Orthex Oyj

Orthex Oyj 2023 Annual and Sustainability Report CONTENTS Annual review 3 Orthex in brief 4 Key figures 5 Highlights of the year 6 Review by the CEO 7 Purpose and values 10 Strategy 11 Sustainability 14 Key sustainability actions 2023 15 Sustainability at Orthex 16 Environmental: Reducing emissions 22 Social: Safe workplace and tested products 32 Sustainability governance: Part of everyday work 37 Governance 41 Corporate governance statement 2023 42 Board of Directors 46 Management Team 50 Remuneration report 2023 54 Financial review 58 Board of Directors’ report 60 Financial statements 82 ANNUAL REVIEW ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 4 Orthex in brief Orthex is a leading Nordic houseware company. Orthex designs, produces, markets, and sells practical and durable household products with a mission to make consumers’ everyday life easier. Orthex main consumer brands are SmartStore™ in storage products, GastroMax™ in kitchenware and Orthex™ in home and plant care categories. In addition, Orthex sells kitchen utensils under the Kökskungen™ brand. Orthex has more than 100 years of experience of household products, and it has approximately 800 customers in more than 40 countries. Orthex’s core geographic market is Europe. Orthex is headquartered in Espoo, Finland and listed on Nasdaq Helsinki Ltd (ORTHEX). Orthex aims to be the industry forerunner in sustainability. Our high-quality, safe, and durable products are made with care and timeless design. They are made for long-term use and are recyclable in all our markets. We are actively increasing the share of renewable and recycled raw materials in our products. At the same time, we continuously strive to reduce the carbon footprint of our products and operations and are aiming towards carbon neutral production by 2030. Product categories: Storage Kitchen Home & yard Plant care 1) Invoiced sales of SmartStore, GastroMax, Orthex, and Kökskungen branded products accounted for 91% of total invoiced sales in 2023. ~300 employees > 40 customer countries Sustainability focus > 90% own brand sales 1) Annual and Sustainability Report 2023 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 5 Key figures 11.2% Net sales growth outside Nordics 281 Personnel, FTE during the year 8. 9% Storage category growth 1.8 66.4 75.9 88.7 84.0 85.9 2019 2020 2021 2022 2023 Net sales, EUR million 6.5 12.3 9.3 5.2 10.8 2019 2020 2021 2022 2023 Operating profit, EUR million 7.6 12.9 11.0 5.5 10.9 2019 2020 2021 2022 2023 Adjusted EBITA, EUR million 11.4 % 17.0 % 12.4 % 6.5 % 12.7 % 2019 2020 2021 2022 2023 Adjusted EBITA margin, % 66.4 75.9 88.7 84.0 85.9 2019 2020 2021 2022 2023 Net sales, EUR million 6.5 12.3 9.3 5.2 10.8 2019 2020 2021 2022 2023 Operating profit, EUR million 7.6 12.9 11.0 5.5 10.9 2019 2020 2021 2022 2023 Adjusted EBITA, EUR million 11.4 % 17.0 % 12.4 % 6.5 % 12.7 % 2019 2020 2021 2022 2023 Adjusted EBITA margin, % 66.4 75.9 88.7 84.0 85.9 2019 2020 2021 2022 2023 Net sales, EUR million 6.5 12.3 9.3 5.2 10.8 2019 2020 2021 2022 2023 Operating profit, EUR million 7.6 12.9 11.0 5.5 10.9 2019 2020 2021 2022 2023 Adjusted EBITA, EUR million 11.4 % 17.0 % 12.4 % 6.5 % 12.7 % 2019 2020 2021 2022 2023 Adjusted EBITA margin, % 66.4 75.9 88.7 84.0 85.9 2019 2020 2021 2022 2023 Net sales, EUR million 6.5 12.3 9.3 5.2 10.8 2019 2020 2021 2022 2023 Operating profit, EUR million 7.6 12.9 11.0 5.5 10.9 2019 2020 2021 2022 2023 Adjusted EBITA, EUR million 11.4 % 17.0 % 12.4 % 6.5 % 12.7 % 2019 2020 2021 2022 2023 Adjusted EBITA margin, % kgCO2 eq./kg Our relative carbon footprint (2022: 1.8 kgCO2 eq./kg) 2023 2022 2021 2020 2019 Net sales, EUR million 85.9 84.0 88.7 75.9 66.4 Adjusted EBITA, EUR million 10.9 5.5 11.0 12.9 7.6 Adjusted EBITA margin, % 12.7% 6.5% 12.4% 17.0% 11.4% Operating profit, EUR million 10.8 5.2 9.3 12.3 6.5 Net debt / Adjusted EBITDA 1.5 2.8 1.7 2.3 3.5 Earnings per share, basic (EUR) 0.39 0.12 0.35 0.47 0.12 Annual and Sustainability Report 2023 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 6 ISCC PLUS certificate Gnosjö factory granted with the ISCC PLUS certificate facilitating the use of renewable materials applying the mass balance approach. Circular economy Extension of product portfolio made from recycled plastic including the new under-bed storage solution SmartStore™ Bedroller 60 L. Highlights of the year Transparent reporting Ecovadis awarded Orthex with a silver medal for its sustainability performance. Orthex’s climate work was recognised with a top score A- in the CDP reporting. Mass balance We extended the usage of renewable and recycled raw materials produced by applying the mass balance approach in several new product ranges. Digitalisation A big development step in digitalisation – transition to cloud-based ERP system. In-store excellence More than 160 SmartStore™ new point of sale solutions together with major retail chains and introduction of SmartStore™ campaign truck in several countries. JuneMay 2023 September October November December International organisation Strengthening of our international sales organisation for example by recruiting a sales manager for Benelux countries. The issuing Certification Body is responsible for the accuracy of this document. Version / Date: 1 (no adjustment) / 1 7 .03.2022 Page 1 of 2 ISCC PLUS Certificate Certificate Number: ISCC - PLUS - Cert - SE205 - 00000 376 DNV Business Assurance Sweden AB, Box 6046, Solna, Sweden certifies that Oy Orthex Finland Ab Immulantie 166 , 08500 Lohja , Finland complies with the requirements of the certification system ISCC PLUS (International Sustainability and Carbon Certification) Place of the audit (if different from the legal address of the system user as stated above; only applicable for traders and traders with storage): n.a. This certificate is valid from 1 7 .0 3 .2022 to 1 6 .0 3 .2023 . The site of the system user is certified as : Co - Processing The scope of the certificate includes the following chain of custody options : (not applicable for paper traders) Mass Balance Stockholm 17 .03.2022 Place and d ate of issue Stamp, Signature of issuing party Annual and Sustainability Report 2023 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 7 Review by the CEO Orthex purpose is to improve consumers’ everyday life with practical, beautiful, and sustainable products. The aim is to be the most sustainable choice for the consumer by offering timelessly designed, high-quality, safe, and long-lasting products, reducing the carbon footprint of our operations and products, and increasingly sourcing renewable and recycled raw materials. The business climate in 2023 was volatile, characterized by careful consumer behaviour, cost inﬂation, consumer and customer uncertainty, and weak exchange rates in Sweden and Norway. Inﬂation pressure slowed down consumer demand during the first half of the year. Demand started to recover towards the end of the year and the overall performance was returning to more normal levels. Strong profit performance Orthex’s profit performance was strong with almost doubled adjusted EBITA compared to 2022 despite challenging market conditions. The adjusted EBITA for 2023 was 10.9 million euros (5.5). A more normal raw-material price-level, the recovering demand and efficiently adapting the operations to changing volumes affected the result positively. Orthex also received 0.7 million euros in electricity price support in Sweden. Aided by the strong finish of the year, the net sales growth pace shows a full-year growth of 2.3% and net sales of 85.9 million euros (84.0). Including constant currency effects, net sales grew by 5.3%. The net sales growth in the second half of the year was driven by strong in-store activities, new product and customer listings, and normalising demand in the Nordics. Annual and Sustainability Report 2023 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 8 The Board of Directors proposes a dividend payout of 0.21 euros per share, totalling 3.7 million euros and 54.1% of net profit meaning an increase in both dividends and in percentages compared to the year 2021 which was the previous normal year in respect of profit performance. Sales by geography Our growth strategy with a focus on accelerated European and international growth with a strong commitment to sustainability is progressing according to plan. All functions and activities are designed to support our growth ambition to become the number one brand in the storage category in Europe while strengthening our Nordic category leader position. Orthex’s full-year invoiced sales in our European strategic markets grew by 16.4%. Invoiced sales outside the Nordic markets accounted for 21.9% (20.2) of Orthex’s invoiced sales. In 2023, invoiced sales in the Nordics were 68.7 million euros (68.5). Sales were affected by careful consumer behaviour during the first half, and weak currencies throughout the whole year. During the second half, we could see a recovery in demand and customer purchasing behaviour compared to a weaker year-end period in 2022. The growth that started in the second half of the year finally resulted in a slight full-year invoiced sales increase of +0.4% thanks to the very strong finish of the year. Sales by product category The Storage category continued to grow at a good pace of 8.9% compared to the previous year. Orthex is focusing on launching several new products in the Storage category. A bedroller made from recycled material was a remarkable new launch. The Storage category accounted for 68.2% of total invoiced sales in 2023. Kitchen, Plant Care and Home & Yard categories, traditionally strong in the Nordics, declined because of the careful Nordic customer and consumer behaviour. Invoiced sales in the Kitchen category declined 6.2% and in the Plant Care category 13.5%. The Home & Yard category also declined by 13.4%. In the fourth quarter, there was a strong recovery in the Kitchen category driven by campaigns in the Nordics and a new international customer listing. Accelerated sales with instore visibility We have put additional focus on instore visibility to drive shopper action in the store. A milestone is the implementation of more than 160 SmartStore™ shelf solutions together with international retailers. The food storage product branding was consolidated under the SmartStore™ brand for increased marketing and sales efficiencies to promote international demand. During the year, we have grown with existing big retail chains and signed new important customer agreements outside the Nordics. We have also succeeded to increase our assortment in several important retail chains and continued strengthening our international commercial team, with more local resources in France, the UK, and the Benelux. Our growth strategy is progressing according to plan. Annual and Sustainability Report 2023 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 9 Our journey towards carbon neutrality Orthex’s main sustainability target is to aim towards carbon neutrality in production by 2030. The Science Based Targets initiative (SBTi) has approved Orthex’s near-term science-based emissions reduction target, which means that Orthex’s climate targets are aligned with the target to keep global warming below 1.5°C. We started to use renewable raw materials by applying a mass balance approach in selected series of our products. This makes it possible for us to offer consumers a more sustainable choice that reduces the usage of fossil- based plastic. Overall, our target is to increase the share of renewable and recycled raw materials in our production to 80% by 2030. In 2023, the share increased to 15.8% (2022: 13.6%). During the year, Orthex participated in the Ecovadis ESG assessment for the first time and was awarded with a silver medal for sustainability performance. In addition, our climate work was recognised with a Leadership level A- top score in the global CDP rating for the first time. In May, Orthex’s Gnosjö factory was granted an ISCC PLUS certificate, that will enable the company to extend the usage of ISCC PLUS certified renewable raw materials applying the mass balance approach in the production. Collaborating with customers and partners Orthex participates in two large research projects for the development of recycled and renewable plastics. During 2023, Orthex tested recycled plastic’s suitability for food contact, and the results are promising. The significant investment in research supports Orthex’s 2030 carbon neutrality target and the target to increase the use of sustainable raw materials. As we increase the share of renewable and recycled raw materials in our production and proceed towards carbon neutrality, we can further support our customers in achieving their own sustainability targets. We measure customer satisfaction with a biannual customer survey. In the 2023 survey, we improved our customer satisfaction rate to 4.08 (2021: 3.93), on a scale from 1 to 5. I am happy to see that our customers were extremely pleased with the activity and help from their key contact persons. Digitalisation and e-commerce drive growth A big development step in digitalisation was taken in terms of the ERP (Enterprise Resource Planning) system – from an on-premises ERP system to a cloud-based Infor M3 ERP system. The implementation was a big achievement for the whole team involved in the migration and I am especially proud of the speed and commitment to success shown by everyone involved. In our growth strategy, we have defined e-commerce as an avenue for growth. Our presence on different e-commerce platforms and in retail customers’ web shops has developed fast and the strategy is bringing solid sales growth and strengthened brand visibility. I am pleased with our strong performance and very proud of the teamwork, individual efforts, and commitment of our employees in delivering solid steps on our growth strategy. During turbulent times, it is important to fully align everyone in the organisation behind a successful strategy and adapt to fast-changing conditions. I want to thank everyone at Orthex for their strong contribution throughout the year and all our customers and stakeholders for the trust in Orthex that contributed to a successful 2023. We are eager and ready to take on 2024. Alexander Rosenlew CEO We improved our customer satisfaction rate to 4.08. Annual and Sustainability Report 2023 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 10 Purpose and values We are inspired by our purpose: Improve everyday life with sustainable and practical products. We develop, design, produce, and market functional household products to customers and consumers. Our offering is based on appealing and innovative concepts, responsibly produced, long-lasting products of high quality and strong brands. Constant improvement through innovation We believe in development through continuous improvement. Professional implementation We work hard to meet our customers’ and consumers’ expectations every day. Respectful teamwork We strive to minimise our impact on the environment and actively promote sustainability. Sustainable and responsible development We are committed to developing our employees, showing respect, and promoting health and safety. Annual and Sustainability Report 2023 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 11 Orthex’s key priorities in its growth strategy are to become the number one brand in the storage product category in Europe and strengthen its position as a leading Nordic houseware company with strong brands and sustainable products. Solid actions to keep winning in the Nordics Accelerating growth in the international markets through strong customer collaboration Accelerating growth through the online retail channel Market consolidation provides growth opportunities 1 2 3 Orthex aims to grow the Storage product category in the Nordics through campaigns, expansion of in-store concepts and launch of novelties. Orthex targets growth in the Kitchen product category by focusing on sustainable products and distribution expansion opportunities. Orthex expects major growth opportunities in the international markets and its go-to-market strategy is delivered through local presence with a key account approach. The key focus is to improve the distribution of Orthex products in Europe, invest in strategic customers and new customer acquisition. The company takes advantage of the e-commerce growth opportunities by strengthening relationships with e-commerce companies and working closely with retailers executing a multi-channel strategy. Orthex anticipates that acquisitions could be an important opportunity to reach the company’s strategic objectives. Orthex intends to carefully evaluate acquisition opportunities in Europe. The synergies achieved through acquisitions are typically related to production, sales and marketing, logistics, product category expansions, overheads, and a stronger bargaining position. In 2023, international markets accounted for 21.9 percent of Orthex invoiced sales. In 2023, the Nordics accounted for 78.1 percent of Orthex invoiced sales. Strategy Annual and Sustainability Report 2023 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 12 Commercial factors supporting the growth strategy • Accelerating efforts to grow the Storage category in international markets utilising the company’s long experience in the Nordics. • The close distribution linkage between Kitchen and Storage categories enables cross-selling by leveraging Orthex’s existing customer network. CLEAR CATEGORY STRATEGY FOCUSING ON STORAGE • Orthex aims to be the most sustainable choice for the consumer by offering high-quality, safe, and long-lasting products with timeless design. Orthex is reducing the carbon footprint of its production and products by increasing the use of renewable and recycled raw materials. • Orthex believes that it has potential to become a preferred supplier of sustainable products. • Innovation plays an important role in Orthex growth strategy. • When developing new products and concepts Orthex will focus on improving consumers’ everyday life with sustainable and practical products with timeless design. GROWTH THROUGH INNOVATIONSSHOWING THE WAY IN SUSTAINABILITY Annual and Sustainability Report 2023 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 13 Long-term financial targets Sales growth Pay-out ratio An annual organic net sales growth to exceed 5 per cent on a Group level, and 10 per cent outside the Nordics (growth in local currencies). Leverage Net debt to adjusted EBITDA below 2.5x. Leverage may temporarily exceed the target (for example, in conjunction with acquisitions). Profitability Improving EBITA margin (adjusted for items affecting comparability) exceeding 18 per cent over time. Distribution of a stable and over time increasing dividend with a pay- out of at least 50% of net profit on a bi-annual basis. 14 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 SUSTAINABILITY ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 15 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Key sustainability actions 2023 On our journey towards carbon neutral production, Gnosjö factory was granted the ISCC PLUS certificate. We increased the share of renewable and recycled materials (used kg) to 15.8% (2022: 13.6%). We were awarded a silver medal for our sustainability performance in EcoVadis ESG assessment, and our climate work earned a top score A- in CDP reporting. Our customer satisfaction rate improved to 4.08, on a scale from 1 to 5 (2021: 3.93). Our employees’ safety at work rate (LTIF) improved and was 6 (2022: 9). Read more Read more Read more Read more Read more 16 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Sustainability at Orthex Sustainability is a core element in implementing Orthex’s growth strategy and key objectives as we strive to be the number one brand in storage products in Europe and strengthen our position as a leading houseware company in the Nordics. Sustainability is a key factor in all decision making at Orthex and a significant driver of our development and investment agenda. For example, a prerequisite for all new product investments is that the material is either recycled or renewable. The main building blocks of our approach to sustainability are our products, sustainable raw materials, and our target towards carbon neutrality. Orthex’s high-quality, safe, and durable products are made with care and timeless design. They are made for long-term use and are recyclable in all our markets. We are actively increasing the share of renewable and recycled raw materials in our products. We continuously strive to reduce the carbon footprint of our operations and products and are aiming towards carbon neutral production by 2030¹). With these priorities, our goal is to be the industry forerunner in sustainability. Several initiatives around the world strive to reduce the use of single-use plastic products that can end up as waste in nature or the oceans. Orthex does not make single-use products. On the contrary, we believe that plastic is a valuable raw material that should be used to make long-lasting, reusable, and recyclable products, such as our own. As stated in the EU’s European strategy for plastics, “plastics are an important material in our economy and daily lives”. Orthex’s products and resource-efficient operations contribute to the EU’s target to accelerate the transition to a circular plastics economy. Orthex supports the Plastics Roadmap for Finland which identifies measures to reduce the harm caused by plastic waste, enhance the recycling and product design of plastics, create conditions for circular innovations, and reduce the dependency on fossil-based raw materials by advancing bio- based solutions. Long-term structural changes require strong cooperation across the value chains. Together with partners, Orthex is involved in two significant research projects, the goals of which are to increase the use of recycled and renewable plastics. In line with Orthex’s sustainability strategy, both projects support our 2030 carbon neutral production target and the target to increase the use of sustainable raw materials. 1) Target includes Orthex’s Scope 1 and 2 greenhouse gas emissions and relevant parts of Scope 3 emissions. More details later in this section. Orthex belongs to the group of international pioneering companies committed to science-based climate targets set by the Science-Based Targets initiative (SBTi). SBTi has approved Orthex’s near-term science-based emissions reduction target, which means that Orthex’s climate targets are aligned with the target to keep global warming below 1.5°C in accordance with the Paris Agreement. Our climate targets are aligned with the target to keep global warming below 1.5 degrees. 17 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Materiality assessment Orthex’s sustainability work and sustainability strategy are based on a stakeholder materiality assessment to ensure that our sustainability priorities focus on the most relevant sustainability topics. The latest sustainability materiality assessment was conducted in 2022, and the materiality was reviewed during 2023 as part of the annual strategy review with no major changes. We ensure that our sustainability strategy is in line with stakeholders’ expectations. In the materiality matrix, the sustainability topics are presented based on their importance to our stakeholders and on the impacts on Orthex business. The matrix is based on 2022 materiality assessment, before the sustainability strategy was restructured to follow ESG (Environmental, Social and Governance) structure. The next materiality assessment will be conducted according to the Corporate Sustainability Reporting Directive’s (CSRD) double materiality principles. Orthex materiality assessment Impacts on Orthex business ENVIRONMENTAL SOCIAL ECONOMICAL Recycling of plastic Sustainable raw materials Production scrap Carbon emissions Energy Product safety Employee health and well-being Zero accidents Requirements for suppliers Nordic production Sustainability targets of customers Profitability and growth Sustainability reporting Biodiversity Importance to stakeholders 18 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Orthex’s sustainability strategy Orthex’s sustainability strategy is confirmed annually for a three-year period. In 2022, we renewed our sustainability strategy and the key sustainability aspects were restructured to follow ESG structure. In 2023 sustainability strategy review, no major changes have been implemented. Environmental We focus on continuously minimising our impact on the environment and climate, and our key target is aiming towards carbon neutral production by 2030. Our key environmental topics are environmentally sustainable choices, resource efficiency and responsible production and consumption. Social Caring for our people, product safety and customer satisfaction are the key elements of our social responsibility. Orthex promotes a zero-accident vision and culture, and we measure our performance with Lost-Time Injury Frequency (LTIF) rate. In 2023, we introduced a new employee satisfaction KPI, Engagement Index. Governance Orthex’s way of conducting business goes beyond compliance with applicable laws and regulations - high ethical standards and integrity are present in everything we do. Our Code of Conduct and Supplier Code of Conduct define the key principles for how we engage in business. Orthex’s sustainability strategy, relevant sustainability topics and set targets and indicators are illustrated in the following two pages. 19 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 KPIs Topics Caring for our people Product safety Customer satisfaction Ethical business practices Transparency Environmentally sustainable choices Resource efficiency Responsible production and consumption Sustainable materials Energy efficiency Production scrap Reducing carbon footprint Employee health and safety Zero accidents culture Employee satisfaction Safe and tested products Customer satisfaction Ethics and integrity Sustainable supply chain Transparent reporting and commitment ENVIRONMENTAL SOCIAL GOVERNANCE PURPOSE: Improve everyday life with sustainable, practical products Orthex designs, produces, markets and sells functional household products to customers and consumers. Our offering is based on appealing and innovative concepts, responsibly produced, long-lasting products of high quality and leading brands. 3. Promoting circular economy 4. Cooperation across the value chain 1. Sustainable raw materials share 2030: 80% 2. Energy efficiency and renewable energy Actions: VISION #1 Brand in storage in Europe and the leading houseware company in the Nordics. Showing the way in sustainability in the industry. TARGET 2030 Towards carbon neutral production MISSION Sustainability strategy Aspects 20 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Targets and indicators Orthex’s sustainability targets and key performance indicators (KPIs) Aspect Topic KPI Indicator Target Result 2021 Result 2022 Result 2023 E ENVIRONMENTAL Environmentally sustainable choices Sustainable materials Share of renewable and recycled materials (used kg) 2030 > 80% 14.1% 13.6% 15.8% Increase sales of products made from renewable and recycled materials (%) > 2 times net sales growth 30.0% (Net sales 16.9%) 5.0% (Net sales -5.2%) 67.0% (Net sales 2.3%) Resource efficiency Energy efficiency Improve 1% annually, baseline 2022 (kWh/produced kg) < 1.059 in 2025 1.10 0 1.092 1.025 Production scrap Scrap rate 2024 < 1.42% 0.98% 0.96% 0.87% Responsible production and consumption Reducing carbon footprint CO2 calculation for our operations (tCO2 eq./a) Towards carbon neutral production by 2030 33,937 1) 25,309 1) 27 217 CO2 per produced kg (kgCO2 eq./a) Reduce annually 2.1 1) 1.8 1) 1.8 S SOCIAL Caring for our people Employee health and safety Sickness absence rate (factory employees) < 5% 6.6% 6.5% 6.1% Zero accident culture LTIF 2) < 10 3) N/A 9 6 Employee satisfaction 4) Engagement index 4) Improve annually 4) NEW NEW 79 / 100 Product safety Safe and tested products All food contact materials tested 100% 100% 100% 100% Customer satisfaction Customer satisfaction Customer satisfaction rate Improve 3.93 / 5 3.93 / 5 (2021) 4.08 / 5 G GOVERNANCE Ethical business practices Ethics and integrity Share of employees committed to Code of Conduct 100% N/A N/A 100% Sustainable supply chain Suppliers aligned with Supplier Code of Conduct (A+B suppliers) 100% N/A N/A 88% Share of suppliers that are BSCI members (in risk countries), repr. 90% of purchase value 100% 75% 94% 100% Transparency Transparent reporting and commitment CDP reporting Minimum B-level annually N/A B A- Commitment to Science Based Targets initiative Net-Zero Target validated and approved by 2025 N/A N/A In progress Achieved In progress Actions needed New target 1) Data is restated with updated information: update in emission factor of Euro-pallets (Scope 3, Purchased goods and services). 2) Corrected that the figure covers all group employees. 3) Target updated, target for 2023 < 20. 4) New KPI, indicator and target replacing KPI “Work environment evaluation” due to unavailability of the previous employee survey. 21 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 UN Sustainable Development Goals Orthex supports all seventeen UN Sustainable Development Goals (SDGs). Based on identified priority sustainability topics, we have determined the most relevant SDGs for Orthex, and how we can best contribute to them. We have determined the most relevant SDGs for Orthex. SDG 8 Decent work and economic growth We care for our employees and the people who work for our partners and suppliers. We strive for sustainable growth by providing environmentally sustainable choices and enhancing energy efficiency. SDG 9 Industry, innovation, and infrastructure We produce sustainable and safe products. In our operations, we continuously seek to improve energy efficiency. SDG 12 Responsible production and consumption In our operations, we are committed to reducing our greenhouse gas emissions, controlling our chemical use and waste management in a responsible manner, and minimising scrap. Our products are recyclable and increasingly made with renewable and recycled materials, and we are committed to responsible sourcing. The foundation of our sustainability work lies upon ethical business conduct, compliance with legislation, certified environmental management systems, and sustainability reporting. SDG 13 Climate action We are committed to reducing our greenhouse gas emissions and aim towards carbon neutral production by 2030. 22 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 We focus on reducing our emissions. Environmental: Reducing emissions Orthex strives to continuously minimise its impact on the environment and climate. The products we manufacture are of the highest quality and are meant to last for years or even decades. Even after a product has worn out, it can be recycled, and the material reused for some other purpose. All our factories are ISO 14001 and 9001 certified for environmental and quality management, respectively. These certificates were renewed in 2023. We have made significant efforts to increase energy efficiency and have been able to reduce energy consumption year after year. Our focus areas within responsible production and consumption are reducing our greenhouse gas emissions, increasing the share of renewable and recycled raw materials in our production and promoting the recycling of plastics. 23 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Our road map towards carbon neutrality by 2030 We have set an ambitious target and are aiming towards carbon neutrality in our production by 2030. This is why we have simulated our road map towards carbon neutrality, taking into account Scope 1, 2 and 3 emissions. In addition to direct greenhouse gas emissions from our operations (Scope 1) and the production of purchased energy (Scope 2), we have included the following relevant indirect emissions (Scope 3) in our target: purchased goods and services; fuel and energy-related activities; upstream transportation and distribution and waste generated in operations. Our Scope 2 emissions are zero since we use renewable hydropower electricity in all our factories. As almost all our remaining emissions originate from the raw materials (Scope 3), we will focus our efforts on increasing the share of renewable and recycled raw materials in our production. Key drivers enabling us to move towards our goal are further adoption of the mass balance approach (read more later in this section of the report), innovations, new sources of raw materials, and development of plastic recycling technology. In 2023, we have continued our systematic work towards carbon neutrality target with extending usage of ISCC PLUS certified renewable raw materials applying mass balance approach in the production into new products: SmartStore™ Vision dry food keepers and SmartStore™ Snack lunch boxes as well as GastroMax™ measuring cups. This way we can offer consumers more sustainable products. 2030 We focus on Scope 3 emissions Actions to improve resource efficiency Mass balance approach We will continue implementing a mass balance approach to make it possible for us to offer consumers more sustainable products. 100% renewable energy Zero Scope 2 emissions Raw material development Orthex road map towards carbon neutrality by 2030 Innovations We invest in researching new sources of raw materials. Recycling technology We closely follow development of plastic recycling technologies e.g. chemical recycling. 2020 CO2 emissions 24 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Most of our greenhouse gas emissions originate from purchased goods and services, such as raw material extraction, and the end-of-life of sold products, like the incineration of products for energy. The latter is excluded from our 2030 carbon neutrality target. This is because of our limited ability to inﬂuence consumer behaviour – whether they recycle or discard our products after use – but also because it is difficult to evaluate how the recycling of plastic develops. As our products will be in use for decades, it is likely that by the time they reach their end-of-life stage, most plastic will be fully recycled. Even if we have limited inﬂuence on consumer recycling behaviour, we proactively promote the recycling of plastics in our communication channels and we actively participate in plastic recycling awareness-raising activities. In addition, we make considerable investments to find new methods and raw material solutions. Read more about our investments in research later in this report. In 2023, our relative carbon footprint that eliminates the impact of business growth remained at the same level at 1.8 kg CO2 eq./kg (2022: 1.8 kg CO2 eq./kg). Due to volume growth, our total emissions increased to 27,217 tCO2-e (2022: 25,309 tCO2-e). We continue our work to increase the share of renewable and recycled raw materials in our production in order to reduce emissions. SCOPE 2 SCOPE 3 Waste generated in operations EoL sold products Production of purchaced energy Fuel and energy related activities SCOPE 1 Direct emissions at production plants Upstream transportation and distribution Purchased goods and services Carbon footprint 2020-2023 (tCO2 eq.) Year Scope 1 Scope 2 Scope 3 Total kgCO2 eq./kg of plastic products EoL sold products 2020 72 3,052 28,742 1) 31,866 1) 2.2 1) 27,28 0 2021 66 0 33,871 1) 33,937 1) 2.1 1) 30,203 2022 74 0 25,235 1) 25,309 1) 1.8 1) 26,534 2023 66 0 27,151 27, 217 1.8 30,047 1) Data is restated with updated information: update in emission factor of Euro-pallets (Scope 3, Purchased goods and services). 25 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Sustainable raw materials Increasing the share of renewable and recycled raw materials Orthex promotes sustainability in all choices made along the life cycle of a product. We only use durable and recyclable raw materials while minimising their use and optimising logistics. Reducing greenhouse gas (GHG) emissions and sourcing more and more renewable and recycled raw materials are at the core of our strategy and sustainability vision. Our target is to increase the share of used renewable and recycled raw materials in our production to 80% by 2030. In 2023, this share increased to 15.8% (2022: 13.6.%). In addition, the growth in sales of products made from renewable and recycled materials was significantly faster than the overall net sales growth. The growth was due to the fact that we switched to using ISCC PLUS certified, renewable, and recycled raw materials produced by applying the mass balance approach in several product ranges. Renewable raw materials Plastics made from renewable raw materials, also often called bio-based, reduce our dependency on limited fossil resources and have a significantly smaller carbon footprint than fossil-based plastics. Orthex launched its first products made from renewable raw materials already in 2016, and we calculated the carbon footprints of all our bio-based product lines in 2020. For example, the carbon footprint of our BIO food storage products, which include sugarcane-based raw material, is reduced by more than 80% compared to only using conventional plastic. The reduction is explained by the carbon dioxide (CO2) generated in manufacturing being largely compensated for by the CO2 absorbed during plant growth. We currently use three renewable raw materials for our BIO products: wood fibre, sugarcane, and castor oil. All these products have OK Biobased certifications, which assures the share of bio-based raw materials in the products. We buy the renewable raw materials from reliable suppliers who we have long relationship with and require that the raw materials have applicable certificates. Recycled raw materials We want to create value out of what has been discarded, which is why we have used recycled plastic in our production since the 1990s. For example, the carbon footprint of our SmartStore™ products made with recycled content is reduced by up to 60% compared to only using conventional plastic. The SmartStore™ Recycled product line is also certified according to the Blue Angel ecolabel which sets strict standards for environmentally friendly products and services. Orthex was among the first consumer goods companies in the world to start using plastic packaging recycled by consumers as raw material for new products in 2017, as soon as technology allowed it. Today, this plastic comes from EuCertPlast-certified suppliers in Europe. The EuCertPlast certification (European Certification of Plastics Recycling) is designed to ensure the traceability and transparency of recycled plastics in the European market. It verifies the quality and sustainability of plastic recycling processes. 26 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 The carbon footprint of our products made with recycled content is reduced by up to 65%. The long cooperation between Orthex and Fortum created a new application for Fortum Circo® PP-T recycled plastic material: Orthex SmartStore TM Collect product range grew with stylish black sorting bins. The use of recycled materials and sustainable production have always been important values to Orthex. Currently, the prerequisite for all new products is that the material is either recycled or biobased. The collaboration between Orthex and Fortum started as early as 2016 when Fortum’s plastic refinery in Riihimäki was established with the purpose of converting consumers’ plastic waste into recycled plastic grades that suit different purposes. One of these plastic grade solutions was Fortum Circo®, which Orthex started to use to produce ﬂowerpots and buckets. The collaboration between the two companies has been ongoing ever since in the form of joint development projects and new applications. One of Fortum Circo’s most important qualities is its low carbon footprint: the footprint for Fortum Circo® PP-T grades is over 65% smaller than the footprint of virgin polypropene. ORTHEX AND FORTUM COLLABORATE TO CREATE NEW APPLICATIONS FOR RECYCLED PLASTIC We also use recycled plastic from industrial sources. This material originates from reliable EuCertPlast certified suppliers as well. The suppliers make the raw material by collecting post-industrial plastic waste from various sources, and the mix may vary. Post-industrial plastic waste is generated for example in industrial packaging, injection moulding, thermoforming, plastic manufacturing, and industrial processing. The plastic in our products can be recycled approximately 10 times. In practice, however, recycled plastic is always a mix of plastics of different ages (some recycled more, some fewer times). This means that while a certain part of the plastic mass can be recycled ten times, the product as a whole can be recycled almost indefinitely. In addition, we use plastic raw material made from old fishing nets to produce household buckets and other household products. Fishing nets are a major source of plastic ocean waste. Reusing them as raw material prevents ocean pollution and considerably reduces the carbon footprint of the new products, compared to virgin plastic material. We use Ocean Action label material in our products made from old fishing nets, which is the world’s first label material made from ocean bound plastic waste. 27 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Mass balance approach to drive the change As transparent plastic and food contact with plastic are still difficult or even impossible to achieve with recycled plastic, we have started to use renewable raw materials by applying mass balance approach in our products to make it possible for us to offer consumers more sustainable products. The mass balance approach means that renewable materials are mixed with fossil materials in the raw material production process as presented in the illustration below. This reduces the amount of fossil-based plastic in the world. In 2023, the ISCC PLUS certificate of Orthex’s Lohja factory was renewed and Gnosjö factory was granted the ISCC PLUS certificate. This allowed us to extend the usage of renewable and recycled raw materials produced by applying the mass balance approach in several new product ranges: SmartStore™ Vision dry food keepers, SmartStore™ Snack lunch boxes and GastroMax™ measuring cups. We also continued using renewable raw materials applying mass balance approach in the production of our popular ISCC certified renewable and/ or recycled feedstock Fossil feedstock Raw material manufacturing process Product manufacturing process Mixing of renewable/recycled and fossil raw materials. By keeping track of quantities, the renewable/recycled raw material can be allocated to specific products. Fossil raw material Conventional product Mixed raw material ISCC certified product Physically mixed raw material with documented and verified quantity of renewable/recycled content throughout the value chain. The ISCC PLUS certified content is allocated to this product by applying mass balance approach. Mass balance products carry the ISCC logo. ISCC PLUS certified mass balance approach Mass balance approach is a method to document and track renewable and/or recycled content throughout complex manufacturing systems to the end product. SmartStore™ Compact and Compact Clear storage boxes. Each product has on average at least 20% of renewable or recycled raw material allocated to it, according to the mass balance approach. This way we can offer consumers more sustainable products. Applying mass balance approach supports Orthex’s long-term carbon neutrality target, and our target to increase the share of sustainable raw materials in our production to 80% by 2030. 28 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Investing in the research of sustainable raw materials We invest in research to find new methods and raw materials We want to provide consumers with the opportunity to choose more environmentally friendly products, and to invest in research to find new methods and raw material solutions. Orthex is involved in two significant research projects, the goals of which are to increase the use of recycled and renewable plastics. In line with Orthex’s sustainability strategy, both projects support our 2030 carbon neutrality target and the target to increase the use of sustainable raw materials. Orthex launched a significant research project for the development of future recycled plastic products in September 2022. The project will be carried out in cooperation with partners and will last until the end of 2024. The goals of the project are to build an ecosystem aimed at increasing the use of recycled plastic and to generate new information about the use of recycled plastic in different applications, especially in products suitable for food contact. The project is part of the extensive and pioneering Borealis SPIRIT (Sustainable Plastics Industry Transformation) programme supported by Business Finland, which aims to transform the plastics industry towards a more sustainable future. As a part of the SPIRIT programme, Orthex is researching in collaboration with Fortum and other partners whether recycled plastic could be used in products suitable for food contact. The results of the product development and tests are encouraging and indicate that recycled plastic is, at least in principle, suitable for food contact. However, starting production on a profitable industrial scale would require e.g., further development of sorting technology. Challenges are also posed by the closed cycle required for product safety, i.e., ensuring that recycled plastic intended for food contact is made from plastic packaging that was originally used for packaging food. In 2024, the research project will focus on the development of sorting technology, improvement of traceability, and further review of the legal restrictions. Since January 2023, Orthex also participates in a large cooperation project of seven years to promote the circular economy of plastics. The PlastLIFE SIP-EU project piloted by the Ministry of the Environment and the Finnish Environment Institute (SYKE) is part of the EU’s LIFE program. As part of the PlastLIFE SIP-EU project, the goal of Orthex’s work package is to find new potential, environmentally friendly plastic raw materials, test raw materials in production and as finished products, and then bring new products to the market. During the year, Orthex has mapped potential new raw material suppliers and tested new plastic raw materials. As one example of the results of this work, Orthex launched to the market the new SmartStore TM Bedroller product, which is manufactured using a new recycled plastic raw material. Transforming the plastics industry towards a more sustainable future. 29 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 As a part of the SPIRIT programme, Orthex and Fortum are researching whether Fortum Circo® recycled plastic could be used in products suitable for food contact, if it was made from plastic food packaging collected from consumers. A specified amount of food packaging waste of different colours was separated from other plastic packaging waste at Fortum’s plastic refinery in Riihimäki. The packages were then washed, shredded, and granulated into three different coloured recycled plastic granules. At Orthex’s Lohja factory, granulates were made into freezer boxes. When the freezer boxes were tested, they passed all the same laboratory tests that Orthex regularly uses to ensure the safety and suitability of its products for food contact. The executed pilot study shows that even mechanically recycled material is safe to use and can even be used in food packaging. The carbon footprint of the Fortum Circo®-PP grade used in the project is more than 70% lower than that of virgin polypropylene and was therefore a sustainable choice as a raw material. The research results were promising, but the start of industrial use will require further research and improvements in the sorting technology. Going forward, the research project will focus on the development of sorting technology, improvement of traceability, and further review of the legal restrictions. PIONEERING R&D COLLABORATION 30 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Resource efficiency Our efficient operations save natural resources Orthex’s operations are resource efficient and have minimal impact on the environment, including local biodiversity. In optimizing resource efficiency, our focus areas are improving energy efficiency and decreasing production waste, or scrap. Our objective is always to save natural and other resources. A significant way to improve energy efficiency in our operations is to replace old machines with energy efficient ones. Investments in energy efficient machines have contributed to reducing Orthex’s energy consumption significantly as described in the table below. We adjusted our energy efficiency target for the period of 2023–2025 to improve energy efficiency 1% annually (baseline year 2022). Since we reached the target set for the year 2025 already in 2023, we will set a new target for energy efficiency during 2024. Progress in energy consumption 2019-2023 (kWh/kg) Year Outcome Target 2019 1.158 1.196 2020 1.131 1.145 2021 1.10 0 1.106 2022 1.092 1.073 2023 1.025 1.081 We optimise our production in a way that minimises the emergence of poor- quality products or production scrap. If scrap is created despite our measures, mainly due to colour or material change during production, we are able to reuse the vast majority of it as raw material elsewhere in production. This effectively eliminates the creation of actual scrap. Our target is to achieve a production scrap rate (cost of scrap products compared to produced volume) of 1.42% by 2024. In 2023, we managed to reduce scrap even further so that the scrap rate was only 0.87%. As the scrap rate has been under the target set for the year 2024 for several years already, we will set a new target for scrap rate during 2024. Progress in reducing production scrap 2019-2023 (cost of scrap products compared to produced volume, %) Year Outcome Target 2019 1.47% 1.50% 2020 1.09% 1.50% 2021 0.98% 1.50% 2022 0.96% 1.47% 2023 0.87% 1.45% All our factories have closed-loop systems for water use. Our operations use cooling water in their manufacturing processes, and the water is fully recycled in production. No wastewater is created in our operations, and no water is released into nature. As our products only contain the raw material and colour, we use minimal volumes of chemicals in our production. Some chemicals are used for other purposes, for example for cleaning. We also follow the Substitute It Now (SIN) list to control the chemicals included in the making of our raw materials. The SIN-list is a database of chemicals likely to be restricted or banned in the EU. The purpose of this list is to support organisations in identifying and replacing substances of high concern, based on the criteria defined in REACH, the EU’s chemical regulation. No wastewater is created in our operations, and no water is released into nature. 31 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Biodiversity Our biodiversity impacts come from our supply chains Orthex’s own operations are resource efficient and have minimal impact on the environment, including local biodiversity. Our indirect biodiversity impacts come from our supply chains, and together with the Finnish Chemical Industry Federation and other member companies we have created long-term, industry-level biodiversity vision, targets, and roadmap. The most significant identified impacts of the chemical industry on biodiversity are associated with raw material supply. These are greenhouse gas emissions, changes in land- and water-use and natural resource use and exploitation. During 2023, we continued the cooperation with the Finnish Chemical Industry Federation to establish a common approach to measure and track biodiversity impacts within the industry over the years. Promoting the recycling of plastic Orthex fully supports the notion that plastic belongs in circulation, not in nature. Plastic is a valuable material and recycling plastic is a responsible act for a sustainable future. We proactively promote the recycling of plastics in our communication channels and various events, while also engaging in dialogue with relevant actors. In addition, we actively participate in awareness-raising activities, organised by the Finnish Plastics Industries Federation, that seek to advance the recycling of plastics in Finland. Orthex also cooperates with its customers to raise awareness on recycling. In 2023, Orthex promoted recycling of plastics in Finland by participating in a nation-wide awareness-raising campaign, and together with other industry operators collected almost 26,000 kilograms of hard plastics from consumers for recycling. This is more than double the amount collected in the previous year’s campaign. Orthex has participated in this campaign ever since it was started in 2018. The campaign highlights the importance of plastic recycling and encourages people to recycle also hard plastic items in addition to plastic packaging waste in their everyday life. The 2023 campaign gathered broken hard plastic items from households, like buckets, ﬂowerpots, watering cans, and freezer boxes. The discarded products will get a new life as recycled plastic products or valuable energy, if feasible. Orthex collected hard plastic items next to its Outlet in Lohja. Tom Ståhlberg, Operations Director of Orthex Lohja factory and ESG Advisor Katja Tolkki from Orthex as well as Vesa Kärhä, Managing Director of Finnish Plastics Industries Federation, were collecting the plastic items and giving recycling tips to consumers. RECYCLING 26,000 KG OF HARD PLASTIC 32 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Social: Safe workplace and tested products Caring for our people It is our responsibility to ensure that everyone feels safe and motivated at work, enjoys their workplace, and can contribute through continuous improvement. We do this by managing our occupational health and safety risks, taking preventive measures, educating employees, and continuously evaluating and improving our work. Leadership, commitment, and engaged employees are key factors for us to succeed in this area and in general. We follow up on our progress in monthly and annual reports and meetings. Occupational safety Orthex promotes a zero-accident vision and culture. We want to ensure that all our employees have a safe workplace every day. Our focus is on preventing safety incidents, which is why we encourage our employees to report any near-misses, unsafe practices, or other safety observations. All reports are carefully analysed, and actions are carried out to prevent similar situations from re-occurring in the future. To ensure the safe use of chemicals, we provide our employees with bulletins that define the hazard level of the chemical and include relevant instructions for use and protective gear. Our Supplier Code of Conduct also requires our suppliers to ensure a safe and healthy working environment for their employees. Orthex’s operations are audited with ISO 45001 certification for occupational health and safety (OHS). This certificate was renewed in 2023. The certificate provides requirements for and guidance on an OHS management system. The goal is to enable organisations to provide safe and healthy workplaces by preventing work-related injuries and health issues, and to help improve their OHS performance. In 2022, we introduced a new KPI for safety at work – Lost-Time Incident Frequency (LTIF) rate. This KPI replaced the number of work-related accidents and allows us to benchmark our safety performance, since this KPI is widely used in peer companies. In this context, we defined the LTIF target for the year 2023 regarding the entire personnel as less than 20 incidents per million work hours. We achieved this target already in 2022, and in 2023, our employees’ LTIF rate further improved and was 6 (2022: 9). Therefore, we have set a new LTIF target: less than 10 incidents per million work hours. This figure is clearly below the average LTIF rate in Finnish industry. Health and well-being We believe that the health and well-being of our employees form an important part of their working ability. To ensure this, Orthex offers its employees high-quality employer-provided occupational health care. We also promote an early support model that aims to prevent and detect early any negative developments regarding employee health, safety, and well-being. The model also enables managers to provide adequate and timely support to employees and to promote dialogue as part of the company culture. We measure health and well-being of our factory employees with a key performance indicator for sickness absence rate (% of total theoretical working hours). The target for this indicator is to reach the level of below 5%. In 2023, sickness absences decreased to 6.1% (2022: 6.5%). It is a top priority for us to ensure the health and safety of our employees and they are instructed to stay at home with the slightest symptoms of an illness. We also continue hybrid working practices where remote and in-office days vary depending on the situation. Employee feedback helps us build a safe and motivating workplace. 33 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Human resources In human resources, we focus on constantly developing an organisation with highly motivated and skilled employees and competent leadership, while enabling continuous improvement for all. Orthex’s people management and development process is a key element in guiding employee performance and development. All managers are evaluated by their teams annually, and all employees are provided with a structured way of giving and receiving feedback. This helps ensure that everyone has an opportunity to inﬂuence their personal development. Our employee performance reviews and employee survey, both conducted annually, are also important elements of people management at Orthex. In 2023, the annual employee survey was conducted based on a survey provided by a new service provider. The survey focuses on the following topics: engagement, leadership, team efficiency, organisational and social work environment, and management. The employee survey’s response rate was excellent 98% (2022: 94%). Along with the new employee survey, we introduced a new employee satisfaction KPI, Engagement Index, and set a target to improve it annually. Based on the responses to eight questions related to motivation and commitment, our employees’ Engagement Index was 79/100 in 2023. Due to the new survey, we do not have a comparison figure from the year 2022. Employee survey helps to identify employee strengths and areas of improvement. Each team discussed the results of the survey and drew up plans for development actions with regular follow-up of their implementation. 34 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Diversity and inclusion We promote equality and do not tolerate discrimination in any form. Our employees have the freedom to organise themselves, and we respect trade unions and personnel representatives and engage in open dialogue with them. Our new employee survey also confirms that our employees feel that people are treated fairly at work, regardless of sex, age, or cultural background and that they can express themselves freely and safely and feel part of a greater context. We operate an internal reporting system for employees’ improvement proposals, reports of deviation and close calls. Each proposal and report is evaluated and documented. Based on these employee observations, we have done numerous improvements in, for example, our ways of working, work environment, and safety equipment. Our target is to have each production site employee submit at least one development proposal annually. In 2023, we got 148 development proposals meaning that we didn’t quite reach our target. In 2024, we will be even more active in communicating to our employees about the importance of development proposals. Men 53% Women 47% Employees by gender Men 53% Women 47% Employees by gender Members of the Management Team by gender Men 75% Women 25% Members of the Management Team by gender Men 75% Women 25% Production (165) Warehouse (66) Sales (53) Admin (22) Marketing (12) Headcount by function Total 318 Production (165) Warehouse (66) Sales (53) Admin (22) Marketing (12) Headcount by function Total 318 We promote equality and do not tolerate discrimination in any form. 35 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Product safety We always make sure our products are safe to use Product safety is a top priority for Orthex. We take great pride in offering products that are manufactured with safe, high-quality raw materials that make them durable, functional, and safe to use. We comply with all relevant product safety regulations and guidelines, such as the EU’s Good Manufacturing Practices and regulation concerning Plastic Materials and Articles Intended to Come into Contact with Food. All our products made from conventional plastic are free of Bisphenol A (BPA) and phthalates. Recycled plastic is also tested and safe, but as it originates from multiple plastic products, it cannot be used in food-contact products. Around 90% of Orthex’s products are manufactured at our factories in Finland and Sweden. The remaining 10% are manufactured by carefully selected suppliers, mainly in Far East. We only work with big, reliable suppliers that follow all regulations for food contact materials and test their raw materials. For more information about how we work with our suppliers, see section Responsible sourcing. Food-contact products We follow all EU regulations concerning food contact products. All these products are carefully tested on a regular basis in independent, accredited laboratories to ensure product safety. For example, our food storage products, excluding dry food keepers, undergo microwave testing to ensure that no substances are released into food during heating. We specify these details in our product-specific Declarations of Compliance. In addition, symbols on our products and their packaging present which temperatures the product endures and whether it is safe to use in, for example, the microwave, fridge, or dishwasher. For more information about our product symbols, visit www.orthexgroup.com. Product safety is a top priority for Orthex. 36 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Customer satisfaction We help our customers achieve their sustainability targets Orthex serves various retail customers, such as traditional convenience stores, specialty and hardware retailers, online stores, and department stores. Consumers – the customers of our customers – are another important stakeholder group to us. We believe that satisfied customers and consumers will lead to a healthy and growing business. We work hard to meet or exceed the expectations of our customers and consumers, and we seek to be the preferred value-creating partner to our customers. As we increase the share of renewable and recycled raw materials in our production and proceed towards carbon neutrality, we can further support our customers in achieving their own sustainability targets. We actively participate in the sustainability work of our customers and provide data and information for them so that they can use it in their calculations and target setting. 90% of our products are manufactured in Finland and Sweden, which means that the distance to our core markets – Nordic countries and Europe – is short. This enables us to react to customer needs in a timely manner and with less tiers in the customer’s supply chain. Our warehouse in Germany increases the efficiency of our logistics in Europe. We measure customer satisfaction with a survey every second year. The latest survey was conducted in 2023 when we improved our customer satisfaction rate to 4.08 (2021: 3.93), on a scale from 1 to 5. Our customers were extremely pleased with the activity and help of their key contact persons at Orthex thanking them with an excellent rate of 4.5 (2021: 4.17). Orthex customers were also asked to rate Orthex as a forerunner in sustainability and the rate improved to 4.22 (2021: 3.88). We believe that satisfied customers and consumers will lead to a healthy and growing business. 37 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Sustainability governance: Part of everyday work Orthex’s sustainability strategy is confirmed annually for a three-year period including the company’s key sustainability topics in environmental, social and governance (ESG) areas. Key performance indicators and targets are defined for each topic. Sustainability work is led by the Board of Directors, the CEO, and the Management Team. The Board of Directors approves the company’s sustainability strategy and annually set sustainability targets and monitors performance against the targets. The Management Team reviews the company’s most important sustainability indicators monthly, and all indicators once a year. Progress in sustainability is part of the CEO’s incentive plan (read more in the Remuneration Report 2023). The everyday sustainability work at Orthex is integrated into all our operations and functions. Orthex’s sustainability strategy is implemented by a dedicated team which monitors the progress of the set sustainability targets. The team is led by the Chief Marketing and Sustainability Officer (CMSO) and Operations Director (OD) who report directly to the CEO and are members of the Management Team. The team comprises ESG Advisor and representatives of our quality functions and, through the CMSO and OD, covers production, procurement, marketing, sustainability, product development, and commercial functions. The ESG Advisor is responsible for the development of the company’s sustainability strategy and for coordinating and implementing sustainability initiatives in line with the sustainability strategy. In addition, in 2023 Orthex established an ESG working group to prepare for the entry into force of the Corporate Sustainability Reporting Directive (CSRD), which applies to the company from the beginning of 2025. Orthex’s key sustainability-related policies and principles are: • Orthex Code of Conduct • Supplier Code of Conduct • Anti-Corruption Policy • Equal Rights & Opportunities Policy • Quality, Environmental and Safety Policy • Purchasing Policy • HR Policy We have a dedicated team that is monitoring the progress of set sustainability targets. Sustainability-related risks Orthex’s risk management policy classifies risks into three groups: strategic, operational, and financial risks. Orthex assesses ESG risks as part of systematic risk management process. Sustainability-related risks are typically covered under operational risks, where we review circumstances or events that can cause harm to people, property, business, information, or the environment. The responsibility for implementing risk management lies with the Management Team, and we strive to ensure that each employee understands and can control risks within their operational environment and responsibilities. We do this by, for example, implementing our Code of Conduct (business ethics risks) and ISO 45001-certified management system (occupational safety risks). All our employees also receive training in cyber security, and competition law training is provided for employees in our commercial functions. Read more about our risk management and ESG risks in the Board of Directors’ Report for the year 2023. 38 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Ethics and integrity We aim to go beyond compliance Orthex operates internationally, and we strive to comply with all laws and regulations applicable to our operations. However, our way to conduct business goes beyond that: high ethical standards and integrity are present in everything we do. Everyone at Orthex has a role in ensuring that the company operates in an ethical and responsible manner, regardless of the situation. We train and educate our employees to ensure that everyone understands what ethical behaviour is and how to demonstrate it. Orthex Code of Conduct applies to all our employees, and members of the Management Team and the Board of Directors. The Code of Conduct defines the key principles for how we engage in business, treat each other, and safeguard Orthex’s assets. It is a tool that helps recognise ethical dilemmas and presents ways to solve them. Our employees are encouraged to report any breaches of the Code of Conduct to their supervisors or through Orthex’s whistleblowing channel. In 2022, we set a new KPI to follow the share of employees committed to Orthex Code of Conduct, and the target is 100%. In 2023, we achieved this target. To promote accountability and foster a responsible company culture, we have an internally operated whistleblowing channel. The channel is open to all internal and external stakeholders and can be used anonymously. Employees can use the channel via the company’s intranet pages and other stakeholders through the company’s website (Whistleblowing - Orthex Group). The employees and other stakeholders may use the channel to report suspected Orthex’s way to conduct business goes beyond complying with laws and regulations. non-compliance with Orthex’s Code of Conduct or Supplier Code of Conduct; breaches of legislation; or other regulations or guidelines. Such non- compliance may include, for example, approval of a gift against guidelines, fraud, forgery, conﬂicts of interest, or inappropriate behaviour by a colleague or partner. When Orthex receives a report on a suspected misconduct or non- compliance, the matter is first investigated by the CEO and the relevant Operations Director. After processing the report, the CEO determines potential further actions, which can be corrective or disciplinary. The whistleblowing reports are always processed in confidence, and the whistleblower, their personal data, and the subject of the report are always protected in accordance with the applicable whistleblower protection, data protection and information security laws. We did not receive any reports through the whistleblowing channel in 2023 nor the previous year. 39 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Responsible sourcing We have strict sustainability requirements for our suppliers Our suppliers are key partners for us in controlling and developing the sustainability of our value chain. We aim for active engagement with and continuous evaluation of our suppliers. Supplier Code of Conduct Our Supplier Code of Conduct (SCoC) presents Orthex’s sustainability requirements for suppliers. Our suppliers must either commit to our Supplier Code of Conduct or present their own code of conduct with similar or stricter sustainability requirements compared to those in our SCoC. In 2022, we set a target that all our A and B classified suppliers must align with Orthex Supplier Code of Conduct. We did not fully reach that target yet in 2023: the result was 88%. We will continue the dialogue with the few suppliers for whom the process is still in progress. In addition to engaging with our suppliers directly, we are a member of amfori BSCI, a platform that enables companies to improve visibility over the social performance of their supply chain. In countries that we have determined high-risk, we monitor compliance with our SCoC in the supply chain through amfori BSCI which carries out on-site inspections, audits, and periodic self- evaluations of suppliers and their sub-contractors. If the measures of amfori BSCI, or our own, reveal non-compliance with our ScoC, we require the supplier to take corrective action and remedy any adverse impacts on people or the environment, as well as ensure the prevention of similar issues taking place in the future. The supplier is given a timeframe to complete the agreed actions. If the supplier is unable to take corrective, remedial, or preventative measures on its own, we will support in developing and implementing an action plan. If the supplier is unwilling to take corrective action, or there are repeated and serious breaches of our ScoC, Orthex has the right to end the business relationship. Orthex will not conduct any business with a supplier engaged in violations of fundamental human rights, and we will immediately terminate the business relationship with a supplier that commit such violations. These zero-tolerance practices are listed in our ScoC. Companies can join amfori BSCI to have access to a joint platform for monitoring and auditing their supply chain. The platform is based on sharing supplier information with members, which reduces time, effort, and costs for individual companies but also increases consistency for buyers and suppliers. Orthex has been a member of amfori BSCI since 2018. In 2022, we adjusted our KPI for this area: we follow-up share of suppliers that are BSCI members (in risk countries) and represent 90% of purchase value. The target is to cover 100% of these suppliers, and the result in 2023 was in line with the target at 100% (2022: 94%). 40 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Transparent reporting and commitment We consider transparent reporting of our environmental, social and governance (ESG) impacts and efforts an important part of how we do business. We receive an increased number of various ESG related questions and requests from our stakeholders, especially from customers and investors, and we seek to increase transparency and provide reliable data on material sustainability topics. Orthex reports on its sustainability efforts annually as a part of Annual and Sustainability Reports. In addition, Orthex also contributes to several third-party sustainability reports and commitments. In 2023, Orthex participated for the first time in the EcoVadis ESG assessment and was awarded with a silver medal for sustainability performance. The result places Orthex globally among the top 18 percent of companies assessed by EcoVadis. Orthex also reports on risk management and management practices related to climate change in Climate Disclosure Project’s (CDP) climate change program annually. CDP is a non-profit organisation that runs the global disclosure system for investors, companies, cities, and states to manage their environmental impacts. In 2022, we achieved our target to reach the Management level with a score B in CDP reporting. Outcome of the 2023 CDP reporting was disclosed in February 2024, and we reached the highest Leadership level with a score A- meaning that we exceeded our target. Companies receiving a Leadership level score must demonstrate both awareness of their impact on the environment, and commitment to reduce emissions to keep global warming below 1.5°C in accordance with the Paris Agreement. We reached the highest Leadership level with a top score A- in the CDP climate reporting. Orthex is certified Nasdaq ESG Transparency Partner. This certification is used by Nasdaq to show engagement in the market transparency and raising environmental standards. Sustainability is a core element in Orthex’s strategy and with this reporting to Nasdaq’s ESG Data Portal we want to provide quantifiable data on environmental, social and governance issues to investors and other stakeholders. T R A N S P A R E N C Y P A R T N E R • N A S D A Q E S G 2022 41 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 GOVERNANCE ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 42 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 CORPORATE GOVERNANCE STATEMENT 2023 Orthex Corporation (”Orthex” or ”the company”) is a public limited liability company listed on Nasdaq Helsinki Ltd and headquartered in Espoo, Finland. The company’s corporate governance complies with the company’s Articles of Association and Corporate Governance Principles as well as rules and regulations applicable to Finnish listed companies such as the Finnish Limited Liability Companies Act (“Companies Act”) and Securities Markets Act, and rules and regulations of Nasdaq Helsinki Ltd. The company also adheres to the Finnish Corporate Governance Code 2020 (”CG Code”) issued by the Securities Market Association. The CG Code is available on the association’s website (www.cgfinland.fi). This Corporate Governance Statement is issued as a separate statement from the Board of Directors’ report, but it is published simultaneously with the Board of Directors’ report and with the company’s financial statements, sustainability report, and the remuneration report for the year 2023 on the corporate website at www.investors.orthexgroup.com. As the company has no audit committee, the company’s Board of Directors has reviewed the Corporate Governance Statement. Governing bodies The Annual General Meeting, the Board of Directors and the CEO are responsible for the governance of Orthex. The company’s shareholders exercise the highest decision-making power at the general meeting of shareholders. The Shareholders’ Nomination Board prepares proposal for the composition of the Board of Directors to the Annual General Meeting. The Annual General Meeting elects the members of the Board of Directors. The company is managed by the Board of Directors and the CEO, appointed by the Board of Directors. The company’s Management Team assists the CEO in the operative management of the company. The members of the Management Team are appointed by the Board of Directors together with the CEO. Governance structure of Orthex Corporation Shareholders External independent auditor General meeting of shareholders Board of Directors CEO Management Team Shareholders’ Nomination Board 43 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 General Meeting of Shareholders The General Meeting of Shareholders is the ultimate decision-making body of the company. At the General Meeting of Shareholders, shareholders exercise their powers in accordance with the Companies Act and the Articles of Association. The General Meeting of Shareholders decides on matters that under the Companies Act and the Articles of Association are within its purview. Annual General Meeting of Shareholders is convened by the Board of Directors annually and it is held within six months from the end of the previous financial year. An Extraordinary Meeting of Shareholders may be convened as stipulated in the Companies Act. Matters on which the Annual General Meeting decides include the adoption of the financial statements, distribution of profits, discharge from liability, and election of the members of the Board of Directors and the auditor, as well as their remuneration. Decisions to amend the Articles of Association are also taken by the General Meeting of Shareholders. Annual General Meeting 2023 Orthex Corporation’s Annual General Meeting was held on 18 April 2023 in Espoo, Finland. The general meeting adopted the financial statements and discharged the members of the Board of Directors and the CEO from liability for the financial year 2022. The general meeting also approved the amended remuneration policy and the remuneration report 2022 for the governing bodies. The general meeting resolved that for the financial year 2022, shareholders will be paid a dividend of EUR 0.11 per share totalling approximately EUR 2.0 million in two instalments. The first instalment of the dividend amounting to EUR 0.06 per share was paid on 27 April 2023 and the second instalment amounting to EUR 0.05 per share on 10 October 2023. The general meeting resolved that Sanna Suvanto-Harsaae, Markus Hellström, Jyrki Mäki-Kala and Jens-Peter Poulsen be re-elected to the Board and that Anette Rosengren be elected as new member to the Board. The Board members’ term of office will end at the end of the next Annual General Meeting. Satu Huber stepped down from the Board. The new director Anette Rosengren (b. 1966) is Swedish citizen and holds a bachelor’s degree in business administration. Since 2019, she serves Philip Morris International as the Managing Director for the Nordics. Prior to that, she held Managing Director position at Fazer Bakery in Sweden and CEO position at Lantmännen Doggy. Ms Rosengren started her professional career at Unilever in marketing and commercial roles and then joined Kraft Foods where she made over ten-year career advancing to international director and VP positions with responsibilities mainly in marketing, category development, and strategic development. Since 2016, she is a member of the Board of Directors of the Greenfood Group. Sanna Suvanto-Harsaae continues to chair Orthex Board of Directors. The members of the Board of Directors are independent of the company and its significant shareholders. As to Board remuneration, the general meeting resolved that the remuneration of the members of the Board of Directors remain the same and that the Chair of the Board of Directors be paid a monthly fee of EUR 4,000 and other members of the Board of Directors a monthly fee of EUR 2,000. Ernst & Young Oy, a firm of Authorised Public Accountants, was re-elected the company’s auditor for a term of office ending at the end of the next Annual General Meeting. As announced by Ernst & Young Oy, APA Mikko Rytilahti acts as the signing audit partner succeeding APA Johanna Winqvist-Ilkka. The remuneration of the auditor was resolved to be paid according to a reasonable invoice approved by the Board. In addition, the general meeting resolved to make technical amendments to Articles 5 and 8, and to supplement the Article 10 of the Articles of Association so that the general meeting of shareholders may also be held completely without a physical meeting venue as a virtual meeting. The general meeting also authorised the Board of Directors to issue or convey a total maximum of 1,600,000 new shares and special rights entitling to shares in one or several issues and to acquire a maximum of 175,000 shares in the company. The authorisations will be valid until 30 June 2024. Further information about the decisions of the general meeting can be found in the AGM documents, which are available on the corporate website at Annual General Meeting 2023 – Orthex Group. 44 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 The Board of Directors Under the company’s Articles of Association, the Board of Directors is composed of a minimum of four and a maximum of eight members. Members of the Board of Directors are elected at the general meeting. The term of office of a member of the Board of Directors commences from the close of the general meeting in which they are elected and expires at the close of the following annual general meeting. The Board of Directors elects a chair from among its members. The Board of Directors is quorate when more than one-half of its members are present. A decision by the Board of Directors is the opinion supported by more than one-half of the members present at a meeting. In the event of a tie, the Chair of the Board has the casting vote. The Board of Directors convenes according to a pre-agreed schedule normally from six to ten times a year and holds extra meetings when deemed necessary. Meetings can also be held as teleconference meetings or by using other technical means or devices. The Board evaluates its operations and working methods once a year. Duties of the Board of Directors The tasks and responsibilities of the Board of Directors of the company are determined in the Companies Act as well as in other applicable legislation. The Board of Directors has general authority to decide and act in all matters not reserved for other corporate governing bodies by law or under the provisions of the company’s Articles of Association. The general task of the Board of Directors is to duly organise Orthex’s management and operations. 1) Member until 18 April 2023. 2) Member from 18 April 2023. In all situations, the Board of Directors must act in accordance with Orthex’s best interest. The Board of Directors has a written charter that specifies its duties. The duties of the Board of Directors include: • approving reports of the Board of Directors, financial statements, and interim reports • seeing to the appropriate organisation of accounts and financial administration • preparing proposals for the general meeting of shareholders and convening general meetings of shareholders • approving and confirming strategic guidelines and long-term strategic targets • approving principles for risk management and internal control • confirming annual budgets and operating plans • appointing the CEO and deciding on the terms and conditions of the CEO contract • deciding on the company structure • making significant business decisions, such as decisions on mergers and acquisitions, significant contracts, investments, and financing arrangements and • deciding on other matters falling under the statutory responsibilities of the Board of Directors. Orthex’s Board of Directors has no committees, but the Board may consider setting up potential committees in the future. As there are no committees, the entire Board of Directors is responsible for discharging the statutory duties of the audit committee. Number of Board meetings and attendance rates In 2023, the Board held 9 meetings. Some of these meetings were held remotely. Attendance in the meetings is reported in the table below. Number of Board meetings and members’ attendance 2023 Director Attendance / No. of meetings Attendance-% Sanna Suvanto-Harsaae (Ch.) 9/9 100 Markus Hellström 9/9 100 Satu Huber 1) 2/2 100 Jyrki Mäki-Kala 8/9 89 Jens-Peter Poulsen 9/9 100 Anette Rosengren 2) 7/7 100 45 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 41-50 years 20% 51-60 years 60% 61-65 years 20% Age Below 2 years 20% 2-3 years 60% Above 3 years 20% Tenure Diversity of the Board of Directors Orthex regards diversity as an important and natural approach in its operations. Diversity shall be part of such cooperative and functional Board of Directors which is able to respond to the requirements set out in the company’s business and strategic objectives. Such Board of Directors will also be able to support and challenge the company’s operative management in a proactive and constructive manner. The principles concerning the diversity of the Board of Directors are in line with this premise. When preparing the composition of the Board of Directors of Orthex, attention is paid to the requirements set by the company’s Articles of Association and the Corporate Governance Code, as well as to the requirements set by the company’s operations and the premises of diversity derived therefrom. Significant factors concerning the composition of the Board of Directors include mutually complementary variety of competences, education and experience in different areas and professional fields and in management and business operations existing in different development phases, as well as the personal capabilities of each member, all of which add to the diversity of the Board of Directors. Diversity is considered not only from the aspect of gender but also from other factors promoting the Board’s diversity, such as the age structure of the Board, the members’ educational and professional background, their experience relevant for the position, and personal characteristics. When preparing the composition, it is also assessed how the members’ skills, education and experience complement each other. The company’s long-term needs are also considered. The purpose of the diversity principles is to contribute to making sure that the Board of Directors’ combined competence and experience and the diversity of its composition are sufficiently aligned with Orthex’s operational needs. With regard to gender structure, the objective is that different genders are sufficiently represented on the Board. At year-end 2023, the company’s Board of Directors comprised five members. Diversity of the Board of Directors with respect to gender, nationality, age, tenure as well as educational and professional background is described on this and on the next two pages. Additional information for example on the Board members’ previous positions of trust is available on the corporate website at Board of Directors - Orthex Group. Male 60% Female 40% Gender Finland 40% Sweden 20% Denmark 20% Finland-Denmark 20% Nationality 46 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Jyrki Mäki-Kala Member of the Board of Directors since 2022 Born 1961 Finnish citizen Master’s degree in Economics Independent of the company and its significant shareholders Main occupation: Professional director • Neste Corporation, Chief Financial Officer, and member of Executive Committee 2013–2022 • Kemira Oyj, Chief Financial Officer 2008–2013 • Kemira Pulp & Paper, Vice President, and President positions 2005–2008 • Nokia Chemicals/Finnish Chemicals Oy, Director, and Vice President positions 1988–2005 • Anora Group Plc, Vice-Chair of the Board of Directors since 2023 and member of the Board and Chair of the Audit Committee since 2020 • Outokumpu Oyj, member of the Board of Directors and Chair of the Audit Committee since 2023 Sanna Suvanto-Harsaae Chair of the Board of Directors since 2021, member since 2020 Born 1966 Finnish and Danish citizen Bachelor’s degree in Economics Independent of the company and its significant shareholders Main occupation: Professional director • Finnair Plc, Chair of the Board of Directors since 2023 • N’Age A/S, Chair of the Board of Directors since 2023 • Posti Group Corporation, Chair of the Board of Directors since 2020 • BoConcept A/S, Chair of the Board of Directors since 2016 • TCM Group A/S, Chair of the Board of Directors since 2016 • Nordic Pet Care Group A/S, Chair of the Board of Directors since 2012 • Elopak ASA, member of the Board of Directors since 2021 • CEPOS (Center for Political Studies), member of the Board of Directors since 2017 • Broman Group Oy, member of the Board of Directors since 2016 Markus Hellström Member of the Board of Directors since 2022 Born 1974 Finnish citizen Master’s degree in Engineering Independent of the company and its significant shareholders Main occupation: Managing Director of Oy Snellman Ab since 2023 • Fazer Group, Executive Vice President, and Managing Director of Fazer Confectionery Ltd. 2020–2023 • Fazer Bakeries Finland, Country Manager and Fazer Bakeries Ltd., Managing Director 2014–2020 • Fazer Bakeries Ltd., Vice President, Head of Operations, Bakery Business Unit 2013–2014 • Fazer Bakeries Ltd., Business Development Director / Business Controller 2007–2012 • Fazer Group, Sourcing Manager for Logistics Services 2004–2007 • Logico Solutions, Partner 2003–2004 • Candyking, Sweden, Logistics Manager 2000–2003 Members of the Board of Directors on 31 December 2023 47 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Jens-Peter Poulsen Member of the Board of Directors since 2021 Born 1967 Danish citizen Master’s degree in Economics Independent of the company and its significant shareholders Main occupation: Chief Executive Officer of Kvik A/S since 2013 • LEGO Group, Senior Vice President of the Market Group Asia & Emerging Markets 2011–2012 • LEGO System A/S, Senior Vice President, Market Group 1, 2006–2011 • LEGO System A/S, various Vice President and Senior Director positions and responsibilities for different operations 2000–2005 • Jensen’s Catering A/S, Sales and Marketing Manager 1999–2000 • Arla Foods, several positions 1993–1999 • European House of Beds A/S, member of the Board of Directors since 2021 • Holmris B8 A/S, member of the Board of Directors since 2017 Anette Rosengren Member of the Board of Directors since 2023 Born 1966 Swedish citizen Bachelor’s degree in business administration Independent of the company and its significant shareholders Main occupation: Managing Director of Philip Morris Nordics since 2019 • Fazer Bakery (Sweden), Managing Director 2015–2018 • Lantmännen Doggy, CEO 2012–2015 • Lantmännen Group, SVP, Head of CF Communication, Sustainability and R&D 2008–2012 • Kraft Foods, Director, Strategic Development and Marketing, Nordic 2005–2008 • Kraft Foods (Austria), VP Category Development, EEMA region 2004–2005 • Kraft Foods (USA), Director, Marketing Service, International 2002–2004 • Kraft Foods (Nordic), marketing and commercial roles 1995–2003 • Unilever, marketing and commercial roles 1989–1995 • Greenfood AB (publ), member of the Board of Directors since 2016 48 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Shareholders’ Nomination Board Orthex Corporation’s Extraordinary General Meeting on 5 March 2021 decided to establish a Shareholders’ Nomination Board. The Nomination Board annually prepares proposals for the election and remuneration of members of the Board of Directors to the Annual General Meeting. It is also the duty of the Nomination Board to search for new director candidates. The Extraordinary General Meeting adopted a Charter of the Shareholders’ Nomination Board, which governs the appointment, composition, and duties and responsibilities of the Nomination Board. The Charter is available on the corporate website at Nomination Board - Orthex Group. The Nomination Board has been established for the time being and can only be dissolved by a decision of the general meeting. The term of office of the members of the Nomination Board expires annually when a new Nomination Board has been appointed. The Nomination Board consists of the four largest shareholders of the company as of 31 August or, if the company has more than four shareholders, whose shareholding and voting rights in the company are more than 10 per cent, the corresponding number of shareholders or persons appointed by them. The Chair of the Board acts as an expert member of the Nomination Board. Based on the shareholder register of Orthex Corporation as of 31 August 2023, the shareholders represented in the Shareholders’ Nomination Board are Conficap Oy, Alexander Rosenlew, Ilmarinen Mutual Pension Insurance Company and Thominvest Oy (former Thomasset Oy). The representatives of the four largest shareholders in the Nomination Board are: • Maarit Toivanen, Chair of Board of Directors, Conficap Oy • Alexander Rosenlew • Annika Ekman, Head of Direct Equity Investments, Ilmarinen Mutual Pension Insurance Company • Mats Söderström, CEO, Thominvest Oy Maarit Toivanen chairs the Nomination Board, and its expert member is Sanna Suvanto-Harsaae, Chair of Orthex’s Board of Directors. No changes took place in the composition of the Nomination Board during 2023. The Nomination Board prepared the proposals for the composition and remuneration of the Board of Directors and submitted them to the Board of Directors of Orthex Corporation. The Board of Directors incorporated these proposals into the notice of the meeting when convening Orthex Annual General Meeting 2023. Shareholdings of the members of the Board of Directors The shareholdings of the members of the Board of Directors and their closely associated persons as at the end of 2023, are presented in the table below. None of the members of the Board of Directors nor their closely associated persons or entities has any share-based rights in Orthex or its subsidiaries. Board of Directors’ shareholdings on 31 December 2023 Director Position Number of shares on 31 Dec. 2023 Sanna Suvanto-Harsaae Chair 8,515 Markus Hellström member 3,640 1) Jyrki Mäki-Kala member 2,010 Jens-Peter Poulsen member 15,713 Anette Rosengren member 2,000 Tot al 31,878 % of total number of shares 0.2% Orthex total number of shares 17,758,8 5 4 1) Incl. holdings of closely associated persons 49 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Chief Executive Officer Alexander Rosenlew has been the Chief Executive Officer of Orthex Corporation since 2010. Mr Rosenlew holds master’s degrees both in economics and in management. The CEO is responsible for the operational management of Orthex in accordance with the instructions and orders given by the Board of Directors. The CEO prepares matters to be decided by the company’s Board of Directors, develops Orthex’s operations together with the Board in accordance with the set objectives and ensures the proper implementation of the Board’s decisions. The CEO is also responsible for ensuring that Orthex complies with applicable laws and regulations and that the company’s financial affairs have been arranged in a reliable manner. The CEO chairs the meetings of the Management Team. Management Team The role of Orthex’s Management Team is to manage Orthex’s operative business as a whole. The members of the Management Team have certain powers to act within their respective areas of responsibility, and they have a duty to develop Orthex’s business in accordance with the objectives set by the company’s Board of Directors and the CEO. Orthex’s Board of Directors appoints the members of the Management Team together with the CEO. The Management Team meets regularly on a monthly basis or when deemed necessary. Members of Orthex’s Management Team are presented on the following page. No changes took place in the composition of the Management Team during 2023. Additional information on the Management Team members’ career history and potential positions of trust is available on the corporate website at Management Team - Orthex Group. Shareholdings of the members of the Management Team The shareholdings of the CEO and other members of the Management Team (including their closely associated persons or entities), as at the end of 2023, are presented in the table below. The CEO or other members of the Management Team (or their closely associated persons or entities) have no share-based rights in Orthex or its subsidiaries. Management Team’s shareholdings on 31 December 2023 Management Team member Position Number of shares on 31 Dec. 2023 Alexander Rosenlew CEO 2,0 47,72 6 Oy Rosaco Ab 1) 33,500 Saara Mäkelä Chief Financial Officer 141,000 Hanna Kukkonen Chief Marketing and Sustainability Officer 200,800 Nicholas Ledin Sales Director, Nordic 61,850 Alex Nielsen Sales Director, Europe and International Markets 1,000 Hans Cronquist Operations Director, Tingsryd 100,000 Peter Ottosson Operations Director, Gnosjö 91,100 Tom Ståhlberg Operations Director, Lohja 315,250 2) Tot al 2,992,226 % of total number of shares 16.8% Orthex total number of shares 17,758,8 5 4 1) Controlled entity 2) Incl. holdings of closely associated persons 50 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Members of the Management Team on 31 December 2023 Alexander Rosenlew Chief Executive Officer Management Team member since 2010 Employed by Orthex since 2010 Born 1971, Finnish citizen Master’s degrees in Economics and in Management Alex Nielsen Sales Director, Europe and International Markets Management Team member since 2022 Employed by Orthex since 2022 Born 1972, Danish citizen Business diploma in Marketing, HD(A) Saara Mäkelä Chief Financial Officer Management Team member since 2017 Employed by Orthex since 2017 Born 1976, Finnish citizen Master’s degree in Economics Hans Cronquist Operations Director, Tingsryd Management Team member since 2019 Employed by Orthex since 2019 Born 1970, Swedish citizen Master’s degree in Mechanical Engineering Hanna Kukkonen Chief Marketing and Sustainability Officer Management Team member since 2012 Employed by Orthex since 2012 Born 1973, Finnish citizen Master’s degree in Economics Peter Ottosson Operations Director, Gnosjö (until 30 April 2024) Management Team member since 2013 Employed by Orthex since 2009 Born 1974, Swedish citizen Bachelor’s degree in Machine Engineering, eMBA Nicholas Ledin Sales Director, Nordic Management Team member since 2015 Employed by Orthex since 2001 Born 1970, Swedish citizen High school graduate Tom Ståhlberg Operations Director, Lohja Chief Supply Officer as of 1 March 2024 Management Team member since 2012 Employed by Orthex since 2012 Born 1969, Finnish citizen Master’s degree in Industrial Engineering and Management From left: Tom Ståhlberg, Saara Mäkelä, Alex Nielsen, Alexander Rosenlew, Nicholas Ledin, Hanna Kukkonen, Peter Ottosson, Hans Cronquist. 51 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Financial reporting process Orthex compiles its financial reporting in accordance with the International Financial Reporting Standards (IFRS), the Finnish Securities Markets Act, the Finnish Accounting Act and the guidelines and statements of the Finnish Accounting Board, while also complying with the rules and regulations of the Financial Supervisory Authority and the rules of Nasdaq Helsinki Ltd. The principles, instructions, practices, and areas of responsibility in internal auditing and risk management relating to the company’s financial reporting process are aimed at ensuring that the company’s financial reporting is reliable and that the financial statements have been prepared in accordance with applicable laws, regulations, and the company’s operating principles. Orthex’s financial reporting is supervised on two levels, in individual companies and at the group level. On both levels, control measures and analyses are carried out to ensure the validity of financial reporting. The Board of Directors is responsible for overseeing the financial reporting process. Risk management The purpose of Orthex’s risk management is to ensure the fulfilment of customer promises, business profitability, ability to pay dividends, value creation for shareholders, responsible business, and business continuity. To achieve this, Orthex strives to be aware of the uncertainties and risk factors and opportunities associated with its objectives and operations, and to identify, assess and manage risks and their consequences in a consistent and effective manner. Orthex has a risk management policy approved by the Board of Directors that guides risk management in a way that supports the achievement of the company’s objectives, protects personnel and the company’s various assets, and ensures the financial sustainability of operations. The responsibility for implementing risk management lies with the Management Team. In addition, each employee must be aware of and manage the risks associated with their own operating environment and areas of responsibility. The company’s Board of Directors approves the company’s risk management policy and monitors and assesses the effectiveness of risk management. Risk management principles Risk management is a systematic activity designed to ensure comprehensive and appropriate risk identification, assessment, management, and control. It is an integral part of Orthex’s planning and management process, decision making, day-to-day management of operations, and monitoring and reporting procedures. Risks are assessed and managed in a business- oriented and thorough manner. This means that key risks are systematically identified, evaluated, managed, monitored, and reported as part of the business. Risk management process and reporting Orthex prioritises risks according to the importance of the risk by assessing the impact, likelihood, and level of risk management of the risk materialisation. Risk management measures address the most significant risks through cost-effective and appropriate policy options. The Management Team regularly monitors the implementation of risk management. If necessary, corrective measures will be taken. The Management Team reports to the Board of Directors on risks and risk management measures 2–3 times a year. The Board reviews the most significant risks, measures to manage them and assesses the efficiency and effectiveness of risk management. The Board reports on the most significant risks and uncertainties in the annual Board of Directors’ reports and any material changes in these factors in the interim reports. Additional information on the company’s risk management and on the most significant risks and uncertainties is available in the Board of Directors’ Report for the year 2023. Internal control and audit The Company’s Board of Directors has confirmed the operating principles of internal control followed at Orthex, aiming to ensure that the company’s objectives regarding, inter alia, Orthex’s strategy, operations, practices, and financial reporting in particular are met. The operating principles of internal control also contribute to ensuring the company’s compliance with legislation and regulations. Internal control is an essential part of business management and in ensuring that the set objectives are met. Internal control is aimed to be organised efficiently, so that any deviations from targets can be detected as early as possible or that they can be prevented. 52 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Orthex’s tools of internal control include internal policies, guidelines, and instructions, together with manual controls as well as controls built into systems. In addition, internal control is implemented in the form of various monitoring reports and meetings. The Board of Directors of Orthex is responsible for organising the internal control and oversees the efficiency of internal control. The Management Team and the CEO are responsible that functioning control procedures are in use. Orthex Group has not organised its internal audit as a separate function. The Board assesses annually the need for internal audit procedures and may use internal company resources or external service providers for internal audit measures. Any outcomes of such procedures or measures are reported to the Board of Directors. Related party transactions The Board of Directors has defined the principles for monitoring and evaluating related party transactions. The company evaluates and monitors transactions concluded between the company and its related parties and ensures that any conﬂicts of interest are taken into account appropriately in the decision-making process of the company. The company keeps a list of related parties. Approval of related party transactions concluded in the ordinary course of business and on customary commercial terms is subject to the company’s normal approval policies and processes. Approval of a related party transaction that is not concluded in the ordinary course of business or on customary terms is subject to the Board of Directors’ approval. The company’s finance function monitors related party transactions as a part of the company’s normal reporting and control procedures and reports related party transactions to the Board of Directors. The Board of Directors regularly evaluates the reported related party transactions and the appropriateness of the company’s process and policies on related party transactions. Information on transactions concluded between the company and its related parties is disclosed, as required, annually in the notes to the company’s consolidated financial statements. Material related party transactions are disclosed in accordance with Chapter 8, section 1a of the Securities Markets Act. Insider administration Orthex has prepared insider guidelines approved by the company’s Board of Directors, the purpose of which is to clarify and supplement the operating methods of Orthex and its insiders and to serve as a practical tool in handling insider matters. The Insider Guidelines define clear operating instructions for, among other things, the management of inside information, the maintenance of insider lists and the reporting of transactions by persons subject to disclosure. The Insider Guidelines apply to Orthex and persons in managerial positions at Orthex, as well as to persons working for Orthex who have access to inside information or who have otherwise become aware of inside information. In addition, the Insider Guidelines apply by agreement to persons otherwise acting on behalf of or for Orthex in the performance of their duties through which they have access to inside information. Orthex’s insider administration compiles insider lists and keeps them up to date in electronic form. In addition to individual insider lists (project-specific insider list), Orthex may prepare a supplement for permanent insiders (permanent insiders). Permanent insiders include only those persons who, by virtue of their duties, are considered to have continuous access to all inside information about Orthex. In the project-specific insider list, Orthex will include those with inside information about the project, including any external advisors and experts. Insider lists are maintained by an electronic procedure prepared and / or approved by the Financial Supervisory Authority or another appropriate body that meets the applicable requirements. Insider lists are not public and are not made available to the public. Orthex will notify the insider in writing of his or her insider status, the resulting obligations and any penalties for breach of those obligations. The person entered in the project-specific insider list will be notified of the termination of the project and the closure of the project-specific insider list. Persons discharging managerial responsibilities at Orthex and other permanent insiders, as determined by Orthex, should schedule their trading in Orthex financial instruments in a manner that does not undermine confidence in the securities market. 53 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Persons discharging managerial responsibilities at Orthex are the members of the Board of Directors, the CEO, and the members of the Management Team. Orthex maintains a list of the persons in managerial position and the persons and entities closely associated with them. Orthex does not maintain a list of permanent insiders. The persons in managerial position at Orthex may not enter into transactions with Orthex financial instruments for their own account or for the account of a third party during a closed period beginning 30 days prior to the disclosure date of Orthex’s financial statements release, half-year financial report and the three- and nine-month interim reports provided periodically by Orthex and ends 24 hours after publishing the group’s interim report, half-year financial report or financial statements release. In addition, Orthex recommends that persons discharging managerial responsibilities in the company do not engage in transactions with the company’s financial instruments after the end of each quarterly period and that they time their potential transactions to the two-week-period, which begins on a date following the disclosure date of the afore mentioned financial reports. In accordance with Nasdaq Helsinki Ltd’s insider guidelines, Orthex maintains a list of persons who participate in the preparation, auditing, or publication of Orthex’s financial reports. Such persons may not carry out transactions for their own account or on behalf of a third party during a closed period. Persons in managerial position at Orthex and their close associates shall disclose to Orthex and the Financial Supervisory Authority all transactions they make on their own account with Orthex’s shares, debt instruments or derivatives or other related financial instruments. The reporting obligation applies to transactions carried out on or off any marketplace. A person in managerial position or another person subject to a trading restriction specified by the company should request an assessment of the legality and regularity of the proposed transaction in the financial instrument from the company’s insider administration. Notwithstanding the assessment procedure, the person in a managerial position or the other person mentioned above is responsible for ensuring that they comply with the laws, regulations, and instructions. Orthex has an internally operated whistleblowing channel through which Orthex employees can anonymously report any suspected violations of financial market rules and regulations. Other stakeholders can report suspected infringements by sending email to [email protected]. Further information and instructions for whistleblowing are available on the corporate website at Whistleblowing - Orthex Group. External audit According to the Articles of Association, the company has one auditor. The auditor must be a firm of authorised public accountants. The auditor is elected annually by the Annual General Meeting for a term that expires at the end of the next Annual General Meeting following the election. The task of the auditor is to audit the consolidated financial statements, the financial statements of the parent company, the accounting of the Group and the parent company and the administration of the parent company. The company’s auditor submits the auditor’s report to the shareholders in connection with the annual financial statements and submits regular reports on its findings to the Board of Directors. At the Annual General Meeting 2023, Ernst & Young Oy, a firm of Authorised Public Accountants, was elected the company’s auditor with Mikko Rytilahti, Authorised Public Accountant, as the signing audit partner succeeding Johanna Winqvist-Ilkka, Authorised Public Accountant. The audit fees paid to the auditor in 2023 totalled EUR 208 thousand (2022: 174 thousand). In addition, EUR 12 thousand (2022: 35 thousand) was paid to the auditor for non-audit services. 54 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 REMUNERATION REPORT 2023 Orthex Corporation’s (”Orthex” or ”the company”) remuneration report for the financial year 2023 has been prepared in accordance with the Finnish Corporate Governance Code 2020 issued by the Securities Market Association and other applicable regulations. The Corporate Governance Code is available on the association’s website (www.cgfinland.fi). The remuneration report is published simultaneously with the corporate governance statement, the Board of Directors’ report, the financial statements, and the sustainability report on the corporate website at www.investors.orthexgroup.com. The company’s Board of Directors has prepared and approved this remuneration report and it will be presented to the Annual General Meeting to be held on 9 April 2024 for the shareholders’ advisory approval. This remuneration report describes how Orthex has applied the amended remuneration policy approved at the company’s Annual General Meeting on 18 April 2023. The remuneration policy was amended so that the remuneration policy defines clear maximum payments for short- and long- term incentives payable to the CEO and that the company’s potential long- term incentive scheme can be other than share based. The remuneration report describes the remuneration and other financial benefits paid to the members of the Board of Directors and the CEO during the financial year 2023. In addition, the remuneration report compares the development of the remuneration of the Board of Directors and the CEO with the development of the employees’ average remuneration and the company’s financial development over the past five years. Introduction The goal of Orthex’s remuneration schemes is to promote the company’s competitiveness and support the implementation of the company’s strategy. The remuneration schemes also aim to engage key personnel in long-term work to achieve personal and shared goals and increase shareholder value. Effective and competitive remuneration is an essential tool for hiring capable management in the company, which in turn contributes to the company’s financial success and implementation of good governance. Remuneration supports the implementation of the company’s strategy and long-term profitability and promotes the company’s competitiveness. 55 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Development of the Group’s financial performance and remuneration The following table shows the development of the total remuneration of the Board of Directors and the CEO compared to the development of Orthex employees’ average remuneration and the company’s financial development over the past five years. Development of total remuneration and financial development over the past five years EUR thousand 2023 2022 2021 2020 2019 Net sales 85,945 84,048 88,694 75,865 66,427 Adjusted EBITA 10,918 5,490 10,996 12,933 7,593 Board of Directors 1) 144 144 126 71 58 CEO 1) 437 527 478 367 302 Employees' average remuneration 2) 59 55 58 55 53 1) The remuneration of the Board of Directors and the CEO was adjusted in connection with the company’s IPO in March 2021. 2) Employees’ average remuneration is total employee remuneration divided by the average number of personnel during the year. Summary of remuneration in 2023 In 2023, the actual remuneration of the members of the Board of Directors and the CEO followed the remuneration policy. Orthex did not deviate from the remuneration policy in the remuneration of the members of the Board of Directors and the CEO and did not exercise its right to recover the remuneration during 2023. During the financial year 2023, the members of the Board of Directors were paid fixed monthly fees. The amount of the fees paid depended on the member’s role in the Board: Chair of the Board – member of the Board. As decided at the 2023 AGM, the monthly fees remained the same. The fees paid are disclosed under section “Remuneration of the Board of Directors”. The total remuneration paid to the CEO during the financial year 2023 consisted of fixed base salary with fringe benefits and variable short-term incentive paid for the performance in 2022. The set performance targets for the company’s short-term incentive plan 2022 were mostly not achieved. The CEO’s total remuneration in the financial year 2023 amounted to EUR 437,427, of which variable remuneration accounted for 2.7 per cent. Orthex has no long-term share-based or other incentive schemes in place, which partly explains the share of variable remuneration of the CEO’s total remuneration. The salaries and incentives paid to the CEO are disclosed under section “Remuneration of the CEO”. 66.4 75.9 88.7 84.0 85.9 2019 2020 2021 2022 2023 Net sales, EUR million 6.5 12.3 9.3 5.2 10.8 2019 2020 2021 2022 2023 Operating profit, EUR million 7.6 12.9 11.0 5.5 10.9 2019 2020 2021 2022 2023 Adjusted EBITA, EUR million 11.4 % 17.0 % 12.4 % 6.5 % 12.7 % 2019 2020 2021 2022 2023 Adjusted EBITA margin, % 66.4 75.9 88.7 84.0 85.9 2019 2020 2021 2022 2023 Net sales, EUR million 6.5 12.3 9.3 5.2 10.8 2019 2020 2021 2022 2023 Operating profit, EUR million 7.6 12.9 11.0 5.5 10.9 2019 2020 2021 2022 2023 Adjusted EBITA, EUR million 11.4 % 17.0 % 12.4 % 6.5 % 12.7 % 2019 2020 2021 2022 2023 Adjusted EBITA margin, % 66.4 75.9 88.7 84.0 85.9 2019 2020 2021 2022 2023 Net sales, EUR million 6.5 12.3 9.3 5.2 10.8 2019 2020 2021 2022 2023 Operating profit, EUR million 7.6 12.9 11.0 5.5 10.9 2019 2020 2021 2022 2023 Adjusted EBITA, EUR million 11.4 % 17.0 % 12.4 % 6.5 % 12.7 % 2019 2020 2021 2022 2023 Adjusted EBITA margin, % 56 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Remuneration of the Board of Directors The Annual General Meeting decides on the remuneration to be paid to the members of the Board of Directors. The proposal for the remuneration of the members of the Board of Directors for the 2023 Annual General Meeting was prepared by the company’s Shareholders’ Nomination Board. In accordance with the decision of the Annual General Meeting in 2023, the remuneration of the Board of Directors remained the same and the Chair of the Board of Directors was paid a monthly fee of EUR 4,000 and other members of the Board of Directors a monthly fee of EUR 2,000. Board fees were paid monthly in cash. No meeting fees were paid for Board meetings. The remuneration of the members of the Board of Directors does not involve pension contributions and the members of the Board of Directors are not covered by Orthex’s incentive schemes. Reasonable travel and other expenses related to the Board work were reimbursed in accordance with the company’s travel rules. The remuneration paid to the members of the Board of Directors in 2023 is shown in the table on the right. The members of the Board of Directors did not receive any other financial benefits. Remuneration of the Board of Directors 2023 EUR Remuneration Sanna Suvanto-Harsaae (Ch.) 48,000 Markus Hellström 24,000 Satu Huber 1) 8,000 Jyrki Mäki-Kala 24,000 Jens-Peter Poulsen 24,000 Anette Rosengren 2) 16,000 Tot al 144,000 1) Member of the Board until 18 April 2023. 2) Member of the Board from 18 April 2023. 57 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Remuneration of the CEO The Board of Directors decides on the remuneration of the CEO. The CEO of Orthex is Alexander Rosenlew since 2010. The CEO’s remuneration consists of a fixed base salary with fringe benefits and a variable short-term incentive. In 2023, Orthex did not have any long-term share-based or other incentive schemes. The purpose of rewarding the CEO is to guide the implementation of the company’s strategic goals and thereby promote the company’s long- term financial success, competitiveness, and favourable development of shareholder value. The CEO’s significant shareholding (11.7%) in the company strengthens the alignment of the CEO’s interests with those of shareholders. Under Orthex’s variable short-term incentive scheme, the CEO may be granted annual performance-based incentives in addition to his fixed annual salary. The aim of the incentive scheme is to encourage the CEO to commit to the company and motivate him to achieve the best possible result. In addition, the incentive scheme is intended to encourage the CEO to work in a way that supports Orthex’s strategy, growth, and competitiveness. Incentives under annually commencing short-term incentive plans are discretionary and tied to Orthex’s results of operations and the achievement of relevant performance metrics and/or individual performance targets. The terms and objectives of the incentive plan, including performance metrics and weights, are determined, and approved annually in advance by the company’s Board of Directors. In 2023, the metrics and weights of the CEO’s incentive plan were as follows: profitability 50%, turnover 35%, sustainability 15%. During the financial year 2023, the maximum amount of the CEO’s incentive corresponded to 7 months’ gross base salary. The CEO is entitled to a statutory pension. The CEO’s pension and retirement age are determined on the basis of the Employees’ Pensions Act. The CEO does not have any supplementary pension insurance paid by the company. The salaries, incentives and fringe benefits paid to the CEO in 2023 are shown in the table below. The CEO’s monthly salary was adjusted in December 2023. The incentive paid in 2023 is based on the 2022 short-term incentive plan. The CEO’s earned short-term incentive for 2022 was 5% of the annual maximum short-term incentive. The set performance targets for the company’s short-term incentive plan 2022 were mostly not achieved. Remuneration of the CEO paid in 2023 EUR 2023 Fixed based salary and mobile phone benefit 425,527 Incentives 11,900 Other financial benefits - Tot al 437, 427 Share of fixed pay of total remuneration 97.3% Share of variable pay of total remuneration 2.7% The CEO participated in the company’s short-term incentive plan 2023. The CEO’s earned short-term incentive for 2023 was 50% of the annual maximum short-term incentive. The performance-based incentive for the year 2023 will be paid in April 2024. Remuneration of the CEO not yet paid but due based on the year 2023 Short-term incentive scheme EUR Remuneration due based on the achievement of STI performance targets in 2023 125,748 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 58 Part of the financial statements Annual and Sustainability Report 2023 FINANCIAL REVIEW ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 59 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 CONTENTS Board of Directors’ report 61 KEY FIGURES 75 Financial statements 82 CONSOLIDATED FINANCIAL STATEMENTS, IFRS 83 Consolidated income statement 83 Consolidated statement of comprehensive income 83 Consolidated statement of financial position 84 Consolidated statement of changes in equity 85 Consolidated statement of cash ﬂows 86 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 87 1. Accounting principles for the consolidated financial statements 87 2. Net sales 90 3. Other operating income 91 4. Operating expenses 91 5. Employee benefits 92 6. Financial income and expenses 94 7. Income taxes 95 8. Intangible assets 98 9. Property, plant and equipment 100 10. Leases 102 11. Financial assets and financial liabilities 104 12. Fair value hierarchy 114 13. Inventories 116 14. Trade and other receivables 116 15. Trade and other payables 116 16. Share capital and reserves 117 17. Related party disclosures 118 18. Collaterals, commitments and contingent assets and liabilities 119 19. Subsequent events 119 PARENT COMPANY FINANCIAL STATEMENTS, FAS 120 Parent company income statement 120 Parent company balance sheet 121 Parent company statement of cash ﬂows 122 Notes to the parent company financial statements 123 SIGNATURES OF THE BOARD OF DIRECTORS’ REPORT AND FINANCIAL STATEMENTS 127 AUDITOR’S REPORT 128 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW BOARD OF DIRECTORS’ REPORT Part of the Board of Directors’ report ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 61 Annual and Sustainability Report 2023 Board of Directors’ report Orthex is a leading Nordic houseware company. Orthex designs, produces, markets, and sells household products with a mission to make consumers’ everyday life easier. Orthex offers a broad assortment of household products in four product categories: Storage, Kitchen, Home & Yard, and Plant Care. Orthex strives to create functional, durable, and high-quality household products. Orthex also aims to be the industry forerunner in sustainability. Orthex markets and sells its products under three main consumer brands: SmartStore TM , GastroMax TM and Orthex TM . In addition, it sells outsourced kitchen products under the Kökskungen TM brand. Orthex’s core geographic markets are the Nordics and the export markets. The export markets are divided into the Rest of Europe and the Rest of the world. Orthex is headquartered in Espoo, Finland, and it currently has eight local sales organisations located in the Nordics, Germany, France, the United Kingdom, and the Benelux. Key figures EUR million 2023 2022 2021 Invoiced sales 88.0 85.8 90.6 Net sales 85.9 84.0 88.7 Gross margin 24.3 17.9 23.2 Gross margin, % 28,3% 21.3% 26.2% EBITDA 14.9 9.2 13.2 EBITDA margin, % 17.3% 10.9% 14.9% Adjusted EBITDA 14.9 9.3 14.8 Adjusted EBITDA margin, % 17.4% 11.1% 16.7% EBITA 10.9 5.3 9.4 EBITA margin, % 12.6% 6.3% 10.6% Adjusted EBITA 10.9 5.5 11.0 Adjusted EBITA margin, % 12.7% 6.5% 12.4% Operating profit 10.8 5.2 9.3 Operating profit margin, % 12.5% 6.2% 10.4% Net cash flows from operating activities 10.2 6.2 9.0 Net debt / Adjusted EBITDA 1.5x 2.8x 1.7x Adjusted return on capital employed (ROCE), % 31.8% 15.9% 33.0% Equity ratio, % 40.2% 36.3% 35.8% Earnings per share, basic (EUR) 0.39 0.12 0.35 FTEs 281 295 314 Part of the Board of Directors’ report ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 62 Annual and Sustainability Report 2023 Market overview Orthex operates in the home storage, kitchenware, plant care and other household products market, which has historically been stable and resilient throughout different economic cycles. The market for household products in Europe is fragmented. According to Orthex’s estimate, there are more than 30 significant competitors in Europe, 15 of which are roughly as big as Orthex in terms of net sales. Although the market is competitive, fragmentation lowers the threshold to increase market share and find attractive niches. The major megatrends supporting Orthex’s business include urbanisation and the related increase in the number of households and decrease in living space per household. As the area allocated for housing is sparser and more expensive in growth centres benefiting from urbanisation, consumers often choose location over space, resulting in increasing supply of smaller homes. Small spaces, in turn, drive demand for functional storage solutions and household products that allow efficient use of the living space. More people live in single-person households and family sizes are decreasing. According to Eurostat, the number of single-person households in the EU increased by 30.7% between 2009 and 2022. Despite households being inhabited by fewer people, the need for necessities, such as home storage, food storage and kitchen utensils, remains nearly the same per household. Consumption patterns supporting Orthex’s business are mainly related to how people spend their time at home. One of these is the interest in cooking at home, which is becoming more common as a healthy, and less expensive way of eating. In addition, consumers are increasingly concerned about climate change and biodiversity and want to do their part in the fight against them by buying sustainable products, avoiding food waste, and sorting and recycling their waste. Tightening legislation also supports this development. However, only a few households have enough pre-installed waste recycling and sorting solutions, which creates a demand for these and for sorting and recycling solutions that can also function as interior design elements. A third consumption pattern supporting Orthex’s business is the demand for houseplants. Houseplants bring fresh air, colour, and cosiness into homes. Their use as design elements is becoming commonplace, particularly in dense urban areas that have limited green spaces. In addition, there is increasing popularity for gardening herbs and vegetables at home and indoors. These trends are driving demand for ﬂowerpots and related products. The uncertainties related to the general development of the global economy, such as the risk of an economic recession, general cost inﬂation, increased interest rates and energy crisis as well as geopolitical tensions inﬂuence consumer confidence, purchasing power and behaviour and, as a result, can have an impact on Orthex’s business. As a result of the prevailing consumption uncertainty, many retailers are carefully monitoring their inventory levels. Orthex product price points are relatively low, and the products are bought to solve real needs, therefore Orthex believes that its product categories will be less affected by careful consumer purchasing behaviour than other, more expensive consumer goods categories. Long-term financial targets As long-term financial targets the company has adopted to an average annual organic net sales growth to exceed 5 per cent at the Group level and to exceed 10 per cent outside the Nordics (growth in local currencies), adjusted EBITA margin (adjusted for items affecting comparability) to exceed 18 per cent over time and net debt to adjusted EBITDA ratio to stay below 2.5x. Leverage may temporarily exceed the target range (for example, in conjunction with acquisitions). The company aims to distribute a stable and over time increasing dividend with a pay-out of at least 50 per cent of net profit, in total, on a biannual basis. Part of the Board of Directors’ report ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 63 Annual and Sustainability Report 2023 Group performance Net sales and profitability In 2023, the Group’s Net sales increased by 2.3% to EUR 85.9 million (84.0). Invoiced sales amounted to EUR 88.0 million (85.8). The increase of constant currency Net sales was 5.3% compared to 2022. 2023 net sales were particularly affected by careful consumer behaviour, cost inﬂation, consumer and customer uncertainty, and weak exchange rates in Sweden and Norway. The growth in net sales in the second half of the year was driven by strong in-store activities, new product and customer listings, and normalising demand in the Nordics. EBITA was 10.9 million (5.3) during 2023 and increased by 104.3%. Adjusted EBITA increased by 98.9% to EUR 10.9 million (5.5). Adjusted EBITA margin increased to 12.7% (6.5). Operating profit was EUR 10.8 million (5.2). Items affecting comparability totalled EUR 0.1 million (0.2). Orthex’s financial income and expenses during the financial year consisted of EUR 2.2 million net expenses (2.2). Profit before taxes was EUR 8.5 million (3.0) and profit for the period was EUR 6.9 million (2.1). During the review period, the most significant factor affecting profitability was the decrease in raw material prices from the exceptional high level in 2022 closer to the long-term average. The electricity support from the Swedish State during Q2 had a positive effect on profitability. The net effect of the weakening values of the Swedish and Norwegian krona on profitability was negative. Development by geography Orthex’s core market area by geography is the Nordics, where the Group’s invoiced sales in 2023 amounted to EUR 68.7 million (68.5). Invoiced sales in the Nordics totalled 78.1% (79.8) of the Group’s total invoiced sales. Invoiced sales in the Rest of Europe grew to EUR 18.5 million (15.9). Sales in the Rest of the world decreased to EUR 0.8 million (1.5). Invoiced sales increased in the Nordic core markets thanks to generally successful campaigns and levelled inﬂation. In the strategically important European markets, sales developed positively during the year. Orthex’s products are sold in more than 40 countries, and export to non- Nordic countries grew by 11.2 percentage points and accounted for 21.9% (20.2) of the Group’s invoiced sales at the end of the period. Invoiced sales by geography EUR million 2023 2022 2021 Nordics 68.7 68.5 73.0 Rest of Europe 18.5 15.9 15.1 Rest of the world 0.8 1.5 2.4 Tot al 88.0 85.8 90.6 Development by product category Orthex has four product categories: Storage, Kitchen, Home & Yard, and Plant Care. The largest category is Storage with invoiced sales totalling EUR 60.0 million (55.1) during 2023. The Storage category represents most of the business outside of the Nordic countries and the positive sales development in the Rest of Europe took the overall Storage category growth to 8.9% compared to the previous year. Orthex has a strong position in the Nordics in food storage and kitchenware markets. However, the Group’s invoiced sales in the Kitchen category decreased to EUR 18.6 million (19.8). Sales of Kitchen products declined driven by the careful Nordic customer and consumer behaviour. Invoiced sales in the Plant Care category decreased to EUR 4.8 million (5.5). Invoiced sales in the Home & Yard category decreased to EUR 4.6 million (5.3). Invoiced sales by product category EUR million 2023 2022 2021 Storage 60.0 55.1 59.4 Kitchen 18.6 19.8 20.1 Plant Care 4.8 5.5 5.7 Home & Yard 4.6 5.3 5.4 Tot al 88.0 85.8 90.6 Part of the Board of Directors’ report ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 64 Annual and Sustainability Report 2023 Financial position and cash flow At the end of December, the balance sheet totalled EUR 85.6 million (81.8), of which equity accounted for EUR 34.4 million (29.7). The Group’s net debt was EUR 22.3 million (26.0) at the end of the review period. Non-current interest-bearing liabilities were EUR 29.6 million (32.0) and Orthex’s total interest-bearing liabilities were EUR 33.9 million (36.3). Interest-bearing liabilities include loans from credit institutions, pension liabilities and lease liabilities. During the period January−December 2023, the Group’s net cash ﬂows from operating activities were EUR 10.2 million (6.2) and cash conversion was 82.6% (61.9). Interest paid during the period totalled EUR 1.9 million (1.1). Cash and cash equivalents amounted to EUR 11.6 million (10.3) at the end of the review period. Net debt/adjusted EBITDA was 1.5x (2.8). Orthex’s long-term target is to keep Net debt/adj. EBITDA below 2.5x. At the end of the review period, the Group’s Equity ratio was 40.2% (36.3). Adjusted return on capital employed (ROCE) was 31.8% (15.9) and return on equity (ROE) 21.5% (6.9). Investments, research, and product development Orthex’s investments during 2023 amounted to EUR 2.6 million (3.6) and were mainly related to moulds for new products. In 2022, Orthex launched a research project for the development of recycled plastics. The goals of the project are to build an ecosystem aimed at increasing the use of recycled plastic and to generate new information about the use of recycled plastic in different applications, especially in products suitable for food contact. Since January 2023, Orthex is participating in a large seven-year cooperation research project to find new potential renewable plastic raw materials. During 2023, Orthex tested the suitability of recycled plastic for the food contact, and the results have been promising. In addition, Orthex has mapped potential renewable raw material suppliers and tested new renewable plastic raw materials. These investments in research support Orthex’s 2030 carbon neutrality target and the target to increase the use of sustainable raw materials. Research and product development expenses have not been capitalized. Personnel In 2023, the average number of personnel employed by Orthex was 281 (295) and wages and salaries amounted to EUR 17.9 million. In 2022 and 2021, wages and salaries amounted to EUR 18.3 million and EUR 19.7 million, respectively. Group headcount at the end of the financial year was 318 (316), of which 52% (54) worked in production, 21% (21) in warehouse, 18% (16) in sales, 6% (5) in administration and 4% (4) in marketing. Group structure There were no changes in the Group structure during 2023. Part of the Board of Directors’ report ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 65 Annual and Sustainability Report 2023 Governance The company’s governance complies with the company’s Articles of Association and Corporate Governance Principles as well as rules and regulations applicable to Finnish listed companies such as the Finnish Limited Liability Companies Act and Securities Markets Act, and rules and regulations of Nasdaq Helsinki Ltd. The company also adheres to the Finnish Corporate Governance Code 2020 (”CG Code”) issued by the Securities Market Association. The CG Code is available on the association’s website (www.cgfinland.fi). Further information on the company’s governance principles is available in the Corporate Governance Statement 2023 published simultaneously with the Board of Directors’ report and the Financial Statements. As the company has no audit committee, the company’s Board of Directors has reviewed the Corporate Governance Statement. Decisions of the Annual General Meeting Orthex Corporation’s Annual General Meeting was held on 18 April 2023 in Espoo, Finland. The general meeting adopted the financial statements and discharged the members of the Board of Directors and the CEO from liability for the financial year 2022. The general meeting also approved the amended remuneration policy and the remuneration report 2022 for the governing bodies. The general meeting resolved that for the financial year 2022, shareholders will be paid a dividend of EUR 0.11 per share totalling approximately EUR 2.0 million in two instalments. The first instalment of the dividend amounting to EUR 0.06 per share was paid on 27 April 2023 and the second instalment amounting to EUR 0.05 per share on 10 October 2023. The general meeting resolved that Sanna Suvanto-Harsaae, Markus Hellström, Jyrki Mäki-Kala and Jens-Peter Poulsen be re-elected to the Board and that Anette Rosengren be elected as new member to the Board. The Board members’ term of office will end at the end of the next Annual General Meeting. Satu Huber stepped down from the Board. Sanna Suvanto-Harsaae continues to chair the Board. The general meeting further resolved that the remuneration of the members of the Board of Directors remain the same and that the Chair of the Board of Directors be paid a monthly fee of EUR 4,000 and other members of the Board of Directors a monthly fee of EUR 2,000. Ernst & Young Oy, a firm of Authorised Public Accountants, was re-elected the company’s auditor for a term of office ending at the end of the next Annual General Meeting. As announced by Ernst & Young Oy, APA Mikko Rytilahti acts as the signing audit partner succeeding APA Johanna Winqvist-Ilkka. The remuneration of the auditor was resolved to be paid according to a reasonable invoice approved by the Board. In addition, the general meeting resolved to make technical amendments to Articles 5 and 8, and to supplement the Article 10 of the Articles of Association so that the general meeting of shareholders may also be held completely without a physical meeting venue as a virtual meeting. The general meeting also authorised the Board of Directors to issue or convey a total maximum of 1,600,000 new shares and special rights entitling to shares in one or several issues and to acquire a maximum of 175,000 shares in the company. The authorisations will be valid until 30 June 2024. Further information about the decisions of the general meeting can be found in the AGM documents, which are available on the corporate website at Annual General Meeting 2023 – Orthex Group. Board of Directors On 31 December 2023, the company’s Board of Directors consisted of the following members: Sanna Suvanto-Harsaae (Chair), Markus Hellström, Jyrki Mäki-Kala, Jens-Peter Poulsen and Anette Rosengren. Management’s ownership and remuneration On 31 December 2023, the members of the Board of Directors, the CEO, and other members of the Management Team, including their closely associated persons and entities, owned a total of 3,024,104 shares in the company, corresponding to 17.0% of the total number of shares. Information on the shareholdings of the members of the Board of Directors, the CEO, and other members of the Management Team is disclosed in the Corporate Governance Statement 2023 and on the corporate website. Part of the Board of Directors’ report ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 66 Annual and Sustainability Report 2023 Information on the remuneration of the members of the Board of Directors, the CEO, and other members of the Management Team is disclosed in the notes to the financial statements. The remuneration of the members of the Board of Directors and the CEO is also described in the Remuneration Report 2023. Composition of Shareholders’ Nomination Board The Extraordinary General Meeting on 5 March 2021 decided to establish a Shareholders’ Nomination Board for the company and the Nomination Board’s charter was approved. The Nomination Board consists of the four largest registered shareholders of the company as of 31 August. According to the shareholders’ register, the company’s four largest shareholders on 31 August 2023 were Conficap Oy, Alexander Rosenlew, Ilmarinen Mutual Pension Insurance Company, and Thominvest Oy (former Thomasset Oy). On 12 September 2023, the company announced that these shareholders have appointed their representatives to the Shareholders’ Nomination Board, the composition of which is as follows: • Maarit Toivanen, Chair of the Board of Conficap Oy • Alexander Rosenlew • Annika Ekman, Head of Direct Equity Investments, Ilmarinen Mutual Pension Insurance Company • Mats Söderström, CEO of Thominvest Oy The Nomination Board has elected Maarit Toivanen as its chair. The Chair of Orthex’s Board of Directors, Sanna Suvanto-Harsaae, acts as an expert member of the Nomination Board. More information on the Nomination Board is available on the corporate website at Nomination Board - Orthex Group. Shares and shareholders Orthex’s shares are listed on the main list of Nasdaq Helsinki Ltd since March 2021. At the end of the reporting period, Orthex Corporation’s registered share capital amounted to EUR 80,000 and the registered number of issued shares was 17,758,854. All shares carry one vote and have equal voting rights. There are no voting restrictions associated with the shares. The shares hold no nominal value. The trading code of the shares is “ORTHEX”, and the ISIN code FI4000480504. Trading volume during the period was EUR 7.3 million and 1,497,211 shares. The highest price of the share was EUR 5.76 and the lowest was EUR 3.70. The closing price of the share at the end of December was EUR 5.40. The year-end market value of the share capital stood at EUR 95.9 million. The company did not have any treasury shares at the end of the review period. At year-end, the number of registered shareholders including nominee registers was 15,587. The nominee-registered shares accounted for 11.8% of the total number of shares and amounted to 2,099,534 shares. At the end of the period, the ten largest registered shareholders possessed a total of 50.0% of Orthex’s shares and votes. Authorisations, option and share-based incentive schemes During 2023, Orthex did not have any share option or share-based incentive schemes. Orthex’s Board of Directors is authorised to issue or convey a total maximum of 1,600,000 shares and special rights entitling to shares in one or several issues. The Board of Directors is also authorised to acquire a maximum of 175,000 shares in the company. The authorisations will be valid until 30 June 2024. The Board of Directors has no other authorisations. Major shareholders 31 Dec 2023 Shareholder No. of shares % of shares Conficap Oy 2,486,240 14.00 Rosenlew Alexander 2,047,726 11.53 Ilmarinen Mutual Pension Insurance Company 1,061,000 5.97 Thominvest Oy 761,000 4.29 Varma Mutual Pension Insurance Company 639,350 3.60 OP-Finland Small Cap 506,901 2.85 Oy Julius Tallberg Ab 435,571 2.45 Fondita Nordic Micro Cap Investment Fund 328,500 1.85 Ståhlberg Tom Christian 313,000 1.76 Aktia Capital Mutual Fund 300,000 1.69 Tot al 8,879,288 50.0 ) Source: Euroclear Finland Part of the Board of Directors’ report ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 67 Annual and Sustainability Report 2023 Share distribution 31 Dec 2023 Number of shares Number of shareholders % of shareholders Number of shares % of shares 1-100 10,408 66.77 576,192 3.25 101-1,000 4,605 29.54 1,435,461 8.08 1,001-10,000 484 3.11 1,211,072 6.82 10,001-100,000 70 0.45 2,253,848 12.69 100,001-1,000,000 16 0.10 4,816,969 27.12 > 1,000,000 4 0.03 7,465,312 42.04 Tot al 15,587 100 17,758,854 100 Nominee registered 7 0.04 2,099,534 11.82 ) Source: Euroclear Finland Under the provisions of the Securities Market Act, changes in holdings must be disclosed when the holding reaches, exceeds, or falls below 5, 10, 15, 20, 25, 30, 50 or 66,7 (2/3) per cent of the voting rights or the number of shares in the company. The stock exchange releases on notifications of changes in holdings (ﬂaggings) are available on the corporate website at https://investors.orthexgroup.com/media/. Sector distribution 31 Dec 2023 Sector No. of shares % of shares Households 6,342,003 35.71 Private companies 4,984,389 28.07 Financial and insurance institutions 1,814,034 10.21 Public sector organisations 2,188,906 12.33 Non-profit institutions 308,922 1.74 Foreigners 21,066 0.12 Nominee registered 2,099,534 11.82 Tot al 17,758,85 4 100 ) Source: Euroclear Finland Part of the Board of Directors’ report ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 68 Annual and Sustainability Report 2023 Sustainability Sustainability is a core element in implementing Orthex’s growth strategy and key objectives as we strive to be the number one brand in storage products in Europe, and to strengthen our position as a leading houseware company in the Nordics. Sustainability is a key factor in all decision making at Orthex and a significant driver of our development and investment agenda. For example, a prerequisite for all new product investments is that the material should be either recycled or renewable. Orthex aims to be the industry forerunner in sustainability by offering timelessly designed, high-quality, safe, and long-lasting products, reducing the carbon footprint of its operations and products, and sourcing more and more of its raw materials from renewable and recycled materials. Orthex’s main sustainability target is to aim towards carbon neutrality in production by 2030. The Science Based Targets initiative (SBTi) has approved Orthex’s near-term science-based emissions reduction target, which means that Orthex’s climate targets are aligned with the target to keep global warming below 1.5°C in accordance with the Paris Agreement. Orthex has identified priority sustainability topics in environmental, social and governance (ESG) areas. For each topic, the company has defined key performance indicators and targets. More information on the company’s sustainability strategy, targets, and results for 2023 can be found in the Annual and Sustainability Report’s dedicated section on sustainability. Sustainability actions in 2023 During the first quarter of 2023, Orthex’s Lohja factory was audited and ISCC PLUS certificate was renewed. Usage of ISCC PLUS certified renewable raw materials applying the mass balance approach support Orthex’s long-term carbon neutrality target, and the target to increase the share of sustainable raw materials in production. During the second quarter of the year, Orthex participated in Ecovadis ESG assessment for the first time and was awarded with a silver medal for its sustainability performance. The assessment results places Orthex globally among the top 18 percent of companies assessed by EcoVadis, the world’s largest and most trusted provider of business sustainability ratings. In May, Orthex’s Gnosjö factory was granted an ISCC PLUS certificate, that will enable the company to extend the usage of ISCC PLUS certified renewable raw materials applying the mass balance approach in the production. In June, Orthex was awarded the Nasdaq ESG Transparency Partner badge for 2022 ESG reporting. During the third quarter of the year, Orthex extended its usage of ISCC PLUS certified renewable raw materials applying mass balance approach in the production into new products: SmartStore™ Vision dry food keepers and SmartStore™ Snack lunch boxes as well as GastroMax™ measuring cups. Each product has on average at least 20% of renewable content allocated to it, according to the mass balance approach. In September, Orthex started preparations for the entry into force of the Corporate Sustainability Reporting Directive (CSRD), which will apply to the company from the beginning of 2025. During the last quarter of the year, Orthex renewed ISO 9001, 14001 and 45001 certificates for quality, environment and health and safety in all its factories and offices in Finland and Sweden. These management systems support Orthex’s journey for even better product quality, environmental performance, and safety at work. In October, Orthex participated in a competition for the most sustainable product in Finland with two products: Orthex™ Paulina ﬂowerpot and the SmartStore™ Collect sorting solution. Out of almost 200 pre-screened products, the competition panel selected Orthex’s SmartStore™ Collect sorting solution as one of the 16 finalists. The purpose of this competition is to fight against greenwashing by highlighting consumer products that support a sustainable lifestyle. Orthex participates in two large research projects for the development of recycled and renewable plastics. During 2023, Orthex tested the suitability of recycled plastic for the food contact, and the results have been promising. In addition, Orthex has mapped potential renewable raw material suppliers and tested new renewable plastic raw materials. These significant investments in research support Orthex’s 2030 carbon neutrality target and the target to increase the use of sustainable raw materials. Orthex reports on risk management and management practices related to climate change in Climate Disclosure Project’s (CDP) climate change program annually. Outcome of the 2023 CDP reporting was disclosed in February 2024, and Orthex reached the highest Leadership level with a score A-. Part of the Board of Directors’ report ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 69 Annual and Sustainability Report 2023 A comprehensive description of Orthex’s sustainable business practices is included in the 2023 Annual and Sustainability Report’s dedicated section on sustainability. As brought up in the sustainability report, the company has continued its investments in building the roadmap towards carbon neutrality and in the use of renewable and recycled materials to reduce the carbon footprint of its products and production. Risks and uncertainties Risk management The purpose of Orthex’s risk management is to ensure the fulfilment of customer promises, business profitability, ability to pay dividends, value creation for shareholders, responsible business, and business continuity. To achieve this, Orthex strives to be aware of the uncertainties and risk factors and opportunities associated with its objectives and operations, and to identify, assess and manage risks and their consequences in a consistent and effective manner. Orthex’s risk management policy guides risk management in a way that supports the achievement of the company’s objectives, protects personnel and the company’s various assets, and ensures the financial sustainability of operations. The responsibility for implementing risk management lies with the Management Team. In addition, each employee must be aware of and manage the risks associated with their own operating environment and areas of responsibility. The company’s Board of Directors approves the company’s risk management policy and monitors and assesses the effectiveness of risk management. Risk management principles Risk management is a systematic activity designed to ensure comprehensive and appropriate risk identification, assessment, management, and control. It is an integral part of Orthex’s planning and management process, decision making, day-to-day management of operations, and monitoring and reporting procedures. Risks are assessed and managed in a business- oriented and thorough manner. This means that key risks, including ESG risks, are systematically identified, evaluated, managed, monitored, and reported as part of the business. Risk management process and reporting Orthex prioritises risks according to the importance of the risk by assessing the impact, likelihood, and level of risk management of the risk materialisation. Risk management measures address the most significant risks through cost-effective and appropriate policy options. The Management Team regularly monitors the implementation of risk management. If necessary, corrective measures will be taken. The Management Team reports to the Board of Directors on risks and risk management measures 2-3 times a year. The Board reviews the most significant risks, measures to manage them and assesses the efficiency and effectiveness of risk management. Risk classification Risk refers to an event or circumstance that may hinder or prevent the achievement of targets or may result in missing of business opportunities. Orthex classifies risks in three groups: • Strategic risks • Operational risks • Financial risks Strategic risks refer to uncertainty that is primarily related to changes in the operating environment and the ability to utilize or anticipate these changes. These changes may relate, for example, to the general economic situation, customer consumption behaviour, competition, legislation, or technological developments. When assessing strategic risks and opportunities, the goal is to find the business opportunities that are used to achieve the goals with manageable risks, while avoiding those that present unreasonably high risks. Operational risk means a circumstance or event that can prevent or hinder the achievement of objectives or cause harm to people, property, business, information, or the environment. Operational risks are avoided or reduced, but in such a way, that the costs of risk avoidance are proportionate to the magnitude of the risk. Financial risks are those related to Orthex’s financial position. These include e.g., availability and cost of finance, net working capital and liquidity, and foreign exchange rate ﬂuctuations. Orthex’s financial risk management is described in the notes to the consolidated financial statements. Part of the Board of Directors’ report ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 70 Annual and Sustainability Report 2023 Non-economic impacts are also considered when assessing risks. Reputation risk arises if Orthex’s operations conﬂict with the expectations of various stakeholders, such as customers, suppliers, regulators, or shareholders. Responsible practices are key to preventing reputational risks. Reputation risks are managed through timely and adequate communication. Main strategic, operational, and financial risks Risks relating to the macroeconomic environment Cost inﬂation, interest rate levels, and geopolitical tensions impact the global economic trend as well as the development of consumers’ purchasing behaviour and, as a result, can have an impact on Orthex’s business. Russia’s war against Ukraine or the conﬂict between Israel and Hamas do not directly affect Orthex’s business as Orthex does not sell products to Russia, Belarus, Ukraine, or Israel or source raw materials from these countries. However, geopolitical tensions cause disturbances in global supply chains and contribute to the general economic situation and consumers’ purchasing power and behaviour. These factors may affect the company’s sales and profitability as well as operational reliability and efficiency. The Group has hedged part of its interest-bearing liabilities against rising interest rates with interest derivatives. In addition, some of the electricity contracts have been purchased at fixed prices due to the strong volatility of market electricity. Risks relating to changes in competitive environment Orthex operates in a competitive and fragmented home storage, kitchenware, plant care and other household products market. Even though the markets in which Orthex operates are fragmented, Orthex’s competitors may consolidate, establish consortiums, or aim to expand their operations in the future, which may increase competition in Orthex’s markets, including in the Nordics. Any significant consolidation could create competitors with more financial, technical, marketing, or other resources that would enable them to assign more resources to the sale of household goods than currently, which, in turn, could have an adverse effect on Orthex’s business and growth opportunities. Risks relating to sourcing of raw materials Plastic polymers are the largest group of raw materials used in the production of Orthex’s products. Raw material prices are typically negotiated annually based on estimated volumes for the year ahead. Orthex does not hedge against raw material price ﬂuctuations. Accordingly, Orthex’s profitability is particularly exposed to ﬂuctuations in virgin plastic polymer (produced directly from crude oil and never been used or processed before) prices, which have historically ﬂuctuated to a certain extent in line with crude oil price ﬂuctuations. Orthex also uses renewable and recycled materials in the production of its products and sells products entirely sourced from external suppliers, as well as products that are partly produced in-house and partly consist of externally sourced components. The prices of these raw materials and traded goods have not historically been subject to the same level of ﬂuctuation as virgin plastic polymers. However, there has been shortage on the market because of higher demand and this can lead to higher prices also in renewable and recycled materials. If Orthex is unable to offset price increases in raw materials and traded goods, whether through price increases or otherwise, or should there be significant disruptions in their availability, this could have a material adverse effect on Orthex’s profitability and/or margins. In the comparison period 2022, the raw material prices were at an exceptionally high level throughout the year, and this had an adverse effect on Orthex’s profitability. During 2023, the raw material price level was more normal. Fluctuations in the raw material prices may continue to have an adverse effect on Orthex’s profitability. Risks relating to quality of products Thanks to its own production, Orthex can control the quality of its products and the health and environmental aspects of production and products. Although Orthex has several quality control measures in place, there can be no assurances that such measures will always be adequate to detect potential product quality defects. Any significant quality issue may require a considerable amount of management resources. Responding to detected or suspected quality issues, for example, by proactively adjusting production processes or by switching the materials or components used, usually gives rise to costs that may be significant. Such events may also lead to product recalls, product liability or warranty claims, and contractual liabilities towards Orthex’s customers and/ or end-customers, or to third-party claims. Product quality issues or product recalls may also harm Orthex’s reputation and lead to loss of customers. Furthermore, Orthex’s insurance coverage does not cover claims based on quality issues and product liability claims concerning Orthex’s products. Realisation of the aforementioned risks may have a material adverse effect on Orthex’s business, results of operations, financial position, and/ or reputation. Part of the Board of Directors’ report ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 71 Annual and Sustainability Report 2023 Risks relating to changes in customer preferences Several megatrends and consumer preferences have been driving the demand in the home storage, food storage and kitchen utensils markets in recent years, including population growth, urbanisation, changes in the form of housing, sustainability, and design preferences among the end-customers of Orthex’s products. Changes in consumer preferences could relate to, among others, improved functionality, higher quality, innovative solutions, new technologies, attractive design, and new and more advanced materials. If Orthex is unable to successfully anticipate and identify changing consumer preferences, Orthex could lose its market share in the Nordics, its sales development may be slower than expected, and it may be forced to rely on price reductions to dispose of excess or slow-moving inventory or to make significant investments in the future to remain competitive. Any of these could have a material adverse effect on Orthex’s business, financial position and/or results of operations. Risks relating to production facilities and warehouse operations As Orthex’s production largely relies on its own production facilities, events that would cause significant disruptions in or the suspension of Orthex’s production facilities could materially affect Orthex’s ability to deliver its products to its customers in a timely manner. Orthex’s production facilities may be damaged or destroyed, or they may be closed or the equipment on the premises may be damaged due to, for example, fire, accident, natural disaster, or equivalent events beyond Orthex’s control. Similarly, Orthex’s warehouses could be subject to similar events, which could destroy all or part of Orthex’s inventory. Such events or incidents could result in material disruptions and delays in Orthex’s production and deliveries and in Orthex not necessarily being able to fulfil its obligations to its customers. If Orthex were unable to locate alternative production facilities, transfer production to Orthex’s other production facilities or to repair the damaged premises or equipment in a timely and cost-effective manner, such conditions could have a material adverse effect on Orthex’s business, financial position and/or results of operations. Risks relating to IT infrastructure and systems Difficulties in maintaining and updating IT infrastructure, deficiencies in IT systems, and external cyber-attacks related to IT systems may have an adverse effect on Orthex. Orthex uses information technology infrastructure, applications and software products that cover essential aspects of its business, such as production, inventory management, logistics, human resources, finances, and other administrative systems. Orthex’s IT systems and infrastructure may be vulnerable to cybersecurity risks, including cyber-attacks, direct or indirect, such as computer viruses and worms, phishing attacks, and penetrating or bypassing security measures in order to gain unauthorised access to Orthex’s information networks and systems. Exploitation of possible weaknesses in Orthex’s security controls could disrupt its business and cause leakage of sensitive information, theft of intellectual property and damage to Orthex’s reputation. Risks relating to management and employees The success of Orthex’s business and strategy depends on Orthex’s ability to attract and retain key management and production personnel. The loss of management or key personnel may result in the loss of expertise or, in certain circumstances, the transfer of expertise to Orthex’s competitors. In addition, Orthex’s production processes require qualified, skilled production workers (particularly with specialized training and knowledge of plastic). In accordance with its current strategy, in addition to strengthening its market position in the Nordics, Orthex will focus on accelerating its growth in the international markets outside the Nordics, which imposes new demands to Orthex’s management and personnel. Orthex’s geographical expansion also requires the recruitment of additional personnel. If Orthex is not successful in recruiting and retaining qualified key personnel, this may have an adverse effect on Orthex’s business. Risks relating to regulation and compliance With operations in several countries, Orthex is subject to a variety of laws and regulations, and potential violations of such laws and regulations could have an adverse effect on Orthex. Orthex must comply with laws and regulations enacted at both the national and EU level concerning its operations in relation to matters including health, safety, consumer protection and marketing, general product safety, environment, employment, competition, company law, data protection, international trade, and taxation in all countries in which Orthex pursues business. Failure to comply with applicable laws and regulations may cause Orthex financial losses, undermine Orthex’s business opportunities and harm Orthex’s reputation. Part of the Board of Directors’ report ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 72 Annual and Sustainability Report 2023 Risks relating to taxation Orthex’s tax burden depends on certain tax laws and regulations and their application and interpretation (for example, with regard to transfer pricing rules). Changes in tax laws and regulations or their interpretation and application may increase Orthex’s tax costs to a significant degree, which could have an adverse effect on Orthex’s financial position and/or results of operations. In addition, Orthex may at times be subject to tax audits conducted by national tax authorities. Tax audits or other auditing measures carried out by tax or other authorities, such as customs officials, could result in an imposition of additional taxes (such as income taxes, taxes at source and property, capital, transfer, and value-added taxes), which could lead to an increase in Orthex’s tax liability. Orthex Group was subject to a tax audit of Orthex Corporation regarding the financial years 2020 and 2021. Orthex Corporation received early in May 2022 a tax audit report from the Finnish tax authorities including subsequent taxes and tax increases amounting to a total of EUR 0.3 million relating to the VAT deductibility of IPO related costs. The company disagrees with the interpretation made in the tax audit and has filed a claim for adjustment to its taxation with the Assessment Adjustment Board of the Finnish tax authority. However, the company was requested to pay additional taxes in accordance with the interpretations set out in the tax audit report and the company paid the subsequent taxes and tax increases in June 2022. The Group has not recognised the subsequent taxes and tax increases in the consolidated statement of comprehensive income. At the time of publishing this report, the company’s claim for adjustment was still pending. Risks relating to currency fluctuations Orthex has operations in several countries, so the company is exposed to transaction and translation risk related mainly to the Swedish krona, the Norwegian krone, the Danish krone, the British pound sterling and the U.S. dollar. The Group is typically not hedged against currency risk, except for certain large purchases under the Kökskungen brand. Fluctuations in exchange rates have had and may continue to have a material adverse effect on Orthex’s results of operations. Risks relating to liquidity Orthex currently finances its business and investments with operational cash ﬂows and debt financing. Sufficient cash ﬂow is required for Orthex’s business and maintaining its ability to service its debt. There can be no assurance that Orthex will be able to secure financing to a sufficient extent and on competitive terms to finance its business and investments. Changes in the macroeconomic environment or in the general financial markets may have an adverse effect on the availability, price, and other terms of financing. Changes in the availability of equity and debt financing and in the terms of the financing available may inﬂuence Orthex’s ability to invest in developing and growing its business in the future. If Orthex is not able to obtain financing on competitive terms or at all, this may have a material adverse effect on Orthex’s business, financial position and/or results of operations. ESG risks Orthex assesses ESG risks as a part of its systematic risk management process. During 2023, ESG risks were reviewed and the following most significant ESG risks were identified: unfavourable changes in environmental and other related legislation, product safety related issues, and employee health and safety related risks. To mitigate these risks, Orthex actively monitors applicable legislation, uses accredited test laboratories for food contact testing, and systematic health and safety process has been implemented through the work environment committee. Failure to comply with environmental legislation, product safety regulations or laws and regulations applicable to employee health and safety may cause Orthex financial losses, undermine Orthex’s business opportunities and harm Orthex’s reputation. Part of the Board of Directors’ report ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 73 Annual and Sustainability Report 2023 Board of Directors’ proposal for the use of the profit shown on the balance sheet and resolution on the distribution of dividends According to the financial statements to be adopted for the financial year ended 31 December 2023, the parent company’s distributable funds amount to EUR 18,987,687.26, including the profit for the period of EUR 8,636,002.00. The Board of Directors proposes to the general meeting that based on the financial statements to be adopted for the financial year ended on 31 December 2023, shareholders be paid a dividend of EUR 0.21 per share totalling approximately EUR 3.7 million based on the number of registered shares in the company at the time of the proposal. The dividend is proposed to be paid in two instalments as follows: • The first instalment of the dividend amounting to EUR 0.11 per share will be paid to a shareholder who is registered in the company’s shareholder register held by Euroclear Finland Oy on the record date of the first instalment of the dividend payment 11 April 2024. The Board of Directors proposes that the first instalment of the dividend be paid on 18 April 2024. • The second instalment of the dividend amounting to EUR 0.10 per share will be paid in October 2024 to a shareholder who is registered in the company’s shareholder register held by Euroclear Finland Oy on the record date of the second instalment of the dividend payment 2 October 2024. The Board of Directors proposes that the second instalment of the dividend be paid on 9 October 2024. The Board of Directors further proposes that the Board be authorised to decide, if necessary, on a new record date and date of payment for the second instalment of the dividend should the rules of Euroclear Finland Oy or statutes governing the Finnish book-entry system change or otherwise so require. There have been no significant changes in the parent company’s financial position after the financial year-end. The company’s liquidity is good, and the Board of Directors deems that the company’s solvency will not be jeopardised by the proposed dividend distribution. Events after the financial year On 9 January 2024, Orthex Corporation announced that Peter Ottosson, member of Orthex’s Management Team and Operations Director of the Gnosjö factory, has decided to leave his position to assume a role with another employer. Mr Ottosson will continue in his current role until the month of May. Orthex has started the succession planning process. On 30 January 2024, Orthex Corporation disclosed the Shareholders’ Nomination Board’s proposals to the Annual General Meeting 2024 regarding the composition and remuneration of the Board of Directors. The Shareholders’ Nomination Board proposes that the Board of Directors would consist of five (5) members and that Sanna Suvanto-Harsaae, Markus Hellström, Jyrki Mäki-Kala, Jens-Peter Poulsen and Anette Rosengren be re-elected to the Board, all for a term of office ending at the end of the next Annual General Meeting. All director nominees have consented to their election and confirmed that they are independent of the company and its significant shareholders. Background information on the director nominees is available on the corporate website at Board of Directors - Orthex Group. Regarding the remuneration of the members of the Board of Directors, the Shareholders’ Nomination Board proposes that the Board fees remain the same and that the Chair of the Board of Directors be paid a monthly fee of EUR 4,000 and other members of the Board of Directors a monthly fee of EUR 2,000. The Nomination Board further proposes that reasonable travel and other expenses related to the Board work be reimbursed in accordance with the company’s travel rules. On 14 February 2024, Orthex announced that Operations Director Tom Ståhlberg has been appointed Chief Supply Officer (CSO) assuming the overall responsibility for Orthex production, supply chain and purchasing starting 1 March 2024. The change also removed the need to replace Peter Ottosson’s position in the Management Team. Part of the Board of Directors’ report ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 74 Annual and Sustainability Report 2023 Market outlook Global volatility, cost inﬂation, consumer and customer uncertainty, and weak exchange rates in Sweden and Norway affected the business environment during 2023. Whilst inﬂation pressures eroded consumer demand in the first half of the year, demand recovered towards the end of the year. To ensure effective implementation and adoption of its strategy, Orthex is constantly evaluating consumer trends, customer demands and market conditions. The strategy is designed to deliver the specified long-term financial targets. In addition, an overall focus on sustainability is at the heart of the business development. In 2023, raw material prices stabilised from exceptionally high levels a year before. The price level in 2024 will be affected by the development of the demand for plastic raw materials and the potential escalation of the crisis in the Middle East. The European Central Bank’s forecast says that inﬂation pressures will ease in 2024 and the increase in earnings level will help the private consumption to recover. Orthex will follow the market trends and strive to navigate through changing conditions as efficiently as possible. Orthex long-term target is to exceed 10 percent growth in organic net sales outside the Nordics. In 2023, invoiced sales in the Rest of Europe grew 16.4 percent. International distribution build-up is progressing according to plan, delivering a growing base of customers and point of sales throughout Europe. In addition, Orthex has strengthened its international sales organisation supporting the positive sales development in the Rest of Europe in 2024. Russia’s war against Ukraine or the conﬂict between Israel and Hamas do not directly affect Orthex’s business as Orthex does not sell products to Russia, Belarus, Ukraine, or Israel or source raw materials from these countries. However, geopolitical tensions cause disturbances in global supply chains and contribute to the general economic trend and consumers’ purchasing power and behaviour. Espoo, 4 March 2024 Board of Directors Part of the Board of Directors’ report ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 75 Annual and Sustainability Report 2023 EUR thousand 2023 2022 2021 Net sales 85,945 84,048 88,694 Net sales growth, % 2.3% -5.2% 16.9% Constant currency net sales growth, % 5.3% -3.8% 15.7% Invoiced sales 87, 989 85,794 90,552 Invoiced sales growth, % 2.6% -5.3% 16.3% Gross margin 24,320 17, 919 23,204 Gross margin, % 28.3% 21.3% 26.2% EBITDA 14,892 9,15 4 13,226 EBITDA margin, % 17. 3% 10.9% 14.9% EBITA 10,863 5,317 9,380 EBITA margin, % 12.6% 6.3% 10.6% Operating profit 10,750 5,191 9,250 Operating profit margin, % 12.5% 6.2% 10.4% Items affecting comparability 55 173 1,616 Adjusted gross margin 24,320 17,919 23,279 Adjusted gross margin, % 28.3% 21.3% 26.2% Adjusted EBITDA 14,947 9,328 14,842 Adjusted EBITDA margin, % 17.4% 11.1% 16.7% Adjusted EBITA 10,918 5,490 10,996 Adjusted EBITA margin, % 12.7% 6.5% 12.4% Adjusted operating profit 10,805 5,364 10,867 Adjusted operating profit margin, % 12.6% 6.4% 12.3% FTEs 281 295 314 Personnel expenses 17,921 18,300 19,693 EUR thousand 2023 2022 2021 Key cash flows indicators Net cash flows from operating activities 10,169 6,177 8,979 Operating free cash flows 12,353 5,774 10,046 Cash conversion, % 82.6% 61.9% 67.7% Investments in tangible and intangible assets -2,594 -3,553 -4,797 Financial position key figures Net debt 22,317 26,028 25,887 Net debt / adjusted EBITDA last 12 months 1.5x 2.8x 1.7x Net working capital 14,266 13,670 14,482 Capital employed excluding goodwill 34,462 33,487 34,004 Return on capital employed (ROCE), % 31.6% 15.4% 28.1% Adjusted return on capital employed (ROCE), % 31.8% 15.9% 33.0% Equity ratio, % 40.2% 36.3% 35.8% Return on equity, % 21.5% 6.9% 24.7% Key figures Part of the Board of Directors’ report ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 76 Annual and Sustainability Report 2023 Share-related key figures EUR 2023 2022 2021 Earnings per share, basic (and diluted) 0.39 0.12 0.35 Equity per share 1.94 1.67 1.79 Effective dividend yield, % 3.9% 2.4% 1.6% Price per earnings 13.91 3 9.19 31.88 Closing share price on the last day of trading 5.40 4.68 11.04 Highest 5.76 11. 29 12.50 Lowest 3.70 3.82 7.3 0 Market value of shares at the end of period, EUR million 95.9 8 3.1 19 6.1 No. of shares traded, pcs 1, 4 97, 211 5,653,412 21,933,614 Of weighted average number of shares, % 8.4% 31.8% 125.9% No. of shares outstanding at the end of the period, pcs 17,75 8 , 85 4 17,75 8 , 85 4 17,75 8 , 85 4 Weighted average number of shares outstanding, pcs 17,75 8 , 85 4 17,75 8 , 85 4 17,425,944 Dividend payout and capital return per share total 0.21) 0.11 0.18 Dividend payout and capital return per share, total of result, % 5 4.1% 92.1% 52.0% ) Board of Directors’ proposal Part of the Board of Directors’ report ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 77 Annual and Sustainability Report 2023 Reconciliation of alternative performance measures EUR thousand 2023 2022 2021 Net sales growth, % Net sales 85,945 84,048 88,694 Net sales growth, % 2.3% -5.2% 16.9% Constant currency Net sales growth, % Net sales 85,945 84,048 88,694 FX rate adjustment - -2,412 -1,291 Constant currency Net sales 85,945 81,636 87,403 Constant currency Net sales growth, % 5.3% -3.8% 15.7% Invoiced sales Net sales 85,945 84,048 88,694 Discounts and bonuses 3,715 3,182 3,067 Other sales and refunds -1,672 -1,437 -1,209 Invoiced sales 87,989 85,794 90,552 Invoiced sales growth, % 2.6% -5.3% 16.3% Gross margin Net sales 85,945 84,048 88,694 Cost of sales -61,625 - 66,129 -65,490 Gross margin 24,320 17,919 23,204 Gross margin, % 28.3% 21.3% 26.2% EUR thousand 2023 2022 2021 EBITDA Operating profit 10,750 5,191 9,250 Depreciation, amortisation and impairment 4,142 3,964 3,976 EBITDA 14,892 9,15 4 13,226 EBITDA margin, % 17. 3% 10.9% 14.9% EBITA Operating profit 10,750 5,191 9,250 Amortisation and impairment 113 126 129 EBITA 10,863 5,317 9,380 EBITA margin, % 12.6% 6.3% 10.6% Operating profit Operating profit 10,750 5,191 9,250 Operating profit margin, % 12.5% 6.2% 10.4% Items affecting comparability / adjustments (Gross margin) Other items affecting comparability - - 75 Items affecting comparability / adjustments (Gross margin) - - 75 Part of the Board of Directors’ report ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 78 Annual and Sustainability Report 2023 Reconciliation of alternative performance measures EUR thousand 2023 2022 2021 Items affecting comparability / adjustments (EBITDA) Other items affecting comparability 55 173 85 Costs related to listing - - 1,531 Items affecting comparability / adjustments (EBITDA) 55 173 1,616 Adjusted gross margin Gross margin 24,320 17, 919 23,204 Adjustments (gross margin) - - 75 Adjusted gross margin 24,320 17,919 23,279 Adjusted gross margin, % 28.3% 21.3% 26.2% Adjusted EBITDA Operating profit 10,750 5,191 9,250 Depreciation, amortisation and impairment 4,142 3,964 3,976 Adjustments (EBITDA) 55 173 1,616 Adjusted EBITDA 14,947 9,328 14,842 Adjusted EBITDA margin, % 17.4% 11.1% 16.7% Adjusted EBITA Operating profit 10,750 5,191 9,250 Amortisation and impairment 113 126 129 Adjustments (EBITA) 55 173 1,616 Adjusted EBITA 10,918 5,490 10,996 Adjusted EBITA margin, % 12.7% 6.5% 12.4% EUR thousand 2023 2022 2021 Adjusted operating profit Operating profit 10,750 5,191 9,250 Adjustments 55 173 1,616 Adjusted operating profit 10,805 5,364 10,867 Adjusted operating profit margin, % 12.6% 6.4% 12.3% Earnings per share, basic (and diluted), EUR Profit for the period 6,892 2,121 6,035 Weighted average number of shares outstanding 17,759 17,759 17,426 Earnings per share, basic (and diluted), EUR 0.39 0.12 0.35 Operating free cash flows Adjusted EBITDA 14,947 9,328 14,842 Investments in tangible and intangible assets -2,594 -3,553 -4,797 Operating free cash flows 12,353 5,774 10,046 Cash conversion, % Operating free cash flows 12,353 5,774 10,046 Adjusted EBITDA 14,947 9,328 14,842 Cash conversion, % 82.6% 61.9% 67.7% Net debt Total interest-bearing liabilities 33,885 36,312 40,220 Cash and cash equivalents -11,568 -10,284 -14,334 Net debt 22,317 26,028 25,887 Part of the Board of Directors’ report ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 79 Annual and Sustainability Report 2023 Reconciliation of alternative performance measures EUR thousand 2023 2022 2021 Net debt/ Adjusted EBITDA Net debt 22,317 26,028 25,887 Adjusted EBITDA, 12 months 14,947 9,328 14,842 Net debt/ Adjusted EBITDA 1.5x 2.8x 1.7x Net working capital Inventories 12,088 14,283 12,647 Trade and other receivables 17, 8 66 13,387 15,528 Trade and other payables -15,687 -14,000 -13,692 Net working capital 14,266 13,670 14,482 Capital employed excluding goodwill Total equity 34,436 29,711 31,798 Net debt 22,317 26,028 25,887 Goodwill -22,292 -22,252 -23,680 Capital employed excluding goodwill 34,462 33,487 34,004 Return on capital employed (ROCE), % Operating profit 10,750 5,191 9,250 Average capital employed excluding goodwill 33,975 33,746 32,920 Return on capital employed (ROCE), % 31.6% 15.4% 28.1% EUR thousand 2023 2022 2021 Adjusted return on capital employed (ROCE), % Adjusted operating profit 10,805 5,364 10,867 Average capital employed excluding goodwill 33,975 33,746 32,920 Adjusted return on capital employed (ROCE), % 31.8% 15.9% 33.0% Equity ratio, % Total equity 34,436 29,711 31,798 Total assets 85,568 81,837 88,842 Equity ratio, % 40.2% 36.3% 35.8% Return on equity, % Profit for the period 6,892 2,121 6,035 Total equity (average for the first and last day of the period) 32,074 30,754 24,410 Return on equity, % 21.5% 6.9% 24.7% Part of the Board of Directors’ report ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 80 Annual and Sustainability Report 2023 Calculation of key figures IFRS key figures Earnings per share, basic (and diluted) = Profit for the period attributable to the owners of the parent / Weighted average number of shares outstanding Alternative performance measures Orthex presents alternative performance measures as additional information to financial measures presented in the consolidated income statement, consolidated balance sheet and consolidated statement of cash ﬂows prepared in accordance with IFRS. In Orthex’s view, alternative performance measures provide significant additional information on Orthex’s results of operations, financial position and cash ﬂows to management, investors, analysts, and other stakeholders. Alternative performance measures should not be viewed in isolation or as a substitute to the IFRS financial measures. All companies do not calculate alternative performance measures in a uniform way, and therefore Orthex’s alternative performance measures may not be comparable with similarly named measures presented by other companies. Key figure Formula Constant currency net sales growth, % Net sales growth calculated by using previous year’s revenue translated at average foreign exchange rates for the current year Invoiced sales Product sales to resale customers excluding off invoice discounts, customer bonuses and cash discounts Invoiced sales growth, % Increase in invoiced sales Gross margin Net sales less Cost of sales Gross margin, % Gross margin / Net sales EBITDA Operating profit before depreciation, amortisation and impairment EBITDA margin, % EBITDA / Net sales EBITA Operating profit before amortisation and impairment EBITA margin, % EBITA / Net sales Operating profit Operating profit Operating profit margin, % Operating profit / Net sales Items affecting comparability Material items outside ordinary course of business including restructuring costs, net gains or losses from sale of business operations or other non-current assets, strategic development projects, external advisory costs related to capital reorganisation, impairment charges on non-current assets incurred in connection with restructurings, compensation for damages and transaction costs related to business acquisitions Adjusted gross margin Gross margin excluding items affecting comparability Adjusted gross margin, % Adjusted gross margin / Net sales Adjusted EBITDA EBITDA excluding items affecting comparability Adjusted EBITDA margin, % Adjusted EBITDA / Net sales Adjusted EBITA EBITA excluding items affecting comparability Adjusted EBITA margin, % Adjusted EBITA / Net sales Adjusted operating profit Operating profit excluding items affecting comparability Adjusted operating profit margin, % Adjusted operating profit / Net sales Net cash flows from operating activities Net cash from operating activities as presented in the consolidated statement of cash flows Operating free cash flows Adjusted EBITDA less investments in tangible and intangible assets Cash conversion, % Operating free cash flows / Adjusted EBITDA Part of the Board of Directors’ report ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 81 Annual and Sustainability Report 2023 Key figure Formula Investments in tangible and intangible assets Investments in tangible and intangible assets as presented in the consolidated statement of cash flows Net debt Current and non-current interest-bearing liabilities less cash and cash equivalents Net debt / adjusted EBITDA last 12 months Net debt / Adjusted EBITDA Net working capital Inventories, trade and other receivables less trade and other payables Capital employed excluding goodwill Total equity and net debt and less goodwill Return on capital employed (ROCE), % Operating profit / Average capital employed excluding goodwill Adjusted return on capital employed (ROCE), % Adjusted operating profit / Average capital employed excluding goodwill Equity ratio, % Total equity / Total assets Return on equity, % Profit for the period / Total equity (average for the first and last day of the period) Share-related key figures Equity per share, EUR Total equity attributable to the equity holders of the parent / Number of outstanding shares at the end of the financial year Effective dividend yield, % Dividend/share / Price of share at the end of the accounting period Price per earnings, EUR Closing price of share at the end of the financial year / Earnings per share Market value of shares at the end of period Number of shares at the end of accounting period x Price of the share at the end of accounting period Dividend payout and capital return per share, total of result, % (Dividend/share + Return of capital/share) / Earnings per share ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW FINANCIAL STATEMENTS ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 83 Part of the financial statements Annual and Sustainability Report 2023 Consolidated income statement EUR thousand Note Jan 1 - Dec 31 2023 Jan 1 - Dec 31 2022 Net Sales 2 85,945 84,048 Cost of sales -61,625 -66,129 Gross Margin 24,320 17,919 Other operating income 3 811 206 Selling and marketing expenses -9,237 -7,846 Administrative expenses -5,143 -5,089 Operating profit 10,750 5,191 Financial income and expenses 6 -2,231 -2,182 Profit before taxes 8,520 3,009 Income taxes 7 -1,628 -888 Profit for the period 6,892 2,121 Profit for the period attributable to: Equity holders of the parent 6,892 2,121 Earnings per share for profit attributable to the equity holders of the parent: Earnings per share, basic (and diluted), EUR 0.39 0.12 Consolidated statement of comprehensive income EUR thousand Note Jan 1 - Dec 31 2023 Jan 1 - Dec 31 2022 Profit for the period 6,892 2,121 Other comprehensive income Items that may be reclassified subsequently to profit or loss: Translation differences 85 -2,053 Items that will not be reclassified to profit or loss: Remeasurement gains (+) / losses (-) from defined benefit plans 5 -298 1,042 Other comprehensive income for the period, net of tax -213 -1,011 Total comprehensive income for the period 6,679 1,110 Total comprehensive income attributable to: Equity holders of the parent 6,679 1,110 Consolidated financial statements, IFRS ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 84 Part of the financial statements Annual and Sustainability Report 2023 Consolidated statement of financial position EUR thousand Note 31 Dec 2023 31 Dec 2022 ASSETS Non-current assets Intangible assets 8 22,303 22,377 Property, plant and equipment 9 13,942 13,547 Right-of-use assets 10 6,999 7,011 Other non-current assets 107 95 Deferred tax assets 7 695 760 Total non-current assets 44,046 43,790 Current assets Inventories 13 12,088 14,283 Trade and other receivables 14 17,866 13,387 Derivative financial instruments 11 - 93 Cash and cash equivalents 11 11,568 10,284 Total current assets 41,522 38,047 TOTAL ASSETS 85,568 81,837 EUR thousand Note 31 Dec 2023 31 Dec 2022 EQUITY AND LIABILITIES Equity attributable to the equity holders of the parent company Share capital 80 80 Invested unrestricted equity fund 7,851 7,851 Retained earnings 26,941 22,301 Translation differences -436 -521 Total equity 11 34,436 29,711 Non-current liabilities Loans from credit institutions 11 19,391 22,363 Lease liabilities 10, 11 6,629 6,480 Pension liabilities 5, 11 3,613 3,179 Deferred tax liabilities 7 796 769 Total non-current liabilities 30,429 32,791 Current liabilities Loans from credit institutions 11 3,000 3,000 Lease liabilities 10, 11 1,252 1,290 Trade and other payables 15 15,687 14,000 Derivative financial instruments 11 41 8 Income tax liabilities 723 1,037 Total current liabilities 20,703 19,335 Total liabilities 51,132 52,126 TOTAL EQUITY AND LIABILITIES 85,568 81,837 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 85 Part of the financial statements Annual and Sustainability Report 2023 Consolidated statement of changes in equity Equity attributable to the equity holders of the parent company EUR thousand Share capital Invested unrestricted equity fund Retained earnings Translation differences Total equity 1 Jan 2023 80 7,851 22,301 -521 29,711 Profit for the period 6,892 6,892 Translation differences 85 85 Remeasurement gains (+) / losses (-) from defined benefit plans -298 -298 Total comprehensive income for the period 6,593 85 6,679 Transactions with owners: Dividends paid -1,953 -1,953 31 Dec 2023 80 7,851 26,941 -436 34,436 1 Jan 2022 80 11,047 19,138 1,532 31,798 Profit for the period 2,121 2,121 Translation differences -2,053 -2,053 Remeasurement gains (+) / losses (-) from defined benefit plans 1,042 1,042 Total comprehensive income for the period 3,163 -2,053 1,110 Transactions with owners: Capital return from the invested unrestricted equity fund -3,197 -3,197 31 Dec 2022 80 7,851 22,301 -521 29,711 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 86 Part of the financial statements Annual and Sustainability Report 2023 Consolidated statement of cash flows EUR thousand Note 1 Jan - 31 Dec 2023 1 Jan - 31 Dec 2022 Cash flows from operating activities Profit before taxes 8,520 3,009 Adjustments: Depreciation, amortisation and impairment 4 4,142 3,964 Financial income and expenses 6 2,230 2,182 Other adjustments -206 204 Cash flows before changes in working capital 14,686 9,358 Changes in working capital Decrease (+) / increase (–) in trade and other receivables -4,383 1,324 Decrease (+) / increase (–) in inventories 2,196 -2,358 Decrease (–) / increase (+) in trade and other payables 1,346 1,155 Cash flows from operating activities before financial items and taxes 13,845 9,479 Interests paid -1,918 -1,135 Income taxes paid -1,757 -2,167 Net cash flows from operating activities 10,170 6,177 Cash flows from investing activities Investments in tangible and intangible assets -2,594 -3,553 Sale of tangible and intangible assets - 28 Net cash flows from investing activities -2,594 -3,525 EUR thousand Note 1 Jan - 31 Dec 2023 1 Jan - 31 Dec 2022 Cash flows from financing activities Repayment of lease liabilities 10 -1,329 -1,312 Proceeds from long-term borrowings - 25,500 Repayment of long-term borrowings - -25,500 Repayment of short-term borrowings 11 -3,000 -1,500 Capital return from the invested unrestricted equity fund 16 - -3,197 Dividends paid 16 -1,953 - Net cash flows from financing activities -6,283 -6,008 Net change in cash and cash equivalents 1,293 -3,356 Net foreign exchange differences 11 -9 -694 Cash and cash equivalents at 1 January 10,284 14,334 Cash and cash equivalents at 31 December 11,568 10,284 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 87 Part of the financial statements Annual and Sustainability Report 2023 Notes to the consolidated financial statements 1. Accounting principles for the consolidated financial statements Basic information about the Company Orthex is principally engaged in producing and marketing household products. Orthex Group is a Nordic producer of household products that make everyday life easier for the consumer. Orthex sells its products to major retailers that sell the products to consumers. Orthex has customers in more than 40 countries and on four continents. It has three factories of its own and it launches a variety of functional products every year. The consolidated financial statements of Orthex Corporation and its subsidiaries (collectively, the Group) for the year ended 31 Dec 2023 were authorised for issue in accordance with a resolution of the Board of Directors on 4 March 2024. According to the Finnish Companies Act, shareholders have the option of approving or rejecting the financial statements at the Annual General Meeting held after their publication. The Annual General Meeting also has the opportunity to make a decision to amend the financial statements. Orthex Corporation (the Company or the parent) is a public limited liability company incorporated and domiciled in Finland and whose shares are quoted on Nasdaq Helsinki since 29 March 2021. The registered office is located at Suomalaistentie 7 in Espoo. Basis of preparation Orthex’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and have been prepared in accordance with the IAS and IFRS standards and SIC and IFRIC interpretations in force on 31 Dec 2023. The notes to the consolidated financial statements also comply with the Finnish accounting and corporate legislation. The consolidated financial statements have been prepared on a historical cost basis, except for financial assets and financial liabilities that are measured and presented at fair value through profit or loss and defined benefit pension plans that are measured and presented at fair value. The consolidated financial statements are presented in euros and all values are rounded to the nearest thousand, except when otherwise indicated. In addition, the company has prepared a version of the financial statements in accordance with ESEF requirements, which is marked with XBRL codes. The file can be downloaded from the company’s website. The financial statements in ESEF format have not been verified. Amendments and annual improvements to IFRS standards Orthex Group has applied amendments and annual improvements to IFRS standards effective from 1 Jan 2023. The standards that are affected by the amendments are: IFRS 17 Insurance contracts and Amendments to IFRS 17, amendments to IAS 8 Definition of accounting estimates, to IAS 1 and Practice Statement 2 Presentation of accounting principles, to IAS 12 Assets and liabilities arising from a single transaction related deferred tax. Amendments and annual improvements have not had a major impact on the consolidated financial statements, but only on the presentation of the notes. Standards issued but not yet effective Orthex adopts new and amended standards and interpretations, if applicable, when they become effective. The new and amended standards that became effective of 1 Jan 2024 or later are not expected to have an impact on Orthex’s consolidated financial statements. The following new and amended standards have been issued and become effective on 1 Jan 2024 or later. • Classification of Liabilities as Current or Non-current - Amendments to IAS 1 • Long-term liabilities with a covenant - Amendments to IAS 1 • Lease contract debt in sale and lease back - Amendments to IFRS 16 • Disclosures: Supplier Finance Arrangements - Amendments to IAS 7 and IFRS 7 • Sale or Contribution of Assets between an investor and its Associate or Joint Venture - Amendments to IFRS 10 and IAS 28. • Lack of exchangeability - Amendments to IAS 21 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 88 Part of the financial statements Annual and Sustainability Report 2023 Significant accounting judgements, estimates and assumptions The preparation of the Group’s consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. In the process of applying the Group’s accounting policies, management has made various judgements. Those which management has assessed to have the most significant effect on the amounts recognised in the consolidated financial statements are discussed in the individual notes. The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are also described in the individual notes of the related financial statement line items. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Group. Such changes are reﬂected in the assumptions when they occur. Basis of consolidation The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 Dec 2023. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Control exists when Orthex has a majority of voting rights in a subsidiary or can otherwise demonstrate having control in a subsidiary. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary. All Group companies follow uniform accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash ﬂows relating to transactions between members of the Group are eliminated in full on consolidation. Foreign currencies The consolidated financial statements have been prepared in euros that is both the operational and the presentation currency of the Group’s parent company. Foreign currency transactions are translated into euros using the exchange rate at the date of the transaction. Receivables and liabilities denominated in foreign currency are translated into euros using the closing rate. Exchange differences arising on settlement or translation are recognised in the income statement. The income statement and balance sheet items of the subsidiaries operating outside the euro zone are initially recognised in the operational currencies of their operating environments. In the consolidated financial statements the income statements of foreign subsidiaries are translated into euros using the average exchange rates of the period. The balance sheet items of the subsidiaries are translated using the closing rates. The exchange differences are recognised in other comprehensive income and presented under translation differences in equity. When a foreign subsidiary is disposed of, the translation differences accumulated in equity are transferred to profit or loss as part of the gain or loss on disposal. ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 89 Part of the financial statements Annual and Sustainability Report 2023 Information about subsidiaries The consolidated financial statements of the Group include the companies listed below. Group ownership is presented in percentages. Name Principal activities Country of incorporation 31 Dec 2023 31 Dec 2022 Oy Orthex Finland Ab Producing and marketing of household products Finland 100% 100% Orthex Sweden Holding AB Producing and marketing of household products Sweden 100% 100% Orthex Sweden AB Producing and marketing of household products Sweden 100% 100% Orthex Kitchen AB Producing and marketing of household products Sweden 100% 100% Orthex Norway AS Producing and marketing of household products Norway 100% 100% Orthex Denmark A/S Producing and marketing of household products Denmark 100% 100% Gastromax Limited Producing and marketing of household products UK 100% 100% Orthex Germany GmbH Producing and marketing of household products Germany 100% 100% Orthex France SARL Producing and marketing of household products France 100% 100% During the financial year 2022, Smartstore AB merged with Orthex Sweden AB. Climate related issues Climate commitments are part of Orthex’s sustainability strategy. Orthex constantly strives to minimize its impact on the environment and climate. The products we manufacture are of high quality and made to last for years or even decades. Even after a product has worn out, it can be recycled, and the material reused for another purpose. The progress in the sustainability work is part of the CEO’s and the Management Team’s incentive plan (more information in note 5, in the Remuneration report 2023, and on the corporate website). and identified climate-related risks in connection with the strategy-based profitability figures together with other variables affecting the business (more information in note 8). The Group has an external loan of EUR 25.5 million and the terms and conditions of the financial loan have sustainability-related measures related to energy consumption and waste percentage in production (more information in note 11). Orthex’s strategy together with the adaptability and resilience related to climate change also creates opportunities by promoting the transition to a low-carbon economy. The Group’s strategy has been inﬂuenced by the opportunities related to renewable and recycled products. The global climate targets and increase in related regulations may increase sales of Orthex’s environmentally-friendly products. More information on climate-related matters is presented in the sustainability section of the Group’s annual and sustainability report. Climate change brings both business risks and opportunities to Orthex. Unfavourable changes in environmental laws or other related legislation, as well as factors related to product safety and employee health and safety may cause financial losses. In the consolidated financial statements, climate-related matters may affect, for example, goodwill, as profitability, growth and the discount rate are defined as the key variables for impairment testing. The Group has assessed ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 90 Part of the financial statements Annual and Sustainability Report 2023 2. Net sales Segment information Orthex Group is a Nordic producer of household products that make everyday life easier for the consumer. Orthex Group has customers in more than 40 countries and on four continents. It has three factories of its own and annually launches new products with different functionalities. The profitability of the Group is followed by the chief operative decision maker that is the CEO supported by the Group Management Team on the aggregated level of the Group for which financial information is available. The reports followed by the management are consistent with Orthex’s consolidated IFRS figures. Due to the management structure and how the business is operated and managed, the Group as a whole is determined to be one operating segment that is also the reportable segment. Accounting policy Orthex applies the IFRS 15 Revenue from Contracts with Customers standard. The principle is that sales are recognised at an amount that reﬂects the consideration, which Orthex expects to receive in exchange for transferring goods or services to a customer. Sales are recognised when the control of goods or services is transferred to a customer. Control is transferred at one point in time. Sale of household products Orthex’s revenue mainly consists of selling of household products to major retailers that sell Orthex’s products to consumers. Each product sold by Orthex as part of an order is a distinct performance obligation and the products have similar terms of sale. Orthex does not provide any services relating to the products sold. Revenue from the sales of household products is recognised at a point in time based on the delivery terms when the control of the products is transferred to the customer i.e. when the performance obligation is satisfied. The revenue recognised reﬂects the consideration to which Orthex expects to be entitled to. Net sales is adjusted for exchange rate differences of foreign- currency denominated sales and volume rebates provided for the customers. The normal payment terms are 15 to 60 days upon delivery. Products sold are non-refundable. No single customer’s share of the net sales was at least 10% of the Group’s net sales in 2023 and 2022. Variable consideration Variable consideration consists of volume rebates and cash discounts. The sales prices are based on price lists but Orthex provides retrospective volume rebates for certain retailers that are based on growth in sales volumes. Volume rebates are calculated based on expected annual purchase volumes from the customer. The amount of volume rebates is estimated at the beginning of the year and adjusted at each reporting date. Orthex estimates the amount of variable payments using the expected value method. Orthex applies the requirements on constraining estimates of variable consideration in order to determine the amount recognised as revenue. Contract balances Orthex records a trade receivable when Orthex’s right to payment is unconditional (i.e. only the passage of time is required before payment of the consideration is due). Relating to trade receivables, refer to Notes 11 and 14. The contracts with retailers do not include a right to return for any unsold products and therefore, no refund liabilities are recorded. ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 91 Part of the financial statements Annual and Sustainability Report 2023 Accounting estimates and judgements Orthex has applied management judgement relating to timing of revenue recognition and estimating the amount of variable consideration. The timing of the revenue recognition is based on the delivery terms of the products to the customer. For certain delivery terms Orthex is required to make assumptions of the timing when control of the goods is transferred to the customer. In addition, the amount of volume rebates included as an adjustment to net sales requires estimation before the uncertainty relating to the amount to be recognised is resolved. The disaggregation of revenue by geography in the table below is based on the locations of the customers. Net sales by geography EUR thousand 2023 2022 Nordics 67,14 6 67,088 Rest of Europe 18,031 15,535 Rest of the world 768 1,425 Tot al 85,945 84,048 Net sales by product category EUR thousand 2023 2022 Storage 58,630 54,016 Kitchen 18,136 19,392 Plant Care 4,678 5,426 Home & Yard 4,501 5,214 Tot al 85,945 84,048 3. Other operating income EUR thousand 2023 2022 Electric support 741 - Government grants 61 143 Net gain on disposal of property, plant and equipment - 28 Other 9 35 Tot al 811 206 Accounting treatment of government grants Electric support consists of Swedish state electricity support for the period 1 October 2021–30 September 2022. Government grants consist mainly of state subsidies due to sick leave. Government grants received are not subject to repayment terms. 4. Operating expenses Operating expenses by nature EUR thousand 2023 2022 Materials and supplies 46,501 52,347 Change in inventory 2,196 -1,637 External services 2,403 1,846 Marketing 1,940 1,15 9 Employee benefits 17,921 18,300 Depreciation, amortisation and impairment 4,142 3,964 Other expenses 904 3,085 Tot al 76,006 79,064 Depreciation, amortisation and impairment by asset class EUR thousand 2023 2022 Buildings 180 177 Machinery and equipment 2,396 2,258 Right-of-use assets 1,453 1,403 Other intangible assets 113 126 Tot al 4,142 3,964 Fees paid to companies’ auditors EUR thousand 2023 2022 Audit fees 208 174 Non-audit services 12 35 Tot al 220 210 The appointed auditor for 2023 and 2022 was Ernst & Young Oy. Part of the Board of Directors’ report ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 92 Annual and Sustainability Report 2023 5. Employee benefits Personnel expenses EUR thousand 2023 2022 Included in cost of sales: Wages and salaries 7,7 2 5 8,161 Social security costs 1,655 1,790 Pension costs 921 1,006 Included in selling and marketing expenses: Wages and salaries 4,501 3,841 Social security costs 607 635 Pension costs 322 421 Included in cost of administrative expenses: Wages and salaries 1,641 1,447 Social security costs 366 366 Pension costs 182 632 Tot al 17, 921 18,300 Personnel (FTE) in average Headcount by function 2023 2022 Production 143 157 Warehouse 56 60 Sales 52 49 Administration 19 17 Marketing 10 11 Tot al 281 295 Management and Board remuneration The top management comprises the Management Team. The remuneration paid based on the work performed consists of the following. The amounts disclosed in the table are the amounts paid during the reporting period related to key management personnel. Remuneration of key management personnel of the Group, excluding the CEO EUR thousand 2023 2022 Salaries and rewards 1,131 1,067 Pension costs 217 165 Severance pay - 90 Tot al 1,348 1,322 Current termination provisions in the Management Team members’ contracts have a period of notice of 4 months. A member of the Management Team is entitled to a severance pay equivalent to 4 months’ salary due to the termination of the management contract. The Group has no other long-term benefits related to key management personnel. Remuneration of the CEO EUR thousand 2023 2022 Salaries and rewards 371 445 Pension costs 66 82 Tot al 437 527 Current termination provisions in the CEO’s executive contract have a period of notice of 6 months and the CEO is entitled to compensation for termination of the executive contract corresponding to 6 months’ salary. Remuneration of the members of the Board of Directors EUR thousand 2023 2022 Sanna Suvanto-Harsaae 48 48 Jens-Peter Poulsen 24 24 Markus Hellström 1) 24 18 Jyrki Mäki-Kala 1) 24 18 Anette Rosengren 2) 16 - Satu Huber 3) 8 24 Ari Jokelainen 4) - 6 Juuso Kivinen 4) - 6 Tot al 144 126 1) Member of the Board as of 6 April 2022 2) Member of the Board as of 18 April 2023 3) Member of the Board until 18 April 2023 4) Member of the Board until 6 April 2022 The non-executive directors do not receive pension entitlements from the Group. ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 93 Part of the financial statements Annual and Sustainability Report 2023 Pension liabilities Orthex Group provides pension benefits in accordance with local statutory regulation. The current plans mainly consist of defined contribution based plans. The contributions payable under defined contribution based plans are recognised as expenses in the income statement for the period to which the payments relate. In defined contribution based plans, Orthex does not have a legal or constructive obligation to pay further contributions, in case the payment recipient is unable to pay the retirement benefits. In Sweden, Orthex Group has a pension plan classified as a defined benefit based plan. For this plan, Orthex may incur obligations after the payment of the contribution. Pension liabilities represent the present value of future cash ﬂows from the benefits payable and the liability recognised on the balance sheet are pension liabilities at the closing. The present value of pension liabilities has been calculated using the projected unit credit method (PUC). Pension liabilities are recognised based on external actuarial calculations as of 31 Dec 2023 and 31 Dec 2022. The cost of providing pensions is charged to the income statement as to spread the service cost over the service lives of employees. The net interest is presented in financial items and the rest of the income statement effect as pension cost. The discount rate assumed in calculating the present value of pension liabilities is the market yield of high-quality corporate bonds. Their maturity substantially corresponds to the maturity of the pension liability. Actuarial gains and losses are recognised in comprehensive income in the income statement. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss related to a curtailment is recognised immediately in profit or loss. Critical accounting estimates and judgements, assumptions used to determine future pension obligations The present value of the pension liabilities is based on actuarial calculations that use several assumptions. Any changes in these assumptions will impact the carrying amount of pension liabilities. Pension liabilities EUR thousand 31 Dec 2023 31 Dec 2022 Pension liabilities 3,613 3,179 Tot al 3,613 3,179 Net pension liabilities recognised in the income statement EUR thousand 2023 2022 Current service cost -39 -93 Interest cost on benefit obligation -119 -87 Pension payments 120 115 Tot al -39 -66 Movements in the obligation EUR thousand 2023 2022 Obligation at 1 Jan 3,179 4,742 Amounts recognised in profit and loss Service cost, benefits earned during the year 39 93 Interest expense (+) / income (-) 119 87 Pension payments -120 -115 Amounts recognised in other comprehensive income Translation differences 7 -321 Actuarial losses (+) / gains (-) 389 -1,308 Obligation at 31 Dec 3,613 3,179 Principal actuarial assumptions % 31 Dec 2023 31 Dec 2022 Discount rate 3.3% 3.7% Salary increase 2.6% 3.0% Income base amount 2.6% 3.0% Inflation 1.6% 2.0% ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 94 Part of the financial statements Annual and Sustainability Report 2023 Key assumptions and sensitivity analyses The cost of the defined benefit pension plan and the present value of pension liabilities are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. Due to the complexities involved in the valuation and its long-term nature, pension liabilities are highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. The parameter most subject to change is the discount rate. Changes in the general level of interest rates and the market yield of high-quality bonds have an impact on the present value of pension liabilities. When the level of interest rates decreases, the present value of pension liabilities increases. The discount rate is set by referencing the yield on mortgage bonds and the duration of pension liabilities which is 16 years. The mortality assumptions are based on publicly available mortality tables for Sweden. Those mortality tables tend to change only at intervals in response to demographic changes. Future salary increases and pension increases are based on expected future inﬂation rates for the respective countries. The sensitivity of pension liabilities to changes in the principal assumptions Actuarial assumptions Change in assumption Impact on pension liabilities increase Impact on pension liabilities decrease 2023 Discount rate (%) +/- 0.5% -323 452 Salary increase (%) +/- 0.5% -138 123 Inflation (%) +/- 0.5% -227 209 2022 Discount rate (%) +/- 0.5% -297 335 Salary increase (%) +/- 0.5% -113 133 Inflation (%) +/- 0.5% -218 238 The sensitivity analyses above have been determined based on a method that extrapolates the impact on pension liabilities as a result of reasonable changes in key assumptions occurring at the end of the reporting period. The sensitivity analyses are based on a change in a significant assumption, keeping all other assumptions constant. The sensitivity analyses may not be representative of an actual change in pension liabilities as it is unlikely that changes in assumptions would occur in isolation of one another. The Group expects to contribute EUR 181 thousand to its defined benefit pension plans in 2024. 6. Financial income and expenses EUR thousand 2023 2022 Gains from changes in the fair value of derivative instruments - 93 Total financial income - 93 Interest on debts and borrowings -1,404 -559 Interest expense on lease liabilities -522 -576 Losses from changes in the fair value of derivative instruments -22 -22 Exchange rate differences related to financial items 136 -575 Other financial expenses -418 -543 Total financial expenses -2,231 -2,274 Total financial income and expenses -2,231 -2,182 In 2022, Orthex signed a new EUR 32.5 million financing agreement, which includes a EUR 25.5 million loan for a period of 3 + 1 + 1 years and a EUR 7.0 million standby credit line, which partially increased the other financial items during 2022. ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 95 Part of the financial statements Annual and Sustainability Report 2023 7. Income taxes Current income tax Orthex’s income tax expense consists of current and deferred taxes. The current tax expense is calculated using the tax rates that are enacted or substantively enacted at the reporting date in the countries where Orthex operates. The current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The major components of income tax expense for the years ended 31 Dec 2023 and 31 Dec 2022 are: Consolidated income statement EUR thousand 2023 2022 Current income tax charge -1,442 -704 Taxes from previous years -18 -12 Change in deferred taxes -168 -173 Tot al -1,628 -888 Consolidated statement of other comprehensive income EUR thousand 2023 2022 Deferred taxes related to items recognised in OCI during the year: Remeasurement of net loss/(gain) on actuarial gains and losses 77 -258 Tot al 77 -258 Reconciliation of tax expense and the accounting profit multiplied by Finland’s domestic tax rate for 2023 and 2022 EUR thousand 2023 2022 Profit before taxes 8,520 3,009 Tax calculated at nominal Finnish tax rate of 20% (2022: 20%) -1,704 -602 Tax rates in foreign jurisdictions -68 -48 Taxes from previous years -18 -12 Non-deductible expenses -39 -110 Non-deductible expsenses from previous years 27 91 Unrecognized tax losses (-) / Utilization tax losses (+) 173 -186 Other - -21 At the effective income tax rate of 19.1% (2022: 28.5%) -1,628 -888 Income tax expense reported in the consolidated income statement -1,628 -888 Deferred taxes Deferred tax assets and deferred tax liabilities are differences between the tax bases of assets and liabilities and their carrying amounts. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the reporting date. Orthex records a deferred tax liability for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences and any unused tax losses carried forward to the extent that it is deemed probable that they can be utilised against future taxable profit. Deferred tax assets are reviewed at each reporting date. In case it is no longer probable that sufficient taxable profit will be available for the deferred tax asset to be utilised, the carrying amount of deferred tax asset is reduced. Deferred tax relating to items recognised outside profit or loss is recognised in correlation to the underlying transaction either in OCI or directly in equity. Orthex offsets deferred tax assets and deferred liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority. Orthex has offset deferred taxes related to IFRS 16 fixed assets and lease liabilities. ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 96 Part of the financial statements Annual and Sustainability Report 2023 Deferred taxes 2023 EUR thousand Balance at 1 Jan 2023 Charged to income statement Charged to OCI Balance at 31 Dec 2023 Deferred tax assets Interest expenses carried forward 279 -7 272 Pension liabilities 186 -51 79 214 Leases 1,559 23 1,582 Financial instruments 0 6 6 Other 139 -114 -3 21 Netting of deferred tax assets and liabilities -1,402 2 -1,400 Tot al 760 -140 75 695 EUR thousand Balance at 1 Jan 2023 Charged to income statement Charged to OCI Balance at 31 Dec 2023 Deferred tax liabilities Tangible and intangible assets 743 31 774 Rights of use assets 1,402 -2 1,400 Financial instruments 26 -4 22 Netting of deferred tax assets and liabilities -1,402 2 -1,400 Tot al 769 27 - 796 Accounting estimates and judgements Management judgement is applied in determining the deferred tax assets as Orthex is required to make estimations about future taxable profit, the recoverability of the tax losses carried forward and potential changes to tax laws in the countries where Orthex operates. At Dec 2023, Orthex has no tax losses carried forward or deferred tax assets relating to taxable losses. A deferred tax asset amounting to EUR 272 thousand (2022: EUR 279 thousand) is recorded relating to interest expenses carried forward. In addition to the above, the most significant temporary differences arise from leases, timing difference of depreciations in the financial statements and taxation, defined benefit pension plans and transaction costs on external loans. Deferred taxes related to IFRS 16 right-of-use assets and leasing liabilities are netted in the consolidated balance sheet, but in the breakdown of changes in deferred taxes below, they are presented gross. ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 97 Part of the financial statements Annual and Sustainability Report 2023 Deferred taxes 2022 EUR thousand Balance at 1 Jan 2022 Charged to income statement Charged to OCI Balance at 31 Dec 2022 Deferred tax assets Interest expenses carried forward 370 -91 279 Pension liabilities 523 -79 -258 186 Leases 1,762 -203 1,559 Other 114 24 139 Netting of deferred tax assets and liabilities -1,606 204 -1,402 Tot al 1,163 -145 -258 760 EUR thousand Balance at 1 Jan 2022 Charged to income statement Charged to OCI Balance at 31 Dec 2022 Deferred tax liabilities Tangible and intangible assets 683 61 743 Rights of use assets 1,606 -204 1,402 Financial instruments 59 -33 26 Netting of deferred tax assets and liabilities -1,606 204 -1,402 Tot al 742 27 - 769 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 98 Part of the financial statements Annual and Sustainability Report 2023 8. Intangible assets Orthex’s intangible assets with finite useful lives includes software. Initially, intangible assets are measured at cost. After the initial recognition, intangible assets are recorded at cost less any accumulated amortisation and accumulated impairment losses. Orthex’s intangible assets with finite useful lives are amortised on a straight- line basis over their expected useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation expense on intangible assets with finite useful lives is recognised in the statement of profit or loss in the expense category that is consistent with the function of the intangible assets. The expected useful lives and residual values are evaluated at least at the end of each reporting period. The expected useful lives for the asset classes are as follows: Software 3-10 years In case any intangible assets are derecognised upon disposal, any gain or loss resulting from the derecognition of the asset is included in the statement of profit or loss. Research and development costs Research costs are expensed as they incur. Development costs are capitalised when the criteria in IAS 38 is met. Orthex has not capitalised any development costs since the capitalisation criteria has not been met. Orthex’s intangible assets with an indefinite useful life consist of goodwill. The accounting policies for impairment of goodwill have been described below. Reconciliation of beginning and ending balances by classes of intangible assets EUR thousand Goodwill Other intangible assets Total Acquisition cost Balance at 1 Jan 2022 23,680 1,189 24,870 Additions 30 30 Disposals -32 -32 Transfers 30 30 Translation differences -1,428 - -1,428 Balance at 31 Dec 2022 22,252 1,218 23,471 Translation differences 39 - 39 Balance at 31 Dec 2023 22,292 1,218 23,510 Accumulated amortisation and impairment Balance at 1 Jan 2022 - 969 969 Amortisation and impairment 126 126 Translation differences -2 -2 Balance at 31 Dec 2022 - 1,093 1,093 Amortisation and impairment 113 113 Balance at 31 Dec 2023 - 1,207 1,207 Carrying amount 1 Jan 2022 23,680 221 23,901 Carrying amount 31 Dec 2022 22,252 125 22,377 Carrying amount 31 Dec 2023 22,292 12 22,303 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 99 Part of the financial statements Annual and Sustainability Report 2023 Goodwill Goodwill is not amortised but it is tested for impairment annually and whenever there is an indication of impairment. Goodwill is measured at initial cost less any accumulated impairment losses. The majority of the goodwill at the time of transition in the Group’s balance sheet arose in connection with the formation of the Group in 2015. Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the goodwill may be impaired. The carrying amount of a cash-generating unit that includes goodwill is compared to the recoverable amount, which is the higher of value in use and fair value less costs to sell. For impairment testing purposes, goodwill is allocated to two cash- generating units, Finland and Nordics. The recoverable amount is the higher of CGU’s fair value less costs of disposal and its value in use. The recoverable amount is compared with its carrying amount to determine potential impairment. In case the carrying value of goodwill exceeds the recoverable amount, an impairment is recognised in the income statement. Previously recognised impairment losses on goodwill are not reversed in future periods. The value in use calculation is based on a DCF model. The recoverable amounts of CGU’s are based on value in use calculations, where the estimated future cash ﬂows of CGUs are discounted to their present value using a pre-tax discount rate that reﬂects current market assessments of the time value of money and the risks specific to the asset. The cash ﬂows are determined using a 5-year cash ﬂow forecasts, which are based on Orthex’s business plan that is based on Orthex’s past experience as well as future expected market trends. The projected cash ﬂows have been updated to reﬂect the budgeted demand for products. Impairment losses are recognised in the statement of profit or loss in expense categories consistent with the function of the impaired asset. Orthex has performed its annual impairment test for 31 Dec 2023 and 31 Dec 2022. Based on the impairment calculations made, there was no indication of impairment of goodwill for the above mentioned periods. Carrying amount of goodwill EUR thousand 31 Dec 2023 31 Dec 2022 Finland 5,462 5,462 Nordics 16,829 16,790 Tot al 22,292 22,252 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 100 Part of the financial statements Annual and Sustainability Report 2023 9. Property, plant and equipment Property, plant and equipment are recorded at historical cost less accumulated depreciations and impairment losses, if applicable. Subsequent improvement costs are included in the carrying amount of the asset or recognised as a separate asset only when the future economic benefits associated with the cost are probable and the cost can be measured reliably. Maintenance and repair costs are expensed as incurred. Depreciation is calculated on a straight-line basis over the expected useful lives of the assets. Land and water areas are not depreciated due to indefinite useful lives. The estimated useful lives of the tangible assets are as follows: - Buildings: 25-40 years - Machinery and equipment: 5-15 years - Production moulds: 5-15 years - Other tangible assets: 3-5 years Expected useful lives are reviewed at each financial year end and in case there is a significant difference to the previous estimates, the useful lives are adjusted accordingly. Orthex has not recorded any impairment losses relating to property, plant and equipment. Any gain or loss arising in derecognition of an asset is included in the statement of profit or loss when the asset is derecognised. Accounting estimates and judgements The key assumptions used for the value in use calculations are profitability growth rate, discount rate (pre-tax WACC) and long-term growth rate. Key parameters used in impairment calculations 31 Dec 2023 31 Dec 2022 % Finland Nordics Finland Nordics Profitability growth rate 15.3 12.0 9.2 37.8 Discount rate, pre-tax 14.2 13.5 13.6 12.3 Long-term growth rate 1.0 1.0 1.0 1.0 Profitability growth rate - The assumptions relating to profitability growth rate (average EBITDA growth over the 5 years forecast period) are based on organic growth under normal market situation, general development in household product market and long-term estimates made by the Group management. Discount rate - Orthex uses the pre-tax WACC as a discount factor in the calculations. The discount rate reﬂects the total cost of equity and debt while taking into consideration the specific risks related to the assets. Long-term growth rate - The cash ﬂows beyond the five-year period are estimated by extrapolating the cash ﬂow estimates using a growth factor which is in line with the target inﬂation of the European Central Bank. Sensitivity analyses The Group has assessed the sensitivity of the impairment testing to the effect of the most critical assumptions used in the calculation. The Group has tested the sensitivity of the calculation with respect to the discount rate, profitability growth rate and long-term growth rate that are determined as the key variables used in impairment testing. When assessing the recoverable amounts of cash generating units, management believes that no reasonably possible change in any of the key variables used would lead to a situation where the recoverable amount of the units would fall below their carrying amount. ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 101 Part of the financial statements Annual and Sustainability Report 2023 Reconciliation of beginning and ending balances by classes of assets EUR thousand Land and water areas Buildings Machinery and equipment Construction in progress Other tangible assets Total Acquisition cost Balance at 1 Jan 2022 86 6,301 58,507 1,996 47 66,938 Additions 74 3,874 1,467 5,414 Disposals -284 -284 Transfers 1,804 -1,835 -30 Translation differences -101 -2,841 -117 -3,059 Balance at 31 Dec 2022 86 6,273 61,061 1,511 47 68,979 Additions 9 2,772 1,076 3,857 Transfers - -864 -864 Translation differences - -25 2 -23 Balance at 31 Dec 2023 86 6,283 63,808 1,725 47 71,949 Accumulated depreciation and impairment Balance at 1 Jan 2022 - 4,923 48,841 - 43 53,807 Depreciation and impairment 177 2,258 2,435 Disposals 1,850 1,850 Translation differences -79 -2,581 -2,660 Balance at 31 Dec 2022 - 5,020 50,369 - 43 55,432 Depreciation and impairment 180 2,396 2,575 Balance at 31 Dec 2023 - 5,200 52,764 - 43 58,007 Carrying amount 1.1.2022 86 1,378 9,666 1,996 4 13,131 Carrying amount 31.12.2022 86 1,253 10,692 1,511 4 13,547 Carrying amount 31.12.2023 86 1,083 11,043 1,725 4 13,942 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 102 Part of the financial statements Annual and Sustainability Report 2023 10. Leases Orthex’s leased assets mainly comprise of manufacturing plants, office premises and machinery and equipment. At contract inception, Orthex determines whether the contract is, or contains, a lease. A contract is determined to be a lease contract if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. A right-of-use asset and a lease liability corresponding to the present value of the future lease payments are recognised in the consolidated statement of financial position at the commencement date of the lease. Lease liabilities At the commencement date of the lease, Orthex recognises lease liabilities measured at the present value of the future lease payments to be made over the lease term. When calculating the present value of the future lease payments, the interest rate implicit in the lease is applied if readily available. In most of Orthex’s lease contracts the interest rate implicit in the lease is not available. In such cases, Orthex uses its incremental borrowing rate which reﬂects the rate that at which Orthex could borrow an amount similar to the value of the right-of-use asset, in the same currency, over the same term, and with similar collateral. The incremental borrowing rate comprises the risk free reference rate, credit spread and country and currency premium if applicable. At the commencement date of the lease, the measurement of the lease liability includes fixed lease payments and potential expected payments under residual guarantees. The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset. Penalties for terminating the lease are included if the lease term reﬂects the exercise of a termination option. The lease term is defined as the period when the lease is non-cancellable. The lease term includes periods covered by an option to extend the lease, if Orthex is reasonably certain to exercise that option, and periods covered by an option to terminate the lease, if Orthex is reasonably certain not to exercise the option to terminate the lease. Orthex has some lease contracts for which the lease term is cancellable with only a short notification period. For the open-ended lease contracts, Orthex estimates the lease term based on the importance of the asset to Orthex’s operations considering the location and the availability of suitable alternatives and costs relating to termination of the lease such as negotiation and relocation costs. 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 or a change in the assessment of an option to purchase the underlying asset. Measurement and recognition of right-of-use assets Right-of-use assets are measured at cost which comprises the amount of the lease liability and the lease payments made at or before the commencement of the lease. The right-of-use assets are subsequently measured at cost less accumulated depreciation and impairment. The depreciation starts at the commencement date of the lease and the right-of-use assets are depreciated on a straight- line basis over the shorter period of lease term and useful life of the underlying asset. The right-of-use asset is remeasured with a corresponding remeasurement of the lease liability. Orthex applies the recognition exemption provided for leases for which the underlaying asset is of low value. The assessment whether Orthex applies the exemption is made on a lease-by-lease basis. Lease payments for leases of low value assets are expensed in the income statement on a straight-line basis. Lease payments for leases of low value assets have not had a material impact on Orthex’s results. Orthex does not have short-term leases for which the lease term is 12 months or less. Accounting estimates and judgements The most significant management judgements relate to evaluating the lease term for leases that include options to extend the lease or options to terminate the lease and to leases for which the lease term is open-ended. Management estimates the lease term for the contracts using future outlooks of the business as well as contract specific facts and circumstances. Additionally, management judgment is also applied in determining the incremental borrowing rate. ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 103 Part of the financial statements Annual and Sustainability Report 2023 Carrying amounts of right-to-use assets recognised and movements during the period EUR thousand Buildings Machinery and equipment Total As at 1 Jan 2022 7,285 745 8,030 Additions and revaluations 257 723 980 Disposals - -34 -34 Depreciation and impairment -977 -426 -1,403 Translation differences -531 -31 -563 As at 31 Dec 2022 6,033 978 7,011 Additions and revaluations 1,218 213 1,431 Depreciation and impairment -1,030 -422 -1,453 Translation differences 132 -123 9 As at 31 Dec 2023 6,354 645 6,999 Carrying amounts of lease liabilities and movements during the period EUR thousand 2023 2022 As at 1 Jan 7,770 8,758 Additions and revaluations 1,431 980 Disposals - -34 Accretion of interest 522 576 Payments -1,857 -1,887 Translation differences 15 -623 As at 31 Dec 7,881 7,7 70 Current lease liabilities 1,252 1,290 Non-current lease liabilities 6,629 6,480 The maturity analysis of lease liabilities is disclosed in Note 11. Amounts recognised in the consolidated income statement EUR thousand 2023 2022 Depreciation and impairment of right-of- use assets -1,453 -1,403 Interest expenses from lease liabilities -522 -576 Total amount recognised in profit or loss -1,975 -1,979 Orthex’s total cash outﬂow from leases amounted to EUR 1,857 thousand in 2023 and EUR 1,887 thousand in 2022. Orthex has no more off-balance sheet leases due to implementing IFRS 16. ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 104 Part of the financial statements Annual and Sustainability Report 2023 11. Financial assets and financial liabilities Orthex recognises financial instruments based on their characteristics and classifies them to different categories as defined below. 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. Financial assets Financial assets are initially recognised at fair value at trade date. At initial recognition Orthex classifies financial assets as subsequently measured at amortised cost, fair value through profit or loss, and fair value through other comprehensive income (OCI). The subsequent classification is dependent on the contractual cash ﬂow characteristics of the financial asset and the group’s business model for managing them. Financial assets at amortised cost Orthex recognises financial assets at amortised cost if the business model of holding the assets is solely collecting contractual cash ﬂows from payments of principal and interest at specified dates. Financial assets at amortised cost are initially recognised and measured at fair value plus related transaction costs. The financial assets are subsequently measured by using the effective interest rate (EIR) method. These assets are subject to impairment. Any gains and losses thereof are recognised in the statement of profit or loss when the asset is derecognised, modified or impaired. For Orthex, the financial assets at amortised cost are the most significant category of financial assets. The category includes trade receivables, for which the expected credit losses are assessed as impairment. The expected credit losses are described below in the credit risk section. Financial assets at fair value through profit or loss Orthex recognises financial assets at fair value through profit or loss when the assets are held for trading or are mandatorily required to be measured at fair value. Additionally, Orthex recognises at fair value through profit or loss when the financial assets are initially designated upon initial recognition to be measured at fair value through profit or loss. These financial assets are classified as held for trading if the assets are acquired for sole purpose of receiving cash ﬂows from the asset sales. Any gains or losses recognised from the net changes in the fair value of these financial assets are recognised in the statement of profit or loss. Orthex classifies derivative instruments to be measured at fair value through profit or loss at inception. Financial assets at fair value through other comprehensive income (OCI) Financial assets at fair value through other comprehensive income include investments to equity instruments. Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in the statement of profit or loss when the right of payment has been established. Upon the initial recognition Orthex may make an irrevocable election to classify an equity investment as equity instrument designated at fair value through other comprehensive income in accordance with IAS 32, when the assets are not held for trading. Any change in the fair value of the asset and possible dividends are recognised in the other comprehensive income in the statement of comprehensive income. Financial assets designated at fair value through OCI are not subject to impairment assessment. Orthex does not have any instruments designated at fair value through OCI. Impairment and expected credit losses (ECL) Orthex estimates the expected credit losses from their short-term receivables such as trade receivables and accrued revenues at each reporting date. Orthex recognises the expected credit loss allowance as impairment from these assets, which is defined as the difference between the contractual cash ﬂows and the expected cash ﬂows Orthex expects to receive. Orthex applies a simplified approach method for the assessment of the expected credit loss impairment. Orthex uses the lifetime expected credit losses as a credit loss allowance. Any receivable, which is considered to be more than 90 days past due are considered to be defaulted and impaired and are written off from the receivable balance. ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 105 Part of the financial statements Annual and Sustainability Report 2023 Cash and cash equivalents Cash and short-term deposits in the statement of financial position comprise cash at banks and on hand and short-term deposits with a maturity of three months or less, which are subject to an insignificant risk of changes in value. All of the Orthex’s bank accounts are in well established low risk banks to reduce the risk in relation to the insolvency issues from banks. For the purpose of the consolidated statement of cash ﬂows, cash and cash equivalents consist of cash and short-term deposits, as defined above, net of outstanding bank overdrafts as they are considered an integral part of the Group’s cash management. Available cash and liquidity position EUR thousand 31 Dec 2023 31 Dec 2022 Cash and cash equivalents 11,568 10,284 Total cash and cash equivalents 11,568 10,284 Cash at banks earns interest at ﬂoating rates based on daily bank deposit rates. At 31 Dec 2023, the Group had available EUR 7.0 million (31 Dec 2022: EUR 7.0 million) of undrawn committed borrowing facilities. The effect of exchange rates on cash and cash equivalents by currency EUR thousand 31 Dec 2023 31 Dec 2022 EUR/SEK 55 -626 EUR/NOK -63 -64 EUR/DKK -2 - EUR/GBP 2 -4 Tot al -9 -694 Financial liabilities Financial liabilities are recognised at fair value at trade date and are classified to be subsequently measured at either amortised cost or at fair value through profit or loss. The subsequent measurement designation is based on the obligations arising from the contractual nature of the financial liability. Financial liabilities at amortised cost Orthex classifies financial liabilities to be measured at amortised cost when the financial liabilities involve contractual obligations for payments and are not held for trading. The financial liabilities are initially recognised at fair value less any related transaction costs. After initial recognition, these liabilities are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process. This category is most relevant to Orthex and it includes interest-bearing loans and borrowings, and the Group’s trade and other payables. Financial liabilities at fair value through profit or loss Orthex classifies financial liabilities at fair value through profit or loss when the financial liabilities are held for trading, or when the financial liability is designated upon initial recognition to be measured at fair value through profit or loss. Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied. Orthex classifies derivative instruments, which are not designated as hedging instruments, to be measured at fair value through profit or loss at inception. Derecognition of financial instruments Orthex derecognises financial instruments when, and only when the contractual rights or responsibilities arising from contractual obligations are discharged, cancelled, or they expire. In the case of the financial assets, a transfer of rights or impairment of assets qualifies for derecognition of the asset. In case of a financial liability, 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 the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss. Offsetting financial instruments Orthex does not offset financial instruments. ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 106 Part of the financial statements Annual and Sustainability Report 2023 Tabular presentation of financial instruments by classification 31 Dec 2023 Financial assets EUR thousand Note Fair value through profit and loss Fair value through OCI At amortised cost Book value 31 Dec 2023 Current financial assets Trade receivables 14 16,031 16,031 Cash and cash equivalents 11,568 11,568 Tot al - - 27,598 27,598 Total financial assets - - 27,598 27,598 Financial liabilities EUR thousand Note Fair value through profit and loss Fair value through OCI At amortised cost Book value 31 Dec 2023 Non-current financial liabilities Loans from credit institutions 19,391 19,391 Lease liabilities 10 6,629 6,629 Tot al - - 26,020 26,020 Current financial liabilities Loans from credit institutions 3,000 3,000 Lease liabilities 10 1,252 1,252 Trade payables 15 9,302 9,302 Derivative financial instruments 12 41 41 Tot al 41 - 13,555 13,596 Total financial liabilities 41 - 39,574 39,615 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 107 Part of the financial statements Annual and Sustainability Report 2023 Tabular presentation of financial instruments by classification 31 Dec 2022 Financial assets EUR thousand Note Fair value through profit and loss Fair value through OCI At amortised cost Book value 31 Dec 2022 Current financial assets Trade receivables 14 11,787 11,787 Cash and cash equivalents 10,284 10,284 Derivative financial instruments 12 93 93 Tot al 93 - 22,070 22,163 Total financial assets 93 - 22,070 22,163 Financial liabilities EUR thousand Note Fair value through profit and loss Fair value through OCI At amortised cost Book value 31 Dec 2022 Non-current financial liabilities Loans from credit institutions 22,363 22,363 Lease liabilities 10 6,480 6,480 Tot al - - 28,843 28,843 Current financial liabilities Loans from credit institutions 3,000 3,000 Lease liabilities 10 1,290 1,290 Trade payables 15 8,231 8,231 Derivative financial instruments 12 8 8 Tot al 8 - 12,520 12,528 Total financial liabilities 8 - 41,364 41,371 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 108 Part of the financial statements Annual and Sustainability Report 2023 Derivatives Derivatives not designated as hedging instruments reﬂect the negative change in fair value of those foreign exchange forward contracts that are not designated in hedge relationships, but are, nevertheless, intended to reduce the level of foreign currency risk for expected sales and purchases. In addition, the group has hedged part of its long-term interest-bearing liabilities with an interest rate swap. Orthex utilises derivatives for hedging purposes, but does not apply hedge accounting. Financial risk management Orthex’s financial risk management involves a combination of responsive actions the management is actively seeking to ensure sound financial operations and stability. This note explains Orthex’s exposure to financial risks and how these risks could affect Orthex’s future financial performance. The Group’s overall financial risk management focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The Group’s financial risks can be classified into two separate categories. Orthex is affected by market risks and other risks including credit risk and liquidity risk. The management analyses the Group’s risk position periodically at each reporting date and takes collective measures to counter these assessed risk exposures. Risk concentrations Orthex analyses the financial risks and risk concentrations related to its operations. Risk concentrations identified as a result of this assessment are described in connection with the descriptions of market and credit risks. Sensitivity analysis As part of the risk assessment, the management has performed sensitivity analysis on relevant market risks, such as interest rate risk and foreign exchange risk. Calculation methods and assumptions used for sensitivity analysis are further explained in the detailed sensitivity analysis sections alongside interest rate risk and foreign exchange risk assessments. Derivative financial instruments may be used to hedge certain risk exposures. The Group’s financial risk management is carried out by the finance department in accordance with the Group Treasury Policy, which is approved by the Board of Directors. Market risks Interest rate risk The Group’s bank loans comprise of long-term ﬂoating rate loans and interest-bearing credit limit facilities. Due to the Euribor-tied loans, Orthex is subject to the cash ﬂow risk arising from ﬂoating rate loans. To manage the interest rate risk, Orthex may use interest rate swaps, as needed, in order to reduce the cash ﬂow risk arising from ﬂoating rate loans. With this course of action, Orthex might aim to limit the impact of interest rate volatility in the Group’s financial expenses to acceptable levels. Interest rates of bank loans were 5.1% - 6.1% at the end of 2023 and 5.2% - 5.4% at the end of 2022. Interest rate sensitivity Based on the sensitivity analysis, if interest rates had been 1.0 percentage points higher with all other variables held constant, the recalculated post-tax profit for the period and equity would have been EUR 0.1 million smaller in 2023 and EUR 0.3 million smaller in 2022. Interest rate sensitivity has been calculated by shifting the interest curve by 1.0 percentage points. The interest position includes all external variable rate loans and interest rate swaps. Foreign exchange risk Orthex Group operates in several countries. Orthex is mainly exposed to transaction risk and translation risk associated with the Swedish krona, the Norwegian krona, the Danish krona, the US dollar and the British pound sterling. Transaction risk associated with subsidiaries outside the euro area consists primarily of trade receivables and trade payables from subsidiaries arising in the operational business of the Group companies. Orthex hedges transaction risks with currency derivatives, in accordance with its Treasury Policy. Translation risk arises, when the parent company’s investments in subsidiaries outside euro area are converted into euros. The Group’s net investment to units outside the euro area consist mainly of the investments in subsidiaries in Sweden. Translation risk is currently not hedged. The currency position resulting from the financial instruments in accordance with IFRS 7 consists of trade receivables, trade payables and cash and cash equivalents. The net currency risk has been taken into account in the table if the transaction currency is other than the company’s functional currency. The table takes into account the currencies to which the company is significantly exposed. ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 109 Part of the financial statements Annual and Sustainability Report 2023 The Group’s net currency position at 31 December The net currency position resulting from the financial instruments in accordance with IFRS 7 EUR thousand 2023 2022 EUR-SEK 8,943 6,526 EUR-NOK 4,533 3,062 EUR-USD -21 -13 Foreign exchange rate sensitivity Changes in consolidation exchange rates affect the company’s income statement and cash ﬂow statement. As approximately 50% of the company’s revenues and 53% of costs occur in operational currencies other than euro, the translation risk is significant for the company. A change of 10% in the annual average foreign exchange rates would have caused a 6.5% (6.8%) change in 2023 consolidated sales and 6.7% (6.8%) reverse changes in costs in the consolidated sales in euros. The translation risk is not hedged as a rule as the company’s business consists of continuous operations in various currency areas. However, USD purchases of Orthex Kitchen AB are partially hedged against SEK. The most significant translation risk exposures in the subsidiaries are in the Swedish krona, the Norwegian krona, the Danish krona, the US dollar and the British pound sterling. Commodity price risk The Group is exposed to variations in prices of raw materials and of supplies. Orthex’s raw material purchases consist mainly of various types of plastic materials. The market value for virgin plastic and the underlying inputs cause changes on the acquired plastic materials pricing. Sensitivity analysis Sensitivity to market risks (before taxes) in accordance with IFRS 7 2023 2022 EUR thousand Income statement Equity Income statement Equity +/- 10% change in virgin plastic prices -/+ 2205 -/+ 2205 -/+ 2250 -/+ 2250 +/- 10% change in EUR/SEK exchange rate +/- 897 +/- 897 +/- 653 +/- 653 +/- 10% change in EUR/NOK exchange rate +/- 453 +/- 453 +/- 306 +/- 306 +/- 10% change in EUR/USD exchange rate -/+ 2 -/+ 2 -/+ 1 -/+ 1 +/- 1% points parallel shift in interest rates -/+ 124 -/+ 124 -/+ 263 -/+ 263 +10% increase in EUR/SEK exchange rate would have a EUR 897 thousand effect in income statement. At the end of 2023, the total Group ﬂoating rate liability position consists of ﬂoating rate liabilities EUR 22.5 million (2022: EUR 25.5 million). Commodity price risk sensitivity A 10 per cent change upwards or downwards in virgin plastic prices would have effects, before taxes, of EUR +/– 2.2 million to income statement in year 2023 (2022: EUR +/– 2.3 million). Commodity risks are not managed using financial derivative instruments. ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 110 Part of the financial statements Annual and Sustainability Report 2023 .Other risks Credit risk Orthex’s credit risk exposure is mainly related to client payment behaviour. Orthex estimates the expected credit losses from their current receivables such as trade receivables and accrued revenues at each reporting date. Orthex recognises the expected credit loss allowance as impairment from these assets, which is defined as the difference between the contractual cash ﬂows and the expected cash ﬂows Orthex expects to receive. Details regarding the expected credit loss assessment include: - Analysis of receivables held in different portfolios. - Analysis of receivables are prepared based on customer characteristics. - An ECL analysis using both historical credit losses and an estimation on future credit losses (forward-looking parameters). - Default probability-% per group, based on historical information on the aging of the receivables and forward-looking parameters. The decision-making criteria used by management to measure the ECL includes: 1. Historically Orthex has minimal amount of bad debt. 2. Major clients are big retailers and credit risk relating to the retailers is minimal. 3. In export sales, Orthex uses credit collaterals to minimize the credit risk. 4. Average order amounts are small and Orthex has the ability to react quickly whenever there are signals from clients’ liquidity problems. Orthex’s customers are major retailers with solid credit ratings. Orthex monitors the credit ratings relating to its largest clients continuously. The risk for credit loss relating to the major retailers is considered to be low. For other clients, Orthex has credit collateral to manage the credit risk relating to the purchases made by those customers. The management uses historical outlook to assess the expected credit losses in addition to the current economic outlooks and client specific analysis. The maximum exposure to credit risk is the carrying amount of accounts receivables. In Orthex’s business, the average size of a single purchase order is small giving Orthex the ability to react to clients’ liquidity problems quickly. Orthex applies a simplified approach method for the assessment of the expected credit loss impairment. The calculation of expected credit losses (ECL) is based on historical data and, for parameters concerning the future, on the payment behaviour of customers. Any receivable, which is considered to be more than 90 days past due are considered to be defaulted and impaired and are written off from the receivable balance. Orthex does not have any major risk concentrations regarding the Group’s receivables and the trading partners are all well established companies with historically stable payment behaviour towards business transactions with Orthex. Trade receivables consist mainly of receivables from customers. Impairment losses of trade receivables recognised in profit or loss amounted to EUR 15.7 thousand during the year 2023. In 2022, impairment losses of trade receivables were EUR 11.1 thousand. The maturity distribution of trade receivables is presented in Note 14. Liquidity risk Management of liquidity risk aims to ensure that Orthex can meet its cash outﬂows and other financial obligations. Orthex’s financing requirement is covered by both optimising of operating activities and external financing in order to ensure that Orthex has continually sufficient liquidity or has access to committed credit facilities. Liquidity risks are monitored and managed centrally in the Group’s finance department. ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 111 Part of the financial statements Annual and Sustainability Report 2023 Maturity analysis The maturity of financial liabilities is monitored regularly. As of 31 Dec 2023, Orthex had cash and cash equivalents of EUR 11.6 million (31 Dec 2022: EUR 10.3 million). In addition, Orthex had access to unused credit facilities and bank overdrafts of EUR 7.0 million as of 31 Dec 2023 (31 Dec 2022: EUR 7.0 million). In 2022, Orthex entered into a 3+1+1-year credit facility agreement of EUR 32.5 million with Nordea Bank Plc. The credit facility agreement includes a 3+1+1-year term loan of EUR 25.5 million and a revolving credit facility of EUR 7.0 million. If the conditions specified in the credit facility agreement are met, the company may extend the agreement by 1 + 1 year. At 31 Dec 2023, EUR 25.5 million of the term-loan was in use. The term loan is currently repaid in bi-annual installments of EUR 1.5 million. Loans from the financial institutions include covenants. At 31 Dec 2023, the financial covenants were: net debt / adjusted EBITDA, capital expenditure, and adjusted EBITDA / net financial charges. The terms of loans from financial institutions also include indicators related to sustainability, which are related to the energy consumption of production and the percentage of scrap. The covenant terms have been complied with on 31 Dec 2023. The interest margin is variable and depends on the ratio of net debt and adjusted EBITDA. Orthex has given business mortgages amounting to EUR 48.1 million as of 31 Dec 2023 as a security for the loans from financial institutions. According to specific terms and conditions of the bank loan agreements, the most significant transactions require a prior written approval by the financial institutions, including ordinary terms and conditions protecting the creditor. Interest-bearing liabilities EUR thousand 31 Dec 2023 31 Dec 2022 Non-current interest-bearing liabilities Loans from credit institutions 19,391 22,363 Lease liabilities 6,629 6,480 Pension liabilities 3,613 3,179 Total non-current interest-bearing liabilities 29,633 32,022 Current interest-bearing liabilities Loans from credit institutions 3,000 3,000 Lease liabilities 1,252 1,290 Total current interest-bearing liabilities 4,252 4,290 Total interest-bearing liabilities 33,885 36,312 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 112 Part of the financial statements Annual and Sustainability Report 2023 The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments. Maturity distribution table 31 Dec 2023 EUR thousand 2024 2025 2026 2027 2028 Later Total Loans from credit institutions 2,973 2,973 2,973 13,473 - - 22,391 Interest 847 728 612 495 - - 2,682 Lease liabilities 1,794 1,590 1,440 1,355 1,083 2,862 10,123 Trade payables 9,302 9,302 Deridative financial instruments 41 41 Tot al 14,956 5,291 5,024 15,323 1,083 2,862 44,540 31 Dec 2022 EUR thousand 2023 2024 2025 2026 2027 Later Total Loans from credit institutions 3,000 3,000 3,000 3,000 13,500 25,500 Interest 1,313 1,078 907 730 581 4,608 Lease liabilities 1,799 1,485 1,284 1,16 9 1,126 3,266 10,12 9 Trade payables 8,231 8,231 Deridative financial instruments 8 8 Tot al 14,350 5,563 5,191 4,899 15,207 3,266 48,475 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 113 Part of the financial statements Annual and Sustainability Report 2023 Changes in liabilities arising from financing activities 2023 EUR thousand 1 Jan Lease changes Cash flows Translation differences Other Tot al 31 Dec Non-current loans from credit institutions 22,363 -1,500 -1,473 19,391 Non-current lease liabilities 6,480 1,308 -11 -1,148 6,629 Current loans from credit institutions 3,000 -1,500 1500 3,000 Current lease liabilities 1,290 123 -1,857 -4 1,700 1,252 Tot al 33,133 1,431 -4,857 -15 580 30,272 2022 EUR thousand 1 Jan Lease Changes Cash flows Translation differences Other Tot al 31 Dec Non-current loans from credit institutions 23,720 -1,357 22,363 Non-current lease liabilities 7, 5 4 4 789 - 519 -1,334 6,480 Current loans from credit institutions 3,000 -1,500 1,500 3,000 Current lease liabilities 1,214 157 -1,887 -103 1,909 1,290 Tot al 35,478 946 -3,387 -623 719 33,133 Fair value measurement The Group measures financial instruments such as derivatives at fair value at each balance sheet date. Fair value related disclosures for financial instruments and non-financial assets that are measured at fair value or where fair values are disclosed in this note. Aside from this note, additional fair value related disclosures, including the valuation methods, significant estimates and assumptions are also provided in Note 8. Orthex measures fair value for its financial instruments based on the most similar possible alternative that resembles the underlying instrument. The fair value of a financial instrument is the best estimate of the price on the markets that would be received when an asset is sold or paid when a liability is transferred between participants at a measurement date. It is assumed that the transaction is either performed in a principal market or through other market maker, which would give the best available price for the financial instrument. Orthex uses valuation techniques for the fair value measurement, which are most accurate for the circumstances and for which sufficient data is easily and readily available, maximising the use of observable data and minimising the use of unobservable inputs. ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 114 Part of the financial statements Annual and Sustainability Report 2023 Capital management Capital structure is assessed regularly by the Board of Directors and managed operationally by the CFO. Capital structure management in Orthex comprises both equity and interest-bearing debt. As of 31 Dec 2023, the equity attributable to shareholders was EUR 34.4 million (31 Dec 2022: EUR 29.7 million) and the amount of interest-bearing liabilities as of 31 Dec 2023 were EUR 33.9 million (31 Dec 2023: EUR 36.3 million). The objectives are to safeguard the ongoing business operations and to optimise the cost of capital. In order to achieve this overall objective, the Group’s capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings. There have been no breaches of the financial covenants of any interest-bearing loans and borrowing in the current or previous period. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group monitors capital using the equity ratio, which is counted as total equity / total assets. EUR thousand 31 Dec 2023 31 Dec 2022 Equity 34,436 29,711 Balance sheet total 85,568 81,837 Equity ratio 40.2 % 36.3 % No changes were made in the objectives, policies or processes for managing capital during the years ended 31 Dec 2023 and 31 Dec 2022. 12. Fair value hierarchy All the assets and liabilities for which the fair value is measured and disclosed are categorised on three levels of fair value hierarchy. Level 1 Financial instruments on level 1 are quoted on public and active markets for similar instruments. The prices are instantly available and the valuation does not require judgements. - Orthex does not have financial instruments on level 1. Level 2 Financial instruments on level 2 are not directly observable, but the valuation technique uses the lowest level inputs in the valuation estimates, which are readily available on a public market or through other market makers. This category includes: - Loans from credit institutions - Derivative instruments Level 3 Financial instruments on level 3 require valuation techniques where the lowest level valuation inputs are not available directly, and are thus unobservable. The measurement require independent consideration and judgements from the management. The valuation techniques, related inputs and assumptions for Level 3 fair value instruments are explained in detail alongside the tabular presentation of the fair values. - Orthex does not have financial instruments on level 3. For financial instruments that are measured at fair value on a recurring basis, Orthex determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting date. For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy, as explained above. Fair-value related disclosures for financial instruments and non-financial assets that are measured at fair value or where fair values are disclosed, are summarised in addition to this note in Note 11. Fair value measurement hierarchy The following tables provide the fair value measurement hierarchy of the Group’s assets and liabilities: ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 115 Part of the financial statements Annual and Sustainability Report 2023 Fair value measurement hierarchy for assets as at 31 Dec 2023 EUR thousand Level 1 Level 2 Level 3 Financial assets measured at fair value Derivative financial instruments Foreign exchange forward contracts and interest rate swaps - Fair value measurement hierarchy for liabilities as at 31 Dec 2023 EUR thousand Level 1 Level 2 Level 3 Financial liabilities for which fair values are disclosed Interest-bearing loans and borrowings Loans from credit institutions 22,391 Lease liabilities 7,8 81 Foreign exchange forward contracts 41 There have been no transfers between Level 1 and Level 2 during 2023. Fair value measurement hierarchy for assets as at 31 Dec 2022 EUR thousand Level 1 Level 2 Level 3 Financial assets measured at fair value Derivative financial instruments Foreign exchange forward contracts and interest rate swaps 93 Fair value measurement hierarchy for liabilities as at 31 Dec 2022 EUR thousand Level 1 Level 2 Level 3 Financial liabilities for which fair values are disclosed Interest-bearing loans and borrowings Loans from credit institutions 25,363 Lease liabilities 7,770 Foreign exchange forward contracts 8 There have been no transfers between Level 1 and Level 2 during 2022. ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 116 Part of the financial statements Annual and Sustainability Report 2023 13. Inventories Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition are accounted for, as follows: - Raw materials: purchase cost on a first-in/first-out basis - Finished goods and work in progress: cost of direct materials and labour and a proportion of manufacturing overheads based on the normal operating capacity 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. EUR thousand 31 Dec 2023 31 Dec 2022 Raw materials 1,119 1,681 Work in progress 32 15 Finished goods 11,508 13,051 Net realisable value allowance -571 -464 Tot al 12,088 14,283 14. Trade and other receivables EUR thousand 31 Dec 2023 31 Dec 2022 Trade receivables 16,031 11,787 Other receivables 88 18 Prepaid expenses and accrued income 1,747 1,582 Tot al 17,866 13,387 Ageing analysis of trade receivables EUR thousand 31 Dec 2023 31 Dec 2022 Not past due 14,987 11,004 Past due 1-60 days 1,026 699 Past due over 60 days 72 123 Impairment losses -55 -39 Tot al 16,031 11,787 The impairment losses recognised on trade receivables during the year 2023 amounted to EUR 55 thousand (2022: EUR 39 thousand). The loss allowance for trade receivables is based on the ageing of the accounts receivable. Historically the amount of overdue trade receivables have been low and the amount of overdue receivables have not materially increased. The aim is to minimise credit risks by active credit management and using credit collaterals. The expected loss rate for all trade receivables is 0.3%. Credit risks of trade receivables are presented in Note 11. 15. Trade and other payables EUR thousand 31 Dec 2023 31 Dec 2022 Trade payables 9,302 8,231 Other payables 1,058 1,15 9 Accrued expenses and deferred income: Wages, salaries and social costs 3,267 3,183 Customer rebates and commissions 1,018 791 Other 1,042 636 Tot al 15,687 14,000 Terms and conditions of the above payables: - Trade payables are non-interest bearing and are normally settled on 30 to 60 -day terms - Other payables are non-interest bearing and have an average term of six months - Interest related to loan is normally settled semi-annually throughout the financial year For explanations on the Group’s liquidity risk management processes, refer to Note 11. ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 117 Part of the financial statements Annual and Sustainability Report 2023 16. Share capital and reserves Number of outstanding shares Number of shares, total Share capital, EUR thousand Invested unrestricted equity fund, EUR thousand As at 1 Jan 2022 17,758,8 5 4 17,75 8,854 80 11,047 Transactions with owners: Capital return from the invested unrestricted equity fund - - 3,197 As at 31 Dec 2022 17,758, 854 17,758,854 80 7,851 As at 1 Jan 2023 17,758,8 5 4 17,75 8,854 80 7,851 As at 31 Dec 2023 17,758, 854 17,758,854 80 7,851 Earnings per share The basic (and diluted) earnings per share is calculated by dividing the result for the financial year attributable to the parent company’s shareholders by weighted average number of shares outstanding during the financial year. Earnings per share, basic (and diluted) 2023 2022 Net profit attributable to equity owners of the parent company, EUR thousand 6,892 2,121 Weighted average number of shares 17,75 8,85 4 17,75 8 , 85 4 Earnings per share, basic (and diluted), EUR 0.39 0.12 Board proposal for distribution of assets The Board of Directors of Orthex Corporation proposes to the Annual General Meeting on 9 April 2024 that shareholders will be paid a dividend of EUR 0.21 per share totalling approximately EUR 3.7 million. There have been no significant changes in the parent company’s financial position after the financial year-end. The company’s liquidity is good, and the Board of Directors deems that the company’s solvency will not be jeopardised by the proposed dividend distribution. Shares and share capital On 28 Feb 2021, the shareholders of the company decided with a unanimous decision to change the form of the company to a public limited liability company and to implement an increase in share capital by a capital increase to meet the required EUR 80,000 limit for a public limited liability company through a fund increase. In connection with the listing, the company carried out an offering which consisted of a public offering which increased the amount of shares, including cancellation of treasury shares, by 17,358,854 shares in March 2021. The company has single share class and each share carry one vote at the Annual General Meeting and equal rights to dividend and other distribution of assets. The shares have no nominal value. All shares issued have been paid in full. ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 118 Part of the financial statements Annual and Sustainability Report 2023 Invested unrestricted equity fund Invested unrestricted equity fund consists of other investments similar to equity and the subscription price of shares to the extent that it has not been recorded in share capital according to specific resolution. According to the current Finnish Companies Act, subscription price of new shares is recognised in the share capital, unless it has not been, according to issuance resolution, fully or partly recognised in the invested unrestricted equity fund. In connection with the listing, the company carried out an offering which consisted of a public offering in Finland, an institutional offering to institutional investors in Finland and in accordance with applicable laws, internationally; and personnel offering to employees of the group. With the share issue, the company raised gross proceeds of approximately EUR 10,000 thousand that was recognised in the invested unrestricted equity fund. In 2021, the company’s fees and expenses related to the listing amounted to EUR 2,281 thousand, of which EUR 857 thousand was recognised as expenses in connection with the offering against the funds received in the invested unrestricted equity fund less deferred tax of EUR 171 thousand. The Group’s personnel subscribed 156,236 shares in the personnel offering. The subscription price of EUR 6.14 per share was 10% lower than the subscription price for other shares subscribed in connection with the listing. The discount given to the personnel, EUR 106 thousand, has been accounted for under IFRS as share-based payments and it has been fully recorded as personnel expenses. The general meeting decided that for the financial period ended on 31 December 2021, shareholders be paid in two instalments a capital return of EUR 0.18 per share from the invested unrestricted equity fund totalling approximately EUR 3.2 million. The first instalment of the capital return amounting to EUR 0.09 per share was paid on 21 April 2022 and the second instalment amounting to EUR 0.09 per share on 11 October 2022. Treasury shares Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognised in the unrestricted equity fund. At 31 Dec 2023, the company did not have any treasury shares. 17. Related party disclosures Note 1 provides information about the Group’s structure, including details of the subsidiaries. The following table provides the total amount of transactions that have been entered into with related parties for the relevant financial year. Orthex’s related parties include the company’s Board of Directors and their family members, the CEO and his family members, significant shareholders, and members of the Management Team and their family members. Until March 2021, the Group was controlled by Sponsor Fund IV with a total ownership of 74.0 per cent of the parent company’s shares. In connection with the listing of the company, Conficap Oy became the company’s largest shareholder with a holding of 14.0% at year-end 2023. At the end of the financial year, the CEO together with his controlled entity owned 11.7 per cent of the Group’s parent company’s shares. EUR thousand Purchases of goods and services Members of the Board of Directors and CEO: Orthex Corporation 2023 - Orthex Corporation 2022 - Management remuneration Remuneration to the members of the Board of Directors, the CEO and other members of the Management Team is presented in Note 5. Other material business transactions Dividends and return of capital are paid to the Group’s board members and key management personnel based on the shares they hold. ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 119 Part of the financial statements Annual and Sustainability Report 2023 19. Subsequent events On 9 January 2024, Orthex announced that Peter Ottosson, member of Orthex’s Management Team and Operations Director of the Gnosjö factory, has decided to leave his position to assume a role with another employer. Mr Ottosson will continue in his current role until the month of May. Orthex has started the succession planning process. On 30 January 2024, Orthex Corporation disclosed the Shareholders’ Nomination Board’s proposals to the Annual General Meeting 2024 regarding the composition and remuneration of the Board of Directors. The Shareholders’ Nomination Board proposes that the Board of Directors would consist of five (5) members and that Sanna Suvanto-Harsaae, Markus Hellström, Jyrki Mäki-Kala, Jens-Peter Poulsen and Anette Rosengren would be re-elected to the Board, all for a term of office ending at the end of the next Annual General Meeting. All director nominees have consented to their election and confirmed that they are independent of the company and its significant shareholders. Background information on the director nominees is available on the corporate website https://investors.orthexgroup.com/governance/ board-of-directors/. 18. Collaterals, commitments and contingent assets and liabilities This Note presents information on items not included in calculations when preparing the financial statements. EUR thousand 31 Dec 2023 31 Dec 2022 Guarantees and mortgages given on own behalf: Enterprise mortgages 50,065 50,060 Property mortgages 10,19 2 10,19 2 Other guarantees 102 50 Tot al 60,359 60,303 Contingent liabilities Orthex Group was subject to a tax audit of Orthex Corporation regarding the financial years 2020 and 2021. Orthex Corporation received early in May 2022 a tax audit report from the Finnish tax authorities. The tax audit report included subsequent taxes and tax increases amounting to a total of EUR 0.3 million relating to the VAT deductibility of IPO related costs. The company disagrees with the interpretation made in the tax audit. The company was requested to pay additional taxes in accordance with the interpretations set out in the tax audit report. The company paid the subsequent taxes and tax increases in June 2022 but has filed a claim for adjustment to its taxation to the Assessment Adjustment Board of the Finnish tax authority. The Group has not recognised the subsequent taxes and tax increases in the consolidated statement of comprehensive income. At the time of releasing the financial statements, the company’s claim for adjustment was still pending. Regarding the remuneration of the members of the Board of Directors, the Shareholders’ Nomination Board proposes that the Board fees remain the same and that the Chair of the Board of Directors be paid a monthly fee of EUR 4,000 and other members of the Board of Directors a monthly fee of EUR 2,000. The Nomination Board further proposes that reasonable travel and other expenses related to the Board work be reimbursed in accordance with the company’s travel rules. On 14 February 2024, Orthex announced that Operations Director Tom Ståhlberg has been appointed Chief Supply Officer (CSO) assuming the overall responsibility for Orthex production, supply chain and purchasing starting 1 March 2024. The change also removed the need to replace Peter Ottosson’s position in the Management Team. ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 120 Part of the financial statements Annual and Sustainability Report 2023 Parent company financial statements, FAS Parent company income statement EUR Note 1 Jan - 31 Dec 2023 1 Jan - 31 Dec 2022 Net sales 2 840,000.00 840,000.00 Administrative expenses -1,313,057.17 -1,129,658.85 Operating profit - 473,057.17 -289,658.85 Interest income from group companies 632,065.24 596,288.04 Dividends received from group companies 7,000,000.00 2,000,000.00 Other interest and financial income from others 59,602.27 0.01 Interest and financial expenses to others -1,578 ,15 0.03 -640,831.85 Financial income and expenses 5 6,113,517.48 1,955,456.20 Profit (loss) before appropriations and taxes 5,640,460.31 1,665,797.3 5 Appropriations Group contribution 6 3,400,000.00 3,100,000.00 Income taxes 7 -404,458.31 -462,066.80 Profit (loss) for the period 8,636,002.00 4,303,730.55 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 121 Part of the financial statements Annual and Sustainability Report 2023 Parent company balance sheet EUR Note 31 Dec 2023 31 Dec 2022 ASSETS NON-CURRENT ASSETS Investments Holdings in subsidiaries 8 25,295,133.29 25,295,133.29 Receivables from subsidiaries 8 11,16 6,487.06 10,534,421.82 Investments total 36,461,620.35 35,829,555.11 NON-CURRENT ASSETS TOTAL 36,461,620.35 35,829,555.11 CURRENT ASSETS Short-term receivables Receivables from subsidiaries 9 5,481,359.46 2,402,779.70 Prepayments and accrued income 10 261,157.41 360,668.86 Short-term receivables total 5,742,516.87 2,763,448.56 Cash and cash equivalents 148,760.99 135,414.20 CURRENT ASSETS TOTAL 5,891,277.86 2,898,862.76 ASSETS TOTAL 42,352,898.21 38,728,417.87 EUR Note 31 Dec 2023 31 Dec 2022 SHAREHOLDERS’ EQUITY AND LIABILITIES SHAREHOLDERS’ EQUITY Share capital 80,000.00 80,000.00 Invested unrestricted equity fund 8,430,263.84 8,430,263.84 Retained earnings 1,921,421.42 - 428 ,835.19 Profit (loss) for the period 8,636,002.00 4,303,730.55 SHAREHOLDERS’ EQUITY TOTAL 11 19,067,687.26 12,385,159.20 LIABILITIES Long-term liabilities Loans from credit institutions 12 19,500,000.00 22,500,000.00 Long-term liabilities total 19,500,000.00 22,500,000.00 Short-term liabilities Loans from credit institutions 12 3,000,000.00 3,000,000.00 Income tax liabilities 404,458.31 462,066.80 Trade payables 18,646.07 56,800.19 Other payables 46,026.94 3 8,135.64 Accruals and deferred income 13 316,079.63 286,256.04 Short-term liabilities total 3,785,210.95 3,843,258.67 LIABILITIES TOTAL 23,285,210.95 26,343,258.67 SHAREHOLDERS’ EQUITY AND LIABILITIES TOTAL 42,352,898.21 38,728,417.87 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 122 Part of the financial statements Annual and Sustainability Report 2023 Parent company statement of cash flows EUR Note 1 Jan - 31 Dec 2023 1 Jan - 31 Dec 2022 Cash flows from operating activities Profit before appropriations and tax 5,640,460.31 1,665,797.35 Adjustments: Financial income and expenses 5 - 8,113,517. 48 -1,955,456.20 Other adjustments 0.01 -44,630.90 Cash flows before changes in working capital -2,473,057.16 -334,289.75 Changes in working capital Decrease (+) / increase (–) in trade and other receivables 2,160,533. 9 6 -239,680.53 Decrease (–) / increase (+) in trade and other payables -439.23 2,065,610.05 Cash flows from operating activities before financial items and taxes -312,962.43 1,491,639.77 Interests and other financing expenses paid -1,578,150.03 -596,200.95 Dividends received 5,088,672.52 - Income taxes paid -462,066.80 - Net cash flows from operating activities 2,735,493.26 895,438.82 Cash flows from investing activities Net cash flows from investing activities - - EUR Note 1 Jan - 31 Dec 2023 1 Jan - 31 Dec 2022 Cash flows from financing activities Dividend distribution -1,953,473.94 - Capital return from the invested unrestricted equity fund - -3,196,593.72 Repayment of short-term loans -3,000,000.00 -1,500,000.00 Proceeds from long-term borrowings - 25,500,000.00 Repayment of long-term borrowings - -25,500,000.00 Group contributions received 2 , 231,327. 4 8 3,740,000.00 Net cash flows from financing activities -2,722,146.46 -956,593.72 Net change in cash and cash equivalents 13,346.80 - 61,15 4. 9 0 Cash and cash equivalents at 1 January 135,414.19 196,569.09 Cash and cash equivalents at 31 December 148,760.99 135,414.19 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 123 Part of the financial statements Annual and Sustainability Report 2023 Notes to the parent company financial statements 1. Parent company accounting principles The financial statements of Orthex Corporation have been prepared in accordance with the Finnish Accounting Act and Ordinance and other statutes regulating the preparation of financial statements (Finnish Accounting Standards, FAS). The financial statements are presented in euros. The preparation of financial statements in conformity with regulations in force and generally accepted accounting principles requires management to make estimates and assumptions that affect the valuation of assets and liabilities and reported amounts of revenues and expenses. Actual results could differ from those estimates. Transactions in foreign currencies Transactions in foreign currencies are recorded at the rates of exchange prevailing at the date of the transaction. At the end of the reporting period balances in foreign currencies are translated using the exchange rate prevailing at the end of the reporting period. Income taxes Income taxes consist of the aggregate current tax expense based on the Finnish tax rules and adjustments to prior year taxes. The parent company does not account for deferred taxes as a stand- alone entity. Receivables Receivables are valued at the lower of book value and recoverable value. Derivatives Orthex Corporation has interest rate derivatives. Hedge accounting is not applied to interest rate derivatives to the extent that the derivatives protect the parent company’s interest rate risk. The fair values of the derivatives are recorded in the balance sheet and changes in the fair value are recorded in the financial items of the income statement. The realized profit or loss of interest rate swaps hedging variable rate loans is presented in the income statement in financial items. The fair values of interest rate swaps are determined using a method based on the present value of future cash ﬂows, which is supported by market interest rates at the end of the reporting period and other market information. Appropriations Appropriations in the parent company balance sheet consist of received group contributions. 2. Net sales Net sales EUR 2023 2022 Administration services 840,000.00 840,000.00 3. Personnel costs and number of employees Personnel costs, book value EUR 2023 2022 Wages and salaries 828,775.51 763,240.79 Pension costs 97,616 . 8 6 114,731.09 Other personnel costs 12,651.85 16,030.41 Tot al 939,044.22 894,002.29 CEO and Board remuneration, book value EUR 2023 2022 CEO 437,427.00 437,761.00 Board of Directors 144,000.00 144,000.00 Number of employees Average (FTE) 2023 2022 Employees 2 2 Tot al 2 2 The CEO and CFO of Orthex Group work in Orthex Corporation. ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 124 Part of the financial statements Annual and Sustainability Report 2023 4. Fees paid to company’s auditors EUR 2023 2022 Audit fees 116,166.00 83,176.0 0 Other 3,000.00 19,032.03 Tot al 119,166.00 102,208.03 5. Financial income and expenses EUR 2023 2022 Interest and financial income from group companies 632,065.24 596,288.04 Dividends received from group companies 7,000,000.00 2,000,000.00 Other interest and financial income from others 59,602.27 0.01 Total financial income 7,691,667.51 2,596,288.05 Interest and financial expenses to others -1, 578,150.03 -640,831.85 Total financial expenses -1,578,15 0.03 -640,831.85 Total financial income and expenses 6,113,517.48 1,955,456.20 8. Investments EUR Holdings in subsidiaries Receivables from subsidiaries Total Acquisition cost Balance at 1 Jan 2022 25,295,133.29 9,938,133.78 35,233,267.07 Additions - 596,288.04 596,288.04 Balance at 31 Dec 2022 25,295,133.29 10,534,421.82 35,829,555.11 Additions - 632,065.24 632,065.24 Balance at 31 Dec 2023 25,295,133.29 11,166,487.06 36,461,620.35 Shares in subsidiaries Number of shares Domicile % of share capital Book value, EUR Oy Orthex Finland Ab 135,170 Helsinki 100 25,295,133.29 Total, Dec 31 2023 25,295,133.29 6. Appropriations EUR 2023 2022 Group contribution received 3,400,000.00 3,100,000.00 Tot al 3,400,000.00 3,100,000.00 7. Income taxes EUR 2023 2022 Current year taxes -404,458.31 -462,066.80 Tot al -404,458.31 -462,066.80 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 125 Part of the financial statements Annual and Sustainability Report 2023 11. Shareholders’ equity EUR 2023 2022 Share capital, 1 Jan 80,000.00 80,000.00 Share capital, 31 Dec 80,000.00 80,000.00 Invested unrestricted equity fund, 1 Jan 8,430,263.84 11,626,857.5 6 Capital return from the invested unrestricted equity fund - -3,196,593.72 Invested unrestricted equity fund, 31 Dec 8,430,263.84 8,430,263.84 Retained earnings, 1 Jan 3,874,895.36 -428,835.19 Dividend distribution -1,953,473.94 - Retained earnings, 31 Dec 1,921,421.42 -428,835.19 Profit (loss) for the period 8,636,002.00 4,303,730.55 Distributable earnings, 31 Dec 18,987,687.26 12,305,159.20 Shareholders’ equity total, 31 Dec 19,0 67,687.26 12,385,159.20 9. Receivables from subsidiaries EUR 2023 2022 Sales receivables - 171,452.22 Other receivables 5,481,359.46 2,231,327.48 Tot al 5,481,359.46 2,402,779.70 10. Prepayments and accrued income EUR 2023 2022 Value added taxes related to the tax audit 265,828.75 265,828.75 Derivatives - 92,766.00 Other items -4,671.34 2,074.11 Tot al 261,157.41 360,668.86 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 126 Part of the financial statements Annual and Sustainability Report 2023 12. Long-term liabilities EUR 31 Dec 2023 31 Dec 2022 Loans from credit institutions: Payable in the next 12 months 3,000,000.00 3,000,000.00 Payable between one and five years 19,500,000.00 22,500,000.00 13. Accruals and deferred income EUR 31 Dec 2023 31 Dec 2022 Wages, salaries and social costs 153,483.69 108,193.07 Derivatives 10,821.00 - Other 151,774.94 178,062.97 Tot al 316,079.63 286,256.04 The value of the underlying asset of the derivatives in the financial statements on 31 December 2023 was EUR 11,250,000.00, and the maturity date of the derivatives is 22 December 2025. 14. Contingencies and pledged assets EUR 31 Dec 2023 31 Dec 2022 Pledges given on behalf of Group companies: Enterprise mortgages 48,100,000.00 48,100,000.00 Property mortgages 10,192,32 9.66 10,192,32 9.66 Tot al 58,292,329.66 58,292,329.66 The company has a credit limit of EUR 7,000,000.00, of which EUR 1,000,000.00 has been allocated to Oy Orthex Finland Ab and EUR 878,023.08 to Orthex Sweden AB. Contingent liabilities Orthex Corporation was subject to a tax audit regarding the financial years 2020 and 2021. The company received in February 2022 a tax audit report from the Finnish tax auhorities. The tax audit report included subsequent taxes and tax increases amounting to a total of EUR 0.3 million, relating to the VAT deductibility of IPO related costs. The company disagrees with the interpretation made in the tax audit and has filed a claim for adjustment. The company was requested to pay additional taxes in accordance with the interpretations set out in the tax audit report. The company paid the subsequent taxes and tax increases in June 2022 but has filed a claim for adjustment to its taxation to the Assessment Adjustment Board of the Finnish tax authority. The company has not recognised the subsequent taxes and tax increases in the income statement. At the time of releasing the financial statements, the company’s claim for adjustment was still pending. 15. Company shares The company has 17,758,854 shares. The company’s share capital is EUR 80,000.00. Each share entitles its holder to one vote at the Annual General Meeting. 127 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Signatures of the Board of Directors’ report and financial statements Espoo, 4 March 2024 Sanna Suvanto-Harsaae, Chair of the Board of Directors Markus Hellström Jyrki Mäki-Kala Jens-Peter Poulsen Anette Rosengren Alexander Rosenlew, CEO Auditor’s note Our auditor’s report has been issued today. Espoo,  March  Ernst & Young Oy Authorised Public Accountant Firm Mikko Rytilahti Authorised Public Accountant 128 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Auditor’s report To the Annual General Meeting of Orthex Corporation Report on the Audit of the Financial Statements Opinion We have audited the financial statements of Orthex Oyj (business identity code 2727990-2) for the year ended 31 December 2023. The financial statements comprise the consolidated balance sheet, income statement, statement of comprehensive income, statement of changes in equity, statement of cash ﬂows and notes, including material accounting policy information, as well as the parent company’s balance sheet, income statement, statement of cash ﬂows and notes. In our opinion • the consolidated financial statements give a true and fair view of the group’s financial position as well as its financial performance and its cash ﬂows in accordance with IFRS Accounting Standards as adopted by the EU. • the financial statements give a true and fair view of the parent company’s financial performance and financial position in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements. Our opinion is consistent with the additional report submitted to the Board of Directors. Basis for Opinion We conducted our audit in accordance with good auditing practice in Finland. Our responsibilities under good auditing practice are further described in the Auditor’s Responsibilities for the Audit of Financial Statements section of our report. We are independent of the parent company and of the group companies in accordance with the ethical requirements that are applicable in Finland and are relevant to our audit, and we have fulfilled our other ethical responsibilities in accordance with these requirements. In our best knowledge and understanding, the non-audit services that we have provided to the parent company and group companies are in compliance with laws and regulations applicable in Finland regarding these services, and we have not provided any prohibited non-audit services referred to in Article 5(1) of regulation (EU) 537/2014. The non-audit services that we have provided have been disclosed in note 4 to the consolidated financial statements. 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 fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of Financial Statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements. We have also addressed the risk of management override of internal controls. This includes consideration of whether there was evidence of management bias that represented a risk of material misstatement due to fraud. 129 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Key Audit Matter How our audit addressed the Key Audit Matter Valuation of goodwill We refer to note 8 to the consolidated financial statements. The value of goodwill at the date of the financial statements amounted to 22.3 million euros, representing 26.1% of the group’s total assets and 64.8% of the group’s equity. Valuation of goodwill is based on management’s estimates about the value-in-use calculations of the group’s cash generating units. There are a number of underlying assumptions used to determine the value-in-use of a cash generating unit, including the development of revenue and profitability and the discount rate applied to cash flows estimates. The results of value-in-use calculations may vary significantly when the underlying assumptions are changed. Changes in the above-mentioned individual assumptions may result in an impairment of goodwill. Valuation of goodwill was a key audit matter because the assessment process requires significant management judgements and forecasts to be made, because it is based on assumptions related to market and economic conditions extending far into the future and because the amount of goodwill is material to the consolidated financial statements. This matter was also a significant risk of material misstatement as defined by EU Regulation No 537/2014, point (c) of Article 10(2). Our audit procedures to address the risk of material misstatement regarding valuation of goodwill included among others: • involving our valuation specialists to assist us in assessing the appropriateness of the methodologies, impairment calculations and underlying assumptions applied by management in the impairment testing; • testing the mathematical accuracy of the impairment calculations; • comparing the key assumptions applied by management in the impairment testing to approved budgets and forecasts, information available in external sources and our independently calculated industry averages such as for the weighted average cost of capital used in discounting cash flows; • comparing the outcome of the impairment test to the market capitalization of Orthex Oyj; and • comparing the principles applied by management in the impairment testing to the requirements set out in the standard IAS 36 Impairment of Assets. We also assessed the appropriateness of the disclosures regarding impairment testing made in the notes to the consolidated financial statements. Revenue recognition We refer to note 2 to the consolidated financial statements. According to the accounting policy presented in the consolidated financial statements, revenue from the sales of goods is recognized at the point in time when control of the goods is transferred to the customer. Cash and volume discounts granted to customers are taken into account when determining the amount of revenue recognized. The revenue of Orthex Group is mainly generated from sales of household products to retailers. There are multiple varying contractual terms across the group’s markets regarding the above-mentioned discounts which could lead to misstatement of revenue, either due to fraud or error. The group focuses on revenue as a key performance measure which could create an incentive for revenue to be recognized prematurely. Due to these circumstances, revenue recognition was determined to be a key audit matter. This matter was also a significant risk of material misstatement as defined by EU Regulation No 537/2014, point (c) of Article 10(2). Our audit procedures to address the risk of material misstatement regarding revenue recognition included among others: • assessing the compliance of the group’s accounting policies over revenue recognition, including those related to discounts, with the applicable accounting standards; • analyzing a sample of contracts with customers and comparing the terms determined in them to the terms used in the group’s calculations regarding discounts; • testing the mathematical accuracy of the group’s calculations of discounts and assessing the adequacy of liabilities recognized based on those calculations; • testing the accuracy of revenue recognition by performing both analytical procedures and tests of details on a transaction level before and after the date of the financial statements; and • analyzing the timing of revenue recognition based on delivery lead times. We also assessed the appropriateness of the disclosures regarding revenue recognition made in the notes to the consolidated financial statements. 130 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Key Audit Matter How our audit addressed the Key Audit Matter Valuation of inventories We refer to note 13 to the consolidated financial statements. The value of inventories at the date of the financial statements amounted to 12.1 million euros, representing 14.1% of the group’s total assets and 35.2% of the group’s equity. Inventories are valued at the lower of cost or net realizable value. Inventories are presented net of an impairment loss allowance recognized for slow-moving or obsolete inventories or for inventories that have an otherwise lower net realizable value than cost. Valuation of inventories was a key audit matter because the carrying value of inventories is material to the consolidated financial statements and because valuation of inventories involves management’s judgment and estimates in order to determine the amount of slow-moving or obsolete inventories as well as the net realizable value of inventories. Our audit procedures included among others: • assessing the group’s accounting policies over inventory valuation and comparing them to the applicable accounting standards; • comparing unit values of selected inventory items to sales prices; • testing exceptional inventory values using data analysis; • assessing the assumptions applied and the calculations prepared by management regarding slow-moving or obsolete inventories and the expected demand and net realizable value of inventory items; and • testing the mathematical accuracy of the impairment loss allowance calculations prepared by management and assessing the adequacy of the allowances recognized. We also assessed the appropriateness of the disclosures regarding valuation of inventories made in the notes to the consolidated financial statements. 131 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 Responsibilities of the Board of Directors and the Managing Director for the Financial Statements The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with IFRS Accounting Standards as adopted by the EU, and of financial statements that give a true and fair view in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Board of Directors and the Managing Director are responsible for assessing the parent company’s and the group’s ability to continue as going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting. The financial statements are prepared using the going concern basis of accounting unless there is an intention to liquidate the parent company or the group or cease operations, or there is no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance on whether the 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 good auditing practice will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to inﬂuence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with good auditing practice, we exercise professional judgment and maintain professional skepticism 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 parent company’s or 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 the Board of Directors’ and the Managing Director’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 parent company’s or the 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 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 parent company or the group 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 so that the financial statements give a true and fair view. • 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. 132 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW Annual and Sustainability Report 2023 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 financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s 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. Other Reporting Requirements Information on our audit engagement We were first appointed as auditors by the Annual General Meeting on May 7, 2009 and our appointment represents a total period of uninterrupted engagement of 15 years. Orthex Oyj has been a public interest entity since March 25, 2021. Other information The Board of Directors and the Managing Director are responsible for the other information. The other information comprises the report of the Board of Directors and the information included in the Annual Report, but does not include the financial statements and our auditor’s report thereon. We have obtained the report of the Board of Directors prior to the date of this auditor’s report, and the Annual Report is expected to be made available to us after that date. Our opinion on the financial statements does not cover the other information. In connection with our audit of the financial statements, our responsibility is to read the other information identified above 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. With respect to report of the Board of Directors, our responsibility also includes considering whether the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations. In our opinion, the information in the report of the Board of Directors is consistent with the information in the financial statements and the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, 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. Espoo, March 4, 2024 Ernst & Young Oy Authorized Public Accountant Firm Mikko Rytilahti Authorized Public Accountant Annual and Sustainability Report 2023 ANNUAL REVIEW SUSTAINABILITY GOVERNANCE FINANCIAL REVIEW 133 Orthex Corporation, Public limited company Suomalaistentie 7, 02270 Espoo, Finland FI27279902 www.orthexgroup.com Orthex Plc. Orthex Plc. 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