KN Energies AB

Annual / Quarterly Financial Statement • Apr 24, 2009

AB KLAIPĖDOS NAFTA

FINANCIAL STATEMENTS OF THE COMPANY FOR THE YEAR 2008 PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ADOPTED BY THE EUROPEAN UNION PRESENTED TOGETHER WITH INDEPENDENT AUDITOR'S REPORT

Content

Independent auditor's report to the shareholders of AB Klaipėdos Nafta	3
Balance sheet	4
Income statement	6
Statement of changes in equity	7
Cash flow statement	8
Notes to the financial statements	10
Annual report of the Company for 2008	33
Annex 1. Disclosure of compliance with Management Code	44

Balance sheet

	Notes	31 December 2008	31 December 2007
ASSETS
Non-current assets
Intangible assets		64	132
Property, plant and equipment	3	413.673	427.491
Non-current financial assets	4	75	86
Total non-current assets		413.812	427.709
Current assets
Inventories and prepayments
Inventories	5	3.541	1.974
Prepayments		45	65
Total inventories and prepayments		3.586	2.039
Prepaid income tax		2.910	1.401
Trade and other receivables	6	5.026	2.716
Other current assets	7	21.584	10.055
Cash and cash equivalents	8	8.594	2.451
Total current assets		41.700	18.662
Total assets		455.512	446.371

(cont'd on the next page)

The accompanying notes, set out on pages 10-32, are an integral part of these financial statements.

Notes	31 December 2008	31 December 2007
	342.000	342.000
9	14.240	13.790
9	36 534	35,221
	28.600	8.739
		399.750
10		15.606
16	14.828	12.184
	14.828	27.790
10	15.605	15.605
	68	118
11	2.096	1.745
	1.325	1.123
12	216	240
	19.310	18.831
	455.512	446.371
		421.374

	Notes	2008	2007
Sales	13	119.612	78.664
Cost of sales	14	(67.021)	(53.862)
Gross profit		52.591	24.802
Operating expenses	15	(19.089)	(12.106)
Profit from operations		33.502	12.696
Other operating income (expenses), net		48	322
Profit from operating activities		33.550	13.018
Income from financial and investment activities	16	775	281
(Expenses) from financial and investment activities	16	(1.285)	(2.132)
Profit before tax		33.040	11.167
Income tax (expenses)	17	(4.442)	(2.428)
Net profit		28.598	8.739
Basic and diluted earnings per share, in LTL	18	0.08	0,03

	Notes	Share capital	Legal reserve	Other reserves	Retained earnings	Total
Balance as of 31 December 2006		342.000	13.140	29.187	12,807	397.134
Net profit for the year Total income and expense for the		$\overline{\phantom{a}}$			8.739	8.739
year					8,739	8.739
Dividends declared	19				(6.123)	(6.123)
Transfer from reserves			$\qquad \qquad \bullet$	(2.500)	2.500
Transfer to reserves	9		650	8.534	(9.184)
Balance as of 31 December 2007		342.000	13,790	35.221	8.739	399.750
Net profit for the year					28.598	28.598
Total income and expense for the year					28.598	28,598
Dividends declared	19				(6.974)	(6.974)
Transfer from reserves				(8.698)	8.698
Transfer to reserves	9		450	10.011	(10.461)
Balance as of 31 December 2008		342.000	14.240	36.534	28,600	421,374

Cash flow statement

	Notes	2008	2007
Cash flows from (to) operating activities
Net profit		28.598	8.739
Adjustments for non-cash items:
Depreciation and amortisation	3	19.870	19.049
Impairment and write-off of property, plant and equipment		1.173	854
Increase in allowance for inventories	5	(50)	-
Decrease of allowance for doubtful trade receivables	6	94	176
Loss from sale of non-current assets		-	10
Income tax expenses	17	4.442	2.428
Interest expenses, net	16	506	1.779
		54.633	33.035
Changes in working capital
Increase in inventories	5	(1.517)	(697)
Decrease (increase) in trade and other receivables	6	(2.404)	765
Decrease (Increase) in other current assets	7	4.589	(473)
Decrease (Increase) in prepayments		20	(65)
Increase in trade and other payables	11	401	93
Increase (decrease) in other current liabilities and payroll related liabilities	12	128	(1.257)
Income tax (paid)		(3.307)	(3.558)
Net cash flows from operating activities		52.543	27.843
Cash flows from (to) investing activities
(Acquisition) of non-current assets (except investments)	3	(7.146)	(6.031)
(Disposal) of non-current assets (except investments)		-	47
(Acquisition) of investments	1		(86)
Disposal of investments			-
(Investment) in short -term deposits	7	(16.118)	(3.729)
Bonds repurchase proceeds	4	-	266
Interest, dividends received	16	746	244
Net cash flows (to) investing activities		(22.518)	(9.289)

(cont'd on the next page)

The accompanying notes, set out on pages 10-32, are an integral part of these financial statements.

	Notes	2008	2007
Cash flows from (to) financing activities
Dividends (paid)	19	(7.024)	(6.065)
(Repayment) of loans	10	(15.606)	(8.255)
Financial lease (payments)	10		(4.570)
Interest (paid)	16	(1.252)	(2.023)
Net cash flows (to) financial activities		(23.882)	(20.913)
Net increase (decrease) in cash and cash equivalents		6.143	(2.359)
Cash and cash equivalents at the beginning of the year		2.451	4.810
Cash and cash equivalents at the end of the year		8.594	2.451

Notes to the financial statements

1 General information

AB Klaipėdos Nafta (hereinafter the Company) is a public limited liability company registered in the Republic of Lithuania. The address of its registered office is as follows: Burių g. 19, Klaipėda, Lithuania.

The Company was founded by AB Naftos Terminalas (Lithuania) and Lancaster Steel Inc. (USA), acquiring 51% and 49% of the shares, respectively. The Company was registered on 27 September 1994.

The financial statements cover individual Company's financial statements as of 31 December 2008.

Authorised capital of the Company as of 31 December 2008 amounts to 342,000,000 LTL and is fully paid in. The authorised capital consists of 342,000,000 ordinary shares with the nominal of 1 LTL each. All the shares are held by 1,431 shareholders, the State owns 70,63 % of the shares (241,544,426 shares). The Company has not acquired any own shares and during the year 2008 did not carry out any transactions in relation to acquisition or disposal of own shares. The Company's shares are included in the Baltic Additional Trading List of Vilnius Stock Exchange.

As of 31 December 2008 and 2007 the shareholders of the Company were:

	31 December 2008		31 December 2007
	Number of shares held (thousand)	Percentage	Number of shares held (thousand)	Percentage
Republic of Lithuania represented by the
Ministry of Economy	241 544	70,63	241 544	70,63
AB Achema	26 022	7,61	5 586	1,63
Hansabank funds	7 131	2,09	24 331	7,11
Skandinavska Enskilda Banken funds	11 386	3,33	12 703	3,71
Other (less than 5% each)	55 917	16,34	57 836	16,92
Total	342 000	100,00	342 000	100,00

The main purpose of the Company is to reload from railway tankers into vessels the oil products, supplied from Lithuania, Russia, Belarus and other countries. Furthermore, the Company can supply Lithuania with imported oil products which are shipped to the port of Klaipėda. For convenience of clients, the Company maintains customs and excise warehouses for the purpose of purchase-sales operations. An in-line accounting of cargo and servicing of clients is ensured by a continuously up-dated information system.

As of 31 December 2008 the number of employees of the Company was 308 (as of 31 December 2007 – 301).

The Company's management authorized these financial statements on 5 March 2009.

2 Significant accounting policies

These financial statements have been prepared on a historical cost basis.

The financial statements are presented in Litas and all values are rounded to the nearest thousand (LTL 000), except when otherwise indicated.

2.1. Basis of preparation of the financial statements

Statement of compliance

The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (hereinafter the EU).

Adoption of new and/or changed IFRSs and IFRIC interpretations

Several new and revised International Financial Reporting Standards and interpretations have been issued, which shall be subject to application in financial reporting starting from 1 January 2009 and subsequent years. The Company has decided not to apply earlier the new standards and interpretations. Estimates of the possible effect of the new and revised standards applied for the first time, as presented by the Company's management, are stated below.

■ IAS 1 Presentation of Financial Statements – Revised (effective for annual periods beginning on or after 1 January 2009 once adopted by the EU). The standard separates owner and non-owner changes in equity. The statement of changes in equity will include only details of transactions with owners, with all non-owner changes in equity presented as a single line. In addition, the standard introduces the statement of comprehensive income: it presents all items of income and expense recognised in profit and loss, together with all other items of recognised income and expense, either in one single statement or in two linked statements. At present, the Company is considering the variant of accounts presentation.

■ IFRS 8 Operating Segments

IFRS 8 Operating Segments (effective for annual periods beginning on or after 1 January 2009). The standard sets out requirements for disclosure of information about an entity's operating segments and also about the entity's products and services, the geographical areas in which it operates, and its major customers. IFRS 8 supersedes IAS 14 Segment Reporting.

■ IFRS 2 Share-based payments- amendment

This amendment to IFRS 2 is effective for annual periods beginning on or after 1 January 2009. The amendment provides description of definitions "vesting condition" and "non-vesting conditions". Based on the amendment of the Standard, a failure to meet a vesting condition must be accounted for as a cancellation of share based payments. As the Company has not entered into share-based payment schemes, the amendment of IFRS 2 is not relevant to the Company.

■ IFRS 3 Business Combinations- revised

Effective for annual periods beginning on or after 1 July 2009. The scope of the revised Standard has been amended and the definition of a business has been expanded. Revised IFRS 3 is not relevant to the company as the Company does not have any interests in companies, on the activity of which the revised Standards will have effect.

■ IAS 23 Borrowing Costs - revised

Effective for annual periods beginning on or after 1 January 2009 once adopted by the EU. The revised standard eliminates the option of expensing all borrowing costs and requires borrowing costs to be capitalised if they are directly attributable to the acquisition, construction or production of a qualifying asset. In accordance with the transitional requirements of the Standard, the Company will adopt this as a prospective change. Accordingly, borrowing costs will be capitalised on qualifying assets with a commencement date after 1 January 2009. At present, the Company is not able to estimate an impact of this amendment on the future financial position and results.

2 Significant accounting policies

2.1 Basis of preparation of the financial statements

■ Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements The amendments to Standard allow application of the exception to allocation principle as to IAS 32, i.e. certain puttable financial instruments and obligations arising on liquidation to be classified as equity. Amendments to IAS 32 and IAS 1 effective for annual periods beginning on or after 1 January 2009 once adopted by the EU. The Company does not expect these amendments to impact the financial statements of the Company.

■ Amendment to 39 IAS Financial Instruments: recognition and measurement

The amended Standards explains application of existing principles which determine whether certain risks or parts of cash flows are appropriate for hedging from risks in relationships. When indicating hedging relationships, risks or parts must be separately identified and reliably estimated, without designation of inflation (only in limited circumstances). The amendment to 39 IAS is effective for annual periods beginning on or after 1 July 2009. The amendment to 39 IAS does not have any impact on the financial statements of the Company as the hedging accounting is not applied.

■ IFRIC 13 Customer Loyalty Programmes

Customer Loyalty Programmes prescribe the accounting for companies which apply customer loyalty programmes for their clients. This relates to customer loyalty programmes, based on which clients can be granted services and goods free of charge or with a discount ("bonuses"). IFRIC 13 is effective for annual periods beginning on or after 1 July 2008. The Company does not expect these amendments to impact the financial statements of the Company.

■ IFRIC 15 Agreements on the Construction of Real Estate

IFRIC 15 explains recognition of income received from construction of real estate; if the asset seller and purchaser agree prior to completion of the construction. Furthermore, the interpretation provides instructions how to determine whether the agreement complies with IAS 11 and IAS 18. IFRIC 15 is effective for annual periods beginning on or after 1 January 2009. IFRIC 15 is not relevant to the Company's financial statements as the Company does not provided services related to construction of real estate for selling purposes.

■ IFRIC 17 Distribution of non-cash assets to owners

This interpretation is applicable on distribution of non-cash assets to owners as holders of shares. According to this interpretation, a liability to pay out dividends is defined after the dividends are approved and no longer remain in the company's disposition, and are valued at fair value of the distributable asset. The carrying amount of payable dividends is reviewed on each reporting date and all the changes of the carrying amount are stated under equity as an adjustment of the distributable amount. After the dividends are paid out, an eventual difference between the carrying amounts of the distributable asset and payable dividends is recognised in profit or loss.

IFRIC 17 is effective for annual periods beginning on or after 15 July 2009. As the interpretation is applicable only as of the application date, it will not have any effect on the financial statements for the periods commencing before the application date of the interpretation. Furthermore, as it relates to future dividends, which are under the shareholders' discretion, it is not possible to determine the effects of application in advance.

■ Beside the standards, interpretations and amendments listed above, amendments to IAS 27 Consolidated and Separate Financial Statements (effective for annual periods beginning on or after 1 January 2009) and IFRIC 16 Hedges of net investment in a foreign operation (effective for annual periods beginning on or after 1 October 2008), have been made; however these standards and interpretations are not material to the Company's financial statements as the Company does not have any investments in subsidiaries or significant investments in a foreign operation.

2.2. Foreign currency translation

Functional currency

The amounts shown in these financial statements are measured and presented in local currency, Litas (LTL). The Litas is the functional currency of the Company.

Since 2 February 2002, the Litas is pegged to the Euro at the rate of LTL 3.4528 = EUR 1.

Transactions and balances

Foreign currency transactions are translated 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 translation of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement under finance income or costs.

2.3. Segment reporting

The Company operates in one geographical and business segment, therefore no segment information is presented in these financial statements.

2.4. 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 amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic lives of 1 to 3 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.

Costs associated with maintaining computer software programmes are recorded as an expense as incurred.

2.5. Property, plant and equipment

Assets are attributed to property, plant and equipment if their useful life exceeds one year.

Property, plant and equipment of the Company 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 and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property, plant and equipment have been put into operation, such as repair and maintenance costs, are normally charged to the income statement in the period the costs are incurred.

Depreciation is computed on a straight-line basis over the following estimated useful lives:

Buildings and structures, specifically:	7 - 70
Fire-fighting station	40
Storage tanks 5.000 m3	15 - 21
Storage tanks 20.000 m3	43
Waste Water Treatment building	51
Reinforced concrete bridges	70
Railway trestle	55 - 65
Machinery and equipment, specifically:	3 - 40
Vapour combustion units; heat-exchangers	11 - 39
Marine loading arms	12
Other property plant and equipment, specifically	3 - 40
Technological pipelines	40 - 41
Control cables	12

2.5. Property, plant and equipment (cont'd)

The useful lives, residual values and depreciation method are reviewed periodically to ensure that the period of depreciation and other estimates are consistent with the expected pattern of economic benefits from items in property, plant and equipment.

Construction-in-progress is stated at cost. This includes the cost of construction, plant and equipment and other directly attributable costs. Construction-in-progress is not depreciated until the relevant assets are completed and available for their intended use.

Interest costs on borrowings to finance the construction of property, plant and equipment are not capitalised and are recognised in the income statement when incurred.

When property is 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 income statement. Gains and losses on disposal of property, plant and equipment are determined as a difference between proceeds and the carrying amount of the assets disposed.

2.6. Investments and other financial assets

According to IAS 39 Financial Instruments: Recognition and Measurement financial assets are classified as either financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables, and availablefor-sale financial assets, as appropriate. All purchases and sales of financial assets are recognised on the trade date. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

Financial assets or financial liabilities at fair value through profit or loss

Financial assets and financial liabilities classified in this category are designated by management on initial recognition when the following criteria are met:

• − the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or liabilities or recognising gains or losses on them on a different basis;
• − the assets and liabilities are part of a group of financial assets, financial liabilities or both which are managed and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy;
• − the financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.

Financial assets and financial liabilities at fair value through profit or loss are recorded in the balance sheet at fair value. Related profit or loss on revaluation is charged directly to the income statement. Interest income and expense and dividends on such investments are recognised as interest income and dividend income or interest expenses, respectively.

Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Company has the positive intention and ability to hold to maturity. Investments that are intended to be held-tomaturity are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the income statement when the investments are derecognised or impaired, as well as through the amortisation process.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in income when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified in any of the three preceding categories. After initial recognition available-for-sale financial assets are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the income statement.

Fair value

The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm's length market transactions; reference to the current market value of another instrument, which is substantially the same; discounted cash flow analysis or other valuation models.

The Company does not have financial instruments stated at fair value as of 31 December 2008 and 2007.

2.7. Derecognition of financial assets and liabilities

Financial assets

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:

• − the rights to receive cash flows from the asset have expired;
• − the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a "pass through" arrangement; or
• − the Company has transferred their rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Company's continuing involvement in the asset.

Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

2.8. Employee benefits

Social security contributions

The Company pays social security contributions to the State Social Security Fund (hereinafter the Fund) on behalf of its employees based on the defined contribution plan in accordance with the local legal requirements. A defined contribution plan is a plan under which the Company pays fixed contributions into the Fund and will have no legal or constructive obligations to pay further contributions if the Fund does not hold sufficient assets to pay all employees benefits 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.

Termination benefits

Termination benefits are payable whenever an employee's employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company recognises termination benefits when it is firmly committed to either terminate the employment of current employees according to a detailed formal plan without possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Non-current benefits recognised are recognised at present value discounted using market rate.

2.9. Inventories

Inventories are stated at the lower of cost and net realisable value, after impairment evaluation for obsolete and slowmoving items. Net realisable value is the selling price in the ordinary course of business, less the costs of completion, marketing and distribution. The cost of inventories comprises purchase price, transport, and other costs directly attributable to the cost of inventories. Cost is determined by the first-in, first-out (FIFO) method. Unrealisable inventory has been fully written-off.

2.10. Cash and cash equivalents

Cash includes cash on hand and cash with banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less and that are subject to an insignificant risk of change in value.

For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, and other short-term highly liquid investments.

2.11. Borrowings

Borrowing costs are expensed as incurred.

Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective interest rate method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of borrowings.

2.12. Financial and operating leases

The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether the fulfilment of the arrangement is dependent on the use of specific asset or assets or the arrangement conveys a right to use the asset.

The Company as a lessee

Financial lease, which transfer to the Company substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are reflected in profit or loss.

Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Company will obtain ownership by the end of the lease term.

Operating lease payments are recognised as expenses in profit or loss on a straight line basis over the lease term.

The Company as a lessor

Lease where the Company does not transfer substantially all the risk and benefits of ownership of the asset are classified as operating lease. Initial direct cost incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.

Operating lease – the Company as a lessor

Assets leased under operating lease in the balance sheet of the Company are accounted for depending on their nature. Income from operating lease is recognised as other income in the statement of income within the lease period using the straight-line method. All the discounts provided to the operating lessee are recognised using straight-line method during the lease period by reducing the lease income. Initial direct expenses incurred in order to generate lease income are included in the carrying value of the leased asset.

2.13. 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. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.

Income tax charge is based on profit for the year and considers deferred taxation. Income tax is calculated based on the Lithuanian tax legislation.

On 1 January 2006 the Provisional Social Tax Law came into effect in the Republic of Lithuania, which stipulates that along with the corporate income tax, for one financial year beginning on 1 January 2006, companies have to pay an additional 4% tax calculated based on the income tax principles, and for the following year a 3% tax starting from 1 January 2007. The income tax applied to the companies in the Republic of Lithuania in 2008 remained standard, i.e. 15%., and there was no social tax. As of 1 January 2009 the income tax rate was increased and amounts to 20%.

Tax losses can be carried forward for unlimited time, except for the losses incurred as a result of disposal of securities and/or derivative financial instruments that can be carried forward for 5 consecutive years. The losses from disposal of securities and/or derivative financial instruments can only be used to reduce the taxable income earned from the transactions of the same nature.

Deferred taxes are calculated using the balance sheet liability method. Deferred income taxes reflect the net tax effects of 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 substantially enacted at the balance sheet date.

Deferred tax asset has been recognised in the balance sheet to the extent the management 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.

2.14. Dividends

Dividends are recorded in the financial statements at the moment they are declared by the Annual General Shareholders' Meeting.

2.15. 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 shareholders changes without causing a change in the economical 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 earnings per share, there is no difference between the basic and diluted earnings per share.

2.16. Revenue recognition

Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to the enterprise and the amount of the revenue can be measured reliably. Sales are recognised net of VAT and discounts. Revenue for stevedoring and related services is recognised when the cargo is loaded to ships / unloaded from ships.

Interest, rental and other revenue is recognised on an accrual basis. Other revenue is recognised upon delivery and transfer or risks and rewards of products or rendering of services and customer acceptance, if any.

2.17. Expenses recognition

Expenses are recognised on the basis of 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.

2.18. Impairment of assets

Financial assets

Financial assets are reviewed for impairment at each balance sheet date.

For financial assets carried at amortised cost, whenever it is probable that the Company will not collect all amounts due according to the contractual terms of loans or receivables, an impairment or bad debt loss is recognised in the income statement. The reversal of impairment losses previously recognised is recorded when the decrease in impairment loss can be justified by an event occurring after the write-down. Such reversal is recorded in the income statement. However, the increased carrying amount is only recognised to the extent it does not exceed the amortised cost that would have been had the impairment not been recognised.

In relation to trade and other receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Company will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount of the receivable is reduced through use of an allowance account. Impaired debts are derecognised when they are assessed as uncollectible.

Other assets

Other 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 income statement. 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 income statement as the impairment loss.

2.19. Use of estimates in the preparation of financial statements

The preparation of financial statements in conformity with International Financial Reporting Standards as adopted by the EU requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses and disclosure of contingencies. The significant areas of estimation used in the preparation of these financial statements relate to the estimation of depreciation (Note 2.5) and impairment evaluation (Note 2.18). Future events may occur which may cause the assumptions used in arriving at the estimates to change. The effect of any changes in estimates will be recorded in the financial statements, when determinable.

The ongoing global liquidity crisis resulted in, among other things, a lower liquidity levels in economy, a lower level of capital market funding and lower liquidity. In addition to that, Lithuania and European Union have been experiencing economic downturn which has affected, and may continue to affect, the activities of enterprises operating in this environment. These financial statements reflect management's assessment of the impact of the Lithuanian and global business environment on the operations and the financial position of the Company. The future developments in business environment may differ from management's assessment.

2.20. 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 or economic benefits is probable.

2.21. Subsequent events

Post-balance sheet events that provide additional information about the Company's position at the balance sheet date (adjusting events) are reflected in the financial statements. Post-balance sheet events that are not adjusting events are disclosed in the notes when material.

2.22. Offsetting and comparative figures

When preparing the financial statements, assets and liabilities, as well as revenue and expenses are not set off, except the cases when certain International Financial Reporting Standard specifically requires such set-off.

AB KLAIPĖDOS NAFTA FINANCIAL STATEMENTS FOR 2008

(all amounts are in LTL thousand unless otherwise stated)

3 Property, plant and equipment

	Buildings and structures	Machinery and equipment, other property, plant and equipment	Construction in progress and prepayments	Total
Cost:
Balance as of 31 December 2007	410.484	319.043	1.334	730.861
Additions		2.310	2.934	5.244
Prepayments			1.913	1.913
Retirements and disposals	(322)	(1.046)	(231)	(1.599)
Transfer from construction in progress	224	949	(1.173)	-
Balance as of 31 December 2008	410.386	321.256	4.777	736.419
Accumulated depreciation and impairment:
Balance as of 31 December 2007	128.102	175.268	-	303.370
Charge for the year	10.540	9.262	-	19.802
Retirements and disposals	(126)	(1.235)	-	(1.361)
Impairment for the year		935	-	935
Balance as of 31 December 2008	138.516	184.230	-	322.746
Net book value as of 31 December 2008	271.870	137.026	4.777	413.673
Net book value as of 31 December 2007	282.382	143.775	1.334	427.491

	Buildings and structures	Machinery and equipment, other property, plant and equipment	Construction in progress and prepayments	Total
Cost:
Balance as of 31 December 2006	406.812	316.807	2.526	726.145
Additions	-	592	5.384	5.976
Retirements and disposals	-	(541)	(719)	(1.260)
Transfer from construction in progress	3.672	2.185	(5.857)	-
Balance as of 31 December 2007	410.484	319.043	1.334	730.861
Accumulated depreciation and impairment:
Balance as of 31 December 2006	117.401	167.339	-	284.740
Charge for the year	10.394	8.585	-	18.979
Retirements and disposals	-	(438)	-	(438)
Impairment for the year	307	(218)	-	89
Balance as of 31 December 2007	128.102	175.268	-	303.370
Net book value as of 31 December 2007	282.382	143.775	1.334	427.491
Net book value as of 31 December 2006	289.411	149.468	2.526	441.405

3 Property, plant and equipment (cont'd)

The depreciation charge of the Company's property, plant and equipment for the year 2008 amounts to LTL 19.802 thousand (LTL 18.979 thousand for the year 2007). An amount of LTL 19.771 thousand has been included into cost of sales in the Company's income statement. The remaining amount has been included into operating expenses for the year.

The Company has secured repayment of loans by pledging property plant and equipment in amount of LTL 78.973 thousand (LTL 175.245 thousand was pledged as of 31 December 2007). In May 2008 part of the pledge was recalled in connection to repayment of the syndicated loan on 25 September 2007.

Property, plant and equipment of the Company with the acquisition cost of LTL 50.680 thousand were fully depreciated as of 31 December 2008 (LTL 51.987 thousand as of 31 December 2007) but are still in active use.

In 2008 the Company completed modernisation of the heat-exchangers of the railway trestle No.1 and transferred LTL 948,6 thousand from construction in progress into the item of machinery and equipment and other property, plant and equipment, and started using and depreciating the mentioned equipment. Furthermore, in 2008 the Company carried out heightning of reinforced concrete fencing, expanded parking sites and transferred LTL 223,8 thousand under buildings and plant.

In 2008 the Company recognised LTL 935,3 thousand of impairment of 3 new pumps of which are not used. The mentioned pumps, together with the power equipment, were ordered for realisation of the project "Modernisation of technological manifold in 2 storage tanks of 32250 m³ each of AB Klaipėdos Nafta". According to the project, it is planned to use the two newly constructed storage tanks for gasoline reloading. Due to changes in the market and too high prices bidded in the tender "Modernisation of technological manifold in 2 storage tanks of 32250 m³ each", the project was suspended.

4 Non-current financial assets

On 19 December 2007 the Company acquired 1 % shareholding in the international pipeline company Sarmatia and purchased 180 shares at a nominal value of 500 PLZ each. The investment was accounted for at acquisition cost, the equivalent of which in Litas amounted to LTL 74,993 as at 31 December 2008 ( LTL 86.142 as at 31 December 2007).

Until 14 November 2007 the Company owned 34% of the share capital of UAB Laivų Bunkeris, which does not carry out any activities nor prepares its financial statements. On 14 November 2007 UAB Laivų Bunkeris was listed out of the Register of Legal Persons; AB Klaipėdos Nafta does not have any obligations regarding UAB Laivų Bunkeris. The book value of the investment, which is stated at cost less impairment losses, amounted to zero as of 31 December 2008 and 2007.

5 Inventories

	2008	2007
Spare parts, construction materials and other inventory	3.320	2.305
Oil products	2.056	1.554
	5.376	3.859
Less: net realisable value allowance	(1.835)	(1.885)
	3.541	1.974

Impairment is mainly recorded for construction materials and spare parts which were not used during reconstruction.

Oil products mainly comprise heavy oil products collected in the Waste Water Treatment Facilities. The increase in oil products is due to the fact that the Company did not perform sales of heavy oil products in 2008 and 2007.

The Company stores in the storage tanks more than 57 thousand tons of oil products as of 31 December 2008 (55 thousand tons as of 31 December 2007), which accumulates due to technological process during reloading. Such oil products are not recognised in the Company's financial statements, they are accounted for in the off-balance sheet accounts.

Change in impairment of inventories for 2008 and 2007 is included under operating costs.

The amount of write-down of inventories recognised as expenses is LTL 21.062 thousand for 2008 (LTL 11.205 thousand for 2007).

6 Trade and other receivables

	2008	2007
Receivable for reloading of oil products and other related
services	5.265	2.954
Other receivables	154	61
	5.419	3.015
Less: allowance for doubtful trade receivables	(393)	(299)
	5.026	2.716

Changes in allowance for doubtful trade receivables for the year 2008 and 2007 have been included into operating expenses in the income statement.

Trade and other receivables are non-interest bearing and are generally on 6 - 15 days terms.

As of 31 December 2008 there were no trade receivables fully impaired and provided for ( as of 31 December 2007 - LTL 244 thousand).

Movements in the provision for impairment of trade receivables were as follows:

	Collectively impaired
Balance as of 31 December 2006	123
Charge for the year	176
Balance as of 31 December 2007	299
Charge for the year	94
Balance as of 31 December 2008	393

No individual impairment was made in 2008 and in 2007.

Trade and other accounts receivable are written off when the management is certain that the amount will not be recovered.

The ageing analysis of trade and other receivables as of 31 December 2008 and 2007 is as follows:

	Trade and other receivables neither past due nor impaired	Trade receivables past due but not impaired
		Less than 30 days	30 – 59 days	60 – 89 days	90 –359 days	More than 360 days	Total
2007	2.564	-	64	-	32	56	2.716
2008	4.296	185	129	243	566	-	5.419

Credit quality of financial assets neither past due nor impaired

With respect to trade receivables and other receivables that are neither impaired nor past due, there are no indications as of the reporting date that the debtors will not meet their payment obligations since the Company trades only with recognised, creditworthy third parties.

7 Other current assets

	2008	2007
Excess of taxes paid	1.293	5.675
Short-term deposits	19.847	3.729
Accrued income	-	294
Deferred expenses	361	272
Other accounts receivable	568	574
	22.069	10.544
Less: allowance for doubtful other current assets	(485)	(489)
	21.584	10.055

Changes in allowance for doubtful other current assets for the year 2008 and 2007 have been included into operating expenses in the income statement.

As of 31 December 2008 the Company had four term deposits in amount of LTL 19.847 thousand. The maturity range is 91 – 180 days and annual interest rate is 5,4 – 8,5%. As of 31 December 2007 the Company had two term deposits with the maturity of 127 – 155 days and the annual interest rate of 4,45%.

8 Cash and cash equivalents

	2008	2007
Cash at bank, LTL thousand	3.672	2.352
Short-term deposits	4.726	-
Cash in hand, LTL thousand	196	99
	8.594	2.451

As of 31 December 2008 the Company had two term deposits with the maturity of 90 days. Therefore, these deposits were accounted for under the item of cash and cash equivalents. Other term deposits, the maturity of which is longer than 3 months, were accounted for by the Company under current assets (note 7).

9 Reserves

Legal reserve

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. Distributing the profit of 2008, the Company has to transfer to the legal reserve not less then LTL 1.430 thousand.

Other reserves

Other (distributable) reserves are formed based on the decision of the General Shareholders' Meeting on appropriation of distributable profit. These reserves can be used only for the purposes approved by the General Shareholders' Meeting. The biggest part of the Company's other reserves are formed for investments, charity and employee bonuses.

10 Borrowings

Lender	Original currency	Principal amount (in LTL thousand)	Interest rate	Balance as of 31 December 2008	Balance as of 31 December 2007
AB SEB bankas, AB bankas Hansabankas, AB DnB NORD bankas	EUR	37.570	6 months EUR LIBOR + 1,1 %	15.605	31.211
				15.605	31.211
LLess: current portion				(15.605)	(15.605)
Non-current loans, net of current portion				-	15.606

The Company has a loan from three local banks: AB SEB bankas, AB bankas Hansabankas and AB DnB NORD bankas. As of 31 December 2008 the unpaid part amounted to EUR 4.520 thousand (LTL 15.605 thousand equivalent) (as of 31 December 2007 - EUR 9.039 thousand (LTL 31.211 thousand equivalent)). The loan is secured with a guarantee issued by the Ministry of Finance. Current portion of the loans amounting to LTL 15.605.274, must be repaid as follows: by 31 January 2009 – LTL 7.802.637 and by 31 July 2009 – LTL 7.802.637.

Actual interest rates are close to effective interest rates.

11 Trade and other payables

	2008	2007
Payable for railway services	575	714
Payable for repair works	128	250
Other trade payables	1.393	781
	2.096	1.745

Trade payables are non-interest bearing and are normally settled on 30-day terms.

12 Other current liabilities

	2008	2007
Accrued expenses	150	161
Advances received	53	62
Other	13	17
	216	240

Other payables are non-interest bearing and have an average term of one month.

13 Sales

2008	2007
115.641	75.631
3.971	3.033
119.612	78.664

Other sales related to loading include moorage, sales of fresh water, transportation of crew and other sales related to loading.

14 Cost of sales

	2008	2007
Depreciation and amortisation	19.771	18.950
Wages, salaries and social security	15.708	13.304
Heating and steam	18.848	9.624
Railway services	5.423	4.476
Electricity	3.725	2.635
Repair and maintenance of non-current assets	787	1.127
Other	2.759	3.746
	67.021	53.862

Increase in heating and steam expenses were caused by the increase in prices and the increase in sales volume of loading services.

The increase in costs is directly related to the increase in prices and the increase in sales volume of loading services.

15 Operating expenses

	2008	2007
Salaries, bonuses and social security	4.327	4.222
Tax on real estate	6.132	2.717
Rent of land and quays	2.368	2.346
Insurance of assets	1.015	1.005
Depreciation and amortisation	99	99
Change in impairment of receivables	214	89
Change in impairment for property, plant and equipment	935	89
Change in impairment of inventories	790	-
Other	3.209	1.539
	19.089	12.106

16 Income (expenses) from financial and investment activities, net

		2008	2007
	Interest income	746	244
	Gain from foreign exchange	18	12
	Other	11	25
	Financial income, total	775	281
	Interest and loan administration (costs)	(1.210)	(2.023)
	(Loss) from foreign exchange	(32)	(47)
	Other financial (expenses)	(43)	(62)
	Financial (expenses) , total	(1.285)	(2.132)
		(510)	(1.851)
17	Income tax
		2008	2007
	Components of the income tax expense (income)
	Current year income tax (15%)	6.261	2.256
	Temporary social security tax (none – in 2008, 3 % – in 2007)	-	443
	Adjustment of temporary social tax of previous year	23	-
	Set-off with income tax on dividends	(50)	(8)
	Prior year current income tax adjustment	(4.436)	(117)
	Current year income tax expenses	1.798	2.574
	Deferred tax expense (income)	2.644	(146)
	Income tax expenses charged to the income statement	4.442	2.428
	Deferred tax asset	2008	2007
	Receivables	173	118
	Accumulated vacation reserve	248	154
	Inventories	367	282
	Property, plant and equipment (depreciation and interest)	1.737	1.194
	Deferred tax asset before valuation allowance	2.525	1.748
	Less: valuation allowance	(173)	(118)
	Deferred income tax asset, net	2.352	1.630
	Deferred tax liability
	Property, plant and equipment	(17.338)	(13.634)
	Accrued income	158	(180)
	Deferred income tax liability	(17.180)	(13.814)
	Deferred income tax, net	(14.828)	(12.184)

17 Income tax (cont'd)

Valuation allowance was made for part of the deferred tax asset that, in the opinion of the management, is not likely to be realised in the foreseeable future. In 2008 valuation allowance was made for the deferred income tax component – impairment of receivables, which is not expected by the Company's management to be recognised as deductible expenses in the future. Deferred income tax asset and deferred income tax liability are set-off in the balance sheet of the Company, as they both are related to the same tax authority.

While assessing deferred income tax asset and liability components for the year ended 31 December 2008., the Company has used the income tax rate of 20% for those items, which will be realised in 2009 and later.

Movements in pre-tax components of temporary differences and the related total deferred tax amounts for the Company are as follows:

	Balance as of 31 December 2007	Recognised in income statement	Balance as of 31 December 2008
Receivables	788	77	865
Accumulated vacation reserve	1.026	214	1.240
Inventories	1.885	(50)	1.835
Property, plant and equipment (depreciation and interest)	7.959	724	8.683
Property, plant and equipment	(90.894)	4.206	(86.688)
Other	(1.205)	1.995	790
Total temporary differences	(80.441)	7.166	(73.275)
Impairment	(788)	(77)	(865)
Deferred income tax, net	(12.184)	(2.644)	(14.828)

The reported amount of income tax expenses attributable to the period can be reconciled to the theoretical amount of income tax expenses that would arise from applying statutory income tax rate to pre-tax income as follows:

	2008	2007
Profit before tax	33.040	11.167
Income tax expenses computed using the statutory tax rate ( 15 % – 2008 and 18% –
2007)	4.956	2.010
Permanent differences	1.304	512
Change in tax rate	2.645	31
Set-off with income tax on dividends	(50)	(8)
Prior year income tax adjustment	(4.413)	(117)
Income tax expenses charged to the income statement	4.442	2.428

18 Earnings per share, basic and diluted

Basic earnings per share amounts are calculated by dividing net profit for the year by the number of ordinary shares outstanding during the year. Diluted earnings per share equal basic earnings per share as there were no potential shares issued. Basic and diluted earnings per share are as follows:

	2008	2007
Net profit attributable to shareholders	28.598	8.739
Weighted average number of ordinary shares (thousand)	342.000	342.000
Earnings per share (in LTL)	0,08	0,03

19 Dividends

	2008 *	2007*
Dividends declared	6.974	6.123
Weighted average number of ordinary shares (thousand)	342.000	342.000
Declared dividends per share (expressed in LTL per share)	0,020	0,018
* The year when dividends are declared

On 22 April 2008 the shareholders declared dividends in the amount of LTL 6.974 thousand payable for 2007 (in 2007 - LTL 6.123 thousand for 2006). The major part of the amount was paid out during 2008. The remaining amount of declared dividends is stated under the item of payable within one year as dividends payable to the shareholders who were not found according to stated addresses. The not paid dividends amount of the previous year amounted to LTL 68,2 thousand as of 31 December 2008 (LTL 118,5 thousand as at 31 December 2007).

20 Financial assets and liabilities and risk management

Credit risk

The Company has significant concentration of trading counterparties. The main two customers of the Company – AB Mažeikių Nafta and UAB Naftos Grupė – on 31 December 2008 account for approximately 94% (approximately 80% as of 31 December 2007) of the total Company's trade receivables. The average payment terms for those two customers are 6 - 15 days whereas the usual payment terms for all other customers are 6 days. The credit risk for these two customers is managed by a continuous monitoring of outstanding balances.

The Company's procedures are in force to ensure on a permanent basis that services are provided to customers with an appropriate credit history and do not exceed an acceptable credit exposure limit.

The Company does not guarantee obligations of other parties. The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, if any, in the balance sheet. Consequently, 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 recognised at the balance sheet date.

The Company trades only with recognised third parties, so there is no requirement for collateral.

20 Financial assets and liabilities and risk management (cont'd)

Interest rate risk

The Company's income and operating cash flows are substantially independent of changes in market interest rates. The Company has no significant interest-bearing assets.

The major part of the Company's borrowings is with variable rate, related to EUR LIBOR, which creates an interest rate risk. There are no financial instruments designated to manage the exposure to fluctuation in interest rates outstanding as of 31 December 2008 and 2007.

Foreign exchange risk

All monetary assets and liabilities of the Company are denominated in Litas or Euro, and the exchange rate of the latter is fixed in respect to Litas; therefore, the Company practically is not exposed to the foreign exchange rate risk.

Liquidity risk

The Company'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 Company's liquidity (total current assets / total current liabilities) and quick ratios ((total current assets - inventories) / total current liabilities) as of 31 December 2008 were 2,16 and 1,98, respectively (0,99 and 0,89 as of 31 December 2007).

The Company's objective is to maintain a balance between continuity of funding and flexibility. The Company's activities generate sufficient amount of cash, therefore the main managements' responsibility is to monitor that the liquidity ratio of the Company is close to or higher than 1. The Company met the managements' expectations in the liquidity area in years 2008 and 2007.

The table below summarises the maturity profile of the Company's financial liabilities as of 31 December 2008 and 2007 based on contractual undiscounted payments.

	On demand	Less than 3 months	3 to 12 months	1 to 5 years	More than 5 years	Total
Interest bearing loans and
borrowings	-	7.803	7.802			15.605
Trade and other payables	-	2.035	61			2.096
Other financial liabilities	-	1.541		17	51	1.609
Balance as of 31 December 2008	-	11.379	7.863	17	51	19.310
Interest bearing loans and borrowings	-	8.149	8.599	15.891	-	32.639
Trade and other payables	-	1.745	-	-	-	1.745
Other financial liabilities Balance as of	-	240	-	66	52	358
31 December 2007	-	10.134	8.599	15.957	52	34.742

20 Financial assets and liabilities and risk management (cont'd)

Fair value of financial instruments

The Company'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 defined as the amount at which the instrument could be exchanged between knowledgeable willing parties in an arm's length transaction, other than in forced or liquidation sale. Fair values are obtained from quoted market prices and discounted cash flow models as appropriate.

Set out is a comparison by category of carrying amounts and fair values of all of the Company's financial instruments that are carried in the financial statements:

	Carrying amount		Fair value
	2008	2007	2008	2007
Financial assets
Cash	8.594	2.451	8.594	2.451
Trade and other receivables	5.026	2.716	5.026	2.716
Other financial assets	21.584	4.121	21.584	4.121
Financial liabilities
Bank loans	15.605	31.211	15.605	31.211
Trade and other payables	2.096	1.745	2.096	1.745
Other financial liabilities	284	296	284	296

The increase in other financial assets as of 31 December 2008 is due to the fact that 4 term deposit agreements in the amount of LTL 19.847 thousand with maturity longer than 3 months are accounted for in this caption (Note 7). As of 31 December 2007 the Company had 2 term deposits in total amounting to LTL 3.729 thousand.

A market price was not available for the investment in international pipeline company Sarmatia, therefore the investment is accounted for at cost in the balance sheet of the Company. It was also impossible to derive the fair value for the period using comparable transactions. The Company did not measure the investment by discounting the expected cash flows because the cash flows could not be reliably determined.

The fair value of loans, other financial liabilities and other financial assets have been calculated using market interest rates.

The following methods and assumptions are used to estimate the fair value of each class of financial instruments:

• a) The carrying amount of current trade accounts receivable, current trade accounts payable and current borrowings approximates fair value.
• b) The fair value of non-current debt is based on the quoted market price for the same or similar issues or on the current rates available for debt with the same maturity profile. The fair value of non-current borrowings with variable and fixed interest rates approximates their carrying amounts.

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 makes adjustments to it in the light of changes in economics 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. No changes were made in the objectives, policies or processes during the years ended 31 December 2008 and 31 December 2007.

20 Financial assets and liabilities and risk management (cont'd)

The Company is obliged to keep its equity up to 50% of its share capital, as imposed by the Law on Companies of Republic of Lithuania.

The Company has externally imposed capital requirements from banks. They require that liabilities/capital ratio does not exceed 3. The management monitors that the Company is in line with the requirement. No other capital management tools are used.

21 Commitments and contingencies

In 2006 Riverlake Energy (S) PTE LTD brought a claim against the Company for USD 1,804 thousand (equivalent to LTL 4,421 thousand as of 31 December 2008) compensation of alleged expenses and agreement liabilities performance. During the year 2008 the case was heard in court and decision in favour of the Company was made, however the plaintiff filed an appeal to the Court of Appeal of Lithuania

On 9 February 2009 the Regional Court of Klaipėdos approved the peace treaty between the Company and Riverlake Energy (S) PTE LTD, based on which the plaintiff Riverlake Energy (S) PTE LTD cancelled its claim against the Company.

From 2006 the Company was involved in litigations with State Tax Inspectorate Under the Ministry of Finance of the Republic of Lithuania in relation to the real estate tax calculation for the period 2000 to 2004 and a respective fine. Based on the acceptance of both sides the arguable amount was decreased from LTL 5.315 thousand to LTL 4.399 thousand, due to the change in taxable values and due to the shortening of the taxable period. On 22 September 2008 the Headquarters of the Administrative Court of the Republic of Lithuania charged an additional tax on real estate of LTL 3.999 thousand for the period 2000 -2004 and a penalty of LTL 399 thousand. Based on the appeal, the Company was exempted from the penalty of LTL 399 thousand (no damage was done to the budget as the Company had paid the tax on real estate of LTL 3.999 thousand prior to the tax investigation). Recalculation of the tax on real estate was recognised in 2008 as an increase in operating costs.

22 Related party transactions

The parties are considered related when one party has the possibility to control the other one or has significant influence over the other party in making financial and operating decisions. The related parties of the Company and transactions with them in 2008 and 2007 were as follows:

Transactions with State institutions

Tax expense	2008	2007
Income and social tax	6.234	2.530
Current income tax adjustment of prior year	(4.436)
Tax on real estate	6.132	2.717
Other operating taxes	77	110
Social security tax	5,057	4.001
	13.064	8.225
Excess of tax paid	2008	2007
Income and social tax prepayment	2.910	1.445
Prepayment of tax on real estate	768	4.478
Other	500	1.197
	4.178	7.120

22 Related party transactions (cont'd)

Taxes payable	2008	2007
Other operating taxes	14	-
Social security tax	71	49
	85	49

State guarantees

The State has issued guarantees in respect of the Company's loans, the value of which amounts to LTL 15.605 thousand as of 31 December 2008 (LTL 31.211 thousand as of 31 December 2007) (Note 10).

Remuneration of the management and other payments

In 2008 the Company's management remuneration amounted to LTL 1.295 thousand (LTL 1.224 thousand in 2007). In 2008 and 2007 the management of the Company did not receive any loans, guarantees; no other payments or property transfers were made or accrued.

23 Subsequent events

On 30 January 2009 the Company prematurely repaid the loan of LTL 15.6 million to the banks. On 9 February 2009 a treaty of peace was concluded between the Company and Riverlake Energy (S) PTE LTD. More detailed information is presented in Note 21.

There were no other significant events after the balance sheet date.

ANNUAL REPORT for 2008

Klaipėda February, 2009

Content

1. ACCOUNTING PERIOD IN RESPECT OF WHICH THE ANNUAL REPORT WAS PREPARED	35
2. DETAILS ABOUT THE COMPANY	35
3. ACTIVITY OF THE COMPANY	35
3.1. Significant events of the accounting period	35
3.2. The core activity of the Company	36
3.3. Operating results, key financial figures	37
4. BUSINESS ENVIRONMENT	38
4.1. Oil-bulk stowage market	38
4.2. Description of the main risks incurred by the Company	38
4.3. Financial assets, financial risk management	38
5. SIGNIFICANT EVENTS AFTER THE YEAR END	38
6. ACTIVITY PLANS AND FORECASTS	39
7. ENVIRONMENT PROTECTION	39
8. PERSONNEL	39
9. INFORMATION ON THE COMPANY'S BRANCHES AND REPRESENTATIVE OFFICES	41
10. STRUCTURE OF AUTHORISED CAPITAL	41
11. INFORMATION ON AGREEMENTS WITH SECURITIES PUBLIC TURNOVER MEDIATORS	41
12. INFORMATION ON PURCHASED OR DISPOSED OWN SHARES	41
13. SHAREHOLDERS AND SHARES	41
14. INFORMATION ON ADHERENCE TO GOVERNANCE CODE	42
15. MANAGEMENT OF THE COMPANY	43
16. OTHER INFORMATION	43
16.1. Procedure of changing Articles of Association	43
16.2. Transactions with related parties	43
17. DETAILS ON PUBLIC INFORMATION	43

1. ACCOUNTING PERIOD IN RESPECT OF WHICH THE ANNUAL REPORT WAS PREPARED

The Annual Report is prepared for the year 2008. All figures are presented as at 31 December 2008, if not indicated otherwise. In this Annual Report AB Klaipėdos Nafta may also be referred to as the Company or Issuer.

Name of the Issuer: AB Klaipėdos Nafta Legal status: Stock company Authorised capital: LTL 342,000,000 Date and place of registration: 27 September 1994, State Enterprise Register Centre Company code: 1106 48893 Address: Burių g. 19, 91003 Klaipėda Issuer's register: State Enterprise Register Centre Telephone numbers: +370 46 391772 Fax numbers: +370 46 311399 E-mail addresses: info@oil.lt Internet site: www.oil.lt

2. DETAILS ABOUT THE COMPANY

3. ACTIVITY OF THE COMPANY

3.1. Significant events of the accounting period

The General Shareholders' Meeting, held on 22 April 2008, approved the financial statements and profit appropriation for the year 2007. Dividends in the amount of LTL 6.97 million were paid to the shareholders for the year 2007.

During 2008 the Company reloaded by 52% more oil products (in 2008 - 8,2 million tons of oil products; in 2007 -5,5 million tons), earned by 52% higher revenue (sales revenue in 2008 – LTL 119,61 million; in 2007 - LTL 78,66 million) and earned 3 times higher net profit (net profit for 2008 – LTL 28,60 million; for 2007- LTL 8,74 million).

The Company repaid loans in the amount of LTL 15,6 million according to the loan repayment schedules.

3.2. The core activity of the Company

The Company's core activity is reloading of oil products and other related services.

The Company tranships oil products (fuel oil, vacuum gasoil, diesel, gasoline, jet fuel, etc.) from railway tanks into tankers as well as from tankers into railway tanks, provides a temporary storage (accumulation) of oil products, accepts water polluted with oil products from ships, supplies ships with water, moors incoming tankers.

The Company has customs- and excise warehouses allowing the clients to perform sales/purchase procedures of oil products.

In 2008 the Company transhipped 8 213 thousand tons of oil products:

1. Fuel oil	-	3 927 thousand tons;
2. Vacuum gasoil	-	1 546 thousand tons;
3. Diesel	-	1 333 thousand tons;
4. Gasolines	-	1 140 thousand tons;
5. Jet fuel	-	267 thousand tons.

During the year 2008 the transhipment of oil products was bigger by 52% or by 2,8 million tons, if compared to the transhipment of 2007 (5,403 thousand tons) and the planned annual loading efficiency of the terminal (7.1 million tons) was exceeded by 16 %.

Successful operation of the Company was reasoned by an on-going flow of cargo throughout the year which was promoted by the following factors:

1. contracts with clients (AB Mažeikių Nafta stevedoring increased double from 1,933 thousand tons (in 2007) to 4,429 thousand tons (in 2008);

2. modern technologies of transhipment of oil products, applied in the terminal, the quality and optimal management and co-ordination of flows of transhipped oil products (railway, warehousing, loading to sea tankers) are ensured;

3. favourable weather conditions;

4. increased demand for oil products on the global market.

If compared to 2007, sales income of the Company for 2008 increased from LTL 78,66 million, to LTL 119,61 million or 52 %. The major part of sales income (97 %) was earned from loading of oil products. Due to an increased loading of oil products by 52 % from 5.403 thousand tons (in 2007) to 8.213 thousand tons (in 2008), operating income from primary activity has increased proportionally.

Cost of sales increased from LTL 53,86 million to LTL 67,02 million or by 24 %. The major influence was caused by energy resources (gas, electricity) the costs of which rose by 83 % (in 2008 - LTL 22,8 million, in 2007 – LTL 12,4 million). The amount of energy costs depends on the quantity of transhipped oil products and increased prices of gas and electricity. The share of energy costs (gas and electricity) in the cost of sales for 2008 made 32 %, depreciation costs - 28 %.

3.3. Operating results, key financial figures

During 2008 the Company earned net profit of LTL 28,60 million, threefold larger than in 2007 (LTL 8,74 million).

During 2008 the Company repaid loans in the amount of LTL 15,6 million and paid interest of LTL 1,2 million according to the loan repayment schedules. As of 31 December 2008 the nonrepaid portion of the loan amounted to LTL 15,6 thousand, which was prematurely repaid by the Company on 30 January 2009.

During the accounting period the Company did not accept any new financial obligations.

	Measure unit	2008	2007
Sales income	LTL million	119,61	78,66
Profit from typical activity	LTL million	33,50	12,69
Profit before interest, depreciation and
amortisation (EBITDA)	LTL million	53,37	31,99
Profit before taxation	LTL million	33,04	11,17
Net profit	LTL million	28,60	8,74
Non-current assets at the end of the year	LTL million	413,81	427,71
Current assets	LTL million	41,70	18,66
Total assets	LTL million	455,51	446,37
Authorised capital	LTL million	342,00	342,00
Profitability ratios
EBITDA margin (EBITDA x 100 / sales
income)	%	45	41
Net profit ratio (net profit x 100 / sales
income)	%	24	11
Average asset margin (net profit x 100 /
non-current assets)	%	7	2
Financial structure ratios
Debt and equity coefficient (total
liabilities /authorised capital)	-	0,10	0,14
Debt coefficient (total liabilities / assets)	-	0,07	0,10

Key financial figures

4. BUSINESS ENVIRONMENT

4.1. Oil-bulk stowage market

The Company is a part of oil transportation chain, which starts from oil refineries in Russia and Belarus and ends in the Western countries. Participants of the oil transhipment market are all Baltics sea port terminals loading oil products exported from Russia and Belarus. The major neighbouring terminals competing with AB Klaipėdos Nafta are Ventspils Nafta (Latvia), Ventbunkers (Latvia), Pakterminal (Estonia), Eurodek Tallin (Estonia), Peterburg Oil Terminal (Russia).

The Company's major client is AB Mažeikių Nafta. Shipment of oil products supplied by this oil refinery made more than 54 % of the total shipment in 2008.

Shipment of oil products from the Russian oil refineries made approximately 26 % of the total shipment in 2008. Oil products supplied for transhipment to AB Klaipėdos Nafta were exported from Moscow, Ryazan, Saratov, Ufa and other Russian oil refineries.

Oil exported from refineries in Belarus amounted to 20 % of the total transhipment in 2008.

The Company constantly looks for new potential clients when participates in international transport and logistics expositions. On 25-25 April 2008 the Company represented its services in an exposition "TransRussia 2008" in Moscow, on 7-10 October 2008 participated in an exposition "Transport and Logistics" in Minsk.

4.2. Description of the main risks incurred by the Company

Such factor as growing competitiveness among the similar terminals like AB Klaipėdos Nafta may be attributed to the main risks incurred by the Company. The most significant factors influencing the competitiveness of the Company in the market are as follows: loading and storing capacity of terminal, technical parameters of the logistics chain starting from railway lines, depth and number of quays, possibility to apply a flexible prices policy, long-term supply contracts and also good relationships with clients.

4.3. Financial assets, financial risk management

The Company is operating in international markets, thus is imposed to credit, currency exchange and liquidity risks. The risk of counter-parties default, are controlled by application of credit terms and monitoring procedures. The Company applies procedures ensuring that services are provided only to reliable clients.

The Company follows the policy of managing cash flows from expected future income with acquisitions and other costs in relevant foreign currencies and always maintain sufficient cash and their equivalents.

5. SIGNIFICANT EVENTS AFTER THE YEAR END

In January 2009 the Company reloaded 791 thousand tons of oil products and exceeded the result for the same period of last year by 24 % (636 thousand tons). Sales income for January 2009 amounted to LTL 11,97 million, which is by 22 % more than during the same period last year (LTL 9,81 million).

On 30 January 2009 the Company repaid a long-term loan granted by the Lithuanian banks - SEB, Swedbank and DnB NORD, which was guaranteed by the state. In total the Company repaid LTL 283 million of loans issued for reconstruction of the terminal. At present the Company does not have any financial liabilities to banks.

6. ACTIVITY PLANS AND FORECASTS

In 2009 the Company is planning to operate with a maximum capacity, i.e. to reload 7,1 million tons of oil products, generate LTL 99,64 million of sales income and earn LTL 11,9 million of profit before tax.

Upon full repayment of loans, the Company will continue following the dividends pay out policy.

Aiming to maintain the efficiency of loading management by means of efficient usage of energy resources and implementation of environment protection means, in 2009 the Company is planning to allocate LTL 7 million from own funds for modernisation of production: reconstruction of storage tank T-34-7101 and process lines of Waste Water Treatment Facilities, reconstruction of loading equipment of low sulphuric fuel oil, modernisation of railway trestle Nr.1, measurement equipment for accounting of quantities of oil products.

7. ENVIRONMENT PROTECTION

The Company pays great attention to environment protection. Automated management systems for fire detection and extinguishing as well as a computerised loading management system, technologies against pollution of air, earth and underground waters as to European Standards were established in the Company.

In 2008 the Company did not incur any accidents or malfunctioning. The Company performs constant environmental monitoring of:

• underground water (it has been measured that underground pollution with oil products, which accumulated over the period of activities of the old terminal, is getting less);

• discharged waste water (Biological treatment facilities of the Company guarantee less pollution of open water basins than has been determined in the Integrated Permit of Pollution Prevention and Control);

• impact on ambient air (Limits of volatile organic compounds and nitrogen oxides defined in the Hygienic Norm of 2007 outside the boundaries of the sanitary zone of the Company were not exceeded. The equipment for burning volatile organic compounds arising from gasoline loading tankers collected and burned 777 tons of gasoline vapours during the year);

• stationary sources of air pollution (the amount of pollutants defined in the Environment Protection Permit was not exceeded).

The Company uses biological and mechanical treatment equipment for collection and treatment of waters polluted with oil products from tankers. In 2008 the mechanical treatment equipment collected 1.109 tons of liquid fuel mixture. In order to maintain efficiency of the whole complex of Waste Water Treatment Facilities, in 2009 the Company is planning to invest LTL 3,5 million of own funds for "Reconstruction of storage tank T-34-7101 and process lines of Waste Water Treatment Facilities". In 2008 the Company spent LTL 0,3 million of own means for design works of the mentioned object.

8. PERSONNEL

The average listed number of employees increased by 1 from 300 employees (in 2007) to 301 employees (in 2008), which resulted from an increase in the loading volume by 1.5 times in 2008 as fast and secure reloading of oil products transported in railway cisterns required additional production staff.

Blue-collar workers make 70 % of all employees (in 2007 – 69 %), administration staff and specialists – 30 % (in 2007 – 31 %). The Company's personnel consist of 70 % of men (in 2007 - 69 %) and 30 % of women (in 2007 - 31 %).

The average age of employees was 47 years, which is the same as in 2007. Detailed information on personnel is presented in the schemes below.

The Company constantly pays great attention to improvement of qualifications of employees, performs certification of those who work with potentially dangerous equipment and perform dangerous work.

In 2008 there were 4 trivial accidents: three of them at work, one after working hours. One accident was fatal. An investigation carried out by the procurator's office in Klaipėda is still in the process.

The Company organizes training courses on a regular basis, helping the specialists to obtain practical skills in case of a fire, a spillage of oil products at the Terminal's jetties and on the port territory. Personnel of other companies performing contractual works on the Terminal's territory receive instructions regarding labour safety, fire-fighting requirements set at the Oil Terminal (351 persons from other companies underwent instructions in 2008).

The Company has a professional union with which a Collective Agreement is signed on a continuous basis. The Collective Agreement was signed by the Company's management and staff representatives on 23 September 2008 and is valid until 23 September 2010. The Employer and the workers' collective have agreed regarding work, work payment, working and rest time, qualification improvement, safety and health protection, other social and economic conditions. The Company's administration and representatives of the professional union co-operate closely regarding social, cultural, healthcare and other issues, hold meetings on a regular basis, twice per year perform followup on execution of the Collective Agreement and present conclusions thereon to the Workers' Conference.

9. INFORMATION ON THE COMPANY'S BRANCHES AND REPRESENTATIVE OFFICES

The Company does not have any branches or representative offices.

10. STRUCTURE OF AUTHORISED CAPITAL

As of 31 December 2008 the Company's authorised capital amounted to LTL 342,000,000 and is divided into 342,000,000 ordinary shares at par value of 1 LTL each. All the shares are fully paid in. During 2008 there were no changes in the authorised capital.

AB Klaipėdos Nafta is a strategic enterprise according to the Law on the Enterprises having strategic importance for the national security of the Republic of Lithuania. More than ½ of the Company's shares carrying the right to vote shall belong to the State in these (strategic) enterprises. The major shareholder – the state, having control over 70,63 % of the total share capital of the Company, is represented by the Ministry of Economy of the Republic of Lithuania.

11. INFORMATION ON AGREEMENTS WITH SECURITIES PUBLIC TURNOVER MEDIATORS

The Company has signed an agreement with the Financial markets department of AB SEB Bankas for servicing securities public turnover.

12. INFORMATION ON PURCHASED OR DISPOSED OWN SHARES

During the accounting period the Company did not possess or acquire any own shares.

13. SHAREHOLDERS AND SHARES

The Company's shares are traded and listed in the current trading list in the Stock Exchange of Vilnius (hereinafter – SEV), which belongs to the largest operator of the North European Stock Exchange - OMX.

Development of the share price at SEV in 2008

Price per 1 share at the end of 2007	LTL 0,98
Highest price per 1 share during 2008	LTL 1,09
Lowest price per 1 share during 2008	LTL 0,64
Price per 1 share at the end of 2008	LTL 0,86

Price and turnover of AB Klaipėda Nafta shares at SEV during 2007-2008

14. INFORMATION ON ADHERENCE TO GOVERNANCE CODE

The Company discloses its adherence to the Governance Code and its specific provisions approved by Vilnius Stock Exchange for the companies listed on the regulated market in Appendix 1 to the Annual Report.

15. MANAGEMENT OF THE COMPANY

The Supervisory Board is the Company's collegial supervising body which elects members of the Board, supervise activities of the Board and the Chief Executive Officer, makes decisions on other issues regarding Company's activities prescribed to the competence of the Supervisory Board. On 19 April 2007 the general shareholders meeting of AB Klaipėdos Nafta elected for a 4 years term of office the following members of the Supervisory Board: Dominikas Pečiulis (Chairman), Vanda Krenienė, Vytautas Aršauskas.

The managing bodies of the Company are the Board of the Company and the Chief Executive Officer – General Director.

The Board is elected by the Supervisory Board for a term of 4 years. There are no limitations in relation to re-election of members. At the end of 2008 the Board members were as follows: Vladas Gagilas (Chairman), Laurentina Garbauskienė, Gražina Jagelavičienė, Gediminas Vaičiūnas, Robertas Tamošiūnas. The Board is responsible for an adequate strategic management of the Company. The Company's Board adopts the main strategic decisions influencing increase of the Shareholders' ownership.

During 2008 there were 7 sittings of the Board. The Board members discussed and made decisions regarding enforcement and increase of the loading volume of oil products, policy of loading rates, issues related to financial results and other important issues.

The Company's Chief Executor Officer is General Director Jurgis Aušra. He is not a Board member. The Chief Financier is Johana Bučienė.

The management consists of: Director General, Production Director, Technical Director, Commercial Director and the Chief Financier. Remuneration to management is approved by the Board in the beginning of each year, as well as salary coefficients and additions to officers in the mentioned positions and payment procedures are defined. In 2008 remuneration to management amounted to LTL 1,295 thousand (in 2007 – LTL 1,224 thousand). The average salary per member of the management for the year amounted to LTL 260 thousand (in 2007 – LTL 245 thousand).

No agreements of the Company and its managing bodies or employees were concluded regarding compensation in case of their resignation or their dismissal without essential reason or their job termination due to the change in the control of the Company.

16. OTHER INFORMATION

16.1. Procedure of changing Articles of Association

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 are made by general shareholders meeting.

16.2. Transactions with related parties

The Company did not have any transactions or agreements with the members of its Supervisory Board and the Board. Information regarding transactions with related Parties is presented in "The Company's financial statements for the year 2008, prepared in accordance with International Accounting Standards as adopted by the European Union presented together with the Independent Auditor's Report".

17. DETAILS ON PUBLICLY AVAILABLE INFORMATION

Pursuant to Lithuanian legislation, all material events related to the Company's activity and information on time and place of the general shareholders meetings are announced on the Company's internet site www.oil.lt., the daily "Respublika", are presented to the news agency BNS, the Stock Exchange of Vilnius and Securities Commission of the Republic of Lithuania.

In 2008, the Company made 25 official announcements on important events and presented other information on the internet site of AB Stock Exchange of Vilnius - www.nasdaqomx.com. ________________________________

DISCLOSURE CONCERNING THE COMPLIANCE OF AB KLAIPĖDOS NAFTA, LISTED ON REGULATED MARKET, WITH THE GOVERNANCE CODE

AB Klaipėdos Nafta following Article 21 paragraph 3 of the Law on Securities of the Republic of Lithuania and item 20.5 of the Trading Rules of the Vilnius Stock Exchange (hereinafter the VSE), discloses its compliance with the Governance Code, approved by the VSE for the companies listed on the regulated market, and its specific provisions.

PRINCIPLES / RECOMMENDATIONS	Yes / No Not applicable	COMMENTARY
Principle I: Basic Provisions
The overriding objective of a company should be to operate in common interests of all the shareholders by optimizing over time shareholder value
1.1. A company should adopt and make public the company's development strategy and objectives by clearly declaring how the company intends to meet the interests of its shareholders and optimize shareholder value.	Yes	The development strategy and objectives of AB KLAIPĖDOS NAFTA have been set up in its internal documents (Annual Report placed publicly on the website of Vilnius Stock Exchange) according to the separate directions and objectives of its activities. The Company updates its development plans subject to the situation on the market as well as to the changes in the regulatory environment.
1.2. All management bodies of a company should act in furtherance of the declared strategic objectives in view of the need to optimize shareholder value.	Yes	The Board of the Company adopts the main strategic resolutions, influencing optimization of the shareholder value (separation of the functions of Company's operation, establishment of subsidiaries, other actions optimizing effectiveness of the Company's operation and its profit).
1.3. A company's supervisory and management bodies should act in close co-operation in order to attain maximum benefit for the company and its shareholders.	Yes	The Supervisory Board, the Board of the Company and the Chief Executive Officer implement this recommendation.
1.4. A company's supervisory and management bodies should ensure that the rights and interests of persons other than the company's shareholders (e.g. employees, creditors, suppliers, clients, local community), participating in or connected with the company's operation, are duly respected.	Yes	The Company's bodies respect the rights and interests of the persons participating in or connected with the Company's operation: 1. Employees – since its establishment the Company has been cooperating and performing social partnership with the representatives of its employees (the Board of the Company by its resolutions assigns additional means for the execution of the Collective Agreement and extra stimulation of the employees, etc.). 2. Creditors - the Company takes on and fulfils its financial and other obligations in accordance with the borrowing program approved by the Board of the Company. 3. Other persons – by the resolution of the shareholders' meeting part of the Company's profit is dedicated to support (social, art, cultural, sports activities, etc.).

Principle II: The corporate governance framework

The corporate governance framework should ensure the strategic guidance of the company, the effective oversight of the company's management bodies, an appropriate balance and distribution of functions between the company's bodies, protection of the shareholders' interests.

2.1. Besides obligatory bodies provided for in the Law on Companies of the Republic of Lithuania – a general shareholders' meeting and the chief executive officer, it is recommended that a company should set up both a collegial supervisory body and a collegial management body. The setting up of collegial bodies for supervision and management facilitates clear separation of management and supervisory functions in the company, accountability and control on the part of the chief executive officer, which, in its turn, facilitate a more efficient and transparent management process.	Yes	The Company has set up a collegial supervisory body - the Supervisory Board and a collegial management body - the Board of the Company.
2.2. A collegial management body is responsible for the strategic management of the company and performs other key functions of corporate governance. A collegial supervisory body is responsible for the effective supervision of the company's management bodies.	Yes	The Supervisory Board of the Company is responsible for the effective supervision of the activities of the Company's management bodies (it elects and recalls members of the Board; should the Company operate in the red it should discuss fitness of the members for the position; it supervises the activities of the Board and the Chief Executive Officer; submits proposals and comments to the general shareholders' meeting regarding the strategy of the Company's operation, the activities of the Board and the Chief Executive Officer; performs other activities attributed to it by the laws and other legal acts). The Board of the Company is responsible for the effective strategic management of the Company (approves the strategy of its operation; adopts the most relevant resolutions provided for by the legal acts regarding corporate governance framework, transactions, different commitments, etc.).
2.3. Where a company chooses to form only one collegial body, it is recommended that it should be a supervisory body, i.e. the supervisory board. In such a case, the supervisory board is responsible for the effective monitoring of the functions performed by the company's chief executive officer.	Not applicable	The Company has set up a collegial supervisory body - the Supervisory Board and a collegial management body - the Board of the Company.
2.4. The collegial supervisory body to be elected by the general shareholders' meeting should be set up and should act in the manner defined in Principles III and IV. Where a company should decide not to set up a collegial supervisory body but rather a collegial management body, i.e. the board, Principles III and IV should apply to the board as long as that does not contradict the essence and purpose of this body.	Yes	Taking into account the specific character of the Company's operation, it is strictly regulated by the legal acts and supervised by the respective state institutions. Therefore in the process of decision-making by the bodies of the Company the transparency of the decision-making, their effectiveness is ensured; the principles of non-discrimination of the Company's clients, of costs-reduction and other principles are realized. The Company does not follow the regulations regarding formation of committees as prescribed in III and IV principles.

2.5. Company's management and supervisory bodies should comprise such number of board (executive directors) and supervisory (non-executive directors) board members that no individual or small group of individuals can dominate decision-making on the part of these bodies.	Yes	The Board of the Company is comprised of five members. The Supervisory Board is elected of three members.
2.6. Non-executive directors or members of the supervisory board should be appointed for specified terms subject to individual re-election, at maximum intervals provided for in the Lithuanian legislation with a view to ensuring necessary development of professional experience and sufficiently frequent reconfirmation of their status. A possibility to remove them should also be stipulated however this procedure should not be easier than the removal procedure for an executive director or a member of the management board.	Yes	The members of the Supervisory Board are elected for the maximum term of four years provided for in the Law on Companies of the Republic of Lithuania. There are no limitations for re-election of the members.
2.7. Chairman of the collegial body elected by the general shareholders' meeting may be a person whose current or past office constitutes no obstacle to conduct independent and impartial supervision. Where a company should decide not to set up a supervisory board but rather the board, it is recommended that the chairman of the board and chief executive officer of the company should be a different person. Former company's chief executive officer should not be immediately nominated as the chairman of the collegial body elected by the general shareholders' meeting. When a company chooses to departure from these recommendations, it should furnish information on the measures it has taken to ensure impartiality of the supervision.	Yes	The Chief Executive Officer of the Company is not a member of its Board. The Chairman of the Supervisory Board and the members has neither been the members of the Board of the Company nor the Chief Executive Officer.
Principle III: The order of the formation of a collegial body to be elected by a general shareholders' meeting management bodies.		The order of the formation a collegial body to be elected by a general shareholders' meeting should ensure representation of minority shareholders, accountability of this body to the shareholders and objective monitoring of the company's operation and its
3.1. The mechanism of the formation of a collegial body to be elected by a general shareholders' meeting (hereinafter in this Principle referred to as the 'collegial body') should ensure objective and fair monitoring of the company's management bodies as well as representation of minority shareholders.	Yes	The collegial body of the Company is elected following the order established by the Law on Companies of the Republic of Lithuania and the Articles of Association of the Company.
3.2. Names and surnames of the candidates to become members of a collegial body, information about their education, qualification, professional background, positions taken and potential conflicts of interest should be disclosed early enough before the general shareholders' meeting so that the shareholders would have sufficient time to make an informed voting decision. All factors affecting the candidate's independence, the sample list of which is set out in Recommendation 3.7, should be also disclosed.	Yes	Information about the candidates to become members of a collegial body is presented before the general shareholders' meeting.

The collegial body should also be informed on any subsequent changes in the provided information. The collegial body should, on yearly basis, collect data provided in this item on its members and disclose this in the company's annual report.
3.3. Should a person be nominated for members of a collegial body, such nomination should be followed by the disclosure of information on candidate's particular competences relevant to his/her service on the collegial body. In order shareholders and investors are able to ascertain whether member's competence is further relevant, the collegial body should, in its annual report, disclose the information on its composition and particular competences of individual members which are relevant to their service on the collegial body.	No	We will seek to realize it in future.
3.4. In order to maintain a proper balance in terms of the current qualifications possessed by its members, the collegial body should determine its desired composition with regard to the company's structure and activities, and have this periodically evaluated. The collegial body should ensure that it is composed of members who, as a whole, have the required diversity of knowledge, judgment and experience to complete their tasks properly. The members of the audit committee, collectively, should have a recent knowledge and relevant experience in the fields of finance, accounting and/or audit for the stock exchange listed companies.	No	The collegial body ensures that its members are competent however periodic evaluation is not performed.
3.5. All new members of the collegial body should be offered a tailored program focused on introducing a member with his/her duties, corporate organization and activities. The collegial body should conduct an annual review to identify fields where its members need to update their skills and knowledge.	No	The members of the collegial body are regularly informed at its meetings and individually if required about the Company's operation and its changes, about the essential changes of the legal acts, regulating the Company's operation, and of other circumstances influencing its operation. Up to now there has been neither need nor practice in the Company to offer a tailored program focused on introducing all new members of the Supervisory Board with their duties, corporate organization and activities.
3.6. In order to ensure that all material conflicts of interest related with a member of the collegial body are resolved properly, the collegial body should comprise a sufficient number of independent members.	No	Up to now the independence of the elective members of the collegial body has not been evaluated and the content of the notion sufficiency of independent members has not been discussed. Since over 70 per cent of the Company's shares are owned by the State represented by the Ministry of Economy of the Republic of Lithuania, the major part of the members of the Supervisory Board are elected by the general shareholders' meeting taking into account interests of the controlling shareholder in one or another way.

3.7. A member of the collegial body should be considered to be independent only if he is free of any business, family or other relationship with the company, its controlling shareholder or the management of either, that creates a conflict of interest such as to impair his judgment. Since all cases when member of the collegial body is likely to become dependant are impossible to list, moreover, relationships and circumstances associated with the determination of independence may vary amongst companies and the best practices of solving this problem are yet to evolve in the course of time, assessment of independence of a member of the collegial body should be based on the contents of the relationship and circumstances rather than their form. The key criteria for identifying whether a member of the collegial body can be considered to be independent are the following:	Yes	The criteria of independence of the collegial bodies have not been determined in the documents of the operation of the Company's collegial bodies. However taking into consideration the presented criteria it is possible to state that the members of the Company's Supervisory Board meet all the criteria of independence evaluation except item 4.
1) He/she is not an executive director or member of the
board (if a collegial body elected by the general
shareholders' meeting is the supervisory board) of
the company or any associated company and has
not been such during the last five years;
2) He/she is not an employee of the company or some
any company and has not been such during the
last three years, except for cases when a member
of the collegial body does not belong to the senior
management and was elected to the collegial body
as a representative of the employees;
3) He/she is not receiving or has been not receiving
significant additional remuneration from the
company or associated company other than
remuneration for the office in the collegial body.
Such additional remuneration includes
participation in share options or some other
performance based pay systems; it does not
include compensation payments for the previous
office in the company (provided that such
payment is no way related with later position) as
per pension plans (inclusive of deferred
compensations);
4) He/she
is not a controlling shareholder or
representative of such shareholder (control as
defined in the Council Directive 83/349/EEC
Article 1 Part 1);

• . 5) He/she does not have and did not have any material business relations with the company or associated company within the past year directly or as a partner, shareholder, director or superior employee of the subject having such relationship. A subject is considered to have business relations when it is a major supplier or service provider (inclusive of financial, legal, counselling and consulting services), major client or organization receiving significant payments from the company or its group; 6) He/she is not and has not been, during the last three years, partner or employee of the current or former external audit company of the company or Not applicable
• 7) He/she is not an executive director or member of the board in some other company where executive director of the company or member of the board (if a collegial body elected by the general shareholders' meeting is the supervisory board) is non-executive director or member of the supervisory board, he/she may not also have any other material relationships with executive directors of the company that arise from their participation in activities of other companies or bodies;

associated company;

• 8) He/she has not been in the position of a member of the collegial body for over than 12 years;
• 9) He/she is not a close relative to an executive director or member of the board (if a collegial body elected by the general shareholders' meeting is the supervisory board) or to any person listed in above items 1 to 8. Close relative is considered to be a spouse (common-law spouse), children and parents.

3.8. The determination of what constitutes independence is fundamentally an issue for the collegial body itself to determine. The collegial body may decide that, despite a particular member meets all the criteria of independence laid down in this Code, he cannot be considered independent due to special personal or company-related circumstances.

3.9. Necessary information on conclusions the collegial body has come to in its determination of whether a particular member of the body should be considered to be independent should be disclosed. When a person is nominated to become a member of the collegial body, the company should disclose whether it considers the person to be independent. When a particular member of the collegial body does not meet one or more criteria of independence set out in this Code, the company should disclose its reasons for nevertheless considering the member to be independent. In addition, the company should annually disclose which members of the collegial body it considers to be independent.	No	The Company has not yet applied in practice disclosure of the criteria of independence set out in the Code (See item 3.6).
3.10. When one or more criteria of independence set out in this Code has not been met throughout the year, the company should disclose its reasons for considering a particular member of the collegial body to be independent. To ensure accuracy of the information disclosed in relation with the independence of the members of the collegial body, the company should require independent members to have their independence periodically re-confirmed.	No	Up to now the Company has not applied practice of evaluation and disclosure of independence of the members of the collegial body.
3.11. In order to remunerate members of a collegial body for their work and participation in the meetings of the collegial body, they may be remunerated from the company's funds. The general shareholders' meeting should approve the amount of such remuneration.	Not applicable	The members of the collegial body are not remunerated from the Company's funds for their participation in the meetings.
Principle IV: The duties and liabilities of a collegial body elected by the general shareholders' meeting the company's management bodies and protection of interests of all the company's shareholders.		The corporate governance framework should ensure proper and effective functioning of the collegial body elected by the general shareholders' meeting, and the powers granted to the collegial body should ensure effective monitoring of
4.1. The collegial body elected by the general shareholders' meeting (hereinafter in this Principle referred to as the 'collegial body') should ensure integrity and transparency of the company's financial statements and the control system. The collegial body should issue recommendations to the company's management bodies and monitor and control the company's management performance.	Yes	According to the information available to the Company all the members of the collegial body act in good faith for the benefit and in the interests of the Company but not in their own or third parties' interests seeking to maintain their independence in decision-making.
4.2. Members of the collegial body should act in good faith, with care and responsibility for the benefit and in the interests of the company and its shareholders with due regard to the interests of employees and public welfare. Independent members of the collegial body should (a) under all circumstances maintain independence of their analysis, decision-making and actions (b) do not seek and accept any unjustified privileges that might compromise their independence, and (c) clearly express their objections should a member consider that decision of the collegial body is against the interests of the company. Should a collegial body have passed decisions independent member	Yes	According to the information available to the Company all the members of the collegial body act in good faith for the benefit and in the interests of the Company but not in their own or third parties' interests seeking to maintain their independence in decision-making.

Should an independent member resign from his office, he should explain the reasons in a letter addressed to the collegial body or audit committee and, if necessary, respective company-not-pertaining body (institution).
4.3. Each member should devote sufficient time and attention to perform his duties as a member of the collegial body. Each member of the collegial body should limit other professional obligations of his (in particular any directorships held in other companies) in such a manner they do not interfere with proper performance of duties of a member of the collegial body. In the event a member of the collegial body should be present in less than a half of the meetings of the collegial body throughout the financial year of the company, shareholders of the company should be notified	Yes	The members of the collegial body duly perform their functions: they actively attend the meetings and devote sufficient time to perform their duties as members of the collegial body.
4.4. Where decisions of a collegial body may have a different effect on the company's shareholders, the collegial body should treat all shareholders impartially and fairly. It should ensure that shareholders are properly informed on the company's affairs, strategies, risk management and resolution of conflicts of interest. The company should have a clearly established role of members of the collegial body when communicating with and committing to shareholders.	Yes	The Company follows the stated recommendations. The members of the collegial body before making decisions, the criteria of which have been determined in the Articles of Association of the Company, discuss their possible effect on the shareholders. The information of the shareholders is only in accordance with the legal acts.
4.5. It is recommended that transactions (except insignificant ones due to their low value or concluded when carrying out routine operations in the company under usual conditions), concluded between the company and its shareholders, members of the supervisory or managing bodies or other natural or legal persons that exert or may exert influence on the company's management should be subject to approval of the collegial body. The decision concerning approval of such transactions should be deemed adopted only provided the majority of the independent members of the collegial body voted for such a decision.	No	The Company's Articles of Association as well as the Rules and Regulations of the Company's Board do not provide for the approval of such transactions by the Supervisory Board. Following the Law on Companies of the Republic of Lithuania and the Articles of Association of the Company major transactions shall be approved by the Company's Board.
4.6. The collegial body should be independent in passing decisions that are significant for the company's operations and strategy. Taken separately, the collegial body should be independent of the company's management bodies. Members of the collegial body should act and pass decisions without an outside influence from the persons who have elected it. Companies should ensure that the collegial body and its committees are provided with sufficient administrative and financial resources to discharge their duties, including the right to obtain, in particular from employees of the company, all the necessary information or to seek independent legal, accounting or any other advice on issues pertaining to the competence of the collegial body and its committees.	No	The Company's collegial bodies are provided with all the necessary financial conditions for their work and are independent of the Company's Management.

4.7. Activities of the collegial body should be organized in a manner that independent members of the collegial body could have major influence in relevant areas where chances of occurrence of conflicts of interest are very high. Such areas to be considered as highly relevant are issues of nomination of company's directors, determination of directors' remuneration and control and assessment of company's audit. Therefore when the mentioned issues are attributable to the competence of the collegial body, it is recommended that the collegial body should establish nomination, remuneration, and audit committees. Companies should ensure that the functions attributable to the nomination, remuneration, and audit committees are carried out. However they may decide to merge these functions and set up less than three committees. In such case a company should explain in detail reasons behind the selection of alternative approach and how the selected approach complies with the objectives set forth for the three different committees. Should the collegial body of the company comprise small number of members, the functions assigned to the three committees may be performed by the collegial body itself, provided that it meets composition requirements advocated for the committees and that adequate information is provided in this respect. In such case provisions of this Code relating to the committees of the collegial body (in particular with respect to their role, operation, and transparency) should apply, where relevant, to the collegial body as a whole.	No	The committees are not established, however the Board performs their separate functions: it regularly evaluates skills, knowledge and experience of separate directors; discusses general application policy of remuneration (including stimulation) systems; 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.
4.8. The key objective of the committees is to increase efficiency of the activities of the collegial body by ensuring that decisions are based on due consideration, and to help organize its work with a view to ensuring that the decisions it takes are free of material conflicts of interest. Committees should present the collegial body with recommendations concerning the decisions of the collegial body. Nevertheless the final decision shall be adopted by the collegial body. The recommendation on creation of committees is not intended, in principle, to constrict the competence of the collegial body or to remove the matters considered from the purview of the collegial body itself, which remains fully responsible for the decisions taken in its field of competence.	No	The committees are not established, however the Board performs their separate functions: it regularly evaluates skills, knowledge and experience of separate directors; discusses general application policy of remuneration (including stimulation) systems; 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.
4.9. Committees established by the collegial body should normally be composed of at least three members. In companies with small number of members of the collegial body, they could exceptionally be composed of two members. Majority of the members of each committee should be constituted from independent members of the collegial body. In cases when the company chooses not to set up a supervisory board, remuneration and audit committees should be entirely comprised of non-executive directors.	No	The committees are not established, however the Board performs their separate functions: regularly evaluates skills, knowledge and experience of separate directors; discusses general application policy of remuneration (including stimulation) systems; 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.

4.10. Authority of each of the committees should be determined by the collegial body. Committees should perform their duties in line with authority delegated to them and inform the collegial body on their activities and performance on regular basis. Authority of every committee stipulating the role and rights and duties of the committee should be made public at least once a year (as part of the information disclosed by the company annually on its corporate governance structures and practices). Companies should also make public annually a statement by existing committees on their composition, number of meetings and attendance over the year, and their main activities. Audit committee should confirm that it is satisfied with the independence of the audit process and describe briefly the actions it has taken to reach this conclusion.	No	The committees are not established, however the Board performs their separate functions: regularly evaluates skills, knowledge and experience of separate directors; discusses general application policy of remuneration (including stimulation) systems; 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.
4.11. In order to ensure independence and impartiality of the	No	The committees are not established, however the Board
committees, members of the collegial body that are not members of the committee should commonly have a right to participate in the meetings of the committee only if invited by the committee. A committee may invite or demand participation in the meeting of particular officers or experts. Chairman of each of the committees should have a possibility to maintain direct communication with the shareholders. Events when such are to be performed should be specified in the regulations for committee activities.		performs their separate functions: regularly evaluates skills, knowledge and experience of separate directors; discusses general application policy of remuneration (including stimulation) systems; 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.
4.12. Nomination Committee. 4.12.1. Key functions of the nomination committee should be the following: 1) Identify and recommend, for the approval of the collegial body, candidates to fill board vacancies. The nomination committee should evaluate the balance of skills, knowledge and experience on the management body, prepare a description of the roles and capabilities required to assume a particular office, and assess the time commitment expected. Nomination committee can also consider candidates to members of the collegial body delegated by the shareholders of the company; 2) Assess on regular basis the structure, size, composition and performance of the supervisory and management bodies, and make recommendations to the collegial body regarding the means of achieving necessary changes; 3) Assess on regular basis the skills, knowledge and experience of individual directors and report on this to the collegial body; 4) Properly consider issues related to succession planning; 5) Review the policy of the management bodies for selection and appointment of senior management. 4.12.2. Nomination committee should consider proposals by other parties, including management and shareholders. When dealing with issues related to executive directors or members of the board (if a collegial body elected by the general shareholders' meeting is the supervisory board) and senior management, chief executive officer of the company should be consulted by, and entitled to submit proposals to the nomination committee.	No	The committees are not established, however the Board performs their separate functions: regularly evaluates skills, knowledge and experience of separate directors; discusses general application policy of remuneration (including stimulation) systems; 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.

4.13. Remuneration Committee.

4.13.1. Key functions of the remuneration committee should be the following:

1) Make proposals, for the approval of the collegial body, on the remuneration policy for members of management bodies and executive directors. Such policy should address all forms of compensation, including the fixed remuneration, performance-based remuneration schemes, pension arrangements, and termination payments. Proposals considering performance-based remuneration schemes should be accompanied with recommendations on the related objectives and evaluation criteria, with a view to properly aligning the pay of executive director and members of the management bodies with the long-term interests of the shareholders and the objectives set by the collegial body; 2) Make proposals to the collegial body on the individual remuneration for executive directors and member of management bodies in order their remunerations are consistent with company's remuneration policy and the evaluation of the performance of these persons concerned. In doing so, the committee should be properly informed on the total compensation obtained by executive directors and members of the management bodies from the affiliated companies;

3) Make proposals to the collegial body on suitable forms of contracts for executive directors and members of the management bodies;

4) Assist the collegial body in overseeing how the company complies with applicable provisions regarding the remuneration-related information disclosure (in particular the remuneration policy applied and individual remuneration of directors);

5) Make general recommendations to the executive directors and members of the management bodies on the level and structure of remuneration for senior management (as defined by the collegial body) with regard to the respective information provided by the executive directors and members of the management bodies.

4.13.2. With respect to stock options and other share-based incentives which may be granted to directors or other employees, the committee should:

1) Consider general policy regarding the granting of the above mentioned schemes, in particular stock options, and make any related proposals to the collegial body;

2) Examine the related information that is given in the company's annual report and documents intended for the use during the shareholders meeting;

No The committees are not established, however the Board performs their separate functions: regularly evaluates skills, knowledge and experience of separate directors; discusses general application policy of remuneration (including stimulation) systems; 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.

3) Make proposals to the collegial body regarding the choice between granting options to subscribe shares or granting options to purchase shares, specifying the reasons for its choice as well as the consequences that this choice has. 4.13.3. Upon resolution of the issues attributable to the competence of the remuneration committee, the committee should at least address the chairman of the collegial body and/or chief executive officer of the company for their opinion on the remuneration of other executive directors or members of the management bodies.
4.14. Audit Committee. 4.14.1. Key functions of the audit committee should be the following: 1) Observe the integrity of the financial information provided by the company, in particular by reviewing the relevance and consistency of the accounting methods used by the company and its group (including the criteria for the consolidation of the accounts of companies in the group); 2) At least once a year review the systems of internal control and risk management to ensure that the key risks (inclusive of the risks in relation with compliance with existing laws and regulations) are properly identified, managed and reflected in the information provided; 3)Ensure the efficiency of the internal audit function, among other things, by making recommendations on the selection, appointment, reappointment and removal of the head of the internal audit department and on the budget of the department, and by monitoring the responsiveness of the management to its findings and recommendations. Should there be no internal audit authority in the company, the need for one should be reviewed at least annually; 4) Make recommendations to the collegial body related with selection, appointment, reappointment and removal of the external auditor (to be done by the general shareholders' meeting) and with the terms and conditions of his engagement. The committee should investigate situations that lead to a resignation of the audit company or auditor and make recommendations on required actions in such situations; 5) Monitor independence and impartiality of the external auditor, in particular by reviewing the audit company's compliance with applicable guidance relating to the rotation of audit partners, the level of fees paid by the company, and similar issues. In order to prevent occurrence of material conflicts of interest, the committee, based on the auditor's disclosed inter alia data on all remunerations paid by the company to the auditor and network, should at all times monitor nature and extent of the non-audit services. Having regard to the principals and guidelines established in the 16 May 2002 Commission Recommendation 2002/590/EC, the committee should determine and apply a formal policy establishing types of non-audit services that are (a) excluded, (b) permissible only after review by the committee, and (c) permissible without referral to the committee;	No	The committees are not established, however the Board performs their separate functions: regularly evaluates skills, knowledge and experience of separate directors; discusses general application policy of remuneration (including stimulation) systems; 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.

6) Review efficiency of the external audit process and responsiveness of management to recommendations made in the external auditor's management letter.

.

4.14.2. All members of the committee should be furnished with complete information on particulars of accounting, financial and other operations of the company. Company's management should inform the audit committee of the methods used to account for significant and unusual transactions where the accounting treatment may be open to different approaches. In such case a special consideration should be given to company's operations in offshore centres and/or activities carried out through special purpose vehicles (organisations) and justification of such operations.

4.14.3. The audit committee should decide whether participation of the chairman of the collegial body, chief executive officer of the company, chief financial officer (or superior employees in charge of finances, treasury and accounting), or internal and external auditors in the meetings of the committee is required (if required, when). The committee should be entitled, when needed, to meet with any relevant person without executive directors and members of the management bodies present.

4.14.4. Internal and external auditors should be secured with not only effective working relationship with management, but also with free access to the collegial body. For this purpose the audit committee should act as the principal contact person for the internal and external auditors.

4.14.5. The audit committee should be informed of the internal auditor's work program, and should be furnished with internal audit's reports or periodic summaries. The audit committee should also be informed of the work program of the external auditor and should be furnished with report disclosing all relationships between the independent auditor and the company and its group. The committee should be timely furnished information on all issues arising from the audit.

4.14.6. The audit committee should examine whether the company is following applicable provisions regarding the possibility for employees to report alleged significant irregularities in the company, by way of complaints or through anonymous submissions (normally to an independent member of the collegial body), and should ensure that there is a procedure established for proportionate and independent investigation of these issues and for appropriate follow-up action.

4.14.7. The audit committee should report on its activities to the collegial body at least once in every six months, at the time the yearly and half-yearly statements are approved.

4.15. Every year the collegial body should conduct the assessment of its activities. The assessment should include evaluation of collegial body's structure, work organisation and ability to act as a group, evaluation of each of the collegial body member's and committee's competence and work efficiency and assessment whether the collegial body has achieved its objectives. The collegial body should, at least once a year, make public (as part of the information the company annually discloses on its management structures and practices) respective information on its internal organisation and working procedures, and specify what material changes were made as a result of the assessment of the collegial body of its own activities.	No	The internal documents of the Company do not provide for a separate assessment of the collegial body's activities because it was not required by the legal acts of the Republic of Lithuania. Decisions on the Company's activities are made by the Board of the Company which reports to the shareholders' meeting.
Principle V: The working procedure of the company's collegial bodies The working procedure of supervisory and management bodies established in the company should ensure efficient operation of these bodies and decision-making and encourage active co-operation between the company's bodies.
5.1. The company's supervisory and management bodies (hereinafter in this Principle the concept 'collegial bodies' covers both the collegial bodies of supervision and the collegial bodies of management) should be chaired by chairpersons of these bodies. The chairperson of a collegial body is responsible for proper convocation of the collegial body meetings. The chairperson should ensure that information about the meeting being convened and its agenda are communicated to all members of the body. The chairperson of a collegial body should ensure appropriate conducting of the meetings of the collegial body. The chairperson should ensure order and working atmosphere during the meeting.	Yes	A collegial body of supervision - the Supervisory Board and a collegial body of management - the Board implement this provision in the Company.
5.2. It is recommended that meetings of the company's collegial bodies should be carried out according to the schedule approved in advance at certain intervals of time. Each company is free to decide how often to convene meetings of the collegial bodies, but it is recommended that these meetings should be convened at such intervals, which would guarantee an interrupted resolution of the essential corporate governance issues. Meetings of the company's supervisory board should be convened at least once in a quarter, and the company's board should meet at least once a month.	Yes	The meetings of the Company's Supervisory Board are convened at least once in a quarter and the meetings of the Company's Board are carried out according to the schedule approved by the Board.
5.3. Members of a collegial body should be notified about the meeting being convened in advance in order to allow sufficient time for proper preparation for the issues on the agenda of the meeting and to ensure fruitful discussion and adoption of appropriate decisions. Alongside with the notice about the meeting being convened, all the documents 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 are present or certain issues of great importance to the company require immediate resolution.	Yes	The Company observes provisions stated in this recommendation.

5.4. In order to co-ordinate operation of the company's collegial bodies and ensure effective decision-making process, chairpersons of the company's collegial bodies of supervision and management should closely co-operate by co-coordinating dates of the meetings, their agendas and resolving other issues of corporate governance. Members of the company's board should be free to attend meetings of the company's supervisory board, especially where issues concerning removal of the board members, their liability or remuneration are discussed.	Yes	The Company observes provisions stated in this recommendation.
Principle VI: The equitable treatment of shareholders and shareholder rights
and foreign shareholders. The corporate governance framework should protect the rights of the shareholders.		The corporate governance framework should ensure the equitable treatment of all shareholders, including minority
6.1. 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 their holders.	Yes	The Company's capital consists of ordinary registered shares that grant the same rights to all their holders.
6.2. It is recommended that investors should have access to	Yes	The Company observes provisions stated in this
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.		recommendation.
6.3. Transactions that are important to the company and its	Yes	According to the Law on Companies of the Republic of
shareholders, such as transfer, investment, and pledge of the company's assets or any other type of encumbrance should be subject to approval of the general shareholders' meeting. All shareholders should be furnished with equal opportunity to familiarise with and participate in the decision-making process when significant corporate issues, including approval of transactions referred to above, are discussed.		Lithuania and Articles of Association important transactions are approved by the Board., and also in cases prescribed by the law an approval of the general shareholders meeting is received.
6.4. Procedures of convening and conducting a general shareholders' meeting should ensure equal opportunities for the shareholders to effectively participate at the meetings and should not prejudice the rights and interests of the shareholders. The venue, date, and time of the shareholders' meeting should not hinder wide attendance of the shareholders. Prior to the shareholders' meeting, the company's supervisory and management bodies should enable the shareholders to lodge questions on issues on the agenda of the general shareholders' meeting and receive answers to them.	Yes	All the shareholders of the Company are informed about the venue, date and time of the general shareholders' meeting. Prior to the general shareholders' meeting all the shareholders of the Company are furnished with opportunity to receive information on the issues on the agenda of the general shareholders' meeting.

6.5. It is recommended that documents on the course of the general shareholders' meeting, including draft resolutions of the meeting, should be placed on the publicly accessible website of the company in advance. It is recommended that the minutes of the general shareholders' meeting after signing them and/or adopted resolutions should be also placed on the publicly accessible website of the company. Seeking to ensure the right of foreigners to familiarise with the information, whenever feasible, documents referred to in this recommendation should be published in English and/or other foreign languages. Documents referred to in this recommendation may be published on the publicly accessible website of the company to the extent that publishing of these documents is not detrimental to the company or the company's commercial secrets are not revealed.	Yes	The Company discloses the documents on the course of the general shareholders' meeting, including draft resolutions of the meeting, through the information disclosure system of the Vilnius Stock Exchange and it is planned to place them constantly on the website of the Company.
6.6. Shareholders should be furnished with the opportunity to vote in the general shareholders' meeting in person and in absentia. Shareholders should not be prevented from voting in writing in advance by completing the general voting ballot.	Yes	The shareholders of the Company can implement their right to participate at the shareholders' meeting both in person and through a representative should he be duly authorised. The Company also furnishes its shareholders with the opportunity to vote by completing the general voting ballot.
6.7. With a view to increasing the shareholders' opportunities to participate effectively at shareholders' meetings, the companies are recommended to expand use of modern technologies in voting processes by allowing the shareholders to vote in general meetings via terminal equipment of telecommunications. In such cases security of telecommunication equipment, text protection and a possibility to identify the signature of the voting person should be guaranteed. Moreover, companies could furnish its shareholders, especially foreigners, with the opportunity to watch shareholder meetings by means of modern technologies.	Not applicable	Taking into account the structure of the shareholders and the valid regulations for organisation of the shareholders' meeting there is no necessity to additionally install costly system of IT.

Principle VII: The avoidance of conflicts of interest and their disclosure The corporate governance framework should encourage members of the corporate bodies to avoid conflicts of interest and assure transparent and effective mechanism of disclosure of conflicts of interest regarding members of the corporate bodies

7.1. Any member of the company's supervisory and management body should avoid a situation, in which his/her personal interests are in conflict or may be in conflict with the company's interests. In case such a situation did occur, a member of the company's supervisory and management body should, within reasonable time, inform other members of the same collegial body or the company's body that has elected him/her, or to the company's shareholders about a situation of a conflict of interest, indicate the nature of the conflict and value, where possible.	Yes	The members of the Company's supervisory and management bodies have been acting in such a manner so as to avoid conflict of interests. Therefore such conflicts have never occurred in practice. The provision regarding notification will be implemented in a more detailed manner by specifying it in the local acts of the Company.
7.2. Any member of the company's supervisory and management body may not mix the company's assets, the use of which has not been mutually agreed upon, with his/her personal assets or use them or the information which he/she learns by virtue of his/her position as a member of a corporate body for his/her personal benefit or for the benefit of any third person without a prior agreement of the general shareholders' meeting or any other corporate body authorised by the meeting.	Yes	The members of the Company's supervisory and management bodies have been acting in such a manner so as to avoid conflict of interests. Therefore such conflicts have never occurred in practice.
7.3. Any member of the company's supervisory and management body may conclude a transaction with the company, a member of a corporate body of which he/she is. Such a transaction (except insignificant ones due to their low value or concluded when carrying out routine operations in the company under usual conditions) must be immediately reported in writing or orally, by recording this in the minutes of the meeting, to other members of the same corporate body or to the corporate body that has elected him/her or to the company's shareholders. Transactions specified in this recommendation are also subject to recommendation 4.5.	Not applicable
7.4. Any member of the company's supervisory and management body should abstain from voting when decisions concerning transactions or other issues of personal or business interest are voted on.	Yes	The members of the Company's Board have been familiarised with these provisions and they must observe these recommendations.

Principle VIII: Company's remuneration policy

Remuneration policy and procedure for approval, revision and disclosure of directors' remuneration established in the company should prevent potential conflicts of interest and abuse in determining remuneration of directors, in addition

8.1. A company should make a public statement of the company's remuneration policy (hereinafter the remuneration statement). This statement should be part of the company's annual accounts. Remuneration statement should also be posted on the company's website.	No	The Company has not made any public statement of its remuneration policy during the year under review because it was not foreseen by the legal acts of the Republic of Lithuania. The Company's remuneration policy is determined by analysing situation on Lithuanian labour market.
8.2. Remuneration statement should mainly focus on directors' remuneration policy for the following year and, if appropriate, the subsequent years. The statement should contain a summary of the implementation of the remuneration policy in the previous financial year. Special attention should be given to any significant changes in company's remuneration policy as compared to the previous financial year.	No	Refer to the comment in item 8.1 above.
8.3. Remuneration statement should leastwise include the following information: 1) Explanation of the relative importance of the variable and non-variable components of directors' remuneration; 2) Sufficient information on performance criteria that entitles directors to share options, shares or variable components of remuneration; 3) Sufficient information on the linkage between the remuneration and performance; 4) The main parameters and rationale for any annual bonus scheme and any other non-cash benefits; 5) A description of the main characteristics of supplementary pension or early retirement schemes for directors.	No	Refer to the comment in item 8.1 above.
8.4. Remuneration statement should also summarize and explain company's policy regarding the terms of the contracts executed with executive directors and members of the management bodies. It should include, inter alia, information on the duration of contracts with executive directors and members of the management bodies, the applicable notice periods and details of provisions for termination payments linked to early termination under contracts for executive directors and members of the management bodies.	No	Refer to the comment in item 8.1 above.

8.5. The information on preparatory and decision-making	No	Refer to the comment in item 8.1 above.
processes, during which a policy of remuneration of directors is being established, should also be disclosed. Information should include data, if applicable, on authorities and composition of the remuneration committee, names and surnames of external consultants whose services have been used in determination of the remuneration policy as well as the role of shareholders' annual general meeting.
8.6. Without prejudice to the role and organisation of the relevant bodies responsible for setting directors' remunerations, the remuneration policy or any other significant change in remuneration policy should be included into the agenda of the shareholders' annual general meeting. Remuneration statement should be put for voting in shareholders' annual general meeting. The vote may be either mandatory or advisory.	No	Refer to the comment in item 8.1 above.
8.7. Remuneration statement should also contain detailed information on the entire amount of remuneration, inclusive of other benefits, that was paid to individual directors over the relevant financial year. This document should list at least the information set out in items 8.7.1 to 8.7.4 for each person who has served as a director of the company at any time during the relevant financial year.	No	Refer to the comment in item 8.1 above.
8.7.1. The following remuneration and/or emoluments related information should be disclosed: 1) The total amount of remuneration paid or due to the director for services performed during the relevant financial year, inclusive of, where relevant, attendance fees fixed by the annual general shareholders meeting; 2) The remuneration and advantages received from any undertaking belonging to the same group; 3) The remuneration paid in the form of profit sharing and/or bonus payments and the reasons why such bonus payments and/or profit sharing were granted; 4) If permissible by the law, any significant additional remuneration paid to directors for special services outside the scope of the usual functions of a director; 5) Compensation receivable or paid to each former executive director or member of the management body as a result of his resignation from the office during the previous financial year; 6) Total estimated value of non-cash benefits considered as remuneration, other than the items covered in the 1-5 points. 8.7.2. As regards shares and/or rights to acquire share options and/or all other share-incentive schemes, the following information should be disclosed: • The number of share options offered or shares granted by the company during the relevant financial year and their conditions of application;

• The number of shares options exercised during the relevant financial year and, for each of them, the number of shares involved and the exercise price or the value of the interest in the share incentive scheme at the end of the financial year; • The number of share options unexercised at the end of the financial year; their exercise price, the exercise date and the main conditions for the exercise of the rights; • All changes in the terms and conditions of existing share options occurring during the financial year.
8.7.3. The following supplementary pension schemes related information should be disclosed: • When the pension scheme is a defined-benefit scheme, changes in the directors' accrued benefits under that scheme during the relevant financial year; • When the pension scheme is defined-contribution scheme, detailed information on contributions paid or payable by the company in respect of that director during the relevant financial year.
8.7.4. The statement should also state amounts that the company or any subsidiary company or entity included in the consolidated annual financial statements of the company has paid to each person who has served as a director in the company at any time during the relevant financial year in the form of loans, advance payments or guarantees, including the amount outstanding and the interest rate.
8.8. 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 should be subject to the prior approval of shareholders' annual general meeting by way of a resolution prior to their adoption. The approval of scheme should be related with the scheme itself and not to the grant of such share-based benefits under that scheme to individual directors. All significant changes in scheme provisions should also be subject to shareholders' approval prior to their adoption; the approval decision should be made in shareholders' annual general meeting. In such case shareholders should be notified on all terms of suggested changes and get an explanation on the impact of the suggested changes.	Not applicable	8.8. – 8.12. 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 by the existing remuneration procedure and employment contracts with directors and other employees.

8.9. The following issues should be subject to approval by the shareholders' annual general meeting: 1) Grant of share-based schemes, including share options, to directors; 2) Determination of maximum number of shares and main conditions of share granting; 3) The term within which options can be exercised; 4) The conditions for any subsequent change in the exercise of the options, if permissible by law; 5) All other long-term incentive schemes for which directors are eligible and which are not available to other employees of the company under similar terms. Annual general meeting should also set the deadline within which the body responsible for remuneration of directors may award compensations listed in this article to individual directors.	Not applicable	Refer to the comment in item 8.8 above.
8.10. Should national law or company's Articles of Association allow, any discounted option arrangement under which any rights are granted to subscribe to shares at a price lower than the market value of the share prevailing on the day of the price determination, or the average of the market values over a number of days preceding the date when the exercise price is determined, should also be subject to the shareholders' approval.	Not applicable	Refer to the comment in item 8.8 above.
8.11. Provisions of Articles 8.8 and 8.9 should not be applicable to schemes allowing for participation under similar conditions to company's employees or employees of any subsidiary company whose employees are eligible to participate in the scheme and which has been approved in the shareholders' annual general meeting.	Not applicable	Refer to the comment in item 8.8 above.

8.12. Prior to the annual general meeting that is intended to consider decision stipulated in Article 8.8, the shareholders must be provided an opportunity to familiarise with draft resolution and project-related notice (the documents should be posted on the company's website). The notice should contain the full text of the share-based remuneration schemes or a description of their key terms, as well as full names of the participants in the schemes. Notice should also specify the relationship of the schemes and the overall remuneration policy of the directors. Draft resolution must have a clear reference to the scheme itself or to the summary of its key terms. Shareholders must also be presented with information on how the company intends to provide for the shares required to meet its obligations under incentive schemes. It should be clearly stated whether the company intends to buy shares in the market, hold the shares in reserve or issue new ones. There should also be a summary on scheme-related expenses the company will suffer due to the anticipated application of the scheme. All information given in this article must be posted on the company's website.	Not applicable	Refer to the comment in item 8.8 above.
Principle IX: The role of stakeholders in corporate governance
persons having certain interest in the company concerned.		The corporate governance framework should recognise the rights of stakeholders as established by law and encourage active co operation between companies and stakeholders in creating the company value, jobs and financial sustainability. For the purposes of this Principle, the concept "stakeholders" includes investors, employees, creditors, suppliers, clients, local community and other
9.1. The corporate governance framework should assure that the rights of stakeholders that are protected by law are respected.	Yes	The execution of this recommendation is ensured by the accurate supervision and control of the state institutions and organisations regulating the Company's activities. The publicity of the Company's activities creates conditions
9.2. The corporate governance framework should create		for the stakeholders to participate in corporate governance in

conditions for the stakeholders to participate in corporate governance in the manner prescribed by law. Examples of mechanisms of stakeholder participation in corporate governance include: employee participation in adoption of certain key decisions for the company; consulting the employees on corporate governance and other important issues; employee participation in the company's share capital; creditor involvement in governance in the context of the company's insolvency, etc.

9.3. Where stakeholders participate in the corporate governance process, they should have access to relevant information.

the manner prescribed by law, by the Articles of Association and the Collective Agreement. 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.

Principle X: Information disclosure and transparency

The corporate governance framework should ensure that timely and accurate disclosure is made on all material information regarding the company, including the financial situation, performance and governance of the company.

10.1. The company should disclose information on: 1) The financial and operating results of the company; 2) Company objectives; 3) Persons holding by the right of ownership or in control of a block of shares in the company; 4) Members of the company's supervisory and management bodies, chief executive officer of the company and their remuneration; 5) Material foreseeable risk factors; 6) Transactions between the company and connected persons, as well as transactions concluded outside the course of the company's regular operations; 7) Material issues regarding employees and other stakeholders; 8) Governance structures and strategy. This list should be deemed as a minimum recommendation, while the companies are encouraged not to limit themselves to disclosure of the information specified in this list.	Yes	The information regarding the Company's financial situation, performance and corporate governance is regularly disclosed by distributing press releases and notifying about material events, in presentations. The documents are published in Lithuanian and English on the publicly accessible website of the Vilnius Stock Exchange. The Company prepares financial statements according to the International Financial Accounting standards.
10.2. It is recommended that consolidated results of the whole group to which the company belongs should be disclosed when information specified in item 1 of Recommendation 10.1 is under disclosure.
10.3. It is recommended that information on the professional background, qualifications of the members of supervisory and management bodies, chief executive officer of the company should be disclosed as well as potential conflicts of interest that may have an effect on their decisions when information specified in item 4 of Recommendation 10.1 about the members of the company's supervisory and management bodies is under disclosure. It is also recommended that information about the amount of remuneration received from the company and other income should be disclosed with regard to members of the company's supervisory and management bodies and chief executive officer as per Principle VIII.
10.4. It is recommended that information about the links between the company and its stakeholders, including employees, creditors, suppliers, local community, as well as the company's policy with regard to human resources, employee participation schemes in the company's share capital, etc. should be disclosed when information specified in item 7 of Recommendation 10.1 is under disclosure.
10.5. Information should be disclosed in such a way that neither shareholders nor investors are discriminated with regard to the manner or scope of access to information. Information should be disclosed to all simultaneously. It is recommended that notices about material events should be announced before or after a trading session on the Vilnius Stock Exchange, so that all the company's shareholders and investors should have equal access to the information and make informed investing decisions.	Yes	The Company discloses information in Lithuanian and English simultaneously through the information disclosure system of the Vilnius Stock Exchange so that the submitted information could simultaneously be announced thus guaranteeing its simultaneous dissemination to everybody.

10.6. Channels for disseminating information should provide for fair, timely and cost-efficient access to relevant information by users. It is recommended that information technologies should be employed for wider dissemination of information, for instance, by placing the information on the company's website. It is recommended that information should be published and placed on the company's website not only in Lithuanian, but also in English, and, whenever possible and necessary, in other languages as well.	Yes	The Company discloses information in Lithuanian and English simultaneously through the information disclosure system of the Vilnius Stock Exchange so that the submitted information could simultaneously be announced thus guaranteeing its simultaneous dissemination to everybody and it is planned to constantly place the information on the Company's website.
10.7. It is recommended that the company's annual reports and other periodical accounts prepared by the company should be placed on the company's website. It is recommended that the company should announce information about material events and changes in the price of the company's shares on the Stock Exchange on the company's website too.	Yes	The Company takes into account this recommendation and places the information on the Company's website.
Principle XI: The selection of the company's auditor The mechanism of the selection of the company's auditor should ensure independence of the firm of auditor's conclusion and opinion.
11.1. An annual audit of the company's financial statements and report should be conducted by an independent firm of auditors in order to provide an external and objective opinion on the company's financial statements.	Yes	The Company observes this recommendation when an independent firm of auditors conducts an audit of the Company's annual financial statements and report.
11.2. It is recommended that the company's supervisory board and, where it is not set up, the company's board should propose a candidate firm of auditors to the general shareholders' meeting.	No	The Company's Board proposes a candidate firm of auditors to the general shareholders' meeting.
11.3. It is recommended that the company should disclose to its shareholders the level of fees paid to the firm of auditors for non-audit services rendered to the company. This information should be also known to the company's supervisory board and, where it is not formed, the company's board upon their consideration which firm of auditors to propose for the general shareholders' meeting.	Not applicable	The firm of auditors is not paid by the Company for consultations on tax and business issues.