regular meetings are organised to strengthen the weak areas of the project. • The Law on LNG Terminal provides that LNG activities must be carried out until at least 31/12/2044 and the LNG terminal operator acquires FSRU and becomes an operator no later than 31/12/2024. During 2021, KN, as part of a project of long-term LNG import infrastructure solution, organised intensive discussions with market participants, arranged market consultation on the procurement documents and launched the public international tender for the acquisition of the FSRU in mid-year. Potential FSRU suppliers actively participated in the preparation phase of the tender, however after assessing the stated budget of the purchase, technological aspects, and other circumstances, decided not to participate in the further stages of the tender. The market research, the market consultations, and the public tender results have clearly shown that the existing purchase option to acquire FSRU “Independence” is the most economically advantageous solution for KN. By December 2022, the KN must inform the Norwegian company Höegh LNG of its decision to execute the right of FSRU Independence buy-out option as indicated in the time charter agreement. • During the first half of 2021, the Swedish company AFRY prepared study on the long-term capacity allocation and tariffication models applicable in LNG terminals in Europe. During few workshops AFRY presented results of the study to stakeholders and had discussions with market participants. Based on the study results, KN currently is updating principles of the LNG terminal capacity allocation and tariffication model. LNG Terminal Regulations will be amended accordingly. Main terms and conditions of the Regulations will be submitted to National Energy Regulatory Council (NERC) and public consultation will be announced. After approval of main terms and conditions of Regulations, long-term capacity allocation procedure will be announced in summer of 2022. Capacity will be allocated for up to 10 years period counting from 2023. Operational risk Operational risk is considered as risk directly related to the increase of losses, caused by the external factors (for example, natural disasters, illegal acts of the third parties, etc.) or internal factors (for example, ineffective activity and management, improper and inefficient utilization of funds, internal control deficiencies, ineffective procedures, human error, malfunctions of information systems, cyber security control gaps, unduly allocation of functions or responsibilities, etc.). During 2020 political risk materialized, and one of the largest clients BNK (UK) Limited, which belongs to the largest exporters of Belarusian oil products - ZAT Belaruskaja neftenaja kampanija, announced a temporary suspension of transhipment. Moreover, starting from 24th June 2021, sanctions to Belarus were introduced by Council Regulation (EU) 2021/1030 - no more transit of oil product flows from Belarus are possible and are not expected in the future. Due to these external operational risks, KN will have to implement long-term strategic decisions to adapt to new geopolitical circumstances. Consequently, a revision of long-term corporate strategy has been initiated and will be completed during 2022. To manage internal operational risk, the Company implemented required organizational measures and procedures as well as information systems to be used for support of business processes that collectively ensure proper functioning of internal control system and duly cooperation with the third parties concerned. The Company applies the following means of internal control: separation of decision making and controlling functions, control of transactions and accountancy, limitation of decision-making powers and control of their execution, collegial decision making in crucial issues, etc. Internal operational risk management is significantly influenced by the standards, which are implemented and maintained in the Company - Quality ISO 9001:2015, Environmental Protection ISO 14001:2015, Occupational Health and Safety ISO 45001:2018. These standards impose requirements for the control of processes according to the most significant risks and management system audits, which ensure that the described controls and processes operate in practice. The Company strives to minimize legal compliance risk and assure that its operations are compliant with the applicable legal requirements and standards. Infrastructure, as well as management and safety processes, cooperation with the third parties and control system has been positively evaluated by the representatives of potential clients of the terminals. In order to manage better operational risks, KN has established a compliance function, which is controlled by compliance of risk assessment. Reputational risk The Company cherishes its reputation and good name and employs risk mitigation means. KN culture is based on Company’s values - respect, cooperation, professionalism, and improvement, which are the basis for AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 122 our decisions and actions with customers, employees, shareholders, and other stakeholders. The Company strives to ensure good employee experience through the entire journey with KN (from the attraction stage to the exit one). Each candidate is treated as a potential ambassador of the Company; therefore, communication is led as with a future client or partner. In 2021, KN had a special acknowledgment – the Company was among the top five of the best employers. The Company continuously invests in professional development of employees in order to ensure business continuity and good reputation. Accordingly, employees are provided with training that allows to fulfil Company needs, succession is planned, which helps to ensure business continuity and develops the competencies of employees. The Company fosters a value-based culture and has been electing employees of the quarter on a quarterly basis for many years. In 2021 KN began to collect the Hero of the Quarter. The "employee of the quarter" nomination is awarded for outstanding quarterly achievements in the Company and personal qualities, behavioural characteristics, thanks to which colleagues manage to achieve excellent results as well as for initiatives that create benefits for the business, employees, clients, and implementation of KN values in daily work. At the time of the nomination of a colleague for the nomination of "Quarterly Hero of Values", colleagues are asked to record what this colleague is grateful for and thus promote values-based behaviour and strengthen the sense of gratitude in the Company, which directly influences the work atmosphere and employee productivity. As in 2020, in 2021 the Company did not miss a chance and arranged number of interactive learning sessions – Dialogue of Values for employees in Subacius Oil Terminal. Colleagues took part in the discussions how they should behave in different situations according to KN values. Such initiatives, as well as additional internal training sessions to strengthen psychological and emotional resilience, have helped to ensure that employee behaviour is in line with the values and Code of Conduct of KN, which was updated in January 2021 and make employees feel psychologically and emotionally safe in the workplace. Psychological safety in the company was rated high at 71% out of 100 during the annual Employee engagement survey in 2021. The survey revealed that one of the most gratifying aspects of the Company is a good work atmosphere. The Company pays substantial attention to minimizing corruption risk and implements relevant internal processes. During 2021, KN was involved in the project "Skaidrumo Akademija", which was initiated by the President of the Republic of Lithuania (organiser – Special Investigation Service of the Republic of Lithuania). The aim of participating in this project is to introduce additional and improved existing measures to prevent corruption in KN. One of the instruments for the prevention of infringements is the Whistleblowing channel, which is open for all natural persons and legal entities: both existing and former KN employees, former and potential KN clients, contractors, suppliers, and community. During 2021, the coordination of the Whistleblowing channel was transferred to the Internal Audit, which is functionally subordinate to the Audit Committee and administratively to the Company CEO. It also provides possibility to inform directly the collegial managing bodies of KN. Additionally, these changes contributed to enhanced confidentiality of the Whistleblowing channel. The Company pays special attention to the stakeholders. It openly provides information to the institutions, public organizations and the general society, and has been focusing on strengthening relations with communities for years. In 2021, the Company continued to engage actively with representatives of neighbouring communities, holding meetings to present the progress of the ongoing Environmental Action Plan and to respond to relevant questions of concern to communities. KN also openly shares environmental data with the public – KN website provides environmental monitoring data of Klaipeda Oil Terminal, information on the progress of the environmental action plan. With a consistent focus on the environment and open dialogue with communities, KN has achieved a steady annual decline in requests from communities and institutions on environmental issues, with 12 requests received in 2021, compared to 18 a year ago. The Company is also involved in educational initiatives, such as hosting company tours at KN Oil terminal for students and pupils, presenting its operations and providing knowledge related to petroleum products, logistics, laboratory work, etc. Project risk Investment project management is an important part of the Company’s business. In order to effectively manage projects, the implementation of the project management methodology and project monitoring was initiated according to the PRINCE2 standard. During 2021, the Company has finished tanks reconstruction project for bitumen storage and loading, jetty reconstruction to increase the availability of the Company's services and flexibility of technological capabilities. The Company is looking for opportunities in international LNG investment projects. Also, Company is involved in the analysis and search of carbon capture and storage technologies and is actively participating in the development of hydrogen platform technologies. To attain the economic value that investment projects are supposed to generate it is important to assure that the projects are implemented within the defined budget and timeframe. Company’s AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 123 Board has set 10 % tolerance limit for deviations; therefore, Company’s management constantly monitors implementation statuses of the important projects, related risks, and their mitigation measures. FINANCIAL RISK MANAGEMENT Foreign Exchange Rate Risks Due to the specifics of the business, the Group and the Company are exposed to the risk of EUR/USD foreign exchange rate fluctuations due to FSRU lease payments in US dollars and to the risk of EUR/BRL foreign exchange rate due to activity of subsidiary KN Acu in Brazil. The Group and the Company hedge against changes in EUR/USD exchange rates by using futures contracts. When derivatives are realized, the result is recorded in the profit (loss) statement of each calendar month. For 2021 the Group and the Company accounted EUR 1,898 thousand income on the fair value change of derivatives. For 2020 the Group and the Company accounted EUR 1,869 thousand loss on the fair value change of derivatives. The fair value as at the end of reporting period is confirmed by SEB bank. Credit Risks A possible credit risk of the Group’s and the Company’s customers is managed by a continuous monitoring of outstanding balances. The Group’s and the Company’s procedures are in force to ensure on a permanent basis that services are provided to reliable customers and do not exceed an acceptable credit exposure limit. The Company trades only with reputable third parties, so there is no requirement for collateral. More information about the exposure to credit risk for trade receivables from the customers can be found in the Note 26 of the Explanatory Notes in the financial statements. Interest Risks The Group’s and the Company’s income and operating cash flows are influenced by changes in market interest rates, which are linked to EURIBOR base. Overall, 56% of loan portfolio is exposed to floating interest rate risk; no hedging derivative instruments were used. Thus, such standing has implications on financial results. EIB facility with 3 tranches is exposed to 3 months EURIBOR with zero-floor applicable on EURIBOR base. In contrast, NIB facilities are exposed to 6 months EURIBOR with no zero-floor applicable on EURIBOR base. The Group and the Company is constantly assessing its possibilities to hedge interest rate risks on its loans. Thus, the loans related to long-term LNG terminal solution with high probability in future are expected to be with partially or fully fixed interests. The Group’s and the Company’s excess liquidity in forms of money and time deposits are distributed across the accounts of major Lithuanian banks, which are granted with Standard Poor’s or equivalent long-term term borrowing BBB- or better external rating according to the foreign rating agencies. Partner bank’s rating is assessed either on a stand-alone or applying a bank group logic into which exposure is present. Also, the Group and the Company is monitoring recommendation of the Central Bank of Lithuania. More information about the interest risk can be found in the Note 26 of the Explanatory Notes in the financial statements. Liquidity Risks The Company’s and the Group’s policy is to maintain sufficient cash and cash equivalents or have available funding through an adequate amount of committed credit facilities to meet its commitments at a given date in accordance with its strategic plans. The Group’s gross liquidity (APM) and quick ratios (APM) as of 31 December 2021 were 1.28 and 1.25, respectively (1.47 and 1.43 as at 31 December 2020). The Company’s gross liquidity (APM) and quick ratios (APM) as of 31 December 2021 were 1.20 and 1.17, respectively (1.41 and 1.37 as at 31 December 2020). The Group’s and Company’s objective is to maintain a balance between continuity of funding and flexibility. The Group’s and the Company's activities generate sufficient amount of cash; therefore, the Management's main responsibility is to monitor that the liquidity ratio of the Company is close to or higher than 1. More information about the management of liquidity risk can be found in the Note 26 of the Explanatory Notes in the financial statements. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 124 OTHER INFORMATION The activity of the Company is based on the Articles of Association, Civil Code and other laws and sub legislative acts of the Republic of Lithuania. Changes in the Articles of Association can be made by the General Meeting of Shareholders. TRANSACTIONS WITH RELATED PARTIES The Company did not have any transactions or agreements with the members of its Supervisory Council and the Board. More information regarding transactions with related Parties is presented in the Explanatory note to the Company’s financial statements for 2021. In 2021 there were no changes in type of transactions with related parties, which could have made impact on the financial activity of the Group and the Company. All transactions with the related parties have been performed under market conditions (following the arm’s length principle). PARTICIPATION IN ASSOCIATIONS The Company has been acting as a member of the following associations as at the end of the year: • Klaipėda Chamber of Commerce, Industry and Crafts, http://www.kcci.lt/ • Association of Lithuanian Stevedoring Companies, www.ljkka.lt • Lithuanian Confederation of Industrialists, www.lpk.lt • Gas Infrastructure Europe (GIE) association Gas LNG Europe (GLE) group, www.gie.eu.com • Lithuanian LNG cluster, www.lngcluster.eu • Lithuanian Shipowners Association, www.llsa.lt • Lithuanian Hydrogen Platform • LNG platform, www.sgdplatforma.lt • Baltic Innovation Hub, https://baltictechpark.com • The American Chamber of Commerce in Lithuania, www.amcham.lt • Klaipėda Association of Industrialists, www.kpa.lt INFORMATION ABOUT THE AUDIT 30 th April 2021. Extraordinary General Meeting of Shareholders of the Company adopted the following resolutions: UAB KPMG Baltics has been elected as an auditor for the Financial Statements and Regulated Activities Statements of the Company and assessment of its Annual Report for the years 2021 and 2022. The shareholders authorized the General Manager of the Company to conclude the Agreement for provision of 2 years auditing services (financial audit of both the Company and the subsidiary KN Acu Servicos de Terminal de GNL LTDA, and regulatory activities audit) for total amount of EUR 164 thousand (excl. VAT). UAB Ernst & Young Baltic performed the audit for the years 2014-2018. UAB KPMG Baltics performed the audit for the years 2008- 2013, 2019-2020. The proposal regarding approval of the audit company is provided by the Board of the Company to the General Meeting of Shareholders based on the public procurement procedures. AB KLAIPĖDOS NAFTA CONSOLIDATED ANNUAL REPORT For the financial year ending on 31 December 2021 www.kn.lt | 125 2021 AB KLAIPĖDOS NAFTA REPORT ON REMUNERATION AB KLAIPĖDOS NAFTA REPORT ON REMUNERATION For the financial year ending on 31 December 2021 www.kn.lt | 126 REPORT ON REMUNERATION Remuneration principles of the Company’s governing and supervisory bodies are determined by the Remuneration policy approved in General shareholders meeting in April 2020. Full remuneration policy can be found on Company’s website. Remuneration for activities in the collegial bodies of the Company may be paid to the members of the collegial body of the Company who are independent or not, but who are not public servants or employees of a state representative institution. The personal data of the members of the Company’s governing and supervisory bodies is included in the report on remuneration for the following purposes: • to increase the transparency of the Company; • to improve the accountability of the members of the governing bodies; • to supervise the remuneration of the governing bodies. Members of collegial governing and supervisory bodies of the Company are only eligible for receiving fixed monthly compensation. The remuneration to be paid must: • promote the creation of long-term and sustainable value of the Company, to be fair and understandable. • comply with the workload of the individual organs of the Company and their members. • be competitive with the salary levels in the labour market of the respective field. • ensure the indemnification of the liability assumed by the individual members of the Company bodies. • promote the attraction of high-level professionals in their field to the management of the Company. REMUNERATION OF THE SUPERVISORY COUNCIL IN 2021 TITLE MONTHLY SALARY FOR 2021, EUR TOTAL FOR 2021, EUR MONTHLY SALARY FOR 2020, EUR TOTAL FOR 2020, EUR Member 1 1,140.59 13,687.08 1,140.59 13,687.08 Member 2 856.92 10,283.04 856.92 1,156.87 Member 3 0.00 0.00 0.00 0.00 TOTAL 1,997.51 23,970.12 1,997.51 14,843.95 In 2021 the total remuneration for the members of the Supervisory Council amounted to EUR 24,0 thousand (2020 – EUR 20.8 thousand). Members of the Supervisory Council were not granted with any loans, guarantees, assets, premiums, tantiemes, shares or salary for service at any other company of the Group for the year 2021. They are not eligible for any variable part of remuneration or for recovery of it. REMUNERATION OF THE BOARD OF THE COMPANY IN 2021 TITLE MONTHLY SALARY FOR 2021, EUR TOTAL FOR 2021, EUR MONTHLY SALARY FOR 2020, EUR TOTAL FOR 2020, EUR Member 1 2,400.00 28,800.00 2,400.00 28,800.00 Member 2 2,095.00 25,140.00 2,095.00 25,140.00 Member 3 2,095.00 25,140.00 2,095.00 25,140.00 Member 4 2,095.00 18,855.00 2,095.00 25,140.00 Member 5 2,095.00 2,095.00 0.00 0.00 Member 6 0.00 0.00 0.00 0.00 TOTAL 10,780.00 100,030.00 8,685.00 104,220.00 In 2021 the total remuneration for the members of the Board amounted to EUR 100.0 thousand (2020 - EUR 104.2 thousand). In 2021 members of the Board were not granted any shares, did not receive any loans, guarantees, assets, premiums, tantiemes or any other benefits for work as members of the Bord or salary for service at any other company of the Group. They are not eligible for any variable part of remuneration or for recovery of it. AB KLAIPĖDOS NAFTA REPORT ON REMUNERATION For the financial year ending on 31 December 2021 www.kn.lt | 127 REMUNERATION OF THE AUDIT COMMITTEE IN 2021 TITLE MONTHLY SALARY FOR 2021, EUR TOTAL FOR 2021, EUR MONTHLY SALARY FOR 2020, EUR TOTAL FOR 2020, EUR Member 1 1,140.59 13,587.79 856.92 530.53 Member 2 856.92 10,382.33 968.36 11,620.31 Member 3 856.92 10,283.04 856.92 10,283.04 TOTAL 2,854.43 34,253.16 2,682.20 22,433.88 In 2021 the total remuneration for the independent members of the Audit Committee amounted to EUR 34.3 thousand (in 2020 – EUR 30.4 thousand). Members of the Audit Committee have not received any loans, guarantees or assets, unpaid bonuses, tantiemes and other benefits or salary for service at any other company of the Group, were not granted any shares of the Company. They are not eligible for any variable part of remuneration or for recovery of it. REMUNERATION OF THE CEO OF THE COMPANY IN 2021 The CEO of the Company is rewarded according to provisions set in the Remuneration policy approved by the Board of the Company and the Company’s Procedure for rewarding bonuses to AB Klaipėdos nafta top management employees. The monthly salary of the CEO of the Company was set to EUR 9,200 in November of 2019 and has not been changed since then. Following the Remuneration policy, the CEO is also eligible for receiving annual bonus depending on the results of the Company and achievement of the annual goals. The maximum bonus in case all goals are achieved consists of 4 monthly salaries. In 2021 variable pay for the CEO, was EUR 1,227 (monthly equivalent of yearly bonus) (2020 - EUR 2,101 (monthly equivalent of yearly bonus). CHANGES IN THE COMPANY RESULTS AND AVERAGE MONTHLY SALARY OF ALL EMPLOYEES 2021 2021 adj. 2020 2020 adj. 2019 2019 adj. 2018 2017 Sales 58,633 58,633 77,474 77,474 104,138 104,138 99,998 106,484 Net profit (loss) -64,917 -48,084 33,495 10,991 7,947 13,117 11,577 17,031 Average monthly salary (gross), EUR 2,570 - 2,574 - 2,282 - 2,313 2,297 * Remuneration of Members of governing and supervisory bodies are not included. ** adj. - adjusted financial indicators/data are recalculated and presented by eliminating from net profit (loss) the following amounts: (1) the impact of unrealised foreign currency exchange rates (forex) arising from IFRS 16 requirements, (2) respective impact of deferred income tax arising from forex, and (3) impact of financial derivatives. The Company’s 2021 average monthly salary of all employees did not change compared to 2020 (2021 – 2,570 EUR/month, 2020 – 2,574 EUR/month). Average monthly salary of all employees of the Company has been gradually growing for the last few years. Average monthly salaries per employee category for 2020-2021 are provided below. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 128 AVERAGE MONTHLY SALARIES OF THE EMPLOYEES OF THE GROUP AND THE COMPANY EMPLOYEE CATEGORY AVERAGE MONTHLY SALARY (GROSS), EUR GROUP GROUP CHANGE, % COMPANY COMPANY CHANGE, % 2021 2020 2021 2020 Managers 1) 5,061 5,507 -8.1 5,459 5,719 -4.5 Specialists 2,445 2,511 -2.6 2,553 2,552 0.0 Workers 1,614 1,741 -7.3 1,614 1,741 -7.3 Total 2,506 2,543 -1.5 2,570 2,574 -0.2 1) The Company‘s managers include: Chief Executive Officer (CEO), Directors and Heads of Divisions. The following sums were calculated for the remuneration to the Group‘s managers in 2021: EUR 3,684 thousand, in that amount taxes paid by the employer included EUR 177 thousand (when in 2020 were EUR 3,137 thousand from which EUR 103 thousand of taxes paid by the employer). The average annual salary of manager of the Group amounted to EUR 63.5 thousand in 2021 (in 2020 - EUR 65.3 thousand). 2) The average monthly salary is calculated according to the average monthly wage calculation procedure as stated in the State companies’ employees’ average monthly salary calculation procedure approved by the Government of Lithuania on 23 August 2002, resolution No. 1341 and its subsequent changes. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 129 2021 AB KLAIPĖDOS NAFTA GOVERNANCE REPORT AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 130 CONTENT AB KLAIPĖDOS NAFTA GOVERNANCE REPORT INFORMATION ....................................................................................................................... 131 MANAGEMENT OF THE COMPANY ............................................................................................................................................................................... 132 OTHER GOVERNANCE INFORMATION ........................................................................................................................................................................ 142 AB KLAIPĖDOS NAFTA COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE ............................................................................. 145 AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 131 AB KLAIPĖDOS NAFTA GOVERNANCE REPORT INFORMATION AB Klaipėdos nafta aims to make its corporate management and internal processes in a way to ensure transparent, effective, and profitable activities and its activities retain the trust of our stakeholders. The internal control processes and management practices implemented within the Company are in line with the best management practice principles. This report provides main information and principles regarding management and related processes. The Company’s management structure and managing and supervisory bodies are described in detail in article “Management of the Company of the annual report”. This paragraph also contains information regarding corporate management and organizational scheme, connection with the other bodies and short description of the functions of the each managing body. In order for the management and supervision bodies of the Company to exactly and clearly understand the targets, directions and objectives the corporate strategy is being prepared with purpose to foreseen long term strategic goals and tasks. The Supervisory Council of the Company is responsible for the approval of the strategy. AB Klaipėdos nafta strategic goals are described in the paragraph “The Corporate Strategy”. KN corporate strategy until 2030 is available at: 2030.kn.lt. The Company, acting in compliance with Article 21(3) of the Law of the Republic of Lithuania on Securities and paragraph 24.5 of the Listing Rules of AB NASDAQ Vilnius, 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 the paragraph “AB Klaipėdos nafta Compliance with the Corporate Governance Code”. Company’s annual report of the year 2021 along with Company’s governance report and explanatory notes of the year 2021 financial statements are published in AB Klaipėdos nafta official website (http://www.kn.lt) and in AB NASDAQ Vilnius (www.nasdaqomxbaltic.com) Stock Exchange. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 132 MANAGEMENT OF THE COMPANY MANAGEMENT STRUCTURE The Company follows the Law on Stock Companies, the Law on Securities, Articles of Association of the Company, and other legal acts of the Republic of Lithuania during its operation. The Company’s Articles of Association are registered in the Register of Legal Entities and indicate the following management bodies: • The General Meeting of Shareholders • The Supervisory Council • The Board • Chief Executive Officer (CEO, General Manager) ORGANIZATIONAL AND MANAGEMENT STRUCTURE OF THE COMPANY: The General Meeting of Shareholders is the supreme management body of the Company. Competences of the General Meeting of Shareholders of the Company, Shareholders’ rights, their implementation are identified in the Law on Stock Companies and in the Article of Association of the Company. The Company’s CEO or authorised Head of any other department of the Company always participates in the Shareholders Meetings while the member of the Supervisory Council and the CFO participate depending on the questions addressed. In the last ordinary general meeting of Shareholders of the Company the following representatives of the Company took part: Company’s CEO, Chairman of the Board, Chief Administrative and Corporate Governance Officer, Head of the Legal Unit. The Supervisory Council is a collegial supervisory body which consists of 3 (three) members (at least 2 (two) being independent), elected for the period of four years in the General Meeting of Shareholders according to the procedure established by the Law on Stock Companies. The number of the terms of office a member may serve on the Supervisory Council is not limited. The CEO of the Company, a member of the Board of the Company and a person, who under the legal acts is not entitled to serve in this office, shall not serve on the Supervisory Council. The Supervisory Council is a collegial body supervising the activities of the Company, its status, competence, and functions have been defined by the Law on Stock Companies and the Articles of Association of the Company. Functions, rights and duties of the Supervisory Council are detailed in the Rules of Procedure of the Supervisory Council. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 133 The Supervisory Council by its decision has formed an Audit Committee, which consists of 3 (three) members elected for the office term of the Supervisory Council. The Rules of formation and conduct of the Audit Committee of AB Klaipėdos nafta, approved by the Company’s Supervisory Council, regulate functions, rights, and duties of the Audit Committee. The key responsibilities of the Committee are to assist the Supervisory Council in fulfilling its oversight responsibilities in relation to financial reporting, the effectiveness of the system of risk management and internal control, monitoring the independence of both the internal and external auditors and assessing their performance and effectiveness. The Company’s head of internal audit is functionally subordinate to the Audit Committee and administratively subordinated to the CEO. By the decision of the Supervisory Council of the Company the members of Audit committee have been elected until the end of office of the current Supervisory Council. The Board is a collegial management body of the Company consisting of 5 (five) members, who are elected by the Supervisory Council for the period of 4 (four) years with the requirement that at least 3 (three) members are independent. The number of the terms of office a member may serve on the Board is not limited. A person who is a member of the Supervisory Council of the Company or who under the legal acts may have no right to be elected, cannot serve as a member of the Board. The mandate of the Board members has been determined by the Law of Stock Companies and the Articles of Association of the Company. The tenure of all Board members of AB Klaipėdos nafta has been extended based on the 24 April 2019 decision of the Supervisory Council of AB Klaipėdos nafta which extended the tenure of the Board members of the Company until the respective separate decision of the Supervisory Council, on 2 July 2019 the Supervisory Council of the Company decided to further extend the tenure of all Board members of the Company for three years until 24 April 2022. The Chief Executive Officer (CEO) is a single person managing body of the Company. The CEO is the main person managing and representing the Company. The duties and competence of the CEO have been determined by the Law on Stock Companies and the Articles of Association of the Company. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 134 MEMBERS OF THE SUPERVISORY COUNCIL AS AT 31 DECEMBER 2021 Eimantas Kiudulas (independent member) Chairman of the company’s Supervisory Council. Elected to the Supervisory Council on the 27 April 2018 by the ordinary General Meeting of Shareholders for a four-year term. Also served as a member of the KN Supervisory Council in 2013–2017. Education: ISM University of Management and Economics, Management Accounting: Value Analysis module (2010); Vilnius University Faculty of Economics (1994). Participation in activities of other companies and organisations: Eimantas Kiudulаs’ company, owner UAB iValue, CEO, shareholder; Klaipėda Chamber of Commerce, Industry and Craft, Council Member; Lithuanian Association of Free Economic Zones, Board Member, Chairman of the Board UAB Biorro, Board Member; UAB Klaipėda Free Economic Zone Management Company, CEO, Board Member; UAB LEZ projektų valdymas, Board Member; UAB PO7, Board Member; UAB ProBioSanus, Board Member; UAB Flex Start One, CEO; Public Institution Klaipėda ID, Board Member, Chairman of the Board. Information about the shares of AB Klaipėdos nafta or shares of other companies, which Eimanas Kiudulas holds, and the total amount of which exceeds 5% of all shares of the company: UAB ProBioSanus – 23 %; UAB Biorro – 38 %. Karolis Švaikauskas (member) Member of the Supervisory Council of the Company. Elected as a member of the Supervisory Council on 10 April 2020 at the extraordinary general meeting of shareholders until the end of the term of office of the current Supervisory Council (appointed on 27 April 2018). Education: Vytautas Magnus University, Faculty of Political Science and Diplomacy, Master’s Degree in Political Science, Baltic Region Studies (2011); Humboldt University of Berlin (Germany), Scandinavian and Northern European Studies (2010); Vytautas Magnus University, Faculty of Humanities, Bachelor's degree in Historical Sciences (2009). Employment – since November 2019, is holding the position of the Head of the Energy Competitiveness Group of the Ministry of Energy of the Republic of Lithuania (legal status - budget office, code 302308327, Gedimino pr. 38, Vilnius). Participation in activities of other companies and organisations: member of the Labour Council of the Ministry of Energy (representation of employees’ interests); member of the Strategic Projects Supervision Commission of EPSO-G UAB; member of the Lithuanian-Polish Energy Working Group; member of the Regional Gas Market Coordination Group (RGMCG); member of the Energy Committee of Senior Officials of the Baltic Council of Ministers; member of the Energy Committee of the Connecting Europe Facility (CEF); member of the BEMIP regional working groups for the selection of EU projects of common interest. Karolis Švaikauskas does not hold shares of AB Klaipėdos nafta or other companies, when the total quantity of such shares exceeds 5%. Žaneta Kovaliova (independent member) Member of the Supervisory Council of the Company. Appointed a member of the Supervisory Council on 20 November 2020 at the extraordinary general shareholders’ meeting until the end of the term of office of the current Supervisory Council. By the decision of the Supervisory Council, elected as a member of the Audit Committee of the Company until the end of office of the current Supervisory Council. Education: Vilnius University, MA in management and business administration (2002 m.); Vilnius University, BA in management and business administration (2000). Member of Association of Chartered Certified Accountants (since 2011). Participation in activities of other companies and organisations: Independent member of the Supervisory Council of AB Energijos Skirstymo Operatorius. Žaneta Kovaliova does not hold shares of AB Klaipėdos nafta or other companies, when the total quantity of such shares exceeds 5%. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 135 There were 13 meetings of Supervisory Council in 2021, which were attended by all Supervisory Council members. SUPERVISORY COUNCIL ACTIVITY IN 2021 During 2021 the Supervisory Council supervised the activities of the Board and the CEO of the Company, announced, and successfully completed the selection of 4 (four) independent Board members for a new term of office beginning from 25th April 2022, approved the Company’s Corporate Governance Policy, annual internal audit plan and addressed other matters assigned within its powers. In addition to its regular tasks, the Supervisory Council in 2021 was also actively involved in the discussions about the Company’s corporate governance and internal control system functioning as well as risk management improvement. During 2021, the Supervisory Council carried out regular supervision of the implementation of the Company's strategy for 2020-2030, as well as in accordance with its competence provided suggestions and recommendations in the process of preparation of quarterly financial statements. NAME POSITION IN THE COMPANY THE INDEPENDENCE CRITERIA CADENCE COMMENCEMENT DATE Eimantas Kiudulas Chairman of the Supervisory Council Independent From the 27 April 2018 until 27 April 2022 Karolis Švaikauskas Member of the Supervisory Council - From the 10 April 2020 until 27 April 2022 Žaneta Kovaliova Member of the Supervisory Council Independent From the 20 November 2020 until 27 April 2022 AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 136 MEMBERS OF THE AUDIT COMMITTEE AS AT 31 DECEMBER 2021 Žaneta Kovaliova (independent member) Member of the Supervisory Council of the Company. Appointed a member of the Supervisory Council on 20 November 2020 at the extraordinary general shareholders’ meeting until the end of the term of office of the current Supervisory Council. By the decision of the Supervisory Council, elected as a member of the Audit Committee of the Company as of 8 December 2020 until the end of office of the current Supervisory Council. On January 13, 2021, during the meeting of the Audit Committee, Žaneta Kovaliova was elected the Chairperson of the Audit Committee. Education: Vilnius University, MA in management and business administration (2002 m.); Vilnius University, BA in management and business administration (2000). Member of Association of Chartered Certified Accountants (since 2011). Participation in activities of other companies and organisations: Independent member of the Supervisory Council of AB Energijos Skirstymo Operatorius. Žaneta Kovaliova does not hold shares of AB Klaipėdos nafta or other companies, when the total quantity of such shares exceeds 5%. Žana Kraučenkienė (independent member) Member of the Audit Committee. By the decision of the Supervisory Council, elected as a member of the Audit Committee of the Company as of 3 December 2018 until the end of office of the current Supervisory Council. Education: Vilnius University, Master’s degree in Mathematics (study programme of Finance and Insurance Mathematics), 2000, Vilnius University, Bachelor’s degree in Applied Mathematics (study programme of Finance and Insurance Mathematics), 1998, ISO 31000 Certified Risk Management Professional (2015), Board Member Education Certificate (2017). Place of work and position: director of UAB “Oregon Baltic”. Participation in activities of other companies and organisations: independent Board member and chairwoman of UAB “Būsto paskolų draudimas”. Social activities: member of the Association of Risk Management Professionals, Member of the Actuarial Association of Europe. Has no direct interest in the share capital of the Company no shareholding (above 5%) in the related companies of AB Klaipėdos nafta. Laura Garbenčiūtė-Bakienė (independent member) By the decision of the Supervisory Council, elected as a member of the Audit Committee of the company until the end of office of the current Supervisory Council. Education: Vilnius Gediminas Technical University, Master degree in Finance (1999); Kaunas University of Technology, Bachelor degree in business administration (1996). The Institute of Internal audit, Certified in Risk Management Assurance (CRMA), Certified in Qualification in Internal Audit Leadership (QIAL), Certified Internal Auditor (CIA), member of Association of Chartered Certified Accountants. Place of work and position: Since 2016 – financial advisor with portfolio of small and middle- sized Lithuanian and foreign companies; 2015-2016 – Director of Internal audit at Lithuanian Energy; 2013-2015 – Director of the Digital Operations at Western Union Processing; 1997-2012 – various positions at PricewaterhouseCoopers. Participation in the management of other companies: Since 2018 Laura Garbenčiūtė-Bakienė is an independent member of the Supervisory Council at Investment and business guarantees. Since 2016 – the independent Chair of the Audit and Risk Committee at the State Enterprise Ignalina nuclear power plant. Since 2019 – independent member of the Audit Committee at the Lithuanian Airports, and independent member of the Board at Plunges vandenys. Has no direct interest in the share capital of the Company no shareholding (above 5%) in the related companies of AB Klaipėdos nafta. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 137 During the year 2021, 14 Audit Committee meetings have been arranged where all Audit Committee members have participated. NAME POSITION IN THE COMPANY THE INDEPENDENCE CRITERIA CADENCE COMMENCEMENT DATE Žaneta Kovaliova Chairperson of Audit Committee Independent From the 8 December 2020 until 27April 2022 Laura Garbenčiūtė-Bakienė Member of Audit Committee Independent From the 21 August 2018 until 25 February 2022 Žana Kraučenkienė Member of Audit Committee Independent From the 3 December 2018 until 27 April 2022 AUDIT COMMITTEE ACTIVITY IN 2021 During the year 2021, the Committee closely monitored the financial reporting process and audit of consolidated financial statements of the Group. The Committee assessed whether appropriate accounting policies have been adopted throughout the accounting period and whether management has made appropriate estimates and judgements over the recognition, measurement, and presentation of the financial results. The Committee also discussed with the external auditor and Chief Financial Officer, regarding accounting policies, practices and reporting issues related to the impairment of the oil segment. Among other things Committee recommended invoking an independent external expert to assist the Company in determining the fair value of the oil terminal, regularly reviewing key assumptions and financial forecasts, and improving the clarity of the financial statements. The Committee also monitored internal control and risk management system and made recommendations to improve its effectiveness. In addition to developing a consistent methodology for identifying, managing, and reporting risks across the Group, improving compliance monitoring tools and mitigating key risks, the Committee advised to review private interest procedures and strengthen oversight of remuneration procedures. The Audit Committee also considered the external and internal audit plans of 2021, their results, and the assessments of the Group's internal control, including the control of financial statements, Committee also monitored the independence of the auditors. In addition, special attention was paid to whistleblowing procedures and monitoring of indications of possible deficiencies. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 138 MEMBERS OF THE BOARD AS AT 31 DECEMBER 2021 Dainius Bražiūnas (born 1983) – Member of the Board of the Company since 25 August 2014, until the term of office of the acting Board of Company. Education: Vilnius Gediminas Technical University, Bachelor in energy (2005). Employment – head of the Energy Security Policy Group of the Ministry of Energy of the Republic of Lithuania (legal status - budget office, code 302308327, Gedimino pr. 38, Vilnius). Participation in the activity of other companies: head and member of Koturna association (legal status - association, code 301684878, Mykolo Marcinkevičiaus street 23-13, Vilnius), member of the Board of EPSO-Gand member of the Board of 599th Apartment Owners Partnership (legal status – community, code 124754821, Paribio street 53A, Vilnius). Has no direct interest in the share capital of the Company; no shareholding (above 5%) in the related companies of AB Klaipėdos nafta. Mantas Bartuška (born 1984) – Member of the Board of the Company since 25 September 2014, elected by the Supervisory Council until the term of office of the acting Board of Company. Until 2 January 2017 was CEO of AB Klaipėdos nafta. Education: Vilnius University, faculty of economics, diploma of management and business administration (2007). Since 16 December 2016 works as general manager at AB Lietuvos geležinkeliai (legal status – Stock Company, code 110053842, Mindaugo street 12, Vilnius). Participation in the activity of other companies: since 14 December, 2016 member of the Board of the AB Lietuvos geležinkeliai (legal status – Stock Company, code 110053842, Mindaugo street 12, Vilnius, member of Presidium of Lithuanian Confederation of Industrialists (legal status – association, code 110058241, A. Vienuolio street 8, Vilnius). Has no direct interest in the share capital of the Company; no shareholding (above 5%) in the related companies of AB Klaipėdos nafta. Giedrius Dusevičius (independent member) (born 1971) – Independent member of the Board of the Company since 30 December 2016, elected till the end of the Board of Company cadence. Education: Vilnius University, Faculty of Economics, (1989); Vilnius University, Institute of International Relations and Political Science (1994); INSEAD, Management Programme (AMP, 2006). Participation in activities of other companies – member of the Supervisory Council of UAB Valstybės investicijų valdymo agentūra (legal status – Private Limited Liability Company, code 305612545. Has no direct interest in the share capital of the Company; no shareholding (above 5%) in the related companies of AB Klaipėdos nafta. Bjarke Pålsson (independent member) (born 1968) – Independent member of the Board of the Company since 24 January 2017, elected till the end of the Board of Company cadence. Education: University of St. Gallen (HSG) in Switzerland, CEMS Master’s Study Programme of Quantitative Economics and Finance. Copenhagen Business School in Denmark, Master’s in Finance (excl. thesis) (1992). Copenhagen Business School in Denmark, Bachelor’s in Economics. Employed: 50% owner and Co-CEO of Mark & Wedell (Oldenvej 5, 3490 Kvistgaard, Denmark). Has no direct interest in the share capital of the Company; no shareholding (above 5%) in the related companies of AB Klaipėdos nafta. Guy Mason (independent member) • (born 1964) - Independent member of the Board of the Company since 1 December 2021, elected till the end of the Board of Company cadence. Education: Engineering science and technology, Loughborough University (1986). Other qualifications: Chartered Engineer, Fellow of Institution of Mechanical Engineers. Employer and position: appointments leading to SVP Global Head of Shipping, BP (Apr 2016 – Dec 2020); Non-Executive Director and Advisory Committee member, International Tanker Owners Pollution Federation (ITOPF) (Sept 2018 – Dec 2020); Non-Executive Director, Member of Charitable Giving and Investment committees, International Foundation for Aids to Navigation (IFAN) (May 2016 – Dec 2020). Participation in activities of other companies and organizations: Non-Executive Director, Windward Limited. Has no direct interest in the share capital of the Company; no shareholding (above 5%) in the related companies of AB Klaipėdos nafta. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 139 During 2021 the composition of the Board changed as follows: the independent Board Member Ian Bradshaw resigned from the position as the Board member of the Company from 1st of October 2021. The Supervisory Council of the Company on the 25th of November 2021 adopted a decision to elect Guy Mason as an independent Board Member of the Company to fill the existing vacancy to serve from 1st December 2021 until the term of office of the acting Board of the Company (24 April 2022). BOARD ACTIVITY The Board reviewed the strategic, operational, financial, reputational, and safety issues throughout the year on a regular basis. In addition, The Board monitored the Company’s financial and strategic goals against the annual plan for 2021 quarterly and considered the yearly plan for 2022 after taking into account management’s assumptions. The Board’s work was very intensive in 2021- it held 15 meetings, 3 of which were held in writing. 134 items were presented to the Board, 67 of them – for the adoption of a decision. During 2021 the Board reviewed the long-term strategy of the Company and participated in numerous discussions with the management. The Board analysed and agreed on the strategy 2022-2024 presented to the Governance Coordination Centre. The Board oversaw the Company’s risks and reviewed management judgments about specific ones. During the year, three Risk reports were approved. The Board discussed issues related with global LNG projects. The Board actively participated in the discussions regarding Company‘s long-term LNG supply project and made significant decisions: • Approved public market consultations regarding Floating Storage and Regasification Unit (hereinafter - FSRU) acquisition and preparation for its public procurement (25 March 2021); • Approved FSRU main terms and conditions of the public procurement as proposed by the management (27 May 2021). • Supported management’s decision to approve FSRU “Independence” as the most economically advantageous offer (9 September 2021). On 28th July 2021 the Board has approved the renewed Dividend Policy of the Company. Dividend Policy is based on the existing legislation of the Republic of Lithuania, the Company's Articles of Association, and other Company's internal documents. The Board also advised on numerous corporate governance issues such as draft of Corporate Governance Policy, which was approved by the Company’s Supervisory Council, Company’s internal control system improvement plan and others. The Board was highly involved in managing oil business segment situation in the light of geopolitical factors. The Board with the management aligned assumptions on future cash flows projections of oil business segment to be used for impairment of Klaipėda oil terminal (KOT) calculations (August 2021). The Board was also involved in transactions of the Company. The Board engaged by approving the main terms and conditions or by supporting the management with the strategic advice. The major transactions are as follows: • Approval of KN storage services fee for new agreement with Alcodis SA (25 February 2021); • Approval conclusion of new agreement with Vitol A.S. on storage and transhipment of fuel oil (27 May 2021); • Approval of Company’s storage services fee for new agreement with AB “Orlen Lietuva” (9 September 2021). Main terms and conditions of Regulations for use of the liquefied natural gas terminal of the Company were approved by the Board on 23rd of July 2021. NAME POSITION IN THE COMPANY THE INDEPENDENCE CRITERIA BOARD MEMBER FROM THE DATE Giedrius Dusevičius Chairman of the Board Independent From the 30 December 2016 Dainius Bražiūnas Member of the Board - From the 25 July 2014 Mantas Bartuška Member of the Board - From the 25 September 2014 Bjarke Pålsson Member of the Board Independent From the 24 January 2017 until 1 February 2022 Ian Bradshaw Member of the Board Independent From the 2 January 2019 until 1 October 2021 Guy Mason Member of the Board Independent From the 1 December 2021 AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 140 The Board members attended the meetings in 2021: ✓ Attended Not attended - Was not a member of the Board No Date of the meeting Giedrius Dusevičius Dainius Bražiūnas Mantas Bartuška Bjarke Pålsson Ian Bradshaw Guy Mason 1. January 8 (in writing) ✓ ✓ ✓ ✓ ✓ - 2. January 28 ✓ ✓ ✓ ✓ - 3. February 25 ✓ ✓ ✓ ✓ - 4. March 25 ✓ ✓ ✓ ✓ ✓ - 5. April 6 ✓ ✓ ✓ ✓ ✓ - 6. April 29 ✓ ✓ ✓ ✓ ✓ - 7. May 5 (in writing) ✓ ✓ ✓ ✓ ✓ - 8. May 27 ✓ ✓ ✓ ✓ ✓ - 9. July 1 ✓ ✓ ✓ ✓ ✓ - 10. July 20 ✓ ✓ ✓ ✓ ✓ - 11. July 23 (in writing) ✓ ✓ ✓ ✓ ✓ - 12. September 9 ✓ ✓ ✓ ✓ ✓ - 13. October 28 ✓ ✓ ✓ ✓ - - 14. November 10 ✓ ✓ ✓ ✓ - - 15. December 9 ✓ ✓ ✓ ✓ - ✓ AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 141 THE DIRECTORS OF THE COMPANY AS AT 31 DECEMBER 2021 Darius Šilenskis (born 1981) – Chief Executive Officer. Works at the Company since 28 September 2015. Education: Baltic Management Institute, Master of executives international business management (EMBA), (2013), Vytautas Magnus University, Master of business administration (2013), Mykolas Riomeris university, Master of law (2006, Law and management studies), Bachelor of law (2004, International law if the Sea studies). Participation in activities of other companies and organisations: member of the board of directors of the Association of Lithuanian Stevedoring Companies, member of the board of Lithuanian Maritime Cluster, chairman of the Lithuanian LNG Platform, VŠĮ "Vilniaus teisės institutas" founder and venturer (owns 50% rights of venture), UAB “Afinta” shareholder (owns 50% of the shares). The share of AB Klaipėdos nafta held by Darius Šilenskis is less than 5%; no in the related companies of AB Klaipėdos nafta. Mindaugas Kvekšas (born 1986) – Chief Financial Officer. Works at the Company since 16 August 2021. Education: The Stockholm School of Economics in Riga (Latvia), BSc in Economics and Business (2007). Baltic Institute of Corporate Governance, Professional Board Member Certificate (2020). Participation in activities of other companies and organisations: Independent Member of the Board of Municipal enterprise Vilnius Waste System Administrator (VASA SĮ). Mindaugas Kvekšas does not own shares in AB Klaipėdos nafta or other companies when the number of shares held exceeds 5% of all shares in the company. Linas Kilda (born 1972) – LNG Business Development Director. Appointed as LNG Business Development Director from 3 August 2020. Education: Institute of Geology and Geography, PhD (Physical Sciences) (2002); University of Aberdeen, Master of Petroleum Geology (1998); Vilnius University, Engineering geologist and hydrogeologist (1995). No participation in other companies’ management. The share of AB Klaipėdos nafta held by Linas Kilda is less than 5%; no in the related companies of AB Klaipėdos nafta. Dainius Čiuta (born 1975) – Chief Operations Officer. Appointed as Chief Operations Officer from 5 November 2020. Education: Baltic Management Institute (BMI), International Executive Master of Business Administration (EMBA) (2013); Kaunas University of Technology, Master of Chemical Technology Engineering (1999); Klaipeda University, Bachelor of Chemical Technology (1997). Participation in the activities of other companies, institutions and organizations: member of the board of children’s football club “FK Atmosfera”; member of the Energy Committee of Lithuanian Confederation of Industrialists. Dainius Čiuta does not own shares in AB Klaipėdos nafta or other companies when the number of shares held exceeds 5% of all shares in the company. Mindaugas Navikas (born 1979) – Chief Sales Officer. Appointed as a Chief Sales Officer from 8 September 2020. Education: Stockholm School of Economics in Riga (SSE), Master of Business Management (EMBA) (2018); Vilnius University, International Business School, Master of International Business Management (2006); Vilnius University, Bachelor of Business Management (2002). No participation in other companies’ management. The share of AB Klaipėdos nafta held by Mindaugas Navikas is less than 5%; no in the related companies of AB Klaipėdos nafta. Rytis Valūnas (born 1985) - Chief Administrative and Corporate Governance Officer. Works at the Company since 15 September 2012. Education: Baltic Institute of Corporate Governance, Professional Board Member Certificate (2015); The Fletcher School of Law and Diplomacy/Harvard Law School, LL.M. (2011); Mykolas Romeris University/Ghent University, MA in International Law (2009); Mykolas Romeris University, BA in Law (2007). The share of AB Klaipėdos nafta held by Rytis Valūnas is less than 5%; no in the related companies of AB Klaipėdos nafta. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 142 No members of the Company‘s management have been convicted of crimes against property, business or finances. Information about managers’ salary for the year 2021 is stated in chapter “Information about the employees of the Group“ in the Annual Report. OTHER GOVERNANCE INFORMATION INFORMATION ON MAJOR SHARE PACKAGES CONTROLLED EITHER DIRECTLY OR INDIRECTLY. Details of the shares are provided in chapter "Information about investment into other companies in the Annual Report. INFORMATION ON TRANSACTIONS WITH RELATED PARTIES No transaction with related parties as provided for in art. 37(2) of the Law on Companies of the Republic of Lithuania was concluded in 2021. INFORMATION ON SHAREHOLDERS HAVING SPECIAL CONTROL RIGHTS. All shares of the Company are of one class ordinary registered shares granting their owners (shareholders) equal rights. Details of the shares are provided in chapter "Shareholders and Shares of the Company” in the Annual Report. INFORMATION OF AMENDMENTS TO THE COMPANY‘S ARTICLES OF ASSOCIATION 11th January 2021. Amended Articles of Association AB Klaipėdos nafta were registered in the Register of Legal Entities following the decrease of the authorised capital of the Company, which is now equal to EUR 110,315,009.65 and divided into 380,396,585 units of shares, which grant 380,396,585 votes. Nominal value per share – EUR 0.29. INFORMATION ON ALL AGREEMENTS BETWEEN SHAREHOLDERS The Company does not have any information on agreements between shareholders. INFORMATION ON THE VARIED POLICY APPLICABLE TO THE ELECTION OF THE COMPANY‘S CHIEF MANAGER, THE MEMBERS OF GOVERNING AND SUPERVISORY COUNCILS The Company does not have the variety policy applicable to the election of the chief manager and the members of governing and supervisory bodies. During the procedure of selection of candidates to the Company‘s board of directors, governing and Supervisory Councils, the candidates shall be subject to requirements that do not discriminate a candidate on grounds of age, sex, education, or professional experience. During the selection of a candidate, the Company does not set any restrictions for nomination of a candidature on grounds of sex or age. Considering the specificity of the Company‘s business activity and the status of a state-owned company, unbiased requirements which are only related to the functions and competences of the members of a governing or Supervisory Councils and the professional experience and education proportionate to these functions and competences are set. General and independence requirements to candidates to the Company‘s Supervisory Council are set by the Description of Selection of Candidates to the Boards of State or Municipal Companies and Candidates to the Collegial Supervisory or Governing Board of a Company That Is under Control of a State or Municipal Company Elected by the General Meeting as adopted by Decision No 631 of 17 June 2015 of the Government of the Republic of Lithuania. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 143 INFORMATION ON COMPLIANCE WITH TRANSPARENCY GUIDELINES AB Klaipėdos nafta complies with the 2010 July 14 Government Resolution No. 1052 “On the Approval of the Description of the Guidelines for Ensuring the Transparency of the Activities of State-Owned Enterprises” (hereinafter - the Transparency Guidelines). The Transparency Guidelines are mandatory for the Company, as the Company is a state-owned enterprise (hereinafter - SOE). The implementation of the transparency guidelines in the Company is mainly ensured through the information disclosed in the annual report and the disclosure of information on the Company's websites by disclosing and providing information in a format that is accessible and understandable to stakeholders. Article 3 of the Transparency Guidelines states that SOEs which are listed on AB Nasdaq Vilnius comply with the provisions of the Corporate Governance Code related to public disclosure of information. Information on the Company's compliance with the provisions of this Code is disclosed in the Company's management report. BELOW IS THE STRUCTURED INFORMATION ON THE IMPLEMENTATION OF THE TRANSPARENCY GUIDELINES: INFORMATION / OTHER REQUIREMENTS MUST BE PUBLISHED ON THE COMPANY'S WEBSITE (WWW.KN.LT): COMPLYING PARTIALLY COMPLYING NOT COMPLYING Name, code and register of the Company, where data about the Company is collected and stored, registered office (address) Legal status, if the Company is reorganized (the method of reorganization is indicated), liquidated, is about to go bankrupt, or already bankrupt Information about the institution representing the state Activity plans, vision, and mission Organizational structure Details about the manager of the company * Details about the chairman of the Board and its members * Details about the chairman of the Supervisory Council and its members * Names of the committees, details about their chairs and members * Amount of nominal values of state-owned shares (in euros to the nearest euro cent) and share (in percent) in the authorized capital of the Company Information on social responsibility initiatives and measures, important ongoing or planned investment projects Special obligations are fulfilled, which are determined in accordance with the recommendations approved by the Ministry of Economy and Innovation of the Republic of Lithuania: the purpose of special obligations, state budget appropriations and legal acts allocating them to the special obligation and regulated pricing If the Company is a participant in other legal entities (does not apply to subsidiaries) name, code and register of such legal entities, where the data on the Company is collected and stored, registered office (address), website addresses The set of the Company's annual financial statements, the Company's annual report, as well as the report of the auditor of the Company's annual reports must be published on the Company's website within 10 working days from the approval of the set of annual financial statements. Sets of the Company's interim financial statements, the Company's interim reports must be published on the website no later than within 2 months after the end of the reporting period * The following data is published: name, surname, date of commencement of current positions, other current management positions in other legal entities, education, qualification, professional experience; it shall be indicated whether a member of the collegial body has been elected or appointed as an independent member. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 144 TAKING INTO ACCOUNT THAT THE COMPANY IS THE PARENT COMPANY, THE FOLLOWING INFORMATION MUST BE PUBLISHED ON THE COMPANY'S WEBSITE (WWW.KN.LT): The structure of the Group of companies Subsidiaries and subsequent subsidiaries of the Company: Name, code and register of the Company, where data about the Company are collected and stored, registered office (address) Share held by the Company (percentage) in the authorized capital of subsidiary companies Website addresses Annual consolidated financial statements and consolidated annual reports THE FOLLOWING DOCUMENTS / OTHER REQUIREMENTS MUST BE PUBLISHED ON THE COMPANY'S WEBSITE (WWW.KN.LT): Articles of Association Letter from the Ministry of Energy on the establishment of the Company's goals and expectations for the Company Business strategy or a summary thereof in cases where the business strategy contains confidential information or information which is considered a commercial (industrial) secret Remuneration policy, which includes the determination of the remuneration of the head of the Company and the remuneration of the members of the collegial bodies and committees formed by the Company Company's annual and interim reports Sets of annual and interim financial statements for a period of at least 5 years and the auditor's report of the annual financial statements The above documents are published in PDF format and it is technically possible to print them OTHER REQUIREMENTS MUST BE PUBLISHED / FULFILLED IN THE SETS OF FINANCIAL STATEMENTS AND NOTICES: The Company maintains its accounting records in a manner that ensures that financial statements are prepared in accordance with International Accounting Standards The Company prepares a set of 6-month interim financial statements In addition to the annual report, the Company prepares an additional 6-month interim report IN ADDITION TO THE CONTENT REQUIREMENTS ESTABLISHED IN THE LAW ON FINANCIAL REPORTING OF COMPANIES OF THE REPUBLIC OF LITHUANIA, THE COMPANY'S ANNUAL REPORT MUST ADDITIONALLY PROVIDE: Brief description of the Company's business model Results of the implementation of the objectives set in the operational strategy Information on significant events that occurred during and after the financial year (prior to the preparation of the annual report) and that were material to the Company's operations For state-owned enterprises that are not required to prepare a CSR report, it is recommended that information on environmental, social and personnel, human rights, anti- corruption, and anti-bribery issues be provided in the annual report or annual activity report, as appropriate. Profitability, liquidity, asset turnover, debt ratios Implementation of the company's risk management policy Implementation of investment policy, ongoing and planned investment projects, and investments during the reporting year Total annual salary fund, average monthly salary by current position and / or division Implementation of dividend policy Implementation of remuneration policy The consolidated annual report contains the structure of the group of companies, as well as the name, code and register of each subsidiary, which collects and stores data about the Company, registered office (address), shares (percentage) in the subsidiary's share capital, financial and non-financial results for the financial year. The Company's interim report provides a brief description of the Company's business model, analysis of financial results for the reporting period, information on significant events during the reporting period, as well as profitability, liquidity, asset turnover, debt ratios and their changes compared to the corresponding period last year. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 145 AB KLAIPĖDOS NAFTA COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE The public limited liability company AB Klaipėdos nafta (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. FORM OF THE GOVERNANCE REPORT OF THE COMPANY: PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICABLE COMMENTARY Principle 1: General meeting of shareholders, equitable treatment of shareholders, and shareholders’ rights The corporate governance framework should ensure the equitable treatment of all shareholders. The corporate governance framework should protect the rights of shareholders. 1.1. All shareholders should be provided with access to the information and/or documents established in the legal acts on equal terms. All shareholders should be furnished with equal opportunity to participate in the decision-making process where significant corporate matters are discussed. Yes All information that must be made public in accordance with legal acts is published through the information system of the Vilnius Stock Exchange and / or on the Company's website. The place, date and time of the General Meeting of Shareholders convened by the Company shall be determined in order to enable the shareholders to participate in making decisions important to the Company. The procedure for submitting documents and other information to shareholders is established in Article 5 of the Company's Articles of Association. 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 All shares of the Company are ordinary registered shares with a nominal value of EUR 0.29 (EUR 29 cents) per share. 1.3. It is recommended that investors should have access to the information concerning the rights attached to the shares of the new issue or those issued earlier in advance, i.e. before they purchase shares. Yes The Company's Articles of Association, which are publicly available on the Company's website, specify the rights granted by the shares. 1.4. Exclusive transactions that are particularly important to the company, such as transfer of all or almost all assets of the company which in principle would mean the transfer of the company, should be subject to approval of the general meeting of shareholders. Yes Article 16.4 of the Company's Articles of Association indicate the cases when the approval of the General Meeting of Shareholders is required. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 146 PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICABLE COMMENTARY 1.5. Procedures for convening and conducting a general meeting of shareholders should provide shareholders with equal opportunities to participate in the general meeting of shareholders and should not prejudice the rights and interests of shareholders. The chosen venue, date and time of the general meeting of shareholders should not prevent active participation of shareholders at the general meeting. In the notice of the general meeting of shareholders being convened, the company should specify the last day on which the proposed draft decisions should be submitted at the latest. Yes The Company convenes the General Meeting of Shareholders and implements other procedures of the Meeting in accordance with the Law on Companies of the Republic of Lithuania and provides all shareholders with equal opportunities to participate in the meeting, get acquainted with draft resolutions and material required for decision-making. 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 notices of meetings to be convened, draft resolutions, resolutions of the Meetings, are publicly available in Lithuanian and English through Nasdaq Vilnius and the Company's website. 1.7. Shareholders who are entitled to vote should be furnished with the opportunity to vote at the general meeting of shareholders both in person and in absentia. Shareholders should not be prevented from voting in writing in advance by completing the general voting ballot. Yes All shareholders may exercise their right to participate in the General Meeting of Shareholders in accordance with the procedure established by legal acts and this right is unlimited. The Company provides information on the implementation of this right in the notice on convening the General Meeting of Shareholders. 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 Taking into account the structure of the shareholders (controlling interest is owned by the Government of the Republic of Lithuania) and the valid regulations for organisation of the meeting of shareholders ensuring full advance publication of the material of the General Meeting of Shareholders and publicity of the decisions adopted by the shareholders (publishing all this information on the website of SC Nasdaq Vilnius Stock Exchange) and the opportunity to vote in advance, there is no necessity to additionally install costly system of IT, which would give the opportunity for the shareholders to vote during the meeting of the shareholders using AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 147 PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICABLE COMMENTARY telecommunication terminal equipment. Currently, there are no measures in place to ensure proper identification of voters. 1.9. It is recommended that the notice on the draft decisions of the general meeting of shareholders being convened should specify new candidatures of members of the collegial body, their proposed remuneration and the proposed audit company if these issues are included into the agenda of the general meeting of shareholders. Where it is proposed to elect a new member of the collegial body, it is recommended that the information about his/her educational background, work experience and other managerial positions held (or proposed) should be provided. Yes Information about the candidates to the Company's collegial bodies is provided in accordance with the procedure established by legal acts. In accordance with the established procedure, the suitability of candidates is assessed by the selection board. The name of the proposed audit firm and the remuneration for the audit services shall be provided to the General Meeting of the Shareholders in advance as a draft resolution. 1.10. Members of the company’s collegial management body, heads of the administration 3 or other competent persons related to the company who can provide information related to the agenda of the general meeting of shareholders should take part in the general meeting of shareholders. Proposed candidates to member of the collegial body should also participate in the general meeting of shareholders in case the election of new members is included into the agenda of the general meeting of shareholders. Yes The last General Meeting of Shareholders was attended by the Chairman of the Board of the Company, Chief Executive Officer of the Company, Chief Administrative and Corporate Governance Officer and Head of the Legal Department. Principle 2: Supervisory board 2.1. Functions and liability of the supervisory board The supervisory board of the company should ensure representation of the interests of the company and its shareholders, accountability of this body to the shareholders and objective monitoring of the company’s operations and its management bodies as well as constantly provide recommendations to the management bodies of the company. The supervisory board should ensure the integrity and transparency of the company’s financial accounting and control system. 2.1.1. Members of the supervisory board should act in good faith, with care and responsibility for the benefit and in the interests of the company and its shareholders and represent their interests, having regard to the interests of employees and public welfare. Yes The obligations specified in the recommendation are embedded in the agreement on the activities of an independent member of the Supervisory Board. The form of the agreement is approved by the Company's General Meeting of Shareholders. 3 For the purposes of this Code, heads of the administration are the employees of the company who hold top level management positions. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 148 PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICABLE COMMENTARY 2.1.2. Where decisions of the supervisory board may have a different effect on the interests of the company’s shareholders, the supervisory board should treat all shareholders impartially and fairly. It should ensure that shareholders are properly informed about the company’s strategy, risk management and control, and resolution of conflicts of interest. Yes The agreements with the members of the Supervisory Board stipulates that each independent member of the Supervisory Board has a duty to act in the interests of the Company and all its shareholders. 2.1.3. The supervisory board should be impartial in passing decisions that are significant for the company’s operations and strategy. Members of the supervisory board should act and pass decisions without an external influence from the persons who elected them. Yes The Supervisory Board of the Company acts independently in accordance with the requirements of legal acts when making decisions that are significant to the Company's activities and strategy. 2.1.4. Members of the supervisory board should clearly voice their objections in case they believe that a decision of the supervisory board is against the interests of the company. Independent 4 members of the supervisory board should: a) maintain independence of their analysis and decision-making; b) not seek or accept any unjustified privileges that might compromise their independence. Yes The members of the Supervisory Board have the right to express their opinion on all the agenda of the meeting in accordance with the Rules of Procedure of the Company's Supervisory Board, which must be duly reflected in the minutes of the meeting. The obligations specified in the recommendation are embedded in the agreement on the activities of an independent member of the Supervisory Board. 4 For the purposes of this Code, the criteria of independence of members of the supervisory board are interpreted as the criteria of unrelated parties defined in Article 31(7) and (8) of the Law on Companies of the Republic of Lithuania. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 149 PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICABLE COMMENTARY 2.1.5. The supervisory board should oversee that the company’s tax planning strategies are designed and implemented in accordance with the legal acts in order to avoid faulty practice that is not related to the long-term interests of the company and its shareholders, which may give rise to reputational, legal or other risks. Yes The Supervisory Board of the Company in the exercise of its competence to supervise the activities of the Company's management bodies, also performs the duties specified in the recommendation. 2.1.6. The company should ensure that the supervisory board is provided with sufficient resources (including financial ones) to discharge their duties, including the right to obtain all the necessary information or to seek independent professional advice from external legal, accounting or other experts on matters pertaining to the competence of the supervisory board and its committees. Yes The Company ensures the provision of the Supervisory Board with the resources necessary for its activities (provides technical support during the meetings of the Supervisory Board, provides all the necessary information). The Articles of Association of the Company stipulate that the Board must submit to the Supervisory Board the documents related to the activities of the Company requested by it. The right to information is also detailed in the contract for the activities of a member of the Supervisory Board. 2.2. Formation of the supervisory board The procedure of the formation of the supervisory board should ensure proper resolution of conflicts of interest and effective and fair corporate governance. 2.2.1. The members of the supervisory board elected by the general meeting of shareholders should collectively ensure the diversity of qualifications, professional experience and competences and seek for gender equality. With a view to maintain a proper balance between the qualifications of the members of the supervisory board, it should be ensured that members of the supervisory board, as a whole, should have diverse knowledge, opinions and experience to duly perform their tasks. Yes According to the Law on Companies of the Republic of Lithuania, the Supervisory Board is elected, and the qualifications of its members are assessed at the General Meeting of Shareholders. 2.2.2. Members of the supervisory board should be appointed for a specific term, subject to individual re-election for a new term in office in order to ensure necessary development of professional experience. Yes The members of the Company's Supervisory Board are elected for a maximum term of 4 years specified in the Law on Companies of the Republic of Lithuania. The Articles of Association of the Company provide for the possibility to recall the entire Supervisory Board or its individual members before the end of the term of office of the Supervisory Board. 2.2.3. Chair of the supervisory board should be a person whose current or past positions constituted no obstacle to carry out impartial activities. A former manager or management board member of the company should not be immediately appointed as chair of the supervisory board either. Where the company decides to depart from these recommendations, it should provide information on the measures taken to ensure impartiality of the supervision. Yes The chairman of the Supervisory Board of the Company and the Chief Executive Officer of the Company is not the same person. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 150 PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICABLE COMMENTARY 2.2.4. Each member should devote sufficient time and attention to perform his duties as a member of the supervisory board. Each member of the supervisory board should undertake to limit his other professional obligations (particularly the managing positions in other companies) so that they would not interfere with the proper performance of the duties of a member of the supervisory board. Should a member of the supervisory board attend less than a half of the meetings of the supervisory board throughout the financial year of the company, the shareholders of the company should be notified thereof. Yes Each member of the Supervisory Board participate in the meetings of the collegial body and devote sufficient time to perform their duties as a member of the collegial body. In 2021, 13 meetings of the Company's Supervisory Board were held, which were attended by all members of the Supervisory Board (3 members in total). 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. Yes Information on candidates for members of the Company's Supervisory Board (as well as information on the candidate's compliance with the independence requirements) is submitted to the General Meeting of Shareholders in accordance with the procedure established by the Law on Companies of the Republic of Lithuania. 2.2.6. The amount of remuneration to members of the supervisory board for their activity and participation in meetings of the supervisory board should be approved by the general meeting of shareholders. Yes An independent member of the Supervisory Board shall be remunerated for his / her activities in the Supervisory Board in accordance with the procedure and conditions established in the agreement signed with him / her regarding the activities of the independent member of the Supervisory Board. The terms and conditions of the agreement with the independent member of the Supervisory Board shall be approved by the General Meeting of Shareholders. 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. Yes The Supervisory Board evaluates its activities every year. The Supervisory Board evaluates the organization of meetings, efficiency, need for competencies, mutual cooperation, cooperation with management, etc. 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. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 151 PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICABLE COMMENTARY 3.1.1. The management board should ensure the implementation of the company’s strategy approved by the supervisory board if the latter has been formed at the company. In such cases where the supervisory board is not formed, the management board is also responsible for the approval of the company’s strategy. Yes The Board of the Company implements the strategy of the parent company, which is approved by the Supervisory Board of the Company. 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 Because the Supervisory Board is formed in the Company, the Board performs the functions of the Company's collegial management body. The obligation to take into account the Company, shareholders, employees and other interest groups is embedded in the agreement signed with each of the members of the Board regarding the activities of the member of the Board. 3.1.3. The management board should ensure compliance with the laws and the internal policy of the company applicable to the company or a group of companies to which this company belongs. It should also establish the respective risk management and control measures aimed at ensuring regular and direct liability of managers. Yes The Company's Articles of Association stipulate which Company's documents (guidelines, policies, etc.) are approved by the Board. In cases where the documents are approved by the Supervisory Board, the Board shall submit comments and suggestions. In accordance with the Company's Articles of Association, the Board considers and approves the Company's list of risks and the plan of measures to reduce them, the risk report, and the risk management policy. 3.1.4. Moreover, the management board should ensure that the measures included into the OECD Good Practice Guidance 5 on Internal Controls, Ethics and Compliance are applied at the company in order to ensure adherence to the applicable laws, rules and standards. Yes The Company has various documents in place to ensure internal control, ethics, and compliance management measures, for example: the Head of Internal Audit is an independent position, reports to the Audit Committee and is administratively subordinate to the CEO; The Company has a Code of Conduct (Code of Ethics) that applies to all employees of the Company, including members of the Board and the Supervisory Board. 3.1.5. When appointing the manager of the company, the management board should take into account the appropriate balance between the candidate’s qualifications, experience and competence Yes When appointing the CEO, the Board of the Company shall take into account his/her qualifications, experience and competence. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 152 PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICABLE COMMENTARY 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 Board of the Company ensures the balance of qualifications of its members. The members of the Board of the Company are elected by the Supervisory Board of the Company (Selection Committee), which evaluates the qualifications of the candidates, experience in the management position, suitability to hold the position of a member of the Board of the Company and other necessary aspects. The aim is for the members of the Board to have competencies considering the responsibilities and functions of the Board. Every year, the members of the Board conduct a self-assessment of their activities. 5 Link to the OECD Good Practice Guidance on Internal Controls, Ethics and Compliance: https://www.oecd.org/daf/anti- bribery/44884389.pdf AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 153 PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICABLE COMMENTARY 3.2.2. Names and surnames of the candidates to become members of the management board, information on their educational background, qualifications, professional experience, current positions, other important professional obligations and potential conflicts of interest should be disclosed without violating the requirements of the legal acts regulating the handling of personal data at the meeting of the supervisory board in which the management board or individual members of the management board are elected. In the event that the supervisory board is not formed, the information specified in this paragraph should be submitted to the general meeting of shareholders. The management board should, on yearly basis, collect data provided in this paragraph on its members and disclose it in the company’s annual report. Yes Information on candidates and their suitability to hold the position of a member of the Company's collegial body is provided in accordance with the procedure established by legal acts, the suitability of candidates is assessed by the Selection Committee. Information about the candidates for the members of the Board of the Company, including their curriculum vitae and declaration of interests, and other documents specified in legal acts shall be submitted at the meeting of the Supervisory Board of the Company at which the Board or its individual members are elected. Information on the positions held by the members of the Board or their participation in the activities of other companies is regularly collected, stored, and presented in the Company's Annual Report and on the Company's website. 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 their election, the members of the Board are acquainted with the Company's activities, organizational and management structure, strategy, operational and financial plans. 3.2.4. Members of the management board should be appointed for a specific term, subject to individual re-election for a new term in office in order to ensure necessary development of professional experience and sufficiently frequent reconfirmation of their status. Yes The Board members are appointed for a fixed term, i.e., Board members are elected for a period of 4 (four) years. The Company's Articles of Association provide for the possibility to remove both individual members of the Board and the entire Board before the end of its term. The right to recall members of the Board (individual or all) belongs to the Company's Supervisory Board. 3.2.5. Chair of the management board should be a person whose current or past positions constitute no obstacle to carry out impartial activity. Where the supervisory board is not formed, the former manager of the company should not be immediately appointed as chair of the management board. When a company decides to depart from these recommendations, it should furnish information on the measures it has taken to ensure the impartiality of supervision. Yes The current or former position of the Chairman of the Board of the Company does not create preconditions for the possible emergence of impartiality. The Chairman of the Board of the Company has not held the position of the CEO of the Company. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 154 PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICABLE COMMENTARY 3.2.6. Each member should devote sufficient time and attention to perform his duties as a member of the management board. Should a member of the management board attend less than a half of the meetings of the management board throughout the financial year of the company, the supervisory board of the company or, if the supervisory board is not formed at the company, the general meeting of shareholders should be notified thereof Yes The members of the Board of the Company actively participate in the meetings of the Board and devote sufficient time to the performance of their duties as a member of the collegial body. In 2021, 15 meetings of the Company's Board were held. All 5 members of the Board attended 11 meetings. 3.2.7. In the event that the management board is elected in the cases established by the Law where the supervisory board is not formed at the company, and some of its members will be 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 The Supervisory Board is formed in the Company. 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 Independent members of the Board are paid based on the Remuneration Policy of the Company approved by the General Meeting of Shareholders on 28 April 2020 (KN website: https://www.kn.lt/apie-mus/darbo- uzmokestis/1975) and agreement concluded with the Company that is approved by the Supervisory Council. 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 These duties of the members of the Board are provided for in the activity agreement of the member of the Board signed with the Company, as well as in the Rules of Procedure of the Board. 3.2.10. Every year the management board should carry out an assessment of its activities. It should include evaluation of the structure of the management board, its work 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 members of the Board of the Company evaluate their activities by filling in questionnaires, which include an evaluation of the work organization of the Board, cooperation with the management, etc., the results of the evaluation of activities are discussed at the Board meeting. Information on the internal structure and work procedure of the Board is published in the Company's Annual Report. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 155 PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICABLE COMMENTARY Principle 4: Rules of procedure of the supervisory board and the management board of the company The rules of procedure of the supervisory board, if it is formed at the company, and of the management board should ensure efficient operation and decision-making of these bodies and promote active cooperation between the company’s management bodies. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 156 PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICABLE COMMENTARY 4.1. The management board and the supervisory board, if the latter is formed at the company, should act in close cooperation in order to attain benefit for the company and its shareholders. Good corporate governance requires an open discussion between the management board and the supervisory board. The management board should regularly and, where necessary, immediately inform the supervisory board about any matters significant for the company that are related to planning, business development, risk management and control, and compliance with the obligations at the company. The management board should inform he supervisory board about any derogations in its business development from the previously formulated plans and objectives by specifying the reasons for this. Yes The legal acts regulating the activities of the Company's Supervisory Board and the Board, the Articles of Association, the Company's corporate governance policy and the Rules of Procedure of collegial bodies establish the principles and procedure of cooperation between the Company's Supervisory Board and the Board and ensure that management and supervisory bodies function properly. 4.2. It is recommended that meetings of the company’s collegial bodies should be held at the respective intervals, according to the pre-approved schedule. Each company is free to decide how often meetings of the collegial bodies should be convened but it is recommended that these meetings should be convened at such intervals that uninterruptable resolution of essential corporate governance issues would be ensured. Meetings of the company’s collegial bodies should be convened at least once per quarter. Yes Meetings of collegial bodies are held according to the annual meeting schedules approved in advance by the collegial bodies (in coordination with the management). Meetings of the Board and the Supervisory Board are normally held once a month. 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 collegial body know about the agenda of the meeting in advance. Preliminary agendas for meetings for the whole year are drawn up at the beginning of the year. The agendas are then adjusted and completed before each meeting (usually at least 7 days before the meeting). The members of the collegial bodies receive the material necessary for making decisions on the issues of the agenda in advance (5-7 days in advance) and have the opportunity to get acquainted with it and ask questions, and for clarification. All members of the collegial body shall be informed about any comments or clarifications received. 4.4. In order to coordinate the activities of the company’s collegial bodies and ensure effective decision-making process, the chairs of the company’s collegial supervision and management bodies should mutually agree on the dates and agendas of the meetings and close cooperate in resolving other matters related to corporate governance. Meetings of the company’s supervisory board should be open to members of the management board, particularly in such cases where issues concerning the removal of the management board members, their responsibility or remuneration are discussed. Yes The dates and agendas of the meetings are coordinated so that all members of the collegial bodies can participate in them. The Chairman of the Board regularly presents to the Supervisory Board the most important decisions made by the Board. Principle 5: Nomination, remuneration and audit committees AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 157 PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICABLE COMMENTARY 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. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 158 PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICA BLE COMMENTARY 5.1.1. Taking due account of the company-related circumstances and the chosen corporate governance structure, the supervisory board of the company or, in cases where the supervisory board is not formed, the management board which performs the supervisory functions, establishes committees. It is recommended that the collegial body should form the nomination, remuneration and audit committees 6 . Partly The Audit Committee, elected by the Supervisory Body is formed within the Company. The Supervisory Body determined its functions, rights, obligations and remuneration procedure. The Company's Audit Committee has been assigned with advisory functions related to the audit control and assessment and covering supervision of financial reports preparation and audit execution process, examination of its effectiveness and implementation of recommendations, analysis of need of internal audit functions and other functions, as provided by the Resolution No. 03-14 of the Board of the Bank of Lithuania on 24 January 2017, observes the integrity of the financial information provided by the Company, paying special attention to the relevance and transparency of the accounting methods used by the Company and its group. Other specialized committees are not established within the Company. However, the Board formed a working group for revision of Human Resources items with composition of two Board members and one Company’s representatives –Head of HR and CEO. 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 Refer to the comment submitted regarding the item 5.1.1. above. 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. Yes Refer to the comment submitted regarding the item 5.1.1. above. 5.1.4. Committees established by the collegial body should normally be composed of at least three members. Subject to the requirements of the legal acts, committees could be comprised only of two members as well. Members of each committee should be selected on the basis of their competences by giving priority to independent members of the collegial body. The chair of the management board should not serve as the chair of committees. Yes The Audit Committee, formed by the Supervisory Council, comprises of three members. All of the acting members of the Audit Committee were independent. 6 The legal acts may provide for the obligation to form a respective committee. For example, the Law on the Audit of Financial Statements of the Republic of Lithuania provides that public-interest entities (including but not limited to public limited liability companies whose securities are traded on a regulated market of the Republic of Lithuania and/or of any other AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 159 PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICA BLE COMMENTARY 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 committees are formed by the decision of the Supervisory Board. The rules of procedure of the committees, the rights, and obligations of the members of the committees, as well as the measures to ensure the activities of the members of the committees shall be established by the rules for the establishment and operation of the relevant committees approved by the Supervisory Board. Information on the composition of committees, number of meetings, participation and main activities is disclosed in the Company's Annual Report. 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 rules of formation and operation of the Audit Committee of the Company provide for the right of the Audit Committee to invite the responsible persons of the Company to its meetings and to receive the necessary explanations from them in accordance with their competence. Member State) are under the obligation to set up an audit committee (the legal acts provide for the exemptions where the functions of the audit committee may be carried out by the collegial body performing the supervisory functions). AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 160 PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICABLE COMMENTARY 5.2. Nomination committee 5.2.1. The key functions of the nomination committee should be the following: 1) to select candidates to fill vacancies in the membership of supervisory and management bodies and the administration and recommend the collegial body to approve them. The nomination committee should evaluate the balance of skills, knowledge and experience in the management body, prepare a description of the functions and capabilities required to assume a particular position and assess the time commitment expected; 2) assess, on a regular basis, the structure, size and composition of the supervisory and management bodies as well as the skills, knowledge and activity of its members, and provide the collegial body with recommendations on how the required changes should be sought; 3) devote the attention necessary to ensure succession planning. No The Nomination Committee in the Company currently is not formed. 5.2.2. When dealing with issues related to members of the collegial body who have employment relationships with the company and the heads of the administration, the manager of the company should be consulted by granting him/her the right to submit proposals to the Nomination Committee. No The Nomination Committee in the Company currently is not formed. 5.3. Remuneration committee 5.3.1. The main functions of the remuneration committee should be as follows: 1) submit to the collegial body proposals on the remuneration policy applied to members of the supervisory and management bodies and the heads of the administration for approval. Such policy should include all forms of remuneration, including the fixed-rate remuneration, performance-based remuneration, financial incentive schemes, pension arrangements and termination payments as well as conditions which would allow the company to recover the amounts or suspend the payments by specifying the circumstances under which it would be expedient to do so; 2) submit to the collegial body proposals regarding individual remuneration for members of the collegial bodies and the heads of the administration in order to ensure that they would be consistent with the company’s remuneration policy and the evaluation of the performance of the persons concerned; 3) review, on a regular basis, the remuneration policy and its implementation. No Refer to the comment submitted regarding the item 5.1.2. above. 5.4. Audit committee AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 161 PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICABLE COMMENTARY 5.4.1. The key functions of the audit committee are defined in the legal acts regulating the activities of the audit committee 7 . Yes The functions of the Audit Committee are also defined in the rules of formation and operation of the Company's Audit Committee. 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 Audit Committee of the Company, while performing their duties, have the right to receive from the Company the required documents and / or copies thereof and the information required to perform the functions of the Audit Committee. 5.4.3. The audit committee should decide whether the participation of the chair of the management board, the manager of the company, the chief finance officer (or senior employees responsible for finance and accounting), the internal and external auditors in its meetings is required (and, if required, when). The committee should be entitled, when needed, to meet the relevant persons without members of the management bodies present. Yes The Head of Internal Audit participates in the meetings of the Audit Committee, and other staff, if necessary, when discussing specific issues. Representatives of the Company performing the independent audit of the financial statements participate in the meeting of the Audit Committee, if necessary. 5.4.4. The audit committee should be informed about the internal auditor’s work program and should be furnished with internal audit reports or periodic summaries. The audit committee should also be informed about the work program of external auditors and should receive from the audit firm a report describing all relationships between the independent audit firm and the company and its group. Yes The Audit Committee shall receive the information referred to in this paragraph and approve the annual plans of the internal audit. The Head of Internal Audit informs the Audit Committee about the implementation of the internal audit plans and provides reports. Representatives of the company performing the independent audit of the financial statements shall participate in the meeting of the Audit Committee, if necessary. 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 Possible violations can be reported to the e-mail address [email protected] (information is available to the Head of Internal Audit). The notification channel is open to all natural or legal persons: both current or former KN employees and former or potential KN customers, contractors, suppliers, the community. Possible violations can also be reported directly to the collegial supervisory bodies of KN by e- mail: [email protected] 7 Issues related to the activities of audit committees are regulated by Regulation No. 537/2014 of the European Parliament and the Council of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities, the Law on the Audit of Financial Statements of the Republic of Lithuania, and the Rules Regulating the Activities of Audit Committees approved by the Bank of Lithuania. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 162 PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICABLE COMMENTARY 5.4.6. The audit committee should submit to the supervisory board or, where the supervisory board is not formed, to the management board its activity report at least once in every six months, at the time that annual and half-yearly reports are approved. Yes The Audit Committee informs the Supervisory Board of its activities at least once a quarter and submits a written report on its activities to the Supervisory Board quarterly. The Audit Committee also informs the Board about its activities at least once 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 management bodies. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 163 PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICABLE COMMENTARY 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. 6.1. Any member of the company’s supervisory and management body should avoid a situation where his/her personal interests are or may be in conflict with the company’s interests. In case such a situation did occur, a member of the company’s supervisory or management body should, within a reasonable period of time, notify other members of the same body or the body of the company which elected him/her or the company’s shareholders of such situation of a conflict of interest, indicate the nature of interests and, where possible, their value. Yes The members of the Company’s supervisory and management bodies oblige to act in such a manner so as to avoid conflict of interests with the Company. This is determined in the Articles of Association of the Company and in other documents of operation of the Company. For this purpose, the member of the Company's supervisory and management bodies submit to the Company's body that elected them and the Company the declarations about the absence of the conflict of interests and oblige to immediately inform about any change of the circumstances revealed in these declarations. In case of a conflict of interests between a member of the Company’s supervisory and management bodies and the Company during discussion of issues, such a member of the supervisory or management bodies shall immediately notify Company's body that elected them and not participate in voting regarding specific items in view of which such conflict arose. A member of the supervisory and management bodies shall not be entitled to vote when the meeting of the supervisory and management bodies discusses the issue related to his work on the supervisory and management bodies or the issue of his responsibility. 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. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 164 PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICABLE COMMENTARY 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 On 2020 April 28, the Annual General Meeting of Shareholders approved the Company's Remuneration Policy, which applies to the CEO of the Company, members of the Board, the Supervisory Board, and other committees. This remuneration policy defines the principles and procedures for determining, paying, and promoting the remuneration of members of the Supervisory Board, members of the Board, and Committees and the head of the Company who are independent and not independent but not employees of the state representative body. Published on the Company's website https://www.kn.lt/en/about- us/operational- documentation/remuneration- policy/3456 7.2. The remuneration policy should include all forms of remuneration, including the fixed-rate remuneration, performance-based remuneration, financial incentive schemes, pension arrangements and termination payments as well as the conditions specifying the cases where the company can recover the disbursed amounts or suspend the payments. Yes The Company's Remuneration Policy determines the components of remuneration, their maximum amounts, and the principles of awarding and paying. 7.3. With a view to avoid potential conflicts of interest, the remuneration policy should provide that members of the collegial bodies which perform the supervisory functions should not receive remuneration based on the company’s performance. Yes The remuneration of the members of the collegial bodies that perform supervisory functions does not depend on the performance of the Company. 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. Not applicable Termination payments are not foreseen in the Remuneration Policy of the Company (https://www.kn.lt/apie- mus/darbo-uzmokestis/1975). AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 165 PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICABLE COMMENTARY 7.5. In the event that the financial incentive scheme is applied at the company, the remuneration policy should contain sufficient information about the retention of shares after the award thereof. Where remuneration is based on the award of shares, shares should not be vested at least for three years after the award thereof. After vesting, members of the collegial bodies and heads of the administration should retain a certain number of shares until the end of their term in office, subject to the need to compensate for any costs related to the acquisition of shares. Not applicable During the year under review the Company has not applied any schemes anticipating remuneration of directors in shares, share options or any other right to purchase shares or be remunerated on the basis of share price movements. This has not been provided for neither by the existing Management personnel remuneration procedure nor employment contracts with directors and other employees of the Company. 7.6. The company should publish information about the implementation of the remuneration policy on its website, with a key focus on the remuneration policy in respect of the collegial bodies and managers in the next and, where relevant, subsequent financial years. It should also contain a review of how the remuneration policy was implemented during the previous financial year. The information of such nature should not include any details having a commercial value. Particular attention should be paid on the major changes in the company’s remuneration policy, compared to the previous financial year. Yes The Company's Remuneration Report for 2021 will be published on the website www.kn.lt. 7.7. It is recommended that the remuneration policy or any major change of the policy should be included on the agenda of the general meeting of shareholders. The schemes under which members and employees of a collegial body receive remuneration in shares or share options should be approved by the general meeting of shareholders. Yes The Remuneration Policy stipulates that the policy is submitted for approval to the General Meeting of Shareholders at least every 4 (four) years, as well as if there are significant changes in the policy. In the event of a change in the Remuneration Policy, all policy statements approved after the last General Meeting of Shareholders vote on the Remuneration Policy shall be submitted to the Meeting. Principle 8: Role of stakeholders in corporate governance The corporate governance framework should recognize the rights of stakeholders entrenched in the laws or mutual agreements and encourage active cooperation between companies and stakeholders in creating the company value, jobs and financial sustainability. In the context of this principle the concept “stakeholders” includes investors, employees, creditors, suppliers, clients, local community and other persons having certain interests in the company concerned. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 166 PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICABLE COMMENTARY 8.1. The corporate governance framework should ensure that the rights and lawful interests of stakeholders are protected. Yes The execution of this recommendation is ensured by the accurate supervision and control of the state institutions and organisations regulating and controlling the Company’s activities. The management bodies consult with the employees on corporate governance and other important issues, (employee) participation in the Company’s share capital is not limited. Publicity of the essential information about the Company's activity creates the conditions for the holders of interests to participate in the management of the Company according to the procedure established by the law and the Article of Association, as well as for the Company's employees also according to the Collective Agreement of the Company. 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 8.3. Where stakeholders participate in the corporate governance process, they should have access to relevant information. Yes 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 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. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 167 PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICABLE COMMENTARY 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 Performance and corporate governance is regularly disclosed by distributing press posts about publicly undisclosed information, related to the Company on SC Nasdaq Vilnius Stock Exchange website, as well as in the Company's annual reports and financial statements, press releases published in the exchange and in other public presentations of the Company activity. The Company is not limited only by disclosure of minimum necessary public information and also publishes other important information about the Company's activity. The documents that contain certain information are published in Lithuanian and English on the publicly accessible website of the SC Nasdaq Vilnius Stock Exchange. 9.1.1. operating and financial results of the company; Yes They are made public on a monthly basis, as well as in the Company's Interim and Annual Reports. 9.1.2. objectives and non-financial information of the company; Yes Published in the Company's Interim and Annual Reports, in the Company's Corporate Strategy. 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 They are made public in the Company's Interim and Annual Reports, on the Company’s website. 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 They are made public in the Company's 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 They are made public in the Company's Interim and Annual Reports. 9.1.6. potential key risk factors, the company’s risk management and supervision policy; Yes They are made public in the Company's Annual Reports. 9.1.7. the company’s transactions with related parties; Yes The information is published on the Company's website. 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 They are made public in the Company's Interim and Annual Reports, on the Company’s website. 9.1.9. structure and strategy of corporate governance; Yes They are made public in the Company's Interim and Annual Reports, on the Company’s website. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 168 PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICABLE COMMENTARY 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 They are made public in the Company's Interim and Annual Reports, on the Company’s website. 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 Refer to the comment submitted regarding the item 9.1. above. 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 Refer to the comment submitted regarding the item 9.1. above. 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 Refer to the comment submitted regarding the item 9.1. above. 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. AB KLAIPĖDOS NAFTA GOVERNANCE REPORT For the financial year ending on 31 December 2021 www.kn.lt | 169 PRINCIPLES / RECOMMENDATIONS YES AND NO NOT APPLICABLE COMMENTARY 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 observes this recommendation, annually, an independent firm of auditors conducts an audit of the Company’s annual financial statements and report according to the International Accounting Standards and submits an independent auditor's report concerning financial statements. 10.2. It is recommended that the audit firm would be proposed to the general meeting of shareholders by the supervisory board or, if the supervisory board is not formed at the company, by the management board of the company. No The Company’s management Board (a collegial body) proposes a candidate firm of auditors to the General Meeting of Shareholders taking into account the Audit Committee recommendation. 10.3. In the event that the audit firm has received remuneration from the company for the non-audit services provided, the company should disclose this publicly. This information should also be available to the supervisory board or, if the supervisory board is not formed at the company, by the management board of the company when considering which audit firm should be proposed to the general meeting of shareholders. Yes The information about the payments to the audit company is disclosed in the annual financial statements and also presented to the Company’s Audit committee and Supervisory Council when considering which audit firm should be proposed to the general meeting of shareholders.
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