Garo

An innovative force 2021 ANNUAL REPORT Charging the future. It is our responsibility to provide a smarter and more sustainable future with innovative solutions for everyone. We are equipped with the right tools to create positive change. The future is ours to create. 2 GARO in brief 4 Statement by the President and CEO 6 The year in brief 8 Business concept, vision, strategy and goals 16 Market, drivers and trends 20 Operations 23 Product development 26 Electrical distribution products product area 28 E-mobility product area 32 Project business product area 33 Temporary Power product area 34 Sustainability Report 50 Auditor’s statement 52 The GARO share Group 54 Board of Directors’ Report 58 Income statement 59 Balance sheet 62 Cash-ﬂow statement 63 Notes Parent Company 89 Board of Directors’ Report 91 Income statement 92 Balance sheet 95 Cash-ﬂow statement 96 Notes 106 Audit report 110 Corporate governance report 115 Auditor’s statement 116 Organization and structure Contents GARO in brief 2 | GARO ANNUAL REPORT GARO is a company that develops, manufactures and markets innovative products and systems for electrical installations under its own brand in the European market. In its four product areas of Electrical distribution products, E-mobility, Project business and Temporary Power, the Group supplies products and complete solutions with a focus on electrical safety, user-friendliness and sustainability. GARO is the market leader in the Nordic region in several product categories within Electrical distribution products and E-mobility. Operations are divided into two business areas: GARO Sweden and GARO International. The business areas GARO Electriﬁcation and GARO E-mobility replaced the former business areas on January 1, 2022. The Group has sales companies in six countries: Sweden, Norway, Fin- land, Ireland, the UK and Poland. Group external exports are made from business area GARO Sweden to other countries. GARO has a total of four production units, three of which are located in Sweden: two in Gnosjö and one in Värnamo, and one in Szczecin, in Poland. GARO was founded in 1939, has its head ofﬁce in Gnosjö and is today an international Group with around 500 employees. Total sales for 2021 amounted to MSEK1,296. GARO is listed on Nasdaq Stockholm under the ticker name GARO. MSEK1, 2 9 6 IN NET SALES (1,040) MSEK 207 IN EBIT (136) 25% GROWTH (3%) 16% EBIT MARGIN (13%) SEK 3,33 EARNINGS PER SHARE (1.91) 59% EQUITY RATIO (58%) GARO IN BRIEF GARO ANNUAL REPORT | 3 GARO IN BRIEF 69% 31% 75% 25% 34% 41% 7% 18% ALLOCATION OF NET SALES per business area 2021 ALLOCATION OF EBIT per business area 2021 ALLOCATION OF NET SALES per product area 2021 GARO Sweden GARO International GARO Sweden GARO International Electrical distribution products E-mobility Project business Temporary Power 2021 2020 2019 2018 2017 Net sales (MSEK) 1,295.8 1,039.8 1,008.1 903.7 796.0 Growth, % 25 3 12 13 21 EBIT (MSEK) 207.2 136.2 112.6 113.8 98.1 EBIT margin, % 16.0 13.1 11.2 12.6 12.3 Net income (MSEK) 166.7 95.3 85.7 82.7 85.6 Earnings per share 1 (SEK) 3.33 1.91 1.71 1.65 1.71 Return on equity, % 34.0 24.7 26.8 30.1 38.3 Investments (MSEK) 45.3 45.3 33.4 22.7 51.4 Equity ratio, % 58.9 57.9 52.2 52.4 47.3 Net cash position (-) / net debt (+) -9.4 11.3 45.6 45.7 56.1 Average number of employees 460 409 420 398 345 For deﬁnitions of key ﬁgures, see Note 30 page 88. 1) Earnings per share after the 5:1 share split was completed in 2021. Earnings per share were not diluted, so earnings per share pertains to before and after dilution. . WITH FAITH IN A SUSTAINABLE FUTURE, WE ARE INVESTING FOR THE NEXT GENERATION. PATRIK ANDERSSON, PRESIDENT AND CEO 4 | GARO ANNUAL REPORT STATEMENT BY THE PRESIDENT AND CEO We are happy to summarize another successful year for the Group. Net sales for the full-year increased 25% with strong growth for GARO Sweden and GARO International as a result of a favorable performance for all our product areas. Proﬁtability also developed positively mainly as a result of the considerable volume growth. EBIT rose 52% to MSEK 207 and the EBIT margin was 16%, which is almost 3 percentage points higher than the preceding year, and results in our best ever year of operations. NEWBUILDS AND RENOVATIONS CREATING CONDITIONS As a leading company, GARO has an important role in providing the market with energy-efﬁcient, user-friendly and smart solutions that can guarantee electrical safety for a sustainable future. The Electrical distribution products and Project business product areas reported growth of 11% and 12% respec- tively, driven by favorable growth in all markets in new production and the renovation of properties. The excellent performance in the UK since our establishment there in 2019 is particularly pleasing. We believe that GARO’s sales trend in both product areas has outperformed the underlying market. However, restrictions during the year have impacted performance in different ways, but ultimately growth has led to advantageous conditions for all markets. WE ARE CHARGING THE FUTURE Back in 2008, when we launched our ﬁrst charger product, we adopted a clear position, and have been a leading com- pany in electric car charging ever since. The number of elec- tric and hybrid vehicles is growing signiﬁcantly, and we have witnessed several new car models launched in the market during the year, which has created major demand for more comprehensive charging infrastructure. At GARO, we are creating opportunities to charge electric cars where people live and work. At home, at the workplace, at the shopping center or along the way. Quite simply, we make it possible for electric car drivers to charge their vehicles wherever they are. Sales in the E-mobility product area increased 52%, with favorable sales mainly in wall boxes and public chargers. Developing products that are innovative and sustainable has always been a signiﬁcant aspect of our success. We made signiﬁcant investments in product development in 2021 in order to remain at the forefront with smart and accessible products and services, both today and tomorrow. In 2022, considerable focus will remain in this area and we are set to launch exciting and innovative products. SYNERGY EFFECTS MAKE US UNIQUE Our breadth in electric installation material and electric car charging creates a unique offering in the market. The synergy effects that exist between the product areas create an overall solution that separates us from other suppliers and generates ﬂexible solutions for our customers. We assist with everything from power supply to ensuring that charging stations are operational. AGGRESSIVE INVESTMENTS We continued to increase production capacity in our produc- tion facilities during the year in both Sweden and Poland to meet demand, particularly within the E-mobility product area. Further investments are now being made through the con- struction of a new production and logistics facility in Poland that will amount to about 15,000 sqm. The facility will gener- ate a signiﬁcant capacity increase for E-mobility and enable us to grow and develop in existing and new product cate- gories. We can also see that the location in Poland makes distribution to the European market more efﬁcient. FOR THE NEXT GENERATION UN’s sustainable development goals to facilitate a fossil-free society are clear, and the transition is taking place around us all of the time. By offering innovative, energy-smart and high-quality prod- ucts that enable a more sustainable and fossil-free everyday, we as a company are able to help make the world more sustainable. We are to be part of this change, which is also reﬂected in our choice of materials and the work in the value chain to reduce overall environmental impact. With faith in a sustainable future, we are investing for the next generation. Patrik Andersson, President and CEO CEO’s comments As we reﬂect on how the past two years have been in the world and all the changes that we had to make, there are surely many who share my pride over our dynamism, team spirit and determination. In 2020, we made the decision not to be limited by the challenges that world is presenting us with, but to constantly remain solution-oriented to achieve our objectives. Our innovative ability and strength to envisage potential, combined with the drive that the Group possesses has contributed to our growth, with sales of MSEK 1,296 (1,040) and EBIT of MSEK 207 (136). GARO ANNUAL REPORT | 5 STATEMENT BY THE PRESIDENT AND CEO THE YEAR IN BRIEF 6 | GARO ANNUAL REPORT The year in brief 2021 was another year that was different for the world and GARO, as we were faced with various challenges that impacted our way of living and working. The market for charging infrastructure continued to grow structurally with rising numbers of rechargeable vehicles, and we noted a continued strong trend with expansion of the charging infrastructure in all markets. New construction and renovation continued at a high level and beneﬁted demand in component and construction-related products. DIGITAL INFRASTRUCTURE To guarantee IT security that is at the leading edge for customers and employees, GARO works to ensure high quality in its digital infrastructure. Investments have been made in various digital plat- forms, for example, so that training courses and meetings function optimally, with ﬂexibility for customers and employees. In addition, a new platform was launched in the fourth quarter for customers in the Swedish market. EXPANDED PRODUCTION CAPACITY To meet the growing demand, particularly within the E-mobility product area, we expanded production capacity at the production facilities in Sweden and Poland during the year. This was done by enhancing the efﬁciency of existing production spaces, and increasing the number of employees in production, as well as in market, service and support. As a result, the Group was able to maintain healthy delivery capacity throughout the year. As the organization grows, we have also worked to maintain a good work environment, to remain a good workplace and to have healthy employees. STRENGTHENED E-MOBILITY ORGANISATION To create a clear focus, intensify our development efforts and adopt a structure for rapid growth, the E-mobility product area was incorporated on January 1, 2021. In July, Niklas Rönnäng was appointed Business Area Manager of GARO E-mobility AB, assuming this position in January 2022. THE YEAR IN BRIEF GARO ANNUAL REPORT | 7 PRODUCT DEVELOPMENT WITH SYNERGY EFFECTS Product development has always been crucial for our growth. In 2021, we continued to develop new products with the aim of broadening our customer offering and creating a unique, comprehensive solution for the market. Our breadth in product and service offering is a strength and a distinctive feature of the Group. Our close collaboration between product development and the different product areas makes it possible to quickly meet market demands. This creates excellent growth opportunities and makes it straightforward for customers to gain a complete solution from GARO. An example of synergy effects between E-mobility and Installation that was seen during the year, is that the increased sales of wall boxes in E-mobility also entailed higher sales of electrical installation products and components in the Electrical distribution products product area. We are seeing the same synergy effects for the Project business prod- uct area, where sales of cable cabinets increased in conjunc- tion with increased sales in the E-mobility product area. LIFE CYCLE ANALYSIS During the year, we completed a life cycle analysis for the LS4 charging station. The analysis gives us a deeper understanding of the product’s impact and the phase of the life cycle at which the highest emissions occur. Read more on pages 44–45 of the Sustainability Report. AWARDS For the fourth consecutive year, GARO qualiﬁed for the list of Sweden’s Supercompanies, which has been compiled since 2005 by Bisnode, now part of Dun & Bradstreet. A number of criteria must be met for four consecutive years to classiﬁed as a Supercompany. This includes, increasing sales and earnings, while the company must also demonstrate stability and a long-term approach to business. The award is proof that we have continued to supply the market with sustainable and inno- vative solutions of high quality and conﬁrms that we are working in the right way. During the year, the Group was awarded the major Swedish Aluminium Prize, which we are very proud of. The prize was awarded for successful development, from manufacturing control cabinets to becoming a lead- ing player for infrastructure for electric cars and charging stations based on aluminum, with a focus on innovation, sustainability and design. For the second year in a row, GARO Poland won the Best Entrepreneur of the year award in the medium- sized company category in West Pomerania. FLEXIBILITY, FOCUS AND BREADTH During the year, the organization was solution-oriented and ﬂexible, despite the prevailing global challenges. With its focus on the customer and continued growth creation, GARO has been aggressive in its work and stood ready in the face of the unpredictable events that arose in the past year. BUSINESS CONCEPT, VISION, STRATEGY AND GOALS We regard challenges as new opportunities and we are driven by a curiosity to try new approaches. Developing products and solutions for a sustainable future is a self-evident focus for us. Our history is deeply rooted in our DNA; it has created our unique GARO spirit, which combined with our business concept and vision, provides us with clear strength going forward. GARO Group – Charging the future 8 | GARO ANNUAL REPORT BUSINESS CONCEPT, VISION, STRATEGY AND GOALS BUSINESS CONCEPT With a focus on innovation, sustainability and design, GARO provides proﬁtable complete solutions for the electrical industry. VISION Determined to meet tomorrow’s opportuni- ties, GARO is constantly evolving to be the leading innovator in our product areas. MISSION Through knowledge, innovation and com- mitment, our common desire is to develop complete solutions that are future-proof. CORE VALUES Our employees are innovative, skilled and driven by a curiosity to try new approaches. Our shared values are a consistent theme throughout the entire Group. INNOVATION We are an innovative force that develops opportunities and business for our custom- ers. This makes us a dedicated, responsive and active partner. EXPERTISE We are experts in what we do and value the knowledge that leads to our customers’ development and proﬁtability. LONG-TERM Our focus is on developing reliable prod- ucts for a sustainable future through strong commitment. PRIDE Our unique history, strong development and bright future, have created our special “GARO culture”. It gives us conﬁdence and pride in everything we do. GARO ANNUAL REPORT | 9 BUSINESS CONCEPT, VISION, STRATEGY AND GOALS Using innovation and a new approach, our customers’ future opportunities are developed to bring about a more ener- gy-efﬁcient and convenient everyday life. We are experts in our area, which means that we develop effectively together with our partners and customers. We take a long-term approach to all of our relationships and this beneﬁts the operations, while also contributing to a positive, sustainable corporate culture. There is well-founded pride among all employees, which is reﬂected in everything we do. ORGANIC GROWTH GARO is driven by a growth focus. GARO’s growth target of not less than 10% over a business cycle will primarily be achieved through organic growth. Sustainable, intelligent, user-friendly and future-proof products, alongside a strong brand, are central for achiev- ing the desired performance. During GARO’s history, the establishment and development of new and existing markets has been a large part of the organic growth. Focus is on continuing to strengthen our business in new markets in Europe. PRODUCT DEVELOPMENT FOR SUSTAINABILITY To make organic growth possible, product development is a decisive part of GARO’s operations. We are to always maintain a high rate of development when it comes to smart products that meet current and future needs. This is achieved by continuously evaluating and improving our Our strategy is based on organic growth, product development and geographical expansion supplemented with acquisitions. The goal is to be the leading brand in the markets in which we operate and to be able to offer unique complete solutions for the electrical industry. Strategy for continued success GROWTH STRATEGY The basis of GARO’s success is innovation, product development and organic growth, which is supplemented with a deﬁned acquisition strategy in accordance with the growth matrix below. ACQUISITIONS New/supplementary product areas Nordic companies in the electrical industry Companies with specialist expertise New geographical markets GARO’S GOALS Become the leading brand in selected markets CAPITAL-INTENSE ORGANIC GROWTH IN EXISTING MARKETS DIVERSIFY OPERATIONS Development of the existing product range New supplementary products and segments New products and business areas New geographical markets LABOR INTENSIVE PRODUCT DEVELOPMENT 10 | GARO ANNUAL REPORT BUSINESS CONCEPT, VISION, STRATEGY AND GOALS offering in all of our product areas and, at the same time, maintaining an overall perspective and vision of creating functional and sustainable solutions. Material choices, functionality and energy efﬁciency are three key words, in addition to sustainability, that permeate our strategy for product development. With strong product development encompassing all of our product areas, we are creating unique opportunities to develop sustainable products that satisfy the market. Read more about our activities on pages 23–25. DIVERSIFY OPERATIONS GARO’s strategy includes diversifying the operations by developing a broad offering to customers to create long- term complete solutions. GARO also continuously evaluates the opportunity to acquire new product or business areas, and to expand into new geographical markets. ACQUISITIONS The focus of the acquisition strategy is operations in which we can add new products and services or companies with specialist expertise to the Group. The acquisitions made must be a complement to GARO’s existing operations and help expand our overall offering. Establishment in new markets, with a focus on Europe, is also contained in the acquisition strategy. SUSTAINABILITY The goal of GARO’s strategic sustainability work is to be the leader in responsible business in its area of operation. One of our core values is “a long-term approach,” which for GARO means developing safe and innovative products and solutions for a climate-smart future with great dedication. The Group’s aim is for the entire value chain to be charac- terized by sustainability and a high level of ethics. GARO works toward all 17 of the UN Sustainable Development Goals (SDGs). We have selected six SDGs where we can create value and make the biggest difference. Read more about the sustainability work and the strategy in the Sustain- ability Report on pages 34–49. BRAND STRATEGY GARO’s brand strategy has as its primary aim to strengthen our position in the market and achieve its business objec- tives. Through a strong brand and a clear strategy, GARO creates a long-term approach, proﬁtability and security for our customers and employees. It is our conviction that communication is a fundamental requirement for a reward- ing relationship with the business environment and we work actively every day to strengthen GARO’s brand. We have ambassadors in the form of proud employees and satisﬁed customers, who strengthen our conﬁdence in the market, meaning that we can grow larger and stronger. GARO ANNUAL REPORT | 11 Financial targets SALES GROWTH GARO’s organic growth will amount to not less than 10% over a business cycle. PROFITABILITY The EBIT margin for the Group will amount to not less than 10% of net sales over a business cycle. RETURN Return on equity will amount to not less than 20% over a business cycle. TARGETS ≥ 10 % 25 20 15 10 5 0 2017 2018 2019 2020 2021 TARGETS ≥ 10 % 20 15 10 5 0 2017 2018 2019 2020 2021 TARGETS ≥ 20 % 40 30 20 10 0 2017 2018 2019 2020 2021 EQUITY RATIO The equity ratio will not be less than 30%. DIVIDEND POLICY GARO’s dividend will amount to approximately 50% of the Group’s net earnings after tax. The dividend proposal must take into account GARO’s long-term dividend potential and the Group’s general investment and consolidation requirements. TARGETS ≥ 30 % 60 50 40 30 20 10 0 2017 2018 2019 2020 2021 TARGETS ≈50 % 60 50 40 30 20 10 0 2017 2018 2019 * 2020 2021 ) As a precautionary measure, no dividend was paid for 2019 due to the ongoing COVID-19 situation. 12 | GARO ANNUAL REPORT BUSINESS CONCEPT, VISION, STRATEGY AND GOALS GARO ANNUAL REPORT | 13 BUSINESS CONCEPT, VISION, STRATEGY AND GOALS Sustainability goals GREENHOUSE GASES We intend to reduce our environmental impact by reducing our emissions of direct and indirect greenhouse gases in our own facilities in terms of electricity and heating. ENERGY We intend to reduce our environmental impact by reducing our energy consumption and increas- ing our share of renewable energy in our own premises. RECYCLING We intend to continuously reduce waste, increase the amount of recycling and identify and imple- ment practical solutions for separation. HEALTH AND SAFETY Our goal is to reduce the amount of workplace accidents at our facilities. GARO has a zero vision for the number of workplace accidents resulting in more than eight hours’ absence. We strive for a safe and healthy work environment. GOALS 0 tons The goal is that direct and indirect GHG emissions from own premises in terms of electricity and heat- ing is zero tonnes by 2025. GOALS 100% All electricity in all of our own facilities is to come from fossil-free sources by 2025. GOALS 98% Achieve a >98% recycling level by 2025. GOALS 0 GARO has a zero vision for workplace accidents. OUTCOME SHARE OF CO 2 EMISSIONS 2021 240 tons In 2021, GARO’s emissions per sales declined 1.34% year-on-year. OUTCOME SHARE OF FOSSIL-FREE SOURCES 2021 94.5% In 2021, the share of electricity from fossil-free sources increased 14.5%. OUTCOMES RECYCLING LEVEL 2021 84.5% In 2021, total waste recycling increased about 6%. The increase was the result of efﬁciency improvements for waste management and reducing material waste and waste to landﬁll. OUTCOME NUMBER OF WORK-RELATED ACCIDENTS 2021 18 In 2021, 18 accidents were reported, which is a year-on-year decline of 14.3%. FUTURE FOCUS AND NEW LONG-TERM GOALS • Continually work to make processes energy efﬁcient and reduce emissions. FUTURE FOCUS AND NEW LONG-TERM GOALS • Reduce total energy consumption in our own facilities. • Increase the share of energy that comes from fossil-free sources. FUTURE FOCUS AND NEW LONG-TERM GOALS • We strive to further reduce our waste and secure increased recycling in our manufacturing. • Retain a recycling level of over 98%. FUTURE FOCUS AND NEW LONG-TERM GOALS • Clean, light and noise free work environment. • Ergonomic workplaces for all employees. • Continual follow-ups on health and safety issues to ensure good health. • Training in health and safety. SHARE OF CO 2 EMISSIONS SHARE OF ELECTRICITY FROM FOSSIL-FREE SOURCES RECYCLING LEVEL NUMBER OF WORKPLACE ACCIDENTS WITH AT LEAST EIGHT HOURS OF ABSENCE Tons CO 2 % % Goal 0 tons 0 20 40 60 80 100 202120202019 Goal 100% 0 20 40 60 80 100 202120202019 Goal 98% 0 5 10 15 20 25 202120202019 Goal 0 0 30 60 90 120 150 2021 2020 HeatElectricity 2020 2021 14 | GARO ANNUAL REPORT BUSINESS CONCEPT, VISION, STRATEGY AND GOALS GREENHOUSE GASES We intend to reduce our environmental impact by reducing our emissions of direct and indirect greenhouse gases in our own facilities in terms of electricity and heating. ENERGY We intend to reduce our environmental impact by reducing our energy consumption and increas- ing our share of renewable energy in our own premises. RECYCLING We intend to continuously reduce waste, increase the amount of recycling and identify and imple- ment practical solutions for separation. HEALTH AND SAFETY Our goal is to reduce the amount of workplace accidents at our facilities. GARO has a zero vision for the number of workplace accidents resulting in more than eight hours’ absence. We strive for a safe and healthy work environment. GOALS 0 tons The goal is that direct and indirect GHG emissions from own premises in terms of electricity and heat- ing is zero tonnes by 2025. GOALS 100% All electricity in all of our own facilities is to come from fossil-free sources by 2025. GOALS 98% Achieve a >98% recycling level by 2025. GOALS 0 GARO has a zero vision for workplace accidents. OUTCOME SHARE OF CO 2 EMISSIONS 2021 240 tons In 2021, GARO’s emissions per sales declined 1.34% year-on-year. OUTCOME SHARE OF FOSSIL-FREE SOURCES 2021 94.5% In 2021, the share of electricity from fossil-free sources increased 14.5%. OUTCOMES RECYCLING LEVEL 2021 84.5% In 2021, total waste recycling increased about 6%. The increase was the result of efﬁciency improvements for waste management and reducing material waste and waste to landﬁll. OUTCOME NUMBER OF WORK-RELATED ACCIDENTS 2021 18 In 2021, 18 accidents were reported, which is a year-on-year decline of 14.3%. FUTURE FOCUS AND NEW LONG-TERM GOALS • Continually work to make processes energy efﬁcient and reduce emissions. FUTURE FOCUS AND NEW LONG-TERM GOALS • Reduce total energy consumption in our own facilities. • Increase the share of energy that comes from fossil-free sources. FUTURE FOCUS AND NEW LONG-TERM GOALS • We strive to further reduce our waste and secure increased recycling in our manufacturing. • Retain a recycling level of over 98%. FUTURE FOCUS AND NEW LONG-TERM GOALS • Clean, light and noise free work environment. • Ergonomic workplaces for all employees. • Continual follow-ups on health and safety issues to ensure good health. • Training in health and safety. SHARE OF CO 2 EMISSIONS SHARE OF ELECTRICITY FROM FOSSIL-FREE SOURCES RECYCLING LEVEL NUMBER OF WORKPLACE ACCIDENTS WITH AT LEAST EIGHT HOURS OF ABSENCE Tons CO 2 % % Goal 0 tons 0 20 40 60 80 100 202120202019 Goal 100% 0 20 40 60 80 100 202120202019 Goal 98% 0 5 10 15 20 25 202120202019 Goal 0 GARO ANNUAL REPORT | 15 BUSINESS CONCEPT, VISION, STRATEGY AND GOALS MARKET CONDITIONS The market for charging infrastructure is growing struc- turally with rising numbers of rechargeable vehicles, and we see a continuing strong trend with further expansion of the charging infrastructure in the European market. Housing construction remains at a high production rate with increased energy efﬁciency and electriﬁcation in general. Demand for construction-related products com- bined with renovation requirements and energy efﬁciency is expected to remain favorable. All in all, we have a positive view of long-term market conditions, mainly driven by growth in charging infra- structure. The market for electric installation material and charging infra- structure is continuing to grow and we foresee a positive trend for GARO. At the same time, there is increasing demand for products and solutions to achieve a fossil-free society in which growing numbers of players become aware of their environmental impact. This makes the sustainability aspect a crucial factor in the choice of product and service. Strong market trend with focus on sustainability NEED FOR SMARTER CHARGING INFRASTRUCTURE New cars are becoming smarter and will convey more information, which will enable more functionality, at the same time as increasing demands on charging stations and their information transmission. As a result, software development is becoming an increasingly important part of E-mobility in making it possible to offer competitive prod- ucts. Vehicle to Grid, V2G, is an example of technology that results in electricity from electric cars being transmitted back to the grid. The burden on the grid can thus be bal- anced, entailing that electricity is taken when it is cheap and returned for payment when the price is high. Another example is Plug & Charge, which is the simplest way for a driver to charge their electric vehicle. All the driver needs to do is to connect their electric car to the charging station, then the charging station recognizes the car automatically without the need to swipe a payment or charge card. 16 | GARO ANNUAL REPORT MARKET, DRIVERS AND TRENDS CHARGEABLE HYBRID CARS AND ELECTRIC CARS ON THE INCREASE The number of electric cars and chargeable hybrid cars on the roads is steadily increasing in the Nordic region and in Europe, which means there is a need to rapidly expand the charging infrastructure. The annual growth of rechargeable passenger cars in the EU amounts to 17.8 1 % and is expected to grow in the years to come. However, the total vehicle ﬂeet in the EU still only comprises 1.6 1 % rechargeable passenger cars. In 2021, there were more than 1.15 1 million recharge- able passenger cars in the Nordic countries and 3.9 1 million in the EU. In Norway, which is the leading market for electric cars, 86.1 1 % of new car sales in 2021 were rechargeable passenger cars, of which 71.5 1 % were pure electric cars. In the UK, the electric car ﬂeet is expanding considerably, and there are now 720,000 1 rechargeable electric cars in circulation. The majority of all car manufacturers are represented in the sale of rechargeable cars in the market, often with several dif- ferent models and also with many models under development. As electrical operation increases in all transport sectors, the need grows for more charging stations in society, which is generating strong demand for charging infrastructure. Norway and Sweden are at the fore- front of development and making large investments in quick charging, Finland and Ireland are in progress, and large investments are being made in Poland. In Sweden alone, there was a charging infrastructure that included more than 2,600 2 public charging stations with approximately 14,000 2 charging points in 2021. To meet the growing demand for charging stations, 19,000 2 charging points would be required today and a full 90,000 2 by 2030 in the Swedish market alone. We see the same tendency in the rest of Europe. To accelerate the expansion of the charging infrastruc- ture, governments in some markets are launching initiatives to promote the development of fossil-free fuel. In Sweden, green technology tax deductions of 50% of the labor and material costs for the installation of wall boxes also were introduced in January 2021. In the UK, similar measures will be implemented, with the require- ment from 2022 that all new housing, business premises, ofﬁces and properties that undergo major renovation work must install a minimum of one charging station for electric cars. This requirement is expected to result in the addition of 145,000 3 extra charging stations annu- ally. Similar government initiatives exist in other countries and new strategies are constantly being developed in the Euro- pean market. 18 1 % ANNUAL GROWTH OF RECHARGEABLE PASSENGER CARS IN THE EU 1) European Alternative Fuels Observatory 2) Power Circle 3) www.gov.uk GARO ANNUAL REPORT | 17 MARKET, DRIVERS AND TRENDS WE CAN SEE THAT TODAY’S RENOVATIONS AND NEW CONSTRUCTION REQUIRE MORE ELECTRICAL INSTALLATIONS THAN BEFORE, LARGELY DUE TO THE DIGITALIZATION OF SOCIETY. CONTINUING HIGH RATE OF CONSTRUCTION AND RENOVATION New construction, renovation and investments in the energy efﬁciency of single-family homes and apartments are driving forces for several of GARO’s product areas. New construction increased in 2021, and we can see that housing being built today has higher energy require- ments and needs to meet increasing amounts of environ - mental and energy certiﬁcations. At the same time, end users are choosing to enhance the energy efﬁciency of their homes. Overall, this means that GARO’s energy- efﬁcient and smart electrical installation products are attractive in the market and we deem the pace of growth in construction and renovation to be favorable in the countries in which we are established. We can also see that today’s renovations and new construction require more electrical installations than before, largely due to the digitalization of society. SIMPLICITY, RELIABILITY AND USER-FRIENDLINESS Simplicity, reliability and user-friendliness are three factors that we believe will gain in importance for our custom- ers. It should be easy for electrical installers to install the products, they should be easy for the end user to use and reliable for everyone, regardless of where in the process they come into contact with our products. The end user wants to be able to easily read values in real time, make adjustments, regulate the time settings, for example, for when the product is to be used, and take energy con- sumption readings. Sustainability has always been an important issue for GARO. The trend we see now is for increased safety requirements from the market, while regulations are becoming increasingly stricter for all types of electrical products. GARO welcomes the developments related to safety and certiﬁcations. All of our products are quality assured and we train installation engineers, retailers and end users in the importance of safe electrical installation. 18 | GARO ANNUAL REPORT MARKET, DRIVERS AND TRENDS INDUSTRY 4.0 A fourth generation of industrial revolution has evolved over the past decade This entails that more processes are digitalized and have a focus on connectivity through the Internet of things (IoT), automation, machine learning and access to real-time data to optimize production ﬂows and enhance the efﬁciency of maintenance work. This creates a more holistic perspective, in which there is enhanced cooperation between physical and digital production. We see that more industrial operations are choosing to invest in digitalization solutions and this trend is expected to become increasingly stronger. DEMAND FOR SUSTAINABLE PRODUCTS The increasing cost and environmental awareness in the market for electric installation material has resulted in a willingness in the industry today to choose a sustainable product with a long economic life, which imposes stricter demands on suppliers.The requirements on the products’ materials, contents how the product is manufactured and how the value chain’s environmental impact is managed by the manufacturer are increasingly key aspects for all stakeholders. Regardless of the market or industry, a growing need persists for energy-efﬁcient solutions that reduce energy consumption, costs and the overall climate impact. The need to be able to measure and control individual devices, such as engine heaters, wall boxes or solar panels, is steadily rising and, accordingly, the demand for components in metering and safety. SOFTWARE DEVELOPMENT IS ALWAYS AN IMPORTANT AREA OF E-MOBILITY TO MAKE IT POSSIBLE TO OFFER COMPETITIVE PRODUCTS. GARO ANNUAL REPORT | 19 MARKET, DRIVERS AND TRENDS By maintaining a long-term sustainable approach in our work, we continue to contribute to the market with future-proof products. Our employees are proud to be a part of GARO and to be part of the transition toward an electriﬁed future. We are a leading company in electrical installation and E-mobility in the Nordic region and a prominent E-mobility company in the rest of Europe. GARO develops and manu- factures innovative products and complete solutions that are attractive to the market and that support society’s energy transition under its own brand and within four product areas. FOUR PRODUCT AREAS The Electrical distribution products product area is the core of operations and where everything once started. In Electrical distribution products, GARO offers products and complete solutions for ﬁxed electrical installation within industry, building new housing and for renovation projects. The E-mobility product area offers everything in electric car charging, from products for home charging for public fastchargers. The Project business product area provides complete, customized and installation-ready distribution cabinets and power supply for mainly commercial enter- prises. The Temporary Power product area manufacturers products for temporary electricity, heating and lighting for construction sites and events. Read more about the differ- ent product areas on pages 26–33. INTERNATIONAL PRESENCE GARO divides its operations into two business areas: GARO Sweden and GARO International. GARO Sweden comprises the Swedish companies including Group external exports from Sweden, while GARO International comprises the companies in Norway, Finland, Ireland, Poland and the UK. On January 1, 2022, GARO was reorganized and two new business areas were formed: GARO Electriﬁcation (the Electrical distribution products, Project business & Tem- porary Power product areas) and GARO E-mobility. GARO’s operations are based on a drive to continually develop to be the leading innovator in all of our product areas. We are innovative in our way of working which results in smart products and solutions for the elec- trical installations market. For an electriﬁed future PRODUCT AREAS Share of sales 2021 41% 18% 34% 7% PROJECT BUSINESS Complete, customized solutions ready for installation. TEMPORARY POWER Power supply, lighting and heating for construction sites and events. ELECTRICAL DISTRIBU- TION PRODUCTS 3,500 products and com- plete solutions for the electri- cal installations market. E-MOBILITY All types of vehicle charging with associated services. 20 | GARO ANNUAL REPORT OPERATIONS SWEDEN Gnosjö • Head Ofﬁce • Sales ofﬁces • Production of products in Electrical distribution products, E-mobility and Project business • Service and support E-mobility Värnamo • Sales ofﬁces • Production of products in Temporary Power Stockholm • Sales ofﬁces Luleå • Development of software FINLAND Helsinki • Sales ofﬁces NORWAY Drammen • Sales ofﬁces UK Birmingham • Sales ofﬁces IRELAND Dublin • Sales ofﬁces NORTHERN IRELAND Belfast • Sales ofﬁces POLAND Szczecin • Sales ofﬁces • Production of products in Electrical distribution products, E-mobility, Project business and Temporary Power Export sales are made to other countries in Europe GARO ANNUAL REPORT | 21 OPERATIONS GARO’s operations cover most of northern Europe for which Sweden comprises the largest market with 69% of the Group’s net sales. In Norway, Finland, Ireland, the UK and Poland, GARO has sales companies with various distribu- tion networks, while sales to other countries are conducted through various partners and international contracts. Logis- tics are operated by the production facilities in Sweden and Poland. There is the opportunity for growth in several prod- uct areas in the countries in which GARO is established. The growing market for electric cars in Europe is creating the need for charging infrastructure and therefore presenting opportunities for establishing new operations. ADAPTING TO THE MARKET GARO adapts its offering and its products to local regula- tions in electricity standards and regulations for construc- tion and end use in each country. The Group’s extensive experience has contributed to healthy knowledge of the requirements and needs for different products in different markets. A specially adapted range is developed for each country in which GARO operates. Market efforts are run and organized locally to offer customers the best expertise, training and accessibility. PRODUCTION GARO has production facilities in three locations in Sweden: one in Värnamo and two in Gnosjö, as well as a facility in Szczecin in Poland. GARO owns productions processes which provide good control over the entire production line, and enables us to be ﬂexible and quickly adapt our products to unique customer requirements. The Group strives continu- ally to maintain an even capacity utilization, efﬁcient ﬂows and low manufacturing expenses as well as strong sustain- ability focus for successful manufacturing. Employees work in a safe and developmental environment across the operations. In January 2022, a decision was taken to invest in new production and logistics facility in Poland to considerably increase capacity in the GARO E-mobility business area. The new facility will be built in close proximity to the existing facil- ity, strategically located for the rapidly growing European market, and is planned to consist of approximately 15,000 square meters. The facility is expected to be completed in summer 2023. Through investments, the Group’s competitive- ness is increasing in the growing European E-mobility market and providing GARO with the opportunity of maintaining its position as market leader. The facility will be designed with a focus on the environment and sustainability, meaning that energy-efﬁcient solutions in the property are a given. 22 | GARO ANNUAL REPORT OPERATIONS GARO develops products internally, which creates synergy effects between the different product areas. For the Group, this entails quick and cost-efﬁcient adaptation to new solutions, regulations and market requirements, providing good control and ﬂexibility. GARO’s product development comprises software, digital solutions, electronics, mechani- cal and electrical design. EXTENDED SERVICE LIFE An important aspect of product development is to develop products with long service lives. This is achieved by invest- ing in innovative material choices, smart constructions and sustainable design. Products often require more kinds of material, mainly consisting of metal and plastic. Recycled plastic is used as far as possible. GARO is always looking for new material with high functionality that can be used in the products without risking jeopardizing safety, quality or service life. One such material is Magnelis ® , that has been used for several years and will continue to be a natural choice of material for GARO’s future outdoor products. Using Magnelis-treated sheet metal entails reduced zinc deposits during rainfall, and the production of which leads to reduced environmental impact compared with non- treated sheet metal. Read more about Magnelis ® in the Sustainability Report on pages 34–49. For products to be easily disassembled, design is adapted for products to be easily dismantled and for the different components to be replaced with new functioning parts. This saves resources and time and entails cost saving for end con- sumers. In addition, focus during the year has been placed on efﬁciently recycling products when they are obsolete by ﬂexible dismantling that separates the various materials. Developing products that are at the forefront of electrical installation has always been a signiﬁcant aspect of GARO’s success. Focus is on developing user-friendly and safe products with a modern design and a long service life. Product development GARO ANNUAL REPORT | 23 OPERATIONS SOFTWARE DEVELOPMENT In 2021, major investments were made to develop GARO’s offering in software development. This was to address market expectations for connectable products and continue to offer future-proof products. The E-mobility product area is the area in which the largest investments were made during the year. The market for charger products is growing rapidly and GARO sees a considerable need for new smart products and improved charging infrastructure. This year’s software development provides GARO with continued healthy prerequisites to develop next generation charging stations and cloud ser- vices. As a result, GARO has strengthened its expertise in software development and how products can be updated through cloud services. Increased digitalization impacts the service life of products and GARO is working continually to improve the ability to update the products’ software digitally. The market continually dispenses new functional requirements and it is necessary to fulﬁll these requirements through software updates to extend product service lives. INVESTMENTS IN TEST EQUIPMENT In 2021, investments have been made on advanced technology in GARO’s test equipment. More advanced and automated technology secures products of the highest qual- ity, while the development process is made more efﬁcient. MATERIAL CONSUMPTION For the production of GARO’s mature product range, material consumption is continually reviewed in order to, for example, be able to alter the sheet metal size of the products where this is possible without jeopardizing quality. This leads to lighter products which are advantageous for both GARO and the company’s customers. This also entails reduced material consumption in production, lighter prod- ucts to install for technicians and reduced weight during transportation, resulting in reduced emissions on the roads. One example of where product development has resulted in reduced material consumption is the development of the new connection box in 2021 that was launched in 2022. The box has been developed in collaboration with surface ﬁnishing and coating experts to ensure a long service life and reduced environmental impact. Material consumption for the new connection box is 10–25% lower than previous constructions for equivalent boxes. PARTNERSHIPS GARO has long-term partnerships with organizations in the industry to continually maintain an exchange of knowledge and increase the Group’s expertise in all product areas. The organizations that GARO has long-term partnerships with are those that share the ambition of contributing to the transition to a more sustainable society. Partnerships are important for GARO to continually be able to develop prod- ucts in line with the technology of other market companies, and in this way, future-proof its products. GARO maintains close dialog with car manufacturers to ensure that our charging stations are adapted to the coming generations’ smart vehicles. We believe that the standard consumer wants to change vehicle more frequently than they want to change charging station, which means that it is important for GARO to maintain good knowledge about developing its products for the next generation of vehicles. Partnerships continued with the following organizations in 2021: • SEK. The Swedish government’s commission to establish electrical standards in Sweden. • EL. Electricity supplier in Sweden. • SAFE. International organization that provides the market with a technical solution to meet the German Eichrecht standard, which regulates the way in which vehicle chargers communicate their readings to end users. • Open Charge Alliance. Provides the Open Charge Point Protocol (OCPP), a standardized global proto- col for communication between charging poles and charging operators. • HUBJECT. An organization that enables electric car drivers to charge their cars throughout Europe by regu- lating roaming for charging operators. INCREASED DIGITALIZATION IMPACTS THE SER- VICE LIFE OF PRODUCTS AND GARO IS WORK- ING CONTINUALLY TO IMPROVE THE ABILITY TO UPDATE THE PRODUCTS’ SOFTWARE DIGITALLY. 24 | GARO ANNUAL REPORT OPERATIONS LOCAL SUPPLIERS For the development projects that GARO has conducted during the year, considerable focus has been on using local suppliers in close proximity to our own production facilities in both Sweden and Poland. This is to shorten transporta- tion and lead times, enabling simpler logistics ﬂows and reduced climate impact. For example, the Group’s primary supplier of sheet metal is located in Gnosjö, creating ﬂexibility and advantages for continued development and access to material. HIGH FUNCTIONALITY All of GARO’s products are expected to have high func- tionality. The products are continuously developed to meet market requirements. One function that has become increasingly important is smart charging, which means that the consumer can conﬁgure their product for optimal charging depending on the burdens and requirements of the electricity grid. For example, charging can be conﬁg- ured to commence only when the solar panels generate electricity or that charging only takes place during the night to beneﬁt from the surplus in the electricity grid at this time. This creates cost advantages for the consumer and reduced the need for long-term electricity grid expansion. GARO is at the forefront of development for satisfying the future requirements of consumers and contributing to more efﬁcient energy consumption. 10–25% USE OF LESS MATERIAL FOR THE NEW CONNECTION BOX COMPARED WITH PREVIOUS DESIGNS OF THE SAME TYPES OF BOXES. GARO ANNUAL REPORT | 25 OPERATIONS Electrical distribution products creates simple, safe and sustainable solutions OFFERING The product range consists of electrical distribution products for the professional market and offers about 3,500 electrical products and complete solutions with energy efﬁciency and sustainability in focus. Complete distribution cabinets contain- ing media, control and metering, exterior facades or ground meter cabinets. Standard components, connectors, smart engine heater outlets and electric posts for camping and marinas are also part of the offering. DEMAND CONTROLS DEVELOPMENT Focus is on developing products that continually meet the increasing security requirements of customers and the market while meeting expectations in terms of energy- efﬁcient solutions. Considerable focus is also on reducing installation time for electrical installers and making their jobs easier and safer. The expectations and needs of end users change over time but the need for energy-efﬁcient smart solutions is increasing regardless of the industry and market, from both a sustain- ability and a cost perspective. Demand to measure, govern and control individual units such as an engine heater, a wall box or solar panels on a property, is growing. In turn, this creates considerable demand for energy meters and other components in the product area.The primary end users in Electrical distribution products are private individuals, tenant- owner associations, property owners that are building a new or renovating properties and camping site or marina owners. GARO’s core expertise is to develop and manufacture innova- tive products and complete solu- tions for the electrical installations market and has its foundations in the Electrical distribution products product area. 41% ELECTRICAL DISTRI- BUTION PRODUCTS ACCOUNTS FOR 41% OF TOTAL NET SALES Net sales Electrical distribution products Total net sales, Group 2017 2018 2019 2020 2021 0 100 200 300 400 500 600 Garo International Garo Sweden NET SALES IN ELECTRICAL DISTRIBUTION PRODUCTS MSEK GARO Sweden GARO International 26 | GARO ANNUAL REPORT ELECTRICAL DISTRIBUTION PRODUCTS PRODUCT AREA Sales take place through wholesalers and products are installed by external electrical installers. CONNECTABLE CAMPING CHARGING STATIONS With extensive experience from the manufacturing of electric charging stations and engine heaters and a market leading role in products for electric car charging, GARO has a unique opportunity to quickly meet demand for a combined product that is specially designed for the growing camping trend. During the year, GARO launched the mar- ket’s ﬁrst camping charging station with the ability to charge two electric cars and electrical sockets for two camping groups using the same installation. The charging station is connected and designed to allow the easy implementation of future technology and services. LAUNCHES IN 2021 As a result of the increase demand and increased trend for discrete façade meter cabinets, the product was also launched with a black lacquered front during the year. This means that GARO now has stocks of the recessed meter cabinet in four standard colors: white, gray, red and black. At the end of 2021, GARO launched IP65 enclosures, a range of sustainable and water-tight enclosures for low-volt- age distribution that can endure the Nordic climate. 2021 DEVELOPMENTS The strong growth in the E-mobility product area during the year has beneﬁted sales of components in Electrical distribution products. Components such as energy meters and load balancing combined with electric car charging enable increased measurement and control of electricity consumption. Sales in Electrical distribution products are driven by new construction, renovation and the energy efﬁciency of prop- erties. The product area is the Group’s largest and accounts for 41% of total sales. The market for Electrical distribution products reported growth of 11% year-on-year, which is assessed as stronger than the underlying market. GARO ANNUAL REPORT | 27 ELECTRICAL DISTRIBUTION PRODUCTS PRODUCT AREA E-mobility is leading the way toward sustainable infrastructure OFFERING GARO presented its ﬁrst charging station back in 2008. Many years of developing engine heaters formed the basis of the early launch, and our range of charger products has expanded signiﬁcantly since then. With wall boxes, public charging poles, fastchargers, cable cabinets for power supply, load balancing, control, software services and measuring, we are creating vast ﬂexibility for our customers. Together with partners, wholesalers, retailers and contract customers, GARO offers the market charging stations that are innovative, sustainable and easy to install and use. All products that are released have undergone quality tests and meet market requirements for safety and energy consumption. In addition, all products are developed with a focus on digital control and user simplicity. The products can be connected and are thus able to share information with one another, the car and the user. They can also be connected to GARO’s payment services and external payment services and share electricity consumption in an efﬁcient way. Our offering also includes aftermarket services and support, providing support for customers. In this way, GARO is able to offer a complete solutions that is installa- tion- and user-friendly as well as being cost-efﬁcient for customers. PERFORMANCE IN EUROPE The increased demand for electric cars and chargeable hybrid cars is driving the need for products in E-mobility. The number of electric cars and chargeable hybrid cars on the roads is increasing in the Nordic region and in Europe, and the charging infrastructure must be rapidly expanded. For GARO, this has led to further opportunities to develop the range and cement the company’s position as a complete solution supplier in the market. GARO holds a strong position in the Nordic market. In the European market, GARO notes a positive trend and an increase in interest in its products. With the help of inno- vative product development, products are designed based on country-speciﬁc requirements and regulations in the European market. This enables GARO to rapidly grow in new markets. In the UK, legal requirements have been introduced for increased accessibility to charging stations in connection with the construction of new buildings, such as housing and ofﬁces. The aim of the new legislation, which will enter force in 2022, is that it will become equally as easy to charge an electric car as it is to refuel with gasoline or diesel. Read more about market development on pages 16–19. GARO is a signiﬁcant company in Europe and one of the lead- ing manufacturers of electric car charging products in the Nordic region. With a broad product portfolio, the E-mobility product area can offer all types of vehicle charging with related services – from wall boxes for single-family homes or tenant-owner associ- ations, to charging stations for residential areas, companies, service stations and other public environments. 34% E-MOBILITY ACCOUNTS FOR 34% OF TOTAL NET SALES Net sales E-mobility Total net sales, Group 2017 2018 2019 2020 2021 0 100 200 300 400 500 Garo International Garo Sweden NET SALES IN E-MOBILITY MSEK GARO Sweden GARO International 28 | GARO ANNUAL REPORT E-MOBILITY PRODUCT AREA STRONG PARTNER With favorable innovation opportunities and our complete offering of products and services, GARO will be a strong partner in the market. GARO is partners with several major companies such as E.ON, Fortum, OKQ8 and Vattenfall as well as vehicle manufacturers, which generates new strategical business opportunities. The pace of development in the energy market remains high and energy companies continue to play an important role for the end user. The rela- tionship that energy companies have with their customers is continually changing, and GARO has noted a trend toward more long-term relationships and subscriptions for energy companies. This means that the Group’s relationships with energy companies and vehicle manufacturers is becoming increasingly important. With the help of their platforms, GARO receives access to new markets and opportunities to introduce products to more European countries. GARO is a long-term partner to its customers and assumes complete responsibility with its commitment throughout the entire process. Service and support is crucial for procurements in major projects and for quick charging in which customers demand a long-term solution and close collaboration. The GARO service and support company EV Charge Partner plays a signiﬁcant aftermarket role in E-mo- bility. In addition to service and support, the company also commissions charging infrastructure, primarily for charging operators and power companies in Sweden and Poland. INCREASED FOCUS ON E-MOBILITY The new separation of business areas as of January 1, 2022 creates the focus for GARO E-mobility and enables it to take advantage of the major opportunities that Europe offers in the product area. It also enables the business area to manage rapid growth, product development and, in particular, to satisfy customer demand for charging infra- structure. On all levels, the cornerstone for optimized sales is an in-depth knowledge of the varied requirements of the target groups. Using GARO’s value chain, distribution travels via wholesalers, retailers or contract customers and on to the market before ﬁnally reaching the end user. To Bildtext camping xxxxxxxxx GARO ANNUAL REPORT | 29 E-MOBILITY PRODUCT AREA capture synergy effects related to expertise, major custom- ers and the ﬂexibility to manage the rapid pace of growth, the organization is governed across country borders. This creates major opportunities for GARO to continue to be a strong company in the market. LAUNCHES IN 2021 In the spring, GARO’s range was expanded with a new compact fastcharger, the Atle 24 kW. The new charging station has a robust and compact design for simple instal- lation on walls or a stand. It is a charging solution that suits, for example, car buyers, repair stores or rental ﬁrms who have a signiﬁcant need for faster charging. Atle is a supplement to Althea, 50 kW, which is GARO’s fastcharger adapted for quicker recharging in locations where visitors pass by brieﬂy. Atle’s charging begins effortlessly after identiﬁcation using a RFID tag. The touch screen offers a number of languages, providing accessibility for everyone. During the year, the ﬁrst charging station with both elec- trical sockets and an electric car charger in the same instal- lation was also launched for camping sites. Read more on page 27. 2021 DEVELOPMENTS The E-mobility product area is the product area in the Group that is growing most rapidly, reporting growth of 52% for 2021 with favorable growth throughout the entire product portfolio. The product area accounted for 34% of the Group’s sales with strong growth, primarily in Sweden, the UK and Finland as well as Group-external exports to European export customers. 30 | GARO ANNUAL REPORT E-MOBILITY PRODUCT AREA GARO ANNUAL REPORT | 31 PRODUCT AREA PROJECT BUSINESS Project business offers customer- unique complete solutions OFFERING The complete product portfolio can power everything from a small apartment to large-scale industry. GARO’s ready-as- sembled distribution cabinets, cable cabinets and switchgears are customer adapted based on a dialog with the electrical installer. These complete solutions, which have been prepared for easy assembly, offer the best total cost for the least effort. UNIQUE TOTAL SOLUTION GARO’s climate smart cable cabinet for power distribution created new opportunities for the product area in 2021. The cable cabinet has several valuable properties that create synergies with the other product areas. In the Electrical distribution products product area, fully conﬁgured electricity and lighting cabinets are sold that are used to, for example, supply power for homes and street lighting. When a facility is built using E-mobility products, the need for power supply combined with load balancing is, in the vast majority of cases, essential. All of these functions are built in to the cable cabinet, which makes GARO a complete solution supplier. 2021 DEVELOPMENTS Demand in 2021 remained high in the product area as a result of the beneﬁcial development of new construction, ren- ovation and energy efﬁciency while strong growth in GARO International has had a positive effect on sales. Growth in the UK and Ireland totaled 87% during the year. The product area accounted for 18% of the Group’s total sales. In the Project business product area, GARO provides customer- unique solutions in the switchgear, cable cabinets, distribution units and apartment fuse boxes product categories. The customer project is adapted according to each individual customer’s needs and is delivered ready-assembled for simple and safe on site installation. The wide range in the product category has provided GARO with a market leading position in terms of complete solutions in low-voltage distribution. 18% PROJECT BUSINESS ACCOUNTS FOR 18% OF TOTAL NET SALES Net sales Project business Total net sales, Group 2017 2018 2019 2020 2021 0 50 100 150 200 250 Garo International Garo Sweden NET SALES IN PROJECT BUSINESS MSEK GARO Sweden GARO International 32 | GARO ANNUAL REPORT PRODUCT AREA PROJECT BUSINESS Temporary Power creates a healthy work environment at construction sites OFFERING GARO’s smart, safe and sustainable products, together with extensive experience and expertise in the area, makes the total offering a safe choice for companies in the construction sector. Sales are mainly driven by new construction and the renovation of major commercial buildings such as housing, workplaces, shopping centers and hotels. At the same time, demand for quality products with long durability is increas- ing from companies in the construction sector. In Temporary Power, we offer products with high energy efﬁciency, good user-friendliness, a high level of safety and that are ergonomi- cally designed to meet the need of a good work environment. CLOSE PARTNERSHIPS GARO has a close partnership with construction retailers and wholesalers to increase the accessibility of products for the construction and rental industries. Maintaining close dialog with both retailers and end customers enables us to more easily match the customers’ demand with our own offering, which also contributes positively to our product development. During the year, GARO expanded its partnership with Cramo Sverige AB, which is one of Sweden’s largest compa- nies in machine rental, equipment and rental-related services. The partnership comprises all products in the product area. 2021 DEVELOPMENTS During the year, GARO has noted that several rental com- panies have begun to reinvest in new equipment following a lower pace of investment in 2020. The product area accounted for 7% of total sales, with sales increasing 49% in Sweden, mainly driven by one individual customer who invest- ed heavily. Sales in other markets remained at essentially the same levels as 2020. In the Temporary Power product area, we are focusing on products and solutions in temporary power supply, lighting and heating for con- struction sites and events. The prod- uct area also provides locations with electric car charging for tem- porary use, which is advantageous for larger construction projects or more extensive events. The products also contribute to a healthy working climate on building sites through heat supply, the desiccation of damp and good work lighting. 7% TEMPORARY POWER ACCOUNTS FOR 7% OF THE TOTAL’S TOTAL NET SALES Net sales Temporary Power Total net sales, Group 2017 2018 2019 2020 2021 0 20 40 60 80 100 Garo International Garo Sweden NET SALES IN TEMPORARY POWER MSEK GARO Sweden GARO International GARO ANNUAL REPORT | 33 PRODUCT AREA TEMPORARY ELECTRIC INSTALLATIONS SUSTAINABILITY REPORT GARO’s operations are divided into four product areas and the majority of manufacturing as well as all product devel- opment takes place at our own premises. The suppliers are mainly based in Europe, and through healthy business relationships and clear requirement speciﬁcations, GARO is able to ensure that suppliers meet the Group’s standard. Purchased raw materials mainly comprise steel, plastic, copper and corrugated cardboard, the origins of which are evaluated before agreements are signed. The company’s sustainability goals form the basis of the Group’s day-to-day work and ensure that GARO meets stakeholder expectations. GARO is to deliver products with high safety standards, qualitative installations and strong sustainable material to its customers and end users. All employees at GARO and the Group’s suppliers’ employees must have a safe, secure and health-enhancing workplace. Investors must be assured that their investments have long- term sustainability and contribute to the global transition toward a sustainable future. STAKEHOLDERS IN FOCUS For GARO, it is a given to consider the Group’s stakehold- ers and their expectations in the design of our sustainability efforts. Their input is signiﬁcant for our efforts to maintain a relevant and material nature. As such, ongoing dialog is maintained with each stakeholder group. GARO designs its sustainability work and develops its sustainability goals in line with this data and other relevant information. The table below describes the Group’s most important stakeholders and their prioritized sustainability issues. The Group bases its framework of GARO’s sustainability work on two cornerstones: how proprietary operations are structured, and how GARO’s product contribute to the transition to an electriﬁed society. GARO works for an environmentally friendly, safe and enjoyable workplace in which the Group assumes overall responsibility for the organization and the value chain. The products and services that GARO provides create the preconditions for a fossil-free society and, in this way, operations can contribute to the transition to a carbon-neutral society. STAKEHOLDER GROUP Customers Employees Shareholders Suppliers PRIORITIZED ISSUES Product safety and secure installations Sustainable material choices Anti-corruption Health and safety Anti-discrimination Equality Environmental and social issues in the supply chain Climate impact Anti-corruption Quality and delivery capacity Anti-corruption GARO – for a smarter future SUSTAINABILITY REPORT GARO ANNUAL REPORT | 35 SUSTAINABILITY REPORT GARO governs its sustainability work with the objective of always developing. This is ensured through continually following up on sustainability targets and updating policy documents. Sustainability control and the UN Sustainable Development Goals Responsibilities are divided based on area and the applica- ble steering documents are revised every year. Operations in Sweden, Poland and Norway have ISO 9001 and 14001 certiﬁcations, which are well established external certiﬁcations for quality and the environmental management system. Operations in Ireland and the UK are certiﬁed in accordance with ISO 9001. By being certiﬁed, all of the operational management systems, processes and proce- dures undergo an annual external review which enables GARO to continually develop and ensures that current regulations are met. Sustainability efforts permeate the entire Group. SUSTAINABILITY REPORT 36 | GARO ANNUAL REPORT MANAGEMENT SYSTEM, POLICIES AND CODES OF CONDUCT Policies · Anti-corruption policy · Operational policy · Equality policy · Whistleblower policy · Purchasing policy · Alcohol and drug policy · Integrity policy · Vehicle policy · Sponsorship policy · Insider policy · Communication policy Quality and environmental management system · ISO 9001:2015 · ISO 14001:2015 Codes of conduct · GARO Group Code of Conduct · Code of Conduct for suppliers Board of Directors Overall responsibility for the company’s sustainability efforts Strategic work and policies Operational responsibility/ implementation Understand and work based on policies and sustainability frameworks Group Management Management Employees GOVERNANCE MODEL GARO’s sustainability efforts are to contribute to the UN Sustainable Development Goals (SDGs) and be in line with the Paris Agreement. GARO has selected six of the SDGs for which the Group creates value and contributes to the global transition. To ensure that relevant operational targets have been identiﬁed, continual follow-ups and assess- ments are conducted throughout operations, including the value chain. The table below maps the UN SDGs against GARO’s prioritized sustainability issues and describes the manner in which the Group contributes to each goal. UN SDGs Targets Impact Important issues for GARO 7.1 Universal access to modern energy services GARO offers products and solutions that contribute to renewable electricity production and a more energy- efﬁcient society. • Energy (accessibility, efﬁciency) 8.8 Protect labor rights and promote safe and secure working environments for all workers GARO is responsible for all employees having decent and fair working conditions, the opportunity for edu- cation and a safe work environment. GARO always has safety as its highest priority when developing new products. • Discrimination and equality, • Human rights (social conditions), • Health and safety, • Product safety 11.2 Provide access to sustainable transport systems for all GARO’s safe and smart charging solutions contribute to a sustainable and energy-efﬁcient vehicle ﬂeet and infrastructure. • Electriﬁed infrastructure 12.2 Achieve the sustainable management and efﬁcient use of natural resources As a producer, GARO contributes to a more circular society by designing products that make recycling com- ponents easier. GARO works continually to increase the proportion of reused materials in production. • Material choices • Replaceable components 13.1 Strengthen resilience and adaptive capacity to climate-related hazards and natural disasters GARO offers energy-efﬁcient products that contribute to the electriﬁcation of society and thereby reduce the burning of fossil fuels. Systematic climate efforts are also conducted internally to reduce the climate impact of operations. • Climate (emissions, energy consumption) 16.5 Substantially reduce corruption and bribery in all their forms GARO has an international value chain in which the Group has the opportunity of impacting how business is conducted and there is zero-tolerance for corruption throughout the value chain. Read more about these efforts in the risks section on page 49. • Zero tolerance of corruption in the Group and its value chain. SUSTAINABILITY REPORT GARO ANNUAL REPORT | 37 GARO’s value chain is an important component for the Group, impacting suppliers, customers and end users. At GARO, it is important to have a good insight in how interaction takes place in different stages of the value chain to continually improve and contribute to positive development in the industry and society at large. GARO’s impact in the value chain RAW MATERIALS AND SUPPLIERS The suppliers that GARO selects to enter strategic partner- ships with are continually assessed to live up to the Group’s requirements, both from a quality and a sustainability perspective. In GARO, there is a work model in place that is used together with suppliers to develop and achieve a more sustainable joint working method. In 2021, regulations were tightened for conﬂict minerals in the EU. This means that GARO need to maintain a good insight of where minerals originate and how compliance with laws can be ensured. This is guaranteed through distinct requirement speciﬁca- tions and evaluations of the purchases that are made. GARO’s suppliers are mainly located in Europe, which limits the risk of non-compliance with the Group’s Code of Conduct. Structured and systematic efforts are ongoing to respect human rights and for GARO to be able to conduct ethically correct operations in all areas. GARO The majority of GARO’s products are produced in its own premises, partly in Sweden and partly in Poland. By remaining close to production, it is easier to ensure a healthy work environment, shorten lead times and conduct efﬁcient quality assurance of GARO’s products. Continual assessments are made in production to improve the efﬁ- ciency of processes and reduce resource waste. In addition, continuous work to increase the share of renewable energy in production is taking place, thus reducing the total climate impact of operations. Digitalization and sustainability are at the very top of the agenda for all product development that takes place at GARO. Employees are a central part of operations and GARO works to create an enjoyable, inclusive environment where friendliness, openness and a genuine GARO spirit per- meate everything that is done. Individual development is promoted in the Group and employees are encouraged for further development and to try out new areas in the Group. CUSTOMERS The sales of GARO’s products and services takes place through wholesalers, retailers and contract customers. By maintaining a close relationship and conducting solu- tion-oriented dialog, customer collaboration is developed and stimulated. Wholesalers and retailers are provided with access to market material and digital platforms. It is of the utmost importance that these customers receive the knowledge and training required to ensure correct manage- ment of GARO’s products. Work is continually conducted with customers to ensure that end customers and consumers receive the best possible service. SUSTAINABILITY REPORT 38 | GARO ANNUAL REPORT Raw materials & suppliers GARO Customers End customers End users Reparation and recycling Components Steel Plastic Copper Containers GARO SWEDEN GARO AB GARO Montage AB GARO Elﬂex AB WEB-EL Försäljning AB GARO E-mobility AB EV Charge Partner Sweden AB Wholesalers Retailers Contract customers Partners Electrical installers Industrial companies Rental equipment & machinery Construction companies & housing manufacturers Contractors Companies Property owners Tenant-owner associations Single-family house owners Municipalities Campsites Marinas Reserve parts Service and sup- port Recyclable material GARO INTERNATIONAL GARO AS, Norway GARO Electric Ltd, Ireland GARO OY, Finland GARO Polska Sp. z.o.o, Poland GARO Electric Ltd, UK END CUSTOMERS For the installation of products, safety and knowledge are key factors. Customers are placing increasingly high environmental requirements, and the materials and contents of products are now evaluated very thoroughly. During the year, GARO continued to invest in training, both digitally and physically with end customers, to ensure that installa- tions are carried out in the correct way. As products are digitalized and becoming more complex, the market’s requirements for service, support and IT security are also increasing. GARO is at the forefront of meeting these requirements and offers qualitative, functional and safe products. END USERS The end user’s needs the govern demand for products. For the use of GARO’s products, the end user must be conﬁdent that they have a product that will have a long service life. Products that are produced at GARO must always be of high quality, user-friendly, safe and energy-efﬁcient. The relationship with the end user is important and it is partly through their judgment that GARO can grow and create a strong brand with high credibility. REPARATION AND RECYCLING Circular ﬂows are seen as a natural part of operations, and they impact the design of the products. In the design phase, components are adapted to be replaceable and any reparations are to be carried out in a smart way. When a product breaks, the primary objective is to always be able to repair it instead of replacing it with an brand new product. GARO provides reserve parts for the Group’s product portfolio, leading to resource savings in all areas, but it is also ﬁnancially advantageous for the end user. All of GARO’s products can be recycled down to the smallest component. It should be simple to dismantle all of the com- ponents and sort them based on the recycling opportunities available in each country. SUSTAINABILITY REPORT GARO ANNUAL REPORT | 39 ENVIRONMENTAL IMPACT OF TRANSPORTATION In 2020, GARO signed up to the Swedish government’s Fossil Free Sweden initiative that has identiﬁed a number of different challenges for reaching the goal of being the ﬁrst entirely fossil-free welfare state. GARO Sweden joined the company car challenge, the solar challenge and the transport challenge, the transport challenge being the only one of these to remain for this ﬁscal year. In 2021, GARO continued to work with making Swedish domestic transpor- tation fossil-free by 2027. This target means that transpor- tation should have at least a 70% reduction in emissions compared with fossil alternatives. The challenge concerns the entire value chain – both outsourced and own transpor- tation – and is followed up on continually to ensure that the challenge is completed in the allocated time. ENERGY-SMART PRODUCTS When GARO develops products, the objective is for them to have high functionality, be energy- and cost-efﬁcient while having the least possible environmental impact throughout their life cycle. The products should be sus- tainable in the long term and characterized by timeless, modern design. Operations have a life cycle perspective integrated in all product development projects and include the entire GARO value chain, from the choice of materials to reparation and recycling. Read more about life cycle analysis on pages 44–45. ENERGY EFFICENCY GARO’s products are designed to contribute to reduced energy consumption, thereby enabling them to contribute to reduced CO 2 emissions. Regardless of the market or industry, a great need persists today for energy-efﬁcient solutions that reduce energy consumption. Products that can monitor and control energy consumptions in real time so that the conscious user can easily reduce their environ- mental impact. DESIGN WITH A LONG SERVICE LIFE Products that can be used often and for a long time are the foundation of GARO’s sustainability strategy. Customers should be offered quality products that are manufactured to endure harsh climates and daily use, thereby minimizing resource waste. GARO strives for a modern and timeless design for its products. MANUFACTURING GARO’s production facilities have an environmentally friendly production process, which is highly valued by both customers and end users. GARO works to continually reduce its total environmental impact and contribute to lowering global emission levels to achieve the target of limiting global warming to under 1.5° C. The Group provides products and services that enhance the efﬁciency of electricity consumption and contribute to a fossil-free future. Smart and efﬁcient for a better environment GARO’S SUSTAINABILITY GOALS AND OUTCOMES Goals Outcomes 0 tons The goal is that direct and indirect GHG emissions from the Group’s own facilities in terms of electric- ity and heating will be zero tonnes by 2025. 240 tons In 2021, GARO’s emissions per sales declined 1.34% year-on-year. 100% All electricity in the Group’s own facilities is to come from fossil-free sources by 2025. 94.5% In 2021, the share of electricity from fossil-free sources increased 14.5%. >98 % Achieve a recycling level of over 98% by 2025. 84.5% In 2021, total waste recycling increased about 6%. SUSTAINABILITY REPORT 40 | GARO ANNUAL REPORT GARO ANNUAL REPORT | 41 SUSTAINABILITY REPORT SUSTAINABLE MATERIAL CHOICES Market requirements are becoming increasingly stringent in terms of the choice of materials, both from customers and end users. GARO works continually for selecting sustain- able materials and looks for new innovative solutions in the market. The aim is to always minimize the use of materials while retaining resistance, quality and adapting to the applicable safety requirements. One sustainable material is Magnelis ® , an environmen- tally friendly metal coating that provides GARO’s outdoor products with superior self-healing properties and strong resistance to corrosion in adverse environments and climate conditions. As opposed to hot galvanized materials, Mag- nelis ® does not release zinc deposits, a major advantage as zinc is a hazardous metal that negatively impacts the pH value of watercourses. This then leads to altered habitats for animals and plants which, on a global level, may entail an increased threat for biological diversity. The manufacturing of Magnelis ® reduces hazardous emis- sions by 80% compared with comparable material that is used in today’s market. Magnelis ® is used for GARO’s fast- chargers, ground meter cabinets and cable cabinets and evaluations take place continually of how more products can be developed with the material. THE AIM IS TO ALWAYS MINIMIZE THE USE OF MATERIALS WHILE RETAINING RESISTANCE, QUALITY AND ADAPTING TO THE APPLICABLE SAFETY REQUIREMENTS. 42 | GARO ANNUAL REPORT SUSTAINABILITY REPORT ENERGY CONSUMPTION GARO CO 2 EMISSIONS GARO RECYCLING LEVEL GARO MWh Tons CO 2 % 0 500 1,000 1,500 2,000 2021 2020 HeatElectricity 0 30 60 90 120 150 2021 2020 HeatElectricity 0 20 40 60 80 100 202120202019 2020 2021 2020 2021 Global plastic consumption amounts to approximately 300million tons per year, of which 5–13 million tons end up directly in nature. GARO takes this issue seriously and products are designed to the greatest extent possible with a high proportion of either climate-smart or recycled plastic granule. There is considerable value in using recycled plastic instead of consuming raw materials, despite the somewhat higher level of wear and tear that recycled plastic has on the production of the operation’s plastic tools. By using recycled plastic, GARO contributes to the reduced need of raw mate- rials and prolongs the service life of the plastic. GARO also uses a considerable amount of aluminum in products, which has a longer service life and is a material that can easily be managed in recycling processes. More- over, GARO uses halogen-free cables instead of PVC that in some cases, can be environmentally hazardous and, in the worst case, even carcinogenic. PACKAGING GARO maintains continual focus on reducing its carbon footprint with climate-smart packaging of products. In 2021, continued improvements were made and material use has been made even more efﬁcient. Packaging was optimized to reduce material consumption and the Group is continually seeking out new technology and material. ENERGY-SMART OPERATIONS To operate modern and sustainable operations, it is a given to continually work to make processes energy efﬁ- cient and reduce emissions. In 2021, GARO’s emissions per sales were identical year-on-year, which was a result of various energy-efﬁciency measures. Through installed solar panels on factory premises and the use of biogas in several of the Group’s facilities in Sweden, GARO is able to reduce total CO 2 emissions. Using biogas instead of natural gas means that GARO reduces CO 2 emissions by about 90% for heating and about 25% of total emis- sions from operations. At the end of 2021, GARO had 425 solar panels that accounted for about 2% of total energy consumption during the year. In 2021, GARO’s total energy consumption amounted to 1,911 MWh for electricity and 1,128 for heating, which is a year-on-year reduction per sales. In 2021, waste recycling increased about 6%. The increase was the result of efﬁciency improvements for waste management and reducing material waste and waste to landﬁll. GARO’s objective is that no waste goes to landﬁll. GARO operates based on the EU waste hierarchy, which mainly involves work to minimize and reuse resources. When this is not possible, waste is recycled and, in a last case scenario, waste goes to landﬁll. SUSTAINABILITY REPORT GARO ANNUAL REPORT | 43 Life cycle analysis of charging stations LIFE CYCLE ANALYSIS The charging station is a product with a strong connection to sustainable infrastructure and that contributes to the reduced use of vehicles with fossil fuels. It is also a product that can be considered an ambassador for other E-mobility products and that presents a general image of the products’ service lives. The aim of the charting was to understand the product’s resource ﬂows and emissions during its entire service life as well as to identify how GARO can continue to develop products adapted to a more climate-smart society and how GARO can become more climate-smart itself. Electrical components, 15% Plastic, 5% Steel, 6% Copper/plastic, 8% Aluminum, 51% Corrugated cardboard, 15% Other, 1.5 % Suppliers Material recycling Electricity production Transport Assemblage GARO Distributors End of life Use and service Component-/raw material producers METHODOLOGY The analysis is based on ISO 14025, an international stan- dard for environmental declarations. The collection of data from all suppliers concerned has been carried out, in which they have been asked to supply product-speciﬁc information for each component as well as transportation choice and distance. Data has been collected from both the ﬁrst and second line of suppliers. Moreover, data from GARO’s own operations has been collective, which includes the description of weight and primary material choice for each component. In certain cases, generic data has been used to ensure that all phases of the service life have been included. SUPPLIERS AND CHOICE OF MATERIALS The manufacturing of LS4s is conducted at GARO’s prem- ises in Gnosjö, but its components are part of a complex value chain that includes several international suppliers. Nine different material compositions make up LS4s in which aluminum comprises half of the product’s total weight. The aluminum used is purchased from a local supplier about 150 km from the factories in Gnosjö. The remaining material is mainly purchased from European suppliers. Together with the electrical components used in the product, aluminum accounts for 94% of the total emissions from materials in the product’s service life. To understand GARO’s environmental impact and improve environmental efforts, GARO implemented a process for assessing and reporting the total environmental impact of products. In 2021, GARO decided to conduct a life cycle analysis for the LS4 charging station for electric and hybrid vehicles. SUSTAINABILITY REPORT 44 | GARO ANNUAL REPORT ) Nordic average mix 89.6 g of CO2e per kWh ) Consumption fossil-fuel cars 170 g CO 2 e per km Service life phase Proportion Production Transportation between suppliers 0.1% Transportation to GARO AB 0.4% Energy consumption for the manufacturing of components 2.0% Production of raw materials and components 52.5% Energy emissions GARO Gnosjö 0.5% Total production 55.5% Distribution Transportation to distributors 0.1% Total distribution 0.1% Use and service Use excluding vehicle charging 39.3% Service 5.0% End-of-life 0.1% Total use and service 44.4% Total 100% RESULTS AND ANALYSIS The entire product’s service life was charted and the point of the service life that creates the largest environmental impact was identiﬁed. The results show that more than half of CO 2 emissions occur during production, including direct emissions and those from subcontractors. In addition, almost 40% of emissions in the user phase occur when the product is in standby mode, based on consumption taking place with a Nordic energy mix. In total, LS4s release 600.2 kg CO 2 e * during their service lives, excluding vehicle charging. During the service lives of LS4s, total emissions amount to about 21.4 tons of CO 2 e * including total charging of vehi- cles performed. This is based on 20,000 charging occasions over a 15-year period where a Volvo V60 Twin Engine is used as an example vehicle. To place this in context, this is equivalent to total savings of 240 tons of CO 2 e compared with a fossil-dependent vehicle ** . Assuming that Sweden will achieve its ambition to be 100% fossil-free by 2030, the total reducing will be 263 tonnes of CO 2 e. In conclusion, regardless of energy mix, GARO’s innovative LS4 charging stations will contribute to societal emission reductions, some- thing that GARO is incredibly proud of. Through additional smart product development, the Group could reduce emis- sions even more, thus ensuring that it – together with its sup- pliers – contributes to reducing the global climate impact. SUSTAINABILITY REPORT GARO ANNUAL REPORT | 45 By focusing on people, GARO assumes an overall responsibility in sustainability which leads to healthy employees who contribute to maintaining favorable operational development. It is important to be part of society and to be part of creating a feeling of solidarity between employees and their surrounding community. Employees in focus GARO GROUP’S SUSTAINABILITY GOALS AND OUTCOMES Goals Outcomes 0% GARO has a zero vision for work- place accidents. 18 During the year, 18 acci- dents were reported, which is a year-on-year decline of 14.3%. STRONG CORPORATE CULTURE Openness, friendliness and pride are the foundations of GARO’s corporate culture and symbols of the GARO spirit. Regardless of position, everyone should be treated in the same way, and active and close management is the key to success. Each year, employee surveys are conducted to ensure that all employees are content and feel that they have the opportunity of developing together with GARO. Skilled and committed employees contribute to GARO’s strong corporate culture. Respect is highly valued and the aim to create an enjoyable work environment in which everyone wants to go that extra mile to contribute to opera- tions. At GARO, it is a given that all employees should feel a sense of belonging and remain motivated and committed to their work. Commitment creates a long-term approach for everyone’s work and affects the design of the continued development of operations. Employees at GARO are to be good ambassadors for the Group and proud over their workplace. This does not only strengthen the brand and corporate culture, but also contributes to the continued development of operations while retaining strong relation- ships with the company’s stakeholders. PERSONAL DEVELOPMENT GARO is to be an attractive workplace, which means that favorable development opportunities and good prereq- uisites for a career in the Group are on offer. GARO has its manufacturing process in both Sweden and Poland, creating opportunities for each country’s operations to take advantage of each other’s lessons, culture and knowledge. In turn, this results in development opportunities in the differ- ent units and the total offering in the Group is strengthened. Employees that have previously worked in, for example, assembly, have transitioned to sales and, with combined knowledge, arrived at new insight for both departments. All employees have annual appraisals with their immediate managers where they discuss both short- and GROUP EMPLOYEES GROUP MANAGEMENT HEALTH AND SAFETY Gender distribution, % Gender distribution, % Quantity 100 80 60 40 20 0 Women Men 100 80 60 40 20 0 Women Men 25 20 15 10 5 0 Accidents Incidents 2021 2020 2019 2019 2020 2021 SUSTAINABILITY REPORT 46 | GARO ANNUAL REPORT long-term goals in terms of work duties, skills development and opportunities of further training in the Group. This pro- cess helps to identify the needs of employees at the same time as valuable knowledge is deﬁned within the Group. GARO is to be a long-term attractive employer in which its employees feel acknowledged and are offered developing and challenging work tasks, regardless of where in the Group they ﬁnd themselves. DIVERSITY AND EQUALITY Everyone is welcome at GARO, regardless of gender, ethnicity, sexual orientation or disability. There is consider- able value in having cultural diversity with even age and gender distribution throughout operations. This creates a successful corporate culture. GARO always strives to achieve an even employee composition and to have more women in senior positions. At the end of the year, Group Management consisted of one woman and ﬁve men. GARO has an equality policy that prevents discrimination from occurring. All employees must study the equality policy when ﬁrst employed. In addition, GARO has a whis- tleblower system that all employees are aware of and have access to. Employees can use the whistleblower system to report any irregularities entirely anonymously. FUTURE COLLEAGUES Many of GARO’s employees are staying for a long time in the Group, regardless of where in the organization they began their journey. This is something that we are pleased to highlight and Skriv 10-, 20, 30 and 40-year anniversaries are celebrated each year. By offering favor- able employment conditions and a developing workplace, GARO is a highly regarded employer. It is important to also be a sought-after employer from an international perspec- tive to attract different kinds of expertise to the Group. At the same time, GARO is engaged in local high schools’ electricity programs, offering pupils with internships to raise curiosity. In many cases, this also leads to employment in the Group. In 2021, GARO has collaborated with colleges and universities in both Sweden and Poland. SUSTAINABILITY REPORT GARO ANNUAL REPORT | 47 Active company in society It is naturally important for GARO to take social responsibil- ity, both at an overall level and a local one in the locations where the Group operates. It is also an opportunity for GARO to take part in people’s everyday lives. GARO shows a large amount of dedication in local operations. The projects that are sponsored will create value, provide joy and contribute to continued development for the regions in which GARO operates. In this way, these regions will become attractive locations to live and work in. GARO possesses a signiﬁcant function as an employer and as such, the Group supports local schools and stu- dent activities to reach out to new employees who could become part of GARO’s journey of success. Being an active employer in society entails GARO being presented with the opportunity to create healthy partnerships with the local business community, contributing together to positive development. CHILDREN AND YOUNG ADULTS A PRIORITY GARO sponsors sports clubs and recreational activities in our local areas. Protecting operations for children and young adults is given extra focus since GARO wants to contribute to active childhoods and create social and valuable communities. HEALTH AND MEDICAL DEVELOPMENT GARO’s social commitment also travels further aﬁeld. This can involve grants to foster a more sustainable lifestyle, drive medical science or spread happiness to children who are ill. GARO supports different national initiatives and charities continually during the year. SOCIAL COMMITMENT SAFE, HEALTHY ENVIRONMENT GARO’s production environment is clean, bright and with- out noise, and designed with employee safety in focus. All employees have an ergonomically designed workplace that is adapted based on individual requirements and disabil- ities. It is a given that health and safety requirements are complied with and GARO conducts inspection rounds in all producing units twice a year. GARO continually follows up on health and safety issues and any reported incidents to ensure good health for everyone in the Group. Regular training is conducted for all employees in health and safety issues, including CPR, ﬁre evacuation and ergonomics. Physical activity is encouraged and every employee is offered a ﬁtness subsidy and occupational healthcare ser- vices. This creates the best opportunities for all employees to thrive at the workplace. In general, GARO has very low absenteeism, which includes long-term sick leave. The goal is for consistently low sick leave, regardless of work tasks and country. In 2021, the share of short-term sick leave was 1.24% and long-term sick leave was 1.12%. GARO’S GUIDELINES IN BRIEF The guidelines apply to the entire operations, including all partners and suppliers, regardless of where in the world they operate. All processes and projects must always oper- ate in accordance with these guidelines. • GARO supports, respects and guarantees the protection of internationally accepted human rights. • GARO offers employees the right to form and join organizations they choose themselves, and to negotiate collective agreements. • Child labor must never occur within the operations or at any partner. • GARO has zero tolerance towards discrimination, violence or harassment irrespective of gender, sexual orientation, ethnicity, religion or other religious beliefs, disability or age. • GARO has zero tolerance toward all forms of corruption, bribery or unethical business methods. All employees are responsible for identifying, complying with and respecting local laws, regulations, and rules in the countries where the Group operates and does business. SUSTAINABILITY REPORT 48 | GARO ANNUAL REPORT Various kinds of risks arise throughout GARO’s operations and value chain, from both environmental and social perspectives. For the production of GARO’s products, raw materials are used that could present human rights and work condition risks. Risks have also been identiﬁed related to own operations, including work environment risks, mental health and discrimination. Refer to the table for the efforts taken to minimize these risks. GARO’s sustainability risks GARO’s areas Risk Risk management Resource consumption Conﬂict minerals, resource shortages According to GARO’s Code of Conduct, products must not contain conﬂict materials (tin, tantalum, tungsten and gold) that are originated from conﬂict-affected and high-risk areas. Environmental impact Pollution and emissions All of GARO’s companies must have a certiﬁed environmental manage- ment system in accordance with ISO 14001 or a corresponding own non-certiﬁed system. The fundamental requirement is that each company in the Group must systematically follow up on their environmental impact with the aim of limiting their environmental impact. Skills supply Loss of or lack of qualiﬁed personnel Continual work is performed for ensuring a safe and secure workplace with employees who develop and are satisﬁed. GARO is to provide attractive working conditions with a focus on ﬂexibility and development. Discrimination Discrimination by gender, age, origin, religious beliefs, sexual orientation. GARO has zero tolerance towards discrimination, violence or harass- ment irrespective of gender, sexual orientation, ethnicity, religion or other religious beliefs, disability or age. This is complied with the help of the company’s equality policy. Health and wellbeing Psychosocial risks (stress/exhaustion/ strain injuries). In accordance with GARO’s Code of Conduct, the Group’s employees are to have a safe and healthy work environment. Measures to prevent and manage possible incidents, accidents and diseases at the work- place must always be taken. GARO conducts continual follow-ups of employee wellbeing through dialogs and offering health-enhancing activities. The value chain Inadequate compliance with GARO’s Code of Conduct for suppliers. GARO has a Code of Conduct for suppliers that all parties must agree to before a partnership is entered into. This minimizes the risk of irregu- larities in the value chain. Human rights Lack of respect for human rights GARO’s Code of Conduct states that the Group is to support and respect the protection of internationally recognized human rights and ensures to avoid contributing to any violation of human rights. Child labor must never occur within the operations or at any partner. Ethical business The occurrence of corruption and bribes GARO has zero tolerance toward all forms of corruption, bribery or unethical business methods. All employees are responsible for identify- ing, complying with and respecting laws, regulations, and rules in the countries where the Group operates and does business. SUSTAINABILITY REPORT GARO ANNUAL REPORT | 49 Auditor’s report on the statutory sustainability statement To the general meeting of the shareholders of GARO AB (publ), corporate identity number 556051-7772 ENGAGEMENT AND RESPONSIBILITY It is the Board of Directors who is responsible for the statutory sustainability statement for the year 2021 on pages 34–49 and that it has been prepared in accordance with the Annual Accounts Act. THE SCOPE OF THE AUDIT Our examination has been conducted in accordance with FAR’s auditing standard RevR 12 The auditor’s opinion regarding the statutory sustainability statement. This means that our examination of the corporate governance statement is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. We believe that the examination has provided us with sufﬁcient basis for our opinions. OPINIONS A statutory sustainability statement has been prepared. Jönköping 8 April 2022 Ernst & Young AB Joakim Falck Authorized Public Accountant THIS IS A TRANSLATION FROM THE SWEDISH ORIGINAL SUSTAINABILITY REPORT 50 | GARO ANNUAL REPORT GARO ANNUAL REPORT | 51 SUSTAINABILITY REPORT SHARE PRICE AND AVERAGE VOLUMES 2021 GARO’s share has been listed on Nasdaq Stockholm since March 2016 and has been part of the Mid Cap segment since January 2, 2018. Shares are traded under the ticker name GARO. A total of 15.7 million GARO shares were traded in 2021. The average daily volume during the year amounted to 62,120 shares. On the ﬁnal trading day of the year, the share price closed at SEK 216 (127, adjusted for the share split), an increase of 70% compared with the closing price on December 31, 2020. GARO’s market value on Decem- ber 31, 2021 was MSEK 10,800. SHARE SPLIT The Annual General Meeting in May resolved to increase the number of shares in the company by replacing each share with ﬁve new shares of the same type (a 5:1 share split). The record date for the share split was May 26, 2021. The share split entailed that the number of shares in the company increased from 10,000,000 to 50,000,000 and that the quotient value of the shares changed from SEK2.00 to SEK 0.40. The ﬁnal day of trading of the company’s shares before the share split was May 24, 2021. The ﬁrst day of trading of the company’s shares following the share split was May 25, 2021. In conjunction with the share split, the ISIN changed and is now SE0015812417. CONVERTIBLES, WARRANTS, ETC. GARO has no outstanding warrants, convertibles or other share-related ﬁnancial instruments. DIVIDEND GARO’s dividend policy is that the dividend shall amount to around 50% of the net proﬁt after tax. The dividend proposal must take into account GARO’s long-term dividend potential and the Group’s general investment and con- solidation requirements. The Board of Directors proposes a dividend of SEK 1.40 (0.95) for the 2021 ﬁscal year, corresponding to 42% of proﬁt per share. Through regular information disclosure to shareholders and the remainder of the capital market, GARO aims to efﬁciently and correctly create a fair image of the operations’ performance, minimize the risk of speculation and rumors being spread and increase interest in the company’s share. The aim is to maintain continual dialog with the Group’s stakeholders. The GARO share 52 | GARO ANNUAL REPORT THE GARO SHARE DATA PER SHARE (ADJUSTED FOR THE SPLIT) Data per share 2021 2020 2019 2018 2017 Earnings per share, SEK 3.33 1.91 1.71 1.74 1.71 Cash ﬂow from operating activities per share, SEK 2.43 1.74 2.43 1.48 1.03 Equity per share, SEK 11.03 8.60 6.86 5.92 5.06 Average number of shares (thousands) 50,000 50,000 50,000 50,000 50,000 Number of shares at the end of the period (thousands) 50,000 50,000 50,000 50,000 50,000 THE 10 LARGEST SHAREHOLDERS AT DECEMBER 31, 2021 (FROM EUROCLEAR) Shareholders Number of shares Share capital, % Votes, % Svensson, Lars 17,841,725 35.7 35.7 Swedbank Robur Funds 4,675,344 9.4 9.4 Svolder Aktiebolag 4,364,553 8.7 8.7 SEB Investment Management 1,901,695 3.8 3.8 Stefan Jonsson Invest AB 1,740,425 3.5 3.5 Spiltan Fonder AB 1,735,662 3.5 3.5 State Street Bank and Trust Co 1,482,822 3.0 3.0 Nordea Nordic Small Cap Fund 1,399,044 2.8 2.8 Third Swedish National Pension Fund 1,300,000 2.6 2.6 Carnegie Investment Bank Filial, AF 1,234,527 2.5 2.5 Total, largest shareholders 37,675,797 75.5 75.5 Total, other shareholders 12,324,203 24.5 24.5 Total number of shares 50,000,000 100.0 100.0 SIZE CLASSES OF OWNERSHIP STRUCTURE AT DECEMBER 31, 2021 (FROM EUROCLEAR) Holding Number of shareholders Number of shares Share capital, % Votes, % 1–500 12,870 1,218,077 2.4 2.4 501–1,000 791 616,414 1.2 1.2 1,001–5,000 627 1,335,155 2.7 2.7 5,001–10,000 67 509,320 1.0 1.0 10,001–15,000 17 206,402 0.4 0.4 15,001–20,000 13 234,290 0.5 0.5 20,001– 88 45,880,342 91.8 91.8 Total 8,774 50,000,000 100.0 100.0 GARO OMX Stockholm PI SEK SHARE PRICE DEVELOPMENT FROM THE IPO March 16, 2016–December 31, 2021 0 50 100 150 200 250 NOV 2021 SEP 2021 JUL 2021 MAY 2021 MAR 2021 JAN 2021 NOV 2020 SEP 2020 JUL 2020 MAY 2020 MAR 2020 JAN 2020 NOV 2019 SEP 2019 JUL 2019 MAY 2019 MAR 2019 JAN 2019 NOV 2018 SEP 2018 JUL 2018 MAY 2018 MAR 2018 JAN 2018 NOV 2017 SEP 2017 JUL 2017 MAY 2017 MAR 2017 JAN 2017 NOV 2016 SEP 2016 JUL 2016 MAY 2016 MAR 2016 GARO ANNUAL REPORT | 53 THE GARO SHARE 54 | GARO ANNUAL REPORT BOARD OF DIRECTORS’ REPORT – GROUP Board of Directors’ Report for the Group The Board of Directors and the President and CEO of GARO AB (publ), Corporate Registration Number 556051-7772, hereby submit the Annual Report and consolidated ﬁnancial statements for the 2021 ﬁscal year. All amounts are stated in MSEK unless speciﬁed otherwise. Amounts in parentheses pertain to the preceding year. OPERATIONS GARO is a group that develops, manufactures and markets innovative products and turnkey solutions for the electrical instal- lations market under its own brand. In its four product areas of Electrical distribution products, E-mobility, Project business & Temporary Power, the Group supplies products and complete solutions with a focus on electrical safety, user-friendliness and sustainability. Over its more than 80-year history, GARO has established strong customer relationships and a highly devel- oped supplier network that, combined with proprietary produc- tion and sales units, form a platform for delivering innovative, complete solutions. GARO’s main customer group is electrical wholesalers, although the company also has good relationships with end customers that comprise electrical installers, original equipment manufacturers (OEMs) and industrial companies as well as tenant-owner associations and private individuals. The company has operations in Sweden, Norway, Finland, Ireland, the UK and Poland. The Group is organized in two business areas: GARO Sweden and GARO International. The GARO share has been listed on Nasdaq Stockholm since March 16, 2016. SIGNIFICANT EVENTS DURING THE REPORTING PERIOD On January 1, 2021, GARO completed an incorporation of the Swedish division of the E-mobility product area by transferring operations to the wholly-owned subsidiary GARO E-mobility AB. The purpose of the incorporation is to sharpen focus, intensify our development activities and to further broaden and strengthen our offering to the market. The 2021 Annual General Meeting resolved on a 5:1 share split, meaning that each existing share was replaced with ﬁve new shares. The share split was completed during the second quarter. GARO reported organic growth of 25% in 2021 compared with the preceding year. During the year, the GARO Sweden business area recorded growth of almost 28%, while growth in the E-mobility product area amounted to 75% compared with 2020. The Electrical distribution products product area reported growth of 7% and the Temporary Power product area reported growth of 49%, while the Project business product area essentially remained at the same level as 2020. During the year, the GARO International business area recorded growth of 17%, in which the largest growth of 58% was recorded in the Project business product area compared with 2020. The Electrical distribution products product area reported growth of 17% and the E-mobility product area reported growth of 3%, while the product area Temporary Power remained at the same level as 2020. GARO Poland’s sales and production con- tinued to increase in line with rising volumes, where an increase in production efﬁciency has been achieved. EVENTS AFTER THE END OF THE FINANCIAL PERIOD For increased focus and clarity, GARO has reported operations divided into the business areas of GARO Electriﬁcation and GARO E-mobility since January 1, 2022. In addition, a decision was made to invest in a new produc- tion and logistics facility in Poland with construction starting in the second quarter of 2022. The facility will be constructed in close proximity to the existing establishment, close to the Euro- pean market and with favorable logistics conditions. The invest- ment is expected to amount to about MSEK 85. At the time of writing, the situation in Ukraine and the COVID-19 pandemic are not deemed to have any notable impact for GARO and its operations. However, due to the situation unfolding in Ukraine, future access to components is uncertain. SUSTAINABILITY REPORT In accordance with Chapter 6, Section 11 of the Annual Accounts Act, GARO AB has chosen to prepare the statutory Sustainability Report as a separate report from the Annual GARO ANNUAL REPORT | 55 BOARD OF DIRECTORS’ REPORT – GROUP SUMMARY OF THE GROUP’S FINANCIAL PERFORMANCE MSEK 2021 2020 2019 2018 2017 Net sales 1,295.8 1,039.8 1,008.1 903.7 796.0 EBITDA 243.0 163.2 134.9 128.8 110.3 EBIT 207.2 136.2 112.6 113.8 98.1 EBIT margin % 16.0 13.1 11.2 12.6 12.3 Total assets 936.9 743.3 657.4 565.8 533.9 Equity ratio % 58.9 57.9 52.2 52.4 47.3 Return on equity % 34.0 24.7 26.8 30.1 38.3 Average number of employees 460 409 420 398 345 For deﬁnitions of key ﬁgures, see Note 30 page 88. Multi-year summary Report. The Sustainability Report was submitted to the auditors at the same time as the Annual Report. The Sustainability Report is presented on pages 34–49 of this document. NET SALES AND EARNINGS Net sales increased 25% to MSEK 1,295.8 (1,039.8). Underly- ing demand, primarily in the E-mobility product area, was strong during the year. EBIT amounted to MSEK 207.2 (136.2), corre- sponding to an EBIT margin of 16.0% (13.1). EBIT was positively impacted by higher sales volumes primar- ily in the E-mobility product area and a favorable product mix. Expenses in relation to net sales were somewhat lower com- pared with the preceding year, primarily as a result of strict cost control and lower market activity given that the pandemic con- tinued to impact operations in 2021. The Group’s net ﬁnancial items amounted to MSEK 1.2 (-13.1) in 2021, in which EUR has remained relatively stable against SEK. The Group’s income after ﬁnancial items amounted to MSEK208.4 (123.1). The tax expense for the period amounted to MSEK 41.7 (27.7), corresponding to a tax rate of 20.0% (22.5). Proﬁt after tax was MSEK 166.7 (95.4). The Group’s operations in Poland are conducted in a tax-exempt Special Economic Zone where unutilized tax beneﬁts can be utilized until 2026. INVESTMENTS GARO invests continuously in the maintenance of production units and production equipment. The Group’s investments in tangible assets amounted to MSEK 18.8 (15.0), of which invest- ments in properties and land amounted to MSEK 2.2 (7.8). GARO also invests in product development and investments in intangible assets for the year totaled MSEK 26.5 (24.6). The company has invested in right-of-use assets (leases and rental contracts) amounting to MSEK 7.0 (9.8) during the year. Depreciation/amortization for the year amounted to MSEK 35.8 (26.9), of which depreciation of tangible assets was MSEK 24.2 (22.5). CASH FLOW, LIQUIDITY AND FINANCIAL POSITION Cash ﬂow from operating activities amounted to MSEK 121.7 (86.9). A higher EBIT was offset during the year by high tied-up working capital compared with 2020, which was mainly due to higher component inventories and accounts receivable as a result of tactical material purchases and growth in general. GARO repaid MSEK 6.2 (1.5) net of previously raised loans in 2021. Cash ﬂow for the year amounted to MSEK 11.9 (28.9). Cash and cash equivalents including unutilized overdraft facil- ities on December 31, 2021 amounted to MSEK 182.0 (166.7). Net cash on December 31, 2021 amounted to MSEK 9.4 (net debt: 11.3). Adjusted net cash amounted to MSEK 45.2 (26.8). The difference between these performance measures is due to the effects of IFRS 16 Leases. The Group’s equity on December 31, 2021 amounted to MSEK 551.5 (430.3). The 2021 dividend amounted to MSEK 47.5 (0.0). Refer also to Note 3.2. EMPLOYEES The number of full-time employees in the Group on December 31, 2021 was 498 (412). The average number of full-time employees in 2021 was 460 (409). The number of employees in the Group’s foreign companies on December 31, 2021 amounted to 214 (172), corresponding to 43% (42) of the total number of employees. The percentage of women during the year was 43% (43). For more information about employees, see Note 8 pages 74–78. REMUNERATION OF SENIOR EXECUTIVES Information about the remuneration of senior executives can be found in Note 8 on pages 74–78. PERFORMANCE AND EARNINGS OF GARO SWEDEN SEGMENT Net sales increased 28% to MSEK 892.6 (698.1). Underlying demand was strong for the E-mobility product area, in which growth amounted to 75% compared with 2020. 56 | GARO ANNUAL REPORT BOARD OF DIRECTORS’ REPORT – GROUP Group-external exports, which increased almost 300% year-on- year, are included in the growth in the E-mobility product area. The Electrical distribution products product area reported growth of 7% and the Temporary Power product area reported growth of 49%, while the Project business product area essentially remained at the same level as 2020. It is GARO’s assessment that the companies captured market shares during the year mainly in the Electrical distribution products and E-mobility prod- uct areas. EBIT amounted to MSEK 151.5 (90.2), correspond- ing to an EBIT margin of 17.0% (12.9). A favorable product mix and good cost control are the primary reasons behind the improved EBIT. PERFORMANCE AND EARNINGS OF GARO INTERNATIONAL SEGMENT Net sales in the GARO International business area increased 17% to MSEK 402.3 (342.3). The largest growth of 58% was recorded in the Project business product area compared with 2020. The product area Electrical distribution products recorded growth of 17% and the product area E-mobility recorded growth of 3%, while the product area Temporary Power remained on the same level compared with 2020. The weaker growth in the E-mobility product area is a result of a weaker sales perfor- mance in Norway due to increased maturity, primarily in home charging, compared with the preceding year. GARO Poland’s sales and production continued to increase in line with rising vol- umes, where an increase in production efﬁciency was achieved during the year. EBIT amounted to MSEK 55.7 (46.0), corresponding to an EBIT margin of 13.9% (13.4). General strict cost control and limitations to market activities due to the pandemic continuing to impact operations in 2021 are the main reasons for the increased EBIT. PRODUCT DEVELOPMENT GARO’s aim is to be at the forefront of developments in envi- ronmentally friendly and energy-efﬁcient electrical products and complete solutions. GARO has an in-house product development department that continuously works together with other depart- ments on developing new and improving existing products and solutions in all product areas. GARO also works close to its cus- tomers to gain inspiration and better understand customer needs in the market. GARO has 15 full-time employees who work on product development. Refer also to Note 2.8. ENVIRONMENTAL IMPACT GARO conducts its business activities in accordance with the legal requirements regarding environmental impact. The com- pany believes that it is at the forefront of developments in ener- gy-efﬁcient and environmentally friendly products and solutions that reduce electricity consumption. All products are subject to an environment assessment by Byggvarubedömningen (a non- proﬁt ﬁnancial unit that evaluates and provides information about goods assessed from a sustainability perspective). The Group’s facilities have environmentally friendly production pro- cesses that meet local environmental legislation and also hold ISO 14001 certiﬁcation. The production facilities in Sweden and Poland conduct reportable operations and the local authority is the supervisory authority. No other companies in the Group conduct licensable or reportable operations. RISKS AND UNCERTAINTIES The Group’s material risks and uncertainty factors include busi- ness risks related to customers and suppliers, such as component supply and price risks for supplies. Added to this are ﬁnancial risks as a result of changes in currency rates and interest rate levels. A report on the Group’s material ﬁnancial and business risks is provided in Note 3. FINANCIAL TARGETS AND MARKET CONDITIONS The GARO Group’s ﬁnancial targets are as follows: • GARO’s organic growth will amount to not less than 10% over a business cycle. • GARO’s EBIT margin for the Group will amount to not less than 10% of net sales over a business cycle. • Return on equity will amount to not less than 20% over a busi- ness cycle. • The equity ratio will not be less than 30%. • GARO’s dividend will amount to approximately 50% of the Group’s net earnings after tax. The dividend proposal must take into account GARO’s long-term dividend potential and the Group’s general investment and consolidation requirements. Net sales for full-year 2021 increased 24.7% (3.1) to MSEK 1295.8 (1,039.8), with the E-mobility product area experiencing a strong expansion and EBIT amounted to MSEK 207.2 (136.2). The market for charging infrastructure is growing structurally with rising numbers of rechargeable vehicles, and we see a con- tinuing strong trend with further expansion of the charging infra- structure in the European market. Housing construction remains at a high production rate with increased energy efﬁciency and electriﬁcation in general. Demand for construction-related products combined with renovation requirements and energy efﬁciency is expected to remain favorable. All in all, GARO has a positive view of long-term market conditions, mainly driven by growth in charging infrastructure. CORPORATE GOVERNANCE REPORT Governance of the company is conducted through the annual general meeting, by the Board of Directors and the CEO in accordance with the Swedish Companies Act and the Articles of Association, and the Nasdaq Stockholm’s Rule Book for Issuers, including the Swedish Corporate Governance Code. The work of the Board of GARO AB is governed by the rules of procedure established annually by the statutory Board meeting. A total of ten Board meetings were held in 2021. Since 2020, the Board has had a Remuneration Committee comprising some of the members of the Board. The Remuneration Committee assists the Board with proposals in renumeration-related matters and held two meeting in 2021. GARO ANNUAL REPORT | 57 BOARD OF DIRECTORS’ REPORT – GROUP GARO has also had an Audit Committee in place since 2019 comprising some of the members of the Board. The Audit Com- mittee held four meetings in 2021. Further information about the Board’s work, corporate governance, the Group’s systems for internal control and risk management can be found in the Corporate Governance Report on pages 110–114. THE SHARE AND SHAREHOLDERS The 2021 Annual General Meeting resolved on a 5:1 share split, meaning that each existing share was replaced with ﬁve new shares. The share split was completed during the second quarter. Figures pertaining to dividends and earnings per share for previous periods have been recalculated in the annual report based on the new number of shares. The total number of shares on the balance-sheet date amounted to 50,000,000 with a quotient value of SEK 0.40. Each share provides entitlement to one vote at the Annual Gen- eral Meeting. There are no limitations to the transferability of the GARO shares (post-sale purchase rights). There are also no limitations on how many votes each shareholder may cast at general meetings. The company is not aware of any agreements between shareholders that could entail limitations to the right to transfer shares. On the balance-sheet date, there was one shareholder who owns and controls more than 10% of the number of votes for all of the shares in the company. That shareholder is Lars Svensson, who, through own holdings, controls 35.7%. More information about the GARO shares and ownership structure can be found on pages 52–53. APPOINTMENT AND DISMISSAL OF BOARD MEMBERS The Articles of Association do not contain any special provisions regarding the appointment and dismissal of Board members. ANNUAL GENERAL MEETING The 2022 Annual General Meeting will be held on May 11, at 5:00 p.m., in Gnosjö. Please visit www.garo.se for more information. 58 | GARO ANNUAL REPORT GROUP Group Annual report CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME MSEK Note 2021 2020 Operating income Net sales 2, 5, 6 1,295.8 1,039.8 Other operating income 7 6.6 8.0 Total operating income 1,302.4 1,047.8 Raw materials and consumables -649.3 -528.8 Other external expenses 9, 10 -144.9 -123.7 Personnel expenses 8 -265.2 -232.2 Disposal of ﬁxed assets 13, 14, 15 -35.8 -26.9 Total operating expenses -1,095.2 -911.6 EBIT 207.2 136.2 Financial income 11 5.3 0.4 Financial expenses 11 -4.1 -13.5 Financial items 11 1.2 -13.1 Proﬁt before tax 208.4 123.1 Income tax 12 -41.7 -27.7 Net income for the year 166.7 95.4 Other comprehensive income Items that may be reclassiﬁed to the net income for the year Translation differences 2.0 -7.7 Other comprehensive income for the year, net after tax 2.0 -7.7 Net income and total comprehensive income for the year is attributable to shareholders of the Parent Company. Total comprehensive income for the year 168.7 87.7 EARNINGS PER SHARE 2021 2020 Earnings per share, before and after dilution, SEK 3.33 1.91 Average number of shares (thousands) 50,000 50,000 Number of shares outstanding (thousands) 50,000 50,000 * Adjusted for the 5:1 share split GARO ANNUAL REPORT | 59 GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION MSEK Note Dec 31, 2021 Dec 31, 2020 ASSETS Fixed assets Capitalized development expenditure 13 28.1 13.0 Development projects in progress 13 34.5 35.1 Goodwill 14 45.5 45.5 Lands and buildings 15 67.6 67.4 Plant and machinery 15 1.6 1.8 Equipment, tools, ﬁxtures and ﬁttings 15 33.9 26.4 Construction in progress and advance payments for tangible assets 15 4.4 6.3 Right-of-use asset 10 36.6 38.5 Deferred tax assets 23 3.2 6.2 Total ﬁxed assets 255.4 240.2 Current assets Raw materials and consumables 159.3 104.4 Finished goods and goods for resale 78.3 73.5 Products in progress 4.5 4.6 Current receivables Accounts receivable 17, 18 336.0 238.6 Other current receivables 17 9.1 4.5 Prepaid expenses 12.7 8.1 Cash and cash equivalents 17, 19 81.6 69.4 Total current assets 681.5 503.1 TOTAL ASSETS 936.9 743.3 60 | GARO ANNUAL REPORT GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION, CONT. MSEK Note Dec 31, 2021 Dec 31, 2020 EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT COMPANY Share capital 20, 27 20.0 20.0 Reserves -0.9 2.9 Retained earnings (including net income for the year) 532.4 407.4 Total equity 551.5 430.3 Liabilities Long-term liabilities Liabilities to credit institutions 17, 21 26.5 30.3 Lease liability 21 26.3 28.2 Other provisions 22 6.3 3.7 Deferred tax liabilities 23 0 0.5 Total long-term liabilities 59.1 62.7 Short-term liabilities Liabilities to credit institutions 17, 21 2.6 4.9 Accounts payable 17 166.5 123.9 Overdraft facilities 17, 21 7.3 7.4 Current tax liabilities 18.7 7.2 Other short-term liabilities 17 36.8 28.6 Lease liability 21 9.5 9.9 Accrued expenses 24 84.9 68.4 Total short-term liabilities 326.3 250.3 Total liabilities 385.4 313.0 TOTAL EQUITY AND LIABILITIES 936.9 743.3 GARO ANNUAL REPORT | 61 GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY MSEK Note Share capital Reserves Retained earnings Total equity Opening balance at January 1, 2020 20.0 4.8 318.2 343.0 Net income for the year - - 95.4 95.4 Other comprehensive income for the year - -7.7 - -7.7 Total comprehensive income - -7.7 95.4 87.7 Dividend according to Annual General Meeting resolution - - - - Currency effects 17 - - -0.4 -0.4 Total contributions from and value transfers to shareholders, recognized directly in equity - - -0.4 -0.4 Closing balance at December 31, 2020 20.0 -2.9 413.2 430.3 Opening balance at January 1, 2021 20.0 -2.9 413.2 430.3 Net income for the year - - 166.7 166.7 Other comprehensive income for the year - 2.0 - 2.0 Total comprehensive income - 2.0 166.7 168.7 Dividend according to Annual General Meeting resolution - - -47.5 -47.5 Total contributions from and value transfers to shareholders, recognized directly in equity - - -47.5 -47.5 Closing balance at December 31, 2021 20.0 -0.9 532.4 551.5 The entire “reserves” column is attributable to currency translation differences pertaining to currency in the translation of foreign operations. 62 | GARO ANNUAL REPORT GROUP CONSOLIDATED STATEMENT OF CASH FLOW MSEK Note 2021 2020 Cash ﬂow from operating activities EBIT 207.2 136.2 Adjustment for non-cash items Depreciation 35.8 26.9 Other 2.4 6.7 Net interest income and similar items 11 5.3 0.4 Net interest expenses and similar items 11 -4.1 -13.5 Income tax paid 12 -29.1 -36.9 Cash ﬂow from operating activities before change in working capital 217.5 119.8 Change in inventories -59.6 -12.0 Change in accounts receivable -97.4 -25.8 Change in other current receivables -5.9 -0.8 Change in accounts payable 42.5 5.7 Change in other current operating liabilities 24.7 0 Total change in working capital -95.8 -32.9 Cash ﬂow from operating activities 121.7 86.9 Cash ﬂow from investing activities Investments in intangible assets 14 -26.5 -24.6 Acquisition of subsidiaries 17, 26 0 -5.7 Investments in tangible assets 15 -18.8 -15.0 Assets sold 0.9 0 Cash ﬂow from investing activities -44.3 -45.3 Cash ﬂow from ﬁnancing activities Amortization of loans/changes in loans 17, 26 -6.1 0 Amortization of loans/changes in overdraft facilities -0.1 -1.9 Amortization of lease liability -11.7 -10.8 Dividend paid -47.5 0 Cash ﬂow from ﬁnancing activities -65.4 -12.7 Decrease/increase in cash and cash equivalents Net cash ﬂow for the year 11.9 28.9 Currency effect in cash and cash equivalents 0.3 -0.3 Cash and cash equivalents at beginning of the year 69.4 40.8 Cash and cash equivalents at end of the year 19 81.6 69.4 GARO ANNUAL REPORT | 63 NOTES – GROUP Notes NOTE 1. GENERAL INFORMATION GARO Aktiebolag (publ) (the “Parent Company”) and its subsid- iaries (jointly referred to below as the “Group”) develop, man- ufacture and market electrical installation materials. The single largest market is Sweden, which represents 67% (58) of the Group’s volumes. Export sales are conducted both from GARO AB and through the company’s own subsidiaries in Norway, Finland, Poland, Ireland Northern Ireland and the UK. The Parent Company is a limited liability company registered in Sweden with its registered ofﬁce in Gnosjö. The address of the ofﬁce is Södergatan 26, Box 203, SE-335 33 Gnosjö, Sweden. The GARO share has been listed on Nasdaq Stockholm since March 16, 2016. All amounts are stated in millions of Swedish kronor (MSEK), unless otherwise stated. NOTE 2. SUMMARY OF IMPORTANT ACCOUNTING POLICIES The most important accounting policies applied in the prepa- ration of these consolidated ﬁnancial statements are described below. These policies were applied consistently for all years presented, unless otherwise stated. 2.1 BASIS FOR PREPARING THE FINANCIAL STATEMENTS The Annual Report was prepared based on the assumption of continuing as a going concern. Assets and liabilities are mea- sured at their historical cost. The consolidated ﬁnancial state- ments were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, the Swedish Annual Accounts Act (1995:1554) and the recommendations and statements of the Swedish Financial Reporting Board in RFR 1 (Supplementary Accounting Rules for Corporate Groups). Pre- paring ﬁnancial statements in accordance with IFRS requires a number of important estimates for accounting purposes. Accord- ingly, management is required to make certain assessments when applying the Group’s accounting policies. The areas involving a high degree of assessment, that are complex or are such areas in which assumptions and estimates are of signiﬁcant importance to the consolidated ﬁnancial statements are described in Note 4. 2.1.1 CLASSIFICATION ASSETS Fixed assets Fixed assets only consist of the amount that was expected to be recovered after more than 12 months calculated from the bal- ance-sheet date. Current assets Current assets only consist of the amount that was expected to be recovered within 12 months calculated from the balance - -sheet date. LIABILITIES Long-term liabilities Long-term liabilities and provisions only consist of the amount that is expected to be paid after more than 12 months calculated from the balance-sheet date. Short-term liabilities Short-term liabilities consist of the amount that is expected to be paid within their normal operational cycle, liabilities that are held mainly for trade, liabilities that will be settled within 12 months after the reporting period or liabilities for which GARO does not have the unconditional right to postpone the settlement of within 12 months after the reporting period. All other liabilities are classiﬁed as long-term liabilities. 2.1.2 CASH-FLOW STATEMENT AND CASH AND CASH EQUIVALENTS The cash-ﬂow statement is prepared in accordance with the indi- rect method. The recognized cash ﬂow only consists of transac- tions that entail payments or receipts. Cash and cash equivalents comprise cash and bank balances and current ﬁnancial investments with a maturity of less than three months that can easily be converted at a known amount and which are only exposed to an immaterial risk of ﬂuctuations in value. Cash and cash equivalents only consisted of, for both 2021 and 2020, cash and bank balances. 2.1.3 CHANGES TO ACCOUNTING POLICIES AND DISCLOSURES New and changed IFRS that entered force for 2021 have not had any material impact on the consolidated ﬁnancial statements. 2.1.4 ISSUED NEW STANDARDS AND INTERPRETATIONS THAT HAVE NOT YET BEEN APPLIED BY THE GROUP A number of new standards and interpretations come into effect for ﬁscal years beginning on or after January 1, 2022 and were not applied when preparing these ﬁnancial statements. No new or amended standards or IFRIC interpretations published by the IASB are not expected to have any material effect on the consoli- dated ﬁnancial statements. 2.2 CONSOLIDATED FINANCIAL STATEMENTS 2.2.1 FUNDAMENTAL ACCOUNTING POLICIES SUBSIDIARIES Subsidiaries are all companies over which the Group exercises control. The Group controls a company when the Group is exposed to, or has rights to, variable returns from its holding in the company (the investee) and has the ability to affect returns through its power over the investee. Subsidiaries are included 64 | GARO ANNUAL REPORT NOTES – GROUP in the consolidated ﬁnancial statements from the date on which control was transferred to the Group. They are excluded from the consolidated ﬁnancial statements from the date on which the control ceases. The purchase method is used to recognize the Group’s busi- ness combinations. The purchase consideration for the acqui- sition of a subsidiary comprises the fair value of transferred assets, liabilities that the Group assumes from previous owners of the acquired company and the shares issued by the Group. The consideration also includes the fair value of all liabilities that result from an agreement covering a contingent consideration. Identiﬁable acquired assets and assumed liabilities in a business combination are initially measured at fair value on the date of acquisition. For each acquisition, that is, on an acquisition-by-ac- quisition basis, the Group determines whether the non-controlling interest in the acquired company is to be measured at fair value or at the shareholding’s proportional share of the carrying amount of the acquired company’s identiﬁable net assets. No non-controlling interest is recognized if the Group has a future commitment, a call/put option, to acquire a non-controlling inter- est. Instead, the ﬁnancial liability is measured at fair value with subsequent changes in value recognized in proﬁt or loss. Acqui- sition-related costs are expensed as they arise. Goodwill is initially measured as the amount by which the total purchase consideration and any fair value of non-con- trolling interests on the acquisition date exceeds the value of identiﬁable acquired net assets. If the purchase consideration is lower than the fair value of the acquired company’s net assets, the difference is recognized directly in proﬁt or loss. For more information about subsidiaries, see Note 10 on page 99. ELIMINATION OF TRANSACTIONS BETWEEN GROUP COMPANIES Intra-Group transactions, balance sheet items and income and expenses for intra-Group transactions are eliminated. Gains and losses resulting from intra-Group transactions and which are recognized in assets are also eliminated. The accounting policies for subsidiaries were changed as appropriate to guarantee consistent application of the Group’s policies. 2.3 SEGMENT REPORTING Segments are recognized in a manner that corresponds to the internal reporting to the chief operating decision maker. The chief operating decision maker is the function that is responsible for allocating resources and assessing the performance of the segments. For the Group, this function has been identiﬁed as the CEO. The Group’s segments are made up of GARO Sweden and GARO International. 2.4 TRANSLATION OF FOREIGN CURRENCIES FUNCTIONAL CURRENCY AND PRESENTATION CURRENCY The various units in the Group use the local currency as their functional currency since the local currency has been deﬁned as in the currency used in the primary economical environment where each unit primarily conducts business activities. Swedish kronor (SEK), which is the Parent Company’s functional currency and the Group’s presentation currency, is utilized in the consoli- dated ﬁnancial statements. TRANSACTIONS AND BALANCE SHEET ITEMS Transactions in foreign currency are translated into the functional currency in accordance with the exchange rate prevailing on the transaction date. Exchange-rate gains and losses resulting from set- tlement of such transactions are recognized in EBIT in proﬁt or loss. Monetary assets and liabilities in foreign currency are translated at the closing rate and exchange-rate gains and losses arising on such translation are recognized in net ﬁnancial items in proﬁt or loss. TRANSLATION OF FOREIGN GROUP COMPANIES The earnings and ﬁnancial position of all Group companies that have a functional currency that differs from the presentation currency are translated to the Group’s reporting currency. Assets and liabilities for each of the balance sheets are translated from the functional currency of the foreign operation to the Group’s presentation currency, SEK, at the exchange rate prevailing on the balance-sheet date. Income and expenses for each of the income statements are translated to SEK at the average exchange rates in effect at the time of each transaction. Transla- tion differences arising from the translation of foreign operations are recognized in other comprehensive income. Goodwill and adjustments of fair value that arise from the acquisition of a foreign operation are treated as assets and liabilities of this operation and translated to the closing rate. 2.5. REVENUE FROM CONTRACTS WITH CUSTOMERS In order for companies within the Group to recognize income from contracts with customers, each customer contract is ana- lyzed in accordance with the ﬁve-step model in the respective company as described below: STEP 1: Identify an agreement between two or more parties that creates enforceable rights and obligations. STEP 2: Identify the performance obligations in the contract. STEP 3: Determine the transaction price, meaning the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services. The transaction price is to be adjusted for variable consideration, for example, discounts. STEP 4: Allocate the transaction price to the performance obligations. STEP 5: Recognize income when (or as) the entity satisﬁes a performance obligation, meaning when control is passed to the customer. This takes place either at a point in time or over time if one of the criteria in the standard is met. The Group’s income comprises the sale of goods in the product areas of Electrical distribution products, E-mobility, Project busi- ness and Temporary Power. Goods are sold in both the Group’s GARO Sweden segment and GARO International segment. Sales essentially comprise standard products to other companies. The Group has both sep- NOTE 2, CONT. GARO ANNUAL REPORT | 65 NOTES – GROUP arate contracts and framework agreements with its customers. For framework agreements, a contract with a customer is not deemed to arise until the customer places an order based on the terms of the framework agreement since it is ﬁrst at this point in time that enforceable rights and obligations for the Group and the customer arise. The time from order to delivery of the goods is normally short. Each separate product in the order is considered to comprise a separate performance obligation. The transaction price of each customer contract usually com- prises a ﬁxed amount. If the transaction price includes variable amounts (some customer framework agreements have volume discounts based on the number of products purchases), the Group estimates the amount that it will be entitled to and includes in the transaction price, taking into account any restrictions for uncertain amounts. Income is recognized at a point in time since the criteria for control being passed over time is not always met. The Group believes that control is passed when delivery is com- pleted in accordance with the delivery terms, which coincides with when the risks and rewards are passed to the customer. 2.5.1 PRICING WITHIN THE GROUP The pricing of transactions, such as purchases and sales of goods and services, between Group companies is based on market principles. 2.6 FINANCIAL INCOME AND EXPENSES Financial income and expenses comprise interest income on bank balances and receivables, interest expenses on loans, dividend income, exchange-rate differences and other ﬁnancial income and expenses. 2.7 LEASES From January 1, 2019, leases are recognized in accordance with IFRS 16 Leases, which means that the lessee recognizes right-of-use assets and lease liabilities in the balance sheet. GARO applies the practical expedient in IFRS 16 regarding short-term leases and low-value leases. Expenses arising in con- nection with these leases are recognized straight-line over the lease term as operating expenses in proﬁt or loss. GARO does not apply IFRS 16 to intangible assets. Non-lease components are expensed and not recognized as part of the right-of-use asset or lease liability. When a lease is signed, the Group determines whether it is a lease or contains a lease. A contract is, or contains, a lease if it conveys the right to control the use of an identiﬁed asset for a period of time in exchange for consideration. 2.7.1 LEASE LIABILITIES Lease liabilities are initially measured at the present value of the lease payments not paid on the commencement date. These lease liabilities are recognized separately from other liabilities in the balance sheet. At the commencement date of a lease, GARO determines the lease term as the non-cancelable period plus periods covered by an extension option or termination option if exercise of these options by the Group is reasonably certain. The majority of GARO’s leases contain extension or termination options. When determining the lease term, GARO considers strategic plans, the importance of the underlying asset for GARO’s operations, and contract-speciﬁc conditions, such as expenses associated with terminating the lease. Lease payments include ﬁxed payments (less any incentive in connection with signing the lease), variable lease payments that depend on an index or a rate, and amounts expected to be payable under a residual value guarantee. Lease payments also include the exercise price under an option to purchase the under- lying asset or penalties to be paid on early termination if exercise of these options by the Group is reasonably certain. Variable lease payments that do not depend on an index or a rate are recognized as an expense in the period to which they relate. Lease payments are discounted at the implicit interest rate if the rate can be readily determined, otherwise at the incremental borrowing rate of the lease. After the commencement date of a lease, the lease liability increases to reﬂect the interest expenses, is reduced by paid lease payments and remeasured due to lease modiﬁcations, changes to the lease term, changes in lease pay- ments or changes in the assessment of whether to purchase the underlying asset. 2.7.2 RIGHT-OF-USE ASSETS GARO recognizes right-of-use assets in the balance sheet on the commencement date of the lease. Right-of-use assets are recog- nized separately from other liabilities in the balance sheet. Right-of-use assets are recognized at cost less accumulated depreciation and any impairment, and adjusted for remeasure- ment of the lease liability. The cost includes the initial value rec- ognized for the attributable lease liability, initial direct costs, any lease payments made at or before the commencement date less any lease incentives received, and an estimate of costs to restore the asset. Provided that GARO is not reasonably certain that it will take over ownership of the underlying asset at the end of the lease term, the right-of-use asset is depreciated straight-line over the shorter of the term and the useful life. 2.8 INTANGIBLE ASSETS CAPITALIZED DEVELOPMENT EXPENDITURE Capitalized development expenditure pertains to the develop- ment of new products. Development expenses are recognized according to the activation model as intangible assets provided the following criteria is met: a) it is technically and commercially feasible to prepare the asset b) the intention and conditions exist to sell or use the asset c) it is probably that the asset will generate future economic beneﬁts or lead to cost savings d) expenditure can be calculated in a satisfactory manner e) a Board approved RoI (return on investment) exists for the asset The cost of an internally developed intangible asset is the total of expenditure arising as of the date when the intangible asset ﬁrst satisﬁes the above capitalization criteria. 66 | GARO ANNUAL REPORT NOTES – GROUP Amortization commences when the asset starts to be used. The period of use is assessed on the basis of the period during which the anticipated beneﬁts are expected to accrue to the company. The period of use is deemed to be a maximum of seven years and straight-line amortization takes place over this period. Cap- italized development expenditure for assets that have not started to be used is recognized on the line “Development projects in progress” in the balance sheet. Studies and other development expenditure that do not satisfy the above criteria are not considered to comprise an intangible asset and are expensed as incurred. Development expenditure that has previously been expensed is not recognized as an asset in subsequent periods. GOODWILL Goodwill arises on acquisitions of subsidiaries and pertains to the amount at which the purchase consideration exceeds GARO’s share of the fair value of the identiﬁable assets, liabili- ties, contingent liabilities in the acquired company and the fair value of the non-controlling interest in the acquired company. For impairment testing, goodwill acquired in a business combi- nation is distributed between cash-generating units or groups of cash-generating units that are expected to beneﬁt from synergies of the acquisition. Each unit or group of units to which goodwill has been distributed corresponds to the lowest level in the Group in which this goodwill is monitored in the internal governance of the company. Goodwill is monitored at company level. Goodwill is tested for impairment every year or more often if events or changes in circumstances indicate a potential decline in value. The carrying amount of goodwill is compared with its recoverable amount, which is the highest of the value in use and the fair value less selling expenses. 2.9 TANGIBLE ASSETS Tangible assets are recognized at their cost less accumulated depreciation according to plan and any impairment. The cost includes the purchase price and all costs necessary to bring the asset to working condition for its intended use. Costs for improving the performance of the tangible assets in excess of its original level, increase the value of the asset and are recognized in the balance sheet as part of the original investment. Costs for repairs and maintenance are expensed when they arise. Depreciation takes place systematically over the expected use- ful lives of the assets and commenced after the asset has started to be used. Land is not depreciated. Depreciation periods: Buildings, permanent equipment, service facilities, etc., in buildings and land improvements 5–25 years Plant and machinery 10–20 years Equipment, tools, ﬁxtures and ﬁttings 3–10 years The assets’ residual value and useful lives are tested at the end of each reporting period and adjusted if necessary. The asset’s carrying amount is immediately impaired to its recoverable amount if the asset’s carrying amount exceeds its estimated recoverable amount. Gains and losses on the sale of tangible assets are determined by comparing the sales proceeds to the carrying amount and are recognized in other operating income or other operating expenses in proﬁt or loss. 2.10 IMPAIRMENT OF NON-FINANCIAL ASSETS Intangible assets that have an indeﬁnite useful life, such as good- will or intangible assets not ready for use, are not amortized but are tested annually for impairment. Assets are tested for impair- ment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized at the amount whereby the carrying amount of the asset exceeds the recoverable amount. The recover- able amount is the higher of the asset’s fair value less selling expenses and its value in use. In impairment testing, assets are grouped at the lowest level for which there are separate identi- ﬁable cash ﬂows (cash-generating units). For assets other than ﬁnancial assets that were previously impaired, a test for reversal is performed every balance-sheet date. Previous impairment of goodwill is not reversed. 2.11 FINANCIAL INSTRUMENTS Financial instruments are every form of contract that gives rise to a ﬁnancial asset in a company and a ﬁnancial liability or an equity instrument in another company. Financial instruments are classiﬁed on initial recognition based on factors including the purpose for which the instrument was acquired and is held. This classiﬁcation determines the measurement of the instruments. 2.11.1 RECOGNITION AND DERECOGNITION A ﬁnancial asset or a ﬁnancial liability is recognized in the bal- ance sheet when the company becomes a party to the contrac- tual provisions of the instrument. Accounts receivable are recog- nized in the balance sheet when an invoice has been sent and the company’s right to receive compensation is unconditional. A liability is recognized when the counterparty has performed and there is a contractual obligation to pay, even if an invoice has not yet been received. Accounts payable are recognized once the invoice has been received. A ﬁnancial asset and a ﬁnancial liability are offset against each other and the net amount is recognized in the balance sheet only when there is a legal right to offset the amounts and there is an intention to settle the items by a net amount or to simultaneously realize the asset and settle the liability. A ﬁnan- cial asset is derecognized from the balance sheet when the rights in the contract have been realized, expire or the company loses control of them. A ﬁnancial liability is derecognized from the balance sheet when the contractual obligation has been fulﬁlled or otherwise extinguished. The same applies to portions of a ﬁnancial asset or ﬁnancial liability. Gains and losses from derecognition from the balance sheet and modiﬁcations are recognized in proﬁt or loss to the extent that hedge accounting is not applied. NOTE 2, CONT. GARO ANNUAL REPORT | 67 NOTES – GROUP 2.11.2 CLASSIFICATION AND MEASUREMENT OF FINANCIAL ASSETS Debt instruments: classiﬁcation of ﬁnancial assets that are debt instruments is based on the Group’s business model for holding the asset and the characteristics of the contractual cash ﬂows of the asset. The instruments are classiﬁed as: • Amortized cost • Fair value through proﬁt or loss • Fair value through other comprehensive income Financial assets classiﬁed at amortized cost are initially mea- sured at fair value plus transaction costs. After initial recognition, the assets are measured at amortized cost less loss allowance for expected credit losses. Assets classiﬁed at amortized cost are held according to the business model of collecting the contrac- tual cash ﬂows that are solely payments of principal and interest on the principal amount outstanding. The Group’s ﬁnancial assets comprise accounts receivable, cash and cash equivalents, other current receivables and deriv- ative instruments. All of these are classiﬁed at amortized cost except for derivative instruments which are classiﬁed at fair value (value hierarchy, level 2) through proﬁt or loss. The Group does not apply hedge accounting. 2.11.3 IMPAIRMENT OF FINANCIAL ASSETS The Group’s impairment model is based on expected credit losses and considers forward-looking information. A loss allow- ance is made when there is exposure to credit risk, usually on initial recognition of an asset or receivable. Under the simpli- ﬁed approach, a loss allowance is recognized for full lifetime expected credit losses. The simpliﬁed approach is applied to accounts receivable and contract assets and is based on past losses combined with forward-looking factors. For other items encompassed by expected credit losses, a three-stage impairment model is applied. A loss allowance is recognized initially and on the balance-sheet date for the next 12 months or for a shorter period of time depending on the life- time (stage 1). The Group’s assets have been deemed to be in stage 1, meaning that credit risk has not signiﬁcantly increased. Other receivables and assets are impaired according to a rating-based method through external credit ratings. Expected credit losses are measured at the total of probability of default, loss given default and exposure at default. Credit-impaired assets and receivables are individually assessed, taking into consideration past, current and forward-looking information. Measurement of expected credit losses also considers any collat- eral and other credit enhancement in the form of guarantees. 2.11.4 CLASSIFICATION AND MEASUREMENT OF FINANCIAL LIABILITIES Financial liabilities are classiﬁed at amortized cost except for derivatives. Financial liabilities measured at amortized cost are initially measured at fair value including transaction costs. After initial recognition, the liabilities are measured at amortized cost according to the effective interest method. The majority of the Group ﬁnancial liabilities (liabilities to credit institutions, accounts payable, overdraft facilities and other short-term liabilities) are classiﬁed at amortized cost. Derivative instruments are classiﬁed at fair value through proﬁt or loss. The Group does not apply hedge accounting. 2.12 INVENTORIES Inventories are recognized at the lower of cost and net realiz- able value. Cost is determined using the ﬁrst-in, ﬁrst-out (FIFO) method. Cost for own semi-ﬁnished and ﬁnished goods comprise direct manufacturing expenses and a reasonable portion of indirect manufacturing expenses. 2.13 SHARE CAPITAL Common shares are classiﬁed as equity. Transaction costs that can be directly attributed to new share or options issues are recognized in net amounts after tax in equity as a deduction from the issue proceeds. 2.14 PROVISIONS Provisions are recognized when the Group has a legal or an informal obligation due to previous events, it is probable that an outﬂow of resources will be required to regulate the obliga- tion and the amount has been calculated in a reliable manner. Provisions for restructuring include expenses for terminating leases and severance pay. Estimated guarantee reserves for product guarantees are recognized when the products are sold. Reserves are based on expected contractual obligations and determined based on historical statistics regarding action expenses, etc. Guarantee reserves amount to MSEK 6.0 (3.5) and are recognized under provisions. The provision for this is not material. No provisions are made for future operating losses. If there are similar commitments, the probability of an outﬂow of resources being required on settlement is calculated as a total for the entire group of these commitments. A provision is recog- nized even if the probability of an outﬂow for a special item in this group of commitments is minor. Provisions are valued at the present value of the amount that is expected to be required to settle the obligation. In so doing, a discounted interest rate before tax is applied that reﬂects the current market assessment of the value of money over time and the risks associated with the provision. The increase in the pro- vision that is due to the passing of time is recognized as interest expenses. 2.15 CURRENT AND DEFERRED TAX Tax expense for the period includes current and deferred tax. The current tax expense is calculated on the basis of the tax regulations that have been decided or essentially decided on the balance-sheet date in those countries where the Parent Company and its subsidiaries are active and generate taxable income. Deferred tax is recognized, in accordance with the balance sheet method, on all temporary differences arising between the taxable value of assets and liabilities and their carrying amounts in the consolidated ﬁnancial statements. Deferred tax is calcu- lated applying tax rates that have been decided or announced 68 | GARO ANNUAL REPORT NOTES – GROUP on the balance-sheet date and that are expected to apply when the particular deferred tax asset is realized or the deferred tax liability has been settled. Deferred tax assets on loss carryforwards are recognized insofar as it is probable that future taxable surpluses will be available to offset them against. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current liabilities, when deferred tax assets and liabilities relate to income taxes levied by the same tax authority, on either the same or different taxable entities, and where there is an inten- tion to settle on a net basis. 2.16 REMUNERATION OF EMPLOYEES PENSION OBLIGATIONS The Group has both deﬁned-beneﬁt and deﬁned-contribution pension plans. The deﬁned-beneﬁt plans comprise ITP 2 plans (see below for a more detailed description). Deﬁned-contribution plans are plans under which the Group pays ﬁxed contributions into a separate legal entity. The Group has no legal or construc- tive obligation to pay further contributions if the legal entity does not hold sufﬁcient assets to pay all employee beneﬁts relating to employee service in the current and prior periods. For deﬁned-contribution pension plans, the Group pays contri- butions to publicly or privately administered pension insurance plans on a compulsory, contractual or voluntary basis. The Group has no other payment obligations once these contribu- tions have been paid. The contributions are recognized as per- sonnel expenses when they fall due for payment. Prepaid contri- butions are recognized as an asset insofar as a cash repayment or a decrease in future payments could accrue to the Group. In parts of the Group, there are salaried employees in Swe- den who are part of the ITP 2 plan. The deﬁned-beneﬁt pension commitments in the ITP 2 plan for old-age pensions and family pensions are covered through insurance with Alecta. According to a statement from the Swedish Financial Reporting Board, UFR 10 Classiﬁcation of ITP plans ﬁnanced through insurance with Alecta, this is a deﬁned-beneﬁt multi-employer plan. The com- pany did not have access to information during the period that would allow it to recognize its proportionate share of the plan’s obligations, plan assets and expenses, which meant that it was not possible to recognize this as a deﬁned-beneﬁt plan. The ITP2 pension plan that is secured through insurance in Alecta is there- fore recognized as a deﬁned-contribution plan. The premium for the deﬁned-beneﬁt old-age pensions and family pensions are calculated individually and depend on factors including salaries, previously earned pensions and expected remaining period of service. Fees for the next reporting period for ITP 2 pension plans that are signed with Alecta are expected to amount MSEK 3.2 (2020: 3.7) The Group’s share of the total contributions to the plans and the Group’s share of the total number of active members in the plan amount to 0.012% and 0.011% respec- tively (0.001% and 0.014% respectively). The collective consolidation level is comprised of the market value of Alecta’s shares in percent of insurance undertakings calculated in accordance with Alecta’s actuarial methods and assumptions, which do not agree with IAS 19. The collective consolidation level is normally allowed to vary between 125% and 175%. With the aim of strengthening the consolidation level if it is assessed to be too low, one measure can be to raise the contracted subscription price and expand existing beneﬁts. If the consolidation level exceeds 150%, premium reductions can be introduced. At the end of 2021, Alecta’s surplus in the form of the collective consolidation level was 169% (148%). VARIABLE REMUNERATION The Group recognizes a liability and an expense for variable remuneration based on net income for the year before tax. The Group recognizes a provision when there is a legal obligation or an informal obligation due to previous practice. NOTE 3. RISKS AND UNCERTAINTIES 3.1 RISKS AND UNCERTAINTIES Through its operations, the Group is exposed to a variety of different ﬁnancial risks: market risk (including currency risk, inter- est-rate risk), credit risk and liquidity risk. The Group’s overall risk management policy focuses on the unpredictability of the ﬁnancial markets and seeks to minimize potential unfavorable effects on the Group’s ﬁnancial earnings. The Group uses deriv- ative instruments to ﬁnancially hedge certain risk exposure. How- ever, the Group does not apply hedge accounting. The Group’s central ﬁnance function conducts risk management activities, following policies adopted by the Board. The ﬁnance function identiﬁes, evaluates and hedges ﬁnancial risks in close cooperation with the Group’s operational units. The ﬁnance func- tion prepares written policies for overall risk management and for speciﬁc areas, such as currency risk, interest-rate risk, credit risk, use of derivative instruments and ﬁnancial instruments that are not derivatives, and investments of excess liquidity. A MARKET RISK (i) Impact of economic climate and other macro economic factors Since GARO conducts most of its operations in Sweden, Poland, Norway, Ireland and Northern Ireland, the general economic climate and business conditions in these countries have a con- siderable effect on GARO’s operations and earnings. The global economic climate, negative changes in the European economy, particularly in the Nordic region, and the rest of the world, plus a lower level of new housing and commercial construction and conversion and lower investments in the industry could entail that demand for GARO’s products and services declines, which would have a negative impact on GARO’s operations, ﬁnancial position and earnings. (ii) Competition and price pressure GARO competes with players in all product areas and in all geographic markets and GARO must therefore meet end cus- tomer needs and demand better than its competitors. If GARO is not sufﬁciently successful in meeting this competition from both existing and new players, it could have a negative impact on GARO’s operations, ﬁnancial position and earnings. NOTE 2, CONT. GARO ANNUAL REPORT | 69 NOTES – GROUP Price pressure is a natural element of competitive markets. There is a risk that GARO’s competitors develop their product range and that end customers thus increasingly prefer products that compete with GARO’s current and future range, which could have a negative impact on GARO’s operations, ﬁnancial position and earnings. (iii) Product development GARO’s earning and competitiveness are partially dependent on its ability to develop and sell new, innovative products and solutions. Accordingly, a key element of GARO’s strategy is to develop and market new products in the areas that GARO believes are important for continued growth and for safeguarding its market shares. A central component of GARO’s strategy has been and remains controlling the entire value chain from product development and product assembly to delivery to the customer. There is a risk that expenses for a product development project exceed budget and that forecast sales volumes and/or sales mar- gins are not achieved, which could have a negative impact on GARO’s operations, ﬁnancial position and earnings. (iv) IT GARO’s ability to effectively and securely manage sales and other business-critical operations depends on the reliability, func- tionality, maintenance, operation and continued development of GARO’s IT systems, including the company’s website. Such sys- tem can be disrupted by, for example, software errors, computer viruses, hacking, sabotage and physical damage. IT systems are used in the Group to purchase, sell and deliver products, invoice customers, manage orders and inventories and for accounting and ﬁnancial reporting. There is a risk that IT disruptions or other problems with the IT systems could have a negative impact on GARO’s operations, ﬁnancial position and earnings due to their length, scope and level of severity. (v) Currency risk The Group operates internationally and is exposed to currency risks from various currency exposures, primarily in euro (EUR), Norwegian kroner (NOK) and Polish złoty (PLN). Currency risk arises through future business transactions, recognized assets and liabilities and net investments in foreign operations. Currency risk arises when future business transactions are expressed in a currency that is not the unit’s functional currency. The Group mostly purchases goods in EUR. In order to manage currency risk and outﬂows in EUR, the Group has decided to also have sales in EUR where possible. Currency risk from future business transactions is managed by the Group making use of forward contracts when it is not possi- ble to match the outﬂow of a currency to the inﬂow. The Group’s risk management policy is to ﬁnancially hedge between 70% and 80% of expected cash ﬂows (primarily pur- chases of inventories) in EUR for the next six-month period. Out- standing forward contracts amounted to MEUR 7.2 (6.7) on the balance-sheet date. Currency effects of changes in derivatives are recognized in net ﬁnancial items in proﬁt or loss. The Group has a number of holdings in foreign operations whose net assets are exposed to currency risks. Currency expo- sure arising from net assets in the Group’s foreign operations is mainly managed by borrowings in the Parent Company in the relevant foreign currencies. Hedge accounting is not applied for these transactions. (vi) Interest-rate risk The Group’s interest-rate risk arises through long-term borrow- ings. Borrowings raised at variable interest rates exposes the Group to interest-rate risk in respect of cash ﬂow, which is partly neutralized by cash assets subject to variable interest rates. Bor- rowings raised at ﬁxed interest rates exposes the Group to inter- est-rate risk in respect of fair value. The Group’s policy is to have its borrowings at ﬁxed interest rates. The CFO must approve any deviations. In 2021 and 2020, the Group’s liabilities to credit institutions at ﬁxed interest rates were denominated in SEK, EUR and PLN. The Group’s overdraft facilities bear variable interest rates. B CREDIT RISK Credit risk is managed at Group level, except for credit risk attributable to outstanding accounts receivable. Each Group company is responsible for monitoring and analyzing credit risk for each new customer before standard payment and delivery terms are offered. Credit risk arises on the basis of cash and cash equivalents, accounts receivable, derivative instruments and balances with banks and ﬁnancial institutions, including outstanding receivables and contracted transactions. Only banks and ﬁnancial institutions that have received a minimum A credit rating from independent rating agencies are accepted. If a wholesaler has been rated by an independent agency, this rat- ing is then used. If no independent credit rating is available, a risk assessment of the customer’s credit worthiness is performed that takes into account ﬁnancial position, previous experience and other factors. Individual risk limits are established based on internal and external credit ratings in accordance with the limits set by the Board. The use of credit limits is regularly monitored. The ﬁnancial assets encompassed by the loss allowance according to the general approach comprise cash and cash equivalents. GARO applied a rating-based approach combined with other known information and forward-looking factors for assessing expected credit losses. The Group has deﬁned default as when payment of a receivable is 90 or more days past due, or if other factors indicate that payment will be suspended. If the amounts are not deemed to be insigniﬁcant, a loss allowance is also recognized for these ﬁnan- cial instruments. The Group has currently made the assessment that there are no credit losses on cash and cash equivalents. No credit limits were exceeded during the reporting period and management does not expect any losses due to non-payment from these counterparties. For more information, see Note 18. C LIQUIDITY RISK The Group’s policy is to have a liquidity reserve of at least MSEK 40. Cash ﬂow forecasts are prepared by the Group’s operating companies and aggregated by the ﬁnance function. The ﬁnance 70 | GARO ANNUAL REPORT NOTES – GROUP function closely monitors rolling forecasts for the Group’s liquid- ity reserve so as to ensure that the Group has sufﬁcient cash funds to meet the needs of the operating activities while retain- ing sufﬁcient scope in contracted unutilized credit facilities so that the Group does not breach loan limits or conditions (where applicable) of any of the Group’s loan facilities. Such forecasts take into account the Group’s plans for repayments, meeting loan conditions, meeting internal balance-sheet-based perfor- mance measures and, where applicable, external supervisory and statutory requirements, such as currency restrictions. The Group does not have any speciﬁc loan conditions (cove- nants) with external borrowers. Surplus liquidity in the Group’s operating companies, exceed- ing the portion required for managing working capital require- ments, is primarily to be used to pay off outstanding loans. Sur- plus liquidity can then be invested in investments approved by the ﬁnance function that meet the scope for above forecasts and the liquidity reserves. The table on the right shows the Group’s ﬁnancial liabilities that will be settled in a net amount, speciﬁed by the time from the balance-sheet date remaining until the contractual due date. The amounts presented in the table are the contractual, undis- counted cash ﬂows. The amounts falling due within 12 months correspond to the carrying amounts since the discount effect is not material. MATURITY STRUCTURE At December 31, 2021 < 1 year 1–5 years > 5 years Total Liabilities to credit institutions 2.6 23.7 2.9 29.2 Lease liability 9.5 20.8 5.5 35.8 Derivative instruments - - - - Accounts payable 166.4 - - 166.4 Overdraft facilities 7.3 - - 7.3 Total 185.8 44.5 8.4 238.7 At December 31, 2020 < 1 year 1–5 years > 5 years Total Liabilities to credit institutions 7.1 21.7 6.5 35.3 Lease liability 10.4 20.6 11.4 42.4 Derivative instruments - - - - Accounts payable 124.0 - - 124.0 Overdraft facilities 7.4 - - 7.4 Total 148.9 42.3 17.9 209.1 Of the MSEK 185.8 stated for 2021 in the “less than 1 year” interval, the Group intends to repay MSEK 169.4 in the ﬁrst quarter of 2022 (128.4). There are currently not deemed to be any additional borrow- ing or reﬁnancing requirements for meeting future commitments under the current operations and business plan. D SENSITIVITY ANALYSIS Material factors that impact the Group’s earnings are presented below. The analysis is based on the amounts at the end of the year and is based on other factors remaining unchanged. The Group’s net debt is low and a 1% change in the market interest rate would not have any appreciable effect on income after ﬁnancial items. The Group has signiﬁcant currency exposure to EUR, relating to the company’s purchases of goods in Europe. The company also conducts sales of goods in EUR. Sensitivity analysis Impact on earnings 2021 Impact on equity 2021 Impact on earnings 2020 Impact on equity 2020 Change in sales prices, +/- 1% MSEK +/- 12.9 MSEK +/- 10.3 MSEK +/- 10.4 MSEK +/- 8.1 Change in volume, 1% MSEK 5.2 MSEK 4.1 MSEK 4.1 MSEK 3.2 Change in purchase prices, 1% MSEK 6.5 MSEK 5.2 MSEK 4.2 MSEK 3.3 Change in payroll costs, 1% MSEK 2.7 MSEK 2.1 MSEK 2.7 MSEK 2.1 EUR strengthened against SEK, 1% MSEK 3.9 MSEK 3.0 MSEK 3.2 MSEK 2.5 3.2 MANAGEMENT OF CAPITAL STRUCTURE The Group’s objective concerning the capital structure is to safe- guard the Group’s ability to continue its operations, so that it can continue to generate a return to shareholders and value for other stakeholders and maintain an optimal capital structure in order to minimize the cost of capital. One of GARO’s ﬁnancial targets is to reach an equity ratio no less than 30%. Company management continuously monitors the need to reﬁnance external borrowing with the target of renegotiating the Group’s credit facilities no less than 12 months before their due date. To maintain or adjust its capital structure, the Group can alter the dividend paid to shareholders, repay capital to shareholders, raise new loans, issue new shares or sell assets to reduce liabilities. GARO has no bank covenants. The Group assesses capital based on the debt/equity ratio, in the same way as other companies in the industry. This perfor- mance measure is calculated as net debt divided by equity. The company’s debt/equity ratio has been in line with set targets during 2021, taking account of growth targets and, as a result, increased capital requirements. NOTE 3, CONT. GARO ANNUAL REPORT | 71 NOTES – GROUP The Group has an equity ratio of 58.9% (57.9), in which the equity ratio is deﬁned as recognized equity as a percentage of total assets. Equity ratio Dec 31, 2021 Dec 31, 2020 Group Equity 551.5 430.3 Total assets 936.7 743.3 Equity ratio % 58.9% 57.9% At December 31, 2021, GARO had net cash of MSEK 9.4. On December 31, 2020, the debt/equity ratio amounted was MSEK 2.7, in which the debt/equity ratio is deﬁned as net loan liabilities divided by recognized equity. Debt/equity ratio Dec 31, 2021 Dec 31, 2020 Total borrowing (Note 21) 72.2 80.7 Less: cash and cash equivalents (Note 19) -81.6 -69.4 Net debt -9.4 11.3 Total equity 551.5 430.3 Debt/equity ratio, % N/A 2.7% NOTE 4. SIGNIFICANT ESTIMATES AND ASSESSMENTS FOR ACCOUNTING PURPOSES The preparation of ﬁnancial statements and the application of various accounting standards requires that company manage- ment make assessments and use estimates and assumptions that affected the amounts recognized in the consolidated ﬁnancial statements. These estimates, assessments and related assump- tions are based not only on experience but also other factors including expectations regarding future events. The actual outcome may deviate from assessments made. Management’s estimates and assessments could impact the income statement, balance sheet and supplementary disclosures provided in the ﬁnancial statements. Accordingly, changes to estimates and assessments could lead to changes in the ﬁnancial reporting. Changes in estimates and assessments are recognized in the period in which the change is made and in future periods if they are affected. Estimates and assessments were made regarding capitalized development expenditure, calculating inventory obsolescence, testing goodwill for impairment, the risk of losses on accounts receivable, valuations of deferred tax assets, future guarantee commitments, ongoing disputes and other legal obligations as well as recognition of right-of-use assets, see below. These esti- mates and assessments are not deemed to have any material impact on the income statement or balance sheet in the event of errors in such estimates and assessments. LEASES IMPORTANT SOURCES OF UNCERTAINTY IN ESTIMATES The application of IFRS 16 entails determining the lease term and the incremental borrowing rate to be assessments that affect the measurement of the ﬁnancial lease liability and the right-of- use asset. ESTIMATES AND ASSESSMENTS The most signiﬁcant assessments in determining the lease lia- bility and the right-of-use asset are related to establishing the lease terms. The majority of GARO's leases contain options to either extend or terminate the lease. When the lease term is determined, GARO considers all facts and circumstances that create an economic incentive to exercise the extension option or not exercise the option to terminate a lease. Examples of factors that were considered are: strategic plans, the importance of the underlying asset for GARO’s operations and/or expenses asso- ciated with not extending or terminating the lease. NOTE 5. SEGMENT INFORMATION Segment reporting is prepared in accordance with IFRS 8. Oper- ating segments are recognized in a manner that corresponds to the internal reporting to the chief operating decision maker. The chief operating decision maker is the function that is responsible for allocating resources and assessing the performance of the operating segments. For the Group, this function has been iden- tiﬁed as the CEO. Company management has established the segments based on the information used by the CEO. The CEO assesses the operation based on a geographic/legal perspective and by taking in account which business model is applied. Two operating segments have been identiﬁed in the Group: GARO Sweden and GARO International. These agree with the internal reporting. Operations in the GARO Sweden segment are comprised of region Sweden and are organized into six legal units. Aside from trading operations, in-house manufacturing takes place at three facilities in Sweden. The GARO International segment includes the legal entities in Norway, Ireland, the UK, Finland and Poland. Poland, aside from trading operations, also con- ducts in-house production. Each segment is conducted under local responsibility. Mutual overhead costs are shared in the segment and based on distribution in accordance with the arm’s length principle. The CEO assesses the results of the segments primarily based on the EBIT measure (operating proﬁt). From January 1, 2022, GARO reports operations divided into the business areas of GARO Electriﬁcation and GARO E-mobility. 72 | GARO ANNUAL REPORT NOTES – GROUP INCOME Sales between segments take place based on market terms. Income from external partners reported to the CEO is measured in the same way as in proﬁt or loss. INCOME GARO Sweden GARO International Elimination Total Segment information 2021 2020 2021 2020 2021 2020 2021 2020 Sales Total net sales 1,126.3 883.3 688.9 570.2 -520.2 -413.0 1,294.9 1,040.5 Internal net sales -233.7 -185.2 -286.6 -227.8 520.2 413.0 0 0 Currency effects - - - - 0.9 -0.7 External net sales 892.6 698.1 402.3 342.3 - - 1,295.8 1,039.8 EBIT 151.5 90.2 55.7 46.0 - - 207.2 136.2 Financial income - - - - - - 5.3 0.4 Financial expenses - - - - - - -4.1 -13.5 Tax expense for the year - - - - - - -41.7 -27.7 Net income for the year - - - - - - 166.7 95.3 Other disclosures Fixed assets 289.9 242.8 61.8 98.4 -95.8 -101.0 255.9 240.2 Other assets 743.5 480.6 327.8 229.3 -390.3 -203.3 681.0 503.1 Total assets 1,033.4 723.4 389.6 327.7 -486.1 -307.8 936.9 743.3 Short-term liabilities 374.3 299.1 176.8 154.5 -224.9 -203.3 326.2 250.3 Long-term liabilities 20.0 22.2 38.9 40.5 0 0 58.9 62.7 Total liabilities 394.3 334.6 215.7 222.7 -224.9 -244.3 385.1 313.0 Investments 38.2 42.1 7.1 3.2 - - 45.3 45.3 Depreciation 31.2 22.4 4.6 4.4 - - 35.8 26.9 Income from external customers speciﬁed the customers’ geographical location Fixed assets 2021 2020 2021 2020 Sweden 826.5 678.0 194.1 181.1 Norway 162.7 173.4 2.6 2.6 Ireland 131.5 114.0 20.4 16.9 Finland 48.3 31.1 0.2 0.2 UK 49.2 11.0 1.1 0 Other countries 76.7 33.0 37.5 39.4 Currency effects 0.9 -0.7 Total 1,295.8 1,039.8 255.9 240.2 The Group’s assets exclude ﬁnancial assets, deferred tax assets and assets related to post-employment renumeration. Assets are distributed based on where the subsidiaries are located geo- graphically. The Group has income from two external customers that each exceed 10% of net sales at the end of each period. In 2021, total net sales for these customers amounted to MSEK 225.4 (204.9) and MSEK 152.9 (240.1) respectively, a total of MSEK 378.3 (445.0), comprising 29.2% (42.9) of total net sales. This income is attributable to the GARO Sweden segment. NOTE 5, CONT. GARO ANNUAL REPORT | 73 NOTES – GROUP NOTE 6. INCOME FROM CONTRACTS WITH CUSTOMERS Income arises when companies in the Group satisﬁes a performance obligation by delivering a promised good and control of the asset passes to the customer. This usually takes place on delivery in accordance with the applicable delivery terms. Amounts before elimination of any foreign exchange gains/losses. INCOME FROM CUSTOMERS SPECIFIED BY PRODUCT AREA AND SEGMENT: Product area GARO Sweden 2021 GARO Sweden 2020 GARO International 2021 GARO International 2020 Total 2021 Total 2020 Electrical distribution products 294.4 275.3 237.4 203.4 531.8 478.8 E-mobility 339.8 194.0 97.3 94.2 437.1 288.2 Project business 176.8 174.1 61.9 39.1 238.7 213.2 Temporary Power 81.6 54.7 5.7 5.6 87.3 60.3 Currency - - 0.9 -0.7 Total income from customers 892.6 698.1 402.3 342.3 1,295.8 1,039.8 GEOGRAPHIC LOCATION OF CUSTOMERS Geographic location GARO Sweden 2021 GARO Sweden 2020 GARO International 2021 GARO International 2020 Total 2021 Total 2020 Sweden 826.5 678.0 - - 826.5 678.0 Norway - - 162.7 173.2 162.7 173.4 Ireland - - 131.5 114.0 131.5 114.0 UK - - 49.2 11.0 49.2 11.0 Finland - - 48.3 31.1 48.3 31.1 Other countries 66.1 20.1 10.6 12.9 76.7 33.0 Currency - - 0.9 -0.7 Total income from customers 892.6 698.1 402.3 342.4 1,295.8 1,039.8 Income GARO Sweden 2021 GARO Sweden 2020 GARO International 2021 GARO International 2020 External auditors 892.6 698.1 402.3 342.3 Income between segments 233.7 185.1 286.6 22.8 Adjustments and eliminations regarding inter-segment sales -233.7 -185.1 -286.6 -22.8 Total income from contracts with customers 892.6 698.1 402.3 342.3 PERFORMANCE OBLIGATION The Group’s sales of goods to companies take place by invoice, normally with terms of payment 30–60 days. The Group’s performance obligations that form part of the contract with cus- tomers have an original expected term of a maximum of one year. For framework agreements, a contract is not deemed to arise until the customer places an order based on the terms of the framework agreement. The Group’s performance obligations that form part of the contract with customers have an original expected term of a maximum of one year. The Group has no contracts with a maturity exceeding one year where disclosures of unfulﬁlled performance obligations are required and has as such utilized the exemption rule in IFRS 15. For further information about performance obligation, see Note 2.5 Income from contracts with customers. CONTRACT BALANCES No contract assets in the form of accrued or deferred income occur within the Group. Instead, revenue recognition takes place in conjunction with delivery and complete performance which is also when the invoice is issued. The Group’s contract balances are comprised of accounts receivable. For more information, see Note 2 Summary of important accounting policies. REPAYMENT OBLIGATION Within the Group, customer contracts exist in which the customer is contractually entitled to volume discounts based on realized sales volumes. This volume discount is classiﬁed as repayment obligation and is continuously regulated during the year. For more information repayment obligation, see Note 24 Accrued expenses and deferred income. 74 | GARO ANNUAL REPORT NOTES – GROUP NOTE 7. OTHER OPERATING INCOME 2021 2020 Capitalized own work, product development 3.7 6.6 Other 2.9 1.4 Total 6.6 8.0 NOTE 8. REMUNERATION OF EMPLOYEES, ETC. 2021 2020 Board, CEO and other senior executives Salaries and other remuneration 20.7 19.6 Social security contributions 4.5 4.3 Pension costs – deﬁned-contribution plans 3.7 3.6 Total Board, CEO and other senior executives 28.9 27.5 Other employees Salaries and other remuneration 164.5 141.9 Social security contributions 45.2 37.8 Pension costs – deﬁned-contribution plans 10.1 9.1 Total other employees 219.8 188.8 Total personnel expenses 248.7 216.3 AVERAGE NUMBER OF EMPLOYEES, SPECIFIED BY COUNTRY 2021 2020 Average no. of employees of whom, men of whom, women Average no. of employees of whom, men of whom, women Sweden 264 191 73 238 158 80 Norway 22 20 2 21 19 2 Finland 6 4 2 5 4 1 Ireland 27 23 4 23 16 7 UK 9 6 3 6 5 1 Poland 132 32 100 116 29 87 Group total 460 276 184 409 231 178 GENDER DISTRIBUTION IN THE GROUP (INCL. SUBSIDIARIES) OF BOARD MEMBERS AND OTHER SENIOR EXECUTIVES 2021 2020 No. on balance- sheet date of whom, women No. on balance- sheet date of whom, women Board members 8 2 7 2 CEO and other senior executives 10 1 10 1 Group total 18 3 17 3 GARO ANNUAL REPORT | 75 NOTES – GROUP REMUNERATION OF SENIOR EXECUTIVES 2021 Basic salary/ Board fees Variable remuneration Other beneﬁts Pension costs Other remuneration Total Stefan Jonsson, Board Chairman until May 5, 2021 0.2 - - - - 0.2 Rickard Blomqvist, Board Chairman from May 6, 2021 0.6 - - - - 0.6 Susanna Hilleskog, Board member 0.3 - - - - 0.3 Lars-Åke Rydh, Board member 0.3 - - - - 0.3 Mari Kadowaki Johansson, Board member 0.3 - - - - 0.3 Jonas Lohtander, employee representative - - - - - - Johan Paulsson, Board member from May 6, 2021 0.2 - - - - 0.2 Ulf Hedlundh, Board member 0.3 - - - - 0.3 Martin Ahltén, Board member from May 6, 2021 0.2 - - - - 0.2 Patrik Andersson, President and CEO 2.2 0.5 0.1 0.6 - 3.4 Other senior executives (5) 7.3 1.9 0.3 1.9 - 11.4 Total 11.9 2.4 0.4 2.5 - 17.2 Subsidiaries - Other senior executives (5) 4.8 1.1 0.2 1.2 - 7.3 Group 16.7 3.5 0.6 3.7 - 24.5 REMUNERATION OF SENIOR EXECUTIVES 2020 Basic salary/ Board fees Variable remuneration Other beneﬁts Pension costs Other remuneration Total Stefan Jonsson, Board Chairman 0.5 - - - - 0.5 Per Holmstedt, Board member until May 19, 2020 0.1 - - - - 0.1 Susanna Hilleskog, Board member 0.2 - - - - 0.2 Lars-Åke Rydh, Board member 0.3 - - - - 0.3 Mari Kadowaki Johansson, Board member 0.2 - - - - 0.2 Jonas Lohtander, employee representative - - - - - - Rickard Blomqvist, Board member* 0.3 - - - - 0.3 Ulf Hedlundh, Board member from May 19, 2020 0.1 - - - - 0.1 Patrik Andersson, President and CEO 2.4 0.3 0.1 0.6 - 3.4 Other senior executives (5) 6.5 1.5 0.2 1.7 - 9.9 Total 10.6 1.8 0.3 2.3 - 15.0 Subsidiaries Other senior executives (2) 6.0 0.6 0.2 1.3 - 8.1 Group 16.6 2.4 0.5 3.6 - 23.1 * Board member Rickard Blomqvist also received a consultant’s fee of MSEK 0.1 (0.6) during the year via companies, see Note 28. PENSIONS DEFINED-CONTRIBUTION PENSIONS The retirement age for the CEO is 65. The premium is not more than 30% of pensionable salary. The retirement age for other senior executives is 65. The pen- sion premium follows applicable collective agreements. The pen- sion premium for premium deﬁned pension shall amount to not more than 30% of the pension qualifying salary. SEVERANCE PAY A mutual period of notice of six months applies to the company and the CEO. In the event of termination of employment by the company, senior executives also receive severance pay of nine monthly salaries. Severance pay is not deducted from other forms of income. No severance pay is paid if the CEO termi- nates employment. A period of notice of three to six months applies between the company and other senior executives if employment is termi- nated by the employee, and six to 12 months if employment is terminated by the company. INFORMATION ON REMUNERATION RESOLVED BUT NOT YET DUE Variable remuneration of senior executives refers in its entirety to variable remuneration that has not yet been paid. Payment will take place in 2022. 76 | GARO ANNUAL REPORT NOTES – GROUP GUIDELINES FOR REMUNERATION OF SENIOR EXECUTIVES The General Meeting resolves on guidelines for determining salary and other remuneration for the CEO and other senior executives. The current guidelines resolved by the 2020 Annual General Meeting mainly entail the following: These guidelines encompass those individuals who, during the period of validity of the guidelines, are members of Group Management and other managers who report directly to the CEO and Board members who are employed by the company, referred to below as “senior executives.” The guidelines are applicable to remuneration agreed, and amendments to remu- neration already agreed, after adoption of the guidelines by the 2020 AGM. These guidelines do not apply to any remuneration resolved or approved by the general meeting. If a Board member provides services to the company that are not part of the Board assignment, remuneration paid is market-based, taking into account the nature and work required for the assignment. Such remuneration shall be determined by the Board (or the general meeting if according to law). Board members who are employed by the company do not receive special remuneration for their assignment(s) on the Board of the company or Group companies. Employments governed by rules other than Swedish may be duly adjusted for compliance with mandatory rules or estab- lished local practice, taking into account the overall purpose of these guidelines to the extent possible. THE GUIDELINES’ PROMOTION OF THE COMPANY’S BUSINESS STRATEGY, LONG-TERM INTERESTS AND SUSTAINABILITY In brief, the company’s business strategy is, with a focus on inno- vation, sustainability and design, to provides proﬁtable complete solutions for the electrical industry. A prerequisite for the suc- cessful implementation of the company’s business strategy and safeguarding of its long-term interests, including its sustainability, is that the company is able to recruit and retain qualiﬁed person- nel. To this end, it is necessary that the company offers competi- tive remuneration. These guidelines enable the company to offer the executive management a competitive total remuneration. Variable cash remuneration covered by these guidelines shall aim at promoting the company’s business strategy and long-term interests, including its sustainability. TYPES OF REMUNERATION, ETC. The remuneration shall be on market terms and may consist of the following components: ﬁxed cash salary, variable cash remu- neration, pension beneﬁts and other beneﬁts. Additionally, the general meeting may – irrespective of these guidelines – resolve on, among other things, share-related or share price-related remuneration. The satisfaction of criteria for awarding variable cash remu- neration shall be measured over a period of one year. Variable cash remuneration to the CEO is not to exceed MSEK 2 per year and does not comprise pensionable salary. Variable cash remuneration for other senior executives may amount to not more than 30% of ﬁxed annual cash salary. The variable cash remuneration is to be linked to clear, target-based criteria in simple and transparent structures. The criteria can be ﬁnancial or non-ﬁnancial. They may also be individualized, quantitative or qualitative objectives. The criteria shall be designed so as to contribute to the company’s business strategy and long-term interests, including its sustainability, by for example being clearly linked to the business strategy or promote the executive’s long- term development. These criteria currently include sales and earnings-based ﬁnancial objectives. The which extent the criteria for awarding variable cash remu- neration has been satisﬁed shall be evaluated/determined when the measurement period has ended. The Board is responsible for the evaluation so far as it concerns variable cash remuneration to the CEO. For variable cash remuneration to other executives, the CEO is responsible for the evaluation. For ﬁnancial objec- tives, the evaluation shall be based on the latest ﬁnancial infor- mation made public by the company. For the CEO, pension beneﬁts, including health insurance, shall be premium deﬁned. The pension premiums for premium deﬁned pension shall amount to not more than 30% of the pen- sion qualifying salary. For other executives, pension beneﬁts including health insurance shall be premium deﬁned unless the individual concerned is subject to deﬁned beneﬁt pension under mandatory collective agreement provisions. The pension premi- ums for premium deﬁned pension shall amount to not more than 30% of the pension qualifying salary. Other beneﬁts for senior executives, such as company cars, computers, mobile phones, additional health insurance or occu- pational health services, may be awarded to the extent that this is deemed market practice for senior executives in equivalent positions in the market in which the company operates. Such beneﬁts may total a maximum of 15% of the ﬁxed annual cash salary. TERMINATION OF EMPLOYMENT The notice period may not exceed twelve months if notice of termination of employment is made by the company. Fixed cash salary during the period of notice and severance pay may together not exceed an amount equivalent to the CEO’s ﬁxed cash salary for two years, and one year for other executives. The period of notice may not exceed six months without any right to severance pay when termination is made by the executive. SALARY AND EMPLOYMENT CONDITIONS FOR EMPLOYEES In the preparation of the Board’s proposal for these remunera- tion guidelines, salary and employment conditions for employ- ees of the company have been taken into account by including information on the employees’ total income, the components of the remuneration and increase and growth rate over time, in the Board’s basis for decision when evaluating whether the guidelines and the limitations set out herein are reasonable. The development of the gap between the remuneration to executives and remuneration to other employees will be disclosed in the remuneration report. NOTE 8, CONT. GARO ANNUAL REPORT | 77 NOTES – GROUP THE DECISION-MAKING PROCESS TO DETERMINE, REVIEW AND IMPLEMENT THE GUIDELINES Since 2020, the Board has established a Remuneration Com- mittee comprising some of the members of the Board. The Remuneration Committee assists the Board with proposals in renumeration-related matters. The Board shall prepare a pro- posal for new guidelines at least every fourth year and submit it to the AGM. The guidelines shall be in force until new guide- lines are adopted by the general meeting. The Board shall also monitor and evaluate programs for variable remuneration to executive management and the application of the guidelines for executive remuneration as well as the current remuneration structures and compensation levels in the company. The CEO and other members of the executive management do not par- ticipate in the Board’s handling of and resolutions regarding remuneration-related matters in so far as they are affected by such matters. GUIDELINES FOR REMUNERATION OF SENIOR EXECUTIVES 2022 The Board of Directors in GARO AB (publ) proposes that the 2022 Annual General Meeting resolve on the following guide- lines for remuneration of senior executives. In relation to the current guidelines, the proposal mainly entail, in addition to some editorial adjustments, an opportunity for the Board to propose on extra variable cash remuneration to be paid to the CEO and other senior executives with the aim of promoting the GARO Group’s strategical initiatives between 2022 and 2023. The Board has not received any opinions from shareholders regarding the current guidelines for remuneration of senior executives. SCOPE OF THE GUIDELINES, ETC. These guidelines encompass those individuals who, during the period of validity of the guidelines, are members of Group Management and other managers who report directly to the CEO and Board members who are employed by the company, referred to below as “senior executives.” The guidelines are applicable to remuneration agreed, and amendments to remu- neration already agreed, after adoption of the guidelines by the 2022 AGM. These guidelines do not apply to any remuneration resolved or approved by the general meeting. If a Board member provides services to the company that are not part of the Board assignment, remuneration paid is market-based, taking into account the nature and work required for the assignment. Such remuneration shall be determined by the Board (or the general meeting if according to law). Board members who are employed by the company do not receive special remuneration for their assignment(s) on the Board of the company or Group companies. Employments governed by rules other than Swedish may be duly adjusted for compliance with mandatory rules or estab- lished local practice, taking into account the overall purpose of these guidelines to the extent possible. THE GUIDELINES’ PROMOTION OF THE COMPANY’S BUSINESS STRATEGY, LONG-TERM INTERESTS AND SUSTAINABILITY In brief, the company’s business strategy is, with a focus on inno- vation, sustainability and design, to provides proﬁtable complete solutions for the electrical industry. For further information about the company’s business strategy, visit http://www.garo.se/en/ about-garo/our-business-idea. A prerequisite for the successful implementation of the company’s business strategy and safe- guarding of its long-term interests, including its sustainability, is that the company is able to recruit and retain qualiﬁed person- nel. To this end, it is necessary that the company offers competi- tive remuneration. These guidelines enable the company to offer the executive management a competitive total remuneration. Variable cash remuneration covered by these guidelines shall aim at promoting the company’s business strategy and long-term interests, including its sustainability. TYPES OF REMUNERATION, ETC. The remuneration shall be on market terms and may consist of the following components: ﬁxed cash salary, variable cash remu- neration, pension beneﬁts and other beneﬁts. Additionally, the general meeting may – irrespective of these guidelines – resolve on, among other things, share-related or share price-related remuneration. The Board has proposed that the 2022 AGM resolve on a long-term inventive program through the issue and transfer of warrants to, inter alia, senior executives. VARIABLE CASH REMUNERATION The satisfaction of criteria for awarding variable cash remunera- tion shall be measured over a period of one year. Variable cash remuneration to the CEO is not to exceed MSEK 2 per year and does not comprise pensionable salary. Variable cash remuner- ation for other senior executives may amount to not more than 30% of ﬁxed annual cash salary. The variable cash remunera- tion is to be linked to clear, target-based criteria in simple and transparent structures. The criteria can be ﬁnancial or non-ﬁnan- cial. They may also be individualized, quantitative or qualitative objectives. The criteria shall be designed so as to contribute to the company’s business strategy and long-term interests, includ- ing its sustainability, by for example being clearly linked to the business strategy or promote the executive’s long-term develop- ment. These criteria currently include sales and earnings-based ﬁnancial objectives. The which extent the criteria for awarding variable cash remu- neration has been satisﬁed shall be evaluated/determined when the measurement period has ended. The Board is responsible for the evaluation so far as it concerns variable cash remuneration to the CEO. For variable cash remuneration to other executives, the CEO is responsible for the evaluation. For ﬁnancial objec- tives, the evaluation shall be based on the latest ﬁnancial infor- mation made public by the company. In addition to the maximum amount stated above, the Board must, with the aim of promoting resolved strategic initiatives during the 2022–2023 period, have the opportunity to resolve on variable cash remuneration to be issued to the CEO and 78 | GARO ANNUAL REPORT NOTES – GROUP other senior executives corresponding to not more than nine (9) monthly salaries. Such extra variable cash remuneration must be related to achieving previously set targets that promote the GARO Group’s strategic initiatives during 2022–2023. The measurement period must therefore run across two ﬁscal years, and the evaluation regarding meeting criteria for payment is to take place following the 2024 AGM. Provided that it can be completed with cost neutrality for GARO, the CEO and other senior executives have the right to receive a maximum of 30% of such extra variable cash remuneration as a pension beneﬁt, which should be exempt from pension premiums of 30% as described below. PENSION BENEFITS For the CEO, pension beneﬁts, including health insurance, shall be premium deﬁned. The pension premiums for premium deﬁned pension shall amount to not more than 30% of the pension qual- ifying salary. For other executives, pension beneﬁts including health insurance shall be premium deﬁned unless the individual concerned is subject to deﬁned beneﬁt pension under mandatory collective agreement provisions. The pension premiums for pre- mium deﬁned pension shall amount to not more than 30% of the pension qualifying salary. OTHER BENEFITS Other beneﬁts for senior executives, such as company cars, com- puters, mobile phones, additional health insurance or occupa- tional health services, may be awarded to the extent that this is deemed market practice for senior executives in equivalent posi- tions in the market in which the company operates. Such beneﬁts may total a maximum of 15% of the ﬁxed annual cash salary. TERMINATION OF EMPLOYMENT The notice period may not exceed twelve months if notice of ter- mination of employment is made by the company. Fixed cash sal- ary during the period of notice and severance pay may together not exceed an amount equivalent to the CEO’s ﬁxed cash salary for two years, and one year for other executives. The period of notice may not exceed six months without any right to severance pay when termination is made by the executive. SALARY AND EMPLOYMENT CONDITIONS FOR EMPLOYEES In the preparation of the Board’s proposal for these remunera- tion guidelines, salary and employment conditions for employ- ees of the company have been taken into account by including information on the employees’ total income, the components of the remuneration and increase and growth rate over time, in the Board’s basis for decision when evaluating whether the guidelines and the limitations set out herein are reasonable. The development of the gap between the remuneration to executives and remuneration to other employees will be disclosed in the remuneration report. THE DECISION-MAKING PROCESS TO DETERMINE, REVIEW AND IMPLEMENT THE GUIDELINES The Board has established a Remuneration Committee. The com- mittee’s tasks include preparing the Board’s proposals for reso- lutions of guidelines for remuneration to senior executives. The Board shall prepare a proposal for new guidelines at least every fourth year and submit it to the AGM. The guidelines shall be in force until new guidelines are adopted by the general meeting. The Remuneration Committee shall also monitor and evaluate programs for variable remuneration to executive management and the application of the guidelines for executive remuneration as well as the current remuneration structures and compensation levels in the company. The CEO and other members of the exec- utive management do not participate in the Board’s handling of and resolutions regarding remuneration-related matters in so far as they are affected by such matters. DEROGATION FROM THE GUIDELINES The Board may temporarily resolve to derogate from the guide- lines, in whole or in part, if in a speciﬁc case there is special cause for the derogation and a derogation is necessary to serve the company’s long-term interests, including its sustainability, or to ensure the company’s ﬁnancial viability. As set out above, the Remuneration Committee’s tasks include preparing the Board’s resolutions in remuneration-related matters. This includes any resolutions to derogate from the guidelines. NOTE 9. REMUNERATION OF AUDITORS 2021 2020 Ernst & Young – Audit assignment 1.5 1.5 – Auditing activities in addition to audit assignment 0.5 0.3 Total 2.0 1.8 Grant Thornton – Audit assignment 0.1 0.1 Total 0.1 0.1 NOTE 8, CONT. GARO ANNUAL REPORT | 79 NOTES – GROUP NOTE 10. LEASES GARO divides its leases into three classes of right-of-use assets: Properties, vehicles and machinery. The closing balances of the right-of-use assets and lease liabilities as well as changes during the year are presented in the table below:  Right-of-use assets  2021 ﬁscal year Property Vehicles Machinery Total Lease liability Opening carrying amount 34.7 3.8 - 38.5 38.0 Additional right-of-use assets and lease liabilities 0.5 5.8 0.5 6.8 6.8 Depreciation of right-of-use assets -7.3 -3.6 - -10.9 - Exchange-rate differences 2.2 - - 2.2 2.2 Interest expenses on lease liabilities - - - - 0.5 Lease payments - - - - -11.7 Closing carrying amount 30.1 6.0 0.5 36.6 35.8  Right-of-use assets  2020 ﬁscal year Property Vehicles Machinery Total Lease liability Opening carrying amount 40.4 1.5 - 41.9 41.9 Additional right-of-use assets and lease liabilities 4.7 5.1 - 9.8 9.8 Depreciation of right-of-use assets -7.1 -2.8 - -9.9 0 Exchange-rate differences -3.3 - - -3.3 -3.3 Interest expenses on lease liabilities - - - - 0.4 Lease payments - - - - -10.8 Closing carrying amount 34.7 3.8 - 38.5 38.0 The amounts attributable to lease operations recognized in proﬁt or loss during the year are presented below: 2021 2020 Depreciation of right-of-use assets -10.9 -9.9 Interest expenses on lease liabilities -0.5 -0.4 Expenses for short-term leases -0.3 -1.9 Expenses for low-value assets - - Total expenses attributable to lease operations -11.7 -12.2 GARO recognizes a cash outﬂow attributable to leases amount- ing to MSEK 11.7 (10.8) for the 2021 ﬁscal year. See Note 3 for the maturity structure of the Group's lease liabilities. The Group leases ofﬁce equipment, cars and ofﬁce premises under non-cancelable operating leases. The lease terms vary between three and ﬁve years. Only leases for ofﬁce premises are longer than ﬁve years. Most leases can be extended at the end of the lease term for a market-based fee. 80 | GARO ANNUAL REPORT NOTES – GROUP NOTE 11. FINANCIAL INCOME AND EXPENSES Financial income 2021 2020 Assets and liabilities mandatorily measured at fair value through proﬁt or loss Net gain derivatives 3.2 - Total ﬁnancial income for items measured at fair value through proﬁt or loss 3.2 - Assets and liabilities measured at amortized cost; Interest income 0.2 - Interest income other ﬁnancial income 1.9 - Total interest income according to effective interest method - 0.1 Exchange-rate differences – income, ﬁnancial items - 0.3 Total - 0.3 Total ﬁnancial income 5.3 0.4 Financial expenses 2021 2020 Assets and liabilities mandatorily measured at fair value through proﬁt or loss Net loss derivatives - -1.5 Total ﬁnancial expenses for items measured at fair value through proﬁt or loss - -1.5 Assets and liabilities measured at amortized cost; Interest expenses loans -1.0 -1.2 Interest expenses, lease liability -0.4 -0.4 Interest expenses, other ﬁnancial liabilities -2.5 -3.0 Total interest expenses according to effective interest method -3.9 -4.6 Exchange-rate differences – expenses, ﬁnancial items -0.2 -7.4 Total -0.2 -12.0 Total ﬁnancial expenses -4.1 -13.5 NOTE 12. INCOME TAX 2021 2020 Recognized tax Current tax on net income for the year -39.3 -27.0 Changed in deferred tax (Note 23) -2.4 -0.7 Total income tax -41.7 -27.7 The Group has operations in a tax-exempt Special Economic Zone in Poland. Only parts of the Polish operations are encom- passed by these tax breaks. On December 31, 2021, unutilized tax advantages amounted to approximately MSEK 2.6 (4.7) for use until 2026. Deferred tax assets were taken into account in the reporting. Income tax on proﬁt before tax differs from the theoretical amount that would have arisen from the use of the tax rate in Sweden for the proﬁt of consolidated companies, as follows: 2021 2020 Proﬁt before tax 208.4 123.1 Income tax calculated according to tax rate in Sweden (20.6%) -42.9 -26.3 Effect of foreign tax rates 1.0 -0.7 Tax effects of: – Non-deductible expenses -0.4 -0.7 – Tax attributable to non-capitalized loss carryforwards 0.6 0 Tax expense -41.7 -27.7 Effective tax rate, % 20.0 22.5 GARO ANNUAL REPORT | 81 NOTES – GROUP NOTE 13. OTHER INTANGIBLE ASSETS Capitalized development expenditure Development projects in progress Total At January 1, 2020 Cost 37.9 17.1 55.0 Accumulated amortization and impairment -27.2 - -27.2 Carrying amount 10.7 17.1 27.8 2020 ﬁscal year Opening carrying amount 10.7 17.1 27.8 Capitalized expenses - 24.6 24.6 Reclassiﬁcations 6.6 -6.6 0 Divestments and disposals -8.9 - -8.9 Depreciation/amortization -4.3 - -4.3 Resolution of depreciation/amortization due to divestments and disposals 8.9 - 8.9 Closing carrying amount 13.0 35.1 48.1 At December 31, 2020 Cost 35.6 35.1 70.7 Accumulated amortization and impairment -22.6 - -22.6 Carrying amount 13.0 35.1 48.1 2021 ﬁscal year Opening carrying amount 13.0 35.1 48.1 Capitalized expenses - 26.5 26.5 Reclassiﬁcations/internal transfers 26.5 -27.1 -0.6 Divestments and disposals - - - Amortization -11.4 - -11.4 Closing carrying amount 28.1 34.5 62.6 At December 31, 2021 Cost 62.1 34.5 96.6 Accumulated amortization and impairment -34.0 - -34.0 Carrying amount 28.1 34.5 62.6 82 | GARO ANNUAL REPORT NOTES – GROUP NOTE 14. GOODWILL Goodwill At January 1, 2020 Cost 42.8 Accumulated impairment -3.2 Carrying amount 39.6 2020 ﬁscal year Opening carrying amount 39.6 Acquisition of subsidiaries 5.9 Closing carrying amount 45.5 At December 31, 2020 Cost 48.7 Accumulated impairment -3.2 Carrying amount 45.5 2021 ﬁscal year Opening carrying amount 45.5 Closing carrying amount 45.5 At December 31, 2021 Cost 48.7 Accumulated impairment -3.2 Carrying amount 45.5 Goodwill is distributed between the Group’s cash-generating units, which comprise the segments. The assessment of recover- able amount includes assumptions regarding growth, earnings trend and investments, including investments in working capital. Assumed growth amounts to approximately 10%, depending on product area, for next year’s forecast and is sustained at 2%. The assumed EBIT margins amount to 8.1% for the next year, and then a forecast lost sales volume in certain product groups without offsetting by increasing prices, combined with high competition in other product groups, resulted in an EBIT margin of a minimum of 7.7%. The growth and margin assumptions are based on outcomes of prior years and management’s expecta- tions of market trends. Investment amounts are based on fore- casts and are subsequently sustained at levels corresponding to depreciation. Goodwill is tested for impairment every year. A discount rate (WACC) of 10.0% was used in this year’s test. The test did not reveal any impairment requirement. A number of sensitivity analyses have been performed where the sustained growth rate was set at 0 percentage points, the EBIT margin declines by 2 percentage points or the discount rate increases by 2%. None of these analyses indicated any impairment requirement. Goodwill per segment Dec 31, 2021 Dec 31, 2020 Segment GARO Sweden 45.5 45.5 Segment GARO International - - Total 45.5 45.5 GARO ANNUAL REPORT | 83 NOTES – GROUP NOTE 15. TANGIBLE ASSETS Lands and buildings Plant and machinery Equipment, tools, ﬁxtures and ﬁttings Construction in progress Total At January 1, 2020 Cost 112.4 33.8 113.3 6.9 266.4 Accumulated depreciation -47.3 -31.4 -83.5 - -162.2 Carrying amount 65.1 2.4 29.8 6.9 104.2 2020 ﬁscal year Opening carrying amount 65.1 2.4 29.8 6.9 104.2 Exchange-rate differences -3.0 - -1.7 - -4.7 Purchases 7.9 - 2.2 4.8 14.9 Reclassiﬁcations 0.7 - 4.8 -5.5 0 Divestments and disposals - -11.0 -32.6 - -43.6 Depreciation -3.3 -0.6 -8.7 - -12.6 Resolution of depreciation/amortization due to divestments and disposals - 11.0 32.6 - 43.6 Closing carrying amount 67.4 1.8 26.4 6.3 101.9 At December 31, 2020 Cost 107.1 22.8 85.7 6.3 221.9 Accumulated depreciation -39.7 -21.0 -59.3 - -120.0 Carrying amount 67.4 1.8 26.4 6.3 101.9 2021 ﬁscal year Opening carrying amount 67.4 1.8 26.4 6.3 101.9 Exchange-rate differences - - - - - Purchases 2.2 - 3.4 13.3 18.9 Reclassiﬁcations/internal transfers 0.8 0.8 14.9 -15.2 1.3 Divestments and disposals 0 -0.2 -1.9 - -2.1 Depreciation -2.8 -0.8 -9.9 - -13.5 Resolution of depreciation/amortization due to divestments and disposals - - 1.0 - 1.0 Closing carrying amount 67.6 1.6 33.9 4.4 107.5 At December 31, 2021 Cost 109.8 23.4 102.5 4.4 240.1 Accumulated depreciation -42.2 -21.8 -68.6 0 -132.6 Carrying amount 67.6 1.6 33.9 4.4 107.5 NOTE 16. INVENTORIES 2021 2020 Raw materials and consumables 159.3 104.4 Finished goods and goods for resale 78.3 73.5 Products in progress 4.5 4.6 Total 242.1 182.5 Impairment was recognized at a total of MSEK 9.6 (10.9). 84 | GARO ANNUAL REPORT NOTES – GROUP NOTE 17. FINANCIAL INSTRUMENTS Measurement of ﬁnancial assets at Dec 31, 2021 Carrying amount Fair value Financial assets measured at amortized cost Accounts receivable 336.0 336.0 Other current receivables 8.4 8.4 Cash and cash equivalents 81.6 81.6 Financial assets measured at fair value through proﬁt or loss Derivative instruments - - Total 426.0 426.0 Measurement of ﬁnancial assets at Dec 31, 2020 Carrying amount Fair value Financial assets measured at amortized cost Accounts receivable 238.6 238.6 Other current receivables 4.5 4.5 Cash and cash equivalents 69.4 69.4 Financial assets measured at fair value through proﬁt or loss Derivative instruments - - Total 312.5 312.5 Measurement of ﬁnancial liabilities at Dec 31, 2021 Carrying amount Fair value Financial assets measured at amortized cost Liabilities to credit institutions 36.4 36.4 Lease liability 35.8 35.7 Accounts payable 166.5 166.5 Other short-term liabilities 34.4 34.4 Financial liabilities measured at fair value through proﬁt or loss Derivative instruments - - Option debt 2.4 2.4 Total 275.5 275.4 Measurement of ﬁnancial liabilities at Dec 31, 2020 Carrying amount Fair value Financial assets measured at amortized cost Liabilities to credit institutions 42.6 42.6 Lease liability 38.1 38.1 Accounts payable 123.9 123.9 Other short-term liabilities 26.2 26.2 Financial liabilities measured at fair value through proﬁt or loss Derivative instruments - - Option debt 2.4 2.4 Total 233.2 233.2 For the purpose of disclosure, a fair value is estimated for inter- est-bearing liabilities by discounting future cash ﬂow by the princi- pal amount and discounting interest at the current market interest rate. For current receivables and liabilities, the carrying amount is deemed to comprise a reasonable estimate of the fair value. Measurement of fair value The Group has derivative that are measured at fair value through proﬁt or loss. Derivative instruments are included in the row Other short-term liabilities in the balance sheet and measured at fair value according to Level 2. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The different levels are deﬁned according to below: Level 1 – Quoted prices (non-adjusted) in active markets for identical assets or liabilities Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (quoted prices) or indirectly (derived from quoted prices) Level 3 – Inputs for the asset or liability that are not based on observable market data (Unobservable inputs) GARO ANNUAL REPORT | 85 NOTES – GROUP NOTE 18. ACCOUNTS RECEIVABLE Dec 31, 2021 Dec 31, 2020 Accounts receivable 337.2 239.3 Loss allowance -1.2 -0.7 Accounts receivable – net 336.0 238.6 The fair value of accounts receivable corresponds to their carry- ing amount since the discount effect is not material. The age analysis of these accounts receivable was as follows: 2021 2020 Group Gross Impairment Percentage of loss Gross Impairment Percentage of loss Not past due accounts receivable 282.8 - - 201.1 - - Past due accounts receivable 0–30 days 41.3 - - 29.6 - - Past due accounts receivable 31–60 days 6.9 - - 2.7 - - Past due accounts receivable 61–90 days 2.5 - - 0.4 - - Past due accounts receivable > 91 days 3.7 -1.2 - 0.5 -0.7 - Total 337.2 -1.2 - 239.3 -0.7 - At December 31, 2021, accounts receivable of MSEK 54.4 (33.2) had fallen due for payment but no material impairment requirement was deemed to exist for the Group. The past due receivables pertain to a number of customers who have not shown any payment difﬁculties to date. Change in loss allowance, simpliﬁed approach Group 2021 2020 Opening reserve -0.7 -0.5 Acquisition of subsidiaries - - Conﬁrmed losses - - Reversed unutilized reserves - - Reserves for the year -0.5 -0.2 Translation differences - - Closing reserves 1.2 -0.7 Reserved amount in the balance sheet for expected credit losses -1.2 -0.7 Expected credit losses primarily comprise accounts receivable for which the Group applies the simpliﬁed approach for recog- nizing expected credit losses, see Note 2.11.3 Impairment of ﬁnancial assets. Realized losses for the past ﬁve years amount to an average of approximately 0.1% (0.1) of each year’s net sales. 86 | GARO ANNUAL REPORT NOTES – GROUP NOTE 19. CASH AND CASH EQUIVALENTS Cash and cash equivalents, both in the balance sheet and the statement of cash ﬂows, comprise the following: Dec 31, 2021 Dec 31, 2020 Bank balances 81.6 69.4 Total 81.6 69.4 NOTE 20. SHARE CAPITAL AND OTHER CONTRIBUTED CAPITAL The 2021 Annual General Meeting resolved on a 5:1 share split, meaning that each existing share was replaced with ﬁve new shares of the same series. Share capital at December 31, 2021 comprised 50,000,000 shares with a quotient value of SEK 0.40 per share. Each share carries one vote per share. All shares that have been issued by Parent Company are fully paid. DIVIDEND At the Annual General Meeting on May 5, 2021, the Board proposed a dividend of SEK 0.95 per share (adjusted for the split) for the 2020 ﬁscal year. At the Annual General Meeting on May 11, 2022, the Board will propose a dividend of SEK 1.40 per share for the 2021 ﬁscal year. NOTE 21. BORROWINGS Dec 31, 2021 Dec 31, 2020 Long-term Liabilities to credit institutions 26.5 30.3 Financial lease liability 26.3 28.2 Total long-term borrowings 52.8 58.5 Short-term Overdraft facilities 7.3 7.4 Liabilities to credit institutions 2.6 4.9 Financial lease liability 9.5 9.9 Total short-term borrowings 19.4 22.2 Total borrowings Group 72.2 80.7 LIABILITIES TO CREDIT INSTITUTIONS The Group’s borrowings are in SEK, EUR and PLN. The Group’s borrowings comprise loans from SEB. These bank loans fall due for payment in 2027 and bear average interest of 2.26% per year (1.4). The Group does not have any speciﬁc loan conditions (covenants) with external borrowers. OVERDRAFT FACILITIES The Group has granted overdraft facilities of MSEK 107.7 (96.2) in the currencies of SEK, EUR and PLN that are renegotiated every year. NOTE 22. OTHER PROVISIONS Dec 31, 2021 Dec 31, 2020 Opening balance 3.7 2.2 Amounts used 2.6 1.5 Unutilized amounts that have been reversed - - Opening balance 6.3 3.7 NOTE 23. DEFERRED TAX ASSETS AND TAX LIABILITIES Dec 31, 2021 Dec 31, 2020 Deferred tax assets Lease liability 7.5 7.9 Other (Note 12) 3.8 6.2 Total 11.3 14.1 Deferred tax liabilities Buildings, land and land improvements -0.6 -0.6 Right-of-use assets -7.4 -7.8 Total -8.0 -8.4 Deferred tax assets – net 3.3 5.7 NOTE 24. ACCRUED EXPENSES AND DEFERRED INCOME Dec 31, 2021 Dec 31, 2020 Accrued salary liabilities 22.6 20.6 Accrued social security contributions 9.1 9.9 Bonuses to customers 35.5 19.8 Accrued interest expenses - - Other items 17.7 18.1 Total 84.9 68.4 NOTE 25. PLEDGED ASSETS Dec 31, 2021 Dec 31, 2020 For liabilities to credit institutions Property mortgages 66.9 71.7 Chattel mortgages 85.2 81.0 Assets with ownership reservation 6.0 6.0 Guarantees for leases - - Total 158.1 158.7 GARO ANNUAL REPORT | 87 NOTES – GROUP NOTE 26. BUSINESS COMBINATIONS In June, 2020, GARO acquired 70% of the shares of EV Charge Partner Sweden AB. EV Charge Partner is a company that carries out service and support as well as the commissioning of charging infrastructure primarily for charging operators and power companies in Sweden and Poland. EV Charge Partner Sweden AB employs eight people and is based in Gnosjö, Sweden. The purchase consideration for the acquisition amounted to MSEK 5.6 that was paid in cash. The acquired unit was consolidated on June 1, 2020. The transac- tion costs amounted to MSEK 1.3. The acquired unit contributed net sales of MSEK 10.4 (3.1) in 2021 with net income of MSEK -1.3 (-0.3). With the acquisition, Group goodwill increased MSEK 5.9. Goodwill is attributable to synergies with existing operations within the Group. The goodwill value is not tax-deductible. PRELIMINARY ACQUISITION CALCULATION EV CHARGE PARTNER SWEDEN AB Company’s acquired assets on the acquisition date Fair value in the Group Intangible assets - Other assets 0.1 Inventories 1.3 Other current assets 1.8 Cash and cash equivalents 0.2 Untaxed reserves -0.5 Other liabilities -1.5 Net identiﬁable assets/liabilities 1.4 Consolidated goodwill 5.9 Cash purchase consideration -5.6 GARO normally applies an acquisition structure with a base pur- chase consideration and a potential additional option. Together with the acquisition of EV Charge Partner, GARO received the right and obligation to acquire an additional 10% of the shares in EV Charge Partner during 2022. Additionally, GARO received the option to acquire – and Davids Elteknik an option to sell – the remainder of shares outstanding in EV Charge Part- ner after the close of 2025. The amount of MSEK 2.4 is recog- nized as a liability in GARO AB. The recognized amount is an estimate of the remaining purchase consideration that is depen- dent on the ﬁnancial outcomes of EV Charge Partner Sweden AB during the contract period. NOT 27. SHARE DATA Earnings per share (adjusted for the split) 2021 2020 Earnings per share, before and after dilution, SEK 3.33 1.91 Equity, before and after dilution, SEK 11.03 8.61 Average number of shares, thousands 50,000 50,000 Number of shares outstanding, thousands 50,000 50,000 NOTE 28. RELATED PARTIES Purchases of goods and services 2021 2020 Purchase of services Consulting services from Board member (Ekonomerna i Sverige AB) 0.1 0.6 Operations and services purchased from parties related to the Chairman of the Board 0.1 0.7 Electrical installation services purchased from parties related to the Chairman of the Board - 0.1 Total 0.2 1.4 The above transactions took place with related parties. The services were purchased on normal commercial terms and con- ditions. On the balance-sheet date, no liabilities had been recog- nized against the related-party purchases described above. In connection with the acquisition of EV Charge Partner Swe- den in 2020, an analysis of a conﬂict of interest was conducted since David Jonsson, who owned 100% of the shares in the selling company Davids Elteknik AB, was a related party to GARO’s Chairman Stefan Jonsson. Rickard Blomqvist managed the acquisition process together with GARO’s management, and Stefan Jonsson did not participate in the Board decision to carry out the acquisition. GARO believes that the transaction was com- pleted on market terms. NOTE 29. EVENTS AFTER THE END OF THE FISCAL YEAR In January, 2022, the business areas GARO Electriﬁcation and GARO E-mobility replaced the previous business areas of GARO Sweden and GARO International. In addition, GARO carried out an investment decision for a new production and logistics facility in Poland with construction scheduled to start in the second quarter of 2022. The planned investment budget amounts to about MSEK 85. At the time of writing, the situation in Ukraine and the COVID- 19 pandemic are not assessed to have any notable impact for GARO and its operations. However, due to the situation unfold- ing in Ukraine, uncertainty prevails concerning future access to components. 88 | GARO ANNUAL REPORT NOTES – GROUP NOTE 30. KEY FIGURES AND ALTERNATIVE PERFORMANCE MEASURES AND DEFINITIONS The performance measures in this Annual Report take into account the nature of the operations and are deemed to provide relevant information to shareholders and other stakeholders and also enable comparability with other companies. PERFORMANCE MEASURES NET SALES the total of sales proceeds for goods and services, less discounts provided, VAT and other tax. EBIT Earnings before interest and tax. MARGIN MEASURES EBIT MARGIN EBIT as a percentage of net sales for the period. CAPITAL STRUCTURE NET DEBT Interest-bearing liabilities, lease liabilities according to IFRS 16 less assets including cash and cash equivalents. NET DEBT/EQUITY RATIO Net debt as a percentage of equity. INTEREST COVERAGE RATIO Proﬁt after ﬁnancial income as a percentage of ﬁnancial expenses. EQUITY RATIO Equity including non-controlling interest divided by total assets. TOTAL ASSETS The total on the assets side, or the total on the liabilities side plus equity. RETURN MEASURES RETURN ON EQUITY Net income for the year divided by average equity. PER SHARE EARNINGS PER SHARE Earnings for the period divided by average number of shares outstanding during the period. AVERAGE NUMBER OF SHARES, 1,000S The average number of shares during the period in 1,000s. ALTERNATIVE PERFORMANCE MEASURES (NON-DEFINED BY IFRS) GARO uses certain performance measures that are not deﬁned in the rules for ﬁnancial reporting that GARO applies. The goal of these performance measures is to create better understanding of how the operations are performing. It must be stressed that these alternative performance measures, as deﬁned, are not entirely comparable with performance mea- sures of the same name used by other companies. ORGANIC GROWTH: GARO’s growth strategy includes an important ﬁnancial target of growing organically by 10% per year seen over a business cycle, which is why management has chosen to follow organic growth, which is deﬁned as organic growth with adjustments for currency effects from operations in currencies other than SEK. EBITDA: With the aim of better illustrating underlying opera- tional development, management has chosen to follow EBITDA, deﬁned as EBIT before depreciation and amortization. Key performance indicators are deﬁned as below: EBITDA MARGIN, %: EBITDA as a percentage of net sales for the period WORKING CAPITAL: Working capital comprises a major part of the value of GARO’s balance sheet. With the aim of optimizing GARO’s cash generation, management is focusing on the devel- opment of working capital as it is deﬁned below. NET DEBT: Net debt is deﬁned by how large ﬁnancial borrowings are in GARO in absolute terms less cash and cash equivalents. Key performance indicators are deﬁned as below: ORGANIC GROWTH 2021 2020 Preceding year sales 1,039.8 1,008.1 Organic growth 249.3 28.5 Acquisitions and structural changes 5.8 3.8 Exchange-rate effects 0.9 -0.6 Current period 1,295.8 1,039.8 EBITDA 2021 2020 Income after depreciation/amortization 207.2 136.2 Depreciation/amortization for the year 35.8 26.9 EBITDA 243.0 163.1 WORKING CAPITAL: 2021 2020 Current assets 680.8 503.1 Less cash and cash equivalents -81.6 -69.4 Less short-term non-interest-bearing liabilities -306.8 -228.1 Excl. liabilities attributable to additional purchase considerations -2.4 -2.4 Working capital on balance-sheet date 290.0 203.4 Working capital in relation to total assets (%) 31.0 27.4 NET DEBT 2021 2020 Long-term interest-bearing liabilities 26.5 30.3 Short-term interest-bearing liabilities 9.9 12.3 Lease liability according to the IFRS 16 deﬁnition 35.8 38.1 Less cash and cash equivalents -81.6 -69.4 Net debt (-net cash) -9.4 11.3 Net debt in relation to total assets (%) N/A 1.5 GARO ANNUAL REPORT | 89 BOARD OF DIRECTORS’ REPORT – PARENT COMPANY SHARE CAPITAL AND OWNERSHIP STRUCTURE The Parent Company’s share capital amounted to MSEK 20 on December 31, 2021. There were 50,000,000 common shares on that date. The company has been listed on Nasdaq Stockholm since March 16, 2016. The total number of shares on the balance-sheet date amounted to 50,000,000 with a quotient value of SEK 0.40. Each share provides entitlement to one vote at the Annual General Meeting. There are no limitations to the transferability of the GARO shares (post-sale purchase rights). There are also no limitations on how many votes each shareholder may cast at general meetings. The company is not aware of any agreements between shareholders that could entail limitations to the right to transfer shares. On the balance-sheet date, there was one shareholder who owns and controls more than 10% of the number of votes for all of the shares in the company. That shareholder is Lars Svensson who controls 35.7% of the capital and votes in the company through his own holdings. More information about the GARO’s shares and ownership structure can be found on pages 52–53. APPOINTMENT AND DISMISSAL OF BOARD MEMBERS The Articles of Association do not contain any special provisions regarding the appointment and dismissal of Board members. OPERATIONS GARO develops, manufactures and supplies innovative products and complete solutions for the electrical installations market under its own brand. GARO was founded in 1939 in Gnosjö in Småland, Sweden, and over its more than 80-year history has established strong customer relationships and a highly devel- oped supplier network that, combined with proprietary produc- tion and sales units, form a platform for delivering innovative, complete solutions. The Parent Company’s operations encompass a signiﬁcant part of the Swedish operations and Group Management, and also certain Group-wide functions and the Group’s ﬁnance func- tion. The Parent Company’s inventory function also serves to a certain extent as the central warehouse for the other operations. In addition, the Parent Company conducts sales to other Group companies. SIGNIFICANT EVENTS DURING THE REPORTING PERIOD On January 1, 2021, GARO completed an incorporation of the E-mobility product area by transferring the Swedish part of oper- ations to the wholly-owned subsidiary GARO E-mobility AB. The purpose of the incorporation is to sharpen focus, intensify our development activities and further broaden and strengthen our offering to the market. The 2021 Annual General Meeting resolved on a 5:1 share split, meaning that each existing share was replaced with ﬁve new shares of the same series. The share split was completed during the second quarter. EVENTS AFTER THE END OF THE FINANCIAL PERIOD In January, 2022, the business areas GARO Electriﬁcation and GARO E-mobility replaced the previous business areas of GARO Sweden and GARO International. In addition, the Board carried out an investment decision for a new production and logistics facil- ity in Poland with construction start in the second quarter of 2022. The planned investment budget amounts to about MSEK 85. At the time of writing, the situation in Ukraine and the COVID- 19 pandemic are not assessed to have any notable impact for GARO and its operations. However, due to the situation unfold- ing in Ukraine, uncertainty prevails concerning future access to components. SUSTAINABILITY REPORT In accordance with Chapter 6, Section 11 of the Annual Accounts Act, GARO AB has chosen to prepare the statutory Sustainability Report as a separate report from the Annual Report. The Sustainability Report was submitted to the auditors at the same time as the Annual Report. The Sustainability Report is pre- sented on pages 34–49 of this document. NET SALES AND EARNINGS Net sales amounted to MSEK 481.7 (622.0). Underlying demand was strong during the year, particularly in the Electrical distribution products product area. EBIT amounted to MSEK 63.4 (69.0), corresponding to an EBIT margin of 13.2% (11.1). EBIT is a result of a favorable product mix combined with strict cost control. Board of Directors’ Report for the Parent Company The Board of Directors and the President and CEO of GARO AB (publ), Corporate Registration Number 556051-7772, hereby submit the Annual Report for the 2021 ﬁscal year. 90 | GARO ANNUAL REPORT BOARD OF DIRECTORS’ REPORT – PARENT COMPANY SUMMARY OF THE PARENT COMPANY’S FINANCIAL PERFORMANCE MSEK 2021 2020 2019 2018 2017 Net sales 481.7 622.0 586.6 528.6 428.9 EBITDA 76.0 81.3 58.3 66.4 45.2 EBIT 63.4 69.0 48.4 56.5 36.5 EBIT margin, % 13.2 11.1 8.3 10.7 8.5 Total assets 608.6 546.5 451.3 385.7 356.2 Equity ratio, % 59.5 57.0 53.8 56.4 52.0 Return on equity, % 27.1 24.8 26.8 36.0 32.9 Average number of employees 120 143 137 132 122 INVESTMENTS The Parent Company invests continuously in the maintenance of the production unit and production equipment. The Parent Company’s investments in tangible assets amounted to MSEK 3.1 (3.2). Contributions in existing companies corresponded to MSEK 1.5 (acquisitions in subsidiaries MSEK 33.2). GARO also invests in product development and investments in intangible assets for the year totaled MSEK 25.1 (24.6). Depreciation/ amortization for the year amounted to MSEK 12.6 (12.3), of which depreciation of tangible assets was MSEK 7.1 (7.8). CASH FLOW, LIQUIDITY AND FINANCIAL POSITION Cash ﬂow from operating activities amounted to MSEK 40.8 (97.3). Cash ﬂow for the year amounted to MSEK 7.4 (33.9). Cash and cash equivalents including unutilized overdraft facilities on December 31, 2021 amounted to MSEK 168.6 (161.2). Net cash on December 31, 2021 amounted to MSEK 58.4 (47.0). The Parent Company’s equity on December 31, 2021 amounted to MSEK 362.2 (311.4). The 2021 dividend amounted to MSEK 47.5 (0). EMPLOYEES The number of full-time employees in the Parent Company on December 31, 2021 was 123 (150). The average number of full-time employees in 2021 was 120 (143). The percentage of women during the year was 37% (39). For more information about employees, see Note 5. PRODUCT DEVELOPMENT The company has an in-house product development department that works together with other departments on continuously developing new and improving existing products and solutions. Refer also to Note 2.8 in the consolidated ﬁnancial statements. ENVIRONMENTAL IMPACT The Parent Company conducts reportable operations and the municipality is the supervisory authority. The Gårö 1:377 prop- erty is in risk class 2 according to the county administrative board’s Method for Inventories of Contaminated Sites (MIFO) inventory. The company has no orders under the Swedish Envi- ronmental Code. The Parent Company has ISO 14001 environ- mental certiﬁcation. RISKS AND UNCERTAINTIES A description of potential risks and their management is pro- vided in Note 3 in the consolidated ﬁnancial statements. GUIDELINES FOR REMUNERATION OF SENIOR EXECUTIVES These guidelines are described in the Board of Directors’ Report for the Group. PROPOSED APPROPRIATION OF PROFIT The Group’s retained earnings in accordance with the consoli- dated balance sheet amounted to MSEK 528.6 (407.4). The following proﬁt is at the disposal of the Annual General Meeting: (SEK) Opening retained earnings 241,330,970 Provisions to fund for own work, development expenditure -40,514,361 Net income for the year 98,299,387 Total 299,115,996 The Board of Directors proposes that proﬁt be appropriated as follows: – to be distributed to shareholders at SEK 1.40 per share -70,000,000 – to be carried forward 229,115,996 Total 299,115,996 THE BOARD’S STATEMENT ON THE PROPOSED DIVIDENDS The Board believes that the proposed dividend will not prevent the company from fulﬁlling its obligations in the short or long term, nor from making necessary investments. The proposed dividend can thus be justiﬁed with respect to the provisions of Chapter 17, Section 3, paragraphs two and three of the Swed- ish Companies Act. The company’s equity ratio is satisfactory since the operations continue to be conducted proﬁtably. It is deemed that the compa- ny’s liquidity can also be maintained at a satisfactory level. Multi-year summary GARO ANNUAL REPORT | 91 PARENT COMPANY PARENT COMPANY INCOME STATEMENT MSEK Note 2021 2020 Operating income Net sales 2, 3 481.7 622.0 Other operating income 4 12.8 23.6 Total 494.5 645.6 Operating expenses Raw materials and consumables -291.3 -383.3 Other external expenses 6 -50.1 -68.0 Personnel expenses 5 -77.1 -113.0 Depreciation/amortization of tangible and intangible assets 11, 12 -12.6 -12.3 Total operating expenses -431.1 -576.6 EBIT 63.4 69.0 Proﬁt from participations in Group companies 22 7.2 13.3 Net interest income and similar items 8 6.8 2.0 Net interest expenses and similar items 8 -2.5 -7.2 Total proﬁt from ﬁnancial items 7 11.5 8.1 Proﬁt before tax 74.9 77.1 Appropriations 23 47.0 6.0 Tax on net income for the year 9 -23.6 -14.5 Net income for the year 98.3 68.6 The Parent Company does not have any items recognized as other comprehensive income which is why total comprehensive income corresponds to net income for the year. Parent Company Annual Report 92 | GARO ANNUAL REPORT PARENT COMPANY PARENT COMPANY BALANCE SHEET MSEK Note Dec 31, 2021 Dec 31, 2020 ASSETS FIXED ASSETS Intangible assets Capitalized development expenditure 11 9.1 14.3 Development projects in progress 11 34.4 35.1 Total intangible assets 11 43.5 49.4 Tangible assets Lands and buildings 12 24.3 24.5 Plant and machinery 12 0.2 0.6 Equipment, tools, ﬁxtures and ﬁttings 12 12.5 16.0 Construction in progress and advance payments for tangible assets 12 1.4 6.0 Total tangible assets 12 38.4 47.1 Financial assets Participations in Group companies 10 80.8 79.3 Receivables from Group companies 59.9 30.6 Total ﬁnancial assets 140.7 109.9 TOTAL FIXED ASSETS 222.6 206.4 CURRENT ASSETS Inventories Raw materials and consumables 28.2 47.0 Products in progress 12.2 0.1 Finished goods and goods for resale 0.4 19.7 Total inventories 40.8 66.8 Current receivables Accounts receivable 13, 14 83.9 119.1 Receivables from Group companies 182.6 86.2 Other current receivables 2.0 0.6 Prepaid expenses and accrued income 5.3 3.4 Total current receivables 273.8 209.3 Cash and bank balances 14, 15, 18 71.4 64.0 TOTAL CURRENT ASSETS 386.0 340.1 TOTAL ASSETS 608.6 546.5 GARO ANNUAL REPORT | 93 PARENT COMPANY PARENT COMPANY BALANCE SHEET, CONT. MSEK Note Dec 31, 2021 Dec 31, 2020 EQUITY AND LIABILITIES EQUITY Restricted equity Share capital 16 20.0 20.0 Fund for internal development expenses 40.5 35.9 Statutory reserve 2.6 2.6 Total restricted equity 63.1 58.5 Non-restricted equity Retained earnings 200.8 184.3 Net income for the year 98.3 68.6 Total non-restricted equity 299.1 252.9 TOTAL EQUITY 362.2 311.4 LIABILITIES Provisions Other provisions 1.0 3.5 Provision for deferred tax 17 0.7 0.7 Total provisions 1.7 4.2 Long-term liabilities Other liabilities to credit institutions 18 10.4 13.7 Total long-term liabilities 10.4 13.7 Short-term liabilities Liabilities to credit institutions 14, 18 2.6 3.3 Accounts payable 51.4 58.7 Liabilities to Group companies 132.8 107.5 Current tax liabilities 7.0 1.8 Other short-term liabilities 9.0 9.8 Accrued expenses and deferred income 19 31.5 36.2 Total short-term liabilities 234.3 217.2 TOTAL LIABILITIES 246.4 235.1 TOTAL LIABILITIES AND EQUITY 608.6 546.5 94 | GARO ANNUAL REPORT PARENT COMPANY PARENT COMPANY STATEMENT OF CHANGES IN EQUITY Restricted equity Non-restricted equity MSEK Note Share capital Statutory reserve Fund for internal development expenses Retained earnings incl. net income for the year Total Opening balance at January 1, 2020 20.0 2.6 18.1 202.1 242.8 Net income for the year and comprehensive income 2020 0 0 0 68.6 68.6 Total comprehensive income 0 0 0 68.6 68.6 Change in fund for internal development expenses 0 0 17.8 -17.8 0 Dividend according to Annual General Meeting resolution 0 0 0 -0 -0 Total contributions from and value transfers to shareholders, recognized directly in equity 0 0 0 -0 -0 Closing balance at December 31, 2020 20.0 2.6 35.9 252.9 311.4 Opening balance at January 1, 2021 20.0 2.6 35.9 252.9 311.4 Net income for the year and comprehensive income 2021 0 0 0 98.3 98.3 Total comprehensive income 0 0 0 98.3 98.3 Change in fund for internal development expenses 0 0 4.6 -4.6 0 Dividend according to Annual General Meeting resolution 0 0 0 -47.5 -47.5 Total contributions from and value transfers to shareholders, recognized directly in equity 0 0 0 -47.5 -47.5 Closing balance at December 31, 2021 20.0 2.6 40.5 299.1 362.2 GARO ANNUAL REPORT | 95 PARENT COMPANY PARENT COMPANY CASH-FLOW STATEMENT MSEK Note 2021 2020 Cash ﬂow from operating activities EBIT 63.4 69.0 Adjustment for non-cash items Depreciation/amortization 11, 12 12.6 12.3 Other -5.3 0.9 Dividends received 22 7.2 13.3 Net interest income and similar items 8 6.8 2.0 Net interest expenses and similar items 8 -2.5 -7.2 Income tax paid 9 -16.8 -24.5 Cash ﬂow from operating activities before change in working capital 65.4 65.8 Change in inventories 26.0 -5.8 Change in accounts receivable 13 -61.1 -1.5 Change in other current receivables -1.9 0.3 Change in accounts payable 18.1 0.8 Change in other current operating liabilities -5.7 37.6 Total change in working capital -24.6 31.5 Cash ﬂow from operating activities 40.8 97.3 Cash ﬂow from investing activities Investments in intangible assets 11 -25.1 -24.6 Investments in tangible assets 12 -3.1 -3.2 Assets sold 12 30.2 0 Investments in subsidiaries -1.5 -33.2 Acquisition of other ﬁnancial assets -29.3 -5.0 Cash ﬂow from investing activities -28.8 -66.0 Cash ﬂow from ﬁnancing activities Amortization of loans -4.1 -3.4 Group contributions paid/received 23 47.0 6.0 Dividend paid -47.5 0 Cash ﬂow from ﬁnancing activities -4.6 2.6 Decrease/increase in cash and cash equivalents Net cash ﬂow for the year 7.4 33.9 Cash and cash equivalents at beginning of the year 64.0 30.1 Cash and cash equivalents at end of the year 71.4 64.0 96 | GARO ANNUAL REPORT NOTES – PARENT COMPANY NOTE 1. GENERAL INFORMATION GARO Aktiebolag (the “Parent Company”) develops, manufactures and markets electrical installation materials. The single largest mar- ket is Sweden, which represents 65% (64) of the Parent Company’s volumes. Export sales are conducted mainly to own subsidiaries in Norway, Finland, Poland, Ireland Northern Ireland and the UK. The Parent Company is a limited liability company registered in Sweden with its registered ofﬁce in Gnosjö. The address of the ofﬁce is Södergatan 26, Box 203, SE-335 33 Gnosjö, Swe- den. The GARO share has been listed on Nasdaq Stockholm since March 16, 2016. All amounts are stated in millions of Swedish kronor (MSEK),unless otherwise stated. NOTE 2. SUMMARY OF PARENT COMPANY’S IMPORTANT ACCOUNTING POLICIES The most important accounting policies applied in the preparation of this Annual Report are described below. These policies were applied consistently for all years presented, unless otherwise stated. The Annual Report for GARO Aktiebolag (the “Parent Com- pany”) was prepared in accordance with RFR 2 Accounting for Legal Entities and the Swedish Annual Accounts Act. In cases in which the Parent Company applies different accounting policies than the Group’s accounting policies as described in Note 2 of the consolidated ﬁnancial statements, this is speciﬁed below. The Annual Report was prepared following the cost method. RFR 2 stipulates that the Parent Company is to apply all IFRSs and statements adopted by the EU to the extent that this is pos- sible within the framework of the Annual Accounts Act with con- sideration of the relationship between accounting and taxation. Preparing ﬁnancial statements in accordance with RFR 2 requires the use of a number of important estimates for accounting purposes. Management is also required to make certain assess- ments when applying the Parent Company’s accounting policies. The areas involving a high degree of assessment, that are com- plex or are such areas in which assumptions and estimates are of signiﬁcant importance to the Annual Report are described in Note 4 of the consolidated ﬁnancial statements. Through its operations, the Parent Company is exposed to a variety of different ﬁnancial risks: market risk (including currency risk, interest-rate risk), credit risk and liquidity risk. The Parent Company’s overall risk management policy focuses on the unpredictability of the ﬁnancial markets and seeks to minimize potential unfavorable effects on the Group’s ﬁnancial earnings. For more information about ﬁnancial risks, see Note 3 in the consolidated ﬁnancial statements. The Parent Company applies different accounting policies than the Group in the cases described below. PRESENTATION FORMATS Income statements and balance sheets follow the presentation format of the Annual Accounts Act. The statement of changes in equity follows the Group’s presentation format but is to contain the components stipulated in the Annual Accounts Act. There are also differences in the names of items compared with the consol- idated ﬁnancial statements, primarily regarding ﬁnancial income and expenses and equity. PARTICIPATIONS IN SUBSIDIARIES Participations in subsidiaries are recognized at cost less any impairment. Cost includes acquisition-related expenses. The recoverable amount is calculated when there is an indication that participations in subsidiaries have declined in value. If this amount is lower than the carrying amount, impairment is recog- nized. Impairment is recognized in the item “Proﬁt from partici- pations in Group companies.” FINANCIAL INSTRUMENTS Due to the relationship between accounting and taxation, the rules on ﬁnancial instruments stated in IFRS 9 are not applied in the Parent Company as a legal entity and instead the Parent Company applied the cost method in accordance with the Swed- ish Annual Accounts Act. Accordingly, in the Parent Company ﬁnancial assets are measured at cost and ﬁnancial current assets according to the lowest value principle, by applying impairment of expected credit losses according to IFRS 9 for assets that are debt instruments. For other ﬁnancial assets, impairment is based on market value. Derivative instruments with negative fair value are recognized as a liability at the negative fair value with changes in value through proﬁt or loss. The Parent Company applies the exemption of not measuring ﬁnancial guarantees for subsidiaries, associated companies and joint ventures in accordance with IFRS 9 rules. Instead it applies the measurement principles stated in IAS 37 Provisions, Contin- gent Liabilities and Contingent Assets. DERIVATIVE INSTRUMENTS Derivative instruments are recognized in the balance sheet on the contract date and measured at fair value, both initially and when subsequently remeasured. Derivative instruments are not used for hedge accounting. Changes in fair value are subsequently imme- diately recognized in proﬁt or loss. Outstanding forward con- tracts amounted to MEUR 6.4 (6.7) on the balance-sheet date. APPROPRIATIONS AND UNTAXED RESERVES Excess depreciation, tax allocation reserves and Group contribu- tions are recognized as appropriations. Outstanding reserves for excess depreciation and tax allocation reserves are recognized as untaxed reserves. LEASES The rules on accounting for leases under IFRS 16 are not applied in the Parent Company. This means that lease payments are recognized as an expense straight-line over the lease term, and that right-of-use assets and lease liabilities are not included in the Parent Company's balance sheet. However, a lease is identiﬁed in accordance with IFRS 16, meaning that a contract is, or con- tains, a lease if it conveys the right to control the use of an iden- tiﬁed asset for a period of time in exchange for consideration. Notes GARO ANNUAL REPORT | 97 NOTES – PARENT COMPANY NOTE 3. ALLOCATION OF NET SALES 2021 2020 Nordic region 479.4 603.2 Europe excl. Nordic region 2.3 18.8 Total 481.7 622.0 NOTE 4. OTHER OPERATING INCOME 2021 2020 Rental income 0 3.0 Capitalized own work 3.7 6.6 Lease of personnel and administrative service 7.5 13.5 Other 1.6 0.5 Total 12.8 23.6 NOTE 5. REMUNERATION OF EMPLOYEES, ETC. 2021 2020 Salaries and other remuneration Salaries and other remuneration (ofwhich, bonus payments) Social security expenses (of which, pension costs) Salaries and other remuneration (of which, bonus payments) Social security expenses (of which, pension costs) Board members, CEOs and other senior executives 10.1 (1.4) 4.8 (2.0) 8.5 (0.8) 4.2 (1.7) Other employees 49.5 (0.7) 23.9 (5.2) 61.7 (0.4) 27.6 (5.7) Total 51.6 (2.1) 28.7 (7.2) 70.2 (1.2) 31.8 (7.4) AVERAGE NUMBER OF EMPLOYEES, SPECIFIED BY COUNTRY 2021 2020 Average no. of employees Of whom, women Average no. of employees Of whom, women Sweden 120 43 143 51 Total 120 43 143 51 GENDER DISTRIBUTION OF BOARD MEMBERS AND OTHER SENIOR EXECUTIVES 2021 2020 No. on balance- sheet date Of whom, women No. on balance- sheet date Of whom, women Board members 8 2 7 2 CEO and other senior executives 6 1 6 1 Total 14 3 13 3 Remuneration of senior executives: Information is provided in Note 8 of the consolidated ﬁnancial statements. NOTE 6. REMUNERATION OF AUDITORS 2021 2020 Ernst & Young – Audit assignment 0.7 0.7 – Other auditing activities 0.4 0.2 PwC – Tax advice 0.3 0.6 Total 1.4 1.5 NOTE 7. OPERATING LEASES The Parent Company leases machinery, cars and warehouse premises. The lease terms vary between three and ﬁve years. Most leases can be extended at the end of the lease term for a market-based fee. The Parent Company's future lease payments for non-cancel- able leases are presented below. Future minimum lease payments 2021 2020 Within 1 year 3.3 3.1 Between 1 and 5 years 3.5 4.2 More than 5 years 0 0 Total 6.8 7.3 Expensed lease payments for the period amounted to MSEK 4.1 (3.8). 98 | GARO ANNUAL REPORT NOTES – PARENT COMPANY NOTE 8. NET INTEREST INCOME AND SIMILAR ITEMS AND INTEREST EXPENSES AND SIMILAR ITEMS Financial income 2021 2020 Assets and liabilities mandatorily measured at fair value through proﬁt or loss Net gain derivatives 3.2 0 Total ﬁnancial income for items measured at fair value through proﬁt or loss 3.2 0 Assets and liabilities measured at amortized cost; Interest income from accounts receivable 0 0 Interest income other ﬁnancial income 2.9 1.9 Total interest income according to effective interest method 2.9 1.9 Exchange-rate differences – income, ﬁnancial items 0.7 0.1 Total 0.7 0.1 Total ﬁnancial income 6.8 2.0 Financial expenses 2021 2020 Assets and liabilities mandatorily measured at fair value through proﬁt or loss Net loss derivatives 0 -1.5 Total ﬁnancial expenses for items measured at fair value through proﬁt or loss 0 -1.5 Assets and liabilities measured at amortized cost; Interest expenses loans -0.4 -0.7 Interest expenses, other ﬁnancial liabilities 0 0 Total interest expenses according to effective interest method -0.4 -0.7 Exchange-rate differences – expenses, ﬁnancial items -2.1 -5.0 Total -2.1 -5.0 Total ﬁnancial expenses -2.5 -7.2 NOTE 9. TAX ON NET INCOME FOR THE YEAR 2021 2020 Recognized tax in proﬁt or loss Current tax on net income for the year -23.1 -15.5 Changes in deferred tax (Note 17) -0.5 1.0 Total recognized tax -23.6 -14.5 Income tax on proﬁt before tax differs from the theoretical amount that would have arisen from the use of the tax rate for the Swedish Parent Company, as follows: 2021 2020 Proﬁt before tax 121.9 83.1 Income tax calculated according to tax rate in Sweden (20.6%) -25.1 -17.8 Tax effects of: Non-taxable dividends 1.5 2.9 Non-deductible expenses -0.3 -0.2 Previously unrecognized deferred tax 0.3 0.6 Total recognized tax -23.6 -14.5 Effective tax rate, % 19.4 17.4 GARO ANNUAL REPORT | 99 NOTES – PARENT COMPANY NOTE 10. HOLDINGS AND INVESTMENTS IN SUBSIDIARIES Dec 31, 2021 Dec 31, 2020 Opening cost 79.3 46.1 Investments in subsidiaries 1.5 33.2 Closing accumulated cost 80.8 79.3 Closing carrying amount 80.8 79.3 Name Corp. Reg. No. Registered ofﬁce and country of registration and operation Number of shares Share of common shares directly owned by Parent Company (%) Share of common shares owned by non-controlling interest (%) Carrying amount Dec 31, 2021 Carrying amount Dec 31, 2020 GARO Electric Irl. Ltd 67083 Dublin, Ireland 10,000 100 0 4.7 4.7 GARO Electric Ltd 12057804 Birmingham, UK 1 100 0 0 0 GARO Elﬂex AB 556717-1003 Gnosjö, Sweden 1,000 100 0 2.5 2.5 GARO Montage AB 556658-9544 Gnosjö, Sweden 1,000 100 0 1.8 1.8 GARO AS 935722713 Drammen, Norway 800 100 0 0.7 0.7 WEB-EL Försäljning AB 556658-1079 Luleå, Sweden 1,000 100 0 30.1 30.1 GARO Polska SP ZOO 8513133236 Szczecin, Poland 200 100 0 5.2 5.2 GARO Fastigheter AB 559180-6426 Gnosjö, Sweden 100,000 100 0 1.6 0.1 GARO E-mobility AB 559272-1871 Gnosjö, Sweden 200,000 100 0 20.0 20.0 GARO Finland OY 2191528-5 Espoo, Finland 100 100 0 7.2 7.2 EV Charge Partner Sweden AB 556980-5384 Gnosjö, Sweden 1,000 70 30 7.0 7.0 Total 80.8 79.3 100 | GARO ANNUAL REPORT NOTES – PARENT COMPANY NOTE 11. INTANGIBLE ASSETS Capitalized development expenditure Development projects in progress Goodwill Total At January 1, 2020 Cost 38.0 17.0 1.9 56.9 Accumulated amortization -25.9 - -1.9 -27.8 Carrying amount 12.1 17.0 - 29.1 2020 ﬁscal year Opening carrying amount 12.1 17.0 - 29.1 Purchases/capitalized expenses 0 24.6 - 24.6 Reclassiﬁcations/internal sales 6.5 -6.5 - 0 Divestments and disposals - - - - Impairment - - - - Depreciation/amortization -4.3 - - -4.3 Closing carrying amount 14.3 35.1 49.4 At December 31, 2020 Cost 35.6 35.1 1.9 72.6 Accumulated amortization -21.3 0 -1.9 -23.2 Carrying amount 14.3 35.1 - 49.4 2021 ﬁscal year Opening carrying amount 14.3 35.1 - 49.4 Purchases/capitalized expenses - 25.1 - 25.1 Reclassiﬁcations/internal sales - - - - Divestments and disposals -4.4 -25.8 - -30.2 Impairment - - - - Depreciation/amortization -0.8 - - -0.8 Closing carrying amount 9.1 34.4 - 43.5 At December 31, 2021 Cost 31.2 34.4 1.9 67.5 Accumulated amortization -22.1 - -1.9 -24.0 Carrying amount 9.1 34.4 - 43.5 GARO ANNUAL REPORT | 101 NOTES – PARENT COMPANY NOTE 12. TANGIBLE ASSETS Lands and buildings Plant and machinery Equipment, tools, ﬁxtures and ﬁttings Construction in progress and advance payments for tangible assets Total At January 1, 2020 Cost 69.0 31.2 82.2 6.8 189.2 Accumulated depreciation -42.9 -30.1 -64.5 - -137.5 Carrying amount 26.1 1.1 17.7 6.8 51.7 2020 ﬁscal year Opening carrying amount 26.1 1.1 17.7 6.8 51.7 Purchases - - - 3.2 3.2 Reclassiﬁcations/internal transfers - - 4.0 -4.0 - Divestments and disposals - -10.9 -31.6 - -42.5 Depreciation -1.6 -0.5 -5.7 - -7.8 Resolution of depreciation/amortization due to divestments/disposals/internal transfers - 10.9 31.6 - 42.5 Closing carrying amount 24.5 0.6 16.0 6.0 47.1 At December 31, 2020 Cost 69.0 20.3 54.1 6.0 149.4 Accumulated depreciation -44.5 -19.7 -38.1 - -102.3 Carrying amount 24.5 0.6 16.0 6.0 47.1 2021 ﬁscal year Opening carrying amount 24.5 0.6 16.0 6.0 47.2 Purchases 1.4 - - 1.7 3.1 Reclassiﬁcations/internal transfers - - - - - Divestments and disposals - - -0.7 -6.3 -7.0 Depreciation -1.6 -0.4 -5.1 - -7.1 Resolution of depreciation/amortization due to divestments/disposals/internal transfers - - 2.3 - 2.3 Closing carrying amount 24.3 0.2 12.5 1.4 38.4 At December 31, 2021 Cost 70.4 20.3 53.4 1.4 145.5 Accumulated depreciation -46.1 -20.1 -40.9 0 -107.1 Carrying amount 24.3 0.2 12.5 1.4 38.4 NOTE 13. ACCOUNTS RECEIVABLE The carrying amounts, per currency, for the Parent Company’s accounts receivable are as follows: Dec 31, 2021 Dec 31, 2020 Accounts receivable 84.7 119.1 Less: provision for doubtful receivables -0.8 0 Accounts receivable – net 83.9 119.1 The fair value of accounts receivable corresponds to their carry- ing amount since the discount effect is not material. At December 31, 2021, accounts receivable of MSEK 10.7 (13.7) had fallen due for payment but no impairment require- ment was deemed to exist. The past due receivables pertain to a number of customers who have not shown any payment difﬁcul- ties to date. The age analysis of these accounts receivable was as follows: Dec 31, 2021 Dec 31, 2020 Within 1–30 days 8.0 13.3 Between 31 and 60 days 1.4 0.4 More than 61 days 1.3 0 Total past due accounts receivable 10.7 13.7 102 | GARO ANNUAL REPORT NOTES – PARENT COMPANY NOTE 14. FINANCIAL INSTRUMENTS The table below presents the Parent Company’s ﬁnancial assets and liabilities classiﬁed based on cost. For current receivables and liabilities, the carrying amount is deemed to comprise a reasonable estimate of the fair value, and these amounts are presented in the table below. MEASUREMENT OF FINANCIAL ASSETS AND LIABILITIES AT DEC 31, 2021 2021 ﬁscal year Financial assets measured at cost Financial liabilities measured at cost Total carrying amount Accounts receivable 83.9 - 83.9 Receivables from Group companies 182.6 - 182.6 Other current receivables 2.0 - 2.0 Cash and cash equivalents 71.4 - 71.4 Total 339.9 - 339.9 Financial liabilities Accounts payable - 51.4 51.4 Liabilities to Group companies - 132.8 132.8 Derivative instruments - - - Other short-term liabilities - 9.0 9.0 Total - 193.2 193.2 MEASUREMENT OF FINANCIAL ASSETS AND LIABILITIES AT DEC 31, 2020 2020 ﬁscal year Financial assets measured at cost Financial liabilities measured at cost Total carrying amount Accounts receivable 119.1 - 119.1 Receivables from Group companies 86.2 - 86.2 Other current receivables 0.6 - 0.6 Cash and cash equivalents 64.0 - 64.0 Total 269.9 - 269.9 Financial liabilities Accounts payable - 58.7 58.7 Liabilities to Group companies - 107.5 107.5 Derivative instruments - - - Other short-term liabilities - 9.8 9.8 Total - 176.0 176.0 GARO ANNUAL REPORT | 103 NOTES – PARENT COMPANY NOTE 15. CASH AND CASH EQUIVALENTS Dec 31, 2021 Dec 31, 2020 Bank balances 71.4 64.0 Total 71.4 64.0 NOTE 16. SHARE CAPITAL AND OTHER CONTRIBUTED CAPITAL The 2021 Annual General Meeting resolved on a 5:1 share split, meaning that each existing share was replaced with ﬁve new shares of the same series. The share split was completed during the second quarter. Share capital at December 31, 2021 comprised 50,000,000 shares with a quotient value of SEK 0.40 per share. Each share carries one vote per share. All shares that have been issued by Parent Company are fully paid. NOTE 17. PROVISION FOR DEFERRED TAX Deferred tax assets and liabilities are distributed as follows: Dec 31, 2021 Dec 31, 2020 Deferred tax assets – deferred tax assets attributable to tempo- rary differences in derivative instruments 0 -0.5 Deferred tax liabilities - – deferred tax liabilities attributable to temporary differences in buildings and land improvements 0.6 0.7 – deferred tax liabilities attributable to tem- porary differences in derivative instruments 0.1 0 Deferred tax liabilities (net) 0.7 0.2 NOTE 18. BORROWINGS Dec 31, 2021 Dec 31, 2020 Long-term Liabilities to credit institutions 10.4 13.7 Total long-term borrowings 10.4 13.7 Short-term Liabilities to credit institutions 2.6 3.3 Total short-term borrowings 2.6 3.3 Total borrowings Parent Company 13.0 17.0 LIABILITIES TO CREDIT INSTITUTIONS The Parent Company’s borrowings are in SEK. The Parent Company’s borrowings comprise loans from SEB. The bank loan has a tenor until 2027 and bears average interest for 2021 of 1.22% per year (1.4). The Parent Company has no loans that fall due after ﬁve years. The Parent Company does not have any speciﬁc loan conditions (covenants) with external borrowers. OVERDRAFT FACILITIES The Parent Company has granted overdraft facilities of MSEK97.1 (88.8) that are renegotiated every year. NOTE 19. ACCRUED EXPENSES AND DEFERRED INCOME Dec 31, 2021 Dec 31, 2020 Accrued payroll costs 11.8 13.8 Accrued social security contributions 4.7 5.5 Bonuses to customers 11.2 10.1 Other items 3.8 6.8 Total 31.5 36.2 NOTE 20. PLEDGED ASSETS Dec 31, 2021 Dec 31, 2020 Property mortgages 35.2 35.2 Chattel mortgages 66.0 66.0 Total 101.2 101.2 Assets pledged for liabilities to credit institutions NOTE 21. CONTINGENT LIABILITIES Dec 31, 2021 Dec 31, 2020 Other contingent liabilities for the beneﬁt of subsidiaries 21.6 21.6 Total 21.6 21.6 NOTE 22. PROFIT FROM PARTICIPATIONS IN GROUP COMPANIES 2021 2020 Dividends 7.2 13.3 Impairment - - Total 7.2 13.3 104 | GARO ANNUAL REPORT NOTES – PARENT COMPANY NOTE 23. APPROPRIATIONS 2021 2020 Difference between recognized depreciation/ amortization and depreciation/amortization according to plan 0.8 0.8 Group contributions received, net 47.0 6.0 Total 47.8 6.8 NOTE 24. RELATED PARTIES The following transactions took place with related parties: PURCHASES AND SALES TO SUBSIDIARIES 34% (46) of the Parent Company’s sales comprise sales to Group companies, and 35% (45) of the Parent Company’s pur- chases comprise purchases from Group companies. Sales to subsidiaries comprise goods and services. Purchases from subsidiaries comprise goods. Services are sold to subsidiar- ies on the basis of normal commercial terms and conditions. 2021 2020 Purchase of services Consulting services from Board members, Jan–May (Ekonomerna i Sverige AB) 0.1 0.6 Operations and services purchased from parties related to the Chairman of the Board (Jan–May) 0.1 0.7 Electrical installation services purchased from parties related to the Chairman of the Board (Jan–May) 0 0.1 Total 0.2 1.4 The services described above were purchased on normal commercial terms and conditions. On the balance-sheet date, no liabilities had been recognized against the related-party purchases described above. NOTE 25. EVENTS AFTER THE END OF THE FISCAL YEAR On January 1, 2022, the business areas GARO Electriﬁcation and GARO E-mobility replaced the previous business areas of GARO Sweden and GARO International. In addition, a decision was made to invest in a new produc- tion and logistics facility in Poland with construction starting in the second quarter of 2022. The expected investment will amount to about MSEK 85. At the time of writing, the situation in Ukraine and the COVID-19 pandemic are not assessed to have any notable impact for GARO and its operations. However, due to the situation unfolding in Ukraine, uncertainty prevails concerning future access to components. NOTE 26. PROPOSED APPROPRIATION OF PROFIT The Group’s retained earnings in accordance with the consoli- dated balance sheet amounted to MSEK 528.6 (407.4). The following proﬁt is at the disposal of the Annual General Meeting: (SEK) Opening retained earnings 241,330,970 Provisions to fund for own work, development expenditure -40,514,361 Net income for the year 98,299,387 Total 299,115,996 The Board of Directors proposes that proﬁt be appropriated as follows: – to be distributed to shareholders at SEK 1.40 per share -70,000,000 – to be carried forward 229,115,996 Total 299,115,996 THE BOARD’S STATEMENT ON THE PROPOSED DIVIDENDS The Board believes that the proposed dividend will not prevent the company from fulﬁlling its obligations in the short or long term, nor from making necessary investments. The proposed dividend can thus be justiﬁed with respect to the provisions of Chapter 17, Section 3, paragraphs two and three of the Swed- ish Companies Act. The company’s equity ratio is satisfactory since the operations continue to be conducted proﬁtably. It is deemed that the compa- ny’s liquidity can also be maintained at a satisfactory level. GARO ANNUAL REPORT | 105 SIGNING OF THE ANNUAL REPORT Signing of the Annual Report The consolidated income statement and balance sheet will be presented to the Annual General Meeting for approval on May 11, 2022. The Board and CEO assure that the consolidated ﬁnancial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and provide a true and fair view of the Group’s ﬁnancial position and earnings. The Annual Report was prepared in accordance with generally accepted accounting policies and provides a true and fair view of the Parent Company’s ﬁnancial position and earnings. The Board of Directors’ Report for the Group and the Parent Company provides a fair review of the Group’s and the Parent Company’s operations, ﬁnancial position and earnings and describes the material risks and uncertainty factors faced by the Parent Company and the companies included in the Group. Gnosjö, March 30, 2022 RICKARD BLOMQVIST Chairman SUSANNA HILLESKOG Board member MARTIN ALTHÉN Board member MARI-KATHARINA JONSSON KADOWAKI Board member PATRIK ANDERSSON CEO JOHAN PAULSSON Board member ULF HEDLUNDH Board member JOAKIM FALCK Authorized Public Accountant LARS ÅKE RYDH Board member Our audit report was submitted on April 8, 2022 Ernst & Young AB JONAS LOHTANDER Employee representative 106 | GARO ANNUAL REPORT AUDIT REPORT Audit report REPORT ON THE ANNUAL ACCOUNTS AND CONSOLIDATED ACCOUNTS OPINIONS We have audited the annual accounts and consolidated accounts of GARO AB (publ) for the year 2021. The annual accounts and consolidated accounts of the company are inclu- ded on pages x-y in this document. In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the ﬁnancial position of the parent com- pany as of 31 December 2021 and its ﬁnancial performance and cash ﬂow for the year then ended in accordance with the Annual Accounts Act. The consolidated accounts have been pre- pared in accordance with the Annual Accounts Act and present fairly, in all material respects, the ﬁnancial position of the group as of 31 December 2021 and their ﬁnancial performance and cash ﬂow for the year then ended in accordance with Internatio- nal Financial Reporting Standards (IFRS), as adopted by the EU, and the Annual Accounts Act. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts. We therefore recommend that the general meeting of share- holders adopts the income statement and balance sheet for the parent company and the statement of comprehensive income and statement of ﬁnancial position for the group. Our opinions in this report on the annual accounts and conso- lidated accounts are consistent with the content of the additional report that has been submitted to the parent company’s audit committee in accordance with the Audit Regulation (537/2014) Article 11. BASIS FOR OPINIONS We conducted our audit in accordance with International Standards on Auditing (ISA) and generally accepted auditing standards in Sweden. Our responsibilities under those stan- dards are further described in the Auditor’s Responsibilities section. We are independent of the parent company and the group in accordance with professional ethics for accountants in Sweden and have otherwise fulﬁlled our ethical responsibili- ties in accordance with these requirements. This includes that, based on the best of our knowledge and belief, no prohibited services referred to in the Audit Regulation (537/2014) Article 5.1 have been provided to the audited company or, where applicable, its parent company or its controlled companies within the EU. We believe that the audit evidence we have obtained is sufﬁcient and appropriate to provide a basis for our opinions. KEY AUDIT MATTERS Key audit matters of the audit are those matters that, in our pro- fessional judgment, were of most signiﬁcance in our audit of the annual accounts and consolidated accounts of the current period. These matters were addressed in the context of our audit of, and in forming our opinion thereon, the annual accounts and conso- lidated accounts as a whole, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulﬁlled the responsibilities described in the Auditor’s responsibilities for the audit of the ﬁnancial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the ﬁnancial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompa- nying ﬁnancial statements. OBSOLESCENCE IN INVENTORIES Description How our audit addressed this key audit matter It appears from the group’s reporting of the ﬁnancial standing as at 31-12-2021 that the reported value of the inventory amounts to MSEK 242,1. In the indu- stries in which the group operates, the product development rate and innova- tion driving force are high. This means that business management and the board of directors must evaluate and assess on an ongoing basis how the company’s products should be priced taking into account market demand. The innovation driving force in com- bination with the size of the inventory and the fact that the management and the board of directors make appraisals and assessments of the obsolescence of the inventory, means that obsole- scence is assessed as being a speciﬁ- cally signiﬁcant area of our audit. Notes 2.12, 3.1 a (ii) and (iii) and note 4 describe, among other things, the evaluation and risks associated with inventories. In our audit, we have reviewed the assessment of obsolescence of all units including through follow-up of inertia with the information about inventory movements from the statement of the inventory. We have also checked whether the use of the obsolescence model is consistent over the years and assessed assumptions made in the obsole- scence model. The assumptions are made at different levels of the group and include both deci- sion-makers in individual compa- nies and the group management team. In addition, our audit has included a review of the mana- gement protocol and discussions with the company management on the development of new products. We have reviewed the information obtained in the ﬁnan- cial statement. To the general meeting of the shareholders of GARO AB (publ), corporate identity number 556051-7772 THIS IS A TRANSLATION FROM THE SWEDISH ORIGINAL GARO ANNUAL REPORT | 107 AUDIT REPORT OTHER INFORMATION THAN THE ANNUAL ACCOUNTS AND CONSOLIDATED ACCOUNTS This document also contains other information than the annual accounts and consolidated accounts and is found on pages [A-B]. The remuneration report for the ﬁnancial year 2021 also constitutes other information. The Board of Directors and the Managing Director are responsible for this other information. Our opinion on the annual accounts and consolidated accounts does not cover this other information and we do not express any form of assurance conclusion regarding this other information. In connection with our audit of the annual accounts and conso- lidated accounts, our responsibility is to read the information identiﬁed above and consider whether the information is mate- rially inconsistent with the annual accounts and consolidated accounts. In this procedure we also take into account our know- ledge otherwise obtained in the audit and assess whether the information otherwise appears to be materially misstated. If we, based on the work performed concerning this infor- mation, conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. RESPONSIBILITIES OF THE BOARD OF DIRECTORS AND THE MANAGING DIRECTOR The Board of Directors and the Managing Director are respon- sible for the preparation of the annual accounts and consolidated accounts and that they give a fair presentation in accordance with the Annual Accounts Act and, concerning the consolidated accounts, in accordance with IFRS as adopted by the EU. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error. In preparing the annual accounts and consolidated accounts, The Board of Directors and the Managing Director are respon- sible for the assessment of the company’s and the group’s ability to continue as a going concern. They disclose, as applicable, matters related to going concern and using the going concern basis of accounting. The going concern basis of accounting is however not applied if the Board of Directors and the Managing Director intends to liquidate the company, to cease operations, or has no realistic alternative but to do so. The Audit Committee shall, without prejudice to the Board of Director’s responsibilities and tasks in general, among other things oversee the company’s ﬁnancial reporting process. AUDITOR’S RESPONSIBILITY Our objectives are to obtain reasonable assurance about whether the annual accounts and consolidated accounts as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opi- nions. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and generally accepted auditing standards in Sweden will always detect a material misstatement when it exists. Misstate- ments can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to inﬂuence the economic decisions of users taken on the basis of these annual accounts and consolidated accounts. As part of an audit in accordance with ISAs, we exercise pro- fessional judgment and maintain professional skepticism throug- hout the audit. We also: • Identify and assess the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error, design and perform audit procedures respon- sive to those risks, and obtain audit evidence that is sufﬁcient and appropriate to provide a basis for our opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of the company’s internal control relevant to our audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors and the Managing Director. • Conclude on the appropriateness of the Board of Directors’ and the Managing Director’s use of the going concern basis of accounting in preparing the annual accounts and consolidated accounts. We also draw a conclusion, based on the audit evidence obtained, as to whether any material uncertainty exists related to events or conditions that may cast signiﬁcant doubt on the company’s and the group’s ability to continue as a going concern. If we conclude that a mate- rial uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the annual accounts and consolidated accounts or, if such disclosures are inadequate, to modify our opinion about the annual accounts and consolidated accounts. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause a company and a group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the annual accounts and consolidated accounts, including the disclosures, and whether the annual accounts and consolida- ted accounts represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufﬁcient and appropriate audit evidence regarding the ﬁnancial information of the entities or business activities within the group to express an opinion on the consolidated accounts. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our opinions. We must inform the Board of Directors of, among other matters, the planned scope and timing of the audit. We must also inform 108 | GARO ANNUAL REPORT AUDIT REPORT of signiﬁcant audit ﬁndings during our audit, including any signi- ﬁcant deﬁciencies in internal control that we identiﬁed. We must also provide the Board of Directors with a statement that we have complied with relevant ethical requirements regar- ding independence, and to communicate with them all relations- hips and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or related safeguards applied. From the matters communicated with the Board of Directors, we determine those matters that were of most signiﬁcance in the audit of the annual accounts and consolidated accounts, including the most important assessed risks for material misstate- ment, and are therefore the key audit matters. We describe these matters in the auditor’s report unless law or regulation precludes disclosure about the matter. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS REPORT ON THE AUDIT OF THE ADMINISTRATION AND THE PROPOSED APPROPRIATIONS OF THE COMPANY’S PROFIT OR LOSS Opinions In addition to our audit of the annual accounts and consolidated accounts, we have also audited the administration of the Board of Directors and the Managing Director of GARO AB (publ) for the year 2021 and the proposed appropriations of the compa- ny’s proﬁt or loss. We recommend to the general meeting of shareholders that the proﬁt be appropriated (loss be dealt with) in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the ﬁnancial year. Basis for opinions We conducted the audit in accordance with generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor’s Responsibilities section. We are independent of the parent company and the group in accordance with professional ethics for accountants in Sweden and have otherwise fulﬁlled our ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufﬁ- cient and appropriate to provide a basis for our opinions. Responsibilities of the Board of Directors and the Managing Director The Board of Directors is responsible for the proposal for app- ropriations of the company’s proﬁt or loss. At the proposal of a dividend, this includes an assessment of whether the dividend is justiﬁable considering the requirements which the company’s and the group’s type of operations, size and risks place on the size of the parent company’s and the group’s equity, consolida- tion requirements, liquidity and position in general. The Board of Directors is responsible for the company’s organization and the administration of the company’s affairs. This includes among other things continuous assessment of the company’s and the group’s ﬁnancial situation and ensuring that the company’s organization is designed so that the accounting, management of assets and the company’s ﬁnancial affairs otherwise are controlled in a reassuring manner. The Managing Director shall manage the ongoing administration according to the Board of Directors’ guidelines and instructions and among other matters take measures that are necessary to fulﬁll the company’s accounting in accordance with law and handle the management of assets in a reassuring manner. Auditor’s responsibility Our objective concerning the audit of the administration, and thereby our opinion about discharge from liability, is to obtain audit evidence to assess with a reasonable degree of assurance whether any member of the Board of Directors or the Managing Director in any material respect: • has undertaken any action or been guilty of any omission which can give rise to liability to the company, or • in any other way has acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. Our objective concerning the audit of the proposed appropri- ations of the company’s proﬁt or loss, and thereby our opinion about this, is to assess with reasonable degree of assurance whether the proposal is in accordance with the Companies Act. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with generally accepted auditing standards in Sweden will always detect actions or omissions that can give rise to liability to the company, or that the proposed appropriations of the company’s proﬁt or loss are not in accordance with the Companies Act. As part of an audit in accordance with generally accepted auditing standards in Sweden, we exercise professional judgment and maintain professional skepticism throughout the audit. The examination of the administration and the proposed appropri- ations of the company’s proﬁt or loss is based primarily on the audit of the accounts. Additional audit procedures performed are based on our professional judgment with starting point in risk and materiality. This means that we focus the examination on such actions, areas and relationships that are material for the opera- tions and where deviations and violations would have particular importance for the company’s situation. We examine and test decisions undertaken, support for decisions, actions taken and other circumstances that are relevant to our opinion concerning discharge from liability. As a basis for our opinion on the Board of Directors’ proposed appropriations of the company’s proﬁt or loss we examined the Board of Directors’ reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act. THE AUDITOR’S EXAMINATION OF THE ESEF REPORT Opinion In addition to our audit of the annual accounts and consolidated accounts, we have also examined that the Board of Directors and the Managing Director have prepared the annual accounts GARO ANNUAL REPORT | 109 AUDIT REPORT and consolidated accounts in a format that enables uniform electronic reporting (the Esef report) pursuant to Chapter 16, Section 4(a) of the Swedish Securities Market Act (2007:528) for GARO AB (publ) for the ﬁnancial year 2021. Our examination and our opinion relate only to the statutory requirements. In our opinion, the ESEF report #[checksum] has been prepa- red in a format that, in all material respects, enables uniform electronic reporting. Basis for opinion We have performed the examination in accordance with FAR’s recommendation RevR 18 Examination of the ESEF report. Our responsibility under this recommendation is described in more detail in the Auditors’ responsibility section. We are independent of GARO AB (publ) in accordance with professional ethics for accountants in Sweden and have otherwise fulﬁlled our ethical responsibilities in accordance with these requirements. We believe that the evidence we have obtained is sufﬁcient and appropriate to provide a basis for our opinion. Responsibilities of the Board of Directors and the Managing Director The Board of Directors and the Managing Director are respon- sible for the preparation of the Esef report in accordance with Chapter 16, Section 4(a) of the Swedish Securities Market Act (2007:528), and for such internal control that the Board of Directors and the Managing Director determine is necessary to prepare the Esef report without material misstatements, whether due to fraud or error. Auditor’s responsibility Our responsibility is to obtain reasonable assurance whether the Esef report is in all material respects prepared in a format that meets the requirements of Chapter 16, Section 4(a) of the Swedish Securities Market Act (2007:528), based on the proce- dures performed. RevR 18 requires us to plan and execute procedures to achieve reasonable assurance that the Esef report is prepared in a format that meets these requirements. Reasonable assurance is a high level of assurance, but it is not a guarantee that an engagement carried out according to RevR 18 and generally accepted auditing standards in Sweden will always detect a material misstatement when it exists. Misstate- ments can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expec- ted to inﬂuence the economic decisions of users taken on the basis of the Esef report. The audit ﬁrm applies ISQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and other Assurance and Related Services Engagements and accordingly maintains a comprehensive system of quality control, including documented policies and procedures regarding compliance with professional ethical requirements, professional standards and legal and regulatory requirements. The examination involves obtaining evidence, through various procedures, that the Esef report has been prepared in a format that enables uniform electronic reporting of the annual and consolidated accounts. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of mate- rial misstatement in the report, whether due to fraud or error. In carrying out this risk assessment, and in order to design audit procedures that are appropriate in the circumstances, the auditor considers those elements of internal control that are relevant to the preparation of the Esef report by the Board of Directors and the Managing Director, but not for the purpose of expressing an opinion on the effectiveness of those internal controls. The exa- mination also includes an evaluation of the appropriateness and reasonableness of assumptions made by the Board of Directors and the Managing Director. The procedures mainly include a technical validation of the Esef report, i.e. if the ﬁle containing the Esef report meets the technical speciﬁcation set out in the Commission’s Delegated Regulation (EU) 2019/815 and a reconciliation of the Esef report with the audited annual accounts and consolidated accounts. Furthermore, the procedures also include an assessment of whether the Esef report has been marked with iXBRL which ena- bles a fair and complete machine-readable version of the conso- lidated statement of ﬁnancial performance, ﬁnancial position, changes in equity and cash ﬂow. Ernst & Young AB, Box 2224, 550 02 Jönköping, was appointed auditor of GARO AB by the general meeting of the shareholders on the 5 May 2021 and has been the company’s auditor since the 4 May 2017. Jönköping 8 April, 2022 Ernst & Young AB Joakim Falck Authorized Public Accountant 110 | GARO ANNUAL REPORT CORPORATE GOVERNANCE REPORT Corporate governance report GARO AB (publ) is a Swedish public limited liability company and is therefore regulated in part by Swedish legislation, primarily through the Swed -ish Companies Act, in part by Nasdaq Stock-holm’s Rulebook for Issuers that requires the application of the Swedish Corporate Governance Code (the “Code”). GARO has its registered ofﬁce in Gnosjö Municipality, Jönköping County, has applied the Code since 2016 and provides the Corporate Governance Report for the 2021 ﬁscal year here. The Corporate Governance Report has been audited by the company’s auditors. Guidelines on the Code are available on the website for the Swedish Corporate Governance Board (www.corporategover- nanceboard.se). The Code is based on the principle of “comply or explain”, which means that companies that apply the Code can deviate from individual rules, but then provide an explana- tion for the deviation. GARO made no such deviations in 2021. Nor has GARO breached Nasdaq Stockholm’s Rulebook for Issuers or good practice on the stock market. SHAREHOLDERS AND GENERAL MEETING The shareholders’ right to decide on GARO’s affairs is exercised at the Annual General Meeting (or if applicable, the Extraordinary General Meeting), which is GARO’s highest decision-making body. The Annual General Meeting (AGM) is held in Gnosjö, Malmö or Stockholm every calendar year before the end of June. An Extraordinary General Meeting is held when necessary. The General Meeting passes resolutions on a number of mat- ters, including the adoption of the income statement and balance sheet, appropriation of GARO’s proﬁt or loss, discharge from liability to the company for the members of the Board and the CEO, the composition of the Nomination Committee, election of the Board members (including the Chairman of the Board) and the auditor, remuneration of Board members and auditors, guidelines for the remuneration of senior executives and any changes to the Articles of Association. The company’s Articles of Association contain no limitations regarding how many votes each shareholder can exercise at a General Meeting. The company’s Articles of Association contain no provisions regarding appointment or dismissal of Board mem- bers or amendments to the Articles. There were 14,473 shareholders (8,774) at year-end. The largest single shareholder is Lars Svensson whose total owner- ship amounted to 35.7% (35.7). For more information on the ownership structure, share capital, share price development, etc., please refer to the section on the GARO share on pages 52–53 and to Note 20 in this Annual Report. ANNUAL GENERAL MEETING 2021 At GARO’s Annual General Meeting on May 5, 2021, Rickard Blomqvist, Susanna Hilleskog, Lars-Åke Rydh, Ulf Hedlundh and Mari-Katharina Jonsson Kadowaki were re-elected and was Martin Althén and Johan Paulsson were elected as new Board members. Rickard Blomqvist was elected as the new Chairman. Stefan Jonsson had declined re-election. IF Metall’s Jonas Lohtander was also elected as employee representative. Board fees were decided to be paid in a total amount of SEK 2,100,000, of which SEK 600,000 was to the Chairman and SEK 250,000 to each of the other elected Board members who are not employed in the Group. This entailed an increase of Board fees by 580,000 compared with 2020, in which one additional Board member was elected in 2021. Adjusted for this, Board fees increased 22%. Furthermore, the AGM resolved that fees to members of the Audit Committee are to consist of SEK 100,000 to the Chairman and SEK 50,000 to each of the other members of the Audit Committee. For members of the Remuneration Committee, fees of SEK 50,000 to the Chairman and SEK 25,000 to each of the other members of the Remu- neration Committee were decided upon. In accordance with the Board’s proposal, the AGM resolved that a dividend of SEK 4.70 would be paid for the 2020 ﬁscal year (SEK 0.94 adjusted for the split). The AGM also adopted guidelines for remuneration of senior executives. NOMINATION COMMITTEE GARO’s Annual General Meeting passes resolutions regarding procedures for the appointment and work of the Nomination Com- The illustration below provides a general description of corporate governance in GARO. Audit Committee Remuneration Committee CEO Group Management External auditors Nomination Committee Annual General Meeting Shareholders Board of Directors GARO ANNUAL REPORT | 111 CORPORATE GOVERNANCE REPORT mittee. The Nomination Committee’s task comprises the preparation and compilation of proposals on the election of Board members, the Chairman of the Board, the Chairman of the General Meeting, and auditors, as well as proposals regarding fees to the Board members, members of any Board committees and the auditor. The Annual General Meeting on May 4, 2017 resolved that the Nomination Committee shall be comprised of representatives of the three largest shareholders in terms of votes as indicated by the share register kept by Euroclear Sweden on August 31 of every year, together with the Chairman of the Board, who shall also convene the ﬁrst meeting of the Nomination Committee. The member representing the largest shareholder by votes shall be appointed the Chairman of the committee. If, before two months prior to the Annual General Meeting, one or more of the share- holders that appointed members to the Nomination Committee are no longer among the three largest shareholders by votes, members appointed by these shareholders shall relinquish their seats on the committee and shareholders that have joined the three largest shareholders by votes shall have the right to appoint one representative each. If a member leaves the Nomination Committee before its work is complete and the Nomination Committee ﬁnds it desirable for a replacement to be appointed, such a replacement shall be obtained from the same shareholder or, if this shareholder is no longer among the largest sharehold- ers by votes, from a shareholder who is next in line in terms of holdings. The composition of the Nomination Committee prior to each AGM shall be published no later than six months before the AGM. No compensation shall be payable to the members of the Nomination Committee. Any necessary overhead costs for the Nomination Committee’s work shall be covered by the company. The Nomination Committee’s mandate period continues until the following Nomination Committee’s composition has been pub- lished. The Nomination Committee’s independence according to the “Code” is considered to be fulﬁlled. EXTERNAL AUDITORS The company’s auditor, elected at the Annual General Meeting, examines GARO’s annual report and consolidated ﬁnancial statements, the Board’s and CEO’s administration, the Board's proposed appropriation of proﬁt or loss for the year, and the annual reports of subsidiaries, and submits an audit report. Ernst & Young AB were reelected auditors at the 2021 Annual General Meeting, with Joakim Falck as Auditor in Charge. The auditor from Ernst & Young participated in parts of the Audit Committee's meetings in 2021 and at the meeting in February 2022, and reported on the observations from the 2021 audit. The audit of the Group’s companies is coordinated by Ernst & Young. The Ernst & Young network audit the Group’s companies, except those in Poland, the UK and Ireland. BOARD OF DIRECTORS COMPOSITION AND INDEPENDENCE According to the Articles of Association, GARO’s Board of Directors shall consist of at least three and at most seven elected members. At the Annual General Meeting on May 5, 2021, seven Board members were elected, two women and ﬁve men. IF Metall also elected an employee representative to be included in the Board. No representative of company management is on the Board. The President and CEO participates in Board meet- ings to present reports. Other ofﬁcers in GARO participate in the Board’s meetings as presenters in particular matters. The compa- ny’s CFO serves as the Board’s secretary. In the Nomination Committee’s reasoned statement ahead of the 2021 AGM, the Nomination Committee stated that the Board applied rule 4.1 of the Code as its diversity policy in preparing its proposals on Board members. The aim of the pol- icy is for the Board to have a composition appropriate to the company’s operations, phase of development and other relevant circumstances. The Board members are collectively to exhibit BOARD OF DIRECTORS AGM-elected Board Elected Born Remu- neration Remunera- tion Audit Committee Remuneration Remuneration Committee Number of shares/ votes Independent in relation to the shareholders Independent in relation to the company No. meetings attended Rickard Blomqvist, Chairman 2015 1971 600,000 50,000 50,000 622,500 No Yes 11/11 Susanna Hilleskog, member 2018 1963 250,000 25,000 0 Yes Yes 11/11 Johan Paulsson, member 2021 1963 250,000 0 Yes Yes 6/6 Ulf Hedlundh, member 2020 1960 250,000 50,000 1,500 Yes Yes 11/11 Martin Althén, member 2021 1968 250,000 0 Yes Yes 6/6 Mari-Katharina Jonsson Kadowaki, member 2019 1964 250,000 25,000 650 Yes Yes 11/11 Jonas Lohtander, employee representative 2019 1974 0 89 Yes No 11/11 Lars-Åke Rydh, member 2018 1953 250,000 100,000 0 25,000 Yes Yes 11/11 TOTAL 2,100,000 200,000 100,000 649,739 NOMINATION COMMITTEE FOR THE 2022 ANNUAL GENERAL MEETING Nomination Committee member Represents Holdings/votes Lars Kongstad, Chairman Lars Svensson 35.7% Ulrik Grönvall Swedbank Robur Funds 9.3% Fredrik Carlsson Svolder AB 8.7% Rickard Blomqvist Chairman 1.2% 112 | GARO ANNUAL REPORT CORPORATE GOVERNANCE REPORT diversity and breadth of qualiﬁcations, experience and back- ground, and the company is to strive for gender balance on the Board. The 2021 AGM resolved to appoint Board members in accordance with the Nomination Committee’s proposals, which resulted in the current Board. The Nomination Committee estab- lished when it prepared its proposals that the gender balance in the proposed Board was not satisfactory. However, the Nomina- tion Committee believed that continuity on the Board was, at the time, of greater importance. In accordance with the Code, a majority of the elected Board members shall be independent in relation to the company and its management. To determine if a Board member is independent, a collective assessment shall be made of all circumstances that can give cause to question the member’s independence in relation to GARO or company management, such as if the Board member was recently employed in GARO or a related company. At least two of the Board members who are independent in relation to the company and company management shall also be indepen- dent in relation to the company’s major shareholders. To assess this independence, the scope of the member’s direct or indirect relationships to major shareholders shall be taken into account. In the Code, major shareholders refers to shareholders who directly or indirectly control 10% or more of the shares or votes in the company. The Nomination Committee’s assessment of the Board mem- bers’ independence in relation to the company, its management and major shareholders is presented in the section “Board, Group Management and auditor.” All Board members are deemed to be independent in relation to the company and its management. Six of them are also independent in relation to the company’s major shareholders. GARO thereby meets the Code’s requirements on independence. For further information concerning the Board members, refer to the section concerning the Board of Directors on page 118 of this Annual Report. RESPONSIBILITY AND WORK The work of the Board of Directors is regulated by the Swedish Companies Act and the Articles of Association. The work of the Board of Directors is also regulated by the written rules of procedure that the Board adopts annually. The rules of proce- dure regulate, among other things, the division of responsibility between the Board, the Chairman of the Board and the CEO, as well as the decision procedure in the Board, the Board’s meet- ing plan and the Board’s work on accounting and audit-related issues and ﬁnancial reporting. The Board of Directors has also established terms of reference for the CEO and adopted other special policy documents. The Board of Directors is responsible for the Group’s organi- zation and management of its affairs, setting the Group’s overall objectives, development and follow-up of the overall strategies, decisions on major acquisitions, divestments and investments, decisions on capital placement and loans in accordance with the ﬁnance policy, continuous follow-up of operations, establishment of interim and year-end reports and the continuous evaluation of the CEO and other members of Group Management. The Board is also responsible for ensuring the quality of the ﬁnancial reporting, including systems for monitoring and internal control of GARO’s ﬁnancial statements and position. The Board shall also ensure that GARO’s external information provisioning is marked by openness and is correct, relevant and clear. At the Board meet- ings, the following items are recurring on the agenda: business status, future prospects and economic and ﬁnancial reporting. The Chairman of the Board monitors GARO’s operations through continuous contacts with the CEO. The Chairman orga- nizes and leads the Board’s work and is thereby responsible for other Board members receiving satisfactory information and decision data. The Chairman is also responsible for the Board continuously updating and deepening its knowledge of GARO and otherwise receiving the training required for the Board work to be able to be conducted effectively. It is also the Chairman who is responsible for ensuring that the Board annually eval- uates its work. An evaluation of the Board was performed in 2021 and the Chairman reported the results to the Board and the Nomination Committee. In 2021, the Board held six ordinary Board meetings and four Board meetings in addition to the statutory meeting. The Board meetings have been devoted to ﬁnancial follow-up of the busi- ness, strategic issues, budget discussions, investment decisions, adoption of policies and instructions and external economic information. Attendance at the Board meetings is presented in the table above. The Board meetings are prepared by the CEO and CFO. The CEO provides the members with written reports and documenta- tion at least ﬁve work days before the respective meeting. Con- tinuously during the year, the Board members received monthly reports, which shed light on the Group’s ﬁnancial and opera- tional development. These reports were prepared jointly by the CEO and CFO. BOARD COMMITTEES According to the Code and the Swedish Companies Act, the Board shall establish a remuneration committee and an audit committee from within its ranks. The CEO participates in the work incumbent on the Remuneration Committee and Audit Committee only as the presenter. The Board of Directors works according to set instructions for issues that are incumbent on the Audit Committee and Remuner- ation Committee. AUDIT COMMITTEE Three of the seven member of the Board comprise the Audit Committee, which performs the duties incumbent on the Audit Committee. The CFO participates in the work incumbent on the Audit Committee only as the presenter. The main duties of the Audit Committee are to monitor GARO’s and the Group’s ﬁnancial reporting, the effectiveness of its internal controls, internal audit and risk management, and keep informed on the audit of the annual report and consoli- dated ﬁnancial statements, examine and monitor the auditor’s impartiality and independence and thereby pay particular atten- tion to whether or not the auditor provides the company services other than audit services. The Audit Committee shall also assist the Nomination Committee with regard to the election of audi- tors. The Audit Committee is in continuous contact with the com- pany’s auditor with the aim of creating a continuous exchange of opinions and information between the company and the audi- tor in audit matters. During the year, the committee held seven GARO ANNUAL REPORT | 113 CORPORATE GOVERNANCE REPORT meetings, of which the company’s auditors participated in four. All Board members have otherwise attended the meetings. REMUNERATION COMMITTEE Three of the seven member of the Board comprise the remu- neration committee, which performs the duties incumbent on the remuneration committee. The remuneration committee has an advisory and a preparatory function for decision matters before discussion and decision by the company’s Board. The remuneration committee works according to a formal work plan that has been adopted by the Board. The main duties of the remuneration committee are to prepare the Board’s decisions in matters that concern remuneration principles, remuneration and other terms of employment for company management, to monitor and evaluate programs for variable remuneration of company management and to monitor and evaluate the application of the guidelines for remuneration to senior executives that the AGM approved and applicable remuneration structures and levels in the company. During the year, the committee held two meetings. At these meetings, all members were present. REMUNERATION OF THE BOARD Remuneration of elected Board members is chosen by the Annual General Meeting according to a proposal from the Nomination Committee. The table on page 83 presents the fees that are pay- able to the elected Board members for the period 2021–2022. CEO AND GROUP MANAGEMENT GARO’s President and CEO as well as the Business Area Manager and CEO of GARO E-mobility AB are responsible for leading and developing operating activities pursuant to the guidelines and instructions issued by the Board. The scope is comprised of written terms of reference for the CEO that are approved annually by the Board. The CEO leads the work of Group Management, which is responsible for overall business development. Besides the CEO, Group Management has consisted of GARO’s CFO, CTO, Pur- chasing & Logistics Director and the Business Area Manager of GARO E-mobility since January 1, 2022. Group Management has meetings once a month to follow up operations, discuss matters affecting the Group and draft pro- posals for strategic plans and budgets, which the CEO presents to the Board for decision. The CEO ensures that the Board receives such factual and relevant information as is required for the Board to be able to make well-supported decisions. The CEO monitors that GARO’s targets, policies and strategic plans set by the Board are com- plied with and is responsible for informing the Board of GARO’s development between the Board's meetings. GUIDELINES FOR REMUNERATION According to the Swedish Companies Act, the General Meeting will resolve on guidelines for remuneration of the CEO and other senior executives. The following guidelines were approved by the Annual General Meeting on May 19, 2020. GARO is to offer remuneration levels and employment condi- tions that are deemed to be reasonable to recruit and retain a management team that is highly skilled and with the right capac- ity for achieving established targets. The overall principle for salaries and other remuneration of GARO senior executives is to be market-based. Senior executives are to receive a ﬁxed salary. Variable cash remuneration can be paid in addition to ﬁxed salary as a reward for clearly deﬁned, target-related performance in the context of a simple and transparent structure. Variable salary for the CEO is not to exceed MSEK 2 (2), including social security contributions, per year and does not comprise pensionable sal- ary. Variable remuneration for other members of senior manage- ment is not to exceed 30 percent of ﬁxed salary. Share-price-related incentive schemes are resolved on by the General Meeting and are not encompassed by these guidelines. Non-monetary beneﬁts for Group Management, such as com- pany cars, computers, mobile phones, additional health insur- ance or occupational health services, may be awarded to the extent that this is deemed market practice for senior executives in equivalent positions in the market in which the company oper- ates. The total value of these beneﬁts may total a small percent- age of total remuneration. Senior executives are encompassed by the ITP plan applicable at any time or a deﬁned-contribution occupational pension plan that does not exceed 30% of pensionable salary. Alternatively, senior executives residing outside Sweden or who are foreign citizens and receive their main pension from a country outside Sweden can be offered different pension solutions that are rea- sonable in the relevant country. Salary for notice periods and severance pay for members of senior management is not to exceed a total of 24 monthly sala- ries for the CEO and 12 monthly salaries for other members. The Board is entitled to deviate from these guidelines if this is justiﬁed by special circumstances in individual cases, provided that this is subsequently reported and reasoning provided. For fur- ther information regarding salaries and remuneration, see Note 8. PERIOD OF NOTICE AND SEVERANCE PAY In the termination of the CEO’s employment contract, there is a period of notice of nine months, regardless of which party terminates the employment. In the event of the termination of the employment contract by GARO, the CEO also has a right to sev- erance pay equivalent to six monthly salaries. For other senior executives, there is a period of notice of six to 12 months in the event of termination of the employment contract by GARO. Upon resignation by the employee, there is a period of notice of three to six months. In addition to the CEO, the senior executives are not entitled to severance pay. EXTERNAL AUDIT The Annual General Meeting elects an external audit for one year at a time. The auditor examines the annual report and accounts and the Board’s and CEO’s management, and works according to an audit plan that is established in consultation with the Board. In connection with the audit, the auditor reports his or her observations to Group Management for reconciliation, and then to the Board. The Audit Committee meets the auditor at least once a year when the auditor reports his or her observa- tions directly to the Committee without the presence of GARO’s CEO or CFO. The auditor lastly participates in the Annual Gen- eral Meeting where he or she brieﬂy presents the audit work and the recommendation in the audit report. 114 | GARO ANNUAL REPORT CORPORATE GOVERNANCE REPORT INTERNAL AUDIT GARO has well-developed governance and internal control systems. The Board of Directors follows up on the management’s assessment of the internal controls. In light of the above, the Board chose not to establish a separate internal audit. DIVERSITY With regard to diversity, refer to the company’s Sustainability Report on pages 34–49 in this Annual Report. INTERNAL CONTROL The Board’s and CEO’s responsibility for internal control is regu- lated in the Swedish Companies Act. The Board’s responsibility is also regulated in the Code and the Annual Accounts Act, which also contain requirements on annual external information disclosures regarding how the internal control is organized inso- far as it pertains to ﬁnancial reporting. The aim of the internal control is in part to ensure that GARO’s objectives are achieved in terms of suitable and effective oper- ations, reliable reporting and compliance to applicable laws and ordinances. Internal control regarding ﬁnancial reporting intends to provide reasonable certainty regarding the reliability of the external ﬁnancial reporting and that the external ﬁnancial reporting is prepared in accordance with law and applicable accounting standards. CONTROL ENVIRONMENT The Board of Directors bears the overall responsibility for inter- nal control of the ﬁnancial reporting. With the aim of creating and maintaining a functioning control environment, the Board has established a number of basic documents of signiﬁcance to the ﬁnancial reporting. This particularly concerns the Board’s rules of procedure and terms of reference to the CEO. The Board ensures that established principles for ﬁnancial reporting and internal control are complied with. The responsibility for main- taining an effective control environment and the daily work with internal control regarding the ﬁnancial reporting is delegated to the CEO. The CEO regularly reports to the Board based on established procedures. The internal control structure is also based on a management system based on GARO’s organization with clear ﬁnancial roles, areas of responsibility and delegation of powers. Operational decisions are made at the company or business area level while decisions on strategy, overall ﬁnancial issues, acquisitions and major investments are made by GARO’s Board and Group Management. The steering documents concerning accounting and ﬁnancial reporting constitute the most signiﬁcant parts of the control environment when it comes to ﬁnancial reporting. These documents are continuously updated in the event of changes of e.g. accounting standards and legislation. RISK ASSESSMENT With regard to ﬁnancial risk assessment, the risk that errors may be made when reporting the company’s ﬁnancial position and results is considered the primary risk. To minimize this risk, control documents have been established pertaining to account- ing, procedures for annual accounts and follow-up of reported annual accounts. A Group-wide system for reporting annual accounts has also been introduced. The Board deals with the outcome of the company’s processes for risk assessment and risk management, in order to ensure that these cover all signiﬁcant areas, and establishes, when appro- priate, any necessary measures to be implemented. In addition to assessing the risks in the ﬁnancial reporting, the Board and management work continuously to identify and manage signif- icant risks affecting GARO’s business from an operational and ﬁnancial perspective. Read more about the risks on page 68, Note 3 in this Annual Report. CONTROL ACTIVITIES The risks that have been identiﬁed regarding the ﬁnancial reporting are handled through GARO’s control activities, such as authorization controls in IT systems and approval controls. The control structure consists of clear roles in the organization that enables an effective division of responsibilities of speciﬁc control activities that aim to discover or prevent the risk of errors in the reporting on time. The continuous analysis done of the ﬁnancial reporting together with the analysis done at the Group level is very important to ensure that ﬁnancial reporting does not contain any material misstatements. The Group’s controller orga- nization plays an important role in this internal control process, which is responsible for ensuring that ﬁnancial reporting from each unit is correct, complete and delivered in a timely manner. INFORMATION AND COMMUNICATION The Group has information and communication channels that aim to promote completeness and accuracy in the ﬁnancial reporting. Policies, guidelines and internal instructions regard- ing the ﬁnancial reporting are available in electronic form over GARO’s intranet and on the company’s website. Regular updates and messages regarding changes of accounting poli- cies, reporting requirements or other information disclosures are made available and known to the concerned employees. MONITORING, EVALUATION AND REPORTING The CEO is responsible for the internal control being organized and followed up according to the guidelines that the Board has established. The CEO is also responsible for ensuring indepen- dent objective audits are done with the aim of systematically evaluating and proposing improvements of the Group's processes for governance, internal control and risk management. Financial governance and control are carried out by local accounting func- tions and the Group accounting function. GARO’s management conducts a monthly earnings follow-up with an analysis of devi- ations from budget, forecast and previous years and all monthly closings are discussed with the management of the respective segments. The Board of Directors is sent monthly ﬁnancial state- ments and the ﬁnancial reporting is followed up at every Board meeting. Prior to publication of the annual report, the Board and management go through the ﬁnancial reporting. The Corporate Governance Report has been audited by the company’s auditor. Gnosjö, April 8, 2022 The Board of Directors GARO ANNUAL REPORT | 115 AUDITOR’S REPORT Auditor’s report on the corporate governance statement To the general meeting of the shareholders of GARO AB (publ), corporate identity number 556051-7772 ENGAGEMENT AND RESPONSIBILITY It is the Board of Directors who is responsible for the corporate governance statement for the year 2021 on pages 110–114 and that it has been prepared in accordance with the Annual Accounts Act. THE SCOPE OF THE AUDIT Our examination has been conducted in accordance with FAR’s auditing standard RevR 16 The auditor’s examination of the cor- porate governance statement. This means that our examination of the corporate governance statement is different and substan- tially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. We believe that the examination has provided us with sufﬁcient basis for our opinions. OPINIONS A corporate governance statement has been prepared. Disclo- sures in accordance with chapter 6 section 6 the second para- graph points 2-6 the Annual Accounts Act and chapter 7 section 31 the second paragraph the same law are consistent with the annual accounts and the consolidated accounts and are in accordance with the Annual Accounts Act. Jönköping 8 April 2022 Ernst & Young AB Joakim Falck Authorized Public Accountant THIS IS A TRANSLATION FROM THE SWEDISH ORIGINAL 116 | GARO ANNUAL REPORT ORGANIZATION AND STRUCTURE Organization and structure The GARO Group’s Board of Directors comprises a total of eight people under the management of Rickard Blomqvist, Chairman of the Board. Since January 1, 2022, operations have been divided in to two business areas: GARO Electriﬁcation, which consists of the three product areas of Electrical distribution products, Project business & Temporary Power, and GARO E-mobility which includes the E-mobility product area. President and CEO Patrik Andersson leads Group Management (which has comprised of ﬁve people since January 1, 2022), following the Board’s guidelines. Group Management comprises the functions accord- ing to the organizational chart below. President and CEO Purchasing & Logistics Director Board of Directors GARO E-mobility CFO Business Area Manager GARO E-mobility GARO Electriﬁcation CTO 118 | GARO ANNUAL REPORT ORGANIZATION AND STRUCTURE Board of Directors LARS-ÅKE RYDH MEMBER SINCE 2018 BORN: 1953 Education and professional experience: Master of Engineering, Institute of Tech- nology at Linköping University. Former President and CEO of Nefab AB and Board Chairman of OEM International AB (publ). Other ongoing assignments: Chair- man of Danfo AB, Chiffonjén AB, Prototypen AB, Schuchardt Maskin AB and Kooperativet Olja. Board member of Nolato AB, Nefab AB, Söderbergs- företagen AB, Spectria Fond AB and Östrand & Hansen AB. Shareholdings: 25,000 MARTIN ALTHÉN MEMBER SINCE 2021 BORN: 1968 Education and professional experience: M.Sc. in Industrial Economics, Linköping University. Has held several senior positions in Husqvarna Group, AstraZeneca, PA Consulting and Deloitte. Other ongoing assignments: Group CIO of Securitas AB and CEO of Securitas Intelligent Services AB since 2016 Shareholdings: – MARI-KATHARINA KADOWAKI MEMBER SINCE 2019 BORN: 1964 Education and professional experience: M.Sc. from Linköping University. Long operational experience of the electricity and manufacturing industry, including as site manager within the Electrolux Group and today as CEO of the Swedish part of the battery manufacturer Saft. Other ongoing assignments: Vice Chairman of Teknikarbetsgivarna in Sweden and the Association of Swedish Engineering Industries (Teknikföretagen) in Sweden. Shareholdings: 650 JONAS LOHTANDER EMPLOYEE REPRESENTATIVE SINCE 2019 BORN: 1974 Education and professional experience: Trained electrician. Has worked at GARO since 2012. Other ongoing assignments: Safety representative, Chairman of GARO’s workshop association at IF Metall Shareholdings: 89 JOHAN PAULSSON MEMBER SINCE 2021 BORN: 1963 Education and professional experience: M.Sc. in Electrical Engineering. Extensive experience through previous positions as COO and Head of R&D at Ericsson Mobile Platforms AB Other ongoing assignments: CTO of Axis Communications AB and Board member of Acconeer AB. Shareholdings: – RICKARD BLOMQVIST CHAIRMAN SINCE 2021 AND MEMBER SINCE 2015 BORN: 1971 Education and professional experience: M.Sc. and B.Sc. in Business and Eco- nomics, Halmstad University. CEO of Volador AB. Former CFO of the Akka- FRAKT Group, Business Development Manager at Hilding Anders International AB, and CFO of Hedson Technologies International AB (publ). Other ongoing assignments: Board member of Volador AB, Volador Busi- ness Development AB, Ekonomerna Holding Sverige AB and Ekonomerna Family Ofﬁce AB and Ekonomerna Family Ofﬁce AB. Shareholdings: 622,500 (privately and via company) ULF HEDLUNDH MEMBER SINCE 2020 BORN: 1960 Education and professional experience: M.Sc. in Business and Economics, Stockholm School of Economics, CEO of Investment AB Helikon. Senior positions in the Alfred Berg Group. Other ongoing assignments: CEO of Svolder AB (publ) and Board member of Arla Plast AB. Shareholdings: 1,500 SUSANNA HILLESKOG MEMBER SINCE 2018 BORN: 1963 Education and professional experience: Master of Economics, Lund University. Several senior positions at Akzo Nobel and the Trelleborg Group, and previously a Board member of ProﬁlGruppen AB (publ). Other ongoing assignments: CEO of Trelleborg Wheel Systems Nordic AB and Board member of BIM Kemi AB, Lammhults Design Group AB, Holm- bergs First Holding AB and Gullberg & Jansson AB. Shareholdings: – GARO ANNUAL REPORT | 119 ORGANIZATION AND STRUCTURE Group Management At January 1, 2022 HÅKAN DAVIDSSON PURCHASING & LOGISTICS DIRECTOR, EMPLOYED SINCE 2018 BORN: 1968 Education and professional experience: Technical college graduate and business administration. Former CEO of STEELO AB (Lagercrantz Group), joint owner and Site Manager MSA Sordin (part of MSA Group), Production Engineering Manager and Head of Operations in the Aearo Peltor Group, as well as sales of business platforms at 20 Hundra AB. Other ongoing assignments: – Shareholdings: – NIKLAS RÖNNÄNG BUSINESS AREA MANAGER E -MOBILITY, AND CEO GARO E-MOBILITY AB EMPLOYED SINCE 2022 BORN: 1970 Education and professional experience: Technical college graduate and busi- ness administration. Previous served as Sales Director for NIBE AB for eight years. Prior to this, 16 years at SCA Packaging, serving as Sales and Development Director for the ﬁnal eight years. Other ongoing assignments: – Shareholdings: 2,050 HELENA CLAESSON CFO EMPLOYED SINCE 2019 BORN: 1969 Education and professional experience: Bachelor of Science in Economics, Jönköping University, Business Manage- ment, IFL Stockholm University. Former CEO at Sensys Gatso Sweden AB and CFO at Sensys Trafﬁc AB. Other ongoing assignments: – Shareholdings: 550 PATRIK ANDERSSON PRESIDENT AND CEO EMPLOYED SINCE 2007 BORN: 1978 Education and professional experience: Electrician program. Former western and southern regional sales manager for Eldon Group. Other ongoing assignments: Chair- man of El- och Belysningsföretagen i Sverige AB. Shareholdings: 204,200 DANIEL EMILSSON CTO EMPLOYED SINCE 2007 BORN: 1975 Education and professional experience: Electrical and telecom upper-secondary program. MS in Engineering Physics, Entrepreneur Program 40 credits at University of Gothenburg School of Business, Economics and Law. Various senior positions in development and sales and President of the telecom company Comhat AB in Ödsmål, Sweden. Other ongoing assignments: Chair- man of Kjellbergs Golv & Textil AB Shareholdings: 5,000 Södergatan 26, SE-335 33 GNOSJÖ, SWEDEN | +46 (0)370 33 28 00 | garo.se and garoemobility.se

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