==> picture [402 x 332] intentionally omitted <==

2021 Annual report

Consolidated annual report for the year ended 31 December 2021 and the consolidated and the parent company’s financial statements prepared according to International Financial Reporting Standards as adopted by the European Union and presented together with the independent auditor’s report for the year ended 31 December 2021

Annual report 2021

Contents »

Ignitis Group – creating an energy smart world

Who we are

Ignitis Group is a leading utility and renewable energy group in the Baltic region.

Our core business is focused on operating electricity distribution Network and managing and developing Green Generation portfolio.

We also manage strategically important Flexible Generation assets and provide Customers & Solutions services, including the supply of electricity and natural gas, solar, e-mobility, improved energy efficiency and innovative energy solutions for households and businesses.

==> picture [444 x 209] intentionally omitted <==

==> picture [35 x 35] intentionally omitted <==

==> picture [36 x 35] intentionally omitted <==

Networks

Resilient and efficient energy distribution networks enabling the energy transition.

Green Generation

Focused, sustainable and profitable growth.

Flexible Generation Customers & Solutions Reliable and flexible Innovative solutions for easier power system. life and energy evolution.

2 / 364

GRI 102-1

Annual report 2021

1	Overview 4	Overview 4
	1.1	CEO’s statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
	1.2	Business highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
	1.3	Performance highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
	1.4	Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
	1.5	Sustainability highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
	1.6	Investor information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2	Business overview 20
	2.1	Business profle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
	2.2	Market presence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
	2.3	Strategy and targets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
	2.4	Business environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3	Results 45
	3.1	Annual results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
	3.2	Results by business segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
	3.3	Five-year annual summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
	3.4	Results Q4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
	3.5	Quarterly summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
4	Governance report 76
	4.1	Supervisory Board Chair’s statement . . . . . . . . . . . . . . . . . . . . . . . . . 77
	4.2	Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
	4.3	Supervisory Board and commitees . . . . . . . . . . . . . . . . . . . . . . . . . . 84
	4.4	Audit Commitee report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
	4.5	Management Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
	4.6	Remuneration report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
	4.7	Risk and risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
	4.8	Information about the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

5	Sustainability (Corporate Social Responsibility)	Sustainability (Corporate Social Responsibility)
	report 133
	5.1	About the sustainability (Corporate Social Responsibility)
		report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
	5.2	Sustainability (Corporate Social Responsibility) report
		overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
	5.3	Sustainability at the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
	5.4	Climate action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
	5.5	Preserving natural resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
	5.6	Future-ft employees and communities . . . . . . . . . . . . . . . . . . . . . . . 161
	5.7	Robust organisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180
	5.8	Memberships and partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192
	5.9	GRI Content Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
6	Financial statements 196
	6.1	Consolidated fnancial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 197
	6.2	Parent company’s fnancial statements . . . . . . . . . . . . . . . . . . . . . . . 276
	6.3	Independent auditor’s report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311
	6.4	Information on the auditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327
7	Further information 328
	7.1	Further investor related information . . . . . . . . . . . . . . . . . . . . . . . . . . 329
	7.2	Material events of the parent company . . . . . . . . . . . . . . . . . . . . . . 331
	7.3	Alternative performance measures . . . . . . . . . . . . . . . . . . . . . . . . . . 335
	7.4	Compliance with the Guidelines for Ensuring the
		Transparency of State-Controlled enterprises . . . . . . . . . . . . . . . . 339
	7.5	Compliance with the Corporate Governance Code . . . . . . . . . 342
	7.6	Other statutory information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358
8	Glossary 359
9	Certifcation statement 362

3 / 364

Overview

==> picture [284 x 89] intentionally omitted <==

----- Start of picture text -----

|||
|---|---|
|1.1 CEO’s statement|5|
|1.2 Business highlights|9|
|1.3 Performance highlights|12|
|1.4 Outlook|14|
|1.5 Sustainability highlights|15|
|1.6 Investor information|17|

----- End of picture text -----

Annual report 2021 / Overview

Contents »

1 .1 CEO’s statement

Highlights

Financials

Adjusted EBITDA grew by 35.2% to EUR 332.7 million. Green Generation result increased more than twofold, reaching EUR 107.5 million, and now accounts for 1/3 of our business.

2021 Adjusted EBITDA guidance of EUR 300–310 million was surpassed by 7.3%.

In line with the Dividend Policy, for 2021 we intend to distribute a dividend of EUR 1.19 per share[1] , corresponding to EUR 87.6 million and a yield of 5.7% for ordinary registered shareholders, and – 5.8% for GDR holders (considering the year-end closing prices).

Business development

We expanded Green Generation installed capacity by 113 MW after the CODs of Vilnius CHP’s WtE unit (19 MWe, 60 MWth) and Pomerania WF (94 MW).

Our pipeline further increased by up to 460 MW after acquiring wind farm projects in Latvia and Poland, a solar portfolio in Poland and the start of greenfield development by securing land plots for onshore wind and solar projects in Lithuania. To accelerate growth even further as well as to capture return premium, we aim to initiate asset rotation program in 2022.

We rescheduled Vilnius CHP’s biomass unit’s COD to Q2 2023 (from Q4 2022) and terminated the conditional agreement with the developer of Polish solar portfolio I (up to 170 MW).

On the Networks side, Networks Methodology was updated maintaining the sustainable regulatory framework. Additionally, we have concluded an agreement with the supplier who will be responsible for implementing Networks’ smart metering infrastructure and rescheduled the project’s end date to 2025 (from 2023). Finally, Networks 10-year investment plan for 2021–2030 has been updated with forecasted investments of EUR 1.9 billion.

During the year, we progressed well on ESG side by receiving a rating upgrade from both MSCI (from ‘A’ to ‘AA’) and Sustainalytics (from 26.5 to 20.4), which places the Group among the industry leaders and significantly above the utility group average. Our GHG emission reduction targets across all scopes have been validated by the Science-based Targets Initiative (SBTi) as well. By 2030 we aim to cut our greenhouse gas emissions by 47% compared to the 2020 baseline.

Targets for 2022–2025

In the updated Strategic Plan for 2022–2025, we confirmed the investments between EUR 1.7–2.0 billion mainly directed into Green Generation and Networks. With this we aim to increase our Green Generation installed capacity to 2.0–2.2 GW, from the current 1.2 GW by the end of 2025, and to enhance Networks reliability, enable digitalisation and expand the grid by connecting new customers. As a result, we expect our Adjusted EBITDA to be within the range of EUR 370–410 million in 2025.

Governance

New members of the Supervisory Board have been elected for a four-year term. The majority of them, including the Chair, are independent and 5 out of 7 members are international. Additionally, 3 members worked in the previous term of the Supervisory Board or Committees, thus ensuring continuity. Further on, in Q4 2021 the committees (Audit, Nomination and Remuneration, and Risk Management and Business Ethics Supervision) have been fully formed.

Also, after the reporting period, the new members of the Management Board have been elected. 3 out of 5 are members from the previous term of the Management Board, thus, including CEO, allowing to comfortably continue the Group’s development.

In terms of diversity, the Supervisory Board has four female and three male members and the Management Board has one female and four male members.

==> picture [291 x 239] intentionally omitted <==

Surpassed outlook driven by Green Generation, recognition of ESG excellence

In the midst of exceptional energy market changes, we continued to demonstrate our resilient business model, as our Adjusted EBITDA grew by 35.2%, compared to 2020, reaching EUR 332.7 million. We surpassed our guidance of EUR 300–310 million by 7.3%, mainly driven by Green Generation, which now makes up one-third of our total result. In 2022, we expect Adjusted EBITDA in the range of EUR 290–335 million. Decrease compared to result for 2021 is related to skewed result of natural gas business in Customers & Solutions segment between 2021 and 2022 (more positive effect falling to 2021 and more negative to 2022).

1 A dividend of EUR 1.19 per share comprises of a dividend of EUR 0.589 paid for H1 2021 and a dividend of EUR 0.600 for H2 2021, which is subject to approval at Ordinary General Meeting of Shareholders to be held on 29 March 2022.

5 / 364

GRI 102-14

Annual report 2021 / Overview

Contents »

Performance

Adjusted EBITDA grew in all business segments with Green Generation installed capacity expansion as the main driver given the higher electricity generation due to the launch of Pomerania WF (94 MW) and Vilnius CHP WtE unit (19 MWe, 60 MWth), a full year effect of Kaunas CHP (24 MWe, 70 MWth) launched in August 2020 as well as better results of Kruonis PSHP due to better commercial result exploiting favourable spread between peak and off-peak market prices and Kaunas HPP, mostly due to higher electricity market price. Further on, Customers & Solutions also grew due to temporary positive effect on natural gas performance as a result of favourable changes in natural gas market prices, which is likely to switch direction if natural gas prices normalize.

Adjusted EBITDA surpassed the higher end of our guidance range (EUR 300–310 million) for 2021 by 7.3%. The negative effect of updated Methodology changes in Networks segment was offset by better than expected results of electricity generation portfolio in Green Generation and Flexible Generation segments, mainly due to higher electricity market prices and higher spreads between peak and offpeak market prices as well as better than expected results in Customers & Solutions segment due to temporary positive effect on natural gas performance as a result of favourable changes in natural gas market prices.

In October 2021, the regulator (NERC) updated Networks Methodology, in essence, changing the RAB calculation method from LRAIC model to similar to Historical cost model. However, sustainable regulatory framework was maintained through the newly established additional tariff component, which offsets the change in RAB calculation method. As a result, our outlook, dividend policy and investment plans of the Group remained unchanged. With regard to aforementioned changes, comparable figures for 2020 were also recalculated retrospectively in order to compare the performance between the years better (for more in-depth information about the changes, see section '3.1 Annual results').

In response to the unprecedented changes in energy commodity prices, in November 2021 the Parliament of the Republic of Lithuania adopted amendments to the Laws on Electricity and Natural Gas of the Republic of Lithuania (B2C related), postponing the stage II of market deregulation by 6 months (from January to July 2022) as well as approved a scheme for the Group to amortize the increase in electricity and natural gas prices for residential users. According to the assessment of the Group, these amendments will not have a significant impact

We surpassed 2021 guidance by 7.3% with Green Generation performance more than twofold. As our renewable projects portfolio increased by up to 460 MW in 2021, we expect it to continue contributing the most to our performance.

on the activities and performance of the Group but will ensure the interests of the consumers because postponing the deadline of stage II of the market deregulation will provide consumers an opportunity to make decisions in line with their interests over a longer period. We will not experience performance losses due to the amortisation of electricity and natural gas purchase price because the differences between the actual cost of commodities and the approved tariffs for private customers will be spread out over the future periods. Even though the borrowing costs will be compensated, the amendments will lead to a significant increase of working capital, which will gradually decrease until 2027.

component established in updated regulatory Methodology. In Customers & Solutions segment skewed result of natural gas business between 2021 and 2022 will have a negative impact. High result in the segment for 2021 was related to a temporary effect of favourable changes in natural gas prices as, using the accounting method of average cost, the COGS were lower due to the stored cheaper gas, which was bought earlier. But, as the inventory in storage was hedged, the negative hedging results will be visible in Profit and Loss statement only when the inventory is released from storage – mainly in Q1 2022.

Business development

Turning to returns to our shareholders, for 2021 we intend to distribute a dividend of EUR 1.19 per share, corresponding to EUR 87.6 million and a yield of 5.6% for ordinary registered shareholders, and – 5.7% for GDR holders (considering the yearend closing prices). Worth mentioning, a dividend of EUR 0.600 per share (out of EUR 1.19) for the second half of 2021, is subject for approval at the Ordinary General Meeting of Shareholders, to be held on 29 March 2022. With that, we ensure that the dividend pay-out is in line with the Dividend Policy, confirming annual dividend increase of at least 3%.

Green Generation installed capacity expansion and pipeline development remained our key areas of focus. In 2021 we successfully managed to increase both.

Our Green Generation installed capacity grew by 113 MW since Vilnius CHP’s WtE unit (19 MWe, 60 MWth) and Pomerania WF (94 MW) commenced commercial operations in March and December 2021 respectively.

Besides, we increased our pipeline by up to 460 MW. First, in Q3 2021 we entered the Latvian renewables market by signing a conditional agreement for an acquisition of 3 early stage wind farm development projects of a total capacity around 160 MW. The preliminary investments amount to EUR 200 million (including project acquisition price, which does not exceed 10%).

For 2022 we expect Adjusted EBITDA in the range of EUR 290335 million. We expect increase in results from both of our main segments – Green Generation and Networks. Green Generation is expected to grow due to full year result of Pomerania WF and implementation of asset rotation program. Better result in Networks segment is mainly related to additional tariff

6 / 364

Annual report 2021 / Overview

Contents »

Towards the end of the year, we expanded our portfolio in Poland further by adding 80 MW as a result of a conditional acquisition of solar development (Polish solar portfolio II) projects and acquiring a ready to build wind farm of 50 MW (Silesia WF) and starting greenfield development (around 170 MW).

In Polish solar portfolio II (up to 80 MW), projects are under various development stages, with expected COD around 2022–2023. Estimated total investments amount to approximately EUR 50 million. When completed, the projects will operate under a CfD support scheme awarded by the Polish regulator or long-term PPAs. After the last renewables auction in Poland, 21 projects with a total capacity of around 20 MW secured indexed CfD in the range of ~53–56 EUR/MWh.

Silesia WF (50 MW), which is due to start commercial activities in Q4 2023, currently is in a ready to build phase, with construction works expected to be launched around Q2 2022. Similarly, it has secured indexed CfD tariff at the level of ~55 EUR/MWh. Total estimated investments into this wind farm amount to around EUR 70 million, including the acquisition price and construction works.

Finally, we started greenfield development by securing land plots for onshore wind and solar projects in Lithuania and Poland (around 170 MW). As it includes different projects, we expect them on a project on project basis to launch during 2024–2026.

All the remaining projects including Mažeikiai WF (63 MW), which started the construction phase in 2021 and is expected commence commercial operations around Q1 2023, both offshore projects in Scotland (800–950 MW) and Lithuania (700 MW) and, lastly, the expansion of Kruonis PSHP (900 MW) by an additional unit of 110 MW are on track and fall within their budget, with exceptions of Vilnius CHP’s biomass unit (73 MWe, 169 MWth) and Polish solar portfolio I (up to 170 MW).

In respect of Vilnius CHP’s biomass unit (73 MWe, 169 MWth), we still plan to start generating first energy by the end of 2022. However, due to the delay in the procurement procedures initiated after the announcement of Rafako (former main contractor) restructuring process, we now reschedule COD to Q2 2023.

In Polish solar portfolio I (up to 170 MW), over the last six months we held agreement renegotiations with the developer (Sun Investment Group) due to no projects being awarded CfD tariff in the last auctions. As no agreement regarding acceptable return level which would be in line with our target range was reached, the conditional SPA agreement was terminated in February

Advance payments paid to the developer (around EUR 3.8 million) will be fully returned to the Group, therefore, the Group will suffer no loss in respect of this transaction.

Despite these discrepancies, we are continuing with pipeline additions, and we remain confident to reach our Green Generation targets. Consistently with the Group’s strategy, in 2021 we initiated the consolidation of the Group’s renewable energy assets to ensure a more competitive, flexible, effective implementation of Green Generation projects, and to strengthen the financial capacity of Ignitis Renewables.

To accelerate the segment’s growth further, we recently strengthened the renewables team by appointing a new Ignitis Renewables CEO. Thierry Aelens is a well-respected executive with a wide experience in the development of offshore wind projects in the leading energy companies. Over 2022 we target to form the rest of the Ignitis Renewables management team to ensure growth continuity and broaden the competences of the area.

Turning to the Networks segment, in 2021 we concluded an agreement with an infrastructure supplier for approximately 1.2 million smart meters. After setting a framework to implement the roll-out in the most efficient way, in order to comply with all high level requirements (including cybersecurity), the project was rescheduled, pushing the end date to 2025 (from 2023). We also continued the Networks expansion by connecting new customers and installing upgrades as well as maintained the grid by mostly replacing the overhead lines with underground cables. Finally, towards the end year, Networks 10-year investment plan for 2021–2030 has been updated with forecasted investments of EUR 1.9 billion, which is at the same level as in the previous investment plan for 2020–2029. It will be mainly directed towards improving grid reliability, enabling digitalisation and expanding it by connecting new customers.

Sustainability

With sustainability being at the forefront of Group’s strategy and activities, we place a great emphasis on environmental, social and corporate governance criteria in navigating the energy transition and working towards an energy smart world.

We are pleased to share the second annual integrated 'Sustainability (corporate social responsibility) report' that adheres to best practice reporting guidelines of the GRI. We remain committed to refining our disclosures to provide a wide set of stakeholders a clear view of our performance and progress. Having joined the formal list of TCFD supporters in

Q1 2021, this year’s report already reflects our initial progress towards incorporating TCFD disclosure recommendations, which we expect to bring to completion in 2022.

Speaking of our commitment to stakeholders, in 2021 we completed a comprehensive stakeholder engagement exercise across the Group involving over 40 different stakeholder groups and nearly 3,000 respondents. We have incorporated the feedback from stakeholders when upgrading our sustainability priorities for 2022 and beyond, which are reflected in the updated strategic plan.

As a result of our efforts to move towards ESG excellence, we are now ranked as a leader among global industry peers rated by MSCI, with an ESG rating of ‘AA’ (on a scale of ‘CCC–AAA’, from highest to lowest risk), which was upgraded from ‘A’ in July 2021. This upgrade is in large part due to the recognition of the Group’s continuous commitment to reducing carbon dioxide emissions to combat climate change, expanding renewable energy portfolio, and strengthening key social and governance practices.

Similarly, a leading independent ESG ratings agency Sustainalytics improved the Group’s ESG risk rating from 26.5 to 20.4 (on a scale of 100–0, from highest to lowest risk). This places the Group among the top 12 percent of utility peers that showcase industry-leading ESG risk management practices.

Further on, there were several important achievements at the close of 2021. In the last quarter of the year, we became the first Lithuanian company to validate GHG emission reduction targets to be in line with climate science. The Science-based Targets initiative (SBTi) validated the targets’ alignment with the pathway that limits global warming to 1.5 °C by mid-century.

Moreover, a globally recognised environmental disclosure organisation CDP rated climate change mitigation and adaptation efforts of the Group for the first time. In Q4 2021, CDP granted the Group a score of ‘B’ (on a ‘D-’ to ‘A’ scale, where ‘A’ is the top score). Furthermore, for the third year in a row the parent company received the highest possible ‘A+’ rating and was recognised as a leader in the category of large SOEs as well as a frontrunner in sustainability in Lithuania’s Good Corporate Governance Index.

Finally, we are pleased to share that the Group received the highest rating for its contribution to the implementation of the principles of equal opportunities within the organisation – it was awarded three ‘Equal Opportunity Wings’. This is the highest achievement awarded by the Office of the Equal Opportunities

7 / 364

Annual report 2021 / Overview

Contents »

==> picture [482 x 166] intentionally omitted <==

Ombudsperson and the Human Rights Monitoring Institute in Lithuania. After the reporting period, we became the first Lithuanian company to receive the prestigious Top Employer 2022 Lithuania certificate from the Top Employers Institute, which demonstrates that the working conditions we offer our employees are aligned with highest international standards.

exceed 5 times and we target to maintain investment-grade rating of BBB or above. This will support us in ensuring our commitment of steadily increasing dividends to our shareholders, corresponding to a yield of 6.0–6.6% in 2022–2025.

All of this we will implement while making further progress on sustainability which is at the core of the Group’s strategy. We will further increase our focus on the four main sustainability pillars to have a greater impact. The first one, climate action, will ensure that we continue to deliver on our commitment to reach net zero emissions by 2050. That’s why we aim to cut our greenhouse gas emissions by 23% by 2025 compared to the 2020 baseline, and we will continue to provide solutions for our customers to lower their climate footprint. We will also focus on preserving natural resources in a form of implementing circularity transformation in each business segment and working towards creating a net positive biodiversity impact by 2025.

Over 2022, we will devote even more attention to our strategic sustainability priorities: we will focus on fine-tuning our decarbonisation plan in line with science-based targets, and also devote significant attention to Taxonomy alignment, biodiversity and waste impact assessments, strengthening employee and contractor safety practices and streamlining our efforts to increase diversity and inclusion.

Targets for 2022–2025

In this report we are also introducing readers to the updated Strategic Plan for 2022–2025. Over this period, our investments of EUR 1.7–2.0 billion will mainly be directed into Green Generation and Networks. With this we aim to increase our Green Generation installed capacity to 2.0–2.2 GW, from the current 1.2 GW by the end of 2025, and to enhance Networks reliability, enable digitalisation and expand the grid by connecting new customers.

Beyond environmental matters, we will make sure that our employees are future-fit – healthy, safe, and satisfied with their overall work experience. We are aiming to reduce our health and safety indicator TRIR to below 1.90 and to have zero employee and contractor fatalities by 2025. A future-fit workplace is also the one that is diverse, so we are aiming to increase gender balance among top management with at least 34% women in these positions.

This should translate into Adjusted EBITDA within the range of EUR 370–410 million by the end of 2025 and an average Adjusted ROCE at the level of 5.5–6.5% over 2022–2025.

Finally, we will focus on strong governance to maintain a robust organisation. We will maintain an extremely high level of corruption intolerance among employees (≥95%) and we will aim for the share of sustainable adjusted EBITDA (as defined by Taxonomy criteria) to be at least 70% by 2025. Moreover,

Finally, to maintain our balance sheet strength, the Group’s leverage in terms of Net debt/Adjusted EBITDA should not

we expect around 90% of our investments over the period of 2022–2025 to be Taxonomy-eligible. We are confident that these four sustainability pillars – climate action, preserving natural resources, future-fit employees and robust organisation – will create significant value to our company and our stakeholders.

Corporate changes

2021 was also marked with changes on the Group’s corporate governance front. Following the end of terms of the Group’s twotier governance bodies, on 26 October 2021 new members of the Supervisory Board were elected by the General Meeting of Shareholders for a four-year term. The majority of them, including the Chair, are independent with 4 out of 7 being women. Further on, in Q4 2021 the committees (Audit, Nomination and Remuneration, and Risk Management and Business Ethics Supervision) have been fully formed. Further on, in Q4 2021 the committees (Audit, Nomination and Remuneration, and Risk Management and Business Ethics Supervision) have been fully formed. Finally, the new members of the Management Board have been elected by the Supervisory Board. 3 out of 5 are members from the previous term of the Management Board, including CEO, thus, allowing to comfortably continue the Group’s development.

Looking ahead

The Group’s robust performance during such turbulent time is an evidence of taking the right approach to achieve our goals by 2030. Clear priorities set for 2025 paves the way for successful achievement of objectives, while we will continue working on what is the most important – meeting regional renewable energy commitments and ensuring Lithuania's energy independence while applying the highest standards of ESG principles.

And finally, I am deeply proud to have an opportunity to lead the Group for the next term. It has been a journey of organisational and strategic changes, and now with the framework set for accelerated expansion, I am convinced of our capabilities to become the leading sustainable energy Group in the market.

Darius Maikštėnas

Chair of the Management Board and the CEO Ignitis Group

8 / 364

Annual report 2021 / Overview

Contents »

1 .2 Business highlights

February Green Generation: Expansion plan of Kruonis PSHP (900 MW) for an additional unit (110 MW) was approved. Strategy: Published the 2021–2024 Strategic Plan. Governance: Received aLeter of Expectations from the Majority Shareholder (The Ministry of Finance of the Republic of Lithuania) supporting the Group’s strategy. March Innovation Ignitis Innovation Fund has increased investments into the Israel-based company H2Pro developing green hydrogen production technology. Sustainability: Sustainable Brand Index™ ranked Ignitis brand as No 1 in the energy category and ffeenth in the general ranking. Governance: Updatedthe Remuneration Policy. Green Generation: Vilnius CHP WtE unit (19 MWe, 60 MWth) commenced commercial operations. Q1	April Finance: Dividendof EUR 0.579 per share was paid out for the second half of 2020. Governance: Ownership rights of all ESO (Networks) shares have been transferred to the parent company. Finance: Investment research company Enlight Research added Ignitis Group to its coverage list. May Green Generation: Pomerania WF (94 MW) in Poland generated frst electricity. Governance: Share option programme was suspended until all doubts related to its compliance with national legal acts are cleared. Finance: S&P Global Ratings, afer annual credit rating review, afrmed BBB+ (stable outlook) rating. Networks: Concluded an agreement with infrastructure supplier for approximately 1.2 million of smart meters. June Governance: Dominykas Tučkus, the parent company’s Management Board member and Business Development and Infrastructure Director, resigned. Green Generation: The consolidation of the Group’s renewable energy assets, except Kaunas HPP and Kruonis PSHP was initiated. Finance: Publishedinvestor leter related to Green Bonds for the year 2020. Q2	July August Q3 September
		Sustainability: Received ESG risk rating upgrade from MSCI from ‘A’ to ‘AA’ (on a scale of ‘CCC’–‘AAA’). Governance: The General Meeting of Shareholders of the parent company adopteda resolution for the parent company to acquire its own shares (in relation to the stabilized securities afer the IPO) and updated the Articles of Association. Networks: WACC for 2022 was confrmedat 4.16% for electricity and 3.98% for natural gas businesses. Green Generation: A conditional agreement for an acquisition of 3 wind farm projects in an early stage of development in Latvia with total capacity of 160 MW was signed. Networks: In order to comply with all high-level requirements (including cybersecurity), the smart meter roll- out project was rescheduled, pushing the end date to 2025 (from 2023). Governance: Ownership rights of all Ignitis Gamyba (Flexible Generation) shares have been transferred to the Group. Finance: Dividend of EUR 0.589 per share was paid out for the frst half of 2021.

9 / 364

GRI 102-10

Annual report 2021 / Overview

Contents »

Q4

October November December

Networks:

NERC (the regulator) updated Networks Methodology, in essence, changing RAB calculation method from LRAIC model to similar to Historical cost model (for more indepth information, section '3.1 Annual results').

Governance:

The General Meeting of Shareholders elected a new Supervisory Board of Ignitis Group comprising seven members – five independent members, including the Chair, and two representatives of the Majority Shareholder. In terms of diversity, the Supervisory Board has four female and three male members.

Governance:

For the third year in a row the parent company received the highest possible A+ rating and was recognised as a leader in the category of large SOEs as well as a frontrunner in sustainability in the Good Corporate Governance Index.

Customers & Solutions:

Due to unprecedented changes in energy commodity prices, the Parliament of the Republic of Lithuania adopted amendments to the Laws on Electricity and Natural Gas of the Republic of Lithuania (B2C related), postponing the 2nd stage of market deregulation by 6-months (from January to July 2022) as well as approved a scheme for the Group to amortize the increase in electricity and natural gas prices (for more indepth information, see section ‘Annual results’).

The Government of the Republic of Lithuania confrmed mandatory supply volume for the LNG terminal amounting to 4 cargoes per year for 2022-2024 reducing the uncertainty of designated supply activities.

Green Generation:

A conditional agreement for an acquisition of solar portfolio under development in Poland with total capacity of up to 80 MW signed.

Sustainability:

Governance:

In relation to the stabilization implemented after the IPO, the Group implemented the acquisition of own shares.

Fully formed the Audit and the Supervisory Board committees.

Green Generation:

Pomerania WF (94 MW) obtained the generation licence and achieved COD status.

We acquired a wind farm development project in Poland with a total capacity of 50 MW.

Networks:

10-year investment plan was updated with investments planned for the period of 2021–2030 amounting to EUR 1.9 billion.

Sustainability:

The Group received an ESG risk rating upgrade from Sustainalytics from 26.5 to 20.4 (on a scale of ‘100–0’, from the highest to the lowest risk).

The Group received a score of ‘B’ (on a ‘D-’ to ‘A’ scale, where ‘A’ is the top score) from CDP on climate change mitigation and adaptation efforts in its first-ever rating.

Governance:

Supervisory Board elected new members of the Management Board of Ignitis Group comprising five members – out of which three are members from the previous term of the Management Board, including CEO.

Green Generation:

As no agreement regarding acceptable return level which would be in line with our target range was reached, we terminated the conditional SPA agreement with the developer (Sun Investment Group) of Polish solar portfolio I (up to 170 MW).

Appointed Thierry Aelen, a well-respected executive with a wide experience in the development of offshore wind projects in the leading energy companies, as a new Ignitis Renewables CEO.

Our GHG emission reduction targets across all scopes were validated by the SBTi.

10 / 364

Annual report 2021 / Overview

Contents »

Guidance exceeded

We surpassed our guidance of EUR 300–310 million by 7.3%, mainly driven by Green Generation, which now makes up 1/3 of our business or EUR 107.5 million out of total EUR 332.7 million.

==> picture [28 x 6] intentionally omitted <==

----- Start of picture text -----

11 / 364
----- End of picture text -----

Annual report 2021 / Overview

Contents »

1 .3 Performance highlights

Financial[1,2]

==> picture [361 x 131] intentionally omitted <==

----- Start of picture text -----

Net profit, Adjusted net profit ROE, Adjusted ROE
EURm %
170.6 153.9163.1 +70 8% 10.8 8.9
95.5 8.4 +2 9 p p
6.0
Reported Reported
Adjusted Adjusted
2020 2021 2020 2021
Adjusted Net Profit increase was driven by the Adjusted ROE increased to 8.9%. An effect
growth in Adjusted EBITDA, which was partly of increased Adjusted net profit was partly
offset by higher depreciation and amortisation offset by an increase of capital during the IPO in
and income tax expenses. Reported Net profit Q4 2020.
----- End of picture text -----

==> picture [359 x 285] intentionally omitted <==

----- Start of picture text -----

EBITDA, Adjusted EBITDA ROCE, Adjusted ROCE
EURm %
334.3 335.5 332.7
245.9 +35 .3% 9.1 7.9
7.1 +2 5 pp
5.4
Reported Reported
Adjusted Adjusted
2020 2021 2020 2021
Adjusted EBITDA increased in all segments, but Adjusted ROCE increased to 7.9%, mostly
mostly in Green Generation. Green Generation due to an increase in Adjusted EBIT, which
increased more than twofold and reached EUR was mostly influenced by the same effects as
107.5 million resulting from the launch of new
assets: Vilnius CHP WtE unit, Kaunas CHP and Adjusted EBITDA.
Pomerania WF, and better results of operational
units in Kaunas HPP and Kruonis PSHP due to
higher electricity prices. Second highest growing
segment was Customers & Solutions, however,
it was driven by temporary effect from stored
natural gas inventory.
Investments Net debt
EURm EURm
346.8 957.2 +59 5%5%
234.9 600.3
(3 2 .3%)
2020 2021 31 Dec 2020
----- End of picture text -----

Adjusted ROCE increased to 7.9%, mostly Adjusted Net Profit increase was driven by the due to an increase in Adjusted EBIT, which growth in Adjusted EBITDA, which was partly was mostly influenced by the same effects as offset by higher depreciation and amortisation Adjusted EBITDA. and income tax expenses. Reported Net profit decreased mostly due to PPE revaluation in the Networks segment, Kaunas CHP option fair value change, which was partly offset by Smart Energy Fund investments’ value increase.

Results comparison with the outlook for 2021

==> picture [55 x 17] intentionally omitted <==

----- Start of picture text -----

FFO/Net debt
%
----- End of picture text -----

==> picture [362 x 100] intentionally omitted <==

----- Start of picture text -----

Net debt FFO/Net debt
EURm %
957.2 51.5
+59 5%5%
600.3 30.5
(21 0 pp )
31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021
----- End of picture text -----

==> picture [151 x 116] intentionally omitted <==

----- Start of picture text -----

Adjusted EBITDA
EURm
Guidance 300–310
Realised
332 .7
In the outlook announced in Annual
report 2020, we expected adjusted
EBITDA to be in the range of EUR 300-310
million for 2021.
----- End of picture text -----

Net debt increased by 59.5% mainly due to higher need for working capital. The increase of working capital was mainly driven by higher electricity and natural gas market prices, which led to increase mostly of trade receivables, value of stored gas inventory and accrued revenue related to regulated electricity public supply activity.

FFO/Net debt decreased from 51.5% to 30.5%, due to significant increase of Net debt.

Investments decreased, mainly due to lower investments in Green Generation segment, as main investments of big projects were finished in 2020 or in the beginning of 2021 (Pomerania WF, Kaunas CHP and Vilnius CHP WtE unit) and new projects have not yet reached heavy investment phase. The decrease was partly offset by higher investments in the Networks segment.

With Adjusted EBITDA of EUR 332.7 million, we exceeded the higher end of the guidance range guidance by more than 7.3%.

For more in-depth information, see section ‘Annual results’.

Alternative Performance Measure - Adjusted figures used in this report refer to measures used for internal performance management. As such, they are not defined or specified under International Financial Reporting Standards (IFRS), nor do they comply with IFRS requirements. Definitions of alternative performance measures can be found in the ‘Further information’ section of this report and on the Group’s website.[1] In case of a change of calculation of in 2021, measures of 2020 were recalculated as to calculation of 2021. Calculations of Net working capital and FCF were changed from Q1 2021. Calculation of Adjusted EBITDA was changed in Q4 2021.[2] Due to Networks Methodology update, change in accounting policy and reclassifications, all adjusted financial indicators were recalculated retrospectively for the year 2020 (for more information, see ‘Annual results’ section 'Significant changes in reporting period of 2021’).

12 / 364

GRI 102-7

Annual report 2021 / Overview

Contents »

Environment

==> picture [360 x 87] intentionally omitted <==

----- Start of picture text -----

Green electricity generated (net) Green share of generation
TWh %
1.48 64.2
1.25 +17 9 % 51.0 +13 2 pp
2020 2021 2020 2021
----- End of picture text -----

Green Generation installed capacity

==> picture [175 x 78] intentionally omitted <==

----- Start of picture text -----

MW
1,214
1,101 +113 MW
31 Dec 2020 31 Dec 2021
----- End of picture text -----

Climate action

==> picture [175 x 78] intentionally omitted <==

----- Start of picture text -----

GHG emissions [1] , thousand t CO2 eq
122 230 (6 1%)
3,899 3,546 Out of the scope
Scope 3
579 529 Scope 2
767 736 Scope 1
2020 2021
----- End of picture text -----

An increase in green electricity generated (net) by 17.9% was mainly driven by higher generation at Kaunas CHP, Vilnius CHP’s WtE unit and Pomerania WF as well as increased generation at Kaunas HPP due to higher levels of water in the Nemunas river. This was partly offset by lower generation in Kruonis PSHP.

Green share of generation increased by 13.2 pp as a result of higher green electricity generated (net) and a decrease of electricity generated (net) by CCGT (Flexible Generation).

Installed Green Generation capacity increased by 113 MW since Vilnius CHP’s WtE unit (March 2021) and Pomerania WF (December 2021) reached COD.

GHG emissions in 2021 decreased by 6.1% due to lower electricity generation in Elektrėnai complex (Scope 1), lower electricity consumption in Kruonis PSHP (Scope 2) and lower retail sales of natural gas (Scope 3).

Social

==> picture [360 x 101] intentionally omitted <==

----- Start of picture text -----

Safety Employee satisfaction
TRIR, times eNPS, % (1-100)
57.4
2.01 +4 5 x 56.0 +1 4 pp
0.45
2020 2021 2020 2021
----- End of picture text -----

Operational efficiency

Governance

Networks quality (electricity) SAIDI, min/SAIFI, units

Supervisory and Management Boards Nationality and gender diversity

==> picture [340 x 74] intentionally omitted <==

----- Start of picture text -----

SAIDI SAIFI
2 1.45
5 5 5 Female 207.67 201.95
Male
10 International 1.34
7 6 6 Lithuanian
31 Dec 2020 31 Dec 2021 2020 2021 2020 2021
----- End of picture text -----

During 2021 employee satisfaction has improved, which is indicated by an increase in eNPS of 1.4 pp to 57.4%.

During 2021, total recordable employee injury rate (TRIR) equated to 2.01 injuries for a million hours worked and worsened by 4.5 times compared to 2020, which was an outlier largely as a result of the mobility restrictions imposed by the COVID-19 pandemic. For comparison, TRIR ratio for 2019 equated 2.29 injuries per million hours worked.

As of 31 December 2021, the Management Board comprised one woman and three men. In October 2021 the new Supervisory Board was formed. 4 women and 5 international members are in Supervisory Board, which results in improvement of diversity in the main governing bodies, having 45% female and 45% international members.

1 Numbers for 2021 are based on preliminary data. At the time of writing, Bureau Veritas was in the process of verifying the GHG data. The data for 2020 has been recalculated following a revision of the grid loss emissions calculation methodology (using a market-based approach instead of location-based).

Electricity quality indicators during 2021 were affected by extreme conditions caused by wet snow cover (end of January 2021), local storms (during May–June and November– December 2021), but had less impact to SAIDI indicator compared to the storm Laura in Q1 2020. Electricity SAIFI indicator, which reflects average number of unplanned long interruptions per customer, increased when comparing with the previous year (from 1.34 to 1.45), while average duration of unplanned interruptions (which is shown under SAIDI indicator), improved to 201.95 minutes (compared to 207.67 minutes in 2020).

13 / 364

Annual report 2021 / Overview

Contents »

1 .4 Outlook

Green Generation – higher

Networks – higher

Adjusted EBITDA guidance

Adjusted EBITDA for the Networks segment will increase mainly due to additional tariff component established in updated regulatory Methodology. As a result of continued investments program, higher RAB value will also lead to increase in result for 2022. However, decrease in electricity distribution WACC will partly offset the growth.

Adjusted EBITDA for Green Generation segment is expected to be higher as a result of full year effect of Pomerania WF which reached COD in December 2021 as well as due to implementation of asset rotation program.

For 2022 we expect Adjusted EBITDA in the range of EUR 290–335 million. We expect increase in results from both of our main segments – Green Generation and Networks. Green Generation is expected to grow due to as a result of full year effect of Pomerania WF which reached COD in December 2021 as well as due to implementation of asset rotation program. Better result in Networks segment is mainly related to additional tariff component established in updated regulatory Methodology. However, in Customers & Solutions segment skewed result of natural gas business between 2021 and 2022 will have a negative impact.

Flexible Generation – lower

Approved RAB for electricity distribution for 2022 amounts to EUR 1,097 million and for gas distribution – EUR 248 million. Approved WACC for electricity distribution for 2022 is 4.16%, for gas distribution – 3.98% Additional tariff component for electricity amounts to EUR 28 million for 2022.

Due to extremely favourable conditions in H1 2021 when natural gas prices were significantly lower compared to H2, the CCGT unit in Elektrėnai performed better than expected. For 2022 we expect more moderate performance and slightly lower result in this segment.

==> picture [505 x 179] intentionally omitted <==

----- Start of picture text -----

Adjusted EBITDA outlook for 2022
EURm [1]
332 .7
290–335
37.2
40.6
107.5
145.4
2021 Networks Green Flexible Customers & Other 2022
Adjusted EBITDA Generation Generation Solutions Adjusted EBITDA
guidance
----- End of picture text -----

1 Adjusted EBITDA indication for the Group is the prevailing guidance, whereas directional effect per business segment serves as a mean to support it. Higher/stable/lower indicates the direction of the business segment’s change in 2022 relative to the actual results for 2021. Double higher/lower indicates the accelerated growth/decrease compared to other segments.

Customers & Solutions – lower

Segment’s Adjusted EBITDA result of natural gas business is skewed between 2021 and 2022. A high 2021 result was related to temporary effect of favourable changes in natural gas prices because, due to the accounting method of average cost, the COGS was lower as stored cheaper gas that was bought earlier. But as the inventory in storage was hedged the negative hedging results will be visible in Profit and Loss statement only when inventory is released from storage – mainly in Q1 2022. Thus, we forecast a significantly lower result for 2022.

Other – stable

No material changes expected in other activities result for 2022.

Outlook sensitivity factors

For 2022 we provide a wider guidance range compared to previous year. It mainly relates to the:

extreme volatility in the energy market prices, which is affecting part of our generation portfolio that is unregulated or not based on long-term contracts. Also, fluctuations in power and gas prices may have a significant impact on our supply portfolio hedging results;
expected launch of the asset rotation program in 2022.

Forward-looking statements

The Annual report contains forward-looking statements, which reflect current views and are, by nature, subject to risks and uncertainties. Because they relate to events and circumstances that will occur in the future, the actual development may differ materially from our expectations. We are unable to predict the impact of these events. For further information about the risks relevant to the Group activities, see section ‘Risk and risk management’.

14 / 364

Annual report 2021 / Overview

Contents »

1 .5 Sustainability highlights

Key achievements in 2021

Sustainability is at the core of the Group's strategy and strategic plan. Ambition to lead the energy transition across the region towards an energy smart world requires strengthening of our ESG performance and accountability. The most significant achievements of the Group in implementing the principles of sustainability in our activities are presented in the table below. For more in-depth information, see section 'Sustainability (corporate social responsibility) report'.

==> picture [521 x 317] intentionally omitted <==

----- Start of picture text -----

MSCI ESG Sustainalytics CDP climate
Rank compared
to utility peers Top 28% [1] Top 12% In line
'A' 20 .4 'B'
Utiities average
'BBB' [1] 36.7 [2] 'B'
Rating scale
'CCC' to 'AAA' 100 to 0 'D-' to 'A'
(worst to best)
(Governance Coordination Centre)
----- End of picture text -----

Validated GHG emissions targets for 2030 with the SBTi. Following net zero by 2050 trajectory.

Joined TCFD supporters list and expect to fully implement TCFD guidelines for the 2022 reporting period.

Ensured excellence in people practices and certified as Top Employer[3] . Received highest acknowledgement for mainstreaming equal opportunities in the workplace[4] . Maintained top score of ‘A+’ in Lithuania’s SOE Good Governance Index[5] .

1 MSCI utilities rank and average based on utilities included in the MSCI ACWI index.
2 Based on publicly available data.
3 The certificate was issued in January 2022. 4 In 2021 the Group received three ‘Equal Opportunity Wings’, the highest acknowledgement given by the Office of the Equal Opportunities Ombudsperson in Lithuania.
5 Good Governance Index ratio consists of assessments in the Transparency, Board and Strategic planning and target achievement dimensions. In 2021, Ignitis Group received highest scores of ‘A+’ in all three dimensions.

15 / 364

Annual report 2021 / Overview

Contents »

Taxonomy overview

EU Regulation 2020/852, commonly known as the Taxonomy Regulation, defines a classification and investment screening system for sustainable economic activities, which creates a common nomenclature for activities based on their contribution to environmental objectives. It is the main tool for identifying which economic activities contribute to the EU Green Deal and which aims to create transparency for investors, shareholders and other stakeholders. The Group, being focused on sustainable growth and subject to disclosure under the Taxonomy regulation, has completed a preliminary assessment of the eligibility of its activities under the current version of the Taxonomy regulation.

==> picture [121 x 112] intentionally omitted <==

----- Start of picture text -----

Adjusted EBITDA
EURm, %
36.3%
63.7%
----- End of picture text -----

==> picture [309 x 113] intentionally omitted <==

----- Start of picture text -----

Investments Revenue
EURm, % EURm, %
26.7%
31.9%
68.1%
73.3%
----- End of picture text -----

==> picture [192 x 108] intentionally omitted <==

----- Start of picture text -----

OPEX
EURm, %
56.1%
Taxonomy
eligible
Taxonomy
ineligible or
not covered
43.9%
----- End of picture text -----

Basis for disclosures

It’s important to note that the reported KPIs refer to Taxonomyeligible activities (those activities that meet the substantial contribution criteria for the climate change mitigation objective). Activities deemed ineligible or not covered are those that do not meet the currently published substantial contribution criteria or are not covered by the currently published environmental objectives. Once the EU Commission drafts the delegated act for the remaining environmental objectives with their substantial contribution criteria (expected in 2022), the Group will be able to report on the final taxonomy eligibility.

While the regulatory requirement foresees the disclosure of Taxonomy-eligible turnover, CAPEX and OPEX, the Group additionally discloses the adjusted EBITDA metric as it provides coherence with other financial disclosures and better reflects how much the company’s growth is linked to sustainable (as defined by the Taxonomy) activities.

The final EU Taxonomy alignment will be largely based on three criteria:

activity substantially contributes to one of 6 defined environmental objectives (substantial contribution criteria);
no significant harm (DNSH) is done to any of the other environmental objectives (DNSH criteria);
activity complies with minimum social standards (will be defined by the social taxonomy in the future).

Taxonomy-eligible Group activities

According to the first delegated act on sustainable activities for climate change adaptation and mitigation objectives (EU Taxonomy Climate Delegated Act, adopted on 4 June 2021), the following activities of Ignitis Group are deemed as compliant with the substantial contribution criteria of the climate change mitigation objective:

electricity generation from wind power;
electricity generation from hydropower;
distribution of electricity;
storage of electricity (Kruonis PSHP).

Taxonomy-ineligible Group activities include production of heat from bioenergy (Elektrėnai biomass boiler). A significant share of Group’s activity is also not covered by the Taxonomy despite making a significant contribution to sustainability, such as green energy supply. Other Group activities (gas supply and distribution, energy generation at gas-fired plants and in cogeneration plants) at the time of writing were also not included in the Taxonomy regulation.

All reported Taxonomy KPIs are directly linked to the Group’s financial accounting structure and exclude double counting. Proportional accounting is only undertaken in the case of OPEX and adjusted EBITDA related to the non-material activities at the Group-level listed above.

Moreover, after the reporting period, On 2 February 2022, the Commission approved in principle a Complementary Climate

Delegated Act including, under strict conditions, specific nuclear and gas energy activities in the list of economic activities covered by the EU Taxonomy.. The inclusion of nuclear does not affect the Group as the Group has no nuclear assets. The Group is also not currently planning any new gas-fired plants. The KPIs reported here do not take this latest initiative into account as the final technical criteria have not been adopted yet.

Taxonomy outlook

According to a preliminary assessment, full compliance with DNSH criteria at activity-level has not been reached in 2021. In 2022, the Group intends to conduct in-depth assessments of DNSH.

Criteria and implement the required steps to ensure full Taxonomy alignment at activity-level. The Group then expects to report on Taxonomy-aligned activities from 2023 onwards and in line with the regulatory timeline.

At Group level, management of environmental impacts is ensured through certified environmental management systems and dedicated climate risk assessments. Similarly, minimum social safeguards are ensured through our robust compliance practices and numerous commitments regarding labour and human rights that go beyond legal compliance. For more information please see the 'Sustainability (corporate social responsibility) report'.

We are dedicated to sustainable growth. We expect around 90% our Investments over the period of 2022–2025 to be Taxonomyeligible, and we expect the share of sustainable adjusted EBITDA to be at the level of at least 70% in 2025.

16 / 364

Annual report 2021 / Overview

Contents »

1 .6 Investor information

Overview

In 2021 the Group securities on Nasdaq Vilnius were traded the most in terms of turnover and comprised 40.5% of total traded value in the stock exchange. Our total turnover of EUR 247.8 million in 2021 continued to be considerably larger than the rest of Nasdaq Vilnius (EUR 219.6 million). Additionally, Nasdaq Vilnius turnover increased more than twofold (from EUR 151.7 million in 2020 to EUR 368.9 million in 2021) over the last year, and was largely driven by the Ignitis Group IPO.

Currently the Group is covered by 7 equity research analysts, out of which 2 initiated their coverage in 2021. Their recommendations and price targets are available on our website.

Finally, after the IPO, we have been included in the MSCI Frontier Markets Index (since 30 November 2020) and the Nasdaq OMX Baltic Benchmark Index (since 4 January 2021).

Share capital

The parent company’s share capital is divided into 74,283,757 ordinary registered shares registered in Lithuania. They are all the same class of shares, each entitled to equal voting and dividend rights, specifically – one vote at the General shareholders’ meetings, and to equal dividend. During 2021, the parent company’s share capital remained unchanged.

However, in relation to the stabilization, which occurred after the parent company’s IPO, the Group implemented the acquisition of own shares in Q4 2021. Thus at the end of 2021, the parent company held a total of 1,243,243 treasury shares (or 1.7% of total ordinary registered shares) resulting in a free-float decrease from 26.9% to 25.7%.

Acquired ordinary registered shares are expected to be annulled during 2022, hence reducing the share capital.

Price development and return in 2021[1]

==> picture [490 x 373] intentionally omitted <==

----- Start of picture text -----

130 The Group generated TSR of 5.1% and 8.6% for ordinary registered shares and GDR
owners respectively, assuming reinvestment of the dividends paid in 2021
125
120
115
110
105 +2 .5%
+1 .5%
100 (0 .7%)
95
90
January February March April May June July August September October November December
1 Index = 100. Nasdaq Vilnius LSE Euro Stoxx Utilities
2 Relevant industry index the Group uses as a bechmark. (Ordinary registered shares) (GDRs) (SX6E) [2]
Turnover in 2021 Nasdaq Vilnius turnover change
EURm EURm
Ignitis Group turnover continues Post Ignitis Group IPO,
to surpass the rest of Nasdaq Vilnius Nasdaq Vilnius turnover
368.9
increased almost 2.5 times +1 43 .2%
247.8 149.3
219.6 98.5 +1 2 .8% 151.7 Ignitis Group
LSE Nasdaq Vilnius
Nasdaq Vilnius 219.6 excluding
149.3 Ignitis Group
Nasdaq Vilnius 2021 Ignitis Group 2020 Nasdaq Vilnius 2021
excluding Ignitis
Group
----- End of picture text -----

17 / 364

Annual report 2021 / Overview

Contents »

Shareholder structure

At the end of 2021, the number of registered shareholders doubled, increasing by 106.7% to 14,265 (from 6,900 a year before) driven by increasing retail investor base. The Republic of Lithuania (authority implementing shareholder’s rights – the Ministry of Finance of the Republic of Lithuania, Majority Shareholder) own 73.08% of the parent company’s share capital, with the remaining lying with institutional investors (18.8%) and retail investors (6.6%). There are no other shareholders who own more than 5% of the parent company’s share capital.

The composition of the parent company’s shareholder structure by type and geography is demonstrated.

General shareholders’ meetings

In 2021, five General Meetings of Shareholders were held, during which the decisions on dividend distribution, acquisition of the parent company’s own ordinary registered shares (1,243,243 units), the election of new members of the Supervisory Board and the Audit Committee, and other questions were resolved. The next Ordinary General Meeting of Shareholders will be held on 29 March 2021. Further relevant information, including shareholder rights, can be found in 'Governance report' section of this report or on our website.

Dividends

Since the Group’s IPO in September 2020, we distribute our profits in line with the Dividend Policy. It is based on a fixed starting level of EUR 85 million distributed for 2020 and a minimum growth rate of at least 3% for each subsequent financial year.

For 2021 we intend to distribute a dividend of EUR 1.19 per share, corresponding to EUR 87.6 million and a yield of 5.7% for ordinary registered shareholders, and – 5.8% for GDR holders (considering the year-end closing prices). A dividend of EUR 0.600 per share for the second half of 2021, corresponding to EUR 43.85 million, is still subject for approval at the Ordinary General Meeting of Shareholders to be held on 29 March 2022. Before that, in Q3 2021 the Extraordinary General Meeting of Shareholders approved a dividend of EUR 0.589 per share, or in total of EUR 43.75 million, for the first half of 2021.

Looking at the dividend pay-out, is expected to be equal to 56.9% for 2021, compared to 49.8% for 2020.

Shareholders composition[1]

Baltics 37 .1% Majority Shareholder United Kingdom 25 .7% (Ministry of Finance of Nordics 22 .1% the Republic of Lithuania) Continental Europe 12 .8% 73.1% Other 2 .4% Institutional investors 18.8% Retail investors 6.4% Lithuania 55 .8% Estonia 39 .6% Latvia 4 .6% Treasury shares 1.7%

1 All dates, except shareholders composition by geography, which is provided as of the latest available date, are provided as of 31 December 2021.

Shareholder return KPI’s[1,2]

==> picture [247 x 99] intentionally omitted <==

----- Start of picture text -----

2021 2020 ∆ ∆,%
Dividends declared [2] , EURm 87.6 85.0 2.6 3.0%
EPS , EUR 2.07 2.30 (0.23) (10.0%)
DPS , EUR 1.19 1.14 0.04 3.9%
Dividend pay-out , % 56.9 49.8 7.1 -
Dividend yield , %
For ordinary registered 5.7 5.6 - -
shares owners, %
For GDR owners, % 5.8 5.7 - -
----- End of picture text -----

1 DPS, ESP indicators for 2020 were calculated using number of nominal shares at the end of 2020 (post IPO) - if calculated using the weighted average number of nominal shares before and after the Ignitis Group IPO, indicators would amount to 1.44 and 2.89 respectively. DPS, EPS indicators for 2021 were calculated using the weighted average number of nominal shares (before and after the parent company’s acquisition of own shares).

2 Data provided based on the dividends distributed or to be distributed for a specified period. A dividend of EUR 1.19 per share for 2021 comprises of a dividend of EUR 0.589 paid for H1 2021 and a proposed dividend of EUR 0.600 for H2 2021, which is subject to approval at Ordinary General Meeting of Shareholders to be held on 29 March 2022.

18 / 364

GRI 102-5

Annual report 2021 / Overview

Contents »

Credit rating

On 26 May 2021, after the annual review, a credit rating agency S&P Global Ratings afrmed BBB+ (stable outlook) credit rating. Further information on the credit rating, including the credit rating report is available on our website.

Investor relations

We target to ensure the highest transparency and accountability standards in our stakeholder communication. On a continuous basis we engage with the market through quarterly and ad hoc earning calls, non-deal roadshows, conferences and other type of meetings. Our dialogue with the investors and other stakeholders is subject to restrictions prior to the announcements of any non-public information.

On the Group’s website, ‘Investors’ section, we provide relevant information, including annual, interim reports and presentations, investor calendar, analyst recommendations and a wide range of other data which we believe is of interest for our stakeholders.

Additionally, further disclosure on the parent company’s ordinary registered shares and bonds is disclosed in section ‘Further information’ of this report.

Price performance information in 2021

Price performance information in 2021
	Nasdaq Vilnius LSE Combined
Year opening1, EUR	20.90 20.0 -
Year high1(date), EUR	25.35 (3 Sep) 24.80 (3 Sep) 25.35
Year low1(date), EUR	19.96 (14 May) 19.50 (5 May) 19.50
Year VWAP2, EUR	21.18 20.41 21.13
Year end1, EUR	21.00 20.50 -
P/E (year-end), times	7.17 7.00 -
Year turnover (average daily), EURm	149.3 (0.6) 98.5 (0.4) 247.8 (1.0)
Market capitalisation, year-end, EURbn	- - 1.6

Share information

Share information
Type	Shares	GDRs	-
ISIN-code	LT0000115768	Reg S: US66981G2075; Rule 144A:US66981G1085	-
Ticker	IGN1L	IGN	-
Nominal value, EUR	-	-	22.33 per share
Number of shares (share classes)	-	-	74,283,757 (one share class)
Number of treasury shares	-	-	1,243,243
Free foat, shares (%)3	-	-	18,756,757 (25.7%)

1 As of closing trading market price.

2 Weighted average volume price.

3 Excluding treasury shares acquired by the parent company in December 2021, which are expected to be annulled during 2022.

Financial calendar 2022

Financial calendar 2022
29 March 2022	Ordinary General Meeting of Shareholders
11 April 2022	Expected Ex-Dividend Date (for ordinary registered shares)
12 April 2022	Expected Record Date for dividend payment (for ordinary registered shares)
19 May 2022	Interim report for the frst quarter of 2022
23 August 2022	Interim report for the frst half of 2022
29 September 2022	Extraordinary General Meeting of Shareholders (regarding the potential allocation of dividends for the six-month period ended 30 June 2022)
12 October 2022	Expected Ex-Dividend Date (for ordinary registered shares)
13 October 2022	Expected Record Date for dividend payment (for ordinary registered shares)
22 November 2022	Interim report for the frst nine months of 2022

Financial calendar is available in our website and is immediately updated if there are any changes.

19 / 364

Contents »

==> picture [128 x 7] intentionally omitted <==

----- Start of picture text -----

Annual report 2021 / Business overview
----- End of picture text -----

Business overview

==> picture [284 x 59] intentionally omitted <==

----- Start of picture text -----

|||
|---|---|
|2.1 Business profile|21|
|2.2 Market presence|22|
|2.3 Strategy and targets|23|
|2.4 Business environment|38|

----- End of picture text -----

Contents »

2 .1 Business profile

Creating an Energy Smart world

Core businesses

Networks

Resilient and efficient energy distribution enabling the energy transition.

Activities

Operation, maintenance, management, and development of electricity and natural gas distribution networks to ensure safe and reliable energy distribution. Supply of last resort.

Green Generation

Focused, sustainable, and profitable growth.

Activities

Generation of electricity from renewable energy sources including wind, hydro, solar, biomass and waste-to-energy. Development and operation of new generation capacities.

Complementary businesses

Flexible Generation

Reliable and flexible power system.

Activities

Provision of ancillary services to ensure stability and security of Lithuania’s electricity system.

Customers & Solutions

Innovative solutions for easier life and energy evolution.

Activities

Supply of electricity and gas, wholesale trading and balancing, green energy solutions for businesses and residents and energy efficiency projects.

Revenue model

Fully regulated through 5-year regulatory periods based on a transparent RAB-WACC methodology.

CO2 neutral strategy support

Through reduction in network losses, timely connection of renewable energy assets, investments to allow further electrification.

Network size[1]

==> picture [150 x 85] intentionally omitted <==

----- Start of picture text -----

Size Volume
Electricity 126,814 km 10.37 TWh
67% overhead lines
and 33% underground
lines
Natural gas 9,563 [2] km 8.49 TWh
----- End of picture text -----

1 Information reflects data for the reporting period (2021).
2 Previously reported network size of natural gas was adjusted.

Revenue model

Contracted through renewable energy longterm support schemes (FiT, FiP, CfD), PPAs, and merchant.

CO2 neutral strategy support

Through development of zero carbon electricity generating assets.

Electricity capacity, MW[1]

==> picture [148 x 124] intentionally omitted <==

----- Start of picture text -----

1,214 43
170
1,001
136 63
73
Installed Under construction
Hydro Wind WtE Biomass
1 .48
TWh
----- End of picture text -----

Electricity generated (net)

Revenue model

Largely regulated, based on a transparent methodology, with capacities awarded through annual auctions.

Regulated tariffs and commercial contracts.

CO2 neutral strategy support

Enabling renewable energy build-out through provision of PPAs, increasing green electricity supply and reducing natural gas supply.

Enabling the system to integrate more renewable energy capacities.

Electricity capacity, MW[1]

Electricity and natural gas retail sales, TWh[1]

==> picture [350 x 122] intentionally omitted <==

----- Start of picture text -----

B2C B2B
891
Electricityretail sales 2 .91 TWh 3 .86 TWh
6.77 TWh
Gas
Reserve and Isolated regime services
retail sales 2 .84 TWh 6 .09 TWh
8.93 TWh
0 .82 15 .70
TWh TWh
----- End of picture text -----

Electricity generated (net)

Total retail sales

21 / 364

GRI 102-2 GRI 102-7

Annual report 2021 / Business overview

Contents »

2 .2 Market presence

Regional leader exploring opportunities in the markets undergoing energy transition paths

FINLAND

Customers & Solutions

==> picture [110 x 71] intentionally omitted <==

LITHUANIA

Networks

Country-wide electricity and natural gas distribution

Green Generation:

OPERATIONAL (1,141 .8 MWe, 130 MWth)

Kruonis PSHP (900 MW)
Kaunas HPP (100.8 MW)
Eurakras WF (24 MW)
Vėjo gūsis WF (19 MW)
B2B supply of natural gas

ESTONIA

Green Generation:

OPERATIONAL (18 MW)

Tuuleenergia WF (18 MW)

Customers & Solutions

B2B supply of electricity
Vėjo vatas WF (15 MW)
Kaunas CHP (24 MWe, 70 MWth)
Vilnius CHP's WtE unit (19 MWe, 60 MWth)

LATVIA

Biomass boiler in Elektrėnai (40 MWth)

Green Generation

UNDER CONSTRUCTION (136 MWe, 169 MWth)

Vilnius CHP's biomass unit (73 MWe, 169 MWth)
Mažeikiai WF (63 MW)

UNDER DEVELOPMENT (ADVANCED STAGE) (110 MW)

Kruonis PSHP (110 MW)

UNDER DEVELOPMENT (EARLY STAGE) (around 870 MW)

Lithuanian offshore WF I (700 MW)
Greenfield portfolio (around 170 MW)

Flexible Generation

OPERATIONAL(1,055 MW)

Two natural gas fired reserve power units in Elektrėnai (600 MW)
Combined Cycle Gas Unit in Elektrėnai (455 MW)

Customers & Solutions

B2B and B2C supply of electricity and natural gas, solar, e-mobility, ESCO services etc.

UNDER DEVELOPMENT (EARLY STAGE) (around 160 MW)

Latvian onshore WF portfolio I (around 160 MW)

Customers & Solutions

B2B supply of electricity and natural gas

POLAND

Green Generation

OPERATIONAL (94 MW)

Pomerania WF (94 MW)

UNDER DEVELOPMENT (ADVANCED STAGE) (up to 130 MW)

Polish solar portfolio II (up to 80 MW)
Silesia WF (50 MW)

Customers & Solutions

B2B supply of electricity

22 / 364

GRI 102-3

GRI 102-4 GRI 102-6

Contents »

2 .3 Strategy and targets

In 2020, we updated our Corporate Strategy by putting sustainability at its core. We are accelerating our transition towards a decarbonized world, transforming our business models by developing and scaling smart solutions, expanding in our region, and exploring new opportunities in the markets undergoing energy transition.

In our strategy we focus on four key strategic priorities. First, we are creating a sustainable future where there is no place for coal or nuclear. ESG criteria are an integral part of our strategic goals with strong commitment to a more sustainable future. We align our business targets with the United Nations’ Sustainable Development Goals and we are committed to reducing net carbon dioxide emissions to zero by 2050. We also thrive to align our businesses with science-based targets to a 1.5°C-compliant business model. Second, we are ensuring resilience and flexibility of the energy system, as well as enabling energy transition and evolution. Third, we are growing renewables to meet regional energy commitments. We target to reach 4 GW of installed green generation capacity by 2030. Fourth, we are capturing growth opportunities and developing innovative solutions to make life easier for the energy smart.

Our focus on the home markets – the Baltic countries, Poland, and Finland. We also explore new opportunities in countries on the energy transition path.

We pursue our strategic priorities with a strong focus on financial discipline. Our engaged people, agile teams, learning culture, organisation with strong governance model and digital approach are the integral parts of our strategy.

To ensure strategy implementation, on a yearly basis we announce a strategic plan with targets and KPIs set for the next 4-year period.

Our values

RESPONSIBILITY PARTNERSHIPS

OPENNESS GROWTH

Care. Do. For Earth. Diverse. Strong. See. Understand. Share. Curious. Bold. Starting with myself. Together. Open to the world. Everyday.

In our vision, we transform for a more sustainable world

==> picture [425 x 319] intentionally omitted <==

----- Start of picture text -----

ENSURING GROWING
resilience and flexibility RENEWABLES
of the energy system to meet regional
ENABLING CREATING energy
commitments
energy transition and A SUSTAINABLE
evolution
FUTURE
Targeting Net Zero emissions
ESG principles driven
CAPTURING GROWTH
OPPORTUNITIES
and developing innovative
solutions to make life easier for the
energy smart
----- End of picture text -----

In everything we do, we are united by the mission to make the world more Energy Smart

23 / 364

GRI 102-16

Contents »

Strategic directions in depth

Green Generation

Networks

Focused, sustainable, and profitable growth.

Resilient and efficient energy distribution enabling the energy transition.

We target to reach 4 GW of installed Green Generation capacity by 2030 while ensuring that the build-out creates value for our shareholders.
We continuously invest country-wide to modernize our strategic assets used for electricity and natural gas distribution to ensure network resilience and efficiency for our business and residential customers.
We aim to partner with strategic investors to adopt new technologies and with financial investors to maximise our returns by utilising asset rotation.
We digitise our distribution network and strive to develop a smart grid which would be one of the most advanced in the region.
We are pursuing onshore and offshore wind, waste-to-energy, biomass, and solar technologies across the project lifecycle.
We enable energy innovations, renewable energy transition and facilitate the local energy market and its efficiency through data-driven solutions.
We apply prudent investment framework with a conservative hurdle rate.

Creating a Growing SUSTAINABLE FUTURE RENEWABLES

Flexible Generation

Reliable and flexible power system.

We invest to ensure flexibility and high reliability of the Lithuanian energy system by providing reserve and ancillary services.
We are phasing out/decommissioning old conventional energy generation capacities.
We aim to contribute to the synchronisation of the Baltic states with continental European network by providing new balancing services.
We aim to develop additional Flexible Generation capacities if required to balance renewable energy and secure the required level of adequacy in the Lithuanian energy system.

ENSURING resilience ENABLING transition

Customers & Solutions

Innovative solutions for easier life and energy evolution.

We scale our core energy supply and trading business complementing it with innovative, value-added energy solutions.
We innovate together with our partners to help our customers become more energy smart and contribute to their environmental goals.
We enable industrial scale renewable energy expansion by helping to secure long-term offtake contracts and capitalising on our competences in balancing services.

Capturing regional growth OPPORTUNITIES

Networks

Green Generation

Flexible Generation

Customers & Solutions

Creating an Energy Smart world

24 / 364

Contents »

==> picture [46 x 46] intentionally omitted <==

We are driven by the purpose of creating an energy smart future, making it easy, seamless and green

Our people and culture

We are driven by the purpose of creating an energy smart future, making it easy, seamless, and green.

Engaged people, agile teams and learning everywhere, always, and fast.
We focus on the experience and personal growth of our people. Diversity in skills and competences gives us unique perspective to ensure the security of the national energy system and at the same time to be dedicated to our customers and passionate about innovation.
We empower our teams for speed, flexibility, and innovation. We foster different models of collaboration to create an energy smart world.
We transform and use different approaches for developing energy competencies. Our training system enables a constantly growing organisation and personal development.

==> picture [480 x 289] intentionally omitted <==

Focus on financial discipline

Our organisation

Strong governance model and smart way of doing things with digital approach.

Target returns, capital structure, dividends.

We target high single-digit/low double-digit levered equity returns depending on the risk profile of the projects.
We develop our organisation by applying transparent and effective governance model.
Solid investment-grade rating: BBB and above. Net Debt to EBITDA < 5x.
We apply the globally-recognised corporate governance practices.
We aim to deliver dividends to our shareholders in line with our growth and at a minimum annual dividend growth by 3%.
We adopt the most effective group operating models to create competitive advantages and achieve synergies within our business segments.
We incorporate digital approach in all areas of our activity as a key booster for efficiency improvements, motivation, and value creation.
Operational excellence is a part of our everyday activities.

25 / 364

Contents »

Our strategic targets and KPIs for 2022–2025

– With this report we present the update of our Strategic Plan for 2022 2025, placing sustainable expansion of our businesses at the core whilst ensuring return to our shareholders and the highest sustainability standards. Our annual targets and the overview of their achievement is detailed in section '4.6 Remuneration report'.

Financial

==> picture [421 x 125] intentionally omitted <==

----- Start of picture text -----

Adjusted EBITDA Adjusted ROCE
EURm %
370–410
7.9
Average
332.7 5.5–6.5
2021 2025 2021 2022–2025
----- End of picture text -----

Adjusted EBITDA is expected to reach EUR 370–410 million in 2025 or up to 11–23% growth compared to 2021 driven by Green generation.

Average Adjusted ROCE during 2022–2025 is expected to be around 5.5–6.5%. Revised WACC in electricity DSO and better than usual results in 2021 for Flexible generation and Customers & Solutions segments are the key drivers for the lower 2022–2025 targeted level.

Minimum DPS and dividend yield[1] EUR/%

==> picture [175 x 89] intentionally omitted <==

----- Start of picture text -----

6.6%
6.4%
6.2%
6.0%
5.8%
1.35
1.31
1.19 1.23 1.27
2021 2022 2023 2024 2025
----- End of picture text -----

We aim to grow our dividends to shareholders at a minimum 3% annual rate. The starting dividend level for 2020 was set at EUR 85 million and EUR 88 million declared for 2021. Implied dividend yield 2022–2025: 6.0–6.6%.

==> picture [46 x 17] intentionally omitted <==

----- Start of picture text -----

Investments
EURm
----- End of picture text -----

Net debt / Adjusted EBITDA Times

==> picture [421 x 103] intentionally omitted <==

----- Start of picture text -----

On average
~425–500
per year
234.9 <5.0x
2.9x
2021 2022–2025 2021 2022–2025
----- End of picture text -----

We aim to invest EUR 1.7–2.0 billion over 2022–2025 period, of which >90% a sustainable share. The major portion of that will be allocated to Green Generation capacity expansion and maintenance, modernisation and digitisation of our electricity distribution network.

Net Debt / Adjusted EBITDA is expected to be below 5x during 2022–2025.

Credit rating S&P

==> picture [223 x 31] intentionally omitted <==

----- Start of picture text -----

BBB 2021
BBB+
or above 2022–2025
----- End of picture text -----

We are committed to solid investment–grade rating. We expect to keep BBB or above rating over the 2022–2025 period.

1 Calculated based on the No. of shares (73,040,514 ordinary shares) for 2022-2025 period. Implied dividend yield is calculated based on the Ignitis Group share price: 20.5 €/sh.

26 / 364

Contents »

Environment

Green Generation capacity GW

GHG emissions million t CO2-eq

==> picture [175 x 55] intentionally omitted <==

----- Start of picture text -----

2.0–2.2
1.2
2021 2025
----- End of picture text -----

We expect to reach 2.0–2.2 GW of installed Green Generation capacity in 2025.

==> picture [519 x 79] intentionally omitted <==

----- Start of picture text -----

-23%
5.37 (vs . 2020)
5.04 -47%
(vs . 2020)
1.5 °C scenario
Net Emision reduction targets validated
zero by SBTi
Actual emissions
2020 2021 2025 2030 2050
----- End of picture text -----

We plan to reduce our GHG emissions by 23% by 2025 and to halve it by 2030 (vs. 2020) based on GHG emission targets validated by SBTi in 2021.

Social

Governance

Safety at work

of fatal accidents & TRIR[1]

Engaged employees Employee NPS, %

Diverse and inclusive workplace % of women in top management

Growing sustainable EBITDA share Share of sustainable adjusted EBITDA[2] , %

2025 target:

Fatal accidents = 0 (own emplyees and contractors) and TRIR[1] of:

==> picture [175 x 53] intentionally omitted <==

----- Start of picture text -----

2.01
1.90
2021 2025
----- End of picture text -----

Our key focus is on health and safety at work to have 0 fatal accidents (contractors and own employees) in 2025. Also, we target to have TRIR of own employees below 1.90 level in 2025.

We aim to retain eNPS level of ≥50%

==> picture [175 x 62] intentionally omitted <==

----- Start of picture text -----

57.4%
≥50.0%
2021 2022–2025
----- End of picture text -----

We measure the Group’s eNPS since 2019. Our target is to retain the reached level and to have eNPS level ≥50% over 2022–2025 period.

==> picture [360 x 76] intentionally omitted <==

----- Start of picture text -----

70%
27.0% ≥34.0% 64%
2021 2025 2021 2025
----- End of picture text -----

We aim to reach 34% share of women in top management in 2025.

We plan to grow sustainable EBITDA share to 70% or above in 2025.

1 Of own employees. 2 Calculated based on the principles defined in the EU Taxonomy draft version 2021.12.31.

27 / 364

Contents »

Resilient Network

Electricity SAIFI[1] Interruptions per customer

Decrease by 10%

==> picture [175 x 62] intentionally omitted <==

----- Start of picture text -----

1.18
1.06
2016–2020 2022–2026
average average
----- End of picture text -----

Investments in service quality and network efficiency boost the network resilience, resulting in an planned decrease of the SAIFI indicator by 10% over the strategic period.

Flexible Energy System

Ancillary and power reserve services Market share & position

==> picture [158 x 84] intentionally omitted <==

----- Start of picture text -----

95.0%
91.0%
#1 IN LT
2021 2022 2023–2025
----- End of picture text -----

We aim to keep #1 market position of ancillary and power reserve services in Lithuania. In 2021, we continued providing tertiary (482 MW) power reserve services as well as isolated regime services (within the scope of 409 MW).

Network Digitalisation

==> picture [180 x 125] intentionally omitted <==

----- Start of picture text -----

Smart meters
m
1.1–1.2
Smart
rollout
2022 2023 2024 2025
----- End of picture text -----

We digitise our electricity distribution network by implementing smart metering programme. By the end of 2025, we aim to install smart meters for all business customers and households, consuming >1,000 kWh/year. Further installations of smart meters will be continued as ongoing operating activities.

Green Energy Supply

Retail electricity sales volumes & Share of green electricity supply

==> picture [304 x 93] intentionally omitted <==

----- Start of picture text -----

TWh & % ~90%
>50%
24% 34%
~8.5
Electricity sales
6.4 6.8 volumes
Green electricity
share
2020 2021 2025 2030
----- End of picture text -----

We aim to increase energy retail electricity sales volumes up to about 8.5 TWh in 2025 (implying a 5.8% CAGR for 2022–2025) and to grow share of green electricity supplied to customers to >50% in 2025 and >90% in 2030 by scaling core energy supply business in the region complemented with innovative energy solutions.

1 Excluding (1) interruptions due to natural phenomena corresponding to the values of natural, catastrophic meteorological and hydrological phenomena indicators; (2) interruptions due to failures in the network of the transmission system operator.

28 / 364

Contents »

Our strategic targets evolution

==> picture [314 x 476] intentionally omitted <==

We introduced the market with our 4-year Strategic plan in 2020. Since then we update it on an annual basis. To assess our key targets evolution, we provide the readers a comparison below.

==> picture [447 x 101] intentionally omitted <==

----- Start of picture text -----

Investments Green Generation capacity
EURbn GW
1.8–2.0 2.0–2.2
1.6–1.8 GW GW
1.7–2.0 = 1.7–2.0 = 1.7–2.0 GW in 2024 in 2025
in 2023 up to
up to +22%
+25%
2020–2023 2021–2024 2022–2025 2020–2023 2021–2024 2022–2025
----- End of picture text -----

==> picture [200 x 101] intentionally omitted <==

----- Start of picture text -----

Adjusted EBITDA
EURm
370–410
350–390
EURm
EURm
in 2025
in 2024
up to
+17%
NA
2020–2023 2021–2024 2022–2025
----- End of picture text -----

29 / 364

Annual report 2021 / Business overview

Contents »

==> picture [388 x 363] intentionally omitted <==

----- Start of picture text -----

4 GW
We target to reach 4 GW of installed Green
Generation capacity by 2030 while ensuring
that the build-out creates value for our
shareholders. In 2021 we increased both, our
Green Generation installed capacity (113 MW)
and projects pipeline (up to 460 MW).
----- End of picture text -----

30 / 364

Contents »

Investments

Overview

The Group’s sustainable growth is led by investments in our core business segments – Green Generation and Networks. In total, we expect to deploy around EUR 1.7–2.0 billion of capital over 2022–2025 or around EUR 425–500 million per annum.

A large part or, around 50%, of the investments will be directed towards the expansion of Green Generation capacity. Based on current assumptions, we should reach 2.0–2.2 GW of installed renewables capacity by 2025, compared to currently operational portfolio of 1.2 GW.

The second largest proportion of funds or ~45% will be directed to Networks maintenance and expansion. It will contribute to the grid maintenance by increasing its security and reliability, development of new customer connections and upgrades, and digitalise the Lithuanian energy sector with the smart electricity metering programme. Regulated Asset Base to increase from EUR 1.3 billion in 2021 to EUR 1.6–1.7 billion in 2025.

In addition to a four-year investment plans, we align our investments into Networks with the regulator (NERC) for a 10-year period. The last time or on 7 December 2021 the investments of EUR 1.9 billion were confrmed over 2021–2030. We will direct these funds to improve reliability, resilience and digitalise the grid as well as to facilitate the market and customer experience. Finally, starting from 2022, 10-year investment plans will have to be submitted for the regulator’s approval every two years.

In order to successfully implement our investment plans while achieving financial targets, including a commitment to increase dividends annually, we have defined and apply clear investment policy. Additionally, we constantly disclose the updates on our key investment projects. More information on both issues is provided in the following sections.

Investments over 2022–2025, EURm

==> picture [343 x 294] intentionally omitted <==

----- Start of picture text -----

~5%
1 .7–2 .0
EURbn
~45% ~50%
Green Generation
Networks
Others
85–95% ~90%
of investments are of investments are
SDGs related EU taxonomy aligned
----- End of picture text -----

31 / 364

Contents »

Investment policy

Green Generation

The Group applies a prudent investment framework with hurdle rates for the Green Generation projects to ensure value-creating growth. A disciplined investment policy targets high single-digit to low double-digit levered equity returns depending on the risk profile of each project.

In 2022 we intend to initiate our asset rotation program. We target to sell up to 49% equity stakes of our operational Green Generation projects to capture additional return and recycle capital for future growth.

==> picture [39 x 36] intentionally omitted <==

Target markets Primarily the Baltics and Poland

Technologies Entry stage Wind (onshore and Primarily greenfield and offshore), solar, waste-toearly-to-late development energy and biomass stages

Financing Asset rotation Target returns 60–75% leverage Targeting up to High single-digit to low at the project level 49% asset rotation on a double-digit levered equity project level returns depending on the risk profile of a project

Networks

As a Lithuania’s distribution system operator that is working in a fully regulated business environment, our Networks segment’s investments are clearly defined by the regulatory framework and coordinated with the regulator (NERC).

Unlike the return on investments in Green Generation segment, it is capped by the regulatory WACC set for a 5-year regulatory period.

==> picture [41 x 36] intentionally omitted <==

Target markets Lithuania

Technologies Electricity and natural gas distribution grid

Type Maintenance, new customer connections and upgrades, digitalisation

Investment capacity

Target returns

10-year investment plans updated In line with WACC set for a and approved by the regulator 5-year regulatory period (NERC) on a 2-year basis starting from 2022 (previously on an yearly basis)

32 / 364

Contents »

Update on key ongoing and planned investments

Green Generation

In addition to our Green Generation installed capacity increase by 113 MW since the CODs of Vilnius CHP’s WtE unit (19 MWe, 60 MWth) and Pomerania WF (94 MW), our gross Green Generation projects growth amounts to up to 460 MW. We expanded our portfolio after signing conditional agreements for an acquisitions of Latvian onshore WF I (around 160 MW) and Polish solar II (up to 80 MW) portfolios, acquiring a ready-to-build Silesia WF in Poland (50 MW), and starting greenfield development by securing land plots for onshore wind and solar projects in Lithuania and Poland (around 170 MW).

All remaining projects are fully on track with exceptions of Vilnius CHP’s biomass unit (73 MWe, 169 MWth) and Polish solar portfolio I (up to 170 MW). In respect of Vilnius CHP’s biomass unit (73 MWe, 169 MWth), we still plan to start generating first energy by the end of 2022. However, due to the delay in the procurement procedures initiated after the announcement of Rafako (former main contractor) restructuring process, we now reschedule COD to Q2 2023. In Polish solar portfolio I (up to 170 MW), over the last six months we held agreement renegotiations with the developer (Sun Investment Group) due to no projects being awarded CfD tariff in the last auctions. As no agreement regarding return level which would be in line with our target range (of high single digit to low double digit levered equity returns) was reached, the conditional SPA agreement was terminated in February 2022. Advance payments of around EUR 3.8 million, which has been paid to the developer for the projects, will be fully returned in Q1 2022.

Status on key investment projects

Under construction

Under development (advanced)

Mažeikiai WF Vilnius CHP (biomass unit)
– Technology: onshore wind – Technology: biomass – Capacity: 63 MW – Capacity: 73 MWe, 169 MWth – Expected COD: Q1 2023 – Expected COD: Q2 2023 – Investment: – Investment: ~ EUR 80–85 million ~ EUR 210 million
– Subsidy scheme: – Subsidy scheme: merchant ~ EUR 140 million EU CAPEX grant[1]
– Ownership: 100% – Ownership: 100% (49% to be – Status: divested post COD according to EU CAPEX grant rules)
Progress: – Roads and foundation were – Status: completed. – Progress:
– Undergoing construction – ~75% of all works completed in the works of underground 110 biomass unit. kV and 30 kV electric cables, – Undergoing public procurement 110/30 kV transformer station, procedures for the remaining construction
and reconstruction of grid works. connection point. – Contracts signed with an EPCM (Engineering, Procurement and Construction Management) consultant – Ramboll (Ramboll Denmark A/S and Ramboll Polska Sp. z o.o.), engineering designer – Hidroterra, and a general contractor – Conresta.
Generation of first energy is planned for the end of 2022. However, due to the delay in the procurement procedures initiated after the announcement of Rafako (former main contractor) restructuring process, we now reschedule full COD to 2023.
Polish solar portfolio II Silesia WF Moray West offshore wind project Kruonis PSHP expansion
– Technology: solar – Technology: onshore wind – Technology: offshore wind – Technology: hydro – Capacity: up to 80 MW – Capacity: 50 MW – Capacity: 850–900 MW – Capacity: 110 MW – Expected COD: 2022–2023 – Expected COD: Q4 2023 – Expected COD: 2025 – Expected COD: 2025[6] – Investment: – Investment: – Investment: – Investment: ~ EUR 50 million ~ EUR 70 million[4] not disclosed ~ EUR 80 million[7]
– Subsidy scheme: – Subsidy scheme: – Subsidy scheme: – Subsidy scheme: 15-year indexed CfD (partly secured 15-year indexed CfD at 15-year indexed CfD (expected) merchant at ~53–56 EUR/MWh[2] ) / PPA ~55 EUR/MWh[5] – Ownership: 5% (partnership – Ownership: 100%
– Ownership: 100%[3] – Ownership: 100% with Ocean Winds, the 50/50 – Status: –– Status: Progress: – A conditional agreement for an –– – Status: Progress:A ready-to-build wind farm – joint venture owned by EDP Renewables and Engie)Status: – – Progress:A consultant (AFRY Switzerland Ltd) prepared technical specification acquisition of solar portfolio in Poland development project in Poland – Progress: (i.e. technical requirements to
– signed.Projects are under various – acquired. WTG supply and maintenance – The project is under active development. implement expansion) and tender documents (for acquisition and installation of the unit). – development stages with expected COD around 2022–2023.Currently 21 projects with a total – agreements with Nordex signed. to be launched around 2Q 2022 Construction works expected – Turbines are under PBA (Preferred Bidder Agreement), substations EPC and export cables EPCI contracts – Public procurement procedures for acquisition and installation of the additional unit of 110 MW were capacity of around 20 MW already with COD by the end of 2023. concluded. initiated in January 2022.
secured CfD in the range of ~53–56 EUR/MWh[3] . – Total expected investments – Long term O&M provider selected. – A decision on FID is expected amount to approx. EUR 70 – Geotechnical and geophysical around Q4 2022. million, including the acquisition price and construction costs. surveys undertaken to inform final detailed design.
– High involvement of the supply chain, negotiations with main contractors.

1 Total CAPEX grant for Vilnius CHP ( i.e. waste-to-energy (operational since Q1 2021) and biomass units). 2 228–242 PLN/MWh, applying inflation index of 1.07 and 0.2175 EUR/ PLN rate as of 31 December 2021.[3] After full completion of construction works.[4] Including project acquisition and construction works.[ 5] 237.5 PLN/MWh, applying inflation index of 1.07 and 0.2175 EUR/PLN rate as of 31 December 2021.[6] Tentative schedule is targeted to be aligned with Lithuanian synchronization to European continental networks project.[7] Preliminary estimate equal to the value of tender offer announced in January 2022.

On track Time delay and / or budget deviation

33 / 364

Contents »

Under development (early stage)

Greenfield portfolio

Lithuanian offshore WF I

Latvian onshore WF portfolio I

Technology: offshore wind
Technology: onshore wind & solar
Technology: onshore wind
Capacity: around 170 MW[1]
Capacity: around 160 MW
Capacity: 700 MW
Expected COD: 2024–2026[2]
Expected COD: 2025–2027
Expected COD: 2028
Investment: not disclosed
Investment: ~ EUR 200 million
Investment: not disclosed
Subsidy scheme: not disclosed
Subsidy scheme: merchant
- Subsidy scheme: 15-year CfD (expected)
Ownership: 100%[3]
Ownership: 100%
- Ownership: 51% (partnership with Ocean Winds, the 50/50 joint venture owned by EDP Renewables and Engie)
Status:
Status:
Progress:
Progress:
EIA procedures in progress.
Signed land lease agreements to secure land plots across Lithuania and Poland.
Status:
Working for design milestones.
- Progress:
Total expected investments
– After securing the land necessary amount up to EUR 200 million – The Energy Agency, the Ministry of to build reasonable capacity – with the acquisition price of the Energy of the Republic of Lithuania, EIA procedures for the specific portfolio comprising less than together with external consultants, locations will be initiated. 10% of total investments. have prepared and presented drafts of SEIA (Strategic Environmental Impact Assessment) and EIA (Environmental Impact Assessment) programme for public consultation.
- Draft law related to offshore development in Lithuania was amended according to Government’s proposal and submitted to the Parliament for further discussions. A new grid connection model (developer build) was introduced, but further discussions related to CfD model update are ongoing with the expected final approval by the Parliament in H1 2022.
1 Secured land lease agreements for development of indicated capacity.

2 As indicated capacity includes different projects, expected COD depends on the further progress within project on project basis. Additionally, Lithuanian projects operation should begin towards the end of indicated time range.

3 After construction permits are granted.

On track Time delay and / or budget deviation

==> picture [326 x 489] intentionally omitted <==

34 / 364

Contents »

Networks

Since Q3 2021, there have been no changes both in the implementation of Networks maintenance and expansion works. As previously disclosed, a smart meter roll-out has been rescheduled, pushing the meter roll-out to H1 2022 and the end date to 2025 from 2023. The project was delayed in order to comply with high cybersecurity requirements. Currently, the project is on track, however there is a risk of supply chain disruption due to a global supply issue (the ‘semiconductor crisis’), potentially causing disruption in the production of smart meters, thus affecting the project either by delivering smart meters in smaller quantities than planned and/or within a longer timeframe. Further on, a 10-year investment plan for 2021–2030 has been updated in Q4 2021. In line with the previously confirmed investments over 2020–2029, we target to allocate ~ EUR 1.9 billion of capital, mainly focusing on grid reliability and efficiency as well as facilitating the market and customer experience.

Status on key investment projects

==> picture [43 x 6] intentionally omitted <==

----- Start of picture text -----

Maintenance
----- End of picture text -----

Investments 2021–2030 (10-year investment plan) ~EUR 1 billion
Investments 2022–2025 (Strategic plan): EUR 390–410 million
Subsidy scheme: partially covered by EU funds (on a project by project basis)
Ownership: 100%
Status:

– Progress:

In 2021, over 685 km of electricity lines reconstructed (out of which 247 km in Q4 2021). Over 90% of these lines are underground cable lines.
Reconstruction of the most affected lines continued.

Expansion New customer connections and upgrades

Investments 2021–2030 (10-year investment plan): ~EUR 730 million
Investments 2022–2025 (Strategic plan): EUR 315–330 million
Subsidy scheme: partially covered by customers’ fees
Ownership: 100%
Status:
Progress:
In 2021 almost 27,000 new electricity customers and over 23,000 capacity upgrades were connected/upgraded, which resulted in around 860 km of new electricity lines (out of which 257 km in Q4 2021).
New customer connections and capacity upgrades continued.

Expansion Smart meter roll-out

Investments 2021–2030 (10-year investment plan): ~ EUR 150 million
Investments 2022–2025 (Strategic plan): EUR 100–115 million
Subsidy scheme: n/a
Ownership: 100%

==> picture [23 x 6] intentionally omitted <==

----- Start of picture text -----

TOTAL
----- End of picture text -----

Investments 2021–2030 (10-year investment plan): ~ EUR 1.9 billion
Investments 2022–2025 (Strategic plan): EUR 0.8–0.9 billion
Subsidy scheme: n/a
Ownership: 100%
Status:

– Progress:

An agreement with the infrastructure provider (Sagemcom Energy & Telecom SAS, France) for approximately 1.2 million of smart meters and implementation of related IT systems (data transfer technology – Narrowband Internet of things) concluded.
After setting a framework to implement the roll-out at the most efficient way in order to comply with all high level requirements (including cybersecurity), a project was replanned pushing the end date to 2025 (from 2023).
In Q4 2021, testing of the basic version of the systems started.

On track Time delay and / or budget deviation

35 / 364

Contents »

Strategic enablers

In order to keep the pace with the rapidly changing energy sector, we focus on innovation and digitalisation – our key strategic enablers ensuring operational efficiency and growth towards becoming the leading energy company in our home and target markets.

Open-innovation pillars and the process of idea development

Innovations

In 2018 we established Innovation Hub, which utilises internal and external initiatives to promote energy technologies, attract innovative ideas, and promotes data sharing. Innovation Hub is an integral part of Ignitis Group, which enables other companies to test their technologies, prototypes or business ideas in the Group’s infrastructure through a free-of-charge ‘sandbox’ programme. We cooperate with universities and other companies to develop new products and services that can later be adapted to the Group’s businesses. We aim to create and lead EnergyTech ecosystem based on the principles of Open Innovation.

During the period of 2020–2024, Ignitis Innovation Hub aims to conceptualize a use-case for 50 innovative solutions, followed by 35 pilot projects to validate the ideas. In 2021, 12 concepts and 10 pilot projects were carried out, 3 solutions were scaled-up. Scaled-up solutions include a calculator for rooftop potential for solar PV, overhead power line inspection using LIDAR and smart electricity grid voltage management solution EcoVar. Use-case concepts of promising technologies and new services have been developed as well. These included smart EV charging solutions, community wind power for prosumers and mobile application for end-customers providing data and insights about their energy consumption habits.

The Smart Energy Fund powered by Ignitis Group (managed by Contrarian Ventures), which so far has invested in start-ups around EUR 9.3 million, recorded exceptional results. In the year 2021, the total investment asset value grew by EUR 20.4 million to EUR 25.3 million, contributed mainly by portfolio companies raising subsequent funding rounds with increased valuations. In addition to piloting efforts, the energy market modelling and the development of the 2[nd] Ignitis Innovation Fund are among the main objectives of Ignitis Innovation team for 2022. Also, as the first Ignitis Innovation Fund is in its last investment year, we aim to assess and execute the best strategy for the establishment of the 2[nd] Fund.

==> picture [237 x 192] intentionally omitted <==

----- Start of picture text -----

Ideas Concepts Pilots Scale-ups
F
----- End of picture text -----

Smart Energy Fund powered by Ignitis Group

==> picture [46 x 8] intentionally omitted <==

----- Start of picture text -----

Managed by
----- End of picture text -----

==> picture [56 x 30] intentionally omitted <==

==> picture [634 x 106] intentionally omitted <==

----- Start of picture text -----

Investments Total investment Different Countries Investment
asset value companies partners Featured start-ups
EUR 9.3 EUR 25.3
16 8 80
million million
----- End of picture text -----

36 / 364

Contents »

Digitalisation

Digitalisation programme contributes to creating a culture of continuous improvement and rapid learning within the Group. In 2021, we focused on organising hackathons, process automation and improving digital employee experience which continue to remain one of our top priorities in the remote working environment.

==> picture [730 x 106] intentionally omitted <==

----- Start of picture text -----

Key initiatives
Hackathons Process automation Digital employee experience
----- End of picture text -----

The pandemic did not slow us down as we continued organising hackathons to solve internal and external challenges faced by the Group. In 2021 we organised 2 hackathons – 1 external and 1 internal.

Corruption prevention

The external hackathon organised together with Special Investigation Service of the Republic of Lithuania has been the largest hackathon organised so far. With 160 participants in total, 24 teams were formed to provide various solutions to fight the corruption in Lithuania. The teams came up with different ideas, from virtual reality games to AI algorithms that would assess the need for repairing the sidewalk and making the whole process transparent to the public. Currently, the best solutions are being implemented by the Group together with Special Investigation Service of the Republic of Lithuania.

In 2021, a lot of attention has been paid to automating processes and improving our chatbots, so as to reduce routine work of the Group employees and increase our customer experience.

We continued to make progress with RPA usage in 2021 as FTE savings using this technology reached 155. This is an increase of 50 FTEs, compared to 2020, and 100 FTEs, compared to 2019. To increase the potential and the speed of automation, pilots of automation decentralisation were launched within the Group and will continue in 2022.

In 2021 the Group increased the focus on digital employee experience as it should make the business processes more efficient, reduce IT maintenance costs, increase employee satisfaction and productivity and foster internal IT innovations. We also standardized some of the software that we use within the Group and simplified processes to reduce the need of IT administrators in maintenance in order to focus on IT solutions development. Moreover, a lot of focus was put on digital literacy of our employees, thus the digital skills programme has been launched, which focuses on upskilling and reskilling our employees.

Employee wellbeing and green initiatives

In our internal hackathon, the teams focused on the challenges related to the pandemic and green initiatives. Employees from different fields gathered to provide ideas on how we should measure wellbeing and efficiency of employees working remotely, in hybrid mode or full-time at the office. In addition, teams focused on the knowledge-sharing challenges within the organisation. A couple of teams provided solutions, like a consultation app for employees to quickly get help from colleagues and an internal channel to share news from conferences and events, thus, improving knowledge sharing process within the organisation. Other ideas included carpooling solution for employees to reduce our carbon footprint and better inclusion of employees who are less susceptible to traditional communication methods. Currently, we are working on the development of these ideas.

Plans ahead

We will continue working towards creating a smart work environment in 2022. During the upcoming 2 internal hackathons, we will mainly focus on improving various parts of digital employee experience. The digital skills programme will affect the majority of the organisation and include them in various training courses. Additionally, we are planning to launch reskilling pilot programmes, which would help employees change their career path within the organisation and obtain new competencies. The process automation will continue to bring large numbers of FTE savings for the Group.

37 / 364

Contents »

2 .4 Business environment

The Group’s performance, to an extent, is governed by macroeconomic and industry dynamics in the markets it operates. Thus, especially during this turbulent period, we closely monitor key economic indicators and developments in the industry to assess the business environment in our home market and provide an overview below.

Macroeconomic environment

GDP

Improving epidemiological situation led by lower levels of hospitalisations and a massive vaccination in the European Union has enabled many European economies to reopen in the beginning of Q2 2021. Over the next quarter, following the relaxed measures, a pre-pandemic output level has been reached, moving the EU as a whole from a recovery phase to a growth phase. As a result, based on Eurostat preliminary estimates, EU GDP is significantly more robust in 2021 versus 2020, as indicated by a 5.3% growth. Despite the struggles of keeping with the pace of growing demand, energy prices surging significantly above the pre-pandemic levels, affecting consumption and investments, and the inflationary environment pressure, the growth is expected to continue in 2022, however, at a slower pace of 4.3% compared to 2021. It should be mostly supported by improving labour market, high level of savings, advantageous financing opportunities and deployments of recovery funds. A year later, economy growth should converge to a steady growth path, reaching 2.5% GDP growth in the EU. Of course, the situation is highly dependent on current geopolitical uncertainty and is uneven across EU member

GDP change, %

==> picture [236 x 122] intentionally omitted <==

----- Start of picture text -----

2020 2021 2022F 2023F
Lithuania (0.1) +4.8 +3.4 +3.4
Latvia (3.6) +4.7 +4.4 +3.8
Estonia (3.0) +7.5 +3.1 +4.0
Finland (2.9) +3.5 +3.0 +2.0
Poland (2.5) +5.7 +5.5 +4.2
Euro area (6 .4) +5 .3 +4 .3 +2 .4
EU (5 .9) +5 .3 +4 .3 +2 .5
----- End of picture text -----

Source: Eurostat.

states. Turning to Lithuania, softer COVID-19 restrictions have stimulated national consumption, which pushed the GDP growth in 2021 to 4.8% compared to the same period last year. Over the course of the next two years, Lithuania’s economy is expected to grow at a moderate level of 3.4% both in 2022 and 2023.

Inflation

European Central Bank’s loose monetary policy and recovery in consumption coupled with supply chain challenges – all contributed to the record high inflation in 2021. However, one factor it affected the most - the annual energy prices which increased by almost a third in the Euro area. The largest annual harmonised CPI growth of 5.2% was recorded in Poland, followed by Lithuania and Estonia at 4.6% and 4.5% respectively. At the same time, amongst our home market countries, harmonized CPI growth in Finland was again the lowest, reaching only 2.1% annual growth rate in 2021.

Annual inflation rate change measured by harmonized CPI, %

==> picture [237 x 122] intentionally omitted <==

----- Start of picture text -----

2020 2021 2022F 2023F
Lithuania (1.1) +4.6 +6.7 +2.2
Latvia (0.1) +3.2 +5.9 +0.9
Estonia (0.6) +4.5 +6.1 +2.1
Finland +0.4 +2.1 +2.6 +1.9
Poland +3.7 +5.2 +6.8 +3.8
Euro area +0 .3 +2 .6 +3 .5 +1 .7
EU +0 .7 +2 .9 +3 .9 +1 .9
----- End of picture text -----

Source: Eurostat.

COVID-19

Despite the resilient economic environment in the home market, COVID-19-related crisis could impact the Group’s activities mostly by affecting our employees, contractors, suppliers, customers, and capital markets. We managed risks relevant to our employees based on their functions as well as by ensuring the availability to work remotely, for others – providing additional personal protection, hygiene measures and restricting unnecessary contacts with others.

So far we did not experience any significant disruptions due to COVID-19 in main business activities, investment strategies and development of projects, except for some delays in projects’ milestones. However, we are continuously assessing potential disruptions of cash flow, supply of services or goods, in attraction of sources of financing, potential decrease in electricity and gas consumption due to economic slowdown, the risk of COVID-19 infection of critical function personnel and the risk of delays in ongoing projects, using all the information available at this time. Yet we have not identified any circumstances which may give rise to doubt over the activities of the Group as a whole and the continuity of individual undertakings belonging to the Group, and we have also taken actions to manage the risks arising from the Group‘s activities.

We will continue monitoring the potential impact to the Group based on the changes in internal and external factors to ensure the Group’s business continuity.

Industry environment

Commodity market overview

Steep volatility in commodities market continued over 2021, reaching the all-time highs. Skyrocketing prices of oil, coal and natural gas combined with rising carbon prices affected electricity prices the most.

In 2021, oil demand continued to recover from its lows captured in 2020, raising its prices towards near or the highest levels over the years. Increased worldwide consumption, followed by limited spare capacity resulted in average daily price for yearly futures in Brent increase by 63.8% compared to 2020. Commodity price inflation is expected to prevail in 2022 as, according to the market experts, we might be entering into commodity bullish cycle, which will probably be tested by central banks tightening processes.

Similarly, mainly COVID-19-related recession affected a sharp decrease in industrial and power demand for coal in 2020, which reversed over 2021 as global economies recovered. Increased demand as well as soaring natural gas prices (indepth coverage is provided below, under section ‘Wholesale natural gas market’), which contributed to switching to coal to generate electricity, pushed its prices upwards by 62.8% compared to 2020. However, despite all market bullishness, coal

38 / 364

Contents »

once again saw its strong link to the domestic dynamics within China. Initially, contributing to the strong price increase by lifting imports to almost 25% of the global market, the country opened and ramped up lots of mines in recent months. The fate of the Chinese coal market will remain the single most important factor for international prices in 2022.

Consequently, an increase in use of coal, which is the largest source of CO2 emissions, lifted European Union’s carbon emissions (ETS) prices by 116.2% in 2021 compared to 2020. Additionally, a substantial part of the price change is also linked to the political reforms that have been implemented in 2021 to meet Europe's climate goals, thus, reducing supply of EU ETS allowances. Based on Reuters survey, published on 14 October 2021, the average ETS is expected to cost 55.9 EUR/tonne in 2022, 69.9 EUR/tonne in 2023, exceeding 72.0 EUR/tonne by 2024. Obviously, it will change depending on the shifts in natural gas prices as well as demand for coal.

Development of commodities in 2021, compared to 2020[1]

==> picture [236 x 68] intentionally omitted <==

----- Start of picture text -----

2021 2020 ∆, %
Oil – Brent USD / bbl 70.9 43.3 63.8%
Coal – API2 USD / t 94.3 57.9 62.8%
Natural gas – TTF EUR / MWh 38.6 9.4 310.6%
CO2 (EU ETS) EUR / t CO2 53.6 24.8 116.2%
----- End of picture text -----

1 Daily future price average for the year.

Wholesale electricity market

Lithuania is part of Nord Pool, which is a leading power market in Europe offering trading, clearing, settlement and associated services in both day-ahead and intraday markets.

During Q4 2021, prices increased remarkably in all bidding areas of the Nord Pool power exchange compared to Q4 2020, which also meant elevated prices in 2021 versus 2020. The price hike was a result of a number of reasons, with the main one being rising fuel and EUA prices (the latter growing by 116.1% from 24.8 EUR/t in 2020 to 53.6 EUR/t in 2021). The absolute EUA price record hit in December 2021 was 88.9 EUR/t. A new Nord Pool connection (Norway–United Kingdom, with a capacity of 1.4 GW) also contributed to the price increase in Scandinavia as prices in Central Europe and the United Kingdom were higher than in Scandinavia. Additionally, hydro production in Scandinavia is the key driver of electricity price in the region and in 2021 hydro production was 12.0% above normal levels (226.9 TWh), which

Nord Pool countries

==> picture [236 x 161] intentionally omitted <==

resulted in price divergence, as Central Europe’s prices were higher during peak hours compared to Scandinavia. Furthermore, 16.4% lower wind generation in Scandinavia in 2021 (62.3 TWh in 2020 compared to 52.1 TWh in 2021) kept prices at elevated levels. Finally, relaxed restrictions and recovery of industrial consumption of electricity in Scandinavia and the Baltics, which in 2021 increased by 6.0% (from 405.1 TWh in 2020 to 427.4 TWh in 2021), pushed power prices upwards, compared to the same period the last year.

The average system price was 470.0% higher in 2021, compared to the same period last year. The largest increase of 166.2% within our home market was captured in Lithuania, where prices in 2021 reached 90.5 EUR/MWh, and the absolute hourly price record in Lithuania was 1,000.1 EUR/MWh in December 2021. Meanwhile, the growth as well as the price level in Latvia and Estonia followed closely behind – in Latvia and Estonia prices increased by 161.2% and 157.3% to 88.8 EUR/MWh and 86.7 EUR/MWh respectively. In the Polish Power Exchange prices increased by 89.5% and were driven by post-lockdown recovery and higher EUA prices. Turning to 1-year futureprices for 2022, Nord Pool system price and electricity prices in the Baltics are driven mainly by dryer summer and beginning of winter, which resulted in extremely low hydro balance (the lowest point was at -22.00 TWh, compared to multiyear averages). Additionally, future prices are affected by projected depletion of reservoirs (filled below 10.0%) at the lowest point in 2022 as well as rising gas and EUAs prices in the market. On top of that, the new electricity connection of 1.4 GW between Scandinavia and the UK (which

Average hourly electricity spot price and its change, EUR/MWh

==> picture [237 x 112] intentionally omitted <==

----- Start of picture text -----

2020 2021 2022F [1] 2021 vs 2022 vs
2020 ∆, % 2021 ∆, %
Nord Pool system 10.9 62.3 62.1 471.6% (0.3%)
Lithuania 34.0 90.5 131.6 [2] 166.2% 45.4%
Latvia 34.0 88.8 131.6 161.2% 48.2%
Estonia 33.7 86.7 128.6 157.3% 48.3%
Finland 28.0 72.3 92.6 158.2% 28.1%
Poland 45.6 86.4 175.9 89.5% 103.6%
----- End of picture text -----

1 1-year future price as of 28 December 2021.

2 Based on Latvia’s forward price (as there is no separate Lithuanian zone).

started commercial operations on 1 October 2021) supported the increase in future prices.

In 2021, Lithuania produced 12.5% (or 0.6 TWh) less electricity compared to 2020, mainly due to lower wind energy generation levels (deteriorated by 17.0% or 0.3 TWh) driven by lower load factors as a result of unfavourable weather conditions. On the contrary, Estonia produced 31.1% (or 1.4 TWh) more electricity due to higher generation levels of its oil shale power plants (increased by 69.0% or 1.5 TWh). Poland also generated 14.0% (or 21.3 TWh) more electricity compared to 2020. Finally, the change in electricity generation level in Latvia and Finland in 2021, compared to 2020, was immaterial as both countries increased electricity generation by 1.8% (or 0.1 TWh) and 4.8% (or 2.9 TWh) respectively.

In terms of domestic generation and consumption, the countries in the home market in 2021 remained deficit countries. Specifically, Lithuania, Latvia and Estonia covered around 34.0% (or 4.2 TWh), 76.1% (or 5.6 TWh) and 69.5% (or 5.9 TWh) of total country’s demand respectively. Also, based on ENTSO-e data, Finland and Poland generated approximately 75.2% (63.7 TWh) and 92.5% (161.5 TWh) of the total country’s demand respectively.

During the reporting period, commercial import to Lithuania increased by only 6.6% (in 2021 – 11.6 TWh and in 2020 – 10.9 TWh). The ban of import from Belarus as a result of the law forbidding imports from third countries that operate unsafe nuclear power plants was partly offset by increased imports from Poland and Latvia. Due to lower prices in Northern Europe, import

39 / 364

Contents »

from Latvia increased by 39.1% (or 490.4 TWh), while export to Latvia decreased by 26.0% (or 66.6 TWh). Import from Poland increased by 87.4% (or 241.4 TWh), while export to Poland decreased by 37.1% (or 662.54 TWh). Import from Scandinavia to Lithuania decreased by 31.4% (1,115.5 TWh), whereas export to Scandinavia increased by 157.8% (123.40 TWh) due to higher prices in Sweden. Again, changes in flows were mainly due to limitations in LiTPol Link and NordBalt connections.

Overall, major regional impact comes from the extension of market coupling mechanism in Poland. From late June 2021, Germany, Czech Republic and Slovakia were added to the Poland coupling system, ending 16-year period of explicit dayahead allocation. Regional flows at the moment are purely price and capacity dependent. Going forward, inefficiencies related with explicit allocation operations will no longer occur, thus maximizing capacity usage and transmission system operators’ (PSE in Poland and LitGrid in Lithuania) revenues.

No material changes regarding the electricity consumption in our home market have been captured in 2021. Consumption levels grew slightly across all countries in the home market, compared to 2020.

Electricity generation change in 2021, compared to 2020, TWh

==> picture [236 x 91] intentionally omitted <==

----- Start of picture text -----

2021 2020 ∆, %
Lithuania 4.2 4.8 (12.5%)
Latvia 5.6 5.5 1.8%
Estonia 5.9 4.5 31.1%
Finland 63.7 60.8 4.8%
Poland 173.6 152.3 14.0%
----- End of picture text -----

Electricity consumption change in 2021, compared to 2020, TWh

==> picture [236 x 91] intentionally omitted <==

----- Start of picture text -----

2021 2020 ∆, %
Lithuania 12.4 11.8 5.1%
Latvia 7.3 7.0 4.3%
Estonia 8.4 8.0 5.0%
Finland 84.7 78.4 8.0%
Poland 174.4 165.5 5.4%
----- End of picture text -----

Wholesale natural gas market

Natural gas market during 2021 was volatile and prices shifted upwards on a global scale. Prices in the home market almost quadrupled during the course of 2021, compared to 2020. A number of events were driving the market, including competition for LNG cargoes in 2021, leading to 11% lower regasification in Europe, compared to the year before, an increase in coal and carbon prices, lower-than-average 2021 winter temperatures and a hot summer, lower renewable energy generation as well as maintenance of the major supply routes to Europe and lower pipeline flows to Europe from outside of the European Union. Some of them were driving the demand up, while others restricted additional supplies to reach the market, leading to a tension within the market. High natural gas prices in Europe were highly volatile both in the day and the day-ahead markets and varied throughout the months. TTF front month for the first time crossed 100 EUR/MWh level in October 2021. In mid-December 2021 TTF traded above Asian LNG prices for a number of days, which started to attract LNG cargoes from Asia to Europe. European TTF benchmark reached as high as 180 EUR/MWh, around 40 EUR/ MWh above Asian LNG price. At this time last year, natural gas prices in Asia were around 12 EUR/MWh higher compared to the prices in Europe. This year Asian buyers were better prepared for the winter compared to last year, while European countries, on the contrary, could have had more volume in their storage for the upcoming winter. This resulted in 1-year TTF future price on the last day of the reporting period being more than four times the front year futures price a year ago.

Stock levels in the underground natural gas storage facilities in Europe as of the end of the reporting period (31 December 2021) was at 53.8%, compared to 74.4% during the same time a year ago. 2020 winter season was abnormal in the sense of a warm winter and lower demand in the continent due to COVID-19-related factors, leaving above average levels in the storage after the winter season. 2021 winter demand, on the contrary, was much healthier and left gas storages depleted by the end of the season, signalling the need for additional supplies for replenishment.

Natural gas consumption during 2021, compared to 2020 figures, in the home market was supported by colder-than-average 2020/2021 winter temperatures. On the other hand, soaring natural gas prices were forcing businesses to either choose alternative energy sources, if that is possible, or adjust production output levels, which was observed in Lithuania and Finland.

Average natural gas price and its change, EUR/MWh

==> picture [236 x 106] intentionally omitted <==

----- Start of picture text -----

2020 2021 2022F [1] 2021 vs 2022 vs
2020 ∆, 2021 ∆,
% %
TTF [2] 9.4 38.6 77.7 310.6% 101.3%
Lithuania [4] 10.7 40.3 - 276.6% -
Latvia – Estonia [3,4] 10.5 39.9 - 280.0% -
Finland [4] 12.1 40.6 - 235.5% -
Poland [5] 13.0 47.9 89.1 268.4% 86.0%
----- End of picture text -----

1 1-year future price as of 31 December 2021.
2 TTF natural gas front month index.
3 Latvia and Estonia is a common natural gas balancing zone, therefore data is the same.
4 GET Baltic daily markets, there is no futures market thus no information is provided. 5 Weighted Average Day Ahead Price (EUR/MWh).

Natural gas consumption change in 2021, compared to 2020, TWh

==> picture [236 x 90] intentionally omitted <==

----- Start of picture text -----

2021 2020 ∆, %
Lithuania 24.3 25.3 (4.0%)
Latvia 12.5 11.6 7.8%
Estonia 4.9 4.5 8.9%
Finland 25.0 25.3 (1.2%)
Poland 217.8 200.0 8.9%
----- End of picture text -----

Heat market

Following the commercial launch of Kaunas and Vilnius CHPs (waste-to-energy units) in August 2020 and March 2021 respectively, interim and annual reports include a section on heat and waste markets in Lithuania.

In Lithuania, the heat sector, together with electricity and gas sectors, are regulated by the NERC. In Vilnius and Kaunas district heating systems, where our CHPs are operating, if there is at least one independent operating heat producer, an auction is organized by the Baltpool exchange on a monthly basis. There are a few conditions in setting the price for the auction: (i) the heat purchased from the independent heat producers cannot be

40 / 364

Contents »

more expensive than the comparable heat production costs of the heat supplier; (ii) heat prices cannot exceed the income level set by NERC (determined by including the necessary operating, maintenance, fuel costs and profit, which is applicable to Vilnius CHP only because the company received an EU CAPEX grant); (iii) the price must be competitive compared to other heat producers in order to ensure target quantity of produced heat.

If compared, the heat markets in Vilnius and Kaunas are fundamentally different. In Kaunas, excess power is observed in the district heating system of the city, therefore, during the non-heating and transition season, the majority of heat producers do not participate in heat auctions. As a result, local heat price is close to the biofuel market price or, in some cases, even lower during the non-heating season. Furthermore, higher heat demand during the heating season leads to a higher number of participants but heat production prices then are limited by competition and the price of biofuels in the market. Meanwhile, during heating and transition periods in Vilnius district, lack of power is observed. Thus pushing prices towards higher level compared to Kaunas district as almost every market participant can bid the highest price which is set by the system operator and work at the maximum capacity. During non-heating period situation is similar to Kaunas district, heat prices are close or lower than biofuel price bringing cogeneration plants in much more favourable position.

In terms of local heat price, no material changes were recorded in 2021, especially in the Kaunas district. Price of heat energy in both districts was somewhat higher in 2021, compared to 2020, mainly because of an increase in the price of biomass in Q4 2021.

Local heat price, EUR/MWh

==> picture [237 x 41] intentionally omitted <==

----- Start of picture text -----

2021 2020 ∆, %
Kaunas district 16.5 16.2 2.2
Vilnius district 23.3 21.0 11.0
----- End of picture text -----

Waste incineration market

So far, waste incineration services market was not regulated. However, at the end of 2021, the amendment of Waste Management Law was made, which established the market to be regulated by the NERC. The explicit details of the regulatory environment are not clear yet and are due to be defined in the bylaws. Until then, either waste incinerator or waste holder will continue to organize auctions or conclude contracts directly.

During Q4 2021, 51,000 tonnes of waste were delivered to Vilnius CHP, with cumulative deliveries for 2021 amounting to 160,000 tonnes. Turning to Kaunas CHP, in 2021 the power plant incinerated a total of 199,817 tonnes of waste, with 58,471 tonnes incinerated in Q4 2021. The total annual capacity of Vilnius CHP and Kaunas CHP is 160,000 and 200,000 tonnes respectively.

There have been no material changes in the national waste management sector during the reporting period, therefore, the gate fee of waste incineration remained consistent.

Gate fee of waste incineration, EUR/t

==> picture [237 x 41] intentionally omitted <==

----- Start of picture text -----

2021 2020 ∆, %
Kaunas district 41.7 40.9 2.0
Vilnius district [1] 32.6 29.9 9.0
----- End of picture text -----

1 Vilnius CHP started waste incineration in Q3 2020.

41 / 364

Contents »

Regulatory and market environment

Regional interconnections

Lithuania is one of the most interconnected countries in Europe and it is expected that the Lithuanian electricity system’s resilience and reliability will increase even more after the synchronization project with the Continental Europe is completed in 2025. However, in the light of the launch of Belarusian Astravyets Nuclear Power Plant (Belarusian ANPP) at the end of 2020, Baltic transmission system operators faced challenges in reaching joint agreements on trading with third countries, although, there was a unanimous decision not to buy electricity from the Belarusian ANPP. Even though the trade of electricity across the Lithuanian-Belarusian border was not possible, the physical power flow was still present.

As harmonized principles of capacity allocation on interconnections with Russia were not established, the Government of the Republic of Lithuania took decisive action and imposed an obligation to set a reduced technical capacity for physical flows from Belarus across the Lithuania-Belarus border. This decision enabled the TSO (“Litgrid”, AB) to limit the physical flow while lowering transmission capacity for potential imports from Russia across the Latvia-Russia border. As a result, the TSO's technical capacity restrictions had a positive impact on electricity exchanges between the Baltic states by reducing imports from third countries and increasing internal capacity between the Baltic states.

Until the synchronisation between the Baltic states and the Continental Europe is completed, which will automatically result in ultimate termination of electricity trading with third countries, an import/infrastructure tax for electricity import could be introduced. However, this requires consensus between all related parties and Baltic states, which, so far, has been difficult to reach.

Lithuanian energy market environment and the Group’s contribution

The Group plays a critical role in Lithuania’s energy value chain. After being transformed to lead energy transition across the region, we ensure the energy security and contribute to the decarbonisation goals, which include reaching 100% of electricity consumed to be generated from Green Generation sources by 2050.

Regional interconnections

==> picture [483 x 187] intentionally omitted <==

----- Start of picture text -----

FI
Interconnections with Russia and
1,016
Belarus for trade
0
EE
1,259 Other interconnections
SE RU
in place
1,447
Interconnection under
700 1,334 LV 970 construction (Harmony Link)
1,199 xx Transmission capacity (MW)
LT
600
Interconnection not to be used
0
700 RU 680 for power trading from 2025
onwards
BL
PL 500
Source: Nord Pool.
----- End of picture text -----

Group’s contribution to Lithuania’s energy value chain

==> picture [482 x 238] intentionally omitted <==

----- Start of picture text -----

Regulatory and Operating Authorities
Regulators Lithuanian Ministry of Energy Market operators
Natural gas sourcing Generation Transmission Distribution Retail Consumer
Industrial
Commercial
Operated by
Others Others Others Residential
----- End of picture text -----

42 / 364

Contents »

Business segment relevant environment changes in 2021 and prospects

Networks

Green Generation

With a new 5-year electricity distribution regulatory period starting in 2022, the market regulator (NERC) presented its amendment proposal for Networks Methodology for determining the price caps for electricity transmission, distribution and public supply services and proceeded to lead a public consultation with market participants in the second half of 2021. The proposed changes included changing the RAB calculation method, in essence, bringing it from LRAIC model to similar to Historical Cost model, resulting in material impact to the Group’s financial performance. However, after active discussions with the regulator, the Group and other related parties, such as the Ministry of Finance and the Ministry of Energy of the Republic of Lithuania, a sustainable regulatory framework was ensured through a newly established additional tariff component, which offsets the change in RAB calculation method (for more in-depth information about the financial impact of these changes, see section ‘Annual results’).

Currently, with full clarity on Networks regulatory environment for the electricity distribution business leg in the current regulatory period (2022–2026), we do not expect similar regulatory changes in the near future, including changes relating to the new regulatory period for natural gas activities, which is due to start in 2024.

The updated Networks Methodology is available in Lithuanian and WACC methodology, updated at the end of 2020, is available on the regulator’s website.

Overall, in line with European Green Deal initiatives, Lithuania approved its National Energy and Climate Plan (NECP) in 2020. The key objective set for 2030 is to increase the renewable source electricity share in final consumption to 45% (from ~20% in 2020), with priority on wind energy, which should conclude at least 70% of electricity generated. Considering that Lithuania is net electricity importer with one of the lowest shares of electricity consumption covered by national generation in Europe (approx. 40% based on 2020 statistics) and its ambitious target to produce 80-85% of electricity consumed locally in 2030, in 2021 the majority of efforts were put into setting up the framework for offshore wind development in the Baltic Sea.

Consequently, the Government has drafted a law that includes the first auction (permitting to use sea for offshore wind development as well as approving financial support) in Lithuania for an offshore wind farm in the capacity of up

Expected auctions within the Group’s home market[1]

==> picture [731 x 212] intentionally omitted <==

----- Start of picture text -----

Estonia &
Poland Lithuania Estonia Total
Latvia joint
Growth potential 2 .5x 2 .1x – 3 .7x 2 .4x n/a 2 .4x – 2 .6x
Installed capacity
Target by 2030 30.9 GW 4.0 – 7.0 GW 2.2 GW n/a 37 .1 – 40 .1 GW
Actual based on the latest data 12.4 GW 1.9 GW 0.9 GW n/a 15 .2 GW
Preliminary auctions
Year 2022–2027 [2] 2025–2027 2023 2022–2023 2025–2026
Technology Neutral Offshore Offshore Neutral Offshore
Capacity 9.0 GW 5.0 GW 0.7 GW [3] 0.4 GW [4] 1.0 GW 16 .1 GW
Status Planned Planned Planned Planned Planned
Support scheme Indexed CfD Indexed CfD Fixed CfD Fixed CfD TBD
Support period 15 years 25 years 15 years 12 years TBD
Polish solar
Group project relevance TBD Lithuanian offshore WF I TBD TBD
portfolio II
----- End of picture text -----

1 Information provided is based on publicly available information (Wood Mackenzie, Irena and others). 2 Extension of the current renewable energy sources auction system to 2027 was approved by the European Commission. Provided capacity is illustrative and will depend on the split between technologies.[3] Second stage of the auction with additional 700 MW capacity to be held in 2024 is currently under consideration.[4] Capacity calculated based on the following assumptions: auctions technology – neutral, wind capacity factor – equal to 35%, solar – 11.5%. In Polish auction, proportion is established between the wind and solar projects, wins equaling to 50:50, whereas in the remaining countries all auctions are won by wind projects.

43 / 364

Annual report 2021 / Business overview

Contents »

to 700 MW. The draft law has been discussed and approved by the Parliament's committees and the final approval by the Parliament is expected in H1 2022. The Lithuanian authorities are planning to start the auction in 2023 and select the winner in early 2024. To implement it, the Lithuanian Energy Agency started various preparations in 2021, including the contract signing and subsequent procedures of the special plan as well as preparing an environmental impact assessment. Additionally, the agency also announced procurements for wind and seabed surveys that are expected to be completed before the auction. Further on, in Q4 2021 the Ministry of Energy also presented their initial plans to launch a second offshore wind auction in 2024 (for another 700 MW). However, further discussions regarding these plans are expected to be carried out in the second half of 2022. The Green Generation is the key development direction for the Group, therefore, we are actively participating in all related activities (e.g., public consultations, legislation initiatives, etc.).

In addition to our efforts in the Baltics offshore wind development field, we continue surveying the prospects in our home market as well. In the table below we demonstrate upcoming renewable energy auctions and have identified the relevance our development projects. Of course, the pipeline is constantly expanding as we progress with our Green Generation targets. Overall, within our target Green Generation markets, more than 21.9 GW of additional renewables capacities should be installed till 2030, with the largest share of 18.5 GW planned in Poland due to its focus on phasing out coal generation, which currently represents around 85% of its electricity generation mix. The renewable capacity expansion within the Baltic States should not lag behind as well because, in growth potential terms, it is expected to double or more, similarly to Poland.

Flexible Generation

There were no major changes in this segment during the reporting period, i.e., Flexible Generation assets continued to provide tertiary active power reserve, isolated operation and other ancillary services to the Lithuanian TSO. Development of renewable energy capacities is driving the increasing demand on the grid and increasing importance of our Flexible Generation business segment while providing new opportunities for creating value not only for the country but also the region.

In 2021, Lithuania's TSO successfully carried out the test of the synchronous interconnection between Lithuania and Poland using the LitPol Link interconnector and newly installed autotransformers. This test would not have been possible without the successful participation of Flexible Generation assets providing the necessary assistance to Lithuanian and Polish TSOs. Additionally, due to the changes in the regulatory environment and the introduction of additional technical requirements for the provision of ancillary services, the overhaul process of Unit 8 of the Elektrėnai Complex was initiated in 2021 in order to ensure the requirement of 90 days of uninterrupted operation as an isolated regime service starting from 2024.

Looking to the near future, it is expected that the Flexible Generation assets managed by the Group will continue to provide various ancillary services to the Lithuanian TSO and this will contribute to the successful synchronisation of Lithuanian, Latvian and Estonian electricity power systems with the synchronously operated area of the Continental Europe in 2025.

Customers & Solutions

2021 was a year marked with unprecedented changes in the energy commodity markets. Skyrocketing electricity and natural gas prices forced governments across the Europe to find mechanisms to reduce the burden on the customers. We believe that in Lithuania a balanced solution was reached between the Government and market players as a scheme to amortize the increase in electricity and natural gas prices was introduced in the second half of 2021. Essentially, the Group is amortizing the increase in prices (e.g. the difference between the tariff set by the regulator (NERC) and the wholesale commodity prices) and the Government commits to return the difference through regulated distribution tariffs over the period of 2023–2027, including the funding costs required to ensure additional working capital needs for the Group. In relation to that, the second stage (out of three stages, which are based on consumption intensity) of electricity market deregulation (B2C related) was postponed by 6 months (from January to July 2022). However, it is not expected to affect the overall target of having fully deregulated electricity household consumers market by the end of 2022.

At last, the Government of the Republic of Lithuania confirmed the mandatory supply volume for the LNG terminal amounting to 4 cargoes per year for the whole 2022–2024 period, reducing the uncertainty of designated supply activities, which will benefit all customers, which are currently experiencing the all-time high natural gas prices.

Over the upcoming year, we do not expect any material changes in this business segment.

44 / 364

==> picture [40 x 6] intentionally omitted <==

----- Start of picture text -----

Contents »
----- End of picture text -----

Results

==> picture [284 x 74] intentionally omitted <==

----- Start of picture text -----

|||
|---|---|
|3.1 Annual results|46|
|3.2 Results by business segment|63|
|3.3 Five-year annual summary|71|
|3.4 Results Q4|72|
|3.5 Quarterly summary|74|

----- End of picture text -----

==> picture [28 x 6] intentionally omitted <==

----- Start of picture text -----

45 / 364
----- End of picture text -----

Annual report 2021 / Results

Contents »

3 .1 Annual results

Key financial indicators[1]

==> picture [521 x 355] intentionally omitted <==

----- Start of picture text -----

2021 2020 ∆ ∆,%
Revenue EURm 1,890.4 1,223.1 667.3 54.6%
EBITDA EURm 335.5 334.3 1.2 0.4%
Adjusted EBITDA EURm 332.7 245.9 86.8 35.3%
Networks EURm 145.4 137.7 7.7 5.6%
Green Generation EURm 107.5 50.4 57.1 113.3%
Customers & Solutions EURm 40.6 26.7 13.9 52.1%
Flexible Generation EURm 37.2 29.3 7.9 27.0%
Other [2] EURm 2.0 1.8 0.2 11.1%
Adjusted EBITDA margin % 17.6% 21.7% (4.1 pp) n/a
EBIT EURm 184.6 215.0 (30.4) (14.1%)
Adjusted EBIT EURm 206.6 126.6 80.0 63.2%
Net profit EURm 153.9 170.6 (16.7) (9.8%)
Adjusted net profit EURm 163.1 95.5 67.6 70.8%
Investments EURm 234.9 346.8 (111.9) (32.3%)
FFO EURm 291.8 309.4 (17.6) (5.7%)
FCF EURm (295.6) 5.1 (300.7) n/a
ROE % 8.4% 10.8% (2.4 pp) n/a
Adjusted ROE % 8.9% 6.0% 2.9 pp n/a
ROCE % 7.1% 9.1% (2.0 pp) n/a
Adjusted ROCE % 7.9% 5.4% 2.5 pp n/a
EPS (Basic) [3 ] EUR 2.07 2.30 (0.23) (10.0%)
DPS [3] EUR 1.19 1.14 0.05 4.4%
31 .12 .2021 31 .12 .2020 ∆ ∆,%
Total assets EURm 4,251.3 3,920.9 330.4 8.4%
Equity EURm 1,849.0 1,813.3 35.7 2.0%
Net debt EURm 957.2 600.3 356.9 59.5%
Net working capital EURm 486.4 94.4 392.0 415.3%
Net debt/EBITDA times 2.85 1.80 1.05 58.3%
Net debt/Adjusted EBITDA times 2.88 2.44 0.44 18.0%
FFO/Net debt % 30.5% 51.5% (21.0 pp) n/a
----- End of picture text -----

1 Due to Networks Methodology update, change in accounting policy and reclassifications as well as reduction of management adjustments, all financial indicators were recalculated retrospectively for the year 2020 (for more information, see ‘Annual results’ section 'Significant changes in reporting period of 2021’). 2 Other – other activities and eliminations (consolidation adjustments and related party transactions), including financial results of the parent company. More information about it is disclosed in the section ‘6.2 Parent company’s financial statements’.

3 For the calculation of 2020 EPS and DPS measures, number of shares after IPO (number of nominal shares – 74,283,757) were used in order to have comparable measures. EPS for 2020 would be EUR 2.89, DPS EUR 1.44 , if 2020 number of shares (weighted average number of nominal shares before and after IPO – 59,037,855) were used.

46 / 364

Annual report 2021 / Results

Contents »

Highlights

2021 vs 2020

In 2021, Adjusted EBITDA amounted to EUR 332.7 million. Results increased in all segments, 35.3% in total. The increase was mainly driven by Green Generation segment, which EBITDA has more than doubled in 2021. This in turn has been driven by new assets Vilnius CHP’s WtE unit and Pomerania WF launches and full year effect of Kaunas CHP and better performance of operational assets Kaunas HPP and Kruonis PSHP mostly due to higher electricity prices. Customers & Solutions segment’s Adjusted EBITDA was higher due to temporary effect from stored natural gas inventory.

Realised vs guidance

Adjusted EBITDA surpassed the higher end of our guidance range (EUR 300–310 million) for 2021 by 7.3%.

The outperformance was mainly driven by:

better results of electricity generating assets portfolio in Green Generation and Flexible Generation segments mainly due to higher electricity market prices and higher spreads between peak and off-peak market prices;
better results of the Customers & Solutions segment due to temporary effect from stored natural gas inventory.

==> picture [562 x 303] intentionally omitted <==

----- Start of picture text -----

Green Flexible Customers Total
Networks Other [1] Adjustments IFRS
Generation Generation & Solutions Adjusted
2021 Adjusted Reported
Revenue 509 .5 217 .0 151 .7 1,023 .6 (14 .2) 1,887 .6 2 .8 1,890 .4
Purchases of electricity, gas and other services (255.7) (82.3) (86.0) (955.0) (1.0) (1,380.0) - (1,380.0)
Wages and salaries and related expenses (53.1) (8.3) (7.7) (10.7) (17.4) (97.2) - (97.2)
Repair and maintenance expenses (22.1) (3.7) (6.0) - - (31.8) - (31.8)
Other expenses (33.2) (15.2) (14.8) (17.3) 34.6 (45.9) - (45.9)
EBITDA 145 .4 107 .5 37 .2 40 .6 2 .0 332 .7 2 .8 335 .5
Depreciation and amortisation (83.2) (21.1) (11.3) (1.8) (5.1) (122.5) - (122.5)
Write-offs, revaluation and impairment losses of PPE (3.7) - (0.1) - 0.2 (3.6) (24.8) (28.4)
and intangible assets
EBIT 58 .5 86 .4 25 .8 38 .8 (2 .9) 206 .6 (22 .0) 184 .6
Finance activity, net (25.6) 9.5 (16.1)
Income tax expenses (17.9) 3.3 (14.6)
Net profit 163 .1 (9 .2) 153 .9
2020 [2] Adjusted Reported
Revenue 438 .8 90 .4 110 .5 505 .2 (10 .2) 1,134 .7 88 .4 1,223 .1
Purchase of electricity, natural gas and other services (194.5) (22.6) (64.2) (437.4) 13.0 (705.7) - (705.7)
Wages and salaries and related expenses (51.4) (6.3) (7.1) (9.9) (18.1) (92.8) - (92.8)
Repair and maintenance expenses (24.8) (2.8) (6.3) - (0.2) (34.1) - (34.1)
Other expenses (30.4) (8.3) (3.6) (31.2) 17.3 (56.2) - (56.2)
EBITDA 137 .7 50 .4 29 .3 26 .7 1 .8 245 .9 88 .4 334 .3
Depreciation and amortisation (78.3) (17.4) (11.5) (1.6) (4.6) (113.4) - (113.4)
Write-offs, revaluation and impairment losses of PPE (4.7) - (0.2) - (1.0) (5.9) - (5.9)
and intangible assets
EBIT 54 .7 33 .0 17 .6 25 .1 (3 .8) 126 .6 88 .4 215 .0
Finance activity, net (20.2) - (20.2)
Income tax expenses (10.9) (13.3) (24.2)
Net profit 95 .5 75 .1 170 .6
----- End of picture text -----

[1] Other – other activities and eliminations (consolidation adjustments and related party transactions).

Realised vs guidance 2021

==> picture [564 x 71] intentionally omitted <==

----- Start of picture text -----

Realised 2020 [2] Guidance 26 Feb Guidance 27 May Guidance 31 Aug Guidance 30 Nov Realised 2021
Adjusted EBITDA 245 .9 300–310 300–310 300–310 300–310 332 .7
Networks 137.7 Higher Higher Higher Higher 145.4
Green Generation 50.4 Higher Higher Higher Higher 107.5
Flexible Generation 29.3 Lower Lower Lower Lower 37.2
Customers & Solutions 26.7 Higher Higher Higher Higher 40.6
Other 1.8 Lower Lower Lower Lower 2.0
----- End of picture text -----

2 Due to Networks Methodology update, change in accounting policy and reclassifications as well as reduction of management adjustments, all financial indicators were recalculated retrospectively for the year

2020 (for more information, see ‘Annual results’ section 'Significant changes in reporting period of 2021’). Adjusted EBITDA reported in 2020 annual report was EUR 291.6 million.

47 / 364

GRI 201-1

Annual report 2021 / Results

Contents »

Significant changes in reporting period of 2021

Main KPI’s of the Group were affected by the following events during 2021:

Networks Methodology update[1] – in October 2021, Networks regulator (NERC) updated a Methodology for determining price caps for electricity transmission, distribution and public supply services (link in Lithuanian). Due to the updated RAB, ROI and D&A for 2018–2021 were recalculated based on actual historical investments (instead of the original LRAIC model, which was applied for the period of 2016–2021). Therefore, adjusted figures for Networks segment have been recalculated retrospectively.

Emission allowances accounting policy change[2] – management have decided to make a voluntary change in accounting policy for European Union emission allowances for more accurate reporting. After the accounting policy change EU emission allowances are recognised at actual acquisition cost (EU emission allowances dedicated by the state are recognised at nominal (zero) value). Previously EU emission allowances were accounted for at fair value according to market prices.

Reduction of management adjustments[3] – in 2021, to simplify the reporting the management have decided to cease the use of management’s adjustments for:

cash effect of new connection points and upgrades;
temporary fluctuations in fair value of derivatives;
result of disposal of non-current assets;
impairment and write-offs of current and non-current amounts receivables, loans, goods and others.

In management’s view, the reduction of adjustments will help simplify interpretation of the results for intended users of Financial statements as well as align KPIs closer to reporting according to IFRS.

After the aforementioned changes management adjustments will include only:

temporary regulatory differences;
asset rotation result;
generation result before COD (applied only temporary – until the adoption of amendments to IAS 16 in 2022);
significant one-off items.

Impact of significant changes for Adjusted EBITDA of 2021, EURm

==> picture [328 x 134] intentionally omitted <==

----- Start of picture text -----

391.5
9.7
332.7
(44.4) (20.0) (2.8) (1.3)
Adj. EBITDA 1 2 3 3 3 Adj. EBITDA
before after changes
changes Networks Emission Cease the Cease the use Cease the
Methodology allowances use ofcash oftemporary use of other
update impact accounting effect of new fluctuations adjustments [1]
policy change connection in fair value of
impact points and derivatives
upgrades adjustment
adjustment
----- End of picture text -----

Impact of significant changes for Adjusted EBITDA of 2020, EURm

==> picture [328 x 126] intentionally omitted <==

----- Start of picture text -----

291.6
18.5 0.3 245.9
(48.1) (3.2) (13.2)
Adj. EBITDA 1 2 3 3 3 Adj. EBITDA
before after changes
changes Networks Emission Cease the Cease the use Cease the
Methodology allowances use ofcash oftemporary use of other
update impact accounting effect of new fluctuations adjustments [1]
policy change connection in fair value of
impact points and derivatives
upgrades adjustment
adjustment
----- End of picture text -----

1Other adjustments include result of disposal of non-current assets, impairment and write-offs of current and non-current amounts receivables, loans, goods and others

For more detailed information of each effect please see the descriptions in following pages.

48 / 364

Annual report 2021 / Results

Contents »

==> picture [810 x 502] intentionally omitted <==

----- Start of picture text -----

Networks Methodology update [1] Details of the change
Networks regulator (NERC) updated In October 2021, Networks regulator (NERC) updated a Methodology for determining price caps for electricity transmission, distribution and
Methodology for determining price caps for public supply services (link in Lithuanian). RAB calculation method was changed from LRAIC model to similar to Historical cost model. ROI and D&A
electricity transmission, distribution and public for 2018–2021 were recalculated based on actual historical investments (instead of the original LRAIC model, which was applied for the period
supply services. of 2016–2021). The recalculated difference approximately amounts to EUR 160 million which is due to be returned. According to estimate by
the Group, from this amount, EUR 48.1 million is related to 2020 and EUR 44.4 million is related to 2021. These amounts are treated as temporary
regulatory differences and will have to be returned to the consumers (96% of payable to be returned over 2032–2036), therefore adjusted
figures for the Networks segment have been recalculated retrospectively.
Emission allowances accounting Details of the change
policy change [2] In 2021 the management has concluded that the current accounting policy for emission allowances does not present the Statement of Profit or
Voluntary change in accounting policy for Loss and the Statement of Financial Position in the best interest of the users of the financial statements. Therefore, the management has determined
that there is a need for a voluntary change in the accounting policy.
European Union emission allowances.
After the accounting policy change EU emission allowances are recognised at actual acquisition cost in the accounts (EU emission allowances
dedicated by the state are recognised in the accounts at nominal (zero) value) and treated as inventory. Previously EU emission allowances were
treated as intangible assets and accounted for at fair value according to market prices.
After the accounting policy change revaluation of provision for EU emission allowances will no longer have impact to the Statement of Profit or Loss
of other period. Statement of Profit or Loss, cash flows and the Statement of financial position are presented more fairly as emission allowances are
used in the Group’s operations rather than for sale.
For more in-depth information see note 5 ‘Restatement of comparative figures due to the change in accounting policy and reclassifications’ in the
section 'Consolidated financial statements'.
Reduction of management Details of the change
adjustments [3] To simplify our reporting and align it with IFRS requirements, management adjustment for cash effect of new connection points and upgrades was
Cease of the use of management adjustment removed from reported figures for 2021 and comparable figures for 2020. The adjustment was implemented in Group figures from 2018, after
changes in revenue accounting principles under IFRS 15, in order to have better comparison with historical figures. According to IFRS, revenues
for cash effect of new connection points and
from new connection points and upgrades are recognised throughout the useful life of the newly created infrastructure, even though the cash is
upgrades.
received when the new connection point or upgrade is completed.
Cease of the use of management adjustment The Group uses derivatives for economic hedging of gas and electricity supply contracts, however, until July 2021 the Group did not fully comply
for temporary fluctuations in fair value of with hedge accounting, thus, mark to market results were booked in the Statement of Profit or Loss. Therefore, management adjustment was used
derivatives. to eliminate temporary fluctuations (mark to market) in the fair value of derivatives related to other periods (including contracts that are settled in the
current period but are related to future periods).
From July 2021 Group prepared a formal hedging policy and, currently, the change in the fair value of a hedging instrument that meets the
qualifying criteria for hedge accounting is accounted in the Statement of Financial Position, thus management adjustment is no longer needed.
To simplify our reporting, it was decided to retrospectively remove this management adjustment from 2020.
Cease of the use of management adjustments Considering the changes in management adjustments mentioned above, and to further simplify our reporting, management adjustments for the
for the result of disposal of non-current assets, result of disposal of non-current assets, impairment and write-offs of current and non-current amounts receivables, loans, goods and others were
impairment and write-offs of current and non- also removed.
current amounts receivables, loans, goods and These adjustments were not material for the Group figures, however, in some cases they overcomplicated the interpretation of Group results for
others. the intended users.
----- End of picture text -----

49 / 364

Annual report 2021 / Results

Contents »

Summary of significant changes impact on main financial KPI‘s for 2021:

==> picture [731 x 155] intentionally omitted <==

----- Start of picture text -----

Networks Emission allowances Reduction of management adjustments
before changes2021 Methodology update accounting policy change Cash effect of new Temporary [3] Total effect after changes2021
1 2 connection points and fluctuations in fair Other adjustments [1]
upgrades value of derivatives
EBITDA EURm 325.8 - 9.7 - - - 9.7 335.5
Adjusted EBITDA EURm 391.5 (44.4) 9.7 (20.0) (2.8) (1.3) (58.8) 332.7
EBIT EURm 157.7 - 26.9 - - - 26.9 184.6
Adjusted EBIT EURm 248.2 (44.4) 26.9 (20.0) (2.8) (1.3) (41.6) 206.6
Net profit EURm 131.0 - 22.9 - - - 22.9 153.9
Adjusted net profit EURm 197.6 (37.7) 22.9 (17.0) (1.6) (1.1) (34.5) 163.1
ROE % 7.1% 8.4%
Adjusted ROE % 10.8% 8.9%
ROCE % 6.0% 7.1%
Adjusted ROCE % 9.5% 7.9%
----- End of picture text -----

Summary of significant changes impact on main financial KPI‘s for 2020:

==> picture [731 x 155] intentionally omitted <==

----- Start of picture text -----

Networks Emission allowances Reduction of management adjustments
before changes2020 Methodology update accounting policy change Cash effect of new Temporary [3] Total effect after changes2020
1 2 connection points and fluctuations in fair Other adjustments [1]
upgrades value of derivatives
EBITDA EURm 337.4 - (3.1) - - - (3.1) 334.3
Adjusted EBITDA EURm 291.6 (48.1) (3.2) (13.2) 18.5 0.3 (45.7) 245.9
EBIT EURm 214.9 - 0.1 - - - 0.1 215.0
Adjusted EBIT EURm 168.9 (48.1) 0.1 (13.2) 18.5 0.3 (42.3) 126.6
Net profit EURm 169.3 - 1.3 - - - 1.3 170.6
Adjusted net profit EURm 126.7 (40.9) 1.3 (11.2) 19.1 0.3 (31.2) 95.5
ROE % 10.6% 10.8%
Adjusted ROE % 7.9% 6.0%
ROCE % 9.0% 9.1%
Adjusted ROCE % 7.1% 5.4%
----- End of picture text -----

1 Other adjustments include result of disposal of non-current assets, impairment and write-offs of current and non-current amounts receivables, loans, goods and others.

50 / 364

Annual report 2021 / Results

Contents »

Revenue

In 2021, revenue increased by 54.6%, compared to 2020, and totaled EUR 1,890.4 million. Revenue increase was primarily due to the significantly higher power (around 60% of the increase) and gas (around 30% of the increase) and prices across all markets, especially during H2 2021. The main reasons causing revenue changes in our business segments were as follows:

1 . Higher revenue of the Customers & Solutions segment (EUR +460 .9 million) . Positive Customers & Solutions revenue result is driven by an increase in electricity business (EUR +304.9 million) as well as gas business (EUR +153.4 million). Higher revenue of B2B electricity business (EUR +199.8 million) was due to higher market prices (+165% on average) and higher volumes sold (+11%). Total B2C electricity sales have increased (EUR + 98.2 million) mainly due to higher electricity prices and tariffs in 2021, where regulated activities generated EUR 217.5 million while independent supply activities generated EUR 47.2 million and captured 69% share of independent supply market by customer count (or 63% by volume) (source: NERC). An increase in gas business was driven by higher natural gas B2B sales (EUR +143.0 million) mainly due to higher average TTF gas price index (+313%), which is mainly referenced in the company’s gas supply. Natural gas B2C sales increased moderately (EUR +8.8 million) due to the regulated tariff.
2 . Higher revenue of the Green Generation segment (EUR +119 .2 million) . The increase was driven by higher revenue of Kruonis PSHP (EUR +54.2 million) and Kaunas HPP (EUR +23.6 million) mainly due to higher electricity market prices, full year effect of Kaunas CHP (EUR +21.9 million) and COD of Vilnius CHP’s WtE unit (EUR +16.5 million).
3 . Higher revenue of the Networks segment (EUR +50 .5 million) . The increase was mainly driven by higher electricity (EUR +27.5 million) and natural gas (EUR +12.3 million) distribution revenue, mainly due to higher distributed volumes (from 9.55 TWh to 10.37 TWh and from 7.06 TWh to 8.49 TWh respectively) as a result of colder winter compared to 2020 and overall higher consumption as well as increased revenue from supply of last resort (EUR +9.1 million) due to 165% higher electricity market price.
4 . Higher revenue of the Flexible Generation segment (EUR +42 .6 million) . The increase was mainly driven by CCGT unit’s commercial activity (EUR +30.1 million) due to the growth of captured electricity prices and regulated activities (EUR +7.0 million) due to higher selling price of electricity generated during testing.

Revenue by segment, EURm

==> picture [356 x 79] intentionally omitted <==

----- Start of picture text -----

2021 2020 ∆ ∆,%
Customers & Solutions 1,009.4 548.5 460.9 84.0%
Networks 532.7 482.2 50.5 10.5%
Green Generation 209.1 89.9 119.2 132.6%
Flexible Generation 153.5 110.9 42.6 38.4%
Other [1] (14.3) (8.4) (5.9) 70.2%
Revenue 1,890 .4 1,223 .1 667 .3 54 .6%
----- End of picture text -----

1 Other – other activities and eliminations (consolidation adjustments and related party transactions).

Revenue by country, EURm

==> picture [356 x 46] intentionally omitted <==

----- Start of picture text -----

2021 2020 ∆ ∆,% 2021, %
Lithuania 1,616.4 1,122.8 493.6 44.0% 85.5%
Other [2] 274.0 100.3 173.7 173.2% 14.5%
Revenue 1,890 .4 1,223 .1 667 .3 54 .6% 100 .0%
----- End of picture text -----

2 Other – Latvia, Estonia, Poland and Finland.

In 2021, the Group earned 85.5% (91.8% in 2020) of its revenue in Lithuania (EUR 1,616.4 million). The Group’s revenue from foreign countries increased by 173.2%, mostly in Finland and Latvia, and reached EUR 274.0 million (2020: EUR 100.3 million), mainly due to increased natural gas prices.

Revenue by type[3] , EURm

==> picture [356 x 56] intentionally omitted <==

----- Start of picture text -----

2021 2020 ∆ ∆,% 2021, %
Electricity related 1,392.7 941.8 450.9 47.9% 73.7%
Natural gas related 422.7 243.5 179.2 73.6% 22.4%
Other 75.0 37.8 37.2 98.4% 4.0%
Revenue 1,890 .4 1,223 .1 667 .3 54 .6% 100 .0%
----- End of picture text -----

3 A more detailed description is presented in Annual Consolidated Financial statements for 2021, Note 34 ‘Revenue from contracts with customers’.

In 2021, electricity related revenue increased by EUR 450.9 million, compared to 2020, mostly due to higher revenue from B2B, B2C electricity supply and related revenue (EUR +275.0 million), higher revenue from sale of generated electricity (EUR +157.0 million) and higher electricity distribution and transmission revenue (EUR +30.4 million). Natural gas related revenue increased by EUR 179.2 million, compared to 2020, due to higher revenue from natural gas sales (incl. LNGT security component) (EUR +170.2 million) and natural gas transmission and distribution (EUR +9.1 million). Other revenue increased mostly due to higher revenue from hedging (EUR +15.4 million), of which mostly electricity hedging (accounted under other income as to accounting policy), higher revenue of heating (EUR +10.1 million) and waste recycling (EUR +8.6 million).

51 / 364

Annual report 2021 / Results

Contents »

Expenses

Purchase of electricity, natural gas and other services

The Group’s purchase of electricity and natural gas amounted to EUR 1,380.0 million in 2021 and increased by 95.6% compared to 2020. The increase was caused by higher electricity (EUR +479.4 million) and natural gas (EUR +186.0 million) purchases, mainly due to increased market prices and higher volumes due to colder winter and overall higher consumption.

OPEX

In 2021, OPEX was equal to EUR 173.2 million and increased by 4.6% (EUR +7.6 million). This change was driven by higher other OPEX by EUR 5.5 million (or +14.2%), mainly due to higher external customer service costs, mostly caused by increased number of queries due to electricity B2C market liberalisation and heavy snowfall in January as well as more IT expenses in 2021. Also, salaries and related expenses were EUR 4.4 million (or +4.7%) higher, which increased mainly due to the growth in Group’s average salary and headcount as well as increased overtime resulted from repair of failures in the electricity distribution network after heavy snowfall.

New Green Generation projects under construction, under development and projects completed in the period during and after 2020 accounted for a EUR 3.0 million increase in OPEX.

Other

Write-offs, revaluation and impairment losses of PPE and intangible assets were higher as, due to changes in Networks Methodology, electricity related PPE revaluation effect of EUR 44.4 million (including grants) was recognised in 2021 (EUR 15.9 million through Statement of Profit or Loss and EUR 28.5 million through revaluation reserve). Impairment of gas related PPE of EUR 8.9 million was recognised in Other expenses in 2021.

Expenses, EURm

==> picture [356 x 184] intentionally omitted <==

----- Start of picture text -----

2021 2020 [1] ∆ ∆,%
Purchase of electricity, natural gas and other services 1,380 .0 705 .7 674 .3 95 .6%
Purchase of electricity and related services 952.5 473.1 479.4 101.3%
Purchase of natural gas and related services 415.4 229.4 186.0 81.1%
Other 12.0 3.2 8.8 275.0%
OPEX 173 .2 165 .6 7 .6 4 .6%
Salaries and related expenses 97.2 92.8 4.4 4.7%
Repair and maintenance expenses 31.8 34.1 (2.3) (6.7%)
Other 44.2 38.7 5.5 14.2%
Other 152 .7 136 .8 15 .9 11 .6%
Depreciation and amortisation 122.5 113.4 9.1 8.0%
Energy hedging - 14.1 (14.1) (100.0%)
Write -offs, revaluation and impairment losses of PPE and 28.5 5.9 22.6 383.1%
intangible assets
Write-offs and impairments of short term and long-term 1.7 3.4 (1.7) (50.0%)
receivables, inventories and other
Total 1,705 .8 1,008 .1 697 .7 69 .2%
----- End of picture text -----

1 Due to change in accounting policy and reclassifications, expenses were adjusted retrospectively for the year 2020 (for more information, see ‘Annual results’ section 'Significant changes in reporting period of 2021’).

Due to increased electricity and natural gas market prices, there was a significant decrease of energy-hedge related settlement expenses. Due to positive commodity price trend in 2021, the Group has earned revenue (EUR +23.9 million from settled derivatives in 2021). On the contrary, in 2020 commodity price trend was downward, therefore, result of settled commodities was negative and Group has incurred expenses (EUR -14.1 million from settled derivatives in 2020). According to the accounting policy of the Group, changes in fair value and result of settled derivatives for hedges that do not meet the qualifying criteria for hedge accounting are disclosed in Statement of Profit or Loss, the positive hedging result for the period is presented in other revenues (EUR +23.9 million in 2021), while the negative result – in other energy hedging expenses (EUR -14.1 million in 2020).

Depreciation and amortisation expenses increased due to Kaunas CHP (EUR +3.5 million), as the plant reached COD in August 2020, and Vilnius CHP’s WtE unit (EUR +2.4 million), as it reached COD in March 2021, as well as higher expenses of Networks segment (EUR +2.8 million), mostly due to Investments made.

52 / 364

Annual report 2021 / Results

Contents »

EBITDA

Adjusted EBITDA amounted to EUR 332.7 million in 2021 and was 35.3% or EUR 86.8 million higher than in 2020. Adjusted EBITDA margin was 17.6% (in 2020: 21.7%). Due to the Networks Methodology update and changes in management adjustments, Adjusted EBITDA was recalculated retrospectively for the year 2020 (for more information, see ‘Annual results’ section 'Significant changes in reporting period of 2021’). Negative Networks Methodology update’s impact for 2021 amounts to EUR -44.4 million and for the respective period of 2020 – EUR -48.1 million.

The main reasons behind adjusted EBITDA change were as follows:

1 . Green Generation increased by EUR 57 .1 million . The increase was mainly influenced by better results of Kruonis PSHP (EUR +15.5 million) due to better results of commercial activities (EUR +17.5 million), exploiting favorable spread between peak and off-peak market prices, and Kaunas HPP (EUR +12.7 million), mostly due to higher captured electricity prices. A positive impact of Vilnius CHP’s WtE unit (EUR +13.0 million) as the plant generated first electricity in February 2021, full year impact of Kaunas CHP (EUR +10.0 million) that generated first electricity in May 2020 and Pomerania WF (EUR +5.7 million) that generated first electricity in May 2021 and reached COD in December 2021 also impacted the Adjusted EBITDA increase.
2 . Customers & Solutions increased by EUR 13 .9 million . Positive change of natural gas result (EUR +39.0 million) mainly driven by temporary effect of gas inventory in storage as a result of average cost accounting method. Inventory effect resulted by combination of increasing gas prices (+313% in average TTF index) and higher volume of stored gas (+27% on average). These temporary effects are expected to partly reverse in 2022 after settlement of hedging contracts. Positive effect was partly offset by lower B2B volumes sold as a result of one-off natural gas transactions in 2020. Negative change in electricity business (EUR -24.6 million) was driven by lower B2B and independent supply B2C sales, mainly due to ineffective “proxy” hedges as spread between Lithuanian and Finish price zones has increased, especially in Q4, and there was limited availability of products in the Lithuanian and Latvian market. Regulated B2C and other electricity supply activities decreased driven by lower regulated profitability, differentiated DSO distribution tariff effect, and higher DSO balancing costs.
3 . Flexible Generation increased by EUR 7 .9 million . The increase was mainly caused by better results of CCGT unit (EUR +8.1 million), which increased due to better commercial activity results as Clean spark spread was higher.
4 . Networks grew by EUR 7 .7 million . The increase was mainly driven by higher RAB value (EUR +7.6 million), which increased by 6.1% from EUR 1,186 million in 2020 to EUR 1,258 million in 2021[1] .

Adjusted EBITDA by segments, EURm

==> picture [359 x 80] intentionally omitted <==

----- Start of picture text -----

2021 2020 [2] ∆ ∆,%
Networks 145.4 137.7 7.7 5.6%
Green Generation 107.5 50.4 57.1 113.3%
Customers & Solutions 40.6 26.7 13.9 52.1%
Flexible Generation 37.2 29.3 7.9 27.0%
Other [3] 2.0 1.8 0.2 11.1%
Adjusted EBITDA 332 .7 245 .9 86 .8 35 .3%
----- End of picture text -----

2 Due to Networks Methodology update, change in accounting policy and reclassifications as well as reduction of management adjustments, all financial indicators were recalculated retrospectively for the year 2020 (for more information, see ‘Annual results’ section 'Significant changes in reporting period of 2021’). 2020 Adjusted EBITDA was EUR 291.6 million.

3 Other – other activities and eliminations (consolidation adjustments and related party transactions).

Adjusted EBITDA 2021

==> picture [330 x 218] intentionally omitted <==

----- Start of picture text -----

0 .6%
11 .2%
12 .2%
43 .7%
EUR 332 .7
million Networks
Green Generation
Customers & Solutions
Flexible Generation
32 .3% Other
----- End of picture text -----

1 Networks RAB numbers are calculated estimating the impact of RAB correction after the Methodology update (for more information see ‘Results by business segments’ section ‘Networks’).

53 / 364

Annual report 2021 / Results

==> picture [362 x 328] intentionally omitted <==

----- Start of picture text -----

2x
Our Green Generation Adjusted
EBITDA more than twofold contributing
EUR 107.5 million out of total EUR 332.7
million Adjusted EBITDA in 2021.
54 / 364
----- End of picture text -----

Annual report 2021 / Results

Contents »

Adjusted EBITDA by activity type

In 2021, Adjusted EBITDA from regulated and long-term contracted activities amounted to 60.0% of the total Adjusted EBITDA (2020: 73.1%). The share of such activities decreased due to significantly higher Adjusted EBITDA from merchant activities, mainly due to high electricity market prices.

Regulated activities include:

electricity and natural gas distribution;
reserve and ancillary services provided to the transmission system operator;
public supply of electricity, electricity supply of last resort, natural gas supply to residents of Lithuania and designated LNG supplier services.

Long-term contracted activities include wind farms with support schemes, i.e., feed-in and feed-in premium tariffs. Pomerania WF will start selling electricity under the feed-in tariff with contracts for difference (CfD) after submission of activity reports to the regulator, which is due in March 2022.

Adjusted EBITDA by types of activities, EURm

==> picture [356 x 58] intentionally omitted <==

----- Start of picture text -----

2021 2020 ∆ ∆,%
Regulated 187.9 166.7 21.2 12.7%
Long-term contracted 11.6 13.2 (1.6) (12.1%)
Other 133.2 66.0 67.2 101.8%
Adjusted EBITDA 332 .7 245 .9 86 .8 35 .3%
----- End of picture text -----

Adjusted EBITDA by types of activities 2021, %

==> picture [296 x 141] intentionally omitted <==

----- Start of picture text -----

40 .0% Regulated
Long-term contracted
EUR 332 .7
million Other
56 .5%
3 .5%
----- End of picture text -----

EBITDA adjustments, EURm

==> picture [356 x 102] intentionally omitted <==

----- Start of picture text -----

2021 2020 ∆ ∆,%
EBITDA 335 .5 334 .3 1 .2 0 .4%
Adjustments [1]
Temporary regulatory differences (1) (10.4) (86.6) 76.2 (88.0%)
Result from generation before COD (2) 7.6 - 7.6 n/a
One-off revenue related to GDRs (3) - (1.8) 1.8 (100.0%)
Total EBITDA adjustments (2 .8) (88 .4) 85 .6 (96 .8%)
Adjusted EBITDA 332 .7 245 .9 86 .8 35 .3%
Adjusted EBITDA margin 17.6% 21.7% (4.1 pp) n/a
----- End of picture text -----

1 A more detailed description of the management adjustments is presented in Annual Consolidated Financial statements for 2021, Note 46 ‘Operating segments’.
(1) Elimination of the difference between the actual profit earned during the reporting period and the profit allowed by the regulator. Elimination includes retrospective adjustments made after the changes in Networks RAB methodology for the years 2021 and 2020, specifically, EUR --44.4 million for 2021 and EUR -48.1 million for 2020. The 2021 adjustment includes the elimination of lower Networks and Customers & Solutions segments’ profit earned from regulated activities (EUR +21.2 million and EUR +14.2 million respectively), which resulted from higher actual electricity and natural gas purchase prices compared to prices set by the regulator. The 2020 adjustment includes the elimination of higher Customers & Solutions segment’s profit earned from regulated activities (EUR -43.3 million), which resulted from lower actual electricity and natural gas purchase prices compared to prices set by the regulator.
(2) In 2021 the result from generation before COD (and possible formal completion procedures after COD) of Vilnius CHP’s WtE unit (EUR 3.6 million) and Pomerania WF (EUR 4.0 million) was added as it reflects the result which was capitalised in the Statement of Financial Position according to applicable IAS 16 requirements for the reporting period of 2021. Amendments to IAS 16 Property, Plant and Equipment to be implemented from 2022 will prohibit a company from deducting from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, a company will recognise such sales proceeds and related cost in the Statement of Profit or Loss.
(3) EBITDA adjustments include elimination of one-off gains or losses. The only one one-off elimination for 2020 is an amount related to GDRs, which was collected from the GDRs depository (the Bank York New York Mellon) during the IPO process (EUR -1.8 million).

55 / 364

Annual report 2021 / Results

Contents »

EBIT

In 2021, Adjusted EBIT amounted to EUR 206.6 million, which was 63.2% (or EUR +80.0 million) higher than in 2020. The main effects of the change in Adjusted EBIT was higher Adjusted EBITDA (EUR +86.8 million) (the reasons behind the increase are described in ‘EBITDA’ section), which was partly offset by higher depreciation expenses (EUR -9.1 million).

Adjusted EBIT by segments, EURm

==> picture [356 x 91] intentionally omitted <==

----- Start of picture text -----

2021 2020 [1] ∆ ∆,%
Networks 58.5 54.7 3.8 6.9%
Green Generation 86.4 33.0 53.4 161.8%
Flexible Generation 25.8 17.6 8.2 46.6%
Customers & Solutions 38.8 25.1 13.7 54.6%
Other [2] (2.9) (3.8) 0.9 (23.7%)
Adjusted EBIT 206 .6 126 .6 80 .0 63 .2%
Adjusted EBIT margin 10.9% 11.2% (0.3 pp) n/a
----- End of picture text -----

2 Other – other activities and eliminations (consolidation adjustments and related party transactions).

EBIT adjustments, EURm

==> picture [356 x 104] intentionally omitted <==

----- Start of picture text -----

2021 2020 ∆ ∆, %
EBIT 184 .6 215 .0 (30 .4) (14 .1%)
Adjustments
Total EBITDA adjustments (2.8) (88.4) 85.6 (96.8%)
One-off PPE revaluation and impairment adjustment (4) 24.8 - 24.8 n/a
Total EBIT adjustments 22 .0 (88 .4) 110 .4 n/a
Adjusted EBIT 206 .6 126 .6 80 .0 63 .2%
Adjusted ROCE 7.9% 5.4% 2.6 pp n/a
ROCE 7.1% 9.1% (2.0 pp) n/a
----- End of picture text -----

(4) One-off PPE revaluation adjustment of Networks segment (for more information see section ‘Expenses’).

Net profit

Adjusted net profit amounted to EUR 163.1 million in 2021 and was 70.8% higher than in 2020. Adjusted EBITDA’s positive impact (EUR +86.8 million) was partly offset by higher depreciation and amortisation (EUR -9.1 million), income tax (EUR -7.0 million) and financial activity (EUR -5.5 million) expenses. Income tax expenses grew mostly due to higher Adjusted EBIT, which was partly offset due to higher income tax relief for investment projects.

Reported Net profit in 2021 decreased to EUR 153.9 million compared to EUR 170.6 million in 2020. Reported Net profit decreased while Adjusted Net profit increased significantly, mostly due to lower temporary regulatory differences (EUR -76.2 million), mainly in the Customers & Solutions and Networks segments (EUR -57.5 million and EUR -20.3 million respectively), PPE revaluation of Networks segment (EUR -21.1 million after income tax) and Kaunas CHP option fair value decrease (EUR -4.2 million). These effects were partly offset by value increase in Smart Energy Fund’s investments (EUR +15.9 million) in 2021.

Net profit adjustments, EURm

==> picture [356 x 115] intentionally omitted <==

----- Start of picture text -----

2021 2020 [3] ∆ ∆,%
Net profit 153 .9 170 .6 (16 .7) (9 .8%)
Adjustments
Total EBIT adjustments 22.0 (88.4) 110.4 n/a
One-off financial activity adjustments (5) (9.5) - (9.5) n/s
Adjustments’ impact on income tax (6) (3.3) 13.3 (16.6) n/a
Total net profit adjustments 9 .2 (75 .1) 84 .3 n/a
Adjusted net profit 163 .1 95 .5 67 .6 70 .8%
Adjusted ROE 8.9% 6.0% 2.9 pp n/a
ROE 8.4% 10.8% (2.4 pp) n/a
----- End of picture text -----

3 Due to Networks Methodology update, change in accounting policy and reclassifications as well as reduction of management adjustments, all financial indicators were recalculated retrospectively for the year 2020 (for more information, see ‘Annual results’ section 'Significant changes in reporting period of 2021’).

(5) One-off financial activity adjustments include elimination of value increase in Smart Energy Fund’s investments (EUR +15.9 million), Kaunas CHP option fair value decrease (EUR -4.2 million) and decrease in variable part of EPSO-G receivable (EUR -2.1 million).
(6) An additional income tax adjustment of 15% (statutory income tax rate in Lithuania) is applied to all EBIT adjustments.

56 / 364

Annual report 2021 / Results

Contents »

Investments

In 2021, Investments amounted to EUR 234.9 million and were EUR 111.9 million lower compared to 2020. The largest investments were made in electricity distribution network (66.4% of total Investments), gas distribution network (10.3%) and construction of Vilnius CHP (8.7%).

The Networks segment investments amounted to EUR 191.2 million and were EUR 50.1 million higher compared to 2020. Investments in maintenance of electricity distribution network increased by EUR +41.6 million or +84.9% and amounted to EUR 90.6 million or 38.6% of total 2021 Investments. Also, investments in expansion of the electricity distribution network increased by EUR 10.2 million or +18.5% due to more new connection points and upgrades and amounted to EUR 65.4 million or 27.8% of total 2021 Investments. Investments in the gas distribution network decreased by EUR -6.9 million or -22.3% due to less connection points and amounted to EUR 24.1 million or 10.3% of total 2021 Investments.

The Green Generation segment investments amounted to EUR 32.3 million in 2021 and were EUR 164.7 million lower compared to 2020. The main reason for the decrease was that the main investments into big projects were finished in 2020 or in the beginning of 2021 and new projects have not yet reached heavy investment phase. The majority of investments in 2021 were allocated to Vilnius CHP (EUR 20.5 million), specifically, EUR 18.0 million to WtE unit. Main investments in 2020 included EUR 75.8 million to Pomerania WF (construction was completed in March 2021), EUR 70.5 million to Kaunas CHP (construction was fully completed in October 2020) and EUR 46.0 million to Vilnius CHP, specifically, EUR 30.5 million to biomass unit (still under construction) and EUR 15.5 million to WtE unit (main construction was completed by the end of 2020).

In 2021, Grants and Investments covered by customers and contractor guarantees amounted to EUR 49.4 million and accounted for 21.1% of total Investments. The Group received EUR 17.2 million in grants for Investments in 2021. It mainly contains grants related to maintenance of electricity and gas distribution networks (EUR 11.5 million) and grants for Vilnius CHP project (EUR 5.7 million). Also, part of investments into Networks related to new customer connections, upgrades and infrastructure equipment transfers were covered by customers (EUR 32.2 million). There were investments covered by guarantees in 2020, due to the termination of agreement with Vilnius CHP’s contractor (EUR 15.0 million).

Investments by segment, EURm

==> picture [356 x 230] intentionally omitted <==

----- Start of picture text -----

2021 2020 [1] ∆ ∆,%
Networks 191.2 141.1 50.1 35.5%
Maintenance of the electricity network 90.6 49.0 41.6 84.9%
Expansion of the electricity network 65.4 55.2 10.2 18.5%
Expansion of the gas network 13.9 21.4 (7.5) (35.0%)
Maintenance of the gas network 10.2 9.6 0.6 6.3%
Other 11.1 5.9 5.2 88.1%
Green Generation 32.3 197.0 (164.7) (83.6%)
Vilnius CHP 20.5 46.0 (25.5) (55.4%)
Pomerania WF 2.4 75.8 (73.4) (96.8%)
Kaunas CHP 1.5 70.5 (69.0) (97.9%)
Other 7.9 4.7 3.2 68.1%
Customers & Solutions 2.9 3.2 (0.3) (9.4%)
Flexible Generation 0.2 1.5 (1.3) (86.7%)
Other [2] 8.3 4.0 4.3 107.5%
Investments 234 .9 346 .8 (111 .9) (32 .3%)
Grants (17.2) (25.7) 8.5 (33.1%)
Investments covered by customers [3] (32.2) (26.3) (5.9) 22.4%
Investments covered by contractor guarantees [4] - (15.0) 15.0 (100.0%)
Investments (excl . grants and investments covered by
customers and contractor guarantees) 185 .5 279 .8 (94 .3) (33 .7%)
----- End of picture text -----

1 Investments of 2020 were not recalculated retrospectively after change in accounting policy (for more information, see ‘Annual results’ section 'Significant changes in reporting period of 2021’). Kaunas CHP Investment would be EUR 1.9 million lower in 2020, if measure was recalculated.

2 Other – other activities and eliminations (consolidation adjustments and related party transactions).

3 Investments covered by customers include new customer connections and upgrades, and infrastructure equipment transfers. 4 Investments covered by contractor guarantees after termination of agreement with Vilnius CHP’s contractor.

==> picture [354 x 156] intentionally omitted <==

----- Start of picture text -----

Investments by segment, 2021, %
0 .1%
3 .5%
1 .2%
13 .8%
Networks
Green Generation
EUR 234 .5 Customers & Solutions
million
Flexible Generation
Other
81 .4%
----- End of picture text -----

57 / 364

GRI 201-4

Annual report 2021 / Results

Contents »

Statement of financial position

Assets

As of 31 December 2021, total assets reached EUR 4,251.3 million (8.4% increase from 31 December 2020).

As of 31 December 2021, current assets increased by EUR 282.1 million or 27.6% from 31 December 2020, mainly due to increase in working capital (for more information see section ‘Net working capital’). Also receivable from EPSO-G for the shares of AB “LitGrid” (EUR 86.2 million) was transferred from long-term to short-term receivables as, according to the agreement, it must be repaid until 30 September 2022. EPSO-G repaid EUR 50.0 million in December, before due date.

As of 31 December 2021, non-current assets increased by EUR 48.3 million or 1.7% from 31 December 2020. The growth was mainly influenced by the increase in property, plant and equipment and intangible assets, resulting from investments made in 2021. Increase was partly offset by Networks segment’s electricity-related PPE assets revaluation effect of EUR -48.7 million (excluding grants) and gas-related PPE impairment EUR -8.9 million.

Equity

As of 31 December 2021, equity amounted to EUR 1,849.0 million and increased by EUR 35.7 million or 2.0% from 31 December 2020, mostly due to net profit for 2021 (EUR +153.9 million) and an increase in hedging reserve (EUR +18.6 million), which was partly offset by paid dividends (EUR -86.8 million), decrease in revaluation reserve (EUR -32.2 million) and acquisition of treasury shares (EUR -23.0 million).

Liabilities

Total liabilities increased by 14.0% or EUR 294.7 million in 2021. Current liabilities increased by 129.4% or EUR 393.5 million, which was mostly caused by liabilities related to higher electricity and natural gas price hedging contracts, the increase in payables related to electricity purchases and Kaunas CHP loan (EUR 110.0 million) transfer from non-current loans.

Net working capital

As of 31 December 2021, Net working capital amounted to EUR 486.4 million and increased by EUR 392.0 million from 31 December 2020, mainly driven by high energy prices. More detailed drivers for the change are listed below:

increase in accrued revenue (EUR +113.0 million) related to regulated activity of the electricity public supply (Customers & Solutions) due to higher actual electricity acquisition prices than set in the tariff by regulator. From 1st of January, 2021 regulatory debt for electricity public supply is accounted in balance sheet, previously it was off-balance sheet item;
growth in deposits for electricity and gas derivative trading related margin calls (EUR +66.2 million) due to higher market prices (mainly Customers & Solutions);
higher advance payments for natural gas (EUR +50.1 million), mainly due to higher gas market prices (mainly Customers & Solutions);
higher payables for electricity and gas derivative trading MtM (EUR -69.2 million) due to higher market prices (Customers & Solutions);
higher payables for electricity purchase (EUR -45.2 million) due to higher electricity market price (Customers & Solutions, Green Generation and Networks segments).

Balance sheet, EURm

==> picture [356 x 169] intentionally omitted <==

----- Start of picture text -----

31 .12 .2021 31 .12 .2020 [1] ∆ ∆,%
Non-current assets 2,947.0 2,898.7 48.3 1.7%
Current assets 1,304.3 1,022.2 282.1 27.6%
TOTAL ASSETS 4,251 .3 3,920 .9 330 .4 8 .4%
Equity 1,849.0 1,813.3 35.7 2.0%
Total liabilities 2,402.3 2,107.6 294.7 14.0%
Non-current liabilities 1,704.8 1,803.6 (98.8) (5.5%)
Current liabilities 697.5 304.0 393.5 129.4%
TOTAL EQUITY AND LIABILITIES 4,251 .3 3,920 .9 330 .4 8 .4%
Asset turnover 0.46 0.34 0.12 35.3%
ROA 3.8% 4.8% (1.0 pp) n/a
Current ratio 1.87 3.36 (1.49) (44.3%)
Net working capital 486.4 94.4 392.0 415.3%
Net working capital/Revenue 25.7% 7.7% 18.0 pp n/a
Capital employed 2,806.2 2,413.5 392.7 16.3%
----- End of picture text -----

higher electricity and natural gas related trade receivables (EUR +146.8 million) mostly due to higher market prices (mainly Customers & Solutions);
growth in gas inventory value by EUR +121.1 million (Customers & Solutions), mainly resulting from combination of higher natural gas prices (+313% in average TTF index) and higher volume of gas inventory in storage (2.6 TWh as of 31 December 2021, almost doubled compared to 31 December 2020);

58 / 364

Annual report 2021 / Results

Contents »

Financing

Net debt

As of 31 December 2021, Net debt amounted to EUR 957.2 million, an increase of 59.5% or EUR 356.9 million compared to 31 December 2020, mostly due to higher need for working capital (EUR +392.0 million) (for more information see section ‘Statement of financial position’).

As Net debt increased, FFO/Net debt decreased significantly, from 51.5% to 30.5%, however, ratio is above 23% threshold required for BBB+ credit rating.

Net debt, EURm

==> picture [356 x 251] intentionally omitted <==

----- Start of picture text -----

2021 .09 .30 2020 .12 .31 ∆ ∆,%
Total non-current financial liabilities 1,164 .4 1,275 .3 (110 .9) (8 .7%)
Non-current loans 229.6 359.0 (129.4) (36.0%)
Bonds 888.5 887.0 1.5 0.2%
Interests payable (including accrued) - 0.2 (0.2) (100.0%)
Lease liabilities (IFRS 16) 46.3 29.1 17.2 59.1%
Total current financial liabilities 241 .9 28 .8 213 .1 739 .9%
Current portion of non-current loans 13.8 6.3 7.5 119.0%
Current loans 214.1 - 214.1 n/a
Interests payable (including accrued) 9.3 9.1 0.2 2.2%
Lease liabilities (IFRS 16) 4.7 13.4 (8.7) (64.9%)
Gross debt 1,406 .3 1,304 .1 102 .2 7 .8%
Cash, cash equivalents and cash in escrow account 449 .1 703 .8 (254 .7) (36 .2%)
Cash and cash equivalents 449.1 658.8 (209.7) (31.8%)
Cash in escrow account - 45.0 (45.0) (100.0%)
Net debt 957 .2 600 .3 356 .9 59 .5%
EPSO-G receivable 86.2 150.7 (64.5) (42.8%)
Net debt less EPSO-G receivable 871 .0 449 .6 421 .4 93 .7%
Net debt / Adjusted EBITDA 2.88 2.44 0.44 18.0%
Net debt / EBITDA 2.85 1.80 1.05 58.3%
FFO / Net debt 30.5% 51.5% (21.0 pp) n/a
Gross debt/Equity 0.76 0.72 0.04 5.6%
Equity ratio 0.43 0.46 (0.03) (6.5%)
----- End of picture text -----

Debt summary, EURm

Bonds (incl. interest)	Outstanding as of 31 12 2021 909.11	Efective interest rate (%) 1.96	Average time to maturity (years) 7.3	Fixed interest rate 100.0%	Euro currency 100.0%
Bank loans	457.7	0.96	4.6	49.5%	81.0%
Lease liabilities	51.0	-	7.0	-	100.0%
Total	1,417 8	1.62	6 4	80.1%	93.9%

1 Nominal value of issued bonds amount to 900 EURm. As of 31 December 2021 bonds accounted for 888.5 EURm in the consolidated balance sheet as the nominal remaining capital will be capitalised until maturity according to IFRS.

Bond issues and loans

The Group has 3 bond issues with a total EUR 900.0 million nominal outstanding amount, out of which 2 are green (EUR 600.0 million).

Outstanding bond issues

==> picture [354 x 15] intentionally omitted <==

----- Start of picture text -----

2017 issue 2018 issue 2020 issue
----- End of picture text -----

ISIN-code	XS1646530565	XS1853999313	XS2177349912
Currency	EUR	EUR	EUR
Nominal amount	300,000,000	300,000,000	300,000,000
Coupon	2.000	1.875	2.000
Maturity	17 July2027	10 July2028	21 May2030
Credit rating	BBB+	BBB+	BBB+

During the reporting period, there have been no material changes regarding bonds. Related information, including the structure of bondholders as of the issue date, is available in the section 7.1 ‘Further investor related information‘.

As of 31 December 2021, outstanding amount of loans from banks were EUR 457.5 million, of which 73.6% were dedicated for Green Generation segment’s projects and 22.7% for working capital of Customers & Solutions segment.

Maturities

Bonds maturing in 2027 (EUR 300.0 million, green), in 2028 (EUR 300.0 million, green) and in 2030 (EUR 300.0 million) make the largest portion of the Group’s financial liabilities. The average maturity of the financial liabilities as of 31 December 2021 was 6.4 years (31 December 2020: 7.7 years).

Repayment schedule of Group's financial liabilities, EURm

==> picture [355 x 79] intentionally omitted <==

----- Start of picture text -----

318.5 317.3 318.7
241.9
22.1 300 300 300
24.5 20.4 19.4
18.5 17.3 19.5 18.7 115.4
2022 2023 2024 2025 2026 2027 2028 2029 2030 2031+
Loans Bonds
Interest rate, currency, and liquidity risk
----- End of picture text -----

On 31 December 2021, financial liabilities amounting to EUR 1,135.8 million were subject to fixed interest rate (83.1% of loans, bonds and interests payable) and the remaining amount of financial liabilities were subject to floating interest rate. Effective interest rate was 1.62% as of 31 December 2021. 93.9% of total debt were in EUR, and 6.1% – in PLN.

The Group manages liquidity risk by entering into the credit line agreements with banks. On 31 December 2021 one credit line facility from one bank amounted to EUR 104 million. The credit line is committed, i.e., funds must be paid by the bank upon request.

59 / 364

Annual report 2021 / Results

Contents »

Cash flows

CFO

Net cash flows from operating activities (CFO) amounted to EUR 97.1 million in 2021. Compared to 2020, CFO decreased by EUR 183.4 million, mainly due to an increase in working capital ( for more information see section ‘Statement of financial position’), which was partly offset by higher EBITDA.

CFI

Net cash flows from investing activities (CFI) amounted to EUR -228.7 million in 2021. Compared to 2020, CFI decreased by EUR 29.7 million, mainly due to lower Investments (EUR +111.9 million), which were partly offset by lower prepayments for non-current assets (EUR -51.7 million), lower proceeds from PPE and intangible assets (EUR -12.1 million), acquisition of subsidiaries (EUR -9.5 million) and lower grants received (EUR -8.6 million).

CFF

Net cash flows from financing activities (CFF) amounted to EUR -78.1 million in 2021. In 2021, CFF were negative due to dividend, interest and lease payments, while in 2020 CFF were positive mostly due to an increase in share capital after IPO in October 2020, issue of bonds in May 2020 and loans received.

Cash flows, EURm

FCF

In 2021, the Group’s FCF decreased by EUR 300.7 million and amounted to EUR -295.6 million. The main reason for the decrease was the change in working capital, which was partly offset by lower Investments.

FCF, EURm

==> picture [356 x 103] intentionally omitted <==

----- Start of picture text -----

2021 2020 [2] ∆ ∆, %
FFO 291.8 309.4 (17.6) (5.7%)
Investments (234.9) (346.8) 111.9 (32.3%)
Grants received 17.2 25.8 (8.6) (33.3%)
Investments covered by guarantees - 15.0 (15.0) (100.0%)
Cash effect of new connection points and upgrades 20.0 13.2 6.8 51.5%
Proceeds from sale of PPE and intangible assets [3] 2.3 14.4 (12.1) (84.0%)
Change in net working capital (392.0) (25.9) (366.1) 1,413.5%
FCF (295 .6) 5 .1 (300 .7) n/a
----- End of picture text -----

==> picture [356 x 80] intentionally omitted <==

----- Start of picture text -----

2021 2020 ∆ ∆, %
Cash and cash equiv . at the beginning of the period 658 .8 131 .8 527 .0 399 .8%
CFO 97.1 280.5 (183.4) (65.4%)
CFI (228.7) (258.4) 29.7 (11.5%)
CFF (78.1) 504.9 (583.0) n/a
Increase (decrease) in cash and cash equiv . (209 .7) 527 .0 (736 .7) n/a
Cash and cash equiv . at the end of period 449 .1 658 .8 (209 .7) (31 .8%)
----- End of picture text -----

FFO

In 2021, the Group’s FFO decreased by 5.7% (EUR 17.6 million) and amounted to EUR 291.8 million. The main reason for the decrease was higher paid interest and income tax.

FFO, EURm

==> picture [357 x 70] intentionally omitted <==

----- Start of picture text -----

2021 2020 [1] ∆ ∆,%
EBITDA 335.5 334.3 1.2 0.4%
Interest received 0.6 0.6 - -%
Interest paid (26.0) (15.9) (10.1) 63.5%
Income tax paid (18.3) (9.6) (8.7) 90.6%
FFO 291 .8 309 .4 (17 .6) (5 .7%)
----- End of picture text -----

60 / 364

Annual report 2021 / Results

Contents »

Key operating indicators

Electricity

Installed capacity of Green Generation increased by 113 MW YoY since Vilnius CHP’s WtE unit (March 2021) and Pomerania WF (December 2021) reached COD.

The total distributed electricity increased by 8.6%. The increase was a result of proportionally growing electricity consumption of both B2C and B2B customers (+8.6% each), which was mainly affected by weather conditions and overall higher consumption, whereas distribution to B2B customers was also positively impacted by more intense hybrid work in 2021.

Electricity generation (net) decreased by 6.3%, compared to 2020, and amounted to 2.30 TWh in 2021. However, combined with higher green electricity generated (net), it resulted in increased green share of generation. The decrease in electricity generated (net) was mainly driven by lower flexible generation of the CCGT unit at Elektrėnai Complex (-0.36 TWh) as well as decreased green generation of Kruonis PSHP (-0.07 TWh) due to market conditions. These were partly offset by increased volumes in Vilnius CHP’s WtE unit (+0.09 TWh), Kaunas CHP (+0.08 TWh), Kaunas HPP (+0.06 TWh) and wind farms (+0.06 TWh). Increased electricity generated (net) in wind farms was mainly affected by additional volumes generated in Pomerania WF (first electricity generated in May 2021). The positive impact of Kaunas CHP and Vilnius CHP’s WtE unit was due to the first electricity being generated in May 2020 (full year effect) and in February 2021 respectively, whereas the increase of electricity generated (net) at Kaunas HPP was driven by higher water levels in the Nemunas river.

An increase in electricity sales (4.7% higher, when comparing to the previous period) was mostly affected by higher B2B sales (due to increased number of B2B customers and more active economy), whereas B2C sales slightly decreased due to electricity market deregulation.

Electricity SAIFI indicator, which reflects average number of unplanned long interruptions per customer, increased comparing with the previous year and was 1.45 interruptions (1.34 interruptions in 2020). Despite higher number of interruptions, electricity SAIDI indicator, which shows average duration of unplanned interruptions, improved to 201.95 minutes (compared to 207.67 minutes in 2020). 2021 quality level was negatively affected by the extreme weather conditions (wet snow cover in January 2021, local storms in May–June and

==> picture [484 x 243] intentionally omitted <==

----- Start of picture text -----

2021 2020 ∆ ∆,%
Electricity
Green Generation capacity MW 1,350 1,350 - -%
Green Generation installed capacity MW 1,214 1,101 113 10.3%
Green Generation projects under construction MW 136 249 (113) (45.4%)
Electricity distributed TWh 10.37 9.55 0.82 8.6%
Electricity generated (net) TWh 2.30 [1] 2.45 (0.15) (6.3%)
Green electricity generated (net) TWh 1.48 [1] 1.25 0.22 17.9%
Green share of generation % 64.2% 51.0% 13.2 pp n/a
Electricity sales TWh 7.11 6.79 0.32 4.7%
SAIFI units 1.45 1.34 0.11 8.2%
SAIDI min 201.95 207.67 (5.72) (2.8%)
Heat
Green Generation capacity (Heat) MW 339 339 - -%
Green Generation installed capacity MW 170 110 60.0 54.5%
Green Generation projects under construction MW 169 229 (60.0) (26.2%)
Heat generated (net) TWh 0.85 0.32 [2] 0.53 162.6%
Natural gas
Natural gas distributed TWh 8.49 7.06 1.43 20.3%
Natural gas sales TWh 11.55 14.70 [3] (3.15) (21.4%)
SAIFI units 0.006 0.010 (0.004) (41.8%)
SAIDI min 0.47 1.61 (1.14) (70.7%)
----- End of picture text -----

1 Electricity generated (net) includes electricity sales by Pomerania WF before COD (in December 2021), which was not previously reported in our interim reports. 2 Previously reported 0.33 value was corrected.

3 14.77 value reported in Annual report 2020 was corrected after updating sales volumes in Latvia.

November–December 2021). Nevertheless, the negative impact of the storm Laura in March 2020 (the biggest storm since 2005) was more significant in terms of SAIDI, thus 2021 SAIDI ratio improved, when comparing to the 2020 ratio.

volumes sold were 41.9% lower, which were mainly driven by lower B2B sales in Lithuania ,Latvia and Finland. Drop of B2B sales in Lithuania and Latvia was mainly the result of one-off gas transactions in 2020, which did not occur in 2021. The decrease in sales in Finland was affected by higher competition.

Heat

Natural gas distribution SAIFI and SAIDI indicators improved in 2021, when comparing them to the corresponding last year period as there were no significant disruptions during 2021. Natural gas SAIFI improved to 0.006 interruptions (from 0.010 interruptions in 2020). SAIDI indicator also decreased and was 0.47 minutes (compared to 1.61 minutes in 2020).

Heat generation (net) in 2021 increased more than 2 times compared to 2020 mainly due to the full year effect of heat generation by Kaunas CHP and Vilnius CHP’s WtE unit.

Natural gas

Natural gas distribution volumes increased by 20.3% as a result of colder weather during the heating season. Natural gas sales decreased by 21.4%. Despite an increase in B2C sales due to colder weather and higher number of B2C customers, B2B

61 / 364

Annual report 2021 / Results

Contents »

Installed capacity and generation mix overview

==> picture [730 x 453] intentionally omitted <==

----- Start of picture text -----

Installed capacity, MW Generation (net), TWh
9.6%
2.9%
1,055 1,001 76 24
2020 2,156 MW TWh2 .45 38.5%
49.0%
Green Generation – 1,101 MW (51 .1%) Green share – 51 .0%
Electricity 12.9%
10.5%
40.7%
1,055 1,001 170 43
2021 2,269 MW 2 .30
TWh
Green share – 64 .2%
Green Generation – 1,214 MW (53 .5%) 35.8%
40 70 24%
76%
2020 110 MW 0 .32
TWh
Green share – 100%
Green Generation – 110 MW (100%)
Heat
9%
40 130
2021 170 MW 0 .85
TWh
Green share – 100%
Green Generation – 170 MW (100%) 91%
Flexible Green
Generation Natural gas Generation Hydro Wind Biomass Waste to energy
----- End of picture text -----

62 / 364

Annual report 2021 / Results

Contents »

3 .2 Results by business segment

Overview[1,2]

==> picture [730 x 364] intentionally omitted <==

----- Start of picture text -----

Networks Green Generation Flexible Generation Customers & Solutions
Adjusted EBITDA, EURm Adjusted EBITDA, EURm Adjusted EBITDA, EURm Adjusted EBITDA, EURm
145 .4
137 .7
107 .5
44% 32% 11% 12%
of the Group‘s of the Group‘s of the Group‘s of the Group‘s
Adjusted EBITDA 50 .4 Adjusted EBITDA 29 .3 37 .2 Adjusted EBITDA 40 .6 Adjusted EBITDA
26 .7
2020 2021 2020 2021 2020 2021 2020 2021
Revenue, EURm . . . . . . . . . . . . . . . . . . . . 532 .7 Revenue, EURm . . . . . . . . . . . . . . . . . . . . 209 .1 Revenue, EURm . . . . . . . . . . . . . . . . . . . . 153 .5 Revenue, EURm . . . . . . . . . . . . . . . . . . 1,009 .4
Adjusted EBIT, EURm . . . . . . . . . . . . . . . . 58 .5 Adjusted EBIT, EURm . . . . . . . . . . . . . . . . 86 .4 Adjusted EBIT, EURm . . . . . . . . . . . . . . . . 25 .8 Adjusted EBIT, EURm . . . . . . . . . . . . . . . . 38 .8
Investments, EURm . . . . . . . . . . . . . . . . 191 .2 Investments, EURm . . . . . . . . . . . . . . . . . 32 .3 Investments, EURm . . . . . . . . . . . . . . . . . . . 0 .2 Investments, EURm . . . . . . . . . . . . . . . . . . . 2 .9
Net debt, EURm . . . . . . . . . . . . . . . . . . . . 710 .0 Net debt, EURm . . . . . . . . . . . . . . . . . . . . 390 .1 Net debt, EURm . . . . . . . . . . . . . . . . . . . . (37 .5) Net debt, EURm . . . . . . . . . . . . . . . . . . . . 474 .4
Estonia Finland
Latvia
Estonia
Lithuania
Latvia
Lithuania Lithuania
Lithuania
Poland
Poland
----- End of picture text -----

1 Indicators provided in this page (except Revenue) are considered as Alternative Performance Measures . 2 Due to Networks Methodology update, change in accounting policy and reclassifications as well as reduction of management adjustments, all financial indicators were recalculated retrospectively for the year 2020 (for more information, see ‘Annual results’ section ‘Significant changes in reporting period of 2021’).

63 / 364

Annual report 2021 / Results

Contents »

Networks

Highlights

The regulator (NERC) has published updated data for calculation of WACC, which as of 1 January 2022 for electricity will be 4 .16% (calculated in accordance with the updated methodology on ROI), for natural gas – 3 .98% (in accordance with the old methodology on ROI) .

– Pursuant to the Methodology update, RAB calculation method was changed from LRAIC model to similar to historical cost model . The recalculated difference approximately amounts to EUR 160 million, which is due to be returned in 2032–2036 . According to a preliminary estimate made by the Group, this amount comprises EUR 48 million for the period of 2020 and EUR 44 million – 2021, therefore, Adjusted EBITDA has been reduced retrospectively . However, sustainable regulatory framework was ensured through a newly established additional tariff component (EUR 28 .0 million), which offsets the change in RAB calculation method (for more information see ‘Annual results’ section 'Significant changes in reporting period of 2021’) .

Due to changes in Methodology, electricity related PPE revaluation effect of EUR 44 .4 million (including grants) was recognised in 2021 (EUR 15 .9 million through Statement of Profit or Loss and EUR 28 .5 million through revaluation reserve) . Impairment of gas related PPE of EUR 8 .9 million was recognised in Statement of Profit or Loss in 2021 .
In 2021 an agreement with an infrastructure supplier for approximately 1 .2 million of smart meters was concluded . The project was rescheduled pushing the end date to 2025 (from 2023) in order to implement the most efficient roll-out and to comply with all highlevel requirements (including cybersecurity) .
Datahub is a project concerning the whole industry for the development of information exchange and efficiency of the electricity market . Datahub is divided into four main phases till the end of 2023 . The second phase was implemented in 2021 with two modules included . In 2022 the third phase will include

two modules and project should be finalised at the end of 2023 within the implementation of the last three modules .

Electricity quality indicators (SAIFI and SAIDI) were strongly affected by extreme weather conditions caused by wet snow cover (end of January 2021), local storms (May–June and November–December 2021) .

Financial results

Revenue

In 2021, the Networks revenue reached EUR 532.7 million and was 10.5% or EUR 50.5 million higher than in 2020. The increase was mainly driven by higher electricity (EUR +27.5 million) and natural gas (EUR +12.3 million) distribution revenue, mainly due to higher distributed volumes (from 9.55 TWh to 10.37 TWh and from 7.06 TWh to 8.49 TWh respectively) as a result of colder winter compared to 2020 and overall higher consumption as well as increased revenue from supply of last resort (EUR +9.1 million) due to 165% higher electricity market price.

Adjusted EBITDA

Adjusted EBITDA reached EUR 145.4 million and was 5.6% or EUR 7.7 million higher than in 2020. The increase was mainly driven by higher RAB value (EUR +7.6 million), which increased by 6.1% from EUR 1,186 million in 2020 to EUR 1,258 million in 2021.

Investments

Compared to 2020, Investments increased by EUR 50.1 million or 35.5%. The increase was mainly driven by higher level of investments in maintenance of electricity distribution network (EUR +41.6 million) and expansion of electricity distribution network (EUR +10.2 million), however, it was partly offset by lower investments in expansion of the natural gas distribution network (EUR -7.5 million) due to less new connection points. 2021. The decrease in sales in Finland was affected by higher competition.

==> picture [359 x 126] intentionally omitted <==

----- Start of picture text -----

Key financial indicators, EURm 2021 2020 [1] ∆ ∆,%
Revenue 532.7 482.2 50.5 10.5%
Adjusted EBITDA 145.4 137.7 7.7 5.6%
EBITDA 168.6 181.1 (12.5) (6.9%)
Adjusted EBIT 58.5 54.7 3.8 6.9%
EBIT 56.8 98.1 (41.3) (42.1%)
Investments 191.2 141.1 50.1 35.5%
Adjusted EBITDA margin, % 28.5% 31.4% (2.9 pp) n/a
31 .12 .2021 31 .12 .2020 ∆ ∆,%
PPE, intangible and right-of-use assets 1,654.6 1,616.9 37.7 2.3%
Net debt 710.0 680.7 29.3 4.3%
----- End of picture text -----

==> picture [359 x 301] intentionally omitted <==

----- Start of picture text -----

Key regulatory indicators 2022 [2] 2021 2021 2020 2020
After Before After Before
Methodology Methodology Methodology Methodology
update [3] update [2] update [3] update [2]
Regulated activities share in
% 100 .0 100 .0 100 .0 100 .0
adjusted EBITDA
Total
RAB EURm 1,345 1,258 1,663 1,186 1,635
WACC (weighted average) % 4.13 5.05 5.12 5.00 5.08
D&A (regulatory) EURm 67.8 69.1 91.9 65.2 89.6
Additional tariff component [4] EURm 28 - - - -
Deferred part of investments
covered by clients and EURm 14.9 14.9 15.8 15.8
electricity equipment transfer [5]
Electricity distribution
RAB EURm 1,097 1,009 1,414 957 1,406
WACC % 4.16 5.34 5.34 5.28 5.28
D&A (regulatory) EURm 58.5 59.6 82.4 55.6 80.0
Additional tariff component [4] EURm 28 - - - -
Deferred part of investments
covered by clients and EURm 13.5 13.5 14.5 14.6
electricity equipment transfer [5]
Natural gas distribution
RAB EURm 248 249 249 229 229
WACC % 3.98 3.90 3.90 3.84 3.84
D&A (regulatory) EURm 9.3 9.5 9.5 9.6 9.6
Deferred part of investments
covered by clients and
EURm 1.4 1.4 1.2 1.2
electricity equipment
transfer [5]
----- End of picture text -----

2021’). 2 Numbers approved and published by NERC.[3] For more information see ‘Annual results’ section 'Significant changes in reporting period of 2021’. ⁴ Due to changes in the Networks RAB methodology, an additional tariff component of EUR 28 million annually will be added starting from year 2022. 5 Actual numbers from Statement of Profit or Loss.

64 / 364

Annual report 2021 / Results

Contents »

==> picture [360 x 281] intentionally omitted <==

----- Start of picture text -----

Key operating indicators 2021 2020 ∆ ∆,%
Electricity distribution
Electricity distributed TWh 10.37 9.55 0.82 8.6%
Distribution network ‘000 km 126.81 126.11 0.71 0.6%
Technological losses % 5.2% 5.8% (0.6 pp) n/a
Number of customers ‘000 1,801 1,777 24 1.4%
of which prosumers and producers ‘000 17 11 6 51.7%
New connection points ‘000 26.88 22.77 4.10 18.0%
Connection point upgrades ‘000 23.41 18.27 5.14 28.1%
Admissible power of new connection
MW 515.75 386.19 129.56 33.5%
points and upgrades
Time to connect (average) [1] c. d. 36.67 28.54 [1] 8.13 28.5%
SAIFI unit 1.45 1.34 0.11 8.2%
SAIDI min 201.95 207.67 (5.72) (2.8%)
Natural gas distribution
Natural gas distributed TWh 8.49 7.06 1.43 20.3%
Distribution network ‘000 km 9.56 9.41 [2] 0.15 1.6%
Technological losses % 1.8% 2.2% (0.4 pp) n/a
Number of customers ‘000 619 611 7 1.2%
New connection points and upgrades ‘000 8.13 7.79 0.34 4.4%
Time to connect (average) [1] c. d. 71.86 57.41 [1] 14.45 25.2%
SAIFI unit 0.006 0.010 (0.004) (41.8%)
SAIDI min 0.47 1.61 (1.14) (70.7%)
Customer experience
NPS % 60% 60% - n/a
----- End of picture text -----

Electricity distribution quality indicator

Operating performance

SAIFI slightly deteriorated comparing with previous year and was 1.45 interruptions (1.34 interruptions in 2020). Electricity SAIDI indicator improved to 201.95 minutes (compared to 207.67 minutes in 2020). 2021 quality level was negatively affected by the extreme weather conditions (wet snow cover in January 2021, local storms in May–June and November– December 2021).

Electricity distribution

The total distributed electricity increased by 8.6%. The increase was a result of proportionally growing (+8.6% each) electricity consumption of both B2C and B2B customers, which was mainly affected by weather conditions and overall higher consumption, whereas distribution to B2B customers was also positively impacted by more intense hybrid work in 2021. Technological losses ratio decreased by 0.6 pp, when comparing with the last year, due to the effect of the measures taken to minimize electricity losses and the updated process, which allowed to detect undeclared distributed volumes. The number of electricity distribution customers increased by 1.4% in 2021, when comparing to 2020, which was affected by growing number of traditional B2C and B2B customers as well as new connections of prosumers and producers. A more intense growth of new B2C customers was mainly affected by active real estate market in 2021, whereas an increase in prosumers and producers is related to the support schemes for solar plants and more attractive connection pricing for prosumers. Average time to connect increased by 28.5% due to disrupted supply of materials, increased workload of contractors (higher demand, unfavourable weather conditions and COVID-19 effect), expanded scope of mandatory design works and lower number of planned disconnections.

Natural gas distribution

Natural gas distribution volumes increased by 20.3% because of colder weather. Average time to connect ratio increased by 25.2% because, under new agreements, contractors have longer terms while the scope of design works was expanded, which require additional time. Both natural gas supply quality indicators SAIFI and SAIDI improved, when comparing to the same period last year, and were equal to 0.006 interruptions and 0.47 minutes respectively. Natural gas quality indicators improved as there were less significant disruptions in 2021 comparing with 2020.

1 There were changes in methodology due to newly purchased contracts, also changes in legislation and adjustments in algorithm for calculating engineering stages more precisely. With respect to the implementation of the new methodology, 2020 data was updated as follows: "Time to Connect" ratio for electricity was 31.14 c.d., new 28.54 c.d., "Time to Connect" ratio for natural gas was 56.82 c. d., new 57.41 c.d.

2 Previously reported 9.69 value was corrected.

==> picture [449 x 161] intentionally omitted <==

65 / 364

Annual report 2021 / Results

Contents »

Green Generation

Highlights

More than two-fold increase in EBITDA, which reached 107 .5 EURm in 2021, driven by new asset launches and better performance of the operating assets .
Vilnius CHP’s WtE unit (19 MWe, 60 MWth) reached COD in March 2021 .
Pomerania WF (94 MW) in Poland reached COD in December 2021 . Construction works were completed in March 2021 .
Expansion plan of Kruonis PSHP (900 MW) for an additional unit (110 MW) was approved .
Conditional agreements to acquire 100% of shares of Latvian companies that are developing three wind farms in Latvia (160 MW) were concluded . Estimated COD is around 2026–2027 .
Conditional agreements were concluded to acquire 100% of shares of Polish companies that are developing a solar project portfolio in Poland (up to 80 MW) . Estimated COD is around 2022–2023 .
100% of shares of a Polish company developing a wind farm (50 MW) were acquired . Estimated COD is around 2023 .
The main reason for the decrease in Investments was that main investments of big projects were finished in 2020 or in the beginning of 2021 and new projects have not yet reached heavy investment phase .

Financial results

Revenue

In 2021, Green Generation revenue amounted to EUR 209.1 million and was 132.6% or EUR 119.2 million higher than in 2020. The increase was driven by higher revenue of Kruonis PSHP (EUR +54.2 million) and Kaunas HPP (EUR +23.6 million), mainly due to higher electricity market prices, full year effect of Kaunas CHP (EUR +21.9 million) and COD of Vilnius CHP’s WtE unit (EUR +16.5 million).

Adjusted EBITDA

In 2021, Adjusted EBITDA reached EUR 107.5 million and was 113.3% or EUR 57.1 million higher than in 2020. The main effects were:

better results of Kruonis PSHP (EUR +15.5 million) due to better result of commercial activities (EUR +17.5 million), exploiting favorable spread between peak and off-peak market prices;
better results of Kaunas HPP (EUR +12.7 million), mostly due to higher captured electricity prices;
positive impact of Vilnius CHP’s WtE unit (EUR +13.0 million) as the plant generated first electricity in February 2021;
positive full year impact of Kaunas CHP (EUR +10.0 million) that generated first electricity in May 2020;
positive impact of Pomerania WF (EUR +5.7 million) that generated first electricity in May 2021.

==> picture [357 x 110] intentionally omitted <==

----- Start of picture text -----

Key financial indicators, EURm 2021 2020 [1] ∆ ∆,%
Revenue 209.1 89.9 119.2 132.6%
Adjusted EBITDA 107.5 50.4 57.1 113.3%
EBITDA 99.5 49.9 49.6 99.4%
Adjusted EBIT 86.4 33.0 53.4 161.8%
EBIT 78.4 32.4 46.0 142.0%
Investments 32.3 197.0 (164.7) (83.6%)
Adjusted EBITDA margin, % 49.5% 55.7% (6.2 pp) n/a
31 .12 .2021 31 .12 .2020 ∆ ∆, %
PPE, intangible and right-of-use assets 773.1 748.8 24.3 3.2%
Net debt 390.1 349.9 40.2 11.5%
----- End of picture text -----

1 Due to change in accounting policy and reclassifications as well as reduction of management adjustments, all adjusted financial indicators were recalculated retrospectively for the year 2020 (for more information, see ‘Annual results’ section 'Significant changes in reporting period of 2021’).

==> picture [358 x 69] intentionally omitted <==

----- Start of picture text -----

Key regulatory indicators 2022 [2] 2021 [2] 2020 [2]
Regulated activities share in adjusted EBITDA % 1 .6 7 .5
Kruonis PSHP
RAB EURm 16.6 [3] 16.2 [3] 35.6
WACC % 4.03 3.50 5.07
D&A (regulatory) EURm 1.4 1.3 1.7
----- End of picture text -----

2 Numbers approved and published by NERC. Additionally, 2020 and 2021 numbers were adjusted as to actual services provided. 3 The regulator has halved the RAB of the secondary power reserve, but allowed to keep half of the profit earned from electricity sales from activities of the secondary power reserve in 2021 and 2022.

specifically, EUR 18.0 million to WtE unit. Main investments in 2020 included EUR 75.8 million to Pomerania WF (construction was completed in March 2021), EUR 70.5 million to Kaunas CHP (construction was fully completed in October 2020) and EUR 46.0 million to Vilnius CHP specifically, EUR 30.5 million to biomass unit (still under construction) and EUR 15.5 million to WtE unit (main construction was completed by the end of 2020).

Investments

Investments amounted to EUR 32.3 million in 2021 and were EUR 164.7 million lower compared to 2020. The main reason for the decrease was that main investments of big projects were finished in 2020 or in the beginning of 2021 and new projects have not yet reached heavy investment phase. The majority of investments in 2021 were allocated to Vilnius CHP (EUR 20.5 million),

66 / 364

Annual report 2021 / Results

Contents »

Operating performance

Electricity generation

Electricity generated (net) in the Green Generation segment increased by 17.9% in 2021, compared to 2020.

This was mainly due to higher electricity generation from waste and wind as a result of Kaunas CHP (full year effect), Vilnius CHP’s WtE unit and Pomerania WF first electricity was generated in May 2020, February and May 2021 respectively. Another reason was the increased generation at Kaunas HPP due to higher water level in the Nemunas river.

In 2021 electricity generated (net) by wind farms amounted to 0.30 TWh and increased by 0.06 TWh comparing to 2020: a positive effect of Pomerania WF exceeded the negative effect of lower wind speed this year. Relatively lower wind speed in 2021 was also the main reason of the decrease in wind farm load factor, whereas availability factor of wind farms improved when comparing with 2020. Electricity generated (net) by Kruonis PSHP amounted to 0.65 TWh, which is 10% lower than in 2020 due to market conditions (fewer favourable days for generation, but with higher margin).

Heat generation

Heat generation (net) in 2021 increased more than 2 times compared to 2020 as a result of full year effect of heat generation by Kaunas CHP and Vilnius CHP WtE unit.

==> picture [393 x 235] intentionally omitted <==

==> picture [359 x 296] intentionally omitted <==

----- Start of picture text -----

Key operating indicators 2021 2020 ∆ ∆,%
Electricity generation
Installed capacity MW 1,214 1,101 113 10.3%
Wind MW 170 76 94 123%
Hydro MW 1,001 1,001 - -%
Pumped storage MW 900 900 - -%
Run-of-river MW 101 101 - -%
Waste MW 43 24 19 79.2%
Projects under construction MW 136 249 (113) (45.4%)
Wind MW 63 157 (94) (59.8 %)
Waste MW - 19 (19) (100.0%)
Biomass MW 73 73 - -%
Electricity generated (net) TWh 1.48 [1] 1.25 0.22 17.9%
Wind TWh 0.30 [1] 0.24 0.06 25.8%
Hydro TWh 0.94 0.94 (0.01) (0.8%)
Pumped storage TWh 0.65 0.72 (0.07) (10.0%)
Run-of-river TWh 0.29 0.23 0.06 28.3%
Waste TWh 0.24 0.07 0.17 239.4%
Wind farms availability factor % 99.1% 98.5% 0.5 pp n/a
Wind farms load factor % 33.5% 35.7% [2] (2.2 pp) n/a
Heat generation
Installed capacity MW 170 110 60 54.5%
Projects under construction MW 169 229 (60) (26.2%)
Heat generated (net) TWh 0.85 0.32 [3] 0.53 162.6%
Waste [4] TWh 0.78 0.25 0.53 215.2%
Biomass TWh 0.07 0.08 - (6.1%)
----- End of picture text -----

1 Electricity generated (net) by wind includes electricity sales by Pomerania WF before COD (in December 2021), which was not previously reported in our interim reports.

2 Previously reported 35.5 % value was corrected. Total wind farms load factor was calculated using weighted average. 3 Previously reported 0.33 value was corrected.

4 Vilnius CHP and Kaunas CHP can use natural gas for starting/stopping the power plant, test runs, etc., which are included in reported values of “Waste”.

67 / 364

Annual report 2021 / Results

Contents »

Flexible Generation

Highlights

Higher clean spark spread in CCGT commercial activities led to higher Adjusted EBITDA .
Electricity generated from natural gas decreased significantly, by 31 .5% .

Financial results

Revenue

In 2021, Flexible Generation revenue reached EUR 153.5 million and was 38.4% or EUR 42.6 million higher than in 2020. The increase was mainly driven by higher revenue of the CCGT unit’s commercial activity (EUR +30.1 million) due to higher captured electricity prices and regulated activity (EUR +7.0 million) due to higher selling price of electricity generated during testing.

Adjusted EBITDA

In 2021, Adjusted EBITDA reached EUR 37.2 million and was 27.0% or EUR 7.9 million higher than in 2020. Regulated activities reached EUR 15.2 million and were 1.9% or EUR 0.3 million lower than in 2020. Commercial activities reached EUR 22.1 million and were 59.2% or EUR 8.2 million higher than in 2020. The increase was mainly caused by better results of CCGT unit (EUR +8.4 million), which increased as Clean spark spread was higher. In 2021 emission allowance accounting has been changed to acquisition costs in order to better reflect the company's performance, numbers of 2020 were adjusted accordingly.

Operating performance

Electricity generation (net) volume of CCGT unit as well as units 7 and 8 at Elektrėnai Complex was 0.82 TWh and decreased by 31.5% in 2021, compared to 2020. The decrease was mainly influenced by lower CCGT generation caused by market conditions (less favourable days for generation, but with higher margin).

In 2020, tertiary active power reserve in the capacity of 475 MW was ensured by units 7 and 8 at Elektrėnai Complex, in 2021 tertiary power reserve was ensured in the scope of 482 MW whereas starting from 2022 – in the scope of 519 MW.

In 2021, the CCGT was providing isolated system operation services in the scope of 371 MW. The remaining part of the isolated system operation services were provided by unit 7 in the scope of 38 MW. From the beginning of 2022, isolated regime services are provided as follows: 371 MW by the CCGT and 1 MW by unit 8 at Elektrėnai Complex.

During reporting period, the initiation of the project of restoration (extension), renewal and overhaul of the main facilities and systems of The Elektrėnai Complex Unit 8 in January–June 2023, was approved. Furthermore, a decision has been made to decommission TE-3 lossmaking energy units since 6 January 2022. Such decision will not have a material impact on the stability, safety, reliability and adequacy of the work of the electricity system.

==> picture [358 x 345] intentionally omitted <==

----- Start of picture text -----

Key financial indicators, EURm 2021 2020 [1] ∆ ∆,%
Revenue 153.5 110.9 42.6 38.4%
Adjusted EBITDA 37.2 29.3 7.9 27.0%
EBITDA 39.0 29.7 9.3 31.3%
Adjusted EBIT 25.8 17.6 8.2 46.6%
EBIT 27.5 18.0 9.5 52.8%
Investments 0.2 1.5 (1.3) (86.7%)
Adjusted EBITDA margin, % 24.5% 26.5% (2.0 pp) n/a
31 .12 .2021 31 .12 .2020 ∆ ∆,%
PPE, intangible and right-of-use assets 307.4 326.3 (18.9) (5.8%)
Net debt (37.5) (37.7) 0.2 (0.5%)
Key operating indicators 2021 2020 ∆ ∆,%
Installed electricity capacity MW 1,055 1,055 - -%
Electricity generated (net) TWh 0.82 1.20 (0.38) (31.5%)
Total reserve and Isolated
MW 891 890 1 0.1%
regime services
Tertiary power reserve
MW 482 475 7 1.5%
services
Isolated system operation
MW 409 415 (6) (1.4%)
services
Key regulatory indicators 2022 [2] 2021 [2] 2020 [2]
Regulated activities share
% 40 .8 52 .7
in adjusted EBITDA
CCGT
RAB EURm - - -
WACC % - - -
D&A (regulatory) EURm 9.3 9.9 9.8
Units 7 and 8
RAB EURm 32.1 33.8 36.5
WACC % 4.03 3.50 5.07
D&A (regulatory) EURm 3.9 4.4 3.8
----- End of picture text -----

2 Numbers approved and published by NERC. Additionally, 2020 and 2021 numbers were adjusted as to actual services provided.

PPE, intangible and right-of-use assets

PPE, intangible and right-of-use assets decreased compared to 31 December 2020, mostly due to depreciation and amortisation.

68 / 364

Annual report 2021 / Results

Contents »

Customers & Solutions

Highlights

Gas inventory was accumulated mainly in H1 at lower average cost, hence generating positive effect in Adjusted EBITDA due to average cost accounting method .
NWC increased over 6 times, mainly due to higher gas inventory value, regulated differences and increased derivatives trading margin calls and advance payments for gas .
C&S revenue nearly doubled and exceeded EUR 1 billion threshold driven by increased gas and electricity prices .
Continuing B2C electricity market deregulation activities while maintaining leadership in total B2C market share of 84% by volume .
The Government of the Republic of Lithuania confrmed mandatory supply volume for the LNG terminal amounting to 4 cargoes per year for 2022-2024, which aligns with the annual designated supply volume set out in the agreement with Equinor ASA .
Due to unprecedent changes in energy commodity prices, the Parliament of the Republic of Lithuania adopted amendments to the Laws on Electricity and Natural Gas of the Republic of Lithuania (B2C related), postponing the 2nd stage of electricity market deregulation by 6-months (from January to July 2022) as well as approved scheme for the Group to amortize the increase in electricity and natural gas prices .

Financial results

Revenue

In 2021, Customers & Solutions revenue reached EUR 1,009.4 million and was 84.0% or EUR 460.9 million higher than in 2020. Positive Customers & Solutions revenue result is driven by an increase in electricity business (EUR +304.9 million) as well as gas business (EUR +153.4 million). Higher revenue of B2B electricity business (EUR +199.8 million) was due to higher market prices (+165% on average) and higher volumes sold (+11%). Total B2C electricity sales have increased (EUR +98.2 million) in 2021, where regulated activity generated EUR 217.5 million while independent supply activity generated EUR 47.2 million and captured 69% of independent supply market customer share (or 63% by volume) (source: NERC). An increase in gas business was driven by higher natural gas B2B sales (EUR +143.0 million), mainly due to higher average TTF gas price index (+313%), which is mainly referenced in company’s gas supply. Natural gas B2C sales increased moderately (EUR +8.8 million) due to the regulated tariff.

Adjusted EBITDA

In 2021, Adjusted EBITDA reached EUR 40.6 million and was 52.1% or EUR 13.9 million higher than in 2020. The main effects were:

positive change of natural gas result (EUR +39.0 million) mainly driven by temporary effect of gas inventory in storage as a result of average cost accounting method. Inventory effect resulted by combination of increasing gas prices (+313% in average TTF index), higher volume of stored gas (+27% on average). These temporary effects are expected to partly reverse in 2022 after settlement of hedging contracts. Positive effect was partly offset by lower B2B volumes sold as a result of one-off natural gas transactions in 2020.

==> picture [359 x 186] intentionally omitted <==

----- Start of picture text -----

Key financial indicators, EURm 2021 20201 ∆ ∆,%
Revenue 1,009.4 548.5 460.9 84.0%
Adjusted EBITDA 40.6 26.7 13.9 52.1%
EBITDA 26.4 70.0 (43.6) (62.3%)
Adjusted EBIT 38.8 25.1 13.7 54.6%
EBIT 24.7 68.4 (43.7) (63.9%)
Investments 2.9 3.2 (0.3) (9.4%)
Adjusted EBITDA margin, % 4.0% 5.3% (1.3 pp) n/a
31 .12 .2021 31 .12 .2020 ∆ ∆,%
PPE, intangible and right-of-use assets 6.5 6.6 (0.1) (1.5%)
Net debt 474.4 29.4 445.0 1,513.6%
Key regulatory indicators 2022 [2] 2021 [2] 2020 [2]
Regulated activities share in adjusted EBITDA % 63 .1 36 .5
RAB [3] EURm 14.2 25.7 74.8
WACC % 3.05 2.93 2.94
----- End of picture text -----

2 Numbers approved and published by NERC.

3 RAB for businesses of the Customers & Solutions segment comprises net working capital for covering the demand of public supply of electricity.

– negative change in electricity business (EUR -24.6 million) was driven by lower B2B and independent supply B2C sales, mainly due to ineffective “proxy” hedges as spread between Lithuanian and Finish price zones has increased, especially in Q4, and there was limited availability of products in the Lithuanian and Latvian market. Regulated B2C and other electricity supply activities decreased, driven by lower regulated profitability, differentiated DSO distribution tariff effect, and higher DSO balancing costs.

Net debt

Compared to 31 Dec 2020, net debt increased (EUR +445.0 million), mainly due to higher need for working capital. The increase of working capital (EUR + 429.5 million) was mainly driven by increased value of stored gas inventory (EUR +121.1 million), regulated price differences in electricity (EUR +113.0 million), derivatives trading related margin calls and deposits (EUR +65.9 million), advance payments for gas (EUR +49.3 million) and significantly increased trade receivables (EUR +121.3 million). It was partly offset by higher payables (EUR +50.5 million).

69 / 364

Annual report 2021 / Results

Contents »

Operating performance

Electricity volume sales

Total electricity sales in retail market in 2021 increased by 6.3% compared to 2020. The increase was mainly caused by higher sales in Lithuania for B2B (due to increased number of B2B customers and more active economy) as well as higher sales in Latvia and Poland. However, sales to B2C customers in Lithuania were lower (-0.12 TWh) and number of customers decreased (-0.11 million), when comparing with 2020, due to liberalization effect. However, it can be noted that we still maintain leadership position (69% B2C customer share of independent supply market).

Natural gas volume sales

The volume of natural gas sold in 2021 decreased by 21.4%. Although B2C sales increased (+0.59 TWh) due to colder weather and higher number of customers, B2B sales were significantly lower (-4.39 TWh). It can be explained by decreased B2B sales in Lithuania, Latvia and Finland. Drop of B2B sales in Lithuania and Latvia was mainly a result of one-off natural gas transactions in 2020, which did not occur in 2021. The decrease in sales in Finland was affected by higher competition. Better performance of wholesale market was mostly affected by unplanned sale of 1.41 TWh LNG cargo.

Other

In 2021 customer experience (NPS) ratio in Customers & Solutions segment decreased by 14 pp and 18 pp of both B2B and B2C customers respectively when comparing to 2020. Impaired customer experience is related with liberalization process and therefore increased number of inquiries, which led to longer response time. Furthermore, customers were not satisfied with growing electricity and natural gas prices.

==> picture [358 x 250] intentionally omitted <==

----- Start of picture text -----

Key operating indicators 2021 2020 ∆ ∆,%
Electricity sales
Lithuania TWh 5.62 5.48 0.14 2.6%
Latvia TWh 1.04 0.87 0.17 19.8%
Other [1] TWh 0.10 0.02 0.08 433.2%
Total retail TWh 6.77 6.37 0.40 6.3%
of which B2C TWh 2.91 3.03 (0.12) (3.9%)
of which B2B TWh 3.86 3.34 0.52 15.5%
Number of customers m 1.55 1.66 (0.11) (6.5%)
Natural gas sales TWh 11.55 14.70 [2] (3.15) (21.4%)
Lithuania TWh 6.01 7.65 (1.63) (21.3%)
Latvia TWh 0.34 2.04 (1.70) (83.2%)
Finland TWh 2.57 3.05 (0.48) (15.8%)
Poland TWh 0.01 - 0.01 n/a
Total retail TWh 8.93 12.74 (3.81) (29.9%)
of which B2C TWh 2.84 2.25 0.59 26.1%
of which B2B TWh 6.09 10.49 (4.39) (41.9%)
Wholesale market TWh 2.62 1.96 0.66 33.5%
Number of customers m 0.62 0.61 0.01 1.1%
Customer experience
NPS (B2C) % 60.5% 74.5% (14 pp) n/a
NPS (B2B) % 17.0% 35.0% (18 pp) n/a
----- End of picture text -----

1 Electricity sales in Poland and Estonia.

2 14.77 value reported in Annual report 2020 was corrected after updating sales volumes in Latvia.

70 / 364

Annual report 2021 / Results

Contents »

3 .3 Five-year annual summary

==> picture [353 x 368] intentionally omitted <==

----- Start of picture text -----

Key financial indicators [1] 2021 2020 2019 2018 2017
Revenue EURm 1,890.4 1,223.1 1,099.3 1,070.1 1,100.8
EBITDA EURm 335.5 334.3 207.1 145.3 227.2
EBITDA margin % 17.7% 27.6% 18.8% 13.6% 20.6%
Adjusted EBITDA EURm 332.7 245.9 259.9 221.3 238.2
Adjusted EBITDA margin % 17.6% 21.7% 22.6% 18.1% 21.2%
EBIT EURm 184.6 215.0 83.1 (20.4) 97.1
EBIT margin EURm 9.8% 17.6% 7.6% (1.9%) 8.8%
Adjusted EBIT EURm 206.6 126.6 135.0 124.3 136.3
Net profit EURm 153.9 170.6 59.0 (22.0) 93.5
Net profit margin % 8.1% 13.9% 5.4% (2.1%) 8.5%
Adjusted net profit EURm 163.1 95.5 106.0 99.0 126.7
Investments EURm 234.9 346.8 453.2 418.3 260.1
FFO EURm 291.8 309.4 189.5 129.7 214.6
FCF EURm (295.6) 5.1 (189.8) (192.7) (62.8)
ROE % 8.4% 10.8% 4.4% (1.7%) 7.0%
Adjusted ROE % 8.9% 6.0% 8.0% 7.5% 9.5%
ROCE % 7.1% 9.1% 3.8% (1.1%) 5.7%
Adjusted ROCE % 7.9% 5.4% 6.2% 6.6% 8.0%
ROA % 3.8% 4.8% 1.9% (0.8%) 3.8%
31 .12 .2021 31 .12 .2020 31 .12 .2019 31 .12 .2018 31 .12 .2017
Total assets EURm 4,251.3 3,920.9 3,198.1 2,853.9 2,505.1
Equity EURm 1,849.0 1,813.3 1,348.6 1,302.5 1,343.6
Net debt EURm 957.2 600.3 966.5 736.0 442.3
Working capital EURm 486.4 94.4 52.6 (19.2) (8.8)
Working capital/Revenue % 25.7% 7.7% 4.8% (1.8%) (0.8%)
Equity ratio times 0.43 0.46 0.42 0.46 0.54
Net debt/EBITDA times 2.85 1.80 4.67 5.07 1.95
Net debt/Adjusted EBITDA times 2.88 2.44 3.72 3.33 1.86
FFO/Net debt % 30.5% 51.5% 19.6% 17.6% 48.5%
Current ratio times 1.87 3.36 0.78 1.16 1.29
Asset turnover times 0.46 0.34 0.36 0.40 0.45
----- End of picture text -----

Key operating indicators		2021 2020 2019 2018	2017
Electricity
Green Generation capacity	MW	1,350 1,350 1,287 1,193	1,159
Green Generation installed capacity	MW	1,214 1,101 1,077 1,077	1,043
Green Generation projects under construction Electricity distributed Electricity generated (net) Green electricity generated (net) Green share of generation Electricity sales SAIFI SAIDI	MW TWh TWh TWh % TWh units min	136 249 210 116 10.37 9.55 9.55 9.59 2.30 2.45 1.06 1.01 1.48 1.25 1.032 0.95 64.2% 51.0% 97.7% 93.4% 7.11 6.79 5.86 5.91 1.45 1.34 1.31 1.14 201.95 207.67 91.803 81.37	116 9.22 1.28 1.14 89.1% 5.43 1.32 137.83
Heat
Green Generation capacity Green Generation installed capacity Green Generation projects under construction	MW MW MW	339 339 339 339 170 110 40 40 169 229 299 299	339 40 299
Heat generated (net)	TWh	0.85 0.324 0.09 0.10	0.11
Naturalgas
Natural gas distributed	TWh	8.49 7.06 6.97 7.60	7.37
Natural gas sales	TWh	11.55 14.705 9.84 11.33	11.47
SAIFI	units	0.006 0.010 0.008 0.006	0.007
SAIDI	min	0.47 1.61 1.25 0.61	1.16

2 Previously reported 1.04 value was corrected.

3 Previously reported 91.79 value was corrected.

4 Previously reported 0.33 value corrected.

5 14.77 value reported in Annual report 2020 was corrected after updating sales volumes in Latvia.

71 / 364

Annual report 2021 / Results

Contents »

3 .4 Results Q4

Financial results

Revenue

In Q4 2021, compared to Q4 2020, an increase in revenue was caused by:

Customers & Solutions segment (EUR +281.1 million) from electricity business (EUR +149.1 million), as market price and volumes were higher, and gas business (EUR +131.9 million) due to inventory effect;
Green Generation segment (EUR +75.1 million), mostly due to higher revenue of Kruonis PSHP (EUR +40.9 million) and Kaunas HPP (EUR +13.5 million), as electricity market prices were higher, as well as new assets launch effect (EUR +14.9 million).

Adjusted EBITDA

Adjusted EBITDA increased by EUR 20.5 million, mainly due to:

better results of Green Generation segment (EUR +44.9 million) due to better results of Kruonis PSHP (EUR +17.5 million), Kaunas HPP (EUR +10.8 million), Vilnius CHP WtE unit (EUR +5.7 million), that generated first electricity in January 2021, Pomerania WF (EUR +4.7 million), that generated first electricity in May 2021, and Kaunas CHP (EUR +3.8 million);
increase was partly offset by worse results of Customers & Solutions segment (EUR -16.6 million), mostly due to ineffective electricity hedging, and Networks segment (EUR -7.6 million), mostly due to the effect of higher distributed volumes before December.

Adjusted net profit

Adjusted net profit increased by EUR 21.0 million mainly due to higher Adjusted EBITDA.

Investments

Investments in Q4 2021 increased mainly due to higher Networks segment investments in maintenance and expansion of electricity distribution network (EUR +20.3 million and EUR +5.1 million respectively).

Operating performance

Electricity

Distributed electricity increased by 8.3%, when comparing with same quarter last year, mostly due to colder than usual weather and a more active business segment. Electricity generated (net) decreased by 9.4%. The decrease was mainly driven by lower electricity generation (net) of the CCGT unit at Elektrėnai Complex (-0.21 TWh), which offset an increased electricity generation (net) of Pomerania WF (+0.07 TWh), Kaunas HPP (+0.03 TWh), Vilnius CHP’s WtE unit (+0.03 TWh), Kruonis PSHP (+0.02 TWh) and Kaunas CHP (+0.01 TWh).

Operational Green Generation capacity increased by 113 MW and capacity under construction decreased accordingly by 113 MW since COD of Vilnius CHP’s WtE unit was reached in March 2021 and COD of Pomerania WF – in December 2021.

Deterioration of electricity quality indicators SAIFI and SAIDI was mainly caused by gusty wind in November–December 2021.

Heat

Heat generation (net) in Q4 2021 increased as a result of Vilnius CHP WtE unit working in full capacity as well as increased generation (net) in Kaunas CHP due better position in auctions and less repair works/testing comparing with Q4 2020.

Natural gas

Natural gas distribution volumes increased due to higher consumption and a colder weather. Natural gas sales volumes decreased due to lower sales in wholesale market and lower B2B retail sales.

Natural gas quality indicators SAIDI and SAIFI improved, when comparing with the same period in 2020 as there were no significant disruptions during Q4 2021.

==> picture [359 x 423] intentionally omitted <==

----- Start of picture text -----

Key financial indicators [1] Q4 2021 Q4 2020 ∆ ∆,%
Revenue EURm 725.0 354.3 370.7 104.6%
EBITDA EURm 79.8 105.0 (25.2) (24.0%)
Adjusted EBITDA EURm 111.1 90.6 20.5 22.6%
Adjusted EBITDA margin % 14.7% 26.7% (12.0 pp) n/a
EBIT EURm 22.0 72.5 (50.5) (69.7%)
Adjusted EBIT EURm 78.1 58.1 20.0 34.4%
Net profit EURm 41.7 61.7 (20.0) (32.4%)
Adjusted net profit EURm 70.5 49.5 21.0 42.4%
Investments EURm 103.9 76.0 27.9 36.7%
FFO EURm 74.7 102.1 (27.4) (26.8%)
FCF EURm (334.2) (7.7) (326.5) n/a
Key operating indicators Q4 2021 Q4 2020 ∆ ∆,%
Electricity
Green Generation capacity MW 1,350 1,350 - -%
Green Generation installed
MW 1,214 1,101 113 10.3%
capacity
Green Generation projects under construction MW 136 249 (113) (45.4%)
Electricity distributed TWh 2.77 2.55 0.21 8.3%
Electricity generated (net) TWh 0.59 0.65 (0.06) (9.4%)
Green electricity generated (net) TWh 0.49 0.34 0.16 46.6%
Green share of generation % 84% 52% 32 pp n/a
Electricity sales TWh 1.97 1.83 0.14 7.8%
SAIFI units 0.35 0.23 0.12 52.2%
SAIDI min. 28.64 13.49 15.15 112.3%
Heat
Green Generation capacity MW 339 339 - -%
Green Generation installed
MW 170 110 60 54.5%
capacity
Green Generation projects under construction MW 169 229 (60) (26.2%)
Heat generated (net) TWh 0.28 0.15 0.14 94.3%
Natural gas
Natural gas distributed TWh 2.74 2.48 0.26 10.3%
Natural gas sales TWh 2.85 3.84 (0.99) (25.8%)
SAIFI units 0.001 0.003 (0.002) (54.8%)
SAIDI min. 0.10 0.76 (0.65) (86.8%)
----- End of picture text -----

72 / 364

Annual report 2021 / Results

Contents »

Results by business segments Q4[1]

Networks

Networks revenue was 9.1% or EUR 12.0 million higher than in Q4 2020. The increase was mainly driven by higher electricity distribution revenue (EUR +6.1 million) and revenue from supply of last resort (EUR +4.8 million).

Adjusted EBITDA was 19.5% or EUR 7.6 million lower than in Q4 2020. The decrease was driven by the effect of higher distributed volumes before December as annual ROI and compensated D&A is fixed for the year, but allocated between the months based on distributed volumes.

Investments were 60.1% or EUR 33.1 million higher than in Q4 2020, mainly due to higher investments in maintenance and expansion of electricity distribution network (EUR +20.0 million and EUR +5.1 million respectively).

Green Generation

Green Generation revenue was 259.0% or EUR 75.1 million higher than in Q4 2020. The increase was driven by higher sales of Kruonis PSHP (EUR +40.9 million) and Kaunas HPP (EUR +13.5 million), mainly due to higher electricity market prices and volumes, the launch of Vilnius CHP’s WtE unit (EUR +9.6million) and Pomerania WF (EUR +2.0 million) and Kaunas CHP (EUR +3.3 million) due to higher prices and volumes.

Adjusted EBITDA was 261.0% or EUR 44.9 million higher than in Q4 2020. The increase was mainly influenced by better results of Kruonis PSHP (EUR +17.5 million), Kaunas HPP (EUR +10.8 million), Vilnius CHP WtE unit (EUR +5.7 million) that generated first electricity in March 2021, Pomerania WF (EUR +4.7 million) that generated first electricity in May 2021 and better results of Kaunas CHP (EUR +3.8 million).

Flexible Generation

Flexible Generation revenue was 12.7% or EUR 4.7 million higher than in Q4 2020. The increase was mainly driven by higher revenue of commercial activities of the CCGT unit (EUR +7.7 million) due to higher electricity market prices.

Adjusted EBITDA was 14.5% or EUR 1.1 million higher than in Q4 2020. The increase was mainly caused by better results of the CCGT unit’s commercial activity (EUR +0.8 million), mainly due higher clean spark spread for commercial activities.

Customers & Solutions

Customers & Solutions revenue was 177.7% or EUR 281.1 million higher than in Q4 2020. The increase was mainly driven by higher revenue of electricity business (EUR +149.1 million) due to higher market price and volumes and higher revenue from natural gas sales (EUR +131.9 million) due to higher natural gas prices.

Adjusted EBITDA was EUR 16.6 million lower than in Q4 2020. The decrease was mainly influenced by worse electricity business results due to ineffective hedging, which was partly offset by positive gas business results due to inventory effect.

==> picture [359 x 435] intentionally omitted <==

----- Start of picture text -----

Networks Q4 2021 Q4 2020 ∆ ∆,%
Revenue EURm 144.5 132.5 12.0 9.1%
Adjusted EBITDA EURm 31.4 39.0 (7.6) (19.5%)
EBITDA EURm 21.3 41.8 (20.5) (49.0%)
Adjusted EBIT EURm 8.4 16.6 (5.2) (49.4%)
EBIT EURm (26.7) 19.5 (46.2) n/a
Investments EURm 88.2 55.1 33.1 60.1%
Adjusted EBITDA margin % 20.3% 30.1% (9.8 pp) n/a
31 .12 .2021 31 .12 .2020 ∆ ∆,%
PPE, intangible and right-of-use assets EURm 1,654.6 1,616.9 37.7 2.3%
Net debt EURm 710.0 680.7 29.3 4.3%
Green Generation Q4 2021 Q4 2020 ∆ ∆, %
Revenue EURm 104.1 29.0 75.1 259.0%
Adjusted EBITDA EURm 62.1 17.2 44.9 261.0%
EBITDA EURm 58.8 16.7 42.1 252.1%
Adjusted EBIT EURm 56.1 12.0 44.1 367.5%
EBIT EURm 53.5 11.4 42.1 369.3%
Investments EURm 14.0 19.7 (5.7) (28.9%)
Adjusted EBITDA margin % 57.9% 58.3% (0.4 pp) n/a
31 .12 .2021 31 .12 .2020 ∆ ∆,%
PPE, intangible and right-of-use assets EURm 773.1 748.8 24.3 3.2%
Net debt EURm 390.1 349.9 40.2 11.5%
Flexible Generation Q4 2021 Q4 2020 ∆ ∆, %
Revenue EURm 41.8 37.1 4.7 12.7%
Adjusted EBITDA EURm 8.7 7.6 1.1 14.5%
EBITDA EURm 10.5 8.0 2.5 31.3%
Adjusted EBIT EURm 5.9 4.8 1.1 22.9%
EBIT EURm 7.6 5.2 2.4 46.2%
Investments EURm 0.0 (1.4) 1.4 (100.0%)
Adjusted EBITDA margin % 21.7% 20.7% 1.0 pp n/a
31 .12 .2021 31 .12 .2020 ∆ ∆,%
PPE, intangible and right-of-use assets EURm 307.4 326.3 (18.9) (5.8%)
Net debt EURm (37.5) (37.7) 0.2 (0.5%)
Customers & Solutions Q4 2021 Q4 2020 ∆ ∆, %
Revenue EURm 439.3 158.2 281.1 177.7%
Adjusted EBITDA EURm 9.4 26.0 (16.6) (63.8%)
EBITDA EURm (10.3) 35.4 (45.7) (129.1%)
Adjusted EBIT EURm 8.9 25.6 (16.7) (65.2%)
EBIT EURm (10.8) 35.0 (45.8) (130.9%)
Investments EURm 1.7 2.4 (0.7) (29.2%)
Adjusted EBITDA margin % 2.0% 17.5% (15.5 pp) n/a
31 .12 .2021 31 .12 .2020 ∆ ∆,%
PPE, intangible and right-of-use assets EURm 6.5 6.6 (0.1) (1.5%)
Net debt EURm 474.4 29.4 445.0 1,513.6%
----- End of picture text -----

73 / 364

Annual report 2021 / Results

Contents »

3 .5 Quarterly summary

==> picture [730 x 310] intentionally omitted <==

----- Start of picture text -----

Key financial indicators [1] Q4 2021 Q3 2021 Q2 2021 Q1 2021 Q4 2020 Q3 2020 Q2 2020 Q1 2020
Revenue EURm 725.0 427.3 344.7 393.4 354.3 277.9 265.3 325.7
EBITDA EURm 79.8 83.8 84.2 87.6 105.0 79.0 88.2 62.1
Adjusted EBITDA EURm 111.1 72.2 71.0 78.3 90.6 72.9 60.4 22.0
Adjusted EBITDA margin % 14.7% 17.4% 21.4% 20.4% 26.7% 26.8% 25.4% 7.7%
EBIT EURm 22.0 53.0 52.5 57.0 72.5 48.9 60.8 32.8
Adjusted EBIT EURm 78.1 41.4 39.3 47.7 58.1 42.8 33.0 (7.3)
Net profit EURm 41.7 51.2 18.0 43.0 61.7 36.4 48.2 24.3
Adjusted net profit EURm 70.5 29.2 28.3 35.1 49.5 31.2 24.5 (9.8)
Investments EURm 103.9 54.1 48.7 28.2 76.0 83.7 124.5 62.6
FFO EURm 74.7 67.5 65.5 84.1 102.1 65.3 81.7 60.3
FCF EURm (334.2) (47.3) 54.3 31.7 (7.7) 23.6 (1.1) (9.9)
ROE LTM % 8.4% 11.1% 10.1% 12.0% 10.8% 9.4% 7.8% 5.0%
Adjusted ROE LTM % 8.9% 9.1% 9.1% 8.9% 6.0% 5.9% 5.2% 4.8%
ROCE LTM % 7.1% 9.9% 9.7% 10.2% 9.1% 7.0% 5.8% 4.1%
Adjusted ROCE LTM % 7.9% 7.8% 7.9% 7.7% 5.4% 4.6% 4.0% 3.9%
Q4 2021 Q3 2021 Q2 2021 Q1 2021 Q4 2020 Q3 2020 Q2 2020 Q1 2020
Total assets EURm 4,251.3 4,131.1 3,967.5 3,975.2 3,920.9 3,408.8 3,368.4 3,183.4
Equity EURm 1,849.0 1,811.2 1,831.0 1,810.7 1,813.3 1,312.7 1,320.4 1,356.2
Net debt EURm 957.2 620.4 571.6 579.2 600.3 1,026.8 1,019.2 950.6
Net working capital EURm 486.4 169.5 99.1 129.7 94.4 31.4 55.9 88.1
Net debt/EBITDA LTM times 2.85 1.72 1.61 1.61 1.80 3.64 4.04 4.42
Net debt/Adjusted EBITDA LTM times 2.88 1.99 1.83 1.92 2.44 4.51 4.80 4.50
FFO/Net debt LTM % 30.5% 51.4% 55.5% 57.5% 51.5% 24.8% 22.5% 20.7%
----- End of picture text -----

74 / 364

Annual report 2021 / Results

Contents »

==> picture [730 x 284] intentionally omitted <==

----- Start of picture text -----

Key operating indicators Q4 2021 Q3 2021 Q2 2021 Q1 2021 Q4 2020 Q3 2020 Q2 2020 Q1 2020
Electricity
Green Generation capacity MW 1,350 1,350 1,350 1,350 1,350 1,350 1,287 1,287
Green Generation installed capacity MW 1,214 1,120 1,120 1,120 1,101 1,101 1,077 1,077
Green Generation projects under construction MW 136 230 230 230 249 249 210 210
Electricity distributed TWh 2.77 2.45 2.43 2.72 2.55 2.30 2.17 2.53
Electricity generated (net) TWh 0.59 0.57 [1] 0.58 0.57 0.65 0.86 0.56 0.39
Green electricity generated (net) TWh 0.49 0.28 [2] 0.35 0.35 0.34 0.32 0.26 0.34
Green share of generation % 84.1% 50.0% [3] 61.0% 61.0% 52.0% 36.7% 46.8% 87.1%
Electricity sales TWh 1.97 1.67 1.67 1.81 1.83 1.64 1.62 1.71
SAIFI units 0.35 0.38 0.36 0.37 0.23 0.25 0.41 0.45
SAIDI min 28.64 30.80 [4] 44.54 [5] 97.97 [6] 13.49 16.36 34.15 143.67
Heat
Green Generation capacity MW 339 339 339 339 339 339 339 339
Green Generation installed capacity MW 170 170 170 170 110 110 40 40
Green Generation projects under construction MW 169 169 169 169 229 229 299 299
Heat generated (net) TWh 0.28 0.12 0.21 0.23 0.15 0.03 0.09 0.06
Natural gas
Natural gas distributed TWh 2.74 1.02 1.41 3.32 2.48 0.99 1.18 2.41
Natural gas sales TWh 2.85 1.39 2.07 5.25 3.84 3.62 2.98 4.26
SAIFI units 0.001 0.001 0.001 0.002 0.003 0.004 0.002 0.001
SAIDI min 0.10 0.12 0.09 0.16 0.76 0.61 0.19 0.05
----- End of picture text -----

1 Previously reported value 0.55 was adjusted with electricity generated by Pomerania WF before COD in December 2021.

2 Previously reported value 0.26 was adjusted with electricity generated by Pomerania WF before COD in December 2021.

3 Previously reported value 48.3% was adjusted with electricity generated by Pomerania WF before COD in December 2021.

4 Previously reported 31.41 value was adjusted with regards to new information.

5 Previously reported 45.30 value was adjusted with regards to new information.

6 Previously reported 100.41 value was adjusted with regards to new information.

75 / 364

Annual report 2021 / Governance

Contents »

Governance

==> picture [284 x 122] intentionally omitted <==

----- Start of picture text -----

|||
|---|---|
|4.1 Supervisory Board Chair’s statement|77|
|4.2 Governance|78|
|4.3 Supervisory Board and committees|84|
|4.4 Audit Committee report|94|
|4.5 Management Board|98|
|4.6 Remuneration report|104|
|4.7 Risk and risk management|114|
|4.8 Information about the Group|125|

----- End of picture text -----

76 / 364

Annual report 2021 / Governance

Contents »

4 .1 Supervisory Board Chair’s statement

Newly elected Supervisory Board – same goal of governance excellence

It is my pleasure for the first time to introduce and provide an overview of the new Group’s Supervisory Board. It has only been a few months, but we progressed well by analysing and adopting decisions of strategic significance. We will continue doing that while ensuring the highest standards of governance within the Group.

New Supervisory Board

In October 2021, the new Supervisory Board comprising seven members started its fouryear term. Four out of seven members served as members of the Supervisory Board and/ or its committees in the previous term, thus deploying in-house knowledge and expertise of these members to continue the Group’s activities successfully. Unlike ever before, the composition of the Supervisory Board is diverse in gender (four members are women), nationality (the majority are foreigners) as well as experience and knowledge of key areas required to ensure the Group’s growth. The new Supervisory Board brings vast international experience, and we see it as our goal that the Group becomes a truly key energy sector player in its home and target markets.

Sustainable future perspective

As new members, we took an active interest in learning the Group’s strategic goals and expectations of the Majority Shareholder – the Ministry of Finance – and all other stakeholders in order to make informed decisions and fulfil the duties conferred to us.

In line with the Group’s long-term strategy, we approved decisions relevant to the

consolidation of Ignitis Renewables, thus paving the way for the fulfilment of the Green Generation business leg growth. Together with the Management Board, we challenge, discuss, and support its M&A, asset rotation strategies, which are key to the realization of the Group’s Green Generation portfolio target of reaching 4 GW of installed capacity by 2030. We also approved the Strategic Plan for 2022–2025 which is now the grounds for the Group’s activities going forward.

We encourage the Group’s ambitious greenhouse gas reduction targets and commitment to reach net-zero emissions by 2050. The fact that the Science-Based Target Initiative validated the Group’s targets proves that we are going in the right direction and we will continue to oversee its progress towards reaching the Group’s ambitious goals.

Management Board selection

With an end of term of the Management Board in mind, we, as newly appointed members, faced a challenge of ensuring the succession of the Management Board members and the CEO. The newly formed Nomination and Remuneration Committee led by Lorraine Wrafter, an expert in organizational development and human resources, played a key role in the selection process. It had an utmost important role in assessing, together with the individual members of the Supervisory Board, the talent pipeline available and advising on the best succession candidates. To ensure the transparent and effective selection process, we decided to contract international executive recruitment advisors. The entire Supervisory Board was involved and held active discussions

==> picture [358 x 200] intentionally omitted <==

on the required competencies of the new management team and the selection process.

Board’s results so far, and we look forward to sharing our insights and knowledge and contributing towards the success story of the Group.

We are thankful to all the employees of the Group for the results they have delivered and continue to deliver. We are also grateful to the former members of the Management Board for their contribution proving that the Group is capable of delivering growing financial results during such unprecedented times while creating added value for all stakeholders. We expect the newly elected members of the Management Board will continue the work their predecessors had begun.

==> picture [83 x 67] intentionally omitted <==

Alfonso Faubel Chair of the Supervisory Board Ignitis Group

Whilst our term of office has only begun, we are proud of the progress of the Supervisory

77 / 364

Annual report 2021 / Governance

Contents »

4 .2 Governance framework

Overview of the Group’s corporate governance

The Group’s governance structure and model have been developed on the basis of the most advanced international and national practices, following the recommendations published by the OECD, having regard to the Corporate Governance Code for the companies listed on Nasdaq Vilnius and the Guidelines on the Governance for State-Owned Enterprises (SOEs) recommended by the Baltic Institute of Corporate Governance. Additionally, the corporate governance model of state-owned group of energy companies was implemented in observance of the Corporate Governance Guidelines approved by the Ministry of Finance of the Republic of Lithuania (Corporate Governance Guidelines). Their most recent amendments were adopted on 2 July 2021. They include changes in the procedure of forming the parent company’s Audit Committee, resulting in its members being elected by the General Meeting of Shareholders (instead of the Supervisory Board), which was also reflected in the Articles of Association.

The parent company acknowledges the importance of good corporate governance and currently applies the Corporate Governance Code for the companies listed on Nasdaq Vilnius to the extent possible. This code is based on the principle of ‘comply or explain’ (link in Lithuanian). In accordance with Article 12 (3) of the Law on Securities and Paragraph 24.5 of the Nasdaq Vilnius Listing Rules, the parent company discloses annually how it complies with, or reasons for non-compliance with, the Nasdaq Vilnius Corporate Governance Code (including its specific provisions or recommendations). For its detailed description, please see section ‘Further information’.

Overall, the Group’s governance principles and model aim at the assessment and harmonisation of stakeholders’ interests and their translation into measurable targets and indicators.

Key principles of corporate governance

1 . Creating conditions for effective corporate governance: an environment in which the Group of companies or individual companies operate promotes transparency in the market, ensures separation of management, oversight and state regulatory functions.

2 . The exercise of the rights conferred by shares: the corporate governance system shall ensure the possibilities of exercising the property and non-property rights arising from the share management while safeguarding the interests of minority shareholders. The majority shareholder of the parent company shall seek and ensure that the Group of companies operates on an equal footing with other market participants, without creating exclusive business conditions for the Group of companies.

3 . The role of stakeholders: the corporate governance system shall recognise the expectations and rights of stakeholders arising from agreements or legal regulation and shall encourage active cooperation in creating sustainable added value.
4 . Openness and transparency: the corporate governance system must ensure timely and accurate disclosure of information about the Group of companies by providing financial, operational, managerial as well as other information to be communicated to the stakeholders. The Group of companies strives for transparency in all areas of its activities, and observes the principles of zero tolerance to corruption and of unbundling of the activities of the Group of companies from political influence.
5 . Responsibility and accountability of the managing and supervisory bodies: the corporate governance system shall ensure that the managing and supervisory bodies of the Group of companies or of individual companies properly perform their functions and are accountable to the shareholders.

Corporate governance awards

Since 2012 the parent company receives the highest rating in Good Corporate Governance Index and has been recognised as the best managed SOE. The Good Corporate Governance Index has been compiled since 2012 by the Governance Coordination Centre on annual basis with the aim to assess and measure how each SOE implements key good governance practices. Currently, this index is the most widely used measure for assessing the quality of governance of all SOEs. In the

Ignitis Group – 2020/2021 Governance Index leaders

==> picture [228 x 65] intentionally omitted <==

----- Start of picture text -----

A+ A+ A+ A+
Overall Collegial Strategic planning Transparency
rating bodies and Implementation
----- End of picture text -----

Corporate Governance Index of the SOEs of 2020–2021, the parent company received the highest possible (A+) rating and was recognised as the governance leader in the category of large companies for the third year in a row. The rating total was compiled in accordance with the three governance criteria – collegial bodies, strategic planning and implementation and transparency standards. Same as last year, the parent company maintained the highest possible rating (A+) in all three criteria. More than that, the parent company has also received a separate award for leading in sustainability.

Furthermore, the parent company received the highest possible score in the assessment carried out by Transparency International Lithuania in the three categories assessed – the anticorruption measures, organisational transparency and financial transparency. Also, in July 2021 the Group’s rating of ‘A’ was upgraded to ‘AA’ (on a scale of ‘CCC’– ‘AAA’) in the MSCI ESG Ratings assessment. This places the Group among the industry leaders and significantly above the utility group average of ‘BBB’. Moreover, a globally recognised environmental disclosure organisation CDP rated climate change mitigation and adaptation efforts of the Group for the first time. In December 2021, the CDP granted the Group a score of ‘B’ (on a ‘D-’ to ‘A’ scale, where ‘A’ is the top score). Furthermore, in 2021, the Group received a score of 20.4 (on a scale of 100–0, from highest to lowest risk) in the Sustainalytics, leading independent ESG ratings firm, ESG Risk Rating assessment. The Group‘s score in 2020 was 26.5. This places the Group among the top 12 percent of utility peers that manage their ESG risks optimally. Sustainalytics designated the overall ESG risk level as ‘medium’, approaching the ‘low’ risk category. For more information on ESG, please see section 'Sustainability (corporate social responsibility) report'.

78 / 364

Annual report 2021 / Governance

==> picture [419 x 356] intentionally omitted <==

----- Start of picture text -----

Governance
New international, diverse and highly respected
by the industry members of the Supervisory
Board and Committees will continue working to
ensure the highest standards of governance within
Ignitis Group.
79 / 364
----- End of picture text -----

Annual report 2021 / Governance

Contents »

Governance model

The parent company employs a corporate governance system designed to manage and control the Group as a whole, with a view to achieve common objectives. The corporate governance of the Group is exercised through the parent company’s functions, e.g., by coordinating common Group areas such as finance, law, risk management, etc. Activities of the Group in these areas are based on mutual agreement, i.e., cooperation with a focus on achieving a common result, and are coordinated by policies (common provisions and norms) applicable to the whole Group.

The parent company has a Chief Executive Officer (CEO) and a two-tier board system consisting of a Management Board and a Supervisory Board. The CEO represents the parent company in all matters and, together with the Management Board, is responsible for its management, while the Supervisory Board is the body that oversees the Management Board and the CEO. The CEO manages the parent company’s day-to-day operations and is entitled to solely represent the parent company.

The parent company’s management and supervisory bodies are designed, and are to be operated, in such a way as to ensure the proper representation of the Republic of Lithuania as the majority shareholder, alongside other stakeholders, and the separation of the management and supervisory functions.

A more detailed description of each collegial body and its members is available in the sections below.

Corporate governance model

==> picture [464 x 343] intentionally omitted <==

----- Start of picture text -----

Elects / recalls Advisory Audit Committee
Shareholders‘ General Meeting Of and
rights Shareholders oversight 5 members: the majority
function must be independent
Elects / recalls
Nomination and
Supervisory and Supervisory Board Elects / recalls Remuneration
shareholder Advisory Committee
representation 7 members: the majority must be function
function independent 3 members: at least 1/3
must be independent
Elects / recalls
Risk Management
Management Board
and Business Ethics
Management function 5 members: ensured (corporate governance, finance, diversity of competencies Advisory function Supervision Committee
strategic management, human resources,
3 members: at least 1/3
etc.)
must be independent
Elects / recalls
Management
CEO – Chair of the Management
(organisational)
Board
function
----- End of picture text -----

80 / 364

Annual report 2021 / Governance

Contents »

Key changes in collegial bodies

Supervisory Board and committees

During the reporting period on 26 October 2021, new members of the Supervisory Board were elected by the General Meeting of Shareholders for a four-year term. A gap of almost two months between the end of term on 29 August 2021 and the election of the new Supervisory Board, caused by the delay in the selection process, did not have any effect on the Group’s performance, as the parent company planned its activities and decision-making processes in a way to ensure the continuous and efficient operation of the Group. Additionally, after the end of term of the former Supervisory Board, those former Supervisory Board members who were also members of Supervisory Board’s committees were not eligible to participate in the activities of the committees, and thus, during the gap between the end of term and the election of the new Supervisory Board, due to a no quorum, committees (except the Audit Committee) could not operate.

On 3 November 2021, the newly elected Supervisory Board adopted a decision to form a new Nomination and Remuneration Committee and elect three members for a four-year term. The Supervisory Board also adopted a decision to elect two new members of the Risk and Business Ethics Supervision Committee until the end of term of the currently effective committee (19 April 2022).

Audit Committee

The Audit Committee’a term of office was to end on 12 October 2021. In view of this, the selection of independent members of the Audit Committee was announced on 5 July 2021, and, on 27 September 2021, the General Meeting of Shareholders elected three independent members to the parent company’s Audit Committee. The other two members of the Audit Committee were nominated by the Supervisory Board on 3 November 2021,

and were elected by the General Meeting of Shareholders on 15 December 2021.

For more in-depth information about the changes in the collegial bodies, please see sections ‘Supervisory Board and committees’, ‘Audit Committee’, and ‘Management Board’.

Management Board, its Chair and CEO of the parent company

During the reporting period, there has been a change in the composition of the Management Board. On 25 June 2021 Dominykas Tučkus resigned from the position of a Member of the parent company's Management Board. Given that the term of office of the parent company's Management Board expires on 31 January 2022, as well as the fact that the selection of a new member of the Management Board could have taken several months, the Supervisory Board decided not to announce the selection process for the position of a new member of the Management Board and to delegate the responsibilities of Dominykas Tučkus to the remaining members of the Management Board.

On 29 November 2021, the Supervisory Board, considering that the term of the Management Board was to end on 31 January 2022, adopted a decision to initiate a public selection of a new Management Board, as well as decided to extend the term of the effective Management Board until a new Management Board is elected, but in any case not later than until 28 February 2022.

The new members of the Management Board, its Chair and the CEO were elected after the reporting period on 18 February 2022. More information on the new CEO and the members of the Management Board is available on our website.

==> picture [276 x 474] intentionally omitted <==

81 / 364

Annual report 2021 / Governance

Contents »

Shareholders’ rights and general meetings

Our shareholders exercise their rights at the General Meeting. The General Meeting is the highest decision-making body of the parent company and adopts resolutions in accordance with the Law on Companies of the Republic of Lithuania (link in Lithuanian).

Each shareholder who has been entered in the parent company’s shareholders’ register before the record date (fifth day before the General Meeting) has the right to attend the General Meeting and exercise his/her power of decision in the matters belonging to the competence of the General Meeting. Notices about the convening of the General Meeting of Shareholders, as well as all relevant and necessary information, the annex of items to be addressed in the meeting and the decisions of the General Meeting are published on our website and through the Nasdaq Vilnius and London stock exchanges.

Shareholders’ competence

The parent company’s shareholders’ competence covers the following key areas:

appointment and removal of the members of the parent company’s Supervisory Board, determination of the remuneration for the independent members of the Supervisory Board;
amendment of the Articles of Association of the parent company;

– approval of the annual financial statements and the consolidated financial statements of the Group companies as well as the interim financial statements prepared for the purpose of deciding on the distribution of dividends for a period shorter than the financial year;

approval of the parent company’s annual report and consolidated annual report of the Group companies;
making a decision on the allocation of profit (loss) and the distribution of dividends for a period shorter than a financial year;

General meetings

During the reporting period, five General Meetings of the parent company’s shareholders were held:

on 25 March 2021, profit (loss) of the parent company for the year 2020 was allocated, a reserve of EUR 23,000,000 was formed for the acquisition of own shares, updated Remuneration Policy of Group companies, and updated Share Allocation Rules of the parent company were approved;
on 29 July 2021, principles regarding the acquisition of the parent company’s own shares were adopted[1] ;
on 27 September 2021, dividends of EUR 43.75 million for shareholders of the parent company for the six-month period ended 30 June 2021 were allocated, an audit company to perform the audit of the financial statements of the parent company was elected, Remuneration Policy of Group companies was approved and new members of the Audit Committee were elected;
on 26 October 2021, new members of the Supervisory Board of the parent company for the term of 4 years were elected;
on 15 December 2021, two new members of the Audit Committee were elected.

1 A resolution on the acquisition of the parent company’s own shares included setting the maximum number of shares to be potentially acquired (1,243,243, corresponding to approximately 1.7% of the total number of shares, or for the maximum amount equal to a reserve formed for the acquisition of own shares which was equal to EUR 23,000,000), the purpose of which is to reduce the parent company’s share capital by annulling its own shares, thus potentially increasing the Majority Shareholder’s holdings. On 14 December 2021, the parent company completed an acquisition of all offered own shares.

Further information, including resolutions of previously held General Meetings of the parent company’s shareholders, is available on our website.

– making a decision to increase or decrease the authorised capital of the parent company;

– making a decision on the parent company’s restructuring, reorganisation, liquidation;

approval of the decisions of the Management Board of the parent company regarding the parent company becoming a founder and shareholder of other legal entities;

– approval of the decisions of the Management Board of the parent company regarding the most important decisions related to the status of the Group companies of strategic importance for national security engaged in the production, distribution and supply activities in the energy sector as well as the status of the companies directly controlled by the parent company operating in the energy production sector.

82 / 364

Annual report 2021 / Governance

Contents »

Majority Shareholder

The majority shareholder of the parent company – the Republic of Lithuania – owns 73.08% of the parent company’s shares. The rights and obligations of the Republic of Lithuania are exercised by the Ministry of Finance of the Republic of Lithuania (Majority Shareholder). The Majority Shareholder, together with other shareholders, adopt the most important decisions relating to the exercise of property rights and obligations. The management of the shares shall be carried out in accordance with the Law on Companies, which establishes the property and non-property rights and obligations of all shareholders, the Description of the Procedure of the Implementation of State Property and Non-Property Rights in State-Owned Enterprises approved by the Resolution No 665 of the Government of the Republic of Lithuania of 6 June 2012 (the Property Guidelines), and the Articles of Association of the parent company.

One of the corporate governance principles outlined in the Corporate Governance Guidelines is the exercise of the rights conferred by shareholders' shares, which is set to ensure that the Majority Shareholder exercises the voting rights attached to the shares within its competence and undertakes its best effort to ensure that the parent company and the Group companies are able to operate independently, i.e., the Majority Shareholder:

shall not take actions that could prevent the parent company and the Group of companies from conducting business independently;
shall not influence the day-to-day running of the parent company's business or hold or acquire a material shareholding in one or more significant subsidiaries of the Group companies;
shall not take any action (or refuse to take any action) which would be prejudicial to the parent company's status as a listed company or the parent company's eligibility for listing, or would reasonably prevent the parent company from complying with the obligations and requirements established by law applicable to listed companies;
shall conduct all transactions and ensure relationships with the companies of the Group companies on market basis (on an arm's length terms) and on a normal commercial basis;
shall not vote in favour of, or propose, any decision to amend the Articles of Association of the parent company, which would be contrary to the principle of independence of the parent company's business;

Expectations of Majority Shareholder

In accordance with the Property Guidelines (link in Lithuanian), the Majority Shareholder releases a Letter of Expectations to the parent company at least once every four years on the objectives pursued by the Majority Shareholder in the SOE and its expectations. With that in mind, the Letter of Expectations in relation to the activities of the Group was approved by the Order of the Minister of Finance of 13 April 2018, with the last amendment supporting the Group’s strategy published on 17 February 2021.

In this letter, the Majority Shareholder indicates the following expectations of the Group’s strategic priorities:

to ensure the increase in reliability and development of the electricity distribution network;
to ensure a reliable and flexible Lithuanian energy system and its development by contributing to the implementation of changes in the energy sector in Lithuania and in the region;
to expand green generation by contributing to Lithuania's and regional commitments to increase electricity generation from renewable energy sources;
to develop innovative solutions and to actively seek new opportunities for profitable development of activities;
to ensure sustainable development of the activities of the Group:
to follow the principles of environmental social and good corporate governance practices (including the criteria of transparency of activities of the SOEs);
to contribute to achieving the sustainable development goals of the United Nations by giving priority to those Sustainable Development Goals (SDG) which are affected by the Group’s activities the most;
to consistently reduce greenhouse gas emissions.
shall vote in a manner that ensures that the management of the parent company complies with the principles of good governance set out in the Corporate Governance Code.

83 / 364

Annual report 2021 / Governance

Contents »

4 .3 Supervisory Board and committees

Supervisory Board overview

The Supervisory Board is a collegial supervisory body established in the Articles of Association of the parent company. The Supervisory Board is functioning at the Group level, i.e., where appropriate, it addresses the issues related not only to the activities of the parent company, but also to those of Group companies or their respective management and supervisory bodies.

For the purposes of effective fulfilment of its functions and obligations, the Supervisory Board forms committees: the Risk Management and Business Ethics Supervision Committee and the Nomination and Remuneration Committee. If necessary, other committees may be formed according to the ad hoc principle (e.g., to solve specific issues, to prepare, supervise or coordinate strategic projects).

The Supervisory Board is elected by the General Meeting for the period of four years. The Supervisory Board of the parent company comprises seven members: five independent members and two representatives of the Majority Shareholder. The Supervisory Board also elects its Chair from among its members. Such method of forming a Supervisory Board is in line with the corporate governance principles.

The main functions and responsibilities of the Supervisory Board are:

considering and approving the business strategy, annual budget and investment policy of the parent company and the Group;
analysing and evaluating implementation of business strategy, providing this information to the General Meeting;
electing and removing members of the Management Board;
supervising activities of the Management Board and the CEO;
providing comments to the General Meeting of Shareholders on a set of financial statements, allocation of profit or loss, and annual report;
considering the conclusion of the parent company’s Audit Committee, delivering an opinion regarding certain agreements of the parent company to be made with a related party.

The Supervisory Board also addresses other matters within its competence as stated in the parent company’s Articles of Association and the Law on Companies.

Information on selection criteria of the members

The selection of the members of the Supervisory Board is initiated and conducted by the Majority Shareholder in accordance with the Description of Selection of the Candidates for the Collegial Supervisory or Management Body of a State or Municipal Company, a State-Owned or Municipally-Owned Parent Company or its Subsidiary approved by the Resolution No 631 of the Government of the Republic of Lithuania of 17 June 2015. According to latter resolution, members of Supervisory Board shall have diverse competences. All members must have at least one of the following competences: finance (financial management, financial analysis or audit), strategic planning and management, knowledge of the industry in which the parent company operates (i.e., the energy sector), other competences (i.e., law, management, human resources).

The decision on the election of a Supervisory Board member is adopted by the General Meeting.

Information on remuneration of the members during the reporting period

The Articles of Association set out that independent members of the Supervisory Board may be remunerated for their work at the Supervisory Board. The terms and conditions of the agreements with the members of the Supervisory Board, including the remuneration of independent members, are determined by the General Meeting.

Details of remuneration of the independent members of the Supervisory Board during the reporting period are provided in section ‘Remuneration report’ below.

Conflicts of interest

In accordance with the Articles of Association of the parent company, each candidate to the members of the Supervisory Board must provide the General Meeting with a written consent to participate in the selection and the Declaration of Interests, stating therein all circumstances which may give rise to a conflict of interest between the candidate and the parent company. If circumstances that could result in a conflict of interest between the member of the Supervisory Board and the parent company arise, the member of the Supervisory Board must immediately

notify the Supervisory Board and shareholders in writing of such new circumstances. A member of the Supervisory Board must withdraw from preparation, consideration and/or making decisions on the issue, if the issue may cause a conflict of interest between the member of the Supervisory Board and the parent company and/or Group companies, including but not limited to, if making decisions on the issue may or may not create a conflict of interest. If a conflict of interest becomes apparent and a member of the Supervisory Board fails to withdraw, the Supervisory Board must consider the motives and/or circumstances that may cause a conflict of interest and make a decision on the removal of a member of the Supervisory Board.

Activities of the committee during the reporting period

Supervisory Board meetings takes place on a monthly basis. Additionally, ad hoc meetings are held if necessary. Overall 30 meetings of the Supervisory Board were held in 2021, covering the following key areas:

submission of proposals regarding business organisation and planning, objectives, financial position and performance of the parent company and the Group, including sustainability considerations;
issues related to the remuneration system of the Group, including long-term incentive share options programme for executives and employees, and the updated Remuneration Policy;
issues related to the annual report, annual financial statements for the year 2020, as well as to the interim dividends for the first half of 2021;
submission of opinion regarding related party transactions;
submission of opinion regarding the audit company;
evaluation of nominations for members of the Group companies’ management and supervisory bodies.

Performance evaluation

At least once every three years the parent company shall contract an independent external consultant to carry out evaluation of the Supervisory Board’s performance. The first such evaluation was conducted in the third quarter of 2021. The findings of such evaluation is used to improve the work of the Supervisory Board and its committees and prepare a supervisory

84 / 364

GRI 102-24 GRI 102-25 GRI 102-28

Annual report 2021 / Governance

Contents »

board profile. In addition, in line with good governance practices and the Majority Shareholders’ expectations, each year on its own initiatives the Supervisory Board conducts self-assessment and agrees on further actions to improve the functioning of the Supervisory Board.

Changes in the composition of the Supervisory Board

The term of office of the former Supervisory Board expired on 29 August 2021. In view of this, selection procedure of new Supervisory Board members was announced by the Ministry of Finance on 15 June 2021. However, due to delay in the selection process, the new members of the Supervisory Board were elected by the General Meeting of Shareholders on 26 October 2021. The newly elected Supervisory Board members started their activities immediately after the end of the General Meeting of Shareholders that elected them.

The new Supervisory Board comprises seven members, five of them are independent and two represent the Majority Shareholder. On 29 October 2021, the Supervisory Board elected Alfonso Faubel as the Chair from amongst its members. The term of office of the new Supervisory Board expires on 25 October 2025.

The members of the Supervisory Board were selected on the basis of the general expectations and competencies set out in the Competence Profle of the Supervisory Board. The profile included general requirements, independence requirements (for independent members only), ethical and values requirements (including diversity requirement). The members were being selected to the six areas of competence – financial management, organizational development, sustainable development and risk management, strategy development and international expansion, renewable energy as well as public policy and governance.

Committees of the Supervisory Board

In order to perform its functions and duties effectively, the parent company’s Supervisory Board forms committees. The committees submit their conclusions, opinions and suggestions to the parent company’s Supervisory Board in accordance with their competence. The committee must have at least three members, where at least one member must be a member of the Supervisory Board and at least 1/3 of the members must be independent. The members of the committees are elected for the period of four years.

The following committees of the Supervisory Board are operating:

– the Nomination and Remuneration Committee is responsible for submitting conclusions or proposals to the Supervisory Board on the matters of appointment, removal or promotion of the Management Board members and members of the supervisory and management bodies of the parent company’s subsidiaries. The committee’s functions also cover forming a common remuneration policy for the Group companies, determining the size and composition of remuneration, incentive principles, etc.;

– the Risk Management and Business Ethics Supervision Committee is responsible for submitting conclusions and suggestions regarding management and control system in the Group and/or status of implementation of the main risk factors and risk management tools to the Supervisory Board; for compliance with business ethics, maintenance of a bribery and corruption risk management system and submitting recommendations to the Supervisory Board.

If necessary, other committees may be formed according to the ad hoc principle (e.g., to solve specific issues, to prepare, supervise or coordinate strategic projects, etc.). On the day when this report was announced, the committees of Nomination and Remuneration and Risk Management and Business Ethics Supervision were operating in the parent company.

Activities, composition of the committees as well as information on members’ education, experience, place of employment and shareholdings of the Group companies at the end of the reporting period is provided below in the report.

There were changes in the composition of the committees during the reporting period – they are provided in the following sections. Furthermore, details of remuneration of the members of the committees during the reporting period are provided below in section ‘Remuneration report’.

Information on education, experience and place of employment of the new Supervisory Board members is available below.

There were no significant changes in the information on education, experience and place of employment of the former Supervisory Board members during the reporting period. The relevant information is available in our Annual report 2020.

Neither former, nor new members of the Supervisory Board had any participation in the capital of the parent company or its subsidiaries.

85 / 364

Annual report 2021 / Governance

Contents »

Members of the new Supervisory Board

==> picture [97 x 97] intentionally omitted <==

==> picture [14 x 14] intentionally omitted <==

Alfonso Faubel

Chair, member since 26/10/2021 Independent Competence: renewable energy Committees: R Term of office expires: 25/10/2025

Experience

Alfonso Faubel has held executive responsibilities in Siemens Gamesa and Alstom/GE, which are leading players in the global wind power market. When assuming the role of Senior Vice President at Alstom/GE, he contributed towards launching businesses in 16 new markets. Alfonso Faubel is an executive with 34 years of diverse experience in automotive, digitization and energy industries and is valued for his skills in business turnaround, improving operational excellence, working with teams in different cultural environments on assignments worldwide.

Education

Richmond American International University, Bachelor’s degree in Business Administration; INSEAD, Executive Education; London School of Economics, the Landscape of Philanthropy and Social Entrepreneurship.

Other current place of employment, position None.

Number of shares in parent company None.

==> picture [97 x 97] intentionally omitted <==

Lorraine Wrafter

Member since 26/10/2021 Independent Competence: organisational development Committees: N Term of office expires: 25/10/2025

Experience

Lorraine is a global HR director with a specialisation in Organisation Effectiveness (change, culture, M&A, organisation design, reward and talent management), working with boards and executive teams to transform organisations and workforce performance to deliver business value in complex multinational organisations.

Lorraine has more than 30 years of experience in big multinational corporations: CARGILL Inc. and HOLCIM.

Currently she has her own business, ‘The Problem’ and works on varied projects such as Organisation Transformation, Culture, Team Dynamics, and Coaching. She is also a board Advisor to a German start-up company HACK - CMP.

Education

Limerick University, Diploma in Business Studies; University West of London, Diploma in Human Resources and Fellow of the Chartered Institute of Personal Development; Leicester University, Master’s degree in Human Resources Management and Development; INSEAD, Diploma in Clinical Organisational Psychology, Executive Masters, Consultancy and Coaching for Change.

Other current place of employment, position The Problem (single person company; Galeistraat 7, Putte, 2580, Belgium) consultant and owner; Königstein im Taunus, Hesse (collaborative platform) Advisory Board Member.

Number of shares in parent company None.

==> picture [97 x 97] intentionally omitted <==

Judith Buss

Member since 12/11/2020 (re-elected on 26/10/2021) Independent Competence: financial management Committees:[A] Term of office expires: 25/10/2025

Experience

Judith Buss has more than 20 years of experience in various senior leadership positions in the global energy industry and financial markets and has worked internationally in Germany, Norway and the UK. She has significant experience in corporate finance, leading and negotiating large international M&A growth acquisitions, integration processes and organizational and cultural change processes. Judith has held several executive positions at E.ON group, most recently as Chief Financial Officer of E.ON Climate & Renewables. She also has experience in corporate governance serving as a member of several boards of directors in companies operating in Germany, Norway, the UK, Russia and Algeria.

Education

University of Augsburg, Master’s degree in Business Administration (Banking, Finance and Controlling); Leadership Programs at IMD Business School, Lausanne, and Massachusetts Institute of Technology, Boston.

Other current place of employment, position Uniper SE (international energy company, EmiliePreyer-Platz 1, 40479 Düsseldorf, Germany), Member of the Supervisory Board.

Number of shares in parent company None.

==> picture [97 x 97] intentionally omitted <==

==> picture [14 x 14] intentionally omitted <==

Tim Brooks

Member since 26/10/2021 Independent Competence: sustainable development and risk management R Committees: Term of office expires: 25/10/2025

Experience

Tim is a senior executive with more than 20 years of experience in sustainable development both as a consultant, and in large corporate entities. Tim has been working at The LEGO Group for 9 years, most recently as a Vice President for Sustainability and regularly contributes to the company’s risk and compliance boards. Tim has valuable experience in communicating on sustainability issues, developing sustainability strategies and working with a broad range of stakeholders to implement industry leading sustainability programmes.

At LEGO Systems, Tim Brooks has worked with KIRKBI, the LEGO Group parent company, to support and coordinate over 700 million USD of funding for renewable energy projects resulting in construction of two offshore wind parks, and delivery of over 50MW of building and ground mounted solar PV for LEGO buildings. He has also launched the ‘Engage2Reduce’ supply chain engagement programme and the 450 million USD LEGO Sustainable Materials programme. Currently, he serves as a Board Trustee of the Global Action Plan and a Board Member of the Honnold Foundation.

Education

University of Sheffield, Bachelor’s degree in Environmental Geoscience; Imperial College, Master’s degree in Environmental Technology (Energy Policy); Cambridge University, Institute of Sustainability Leadership.

Other current place of employment, position

Vice President, Corporate Responsibility at LEGO System A/S (Åstvej 1 7190, Billund, Syddanmark); Board Trustee, the Global Action Plan (network of organisations); Member of the Board, the Honnold Foundation (non-profit organisation).

Number of shares in parent company None.

Audit committee Nomination and remuneration committee Risk management and business ethics supervision committee N R

86 / 364

GRI 102-22 GRI 102-23

Annual report 2021 / Governance

Contents »

==> picture [97 x 97] intentionally omitted <==

Bent Christensen

Member since 12/11/2020 (re-elected on 26/10/2021) Independent

Competence: strategic management and international development Committees: N Term of office expires: 25/10/2025

==> picture [97 x 97] intentionally omitted <==

Aušra Vičkačkienė

Member since 30/08/2017 (re-elected on 26/10/2021)

Majority shareholder’s representative Competence: public policy and governance Committees: N Term of office expires: 25/10/2025

==> picture [97 x 97] intentionally omitted <==

Ingrida Muckutė

Member since 26/10/2021 Majority shareholder’s representative Competence: public policy and governance Committees: A Term of office expires: 25/10/2025

71%

Independence, including the Chair

Experience

Bent is a senior executive with more than 35 years of international experience in the energy sector. During his career he held various key positions in Siemens and Orsted and took part in developing these companies into global leading companies within renewables sector. Bent has worked with almost all kinds of energy resources and was responsible for or involved in the development and construction of several on- and offshore wind farms and thermal power plants.

Education

University of Southern Denmark, Bachelor’s degree in Electrical Engineering; Horsens University College, Engineering Business Administration; IMD Business School, Executive development program; Siemens, Leadership Excellence.

Other current place of employment, position Christensen Management Consulting Holding ApS (code: 40648313; Sanddal Strandsti 1, Fredericia, 7000, Denmark), Chief Executive Officer and owner; Christensen Management Consulting ApS (code: 40648542; Sanddal Strandsti 1, Fredericia, 7000, Denmark), Chief Executive Officer and owner; Chair of the Supervisory Board of Wind Estate A/S (Læsøvej 1 8940 Randers, Denmark).

Number of shares in parent company None.

Experience

Aušra has more than 20 years of experience in civil service. For the last 13 years she has been the Director of the Asset Management Department of the Ministry of Finance, previously managed the Financial Services Division of the Ministry's Financial Markets Department, and was the Head of the Loan and Guarantee Supervision Division. In addition to this, Aušra has served on management boards of various state-owned companies: Būsto Paskolų Draudimas, Turto Bankas and Viešųjų Investicijų Plėtros Agentūra, where she was elected as the Chair of the Management Board.

Education

Vilnius University, Master’s degree in Management and Business Administration; Vilnius University, Bachelor’s degree in Management and Business Administration.

Other current place of employment, position Ministry of Finance of the Republic of Lithuania, Director of Asset Management Department, Valstybės Investicijų Valdymo Agentūra, Member of the Supervisory Board (since 21/10/2020).

Number of shares in parent company None.

Ingrida is a highly experienced accounting and reporting, financial audit regulation professional with a career of 17 years working at the Ministry of Finance. She started her career in the Ministry of Finance as a Director of Accounting Methodology Department in 2004, where she initiated and led the public sector accounting reform. In 2013, during Lithuania’s presidency in the European Council, she was chairing Working Party on Company Law meetings on Audit Directive and Regulation. From then on, her responsibilities cover chairing the Committee of National Accounting Standards for private and public sectors. She also actively contributes to modernising the national systems of accounting, companies’ insolvency and property and business valuation through proposals of legal initiatives.

Before her career in the Ministry of Finance, she worked as a financial controller at Konica Minolta Baltija and as a senior auditor in Arthur Andersen, and later in Ernst & Young Baltic.

Education

Vilnius University, Master’s degree in Economics, Accounting, Finance and Banking; Uppsalla University (Sweden), Financial Management Programme.

Other current place of employment, position Director of the Reporting, Audit, Property Valuation and Insolvency Policy Department at the Ministry of Finance of the Republic of Lithuania.

57%

Share of women in the Supervisory Board

Number of shares in parent company None.

Audit Committee Nomination and Remuneration Committee Risk Management and Business Ethics Supervision Committee N R

87 / 364

Annual report 2021 / Governance

Contents »

Nomination and Remuneration Committee overview

The Nomination and Remuneration Committee is responsible for submitting conclusions or proposals to the Supervisory Board on the matters of appointment, removal or promotion of the Management Board members and members of the supervisory and management bodies of the parent company’s subsidiaries, as well as assessing the structure, size, composition and activities of the Management Board and supervisory and management boards of the parent company’s subsidiaries and their respective members and issuing the respective opinions. The functions of the committee also cover forming a common remuneration policy for the Group, establishing the amount and composition of remuneration and the principles of promotion.

The main functions of the Nomination and Remuneration Committee are the following:

to provide suggestions in relation to the long-term remuneration policy of the parent company and the Group companies (fixed pay, performance-based pay, pension insurance, other guarantees and remuneration forms, compensations, severance pay, other items of the remuneration package), and the principles of compensation for expenses related to the person’s activities;
to monitor compliance of the remuneration and bonuses policies of the parent company and the Group companies with the international practice and good governance practice guidelines, and provide suggestions for their improvement;
to assess the terms and conditions of the agreements between the parent company and the Group companies or the members of the management and supervisory bodies;

Changes in the composition of the committee

Following the end of term of the Supervisory Board on 29 August 2021, former Supervisory Board’s members were not eligible to participate in the activities of the committees and thus, due to a no quorum, the Nomination and Remuneration Committee could no longer carry out its activities. After the election of a new Supervisory Board on 26 October 2021, a decision was adopted by the Supervisory Board on 3 November 2021 to elect three new members of the Nomination and Remuneration Committee from among the Supervisory Board’s members for a term of four years. The end of term of the current Nomination and Remuneration Committee is 2 November 2025.

None of the former Nomination and Remuneration Committee members held shares of the Group. There were no significant changes in the information on education, experience and place of employment of the former Nomination and Remuneration Committee members during the reporting period. The relevant information is available in our Annual report 2020.

None of the new Nomination and Remuneration Committee members hold shares of the Group. Information on education, experience and place of employment of the new Nomination and Remuneration Committee members is available below.

Details of remuneration of the members of the Nomination and Remuneration Committee during the reporting period are provided below in section ‘Remuneration report’.

Activities of the committee during the reporting period

Overall 21 meetings of the Nomination and Remuneration Committee were held during the reporting period.

Key activities in 2021 covered the following areas:

evaluation of nominations for members of the parent company subsidiaries’ management and supervisory bodies (i.e., Ignitis Polska, Vilnius CHP, Ignitis Suomi, Ignitis, Tuuleenergia, Ignitis Grupės Paslaugų Centras, Ignitis Renewables, Ignitis Gamyba, Ignitis Latvia, Gamybos Optimizavimas, Elektroninių Mokėjimų Agentūra);
issues related to the development of remuneration policy;
issues on succession planning of strategic positions in the parent company;
proposals on the profile of competencies of the Supervisory Board of the parent company;
proposals on the profile of competencies of the Management Board of the parent company;
proposals on the long-term incentive of employees with share options programme;
issues related to the implementation of the parent company's strategy and objectives in the area of people and culture;
issues related to executive remuneration;
committee’s organisational issues.
to assess the procedures for recruitment and hiring of candidates to the positions of management and supervisory bodies and of the parent company and Group companies, and establish qualification requirements for them; submit recommendations and insight to the Supervisory Board;
to assess the structure, size, composition and activities of management and supervisory bodies of the parent company and the Group companies;
to oversee and assess the implementation of measures ensuring business continuity of the management and supervisory bodies of the parent company and the Group companies;
to perform other functions falling within the scope of competence of the Committee as decided by the Supervisory Board.

88 / 364

GRI 102-31 GRI 102-33 GRI 102-34

Annual report 2021 / Governance

Contents »

Members of the Nomination and Remuneration Committee

==> picture [98 x 97] intentionally omitted <==

Lorraine Wrafter

Chair, member since 03/11/2021 Independent Term of office[1] expires: 02/11/2025

Member of the Supervisory Board See pages 86–87

==> picture [97 x 97] intentionally omitted <==

Aušra Vičkačkienė

Member since 03/11/2021 Majority shareholder’s representative Term of office[1] expires: 02/11/2025

Member of the Supervisory Board See pages 86–87

==> picture [98 x 97] intentionally omitted <==

Bent Christensen

Member since 03/11/2021 Independent Term of office[1] expires: 02/11/2025

Member of the Supervisory Board See pages 86–87

67%

Independence

1 Term of office of the Nomination and Remuneration Committee is until 02/11/2025, however according to the Articles of Association of the parent company, if a member of the Supervisory Board ceases to be a member of the Supervisory Board, he or she shall be deprived of the office in the committee, therefore the term of office of the individual Supervisory Board members on the committee is aligned with the term of office of the Supervisory Board.

67%

Share of women in the Nomination and Remuneration Committee

89 / 364

Annual report 2021 / Governance

Contents »

Risk Management and Business Ethics Supervision Committee overview

The Risk Management and Business Ethics Supervision Committee is responsible for submitting conclusions or proposals to the Supervisory Board on the management and control system in the Group and the main risk factors, and implementation of risk management or prevention measures.

The main functions of the committee:

to monitor how risks relevant to the achievement of the parent company’s and the Group companies' objectives are identified, assessed and managed;
to assess the adequacy of internal control procedures, operational ethics and risk management measures for identified risks;
to assess the state of implementation of risk management measures;
to monitor the implementation of the risk management process;
to assess the risks and the risk management plan of the parent company and the Group companies;
to assess the periodic risk identification and assessment cycle;
to monitor whether risk registers are compiled, analyse their data, submit proposals;
to monitor the preparation of internal documents related to risk management;
to assess the sufficiency and adequacy of a company's internal documents governing the fight against bribery and corruption and periodically monitor their implementation/compliance;
to periodically monitor information related to operational ethics management actions, events and unresolved incidents (ensuring transparency, prevention of bribery, corruption risk management/prevention, etc.);

Changes in the composition of the committee

Following the end of term of the Supervisory Board on 29 August 2021, former Supervisory Board’s members were not eligible to participate in the activities of the committees and thus, due to a no quorum, the Risk Management and Business Ethics Supervision Committee could no longer carry out its activities. After the election of the new Supervisory Board on 26 October 2021, a decision was adopted on 3 November 2021 to elect two new committee members from amongst the Supervisory Board members until the end of term of the currently effective committee (19 April 2022).

None of the former Risk Management and Business Ethics Supervision Committee members held shares of the Group. There were no significant changes in the information on education, experience and place of employment of the former Risk Management and Business Ethics Supervision Committee members during the reporting period. The relevant information is available in our Annual report 2020.

None of the new Risk Management and Business Ethics Supervision Committee members holds shares of the Group. The term of office of the current Risk Management and Business Ethics Supervision Committee expires on 19 April 2022. Information on education, experience and place of employment of the new Risk Management and Business Ethics Supervision Committee members is provided below.

Details of remuneration of the members of the Risk Management and Business Ethics Supervision Committee during the reporting period are provided in section ‘Remuneration report’ below.

Activities of the committee during the reporting period

Overall, 5 meetings of the Risk Management and Business Ethics Supervision Committee were held during the reporting period.

Key activities in 2021 covered the following areas:

Risk Management Policy and risk management model of the consolidated risk register and risk management plan of the Group;
periodical risk management monitoring reports of the Group;
anticorruption management system of the Group;
other relevant topics for companies of the Group;
cooperation with the Audit Committee;
cooperation with the following functions of the Group: digital security, corporate security, enterprise risk management, occupational safety, personal data protection and compliance.
to perform other functions assigned to the competence of the Committee by the decision of the Supervisory Board;
to prepare and submit a report on its activities to the Supervisory Board at least every 6 months.

90 / 364

GRI 102-17

GRI 102-30

GRI 102-31

GRI 102-33 GRI 102-34

Annual report 2021 / Governance

Contents »

Members of the Risk Management and Business Ethics Supervision Committee

==> picture [97 x 97] intentionally omitted <==

==> picture [14 x 14] intentionally omitted <==

Tim Brooks

Chair, member since 03/11/2021 Independent Term of office expires: 19/04/2022

Member of the Supervisory Board See pages 86–87

==> picture [97 x 97] intentionally omitted <==

==> picture [14 x 14] intentionally omitted <==

Alfonso Faubel

Member since 03/11/2021 Independent Term of office expires: 19/04/2022

Member of the Supervisory Board See pages 86–87

==> picture [98 x 97] intentionally omitted <==

Šarūnas Rameikis

Member since 20/04/2021 Independent Term of office expires: 19/04/2022

Experience

Šarūnas has more than 20 years of experience in the legal field. He has worked at the Financial Crime Investigation Service for almost 15 years and was a deputy director for 5 years. Since 2017 Šarūnas has been working as an attorney at law at a private practice.

100%

Independence including the Chair

Education

Mykolas Romeris University, Master’s degree in Law.

Other current place of employment, position Law firm Litten, managing partner, attorney at law.

Number of shares in parent company None.

Share of women in the Risk Management and Business Ethics Supervision Committee

91 / 364

Annual report 2021 / Governance

Contents »

Information about activities of the former Supervisory Board and its committees

Overview of the former Supervisory Board and its committees

	Supervisory Board	Nomination and Remuneration Commitee	Risk Management and Business Ethics Supervision Commitee
Term of ofce	30 August 2017 – 29 August 2021	13 September 2017 – 12 September 20211	20 April 2018 – 19 April 20221
Independence,includingthe Chair	71%	50%	100%
Meetingatendance	96%	98%	92%
Share holdings of the parent companyor its subsidiaries	None	None	None

Overview of the meeting attendance of the former Supervisory Board and its committees’ members[2]

==> picture [492 x 34] intentionally omitted <==

----- Start of picture text -----

Risk Management and
Nomination and
Member Supervisory Board Remuneration Committee Business Ethics Supervision
Committee [3]
----- End of picture text -----

Darius Daubaras	23/23	-	4/4
Andrius Pranckevičius	20/23	-	3/4
Aušra Vičkačkienė	22/23	14/15	-
Daiva Kamarauskienė	22/23	15/15	-
Daiva Lubinskaitė - Trainauskienė	23/23	15/15	-
Judith Buss	23/23	-	-
Bent Christensen	22/23	-	-
Irena Petruškevičienė	-	-	-
Danielius Merkinas	-	-	-
Šarūnas Radavičius	-	-	-
Ingrida Muckutė	-	-	-
Lėda Turai - Petrauskienė	-	15/15	-
Šarūnas Rameikis	-	-	4/4

1 Following the end of term of the Supervisory Board on 29 August 2021, former Supervisory Board’s members were not eligible to participate in the activities of the committees and thus, due to a no quorum, the Nomination and Remuneration Committee and the Risk Management and Business Ethics Supervision Committee could no longer carry out their activities.

2 The numbers indicate how many meetings in 2021 the members have attended out of total meetings during the reporting period.

3 The numbers indicate how many meetings the members have attended until the new composition of the Risk Management and Business Ethics Supervision Committee was approved by the Supervisory Board on 3 November 2021.

92 / 364

Annual report 2021 / Governance

Contents »

Information about activities of the new Supervisory Board and its committees

Overview of the new Supervisory Board and its committees

	Supervisory Board	Nomination and Remuneration Commitee	Risk Management and Business Ethics Supervision Commitee
Term of ofce	26 October 2021 – 25 October 2025	3 November 2021 – 2 November 2025	20 April 2018 – 19 April 2022
Independence,includingthe Chair	71%	67%	100%
Meetingatendance	98%	98%	92%
Share holdings of the parent companyor its subsidiaries	None	None	None

Overview of the meeting attendance of the new Supervisory Board and its committees’ members

==> picture [492 x 34] intentionally omitted <==

----- Start of picture text -----

Risk Management and
Nomination and
Member Supervisory Board [1] Remuneration Committee [2] Business Ethics Supervision Committee [2]
----- End of picture text -----

Alfonso Faubel	7/7	-	1/1
Lorraine Wrafer	7/7	6/6	-
Tim Brooks	6/7	-	1/1
Judith Buss	7/7	-	-
Bent Christensen	7/7	6/6	-
Aušra Vičkačkienė	7/7	6/6	-
Ingrida Muckutė	7/7	-	-
Šarūnas Rameikis	-	-	1/1

1 The numbers indicate how many meetings the members have attended out of total meetings during this period from the election of the new Supervisory Board on 26 October 2021 until 31 December 2021.

2 The numbers indicate how many meetings the members have attended out of total meetings during this period from the formation of the new committee on 3 November 2021 until 31 December 2021.

93 / 364

Annual report 2021 / Governance

Contents »

4 .4 Audit Committee report

In 2021, in implementing the functions laid down in the Regulations of the Audit Committee of the parent company, the Audit Committee held 23 meetings. During the reporting period, the General Meeting of Shareholders of the parent company adopted a new version of the Articles of Association changing the procedure of forming the Audit Committee – as a result the Audit Committee members are being elected by and are accountable to the General Meeting of Shareholders (instead of the Supervisory Board). In light of these changes, the General Meeting of Shareholders also adopted a new version of the Regulations of the Audit Committee (link).

In 2021, the activities of the Audit Committee covered the following key areas:

Financial reporting

Supervised the preparation process of financial statements of the Group companies.
Ensured that financial statements are prepared in the European Single Electronic Format (ESEF).
Discussed IT issues related to the preparation of financial statements.
Discussed non-financial disclosures.

External audit

Organised the appointment of the new Audit Firm.
Ensured the independence and objectivity of the Audit Firm.
Reviewed the external audit strategy, scope and materiality as well as key audit issues.
Periodically assessed updates from the Audit Firm on the external audit process.

Internal audit

Reviewed and approved the Internal Audit plan for 2021.
Discussed reports on the internal audit tasks performed by the Group Internal Audit.
Followed implementation of actions resulting from the Internal Audit reports.
Discussed with the parent company’s management whether the Group Internal Audit is provided with sufficient financial resources for the implementation of its functions.

Internal control, risk management and governance

Reviewed periodic reports on the Group’s financial results.
Reviewed the performance reports of the parent company’s investments into the venture capital fund KŪB “Smart Energy Fund powered by Ignitis Group”.
Discussed the updated Group’s strategy with the parent company’s CEO.

– Provided opinions to the Group companies on conclusion of related party transactions in compliance to the Article 372 of the Law on Companies of the Republic of Lithuania.

Discussed legal disputes in which the Group companies were involved.
Submitted semi-annual Audit Committee Reports of its activities to supervisory boards of the Group public interest companies for 2020/2021.
Contributed to the revision of the Regulations of the Audit Committee, which were approved by the General Meeting of Shareholders.
Discussed with Group Business Resilience about organising cybersecurity within the Group.

The Audit Committee declares that in 2021 there were no factors restricting the activity of the Audit Committee and the Audit Committee received from the Group all information necessary for the exercise of its functions.

The Audit Committee in 2022 will also:

follow the implementation of recommendations resulting from internal and external audits;
follow the updates on the Accounting Policy’s manual;
follow further developments of non-financial reporting;
develop communication and work procedures with the Supervisory Board and shareholders, taking into account the new status of the Audit Committee.

==> picture [129 x 36] intentionally omitted <==

Irena Petruškevičienė Chair of the Audit Committee Ignitis Group

Discussed the Audit Firm’s reports on the Group public interest companies.
Considered requests by the Audit Firm to participate and submit proposals for the performance of non-audit services.

94 / 364

GRI 102-31

GRI 102-33 GRI 102-34

Annual report 2021 / Governance

Contents »

Audit Committee overview

Overall, the Audit Committee is responsible for monitoring the process of preparation of financial statements of the Group, with a focus on the relevance and consistency of accounting methods used. In addition, it is responsible for monitoring the effectiveness of the Group companies' internal control and risk management systems affecting the audited Group’s financial statements, as well as the effectiveness of internal audit. Also, the committee is responsible for oversight if the audit of the annual financial statements of Group companies which are public interest entities and the consolidated financial statements of the Group.

Audit Committee and internal audit function

The Group has a centralised internal audit function since 5 January 2015. This helps ensure independence and objectivity of the internal audit, consistency in application of uniform methodology and reporting principles, and a more rational allocation of the available audit resources and competencies. In ensuring the effectiveness of the internal audit function, the Audit Committee monitors and periodically evaluates the work of the internal audit function, discusses the results of its inspections, ways of elimination of the identified deficiencies and implementation of the internal audit plans.

The main functions of the Audit Committee are the following:

Financial reporting External audit – – To monitor the process of preparation of parent To monitor independence and objectivity of statutory company’s and Group companies’ financial statements, auditor and to submit recommendations regarding selection paying particular attention to assessment of suitability and of the audit company. consistency of applied accounting methods. – To monitor that the rotation requirements of audit companies and key audit partners are not violated.
Internal audit Internal control and risk management – – To monitor effectiveness of internal audit function, to To monitor the effectiveness of the Group companies' submit recommendations to the Supervisory Board internal control and risk management systems affecting the regarding selection, appointment and dismissal of the Head audited company's financial statements. of the Group Internal Audit, to coordinate and evaluate – To submit opinion to the Group companies regarding periodically the work of the Group Internal Audit, to discuss transactions with related parties, as provided in Paragraph verification results, removal of identified deficiencies and 5 of Article 37[2] of the Law on Companies of the Republic of implementation of internal audit plans. Lithuania.
To approve operational rules of the Group Internal Audit and Internal Audit Plan.

Governance

To assess and analyse other issues assigned to the competence of the committee.
To perform other functions related to the committee’s functions and provided in the legal acts of the Republic of Lithuania and the Corporate Governance Code for the Companies listed on Nasdaq Vilnius.

Changes in the composition of the committee

On 2 July 2021, the Majority Shareholder has issued an order on the amendment of the Corporate Governance Guidelines. Based on the latest amendments, the procedure for forming the parent company’s Audit Committee has been changed – members of the Audit Committee are no longer elected by the parent company’s Supervisory Board, but instead by the decision of the General Meeting of Shareholders. Additionally, the Audit Committee comprises of five members, out of which the majority must be independent. Additionally, two members shall be nominated by the Supervisory Board. The Chair of the Audit Committee is elected by the members of the Audit Committee from among their independent members. These changes were also reflected in the Articles of Association of the parent company.

The term of office of the former Audit Committee ended in 12 October 2021. In view of this, the selection of independent members of the Audit Committee was announced on 5 July 2021 and was carried out by the parent company and an agency conducting manager and managing personnel recruitment – UAB “J. Friisberg & Partners”. On 27 September 2021, the General Meeting elected three independent members of the parent company’s Audit Committee. The other two members of the Audit Committee were nominated by the Supervisory Board on 3 November 2021 and elected by the General Meeting on 15 December 2021. Irena Petruškevičienė was elected as the Chair of the Audit Committee. The term of office of the current Audit Committee ends on 26 September 2025.

None of the former Audit Committee members held shares of the Group companies. Audit Committee member Saulius Bakas holds 1,800 shares of the parent company. The remaining Audit Committee members do not hold any shares of the parent company.

There were no significant changes in the information on education, experience and place of employment of the former Audit Committee members during the reporting period. The relevant information is available in our Annual report 2020.

Information on education, experience and place of employment of the new Audit Committee members is available below.

Details of remuneration of the members of the Audit Committee during the reporting period are provided below in section ‘Remuneration report’.

95 / 364

Annual report 2021 / Governance

Contents »

Activities of the former Audit Committee during the reporting period

Activities of the new Audit Committee during the reporting period

Overview of the former Audit Committee

Overview of the former Audit Commitee	Overview of the former Audit Commitee
Term of ofce 13 October 2017 – 12 October 2021 Independence,includingthe Chair 60% Meetingatendance 88% Share holdings of the parent company or its subsidiaries None Member Atendance1 Aušra Vičkačkienė 10/18 Irena Petruškevičienė 18/18 Danielius Merkinas 16/18 Šarūnas Radavičius 18/18 Ingrida Muckutė 17/18 Overview of the meeting atendance of the former Audit Commitee members	Term of ofce 27 September 2021 – 26 September 20252
	Independence,includingthe Chair 80%
	Meetingatendance 100%
	Share holdings of the parent company or its subsidiaries 1,800
	Overview of the meeting atendance of the new Audit Commitee members
	Member Atendance3
	Irena Petruškevičienė 5/5
	Saulius Bakas 5/5
	Marius Pulkauninkas 5/5
	Judith Buss 1/1 3
	Ingrida Muckutė 1/1 3

1 The numbers indicate how many meetings in 2021 the members have attended out of total meetings until the election of the new Audit Committee on 27 September 2021.

2 On 27 September 2021 the General Meeting of Shareholders of the parent company elected three new independent members of the Audit Committee for a new four-year term. The other two members were delegated by the Supervisory Board and elected on 15 December 2021. The new members of the Audit Committee started their activities after the General Meeting of Shareholders that elected them.

3 The numbers indicate how many meetings after the election of a new Audit Committee on 27 September 2021 the members have attended out of total meetings. Ingrida Muckutė and Judith Buss were elected to the Audit Committee on 15 December 2021.

==> picture [484 x 282] intentionally omitted <==

96 / 364

Annual report 2021 / Governance

Contents »

Members of the Audit Committee

==> picture [97 x 97] intentionally omitted <==

Irena Petruškevičienė

Chair, member since 13/10/2017 (re-elected on 27/09/2021) Independent Term of office expires: 26/09/2025

Experience

Irena has more than 25 years of experience in the field of auditing acquired in Lithuania and at international organisations. She worked for 10 years at an audit and consulting company PricewaterhouseCoopers, was a Head of Financial Strategy & Management Programme at ISM University of Management and Economics. Irena also worked for many years at international institutions, including the European Court of Auditors, the European Commission and the UN World Food Programme. She is a member of the Lithuanian Association of Certified Auditors and the Association of Chartered Certified Accountants (ACCA). She was elected a member of the parent company's Audit Committee for the first time in November 2014.

Education

Vilnius University, Diploma in Economics.

Other current place of employment, position Maxima Grupė, Chair of the Audit Committee; European Stability Mechanism, Member of the Board, Vice Chair of Auditors.

Number of shares in parent company None.

1 Term of office of the Audit Committee is until 26/09/2025, however according to the Articles of Association of the parent company, if a member of the Supervisory Board ceases to be a member of the Supervisory Board, he or she shall be deprived of the office in the committee, therefore the term of office of the individual Supervisory Board members on the committee is aligned with the term of office of the Supervisory Board.

==> picture [98 x 97] intentionally omitted <==

Saulius Bakas

Member since 27/09/2021 Independent Term of office expires: 26/09/2025

Experience

Saulius is an experienced professional with over 25 years of accounting & reporting, audit and assurance, internal controls, risk management experience in Lithuanian, USA and Ukrainian markets. He worked as an auditor at an audit and consulting company PricewaterhouseCoopers. Saulius was also a country managing partner at Deloitte Lithuania from 2012 to 2020. He is a member of the Lithuanian Association of Certified Auditors and a fellow member of the Association of Chartered Certified Accountants (ACCA).

Education

Vilnius University, Master’s degree in Economics; Vilnius University, Bachelor’s degree in Business Administration, CIA – Certified Internal Auditor.

Other current place of employment, position Self-employed consultant at Sauba.

Number of shares in parent company 1,800.

80%

Independence including the Chair

==> picture [97 x 97] intentionally omitted <==

Marius Pulkauninkas

Member since 27/09/2021 Independent Term of office expires: 26/09/2025

Experience

Marius is a highly experienced finance and audit professional with a career of 14 years at an audit and assurance services company Ernst & Young, coupled with business experience as a CFO of Klaipėdos Nafta, a company operating oil and liquefied natural gas terminals in Lithuania. His business expertise was further developed at Valstybinių miškų urėdija, where he held a position of General Manager.

Education

Vilnius University, Master’s degree in Business Administration and Management; Baltic Institute of Corporate Governance, Professional Board Member Education Programme.

Other current place of employment, position General Manager and shareholder at Kalnų grupė.

Number of shares in parent company None.

60%

==> picture [78 x 17] intentionally omitted <==

----- Start of picture text -----

Share of women in the
Audit Committee
----- End of picture text -----

==> picture [98 x 97] intentionally omitted <==

Judith Buss

Member since 12/15/2021 Independent Term of office[1] expires: 26/09/2025

Member of the Supervisory Board See pages 86–87

==> picture [97 x 98] intentionally omitted <==

Ingrida Muckutė

Member since 23/03/2018 (re-elected on 12/15/2021) Majority Shareholder’s representative Term of office[1] expires: 26/09/2025

Member of the Supervisory Board See pages 86–87

97 / 364

Annual report 2021 / Governance

Contents »

4 .5 Management Board

Management Board overview

Management Board is a collegial management body set out in the Articles of Association of the parent company. The activities of the Management Board are regulated by the Law on Companies (link in Lithuanian), its implementing legislation, the Corporate Governance Guidelines, the Articles of Association of the parent company and the Rules of Procedure of the Management Board. During the reporting period, the rules governing the election of the members of the Management Board of the parent company were not amended. The Management Board consists of five members and elects the Chair, who is also the CEO of the parent company, from among its members.

The main functions and responsibilities of the Management Board

The main functions and responsibilities of the Management Board are:

implementing the strategy of the parent company (Group of companies);
adopting decisions for the parent company to become an incorporator or a member of other legal entities and making decisions relating to (i) the approval of subsidiaries’ Articles of Association, (ii) opening branches and representative offices and (iii) regulations of branches and representative offices;
adopting decisions relating to the approval of candidates to the supervisory and management bodies of subsidiaries, branches and representative offices and decisions on participation and voting in the subsidiaries’ general meetings of shareholders;
adopting decisions regarding transactions over EUR 3,000,000;
approving activity guidelines and rules, Group policies, annual financial plans, annual capital return rate, maximum borrowing amounts as well as determining other parameters of activities of Group companies;
adopting other decisions assigned to the Management Board by the Law on Companies, the Articles of Association or the decisions of the General Meeting of Shareholders.

The Management Board members have to ensure the appropriate performance of parent company’s activities/ mentoring of the respective areas at the Group level in the field of its competences. Each member of the Management Board is responsible for the analysis of the issues assigned to their

competence, i.e. the field under his/her supervision directly related to the work at the Management Board on which the respective decision must be made, and presentation of all relevant information to other members of the Management Board so that the necessary decisions of the Management Board would be made in a timely manner. At the date of publication of the report, the applicable rules of procedure of the parent company’s Management Board specify the following areas of responsibility of the Management Board members:

strategy and management;
organisational development;
finance and treasury;
infrastructure and development;
commerce and services.

The members of the Management Board, acting within their competence, must ensure the proper performance of the parent company’s activities and supervise their respective areas at the Group level. Specific areas of competence may be changed upon the proposal of the Chair of the Management Board with the approval of the Supervisory Board of the parent company.

Information on the selection criteria of the Management Board members

The members of the Management Board are employees of the parent company, they are elected by the Supervisory Board on the proposal of the Nomination and Remuneration Committee. Each member of the Management Board is elected for a term of four years. The Management Board of the parent company shall be formed in view of the provision that the competences of the members of the Management Board must be diverse. A member of the Supervisory Board, a person who is not legally entitled to hold this post, cannot be the member of the Management Board, neither can a member of a supervisory body, management body or administrative body of a legal entity engaged in electricity or gas distribution activities, an auditor or an employee of an audit company who participates and/or participated in the audit of financial statements if a period of more than 2 years has not elapsed; and a person who is not legally entitled to this post. The Members of the Management Board of the parent company must meet the general and specific criteria laid down by law. The need for competences shall be determined by the Supervisory Board during the formation of the Management Board.

Information on remuneration of the members during the reporting period

Remuneration for the activities of the Management Board, provided below in section ‘Remuneration report’ and on our website, is paid in accordance with the Group’s Remuneration Policy. The policy’s latest version was approved by the General Meeting of Shareholders on 27 September 2021.

Changes in the composition of the Management Board

During the reporting period, on 25 June 2021 Dominykas Tučkus resigned from the position of a member of the parent company's Management Board. Given that the term of office of the parent company's Management Board expires on 31 January 2022 as well as the fact that the selection of a new member of the Management Board would take several months, the Supervisory Board decided not to announce the selection for the position of a new member of the Management Board and to delegate responsibilities of Dominykas Tučkus to the remaining members of the Management Board.

The term of office of the former Management Board was from 1 February 2018 to 31 January 2022. In view of this, on 26 November 2021, the Supervisory Board adopted a decision to initiate a public selection of a new Management Board. The Supervisory Board also adopted the decision to extend the term of the effective Management Board until a new Management Board is elected, but not later than until 28 February 2022. An external partner – executive search agency J.Friisberg & Partners helped to carry out the selection of candidates to the Management Board.

The new Management Board was elected after the reporting period on 18 February 2022 by the decision of the Supervisory Board. Newly elected Management Board members will have to empower their competences to ensure proper operations of the Group and will have to supervise five different areas at the Group level:

Strategy and Management;
Commercial Activities;
Finance;
Organisational Development (Shared Services Centre functions);
Finance, and Regulated Activities.

98 / 364

Annual report 2021 / Governance

Contents »

Information on education, experience and place of employment of the former Management Board members is available below. All former Management Board members held shares of the Group companies (please refer to the table below). The Group publishes relevant transactions through stock exchanges according to Article 19 of the Market abuse regulation (EU) No. 596/2014 and other relevant disclosure requirements.

Information on education, experience, place of employment and shareholdings in Group companies of the newly elected Management Board members is available on our website.

Activities of the parent company’s Management Board during the reporting period

Meeting attendance and number of owned shares of the parent company

==> picture [483 x 17] intentionally omitted <==

----- Start of picture text -----

Member Position Attendance [1] Number of shares
----- End of picture text -----

Darius Maikštėnas	Chair,CEO	71/71	3,000
Darius Kašauskas	Member,Chief Financial Ofcer	71/71	250
Dr Živilė Skibarkienė	Member,Chief Organisational Development Ofcer	71/71	300
Vidmantas Salietis	Member,Chief Commercial Ofcer	71/71	200
Dominykas Tučkus2,3	Member,Chief Infrastructure and Development Ofcer	31/71	300

1 The numbers indicate how many meetings in 2021 the members have attended out of total meetings during the reporting period.
2 On 25 June 2021 Dominykas Tučkus resigned from the position of a member of the parent company's Management Board (until 25 June 2021, attended 31 meetings of the Management Board).

3 The number indicates shares owned at the end of Dominykas Tučkus’ resignation.

Overall 71 meetings of the Management Board were held in 2021. Key activities in 2021 covered the following areas:

evaluation of the most significant transactions planned by the parent company, approval of their conclusion and approval of essential terms of those transactions;
evaluation of the organisation of the parent company’s and the Group companies’ activities and taking decisions related thereto;
evaluation and approval of the parent company’s operational planning documents, taking into account the opinion of the parent company’s Supervisory Board;
making decisions on approval of Group’s internal policies;
making decisions on participation and voting in general meetings of shareholders of the companies in which the parent company is a shareholder;
approval of the parent company’s Annual Report and its submission to the Supervisory Board and the General Meeting of Shareholders;
approval of the interim report of the Group and its submission to the General Meeting of Shareholders;
evaluation of the parent company’s annual financial statements and draft allocation of profit (loss) and feedback to the Supervisory Board and the General Meeting of Shareholders.

99 / 364

Annual report 2021 / Governance

Contents »

Members of the Management Board

==> picture [97 x 97] intentionally omitted <==

Darius Maikštėnas

Chair, CEO since 01/02/2018[1] Area of supervision: Strategy and Management Term of office expired: 18/02/2022

Experience

Darius, who has 8 years of executive experience, joined the Group in 2018. He gained executive experience while working in telecommunications and energy sectors. He led an international company based in Silicon Valley that offers innovative telecommunications solutions and operates in the United States and the UK under the WiderFi brand. Previously, Darius worked as an advisor for the venture capital fund Nextury Ventures, he served as Vice President at Omnitel, was an independent member of the Management Board and Chair of the Management Board at LESTO.

Education

Harvard Business School, General Management Program; Baltic Management Institute, Executive MBA degree; Kaunas University of Technology, Bachelor‘s degree in Business Administration.

Other current place of employment, position[3]

Energijos Skirstymo Operatorius, Chair and Member of the Supervisory Board; Eurelectric (The Union of the Electricity Industry; Union; no legal entity code; Boulevard de l’Impératrice, 66, bte 2, 1000 Brussels, Belgium), Member of the Management Board.

Owned shares of the parent company[4] 3,000.

==> picture [98 x 97] intentionally omitted <==

Darius Kašauskas

Member since 01/02/2018 Area of supervision: Finance and Treasury Term of office expired: 18/02/2022

Experience

Darius, who has 12 years of executive experience, joined the Group in 2008. Darius gained his executive experience while working in the energy sector. Darius served as a member of the Supervisory Board and the Chair of the Management Board at the Elektroninių Mokėjimų Agentūra. At NT Valdos he was member of the Management Board and the Chair of the Management Board and at Lietuvos Dujos he was the Chair of the Supervisory Board.

Education

ISM University of Management and Economics, Doctoral studies of Social Sciences in the field of Economics; ISM University of management and Economics, BI Norwegian Business School, Master’s degree in Management; Vilnius University, Master’s degree in Economics.

Other current place of employment, position[3]

Energijos Skirstymo Operatorius, Member of the Supervisory Board; Ignitis Grupės Paslaugų Centras, Member of the Management Board; 288th DNSB Vingis (association of owners of multi-apartment buildings; legal entity code: 124773750; K. Donelaičio st. 14-15, LT-03102 Vilnius, Lithuania) Member of the Revision Commission.

Owned shares of the parent company[4] 250.

==> picture [97 x 97] intentionally omitted <==

Vidmantas Salietis

Member since 01/02/2018 Area of supervision: Commerce and Services, Infrastructure and Development[2] Term of office expired: 18/02/2022

Experience

Vidmantas, who has 7 years executive experience, joined the Group in 2011. Vidmantas gained his executive experience in the energy sector. He held the position of General Manager at Energijos Tiekimas. Previously, he was the Director of the Electricity Wholesale Division at Ignitis Gamyba. He was also the Chair and Member of the Management Board at Elektroninių mokėjimų agentūra and Member of the Management Board at Gamybos Optimizavimas.

Education

Stockholm School of Economics in Riga (SSE Riga), Bachelor’s degree in Economics and Business.

Other current place of employment, position[3]

Ignitis, Chair and member of the Supervisory Board; Ignitis Gamyba, Chair and member of the Supervisory Board; Ignitis Renewables, Member of the Management Board.

Owned shares of the parent company[4] 200.

1 Elected as the CEO from 12 February 2018.

2 Responsible for Infrastructure and Development since the resignation of Dominykas Tučkus on 25 June 2021

3 Statutory information about the Group companies is provided in the section '4.8 Information about the Group'.

4 The number indicates shares owned at the end of the reporting period.

100 / 364

Annual report 2021 / Governance

Contents »

==> picture [97 x 97] intentionally omitted <==

Dr . Živilė Skibarkienė

Member since 01/02/2018 Area of supervision: Organisational Development Term of office expired: 18/02/2022

Experience

Živilė, who has 5 years of executive experience, joined the Group in 2018. Živilė gained executive experience while working in the financial sector. Previously, she was the Head of Šiaulių Bankas Legal and Administrative Department. In Finasta Bank she was Member of the Management Board and deputy CEO. She worked as Head of Compliance at DNB Bankas (now Luminor) and Head of Legal Department at SEB bankas.

Education

Mykolas Romeris University, Faculty of Law, Doctoral degree in Social Sciences Field of Law; Vilnius University, Faculty of Law, Master’s degree in Law; Saïd Business School, University of Oxford, Executive Leadership Programme.

Other current place of employment, position[1]

Ignitis Grupės Paslaugų Centras, Chair and Member of the Management Board; Elektroninių Mokėjimų Agentūra, Member of the Management Board; Ignitis Gamyba, Member of the Supervisory Board.

Owned shares of the parent company[2]

==> picture [98 x 97] intentionally omitted <==

Dominykas Tučkus

Member since 01/02/2018 Area of supervision: Infrastructure and Development Term of office expired: 25/06/2021[3]

Experience

Dominykas, who has 7 years of executive experience, joined the Group in 2012. Dominykas gained his executive experience while working in the energy sector. He held position of General Manager at LITGAS. Also, he was a Management Board member at Tuulueenergia.

Education

L. Bocconi University, Master’s degree in Finance; L. Bocconi University, Bachelor’s degree in Business Management and Administration; ESADE Business & Law School, Executive MBA degree.

Former place of employment, position within the Group[1, 4]

Ignitis Gamyba, Chair and Member of the Supervisory Board; Ignitis, Member of the Supervisory Board; Vilniaus Kogeneracinė Jėgainė, Chair and Member of the Management Board; Ignitis Renewables, Member of the Management Board; Smart Energy Fund KŪB, powered by Ignitis Group, Member of the Advisory Committee.

Owned shares of the parent company[5] 300.

Conflicts of interest

In accordance to the Articles of Association of the parent company, each candidate for the Management Board must provide the Supervisory Board with a written consent to stand as a candidate of the members of the Management Board and the declaration of interests of the candidate, by stating therein all circumstances which may give rise to a conflict of interest between the candidate and the parent company. In the event of new circumstances that could result in a conflict of interest between the member of the Management Board and the parent company, the member of the Management Board must immediately notify the Management Board and the Supervisory Board in writing of such new circumstances. Also, members of the Management Board cannot do other work or hold other positions which are incompatible with their activities on the Management Board, including executive positions in other legal entities (except for positions within the parent company and the Group companies), work in civil service, statutory service. The members of the Management Board may hold another office or do other work, except for positions within the parent company and other legal entities of which the parent company is a member, and may carry out pedagogical, creative, or authorship activities only with the prior consent of the Supervisory Board. This rule also applies to the management of all Group companies.

1 Statutory information about the Group companies is provided in the section '4.8 Information about the Group'.

2 The number indicates shares owned at the end of the reporting period.

3 On 25 June 2021 Dominykas Tučkus resigned from the position of a member of the parent company's Management Board.

4 Former place of employment positions within the Group indicated before resigning from the position of a member of the parent company's Management Board.

5 The number indicates shares owned at the end of Dominykas Tučkus’ resignation

101 / 364

Annual report 2021 / Governance

Contents »

CEO overview

At the executive employees’ level, the parent company is managed by the CEO and the Management Board. CEO is a single-person management body of the parent company, who organizes, directs, acts on behalf of the parent company and concludes transactions unilaterally, as provided by the Law on Companies (link in Lithuanian), its implemented legislation and the Articles of Association of the parent company. CEO is entitled to solely represent the parent company and execute documents on the parent company’s behalf.

The competence of a CEO, the procedure of appointment and removal and the terms of office are established according to the Law on Companies (link in Lithuanian), its implemented legislation, the Corporate Governance Guidelines and the Articles of Association of the parent company. In accordance with the Corporate Governance Guidelines, the Chair of the Management Board is elected by the Management Board and appointed as CEO of the parent company. It should be noted that CEO of the parent company, as a SOE, is also subject to the special recruitment features set out in the Law on Companies (link in Lithuanian), according to which the term of a CEO is limited to five years. It stipulates that the same person can only be appointed for two consecutive five-year terms.

During the reporting period, on 22 June 2021, the Management Board updated the parent company’s organisational structure and the list of positions. In order to flatten hierarchy, the words ‘service’, ‘department’, ‘division’ have been omitted from the names of structural units, reflecting only the activities at the Group level, while the title of CEO was changed in Lithuanian wording from a ‘General Manager’ to ‘Manager’, which was also reflected in the Articles of Association.

The main functions and responsibilities of the CEO are:

ensuring implementation of the parent company’s strategy and implementation of decisions of the Management Board;
employment and dismissal of employees, promotions and imposing disciplinary measures;
ensuring the security of the parent company’s assets, appropriate working conditions, security of parent company’s commercial secrets and confidential information;
submitting proposals to the Management Board on budget of the parent company, drawing up of a set of annual financial statements and drafting of the annual report (including consolidated set of annual financial statements and the consolidated annual report) of the parent company;
drafting of a decision on the allocation of dividends for a period shorter than the financial year and drawing up of a set of interim financial statements and an interim report for adoption of the decision on the allocation of dividends for a period shorter than the financial year;
performance of other duties set out in the Law on Companies and other laws and legal acts as well as in the Articles of Association and the job description of the CEO, as well as resolving other issues which are not attributed to the competence of other bodies of the parent company under the laws or the Articles of Association.

At the end of the reporting period, the parent company’s CEO Darius Maikštėnas held 3,000 shares of the parent company.

Details of remuneration of the CEO during the reporting period as well as key contractual terms of his employment agreement with the parent company are provided below in section ‘Remuneration report’.

After the reporting period, on 18 Februrary 2022 the Supervisoy Board elected the new members of the Management Board and submitted an opinion regarding the CEO of the parent company. During the first meeting of the new Management Board held the same day, Darius Maikštėnas was elected as the new CEO of the parent company.

102 / 364

Annual report 2021 / Governance

Contents »

The parent company‘s organizational structure (at the end of the reporting period)

==> picture [612 x 450] intentionally omitted <==

----- Start of picture text -----

SUPER VISORY BOARD Supervision
MANAGEMENT BOARD
Strategic management
CEO of Group Commerce Group Infrastructure Group Organisational Group Finance and
AB “Ignitis grupė” and Services and Development Development Treasury
Group Internal Heat and Electricity Group Group
Audit Solutions People and Culture Treasury
Group Business Group Finance and
Resilience Investments
Group IT Group Financial
Control
Group Functional and business
Legal management
Group
Innovation
Group
Communications
Group
Sustainability
----- End of picture text -----

103 / 364

Annual report 2021 / Governance

Contents »

4 .6 Remuneration report

Remuneration within the group

Overview

Remuneration-related decision-making process

The Group is rapidly moving towards sustainability, including the management of human resources. The ongoing transition requires new skills and competences as well as continuous development of our Group culture. In 2021 we continued to develop the Remuneration Policy in order to maintain the principles of transparency and clarity. The amended policy is also relevant for business development, especially for the Green Generation business segment.

Remuneration structure of the Group is based on two key documents: Remuneration Policy and Remuneration Guidelines. The Remuneration Policy defines the key principles and essential provisions on remuneration management and structure whereas Remuneration Guidelines is a supporting document detailing the provisions of Remuneration Policy (e.g., setting and evaluation of objectives, determination and payment of short term incentives). Both documents are integrated and apply to all companies of the Group.

Key activities in 2021

Amended Remuneration Policy (effective date 27 September 2021) introducing the following improvements:
more flexibility to foreign subsidiaries while setting fixed base salary (FBS) (e.g., above the salary market median) and adjusting the proportion of short-term incentives (STI), which are both essential for business development and expansion;
established expatriate’s financial package that can be used for expatriation, relocation, and repatriation in order attract international talents.
Introduced coefficient-based monthly remuneration system for the members of the Supervisory Board, its committees and the Audit Committee.
Guidelines for Management Remuneration has been revoked and the provisions regarding Management remuneration have been transferred to the Remuneration Policy.

Remuneration Policy approval process is based on the Lithuanian Labour Code, The Corporate Governance Code for the Companies Listed on Nasdaq and Law on Companies. The parent company is required to submit any proposed amendments of the Remuneration Policy for the approval of the General Meeting of Shareholders. Before that, the parent company’s Nomination and Remuneration Committee and the Supervisory Board provide their comments and proposals to the amendments of the Remuneration Policy. Procedures for informing and consulting the representatives of employees of the parent company and the Group companies as well as other stakeholders are also implemented. The latest version of the Remuneration Policy is available on our website.

Remuneration Guidelines are approved by the decision of the parent company’s Management Board.

More information regarding HR policy and practices, is available in Annual report 2021 section

'Sustainability (corporate social responsibility) report'.

Remuneration Policy-related decision-making process

1 2 3 4 5 6 7 The parent company’s The Nomination A review and discussion The Supervisory The parent company’s The Remuneration The Remuneration Management Board and Remuneration about the Remuneration Board reviews, Management Board Policy comes into Policy is implemented submits suggested Committee reviews, Policy’s amendments discusses and submits suggested force once it is through internal legal Remuneration Policy discusses and is conducted with provides opinion Remuneration Policy approved by the acts (e.g. Remuneration amendments to provides its opinion the employee on the suggested amendments to the General Meeting of Guidelines which the Nomination on the suggested representatives of the amendments General Meeting Shareholders are approved by the and Remuneration amendments parent company and the of Shareholders for parent company’s Committee Group companies and / approval Management Board, or other stakeholders etc.)

Regulated by the Lithuanian Labour Code, The Corporate Governance Code for the Companies Listed on Nasdaq and Law on Companies .

104 / 364

GRI 102-36 GRI 102-37

Annual report 2021 / Governance

Contents »

Remuneration Policy and structure

The key objective of our Remuneration Policy is to support the Group’s pathway towards achievement of performance and strategic targets through 5 key Remuneration Policy principles defined in the following table.

The Remuneration Policy defines the remuneration structure, FBS review and determination, payment of STI, remuneration of members of collegial bodies, guidelines and principals, etc. In order to be competitive in the market and to ensure internal fairness, we participate in annual remuneration market surveys.

Overall, our Remuneration Policy is designed to attract, retain and motivate employees to ensure the achievement of the Group’s targets. Thus, we aim to bring remuneration closer to the median of the market in which the Group companies operate. Depending on the competitive environment in a certain country or the strategic objectives set for a Group company, a different remuneration ratio (higher or lower) than the median remuneration market may be set. In order to ensure the principle of external competitiveness, the FBS salary ranges may be determined and reviewed annually, taking into account the data of an independent national salary survey and the remuneration market trends. Salary ranges are determined for each job level based on the median of the Salary Market.

Key principles of Group Remuneration Policy

Internal We ensure that similar- or same-value-creating fairness work is compensated equally throughout the organisation.

Competitive Employees are entitled to receive a externally competitive salary based on their function, market conditions and geography.

Remuneration We aim that all employees are informed clarity about how their performance, competences and qualification impact their remuneration package as well as on what basis it is set.

Transparency We believe in transparency and share our objective remuneration criteria with our employees.

Flexibility We are flexible to provide individual solutions for retaining strategic employees or critical positions, if they are in line with the principles listed above.

Remuneration structure[1]

==> picture [477 x 33] intentionally omitted <==

----- Start of picture text -----

Description and
Element Purpose performance Description and performance measures
measures
----- End of picture text -----

Fixed base salary	Remuneration for job	All Group	Remuneration is determined by the employment contract,
(FBS)	responsibilities, also refects the skills, knowl-	employees.	considering the level of the position and the level of competence of the employee required for the position.
	edge, and experience of		Base salary is paid on a monthly basis. Fixed base salary
	the individual.		revision is performed during the annual remuneration
			review.
Short-term	Remuneration for achiev-	All Group	This remuneration element is related to performance, i.e.,
incentives (STI)	ing the Group’s annual fnancial, strategic and	employees.	for meeting objectives or indicators set for an individual position. STI proportion is determined as a percentage
	sustainability targets.		of FBS, up to 20% STI (of the annual FBS) is applied for the
			executives and positions with strategic responsibilities,
			other employees up to 10%. In order to achieve the fexibility of the remuneration system for specifc job
			groups Specialized remunerations system can be set.
Additional benefts	Benefts for aligning	All Group	All Group employees are covered by the health insurance
	with market practises and retaining current management.	employees (excluding a company car).	schemes, unless they choose the contributions to the private pension funds and other benefts applied according to the internal legal acts. Benefts package
			for the Members of the parent company’s and Group
			companies’ Management Boards additionally includes the
			company’s car.
Remuneration	Remuneration for the	Members of the	RCB is fxed and paid on a monthly basis. RCB usually is
of a member	Management Board	parent company’s or	reviewed before a 4-year tenure contract is signed.
of the parent	members’ activities.	Group companies’
company’s or		Management
Group companies’		Boards.
collegial body
(RCB)

1 Currently, the legal proceeding on the compliance with national legal acts of long-term incentive share option plan for the key executives of the Group as well as employee stock ownership plan is undergoing. For this reason, the programmes were suspended. For further details please refer to the subsection ‘Long-term incentives’ below.

Remuneration structure applicable to the Management Board is consistent with the structure for the remaining Group employees (except a company vehicle). It includes FBS, STI and other benefits described in the following table. Additionally, STI is detailed on the following pages.

Full Remuneration Policy and further information on human resources management are available on our website.

105 / 364

GRI 103-1/2/3

GRI 102-35 GRI 102-36

Annual report 2021 / Governance

Contents »

Short-term incentives

STI is tied to the annual performance results, i.e., a percentage of the annual FBS is provided for a particular position or an employee for meeting their targets. The maximum STI level set for the parent company’s Management Board as well as CEOs, members of management boards and top executives of the Group companies is 20% (starting in 2020,) of the annual FBS. For the remaining employees, except employees with strategic responsibilities, the maximum STI level is capped at 10%.

Composition of targets on which STI is based, depending on the employee’s position withing the Group, is provided in the following table.

Long-term incentives

While implementing the parent company’s IPO in 2020, a long-term incentive share option plan for key executives of the Group as well as an employee stock ownership plan were introduced. However, because the Group is one of the first SOEs introducing such incentive schemes, it was challenged by the public prosecutor, questioning the programmes’ compliance with national legal acts, and suspended by applying the interim measures on 3 May 2021. Currently, the legal proceeding is ongoing. The Group will announce about relevant material changes through the stock exchanges.

Detailed information on the former long-term incentive share option and employee stock ownership plans is available in our Annual report 2020.

Detailed description of STI targets of members of the parent company’s Management Board, including the CEO, and its performance outcomes are provided in the section ‘Remuneration of the parent company’s Management Board’ of this report.

Structure of STI targets depending on the employee position within the Group

Position category Maximum STI level of the annual FBS	Weights for objective types
	Objectives of the parent company Objectives of the Group company / Function Team / individual objectives
Members of the Management Board of theparent company 20%	100% - -
CEOs (executives) / members of management boards at the Groupcompanies 20%	30% 70% -
Heads of functions 10% / 20%1	50% 50% -
Heads of functional areas 10%	30% - 70%
Mid-level managers of the Group 10% / 20%1	- 30% 70%
Other employees of the Group 10%	- - 100%

1 Maximum STI level is set 20% of the annual FBS for employees with strategic responsibilities.

==> picture [100 x 100] intentionally omitted <==

==> picture [100 x 88] intentionally omitted <==

==> picture [99 x 100] intentionally omitted <==

==> picture [99 x 88] intentionally omitted <==

106 / 364

Annual report 2021 / Governance

Contents »

Remuneration of the parent company’s management board

Overview

After the reporting period, on 18 February 2022 the term of the former parent company’s Management Board has ended. Accordingly, we provide the development of awarded remuneration to its members during its four-year term. More in-depth information about the former members of the Management Board is available on Annual report 2021, section 'Governance report', and about the newly elected members – on our website.

During the term of office, the remuneration awarded to the former parent company’s Management Board was in line with the Group’s Remuneration Policy and there were no one-off bonuses granted. However, during the reporting periods there have been a few changes both in our Remuneration Policy and taxation of employment-related income in Lithuania, reflecting the lack of comparability between different periods:

starting in 2019, Lithuanian government introduced a reform to the individual tax system, shifting the largest part of social security contributions from employer to employee. As a result of this change, gross salaries were recalculated increasing it by 28.9% in 2019 compared to 2018;
in 2020, the Group introduced Remuneration Policy changes to align STI structure within the Group companies. Thus, part of the parent company’s Management Board’s STI were transferred to the FBS, resulting in its increase (STI before transfer was 40%, after 20%).

Despite a turbulent year marked with uncertainty, the Group’s overall results were strong, which resulted in exceeded guidance and, thus, achievement of STI targets. Additionally, FBS review for 2021 was temporarily suspended due to uncertainty related to COVID-19 impact to the Group.

The parent company’s Management Board's remuneration during 2018–2021, EUR (gross)

==> picture [359 x 216] intentionally omitted <==

----- Start of picture text -----

2021 2020 [2] 2019 [3] 2018 [4]
Darius Maikštėnas 128,578 121,311 94,135 62,888
Darius Kašauskas 108,049 101,617 78,573 56,853
FBS [1] Dr. Živilė Skibarkienė 107,998 98,374 74,261 43,574
Vidmantas Salietis 107,770 101,477 77,540 42,297
Dominykas Tučkus [5] 59,528 101,742 79,534 56,887
Darius Maikštėnas 22,005 34,829 30,090 -
Darius Kašauskas 18,315 29,008 32,330 16,361
STI [2] Dr. Živilė Skibarkienė 18,315 29,008 21,979 -
Vidmantas Salietis 18,315 29,008 21,780 18,273
Dominykas Tučkus [5] 26,184 [6] 29,008 32,104 15,660
Darius Maikštėnas 30,600 30,600 30,600 22,297
Darius Kašauskas 21,780 21,780 21,780 12,168
RCB Dr. Živilė Skibarkienė 21,780 21,780 21,780 10,140
Vidmantas Salietis 21,780 21,780 21,780 9,126
Dominykas Tučkus [5] 10,631 21,780 21,780 12,168
Darius Maikštėnas 181,183 186,740 154,825 85,185
Darius Kašauskas 148,144 152,405 132,683 85,382
TOTAL Dr . Živilė Skibarkienė 148,093 149,162 118,020 53,714
Vidmantas Salietis 147,865 152,265 124,480 69,696
Dominykas Tučkus [5] 96,343 152,530 133,418 84,715
----- End of picture text -----

1 FBS is the same for all former members (except CEO / Chair of the management board) of the parent company’s Management Board. The differences appear due to sick leaves.

2 To align STI structure within the Group, part of STI (20% out of 40%) was transferred to the FBS, thus increasing FBS paid for 2020 and decreasing STI paid for 2019 in 2020.

3 As a result of individual tax system reform in Lithuania, gross salaries were recalculated increasing it by 28.9% in 2019. 4 The remuneration of Management Board members is different, because of different term-of-office start dates. Terms of office of Darius Maikštėnas, Dr. Živilė Skibarkienė and Vidmantas Salietis started on February 2018, so no STI for Management Board member duties was paid for the previous period. Additionally, STI for Vidmantas Salietis was paid for performance in the previous position.

5 On 25 June 2021 Dominykas Tučkus resigned from the position of a Member of the parent company's Management Board.

6 Dominykas Tučkus STI pay-out in 2021 includes STI for 2021 results (the job agreement terminated on 25 June 2021), whereas for other members of the Management Board includes STI for 2020 targets achieved.

107 / 364

Annual report 2021 / Governance

Contents »

Short-term incentives

2021 STI targets and achievement overview

Annual objectives of the CEO and the members of the parent company’s Management Board are based on the Group’s strategic plan and are aligned with the annual objectives of the parent company. The targets are approved and their achievement, which is related to the STI size, is assessed by the Group’s Supervisory Board. The maximum STI size for the achievement of objectives is capped to 20% of annual FBS.

The criteria applicable to the STI of the members of the former parent company’s Management Board, including the CEO, for 2021 and target achievements are available in the following table. The information on the STI targets and their achievement in the previous periods is available on our website.

The parent company Management Board’s STI targets and achievement in 2021

==> picture [732 x 322] intentionally omitted <==

----- Start of picture text -----

Access Target and Target and
Performance Threshold I Threshold I Achieved Achieved
Weight Targets threshold maximum maximum
criteria (80%) (90%) performance payout
(70%) (100%) payout
Financial
30% Group Adjusted EBITDA [1] 292 EURm 297 EURm 302 EURm 307 EURm 332.7 EURm 100% 30%
targets
Up to
Vilnius CHP biomass unit project restart: according Up to Up to Up to On
3 months 70% 7%
to the approved schedule and scope (10%) 3 months later 2 months later 1 month later time [2]
later
M&A: Green Generation development projects
secured with planned CoD in 2021–2023, ≥120 MW ≥150 MW ≥180 MW ≥220 MW 130 MW 70% 7%
according to the approved scope (10%)
Strategic Own development: Green Generation early
projects and 50% development phase with planned CoD in 2024– ≥100 MW ≥130 MW ≥170 MW ≥200 MW 166 MW 80% 8%
key milestones 2025, according to the approved scope (10%)
Up to
Smart metering programme: according to the Up to Up to Up to On
3 months 70% 7%
approved programme schedule and scope (10%) 3 months later 2 months later 1 month later time [3]
later
Networks regulation: to secure sustainable and long-term regulatory model for the new regulation Some negative - - No material partly offset by additional tariff Regulated asset base decline component. The impairment 85% 8 .5%
period (10%) impact negative impact current assets is EUR 53 millionof Networks electricity non- [4]
Security at workplace: TRIR and 0 work-related fatal 2.59 and 2.49 and 2.39 and 2.29 and TRIR=2.01 and
100% 5%
accidents of own employees (5%) 0 fatal accidents 0 fatal accidents 0 fatal accidents 0 fatal accidents 0 fatal accidents
Group sustainability programme: according to the Up to 3 Up to 2 Up to 1 On On
Sustainability 100% 5%
20% approved programme schedule and scope (5%) months later months later month later Time [5] Time
targets
eNPS = 103%
eNPS >=70% eNPS >=80% eNPS >=90% eNPS >=95%
Group employee NPS (10%) vs. 2020 average [6] 100% 10%
vs. 2020 average vs. 2020 average vs. 2020 average vs. 2020 average
STI, % - - - - - - 88%
STI, % of FBS - - - - - -
(maximum STI level equal to 20% of annual FBS) 17 .6%
----- End of picture text -----

1 Target is measured according to the achievement scale with linear interpolation between the thresholds. In the event of below-minimum achievement. no payment will accure for this target. 2 Team formed, procurement procedures initiated and planned activities carried out according to the approved project plan.[3] Contract signed with the main contractor of SMI and rollout started.[4] EUR 44.4 million - electricity related and EUR 8.9 million - gas related.[5 ] According to the approved programme schedule and scope for 2021: CO2 emissions measurements done, management targets set and validated by SBTi; Materiality assessment and Group sustainability targets defined.[6] Group employee NPS for 2020 – 56.0%, for 2021 – 57.4%.

108 / 364

Annual report 2021 / Governance

Contents »

2022 STI targets overview

In the table below we illustrate the STI targets for 2022. Due to the market-sensitive information, detailed information on their performance and assessment will be provided in the Group’s Annual report 2022.

The parent company Management Board’s STI targets for 2022

==> picture [480 x 17] intentionally omitted <==

----- Start of picture text -----

Performance criteria Weight Targets
----- End of picture text -----

Financial targets 35%	Group Adjusted EBITDA
Strategic projects and key milestones 45%	M&A and Co-developmentprojects / Green Generation(10%)
	Greenfeld developmentprojects / Green Generation(10%)
	Vilnius biomasspowerplant constructionproject(10%)
	Ofshore wind development(10%)
	Asset rotation(5%)
Sustainability targets 20%	Net-zero target alignment with science-based targets(5%)
	Resilient Network: ElectricitySAIDI(5%)
	Groupemployee NPS(Employee Net Promoter Score) (5%)
	Securityat workplace: TRIR and 0 work-related fatal accidents of own employees(5%)

monthly compensation limits are 50%, 70% or 100% of the average monthly salary depending on the non-competition period which could be 6, 9 or 12 months respectively;

Further information on contractual terms of the members of the parent company’s Management Board

non-compete compensation terms may be negotiated and concluded on a case-by-case basis but not exceed the above mentioned limits.

==> picture [46 x 46] intentionally omitted <==

Remuneration Policy is designed to attract, retain and motivate employees to ensure the achievement of the Group’s targets.

Severance payments

Members of the parent company’s Management Board (who are also employees of the parent company) are entitled to the severance payments in accordance with the Labour Code acts upon termination of their contractual relationship. According to the Remuneration Policy, higher severance payments higher than provided for in the Labour Code could only be awarded to the Management Board members by the decision of the parent company’s Supervisory Board.

Non-compete agreements

Non-compete agreements with members of the Management Board may be concluded in accordance with the Labour Code. Group’s Non-Compete Standard specifies in further detail the non-compete compensation limits applicable to the Group‘s employees:

In 2021, the parent company did not enter into any noncompete agreements with members of the parent company's Management Board. The parent company’s Management Board members may own stock of the parent company. Further details on the trading guidelines for the parent company’s managers and persons closely associated with them is available in Annual report 2021 section ‘Risk and Risk Management’ (under ‘Compliance programme’).

Overview of the CEO’s contractual terms

In accordance with the Law on Companies, an employment agreement is concluded with the CEO of the parent company. The CEO may resign by a written notice addressed to the Management Board that elected him. The Management Board that elected the CEO shall make a decision to remove the

CEO within 15 days from the date of receipt of the notice of resignation. Also, according to the Law on Companies, the CEO may be removed from office by the competent body without notice. A separate written non-compete agreement may be concluded with the CEO in accordance with the provisions of the Labour Code. As of the end of 2021, the parent company had had not entered into a non-compete agreement with the CEO. Clawback provisions are not allowed under the Lithuanian Labour Code and thus are not applicable to the parent company’s CEO. Under the Labour Code and other legal acts of the Republic of Lithuania, severance payments may be applicable to the parent company’s CEO depending on the grounds of termination of the employment agreement (up to two average monthly salaries).

109 / 364

Annual report 2021 / Governance

Contents »

Remuneration of collegial bodies of the parent company

Overview

Remuneration principles for members of collegial bodies are established under the Guidelines for Corporate Governance of State-Owned Energy Group. Following the recommendations of the Governance Coordination Centre and best market practices, the principle of remuneration for members of collegial bodies of the parent company and the Group companies was changed from hourly to monthly in 2021. This principle came into force with the General Meeting of Shareholders’ approval of the new Remuneration Policy on 27 September 2021. We expect this change to improve both, the remuneration transparency and clarity.

Key principles of remuneration of collegial bodies

According to the Guidelines for Corporate Governance of State-Owned Energy Group, the maximum monthly remuneration paid for the activities in the Supervisory Board, its committees for those who are subject to remuneration shall not exceed one-quarter of the amount of the average monthly salary paid to the CEO of the parent company. The maximum monthly remuneration paid to the Chair of the Supervisory Board for the work in the Supervisory Board or its committees shall not exceed one-third of the monthly salary paid to the CEO of the parent company.
The monthly remuneration of the independent Supervisory Board member of the parent company shall be determined by the General Meeting of Shareholders of the parent company, and this amount shall be used to calculate the monthly remuneration of other members of collegial bodies of the parent company and the Group companies.
Remuneration for activities in collegial bodies shall be fixed and shall not depend on the results of the performance of the parent company or the Group companies.
The remuneration of the members of the parent company's Supervisory Board for participating in the activities of the committees (including the Audit Committee) shall be included in their remuneration for their activities in the Supervisory Board, and they shall not receive additional remuneration for the activities in the committees.
Members of the Supervisory Board and Audit Committee members are not entitled to severance payments upon termination of their contractual relationship.

Remuneration for activities in the parent company’s collegial bodies shall be paid to:

independent members of Supervisory Board;
independent members of the Supervisory Board committees and the Audit Committee;
members of the Management Board.

More information about remuneration of collegial bodies of Group companies is available in our Remuneration Policy.

Remuneration structure

The remuneration principles for members of the parent company’s collegial bodies for their activities, established on 27 September 2021, are provided in the following table. The collegial bodies in Group companies will gradually move to the renewed remuneration system starting from their new term of offices.

Remuneration for members of the parent company’s collegial bodies for their activities

==> picture [359 x 35] intentionally omitted <==

----- Start of picture text -----

Remuneration Monthly
Position in a collegial body ratio remuneration,
for activity [1] EUR
----- End of picture text -----

Independent Supervisory Board member of the parent company	1.00	2,000
Chair of the parent company’s Supervisory Board	1.30	2,600
Chair of the parent company’s Supervisory Board commitees and the Audit Commitee	1.00	2,000
Independent members of the parent company’s Supervisory Board commitees and the Audit Commitee	0.90	1,800
Chair of the Management Board of the parent company	1.30	2,600
Members of the Management Board of the parent company	0.90	1,800

1 Level of monthly remuneration of Supervisory Board of EUR 2,000 was set on 27 September 2021 during the parent company’s General Meeting of Shareholders. The remuneration for other collegial bodies are calculated on the basis of Independent Supervisory Board member remuneration, multiplied by Remuneration ratio.

Remuneration of the members of the Supervisory Board, its committees and the Audit Committee

During the reporting period, the term of the former Supervisory Board has ended. As a result, on 26 October 2021, new members of the Supervisory Board were elected by the General Meeting of Shareholders for a four-year term. Further on, new Supervisory Board committees were formed, and the candidates to the Audit Committee were elected by the General Meeting of Shareholders. As a result, we provide separately the development of awarded remuneration for former members of the Supervisory Board, its committees and the Audit Committee and the new members of the collegial bodies.

Further in-depth description about the election process of collegial bodies is available in Annual report 2021 section 'Governance report'.

110 / 364

Annual report 2021 / Governance

Contents »

Development of awarded remuneration for activities in the parent company’s former Supervisory Board, its committees and the Audit Committee, EUR (gross)

==> picture [731 x 374] intentionally omitted <==

----- Start of picture text -----

2021 2020 2019 2018 2017
Name (position) Supervisory Board Committees [1] [Supervisory ] Board Committees [1] [Supervisory ] Board Committees [1] [Supervisory ] Board Committees [1] [Supervisory ] Board Committees [1]
Darius Daubaras
(Chair of the Supervisory Board, 14,850 - 22,950 - 16,650 - 13,877 - 3,600 -
member of the Risk Management and Business Ethics Supervision
Committee)
Andrius Pranckevičius
(Member of the Supervisory Board, chair of the Risk Management 23,881 - - [4] - 5,288 - 7,618 - - [4] -
and Business Ethics Supervision Committee)
Daiva Lubinskaitė – Trainauskienė
(Member of the Supervisory Board, chair of the Nomination and 6,750 - 6,263 - 5,070 - 3,929 - 537 -
Remuneration Committee)
(Judith BussMember of the Su [2] pervisory Board) 10,125 - 3,038 - - - - - - -
Bent Christensen [2] 10,725 - 2,625 - - - - - - -
(Member of the Supervisory Board)
(Aušra VičkačkienėMember of the Sup [3] ervisory Board, member of the Audit Committee) - - - - - - - - - -
Daiva Kamarauskienė [3]
(Member of the Supervisory Board, member of the Nomination and - - - - - - - - - -
Remuneration Committee)
Irena Petruškevičienė - 14,700 - 15,488 - 11,738 - 9,720 - 3,410
(Chair of the Audit Committee)
Danielius Merkinas - 10,763 - 11,888 - 10,590 - 6,780 - 2,029
(Member of the Audit committee)
Šarūnas Radavičius - 9,787 - 9,750 - 8,258 - 3,180 - - [5]
(Member of the Audit Committee)
Ingrida Muckutė(Member of the Audit Committee [3] ) - - - - - - - - - -
Lėda Turai – Petrauskienė - 7,650 - 4,125 [4] - - [4] - 1,800 - - [5]
(Member of the Nomination and Remuneration Committee)
Šarūnas Rameikis
(Member of the Risk Management and Business Ethics Supervision - 4,950 - - - 3,375 - 2,580 - - [6]
Committee)
Total remuneration 66,331 47,850 34,876 41,251 27,008 33,961 25,424 24,060 4,137 5,439
----- End of picture text -----

1 The remuneration of the members of the parent company’s Supervisory Board for participation in the activities of the committees shall be included in their remuneration for the activities of the Supervisory Board, and they shall not receive additional remuneration for the activities in the committees.

2 Elected as members of the Supervisory Board since 12 November 2020.

3 Members of the Supervisory Board, its committees or the Audit committee who are delegated by the Majority Shareholder do not receive any remuneration from the parent company for their activities in the Supervisory Board.

4 Due to the late submission of hours worked, remuneration was paid out in the next periods thus appearing 0 in respective years.

5 Lėda Turai – Petrauskienė and Šarūnas Radavičius respectively were elected as members of the Nomination and Remuneration Committee and the Audit Committee on 23 March 2018.

6 Šarūnas Rameikis was elected as a member of the Risk Management and Business Ethics Supervision Committee on 20 April 2018.

111 / 364

Annual report 2021 / Governance

Contents »

As described in the overview of the remuneration of collegial bodies of the parent company, on 27 September 2021, the remuneration principle was changed from hourly to monthly. New remuneration approach was applied starting new terms of the collegial bodies, thus it was not applicable for the former members of the Supervisory Board, its committees and the Audit Committee detailed in the table above.

Remuneration development for activities in the parent company’s new Supervisory Board, its committees and the Audit Committee, EUR (gross)

==> picture [731 x 266] intentionally omitted <==

----- Start of picture text -----

2021
Name (position) Supervisory Board Committees [1]
Alfonso Faubel -
(Chair of the Supervisory Board, member of the Risk Management and Business Ethics Supervision Committee) 5,645
Lorraine Wrafter (Member of the Supervisory Board, Chair of the Nomination and Remuneration Committee) 4,387 -
Tim Brooks -
(Member of the Supervisory Board, Chair of the Risk Management and Business Ethics Supervision Committee) 4,387
Judith Buss -
(Member of the Supervisory Board, member of the Audit Committee) 4,387
Bent Christensen -
(Member of the Supervisory Board, member of the Nomination and Remuneration Committee) 4,387
(Aušra VičkačkienėMember of the Sup [2] ervisory Board, member of the Nomination and Remuneration Committee) - -
(Ingrida MuckutėMember of the Su [2] pervisory Board, Member of the Audit Committee) - -
Šarūnas Rameikis - - [3]
(Member of the Risk Management and Business Ethics Supervision Committee)
Irena Petruškevičienė -
6,000
(Chair of the Audit Committee)
Saulius Bakas -
5,400
(Member of the Audit Committee)
Marius Pulkauninkas -
5,400
(Member of the Audit Committee)
Total remuneration 23,193 16,800
----- End of picture text -----

2 Members of the Supervisory Board, its committees or the Audit committee who are delegated by the Majority Shareholder do not receive any remuneration from the parent company for their activities in the Supervisory Board. 3 Šarūnas Rameikis was elected as a member of the Risk Management and Business Ethics Supervision Committee on 20 April 2018 and his term of office is until 19 April 2022, due to the fact that the monthly remuneration approach delineated in the new version of the Remuneration Policy is applicable only to collegial body members who were elected for a new term, Šarūnas Rameikis remuneration is based on hourly terms and remuneration warded to him is reflected in the table above ‘Development of awarded remuneration for activities in the parent company’s former Supervisory Board, its committees and the Audit Committee’

112 / 364

Annual report 2021 / Governance

Contents »

Additional information on remuneration of the group employees

The parent company's salary fund in 2021 amounted to EUR 4.9 million compared to EUR 5.4 million in 2020. Total Group salary fund in 2021 was EUR 97.3 million (in 2020 it was EUR 92.8 million). Average monthly salaries (FBS and STI) for the period of 2017–2021 are provided in the following tables. The formula for calculating the salary fund has changed, adding holiday, pension reserve and the capitalization of salaries in 2021, so 2020 data was recalculated.

Average monthly remuneration and number of the parent company’s employees, EUR (gross)

==> picture [481 x 120] intentionally omitted <==

----- Start of picture text -----

2021 2020 2019 2018 2017
Position category Number of [Average ] Number of Average Number of Average Number of Average Number of Average
employees [1] salary employees salary [2 .3] employees salary [4] employees salary employees salary
CEO 1 12,549 1 13,011 1 9,725 1 6,234 1 7,508
Top level managers 9 9,431 10 9,783 11 7,342 9 5,358 8 5,381
Middle managers 16 6,044 23 6,413 21 6,320 20 3,774 14 3,671
Experts / Specialists 47 3,750 50 3,778 68 3,833 85 2,192 67 2,023
Workers - - - - - - - - - -
Total 73 5,102 84 4,281 101 4,281 115 2,784 90 2,659
----- End of picture text -----

1 Due to the Management Board decision in the parent company to keep only the strategic positions, other positions are moved to other Group companies thus constantly reducing number of employees.

2 To align STI structure within the Group, part of STI (20% out of 40%) was transferred to the FBS, thus increasing FBS paid for 2020 and decreasing STI paid for 2019 in 2020.

3 Average salary was recalculated including STI, thus data differs compared to reported in Annual report 2020.

4 As a result of individual tax system reform in Lithuania, gross salaries were recalculated increasing it by 28.9% in 2019.

Average monthly remuneration and number of the Group’s employees[1, 2] , EUR (gross)

==> picture [169 x 195] intentionally omitted <==

==> picture [481 x 120] intentionally omitted <==

----- Start of picture text -----

2021 2020 2019 [4] 2018 2017
Position category Number of Average Number of Average Number of Average Number of Average Number of Average
employees salary employees salary [3] employees salary [5] employees salary employees salary
CEO 17 8,300 17 8,990 17 7,262 14 5,348 15 5,023
Top level managers 33 8,030 34 8,274 35 6,713 38 4,589 42 4,292
Middle managers 373 4,020 375 4,038 340 3,323 327 2,333 321 2,193
Experts / Specialists 2,728 2,247 2,670 2,102 2,560 1,906 2,548 1,309 2,857 1,179
Workers 733 1,758 736 1,670 767 1,475 767 979 1,094 862
Total 3,884 2,401 3,832 2,059 3,719 2,015 3,694 1,374 4,329 1,214
----- End of picture text -----

1 Excluding trainees: 7 in 2021,4 in 2020.

2 The average salary of the employees of the Group companies operating in Poland is calculated using the official EUR / PLN exchange rate on the last day of each month during which the salary was paid.

3 To align STI structure within the Group, part of STI (20% out of 40%) was transferred to the FBS, thus increasing FBS paid for 2020 and decreasing STI paid for 2019 in 2020.

4 Excluding 23 employees from Group companies UAB “EURAKRAS“, Ignitis Latvija SIA, Ignitis Polska Sp. z o.o., “Pomerania Invall Sp. z o. o.”, OÜ Tuuleenergia”, UAB “VVP Investment”, Ignitis Eesti OÜ.

5 As a result of individual tax system reform in Lithuania, gross salaries were recalculated increasing it by 28.9% in 2019.

113 / 364

Annual report 2021 / Governance

Contents »

4 .7 Risk and risk management

Risk management framework

Overview

In order to effectively manage and control risks arising from its activities, the Group applies the “three lines of defence” principle by establishing a clear distribution of responsibilities for risk management and control between the management and supervisory bodies, structural units or functions of the Group or its subsidiaries (see figure on the right).

The Group is following the best risk management practices and using a risk management framework prepared in accordance with the main principles of Committee of Sponsoring Organizations of the Treadway Commission (COSO) and AS/NZS ISO 31000:2009 (Risk management – Principles and guidelines).

The effectiveness of the risk management plans is assessed by the parent company’s Management Board, Risk Management and Business Ethics Supervision Committee elected by the Supervisory Board and Supervisory Board.

The risk management principles provided in the Group Risk Management Policy and other internal documents are applied uniformly across the entire Group. The uniform risk management principles ensure that the management of the Group companies receive risk management information covering all areas of activities. To ensure the practicality of the risk management process, specific activity areas supplement information on their activities with detailed risk assessment, monitoring, and management principles.

“Three lines of defence” risk management framework

==> picture [532 x 320] intentionally omitted <==

----- Start of picture text -----

General meeting of shareholders of Ignitis Group
Supervisory body of the Group – Supervisory Board of Ignitis group
Nomination and Remuneration Risk Management and Business Ethics Audit Committee
Committee Supervision Committee
Supervisory bodies of the companies – Supervisory Boards
Management bodies of the companies: Boards, CEOs
Employees of the Units of Specialists of risk
and responsibilityLine of defense 1 the Group companies (not included in the 2 [nd] and the 2 management, compliance, financial control, corporate and 3 Internal audit
3 [rd ] lines of defence) digital security
Roles in risk Risk identification and Establishment, coordination Assurance of efficiency in 1 [st ]
mitigation and monitoring of risk and 2 [nd] line of defense
management
management policy
– Manage business according – Monitor the established – Assess the optimality of risk
to the agreed strategy, risk risk limits and inform and control model.
appetite and limits. management in cases when –
Assess the effectiveness of
– Identify, assess and manage they are exceeded. risk management measures
risks in a daily business. – Assess risks independently. applied by Units.
– Ensure an effective risk – Establish risk management – Provide an independent
management culture and policy, methodology, tools. assessment of the
decision-making process – Assist employees included effectiveness of risk and
based on the assessment of risk and benefit. managing risks.in 1 [st] line of defense in control systems to the Board, the Audit Committee and the
Supervisory Board.
Other sources
Risk
External audit
----- End of picture text -----

114 / 364

Annual report 2021 / Governance

Contents »

The main risk management objectives are the following:

Risk management process

to achieve the Group’s performance objectives with controllable, yet, in principle, acceptable deviations from these objectives;
to ensure uninterrupted performance of core activities of the Group in short- and long-term perspectives;
to ensure a timely provision of information of the highest possible accuracy to decision-makers, shareholders and other stakeholders;
to protect the Group’s reputation and ensure reliability;
to protect the Group’s reputation and ensure resilience;
to protect the interests of shareholders, employees, customers, stakeholders and the public;
to ensure the stability (including financial) and sustainability of the Group’s activities.

==> picture [312 x 45] intentionally omitted <==

----- Start of picture text -----

5 . CONTROL 1 . IDENTIFICATION
Periodic monitoring of risks, Identification of new key
risk management measures, risks and revision of the
KRI and preparation of current risks
reports to the Management
----- End of picture text -----

Risk management process and key principles

In order to ensure that risk management information and decisions are relevant to and reflect the changes in the Group, each year the Group initiates a risk management process (see on the right side) related to Group risks and Group strategic objectives, which includes all Group companies and functions. Throughout the risk management process, a constant communication between the related parties is ensured.

Identification stage – identification of new key risks and revision of the current risks allows to form a comprehensive picture about the Group’s risk.
Analysis stage – risk criteria are determined according to the method established in the Group and quality and quantity risk materiality analysis is then performed.
Assessment stage – here risk levels are determined. The risk level is determined by assessing the current control measures, probability of occurrence and potential impact of the risk (in the context of financial, reputational, compliance, corruption, human health and safety and business continuity aspects) and then multiplying them. Risk level can be low, medium, high, or very high (see risk assessment matrix). The Group’s risk appetite and KRI (tolerance) thresholds are established and reviewed as needed by the parent company’s Management Board . Risk appetite means the level and type of risk that the Group is ready to accept in order to implement strategic objectives. KRI threshold means the specific value of the occurrence of a particular risk factor, without threatening or creating the preconditions for a financial, reputational or other type of crisis to occur, expressed in qualitative or quantitative units. KRI is used to determine risks of all levels by distinguishing deviation thresholds (low, average, high), which would allow to identify risk tendency and, should there be deviations from the plan within the tolerance threshold, to initiate a more intensive monitoring by escalating the issue and planning additional steps to control it.

==> picture [344 x 191] intentionally omitted <==

----- Start of picture text -----

COMMUNICATION
Constant communication
between related parties
4 . MANAGEMENT 2 . ANALYSIS
Setting of risk Determination of risk
management strategy criteria
Development of new Analysis of quality and
risk management quantity risk materiality
measures/ KRI and
revision of the old ones
3 . ASSESSMENT
Determination of risks (levels)
according to Group’s risk
appetite and KRI (tolerance)
level
----- End of picture text -----

Management stage – all risks are assigned a risk management strategy, such as 'accept', 'mitigate', 'avoid', or 'dispose'. Also every year new risk management measures, key risk indicators are developed, and the old ones are revised.
Control stage – periodic monitoring of risks, risk management measures, key risk indicators and preparation of reports to the management (of separate companies, functions, at the Group level). Only those risks whose potential financial impact, assessed at the Group level, exceed the Group’s risk appetite as well as systemic risks (i.e. risks that were identified in two or more companies) that exceed the Group’s risk appetite are included into the consolidated risk register of the Group, which is approved by the parent company’s Management Board and Supervisory Board.

115 / 364

Annual report 2021 / Governance

Contents »

Risk categories

The Group’s risks are categorized into strategic, operational (activity), financial and external risks. Their descriptions are provided below.

Risk categories

==> picture [730 x 20] intentionally omitted <==

----- Start of picture text -----

Risk category Strategic Operational (activity) Financial External
----- End of picture text -----

Risks that may impact the mission,	Risks that manifest due to inadequate	Risks that manifest from fnancial	Risks manifesting due to changes in
strategic objectives of the Group/	or poorly organised internal	assets and/or obligations of the	market conditions, regulatory and
subsidiaries/functions.	processes, failed or inefective	Group/its subsidiaries.	judicial changes (both planned and
	internal control procedures, poor		unplanned), natural resources, natural
They can manifest due to	business practices or development,	This category includes the following	disasters, etc.
unfavourable or erroneous	employee errors and/or illegal	risks: credit risk, liquidity risk,
business decisions, inadequate	activities, improper/insufcient	insufcient capital risk, interest rate
implementation of decisions or due	management of IT operations, etc.	risk, currency exchange risk, risk
to unfavourable reaction related to		related to fuctuation of shares and
political, legislative changes.		market prices, etc.

Risk assessment matrix

Medium Low High Very high Impact	Probability 10–30% <10% 31–70% >70% Very high High Medium Low Group’s risk appetite

116 / 364

Annual report 2021 / Governance

Contents »

Key risks and their control

Starting 2022

In Q4 2021, a periodic risk management process was initiated based on the updated risk assessment methodology. During the process, after evaluating all relevant risks in the context of the Group business segments and functions, and considering the strategic directions, a new consolidated risk register of the Group was compiled, where the most important risks for upcoming period for the Group were established. Risks 1–8 were included from the Group companies, and risk 9 – from a function. Compared to 2021, four new priority risks (1, 2, 3, 7) were identified for 2022, which are mostly related to the activities of the Green Generation segment. Five previous risks (4, 5, 6, 8, 9) remain relevant in the upcoming period. These key risks of the Group and their management plan have our greatest focus and attention. More information about these risks and their management plan is available below.

2021

Annual report 2020 contains an extensive list of the most important risk factors and management directions for 2021. Such risks as changes in the market and legislation, unsuccessful new projects/ business activities and failure to ensure information security remained at high or very high risk level throughout the reporting period. Meanwhile, the following risks were successfully managed within the Group’s risk appetite: risk of failure to achieve key commitments (including business continuity); risk of health and safety of employees, residents and contractors; risk of compliance; and risk of core services disruptions due to IT/OT incidents.

The main risk changes:

Customers & Solutions: In Q3 2021, the Group has successfully concluded negotiations with Equinor ASA – an amendment of the designated supply of liquefied natural gas (LNG) contract was signed, which ensured a more favorable LNG cargo supply structure. Additionally, the Government of the Republic of Lithuania approved the mandatory supply volume for the LNG terminal – 4 cargoes per year for the period of 2022–2024, which aligns with the mandatory supply volume set out in the contract with Equinor ASA. Considering this, the uncertainty related to the designated supply activities was reduced, so the level of the risk “Market and legislative changes” was reduced from very high to high (the probability was decreased from very high to high);

Networks:

when assessing implementation of the smart meter roll-out project, a global chip shortage ('chip crisis') presented as another source of risk, potentially resulting in slower delivery of smart meters;
risk of market and legislative changes had partially materialised because the National Energy Regulatory Council (NERC) approved (link in Lithuanian) the new wording of the Methodology for determining the price caps for electricity distribution by, in essence, making it similar to historical cost model (previously was Long-Run Average Incremental Cost (LRAIC) model). Fortunately, sustainable regulatory framework was ensured through the additional tariff component, which offsets the change in RAB calculation method (more information is available in section ‘Results by business segment’). Respectively, the Adjusted EBITDA guidance for 2021, dividend policy and investment plans detailed in the Group strategic plan remained unchanged.

Risk changes in Q4 2021 are not separated because, starting from Q4 2021, an updated risk assessment methodology is being applied (with greater focus on specific risk factors rather than risk areas), based on which the risk factor and management plan, which is provided below, was updated.

Key risks of the Group

==> picture [358 x 384] intentionally omitted <==

----- Start of picture text -----

Very high
5 2
High
7 1 Medium
Low
6 8 3
Group’s risk
appetite
9 4
<10% 10–30% 31–70% >70%
Probability
1 Employee attraction, development and retention 6 Risk of failing to notify the European
risk (Green Generation) Commission about the aid from the
2 Risk of not achieving Green Generation installed Government (Flexible Generation)
capacity on time (Green Generation) 7 Risk of market changes (Flexible
3 Risk of not winning the Lithuanian offshore wind Generation)
tender (Green Generation) 8 Risk of unplanned and adverse regulatory
changes (Networks)
4 Risk of hedging deficit in the Lithuanian and Latvian
electricity markets (Customers & Solutions) 9 Risk of cyberattacks using publicly known
5 Risk of failure to complete the Vilnius CHP system vulnerabilities (the Group)
biomass unit project properly and on time (Green
Generation)
Impact
Very high
High
Medium
Low
----- End of picture text -----

117 / 364

GRI 102-15

Annual report 2021 / Governance

Contents »

Risk management plan 2022

Strategic risks

Employee attraction, development and retention risk 1 ESG Main source of risk: Impacted strategic area Main risk management principles – Lack of experienced project managers in the green generation People and culture Creating a talent strategy for the company: area – ensuring employees in strategic positions;
– High employee flow during the process of expansion of the Potential impact – ensuring employees in supporting positions; company Financial – preparing a human resources planning framework;
– Employee replacement issues Risk level – preparing an employee rotation program in Lithuania and abroad (as necessary).
Key risk indicators | Employee turnover Very high

Period | Until 2030

Risk of not achieving Green Generation installed capacity on time2 ESG Main source of risk: Impacted strategic area Main risk management principles: – Growing competition due to easier entry to the market Green Generation – Take competitive advantage in large, more capital intensive projects – Limited supply of land plots for project development which – Participate in consultations and working groups for formation of legislation meet legal requirements Potential impact – Attract professionals with rich experience in green generation project
Key risk indicators | Installed capacity Financial development –
Risk level Utilize the existing electricity supply portfolio to structure off-take agreements
Period | Until 2030 Very high Risk of not winning the Lithuanian offshore wind tender3 Main source of risk: Impacted strategic area Main risk management principles: – Highly competitive environment Green Generation – Utilize the existing electricity supply portfolio to structure off-take agreements – Limited experience in offshore wind tenders – Partnership with Ocean Winds to strengthen the know-how in preparation for – Uncertainly due to normative legal acts to be approved Potential impact tender Financial –
Period | Starting from 2023 Enhance competencies by secondment to Moray West –
Risk level Attract professionals with rich experience in offshore wind projects – Participate in consultations and working groups for formation of legislation.
Very high

ESG ESG-related risk

118 / 364

Annual report 2021 / Governance

Contents »

Financial risks[1]

Risk of hedging deficit in the Lithuanian and Latvian electricity markets4 Main source of risk: Impacted strategic area Main risk management principles: – Lack of derivative hedging, transaction parties and producers in Finance – Daily monitoring of the hedging portfolio Lithuania and other Baltic states – Increasing Lithuania’s/Latvia’s hedging share in the retail electricity portfolio
– Reduction in the company’s competitiveness in the retail sector Potential impact Financial
Key risk indicators | Share of hedged portfolio Risk level
Period | Constant Very high
Risk of failure to complete the Vilnius CHP biomass unit project properly and on time5 Main source of risk: Impacted strategic area Main risk management principles: – Legal measures limiting the construction capacity of Green Generation – Project work and schedule control as well as deviation adjustments contractors, subcontractors, the trustee in bankruptcy – Proper assurance of public procurement processes
– Violation of public procurement principles Potential impact: – Constant collaboration with authorities – Financial
Key risk indicators | Delay of critical guidelines – Reputation Period | Until 2024 Risk level High

1 Other inherent financial risks of the Group (market, currency, interest rate, credit, liquidity), which do not exceed the Group’s risk appetite and KRI tolerance thresholds, in accordance with the IFRS requirements are described in section ‘Financial statements’ of this report (Financial risk management part).

119 / 364

Annual report 2021 / Governance

Contents »

External risks

==> picture [730 x 431] intentionally omitted <==

----- Start of picture text -----

Risk of failing to notify the European Commission about the aid from the Government6
Main source of risk: Impacted strategic area Main risk management principles:
The EC is yet to be notified about the aid granted by the Finance – Continuous collaboration and provision of information to the authorities (the EC
Government to Ignitis Gamyba. and the Ministry of Energy of the Republic of Lithuania)
Potential impact: – Centralized coordination of regulatory issues within the Group
Key risk indicators – Financial
Periodic reporting of risk signals to the management. –
Reputation
Period | Constant
Risk level
High
Risk of market changes 7
Main source of risk: Impacted strategic area Main risk management principles:
– Regulatory changes in demand and ordering of reserve Flexible Generation – Preparation for synchronization with electricity grid of the Continental Europe
services (secondary and tertiary power reserve) – Consistent decommissioning of unused generation capacities
– Regulatory changes in demand and ordering of system services Potential impact – Focused reduction of costs of regulated activities
(isolated regime services) – Financial –
Revision and optimization of processes
–
Key risk indicators Risk level Active cooperation with the regulator
–
Periodic reporting of risk signals to the management. Centralized coordination of regulatory issues within the Group
High
Period | From 2026
Risk of unplanned and adverse regulatory changes8
Main source of risk: Impacted strategic area Main risk management principles:
Uncertainty of the regulatory environment. FInance – Active cooperation with regulatory authorities
–
Participation in consultations and working groups
Key risk indicators Potential impact –
Centralised coordination of regulatory issues within the Group
Significant methodology changes/inspections carried out by – Financial
regulatory authorities. – Reputation
Period | Constant Risk level
High
----- End of picture text -----

120 / 364

Annual report 2021 / Governance

Contents »

Operational (activity) risks

Risk of cyberattacks using publicly known system vulnerabilities9

Main source of risk: – Cyberattacks
Cases of social engineering, data theft
Late or improperly patched publicly known exploitations

Key risk indicators:

Critical vulnerabilities
– Solution duration Period | Constant

Main risk management principles:

Impacted strategic area Organisation Potential impact:

Verification of publicly known vulnerabilities, critical system restriction/isolation in the internal network
Preparation of periodic IT vulnerabilities reports and their submission to persons responsible for solving them
Compliance responsible for solving them
– Reputation – Internal audit – Cooperation with external institutions
Risk level High

Other risks

The risks listed below (assessed at medium/low risk level and which fall within the Group’s risk appetite and KRI tolerance thresholds) are also being actively monitored because of their natural relevance to the Group’s operations.

Strategic, external, operational risks | Physical climate risk

ESG

Main source of risk:

Natural climate-related weather events (rains, droughts, snowfalls, storms, etc.) can damage infrastructure and halt operations (potential impact on distribution networks, hydropower, wind farms)
Climate-related weather events can disrupt supply chains or unpredictably adjust commodity prices

Key risk indicators:

SAIDI/SAIFI

Impacted strategic area Sustainable Development Potential impact:

Financial
Reputation

Risk level

Low

Main risk management principles:

Investment in network and other asset resilience
Updating plans for managing unforeseen operational interruptions, conducting field exercises
Availability of generation units

Period | Constant

121 / 364

GRI 201-2

Annual report 2021 / Governance

Contents »

ESG

Strategic, external, operational risks | Climate transition risk

Main risk management principles GHG emission reduction that is pursued in the following ways:

Main source of risk:

Main source of risk: Impacted strategic area – Tightening regulation and increasing requirements related to Sustainable Development the European Green Deal
increasing RES capacity;
– increasing energy efficiency;

Potential impact:

Increasing prices and expanding potential scope of application related to the EU ETS; rising prices of other commodities
Financial
optimising resource consumption;
–
Growing consumer, investor, public interest in climate change Reputation and other ESG issues
utilising new technologies and innovative solutions.

Risk level

Uncertainty regarding the EU Taxonomy criteria and the Risk level regulation’s impact on the market
– Changing consumer and investor needs and expectations Medium regarding fossil fuel phase-out
Key risk indicators GHG emissions.

For more information see section 'Sustainability (corporate social responsibility) report'.

Period | Constant

ESG

Operational risk | Health and safety

Main risk management principles:

Main source of risk Impacted strategic area Main risk management principles: –
A natural risk may manifest due to: Sustainable Development Internal employee and contractor inspections – – insufficient assessment of risks in a workplace, lack of practical Education, training of employees and contractors skills, knowledge; Potential impact – Improving processes
– failure to adhere to safety requirements; People’s health and safety – processes, tools that are not unified across the Group; Risk level
failure to manage resources.

Medium

Key risk indicators

Accidents

– Violations – TRIR For more information see section 'Sustainability (corporate social Period | Constant responsibility) report'.

ESG ESG-related risk

122 / 364

GRI 201-2

Annual report 2021 / Governance

Contents »

Operational risk | Corruption Main source of risk Impacted strategic area A natural risk may manifest due to: Organisation – abuse of office powers;
– Potential impact: failure to declare conflicts of interest. – Compliance
–
Key risk indicators: Reputation – Conflicts of interest – Financial – Corruption violations
– Declaration of interests Risk level – Reports of corruption violations Medium
– Declaration of gifts
Period | Constant

==> picture [310 x 30] intentionally omitted <==

----- Start of picture text -----

ESG
----- End of picture text -----

Main risk management principles:

Anti-corruption management system (ACMS) LST/ ISO 37001:2017.
– Standardised corruption risk assessment and management processes in the Group.
– Improving and automation of current control mechanisms.
– Trust line. – Group’s Code of Ethics.
– Periodic training courses. For more information see section 'Sustainability (corporate social responsibility) report'..
Operational, external risk | Compliance Main source of risk Impacted strategic area Main risk management principles: – –
We must comply with: Organisation Centralised coordination of compliance issues within the Group. – GDPR; – Sustainable Development – Mandatory employee education programmes. – MAR; – Customers & Solutions – Total separation of supply and distribution activities. – REMIT, EMIR; – Improving processes and applying control mechanisms. – Third energy package Potential impact:
– AML; – Compliance – – And other requirements applicable to the activities of the Group. Reputation – Financial
Key risk indicators: – – Sanctions Risk level
– Incidents – Claims Medium For more information see the end of this section and section 'Sustainability
Period | Constant (corporate social responsibility) report'.

For more information see the end of this section and section 'Sustainability (corporate social responsibility) report'.

ESG ESG-related risk

123 / 364

Annual report 2021 / Governance

Contents »

Operational risk | Business continuity

Main source of risk:

The Covid-19 pandemic and restrictions related to its management.
Business uncertainty.
Lack of resources.
The launch of Astravets Nuclear Power Plant.

Key risk indicators:

Significant disruptions of core activities.

Impacted strategic area

Organisation

Potential impact:

Compliance
Reputation
Financial

Risk level

Main risk management principles:

Business continuity plans.
Application of personal protection equipment.
Hybrid working model.
Contact restrictions (both to external customers and in the critical teams).
Centre of internal IT competencies.
Post incident reviews.

Period | Constant

Compliance Programme

The Group strives for maximum transparency, effective management of inside information and equality of all financial market participants regarding the availability of the issuer’s material information. Effective prevention of market abuse is one of our main priorities. The Group is listed both in London and Nasdaq Vilnius stock exchanges – it complies with all relevant EU, Lithuanian and UK laws and regulations.

The Group’s own internal insider and transparency rules are regularly updated and made available to the public. The Group arranges periodic training on market abuse and insider rules. The coordination of market abuse prevention is one of the responsibilities of the Group’s Business Resilience unit. Key market abuse prevention projects of 2021 include:

approved trading guidelines for the parent company’s managers and persons closely associated with them. The purpose of the guidelines is to detail the requirements set out in the Market Abuse Prevention Policy of the Group (link) for persons discharging managerial responsibilities (PDMR) and persons closely associated with them as well as to define the processes necessary for risk management related to the trading, reporting to and informing the supervisory authorities. Moreover, a specialized compliance training course in this area has been developed for the PDMR. Transactions of the PDMR and the persons closely associated with them must adhere to a specialized internal Closed Period calendar, which is

For more information see the end of this section and section ‘Sustainability (corporate social responsibility) report'.

Medium

Related party transactions

The parent company follows the provisions of the Law on Companies of the Republic of Lithuania when conducting related party transactions. It must be noted that the Supervisory Board of the parent company considers the conclusions of the Audit Committee and adopts decisions regarding the related party transactions of the parent company and the Group companies, if they are conducted in unusual market conditions and/or are not attributable to the usual economic activities, and/or have a significant impact to the parent company, its finances, assets and obligations, i.e., the value of such transaction is over 1/50 if the parent company’s equity (excluding transactions that are necessary to ensure core activities of the Group companies and transactions which must be concluded under the requirement of the law).

prepared in accordance with the requirements of the Market abuse regulation (EU) No 596/2014. Notification threshold – EUR 5,000 within a calendar year;

– specialized inside information management training course, which was created to ensure that the persons who are on the insider list are able to identify, manage and disclose inside information and are familiar with the established prohibitions. In parallel, an Insider Management Committee (comprising 5 experts from finance, law, compliance, investor relations and communication areas), successfully continues its operations by dealing with complex insider management issues effectively while ensuring maximum transparency;

– Market Abuse Prevention Guidelines, which have been prepared in order to explain requirements and prohibitions that are related to unlawful market abuse activities: i) market manipulation or an attempt to engage in market manipulation; ii) insider dealing or an attempt to engage in insider dealing; iii) unlawful disclosure of inside information. Moreover, specialized market abuse prevention training has been successfully implemented this year.

We disclose information about the concluded related party transactions on our website and in accordance with the IFRS requirements in the section ‘Financial statements’ of this report.

In 2021, same as the previous year, the Group ensured the compliance with all MAR (Market Abuse Regulations) requirements successfully.

124 / 364

Annual report 2021 / Governance

Contents »

4 .8 Information about the Group

Corporate structure

As of the end of the reporting period, the Group consisted of the parent company and 26 fully consolidated subsidiaries. The parent company of the Group is AB “Ignitis grupė“ is responsible for the co-ordination of activities and transparent management of the Group. Further information, including financials about the parent company and its subsidiaries is available in the section below and on our website.

The companies presented in the figure on the next page are directly or indirectly controlled by the parent company. The Group applies the following governance system:

Changes in the Group’s structure during the reporting period:

UAB “Ignitis” established Ignitis Suomi Oy in Finland to enable more effective operations in Finnish supply markets;
UAB “Ignitis renewables” acquired a company registered in Poland, which, prior to this, did not conduct any activities – Dolcetto Sp. z. o. o. Additionally, Dolcetto sp. z o. o. acquired Charbono Sp. z o.o., a company registered in Poland;
name of Dolcetto Sp. z o.o. was changed to Ignitis Renewables Polska Sp. z o.o;
name of Charbono Sp. z o. o. was changed to Ignitis Res Dev sp. z o.o;

==> picture [355 x 201] intentionally omitted <==

----- Start of picture text -----

The Supervisory Board is formed out of 7 non-executive members (2 shareholder’s
representatives, 5 independent).
1
The Management Board is formed out of 5 executive members.
Chief Executive Officer is also the Chair of the Management Board.
The Supervisory Board is formed out of 5 non-executive members [1] or 3 non-
executive members (2 shareholder’s representatives and 1 independent member).
2
The Management Board is formed out of 5 or 3 executive members.
Chief Executive Officer is also the Chair of the Management Board.
The Management Board is formed out of 3 non-executive members (2 shareholder’s
representatives and 1 independent member).
3 The Management Board structure might be different in some companies and it is not
formed until the company starts its operations [2] .
Chief Executive Officer is not a member of the Management Board.
4 Chief Executive Officer is a sole management body.
The Management Board is not formed.
----- End of picture text -----

UAB “Ignitis renewables” established UAB “Ignitis renewables projektai” in Lithuania to develop wind and solar parks;
UAB “Ignitis renewables” acquired Altiplano Elektrownie Wiatrowe B1 Sp. z o.o., a company developing a wind farm in Poland.

Changes in the Group’s structure after the reporting period:

an intention to establish a subsidiary of UAB “Ignitis renewables” in Latvia was announced.

1 At ESO: 2 shareholder’s representatives, 2 independent members and 1 employees’ representative.

2 The Management Boards of Ignitis Latvija and Ignitis Polska are formed out of 1 member – CEO, the Supervisory Board of Ignitis Latvija is formed using the Majority shareholder’s representatives, whilst the Supervisory Board of Ignitis Polska is formed from 2 Majority shareholder’s representatives and 1 independent member. The Management Board of Ignitis Suomi Oy is formed out of 1 ordinary member and 1 deputy member. The Management Board of Ignitis Renewables Polska Sp. z o.o. is formed out of 2 non-executive members (Majority shareholder's representatives).

125 / 364

GRI 102-10 GRI 102-18

Annual report 2021 / Governance

Contents »

The Group‘s corporate structure (at the end of the reporting period)

==> picture [586 x 468] intentionally omitted <==

----- Start of picture text -----

1
AB
"Ignitis
grupė" [1, 2]
2 3 2 2
AB "Energijos UAB
AB "Ignitis
skirstymo "Ignitis UAB "Ignitis"
operatorius" renewables" gamyba"
100% 100% 100% 100%
4 4 3 3 3 3
UAB UAB
Tuuleenergia UAB Kauno Ignitis "Ignitis UAB
OÜ "EURAKRAS" kogeneracinė LatvijaSIA grupės paslau- "Gamybos optimizavimas"
jėgainė gų centras"
100% 100% 51% 100% 100% 100%
3 4 3 4 3 3
UAB UAB
PomeraniaWind Farm sp . z o . o . UAB "VĖJO GŪSIS" Vilniaus kogeneracinė jėgainė Ignitis EestiOÜ Elektroninių mokėjimų agentūra UAB "NT Valdos"
100% 100% 100% 100% 100% 100%
4 4 3 4 4
UAB
Altiplano
Elektrownie UAB Ignitis Polska UAB "Transpor- Energetikos
Wiatrowe B1 sp . z . o . o . "VĖJO VATAS" sp . z o . o . to valdymas" paslaugų ir rangos organizacija
100% 100% 100% 100% 100%
3 4 3
Ignitis
Renewables UAB "VVP Ignitis
Polska Investment" Suomi Oy
sp . z o . o .
1 The parent company does not have any branches and representative
100% 100% 100% companies as of the reporting date.
2 The parent company does not carry out research and development activities as
4 4 of the reporting date.
Ignitis UAB "VVP
Res Dev
sp . z o . o . Investment"
Networks Green Flexible Customers
100% 100% generation generation and solutions
----- End of picture text -----

126 / 364

Annual report 2021 / Governance

Contents »

The parent company, its subsidiaries and their performance during the reporting period (2021)[1]

==> picture [11 x 9] intentionally omitted <==

==> picture [10 x 9] intentionally omitted <==

AB “Ignitis Grupė” AB “Energijos Skirstymo Operatorius” Parent company – management and coordination Distribution of electricity and natural gas, of activities of the Group companies supply of last resort service

Company code: Performance: 301844044 (EUR million): Revenue 228.8 Legal form: Public Expenses 9.2 Limited Liability Company Adjusted EBITDA (3.2) Registered address: Net profit 231.6 Laisvės Ave. 10, Vilnius Investments 4.3 Assets 2,856.4 Effective ownership Equity 1,933.2 interest: NA Liabilities 923.2 Share capital: EUR 1,658,756,293.81 Number of employees: 73 Website: www.ignitisgrupe.lt Email: [email protected] Establishment date and register: 28 August 2008, Lithuanian Register of Legal Entities

Company code:	Performance:
304151376	(EUR million):
Registered address: Laisvės Ave. 10, Vilnius	Revenue Expenses Adjusted EBITDA	535.3 363.9 148.1
Efective ownership	Net proft	50.0
interest:100%	Investments	185.6
Share capital: EUR 259,442,796.57	Assets Equity Liabilities	1,819.5 627.7 1,191.8
Website:www.eso.lt
	Number of employees:
	2,427

1 Unaudited results, except of AB “Ignitis grupė”, AB “Energijos Skirstymo Operatorius”, and UAB Elektroninių mokėjimų agentūra.

127 / 364

GRI 102-7

Annual report 2021 / Governance

Contents »

==> picture [77 x 46] intentionally omitted <==

UAB “Ignitis Renewables”[1]

Coordination of operation, supervision and development of renewable energy projects

==> picture [79 x 46] intentionally omitted <==

UAB “Ignitis renewables projektai“

Development of renewable energy projects

==> picture [77 x 46] intentionally omitted <==

Ignitis Renewables Polska Sp . z o . o .

Development of renewable energy projects

==> picture [79 x 45] intentionally omitted <==

Ignitis Res Dev Sp . z o . o . Development of renewable

energy projects

==> picture [77 x 45] intentionally omitted <==

Pomerania Wind Farm Sp . z o . o . Generation of renewable electricity

==> picture [76 x 45] intentionally omitted <==

Tuuleenergia OÜ Generation of renewable electricity

Company code: 305916135

Company code: 304988904

Registered address: Laisvės Ave. 10, Vilnius

Effective ownership interest: Effective ownership 100% interest: 100%

Share capital: EUR 3,000 Website: NA

Share capital: EUR 21,910

Website: NA

Company code: 0000871214

Registered address: Warsaw, Poland

Effective ownership interest: 100%

Share capital: PLN 5,000 Website: NA

Company code: 0000873356

Registered address: Puławska 2 Building B, Varšuva 02-566, Poland

Effective ownership interest: 100%

Share capital: PLN 5,000

Website: NA

Company code: 0000450928

Registered address: 82/368 Grunwaldzka St., 80-244 Gdańsk, Poland

Effective ownership interest: 100%

Share capital: PLN 44,500 Website: NA

Company code: 10470014

Registered address: Keskus, Helmküla küla, Lääneranna vald, Pärnu maakond, 88208

Effective ownership interest: 100%

Share capital: EUR 499,488

Website: NA

Performance	Consoli-	Stand	Performance		Performance		Performance		Performance		Performance
(EUR million):	dated1	alone	(EUR million):		(EUR million):		(EUR million):		(EUR million):		(EUR million):
Revenue	14.4	5.6	Revenue	-	Revenue	-	Revenue	-	Revenue	2.0	Revenue	6.4
Expenses	6.3	3.0	Expenses	-	Expenses	0.14	Expenses	-	Expenses	(0.9)	Expenses	0.7
Adjusted EBITDA	12.0	(2.7)	Adjusted EBITDA	-	Adjusted EBITDA	(0.14)	Adjusted EBITDA	-	Adjusted EBITDA	5.1	Adjusted EBITDA	5.7
Net proft	0.6	(0.4)	Net proft	-	Net proft	(0.15)	Net proft	-	Net proft	0.3	Net proft	3.9
Investments	9.6	2.1	Investments	-	Investments	-	Investments	-	Investments	2.4	Investments	-
Assets	331.5	177.2	Assets	2.6	Assets	4.47	Assets	0.02	Assets	136.5	Assets	29.6
Equity	46.2	53.8	Equity	1.0	Equity	4.31	Equity	0.00	Equity	31.2	Equity	5.1
Liabilities	285.3	123.4	Liabilities	1.6	Liabilities	0.16	Liabilities	0.02	Liabilities	105.3	Liabilities	24.5
Number of employees:	45	17	Number of employees: 1		Number of employees: 11		Number of employees: 01		Number of employees: 11		Number of employees: 1

1 Ignitis Renewables Consolidated numbers includes UAB “Ignitis Renewables”, UAB “Ignitis renewables projektai“, Ignitis Renewables Polska Sp. z o. o., Ignitis Res Dev Sp. z o. o., Pomerania Wind Farm Sp. z o. o., Tuuleenergia OÜ, UAB “Eurakras”, UAB “Vėjo gūsis”, UAB “Vėjo[vatas”, UAB “VVP Investment” and Altiplano Elektrownie Wiatrowe B1 Sp. z o.o.]

128 / 364

Annual report 2021 / Governance

Contents »

==> picture [77 x 46] intentionally omitted <==

==> picture [79 x 46] intentionally omitted <==

UAB “Vėjo gūsis”

UAB “Eurakras”

Generation of renewable Generation of renewable electricity electricity

Company code: Company code: 300576942 300149876

Registered address: Registered address: Laisvės Ave. 10, Vilnius Laisvės Ave. 10, Vilnius Effective ownership Effective ownership interest: 100% interest: 100% Share capital: Share capital: EUR 4,620,539.04 EUR 7,442,720 Website: NA Website: NA

==> picture [77 x 46] intentionally omitted <==

UAB “Vėjo vatas”

Generation of renewable electricity

Company code: 110860444

Registered address: Laisvės Ave. 10, Vilnius

Effective ownership interest: 100%

Share capital: EUR 2,896,000 Website: NA

==> picture [79 x 45] intentionally omitted <==

UAB “VVP Investment”

Development and operation of a renewable energy (wind) project

Company code: 302661590

Registered address: Laisvės Ave. 10, Vilnius

Effective ownership interest: 100%

Share capital: EUR 250,214.40 Website: NA

==> picture [78 x 45] intentionally omitted <==

Altiplano Elektrownie Wiatrowe B1 Sp . z o .o .

Development and operation of a renewable energy (wind) project

Company code: 0000531275

Registered address: Abrahama g. 1A, Gdansk 80-307, Poland

Effective ownership interest: 100%

Share capital: PLN 47,977,500 Website: NA

==> picture [74 x 49] intentionally omitted <==

UAB Kauno Kogeneracinė Jėgainė

Electricity and heat production from waste

Company code: 303792888

Registered address: Jėgainės St. 6, Biruliškės, Karmėlava mun., Kaunas district

Effective ownership interest: 51%

Share capital: EUR 40,000,000

Website: www.kkj.lt

Performance Performance (EUR million): (EUR million): Revenue 5.5 Revenue 4.0 Expenses 0.9 Expenses 0.9 Adjusted EBITDA 4.6 Adjusted EBITDA 3.1 Net profit 2.6 Net profit 1.9 Investments - Investments - Assets 25.2 Assets 17.4 Equity 8.2 Equity 9.8 Liabilities 17.0 Liabilities 7.6 Number of employees: Number of employees: 1 1

Performance (EUR million): Revenue 2.9 Expenses 0.7 Adjusted EBITDA 2.2 Net profit 1.1 Investments - Assets 14.6 Equity 4.3 Liabilities 10.3 Number of employees: 1

Performance		Performance
(EUR million):		(EUR million):
Revenue	-	Revenue	-
Expenses	0.2	Expenses	-
Adjusted EBITDA	(0.2)	Adjusted EBITDA	-
Net proft	(0.2)	Net proft	-
Investments	3.5	Investments	-
Assets	18.4	Assets	13.3
Equity	0.1	Equity	1.0
Liabilities	18.3	Liabilities	12.3
Number of employees:		Number of employees:
1		01

Performance (EUR million): Revenue 29.1 Expenses 12.7 Adjusted EBITDA 13.1 Net profit 7.2 Investments 1.5 Assets 166.4 Equity 44.2 Liabilities 122.2 Number of employees: 39

129 / 364

Annual report 2021 / Governance

Contents »

==> picture [48 x 48] intentionally omitted <==

Vilniaus Kogeneracinė Jėgainė

Development and operation of cogeneration power plant project

==> picture [78 x 46] intentionally omitted <==

AB “Ignitis gamyba”

Generation and trading of electricity

UAB “Ignitis”[1]

Electricity and natural gas supply, trading, energy efficiency projects

Ignitis Polska Sp . z o . o .

Supply and trading of electricity

Ignitis Latvija SIA

Supply of electricity and natural gas

Ignitis Eesti OÜ

Supply of electricity

Company code: Company code: 303782367 302648707

Registered address: Registered address: Laisvės Ave. 10, Vilnius Elektrinės St. 21, Elektrėnai

Effective ownership interest: 100%

Effective ownership share: 100%

Share capital: EUR 52,300,000.12 Share capital: EUR 187,920,762.41

Website: www.vkj.lt

Website: www.ignitisgamyba.lt

Company code: 303383884

Registered address: Laisvės Ave. 10, Vilnius

Effective ownership interest: 100%

Share capital: EUR 40,140,000

Website: www.ignitis.lt

Company code: 0000681577

Registered address: Puławska 2-B, PL-02-566, Warsaw, Poland

Effective ownership interest: 100%

Share capital: PLN 10,000,000

Website: www.ignitis.pl

Company code: 40103642991

Registered address: Cēsu St. 31 k-2, , LV-1012, Riga, Latvia

Effective ownership interest: 100% Share capital: EUR 11,500,000 Website: www.ignitis.lv

Company code: 12433862

Registered address: Narva St. 5, 10117 Tallinn, Estonia

Effective ownership interest: 100%

Share capital: EUR 35,000

Website: NA

Performance		Performance		Performance	Consoli-	Stand	Performance		Performance		Performance
(EUR million):		(EUR million):		(EUR million):	dated1	alone	(EUR million):		(EUR million):		(EUR million):
Revenue	16.6	Revenue	295.8	Revenue	997.2	883.3	Revenue	16.2	Revenue	106.2	Revenue	0.7
Expenses	7.8	Expenses	179.8	Expenses	981.0	862.0	Expenses	19.3	Expenses	104.6	Expenses	0.8
Adjusted EBITDA	9.9	Adjusted EBITDA	103.9	Adjusted EBITDA	29.1	34.1	Adjusted EBITDA	(3.1)	Adjusted EBITDA	1.6	Adjusted EBITDA	(0.1)
Net proft	9.5	Net proft	74.8	Net proft	6.6	11.4	Net proft	(2.9)	Net proft	1.4	Net proft	(0.1)
Investments	20.5	Investments	0.9	Investments	2.0	1.7	Investments	(0.8)	Investments	0.3	Investments	-
Assets	313.5	Assets	707.2	Assets	825.4	813.3	Assets	18.8	Assets	50.9	Assets	0.2
Equity	56.5	Equity	342.2	Equity	77.6	76.5	Equity	(1.5)	Equity	8.8	Equity	0.0
Liabilities	257.0	Liabilities	365.0	Liabilities	747.8	736.8	Liabilities	20.3	Liabilities	42.1	Liabilities	0.2
Number of employees:		Number of employees:		Number of			Number of employees:		Number of employees:		Number of employees:
88		359		employees:	335	304	16		13		02

1 Ignitis Consolidated numbers includes UAB “Ignitis”, Ignitis Polska Sp. z o. o., Ignitis Latvija SIA, Ignitis Eesti OÜ and Ignitis Suomi Oy.

130 / 364

Annual report 2021 / Governance

Contents »

Ignitis Suomi Oy

UAB “Gamybos optimizavimas”

UAB “Ignitis grupės paslaugų Centras”

Supply of natural gas

Shared business support services

Planning, optimization, forecasting, trading, brokering and other electricity related services

Company code: Company code: 3202810-4 303200016

Company code: 304972024

Registered address: Registered address: Firdonkatu 2, Workery Laisvės Ave. 10, Vilnius West, 6th floor 00520 Helsinki, Finland Effective ownership

Registered address: Laisvės Ave. 10, Vilnius

Effective ownership interest: 100%

Share capital: EUR 12,269,006.25

Share capital: EUR 350,000

Share capital: Website: NA Website: NA EUR 200,000 Website: www.ignitis.fi Performance Performance Performance (EUR million): (EUR million): (EUR million): Revenue - Revenue 31.5 Revenue 0.66 Expenses (0.12) Expenses 25.3 Expenses 0.55 Adjusted EBITDA (0.12) Adjusted EBITDA 6.1 Adjusted EBITDA 0.10 Net profit (0.14) Net profit 0.9 Net profit 0.07 Investments - Investments 10.0 Investments - Assets 0.14 Assets 26.6 Assets 0.62 Equity 0.07 Equity 14.0 Equity 0.46 Liabilities 0.07 Liabilities 12.6 Liabilities 0.16 Number of employees: Number of employees: Number of employees: 2 498 7

==> picture [76 x 29] intentionally omitted <==

==> picture [58 x 24] intentionally omitted <==

UAB “NT Valdos”[3]

UAB Elektroninių mokėjimų agentūra

UAB “Transporto valdymas”

Vehicle rental, leasing, repair, maintenance, renewal and service

Management and other related services of real estate

Payment aggregation

Company code: 136031358

Company code: 304766704

Company code: 300634954

Registered address: Laisvės Ave. 10, Vilnius

Registered address: Kirtimų St. 47, Vilnius

Registered address: Laisvės Ave. 10, Vilnius

Effective ownership interest: 100%

Share capital: EUR 958,000

Share capital: Share capital: Share capital: EUR 958,000 EUR 2,359,371.20 EUR 2519.52 Website: NA Website: www. Website: NA tpvaldymas.eu Performance Performance Performance (EUR million): (EUR million): (EUR million): Revenue 0.9 Revenue 4.6 Revenue - Expenses 0.5 Expenses 2.2 Expenses 0.1 Adjusted EBITDA 0.4 Adjusted EBITDA 2.4 Adjusted EBITDA (0.1) Net profit 0.2 Net profit 1.3 Net profit (0.1) Investments 0.1 Investments 0.1 Investments 0.0 Assets 1.4 Assets 20.0 Assets 0.4 Equity 1.3 Equity 7.2 Equity 0.4 Liabilities 0.1 Liabilities 12.8 Liabilities - Number of employees: Number of employees: Number of employees: 5 21 0[2]

131 / 364

Annual report 2021 / Governance

Contents »

==> picture [41 x 41] intentionally omitted <==

UAB Energetikos Paslaugų ir Rangos Lietuvos Energijos Organizacija[4] Paramos Fondas Construction, repair and maintenance of Provision of support to projects, initiatives and electricity networks and related equipment, activities, relevant to the society (no longer connection of customers to electricity pursues any of its activities) networks, repair of energy equipment and production of metal structures Company code: On 19 March 2018, the parent company, and 304132956 on 13 March 2018, the Majority Shareholder, made a decision that from 2018, the Group Registered address: would not grant support and/or charity Motorų St. 2, Vilnius (except for support to neighbourhood Effective ownership communities where the Group’s Green interest: 100% Generation projects are located), in relation to changes in the Law on Charity and Share capital: Support of the Republic of Lithuania. As a EUR 350,895.07 result, Lietuvos Energijos Paramos Fondas Website: was dissolved on 30 August 2021. http://www.enepro.lt/ Performance (EUR million): Revenue - Expenses 0.16 Adjusted EBITDA (0.16) Net profit (0.18) Investments - Assets 0.17 Equity 0.17 Liabilities - Number of employees: 0[4]

1 There was no employment contract. A company is represented by elected board member.

2 There was no employment contract. A decision by the Majority shareholder to appoint a manager has been adopted.

3 On 7 December 2021, the Majority shareholder’s decision was adopted to liquidate NT Valdos, UAB. The company does not have any employees. The Majority shareholder’s decision was adopted to appoint a liquidator (employee of the parent company).

4 On 10 May 2021 the Majority shareholder’s decision was adopted to liquidate Energetikos Paslaugų ir Rangos Organizacija. The company does not have any employees. The Majority shareholder’s decision was adopted to appoint a liquidator (employee of the parent company).

132 / 364

Annual report 2021 / GovernanceSustainability (corporate social responsibility) report

Contents »

Sustainability (Corporate Social Responsibility) report

==> picture [344 x 136] intentionally omitted <==

----- Start of picture text -----

|||
|---|---|
|5.1 About the sustainability (Corporate Social Responsibility) report|134|
|5.2 Sustainability (Corporate Social Responsibility) report|135|
|5.3 Sustainability at the Group|138|
|5.4 Climate action|144|
|5.5 Preserving natural resources|153|
|5.6 Future-fit employees and communities|161|
|5.7 Robust organisation|180|
|5.8 Memberships and partnerships|192|
|5.9 GRI Content Index|193|

----- End of picture text -----

133 / 364

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

5 .1 About the sustainability (Corporate Social Responsibility) report

This Ignitis Group Sustainability (Corporate Social Responsibility) Report for 2021 (hereinafter referred to as the Sustainability Report) is prepared in accordance with the Core option of the Global Reporting Initiative (GRI) standards. The disclosures are made on a materiality basis and reflect the Group‘s progress in implementing the United Nations Global Compact (UNGC) and the Group‘s contribution to the United Nations Sustainable Development Goals (SDGs). This report complies with the requirements for social responsibility reports, as provided for in Lithuanian legislation. The report follows Nasdaq‘s ESG reporting guidelines and other recommendations.

The information set out below covers the period from 1 January to 31 December 2021 and is part of the consolidated annual report of Ignitis Group for 2021. In some cases, additional data from previous years are included in order to ensure greater comparability of sustainability results. The scope of the disclosure has been expanded to reflect the expectations of stakeholders, and in some cases previous disclosures have been updated due to changes in calculation methodology or provision of new information. Such changes and their reasons are indicated in the relevant sections.

The information provided in the Sustainability Report includes information on both the parent company and all subsidiaries. Therefore, unless otherwise stated, the key topics of the Sustainability Report cover all Group companies and detailed sustainability information for each Group company is not prepared. The Sustainability Report should be read in conjunction with the consolidated annual report of the Group and the annual reports of other Group companies. The Group‘s subsidiaries include a reference to the Ignitis Group‘s Sustainability Report in their annual reports.

The ESG Indicators Report, prepared in accordance with the Nasdaq ESG Reporting Guidelines and should be read in conjunction with the information contained in this report, can be found in the Sustainability section of our website.

The content of the report includes the latest information available at the time of publication, but it has not been formally audited.

The previous Group Sustainability Report, published on 26 February 2021, together with the consolidated Annual Report, and other information on the Group‘s sustainability management and activities are available on the Group’s website. If you have any questions concerning the content of the Sustainability Report or the Group‘s sustainability activities, please contact [email protected].

==> picture [233 x 232] intentionally omitted <==

==> picture [33 x 32] intentionally omitted <==

The report represents our progress regarding the implementation of UN Global Compact principles and SDGs

134 / 364

GRI 102-45 GRI 102-48

GRI 102-49 GRI 102-50 GRI 102-51

GRI 102-52

GRI 102-53

GRI 102-54 GRI 102-56

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

5 .2 Sustainability (Corporate Social Responsibility) report overview

==> picture [228 x 24] intentionally omitted <==

----- Start of picture text -----

About us
----- End of picture text -----

People first

3,884 employees at the Group.
28 .9% of the Group‘s employees are women.
The average age of employees is 44 .2 years.
47 .6% of the Group‘s employees have been with the Group for 10 years or more.
23 .5 training hours per employee.

Impact on our planet

736 thousand t CO2-eq[1] – direct (Scope 1) GHG emissions.
5,041 thousand t CO2-eq[1] – total GHG emissions.
107 .3 thousand t of waste (hazardous and non-hazardous) generated.
3,935 GWh of total energy consumed.
We used 9,432 m[3] of water in our activities.
2 .8 m[3] /kWh water use intensity in Group’s production.

Governing for sustainability

Electricity and gas distribution network servicing >99 .3% of the Lithuanian market.
The length of power lines is 126.8 thousand km, out of which underground lines – 42 thousand km.
The average duration of a new connection to the electricity grid is 37 calendar days.
Electricity SAIDI – 201 .95 minutes, SAIFI – 1 .45 times . Gas: 0 .47 minutes and 0 .01 times respectively.
1 .6 million business and residential customers in electricity and gas supply activities.
Around 70% of our goods and services are purchased in local markets.
In total, we paid 214m EUR in taxes in 2021 (in all countries where the Group operates).
1 Numbers for 2021 are based on preliminary data. At the time of writing, Bureau Veritas was in the process of verifying the GHG data. 2 (superscript) At the end of the reporting period.

==> picture [257 x 275] intentionally omitted <==

----- Start of picture text -----

In our vision, we transform for a more sustainable world
ENSURING
resilience and flexibility
GROWING
of the energy system
RENEWABLES
ENABLING
to meet regional
energy transition energy
and evolution commitments
CREATING
A SUSTAINABLE
FUTURE
Targeting Net Zero emissions
ESG principles driven
CAPTURING GROWTH
OPPORTUNITIES
and developing innovative solutions
to make life easier for the energy smart
----- End of picture text -----

#EnergySmart

==> picture [255 x 82] intentionally omitted <==

----- Start of picture text -----

4 5 27
business countries companies [2]
segments
----- End of picture text -----

Our activities contribute to the Sustainable Development Goals:

==> picture [35 x 34] intentionally omitted <==

==> picture [34 x 34] intentionally omitted <==

==> picture [35 x 34] intentionally omitted <==

The most important achievements in 2021
Future-fit employees and communities – The employee experience rate (eNPS) has improved by 1.4 pp to 57 .4% (compared to 2020).
The share of women in engineering and IT positions has reached 19% and 27% in management positions.
Ensuring occupational safety: no fatal accidents at work, TRIR of 2 .01.
We contributed towards creating benefits for society: created an opportunity for communities to receive financial support; launched a volunteering model for our employees.
Received highest acknowledgement for mainstreaming equal opportunities in the workplace.

Climate action and protection of natural resources

Installed capacity of Green Generation increased by 113 MW to 1,214 MW.
We installed 762 solar power plants (9 .7 MW in total) for business and private customers.
By contributing to public energy education, we helped customers save almost 134 GWh of energy.
We set science-based targets for reducing GHG emissions. We plan to reduce total emissions by 47% by 2030.
The Group‘s climate disclosures were rated 'B‘ by environmental disclosure organisation CDP.

Robust organisation

We invited suppliers to comply with the Supplier Code of Ethics; we have developed and are consistently applying green and social responsibility criteria in procurement.
The share of goods and services procured through green procurement was 24%.
Kruonis PSHP and CCGT successfully participated in the historic test between Lithuanian and Polish TSOs, during which part of the Lithuanian electricity system operated synchronously with the Polish system and with the synchronous area of continental Europe for the first time.
97 .3% of the Group‘s employees said they do not tolerate corruption. The Group was recognised for its transparency and anticorruption principles.
The EU Taxonomy eligible revenue reached 602 .9m EUR.
The Ignitis Innovation Fund invested 4 .1m EUR during the year.
We maintained the highest possible ‘A+’ rating in the Governance Coordination Centre‘s Governance Index.

135 / 364

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Our sustainability framework

Sustainability is at the core of the Group’s strategy and strategic plan. Ambition to lead the energy transition across the region towards an energy smart world requires strengthening of our ESG performance and accountability. Our sustainability management plan and a list of policies we follow are disclosed publicly. We publish ESG indicator data and sustainability highlight in interim and half-year reports while comprehensive ESG information is published in our Annual reports. Below is a high-level overview of our approach to ESG performance improvement.

==> picture [52 x 10] intentionally omitted <==

----- Start of picture text -----

Main topics
----- End of picture text -----

Governance and processes

==> picture [63 x 10] intentionally omitted <==

----- Start of picture text -----

Accountability
----- End of picture text -----

==> picture [70 x 43] intentionally omitted <==

==> picture [72 x 42] intentionally omitted <==

==> picture [143 x 16] intentionally omitted <==

We are committed to reduce net GHG emissions to zero by 2050. We seek to contribute directly to the implementation of the UN Global Compact, Sustainable Development Goals, and the Paris Agreement.

==> picture [95 x 27] intentionally omitted <==

==> picture [58 x 28] intentionally omitted <==

==> picture [50 x 28] intentionally omitted <==

We follow good corporate governance practices and seek to manage our impacts based on the recommendations of international institutions and the scientific community.

==> picture [37 x 37] intentionally omitted <==

==> picture [79 x 23] intentionally omitted <==

==> picture [28 x 28] intentionally omitted <==

==> picture [59 x 21] intentionally omitted <==

==> picture [80 x 16] intentionally omitted <==

We seek to disclose the Group’s progress by using globally recognised standards and formats suited to a broad range of stakeholder needs.

Measuring progress

We aim to benchmark our continuous improvement using ESG ratings provided by leading ESG ratings agencies and seek to improve our ESG ratings.[1]

Our current MSCI ESG rating of ‘AA’, increased from the baseline of ‘A’ in July 2021, places us among the industry leaders and significantly above the utility group average of ‘BBB’[2] . In December 2021, our Sustainalytics ESG Risk Rating score increased from 26.5 to 20.4, which ranks us among the top 12% performers in the utility group.

==> picture [456 x 72] intentionally omitted <==

----- Start of picture text -----

MSCI ESG index Sustainalytics ESG risk index
Status 2021: 'AA' Status 2021: Medium, 20.4
CCC B BBB A AA AAA Severe High Med Low Negligible
2021 2024 2021 2024
----- End of picture text -----

1 See MSCI disclaimer and Sustainalytics ESG Risk Rating Summary Report on our website.

2 MSCI ACWI index.

136 / 364

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Materiality assessment

We set 2022–2025 sustainability targets after taking into account the opinion of our stakeholders. Nearly 3,000 respondents shared their expectations regarding our sustainability.

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

5 .3 Sustainability at the Group

The main principles and commitments

Sustainability is a prerequisite for the Group‘s mission to create an energy smart world. The world needs energy to exist, and we aim to generate, distribute, supply and consume it sustainably. Our long-term strategy focuses on building a sustainable future. We aim to further increase the capacity of energy generation from renewable sources, ensure the reliability and flexibility of the energy system, promote changes and development of the energy system, and explore development opportunities.

The Group‘s updated Sustainability Policy, effective from 2020, reflects the key sustainability principles that we follow in our dayto-day operations:

We take into account economic, environmental and social aspects of our operations and strive to create value in a sustainable way by strengthening the synergies between financial and non-financial goals;
We seek to contribute directly to the United Nations Sustainable Development Goals, in particular, in the areas of sustainable energy development, climate action, promotion of innovation, sustainable growth and decent work;
Our commitment to net zero greenhouse gas emissions by 2050 contributes to the implementation of the European Green Deal and the Paris Agreement;
We promote rational and sustainable management and use of resources;
We promote responsible and efficient energy consumption, initiate and participate in the initiatives of other organisations which aim to increase energy efficiency and help achieve Lithuania‘s national energy savings targets;
We recognise the importance of full stakeholder engagement in shaping sustainable development actions and promote ethical, transparent and fair cooperation with customers, employees, shareholders, suppliers, communities, the media and other stakeholders based on principles of sustainability.

Sustainability Policy also emphasises our commitment to the ten principles of the Global Compact (UNGC), which we joined in 2016. This agreement – the generally accepted guidelines for responsible business conduct – is a clear guide for the development of responsible business. The control over the implementation of these principles and the management of the related risks are an integral part of the overall control and risk management of the Group companies.

==> picture [730 x 26] intentionally omitted <==

----- Start of picture text -----

Principle of the
Our commitment How we implement it
Global Compact
----- End of picture text -----

1	We support and respect internationally recognised human rights	Pages 173–174 of the Annual Report
2	We are commited not to be complicit in human rights abuses	Pages 173–174; 189–190 of the Annual Report
3	We guarantee freedom of association, including trade union membership, and recognise the right of workers to collective bargaining	Pages 169–170 of the Annual Report
4	We do not use forced or compulsory labour and seek to contribute to its elimination in an environment where we have infuence	Pages 169–170; 189–190 of the Annual Report
5	We do not use child labour and contribute to its elimination in an environment where we have infuence	Pages 169; 189–190 of the Annual Report
6	We do not tolerate any form of discrimination and contribute to its elimination in the work and professional environment where we have infuence	Pages173–174; 179 of the Annual Report
7	We apply preventive measures in order to ensure the protection of the environment	Pages 146–152; 155–160 of the Annual Report
8	We undertake initiatives to increase environmental responsibility where we have infuence	Pages 146–152; 158–160146–152; 158–160 of the Annual Report
9	We encourage the development and wide application of environmentally friendly technologies	Pages 151; 191 of the Annual Report
10	We create an environment which has zero tolerance for corruption and we fght all forms of corruption, including bribery, graf and trading in infuence	Pages 182–183 of the Annual Report

138 / 364

GRI 102-16

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Sustainability directions and programmes in 2022–2025

Based on the results of the strategic materiality assessment, we refined the Group‘s sustainability objectives, thus strengthening our commitment to sustainability and ensuring that our priorities are in line with business objectives and stakeholder expectations.

==> picture [730 x 21] intentionally omitted <==

----- Start of picture text -----

UN Sustainabile
Sustainability pillar Sustainability programme 2025 strategic milestones and goals 2020 2021
Development Goal
----- End of picture text -----

		Expanding Green Generation Reach2 0–2 2 GWinstalled green generation capacity ≥34%share of women in top management5 ≥95%corruption intolerance among employees6 ≥70%sustainable adjusted EBITDA share7 Decarbonising operations & living 23%GHG emissions reduction (vs. 2020)1 5.37m t CO2-eq 1.1 GW n/a n/a 0; 0.45 56.0% 28% 96% 70% (171 EURm) 5.04m t CO2-eq8 1.2 GW n/a n/a 0; 2.01 57.4% 27% 97% 64% (212 EURm) Adopting circularity Each business segmentto implement at least one circularity transformation2 Preserving ecosystems & biodiversity Increasing safety at work Growing a diverse and inclusive organisation Running transparent and ethical operations Ensuring operational resilience and sustainable value creation Net gainin biodiversity3 ≥50%net share of employees promoting the Group as an employer (eNPS) 0employee and contractor fatalities and employee TRIR4 <1 90 Cultivating a collaborative & nurturing workplace
Environmental	Climate action	Expanding Green Generation Reach2 0–2 2 GWinstalled green generation capacity 1.1 GW 1.2 GW
		Decarbonising operations & living 23%GHG emissions reduction (vs. 2020)1 5.37m t CO2-eq n/a 5.04m t CO2-eq8 n/a Adopting circularity Each business segmentto implement at least one circularity transformation2
	Preserving natural resources
		n/a 0; 0.45 n/a 0; 2.01 Preserving ecosystems & biodiversity Increasing safety at work Net gainin biodiversity3 0employee and contractor fatalities and employee TRIR4 <1 90

Social	Future-ft employees and communities
		56.0% 57.4% ≥50%net share of employees promoting the Group as an employer (eNPS) Cultivating a collaborative & nurturing workplace
		≥34%share of women in top management5 ≥95%corruption intolerance among employees6 28% 96% 27% 97% Growing a diverse and inclusive organisation Running transparent and ethical operations

Governance	Robust organisation
		≥70%sustainable adjusted EBITDA share7 70% (171 EURm) 64% (212 EURm) Ensuring operational resilience and sustainable value creation

1Including scope 1,2,3 and biogenic emissions. 2020 value is the baseline for the validated science-based 2030 targets. 2 Four business segments, for each: at least one significant initiative involving significant resource use reduction, reuse or recycling. 3Involving first, an assessment of total biodiversity impact, and second, coordination with environmental experts to create a positive impact on biodiversity (restore, compensate natural habitat and species loss).[4] Total recordable injury rate: Total recordable injuries x 1 million hours worked divided by all hours worked during the reporting period. After implementing contractor TRIR monitoring we plan to set targets that also cover contractors.[5] Includes boards, general managers and 1st management level below them. Excludes double-counting (when same person holds more than one top management position in the same company).[6] Based on an annual employee survey question about how likely employees are to report potential corruption if they see it. Lithuania‘s public sector average 19% (2020).[7] Sustainable activity as defined by the EU Taxonomy draft version 2021.12.31.[8] Based on preliminary data. At the time of writing, Bureau Veritas was in the process of verifying the GHG data.

139 / 364

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Stakeholder relations

Stakeholder engagement is critical to ensuring that the Group responds proactively to new trends, issues and opportunities.

The geographical and operational scope of the Group is expanding, therefore, when applying ESG principles in our relations with stakeholders, which are set out in our Sustainability Policy,, we aim to manage their expectations effectively, take their interests into account as well as look for opportunities, where our cooperation could increase the positive impact on sustainable development.

Sustainability is coordinated centrally at the Group level and is integrated into our day-to-day operations. Representatives are appointed within the Group to assume the proper management of the expectations of the relevant stakeholders and to present them to the Management Board.

The content of the report is based on an analysis of the views, opinions and expectations of key stakeholders and after taking into account the current business objectives set out in the Group‘s strategy and strategic plan. The report provides key information that is relevant to stakeholders in assessing the Group‘s operations or making decisions related to the Group.

Detailed information on stakeholder engagement can be found in the Sustainability section of our website.

Key stakeholders of the Group

==> picture [332 x 283] intentionally omitted <==

----- Start of picture text -----

Private customers
Business customers
Suppliers,
Employees contractors
Investors, State and municipal
shareholders institutions
Communities
The media
Associations,
non-governmental
Partners
organisations
----- End of picture text -----

140 / 364

GRI 102-21

GRI 102-40

GRI 102-43

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Main environmental, social and economic (governance) impacts

In 2021, the Group and its major subsidiaries performed a strategic materiality assessment, during which we conducted in-depth surveys, held discussions with focus groups, and conducted interviews with key stakeholders of the Group identified by company executives and other experts.

The materiality assessment clarified the Group‘s key ESG impacts based on the views of stakeholders, i.e., what is important to stakeholders in respect of the Group. In response to the main impacts of the Group‘s operations on its external environment, further strategic sustainability priorities of the Group have been refined. More information on the process and results can be found on the Group’s website.

Key materiality assessment facts:

Almost 3,000 stakeholders of the Group were interviewed;
We have identified 19 thematic ESG aspects that are of most relevance to the Group and its stakeholders;
Stakeholders shared their views on which ESG aspects should be important to the Group companies;
During internal strategic sessions, the managers of each company explored and refined the links between the expressed expectations of the stakeholders and business strategy.

The result of the materiality assessment – the materiality matrix – is presented below. Its vertical axis reflects the views of stakeholders on the significance of different ESG aspects to the Group. The horizontal axis presents ESG aspects in terms of their relative impact and importance to the Group‘s key strategic objectives. The full matrix summarises the most relevant aspects of sustainability for the company and provides a roadmap to help create the greatest positive impact for both the company and its stakeholders. Compared to the 2020 materiality matrix, the key ESG aspects refined in 2021 with the help of stakeholders have not changed, but their relevance to each stakeholder and the Group‘s strategy has been fine-tuned.

Materiality matrix

==> picture [472 x 365] intentionally omitted <==

----- Start of picture text -----

Ethical business, anti-corruption
Health & safety and transparency
of employees
and contractors
Climate impact and
GHG emissions
Energy system
Impact on soil, water resilience and security
and air quality
Competent employees now
Local community welfare and in the future
and relations
Sustainable solutions
and services for clients
Impact on biodiversity
Using secondary raw materials, and ecosystems
reducing waste
Employee welfare, adequate
remuneration, cooperation
More sustainable internal
energy consumption
Energy efficiency for
the public and customers
Access to energy
Responsibility and sustainability Diverting waste from landfills,
in the supply chain promoting circular economy
Sustainable financial
instruments
Diversity, equal
opportunity, human rights
Engagement in
social activities
MEDIUM Relevance to company’s strategy HIGH
VERY HIGH
Relevance to stakeholders
MEDIUM
----- End of picture text -----

Detailed information on stakeholder engagement can be found in the Sustainability section of our website.

Environmental Social responsibility Governance topic topic topic

141 / 364

GRI 102-15

GRI 102-29

GRI 102-42 GRI 102-44 GRI 102-46 GRI 102-47

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Sustainability governance at the Group

The Group has a two-tier governance structure consisting of a Supervisory Board and the Management Board. Sustainability is coordinated centrally at the Group level through a separate Sustainability Function, which reports directly to the CEO of the parent company. The Group Management Board makes decisions on the formulation, approval and updating of the organisation‘s strategic guidelines, policies and activities. The Supervisory

Board supervises the activities of the Management Board and the CEO of the Group. The Management Board‘s effectiveness in managing ESG topics is measured based on the achievement of long-term strategic and annual objectives. The remuneration of top-level executives is directly linked to the achievement of pre-set sustainability targets (as part of the variable remuneration component) (for more details, see section ‘Remuneration Report’).

The following diagram provides a concise overview of sustainability governance within the Group. For more information on the functions of collegial bodies, see the 'Governance report' section.

ADVISORY FUNCTION

==> picture [289 x 29] intentionally omitted <==

----- Start of picture text -----

Supervisory Board
----- End of picture text -----

Considers and approves the business strategy, annual budget and investment policy of the parent company and the Group, analyses and evaluates information on the implementation of the business strategy.

Nomination and Remuneration Risk Management and Business Ethics Committee Supervision Committee
– Provides conclusions or proposals – Monitors the risks associated with the concerning the appointment, objectives pursued, their identification, removal or promotion of members of assessment and management. management and supervisory bodies – Evaluates internal anti-bribery and antiof the Group companies. corruption documents and monitors
– Evaluates the structure, size, compliance with them. composition and activities of – Monitors information related to ethical company management and conduct of business, monitors compliance supervisory bodies. with the provisions of the Environmental
– Forms a general remuneration policy. Policy and the Code of Ethics.
Forms a general remuneration policy.

Management Board of the parent company

Sustainable Development Committee

Responsible for the execution of the integrated business strategy, approves the strategic plan.
Approves the annual Sustainability Report.
Approves sustainability and related policies as well as their updates.
Approves annual sustainability goals for companies.
Approves GHG reduction targets and oversees the GHG management plan.
Proposes a common vision for the Group‘s sustainability.
Provides recommendations on green bond financing and project status reports.
Provides an annual report to the Management Board on the implementation of the Sustainability Policy.
Evaluates and monitors the Group‘s key ESG risks, including climate-related.
Appoints members of the Sustainable Development Committee.

Sustainability function

Companies

Ensures the implementation of the Sustainability Policy, advises the Group companies and functions on sustainability issues.
Coordinates the sustainability activities of the Group companies.
Incorporate sustainability goals into their own and their subsidiaries’ long-term and annual plans.
Propose candidates for the Sustainable Development Committee (approved by the parent company‘s Management Board).
Consolidates the sustainability data of the Group companies.

142 / 364

GRI 102-18

GRI 102-19

GRI 102-20

GRI 102-26

GRI 102-27

GRI 102-29 GRI 102-32

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

All Group policies apply equally to all Group companies. The sustainability policies and standards mentioned in this report are made public and can be found on the Group‘s website.

Documents	Purpose
Policies Sustainability Policy	Establishes shared sustainability principles of the Group and their implementation measures at the Group, which shape the culture and practice of responsible and sustainable business development.
Environmental Policy	Defnes general environmental provisions and principles of the Group.
Code of Ethics	Defnes the principles and standards of business ethics the Group adheres to and the behaviour it expects from its employees and partners in their daily work.
Supplier Code of Ethics	Refects the Group's commitment to strengthening sustainable collaboration with suppliers by promoting legal, professional and fair business practices that incorporate environmental, social responsibility and business ethics objectives.
Anti-Corruption Policy	The Group strives to ensure that its operations and conduct meet the highest widely accepted standards of reliability, integrity, transparency and business ethics. The purpose of the Anti-Corruption Policy and the anti-corruption management system implemented at the Group is to enable timely identifcation of corruption risks arising in business processes and, afer assessing them, to select proportionate and efective control measures to reduce identifed and unacceptable corruption risks.
Zero Tolerance for Accidents at Work Policy	Forms the main safety and health principles applied at the Group and the areas of their implementation in order to ensure that the culture of occupational safety and health is a part of the work of all employees of the Group.
Equal Opportunity and Diversity Policy Standards	Regulates the principles of promotion, implementation and enforcement of equal opportunity and diversity and the main measures for the implementation of these principles at the Group.
Environmental management system	Group companies ESO and Ignitis Gamyba maintain the environmental standard ISO 14001:2015. The globally recognised certifcate states that companies comply with the essential requirements for the identifcation, monitoring, management and improvement of
ISO 14001:2015	environmental aspects. In 2021 Ignitis implemented this standard for activities related to the provision of services to business (B2B)
	customers. ISO 14001 certifed activities account for 62% of Group revenue.
	The Group strives to fully ensure the safety and health of its employees, with a special focus on working conditions and the quality
Occupational health and safety management system	of the working environment. The ISO 45001:2018 standard has been implement-ed in the following Group companies: ESO, Ignitis
ISO 45001:2018	Gamyba, Ignitis Grupės Paslaugų Centras, and Ignitis (for activities related to the provision of services to business (B2B) customers).
	87% of the Group's employees work in operations certifed to recognised occupational safety and health standards.
	To ensure compliance of the activities and processes of the Group companies with the General Data Protection Regulation, Ignitis
Information security management system	Grupės Paslaugų Centras, which provides information security services to the entire Group, is ISO 27001:2017 standard certifed. This
ISO 27001:2017	ensures high-quality and secure information management, enables the implementation of security measures in line with global best
	practices and the management of information security risks.
Anti-corruption management system	The standard of the anti-corruption management system allows to systematically reduce the risk of corruption at the company and
ISO 37001:2016	helps implement various anti-corruption measures as well as detect possible mani-festations of corruption.
Quality management system	The Group company Ignitis has received a quality management certifcate for activities related to the provision of services to business
ISO 9001:2015	(B2B) customers.

143 / 364

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

5 .4 Climate action

==> picture [49 x 50] intentionally omitted <==

==> picture [460 x 48] intentionally omitted <==

Main indicators

==> picture [729 x 292] intentionally omitted <==

----- Start of picture text -----

Change
Indicator Unit 2021 2020 2019 Comments
(2020/2021)
GHG emissions
Direct (Scope 1) emissions 736 767 233 (4.0%) 1In order to ensure complete disclosure of emissions,
we present biogenic emissions from renewable
energy sources separately (CO2 emissions from
Indirect (Scope 2) emissions 529 579 510 (8.6%) combustion of biofuels and the biodegradable
fraction of waste).
Thousand
Other indirect (Scope 3) emissions t CO2-eq 3,546 3,899 3,083 (9.1%) Numbers for 2021 are based on preliminary data. At the time of writing, Bureau Veritas was in the process
Total 4,811 5,245 3,659 (8.3%) of verifying the GHG data. The data for 2020 has
been recalculated following a revision of the grid loss
emissions calculation methodology (using a market-
Emissions outside the specified scopes (biogenic origin) [1] 230 122 59 88.5% based approach instead of location-based).
GHG emissions intensity
Emissions (all scopes) per full-time equivalent (FTE) t CO2-eq/FTE 1,244 1,375 1,035 (9.5%)
Emissions (all scopes) per unit of revenue t CO2-eq/EURm 2,545 4,289 3,507 (40.7%)
Emissions from electricity and heat production per kWh produced g CO2-eq/kWh 158 185 17 (14.6%)
Amount of energy produced and sold
Electricity 2,299 2,452 1,056 (6.2%)
From renewable energy sources GWh 1,475 1,251 1,033 18.0%
Heat 853 325 86 162.5%
----- End of picture text -----

144 / 364

GRI 305-1

GRI 305-2

GRI 305-3

GRI 305-4

GRI 305-5

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

==> picture [729 x 348] intentionally omitted <==

----- Start of picture text -----

Change
Indicator Unit 2021 2020 2019 Comments
(2020/2021)
Energy consumption in the organisation
Direct fuel use, of which [1] 2,894 3,139 296 (7.8%) 1 Adjusted and updated numbers for 2020 and 2019.
Natural gas 1,711 2,547 114 (32.8%) 2Energy produced and consumed in Kaunas HPP.
Gasoline 2 2 3 0%
Diesel 20 19 21 5.3% 3Some of the waste is of biogenic origin. Adjusted
and updated numbers for 2020.
Biomass 147 138 154 6.5%
Water [2] GWh 4 3 4 33.3% 4The target established in the Group Strategic Plan is
2.0–2.2 GW.
Waste (renewable) [3] 426 185 n/d 130.3%
Waste (non-renewable) [1] 584 245 n/d 138.4%
Energy consumed indirectly, of which 1,041 1,114 864 6.6%
Electricity 1,032 1,108 859 6.9%
Heat 9 6 5 50.0%
Renewable energy consumed directly % 20 10 53 10 pp
Energy consumed to produce 1 MWh of energy GJ/MWh 4.1 4.3 2.7 (4.7%)
Green Generation installed capacity [4] GW 1.2 1.1 1.1 9.1%
Other indicators
0.108 GWh 5The target established in the Group Strategic Plan is
(savings Achievement in 240.
Accumulated energy savings for final consumers GWh effect for 2017–2020 -
2030 – 1,589.54 GWh
1.937 GWh)
Savings in energy supplied to customers, share of total energy
% 1 1 1 0 pp
supplied
Electric vehicle charging stations [5] Unit 82 82 58 0%
----- End of picture text -----

145 / 364

GRI 302-1

GRI 302-3

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Why this is relevant to us

Climate change is one of the greatest challenges facing humanity in this century, and the actions of everyone – states, businesses and non-governmental organisations, society – are important. Although energy is the engine of the economy, its production accounts for a significant share of GHG emissions. Therefore, the transformation and decarbonisation of the energy sector are prerequisites for the implementation of the Paris Agreement and for limiting the average global temperature increase to 1.5 °C compared to the pre-industrial revolution. Energy is a key sector in the European Union‘s policy to achieve climate neutrality by 2050.

Being aware of the threats posed by climate change and taking a responsible approach to reducing GHG emissions, Ignitis Group joined the Business Ambition for 1.5 °C of the United Nations and other international organisations in December 2019, and thus committed itself to achieving net zero emissions by 2050 and to setting intermediate emission reduction targets. Reaching net zero means maintaining a balance between emissions emitted to and emissions removed from the atmosphere. We will reach this balance when the emissions emitted by us do not exceed the emissions removed.

We are one of the leaders in green energy: we do not operate coal-fired or nuclear power plants, we consistently increase the Green Generation capacity and the volume of generated green energy in both electricity and heat production. Our business strategy is based on the development of onshore and offshore wind, waste-to-energy, biofuel and solar energy technologies at all stages of the project. We also maintain significant hydropower capacity in Lithuania.

==> picture [237 x 38] intentionally omitted <==

----- Start of picture text -----

Read more about climate-related risks in section
‘Risk Management .’
----- End of picture text -----

==> picture [236 x 80] intentionally omitted <==

----- Start of picture text -----

Climate-related targets 2030
47% 4 GW
reduction of GHG emissions Green Generation
compared to 2020 installed capacity
----- End of picture text -----

==> picture [46 x 46] intentionally omitted <==

Ignitis Group is committed to achieving net zero emissions by 2050.

Reduction of GHG emissions

==> picture [536 x 114] intentionally omitted <==

----- Start of picture text -----

2021 2030
We committed Emission
to setting emission reduction targets GHG GHG NET
reduction targets were approved
-23% -47% ZERO
2019 2025 2050
----- End of picture text -----

==> picture [35 x 56] intentionally omitted <==

146 / 364

GRI 201-2

GRI 103-1/2/3

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Reduction of GHG emissions

==> picture [93 x 70] intentionally omitted <==

==> picture [255 x 48] intentionally omitted <==

In November 2021, the Science Based Targets Initiative (SBTi) approved ambitious Ignitis Group‘s GHG reduction targets. We are the first Lithuanian capital organisation and one of about a thousand organisations worldwide which have its GHG reduction targets approved by this initiative of the largest global organisations fighting climate change. After assessing targets of Ignitis Group, the SBTi confirmed that they are in line with the latest science-based recommendations on actions which should keep global warming below 1.5 °C compared to pre-industrial levels. According to scientists, this threshold should not be crossed in order to avoid catastrophic natural disasters, adversely affecting the health and wealth of the population.

Ignitis Group‘s GHG emissions in 2030 will have to be 47% lower than in 2020. Emission reduction targets cover both direct and indirect GHG emissions from our operations – we are committed to reducing emissions in all three GHG emissions scopes:

we commit to reduce scope 1 GHG emissions from electricity and heat generation by 94% per MWh by 2030 from a 2020 baseline;[1]
we commit to reduce scope 1 and 3 GHG emissions from all electricity and heat sold by 90% per MWh by 2030;
we commit to reduce absolute scope 1 and 2 GHG emissions from all other sources by 42% and reduce absolute scope 3 GHG emissions from use of sold products by 25% within the same timeframe.

The target boundary is at least 94% of the Scope 1, Scope 2 and Scope 3. You can find more information about Ignitis Group‘s emissions and targets in the “Sustainability” section of the Group‘s website.

We will halve emissions by 2030 based on science-based targets

==> picture [358 x 188] intentionally omitted <==

----- Start of picture text -----

Target pathway
6
5
47%
4
3
Remaining reduction
towards net zero
2
1
0
2020 2030 2040 2050
Ignitis Group target by 2030 1.5˚C scenario Net zero by 2050
----- End of picture text -----

==> picture [358 x 253] intentionally omitted <==

----- Start of picture text -----

2030 target
Target scope 2020 2021 (change vs . 2020) Emissions scope
GHG emissions 237 g CO₂ 233 g CO₂ 15 g CO₂ eq/kWh Scope 1 (stationary combustion) +
intensity from power generation eq/kWh eq/kWh (-94%) biogenic emissions
GHG emissions Scope 1 (stationary
intensity from 255 g CO₂ 242 g CO₂ 27 g CO₂ eq/kWh combustion) + Scope
power generation eq/kWh eq/kWh (-90%) 3 (sold electricity)
and sold electricity
GHG emissions not
related to power 0.59m t 0.55m t 0 .34m t CO₂-eq Scope 1 + Scope 2
generation CO2-eq CO2-eq (-42%)
GHG emissions 2.08m t 1.62m t 1 .5m t CO₂-eq Scope 3 (use of
from use of sold products CO2-eq CO2-eq (-25%) natural gas sold to end-users)
----- End of picture text -----

1The target boundary includes biogenic emissions and removals from bioenergy feedstocks.

147 / 364

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

How will we reduce our impact on the climate?

It is expected that part of the Group‘s direct GHG emissions (Scope 1) will depend on energy generation volumes in the Elektrėnai complex (mainly CCGT) as well as operations of Kaunas and Vilnius CHPs, indirect emissions (Scope 2) will depend on electricity consumption (mainly by Kruonis PSHP), while other indirect emissions (Scope 3) – on gas and electricity sales volumes and prices.

In pursuit of its targets, Ignitis Group will reduce the emissions from its operations and will endeavour to engage its partners, suppliers and customers in the process. The foreseen emission reduction measures include growing green generation capacity, increasing the share of green electricity in internal operations and in customer sales, promoting the customer transition from natural gas to electricity, reducing natural gas distribution network losses, upgrading its vehicle fleet with electric vehicles, etc.

The main measures for achieving the emission reduction targets of Ignitis Group

==> picture [730 x 109] intentionally omitted <==

----- Start of picture text -----

Increasing green Increasing share of Increasing share of Optimising Natural gas Customer transition
electricity generation green electricity sold to green electricity consumption of grid loss from gas
capacity customers usage resources reduction to electricity
----- End of picture text -----

Promoting energy efficiency

We aim to contribute to reducing the impact on climate change by enabling our customers to use energy more efficiently and by educating them about energy efficiency. Therefore, we endeavour to educate the public about energy efficiency while the Group companies are successfully implementing energy saving and consumer education and consulting agreements with the Ministry of Energy and contributing to the achievement of Lithuania‘s targets. In the period of 2014–2020, Lithuania‘s target was to save 11.7 TWh of energy, and in the period of 2021–2030 the target is to save 27.28 TWh. Information on the contribution of the Group companies is provided in the table below.

Through consumer education and counselling agreements, we present energy efficiency measures and success stories through a variety of channels and formats, engage communities and share practices, conduct research, and develop benchmarking solutions allowing to analyse consumer consumption patterns in self-service and billing.

More information on the agreements and their objectives is available on the Group‘s website: energy saving (link in Lithuanian), consumer education (link in Lithuanian).

Energy savings achievements of Group companies*

==> picture [730 x 23] intentionally omitted <==

----- Start of picture text -----

Achievement in 2017–2020 Achievement in 2021 Target for 2022 Target for 2022–2025
----- End of picture text -----

		0.108 GWh
Network energy savings (ESO)	1,589.54 GWh	(savings efect for	5.3 GWh**	473.4 GWh**
		2030 – 1.937 GWh)**
Energy savings through consumer education (ESO, Ignitis, Ignitis Gamyba)	122.96 GWh (2020)	133.987 GWh	At least 1% of	the energy supplied to fnal customers by business customers.

* Information on energy savings in the implementation of agreements is provided in accordance with Article 7 (Energy Saving) and Article 8 (Consumer Education and Consulting) of the Republic of Lithuania Law on Improving Energy Efficiency is provided. The table shows the amount of energy saved in 2021, which was calculated and submitted to the Lithuanian Energy Agency for validation by the Group companies. At the time of issuing this report, the validation findings have not yet been received. ** The figures include not only the effect of the measures implemented that year, but also the continuing effect these implemented measures will create by 2030.

148 / 364

GRI 103-1/2/3

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Key changes and achievements in the field of energy efficiency in 2021

Energy efficiency and sustainability solutions for customers

– ESO has signed a smart metering infrastructure procurement contract with a French company Sagemcom Energy and Telecom SAS. Under the contract, about 1.2 million new-generation smart electricity meters and system data management and communication solutions will be acquired and installed by 2025. Smart meters will enable end customers to monitor their electricity consumption and use energy more efficiently.

Smart meter roll-out, millions

==> picture [176 x 66] intentionally omitted <==

----- Start of picture text -----

1.1–1.2
Start rollout
2022 2023 2024 2025
----- End of picture text -----

– We implemented ESCO projects. One of them is a lighting modernisation project implemented by Ignitis in cooperation with the State Border Guard Service. Lighting modernised during the project: 1,739 old luminaires were replaced with LED luminaires. This will help reduce electricity consumption by almost 3 times, i.e., approximately 525 MWh per year.

– In order to encourage customers to use energy more efficiently, we have included energy saving advice, a comparative analysis of energy consumption in different municipalities and other relevant information in the electricity and gas invoices sent to consumers. Information is also available on the self-service platform.

– In cooperation with the Alliance of Lithuanian Consumer Organisations, we have included in the invoices the information on where people at risk of energy poverty can get help.

– We have signed an agreement with the Lithuanian Confederation of Industrialists on educating companies on energy efficiency. The main purpose of the agreement is to consult and educate companies on energy efficiency trends and opportunities, and to implement a pilot project to develop a training course for company managers in order

to ensure that energy efficiency goals and measures are integrated into companies‘ strategies.

– We have enabled Ignitis customers to choose gas supply together with the CO2 offset service and, thus, invest in the development of sustainable projects. CO2 neutralisation or In September, Ignitis helped the first business customers offsetting takes place using authorised CO2 reduction credits. offset 453 tonnes of CO2-eq. More information is available on our website (link in Lithuanian).

– We have prepared information with Ignitis tips that analyse how and why it is important to use electricity efficiently: we shared information on what an energy efficient company is, what measures would help to become an even more efficient one, why this topic is relevant and important for any company. In 2021, 131 consultations were provided on measures to increase energy efficiency (discussion on energy efficiency and information sharing). We also held meetings on the presentation and possible application of energy efficiency measures developed by Ignitis (presenting solutions for ESCO lighting, solar power plants and electric charging stations, motivating to choose electric vehicles as a less polluting vehicle). During the meetings, we provided companies with tailored proposals and calculations of how much a particular solution would save energy and costs: 192 meetings on solar solutions with 141 customers; 52 meetings on electric charging stations with 45 customers; 32 meetings on ESCO lighting with 24 customers.

==> picture [312 x 331] intentionally omitted <==

– Ignitis has started offering personal consultations on GHG emissions issues to business customers: a questionnaire is provided and, after completing it, the customer receives a report that easily, quickly and comprehensibly helps the customer to see the company‘s energy emissions. Such advice helps customers understand the environmental impact of the resources they use and encourages businesses to make more sustainable decisions. Ignitis helps implement those decisions.

149 / 364

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

More efficient use of energy in our activities

ESO has implemented solutions that increase the efficiency of water (sensory mixers installed in 3 buildings) and electricity (modernisation of lighting systems in 5 buildings) consumption. Energy savings after installation – 82.656 MWh (in 7 months).
We conducted internal energy audits of Ignitis Gamyba, Ignitis and ESO. The implementation of the audits’ recommendations will contribute to a more efficient implementation of our own energy consumption and GHG emissions reduction targets.

– We gave up most of the energy-inefficient office space in Vilnius and moved to an ‘A+’ energy efficiency class building complex, which houses 1,050 employees of various Group companies. The building is equipped with automatic lighting and microclimate control systems that allow optimal use of energy resources.

– We organised efficient driving courses (theory) for employees: 492 ESO employees with an assigned vehicle to perform their function and about 300 employees of the Group participated in the training. According to the impact of the measure assessed in the energy audit report, efficient driving rates should lead to savings of up to 31,183.8 l of fuel (315,341.24 kWh) per year, i.e., up to 2,598.6 l of diesel (26,278.44 kWh) per month.

Reduction of energy distribution losses

One of the main factors influencing ESO‘s, the distribution system operator’s, GHG emissions is distribution losses. Distribution losses occur both directly (in transformers, power lines, substations and other network elements) and indirectly (e.g., due to ice on power lines or incorrect declaration of electricity consumption by consumers). Investment plans and the organisation‘s long-term strategy, as well as annual budgets, set distribution loss reduction targets as key performance indicators. In order to achieve them, ESO:

draws up long-term (up to 10 years) and short-term (1 year) distribution loss management plans;
monitors actual losses on a monthly basis;
implements plans for measures to reduce distribution losses and monitors quarterly implementation with reporting to managers;
continuously modernises the network, including the development of software solutions and the installation of smart meters;
encourages the use a Trust Line for citizens in order to report suspected energy theft;
incorporates objectives into the operations of many business units, such as the allocation of human, financial, technological and other resources to reduce the rate of distribution losses.

Distribution loss trend, %

==> picture [191 x 105] intentionally omitted <==

----- Start of picture text -----

6.29
5.81
5.22
2.17 2.19
1.77
2019 2020 2021
Electricity Gas
----- End of picture text -----*

Indicator updated compared to the 2020 report.

==> picture [295 x 272] intentionally omitted <==

150 / 364

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Innovation projects

Ignitis Group‘s innovation projects and partnerships with educational institutions and research organisations to find and bring to market solutions for reducing emissions, improving energy efficiency and removing emissions from the atmosphere will play a key role in achieving emissions reduction. We are looking for solutions that help streamline our activities and services, reduce our energy consumption and our impact on the environment. Solutions under consideration / development include:

following the successful development of the remote solar project, we are considering to promote prosumer participation in remote wind projects;
we are considering the possibility of blending green hydrogen with gas and supplying it to consumers;
Ignitis is developing a mobile application that will provide will provide consumers with information on energy consumption at home, promote more efficient energy use and, in turn, reduce GHG emissions;
energy storage solutions for consumers who want to avoid network renovation costs after installing renewable energy power plants are under development;
a solar energy potential calculator is under development, which will allow consumers to assess the possibility of installing their own solar power plant;
the possibilities of creating conditions for the installation of solar power plants on the roofs of apartment buildings are being examined.

More information about Ignitis Group‘s research and development projects can be found on the Ignitis Innovation Hub website.

Development of energy generation from renewable sources

The strategic direction of Ignitis Group‘s Green Generation segment includes energy generation using wind, water, solar, biomass and waste – a consistent capacity development and implementation of new projects not only in Lithuania, but also in the surrounding countries.

By diversifying its energy generation sources, the Group increases energy independence, promotes the use of renewable resources and contributes to tackling climate change and achieving sustainable development goals. Increasing Green Generation capacity is crucial for achieving our goal of net zero emissions by 2050.

On average, only ~31% of electricity consumption in 2018–2020 was generated domestically (35% in the first half of 2021). The small amount of domestically generated electricity increases the need to develop renewable energy generation capacities in Lithuania. The Baltic States and Poland have adopted energy strategies that support the targeted growth of electricity production from renewable sources.

Several Group companies are implementing Green Generation projects in the Baltic States and Poland. The development of the Green Generation segment and the results for 2021 are described in more detail in the sections ‘Business overview’ and ‘Business results’ of the annual report. The key achievements in expanding green energy generation and consumption are also described below in this report.

During the period of the strategic plan for 2022–2025, we are planning to invest EUR 800–1,000 million in the Green Generation segment in order to complete the ongoing construction projects, start new ones and reach 2.0–2.2 GW of installed capacity by 2025. This represents as much as 50% of the Group‘s total investments for this period.

By 2030, the Group intends to increase its installed Green Generation capacity to 4 GW. This will be done through the development of onshore and offshore wind, solar and other green energy generation projects. You can read more about the Group‘s plans in this area in the Group‘s Strategic Plan.

Improving our climate disclosures

As per our Sustainability Management Plan, we aim to diligently improve our climate disclosures. Therefore, in 2021:

B CDP score

we have joined the official list of organisations supporting the Task Force on Climate-Related Financial Disclosures (TCFD) and have taken the first step towards implementing the TCFD recommendations by initiating an expert analysis of our climate-related disclosures. We expect TCFD recommendations to implement climate change disclosures in 2022;

==> picture [72 x 26] intentionally omitted <==

For the first time, we completed the CDP climate change questionnaire, which assesses the impact of companies on the climate in terms of corporate governance, strategy, risks, opportunities and GHG reduction targets. Our final rating is ‘B’ (on a scale from ‘D-‘ to ‘A’).

151 / 364

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Key changes and achievements of 2021 in expanding the generation and consumption of green energy

Development of Green Generation

We increased the installed capacity of the Green Generation segment by 113 MW when the Vilnius CHP waste-to-energy unit started commercial operations in March.

==> picture [198 x 73] intentionally omitted <==

----- Start of picture text -----

Green Generation installed capacity, GW 2.2
1.07 1.1 1.2
2019 2020 2021 2025
----- End of picture text -----

We acquired three early-stage wind farm projects in Latvia with a total capacity of approximately 160 MW and two projects in Poland: a wind farm in Silesia (50 MW) and a solar portfolio II (up to 80 MW).
We performed the installation of the infrastructure of the Mažeikiai wind farm (63 MW).
In December, Ignitis Group company Pomerania Wind Farm Sp. z o.o. was issued a generation licence, allowing the Pomerania WF (94 MW) to start commercial operations and generate electricity.
We have launched a consolidation project for the Group‘s renewable energy companies, which will ensure a more competitive, flexible and efficient implementation of Green Generation projects, strengthen Ignitis renewables‘ financial capacity and expand competencies in this area.

Clean energy solutions for customers

We have increased the number of customers of remote solar parks (link in Lithuanian) by 85% compared to 2020. The sold capacity of solar parks grew by 128%. The fact that we have also started providing the service to legal entities that purchase solar power plants with an average capacity of 70 kW has also contributed to this. The largest producer of the platform is Ignitis Gamyba, which has a total capacity of 5.6 MW of solar power plants, followed by Saulės Grąža (3 MW) and Egrupė (1.6 MW).
Ignitis maintained a large market share of prosumers, which by the end of 2021 was 12–13%. During 2021, Ignitis installed 762 solar power plants for its customers with a total capacity of almost 9.7 MW. Sales of solar power plants increased by 31% compared to 2020.
We have installed one of the largest solar power plants of this type in the Baltic region on the roofs of the Bauwerk Group Lietuva factory buildings. It is estimated that the 2.1 MW power plant will meet about 6% of the company‘s annual electricity demand.

==> picture [463 x 125] intentionally omitted <==

----- Start of picture text -----

Remote solar parks development, 2019–2021 – At the end of 2021, 35% of independent electricity supply
9,000 customers (residents) had opted for green energy. Of the
total electricity supplied in 2021, in independent supply
activities, green energy accounted for 47%. During the same
period, 69.3% of Ignitis business customers chose green
energy (in 2020, it was only slightly more than 60% of them).
3,953
–
1,831 GWh of green energy was supplied. Customers who
970 1,800 choose green energy receive Ignitis certificates that prove
878.1 this. In such a case, 100% of the electricity supplied to the
258 customer is covered by a so-called guarantee of origin,
2019 2020 2021 a document proving that the electricity that was actually
consumed was generated from renewable energy sources.
kW Units
----- End of picture text -----

At the end of 2021, 35% of independent electricity supply customers (residents) had opted for green energy. Of the total electricity supplied in 2021, in independent supply activities, green energy accounted for 47%. During the same period, 69.3% of Ignitis business customers chose green energy (in 2020, it was only slightly more than 60% of them).
We have strengthened our partnership with the leading European mobility platform Bolt. Its electric scooters will be operate in the Baltic States using certified Ignitis green energy. This partnership will reduce GHG emissions by almost 220 t/year compared to the case if green energy was not used.

152 / 364

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

5 .5 Preserving natural resources

==> picture [49 x 50] intentionally omitted <==

==> picture [514 x 48] intentionally omitted <==

Main indicators

==> picture [729 x 279] intentionally omitted <==

----- Start of picture text -----

Change
Indicator Unit 2021 2020 2019 Comments
(2020/2021)
Air emissions
SO2 9 53 4 (83.0%) Emissions in 2020 were calculated according to the maximum pollution allowance in the Integrated
NOx 570 624 93 (8.7%) Pollution Prevention and Control (IPPC) permits as no
t
Particulate matter 15 25 15 (40.0%) inventory of pollution sources was performed for the
new facility. Emissions in 2021 were calculated using
CO 139 191 114 (27.2%)
automatic measuring systems.
Emission intensity:
SO2 0.004 0.030 0.027 (86.7%) Only the amount of energy generated by those
Particulate matterNOx g/kWh 0.2750.007 0.3480.014 0.6100.097 ((21.0%50.0%)) facilities that actually emit emissions was used to calculate the emission intensity indicator ((i.e.,
electricity from hydropower plants and wind farms is
CO 0.067 0.106 0.749 (36.8%) not included).
Waste generated by the Group which are transferred to waste management facilities [1]
Hazardous waste [2] Thousand t 13.3 5.6 0.7 137.5% 1Waste generated at the end of the year might be
of which fly ash % 93.4 88.7 0 4.7 pp transferred to the waste management facilities and
Non-hazardous waste: Thousand t 94 45.3 10.3 107.5% accounted for only in the following year due to
the established frequency of waste removal and
of which bottom ash and slag 91.9 85.9 0 6.0 pp management.
of which iron and steel 2.7 7.1 69.0 (4.4 pp)
% 2Updated and recalculated 2020 amounts after
of which mixed municipal waste 0.1 0.5 6.2 (0.4 pp) adding waste generated during ‘hot testing’
conducted at Vilnius CHP.
----- End of picture text -----

153 / 364

GRI 305-7 GRI 306-3

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

==> picture [729 x 386] intentionally omitted <==

----- Start of picture text -----

Change
Indicator Unit 2021 2020 2019 Comments
(2020/2021)
Water
Water withdrawal (total): 9,431,857 8,245,674 8,242,385 14.4% 1 Water withdrawn for hydropower generation is not
consumed and is released back to the environment.
Groundwater 23.1 23.9 22.7 (3.4%)
2 2020 data – water discharged to own wastewater
Municipal water supply or other public/private water utilities 192.9 42.7 154.4 351.8% treatment facilities or centralised engineering
networks. Updated and recalculated 2020 number.
Surface water (wetlands, rivers, lakes, etc.) 516.1 653.9 972.2 (21.1%) 3 Water consumption is calculated by subtracting
Of which water withdrawal and reuse: the water discharged ( except surface rainwater)
from the water withdrawn (except hydropower and
Thousand m [3]
Surface water for hydropower plants (Kruonis PSHP and cooling water as it is withdrawn but reused).
9,344,127 8,114,332 8,229,691 15.2%
Kaunas HPP) [1]
4 Excludes hydropower water.
Surface water for Elektrėnai Complex power plant cooling 86,998 130,622 11,545 (33.4%)
Water discharge (total) 1,134.4 792.8 1,081.8 43.1%
Municipal water treatment supply or other public/private water
323.2 143.7 219.9 124.9%
treatment utilities [2]
Surface rainwater and treated industrial waste discharge at the
811.2 673.6 861.9 20.4%
Elektrėnai Complex
Water consumption (total) [3] 499.9 576.8 929.4 (13.3%)
Intensity of water use in generation using hydropower
9.14 7.95 9.39 15.0%
(Kruonis PSHP and Kaunas HPP)
Freshwater intensity for generators [4] m [3] /kWh 0.03 0.04 0.01 (25.0%)
Total water intensity in generation 2.8 2.7 6.5 3.7%
Other indicators
CO2 emissions from business travel Thousand t CO2–eq. 5.5 5.1 5.8 7.8% minor violation during 2021 (imposed a fines of <150 1The Group Strategic Plan target – 0 violations. 3
3 minor 1 minor EUR). One inspection started at 2021 and not yet
Violations of environmental protection requirements [1] No. n/d 200.0%
violations violation completed.
----- End of picture text -----

154 / 364

GRI 303-1

GRI 303-3

GRI 303-4

GRI 303-5

GRI 307-1

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Why this is relevant to us

The generation and distribution of energy and the development of renewable energy not only create the conditions necessary for our daily lives, but also have an impact on the natural environment we are a part of. Developing renewable energy generation reduces GHG emissions, thus mitigating the impact on climate. However, renewable energy projects such as wind farms, solar parks and hydropower, as well as ancillary infrastructure, pose threats and challenges to biodiversity. Therefore, we regularly examine the impact of our activities on ecosystems and biodiversity, manage the waste generated by our activities, and aim for a balance between business operations and the conservation of ecosystems and resources.

The organisation observes a precautionary approach:

The activities of the Group comply with national environmental and waste management legislation, have environmental and safety permits, which are regularly updated, and compliance with their conditions is being monitored;
The Group manages environmental issues in accordance with its Environmental Policy, which sets out general environmental provisions and principles of the Group;
At the end of 2021, 62% of the Group‘s operations (by revenue) were ISO 14001 certified. The two largest companies of the Group (Ignitis Gamyba and ESO), which have a significant impact on the environment, comply with the Environmental Management Standard ISO 14001, which shows that the requirements for monitoring, managing and improving the performance of key environmental aspects are met. B2Brelated activities of Ignitis are also ISO 14001 certified. After the end of the reporting period, Vilnius CHP also received the ISO 14001 standard certification.

==> picture [46 x 46] intentionally omitted <==

We regularly examine the impact of our activities on ecosystems and biodiversity

We are monitoring the impact of our activities on the environment. All environmental monitoring reports (including impact on groundwater) are published on the website of Ignitis Gamyba (link in Lithuanian). The Vilnius (link in Lithuanian) and Kaunas (link in Lithuanian) CHPs also publish the results of environmental monitoring on their websites.

Impact on biodiversity

Wind farms

Impact

Our actions

Onshore wind farms:

alter the landscape;
may disturb the migratory routes of birds and bats and endanger their health or life.

Biodiversity issues are addressed from the early stages of project preparation and site planning, for example, at the start of the development of a new wind farm, its noise level is modelled, and shading effects are assessed, the planned site is checked for rare plants, animals, and whether it falls within the Natura 2000 or other protected areas. To protect birds and bats, the Group implements various risk mitigation and management practices (for example, we have implemented automated solutions in the Pomerania WF in order to reduce the impact of the wind farm on bats, we perform bird monitoring (migration, hatching) surveys at the wind farms managed by the Group, and we submit their reports to the Environmental Protection Agency).

155 / 364

GRI 102-11

GRI 103-1/2/3 GRI 304-2

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Hydroelectric power plants

Impact

Our actions

The operation of a hydroelectric power plant or other facilities affecting water bodies alters the level of the water body as well as its chemical and physical properties, which may harm aquatic and terrestrial animals. For example, in the Kaunas Lagoon, there is an area of the Natura 2000 where silver gulls breed. When the water level rises, the nests closest to the water may be flooded, and when the water level falls – the nests on small islands may be reached by predators. Changes in water levels can also disrupt the spawning and migration habits of fish.

In order to manage the potential harm, the guidelines for the use and maintenance of the Kaunas HPP dam set restrictions on water level fluctuations; the water level is constantly monitored and electricity generation is carried out by not exceeding the permissible water level change in the Kaunas Lagoon and maintaining the amount of water required for the environment downstream of the Nemunas river.

The water level upstream of the Elektrėnai Pond in 2021 ranged from 94.65 m to 97.77 m and complied with the permissible level fluctuation limits provided for in the Rules on the Use and Maintenance of the Elektrėnai Pond.

The Integrated Pollution Prevention and Control (IPPC) permit issued for the Elektrėnai Complex obligates it to ensure sufficient water flow in the Strėva River (which flows into the Kaunas Lagoon) by discharging a certain amount of water from the Elektrėnai Pond through the lock.

We collaborate and consult with the scientific community to identify impacts on aquatic ecosystems and the impact of water level fluctuations on fish populations.

Anthropogenic structures

Impact

Our actions

Anthropogenic structures (overhead power lines, gas distribution networks) and their maintenance contribute to the loss or fragmentation of animal habitats.

ESO is conducting its activities according to the principle of non-disturbance of protected areas and species as well as habitats of high ecological value, and strives to protect the landscape and biodiversity. Where adverse effects on the environment cannot be avoided for objective reasons, ESO implements all the necessary mitigation and compensation measures.

Aging power lines are being replaced by new underground cables, thus improving the aesthetic quality of the landscape and reducing the impact on wildlife. In its 2021–2030 investment plan, ESO undertakes to lay 11,900 km of new underground cables and achieve 72% share of 10 kV underground power lines in forested areas.

Power lines are being reconstructed according to coordinated projects – old equipment, supporting structures are being dismantled, thus reducing the area of engineering networks.

To ensure safe and reliable supply of electricity and to protect wildlife, ESO, in cooperation with the Environmental Protection Agency, in accordance with the Law on the Protected Fauna, Flora and Fungi Species and Communities, when performing unplanned emergency repair of overhead power lines, dismantles and restores or relocates (within 100 metres of the removed nest) stork nests that pose a threat to electrical networks and human safety.

An updated assessment memorandum for trees in the natural gas security zone has been approved: the number of trees removed from the protection zones is reduced, removing only those trees that interfere with network maintenance or have damaged the network resulting in the need for repairs. The maintenance of security zones, both gas and electricity, is a very important part of our work. It is important to optimise this process so as not to disturb the balance of the ecosystem and to ensure the security of the network from the effects of trees in case of occurrence of natural disasters.

Areas of high ecological value close to our sites and the status of protected species in them according to the International Union for Conservation of Nature (IUCN) Red List have been discussed in detail in ' the 'Impact on our planet' section of the Group s 2020 Sustainability Report. There were no significant changes in this area in 2021. Information on the Group's impact on protected areas and species is also available on our website.

156 / 364

GRI 304-1 GRI 304-4

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Water-related risks

Water scarcity is one of the most serious threats to sustainable development. Extreme water scarcity – excessive water withdrawal from natural sources – can have catastrophic consequences for the environment and disrupt the economic and social development of society, for example, by forcing people to migrate to safer areas.

Despite large regional differences, the global water scarcity rate remains statistically safe at 18.4% (indicating the ratio of water use to accessibility). Lithuania is in a safe zone where the level of water scarcity is assessed to be between low and medium. Our water shortage rate is just 1.83%.

Nevertheless, we see threats from annual hydrological droughts. Both hydropower plants operated by the Group company Ignitis Gamyba, Kruonis PSHP and Kaunas HPP, which are located in the Nemunas basin, are directly dependent on the water level in the river. We observe two types of risks: direct and regulatory. Direct risks can arise when there is not enough water to generate electricity. The risk of regulation stems from political decisions in the face of hydrological drought. And while the energy generated by hydropower is one of the cleanest and contributes to the overall goals of mitigating climate change, it is the hydrological droughts caused by climate change that can challenge our operations. The Group closely monitors the surface water levels and publishes the data on the website of Ignitis Gamyba (link in Lithuanian).

Impact on water, air and soil quality

Proper management of impacts on soil, water and air quality is one of the Group‘s priorities. Our goal is to use the best available technology in our operations and to go beyond the minimum requirements. The Group strives to use natural resources efficiently, reduce the impact of energy generation facilities on people and the environment, and implement innovative, efficient and safe technologies.

Most energy-related activities inevitably lead to direct or indirect emissions. The majority of the Group‘s emissions are generated indirectly - by selling electricity and natural gas. Carbon monoxide (CO), carbon dioxide (CO2) and nitrogen oxides (NOx) are emitted into the atmosphere from thermal power plants. Industrial wastewater from thermal power plants contains traces of harmful organic substances and other compounds. Some facilities have their own wastewater treatment plants, while others treat their wastewater using the services of municipal wastewater treatment networks. The effluents are monitored on a monthly basis – the chemical laboratory examines the samples taken and provides test reports.

==> picture [378 x 499] intentionally omitted <==

157 / 364

GRI 103-1/2/3

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Key actions in 2021 to protect ecosystems and biodiversity

All Group companies certified to ISO 14001 standard perform internal environmental audits at their facilities.
In order to evaluate the efficiency of the system, we periodically present the environmental achievements, challenges and waste management news to the managers of each ISO 14001 certified company.

– We monitor the impact of water level fluctuation on fish during spawning and birds during hatching seasons at the Kaunas HPP: the fluctuation of water level during the spawning season in 2021 was slightly lower than in 2020, which resulted in a lower impact on spawning grounds.

– We monitor migratory bird casualties during the autumn (September–October) and spring (March–May) migration at Vėjo Vatas WF (Lauksargiai eldership, Tauragė district); we also monitor hatching and migrating birds. Both spring and autumn migrations were prolonged, there were no observations of large bird flows. Birds flying through the area fly well above the wind farms, therefore, the farms do not pose a threat to them. No larger bird populations have been identified in the vicinity of the wind farm, therefore, we conclude that the operation of wind farm does not have a significant impact on the mortality of migratory birds. It has also been observed that the wind farm does not have a significant impact on the process of bird hatching. Data from all studies are provided to the Environmental Protection Agency.

In the Pomerania WF (Poland), we have implemented automated solution to reduce the impact on bats. The solution reduces the likelihood of human error and ensures compliance with environmental requirements.

– We have completed the 2nd stage of fuel storage structure improvement, during which we eliminated the unused fuel oil infrastructure in the Elektrėnai Complex managed by Ignitis Gamyba. For example, obsolete fuel oil infrastructure and other related infrastructure was cleaned and dismantled. The fuel management project has significantly reduced the risk of fuel oil spills as well as soil and groundwater contamination. The final 3rd stage is currently being planned, during which the remaining untreated fuel oil in the large fuel oil tanks will be disposed of.

– We have renewed (drilled) two groundwater quality monitoring wells in the territory of Vilnius CHP3, which will contribute to more precise groundwater monitoring.

– The ISO 14001 management system was implemented in Vilnius CHP. The certificate was received after the reporting period (February 2022).

==> picture [296 x 268] intentionally omitted <==

Implementation of the principles of the circular economy

As the European Union takes the course of the Green Deal, there is an increasing emphasis on the responsible approach and involvement of consumers, communities, public, private, and non-governmental sectors in reducing waste. Resource efficiency and circular economy are becoming increasingly important at local, national, European and global levels as a way to achieve sustainable consumption and production goals. The Group addresses this complex issue in two ways:

By promoting rational and sustainable use of resources and materials and improving its waste management practices;
By generating energy using the waste remaining after recycling in two modern cogeneration power plants in Vilnius and Kaunas.

Waste management in each Group company is carried out in accordance with the Environmental Protection and Zero Tolerance for Accidents at Work Policy policies. Our service contracts include requirements to ensure the safety of our employees, the environment as well as other legal requirements. Requirements for contractors on waste handling are further set out in bilateral acts limiting liability for the safety and health of employees.

In 2021, the largest share of the Group's waste was generated in Vilnius and Kaunas cogeneration power plants - mainly slag and ash. Fly ash generated in cogeneration power plants in Vilnius and Kaunas is used to restore the landscape of the Norwegian

island of Langioja. Using modern technology, fly ash is mixed with water and acid from industrial waste. This forms a gypsumlike material that will fill the craters formed by limestone mining and bring the rebuilt part of the island back to the society. Contractors are systematically introduced to efficient waste management procedures at Ignitis Gamyba, informed about waste storage sites, waste removal routes, etc. Contractors must provide information on the final waste management locations. Violations of contract terms and conditions or other legislation may result in fines or other sanctions against contractors. Dismantling obsolete equipment generates a significant amount of metal, steel and construction waste. In order to

158 / 364

GRI 103-1/2/3

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

efficiently manage the generated waste streams, Ignitis Gamyba additionally follows internal waste management instructions.

ESO also generates a significant amount of Group‘s waste. Here, the impact is managed through internal standards and processes, training, other communication and internal inspections. The majority of ESO’s waste is generated during the maintenance and repair of electricity distribution equipment, consisting mainly of metal waste (about 60%) and dismantled distribution equipment (about 25%). When renovating the network, ESO reuses part of the old network’s materials, and the rest is disposed of in accordance with environmental standards and the contracts with contractors.

About a quarter of the municipal waste generated in Lithuania which is not fit for recycling is converted into energy at the Group‘s cogeneration plants. According to the EU Waste Policy, the basic principle of waste management is based on the waste hierarchy: waste prevention is given priority, followed by reuse, recycling, other re-use (energy recovery) methods, while landfilling is the least desirable option. The development of the Group‘s cogeneration plants, which are an alternative to landfills, plays an important role in the implementation of the principles of circular economy. According to the latest Eurostat data, the average European generated 505 kg of municipal waste in 2020, while the Lithuanian population generated an average of 483 kg (22% more than in 2005)[1] , of which only about half is recycled.

The other part goes directly to landfills, where biodegradable waste, when decomposing, emits methane (CHand fly organic compounds that accelerate climate change. The 4), other gases World Bank predicts that by 2050, waste generation will increase by 60%; therefore, reducing the issue of landfill emissions remains crucial. In view of this, the role of the Group‘s cogeneration plants in reducing the amount of waste in landfills is extremely significant.

Key changes and achievements of 2021 in implementing the principles of circular economy

– To reduce the amount of waste generated in its operations, ESO has started to use cardboard waste as packaging material to fill the air gaps to replace previously used plastic products. 15–20 kg of cardboard is cut and used for packaging per day, and bubble wrap and ‘air bags’ have been completely abandoned. In this way, we purchase less new packaging material and save about 170 kg of plastic per year.

ESO has developed and launched a mandatory environmental training that must be passed by every employee.

– To cooperate and exchange information on environmental issues, ESO organised a ‘Report on Unattended Waste’ initiative in the spring, which encouraged reporting on waste discarded in remote areas using ESO’s mobile application ‘Unsafe? Report!’. Six notifications were received, and the information was passed on to the authorities responsible for site management. Unfortunately, the removal of the reported waste has been slow, so as we continue the initiative, we will focus more on working with the various authorities to promote proper waste management processes.

– The Group began monitoring risks related to the management of waste at the end of the guaranteed lifecycle of wind farms and solar parks (15–20 years). The legal developments are also being monitored.

1 Eurostat: Municipal waste statistics

When we moved to the new office, we agreed on certain principles that we invite more than a thousand Group employees working in the office to follow:
We aim to eliminate the use of paper in the office;
We have given up plastic disposable containers, we apply environmentally friendly, ecological solutions;
We use drinking water from taps installed for this purpose, i.e., we do not use packaging for water;
We sort waste and teach employees by various means how to do it correctly;

– We do not have rubbish bins at the individual desks, therefore, employees can only throw rubbish in the sorting bins in the common office areas – this is another way to encourage colleagues to sort, rather than throwing everything in a single rubbish bin.

– We performed most of the demolition works of the 250 m and 150 m high chimneys of the Elektrėnai Complex, which is managed by Ignitis Gamyba. Hazardous and non-hazardous waste generated during the demolition was transferred to waste management companies, uncontaminated concrete suitable for re-use was crushed, and the chippings made from it were sold for use in construction works.

We prepared a tour program and, after the restrictions of COVID-19 are lifted, we will invite the public to participate in excursions in Kaunas CHP and Vilnius CHP, during which visitors will be introduced to the principles of circular economy, waste sorting benefits and other topics.

==> picture [41 x 7] intentionally omitted <==

----- Start of picture text -----

© Saulius Žiūra
----- End of picture text -----

159 / 364

GRI 103-1/2/3

GRI 306-1

GRI 306-2

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Our vehicle fleet

The Group has a fleet of almost 1,000 vehicles. These vehicles are leased by the Group in accordance with the 3–5-year vehicle rental agreements, at the end of which the size of the fleet purchased is responsibly assessed, as well as the number of clean vehicles is increased. A unified fleet of shared cars is created in the Group‘s central office, so separate fleets of shared cars are not created in subsidiary companies. In preparation for the new purchase of vehicles, the aim is to ensure that by 2024, all Group managers who will be allocated vehicles in accordance with the principles of allocation of vehicles will be environmentally friendly (electric). The greatest share of vehicles are used for work on electricity and gas networks.

Group employees have an opportunity to take eco-driving and safe driving courses. About 500 colleagues have attended these courses so far. We estimate that greener driving could reduce CO2 emissions by 5%.

To reduce our environmental impact related to vehicle emissions, we are also focusing on our employees. We conducted a survey of employees (engagement exceeded 30%) about their mobility habits in order to find out the current situation and to offer alternatives to sustainable mobility in the future. It turned out that as many as 78% of the surveyed colleagues go to work by car (65% of all colleagues who travel by car do so with a diesel car). 8% of colleagues choose to go to work by bicycle, scooter or on foot, and their average distance to work is often about 3 km. In 2022, we plan to evaluate the results of the survey and develop a programme to promote sustainable mobility at the Group.

==> picture [406 x 409] intentionally omitted <==

160 / 364

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

5 .6 Future-fit employees and communities

==> picture [49 x 50] intentionally omitted <==

==> picture [50 x 50] intentionally omitted <==

==> picture [49 x 50] intentionally omitted <==

==> picture [50 x 50] intentionally omitted <==

==> picture [49 x 50] intentionally omitted <==

==> picture [358 x 48] intentionally omitted <==

Main indicators

==> picture [749 x 323] intentionally omitted <==

----- Start of picture text -----

Indicator Unit 2021 2020 2019 Change (2020/2021) Comment
NUMBER OF EMPLOYEES
Headcount Women Men Women Men Women Men Women Men
All employees Units 3,884 3,836 3,742 1.3% Data on the distribution of
Units 1,121 2,763 1,101 2,735 1,048 2,694 1.8% 1.0% employees in 2019 includes only
By gender % 28.9 71.1 28.7 71.3 28.0 72.0 0.2 pp 0.2 pp employees working in Lithuania
(3,719 employees).
All employees 1.9 2.0 2.9 (0.1 pp)
<24 years
By gender 2.1 1.9 2.4 1.8 2.6 2.9 (0.3 pp) 0.1 pp
All employees 30.4 32.0 31.2 (1.6 pp)
25–36 years
By gender 38.8 27.0 40.9 28.4 39.8 27.9 (2.1 pp) (1.4 pp)
By age %
All employees 48.9 47.9 47.8 1.0 pp
37–56 years
By gender 45.5 50.3 43.4 49.7 44.5 49.1 2.1 pp 0.6 pp
All employees 18.7 18.1 18.2 0.6 pp
>57 years
By gender 13.6 20.7 13.4 20.1 13.1 20.1 0.2 pp 0.6 pp
All employees 44.2 44.0 43.9 0.5%
Average age Year
By gender 41.6 45.3 41.2 45.1 41.2 44.9 1.0% 0.4%
Headcount share by position
Trainees 0.0 0.1 0.0 (0.1 pp)
Workers 18.9 19.2 20.6 (0.3 pp)
Experts, specialists 70.2 69.6 68.8 0.6 pp
%
Mid-level executives 9.6 9.8 9.1 (0.2 pp)
Top-level executives 0.8 0.9 0.9 (0.1 pp)
Heads of companies 0.4 0.4 0.5 0.0 pp
----- End of picture text -----

161 / 364

GRI 102-8 GRI 405-1

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

==> picture [730 x 474] intentionally omitted <==

----- Start of picture text -----

Indicator Unit 2021 2020 2019 Change (2020/2021) Comments
Headcount share by employment contract type Women Men Women Men Women Men Women Men
Total share of employees under a temporary
3.2 2.5 2.2 0.7 pp
employment contract
Of whom – share by gender % 62.1 37.9 60.4 39.6 64.2 35.8 1.7 pp (1.7 pp)
Total share of part-time employees 0.6 0.9 1.2 (0.3 pp)
Of whom – share by gender 32.0 68.0 35.3 64.7 43.2 56.8 (3.3 pp) 3.3 pp
Headcount share by country
Lithuania 98.9 99.2 99.4 (0.3 pp)
Latvia 0.3 0.3 0.2 0.0 pp
%
Estonia 0.03 0.03 0.1 0.0 pp
Poland 0.7 0.5 0.3 0.2 pp
Headcount share by business segment
Networks 62.5 63.2 n/d (0.7 pp)
Green Generation 7.2 6.9 n/d 0.3 pp
Flexible Generation % 6.2 6.3 n/d (0.1 pp)
Customers & Solutions 8.6 8.1 n/d 0.5 pp
Business development and support services 15.6 15.6 n/d 0.0 pp
Headcount by employment contract type Units % Units % Units % % pp
Energijos Skirstymo Operatorius 2,427 62.5 2,424 63.2 2,374 63.4 0.1% (0.7 pp) In 2020 Verslo Aptarnavimo
Ignitis Grupės Paslaugų Centras 498 12.8 472 12.3 178 4.8 5.5% 0.5 pp Centras was merged with Ignitis
Ignitis Gamyba 359 9.2 359 9.4 352 9.4 0.0% (0.2 pp) Grupės Paslaugų Centras.
Ignitis 304 7.8 285 7.4 103 2.8 6.7% 0.4 pp
Vilnius CHP 88 2.3 86 2.2 44 1.2 2.3% 0.1 pp
Ignitis Group 73 1.9 84 2.2 101 2.7 (13.1%) (0.3 pp)
Kaunas CHP 39 1.0 38 1.0 36 1.0 2.6% 0.0 pp
Transporto Valdymas 21 0.5 23 0.6 27 0.7 (8.7%) (0.1 pp)
Ignitis Renewables 17 0.4 13 0.3 8 0.2 30.8% 0.1 pp
Ignitis Polska 16 0.4 14 0.4 8 0.2 14.3% 0.0 pp
Ignitis Latvia 13 0.3 11 0.3 9 0.2 18.2% 0.0 pp
Ignitis Renewables Polska 11 0.3 0 0.0 n/a n/a 100.0 % 0.3 pp
Gamybos Optimizavimas 7 0.2 7 0.2 7 0.2 0.0 % 0.0 pp
Elektroninių Mokėjimų Agentūra 5 0.1 5 0.1 4 0.1 0.0 % 0.0 pp
Eurakras 1 0.03 1 0.03 1 0.03 0.0 % 0.0 pp
Vėjo Gūsis 1 0.03 1 0.03 1 0.03 0.0 % 0.0 pp
----- End of picture text -----

162 / 364

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

==> picture [730 x 482] intentionally omitted <==

----- Start of picture text -----

Indicator Unit 2021 2020 2019 Change (2020/2021) Comments
Tuuleenergia 1 0.03 1 0.03 1 0.03 0.0 % 0.0 pp
Vėjo Vatas 1 0.03 1 0.03 1 0.03 0.0 % 0.0 pp
Ignitis Renewables Projektai 1 0.03 n/a n/a n/a n/a n/a n/a
VVP Investment 1 0.03 1 0.03 1 0.03 0.0% 0.0 pp
Ignitis Eesti 0 0.0 0 0.0 1 0.03 n/a n/a
Ignitis Suomi 0 0.0 n/a n/a n/a n/a n/a n/a
Pomerania Wind Farm 0 0.0 4 0.1 2 0.1 (100%) (0.1 pp)
Ignitis Res Dev 0 0.0 n/a n/a n/a n/a n/a n/a
NT Valdos 0 0.0 1 0.03 10 0.3 (100%) 0.0 pp
Energetikos Paslaugų Ir Rangos Organizacija 0 0.0 5 0.1 21 0.6 (100%) (0.1 pp)
EMPLOYEE TENURE, TURNOVER AND HIRING
Employee share by tenure at the Group
<1 year 10.9 10.2 13.4 0.7 pp Data on the share of employees
1–5 years 33.0 31.5 27.1 1.5 pp in 2019 are presented including
6–9 years 8.4 9.2 8.8 (0.8 pp) only the number of employees
working in Lithuania (3,719
10–14 years % 10.0 10.7 12.5 (0.7 pp) employees).
15–19 years 9.5 8.6 7.9 0.9 pp
20–24 years 7.3 8.0 9.9 (0.7 pp)
25–29 years 9.0 9.3 8.7 (0.3 pp)
>30 years 11.8 12.5 11.9 (0.7 pp)
Employee turnover rate Women Men Women Men Women Men Women Men
All employees % 11.7 9.0 11.5 2.7 pp
By gender % 18.3 9.0 10.6 8.3 16.8 9.4 7.7 pp 0.7 pp
<24 years 40.0 26.3 30.2 13.7 pp
25–36 years 18.5 11.8 18.6 6.7 pp
By age %
37–56 years 7.2 5.4 7.6 1.8 pp
>57 years 9.4 11.4 6.8 (2.0 pp)
New employees Women Men Women Men Women Men Women Men
Total Units 534 463 611 15.3%
By gender % 46.0 54.0 41.0 59.0 37.6 62.4 5.0 pp (5.0 pp)
<24 years 20.4 15.3 17.0 5.1 pp
25–36 years 48.7 56.2 54.3 (7.5 pp)
By age %
37–56 years 30.1 27.0 26.5 3.1 pp
>57 years 0.7 1.5 2.1 (0.8 pp)
----- End of picture text -----

163 / 364

GRI 401-1

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

==> picture [730 x 479] intentionally omitted <==

----- Start of picture text -----

Indicator Unit 2021 2020 2019 Change (2020/2021) Comments
Parental leave Women Men Women Men Women Men Women Men
Employees entitled to parental leave Units 31 49 51 80 55 80 (39.2%) (38.8%) Only employees registered
Employees that took parental leave (of those in Lithuania were included in
entitled to do so) % 100.0 6.1 100.0 6.3 58.2 5.0 0.0 pp 0.2 pp the indicator calculations. Due
Employees that returned to work after parental Units 32 5 31 6 21 1 3.2% (16.7%) to the changed calculation
leave methodology, the indicators for
2020 have been revised.
Women Men Women Men Women Men Women Men
Employee retention after parental leave
Employees that returned to work after parental
leave in the year before the beginning of the 31 6 22 1 n/d n/d 40.9% 500.0%
reporting period Units
Of whom – employees who were still working
24 5 18 1 n/d n/d 33.3% 400.0%
the year afer returning from their leave
Retention rate % 77.4 83.3 82.0 100.0 n/d n/d (4.6 pp) (16.7 pp)
EMPLOYEE EDUCATION AND TRAINING
Employee share by educational level
Higher (university and college) 76.6 76.0 75.8 0.6 pp
Secondary and vocational 19.7 20.5 21.7 (0.8 pp)
%
Primary and lower secondary 0.4 0.4 0.5 0.0 pp
No data 3.3 3.1 2.0 0.2 pp
Employee participation in trainings Women Men Women Men Women Men Women Men
Total participants Units 2,891 2,448 n/d 18.1%
Share of employees who participated % 74.4 63.8 n/d 10.6 pp
Training participants by gender % 41.8 58.2 38.2 61.8 n/d n/d 3.6 pp (3.6 pp)
Training participation by position
Trainees 0.2 0.1 n/d 0.1 pp
Workers 9.3 11.1 n/d (1.8 pp)
Experts, specialists 74.7 70.8 n/d 3.9 pp
%
Mid-level executives 14.4 15.9 n/d (1.5 pp)
Top-level executives 1.0 1.6 n/d (0.6 pp)
Heads of companies 0.4 0.4 n/d 0.0 pp
Training hours Women Men Women Men Women Men Women Men
Training hours, total Hours 91,165 69,768 n/d 30.7%
Training hours by gender of participants % 40.9 59.1 38.3 61.7 n/d n/d 2.6 pp (2.6 pp)
----- End of picture text -----

164 / 364

GRI 401-3

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

==> picture [730 x 411] intentionally omitted <==

----- Start of picture text -----

Indicator Unit 2021 2020 2019 Change (2020/2021) Comments
Share of training hours by participant position
Trainees 0.1 0.0 n/d 0.1 pp
Workers 4.7 5.6 n/d (0.9 pp)
Experts, specialists 65.1 53.1 n/d 12.0 pp
%
Mid-level executives 27.1 37.5 n/d (10.4 pp)
Top-level executives 2.4 3.0 n/d (0.6 pp)
Heads of companies 0.6 0.9 n/d (0.3 pp)
Training hours per employee on average Women Men Women Men Women Men Women Men
Training hours per employee on average 23.5 18.2 n/d 29.1%
Training hours on average by gender of Hours
33.3 19.5 24.2 15.7 n/d n/d 37.2% 23.8%
participants
Training hours per employee on average by position
Trainees 12.0 6.8 n/d 77.8% The actual end-of-year
headcount was used for the
Workers 5.8 5.3 n/d 10.1%
calculation of this indicator,
Experts, specialists 21.8 13.9 n/d 57.0% excluding trainees because
Hours
Mid-level executives 66.3 69.7 n/d (4.9%) there were no trainees at the
end of the reporting period.
Top-level executives 66.7 61.2 n/d 8.9%
Heads of companies 33.4 36.3 n/d (8.7%)
HUMAN RIGHTS, DIVERSITY, EQUAL OPPORTUNITIES
1 Reports received via Trust
Line and other known reports.
Reports on discrimination [1] Units 0 1 n/d (100%) In 2020 one allegation was
made regarding potential
discrimination of a colleague
due to familial status. During
the investigation no cases of
discrimination were established.
Human rights violations [2] Units 0 0 n/d n/a
2 The target set out in the Group
Strategic Plan – 0.
----- End of picture text -----

165 / 364

GRI 404-1

GRI 406-1

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

==> picture [730 x 452] intentionally omitted <==

----- Start of picture text -----

Indicator Unit 2021 2020 2019 Change (2020/2021) Comments
3 The target set out in the Group
Strategic Plan – 34%. The
calculations include members
Share of women in top management [3] % 27.0 28.0 n/d (1 pp) of management bodies, heads
of companies and managers
directly subordinate to them in
all Group companies. If the same
person assumes more than one
position at the same company,
only one position is taken into
Share of women in engineering and IT roles [4] % 19.0 17.0 n/d (2 pp) account.
4 The target set out in the Group
Strategic Plan – 23%.
Composition of collegial bodies of the parent
Women Men Women Men Women Men Women Men
company by gender and age
1 At the end of 2020 four out of
By gender 57.1 42.9 57.1 42.9 60.0 40.0 0.0 pp 0.0 pp
seven Supervisory Board mem-
Supervisory Board % bers were older than 50 years
By age (50 years 71.4 57.1 40.0 14.3 pp old, and at the end of 2021 – five.
old and above) [1]
2 Both at the end of 2020 and
2021 one of the Management
By gender 25.0 75.0 20.0 80.0 20.0 80.0 5 pp (5 pp)
Board members was older than
Management Board % 50 years old, however, through-
By age (50 years out the end of 2021 there were
25.0 20.0 0.0 5 pp
old and above) [2] four and not five members.
REMUNERATION AND BENEFITS
Average monthly salary before taxes by position
All employees 2,400 2,293 n/d 4.7% Actual remuneration and other
payments made to employees
Trainees n/d n/d n/d n/d were included in calculations.
Trainees were not included
Workers 1,758 1,670 1,475 5.3% when calculating figures for
2020 and 2021. 23 employees
Experts, specialists EUR 2,247 2,102 1,906 6.9% from Group companies UAB “EU-
RAKRAS“, Ignitis Latvija SIA, Ignitis
Mid-level executives 4,020 4,038 3,323 (0.4%) Polska Sp. z o.o., Pomerania Invall
Sp. z o. o., Tuuleenergia OÜ, UAB
Top-level executives 8,030 8,274 6,713 (2.9%) “VVP Investment”, Ignitis Eesti OÜ
were not included in the 2019
Heads of companies 8,300 8,990 7,262 (7.7%) figures.
----- End of picture text -----

166 / 364

GRI 405-1

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

==> picture [730 x 468] intentionally omitted <==

----- Start of picture text -----

Indicator Unit 2021 2020 2019 Change (2020/2021) Comments
Remuneration ratio, women to men
All employees 0.97:1 0.97:1 0.97:1 - 1 Entry level positions are
Trainees 1.21:1 0.92:1 n/a - defined as those attributable to
the worker category. Median
Workers 0.76:1 0.75:1 0.76:1 - monthly salary recalculated into
Experts, specialists Ratio 0.90:1 0.88:1 0.88:1 - a full-time equivalent (FTE).
Mid-level executives 1.10:1 1.08:1 1.08:1 - 2 In 2021 the formula for
Top-level executives 1.03:1 0.95:1 0.99:1 - calculating the salary fund
changed, adding holiday,
Heads of companies 1.20:1 1.08:1 1.27:1 - pension reserve and the
Remuneration of a standard entry level position All employees 2.0:1 2.0:1 1.9:1 - capitalisation of salaries, so 2020 value was recalculated and
compared to minimum salary in Lithuania [1] By gender Ratio 1.8:1 2.0:1 1.8:1 2.0:1 1.7:1 1.9:1 - - differs from the one provided in the 2020 Annual Report.
Ratio of the annual remuneration of the
organisation’s highest-paid individual to the Ratio 6.80:1 7.58:1 6.70:1 -
median annual remuneration of all employees
Ratio of the percentage increase of the annual
remuneration of the organisation’s highest-paid Ratio (0.48):1 2.29:1 n/d -
individual to the median increased of the annual
remuneration of all employees
Total annual salary fund [2] EURm 97.3 92.8 n/d 4.8%
Employees’ use of benefits (at employer’s expense)
Share of employees engaged in supplementary
voluntary pension accumulation (3rd pillar % 10.9 Around 13 n/d n/d
pension funds)
Share of employees who opted for additional
% 77.0 n/d n/d n/d
health insurance
OCCUPATIONAL HEALTH AND SAFETY
Employees with reduced working capacity
Employees with reduced 0–25% capacity 1 n/d n/d n/d 1 LTIR – lost time injury rate per
Units
working capacity 30–55% capacity 28 n/d n/d n/d million hours worked.
LTIR (lost time injury rate per million hours
1.58 0.30 2.14 1.28 TRIR – total recordable injury
worked) [1]
Indicator rate per million hours worked.
TRIR (total recordable injury rate per million
2.01 0.45 2.29 1.56
hours worked) [1]
----- End of picture text -----

167 / 364

GRI 102-38 GRI 102-39

GRI 202-1

GRI 403-8

GRI 403-9 GRI 405-2

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

==> picture [730 x 422] intentionally omitted <==

----- Start of picture text -----

Indicator Unit 2021 2020 2019 Change (2020/2021) Comments
Employee fatalities related to work 0 0 0 0.0% 1 In 2020, due to the COVID-19
Units pandemic, ESO's scheduled
Contractor fatalities related to work 0 1 0 (100%)
work was halted and only trou-
Number of contractor OHS inspections 3,048 4,079 n/d (25.3%) bleshooting was carried out. As
performed by ESO the volume of ESO works is the
Units
Times the contractor work was suspended by 47 47 n/d 0.0% largest (up to 65%), the number
ESO due to OHS violations of suspended trips to the sites
Fines paid by contractors to ESO for non- EUR resulted in a lower number of
81 57 n/d 42.1%
compliance with contractual OHS requirements thousand LTIR and TRIR events.
OTHER EMPLOYEE-RELATED INDICATORS
1 eNPS survey was started in Q4
2019.
Employee net promoter score (eNPS) [1] 57.4 56.0 24.5 1.4 pp
2 Performance reviews, which
include setting, reviewing and
evaluating achieved goals, are
Employees who had performance review [2] 100 100 n/d 0.0 pp performed in our organisation
once or twice in a year. Employ-
ee goals are directly related to
% their short-term incentives, which
Share of employees working in companies that depend on achieved results and
72 73 73 (1 pp)
have collective agreements is paid to all Group employees.
3 Employee volunteering initiative
started in 8 October 2021.
Share of employees who participated in The target set out in the
<1 n/a n/a n/a
volunteering initiatives at least once [3] Group Strategic Plan – 20%
of employees participating in
initiatives.
COMMUNITY-RELATED INDICATORS
According to the Group
Implementation of community engagement Started implementing Community Engagement
n/a n/a n/a
measures measures and Relations Management
Guidelines
Economic value generated by wind farms to local communities
Land use payments to land owners EUR 381.6 34.7 n/d 999.7%
Real estate tax paid to municipalities thousand 804.5 302.4 n/d 166.0%
----- End of picture text -----

168 / 364

GRI 102-41

GRI 404-3

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Why this is relevant to us

Employee welfare

The Group is one of the largest employers in Lithuania, therefore, it forms and seeks to maintain an organisational culture that fosters long-term employer-employee partnerships based on the Group‘s values and Code of Ethics, mutual understanding and the opportunity to create an energy smart future. We carry out our activities and pursue our goals while protecting not only the environment but also the wellbeing of our employees: for us, this is a precondition for sustainable operations. Therefore, the Group is constantly developing, searching for and testing different tools that could contribute to the wellbeing of its employees.

The Group strives to be the best place to work. The Group has been conducting a quarterly employee experience survey since 2019 to monitor employee engagement and satisfaction, which provides a comprehensive picture of how an employee feels at various stages of our company. Employees are asked if they would recommend the company to their acquaintances, and the result of answering this question determines the eNPS (Employee Net Promoter) score of the Group. eNPS is included in the Group‘s strategic indicators and is one of the key indicators of employee experience. In addition to the key eNPS question, we ask other questions related to education, motivation, daily activities and performance evaluation. The answers to these questions form a generalised assessment of employee experience in these four different processes.

Each Group company is assigned a People and Culture Partner – the main contact for managers and employees on all matters related to the workplace processes.

It is customary for the teams to hold morning meetings and regular individual meetings between employees and managers, where employees can talk to their managers about development opportunities and raise personal issues.

In March 2020, the Group introduced the number all employees of the Group and their families can call for emotional assistance. This assistance is provided over the telephone by three external professional psychologists who ensure the anonymity of the callers. In 2021, the line‘s psychologists received 15 calls and counselled on a variety of topics, ranging from relationships at work to challenges in personal life.

Process of informing employees and their representation

Employee representation in Group companies

Labour councils

All of the Group‘s core businesses and most of its suppliers are located in the EU, therefore, we rely on EU legislation, which provide provision on freedom of association, prohibitions on child labour and forced labour. We are members of the United Nations Global Compact (UNGC) and uphold the fundamental principles and rights at work set out in the International Labour Organisation (ILO) Declaration on Fundamental Principles and Rights at Work.

Ignitis Group
Ignitis
Ignitis Grupės Paslaugų Centras
Vilnius CHP
Kaunas CHP
Transporto Valdymas

We communicate key changes and initiatives that affect employees in a clear and transparent manner. Internal communication is coordinated by a dedicated team. A common intranet is used for communication throughout the Group, while other means of communication are also used: letters, newsletters, meetings, etc.

Trade unions

ESO (seven trade unions currently operating)
Ignitis Gamyba (four trade unions currently operating)

Meetings are held periodically in the Group‘s companies (providing the opportunity to connect remotely) to discuss ongoing strategic projects and other relevant issues. All employees of the Group companies are invited to participate. If the issue is not relevant to everyone, meetings are held with employees in individual units. Two meetings were held in 2021, where the Group‘s management presented the Group‘s issues in Lithuanian and English, answered questions from employees, and about 2,000 to 2,500 employees of the Group participated in real time. Those who could not join the meetings on time were able to view the meeting material and recordings at a time convenient to them.

Occupational Safety and Health Committees

ESO
Ignitis Grupės Paslaugų Centras
Ignitis
Ignitis Gamyba

Collective agreements

Regular quarterly meetings are held with trade union representatives on current employment-related, they are consulted in regards to changes in the organisational structure, salaries, working time arrangements, measures to manage the pandemic situation, safety and health at work and other issues. Collective agreements are signed with trade union representatives.

ESO
Ignitis Gamyba

Employees who experience anxiety, stress, difficulties at work, in the family or other issues are offered free help from professional psychologists .

169 / 364

GRI 102-21 GRI 103-1/2/3

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Informing employees about changes in activities

In accordance with national legislation, Group companies with more than 20 employees:

provide information and consult with labour councils (trade unions) once a calendar year on the company‘s current and future activities, economic situation and employment relations;
if there are changes in internal policies or other rules related to the employment relationship and the socio-economic situation of employees, notices are submitted to labour councils (trade unions) and consultations are initiated witihn 10 business days before the planned changes;
before deciding to terminate an employee‘s employment contract, the employer must inform labour councils (trade unions) within 7 business days and consult with them for at least 10 business days, unless otherwise agreed upon;
before taking a decision on the reorganisation of the company and other decisions that may significantly affect the organisation of work in the company and the legal status of employees, the company must inform the labour councils (trade unions) within 5 business days before the consultations, the duration of which is 5 business days, unless otherwise agreed upon.

Lithuania

The collective agreements with the employees of ESO and Ignitis Gamyba provide for additional notice periods and consultation provisions related to changes in the remuneration system and conditions, planned structural changes, dismissals and other issues that may have a significant impact on employees.mažinimu ir kitais klausimais, galinčiais turėti reikšmingos įtakos darbuotojams.

When planning the relocation of a business or part of a business, companies shall inform the employees who may be affected no later than within 10 business days before the relocation of the business or part thereof. Employees may withdraw the proposed changes within 5 business days. The employer then terminates the employment contract in accordance with the Labour Code of the Republic of Lithuania (including the notice period, severance pay).

Under Latvian labour law, the minimum notice period is 1 month. If the changes affect the employment contract, the employee has the right to reject the proposed changes and terminate the employment contract. Ignitis Latvija SIA has no collective agreements.

Latvia

The Polish Labour Code covers different notice periods, depending on the different organisational changes depending on their nature, such as: (i) a notice period of at least two weeks should be observed when adopting general rules of procedure; (ii) changes in working conditions should be notified immediately, but no later than within one month after such changes take effect; (iii) if the proposed organisational changes necessitate a change in the employment contracts concluded, the notice periods specified in the employment contracts must be complied with. In addition to the specific provisions set out in the Labour Code, the usual number of weeks of notice applicable in different situations is 2 to 4 weeks.

Poland

Remuneration Policy and fringe benefits

In order to meet the expectations of stakeholders on sustainable development, to build a modern, international, competitive energy Group, we need to ensure that our team is made up of competent, fast-learning, technologically advanced, globally-minded and creative employees. We aim to keep employees motivated and apply the Group‘s Remuneration Policy in a way that ensures internal fairness and avoids any discrimination.

The Group remuneration system consists of a fixed base salary and short-term incentives (applicable to all employees and paid according to individual or team performance) as well as fringe benefits. One of the Group‘s values is openness, so that each employee has access to all remuneration procedures, the structure of the Group‘s positions, the remuneration scales applied to them and other information related to remuneration. When initiating recruitment, the Group companies always indicate the remuneration range for the position in the job advertisements.

We participate in annual remuneration surveys in order to benchmark the situation at the Group with other organisations operating in the market. Remuneration reviews are planned annually based on research findings. See the Remuneration Report for more information on employee remuneration.

The Group has a system of fringe benefits for employees. The aim thereof is to increase employee involvement, help reconcile work and leisure, and improve the employees’ experience at the Group.

Fringe benefits applicable to Group employees

	Company events and celebrations Pension accumulation Health insurance Remote work Social benefts for employees Financial incentives for referring candidates	A day of for volunteering
		Additional paid leave Flexible start and end of work Learning and professional development Cultural and sporting activities 100% payment for the frst two days of illness, a day of for vaccination

170 / 364

GRI 401-2 GRI 402-1

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Key changes and achievements in 2021 in ensuring the wellbeing and collaboration with employees

We paid special attention to the emotional health of employees:
The Welfare Mentor Communitywas assembled and trained – a team of 30 people comprised of employees of the Group companies, who are ready to provide emotional support to colleagues from the Group on a voluntary basis. A mentor may be invited for a friendly, confidential conversation on any troubling topic. Mentors are like an intermediate link between collegial conversation and professional help, and their activities reduce the stigma of emotional health in the Group;

– All interested employees were able to participate in training on how to recognise and deal with burnouts, manage stress, strengthen emotional intelligence, and all employees were offered the opportunity to participate in weekly mindfulness exercises for 5 months. More than 500 employees participated in trainings and workshops on these and similar topics;

– 'Challenge Laboratories' (in Lithuanian – “Iššūkių laboratorijos” ) on emotional health topics took place – employee meetings in groups of 5 people, where participants share their questions on emotional health topics and receive opinions from other participants on an issue of concern to them;

Health Month was held for all employees, focusing on physical and emotional health, all employees were invited to participate in sports training, were able to listen to lectures on a healthy lifestyle, stress management and other topics;
We regularly and voluntarily communicate about the importance of good emotional health, work and leisure balance. For example, we published Video Bites (in Lithuanian “Video kąsniai” ) on the Group‘s intranet – a series of 10 short video clips with tips, from emotional health professionals on emotional intelligence, quality rest and mindfulness.
The implemented technological and legal measures enabled a large part of the Group‘s employees to work remotely. In response to the pandemic, in 2021 remote work for employees, in agreement with their direct supervisors and taking into account the nature of the work, was unrestricted.

organisations. When implementing volunteer activities, we cooperate with the volunteer platform SAVA – all employees of the Group can register and choose volunteer activities. During the first three months of the program, 26 employees took the opportunity to volunteer.

Employee satisfaction (eNPS) increased by 1 .4 pp compared to 2020 and reached 57 .4% in 2021 .

In response to market trends and the improvement of employees‘ working conditions, a decision was made to continue to support the hybrid work model after the end of the pandemic, allowing employees to continue to work remotely.

– We also implemented an internal sustainability campaign. Through videos, articles, presentations, trivia, and workshops, we sought to introduce employees to a variety of sustainability areas and engage them in workgroups that would collaborate to address sustainability challenges. The internal sustainability campaign received more than 7,000 views. The topics we have already introduced to employees cover all aspects of sustainability, from climate change and energy efficiency to diversity and equal opportunities. The podcasts recorded during the campaign are hosted by external experts and our employees, and episodes are available to everyone on the Ignitis Group YouTube account and the #EnergySmart account on the Spotify platform.

– We a playroom for the children of the employees in the new office in Vilnius – we hope that this will help to better balance family and work responsibilities for those parents who do not always have a place to could leave their offspring during work.

– We developed an employee volunteering model: employees can take one paid day (8 hours) a year to volunteer in a variety of non-profit initiatives and

==> picture [461 x 234] intentionally omitted <==

Image of the internal sustainability campaign intro: "Sustainable Thursdays start on April 22nd. A more sustainable way for living and creating an energy smart world."

171 / 364

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Competent employees

We strive to learn everywhere and always. The Group‘s People and Culture Policy sets out the basic principles for employee education and learning. More detailed recommendations are set out in the policy implementation measures. Specific initiatives to improve learning and development are agreed upon for a threeyear strategic cycle.

The focus on specific learning needs is determined by the goals and skills required in the energy sector. We have created and are constantly improving the educational offerings portfolio, which includes curricula in various fields. At the Group, we follow the principle of the 70/20/10 education model, according to which 70% of growth takes place in the workplace, 20% – through peer-to-peer learning and feedback, and 10% of time is spent on formal education. Each employee and manager prepares their annual growth plan, identifying the growth goal, duration, measures, and target outcome.

Talent management

The Group’s talent management system helps identify employees who demonstrate excellent performance and high growth potential. We aim to promote talents, foster of their retention in the Group and their further career, provide talents with opportunities for self-realisation, and promote internal careers.

In order to retain talent, we conduct regular performance reviews with our employees. We expect feedback from employees during the annual conversations with each employee about the achievement of their goals. The Group hosts 1:1 meetings, formal annual reviews on the achievement of each employee’s and team’s goals. Employee feedback is also welcome on a daily basis without the need to wait for formal meetings. We collect formal assessments through quarterly eNPS surveys.

Leadership

The leadership model at the Group is defined by the leadership compass. It is a value-based leadership model. The four compass directions represent the main emphases an organisation makes when it comes to behavioural expectations for managers, with each direction having four detailed behaviours. Leadership compass directions:

– foster growth in my team;

I inspire a partnership based on each other’s strengths;
I build trust by promoting openness;
I enable others to take ownership.

The leadership development experience in the organisation is broad and segmented according to the role of the leader in the organisation and his/her accumulated experience: from the integration of new executives to international programmes for top executives. The Group leadership map includes five core programmes:

'The Growing Leaders League' (in Lithuanian – “Augančių lyderių lyga”) is intended for high-potential professionals who wish to grow into a leadership role. The programme helps ensure managerial succession, reduce and distribute the managerial workload;
'The League of Strong Leaders' is a three-module programme for new managers, which aims to unify the management knowledge in the Group;
'The Manager’s Journey' (in Lithuanian – “Vadovo kelionė”) is a core programme for all Group executives whose content is directly related to the leadership compass and performance management cycles in the organisation;
'The Expedition' is an international training package for top managers and board members;
'The Challenge Laboratory' is a discussion forum for managers, operating on the same principles as the Challenge Laboratory‘s emotional health topics described above, but more focused on leadership-related topics and the challenges that the managers face.

Strategic competencies

Strategic competencies are a set of standards of employee behaviour, skills and general work standards that are relevant to the entire Group, which form the exclusive basis of our organisation‘s activities and help to give meaning to the organisation’s mission, facilitate working towards the vision and strategic goals. Strategic competencies are our common strengths that contribute to building an organisation’s competitive advantage in the marketplace. Because of their significance, they are necessary for all employees, regardless of position (at varying levels). Strategic competencies include our knowledge, skills and experience that contribute to the implementation of the Group‘s strategy.

The Group has four common strategic competencies:

adaptability;
energy expertise;
entrepreneurship;
sustainnovation.

On 1 December 2021, the Group launched its in-house university – #EnergySmart UNI. It is an educational platform where everyone can develop strategic competencies and, thus, contribute to own personal growth and the achievement of the Group‘s strategic goals.

We have started the journey of developing strategic competencies with basic (first) level e-learning. Employees have already been offered first-level interactive e-learning modules for strategic competencies. Training modules for the remaining two strategic competencies will be developed by July 2022. Our goal is that by 2023, at least 80% of the Group‘s employees would have acquired first-level knowledge.

Focus areas and measures for strengthening the competencies of employees

Compulsory training is designed to maintain and enhance professional competencies;
Four strategic competence programmes;
Strategic successor training programme and mentoring;
Grow Academy training;
English language training;
Strengthening of digital skills (Agile, IT, data analytics);
External trainings, seminars and conferences to deepen and expand other competencies.

Measures to strengthen leadership competencies

Growing Leaders League;
League of Strong Leaders;
Manager‘s Journey;
Expedition;
Challenge Laboratory.

172 / 364

GRI 103-1/2/3

GRI 404-2

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Grow academy

Since 2019, the Group has been running the Grow Academy, an educational initiative where in-house lecturers train colleagues on various topics and develop their competencies. The aim of the initiative is to collectively create a culture of a learning organisation. There are two seasons at Grow Academy each year, during which employees are invited to register for training.

From 2022, the employees will be greeted by the renewed Grow Academy. Currently, employees are offered about 30 different training topics in the Grow Academy, which fall within the categories of personal development, digital skills development, and work-related topics. The content is available in three formats: live training (7 topics), remote learning (18 topics) and training videos (5 topics). Through this, we aim to adapt to the hybrid nature of work, ensure different ways of learning in the organisation, have greater access to training at a time convenient for employees, and make more efficient use of administrative resources.

Employee diversity and equal rights

We value the diversity of our employees and strive to ensure equal opportunities for all of our employees to fully participate in the organisation. It means equal opportunities to gain employment, work smoothly, receive a fair salary, feel good, grow, pursue a career, combine work and private life, and strengthen personal skills and talents. Therefore, as enshrined in the Group's Equal Opportunity and Diversity Policy, the Group companies do not tolerate discrimination, promote a work environment that reflects the diversity of society, and implement the principles of respect for diversity in their activities. The benefits of employee diversity for teams and the organisation as a whole are also important to the Group. When the Group consists of diverse people who feel engaged, valued, and have equal opportunities, this diversity brings better solutions, innovation, creativity, risk resilience, productivity, and employee loyalty.

The Group regularly collects and publishes data on the diversity of employees: their distribution by sex, age, education, profession, country of employment. Diversity data is a way to get to know the people at the Group and, given the fact that we are different, to create a work culture that is favourable and inclusive.

In 2022, we plan to take action to analyse the status of diversity and inclusion at the Group, to integrate diversity and inclusion themes into employee training curricula and to continue communicating the benefits and importance of diversity and inclusion.

Adaptation of new employees

We take care of the integration of new employees in the organisation, which consists of three main parts:

‘Newcomers’ Start’ is a video available to new employees at any time, which introduces the organisation, its values, relevant information and platforms to the new employee;
‘Newcomers’ Week’ is a virtual quarterly initiative. Over the course of several events during the week, we introduce new employees to business, the part of people and culture, and the current issues of the organisation;
‘Naujoklis’ and ‘Žaliamiestis’ are interactive virtual experiences for new employees of the Group during their three-month adaptation period. ‘Naujoklis’ is a virtual vine that a new employee must grow by completing tasks during this period. ‘Žaliamiestis’ is a virtual manager adaptation module – a virtual city with as many as four energy facilities: a cogeneration plant, a wind farm, a hydroelectric plant, and a solar power plant. To light up ‘Žaliamiestis’, the manager has to complete interactive tasks for three months, which help him/her to get to know the organisation from the manager's perspective.

173 / 364

GRI 103-1/2/3

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Key changes and achievements of 2021 in developing employee competencies

During 2021, a total of 91,165 hours were devoted to education in the Group.
The average number of training hours per employee in 2021 was 23.5 hours.
The Group has identified and refined strategic competencies and determined their levels for each employee. With the launch of the first competence development module, e-entrepreneurship training, in December, 1,800 employees gained first-level entrepreneurial knowledge.
3,958 employees participated in the internal trainings of Grow Academy. In order to adapt to the specifics of hybrid work, we have transformed Grow Academy into a hybrid format: training takes place live, remotely and by watching training videos.
A leadership model based on values, the Leadership Compass, has been developed and validated. According to it and the activity management cycles, a hybrid format for the main management education programme – Manager's Journey – for 2022 has been created.
An international training programme for senior executives has been developed.
Two groups of ‘The Growing Leaders League’ programme took part in the pilot sessions, and a programme of specialists with high potential was formed to strengthen leadership and management competencies.
We have automated the system for assigning mandatory training in order to ensure a smooth employee and manager experience. 2,379 employees participated in mandatory training.

– The centralised training package for the employee works in cycles. Areas offered: Leadership, English, Agile, IT, Digitisation, Personal and Professional Priorities, Grow Academy Training, Fail Talks, Mentoring, Team Building, Performance Management Training. The external training platform Udemy for Business and Audible are also used for this purpose.

Five major training programmes for employees and managers were substantially updated and transferred to an electronic training platform. The certification of energy sector employees has also been transferred to the electronic space.

– The strategic position succession programme is underway: 98 key strategic positions have been identified that are critical to the implementation of the organisation's strategy, 117 employees have been identified who could take over the

functions of key strategic positions if needed, and a training plan has been developed to strengthen the readiness for replacements.

==> picture [284 x 181] intentionally omitted <==

Key changes and achievements of 2021 in ensuring diversity, equality and human rights at the Group

– In order to consistently integrate diversity and inclusion issues into the development of the organisation and, thus, ensure favourable working conditions, organisational culture and microclimate for all employee groups, we have started to develop the Group's diversity, inclusion and wellbeing strategy, which will set out the priority areas to address. In order to ensure consistent and professional management of this area, we have established the position of the Group Head of Diversity, Inclusion and Wellbeing.

Employees themselves have contributed to increasing diversity and inclusion through the Diversity and Inclusion Group, which brings together people working in different fields at the Group's companies. This group organises and participates in guest lectures, expands its knowledge and competencies on diversity and inclusion topics, and plans to consistently develop its expert and educational focus.
We have strengthened the principles of equal opportunities

and non-discrimination in the selection process. From 2021, all job advertisements include the provision that the Group is an equal opportunity workplace, where all candidates are welcome, without discrimination based on race, religion, sex, sexual orientation or identity, age, disability or other characteristics not directly related to the job. We also make this statement available on the Group's website.

– We have started to develop a platform for monitoring diversity and inclusion indicators, integrating the cross-section on the gender demographic into the employee experience survey (eNPS).

We have partnered with the Women Go Tech mentoring programme (hereinafter referred to as WGT). This six-month programme helps women start or accelerate their careers in the fields of IT and engineering. 28 employees of the Group participated in the programme: 2 experts, 16 mentors and 10 participants selected from 26 candidates. We also

contributed to the ‘Discover Technology’ programme organised by WGT in the summer, where women could learn more about different areas of technology. In 2022, we will continue our cooperation.

– In cooperation with the Šiauliai STEAM Centre, we contributed to a series of lectures for school-age girls about women's leadership in the energy sector. In order to further the interest of women in career opportunities in IT and engineering, we are planning a communication campaign on careers in STEM and energy, reducing stereotypes about traditionally “female” and “male” professions.

We received the highest rating for our contribution to the implementation of the principles of equal opportunities within the organisation. We were awarded three Equal Opportunity Wings, the largest possible number of wings provided by the Office of the Equal Opportunities Ombudsman and the Human Rights Monitoring Institute in Lithuania.

174 / 364

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Safety and health of employees and contractors

The Policy also includes OSH management, which is aimed at creating a safety culture based on personal responsibility and collaboration. Top-level executives are responsible for a safe and healthy work environment, and a safety culture is perceived as a part of the organisation’s culture. The Group maintains an active dialogue with its employees on health care, monitoring, maintaining a safe and clean work environment, and improving health and safety conditions at work.

In order to ensure the safety and health of employees, we implement various measures at the Group and its companies, including:

Appointing the persons responsible for the implementation of OSH requirements in individual companies and the coordination of the OSH area at the Group level;
Assessing the safety and health risks associated with the workplace;
Planning and implementing preventive actions based on risk assessments;
Preparing instructions for safe work and organising mandatory instruction of employees;
Providing employees with personal protective equipment;
Installing safe workplaces;
Ensuring periodic health examinations;

To make OSH management efficient and effective, we are developing and maintaining electronic tools, such as:

ESO has a workplace inspection app. It is a key workplace assessment tool that can capture safety incidents, take photos and report them to the division’s management or the contractor in real time. The application is available to all ESO employees;
ESHOPIS is an electronic tool designed to provide employees with personal protective equipment. ESO employees and managers may order the required equipment, check its expiration dates, and the order information is automatically transmitted to the equipment delivery coordinator. The system also determines the status of all medical examinations applicable to employees;
ESO’s database, which allows to track the expiration dates of required certificates and permits and plan the required certificate renewal training courses more efficiently.

The OSH principles also apply to the Group‘s contractors. The team selects only reliable partners who meet the established safety and health requirements. Regular inspections are carried out at the contractors‘ workplaces. Violations are recorded, detected and rectified. In cases where this is not the case, work may be suspended. Group companies also organise training and safety days for contractors and implement other measures to strengthen safety.

A large part of all the Group‘s contractors perform work initiated by ESO. This company has established a contractor rating procedure that is used to assess the quality of contractors’ performance. It is not only the compliance with the contractual terms that is taken into account, but also whether the work has been carried out in accordance with the employee safety requirements as well as the number of recorded employee safety violations. The contracts contain special OSH provisions and provide for sanctions for violations.

The Group intends to initiate activities in 2022 to increase the engagement of its contractors and to encourage them to develop and adhere to a safe workplace culture. We are planning to provide relevant information to contractors, share good practices, invite them to events. The Group also plans to start calculating the TRIR indicator for contractors, which reflects the number of injuries in the contractors‘ companies for a certain number of hours worked for the benefit of the Group companies. After evaluating the initial data, we intend to set a goal to improve this indicator.

The need for working with contractors on OSH issues is one of the priorities of the Group, which is, unfortunately, illustrated by real examples. In 2021 there were no fatal accidents, but after the reporting period, in January 2022, a tragedy occurred – a contractor employee was fatally injured while clearing trees and shrubs under a high-voltage power line.

Organising periodic mandatory training of employees on the issues of occupational safety and health as well as implementing in-service training and retraining programmes;
Managing a comprehensive employee training monitoring database;
Performing workplace inspections and internal audits of our employees and subcontractors;
Recording and monitoring close-call incidents, injuries and other accidents;
Analysing violations and accidents and identifying rectifying actions;
Developing smart workplace inspection solutions;
Having a zero-tolerance policy towards intoxication at work.

175 / 364

GRI 103-1/2/3

GRI 403-1

GRI 403-2

GRI 403-3

GRI 403-5

GRI 403-6

GRI 403-7

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Key changes and achievements in 2021 in ensuring employee safety and health

– 86% of the Group employees work in corporate divisions certified to recognised occupational safety and health standards. We have consistently continued the supervision processes of the management system of ISO 45001 certified companies – ESO, Ignitis Gamyba, Ignitis and Ignitis Grupės Paslaugų Centras have successfully passed the supervision audits of external certifying companies.

– Taking into account the requirements of the legal acts of the Republic of Lithuania and seeking to involve employees more in the formation of a safe workplace culture, we formed the Occupational Safety and Health Committees at Ignitis Grupės Paslaugų Centras and Ignitis, and updated the regulations of the committees. Occupational Safety and Health Committees also operate at Ignitis Gamyba and ESO.

– The occupational safety and health professionals of the Group companies meet monthly to discuss common issues related to changes in legislation, improvement of internal processes, sharing good practices and inviting representatives to join meetings and other functions in order to raise awareness of the importance of occupational safety and health.

– In compliance with legal requirements and taking into account changes in workplaces, upgrades of functions or equipment, the Group companies have continued or updated the assessment of occupational risks in the workplace. Among the most important works are the risk assessment of Vilnius CHP workplaces, the risk assessment of the most dangerous tasks at ESO, and the preparation of action plans to reduce and eliminate such risks.

– We are carrying out an occupational risk assessment of the psychosocial and ergonomic factors of remote work in the Group's companies, the results of which will help reduce the potential risks of remote work.

– All employees of the Group had the opportunity to attend a physiotherapy workshop, during which employees were introduced to physical exercises recommended for those working in sedentary positions to avoid health problems due to improper body positions or uneven muscle tension.

– Taking into account the nature of the work, vaccination against tick-borne encephalitis of Group employees working in the field was continued. Hepatitis A and B, tetanus, and pertussis vaccinations were also made available for cogeneration power plant employees. All interested employees of the Group were given the opportunity to be vaccinated against influenza at the employer’s expense, and employees holding certain positions were given the opportunity to be vaccinated against pneumococcal infection.

– The Group companies that are required to prepare emergency management plans updated them and organised table and functional exercises at Ignitis Gamyba, Ignitis, Kaunas CHP, and the parent company of Ignitis Group, while ESO participated and helped the Ministry of Energy of the Republic of Lithuania to prepare civil protection table exercises. In preparation for work in emergency situations, ESO has initiated and implemented amendments to the gas safety rules and electrical safety rules, which allow work to be carried out without instructions in emergency situations.

– Compulsory training and certifications were continued in all Group companies in order to ensure the safety of employees. As the company with the largest number of employees, ESO has developed a safety education map and developed a new training programme for existing and new managers.

– Colleagues in the new Vilnius office underwent live first aid training, including the training on the use of a defibrillator.

– We were developing a process and methodology for monitoring the contractor safety indicator – Total Recordable Injury Rate (TRIR), so that we could start training contractors and collecting this data from 2022 onwards.

==> picture [300 x 430] intentionally omitted <==

176 / 364

GRI 403-4 GRI 403-8

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Work during the COVID-19 pandemic

The Group must guarantee uninterrupted performance of functions vital to the state, provision of energy services as well as ensure safe and healthy working conditions for employees. The COVID-19 pandemic posed challenges, but the Group has managed to coordinate these responsibilities and maintain operational stability. In 2021, compared to 2020, the impact of the COVID-19 pandemic on the Group‘s operations decreased, and the health and safety of employees remained among the Group‘s priorities.

Following the onset of the COVID-19 pandemic, a crisis management team was established within the Group to monitor the situation on an ongoing basis and to assess the latest information and changes in external factors and their impact on the Group‘s operations. In 2021, this team of employees of different Group companies, in cooperation with all Group companies and functions, continued the work, which was started in 2020, and further improved pandemic management practices. In order to ensure business continuity and favourable working conditions for physical and emotional health, the Group:

analysed data related to the pandemic and performed analysis of possible scenarios;
has made decisions on preventive actions;
has developed special rules for the organisation of safe work during a pandemic;
has introduced a hybrid work model;
has initiated an occupational risk assessment in companies related to remote work and implemented a plan for occupational risk prevention measures in 2021–2022;
offered employees the opportunity to receive free psychological assistance by telephone;
has performed an analysis of the organisation‘s impact on business, reviewed and updated business continuity plans for those activities that were considered the most important for business continuity;
has structured the process of purchasing personal protective equipment to ensure that all employees are provided with such equipment in a timely manner;

The Group‘s management pays special attention to the management of the risk of infection of employees whose functions are related to electricity generation, reliability of the electricity system, electricity and gas distribution and supply as well as those working on construction sites. These employees are provided with additional personal safety and hygiene measures while actions are developed and implemented to ensure their substitution. Equipment control points are isolated (they can only be accessed by employees with the necessary authorisations), customer service centres control the flow of customers, employees work in shifts.

At the end of January 2022, 90–99% of the employees working at the Group companies had received two doses of the vaccine. This significantly reduced both the incidence of serious illness and COVID-19 in the Group as a whole. Employees of generation companies and the new common office who do not have the national inoculation certificate are tested every 7–10 days.

Due to all measures taken and maintained by the Group as well as the responsible and systemic approach, the COVID-19 pandemic did not have a material impact on the Group‘s core businesses.

Customer service during the COVID-19 pandemic

During the pandemic, all customers are encouraged to use electronic services, which have not been subject to a service charge for some time.

During quarantine, ESO employees performed only the most necessary network work in order to minimise inconvenience to residents, most of whom worked from home.

In 2021 during the period of the quarantine, the clients facing financial difficulties had the opportunity to distribute debt payments over the period of up to six months.

At the end of quarantine, we serve our customers securely in customer service centres where:

customers must have a valid national inoculation certificate (at the time of application of this measure) or other documents approved by the Government of the Republic of Lithuania;
we ask our customers to wear face protection and keep a safe distance;
in order to protect yourself and those around you, we recommend signing up for a consultation in advance by calling the customer service.

==> picture [47 x 46] intentionally omitted <==

As of February 2022, the overall COVID-19 immunisation rate of the Group's employees was more than 93%.

provided the opportunity to take a paid day off in case of a side effect of the vaccine.

177 / 364

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Community relations

Close relations with the communities where we operate and with non-governmental organisations are one of the key principles of our cohesive and responsible operations set out in the Code of Ethics and the Sustainability Policy. We operate in a consistent and transparent manner, taking responsibility for our activities and cooperating with various organisations.

The Group‘s facilities and infrastructure (power plants, wind and solar parks, electricity and gas distribution networks) are geographically spread across different regions of Lithuania and

Maintaining relationships with communities

We voluntarily measure the level of air pollution around Vilnius and Kaunas cogeneration power plants. We consult with local communities in order to select appropriate measurement locations. The results are published on the websites of these companies.
We meet regularly with communities, landowners, municipal representatives and other stakeholders. We invite them to inspect our facilities.
We run educational campaigns, such as a large-scale ESO public education campaign on energy efficiency as well as safety when performing field work and working outside during storms, etc.
We provide an opportunity for communities located near the projects of Ignitis Renewables to apply for financial support for projects relevant to them.

neighbouring countries, therefore, the Group‘s activities may have an economic, social and environmental impact on the population in the vicinity of the Group‘s facilities. We understand that local people strive to live in a safe and good quality environment. Good relations with communities are important in the context of the Group as a whole, both in terms of new projects of Ignitis Renewables, activities of Vilnius CHP and Kaunas CHP, and long-term activities of Ignitis Gamyba as well as ESO.

As with all Group activities, we expect employees and partners to adhere to our Code of Ethics when dealing with communities. One of the mechanisms that helps us stay true to our commitments is a confidential Trust Line that can be used by all internal and external stakeholders in order to report potential or actual violations of our sustainability principles. For each wind farm project under development, we assign a responsible person who may be directly contacted by community representatives.

==> picture [510 x 357] intentionally omitted <==

178 / 364

GRI 103-1/2/3 GRI 413-2

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Key changes and achievements in 2021 regarding the engagement of communities

– We conducted a qualitative survey of members of local communities and focus group interviews (in Lithuania and Poland) in order to understand the issues and needs of the communities better and to improve cooperation.

– We have approved key documents that guide us in strengthening our relationships with our communities:

– Group Community Engagement and Relations Management Guidelines, which will help build our mutually beneficial, values- and strategy-based partnerships with communities;

– Group Financial Support Policy for communities located near the areas of operation of the Green Generation projects (Ignitis Renewables). Financial support may be provided for social, educational, artistic, cultural, scientific and sporting activities (excluding extreme and high-risk sports). No financial support was disbursed in 2021.

– We visited Lithuanian regions in support of the film festival ‘Film Caravan’. This project brings films to smaller cities and shows them for free – this provides a possibility for those who typically face more issues related to getting access to such films to watch them. The main themes of this year’s festival were sustainability and ecology. From July to the end of August, 40 locations were visited by this project. 12,800 spectators attended the screenings of the ‘Film Caravan,’ and a large part of them got acquainted with the activities of the Group, development of renewable resources, and received answers to relevant questions.

– We set up an exhibition at the Energy and Technology Museum, which educates the public about circular economy, the importance of reducing waste, and raises awareness about mindful consumption. From April 2021 to the end of the year, the exhibition was visited by almost 35,000 visitors. In Vilnius and Kaunas cogeneration power plants, we installed smaller versions of the exhibition so that their visitors could get acquainted with this information during the excursions.

– Ignitis, together with the Energy and Technology Museum, organises free lessons for students in 6–11[th] grades called ‘Ignitis Classroom,’ which stimulates kids‘ interest in energy, introduces them to pollution prevention and climate change mitigation measures, and promotes energy efficiency. In

2021, nearly 1,000 participants attended the remote learning programme. In 2022, we are planning to extend the lessons so that even more children can get acquainted with the field of energy.

– Kaunas CHP signed a cooperation agreement with the Kaunas District Municipality. The company plans to contribute to infrastructure improvement projects, events and other initiatives relevant to communities and the municipality.

==> picture [458 x 390] intentionally omitted <==

179 / 364

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

5 .7 Robust organisation

==> picture [49 x 50] intentionally omitted <==

==> picture [514 x 48] intentionally omitted <==

Main indicators

==> picture [730 x 366] intentionally omitted <==

----- Start of picture text -----

Change
Indicator Unit 2021 2020 2019 Comments
(2020/2021)
Ethical business, anti-corruption and transparency
Share of employees surveyed 38.1 38.0 n/d 0.1 pp
%
Share of employees who state that they do not tolerate corruption 97.3 96.0 n/d 1.3 pp
Communication and training on anti-corruption policies and procedures
Share of members of management bodies who are acquainted 100 100 n/d 0 pp 1The test on the Code of Ethics is an integrated
with the organisation's anti-corruption policies and procedures part of the Anti-Corruption Knowledge Test.
Share of employees who are acquainted with the organisation's 100 100 n/d 0 pp The target set out in the Group’s strategic plan is
anti-corruption policies and procedures to reach 100%.
Share of members of management bodies who participated in %
100 100 n/d 0 pp 2
anti-corruption training The test on the Code of Ethics is an integrated
part of the Anti-Corruption Knowledge Test.
Share of employees who participated in anti-corruption and Code
of Ethics training [1] 100 100 n/d 0 pp The target set out in the Group’s strategic plan is
to reach 80%.
Share of employees who passed the anti-corruption test [2] 96.9 94.4 n/d 2.5 pp
Ensuring access to energy
Calendar days [1] 37 29 32 27.6% 1Actual connection (2020 indicator updated
Average grid connection time
Calendar days [2] 40 42 45 (4.8%) compared to the 2020 report).
Share of new connections meeting the deadline % 95 95 93 0 pp 2 Annual target.
Km 42,028 40,380 39,225 4.1% 3
Electricity quality indicators during 2021 were
Total length of underground power lines
33.1 32.3 31.3 0.8 pp affected by extreme conditions caused by
% wet snow cover (end of January 2021), local
Share of underground power lines in forested areas 47 47 n/d 0 pp storms (during May–June and November–
Km per year 11 6 22 83.3% December 2021), but had less impact to SAIDI
Reconstruction of steel pipelines using polyethylene pipes indicator compared to the storm Laura in Q1
% 54.4 53.6 52.5 0.8 pp 2020. Electricity SAIFI indicator, which reflects
averagenumber of unplanned long interruptions
Electricity SAIDI [3] Min 201.95 207.67 91.8 (2.8%) per customer, increased when comparing with
Electricity SAIFI [3] Times 1.45 1.34 1.31 8.2% the previous year, while average duration of
unplanned interruptions (which is shown under
Gas SAIDI Min 0.47 1.61 1.25 (70.8%) SAIDI indicator), improved to 201.95 minutes
(compared to 207.67 minutes in 2020).
Gas SAIFI Times 0.01 0.01 0.01 0%
----- End of picture text -----

180 / 364

GRI 205-2

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

==> picture [730 x 421] intentionally omitted <==

----- Start of picture text -----

Change
Indicator Unit 2021 2020 2019 Comments
(2020/2021)
NPS (Net Promoter Score):
ESO customers 60 60 79 0 pp
Ignitis B2C service and customer relations % 55 and 60 56 and 72 n/a (1 pp) and (12 pp)
Ignitis B2B service and customer relations 43 and 17 67 and 35 58 and n/a (24 pp) and (18 pp)
Suppliers
Share of green procurement by value 24.1 n/a n/a n/a 1 The requirement to comply with the Supplier
Code of Ethics is included in standard contract
forms since the end of July 2021. Standard
Share of suppliers complying with the Supplier Code of Ethics [1] >90 n/a n/a n/a
contract forms with Supplier Code of Ethics
% included are used in more than 90% of initiated
Share of procured value for which supplier screenings were
94.2 > 90 n/a n/a public procurements.
conducted as part of procurement procedures [1]
Share of published procurements that received only one bid [2] 15.3 13.1 n/a 2.2 pp 2 The target set out in the Group’s strategic plan
is ≤15.
Other indicators
Share of employees who participated in data protection training [1] % 52 94 n/a (42 pp) 1 In 2020, all employees of the Group had to
Transparency rating according to the GCC’s Good Corporate A+ A+ A+ - participate in the training, and in 2021 – only the
Governance Index [2] newcomers and those for whom this is directly
Sustainalytics ESG risk rating [3] Rating 20.4 26.8 n/a (23.9%) relevant in respect of their job functions.
MSCI ESG rating AA A n/a - 2 The target set out in the Group’s strategic plan
Attempts to bribe employees Times 0 2 n/a (100%) is ‘A+’.
State tax paid 3 Overall ESG risk level is medium, approaching
Lithuania 277.5 239.4 145.0 (15.9%) the low risk category.
Latvia 15.1 8.6 9.2 75.6%
Estonia EURm 0.9 0.8 1.0 12.5% 4 Sustainable adjusted EBITDA is defined
according to the current EU Taxonomy
Poland 1.6 0.4 1.1 300% Regulation.
Finland 0.01 n/a n/a -
5 The examination of the information received
Sustainable adjusted EBITDA share [4] % 64 70 n/a (6 pp)
revealed that 80 reports of possible theft of
Trust Line reports [5] electricity, improper work by employees or
Total received 812 510 n/a 59.2% contractors were confirmed. We also received
2 reports on possible corruption, however,
Units
of which, confirmed 80 88 n/a (9.1%) this information was not found to be true after
verification.
----- End of picture text -----

181 / 364

GRI 207-4

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Why this is relevant to us

Implementation and maintenance of good corporate governance principles

Transparency, anti-corruption and the fulfilment of one‘s responsibilities form the basis of a responsible and successful organisation.

We constantly strengthen the development of the principles of responsible business, do not tolerate any form of corruption, and adhere to high standards of ethics, accountability and transparency. The EU documents regulating market abuse as well as documents and guidelines of the Bank of Lithuania, Nasdaq Vilnius, London Stock Exchange, and European securities and market institutions are integrated into our day-today activities.

Ethics and anti-corruption

We ensure ethical governance of the Group with zero tolerance for corruption through the following measures:

Risk analysis and management;
Internal policies and standards (e.g., related to anti-corruption, anti-bribery, market abuse, conflicts of interest, gifts, etc.);
Code of Ethics;
Procedures and control mechanisms (such as procurement rules, screening of partners, due diligence of candidates, declaration of private interests of employees, rules on the management of insider information, gift register database, resolution of potential cases of corruption or ethical irregularities);
Annual plans and targets in this area;
Monitoring and raising employee awareness of corruption. All new employees of the Group must be officially familiarised with the Anti-Corruption Policy and participate in mandatory anti-corruption awareness and business ethics training;
Monitoring of non-compliance (including the use of the Trust Line for anonymous whistleblowing);
We apply a clearly defined procedure for appropriate and inappropriate gifts, other benefits. The Group does not give any gifts to business partners, unless required by standard international protocol. We encourage our business partners not to give any gifts to our employees. To thank our employees, we invite everyone to do so not with gifts of material value, but with attention and kind words. All gifts received or provided are registered in the Group‘s gift register.

The Group‘s Business Resilience coordinates sound management of these aspects while cooperating with colleagues from the Group companies directly responsible for the implementation of standards and policies. The Risk Management and Business Ethics Supervision Committee under the Group‘s Supervisory Board is responsible for submitting conclusions or proposals on these aspects to the Supervisory Board.

Key changes and achievements in 2021 in applying transparency and anti-corruption principles at the Group

It has been attested that the unified Anti-Corruption Management System (ACMS) in place at the companies of Ignitis Group complies with the requirements of the international certificate ISO 37001. The parent company is the first listed company in Lithuania to receive such a certificate. By ensuring compliance with the requirements of the certificate, we reduce the risk of corruption at the company and implement various anti-corruption measures.
As every year, we conducted a survey on corruption awareness in the Group companies, which shows that the corruption awareness in the Group has remained very high for several years.
In order to contribute to a more transparent future, we organised a hackathon with the Special Investigation Service on creating an anti-corruption environment with more than 100 participants. Read more about the hackathon online (link only in Lithuanian).
The Lithuanian branch of Transparency International (hereinafter referred to as LBTI) rated the Group companies with the highest transparency score. More information is available on the LBTI website (link in Lithuanian).
The Transparency Academy, coordinated by the Special Investigation Service, awarded Ignitis Group for the greatest involvement in anti-corruption initiatives in the nomination for “The greatest contribution to changes”. More information is available on the Group‘s website (link in Lithuanian).
In 2021, there were three legal proceedings related to possible anti-competitive behaviour, abuse of a dominant position, or the implementation of good governance in the area of long-term incentives and motivation of employees and managers.

182 / 364

GRI 103-1/2/3

GRI 206-1

GRI 419-1

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Data protection

The Group pays great attention to the protection of personal data to ensure the security, confidentiality and compliance of data processing activities of the Group‘s employees, customers and partners with the requirements of the EU General Data Protection Regulation (hereinafter referred to as the GDPR).

The Group's Personal Data Protection Policy and the Data Protection Guidelines form the basis of a unified data protection management strategy and objectives. The Group implements technical and organisational measures to protect personal data against accidental or unlawful disclosure, alteration, destruction or other unlawful processing of data. During the implementation of the GDPR, the Group periodically updates the records of data processing activities, performs assessments of the impact of data protection and the protection of legitimate interests and risks in the area of personal data protection. Personal data protection training for employees is held annually, with the aim of involving as many employees of the Group as possible. In 2020, we made the personal data processing requirements available to all employees of the Group during training (performance >80%). In 2021 training was available only for newcomers and those for whom this is directly relevant in respect of their job functions (performance >50%), as for the latter Group more complex subjects need to be covered than are relevant to all employees.

Examination of reports

In 2021, the Trust Line received 812 reports. Most of them were related to the quality of services provided and were passed on to customer service divisions. Extensive verification of the information received revealed that 80 reports of possible theft of electricity, improper work by employees or contractors were confirmed. 2 reports of possible cases of corruption were also received, but this information was not found to be true after verification.

The Group encourages all stakeholders to report about possible violations of internal or external legal acts performed by the Group’s employees or business partners anonymously and confidentially. The Trust Line, as a means of reporting potential violations, is set out in the Group‘s Code of Ethics, Anti-Corruption Policy, Sustainability Policy, Environmental Policy and Policy of Equal Opportunity and Diversity.

In cases when the received report or the information provided in it meets the provisions of the Law on the Protection of Whistleblowers of the Republic of Lithuania, no later than within 2 business days from the receipt of the report, such report must be forwarded to the Vilnius Regional Prosecutor‘s Office. There were no such reports in 2021.

The Group ensures the possibility to report anonymously and protects the confidentiality of whistleblowers. Reports are processed in accordance with the procedure established by the Group‘s internal legal acts and are investigated in accordance with the rules of the Internal Investigation Commission approved by the Group.

==> picture [426 x 110] intentionally omitted <==

----- Start of picture text -----

Are you concerned about the activities conducted by us or our partners?
Report any violations related to ethics, corruption, environmental protection, equal opportunities
and other possible violations of legal acts performed by the Group‘s employees or business partners
Trust Line anonymously and confidentially.
Online form [email protected] +370 640 88889
----- End of picture text -----

Are you concerned about the activities conducted by us or our partners? Report any violations related to ethics, corruption, environmental protection, equal opportunities and other possible violations of legal acts performed by the Group‘s employees or business partners anonymously and confidentially.

Key changes and achievements in 2021 in ensuring the security of personal data

We developed new mandatory virtual training courses on personal data protection, which emphasise data protection impact assessment, legitimate interest assessment, data processing contracting processes and their significance.
We organised a specialised data protection training for the Group‘s lawyers, communication, customer service staff, partners (service providers).
We updated the Group‘s Personal Data Protection Policy, personal data protection guidelines and data breach management process, and confirmed the rules for the assessment of legitimate interest.
To ensure that data processing agreements are signed with partners (service providers) who are processing personal

data of employees/customers, we have established a process of data processing agreements and digitised the management of certain personal data protection processes. For example, when a data processing agreement expires, the document management system automatically sends notifications to data processors requesting the deletion and/ or return of personal data as well as sending the company a confirmation of the action taken. These changes help to ensure that the list of data processors is always up-to-date.

– We paid a lot of attention to the assessment of the compliance of the systems used in the Group‘s activities for the processing of personal data with the requirements of personal data protection. Following the recommendations of the State Data Protection Inspectorate (hereinafter referred to as the SDPI), we have identified and applied the

necessary changes to the information systems in order to ensure compliance with the requirements of the GDPR and to implement best practices.

– We actively cooperated and consulted with the SDPI regarding the communication with consumers in the context of the process of the liberalisation of the electricity market. We provided information in accordance with the provisions of Law on Electricity of the Republic of Lithuania governing the processing of personal data.

In 2021, the Group companies submitted five reports on data security breaches to the SDPI. SDPI confirmed that in all these cases the Group or the Group company had taken all the necessary steps to eliminate/control the breach, therefore no warnings and/or fines were imposed.

183 / 364

GRI 102-17

GRI 103-1/2/3

GRI 205-3

GRI 418-1

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Reliable energy system

Assurance of access to energy

Reliable technical conditions, physical connectivity, communication with customers, risk management – all of this is included in the process of ensuring access to energy. All Group companies responsible for energy generation, distribution, supply and all ancillary functions are involved in ensuring adequate energy access.

Anyone who wishes to connect to the distribution operator‘s network and use electricity has the right to do so. The costs related to this right (connection fees) are reviewed and determined by the National Energy Regulatory Council (NERC) at the end of each year. ESO increases the flexibility of services so that consumers can change their electricity consumption or generation profile in response to external signals (e.g., market price, ESO’s or Lithuanian transmission system operator (TSO) Litgrid’s signals related to changes in consumption or generation). In this way, customers can obtain financial benefits and ESO and Litgrid may make more efficient use of the infrastructure.

ESO constantly monitors the process of connecting new customers to the network and strives to shorten this period. This is achieved by improving the efficiency of internal processes and setting specific requirements for contractors who perform the required work.

Electricity supply can be cut off for several reasons: outdated equipment, damage caused by natural disasters, and other causes. Overhead lines are more vulnerable to natural disasters: falling trees, snow and ice can cut wires and falling branches can cause short circuits. Although underground power lines are more weather-resistant, their malfunctions take longer to detect and they can be vulnerable to excavation works, especially in highly urbanised areas.

One of the key measures in ESO‘s investment plan is the replacement of overhead lines with underground cables (prioritising the replacement of unreliable lines in the areas where power is frequently disrupted) and voltage quality improvement solutions, including the replacement and reconstruction of unreliable steel natural gas pipelines and other unreliable elements of the electricity and natural gas networks. During natural disasters, more than two-thirds of all power outages are caused by trees. The newly amended regulations on the maintenance and management of trees growing in electricity network security zones provide for the management of hazardous trees in the security zones of ESO electricity networks that are higher than the distance from the tree to the overhead power line networks. This will ensure a safer and more reliable distribution of electricity to Lithuania’s residents.

Improvement of network reliability through network reconstruction

==> picture [234 x 173] intentionally omitted <==

----- Start of picture text -----

Situation Goal of
in 2021 2030
Total length of underground 42,028 km 52,345 km
power lines
Share of underground power 47% 72%
lines in forested areas
Reconstruction of steel pipes 11 km 155 km
using polyethylene pipes
----- End of picture text -----

Access to gas is ensured through the search for alternative solutions for the purpose of securing the supply of natural gas. One of them is looping the gas network. This is a measure to ensure the reliability of the network when several or more branch pipelines are interconnected into a single loop, which will allow for an alternative gas supply route to customers in the event of a breakdown or pipeline repair.

Actual and planned investments into upgrading electricity and gas distribution networks and improving resilience to the natural environment

==> picture [234 x 125] intentionally omitted <==

----- Start of picture text -----

2020 2021 2029
58 .65 EURm 100 .84 EURm 1 EURbn
About 45% of the Group‘s total
investment portfolio in 2022–2025
45%
is planned to be allocated to the
Networks segment.
----- End of picture text -----

Reducing the impact of energy price changes on consumers

As the price of electricity and natural gas in the market rose, prices also increased for consumers. This has created or may in the future create financial difficulties for some consumers. In response and to amortise electricity and gas prices to consumers in such a way as to avoid shocks caused by sudden price increases, the relevant legislation has been amended which, depending on the financial capacity of the supplier, allows price increases to be amortised. Such a mechanism shall not allow the price of supplied public electricity or natural gas to increase for final customers by more than 40%.

To properly implement these decisions and to cover the difference between the prices of electricity or natural gas (raw materials) purchased and sold, Ignitis adopted a resolution in November 2021 and borrowed more than EURm 300.

Customers who have opted for an independent electricity supplier during Phase II have been given the opportunity to choose the option that is financially best for them: if the established independent supply price is lower than the public supply tariff, the independent supply contract will take effect from 1 January 2022, if the public supply tariff is nevertheless more favourable, we recommend using it until July 2022.

184 / 364

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Security and stability of the energy system

Transformation towards green energy:

In 2021, over 5,000 prosumers (mostly solar power plants) were connected to the grid. In total, over 14,000 prosumers (excluding remote prosumers) are already connected to the distribution network. Given the increase in the number of prosumers, a lot of attention is paid to the development and stability of the common and local network.

We initiated legislative changes related to the definition of permissible volume of power generation. This will enable a more efficient use of the distribution network and will increase the number of prosumers.

As the number of prosumers grows, the need for network reconstructions may increase accordingly, therefore, ESO is conducting a pilot battery project in search of the optimal solution. Its purpose for the customer is to save the excess energy generated by the customer and to enable its use according to the prosumers’ scheme, and for ESO to connect more renewable energy sources without changing its network structure. This avoids additional investments in the distribution network and maintains the quality of the network vis-à-vis its neighbours.

More and more people are installing solar power plants, so it is important for them to be able to find out about the possible failures of such a power plant as soon as possible. Using artificial intelligence, ESO has developed and implemented an innovative and unique idea that informs solar power plant owners about equipment failures.

To provide clear and high-quality information on the installation of solar power plants and other related issues, ESO has set up a helpline for renewable electricity prosumers. By calling the short ESO number 1852, you can select consultations on solar power plants.

Lithuania is largely dependent on energy imports, so local energy generation capacities are very important for the country‘s energy security. The Group‘s subsidiary Ignitis Gamyba manages the facilities of the Flexible Generation segment. The system services provided by these facilities ensure the stability and reliability of the energy system, help prevent and respond to accidents in the system and maintain the necessary power reserve in accordance with the established requirements for the quality and reliability of electricity supply.

The Group also contributes to the goals of the National Energy Independence Strategy adopted by the Lithuanian Parliament in 2018. For example, the Flexible Generation segment also seeks to contribute to the successful synchronisation of the Baltic countries with the Continental European grid, which would increase Lithuania‘s ability to manage its electricity system independently. Connection to the Continental European networks and synchronous operation with Poland, Germany and other continental European countries will be ensured by 2025.

==> picture [309 x 338] intentionally omitted <==

We are also the main designated supplier of the liquefied natural gas (LNG) terminal. This means that we are responsible for ensuring the minimum supply of liquefied natural gas to the LNG terminal in Klaipėda (through the Customers & Solutions business segment). The LNG terminal is the only alternative to Gazprom until the gas pipeline connection with Poland (GIPL) becomes operational in 2022.

185 / 364

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Key changes and achievements in 2021 in ensuring the stability and reliability of the network

– At the end of the year, Kruonis PSHP and the combined cycle gas turbine (CCGT) operating at the Elektrėnai Complex successfully participated in the historic test of Lithuanian and Polish electricity transmission system operators Litgrid and PSE, during which a part of the Lithuanian electricity system worked synchronously with the Polish system for the first time and, at the same time, with the synchronous zone of Continental Europe. During the test of emergency assistance via a synchronous connection, a situation was simulated when, after the shutdown of the large Lithuanian power plants, which have the capacity to initiate a black start, the electricity is supplied to them from Poland. The 12-hour test went smoothly – the electricity supply was uninterrupted, and electricity consumers did not even feel the effects of the test.

– Over 2021–2023, we will reconstruct 1,300 km of power lines in forested areas, which will benefit about 344,000 customers. Lines that disconnect more frequently will be prioritised (10 kV overhead lines included in the upcoming reconstruction plans disconnect 2.4 times a year on average). We prioritise the power lines where, with the same investment, the reliability of energy supply will be improved for as many customers as possible.

– We have developed and approved a long-term network automation investment programme, which should increase the resilience of the electricity distribution system to the effects of natural phenomena in the most economically and technologically efficient way, i.e., to disconnect as few customers as possible during a power failure. In search of optimal solutions, ESO plans to carry out experimental pilot projects, during which it will evaluate the possibilities of applying them on a larger scale.

– Over the last few years, we have made significant investments for the purpose of making the network smarter and assessed the benefits of these investments during 2021: at the time of a natural disaster, 32% of all disconnected customers had their electricity supply restored with the help of automated and remote network management solutions; when one power line was interrupted, electricity was supplied from the other lines.

– This covers 20,000 more customers compared to March 2020, where only 28% of affected customers were resupplied with electricity using this method. Ten years ago, this figure stood at only 4%.

– ESO, together with the Group Innovation Hub, is testing new voltage regulation technologies that would allow flexible voltage management in electricity distribution networks. The system, which automatically regulates the voltage in each phase of the electricity network using reactive power modulators, is currently being tested. If necessary, the voltage value in the network can be increased or decreased, thus ensuring the smooth operation of consumer equipment. During the pilot project, ESO is looking for the most innovative solutions for application in Lithuania.

– We have digitised the administration process of network damages by third parties and initiated legislative amendments to increase fines and sanctions for such actions. We have put in place a self-service third-party project coordination process, which will allow us to ensure a reduction in the number of network breaches and to manage related security issues. We run communication campaigns and regularly provide information on the principles of safe work in proximity of the networks.

– ESO acquired and successfully tested the first mobile transformer in Lithuania, which can be stationed anywhere in the country. The modern transformer is designed to serve as a replacement for an existing transformer in the event of a complete failure of internal power distribution equipment. This will ensure greater resilience of the energy distribution network in the event of an accident or maintenance, and faster restoration of electricity supply to customers.

– To accurately and efficiently assess the vegetation that poses the greatest threat to network stability, ESO is using innovative methods to inspect the overhead power lines using LiDAR (Light Detection and Ranging) technology. The scan collects the information from above, then processes it, classifies the detected objects, identifies the vegetation and the overhead power lines themselves. Thanks to the smart inspection, it is possible to accurately identify the most dangerous trees and even their heights, thus more objectively identifying the trees that represent the greatest hazards. About 8,000 km, or one-fifth of all medium-voltage overhead lines, which is about 40,000 km in total, will be inspected over 2021–2022.

– Along with LiDAR technology, photographic equipment is used, which allows the workers to capture a real image and assess the current state of the infrastructure, find discrepancies in the systems, etc., more easily and accurately.

– For the inspection of overhead power lines, we also use drones that not only help to inspect the lines faster and find network failures, but also to detect cases of power theft.

– After the natural disasters that occurred at the beginning of the year, we signed an agreement with the State Border Guard Service (hereinafter referred to as SBGS) on the use of helicopters by the Border Guard Aviation Team in case of natural disasters. In the future, SBGS specialists will help to quickly determine the location and extent of overhead power line failures from the air.

– We made two major changes in the process of connecting new customers: we started charging for the submission of applications, which expedited the process of applying for a connection to customers and made it possible to place an order and monitor the service stages in the ESO self-service portal.

– Only a small number of new grid connection projects were not completed on time. Six years ago, the process took almost 70 days, but we managed to almost halve the connection time due to the increased efficiency of internal services and IT solutions, the reduced role of unnecessary process elements, improved the procedures of public procurements and made changes in legislation.

==> picture [253 x 206] intentionally omitted <==

186 / 364

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Preparation for unforeseen outages

The Group companies, as owners of strategically important flexible generation and distribution infrastructure, have developed detailed contingency plans and procedures. Power generation and other facilities, including distribution infrastructure and information systems operating these facilities, may be affected by system failures, power outages, capacity constraints and physical damage caused by natural disasters as well as various other emergency situations that may interrupt the generation and distribution of energy and other business processes of the Group.

In 2021, the Group Business Continuity Standard was updated, which regulates the main elements and responsibilities of business continuity. The Description of the Group Business Continuity Management Process has also been revised, which is used to assess the key activities and/or key business processes, and prepare for the smooth continuation of activities in the event of various threats and situations.

The plans for the Continuity of Operations, Crisis Management as well as the Emergency and Disaster Recovery Plans are developed by individual Group companies. Training exercises and testing of plans are also held regularly by the Group companies.

In 2021, despite the pandemic, the Group ensured the stable operation of the energy generation units and the distribution network, as well as the health and safety of employees.

Cybersecurity

The Group‘s operations depend on the proper functioning of the Group‘s key information technologies (IT) and operational technologies (OT). The Group’s operations may be disrupted by IT and OT failures, by data breaches or other cyberattacks. Therefore, cyber security is an essential component of the overall security and protection of the Group‘s activities.

The Information Security Policy sets out the direction and principles that ensure the security of information and the proper management of the related risks in the Group. The Group ensures information security by operating in accordance with international information security standards (ISO 27001, IEC62443) and global best information security practices. The information security management system of Ignitis Grupės Paslaugų Centras is certified according to the ISO27001:2017 standard, which forms the basis of a unified data protection management strategy and objectives. This company is the Group‘s primary IT service provider, ensuring that other Group companies have access to secure IT services.

We manage cyber security risks by periodically assessing the information security risks of vital processes, IT and OT systems. In order to ensure information security, we train employees and systematically respond to information security incidents and vulnerabilities. Process owners of information assets, IT/ OT systems, OT devices, and other vital business processes have been appointed in each company. Information security obligations are included in agreements with third parties, which must ensure the same level of information security as the Group.

We pay a lot of attention to the safe remote work of employees and to increasing their awareness, not only by organising periodic mandatory information security training, but also by conducting periodic mock of attacks directed at employees.

We are especially focused on infrastructure and services, the disruption of which would be important not only for the Group, but also for the Republic of Lithuania. We regularly cooperate with the National Cyber Security Centre and other authorised institutions in order to ensure the cybersecurity of relevant infrastructure and services. Modern technologies that meet the security practices and use the most advanced encryption algorithms have been selected for the implementation of smart electricity metering solutions.

==> picture [37 x 37] intentionally omitted <==

Despite the pandemic, the Group ensured stable operations.

187 / 364

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Customer service

The Group companies which have the largest share of direct contact with customers (Ignitis and ESO) follow set customer service standards, regularly monitor the results of these activities and carry out various customer service improvement projects.

ESO serves about 1.8 million customers throughout Lithuania. At the end of 2021, Ignitis provided all major energy-related services to more than 1.53 million private and approximately 21,000 business customers.

Ignitis customer service centres in major Lithuanian cities are adapted for people with reduced mobility with:

Unobstructed entrances, allowing customers with reduced mobility to enter the centres;
Enough space in the customer service halls and no obstacles restricting the movement.

We intend to further adapt customer service centres for people with disabilities, for example, by improving the conditions for leaving cars at customer service centres for people with reduced mobility, and adapting navigation markings for customers with visual impairments.

Customer satisfaction with ESO and Ignitis is measured using the Net Promoter Score (NPS). The transactional NPS is collected immediately upon contact with the customer and reflects customer satisfaction upon request, and the relational NPS is measured twice a year using a statistically significant sample that reflects the overall customer perception of the company. In 2021, the NPS of ESO customers remained similar to the 2020 level, while the NPS of Ignitis customers decreased slightly in both private and business customer groups.

Communication with customers

Self-service portal www.ignitis.lt/savitarna – about 300,000 users per month

Mobile self-service application – about 25,000 users.

Call centre – up to 7,000 calls a day

6 customer service centres in major Lithuanian cities

Newsletters

Managers for business customers

Self-service portal mano.eso.lt – about 200,000 users per month

ESO portal – about 300,000 users per month

Call centre – an average of 3,500 calls per day

About 7,000 customer inquiries per week through various channels

Information on the planned power outage is sent to the customers by an SMS message not later than 5 calendar days in advance and indicating the planned time and duration of the outage

Real-time information on the operation of the electricity distribution network and planned and unplanned disruptions can be found on the interactive map: www.eso.lt/zemelapis

==> picture [285 x 401] intentionally omitted <==

188 / 364

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Procurement and supplier engagement

By responsibly purchasing the services, products and works required to perform the Group‘s activities, we promote transparent, responsible and sustainable solutions in the market. The main elements of the Group‘s procurement management are:

Public procurement processes that are regulated by the laws of the Republic of Lithuania and internal legal acts: Public Procurement Policy, guidelines, standards and other documents;
A centralised public procurement at the Group, allowing for a unified procurement process with a more flexible allocation of the necessary resources;
Annual procurement planning;
Constantly monitored system of quantitative and qualitative indicators of public procurement, which helps to effectively detect deviations from the set goals and to take urgent action.

All types of procurement are subject to the standard of recusal and recusal procedures of the Group‘s employees, which ensures proper management of conflicts of interest, measures to prevent them, enforces decisions in accordance with the principles of impartiality, transparency and openness, thus fostering an environment free of corruption.

In all public procurements (except low value and simplified), suppliers must confirm that there are no grounds for excluding them from participating in the procedures. The basis for exclusion may be criminal activity, fraud, corruption, acts of terrorism, money laundering, child labour or other forms of human trafficking, tax evasion, illegal agreements, professional misconduct, etc.

The Group applies the same standard for the award, performance and enforcement of contracts as well as other internal legal acts. Contracts stipulate that suppliers undertake to comply with the Anti-Corruption Policy and the Code of Ethics when performing contracts. We have also introduced a Supplier Code of Ethics, which is included in all new Group contracts concluded with suppliers. All contracts include contract enforcement mechanisms (fines, interest on arrears, bank guarantees, etc.) and provisions on compliance with environmental, safety standards and occupational safety requirements.

The Group has consistently sought to integrate sustainability criteria into supply chain management. We have focused on developing a green procurement model, and from 2022, the

High-level requirements in the Group‘s public procurement

Additional measures may be taken during the procurement procedure in order to verify that suppliers are able to comply with applicable national environmental, social, safety and/or labour standards and the requirements set by the Group.
In carrying out green public procurement, the Group applies the environmental criteria set out in the Order of the Minister of Environment of the Republic of Lithuania.

In some cases, additional energy efficiency requirements and other environmental requirements (such as compliance with environmental management systems or standards) may apply.

If the procurement is related to national security and preestablished criteria are applied to it, before it is concluded, we, together with the Ministry of National Defence of the Republic of Lithuania, assess the technological risks related to the critical infrastructure. Before concluding contracts related to national security, we make sure that the suppliers’ compliance with the interests of national security has been assessed by the Commission for Coordination of Protection of Objects of Importance to Ensuring National Security.

Contracts with the winners of commercial and regulated procurement are awarded only after due diligence of the supplier in accordance with the Anti-Corruption Control Standard.

Group will launch socially responsible procurements aimed at having a positive impact on society by including new criteria for assessing social aspects, promoting employment opportunities, upskilling and retraining, decent work, social inclusion, equal opportunity, diversity, good corporate governance practice, transparency, ethical trade, etc. For a procurement to be considered socially responsible, it must meet at least one of the following requirements:

The procurement documents set out the requirements for social criteria for suppliers, purchased goods, provided services or performed works;
The procurement requires that the supplier has not committed any violations in the field of social law and/or labour law, i.e., does not meet the grounds for exclusion of the supplier;
Goods, services or works are procured from social organisations.

==> picture [46 x 46] intentionally omitted <==

In order to create an energy-smart world and a more sustainable future, we apply high legal, ethical, environmental and social standards not only in our operations but also in our supply chain.

Information on the Group's public procurement

==> picture [243 x 23] intentionally omitted <==

----- Start of picture text -----

2021 2020
----- End of picture text -----

Share of purchases made via public procurements, %	88.3	96.9
Share of purchases with only one bid received, % Share of costs for local suppliers, %	~17 ~70	2 80
Value of green public procurement out of total value of all successfully completed	24	<1*
procurements,%

The principles of green procurements have been applied in the Group‘s procurements since July 2021

189 / 364

GRI 102-9

GRI 103-1/2/3 GRI 204-1

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Key changes and achievements in 2021 in encouraging suppliers to apply the principles of sustainability

– We approved the Group Supplier Code of Ethics, the provisions of which are included in all standard contract forms. While we plan to conduct audits of key suppliers in order to assess compliance with the Code, our goal is to create opportunities to work together in a sustainable manner, therefore, we will also focus on educating suppliers about various aspects of sustainability. The Supplier Code of Ethics is based on the best global practices and reflects the Group‘s commitment to strengthening sustainable cooperation with suppliers by promoting legal, professional and fair business practices that incorporate environmental, social responsibility and business ethics objectives. The Code sets out standards of business conduct that all Group suppliers are expected to comply with and, where possible, exceed.

– We have developed a model for the application of the principles of sustainable development in procurements, which includes not only green, but also socially responsible and innovative procurements. Read more about this on our website.

– We aim to make all public procurements green from 2023 onwards. During the transition period – from 1 July 2021 to the end of the year – the share of green public procurements more than doubled, and in 2022 we aim to make it at least 50% of the total value of public procurements. Depending on the object of the procurement, the green procurement procedure includes one or more conditions: minimum environmental criteria, requirements for the Type I eco-label, requirements for an environmental management system and/or individual requirements for the procurement that comply with environmental principles. A monitoring system for green public procurement indicators has also been set up to monitor progress.

==> picture [423 x 377] intentionally omitted <==

190 / 364

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

Sustainable financial instruments

Green bonds

Due to its size and unique position in the Lithuanian capital market and the wider Baltic region, we promote the development of a sustainable financial market. For the Group, green financing is one of the strategic transformation tools to secure investments in sustainable energy solutions in the future.

The Group has completed a total of three bond issues of EUR 300 million each. The first two – in 2017 and 2018 – were green bond issues. The Independent Norwegian Centre for International Climate and Environmental Research (CICERO) and the Swedish Environmental Institute have awarded the Group‘s green bond programme the highest green category.

The funds received from the green bonds have been allocated for the implementation of various projects that will contribute to the development of the Green Generation segment, as well as increase the resilience and reliability of the network. The implementation of these projects will contribute to the reduction of carbon dioxide emissions. The projects meet the eligibility criteria set out in the Green Bond Framework (link in Lithuanian).

In the Green Bond Investors Letter, the Group announced the use of funds for eligible projects and their perceived positive impact on the environment. More information can be found on the Group‘s website (link in Lithuanian).

EU taxonomy

The Group is planning further investments in the development of Green Generation, increasing the efficiency of the distribution network, and electric vehicle charging development projects. Information on the compliance of the Group‘s investments and other financial indicators with the currently available version of the EU Taxonomy Regulation and the planned actions related to it are discussed in the ‘Overview’ section of the Group‘s Annual report 2021.

Financing smart energy solutions

The Ignitis Innovation Fund, established in 2017, provides funding for early-stage start-ups in the energy sector. In addition to funding start-ups and promoting the development of energy solutions, the Ignitis Innovation Fund helps to attract talent and ideas from the outside, the potential of which can be used to increase the quality and efficiency of services. The activities of the venture capital fund also contribute to increasing Lithuania‘s competitiveness in the field of energy technologies.

In 2021, the fund managed by Contrarian Ventures directed 13 investments to nine start-ups in Lithuania, Israel, Sweden, France, Switzerland and the United Kingdom – the total amount of investments in start-ups made through the Ignitis Innovation Fund amounted to EUR 4.1 million. By the end of the year, the fund had invested a total of EUR 9.3 million.

==> picture [46 x 46] intentionally omitted <==

The total amount of investments in start-ups made through the Ignitis Innovation Fund amounted to EUR 9.3 million. The total asset value reached EUR 25.3 million.

More information about the Ignitis Innovation Fund can be found in the Business Overview section of the Group‘s Annual Report and on the website of the Ignitis Innovation Hub.

Main start-ups invested in by Ignitis Innovation Fund in 2021

==> picture [88 x 44] intentionally omitted <==

Green hydrogen generation technology that does not emit carbon dioxide

==> picture [102 x 28] intentionally omitted <==

Solar power plant design and engineering

==> picture [117 x 38] intentionally omitted <==

Electric vehicle charging solutions

==> picture [105 x 42] intentionally omitted <==

Sustainable mobility solutions

191 / 364

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

5 .8 Memberships and partnerships

We carry out sustainable activities together with our partners. By participating in the activities of various organisations, we share our experience and learn from others.

In 2016, the Group expressed its support for the United Nations Global Compact and committed itself to implementing its activities in accordance with the 10 principles of the pact. As a member of the Baltic Institute of Corporate Governance (BICG), the Group contributes to improving the transparency, competitiveness and governance of companies in the Baltic region. The Group also participates in the activities of the National Lithuanian Energy Association (NLEA), the Lithuanian Responsible Business Association (LAVA) and the Diversity Charter Lithuania.

In 2018, Vilnius and Kaunas CHPs joined the Confederation of European Waste-to-Energy Plants (CEWEP).

In 2019, the Group joined Wind Europe, which unites members of wind industry in Europe and the world. Group companies developing renewable resources projects participate in the activities of the Lithuanian Wind Power Association (LVEA) and other organisations operating in this field.

Our partners

==> picture [54 x 27] intentionally omitted <==

==> picture [69 x 41] intentionally omitted <==

==> picture [32 x 31] intentionally omitted <==

==> picture [50 x 30] intentionally omitted <==

==> picture [51 x 25] intentionally omitted <==

==> picture [40 x 22] intentionally omitted <==

==> picture [33 x 36] intentionally omitted <==

==> picture [53 x 24] intentionally omitted <==

==> picture [39 x 27] intentionally omitted <==

==> picture [65 x 20] intentionally omitted <==

==> picture [73 x 31] intentionally omitted <==

==> picture [63 x 22] intentionally omitted <==

==> picture [54 x 19] intentionally omitted <==

==> picture [32 x 32] intentionally omitted <==

==> picture [45 x 23] intentionally omitted <==

==> picture [55 x 20] intentionally omitted <==

==> picture [68 x 18] intentionally omitted <==

==> picture [52 x 33] intentionally omitted <==

==> picture [48 x 30] intentionally omitted <==

==> picture [65 x 16] intentionally omitted <==

In 2020, Ignitis, one of the Group companies, joined the Lithuanian Solar Energy Association. Together with the association, we seek to raise awareness among the public about the advantages of solar energy.

Group companies are members of:

In 2020, we joined the Women Go Tech initiative, thus, promoting diversity in the tech field.

The Group cooperates with the largest Lithuanian universities and other scientific institutions, contributes to the development of studies and practical programmes, promotes girl involvement in the energy field and participates in events and other activities.

Ensuring the highest standards of transparency is a very important part of the Group’s activities, therefore, we cooperate with the Special Investigation Service of the Republic of Lithuania in ensuring the prevention of corruption. We are also working with the Police Department to ensure the highest standards of cyber security and crime prevention.

We aim to contribute to the development of the energy sector by participating in the Intelligent Energy Lab and the Clean Technology Cluster projects together with partners.

==> picture [53 x 32] intentionally omitted <==

==> picture [50 x 21] intentionally omitted <==

==> picture [55 x 54] intentionally omitted <==

==> picture [64 x 34] intentionally omitted <==

==> picture [57 x 25] intentionally omitted <==

==> picture [56 x 32] intentionally omitted <==

==> picture [52 x 22] intentionally omitted <==

==> picture [49 x 22] intentionally omitted <==

==> picture [36 x 36] intentionally omitted <==

==> picture [55 x 50] intentionally omitted <==

==> picture [52 x 31] intentionally omitted <==

==> picture [32 x 31] intentionally omitted <==

==> picture [47 x 31] intentionally omitted <==

==> picture [58 x 19] intentionally omitted <==

192 / 364

GRI 102-12

GRI 102-13

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

5 .9 GRI content index

==> picture [730 x 26] intentionally omitted <==

----- Start of picture text -----

GRI Name Page(s) of GRI Name Page(s) of
Standard Annual Report Standard Annual Report
----- End of picture text -----

GRI Standard Name Page(s) of Annual Report	GRI Standard Name Page(s) of Annual Report
ORGANIZATIONAL PROFILE 102-1 Name of the organization 2 102-2 Activities, brands, products, and services 21 102-3 Location of headquarters 22 102-4 Location of operations 22 102-5 Ownership and legal form 18 102-6 Markets served 22 102-7 Scale of the organization 12; 21; 127 102-8 Information on employees and other workers 161 102-9 Supply chain 189 102-10 Signifcant changes to the organization and its supply chain 9; 125 102-11 Precautionary Principle or approach 155 102-12 External initiatives 192 102-13 Membership of associations 192 STRATEGY 102-14 Statement from senior decision-maker 5 102-15 Key impacts, risks, and opportunities 117; 141 ETHICS AND INTEGRITY 102-16 Values, principles, standards, and norms of behaviour 23; 138 102-17 Mechanisms for advice and concerns about ethics 90; 183 GOVERNANCE 102-18 Governance structure 125; 142 102-19 Delegating authority 142 102-20 Executive-level responsibility for economic, environmental, and social topics 142 102-21 Consulting stakeholders on economic, environmental, and social topics 140; 169 102-22 Composition of the highest governance body and its commitees 86 102-23 Chair of the highest governance body 86	102-24 Nominating and selecting the highest governance body 84
	102-25 Conficts of interest 84
	102-26 Role of highest governance body in seting purpose, values, and strategy 142
	102-27 Collective knowledge of highest governance body 142
	102-28 Evaluating the highest governance body’s performance 84
	102-29 Identifying and managing economic, environmental, and social impacts 141; 142
	102-30 Efectiveness of risk management processes 90
	102-31 Review of economic, environmental, and social topics 88; 90; 94
	102-32 Highest governance body’s role in sustainability reporting 142
	102-33 Communicating critical concerns 88; 90; 94
	102-34 Nature and total number of critical concerns 88; 90; 94
	102-35 Remuneration policies 105
	102-36 Process for determining remuneration 104; 105
	102-37 Stakeholders’ involvement in remuneration 104
	102-38 Annual total compensation ratio 167
	102-39 Percentage increase in annual total compensation ratio 169
	STAKEHOLDER ENGAGEMENT
	102-40 List of stakeholder groups 140
	102-41 Collective bargaining agreements 168
	102-42 Identifying and selecting stakeholders 141
	102-43 Approach to stakeholder engagement 140
	102-44 Key topics and concerns raised 141
	REPORTING PRACTICE
	102-45 Entities included in the consolidated fnancial statements 134
	102-46 Defning report content and topic Boundaries 141
	102-47 List of material topics 141
	102-48 Restatements of information 134

193 / 364

GRI 102-55

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

==> picture [362 x 25] intentionally omitted <==

----- Start of picture text -----

GRI Page(s) of
Name
Standard Annual Report
----- End of picture text -----

102-49	Changes in reporting	134
102-50	Reporting period	134
102-51	Date of most recent report	134
102-52	Reporting cycle	134
102-53	Contact point for questions regarding the report	134
102-54	Claims of reporting in accordance with the GRI Standards	134
102-55	GRI content index	193
102-56	External assurance	193
GRI 201: ECONOMIC PERFORMANCE 2016
201-1	Direct economic value generated and distributed	47
201-2	Financial implications and other risks and opportunities due to climate change	121; 122; 146
201-4	Financial assistance received from government	57
GRI 202: MARKET PRESENCE 2016 103-1/2/3 Management Approach		105
202-1	Ratios of standard entry level wage by gender compared to local minimum wage	167
GRI 204: PROCUREMENT PRACTICES 2016
103-1/2/3	Management Approach	189
204-1	Proportion of spending on local suppliers	189
GRI 205: ANTI-CORRUPTION 2016
103-1/2/3	Management Approach	182
205-2 Communication and training about anti-corruption policies and procedures 205-3 Confrmed incidents of corruption and actions taken GRI 206: ANTI-COMPETITIVE BEHAVIOUR 2016		180 183
103-1/2/3	Management Approach	182
206-1	Legal actions for anti-competitive behaviour, anti-trust, and monopoly practices	182
GRI 207: TAX 2019
207-4	Country-by-country reporting	181

GRI Standard	Name	Page(s) of Annual Report
GRI 302: ENERGY 2016
103-1/2/3	Management Approach	148
302-1	Energy consumption within the organization	145
302-3	Energy intensity	145
GRI 303: WATER AND EFFLUENTS 2018
103-1/2/3	Management Approach	157
303-3	Water withdrawal	154
303-4	Water discharge	154
303-5	Water consumption	154
GRI 304: BIODIVERSITY 2016
103-1/2/3	Management Approach	157; 158
	Operational sites owned, leased, managed in, or adjacent to, pro-
304-1	tected areas and areas of high biodiversity value outside protected	152
	areas
304-2	Signifcant impacts of activities, products, and services on biodiver- sity	155
304-4	IUCN Red List species and national conservation list species with habitats in areas afected by operations	156
GRI 305: EMISSIONS 2016
103-1/2/3	Management Approach	146; 148
305-1	Direct (Scope 1) GHG emissions	144
305-2	Energy indirect (Scope 2) GHG	144
305-3	Other indirect (Scope 3) GHG emissions	144
305-4	GHG emissions intensity	144
305-5	Reduction of GHG emissions	144
305-7	Nitrogen oxides (NOX), sulfur oxides (SOX), and other signifcant air emissions	153
GRI 306: WASTE 2020
103-1/2/3	Management Approach	158; 159
306-1	Waste generation and signifcant waste-related impacts	159
306-2	Management of signifcant waste-related impacts	159
306-3	Waste generated	153

194 / 364

Annual report 2021 / Sustainability (corporate social responsibility) report

Contents »

==> picture [362 x 25] intentionally omitted <==

----- Start of picture text -----

GRI Page(s) of
Name
Standard Annual Report
----- End of picture text -----

GRI 307: ENVIRONMENTAL COMPLIANCE 2016	GRI 307: ENVIRONMENTAL COMPLIANCE 2016
103-1/2/3	Management Approach	155
307-1	Non-compliance with environmental laws and regulations	154
GRI 401: EMPLOYMENT 2016
103-1/2/3	Management Approach	105; 169; 172
401-1	New employee hires and employee turnover	163
401-2	Benefts provided to full-time employees that are not provided to temporary or part-time employees	170
401-3 Parental leave GRI 402: LABOUR MANAGEMENT RELATIONS 2016		164
103-1/2/3	Management Approach	169
402-1	Minimum notice periods regarding operational changes	170
GRI 403: OCCUPATIONAL HEALTH AND SAFETY 2018 103-1/2/3 Management Approach		175
403-1 403-2	Occupational health and safety management system Hazard identifcation, risk assessment, and incident investigation	175 175
403-3	Occupational health services	175
403-4	Worker participation, consultation, and communication on occupa- tional health and safety	176
403-5	Worker training on occupational health and safety	175
403-6	Promotion of worker health	175
403-7	Prevention and mitigation of occupational health and safety impacts directly linked by business relationships	175
403-8	Workers covered by an occupational health and safety manage- ment system	176
403-9	Work-related injuries	167
GRI 404: TRAINING AND EDUCATION 2016
103-1/2/3	Management Approach	172
404-1	Average hours of training per year per employee	165
404-2	Programs for upgrading employee skills and transition assistance	172
	programs
404-3	Percentage of employees receiving regular performance and career development reviews	168

==> picture [362 x 25] intentionally omitted <==

----- Start of picture text -----

GRI Page(s) of
Name
Standard Annual Report
----- End of picture text -----

GRI 405: DIVERSITY AND EQUAL OPPORTUNITY 2016	GRI 405: DIVERSITY AND EQUAL OPPORTUNITY 2016
103-1/2/3	Management Approach	173
405-1	Diversity of governance bodies and employees	161; 166
405-2	Ratio of basic salary and remuneration of women to men	167
GRI 406: NON-DISCRIMINATION 2016
406-1	Incidents of discrimination and corrective actions taken	165
GRI 413: LOCAL COMMUNITIES 2016
103-1/2/3	Management Approach	178
413-2	Operations with signifcant actual and potential negative impacts on local communities	178
GRI 418: CUSTOMER PRIVACY 2016
103-1/2/3	Management Approach	183
418-1	Substantiated complaints concerning breaches of customer privacy and losses of customer data	183
GRI 419: SOCIOECONOMIC COMPLIANCE 2016
419-1	Non-compliance with laws and regulations in the social and economic area	182

195 / 364

Financial statements

==> picture [284 x 60] intentionally omitted <==

----- Start of picture text -----

|||
|---|---|
|6.1 Consolidated financial statements|197|
|6.2 Parent company’s financial statements|276|
|6.3 Independent auditor’s report|311|
|6.4 Information on the auditor|327|

----- End of picture text -----

Annual report 2021 / Financial statements

Contents »

6 .1 Consolidated financial statements

Prepared for the year ended 31 December 2021 in accordance with International Financial Reporting Standards as adopted by the European Union

Consolidated statement of financial position 198 Consolidated statement of profit or loss and other 199 comprehensive income Consolidated statement of changes in equity 200 Consolidated statement of cash flows 201 Explanatory notes 202

==> picture [354 x 115] intentionally omitted <==

The Group’s consolidated financial statements were prepared and signed by AB “Ignitis grupė” management on 24 February 2022:

==> picture [143 x 55] intentionally omitted <==

==> picture [95 x 63] intentionally omitted <==

==> picture [615 x 50] intentionally omitted <==

----- Start of picture text -----

Darius Maikštėnas Darius Kašauskas Giedruolė Guobienė
Chief Executive Officer Chief Financial Officer UAB “Ignitis grupės paslaugų centras”,
Head of Accounting acting under
Order No IS-11-22
(signed 14 February 2022)
----- End of picture text -----

197 / 364

Annual report 2021 / Consolidated financial statements

Contents »

Consolidated Statement of Financial Position

As at 31 December 2021

All amounts are in EUR thousand unless otherwise stated

	Notes	31 December 2021	31 December 2020 (restated)1	1 January 2020 (restated)1
ASSETS
Non-current assets
Intangible assets	6	114,035	94,837	90,932
Property, plant and equipment	7	2,609,576	2,559,554	2,347,817
Right-of-use assets	8	57,543	63,879	61,044
Prepayments for non-current assets		15,768	40	27,809
Investment property	9	4,546	5,183	5,530
Non-current receivables	11	96,139	161,515	165,031
Other financial assets	13	30,094	7,269	3,735
Other non-current assets	14	3,712	1	5,087
Deferred tax assets	41	15,547	6,431	11,770
Total non-current assets		2,946,960	2,898,709	2,718,755
Current assets
Inventories	15	185,606	65,988	72,496
Prepayments and deferred expenses	16	68,476	14,602	31,675
Trade receivables	17	274,897	128,423	117,867
Other receivables	18	292,529	83,569	50,653
Other current assets	14	33,218	70,152	5,796
Prepaid income tax		134	223	2,434
Cash and cash equivalents	19	449,073	658,795	131,837
		1,303,933	1,021,752	412,758
Assets held for sale	20	360	473	40,643
Total current assets		1,304,293	1,022,225	453,401
TOTAL ASSETS		4,251,253	3,920,934	3,172,156
EQUITY AND LIABILITIES
Equity
Issued capital	21	1,658,756	1,658,756	1,212,156
Treasury shares	21	(23,000)	-	-
Reserves	22	248,861	232,932	240,364
Retained earnings		(35,636)	(79,864)	(166,763)
Equity attributable to equity holders of the parent		1,848,981	1,811,824	1,285,757
Non-controlling interests		-	1,469	48,544
Total equity		1,848,981	1,813,293	1,334,301
Liabilities
Non-current liabilities
Non-current loans and bonds	25	1,118,077	1,246,128	821,929
Non-current lease liabilities	27	46,275	29,128	33,818
Grants and subsidies	28	279,134	277,109	260,332
Deferred tax liabilities	41	47,187	45,735	34,892
Provisions	30	30,058	40,695	35,564
Deferred income	29	183,608	164,413	151,910
Other non-current amounts payable and liabilities		420	471	883
Total non-current liabilities		1,704,759	1,803,679	1,339,328
Current liabilities
Loans	25	237,274	15,476	234,191
Lease liabilities	27	4,688	13,401	8,400
Trade payables	31	100,183	51,693	78,567
Advances received	29	57,508	39,052	41,908
Income tax payable		11,567	6,497	6,171
Provisions	30	41,561	23,516	19,340
Deferred income	29	18,046	12,171	19,586
Other current amounts payable and liabilities	32	226,686	142,156	85,042
		697,513	303,962	493,205
Liabilities directly associated with the assets held for sale		-	-	5,322
Total current liabilities		697,513	303,962	498,527
Total liabilities		2,402,272	2,107,641	1,837,855
TOTAL EQUITY AND LIABILITIES		4,251,253	3,920,934	3,172,156

1 Part of the amounts do not agree with the financial statements issued for the year ended 31 December 2020 due to accounting policy change and reclassifications. See more information disclosed in Note 5.

==> picture [82 x 40] intentionally omitted <==

198 / 364

Annual report 2021 / Consolidated financial statements

Contents »

Consolidated Statement of Profit or Loss and other Comprehensive Income

For the year ended 31 December 2021

All amounts are in EUR thousand unless otherwise stated

	Notes	2021	2020 (restated)1
Revenue from contracts with customers	34	1,868,917	1,215,355	1 Part of the amounts do not agree with the
Other income	35	21,482	7,735	financial statements issued for the year
Total revenue and other income		1,890,399	1,223,090	ended 31 December 2020 due to
Purchases of electricity, natural gas and other services	36	(1,379,955)	(705,729)	accounting policy change. See more
Salaries and related expenses		(97,219)	(92,793)	information disclosed in Note 5.
Repair and maintenance expenses		(31,744)	(34,072)
Other expenses	37	(45,992)	(56,192)	2EBITDA – earnings before finance activity,
Total		(1,554,910)	(888,786)	taxes, depreciation, and amortization, write-
EBITDA2		335,489	334,304	offs, revaluation and impairment losses of
Depreciation and amortisation	6, 7, 8, 28	(122,468)	(113,374)	property, plant and equipment and
Write-offs, revaluation and impairment losses of property, plant and equipment and intangible assets Operating profit (loss) (EBIT)2 Finance income Finance expenses Finance activity, net Profit (loss) before tax Current income tax (expenses)/benefit	6, 7, 9, 28 38 39 40	(28,467) 184,554 17,567 (33,664) (16,097) 168,457 (19,396)	(5,930) 215,000 2,414 (22,659) (20,245) 194,755 (10,151)	intangible assets. For more information on EBITDA as an alternative performance measure – see Note 46. EBIT – earnings before finance activity, taxes. For more information on EBIT as an alternative performance measure – see Note 46.
Deferred tax (expenses)/benefit	41	4,843	(14,016)
Net profit for the year		153,904	170,588
Attributable to:
Equity holders of the parent		153,904	170,807
Non-controlling interest		-	(219)
Other comprehensive income (loss)
Items that will not be reclassified to profit or loss in subsequent periods (net of tax)
Revaluation of property, plant and equipment	7, 28	(23,629)	90
Change in actuarial assumptions		(303)	208
Items that will not be reclassified to profit or loss in subsequent periods, total		(23,932)	298
Items that may be reclassified to profit or loss in subsequent periods (net of tax)
Cash flow hedges – effective portion of change in fair value		57,072	-
Cash flow hedges – reclassified to profit or loss		(38,433)	-
Exchange differences on translation of foreign operations into the Group’s presentation currency		(517)	(2,240)
Items that may be reclassified to profit or loss in subsequent periods, total		18,122	(2,240)
Total other comprehensive income (loss) for the year Total comprehensive income (loss) for the year		(5,810) 148,094	(1,942) 168,646
Attributable to:
Equity holders of the parent		148,094	168,865
Non-controlling interests		-	(219)
Basic earnings per share (in EUR)	42	2.07	2.89
Diluted earnings per share (in EUR)	42	2.07	2.89
Weighted average number of shares	42	74,232,665	59,037,855

==> picture [82 x 41] intentionally omitted <==

199 / 364

Annual report 2021 / Consolidated financial statements

Contents »

Consolidated Statement of Changes in Equity

For the year ended 31 December 2021

All amounts are in EUR thousand unless otherwise stated

	Equity, attributed to equity holders of the parent Non-
Notes	controlling Total Treasury
	interest Issued capital Share premium Treasury shares Legal reserve Revaluation reserve Hedging reserve shares reserve Other reserves Retained earnings Subtotal
Balance as at 1 January 2020	1,212,156 - - 112,647 146,993 - - 11 (172,188) 1,299,619 49,001 1,348,620
Change of accounting policy 5	- - - - (19,287) - - - 5,425 (13,862) (457) (14,319)
Recalculated balance as at 1 January 2020 after
restatement1	1,212,156 - - 112,647 127,706 - - 11 (166,763) 1,285,757 48,544 1,334,301
Net profit for the year1 Other comprehensive income (loss) for the year1 24	- - - - - - - - 170,807 170,807 (219) 170,588 - - - - 90 - - (2,240) 208 (1,942) - (1,942)
Total comprehensive income (loss) for the year (restated)1	- - - - 90 - - (2,240) 171,015 168,865 (219) 168,646
Issue of share capital 21.1 Transaction costs 21.1 Transfer of revaluation reserve to retained earnings (transfer of depreciation, net of tax) Transfers to legal reserve Dividends 43 Equity acquisition from non-controlling interest1 10 Sale of disposal group 20	446,600 3,400 - - - - - - - 450,000 - 450,000 - (3,400) - - - - - - (7,633) (11,033) - (11,033) - - - - (15,747) - - - 15,747 - - - - - - 2,523 - - - - (2,523) - - - - - - - - - - - (70,000) (70,000) (2,793) (72,793) - - - 1,207 7,083 - - - (20,055) (11,765) (42,922) (54,687) - - - (348) - - - - 348 - (1,141) (1,141)
Balance as at 31 December 2020 (restated)1	1,658,756 - 116,029 119,132 - - (2,229) (79,864) 1,811,824 1,469 1,813,293
Balance as at 1 January 2021	1,658,756 - - 116,029 119,132 - - (2,229) (79,864) 1,811,824 1,469 1,813,293
Net profit for the year Other comprehensive income (loss) for the year 24	- - - - - - - - 153,904 153,904 - 153,904 - - - - (23,629) 18,639 - (517) (303) (5,810) - (5,810)
Total comprehensive income (loss) for the year	- - - - (23,629) 18,639 - (517) 153,601 148,094 - 148,094
Transfer of revaluation reserve to retained earnings (depreciation, disposals and other movements, net of tax) Transfers to legal reserve Transfer to reserves to acquire treasury shares 22.4 Treasury shares acquired 21.2 Dividends 43 Dividends paid to non-controlling interest 43 Other movement 21.3 Share-based payments 23	- - - - (11,355) - - - 11,355 - - - - - - 9,791 - - - - (9,791) - - - - - - - - - 23,000 - (23,000) - - - - - (23,000) - - - - - (3,674) (26,674) - (26,674) - - - - - - - - (86,763) (86,763) - (86,763) - - - - - - - - (1,152) (1,152) - (1,152) - - - - - - - - 3,439 3,439 (1,469) 1,970 - - - - - - - - 213 213 - 213
Balance as at 31 December 2021	1,658,756 - (23,000) 125,820 84,148 18,639 23,000 (2,746) (35,636) 1,848,981 - 1,848,981

1 Part of the amounts do not agree with the financial statements issued for the year ended 31 December 2020 due to accounting policy change. See more information disclosed in Note 5.

==> picture [82 x 41] intentionally omitted <==

200 / 364

Annual report 2021 / Consolidated financial statements

Contents »

Consolidated Statement of Cash Flows

For the year ended 31 December 2021

All amounts are in EUR thousand unless otherwise stated

	Notes	2021	2020 (restated)1
Cash flows from operating activities
Net profit for the year		153,904	170,588
Adjustments to reconcile net profit to net cash flows:
Depreciation and amortisation expenses	6, 7, 8	133,248	122,535
Impairment of property, plant and equipment, including held for sale	7, 20	8,842	1,644
Revaluation of property, plant and equipment	7, 28	15,907	30
Revaluation of investment property	9	(1,204)	112
Fair value changes of derivatives		9,247	1,632
Fair value change of financial instruments		(9,524)	-
Impairment/(reversal of impairment) of financial assets	11, 13, 17, 18	94	1,813
Income tax expenses/(benefit)	40	14,553	24,167
Depreciation and amortisation of grants	28	(10,780)	(9,161)
Increase/(decrease) in provisions	30	7,039	8,903
Inventory write-off to net realizable value/(reversal)		575	315
Expenses/(income) of revaluation of emission allowances	30	-	134
Loss/(gain) on disposal/write-off of assets held for sale and property, plant and equipment		4,616	2,494
Share-based payments expenses	23	213	-
Other expenses of investing activities		627	-
Interest income	38	(808)	(1,152)
Interest expenses	39	23,638	20,228
Other expenses of financing activities		2,791	1,169
Changes in working capital:
(Increase)/decrease in trade receivables and other amounts receivable		(294,587)	(54,700)
(Increase)/decrease in inventories, prepayments and other current and non-current assets		(129,631)	(18,235)
Increase/(decrease) in trade payables, deferred income, advances received, other non-current
and current amounts payable and liabilities		186,572	17,618
Income tax (paid)/received		(18,284)	(9,591)
Net cash flows from operating activities		97,048	280,543
Cash flows from investing activities
Acquisition of property, plant and equipment and intangible assets		(237,813)	(301,446)
Proceeds from sale of property, plant and equipment, assets held for sale and intangible assets		2,374	14,404
Acquisition of a subsidiary, net of cash acquired	48	(9,545)	-
Grants received	28	17,185	25,757
Interest received		577	547
Finance lease payments received		1,996	2,359
Other increases/(decreases) in cash flows from investing activities		(3,504)	-
Net cash flows from investing activities		(228,730)	(258,379)
Cash flows from financing activities
Increase of share capital		-	450,000
Transaction cost		-	(11,033)
Loans received	26	104,000	182,950
Issue of bonds	26	-	295,457
Repayments of loans	26	(10,915)	(86,798)
Lease payments	26	(13,630)	(10,351)
Interest paid	26	(25,998)	(15,885)
Dividends paid	43	(87,769)	(72,528)
Dividends returned	21.3	1,970	-
Equity acquisition from non-controlling interest	10	(19,024)	(35,727)
Treasury shares acquisition	21.2	(26,674)	-
Net cash flows from financing activities		(78,040)	696,085
Increase/(decrease) in cash and cash equivalents (including overdraft)		(209,722)	718,249
Cash and cash equivalents (including overdraft) at the beginning of the year	19	658,795	(59,454)
Cash and cash equivalents (including overdraft) at the end of the year	19	449,073	658,795

==> picture [82 x 41] intentionally omitted <==

201 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes

All amounts are in EUR thousand unless otherwise stated

Explanatory Notes

For the year ended 31 December 2021

All amounts are in EUR thousand unless otherwise stated

1 General information

– Ignitis grupė AB (hereinafter “the Company” or “parent company”) is a public limited liability company registered in the Republic of Lithuania. The Company’s sole shareholder as at 30 June 2020 has adopted a decision to change the Company’s legal status to a public limited liability company (AB) and on 28 July 2020 the new articles were registered. On 5 October 2020 the Company increased its share capital and on 7 October 2020 the Company has executed initial public offering (hereinafter “IPO”) distributing the increased share capital between private and institutional investors. Acquisition of own shares was performed by Ignitis grupė AB during December 2021.

The Company’s registered office address is Laisvės pr. 10, LT-04215, Vilnius, Lithuania. The Company was registered on 28 August 2008 with the Register of Legal Entities managed by the public institution the Centre of Registers. Company code 301844044. The Company’s shares are listed on the Main List of NASDAQ OMX Vilnius Stock Exchange, as well the global depositary receipts are admitted to the standard listing segment of the Official List of the United Kingdom Financial Conduct Authority and to trading on the Main Market of the London Stock Exchange . The Company has been founded for an indefinite period. Reporting period is one year ended 31 December 2021.

The Company and its subsidiaries are hereinafter collectively referred to as “the Group”. The Group engages in electricity and heat generation (including electricity generation from renewable energy sources), supply, electricity import and export, distribution and trade, natural gas distribution and supply, as well as the maintenance and development of the electricity sector, management and coordination of activities. Information on the Group’s structure is provided in Note 10.

2 Summary of significant accounting policies

The principal accounting policies adopted in the preparation of the Group’s consolidated financial statements (hereinafter – financial statements) for the year ended 31 December 2021 are summarized below:

2.1 Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (hereinafter - IFRS).

The Group’s financial statements as at and for the year ended 31 December 2021 have been prepared on a going concern basis applying measurement based on historical cost, except for certain items of property, plant and equipment (see Note 2.6), investment property, and certain financial instruments measured at fair value.

These consolidated financial statements are presented in euros, which is the Group’s functional currency and all values are rounded to the nearest thousand (EUR ’000), except when otherwise indicated. The Group’s financial statements provide comparative information in respect of the previous period.

As at 31 December 2021 the Group made reclassifications related to figures of statement of financial position for the year ended 31 December 2020 – see Note 5 for detailed explanation.

For change in accounting policy – see Note 2.2.1 and Note 5.

The Group’s principal shareholder is the State of the Republic of Lithuania (73.08%).

	31 December 2021 31 December 2020
Shareholder of the Group	Share capital, in EUR ’000 % Share capital, in EUR ’000 %

Republic of Lithuania represented by the Ministry of Finance of the Republic of Lithuania Other shareholders Own shares	1,212,156 73.08 1,212,156 73.08 418,838 25.25 446,600 26.92 27,762 1.67 - -
Total	1,658,756 1,658,756

These consolidated financial statements were prepared and signed for issue by Group’s management on 24 February 2022.

The Group’s shareholders have a statutory right to either approve or refuse to approve these financial statements and require the management to prepare a new set of financial statements. These are consolidated financial statements of the Group. The Company also prepares separate financial statements in accordance with local requirements.

2.2 New standards, amendments and interpretations
2.2.1 Changes in accounting policy and disclosures

The accounting policies adopted are consistent with those which were adopted during the preparation of the Group financial statements for previous financial year except for the following:

2.2.1.1 Emission allowances

During 2021 it was concluded that the current accounting policy for emission allowances does not present the profit or loss and other comprehensive income (hereinafter – SPLOCI) and the statement of financial position in the best interest of the users of the financial statements. Therefore, it was determined that there is a need for a voluntary change in accounting policy, which had impact on SPLOCI, statement of financial position, statement of cash flows and statement of changes in equity prepared for the year ended 31 December 2020.

For detailed information on impact – see Note 5.

==> picture [83 x 40] intentionally omitted <==

202 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

2.2.1.2 Standards and their interpretations, announced and adopted by the European Union, effective for the current reporting period

The following are new standards and/or amendments to the standards that have been approved by International Accounting Standards Board (hereinafter – IASB) and endorsed in European Union during the year ended as at 31 December 2021. The adoption of these standards, revisions and interpretations had no material impact on the financial statements:

Standards or amendments that came into force during 2021

COVID-19-Related Rent Concessions (Amendment to IFRS 16) Interest rate benchmark reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)

2.2.2 Standards issued but not yet effective and not early adopted

The Group did not adopt new IFRS, International Accounting Standards (hereinafter – IAS), their amendments and interpretations issued by IASB, the effective date of which is later than 31 December 2021 and early adoption is permitted. The following are new standards and/or amendments to the standards that have been issued but not yet effective:

Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16)

The amendments prohibit entities from deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in a manner intended by management. Instead, an entity recognises those sales proceeds in profit or loss. The amendments are be applied retrospectively only to items of property, plant and equipment made available for use on or after the beginning of the earliest period presented when the entity first applies the amendments. Amendments apply for annual reporting periods beginning on or after 1 January 2022. Amendments are endorsed for application in European Union.

The Group’s management has assessed the impact of amendments on the acquisition cost of property, plant and equipment items, which were made available for use in 2021 year, and determined that the acquisition cost of these items should be increased by EUR 10,179 thousand.

The final impact will be determined in year 2022 and will be recognized in financial statements for the year ended 31 December 2022.

Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12)

The amendments narrow the scope of the initial recognition exemption to exclude transactions that give rise to equal and offsetting temporary differences – e.g. leases liabilities. The amendments apply for annual reporting periods beginning on or after 1 January 2023. For leases the associated deferred tax asset and liabilities will need to be recognised from the beginning of the earliest comparative period presented, with any cumulative effect recognised as an adjustment to retained earnings or other components of equity at that date. For all other transactions, the amendments apply to transactions that occur after the beginning of the earliest period presented. Amendments are not yet endorsed for application in European Union (hereinafter – EU).

The management of the Group is currently assessing the impact of these amendments on the financial statements.

Other standards

The following new and amended standards are not expected to have a significant impact on the Group’s financial statements.

Other new standards or amendments	IASB Effective date	EU Endorsement status
Annual Improvements to IFRS Standards 2018–2020	1 January 2022	Endorsed
Reference to Conceptual Framework	1 January 2022	Endorsed
(Amendments to IFRS 3)
Classification of Liabilities as Current or Non-current	1 January 2023	Not yet endorsed
(Amendments to IAS 1)
IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance	1 January 2023	Endorsed
Contracts
Disclosure of Accounting Policies	1 January 2023	Not yet endorsed
(Amendments to IAS 1 and IFRS Practice Statement 2)
Definition of Accounting Estimates	1 January 2023	Not yet endorsed
(Amendments to IAS 8)
Initial Application of IFRS 17 and IFRS 9 – Comparative Information	1 January 2023	Not yet endorsed
(Amendments to IFRS 17)

2.3 Consolidation
2.3.1 Consolidation

Onerous contracts – Cost of Fulfilling a Contract (Amendments to IAS 37)

The amendments specify which costs an entity includes in determining the cost of fulfilling a contract for the purpose of assessing whether the contract is onerous. The amendments apply for annual reporting periods beginning on or after 1 January 2022 to contracts existing at the date when the amendments are first applied. At the date of initial application, the cumulative effect of applying the amendments is recognised as an opening balance adjustment to retained earnings or other components of equity, as appropriate. The comparatives are not restated. Amendments are endorsed for application in European Union.

The Group does not have significant onerous contracts therefore the Group’s management determined that these amendments have no significant impact on the Group’s financial statement.

The financial statements of the Group comprise the financial statements of the parent company and its directly and indirectly controlled subsidiaries. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Control is generally obtained by holding more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

The financial statements of subsidiaries have been prepared using uniform accounting policies and for the same reporting period as that covered by the financial statements of the Group. On consolidation, all inter-company transactions, balances and unrealized gains and/or losses on transactions among the Group companies are eliminated.

Non-controlling interest represents a part of net profit and net assets which is not controlled by the Group. Non-controlling interest is reported separately in the consolidated SPLOCI. The share of

==> picture [83 x 40] intentionally omitted <==

203 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

equity attributable to the non-controlling interest and to the owners of the parent is shown separately in the consolidated statement of financial position.

2.3.2 Business combinations

2.3.2.1 Business combination applying IFRS 3 (subsidiaries that are not under common control)

Acquisition of subsidiaries that are not under common control is accounted for using the acquisition method. When the acquisition method is applied the consideration transferred in a business combination is measured as fair value of net assets transferred to the former owners of the acquiree. Acquisition-related costs are recognised in profit or loss of SPLOCI as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that:

deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with IAS 12 and IAS 19 respectively;
liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 at the acquisition date (see below); and
assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 are measured in accordance with that Standard.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period , or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date.

2.3.2.2 Goodwill

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Other contingent consideration is remeasured to fair value at subsequent reporting dates with changes in fair value recognised in profit or loss of SPLOCI.

2.3.2.4 Business combination is achieved in stages

When a business combination is achieved in stages, the Group’s previously held interests (including joint operations) in the acquired entity are remeasured to its acquisition-date fair value and the resulting gain or loss, if any, is recognised in profit or loss of SPLOCI. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss of SPLOCI, where such treatment would be appropriate if that interest were disposed of.

2.3.2.5 Business combination of entities under common control

For a business combination of entities under common control the following methods are applied: (a) the acquisition method set out in IFRS 3 or;

(b) the pooling of interests’ method.

In selecting which method to apply to the accounting for business combinations of entities under common control, the Group assesses whether there is a “commercial substance” for which the following criteria are considered:

the purpose of the transaction;
the involvement of outside parties in the transaction, such as non-controlling interests or other third parties;
whether or not the transaction is conducted at fair value;
the existing activities of the entities involved in the transaction; and

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable net assets assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss of SPLOCI as a bargain purchase gain.

2.3.2.3 Contingent consideration

When the consideration transferred by the Group in a business combination includes a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination.

Changes in fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

whether or not it is bringing entities together into a ‘reporting entity’ that did not exist before.

If the transaction has a commercial substance to the merging parties the Group applies the acquisition method as set above in paragraph “Acquisition of subsidiaries that are not under common control”, accordingly if not – the Group applies the pooling of interests’ method. By applying the pooling of interests’ method, the business combination of entities under common control is accounted according to the following procedures:

the assets and liabilities of the entities in business combinations are measured at their carrying amounts equal to those reported in the financial statements of the ultimate parent company;
no newly arising goodwill is recognised on a business combination, however acquiree can recognise intangible assets that meet the recognition criteria in IAS 38;
any difference between consideration paid and the carrying amount of net assets acquired as at the date of acquisition is recognised directly in equity within retained earnings.

==> picture [83 x 40] intentionally omitted <==

204 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

2.3.4 Changes in ownership interest in a subsidiary that do not result in changes in control

Transactions with non-controlling interests that do not result in a loss of control are presented within equity, i.e. as transactions with equity owners. The difference between the amount by which the noncontrolling interests are adjusted and the fair value of the consideration paid or received, recorded as equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

2.4 Foreign currency translation

2.4.1 Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (hereinafter ‘the functional currency’).

2.4.2 Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange rate of monetary assets and liabilities denominated in foreign currencies are recognised in SPLOCI.

2.4.3 Group companies

On consolidation, the assets and liabilities of foreign operations are translated into euros at the rate of exchange prevailing at the reporting date and their SPLOCI are translated at average exchange rates observed during reporting period. The exchange differences arising on translation for consolidation are recognised in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is reclassified to profit or loss of SPLOCI.

2.5 Intangible assets

2.5.1 Patents, licences and trademarks

Patents, licenses and trademarks are measured initially at acquisition cost and are amortised on a straight-line basis over their estimated useful lives.

Amortisation is calculated using a straight-line basis over the estimated useful life of 3 to 5 years or a specific validity term of a license and/or patent, if any. Useful life is reviewed on year-by-year basis.

2.5.2 Computer software

Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (2 to 4 years).

2.5.3 Servitudes

The Group’s intangible assets includes ‘Servitudes’ which comprise the Group’s rights to use the land plots owned by third persons on the basis of servitudes. Servitudes comprise statutory and contractual servitudes:

Statutory servitudes comprise the Group’s rights to use the land plots owned by third persons in which electric networks were established up to 10 July 2004 on the basis of statutory servitudes.
Contractual servitudes comprise the Group’s rights to use the land plots owned by third persons in which electric networks were established since 2018 on the basis of contractual servitudes.

The useful life of an intangible asset (right to use the land which has a servitude) is indefinite, therefore, these assets are not subject to amortisation. Useful life of intangible assets are indefinite since the right to use the land is granted for an indefinite period of time according to the conditions of agreements for compensation for servitudes as well as Civil code of Republic of Lithuania. Accordingly, right to use the land (to which servitude is applied) is retained by the Group regardless of the condition, repairs or renewals of Group’s assets constructed on the mentioned land. Since these right-to-use land contracts concluded as perpetual arrangements thus contractual and statutory servitudes are out of scope of IFRS 16 Leases. This is because a lease conveys the right to control the use of an identified asset for a specified period of time in exchange for consideration. Perpetual is not a specified period of time when identifying a lease. Therefore a perpetual arrangement lacks an essential characteristic of a lease – i.e. it does not meet the definition of a lease because it does not convey a right to use an underlying asset for a specified period of time. A perpetual arrangement is effectively a form of ownership interest in an asset that lasts forever.

However, the Group has accounted for provision to compensate land owners for servitudes in accordance with requirements of IAS 37 Provisions, Contingent Liabilities and Contingent Assets (see Note 2.18, Provisions). Remeasurement of provision due to changes in underlying assumptions is accompanied with respective adjustment of carrying amount of intangible assets.

The Group tests the intangible assets of servitudes for potential impairment, by comparing their recoverable value with the carrying value at least once per year or when there are signs of impairment. If the value of the asset changes, such change is accounted for by decreasing/increasing the value of the servitudes.

2.5.4 Special conditions on land use (protection zones)

The Group’s intangible assets include the Group’s obligations to register and the right to use a thirdparty land on the basis of special conditions on land use. The accounting policies applied are similar to those applied for intangible assets ‘Servitudes’.

2.5.5 Other intangible assets

Intangible assets expected to provide economic benefits in future periods are measured at acquisition cost less subsequent accumulated amortisation and any accumulated impairment losses. Amortisation is calculated on the straight-line basis over the estimated economic useful life of 3 to 4 years.

Intangible assets acquired in a business combination and recognised separately from goodwill are recognised initially at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, intangible assets acquired in a business combination are measured

==> picture [83 x 40] intentionally omitted <==

205 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

The Group’s intangible asset amortization expenses are accounted for within depreciation and amortization item in SPLOCI. For the licenses acquired in a business combination (licenses to produce electricity with incentive tariff), useful life is determined to be 12 years.

Decreases in the carrying amount of an asset arising on revaluation are generally recognised in profit or loss section; decreases that offset previous increases of the same asset are recognised in other comprehensive income section and charged against the revaluation reserve. Each year the difference between depreciation based on the revalued amount of the asset (when the carrying amount increases after revaluation) is charged to profit or loss section and depreciation based on the asset’s original acquisition cost is transferred from revaluation reserve to retained earnings, net of deferred tax.

2.6 Property, plant and equipment

Property, plant and equipment is measured by applying acquisition cost or revaluation model. The following categories of Property, plant and equipment are accounted for at cost less accumulated depreciation and impairment:

gas distribution pipelines, gas technological equipment and installations
assets of Hydro Power Plant, Pumped Storage Power Plant;
combined Cycle Unit and Reserve Power Plant (Elektrėnai Complex and Vilnius Thermal Power Plant No 3);
cogeneration plant and related installations;
wind power plants and their installations;
contruction-in-progress

All remaining property, plant and equipment are measured at revalued amounts, based on periodic valuations by external independent valuers or by the Group's management, less subsequent accumulated depreciation and subsequent accumulated impairment losses. Any accumulated depreciation and impairment losses at the date of revaluation are eliminated against gross carrying amount of the asset and net amount is restated to the revalued amount of the assets.

Cost includes replacement costs of components of property, plant and equipment when incurred and when these costs meet the recognition criteria of property, plant and equipment. The carrying amount of the replaced part is derecognised. Subsequent repair costs are included in the asset’s carrying amount, only when it is probable that future economic benefits associated with these costs will flow to the Group and the costs can be measured reliably. All other repairs and maintenance costs charged to SPLOCI during the financial period in which they are incurred.

Property, plant and equipment include spare parts, spare equipment and maintenance equipment when they meet the definition of property, plant and equipment. The assets’ residual values and useful lives are reviewed at least once per year, and adjusted if appropriate. For accounting of borrowing costs - see Note 2.11.2.

When asset is retired or otherwise disposed of, the cost and related accumulated depreciation are derecognised and any related gains or losses are included in profit or loss of SPLOCI. Gains or losses on disposal of property, plant and equipment are determined as proceeds received on disposal less the carrying amount of assets disposed. When revalued assets are disposed, the corresponding portion of revaluation reserve is transferred to retained earnings.

Depreciation of property, plant and equipment is calculated using the straight-line method to allocate the acquisition cost/revalued amounts to their residual values over their estimated useful lives (number of years), as follows:

Category of property, plant and equipment	Useful lives (number of years)
Buildings	8–75
Electricity networks and their structures
- electrical and communication devices	20–25
- electricity distribution equipment	15-45
- electrical equipment	15-35
- other equipment	5-50
Wind power plants and their installations	20-30
Cogeneration plants and their installations	30-45
Assets of Hydro Power Plant, Pumped Storage Power Plant, and
Combined Cycle Unit and Reserve Power Plant
Assets of Hydro Power Plant, Pumped Storage Power Plant:
- hydrotechnical waterway structures and equipment	75
- pressure pipelines	50
- hydrotechnical turbines	25-40
- other equipment Structures and machinery of Reserve Power Plant:	8-15
- structures and infrastructure	10-70
- thermal and electricity equipment	10-60
- measuring devices and equipment	5-30
- other equipment	8-15
Structures and machinery of Combined Cycle Unit:
- structures and infrastructure	20-50
- electricity lines	20-40
- electricity generation equipment	20-50
Gas distribution pipelines, gas technological equipment and installations	18–55
Other property, plant and equipment	2-35

2.7 Right-of-use assets

Right-of-use asset is the asset that reflects the right of the Group to use the leased asset over the life of a lease. The Group recognise a right-of-use asset for all types of leases, including leases of right-of-use assets in sublease, with the exception of leases of intangible assets, short-term leases and leases for which the underlying asset is of low value.

Construction in progress is transferred to appropriate categories of property, plant and equipment when asset is completed and ready for its intended use.

Increases in the carrying amount arising on revaluation of property, plant and equipment are recognised in other comprehensive income of SPLOCI and accumulated to the revaluation reserve in equity. However, the increase is recognised in profit or loss of SPLOCI to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss section.

==> picture [83 x 40] intentionally omitted <==

206 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

2.7.1 Initial measurement of right-of-use assets

At the commencement date, the Group measures the right-of-use asset at cost. The cost of the rightof-use asset comprises: the amount equal to the lease liability at its initial recognition, lease payments made at or before the commencement of the lease (less any lease incentives received), any initial direct costs incurred by the Group, and an estimate of costs to be incurred by the Group in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease, unless those costs are incurred to produce inventories. The Group incurs obligation for these costs either at the commencement date or as a consequence of having used the underlying asset during a particular period. The Group recognises these costs as part of the cost of right-of-use asset when the Group incurs an obligation for these costs.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or CGU) in prior years. A reversal of an impairment loss is recognised immediately in SPLOCI.

2.9 Investment property

Investment property, which consists of the Group’s buildings and structures, is held to earn rentals or for capital appreciation. Investment property is recognised initially at acquisition cost, and is subsequently measured at fair value, which is determined by independent property valuers. Investment property is not depreciated, and gain or loss on change in the fair value of investment property is recognised in profit or loss of SPLOCI for the reporting period.

2.7.2 Subsequent measurement of right-of-use assets

Subsequent to initial recognition, the Group measures the right-of-use asset using the cost model. Under the cost model, the Group measures a right-of-use asset at cost less any depreciation and any accumulated impairment losses adjusted for any remeasurement of the lease liability.

If the lease transfers ownership of the underlying asset to the Group by the end of the lease term or if the cost of the right-of-use asset reflects that the Group will exercise a purchase option, the Group depreciates the right-of-use asset from the commencement date to the end of the useful life of the underlying asset. Otherwise, the Group depreciates the right-of-use asset from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. Right-of-use assets are depreciated on a straight-line basis.

The Group presents rights-of-use assets separately from property, plant and equipment in the statement of financial position.

2.8 Impairment of non-financial assets

At each reporting date, the Group reviews the carrying amount of its property, plant and equipment, intangible assets and right-of-use assets to determine whether there are any indications that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is impossible to estimate the recoverable amount of an individual asset, the recoverable amount of the cash-generating unit to which the asset belongs is estimated. Where a reasonable and consistent basis of allocation can be identified, assets are also allocated to individual cash-generating units, otherwise they are allocated to the smallest groups of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Intangible assets with indefinite useful lives, goodwill and intangible assets not yet available for use are tested for impairment at each reporting date, and whenever there is an indication that the asset may be impaired.

The recoverable amount is the higher of the asset’s fair value less costs of disposal and value in use. In assessing value in use, the expected future cash flows are discounted to their present value using the discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash generating unit - hereinafter “CGU”) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. An impairment loss is recognised immediately in SPLOCI.

Transfers to and from investment property are made only when there is an evidence of change in the purpose of use of assets. Certain immovable property may be occupied by the Group, with the remainder being held for rental yields or for capital appreciation. If part of immovable property occupied by the Group can be sold separately, the Group accounts for such property separately. The portion that is owner-occupied is accounted for under IAS 16 and the portion that is held to earn rentals is accounted for under IAS 40.

2.10 Assets held-for-sale

Non-current assets held-for-sale are stated at the lower of the carrying amount and fair value less costs of disposal if the carrying amount is recovered principally through a sale transaction rather than through a continuing use.

2.11 Financial instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

2.11.1 Financial assets

The Group classifies its financial assets into the following three categories:

(i) financial assets subsequently measured at amortised cost;
(ii) financial assets subsequently measured at fair value through other comprehensive income (hereinafter “FVOCI”); and
(iii) financial assets subsequently measured at fair value through profit or loss (hereinafter “FVPL”).

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

Transaction costs comprise all charges and commissions that the Group would not have paid if it had not entered into an agreement on the financial instrument.

==> picture [83 x 40] intentionally omitted <==

207 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

FVPL, irrespective of the business model. Interest income calculated on these financial assets is recognised as finance income and amortised using the effective interest rate method. Any gain or loss arising from the write-off of assets is recognised in SPLOCI. Impairment losses are accounted for as other expenses (Note 37) in SPLOCI.

Subsequent to initial recognition, financial assets are classified into the afore-mentioned categories based on the business model the Group applies when managing its financial assets and characteristics of cash flows from these assets. The business model applied to the group of financial assets is determined at a level that reflects how all groups of financial assets are managed together to achieve a particular business objective of the Group. The intentions of the Group’s management regarding separate instruments has no effect on the applied business model. The Group may apply more than one business model to manage its financial assets. In view of the business model applied for managing the group of financial assets, the accounting for financial assets, is as follows:

2.11.1.1 Financial assets subsequently measured at FVOCI

The Group only has derivative financial instruments subsequently measured at FVOCI for detailed information see Note 2.11.3.

2.11.1.4 Effective interest method

The EIR method is used in the calculation of the amortised cost of a financial asset and in the allocation of the interest revenue in profit or loss of SPLOCI over the relevant period.

The EIR is the rate that exactly discounts estimated future cash inflows through the expected life of the financial asset to the gross carrying amount of the financial asset that shows the amortised cost of the financial asset, before adjusting for any loss allowance. When calculating the EIR, the Group estimates the expected cash flows by considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) but does not consider the expected credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the EIR, transaction costs, and all other premiums or discounts. There is a presumption that the cash flows and the expected life of a group of similar financial instruments can be estimated reliably. However, when it is not possible to reliably estimate the cash flows or the expected life of a financial instrument (or group of financial instruments), the Group uses the contractual cash flows over the full contractual term of the financial instrument (or group of financial instruments).

2.11.1.5 Impairment of financial assets – expected credit losses

2.11.1.2 Financial assets at amortised cost

Financial assets at amortised cost are subsequently measured using the effective interest rate (hereinafter “EIR”) method and are subject to impairment. Amortised cost is the amount at which the financial instrument was recognised at initial recognition minus principal repayments, plus accrued interest, and, for financial assets, minus any write-down for expected credit losses. The Group’s financial assets at amortised cost includes loans granted by the Group, trade and other amounts receivable, and cash and cash equivalents are accounted for under the business model the purpose of which is to hold financial assets in order to collect contractual cash flows that can contain cash flows related to the payment of the principal amount and interest inflows.

Financial assets are recognised as current assets, except for maturities greater than 12 months after the date of the statement of financial position, in which case they are classified as non-current assets.

The Group assesses on a forward-looking basis the expected credit losses associated with its debt instruments carried at amortised cost regardless of whether there are any impairment indicators.

Credit losses incurred by the Group are calculated as the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive (i.e. all cash shortfalls), discounted at the original EIR. The Group estimates cash flows by considering all contractual terms of the financial instrument through the expected life of that financial instrument, including cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

Expected credit losses are measured in a way that reflects an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes; the time value of money; and reasonable and supportable information about past events and current conditions, and reasonable and supportable forecasts of future events and economic conditions at the reporting date.

2.11.1.3 Financial assets at FVPL

Debt instruments that do not meet the criteria of financial assets to be measured at amortised cost or financial assets to be measured at FVOCI are classified as financial assets to be measured at FVPL.

The Group classifies financial assets as assets measured at FVPL, if this eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as ‘an accounting mismatch’) that would otherwise arise from measuring assets or liabilities or recognising gains or losses thereof on different bases. A gain or loss on fair value measurement of debt investment is recognised in profit or loss of SPLOCI in the period in which it arises. The Group classifies in this category amounts receivable from EPSO-G (note 4.7), investments to mutual funds units or equity instruments that do not meet the SPPI conditions.

Lifetime expected credit losses are the expected credit losses that result from all possible default events over the period from the date of initial recognition of a financial asset to the subsequent date of settlement of the financial asset or ultimate write-off of the financial asset.

The Group seeks for lifetime expected credit losses to be recognised before a financial instrument becomes past due. Typically, credit risk increases significantly before a financial instrument becomes past due or other lagging borrower-specific factors (for example, a modification or restructuring) are observed. Consequently, when reasonable and supportable information that is more forward-looking than past due information is available without undue cost or effort, it is used to assess changes in credit risk. Expected credit losses are recognised by taking into consideration individually or collectively assessed credit risk of loans granted and trade receivables. Credit risk is assessed based on all reasonable information, including forward-looking information.

For short-term trade receivables without a significant financing component the Group applies a simplified approach required by IFRS 9 and measures the loss allowance at expected lifetime credit losses from initial recognition of the receivables (Note 4.12).

==> picture [83 x 40] intentionally omitted <==

208 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

The Group’s management performs the assessment on an individual basis reflecting the possibility of obtaining information on the credit history of a particular debtor its financial position as at the date of assessment, including forward-looking information that would allow to timely determine whether there has been a significant increase in the credit risk of that particular borrower, thus enabling making judgement on the recognition of lifetime expected credit losses in respect of that particular borrower. In the absence of reliable sources of information on the credit history of a particular debtor its financial position as at the date of assessment, including forward-looking information, the Group assesses the debt on a collective basis.

For the purpose of determining the lifetime expected credit losses of amounts receivable, the Group on a collective basis applies the loss ratio matrix. The loss ratio matrix is based on historical data on the settlement for trade receivables during the period of validity of trade receivables and is adjusted with respect to future forecasts. The loss ratios are updated during the preparation of the annual financial statements with respect to the impact of operational prospects where these prospects are indicative of any exacerbation of economic conditions during upcoming years or of customer types. To measure expected credit losses, trade receivables are grouped based on shared credit risk characteristics. The non-recoverability analysis is conducted for the last several years in order to determine the general default ratio. As regards different groups of consumers, a different loss ratio matrix is used.

The lifetime expected credit losses of other amounts receivable are assessed based on the individual assessment basis. The Group’s management performs the assessment on an individual basis reflecting the possibility of obtaining information on the credit history of a particular borrower, its financial position as at the date of assessment, including forward-looking information that would allow to timely determine whether there has been a significant increase in the credit risk of that particular borrower, thus enabling making judgement on the recognition of lifetime expected credit losses in respect of that particular borrower.

Recognition stages of expected credit losses:

upon granting of a loan or concluding a finance lease agreement, the Group recognises the expected credit losses for the twelve-month period. Interest income from the loan (finance lease) is calculated on the carrying amount of financial assets without adjusting it by the amount of expected credit losses;
upon establishing that the credit risk related to the borrower or lessee has significantly increased, the Group accounts for the lifetime expected credit losses of the loan or finance lease agreement. All lifetime expected credit losses of a financial instruments are calculated only when there is a significant increase in credit risk relating to the borrower. Interest income from the loan (finance lease) is calculated on the carrying amount of financial assets without adjusting it by the amount of expected credit losses;
where the Group establishes that the recovery of the loan is doubtful or that the condition of the lessee shows that the loan of this lessee needs to be classified as doubtful debts, the Group classifies this loan (finance lease receivables) as credit-impaired financial assets (doubtful loans and receivables). Interest income from the loan (finance lease) is calculated on the carrying amount of financial assets which is reduced by the amount of expected credit losses.

In stage 2, an assessment of the significant deterioration in the borrower’s financial situation is performed by comparing the financial situation as at the time of the assessment and the financial situation as at the time of issuing the loan.

The latest point at which the Group recognises all lifetime expected credit losses of the loan granted or a finance lease agreement is identified when the borrower is late to pay a periodic amount or the total debt for more than 90 days. In case of other evidence available, the Group accounts for all lifetime expected credit losses of the loan granted regardless of the more than 90 days past due presumption.

2.11.1.6 Credit-impaired financial assets

A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired include observable data about the following events:

(a) significant financial difficulty of the borrower;
(b) a breach of contract, such as a default or past due event for more than 90 days;
(c) the lender, for economic or contractual reasons relating to the borrower's financial difficulty, having granted to the borrower a concession that the lender would not otherwise consider;
(d) it is becoming probable that the borrower will enter bankruptcy or another financial reorganisation;
(e) the disappearance of an active market for that financial asset because of financial difficulties; (f) the purchase or origination of a financial asset at a deep discount that reflects the incurred credit losses.
2.11.1.7 Derecognition of financial assets

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

the rights to receive cash flows from the asset have expired;
the right to receive cash flows from the asset is retained, but an obligation is assumed to pay them in full without material delay to a third party under a ‘pass through’ arrangement; or
the rights to receive cash flows from the asset are transferred and either (a) substantially all the risks and rewards of the asset have been transferred, or (b) substantially all the risks and rewards of the asset have neither been transferred nor retained, but control of the asset has been transferred:
if control is not retained, the financial asset is derecognised and any rights and obligations created or retained in the transfer are recognised separately as assets or liabilities;
if control is retained, it shall continue to recognise the financial asset is continued to be recognised to the extent of continuing involvement in the financial asset.

Whether the control of the transferred asset is retained depends on the transferee’s ability to sell the asset. If the transferee has the practical ability to sell the asset in its entirety to an unrelated third party and is able to exercise that ability unilaterally and without needing to impose additional restrictions on the transfer, control is not retained. In all other cases, control is retained.

2.11.2 Financial liabilities and equity instruments issued

Debt or equity instruments are classified as financial liabilities or equity based on the substance of the arrangement.

2.11.2.1 Initial recognition and measurement of financial liabilities

Financial liabilities are classified, at initial recognition, as financial liabilities at FVPL, loans and borrowings, trade and other payables or derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and trade ant other payables, net of directly attributable transaction costs.

==> picture [83 x 40] intentionally omitted <==

209 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

2.11.2.2 Subsequent measurement

For purposes of subsequent measurement, financial liabilities are classified in two categories:

financial liabilities at FVPL;
financial liabilities at amortised cost.

2.11.2.3 Financial liabilities at FVPL

Financial liabilities at FVPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as at FVPL.

Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

Gains or losses on liabilities held for trading are recognised in SPLOCI.

Financial liabilities designated upon initial recognition at FVPL are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied.

2.11.2.6 Effective interest rate method

The EIR method is used in the calculation of the amortised cost of a financial liabilities and in the allocation of the interest expenses in profit or loss of SPLOCI over the relevant period.

The EIR is the rate that exactly discounts estimated future cash outflows through the expected life of the financial liability to the gross carrying amount of the financial liability that shows the amortised cost of the financial liability (for more information see Note 2.11.1.4).

2.11.2.7 Equity instruments

Equity instrument is any contract that evidences an interest in the assets of the Group after deducting all of its liabilities. Equity instruments are recorded at the value of the proceeds received net of direct issue costs. Share premium represent the difference between the nominal value of shares and the proceeds received.

2.11.2.8 Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as derecognition of the original liability and the recognition of a new liability. The difference between the respective carrying amounts is recognised in SPLOCI.

2.11.2.4 Financial liabilities at amortised cost

2.11.3 Derivative financial instruments and hedge accounting

This is the category most relevant to the Group. After initial recognition, trade payables, interestbearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss of SPLOCI when the liabilities are derecognised as well as through the EIR amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in SPLOCI.

2.11.2.5 Classification and borrowing costs

Financial liabilities are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

If a financing agreement concluded before the statement of financial position date proves that the liability was non-current by its nature as of the date of the statement of financial position, that financial liability is classified as non-current.

The Group enters into derivative financial instruments transactions related to purchase and sale prices of electricity and gas and emission allowances forwards.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which it wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge.

The documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the Group will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:

there is ‘an economic relationship’ between the hedged item and the hedging instrument;
the effect of credit risk does not ‘dominate the value changes’ that result from that economic relationship;
the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.

Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial time (more than one year) to get ready for intended use or sale (qualifying assets) are capitalised as part of the costs of those assets until those assets are completely ready for use or sale. All other borrowing costs are expensed as incurred. Interest income that relate to temporal investment of borrowed funds until their use for the acquisition of the assets are deducted from the acquisition cost of the assets.

==> picture [83 x 40] intentionally omitted <==

210 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

2.11.3.1 Presentation

2.12 Put option arrangements

Fair value of derivative financial instruments is presented In the statement of financial position as “Other non-current assets” (Note 14.1), “Other current assets” (Note 14.2), “Other non-current amounts payable and liabilities” and “Other current amount payables and liabilities” (Note 32).

Changes in fair value and result of settled derivatives for hedges that do not meet the qualifying criteria for hedge accounting are disclosed in SPLOCI either as “Other income” (Note 35), if result for a period of such derivatives is profit, or “Other expenses” if result of such derivatives for a period is loss (Note 37).

Changes in fair value and result of settled derivatives for hedges that meet all the qualifying criteria for hedge accounting are accounted for, as described below:

The Group has a written put option over the equity of subsidiary Kauno kogeneracinė jėgainė UAB which permit the holder to put their shares in the subsidiary back to the Group in a deadlock situation at the market price (one year after start-up) less 15%.

The Group uses anticipated-acquisition method for recognizing put option redemption liability (hereinafter – option).

The amount that may become payable under the option on exercise is initially recognised at the present value of the redemption amount within liabilities with a corresponding charge directly to noncontrolling interest in equity. This is because the recognition of the financial liability implies that the interests subject to the option are deemed to have been acquired already.

2.11.3.2 Fair value hedges

The change in the fair value of a hedging instrument is recognised in SPLOCI. The change in the fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognised in SPLOCI.

For fair value hedges relating to items carried at amortised cost, any adjustment to carrying value is amortised through profit or loss over the remaining term of the hedge using the EIR method. The EIR amortisation may begin as soon as an adjustment exists and no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. If the hedged item is derecognised, the unamortised fair value is recognised immediately in profit or loss of SPLOCI. The group did not have such hedges as at 31 December 2021.

2.11.3.3 Cash flow hedges

The effective portion of the gain or loss on the hedging instrument is recognised in other comprehensive income part of SPLOCI in the cash flow hedge reserve, while any ineffective portion is recognised immediately in profit or loss part of SPLOCI in other income or expenses (accounting method is similar to derivative financial instruments that do not meet the hedge criteria – Note 2.11.3.1) . The cash flow hedge reserve is adjusted to the lower of the cumulative gain or loss on the hedging instrument and the cumulative change in fair value of the hedged item.

Subsequently the value of liability is measured at FVPL for purpose to present the redemption liability that is payable at the date at which the option first becomes exercisable. The change in fair value is presented in “Financial expenses” of SPLOCI. In the event that the option expires unexercised, the liability is derecognised with a corresponding adjustment to non-controlling interest in equity.

2.13 Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the firstin, first-out (FIFO) method, except for natural gas and liquefied natural gas, the cost of which is determined using the weighted average costing method (see below). The cost of inventories comprises purchase price, taxes (other than those subsequently recoverable by the Group from the tax authorities), transportation, handling and other costs directly attributable to the acquisition of inventories. Cost does not include borrowings costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

The weighted average price is calculated as the weighted average of the stock at the beginning of the month and the purchases during the month.

When cash flow hedges are realised, gain or losses are transferred from equity and recognised in SPLOCI as “Purchases of electricity, gas and other services”.

==> picture [83 x 40] intentionally omitted <==

211 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

2.14 Emission allowances

Based on the European Union (hereinafter EU) Directive 2003/07/EC, the greenhouse gas emissions trading scheme was developed which came into force on 1 January 2005. The first period of operation of this scheme covered 3 years from 2005 to 2007; the second period covered 5 years from 2008 to 2012, and the third period covers 7 years from 2013 to 2020. From 2021 the fourth phase has started, which will last until 2030. The Scheme’s operation period is in line with the period established under the Kyoto Agreement. The system functions on ‘Cap’ and ‘Trade’ basis.

The governments of the EU Member States are required to set caps for each emission unit in the scheme and for the period of implementation. These caps are specified in the National Allocation Plan (hereinafter “NPP”) to be developed by a responsible authority of each Member State (in Lithuania – the Ministry of Environment). NPP determines the annual emission amount (measured as tons of carbon dioxide equivalent) for each emission unit and each period and allocates annual emission allowances.

A Member State has an obligation to allocate emission allowances by 28 February of each year in accordance with the National Allocation Plan (part of the allowances is set aside for new entrants).

A Member State is to assure that an operator of each emission unit will submit data on the unit’s actual amount of greenhouse gas emissions during the current calendar year not later than by 30 April of the next year.

2.15 Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits held at call with banks and other shortterm highly liquid investments with original maturities of three months or less.

For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are presented under liabilities within current borrowings in the statement of financial position.

2.16 Issued capital, share premium, treasury shares
2.16.1 Issued capital, share premium

Ordinary shares are classified as equity.

Share premium represents the difference between the nominal value of the new share issue and the fair value of consideration received for shares sold.

2.16.2 Share-based payments

The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model (market value of share price).

2.14.1 Inventory

EU emission allowances are inventories that are dedicated by the state or are acquired by the Group. EU emission allowances acquired by the Group are recognized at cost. EU emission allowances dedicated by the state are recognized in the accounts at nominal (zero) value. The Group accounts for purchased and for free received emission allowances separately, write-down to net realisable value is calculated if the market price becomes lower than the acquisition price.

2.14.2 Provision for emission allowances used

When the Group emits pollutants into the environment, it is obliged to pay for the pollution using the state permits, the nominal value of which would correspond to the amount of emitted pollutants. This liability is a provision that is measured at the value which correspond to amount of expenses that Group will incur to cover this obligation as at the date of the statement of financial position. If the Group has acquired emission allowances, the value of the provision is equal to their carrying amount. If the actual amount of pollutants exceed the number of emission allowances available, an obligation to purchase additional emission allowances equal to the market value is accounted for.

During 2021 share-based payments agreements were voluntarily terminated without any compensation to executives and cancellation is not related to the failure of meeting vesting conditions, thus accounted as accelerated vesting of share based payments therefore full expense and related increase in equity recognised immediately.

2.16.3 Treasury shares

When shares recognised as equity are repurchased, the amount of the consideration paid, which includes directly attributable costs, is recognised as a deduction from equity. Repurchased shares are classified as treasury shares. When treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity and the resulting surplus or deficit on the transaction is presented within share premium.

The obligation can only be covered with inventories if the amount of pollutants is approved by the responsible regulatory authority.

Changes in the value of a liability related to insufficient emission allowances are recognized in the profit or loss in the SPLOCI.

==> picture [83 x 40] intentionally omitted <==

212 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

2.17 Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate.

Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.

2.18 Grants and subsidies

2.18.1 Asset-related grants

For presentation of grants related to assets the Group uses the method which recognises the grant as deferred income that is recognised in SPLOCI on a systematic basis over the useful life of the asset. Government and the EU asset-related grants comprise grants received in the form of noncurrent assets or in the form of cash intended for the acquisition of non-current assets. Grants are initially recorded at the fair value of the asset received and subsequently recognised in SPLOCI by reducing the depreciation charge of the related asset over the expected useful life of the asset. Liability related to received asset-related grants is presented in the statement of financial position under the non-current liabilities’ item “Grants and subsidies”.

Upon the revaluation of non-current assets and in case impairment was recognised on revaluation, grants related to this non-current assets are written off in a respective proportion.

2.18.2 Income-related grants

Government and the EU grants received as a compensation for the expenses or unearned income of the current or previous reporting period, also, all the grants, which are not grants related to assets, are considered as grants related to income. The income-related grants are recognised as used in parts to the extent of the expenses incurred during the reporting period or unearned income to be compensated by that grant. Grants related to income are presented as part of SPLOCI.

2.17.1 Short-term leases and leases of low-value assets

2.19 Provisions

The Group applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). The Group also applies the lease of low-value assets recognition exemption to leases that are considered to be low value. Lease payments on short term leases and leases of lowvalue assets are recognised as expense on a straight-line basis over the lease term.

2.17.2 Group as a lessor in operating leases

Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms and is included in other income in SPLOCI due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.

2.17.3 Group as a lessor in finance leases

Leases in which the Group does transfer substantially all the risks and rewards incidental to ownership of an asset or the lessee has the ability to continue the lease for a secondary period at a rent that is substantially lower than market rent, are classified as finance leases. At the commencement date, Group recognises assets held under a finance lease in its statement of financial position and present them as a receivable at an amount equal to the net investment in the lease. Lease payments are apportioned between finance income and reduction of the lease receivable so as to achieve a constant rate of interest on the remaining balance of the receivable. Finance charges are recognised in Finance income in SPLOCI.

Provisions are recognised when the Group have a legal obligation or irrevocable commitment as a result of past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Expenses related to provisions are recorded in SPLOCI, net of compensation receivable. If the effect of the time value of money is material, the amount of provision is discounted using the effective pretax discount rate based on the interest rates for the period and taking into account specific risks associated with the provision as appropriate. When discounting is applied, increase in the provisions reflecting the period of past time is accounted for as finance expense.

2.19.1 Provisions for servitudes

Costs related to provision for servitudes are recognised as intangible assets are measured at amounts to be compensated.

Payments of compensations to land owners are recorded as decreases of provision, while remeasurement of provision due to changes in underlying assumptions is recorded as a change in respective intangible asset (Note 2.6.4).

2.19.2 Provisions for registration of protection zones

Costs related to provision for registration of protection zones and compensations are recognised as intangible assets based on the amounts to be compensated.

Payments related to registration of protection zones are recorded as decreases of provision, while remeasurement of provision due to changes in underlying assumptions is recorded as change in respective intangible asset (Note 2.6.5).

==> picture [83 x 40] intentionally omitted <==

213 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

2.20 Employee benefits

2.20.1 Social security contributions

The Group pays social security contributions to the State Social Security Fund (hereinafter “the Fund”) on behalf of its employees based on the defined contribution plan in accordance with the local legal requirements. A defined contribution plan is a plan under which the Group pay fixed contributions into the Fund and will have no legal or constructive obligations to pay further contributions if the Fund does not hold sufficient assets to pay all employees benefits relating to employee service in the current and prior period. The social security contributions are recognised as an expense on an accrual basis and are included within remuneration expenses.

2.20.2 Termination benefits

Termination benefits are payable whenever an employee’s employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognise termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy.

2.20.3 Non-current employee benefits

Each employee of retirement age who terminates his/her employment with the Group upon retirement is entitled to receive a payment equal to 2 monthly salaries according to Lithuanian laws. If an employee belongs to trade union, he/she is also entitled to additional retirement benefit according in accordance with the collective agreement. A liability for such pension benefits is recognised in the statement of financial position and it reflects the present value of these benefits at the date of the statement of financial position. The aforementioned non-current liability for pension benefits to employees at the reporting date is estimated with reference to actuarial valuations using the projected relative unit method. The present value of the defined non-current liability for pension benefits to employees is determined by discounting the estimated future cash flows using the effective interest rates as set for government bonds denominated in a currency in which the benefits will be paid to employees and that have maturity term similar to that of the related liability.

2.21 Revenue from contracts with customers

The Group in the contracts with customers identifies performance obligations (stated either explicitly or implied) to transfer either distinct goods or services or series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. Promised goods or services represent separate performance obligations if the goods or services are distinct. A promised good or service is considered distinct if both of the following criteria are met:

(i) customer can benefit from the good or service on its own or with other readily available resources (i.e. distinct individually) and
(ii) the good or service is separately identifiable from other promises in the contract (distinct within the context of the contract).

Group’s major legal performance obligations identified in the contracts with customers are: sale of electricity and gas, supply of electricity, sales of produced electricity, services ensuring the isolated operation of power system and capacity reserve, distribution of gas and electricity, new customers connection, provision of Public Service Obligations (hereinafter “PSO services”) and provision of Liquefied Natural Gas Terminal Security Component Obligations (hereinafter “LNGT services”).

Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. Revenue is measured based on the consideration to which the Group expects to be entitled in a contract with a customer and excludes amounts collected on behalf of third parties.

For certain service contracts, revenue is recognised based on the actual service provided to the end of the reporting period as a proportion of the total services to be provided because the customer receives and uses the benefits simultaneously. When recognising revenue, the Group takes into consideration terms of contracts signed with customers and all significant facts and circumstances, including the nature, amount, timing and uncertainty relating to cash flows arising from the contract with the customer.

==> picture [83 x 40] intentionally omitted <==

214 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

2.21.1 Electricity related revenue

The Group’s electricity related revenue includes:

sale of electricity (Note 2.21.1.1),
revenue from public electricity supply (Note 2.21.1.2),
sale of produced electricity (Note 2.21.1.3),
revenue from services ensuring the isolated operation of power system and capacity reserve (Note 2.21.1.4),
revenue from electricity distribution and transmission (Note 2.21.1.5),
revenue from public service obligations funds (hereinafter “PSO funds”) (Note 2.21.1.6).

Electricity related revenue is received from non-household and household customers. Electricity to household customers is supplied at electricity tariff applied for public supply (Note 2.21.1.2), electricity tariff applied for independence supply (Note 2.21.1.1) or electricity tariff applied for supply of last resort (Note 2.21.1.1). Electricity to non-household customers is supplied at electricity tariff applied for independence supply (Note 2.21.1.1) or electricity tariff applied for supply of last resort (Note 2.21.1.1).

Accounting policy for electricity related revenue may be presented in accordance with the components of the electricity tariff applied to the consumed electricity by household and nonhousehold customers. The tariff comprises of the following components:

(a) price of electricity (Note 2.21.1.1, 2.21.1.2);
(b) fee for electricity supply services (Note 2.21.1.1, 2.21.1.2);
(c) price of electricity transfer services, which include two components: transmission over high voltage grid and distribution over medium and low voltage grid (Note 2.21.1.5);
(d) price of electricity system services (includes capacity reserve services) (Note 2.21.1.4); (e) fee for PSO services (hereinafter “PSO fees”) (Note 2.21.1.6.1).

Regulation of tariffs and the Group’s profitability is presented in the Note 2.21.4.

2.21.1.1 Revenue from the sale of electricity

Revenue from sales of electricity (Note 34 line item “Revenue from the sale of electricity“) mainly consists of electricity sales to:

non-household customers, and
household customers by providing:
the independence supply services according to bilateral agreements or
supply of last resort services.

Revenue includes the price of electricity and the fee for electricity supply services. Revenue is recognized over time in each reporting period on the basis of VAT invoices issued, which includes the calculated amount of electricity consumed. Electricity consumption is calculated on the basis of the declared meter readings provided by consumers.

Revenue from the sale of electricity providing the supply of last resort services is regulated (Note 2.21.4.1).

2.21.1.2 Revenue from public electricity supply

Revenue from public electricity supply (Note 34 line item “Revenue from public electricity supply“) consists of the following components of public supply electricity tariff: (i) sale of consumed public electricity and (ii) public supply service fee. Revenue from public electricity supply to the customers is recognised over time referring to the supplied electricity quantity reading devices provided by them and verified by the distribution system operator. In case of difference between provided and verified quantities due to over declaration (Note 4.13) the Group estimates the amount of deferred income (Note 29) and accounts for as a contract liability.

Revenue from public electricity supply is regulated (Note 2.21.4).

2.21.1.3 Revenue from sale of produced electricity

The sales of electricity produced (Note 34 line item “Revenue from sale of produced electricity”) using own resources are conducted at the Power exchange by submitting electricity sale offers to the Power exchange. On the Day-Ahead market, the transaction for the purchase and sale of electricity is considered as concluded if the automatic coupling algorithm does not by default reject the submitted offer of selling electricity. Transactions on the Intraday market are approved by market participants. Following the approval of the transaction, the system of the Power exchange sends a confirmation of the concluded electricity sale transaction to the seller. The seller’s performance obligation under the concluded transaction is to supply the volume of electricity as indicated in the seller’s offer to the electricity transmission system. The performance obligation is to be carried out throughout a certain period during which the supply of the agreed volume of electricity is maintained to the network. The progress of fulfilment of the performance obligation is assessed considering the volume of electricity indicated in respect of the transaction.

The price of the transaction and consideration to be paid to the seller correspond to the amount indicated in the confirmation notice of the transaction. The entire consideration of the seller payable at a flat rate. Upon receipt of the confirmation on the conclusion of the transaction on the sale of electricity, the prices of that transaction remain unchanged.

Revenue is recognised considering the actually supplied electricity pertaining to the transaction, without any deduction of commissions that might be deducted by trading intermediaries representing the Group at the Power exchange.

2.21.1.4 Revenue from services ensuring capacity reserve and isolated operation of the power system

The Group provides services ensuring capacity reserve and isolated operation of the power system (Note 34 line item “Revenue from the services ensuring the isolated operation of power system and capacity reserve”), for the provision of which is responsible transmission system operator. Transmission service operator purchases the services from the Group according to the bilateral agreement.

Capacity reserve services ensure the required power reserve and are understood as the potential of electricity generation which is used to maintain the set frequency, to ensure the balance of the electricity system and to generate electricity in the event of a decrease in production or an increase in consumption. Capacity reserve services are provided continuously 24 hours a day.

Revenue from capacity reserve services is recognised over time. The price which is paid by transmission system operator to the Group is set up by National Energy Regulatory Council

==> picture [83 x 40] intentionally omitted <==

215 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

(hereinafter “NERC” or “the Regulator”) for one MW/h and the quantity is measured as MW for the whole year for 24 hours a day.

Revenue from services ensuring the isolated operation of the power system services is recognised over time. The price of these services which is paid by transmission system operator to the Group is set by NERC for one MW/h and the quantity is agreed in the contract as MW for the whole year. The measurement of the service is performed by the readings of electricity meters.

2.21.1.6.1 The Group as an electricity supplier

PSO fee is an integral part of electricity tariff to the customer. The Group collects PSO fees from end-customers, connected to electricity distribution grid, and transfers them to the administrator of PSO funds Baltpool UAB. The Group is agent for PSO fees, collected from the end-customers, and doesn’t recognise the revenue of them (Note 4.10).

2.21.1.6.2 The Group as a PSO service provider

Revenue from capacity reserve services and services ensuring the isolated operation of power system are regulated by NERC (Note 2.21.4, 4.14.1).

2.21.1.5 Revenue from electricity transmission and distribution

Revenue from electricity transfer, which includes transmission and distribution (Note 34 line item “Revenue from electricity transmission and distribution”), to household customers is recognised in each reporting period on the basis of declared or actual, i.e. determined upon inspection or received via smart meters, readings. If declared or actual meter readings are not available, revenue from transmission and distribution of electricity is recognised based on the average usage estimation method.

Revenue from transmission and distribution of electricity to business customers and household customers is recognised over time based on the actual electricity supplied which is determined according to the readings of electricity meters.

The Group generates electricity using renewable energy sources which are considered as PSO services and are financed by PSO funds through the PSO budget. Revenue from PSO funds is recognised over time according to issued monthly invoices to Baltpool UAB. For measuring the progress of completion the Group using the practical expedient recognises revenue in the amount to which it has a right to invoice. Revenue of PSO funds for 1 MW of electricity supplied to the electricity grid during the month is recognised as the difference between the fixed tariff set by the NERC and the weighted average price of electricity sold in Power exchange in previous month. The quantity of electricity supplied is determined by the readings of metering devices.

Revenue from PSO funds (Note 34 line item “Revenue from PSO”) is regulated (Note 2.21.4)

2.21.2 Gas related revenue

The Group’s gas related revenue includes:

revenue from gas sales (Note 2.21.2.1),

Electricity transmission services in Lithuania are provided and acquired from transmission system operator which is not a part of the Group. The Group collects electricity transmission fees from business customers and households customers and transfer them to transmission system operator. The Group is a principal for transmission services fees and recognise the revenue of them (Note 4.9.1).

Because the Group has no control over electricity transmission and distribution service obligations provided in Latvia (Note 4.9.1), the Group treats itself as an agent in the provision of electricity transfer, which includes both transmission and distribution.

Revenue from transmission and distribution of electricity is regulated (Note 2.21.4).

2.21.1.6 Revenue from Public Service Obligations: PSO fees and PSO funds

The purpose of PSO services provision is to implement the strategic objectives of the energy, economic and environmental policy of the Republic of Lithuania, ensuring the implementation of the interests of all electricity consumers. Under the public service obligation scheme approved by Ministry of Energy PSO fees are collected by electricity suppliers from end users through the electricity tariff. PSO fees are transferred further to the state budget, from which the PSO funds are distributed (i.e. disbursed) to PSO service providers. The PSO budget is administered by the operator of energy exchange Baltpool UAB, which is engaged in the collection of PSO fees from electricity suppliers and disbursement of PSO funds to PSO service providers. The list of services supported by PSO is determined by the Government of the Republic of Lithuania.

revenue from gas distribution (Note 2.21.2.2),
revenue of LNGT security component (2.21.2.3.2).

Gas related revenue is received from business customers and household customers by providing services of gas supply. Revenue of LNGT security component is received as a compensation for providing services of designated supplier. For the purpose of these financial statements terms “gas” and “natural gas” are used for referring to the same items.

Accounting policy for gas related revenue received from household customers may be presented in accordance with the components of the natural gas tariff applied to the consumed gas by household customers.

Final natural gas tariff to household customers comprise of the following components:

(a) price of gas (Note 2.21.2.1);
(b) price of natural gas transmission over high-pressure (Note 2.21.2.2);
(c) price of natural gas distribution over medium and low pressure grid services (Note 2.21.2.2);
(d) LNGT security component (Note 2.21.2.3.1).

The Group as a natural gas supplier collects payments for all components from customers. The component of transmission service price and LNGT security component are transferred to transmission grid operator. The Group is an agent in collection of transmission service component (Note 4.9.3) and LNGT security component fees (Note 4.10).

Regulation of tariffs and the Group’s profitability is presented in the Note 2.21.4.

Accounting policy for revenue from business customers is presented in Notes 2.21.2.1, 2.21.2.2.

==> picture [83 x 40] intentionally omitted <==

216 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

2.21.2.1 Revenue from gas sales

Revenue from sales of gas (Note 34 line item “Revenue from gas sales“) consists of gas price and supply margin. Gas sales are performed by the Group as a natural gas supplier to household customers and as a designated LNG supplier to gas market.

Revenue from gas sales to end-customers is recognised on a monthly basis referring to the supplied gas quantity readings devices provided by them and verified by the distribution system operator (an accrual basis). In case of difference between provided and verified quantities due to over declaration (Note 4.13) the Group estimates the amount of deferred income (Note 29) and accounts for as a contract liability.

2.21.2.2 Revenue from gas distribution

The Group provides natural gas distribution services to household and non-household customers.

Revenue from non-household customers for the distribution of natural gas (Note 34 line item “Revenue from gas distribution”) is recognised over time based on to the readings of measuring devices provided by users or, if users did not provide the readings of measuring devices, referring to the quantities of gas calculated according to the approved methodology for the calculation of quantities of natural gas, as agreed with NERC (an accrual basis).

Revenue from household customers is recognised over time based on the actual natural gas quantity supplied which is calculated according to the approved methodology for the calculation of quantities of natural gas, i.e. the calculation of revenue takes into account mismatches between quantities of gas declared by household customers and quantities of gas transferred to them (an accrual basis).

Revenue from gas distribution is regulated (Note 2.21.4).

In Latvia natural gas distribution services are provided and acquired from the operator of gas distribution grid which is not a part of the Group. The Group as a natural gas supplier collects payments for distribution service component and transfers to operator of distribution grid. The Group is an agent in the collection of distribution service component in Latvia (Note 4.9.2).

2.21.2.3 LNGT security component

The Law on the Liquefied Natural Gas Terminal of the Republic of Lithuania provides that contribution so-called security component related to the following securities of natural gas supply shall be collected from end users and added to the natural gas transmission price:

2.21.2.3.1 The Group’s activity as natural gas supplier to end users

LNGT security component is an integral part of natural gas tariff to the customer. Payments for LNGT security component collected directly from customers or natural gas suppliers, if the customers don’t have a direct contract with the operator of transmission system. Collected amounts of LNGT security component are transferred to gas transmission system operator Amber Grid AB (doesn’t belong to the Group) which is appointed to perform the function of administering the LNGT security component. In accordance of IFRS 15 the Group in providing these services consider itself by acting as an Agent and recognises the revenue on a net basis (Note 4.10). Income and disbursements of LNGT security component (regardless whether the net of it is positive or negative) are recognised under the item “Purchases of electricity, gas and other services” in SPLOCI.

2.21.2.3.2 The Group’s activity as designated LNG supplier to gas market

The Group is providing dedicated LNG supply function.

In order to maintain the LNG Terminal infrastructure in minimum mode, a certain amount of natural gas, which is to be supplied through the LNG Terminal, is required for filling, regasification or transhipment and supply to the Lithuanian natural gas system or the international LNG market.

The Law on the LNG Terminal and the Description of the Natural Gas Supply Diversification Procedure determines that the required quantity shall be supplied by the designated supplier (nominated by the Ministry of Energy for 10 years, designation ends on 31 December 2024) by concluding a contract with the LNG supplier.

To ensure the operation of LNG terminal the designated supplier shall sell the required quantity on a competitive market and therefore its costs which due to the nature of its activities are exclusively borne (whereas other suppliers don’t incur) are compensated by operator of transmission system paying LNGT funds that are paid from the budget of LNGT security component collected by natural gas suppliers from end customers. Accordingly, the Group receives revenue from LNGT funds.

The revenue of LNGT funds is recognised over time by issuing VAT invoices to the operator of transmission system according to the statements which are received from it and include information of degassed and (or) reload quantity of LNG and the quantity of LNG used for the Group’s technological needs at LNG Terminal. Revenue of LNGT funds is recognised under the “Revenue from contracts with customers” item in SPLOCI. Revenue of LNGT security component is presented in Note 34 line item “Revenue of LNGT security component”.

Revenue of LNGT security component is regulated (Note 2.21.4).

for the installation of LNGT, its infrastructure and connection and all fixed operating costs that are not included in other state regulated prices, and
to compensate for the reasonable costs of supplying the minimum quantity required to ensure the necessary operation of the LNGT.

Similarly to PSO fees, LNGT security component is collected by natural gas suppliers from end users through the natural gas tariff and transferred then to the state budget, from which the LNGT funds are distributed (i.e. disbursed) to LNGT service providers.

The Group (through the Group company Ignitis UAB) acts as a natural gas supplier that collects LNGT security component from end users and as designated liquefied natural gas supplier (hereinafter “designated supplier”) the function of which is to ensure the necessary operation of the LNGT by supplying the minimum quantity of natural gas.

==> picture [83 x 40] intentionally omitted <==

217 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

2.21.3 Other significant revenue from contracts with customers

2.21.3.1 New customers connection fees

The Group obtains revenue from services of new customers connection to the electricity and natural gas distribution networks (Note 34 line item “Revenue from new customers’ connection fees”). Connection fees obtained by the Group are non-refundable upfront fees paid by the customers for the connection to electricity and gas distribution network. The Group signs separate agreements with customers for connection services. The Group also signs agreement with private customers and business customers for electricity and gas distribution. Connection fees do not represent a separate performance obligation from the sale of ongoing distribution of electricity or gas services as they are highly interrelated. Therefore, revenue from connection fees is deferred and recognised as revenue over the estimated average useful life of assets providing the connection service, being 27 years for electricity grid and 46-55 years on for gas grid. Connection fees received from customers which are deferred are accounted for as deferred revenue as a contract liability (Note 29).

According to connection contracts client is obliged to pay an advance before connection works are started. Advances received from clients are accounted for as prepayments received as a contract liability (Note 29).

2.21.4.1 Regulation of electricity related activities

The NERC regulates the prices of electricity transmission, distribution, public supply services and the price of public electricity by setting price caps. The Group as a public electricity supplier supplies electricity at the public electricity price to all household costumers, who have not chosen an independent electricity supplier.

The public electricity price is regulated by NERC by setting price caps for purchase price of electricity, transmission, distribution services and public supply service fee, by setting specific prices for PSO services and electricity system services and by adding the difference between actual purchase price of electricity and the forecasted electricity price for the previous period.

The NERC regulates the prices of services ensuring capacity reserve and isolated operation of the power system by setting price or revenue caps.

Customers who are guaranteed by supply of last resort are subject to the price of supply of last resort, which is regulated by NERC and is calculated by applying the coefficient 1.25 to the average electricity exchange price of the previous reporting month formed in the Lithuanian price zone.

2.21.4.2 Regulation of gas related activities

2.21.4 Regulation of tariffs and profitability

Profitability of some individual Group companies and their individual activities is regulated by NERC through the service tariffs approved for the next periods. The level of tariffs depends on the projected costs and volume of services for the next period, the extent to which the previous period earnings are at variance with the regulated level, and other factors.

Actual costs of regulated activities incurred by the Group during the year may be at variance with the projected costs that are considered during the approval of the tariffs, and the actual volume of services may be at variance with the projected one. Accordingly, actual earnings from regulated activities may be at variance with the regulated level, and the resulting difference will affect the future tariffs of services.

The NERC regulates the prices of transmission, distribution by setting price caps and price for LNGT security component by setting a specific price.

Liquefied natural gas is sold to regulated (supervised) energy producers at the market price set and approved by NERC. Non-regulated sales of natural gas are conducted at the prices agreed between the parties.

2.22 Other income

2.22.1 Operating lease income

Operating lease income is recognised on a straight-line basis over the lease period.

The Group usually does not recognise assets and liabilities of the regulated activities that are intended to eliminate the mismatches between the current year earnings and the regulated level, provided the difference will be recovered/refunded only through the provision of services in the future, except those presented in Note 4.14.

2.23 Expense recognition

Expenses are recognised in SPLOCI as incurred applying accrual basis of accounting.

2.24 Current and deferred tax

2.24.1 Income tax

Income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount of income tax are those that are enacted or substantively enacted at the statement of financial position date.

Current income tax is calculated on profit before tax. Calculation of income tax is based on requirements of the countries where the Group operates and the Group company generates taxable income on applicable legislation.

Standard corporate income tax rate of 15% was applicable to the companies in Lithuania, in Poland – 19%.

==> picture [83 x 40] intentionally omitted <==

218 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

2.26 Diluted earnings per share

Standard corporate income tax rate in Latvia and Estonia is 20%(14% in certain cases) on the gross amount of the distribution.

In Lithuania tax losses can be carried forward for an indefinite period, except for losses incurred as a result of disposal of securities and/or derivative financial instruments. Such carrying forward is disrupted if the Group changes its activities due to which these losses incurred except when the Group does not continue its activities due to reasons which do not depend on Group itself. The losses from disposal of securities and/or derivative financial instruments can be carried forward for 5 consecutive years and can only be used to reduce the taxable income earned from the transactions of the same nature In terms of utilizing tax losses carried-forward the amount may not exceed 70% of the taxpayer's taxable profits in a given year.

The prepaid income tax and recognised income tax liabilities are offset in the statement of financial position of the Group when they relate to the same taxation authority.

2.24.2 Deferred tax

Deferred tax is accounted for using the liability method. Deferred tax assets and deferred tax liability are recognised for future tax purposes to reflect differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax liabilities are recognised on all temporary differences that will increase the taxable profit in future, whereas deferred tax assets are recognised to the extent that is probable to reduce the taxable profit in future. These assets and liabilities are not recognised when temporary differences arise from goodwill or from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting, nor taxable profit or loss.

The carrying amounts of deferred tax assets are reviewed at each reporting date and reduced to the extent it is no longer probable that sufficient taxable profit will be available against which such deferred tax assets could be utilised in full or in part. Deferred tax assets are reduced to an amount which is likely to reduce the taxable profit in future.

Deferred tax is determined using tax rates that are expected to apply when the related deferred income asset is realized or the deferred tax liability is settled.

2.24.3 Current and deferred tax for the reporting period

Diluted earnings per share (hereinafter – EPS) is calculated by dividing the profit attributable to ordinary equity holders of the parent (after adjusting for interest on the convertible preference shares) by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

2.27 Dividend distribution

Dividend distribution to the parent company shareholders is recognised as a liability in the Group financial statements in the period in which the dividends are approved by the parent company shareholders.

2.28 Contingencies

Contingent liabilities are not recognised in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote.

A contingent asset is not recognised in the financial statements but disclosed when an inflow or economic benefits is probable.

2.29 Related parties

Related parties are defined as follow:

parent company’s controlling shareholders or those who have significant influence
associated companies
state controlled companies and their subsidiaries (only significant transactions are being disclosed with such companies)
Ministry of Finance of the Republic of Lithuania along with agencies and enterprises that are attributable to the governance of the decisions (only significant transactions are being disclosed with such companies)
key management personnel and close members of that personnel’s family and their controlled enterprises and companies

2.30 Offsetting

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

Current and deferred tax are recognised as income or expenses and included in net profit or loss for the reporting period, except for the cases when tax arises from a transaction or event that is recognised directly in equity or other comprehensive income in the same or subsequent period or on business combination.

2.25 Earnings per share (EPS)

Basic EPS is calculated by dividing the profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

==> picture [83 x 40] intentionally omitted <==

219 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

2.31 Fair value

The Group measures financial instruments such as derivatives, and non-financial assets such as investment properties, at fair value at each statement of financial position date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

in the principal market for the asset or liability

in the absence of principal market, in the most advantageous market for the asset or liability.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1: fair value of assets is based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: fair value of assets is based on other observable market data, directly or indirectly;
Level 3: fair value of assets is based on non-observable market data.

For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

2.32 Events after the reporting period

All events after the reporting period (adjusting events) are accounted for in the financial statements provided that they are related to the reporting period and have a significant impact on the financial statements. Events after the reporting period that are significant but are not adjusting events are disclosed in Note 50.

==> picture [83 x 40] intentionally omitted <==

220 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

3 Financial risk management

3.1 Financial risk factors

The Group is exposed to a variety of financial risks in their operations: market risk (including foreign exchange risk, interest rate risk in relation to cash flows), credit risk and liquidity risk. In managing these risks, the Group companies seek to mitigate the impact of factors which could adversely affect the Group financial performance results.

3.1.1 Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: foreign currency exchange risk, interest rate risk and commodity risk.

3.1.1.1 Foreign currency exchange risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates.

The sale/purchase contracts of the Group is mainly denominated in the euro. Foreign exchange risk is mainly characteristic to contracts concluded by the Group for the purchase of natural gas from third parties. Aiming to reduce foreign exchange risk the agreement on natural gas purchase and supply is concluded in the same currency.

3.1.1.2 Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Group’s income and cash flows are affected by fluctuations in market interest rates because the Group’s loans and borrowings had fixed and variable interest rates as at 31 December 2021, therefore, it is exposed to interest rate risk.

In assuming debt obligations, it is aimed that non-current liabilities would bear a fixed interest rate. If the fixing of the interest rate is not possible due to objective reasons and the liability assumed comprises a significant amount (in the context of the Group), interest rate derivatives would be used for the purpose of interest management (the Group did not use such derivatives during 2021 and 2020). The aim is that non-current borrowings with fixed interest rates comprised no less than 50% of the Group’s consolidated non-current borrowings portfolio. The usage of any of the interest rate derivatives requires the expiry date of the derivative to correspond to the maturity date of the debt obligation.

The risk of adverse changes in the interest rate of the investment is not actively insured. Risk management measures are applied only when the market has obvious indications that the interest rate might significantly decrease, resulting in negative investment returns.

Variable-rate financial instruments include loans in amount EUR 230,992 thousand as at 31 December 2021 (EUR 136,262 thousand as at 31 December 2020).

Interest rate risk is assessed in relation to sensitivity of the Group’s profit to potential shift in interest rates. This assessment is given in the table below.

Group	Increase/decrease, pp	(Decrease)/increase in profit
2021	0.3/(0.3)	(42)/42
2020	0.3/(0.3)	(48)/48

3.1.1.3 Commodity risk

Commodity risk is the risk that changes in market prices (i.e. commodity prices) will affect the Group’s results or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

The Group uses derivatives to manage the commodity risk. All such transactions are carried out according to Group’s risk management policy. Generally, the Group seeks to apply hedge accounting to manage volatily in profit or loss of SPLOCI

In the ordinary course of its operations, the Group is exposed to commodity risks on natural gas and electricity products. The source of exposure lies with cash flows from sales of natural gas and electricity or cost cash flows incurred to procure fixed price electricity/natural gas power for sales contracts. Majority of this type of exposure is based on changes of respective commodity price in the market that the Group operates.

Commodity risk arises primarily from the following activities:

Fixed price commodity sales contracts (electricity and natural gas) for household and business customers.

• Fixed price natural gas purchases contracts. In order to manage commodity price risk the Group enters into financial derivatives contracts (cash flow hedges). This is performed in order to secure a fixed acquisition price of the above mentioned commodities, so that optimum profit margins could be obtained from contracted or expected fixed price sales.

For electricity related hedges, the Group uses component based hedges in the derivatives market (NASDAQ commodities) or equivalent over-the-counter contracts (OTC), and for natural gas related hedges – OTC contracts with price indexes matching hedged contracts. Assessment of economic relationship and hedge effectiveness is performed by:

Dollar offset method for electricity hedges

• Descriptive method for natural gas hedges The two separate components that are being used as a hedged item for electricity related hedges are SYS price and price component equivalent or similar to difference between Lithuania price area and SYS price. Their economic relationship is determined separately for each component.

SYS price (average price of Nordpool power market , of which Lithuania is a member of)
Price component equivalent or similar to difference between Lithuania price area and SYS price (commonly referred as EPAD in NASDAQ commodities market).

==> picture [83 x 40] intentionally omitted <==

221 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

Source of hedge ineffectiveness are mainly related to limited supply of financial derivatives for Lithuanian electricity price area in the market. Therefore, commodity risk is partly hedged in similar price area‘s (Latvian, Estonian and other), which results in partial ineffectiveness. The designated risk component of SYS historically covered 100% of the changes in hedged item, while designated price component equivalent or similar to difference between Lithuania price and SYS price historically covered variety of percentages (depending on hedge timing and hedged price area). However, at least 57% coverage is expected in order for derivative to be classified as effective for hedge accounting purposes. Since the beginning of hedge accounting application on 1 July 2021, on average 87%of all electricity hedge contracts in terms of value has been effective.

Overview of Group‘s derivatives positions:

	31 December 2021	31 December 2021	31 December 2020	31 December 2020
	Contractual nominal value	Market Value	Contractual nominal value	Market Value
Market derivatives - Electricity („Nasdaq commodities“)	187,458	94,323	133,618	18,875
Over the counter (OTC) derivatives - Electricity	10,297	6,097	124	3,072
Over the counter (OTC) derivatives – Natural gas	225,753	(65,122)	77,484	(1,963)
Total nominal value	423,508	35,298	211,226	19,984

The maximum exposure to credit risk as at 31 December 2021 is equal to the carrying amount of financial assets.

	Note	31 December 2021	31 December 2020 (restated)1
Financial assets measured at amortised cost:
Non-current receivables	11	88,539	16,443
Trade receivables	17	274,897	128,423
Other receivables	18	205,884	66,454
Cash and cash equivalents	19	449,073	658,795
Amounts receivable under finance lease agreements
Non-current portion	11	7,600	8,860
Current portion	18	2,517	2,634
Financial assets measured at FVPL in SPLOCI or in
other comprehensive income of SPLOCI
Amount receivable on sale of LitGrid AB	18	84,128	150,693
Derivative financial instruments	33.2	13,483	3,311
In total		1,126,121	1,035,613

1 Part of the amounts do not agree with the financial statements issued for the year ended 31 December 2020 due to reclassifications. See more information disclosed in Note 5.

3.1.2 Liquidity risk

Nominal amounts (quantities in MW) hedged:

		31 December 2021
	2022	2023	2024	2025
Electricity hedges	3,050,998	1483,820	143,808	17,520
Natural gas hedges	(475,804)	296,221	302,584	-
Total	2,575,194	1780,041	446,392	17,520

Negative amount indicates that there are more “sell” positions than “buy” positions.

3.1.1.4 Credit risk

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss.

The liquidity risk is managed by planning future cash flows of each Group company and ensuring sufficient cash and availability of funding through committed credit facilities and overdrafts to support Group’s ordinary activities. The refinancing risk is managed by ensuring that borrowings over a certain period were repaid from available cash, from cash flows expected from operating activities of the Group companies over that period, and from unwithdrawn committed credit facilities which have to be repaid in later periods.

As at 31 December 2021, the Group’s current liquidity ratio (total current assets/total current liabilities) and quick ratio ((total current assets – inventories) / total current liabilities) were 1.84 and 1.58 respectively (31 December 2020 (restated)[1] : 3.19 and 3.18 respectively). As at 31 December 2021, the Group’s balance of credit and overdraft facilities not withdrawn amounted to EUR 115,291 thousand (31 December 2020: EUR 344,504 thousand).

The table below summarises the Group’s financial liabilities by category:

The Group’s exposure to credit risk arises from operating activities of the companies (trade and other amounts receivable) and from financing activities (cash and cash equivalents.)

The Group is not exposed to significant credit risk concentration related to trade receivables and other amounts receivable, except as noted below. As at 31 December 2021, other receivables of the Group principally consisted of the EPSO-G UAB outstanding receivables for the sale of LitGrid AB shares in year 2012 (Note 18.1).

The priority objective of the Group’s treasury management is to ensure security of funds and maximize return on investments in pursuance of this objective. Risk of counterparties defaulting is managed by entering into transactions with reliable financial institutions (or subsidiaries of such institutions) with a long-term credit rating (in foreign currency) not lower than ‘A-’ according to the rating agency Fitch Ratings (or an equivalent rating of other rating agencies).

	Note	31 December 2021	31 December 2020 (restated)2
Amounts payable measured at amortised cost
Borrowings	25	1,355,351	1,261,604
Lease liabilities	27	50,963	42,529
Non-current trade payables		362	452
Trade payables	31	100,183	51,693
Other current amounts payable and liabilities	32	36,532	53,818
Financial liabilities measured at FVPL or FVOCI
Derivative financial instruments	33	71,452	2,202
Put option redemption liability	32	20,919	16,660
In total		1,635,762	1,428,958

2 Part of the amounts do not agree with the financial statements issued for the year ended 31 December 2020 due to reclassifications. See more information disclosed in Note 5.

==> picture [83 x 40] intentionally omitted <==

222 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

The table below summarises the maturity profile of the Group’s financial liabilities under the contracts (based on contractual undiscounted payments of interest-bearing financial liabilities and the carrying amounts of other financial liabilities):

	2021
	In total Less than 3 months 3 months to 1 year 1 and 5 years After 5 years
Borrowings and lease liabilities Trade payables and non-current amounts payable to suppliers Other payables Derivative financial instruments	10,494 254,102 171,392 1,149,210 1,585,198 25,046 75,137 362 - 100,545 14,363 43,089 - - 57,452 17,858 53,573 21 - 71,452
As at 31 December 2021	67,761 425,901 171,775 1,149,210 1,814,647

	2020 (restated)1
	In total Less than 3 months 3 months to 1 year 1 and 5 years After 5 years
Borrowings and lease liabilities Trade payables and non-current amounts payable to suppliers Other payables Derivative financial instruments	10,130 40,963 279,223 1,171,891 1,502,207 12,923 38,770 452 - 52,145 17,620 52,859 - - 70,479 2,202 - - - 2,202
As at 31 December 2020	42,875 132,592 279,675 1,171,891 1,627,033

1 Part of the amounts do not agree with the financial statements issued for the year ended 31 December 2020 due to reclassifications. See more information disclosed in Note 5.

3.2 Capital risk management

For the purpose of capital risk management, the management uses equity as reported in the statement of financial position.

Pursuant to the Lithuanian Republic Law on Companies, the issued capital of a public limited liability company must be not less than EUR 25 thousand, the issued capital of a private limited liability company must be not less than EUR 2.5 thousand, and the shareholders’ equity must be not lower than 50% of the company’s issued capital. Foreign subsidiaries are subject for compliance with capital requirement according to regulation adopted in those foreign countries. As at 31 December 2021, the Company and all the companies of the Group met requirements of capital regulation.

When managing the capital risk in a long run, the Group seeks to maintain an optimal capital structure of subsidiaries to ensure a consistent implementation of capital cost and risk minimization objectives. The Group companies form their capital structure according to internal factors relating to operating activities, also - the expected capital expenditures and developments and in view of business strategy of the Group companies, as well as based on external current or expected factors significant to operations relating to markets, regulation and local economic situation.

The Board of the Company has an approved dividend policy, which sets principles for the payment of dividends for all the Group companies. The dividend policy is one of capital risk management tools.

On 3 September 2020 the Board of the Company approved a new dividend policy of the Company. Under the new dividend policy, the Company will pay EUR 85 million in dividends for the financial year 2020. For each subsequent financial year, will allocate at least 3% more than the amount paid for the previous financial year.

On 15 December 2020 the Board of the Company approved the updated dividend policy of companies owned by Ignitis Group. The provisions of the policy shall be followed when making decisions regarding the allocation of dividends by the subsidiaries. According to the updated Dividend Policy of Owned Companies, a subsidiary owned by the Company shall allocate dividends for the financial year or a period shorter than the financial year using at least 80% of the net profit of the subsidiary received during the financial period for which the dividends are offered. Exemptions for paying dividends by subsidiaries may apply if certain conditions are met.

==> picture [83 x 40] intentionally omitted <==

223 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

4 Critical accounting estimates and judgments used in the preparation of the financial statements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The preparation of financial statements according to IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and costs and contingencies. Change in the underlying assumptions, estimates and judgements may have a material effect on financial statements of the Group in the future.

Only significant accounting estimates and judgements used in the preparation of the financial statements are described in this note. For other estimates and judgements used refer to other notes of these financial statements.

4.1 COVID 19 pandemic

The Group's management has assessed the impact of COVID-19 pandemic uncertainty to the following key areas:

Going concern
Fair value, impairment, residual value and useful life of property, plant and equipment
Assessment of expected credit losses
Impairment of goodwill
Net realisable value of inventory
Classification of financial instruments as current and non-current
Lease contracts

The Group's management has not identified any significant threats in assessing the potential impact of key COVID-19 factors on the Group’s results.

4.2 Revaluation of property, plant and equipment, used in electricity distribution

Major part of such assets presented in “Electricity networks and their structures” are used in electricity distribution activities performed by subsidiary Energijos skirstymo operatorius AB and attributable to electricity distribution CGU in the Group.

The Group has determined that the fair value of the electricity distribution CGU as at 31 December 2021 would decrease significantly (more than 5%) due to changes in regulated activity in electricity distribution for the new regulation period 2022- 2026:

a) additional tariff component which will increase electricity distribution income by EUR 28 million yearly;
b) recalculated the base of electricity distribution assets which decreased from EUR 1,414 to 1,097 million;
c) the difference of depreciation and investments return for the period 2018-2021, which comprise EUR 160 million, from which the part of 96% would be returned to the customers during 2032-2036 via distribution tariff after the Group management estimations.

The Group identified and recognised the negative revaluation result of EUR 48,570 thousand as a result of valuation of property, plant and equipment used in electricity distribution activities as at 31 December 2021. For more detailed information – see Note 7.

4.3 Impairment of property, plant and equipment, used in natural gas distribution

The group of property, plant and equipment “Gas distribution pipelines, gas technological equipment and installations” is managed by the Group‘s company Energijos skirstymo operatorius AB and attributable to gas distribution CGU in the Group. This property, plant and equipment is accounted applying cost model and is stated at acquisition cost less accumulated depreciation and impairment.

As at 31 December 2021, it was assessed whether there is any indication that the carrying amount of this CGU could be impaired. The management determined that planned investments to the gas business segment and its financing presumptions were changed in updated 10-year investment plan of the Group. Accordingly, regulated asset base from which asset return is calculated has decreased and it was determined that there are impairment indications.

The Group identified and recognised the impairment loss of EUR 9,392 thousand as a result of impairment test of property, plant and equipment used in gas distribution activities as at 31 December 2021. For more detailed information – see Note 7.

4.4 Impairment of goodwill

The Group performed an impairment test of EUR 1,461 thousand goodwill recognised on acquisition of subsidiary Eurakras UAB, an impairment test of EUR 2,150 thousand goodwill recognised on acquisition of subsidiary VVP Investment UAB and impairment test of EUR 1,316 thousand goodwill recognised on acquisition of subsidiary Pomerania Invall Sp. z o. o. and determined no impairment of goodwill as at 31 December 2021 (Note 6.2).

4.5 Judgements and accounting estimates pertaining to control over Kauno kogeneracinė jėgainė UAB

As at 31 December 2021, the Group held 51% shareholding in Kauno kogeneracinė jėgainė UAB (hereinafter “KKJ”), and the remaining 49% of shares was held by Gren Lietuva UAB .

Both shareholders have signed the Shareholders’ Agreement under which key decisions over the business should be taken unanimously by the shareholders and / or by the Board which consists of equal number of representatives from both shareholders and one independent member. If the shareholders fail to reach the consensus on the deadlock situation, the Group has an option to buy (call option) all the shares of KKJ held by Gren Lietuva UAB and thus, whereas Gren Lietuva UAB has an option to sell (put option) to the Group its shareholding in KKJ, for the price, the calculation of which is defined in the Shareholders’ Agreement. As a result the Management believe the Group exercise control over KKJ, as this can be exercised when decisions need to be made.

In the Group’s management view, the call option’s exercise price that the Group will have to pay to Gren Lietuva UAB for buyout of KKJ shares owned by Gren Lietuva UAB , in case the Group accepts option executed by Gren Lietuva UAB, approximates the fair value of the shares less 15% within the limits of the materiality (materiality threshold is based on the best estimate practice, such as +/- 15% of the market value).

At 31 December 2021, the Group accounted for EUR 20,919 thousand (31 December 2020: EUR 16,660 thousand) put option exercise liability (Note 32) measured as net present value of the single future cash outflow, which would be paid to Gren Lietuva UAB for KKJ shares in a deadlock situation in case the put option is exercised.

==> picture [83 x 40] intentionally omitted <==

224 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

4.6 Innovation Fund Smart Energy Fund powered by Ignitis Group KŪB

On 26 July 2017 the parent company of the Group signed the establishment agreement of the limited partnership “Smart Energy Fund powered by Ignitis Group” (hereinafter “the Partnership”) with UAB Contrarian Ventures. Innovation Fund Smart Energy Fund powered by Ignitis Group KŪB (hereinafter “SEF”) invests in start-ups that are developing new technologies in the energy technology field and other fields. According to the Partnership there is one full member - UAB Contrarian Ventures, which acts on behalf of the SEF, has the right to manage SEF, makes decisions on the management of SEF affairs, concludes transactions on behalf of the SEF. All other SEF members (including the parent company of the Group) acts under the Partnership Participant Agreement. Investment decisions are made and approved by the Investment Committee, which is made up solely of Key-men that are shareholders of Contrarian Ventures UAB.

By the management’s judgment the Group does not have control over the Partnership because, under the terms of the Partnership, the Group does not have the power to manage the activities of the SEF as the Group is not a partner of SEF, investment decisions are made in accordance with SEF investment strategy or approved by the Investment Committee, where the Group has only observer.

Total amount of the investment to Innovation Fund Smart Energy Fund powered by Ignitis Group KŪB increased for an amount EUR 20,182 thousand during the year 2021.

The fair value gain of Innovation Fund Smart Energy Fund powered by Ignitis Group KŪB recognised for an amount EUR 15,868 thousand and is presented as “Finance income” in SPLOCI during 2021. The fair value of this financial asset is determined by reference to new investment rounds or other recent events and data (Note 50).

Remaining change is related to new investments made during 2021 for an amount EUR 3,504 thousand and reclassification from non-current receivables EUR 810 thousand.

Fair value corresponds to Level 3 in the fair value hierarchy. Fair value of this financial asset will change depending on future investment rounds or other significant events

4.7 Provision for statutory servitudes and special conditions on land use (protection zones)
4.7.1 Provisions for rights to servitudes

On 1 November 2017 Amendments to the Law on Electricity of the Republic of Lithuania entered into force, which provide basis for the reimbursement of easements established during the installation of electricity networks on land plots not belonging to the operator. This law stipulates that when constructing transmission, distribution networks or installing other electrical equipment, one-time compensation for losses will be paid for the establishment of statutory servitudes (which entered into force before 10 July 2004). The servitudes payment methodology came into force in 31 July 2018. Based on this methodology, in 2018, the expected total amount of easement benefits was estimated and accounted for. In making this assessment, a significant assumption was made regarding the number of landowners who will apply for compensation, as the law provides reimbursement payments to those owners who will apply for it.

be able to examine requests and apply the methodology where the methodology applied was deemed to be in conflict with Constitution, until the new methodology is set and approved. The ruling is only valid for the future and there is no need to recalculate previously paid compensation. The Group has assessed the following changes as adjusting events and, as appropriate, the Group has recalculated the provision for servitude benefits using new coefficient assumptions:

a) the area of land on which electrical installations were installed before 10 March 1990, a coefficient of 0.1 as specified in the methodology shall apply. Such installations account for 88.93% of all installations installed before 10 July 2004. Therefore, a coefficient of 0.1 is applied to 89%of the area when calculating the total value of the payment. Assumption was made, that land with electricity distribution equipment installed before 10 March 1990, the land was acquired with an already installed network, so the ownership of the land was acquired with already established restrictions to the usage of the land, therefore the value and availability of this land has not changed and the servitudes payment coefficient of 0.1 should be used;
b) the area of land on which electrical installations have been installed after 11 March 1990 and until 10 July 2004 , a coefficient of 0.5 shall apply (the amount shall apply to the servitudes determined by contract). Such installations account for 11.07% of all installations installed before 10 July 2004. Therefore, a coefficient of 0.5 is applied to calculate the total value of the payment for 11%of the area.

The Group reviewed other assumptions used in the calculation of the provision, specifically the expected number of applicants, the period over which all benefits will be paid, and the discount rate:

the discount rate for calculating the provision was selected based on a borrowing rate of 0.160% for similar liabilities (31 December 2020: 0.219%);
the expected number of applicants was estimated on the basis of available actual historical twoyear information. The calculation of the total amount of benefits was based on the percentage of customers who are unlikely to apply for benefits - 65% (65% used as at 31 December 2020), which is based on management's assessment and the number of customers actually applying during 2018-2019, where, on average, only about 3% apply per year (Historical data of year 2021 and 2020 is not included in methodology calculations due to break of methodology, as described above, which would distort the total average);
the period during which customers will apply for compensation has been set at 10 years starting in 2022, as the application of the methodology has been temporarily suspended (the updated methodology is expected to be approved in the year 2022). An additional 1-year deadline for the payment of compensation from the date of submission of the application was applied (the methodology of servitude related compensations provides two years for the payment from the date of submission of the application, but in fact the Group pays within one year).

After assessing the changed circumstances, the Group decided to adjust a provision decreasing the amount of the provision from EUR 14,679 thousand to EUR 14,376 thousand (Note 30). In the part of intangible assets, this provision decreased from EUR 14,590 thousand down to EUR 14,345 thousand (Note 6.5).

It should be noted that the value of the provision may vary depending on the number of applicants. The sensitivity analysis is as follows:

31 December 2021	Number of applicants, %
	20% 35% 45% 55% 65% 75% 85% 95%
Change in provision for compensations of servitudes, thousandEUR	-4,447 - +1,718 +6,026 +10,125 +14,224 +18,323 +23,781

==> picture [83 x 40] intentionally omitted <==

225 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

4.7.2 Provision for servitudes of real estate

On 8 July 2020 the Constitutional Court issued a ruling stating that servitudes payment methodology, which was based on the principles of determining the coefficient and the value of a land plot, are against the Constitution and laws of The Republic of Lithuania not only for the land plots, but also for real estate (due to the applied 0.1 coefficient, where as in the meantime different principles and different coefficient was applied to the servitude by contract). This means that the Group will not be able to examine the requests and apply the methodology in the part in which the conflict of the methodology with the Constitution is recognised until the new provisions are approved according to the Governments of the Republic of Lithuania resolution taken on 25 July 2018 No.725 "On the Approval of the Methodology for Determining the Maximum Amount of One-Time Compensation to be Paid for the Use of a Land Easement Established by Law or a Contract for the Benefit of Network Operators" (hereinafter “the Methodology”) provisions.

As the application of the Methodology is suspended and it is not clear how it will be applied in the future and what coefficient will be applied, as no servitude benefit has been paid prior to the Constitutional Court decision, it is not possible to reliably estimate the amount of provision due to:

(1) as no compensations have been paid before the decision of Constitutional Court, it is not possible to estimate how many persons would apply for an servitude payment of real estate.
(2) it is not clear what coefficient should be applied to statutory servitudes in real estate until the Methodology is updated.

Accordingly, with the requirements of IAS 37, the said obligation does not qualify for provision recognition and is therefore not recognised in the financial statements as at 31 December 2021. Also, the Group does not have sufficient information to estimate financial effect or possibility of any reimbursement of this obligation.

4.7.3 Provision for special conditions on land use (protection zones)

The Law on Special Land Use Conditions of the Republic of Lithuania was approved on 6 June 2019, which obliges the Group to register special protection conditions (protection zones) for land near the Group's infrastructure objects and to pay compensations for them. This Law defines the procedure and principles for the registration of such special land territories and provides that compensation must be paid for the use of special land territories in accordance with the procedure approved by the Government of the Republic of Lithuania.

After assessing the changed circumstances, the Group decided to adjust a provision for asset’s security registration expenses for 2021-2024, decreasing the amount of the provision from EUR 15,069 thousand (for 2022 2024 year) to EUR 10,687 thousand (Note 6.5, Note 30). Intangible assets related to this provision decreased from EUR 15,069 thousand to EUR 10,687 thousand (Note 6.5).

4.7.4 Provision for compensations for the Special Land Use Conditions (Protected Areas)

In addition to the above, the Ministry of Environment has prepared a methodology for the calculation and payment of Compensation for the application of special land use conditions in the territories specified in the Law on Special Land Use Conditions of the Republic of Lithuania, established in the public interest, which entered into force in 8 April 2020. In the light of the letter of the Ministry of Energy of the Republic of Lithuania issued on 18 June 2020 , which explains that the provisions of the Methodology apply to both the existing network and the newly built network. According to the provisions of the Methodology, compensation for protection zones would be paid upon registration of protection zones, i.e. under the simplified procedure, this would happen after 2023, and the amount of compensation is of an evaluative nature, taking into account the main purpose of the plot, the scope of restrictions, the specific losses incurred and / or incurred by the plot owners based on supporting documents. In view of these Methodological requirements and the data available to the Group, the Group cannot reliably estimate future compensation for registered Special Land Use Conditions (Protected Areas), therefore, in accordance with IAS 37 this liability does not qualify for recognition and is therefore not recognised in the financial statements. In addition, management is not able to provide a quantitative assessment of a possible contingency without having all the necessary information.

4.8 Determining whether statutory and contractual servitudes are a lease

Management of the Group analysed whether perpetual statutory and contractual servitudes are in scope of IFRS 16 Leases and concluded that statutory and contractual servitudes are not in scope since both statutory and contractual servitudes are not limited in time and can be used by the Group for an indefinite period of time. Perpetual arrangement lacks an essential characteristic of a lease – i.e. it does not meet the definition of a lease because it does not convey a right to use an underlying asset for a specified period of time.

For servitudes with a clear term or when term is renewable on a period-by-period basis IFRS 16 is applied when all other criteria are met listed in IFRS16.

The amendment to the Real Estate Cadastre Regulations necessary for the implementation of the Law on Special Land Use Conditions of the Republic of Lithuania entered into force on 12 February 2020, which details the procedure for changing tags and cadastral provisions for development and for existing networks. This amendment provides for an alternative process for registering protection zones (avoiding the change of cadastral data and the hiring of land surveyors). According to the Law on Special Land Use Conditions of the Republic of Lithuania, the Government has an order to adopt an amendment to this legal act, although after the updating of the real estate register, which will enter into force in 2022. January 1, no provisions were made for how protection zones should be registered from 1 January 2023.

With the start of tag registration in 2021, the process was reviewed and the cost of communication and contact centre was reduced to take into account the reduction in the need for communication and the actual requests from landowners. Also, after estimating the projected registration volumes of markings in 2021, the need for the provision of projected markings (in territories and plots) for the following years has been updated accordingly.

==> picture [83 x 40] intentionally omitted <==

226 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

4.9 Determining whether the Group acts as a Principal or an Agent in relation to electricity transfer, which includes both transmission and distribution, gas distribution services and gas transmission services
4.9.1 Electricity transmission and distribution services

In providing electricity transfer service, which includes transmission and distribution services, to endusers, the Group in Lithuania and Latvia acquires electricity transmission services from transmission grid operator (not a part of the Group), and in Latvia acquires electricity distribution services from distribution grid operator which is not a part of the Group. Management of the Group analysed related contracts with electricity transmission and distribution grid operators and contracts with customers, also evaluated applicable regulatory environment for the conclusion whether the Group is acting as a Principal or as an Agent in relation of electricity transmission services in Lithuania and electricity transfer (includes both transmission and distribution) services in Latvia , management has concluded that the Group acts:

as an Agent in relation to electricity transmission and distribution services acquired from the Latvian operator of electricity transfer system;
as a Principal in relation to electricity transmission services acquired from the Lithuanian operator of transmission system.

4.9.2 Gas distribution services

In providing gas distribution services to customers in Lithuania the Group uses its own distribution network, in Latvia – the Group acquires these services from the company which is not a part of the Group. Management of the Group analysed related contracts with the Latvian gas distribution grid operator and contracts with customers, also evaluated applicable regulatory environment and for the conclusion whether the Group is acting as a Principal or as an Agent in relation to gas distribution services in Latvia have considered arguments provided further:

for gas distribution services the Group is not ultimately responsible, since according to the laws and regulations and agreements with customers the owner of the distribution grid takes full responsibility;
the Group also does not bear inventory risk since price of distribution services is determined based on meter readings – i.e. distribution fee is charged to the Group only to the amount of gas consumed by the end-customer;
the price of distribution component is determined by the grid operator, which is not a part of the Group, and approved by regulator.

Following the arguments presented above the Management has applied a significant judgement and concluded that the Group acts as an Agent in relation to gas distribution services acquired from the Latvian operator of gas distribution system.

4.9.3 Gas transmission services

The Group provides gas supply services to customers and collects payments from them for gas transmission services that are provided by transmission grid operator (does not belong to the Group). Management has applied a significant judgment and concluded that the Group acts as an Agent in relation to collection of transmission service component from customers due to the following argumentation:

for gas transmission services the Group is not ultimately responsible, since according to the laws and regulations the owner of the transmission grid takes full responsibility;
the Group also does not bear inventory risk since price of transmission services is determined based on meter readings – i.e. transmission fee is charged to the Group only to the amount of natural gas consumed by the end-customer;
the price of transmission component is determined by the transmission grid operator, which is not a part of the Group, and approved by regulator.

Following the arguments presented above the Management has applied a significant judgement and concluded that the Group acts as an Agent in relation to gas transmission services for which the Group collects payments from end-customers.

4.10 Determining whether the Group acts as a Principal or an Agent in relation to PSO fees and LNGT security component

Management has applied a significant judgment and concluded that the Group acts as an Agent in relation to collection of PSO fees and LNGT security component from customers due to the following argumentation:

1) the Group is not responsible for PSO and LNGT projects/initiatives, accordingly it is not responsible that collected PSO fees and LNGT security component are used for their intended purpose;
2) the Group is not exposed to any inventory risk,
3) the Group has no legal power to establish pricing of these components.
4.11 Leases – determining the lease term and estimating the incremental borrowing rate
4.11.1 Determining the lease term of contracts with renewal and termination options

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

The Group applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease. That is, it considers all relevant factors that create an economic incentive for it to exercise either the renewal or termination. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to renew or to terminate (e.g., construction of significant leasehold improvements or significant customization to the leased asset).

The Group included the renewal period as part of the lease term for leases of shorter noncancellable period (i.e., one to three, three to five, five to seven years, etc.). The Group usually exercises its option to renew for these leases. Lease of the state-owned land is not subject to an extension clause, after which the lessee has a pre-emptive right to extend the lease. The periods covered by termination options are included as part of the lease term only when they are reasonably certain to be exercised.

==> picture [83 x 40] intentionally omitted <==

227 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

4.11.2 Estimating the incremental borrowing rate

The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (hereinafter “IBR”) to measure lease liabilities (Note 27). The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.

Average incremental borrowing rate set for new significant agreements made in 2021 was 1.4%.

4.12 Expected credit losses of trade receivables

The Group’s uses a provision matrix to calculate expected credit losses for trade receivables. The Group accounts for expected credit losses (hereinafter “ECL”) assessing amounts receivable on an individual basis or on a collective basis applying provision matrixes adopted by the Group companies in respect of their clients.

4.12.1 Collective assessment of ECL applying provision matrix

The Group companies use provision matrixes to calculate ECL for trade receivables. The provision rates are based on days past due for groupings of various customer segments that have similar loss patterns (i.e. by customer type).

The provision matrixes are initially based on the Group companies’ historical observed default rates. The Group companies calibrate the matrixes to adjust the historical credit loss experience with forward-looking information. For instance, if forecast economic conditions (i.e., changes in gross domestic product) are expected to deteriorate over the next year which can lead to an increased number of defaults, the historical default rates are adjusted. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed. The assessment of the correlation between historical observed default rates, forecast economic conditions and ECL is a significant estimate. The amount of ECL is sensitive to changes in circumstances and of forecast economic conditions. The Group historical credit loss experience and forecast of economic conditions may also not be representative of customer’s actual default in the future. The information about the ECL on the Group trade receivables is disclosed in Note 17.

4.13 Estimation of over declaration of electricity and natural gas usage by private customers and accounting for deferred income

In the circumstances when the tariff in subsequent period is higher than in current period according to the historical evidence of the Group it has been identified that private customers tend to over declare the consumption of electricity and natural gas in the last months of the year. Since Group electricity and gas distribution revenue depends on declarations of electricity and natural gas consumed by the customers, over declaration increases Group revenue and therefore the Group needs to estimate the amount of the overdeclared consumption to evaluate the amount of deferred income. Estimation is based on historical consumption by the customers as well as Group assessment of technological losses in the electricity and gas grid. All assumptions are reviewed at each reporting date.

4.14 Regulated activity: Accrual of income and regulatory provisions from regulated activities

Profitability of the Group is regulated by NERC through the service tariffs approved for the next periods. The level of tariffs depends on the projected costs and volume of services for the next period, the extent to which the previous period earnings are at variance with the regulated level, and other factors.

Actual costs incurred by the Group during the year may be at variance with the projected costs that are considered during the approval of the tariffs, and the actual volume of services may be at variance with the projected one. Accordingly, the actual earnings of the Group may be at variance with the regulated level, and the resulting difference will affect the future tariffs of services.

4.14.1 Services ensuring isolated operation of the power system and capacity reserve

On 14 November 2019, NERC adopted a resolution No O3E–715 ‘On approval of the methodology for establishing the prices for electricity, capacity reserve and services ensuring isolated operation of the power system’. This resolution stipulates that Companies that discontinue capacity reserve ensuring services or services ensuring isolated operation of the power system shall reimburse any discrepancies between the projected and actual costs of providing these services to the transmission system operator if the costs actually incurred by the Group were less than the revenues received from the transmission system operator. If the actual costs incurred by the Group were higher than the income of the transmission system operator, the transmission system operator shall reimburse this amount to the Group.

4.12.2 Individual assessment of ECL

Decision to asses amounts receivable on an individual basis depends on the possibility to obtaining information on the credit history of a particular client / borrower, its financial position as at the date of assessment, including forward-looking information that would allow to timely determine whether there has been a significant increase in the credit risk of that particular client, thus enabling making judgement on the recognition of lifetime expected credit losses in respect of that particular client / borrower. These accounting estimates require significant judgement. Judgement is based on information about substantial financial difficulties experienced by the debtor, probability that the debtor will enter bankruptcy or any other reorganisation, default of delinquency in payments. In the absence of reliable sources of information on the credit history of a particular borrower, its financial position as at the date of assessment, including forward-looking information, the Group assesses the debt on a collective basis.

With regard to the resolution above, the Group recognises assets and liabilities of the regulated activities that are intended to eliminate the mismatches between the current year earnings and the regulated level regardless the difference under the provision of services in the future.

As at 31 December 2021 the management of the Group accounted for EUR 7,107 thousand (31 December 2020: EUR 16,390 thousand) to be refunded for tertiary capacity reserve, isolated power system operation and secondary active capacity reserve services in the non-current liabilities under the caption “Provisions” in the statement of financial position (Note 30). The current portion of provision for tertiary capacity reserve, isolated power system operation, secondary active capacity reserve services and accident prevention services for amount EUR 15,161 thousand (31 December 2020: EUR 871 thousand) was accounted in the current liabilities under the caption “Provisions” (Note 30).

==> picture [83 x 40] intentionally omitted <==

228 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

4.14.2 Public electricity supply

On 25 September 2020, NERC adopted a resolution No O3E-879 “On approval of the methodology for determining electricity transmission, distribution and public supply services and the public price cap”. The resolution includes the methodology of determination of the additional component for distribution services to household consumers to compensate the difference between the actual and forecasted reasonable costs of a public supplier. The additional component is paid by household customers through the electricity distribution service price which is included as one of the components of public electricity tariff applied to the consumed electricity by household customers. This component is collected by distribution system operator (Group company) from all electricity suppliers that sell electricity to household customers. The calculation of the difference includes the difference resulting from the discrepancy between the forecast electricity purchase price and the actual electricity purchase price, as well as the amount of costs resulting from the difference between the public supplier's public electricity price cap and the actual electricity distribution service price caps. If the difference is negative a loss is compensated through the increased price of additional component applied in the next year and accordingly, if the difference is positive a gain is reduced through the decreased price additional component.

4.15 Collection of cash on suspense account

The Group (the Group’s company Elektroninių mokėjimų agentūra UAB) made a significant decision regarding cash amounts collected from customers. These cash amounts are held in Group’s deposit account for one business day before transferring them to customer’s service providers. These cash amounts are held in separate bank deposit account, their purpose is clearly defined in agreements with the banks. Moreover, Group is not allowed to invest these cash amounts and thus does not receive any interest or similar income. The principle of such cash holding and handling is disclosed to Group’s customers and Group is able to identify the owners of these cash amounts any time. For reasons abovementioned, Group assesses, that the risk related to cases of banks bankruptcy and to this fact related possible intentions when customers could sue Group for these cash amounts, is low. Therefore, it is considered that Group does not have credit risk. Therefore the Group does not recognise clients cash amounts in the statement of financial position. Clients funds held in deposit account amounted to EUR 5,342 thousand as at 31 December 2021 (EUR 3,510 thousand as at 31 December 2020).

This resolution also stipulates that if the Group discontinues public supply services, the Group must refund raised discrepancies between the forecasted and actual costs of providing these services if the costs actually incurred by the Group were less than the income received. The amount must be refunded to the Group if the costs actually incurred by the Group were higher than the income of the transmission system operator. The difference shall be reimbursed till the 31 December 2025.

With regard what is said above, the Group recognises contract assets and/or contract liabilities of the difference to eliminate mismatches between the current year earnings and the regulated level regardless the difference under the provision of services in the future.

As at 31 December 2021 the current part of a receivable EUR 39,024 thousand (as at 31 December 2020: EUR 3,114 thousand) to be refunded within the one year to the Group for a public supply services was accounted for in the Other receivables (Note 18) and non-current part of receivable EUR 86,520 thousand (as at 31 December 2020: EUR 12,324 thousand) was accounted for in the Non-current receivables (Note 11) .

4.14.3 Natural gas supply to household customers

On 4 November 2021 amendments were established to Laws on Natural Gas and Electricity, which provide for price amortization mechanisms in the face of high gas and electricity market prices. The price amortization mechanism means that the gas or electricity supplier agrees to set a lower price for the product and to spread the return of the accumulated losses within 5 year period. If the Group will take an opportunity to set lower prices the losses (loss of revenue) caused by the lower gas price in the tariff will be returned to the Group through the additional component which is included in distribution service tariff. Losses will be reimbursed regardless of whether the Group continues to provide supply services in the future or not.

The Groupdid not take an opportunity to set lower prices applicable for period from 4 November 2021 till 31 December 2021 for household customers. Therefore with regard to these Law amendments the Group did not recognize any assets or liabilities of the difference to eliminate mismatches between the current year earnings and the regulated level.

==> picture [83 x 40] intentionally omitted <==

229 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes All amounts are in EUR thousand unless otherwise stated

Contents »

5 Restatement of comparative figures due to change of accounting policy and reclassifications

Restatement of comparative figures due to change of accounting policy

The Group participates in the greenhouse gas emissions (hereinafter – European Union emission allowances or EUEA) trading system. In 2021 the management has concluded that the current accounting policy for emission allowances does not present the SPLOCI and the statement of financial position in the best interest of the users of the financial statements. Therefore, the management has determined that there is a need for a voluntary change in accounting policy. The new accounting policy is described in Note 2.14.

The main arguments for changing the accounting policy are:

Revaluation of provision for EUEA will no longer have impact to the SPLOCI of the future periods.
More fairly presentation of SPLOCI and better relationship with cash flows.
More fairly presentation of the statement of financial position as EUEAs are used in the Group’s operations rather than for sale.

As IAS 8 requires that the users of financial statements need to be able to compare the financial statements of an entity over time to identify trends, the management presents the information regarding the accounting policy change, that are performed retrospectively (see restatement 1).

Restatement of comparative figures due to reclassifications

In 2021 the Group made several reclassifications in order to give more reliable information for the users of the financial statements. Reclassifications had no significant impact on the SPLOCI, statement of changes in equity. Accordingly, comparative amounts were reclassified:

In 2021 the Group reclassified the guarantee from Prepayments and deferred expenses to Other receivables in order to better present the statement of financial position. Guarantee agreement is usually concluded for 12 month period, and later can be extended. The statements of financial position for as 31 December 2020 (EUR 2,900 thousand) and 1 January 2020 (EUR 2,900 thousand) were restated accordingly (see restatement 2).
In 2021 the Group reclassified the deposits for derivative instruments from Prepayments and deferred expenses to Other receivables in order to better present the statement of financial position. Deposits are not a part of the initial net investment in a derivative, but are in a form of collateral for Commodities exchange or Commodity traders. Because of cash collateral moves on a daily basis the deposits are classified as current. The statements of financial position for as 31 December 2020 (EUR 33,201 thousand) and 1 January 2020 (EUR 15,973 thousand) were restated accordingly (see restatement 2).
In 2021 the Group reclassified the liability representing the overdeclared quantity of electricity and natural gas from Advances received to Deferred income in order to better present the statement of financial position. Reclassification is based on the fact that invoices for over declared quantity are issued and payments are received and therefore should be recognized as deferred income. The statements of financial position for as 31 December 2020 (EUR 3,592 thousand) and 1 January 2020 (EUR 9,837 thousand) were restated accordingly (see restatement 2). Reclassifications had no significant impact on the statement of cash flows.
In 2021 the Group reclassified the received guarantee from Other non-current assets to Other current assets and liabilities for the received guarantees from Other non-current amounts payable and liabilities to Other current amounts payable and liabilities in order to better present the statement of financial position. Guarantee agreement is usually concluded for 12 month period, and later can be extended. The statement of financial position for as 31 December 2020 (EUR 2,787 thousand) was restated accordingly (see restatement 2). Reclassifications had no significant impact on the statement of cash flows.

==> picture [83 x 40] intentionally omitted <==

230 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

Retrospective corrections of consolidated statement of financial position as at 1 January 2020:

	1 January 2020 before restatement	Restatement 1	Restatement 2	1 January 2020 after restatement
ASSETS
Non-current assets
Intangible assets	142,737	(51,805)	-	90,932
Property, plant and equipment	2,347,817	-	-	2,347,817
Right-of-use assets	61,044	-	-	61,044
Prepayments for non-current assets	27,809	-	-	27,809
Investment property	5,530	-	-	5,530
Non-current receivables	165,031	-	-	165,031
Other financial assets	3,735	-	-	3,735
Other non-current assets	5,087	-	-	5,087
Deferred tax assets	11,770	-	-	11,770
Total non-current assets	2,770,560	(51,805)	-	2,718,755
Current assets
Inventories	46,621	25,875	-	72,496
Prepayments and deferred expenses	50,548	-	(18,873)	31,675
Trade receivables	117,867	-	-	117,867
Other receivables	31,780	-	18,873	50,653
Other current assets	5,796	-	-	5,796
Prepaid income tax	2,434	-	-	2,434
Cash and cash equivalents	131,837	-	-	131,837
	386,883	25,875	-	412,758
Assets held for sale	40,643	-	-	40,643
Total current assets	427,526	25,875	-	453,401
TOTAL ASSETS	3,198,086	(25,930)	-	3,172,156
EQUITY AND LIABILITIES
Equity
Issued capital	1,212,156	-	-	1,212,156
Reserves	259,651	(19,287)	-	240,364
Retained earnings	(172,188)	5,425	-	(166,763)
Equity attributable to equity holders of the parent	1,299,619	(13,862)	-	1,285,757
Non-controlling interests	49,001	(457)	-	48,544
Total equity	1,348,620	(14,319)	-	1,334,301
Liabilities
Non-current liabilities
Non-current loans and bonds	821,929	-	-	821,929
Non-current lease liabilities	33,818	-	-	33,818
Grants and subsidies	267,949	(7,617)	-	260,332
Deferred tax liabilities	38,408	(3,516)	-	34,892
Provisions	35,564	-	-	35,564
Deferred income	151,910	-	-	151,910
Other non-current amounts payable and liabilities	883	-	-	883
Total non-current liabilities	1,350,461	(11,133)	-	1,339,328
Current liabilities
Loans	234,191	-	-	234,191
Lease liabilities	8,400	-	-	8,400
Trade payables	78,567	-	-	78,567
Advances received	51,745	-	(9,837)	41,908
Income tax payable	6,171	-	-	6,171
Provisions	19,818	(478)	-	19,340
Deferred income	9,749	-	9,837	19,586
Other current amounts payable and liabilities	85,042	-	-	85,042
	493,683	(478)	-	493,205
Liabilities directly associated with the assets held for sale	5,322	-	-	5,322
Total current liabilities	499,005	(478)	-	498,527
Total liabilities	1,849,466	(11,611)	-	1,837,855
TOTAL EQUITY AND LIABILITIES	3,198,086	(25,930)	-	3,172,156

==> picture [83 x 40] intentionally omitted <==

231 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

Retrospective corrections of consolidated statement of financial position as at 31 December 2020:

	31 December 2020 before restatement	Restatement 1	Restatement 2	31 December 2020 after restatement
ASSETS
Non-current assets
Intangible assets	176,077	(81,240)	-	94,837
Property, plant and equipment	2,559,554	-	-	2,559,554
Right-of-use assets	63,879	-	-	63,879
Prepayments for non-current assets	40	-	-	40
Investment property	5,183	-	-	5,183
Non-current receivables	161,515	-	-	161,515
Other financial assets	7,269	-	-	7,269
Other non-current assets	2,788	-	(2,787)	1
Deferred tax assets	6,431	-	-	6,431
Total non-current assets	2,982,736	(81,240)	(2,787)	2,898,709
Current assets
Inventories	33,110	32,878	-	65,988
Prepayments and deferred expenses	50,703	-	(36,101)	14,602
Trade receivables	128,423	-	-	128,423
Other receivables	47,468	-	36,101	83,569
Other current assets	67,365	-	2,787	70,152
Prepaid income tax	223	-	-	223
Cash and cash equivalents	658,795	-	-	658,795
	986,087	32,878	2,787	1,021,752
Assets held for sale	473	-	-	473
Total current assets	986,560	32,878	2,787	1,022,225
TOTAL ASSETS	3,969,296	(48,362)	-	3,920,934
EQUITY AND LIABILITIES
Equity
Issued capital	1,658,756	-	-	1,658,756
Reserves	269,769	(36,837)	-	232,932
Retained earnings	(86,164)	6,300	-	(79,864)
Equity attributable to equity holders of the parent	1,842,361	(30,537)	-	1,811,824
Non-controlling interests	1,470	(1)	-	1,469
Total equity	1,843,831	(30,538)	-	1,813,293
Liabilities
Non-current liabilities
Non-current loans and bonds	1,246,128	-	-	1,246,128
Non-current lease liabilities	29,128	-	-	29,128
Grants and subsidies	280,370	(3,261)	-	277,109
Deferred tax liabilities	52,174	(6,439)	-	45,735
Provisions	40,695	-	-	40,695
Deferred income	164,413	-	-	164,413
Other non-current amounts payable and liabilities	3,258	-	(2,787)	471
Total non-current liabilities	1,816,166	(9,700)	(2,787)	1,803,679
Current liabilities
Loans	15,476	-	-	15,476
Lease liabilities	13,401	-	-	13,401
Trade payables	51,693	-	-	51,693
Advances received	42,644	-	(3,592)	39,052
Income tax payable	7,738	(1,241)	-	6,497
Provisions	30,399	(6,883)	-	23,516
Deferred income	8,579	-	3,592	12,171
Other current amounts payable and liabilities	139,369	-	2,787	142,156
Total current liabilities	309,299	(8,124)	2,787	303,962
Total liabilities	2,125,465	(17,824)	-	2,107,641
TOTAL EQUITY AND LIABILITIES	3,969,296	(48,362)	-	3,920,934

==> picture [83 x 40] intentionally omitted <==

232 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

Retrospective corrections of consolidated SPLOCI for the year ended 31 December 2020:

	2020 before restatement	Restatement 1	2020 after restatement
Revenue from contracts with customers	1,215,355	-	1,215,355
Other income	7,735	-	7,735
Total revenue and other income	1,223,090	-	1,223,090
Purchases of electricity, natural gas and other services	(702,591)	(3,138)	(705,729)
Salaries and related expenses	(92,793)	-	(92,793)
Repair and maintenance expenses	(34,072)	-	(34,072)
Other expenses	(56,192)	-	(56,192)
Total	(885,648)	(3,138)	(888,786)
EBITDA	337,442	(3,138)	334,304
Depreciation and amortisation	(113,374)	-	(113,374)
Write-offs, revaluation and impairment losses of property, plant and equipment and intangible assets	(5,930)	-	(5,930)
Revaluation of emission allowances	(3,223)	3,223	-
Operating profit (loss) (EBIT)	214,915	85	215,000
Finance income	2,414	-	2,414
Finance expenses	(22,659)	-	(22,659)
Finance activity, net	(20,245)	-	(20,245)
Profit (loss) before tax	194,670	85	194,755
Current income tax (expenses)/benefit	(11,392)	1,241	(10,151)
Deferred tax (expenses)/benefit	(14,016)	-	(14,016)
Net profit for the year	169,262	1,326	170,588
Attributable to:
Equity holders of the parent	169,816	991	170,807
Non-controlling interest	(554)	335	(219)
Other comprehensive income (loss)
Items that will not be reclassified to profit or loss in subsequent periods (net of tax)
Revaluation of property, plant and equipment	90	-	90
Revaluation of emission allowances through other comprehensive income	17,550	(17,550)	-
Change in actuarial assumptions	208	-	208
Items that will not be reclassified to profit or loss in subsequent periods, total	17,848	(17,550)	298
Items that may be reclassified to profit or loss in subsequent periods (net of tax)
Exchange differences on translation of foreign operations into the Group’s presentation currency	(2,240)	-	(2,240)
Items that may be reclassified to profit or loss in subsequent periods, total	(2,240)	-	(2,240)
Total other comprehensive income (loss) for the year	15,608	(17,550)	(1,942)
Total comprehensive income (loss) for the year	184,870	(16,224)	168,646
Attributable to:
Equity holders of the parent	185,084	(16,219)	168,865
Non-controlling interests	(214)	(5)	(219)
Basic earnings per share (in EUR)	2.88	0.01	2.89
Diluted earnings per share (in EUR)	2.88	0.01	2.89
Weighted average number of shares	59,037,855	-	59,037,855

==> picture [83 x 40] intentionally omitted <==

233 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

Retrospective corrections of consolidated statement of cash flows the year ended 31 December 2020:

	2020 before restatement	Restatement 1	Restatement 2	2020 after restatement
Cash flows from operating activities
Net profit for the year	169,262	1,326	-	170,588
Adjustments to reconcile net profit to net cash flows:
Depreciation and amortisation expenses	122,535	-	-	122,535
Impairment of property, plant and equipment, including held for sale	1,644	-	-	1,644
Revaluation of property, plant and equipment	30	-	-	30
Revaluation of investment property	112	-	-	112
Fair value changes of derivatives	1,632	-	-	1,632
Impairment/(reversal of impairment) of financial assets	1,813	-	-	1,813
Income tax expenses/(benefit)	25,408	(1,241)	-	24,167
Amortisation of grants	(9,161)	-	-	(9,161)
Increase/(decrease) in provisions	12,359	(3,456)	-	8,903
Inventory write-off to net realizable value/(reversal)	315	-	-	315
Expenses/(income) of revaluation of emission allowances	3,223	(3,089)	-	134
Emission allowances utilised	(5,962)	5,962	-	-
Loss/(gain) on disposal/write-off of assets held for sale and property, plant and equipment	2,494	-	-	2,494
Interest income	(1,152)	-	-	(1,152)
Interest expenses	20,228	-	-	20,228
Other expenses of financing activities	1,169	-	-	1,169
Changes in working capital:
(Increase)/decrease in trade receivables and other amounts receivable	(18,599)	-	(36,101)	(54,700)
(Increase)/decrease in inventories, prepayments and other current and non-current assets	(52,903)	(1,433)	36,101	(18,235)
Increase/(decrease) in trade payables, deferred income, advances received, other non-current
and current amounts payable and liabilities	17,618	-	-	17,618
Income tax (paid)/received	(9,591)	-	-	(9,591)
Net cash flows from operating activities	282,474	(1,931)	-	280,543
Cash flows from investing activities
Acquisition of property, plant and equipment and intangible assets	(303,377)	1,931	-	(301,446)
Proceeds from sale of property, plant and equipment, assets held for sale and intangible
assets	14,404	-	-	14,404
Grants received	25,757	-	-	25,757
Interest received	547	-	-	547
Finance lease payments received	2,359	-	-	2,359
Net cash flows from investing activities	(260,310)	1,931	-	(258,379)
Cash flows from financing activities
Increase of share capital	450,000	-	-	450,000
Transaction cost	(11,033)	-	-	(11,033)
Loans received	182,950	-	-	182,950
Issue of bonds	295,457	-	-	295,457
Repayments of loans	(86,798)	-	-	(86,798)
Lease payments	(10,351)	-	-	(10,351)
Interest paid	(15,885)	-	-	(15,885)
Dividends paid	(72,528)	-	-	(72,528)
Equity acquisition from non-controlling interest	(35,727)	-	-	(35,727)
Net cash flows from financing activities	696,085	-	-	696,085
Increase/(decrease) in cash and cash equivalents (including overdraft)	718,249	-	-	718,249
Cash and cash equivalents (including overdraft) at the beginning of the year	(59,454)	-	-	(59,454)
Cash and cash equivalents (including overdraft) at the end of the year	658,795	-	-	658,795

==> picture [83 x 40] intentionally omitted <==

234 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

6 Intangible assets

Movement on the Group’s account of intangible assets is presented below:

	Patents and licences	Computer software	Other intangible assets	Goodwill	Servitudes and security zones	In total
As at 1 January 2020 (restated)1
Acquisition cost	4,665	25,958	50,861	3,611	38,303	123,398
Accumulated amortisation	(2,435)	(20,207)	(9,824)	-	-	(32,466)
Carrying amount (restated)1	2,230	5,751	41,037	3,611	38,303	90,932
Carrying amount at 1 January 2020 (restated)1	2,230	5,751	41,037	3,611	38,303	90,932
Additions	-	114	9,917	-	1,169	11,200
Reclassified (to) from property plant and equipment	-	37	2,219	1,316	-	3,572
Reclassified (to) from assets held for sale	-	-	11	-	-	11
Reclassifications between categories	(2,144)	8,126	(5,982)	-	-	-
Re-measurement of provision related to Rights to servitudes and security zones	-	-	-	-	(4,838)	(4,838)
Amortisation	(23)	(3,442)	(2,575)	-	-	(6,040)
Carrying amount at 31 December 2020 (restated)1	63	10,586	44,627	4,927	34,634	94,837
As at 31 December 2020 (restated) 1
Acquisition cost	312	30,182	56,679	4,927	34,634	126,734
Accumulated amortisation	(249)	(19,596)	(12,052)	-	-	(31,897)
Carrying amount (restated)1	63	10,586	44,627	4,927	34,634	94,837
Carrying amount at 1 January 2021	63	10,586	44,627	4,927	34,634	94,837
Additions	4	228	14,786	-	3,560	18,578
Reclassified (to) from property plant and equipment	-	3,483	138	-	-	3,621
Reclassifications (to)/from inventories	-	-	(981)	-	-	(981)
Write-offs	-	-	(2)	-	-	(2)
Reclassifications between categories	-	7,963	(7,963)	-	-	-
Re-measurement of provision related to Rights to servitudes and security zones	-	-	-	-	(4,627)	(4,627)
Disposals	-	(4)	-	-	-	(4)
Acquisition through business combination (Note 48)	-	-	10,030	-	-	10,030
Amortisation	(24)	(4,800)	(2,593)	-	-	(7,417)
Carrying amount at 31 December 2021	43	17,456	58,042	4,927	33,567	114,035
As at 31 December 2021
Acquisition cost	310	40,702	72,588	4,927	33,567	152,094
Accumulated amortisation	(267)	(23,246)	(14,546)	-	-	(38,059)
Carrying amount	43	17,456	58,042	4,927	33,567	114,035

1 Part of the amounts do not agree with the financial statements issued for the year ended 31 December 2020and 31 December 2019due to accounting policy change. See more information disclosed in Note 5.

==> picture [83 x 40] intentionally omitted <==

235 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

6.1 Other intangible assets

As at 31 December 2021 and 2020 the Group’s other intangible assets comprise following significant items:

the subsidiary’s Eurakras UAB right to produce electricity with an incentive rate with carrying amount EUR 7,552 thousand (EUR 8,794 thousand as at 31 December 2020);
the subsidiary’s Vėjo Gūsis UAB right to produce electricity with an incentive rate with carrying amount EUR 206 thousand (EUR 681 thousand as at 31 December 2020);
the subsidiary’s Vėjo Vatas UAB right to produce electricity with an incentive rate with carrying amount EUR 679 thousand (EUR 1,094 thousand as at 31 December 2020);
the subsidiary’s Pomerania Wind Farm Sp. z o. o. right to produce electricity with an incentive rate with carrying amount EUR 24,294 thousand (EUR 24,430 thousand as at 31 December 2020).
the subsidiary’s Altiplano Elektrownie Wiatrowe B1 Sp. z o. o. right to produce electricity with an incentive rate with carrying amount EUR 10,030 thousand.

6.2 Goodwill

As at 31 December 2021 goodwill comprises from acquisition of subsidiaries in previous periods:

VVP Investment UAB – EUR 2,150 thousand;
Eurakras UAB – EUR 1,461 thousand;
Pomerania Wind Farm sp. z o. o. – EUR 1,316 thousand.

As at 31 December 2021 the Group performed impairment test for its goodwill. The tests showed that there is no need for impairment of goodwill as at 31 December 2021. The impairment test was performed using the discounted cash flow method and using the following key assumptions:

6.3 Fully amortised intangible assets

As at 31 December 2021 and 2020, the cost of acquisition of fully amortized intangible assets used by the Group were as follows:

	31 December 2021	31 December 2020
Patents and licences	1	218
Computer software	4,569	6,093
Other intangible assets	90	362
Cost of fully amortised assets, total	4,660	6,673

6.4 Acquisition commitments

The Group has significant acquisition commitments of intangible assets which will have to be fulfilled during the later years. Group’s acquisition commitments amounted to EUR 2,310 thousand as at 31 December 2021 (EUR 6,469 thousand as at 31 December 2020).

6.5 Servitudes and security zones

The movement of intangible assets "Servitudes and security zones" during 2021 year is presented below:

Servitudes and security zones	31 December 2020	Change	31 December 2021
Statutory servitudes – provision (Note 4.7.1)	14,590	(245)	14,345
Security zones – provision (Note 4.7.3)	15,069	(4,382)	10,687
Statutory and contractual servitudes - acquisition cost	4,717	842	5,559
Security zones – acquisition cost	258	2,718	2,976
Servitudes and security zones, total	34,634	(1,067)	33,567

the cash flow forecast covered the period until 2045-2052, with reference to the typical operational period of 30 years.
the production volume is stable each year, based on the third-party study of a wind farm or actual production capacity (depending on the wind farm).
the price of electricity is set at the agreed tariff and a third-party electricity price forecast after the tariff expiration (Eurakras UAB, Pomerania Wind Farm sp. z. o. o.). For VVP Investment UAB the price of electricity is set at a third-party electricity price forecast.
discount rate of 4.1-4.4% after tax (4.8-5.4% pre-tax) was used to calculate discounted cash flows (weighted average costs of capital after tax).

==> picture [83 x 40] intentionally omitted <==

236 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

7 Property, plant, and equipment

7.1 The Group’s property, plant and equipment

Part of group names do not agree in comparison with the financial statements issued for the year ended 31 December 2020. The following changes were made by the management during 2021:

Structures and machinery – name changes to Electricity networks and their structures;
Structures and machinery of Thermal Power Plant – name changed to Combined Cycle Unit and Reserve Power Plant;
Groups Vehicles and IT and telecommunication equipment added to the group Other property, plant and equipment.

	Land	Buildings	Electricity networks and their structures	Gas distribution pipelines, gas technological equipment and installations	Assets of Hydro Power Plant, Pumped Storage Power Plant	Wind power plants and their installations	Combined Cycle Unit and Reserve Power Plant	Cogeneration plants	Other property, plant and equipment	Construction- in-progress	In total
As at 1 January 2020
Cost or revalued amount	3,371	30,981	1,390,318	290,446	210,729	65,234	776,583	-	39,019	374,248	3,180,929
Accumulated depreciation	-	(4,561)	(209,365)	(48,158)	(107,520)	(15,319)	(370,974)	-	(14,615)	-	(770,512)
Accumulated impairment	-	-	-	-	-	-	(62,265)	-	-	(335)	(62,600)
Carrying amount	3,371	26,420	1,180,953	242,288	103,209	49,915	343,344	-	24,404	373,913	2,347,817
Carrying amount at 1 January 2020	3,371	26,420	1,180,953	242,288	103,209	49,915	343,344	-	24,404	373,913	2,347,817
Additions	-	6	463	(24)	28	-	123	-	4,202	309,499	314,297
Sales	-	(92)	(86)	(6)	-	-	-	-	(374)	-	(558)
Write-offs	-	(3)	(3,743)	(219)	(19)	-	(29)	-	(47)	(84)	(4,144)
Revaluation	-	-	-	-	-	-	-	-	76	-	76
Impairment losses	-	-	-	-	-	-	-	-	(61)	(696)	(757)
Reverse of impairment	-	-	-	-	-	-	-	-	-	56	56
Reclassifications between categories	-	1,841	87,491	25,087	453	599	113	137,956	10,500	(264,040)	-
Reclassified from (to) intangible assets	-	-	-	-	-	-	-	-	(37)	(3,535)	(3,572)
Reclassified from (to) finance lease	-	-	-	-	-	-	-	-	(378)	-	(378)
Reclassified from (to) assets held for sale	-	62	(42)	-	-	-	-	-	16,026	3	16,049
Reclassified from (to) investment property	-	(62)	(17)	-	-	-	314	-	-	-	235
Reclassified from (to) inventories	-	-	-	-	116	-	19	-	(5)	(910)	(780)
Reclassified from (to) right-of-use assets	-	-	-	-	-	-	356	-	-	-	356
Reclassified from (to) other current assets	-	-	-	-	-	-	-	-	(119)	-	(119)
Depreciation	-	(4,647)	(58,625)	(4,818)	(5,745)	(3,384)	(19,805)	(2,270)	(9,730)	-	(109,024)
Carrying amount at 31 December 2020	3,371	23,525	1,206,394	262,308	98,042	47,130	324,435	135,686	44,457	414,206	2,559,554
As at 31 December 2020
Cost or revalued amount	3,371	32,682	1,473,664	314,756	211,264	65,833	776,152	137,956	70,144	414,206	3,500,028
Accumulated depreciation	-	(9,157)	(267,270)	(52,448)	(113,222)	(18,703)	(410,309)	(2,270)	(25,687)	-	(899,066)
Accumulated impairment	-	-	-	-	-	-	(41,408)	-	-	-	(41,408)
Carrying amount	3,371	23,525	1,206,394	262,308	98,042	47,130	324,435	135,686	44,457	414,206	2,559,554

(Cont’d on the next page)

==> picture [83 x 40] intentionally omitted <==

237 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

(continued)

	Land	Buildings	Electricity networks and their structures	Gas distribution pipelines, gas technological equipment and installations	Assets of Hydro Power Plant, Pumped Storage Power Plant	Wind power plants and their installations	Combined Cycle Unit and Reserve Power Plant	Cogeneration plants	Other property, plant and equipment	Construction- in-progress	In total
As at 31 December 2020
Cost or revalued amount	3,371	32,682	1,473,664	314,756	211,264	65,833	776,152	137,956	70,144	414,206	3,500,028
Accumulated depreciation	-	(9,157)	(267,270)	(52,448)	(113,222)	(18,703)	(410,309)	(2,270)	(25,687)	-	(899,066)
Accumulated impairment	-	-	-	-	-	-	(41,408)	-	-	-	(41,408)
Carrying amount	3,371	23,525	1,206,394	262,308	98,042	47,130	324,435	135,686	44,457	414,206	2,559,554
Carrying amount at 1 January 2021	3,371	23,525	1,206,394	262,308	98,042	47,130	324,435	135,686	44,457	414,206	2,559,554
Additions	-	2	517	-	24	-	103	108	5,770	202,697	209,221
Sales	-	(1)	(38)	(36)	-	-	-	-	(440)	-	(515)
Write-offs	-	(2)	(3,626)	(174)	-	-	(1,063)	(2)	(44)	(44)	(4,955)
Revaluation	-	22,167	(69,406)	-	-	-	-	-	(812)	-	(48,051)
Impairment losses	-	-	-	(9,392)	-	-	-	-	-	-	(9,392)
Reverse of impairment	-	-	-	-	-	-	-	-	-	550	550
Reclassifications between categories	-	1,752	92,516	17,592	772	101,369	(282)	120,765	31,334	(365,818)	-
Reclassified from (to) intangible assets	-	-	-	-	-	-	-	-	(91)	(3,530)	(3,621)
Reclassified from (to) finance lease	-	-	-	-	-	-	-	-	747	-	747
Reclassified from (to) assets held for sale	-	-	-	-	-	-	-	-	(1,382)	-	(1,382)
Reclassified from (to) investment property	-	-	-	-	-	-	1,836	-	-	-	1,836
Reclassified from (to) inventories	-	-	-	-	56	-	6	-	(122)	653	593
Reclassified from (to) right-of-use asset‘s	-	-	-	-	-	23,002	-	-	-	-	23,002
Depreciation	-	(5,204)	(59,941)	(7,160)	(5,400)	(3,591)	(19,619)	(8,551)	(10,897)	-	(120,363)
Acquisition though business combination
(Note 48)	-	-	-	-	-	-	-	-	-	2,785	2,785
Foreign currency exchange difference	-	-	-	-	-	-	-	-	-	(433)	(433)
Carrying amount at 31 December 2021	3,371	42,239	1,166,416	263,138	93,494	167,910	305,416	248,006	68,520	251,066	2,609,576
As at 31 December 2021
Cost or revalued amount	3,371	42,629	1,166,416	285,812	212,108	194,973	772,490	258,827	96,650	251,289	3,284,565
Accumulated depreciation	-	(390)	-	(13,282)	(118,614)	(27,063)	(441,451)	(10,821)	(28,130)	-	(639,751)
Accumulated impairment	-	-	-	(9,392)	-	-	(25,623)	-	-	(223)	(35,238)
Carrying amount	3,371	42,239	1,166,416	263,138	93,494	167,910	305,416	248,006	68,520	251,066	2,609,576

7.2 Impairment and revaluation of property, plant and equipment
7.2.1 Impairment of property, plant and equipment used in gas distribution activities

The Group reviewed the carrying amount of its property, plant and equipment which are recognised at acquisition cost less depreciation and impairment to determine whether there are any indications that those assets have suffered an impairment loss. Assets attributable to gas distribution CGU showed some indications (see Note 4.3) and impairment test was performed. The Group calculated recoverable amount of gas distribution CGU as its value in use (VIU).

The following key assumptions were used by the Group in making impairment test:

discount rate - 3.81% (4.48% - before taxes) (31 December 2020 - 4.33% (5.09% - before taxes))

The Group identified that the recoverable amount of property, plant and equipment (construction-inprogress included) used in gas CGU is less than carrying amount and an additional impairment for EUR 9,392 thousand was recognised as at 31 December 2021. The table below shows the carrying amount of gas CGU (EUR million) including recognized impairment:

Net book value of CGU (with attributable construction-in-progress) Deferred income from new customers	31 December 2021 282.2 (18.6)	31 December 2020 277.6 (8.2)
Government grant Carrying amount of CGU	(4.8) 258.8	(3.8) 265.6

WACC (rate of return set by the regulator) for 2022-2023 - 3.98%, 4.48% from 2024 (equal to pre-tax discount rate). (31 December 2020 respectively: 2021-2023 – 3.90% (Regulator set for 2021), 5.09% from 2024 (equal to pre-tax discount rate));
applied long-term investment forecast and financing of gas CGU according to updated Group’s 10-year investment plan;
the determination of the recoverable amount was performed applying income model by forecasting cash flows until 2036 (impairment test for 2020 was performed with cash flow planning until 2075)

==> picture [83 x 40] intentionally omitted <==

238 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes All amounts are in EUR thousand unless otherwise stated

Contents »

Sensitivity analysis

The possible changes of recognized impairment losses during 2021 due to variation of investment return rate (WACC) (starting from the regulation period 2024) and discount rate disclosed in table below (EUR million):

	WACC1 (pre-tax)
∆	3.14% 3.58% 3.98%1 4.48% 4.97% 5.38% 5.82% (30)% (20)% (11)% 0% 11% 10% 30%
Discount rate (pre- tax) 3.58% (20)% 4.04% (10)% 4.48% 0% 4.93% 10% 5.38% 20%	(8) 5 16 29 43 54 66 (22) (10) 1 14 27 38 50 (35) (23) (13) - 13 23 35 (47) (36) (26) (13) (1) 9 20 (59) (48) (38) (26) (14) (4) 6

1 WACC confirmed by Regulator for Group’s gas distribution activity for 2022

7.2.2 Revaluation of property, plant and equipment used in electricity distribution

Sensitivity analysis

The Group exercised the fair value assessment analysis of unobservable inputs variation relying on following scenarios:

sensitivity of variation of investment return rate (WACC) (starting from the regulation period 2027) and discount rate. The possible fair value changes due to variation of these inputs disclosed in table below (EUR million):

	WACC2 (pre-tax)
∆ Discount rate (pre- tax) 3.56% (20)% 4.01% (10)% 4.45% 0% 4.90% 10% 5.34% 20%	3.56% 4.01% 4.16%1 4.45% 4.76% 4.90% 5.34% (20)% (10)% (7)% 0% 7% 10% 20%
	55 116 136 175 217 236 296 (32) 27 46 84 124 142 200 (112) (55) (36) - 39 56 112 (190) (135) (117) (82) (45) (28) 25 (261) (209) (191) (158) (121) (105) (54)

2 WACC confirmed by Regulator for Group’s electricity distribution activity for 2022

Under the circumstances described in Note 4.2, the Group's management decided asses the fair value of property, plant and equipment used in electricity distribution. The assessment was performed by independent valuator Ernst & Young Baltic UAB by applying income and cost methods. The Group identified that the fair value of property, plant and equipment (construction-in-progress included) amounts to EUR 1,257 million. The valuated fair value of property, plant and equipment is less than carrying amount (before revaluation) as at 31 December 2021 for EUR 48.6 million.

The Group used the following key assumptions for income model:

discount rate - 3.78% (4.45% - before taxes) (31 December 2020 - 4.33% (5.09% - before taxes));
if Regulator took the decision not to allocate EUR 28 million of additional component annually for the investment financing:
- a. after the end of the regulation period 2022-2026. Group revenue would reduce by EUR 280 million for the period 2027-2036, therefore, the fair value of electricity activity CGU would reduce by EUR 195 million;
- b. after the end of the regulation periods 2022-2026 and 2027-2031. Group revenue would reduce by EUR 140 million for the period 2032-2036, therefore, the fair value of electricity activity CGU would reduce by EUR 90 million.
WACC (rate of return set by the regulator) 2021 – 5.34%, 2022-2026 - 4.16%, 4.45% from 2027 (equal to pre-tax discount rate. (31 December 2020 respectively: 2021 – 5.34 (Regulator set), 2022-2029 – 4.34% (average between the setting of the latest regulation period of the NERC gas sector in 2019 (3.59%) and the pre-tax return on investment in the electricity sector of long-term electricity planning - 5.09% from 2027);
additional tariff component which would increase electricity distribution income by EUR 28 million yearly. The management forecasts that additional tariff component will endure through the whole forecast period of 2022-2036, however, it was not included due to conserve estimations ;
an updated forecast of long-term investments in electricity CGU and their financing was used in accordance with the Group's updated 10-year investment plan;
the calculated return adjustment for 2018-2020 for an amount of EUR 116 million and forecasted adjustment for an amount of EUR 44 million will reduce income of the subsidiary by an amount of EUR 6.5 million for the period of 2022-2026 and 154 million for the period of 2032-2036 with additional interest for the pending portion;
cash flows were planned until 2036.

==> picture [83 x 40] intentionally omitted <==

239 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

7.3 Revalued property, plant and equipment

If property, plant and equipment had not been revalued, the carrying amount of the Group’s property, plant and equipment would have been following:

						Electricity	Other property,
				Land	Buildings	networks and	plant and	In total
						their structures	equipment:
As at	31	December	2020	3,255	25,975	1,296,637	44,436	1,370,303
As at	31	December	2021	3,255	22,985	1,320,052	69,206	1,415,498

The table below includes information on the results of revaluation of property, plant and equipment conducted in 2021:

	Recognised in OCI and	Recognised in	Total revaluation
	revaluation reserve in equity	profit or loss	effect
Increase (decrease) in carrying amount	(27,799)	(20,252)	(48,051)
In total	(27,799)	(20,252)	(48,051)

7.4 Acquisitions and disposals of property, plant and equipment

Acquisitions of property, plant and equipment during 2021 include the following major acquisitions to the construction in progress:

acquisitions for the construction of new high-efficiency waste-fired cogeneration power plants, the final exploitation and start of commercial activities of which started in 2021 (except biofuel unit);
acquisitions related to the development of the electricity distribution network;
acquisitions for construction projects of wind farms.

The Group has significant acquisition commitments of property, plant and equipment which will have to be fulfilled during the later years. Group’s acquisition and construction commitments amounted to EUR 175,462 thousand as at 31 December 2021 (31 December 2020: EUR 112,075 thousand).

During 2021, the Group disposed the property, plant and equipment with a carrying amount of EUR 515 thousand for consideration of EUR 561 thousand (in 2020 EUR 558 thousand and EUR 1,147 thousand respectively). The net result was recognised in item ‘Other income’ of SPLOCI.

Results of revaluation of property, plant and equipment conducted in 2020:

	Recognised in OCI and	Recognised in	Total revaluation
	revaluation reserve in equity	profit or loss	effect
Increase (decrease) in carrying amount	106	(30)	76
In total	106	(30)	76

During 2021, the Group companies capitalised EUR 3,624 thousand of interest expenses on borrowings intended to finance development of non-current assets (2020: EUR 2,790 thousand). The average capitalised interest rate was 1.44% in year 2021 and 1.40% in 2020.

7.5 Fully depreciated property, plant and equipment

The cost or revalued amount of fully depreciated property, plant and equipment, but still in use by the Group were as follows:

	31 December 2021	31 December 2020
Buildings	4	-
Electricity networks and their structures	35	5,419
Gas distribution pipelines, gas technological equipment and
installations	20,270	18,910
Assets of Hydro Power Plant, Pumped Storage Power Plant	30,184	29,184
Combined Cycle Unit and Reserve Power Plant	116,186	110,035
Other property, plant and equipment:	9,177	8,167
In total	175,856	171,715

==> picture [83 x 40] intentionally omitted <==

240 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

7.6 Fair value hierarchy of property, plant and equipment

In the opinion of the Group’s management, the carrying amount of substantially all assets stated at revalued amount as at 31 December 2021 did not differ significantly from their fair value. The table below presents allocation between the fair value hierarchy levels of the Group’s property, plant and equipment that was stated at revalued amount as at 31 December 2021 (refer to Note 2.31 for the description of the fair value hierarchy levels). The last full revaluation was performed in 2021.

7.7 Pledged property, plant and equipment

As at 31 December 2021, the Group had pledged to the banks its property, plant and equipment in amount of EUR 19,235 thousand (31 December 2020: EUR 20,121 thousand).

	Level 1	Level 2	Level 3
	Quoted prices in active markets	Other directly or indirectly observable inputs	Unobservable inputs	In total
Land	-	-	3,371	3,371
Buildings	-	-	42,239	42,239
Electricity networks and their structures	-	-	1,166,416	1,166,416
Other property, plant and equipment	-	124	68,396	68,520
In total	-	124	1,280,422	1,280,546

In the opinion of the Group’s management, the carrying amount of substantially all assets stated at revalued amount as at 31 December 2020 did not differ significantly from their fair value. The table below presents allocation between the fair value hierarchy levels of the Group’s property, plant and equipment that was stated at revalued amount as at 31 December 2020 (refer to Note 2.31 for the description of the fair value hierarchy levels).

	Level 1	Level 2	Level 3
	Quoted prices in active markets	Other directly or indirectly observable inputs	Unobservable inputs	In total
Land	-	-	3,371	3,371
Buildings	-	-	23,525	23,525
Electricity networks and their structures	-	3	1,206,391	1,206,394
Other property, plant and equipment	-	2,704	26,197	28,901
In total	-	2,707	1,259,484	1,262,191

Assets were attributed to level 2 in fair value hierarchy if the value was determined using either the comparative value or cost method approach and using inputs that are observable either directly or indirectly.

Assets were attributed to level 3 in fair value hierarchy if the value was determined using either the income method, comparative value, cost method, depreciated replacement method or mixed of these approach.

==> picture [83 x 40] intentionally omitted <==

241 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

8 Right-of-use assets

8.1 The Group’s right-of-use assets

Movement on Group’s account of right-of-use asset is presented below:

	Land Buildings Structures and machinery Wind power plants and their installations Vehicles Other property, plant and equipment In total	Land Buildings Structures and machinery Wind power plants and their installations Vehicles Other property, plant and equipment In total	Land Buildings Structures and machinery Wind power plants and their installations Vehicles Other property, plant and equipment In total	Land Buildings Structures and machinery Wind power plants and their installations Vehicles Other property, plant and equipment In total	Land Buildings Structures and machinery Wind power plants and their installations Vehicles Other property, plant and equipment In total	Land Buildings Structures and machinery Wind power plants and their installations Vehicles Other property, plant and equipment In total	Land Buildings Structures and machinery Wind power plants and their installations Vehicles Other property, plant and equipment In total

As at 1 January 2020 Acquisition cost Accumulated depreciation	16,143 (123)	13,874 (2,114)	8,232 (726)	27,290 (2,246)	823 (345)	317 (81)	66,679 (5,635)
Carrying amount	16,020	11,760	7,506	25,044	478	236	61,044
Carrying amount as at 1 January 2020 Additions Write-offs Reclassifications between categories Reclassified from / (to) property, plant & equipment Reclassified from / (to) assets held for sale Depreciation	16,020 7,055 (157) - - - (675)	11,760 4,561 (1,087) 15 - 144 (3,589)	7,506 5 - (15) - 96 (774)	25,044 - - - - - (2,246)	478 19 - - (356) - (52)	236 259 (233) - - - (135)	61,044 11,899 (1,477) - (356) 240 (7,471)
Carrying amount as at 31 December 2020	22,243	11,804	6,818	22,798	89	127	63,879
31 December 2020 Acquisition cost Accumulated depreciation	22,947 (704)	16,398 (4,594)	8,329 (1,511)	27,290 (4,492)	124 (35)	343 (216)	75,431 (11,552)
Carrying amount	22,243	11,804	6,818	22,798	89	127	63,879
Carrying amount at 1 January 2021 Additions Write-offs Reclassifications between categories Reclassified from / (to) property, plant & equipment Acquisition through business combination (Note 48) Foreign currency exchange difference Depreciation	22,243 1,999 (27) - - 3,216 185 (706)	11,804 18,495 (2,081) 58 - - - (4,091)	6,818 - (18) (5,927) (847) - - (15)	22,798 - - 5,927 (22,155) - - (469)	89 257 (8) (5) - - - (122)	127 160 (43) (53) - - - (66)	63,879 20,911 (2,177) - (23,002) 3,216 185 (5,469)
Carrying amount	26,910	24,185	11	6,101	211	125	57,543
31 December 2021 Acquisition cost Accumulated depreciation	28,319 (1,409)	31,321 (7,136)	78 (67)	7,753 (1,652)	354 (143)	170 (45)	67,995 (10,452)
Carrying amount	26,910	24,185	11	6,101	211	125	57,543

==> picture [83 x 40] intentionally omitted <==

242 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

The Group has lease contracts for various items:

Land. The Group has lease agreements of land whereas major one of them is concluded until the year 2095 with carrying amount as at 31 December 2021 of EUR 5,242 thousand (as at 31 December 2020 – EUR 5,317 thousand). Other significant land lease contracts entered into by the Group is valid until 2049-2051 with carrying amount as at 31 December 2021 of EUR 11,996 thousand (as at 31 December 2020 EUR 12,034 thousand). Maturity date of other land lease agreements varies from the year of 2030 till 2110.

Buildings. The Group has lease contracts for office and warehouse premises with the term of 2 to 5 years. During the year 2021 the Group concluded a new lease agreement for office premises and car parking spaces with the lease term 10 years and carrying amount of EUR 17,536 thousand as at 31 December 2021.

Wind power plants and their installations. The Group's companies engaged in the production of electricity from renewable sources have lease agreements for wind power plants with towers, infrastructure and other installation components. During 2021 part of lease agreements were finalized by paying in full remaining liability. Therefore, right of use assets attributable to this group were transferred to the property, plant and equipment with its carrying value of EUR 23,002 thousand. The remaining lease agreements for wind farms are until 24 February 2022 with carrying amount as at 31 December 2021 of EUR 6,101 thousand.

During 2021 the Group capitalised lease interest expenses EUR 331 thousand in property plant and equipment construction in progress.

8.2 Expenses related to lease agreements recognised in SPLOCI

The Group’s lease expenses recognised in SPLOCI were as follows:

	2021	2020
Depreciation	5,469	7,471
Interest expenses	531	960
Expenses related to short-term leases (other expenses)	118	380
Expenses related to leases of low value assets (other expenses)	17	3
Lease expenses, total	6,135	8,814

8.3 Future expenses related to lease agreements

9 Investment property

	2021	2020
Carrying amount at 1 January	5,183	5,530
Disposals	(5)	-
Fair value change	1,204	(112)
Reclassification to property, plant and equipment	(1,836)	(235)
Carrying amount at 31 December	4,546	5,183

The Group‘s investment property consists of buildings and structures and machineries. The fair value of real estate and structures and machineries was determined by independent property valuers on using a comparative method and a cost method respectively based on actual rent prices or market rent prices, if actual rent prices are not available. Investment property is measured at FVPL.

Investment property is categorised as at 31 December 2021 as follow:

	Level 1	Level 2	Level 3
	Quoted prices in active markets	Other directly or indirectly observable inputs	Unobservable inputs	In total
Buildings	-	1,851	2,644	4,495
Structures and machinery	-	-	51	51
Total	-	1,851	2,695	4,546

Investment property is categorised as at 31 December 2020 as follow:

	Level 1	Level 2	Level 3
	Quoted prices in active markets	Other directly or indirectly observable inputs	Unobservable inputs	In total
Buildings	-	-	5,126	5,126
Structures and machinery	-	-	57	57
Total	-	-	5,183	5,183

The Group has leases on all investment property consisting of buildings, structures and machineries. The terms of the leases are from 1 to 10 years. In year 2021, the Group’s income from lease of investment property amounted to EUR 1,710 thousand (2020 – EUR 2,297 thousand).

The Group’s future lease expenses:

	31 December 2021	31 December 2020
Future expenses related to short-term and low value leases	447	-
Future variable lease payments	870	-
Leases not yet commenced to which the lessee is committed	3,110	17,986
Future lease expenses, total	4,427	17,986

==> picture [83 x 40] intentionally omitted <==

243 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes All amounts are in EUR thousand unless otherwise stated

Contents »

10 Structure of the group

The Group’s structure as at 31 December 2021:

Company name	Country of business	Group’s effective ownership interest, %	Non-controlling interest’s effective ownership interest, %	Profile of activities
Ignitis grupė AB	Lithuania	-	-	Parent company - management and coordination of activities of the Group companies
Subsidiaries of the Group:
Energijos skirstymo operatorius AB	Lithuania	100.00	-	Distribution of electricity and gas, supply of last resort service
Ignitis gamyba AB	Lithuania	100.00	-	Generation and trading of electricity
NT Valdos UAB	Lithuania	100.00	-	Management and other related services of real estate
Energetikos paslaugų ir rangos organizacija UAB	Lithuania	100.00	-	Construction, repair and maintenance of electricity networks and related equipment, connection of customers
				to electricity networks, repair of energy equipment and production of metal structures
Elektroninių mokėjimų agentūra UAB	Lithuania	100.00	-	Payment aggregation
Ignitis UAB	Lithuania	100.00	-	Electricity and gas supply, trading, energy efficiency projects
Ignitis Eesti, OÜ	Estonia	100.00	-	Supply of electricity
Ignitis Latvija SIA	Latvia	100.00	-	Supply of electricity and gas
Ignitis Polska Sp. z o. o.	Poland	100.00	-	Supply and trading of electricity and gas
Ignitis Suomi OY	Finland	100.00	-	Supply of gas
Ignitis grupės paslaugų centras UAB	Lithuania	100.00	-	Shared business support services
Vilniaus Kogeneracinė Jėgainė UAB	Lithuania	100.00	-	Development and operation of cogeneration power plant project
Kauno Kogeneracinė Jėgainė UAB	Lithuania	51.00	49.00	Electricity and heat production from waste
Tuuleenergia OÜ	Lithuania	100.00	-	Generation of renewable electricity
Transporto valdymas UAB	Lithuania	100.00	-	Vehicle rental, leasing, repair, maintenance, renewal and service
Gamybos optimizavimas UAB	Lithuania	100.00	-	Planning, optimization, forecasting, trading, brokering and other electricity related services
Ignitis renewables UAB	Lithuania	100.00	-	Coordination of operation, supervision and development of renewable energy projects
Eurakras UAB	Lithuania	100.00	-	Generation of renewable electricity
Vėjo Vatas UAB	Lithuania	100.00	-	Generation of renewable electricity
Vėjo Gūsis UAB	Lithuania	100.00	-	Generation of renewable electricity
VVP Investment UAB	Lithuania	100.00	-	Development of a renewable energy (wind) power plant project
Pomerania Wind Farm Sp. z o. o.	Poland	100.00	-	Generation of renewable electricity
Ignitis Renewables Polska Sp. z o. o.	Poland	100.00	-	Sub-holding controlling wind/solar assets
Ignitis RES DEV Sp. z o. o.	Poland	100.00	-	Development of wind/solar projects
Ignitis renewables projektai, UAB	Lithuania	100.00	-	Development of wind/solar projects
AltiplanoElektrownieWiatroweB1Sp. zo.o.	Poland	100.00	-	Development of wind/solarprojects

10.1 Acquisition of shares from non-controlling interest

In 2021 the Group has acquired shares from minority shareholders of subsidiaries Energijos skirstymo operatorius AB (13,118,175 shares for the price of 0.88 EUR per share) and Ignitis gamyba AB (11,688,245 shares for the price of 0.64 EUR per share). Acquisition lead to increased ownership by 1.47 in Energijos skirstymo operatorius AB and 1.80 percentage point in Ignitis gamyba AB. After this acquisition the Group owns 100% of Energijos skirstymo operatorius AB and Ignitis gamyba AB shares as at 31 December 2021.

Contractual obligation to buy out the abovementioned shares was recognised in 2020 and related non-controlling interest was derecognised respectively.

Total consideration paid for the acquired Energijos skirstymo operatorius AB and Ignitis gamyba AB shares equal to EUR 19,024 thousand.

10.2 Acquisition of shares in business combinations

On 21 December 2021 Group Management Board approved the conclusion of the shares purchase agreement whereby its subsidiary Ignitis renewables UAB acquired 100% of the shares of the Polish company developing a wind farm in Poland – Altiplano Elektrownie Wiatrowe B1 Sp. z o. o. Total consideration paid for the acquired subsidiary equal to EUR 9,545 thousand (Note 48).

10.3 Acquisitions/establishment of new subsidiaries

During the year 2021 there was acquired/established Ignitis renewables projektai UAB, Ignitis Renewables Polska Sp. z o. o., Ignitis RES DEV Sp. z o. o., Ignitis Suomi OY and Altiplano Elektrownie Wiatrowe B1 Sp. z o. o. The significant acquisition was for Altiplano Elektrownie Wiatrowe B1 Sp. z o. o. – see Note 48.

==> picture [83 x 40] intentionally omitted <==

244 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

The Group’s structure as at 31 December 2020:

Company name	Country of business	Group’s effective ownership interest, %	Non-controlling interest’s effective ownership interest, %	Profile of activities
Ignitis grupė AB	Lithuania	-	-	Parent company - management and coordination of activities of the Group companies
Subsidiaries of the Group:
Energijos skirstymo operatorius AB	Lithuania	98.53	1.47	Distribution of electricity and gas, supply of last resort service
Ignitis gamyba AB	Lithuania	98.20	1.80	Generation and trading of electricity
NT Valdos UAB	Lithuania	100.00	-	Management and other related services of real estate
Energetikos paslaugų ir rangos organizacija UAB	Lithuania	100.00	-	Construction, repair and maintenance of electricity networks and related equipment, connection of
				customers to electricity networks, repair of energy equipment and production of metal structures
Elektroninių mokėjimų agentūra UAB	Lithuania	100.00	-	Payment aggregation
Ignitis Eesti, OÜ	Estonia	100.00	-	Supply of electricity
Ignitis Latvija SIA	Latvia	100.00	-	Supply of electricity and gas
Ignitis Polska Sp. z o.o.	Poland	100.00	-	Supply and trading of electricity and gas
Ignitis grupės paslaugų centras UAB	Lithuania	99.23	0.77	Shared business support services
Ignitis UAB	Lithuania	100.00	-	Electricity and gas supply, trading, energy efficiency projects
Lietuvos Energijos Paramos Fondas	Lithuania	100.00	-	Provision of support to projects, initiatives and activities, relevant to the society (no longer pursues any of
				its activities)
Vilniaus Kogeneracinė Jėgainė UAB	Lithuania	100.00	-	Development and operation of cogeneration power plant project
Kauno Kogeneracinė Jėgainė UAB	Lithuania	51.00	49.00	Electricity and heat production from waste
Tuuleenergia OÜ	Lithuania	100.00	-	Generation of renewable electricity
Eurakras UAB	Lithuania	100.00	-	Generation of renewable electricity
Transporto valdymas UAB	Lithuania	100.00	-	Vehicle rental, leasing, repair, maintenance, renewal and service
Vėjo Vatas UAB	Lithuania	100.00	-	Generation of renewable electricity
Vėjo Gūsis UAB	Lithuania	100.00	-	Generation of renewable electricity
Gamybos optimizavimas UAB	Lithuania	100.00	-	Planning, optimization, forecasting, trading, brokering and other electricity related services
VVP Investment UAB	Lithuania	100.00	-	Development of a renewable energy (wind) power plant project
Ignitis renewables UAB	Lithuania	100.00	-	Coordination of operation, supervision and development of renewable energy projects
PomeraniaWindFarmSp. zo.o.	Poland	100.00	-	Development and operationofarenewable energy (wind) powerplant project

==> picture [83 x 40] intentionally omitted <==

245 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

Summarised statement of financial position of the Group companies with non-controlling interest:

Company name / Year	Current assets and liabilities	Non-current assets and liabilities
	Net assets Non-controlling interest Assets Liabilities Total net current assets Assets Liabilities Total net non- current assets	Net assets Non-controlling interest Total net non-
Energijos skirstymo operatorius AB As at 31 December 20201 Ignitis gamyba AB As at 31 December 20201 Ignitis grupės paslaugų centras UAB As at 31 December 2020 Kauno kogeneracinė jėgainė UAB As at 31 December 2021 As at 31 December 20201	90,120 (150,014) (59,894) 1,620,973 (892,832) 728,141 668,247 9,824 203,775 (43,245) 160,530 438,471 (212,026) 226,445 386,975 6,981 9,471 (6,741) 2,730 12,157 (1,291) 10,866 13,596 105 26,969 (122,136) (95,167) 139,423 (34) 139,389 44,222 - 17,497 (7,690) 9,807 141,940 (114,749) 27,191 36,998 1,469

Summarised SPLOCI of the Group companies with non-controlling interests:

Company name / Year	Revenue	Profit (loss) before tax	Income tax (expense)/benefit	Net profit (loss) from continuing operations	Other comprehensive income (loss)	Total comprehensive income (loss) for the year	Profit (loss) attributable to non- controlling interest	Profit (loss) attributable to non- controlling interest	Dividends paid to non-controlling interest
Energijos skirstymo operatorius AB
2021	-	-	-	-	-	-		-	813
2020	482,206	86,198	(9,819)	76,379	208	76,587	1,123		1,593
Ignitis gamyba AB
2021	-	-	-	-	-	-		-	339
20202	175,410	49,775	(7,341)	42,434	-	42,434		765	1,196
Ignitis grupės paslaugų centras UAB	-	-	-	-	-	-		-	-
2020	27,255	776	(45)	731	-	731		6	4
Kauno kogeneracinė jėgainė UAB
2021	29,106	5,156	2,070	7,226	(2)	7,224		-3	-
20202	7,174	(523)	-	(523)	-	(523)	(256)		-

2 Part of the amounts do not agree with the financial statements issued for the year ended 31 December 2020 due to accounting policy change and reclassifications. See more information disclosed in Note 5.

3 The Group uses anticipated-acquisition method for recognizing put option redemption liability (Note 4.5). Accordingly profits (loss) attributable to the holder of the non-controlling interest subject to the put are presented as attributable to the owners of the parent and not as attributable to those non-controlling shareholders.

Summarised Statement of Cash Flows of the Group companies with non-controlling interest :

Company name / Year	Cash flows from operating activities	Income tax (paid) recovered	Net cash flows from operating activities	Net cash flows from investing activities	Net cash flows from financing activities	Net increase (decrease) in cash and cash equivalents	Cash and cash equivalents at beginning of the year	Cash and cash equivalents at the end of the year
Energijos skirstymo operatorius AB
2020	189,231	-	189,231	(132,850)	(52,191)	4,190	4,775	8,965
Ignitis gamyba AB
2020	105,703	(8,381)	97,322	38,524	(56,227)	79,619	58,501	138,120
Ignitis grupės paslaugų centras UAB
2020	3,929	(153)	3,776	(3,304)	49	521	421	942
Kauno kogeneracinė jėgainė UAB
20204	2,543	-	2,543	(48,875)	51,882	5,550	7,778	13,328

4 Part of the amounts do not agree with the financial statements issued for the year ended 31 December 2020 due to accounting policy change and reclassifications. See more information disclosed in Note 5.

The tables above have been prepared on the basis of the financial statements of subsidiaries adjusted for consolidation purposes and presents data before intercompany eliminations.

==> picture [83 x 40] intentionally omitted <==

246 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes All amounts are in EUR thousand unless otherwise stated

Contents »

11 Non-current receivables

Amounts receivable after one year comprised as follows:

	31 December 2021	31 December 2020
Non-current receivables
Accrued revenue related to regulatory activity of the public electricity
supply (Note 4.14.2)	86,520	12,324
Finance lease (Note 12)	7,600	8,860
Loans granted	87	1,908
Amount receivable on sale of LitGrid AB	-	136,212
Other non-current amounts receivable	1,932	2,211
Total:	96,139	161,515
Less: allowance	-	-
Carrying amount	96,139	161,515

12 Finance lease receivables

The Group’s finance lease receivables were reported in the following line items in the statement of financial position:

	31 December 2021	31 December 2020
Non-current receivables	7,600	8,860
Other receivables	2,517	2,634
Carrying amount	10,117	11,494

Finance lease receivables for the lease of motor vehicles and amounts receivable under the energy saving services agreements are included in the line items ‘Amounts receivable after one year’ and ‘Other amounts receivable’.

The Group’s finance lease receivables comprised as follows:

Amount receivable on sale of LitGrid AB is presented in other receivables (Note 18) as the period during which EPSO-G UAB must repay for the sold shares of AB LitGrid is 30 September 2022.

Total amount of the accrued revenue related to regulatory activity of the public electricity supply has increased comparing to 31 December 2020. Increase related to discrepancies between the Group's forecasted and actual costs incurred in providing public electricity supply services during the reporting period. For more information – see Note 18.

	31 December 2021	31 December 2020
Minimum payments
Within the first year	3,015	3,183
From two to five years	7,522	8,012
More than five years	968	1,571
In total	11,505	12,766
Unearned finance income
Within the first year	(498)	(549)
From two to five years	(852)	(632)
More than five years	(38)	(91)
In total	(1,388)	(1,272)
Carrying amount	10,117	11,494

During the year 2015–2018, the Group signed repurchase agreements for motor vehicles. These agreements stipulated particular repurchase amounts for motor vehicles used in long-term lease. The repurchase amount of motor vehicles stipulated in all repurchase agreements totalled EUR 6,436 thousand as at 31 December 2021 (31 December 2020: EUR 7,357 thousand). The repurchase term ranges from 1 to 5 years.

The Group does not earn contingent finance income related to finance lease arrangements.

As at 31 December 2021 and 2020, the Group assessed whether credit risk of finance lease clients has increased significantly and did not establish a significant increase in credit risk.

==> picture [83 x 40] intentionally omitted <==

247 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes All amounts are in EUR thousand unless otherwise stated

Contents »

13 Other financial assets

The Group’s other non-current financial assets comprised as follows:

	31 December 2021	31 December 2020
Innovation Fund Smart Energy Fund powered by Ignitis Group KŪB
(Note 4.6)	25,094	4,912
Moray West Holdings Limited deferred consideration	5,000	-
Sun Investment Group	-	2,357
Platform for Financing Energy Efficiency	-	379
In total	30,094	7,648
Less: impairment	-	(379)
Carrying amount	30,094	7,269

13.1 Moray West Holdings Limited deferred consideration

On 14 September 2020 the Group’s subsidiary Ignitis renewables UAB concluded share purchase agreement with Delphis Holdings Limited and acquired 5% of Moray West Holdings Limited shares for an amount GBP 50. Other conditions in the share purchase agreement were: to refinance shareholder’s loans (Note 18) and EUR 5,000 thousand deferred consideration which is payable if two conditions specified in the shares purchase agreement are met. The deferred consideration recognized in accordance with IAS 37 as there is a present obligation from a past event, the probability of outflow became more likely than not and reliable estimate can be made – the amount specified in the agreement (Note 30).

13.2 Sun Investment Group

On 16 September 2020 the Group’s subsidiary Ignitis renewables UAB signed preliminary share purchase agreement with UAB “SIG Poland 3” having the intention to purchase all the shares in all project companies – “Sun Investment Group” (hereinafter “SIG”) once the photovoltaic installations become operational. Carrying amount of investment into SIG as of 31 December 2020 represented payments to SIG for development of the photovoltaic projects as per the preliminary share purchase agreement.

Due to the fact that there were no operational projects started in 2020 and 2021, share purchase agreement was not signed. Management is of an opinion, that the development will not continue and whole investment should be returned as to the agreement. Accordingly, total carrying amount was reclassified to “Other receivables” (Note 18) as it will be recovered through collecting cash flows.

14 Other assets

14.1 Other non-current assets

Other non-current assets comprised as follows:

	31 December 2021	31 December 2020 (restated)1
Derivative financial instruments (Note 33.2)	3,624	-
Other non-current assets	88	1
Carrying amount	3,712	1

1 Part of the amounts do not agree with the financial statements issued for the year ended 31 December 2020 due to reclassifications. See more information disclosed in Note 5.

14.2 Other current assets

Other current assets comprised as follows:

	31 December 2021	31 December 2020 (restated)2
Deposit into an escrow account (Note 14.3)	16,237	45,000
Derivative financial instruments (Note 33.2)	9,859	3,311
Deposit related to buyout of shares in subsidiaries (Note 14.4)	3,777	19,050
Deposits related to guarantee independent electricity suppliers
activity	3,345	2,787
Other current assets	-	4
Carrying amount	33,218	70,152

2 Part of the amounts do not agree with the financial statements issued for the year ended 31 December 2020 due to reclassifications. See more information disclosed in Note 5.

14.3 Deposit in escrow account

On 7 October 2020 the Company has executed IPO distributing the increased share capital between private and institutional investors. Together with IPO process the Group deposited in an escrow account EUR 45,000 thousand till July 2021 in accordance with stabilisation activities performed by Swedbank AB.

On 7 July 2021 the Group signed the agreement with Swedbank AB to extend the Long Stop Date to 1 July 2022. On December 2021 the Group acquired treasury shares (Note 21.2) and Stabilisation Manager Swedbank AB disposed the Stabilized Securities. Related to this, deposit into an escrow account decreased and the carrying amount is EUR 16,237 thousand as at 31 December 2021. This deposit is not available to finance the Group’s day-to-day operations until the specified term.

14.4 Deposit related to buyout of shares in subsidiaries

The Group had a contractual obligation to buy out all the shares of the subsidiaries Energijos skirstymo operatorius AB and Ignitis gamyba AB. In accordance with buy out procedures, the Group deposited in a bank account amount of EUR 19,050 thousand to cover the price of shares as at 31 December 2020.

During 2021 the Group has acquired shares from minority shareholders of subsidiaries Energijos skirstymo operatorius AB and Ignitis gamyba AB (Note 10.1). Consequently, deposit related to buyout of shares in subsidiaries decreased and the carrying amount is EUR 3,777 thousand as at 31 December 2021.

==> picture [83 x 40] intentionally omitted <==

248 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes All amounts are in EUR thousand unless otherwise stated

Contents »

15 Inventories

The Group’s inventories comprised as follows:

	31 December 2021	31 December 2020 (restated)1
Natural gas	149,112	25,063
Emission allowances	30,172	32,878
Consumables, raw materials and spare parts	5,307	6,361
Other	4,181	4,687
In total	188,772	68,989
Less: write down to net realisable value	(3,166)	(3,001)
Carrying amount	185,606	65,988

1 Part of the amounts do not agree with the annual financial statements as at 31 December 2020 due to change in accounting policy. More information disclosed in Note 5.

The Group’s inventories expensed were as follows:

	2021	2020
Natural gas	379,749	211,924
Biofuel	1,145	912
Other inventories	2,102	1,599
In total	382,996	214,435

Movements on the account of inventory write-down to net realisable value were as follows:

	2021	2020
Carrying amount at 1 January	3,001	2,666
Additional write-down to net realisable value	655	394
Additional write-down to net realisable value reclassified from
property, plant and equipment	-	527
Reversal of write-down to net realisable value	(490)	(586)
Carrying amount at 31 December	3,166	3,001

Movements on the account of inventory write-down to net realisable value were recognised in SPLOCI within the line item ‘Other expenses’.

16 Prepayments and deferred expenses

17 Trade receivables

The Group trade receivables comprised as follows:

	31 December 2021	31 December 2020
Amounts receivable under contracts with customers
Receivables from electricity related sales	170,167	96,523
Receivables from gas related - non-household	102,182	30,311
Receivables from gas related - household	4,309	2,881
Other receivables	8,109	8,575
Amounts receivable under other contracts
Receivables for lease of assets	50	7
In total	284,817	138,297
Less: impairment of trade receivables	(9,920)	(9,874)
Carrying amount	274,897	128,423

As at 31 December 2021 and 2020, the Group had not pledged the claim rights to trade receivables.

No interest is charged on trade receivables and the regular settlement period is between 15 and 30 days. Trade receivables for which the settlement period is more than 30 days comprise insignificant part of total trade receivables. The Group doesn’t provide the settlement period longer than 1 year. The Group didn’t identify any financing components. For terms and conditions on settlement between related parties see Note 45.

17.1 Impairment of amounts receivable (lifetime expected credit losses)

The table below presents information on the Group’s trade receivables under contracts with customers as at 31 December 2021 that are assessed on a collective basis using the loss ratio matrix:

	Loss ratio	Trade receivables	Impairment
Not past due	0.68	235,264	1,590
Up to 30 days	2.32	8,008	186
30–60 days	6.85	1,474	101
60-90 days	9.98	471	47
90-120 days	16.23	308	50
More than 120 days	72.75	9,247	6,727
As at 31 December 2021	3.42	254,772	8,701

The Group’s current prepayments and deferred expenses were as follows:

	31 December 2021	31 December 2020 (restated)2
Prepayments for natural gas	61,930	7,710
Deferred expenses	3,785	1,499
Prepayments for other goods and services	1,168	949
Prepayments for emission allowance related derivatives	877	-
Deposits related to Power exchange	65	1,330
Other prepayments	651	3,114
Carrying amount	68,476	14,602

2 Part of the amounts do not agree with the financial statements issued for the year ended 31 December 2020 due to reclassifications. See more information disclosed in Note 5.

==> picture [83 x 40] intentionally omitted <==

249 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

The table below presents information on the Group’s trade receivables under contracts with customers as at 31 December 2020 that are assessed on a collective basis using the loss ratio matrix:

18 Other receivables

The Group’s other receivables comprised as follows:

	Loss ratio	Trade receivables1	Impairment1
Not past due	1.00	104,901	1,051
Up to 30 days	4.10	4,343	178
30–60 days	6.52	1,012	66
60-90 days	10.41	557	58
90-120 days	12.72	464	59
More than 120 days	76.37	9,465	7,228
As at 31 December 2020	7.16	120,742	8,640

1Part of the amounts do not agree with the annual financial statements as at 31 December 2020 in order to better reflect method for calculating lifetime expected credit losses.

The table below presents information on the Group’s trade receivables under contracts with customers that are assessed on an individual basis:

	31 December 2021	31 December 2021	31 December 2020	31 December 2020
	Trade receivables	Impairment	Trade receivables2	Impairment2
Not past due	28,300	-	16,188	-
Up to 30 days	417	-	122	-
30–60 days	67	3	-	-
60-90 days	19	2	83	83
90-120 days	7	2	78	78
More than 120 days	1,235	1,212	1,084	1,073
Carrying amount	30,045	1,219	17,555	1,234

2Part of the amounts do not agree with the annual financial statements as at 31 December 2020 in order to better reflect method for calculating lifetime expected credit losses.

Movements in the account of impairment of trade receivables during the year 2021 and 2020 were as follows:

	2021	2020
Carrying amount as at 1 January	9,874	8,777
Impairment of the year	875	2,267
Write-down of doubtful receivables	(34)	(77)
Reversal of impairment	(795)	(1,093)
Carrying amount at 31 December	9,920	9,874

Impairment of receivables was recognised in line item “Other expenses” of SPLOCI.

The fair values of trade receivables as at 31 December 2021 and 2020 approximated their carrying amounts.

	31 December 2021	31 December 2020 (restated)3
Receivable on sale of LitGrid AB (Notes 3.1.2, 18.1)	84,128	14,481
Deposits for electricity related derivatives in electricity market	60,210	33,201
Deposits for gas related derivatives to commodity traders	39,210	-
Accrued revenue related to regulatory activity of the public electricity	39,024	3,114
supply (Note 4.14.2)
Accrued revenue from electricity sales	26,254	6,787
Value added tax	14,612	16,654
Receivable payments made to SIG (Note 13.2)	3,782	-
Cash reserved for guarantees	3,648	2,900
Granted current loans	3,578	-
Current portion of finance lease (Note 12)	2,517	2,634
Accrued revenue from natural gas sales	1,416	400
Other receivables	15,027	4,129
In total	293,406	84,300
Less: impairment of other receivables	(877)	(731)
Carrying amount	292,529	83,569

3 Part of the amounts do not agree with the financial statements issued for the year ended 31 December 2020 due to reclassifications. See more information disclosed in Note 5.

Line items “Accrued revenue from electricity sales (including related VAT)”, “Accrued revenue from natural gas sales” and “Accrued revenue related to regulatory activity of the public electricity supply” represent contract assets (Note 34.2).

The fair values of other receivables as at 31 December 2021 and 2020 approximated their carrying amounts.

18.1 Receivable on sale of LitGrid AB

In 2012, the shares of LitGrid AB held by the parent company were transferred to a newly established private limited liability company EPSO-G UAB in return for a certain consideration based on the market value of the shares established by independent valuers. The purchase-sale agreement of shares of LitGrid AB provides for a premium to the final price, the amount of which depends on the return on regulated assets of the electricity transmission activity in year 2014–2018. At the initial assessment of the price premium the Group concluded that according to the purchasesale agreement of shares of LitGrid AB, the price premium is negative and amounts to EUR 4,679 thousand. According to EPSO-G UAB calculations the price premium at 31 December 2021 is negative and amounts to EUR 27,075 thousand. For the purposes of the statement of financial position, the Group’s management has assessed and recognised the negative premium price for amount EUR 15,877 thousand on the basis of a scenario, that the possible agreement between the parties would be the average value of the Group's and EPSO-G UAB calculations.

On December 2021 The Group and EPSO-G UAB came to an agreement that the negative premium price is for amount EUR 17,961 thousand. Accordingly, the Group recognized EUR 2,084 thousand change of fair value in its profit and loss of SPLOCI (see Note 39).

Net receivable on sale of the shares of LitGrid AB is accounted in the item “Other receivables” (Note 18) of the statement of financial position.

During the year 2021 EPSO-G UAB has repaid a debt by EUR 64,481 thousand (during 2020: EUR 7,965 thousand).

==> picture [83 x 40] intentionally omitted <==

250 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

18.2 Accrued revenue related to regulatory activity of the public electricity supply

Line item “Accrued revenue related to regulatory activity of the public electricity supply“ has increased because as mentioned in Note 4.14.2, discrepancies between the Group's forecasted and actual costs incurred in providing public electricity supply services during the reporting period are recognized as assets or liabilities of regulated activities.

During 2021 electricity prices in the market increased significantly, especially in second half-year of 2021. As at 31 December 2021 amount of regulatory difference is almost EUR 125 million (for noncurrent part see Note 11), EUR 113 million is related to services provided during the year 2021 (to equalize the current year's profit to the regulated level, regardless of whether the services will be provided in the future). Full amount will have to be returned to the Group through the electricity distribution system operator (Group company) in future periods (not later than 31 December 2027).

As to decision of the National Energy Regulatory Council during the year 2022 EUR 39 million have to be returned to the Group through the electricity distribution system and therefore are recognised as current portion of accrued revenue related to regulatory activity of the public electricity supply as at 31 December 2021.

18.3 Deposits related to derivatives

The Group has made deposits for derivative instruments as assurance of contractual obligations with the Commodities exchange and Commodity traders for trading of derivatives linked to electricity and gas market prices. Deposits are in a form of cash collateral and the value moves on a daily basis, i.e. depends on market prices. The Group estimates that the whole amount of cash collateral will be recovered as the amounts payable are related to the realization of the future hedge and the sales contracts will be realized together with the hedge, thus invoices for derivative instruments will be covered with sales income and after this payment cash collateral will be returned.

19 Cash and cash equivalents

The Group ‘s cash and cash equivalents comprised as follows:

	31 December 2021	31 December 2020
Cash balances in bank accounts	448,497	657,314
Restricted cash	576	1,481
	449,073	658,795

The fair values of cash and cash equivalents as at 31 December 2021 and 2020 approximated their carrying amounts.

Restricted cash is held with banks in accordance with certain agreements requirements, for example deposits related to guarantee of performance of the contract. These deposits are not available to finance the Group’s day-to-day operations.

Under the loan agreements signed with the banks, the Group has pledged current and future cash inflows. As at 31 December 2021, the balance of cash pledged amounted to EUR 13,383 thousand (31 December 2020: EUR 25,350 thousand).

20 Assets held-for-sale

Non-current assets held-for-sale comprised as follows:

		31 December 2021	31 December 2020
Property,	plant and equipment and investment property	360	473
Disposal	group	-	-
Carrying	amount as at 31 December	360	473

Movements of non-current assets held-for-sale were as follows:

	2021	2020
Carrying amount as at 1 January	473	40,643
Disposals	(1,545)	(13,337)
Increase (decrease) in property, plant and equipment and
investment property	-	(943)
Reclassified (to) from:
Intangible assets	-	(11)
Property, plant, and equipment	1,382	(16,049)
Right-of-use assets	-	(240)
Finance lease receivables	-	(8,564)
Non-current assets	50	(1,026)
Carrying amount as at 31 December	360	473

During 2021 the Group sold property classified as held for sale of EUR 1,545 thousand carrying value for EUR 1,801 thousand consideration.

==> picture [83 x 40] intentionally omitted <==

251 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes All amounts are in EUR thousand unless otherwise stated

Contents »

21 Equity

21.1 Issued capital

Issued capital of the Group consisted of:

	31 December 2021	31 December 2020
Authorised shares
Ordinary shares, EUR	1,658,756,294	1,658,756,294
Ordinary shares issued and fully paid, EUR	1,658,756,294	1,658,756,294

As at 31 December 2021 and as at 31 December 2020 the Group’s issued capital comprised EUR 1,658,756,294 and was divided in to 74,283,757 ordinary registered shares with EUR 22.33 nominal value for a share, emission price EUR 22.50 value for a share.

As at 26 August 2020 a decision was adopted to change the nominal value and number of shares issued by the Group. In accordance with the decision of the Ministry of Finance, the nominal value of one ordinary registered share of the Group is changed from EUR 0.29 to EUR 22.33. Upon the change of the nominal value of one share, the authorized capital of the Group was divided into 54,283,757 ordinary registered shares.

On 7 October 2020 the Group’s whole newly issued capital consisting of 20,000,000 ordinary registered shares has been admitted to the Main Trading List of Nasdaq Vilnius, as well the global depositary receipts (hereinafter “GDR”) representing the shares have been admitted to the standard listing segment of the Official List of the United Kingdom Financial Conduct Authority (FCA) and to trading on the Main Market of the London Stock Exchange. The IPO solely was comprised of 20,000,000 shares newly issued on 5 October 2020. The IPO consists of two tranches: 1) securities in the form of shares and GDR offered to institutional investors, and 2) securities in the form of shares offered to retail investors who are residents of Lithuania, Latvia and Estonia. During the IPO, institutional investors subscribed for 18,130,699 shares in the form of shares and GDRs. Retail investors subscribed for 1,869,301 shares during the IPO.

On 7 October 2020 the Group’s share premium comprised EUR 3,400 thousand. The attributable costs of the issuance of the shares of EUR 11,033 thousand have been charged directly to equity as a reduction in share premium EUR 3,400 thousand and EUR 7,633 thousand as a reduction in retained earnings. Transaction costs directly attributable to issuing new shares of EUR 11,033 thousand comprised mainly of fees to syndicate banks of the IPO.

At the ordinary general meeting of shareholders held on 25 March 2021 it was decided to form a reserve of EUR 23,000 thousand for the acquisition of treasury shares and the Group conducted this acquisition during 2021 (Note 21.2).

21.2 Treasury shares

Treasury shares of the Group consisted of:

	31	December 2021	31 December 2020
Acquired treasury shares		23,000	-
Carrying amount		23,000	-

On 2 December 2021 the Management Board of the Group, according to the resolution of the General Meeting of Shareholders of 29 July 2021, adopted a decision to execute the acquisition of ordinary registered shares of the Group.

The Group on 6–14 December 2021 has conducted an acquisition of the Group’s ordinary registered shares – treasury shares through the auction for tender offers of AB “Nasdaq Vilnius” stock exchange, with AB SEB bankas acting as an intermediary. Treasury shares acquired by the Group on 16 December 2021, when the right of ownership transferred to the Group. Shares purchase price EUR 18.50 per share, number of shares acquired 1,243,243 and total value of treasury shares acquired EUR 23,000 thousand.

Afterwards, a fee for stabilization related services to Stabilisation Manager – Swedbank AB paid for an amount EUR 3,674 thousand which was recognised in retained earnings. A settlement was made as detailed in Company‘s IPO prospectus (Part 17, starting paragraph 10, page 330): as the price at which the Stabilized Securities were sold through the above mentioned public tender offer was less than the price at which the Stabilized Securities were purchased, the Group has paid the difference to the Stabilization Manager.

21.3 Other movements in equity

Put option redemption liability

The Group uses anticipated-acquisition method for recognizing put option redemption liability. Because under the anticipated-acquisition method the interests of the non-controlling shareholders are derecognised when the financial liability is recognised, therefore, the underlying interests are presented as already owned by the equity holders of the parent, both in the statement of financial position and in the SPLOCI, even though legally they are still non-controlling interest

Accordingly the Group made adjustment in 2021 and derecognized non-controlling interest which was recognized before 1 January 2021 for an amount of EUR 1,469 thousand and recognized it directly to retained earnings.

Dividends return

Dividends received by IPO Stabilisation Manager (Swedbank AB) in connection with acquired Stabilisation Shares according True up agreement, were returned back to the Group for an amount EUR 1,970 thousand after withholding tax deduction and recognized directly in retained earnings.

==> picture [83 x 40] intentionally omitted <==

252 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

22 Reserves

22.1 Legal reserve

The legal reserve is a compulsory reserve under the Lithuanian legislation. Companies in Lithuania are required to transfer 5% of net profit from distributable profit until the total reserve reaches 10% of the issued capital. The legal reserve shall not be used for payment of dividends and is formed to cover future losses only.

The Group’s legal reserve as at 31 December 2021 and 2020 was not fully formed.

22.2 Revaluation reserve

The revaluation reserve arises from revaluation of property, plant and equipment due to increase in value. The revaluation cannot be used to cover losses.

22.3 Hedging reserve

The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments used in cash flow hedges pending subsequent recognition in profit or loss.

22.4 Treasury shares reserve

At the ordinary general meeting of shareholders held on 25 March 2021 it was decided to form a reserve of EUR 23,000 thousand for the acquisition of treasury shares.

22.5 Other reserves

24 Other comprehensive income

Other comprehensive income (loss) for the year in reserves:

	Equity, attributed to equity holders of	Equity, attributed to equity holders of	Equity, attributed to equity holders of	the parent
	Revaluation reserve	Hedging reserve	Other reserves	Retained earnings	Total
Revaluation of property, plant and
equipment, net of tax	90	-	-	-	90
Result of change in actuarial assumptions	-	-	-	208	208
Exchange differences on translation of
foreign operations into the Group’s
presentation currency	-	-	(2,240)	-	(2,240)
Balance as at 31 December 2020	90	-	(2,240)	208	(1 ,942)
Revaluation of property, plant and
equipment, net of tax	(23,629)	-	-	-	(23,629)
Cash flow hedges – effective portion of
change in fair value	-	57,072	-	-	57,072
Cash flow hedges – reclassified to profit
or loss	-	(38,433)	-	-	(38,433)
Result of change in actuarial assumptions	-	-	-	(303)	(303)
Exchange differences on translation of
foreign operations into the Group’s
presentation currency	-	-	(517)	-	(517)
Balance as at 31 December 2021	(23,629)	18,639	(517)	(303)	(5,810)

Hedging reserve movement comprises recognition of effective portion of EUR 57,072 thousand (gross before tax EUR 67,144 thousand) and reclassification to profit or loss of SPLOCI of EUR 38,433 thousand (gross before tax 45,215 thousand) recognised in Purchases of electricity, gas and other services (see Note 33.2).

Other reserves are formed based on the decision of shareholders and can be redistributed on the appropriation of the next year’s profit. As at 31 December 2021, the Group accounted for the result of the translation of the Group’s net investments in Ignitis Polska Sp. z o. o., Ignitis Renewables Polska Sp. z o. o. and Pomerania Wind Farm Sp. z o. o., a Poland-based companies indirectly controlled by the Group, in the amount of EUR 2,746 thousand into the Group’s presentation currency within the item of other reserves (31 December 2020: EUR 2,229 thousand). No other reserves were formed by the Group as at 31 December 2021 and 2020.

23 Share based payments

On 18 December 2020 share option agreements of the long-term promotion of key executives of the Group companies programme have been concluded with key executives of the Group.

On 12 May 2021 the Supervisory Board of the Group approved the suggestions of key executives of the Group to terminate executives’ option agreements.

During the year 2021 share based payments costs accounted in SPLOCI salaries and related expenses amounted to EUR 213 thousand and reflects the share-based payments agreements concluded with key executives. As share-based payments agreements were voluntarily terminated without any compensation to executives and cancellation is not related to the failure of meeting vesting conditions, thus accounted as accelerated vesting of share based payments therefore full expense and related increase in equity recognised immediately.

==> picture [83 x 40] intentionally omitted <==

253 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes All amounts are in EUR thousand unless otherwise stated

Contents »

25 Loans and bonds

Borrowings of the Group consisted of:

	31 December 2021	31 December 2020
Non-current
Bonds issued	888,524	886,945
Bank loans	229,553	359,183
Current
Current portion of non-current loans	13,857	6,333
Bank loans	214,100	-
Accrued interest	9,317	9,143
In total	1,355,351	1,261,604

25.2 Covenants and unwithdrawn balances

The loan agreements provide for financial and non-financial covenants that the individual Group entities are obliged to comply with. All Group companies complied with the covenants as at 31 December 2021 and 2020.

As at 31 December 2021, the Group unwithdrawn balance of loans and bank overdrafts amounted to EUR 115,291 thousand (31 December 2020: EUR 344,504 thousand).

Non-current borrowings by maturity:

	31 December 2021	31 December 2020
From 1 to 2 years	18,880	128,720
From 2 to 5 years	73,793	44,396
After 5 years	1,025,404	1,073,012
In total	1,118,077	1,246,128

Borrowings of the Group are denominated in euros or polish zlotys.

25.1 Movement of borrowings

Movement of borrowings during the year 2021 mainly consisted of the following:

The repayment term of loan contract signed between Swedbank AB and the Group’s subsidiary Kauno kogeneracinė jėgainė UAB on 31 May 2017 is 31 May 2022, therefore the loan was reclassified from non-current to current loans due to short maturity term. The balance of loan as at 31 December 2021 is EUR 110,000 thousand (31 December 2020: EUR 114,709 thousand).

On 13 October 2021 the Group’s subsidiary Ignitis UAB signed a short-term loan contract with SEB Bankas AB for maximum amount EUR 104 thousand. The loan is used to finance the increased working capital needs of Ignitis UAB and its subsidiaries. The need for working capital was due to high natural gas and electricity market prices, financial trading and the difference between the actual price of raw materials on the stock exchange and the electricity and natural gas tariffs for household consumers approved for 2021. The balance of loan as at 31 December 2021 is EUR 104,000 thousand.

For the year of 2021 expenses related to interest on the issued bonds totalled EUR 19,205 thousand (2020: EUR 16,689 thousand). The accrued amount of coupon payable as at 31 December 2021 amounted to EUR 9,143 thousand (31 December 2020: EUR 9,143 thousand).

For the year of 2021 expenses related to interest on the loans and overdrafts totalled EUR 2,861 thousand (2020: EUR 2,578 thousand).

==> picture [83 x 40] intentionally omitted <==

254 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

26 Net debt

Net debt is a non-IFRS liquidity metric used to determine the value of debt against highly liquid assets owned by the Group. Management is monitoring net debt metric as a part of risk-management strategy. For the purpose of net debt calculation, borrowings comprise only debts to financial institutions, issued bonds and related interest payables. This note sets out an analysis of net debt, a non-IFRS measure for the purposes of these financial statements presentation defined by management as presented below.

Net debt balances:

	31 December 2021	31 December 2020
Cash and cash equivalents	(449,073)	(658,795)
Deposit in escrow account (Note 14.3)	-	(45,000)
Non-current borrowings payable after one year	1,118,077	1,246,128
Current borrowings payable within one financial year (including overdraft and accrued interest)	237,274	15,476
Lease liabilities	50,963	42,529
Net debt	957,241	600,338

Reconciliation of the Group’s net debt balances and cash flows from financing activities:

	Assets	Lease liabilities	Borrowings	Total
	Cash and cash equivalents Deposit in escrow account	Non-current Current	Non-current Current
Net debt at 1 January 2020 Cash changes (Increase) decrease in cash and cash equivalents Issued bonds Proceeds from borrowings Repayments of borrowings Lease payments Interest paid Repayments of overdraft Deposit into an escrow account (Note 14.3) Non-cash changes Lease contracts concluded Accrual of interest payable Reclassification of interest payable from (to) trade and other payables Reclassifications to liabilities attributable to assets held for sale Reclassifications between items VAT on interest payable	(131,837) - (526,958) - - - - - - - - - - - - - - (45,000) - - - - - - - - - - - -	33,818 8,400 821,929 234,191 966,501 - - - - (526,958) - - 295,457 - 295,457 - - 182,950 - 182,950 - - (43,553) (43,245) (86,798) (2,120) (8,231) - - (10,351) - (960) (1,095) (13,830) (15,885) - - - (191,291) (191,291) - - - - (45,000) 9,915 506 - - 10,421 10 950 8,684 13,374 23,018 - - 103 (177) (74) 126 115 - - 241 (12,621) 12,621 (18,347) 18,347 - - - - (1,893) (1,893)
Net debt at 31 December 2020	(658,795) (45,000)	29,128 13,401 1,246,128 15,476 600,338
Net debt at 1 January 2021 Cash changes (Increase) decrease in cash and cash equivalents Proceeds from borrowings Repayments of borrowings Lease payments Interest paid Deposit in escrow account utilised (Note 14.3) Non-cash changes Lease contracts concluded Accrual of interest payable Reclassification of interest payable from (to) trade and other payables Lease liabilities written-off Reclassifications between items Assumed through business combination (Note 48) Change in foreign currency Other non-cash changes1	(658,795) (45,000) 209,722 - - - - - - - - - - 28,763 - - - - - - - - - - - - - - - 16,237	29,128 13,401 1,246,128 15,476 600,338 - - - - 209,722 - - - 104,000 104,000 - - - (10,915) (10,915) (2) (13,628) - - (13,630) - (845) - (25,153) (25,998) - - - - 28,763 19,125 1,786 - - 20,911 - 862 1,579 25,152 27,593 - - - 11 11 (634) (1,467) - - (2,101) (4,251) 4,251 (128,880) 128,880 - 2,697 71 - - 2,768 212 257 (750) (177) (458) - - - - 16,237
Net debt at 31 December 2021	(449,073) -	46,275 4,688	1,118,077 237,274	957,241

1 As at 31 December 2020 deposit in escrow account was treated as part of net debt as it was unclear whether it will be used to acquire treasury shares or will be recovered as cash. As during 2021 decisions were made to acquire treasury shares, the deposit is no longer treated as part of net debt.

==> picture [83 x 40] intentionally omitted <==

255 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

27 Lease liabilities

The Group minimum payments under leases are as follows:

	31 December 2021	31 December 2020
Minimum payments
Within the first year	5,821	14,022
From two to five years	17,162	11,835
More than five years	52,541	38,484
In total	75,524	64,341
Future finance costs
Within the first year	(1,133)	(621)
From two to five years	(3,947)	(2,416)
More than five years	(19,481)	(18,775)
In total	(24,561)	(21,812)
Carrying amount	50,963	42,529

Major Group’s lease liabilities are related to buildings and land.

The Group’s lease liabilities related to buildings amounted to EUR 23,615 thousand as at 31 December 2021 (31 December 2020: EUR 10,897 thousand). As at 31 December 2021, the validity terms of the effective lease contracts for buildings expire in the period from the year 2022 to 2031.

The Group’s lease liabilities related to the land amounted to EUR 24,476 thousand as at 31 December 2021 (31 December 2020: EUR 19,569 thousand). As at 31 December 2021, the validity terms of the effective lease contracts for the land expire in the period from the year 2030 to 2110.

28 Grants and subsidies

The balance of grants and subsidies comprises grants to finance acquisition of property plant and equipment. Movements on the account of grants were as follows:

	Asset-related grants -
	projects for renovation, improvement of	Asset-related grants - other projects of	In total
	environmental and	the Group
	safety standards
Carrying amount as at 1 January 2020 (restated)1	132,863	127,469	260,332
Depreciation and amortisation	(7,937)	(1,224)	(9,161)
Grants received	-	25,757	25,757
Grants reversed due to recognised impairment of property,
plant and equipment and other reasons	-	(5)	(5)
Grants transferred (to)/from short term liabilities	186	-	186
Reclassifications between categories	(16)	16	-
Carrying amount as at 31 December 2020 (restated)1	152,013	125,096	277,109
Carrying amount as at 1 January 2021 (restated)1	152,013	125,096	277,109
Depreciation and amortisation	(2,874)	(7,906)	(10,780)
Grants received	17,185	-	17,185
Grants attributable to write-off of property, plant and
equipment	(35)	-	(35)
Grants reversed and written off due to revaluation of
property, plant and equipment	(4,345)	-	(4,345)
Carrying amount as at 31 December 2021	161,944	117,190	279,134
1 Part of the amounts do not agree with the financial statements issued for the year ended 31 December			2020 due
to accounting policy change. See more information disclosed	in Note 5.

Amortisation of grants is accounted for under depreciation and amortisation in SPLOCI and reduces depreciation expenses of related property, plant and equipment. Grants reversed and written off are reported within revaluation/impairment of assets and reduce these expenses.

==> picture [83 x 40] intentionally omitted <==

256 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes All amounts are in EUR thousand unless otherwise stated

Contents »

29 Deferred income and advances received

29.1 Deferred income

Deferred income of the Group consisted of:

	31 December 2021 31 December 2020 (restated)1
	Current portion Non- current portion Current portion Non- current portion
Deferred income under contracts with customers Deferred income related to new customers fees Deferred income related to electricity over declaration Deferred income related to gas over declaration	9,347 183,608 8,579 164,413 1,502 - 1,595 - 7,197 - 1,997 -
In total	18,046 183,608 12,171 164,413

1 Part of the amounts do not agree with the financial statements issued for the year ended 31 December 2020 due to reclassifications. See more information disclosed in Note 5.

Movement in the Group’s deferred income:

	2021 2020 (restated)2
	Current portion Non- current portion Current portion Non- current portion
Balance as at 1 January Increase during the year Recognised as revenue Reclassified from (to) other current amounts payable Reclassifications between items	12,171 164,413 19,586 151,910 8,514 27,372 13,285 19,994 (10,816) - (26,291) - - - (1,900) - 8,177 (8,177) 7,491 (7,491)
Balance as at 31 December	18,046 183,608 12,171 164,413

2 Part of the amounts do not agree with the financial statements issued for the year ended 31 December 2020 due to reclassifications. See more information disclosed in Note 5.

Revenue from new customers fees is recognised over the average useful life of related items of property, plant and equipment (Note 2.21.1.3).

29.2 Advances received

The Group’s advances received were as follows:

	31 December	31 December 2020
	2021	(restated)3
Current prepayments under contracts with customers (contract liabilities)	54,970	37,025
Current prepayments under other contracts	2,538	2,027
In total	57,508	39,052

3 Part of the amounts do not agree with the financial statements issued for the year ended 31 December 2020 due to reclassifications. See more information disclosed in Note 5.

==> picture [83 x 40] intentionally omitted <==

257 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

30 Provisions

The Group’s provisions were as follows:

	December 2021	31 December 2020 (restated)1
Non-current	30,058	40,695
Current	41,561	23,516
Total	71,619	64,211

Movement of the Group’s provisions was as follows:

	Emission allowance provision	Provisions for employee benefits	Provisions for servitudes (Note 4.7)	Provisions for registration of protection zones (Note 4.7)	Provision for isolated power system operations’ and system services (Note 4.14.1)	Other provisions	Total
Balance as at 1 January 2020 (restated)1	-	3,540	26,952	8,328	12,718	3,365	54,903
Increase during the year	10,216	161	-	-	7,592	504	18,473
Utilised during the year	(4)	(125)	(258)	-	(3,049)	(149)	(3,585)
Revaluation of emission allowances utilised	134	-	-	-	-	-	134
Result of change in assumptions	-	73	(12,015)	6,741	-	(513)	(5,714)
Balance as at 31 December 2020 (restated) 1	10,346	3,649	14,679	15,069	17,261	3,207	64,211
Balance as at 1 January 2021 (restated) 1	10,346	3,649	14,679	15,069	17,261	3,207	64,211
Increase during the year	12,304	1,756	-	-	5,878	6,667	26,605
Utilised during the year	(10,443)	(127)	-	-	(871)	(3,479)	(14,920)
Result of change in assumptions	-	369	(245)	(4,382)	-	-	(4,258)
Discount effect	-	-	(19)	-	-	-	(19)
Reclassifications between categories	-	(126)	(40)	-	-	166	-
Balance as at 31 December 2021	12,207	5,521	14,375	10,687	22,268	6,561	71,619
Non-current	-	4,902	13,396	4,511	7,107	142	30,058
Current	12,207	619	979	6,176	15,161	6,419	41,561
Balance as at 31 December 2021	12,207	5,521	14,375	10,687	22,268	6,561	71,619

1 Part of the amounts do not agree with the annual financial statements as at 31 December 2020 due to change in accounting policy. More information disclosed in Note 5.

Provisions for employee benefits include a statutory retirement benefit payable to the Group’s employees (Note 2.20.3). The period of non-current provision is calculated according to each employee using actuarial assumptions that include the age of employee, mortality probability, index of staff turnover, discount rate (0.043% as at 31 December 2021, 0.21% as at 31 December 2020), long term salary increase rate (4.6% as at 31 December 2021, 3% as at 31 December 2020).

The provision for servitudes relates to the compensation of easements to third parties when the distribution operator (the Group company) installs electricity networks on land belonging to them. A one-time compensation for the use of statutory easements is paid to compensate for losses when a third party applies the request for compensation. The Group’s management estimated (Note 4.7.1) that the period during which third parties will apply for compensation is 10 years starting from 2022, as the application is temporarily suspended (the updated methodology is expected to be approved in the year 2022), plus 1 year for the payment of compensation from the date of submission.

The provision for registration of protection zones relates to the Group’s obligation to register special protection conditions (protection zones) for land near the Group’s infrastructure objects. According to the Group’s management plans the registration of protection zones should last till the end of 2024 (Note 4.7.3).

The provision for isolated power system operation and system services relates to regulatory activities that give rise to regulatory differences which are reimbursed during the next years (Note 4.14.1). Regulatory differences and the period of reimbursement is determined and confirmed by NERC. According to the NERC’s letter the period of reimbursement is 2022-2023 year.

The item of “Other provisions” mainly consists of provision related to deferred consideration (EUR 5,000 thousand) defined in Moray West Holdings Limited share purchase agreement (Note 13.1). The period of provision depends on when certain conditions defined in contract are met. According to the Group’s management estimation the conditions will be met in 2022 year.

==> picture [83 x 40] intentionally omitted <==

258 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

31 Trade payables

The Group’s trade payables were as follows:

	31 December 2021	31 December 2020
Amounts payable for electricity	79,394	34,216
Amounts payable for contractual works, services	8,309	5,274
Amounts payable for gas	6,958	2,113
Other trade payables	5,522	10,090
Carrying amount	100,183	51,693

32 Other current amounts payable and liabilities

33 Derivative financial instruments

The Group’s derivative financial instruments mainly comprises of: Contracts related to electricity and natural gas commodities (hedge accounting)

Contracts made directly with other parties – over-the-counter (OTC)
Contracts made through “Nasdaq Commodities” market – Nasdaq
Other contracts (non-hedge accounting)
Other contracts – derivative financial instruments

From 1 July 2021, the Group started application of the hedge accounting policy to OTC and Nasdaq contracts. Accordingly, effective portion of gain or loss of such contracts is recognized through OCI. Fair value change up to 30 June 2021 and ineffective portion of such contracts is recognized in Other income of SPLOCI.

The Group’s other current amounts payable and liabilities were as follows:

	31 December 2021	31 December 2020 (restated)1
Derivative financial instruments (Note 33)	71,431	2,202
Accrued expenses	48,046	37,937
Taxes (other than income tax)	30,600	15,271
Amounts payable for property, plant and equipment	23,263	26,583
Put option redemption liability (Note 4.5)	20,919	16,660
Payroll related liabilities	19,157	16,268
Irrevocable commitment to acquire a minority interest	3,751	19,025
Non-controlling interest dividends	3,358	3,212
Other amounts payable and liabilities	6,161	4,998
Carrying amount	226,686	142,156

1 Part of the amounts do not agree with the financial statements issued for the year ended 31 December 2020 due to reclassifications. See more information disclosed in Note 5.

Financial liabilities comprise EUR 128,883 thousand from total Other current amounts payable and liabilities (EUR 72,680 thousand as at 31 December 2020). Accrued expenses, taxes (other than income tax) and payroll related liabilities are not financial liabilities.

32.1 Put option redemption liability

At 31 December 2021, the Group accounted for EUR 20,919 thousand (31 December 2020: EUR 16,660 thousand) put option redemption liability measured as net present value of the single future cash outflow, which would be paid to Gren Lietuva UAB for Kauno kogeneracinė jėgainė UAB (hereinafter – KKJ) shares in a deadlock situation in case the put option is exercised. The fair value of put option redemption liability has increased by EUR 4,259 thousand during 2021 and presented as “Finance expenses” in SPLOCI. According to the shareholders agreement, the exercise price of the put option changed from amounts invested to market value since the lock-up period expired. Therefore, at 31 December 2021 this financial liability determined by the market value of Gren Lietuva UAB owned KKJ shares with 15% discount based on the shareholders agreement conditions. The valuation was performed using discounted cash flow method.

Fair value of Nasdaq contracts are being set-off with cash on day-to-day basis. Accordingly no financial assets or liabilities are being recognized in statement of financial position. Gain or loss of such transactions is recognized same as all derivative financial instruments.

33.1 Derivative financial instruments included in the statement of financial position

Movement of assets and liabilities related to the Group’s agreements on derivative financial instruments were as follows:

	Note	Movement during 2021
Derivative financial instruments
Other current assets	14.2	3,311
Other current amounts payable and liabilities	32	(2,202)
Carrying amount as at 31 December 2020		1,109
Change in the value
Fair value change of derivative financial instruments recognised in
Other income		1,056
Fair value change of OTC recognised in Other income		(16,667)
Fair value change of OTC recognised in OCI		(43,467)
Total change during 2021		(59,078)
Derivative financial instruments
Carrying amount as at 31 December 2021		(57,969)
Other non-current assets2	14.1	3,624
Other current assets	14.2	9,859
Other non-current amounts payable and liabilities		(21)
Othercurrent amounts payable andliabilities	32	(71,431)

Liability from derivative financial instruments has increased significantly comparing to prior period mainly due to increased gas prices in the market, moreover more hedging transactions were executed.

==> picture [83 x 40] intentionally omitted <==

259 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

33.2 Derivative financial instruments included in SPLOCI

Derivative financial instruments included in SPLOCI:

	Note	2021	2020
Fair value change of derivative financial instruments	33.1	1,056	-
Fair value change of OTC	33.1	(16,667)	(2,322)
Fair value change of Nasdaq		10,665	19,875
Hedge ineffectiveness recognised - OTC		2,035	(3,140)
Hedge ineffectiveness recognised - Nasdaq		18,347	(28,519)
Total recognised in Other income/ (Other expenses)	35,37	15,436	(14,106)
Effective hedges reclassified from Hedging reserve to SPLOCI	24	45,215	-
In total		60,651	(14,106)

34 Revenue from contracts with customers

34.1 Disaggregated revenue information

The Group’s revenue from contracts with customers were as follows:

	2021	2020
Electricity related revenue
Revenue from electricity transmission and distribution	442,814	412,371
Revenue from the sale of electricity	403,339	177,324
Revenue from sale of produced electricity	278,175	121,188
Revenue from public electricity supply	214,087	165,134
Revenue from services ensuring the isolated operation of power
system and capacity reserve	50,129	55,554
Revenue from PSO	4,158	10,189
Gas related revenue
Revenue from gas sales	341,328	179,492
Revenue from gas distribution	45,460	36,344
Revenue of LNGT security component	35,956	27,636
Other revenue
Revenue from sale of heat energy	14,063	3,997
Revenue from new customers’ connection fees	8,177	7,429
Other revenue from contracts with customers	31,231	18,697
In total	1,868,917	1,215,355

The Group’s revenue based on the timing of transfer of goods or services:

	31 December 2021	31 December 2020
Performance obligation settled over time	1,854,368	1,205,701
Performance obligation settled at a specific point in time	14,549	9,654
In total	1,868,917	1,215,355

34.2 Contract balances

Balances arising from contracts with customers as at the end of the year are as follows:

	Notes	31 December 2021	31 December 2020 (restated)2
Trade receivables1	17	274,847	128,416
Contract assets		66,694	10,301
Accrued revenue from electricity related sales	18	65,278	9,901
Accrued revenue from gas sales	18	1,416	400
Contract liabilities		256,624	213,609
Advances received	29.2	54,970	37,025
Deferred income	29.1	201,654	176,584

1 Trade receivables related to lease contracts are excluded.

2 Part of the amounts do not agree with the financial statements issued for the year ended 31 December 2020 due to reclassifications. See more information disclosed in Note 5.

34.3 Contract assets

There has been no change in the estimation techniques or significant assumptions made during the current reporting period in assessing the loss allowance for the amounts due from customers under the contracts. Recognised expected credit losses (if any) are disclosed in the Notes 17-18.

==> picture [83 x 40] intentionally omitted <==

260 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

34.3.1 Contract liabilities

	Notes	31 December 2021	31 December 2020
Current	29	73,016	49,196
Non-current	29	183,608	164,413
In total		256,624	213,609

34.4 Rights to returned goods assets and refund liabilities

The Group does not have any significant contracts with the customers’ right to return goods.

34.5 Performance obligations

The remaining performance obligations expected to be recognised after the end of the financial year relate to new customers’ connection fees:

	31 December 2021	31 December 2020 (restated)1
More than one year	183,608	164,413
Within one year	18,046	12,171
Total liability under connection contracts	201,654	176,584

1 Part of the amounts do not agree with the financial statements issued for the year ended 31 December 2020 due to reclassifications. See more information disclosed in Note 5.

35 Other income

The Group’s other income during the year were as follows

	2021	2020
OTC and Nasdaq contracts (Note 33.2)	15,436	-
Rent income	1,710	2,297
Interest on late payments equivalent to interest	1,495	570
Gain/(loss) on disposal of non-current assets	389	3,725
Other	2,452	1,143
In total	21,482	7,735

36 Purchases of electricity, gas and other services

The Group’s purchases of electricity, gas and other services were as follows:

	2021	2020 (restated)2
Purchases of electricity and related services for trade	888,449	453,223
Purchases of gas and related services for trade	333,326	194,747
Purchases of gas and related services for generation	82,062	34,609
Purchases of electricity and related services for generation	64,098	19,865
Purchases of sub-contractual services	12,020	3,285
In total	1,379,955	705,729

2 Part of the amounts do not agree with the financial statements issued for the year ended 31 December 2020 due to accounting policy change. See more information disclosed in Note 5.

37 Other expenses

The Group’s other expenses were as follows:

	2021	2020
Customer service	9,427	5,970
Telecommunications and IT services	8,402	7,228
Taxes	6,652	5,234
Utilities	3,640	2,862
Consultation services	3,102	3,273
Transport	2,889	3,200
Expenses of low-value inventory items	1,750	1,895
Personnel development	1,094	677
Write-offs of non-current and current amounts receivable (bad debts)	1,035	3,005
OTC and Nasdaq contracts (Note 33.2)	-	14,106
Other	8,001	8,742
In total	45,992	56,192

38 Finance income

The Group’s finance income was as follows:

	2021	2020
Fair value change of Innovation Fund Smart Energy Fund powered
by Ignitis Group KŪB (Note 4.6)	15,868	-
Interest income at the effective interest rate	808	1,152
Other income from financing activities	891	1,262
In total	17,567	2,414

38.1 The Group’s interest income

In 2021, the Group received in cash the amount of EUR 577 thousand (in 2020: EUR 547 thousand) interest income, which is presented in the cash flow statement under ‘Interest received’.

==> picture [83 x 40] intentionally omitted <==

261 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

39 Finance expenses

The Group’s finance expenses were as follows:

	2021	2020
Interest expenses	23,107	19,269
Fair value change of KKJ put option redemption liability (Note 32.1)	4,259	-
Fair value change of consideration from EPSO-G (Note 18.1)	2,085	-
Interest and discount expense on lease liabilities	531	959
Negative effect of changes in exchange rates	387	1,806
Other expenses of financing activities	3,295	625
In total	33,664	22,659

39.1 The Group’s interest expense

The Group incurs interest expense on long-term and short-term loans payable and bonds issued (Note 25). In 2021, the Group paid interest in cash in the amount of EUR 25,998 thousand (in 2020: EUR 15,844 thousand), which are presented in the cash flow statement under ‘Interest paid’.

40 Income taxes

40.1 Amounts recognised in profit or loss

The Group’s income taxes recognised in profit or loss were as follows:

	2021	2020 (restated)1
Income tax expenses (benefit) for the year	19,396	10,151
Deferred tax expenses (benefit)	(4,843)	14,016
In total	14,553	24,167

1 Part of the amounts do not agree with the financial statements issued for the year ended 31 December 2020 due to reclassifications. See more information disclosed in Note 5.

40.2 Amounts recognised in other comprehensive income

The Group’s income taxes recognised in other comprehensive income were as follows:

			2021			2020
	Before	Tax	Net of tax	Before	Tax	Net of
	tax	(expense)		tax	(expense)	tax
		benefit			benefit
Items that will not be reclassified to profit or
loss in subsequent periods
Revaluation of property, plant and equipment	(27,799)	4,170	(23,629)	106	(16)	90
Change in actuarial assumptions	(370)	67	(303)	208	-	208
Items that may be reclassified to profit or loss
in subsequent periods
Cash flow hedges – effective portion of change in
fair value	67,144	(10,072)	57,072	-	-	-
Cash flow hedges – reclassified to profit or loss	(45,215)	6,782	(38,433)	-	-	-
Exchange differences on translation of foreign
operations into the Group’s presentation currency	(517)	-	(517)	(2,240)	-	(2,240)
In total	(6,757)	947	(5,810)	(1,926)	(16)	(1,942)

Income taxes during 2021 recognised in other comprehensive income comprises from EUR 3,951 thousand income tax expenses (Note 40.3) and EUR 4,898 thousand deferred tax income (Note 41).

40.3 Reconciliation of effective tax rate

Income tax on the Group’s profit before tax differs from the theoretical amount that would arise using the tax rate applicable to profit of the Group:

	2021	2021	2020	2020
			(restated)2	(restated)2
Profit (loss) before tax		168,458		194,755
Income tax expenses (benefit) at tax rate of 15%	15.00%	25,269	15.00%	29,213
Expenses not deductible for tax purposes	5.58%	9,393	5.02%	9,780
Income not subject to tax	(2.32)%	(3,908)	(3.32)%	(6,463)
Income tax relief for the investment project	(6.43)%	(10,824)	(1.64)%	(3,201)
Adjustments in respect of prior years	0.08%	127	(0.04)%	(82)
Tax losses utilised	(0.32)%	(545)	(2.37)%	(4,617)
Realisation of unrecognised tax losses	-	-	(0.55)%	(1,073)
Unrecognised deferred tax on tax losses	0.09%	155	0.11%	206
Income tax recognised in other comprehensive income	(2.35)%	(3,951)	-	-
Other	(0.69)%	(1,163)	0.21%	404
Income tax expenses (benefit)	8.64%	14,553	12.41%	24,167

2 Part of the amounts do not agree with the financial statements issued for the year ended 31 December 2020 due to reclassifications. See more information disclosed in Note 5.

Income tax recognised in other comprehensive income related to derivative financial instruments held by the Group. They are treated as deductible expenses (or taxable income) for tax purposes. Income tax relief for the investment project included the income tax relief for the investment projects in 2021 and also income tax relief from previous periods for which deferred tax assets was not recognised.

==> picture [83 x 40] intentionally omitted <==

262 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes All amounts are in EUR thousand unless otherwise stated

Contents »

41 Deferred tax

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred taxes relate to the same fiscal authority. Movement of deferred tax assets and liabilities during the reporting period were as follows:

	As at 31 December 20191,2	Recognised in profit or loss	Recognised in other comprehensive income	Impact from utilised tax losses	Reclassifications to liabilities attributable to assets held-for-sale	As at 31 December 20201	Recognised in profit or loss	Recognised in other comprehensive income	Impact from utilised tax losses	Deferred taxes recognised in business combinations	As at 31 December 2021
Deferred tax assets
Difference on recognition of income from
new customer connection services	14,970	(1,479)	-	-	-	13,491	(720)	-	-	-	12,771
Revaluation of property, plant and
equipment (PPE)	4,185	6,258	(16)	-	(962)	9,465	5,636	4,170	-	-	19,271
Tax relief on acquisition of PPE	11,965	(5,255)	-	-	-	6,710	1,972	-	-	-	8,682
Accrued expenses	1,949	567	-	-	-	2,516	858	-	-	-	3,374
Impairment of PPE	4,408	(121)	-	-	(28)	4,259	(3,366)	-	-	-	893
Tax losses carry forward	1,078	1,113	-	383	-	2,574	119	-	(1,030)	-	1,663
Impairment of trade receivables	1,321	13	-	-	-	1,334	61	-	-	-	1,395
Other	7,208	(4,228)	-	(631)	-	2,349	3,182	66	-	-	5,597
Deferred tax asset	47,084	(3,132)	(16)	(248)	(990)	42,698	7,742	4,236	(1,030)	-	53,646
Deferred tax liabilities			-	-	-					-
Differences in depreciation rates	65,489	8,623	-	-	-	74,112	88	-	-	-	74,200
Difference of financial and tax value of
assets identified on business
combination	(404)	1,410	-	-	-	1,006	116	-	-	1,906	3,028
Write-off grants	2,631	(85)	-	-	-	2,546	610	-	-	-	3,156
Derivative financial instruments	2,132	768	-	-	-	2,900	(1,208)	(662)	-	-	1,030
Other	358	168	-	912	-	1,438	3,293	-	(868)	9	3,872
Deferred tax liability	70,206	10,884	-	912	-	82,002	2,899	(662)	(868)	1,915	85,286
Deferred tax, net	(23,122)	(14,016)	(16)	(1,160)	(990)	(39,304)	4,843	4,898	(162)	(1,915)	(31,640)

1 Part of the amounts do not agree with the annual financial statements as at 31 December 2019 and as at 31 December 2020 due to change in accounting policy. More information disclosed in Note 5.

2 Reclassification between line items was performed in order to give more reliable information for the users of the financial statements.

The Group’s statement of financial position as at 31 December 2021 presents separately deferred tax assets (EUR 15,547 thousand) and deferred tax liabilities (EUR 47,187 thousand) related to different subsidiaries. The net balance of deferred tax is liability of EUR 31,640 thousand. Deferred tax assets and liabilities arising from the same entity are presented on net basis in the statement of financial position.

As at 31 December 2021, the Group did not recognise deferred tax assets on accumulated tax loss of EUR 14,026 thousand (31 December 20: EUR 19,540 thousand) as it is not clear whether future taxable profits will be available against which they can be used. These accumulated tax losses can be carried forward for an indefinite period of time.

==> picture [83 x 40] intentionally omitted <==

263 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

42 Earnings per share

The Group’s earnings per share and diluted earnings per share were as follows:

	2021	2020
Net profit (loss)	153,904	170,588
Attributable to:
Equity holders of the parent	153,904	170,807
Non-controlling interests	-	(219)
Weighted average number of nominal shares	74,232,665	59,037,855
Basic earnings/(loss) per share attributable to shareholders of the Parent Company	2.07	2.89
Diluted earnings/(loss) per share attributable to shareholders of the Parent Company	2.07	2.89

Basic and diluted earnings per share indicators have been calculated based on 74,232,665, a weighted average number of ordinary shares for 2021 as Ignitis grupė AB reacquired its own ordinary shares (treasury shares) as at 16 December 2021 (Note 21.2). Treasury shares are not regarded as outstanding, thus were excluded from the outstanding shares count at the period for which they are held by Ignitis grupė AB.

Basic and diluted earnings per share indicators have been calculated based on 59,037,855, a weighted average number of ordinary shares for 2020 as Ignitis grupė AB authorised capital has been increased by twenty million ordinary nominal shares on 5 October 2020 in relation with the IPO.

43 Dividends

Dividends declared by the Company during the year:

	2021	2020
Ignitis grupė AB	86,763	70,000

During 2020, the Group applied an accounting policy of derecognising the non-controlling interest (subsidiaries Energijos skirstymo operatorius AB and Ignitis gamyba AB). Only in the III qtr. of 2021 the Group have acquired all 100% of Ignitis gamyba AB shares and only in the II qtr. of 2021 the Group have acquired all 100% Energijos skirstymo operatorius AB shares, thus dividends were declared for non-controlling interest.

During the year 2021 dividends declared for the former non-controlling interest were EUR 1,152 thousand (during 2020 – Eur 2,793 thousand) until the acquisition of shares from non-controlling interest (see Note 10.1).

EUR 43.010 million dividends for the second half of 2020 was approved at the Annual General Meeting on 25 March 2021. EUR 43.753 million dividends for the first half of 2021 was approved at the Annual General Meeting on 27 September 2021.

Dividends declared per share:

	Period for which	Dividends	Amount of
Declared on	dividends are	per share,	dividends
	allocated	in EUR	declared
March 2021	2020 II half-year	0.579	43 010
September 2021	2021 I half-year	0.589	43 753
Total declared during 2021 year			86,763
May 2020	2019 year	6.699	28,000
September 2020	2020 I half-year	10.048	42,000
Total declared during 2020 year			70,000

==> picture [83 x 40] intentionally omitted <==

264 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes All amounts are in EUR thousand unless otherwise stated

Contents »

44 Contingent liabilities and commitments

44.1 Litigations

Below there are described most significant litigations as at 31 December 2021:

44.1.1 Litigation with Šiaulių energija AB

Šiaulių energija AB filed a claim against the Group’s subsidiary Energijos skirstymo operatorius AB (hereinafter “ESO”) for indemnification of losses incurred due to a failure in LITGRID AB networks on 25 March 2019, which caused a short circuit and overvoltage in ESO networks and the electrical equipment of the Šiaulių energija AB power plant connected to them. This claim seeks joint and several damages from ESO and LITGRID AB in the amount of EUR 1,272 thousand.

Due to this incident, an investigation was carried out by the NERC, during which ESO's liability for failure of the plaintiff's electrical equipment was not established. The Group’s management does not agree with the claim, as ESO did not violate the contract or other legal acts and is of the opinion that Šiaulių energija AB is responsible for the losses incurred during the accident.

On 6 April 2021 the Vilnius Regional Court has ruled to dismiss the claim of AB Šiaulių energija against ESO. On 11 May 2021 Šiaulių energija AB and LITGRID AB filed appeals against the decision. On 30 May 2021, ESO filed its replies to the appeals. A hearing of the Lithuanian Court of Appeal is scheduled on 22 February 2022.

The Group believes that it will defend its interests in these proceedings successfully and has not made provisions for these proceedings.

44.1.2 Litigation with Vilniaus energija UAB

The plaintiff Vilniaus energija UAB has filed a claim with Vilnius Regional Court regarding the award of EUR 9,284 thousand from ESO. The plaintiff claims to have incurred EUR 9,284 thousand losses due to the fact that ESO during the year 2014 purchased only the electricity produced by the Plaintiff’s cogeneration plants in the technical minimum regime. On 17 March 2017, the Plaintiff updated the subject-matter of the claim and requested the court to award damages in the amount of EUR 10,712 thousand.

By judgment of 28 January 2020, the Vilnius Regional Court partially upheld the claim of Vilniaus energija UAB and

1) acknowledged that Vilniaus energija UAB was discriminated against in relation to other cogeneration plants;
2) awarded Vilniaus energija UAB from ESO EUR 1,725 thousand in damages incurred in year 2014 and EUR 535 thousand in damages incurred in year 2015 (in total EUR 2,260 thousand);
3) order the payment of procedural interest at the rate of 6% per annum on the amount of damages ordered from the date on which the case was brought before the court on 24 May 2014 until the date on which the judgment is fully complied with.

The part of the claim, in which Vilniaus energija UAB sought a declaration that the balancing energy supplier the Group’s subsidiary Ignitis gamyba AB had discriminated against it and an order ESO to pay EUR 4,615 thousand for the damage suffered in year 2014 and EUR 3,837 thousand for the damage suffered in year 2015 was dismissed.

27 February 2020 ESO filed an appeal against the part of the decision of Vilnius Regional Court of 28 January 2020, which satisfied the claim of Vilniaus energija UAB: ESO did not agree with the conclusion of the Vilnius Regional Court that it discriminated against Vilniaus energija UAB in purchasing eligible electricity. In the absence of a violation of competition law in ESO's actions, ESO is not obliged to compensate Vilniaus energija UAB for the losses it allegedly incurred.

By a ruling of 11 June 2020, the Lithuanian Court of Appeal reversed the decision of the Vilnius Regional Court of 28 January 2020 and completely rejected the claim of Vilniaus energija UAB.

By its ruling of 22 September 2020, the Supreme Court of Lithuania accepted the cassation appeal of Vilniaus energija UAB. ESO's response to the cassation appeal of Vilniaus energija UAB was filed on 21 October 2020.

By its ruling of 25 May 2021, the Supreme Court of Lithuania annulled the part of the ruling of the Lithuanian Court of Appeal of 11 June 2020, which rejected the claim of Vilniaus energija UAB to declare that Vilniaus energija UAB had been discriminated against in relation to other cogeneration plants, and remitted the part of the case concerning the damages of EUR 1 724,6 thousand incurred in 2014 and EUR 535 incurred in 2015, back to the Lithuanian Court of Appeal for a new hearing. The other part of the claim brought by Vilnius energija UAB against ESO was finally rejected.

On 28 September 2021 the Lithuanian Court of Appeal appointed an expert examination, and the case was suspended.

The Group’s management expects the claims of Vilniaus energija UAB will be rejected as unfounded.

44.1.3 Litigation concerning the designated supplier state aid scheme and LNG price component

Following the General Court on the European Union (the General Court) on 8 September 2021 judgement in case T-193/19, AB Achema initiated the reopening of the previously suspended proceedings in the administrative courts of the Republic of Lithuania in respect of the complaints it has lodged against the National Energy Regulatory Council (the Council) regarding the Council’s decisions of the setting of the LNG price supplement. The Group’s subsidiary Ignitis UAB in these cases is intervened as a third party.

The General Court on 8 September 2021 in case T-193/19 decided to partially annul on procedural grounds the European Commission decision in case SA.44678 (2018/N) (hereinafter

“Decision”). The General Court considered that the European Commission should have had doubts on the amendments regarding the designated supplier state aid scheme which have been valid for a period from 2016 to 2018 and annulled Decision on that part, however maintained the validity of the remainder of the Decision i.e. the designated supplier state aid scheme valid from 2019.

Till this day, neither AB Achema, nor the European Commission has not lodged an appeal to the Court of Justice of the European Union. The Group is aware of the fact, the European Commission informed the Ministry of Energy of Republic of Lithuania that the European Commission will implement the Court’s conclusion through the opening of a formal investigation procedure, limited to the points of doubt raised by the General Court. The investigation procedure should lead to the adoption of a final and complete decision of the European Commission which is expected to be adopted in 2022.

The Group considers that there is too much uncertainty in assessing the actual financial impact for the Group at this stage.

==> picture [83 x 40] intentionally omitted <==

265 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

44.1.4 Litigation with Rafako S.A.

On 10 July 2020 Rafako S.A. filed a claim in Arbitration Institute of the Stockholm Chamber of Commerce (hereinafter “Arbitration Court”) concerning the construction contract. On 22 January 2021, Rafako S.A. filed full Statement of Claim and mandates its requests after assessing the termination of the contract on 6 October 2020.

In accordance with the schedule approved by the Arbitral Court in 2021 the parties have submitted to the Arbitral Court their procedural documents. The hearings of the Arbitration Court shall be held, and other proceedings of the parties shall be conducted in accordance with the schedule approved by the Arbitral Court.

The Group considers the claimant's claim to be unfounded. According to the Group management, this dispute will not have significant financial consequences for the implementation of the project.

44.1.5 Litigations with subcontractors regarding the Vilniaus kogeneracinė jėgainė UAB construction works

On 31 December 2021 the Group’s company Vilniaus kogeneracinė jėgainė UAB, as a defendant or a third party, has been involved in litigations with subcontractors regarding potential liabilities, although it has paid the main contractor in full for the contract and its work.

The outcome of litigation should not create additional obligations for the Group in relation to subcontractors (Note 50).

44.1.6 Litigation with Kauno termofikacijos elektrinė UAB

On 17 December 2018, the Group’s company Ignitis UAB appealed to the Vilnius Court of Commercial Arbitration for compensation of EUR 1,677 thousand for losses incurred due to Kauno termofikacijos elektrinė UAB failure to acquire the entire required amount of liquefied natural gas assigned for 2015, and for the award of EUR 123 thousand of interest on late payment. Kauno termofikacijos elektrinė UAB filed a counterclaim in the case, requesting the annulment of one of the terms of the LNG Sales and Purchase Agreement and the Additional Agreement. The proceedings are suspended until the courts of general jurisdiction have ruled on the non-arbitrable part of the parties' dispute.

According to the Group management, the outcome of litigation should not create additional obligations for the Group

44.1.7 Investigation by European Commission

Based on a press release of the European Commission, the Group informs that on 3 June 2019, the European Commission has opened an in-depth investigation to assess whether EU State aid rules were respected when allocating public interest service monies to the Group in the context of a strategic reserve measure.

44.1.8 On received court claim of the prosecutor of the Vilnius Regional Prosecutor's Office and adopted interim measures

On 4 May 2021 the Group received information that the prosecutor of the Vilnius Regional Prosecutor's Office applied to Vilnius District Court with a claim related to the decisions of the Group General Meeting of Shareholders and Management Board in respect of employee and executive incentive with share options plans implemented by the Group and invalidation of option agreements as well as request for application of interim measures.

Interim measures were applied by the Court order on 3 May 2021.

On 19 May 2021 the Group submitted a response to the Vilnius City District Court regarding the claim, in which disagreed with the claim.

On 9 June 2021 Vilnius District Court confirmed part of the claim refusal provided by the Vilnius District Prosecutor’s Office in relation to invalidation of the Group nine key executives option agreements.

Next court hearing is set for 19 April 2022.

The outcome of litigation should not create additional obligations for the Group.

44.2 Regulatory assets and liabilities

44.2.1 Natural gas distribution to household customers

Natural gas supply to household customers activity is regulated by NERC. The NERC regulates natural gas tariff paid by customers. Regulatory differences defined as the difference between the fixed natural gas sale price and the actual natural gas purchase price are not recognized in the financial statements as Company has no guarantee for this difference will be returned in future according to the legislation base and returning depends on the future performance of the activity. The uncollected amount of EUR 64 million as of 31 December, 2021 will be included in the future tariffs (overcollected amount of EUR 7 million as of 31 December 2020).

44.2.2 Designated supply of natural gas

Designated supply activity is also regulated by NERC. When the actual costs differ from those estimated Company recognize them as regulatory differences but does not account a regulated asset or liability in the financial statements as the difference will be refunded by providing the services in the future. The overcollected amount of EUR 53 million as of 31 December, 2021 will be included in the LNGT security component in the future (uncollected amount of EUR 9 million as of 31 December 2020).

The Group’s management is not aware of any circumstances that could result in potential significant liabilities for the Group in this respect, so therefore no provisions are recognized.

==> picture [83 x 40] intentionally omitted <==

266 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

44.2.3 Electricity distribution

By the resolution No. O3E-1309 taken on 15 October 2021 NERC established the price caps for the electricity distribution service for the year 2022 on the basis of certificate No.O5E-1226 issued on 15 October 2020.

When setting the limits of electricity distribution prices for 2022, the return on investment for 2018 - 2020 year was assessed and the amount of return on investment was exceeding the set allowable amount for EUR 167,500 thousand, of which:

EUR 116,058 thousand the difference between the level of depreciation and return on investment of the optimized and non-optimized key network elements of the limited adjustments to the long-run average incremental cost (hereinafter LRAIC) model and the actual level of depreciation and return on investment;
EUR 51,442 thousand the difference between the forecasts for operating expenses, technological losses and other costs compared to the costs actually incurred.

The evaluation of the return on investment for 2021 will be performed in 2022, when setting the price limits for electricity distribution in 2023.

44.2.4 Natural gas distribution

By the resolution No.O3E-1390 taken on 29 October 2021 NERC set the upper limit of the natural gas distribution price for the 2022 on the basis of certificate No.O5E-1280 issued on 26 October 2021 and stated that the 2022 year level of income from natural gas distribution activities is reduced by EUR 9,961 thousand, of which:

EUR 7,622 thousand the size of the deviation of the return on investment formed in 2014-2018 year;
EUR 2,339 thousand the size of the deviation of the return on investment formed in 2019-2020 year.

The level of natural gas distribution income in 2022 is additionally reduced by the amount of accrued interest (taking into account the effect of the price of money over time) for EUR 447 thousand.

The remaining EUR 6,641 thousand was calculated in 2014-2020 and compensated in 2022 return on investment exceeding the set allowable amount:

45 Related-party transactions

The Group transactions with related parties and year-end balances arising on these transactions are presented below:

Related parties	Accounts Receivable 31 December 2021	Accounts Payable 31 December 2021	Sales 2021	Purchases 2021	Finance income (expenses) 2021
EPSO-G UAB	84,131	78	28	-	335
LitGrid AB	19,520	38,727	87,314	194,363	-
Amber Grid AB	8,146	5,009	43,166	47,448	-
Baltpool UAB	788	33,587	15,523	104,593	-
GET Baltic	7,304	-	30,677	69,374	-
Associates and other related
parties of the Group	701	2,760	671	4,241	2
Total	120,590	80,161	177,379	420,019	337

Related parties	Accounts Receivable 31 December 2020	Accounts Payable 31 December 2020	Sales 2020	Purchases 2020	Finance income (expenses) 2020
EPSO-G UAB	150,842	-	28	-	747
LitGrid AB	9,407	18,900	84,638	165,659	-
Amber Grid AB	4,217	5,227	30,380	45,443	-
Baltpool UAB	10,334	11,353	122,297	85,517	-
TETAS UAB	51	1,276	440	8,143	-
GET Baltic	2,903	1	24,928	28,507	-
Associates and other related
parties of the Group	30	280	182	524	-
Total	177,784	37,037	262,893	333,793	747

The major sale and purchase transactions with related parties in 2021 and 2020 comprised transactions with the companies controlled by the Lithuanian Ministry of Energy: Litgrid AB and Baltpool UAB. The Group’s purchases from these entities mainly included purchases of electricity, capacity, transmission, PSO services and gas. Sales transactions included sales of electricity, capacity and PSO services

EUR 5,081 thousand (formed in 2014-2018);
EUR 1,560 thousand (formed in 2019-2020), will be assessed when determining the price of the natural gas distribution service for subsequent periods.

Transactions with other state-owned entities included regular business transactions and therefore they were not disclosed.

The evaluation of the return on investment for 2021 will be performed in 2023, when setting the gas distribution price limits in 2024.

==> picture [83 x 40] intentionally omitted <==

267 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

45.1 Terms of transactions with related parties

The payment terms set range from 15 to 90 days, except for the EPSO-G receivable (Notes 11, 18). Closing debt balances are not secured by pledges, they do not yield interest, and settlements occur in cash. There were no guarantees given or received in respect of the related party payables and receivable.

46 Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of directors that makes strategic decisions.

45.2 Compensation to key management personnel

	2021	2020
Wages and salaries and other short-term benefits to key management
personnel	957	780
Whereof:	-	-
Short-term employee benefits	792	780
Termination benefits	8	-
Share-based payment expenses	157	-
Number of key management personnel	11	12

In 2021 only members of Board, Supervisory board and Chief Executive Officer are assigned to the Company’s key management personnel. Consequently, disclosure for comparative period was adjusted.

For share-based payments related to key management personnel – see Note 23.

Management follows performance by operating segments that are consistent with the lines of business specified in the Group’s strategy:

Networks segment includes the activities carried out by Energijos skirstymo operatorius AB;
Green generation segment includes activities carried out by Ignitis gamyba AB (Kaunas Algirdas' Brazauskas Hydro Power Plant, Kruonis pumped storage power plant, Biofuel and Steam Boiler), Vilniaus kogeneracinė jėgainė UAB, Kauno kogeneracinė jėgainė UAB, Eurakras UAB, Tuuleenergia OU, Vėjo gūsis UAB, Vėjo vatas UAB, VVP Investment UAB, Ignitis renewables UAB, Pomerania Wind Farm sp. z o. o., Altiplano Elektrownie Wiatrowe B1 Sp. z o. o., Ignitis Renewables Polska Sp. z o. o., Ignitis RES DEV Sp. z o. o., Ignitis renewables projektai, UAB;
Flexible generation segment includes activities carried out by Ignitis gamyba AB (except Kaunas Algirdas' Brazauskas Hydro Power Plant, Kruonis pumped storage power plant, Biofuel and Steam Boiler).
Customers and solutions segment includes activities carried out by Ignitis UAB, Ignitis Eesti OÜ, Ignitis Latvija SIA, Ignitis Polska Sp. z o. o., Ignitis Suomi OY.

Other activities and eliminations include:

support service company (Ignitis grupės paslaugų centras UAB);
non-core activities companies (Energetikos paslaugų ir rangos organizacija UAB, Duomenų logistikos centras (until 7July 2020) UAB, NT Valdos UAB, Transporto valdymas UAB);
additional service entities (Elektroninių mokėjimų agentūra UAB, Gamybos optimizavimas UAB);
parent company Ignitis grupė AB;
consolidation corrections and eliminations of intercompany transactions.

The Group has a single geographical segment – the Republic of Lithuania. Electricity sales in Latvia, Estonia and Poland are not significant for the Group. The chief operating decision-maker monitors the results with reference to the financial reports that have been prepared using the same accounting policies as those used for the preparation of the financial statements, i.e. information on profit or loss, including the reported amounts of revenue and expenses. The primary performance measure is adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (adjusted EBITDA – a non-IFRS alternative performance measure). Another performance measure is adjusted Earnings Before Interest and Taxes (adjusted EBIT – a non-IFRS alternative performance measure). Both measures are calculated starting from the data presented in the financial statements as adjusted by management for selected items which are not defined by IFRS. Additionally to adjusted EBITDA and adjusted EBIT management also analyses Investments and Net debt of each individual segment.

==> picture [83 x 40] intentionally omitted <==

268 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes All amounts are in EUR thousand unless otherwise stated

Contents »

The Group management calculates EBITDA as follows:

Total revenue and other income - Purchases of electricity, gas and other services - Salaries and related expenses - Repair and maintenance expenses - Other expenses EBITDA

The Group management calculates adjusted EBITDA as follows:

EBITDA + Management adjustments Adjusted EBITDA

The Group management calculates EBIT as follows:

Total revenue and other income - Purchases of electricity, gas and other services - Salaries and related expenses - Repair and maintenance expenses - Other expenses - Depreciation and amortisation - Write-offs, revaluation and impairment losses of property, plant and equipment and intangible assets - Revaluation of emission allowances EBIT

The Group management calculates adjusted EBIT as follows:

EBIT + Management adjustments - Significant one-off revaluation and impairment losses of property, plant and equipment and intangible assets

Adjusted EBIT

The Group management calculates adjusted EBITDA margin as follows:

Adjusted EBITDA ÷ (Total revenue and other income + Management adjustments) Adjusted EBITDA margin

The Group management calculates Investments as follows:

Additions of property, plant and equipment + Additions of intangible assets + Assets acquired through the acquisition of subsidiaries + Additions of other financial assets + Additions of investment property Investments

46.1 Management’s adjustments, adjusted EBITDA and adjusted EBIT

Management’s adjustments include:

temporary regulatory differences;
result from generation before COD;
significant one-off gains or losses (revenue related to GDRs in 2020, revaluation and impairment losses of property, plant and equipment in 2021)

In 2021, to simplify the reporting the management have decided to cease the use of management’s adjustments for:

cash effect of new connection points and upgrades;
temporary fluctuations in fair value of derivatives;
result of disposal of non-current assets;
impairment and write-offs of current and non-current amounts receivables, loans, goods and others.

In management’s view, the reduction of adjustments will help simplify interpretation of the results for intended users of financial statements as well as align main KPI‘s closer to reporting according to IFRS. For more detailed information on reduction of management‘s adjustments see Annual report section ‘Results’ .

Adjusted EBITDA is EBITDA further adjusted by adding management’s adjustments. Management’s adjustments all may have both positive and negative impact on the reporting period results. Adjusted EBIT is EBIT further adjusted by adding management’s adjustments and eliminating the result of significant one-off revaluation and impairment losses of property, plant and equipment and intangible assets related to electricity and gas assets of Networks segment in 2021.

Management’s adjustments used in calculating adjusted EBITDA and adjusted EBIT:

Segment / Management’s adjustments	2021	2020 (restated)1
Networks
Temporary regulatory differences of Energijos skirstymo operatorius AB	(23,191)	(43,438)
Green generation
Temporary regulatory differences of Ignitis gamyba AB	346	566
Property, plant & equipment capitalised positive testing result	7,589	-
Flexible generation
Temporary regulatory differences of Ignitis gamyba AB	(1,724)	(409)
Customers and Solutions
Temporary regulatory differences of Ignitis UAB	14,162	(43,306)
Other segments and consolidation adjustment
Revenue related to GDRs	-	(1,782)
Total Management’s adjustments for Adjusted EBITDA	(2,818)	(88,369)
Networks
Revaluation and impairment losses of property, plant and equipment	24,843	-
Total Management’s adjustments for Adjusted EBIT	22,025	(88,369)

1Part of the amounts do not agree with the financial statements issued for the year ended 31 December 2020 due to accounting policy change and reclassifications as disclosed in Note 5 and Alternative performance measurement (hereinafter – APM) calculation changes as disclosed in Annual report section ‘Results’.

The Group management calculates Net debt as indicated in Note 26.

==> picture [83 x 40] intentionally omitted <==

269 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

Adjusted EBIT is presented, for each period, as adjusted EBITDA less depreciation and amortisation expenses, write-offs, revaluation and impairment losses of property, plant and equipment and intangible assets and impairment and write-offs of current and non-current amounts receivables, loans, goods and others except significant one-off items (if any).

In managements view, adjusted EBITDA and adjusted EBIT more accurately present results of operations and enable to better compare results between the periods as it indicate the amount that was actually earned by the Group in the reporting year by:

eliminating differences between the permitted return set by the NERC and the actual return for the period;
adjusting for effects not related to the main activities of the Group or related to other periods.
46.2 Networks segment

Adjusted EBITDA and adjusted EBIT results are reported after the adjustments made by the management that comprise the impact of temporary regulatory differences resulting from the NERC resolutions and by deducting the current year difference arising between the return on investments permitted by the NERC and estimated by management. For 2021 the adjustment amounted to EUR (23,191) thousand (EUR (43,438) thousand for 2020). This adjustment includes:

temporary regulatory differences for prior periods realised through the tariff during the reporting period – EUR 27,560 thousand for 2021 (EUR 60,876 thousand during 2020). These amounts are based on resolutions published by the NERC;
new amounts of temporary regulatory differences formed during the reporting period – EUR (50,751) thousand (EUR (104,314) thousand during 2020). The amounts for current year are based on management’s estimate arising from comparison between the return on investments permitted by the NERC and estimated by management using actual financial and operating data for the current period. These temporary regulatory differences also include additional amount calculated after update of regulatory Methodology for determining price caps for electricity transmission, distributionand public supply services by the NERC in October 2021.

Adjusted EBIT result for 2021 is reported after the adjustment that comprise significant one-off effect of revaluation and impairment losses of property, plant and equipment recognized in SPLOCI:

deducting from the cost of PPE amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, a company will recognize such sales proceeds and related cost in the SPLOCI. In order to better compare the main financial KPIs in the future (after implementation of IAS 16 amendments) the Management have decided to add an additional adjustment for 2021 figures.

46.4 Flexible generation segment

Adjusted EBITDA and adjusted EBIT results are reported after the adjustments made by the management by measuring the change in revenue (and, consequently, adjusted EBITDA and EBIT) from Elektrėnai Complex regulated services provided by Ignitis gamyba AB, if current revenue was recognised at the amount consistent with the allowable income amount, calculated using NERC methodologies, taking into account allowable return on investments and actual service costs incurred during the period. The adjustment is based on management’s estimation using actual costs for the current period and amounted to EUR (1,724) thousand for 2021 (EUR (409) thousand for 2020.

46.5 Customers and Solutions segment

Adjusted EBITDA and adjusted EBIT are reported after the adjustments made by the management eliminating deviations arising in the regulated activities of gas and electricity supply due to the variance between actual and projected prices for the acquisition prices and other components established in the calculation methodology used by the NERC. During 2021 the effect in electricity public supply activities according to management estimate amounted to EUR (3,446) thousand (EUR (43,811) thousand for 2020). During 2021 the effect in gas supply activities according to management estimate amounted to EUR 17,608 thousand (EUR 505 thousand for 2020).

46.6 Other activities and eliminations segment

Adjusted EBITDA and adjusted EBIT for 2020 are adjusted for the amount of revenue related to GDRs (EUR 1,782 thousand) which was collected from GDR holders during IPO process as this was a one-off transaction not related to continued operations of the Group.

revaluation effect of electricity related property, plant and equipment of EUR 15,906 thousand;
− impairment effect of gas related property, plant and equipment of EUR 9,077 thousand.
46.3 Green generation segment

Adjusted EBITDA and adjusted EBIT results are reported after the adjustments made by the management by measuring the change in revenue (and, consequently, adjusted EBITDA and adjusted EBIT) from Kruonis pumped storage power plant regulated services provided by Ignitis gamyba AB, if current revenue was recognised at the amount consistent with the allowable income amount, calculated using NERC methodologies, taking into account allowable return on investments and actual service costs incurred during the period. The adjustment is based on management’s estimation using actual costs for the current period and amounted to EUR 346 thousand for 2021 (EUR 566 thousand for 2020).

Adjusted EBITDA and adjusted EBIT results are reported after the adjustments made by the management that comprise the result from generation before COD (and possible formal completion procedures after COD) of Vilnius CHP’s WtE unit (EUR 3,616 thousand) and Pomerania WF (EUR 3,973 thousand). It reflects the result which was capitalised in the Statement of Financial Position according to applicable IAS 16 requirements for the reporting period of 2021. However, amendments to IAS 16 Property, Plant and Equipment to be implemented from 2022 will prohibit a company from

==> picture [83 x 40] intentionally omitted <==

270 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

The table below shows the Group information on segments for the year 2021:

	Networks	Green generation	Flexible generation	Customers and Solutions	Other activities and eliminations	Total Group
_IFRS1 _
Sales revenue from external customers	535,917	208,787	153,205	990,008	2,482	1,890,399
Inter-segment revenue (less dividend)	(3,246)	281	267	19,386	(16,688)	-
Total revenue and other income	532,671	209,068	153,472	1,009,394	(14,206)	1,890,399
Purchases of electricity, gas and other services	(255,680)	(82,266)	(86,005)	(955,012)	(992)	(1,379,955)
Salaries and related expenses	(53,085)	(8,313)	(7,722)	(10,678)	(17,421)	(97,219)
Repair and maintenance expenses	(22,102)	(3,661)	(5,966)	(5)	(10)	(31,744)
Other expenses	(33,197)	(15,306)	(14,815)	(17,293)	34,619	(45,992)
EBITDA	168,607	99,522	38,964	26,406	1,990	335,489
Depreciation and amortization	(83,177)	(21,047)	(11,357)	(1,746)	(5,141)	(122,468)
Write-offs, revaluation and impairment losses of property, plant and equipment and intangible
assets	(28,598)	(36)	(82)	-	249	(28,467)
Operating profit (loss) (EBIT)	56,832	78,439	27,525	24,660	(2,902)	184,554
_Adjusted2 _
EBITDA	168,607	99,522	38,964	26,406	1,990	335,489
Management adjustments	(23,191)	7,935	(1,724)	14,162	-	(2,818)
Adjusted EBITDA	145,416	107,457	37,240	40,568	1,990	332,671
Adjusted EBITDA margin	28.5%	49.5%	24.5%	4.0%	(23.9)%	*17.6%*
Depreciation and amortisation	(83,177)	(21,047)	(11,357)	(1,746)	(5,141)	(122,468)
Write-offs, revaluation and impairment losses of property, plant and equipment and intangible
assets	(28,598)	(36)	(82)	-	249	(28,467)
Management adjustments	24,843	-	-	-	-	24,843
Adjusted operating profit (loss) (adjusted EBIT)	58,484	86,374	25,801	38,822	(2,902)	206,579
Property, plant and equipment, intangible and right-of-use assets	1,654,637	773,091	307,380	6,475	39,571	2,781,154
Investments	191,218	32,251	219	2,940	8,267	234,895
Net debt	709,951	390,094	(37,520)	474,368	(579,652)	957,241

1 Amounts are presented according to Consolidated Statement of Profit or Loss and other Comprehensive Income of these financial statements

2 The indicators of Adjusted EBITDA and adjusted EBIT both of which are a non-IFRS alternative performance measures are presented in the manner calculated by the management. Management believes that adjusted indicators more accurately present results of operations and enable to better compare results between the periods

==> picture [83 x 40] intentionally omitted <==

271 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

The table below shows the Group information on segments for the year 2020[1] :

	Networks	Green generation	Flexible generation	Customers and Solutions	Other activities and eliminations	Total Group
_IFRS1 _
Sales revenue from external customers	481,300	89,552	109,171	533,245	9,822	1,223,090
Inter-segment revenue (less dividend)	906	321	1,706	15,287	(18,220)	-
Total revenue and other income	482,206	89,873	110,877	548,532	(8,398)	1,223,090
Purchases of electricity, gas and other services	(194,475)	(22,641)	(64,241)	(437,356)	12,984	(705,729)
Salaries and related expenses	(51,368)	(6,310)	(7,129)	(9,876)	(18,110)	(92,793)
Repair and maintenance expenses	(24,842)	(2,845)	(6,269)	(5)	(111)	(34,072)
Other expenses	(30,422)	(8,200)	(3,489)	(31,278)	17,197	(56,192)
EBITDA	181,099	49,877	29,749	70,017	3,562	334,304
Depreciation and amortization	(78,283)	(17,453)	(11,550)	(1,551)	(4,537)	(113,374)
Write-offs, revaluation and impairment losses of property, plant and equipment and intangible
assets	(4,699)	(19)	(157)	(49)	(1,006)	(5,930)
Operating profit (loss) (EBIT)	98,117	32,405	18,042	68,417	(1,981)	215,000
_Adjusted2 _
EBITDA	181,099	49,877	29,749	70,017	3,562	334,304
Management adjustments	(43,438)	566	(409)	(43,306)	(1,782)	(88,369)
Adjusted EBITDA	137,661	50,443	29,340	26,711	1,780	245,935
Adjusted EBITDA margin	31.4%	55.8%	26.6%	5.3%	(67.7)%	*21.7%*
Depreciation and amortisation	(78,283)	(17,453)	(11,550)	(1,551)	(4,537)	(113,374)
Write-offs, revaluation and impairment losses of property, plant and equipment and intangible
assets	(4,699)	(19)	(157)	(49)	(1,006)	(5,930)
Adjusted operating profit (loss) (adjusted EBIT)	54,679	32,971	17,633	25,111	(3,763)	126,631
Property, plant and equipment, intangible and right-of-use assets	1,616,944	748,811	326,318	6,633	19,564	2,718,270
Investments	141,107	197,045	1,521	3,151	3,969	346,793
Net debt	680,701	349,948	(37,732)	29,365	(421,944)	600,338

1 Certain amounts presented above do not correspond to the consolidated financial statements prepared for the period of 2020 due to change of accounting policy as disclosed in the Note 5 and APM calculation changes as disclosed in Annual report section ‘Results’.

2 Amounts are presented according to Consolidated Statement of Profit or Loss and other Comprehensive Income of these financial statements

3 The indicators of Adjusted EBITDA and adjusted EBIT both of which are a non-IFRS alternative performance measures are presented in the manner calculated by the management. Management believes that adjusted indicators more accurately present results of operations and enable to better compare results between the periods

==> picture [83 x 40] intentionally omitted <==

272 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes All amounts are in EUR thousand unless otherwise stated

Contents »

47 Fair values of financial instruments

47.1 Financial instruments, measured at fair value

The Group’s derivative financial instruments (Level 2 of the fair value hierarchy), amounts receivable for sale of LitGrid AB shares (Level 3 of the fair value hierarchy), investment into “Innovation Fund Smart Energy Fund powered by Ignitis Group KŪB” (Level 3 of the fair value hierarchy), the Group’s option right to acquire shares in subsidiary (Level 2 of the fair value hierarchy) are measured at fair value.

As at 31 December 2021 and 2020, the Group accounted for an amount receivable for the sale of LitGrid AB at fair value through profit or loss. Their fair value is attributed to Level 3 in the fair value hierarchy. Fair value was estimated on the basis of discounted cash flows using the rate of 0.298% (31 December 2020 – 0.298%).

As at 31 December 2021 and 2020, the Group accounted for the option to acquire all the shares of Kauno kogeneracinė jėgainė UAB held by Gren Lietuva UAB (49%), the calculation of which is defined in the shareholders' agreement. In the opinion of the Group's management, the exercise price of the put option that the Group will have to pay to Gren Lietuva UAB for the redeemable Gren Lietuva UAB owned Kauno kogeneracinė jėgainė UAB shares, if they choose to sell them, equals the fair value of these shares within materiality limits (materiality limits are set, as to best markets practice, +/-15% of market value). Fair value corresponds to level 2 in the fair value hierarchy.

As at 31 December 2021 and 2020, the Group has accounted for assets and liabilities arising from financial derivatives. The Group accounts for financial derivative assets and liabilities at fair value and their accounting policies are set out in Note 2.11.3. Market values that are based on quoted prices (Level 1) comprise quoted commodities derivatives that are traded in active markets. The market value of derivatives traded in an active market are often settled on a daily basis, thereby minimising the market value presented on the balance sheet. Market values based on observable inputs (Level 2) comprise derivatives where valuation models with observable inputs are used to measure fair value. All assets and liabilities measured at market value are measured on a recurring basis. The Group attributes to Level 2 of the fair value hierarchy derivative financial instruments linked with the Lithuanian/Latvian and Estonian/Finish electricity price areas. Derivatives acquired directly from other market participants (OTC contracts) and physical transmission rights acquired are estimated based on the prices of the NASDAQ Commodities exchange.

As at 31 December 2021 and 2020, the Group has accounted for investment into “Innovation Fund Smart Energy Fund powered by Ignitis Group KŪB”. The Group accounts for financial asset at fair value and their accounting policies are set out in Note 13. Fair value corresponds to level 3 in the fair value hierarchy. The fair value measurement of this financial asset is based on investment rounds (Note 13). Fair value of this financial asset will change depending on future investment rounds or other significant events.

47.2 Financial instruments for which fair value is disclosed

The Group’s fair value of loans granted is approximately equal to carrying amount. The measurement of financial assets related to the loans issued is attributed to Level 3 of the fair value hierarchy.

The Group’s bond issue debt (Note 25) fair value was calculated by discounting future cash flows related to the coupon payments with reference to the interest rate observable in the market and the regular future payments related to issued bonds. The cash flows were discounted using a weighted average discount rate of 2.90% as at 31 December 2021 (31 December 2020 – 2.186%). Discount rates for certain bond issues are determined as market interest rate increased by EUR interest rate swap for tenors that are similar to period left until redemption of issued bonds. The bond issue debt is attributed to Level 2 of the fair value hierarchy.

The Group’s fair value of financial liabilities related to the debt liabilities to commercial banks and state-owned investment banks is calculated by discounting future cash flows with reference to the interest rate observable in the market. The cash flows were discounted using a weighted average discount rate of 2.76% as at 31 December 2021 (31 December 2020 – 2.56%). The measurement of financial liabilities related to the debts is attributed to Level 2 of the fair value hierarchy.

47.3 Financial instruments’ fair value hierarchy levels

The table below presents allocation between the fair value hierarchy levels of the Group’s financial instruments as at 31 December 2021:

Level 1
Level 2
Level 3

Note
Carrying
amount
Quoted
prices in
active
markets
Other
directly or
indirectly
observable
inputs
Unobserva
ble inputs
In total

Financial instruments measured at fair value through profit (loss) or other comprehensive income
Assets
Receivable for the sale of LitGrid AB
18
84,128
-
-
84,128
84,128
Derivative financial instruments
33
13,483
-
13,483
-
13,483
Innovation Fund Smart Energy Fund
powered by Ignitis Group KŪB
13
25,094
-
-
25,094
25,094
Liabilities

Put option redemption liability
32
20,919
-
20,919
-
20,919
Derivative financial instruments
33
71,452
-
71,452
-
71,452
Financial instruments for which fair value is disclosed
Assets

Loans granted
11,18
3,742
-
-
3,742
3,742
Liabilities
Bonds issued
25
897,667
-
856,215
-
856,215
Debt liabilities to commercial banks
25
230,992
-
230,049
-
230,049
Debt liabilities to state-owned
investment banks
25
226,692
-
191,393
-
191,393

==> picture [83 x 40] intentionally omitted <==

273 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

The table below presents allocation between the fair value hierarchy levels of the Group’s financial instruments as at 31 December 2020:

Level 1
Level 2
Level 3

Note
Carrying
amount
Quoted
prices in
active
markets
Other
directly or
indirectly
observable
inputs
Unobserva
ble inputs
In total

Financial instruments measured at fair value through profit (loss)
Assets
Receivable for the sale of LitGrid AB
11,18
150,693
-
-
150,693
150,693
Derivative financial instruments
33
3,311
-
3,311
-
3,311
Innovation Fund Smart Energy Fund
powered by Ignitis Group KŪB
13
4,912
-
-
4,912
4,912
Liabilities

Put option redemption liability
32
16,660
-
16,660
-
16,660
Derivative financial instruments
33
2,202
-
2,202
-
2,202
Financial instruments for which fair value is disclosed
Assets
Loans granted
11,18
1,908
-
1,908
-
1,908
Liabilities
Bonds issued
25
896,088
-
894,158
-
894,158
Debt liabilities to commercial banks
25
136,262
-
130,808
-
130,808
Debt liabilities to state-owned
investment banks
25
229,254
-
196,045
-
196,045

48 Business combinations

One of the Group’s development directions is investments in renewable energy sources, therefore company engaged in the development of wind parks was acquired in 2021.

On 21 December 2021, the Group acquired a 100% shareholding in Altiplano Elektrownie Wiatrowe B1 Sp. z o. o. from the legal persons. As at 31 December 2021, ownership rights of shares were held by the Group. The total consideration paid for Altiplano Elektrownie Wiatrowe B1 Sp. z o. o. amounted to EUR 9,545 thousand. As at 31 December 2021, the investment was fully paid and paid in cash.

The Group applied the acquisition accounting method to account for these business combinations according to the provisions of IFRS 3. Under the latter method, the acquisition cost is measured as the sum of the fair values, at the date of exchange, of assets given, liabilities incurred and equity instruments issued in exchange for control of the business being acquired.

During business combinations, the Group established that the difference between the acquisition cost of the businesses and the fair value of the net assets acquired represents other intangible assets identified during business combination. As at 31 December 2021, the Group’s management carried out the preliminary assessment of the business combination. At the time of business combinations, the fair values of assets and liabilities were as follows:

	Note
Assets acquired
Property, plant and equipment	7	2,785
Right-of-use assets	8	3,216
Prepayments for non-current assets		653
Current receivables		1,068
Other intangible assets identified during business combination	6	10,030
Liabilities assumed
Non-current lease liabilities	26	(2,697)
Current lease liabilities	26	(71)
Deferred tax liabilities	41	(1,915)
Trade payables		(3,524)
Total identifiable net assets acquired		9,545
Net cash flows from acquisition of subsidiary
Cash paid to sellers of shares		(9,545)
Net cash flows		(9,545)

The Group incurred acquisition ‑ related costs for an amount of EUR 383 thousand on transfer tax, legal fees and due diligence costs. These costs have been included in SPLOCI Other expenses.

Other intangible assets identified during business combination comprise the right to produce electricity with an incentive rate. Multi-period excess earnings method was used measuring fair value of other intangible assets: It considers the present value of net cash flows expected to be generated by the production of electricity with an incentive rate, by excluding any cash flows related to contributory assets.

The amounts of revenue and profit or loss of the acquiree since the acquisition date included in the consolidated statement of profit or loss and OCI for the reporting period are not significant.

The revenue and profit or loss of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period do not significantly differ from the ones presented.

==> picture [83 x 40] intentionally omitted <==

274 / 364

Annual report 2021 / Consolidated financial statements / Explanatory notes

Contents »

All amounts are in EUR thousand unless otherwise stated

49 Remuneration to auditors

Following Group’s remuneration to the independent audit firms:

	2021	2020
Audit of the financial statements under the agreements (KPMG Baltics, UAB)	548	-
Audit of the financial statements under the agreements (Ernst & Young Baltic, UAB)	61	503
Assurance and other related services	-	2
Initial public offering related services	-	117
Bonds issue related services	-	87
Expenses of other services	93	-
In total	702	709

50 Events after the reporting period

50.1 Events related to litigation and claims

Litigations with subcontractors regarding the Vilniaus kogeneracinė jėgainė UAB construction works

In one of the claims, mentioned in note 44.1.5, between Vilniaus kogeneracinė jėgainė UAB its and subcontractors (Ulava UAB), on 1 February 2022 Vilnius Regional Court dismissed all subcontractor’s claims as unfounded.

50.2 Other events

Intent to establish a subsidiary in Latvia

On 25 January 2022 the Management Board of the Group approved the decision to establish a new subsidiary of Ignitis renewables UAB (hereinafter – Ignitis Renewables) in Latvia. On 13 August 2021 the Group announced about the acquisition of three wind farm projects in Latvia. Ignitis Renewables would own 100% of shares of the company established in Latvia

Termination of agreement to acquire portfolio of solar PV projects under development in Poland

On 21 February 2022 Group’s company Ignitis Renewables terminated the conditional SPA agreement to acquire up to 170 MW portfolio of solar PV projects under development in Poland (Note 13.2). Advance payments paid to the developer (around EUR 3,800 thousand) will be fully returned to Ignitis renewables. The Group and Ignitis renewables will suffer no loss in respect of this transaction.

There were no other significant events after the reporting period till the issue of these financial statements.

==> picture [83 x 40] intentionally omitted <==

275 / 364

Annual report 2021 / Financial statements

Contents »

6 .2 Parent company's financial statements

Prepared for the year ended 31 December 2021 in accordance with International Financial Reporting Standards as adopted by the European Union

Statement of financial position 277 Statement of profit or loss and other comprehensive income 278 Statement of changes in equity 279 Statement of cash flows 280 Explanatory notes 281

==> picture [354 x 114] intentionally omitted <==

The parent company’s financial statements were prepared and signed by AB “Ignitis grupė” management on 24 February 2022:

==> picture [143 x 55] intentionally omitted <==

==> picture [95 x 63] intentionally omitted <==

==> picture [615 x 50] intentionally omitted <==

276 / 364

Content »

Annual report 2021 / Parent company‘s financial statements

Statement of Financial Position

As at 31 December 2021

All amounts are in EUR thousand unless otherwise stated

	Notes	31 December 2021	31 December 2020
ASSETS
Non-current assets
Intangible assets		1,839	1,874
Property, plant and equipment		64	55
Right-of-use assets	5	17,602	520
Investment property		77	77
Investments in subsidiaries	6	1,255,858	1,239,045
Non-current receivables	7	1,088,397	890,114
Other financial assets	10	25,094	4,912
Other non-current assets	11	-	19,050
Deferred tax assets	27	513	643
Total non-current assets		2,389,444	2,156,290
Current assets
Prepayments and deferred expenses		80	51
Trade receivables		494	313
Other receivables	8	184,597	14,754
Other current assets	11	20,014	45,000
Current loans and interest receivable	9	136,452	73,956
Cash and cash equivalents	12	125,323	421,289
		466,960	555,363
Assets held for sale		-	-
Total current assets		466,960	555,363
TOTAL ASSETS		2,856,404	2,711,653
EQUITY AND LIABILITIES
Equity
Issued capital	14	1,658,756	1,658,756
Treasury shares	14	(23,000)	-
Reserves	15	88,059	82,330
Reserve for treasury shares	15	23,000	-
Retained earnings (deficit)		186,393	71,869
Total equity		1,933,208	1,812,955
Liabilities
Non-current liabilities
Non-current loans and bonds	17	888,524	886,945
Non-current lease liabilities	19	15,994	267
Other non-current amounts payable and liabilities		9	-
Total non-current liabilities		904,527	887,212
Current liabilities
Loans	17	9,143	9,143
Lease liabilities	19	1,755	253
Trade payables		976	461
Advances received		99	50
Other current amounts payable and liabilities	20	6,696	1,579
Total current liabilities		18,669	11,486
Total liabilities		923,196	898,698
TOTAL EQUITY AND LIABILITIES		2,856,404	2,711,653

==> picture [83 x 40] intentionally omitted <==

277 / 364

Content »

Annual report 2021 / Parent company‘s financial statements

Statement of Profit or Loss and other Comprehensive Income

For the year ended 31 December 2021

All amounts are in EUR thousand unless otherwise stated

	Notes	2021	2020
Revenue from contracts with customers	21	3,201	4,886
Other income		2,798	1,464
Dividend income	22	222,760	120,163
Total revenue and other income		228,759	126,513
Salaries and related expenses		(4,918)	(5,437)
Depreciation and amortisation		(716)	(274)
(Impairment) / reversal of impairment of investments in subsidiaries	6	-	(4,083)
(Impairment) / reversal of impairment of amounts receivable and loans		-	806
Other expenses	23	(4,271)	(4,309)
Total expenses		(9,905)	(13,297)
Operating profit (loss)		218,854	113,216
Finance income	24	38,561	20,007
Finance expenses	25	(26,166)	(19,077)
Finance activity, net		12,395	930
Profit (loss) before tax		231,249	114,146
Current year income tax (expenses)/benefit	26	(51)	-
Deferred tax (expenses)/benefit	27	360	441
Net profit for the year		231,558	114,587
Total other comprehensive income (loss) for the year		-	-
Total comprehensive income (loss) for the year		231,558	114,587
Attributable to:
Equity holders of the parent		231,558	114,587
Non-controlling interests		-	-
Basic earnings per share (in EUR)	14.3	3.12	1.94
Diluted earnings per share (in EUR)	14.3	3.12	1.94
Weighted average number of shares	14.3	74,232,665	59,037,855

==> picture [83 x 40] intentionally omitted <==

278 / 364

Content »

Annual report 2021 / Parent company’s financial statements

Statement of Changes in Equity

For the year ended 31 December 2021

All amounts are in EUR thousand unless otherwise stated

	Notes	Issued capital	Treasury shares	Share premium	Legal reserve	Treasury shares reserve	Retained earnings	Total
Balance as at 1 January 2020		1,212,156	-	-	80,720	-	36,525	1,329,401
Net profit for the year		-	-	-	-	-	114,587	114,587
Other comprehensive income		-	-	-	-	-	-	-
Total comprehensive income (loss) for the year		-	-	-	-	-	114,587	114,587
Issue of share capital	14	446,600	-	3,400	-	-	-	450,000
Transaction costs	14	-	-	(3,400)	-	-	(7,633)	(11,033)
Dividends	22	-	-	-	-	-	(70,000)	(70,000)
Transfers to legal reserve	15	-	-	-	1,610	-	(1,610)	-
Balance as at 31 December 2020		1,658,756	-	-	82,330	-	71,869	1,812,955
Balance as at 1 January 2021		1,658,756	-	-	82,330	-	71,869	1,812,955
Net profit for the year		-	-	-	-	-	231,558	231,558
Other comprehensive income		-	-	-	-	-	-	-
Total comprehensive income (loss) for the year		-	-	-	-	-	231,558	231,558
Transfer to reserves to acquire treasury shares	15	-	-	-	-	23,000	(23,000)	-
Treasury shares acquired	14	-	(23,000)	-	-	-	(3,674)	(26,674)
Transfers to legal reserve	15	-	-	-	5,729	-	(5,729)	-
Dividends	22	-	-	-	-	-	(86,763)	(86,763)
Share-based payments	16	-	-	-	-	-	162	162
Other movement	22	-	-	-	-	-	1,970	1,970
Balance as at 31 December 2021		1,658,756	(23,000)	-	88,059	23,000	186,393	1,933,208

==> picture [52 x 19] intentionally omitted <==

279 / 364

Content »

Annual report 2021 / Parent company‘s financial statements

Statement of Cash Flows

For the year ended 31 December 2021

All amounts are in EUR thousand unless otherwise stated

	Notes	2021	2020
Cash flows from operating activities
Net profit for the year		231,558	114,587
Adjustments to reconcile net profit to net cash flows:
Depreciation and amortisation expenses		716	274
Fair value changes of financial instruments		(13,784)	-
Impairment/(reversal of impairment) of financial assets		-	(806)
Impairment/(reversal of impairment) of investments in subsidiaries	6	-	4,083
Income tax expenses/(income)	26	(309)	(441)
Increase/(decrease) in provisions		-	-
Loss/(gain) on disposal/write-off of assets held for sale and property, plant and equipment		(2,793)	(1,445)
Share-based payments expenses	16	157	-
Other expenses of investing activities		23	-
Interest income	24	(22,692)	(20,007)
Interest expenses	25	20,923	18,336
Dividends	22	(222,760)	(120,163)
Other expenses of financing activities		3,157	741
Changes in working capital:
(Increase)/decrease in trade receivables and other receivables		59,009	5,182
(Increase)/decrease in prepayments and deferred expenses, other current and other non-current assets		44,007	(63,925)
Increase/(decrease) in trade payables, advances received, other current amounts payable and liabilities		447	(1,713)
Income tax (paid)/received		490	561
Net cash flows from (to) operating activities		98,149	(64,736)
Cash flows from investing activities
Acquisition of property, plant and equipment and intangible assets		(34)	-
Proceeds from sale of assets held for sale	13	-	6,167
Loans granted		(487,378)	(234,250)
Loan repayments received		92,060	245,279
Acquisition of a subsidiary	6	(19,031)	(47,588)
Interest received	24	20,770	18,556
Dividends received	22	122,320	120,163
Return of capital from subsidiaries	6	4,997	-
Other increases/(decreases) in cash flows from investing activities		3,504	-
Net cash flows from investing activities		(262,792)	108,327
Cash flows from financing activities
Issue of share capital	14	-	450,000
Transaction costs	14	-	(11,033)
Issue of bonds	18	-	295,657
Repayments of loans	18	-	(82,246)
Lease payments	18	(512)	(261)
Interest paid	18	(19,344)	(13,272)
Dividends paid	22	(86,763)	(70,000)
Dividends returned	22	1,970	-
Repurchase of treasury shares	14	(26,674)	-
Net cash flows from financing activities		(131,323)	568,845
Increase/(decrease) in cash and cash equivalents (including overdraft)		295,966	612,436
Cash and cash equivalents (including overdraft) at the beginning of the year	12	421,289	(191,147)
Cash and cash equivalents (including overdraft) at the end of the year	12	125,323	421,289

==> picture [52 x 19] intentionally omitted <==

280 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes All amounts are in EUR thousand unless otherwise stated

Explanatory Notes

For the year ended 31 December 2021

All amounts are in EUR thousand unless otherwise stated

1 General information

Ignitis grupė AB (hereinafter “the Company” or “parent company”) is a public limited liability company registered in the Republic of Lithuania. The Company’s sole shareholder as at 30 June 2020 has adopted a decision to change the Company’s legal status to a public limited liability company (AB) and on 28 July 2020 the new articles were registered. On 5 October 2020 the Company has increased its share capital and on 7 October 2020 the Company has executed initial public offering (hereinafter “IPO”) distributing the increased share capital between private and institutional investors. Acquisition of own shares was performed by Ignitis grupė AB during December 2021.

The Company is a parent company, which is responsible for the management and coordination of activities of the group companies (Note 6) engaged in electricity and heat generation (including electricity generation from renewable energy sources), supply, electricity import and export, distribution and trade, natural gas distribution and supply, as well as the maintenance and development of the electricity sector, management and coordination of activities.. The Company and its subsidiaries are hereinafter collectively referred to as “the Group”.

The Company analyses the activities of group companies, represents the whole group, implements its shareholders’ rights and obligations, defines operation guidelines and rules, and coordinates the activities in the fields of finance, law, strategy and development, human resources, risk management, audit, technology, communication, etc. The Company seeks to ensure effective operation of group companies, implementation of goals related to the Group’s activities set forth in the National Energy Independence Strategy and other legal acts, ensuring that it builds a sustainable value in a socially responsible manner.

The Company’s principal shareholder is the State of the Republic of Lithuania (73.08%):

	31 December 2021 31 December 2020	31 December 2021 31 December 2020
Shareholder of the Company	Share capital, in EUR ’000 % Share capital, in EUR ’000 %

Republic of Lithuania represented by the Ministry of Finance of the Republic of Lithuania 1,212,156 73.08 1,212,156 73.08 Other shareholders 418,838 25.25 446,600 26.92 Own shares 27,762 1.67 - -
1,658,756		1,658,756

2 Summary of significant accounting policies

The principal accounting policies adopted in the preparation of the Company’s financial statements for the year ended 31 December 2021 are summarized below:

2.1 Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (hereinafter – IFRS). Reporting period of these financial statements is one year ended 31 December 2021.

The Company’s financial statements as at and for the year ended 31 December 2021 have been prepared on a going concern basis applying measurement based on historical cost (hereinafter “acquisition costs”), except for certain financial instruments measured at fair value.

These financial statements are presented in euros, which is the Company’s functional currency and all values are rounded to the nearest thousand (EUR ’000), except when otherwise indicated.. These financial statements provide comparative information in respect of the previous period.

2.2 New standards, amendments and interpretations

2.2.1.1 Standards and their interpretations, announced and adopted by the European Union, effective for the current reporting period

Standards or amendments that came into force during 2021

COVID-19-Related Rent Concessions (Amendment to IFRS 16) Interest rate benchmark reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)

2.2.2 Standards issued but not yet effective and not early adopted

The Company did not adopt new IFRS, International Accounting Standards (hereinafter – IAS), their amendments and interpretations issued by International Accounting Standards Board (hereinafter – IASB), the effective date of which is later than 31 December 2021 and early adoption is permitted. The following are new standards and/or amendments to the standards that have been issued but not yet effective:

These financial statements were prepared and signed for issue by Group’s management on 24 February 2021.

The Company’s shareholders have a statutory right to either approve or refuse to approve these financial statements and require the management to prepare a new set of financial statements.

==> picture [52 x 18] intentionally omitted <==

281 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes All amounts are in EUR thousand unless otherwise stated

2.3 Foreign currency translation

Onerous contracts – Cost of Fulfilling a Contract (Amendments to IAS 37)

2.3.1 Transactions and balances

2.4 Intangible assets

The Company does not have significant onerous contracts therefore the Company’s management determined that these amendments have no significant impact on the Company’s financial statement.

Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12)

The management of the Company is currently assessing the impact of these amendments on the financial statements.

Other standards

The following new and amended standards are not expected to have a significant impact on the Company’s financial statements.

Other new standards or amendments	IASB Effective date	EU Endorsement status
Annual Improvements to IFRS Standards 2018–2020	1 January 2022	Endorsed
Property, Plant and Equipment: Proceeds before they are capable of	1 January 2022	Endorsed
operating in the manner intended by management
(Amendments to IAS 16)
Reference to Conceptual Framework	1 January 2022	Endorsed
(Amendments to IFRS 3)
Classification of Liabilities as Current or Non-current	1 January 2023	Not yet endorsed
(Amendments to IAS 1)
IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance	1 January 2023	Endorsed
Contracts
Disclosure of Accounting Policies	1 January 2023	Not yet endorsed
(Amendments to IAS 1 and IFRS Practice Statement 2)
Definition of Accounting Estimates	1 January 2023	Not yet endorsed
(Amendments to IAS 8)
Initial Application of IFRS 17 and IFRS 9 – Comparative Information	1 January 2023	Not yet endorsed
(Amendments to IFRS 17)

The Company’s intangible assets consist of patents and licenses which are measured initially at acquisition cost and are amortised on a straight-line basis over their estimated useful lives which are of 3 to 5 years or a specific validity term. Useful life is reviewed on year-by-year basis.

The Company recognised the assets from future synergies that were identified on the acquisition of assets of TE-3 from Vilniaus Šilumos Tinklai AB on 12 October 2017. The benefit of synergies is realised by ensuring the connection of Vilnius co-generation power plant, which is constructed by the Company’s subsidiary and other objects of the Company’s subsidiaries to the heat distribution infrastructure of Vilnius city.

2.5 Right-of-use assets

Right-of-use asset is the asset that reflects the right of the Company to use the leased asset over the life of a lease. The Company recognises a right-of-use asset for all types of leases, including leases of right-of-use assets in sublease, with the exception of leases of intangible assets, short-term leases and leases for which the underlying asset is of low value.

2.5.1 Initial measurement of right-of-use assets

At the commencement date, the Company measures the right-of-use asset at cost. The cost of the right-of-use asset comprises: the amount equal to the lease liability at its initial recognition, lease payments made at or before the commencement of the lease (less any lease incentives received), any initial direct costs incurred by the Company, and an estimate of costs to be incurred by the Company in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease. The Company incurs obligation for these costs either at the commencement date or as a consequence of having used the underlying asset during a particular period. The Company recognises these costs as part of the cost of right-of-use asset when the Company incurs an obligation for these costs.

==> picture [52 x 18] intentionally omitted <==

282 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes

All amounts are in EUR thousand unless otherwise stated

2.5.2 Subsequent measurement of right-of-use assets

Subsequent to initial recognition, the Company measures the right-of-use asset using the cost model. Under the cost model, the Company measures a right-of-use asset at cost: less any depreciation and any accumulated impairment losses adjusted for any remeasurement of the lease liability.

2.8 Financial instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

2.8.1 Financial assets

If the lease transfers ownership of the underlying asset to the Company by the end of the lease term or if the cost of the right-of-use asset reflects that the Company will exercise a purchase option, the Company depreciates the right-of-use asset from the commencement date to the end of the useful life of the underlying asset. Otherwise, the Company depreciates the right-of-use asset from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. Right-of-use assets are depreciated on a straight-line basis.

The Company presents rights-of-use assets separately from property, plant and equipment in the statement of financial position.

2.6 Investments in subsidiaries

Investments in subsidiaries are stated in the statement of financial position at acquisition cost less impairment loss, when the investment’s carrying amount exceeds its estimated recoverable amount. An adjustment to the value is made to write-down the difference as expense in SPLOCI. If the basis for the write-down can no longer be justified at the statement of financial position date, it is reversed. If there is a present obligation to cover a deficit in subsidiaries, a provision is recognised for this.

The Company classifies their financial assets into the following three categories:

(i) financial assets subsequently measured at amortised cost;
(ii) financial assets subsequently measured at fair value through other comprehensive income (hereinafter “FVOCI”); and
(iii) financial assets subsequently measured at fair value through profit or loss (hereinafter “FVPL”).

Transaction costs comprise all charges and commissions that the Company would not have paid if it had not entered into an agreement on the financial instrument.

In order for a financial asset to be classified and measured at amortised cost or FVOCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest (hereinafter “SPPI”)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. Financial assets with cash flows that are not SPPI are classified and measured at FVPL, irrespective of the business model. Interest income calculated on these financial assets is recognised as finance income and amortised using the effective interest rate method. Any gain or loss arising from the write-off of assets is recognised in SPLOCI. Impairment losses are accounted for as other expenses in SPLOCI.

2.7 Impairment of non-financial assets

At each reporting date, the Company reviews the carrying amount of its intangible assets, property, plant and equipment and right-of-use assets to determine whether there are any indications that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is impossible to estimate the recoverable amount of an individual asset, the recoverable amount of the cashgenerating unit to which the asset belongs is estimated. Where a reasonable and consistent basis of allocation can be identified, assets are also allocated to individual cash-generating units, otherwise they are allocated to the smallest groups of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Subsequent to initial recognition, financial assets are classified into the afore-mentioned categories based on the business model the Company applies when managing its financial assets and characteristics of cash flows from these assets. The business model applied to the group of financial assets is determined at a level that reflects how all groups of financial assets are managed together to achieve a particular business objective of the Company. The intentions of the Company’ ~~s~~ management regarding separate instruments have no effect on the applied business model. The Company may apply more than one business model to manage its financial assets. In view of the business model applied for managing the group of financial assets, the accounting for financial assets, except for financial assets subsequently measured at FVOCI as the Company does not have this kind of assets, is as follows:

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit (loss).

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit.

==> picture [52 x 18] intentionally omitted <==

283 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes

All amounts are in EUR thousand unless otherwise stated

2.8.1.1 Financial assets at amortised cost

2.8.1.2 Financial assets at FVPL

Debt and equity instruments that do not meet the criteria of financial assets to be measured at amortised cost or financial assets to be measured at FVOCI are stated as financial assets to be measured at FVPL.

The Company classifies financial assets as assets measured at FVPL, if this eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as ‘an accounting mismatch’) that would otherwise arise from measuring assets or liabilities or recognising gains or losses thereof on different bases. A gain or loss on fair value measurement of debt investment is recognised in profit or loss of SPLOCI in the period in which it arises. The Company classifies in this category amounts receivable from EPSO-G (Note 8.1), investments to mutual fund units or equity instruments that do not meet the SPPI conditions.

2.8.1.3 Effective interest method

The effective interest method is used in the calculation of the amortised cost of a financial asset and in the allocation of the interest revenue in profit or loss of SPLOCI over the relevant period.

EIR is the rate that exactly discounts estimated future cash inflows through the expected life of the financial asset to the gross carrying amount of the financial asset that shows the amortised cost of the financial asset, before adjusting for any loss allowance. When calculating EIR, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) but does not consider the expected credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of EIR, transaction costs, and all other premiums or discounts. There is a presumption that the cash flows and the expected life of a group of similar financial instruments can be estimated reliably. However, when it is not possible to reliably estimate the cash flows or the expected life of a financial instrument (or group of financial instruments), the Company uses the contractual cash flows over the full contractual term of the financial instrument (or group of financial instruments).

2.8.1.4 Impairment of financial assets – expected credit losses (hereinafter “ECL”)

The Company assesses on a forward-looking basis the ECL associated with its debt instruments carried at amortised cost regardless of whether there are any impairment indicators.

Credit losses incurred by the Company are calculated as the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the Company expects to receive (i.e. all cash shortfalls), discounted at the original EIR. The Company estimates cash flows by considering all contractual terms of the financial instrument through the expected life of that financial instrument, including cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

ECL are measured in a way that reflects an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes; the time value of money; and reasonable and supportable information about past events and current conditions, and reasonable and supportable forecasts of future events and economic conditions at the reporting date.

Lifetime expected credit losses are ECL that result from all possible default events over the period from the date of initial recognition of a financial asset to the subsequent date of settlement of the financial asset or ultimate write-off of the financial asset.

The Company seeks for lifetime expected credit losses to be recognised before a financial instrument becomes past due. Typically, credit risk increases significantly before a financial instrument becomes past due or other lagging borrower-specific factors (for example, a modification or restructuring) are observed. Consequently, when reasonable and supportable information that is more forward-looking than past due information is available without undue cost or effort, it is used to assess changes in credit risk. ECL are recognised by taking into consideration individually or collectively assessed credit risk of loans granted, trade and other receivables. Credit risk is assessed based on all reasonable information, including future-oriented information.

The Company assesses impairment of amounts receivable individually or collectively, as appropriate.

The Company’s management performs the assessment on an individual basis reflecting the possibility of obtaining information on the credit history of a particular debtor its financial position as at the date of assessment, including forward-looking information that would allow to timely determine whether there has been a significant increase in the credit risk of that particular borrower, thus enabling making judgement on the recognition of lifetime ECL in respect of that particular borrower. In the absence of reliable sources of information on the credit history of a particular debtor its financial position as at the date of assessment, including forward-looking information, the Company assesses the debt on a collective basis.

Recognition stages of ECL:

upon granting of a loan, the Company recognises ECL for the twelve-month period. Interest income from the loan is calculated on the carrying amount of financial assets without adjusting it by the amount of ECL;
upon establishing that the credit risk related to the borrower has significantly increased, the Company accounts for the lifetime expected credit losses of the loan agreement. All lifetime expected credit losses of a financial instruments are calculated only when there is a significant increase in credit risk relating to the borrower. Interest income from the loan is calculated on the carrying amount of financial assets without adjusting it by the amount of ECL;
where the Company establishes that the recovery of the loan is doubtful, the Company classifies this loan as credit-impaired financial assets (doubtful loans and receivables). Interest income from the loan is calculated on the carrying amount of financial assets which is reduced by the amount of ECL.

The latest point at which the Company recognises all lifetime expected credit losses of the loan granted is identified when the borrower is late to pay a periodic amount or the total debt for more than 90 days. In case of other evidence available, the Company accounts for all lifetime expected credit losses of the loan granted regardless of the more than 90 days past due presumption.

==> picture [52 x 18] intentionally omitted <==

284 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes

All amounts are in EUR thousand unless otherwise stated

2.8.1.5 Credit-impaired financial assets

(a) significant financial difficulty of the borrower;
(b) a breach of contract, such as a default or past due event for more than 90 days;
(c) the lender, for economic or contractual reasons relating to the borrower's financial difficulty, having granted to the borrower a concession that the lender would not otherwise consider;

2.8.2 Financial liabilities and equity instruments issued

2.8.2.1 Initial recognition and measurement of financial liabilities

Financial liabilities are classified, at initial recognition, as financial liabilities at FVPL, loans and borrowings, payables. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

2.8.2.2 Subsequent measurement

(d) it is becoming probable that the borrower will enter bankruptcy or another financial reorganisation;
(e) the disappearance of an active market for that financial asset because of financial difficulties;
(f) the purchase or origination of a financial asset at a deep discount that reflects the incurred credit losses.
For purposes of subsequent measurement, financial liabilities are classified in two categories: ̶ financial liabilities at FVPL;
financial liabilities at amortised cost (loans, borrowings and other payables not measured at FVPL).
̶

2.8.2.3 Financial liabilities at FVPL

2.8.1.6 Derecognition of financial assets

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

̶ the rights to receive cash flows from the asset have expired;
̶ the right to receive cash flows from the asset is retained, but an obligation is assumed to pay them in full without material delay to a third party under a ‘pass through’ arrangement; or
̶ the rights to receive cash flows from the asset are transferred and either (a) substantially all the risks and rewards of the asset have been transferred, or (b) substantially all the risks and rewards of the asset have neither been transferred nor retained, but control of the asset has been transferred:
̶ if control is not retained, the financial asset is derecognised and any rights and obligations created or retained in the transfer are recognised separately as assets or liabilities;
̶ if control is retained, it shall continue to recognise the financial asset is continued to be recognised to the extent of continuing involvement in the financial asset.

Financial liabilities at FVPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as at FVPL.

Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term.

Financial liabilities designated upon initial recognition at FVPL are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied. The Company has not designated any financial liability as at FVPL.

2.8.2.4 Financial liabilities at amortised cost

All financial liabilities of the Company are attributed to this category. After initial recognition, interestbearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss of SPLOCI when the liabilities are derecognised as well as through the effective interest amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interests. The effective interests amortisation is included as finance costs in SPLOCI.

This category generally applies to trade payables, interest-bearing loans and borrowings. The Company’s financial liabilities include the following:

2.8.2.5 Classification

Financial liabilities are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

==> picture [52 x 18] intentionally omitted <==

285 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes

All amounts are in EUR thousand unless otherwise stated

2.8.2.6 Financial guarantee contracts

The Company provides financial guarantees to subsidiaries in relation to loans taken from banks or other liabilities and receives a consideration, which is recognised in SPLOCI on an accrual basis. The fair value of financial guarantee is determined based on present value which corresponds to the reduced payments that subsidiaries would pay to banks if the guarantee would not be received from the Company. If the consideration corresponds to a reduction of payments, the Company does not account for financial guarantees as their fair value approximate to 0, while subsidiaries recognise the liability at fair value including the value of the guarantee provided. If the consideration is at lower amount than the reduction of payments, the Company recognise the fair value of financial guarantee as ‘Investment in subsidiary’ and accordingly ‘Financial guarantee obligation’ in its separate financial statements, while subsidiaries recognise the liability without the guarantee and the difference recognized as a capital contribution. The methods to determine expected credit losses for financial guarantee contracts are used as for financial assets (see in Note 2.8.1.4 in heading ‘Impairment of financial assets – expected credit losses’). Financial guarantee contracts are measured at the higher of expected credit loss and the amount, that is initially recognised less any cumulative amount of income/amortisation recognised. No expected credit losses were identified as at 31 December 2021.

2.8.2.7 Recognition of instruments as debt or equity instruments

Debt or equity instruments are classified as financial liabilities or equity based on the substance of the arrangement.

2.8.2.8 Equity instruments

Equity instrument is any contract that evidences an interest in the assets of the Company after deducting all of its liabilities. Equity instruments are recorded at the value of the proceeds received net of direct issue costs. Share premium represent the difference between the nominal value of shares and the proceeds received.

2.10 Issued capital, share premium, treasury shares

2.10.1 Issued capital, share premium

Ordinary shares are classified as equity. The Company’s issued capital consists only of ordinary shares.

Share premium represents the difference between the nominal value of the new share issue and the fair value of consideration received for shares sold.

2.10.2 Share-based payments

The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model (market value of share price).

2.10.3 Treasury shares

2.8.2.9 Derecognition of financial liabilities

2.9 Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

==> picture [52 x 18] intentionally omitted <==

286 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes

All amounts are in EUR thousand unless otherwise stated

2.11 Lease liabilities

At the commencement date of the lease the Company recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating the lease, if the lease term reflects the Company exercising the option to terminate.

In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.

2.12.2 Deferred tax

Deferred tax is accounted for using the liability method. Deferred tax assets and deferred tax liability are recognised for future tax purposes to reflect differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax liabilities are recognised on all temporary differences that will increase the taxable profit in future, whereas deferred tax assets are recognised to the extent that is probable to reduce the taxable profit in future. These assets and liabilities are not recognised when temporary differences arise from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting, nor taxable profit or loss.

Deferred tax is determined using tax rates that are expected to apply when the related deferred income asset is realized or the deferred tax liability is settled.

2.11.1 Short-term leases and leases of low-value assets

2.12.3 Current and deferred tax for the reporting period

The Company applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). The Company also applies the lease of low-value assets recognition exemption to leases that are considered to be low value. Lease payments on short term leases and leases of lowvalue assets are recognised as expense on a straight-line basis over the lease term.

2.12 Current and deferred tax

2.12.1 Income tax

Current income tax is calculated on profit before tax. Standard corporate income tax rate applicable in Lithuania is 15 percent.

In Lithuania tax losses can be carried forward for an indefinite period, except for losses incurred as a result of disposal of securities and/or derivative financial instruments. Such carrying forward is disrupted if the Company changes its activities due to which these losses incurred except when the Company does not continue its activities due to reasons which do not depend on Company itself. The losses from disposal of securities and/or derivative financial instruments can be carried forward for 5 consecutive years and can only be used to reduce the taxable income earned from the transactions of the same nature In terms of utilizing tax losses carried-forward the amount may not exceed 70% of the taxpayer's taxable profits in a given year.

2.13 Employee benefits

2.13.1 Social security contributions

The Company pays social security contributions to the State Social Security Fund (hereinafter “the Fund”) on behalf of its employees based on the defined contribution plan in accordance with the local legal requirements. A defined contribution plan is a plan under which the Company pays fixed contributions into the Fund and will have no legal or constructive obligations to pay further contributions if the Fund does not hold sufficient assets to pay all employees benefits relating to employee service in the current and prior period. The social security contributions are recognised as an expense on an accrual basis and are included within remuneration expenses.

2.14 Contingencies

Contingent liabilities are not recognised in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote.

A contingent asset is not recognised in the financial statements but disclosed when an inflow or economic benefits is probable.

The prepaid income tax and recognised income tax liabilities are offset in the statement of financial position of the Company when they relate to the same taxation authority.

==> picture [52 x 18] intentionally omitted <==

287 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes

All amounts are in EUR thousand unless otherwise stated

2.15 Revenue from contracts with customers

The Company in the contracts with customers identifies performance obligations (stated either explicitly or implied) to transfer either distinct goods or services or series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. Promised goods or services represent separate performance obligation if the goods or services are distinct. A promised good or service is considered distinct if both of the following criteria are met:

(i) customer can benefit from the good or service on its own or with other readily available resources (i.e. distinct individually) and
(ii) the good or service is separately identifiable from other promises in the contract (distinct within the context of the contract).

Revenue from contracts with customers is recognised when control of the goods or services is transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Revenue is measured based on the consideration to which the Company expects to be entitled in a contract with a customer and excludes amounts collected on behalf of third parties.

For certain service contracts, revenue is recognised based on the actual service provided to the end of the reporting period as a proportion of the total services to be provided because the customer receives and uses the benefits simultaneously. When recognising revenue, the Company takes into consideration terms of contracts signed with customers and all significant facts and circumstances, including the nature, amount, timing and uncertainty relating to cash flows arising from the contract with the customer.

2.15.1 Management services

The Company provides management services to its subsidiaries. The control of management services is transferred over time and, therefore, the Company satisfies a performance obligation and revenue is recognised over time. The Company has concluded that it is the principal in its revenue arrangements.

For measuring a progress towards to complete satisfaction of a performance obligation the Company applies a practical expedient allowed by IFRS 15. As the Company has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the performance completed to date, the Company recognises revenue in the amount to which it has a right to invoice. The Company bills a fixed amount for each hour of service provided.

Payment term is 30 days from the date of invoice issued for the services rendered in past month. The contract has no significant financing component as there is no significant length of time between the payment and the transfer of services.

After one calendar year of providing services the Company recalculates the price of the provided services, taking into account its actual costs incurred in providing these services to the customer and adjusts the amount payable by the customer accordingly.

2.15.2 Contract balances

2.15.2.1 Contract assets and contract liabilities

The timing of satisfaction of the Company’s performance obligation and typical timing of payment is determined according to service report which is reviewed and approved by the customer. After approval the services are recognised as satisfactory rendered to the customer. During the reporting period the Company had no contract liability or contract assets.

2.15.2.2 Receivables

A receivable is recognised if an amount of consideration that is unconditional is due from the customer (i.e., only the passage of time is required before payment of the consideration is due). Refer to accounting policies of financial assets in Note 2.8.1

2.16 Dividend income

Dividend income is recognised after the shareholders’ rights to receive payment have been established. Dividends received are attributed to investing activities in the statement of cash flows.

2.17 Expense recognition

Expenses are recognised in SPLOCI as incurred applying accrual basis.

2.18 Dividend distribution

Dividend distribution to the Company’s shareholders is recognised as a liability in the Company’s financial statements in the period in which the dividends are approved by the Company’s shareholders.

2.19 Events after the reporting period

2.20 Related parties

Related parties are defined as follow:

Group companies
parent company’s controlling shareholders or those who have significant influence
- associated companies
state controlled companies and their subsidiaries (only significant transactions are being disclosed with such companies)
Ministry of Finance of the Republic of Lithuania along with agencies and enterprises that are attributable to the governance of the decisions (only significant transactions are being disclosed with such companies)
key management personnel and close members of that personnel’s family and their controlled enterprises and companies

2.21 Offsetting

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

==> picture [52 x 18] intentionally omitted <==

288 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes

All amounts are in EUR thousand unless otherwise stated

2.22 Fair value

Fair value is defined by IFRS as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Company measures financial instruments such as derivatives, and non-financial assets such as investment properties, at fair value at each statement of financial position date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

̶ In the principal market for the asset or liability
̶ In the absence of principal market, in the most advantageous market for the asset or liability.

̶ Level 1: fair value of assets is based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
̶ Level 2: fair value of assets is based on other observable market data, directly or indirectly;
Level 3: fair value of assets is based on non-observable market data.
̶

3 Financial risk management

3.1 Financial risk factors

The Company is exposed to a variety of financial risks in their operations: market risk (including foreign exchange risk, interest rate risk in relation to cash flows), credit risk and liquidity risk. In managing these risks, the Company seeks to mitigate the impact of factors which could adversely affect the Company’s financial performance results.

3.1.1 Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises two types of risk: interest rate risk and foreign currency exchange risk.

3.1.1.1 Foreign currency exchange risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates.

The Company's sale/purchase transactions are denominated in euros, therefore does not bear the risk of foreign exchange rate fluctuations.

3.1.1.2 Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Company’s income and cash flows are affected by fluctuations in market interest rates because the loans granted had fixed and variable interest rates as at 31 December 2021, therefore, it is exposed to interest rate risk.

The Company has loans granted and borrowings bearing fixed interest rate. However, if the fixing of the interest rate is not possible due to objective reasons and the liability assumed comprises a significant amount, interest rate derivatives would be used for the purpose of interest management (the Company did not use such derivatives during 2021 and 2020). In assuming debt obligations, it is aimed that non-current liabilities would bear a fixed interest rate. The usage of any of the interest rate derivatives requires the expiry date of the derivative to correspond to the maturity date of the debt obligation.

Variable-rate financial instruments include loans granted in amount EUR 79,443 thousand as at 31 December 2021 (EUR 93,581 thousand as at 31 December 2020) (Note 7.2).

==> picture [52 x 18] intentionally omitted <==

289 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes

All amounts are in EUR thousand unless otherwise stated

Interest rate risk is assessed in relation to sensitivity of the Company’s profit to potential shift in interest rates. This assessment is given in the table below.

2021 2020	Increase/decrease, pp 0,3 / (0,3) 0,3 / (0,3)	(Decrease)/increase in profit 44 / (44) 50 /(50)

3.1.2 Credit risk

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss.

The Company’s exposure to credit risk arises from operating activities (other amounts receivable) and

from financing activities (cash and cash equivalents, loans granted).

The Company is not exposed to significant credit risk concentration related to other amounts receivable. As at 31 December 2021 and 2020, other receivables of the Company principally consisted of the EPSO-G outstanding receivables for the sale of LitGrid AB shares in year 2012 (Note 8). The Company is exposed to credit risk concentration related to loans granted (Note 7), although principally all loans granted are due from related parties (Note 29). The Company is evaluating cash flows and financial results of these related parties, no impairment is recognised for the investments into subsidiaries to related parties to which loans are granted. Due to that Company does not consider that risk related to concentration of loans granted is significant.

The priority objective of the Company’s treasury management is to ensure security of funds and maximize return on investments in pursuance of this objective. Risk of counterparties defaulting is managed by entering into transactions with reliable financial institutions (or subsidiaries of such institutions) with a long-term credit rating (in foreign currency) lower than ‘A-’ according to the rating agency Fitch Ratings (or an equivalent rating of other rating agencies).

The maximum exposure to credit risk is equal to the carrying amount of financial assets and the

nominal value of guarantees issued.

	Notes	31 December 2021	31 December 2020
Financial assets measured at amortised cost:
Non-current receivables	7	1,088,397	753,902
Trade receivables		494	313
Other receivables	8	100,469	14,754
Current loans	9	136,452	73,956
Cash and cash equivalents	12	125,323	421,289
Financial assets at FVPL in SPLOCI
Amount receivable on sale of LitGrid AB	7, 8	84,128	150,693
Innovation Fund Smart Energy Fund powered by Ignitis
Group KŪB	10	25,094	4,912
		1,560,357	1,419,819
Off-balance sheet commitments:
Open guarantees issued	28	356,761	316,227
In total		1,917,118	1,736,046

3.1.3 Liquidity risk

The liquidity risk is managed by planning future cash flows of the Company and ensuring sufficient cash and availability of funding through committed credit facilities and overdrafts to support the Company’s ordinary activities. The refinancing risk is managed by ensuring that borrowings over a certain period were repaid from available cash, from cash flows expected from operating activities of the Group companies over that period, and from unwithdrawn committed credit facilities which have to be repaid in later periods.

As at 31 December 2021, the Company's current liquidity ratio (total current assets/total current liabilities) was 25.01 (31 December 2020 – 48.35). As at 31 December 2021, the Company's balance of credit and overdraft facilities not withdrawn amounted to EUR 110,000 thousand (31 December 2020 – EUR 267,896 thousand).

To support the fulfilment of obligation of the Group companies to credit institutions and other creditors, the Company issued guarantees in the amount of EUR 351,971 thousand as at 31 December 2021 (31 December 2020 – EUR 371,227 thousand) (Note 28).

The table below summarises the Company’s financial liabilities by category:

Amounts payable measured at amortised cost Borrowings	Notes 17	31 December 2021 897,667	31 December 2020 896,088
Non-current amounts payable		9	-
Trade payables		976	461
Other current amounts payable and liabilities	20	5,312	124
In total		903,964	896,673

The table below summarises the maturity profile of the Company‘s financial liabilities under the contracts (based on contractual undiscounted payments of interest-bearing financial liabilities and the carrying amounts of other financial liabilities):

	2021
	In total Less than 3 months 3 months to 1 year 1 and 5 years After 5 years
Borrowings and lease liabilities Trade payables and non-current amounts payable to suppliers	6,650 29,094 88,650 911,857 1,036,251 976 - 9 - 985
In total	7,626 29,094 88,659 911,857 1,037,236

	2020
	In total Less than 3 months 3 months to 1 year 1 and 5 years After 5 years
Borrowings and lease liabilities Trade payables and non-current amounts payable to suppliers	4,358 22,216 69,596 945,011 1,041,181 461 - - - 461
In total	4,819 22,216 69,596 945,011 1,041,642

==> picture [52 x 18] intentionally omitted <==

290 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes

All amounts are in EUR thousand unless otherwise stated

3.2 Capital risk management

For the purpose of capital risk management, the management uses equity as reported in the statement of financial position.

Pursuant to the Lithuanian Republic Law on Companies, the issued capital of a public limited liability company must be not less than EUR 25 thousand and the shareholders’ equity must be not lower than 50% of the company’s issued capital. As at 31 December 2021, the Company met requirements of capital regulation.

When managing the capital risk in a long run, the Company seeks to maintain an optimal capital structure of subsidiaries to ensure a consistent implementation of capital cost and risk minimization objectives. The Group companies form their capital structure in view of internal factors relating to operating activities, the expected capital expenditures and developments and in view of business strategy of the Group companies, as well as based on external current or expected factors significant to operations relating to markets, regulation and local economic situation.

The Board of the Company has an approved dividend policy, which sets principles for the payment of dividends for all the Group companies. The dividend policy is one of capital risk management tools.

On 3 September 2020 the Board of the Company approved a new dividend policy of the Company. Under the new dividend policy, the Company will pay EUR 85 million in dividends for the financial year 2020. For each subsequent financial year, it will allocate at least 3 percent more than the amount paid for the previous financial year.

On 15 December 2020 the Board of the Company approved the updated dividend policy of companies owned by Ignitis Group. The provisions of the policy shall be followed when making decisions regarding the allocation of dividends by the subsidiaries. According to the updated Dividend Policy of Owned Companies, a subsidiary owned by the Company shall allocate dividends for the financial year or a period shorter than the financial year using at least 80 percent of the net profit of the subsidiary received during the financial period for which the dividends are offered. Exceptions for paying dividends by subsidiaries may apply if certain conditions are met.

4 Critical accounting estimates and judgements used in the preparation of the financial statements

4.1 Impairment of investments

On 31 December 2021, the Company carried out an analysis to determine existence of indications of impairment for investments into subsidiaries. The Company considered information from external and internal sources of information.

For the purpose to determine impairment indications it is assessed whether at least one of the following conditions exists (except for early stage companies):

actual adjusted EBITDA (Earnings Before Interests Taxes Depreciations and Amortizations) is less than budgeted adjusted EBITDA;
the actual adjusted net profit is less than the actual dividends paid;
carrying amount of investment is higher than carrying amount of net assets.

In cases at least one abovementioned conditions exists, before performing impairment tests, additional analysis was performed, helping to determine whether current conditions shows impairment indications.

Additionally, the management assessed whether during the reporting period, there have been no significant adverse changes in the technological, market, economic and legal environment in which subsidiaries operate.

The management did not find any impairment indications in all investments except investment to Energijos skirstymo operatorius AB and Ignitis UAB (see below).

Impairment indications - subsidiary Energijos skirstymo operatorius AB:

Electricity distribution activity

a) additional tariff component which will increase electricity distribution income by EUR 28 million yearly;
b) recalculated the base of electricity distribution assets which decreased from EUR 1,414 to 1,097 million;
c) the difference of depreciation and investments return for the period 2018-2021, which comprise EUR 160 million, from which the part of 96% would be returned to the customers during 2032-2036 via distribution tariff after the Group management estimations.

==> picture [52 x 18] intentionally omitted <==

291 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes All amounts are in EUR thousand unless otherwise stated

Gas distribution activity

a) management determined that planned investments to the gas business segment and its financing presumptions were changed in updated 10-year investment plan

4.4 Option agreement over Kauno kogeneracinė jėgainė UAB shares

As at 31 December 2021, the Company held 51% shareholding in Kauno kogeneracinė jėgainė UAB (hereinafter “KKJ”), and the remaining 49% of shares was held by Gren Lietuva UAB..

Impairment indications - subsidiary Ignitis UAB:

a) Changes in regulatory environment.

Having identified impairment indications for investments in subsidiaries, the Company estimated the recoverable amount. The estimation showed that no additional impairment nor impairment reversal is needed for investments into subsidiaries as at 31 December 2021 (Note 6).

4.2 COVID-19 pandemic

The Company's management has assessed the impact of COVID-19 pandemic uncertainty to the following key areas:

Going concern
Impairment, residual value and useful life of property, plant and equipment
Assessment of expected credit losses

Both shareholders have signed the Shareholders’ Agreement under which key decisions over the business should be taken unanimously by the shareholders and / or by the Board which consists of equal number of representatives from both shareholders and one independent member. If the shareholders fail to reach the consensus on the deadlock situation, the Company has an option to buy (call option) all the shares of KKJ held by Gren Lietuva UAB and thus, whereas Gren Lietuva UAB has an option to sell (put option) to the Company its shareholding in KKJ, for the price, the calculation of which is defined in the Shareholders’ Agreement.

In the Company’s management view, the call option is a derivative instrument. The option is exercisable at the amount which approximates fair value of the underlying shares at the date of exercise (both put and call option). In management view, the fair value of the derivative is not significant.

Classification of financial instruments as current and non-current
Lease contracts

The Company's management has not identified any significant threats in assessing the potential impact of key COVID-19 factors on the Company’s results.

4.3 Innovation Fund Smart Energy Fund powered by Ignitis Group KŪB

On 26 July 2017 the Company signed the establishment agreement of the limited partnership “Smart Energy Fund powered by Ignitis Group” (hereinafter – the Partnership) with UAB Contrarian Ventures. Innovation Fund Smart Energy Fund powered by Ignitis Group KŪB (hereinafter – “SEF”) invests in start-ups that are developing new technologies in the energy technology field and other fields. According to the Partnership there is one full member - UAB Contrarian Ventures, which acts on behalf of the SEF, has the right to manage SEF, makes decisions on the management of SEF affairs, concludes transactions on behalf of the SEF. All other SEF members (including the Company) acts under the Partnership Participant Agreement. Investment decisions are made and approved by the Investment Committee, which is made up solely of Key-men that are shareholders of Contrarian Ventures UAB.

4.5 Estimating the incremental borrowing rate

The Company cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (hereinafter “IBR”) to measure lease liabilities. The IBR is the rate of interest that the Company would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. Average incremental borrowing rate set for new significant agreements made in 2021 was 1.4%.

By the management’s judgment the Company does not have control over the Partnership because, under the terms of the Partnership, the Company does not have the power to manage the activities of the SEF as the Company is not a partner of SEF, investment decisions are made in accordance with SEF investment strategy or approved by the Investment Committee, where the Company has only observer.

Total amount of the investment to Innovation Fund Smart Energy Fund powered by Ignitis Group KŪB increased for an amount EUR 20,182 thousand during the year 2021.

Remaining change is related to new investments made during 2021 for an amount EUR 3,504 thousand and reclassification from non-current receivables EUR 810 thousand.

Fair value corresponds to Level 3 in the fair value hierarchy. Fair value of this financial asset will change depending on future investment rounds or other significant events

==> picture [52 x 18] intentionally omitted <==

292 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes

All amounts are in EUR thousand unless otherwise stated

5 Right-of-use assets

Movement on Company’s account of right-of-use asset is presented below:

	Buildings	Vehicles In total	Vehicles In total
31 December 2019 Acquisition cost Accumulated depreciation	829 (144)	198 (45)	1,027 (189)
Carrying amount	685	153	838
Carrying amount as at 1 January 2020 Additions Depreciation	685 (60) (210)	153 2 (50)	838 (58) (260)
Carrying amount as at 31 December 2020	415	105	520
31 December 2020 Acquisition cost Accumulated depreciation	432 (17)	168 (63)	600 (80)
Carrying amount	415	105	520
Carrying amount at 1 January 2021 Additions Write-offs Depreciation	415 17,986 (259) (606)	105 14 - (53)	520 18,000 (259) (659)
Carrying amount	17,536	66	17,602
31 December 2021 Acquisition cost Accumulated depreciation	17,986 (450)	135 (69)	18,121 (519)
Carrying amount	17,536	66	17,602

During the year 2021 the Company concluded a new lease agreement for office premises and car parking spaces with the lease term 10 years and carrying amount of EUR 17,536 thousand as at 31 December 2021.

5.1 Expenses related to lease agreements recognised in SPLOCI

The Company’s lease expenses recognised in SPLOCI were as follows:

	2021	2020
Depreciation	659	260
Interest charges	84	1
Expenses related to short-term leases (other expenses)	56	44
Lease expenses, total	799	305

5.2 Future expenses related to lease agreements

The Company’s future lease expenses:

	31 December 2021	31 December 2020
Future expenses related to short-term leases	62	-
Leases not yet commenced to which the lessee is committed	-	17,986
Future lease expenses, total	62	17,986

==> picture [52 x 18] intentionally omitted <==

293 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes

All amounts are in EUR thousand unless otherwise stated

6 Investments in subsidiaries

Information on the Company’s investments in subsidiaries as at 31 December 2021 provided below:

	Acquisition cost	Impairment	Carrying amount	Company’s ownership interest, %	Group's effective ownership interest, %
Subsidiaries:
Energijos skirstymo operatorius AB	750,422	-	750,422	100.00	100.00
Ignitis gamyba AB	321,202	-	321,202	100.00	100,00
Ignitis renewables UAB	54,156	-	54,156	100.00	100.00
Vilniaus kogeneracinė jėgainė UAB	52,300	-	52,300	100.00	100.00
Ignitis UAB	47,138	-	47,138	100.00	100.00
Kauno kogeneracinė jėgainė UAB	20,400	-	20,400	51.00	51.00
Ignitis grupės paslaugų centras UAB	5,975	-	5,975	50.47	100.00
Transporto valdymas UAB	2,359	-	2,359	100.00	100.00
Elektroninių mokėjimų agentūra UAB	1,428	-	1,428	100.00	100.00
Gamybos optimizavimas UAB	350	-	350	100.00	100.00
NT Valdos UAB	3,961	(3,833)	128	100.00	100.00
Energetikos paslaugų ir rangos organizacija UAB	22,961	(22,961)	-	100.00	100.00
	1,282,652	(26,794)	1,255,858

Information on the Company’s investments in subsidiaries as at 31 December 2020 provided below:

	Acquisition cost	Impairment	Carrying amount	Company’s ownership interest, %	Group's effective ownership interest, %
Subsidiaries:
Energijos skirstymo operatorius AB	738,877	-	738,877	98.53	98.53
Ignitis gamyba AB	313,720	-	313,720	98.20	98.20
Vilniaus kogeneracinė jėgainė UAB	52,300	-	52,300	100.00	100.00
Ignitis UAB	47,136	-	47,136	100.00	100.00
Ignitis renewables UAB	44,700	-	44,700	100.00	100.00
Kauno kogeneracinė jėgainė UAB	20,400	-	20,400	51.00	51.00
Tuuleenergia OÜ	6,659	-	6,659	100.00	100.00
Ignitis grupės paslaugų centras UAB	5,975	-	5,975	50.47	99.22
NT Valdos UAB	8,958	(3,833)	5,125	100.00	100.00
Transporto valdymas UAB	2,359	-	2,359	100.00	100.00
Elektroninių mokėjimų agentūra UAB	1,428	-	1,428	100.00	100.00
Gamybos optimizavimas UAB	350	-	350	100.00	100.00
Lietuvos energijos paramos fondas	16	-	16	100.00	100.00
Energetikos paslaugų ir rangos organizacija UAB	22,961	(22,961)	-	100.00	100.00
	1,265,839	(26,794)	1,239,045

==> picture [52 x 18] intentionally omitted <==

294 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes

All amounts are in EUR thousand unless otherwise stated

Movement of the Company’s investments during the year were as follows:

	2021	2020
Carrying amount at 1 January	1,239,045	1,204,494
Acquisition of shares from non-controlling interest (Note 6.1)	19,024	33,680
Share capital and share premium increase in subsidiaries (Note 6.3) Coverage of losses	9,455 7	2,197 398
Increase in investments due to share based payments	6	-
Investments write-off	(23)	-
Share capital decrease in subsidiaries (Note 6.5)	(4,997)	-
Reclassification (to)/from assets held for sale (Note 6.2)	(6,659)	2,359
(Impairment) / reversal of impairment of investments in subsidiaries (Note 6.6)	-	(4,083)
Carrying amount at 31 December	1,255,858	1,239,045

During the year 2021 total cash payments for acquisition of investment to subsidiaries and coverage of losses amount to EUR 19,031 thousand.

The changes in the Company’s investments in subsidiaries during the year 2021 were covered by the following events:

between the carrying amount and fair value EUR 2,796 thousand was recognized in SPLOCI under the line item “Other income”.

Regarding the investments in subsidiaries Kauno kogeneracinė jėgainė UAB and Vilniaus kogeneracinė jėgainė UAB the Company’s management did not reclassified them to assets held for sale as relevant decisions have not been made and, consequently, all criteria listed in IFRS 5 for classification a non-current asset as held for sale were not met as at 31 December 2021.

6.3 Change in issued capital

During the year 2021 the issued capital of the following subsidiaries of the Company was increased:

Subsidiary	Issue date	Number of newly issued shares1	Issue price per share, EUR	Total issue price	Amount paid up	Amoun t not paid up	Date of amendment to Articles of Association
Ignitis renewables UAB	24/11/2021	18,910	500	9,455	9,455	-	31/12/2021
Total:				9,455	9,455

1The number of shares owned by the Company.

6.1 Acquisition of shares from non-controlling interest

The Company has acquired shares from minority shareholders of subsidiaries Energijos skirstymo operatorius AB (13,118,175 shares for the price of 0.88 EUR per share) and Ignitis gamyba AB (11,688,245 shares for the price of 0.64 EUR per share) during the year 2021. Acquisition lead to increased ownership by 1.47 in Energijos skirstymo operatorius AB and 1.80 percentage point in Ignitis gamyba AB. Total consideration paid for the acquired Energijos skirstymo operatorius AB and Ignitis gamyba AB shares equal to EUR 19,024 thousand.

As at 31 December 2020 the Company had a contractual obligation to buy out all the shares of the subsidiaries Energijos skirstymo operatorius AB and Ignitis gamyba AB. In accordance with buy out procedures, the Company made deposit in a bank account to cover the price of shares (which was presented in „Other non-current assets“). As mentioned above, during the year 2021 the Company acquired part of the shares which had main impact on cashflows caption „(Increase)/decrease in prepayments and deferred expenses, other current and other non-current assets“.

On 24 November 2021, the Management Board of the Company, as the sole shareholder of the Company has adopted the following decision: the Company’s subsidiary Ignitis renewables UAB issues 18,910 ordinary registered uncertified shares, each with a nominal value of EUR 1.00. The issue price of the shares will consist of EUR 18,910 of the aggregate amount of the nominal values of shares and EUR 9,436,090 of share premium. Issue price of all newly issued shares is EUR 9,455 thousand. Ignitis renewables UAB authorised capital is increased by issuing additional shares, paid for by the Company by a non-monetary contribution: transfer of 100 percent shares of Company’s subsidiary Tuuleenergia OÜ (Note 6.2). The shares of Tuuleenergia OÜ was valued at EUR 9,455 thousand by the independent asset evaluator.

6.4 Other changes

Share capital of the subsidiary NT Valdos UAB was decreased for an amount EUR 4,997 thousand during the year 2021. The decrease of subsidiaries share capital accounted by reducing the Company’s acquisition cost of investment.

6.2 Reclassification to assets held for sale and the transfer of shares

During the year 2021 the Company’s Management Board approved the initiation of the consolidation project of renewable energy companies of the Company’s group of companies. The project proposed to consolidate the operating and under-development wind energy (onshore and offshore), solar energy, waste and biofuel projects and competences of Ignitis Group in a single entity while directing their further development and to choose Ignitis renewables UAB, 100% of shares whereof is owned by the Company, for such purpose. It is planned that after receiving all the necessary consents and performing the arrangements, the shares of Kauno kogeneracinė jėgainė, UAB, Vilniaus kogeneracinė jėgainė UAB and Tuuleenergia OÜ will be transferred to Ignitis renewables UAB.

On 13 April 2018, the board of the Company made a decision to start minimizing activities of Energetikos paslaugų ir rangos organizacija UAB. On 10 May 2021 the shareholders of the Company made a decision to liquidate Energetikos paslaugų ir rangos organizacija UAB. On 21 May 2021 the legal status of this subsidiary changed to “currently in liquidation”.

On 16 December 2021 the Company accomplished the transfer of shares of Tuuleenergia OÜ to Ignitis renewables UAB. The Company increased share premium and share capital of Ignitis renewables UAB by amount equal to the fair value of Tuuleenergia OÜ shares by paying a non-monetary contribution, i.e. by transferring the shares of Tuuleenergia OÜ to Ignitis renewables UAB. The fair value was determined by independent valuators. Consequently EUR 6,659 thousand of non-current assets held for sale related to Tuuleenergia OÜ shares were written off and the remaining difference

==> picture [52 x 18] intentionally omitted <==

295 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes

All amounts are in EUR thousand unless otherwise stated

6.5 Impairment test for investments into subsidiaries

Having identified impairment indications for investments in subsidiaries and receivables as at 31 December 2021, the Company performed impairment tests for the following subsidiaries: Energijos skirstymo operatorius AB and Ignitis UAB.

Energijos skirstymo operatorius AB

As at 31 December 2021, the Company performed an impairment test for investment into subsidiary Energijos skirstymo operatorius AB and determined no impairment for investment into Energijos skirstymo operatorius AB as at 31 December 2021.

The following key assumptions were used:

the cash flow forecast covered the period until 2036 for electricity and gas distribution activities;
applied long-term investment forecast and financing of electricity and gas distribution activities according to updated Group’s 10-year investment plan;

Ignitis UAB

As at 31 December 2021, the Company performed an impairment test for investment into subsidiary Ignitis UAB and determined no impairment for investment into Ignitis UAB as at 31 December 2021.

The following key assumptions were used:

the cash flow forecast covered the period until 2031;
discount rate of 5.7% (post-tax) (6.7% pre-tax) was used to calculate discounted cash flows.

The Company’s other investments in subsidiaries

Apart from the above and the impairment already recognised in previous years, as at 31 December 2021, there were no indications of impairment in respect of other investments in the subsidiaries of the Company.

  - 6.6 Cash flows from investments in subsidiaries

discount rates used to calculate discounted cash flows:
3.1 3.78% (post-tax) (4.45% pre-tax) for electricity distribution activities (31 December 2020 - 4.33% (5.09% - pre-tax));
3.2 3.81% (post-tax) (4.48% pre-tax) for gas distribution activities (31 December 2020 - 4.33% (5.09% - pre-tax));
WACC (rate of return set by the regulator) used:
4.1 for gas distribution activities for 2022-2023 - 3.98%, 4.48% from 2024 (equal to pre-tax discount rate). (31 December 2020 respectively: 2021-2023 – 3.90% (Regulator set for 2021), 5.09% from 2024 (equal to pre-tax discount rate));
4.2 for electricity distribution activities for 2022-2026 - 4.16%, 4.45% from 2027 (equal to pre-tax discount rate. (31 December 2020 respectively: 2021 – 5.34 (Regulator set), 2022-2029 – 4.34% (average between the setting of the latest regulation period of the NERC gas sector in 2019 (3.59%) and the pre-tax return on investment in the electricity sector of long-term electricity planning - 5.09% from 2027);

Reconciliation of the factors that had impact on cash flows from the Company’s investments into subsidiaries to data reported in the statement of cash flows:

	31 December 2021	31 December 2020
Return of capital from subsidiaries	4,997	-
Coverage of losses	(7)	(398)
Buyout of shares in subsidiaries	(19,024)	(33,680)
Increase in issued capital of subsidiaries	-	(2,197)
Other payments related to increase in issued capital of subsidiaries in
earlier periods	-	(11,313)
Total	(14,034)	(47,588)

for electricity distribution activities additional tariff component which would increase electricity distribution income by EUR 28 million yearly. The management forecasts that additional tariff component will endure through the whole forecast period of 2022-2036, however, it was not included due to conserve estimations;
for electricity distribution activities the calculated return adjustment for 2018-2020 for an amount of EUR 116 million and forecasted adjustment for an amount of EUR 44 million will reduce income of the subsidiary by an amount of EUR 6.5 million for the period of 2022-2026 and 154 million for the period of 2032-2036 with additional interest for the pending portion.

As to the Company’s management significant assumptions and their sensitivity are as named below:

if Regulator took the decision not to allocate EUR 28 million of additional component annually for the investment financing:
a. after the end of the regulation period 2022-2026. Group revenue would reduce by EUR 280 million for the period 2027-2036, therefore, the fair value of electricity activity CGU would reduce by EUR 195 million;
b. after the end of the regulation periods 2022-2026 and 2027-2031. Group revenue would reduce by EUR 140 million for the period 2032-2036, therefore, the fair value of electricity activity CGU would reduce by EUR 90 million.

==> picture [52 x 18] intentionally omitted <==

296 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes

All amounts are in EUR thousand unless otherwise stated

7 Non-current receivables

Amounts receivable after one year comprised as follows:

	31 December 2021	31 December 2020
Non-current receivables
Amount receivable on sale of LitGrid AB (Note 8.1)	-	136,212
Loans granted	1,088,254	753,092
Other non-current amounts receivable	143	810
Total	1,088,397	890,114
Less: impairment	-	-
Carrying amount	1,088,397	890,114

Amount receivable on sale of LitGrid AB is presented in other receivables (Note 8) as the period during which EPSO-G UAB must repay the shares of AB LitGrid is 30 September 2022.

7.1 Expected credit losses of loans granted and other non-current receivables

As at 31 December 2021, the Company assessed whether credit risk of recipients of non-current and current loans has increased significantly and did not establish any indications and has no information indicating that credit risk of loan recipients on an individual basis has increased significantly. Therefore, no lifetime expected credit loss was recognised neither for non-current nor for current loans granted (Note 9).

Movements on the impairment account of non-current receivables:

	2021	2020
As at 1 January	-	88
Impairment losses	-	-
Write-off of impairment on disposal of asset	-	(88)
As at 31 December	-	-

7.2 Loans granted

The Company’s loans granted as at 31 December 2021 comprised loans granted to the following subsidiaries:

	Interest rate type	Within one year	After one year	Total
Non-current loans
Energijos skirstymo operatorius AB (green bonds)	Fixed interest	-	616,288	616,288
Energijos skirstymo operatorius AB (loans taken over)	Variable interest	7,901	33,542	41,443
Ignitis UAB	Fixed interest	-	250,000	250,000
Ignitis UAB	Variable interest	-	27,000	27,000
Ignitis UAB	Fixed interest	-	11,800	11,800
Ignitis renewables UAB	Fixed interest	-	95,000	95,000
Ignitis renewables UAB	Fixed interest	-	18,950	18,950
Tuuleenergia OÜ	Fixed interest	-	19,119	19,119
Eurakras UAB	Fixed interest	-	16,555	16,555
Current loans
Transporto valdymas UAB	Variable interest	11,000	-	11,000
Ignitis grupės paslaugų centras UAB (cash-pool)	Fixed interest	1,925	-	1,925
Ignitis UAB (cash-pool)	Fixed interest	73,861	-	73,861
Energijos skirstymo operatorius AB (cash-pool)	Fixed interest	28,728	-	28,728
Ignitis renewables UAB (cash-pool)	Fixed interest	1,641	-	1,641
Total loans		125,056	1,088,254	1,213,310

On 1 February 2021 the Company issued a long term loan to subsidiary Ignitis renewables UAB with maximum withdrawal amount EUR 293 million and a fixed interest rate 1.9%. The loan is used as needed for the acquisition, development and refinancing of existing loans for renewable energy projects. The loan is provided using the Company's green bond funds and equity. As at 31 December 2021 the balance of this loan is EUR 95 million, final repayment date is 1 February 2031.

As well during the year 2021 the Company granted additional amount to long term loan to subsidiary Ignitis renewables UAB for amount of EUR 16,300 thousand with a fixed interest rate 2.28%, the maturity of this loan is 10 July 2028. The balance of this loan increased by EUR 16,300 thousand and as at 31 December 2021 is EUR 18,950 thousand (31 December 2020: EUR 2,650 thousand).

On 23 November 2021 the Company issued a long term loan to its subsidiary Ignitis UAB with maximum withdrawal amount EUR 300 million and fixed interest rate 2.61%. The purpose of this loan is to finance the differences that have occurred in period from January 2021 till the end of 2021 between the actual purchase prices of gas and electricity and the approved tariffs which are applied to household customers. The maturity term of this loan is 24 November 2027.

The long term loan granted on 1 January 2018 to subsidiary Transporto valdymas UAB was reclassified to current loans as the final repayment date is 11 August 2022.

Fair values of loans granted are presented in Note 30.

==> picture [52 x 18] intentionally omitted <==

297 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes

All amounts are in EUR thousand unless otherwise stated

The Company’s loans granted as at 31 December 2020 comprised loans granted to the following subsidiaries:

	Interest rate type	Within one year	After one year	Total
Non-current loans
Energijos skirstymo operatorius AB (green bonds)	Fixed interest	-	616,288	616,288
Energijos skirstymo operatorius AB (loans taken over)	Variable interest	7,901	41,444	49,345
Tuuleenergia OÜ	Fixed interest	-	19,119	19,119
Eurakras UAB	Fixed interest	-	17,555	17,555
Ignitis UAB	Variable interest	-	27,000	27,000
Ignitis UAB	Fixed interest	-	11,800	11,800
Transporto valdymas UAB	Variable interest	-	17,236	17,236
Ignitis renewables UAB	Fixed interest	-	2,650	2,650
Current loans
Ignitis renewables UAB	Fixed interest	56,922	-	56,922
Ignitis UAB (Cashpool)	Fixed interest	77	-	77
Carrying amount		64,900	753,092	817,992

Non-current borrowings by maturity:

	31 December 2021	31 December 2020
From 1 to 2 years	6,708	6,907
From 2 to 5 years	47,125	64,958
After 5 years	1,034,421	681,227
Carrying amount	1,088,254	753,092

8 Other receivables

Other receivables consisted of:

	31 December 2021	31 December 2020
Dividends receivable	100 440	-
Amount receivable on sale of LitGrid AB	84 128	14 481
Other receivables	29	273
Total	184 597	14 754
Less: impairment	-	-
Carrying amount	184 597	14 754

8.1 Amount receivable on sale of shares of LitGrid AB

At the initial assessment of the price premium the Company concluded that according to the purchase-sale agreement of shares of LitGrid AB, the price premium is negative and amounts to EUR 4,679 thousand. According to EPSO-G UAB calculations the price premium at 31 December 2020 is negative and amounts to EUR 27,075 thousand.

For the purposes of the statement of financial position, the Company’s management has assessed and recognised the negative premium price for the amount of EUR 15,877 thousand on the basis of a scenario, that the possible agreement between the parties would be the average value of the Company's and EPSO-G UAB calculations.

On December 2021 the Company and EPSO-G UAB came to an agreement that the negative premium price is for amount EUR 17,961 thousand. Accordingly, the Company recognized EUR 2,084 thousand change of fair value as financial expenses in profit and loss of SPLOCI (see Note 25).

Net receivable on sale of the shares of LitGrid AB is accounted in the item “Other receivables” of the statement of financial position.

During the year 2021 EPSO-G UAB has repaid a debt by EUR 64,481 thousand (during 2020: EUR 7,965 thousand).

==> picture [52 x 18] intentionally omitted <==

298 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes

All amounts are in EUR thousand unless otherwise stated

9 Current loans and interests receivable

The Company’s current loans comprised as follows:

	31 December 2021	31 December 2020
Cash-pool loans	106,155	77
Interest receivable on loans and issued guarantees	11,396	9,056
Current loans	11,000	56,922
Current portion of non-current loans	7,901	7,901
Total	136,452	73,956
Less: impairment	-	-
Carrying amount	136,452	73,956

11 Other assets

11.1 Other non-current assets

Other non-current assets comprised as follows:

	31 December 2021	31 December 2020
Deposit related to buyout of shares in subsidiaries	-	19,050
Carrying amount	-	19,050

11.2 Other current assets

Other current assets comprised as follows:

During the year 2021 the Company increased loans issued to its subsidiaries through the Group’s cash-pool platform from EUR 77 thousand to EUR 106,155 thousand.

10 Other financial assets

The Company’s other non-current financial assets comprised as follows:

Innovation Fund Smart Energy Fund powered by Ignitis Group KŪB (Note 4.3)	31 December 2021 25,094	31 December 2020 4,912
Carrying amount	25,094	4,912

	31 December 2021	31 December 2020
Deposit into an escrow account	16,237	45,000
Deposit related to buyout of shares in subsidiaries	3,777	-
Carrying amount	20,014	45,000

Deposit into an escrow account

On 7 October 2020 the Company has executed IPO distributing the increased share capital between private and institutional investors. Together with IPO process the Company deposited in an escrow account EUR 45,000 thousand till July 2021 in accordance with stabilisation activities performed by Swedbank AB.

On 7 July 2021 the Company signed the agreement with Swedbank AB to extend the Long Stop Date to 1 July 2022.

On December 2021 the Company acquired treasury shares (Note 14.2) and Stabilisation Manager Swedbank AB disposed the Stabilized Securities. Related to this, deposit into an escrow account decreased and the carrying amount is EUR 16,237 thousand as at 31 December 2021. This deposit is not available to finance the Company’s day-to-day operations until the specified term.

Deposit related to buyout of shares in subsidiaries

The Company had a contractual obligation to buy out all the shares of the subsidiaries Energijos skirstymo operatorius AB and Ignitis gamyba AB. In accordance with buy out procedures, the Company deposited in a bank account EUR 19,050 thousand to cover the price of shares as at 31 December 2020.

During 2021 the Company has acquired shares from minority shareholders of subsidiaries Energijos skirstymo operatorius AB and Ignitis gamyba AB (Note 6.1). Consequently, deposit related to buyout of shares in subsidiaries decreased and the carrying amount is EUR 3,777 thousand as at 31 December 2021 (Note 11.2). This deposit is not available to finance the Company’s day-to-day operations.

==> picture [52 x 18] intentionally omitted <==

299 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes

All amounts are in EUR thousand unless otherwise stated

12 Cash and cash equivalents

The Company‘s cash and cash equivalents comprised as follows:

	31 December 2021	31 December 2020
Cash balances in bank accounts	125,323	421,289
In total	125,323	421,289

As at 31 December 2021 and 2020, cash and cash equivalents comprised cash in bank.

The fair values of cash and cash equivalents as at 31 December 2021 and 2020 approximated their carrying amounts.

13 Assets held-for-sale

Non-current assets held-for-sale comprised as follows:

	31 December 2021	31 December 2020
Property, plant and equipment and investment property	-	-
Investments in subsidiaries	-	-
In total	-	-

Movement of non-current assets held-for-sale was as follows:

	2021	2020
Carrying amount as at 1 January	-	7,141
Disposals	(6,659)	(4,705)
Reclassified (to) from:
Investments in subsidiaries	6,659	(2,359)
Investment property	-	(77)
Carrying amount as at 31 December	-	-

During the year 2020 the management changed its decision to sell a subsidiary Transporto valdymas UAB. A subsidiary Duomenų logistikos centras UAB was sold as at 7 July 2020. The Company sold property classified as held for sale of EUR 4,705 thousand carrying value for EUR 6,167 thousand consideration.

During 2021 the Company reclassified it’s investment in subsidiary Tuuleenergia OÜ to the assets held for sale with carrying value of EUR 6,659 thousand. The transfer of the shares to Company’s subsidiary Ignitis Renewables UAB was settled on 16 December 2021 (Note 6.2).

14 Equity

14.1 Issued capital

Issued capital of the Company consisted of:

	31 December 2021	31 December 2020
Authorised shares
Ordinary shares, EUR	1,658,756,294	1,658,756,294
Ordinary shares issued and fully paid, EUR	1,658,756,294	1,658,756,294

As at 31 December 2021 and 31 December 2020 the Company’s issued capital comprised EUR 1,658,756,294 and was divided in to 74,283,757 ordinary registered shares with EUR 22.33 nominal value for a share, emission price EUR 22.50 value for a share.

As at 26 August 2020 a decision was adopted to change the nominal value and number of shares issued by the Company. In accordance with the decision of the Ministry of Finance, the nominal value of one ordinary registered share of the Company is changed from EUR 0.29 to EUR 22.33. Upon the change of the nominal value of one share, the authorized capital of the Company was divided into 54,283,757 ordinary registered shares.

On 7 October 2020 the Company’s whole newly issued capital consisting of 20,000,000 ordinary registered shares has been admitted to the Main Trading List of Nasdaq Vilnius, as well the global depositary receipts (hereinafter “GDR”) representing the shares have been admitted to the standard listing segment of the Official List of the United Kingdom Financial Conduct Authority (FCA) and to trading on the Main Market of the London Stock Exchange.

The IPO solely was comprised of 20,000,000 shares newly issued on 5 October 2020. The IPO consists of two tranches: 1) securities in the form of shares and GDR offered to institutional investors, and 2) securities in the form of shares offered to retail investors who are residents of Lithuania, Latvia and Estonia. During the IPO, institutional investors subscribed for 18,130,699 shares in the form of shares and GDRs. Retail investors subscribed for 1,869,301 shares during the IPO.

On 7 October 2020 the Company’s share premium comprised EUR 3,400 thousand. The attributable costs of the issuance of the shares of EUR 11,033 thousand have been charged directly to equity as a reduction in share premium EUR 3,400 thousand and EUR 7,633 thousand as a reduction in retained earnings. Transaction costs directly attributable to issuing new shares of EUR 11,033 thousand comprised mainly of fees to syndicate banks of the IPO.

At the ordinary general meeting of shareholders held on 25 March 2021 it was decided to form a reserve of EUR 23,000 thousand for the acquisition of treasury shares (Note 14).

==> picture [52 x 18] intentionally omitted <==

300 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes All amounts are in EUR thousand unless otherwise stated

14.2 Treasury shares

Treasury shares of the Company consisted of:

	31	December 2021	31 December 2020
Acquired treasury shares		23,000	-
Carrying amount		23,000	-

On 2 December 2021 the Management Board of the Company, according to the resolution of the General Meeting of Shareholders of 29 July 2021, adopted a decision to execute the acquisition of ordinary registered shares of the Company.

The Company on 6–14 December 2021 has conducted an acquisition of the Company’s ordinary registered shares – treasury shares through the auction for tender offers of AB “Nasdaq Vilnius” stock exchange, with AB SEB bankas acting as an intermediary. Treasury shares acquired by the Company on 16 December 2021, when the right of ownership transferred to the Company. Shares purchase price 18.50 per treasury share, number of shares acquired 1,243,243 and total amount of treasury shares acquired EUR 23,000 thousand.

15 Reserves

15.1 Legal reserve

The legal reserve is a compulsory reserve under the Lithuanian legislation. Companies in Lithuania are required to transfer at least 5% of net profit from distributable profit until the total reserve reaches 10% of the issued capital. The legal reserve shall not be used for payment of dividends and is formed to cover future losses only.

The Company’s legal reserve as at 31 December 2021 and as at 31 December 2020 was not fully formed.

15.2 Treasury shares reserve

At the ordinary general meeting of shareholders held on 25 March 2021 it was decided to form a reserve of EUR 23,000 thousand for the acquisition of treasury shares.

14.3 Earnings per share

The Company’s earnings per share and diluted earnings per share were as follows:

	2021	2020
Net profit (loss)	231,558	114,587
Attributable to:
Equity holders of the parent	231,558	114,587
Non-controlling interests	-	-
Weighted average number of nominal shares	74,232,665	59,037,855
Basic earnings/(loss) per share attributable to shareholders of the Parent Company	3.12	1.94
Diluted earnings/(loss) per share attributable to shareholders of the Parent Company	3.12	1.94

==> picture [52 x 18] intentionally omitted <==

301 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes

All amounts are in EUR thousand unless otherwise stated

16 Share based payments

On 18 December 2020 share option agreements of the long-term promotion of key executives of the Company and its subsidiaries’ programme have been concluded with key executives of the Company and subsidiaries.

On 12 May 2021 the Supervisory Board of the Company approved the suggestions of key executives of the Company and subsidiaries to terminate executives’ option agreements.

During the year 2021 share based payments costs accounted in SPLOCI “Salaries and related expenses” for an amount of EUR 157 thousand and reflects the share-based payments agreements concluded with key executives. As share-based payments agreements were voluntarily terminated without any compensation to executives and cancellation is not related to the failure of meeting vesting conditions, thus they have been accounted for as accelerated vesting of share based payments and therefore full expense and related increase in equity recognised immediately.

17 Loans and bonds

Loans and bonds of the Company consisted of:

	31 December 2021	31 December 2020
Non-current
Bonds issued	888,524	886,945
Current
Accrued interest	9,143	9,143
Total loans and bonds	897,667	896,088

For the year 2021 expenses related to interest on the issued bonds totalled EUR 19,205 thousand (2020: EUR 16,689 thousand). The accrued amount of coupon payable as at 31 December 2021 amounted to EUR 9,143 thousand (31 December 2020: EUR 9,143 thousand).

Bonds by maturity:

	31 December 2021	31 December 2020
From 1 to 2 years	-	-
From 2 to 5 years	-	-
After 5 years	888,524	886,945
In total	888,524	886,945

Loans and bonds are denominated in euros.

During the year 2021 the Company didn’t have any breaches of financial and non-financial covenants due to which the classification of current and non-current could be changed.

As at 31 December 2021, the Company’s unwithdrawn balance of loans and bank overdrafts amounted to EUR 110,000 thousand (31 December 2020: EUR 267,896 thousand).

==> picture [52 x 18] intentionally omitted <==

302 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes

All amounts are in EUR thousand unless otherwise stated

18 Net debt

Net debt is a non-IFRS liquidity metric used to determine the value of debt against highly liquid assets owned by the Company. For the purpose of net debt calculation, borrowings comprise only debts to financial institutions and other debts relating to financing. This note sets out an analysis of net debt, a non-IFRS measure for the purposes of these financial statements presentation defined by management as presented below.

Net debt balances:

	31 December 2021	31 December 2020
Cash and cash equivalents	(125,323)	(421,289)
Deposit in escrow account (Note 11.2)	-	(45,000)
Non-current borrowings payable after one year	888,524	886,945
Current borrowings payable within one year (including overdraft and accrued interest)	9,143	9,143
Lease liabilities	17,749	520
Net debt	790,093	430,319

Reconciliation of the Company’s net debt balances cash flows from financing activities:

	Assets	Lease liabilities Borrowings
	Cash and cash equivalents Deposit in escrow account	Total
		Non-current Current Non-current Current
Net debt at 1 January 2020	(144) -	563 277 639,465 229,638 869,799
Cash changes Increase (decrease) in cash and cash equivalents (including overdraft) Issue of bonds Repayments of borrowings Lease payments Interest paid Deposit into an escrow account (Note 11.2) Non-cash changes Lease contracts concluded Accrual of interest payable Reclassifications between items Cost of issue of bond correction	(421,145) - - - - - - - - - - (45,000) - - - - - - - -	- - - - (421 145) - - 295,657 - 295 657 - - (43,418) (230,119) (273 537) - (261) - - (261) - - - (13,272) (13,272) - - - - (45,000) (60) 2 - - (58) (1) - 7,375 10,962 18,336 (235) 235 (11,934) 11,934 - - - (200) - (200)
Net debt at 31 December 2020	(421,289) (45,000)	267 253 886,945 9,143 430,319
Net debt at 1 January 2021	(421,289) (45,000)	267 253 886,945 9,143 430,319
Cash changes (Increase) decrease in cash and cash equivalents Lease payments Interest paid Deposit in escrow account utilised (Note 11.2) Non-cash changes Lease contracts concluded Lease liabilities write-off Accrual of interest payable Reclassifications between items Other non-cash changes1	295,966 - - - (1,511) - - 28,763 - - - - 1,511 - - - 16,237	- - - - 295,966 - (512) - - (512) - (84) - (17,749) (19,344) - - - - 28,763 16,551 1,449 - - 18,000 (120) (139) - - (259) - 84 1,579 17,749 20,923 (704) 704 - - - - - - - 16,237
Net debt at 31 December 2021	(125,323) -	15,994 1,755 888,524 9,143 790,093

==> picture [52 x 18] intentionally omitted <==

303 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes All amounts are in EUR thousand unless otherwise stated

19 Lease liabilities

The Company minimum payments under leases are as follows:

	31 December 2021	31 December 2020
Minimum payments
Within the first year	1,991	255
From two to five years	7,812	268
More than five years	9,186	-
In total	18,989	523
Future finance costs
Within the first year	(236)	(2)
From two to five years	(702)	(1)
More than five years	(302)	-
In total	(1,240)	(3)
Carrying amount	17,749	520

The Company’s lease liabilities related to buildings amounted to EUR 17,682 thousand as at 31 December 2021 (31 December 2020: EUR 415 thousand). As at 31 December 2021, the validity terms of the effective lease contracts for buildings expire in the 2031.

20 Other current amounts payable and liabilities

The Company’s other current amounts payable and liabilities are as follows:

	31 December 2021	31 December 2020
Irrevocable commitment to acquire a minority interest	3,751	-
Personal income tax payable from bonds interest	1,371	-
Payroll related liabilities	937	1,087
Taxes (other than income tax)	447	368
Accrued expenses	144	124
Other amounts payable and liabilities	46	-
Carrying amount	6,696	1,579

21 Revenue from contracts with customers

The Company’s revenue from contracts with customers are as follows:

	2021	2020
Management fee income	2,844	3,104
Other revenue from contracts with customers	357	1,782
Total	3,201	4,886

The Company’s revenue from contracts with customers during 2021 and 2020 mainly comprised the revenue from advisory and management services provided to subsidiaries.

The Company did not present any segment information as there is only one segment.

The timing when the Company satisfies its performance obligations:

Performance obligation settled over time	2021 3,201	2020 3,104
Performance obligation settled at point of time	-	1,782
In total	3,201	4,886

The Company’s balances under the contracts with customers:

	31	December	2021	31	December	2020
Tradereceivables			494			313

Financial liabilities comprise EUR 5,191 thousand from total Other current amounts payable and liabilities (EUR 90 thousand as at 31 December 2020). Accrued expenses, taxes (other than income tax) and payroll related liabilities are not financial liabilities.

==> picture [52 x 18] intentionally omitted <==

304 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes All amounts are in EUR thousand unless otherwise stated

22 Dividends

22.1 Dividends declared by the Company

The table below provides dividends declared by the Company during the year:

	2021	2020
Ignitis grupė AB	86,763	70,000

EUR 43.010 million dividends for the second half of 2020 was approved at the Annual General Meeting on 25 March 2021.

EUR 43.753 million dividends for the first half of 2021 was approved at the Annual General Meeting on 27 September 2021.

Dividends received by IPO Stabilisation Manager (Swedbank AB) in connection with acquired Stabilisation Shares according True up agreement, were returned back to the Company for an amount EUR 1,970 thousand after withholding tax deduction.

Dividends declared per share:

	Period for which	Dividends	Amount of
Declared on	dividends are	per share,	dividends
	allocated	in EUR	declared
March 2021	2020 II half-year	0.579	43 010
September 2021	2021 I half-year	0.589	43 753
Total declared during 2021 year			86,763
May 2020	2019 year	6.699	28,000
September 2020	2020 I half-year	10.048	42,000
Total declared during 2020 year			70,000

22.2 Dividends received by the Company

Dividends received by the Company from Group companies during the year 2021 are the following:

Declared at	Dividends declared by	Period for which dividends are allocated	Dividends per share, in EUR	Amount of dividends declared	Dividend income attributable to the Company	Non- controlling interest dividends
30/03/2021	Energijos skirstymo operatorius
	AB	2020	0.0620	55,467	54,654	813
25/03/2021	Ignitis UAB	2020	0.2869	39,715	39,715	-
30/03/2021	Ignitis grupės paslaugų centras
	UAB	2020	0.0176	745	376	-
31/03/2021	Ignitis gamyba AB	II half-year
		2020	0.0290	18,792	18,453	339
21/12/2021	Ignitis gamyba AB	I-III qtr.
		2021	0.1550	100,440	100,440	-
30/03/2021	Tuuleenergia OÜ	2020	928,000	928	928	-
30/03/2021	Transporto valdymas,UAB	2020	16.1532	1,316	1,316	-
04/05/2021	Ignitis renewables UAB	2019-2020	2,218	6,655	6,655	-
27/04/2021	Energetikos paslaugų ir rangos
	organizacija UAB	2020	0.1835	223	223	-
Total				224,281	222,760	1,152

Dividends received by the Company from Group companies during the year 2020 are the following:

Declared at	Dividends declared by	Period for which dividends are allocated	Dividends per share, in EUR	Amount of dividends declared	Dividend income attributable to the Company	Non- controlling interest dividends
30/04/2020	Energijos skirstymo	2019
	operatorius AB		0.0760	67,992	66,399	1,593
27/04/2020	NT valdos UAB	2019	21.7901	3,762	3,762	-
22/04/2020	Ignitis grupės	2019
30/04/2020	paslaugų centras UAB Ignitis gamyba AB	2019	0.0175 0.0560	739 36,288	374 35,361	4 927
28/09/2020	Ignitis gamyba AB	2020 I half-year	0.0230	14,904	14,635	269
26/10/2020 05/2020	Tuuleenergia OÜ Energijos skirstymo	2019	1,680,000	1,680	1,680	-
	operatorius AB1		-	-	(1,819)	-
05/2020	Ignitis gamyba AB1		-	-	(229)	-
Total				125,365	120,163	2,793
1For the purpose of SPLOCI, 2020 dividend income was reduced by the amount of dividends paid as premium to the
former shareholders of Energijos skirstymo operatorius AB and Ignitis gamyba AB

22.3 Additional bonus equal to the amount of dividends

The Tender Offer Circular approved by the Bank of Lithuania on 30 March 2020 indicates that if the Ordinary Meetings of Shareholders of Ignitis gamyba AB and Energijos skirstymo operatorius AB held on 30 April 2020 have adopted the resolution to pay dividends to the shareholders of these companies for the year 2019, to the persons who are not the shareholders of the Company on the rights accounting day as a result of selling their shares to the Company, the Company will pay an additional bonus equal to the amount of dividends that a shareholder would have received in proportion to the shares he/she held and sold to the offeror at the time of the official tender offer, if he had been a shareholder of the Company on the rights accounting day.

In line with the resolution of the General Meeting of Shareholders of Ignitis gamyba AB on 30 April 2020 to pay dividends (EUR 0.056 per share), the Company paid additional bonuses equal to the amount of dividends to the former shareholders of Ignitis gamyba AB in May 2020 in the amount of EUR 229 thousand.

In line with the resolution of the General Meeting of Shareholders of Energijos skirstymo operatorius AB on 30 April 2020 to pay dividends (EUR 0.076 per share), the Company paid additional bonuses equal to the amount of dividends to the former shareholders of Energijos skirstymo operatorius AB in May 2020 in the amount of EUR 1,819 thousand.

==> picture [52 x 18] intentionally omitted <==

305 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes

All amounts are in EUR thousand unless otherwise stated

23 Other expenses

The Company’s other expenses are as follows:

	2021	2020
Business support services	1,930	1,315
Consultation services	923	1,141
Public relationship and marketing services	466	747
Telecommunications and IT services	459	370
Utilities	83	103
Other expenses	410	633
In total	4,271	4,309

24 Finance income

The Company’s finance income are as follows:

	2021	2020
Interest income at the effective interest rate	22,692	20,007
The fair value of Innovation Fund Smart Energy Fund powered by
Ignitis Group KŪB (Note 4.3)	15,869	-
In total	38,561	20,007

The Company earns interest income from long-term and short-term loans, the majority of which is granted to the Group companies (Note 7.2, 9). During the year 2021, the Company received EUR 20,770 thousand (2020: EUR 18,556 thousand) interest income in cash, which is presented in the cash flow statement under ‘Interest received’.

25 Finance expenses

The Company’s finance expenses are as follows:

	2021	2020
Interest expenses	20,839	18,337
Fair value change of consideration from EPSO-G (Note 8.1)	2,084	-
Interest and discount expense on lease liabilities	84	(1)
Negative effect of changes in exchange rates	7	9
Other expenses of financing activities	3,152	732
In total	26,166	19,077

The Company incurs interest expense on long-term and short-term loans payable and bonds issued (Note 17). During the year 2021, the Company paid interest in cash in the amount of EUR 19,344 thousand (2020: EUR 13,272 thousand), which are presented in the cash flow statement under ‘Interest paid’.

26 Income tax expenses

Income tax expenses for the period comprise current year income tax and deferred tax. Under the Republic of Lithuania Law on Corporate Income Tax, the income tax rate of 15% was assessed on profit in year 2021 and 2020. The Company’s income tax expenses during the year 2021 and 2020 were as follows:

	2021 2020
Income tax expenses (benefit) for the reporting period Deferred tax expenses (benefit)	51 - (360) (441)
Income tax expenses (benefit) recognised in profit or loss	(309) (441)

Income tax on the Company’s profit before tax differs from the theoretical amount that would arise using the tax rate applicable to profit of the Company:

	2021	2021	2020	2020
Profit (loss) before tax		231,249		114,146
Income tax expenses (benefit) at tax rate of 15%	15.00%	34,687	15.00%	17,122
Expenses not deductible for tax purposes	0.53%	1,341	0.19%	214
Income not subject to tax	(15.71)%	(36,337)	(16.11)%	(18,389)
Impairment/(reversal of impairment) of
investments in subsidiaries	-	-	0.54%	612
Income tax expenses (benefit)	(0.13)%	(309)	(0.19%)	(441)

27 Deferred tax

			Impact			Impact
	31	Recognised	from	31	Recognised	from	31
	December	in profit or	utilised	December	in profit or	utilised	December
	2019	loss	tax	2020	loss	tax	2021
			losses			losses
Deferred tax assets
Accrued expenses	163	(66)	-	97	(24)	-	73
Tax losses carried forward	600	507	(561)	546	363	(490)	419
Other	-	-	-	-	22	-	22
Deferred tax asset, net	763	441	(561)	643	361	(490)	514
Deferred tax liabilities
Differences in depreciation rates	-	-	-	-	1	-	1
Deferred tax liability, net	-	-	-	-	1	-	1
Deferred tax, net	763	441	(561)	643	360	(490)	513

==> picture [52 x 18] intentionally omitted <==

306 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes All amounts are in EUR thousand unless otherwise stated

28 Contingent liabilities and commitments

28.1 Guarantees issued and received by the Company

28.1.1 Issued guarantees related to loans

The Company’s guarantees issued in respect of loans received by subsidiaries were as follows:

Name of the subsidiary	Beneficiary of the guarantee	Issue at	Maturity	Maximum amount of the guarantee	31 December 2021	31 December 2020
Vilniaus kogeneracinė	European
jėgainė UAB	Investment Bank	05/12/2016	07/04/2037	190,000	139,649	139,984
Kauno kogeneracinė
jėgainė UAB	Swedbank AB	31/05/2017	18/10/2022	59,000	56,100	58,502
Pomerania Wind Farm	European
sp. z o. o.	Investment Bank	09/03/2020	31/12/2035	67,350	55,311	56,560
Pomerania Wind Farm	Nordic Investment
sp. z o. o.	Bank	14/10/2020	31/12/2035	32,157	32,157	32,920
Group companies	Group companies	25/05/2021	24/05/2022	-	67,973	12,459
	Swedbank lizingas,
Vėjo gūsis UAB	UAB	29/01/2019	28/02/2022	9,258	258	4,327
	Swedbank lizingas,
Vėjo vatas UAB	UAB	29/01/2019	28/02/2021	9,687	-	5,125
				367,452	351,448	309,877

On 5 December 2016, the Company and the European Investment Bank (hereinafter “EIB”) (Luxembourg) signed a guarantee and indemnity agreement under which the Company secured fulfilment of all current and future obligations of subsidiary Vilniaus kogeneracinė jėgainė UAB in the amount of EUR 190,000 thousand under the credit agreement signed on 5 December 2016 with the EIB for the term of 17 years. The guarantee cover the repayment of all types of payables related to the usage of the provided loan to the EIB. As at 31 December 2021, amounts withdrawn by Vilniaus kogeneracinė jėgainė UAB from the loan provided by the EIB totalled EUR 139,649 thousand (31 December 2020: EUR 139,984 thousand).

On 31 May 2017, the Company’s subsidiary Kauno kogeneracinė jėgainė UAB and Swedbank AB signed the credit agreement for the amount of EUR 120,000 thousand. The loan is designated for the financing of construction works of the co-generation power plant complex in Kaunas and the financing of the following construction-related expenses of the project being implemented: financing of payments under the agreements on construction, supply of equipment, electrification, general construction works, general systems, installation of automation systems, insurance, management of the construction site, project management, as well as the financing of advance payments (credit funds cannot be used for the financing of interest and unforeseen expenditure), excl. VAT. As at 31 December 2021, amounts withdrawn from the loan provided totalled EUR 110,000 thousand (31 December 2020: EUR 114,709 thousand). Monetary liabilities of Kauno kogeneracinė jėgainė UAB to the bank under the credit agreement are secured by the guarantees issued by the Company and Luxembourg Investment Company 414 S.A R.L. in proportion to the number of shares of Kauno kogeneracinė jėgainė UAB held, i.e. 51% of shares is held by the Company and 49% is held by Gren Lietuva UAB.

Pomerania Wind Farm sp. z o. o., part of the group of companies owned by the Company, has entered into an agreement with the EIB by which the loan of PLN 258 million (approx. EUR 56 million) was disbursed to the company for the Pomerania wind farm project in Poland. The first-call guarantee agreement for this loan was concluded between the Company and EIB. The guarantee amounts to PLN 309 million (approx. EUR 67 million). The Company’s subsidiary Ignitis renewables UAB, which owns all the shares of Pomerania Wind Farm sp. z o. o. signed an agreement with EIB for pledging 100% of the shares of Pomerania Wind Farm sp. z o. o. in favour of the lender. The repayment date of the loan is 31 December 2035. In December 2021 Pomerania Wind Farm sp. z. o. o. began to repay the long-term loan, and the remaining amount of the loan to EIB was PLN 254 million (approx. EUR 55 million).

Pomerania Wind Farm sp. z o. o., part of the group of companies owned by the Company, has entered into an agreement with the Nordic Investment Bank (hereinafter “NIB”) by which the loan of PLN 149 million (approx. EUR 32 million) was disbursed to the company for the Pomerania wind farm project in Poland. The first-call guarantee agreement for this loan was concluded between the Company and NIB. The guarantee amounts to 100% of loan amount. The Company’s subsidiary Ignitis renewables UAB, which owns all the shares of Pomerania Wind Farm sp. z o. o. signed an agreement with NIB for secondary pledging 100% of the shares of Pomerania Wind Farm sp. z o. o. in favour of the lender. In December 2021 Pomerania Wind Farm sp. z o. o. began to repay the longterm loan, and the remaining amount of the loan to EIB was PLN 148 million (approx. EUR 32 million).

The Group companies can lend each other their funds by virtually transferring them to the Group’s corporate account (cash-pool) opened at the bank Swedbank AB. The Company guarantees that funds borrowed by the subsidiaries at the cash-pool account are timely repaid to the subsidiaries that have lent funds. As at 31 December 2021, the amount lent and borrowed by the subsidiaries at the Group’s cash-pool account totalled EUR 174,128 thousand (31 December 2020: EUR 12,536 thousand), including the amount of EUR 106,155 thousand (31 December 2020: EUR 77 thousand) lent by the Company.

28.1.2 Other issued guarantees

The Company has provided the following other guarantees for its subsidiaries:

Name of the subsidiary	Beneficiary of the guarantee	Issue at	Maturity	Maximum amount of the guarantee	31 December 2021	31 December 2020	31 December 2020
Ignitis UAB	NASDAQ Clearing AB	24/05/2021	termless	110,000	3,494		-
Pomerania Wind Farm sp. z o. o.	Nordex Polska sp. z o.o.	31/05/2019	termless	83,354	874		-
VVP Investments UAB	Nordex Polska sp.z o.o.	17/02/2021	termless	55,097	-		-
Gamybos optimizavimas UAB	Ignitis gamyba AB	01/01/2020	30/06/2023	5,000	-	5,000
Moray Offshore Windfarm (West) Limited	Engie UK Markets Limited	21/04/2021	termless	1,270	-		-
Moray Offshore Windfarm	Siemens Gamesa
(West) Limited	Renewables	08/09/2021	31/12/2025
	Energy Limited			2,079	-		-
VVP Investments UAB	Swedbank AB	11/10/2019	01/08/2023	945	945		945
Energetikos paslaugų ir rangos organizacija UAB	SEB bankas AB	04/07/2018	08/10/2023	-	-		405
				257,745	5,313	6,350

==> picture [52 x 18] intentionally omitted <==

307 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes

All amounts are in EUR thousand unless otherwise stated

The Company has issued guarantee for its subsidiary Ignitis UAB for the market risk exposure related to trading activities performed on NASDAQ platform. Subsidiary performs electricity-related trading of financial derivatives for hedge accounting purposes. Guarantee was issued due to increased trading activity on NASDAQ platform.

The Company has issued guarantee for its subsidiary Pomerania Wind Farm sp. z o. o. as Pomerania Wind Farm sp. z o. o. entered into supply and installation agreement with Nordex Polska sp. z o. o. for the supply and installation of wind turbine equipment for a wind farm. The Company undertakes and guarantees the performance of all payment obligations under the agreement concluded.

The Company has issued guarantee for its subsidiary VVP Investments UAB as VVP Investments UAB entered into supply and installation agreement with Nordex Polska sp. z o. o. for the supply and installation of wind turbine equipment for a wind farm. The Company undertakes and guarantees the performance of all payment obligations under the agreement concluded.

28.2 Litigations

There are no significant litigations as at 31 December 2021.

28.3 Comfort letter provided to Kauno kogeneracinė jėgainė UAB

As at 20 January 2021 the Group has provided comfort letter to Kauno kogeneracinė jėgainė, UAB (hereinafter – KKJ), where it is stated that the Group will undertake to continue to provide such financial and other support as necessary to KKJ at least for the next twelve months from the date of this letter, to enable KKJ to continue to trade and to meet its obligations (31 December 2021 KKJ short term liabilities exceeded short term assets by EUR 95,170 thousand). The Company does not expect that there will be need of material support to KKJ or that loss will be incurred by the Company due to activities of KKJ.

29 Related-party transactions

The Company’s transactions with related parties during the year 2021 and year-end balances arising on these transactions as at 31 December 2021 are presented below:

Related parties	Accounts Receivable	Loans receivable	Accounts Payable	Sales	Purchases	Finance income / (cost)
Subsidiaries	100,947	1,224,689	699	3,203	1,874	22,339
EPSO-G UAB	84,128	-	78	-	-	335
Total	185,075	1,224,689	777	3,203	1,874	22,674

The Company transactions with related parties during the year 2020 and year-end balances arising on these transactions as at 31 December 2020 are presented below:

Related parties	Accounts Receivable	Loans receivable	Accounts Payable	Sales	Purchases	Finance income / (cost)
Subsidiaries	313	826,903	503	3,105	1,745	19,260
EPSO-G UAB	150,839	-	-	-	-	747
Total	151,152	826,903	503	3,105	1,745	20,007

The Company’s dividend income received from subsidiaries during the year 2021 and 2020 is disclosed in Note 22.

As at 31 December 2021 the Company has issued guarantees for financial loans to its subsidiaries (Note 27.1.1)

29.1 Compensation to key management personnel

	2021	2020
Wages and salaries and other short-term benefits to key
management personnel	957	780
Whereof:
Short-term employee benefits	792	780
Termination benefits	8	-
Share-based payment expenses	157	-
Number of key management personnel	11	12

Only members of Board, Supervisory board and Chief Executive Officer are assigned to the Company’s key management personnel.

For share-based payments related to key management personnel – see Note 16.

==> picture [52 x 18] intentionally omitted <==

308 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes All amounts are in EUR thousand unless otherwise stated

30 Fair values of financial instruments

Financial instruments, measured at fair value

The Company’s amounts receivable for saleof LitGrid AB shares (Level 3) and investment into “Innovation Fund Smart Energy Fund powered by Ignitis Group KŪB” (Level 3) are measured at fair value.

As at 31 December 2021 and 2020, the Company accounted for an amount receivable for the sale of LitGrid AB at fair value through profit or loss. Their fair value is attributed to Level 3 in the fair value hierarchy. Fair value was estimated on the basis of discounted cash flows using the rate of 0.298% (31 December 2020 – 0.298%).

As at 31 December 2021 and 2020, the Company has accounted for investment into “Innovation Fund Smart Energy Fund powered by Ignitis Group KŪB”. The Company accounts for financial asset at fair value and their accounting policies are set out in Note 4.3. Fair value corresponds to Level 3 in the fair value hierarchy.

Financial instruments for which fair value is disclosed

The carrying amount of the Company’s short-term financial assets and financial liabilities measured at amortised cost approximated their fair value, except for bond issue debts and loans granted. The measurement of financial instruments related to the loans and bonds issued is attributed to Level 2, of the fair value hierarchy.

As at 31 December 2021 and 31 December 2020, the fair value of the Company’s amounts receivable related to loans receivable from the subsidiary Energijos skirstymo operatorius AB is estimated by discounting cash flows with market interest rate increased by EUR interest rate swap for tenors that is similar to period left until redemption of issued bonds. The cash flows were discounted using an average discount rate of 2.90% (31 December 2020 – 2.186%). The fair value of amounts receivables is attributed to Level 2 of the fair value hierarchy.

The Company’s fair value of loans granted is calculated by discounting future cash flows with reference to the interest rate observable in the market. The cash flows were discounted using a weighted average discount rate of 2.76% as at 31 December 2021 (31 December 2020 – 2.56%). The measurement of financial liabilities related to the debts is attributed to Level 2 of the fair value hierarchy.

The table below presents allocation between the fair value hierarchy levels of the Company’s financial instruments as at 31 December 2021:

			Level 1	Level 2	Level 3
	Note	Carrying amount	Quoted prices in active markets	Other directly or indirectly observabl e inputs	Unobser- vable inputs	In total
Financial instruments measured at fair value through profit (loss)
Assets
Receivable for the sale of LitGrid AB	8	84,128	-	-	84,128	84,128
Innovation Fund Smart Energy Fund
powered by Ignitis Group KŪB	10	25,094	-	-	25,094	25,094
Financial instruments for which fair	value is disclosed
Assets
Bond receivables from subsidiary
Energijos skirstymo operatorius AB Loans granted	7, 9 7, 9	624,644 599,447	- -	596,129 587,893	- -	596,129 587,893
Liabilities
Bonds issued	17	897,667	-	856,215	-	856,215

The table below presents allocation between the fair value hierarchy levels of the company’s financial instruments as at 31 December 2020:

			Level 1	Level 2	Level 3
	Note	Carrying amount	Quoted prices in active markets	Other directly or indirectly observable inputs	Unobser- vable inputs	In total
Financial instruments measured at fair value through profit (loss)
Assets
Receivable for the sale of LitGrid AB	7, 8	150,693	-	-	150,693	150,693
Innovation Fund Smart Energy Fund
powered by Ignitis Group KŪB	10	4,912	-	-	4,912	4,912
Financial instruments for which fair	value is disclosed
Assets
Bond receivables from subsidiary
Energijos skirstymo operatorius AB	7, 9	616,288	-	614,862	-	614,862
Loans granted	7, 9	210,760	-	207,105	-	207,105
Liabilities
Bonds issued	17	896,088	-	894,158	-	894,158

The Company’s bond issue debt (Note 17) fair value was calculated by discounting future cash flows related to the coupon payments with reference to the interest rate observable in the market and the regular future payments related to issued bonds. The cash flows were discounted using a weighted average discount rate of 2.90% as at 31 December 2021 (31 December 2020 – 2.186%). Discount rates for certain bond issues are determined as market interest rate increased by EUR interest rate swap for tenors that is similar to period left until redemption of issued bonds. The bond issue debt is attributed to Level 2 of the fair value hierarchy.

==> picture [52 x 18] intentionally omitted <==

309 / 364

Content »

Annual report 2021 / Parent company‘s financial statements / Explanatory notes

All amounts are in EUR thousand unless otherwise stated

31 Remuneration to auditors

Following Company’s remuneration to the independent audit firms:

	2021	2020
Audit of the financial statements under the agreements (KPMG
Baltics, UAB)	84	-
Audit of the financial statements under the agreements (Ernst &
Young Baltic, UAB)	24	75
Initial public offering related services	-	117
Bonds issue related services	-	87
Expenses of other services	81	-
Carrying amount	189	279

32 Events after the reporting period

There were no significant events after the reporting period till the issue of these financial statements.

==> picture [52 x 18] intentionally omitted <==

310 / 364

Annual report 2021 / Financial statements

Contents »

6 .3 Independent auditor’s report

The independent auditor's report is available below.

==> picture [110 x 110] intentionally omitted <==

==> picture [110 x 91] intentionally omitted <==

==> picture [111 x 110] intentionally omitted <==

==> picture [111 x 91] intentionally omitted <==

311 / 364

==> picture [77 x 30] intentionally omitted <==

KPMG Baltics, UAB Klaipėda branch Liepų st. 4 LT-92114 Klaipėda Lithuania

Phone: +370 46 48 00 12 E-mail: [email protected] Website: home.kpmg/lt

Independent Auditor‘s Report

To the Shareholders of AB “Ignitis grupė“

Report on the Audit of the Separate and the Consolidated Financial Statements

Opinion

We have audited the separate financial statements of AB “Ignitis grupė” (“the Company”) and the consolidated financial statements of AB “Ignitis grupė” and its subsidiaries (“the Group”). The Company’s separate and the Group’s consolidated financial statements comprise:

the separate and the consolidated statements of financial position as at 31 December 2021,
the separate and the consolidated statements of profit or loss and other comprehensive income for the year then ended,
the separate and the consolidated statements of changes in equity for the year then ended,
the separate and the consolidated statements of cash flows for the year then ended, and
the notes to the separate and the consolidated financial statements, comprising significant accounting policies and other explanatory information.

In our opinion, the accompanying separate and consolidated financial statements give a true and fair view of the non-consolidated financial position of the Company and the consolidated financial position of the Group as at 31 December 2021, and of their non-consolidated and consolidated financial performance and their non-consolidated and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards, as adopted by the European Union.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Separate and Consolidated Financial Statements section of our report. We are independent of the Company and the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (including International Independence Standards) (IESBA Code) together with the requirements of the Law on Audit of Financial Statements of the Republic of Lithuania that are relevant to audit in the Republic of Lithuania, and we have fulfilled our other ethical responsibilities in accordance with the Law on Audit of Financial Statements of the Republic of Lithuania and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

@2022 KPMG Baltics, UAB, a Lithuanian limited liability company and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

Company code: 111616158 VAT code: LT114949716

Emphasis of Matter – comparative information

==> picture [76 x 31] intentionally omitted <==

We draw attention to Note 5 to the consolidated financial statements which describes that the Group elected to change its accounting policy for emission allowances and made retrospective adjustments to the comparative information in the accompanying financial statements. Consequently, the comparative information in the accompanying financial statements has been restated. Our opinion is not modified in respect of this matter.

Other Matter relating to comparative information

The consolidated financial statements of AB “Ignitis grupė” as at and for the year ended 31 December 2020, excluding the retrospective adjustments described in Note 5 to the consolidated financial statements, and the separate financial statements as at and for the year ended 31 December 2020 were audited by another auditor who expressed an unmodified opinion on those financial statements on 28 February 2021.

As part of our audit of the consolidated financial statements as at and for the year ended 31 December 2021, we also audited the retrospective adjustments described in Note 5 to the consolidated financial statements that were applied to restate the comparative information.

We were not engaged to audit, review, or apply any procedures to the comparative information, other than with respect to the retrospective adjustments described in Note 5 to the consolidated financial statements. Accordingly, we do not express an opinion or any other form of assurance on comparative information.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the separate and consolidated financial statements of the current period. These matters were addressed in the context of our audit of the separate and consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Each audit matter and our respective response are described below.

==> picture [76 x 31] intentionally omitted <==

Revaluation of Property, plant and equipment used in electricity distribution (consolidated financial statements)

We refer to the financial statements:

The carrying amount of property, plant and equipment used in electricity distribution as at 31 December 2021: EUR 1,257,000 thousand; related impairment losses recognized in the consolidated statement of profit (loss) in 2021: EUR 20,252 thousand; decrease in carrying amount recognised in the consolidated statement of other comprehensive income and revaluation reserve in consolidated statement of equity in 2021: EUR 27,799 thousand

Significant accounting policies – Note 2.6 “Property, plant and equipment”, Note 4 “Critical accounting estimates and judgments used in the preparation of the financial statements”; financial disclosures - Note 7 “Property, plant and equipment”

Revaluation of Property, plant and equipment used in electricity distribution (consolidated financial statements)	Revaluation of Property, plant and equipment used in electricity distribution (consolidated financial statements)
We refer to the financial statements: The carrying amount of property, plant and equipment used in electricity distribution as at 31 December 2021: EUR 1,257,000 thousand; related impairment losses recognized in the consolidated statement of profit (loss) in 2021: EUR 20,252 thousand; decrease in carrying amount recognised in the consolidated statement of other comprehensive income and revaluation reserve in consolidated statement of equity in 2021: EUR 27,799 thousand Significant accounting policies – Note 2.6 “Property, plant and equipment”, Note 4 “Critical accounting estimates and judgments used in the preparation of the financial statements”; financial disclosures - Note 7 “Property, plant and equipment”

The key audit matter	How the matter was addressed in our audit
Property, plant and equipment (thereafter “PPE”) allocated to electricity distribution cash generating unit („CGU”) is accounted for at revalued amounts less subsequent accumulated depreciation and impairment losses. The Group has determined, that the fair value of the electricity distribution CGU as at 31 December 2021 would be impacted by the changes in regulated activity in electricity distribution for the new regulation period 2022- 2026. The fair value of PPE is determined based on an independent valuation report. The independent appraiser applied depreciated replacement cost method for items of PPE where comparable market data was not available. Valuation of electricity distribution network assets was carried out in the following stages: (i) replacement cost of new assets (RCN) was estimated; (ii) physical and functional obsolescence of assets was determined; (iii) economic obsolescence of assets was assessed (using the income method). In addition, management tested the reasonableness of the overall valuation of PPE as determined by the independent appraiser by comparing it to amounts determined with a discounted cash flow model for the entire CGU which includes PPE. We identified revaluation of PPE as a focus area in our audit because of the significance of	Our audit procedures performed included: • Assessing compliance with applicable accounting standards; • Assessing professional qualifications, competence and objectivity of the independent appraiser; • Involving our internal valuation specialists who assisted us at: - Assessing the appropriateness of the methodology applied by the independent appraiser by comparing it to methodologies commonly used in valuations of similar assets, - Assessing the appropriateness of the input data and assumptions used in applying depreciated replacement cost method by comparing it to external data on current purchase prices of similar assets or to external data on historical price changes relevant to machinery and equipment as published by the department of statistics; • Challenging the key assumptions used in the discounted cash flow model by comparing sales volumes and profit margins to historical results and regulation data as well as comparing the forecasted growth rates and the discount rate to the ones used in the industry and set by the regulator, • Considering sensitivity of the discounted cash flow model to changes in key assumptions to understand the

==> picture [76 x 31] intentionally omitted <==

the amounts involved, the judgments required impact of such changes on levels of in selection of appropriate valuation methods headroom; the key assumptions and determination of fair values. included sales volumes, profit margins, forecasted growth rate and discount Accordingly, we have identified this area as a rate; key audit matter.

Evaluating the budgeting process (upon which forecasts are based) by comparing the actual results for the year with original forecasts and taking these observations into consideration into the sensitivity analysis performed;
Checking mathematical accuracy of the discounted cash flow model;
Considering adequacy of disclosure in the Group’s consolidated financial statements in respect to the revaluation PPE.

Impairment of Property, plant and equipment used in gas distribution (consolidated financial statements)

We refer to the financial statements:

The carrying amount of property, plant and equipment used in gas distribution as at 31 December 2021: EUR 263,138 thousand; related impairment losses recognized in the consolidated statement of profit (loss) in 2021: EUR 9,392 thousand.

The key audit matter

How the matter was addressed in our audit

As described in Note 4 of the consolidated financial statements, in the current year, the Group identified impairment indicators in respect of its property, plant and equipment attributed to the gas distribution cashgenerating unit („CGU”), due to changed regulation, revised planned investments and its financing presumptions.

As at 31 December 2021, the Group tested property, plant and equipment for impairment, as part of the impairment test performed for the gas distribution CGU. The Group determined the CGU’s recoverable amounts based on its value in use estimated under the discounted cash flow method.

Determining the CGU’s recoverable amount is

Our procedures in the area included, among other things, the following:

Evaluating, against the requirements of the relevant financial reporting standards, the Group’s accounting policy for identification of impairment indicators, and measurement and recognition of any impairment losses in respect of property, plant and equipment;
• Assessing the appropriateness of the impairment methodology applied by the Group against methodologies commonly used for similar assets and the requirements of relevant financial reporting standards. As part of the

==> picture [76 x 31] intentionally omitted <==

a process which requires significant judgment and estimation, especially in respect of the amounts of future cash flows, and associated discount rates and growth rates, based on management’s projections of future performance.

The projected operating cash flows from the Group’s activities are influenced primarily by assumptions concerning quantity of gas distributed, changes in the calculation of regulated tariffs as well as level of main related costs.

Accordingly, this matter was considered by us to be associated with significant judgement and estimation and required our increased attention in the audit. As such, we determined it to be a key audit matter.

above, we identified the relevant methods, assumptions and sources of data, and assessed, whether such methods, assumptions, data and application are appropriate in the context of the said requirements;
Evaluating the quality of the Group’s forecasting by comparing historical projections with actual outcomes.
Assessing the appropriateness of asset grouping into CGUs, based on our understanding of the Group’s operations and business units.
Challenging the reasonableness of the Group’s key assumptions and judgment used in the estimation of the recoverable amount, including:
Assisted by our own valuation specialists, challenging reasonableness of the key macroeconomic assumptions used, such as those in respect of discount rates, by reference to publicly available external sources;
Tracing the key assumptions used in the discounted cash flows calculation, such as those in respect of the future demand, revenue growth and operating costs, by reference to the budgets approved by the Management Board, our understanding of the Group’s operations and trends, and publicly available industry data;
• Testing the internal consistency, underlying formulas and mathematical accuracy of the discounted cash flow model.
• Assessing susceptibility of the impairment models and the resulting impairment conclusions to management bias, by challenging the Group’s analysis of the model’s sensitivity to changes in key underlying assumptions.
• Testing the allocation of impairment losses to the property, plant and equipment of gas distribution CGU.
• Considering the adequacy of impairment related disclosures in the Group’s financial statements.

==> picture [76 x 31] intentionally omitted <==

Allowances for impairment losses in trade receivables (consolidated financial statements)

We refer to the financial statements:

The carrying value of trade receivable in the consolidated statement of financial position as at 31 December 2021 amounts to EUR 274,897 thousand. The total impairment loss reversal recognized in the consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2021 amounts to EUR 80 thousand.

Significant accounting policies – Note 2.11 “Financial assets”, Note 4.12. “Expected credit losses of trade receivables”, financial disclosures – Note 3 “Financial risk management”, Note 17 “Trade receivables”.

The key audit matter How the matter was addressed in our audit Impairment allowances represent Our audit procedures in the area included, among Management’s best estimate of the expected others: credit losses within the trade receivables at the reporting date. We focused on this area as • Assessing the appropriateness of the the determination of impairment allowances Group’s impairment methodology against requires a significant amount of judgment over the relevant financial reporting the amounts of any such impairment. requirements; Trade receivables are assessed by the Group • Independently assessing the relevant for impairment at each reporting date on a forward-looking information and collective and individual basis. For those trade macroeconomic forecasts used in the receivables, measured on collective basis, the ECL assessment by inspecting publicly Management measures the loss allowance at available information, our knowledge of an amount equal to expected credit losses business and through discussions with (ECLs) being a probability weighted estimate Management; of credit losses. Credit losses are measured as • Assessing the accuracy and
the present value of expected cash shortfalls completeness of the Company’s ECL
(i.e. the difference between the cash flows estimates at 31 December 2021
due to the Group and the cash flows expected including:
to be received). The estimate takes into -
account, among other things, repayment Assessing the key impairment model history and past credit loss experience and an parameters, by reference to the assessment of both the current and forecast Group’s own historical credit loss general economic conditions at the reporting experience, our understanding of the date. business and current economic trends and expectations;
Accordingly, the key areas of estimation - Performing a retrospective
uncertainty and judgement associated with assessment of the historical accuracy
recognition of impairment allowances for trade receivables are: of the Management Board’s impairment assumptions and
• Assumptions used to assess credit estimates, including estimated loss risk for a given exposure and the rates, against actual outcomes;
Assumptions used to assess credit risk for a given exposure and the expected future cash flows from the customer;
• Timely identification of exposures with significant increase in credit risk or those credit impaired (defaulted).
Evaluating whether the disclosures in the financial statements in respect of the expected credit losses for trade receivables satisfy the requirements of the relevant financial reporting standards.

==> picture [76 x 31] intentionally omitted <==

Due to the magnitude of the amounts involved, together with the complexity of judgements and assumptions required in estimating expected credit losses, the area required our increased attention in the audit and was determined to be a key audit matter.

Revenue recognition related to the estimation of overdeclaration /underdeclaration of electricity and natural gas usage (consolidated financial statements)

We refer to the financial statements:

The carrying value of deferred income related to in the consolidated statement of financial position as at 31 December 2021 amounts to EUR 201,654 thousand.

Revenue recognized in the consolidated statement of profit or loss and other comprehensive income in 2021 amounts to EUR 1,868,917 thousand.

Significant accounting policies – Note 2.21 “Revenue from contracts with customers”, Note 4.13 “Estimation of over declaration of electricity and natural gas usage by private customers and accounting for deferred income”, Note 34 “Revenue from contracts with customers”.

The key audit matter

How the matter was addressed in our audit

The Group’s electricity revenue and natural gas revenue depend on declarations of electricity consumed by private customers, which do not have automated meter readings. The Group has identified that private customers tend to overdeclare the consumption of electricity and natural gas in the last months of the year.

At each reporting date, the Group estimates the amount of the overdeclared / underdeclared consumption in order to calculate the actually earned revenue to be recognized in the statement of profit or loss and other comprehensive income for the year.

The estimate takes into account, among other things, historical consumption by private customers and the Group’s assessment of technological losses in the electricity grid and gas network at the reporting date.

Due to the materiality of the recognized revenue and judgements of the management involved in revenue recognition above, the area required our increased attention in the audit and as such was determined to be a key audit matter.

Our audit procedures in the area included, among others:

Obtaining understanding of and evaluating the Group’s revenue recognition process;
Assessing whether the revenue recognition accounting policy applied to all revenue streams complies with the requirements of the relevant financial reporting framework;
For the estimation of revenue overdeclaration/underdeclaration of electricity and natural gas usage:
Evaluating the design and implementation of key controls over the revenues recognition processes;
Assessing the consistency of the model applied in the estimate by comparing with the main assumptions used in prior year model;
Testing the internal consistency, underlying formulas and mathematical accuracy of the model;
Challenging the reasonableness of the Group’s key assumptions and judgment used in estimating the

==> picture [76 x 31] intentionally omitted <==

overdeclared/underdeclared usage of electricity and natural gas, by tracing main inputs to supporting evidence;
- Assessing completeness and accuracy of estimated amount by performing independent analytical analysis of overdeclared consumption based on the key performance indicators, including historical revenue and technological grid losses information, changes in approved tariffs, and comparing result to actual amounts recognised;
- Evaluating whether the disclosures in the consolidated financial statements in respect of the overdeclared/underdeclared usage of electricity and natural gas satisfy the requirements of the relevant financial reporting standards.

Impairment of subsidiaries (Parent company’s financial statements)

We refer to the financial statements:

The carrying amount of investments to subsidiaries as at 31 December 2021: EUR 1,255,858 thousand; related impairment losses recognized in the statement of profit (loss) in 2021: nil.

Significant accounting policies – Note 2.6 “Investments in subsidiaries”, Note 4 “Critical accounting estimates and judgments used in the preparation of the financial statements”; financial disclosures - Note 6 “Investments in subsidiaries”.

The key audit matter How the matter was addressed in our audit As described in Note 4 of the Parent company’s Our audit procedures included, among others: financial statements, in the current year, the • Evaluating, against the requirements of
Company identified impairment indicators in the relevant financial reporting standards,
respect of its investments to AB Energijos the Company’s accounting policy for
skirstymo operatorius and UAB Ignitis due to identification of impairment indicators,
change in the regulatory environment. and measurement and recognition of any
As at 31 December 2021, the Company tested impairment losses in respect of the mentioned investments for impairment. investments to subsidiaries; The Company determined the recoverable • Assessing the appropriateness of the
amounts of investments based on their value in impairment methodology applied by the
use calculations or fair value of net assets of a Company against methodologies
subsidiary. commonly used for similar assets and the
Determining the recoverable amount is a requirements of the relevant financial process which requires significant judgment reporting standards. As part of the above,

==> picture [76 x 31] intentionally omitted <==

and estimation, especially in respect of the amounts of future cash flows, and associated discount rates and growth rates, based on management’s projections of future performance.

The projected operating cash flows from the Company’s activities are influenced primarily by assumptions concerning quantity of electricity and natural gas sold, prices of services provided as well as level of main related costs. These projections are exposed to significant variability due to changing market conditions and regulatory environment.

We focused on this area as the estimate of the recoverable amount of the investment in subsidiaries requires the use of significant judgement and subjective assumptions from the Company as to the future cash flows and the discount rate. Accordingly, we have identified this area as a key audit matter.

we identified the relevant methods, assumptions and sources of data, and assessed, whether such methods, assumptions, data and application are appropriate in the context of the said requirements;
Evaluating the design and implementation of key controls over the impairment testing processes;
Involving our own valuation specialists who assisted us in:
assessing the appropriateness of the valuation methodology applied by the Company by comparing it to methodologies commonly used in valuations of similar assets and the requirements of the relevant accounting standards;
checking mathematical accuracy of the discounted cash flow models used in the valuation of investment in subsidiary.
Challenging the key assumptions used in the discounted cash flow model by comparing key inputs, such us increase in revenues, expenses and capital expenditures to budgets and our understanding of the subsidiary’s current operations and trends, market development forecasts and relevant industry data, as well as comparing the forecasted growth rates and the discount rate to the ones used in the industry;
• Evaluating the quality of the Company’s forecasting by comparing historical projections with actual outcomes;
• Considering the Company’s disclosure in relation to the use of estimates and judgements regarding the recoverable amount of investment in subsidiaries for compliance with the applicable financial reporting standards.

==> picture [76 x 31] intentionally omitted <==

Other Information

The other information comprises the information included in the 2021 Annual report, including Corporate Governance Report, Remuneration Report and the the Corporate Social Responsibility Report, but does not include the separate and consolidated financial statements and our auditor’s report thereon. Management is responsible for the other information.

Our opinion on the separate and consolidated financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the separate and consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the separate and consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we 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.

In addition, our responsibility is to consider whether information included in the annual management report, including Corporate Governance Report and Remuneration Report, for the financial year for which the separate and consolidated financial statements are prepared is consistent with the separate and consolidated financial statements and whether annual management report has been prepared in compliance with applicable legal requirements. Based on the work carried out in the course of audit of the separate and consolidated financial statements, in our opinion, in all material respects:

The information given in the annual management report, including Corporate Governance Report and Remuneration Report, for the financial year for which the separate and consolidated financial statements are prepared is consistent with the separate and consolidated financial statements; and
The consolidated annual management report, including Corporate Governance Report and Remuneration Report, has been prepared in accordance with the requirements of the Law on Consolidated Financial Reporting by Groups of Undertakings of the Republic of Lithuania.

We also need to check that the Corporate Social Responsibility Report has been provided. If we identify that Corporate Social Responsibility Report has not been provided, we are required to report that fact. We have nothing to report in this regard.

==> picture [76 x 31] intentionally omitted <==

Responsibilities of Management and Those Charged with Governance for the Separate and Consolidated Financial Statements

Management is responsible for the preparation of the separate and consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards, as adopted by the European Union, and for such internal control as management determines is necessary to enable the preparation of separate and consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the separate and consolidated financial statements, management is responsible for assessing the Company’s and the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company and the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s and the Group’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Separate and Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the separate and consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these separate and consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the separate and consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s and the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s and the

==> picture [76 x 31] intentionally omitted <==

Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the separate and consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company and the Group to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the separate and consolidated financial statements, including the disclosures, and whether the separate and consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the separate and consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

Under decision of the general shareholders‘ meeting we were appointed on 27 September 2021 for the first time to audit the Company‘s and the Group’s separate and consolidated financial statements. Our appointment to audit the Company‘s and the Group’s separate and consolidated financial statements in accordance with the shareholder’s decision has been made for a two-year period. The audit of the financial statements for the year ended 31 December 2021 was our first annual audit of the Company and the Group.

We confirm that our audit opinion expressed in the Opinion section of our report is consistent with the additional report presented to the Company and the Group and its Audit Committee.

We confirm that to the best of our knowledge and belief, we have not provided to the Company and the Group any prohibited non-audit services referred to in Article 5(1) of the Regulation (EU) No 537/2014 of the European Parliament and of the Council.

==> picture [76 x 31] intentionally omitted <==

In addition to services provided to the Company and the Group in the course of audit and disclosed in the separate and consolidated financial statements, we have provided translation of the financial statements and due diligence services to the Company and the Group.

Report on the compliance of format of the separate and consolidated financial statements with the requirements for European Single Electronic Reporting Format

We have been engaged based our agreement by the management of the Company to conduct a reasonable assurance engagement for the verification of compliance with the applicable requirements of the European single electronic reporting format of the separate and consolidated financial statements, including 2021 annual report, for the year ended 31 December 2021 (the “Single Electronic Reporting Format of the separate and consolidated financial statements”) contained in the file abignitisgrupe-2021-12-31-en.zip (ParsePort generated hashcode: 1M82MzQAAeU9koE= ).

Description of a subject and applicable criteria

The Single Electronic Reporting Format of the separate and consolidated financial statements has been applied by the management of the Company to comply with the requirements of art. 3 and 4 of the Commission Delegated Regulation (EU) 2019/815 of 17 December 2018 supplementing Directive 2004/109/EC of the European Parliament and of the Council with regard to regulatory technical standards on the specification of a single electronic reporting format (the “ESEF Regulation”). The applicable requirements regarding the Single Electronic Reporting Format of the separate and consolidated financial statements are contained in the ESEF Regulation.

The requirements described in the preceding sentence determine the basis for application of the Single Electronic Reporting Format of the separate and consolidated financial statements and, in our view, these requirements constitute appropriate criteria to form a reasonable assurance conclusion.

Responsibilities of management and those charged with governance

The management of the Company is responsible for the application of the Single Electronic Reporting Format of the separate and consolidated financial statements that complies with the requirements of the ESEF Regulation.

This responsibility includes the selection and application of appropriate markups in iXBRL using ESEF taxonomy and designing, implementing and maintaining internal controls relevant for the preparation of the Single Electronic Reporting Format of the separate and consolidated financial statements which is free from material non-compliance with the requirements of the ESEF Regulation.

Those charged with governance are responsible for overseeing the financial reporting process.

Our responsibility

Our responsibility was to express a reasonable assurance conclusion whether the Single Electronic Reporting Format of the separate and consolidated financial statements complies with the ESEF Regulation.

==> picture [76 x 31] intentionally omitted <==

We conducted our engagement in accordance with International Standard on Assurance Engagements 3000 (Revised) ‘Assurance Engagements other than Audits and Reviews of Historical Financial Information’ (the ,,ISAE 3000 (R)”). This standard requires that we comply with ethical requirements, plan and perform procedures to obtain reasonable assurance whether the Single Electronic Reporting Format of the separate and consolidated financial statements is prepared, in all material aspects, in accordance with the applicable requirements. Reasonable assurance is a high level of assurance, but it does not guarantee that the service performed in accordance ISAE 3000 (R) will always detect the existing material misstatement (significant noncompliance with the requirements).

Summary of the work performed

Our planned and performed procedures were aimed at obtaining reasonable assurance that the Single Electronic Reporting Format of the separate and consolidated financial statements was applied, in all material aspects, in accordance with the applicable requirements and such application is free from material errors or omissions. Our procedures included in particular:

obtaining an understanding of the internal control system and processes relevant to the application of the Single Electronic Reporting Format of the separate and consolidated financial statements, including the preparation of the XHTML format and marking up the consolidated financial statements;
verification whether the XHTML format was applied properly;
evaluating the completeness of marking up the consolidated financial statements using the iXBRL markup language according to the requirements of the implementation of single electronic format as described in the ESEF Regulation;
evaluating the appropriateness of the Group’s' use of iXBRL markups selected from the ESEF taxonomy and the creation of extension markups where no suitable element in the ESEF taxonomy has been identified; and
evaluating the appropriateness of anchoring of the extension elements to the ESEF taxonomy.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion.

==> picture [76 x 31] intentionally omitted <==

Conclusion

In our opinion, the Single Electronic Reporting Format of the separate and consolidated financial statements for the year ended 31 December 2021 complies, in all material respects, with the ESEF Regulation.

The engagement partner on the audit resulting in this independent auditor’s report Rokas Kasperavičius.

On behalf of KPMG Baltics, UAB

ROKAS Digitally signed by ROKAS KASPERAVIČI KASPERAVIČIUS Date: 2022.02.28 US 08:07:06 +02'00' Rokas Kasperavičius Partner Certified Auditor

Klaipėda, the Republic of Lithuania 28 February 2022

The electronic auditor‘s signature applies only to the Independent Auditor‘s Report on pages 312 to 326 of this document.

Annual report 2021 / Financial statements

Contents »

6 .4 Information on the auditor

Independent auditor selection

There has been a change in the Group’s independent auditor in 2021. Due to increased workload and needs of the Group, the agreement of financial audit services, which was concluded on 4 March 2019 with UAB Ernst & Young Baltic for 2019–2021 audit of the parent and the Group companies, has not been extended. After signing the annex to the initial agreement of 26 March 2019 with UAB “Ernst & Young Baltic” on 4 March 2021 to provide audit services for the period of the first six months of 2021, the parent company initiated a new tender for the provision of audit services. As a result, “KPMG Baltics”, UAB has been appointed as the new auditor by the General Meeting of Shareholders of the parent company on 27 September 2021. Based on the concluded agreement, UAB “KPMG Baltics” will provide audit services of financial statements of the parent company and the consolidated financial statements of the Group for the full years of 2021 and 2022.

Before concluding an agreement with UAB “Ernst & Young Baltic” for the audit services for the financial period of 2019–H1 2021, the Group’s financials have been audited by UAB “PricewaterhouseCoopers” for the financial period of 2008–2018.

Worth noting that all independent auditor related tenders are carried out according to the prevailing best practices. The whole selection process is supervised by the Audit Committee and the independent auditor is appointed by the decision of the General Meeting of the Shareholders of the parent company.

Independent auditors and financial period during which audit services have been provided

2021–2022	2019–H1 2021	2008–2018
UAB “KPMG Baltics” (KPMG)	UAB “Ernst & Young Baltic” (EY)	UAB “PricewaterhouseCoopers”
Lvovo St. 101	Aukštaičių St. 7	J. Jasinskio St. 16B
LT-08104, Vilnius	LT-11341, Vilnius	LT-03163, Vilnius
The Republic of Lithuania	The Republic of Lithuania	The Republic of Lithuania

Independent auditor’s services and fees

During the period of 2020–2021, the following services have been provided to the Group by the independent auditor and its international partners.

Independent auditor’s services and expenses incurred for the indicated period, EUR

==> picture [732 x 23] intentionally omitted <==

----- Start of picture text -----

2021 (KPMG) 2021 (EY) 2020 (EY)
----- End of picture text -----

Statutory audit	515	40	419
Interim fnancial statement audits	33	21	84
Tax advisory services	-	-	-
Assurance services	-	-	2
IPO related services	-	-	2041
Bond related services	-	-	-
Other	93	-	-
Total	641	61	754

1 Including fee for services provided by UAB „PricewaterhouseCoopers” suteiktas paslaugas.

327 / 364

Further information

==> picture [364 x 106] intentionally omitted <==

----- Start of picture text -----

|||
|---|---|
|7.1 Further investor related information|329|
|7.2 Material events of the parent company|331|
|7.3 Alternative performance measures|335|
|7.4 Compliance with the Guidelines for Ensuring the Transparency of|339|
|State-Controlled enterprises|
|7.5 Compliance with the Corporate Governance Code|342|
|7.6 Other statutory information|358|

----- End of picture text -----

Annual report 2021 / Further information

Contents »

7 .1 Further investor related information

Price development in since the admission on 7 October 2020[3] , EUR

In addition to the information provided in section ‘Investor information’, we provide further details about our ordinary shares, GDRs and bonds below.

==> picture [475 x 182] intentionally omitted <==

----- Start of picture text -----

120
115
+10 .9%
110
105
100 (3 .8%)
95
90 (5 .8%)
85
80
Oct Nov Dec Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec
2021 2022
Nasdaq Vilnius LSE Euro Stoxx Utilities (SX6E)
(Ordinary registered shares) (GDRs)
----- End of picture text -----

On this page the overview of ordinary registered shares and GDRs trading data is provided during the period sin the Group’s IPO on 7 October 2020 till the end of the reporting period on 31 December 2021.

Price performance information since the admission on 7 October 2020

==> picture [730 x 278] intentionally omitted <==

----- Start of picture text -----

Combined
90 (5 .8%)
Period 22.70 20.00 - 85
opening, EUR
Period high [1] 25.35 24.80 25.35 80 Oct Nov Dec Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec
(date), EUR (3 Sep 2021) (3 Sep 2021) 2021 2022
Period low [1 ] 19.50 18.50 Nasdaq Vilnius LSE Euro Stoxx Utilities (SX6E)
(Ordinary registered shares) (GDRs)
(date), EUR (13 Nov 2020, (23 Oct 2020, 18.50
16 Nov 2020) 6 Nov 2020)
Period Average daily turnover since the admission on 7 October 2020 [4] , mln. EUR
21.16 20.50 20.87
VWAP [2] , EUR
EURPeriod end [1] , 21.00 20.50 - 4035 sharing the split between ordinary registered shares (Nasdaq Vilnius) and Since the IPO, the Group’s total turnover amounted to EUR 383 .2 million, Since the IPO, the Group’s total turnover amounted to EUR 383 .2 million,
GDRs (LSE) of 47 .7% and 52 .3% respectively
Annual 30
turnover
(average 149.3 (0.6) 98.5 (0.4) 247.8 (1.0) 25
daily), EURm
20
15
10
5
0
2020-10-07 Oct 2020-11-07 Nov 2020-12-07 Dec 2021-01-07 Jan 2021-02-07 Feb 2021-03-07 Mar 2021-04-07 Apr 2021-05-07 May 2021-06-07 June 2021-07-07 July 2021-08-07 Aug 2021-09-07 Sept 2021-10-07 Oct 2021-11-07 Nov 2021-12-07 Dec
2021 2022
----- End of picture text -----

sharing the split between ordinary registered shares (Nasdaq Vilnius) and Since the IPO, the Group’s total turnover amounted to EUR 383 .2 million, Since the IPO, the Group’s total turnover amounted to EUR 383 .2 million, GDRs (LSE) of 47 .7% and 52 .3% respectively

1 As of closing trading market price.

2 Weighted average volume price.

3 Index = 100.

4 Combined data of ordinary registered shares and GDR.

329 / 364

Annual report 2021 / Further information

Contents »

Bonds

As of 31 December 2021, the Group had three bond issues outstanding (two of them being green bonds ) listed on the Nasdaq Vilnius and Luxembourg stock exchanges. Total nominal value of these bonds is EUR 900 million.

The bond specific information and the composition of their holders are provided in the figures below. As of issue date, there has been 121 bondholders of 2017 bond issue, 115 bondholders of 2018 issue and 91 bondholders of 2020 bond issue.

Further information on the debt instruments and its related information can be found on the Group’s website.

Bondholder structure as of issue date

Outstanding bond issues

2017 issue

==> picture [425 x 281] intentionally omitted <==

----- Start of picture text -----

Issuer Ignitis Group Other 15%
Issued amount EUR 300,000,000 France 9% Germany 35%
Coupon 2.000% EUR 300
Maturity date 14 July 2027 United Kingdom10% million
ISIN-code XS1646530565 Baltics 16% Nordics 16%
Credit rating BBB+
2018 issue
Issuer Ignitis Group Other 11%
Issued amount EUR 300,000,000 Austria 5% France 26%
Coupon 1.875% Italy 8% EUR
300
Maturity date 10 July 2028 United Kingdom 13% million
ISIN-code XS1853999313 Germany 23%
Baltics 14%
Credit rating BBB+
2020 issue
Issuer Ignitis Group Other 13%
Issued amount EUR 300,000,000 Italy 6% Baltics 24%
Coupon 2.000% France 7% EUR
300
Maturity date 21 May 2030 Benelux 8% million
United Kingdom 21%
ISIN-code XS2177349912
Credit rating BBB+ Germany 21%
----- End of picture text -----

Information on the delisted subsidiaries

On 4 December 2019, the Extraordinary General Meetings of Ignitis Gamyba (ISIN-code LT0000128571) and ESO (ISIN-code: LT0000130023) took the decisions to delist the shares of these companies from trading on the Nasdaq Vilnius Stock Exchange and to approve the parent company as the entity who will make a formal offer to buy out the shares of both companies listed on the Nasdaq Vilnius Stock Exchange. On 21 May 2020, Nasdaq Vilnius decided to delist the shares of ESO and Ignitis Gamyba from trading on the Baltic Main List on 1 July 2020 (the last trading day on the Baltic Main list of shares was on 30 June 2020).

Following the mandatory buy-out procedures of ESO (Networks) and Ignitis Gamyba (Flexible Generation and Green Generation) shares, on 15 April 2021 the parent company became a 100% shareholder of ESO and on 9 September 2021 – of Ignitis Gamyba. The decisions have been enforced on 7 September 2021 (regarding ESO) and 27 September 2021 (regarding Ignitis Gamyba).

Information related to the delisted companies, including the guidance of payment for shares, is available on our website.

330 / 364

Annual report 2021 / Further information

Contents »

7 .2 Material events of the parent company

During the reporting period (2021)

==> picture [730 x 26] intentionally omitted <==

----- Start of picture text -----

Date Event
29 December Notification on the transaction regarding AB “Ignitis grupė” financial instruments concluded by the person discharging managerial responsibilities
----- End of picture text -----

Date 29 December	Event Notifcation on the transaction regarding AB “Ignitis grupė” fnancial instruments concluded by the person discharging managerial responsibilities
29 December	On the reserve services of Flexible Generation segment and contract concluded regarding isolated regime services for 2022
28 December	Correction: AB “Ignitis grupė” fnancial calendar 2021
27 December	Regarding AB „Ignitis grupė“ intention to issue a guarantee and to conclude a guarantee service agreement
22 December	AB “Ignitis grupė” fnancial calendar 2022
21 December	On the acquiring a wind farm project in Poland
15 December	Resolutions of Extraordinary General Meeting of AB “Ignitis grupė“ shareholders
14 December	AB “Ignitis grupė” completed an acquisition of its own shares
14 December	Sustainalytics upgrades Ignitis Group’s ESG risk rating; a score of ‘B’ received from CDP in its frst-ever rating of the Group
8 December	Notifcation on the transaction regarding AB “Ignitis grupė” fnancial instruments concluded by the person discharging managerial responsibilities
7 December	Updated 10-year investment plan of the Networks segment
7 December	Pomerania wind farm started commercial operation
2 December	On the decision of AB “Ignitis grupė” Management Board regarding the acquisition of own shares
30 November	Preliminary fnancial data of Ignitis Group for 10 months of 2021
30 November	Interim report for the frst nine months of 2021: Green Generation in the spotlight
29 November	The selection of the new Management Board of AB “Ignitis grupė” has been launched
26 November	The Science-Based Target initiative validated ambitious GHG reduction targets of Ignitis Group
24 November	Notice on convening the Extraordinary General Meeting of Shareholders of AB “Ignitis grupė”
23 November	Ignitis Group to present 9M 2021 results on 30 November
22 November	Regarding the AB “Ignitis grupė” intention to loan up to EUR 300m to UAB “Ignitis”
17 November	On the determined mandatory supply volume for the LNG terminal for 2022–2024 relevant to Customers & Solutions segment
16 November	On the initiated selections of independent Supervisory Board members of AB “Energijos skirstymo operatorius” and AB “Ignitis gamyba”, subsidiaries of AB “Ignitis grupė”
15 November	Regarding the conditional agreement to acquire a solar projects portfolio under development in Poland
10 November	On the conclusion of EUR 35 million credit agreement by UAB “Ignitis”, a subsidiary of AB “Ignitis grupė”
8 November	The General Manager is leaving Ignitis Renewables, a subsidiary of Ignitis Group
4 November	On the legislation amendments relevant to the Customers & Solutions segment
3 November	On members elected to the Supervisory Board commitees of AB “Ignitis grupė”
29 October	Elected a new Chair of the Supervisory Board of AB “Ignitis grupė”
28 October	Regarding Networks segment income level of natural gas distribution for 2022

331 / 364

Annual report 2021 / Further information

Contents »

==> picture [730 x 26] intentionally omitted <==

----- Start of picture text -----

Date Event
28 October Preliminary financial data of Ignitis Group for 9 months of 2021
----- End of picture text -----

Date 28 October	Event Preliminary fnancial data of Ignitis Group for 9 months of 2021
26 October	Resolutions of Extraordinary General Meeting of AB “Ignitis grupė“ shareholders
20 October	Information on Networks Methodology update: sustainable regulation ensured
20 October	Notifcation on Ignitis Group conference call to be held on 20 October 2021
18 October	Regarding Networks segment income level of electricity distribution for 2022
12 October	Regarding the intention of AB “Ignitis grupė” subsidiary UAB “Ignitis” to loan up to EUR 104 million
1 October	NERC approved the updated methodology for determining the price caps for electricity services
30 September	Preliminary fnancial data of Ignitis Group for 8 months of 2021
28 September	Notice on convening the Extraordinary General Meeting of Shareholders
27 September	Resolutions of Extraordinary General Meeting of AB “Ignitis grupė“ shareholders
17 September	Regarding the public consultation on the methodology of the Networks segment for the new regulatory period
9 September	Ownership rights of all Ignitis Gamyba shares have been transferred to Ignitis Group
9 September	On the decision of General Court of the European Union to annul the decision of European Commission to coordinate the designated supplier scheme in Lithuania
31 August	Preliminary fnancial data of Ignitis Group for 7 months of 2021
31 August	Notice on convening the Extraordinary General Meeting of Shareholders of AB “Ignitis grupė”
31 August	Interim report for the frst half-year 2021: Green Generation driven growth
27 August	The court allowed to transfer the remaining shares of Ignitis Gamyba to Ignitis Group
27 August	On the rescheduling of smart meter roll-out programme in the Networks segment
27 August	On the statement of the majority shareholder of AB “Ignitis grupė” with a proposal to distribute dividends for the frst half of 2021
27 August	On the designated supply contract of liquefed natural gas with Equinor ASA
26 August	Due to consolidation of green energy companies of Ignitis Group, a selection for the position of Chief Executive Ofcer of UAB “Ignitis renewables” has been announced
23 August	Ignitis Group to present H1 2021 results on 31 August
17 August	Regarding the leter from the majority shareholder received by AB “Ignitis grupė” concerning the selection of candidates for the positions of the members of the Supervisory Board
13 August	On the intention to acquire three wind farms developed in Latvia
3 August	On the established rate of return on investments for 2022
29 July	Resolutions of Extraordinary General Meeting of AB “Ignitis grupė” shareholders
29 July	Preliminary fnancial data of Ignitis Group for 6 months of 2021
12 July	AB “Ignitis grupė” receives ESG risk rating upgrade from MSCI
7 July	Notice convening the Extraordinary General Meeting of AB “Ignitis grupė” shareholders
7 July	Concerning the decision of the Management Board of AB Ignitis grupė to extend the Long Stop Date of Stabilized securities
2 July	On the amendment of the procedure for forming the Audit Commitee of AB “Ignitis grupė”
29 June	Preliminary fnancial data of Ignitis Group for 5 months of 2021
23 June	Regarding the Investor’s Leter of AB Ignitis Grupė

332 / 364

Annual report 2021 / Further information

Contents »

==> picture [730 x 16] intentionally omitted <==

----- Start of picture text -----

Date Event
----- End of picture text -----

23 June	Concerning the appointment of the General Manager and the Chairman of the Board of UAB Ignitis, a subsidiary of AB Ignitis grupė
18 June	On updated areas of activities supervised by Management Board members of AB “Ignitis grupė”
15 June	Initiated selection process for the positions of independent members of AB “Ignitis grupė” Supervisory Board
10 June	The Management Board of AB “Ignitis grupė” approved the consolidation project of renewable energy companies
4 June	On the resignation of Dominykas Tučkus, Management Board Member of AB “Ignitis grupė”
31 May	Notice on the contract concluded by the person discharging managerial responsibilities regarding AB “Ignitis grupė” fnancial instruments
27 May	Preliminary fnancial data of Ignitis Group for 4 months of 2021
27 May	Interim report for the frst quarter of 2021: robust growth and full-year guidance reiteration supported by strategy delivery
26 May	AB “Ignitis grupė” has retained BBB+ credit rating afer annual review
21 May	On the conclusion of the guarantee service agreement of AB “Ignitis grupė”
21 May	Ownership rights of part of Ignitis Gamyba's shares have been transferred to Ignitis Group
18 May	Correction: AB “Ignitis grupė” intends to sign a guarantee with NASDAQ Clearing AB
18 May	AB “Ignitis grupė” intends to sign a guarantee with NASDAQ Clearing AB
17 May	Ignitis Group to present Q1 2021 results on 27 May
14 May	Regarding the ownership rights of part of Ignitis Gamyba‘s shares and transfer of money for shareholders
13 May	On termination of concluded option agreements by Ignitis Group key executives and a standalone claim requesting to dismiss interim measures
10 May	On the liquidation of UAB “Energetikos paslaugų ir rangos organizacija”, a subsidiary of AB “Ignitis grupė”
7 May	Regarding the stabilized securities
5 May	On the decision of General Court of the European Union to annul the decision of European Commission to coordinate aid scheme for renewable energy projects
4 May	Approved acquisition of a company by UAB “Ignitis renewables” to develop green energy projects in Poland
4 May	On received court claim and adopted interim measures
30 April	The Court allowed to transfer Ignitis Gamyba shares to Ignitis Grupė
29 April	Preliminary fnancial data of Ignitis Group for 3 months of 2021
27 April	On the information distributed via media sources regarding the incentive with stock ownership plan of key executives and employees of companies of AB “Ignitis grupė”
20 April	Enlight Research coverage on Ignitis Group
15 April	Ownership rights of all ESO shares have been transferred to Ignitis Group
14 April	Afer the successful proof of concept, the decision was made by ESO, a subsidiary company of AB “Ignitis grupė”, to conclude the contract with the supplier for the procurement
	of smart metering
2 April	The Court allowed to transfer ESO shares to Ignitis Grupė
1 April	Regarding the establishment of a subsidiary company in Finland by UAB “Ignitis”, managed by AB “Ignitis grupė”
30 March	Preliminary fnancial data of Ignitis Group for 2 months of 2021
25 March	Resolutions of Ordinary General Meeting of AB “Ignitis grupė“ shareholders
22 March	AB “Ignitis grupė” approved the strategic objectives and their indicators of long-term incentive plan for the period of 2021-2024

333 / 364

Annual report 2021 / Further information

Contents »

==> picture [730 x 16] intentionally omitted <==

----- Start of picture text -----

Date Event
----- End of picture text -----

12 March	Regarding the resolutions of AB “Ignitis grupė” Supervisory Board
8 March	A selection for the position of CEO and Member of the Management Board of UAB “Ignitis”, a subsidiary of AB “Ignitis grupė”, has been announced
5 March	Notice on the contract concluded by the person discharging managerial responsibilities regarding AB “Ignitis grupė” fnancial instruments
1 March	EBITDA outlook for Pomerania Wind Farm has been released
26 February	AB Ignitis grupė will announce a tender for the provision of fnancial statement audit services
26 February	Preliminary fnancial data of Ignitis Group for 1 month of 2021
26 February	2021–2024 Strategic Plan of AB “Ignitis grupė” group of companies has been approved
26 February	Notice convening the Ordinary General Meeting of AB “Ignitis grupė” shareholders
26 February	Ignitis Group grew in all segments in 2020 leading to 10% higher adjusted EBITDA than previously forecasted
26 February	12-month interim results of Ignitis Group for 2020
25 February	AB “Ignitis gamyba” approved Kruonis Pumped Storage Hydroelectric Powerplant expansion plan
23 February	Ignitis Group to present full-year 2020 results and 2021-2024 Strategic Plan on 2 March
18 February	AB “Ignitis grupė” initiated coordination process to update remuneration policy
17 February	Regarding AB “Ignitis grupė” issue of guarantee to fulfl obligations of its owned company UAB “VVP Investment”
17 February	AB “Ignitis grupė” received the Leter of Expectations revised by the Ministry of Finance
11 February	Regarding the intent of UAB “Ignitis”, managed by AB “Ignitis grupė”, to establish a subsidiary company in Finland
9 February	ESO, subsidiary of AB “Ignitis grupė”, established a tender ranking of the procurement of smart metering infrastructure
1 February	Regarding the AB “Ignitis grupė” intention to loan up to 293m euros to UAB “Ignitis renewables”
28 January	Correction: Preliminary fnancial data of Ignitis Group for 12 months of 2020
28 January	Preliminary fnancial data of Ignitis Group for 12 months of 2020
13 January	Correction: Decision made regarding the long-term promotion of the managers of AB “Ignitis grupė” group of companies with share options programme
8 January	Information regarding the long-term promotion programme of AB “Ignitis grupė” executives

After the reporting period[1]

==> picture [731 x 16] intentionally omitted <==

----- Start of picture text -----

Date Event
----- End of picture text -----

22 February	Chief Executive Officer of Ignitis Renewables has been appointed
21 February	Ignitis Group to present full-year 2021 results and 2022–2025 Strategic Plan on 28 February
21 February	Ignitis renewables terminated agreement to acquire portfolio of solar PV projects under development in Poland
18 February	The Management Board, its Chair and CEO of the Group have been elected
9 February	Correction: On the supplementary agreement to the isolated regime services contract of Flexible Generation segment
8 February	On the supplementary agreement to the isolated regime services contract of Flexible Generation segment
1 February	The Supervisory Board of AB “Ignitis grupė” approved the candidates for the new term of the Management Board and the CEO
25 January	On the intent to establish a subsidiary of UAB “Ignitis renewables” in Latvia
21 January	On the intention of AB “Ignitis grupė” to amend key conditions of the internal loan agreement with UAB “Ignitis renewables”

1 From 1 January 2022 to the certification statement signing date.

334 / 364

Annual report 2021 / Further information

Contents »

7 .3 Alternative performance measures

==> picture [729 x 26] intentionally omitted <==

----- Start of picture text -----

Indicator Formula Definition Meaning and interpretation of indicator
----- End of picture text -----

Indicator	Formula Defnition Meaning and interpretation of indicator
Adjusted EBIT	Adjusted EBITDA - depreciation and amortisation expenses - write-ofs, revaluation and impairment losses of property, plant and equipment and intangible assets (excluding signifcant one-of items) Adjusted EBITDA less depreciation and amortisation expenses. Adjusted EBIT is a proft measure, which allows for a more reliable comparison of the Group's results over time and with peers, than EBIT.
Adjusted EBIT margin	Adjusted EBIT Total revenues and other income + management adjustments Proftability ratio, which shows Adjusted EBIT as a percentage of revenue. The higher the indicator value, the higher the proftability of the Group.
Adjusted EBITDA	EBITDA + temporary regulatory diferences + result of asset rotation + gain earned from testing of units under development - other signifcant gains or losses which are non- recurring, and/or non-cash, and/or related to other periods, and/or non-related to the main activities of the Group EBITDA afer eliminating or adding back temporary regulatory diferences, result of asset rotation, gain earned from testing of units under development, other signifcant gains or losses which are non-recurring, and/or non-cash, and/ or related to other periods, and/or non-related to the main activities of the Group, to more accurately refect main activities result of the current period. Adjusted EBITDA is a key measure of the Group's performance, used as a measure for Group's targets. This indicator allows for a more reliable comparison of the Group's results over time and with peers, than EBITDA.
Adjusted EBITDA margin	Adjusted EBITDA Total revenues and other income + management adjustments Proftability ratio, which shows Adjusted EBITDA as a percentage of revenue. TThe higher the indicator value, the higher the proftability of the Group. The indicator is also useful for monitoring Group's efciency. The higher the Adjusted EBITDA margin of the Group, the lower the Group's OPEX compared to Revenue, and the higher the efciency.
Adjusted net proft	Adjusted EBIT + fnancial income - fnancial expenses - signifcant one-of fnancial activity items - current year income tax expenses - deferred income tax expenses - adjustments' impact on income tax Net proft afer eliminating items which are non-recurring, and/or related to other periods, and/or non-related to the main activities of the Group, and afer adding back items, to more accurately refect main activities result of the current period. This is one of the key indicators that measures proftability of the Group. It is also used for computing Adjusted ROE, which is another key indicator of the Group's performance.
Adjusted net proft margin	Adjusted net proft Total revenues and other income + management adjustments Proftability ratio, which shows Adjusted net proft as a percentage of revenue. The higher the indicator value, the higher the proftability of the Group. The indicator is also useful for monitoring Group's efciency.
Adjusted return on equity (Adjusted ROE)	Adjusted net proft Average equity at the beginning and end of the reporting period Proftability ratio of Adjusted net proft in relation to equity. Adjusted ROE is a key measure of Group's performance, used for seting up and monitoring of Group's targets. The principal shareholder of the Group express expectation in terms of Adjusted ROE. Adjusted return on equity shows how efectively the company is using shareholders' capital to generate profts.
Asset turnover	Total revenues and other income Average assets at the beginning and end of the reporting period Efciency ratio, which measures revenues relative to total assets. The indicator shows the efectiveness of use of the Group’s assets. A higher value indicates a higher degree of efectiveness in managing the assets.

335 / 364

Annual report 2021 / Further information

Contents »

==> picture [730 x 25] intentionally omitted <==

----- Start of picture text -----

Indicator Formula Definition Meaning and interpretation of indicator
----- End of picture text -----

Capital employed		Net debt + Equity Value of all the assets used by the Group to generate earnings. The indicator is used to determine the return on the Group's assets as well as how efective management is at employing capital.
Current ratio		Current assets at the end of the period Current liabilities at the end of the period Liquidity ratio, which shows how many times current assets cover current liabilities. Current ratio shows the ability of the Group to meet its current liabilities by using its current assets and refects the liquidity position of the Group. The higher the ratio, the beter the liquidity position.
Dividend pay-out		Total proposed dividend for the reporting period Net proft for the period atributable to equity holders if the parent company The ratio of the total amount of dividends to be paid out to shareholders relative to the net income of the parent company. The indicator shows the percentage of earnings to be paid to shareholders via dividends.
Dividends per share (DPS)		Total proposed dividend for the reporting period Number of ordinary nominal shares at the end of dividends pay-out period Proftability ratio, which shows proposed dividends for the period atributable to one security at the end of dividends pay-out period. The higher the indicator value, the higher the proftability atributable to one security for the period.
Dividend yield		DPS Ordinary registered share_or_GDR price at the end of reporting period Proftability ratio, which shows how much a company pays out in dividends each year relative to its security price. The dividend yield is an estimate of the dividend-only return of a security investment.
Gross debt		Non-current loans and bonds + non-current lease liabilities + current portion of non-current loans + current loans + current lease liabilities Total debt of the Group. Indicator shows the level of debt of the Group.
Gross debt/Equity		Gross debt Equity Leverage ratio, which measures of the degree to which the Group is fnancing its operations through debt versus equity. The lower the indicator value, the greater the Group’s ability to meet its fnancial liabilities and atract new debt capital. It is one of the indicators specifed in the Group’s dividend policy.
Earnings per share (EPS)		Net proft for the period atributable to equity holders of the parent company Weighted average number of nominal shares for the reporting period Proftability ratio, which shows net proft for the period atributable to equity holders of the parent to one security at the end of reporting period. The higher the indicator value, the higher the proftability atributable to one security for the period.
EBIT		Proft (loss) before tax - Financial income + Financial expenses EBIT – earnings before interest and tax Proft measure used as a proxy for operating cash fow, afer accounting for estimate of capital expenditures through depreciation and amortisation expenses.
EBIT margin		EBIT Total revenues and other income Proftability ratio, which shows EBIT as a percentage of revenue. The higher the indicator value, the higher the proftability of the Group.
EBITDA		EBIT - depreciation and amortisation expenses - revaluation of emission allowances - write-ofs, revaluation and impairment losses of property, plant and equipment and intangible assets EBITDA - earnings before interest, taxes, depreciation, and amortisation. Proft measure used as a proxy for operating cash fow.
EBITDA margin		EBITDA Total revenues and other income Proftability ratio, which shows EBITDA as a percentage of revenue. The higher the indicator value, the higher the proftability of the Group.

336 / 364

Annual report 2021 / Further information

Contents »

==> picture [730 x 25] intentionally omitted <==

----- Start of picture text -----

Indicator Formula Definition Meaning and interpretation of indicator
----- End of picture text -----

Equity ratio	Equity at the end of the period Total assets at the end of the period Leverage ratio, which shows the proportion of the total assets fnanced by equity. This indicator shows the share of equity in the capital structure. The lower the ratio, the more the Group depends on debt fnancing to fund its activities.
Free Cash Flow (FCF)	FFO - Investments + grants received + investments covered by guarantee + cash efect of new connection points and upgrades + cash infow of proceeds from sale of property, plant and equipment less gain or loss + change in net working capital. Free cash fow is the cashfow remaining to the Group afer covering operating and capital expenditures. The higher the FCF, the more cash fow is available for shareholders and lenders of the Group. If FCF is negative, the Group needs to raise additional fnancing to fund its operations.
Funds from operations (FFO)	EBITDA + interest received - interest paid - income tax paid FFO is the proxy for Group’s cashfow afer taking into account EBITDA, net interest, and income tax paid. FFO shows the Group’s ability to generate cash from operations. This indicator is used during the credit rating review process of the Group.
Investments	Additions of property, plant and equipment and intangible assets + assets acquired through the acquisition of subsidiaries + additions of other fnancial assets + additions of investment property Capital spent on acquiring non-current tangible and intangible assets, other fnancial assets and investment property, as well as assets acquired through the acquisition of subsidiaries. Indicator shows the amount of capital the Group spends on acquiring, upgrading, and repairing non-current tangible and intangible assets, other fnancial assets and investment property, as well as assets acquired through the acquisition of subsidiaries. This is one of the main indicators that signifcantly impacts the Group’s cash fows and leverage levels.
Net debt	Gross debt - cash and cash equivalents - deposit into escrow account in relation to IPO overallotment option (applicable for 2020) Net debt is the total fnancial liabilities of the Group, net of cash and cash equivalents. Net debt shows the level of indebtedness of the Group, if its cash and cash equivalents were used to pay out the outstanding debt. Indicator is used during the credit rating review process of the Group.
Net debt/Adjusted EBITDA	Net debt Adjusted EBITDA Leverage ratio, which shows the Group’s ability to repay its debt from the proft earned. The value of the indicator shows how many years it would take for the Group to pay back its debt if Net debt and Adjusted EBITDA were held constant. The lower the indicator value, the greater the Group’s ability to cover its fnancial liabilities from the proft earned. This is one of the key indicators of the Group’s leverage level.
Net debt/EBITDA	Net debt EBITDA Leverage ratio, which shows the Group’s ability to repay its debt from the proft earned. The value of the indicator shows how many years it would take for the Group to pay back its debt if Net debt EBITDA were held constant. The lower the indicator value, the greater the Group’s ability to cover its fnancial liabilities from the proft earned. This indicator is used during the credit rating review process of the Group.
OPEX	Salaries and related expenses + repair and maintenance expenses + other expenses - energy hedging - write-ofs and impairments of short term and long-term receivables, inventories and other Selling, general and administrative expense. This indicator helps management to evaluate the efectiveness of the Group’s operations by monitoring the overhead expenses.
Return on assets (ROA)	Net proft (loss) Average assets at the beginning and end of the reporting period Proftability ratio, which shows how well the Group employs its total assets. This indicator shows how well the Group utilizes its assets to generate proft. A higher indicator value shows higher proftability of the Group’s total assets.

337 / 364

Annual report 2021 / Further information

Contents »

==> picture [730 x 25] intentionally omitted <==

----- Start of picture text -----

Indicator Formula Definition Meaning and interpretation of indicator
----- End of picture text -----

Indicator	Formula Defnition Meaning and interpretation of indicator
Return on Capital Employed (ROCE)	EBIT Average net debt at the beginning and end of the reporting period + average equity at the beginning and end of the reporting period Proftability ratio, which shows how well the Group employs its capital. This indicator shows how well the Group utilizes its capital employed to generate proft. A higher indicator value shows higher proftability of the Group’s capital employed.
Return on equity (ROE)	Net proft (loss) Average equity at the beginning and end of the reporting period Proftability ratio of net proft in relation to equity. ROE is a measure of Group’s performance. Return on equity shows how efectively the Group is using shareholders’ capital to generate profts.
Net working capital	Current assets (excluding non-current assets held for sale) - cash and cash equivalents - deposit into escrow account in relation to IPO overallotment option (applicable for 2020) - other current fnancial assets - short term interest receivables - prepaid income tax - derivative fnancial instruments assets - amounts receivable on disposal of property plant and equipment + prepayments for property, plant and equipment +non-current receivables (excluding Epso-G) - current liabilities (excluding non-current liabilities of assets held for sale) + current portion of non-current loans + current loans + lease liabilities + payable income tax + deferred revenue + derivative fnancial instruments liabilities + current provision + dividends payable Net working capital shows the amount of capital, other than that used for investing in non- current assets, tied in business operations. Net working capital is a measure of operating efciency. The lower the net working capital, the more efcient the Group’s operations and use of funds.
Net working capital/ Revenue	Net working capital Total revenue and other income Efciency ratio, which shows Net working capital as proportion of revenue. Net working capital/Revenue is a measure of operating efciency. The lower the indicator, the more efcient the Group’s operations and use of funds.

For those indicators, which consist of a number from the Statement of financial position as a numerator and a number from the Statement of profit or loss and other comprehensive income or the statement of cash flows as a denominator (or vice versa), for interim period calculations LTM figures are used in order not to distort the comparability.

338 / 364

Annual report 2021 / Further information

Contents »

7 .4 Compliance with the Guidelines for Ensuring the Transparency of State-Controlled Enterprises

==> picture [730 x 36] intentionally omitted <==

5. The following data and information must be published on the website of a State-owned company:
5.1. name;	Ongoing
5.2. code and register that collects and stores data on the enterprise;	Ongoing
5.3. registered ofce (address);	Ongoing
5.4. legal status if a State-owned company is being reformed, reorganized (the method of reorganization shall be specifed), liquidated, is facing bankruptcy or is bankrupt;	Ongoing
5.5. name of the authority representing the State and a link to its website;	Ongoing
5.6. operational goals, vision and mission;	Ongoing
5.7. structure;	Ongoing
5.8. details of the Head; 5.9. details of the Chair and of the members of the Management Board, if, according to the Articles of Association, the Management Board is formed	Ongoing Ongoing	Information is published on www.ignitisgrupe.lt
5.10. details of the Chair and of the members of the Supervisory Board, if, according to the Articles of Association, the Supervisory Board is formed;	Ongoing
5.11. names of the commitees, details of their chairmen and of the member, if commitees are formed;	Ongoing
5.12. the sum of the nominal values of the state-owned shares (in euro to the nearest euro cent) and share (percentage) in the authorized capital of a State-owned company;	Ongoing
5.13. special obligations being fulflled, which are determined in accordance with the recommendations approved by the Minister of Economy and
Innovation of the Republic of Lithuania: the purpose of the special obligations, the state budget appropriations allocated to their implementation in the current calendar year, and the legislation entrusting a State-owned company with the performance of a special obligation shall be indicat-	Not relevant
ed, the conditions for fulflling a special obligation and/or regulated pricing shall be established;
5.14. information on social responsibility initiatives and measures, important ongoing or planned Investment projects.	Ongoing
6. For publicity purposes in connection with the management and supervisory bodies set up in State-owned companies, as well as in connection with the
professionalism of the members of the commitees, the following data of the persons specifed in sub-clauses 5.8–5.11 of the Description are published: forename, surname, date of commencement of the current position, other management posts held in other legal entities, educational background, qualifcation, professional experience. If the person specifed in Sub-clauses 5.9–5.11 of the Description is elected or appointed as an independent member, this shall be additionally specifed along with his/her details.	Ongoing	Information is published on www.ignitisgrupe.lt

339 / 364

Annual report 2021 / Further information

Contents »

==> picture [730 x 454] intentionally omitted <==

----- Start of picture text -----

Point of the Description of the Guidelines for Ensuring the Transparency of the activities of State-Controlled Enterprises
Disclosure Explanation
(according to the wording of 30 April 2021)
7. The following documents must be published on the website of a state-owned company: Ongoing
7.1. articles of Association; Ongoing
7.2. an official letter from an authority representing the State on the setting state goals and expectations in a State-owned company Ongoing
7.3. operations strategy or its summary in cases where the operations strategy contains confidential information or information that is considered a
Ongoing Information is published on
commercial (industrial) secret;
www.ignitisgrupe.lt
7.4. document that establishes the remuneration policy covering determining the salary of the Head of a State-owned company and the remunera-
tion of the members of collegial bodies and committees formed in a State-owned company. Ongoing
7.5. annual and interim reports of a state-owned company, annual and interim activity reports of a State Enterprise for a period of at least 5 years; Ongoing
7.6. sets of annual and interim financial statements for a period of at least 5 years and reports of an auditor of annual financial statements. Ongoing
8. If a state-owned company is the parent company, the structure of the Group of Companies, as well as the data referred to in Sub-clauses 5.1 to 5.3 of
Information is published on
the Description of the subsidiaries and subsequent subsidiaries, website addresses, portion (percentage) of shares held by the parent company in their Ongoing
authorized capital, as well as annual consolidated financial statements and consolidated annual reports must be published on its website. www.ignitisgrupe.lt
9. If a state-owned company is a participant of legal entities other than those specified in Point 8 of the Description, the data referred to in Sub-clauses Information is published on
Ongoing
5.1–5.3 of the Description of those legal entities and the addresses of their websites must be published on its website. www.ignitisgrupe.lt
The specified information
must be published on the
9 [1] . If a company is a subsidiary or a second tier subsidiary of a state-owned company, the data referred to in Sub-clauses 5.1–5.3 of the Description of the
Yes websites of subsidiaries and
parent company and the link to the parent company’s website must be published on its website.
second tier subsidiaries of
the parent company
Information and documents
10. Data, information and documents referred to in Points 5 and 6, Sub-clauses 7.1 to 7.4, and in Points 8, 9 and 9 [1] of the Description, that have changed or
Ongoing that have changed are
in cases where incorrect data of this kind has been published, must be changed immediately on the website too.
updated immediately
11. A set of annual financial statements of a state-owned company, annual report of a state-owned company, annual activity report of a State Enterprise, Documents are published
as well as report of an auditor of the annual financial statements of a state-owned company must be published on the website of a state-owned company Ongoing on the website within the set
within 10 working days from the approval of the set of annual financial statements of a state-owned company. deadline
12. The sets of interim financial statements of a State-owned company, the interim reports of a state-owned company and the interim activity reports of a State Enterprise must be published on the website of a State-owned company no later than 2 months after the end of the reporting period. Ongoing on the website within the set Documents are published deadline
13. The documents referred to in Point 7 of the Description shall be published in PDF format and technical possibilities for their printing shall be ensured. Ongoing Published PDF documents
Section 3 . Preparation of sets of financial statements, reports and activity reports
14. State-owned companies shall keep their accounts in such a way as to ensure the preparation of financial statements in accordance with international Ongoing The parent company keeps its accounts in accordance
accounting standards.
with IFRS
The parent company
15. In addition to the set of annual financial statements, a state-owned company prepares a set of 6-month interim financial statements, while a State prepares sets of interim
Company - sets of interim financial statements for 3, 6 and 9 months. Ongoing financial statements for
3, 6 and 9 months
----- End of picture text -----

340 / 364

Annual report 2021 / Further information

Contents »

==> picture [730 x 36] intentionally omitted <==

----- Start of picture text -----

Point of the Description of the Guidelines for Ensuring the Transparency of the activities of State-Controlled Enterprises
Disclosure Explanation
(according to the wording of 30 April 2021)
16. A State-owned company, which according to the Law on Audit of Financial Statements of the Republic of Lithuania, is classified as a public interest
----- End of picture text -----

Point of the Description of the Guidelines for Ensuring the Transparency of the activities of State-Controlled Enterprises (according to the wording of 30 April 2021) 16. A State-owned company, which according to the Law on Audit of Financial Statements of the Republic of Lithuania, is classifed as a public interest	Disclosure	Explanation
entity, in addition to the annual report, additionally prepares a 6-month interim report. A State Enterprise, which according to the Law on Audit of Financial Statements of the Republic of Lithuania, is classifed as a public interest enterprise, in addition to the annual activity report, additionally prepares a 6-month	Ongoing	The company prepares a 6-month interim report
interim report.
17. In addition to the Contents requirements established in the Law on Financial Reporting of Enterprises of the Republic of Lithuania or in the Law on
State and Municipal Enterprises of the Republic of Lithuania, in the annual report of a State-owned company or in the annual activity report of a State	Ongoing
Enterprise additionally must be provided:
17.1. a brief description of the business model of a state-owned company;	Ongoing
17.2. information on signifcant events that occurred during and afer the fnancial year (prior to the preparation of the annual report or the annual activity report) and which were essential to the operation of a state-owned company;	Ongoing
17.3. results of the implementation of the objectives provided for in the operational strategy of a state-owned company;	Ongoing
17.4. proftability, liquidity, asset turnover, debt indicators;	Ongoing	The company provides
17.5. fulflment of special obligations; 17.6. implementation of Investment policy, ongoing and planned Investment projects and Investments during the reporting year;	Not relevant Ongoing	information in the annual report
17.7. implementation of the risk management policy applied in a state-owned company;	Ongoing
17.8. implementation of dividend policy in state-owned companies;	Ongoing
17.9. implementation of remuneration policy;	Ongoing
17.10. total annual payroll fund, average monthly salary by current position and/or units;	Ongoing
17.11. information on compliance with the provisions of Sections 2 and 3 of the Description: shall be specifed how they are implemented, which provisions are not complied with, and explanation as to why they are not complied with shall be provided.	Ongoing
18. State-Owned companies and State Enterprises, that are not mandatory required to prepare social responsibility reports, are recommended to provide in the annual report or in the annual activity report, as appropriate, information related to environmental, social and personnel, human rights, fght against corruption and bribery maters.	Not relevant	The company prepares a social responsibility report (integrated in the annual report)
19. If information referred to in Point 17 of the Description is considered a commercial (industrial) secret or confdential information of a state-owned company, a state-owned company may not disclose such information. However, it must be specifed in the annual report of a state-owned company or in the annual activity report of a State Enterprise, as appropriate, that this information is not being disclosed and the reason for the non-disclosure must be specifed.	Not relevant	The company provides information in the annual report
20. Other information not specifed in this Description may also be specifed in the annual report of a State-owned company or in the annual activity report of a State Enterprise.	Ongoing	Other information is also provided in the annual report
21. A state-owned company, which is the parent company, shall present in the consolidated annual report and, if it is not required by law to draw up a
consolidated annual report, then in its annual report the structure of the Group of Companies, as well as the data referred to in Sub-clauses 5.1 to 5.3 of		The company provides
the Description of each subsidiary and second tier subsidiary, portion (percentage) of shares held in the authorized capital of a subsidiary, fnancial and non-fnancial performance for the fnancial year. If a State-owned company, which is the parent company, draws up a consolidated annual report, the	Ongoing	information in the annual report
requirements of Point 17 of the Description shall apply to it_mutatis mutandis_.
22. The interim report of a state-owned company or the interim activity report of a State Enterprise presents a brief description of the business model of		The company provides
a State-owned company, analysis of fnancial performance for the reporting period, information on signifcant events that occurred during the reporting period, as well as proftability, liquidity, asset turnover, debt indicators and their changes compared to the corresponding period of the previous year.	Ongoing	information in the interim report

341 / 364

Annual report 2021 / Further information

Contents »

7 .5 Compliance with the Corporate Governance Code

AB “Ignitis grupė“ (the parent company), acting in compliance with Article 12(3) of the Law on Securities of the Republic of Lithuania and paragraph 24.5 of the Listing Rules of Nasdaq Vilnius AB, hereby discloses how it complies with the Corporate Governance Code for the Companies listed on Nasdaq Vilnius as well as its specific provisions or recommendations. In case of noncompliance with this Code or some of its provisions or recommendations, the specific provisions or recommendations that are not complied with are indicated and the reasons for such noncompliance are specified.

Summary of the Corporate Governance Report

Corporate governance activities are concentrated at the level of the parent company of the Group – the responsibilities of which involve coordination of such areas as finance, law, planning and monitoring, human resources, risk management, audit, technology, communication and other common areas of the Group entities. Activities of the Group entities in these areas are based on mutual agreement, i.e. cooperation with a focus on achievement of common result, and they are coordinated by policies (common provisions and norms) applicable to all Group entities. Use this link for the description of the corporate governance principles and of the governance and control system. More information on the management bodies ant its members, committees etc. is provided in annual report and in the table below, in which information on compliance with the Corporate Governance Code for the Companies listed on Nasdaq Vilnius is disclosed.

The corporate governance model of the Group was implemented following the governance guidelines approved by the Ministry of Finance of the Republic of Lithuania on 7 June 2013. The guidelines were updated several times and the current version was approved on 2 July 2021 (link).

The Corporate Governance Report was prepared in accordance with the current version of the Corporate Governance Code for the Companies listed on Nasdaq Vilnius, approved at the meeting of the Management Board of AB Nasdaq Vilnius on 15 January 2019 (Minutes No. 19-63), at the meeting of the Bank of Lithuania on 7 January 2019 (Decision No. 241-3).

==> picture [730 x 27] intentionally omitted <==

----- Start of picture text -----

Yes / No /
Principles / recommendations Commentary
Not applicable
----- End of picture text -----

Principle 1: General meeting of shareholders, equitable treatment of shareholders, and shareholders’ rights	Principle 1: General meeting of shareholders, equitable treatment of shareholders, and shareholders’ rights
The corporate governance framework should ensure the equitable treatment of all shareholders. The corporate		governance framework should protect the rights of shareholders.
		All information that shall be public in accordance with legal acts is published in Lithuanian
1.1. All shareholders should be provided with access to the information and/or		and English via informational system of stock-exchange Nasdaq Vilnius and on the
documents established in the legal acts on equal terms. All shareholders should be furnished with equal opportunity to participate in the decision-making process where signifcant corporate maters are discussed.	Yes	website of the parent company. The place, date and time of the General Meeting of Shareholders convened by the parent company is determined in order to enable all shareholders to participate in the decision-making process where signifcant corporate maters are discussed.
1.2. It is recommended that the company’s capital should consist only of the shares that grant the same rights to voting, ownership, dividend and other rights to all of their holders.	Yes	The parent company’s authorized share capital consists of EUR 22.33 nominal value ordinary shares, which provide their holders equal property and non-property rights.
1.3. It is recommended that investors should have access to the information concerning the rights atached to the shares of the new issue or those issued earlier in advance, i.e. before they purchase shares.	Yes	The rights, provided by the shares are indicated in the parent company’s Articles of Association, which is publicly available on the parent company’s website.

342 / 364

Annual report 2021 / Further information

Contents »

==> picture [730 x 26] intentionally omitted <==

----- Start of picture text -----

Yes / No /
Principles / recommendations Commentary
Not applicable
----- End of picture text -----

		The Articles of Association of the parent company provides that the General Meeting of
		Shareholders shall approve these particularly important decisions regarding:
		– of the parent company becoming a founder, participant of other legal entities (except
		the decisions regarding becoming a founder, participant of associations);
		– the following of the companies of the Group of Companies of the parent company
		of strategic and signifcant importance to national security, which carry out
		manufacturing, distribution, supply activities in the energy sector, as well as of
1.4. Exclusive transactions that are particularly important to the company, such as transfer		companies directly managed by the parent company which carry out activities in the
of all or almost all assets of the company which in principle would mean the transfer of the	Yes	electricity production sector:
company, should be subject to approval of the general meeting of shareholders.		– the transfer, pledge, other restriction or disposal of the shares or the rights atached
		thereto;
		– increase, decrease of the authorized capital or other actions that may alter the
		structure of the authorized capital (e.g. issue of convertible bonds);
		– reorganization, separation, restructuring, liquidation, reformation or other acts
		changing the status of these companies;
		– the transfer of a business or a substantial part of it.
1.5. Procedures for convening and conducting a general meeting of shareholders should provide shareholders with equal opportunities to participate in the general meeting of shareholders and should not prejudice the rights and interests of shareholders. The chosen venue, date and time of the general meeting of shareholders should not prevent active participation of shareholders at the general meeting. In the notice of the general meeting of shareholders being convened, the company should specify the last day on which the proposed draf decisions should be submited at the latest.	Yes	The parent company convenes General Meetings of Shareholders and implements other meeting-related procedures in accordance with the procedure established in the Law on Companies of the Republic of Lithuania and provides all shareholders with equal opportunities to participate in the meeting, get familiarised with the draf resolutions and materials necessary for adopting the decisions. The notice of General Meetings of Shareholders specifes that draf decisions could be submited at any time before or during the General Meeting of Shareholders in accordance to Law on Companies of the Republic of Lithuania.
1.6. With a view to ensure the right of shareholders living abroad to access the
information, it is recommended, where possible, that documents prepared for the
general meeting of shareholders in advance should be announced publicly not only in
Lithuanian language but also in English and/or other foreign languages in advance. It is		All documents and information related to the General Meeting of Shareholders
recommended that the minutes of the general meeting of shareholders afer the signing thereof and/or adopted decisions should be made available publicly not only in Lithuanian	Yes	including notices of the meetings, draf decisions, decisions of the meetings are publicly announced in Lithuanian and English via information system of Nasdaq Vilnius and
language but also in English and/or other foreign languages. It is recommended that this		London stock exchange and on the parent company’s website.
information should be placed on the website of the company. Such documents may be
published to the extent that their public disclosure is not detrimental to the company or
the company’s commercial secrets are not revealed.
1.7. Shareholders who are entitled to vote should be furnished with the opportunity to		All shareholders may exercise their right to atend the General Meeting of Shareholders
vote at the general meeting of shareholders both in person and in absentia. Shareholders should not be prevented from voting in writing in advance by completing the general	Yes	under the procedure laid down in the legal acts and this right is not restricted. The parent company provides information on how to implement this right in the notice of
voting ballot.		General Meeting of Shareholders.
1.8. With a view to increasing the shareholders’ opportunities to participate efectively
at general meetings of shareholders, it is recommended that companies should apply		At the moment the parent company does not comply with this recommendation
modern technologies on a wider scale and thus provide shareholders with the conditions to participate and vote in general meetings of shareholders via electronic means of	No	as there are no means to ensure proper identifcation of the voting persons using electronic means of communication. Nevertheless the parent company is actively
communication. In such cases the security of transmited information must be ensured		looking for ways to address this issue.

1.8. With a view to increasing the shareholders’ opportunities to participate effectively at general meetings of shareholders, it is recommended that companies should apply modern technologies on a wider scale and thus provide shareholders with the conditions to participate and vote in general meetings of shareholders via electronic means of communication. In such cases the security of transmitted information must be ensured and it must be possible to identify the participating and voting person.

343 / 364

Annual report 2021 / Further information

Contents »

==> picture [730 x 26] intentionally omitted <==

----- Start of picture text -----

Yes / No /
Principles / recommendations Commentary
Not applicable
----- End of picture text -----

		Information on candidates to a collegial body of a state-controlled company elected
		by the General Meeting of Shareholders is provided under the procedure established
1.9. It is recommended that the notice on the draf decisions of the general meeting		in the laws. The nominees are publicly announced as soon as the parent company
of shareholders being convened should specify new candidatures of members of the		receives nominations. The selection procedures and selection requirements are set
collegial body, their proposed remuneration and the proposed audit company if these		by separate legal acts. Information on the candidate’s education, work experience,
issues are included into the agenda of the general meeting of shareholders. Where	Yes	competence, position held and former positions (CV) , their proposed remuneration
it is proposed to elect a new member of the collegial body, it is recommended that		and other documents specifed in the legal acts are provided with the notice of General
the information about his/her educational background, work experience and other		Meeting of Shareholders.
managerial positions held (or proposed) should be provided.		The name of proposed audit company and proposed remuneration for the audit
		services are presented in advance as a proposed draf decision for the General Meeting
		of Shareholders.
		Usually general meetings of shareholders of the parent company are atended by
		members of management bodies and other competent persons in order to provide
1.10. Members of the company’s collegial management body, heads of the administration1or other competent persons related to the company who can provide information related to the agenda of the general meeting of shareholders should take part in the general meeting of shareholders. Proposed candidates to member of the collegial body should also participate in the general meeting of shareholders in case the election of new members is included into the agenda of the general meeting of shareholders.	Yes	information related to the agenda of the general meeting of shareholders to the shareholders. The General Meeting of Shareholders of the parent company held on 27 September 2021 was also atended by the candidates to the Audit Commitee of the parent company, where they introduced themselves. The candidates to the Supervisory Board of the parent company had to participate in and introduce themselves at the General Meeting of Shareholders of the parent company held on 26 October 2021. The introduction of the candidates did not occur because not a single shareholder
		participated in the meeting in person (i.e., all shareholders who participated in the
		meeting had voted in advance).
Principle 2: Supervisory board
2 1 Functions and liability of the supervisory board
The supervisory board of the company should ensure representation of the interests of the company and its		shareholders, accountability of this body to the shareholders and objective monitoring of the
company’s operations and its management bodies as well as constantly provide recommendations to the management bodies of the company.
The supervisory board should ensure the integrity and transparency of the company’s fnancial accounting and control system.
		All members of the Supervisory Board act in good will with respect to the parent
2.1.1. Members of the supervisory board should act in good faith, with care and		company, with due regard to the parent company’s interests and public welfare.
responsibility for the beneft and in the interests of the company and its shareholders and	Yes	The duties set out in this recommendation are embedded in the agreement on activities
represent their interests, having regard to the interests of employees and public welfare.		of a member of the Supervisory Board and agreement on activities of an independent
		member of the Supervisory Board.
		Collegial bodies of the parent company follow the prescribed recommendations.
2.1.2. Where decisions of the supervisory board may have a diferent efect on		Before taking decisions, members of the collegial bodies discuss their infuence to the
the interests of the company’s shareholders, the supervisory board should treat all		parent company’s performance and the shareholders. The parent company’s Articles
shareholders impartially and fairly. It should ensure that shareholders are properly	Yes	of Association oblige the collegial bodies of the parent company and also each of their
informed about the company’s strategy, risk management and control, and resolution of		members to act on behalf of the parent company and its shareholders. Communication
conficts of interest.		with the shareholders and obligations for them are established in accordance with
		requirements of legal acts.
2.1.3. The supervisory board should be impartial in passing decisions that are signifcant for the company’s operations and strategy. Members of the supervisory board should act and pass decisions without an external infuence from the persons who elected them.	Yes	The parent company’s Supervisory Board is independent from the parent company’s management bodies and takes decisions that are signifcant to the parent company’s activities and strategy, acts independently in accordance with requirements of legal acts.

1 For the purposes of this Code, heads of the administration are the employees of the company who hold top level management positions.

344 / 364

Annual report 2021 / Further information

Contents »

==> picture [730 x 26] intentionally omitted <==

----- Start of picture text -----

Yes / No /
Principles / recommendations Commentary
Not applicable
----- End of picture text -----

2.1.4. Members of the supervisory board should clearly voice their objections in case they believe that a decision of the supervisory board is against the interests of the company. Independent2members of the supervisory board should: a) maintain independence of their analysis and decision-making; b) not seek or accept any unjustifed privileges that might compromise their independence.	Yes	Members of the Supervisory Board have the right to express their opinion concerning all questions included to the agenda that according to work regulations of the Supervisory Board must be properly refected in the protocol of the meeting. The duties set out in this recommendation are embedded in the agreement on activities of a member of the Supervisory Board and agreement on activities of an independent member of the Supervisory Board.
2.1.5. The supervisory board should oversee that the company’s tax planning strategies are designed and implemented in accordance with the legal acts in order to avoid faulty practice that is not related to the long-term interests of the company and its shareholders, which may give rise to reputational, legal or other risks.	Yes	In exercising its competence to supervise the activities of the parent company's management bodies, the Supervisory Council performs the duties specifed in the recommendation, and submits its opinion on tax planning issues.
		The parent company ensures that the Supervisory Board is supplied with all of the
		resources required for its activities (monitors technical aspects of the Supervisory Board
		meetings, provides all the required information and performs other functions specifed
		in the Supervisory Board’s Work Regulations).
		Agreement of activities of a member of the supervisory board defnes that the parent
2.1.6. The company should ensure that the supervisory board is provided with sufcient resources (including fnancial ones) to discharge their duties, including the right to obtain all the necessary information or to seek independent professional advice from external legal, accounting or other experts on maters pertaining to the competence of the supervisory board and its commitees.	Yes	company commits to creating proper working conditions for the supervisory board and its members by supplying them with technical and administrative tools required for work. The Articles of Association set out that the supervisory board has the right to apply to the board and chief executive ofcer asking for documents and information pertaining to the parent company’s operations, and the board of directors and chief
		executive ofcer must ensure that the documents and information so requested are
		produced to the supervisory board within reasonable time. The provision regarding
		supply of information is also included in the agreement of activities of a member of the
		supervisory board.

2 2 Formation of the supervisory board
The procedure of the formation of the supervisory board should ensure proper resolution of conficts of interest and efective and fair corporate governance.

2.2.1. The members of the supervisory board elected by the general meeting of
shareholders should collectively ensure the diversity of qualifcations, professional
experience and competences and seek for gender equality. With a view to maintain a
proper balance between the qualifcations of the members of the supervisory board,
it should be ensured that members of the supervisory board, as a whole, should have
diverse knowledge, opinions and experience to duly perform their tasks.
Yes
Pursuant to the Law on Companies of the Republic of Lithuania, the Supervisory Board
is elected and the qualifcation of its members is assessed at the general meeting of
shareholders. Four out of seven members are women.
The main activities of the parent company are the exercise of the functions of the parent
company of the group, and the majority of the members of the Supervisory Board have
experience in the feld of corporate governance as well as experience in energy sector
which is the sector in which the parent company and its subsidiaries operate.

2 For the purposes of this Code, the criteria of independence of members of the supervisory board are interpreted as the criteria of unrelated parties defined in Article 31(7) and (8) of the Law on Companies of the Republic of Lithuania.

345 / 364

Annual report 2021 / Further information

Contents »

==> picture [730 x 26] intentionally omitted <==

----- Start of picture text -----

Yes / No /
Principles / recommendations Commentary
Not applicable
----- End of picture text -----

		The members of the Supervisory Board are elected according to the maximum term of
		ofce, specifed in the Law on Companies of the Republic of Lithuania – for 4 years per term of ofce.
		The parent company’s Articles of Association provide a possibility to revoke (dismiss)
2.2.2. Members of the supervisory board should be appointed for a specifc term, subject to individual re-election for a new term in ofce in order to ensure necessary	Yes	both separate members of the Supervisory Board and the whole Supervisory Board in corpore, without waiting for their mandates’ terms to end. The members of the
development of professional experience.		Supervisory Board (separate or the body itself) may be dismissed by the General
		Shareholder Meeting. There are no restrictions provided in the Articles of Association
		of the parent company limiting the re-election of members of the Supervisory Board,
		however, there are restrictions established in the efective legal acts apply for the
		candidates to collegial bodies themselves.
2.2.3. Chair of the supervisory board should be a person whose current or past positions constituted no obstacle to carry out impartial activities. A former manager or management board member of the company should not be immediately appointed as chair of the supervisory board either. Where the company decides to depart from these recommendations, it should provide information on the measures taken to ensure impartiality of the supervision.	Yes	The Chairman of the parent company's Supervisory Board and the CEO of the parent company is not the same person. The Chairman of the parent company’s Supervisory Board is independent. The members of the Supervisory Board and the Chairman have not been members of the Board of the parent company or the CEO of the parent company.
2.2.4. Each member should devote sufcient time and atention to perform his duties as a member of the supervisory board. Each member of the supervisory board should undertake to limit his other professional obligations (particularly the managing positions in other companies) so that they would not interfere with the proper performance of the duties of a member of the supervisory board. Should a member of the supervisory board atend less than a half of the meetings of the supervisory board throughout the fnancial year of the company, the shareholders of the company should be notifed thereof.	Yes	Members of the Supervisory Board are active participants of the meetings of the collegial body and devote sufcient time to perform their duties as members of the collegial body. In 2021 the former Supervisory Board held, before the end of its term (29 August 2021), 23 (twenty three) meetings, 3 Supervisory Board members participated in all 23 meetings, 1 member participated in 20 meetings, 3 members – in 22 Supervisory Board’s meetings. Since the election of the new Supervisory Board (26 October 2021), 7 Supervisory Board meetings were held, 6 meetings were atended by all Supervisory Board members, 1 meeting was missed by a single Supervisory Board member.
2.2.5. When it is proposed to appoint a member of the supervisory board, it should be		Information on the candidates to the parent company's Supervisory Board members
announced which members of the supervisory board are deemed to be independent.		(as well as information on the candidate's compliance with the independence
The supervisory board may decide that, despite the fact that a particular member meets	Yes	requirements) is provided to the General Meeting of Shareholders in accordance
all the criteria of independence, he/she cannot be considered independent due to		with the Law on Companies of the Republic of Lithuania (see commentary on
special personal or company-related circumstances.		recommendation 1.9).
		The independent member of the Supervisory Board is remunerated for his/her activity
		in the Supervisory Board according to the procedure and terms established in the
		agreement signed with him on activity as an independent member of the Supervisory
		Board.
2.2.6. The amount of remuneration to members of the supervisory board for their activity		The conditions of the agreement with the independent member of the Supervisory
and participation in meetings of the supervisory board should be approved by the	Yes	Board are approved by the General Meeting of Shareholders. According to the
general meeting of shareholders.		Corporate Governance Guidelines, the amount of remuneration to the independent
		member of the Supervisory Board has been limited to a maximum amount sum
		calculated in proportion to the remuneration of the CEO of the parent company (1/4 of
		the CEO's remuneration to an independent member of the Supervisory Board and 1/3 of
		the Independent Chairman of the Supervisory Board).

346 / 364

Annual report 2021 / Further information

Contents »

==> picture [730 x 26] intentionally omitted <==

----- Start of picture text -----

Yes / No /
Principles / recommendations Commentary
Not applicable
----- End of picture text -----

		The Supervisory Board makes an assessment of its activity every year. The Supervisory
2.2.7. Every year the supervisory board should carry out an assessment of its activities. It should include evaluation of the structure of the supervisory board, its work organization and ability to act as a group, evaluation of the competence and work efciency of each member of the supervisory board, and evaluation whether the supervisory board has achieved its objectives. The supervisory board should, at least once a year, make public respective information about its internal structure and working procedures.	Yes	Board assesses the organization of meetings, efciency, the need for competences, mutual cooperation, and sufciency of the information furnished by the management for decision-making. Information on the internal structure and working procedures of the Supervisory Board is published in the parent company’s annual report. In 2021 external consultants Nestor Advisors were engaged to assess the activities of the Supervisory Board of the parent company and its commitees. The consultants assessed the activities of the Supervisory Board and its commitees and submited
		recommendations for improvement in accordance with international good practices.
Principle 3: Management Board
3 1 Functions and liability of the management board
The management board should ensure the implementation of the company’s strategy and good corporate		governance with due regard to the interests of its shareholders, employees and other interest
groups.
3.1.1. The management board should ensure the implementation of the company’s
strategy approved by the supervisory board if the later has been formed at the company. In such cases where the supervisory board is not formed, the management board is also	Yes	The parent company's Management Board carries out the duty of implementation of the parent company's strategy approved by the parent company's Supervisory Board.
responsible for the approval of the company’s strategy.
3.1.2. As a collegial management body of the company, the management board performs
the functions assigned to it by the Law and in the articles of association of the company,		As there is the Supervisory Board formed in the parent company, the Management
and in such cases where the supervisory board is not formed in the company, it performs		Board performs the functions of the parent company's collegial management body. The
inter alia the supervisory functions established in the Law. By performing the functions	Yes	obligation to take into account the interests of the parent company, the shareholders,
assigned to it, the management board should take into account the needs of the		the employees and other stakeholders is established in the agreement on performance
company’s shareholders, employees and other interest groups by respectively striving to		in the Management Board signed by each member of the Management Board.
achieve sustainable business development.
3.1.3. The management board should ensure compliance with the laws and the internal
policy of the company applicable to the company or a group of companies to which this company belongs. It should also establish the respective risk management and control	Yes	The Management Board of the parent company adheres to the aforementioned recommendation, approves and ensures compliance with internal policies.
measures aimed at ensuring regular and direct liability of managers.
3.1.4. Moreover, the management board should ensure that the measures included into
the OECD Good Practice Guidance3on Internal Controls, Ethics and Compliance are applied at the company in order to ensure adherence to the applicable laws, rules and	Yes	The Management Board of the parent company follows the aforementioned recommendation.
standards.
3.1.5. When appointing the manager of the company, the management board should take		When appointing the CEO of the parent company the Management Board takes into
into account the appropriate balance between the candidate’s qualifcations, experience	Yes	account the balance of his/her qualifcations, experience and competence as well as
and competence.		the opinion of the parent company's Supervisory Board.

3 Link to the OECD Good Practice Guidance on Internal Controls, Ethics and Compliance: htps://www.oecd.org/daf/anti-bribery/44884389.pdf

347 / 364

Annual report 2021 / Further information

Contents »

==> picture [730 x 37] intentionally omitted <==

----- Start of picture text -----

Yes / No /
Principles / recommendations Commentary
Not applicable
3 .2 . Formation of the management board
----- End of picture text -----

3 2 Formation of the management board
3.2.1. The members of the management board elected by the supervisory board or, if the supervisory board is not formed, by the general meeting of shareholders should collectively ensure the required diversity of qualifcations, professional experience and competences and seek for gender equality. With a view to maintain a proper balance in terms of the current qualifcations possessed by the members of the management board, it should be ensured that the members of the management board would have, as a whole, diverse knowledge, opinions and experience to duly perform their tasks.	Yes	The Management Board of the parent company ensures the balance of its members' qualifcations. The main activities of the parent company are the exercise of the functions of the parent company of the group, and the majority of the members of the Management Board have experience in the feld of corporate governance as well as experience in energy sector which is the sector in which the parent company and its subsidiaries operate.
		Information on candidates to the Management Board of a state-controlled company
3.2.2. Names and surnames of the candidates to become members of the management		is provided under the procedure established in the laws. The selection procedures
board, information on their educational background, qualifcations, professional experience, current positions, other important professional obligations and potential conficts of interest should be disclosed without violating the requirements of the legal		and selection requirements are set by separate legal acts. An opinion on the suitability of candidates is submited by the Selection Commission formed in accordance with the procedure established by legal acts. Information on the candidate’s education,
acts regulating the handling of personal data at the meeting of the supervisory board in which the management board or individual members of the management board are elected. In the event that the supervisory board is not formed, the information specifed in this paragraph should be submited to the general meeting of shareholders. The	Yes	work experience, competence, position held and former positions (CV), declaration of interests and other documents specifed in the legal acts are provided at the meeting of the parent company's Supervisory Board, which elects the Management Board or its individual members. Information on ofces held by members of the Management
management board should, on yearly basis, collect data provided in this paragraph on its		Board or their involvement in activities of any other companies is constantly collected,
members and disclose it in the company’s annual report.		accumulated, and published in the annual report, as well as on the parent company’s
		website.
3.2.3. All new members of the management board should be familiarized with their duties and the structure and operations of the company.	Yes	The members of the Management Board afer their election are acquainted with the parent company’s activities, organizational and management structure, strategy, activities and fnancial plans.
		The members of the Management Board are elected according to the maximum term of
		ofce, specifed in the Law on Companies of the Republic of Lithuania – for 4 years per term of ofce. Limitations concerning re-election of the members of the Management
3.2.4. Members of the management board should be appointed for a specifc term, subject to individual re-election for a new term in ofce in order to ensure necessary development of professional experience and sufciently frequent reconfrmation of their status.	Yes	Board are not provided in the parent company‘s Articles of Association, nevertheless, limitations provided by valid legal acts are applied to candidates to members of the Management Board. The parent company’s Articles of Association provide a possibility to revoke (dismiss) both separate members of the Management Board and the whole collegial body
		in corpore, without waiting for their mandates’ terms to end. The members of the
		Management Board (separate or the body itself) may be dismissed by the Supervisory
		Board.
3.2.5. Chair of the management board should be a person who’s current or past positions constitute no obstacle to carry out impartial activity. Where the supervisory board is not formed, the former manager of the company should not be immediately appointed as chair of the management board. When a company decides to depart from these recommendations, it should furnish information on the measures it has taken to ensure the iili f ii	Yes	Current or past positions of the Chairman of the Management Board of the parent company do not create preconditions for possible impartiality. The Chairman of the Management Board of the parent company is a member of the Management Board and CEO of the parent company, but in this case the impartiality of its activities is ensured, as there is the Supervisory Board formed in the parent company.

3.2.5. Chair of the management board should be a person who’s current or past positions constitute no obstacle to carry out impartial activity. Where the supervisory board is not formed, the former manager of the company should not be immediately appointed as chair of the management board. When a company decides to depart from these recommendations, it should furnish information on the measures it has taken to ensure the impartiality of supervision.

348 / 364

Annual report 2021 / Further information

Contents »

==> picture [730 x 26] intentionally omitted <==

----- Start of picture text -----

Yes / No /
Principles / recommendations Commentary
Not applicable
----- End of picture text -----

		The members of the Management Board of the parent company actively participate in
3.2.6. Each member should devote sufcient time and atention to perform his duties as a member of the management board. Should a member of the management board atend less than a half of the meetings of the management board throughout the fnancial year of the company, the supervisory board of the company or, if the supervisory board is not formed at the company, the general meeting of shareholders should be notifed thereof.	Yes	the meetings of the Management Board and devoted sufcient time to the performance of their duties as a member of the collegial body. In 2021, 71 (seventy one) meetings of the Management Board of the parent company were held. In 2021, all elected members of the Management Board participated in all meetings of the Management Board. It must be noted that 1 Management Board member participated in all meetings before his resignation (25 June 2021) (i.e., in 31 out of 31 meetings that occurred before 25 June
		2021).
3.2.7. In the event that the management board is elected in the cases established by
the Law where the supervisory board is not formed at the company, and some of
its members will be independent4, it should be announced which members of the
management board are deemed as independent. The management board may decide	Not applicable	There is the Supervisory Board formed at the parent company.
that, despite the fact that a particular member meets all the criteria of independence
established by the Law, he/she cannot be considered independent due to special
personal or company-related circumstances.
		The parent company has a Supervisory Board that has the competence to elect
3.2.8. The general meeting of shareholders of the company should approve the amount		and revoke the members of the Management Board, set the remuneration of the
of remuneration to the members of the management board for their activity and	Not applicable	Management Board members. The remuneration of the Management Board members is
participation in the meetings of the management board.		determined in accordance with the Group Remuneration Policy, which is approved by
		the resolution of the General Meeting of Shareholders of the parent company.
3.2.9. The members of the management board should act in good faith, with care and
responsibility for the beneft and the interests of the company and its shareholders with due regard to other stakeholders. When adopting decisions, they should not act in their personal interest; they should be subject to no-compete agreements and they should not use the business information or opportunities related to the company’s operations in	Yes	The members of the Management Board act in good faith towards the parent company and in accordance with the interests of the parent company and taking into account the welfare of the society.
violation of the company’s interests.
3.2.10. Every year the management board should carry out an assessment of its
activities. It should include evaluation of the structure of the management board, its		Each year the members of the parent company's Management Board perform an
work organization and ability to act as a group, evaluation of the competence and work		assessment of their activities by completing the questionnaires, which include the
efciency of each member of the management board, and evaluation whether the	Yes	evaluation of the work of the Management Board. Information on the internal structure
management board has achieved its objectives. The management board should, at least		and working procedures of the Management Board is published in the parent
once a year, make public respective information about its internal structure and working		company’s annual report.
procedures in observance of the legal acts regulating the processing of personal data.

4 For the purposes of this Code, the criteria of independence of the members of the board are interpreted as the criteria of unrelated persons defined in Article 33(7) of the Law on Companies of the Republic of Lithuania.

349 / 364

Annual report 2021 / Further information

Contents »

Yes / No / Principles / recommendations Commentary Not applicable Principle 4: Rules of procedure of the supervisory board and the management board of the company The rules of procedure of the supervisory board, if it is formed at the company, and of the management board should ensure efficient operation and decision-making of these bodies and promote active cooperation between the company’s management bodies. 4.1. The management board and the supervisory board, if the latter is formed at the company, should act in close cooperation in order to attain benefit for the company and its shareholders. Good corporate governance requires an open discussion between Legal acts, Articles of Association and rules of procedure governing activities of the the management board and the supervisory board. The management board should parent company’s supervisory and management bodies lay down the principles and regularly and, where necessary, immediately inform the supervisory board about any Yes

4.1. The management board and the supervisory board, if the latter is formed at the company, should act in close cooperation in order to attain benefit for the company and its shareholders. Good corporate governance requires an open discussion between the management board and the supervisory board. The management board should regularly and, where necessary, immediately inform the supervisory board about any matters significant for the company that are related to planning, business development, risk management and control, and compliance with the obligations at the company. The management board should inform he supervisory board about any derogations in its business development from the previously formulated plans and objectives by specifying the reasons for this.

Legal acts, Articles of Association and rules of procedure governing activities of the parent company’s supervisory and management bodies lay down the principles and procedure of cooperation between supervisory and management bodies of the parent company and ensure that management and supervisory bodies cooperate to attain the greatest possible benefit to the parent company and its shareholders.

Meetings of collegial bodies proceed according to the pre-approved schedule. An annual plan of meetings and their agendas are formed for the Supervisory Board which, with consideration to activities of the Group and processes going on in them, is supplemented in the course of the year. Meetings of the Supervisory Board are Yes held at least once a month and of the Management Board – once a week. Members of the Supervisory Board suggest issues to be discussed during meetings. Members of the Supervisory Board are familiarized with activities pursued not only by the parent company, but also those of subsidiary companies of the Group. Members of the collegial body are informed on the agenda of a meeting in advance. The agenda of the future meeting is discussed at the end of the current meeting, and issues are included into the agenda of the future meeting by consensus. In the course of the meeting, the agenda is not usually changed. All members of collegial bodies Yes receive the material necessary for decision-making on issues on the agenda in advance and have a possibility to become familiar with them, also to ask questions before the meeting and during the meeting; they have the right to suggest that materials of the issue discussed should be supplemented, or ask to specify it. All members of the collegial bodies are informed about any received comments or specification. Meetings of the Supervisory Board are also usually attended by the Management Board of the parent company. Dates and agenda of the meetings are coordinated in such a way that they could Yes be attended by all members of collegial bodies. The Supervisory Board and the Management Board cooperate in forming agendas of the meetings by including relevant issues on activities of the parent company or the Group’s companies.

4.2. It is recommended that meetings of the company’s collegial bodies should be held at the respective intervals, according to the pre-approved schedule. Each company is free to decide how often meetings of the collegial bodies should be convened but it is recommended that these meetings should be convened at such intervals that uninterruptable resolution of essential corporate governance issues would be ensured. Meetings of the company’s collegial bodies should be convened at least once per quarter.

4.3. Members of a collegial body should be notified of the meeting being convened in advance so that they would have sufficient time for proper preparation for the issues to be considered at the meeting and a fruitful discussion could be held and appropriate decisions could be adopted. Along with the notice of the meeting being convened all materials relevant to the issues on the agenda of the meeting should be submitted to the members of the collegial body. The agenda of the meeting should not be changed or supplemented during the meeting, unless all members of the collegial body present at the meeting agree with such change or supplement to the agenda, or certain issues that are important to the company require immediate resolution.

4.4. In order to coordinate the activities of the company’s collegial bodies and ensure effective decision-making process, the chairs of the company’s collegial supervision and management bodies should mutually agree on the dates and agendas of the meetings and close cooperate in resolving other matters related to corporate governance. Meetings of the company’s supervisory board should be open to members of the management board, particularly in such cases where issues concerning the removal of the management board members, their responsibility or remuneration are discussed.

350 / 364

Annual report 2021 / Further information

Contents »

==> picture [730 x 37] intentionally omitted <==

----- Start of picture text -----

Yes / No /
Principles / recommendations Commentary
Not applicable
Principle 5: Nomination, remuneration and audit committees
----- End of picture text -----

5 1 Purpose and formation of commitees The commitees formed at the company should increase the work efciency of the supervisory board or, where the supervisory board is not formed, of the management board which performs the supervisory functions by ensuring that decisions are based on due consideration and help organise its work in such a way that the decisions it takes would be free of material conficts of interest. Commitees should exercise independent judgment and integrity when performing their functions and provide the collegial body with recommendations concerning the decisions of the collegial body. However, the fnal decision should be adopted by the collegial body.	5 1 Purpose and formation of commitees The commitees formed at the company should increase the work efciency of the supervisory board or, where the supervisory board is not formed, of the management board which performs the supervisory functions by ensuring that decisions are based on due consideration and help organise its work in such a way that the decisions it takes would be free of material conficts of interest. Commitees should exercise independent judgment and integrity when performing their functions and provide the collegial body with recommendations concerning the decisions of the collegial body. However, the fnal decision should be adopted by the collegial body.	5 1 Purpose and formation of commitees The commitees formed at the company should increase the work efciency of the supervisory board or, where the supervisory board is not formed, of the management board which performs the supervisory functions by ensuring that decisions are based on due consideration and help organise its work in such a way that the decisions it takes would be free of material conficts of interest. Commitees should exercise independent judgment and integrity when performing their functions and provide the collegial body with recommendations concerning the decisions of the collegial body. However, the fnal decision should be adopted by the collegial body.
5.1.1. Taking due account of the company-related circumstances and the chosen
corporate governance structure, the supervisory board of the company or, in cases
where the supervisory board is not formed, the management board which performs the supervisory functions, establishes commitees. It is recommended that the collegial body should form the nomination, remuneration and audit commitees5. 5.1.2. Companies may decide to set up less than three commitees. In such case companies should explain in detail why they have chosen the alternative approach, and how the chosen approach corresponds with the objectives set for the three diferent commitees.	Yes Not applicable	The parent company forms the following Supervisory Board commitees: Risk Management and Business Ethics Supervision Commitee and Nomination and Remuneration Commitee, also the Audit Commitee, which is formed by the decision of the General Meeting of Shareholders. All aforementioned commitees operate at the Group level.
5.1.3. In the cases established by the legal acts the functions assigned to the commitees
formed at companies may be performed by the collegial body itself. In such case the
provisions of this Code pertaining to the commitees (particularly those related to their	Not applicable	See the comments for recommendation 5.1.1
role, operation and transparency) should apply, where relevant, to the collegial body as a
whole.
5.1.4. Commitees established by the collegial body should normally be composed of at least three members. Subject to the requirements of the legal acts, commitees could be comprised only of two members as well. Members of each commitee should be selected on the basis of their competences by giving priority to independent members	Yes	Commitees consist of at least 3 members by involving also independent members. Chairpersons of all commitees are independent members.
of the collegial body. The chair of the management board should not serve as the chair of
commitees.
5.1.5. The authority of each commitee formed should be determined by the collegial body itself. Commitees should perform their duties according to the authority delegated to them and regularly inform the collegial body about their activities and performance on a regular basis. The authority of each commitee defning its role and specifying its rights and duties should be made public at least once a year (as part of the information disclosed by the company on its governance structure and practice on an annual basis). In compliance with the legal acts regulating the processing of personal data, companies should also include in their annual reports the statements of the existing commitees on their composition, the number of meetings and atendance over the year as well as the main directions of their activities and performance.	Yes	Nomination and Remuneration Commitee and Risk Management and Business Ethics Supervision Commitee are advisory bodies to the Supervisory Board. Their Regulations are approved and their members are elected by the Supervisory Board. Members of the Audit Commitee are elected and its Regulations are approved by the General Meeting of Shareholders. The commitees of the Supervisory Board submit the report on their activities at least once in 6 (six) months, which they present at the Supervisory Board meeting. The Audit Commitee provides performance report to the General Meeting and the Supervisory Board when a set of fnancial statements is submited for the approval of the General Meeting of the parent company. Information on composition of the commitees, the number of meetings, atendance and main activities are disclosed in the parent company’s annual report.

5 The legal acts may provide for the obligation to form a respective committee. For example, the Law on the Audit of Financial Statements of the Republic of Lithuania provides that public-interest entities (including but not limited to public limited liability companies whose securities are traded on a regulated market of the Republic of Lithuania and/or of any other Member State) are under the obligation to set up an audit committee (the legal acts provide for the exemptions where the functions of the audit committee may be carried out by the collegial body performing the supervisory functions).

351 / 364

Annual report 2021 / Further information

Contents »

Principles / recommendations	Yes / No / Not applicable	Commentary
5.1.6. With a view to ensure the independence and impartiality of the commitees, the members of the collegial body who are not members of the commitees should normally have a right to participate in the meetings of the commitee only if invited by the commitee. A commitee may invite or request that certain employees of the company or experts would participate in the meeting. Chair of each commitee should have the possibility to maintain direct communication with the shareholders. Cases where such practice is to be applied should be specifed in the rules regulating the activities of the commitee.	Yes	All chairpersons of commitees are independent members, there are members of the Supervisory Board in the composition of the commitees. The members of the Supervisory Board have the right to atend meetings of commitees. If necessary, at the invitation of commitees, particular employees or experts atend the meetings.
5 2 Nomination commitee 5.2.1. The key functions of the nomination commitee should be the following: 1) to select candidates to fll vacancies in the membership of supervisory and management bodies and the administration and recommend the collegial body to approve them. The nomination commitee should evaluate the balance of skills, knowledge and experience in the management body, prepare a description of the functions and capabilities required to assume a particular position and assess the time commitment expected; 2) assess, on a regular basis, the structure, size and composition of the supervisory and management bodies as well as the skills, knowledge and activity of its members, and provide the collegial body with recommendations on how the required changes should be sought; 3) devote the atention necessary to ensure succession planning.	Yes	The main functions of the Nomination and Remuneration Commitee are described in the Corporate Governance Guidelines and conform with, however, not limited to, the functions laid down in this principle.
5.2.2. When dealing with issues related to members of the collegial body who have employment relationships with the company and the heads of the administration, the manager of the company should be consulted by granting him/her the right to submit proposals to the Nomination Commitee. 5 3 Remuneration commitee	Yes	The Nomination and Remuneration Commitee submits an opinion on candidatures to the management and supervision bodies of the Group companies (if necessary, it may submit an opinion also regarding other candidatures). An opinion on the suitability of the mentioned candidatures (including the CEO) is also submited by the parent company’s Supervisory Board. Decisions on the approval of such candidatures are adopted by the Management Board.
5.3.1. The main functions of the remuneration commitee should be as follows:
1) submit to the collegial body proposals on the remuneration policy applied to members
of the supervisory and management bodies and the heads of the administration for
approval. Such policy should include all forms of remuneration, including the fxed- rate remuneration, performance-based remuneration, fnancial incentive schemes, pension arrangements and termination payments as well as conditions which would		The main functions of the Nomination and Remuneration Commitee are described in
allow the company to recover the amounts or suspend the payments by specifying the	Yes	the Corporate Governance Guidelines and comply with, however, are not limited to, the
circumstances under which it would be expedient to do so;		functions listed in this principle.

1) submit to the collegial body proposals on the remuneration policy applied to members of the supervisory and management bodies and the heads of the administration for approval. Such policy should include all forms of remuneration, including the fixedrate remuneration, performance-based remuneration, financial incentive schemes, pension arrangements and termination payments as well as conditions which would allow the company to recover the amounts or suspend the payments by specifying the circumstances under which it would be expedient to do so; 2) submit to the collegial body proposals regarding individual remuneration for members of the collegial bodies and the heads of the administration in order to ensure that they would be consistent with the company’s remuneration policy and the evaluation of the performance of the persons concerned;
3) review, on a regular basis, the remuneration policy and its implementation.

352 / 364

Annual report 2021 / Further information

Contents »

==> picture [730 x 37] intentionally omitted <==

----- Start of picture text -----

Yes / No /
Principles / recommendations Commentary
Not applicable
5 .4 . Audit committee
----- End of picture text -----

5.4.1. The key functions of the audit commitee are defned in the legal acts regulating the activities of the audit commitee6.	Yes	The main functions of the Audit Commitee are described in the Corporate Governance Guidelines and conform with the functions laid down in the legal acts regulating the activities of the audit commitee.
5.4.2. All members of the commitee should be provided with detailed information on specifc issues of the company’s accounting system, fnances and operations. The heads of the company’s administration should inform the audit commitee about the methods of accounting for signifcant and unusual transactions where the accounting may be subject to diferent approaches.	Yes	All members of the commitee are provided with detailed information on specifc issues of the parent company’s accounting system.
5.4.3. The audit commitee should decide whether the participation of the chair of the management board, the manager of the company, the chief fnance ofcer (or senior employees responsible for fnance and accounting), the internal and external auditors in its meetings is required (and, if required, when). The commitee should be entitled, when needed, to meet the relevant persons without members of the management bodies present.	Yes	Meetings of the Audit Commitee are atended by, upon invitation of the commitee, the Head of Internal Audit Group CFO, and, if necessary, by other employees when discussing specifc issues. The Audit Commitee also cooperates with other commitees, and, if necessary, joint meetings are organised. If necessary, a meeting of the Audit Commitee is atended by representatives of the company conducting an independent audit of fnancial statements.
5.4.4. The audit commitee should be informed about the internal auditor’s work program		The Audit Commitee receives the information referred to in this paragraph, approves the annual plan of internal audit. The Internal Audit Unit informs the Audit Commitee on
and should be furnished with internal audit reports or periodic summaries. The audit		the implementation of internal audit plans and submits reports. If necessary, a meeting
commitee should also be informed about the work program of external auditors and should receive from the audit frm a report describing all relationships between the independent audit frm and the company and its group.	Yes	of the Audit Commitee is atended by representatives of the company conducting an independent audit of fnancial statements. The Audit Commitee submits reports on its activities to the Supervisory and Management Boards when annual and six-month
		reports must be approved.
5.4.5. The audit commitee should examine whether the company complies with the
applicable provisions regulating the possibility of lodging a complaint or reporting
anonymously his/her suspicions of potential violations commited at the company and	Yes	Audit commitee performs these functions.
should also ensure that there is a procedure in place for proportionate and independent
investigation of such issues and appropriate follow-up actions.
5.4.6. The audit commitee should submit to the supervisory board or, where the supervisory board is not formed, to the management board its activity report at least once in every six months, at the time that annual and half-yearly reports are approved.	Yes	The Audit Commitee submits its performance reports to the Supervisory and Management Boards at the time of approval of annual and six-month reports.

6 Issues related to the activities of audit committees are regulated by Regulation No. 537/2014 of the European Parliament and the Council of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities, the Law on the Audit of Financial Statements of the Republic of Lithuania, and the Rules Regulating the Activities of Audit Committees approved by the Bank of Lithuania.

353 / 364

Annual report 2021 / Further information

Contents »

Principles / recommendations	Yes / No / Not applicable	Commentary
Principle 6: Prevention and disclosure of conficts of interest The corporate governance framework should encourage members of the company’s supervisory and management bodies to avoid conficts of interest and ensure a transparent and efective mechanism of disclosure of conficts of interest related to members of the supervisory and management bodies. 6.1. Any member of the company’s supervisory and management body should avoid a situation where his/her personal interests are or may be in confict with the company’s interests. In case such a situation did occur, a member of the company’s supervisory or management body should, within a reasonable period of time, notify other members of the same body or the body of the company which elected him/her or the company’s shareholders of such situation of a confict of interest, indicate the nature of interests and, where possible, their value. Yes The parent company does observe the recommendations. According to the parent company’s Articles of Association, each candidate to a member of the collegial body is obliged to provide a declaration of interest to the body electing him/her stating all of circumstances which could lead to a confict of interests between the candidate and the parent company. In the event a new circumstance emerge that may give rise to a confict of interest between a member of the collegial body and the parent company, a member of the collegial body must immediately inform in writing the parent company and the collegial body of such new circumstances. Besides, according to the parent company’s Articles of Association, members of the Management Board may not have any other job or hold any other ofce that would be incompatible with their activity on the Management Board, including the holding of management positions in other legal entities (except for the position and work in the Group companies), work in civil service, statutory service. Members may hold any other position or have other job, except for the position held in the parent company and other legal entities the participant whereof the parent company is, also engage in educational, creative, or authorship activity only on receipt of prior consent from the Supervisory Board. Principle 7: Remuneration policy of the company The remuneration policy and the procedure for review and disclosure of such policy established at the company should prevent potential conficts of interest and abuse in determining remuneration of members of the collegial bodies and heads of the administration, in addition it should ensure the publicity and transparency of the company’s remuneration policy and its long-term strategy.
7.1. The company should approve and post the remuneration policy on the website of the company; such policy should be reviewed on a regular basis and be consistent with the company’s long-term strategy.	Yes	The Remuneration Policy of the parent company governs the seting and payment of remuneration in the parent company. The parent company’s remuneration policy is published on the parent company’s website.
		The Remuneration Policy defnes remuneration components, their maximum amounts,
7.2. The remuneration policy should include all forms of remuneration, including the fxed-rate remuneration, performance-based remuneration, fnancial incentive schemes, pension arrangements and termination payments as well as the conditions specifying the cases where the company can recover the disbursed amounts or suspend the payments.	Yes	the principles of allocation and payout, which are common for all companies of the Group. According to the provisions of the Remuneration Policy, the variable remuneration component is paid only in case the target achievement value is at least 70 percent. If criteria for the evaluation of performance results are not met, i.e. the goal achievement value is below 70 percent, the variable remuneration component is not
		paid.
7.3. With a view to avoid potential conficts of interest, the remuneration policy should		The Group Remuneration Policy sets out that remuneration for activities in collegial
provide that members of the collegial bodies which perform the supervisory functions	Yes	bodies of the parent company or the Group companies does not depend on the
should not receive remuneration based on the company’s performance.		performance results of the parent company or the Group companies.
7.4. The remuneration policy should provide sufcient information on the policy regarding termination payments. Termination payments should not exceed a fxed amount or a fxed number of annual wages and in general should not be higher than the non-variable component of remuneration for two years or the equivalent thereof.	Yes	The parent company follows this recommendation: The Group Remuneration Policy sets out the severance payment procedure.
Termination payments should not be paid if the contract is terminated due to inadequate
performance.

354 / 364

Annual report 2021 / Further information

Contents »

==> picture [730 x 66] intentionally omitted <==

----- Start of picture text -----

Yes / No /
Principles / recommendations Commentary
Not applicable
7.5. In the event that the financial incentive scheme is applied at the company, the
remuneration policy should contain sufficient information about the retention of shares
after the award thereof. Where remuneration is based on the award of shares, shares
should not be vested at least for three years after the award thereof. After vesting, NA
----- End of picture text -----

7.5. In the event that the fnancial incentive scheme is applied at the company, the remuneration policy should contain sufcient information about the retention of shares afer the award thereof. Where remuneration is based on the award of shares, shares should not be vested at least for three years afer the award thereof. Afer vesting,	NA
members of the collegial bodies and heads of the administration should retain a certain
number of shares until the end of their term in ofce, subject to the need to compensate
for any costs related to the acquisition of shares.
7.6. The company should publish information about the implementation of the
remuneration policy on its website, with a key focus on the remuneration policy in
respect of the collegial bodies and managers in the next and, where relevant, subsequent
fnancial years. It should also contain a review of how the remuneration policy was implemented during the previous fnancial year. The information of such nature should not include any details having a commercial value. Particular atention should be paid on the major changes in the company’s remuneration policy, compared to the previous fnancial	Yes	The parent company publishes information on the implementation of Remuneration Policy in the Annual Report.
year.
7.7. It is recommended that the remuneration policy or any major change of the policy
should be included on the agenda of the general meeting of shareholders. The schemes under which members and employees of a collegial body receive remuneration in shares	Yes	The latest wording of the Group Remuneration Policy was approved by the resolution of the General Meeting of Shareholders on 27 September 2021.
or share options should be approved by the general meeting of shareholders.
Principle 8: Role of stakeholders in corporate governance
The corporate governance framework should recognize the rights of stakeholders entrenched in the laws or mutual agreements and encourage active cooperation between companies and
stakeholders in creating the company value, jobs and fnancial sustainability. In the context of this principle the concept “stakeholders” includes investors, employees, creditors, suppliers, clients, local
community and other persons having certain interests in the company concerned.
		The parent company’s management system provides protection for the rights of the
		stakeholders that are protected by laws.
		The parent company pursues the maximum possible transparency in its relations with all
		stakeholders and the compliance with the highest ethical requirements and principles –
		in its activities, because honest and open business activities are one of the key elements
8.1. The corporate governance framework should ensure that the rights and lawful interests of stakeholders are protected.	Yes	of impeccable business reputation. The parent company takes into account the changing customer needs, constantly
		improving its operational processes, empowering employees, taking care of the safety
		and health of its employees, seeking to maintain a close relationship with investors and
		ensure information accessible to all, continuously updating the information and posting it
		in the “Investors” section of its website.
8.2. The corporate governance framework should create conditions for stakeholders
to participate in corporate governance in the manner prescribed by law. Examples of participation by stakeholders in corporate governance include the participation of employees or their representatives in the adoption of decisions that are important for the company, consultations with employees or their representatives on corporate governance and other important maters, participation of employees in the company’s authorized capital, involvement of creditors in corporate governance in the cases of the		The parent company observes these recommendations when establishing the general rules applied to the Group of companies. Interest holders (e.g. trade unions of employees of subsidiary companies) may participate in the management of subsidiary companies to the extent provided for by the laws.
company’s insolvency, etc.

355 / 364

Annual report 2021 / Further information

Contents »

==> picture [730 x 26] intentionally omitted <==

----- Start of picture text -----

Yes / No /
Principles / recommendations Commentary
Not applicable
----- End of picture text -----

8.3. Where stakeholders participate in the corporate governance process, they should have access to relevant information.	Yes	The parent company does observe the recommendations. The stakeholders are given access to the necessary information.
8.4. Stakeholders should be provided with the possibility of reporting confdentially any illegal or unethical practices to the collegial body performing the supervisory function.	Yes	The parent company has a trust line, information can also be provided anonymously by e-mail: [email protected].
Principle 9: Disclosure of information
The corporate governance framework should ensure the timely and accurate disclosure of all material corporate issues, including the fnancial situation, operations and governance of the company.
9.1. In accordance with the company’s procedure on confdential information and commercial secrets and the legal acts regulating the processing of personal data, the information publicly disclosed by
the company should include but not be limited to the following:
9.1.1. operating and fnancial results of the company;	Yes	The parent company’s operating and fnancial results are published each month, also in the parent company’s interim and annual reports.
9.1.2. objectives and non-fnancial information of the company;	Yes	The parent company’s business objectives and non-fnancial information is published in the parent company’s interim and annual reports, the parent company’s strategy and
		activity plans.
9.1.3. persons holding a stake in the company or controlling it directly and/or indirectly and/or together with related persons as well as the structure of the group of companies and their relationships by specifying the fnal benefciary;	Yes	The information is published in the parent company’s interim and annual reports, and on the parent company’s website.
9.1.4. members of the company’s supervisory and management bodies who are deemed
independent, the manager of the company, the shares or votes held by them at the company, participation in corporate governance of other companies, their competence	Yes	The information is published in the parent company’s interim and annual reports, and on the parent company’s website.
and remuneration;
9.1.5. reports of the existing commitees on their composition, number of meetings and atendance of members during the last year as well as the main directions and results of their activities;	Yes	The information is published in the parent company’s interim and annual reports, and on the parent company’s website.
9.1.6. potential key risk factors, the company’s risk management and supervision policy;	Yes	The information is published in the parent company’s interim and annual reports, and on the parent company’s website.
9.1.7. the company’s transactions with related parties;	Yes	The information is published on the parent company’s website.
9.1.8. main issues related to employees and other stakeholders (for instance, human
resource policy, participation of employees in corporate governance, award of the company’s shares or share options as incentives, relationships with creditors, suppliers,	Yes	The information is published in the parent company’s interim and annual reports, and on the parent company’s website.
local community, etc.);
9.1.9. structure and strategy of corporate governance;	Yes	The information is published in the parent company’s interim and annual reports, and on the parent company’s website.
9.1.10. initiatives and measures of social responsibility policy and anti-corruption fght, signifcant current or planned Investment projects.
This list is deemed minimum and companies are encouraged not to restrict themselves to the disclosure of information included into this list. This principle of the Code does not	Yes	The information is published in the parent company’s interim and annual reports, and on the parent company’s website.
exempt companies from their obligation to disclose information as provided for in the
applicable legal acts.

356 / 364

Annual report 2021 / Further information

Contents »

==> picture [730 x 37] intentionally omitted <==

----- Start of picture text -----

Yes / No /
Principles / recommendations Commentary
Not applicable
9.2. When disclosing the information specified in paragraph 9.1.1 of recommendation
----- End of picture text -----

9.2. When disclosing the information specifed in paragraph 9.1.1 of recommendation
9.1, it is recommended that the company which is a parent company in respect of other companies should disclose information about the consolidated results of the whole	Yes	The parent company discloses the Group’s consolidated results.
group of companies.
9.3. When disclosing the information specifed in paragraph 9.1.4 of recommendation 9.1, it is recommended that the information on the professional experience and qualifcations of members of the company’s supervisory and management bodies and the manager of the company as well as potential conficts of interest which could afect their decisions should be provided. It is further recommended that the remuneration or other income of members of the company’s supervisory and management bodies and the manager of the	Yes	The information specifed in Item 4 of the recommendation is published in the parent company’s annual report and on the parent company’s website. The parent company makes public the salary to the parent company’s CEO and other benefts associated with the functions as members of the management bodies.
company should be disclosed, as provided for in greater detail in Principle 7.
		The parent company discloses the information via the information disclosure
		system used by the Vilnius Stock Exchange in the Lithuanian and English languages
9.4. Information should be disclosed in such manner that no shareholders or investors are discriminated in terms of the method of receipt and scope of information. Information should be disclosed to all parties concerned at the same time.	Yes	simultaneously. The parent company observes the recommendation and announces its material events before or afer a trading session on the Vilnius Stock Ex-change, except for the cases provided for by legal acts. The parent company does not disclose the information likely to impact the price of the issued by it securities in its comments,
		interviews or otherwise by the time such information is announced via the information
		system of the Stock Exchange.
Principle 10: Selection of the company’s audit frm The company’s audit frm selection mechanism should ensure the independence of the report and opinion of the audit frm.
10.1. With a view to obtain an objective opinion on the company’s fnancial condition and fnancial results, the company’s annual fnancial statements and the fnancial information provided in its annual report should be audited by an independent audit frm.	Yes	The parent company executes its annual fnancial statement audit. An independent audit frm also verifes the compliance of the parent company’s annual report with its audited fnancial statements.
10.2. It is recommended that the audit frm would be proposed to the general meeting of shareholders by the supervisory board or, if the supervisory board is not formed at the	Yes	Articles of association of the parent company states that Supervisory Board considers and submits proposals regarding the auditor or audit frm elected by the General
company, by the management board of the company.		Meeting and the terms of payment for the audit services.
10.3. In the event that the audit frm has received remuneration from the company for the
non-audit services provided, the company should disclose this publicly. This information
should also be available to the supervisory board or, if the supervisory board is not	Yes	The parent company does observe the recommendations.
formed at the company, by the management board of the company when considering
which audit frm should be proposed to the general meeting of shareholders.

357 / 364

Annual report 2021 / Further information

Contents »

7 .6 Other statutory information

The Annual report provides information to the shareholders, creditors and other stakeholders of AB “Ignitis grupė” (hereinafter – the parent company) about the parent company’s and its controlled companies’, which together are called group of companies (hereinafter – the “Group” or “Ignitis Group”), operations for the period of January–December 2021.

The Annual report has been prepared by the parent company’s administration in accordance with the Law on Companies of the Republic of Lithuania (link in Lithuanian) and the Law on Consolidated Financial Reporting of the Republic of Lithuania (link in Lithuanian).

The parent company’s management is responsible for the information contained in the Annual report. The report and the documents, on the basis of which it was prepared, are available at the head office of the parent company (Laisvės av. 10, Vilnius) on working days from Mondays through Thursdays from 7.30 am to 4.30 pm, and on Fridays from 7.30 am to 3.15 pm (by prior arrangement through [email protected]).

All public announcements, which are required to be published by the parent company according to the effective legal acts of the Republic of Lithuania, are published on our website and the websites of Nasdaq Vilnius, London and Luxembourg stock exchanges.

Significant arrangements

The parent company was not a party to any significant arrangements that would take effect, be amended or terminated in the event of changes in the parent company’s control situation.

During the reporting period, the parent company did not conclude any harmful agreements (which do not correspond to the parent company’s objectives, current market conditions, violate the interests of shareholders or other groups of persons, etc.) which had or potentially may have a negative impact on the parent company’s performance and/or results of operation nor there were any agreements concluded in the event of a conflict of interests between the obligations of the parent company’s managers, the controlling shareholders or other related parties to the parent company and their private interests and/or other duties.

There are no agreements concluded between the parent company and the members of the management bodies or employees that provide for compensation in case of their resignation or dismissal without a reasonable cause or in case of termination of their employment as a result of the change in control of the parent company.

Internal control and risk management systems involved in the preparation of the consolidated financial statements

The Group’s financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.

The employees of the company providing accounting services to the parent company ensure that the financial statements are prepared properly and that all data are collected in a timely and accurate manner. The preparation of the company’s financial statements, internal control and financial risk management systems, legal acts governing compilation of the financial statements are monitored and managed.

Notice on the language

In the event of any discrepancy between the Lithuanian and the English versions of the document, the English version shall prevail.

358 / 364

Glossary

Annual report 2021 / Glossary

Contents »

Glossary

# Number % Per cent ‘000 / k Thousand AB Joint stock company APM Alternative performance measure B2B Business to business B2C Business to consumer BICG Baltic Institute of Corporate Governance bn Billion CCGT Combined Cycle Gas Turbine Plant CDP Carbon Disclosure Project CfD Contract for diference CHP Combined heat and power Clean spark spread Indicative prices giving the diference between the combined cost of natural gas and emissions, and the equivalent price of electricity CO2 Carbon dioxide COD (commercial operation date) / commissioned The start of energy generation afer the test on completion CPI Consumer Price Index DPS Dividends per share E Electricity EBIT Earnings before interest and tax EBITDA Earnings before interest, tax, depreciation and amortisation Electricity generated (net) Electricity sold in wind farms, solar power plants, biofuel plants, CHP plants, hydropower plants (including Kruonis pumped storage power plant) and electricity sold in Elektrėnai Complex	Electricity sales Amount of electricity sold in Lithuania (B2C, B2B and guaranteed customers), Poland, Latvia and Estonia Enerpro UAB Energetikos paslaugų ir rangos organizacija eNPS Employee Net Promoter Score EPS Earnings per share ESG Environmental, social and corporate governance ESO AB „ Energijos skirstymo operatorius “ etc et cetera EURbn billion EUR EURm million EUR EU European Union Eurakras UAB „EURAKRAS“ FBS Fixed base salary FCF Free Cash Flow FFO Funds from operations FiT Feed-in Tarif FTE Full-time equivalent Full completion Taking over certifcate obtained implying the transfer of operational responsibility of the power plant to the Group GDP Gross domestic product GDR Global depositary receipt GHG Greenhouse Gas GPC UAB „Ignitis grupės paslaugų centras“ Green electricity generated (net) Electricity sold in wind farms, solar power plants, biofuel plants and CHP plants and hydropower plants (including Kruonis pumped storage power plant)	Green Generation capacity installed Wind farms, solar power plants, biofuel plants, CHP plants and hydropower plants (including Kruonis pumped storage power plant) that have completed and have passed a fnal test
		Green share of generation,% Green share of generation shall be calculated as follows: Green electricity generated (including Kruonis pumped storage power plant) divided by total electricity generated in the Group
		GRI Global Reporting Initiative
		Group or Ignitis Group AB „Ignitis grupė” and its controlled companies
		GW Gigawat
		Heat generated (net) Heat sold in CHP plants, biofuel plants
		Hydro power Kaunas Algirdo Brazauskas hydroelectric power plant and Kruonis pumped storage power plant
		IFRS International Financial Reporting Standards
		Ignitis UAB „Ignitis“
		Ignitis Eesti Ignitis Eesti OÜ
		Ignitis Gamyba AB „Ignitis gamyba“
		Ignitis Latvija Ignitis Latvija SIA
		Ignitis Polska Ignitis Polska sp. z o.o.
		Ignitis Renewables UAB „Ignitis renewables“
		Installed capacity Where all assets have been completed and have passed a fnal test
		ISIN International Securities Identifcation Number
		YoY Year over year
		IPO Initial Public Ofering
		ISO International Organization for Standardization

360 / 364

Annual report 2021 / Glossary

Contents »

Kaunas CHP UAB Kauno kogeneracinė jėgainė Kaunas HPP Kaunas Algirdas Brazauskas Hydroelectric Power Plant Kruonis PSHP Kruonis Pumped Storage Hydroelectric Plant Lietuvos energija „Lietuvos energija”, UAB (current AB „Ignitis grupė”) Litgas Litgas UAB Litgrid Litgrid AB LNG Liquefed natural gas LNGT Liquefed natural gas terminal LRAIC Long-run average incremental cost LTIP Long-Term Incentive Programme LTM Last twelve months m Million Mažeikiai UAB „VVP Investment“ min Minimum MW Megawat MWh Megawat hour n/a Not applicable NERC The National Energy Regulatory Council New connection points and upgrades Number of new customers connected to the network and capacity upgrades of the existing connection points NPS Net promoter score NT Valdos NT Valdos, UAB OECD Organisation for Economic Co- operation and Development OPEX Operating expenses Parent company AB „Ignitis grupė”	PBM Payment of the activities of Board member Pomerania Pomerania Wind Farm sp. z o. o. pp Percentage point PPE Property, plant and equipment PSO Public service obligation Public supply Electricity supply activity performed in accordance with the procedure and terms established by legal acts by an entity holding a public supply licence Q Quarter RAB Regulated asset base Regulated monopolistic activities Electricity and natural gas distribution, electricity supply of last resort, public supply of electricity, natural gas supply to residents of Lithuania and designated LNG supplier service, secondary reserve (till the end of 2020). RES Renewable energy sources ROA Return on Assets ROCE Return on Capital Employed ROE Return on Equity ROI Return on Investment SAIDI Average duration of unplanned interruptions in electricity or natural gas transmission SAIFI Average number of unplanned long interruptions per customer SBTi Science Based Targets initiative SDG Sustainable Development Goal SOE State-owned company	STI Short-Term Incentives
		Supply of last resort Supply of electricity in order to meet electricity demand of customers who have not selected an independent supplier under the established procedure, or an independent supplier selected by them does not fulfl its obligations, terminates activities or the agreement on the purchase and sale of electricity
		TCFD Task Force on Climate-Related Financial Disclosures
		TE-3 Vilnius Third Combined Heat and Power Plant
		TRIR Total Recordable Injury Rate
		Tuuleenergia „Tuuleenergia osaühing”
		TWh Terawat-hour
		UAB Private Limited Liability Company
		UN United Nations
		UNGC United Nations Global Compact
		Units Units
		Vėjo Gūsis UAB „VĖJO GŪSIS“
		Vėjo Vatas UAB „VĖJO VATAS“
		Vilnius CHP UAB Vilniaus kogeneracinė jėgainė
		vs Versus
		WACC Weighted average cost of capital
		WF Wind farm
		WtE Waste-to-energy

361 / 364

Certification statement

Contents »

Certification statement

24 February 2022

Referring to the provisions of the Article 12 of the Law on Securities of the Republic of Lithuania and the Rules of disclosure of information of the Bank of Lithuania, we, Darius Maikštėnas, Chief Executive Officer at AB “Ignitis grupė”, Darius Kašauskas, Chief Financial Officer at AB “Ignitis grupė”, and Giedruolė Guobienė, Head of Accounting at UAB “Ignitis grupės paslaugų centras”, acting under Order No. IS-11-22 of 14 February 2022, hereby confirm that, to the best of our knowledge, AB “Ignitis grupė” consolidated and the stand-alone financial statements for the year ended 31

December 2021 prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of AB “Ignitis grupė” consolidated and stand-alone assets, liabilities, financial position, profit or loss and cash flows for the period, the Annual Report 2021 includes a fair review of the development and performance of the business as well as the condition of AB “Ignitis grupė” and it’s group companies together with the description of the principle risks and uncertainties it faces.

==> picture [143 x 55] intentionally omitted <==

==> picture [95 x 64] intentionally omitted <==

Darius Maikštėnas Chief Executive Officer

Darius Kašauskas

Chief Financial Officer

Giedruolė Guobienė

UAB “Ignitis grupės paslaugų centras”, Head of Accounting, acting under Order No IS-11-22 (signed 14 February 2022)

AB “Ignitis grupė” Laisvės av. 10, LT-04215 Vilnius, Lithuania

+370 5 278 2998 [email protected]

www.ignitisgrupe.lt

Company code 301844044 VAT payer code LT100004278519

AB “Ignitis grupė”

Laisvės av. 10, LT-04215 Vilnius, Lithuania Company code 301844044 Tel. +370 5 278 2998 E-mail [email protected] www.ignitisgrupe.lt/en/

Investor relations Ainė Riffel-Grinkevičienė Tel. +370 643 14925 E-mail [email protected]

Sustainability Valentas Neviera Tel. +370 670 25997 E-mail [email protected]

Corporate communication Artūras Ketlerius Tel. +370 620 76076 E-mail [email protected]

Publication 28 February 2022

AI assistant

Ignitis Grupe — Annual Report 2021

2254_rns_2022-02-28_2659cce7-4b88-4071-a278-615e8dbcd347.pdf

Ignitis Group – creating an energy smart world

Who we are

Networks

Green Generation

Contents

Overview

1 .1 CEO’s statement

Highlights

Financials

Business development

Targets for 2022–2025

Governance

Surpassed outlook driven by Green Generation, recognition of ESG excellence

Performance

Business development

Sustainability

Targets for 2022–2025

Corporate changes

Looking ahead

Darius Maikštėnas

1 .2 Business highlights

Q4

October November December

Networks:

Governance:

Governance:

Customers & Solutions:

Green Generation:

Sustainability:

Governance:

Green Generation:

Networks:

Sustainability:

Governance:

Green Generation:

1 .3 Performance highlights

Financial[1,2]

Environment

Climate action

Social

Operational efficiency

Governance

1 .4 Outlook

Green Generation – higher

Networks – higher

Adjusted EBITDA guidance

Flexible Generation – lower

Customers & Solutions – lower

Other – stable

Outlook sensitivity factors

Forward-looking statements

1 .5 Sustainability highlights

Key achievements in 2021

Taxonomy overview

Taxonomy-eligible Group activities

Taxonomy outlook

1 .6 Investor information

Overview

Share capital

Shareholder structure

General shareholders’ meetings

Dividends

Shareholders composition[1]

Shareholder return KPI’s[1,2]

Credit rating

Investor relations

Price performance information in 2021

Share information

Financial calendar 2022

Business overview

2 .1 Business profile

Core businesses

Networks

Activities

Green Generation

Activities

Complementary businesses

Ignitis Grupe Annual Report 2021

Smart meters
m
1.1–1.2
Smart
rollout
2022 2023 2024 2025
----- End of picture text -----