Annual report 2019 of Arctic Paper S.A. 1

Translator's Explanatory Note: the following document is a free translation of the report of the above-mentioned Company. In the event of any discrepancy in interpreting the terminology in Polish version is binding.

Selected standalone financial data
Letter by the President of the Management Board of Arctic Paper S.A.	7
Description of the business of Arctic Paper	8
General information	8
Changes in the capital structure of the Arctic Paper
Group	9
Provided services	9
Modifications to the core management principles	9
Shareholding structure	9
Market environment	11
Development directions and strategy	11
Sales structure	11
Information on the seasonal or cyclical nature of
business	12
Research and development	12
Environment	12
Summary of financial results	13
Selected items of the profit and loss account	13
Selected items from the statement of financial position	14
Selected items from the cash flow statement	16
Relevant information and factors affecting the
financial results and the assessment of the
financial standing.	17
Key factors affecting the performance results	17
Unusual events and factors	17
Other material information	17
Factors affecting the development of the
Company	18
Risk factors	18
Supplementary information	20
The Management Board position on the possibility to
achieve the projected financial results published earlier	20
Dividend information	20
Changes to the bodies of Arctic Paper S.A.	20
Changes to the share capital of Arctic Paper S.A.	20
Purchase of treasury shares	20
Remuneration paid to Members of the Management
Board and the Supervisory Board	21

Agreements with Members of the Management Board
guaranteeing financial compensation	21
Changes in holdings of the Issuer's shares or rights to
shares by persons managing and supervising Arctic
Paper S.A.	22
Management of financial resources	22
Capital investments	22
Information on sureties, guarantees and contingent
liabilities	22
Material off-balance sheet items	23
Assessment of the feasibility of investment plans	23
Information on court and arbitration proceedings and
proceedings pending before public administrative
authorities	23
Information on transactions with related parties
executed on non-market terms and conditions	23
Information on agreements resulting in changes to the
proportions of share holdings	23
Information on remuneration of the entity authorised to
audit the financial statements	23
Headcount	23
Report on non-financial information	23

Statement on the application of the Corporate Governance Rules 24

Corporate Governance Rules	24
Information on the extent the Issuer waived the
provisions of the Corporate Governance Rules	24
Internal control and risk management systems with
reference to the development processes of financial
statements	26
Shareholders that directly or indirectly hold significant
packages of shares	27
Securities with special control rights	28
Information on major restrictions on transfer of title to
the Issuer's securities and all restrictions concerning
the exercising of voting rights	28
Description of the principles of amending the Issuer's
Articles of Association	28
Description of the functioning of the General Meeting	28
Operation of the Issuer's managing and supervising
bodies and its committees as well as information on the
composition of those bodies	29

Information compliant with the requirements of Swedish regulations concerning corporate

governance.	37
General Meeting of Shareholders	37
Appointment of governing bodies of the Company	37
Tasks of the bodies of the Company	37
Size and composition of the Company's bodies	37
Chairpersons of the bodies of the Company	37
Procedures of the bodies of the Company	37
Remuneration of members of the bodies of the Company
and management staff	38
Information on corporate governance	38
Information by the Management Board of Arctic
Paper S.A. on selection of the audit firm	39
Statements of the Management Board	40
Accuracy and reliability of the presented reports	40
Standalone financial statements	42
Standalone statement of profit and loss	42
Standalone statement of total comprehensive income	43
Standalone statement of financial position	44
Standalone statement of financial position continued	45
Standalone cash flow statement	46
Standalone statement of changes in equity	47
Accounting principles (policies) and additional
explanatory notes	48
1. General information	48
2. Identification of the consolidated financial
statements	48
3. Composition of the Company's Management Board	48

4.	Approval of the financial statements	48
5.	Investments by the Company	49

Material values based on professional judgement and estimates 50

7. Basis of preparation of the financial statements	51
8. Changes to the applied accounting principles	52
9. New standards and interpretations that have been
published and are not yet effective	53
10. Significant accounting principles (policies)	54
11. Sales revenues	62
12. Other revenues and expenses	63
13. Income tax	65
14. Earnings (loss) per share	67
15. Dividend paid and proposed	67
16. Fixed assets	68
17. Intangible assets	69
18. Other assets	70
19. Inventories	76
20. Trade and other receivables	77
21. Cash and cash equivalents	77
22. Share capital and reserve capital/other reserves	78
23. Purchase of interests in subsidiary entities	79
24. Interest-bearing loans and borrowings	80
25. Provisions	81
26. Trade payables, other liabilities and accruals and
deferred income and other financial liabilities	81
27. Contingent liabilities	82
28. Information on related entities	83
29. Information on the remuneration of the statutory
auditor or entity authorised to audit financial
statements	86
30. Financial risk management objectives and policies	87
31. Financial instruments	89
32. Capital management	96
33. Employment structure	97
34. Reasons for differences between changes resulting
from the statement of financial condition and
changes resulting from the cash flow statement	97
35. Events after the balance sheet date	98

Annual report 2019 of Arctic Paper S.A. 4

Selected standalone financial data

	Period from 01.01.2019 to 31.12.2019	Period from 01.01.2018 to 31.12.2018	Period from 01.01.2019 to 31.12.2019	Period from 01.01.2018 to 31.12.2018
	PLN '000	PLN '000	EUR '000	EUR '000
Sales revenues	83 083	82 695	19 331	19 404
Operating profit (loss)	46 955	36 298	10 925	8 517
Gross profit (loss)	33 340	20 285	7 757	4 760
Net profit (loss) from continuing operations	33 035	19 523 0	7 686 -	4 581 -
Net profit (loss) for the financial year	33 035	19 523	7 686	4 581
Net cash flows from operating activities	124 516	(84 699)	28 971	(19 874)
Net cash flows from investing activities	(488)	(258)	(114)	(61)
Net cash flows from financing activities	(111 693)	67 619	(25 987) -	15 867 -
Change in cash and cash equivalents	12 334	(17 337)	2 870	(4 068)
Weighted average number of ordinary shares	69 287 783	69 287 783	69 287 783	69 287 783
Diluted weighted average number of ordinary shares	69 287 783	69 287 783	69 287 783	69 287 783
EPS (in PLN/EUR)	0,48	0,28	0,11	0,07
Diluted EPS (in PLN/EUR)	0,48	0,28	0,11	0,07
Mean PLN/EUR exchange rate*			4,2980	4,2617

	As at 31 December 2019 PLN '000	As at 31 December 2018 PLN '000	As at 31 December 2019 EUR '000	As at 31 December 2018 EUR '000
Total assets	926 486	992 611	217 562	230 840
Long-term liabilities	57 326	82 807	13 462	19 257
Short-term liabilities	301 081	374 679	70 701	87 135
Equity	568 078	535 124	133 399	124 447
Share capital	69 288 0	69 288	16 270	16 113
Number of ordinary shares	69 287 783	69 287 783	69 287 783	69 287 783
Diluted number of ordinary shares	69 287 783	69 287 783	69 287 783	69 287 783
Book value per share (in PLN/EUR)	8,20	7,72	1,93	1,80
Diluted book value per share (in PLN/EUR)	8,20	7,72	1,93	1,80
Declared or paid dividend (in PLN/EUR)	-	13 857 557	-	3 222 688
Declared or paid dividend per share (in PLN/EUR)	-	0,20	-	0,05
PLN/EUR exchange rate at the end of the period**			4,2585	4,3000

* - Profit and loss and cash flow statement items have been translated at the mean arithmetic exchange rates published by the National Bank of Poland, prevailing in the period that the presented data refers to.

** - Balance sheet items have been translated at the mean arithmetic exchange rates published by the National Bank of Poland, prevailing on the balance sheet date.

Annual report 2019 of Arctic Paper S.A.

The Management Board's Report

Letter by the President of the Management Board of Arctic Paper S.A.

Dear Sirs,

2019 was a good year, due to many different reasons, external as well as internal. But as we all know, we are now facing the biggest challenge for our societies and our businesses; the Coronavirus. At this moment, and probably for weeks to come, it i s impossible to forecast 2020. Therefore, we need prudence, positive energy and good communication to find the best possible way for us in 2020. Let us work together and find our way.

In 2019 we have shown that innovations are essential for the future of Arctic Paper. We need to continue in 2020 our move to more packaging grades to secure our premium grades.

During 2019, we have taken major steps towards reducing our carbon footprint, where our main focus has been on energy use, CO2 emissions, water consumption and waste handling. We need to continue this process in 2020, and major decisions are already taken.

I would like to thank all our employees for their dedicated work during 2019. But now we have to show even more dedication in 2020. The spread of the Corona virus has left deep marks, first and foremost for those who have been directly affected, but also for communities and companies as the whole economic system is rocked. We have gained strength 2019 and we are now proactively fighting the consequences of the virus – both for health and financially – with great determination.

Sincerely yours,

Michał Jarczyński President of the Management Board of Arctic Paper S.A.

Description of the business of Arctic Paper

General information

Arctic Paper S.A. is a holding company set up in April 2008. As a result of capital restructuring carried out in 2008, the Paper Mills Arctic Paper Kostrzyn (Poland) and Arctic Paper Munkedals (Sweden), Distribution Companies and Sales Offices have become the properties of Arctic Paper SA. Previously they were owned by Trebruk AB (formerly Arctic Paper AB), the Parent Entity of the Issuer In addition, under the expansion, the Group acquired the Paper Mill Arctic Paper Mochenwangen (Germany) in December 2008 and the Paper Mill Grycksbo (Sweden) in March 2010.

The main statutory activity of the Company is the activity of a holding company, consisting in managing of entities belonging to the controlled Capital Group. The operations are conducted through Paper Mills and Pulp Mills as well as Sales Offices and Procurement Office. The description of the Arctic Paper Capital Group was provided in the Management Board's Report from operations of the Arctic Paper Capital Group, published in the consolidated annual report for the year ended on 31 December 2018.

The Company is entered in the register of entrepreneurs of the National Court Register maintained by the District Court in Poznań – Nowe Miasto i Wilda, 8th Commercial Division of the National Court Register, under KRS number 0000306944. The Parent Entity holds statistical number REGON 080262255. The Company has a foreign branch in Göteborg, Sweden.

Business objects

The core business of Arctic Paper S.A. covers holding activities.

Subsidiaries

Since 23 October 2009, Arctic Paper S.A. has been listed on the primary market of the Warsaw Stock Exchange and since 20 December 2012 on the NASDAQ stock exchange in Stockholm, Sweden. The Company now operates through its Paper Mills and Pulp Mills as well as its Sales Offices and Procurement Office.

In September and October 2008, the Issuer acquired Paper Mills in Poland and in Sweden, and Distribution Companies and Sales Offices involved in distribution and sale of paper manufactured by the Group in Europe. Three Distribution Companies – in Sweden, Norway and Denmark – were involved in distribution activities, offering our products as well as products of other paper manufacturers on a small scale.

Arctic Paper S.A. acquired shares and interests in Arcti c Paper Kostrzyn, Arctic Paper Munkedals and the Distribution Companies and Sales Offices from Trebruk AB (formerly Arctic Paper AB) and Nemus Holding AB, now a majority shareholder of the Issuer.

In its expansion, the Group acquired the Paper Mill Arctic Paper Mochenwangen (Germany) in December 2008 and the Paper Mill Arctic Paper Grycksbo (Sweden) in March 2010.

In 2012 and 2013 Arctic Paper S.A. acquired shares in Rottneros AB, a company listed at NASDAQ in Stockholm, Sweden, holding 100% shares in two Pulp Companies, Procurement Office and a company manufacturing food packaging. The acquisition of Rottneros was partly effected by a swap of shares in Rottneros AB into shares in Arctic Paper S.A. Arctic Paper S.A. assumed control over the Rottneros Group on 20 December 2012. Since that day the stock of Arctic Paper has been listed at NASDAQ in Stockholm.

In connection with the Profitability Improvement Programme implemented in the Arctic Paper Group, the Distribution Companies in Sweden, Norway and Denmark discontinued their distribution activities by the end of December 2015 and since 2016 they have been acting as Sales Offices. Distribution functions have been transferred to factories.

As at 31 December 2019, Arctic Paper S.A. held investments in the following subsidiary companies:Arctic Paper Kostrzyn S.A. – Paper Mill in Kostrzyn nad Odrą (Poland);

Arctic Paper Munkedals AB Paper Mill in Munkedal (Sweden);
Arctic Paper Sverige AB a sales office operating in Sweden;
Arctic Paper Norge AS a sales office operating in Norway;
Arctic Paper Danmark A/S a sales office operating in Denmark;
Arctic Paper UK Limited a sales office in the United Kingdom;
Arctic Paper Baltic States SIA a sales office covering the Baltic States;
Arctic Paper Benelux S.A. a sales office covering the Benelux countries;
Arctic Paper Schweiz AG a sales office in Switzerland;
Arctic Paper Italia srl a sales office in Italy;
Arctic Paper France SAS a sales office in France;
Arctic Paper Espana SL a sales office in Spain;
Arctic Paper Papierhandels GmbH a sales office in Austria;
Arctic Paper Deutschland GmbH a sales office in Germany;
Arctic Paper Polska Sp. z o.o. a sales office in Poland;
Arctic Paper East Sp. z o.o. a sales office in Ukraine;
Arctic Paper Investment GmbH a holding company established to acquire shares in the Paper Mill in Mochenwangen;
Arctic Paper Investment AB a holding company established for the purpose of acquisition of Grycksbo Paper Holding AB;
Rottneros AB a holding company with shares in the Paper Mills of Rottneros Bruk AB and Rottneros Vallvik AB, in the procurement office and in the company manufacturing food packaging;
Arctic Paper Finance AB a holding company involved in attracting financing.

Information on percentage holdings in each subsidiary company is provided in the Company's financial statements (note 5).

Changes in the capital structure of the Arctic Paper Group

In 2019, there were no changes to the capital structure of the Group.

Provided services

As a holding company, Arctic Paper S.A. receives dividend, interest on loans granted and revenues for the management services it provides for related entities operating within the Arctic Paper Capital Group.

Additionally, the Company provides intermediation services in purchases of pulp for Group companies. The services are provided in two ways:

by negotiating terms and conditions of pulp supplies to the Group and individual factories;
by direct pulp purchases by Arctic Paper S.A. and further re-sale to factories.

In connection with restructuring activities in the Arctic Paper Group, at the beginning of 2016 a centralised logistics department started to operate within the structures of Arctic Paper S.A. The logistics department provides services in planning and coordinating transport to the Paper Mills in Kostrzyn, Grycksbo and Munkedals.

The assortment of products manufactured at the Paper Mills of the Arctic Paper Group was described in the consolidated annual report for 2019.

Modifications to the core management principles

In 2019, there were no material modifications to the core management principles.

Shareholding structure

Nemus Holding AB, a company under Swedish law (a company owned indirectly by Mr Thomas Onstad), is the majority shareholder of Arctic Paper S.A., holding (as at 31 December 2019) 40,381,449 shares of our Company, which constitutes 58.28% of its share capital and corresponds to 58.28% of the total number of votes at General Meetings. Thus Nemus Holding AB is the Parent Entity of the Issuer.

Additionally, Mr Thomas Onstad, an indirect shareholder of Nemus Holding AB, holds directly 6,223,658 shares representing 8.98% of the total number of shares in the Company, and via another entity – 600,000 shares accounting for 0.87% of the total number of shares of the Issuer. Mr Thomas Onstad's total direct and indirect holding in the capital of Arctic Paper S.A. as at 31 December 2019 was 68.13% and has not changed until the date hereof.

as at 26.03.2020

Shareholder	Number of shares	Share in the share capital [%]	Number of v otes	Share in the total number of v otes [%]
Thomas Onstad	47 205 107	68,13%	47 205 107	68,13%
- indirectly v ia	40 981 449	59,15%	40 981 449	59,15%
Nemus Holding AB	40 381 449	58,28%	40 381 449	58,28%
other entity	600 000	0,87%	600 000	0,87%
- directly	6 223 658	8,98%	6 223 658	8,98%
Other	22 082 676	31,87%	22 082 676	31,87%
Total	69 287 783	100,00%	69 287 783	100,00%
Treasury shares	-	0,00%	-	0,00%
Total	69 287 783	100,00%	69 287 783	100,00%

as at 31.12.2019

				Share in the
		Share in the		total number
	Number of	share capital	Number of	of v otes
Shareholder	shares	[%]	v otes	[%]
Thomas Onstad	47 205 107	68,13%	47 205 107	68,13%
- indirectly v ia	40 981 449	59,15%	40 981 449	59,15%
Nemus Holding AB	40 381 449	58,28%	40 381 449	58,28%
other entity	600 000	0,87%	600 000	0,87%
- directly	6 223 658	8,98%	6 223 658	8,98%
Other	22 082 676	31,87%	22 082 676	31,87%
Total	69 287 783	100,00%	69 287 783	100,00%
Treasury shares	-	0,00%	-	0,00%
Total	69 287 783	100,00%	69 287 783	100,00%

as at 18.11.2019

Shareholder	Number of shares	Share in the share capital [%]	Number of v otes	Share in the total number of v otes [%]
Thomas Onstad	47 205 107	68,13%	47 205 107	68,13%
- indirectly v ia	40 981 449	59,15%	40 981 449	59,15%
Nemus Holding AB	40 381 449	58,28%	40 381 449	58,28%
other entity	600 000	0,87%	600 000	0,87%
- directly	6 223 658	8,98%	6 223 658	8,98%
Other	22 082 676	31,87%	22 082 676	31,87%
Total	69 287 783	100,00%	69 287 783	100,00%
Treasury shares	-	0,00%	-	0,00%
Total	69 287 783	100,00%	69 287 783	100,00%

The data in the above table is provided as of the date of approval hereof, on the balance sheet date and as of the publication date of the quarterly report for Q3 2019.

Market environment

The Company provides no services directly to external entities. The Company's financial condition and its ability to distribute dividend is primarily affected by the market environment in which the Paper and Pulp Mills controlled by the Company operate.

Information on the core products offered by the Group with details of their value and quantities and the share of each product in total sales of the Group as well as information on markets with a split into domestic and foreign markets and information on procurement sources of materials for production and services, are all provided in the consolidated annual report.

Development directions and strategy

In 2019, the Management Board approved its new strategy for the Group's paper business "A Future in Paper – Strategic Agenda 2022" which aims at developing the business and improving the profitability of the segment. The new strategy

consists in obtaining higher EBIT profitability in a sustainable way at 10% latest by 2022; the strategy is founded on six initiatives:

Business development by focusing on selected profitable segments and markets, including specialist products and premium products, in Eastern Europe and in new markets;
New innovative products and weights, developed in close cooperation with customers;
Development of strong brands for the premium segment in order to increase revenues per one tonne of paper;
Optimisation of all processes in order to reduce costs;
Reinforcement of the efficiency culture among employees, based on clear and measurable objectives;
Sustainable activities based on products that may be recycled and on renewable materials.

Sales structure

In 2019, the sales structure by main sources of the Company's revenues was as follows:

PLN '000	2019	share %	2018	share %
Serv ices	28 976	35%	37 970	46%
Div idend	49 188	59%	39 812	48%
Interest income on loans	4 918	6%	4 913	6%
Total	83 083	100%	82 695	100%

The Company provides management services to companies pursuant to agreements signed with those entities.

PLN '000	2019	share %	2018	share %

Arctic Paper Kostrzy n S.A.	14 142	17%	39 488	48%
Rottneros AB	43 760	53%	12 125	15%
Arctic Paper Munkedals AB	8 932	11%	10 758	13%
Arctic Paper Gry cksbo AB	10 803	13%	13 516	16%
Other	5 445	7%	6 808	8%
Total	83 083	100%	82 695	100%

Information on the seasonal or cyclical nature of business

The demand for the Group's products is subject to slight variations throughout the year. Reduced demand for paper occurs each year during summer holidays and around Christmas when some printing houses, in particular in Western Europe are closed. Changes in the demand for paper are not material versus the demand for paper in other periods of the year. Changes in the demand for paper affect largely changes in demand for pulp.

Research and development

The Company has no direct expenses on research and development.

The Arctic Paper Group conducts primarily development works aimed at enhancing and modernising production processes and improving the quality of products on offer and the expanding the assortment thereof. In the period covered with this report, the Paper Mills carried out development works to improve production processes, in particular to shorten the idle time of paper machines as well as works aimed at improving the paper quality and extending the assortment and to improve paper quality properties.

New product development was an important aspect of the development works in 2019.

Environment

The description of the impact of environmental regulations on the operations of the Paper and Pulp Mills controlled by the Company is provided in the consolidated annual report.

Summary of financial results

Selected items of the profit and loss account

PLN '000	2019	2018	Change % 2019/2018
Sales revenues	83 083	82 695	0,5
of which:
Sales of services	28 976	37 970	(23,69)
Interest income on loans	4 918	4 913	0,11
Dividend income	49 188	39 812	23,55
Prof it on sales % of sales revenues	77 571 93,37	77 366 93,56	0,3 (0,2) p.p.
Selling and distribution costs Administrativ e expenses Other operating income Other operating expenses	(3 134) (28 153) 5 533 (4 862)	(2 997) (32 981) 3 960 (9 050)	4,6 (14,6) 39,7 (46,3)
EBIT % of sales revenues	46 955 56,52	36 298 43,89	29,4 12,6 p.p.
EBITDA % of sales revenues	47 430 57,09	36 773 44,47	29,0 12,6 p.p.
Financial income Financial expenses	4 366 (17 980)	4 630 (20 643)	(5,7) (12,9)
Gross profit	33 340	20 285	64,4
Income tax	(305)	(762)	(60,0)
Net profit % of sales revenues	33 035 39,76	19 523 23,61	69,2 16,2 p.p.

Revenues, costs of sales and profit on sales

The main statutory activity of the Company is the activity of a holding company, consisting in managing of entities belonging to the controlled Capital Group. The operations of the Group are conducted through Paper Mills and Pulp Mills as well as Sales Offices and Procurement Office. In 2019, the standalone sales revenues amounted to PLN 83,083 thousand and included: dividend income (PLN 49,188 thousand), services provided to Group companies (PLN 28,976 thousand) and interest income on loans (PLN 4,918 thousand). In 2018, the Company's standalone revenues amounted to PLN 82,695 thousand and included: dividend income (PLN 39,812 thousand), services provided to Group companies (PLN 37,970 thousand) and interest income on loans (PLN 4,913 thousand).

In 2019 and in 2018, the Company did not render services to the Pulp Mills of the Rottneros Group.

Costs of sales cover internal costs of providing logistics services and interest on loans granted to the Company by its related entities (PLN 5,512 thousand).

Administrative expenses

In 2019, the administrative expenses amounted to PLN 28,153 thousand. They cover costs of the administration of the Company operation, costs of services provided to the companies in the Group and all costs incurred by the Company for the purposes of pursuing holding company activities. The above costs include a group of costs that are related solely to statutory activities and cover, inter alia: audit costs of financial statements, functioning costs of the Supervisory Board, costs of periodic owners' inspections in the Company, etc.

Selling and distribution costs

In 2019, the Company recognised the amount of PLN 3,134 thousand of selling and distribution costs, which comprised solely the expenses related to intermediary services in the purchase of pulp for Arctic Paper Kostrzyn S.A.

Other operating income and expenses

Other operating income amounted to PLN 5,533 thousand in 2019, which means an increase versus the equivalent period of the previous year that was due primarily to reversal of impairment allowances of assets – receivables from Arctic

Paper Mochenwangen GmbH in the amount of PLN 5,083 thousand.

At the same time there was a decrease of other operating expenses that reached the level of PLN 4,862 thousand (in 2018 it was PLN 9,050 thousand). The decrease of other operating expenses was due primarily to the lower value of impairment allowances to assets in 2019.

Financial income and financial expenses

In 2019, the financial income amounted to PLN 4,366 thousand and was by PLN 264 thousand lower than generated in the equivalent period last year. At the same time, there was a decrease of financial expenses from PLN 20,643 thousand in 2018 down to PLN 17,980 thousand.

The changes to financial income and expenses result mainly from FX differences which are disclosed as a net amount – as the difference between FX profit and loss which is presented as financial income in case of net FX profit or as financial expenses in case of FX losses. Both in 2018 and in 2019, the Company recorded FX losses in its financial expenses.

Profitability analysis

EBITDA in 2019 was PLN 47,430 thousand, while in 2018 it was PLN 36,773 thousand.

EBIT in 2019 amounted to PLN 46,955 thousand as compared to PLN 36,298 thousand in the previous year.

The net profit in 2019 amounted to PLN 33,035 thousand as compared to the net profit of PLN 19,523 thousand in 2018.

PLN '000	2019	2018	Change % 2019/2018
Profit on sales	77 571	77 366	0,3
% of sales revenues	93,37	93,56	(0,2) p.p.
EBITDA	47 430	36 773	29,0
% of sales revenues	57,09	44,47	12,6 p.p.
EBIT	46 955	36 298	29,4
% of sales revenues	56,52	43,89	12,6 p.p.
Net profit	33 035	19 523	69,2
% of sales revenues	39,76	23,61	16,2 p.p.
Return on equity / ROE (%)	5,8	3,6	2,2 p.p.
Return on assets / ROA (%)	3,6	2,0	1,6 p.p.

In 2019, return on equity was 5.8% while in 2018 it was 3.6%. Return on assets increased from 2.0% in 2018 to 3.6% in 2019.

Selected items from the statement of financial position

PLN '000	31.12.2019	31.12.2018	Change 31/12/2019 -31/12/2018
Fixed assets	724 693	751 507	(26 815)
Receiv ables	70 155	90 818	(20 663)
Other current assets	99 700	130 681	(30 981)
Cash and cash equiv alents	31 939	19 605	12 334
Total assets	926 486	992 611	(66 125)
Equity	568 078	535 124	32 955
Short-term liabilities	301 081	374 679	(73 598)
interest-bearing debt	252 320	272 269
Long-term liabilities	57 326	82 807	(25 481)
interest-bearing debt	54 549	80 782
Total equity and liabilities	926 486	992 611	(66 125)

As at 31 December 2019, total assets amounted to PLN 926,486 thousand as compared to PLN 992,611 thousand at the end of 2018.

Fixed assets

At the end of December 2019 fixed assets accounted for about 78.2% of total assets and their share in total assets i ncreased versus December 2018 (75.7%).

Current assets

As at the end of December 2019, current assets amounted to PLN 201,794 thousand as compared to PLN 241,104 thousand at the end of 2018.

Equity

At the end of December 2019, the equity amounted to PLN 568,078 thousand as compared to PLN 535,124 thousand at the end of 2018.

The growth of equity was primarily due to the net profit generated in 2019.

Short-term liabilities

As at the end of December 2019, short-term liabilities amounted to PLN 301,081 thousand (32.5% of balance sheet total) as compared to PLN 374,679 thousand as at the end of 2018 (37.7% of balance sheet total). A material decrease of short-term liabilities is due primarily to repayments of revolving loans.

Long-term liabilities

As at the end of December 2019, long-term liabilities amounted to PLN 57,326 thousand (6.2% of balance sheet total) as compared to PLN 82,807 thousand as at the end of 2018 (8.3% of balance sheet total).

Debt analysis

	2019	2018	Change % 2019/2018
Debt to equity ratio (%)
	63,1	85,5	(22,4) p.p.
Equity to f ixed assets ratio (%)	78,4	71,2	7,2 p.p.
Interest-bearing debt-to-equity ratio (%)	54,0	66,0	(12,0) p.p.

As at the end of December 2019, the debt to equity ratio was 63.1% and was lower by 22.4 pps versus the end of December 2018.

The equity to asset ratio increased from 71.2% as at the end of 2018 to 78.4% as at the end of December 2019. The interest bearing debt to equity ratio was 54.0% as at the end of 2019 and was at a lower level as compared to the end of December 2018 by 12.0 pps.

Liquidity analysis

	2019	2018	Change % 2019/2018
Current ratio	0,67x	0,64x	0,0
Quick ratio	0,67x	0,64x	0,0
Acid test	0,11x	0,05x	0,1

The current liquidity ratio and the fast liquidity ratio at the end of December 2019 amounted to 0. 67x and were by 0.3 higher than at the end of December 2018. The cash ratio increased versus December 2018 and was 0.11x at the end of 2019.

Selected items from the cash flow statement

PLN '000	2019	2018	Change % 2019/2018
Cash flows from operating activities	124 516	(84 699)	(247,0)
of which:
Gross profit	33 340	20 285	64,4
Depreciation/amortisation	1 119	475	135,5
Changes to working capital	(27 746)	18 318	(251,5)
Net interest and dividends	8 600	8 156	5,4
Increase / decrease of loans granted to subsidiaries	107 089	(135 365)	(179,1)
Other adjustments	2 112	3 432	(38,4)
Cash flows from investing activities	(488)	(258)	89,1
Cash flows from financing activities	(111 693)	67 619	(265,2)
Total cash flows	12 334	(17 338)	(171,1)

Cash flows from operating activities

In 2019, net cash flows from operating activities amounted to PLN 124,516 thousand as compared to PLN -84,699 thousand in 2018. The positive cash flows from operating activities in 2019 were primarily affected by increase / decrease of loans grant ed to subsidiaries.

Cash flows from investing activities

In 2019, cash flows from investing activities amounted to PLN -488 thousand as compared to PLN -258 thousand in 2018.

The negative cash flows from investing activities in 2019 were primarily related to purchases of fixed assets.

Cash flows from financing activities

In 2019, cash flows from financing activities amounted to PLN -111,693 thousand as compared to PLN 67,619 thousand in 2018. In 2019, cash flows from financing activities were related to changing balances of loans and repayment of borrowings.

Relevant information and factors affecting the financial results and the assessment of the financial standing.

Key factors affecting the performance results

The operations of the Company are indirectly affected by factors that have direct impact on the business of the Group's operational units – Paper Mills and the factors include:

macroeconomic and other economic factors;
fine paper prices;
prices of pulp, wood and energy;
FX rate fluctuations.

The impact of the factors on the Group's business was described in detail in the consolidated annual report for 2018.

Unusual events and factors

In the period under the report there were no unusual events and/or other factors affecting Arctic Paper S.A.

Other material information

Extension of repayment date of the revolving loan

On 22 October 2019, the Borrowers extended the availability of the Revolving Loan ("Revolving Loan") until 31 October 2020. In its current report No. 20/2016 of 9 September 2016, the Company informed that Arctic Paper S.A. and BNP Paribas Bank Polska S.A., Santander Bank Polska S.A. and the European Bank for Reconstruction and Development ("Lenders") concluded material agreements related to the refinancing of the Company and its subsidiary companies ("Loan Agreement") and in its current report No. 19/2019 of 30 August 2019 the Company informed about the technical extension of the original maturity date of the revolving loan.

The Revolving Loan was granted to the Company for the total amount of EUR 19,800,000 and PLN 20,000,000 and was provided primarily to refinance the Company's intragroup liabilities or to finance intragroup loans. The other provisions of the Loan Agreement, including interest rate, collateral for the Bank under the Loan Agreement, were not changed and do not differ from terms and conditions applicable to such agreements.

Consent of the bank consortium to modify the calculation of the covenants

In connection with the term and revolving loan agreements and agreements related to bond issues, signed on 9 September 2016, the Group agreed to maintain specified financial ratios, including those that are calculated at the end of each financial year. The ratios are calculated on the basis of results of the paper segment.

In accordance with the original calculation, as at 31 December 2019 the Group failed to comply with the limit of investment outlays (Capex) and Gruarantors treshold test (loan agreement stipulates that total assets of the Guarantors, i.e. APSA, APM, APG and APK, shall amount to not less thatn 90% of total assets of paper segment) as set forth in the loan agreement with the bank consortium (Santander Bank Polska S.A., Bank BNP Paribas S.A. and the European Bank for Reconstruction and Development). Failure to comply with the limits was due to an investment in the hydro-electric power plant at Arctic Paper Munkedals Kraft AB. In 2017 the bank consortium agreed to have the investment funded by a financial institution outside the consortium.

After the balance sheet date, Arctic Paper S.A. received a consent from Santander Bank Polska S.A., acting as the agent for the bank consortium, not to include the investment in APK Kraft in the calculation and therefore ultimately the Group complied with the required ratios' levels as at 31 December 2019.

However, in compliance with IAS 1, as such consent was not available as at the balance sheet date, the Group reclassified loans for PLN 61,404 thousand to short-term loans.

Covid-19

In reference to the pandemia of Covid-19 the Management estimated potential influence on the Company's operations as further described in note 7.2.

Factors affecting the development of the Company

Information on market trends and in factors affecting the Company's financial results over the next year is provided in the consolidated annual report. Below is a description of risk factors that directly affect the Company's business, other risk factors affecting the Company via its subsidiary companies, are described in detail in the consolidated annual report.

Risk factors

Risk factors related to the environment in which the Company operates

The sequence in which the risk factors are presented below does not reflect the likelihood of occurrence, extent or materiality of the risks.

Risk of changing legal regulations

The Company operates in a legal environment characterised with a high level of uncertainty. The regulations affecting our business have been frequently amended and there are no consistent interpretations which generates a risk of violating the existing regulations and the resultant consequences even if such breach was unintentional.

Risk related to disadvantageous global economic situation

The global economic situation is affected by the effects of the recent financial crisis, in particular the continued loss of trust on the part of consumers and entrepreneurs, concerns related to the availability and increasing costs of loans, decrease in consumer and investment spending, volatility and strength of capital markets. We anticipate that the difficult global economic conditions may result in an overall decreased of demand and average prices of high quality paper which in turn may adversely affect the dividends received from subsidiary companies.

FX risk

The Company's revenues, expenses and results are exposed to the FX risk, in particular of PLN to EUR, SEK and other currencies since the Company has been paid dividend partly in EUR and in SEK. Thus FX rate fluctuations may have an adverse effect on the results, financial conditions and prospects of the Group.

Interest rate risk

The Company is exposed to interest rate risk in view of the existing interest-bearing debt. The risk is due to fluctuations of the reference interest rates WIBOR for debt in PLN. Unfavourable changes of interest rates may adversely affect the results, financial condition and prospects of the Company.

The objectives and methods of financial risk management in the Company along with hedging methods of major transactions are detailed in note 30 to the standalone financial statements.

Risk factors relating to the business of the Company

The sequence in which the risk factors are presented below does not reflect the likelihood of occurrence, extent or materiality of the risks.

Risk related to retention and attraction of managerial staff and qualified personnel

The achievement of strategic objectives by the Company is subject to the know-how and experience of the professional management staff and the ability to hire and retain qualified specialists. The Company may not be able to retain its management staff and other key specialists or to attract new specialists. If the Company is not able to attract and retain management staff and personnel, this may adversely affect its business, operational results and financial condition.

Risk related to the debt of the Company

In connection with the loan agreements signed on 9 September 2016 with a consortium of banks (European Bank for Reconstruction and Development, Santander Bank S.A. and BGŻ BNP Paribas S.A.) and the bond issue agreement, the Company has interest payable under the agreements.

Failure by the Company to comply with its obligations, including the agreed levels of financial ratios (covenants) resulting from the agreements, will result in default under those agreements. Events of default may in particular result in demand for repayment of our debt, banks taking control over important assets like Paper Mills or Pulp Mills and loss of other assets which serve as collateral, deterioration of creditworthiness and lost access to external funding which will be converted into lost liquidity and which in turn may materially adversely affect our business and development prospects and our stock prices.

Risk related to the capacity of the Company to pay dividend

The Issuer is a holding company and therefore its capacity to pay dividend is subject to the level of potential disbursements from its subsidiary companies involved in operational activity, and the level of cash balances. Certain subsidiaries of the Group involved in operational activity may be subject to certain restrictions concerning disbursements to the Issuer. No

certainty exists that such restrictions will have no material impact on the business, results on operations and capacity of the Company to distribute dividend.

In connection with the term and revolving loan agreements signed on 9 September 2016, the agreements related to the bond issue pursuant to which on 30 September 2016 the Company issued bonds and the intercreditor agreement (described in more detail in note 32.2 "Obtaining of new financing" in the Annual Report for 2016), the possibility of the Company to pay dividend is subject to satisfying certain financial ratios by the Group in two periods preceding such distribution (as the term is defined in the term and revolving loan agreements) and no occurrence of any events of default (as defined in the term and revolving loan agreements).

Supplementary information

The Management Board position on the possibility to achieve the projected financial results published earlier

The Management Board of Arctic Paper S.A. did not publish projections of financial results for 2019 and has not published and does not intend to publish projections of financial results for 2020.

Dividend information

Dividend is paid based on the net profit disclosed in the standalone annual financial statements of Arctic Paper S.A. after covering losses carried forward from the previous years.

In accordance with provisions of the Code of Commercial Companies, the Parent Entity is obliged to establish reserve capital to cover potential losses. At least 8% of the profit for the financial year disclosed in the standalone financial statements of the Parent Entity should be transferred to the category of capital until the capital has reached the amount of at least one third of the share capital of the Parent Entity. The use of reserve capital and reserve funds is determined by the General Meeting; however, a part of reserve capital equal to one third of the share capital can be used solely to cover the losses disclosed in the standalone financial statements of the Parent Entity and cannot be distributed to other purposes.

As on the date hereof, the Company had no preferred shares.

The possibility of disbursement of potential dividend by the Company to its shareholders depends on the level of payments received from its subsidiaries. The risk associated with the Company's ability to disburse dividend was described in the part "Risk factors" of the annual report for 2019.

In connection with the term and revolving loan agreements signed on 9 September 2016, agreements related to the bond issue pursuant to which on 30 September 2016 the Company issued bonds and the intercreditor agreement, the possibility of the Company to pay dividend is subject to satisfying certain financial ratios by the Group in two periods preceding such distribution (as the term is defined in the term and revolving loan agreements) and no occurrence of any events of default (as defined in the term and revolving loan agreements).

The Company's General Meeting, held on 28 May 2019, approved a resolution to allocate the full net profit for the financial year of 2018 to the Company's reserves.

Changes to the bodies of Arctic Paper S.A.

As at 31 December 2019, the Parent Entity's Supervisory Board was composed of:

Per Lundeen Chairman of the Supervisory Board appointed on 22 September 2016 (appointed to the Supervisory Board on 14 September 2016);
Roger Mattsson Deputy Chairman of the Supervisory Board appointed on 22 September 2016 (appointed as a Member of the Supervisory Board on 16 September 2014);
Thomas Onstad Member of the Supervisory Board appointed on 22 October 2008;
Mariusz Grendowicz Member of the Supervisory Board appointed on 28 June 2012 (independent member);
Dorota Raben Member of the Supervisory Board appointed on 28 May 2019 (independent member).

On 28 May 2019, the Ordinary General Meeting of the Company approved a resolution dismissing Mr Maciej Georg from the Supervisory Board. Additionally, the Ordinary General Meeting appointed Ms Dorota Raben to the Supervisory Board.

Until the date hereof, there were no changes to the composition of the Supervisory Board of the Parent Entity.

As at 31 December 2019, the Parent Entity's Management Board was composed of:

Michał Jarczyński President of the Management Board appointed on 10 December 2019, effective in 1 February 2019;
Göran Eklund Member of the Management Board appointed on 30 August 2017.

Until the date hereof, there were no other changes in the composition of the Management Board of the Parent Entity.

Changes to the share capital of Arctic Paper S.A.

In 2019, there were no changes to the Company's share capital.

Purchase of treasury shares

In 2019 and 2018 the Company did not acquire any treasury stock.

Remuneration paid to Members of the Management Board and the Supervisory Board

the Management Board and of the Supervisory Board of the Parent Entity in the period from 1 January 2019 to 31 December 2019 (data in PLN).

The table below presents information on the total amount of remuneration and other benefits paid or payable to members of

	Remuneration (base salary and ov erheads)
Managing and superv ising	f or the f unctions perf ormed at Arctic Paper
persons	S.A.	Retirement plan	Other	Total
Management Board
Michał Jarczy ński*	660 000	-	-	660 000
Per Skoglund**	106 343	29 427	2 545	138 316
Göran Eklund	741 494	220 351	214 119	1 175 964
Supervisory Board
Per Lundeen	300 000	-	-	300 000
Roger Mattsson	210 000	-	-	210 000
Thomas Onstad	150 000	-	-	150 000
Mariusz Grendowicz	180 000	-	-	180 000
Maciej Georg***	62 500	-	-	62 500
Dorota Raben****	84 881	-	-	84 881

* f or the period 01.02.2019- 31.12.2019

** f or the period 01.01.2019- 31.01.2019

*** f or the period 01.01.2019- 28.05.2019

**** f or the period 28.05.2019- 31.12.2019

Agreements with Members of the Management Board guaranteeing financial compensation

As at 31 December 2019, and as at the approval date of this annual report, Members of the Management Board are entitled to compensation in case of their resignation or dismissal from their respective positions with no valid reason or when they are dismissed or their employment is terminated as a result of a merger of the Issuer by take-over. The amount of such compensation will correspond to their remuneration for 6 to 24 months.

Changes in holdings of the Issuer's shares or rights to shares by persons managing and supervising Arctic Paper S.A.

Managing and superv ising persons	Number of shares or rights to shares as at 26.03.2020	Number of shares or rights to shares as at 31.12.2019	Number of shares or rights to shares as at 18.11.2019	Change
Management Board Michał Jarczy ński	-	-	-	-
Göran Eklund	- -	- -	- -	-
Supervisory Board	-	-	-
Per Lundeen	34 760	34 760	34 760	-
Thomas Onstad	6 223 658	6 223 658	6 223 658	-
Roger Mattsson	-	-	-	-
Mariusz Grendowicz	-	-	-	-
Dorota Raben	-	-	-	-

Management of financial resources

As of the date hereof, the Company held sufficient funds and creditworthiness to ensure financial liquidity of Arctic Paper S.A.

Capital investments

In 2019, the Company did not place any deposits.

Information on sureties, guarantees and contingent liabilities

In connection with the term and revolving loan agreements, agreements relating to the bond issue and the intercreditor agreement (described in more detail in the note "Obtaining new financing" of the Annual Report for 2016) signed on 9 September 2016, on 3 October 2016 the Company signed agreements and statements pursuant to which collateral to the above debt and other claims would be established in favour of Bank BNP Paribas S.A., acting as the Collateral Agent, that is

1. under Polish law Collateral Documents establishing the following Collateral:
financial and registered pledges on all shares and interests registered in Poland, owned by the Company and the Guarantors, in companies in the Company Group (with the exception of Rottneros AB, Arctic Paper Mochenwangen GmbH and Arctic Paper Investment GmbH), except the shares in the Company;
mortgages on all properties located in Poland and owned by the Company and the Guarantors;
registered pledges on all material rights and movable assets owned by the Company and the Guarantors, constituting an organised part of enterprise, located in

Poland (with the exception of the assets listed in the Loan Agreement);

assignment of (existing and future) insurance policies covering the assets of the Company and the Guarantors (with the exception of insurance policies listed in the Loan Agreement);
declaration by the Company and the Guarantors on voluntary submission to enforcement, in the form of a notary deed;
financial pledges and registered pledges on the bank accounts of the Company and the Guarantors, registered in Poland;
powers of attorney to Polish bank accounts of the Company and the Guarantors, registered in Poland;
subordination of the debt held by intragroup lenders (specified in the Intercreditor Agreement).
1. under Swedish law Collateral Documents establishing the following Collateral:
pledges on all shares and interests registered in Poland, owned by the Company and the Guarantors, in Group companies, with the exception of the shares in the Company, as well as pledged on the shares in Rottneros (with the exception of the free package of shares in Rottneros);
mortgages on all properties located in Sweden and owned by the Company and the Guarantors as long as such collateral covers solely the existing mortgage deeds;
corporate mortgage loans granted by the Guarantors registered in Sweden as long as such collateral covers solely the existing mortgage deeds;
assignment of (existing and future) insurance policies covering the assets of the Company and the Guarantors (with the exception of insurance policies listed in the Loan Agreement);

— pledges on Swedish bank accounts of the Company and the Guarantors as long as such collateral is without prejudice to free management of funds deposited on bank accounts until an event of default specified in the Loan Agreement.

In the period covered with this report, Arctic Paper S.A. and its subsidiary companies did not grant or receive any guarantee to loans or borrowings, and did not grant – totally to one entity or a subsidiary of such entity – guarantees with the total value exceeding equivalent of 10% of the Company's equity.

Material off-balance sheet items

Information on off-balance sheet items is provided in the Company's standalone financial statements for 2019 in note 27.

Assessment of the feasibility of investment plans

Arctic Paper S.A. plans no material investments to be made in 2019. Material investments are carried out by the Issuer's subsidiary entities, in particular the Paper Mills as described in the Consolidated Annual Report.

Information on court and arbitration proceedings and proceedings pending before public administrative authorities

During the period under report, Arctic Paper S.A. and its subsidiaries were not a party to any proceedings pending before a court, arbitration or public administrative authority, the individual or joint value of which would equal or exceed 10% of the Company's equity.

Information on transactions with related parties executed on non-market terms and conditions

During the period under report, Arctic Paper S.A. and its subsidiaries did not execute any material transactions with related entities on non-market terms and conditions.

Information on agreements resulting in changes to the proportions of share holdings

The Issuer is not aware of any agreements that may in the future generate changes to the proportions of share holdings by the existing shareholders and bond holders.

Information on remuneration of the entity authorised to audit the financial statements

On 25 September 2018, the Company entered into a contract with KPMG Audyt Spółka z ograniczoną odpowiedzialnością sp.k. for audit of the Company's financial statements and consolidated financial statements of the Group for the year ended on 31 December 2018 and ending on 31 December 2019. The contract was concluded for the time required to perform the above services.

Other information on the entity authorised to audit the financial statements is provided in note 29 to the standalone financial statements for 2019.

Headcount

Information on the headcount is provided in note 33 to the standalone financial statements for 2019.

Report on non-financial information

Apart from this report the Company publishes a separate report on non-financial information for the Arctic Paper Capital Group.

Statement on the application of the Corporate Governance Rules

Corporate Governance Rules

On 1 January 2016 the new set of corporate governance rules became effective under the name of "Best Practice of GPW Listed Companies 2016", attached to Resolution No. 26/1413/2015 of the Supervisory Board of the Warsaw Stock Exchange of 13 October 2015.

The text of the "Best Practice of GPW Listed Companies 2016" is available at:

https://www.gpw.pl/pub/GPW/files/PDF/GPW_1015_17_DOBR E_PRAKTYKI_v2.pdf

Pursuant to Article 29.3 of the Warsaw Stock Exchange Rules, the Management Board of ARCTIC PAPER S.A. on 8 January 2019 published an EBI report concerning the exclusion of certain rules of the Best Practice.

Information on the extent the Issuer waived the provisions of the Corporate Governance Rules

Arctic Paper S.A. was striving at applying corporate governance rules as set forth in the document "Best Practice of GPW Listed Companies". In 2019, Arctic Paper S.A. did not apply the following rules:

Best practice – Information Policy, Communication with Investors

Recommendation I.R.2

"Where a company pursues sponsorship, charity or other similar activities, it should publish information about the relevant policy in its annual report from operations".

Explanation: The Company is not involved in any sponsorship, charity or similar activities.

Principle No. 1.Z.1.10

"A company operates a corporate website and publishes on it, in a legible form and in a separate section, in addition to information required under the legislation: financial projections, if the Company has decided to publish them – published at least in the last 5 years, including information about the degree of their implementation".

Explanation: According to a decision by the Management Board, the Company does not publish projections.

Principle No. I.Z.1.15:

"A company operates a corporate website and publishes on it, in a legible form and in a separate section, in addition to information required under the legislation: information about the Company's diversity policy applicable to the Company's governing bodies and key managers; the description should cover the following elements of the diversity policy as: gender, education, age, professional experience, and specify the goals of the diversity policy and its implementation in the reporting period; where the Company has not drafted and implemented a diversity policy, it should publish the explanation of its decision on its website".

Explanation:

The Company has not drafted a diversity policy; however, the Issuer's Management Board has been striving to employ competent, creative people, holding appropriate qualifications, professional experience and education, compliant with the Company's needs.

Principle No. 1.Z.1.16

Explanation:

The Company does not plan to broadcast its General Meetings.

Principle I.Z.1.20

"A company should operate a corporate website and publish on it, in a legible form and in a separate section, in addition to information required under the applicable laws: a recorded transmission of a general meeting, in audio or video form".

Explanation:

Publication of the entire recording from a general meeting, in audio or video form, might infringe interests of shareholders. Information on the approved resolutions is published by the Company in the form of current reports. When this solution becomes more popular in the market, the Company will consider implementing it.

Best practice – Systems and internal functions Recommendation III.R.1

"The company's structure includes separate units responsible for the performance of tasks in individual systems or

functions, unless the separation of such units is not justified by the size or type of the Company's activity".

Explanation:

The recommendation is not followed due to the size of the Company. The Management Board is responsible for controlling the Company's operations, including controlling its internal operational processes along with risk management processes.

Principle No. III.Z.2

"Subject to Principle No. III.Z.3, persons responsible for risk management, internal audit and compliance report directly to the president or other member of the management board and are allowed to report directly to the supervisory board or the audit committee".

Explanation:

The Company has not established dedicated units to be involved in risk management, internal audit and compliance. However, the Company states that managers of each division of the Company report directly to the relevant members of the Management Board. The external entities that provide consultancy services, including legal consulting and performing audits, have regular and direct contact with the Company's Management Board.

Principle No. III.Z.3.

"The independence rules defined in generally accepted international standards of the professional internal audit practice apply to the person heading the internal audit function and other persons responsible for such tasks".

Explanation:

The Company has no dedicated internal audit unit and there is no identified position of a person heading the function. An audit committee operates within the Supervisory Board. Minimum two members of the Supervisory Board meet the independence criteria as specified in the Company's Articles of Association and in the Regulations of the Supervisory Board. Additionally, persons performing audits and statutory auditors are independent of the Company.

Principle No. III.Z.4.

"The person responsible for internal audit (if the function is separated

in the Company) and the management board report to the supervisory board at least once per year with their assessment of the efficiency of the systems and functions referred to in Principle No. III.Z.1 and submit a relevant report".

Explanation:

An audit committee operates within the Supervisory Board. Members of the Supervisory Board are elected by the General Meeting.

Best practice – General Meeting and Relations with Shareholders

Recommendation IV.R.2

"If justified by the structure of shareholders or expectations of shareholders notified to the Company, and if the Company is in a position to provide the technical infrastructure necessary for a general meeting to proceed efficiently using electronic communication means, the Company should enable its shareholders to participate in a general meeting using such means, in particular through:

1) real-life broadcast of the general meeting;

2) two-way communication in real time, under which the shareholders may speak at the General Meeting of Shareholders, while not present at the place where the General Meeting of Shareholders is held;

3) exercise, either in person or through a proxy, the right to vote at the General Shareholders Meeting".

Explanation:

Considering the need of multiple technical and organisational operations and the related costs and risks, the Company has not decided for the time being to hold electronic general meetings. With a gradual popularisation of the technical solution and ensuring appropriate security, the Company will re-consider implementing the recommendation.

Principle No. IV.Z.2.

"If there is justification due to the shareholding structure, the Company ensures the public broadcast of the General Shareholders Meeting in real time".

Explanation:

Considering the need to carry out a number of technical and organisational activities, and the related costs and risks, the Company has decided not to organise electronic general meetings. With a gradual popularisation of the technical solution and ensuring appropriate security, the Company will re-consider implementing the recommendation.

Best practice – Remuneration

Recommendation VI.R.1

"The remuneration of members of the Company's governing bodies and key managers should follow the approved remuneration policy".

Explanation:

The remuneration principles and amounts of Members of the Management Board are set by the Supervisory Board. The remuneration of Members of the Management Board is subject to negotiations. The remuneration of members of the Supervisory Board fall within the competences of the General Meeting. The amounts of remuneration should be subject to the scope of duties and responsibilities entrusted to individual members of the Company's supervisory and management bodies. Information on amounts of remuneration of members of the Company's bodies is disclosed in annual reports.

Recommendation VI.R.2

"The remuneration policy should be closely tied to the Company's strategy, its short-and long-term goals, long-term interests and results, taking into account solutions necessary to avoid discrimination on whatever grounds".

Explanation:

Principle No. VI.Z.1

Incentive schemes should be constructed in a way necessary among others to tie the level of remuneration of members of the Company's management board and key managers to the actual long-term financial standing of the Company and longterm shareholder value creation as well as the Company's stability.

Explanation:

At present the Company pursues no incentive schemes.

Principle No. VI.Z.2

To tie the remuneration of members of the management board and key managers to the Company's long-term business and financial goals, the period between the allocation of options or other instruments linked to the Company's shares under the incentive scheme and their exercisability should be no less than two years.

Explanation:

The company pursues no incentive schemes. The rules of remuneration are set forth in the remuneration regulations in force at the Company. The remuneration of members of the

Management Board is set by the Supervisory Board who are guided by their best knowledge and will.

Principle No. VI.Z.4.

In this report from operations, the Company should report on the remuneration policy including at least the following:

general information on remuneration system adopted by the Company;
information on conditions and amount of remuneration granted to each member of the Management Board, split into fixed and variable components, specifying key parameters used to determine variable components of remuneration and rules for the payment of retirement allowance and other payments related to termination of the employment contract, commission or other legal relationship of similar nature – separately for the Company and each entity belonging to the Capital group;
information about non-financial remuneration components due to each management board member and key manager;
significant amendments of the remuneration policy in the last financial year or information about their absence;
assessment of the functioning of the remuneration policy from the viewpoint of implementation of its objectives, in particular long-term growth of value for shareholders and sustainability of the Company.

Explanation:

Internal control and risk management systems with reference to the development processes of financial statements

The Management Board of Arctic Paper S.A. is responsible for the internal control system in the Company and in the Group and for its efficiency in the development process of consolidated financial statements and interim reports, prepared and published in compliance with the rules of the Regulation of the Minister of Finance on current and periodical disclosure by issuers of securities and conditions to recognise as equivalent the information that is required by the law in Non-Member States of 9 March 2018. The Company's financial division headed by the Chief Financial Officer is responsible for the preparation of the Group's consolidated financial statements and interim reports. The Company prepares its financial statements and periodic reports on the basis of the procedures of making and publishing periodic reports and consolidated reports, in force at Arctic Paper S.A. The financial data underlying the Group's consolidated financial statements comes from monthly reporting packages and extended quarterly packages sent to the Issuer by Group member companies. After closing of the books for each calendar month, top management of the Group member companies analyse the financial results of the companies versus their budgets and the results generated in the previous reporting period.

The Group performs an annual review of its strategy and development prospects. The budgeting process is supported by medium- and top-level management of the Group member companies. The budget drafted for the next year is accepted by the Company's Management Board and approved by the

Supervisory Board. During the year, the Company's Management Board compares the generated financial results to the adopted budget.

The Company's Management Board systematically assesses the quality of internal control and risk management systems with reference to the preparation process of consolidated financial statements. On the basis of such review, the Company's Management Board found that as at 31 December 2019 there were no weaknesses that could materially affect the effectiveness of internal control with respect to financial reporting.

Shareholders that directly or indirectly hold significant packages of shares

Information on the shareholders that directly or indirectly hold large packages of shares is presented in the table below – the table presents the situation as of the publication date of the annual report.

				Share in the
		Share in the		total number
	Number of	share capital	Number of	of v otes
Shareholder	shares	[%]	v otes	[%]
Thomas Onstad	47 205 107	68,13%	47 205 107	68,13%
- indirectly v ia	40 981 449	59,15%	40 981 449	59,15%
Nemus Holding AB	40 381 449	58,28%	40 381 449	58,28%
other entity	600 000	0,87%	600 000	0,87%
- directly	6 223 658	8,98%	6 223 658	8,98%
Other	22 082 676	31,87%	22 082 676	31,87%
Total	69 287 783	100,00%	69 287 783	100,00%
Treasury shares	-	0,00%	-	0,00%
Total	69 287 783	100,00%	69 287 783	100,00%

as at 26.03.2020

Securities with special control rights

There are no securities in the Company with special control rights – in particular, no shares in the Company are privileged.

Information on major restrictions on transfer of title to the Issuer's securities and all restrictions concerning the exercising of voting rights

The Company's Articles of Association do not provide for any restrictions concerning transfer of title to the Issuer's securities. Such restrictions are specified in law, including in Chapter 4 of the Act on Public Offering and on Conditions Governing the Introduction of Financial Instruments to Organised Trading and on Public Companies of 29 July 2005, Article 11 and Article 19 and Section VI of the Act on Trading in Financial Instruments of 29 July 2005, the Act on Competition and Consumer Protection of 16 February 2007 and the Council Regulation (EC) No. 139/2004 on the control of concentrations between undertakings of 20 January 2004.

Additional restrictions related to purchases and sales of the Issuer's securities by persons in managerial functions and their closely related persons are set forth in Regulation (EU) No. 596/2014 of the European Parliament and of the Council on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC ("MAR").

Each share in Arctic Paper S.A. authorises to one vote at General Meetings. The Company's Articles of Association provide for no restrictions as to the exercising of voting rights of shares in Arctic Paper S.A., such as any restrictions on voting rights, such as limitations of the voting rights of holders of a given percentage or number of votes, deadlines for exercising voting rights, or systems whereby, with the Company's cooperation, the financial rights attaching to securities are separated from the holding of securities.

A ban on voting rights by shareholders may result from Article 89 of the Act of on Offering and Marketing of Financial Instruments to Organised Trading Systems and on Public Companies of 29 July 2005 if such shareholder breaches the regulations provided in Chapter 4 of the Act on Offering. According to Article 6 § 1 of the Code of Commercial Companies, if the Parent Entity fails to notify its capital subsidiary company of the occurrence of a domination relationship within two weeks of the occurrence thereof, the voting rights will be suspended with respect to the shares held by the Parent Entity representing more than 33% of the subsidiary's share capital.

Description of the principles of amending the Issuer's Articles of Association

Amendments to the Company's Articles of Association fall within the sole competences of the General Meeting.

Unless the Code of Commercial Companies or the Articles of Association of the Company provide otherwise, resolutions of the General Meeting require an absolute majority of votes.

Description of the functioning of the General Meeting

The rules of procedure of the General Meeting and its core competences result straight from applicable laws and are partly incorporated in the Company's Articles of Association.

The Company's Articles of Association are available at: https://www.arcticpaper.com/Global/IR%20Documents/Cororat e%20Documents/Arctic_Paper_Statut_tekst_jednolity_aktualn y_2019_PL.pdf

General Meetings are held in accordance with the following basic rules:

General Meetings are held in the Company's offices or in Warsaw;
General Meetings may be ordinary or extraordinary;
Ordinary General Meetings shall be held within six months after the end of the financial year;
General Meetings are opened by the Chairperson of the Supervisory Board or a person designated by him/her which is followed by election of the Chairperson of the General Meeting;
Voting shall be open unless a Shareholder demands a secret ballot or a secret ballot is required by the provisions of the Code of Commercial Companies;
Unless the Code of Commercial Companies or the Articles of Association of the Company provide otherwise, resolutions of the General Meeting require an absolute majority of votes;
In compliance with the Company's Articles of Association, the following matters fall within the exclusive competences of the General Meeting:
- › review and approval of the Management Board's report from operations of the Company and financial statements of the Company for the previous financial year;
› granting a vote of approval to members of the Management Board and members of the Supervisory Board for the performance of their duties;
› decisions concerning distribution of profit or coverage of losses;
› changes to the business objects of the Company;
› changes to the Articles of Association of the Company;
› increase or decrease in the Company's share capital;
› merger of the Company with another company or other companies, split of the Company or transformation of the Company;
› dissolution and liquidation of the Company;
› issues of convertible bonds or pre-emption bonds and issues of subscription warrants;
› purchase and sale of properties;
› sale and lease of the entire enterprise or an organised part thereof or establishment of limited rights in rem thereon;
› all other issues for which these Articles of Association or the Code of Commercial Companies require a resolution of the General Meeting.

General Meetings may approve resolutions in the attendance of minimum one half of the Company's share capital.

General Meetings approve resolutions with an absolute majority of votes unless the Articles of Association or applicable regulations require a qualified majority.

The shareholders' rights and the way to enforce them result explicitly from law that has been partly incorporated in the Company's Articles of Association.

Operation of the Issuer's managing and supervising bodies and its committees as well as information on the composition of those bodies

Management Board

Composition of the Management Board

The Management Board is composed of one to five members, including President of the Management Board;
The Management Board is appointed and dismissed by the Supervisory Board for a joint term of office;
The term of office of members of the Management Board is 3 (three) years;
When the Management Board is composed of more than one person, the Supervisory Board – upon a proposal by the President – may appoint up to three Deputy Presidents from among members of the Management Board. Deputy Presidents may be dismissed subject to a resolution of the Supervisory Board;
A member of the Management Board may be dismissed by the Supervisory Board at any time;
A member of the Management Board may be dismissed or suspended in their duties at any time by the General Meeting.

Core competences of the Management Board

The Management Board directs the affairs of the Company and represents the Company;
If the Management Board is composed of more than one person, declarations of intent on the Company's behalf shall be made by the President of the Management Board individually or two Members of the Management Board acting jointly or a Member of the Management Board acting jointly with a Proxy;
The Management Board is obliged to exercise their duties with due diligence and comply with law, the Company's Articles of Association, approved regulations and resolutions of the Company's bodies; decisions shall be taken in line with reasonable economic risk with a view to the interests of the Company and its shareholders;
The Management Board is obliged to manage the assets and business of the Company and perform its duties subject to due diligence required in business operations and subject to strict compliance with applicable laws, provisions of the Articles of Association and internal regulations as well as resolutions approved by the General Meeting and the Supervisory Board;
The Company's Management Board shall not be entitled to take decisions on share issues and redemption;
Each member of the Management Board shall be liable for any damage inflicted upon the Company as a result of their actions or omissions breaching the provisions of law or the Company's Articles of Association;
The responsibilities of the Management Board include in compliance with the Code of Commercial Companies – all affairs of the Company not reserved to the General Meeting of the Supervisory Board;
Guided with the interests of the Company, the Management Board defines the strategy and core objectives of the Company's business;
The Management Board shall comply with the regulations relating to confidential information within the meaning of the Act on Trading and to comply with all the duties resulting therefrom.

Otherwise, the individual members of the Management Board shall be responsible for their running of the affairs of the Company as resulting from the internal delegation of duties and functions approved by a decision of the Management Board.

The Management Board may approve resolutions at meetings or outside meetings in writing or with the use of direct means of remote telecommunications. The Management Board approves resolutions with a majority of votes cast. Resolutions shall be valid if minimum one half of members of the Management Board are present at the meeting. In case of equal number of votes, the President of the Management Board shall have the casting vote.

The detailed mode of operation of the Management Board is set forth in the Regulations of the Management Board with its updated version available at:

http://www.arcticpaper.com/Global/IR%20Documents/Cororate %20Documents/Regulamin%20Zarzadu%20AP%20SA.pdf

The Management Board of the Company as at the publication hereof was composed as follows:

Michał Jarczyński President of the Management Board appointed on 1 February 2019;
Göran Eklund Member of the Management Board appointed on 30 August 2017.

Supervisory Board

Composition and organisation of the Supervisory Board

The Supervisory Board is composed of 5 (five) to 7 (seven) members elected by the General Meeting for a joint threeyear term of office. A member of the Supervisory Board may be dismissed at any time;
The Supervisory Board is composed of the Chairperson, Deputy Chairpersons and other members. The Chairperson of the Supervisory Board and Deputy Chairperson are elected by the Supervisory Board from among its members at the first meeting and – if so required – during the term of office in by-elections;
Since the General Meeting approved resolutions on the first public issue of shares and having them listed, two members of the Supervisory Board have to be independent;
When an independent member of the Supervisory Board is nominated, resolutions on the following matters require consent of minimum one independent member of the Supervisory Board:
- › any benefits to be provided by the Company and any entity related to the Company for members of the Management Board;
- › consent to the Company or its subsidiary entity to enter into a material agreement with a member of the Supervisory Board or the Management Board and with their related entities, other than agreements concluded in

the normal course of the Company's business subject to normal terms and conditions applied by the Company;

› election of auditor to perform audits of the Company's financial statements;
For the avoidance of doubt, it is assumed that loss of the independent status by a member of the Supervisory Board and failure to appoint an independent member of the Supervisory Board shall not invalidate the decisions approved by the Supervisory Board. Loss by an Independent Member of their independent status during the performance of their function of a member of the Supervisory Board shall not affect the validity or expiry of their mandate;
In case of expiry of the mandate of a Member of the Supervisory Board before the term of office, the other Members of the Supervisory Board shall be entitled to coopt a new Member of the Supervisory Board is such vacated position by way of a resolution approved with an absolute majority of the other Members of the Supervisory Board. The mandate of such co-opted Member of the Supervisory Board shall expire if the first Ordinary General Meeting to be held after such Member has been co-opted, fails to approve such Member. At any time, only two persons elected as Members of the Supervisory Board in the co-option procedure and who were not approved as candidates by the Ordinary General Meeting, may act as Members of the Supervisory Board. Expiry of the mandate of a co-opted Member of the Supervisory Board as a result of failure to approve such candidate by the Ordinary General Meeting may not be treated as finding any resolution approved with the participation of such Member as invalid or ineffective.
Chairperson and Deputy Chairperson of the Supervisory Board:
- › maintain contact with the Company's Management Board;
- › manage the operations of the Supervisory Board;
- › represent the Supervisory Board in external contacts and in contacts with the other bodies of the Company, including in contacts with members of the Company's Management Board;
- › approve the presentation of initiatives and proposals submitted for meetings of the Supervisory Board;
- › take other actions as specified in the Company's Regulations and Articles of Association;
- › Members of the Supervisory Board should not resign from their function during the term of office if that could prevent the operation of the Supervisory Board, in particular prevent timely approval of major resolutions;
- › Members of the Supervisory Board shall be loyal to the Company. Should a conflict of interests arise, members

of the Supervisory Board shall report it to other members of the Supervisory Board and refrain from participating in discussions and from voting on the issue to which the conflict of interests is related;

› Members of the Supervisory Board shall comply with law, the Company's Articles of Association and Regulations of the Supervisory Board.

Competences of the Supervisory Board

The Supervisory Board performs overall supervision over the business of the Company in all areas of its operation;
The Supervisory Board approves resolutions, issues recommendations and opinions and submits proposals to the General Meeting;
The Supervisory Board may not issue binding instructions to the Management Board concerning the management of the Company's affairs;
Disputes between the Supervisory Board and the Management Board shall be resolved by the General Meeting;
In order to exercise their rights, the Supervisory Board may review the business of the Company in any respect, request the presentation of any documents, reports and clarification from the Management Board and issue opinions on issues related to the Company and submit proposals and initiatives to the Management Board;
Apart from other issues specified in law or in the Company's Articles of Association, the competences of the Supervisory Board include, inter alia:
- › review of the financial statements of the Company;
- › review of the Management Board's report from operations of the Company and proposals of the Management Board concerning profit distribution and coverage of losses;
- › submission to the General Meeting of an annual report from results of the above reviews;
- › appointment and dismissal of members of the Management Board, including the President and Deputy Presidents, and setting the remuneration of members of the Management Board;
- › appointment of the auditor of the Company;
- › suspension of Members of the Management Board in their functions for valid reasons;
- › approval of annual financial plans for the capital group of which the Company and its subsidiary companies are members;
- › approving terms and conditions of bond issues by the Company (other than convertible bonds or bonds with priority rights, referred to in Article 393.5 of the Code of Commercial Companies) and issues of other debt securities, provision of consent to contract financial

liabilities or taking actions resulting in contracting any financial liabilities, such as borrowings, loans, overdraft facilities, conclusion of factoring, forfaiting, lease contracts and other generating liabilities in excess of PLN 10,000,000;

› approving the principles and amounts of remuneration of members of the Management Board and other persons in key management functions in the Company as well as approval of any incentive programme, including incentive programmes for members of the Management Board, persons in key management functions in the Company or any persons cooperating with or related to the Company, including incentive programmes for employees of the Company;
Annually the Supervisory Board submits to the General Meeting a brief assessment of the Company's condition ensuring that it is made available to all shareholders at a time that they are able to review it before the Ordinary General Meeting;
The Supervisory Board concludes contracts with members of the Management Board on behalf of the Company and represents the Company in disputes with members of the Management Board. The Supervisory Board may authorise by way of a resolution one or more of its members to perform such legal actions.

The Supervisory Board may approve resolutions in writing or with the use of direct means of remote telecommunications. Resolutions approved as specified above shall be valid if all members of the Supervisory Board were notified of the content of the draft resolution. The approval date of the resolution approved as above shall be equivalent to the date of signing by the last member of the Supervisory Board.

Resolutions of the Supervisory Board may be approved when all members have been notified by registered letter, fax or email message, sent minimum 15 days in advance and the meeting is attended by a majority of members of the Supervisory Board. Resolutions may be approved without formal convening a meeting when all members of the Supervisory Board agreed to vote on the specific issue or to the content of the resolution to be approved.

Resolutions of the Supervisory Board require a simple majority of votes; in case of equal votes, the Chairperson of the Supervisory Board shall have the casting vote.

The detailed mode of operation of the Supervisory Board is set forth in the Regulations of the Supervisory Board with its updated version available at:

http://www.arcticpaper.com/Global/IR%20Documents/Dokume nty%20korporacyjne/1_11_2016_appendix%20PL_AP%20SA% 20-%20Regulamin%20Rady%20Nadzorczej_fin.pdf

The Supervisory Board of the Company as at the publication hereof was composed as follows:

Per Lundeen Chairman of the Supervisory Board appointed on 14 September 2016;
Roger Mattsson Deputy Chairman of the Supervisory Board appointed on 16 September 2014;
Thomas Onstad Member of the Supervisory Board appointed on 22 October 2008;
Mariusz Grendowicz Member of the Supervisory Board appointed on 28 June 2012 (independent member);
Dorota Raben Member of the Supervisory Board appointed on 28 May 2019 (independent member).

In 2019, the Supervisory Board held meetings on: 4 January, 4-5 March, 8-9 May, 25 June and 21-22 August, 22-23 October, 10-11 December 2019.

Audit Committee

Composition and organisation of the Audit Committee

The Audit Committee is composed of minimum three members of the Supervisory Board, including the Chairperson of the Committee, elected by the Supervisory Board from among its members in compliance with the Articles of Association and Regulations of the Supervisory Board. Minimum one member of the Audit Committee shall hold qualifications and experience in the sphere of accounting and finances;
Members of the Audit Committee shall be appointed for three-year terms of office, however no longer than the term of office of the Supervisory Board;
The Chairperson of the Audit Committee, elected with a majority of votes from among its members, shall be an independent member;
The Audit Committee operates on the basis of the Act on Statutory Auditors, Best Practice of GPW Listed Companies, Regulations of the Supervisory Board and the Regulations of the Audit Committee;
The Audit Committee performs advisory and consulting functions, operates as a collective body within the Company's Supervisory Board;
The Audit Committee carries out its tasks by providing the Supervisory Board with its proposals, opinions and reports on its scope in the form of resolutions;
At least one member of the audit committee shall have knowledge and skills in terms of accounting or auditing financial statements. The Supervisory Board is of the opinion that the requirement of competences in the sphere

accounting and financial audit is recognised as satisfied if a member of the Audit Committee has a significant experience in financial management in commercial partnerships, internal audit or audit of financial statements, and additionally:

› has the title of a certified auditor or equivalent international certificate, or
› has an academic degree in the field of accounting or financial audit, or
› has long-term experience as a financial director in public companies or in working in an audit committee of such companies.
Members of the Audit Committee shall have knowledge and skills relating to the industry in which the Issuer operates. This condition is recognised as satisfied if at least one member of the Audit Committee has knowledge and skills relating to that industry or individual members within specific scopes have knowledge and skills relating to the scope of that industry. The Supervisory Board is of the opinion that the requirement of competences relating to the industry is recognised as satisfied if a member of the Audit Committee has information on the characteristics of the sector, that allows him to obtain a complete picture of the sector's complexity or has knowledge on part of the chain of activities carried out by the Company.

Competences of the audit committee

The basic task of the Audit Committee is advisory to the Supervisory Board on issues of proper implementation and control of the financial reporting processes in the Company, effectiveness of the internal control and risk management systems and cooperation with statutory auditors;
The tasks of the Audit Committee resulting from supervising the Company's financial reporting process, ensuring the effectiveness of the Company's internal control systems and monitoring of internal audit operations, include in particular:
- › control if the financial information provided by the Company is correct, including the accuracy and consistency of the accounting principles applied in the Company and its Capital Group as well as the consolidation principles of financial statements;
- › assessment minimum once a year of the internal control and management systems in the Company and its Capital Group in order to ensure adequate recognition and management of the Company;
› ensuring the effective functioning of internal control, in particular by providing recommendations to the Supervisory Board with respect to:
› strategic and operational internal audit plans and material modifications to such plans;
› internal audit policies, strategy and procedures, developed in compliance with the approved internal audit standards;
› audits of specific areas of the Company's operations;
The tasks of the Audit Committee resulting from monitoring the independence of the statutory auditor and the entity authorised to audit financial statements, include in particular:
- › issue of recommendations to the Supervisory Board relating to the election, appointment and re-appointment and dismissal of the entity acting as the statutory auditor;
- › control of independence and impartiality of the statutory auditor, in particular with a view to replacing the statutory auditor, the level of its remuneration and other relationships with the Company;
- › verification of the effectiveness of the works performed by the statutory auditor;
- › review of reasons of resignation by the statutory auditor;
The Audit Committee may resort to advisory services and assistance by external legal, accounting or other advisers if it finds it necessary to perform its duties;
The Audit Committee is obliged to file annual reports from its operations to the Supervisory Board by 30 September in each calendar year.

Meetings of the Audit Committee shall be held minimum twice a year.

In 2019, the Audit Committee held 2 meetings on: 04 March and 22 October.

As at 19 July 2019, the Audit Committee was composed of:

Mariusz Grendowicz a member meeting the independence criteria. Mr Mariusz Grendowicz being a member of the Supervisory Board for over five years, including being a member of the Audit Committee, has experience and qualifications relating to the scope of the industry in which the Company operates;
Roger Mattsson due to his long-term experience as the financial controller at the Arctic Paper Group and over three years in the Audit Committee, Mr Roger Mattsson meets the requirement of knowledge and know-how of the Company's business as required of members of the

Audit Committee. Additionally, he has knowledge and skills in the sphere of accounting or auditing financial statements;

— Dorota Raben – a member meeting the independence criteria.

The detailed mode of operation of the Audit Committee is set forth in the Regulations of the Audit Committee.

Core assumptions underlying the policy of selecting an audit firm to conduct audits

According to the regulations applicable to the Company, the Company's Supervisory Board shall select – by way of a resolution and acting under a recommendation of the Audit Committee – the auditor authorised to carry out the audit;
The selection is made taking into account the principles of impartiality and independence of the audit firm and the analysis of the audit firm's work carried out in the Company which falls beyond the scope of the audit of financial statements, in order to avoid any conflict of interest (observance of impartiality and independence);
A request for proposals concerning the selection of an audit firm for statutory audit of the Company's financial statements is developed by the Audit Committee in cooperation with the Company's Chief Financial Officer;
After analysing the submitted offers, the Audit Committee shall develop a recommendation with conclusions from the selection procedure to be approved by the Audit Committee and shall submit a recommendation on the selection of the audit firm to the Supervisory Board within such time that will support a resolution on audit firm selection;
The Supervisory Board shall select the audit firm on the basis of the submitted offers and after becoming acquainted with the Audit Committee's opinion and recommendation;
If the Supervisory Board's decision differs from the recommendation of the Audit Committee, the Supervisory Board shall justify the reasons for its failure to comply with the Audit Committee's recommendation and shall submit such justification to the body approving the financial statements;
The Company's Management Board shall enter into a contract with the selected audit firm for the audit of financial statements of the Company;
The first contract is concluded for minimum 2 years and it may be extended for another two or three years. The duration of the cooperation shall be counted from the first financial year covered by the audit contract, in which the authorised auditor was appointed for the first time to carry out the consecutive statutory audits of the Company;
After expiry of the maximum period of the cooperation, the authorised auditor or, where applicable, any member of its network, may not undertake a statutory audit of the Company's financial statements for further 4 years;
The key statutory auditor may not perform a statutory audit in the Company for a period longer than 5 years. The key statutory auditor may conduct a statutory audit again after the expiry of 3 years;
The maximum period of uninterrupted performance of statutory audits by the same audit firm or an audit firm related to that audit firm or any member of the network operating in the European Union of which the audit firms are members, may not exceed 5 years.

Core assumptions underlying the policy of the provision of permitted services other than audit services by the audit firm performing the audit, by entities related to the audit firm and by a member of the audit firm's network;

The Audit Committee of Arctic Paper S.A. shall be responsible for the policy covering the provision of permitted services other than audit services by the audit firm performing the audit, by entities related to the audit firm and by a member of the audit firm's network;
The Audit Committee of Arctic Paper S.A. controls and monitors the independence of the auditor and the audit firm, in particular if the audit firm provides other services than audit of statutory financial statements to Arctic Paper S.A.;
The Audit Committee of Arctic Paper S.A., when so requested by a competent body or person, approves the provision of permitted services by the auditor that are not an audit of Arctic Paper S.A.
The prohibited services do not include:
- › carrying out due diligence procedures for economic and financial condition;
- › issue of letters of support;
- › attestation services related to pro forma financial information, forecast of results, or estimation of results, contained in the issue prospectus of the audited entity;
- › review of historic financial information for projects referred to in the Commission Regulation (EC) No 809/2004 of 29 April 2004 implementing Directive 2003/71/EC of the European Parliament and of the Council as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisement;
- › verifying consolidation packages;
- › confirming the fulfilment of terms and conditions of concluded loan agreements on the basis of the analysis

of financial information from the financial statements audited by the audit firm;

› attestation services related to reporting on corporate governance, risk management, and corporate social responsibility;
› services consisting in assessing the conformity of information disclosed by financial institutions and investment firms with requirements for disclosure of information on capital adequacy and variable remuneration components;
› certifying financial statements or other financial information intended for supervisory authorities, supervisory board or other supervisory body of the Company or owners, which falls beyond the scope of statutory audit and helps these bodies to fulfil their statutory obligations.
Provision of the above services is possible solely to the extent not related to the entity's tax policies after a review by the Audit Committee of hazards and mitigants of the audit firm's independence as referred to in Article 69-73 of the Act on Certified Auditors, Audit Firms and Public Supervision.

On 23 October the Supervisory Board of Arctic Paper S.A. in its resolution elected KPMG Audyt Spółka z ograniczoną odpowiedzialnością sp.k. as the Company's auditor to audit the financial statements for 2020 until 2022.

The Supervisory Board selected the audit firm on the basis of a recommendation by the Audit Committee. The recommendation of the Audit Committee was issued as a result of the selection procedure in compliance with the "Policy and selection procedure of the audit firm to perform statutory and voluntary audit of consolidated and stand-alone financial statements of Arctic Paper S.A. with its registered office in Poznań".

KPMG Audyt Spółka z ograniczoną odpowiedzialnością sp.k., entities related to the audit firm and members of its audit firm network, in the period covered by the audit did not provide any permitted services to the issuer that are not a statutory audit. The audit firm and members of its team performing the audit comply with the requirements to make an impartial and independent report from the audit of the annual consolidated and standalone financial statements of the Arctic Paper Group and of the Company in compliance with the applicable regulations, professional standards and the rules of professional ethics. The recommendation of the Audit Committee was free of third party impact and was developed on the basis of the "Policy and selection procedure of the audit firm to perform statutory and voluntary audit of consolidated and stand-alone financial statements of Arctic Paper S.A."

Remuneration Committee

Composition and organisation of the Remuneration Committee

The Remuneration Committee is composed of minimum two members of the Supervisory Board, including the Chairperson of the Committee, elected by the Supervisory Board from among its members in compliance with the Articles of Association and Regulations of the Supervisory Board;
Members of the Remuneration Committee shall be appointed for three-year terms of office, however no longer than the term of office of the Supervisory Board;
The Chairperson of the Remuneration Committee shall be elected with a majority of votes of its members;
The Remuneration Committee operates pursuant to the Regulations of the Supervisory Board and the Regulations of the Remuneration Committee;
The Remuneration Committee performs advisory and consulting functions, operates as a collective body within the Company's Supervisory Board;
The Remuneration Committee carries out its tasks by providing the Supervisory Board with its proposals, opinions and reports in the form of resolutions.

Competences of the Remuneration Committee

The basic task of the Remuneration Committee is advisory support to the Supervisory Board on issues related to remuneration policy, bonus policy and other issues related to the remuneration of the employees, members of the Company's authorities and the authorities of Capital Group companies;
The tasks of the Remuneration Committee resulting from supervision over the Company's remuneration policy and ensuring the effective functioning of the Company's remuneration policy, is to provide recommendations to the Supervisory Board in particular with respect to:
- › approval and modifications to the remuneration principles of members of the Company's bodies;
- › the amount of total remuneration to members of the Company's Management Board;
- › legal disputes between the Company and Members of the Management Board with respect to the tasks of the Committee;
- › proposing remuneration and approving additional benefits to individual members of the Company's bodies, in particular under management option plans (convertible into shares of the Company);
› strategy of the Company's remuneration and bonus policies and HR policies;
The Remuneration Committee may resort to advisory services and assistance by external legal or other advisers if it finds it necessary to perform its duties;
The Remuneration Committee is obliged to file annual reports from its operations to the Supervisory Board by 30 September in each calendar year.

The Remuneration Committee held meetings on 25 February and 7 May 2019.

Since 9 February 2017 the Remuneration Committee has been operating in the following composition:

Per Lundeen
Thomas Onstad
Roger Mattsson

The detailed mode of operation of the Remuneration Committee is set forth in the Regulations of the Remuneration Committee.

Risk Committee

Composition and organisation of the Risk Committee

The Risk Committee is composed of minimum three members of the Supervisory Board, including the Chairperson of the Committee, elected by the Supervisory Board from among its members. Minimum one member of the Risk Committee shall be independent and hold qualifications and experience in the sphere of finances;
Members of the Risk Committee shall be appointed for three-year terms of office, however no longer than the term of office of the Supervisory Board;
The Chairperson of the Risk Committee shall be elected with a majority of votes of its members;
The Risk Committee operates on the basis of commonly accepted corporate risk management models (e.g. COSO-ERM);
The Risk Committee performs advisory and consulting functions, operates as a collective body within the Company's Supervisory Board;
The Risk Committee carries out its tasks by providing the Supervisory Board with its proposals, opinions and reports in the form of resolutions.

Competences of the Risk Committee

— The basic task of the Risk Committee is advisory support to the Supervisory Board on issues related to the proper identification, assessment and control of potential risks, i.e. opportunities and threats to realization of the Company's strategic goals, with particular consideration

for financial risk, related to both external factors (such as volatility of exchange rates, interest rates, general international economic condition) and internal factors (such as cash flows, liquidity management, variation of budget and financial forecasts);

The tasks of the Risk Committee resulting from the supervision over the risk management process, include in particular:
- › Supervision over correct identification, analysis and assigning priority to types of risk inherent in the operational strategy and business pursued;
- › Confirmation to the identified risk appetite of the Company;
- › Verification if actions used to mitigate risk are planned and implemented so that the risk is mitigated to a level acceptable by the Company;
- › Monitoring verifying correct risk assessment by the Management Board and the effectiveness of control tools;
- › Supervision over correct notification of stakeholders on the risks, risk strategies and control tools.
The Risk Committee may resort to advisory services and assistance by external advisers if it finds it necessary to perform its duties.

The Risk Committee held a meeting on 4 March 2019.

Since 22 September 2016 the Risk Committee has been operating in the following composition:

Per Lundeen
Mariusz Grendowicz
Roger Mattsson

Information compliant with the requirements of Swedish regulations concerning corporate governance.

Arctic Paper S.A. is a company registered in Poland which stock has been admitted to trading at the Warsaw Stock Exchange and at NASDAQ in Stockholm. The Company's primary market is in Warsaw with a parallel market in Stockholm. Companies not registered in Sweden which shares have been admitted to trading at NASDAQ in Stockholm are obliged to comply with:

the corporate governance rules in force in the country of their registration or
the corporate governance rules in force in the country where they have their primary trading market, or
the Swedish corporate governance code (hereinafter the "Swedish Code").

Arctic Paper S.A. follows the principles set forth in the "Best Practice of GPW Listed Companies 2016" (hereinafter the "Best Practice") that may be applied by companies listed at the Warsaw Stock Exchange and not the Swedish Code. As a result, the conduct of Arctic Paper S.A. is different from the one set forth in the Swedish Code in the following material aspects.

General Meeting of Shareholders

The core documents related to General Meetings of Shareholders, such as notices, reports and approved resolutions, are made in Polish and in English instead of Swedish.

Appointment of governing bodies of the Company

The Polish corporate governance model provides for a two-tier system of the Company's bodies which is composed of the Management Board being the executive body appointed by the Management Board which in turns supervises the Company's operations and is appointed by the General Meeting of Shareholders. Auditors are selected by the Supervisory Board.

Neither the Best practice, nor any other Polish regulations require the establishment of a commission in the Company to elect candidates and therefore such commission does not exist among the bodies of the Company. Each shareholder may

propose candidates to the Supervisory Board. Appropriate information on candidates proposed to the Supervisory Board is published on the Company's website with appropriate advance so that all shareholders could take an informed decision when voting on the resolution appointing a new member of the Supervisory Board.

Tasks of the bodies of the Company

In compliance with the two-tier system of the Company's bodies, the tasks usually performed by the management of Swedish-registered companies are performed by the Management Board or the Supervisory Board of companies subject to Polish law.

In accordance with the Polish applicable regulations, members of the Management Board, including its General Director who is the President of the Management Board, may not get involved in competitive activities outside the Company. Pursuing of other business outside the Company is not regulated either in the Best Practice or other Polish regulations; however, certain restrictions are usually incorporated in individual employment contracts.

Size and composition of the Company's bodies

The composition of the Supervisory Board should reflect the independence criteria, just like those specified in the Swedish Code. However, the Management Board being the executive body is composed of persons in executive positions at Arctic Paper S.A., and these members may not be treated as independent of the Company. The terms of office of members of the Management Board – just like the members of the Supervisory Board – lasts three years.

Chairpersons of the bodies of the Company

It is the Supervisory Board and not the General Meeting that elects the chairperson and the deputy chairperson from its members.

Procedures of the bodies of the Company

The Regulations of the Management Board are approved by the Supervisory Board, and the Regulations of the Supervisory Board are approved by the Supervisory Board. The Regulations are not reviewed each year – they are reviewed and modified as need arises. The same principles apply to regulations of committees operating within the Supervisory Board that are approved by the Supervisory Board. The operation of the General Director is not regulated separately

since he/she also acts as the president of the Management Board.

Remuneration of members of the bodies of the Company and management staff

The rules of remuneration and the amount of remuneration of members of the Management Board are set by the Supervisory Board and the Remuneration Committee acting with the Supervisory Board. The remuneration of members of the Supervisory Board fall within the competences of the General Meeting of Shareholders. Incentive programmes are set up by the Supervisory Board. Members of the Supervisory Board are entitled to participate in such programmes established for the management staff. There are no restrictions as to the amount of remuneration during the employment contract notice period or to the amount of severance pay.

Information on corporate governance

The Polish Corporate Governance Rules do not require the same detail as to the disclosed information as required by the Swedish Code. However, information on members of the Company's bodies, company's Articles of Association, internal regulations and a summary of material differences between the Swedish and Polish approach to corporate governance and shareholders' rights is published on the Company's website.

Information by the Management Board of Arctic Paper S.A. on selection of the audit firm

On the basis of a statement made by the Supervisory Board of Arctic Paper S.A. on the selection of the audit firm to audit the annual consolidated financial statements of the Arctic Paper Group and standalone financial statements of the Company for the financial year ended on 31 December 2019 in compliance with applicable laws and on the basis of a statement received from KPMG Audyt spółka z ograniczoną odpowiedzialnością spółka komandytowa, the Company's Management Board informs that the audit firm and members of its team performing the audit have complied with the requirements to ma ke an impartial and independent report from the audit of the annual consolidated financial statements of the Arctic Paper Group and standalone financial statements of the Company for the financial year ended on 31 December 2019 in compliance with the appli cable laws, professional standards and the rules of professional ethics.

The Management Board of the Company also informs that the applicable laws with regard to a change of the audit firm and the key statutory auditor, as well as mandatory periods of grace have been complied with. The Arctic Paper Group has a policy relating to the selection of the auditing company and a policy of the provision of services that are not an audit by the audi t firm, entities related to the audit firm or a member of its group, including services that are not covered with the ban on being provided by audit fairms.

Signatures of the Members of the Management Board

Position	First and last name	Date	Signature
President of the Management Board Chief Executive Officer	Michał Jarczyński	26 March 2020	signed with a qualified electronic signature
Member of the Management Board Chief Financial Officer	Göran Eklund	26 March 2020	signed with a qualified electronic signature

Statements of the Management Board

Accuracy and reliability of the presented reports

Members of the Management Board of Arctic Paper S.A. represent that to the best of their knowledge:

The financial statements of Arctic Paper S.A. for the year ended on 31 December 2019 and the comparable data were prepared in compliance with the applicable accounting principles and they reflect Company's economic and financial condition and its financial result for 2019 in a true, reliable and clear manner.
The Management Board's Report from operations of Arctic Paper S.A. in 2019 contains a true image of the development, achievements and condition of Arctic Paper S.A., including a description of core hazards and risks.

Signatures of the Members of the Management Board

Position	First and last name	Date	Signature
President of the Management Board Chief Executive Officer	Michał Jarczyński	26 March 2020	signed with a qualified electronic signature
Member of the Management Board Chief Financial Officer	Göran Eklund	26 March 2020	signed with a qualified electronic signature

Annual report 2019 of Arctic Paper S.A. 41

The Management Board's Report

Standalone financial statements

Standalone statement of profit and loss

	Note	Year ended on 31 December 2019	Year ended on 31 December 2018
Continuing operations
Sales of serv ices	28	28 976	37 970
Interest income on loans	28	4 918	4 913
Div idend income	28	49 188	39 812
Sales rev enues	11	83 083	82 695
Interest expense to related entities and costs of sales of logistics serv ices	12.5	(5 512)	(5 329)
Gross profit (loss) on sales		77 571	77 366
Other operating income	12.1	5 533	3 960
Selling and distribution costs	12.5	(3 134)	(2 997)
Administrativ e expenses	12.5	(28 153)	(32 981)
Impairment charges to assets	12.2	(2 830)	(8 652)
Other operating expenses		(2 032)	(398)
Operating profit (loss)		46 955	36 298
Financial income	12.3	4 366	4 630
Financial expenses	12.4	(17 980)	(20 643)
Gross profit (loss)		33 340	20 285
Income tax	13.1	(305)	(762)
Net profit (loss) from continuing operations		33 035	19 523
Discontinued operations		-	-
Prof it (loss) f or the f inancial y ear f rom discontinued operations		-	-
Net profit (loss) for the reporting period		33 035	19 523
Earnings per share in PLN:
– basic earnings f rom the prof it (loss) f or the period – basic earnings f rom the prof it (loss) f rom continuing operations f or	14	0,48	0,28
the period		0,48	0,28
– diluted earnings f rom the prof it (loss) f or the period – diluted earnings f rom the prof it (loss) f rom the continuing	14	0,48	0,28
operations f or the period		0,48	0,28

Standalone statement of total comprehensive income

	Note	Year ended on 31 December 2019	Year ended on 31 December 2018
Net prof it (loss) f or the reporting period		33 035	19 523
Items to be reclassif ied to prof it/loss in f uture reporting periods:
Measurement of f inancial instruments	31.3	(715)	(44)
FX dif f erences on translation of f oreign operations	22.2	324	294
Other total comprehensiv e income		1 039	250
Total comprehensive income		34 075	19 773

Standalone statement of financial position

	Note	As at 31 December 2019 As at 31 December 2018
ASSETS
Fixed assets
Fixed assets	16	1 969	1 480
Intangible assets	17	1 738	1 857
Shares in subsidiaries	18.1	673 937	673 937
Other financial assets	18.3	45 318	72 742
Other non-financial assets	18.4	1 731	1 492
		724 693	751 508
Current assets Zapasy
Trade and other receivables	20	69 730	90 469
Income tax receivables		425	349
Other financial assets	18.3	94 057	123 848
Other non-financial assets	18.4	5 643	6 833
Cash and cash equivalents	21	31 939	19 605
		201 794	241 104
TOTAL ASSETS		926 486	992 612

Standalone statement of financial position continued

	Note		As at 31 December 2019 As at 31 December 2018
EQUITY AND LIABILITIES
Equity
Share capital	22.1	69 288	69 288
Reserve capital	22.3	427 502	407 979
Other reserves	22.4	103 115	102 399
FX differences on translation	22.2	1 785	1 461
Retained earnings / Accumulated losses		(33 611)	(46 002)
Total equity		568 078	535 124
Long-term liabilities
Interest-bearing loans, borrowings and bonds	24	54 549	80 782
Provisions	25	2 151	1 854
Other financial liabilities	26.3	626	171
Accruals and deferred income	26.2	-	-
Short-term liabilities		57 326	82 807
Interest-bearing loans, borrowings and bonds	24	252 320	272 269
Trade payables	26.1	33 962	86 924
Other financial liabilities	26.3	3 335	3 802
Other short-term liabilities	26.1	2 102	2 394
Accruals and deferred income	26.2	9 362	9 290
		301 081	374 679
Total liabilities		358 407	457 486
TOTAL EQUITY AND LIABILITIES		926 486	992 610

Standalone cash flow statement

		Year ended	Year ended on 31
	Note	31 December 2019	December 2018
Cash flows from operating activities
Gross profit (loss)		33 340	20 285
Adjustments f or:
Depreciation/amortisation	12.6	1 119	475
Loss on exchange rate dif f erences		1 897	1 721
Impairment of interests	12.2	-	4 377
Net interest and div idends		8 600	8 156
Increase / decrease in receiv ables and other non-f inancial assets		22 846	(11 337)
Increase / decrease in liabilities except f or loans and borrowings and other f inancial liabilities		(53 269)	28 450
Change in accruals and prepay ments		2 677	1 206
Change in prov isions		297	303
Income tax paid		-	(1 070)
Change to liabilities due to cash-pooling		80 153	(82 174)
Increase / decrease of loans granted to subsidiaries	28	26 936	(53 190)
Other		(81)	(1 900)
Net cash flows from operating activities		124 516	(84 699)

Cash flows from investing activities
Disposal of tangible f ixed assets and intangible assets		-	-
Purchase of tangible f ixed assets and intangible assets		(488)	(258)
Increase of interests in subsidiaries		-	-
Net cash flows from investing activities		(488)	(258)
Cash flows from financing activities
Repay ment of leasing liabilities		(1 003)	(283)
Repay ment of loan liabilities		(144 843)	(35 683)
Change of balance of ov erdraf ts		-	-
Borrowings and bonds receiv ed	24	42 753	125 011
Interest paid		(8 600)	(7 569)
Div idend disbursed		-	(13 857)
Net cash flows from financing activities		(111 693)	67 619
Cash and cash equivalents at the beginning of the period	21	19 605	36 942
Change in cash and cash equiv alents		12 334	(17 337)
Cash and cash equivalents at the end of the period	21	31 939	19 605

Standalone statement of changes in equity

	Note	Share capital	Reserv e capital	Translation reserv e	Other reserv es	Retained earnings	Total equity
As at 1 January 2019		69 288	407 979	1 461	102 399	(46 002)	535 124
Net prof it / (loss) f or the period		-	-	-	-	33 035	33 035
Other comprehensiv e income f or the period	22.2	-	-	324	715	-	1 039
Total comprehensiv e income f or the period		-	-	324	715	33 035	34 075
Prof it distribution	22.4	-	19 523	-	-	(19 523)	-
Div idend distribution		-	-	-	-	-	-
Settlement of the tax group in Sweden		-	-	-	-	(1 120)	(1 120)
As at 31 December 2019		69 288	427 502	1 785	103 115	(33 611)	568 078

	Share capital	Reserve capital	Translation reserve	Other reserves	Retained earnings	Total equity
As at 1 January 2018	69 288	447 641	1 167	116 300	(103 364)	531 032
Adjustment for previous years' errors					-	-
Net profit / (loss) for the period	-	-	-	-	19 523	19 523
Other comprehensive income for the period	-	-	294	(44)	-	250
Total comprehensive income for the period	-	-	294	(44)	19 523	19 773
Profit distribution	-	(39 662)	-	-	39 662	-
Dividend distribution	-	-	-	(13 858)	-	(13 858)
Settlement of the tax group in Sweden	-	-	-	-	(1 824)	(1 824)
As at 31 December 2018	69 288	407 979	1 461	102 399	(46 002)	535 123

Accounting principles (policies) and additional explanatory notes

1. General information

The financial statements of Arctic Paper S.A cover the year ended on 31 December 2019 and contain comparative data for the year ended on 31 December 2018.

Arctic Paper S.A. (hereinafter: ("Company", "Entity") is a joint stock company established with Notary deed on 30 April 2008 with its stock publicly listed. Until 7 October 2019, the Company's registered office was located Poznań at ul. Jana Henryka Dąbrowskiego 334A. Since 8 October 2019, in compliance with resolution No. 9 of the General Meeting of 28 May 2019, the Company's registered office has been located in Kostrzyn nad Odrą, at ul. Fabryczna 1. The Company also has a foreign branch in Göteborg, Sweden.

The Company is entered in the register of entrepreneurs of the National Court Register maintained by the District Court in Poznań – Nowe Miasto i Wilda, 8th Commercial Division of the National Court Register, under KRS number 0000306944. The Company holds statistical number REGON 080262255. The duration of the Company is indefinite.

The main area of the Company's business activity is holding activity for the benefit of the Arctic Paper Capital Group.

Nemus Holding AB is the direct Parent Entity to the Company. The ultimate Parent Entity of Arctic Paper Group is Incarta Development SA.

2. Identification of the consolidated financial statements

The Company prepared its consolidated financial statements for the year ended on 31 December 2019 which were approved for publishing on 26 March 2020.

3. Composition of the Company's Management Board

As at 31 December 2019, the Company's Management Board was composed of:

Michał Jarczyński President of the Management Board appointed on 10 December 2019, effective in 1 February 2019;
Göran Eklund Member of the Management Board appointed on 30 August 2017.

From 31 December 2019 until the publication date of the financial statements no other changes in the composition of the Management Board of the Company occurred.

4. Approval of the financial statements

These financial statements were approved for publication by the Management Board on 26 March 2020.

5. Investments by the Company

The Company holds interests in the following subsidiary companies:

Unit	Registered office	Group profile	Share
			31.12.2019	31.12.2018
Arctic Paper Kostrzyn S.A.	Poland, Kostrzyn nad Odrą, Fabryczna 1	Paper production	100%	100%
Arctic Paper Munkedals AB	Sweden, SE 455 81 Munkedal	Paper production	100%	100%
Arctic Paper UK Limited	United Kingdom, 8 St Thomas Street SE1 9RR London	Trading company	100%	100%
Arctic Paper Baltic States SIA	Latvia, K. Vardemara iela 33-20, Riga LV 1010	Trading company	100%	100%
Arctic Paper Benelux S.A.	Belgium, Ophemstraat 24, B-3050 Oud Heverlee	Trading company	100%	100%
Arctic Paper Schweiz AG	Szwajcaria, Gutenbergstrasse 1, CH-4552 Derendingen	Trading company	100%	100%
Arctic Paper Italia srl	Italy,Via Cavriana 7, 20 134 Milano	Trading company	100%	100%
Arctic Paper Danmark A/S	Denmark, Korskildelund 6 DK-2670 Greve	Trading company	100%	100%
Arctic Paper France SAS	France, 43 rue de la Breche aux Loups, 75012 Paris	Trading company	100%	100%
Arctic Paper Espana SL	Spain, Avenida Diagonal 472-474, 9-1 Barcelona	Trading company	100%	100%
Arctic Paper Papierhandels GmbH	Austria, Hainborgerstrasse 34A, A-1030 Wien	Trading company	100%	100%
Arctic Paper Polska Sp. z o.o.	Poland, Okrężna 9, 02-916 Warsaw	Trading company	100%	100%
Arctic Paper Norge AS	Norway, Eikenga 11-15, NO-0579 Oslo	Trading company	100%	100%
Arctic Paper Sverige AB	Sweden, SE 455 81 Munkedal	Trading company	100%	100%
Arctic Paper East Sp. z o.o.	Poland, Kostrzyn nad Odrą, Fabryczna 1	Trading company	100%	100%
Arctic Paper Investment GmbH	Germany, Fabrikstrasse 62, DE-882, 84 Wolpertswende	Activities of holding companies	99,80%	99,80%
Arctic Paper Investment AB	Sweden, Box 383, 401 26 Göteborg	Activities of holding companies	100%	100%
Arctic Paper Deutschland GmbH	Germany, Am Sandtorkai 72, D-20457 Hamburg	Trading company	100%	100%
Arctic Paper Finance AB (previous Arctic Energy Sverige AB)	Sweden, Box 383, 401 26 Göteborg	Activities of holding companies	100%	100%
Rottneros AB	Szwecja, Box 144, Sunne	Pulp production	51,27%	51,27%

As at 31 December 2019 and as at 31 December 2018, the share in the overall number of votes held by the Company in its subsidiary entities was equal to the share of the Company in the share capital of those entities.

6. Material values based on professional judgement and estimates

In the process of applying accounting policies to the areas presented below, professional judgement of the management staff had the most significant effect, apart from accounting estimations.

6.1. Deferred income tax asset

Due to the uncertainty regarding utilisation in future periods of tax losses recorded in 2015-2019, the Management Board decided not to create a deferred income tax asset for tax losses. Furthermore, the Management Board decided not to create a deferred income tax asset up to the amount of the deferred tax provision.

6.2. Impairment of assets in subsidiaries

The Management Board follows a prudent policy of investments in subsidiaries related to the Mochenwangen Paper Mill and for that reason all investments in those companies were written-off when incurred. The greatest amount was connected with receivables in the amount of PLN 2,830 thousand.

As at 31 December 2019, impairment tests were held at Arctic Paper Grycksbo AB whose 100% are held by Arctic Paper Investment AB. The tests were performed with the discounted cash flow method with reference to investments in both companies.

The tests were due to a revision of assumptions underlying stress tests held in previous years, primarily with reference to sales prices, production volumes and investment plans.

The impairment tests performed for Arctic Paper Grycksbo AB did not generate any additional impairment allowances as at 31 December 2019.

6.3. Uncertainties related to tax settlements

Regulations related to VAT, corporate income tax and charges related to social insurance are subject to frequent modifications. Those frequent modifications result in unavailability of appropriate points of reference, inconsistent interpretations and few precedents that could apply. Additionally, the applicable regulations contain also certain ambiguities that result in differences of opinion as to legal interpretations of tax regulations – among public authorities and between public authorities and enterprises.

Tax settlements and other areas of operations (for instance customs or foreign exchange issues) may be inspected by the authorities that are entitled to impose high penalties and fines as well additional tax liabilities resulting from inspections that have to be paid along with high interest. As a result, tax risk in Poland is higher than in countries with more mature tax systems.

Therefore, the amounts presented and disclosed in the financial statements may change in the future as a result of final decisions by tax inspection authorities.

On 15 July 2017, the Tax Code was amended to incorporate the provisions of the General Anti-Avoidance Rule (GAAR). GAAR is to prevent the development and use of artificial legal structures to avoid tax payments in Poland. GAAR defines tax avoidance as an activity pursued primarily to accomplish tax benefits that under the circumstances would be contradictory to the subject and purpose of the tax regulations. In accordance with GAAR, such activity would not generate tax benefits if the mode of operation was artificial. Any occurrence of unjustified split to operations, involvement of intermediaries despite no economic justification, mutually exclusive of compensating elements, and other similar activities, may be treated as a premise to the existence of artificial activities subject to GAAR. The new regulations will require more accurate judgements in the assessment of tax effects of each transaction.

GAAR is to be applied to transactions executed after its effective date and to transactions that were executed before the effective date of GAAR but with respect to which benefits were obtained or continue to be obtained after its effective date. The transposition of the above regulations would support Polish fiscal inspection authorities in questioning arrangements and agreements made by taxpayers such as current and deferred income tax, company restructuring or reorganisation.

The Company recognises and measures assets or liabilities applying the requirements of IAS 12 Income Taxes, on the basis of profit (tax loss), taxation base, carried forward tax losses, unutilised tax credits and applicable tax rates, and further subject to uncertainties related to tax settlements. When an uncertainty exists if and to what extent the tax authority accepts tax settlements to specific transactions, the Company recognises those settlements subject to uncertainty assessment.

6.4. Liabilities under leases – the Company as the lessee

The Company has lease contracts that it reports according to IFRS 16. IFRS 16 introduces a uniform model of the lessee accounting and requires the lessee to recognize assets and liabilities resulting from each lease. On the lease

commencement date, the lessee recognizes an asset with respect to the right to use the underlying asset and a lease liability that reflects the lessee's obligation to make lease payments.

7. Basis of preparation of the financial statements

These financial statements have been prepared on a historical cost basis (except financial instruments).

These financial statements are presented in Polish zloty ("PLN") and all values are disclosed in PLN thousand unless specified otherwise.

These financial statements have been prepared based on the assumption that the Company will continue as a going concern in the foreseeable future.

As at the publication date hereof, no circumstances were identified that would pose a threat to the Company continuing as a going concern.

7.1. Compliance statement

These financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), endorsed by the European Union. As at the balance sheet date, in light of the current process of IFRS endorsement in the European Union and the nature of the Company's activities, there is no difference between the IFRS applied by the Company and the IFRS endorsed by the European Union.

IFRS cover standards and interpretations approved by the International Accounting Standards Board (IASB).

7.2. Covid-19

On 11 March 2020, the World Health Organisation recognised the coronavirus epidemic as a pandemic. In order to reduce the significant threat to public health posed by COVID-19, the authorities of individual Member States of the European Union and worldwide, while awaiting further developments, have taken measures to stop the epidemic, including restrictions on the movement of persons, banning activities in certain sectors. In particular, the organisation of mass events has been suspended, the functioning of cultural facilities has been restricted, public transport has been restricted, retail outlets have been closed down, excluding grocery stores and pharmacies. Some companies have also recommended their employees to stay at home during this time and have limited or temporarily suspended their business activities.

These events may have the following consequences in a macroeconomic perspective:

disruption of supply chains of goods, in particular for cross-border and transcontinental supplies;
significant reduction of the capability to provide services or production, in certain sectors and regions. The affected sectors include mainly trade and transport, travel and tourism, cultural activities and entertainment, industrial production, consumer goods production and education;
a significant decrease in demand for non-essential goods and services;
increased economic uncertainty, reflected by fluctuations in asset prices and foreign exchange rates.

In response to the identified economic risks, the Governments of individual Member States, as well as European Union institutions, have announced national and pan-European programmes to help citizens and businesses. The details of the programmes, including the specific selection criteria for individual entities, have not yet been announced.

The subsidiaries of the Entity operate in the pulp and paper sector which, as at the time of preparing these consolidated financial statements, was not significantly affected by the COVID-19 epidemic. Over the past few weeks, the subsidiaries has been making relatively stable sales, and its business activities, including deliveries, have been continuous. On the basis of publicly available information, as at the date on which these financial statements were authorised for issue, the management of the Group's Parent Entity considered several extreme but still probable scenarios concerning the potential development of the epidemic and its expected impact on the Entity and its subsidiaries and the economic environment in which it operates, including measures already taken by the governments of the countries from which the Entity's and its subsidiaries' main business partners come.

As of 31 December 2019, the Group's current liquidity ratio was 1.4x and the net debt-to-EBITDA ratio for the last 12 months was 0.57x. The Group has unused credit lines and unused factoring limits. Under the Group's cash-pool agreement, cash available within individual units can be freely disposed of.

The management of the Entity has considered the following operational risks, which may have an adverse impact on the Entity and its subsidiaries:

unavailability of staff for a long time;
interruptions in the transport of production materials and products that would disrupt distribution;

— recession in the economy of developed countries, which would reduce the purchasing power of consumers, resulting in reduced sales of non-essential goods.

In order to mitigate the risks arising from potential adverse scenarios, the management of the Entity has started to implement measures, which include in particular:

implementation of employee protection programmes, including the introduction of personal protection solutions and shift work;
confirmation with the suppliers of key materials, the capability to deliver the volumes ordered and an estimation of the sufficiency of the stock held, in particular cellulose;
contractual arrangements with transport companies to ensure uninterrupted circulation of materials and products;
adjusting the scale of the Group's operations in response to a possible temporary decrease in demand for its goods;
securing financial liquidity as a result of working capital management and securing possible bridge financing.

Additionally, the management of the Entity conducted a simulation of the Group's financial condition under the conditions of reduced market demand for pulp and paper products – the scenarios under consideration assumed a decrease in sales from April to the end of 2020, between 10- 30%, when compared to budgeted data.

In the opinion of the management of the Entity, the above circumstances justify the assumption that the Entity will have sufficient resources to continue its business activities for at least 12 months from the balance sheet date. The management of the Entity concluded that the impact of the possible scenarios considered in making this judgement does not create material uncertainty about events or circumstances that would cast serious doubt on the Entities' ability to continue as a going concern.

7.3. Functional currency and presentation currency

The Polish zloty (PLN) is the functional currency and the presentation currency of the Company in these financial statements.

7.4. Adjustment of previous years' errors

In 2018, there were no other changes that would result in changes to the comparable data.

7.5. Data comparability/change to estimates

In 2019, there were events that resulted in changes to the comparable data. They were mainly due to the application in 2019 of IFRS 16 concerning lease contract presentation.

8. Changes to the applied accounting principles

The accounting principles (policies) applied to prepare these financial statements are compliant with those applied to the financial statements of the Company for the year ended on 31 December 2018, with the exception of those listed below. The modifications to IFRS listed below were applied to these financial statements when they became effective; however, they have no material impact on the presented and disclosed financial information and did not apply to any transactions concluded by the Company:

— IFRS 16 Leasing (issued on 13 January 2016) – effective for financial years beginning on or after 1 January 2019.

8.1. Implementation of IFRS 16

In January 2016, the International Accounting Standards Board issued International Financial Reporting Standard 16 Leases ("IFRS 16"), which replaced IAS 17 Leases, IFRIC 4 Determining whether an Arrangement Contains a Lease, SIC 15 Operating Leases – Incentives and SIC 27 Evaluating the substance of transactions involving the legal form of a lease. IFRS 16 sets out the accounting principles for leases in terms of measurement, presentation and disclosure.

IFRS 16 introduces a uniform model of the lessee accounting and requires the lessee to recognize assets and liabilities resulting from each lease with a period exceeding 12 months, unless the underlying asset is of low value. On the lease commencement date, the lessee recognizes an asset with respect to the right to use the underlying asset and a lease liability that reflects the lessee's obligation to make lease payments.

The lessee separately recognizes depreciation of an asset with respect to the right of use and interest on the lease liability.

The lessee updates the measurement of the lease liability after the occurrence of certain events (e.g. changes in the lease period, changes in future lease payments resulting from a change in the index or the rate used to determine such payments). As a rule, the lessee recognizes the revaluation of the lease liability as an adjustment to the value of the asset with respect to the right of use.

The Company is a lessee primarily in case of rental contracts for office space, lease of motor vehicles and machines and equipment.

The lessor accounting under IFRS 16 remains substantially unchanged from to the current accounting under IAS 17. The lessor will include all lease agreements using the same classification principles as in the case of IAS 17, distinguishing between operating leases and financial leasing.

IFRS 16 requires broader disclosures from both the lessee and the lessor than in the case of IAS 17.

IFRS 16 is effective for annual periods beginning on and after 1 January 2019. Earlier application is permitted for entities which apply IFRS 15 from or before the date of the first application of IFRS 16. The Group did not decide on early adoption of IFRS 16.

The application of IFRS 16 for the first time was subject to the lessee's decision to select a full retrospective approach with a recognition of the cumulated effect as the day of the first recognition (1 January 2019) and interim regulations provided for certain practical solutions.

As at 1 January 2019, the Company implemented prospectively a uniform model of lessee accounting covering lease contracts in compliance with IFRS 16 with terms in excess of 12 months unless the underlying asset has value under EUR 5 thousand. The contracts covered with IFRS 16 are mainly operational lease contracts within the meaning of IAS 17 (motor vehicles, office equipment) and lease contracts for specified periods of time over 12 months from 31 December 2018 (office space).

As at 1 January 2019, the value of use rights, disclosed in tangible fixed assets and lease liabilities grew by PLN 1.6 thousand. The average weighted margin interest rate applied to lease liabilities recognised in the statement of financial condition on the date of the first application was 4%, depending on the type of assets or funding method of the Company.

Due to the interim regulations applied in the implementation of IFRS 16, the Company did not adjust any comparable data as at 31 December 2018. Additionally, the Company applied simplifications relating to the contract value or the remaining lease term.

The difference between the amounts of future payments that the Company was obliged to make under operational leases, disclosed in compliance with IFRS 17 as at the end of 2018, discounted with the marginal interest rate as at the day of the first application, and the lease liabilities disclosed in the statement of financial condition on the day of the first application of IFRS 16 – 1 January 2019, was due to the recognition of lease contracts that did not have to be disclosed in 2018 in compliance with IFRS 17.

9. New standards and interpretations that have been published and are not yet effective

The following standards and interpretations were issued by the International Accounting Standards Board (IASB) or the International Financial Reporting Interpretations Committee (IFRIC) but are not yet effective:

Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting policies, changes in accounting estimates and errors (effective for annual periods beginning on or after 1 January 2020). Those amendments have not yet been endorsed by the EU. The amendments harmonise and clarify the definition of "Material" and provide guidelines in order to improve consistency in applying the concept in International Financial Reporting Standards. The above changes are not expected to have material impact on the entity's financial statements.

Disposal or Transfer of Assets between the Investor and an Associate Company or a Joint Venture (amendments to IFRS 10 Consolidated Financial Statements and to IAS 28 Investments in Associates); The European Commission took a decision on deferring approval of those amendments for an undefined period. The amendments clarify that in case of a transaction made with an associate or a joint venture, the extent to recognise the related transactional profit or loss depends on that if the transferred or sold assets constitute a venture:

the entire profit or loss is recognised if the transferred assets meet the definition of a venture (irrespective of the fact if the venture is a subsidiary entity or not);
the profit or loss is recognised in part when the transaction covers assets that do not constitute a venture even if such assets were held in a subsidiary entity.

IFRS 17 Insurance Contracts applies to annual periods beginning on or after 1 January 2021, prospective application; earlier application is permitted. The standard has not been yet endorsed by the EU. IFRS 17 that replaces temporary standard IFRS 4 Insurance Contracts that was implemented in 2004. IFRS 4 provided companies with a possibility to continue disclosing insurance contracts pursuant to the accounting principles applicable in national standards, which, as a result, meant application of different solutions. IFRS 17 solves the issue of comparability created by IFRS 4 through a requirement of coherent disclosure of all insurance contracts, which will be beneficial for both investors and insurers. Liabilities arising from contracts will be recognised at present values, instead of historic cost.

Amendments to IFRS 3 Business Combinations; effective for annual periods beginning on or after 1 January 2020. Those amendments have not yet been endorsed by the EU. The changes restrict and clarify the definition of business. They also support a simplified assessment if a set of assets and activities constitutes a group of assets and not a business.

Modifications to IFRS 9 Financial Instruments, IAS 39 Financial Instruments and IFRS 7 Financial Instruments: Disclosure of information is effective for annual periods beginning on and after 1 January 2020. Those amendments have not yet been endorsed by the EU. The amendments are mandatory and apply to all hedge relationships affected by the uncertainty resulting from the reformed interest rates. The modifications provide for a temporary waiver of the use of certain hedge accounting requirements so that the interest rate reform does not cancel hedge accounting. The key waivers concerning the amendments refer to:

the requirement that flows are "highly probable",
risk components,
prospective assessment,
retrospective tests of effectiveness (applies to IAS 39),
reclassification of provisions under cash flow hedges.

The amendments further require that entities disclose additional information to investors on hedge relationships that affect the above uncertainties.

The effective dates are the dates detailed in the standards as published by the International Accounting Standards Board. The effective dates in the European Union may be different that the effective dates as specified in the standards and will be announced when endorsed by the European Union.

9.1. Implementation of new standards

As at the date of approval of these Financial Statements for publication, the Management Board do not exp[ect that the impact of the introduction of other standards and interpretations on the accounting principles (policy) applied by the Company with respect to the Company's operations or its financial results will be significant.

10. Significant accounting principles (policies)

10.1. Foreign currency translation

The presentation currency of the Company is Polish zloty, however, for the foreign branch the functional currency is Swedish crown. As at the balance sheet date, assets and liabilities of the branch are translated into the presentation currency of the Company using the FX rate prevailing on that date and its profit and loss account is translated using a weighted average FX rate for the reporting period.

The FX differences arising from the translation are recognised in other total comprehensive income and accumulated in a separate item of equity – Fx differences on translation.

Transactions denominated in currencies other than Polish zloty are translated to Polish zloty at the FX rate prevailing on the transaction date.

As at the balance sheet date, assets and monetary liabilities expressed in currencies other than Polish zloty are translated into Polish zloty using the National Bank of Poland's mean FX rate prevailing for the given currency as at the end of the reporting period.

FX differences resulting from translation are recognised under financial income (expenses), or – in cases defined in the accounting policies – are capitalised in assets. Non-monetary foreign currency assets and liabilities recognised at historical cost in foreign currency are translated at the historical FX rates prevailing on the transaction date. Non-monetary foreign currency assets and liabilities recognised at fair value in foreign currency are translated using the FX rates prevailing as at the date of fair value measurement.

The following exchange rates were used for book valuation purposes:

	31 December 2019	31 December 2018
USD	3,7977	3,7597
EUR	4,2585	4,3000
SEK	0,4073	0,4201
DKK	0,5700	0,5759
NOK	0,4320	0,4325
GBP	4,9971	4,7895
CHF	3,9213	3,8166

	01/01 - 31/12/2019	01/01 - 31/12/2018
USD	3,8399	3,6117
EUR	4,2988	4,2617
SEK	0,4061	0,4156
DKK	0,5758	0,5718
NOK	0,4365	0,4439
GBP	4,8988	4,8168
CHF	3,8644	3,6912

For translation of assets and liabilities of the foreign branch as at 31 December 2019, the exchange rate SEK/PLN of 0.4073 was applied (31 December 2018: 0.4201). For translation of the items of comprehensive income for the year ended on 31 December 2019, the exchange rate SEK/PLN of 0.4061 was

applied (for the year ended on 31 December 2018: 0.4156) which is an arithmetic mean of NBP's mean exchange rates published by NBP in 2019 (2018).

10.2. Tangible fixed assets

Tangible fixed assets are measured at purchase price or construction cost reduced by accumulated depreciation and impairment charges.

The initial value of fixed assets comprises their purchase price and any directly attributable costs of bringing the asset to working condition for its intended use. The cost also comprises the expenses for replacement of fixed asset components when

incurred, if the recognition criteria are met. Subsequent expenditures, such as repair or maintenance costs, are expensed in the reporting period in which they were incurred.

Upon purchase, fixed assets are divided into components which represent items with a significant value that can be allocated a separate economic useful life. Overhauls also represent asset components.

Property, plant and equipment are depreciated using the straight-line method over their estimated useful lives as follows:

Type	Period
Buildings and structures	25 - 50 years
Plant and machinery	5 - 20 years
Office equipment	3 - 10 years
Motor vehicles	5 - 10 years
Computers	1 - 10 years

Residual values, useful lives and depreciation methods of asset components are reviewed annually and, if necessary, adjusted retrospectively i.e. with effect from the beginning of the financial year that has just ended.

An item of property, plant and equipment is derecognised from the statement of financial condition upon disposal or when no future economic benefits are expected from its further use. Any profit or loss arising from derecognition of an asset from the statement of financial condition (calculated as the difference between the net disposal proceeds and the book value of the asset) is recognised in the profit or loss for the period in which such derecognition took place.

Assets under construction (construction in progress) include assets in the course of construction or assembly and are recognised at purchase price or cost of construction less any impairment losses. Assets under construction are not depreciated until completed and brought into use.

10.3. Right to use assets

In compliance with IFRS 16, the Company applies a model to identify agreements pursuant to which the Company controls assets.

When a lease contract is opened, the Company recognises the right to use assets and a lease liability in the value of present lease payments, discounted with a margin lease discount rate.

Lease payments reduce the liability amount by the discounted value and the difference between those values is recognised in financial expenses. The right to use assets is amortised and the amortisation is charged to the current financial results.

In case of modifications to lease terms and conditions or a change of the discount rate, the Company updates the liability.

10.4. Intangible assets

Intangible assets acquired in a separate transaction or constructed by the Company (if they meet the recognition criteria for development costs) are measured on initial recognition at purchase price or construction cost.

The cost of intangible assets acquired in a business combination is equal to their fair value as at the date of combination. Following initial recognition, intangible assets are recognised at purchase cost or construction cost reduced by any accumulated amortisation and impairment charges.

The useful lives of intangible assets are assessed by the Company to be either finite or indefinite.

Intangible assets with finite lives are amortised over the useful life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible asset.

Useful lives are reviewed on an annual basis and, if necessary, are adjusted with effect from the beginning of the financial year that has just ended.

A summary of the policies applied to the Company's intangible assets is as follows:

	Computer software and licences	Trademarks
Economic useful life	2 - 5 years	Unspecified
Depreciation method	2-5 years with the straight-line method	Is not depreciated
Internally generated or acquired	Acquired	Acquired

After analysing the relevant factors, for trademarks the Company does not define any time limit of their useful life. The intention of the Company is to operate for an indefinite period under the same trademark and it is believed that it will not become impaired. Consequently, and in accordance with IAS 38, the Company does not amortise intangible assets with indefinite useful lives.

Useful life of such resources should be reviewed in each reporting period, in order to determine whether events and circumstances continue to confirm the assumption of the indefinite useful life of such asset.

Profit or loss arising from derecognition of an intangible asset from the statement of financial condition are measured as the difference between the net sales proceeds and the book value of the asset and are recognised in profit or loss when the asset is derecognised from the statement of financial condition.

10.5. Impairment of non-financial fixed assets

An assessment is made at each reporting date to determine whether there is any indication that a component of nonfinancial fixed assets may be impaired. If such indications exist, or in case an annual impairment test is required, the Company makes an estimate of the recoverable amount of that asset or the cash generating unit that the asset is a part of.

The recoverable amount of an asset or a cash-generating unit is the fair value of such asset or cash-generating unit reduced by costs to sell or its value in use, whichever is higher. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of

assets. When the book value of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Impairment charges of continuing operations are recognised in the expense categories consistent with the function of the impaired asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment charge may no longer exist or may have decreased. If such indications exist, the Company makes an estimate of recoverable amount of the asset. A previously recognised impairment charge is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment charge was recognised. If that is the case, the book value of the asset is increased to its recoverable amount. That increased amount cannot exceed the book value that would have been determined (net of depreciation or amortisation), had no impairment loss been recognised for the asset in prior years.

Reversal of impairment charge to assets is recognised immediately as income. After a reversal of an impairment loss is recognised, the depreciation (amortisation) charge for the asset is adjusted in future periods to allocate the asset's book value, reduced by its residual value (if any), on a systematic basis over its remaining useful life.

10.6. External borrowing costs

External borrowing costs are capitalised as part of the cost of fixed assets and intangible assets.

External borrowing costs include interest calculated using the effective interest rate method, finance charges in respect of finance leases and foreign exchange differences incurred in connection with the external financing to the extent that they are regarded as an adjustment to interest expense.

10.7. Shares in subsidiaries, affiliated entities and in joint ventures

Shares in subsidiaries, affiliated entities and joint ventures are presented at historical cost basis, subject to impairment charges.

Impairment allowances are calculated by comparing the book value of investments with the value in use resulting from impairment tests, adjusted for the amount of financial obligations. The value in use is calculated with the discounted cash flow method.

10.8. Financial assets

In compliance with IFRS 9, the Company classifies financial assets to one of the following categories:

measured at amortised cost: To measure its financial assets measured at amortised cost, the Company applies the effective interest rate method; those are trade receivables, loans granted, other financial receivables and cash and cash equivalents. After initial recognition, trade receivables are measured at amortised cost with the effective interest rate method subject to impairment allowances' trade receivables due within 12 months of the day of their origin (without financing elements) and not forwarded to factoring, are not discounted and are measured at nominal value;
measured at fair value through other total comprehensive income: profit and loss on a financial asset being a capital instrument which is subject to a measurement option via other comprehensive income, are recognised in other total comprehensive income with the exception of dividend received;
measured at fair value through profit or loss: profit or loss resulting from measurement of financial assets, classified as measured at fair value through profit and loss, are recognised through profit or loss in the period in which it was generated; those are primarily derivative instruments not designated for hedge accounting. Profit or loss resulting from measurement of items measured at fair

value through profit and loss covers also interest and dividend income;

— hedging financial instruments: Hedging financial instruments are measured in compliance with the principles of hedge accounting.

The Company classifies debt financial assets to an appropriate category subject to the business model of managing financial assets and to the characteristics of contractual cash flows for each financial asset.

10.9. Impairment of financial assets

As at each balance sheet date, the Company assesses whether there is any objective evidence that a financial asset or a group of financial assets is impaired.

IFRS 9 introduces a new approach to estimating impairment of financial assets at amortised cost or at fair value via other comprehensive income (except investments in financial assets and contractual assets). The impairment model is based on calculation of anticipated losses contrary to the currently applied model resulting from IAS 39 which was based on a concept of incurred losses. Loans and trade receivables are the most important financial asset in the Company's financial statements that are subject to the new principles of calculating anticipated credit losses.

In accordance with IFRS 9, the entity measures write-downs for expected credit losses in the amount equal to the 12-month expected credit losses or expected credit losses in the life of the financial instrument. In the case of trade receivables, the Company will apply a simplified approach and will measure a write-down for expected credit losses at the amount equal to the expected credit losses over the whole life of an asset.

The Company applies a simplified model to recognise impairment allowances to trade receivables. In the simplified model, the Company does not monitor changes to credit risk level over the life of the instrument and estimates anticipated credit losses over the horizon until the maturity of the instrument. In order to estimate the anticipated credit loss, the Company applies a provision matrix estimated on the basis of historic collectibility levels and recoveries from counterparties. The anticipated credit loss is calculated at the time the receivables are recognised in the statement of financial position and it is updated as at each closing of reporting periods, subject to the number of overdue dates.

10.10. Financial derivatives and hedges

The Company uses derivative financial instruments such as forward currency contracts and interest rate swaps to hedge the risks associated with interest rate and foreign FX rates

fluctuation. Such derivative financial instruments are measured at fair value. Such derivatives are stated as assets when the value is positive and as liabilities when the value is negative.

Any gains or losses arising from changes in the fair value of the derivatives that do not qualify for hedge accounting are recognised directly in the net profit or loss for the financial year.

The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of interest rate swap contracts is determined based on a valuation model which takes into account observable market data, particularly including current term interest rates.

For the purpose of hedge accounting, hedges are classified as:

fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability, or
cash flow hedges when hedging exposure to variability in cash flows that is attributable to a particular risk inherent in the recognised asset or liability or a forecast transaction, or
hedges of interests in net assets in a foreign entity.

Hedges of foreign currency risk in an unrecognised firm commitment are accounted for as cash flow hedges.

At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship as well as the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and the assessment method of the hedging instrument's effectiveness in offsetting the exposure to changes in the hedged item's fair value or cash flows attributable to the hedged risk. Hedges are expected to be highly effective in offsetting the exposure to changes in the fair value or cash flows attributable to the hedged risk. Hedge effectiveness is assessed on a regular basis to check if the hedge is highly effective throughout all reporting periods for which it was designated.

Fair value hedges

Fair value hedge is a hedge of the exposure to changes in fair value of a recognised asset or liability or an unrecognised firm commitment, or an identified portion of such an asset, liability or firm commitment, that is attributable to a particular risk and could affect profit or loss. In the case of a fair value hedge, any profit or loss on the hedged item attributable to the hedged risk is adjusted against the book value of the hedged item, the hedging instrument is re-measured to fair value and the gains and losses on the hedging instrument and hedged item are recognised in profit or loss.

For fair value hedges relating to items recognised at amortised cost, the adjustment to the book value is amortised and recognised in profit or loss over the remaining term to maturity of the instrument.

When an unrecognised firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognised as an asset or liability with a corresponding profit or loss recognised in profit or loss. The changes to the fair value of the hedging instrument are also recognised in profit or loss.

The Company discontinues hedge accounting if the hedging instrument expires, or is sold, terminated or exercised, or the hedge no longer qualifies for hedge accounting, or the Company revokes the designation. Any adjustment to the book value of a hedged financial instrument for which the effective interest method is used is amortised and the allowances are recognised in profit or loss. Amortisation may begin as soon as an adjustment is made, however no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.

Cash flow hedge

Cash flow hedges are hedges securing for the risk of cash flow fluctuations which can be attributed to a particular kind of risk inherent in the given item of assets or liabilities or in a contemplated investment of high probability, and which could influence profit or loss. The part of profit or loss related to the hedging instrument which constitutes an effective hedge is recognised directly in other comprehensive income and the non-effective part is recognised in profit or loss.

If a hedged intended transaction subsequently results in the recognition of a financial asset or financial liability, the associated gains or losses that were recognised in other comprehensive income and accumulated in equity shall be reclassified to profit and loss account in the same period or periods in which the asset acquired or liability assumed affects profit or loss.

If a hedge of a intended transaction subsequently results in the recognition of a non-financial asset or a non-financial liability, or a forecast transaction for a non-financial asset or nonfinancial liability becomes a firm commitment for which fair

value hedge accounting is applied, then gains and losses that were recognised in other comprehensive income are reclassified from equity to profit or loss in the same period or periods during which the asset acquired or liability assumed affects profit or loss.

For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are recognised directly to net financial result for the period.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or the hedge no longer qualifies for hedge accounting. At that point in time, any cumulative profit or loss on the hedging instrument that has been recognised directly in other comprehensive income and accumulated in equity, remains recognised in equity until the forecast transaction occurs. If the forecast transaction is no longer expected to occur, the net cumulative profit or loss recognised in equity is recognised in net profit or loss for the period.

Hedges of interests in net assets in a foreign entity

Hedges of interests in net assets in a foreign entity, including a hedge of a monetary item that is accounted for as part of the net assets, are accounted for similarly to cash flow hedges. The portion of the profit or loss on the hedging instrument that is determined to be an effective portion of the hedge is recognised in other comprehensive income and the ineffective portion is recognised in profit or loss. On disposal of the foreign entity, the net cumulative profit or loss that was previously recognised in other comprehensive income is recognised in profit or loss as an adjustment resulting from reclassification.

10.11. Trade and other receivables

Trade and other receivables are stated and recognised at original invoiced amount subject to an allowance for doubtful receivables. An allowance for doubtful receivables is made when collection of the full amount is no longer probable.

If the effect of the time value of money is material, the value of receivables is determined by discounting the estimated future cash flows to present value using a discount rate that reflects current market assessments of the time value of money. Where discounting is used, any increase in the balance due to the passage of time is recognised as financial income.

Other receivables include in particular input VAT receivables.

Budgetary receivables are presented within trade and other receivables, except for corporate income tax receivables that constitute a separate item in the statement of financial condition.

10.12. Cash and cash equivalents

Cash and short-term deposits in the statement of financial condition comprise cash at bank and on hand and short-term deposits with an original maturity of three months or less.

For the purpose of the cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above.

10.13. Interest-bearing loans, borrowings and bonds

All bank loans, borrowings and bonds are initially recognised at fair value reduced by costs associated with obtaining the loan or borrowing.

After initial recognition, interest-bearing loans, borrowings and bonds are subsequently measured at amortised cost using the effective interest rate method.

The amortised cost is calculated by taking into account any costs associated with obtaining the loan or borrowing, and any discount or premium received in relation to the liability.

Revenues and expenses are recognised in profit or loss when the liabilities are derecognised from the statement of financial condition or accounted for with the effective interest method.

10.14. Trade and other payables

Short-term trade payables are recognised at amounts payable.

In compliance with IFRS 9, the Company classifies financial liabilities to one of the following categories:

measured at amortised cost: trade payables, loans, borrowings and bonds
measured at fair value through profit or loss: liabilities under derivative instruments not designated to hedge accounting
hedging financial instruments, assets and financial liabilities being derivative instruments hedging cash flows and hedging fair value

Financial liabilities measured at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as measured to fair value through profit or loss.

Financial liabilities are classified as held for trading if they are acquired for the purpose of re-sale in the near term. Derivatives, including separated embedded derivatives are

also classified as held for trading unless they are determined to be effective hedging instruments.

Financial liabilities may be designated at initial recognition as measured at fair value through profit or loss if the following criteria are met:

the designation eliminates or significantly reduces the inconsistent treatment from measuring or recognising gains or losses based on different regulations; or
the liabilities are part of a group of financial liabilities which are managed and their performance is measured on a fair value basis, in accordance with a documented risk management strategy; or
financial liabilities contain an embedded derivative that would need to be recognised separately.

As at 31 December 2019 and 31 December 2018, no financial liabilities were designated as measured at fair value through profit or loss.

Financial liabilities measured at fair value through profit or loss are measured at fair value, reflecting their market value as at the balance sheet date without taking sales transaction costs into account. Changes in fair value of those instruments are recognised in the profit or loss as financial income or expenses.

Financial liabilities other than financial instruments measured at fair value through profit or loss are measured at amortised cost with the effective interest rate method.

A financial liability is derecognised from the statement of financial condition when the contractual liability has been fulfilled, cancelled or has expired. Replacement of an existing debt instrument with an instrument with basically different conditions, made between the same entities, is recognised by the Company as expiry of the original financial liability and recognition of a new financial liability. Similarly, major modifications to contractual terms and conditions related to an existing financial liability is recognised by the Company as expiry of the original and recognition of a new financial liability. The differences in the corresponding book values resulting from such exchange are recognised in profit or loss.

Other short-term liabilities include in particular liabilities to tax authorities under personal income tax liability and liabilities to ZUS.

Other non-financial liabilities are recognised at the amount payable.

10.15. Provisions

Provisions are created when the Company is charged with a (legal or customary) obligation relating to past events, and when it is likely that satisfaction of such obligation shall result in a necessity of an outflow of economic benefits and an amount of such obligation may be reliably estimated. Where the Company expects some or all of the provisioned costs to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the profit and loss account after the deduction of any reimbursement.

If the effect of the time value of money is material, provisions are determined by discounting the estimated future cash flows to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and, where appropriate, the risks inherent in the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as financial expenses.

10.16. Revenues

The International Financial Reporting 15 Revenue from Contracts with Customers ("IFRS 15"), issued in May 2014 and amended in April 2016, establishes a Five-Step Model to recognise revenues resulting from contracts with customers:

Requirements applicable to identifying contracts with customers: contracts with customers meet the definition when all of the following criteria have been satisfied: the parties to the contract have concluded the contract and are obliged to perform their obligations; the Company is able to identify the rights of each party concerning the goods and services to be provided; the Company is able to identify the payment terms for the goods and services to be provided; the contract has economic content and it is likely that the Company will receive its remuneration due to it in exchange for the goods and services to be provided to the customer;
Identification of obligations to perform the service: at contract conclusion the Company assesses the goods and services promised in the contract and identifies each promise as a liability for delivery to the customer: the goods or services (or a package of goods or services) that may be identified or a group of separate goods or services that are basically the same and when the delivery has the same nature;
Identification of the transactional price: in order to determine the transactional price, the Company takes the contractual conditions into account as well as its customary commercial practices. The transactional price is the amount that – as the Company expects – will be due to

it in exchange for the delivery of the promised goods or services to the customer, net of any amounts collected on behalf of third parties. The contractual remuneration may cover fixed amounts, variable amounts or both types; in order to estimate the variable remuneration, the Company has decided to apply the most probable value method;

The allocation of the transactional price of each liability to perform: The Company allocates the transactional price to each obligation to perform (or for separate goods or separate services) in an amount that reflects the remuneration amount, in line with the Company's expectations – it is due to the Company in exchange for the delivery of the promised goods or services to the customer;
Revenue recognition when the obligation to perform is being executed: The Company recognises revenues at completion (or during completion) of its obligation to perform by delivery of the promised goods or services (an asset) to the customer (the customer acquires control over the asset). Revenues are recognised in the remuneration amount which – as expected by the entity – is due to it in exchange for the goods or services promised to customers.

The following criteria are also applicable to recognition of revenues.

Provision of services

Revenue is recognised when material risk and benefits resulting from the provided services has been passed to the buyer and when the revenue amount can be credibly evaluated.

Interest

Interest income is recognised as interest accrues (using the effective interest rate method that is the rate that discounts the estimated future cash receipts over the anticipated life of the financial instrument) to the net book value of the financial asset.

Dividend

Dividend is recognised when the shareholders' rights to receive dividend are established.

10.17. Taxes

Current tax

Current income tax liabilities and receivables for the current period and previous periods are measured at amounts projected to be paid to tax authorities (to be recovered from tax authorities) with tax rates and based on tax regulations legally or actually applicable as at the balance sheet date.

Deferred income tax

For financial reporting purposes, deferred income tax is recognised, using the liability method, regarding temporary differences as at the balance sheet date between the tax value of assets and liabilities and their book value disclosed in the financial statements.

Deferred tax provision is recognised for all positive temporary differences:

except where the deferred income tax liability arises from the initial recognition of goodwill, an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit or loss nor taxable profit or loss;
in respect of positive differences associated with investments in subsidiaries, associates and interests in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income asset is recognised for all negative temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilised:

except where the deferred tax asset relating to the negative temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss;
in respect of negative temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, the deferred income tax asset is recognised in the statement of financial condition solely to the extent to which it is probable that in the foreseeable future the above differences will be reversed and sufficient taxable income to deduct such temporary negative differences.

The book value of the deferred tax asset is reviewed as at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax asset is reassessed as at each balance sheet date and is recognised to the extent that it has become probable that future taxable profit will be available that will allow the deferred tax asset to be recovered.

Deferred tax asset and provisions are measured at the tax rates that are expected to apply in the period in which the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted as at the balance sheet date.

Income tax relating to items recognised outside profit or loss is recognised outside profit or loss: in other comprehensive income in correlation items recognised in other comprehensive income or directly in equity with reference to items recognised directly in equity.

Deferred income tax asset and deferred income tax liability are offset, if a legally enforceable right exists to set off current income tax asset against current income tax liability and the deferred income tax relates to the same taxable entity and the same tax authority.

Value added tax

Revenues, expenses, assets and liabilities are recognised after the deduction of the amount of VAT, except:

— where VAT incurred on a purchase of assets or services is not recoverable from the tax authority, in which case VAT

is recognised as part of the cost of purchase of the asset or as part of the expense item as applicable and

— receivables and payables which are disclosed with the VAT amount inclusive.

The net amount of VAT recoverable from or payable to the tax authority is included in the statement of financial condition as part of receivables or payables.

10.18. Net profit per share

Net profit per share is calculated by dividing the net profit for the period by the weighted average number of shares during the reporting period. Diluted profit per share is calculated by dividing the net profit for the period by the diluted weighted average number of shares during the reporting period.

11. Sales revenues

Arctic Paper S.A. is a holding company, providing services mostly to the Group companies.

The table below presents a geographical split of revenues from sales of services as well as dividend and interest income in 2019-2018.

Total	83 082	82 695
	54 107	44 725
- other	4 618	6 188
- Sweden	46 607	15 139
- Poland	2 883	23 399
Other income (div idends and interest)
	28 975	37 970
- other	-	-
- Sweden	16 888	21 881
- Poland	12 087	16 089
Sales of serv ices
	Year ended 31 December 2019	Year ended 31 December 2018

The above information about revenues is based on data regarding registered offices of subsidiaries of Arctic Paper S.A.

Service revenues (management, logistics services) constitute revenues recognised on a time basis since the underlying service s are those provided for a specified time agreed in contracts with customers. The Company usually applied a 14 -day payment term, and does not receive payments before services are completed.

12. Other revenues and expenses

12.1. Other operating income

	Year ended 31 December 2019	Year ended 31 December 2018
Re-invoices	1	51
Reversal of impairment allowance to assets (Arctic Paper Sverige AB)	-	2 936
Reversal of impairment allowance to assets (Arctic Paper Norge AS)	-	516
Reversal of impairment allowance to assets (Arctic Paper Mochenwangen GmbH)	5 083	-
Other	449	458
	5 533	3 960
12.2. Impairment charges to assets
	Year ended 31 December 2019	Year ended 31 December 2018
Impairment allowance to assets (Arctic Paper Mochenwangen GmbH)	2 830	824
Impairment allowance to assets (Arctic Paper Inv estment AB)	-	7 828
	2 830	8 652
12.3. Financial income	Year ended 31 December 2019	Year ended 31 December 2018
Interest income on funds in bank accounts	213	686
Re-invoiced financial services	4 117	3 924
Other financial income	36	20
	4 366	4 630
12.4. Financial expenses	Year ended on 31 December 2019	Year ended 31 December 2018
Interest on loans and other liabilities f rom related entities	10 059	11 531
FX losses	912	3 190
Warranty costs	2 298	2 169
Costs related to new f inancing amortised ov er time	4 326	3 254
Other f inancial expenses	385	499
	17 980	20 643

12.5. Prime costs

	Year ended on 31 December 2019	Year ended 31 December 2018
Depreciation/amortisation	1 088	474
Materials	189	231
Third party serv ices	15 051	17 669
Taxes and charges	66	141
Wages and salaries	12 361	14 799
Employ ee benef its	4 343	4 127
Other prime costs	2 010	2 344
	35 107	39 785
Interest and other not recognised in costs by ty pe	1 692	1 522
	36 799	41 307
Prime costs, of which:
Items recognised as selling and distribution costs	3 134	2 997
Items recognised as administrativ e expenses	28 153	32 981
Items recognised as internal costs of sales	5 512	5 329

12.6. Depreciation/amortisation

	Year ended 31 December 2019	Year ended 31 December 2018
Depreciation of tangible fixed assets	944	471
Amortisation of intangible assets	176	3
	1 119	474
Attributable to: - continuing operations - discontinued operations	1 119 -	474 -
	1 119	474

12.7. Employee benefit costs

	Year ended on 31 December 2019	Year ended 31 December 2018
Wages and salaries	12 361	14 477
Social insurance premiums	2 319	2 534
Costs of retirement benef its	1 442	1 593
	16 122	18 604

13. Income tax

13.1. Tax liability

The major components of income tax liabilities for the year ended on 31 December 2019 and on 31 December 2018 are as follows:

	Year ended on 31 December 2019	Year ended 31 December 2018
Current income tax liability	(305)	(762)
Amount of def erred income tax charge	-	-
Tax charge disclosed in the profit and loss account	(305)	(762)

13.2. Recognition of effective tax rate

A reconciliation of income tax expense applicable to gross profit (loss) before income tax at the statutory income tax rate, to income tax expense at the Company's effective income tax rate for the year ended on 31 December 2019 and 31 December 2018 is as follows:

	Year ended
	on 31
	December	Year ended
	2019	31 December 2018
Gross prof it (loss) bef ore tax f rom continuing operations	33 340	20 285
Prof it (loss) bef ore tax f rom discontinued operations	-	-
Gross prof it (loss) bef ore tax	33 340	20 285

Tax at the statutory rate in Poland of 19%	6 335	3 854
Adjustments related to current income tax f rom prev ious y ears	305	305
Non-activ ated loss of the current y ear	2 421	2 389
Div idend income	(9 430)	(7 564)
Adjustment to accrued and paid interest	-	(277)
Costs that are permanently non-tax deductible	647	413
Taxable costs being accounting costs in the y ear	-	(191)
Use of non-activ ated tax losses	(2)	-
Unrealised FX dif f erences	-	7
Unrecognised other temporary income/expenses	-	312
Impairment allowances f or interests and loans	-	1 198
Impairment allowances f or other receiv ables	-	157
Dif f erence resulting f rom income tax rates in f orce in other countries	30	161

Income tax at the effective tax rate: the company does not pay income tax (2018: the company did not pay income tax) - - Deferred income tax asset is recognised for tax losses carried forward to the extent that realisation of the related tax bene fit through future taxable profit is probable.

The amounts and expiry dates of unused tax losses are as follows:

Expiry y ear of tax losses	Year ended 31 December 2019	Year ended 31 December 2018
ended on 31 December 2019	6 777	3 598
ended on 31 December 2020	8 040	10 151
ended on 31 December 2021	11 148	6 553
ended on 31 December 2022	13 757	-
ended on 31 December 2023 and later	7 470	-
Total	47 193	20 302

At the end of 2019, the 5-year period of possible use of 50% tax loss of 2014 and 50% tax loss of 2015 (PLN 3,598 thousand) expired.

13.3. Deferred income tax

Deferred income tax relates to the following items:

		Balance sheet		Profit and loss account
	31 December 2019	31 December 2018	Year ended on 31 December 2019	Year ended on 31 December 2018
Deferred income tax liability
Accelerated tax depreciation/amortisation	-	-	-	(1)
Accrued interest income	564	178	386	(27)
FX gains	1343	1 503	(160)	909
Gross deferred income tax provision	1 908	1 681

	Balance sheet		Profit and loss account
	31 December 2019	31 December 2018	Year ended on 31 December 2019	Year ended on 31 December 2018
Deferred income tax assets
Provisions and accruals and deferred income	1 114	791	(323)	1 039
Interest accrued on loans received and bonds	62	33	(29)	464
FX losses	2 027	2 336	309	(1 704)
Impairment charges	-	-	-	-
Other	(22)	(118)	(96)	118
Losses deductible from future taxable income	8 967	6 812	(2 155)	(2 629)
Gross deferred income tax assets	12 147	9 854
Deferred income tax charge			(2 067)	(1 830)
Deferred income tax assets, not recognised in the balance sheet	10 240	8 174	2 067	1 830

Net deferred income tax provision,

of which:

Deferred income tax provision – continuing activity - - - -

The Company has not recognised the deferred income tax asset on the impairment charges to receivables, loans and interests in AP Investment GmbH, AP Paper Mochenwangen GmbH and AP Investment AB. The potential related asset as at 31 December 2019 would have amounted to PLN 287 thousand (in 2018 – PLN 157 thousand).

14. Earnings (loss) per share

Earnings per share is established by dividing the net profit for the reporting period attributable to the Company's

ordinary shareholders by weighted average number of issued ordinary shares existing in the reporting period.

There are no instruments for profit dilution of the Company.

The information regarding profit and the number of shares which was the base for calculation of earnings per share and diluted earnings per share is presented below:

	Year ended on 31 December 2019	Year ended 31 December 2018
Net prof it (loss) f rom continuing operations Prof it (loss) f or the f inancial y ear f rom discontinued operations	33 035 -	19 523 -
Net prof it (loss) f or the reporting period	33 035	19 523
Number of ordinary shares – A series	50 000	50 000
Number of ordinary shares – B series	44 253 500	44 253 500
Number of ordinary shares – C series	8 100 000	8 100 000
Number of ordinary shares – E series	3 000 000	3 000 000
Number of ordinary shares – F series	13 884 283	13 884 283
Total number of shares	69 287 783	69 287 783
Weighted av erage number of shares	69 287 783	69 287 783
Weighted av erage diluted number of shares	69 287 783	69 287 783
Profit per share (in PLN)	0,48	0,28
Diluted profit per share (in PLN)	0,48	0,28

15. Dividend paid and proposed

Dividend is paid based on the net profit disclosed in the standalone annual financial statements of Arctic Paper S.A. after covering losses carried forward from the previous years.

however, a part of reserve capital equal to one third of the share capital can be used solely to cover the losses disclosed in the standalone financial statements of the Parent Entity and cannot be distributed to other purposes.

As on the date hereof, the Company had no preferred shares.

The Company's General Meeting, held on 28 May 2019, approved a resolution to allocate the profit for the financial year of 2018 to the Company's reserves.

16. Fixed assets

Year ended on 31 December 2019	Land and buildings	Plant and machinery	Fixed assets under construction	Total
Gross book value as at 01 January 2019	937	2 279	-	3 215
BO adjustment IFRS16	1 247	321	-	1 568
Increases	-	218	-	218
Decreases	-	(577)	-	(577)
Gross book value as at 31 December 2019	2 183	2 241	-	4 424
Depreciation and impairment allowances as at 01 January 2019	280	1 454	-	1 734
Depreciation allowance for the period	498	445	-	944
Reduced depreciation	-	(226)	-	(226)
Depreciation and impairment allowances as at 31 December 2019	779	1 673	-	2 452
Net value as at 01 January 2019	656	825	-	1 480
Net value as at 31 December 2019	1 404	567	-	1 969

Year ended on 31 December 2018	Land and buildings	Plant and machinery	Fixed assets under construction	Total
Gross book value as at 01 January 2018	937	2 314	-	3 251
Increases	-	13	-	13
Decreases	-	(48)	-	(48)
Gross book value as at 31 December 2018	937	2 279	-	3 216
Depreciation and impairment allowances as at 01 January 2018	187	1 123	-	1 310
Depreciation allowance for the period	94	377	-	471
Reduced depreciation	-	(47)	-	(47)
Depreciation and impairment allowances as at 31 December 2018	280	1 453	-	1 734
Net value as at 01 January 2018	750	1 191	-	1 941
Net value as at 31 December 2018	656	825	-	1 480

17. Intangible assets

Year ended on 31 December 2019	Trademarks	Computer software	Total
Gross book value as at 01 January 2019	1 319	587	1 906
Increases	-	57	57
Decreases	-	-	-
Gross book value as at 31 December 2019	1 319	644	1 963
Depreciation and impairment allowances as at 01 January 2019	-	49	49
Depreciation allowance for the period	-	176	176
Reduced depreciation	-	-	-
Depreciation and impairment allowances as at 31 December 2019	-	224	224
Net value as at 01 January 2019	1 319	538	1 857
Net value as at 31 December 2019	1 319	419	1 738

Year ended on 31 December 2019	Trademarks	Computer software	Total
Gross book value as at 01 January 2018	1 319	341	1 660
Increases	-	246	246
Decreases	-	-	-
Gross book value as at 31 December 2018	1 319	587	1 906
Depreciation and impairment allowances as at 01 January 2018	-	46	46
Depreciation allowance for the period	-	3	3
Reduced amortisation	-	-	-
Depreciation and impairment allowances as at 31 December 2018	-	49	49
Net value as at 01 January 2018	1 319	295	1 614
Net value as at 31 December 2018	1 319	538	1 857

The carrying value of acquired rights to trademarks as at 31 December 2019 was PLN 1,319 thousand.

18. Other assets

18.1. Shares in subsidiaries

	As at 31 December 2019	As at 31 December 2018
Arctic Paper Kostrzy n S.A.	442 535	442 535
Arctic Paper Munkedals AB	88 175	88 175
Rottneros AB	101 616	101 616
Arctic Paper Inv estment AB, of which:	24 579	24 579
Arctic Paper Investment AB (shares)	307 858	307 858
Arctic Paper Investment AB (loans)	82 709	82 709
Arctic Paper Investment AB (impairment charge)	(365 988)	(365 988)
Arctic Paper Inv estment GmbH	0	0
Arctic Paper Investment GmbH (shares)	120 031	120 031
Arctic Paper Investment GmbH (impairment charge)	(120 031)	(120 031)
Arctic Paper Sv erige AB	2 936	2 936
Arctic Paper Sverige AB (shares)	11 721	11 721
Arctic Paper Sverige AB (impairment charge)	(8 785)	(8 785)
Arctic Paper Danmark A/S	5 539	5 539
Arctic Paper Deutschland GmbH	4 977	4 977
Arctic Paper Norge AS	516	516
Arctic Norge AS (shares)	3 194	3 194
Arctic Paper Norge AS (impairment charge)	(2 678)	(2 678)
Arctic Paper Italy srl	738	738
Arctic Paper UK Ltd.	522	522
Arctic Paper Polska Sp. z o.o.	406	406
Arctic Paper Benelux S.A.	387	387
Arctic Paper France SAS	326	326
Arctic Paper Espana SL	196	196
Arctic Paper Papierhandels GmbH	194	194
Arctic Paper East Sp. z o.o.	102	102
Arctic Paper Baltic States SIA	64	64
Arctic Paper Schweiz AG	61	61
Arctic Paper Finance AB	68	68

Total 673 937 673 937

The value of investments in subsidiary companies was disclosed on the basis of historic costs.

In 2019 there were no changes in the value of Arctic Paper S.A. shares in subsidiaries.

18.2. Test of impairment of tangible fixed assets

As at 31 December 2019, 31 December 2018, and in earlier periods, analyses were carried out regarding indicators of impairment of investments in individual subsidiaries.

As a result of the analysis, it was decided that it was necessary to have a full impairment test to the investment in the subsidiary Arctic Paper Grycksbo AB (directly and exclusively controlled by Arctic Paper Investment AB, in which the Parent Entity holds 100% of shares). The need to test the investment in Arctic Paper Grycksbo was determined by achieving lower results than those expected by the Group's Management Board as a result of market conditions, such as unfavourable fluctuations of raw material prices and intensified competition in the segment of paper produced by Grycksbo.

As at 31 December 2019 and 31 December 2018, the Company held an impairment test to its investment in Arctic Paper Grycksbo AB. The estimated goodwill (value in use)

of the enterprise as at 31 December 2019 was determined with the discounted cash flow method. The estimated value of the enterprise was determined at PLN 140,549 thousand. The value adjusted for the value of financial liabilities (including financial liabilities of Arctic Paper Grycksbo AB towards the Parent Entity), recognised as the value in use of the investment in shares, resulting from the impairment test, amounts as at the balance sheet date to PLN 62,252 thousand, whereas the balance sheet value of the investment in shares in Arctic Paper Investment AB (a direct shareholder of Arctic Paper Grycksbo AB, whose one significant component of net assets are shares in Artic Paper Grycksbo AB) is PLN 24,579 thousand.

As a result of the impairment test, no further impairment charge was recognised as at 31 December 2019 (PLN 7,828 thousand as at 31 December 2018). Due to the uncertainty of estimates (the restructuring process in progress in the subsidiary), it was not decided as at 31 December 2019 to reverse the impairment charges recognized in previous years. The total impairment charge of the investment as at 31 December 2019 was PLN 365,988 thousand (31 December 2018: PLN 365,988 thousand).

Below is a presentation of the key assumptions underlying the impairment tests held as at 31 December 2019 and 31 December 2018.

Calculations of the value in use of the paper sale centre at the Grycksbo Paper Mill is most sensitive to the following variables:

Discount rates;
Growing raw material prices;
Growing energy prices.

Discount rate – reflects the assessment of risks inherent to the centre estimated by the management. This is the rate applied by the management to estimate the operational effectiveness (results) and future investment proposals. In the budgeted period the applied discount rate is 8.0% (projected for 31 December 2018: 8.0%). The discount rate was determined on the basis of the following: Weighted average cost of capital (WACC).

Changing raw material prices (mainly pulp) – estimates concerning changes to raw materials are made on the basis of the ratios related to pulp prices. The data underlying the applied assumptions is obtained from: www.foex.fi. It should be noted that the costs of pulp is characterised by high volatility.

Changing energy prices – a growth of energy prices, mainly electricity, listed at Nordpool, the commodity exchange in Sweden, and of the energy generated from biomass as the core source of energy, results from the assumptions applied to the projections approved by the local management of the Grycksbo Paper Mill.

The table below presents the core assumptions applied to calculate the value in use as at 31 December 2019 and 31 December 2018.

Main assumptions	2019	2018

Approved projections based on	2020-2024	2019-2023
Income tax rate (2020)	21,4%	21,4%
Income tax rate (from 2021 onwards)	20,6%	21,4%
Discount rate before tax effect	10,1%	10,2%
Weighted average cost of capital (WACC)	8,0%	8,0%
Growth rate in the residual period	0,0%	0,0%

Parameters Increase in basis points Effect on value in use 31 December 2018 Weighted average cost of capital (WACC) +0,1 p.p. (1 524) Growth rate in the residual period +0,1 p.p. 1 033 Sales volume in the first year of the projection + 0,1% ¹⁷¹ Sales prices in the first year of the projection + 0,1% ⁶²⁸ Pulp purchase prices in the first year of the projection +1,0% (2 456) Energy prices in first year of the projection +1,0% (451) Weighted average cost of capital (WACC) -0,1 p.p. 1 562 Growth rate in the residual period -0,1 p.p. (1 007) Sales volume in the first year of the projection - 0,1% (171) Sales prices in the first year of the projection - 0,1% (628) Pulp purchase prices in the first year of the projection -1,0% 2 456 Energy purchase prices in the first year of the projection -1,0% ⁴⁵¹ 31 December 2017 Weighted average cost of capital (WACC) +0,1 p.p. (1 078) Growth rate in the residual period +0,1 p.p. 743 Sales volume in the first year of the projection + 0,1% 667 Sales prices in the first year of the projection + 0,1% 726 Pulp purchase prices in the first year of the projection +1,0% (3 368) Energy purchase prices in the first year of the projection +1,0% (153) Weighted average cost of capital (WACC) -0,1 p.p. 1 104 Growth rate in the residual period -0,1 p.p. (716) Sales volume in the first year of the projection - 0,1% (667) Energy purchase prices in the first year of the projection - 0,1% (726) Pulp prices in first year of the projection -1,0% 3 368 Energy prices in first year of the projection -1,0% 153

The table below presents sensitivity of the value in use of assets to fluctuations of each parameter underlying the test:

The value in use resulting from impairment tests adjusted for the value of financial obligations was PLN 62,252 thousand as a t the balance sheet date and the value of investments in Arctic Paper Investment AB is PLN 24,579 thousand. The total impairmen t charge of the investment as at 31 December 2019 was PLN 365,988 thousand (31 December 2018: PLN 365,988 thousand).

18.3. Other financial assets

	Maturity date	As at 31 December 2019
Short-term
Loan granted to Arctic Paper Munkedals AB - amount: PLN 7,849 thousand	31.12.2020	7 929
Loans granted to Arctic Paper Kostrzy n S.A. (short-term portion)	31.12.2020	4 958
- amount: PLN 4,800 thousand
Loan granted to Arctic Paper Kostrzy n S.A. (Capex B, short-term part)	31.12.2020	14 543
- amount: EUR 3,333 thousand
Loans granted to Arctic Paper Gry cksbo AB (short-term part)	31.12.2020	8 807
- amount: EUR 2,014 thousand
Loans granted to Paper Gry cksbo AB - amount: EUR 8,400 thousand	31.12.2020*	36 021
Loans granted to Arctic Paper Benelux - amount: EUR 100 thousand	31.12.2022*	457
Cashpooling Arctic Paper Gry cksbo AB		21 341
Loans granted to Arctic Paper Mochenwangen GmbH - amount: EUR 5,743 thousand		25 014
Loan granted to Arctic Paper Inv estment GmbH - amount: EUR 6,992 thousand		30 269
Impairment allowances to assets		(55 283)
- applies to Arctic Paper Inv estment GmbH and Arctic Paper Mochenwangen GmbH
		94 057

*possibility to repay upon request within 14 day s

	Repay ment date	As at 31 December 2019
Long-term
Loan granted to Arctic Paper Inv estment AB (interest)		82 709
Loan granted to Arctic Paper Inv estment GmbH - amount: EUR 990 thousand		4 286
Loans granted to Arctic Paper Kostrzy n S.A.	2021-08-27	4 800
- amount: PLN 4,800 thousand
Loan granted to Arctic Paper Kostrzy n S.A. (Capex B)	2022-08-27	28 390
- amount: EUR 6,667 thousand
Loans granted to Paper Gry cksbo AB	2021-08-27	12 128
- amount: EUR 2,848 thousand
Impairment allowances to assets
- applies to Arctic Paper Inv estment GmbH		(4 286)
The loan is recognised as an inv estment in subsidiary entities		(82 709)
		45 319
Total other f inancial assets		139 375

*may be repaid prematurely upon request

Other financial assets in 2018 were as follows:

	Repay ment date	As at 31 December 2018
Short-term
Loan granted to Arctic Paper Munkedals AB - amount: PLN 7,849 thousand	2019-12-31	8 128
Loans granted to Arctic Paper Kostrzy n S.A. (short-term portion)	2019-12-31	16 553
- amount: PLN 4,800 thousand EUR 2,600 thousand
Loan granted to Arctic Paper Kostrzy n S.A. (Capex A, short-term part)	2019-12-31	7 329
- amount: EUR 1,633 thousand
Loans granted to Arctic Paper Gry cksbo AB (short-term part)	2019-12-31	2 686
- amount: EUR 624 thousand
Loans granted to Arctic Paper Gry cksbo AB (short-term part)	2019-12-31	4 789
- amount: EUR 1,112 thousand
Loans granted to Paper Gry cksbo AB - amount: EUR 8,400 thousand	31.12.2019*	36 132
Loans granted to Arctic Paper Benelux - amount: EUR 100 thousand	31.12.2022*	450
Cashpooling Arctic Paper Gry cksbo AB		47 781
Loans granted to Arctic Paper Mochenwangen GmbH - amount: EUR 6,714 thousand		29 185
Loan granted to Arctic Paper Inv estment GmbH - amount: EUR 4,603 thousand + EUR 2,389 thousand		30 269
Impairment allowances to assets		(59 455)
- applies to Arctic Paper Inv estment GmbH and Arctic Paper Mochenwangen GmbH

*possibility to repay upon request within 14 day s

123 848

Repay ment date	As at
	31 December 2018

Long-term
Loan granted to Arctic Paper Inv estment AB (interest)		82 709
Loan granted to Arctic Paper Inv estment GmbH - amount: EUR 990 thousand		4 286
Loans granted to Arctic Paper Kostrzy n S.A.	2021-08-27	31 960
- amount: PLN 9,600 thousand and EUR 5,200 thousand
Loan granted to Arctic Paper Kostrzy n S.A. (Capex A)	2022-08-27	21 070
- amount: EUR 4,900 thousand
Loans granted to Paper Gry cksbo AB - amount: EUR 1,248 thousand	2021-08-27	5 366
Loans granted to Paper Gry cksbo AB - amount: EUR 3,336 thousand	2021-08-27	14 345
Impairment allowances to assets - applies to Arctic Paper Inv estment GmbH		(4 286)
The loan is recognised as an inv estment in subsidiary entities		(82 709)
		72 742
Total other f inancial assets		196 588

*may be repaid prematurely upon request

18.4. Other non-financial assets

	As at 31 December 2019	As at 31 December 2018
Insurance	149	77
Rent and security deposits	110	28
Leasing	165	-
Receivables from pension fund	1 731	1 492
VAT refundable	2 868	1 499
Accounting for costs related to new financing	1 915	4 612
Other	436	617
Total	7 373	8 325
- long-term - short-term	1 731 5 643	1 492 6 833
	7 374	8 325

19. Inventories

The Company does not and did not have any inventories in 2019 and in 2018.

20. Trade and other receivables

		As at 31	As at 31
	Note	December	December
		2019	2018
Trade receiv ables f rom related entities	28	89 754	106 674
Trade receiv ables f rom other entities		554	686
Total (gross) receivables		90 308	107 360
Impairment charges to receiv ables		(20 578)	(16 891)
Net receivables		69 730	90 469

The Company has no receivables payable after 12 months.

As at 31 December 2019, the cumulated amount of write-offs to short-term receivables from AP Investment GmbH amounted to PLN 10,300 thousand and receivables from AP Mochenwangen GmbH: PLN 10,278 thousand.

Terms and conditions of transactions with related entities are presented in note 28.

Ageing of trade receivables as at 31 December 2019

		current	1 - 30	31 - 90	91 - 180	181 - 365	over 365
Trade receivables from related entities	69 176	38 286	12 106	9 355	9 429	-	-
Trade receivables from other entities	554	293	83	34	44	89	11
Net receivables	69 730	38 579	12 189	9 389	9 473	89	11

21. Cash and cash equivalents

Cash at bank earns interest at variable interest rates based on overnight bank deposit rates.

Short-term deposits are made for varying periods of between one day to one month depending on the immediate cash requirements of the Company and earn interest at the respective short-term deposit rates.

As at 31 December 2019, the fair value of cash and cash equivalents was PLN 31,939 thousand (31 December 2018: PLN 19,605 thousand).

The balance of cash and cash equivalents disclosed in the cash flow statement consisted of the following items:

31 939 19 605

	As at 31 December 2019	As at 31 December 2018
Cash in bank and on hand	31 939	19 605

22. Share capital and reserve capital/other reserves

22.1. Share capital

	As at 31 December 2019	As at 31 December 2018
Share capital
Ordinary series A shares	50	50
Ordinary series B shares	44 253	44 253
Ordinary series C shares	8 100	8 100
Ordinary series E shares	3 000	3 000
Ordinary series F shares	13 884	13 884
	69 288	69 288

Ordinary issued and fully paid-up shares	increase	Number	Value

Issued on 30 April 2008	2008-05-28	50 000	50
Issued on 12 September 2008	2008-09-12	44 253 468	44 253
Issued on 20 April 2009	2009-06-01	32	0
Issued on 30 July 2009	2009-11-12	8 100 000	8 100
Issued on 01 March 2010	2010-03-17	3 000 000	3 000
Issued on 20 December 2012	2013-01-09	10 740 983	10 741
Issued on 10 January 2013	2013-01-29	283 947	284
Issued on 11 February 2013	2013-03-18	2 133 100	2 133
Issued on 06 March 2013	2013-03-22	726 253	726
As at 31 December 2019		69 287 783	69 288

Nominal value of shares

All outstanding shares currently have a nominal value of PLN 1 and have been fully paid.

Purchase of treasury shares

Until the day of these financial statements, the Management Board of Arctic Paper S.A. has not purchased any treasury shares of the Company.

Major shareholders

	As at 31 December 2019		As at 31 December 2018
	Share in the share capital	Share in the total number of v otes	Share in the share capital	Share in the total number of v otes
Thomas Onstad	68,13%	68,13%	68,13%	68,13%
indirectly v ia	59,15%	59,15%	59,15%	59,15%
Nemus Holding AB	58,28%	58,28%	58,28%	58,28%
other entity	0,87%	0,87%	0,87%	0,87%
directly	8,98%	8,98%	8,98%	8,98%
Other	31,87%	31,87%	31,87%	31,87%

22.2. FX differences on translation of investments in foreign entities

Swedish krona is the functional currency of the Company's foreign branch.

As at the balance sheet date, the assets and liabilities of the branch are translated into the presentation currency of the Group and its profit and loss account is translated using the average weighted exchange rate for the relevant reporting period. The FX differences on translation are recognised in other comprehensive income and cumulated in a separate equity item.

On 31 December 2019, FX differences on translation of the foreign branch recognised in equity amounted to PLN 1,785 thousand (as at 31 December 2018: PLN 1,461 thousand). The FX differences on translation of the foreign branch, recognised in the total comprehensive income statement, amounted to PLN 324 thousand in 2019 and PLN 294 thousand in 2018.

22.3. Reserve capital

The reserve capital was originally established from the issue premium in 2009 of PLN 35,985 thousand which was reduced by the costs of the issue recognised as a decrease of the reserve capital and was modified over the successive years as a result of subsequent share issues and allocations from profit.

The Ordinary General Meeting of Shareholders of 28 May 2019, decided that the net profit generated by the Company in 2018 of PLN 19,523 thousand was fully allocated to reserve capital.

As at 31 December 2019, the total amount of the Company's reserve capital was PLN 427,502 thousand (31 December 2018: PLN 407,979 thousand).

22.4. Other reserves

As at 31 December 2019, the total value of the Company's other reserves was PLN 103,115 thousand (31 December 2018: PLN 102,399 thousand)

22.5. Retained earnings (losses) and restrictions to dividend distribution

In accordance with the provisions of the Code of Commercial Companies, the Company is obliged to establish reserve capital to cover potential losses. At least 8% of the profit for the financial year disclosed in the financial statements of the Company should be transferred to the category of the capital until the capital has reached the amount of at least one third of the share capital. Appropriation of the reserve capital and other reserves depends on the decision of the General Meeting; however, the reserve capital equivalent to one third of the share capital may be used solely for the absorption of losses disclosed in the financial statements and may not be used for any other purposes.

In connection with the term and revolving loan agreements signed on 9 September 2016, the agreements related to the bond issue pursuant to which on 30 September 2016 the Company issued bonds and the intercreditor agreement (described in more detail in note 24.1 "Obtaining of new financing" in the Financial Statements for 2016), the possibility of the Company to pay dividend is subject to satisfying certain financial ratios by the Group in two periods preceding such distribution (as the term is defined in the term and revolving loan agreements) and no occurrence of any events of default (as defined in the term and revolving loan agreements).

As at 31 December 2019, there were no other restrictions concerning dividend distribution.

23. Purchase of interests in subsidiary entities

In 2019, the Company did not acquire any new interests in subsidiaries.

24. Interest-bearing loans and borrowings

	Repayment date	As at 31 December 2019	As at 31 December 2018
Short-term
Loan from Arctic Paper Finance AB; short-term portion and interest	29.07.2020	21 619	11 080
Long-term loan from the European Bank of Reconstruction and Development - agreement of 9 September 2016	31.08.2022	25 237	33 867
Long-term loan from Santander Bank Polska S.A. - agreement of 9 September 2016	31.08.2021	4 584	6 860
Long-term loan from Bank BNP Paribas S.A. - agreement of 9 September 2016; short-term portion	31.08.2021	4 382	6 622
Long-term loan CAPEX A from the European Bank of Reconstruction and Development - agreement of 9 September 2016; short-term portion	31.08.2022	19 654	27 248
Long-term loan CAPEX B from the European Bank of Reconstruction and Development - agreement of 9 September 2016; short-term portion	31.08.2022	41 032	-
Loan from a bank consortium: Santander and BNP PLN; short-term portion	31.01.2021	14 348	25 673
Revolving loan from Santander Bank Polska S.A. - agreement of 9 September 2016;	31.10.2020	-	42 373
Revolving loan from Bank BNP Paribas S.A. - agreement of 9 September 2016;	31.10.2020	-	9 147
Bond issue - agreement of 9 September 2016; short-term portion	31.08.2021	19 166	19 992
Cashpooling BNP EUR		-	40 823
Cashpooling Arctic Paper Kostrzyn S.A.		52 754	29 338
Cashpooling Arctic Paper Munkedals AB		49 544	19 247
		252 321	272 269

* amounts presented as short-term - reclassification from long-term due to unfulfillment of bank covenents - detailes desrcibed in Note

Long-term	Repayment date	As at 31 December 2019	As at 31 December 2018
Loan f rom Arctic Paper Finance AB of EUR 2,500 thousand, long-term portion	30.09.2019	-	10 750
Bond issue – agreement of 9 September 2016; long-term portion	31.08.2021	54 549	70 032
		54 549	80 782

As at 31 December 2019, the Arctic Paper Group failed to comply with the limit of investment outlays (Capex) and Guaranators treshold test (as described further in note 35.2) set forth in the loan agreement due to an additional investment in the hydroelectric power plant at Arctic Paper Munkedals Kraft. On 12 March 2020 the bank consortium approved a modified method to calculate the limits and not to include the investment in the calculation. However, since the approval had not been granted before 31 December 2019, then in compliance with IAS 1 bank loans for PLN 61,404 th ousand were disclosed as short-term loans.

25. Provisions

As at 31 December 2019, provisions created by the Company amounted to PLN 2,151 thousand (PLN 1,854 thousand in 2018) and were presented as long-term liabilities of PLN 2,151 thousand (PLN 1,854 thousand in 2018) and as short-term liabilities of PLN 0 thousand (PLN 0 thousand in 2018). The amount fully includes a provision for retirement employee benefits.

26. Trade payables, other liabilities and accruals and deferred income and other financial liabilities

26.1. Trade payables and other short-term liabilities

	Note	As at 31 December 2019	As at 31 December 2018
Trade pay ables
Due to related entities	28	1 913	3 061
Due to other entities		32 049	83 863
		33 962	86 924
Other liabilities
Liabilities due to employ ees		1 047	876
Liabilities towards the budget		1 048	1 511
Other liabilities		6	6
		2 101	2 393

The terms and conditions of financial liabilities presented above:

Terms and conditions of transactions with related entities are presented in note 28.

Other liabilities are interest free and the usual payment term is 30 days.

There are no receivables payable after 12 months.

26.2. Accruals and deferred income

	As at 31 December 2019	As at 31 December 2018
Accruals and deferred income, including:
Unutilised holiday leaves	1 598	1 249
Bonus for employees	1 055	1 833
Advisory services	184	166
Costs of sales agents	75	33
Transport costs	2 821	2 879
Severance pay for employees	1 451	2 881
Costs of settlement with former employee	1 600	-
Other	578	249
	9 362	9 290

26.3. Other financial liabilities

	As at 31 December 2019	As at 31 December 2018

Other f inancial liabilities
Measurement of f inancial instruments	2 748	3 648
Lease liabilities	1 212	324
	3 961	3 973
Other f inancial liabilities
Long-term	626	171
Short-term	3 335	3 802
	3 961	3 973

27. Contingent liabilities

As at 31 December 2019, the Company had no contingent liabilities.

27.1. Tax settlements

Tax settlements and other areas of activity subject to specific regulations (like customs or FX matters) may be inspected by administrative bodies that are entitled to impose high penalties and sanctions.

No reference to stable legal regulations in Poland results in lack of clarity and consistency in the regulations. Frequent differences of opinion as to legal interpretation of tax regulations – both inside state authorities and between state authorities and enterprises – generate areas of uncertainty

and conflicts. As a result, tax risks in Poland are much higher than in countries with a more developed tax system.

Tax settlements may be subject to inspections for five years from the end of the year in which the tax was paid. Consequently, the Company may be subject to additional tax liabilities, which may arise as a result of additional tax audits.

In the opinion of the Management Board, such risk does not exist as at 31 December 2019 and therefore the Company has not established any provision for recognised and quantifiable tax risk.

28. Information on related entities

The table below presents the total values of transactions with related parties entered into during the current and previous year:

Related party		Sales to related entities	Purchases from related entities	Interest – operational income	Interest – financial expense	Guarantees received - other financial expenses	Receivables from related entities	including overdue	Loan receivables	Liabilities to related entities	including overdue, after the payment date	Loan liabilities
Parent entity :
Nemus Holding AB	2019	1	1 193	-	-	-	3 215	-	-	-	-	-
	2018	-	321	-	-	-	3 641	-	-	-	-	-
Thomas Onstad	2018	-	-	-	-	-	-	-	-	-	-	-
	2017	-	-	-	-	-	-	-	-	-	-	-
Subsidiary entities:
Arctic Paper Kostrzy n S.A.	2019	14 660	365	2 060	24	1 353	20 094	-	52 691	9	-	52 754
	2018	18 659	338	2 499	-	1 242	64 678	-	76 912	30	-	29 338
Arctic Paper Munkedals AB	2019	9 024	12	321	130	568	18 832		7 929	-	-	49 544
	2018	10 918	5	240	-	505	9 880		8 128	-	-	19 247
Arctic Paper Mochenwangen GmbH	2019	-	-	974	-	-	10 278	10 278	25 014	-	-	-
	2018	-	-	896	-	-	7 385	7 385	29 185	-	-	-
Arctic Paper Gry cksbo AB	2019	8 944	-	2 526	174	376	27 028	-	78 298	1 426	-	-
	2018	12 036	2	2 162	-	421	11 553	-	111 099	2 432	-	-
Arctic Paper Inv estment GmbH	2019	-	-	1 038	-	-	10 300	10 300	34 556	-	-	-
	2018	-	-	1 037	-	-	9 506	9 506	34 556	-	-	-
Arctic Paper Inv estment AB	2019	-	-		-	-			82 709	310	-	-
	2018	-	-	-	-	-	-		82 709	319	-	-
Arctic Paper Deutschland GmbH	2019	1	216	-	16	-	-	-	-	2	-	-
	2018	2	108	-	-	-	-	-	-	32	-	-

Related party		Sales to related entities	Purchases from related entities	Interest – operational income	Interest – financial expense	Guarantees received - other financial expenses	Receivables from related entities	Loan receivables	Liabilities to related entities	including overdue, after the payment date	Loan liabilities
Arctic Paper Sv erige AB	2019	3	-	-		- -	2	-	- -	-	-
	2018	2	-	-		- -	-	-	- -	-	-
Arctic Paper Danmark A/S	2019	2	-	-		8 -	-	-	- 8	-	-
	2018	1	-	-		- -	-	-	- -	-	-
Arctic Paper Italia srl	2019	-	-	-		- -	-	-	- -	-	-
	2018	1	43	-		- -	-	-	- -	-	-
Arctic Paper Espana SL	2019	-	46	-		7 -	-	-	- -	-	-
	2018	-	-	-		- -	-	-	- -	-	-
Arctic Paper Norge AS	2019	1	-	-		3 -	-	-	- 3	-	-
	2018	1	-	-		- -	-	-	- -	-	-
Arctic Paper Benelux S.A.	2019	1	1 367	12		- -	2	- 457	113	-	-
	2018	2	1 356	12		- -	2	- 450	114	-	-
Arctic Paper Baltic States SIA	2019	-	-	-		- -	-	-	- -	-	-
	2018	-	-	-		- -	-	-	- -	-	-
Arctic Paper France SAS	2019	1	15	-	10	-	-	-	- -	-	-
	2018	2	-	-		- -	-	-	- -	-	-
Arctic Paper Papierhandels GmbH	2019	1	-	-		- -	-	-	- -	-	-
	2018	1	-	-		- -	-	-	- -	-	-
Arctic Paper UK Limited	2019	-	-	-		- -	-	-	- -	-	-
	2018	4	-	-		- -	10	-	- -	-	-
Arctic Paper Schweiz AG	2019	-	-	-		- -	-	-	- -	-	-
	2018	1	1 330	-		- -	1	-	- 88	-	-

Related party		Sales to related entities	Purchases from related entities	Interest – operational income	Interest – financial expense	Guarantees received - other financial expenses	Receivables from related entities	including overdue	Loan receivables	Liabilities to related entities	including overdue, after the payment date	Loan liabilities
Arctic Paper Polska Sp. z o.o.	2019	1	17	-	-	-	-	-	-	1	-	-
	2018	1	37	-	-	-	-	-	-	4	-	-
Arctic Paper East Sp. z o.o.	2019	9	-	-	4	-	4	-	-	-	-	-
	2018	-	-	-	-	-	18	-	-	-	-	-
Arctic Paper Finance AB	2019	-	-	-	1 316	-	-	-	-	43	-	21 617
	2018	-	-	-	1 522	-	-	-	-	42	-	21 830
Total	2019	32 648	3 232	6 930	1 692	2 298	89 757	20 578	281 654	1 913	-	123 915
	impairment charges	-	-	(2 012)	-	-	(20 578)	-	(59 569)	-	-	-
presentation as interests in subsidiary entities		-	-	-	-	-	-	-	(82 709)	-	-	-
2018 following impairment charges and changes to	presentation	32 648	3 232	4 919	1 692	2 298	69 175	20 578	139 375	1 913	-	123 915
	2018	41 631	3 539	6 846	1 522	2 168	106 674	16 891	343 038	3 061	-	70 415
	impairment charges	-	-	(1 933)	-	-	(16 891)	-	(63 741)	-	-	-
presentation as interests in subsidiary entities		-	-	-	-	-	-	-	(82 709)	-	-	-
2017 following impairment charges and changes to	presentation	41 631	3 539	4 913	1 522	2 168	89 782	16 891	196 588	3 061	-	70 415

28.1. Ultimate Parent Entity of the Group

The direct Parent Entity of the Group is Nemus Holding AB. The Parent Entity of the whole Group is Incarta Development S.A.

There were no transactions between the Company and aforementioned companies during the year ended on 31 December 2019 and 31 December 2018, apart from the transactions with Nemus Holding AB. They were disclosed in note 28.

28.2. Terms and conditions of transactions with related entities

Related entity transactions are made at arm's length.

28.3. Loan granted to members of the Management Board

In the period covered by these financial statements, the Company did not grant any loans to key management and did not grant any loans in the comparable period.

28.4. Remuneration of the Company's managerial staff Key management staff of the Company as at 31 December 2019 comprised two persons: President of the Management Board and a Member of the Management Board.

The table below presents the total value of remuneration to the members of the Management Board and the members of the Supervisory Board for the current and previous year:

	As at 31 December 2019	As at 31 December 2018
Management Board
Employ ee benef its (salaries and ov erheads)	1 974	4 938
Supervisory Board
Employ ee benef its (salaries and ov erheads)	987	991
Total	2 961	5 929

29. Information on the remuneration of the statutory auditor or entity authorised to audit financial statements

The table below presents the remuneration of the statutory auditor, paid or payable for the year ended on 31 December 2019 and 31 December 2018 by category of services:

Service type	As at 31 December 2019	As at 31 December 2018
Statutory audit of the annual financial statements	170	170
Review of interim financial statements	83	63
Mandatory audit of the annual financial statements (branch)	26	25
Other services	35	8
Total	314	267

30. Financial risk management objectives and policies

The core financial instruments used by the Company include bank loans, bonds, cash on hand and loans granted and borrowings received within the Group. The main purpose of these financial instruments is to raise finance for the Company's and Group's operations. The Company has various other financial instruments such as trade payables which arise directly from its operations.

The principle used by the Company currently and throughout the whole period covered with these financial statements is not to trade in financial instruments.

The core risks arising from the Company's financial instruments include: interest rate risk, liquidity risk, FX risk and credit risk.

The Management Board verifies and approves the management principles of each type of risk – the principles are concisely presented herebelow. The Company has also been monitoring the risk of market prices of holdings of financial instruments.

30.1. Interest rate risk

The Company's exposure to the risk of changes in market interest rates relates primarily to financial liabilities and granted variable interest loans.

Interest rate risk – sensitivity to fluctuations

The following table demonstrates the sensitivity of gross profit (loss) to a reasonably possible change in interest rates, with all other variables held constant (in connection with liabilities with variable interest rates). No impact on equity or total comprehensive income has been presented.

	Increase/decrease by percentage points	Impact on gross profit or loss for 2019
Year ended on 31 December 2019
PLN	+1%	174
EUR	+1%	426
SEK	+1%	-
PLN	-1%	(174)
EUR	-1%	(426)
SEK	-1%	-

	Increase/decrease by percentage points	Impact on gross profit or loss for 2018
Year ended on 31 December 2018
PLN	+1%	181
EUR	+1%	210
SEK	+1%	-
PLN	-1%	(181)
EUR	-1%	(210)
SEK	-1%	-

30.2. FX risk

The Company is exposed to transactional FX risk. The risk mainly arises as a result of receiving by the Company dividend from its subsidiaries and granted and received FX loans – and to a lesser extent – as a result of purchase transactions made in currencies other than its functional currency.

The following table demonstrates the sensitivity of gross profit (loss) (due to changes in the fair value of monetary assets and liabilities) and the Company's equity to reasonably possible change of FX rates with all other variables held con stant.

	Growth/drop of FX rates	Impact on gross profit or loss	Impact on total comprehensive income
31 December 2019 – SEK	+1%	114	-
	-1%	(114)	-
31 December 2019 – EUR	+1%	1 388	-
	-1%	(1 388)	-
31 December 2019 – USD	+1%	27	-
	-1%	(27)	-
31 December 2019 – GBP	+1%	71	-
	-1%	(71)	-
	Growth/drop of FX rates	Impact on gross profit or loss	Impact on total comprehensive income
31 December 2018 – SEK	+1%	30	-
	-1%	(30)	-
31 December 2018 – EUR	+1%	(334)	-

31 December 2018 – USD +1% 814 -

31 December 2018 – GBP +1% 16 -

-1% 334 -

-1% (814) -

-1% (16) -

30.3. Credit risk

With respect to the Company's other financial assets such as cash and cash equivalents, the Company's exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the book value of those instruments.

There are no significant concentrations of credit risk within the Company, except for the Group entities. The value of financial assets exposed to credit risk – loans granted to Group companies amounted to PLN 139,429 thousand as at 31 December 2019 (PLN 196,588 thousand as at 31 December 2018).

The Company recognises impairment allowances that correspond to the estimated values of expected credit losses. The core component of such allowances is the part covering specific losses due to exposure to a single material risk.

30.4. Liquidity risk

The Company monitors its risk to a shortage of funds using a recurring liquidity planning tool. The tool considers the maturity of both its financial investments and financial assets (e.g. receivables, other financial assets) and projected cash flows from guaranteed bank loans.

The table below presents the maturity profile of the Company's financial liabilities at 31 December 2019 based on maturities of contractual undiscounted payments.

31 December 2019	Upon request	Less than 3 months	3 to 12 months	1 to 5 years	> 5 years	Total
Interest-bearing loans, borrowings and bonds	-	132 638	62 623	129 018	-	324 279
Other liabilities	3 377	30 769	3 324	641	-	38 111
	3 377	163 407	65 947	129 659	-	362 390
31 December 2018	Upon request	Less than 3 months	3 to 12 months	1 to 5 years	> 5 years	Total
Interest-bearing loans, borrowings and bonds	-	72 481	138 979	165 476	-	376 936
Other liabilities	-	86 925	3 812	175	-	90 911
	-	159 405	142 791	165 651	-	467 847

Liabilities of maturity of less than 3 months include, among others, intercompany ones arising from cash -pool liabilities in the amount of PLN 102,298 thousand as at 31 December 2019.

As at 31 December 2019, the Company held no contingent liabilities.

31. Financial instruments

The Company holds the following financial instruments: cash in bank accounts, loans, borrowings, receivables, liabilities und er financial leases and SWAP interest rate contracts.

31.1. Interest rate risk

The table below presents the book value of the financial instruments held by the Company, exposed to interest rate risk, spli t into specific age categories:

31 December 2019 Variable interest rate	<1year	1–2 years	2-3 years	3-4 years	4-5 years	>5 years	Total
Loans granted to related entities	48 771	12 128	-	-	-	-	60 900
Bank loans	-	-	-	-	-	-	-
Borrowings received from related entities	(102 298)	-	-	-	-	-	(102 298)
	(53 527)	12 128	-	-	-	-	(41 398)
31 December 2019 Fixed interest rate	<1year	1–2 years	2-3 years	3-4 years	4-5 years	>5 years	Total
Loans granted to related entities	45 431	18 995	14 195	-	-	-	78 621
Bank loans	(47 834)	(36 590)	(24 814)	-	-	-	(109 238)
Bonds	(19 166)	(54 549)	-	-	-	-	(73 715)
Borrowings received from related entities	(21 293)	-	-	-	-	-	(21 293)
	(42 861)	(72 144)	(10 619)	-	-	-	(125 625)

31 December 2018 Variable interest rate	<1year	1–2 years	2-3 years	3-4 years	4-5 years	>5 years	Total
Loans granted to related entities	79 833	23 003	23 003	7 023	-	-	132 864
Bank loans	(44 774)	-	-	-	-	-	(44 774)
Borrowings received from related entities	(48 585)	-	-	-	-	-	(48 585)
	(13 526)	23 003	23 003	7 023	-	-	39 505
31 December 2018 Fixed interest rate	<1year	1–2 years	2-3 years	3-4 years	4-5 years	>5 years	Total
Bank loans	44 015	7 465	12 246	-	-	-	63 726
Bank loans	(78 769)	(32 248)	(37 032)	-	-	-	(148 048)
Bonds	(16 600)	(16 600)	(58 700)	-	-	-	(91 900)
Loans received from related entities	(10 750)	(10 750)	-	-	-	-	(21 500)
						-	(197 722)

In connection with the recognised complete write-off, the Company concluded that the loans granted to Arctic Paper Investment GmbH and Arctic Paper Mochenwangen GmbH (including interest) are not exposed to interest rate risk.

31.2. Fair value of each category of financial instruments

Due to the fact that the book values of the financial instruments held by the Company do not materially differ from their fair value (except those listed in the table below), the table below presents all financial instruments by their book values, split into classes and categories of assets and liabilities.

		Book v alue
	Category in compliance with IFRS 9	31 December 2019	31 December 2018
Financial assets
Other (long-term) f inancial assets	WwWGpWF	45 318	72 742
Trade and other receiv ables	WwZK	69 730	90 469
Cash and cash equiv alents	WwZK	31 939	19 605
Other (short-term) f inancial assets	WwWGpWF	94 057	123 848
Total		241 044	306 664
Financial liabilities
Interest-bearing loans, borrowings and	WwZK	306 870	353 051
Other (long-term) f inancial liabilities	WwZK	626	171
Trade and other pay ables and other (short term) f inancial liabilities	WwZK	37 296	90 726
Total		344 792	443 949

Abbrev iations used:

WwZK – Financial assets/liabilities measured at amortised cost

WwWGpWF – f inancial assets/liabilities measured at f air v alue through prof it and loss

PLN bonds issued by AP S.A. with the book value of PLN 73,715 thousand as at 31 December 2019 have fair value of PLN 75,100 thousand. Loans with the book value of PLN 109,238 thousand as at 31 December 2019 have fair value of PLN 111,382 thousand.

As at 31 December 2019 and as at 31 December 2018, financial instruments as at the measurement hierarchy are qualified to level 3 and level 2 in case of derivative instruments.

The table below presents items of revenues, expenses, profit and loss recognised in the pro fit and loss account, split into categories of financial instruments for the years ended on 31 December 2019 and 31 December 2018:

Year ended on 31 December 2019	Interest income (expense)	FX gains / (loss)	Rev ersal / (establishment) of impairment charges	Rev aluation prof it (loss)	Prof it (loss) on sales of f inancial instruments	Other	Total
Financial assets
Deriv ativ e instruments	-	-	-	-	-	-	-
Trade and other receiv ables	-	(265)	325	(212)	-	-	(152)
Other f inancial assets (net of loans and hedging instruments)**	6 936	609	-	(1 414)	-	-	6 131
Cash and cash equiv alents	213	(2 954)	-	(2 058)	-	-	(4 799)
Financial liabilities
Deriv ativ e instruments	(1 965)	-	-	-	-	-	(1 965)
Interest-bearing loans and borrowings Liabilities under f inancial leases and rental	(1 883)	(359)	-	1 781	-	(4 326)	(4 787)
contracts with purchase options	(64)	-	-	-	-	-	(64)
Trade pay ables	-	(381)	-	149	-	-	(232)

Year ended on 31 December 2018	Interest income (expense)	FX gains / (loss)	Rev ersal / (establishment) of impairment charges	Rev aluation prof it (loss)	Prof it (loss) on sales of f inancial instruments	Other	Total
Financial assets
Deriv ativ e instruments	-	-	-	-	-	-	-
Trade and other receiv ables	-	2 992	(2 749)	907	-	-	1 149
Other f inancial assets (net of loans and
hedging instruments)**	-	(259)	-	3 914	-	-	3 655
Cash and cash equiv alents	686	(11)	-	(2 366)	-	-	(1 691)
Financial liabilities
Deriv ativ e instruments	(2 125)	-	-	-	-	-	(2 125)
Interest-bearing loans and borrowings	(9 365)	70	-	(3 280)	-	(3 254)	(15 829)
Liabilities under f inancial leases and rental contracts with purchase options 25		-	-	-	-	-	25
Trade pay ables	(7)	(3 090)	-	(962)	-	-	(4 059)

31.3. Changes to liabilities resulting from financing activity

	Changes from Effect of changes As at 1 January financing cash in foreign Changes in fair Other						As at 31 December
Year ended on 31 December 2019	Note	2019	flows	exchange rates	values	changes	2019
Interest-bearing loans, borrowings and bonds	24	353 051	(46 182)	-	-	-	306 870
Finance lease liabilities	26.3	324	888	-	-	-	1 212
Derivative financial instruments	26.3	3 648	-	-	(900)	-	2 748
Other		171	-	-	-	455	626
Total liabilities from financing activities	24	357 195	(45 293)	-	(900)	455	311 456

31.4. Collateral

In connection with interest rate risk as detailed in note 30.1, the Company hedges its future cash flows that may fluctuate as a result of the risk. As at 31 December 2019, the Company held loans and debt securities for PLN 183,054 thousand with a variable interest rate that were hedged with SWAP derivative instruments (PLN 239,948 thousand as at 31 December 2018).

In the Company's opinion, the effectiveness of the hedging instruments is very high due to the fact that the parameters of the hedging instruments are matched to the hedged positions, in particular with respect to nominal values and dates of cash flows, interest rates underlying the calculation of the cash flows and the interest accrual convention.

Cash flow hedge

As at 31 December 2019, the Company used cash flow hedge accounting for the following hedging items:

the Company designated SWAP derivatives to hedge accounting to hedge interest payments in EUR on a bank loan in EUR;
the Company designated SWAP derivatives to hedge accounting to hedge interest payments in PLN on a bank loan in PLN.

Cash flow volatility hedge accounting related to variable loan interest rate of the long-term loan with the use of SWAP transactions

— The table below presents detailed information concerning the hedging relationship in the cash flow hedge accounting related to payment of interest in EUR on the loan in EUR:

Ty pe of hedge	Hedge of cash f lows related to v ariable interest rate on the EUR long-term loan
Hedged position	Future EUR interest f lows on EUR loan calculated on the basis of 6M EURIBOR
Hedging instruments	SWAP transaction under which the Company agreed to pay interest in EUR on the EUR loan on the basis of a f ixed interest rate
Contract parameters:
Contract conclusion date	2016-11-21
Maturity	each interest pay ment date in line with the pay ment schedule under the loan agreement; by 31.08.2022
Hedged v alue	interest pay able in line with the pay ment schedule under the loan agreement of EUR 12 million

Ty pe of hedge	Hedge of cash f lows related to v ariable interest rate on the EUR long-term loan
Hedged position	Future EUR interest f lows on EUR loan calculated on the basis of 6M EURIBOR
Hedging instruments	SWAP transaction under which the Company agreed to pay interest in EUR on the EUR loan on the basis of a f ixed interest rate
Contract parameters:
Contract conclusion date	2017-07-18
Maturity	each interest pay ment date in line with the pay ment schedule under the loan agreement; by 31.08.2022
Hedged v alue	interest pay able in line with the pay ment schedule under the loan agreement of EUR 3,986 thousand

Ty pe of hedge	Hedge of cash f lows related to v ariable interest rate on the EUR long-term loan
Hedged position	Future EUR interest f lows on EUR loan calculated on the basis of 6M EURIBOR
Hedging instruments	SWAP transaction under which the Company agreed to pay interest in EUR on the EUR loan on the basis of a f ixed interest rate
Contract parameters: Contract conclusion date Maturity Hedged v alue	2016-11-21 each interest pay ment date in line with the pay ment schedule under the loan agreement; by 31.08.2021 interest pay able in line with the pay ment schedule under the loan agreement of EUR 2.6 million
Ty pe of hedge	Hedge of cash f lows related to v ariable interest rate on the EUR long-term loan
Hedged position	Future EUR interest f lows on EUR loan calculated on the basis of 6M EURIBOR
Hedging instruments	SWAP transaction under which the Company agreed to pay interest in EUR on the EUR loan on the basis of a f ixed interest rate
Contract parameters:
Contract conclusion date	2018-07-27
Maturity	each interest pay ment date in line with the pay ment schedule under the loan agreement; by 28.02.2022
Hedged v alue	interest pay able in line with the pay ment schedule under the loan agreement of EUR 3,344 thousand
Ty pe of hedge	Hedge of cash f lows related to v ariable interest rate on the EUR long-term loan
Hedged position	Future EUR interest f lows on EUR loan calculated on the basis of 6M EURIBOR
Hedging instruments	SWAP transaction under which the Company agreed to pay interest in EUR on the EUR loan on the basis of a f ixed interest rate
Contract parameters:
Contract conclusion date	2019-10-15
Maturity	each interest pay ment date in line with the pay ment schedule under the loan agreement; by 31.08.2022
Hedged v alue	interest pay able in line with the pay ment schedule under the loan agreement of EUR 10,000 thousand

— The table below presents detailed information concerning the hedging relationship in the cash flow hedge accounting related to payment of interest in PLN on the loan in PLN:

Ty pe of hedge	Hedge of cash f lows related to v ariable interest rate on the PLN long-term loan
Hedged position	Future PLN interest f lows on PLN loan calculated on the basis of 6M WIBOR
Hedging instruments	SWAP transaction under which the Company agreed to pay interest in PLN on the PLN loan on the basis of a f ixed interest rate
Contract parameters: Contract conclusion date	2016-11-21
Maturity	each interest pay ment date in line with the pay ment schedule under the loan agreement; by 31.08.2021
Hedged v alue	interest pay able in line with the pay ment schedule under the loan agreement of PLN 11.5 million.
Ty pe of hedge	Hedge of cash f lows related to v ariable interest rate on the PLN bonds
Hedged position	Future PLN interest f lows in PLN loan calculated on the basis of interest pay ments on PLN bonds at 6M WIBOR
Hedging instruments	The hedging item is a SWAP transaction under which the Company agreed to pay interest in PLN on the PLN bonds on the basis of a f ixed interest rate
Contract parameters: Contract conclusion date	2016-11-21
Maturity	each interest pay ment date in line with the pay ment schedule under the bond issue agreement; by 31.08.2021
Hedged v alue	interest pay able in line with the pay ment schedule under of interest of PLN 100 million
Ty pe of hedge	Hedge of cash f lows related to v ariable interest rate on the PLN long-term loan
Hedged position	Future PLN interest f lows on PLN loan calculated on the basis of 3M WIBOR
Hedging instruments	SWAP transaction under which the Company agreed to pay interest in PLN on the PLN loan on the basis of a f ixed interest rate
Contract parameters:
Contract conclusion date	2018-07-31
Maturity	each interest pay ment date in line with the pay ment schedule under the loan agreement; by 29.01.2021
Hedged v alue	interest pay able in line with the pay ment schedule under the loan agreement of PLN 25.8 million

The table below presents the fair value of hedging instruments in cash flow hedge accounting as at 31 December 2019 and the comparative data:

		As at 31 December 2019		As at 31 December 2018
	Assets	Equity and liabilities	Assets	Equity and liabilities
SWAP Corridor options	- -	2 748 -	-	3 648 -
Total hedging derivative instruments	-	2 748	-	3 648

The table below presents the nominal value of derivative hedging instruments as at 31 December 2019:

		Up to 1 y ear	1 to 5 y ears	Ov er 5 y ears	Total
interest rate SWAP
principal repay ment (in PLN '000)		62 864	123 612	-	186 476
	The table below presents the amounts related to cash flow hedge accounting that were recognised in 2019 by the Company in profit and loss account and in the total comprehensive income statement:
					Year ended 31 December 2019
due to the hedged risk, corresponding to ef f ectiv e hedging	Rev aluation reserv e as at 31 December 2019 – changes of f air v alue measurement of hedging deriv ativ e instruments				3 164
expenses	Inef f ectiv e part of the change in f air v alue measurement due to the hedged risk, recognised in f inancial income or				(185)
The period of the anticipated hedged f lows				1 January 2020 - 31 August 2022
	The table below presents changes to revaluation reserve due to cash flow hedge accounting in 2019:
					Year ended 31 December 2019
Rev aluation reserv e as at 01 January 2019					3 835
corresponding to the ef f ectiv e hedge	Def erral to changes of f air v alue measurement of the hedging deriv ativ e instruments due to the hedged risk,				-
	The amount of the changes of f air v alue measurement of the hedging deriv ativ e instruments due to the hedged risk, remov ed f rom the rev aluation reserv e and transf erred to f inancial income or expenses				185
Rev aluation reserv e as at 31 December 2019					4 019
Fair value hedges
Fair value hedge accounting related to a floor option
Ty pe of hedge		Hedge of cash f lows related to v ariable interest rate on the EUR long-term loan
Hedged position		Future EUR interest f lows on EUR loan calculated on the basis of 6M EURIBOR
Hedging instruments	interest rate	SWAP transaction under which the Company agreed to pay interest in EUR on the EUR loan on the basis of a f ixed
Contract parameters:
Contract conclusion date	2016-11-21
Maturity		each interest pay ment date in line with the pay ment schedule under the loan agreement; by 31.08.2022
Hedged v alue		interest pay able in line with the pay ment schedule under the loan agreement of EUR 12 million

Ty pe of hedge	Hedge of cash f lows related to v ariable interest rate on the EUR long-term loan
Hedged position	Future EUR interest f lows on EUR loan calculated on the basis of 6M EURIBOR
Hedging instruments	SWAP transaction under which the Company agreed to pay interest in EUR on the EUR loan on the basis of a f ixed interest rate
Contract parameters: Contract conclusion date Maturity Hedged v alue	2017-07-18 each interest pay ment date in line with the pay ment schedule under the loan agreement; by 31.08.2022 interest pay able in line with the pay ment schedule under the loan agreement of EUR 3,986 thousand
Ty pe of hedge	Hedge of cash f lows related to v ariable interest rate on the EUR long-term loan
Hedged position	Future EUR interest f lows on EUR loan calculated on the basis of 6M EURIBOR
Hedging instruments	SWAP transaction under which the Company agreed to pay interest in EUR on the EUR loan on the basis of a f ixed interest rate
Contract parameters:
Contract conclusion date Maturity	2018-07-27 each interest pay ment date in line with the pay ment schedule under the loan agreement; by 28.02.2022
Hedged v alue	interest pay able in line with the pay ment schedule under the loan agreement of EUR 3,344 thousand

Ty pe of hedge	Hedge of cash f lows related to v ariable interest rate on the EUR long-term loan
Hedged position	Future EUR interest f lows on EUR loan calculated on the basis of 6M EURIBOR
Hedging instruments	SWAP transaction under which the Company agreed to pay interest in EUR on the EUR loan on the basis of a f ixed interest rate
Contract parameters:
Contract conclusion date Maturity	2019-10-15 each interest pay ment date in line with the pay ment schedule under the loan agreement; by 31.08.2022
Hedged v alue	interest pay able in line with the pay ment schedule under the loan agreement of EUR 10,000 thousand

32. Capital management

The primary objective of the Company's capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value.

The Company manages its capital structure and makes adjustments to it, in light of changes in economic conditions. 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 year ended on 31 December 2019 and 31 December 2018.

As at 31 December 2019 As at 31 December 2018

Leverage ratio	0,36	0,44
Equity and net debt	883 033	961 860
Equity	568 078	535 124
Net debt	314 954	426 737
Minus cash and cash equiv alents	(31 939)	(19 605)
Trade and other pay ables	36 063	89 318
Interest-bearing loans,bonds, borrowings and other f inancial liabilities	310 830	357 024

The Company monitors its equity using a leverage ratio, which is net debt divided by total equity plus net debt. The Company includes interest bearing loans and borrowings, trade and other payables, reduced by cash and cash equivalents within its net debt.

33. Employment structure

The average headcount in the Company in the year ended on 31 December 2019 and 31 December 2018 was as foll ows:

	As at	As at
	31 December 2019	31 December 2018
Management Board	2	2
Finances	5	5
Sales & Marketing	5	4
Logistics	26	25
Administration	7	9
IT	-	1
Total	45	46

34. Reasons for differences between changes resulting from the statement of financial condition and changes resulting from the cash flow statement

The differences between changes resulting from the statement of financial condition and changes resultin g from the cash flow statement are presented in the table below:

	Year ended 31 December 2019	Year ended on 31 December 2018
Change to income tax receiv ables as specif ied in the statement of f inancial condition	(76)	(308)
Income tax paid	(305)	(762)
	(381)	(1 070)

35. Events after the balance sheet date

35.1. Consent of the bank consortium to modify the calculation of the covenants

agreed to have the investment funded by a financial institution outside the consortium.

However, in compliance with IAS 1, as such consent was not available as at the balance sheet date, the Group reclassified loans for PLN 61,404 thousand to short-term loans.

35.2. Covid-19

In reference to the pandemia of Covid-19 the Management estimated potential influence on the Company's operations as further described in note 7.2.

From the balance sheet date until the day of publishing of these standalone financial statements, there were no other events which might have a material impact on the Company's financial and capital position.

Signatures of the Members of the Management Board

Position	First and last name	Date	Signature
President of the Management Board Chief Executive Officer	Michał Jarczyński	26 March 2020	signed with a qualified electronic signature
Member of the Management Board Chief Financial Officer	Göran Eklund	26 March 2020	signed with a qualified electronic signature

AI Terminal

Arctic Paper S.A.

5506_rns_2020-03-26_72d5ff98-4212-49e7-80bc-0b7285469deb.pdf

Table of contents

Statement on the application of the Corporate Governance Rules 24

Information compliant with the requirements of Swedish regulations concerning corporate

Selected standalone financial data

Letter by the President of the Management Board of Arctic Paper S.A.

Description of the business of Arctic Paper

General information

Business objects

Subsidiaries

Changes in the capital structure of the Arctic Paper Group

Provided services

Modifications to the core management principles

Shareholding structure

as at 26.03.2020

as at 31.12.2019

as at 18.11.2019

Market environment

Development directions and strategy

Sales structure

Information on the seasonal or cyclical nature of business

Research and development

Environment

Summary of financial results

Selected items of the profit and loss account

Revenues, costs of sales and profit on sales

Administrative expenses

Selling and distribution costs

Other operating income and expenses

Financial income and financial expenses

Profitability analysis

Selected items from the statement of financial position

Fixed assets

Current assets

Equity

Short-term liabilities

Long-term liabilities

Debt analysis

Liquidity analysis

Selected items from the cash flow statement

Cash flows from operating activities

Cash flows from investing activities

Cash flows from financing activities

Relevant information and factors affecting the financial results and the assessment of the financial standing.

Key factors affecting the performance results

Unusual events and factors

Other material information

Extension of repayment date of the revolving loan

Consent of the bank consortium to modify the calculation of the covenants

Covid-19

Factors affecting the development of the Company

Risk factors

Risk factors related to the environment in which the Company operates

Risk of changing legal regulations

Risk related to disadvantageous global economic situation

FX risk

Interest rate risk

Risk factors relating to the business of the Company

Risk related to retention and attraction of managerial staff and qualified personnel

Risk related to the debt of the Company

Risk related to the capacity of the Company to pay dividend

Supplementary information

The Management Board position on the possibility to achieve the projected financial results published earlier

Dividend information

Changes to the bodies of Arctic Paper S.A.

Changes to the share capital of Arctic Paper S.A.

Purchase of treasury shares

Remuneration paid to Members of the Management Board and the Supervisory Board

Agreements with Members of the Management Board guaranteeing financial compensation

Changes in holdings of the Issuer's shares or rights to shares by persons managing and supervising Arctic Paper S.A.

Management of financial resources

Capital investments

Information on sureties, guarantees and contingent liabilities

Material off-balance sheet items

Assessment of the feasibility of investment plans

Information on court and arbitration proceedings and proceedings pending before public administrative authorities

Information on transactions with related parties executed on non-market terms and conditions

Information on agreements resulting in changes to the proportions of share holdings