Latvijas Juras medicinas centrs

Audit Report / Information • Apr 30, 2023

KPMG Baltics SIA Roberta Hirša iela 1, Rīga, LV-1045 Latvia

T: + 371 67038000 kpmg.com/lv kpmg@kpmg.lv

Independent Auditors' Report

To the shareholders of AS Latvijas Jūras medicīnas centrs

Report on the Audit of the Financial Statements

Our Opinion on the Financial Statements

We have audited the accompanying financial statements of AS Latvijas Jūras medicīnas centrs ("the Company") set out on pages 9 to 28 of the accompanying Annual Report, which comprise:

• the balance sheet as at 31 December 2022,
• the statement of profit or loss for the year then ended,
• the statement of changes to the shareholders' equity for the year then ended,
• the statement of cash flows for the year then ended, and
• the notes to the financial statements, which include a summary of significant accounting policies and other explanatory notes.

In our opinion, the accompanying financial statements give a true and fair view of the financial position of AS Latvijas Jūras medicīnas centrs as at 31 December 2022, and of its financial performance and its cash flows for the year then ended in accordance with the 'Law on the Annual Reports and Consolidated Annual Reports' of the Republic of Latvia.

Basis for Opinion

In accordance with the 'Law on Audit Services' of the Republic of Latvia we conducted our audit in accordance with International Standards on Auditing adopted in the Republic of Latvia (ISAs). Our responsibilities under those standards are further described in the Auditors' Responsibility for the Audit of the Financial Statements section of our report.

We are independent of the Company in accordance with the International Ethics Standards Board for Accountants' International Code of Ethics for Professional Accountants (including International Independence Standards) (IESBA Code) and independence requirements included in the 'Law on Audit Services' of the Republic of Latvia that are relevant to our audit of the financial statements in the Republic of Latvia. We have also fulfilled our other professional ethics responsibilities and objectivity requirements in accordance with the IESBA Code and the 'Law on Audit Services' of the Republic of Latvia.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

We have determined the matters described below to be the key audit matters to be communicated in our report.

Recognition of revenue from medical services
Key audit matter	Our response
Revenues from outpatient and inpatient medical services (including services covered by insurance) in the financial statements as at and for the year ended 31 December 2022: EUR 9.7 million (31 December 2021: EUR 9.4 million).	Our procedures included, among others: • testing the design and implementation of controls over revenue recognition process; • assessing the completeness and existence of revenue by analysing revenue trends by month in the current period and challenging any unusual fluctuations using our knowledge of the Company and through inquiries of management;
We refer to the financial statements: Note 1 (accounting policy) and Note 2 (financial disclosures).
The Company offers a wide variety of healthcare services. The major part of revenues relates to the agreements with the National Health Service and the largest insurance companies in Latvia which cover the patient's costs for medical procedures. Both the National Health Service and the insurance companies regularly monitor the compensation for services that the Company receives.	• inspecting incoming cash receipts in 2023 for a sample of outstanding balances due from larger customers as at 31 December 2023; • for a sample of revenue transactions
	recognized shortly before and after year-end assessing whether revenue was recognised in the appropriate period by reference to the relevant documentation, supporting delivery of services, for example, invoices and cash receipts;
Additionally, the Company provides a large volume of sales to individual patients, including sales on credit terms. Sales to individual patients are not subject to the same level of external controls and scrutiny as sales to National Health Service or insurance companies.	• obtaining third party confirmations for revenues from outpatient and inpatient medical services financed by the National Health Service and on a sample basis from insurance companies and tracing the amounts from those confirmations to the revenues recognized by the Company for the year ended 31 December 2022;
As a consequence, there is an increased risk of misstatement in revenue balances due to fraud, including through potential override of controls by management, for sales conducted on credit terms. Therefore, revenue recognition was considered by us as a key audit matter.	• performing substantive analytical procedure by comparing incoming cash transactions for outpatient and inpatient medical services to the revenue recognised throughout the year;
	• evaluating the accuracy and completeness of the financial statement disclosures relating to revenues against the relevant requirements of the financial reporting standards.

Completeness of remuneration expenses
Key audit matter	Our response
Remuneration expenses in the financial statements as at and for the year ended 31 December 2022: EUR 5.4 million (31 December 2021: EUR 4.8 million). We refer to the financial statements: Note 1 (accounting policy) and Notes 3, 4 and 24 (financial disclosures). Nearly 58% of Remuneration expenses for the year ended 31 December 2021 is comprised of variable pay that is calculated based on the volume and type of services provided by professional medical staff and rates set by the management or agreed with National Health Service for state funded services, including services provided by family doctors. The remuneration calculation process in the Company, which is inherently complex and involves multiple inputs, is not automated. This significantly increases the risk of error, which specifically relates to completeness of inputs used and manual calculations performed; and therefore, required our increased attention in the course of our audit. As a consequence, we consider the area to be our key audit matter.	Our procedures included, among others: • updating our understanding over salary calculation process with particular focus for the calculation of the variable pay; • for a sample of individuals developing an independent expectation of their salary costs based on the variable pay rates approved by management or rates agreed with the National Health Service and by reference to the respective employment contracts, and comparing them to the salary costs recorded by the Company; • testing the completeness of recognized amounts of variable pay by reference to lists of medical services paid by National Health Service and the list of provided medical services during the year reimbursed by the insurance companies or paid by cash. This procedure included the following: — randomly comparing lists of medical services reimbursed by National Health Service attached to invoices paid by National Health Service against the list of provided medical services during the year, and compare against Company's salary calculations; — randomly comparing the report for total paid medical services against the Company's salary calculations. • evaluating the accuracy and completeness of the financial statement disclosures relating to remuneration expenses against the relevant requirements of the financial reporting standards.

Reporting on Other Information

The Company's management is responsible for the other information. The other information comprises:

• Information about the Company, as set out on page 3 of the accompanying Annual Report,
• the Management Report, as set out on pages from 5 to 6 of the accompanying Annual Report,
• the Statement on Management Responsibility, as set out on page 4 of the accompanying Annual Report,
• the Statement of Corporate Governance, as published on homepage http://wwwljmc.lv and publicly available,
• the Remuneration Report, as set out on pages from 7 to 8 of the accompanying Annual Report

Our opinion on the financial statements does not cover the other information included in the Annual Report, and we do not express any form of assurance conclusion thereon, except as described in the Other Reporting Responsibilities in Accordance with the Legislation of the Republic of Latvia Related to Other Information section of our report.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed and in light of the knowledge and understanding of the Company and its environment obtained in the course of our audit, 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.

Other Reporting Responsibilities in Accordance with the Legislation of the Republic of Latvia Related to Other Information

In addition, in accordance with the 'Law on Audit Services' of the Republic of Latvia with respect to the Management Report, our responsibility is to consider whether the Management Report is prepared in accordance with the requirements of the 'Law on the Annual Reports and Consolidated Annual Reports' of the Republic of Latvia.

Based solely on the work required to be undertaken in the course of our audit, in our opinion, in all material respects:

• the information given in the Management Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
• the Management Report has been prepared in accordance with the requirements of the 'Law on the Annual Reports and Consolidated Annual Reports' of the Republic of Latvia.

In accordance with the 'Law on Audit Services' of the Republic of Latvia with respect to the Statement of Corporate Governance, our responsibility is to consider whether the Statement of Corporate Governance includes the information required in section 56.1, first paragraph, clause 3, 4, 6, 8 and 9, as well as section 56.2, second paragraph, clause 5, and third paragraph of the 'Financial Instruments Market Law' of the Republic of Latvia and if it includes the information stipulated in section 56.2 second paragraph, clause 1, 2, 3, 4, 7 and 8 of the 'Financial Instruments Market Law' of the Republic of Latvia.

In our opinion, the Statement of Corporate Governance includes the information required in section 56.1, first paragraph, clause 3, 4, 6, 8 and 9, as well as section 56.2, second paragraph, clause 5, and third paragraph of the 'Financial Instruments Market Law' of the Republic of Latvia and it includes the information stipulated in section 56.2 second paragraph, clause 1, 2, 3, 4, 7 and 8 of the 'Financial Instruments Market Law' of the Republic of Latvia.

Furthermore, in accordance with the 'Law on Audit Services' of the Republic of Latvia our responsibility is to consider whether the Remuneration Report includes the information required in section 59.4 of the 'Financial Instruments Market Law' of the Republic of Latvia, and whether material misstatements have been identified in the Remuneration Report in relation to the financial information disclosed in the Annual Report.

In our opinion, the Remuneration Report includes the information required in section 59.4 of the 'Financial Instruments Market Law' of the Republic of Latvia, and no material misstatements have been identified in the Remuneration Report in relation to the financial information disclosed in the Annual Report.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation of the financial statements that give a true and fair view in accordance with 'Law on the Annual Reports and Consolidated Annual Reports' of the Republic of Latvia and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company'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 or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company's financial reporting process.

Auditors' Responsibility for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' 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 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 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 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 ability to continue as a going concern. If we conclude that a material uncertainty exists,

we are required to draw attention in our auditors' report to the related disclosures in the 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 auditors' report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves a fair presentation.

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, actions taken to eliminate threats or safeguards applied.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the 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

Other Reporting Responsibilities and Confirmations Required by the Legislation of the Republic of Latvia and the European Union when Providing Audit Services to Public Interest Entities

We were appointed by those charged with governance on 8 June 2022 to audit the financial statements of AS Latvijas Jūras medicīnas centrs for the year ended 31 December 2022. Our total uninterrupted period of engagement is 7 years, covering the periods ending 31 December 2016 to 31 December 2022.

We confirm that:

• our audit opinion is consistent with the additional report presented to the Audit Committee of the Company;
• as referred to in the paragraph 37.6 of the 'Law on Audit Services' of the Republic of Latvia we have not provided to the Company the prohibited non-audit services (NASs) referred to of EU Regulation (EU) No 537/2014. We also remained independent of the audited entity in conducting the audit.

Report on the Auditors' Examination of the European Single Electronic Format (ESEF) Report

In addition to our audit of the accompanying financial statements, as included in the Annual Report, we have also been engaged by the management of the Company to express an opinion on compliance of the financial statements prepared in a format that enables uniform electronic reporting ("the ESEF Report") with the requirements 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 "RTS on ESEF").

Responsibilities of Management and Those Charged with Governance for the ESEF Report

Management is responsible for the preparation of the financial statements in a format that enables uniform electronic reporting that complies with the RTS on ESEF. This responsibility includes:

• the preparation of the financial statements in the applicable xHTML format;
• the design, implementation and maintenance of internal control relevant to the application of the RTS on ESEF.

Those charged with governance are responsible for overseeing the financial reporting process.

Auditors' Responsibility for the Examination of the ESEF Report

Our responsibility is to express an opinion on whether the ESEF report complies, in all material respects, with the RTS on ESEF, based on the evidence we have obtained. We conducted our reasonable assurance engagement in accordance with International Standard on Assurance Engagements 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information (ISAE 3000) issued by the International Auditing and Assurance Standards Board.

A reasonable assurance engagement in accordance with ISAE 3000 involves performing procedures to obtain evidence about compliance with the RTS on ESEF. The nature, timing and extent of procedures selected depend on the auditor's judgment, including the assessment of the risks of material departures from the requirements of set out in the RTS on ESEF, whether due to fraud or error. Our procedures included, among other things, evaluating the appropriateness of the format of the financial statements.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion, the ESEF Report of the Company as at and for the year ended 31 December 2022 pg2r6K4qHmcqFok= has been prepared, in all material respects, in accordance with the requirements of the RTS on ESEF.

KPMG Baltics SIA Licence No. 55

Rainers Vilāns Member of the Board Latvian Sworn Auditor Certificate No. 200 Riga, Latvia 28 April 2023

This report is an English translation of the original Latvian. In the event of discrepancies between the two reports, the Latvian version prevails