Tallink Grupp

Annual Report (ESEF) • Apr 3, 2023

529900QRMWAKKR3L9W75 2022-12-31 529900QRMWAKKR3L9W75 2021-12-31 529900QRMWAKKR3L9W75 2022-01-01 2022-12-31 529900QRMWAKKR3L9W75 2021-01-01 2021-12-31 529900QRMWAKKR3L9W75 2020-12-31 529900QRMWAKKR3L9W75 2021-12-31 ifrs-full:IssuedCapitalMember 529900QRMWAKKR3L9W75 2021-12-31 ifrs-full:SharePremiumMember 529900QRMWAKKR3L9W75 2021-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 529900QRMWAKKR3L9W75 2021-12-31 ifrs-full:RevaluationSurplusMember 529900QRMWAKKR3L9W75 2021-12-31 ifrs-full:StatutoryReserveMember 529900QRMWAKKR3L9W75 2021-12-31 ifrs-full:RetainedEarningsMember 529900QRMWAKKR3L9W75 2021-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember 529900QRMWAKKR3L9W75 2022-01-01 2022-12-31 ifrs-full:IssuedCapitalMember 529900QRMWAKKR3L9W75 2022-01-01 2022-12-31 ifrs-full:SharePremiumMember 529900QRMWAKKR3L9W75 2022-01-01 2022-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 529900QRMWAKKR3L9W75 2022-01-01 2022-12-31 ifrs-full:RevaluationSurplusMember 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ifrs-full:RevaluationSurplusMember 529900QRMWAKKR3L9W75 2020-12-31 ifrs-full:StatutoryReserveMember 529900QRMWAKKR3L9W75 2020-12-31 ifrs-full:RetainedEarningsMember 529900QRMWAKKR3L9W75 2020-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember 529900QRMWAKKR3L9W75 2021-01-01 2021-12-31 ifrs-full:IssuedCapitalMember 529900QRMWAKKR3L9W75 2021-01-01 2021-12-31 ifrs-full:SharePremiumMember 529900QRMWAKKR3L9W75 2021-01-01 2021-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 529900QRMWAKKR3L9W75 2021-01-01 2021-12-31 ifrs-full:RevaluationSurplusMember 529900QRMWAKKR3L9W75 2021-01-01 2021-12-31 ifrs-full:StatutoryReserveMember 529900QRMWAKKR3L9W75 2021-01-01 2021-12-31 ifrs-full:RetainedEarningsMember 529900QRMWAKKR3L9W75 2021-01-01 2021-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember iso4217:EUR iso4217:EUR xbrli:shares ANNUAL REPORT 2022 AS TALLINK GRUPP 2 | 119 AS Tallink Grupp Annual Report 2022 Contents Beginning of the financial year 1 January 2022 End of the financial year 31 December 2022 CONTENTS THE GROUP ....................................................................................................................................... 4 LETTER TO SHAREHOLDERS ............................................................................................................... 5 MANAGEMENT REPORT....................................................................................................................... 7 CORPORATE GOVERNANCE REPORT .............................................................................................. 24 REMUNERATION REPORT ..................................................................................................................32 ENVIRONMENTAL AND CORPORATE SOCIAL RESPONSIBILITY ..........................................................33 EU TAXONOMY REPORTING ..............................................................................................................39 MANAGEMENT BOARD’S CONFIRMATION ........................................................................................ 45 CONSOLIDATED FINANCIAL STATEMENTS........................................................................................ 46 Consolidated Statement of Profit or Loss and Other Comprehensive Income ............................... 46 Consolidated Statement of Financial Position ............................................................................... 47 Consolidated Statement of Cash Flows ....................................................................................... 48 Consolidated Statement of Changes in Equity ..............................................................................49 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ................................................................. 51 Note 1 Corporate Information .................................................................................................... 51 Note 2 Basis of Preparation ....................................................................................................... 51 Note 3 Significant Accounting Policies ....................................................................................... 57 Note 4 Segment Information...................................................................................................... 72 Note 5 Operating Expenses and Financial Items ........................................................................ 77 Note 6 Income Tax..................................................................................................................... 78 Note 7 Earnings Per Share (EPS) ............................................................................................... 80 Note 8 Cash and Cash Equivalents ........................................................................................... 81 Note 9 Trade and Other Receivables ......................................................................................... 81 Note 10 Prepayments ................................................................................................................ 81 Note 11 Inventories .................................................................................................................... 82 Note 12 Investments in Equity-Accounted Investees .................................................................. 82 Note 13 Other Long-term Financial Assets and Other Prepayments .......................................... 83 Note 14 Property, Plant and Equipment .................................................................................... 83 Note 15 Intangible Assets .......................................................................................................... 86 Note 16 Interest-Bearing Loans and Borrowings......................................................................... 87 Note 17 Leases........................................................................................................................... 91 3 | 119 AS Tallink Grupp Annual Report 2022 Contents Note 18 Trade and Other Payables ............................................................................................92 Note 19 Deferred Income ...........................................................................................................93 Note 20 Share Capital and Reserves .........................................................................................93 Note 21 Contingencies and Commitments .................................................................................94 Note 22 Government Assistance ................................................................................................95 Note 23 Related Party Disclosures .............................................................................................96 Note 24 Group Entities ..............................................................................................................98 Note 25 Financial Risk Management..........................................................................................99 Note 26 Going Concern .......................................................................................................... 104 Note 27 Subsequent Events ..................................................................................................... 104 Note 28 Primary Financial Statements of the Parent ............................................................... 105 STATEMENT BY THE MANAGEMENT BOARD ..................................................................................... 109 INDEPENDENT AUDITORS’ REPORT .................................................................................................. 110 ALTERNATIVE PERFORMANCE MEASURES ........................................................................................ 116 CONTACT INFORMATION ................................................................................................................ 119 4 | 119 AS Tallink Grupp Annual Report 2022 The Group THE GROUP AS Tallink Grupp (“the Company”) with its subsidiaries (“the Group”) is the leading European ferry operator, which has been offering high quality mini-cruise, passenger transport and ro-ro cargo services in the northern part of the Baltic Sea for over 30 years. The Group’s business model entails providing its services on routes between Estonia, Finland, Sweden and Latvia under the brand names of “Tallink” and “Silja Line”. The Group has a fleet of 15 vessels that include cruise ferries, high-speed ro-pax ferries and ro-ro cargo vessels. In addition, the Group operates three quality hotels in Tallinn city centre and one in Riga (suspended in 2022), and, as the Burger King franchise owner in the Baltics, 18 restaurants of the fast food chain in Estonia, Latvia and Lithuania. The Group runs a successful international travel retail business with a number of shops on board and on shore, and a growing e-commerce presence in the Group’s home markets. STRATEGY The Group’s vision is to be the market pioneer in Europe by offering excellence in leisure and business travel and sea transportation services. The Group’s long-term strategy is to: • Strive for the highest level of customer satisfaction • Improve profitability and strengthen the leading position in our home markets • Develop a wide range of quality services for different customers and pursue new growth opportunities • Based on the demand on the core routes, manage optimal capacity by operating or chartering out vessels • Ensure cost efficient operations • Maintain an optimal debt level that allows paying sustainable dividends A modern fleet, a wide route network, a strong market share and brand awareness together with high safety, security and environmental standards are the main competitive advantages for the Group. These are the cornerstones for successful and profitable operations. 5 | 119 AS Tallink Grupp Annual Report 2022 Letter to Shareholders LETTER TO SHAREHOLDERS Dear shareholders For the third year in a row, we are starting the review of the previous year with the message “It was an unprecedented year in the history of our business.” While in 2021 this was due to the pandemic and its impacts, 2022 brought with it a new kind of evil and different challenges with war breaking out in Europe, which Tallink has not experienced in such proximity during its 33-year history. Before 24 February 2022, pandemic restrictions were lifting for the first time in nearly two years, borders were fully opening, passengers were returning to our vessels and hotels, and hope was shining bright for the year ahead that was going to see a rapid recovery of business. And recovery we did indeed see, although it was somewhat dampened by the war, particularly in the first half of the year, and the geopolitical and economic turbulence that echoed across the globe as a result. With the above in mind, the results of the Group’s and all its employees’ efforts should be considered rather remarkable. The fact that despite everything, we were still able to continue this path of recovery throughout the year and cross the line back into the black with our financial result by the end of the year, speaks volumes of the perseverance of the people who work for Tallink, the loyalty of the customers who travel with Tallink and the faith of the people who have continued to invest in Tallink. And for this, I thank you all. It is clear that in global history, the year 2022 will mostly be remembered for the start of the war in Ukraine. For nearly a year already, Tallink has played its part in the relief effort to support the millions of displaced Ukrainians, both through free transport for refugees on our vessels and free transport of essential humanitarian aid, but also through providing shelter to thousands of Ukrainian refugees on two of our vessels, on Isabelle in Tallinn and on Victoria I in Edinburgh. Since the start of the war in Ukraine, more than 5 000 Ukrainian refugees had found temporary shelter on the vessel Isabelle. Tallink will continue its support to the governments as long as it is needed with the temporary accommodation, the contracts of which have undeniably also helped and supported Tallink Grupp during the period when passenger numbers are still recovering, and alternative work was necessary for our vessels not currently in regular traffic. The year, of course, was not all dark clouds and no silver linings. Passenger numbers nearly doubled year on year to 5.5 million by the end of 2022, onboard spending per passenger increased compared to previous years, there was significant interest in our vessels for hire, which led to a number of charters and charter extensions, and the icing on the cake, of course, was the arrival of our newest fleet member and the most modern vessel on the Baltic sea – MyStar – in December. All this has laid a strong foundation to build on in 2023. The year ahead will see us continuing to focus on the rebuild and recovery of our core routes between Estonia, Finland and Sweden, and ensuring an optimal growth of these core routes in the future. We will pay close attention to the passenger numbers and occupancy levels of the ships in regular traffic, and we are not afraid to make changes in our operations if there is a clear need to do so. We will also continue to monitor the need for short- and long-term vessel chartering and, if the timing and opportunity are right, we will carry on with the successful chartering projects, which have helped us keep our nose above water during the COVID-19 years and thereafter. We will certainly also keep our sights on the more distant future beyond 2023, which will no doubt bring new opportunities and challenges. As we develop future strategies, these will have a stronger 6 | 119 AS Tallink Grupp Annual Report 2022 Letter to Shareholders focus than ever before on sustainability. With new environmental regulations and directives, such as the Corporate Sustainability Reporting Directive (CSRD) and amendments to the EU Emissions Trading System (ETS) taking effect in the very near future, we are already today reassessing the impact we have on the world around us and the impact the world has on our business, and are taking the steps to reduce the negative impacts of our operations. We are, in many ways, on the verge of a new tomorrow and making sure we are ready for this, is essential for our long-term future. Dear investors, customers, employees - I thank you once again for your faith, loyalty and dedication to Tallink Grupp and everything we do and stand for. I promise, on behalf of our Management Board and everyone within the Group, that we will continue working hard in 2023 and beyond to ensure your faith, loyalty and dedication to us is rewarded many times over in the years to come. Yours sincerely, Paavo Nõgene Chairman of the Management Board 7 | 119 AS Tallink Grupp Annual Report 2022 Management Report MANAGEMENT REPORT In the 2022 financial year (1 January – 31 December), AS Tallink Grupp and its subsidiaries (the Group) carried 5.5 million passengers, which is 84.4% more than in the financial year 2021. The number of cargo units transported increased by 11.0% compared to the previous financial year. The Group’s audited consolidated revenue amounted to EUR 771.4 million (EUR 476.9 million in 2021), up by 61.7%. Revenue from route operations (core business) increased by EUR 236.4 million to EUR 629.0 million compared to the financial year 2021. The audited EBITDA was EUR 135.8 million (EUR 58.3 million in 2021) and the audited net profit for the period was EUR 13.9 million (net loss of EUR 56.6 million in the financial year 2021). The following operational factors impacted the Group’s revenue and operating results in the financial year 2022: → In the beginning of the financial year, the Group’s operations and operating results were continuously influenced by the COVID-19 in all home markets. The demand for travelling increased after the travel restrictions were lifted in February in Finland and Sweden, and in Estonia from mid-March. → The demand was negatively impacted by the strong COVID-19 related travel restriction imposed by Asian countries on outbound tourism as well as the war in Ukraine that Russia unleashed on 24 February 2022. → The Group operated 15 vessels – including 3 shuttle vessels, 2 cargo vessels and 4 cruise ferries as well as 6 vessels that were on charter (2 vessels on long-term and 4 vessels on short-term charter). In 2022, the Group sold cargo vessel Sea Wind in April and delivered the new shuttle vessel MyStar to the Tallinn-Helsinki route in mid-December. → The Group operated 3 hotels in Tallinn. The Riga Hotel that has remained closed since October 2020 will be re-opened in April 2023. → The planned maintenance works of vessels totalled to 138 days. → High global fuel prices impacted the Group’s cost level throughout the year. → The Group continues to focus on cost efficiency through previously implemented measures and restoring profitable operations on its core routes. → The Group regularly monitors the developments on its core routes including the capacity of each route and continues to look for chartering options for vessels not used on the main routes. The Group’s revenue for 2022 EUR 771.4 million Number of passengers carried by the Group’s ships in 2022 5.5 million The Group’s EBITDA for 2022 EUR 135.8 million 8 | 119 AS Tallink Grupp Annual Report 2022 Management Report Key Figures ¹ Alternative performance measures based on ESMA guidelines are disclosed in the “Alternative performance measures” section of the report. 2 Does not include additions to right-of-use assets. For the year ended 31 December 2022 2021 2020 Revenue (EUR million) 771.4 476.9 442.9 Gross profit/loss (EUR million) 113.5 21.7 -43.5 EBITDA¹ (EUR million) 135.8 58.3 8.0 EBIT¹ (EUR million) 37.7 -37.0 -92.6 Net profit/loss for the period (EUR million) 13.9 -56.6 -108.3 Depreciation and amortisation¹ (EUR million) 98.1 95.3 100.7 Capital expenditures¹ ²(EUR million) 203.3 20.2 100.1 Weighted average number of ordinary shares outstanding 743 569 064 694 444 381 669 882 040 Earnings/loss per share¹ (EUR) 0.02 -0.08 -0.16 Number of passengers¹ 5 462 085 2 961 975 3 732 102 Number of cargo units¹ 409 769 369 170 359 811 Average number of employees¹ 5 023 4 360 6 104 As at 31 December 2022 2021 2020 Total assets (EUR million) 1 691.6 1 585.9 1 516.2 Total liabilities (EUR million) 984.7 893.4 801.9 Interest-bearing liabilities¹ (EUR million) 853.5 779.9 705.1 Net debt¹ (EUR million) 738.6 652.4 677.3 Net debt to EBITDA¹ 5.4 11.2 84.2 Total equity (EUR million) 706.9 692.5 714.3 Equity ratio¹ (%) 41.8% 43.7% 47.1% Number of ordinary shares outstanding 743 569 064 743 569 064 669 882 040 Shareholders’ equity per share (EUR) 0.95 0.93 1.07 Ratios¹ 2022 2021 2020 Gross margin (%) 14.7% 4.5% -9.8% EBITDA margin (%) 17.6% 12.2% 1.8% EBIT margin (%) 4.9% -7.8% -20.9% Net profit/loss margin (%) 1.8% -11.9% -24.5% ROA (%) 2.4% -2.4% -6.1% ROE (%) 2.1% -8.2% -14.1% ROCE (%) 3.1% -2.8% -7.2% Current ratio 0.7 0.6 0.4 9 | 119 AS Tallink Grupp Annual Report 2022 Management Report Sales and Segments In 2022, the Group’s total revenue increased by EUR 294.5 million to EUR 771.4 million. Total revenue in 2021 was EUR 476.9 million. Revenue from route operations (core business) increased by EUR 236.4 million to EUR 629.0 million compared to the financial year 2021. In 2022, the Group’s ships carried a total of 3.1 million passengers on the Estonia-Finland route, up by 76.9% year-on-year. The number of transported cargo units increased by 19.0%. The revenue from the Estonia-Finland route increased by EUR 93.3 million to EUR 277.8 million. The segment result improved by EUR 39.7 million to EUR 51.7 million. The segment reflects the operations of two shuttle vessels, one cruise ferry, and one cargo vessel. Shuttle vessel MyStar was added to the Estonia- Finland route in mid-December 2022. The cruise ferry Silja Europa stopped operating on the Tallinn- Helsinki route in August 2022 due to a charter agreement. The cargo vessel Sea Wind was sold at the end of April 2022. In the fourth quarter of 2022, the route was operated by two shuttle vessels. The number of passengers almost doubled on Finland-Sweden routes amounting to 1.9 million in 2022. The number of transported cargo units decreased by 9.9%. The routes’ revenue increased by EUR 115.6 million to EUR 274.3 million and the segment result improved by EUR 14.6 million to a loss of EUR 1.0 million. The segment reflects the operations of two cruise ferries on the Turku-Stockholm and two cruise ferries on the Helsinki-Stockholm route. Starting from the fourth quarter of 2022 the Turku-Kapellskär route was only operated by one cruise ferry as the cruise ferry Galaxy stopped operating on the route from September 2022 due to a charter agreement. On Estonia-Sweden routes the number of carried passengers almost doubled compared to 2021 amounting to 0.5 million. The number of transported cargo units remained at the same level as a year earlier. The revenue of Estonia-Sweden routes increased by EUR 27.8 million to EUR 76.8 million and net loss increased by EUR 4.0 million to EUR 11.0 million. Estonia-Sweden routes reflect the operation of two cargo vessels and one cruise ferry as well as expenses related to the suspended cruise ferry Victoria I until the ferry was chartered out. Revenue from the segment other increased by a total of EUR 61.9 million and amounted to EUR 147.4 million. The increase was mainly driven by chartering out vessels, accommodation sales, opening of Burger King restaurants and to a lesser extent by various retail activities. Additionally, items previously reported under the geographical segment Latvia-Sweden routes are also included in the segment other as the Latvia-Sweden route was not operated in 2022 and the amounts are below the materiality threshold. Restaurant and shop sales on board and on shore in the total amount of EUR 378.2 million (EUR 233.4 million in 2021) contributed almost half of total revenue. Ticket sales amounted to EUR 191.9 million (EUR 99.1 million in 2021) and sales of cargo transport to EUR 103.2 million (EUR 94.8 million in 2021). The following tables provide an overview of the breakdown of revenue from operations between the Group’s geographical and operating segments: Geographical segments 2022 % 2021 % Finland-Sweden 274 314 35.6% 158 697 33.3% Estonia-Finland 277 806 36.0% 184 529 38.7% Estonia-Sweden 76 835 10.0% 49 065 10.3% Other 147 429 19.1% 85 520 17.9% Intercompany eliminations -4 997 -0.6% -874 -0.2% Total revenue of the Group 771 387 100.0% 476 937 100.0% 10 | 119 AS Tallink Grupp Annual Report 2022 Management Report Earnings In 2022, the Group’s gross profit grew more than four-fold compared to previous financial year amounting to EUR 113.5 million. EBITDA increased by EUR 77.5 million and amounted to EUR 135.8 million. The Group’s profitability was mainly influenced by the following factors: → The demand for travelling picked up after the COVID-19 related restrictions were lifted in core markets in spring → Continued strong focus on cost control through previously implemented measures → Chartering out of 6 vessels including two on long-term charter and four on short-term charter → An increase in global fuel prices, which resulted in EUR 71.9 million higher fuel cost than in 2021 The Group’s audited net profit for 2022 was EUR 13.9 million or EUR 0.019 per share compared to a net loss of EUR 56.6 million or EUR 0.081 per share in 2021. The cost of goods sold at shops and restaurants, which is the largest operating cost item, amounted to EUR 160.6 million (EUR 110.5 million in 2021). Fuel costs for 2022 amounted to EUR 144.1 million (EUR 72.2 million in 2021). Fuel costs were impacted by an increase in global prices. As a result, annual fuel costs increased by 99.5%. The Group makes continuous efforts to improve and optimise its day-to-day operations and lower the fleet’s fuel costs. The Group’s total personnel expenses amounted to EUR 162.9 million (EUR 124.0 million in 2021). Staff costs related to administrative staff and sales and marketing staff were EUR 23.3 million and EUR 19.6 million, respectively (EUR 21.2 million and EUR 16.8 million, respectively, in 2021). The staff costs related to servicing and technical personnel amounted to EUR 120.0 million compared to EUR 86.1 million in 2021. The average number of employees in 2022 was 5 023 (4 360 in 2021). Marketing and administrative expenses for the period amounted to EUR 74.3 million (EUR 62.1 million in 2021). Excluding personnel, administrative expenses for the period amounted to EUR 14.1 million and sales and marketing expenses to EUR 17.3 million (EUR 13.5 million and EUR 10.5 million, respectively, in 2021). Amortisation and depreciation expense increased by EUR 2.8 million to EUR 98.1 million compared to 2021. There were no impairment losses related to the Group’s property, plant and equipment and intangible assets. As a result of growth in interest-bearing liabilities, net finance costs increased by EUR 2.8 million year-on-year to EUR 24.7 million. The Group’s exposure to credit risk, liquidity risk and market risks, and its financial risk management activities are described in the notes to the financial statements. Operating segments 2022 % 2021 % Restaurant and shop sales on-board and on mainland 378 163 49.0% 233 376 48.9% Ticket sales 191 920 24.9% 99 094 20.8% Sales of cargo transportation 103 183 13.4% 94 763 19.9% Sales of accommodation 11 325 1.5% 3 367 0.7% Income from charter of vessels 65 808 8.5% 30 278 6.3% Other 20 988 2.7% 16 059 3.4% Total revenue of the Group 771 387 100.0% 476 937 100.0% 11 | 119 AS Tallink Grupp Annual Report 2022 Management Report Liquidity and Cash Flow The Group’s net operating cash flow for 2022 was positive at EUR 144.3 million (EUR 59.4 million in 2021). Net cash used in investing activities was EUR 200.3 million (EUR 19.4 million in 2021). In 2022, the Group’s loan repayments totalled EUR 110.1 million (EUR 14.7 million in 2021). Interest payments were EUR 23.5 million (EUR 19.3 million in 2021). The payment of previously postponed principal payments under existing loan agreements restarted in the second quarter of 2022. At 31 December 2022, the Group’s cash and cash equivalents totalled EUR 114.9 million (EUR 127.6 million on 31 December 2021). In addition, available unused overdraft credit lines amounted to EUR 135.0 million (EUR 134.8 million in 2021). The total liquidity buffer (cash, cash equivalents and unused credit facilities) amounted to EUR 249.9 million on 31 December 2022 (EUR 262.4 million on 31 December 2021). In December 2022, the Group drew a EUR 196.3 million loan from KfW IPEX-Bank GmbH Ltd. to finance the purchase of the EUR 252 million shuttle vessel MyStar. The long-term loan was drawn at the delivery of the shuttle vessel and the maturity of the fixed interest rate loan is twelve years. In management’s opinion, the Group has sufficient liquidity to support its operations. Activities to ensure the sustainability of operations and liquidity are described in more detail in Note 26. Financing Sources The Group finances its operations and investments with operating cash flow, debt and equity financing and potential proceeds from the disposal of assets. At 31 December 2022, the Group’s capitalisation ratio (interest-bearing liabilities as a percentage of interest-bearing liabilities and shareholders’ equity) was 54.7% compared to 53.0% at 31 December 2021. The increase results from a EUR 73.6 million increase in interest-bearing liabilities and a EUR 14.4 million increase in equity. Loans and Borrowings At the end of 2022, interest-bearing liabilities totalled EUR 853.5 million, a 9.4% increase compared to the end of 2021. At 31 December 2022, the Group’s unused overdraft facilities amounted to EUR 135.0 million. At the reporting date, all interest-bearing liabilities were denominated in euros. At the end of the second quarter of 2021, the Group agreed with financial institutions on the amendment and prolongation of the waivers of certain financial covenants under existing loan agreements until the end of 2022. The covenants were not breached in 2022. Shareholders’ Equity In 2022, the Group’s consolidated equity increased by 2.1%, from EUR 692.5 million to EUR 706.9 million. Shareholders’ equity per share was EUR 0.95. At the end of 2022, the Group’s share capital amounted to EUR 349 477 460. For further information about shares, please see the “Shares and Shareholders” section of this report. Total liquidity as at 31 December 2022 EUR 249.9 million 12 | 119 AS Tallink Grupp Annual Report 2022 Management Report Vessels and Other Investments The Group’s investments in 2022 amounted to EUR 203.3 million, up by EUR 183.1 million from EUR 20.2 million in 2021, the majority of which (EUR 176.7 million) is related to the new shuttle vessel MyStar. Total cost of MyStar was EUR 252 million of which EUR 75.3 million was invested in 2021. Due to the continuously challenging economic environment, ship-related investments were kept to a minimum and only critical maintenance and repair works were performed. In 2022, the maintenance and repair works lasted for a total of 138 days. Investments were also made in the completion of energy efficiency and emissions reduction projects, the development of the online booking and sales systems as well as other administrative systems and in relation to the opening of Burger King restaurants. The Group’s main revenue-generating assets are vessels, which account for approximately 76% of total assets. During the financial year the Group owned 15 vessels. Information about vessels as at the end of the financial year: 1 The Latvia-Sweden route was not re-opened in 2022. As at the end of 2022, the Group had four vessels (Silja Europa, Victoria I, Galaxy and Isabelle) on short-term charter. At 31 December 2022 the book value of the ships amounted to EUR 1 288 million (EUR 1 083 million at the end of 2021). The Group’s vessels are regularly valued by two to three independent international shipbrokers who are also approved by the mortgagees. All of the Group’s vessels have protection and indemnity insurance (P&I) and hull and machinery insurance (H&M) and meet all applicable safety regulations. The Group does not have any substantial ongoing research and development projects. Vessel name Vessel type Built/renovated Route Other information Silja Europa Cruise ferry 1993/2016 Estonia-Finland¹ Overnight cruise Star High-speed ro-pax 2007 Estonia-Finland Shuttle service Megastar High-speed ro-pax 2017 Estonia-Finland Shuttle service MyStar High-speed ro-pax 2022 Estonia-Finland Shuttle service Baltic Queen Cruise ferry 2009 Estonia-Sweden Overnight cruise Victoria I Cruise ferry 2004 Estonia-Sweden¹ Overnight cruise Regal Star Ro-ro cargo vessel 1999 Estonia-Sweden Cargo transportation Sailor Ro-ro cargo vessel 1987 Estonia-Sweden Cargo transportation Silja Symphony Cruise ferry 1991 Finland-Sweden Overnight cruise Silja Serenade Cruise ferry 1990 Finland-Sweden Overnight cruise Galaxy Cruise ferry 2006 Finland-Sweden¹ Overnight cruise Baltic Princess Cruise ferry 2008 Finland-Sweden Overnight cruise Romantika Cruise ferry 2002 Norway-Netherlands Chartered out Isabelle Cruise ferry 1989 Latvia-Sweden¹ Overnight cruise Atlantic Vision High-speed ro-pax 2002 Canada Chartered out 13 | 119 AS Tallink Grupp Annual Report 2022 Management Report Market Developments The total number of passengers carried by the Group in 2022 was 5.5 million. The total number of cargo units carried was 410 thousand. The following table provides an overview of transported passengers, cargo units and passenger vehicles in 2022 and 2021 by route. The Group’s market shares on routes operated in 2022 were as follows: → the Group carried approximately 49% of the passengers and 60% of the ro-ro cargo on the route between Tallinn and Helsinki. → the Group carried approximately 47% of the passengers and 25% of the ro-ro cargo on the routes between Finland and Sweden. → the Group was the only provider of passenger transportation between Tallinn and Stockholm. The Group’s market share on its core routes was mainly impacted by the available capacity. In 2022, the Group chartered out cruise ferry Silja Europa from the Estonia-Finland route and cruise ferry Galaxy from the Turku-Stockholm route. Passengers 2022 2021 Change Finland-Sweden 1 859 209 948 534 96.0% Estonia-Finland 3 120 531 1 764 058 76.9% Estonia-Sweden 482 345 249 383 93.4% Total 5 462 085 2 961 975 84.4% Cargo units 2022 2021 Change Finland-Sweden 63 838 70 855 -9.9% Estonia-Finland 296 950 249 603 19.0% Estonia-Sweden 48 981 48 712 0.6% Total 409 769 369 170 11.0% Passenger vehicles 2022 2021 Change Finland-Sweden 117 308 83 130 41.1% Estonia-Finland 670 630 499 005 34.4% Estonia-Sweden 31 291 19 898 57.3% Total 819 229 602 033 36.1% 14 | 119 AS Tallink Grupp Annual Report 2022 Management Report Group Structure At the reporting date, the Group comprised 46 companies. All subsidiaries are wholly owned by AS Tallink Grupp. The following diagram represents the Group’s structure at the reporting date: 15 | 119 AS Tallink Grupp Annual Report 2022 Management Report Personnel At 31 December 2022, the Group had 4 904 employees (4 785 at 31 December 2021). As at the year- end, the total number of employees included 167 employees on maternity leave. 1 The number of Burger King and hotel personnel is not included in the total number of onshore personnel. In 2021, staff cost was impacted by salary support from the Government of Estonia paid directly to employees. However, no such support was received from the Government of Estonia in 2022. Salary support paid by Government of Sweden is recognized as other operating income in 2021. No such support was received from the Government of Sweden in 2022. Total staff costs amounted to EUR 162.9 million in 2022 compared to EUR 124.0 million a year earlier. Onshore staff costs related to administrative and sales and marketing personnel were EUR 23.3 million and EUR 19.6 million, respectively (EUR 21.2 million and EUR 16.8 million, respectively, in 2021). Shares and Shareholders At 31 December 2022, AS Tallink Grupp had a total of 743 569 064 shares issued and fully paid. The shares of AS Tallink Grupp (ISIN: EE3100004466) are registered with Nasdaq CSD Estonian branch and traded on the Nasdaq OMX Tallinn Stock Exchange under the ticker symbol TAL1T (REUTERS: TAL1T.TL, BLOOMBERG: TAL1T ET). Starting from 3 December 2018, the shares of AS Tallink Grupp are also registered as Finnish Depository Receipts (FDRs) with Euroclear Finland Ltd and listed on the Nasdaq Helsinki Stock Exchange, where the FDRs are traded under the ticker symbol TALLINK (ISIN: FI4000349378). Each FDR entitles its holder to one share. All shares are of the same kind and each share carries one vote at the General Meeting of Shareholders. No preference shares or shares with special rights have been issued. According to the articles of association of AS Tallink Grupp, shares can be freely transferred. No authorisation needs to be obtained in order to buy or sell AS Tallink Grupp shares. AS Tallink Grupp shares have no nominal value and the notional value of each share is EUR 0.47. On 9 June 2015, the annual general meeting of AS Tallink Grupp approved the terms of a share option programme that allowed issuing options for up to 20 million shares. At 31 December 2022 no options had been granted under the 2015 share option programme. As at 31 December 2022 2021 Change Onshore total 1 081 1 049 3.1% Estonia 723 668 8.2% Finland 241 241 0.0% Sweden 98 103 -4.9% Latvia 13 21 -38.1% Russia 1 11 -90.9% Germany 5 5 0.0% Onboard 3 150 3 231 -2.5% Burger King¹ 380 272 39.7% Hotel¹ 293 233 25.8% Total 4 904 4 785 2.5% 16 | 119 AS Tallink Grupp Annual Report 2022 Management Report According to the resolution of the general meeting of 30 July 2020, the Company was granted the right to acquire its own shares subject to the following conditions: 1) The Company is entitled to acquire its own shares within five years as from the adoption of the resolution. 2) The sum of the book values of the own shares held by the Company shall not exceed 1/10 of share capital. 3) The price payable for one share shall not be higher than the highest price paid on the Nasdaq Tallinn Stock Exchange for the share of AS Tallink Grupp on the day when the share is acquired. 4) Own shares shall be paid for from the assets exceeding share capital, the legal reserve and share premium. The Management Board of AS Tallink Grupp has not been granted the right to issue new shares. The Supervisory Board was authorised to increase share capital by EUR 35 000 000 to up to EUR 349 844 558.80 within three years from 1 July 2021. The table below presents the breakdown of share capital by ownership size at 31 December 2022: The account NORDEA BANK ABP / CLIENTS FDR represented 9 177 FDR-holders at 31 December 2022. The total number of shareholders and FDR-holders was 39 985. The table below presents the largest shareholders of the Group at 31 December 2022: Ownership size Number of shareholders % of shareholders Number of shares % of share capital 1 - 99 6 287 20.4% 202 736 0.0% 100 - 999 12 098 39.3% 4 489 969 0.6% 1 000 - 9 999 10 711 34.8% 27 655 059 3.7% 10 000 - 99 999 1 518 4.9% 36 490 563 4.9% 100 000 - 999 999 156 0.5% 43 773 288 5.9% 1 000 000 - 9 999 999 32 0.1% 92 410 084 12.4% 10 000 000 + 7 0.0% 538 547 365 72.4% Total 30 809 100.0% 743 569 064 100.0% Shareholder Number of shares % of share capital Infortar AS 297 572 752 40.0% Baltic Cruises Holding L.P. 81 971 609 11.0% ING Luxembourg S.A. AIF Account 44 077 066 5.9% Baltic Cruises Investment L.P. 43 831 732 5.9% Other shareholders 276 115 905 37.1% Total 743 569 064 100.0% 17 | 119 AS Tallink Grupp Annual Report 2022 Management Report The table below presents the residency of the shareholders of the Group at 31 December 2022: At 31 December 2022, 11.8% of the Group’s shares were held by individuals. The table below presents the investors of the Group by investor type at 31 December 2022: Shareholders’ Agreement Major shareholders of the Group entered into a shareholders’ agreement in August 2006. The agreement was amended in December 2012. The agreement sets forth among other terms that the parties of the agreement and each shareholder of Tallink will remain independent in their decisions and will not be restricted by the agreement or otherwise, directly or indirectly, to exercise their voting rights or any other powers available to them, in the manner which, in their own opinion, best complies with the obligations under Estonian laws, the Rules of the Nasdaq Tallinn Stock Exchange and the Nasdaq Helsinki Stock Exchange or the Corporate Governance Recommendations of the Nasdaq Tallinn Stock Exchange. Two shareholders of AS Tallink Grupp, Baltic Cruises Holding L.P. (“BCH“) and Baltic Cruises Investment L.P. (“BCI“), and another shareholder, Citigroup Venture Capital International Growth Partnership (Employee) II L.P. (“CVCI“), concluded an agreement that restricts the free transferability of AS Tallink Grupp shares as documented in the Co-Investment Agreement between BCI, BCH and CVCI dated 29 June 2017. Trading During 2022, 48 216 676 AS Tallink Grupp shares were traded on the Nasdaq Tallinn Stock Exchange. The highest share price on the Nasdaq Tallinn Stock Exchange was EUR 0.64 and the lowest share Residency Number of shareholders Number of shares % of share capital Estonia 30 389 455 056 982 61.2% Cayman Islands 6 162 095 243 21.8% Luxembourg 8 46 513 410 6.3% Finland 181 31 220 695 4.2% United States 11 12 856 510 1.7% Latvia 26 8 123 014 1.1% Germany 20 7 460 872 1.0% Lithuania 10 6 763 493 0.9% Austria 2 6 324 104 0.9% Switzerland 10 2 050 432 0.3% Sweden 34 1 708 479 0.2% United Kingdom 20 1 568 606 0.2% Denmark 9 1 410 529 0.2% Other 83 416 695 0.1% Total 30 809 743 569 064 100.0% Investor type Number of shareholders Number of shares % of share capital Principal shareholder, Infortar AS 1 297 572 752 40.0% Institutional investors 2 029 358 405 596 48.2% Private individuals 28 779 87 590 716 11.8% 18 | 119 AS Tallink Grupp Annual Report 2022 Management Report price was EUR 0.46. The average daily turnover of AS Tallink Grupp shares on the Nasdaq Tallinn Stock Exchange was EUR 105.8 thousand. In 2022, 15 413 156 AS Tallink Grupp FDRs were traded on the Nasdaq Helsinki Stock Exchange. The highest price was EUR 0.64 and the lowest price was EUR 0.43. The average daily turnover of AS Tallink Grupp FDRs on the Nasdaq Helsinki Stock Exchange was EUR 14.1 thousand. The following charts and table give an overview of the performance of the share price and FDR price, daily turnovers and the Baltic market index from 1 January 2021 to 31 December 2022 as well as implied market valuation at the end of 2022. Takeover Bids The Group has not concluded any agreement with its management or employees that provides for a compensation payment in the case of a takeover bid. Dividends In June 2022, the General Meeting of Shareholders decided not to pay a dividend from net loss for 2021. Due to a complicated operating environment and considering the Company’s long-term interests, the Management Board has decided to prepare a proposal to the General Meeting of Shareholders not to pay a dividend in 2023 for the financial year of 2022. 700 800 900 1 000 1 100 1 200 1 300 1 400 1 500 1 600 1 700 1 800 0.40 0.50 0.60 0.70 0.80 0.90 1.00 1.10 1.20 1.30 1.40 01/2021 04/2021 07/2021 10/2021 01/2022 04/2022 07/2022 10/2022 Share price in EUR Share price in EUR FDR price in EUR Baltic market index - 200 400 600 800 01/2021 04/2021 07/2021 10/2021 01/2022 04/2022 07/2022 10/2022 Daily turnover thousand EUR Daily turnover thousand EUR FDR daily turnover thousand EUR Instrument Open Close Daily close average Payout Market value, EUR million P/E ratio TAL1T 0.593 0.522 0.540 - 388.1 27.47 TALLINK FDR 0.586 0.503 0.536 - 374.0 26.47 19 | 119 AS Tallink Grupp Annual Report 2022 Management Report Economic Environment The Group’s operations were predominantly impacted by changes in consumer behaviour and the economic developments in its core markets of Finland, Sweden, and Estonia, but also by the global geopolitical situation and war in Europe. As nearly half of all the passengers are Finns, the Group is exposed the most to economic developments in Finland. Similarly, the Group faces high exposure to economic developments in Estonia (24% of total passengers in 2022) and Sweden (10%). In the beginning of 2022, the Group’s operations and operating results were continuously influenced by the COVID-19 related restrictions in all home markets. The demand for travelling increased after the travel restrictions were lifted in February in Finland and Sweden, and in Estonia from mid-March. The demand for international travel has continued to grow steadily but has not yet returned to pre- COVID-19 levels. The recovery of inbound tourism from Asia has been haltered as number of countries in Asian region only raised their COVID-19 travel restrictions at the end of 2022. The company’s cargo business remained steady and robust during the period, although the market conditions and availability of shipping fleet put further pressure on the already challenging price competition. According to the latest data, in 2022 the real growth of the economies of all the Group’s home markets decreased relative to 2021. Trade, as a component of GDP, remained stable in all home markets. In 2022, the exports of goods and services in Sweden grew by 6.6% y-o-y while in Finland the growth was 1.5% according to OECD. At the same time the imports increased annually by 8.7% in Sweden and 7.4% in Finland. In Estonia, the growth of exports of goods and services was 5.0% and import of goods and services 5.8% y-o-y. The labour market has bounced back from the COVID-19 pandemic, but the outlook remains uncertain due to the ongoing war in Europe. While the unemployment rates decreased in all our core markets it remains the highest in Sweden and lowest in Estonia. Higher unemployment but also general economic and political situation both locally and globally have direct effect on the consumer confidence and purchasing power. As indicated by OECD consumer confidence index the all-time-low trend is slowly turning upwards with confidence being strongest in Finland. Consumer confidence is impacted by the combination of high energy prices, the war in Ukraine, the tightening monetary policy and the high inflation. In lower consumer confidence environments, the consumers may want to consume less and save more in order to be prepared for potential financial difficulties in the future. However, despite the low consumer confidence levels, the Group’s passenger volumes have recovered rapidly once the COVID- 19 related travel restriction were lifted at the end of first quarter 2022. The average fuel prices in 2022 almost doubled compared to the previous financial year of 2021. Measured in euros and weighted with the Group’s consumption volumes, the global fuel prices increased, on average, by 98%. A rise in fuel prices was the main cause of the Group’s overall fuel cost increase by 100% compared to the same period in 2021. Global fuel prices are expected to remain volatile due to uncertainties in the global economy and the political situation. A year after the start of war of aggression against Ukraine the business confidence in Sweden and Finland has stabilised while in Estonia the confidence continues to decline. The businesses are mostly concerned about such key challenges as affordable access to energy and raw materials, skills shortages and labour costs to mention few. For the foreseeable future and according to our current best knowledge and estimates, the key risks for the business continue to be related to the fluctuations in fuel prices and shortages of supply, the war in Ukraine, rising interest rates necessary to curb inflation and the changing customer travel and consumption habits. 20 | 119 AS Tallink Grupp Annual Report 2022 Management Report Source: https://data.oecd.org/leadind/business-confidence-index-bci.htm#indicator-chart Source: https://data.oecd.org/leadind/consumer-confidence-index-cci.htm#indicator-chart 90 92 94 96 98 100 102 104 106 108 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 2021 2022 2023 Business confidence index Long-term average Finland Sweden Estonia 90 92 94 96 98 100 102 104 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 2021 2022 2023 Consumer confidence index Long-term average Finland Sweden Estonia 21 | 119 AS Tallink Grupp Annual Report 2022 Management Report Real GDP, change 2021 2022 2023f Finland 3.0% 2.2% -0.3% Sweden 4.8% 2.9% -0.6% Estonia 8.1% 0.8% 0.5% Unemployment rate (% of labour force) 2021 2022 2023f Finland 7.7% 6.8% 7.9% Sweden 8.8% 7.5% 8.3% Estonia 6.2% 5.6% 5.3% Inflation (CPI) 2021 2022 2023f Finland 2.1% 7.0% 5.3% Sweden 2.2% 8.3% 7.0% Estonia 4.5% 20.6% 10.8% Source: OECD (2023), Real GDP forecast (indicator). doi: 10.1787/1f84150b-en (Accessed on 13 March 2023) Source: OECD (2023), Unemployment rate forecast (indicator), doi: 10.1787/b487f2cf-en (Accessed on 13 March 2023). Source: OECD (2023), Inflation forecast (indicator). doi: 10.1787/598f4aa4-en (Accessed on 13 March 2023) 22 | 119 AS Tallink Grupp Annual Report 2022 Management Report Events After the Reporting Period and Outlook New Collective Agreement On 6 February 2023, AS Tallink Grupp and Estonian Seamen’s Independent Union signed a new collective agreement for the next 4 years. Subject to the agreement, the wages of the Group’s maritime workers in Estonia will increase by 13.5% (service personnel) and 16.1% (technical personnel) compared to the minimum wages of the previous collective agreement. Silja Europa chartering agreement In February 2023, AS Tallink Grupp and Slaapschepen Public BV, an organisation nominated by Centraal Orgaan Opvang Asielzoekers (COA) in the Netherlands, have used the option for extending the existing short-term charter agreement for Silja Europa until 19 June 2023. Galaxy chartering agreement In February 2023, the charter agreement extension was signed for six months for the cruise vessel Galaxy. Earnings The Group’s earnings are not generated evenly throughout the year. The summer period is the high season in the Group’s operations. In management’s opinion and based on prior experience, most of the Group’s earnings are generated during the summer months (June-August). In 2022-2023, seasonal fluctuations in revenue generation are smoothed by Group’s earnings from chartering services. The war in Ukraine has a negative impact on the demand of certain customer groups, mainly customers from the countries directly participating in the conflict and from Asian countries, together with the risk of an increase in some input prices, mainly fuel and raw materials. The exact magnitude and duration of the potential effects from the conflict remain difficult to assess. Despite the uncertainties in the outlook of the economic environment the management is continuously looking for ways to improve profitability and manage risks (including the risks for the low season which are managed through charter agreements). Research and Development Projects AS Tallink Grupp does not have any substantial ongoing research and development projects. The Group is continuously seeking opportunities to expand its operations in order to improve its results. The Group is continuously looking for innovative ways to upgrade the ships and passenger area technology to improve its overall performance through modern solutions. The most recent technical projects are focused on solutions for reducing the ships’ carbon footprint. Risks The Group’s business, financial position and operating results could be materially affected by various risks. These risks are not the only ones we face. Additional risks and uncertainties not presently known to us, or that we currently believe are immaterial or unlikely, could also impair our 23 | 119 AS Tallink Grupp Annual Report 2022 Management Report business. The order of presentation of the risk factors below is not intended to be an indication of the probability of their occurrence or of their potential effect on our business. → Protracted geopolitical and military conflict in Europe → Governmental restrictions on business activities → Impact of high inflation on consumer habits → Accidents, disasters → Macroeconomic and labour market developments → Changes in laws and regulations → Relations with trade unions → Increase in the fuel prices and interest rates → Market trends and customer behaviour → Variations in labour legislation impact the competitiveness while sailing under different flags 24 | 119 AS Tallink Grupp Annual Report 2022 Corporate Governance Report CORPORATE GOVERNANCE REPORT This report is made in accordance with the Estonian Accounting Act and gives an overview of the governance of AS Tallink Grupp and its compliance with the requirements of the Corporate Governance Recommendations (CGR) of the NASDAQ OMX Tallinn Stock Exchange. The Group follows most of the articles of the CGR except where indicated otherwise in this report. Organization and Administration Pursuant to the Estonian Commercial Code and the articles of association of the Company, the right of decision and the administration of the Company are divided between the shareholders represented by the General Meeting of Shareholders, the Supervisory Board and the Management Board. The following diagram represents the governance structure of the Group: General Meeting of Shareholders The Company’s highest governing body is the shareholders’ general meeting. The primary duties of the general meeting are to approve the annual report and the distribution of dividends, elect and remove members of the Supervisory Board, elect auditors, pass resolutions on any increase or decrease in share capital, change the articles of association and resolve other issues, which are the responsibility of the general meeting by law. According to the law, the articles of association can be amended only by the General Meeting of Shareholders. In such a case it is required that 2/3 of the participating votes are for it. The annual General Meeting of Shareholders that approves the annual report no later than six months after the end of the financial year is held at least once a year. Every shareholder or his/her proxy with a relevant written power of attorney may attend the General Meeting of Shareholders, discuss the items on the agenda, ask questions, make proposals and vote. A controlling shareholder refrains from unreasonably harming the rights of other shareholders, both at the General Meeting of Shareholders and upon organizing the Company’s management and shall not abuse his position. The Company’s Management Board determines the agenda of the General Meeting of Shareholders and prepares the draft of the resolution in respect to each item on the agenda to be voted on at the General Meeting of Shareholders. If a General Meeting of Shareholder is called by shareholders, the Supervisory Board or an auditor, the Supervisory Board or an auditor prepares a draft of the resolution of each item on the agenda and submit this to the Management Board. Shareholders whose shares represent at least one-twentieth of the share capital may submit the Company a draft Audit Committee General Meeting of Shareholders Management Board Supervisory Board 25 | 119 AS Tallink Grupp Annual Report 2022 Corporate Governance Report of the resolution in respect to each item on the agenda to be voted on at the General Meeting of Shareholders. The Company publishes a notice of an Annual General Meeting and an Extraordinary General Meeting at least three weeks in advance in a national daily newspaper, in the stock exchange information system and on the Company’s website at www.tallink.com. The notice includes information on where the meeting will be held. The agenda of the meeting, the Board’s proposals, draft resolutions, comments and other relevant materials are made available to the shareholders before the general meeting on the Company’s website and in the stock exchange information system. The shareholders may ask questions before the General Meeting by sending an email to info@tallink.ee. The Company has not made it possible to observe and attend general meetings through electronic channels as there has not been any interest in it (CGR 1.3.3). In the reporting period AS Tallink Grupp held the annual general meeting on 9 June 2022. The meeting was attended by the Management Board members Mr Paavo Nõgene, Mrs Kadri Land, Mr Harri Hanschmidt, Mrs Piret Mürk-Dubout and Mr Margus Schults. The Supervisory Board members present were Mr Enn Pant, Mr Toivo Ninnas, Mrs Eve Pant, Mr Ain Hanschmidt, Mr Kalev Järvelill, Mr Colin Douglas Clark and Mr Raino Paron. The chairman of the meeting was Mr Raino Paron. The meeting was held in Estonian. The attending shareholders represented 522 858 148 votes, i.e. 70.32% of all votes. The resolutions adopted were: approval of the annual report, approval of net loss and no dividend distribution, approval of remuneration principles of the Management Board, extension of the terms of office of the members of the Supervisory Board, and appointment of an auditor. The Supervisory Board The Supervisory Board engages in oversight and longer-term management activities such as supervising the Management Board and approving business plans, acting independently in the best interest of all shareholders. No residency requirements apply to the members of the Supervisory Board. The Supervisory Board reports to the General Meeting of Shareholders. The Supervisory Board consists of five to seven members. Members of the Supervisory Board are elected for periods of three years at a time. The Supervisory Board elects one of its members as chairman. For electing a member to the Supervisory Board, his or her written consent is needed. The General Meeting of Shareholders may remove any member of the Supervisory Board without a reason. Such a decision requires 2/3 of the votes represented at the General Meeting. A member of the Supervisory Board may resign without a reason by informing the General Meeting of Shareholders about the resignation. The Supervisory Board is responsible for supervising the management of the Company and organization of its operations. The Supervisory Board determines the principles for the Company’s strategy, organization, annual operating plans and budgets, financing and accounting. The Supervisory Board elects the members of the Management Board and determines their salaries and benefits. At present, the Supervisory Board has seven members: Mr Enn Pant – chairman, Mr Toivo Ninnas, Mrs Eve Pant, Mr Ain Hanschmidt, Mr Colin Douglas Clark, Mr Kalev Järvelill and Mr Raino Paron. The members of the Supervisory Board have the knowledge and experience necessary to fulfil their duties in accordance with the Corporate Governance Recommendations and legislation. The meetings of the Supervisory Board are held according to need, but not less frequently than every three months. The Supervisory Board convened six times in 2022, during which ten decisions were made. The Company’s operations, development, strategies, targets and budget were discussed. 26 | 119 AS Tallink Grupp Annual Report 2022 Corporate Governance Report The members of the Supervisory Board avoid conflicts of interest and observe the prohibition on competition. The Supervisory Board and the Management Board work closely in the best interests of the Company and its shareholders, acting in accordance with the articles of association. Confidentiality rules are followed in exchanging information. The Management Board and the Supervisory Board closely collaborate to achieve the better protection of the interests of the Company. The Management Board and Supervisory Board jointly participate in the development of the operations objectives and strategy of the Company. The remuneration of the Supervisory Board was decided at the General Meeting of Shareholders on 7 June 2012. Accordingly, the remuneration of the Chairman is EUR 2 500 per month and the remuneration of other members of the Supervisory Board is EUR 2 000 per month. There are no other special benefits for the Chairman and the members of the Supervisory Board. Members of Supervisory Board Mr Enn Pant (born 1965) - Chairman of the Supervisory Board since 2015 → Chairman of the Management Board from 1996 to 2015, Chief Executive Officer → Chairman of the Supervisory Board of AS Infortar → Chancellor of the Ministry of Finance of Estonia from 1992 to 1996 → Graduated from the Faculty of Economics, the University of Tartu, Estonia, in 1990 Mr Toivo Ninnas (born 1940) - Member of the Supervisory Board since 1997 → Chairman of the Supervisory Board from 1997 to 2016 → Member of the Supervisory Board of AS Infortar → Served at ESCO (Estonian Shipping Company) from 1973 to 1997 in various positions, Director General since 1987 → Graduated from the Far Eastern High Engineering Maritime College (FEHEMC), maritime navigation, in 1966 Ms Eve Pant (born 1968) - Member of the Supervisory Board since 1997 → Member of the Management Board of AS Infortar → Graduated from the Tallinn School of Economics, Estonia, in 1992 Mr Ain Hanschmidt (born 1961) - Member of the Supervisory Board since 2005, also from 1997 to 2000 → Chairman of the Management Board of AS Infortar → For years served as Chairman of the Management Board of SEB Eesti Ühispank AS → Graduated from the Tallinn Polytechnic Institute (Tallinn University of Technology), Estonia, in 1984 Mr Colin Douglas Clark (born 1974) - Member of the Supervisory Board since 2013 → Managing Director and Head of Central & Eastern Europe, Middle East and Africa for The Rohatyn Group → Formerly a Partner of CVCI Private Equity, from 2003 to 2013 until the merger of CVCI with The Rohatyn Group in December 2013 → Director of the Supervisory Board of Prestige → Worked from year 2000 in Citigroup Inc’s leading emerging markets projects financing team → Worked for the Bank of Scotland in Edinburgh in various positions → Holds a Bachelor’s degree in Accountancy and Management from the University of Dundee (Scotland) → Member of the Institute of Chartered Accountants of Scotland 27 | 119 AS Tallink Grupp Annual Report 2022 Corporate Governance Report Mr Kalev Järvelill (born 1965) - Member of the Supervisory Board since 2007 → Member of the Supervisory Board of AS Infortar → Member of the Management Board of AS Tallink Grupp from 1998 to 2006 → General Director of the Estonian Tax Board from 1995 to 1998 → Vice Chancellor of the Ministry of Finance of Estonia from 1994 to 1995 → Graduated from the Faculty of Economics, the University of Tartu, Estonia, in 1993 Mr Raino Paron (born 1965) - Member of the Supervisory Board since September 2019 → Head of Banking & Finance and EU & Competition practice groups in the law firm Raidla Ellex → Member of the Management Board of Finance Estonia → Member of the Supervisory Board of AS Inbank → Partner and attorney-at-law at law firm Ellex Raidla since 1998 → Chairman of the Supervisory Board of the Arbitration Court of the Tallinn Stock Exchange → Graduated from the University of Tartu, Estonia in 1990 (cum laude) and from Georgetown University, USA in 1993 with a LLM degree (Master of Laws) with honours The shareholdings of the members of the Supervisory Board (direct holding and holding via wholly- owned legal entities) at the end of 2022 were as follows: The expiry dates of the terms of office of the Supervisory Board members are as follows: The Management Board The Management Board is an executive body charged with the day-to-day management of the Company, as well as with representing the Company in its relations with third parties, for example in entering into contracts on behalf of the Company. The Management Board is independent in their decisions and acts in the best interests of the Company’s shareholders. The Management Board must adhere to the decisions of the General Meeting of Shareholders and lawful orders of the Supervisory Board. The Management Board ensures, with its best efforts, that the Company complies with the law and that the Company’s internal audit and risk management functions operate effectively. Name Shares Enn Pant 17 868 562 Toivo Ninnas 3 668 770 Eve Pant 781 000 Ain Hanschmidt 3 500 000 Raino Paron 62 500 Colin Douglas Clark 0 Kalev Järvelill 0 Name Expiration of term Enn Pant 14 June 2023 Toivo Ninnas 18 September 2025 Eve Pant 18 September 2025 Ain Hanschmidt 18 September 2025 Raino Paron 18 September 2025 Colin Douglas Clark 18 September 2025 Kalev Järvelill 13 June 2024 28 | 119 AS Tallink Grupp Annual Report 2022 Corporate Governance Report The Management Board consists of three to seven members. The members and the Chairman of the Management Board are elected by the Supervisory Board for periods of three years at a time. For electing a member to the Management Board his or her written consent is needed. The Chairman of the Management Board may propose that the Supervisory Board also appoint a vice chairman of the Management Board, who fulfils the chairman’s duties in the absence of the chairman. Every member of the Management Board may represent the Company alone in any legal and business matter. According to the law the Supervisory Board may recall any member of the Management Board without a reason. A member of the Management Board may resign without a reason by informing the Supervisory Board about the resignation. At present, the Management Board has five members: Mr Paavo Nõgene – Chairman, Mrs Kadri Land, Mr Harri Hanschmidt, Mrs Piret Mürk-Dubout and Mr Margus Schults. Mr Paavo Nõgene is responsible for leading the Board and general and strategic management of the Group, additionally he is responsible for daily operations, restaurant & bar operations, communications, route operations, internal audit and control, procurements, data protection and hotel operations. Mrs Kadri Land is responsible for cargo operations, technical management, safety and security, human resources and regional offices. Mr Harri Hanschmidt is responsible for IT, operational and business development, investor relations, EU funds and new strategic projects. Mrs Piret Mürk-Dubout is responsible for the Group’s sales & marketing, customer experience, retail operations, onboard services and corporate social responsibility. Mr Margus Schults is responsible for the Group’s finances and Finnish operations. Members of the Management Board avoid conflicts of interest and observe the prohibition on competition. The Management Board regularly notifies the Supervisory Board of any important circumstances concerning the planning and business activities of the Group, activity-based risks, and the management of such risks. The Management Board separately calls attention to such changes in the Company’s business activities that deviate from set plans and purposes and indicates the reasons for such changes. The information is delivered promptly and covers all material circumstances. Members of Management board Mr Paavo Nõgene (born 1980) – Chairman of the Management Board since May 2018 → Secretary-General of the Ministry of Culture of the Republic of Estonia from 2013 to 2018 → General Manager of Vanemuine Theatre in Estonia from 2007 to 2012 → Member of the Supervisory Board of the Art Museum of Estonia → Graduated from the University of Tartu, Estonia, in 2012 with a degree in Journalism and Communications Mrs Kadri Land (born 1964) – Member of the Management Board since February 2019 → Has been working for the Group since 2005 and, during that time, has held several senior positions within the organization, including the roles of a Member of the Management Board between 2012 and 2015, and since 2016 the role of the Head of the Group’s Global Operations and Logistics → Member of the Supervisory Board of AS Tallinna Lennujaam and Chairwoman of the Supervisory Board of Tallink Silja AB → Member of the Management Board of the Swedish Maritime Employers’ Association and Member of the Management Board of the Swedish Chamber of Commerce in Estonia → Graduated from the Faculty of Chemistry and Physics, the University of Tartu, Estonia, in 1987 29 | 119 AS Tallink Grupp Annual Report 2022 Corporate Governance Report Mr Harri Hanschmidt (born 1982) – Member of the Management Board since February 2019 → Has been working for the Group since 2009 and has held positions of Head of Investor Relations and Head of the Finance Department among other roles → Since 2015 has held the position of the Group Head of Strategic Projects → Worked in various roles in Estonian IT sector organizations prior to joining AS Tallink Grupp → Holds a Master’s degree in Business Informatics from Tallinn University of Technology since 2008 Mrs Piret Mürk-Dubout (born 1970) – Member of the Management Board since April 2019 → Prior to joining the Group, worked in Tallinn Airport where held the position of Chief Executive Officer and Chairman of the Management Board since 2016 → Worked in several senior positions in Telia Company group companies between 2010 and 2016 → Holds an Executive Master of Business Administration degree from the Estonian Business School, a diploma in Jurisprudence from the University of Tartu, and a Master’s degree in Media & Communications from the University of Tartu Mr Margus Schults (born 1966) - Member of the Management Board since April 2021 → Has been working for the Group since 2008, has held position of Chief Executive Officer of Tallink Silja Oy since 2009, including the roles of a member of the Supervisory Board of Sally AB and Managing Director of Tallink Silja Gmbh → Worked in SEB between 1994 and 2008 in leading positions, including as a member of the Management Board of SEB Estonia → Member of the Main Council of the Helsinki region Chamber of Commerce, Deputy Chairman of Finnish-Estonian Trade Association, Member of the Board of the Finnish Shipowners’ Association → Holds a PhD degree in Technology, Electronics from Tallinn University of Technology The shareholdings of the members of the Management Board (direct holding and holding via wholly- owned legal entities) at the end of 2022 were as follows: Authority of the Members of the Management Board to Issue and Acquire Shares According to the resolution of the General Meeting of Shareholders of 30 July 2020, the Company was granted the right to acquire its own shares subject to the following conditions: 1) The Company is entitled to acquire its own shares within five years as from the adoption of the resolution. 2) The sum of the book values of the own shares held by the Company shall not exceed 1/10 of share capital. 3) The price payable for one share shall not be higher than the highest price paid on the Nasdaq Tallinn Stock Exchange for the share of AS Tallink Grupp on the day when the share is acquired. 4) Own shares shall be paid for from the assets exceeding share capital, then legal reserve and share premium. The Management Board does not have the right to issue the Company’s shares. Name Shares Paavo Nõgene 500 000 Kadri Land 101 000 Harri Hanschmidt 212 648 Piret Mürk-Dubout 5 000 Margus Schults 15 000 30 | 119 AS Tallink Grupp Annual Report 2022 Corporate Governance Report Disclosure of Information The Company follows the CGR in its information disclosure procedures and treats all shareholders equally. All the released information is published in Estonian and in English on the websites of the Company, the Nasdaq Tallinn Stock Exchange and the Nasdaq Helsinki Stock Exchange as well as through the OAM system managed by the Estonian Financial Supervision Authority. Meetings with investors are arranged on an ad hoc basis as and when requested by the investors. Following the disclosure of interim reports the Company holds public webinar meetings. The information shared at the meetings is limited to data already disclosed. The Company publishes the times and locations of significant meetings with investors. The presentations made to investors are available on the Company’s website. However, the Group does not meet the recommendation to publish the time and location of each individual meeting with investors and to allow all shareholders to participate in these events as it would be impractical and technically difficult to arrange (CGR 5.6). Financial Reporting and Auditing Preparation of financial reports and statements is the responsibility of the Company’s Management Board. The Company’s consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and relevant Estonian regulations. The Company issues quarterly unaudited interim financial reports and the audited annual report. The Company’s annual report is audited and then approved by the Supervisory Board. The annual report together with the written report of the Supervisory Board is sent for final approval to the General Meeting of Shareholders. The notice of the General Meeting of Shareholders includes information on the auditor candidate. The Company observes the auditors’ rotation requirement. To the knowledge of the Company, the auditors have fulfilled their contractual obligations and have audited the Company in accordance with International Standards on Auditing. For better risk management and control, the Company has established an Audit Committee and an Internal Audit Department. The consolidated financial statements for 2022 were audited by KPMG Baltics OÜ. In addition to audit services, in 2022 KPMG Baltics OÜ provided the Group with services that are permissible in accordance with the Auditors Activities Act of the Republic of Estonia. The tender for audit services was carried out in 2020 and a request for proposals was sent to the four largest audit firms in Estonia. The main evaluation criteria were as follows: → time and location of the audit → international network and competency in the economic sector → audit contract and payment terms → audited entities Based on these criteria, the received proposals were evaluated. As a result of the evaluation process, the audit contract was signed with KPMG Baltics OÜ. The audit fee and the auditor’s responsibilities are fixed in an agreement which is concluded by the Management Board. According to the agreement, the fee to be paid to the auditor is not subject to disclosure and is treated as confidential. In the notice of the annual General Meeting of Shareholders, the Company publishes the information required by the Commercial Code, which does not include the audit fee. 31 | 119 AS Tallink Grupp Annual Report 2022 Corporate Governance Report The Audit Committee The Audit Committee is responsible for monitoring and analysing the processing of financial information, the effectiveness of risk management and internal control, the process of auditing annual and consolidated accounts, and the independence of the audit firm and the auditor representing the audit firm on the basis of the law. The Audit Committee is responsible for making recommendations and proposals to the Supervisory Board. At present, the Audit Committee has three members: Mr Meelis Asi – chairman, Mr Ain Hanschmidt and Ms Mare Puusaag. Substantial Shareholders Related party transactions are disclosed in the notes to the financial statements. Shareholder Number of shares % of share capital Infortar AS 297 572 752 40.0% Baltic Cruises Holding L.P. 81 971 609 11.0% ING Luxembourg S.A. AIF Account 44 077 066 5.9% 32 | 119 AS Tallink Grupp Annual Report 2022 Remuneration Report REMUNERATION REPORT The Supervisory Board has concluded service agreements with the members of the Management Board. In 2022, the remuneration of the members of the Group’s Management Board was EUR 1.5 million in total. The remuneration of the Management Board is determined by the Supervisory Board according to the CGR. The Supervisory Board has adopted and amended the principles of remuneration of the management of AS Tallink Grupp. According to the document, besides work benefits, termination benefits and a share option programme, the members of the Management Board are eligible to annual performance-related bonuses of up to 12-months’ remuneration depending on the size of dividends. The performance-related bonus is paid when the Group earns a profit and when the shareholders’ general meeting decides to pay dividends from the profit of the previous financial year. The following table provides an overview of the gross remuneration of each Management Board member of AS Tallink Grupp excluding social security tax expense. * In 2019 payments to shareholders included dividends of EUR 0.05 per share and a share capital reduction of EUR 0.07 per share. In thousands of EUR 2022 2021 2020 2019 2018 Paavo Nõgene 378.0 294.0 263.0 294.0 203.0 of which base remuneration 294.0 294.0 263.0 294.0 203.0 of which bonus 84.0 0.0 0.0 0.0 0.0 Kadri Land 240.0 210.0 196.7 226.0 - of which base remuneration 210.0 210.0 196.7 179.3 - of which bonus 30.0 0.0 0.0 46.7 - Harri Hanschmidt 236.8 198.8 196.7 206.8 - of which base remuneration 206.8 198.8 196.7 206.8 - of which bonus 30.0 0.0 0.0 0.0 - Piret Mürk-Dubout 240.0 210.0 196.7 157.9 - of which base remuneration 210.0 210.0 196.7 157.9 - of which bonus 30.0 0.0 0.0 0.0 - Margus Schults 378.9 243.4 - - - of which base remuneration 188.0 144.5 - - - of which bonus 47.3 0.0 - - - of which payments from other group entities 143.7 98.9 - - - Net profit/loss (EUR million) 13.9 -56.6 -108.3 49.7 40.0 Dividend per share (EUR)* - - - 0.05 0.03 Salary per average FTE 39.6 39.7 39.4 33.6 31.8 33 | 119 AS Tallink Grupp Annual Report 2022 Environmental and Corporate Social Responsibility ENVIRONMENTAL AND CORPORATE SOCIAL RESPONSIBILITY AS Tallink Grupp has been reporting on the company’s sustainability activities, including the Group’s environmental strategies and plans, governance, social contribution annually and systematically already since the early 2000s. The methodologies and standards used as a basis for this have changed and improved over the years, ranging from the Global Reporting Initiative to the United Nations SDGs. The Group’s sustainability strategy was set in late 2019 following a consultation process, involving some of the company’s key stakeholders and their views on the company’s sustainability agenda, carried out during 2018 and 2019. The developments in the EU sustainability reporting agenda with the adoption of the new Corporate Sustainability Reporting Directive (CSRD) and the development of the new European Sustainability Reporting Standard (ESRS) mean, however, that the company will in 2023 carry out further strengthening of its governance around sustainability responsibilities and reporting, double materiality assessment analyses and reassess its ESG strategy, goals and action plans for the next 2-10 years. The forementioned activities will be carried out in preparation for the enhanced reporting coming into effect from 2024 and 2025 onwards. In the Annual Report of 2021, the company already carried out the first assessment of the EU taxonomy alignment and reported for the first time based on the taxonomy directive. In the Annual Report of 2022, the taxonomy overview has grown in detail and provides an even greater insight into how the Group’s economic activities are aligned with and support the green agenda. In addition to the taxonomy analysis, the Group further carried out a mapping exercise at the end of 2022, to identify key areas of development for the group in the area of sustainability in 2023 and mapped out some of the key activities for the year ahead. These include: strengthening governance around sustainability, development of roadmap to CSRD compliance, further GHG emissions analyses and clear objective setting for the next 2-10 years to reach ambitious ESG and climate targets. 34 | 119 AS Tallink Grupp Annual Report 2022 Environmental and Corporate Social Responsibility AS Tallink Grupp is proud of signing the company’s first sustainability linked loan with its syndicate banks in late 2022, its loan margins linked to the company’s ESG performance and sustainability KPIs (emissions reductions and employee health and safety) for the first time. In 2023, the Group will further work on embedding a sustainability culture across the group and enhance ESG governance on company Boards level. Environmental Activities on Shore From June until September 2022, AS Tallink Grupp carried out an inventory of the Group’s onshore greenhouse gas emissions in partnership with third party experts and applied science professionals for the years 2019 and 2021 as the base years. The Group already monitors its vessels’ emissions since 2009, but no onshore emissions review had previously been carried out. The inventory was carried out according to the Greenhouse Gas Protocol and included, initially, scope 1 and 2 emissions. The key findings of the analysis were: → CO2 emissions from onshore activities are only a small fraction (2.8%) of AS Tallink Grupp’s total CO2 emissions. → In 2019, before COVID-19, the share of onshore activities was even smaller, 2.1%, indicating that after shipping activities restore normal level the share of onshore emissions diminishes further. 2022 emissions analysis will be carried out in Q2 2023 and published in the Group’s 2022 Annual Sustainability Report later this year. The Group will also commence the initial mapping of its scope 3 emissions in 2023 in readiness for measurement of scope 3 emissions in the next few years. Onshore activities and shipping CO2 emissions Share of onshore and shipping CO2 emissions GHG emissions inventory for base years 2019 and 2021. In addition to focusing on mapping and reducing the company’s emissions, AS Tallink Grupp strengthened its policies around circular practices, buying local and buying sustainable. The company continued to work closely with established partners in carrying out its circular economy practises where possible. 35 | 119 AS Tallink Grupp Annual Report 2022 Environmental and Corporate Social Responsibility Environmental Activities in Shipping Operations AS Tallink Grupp’s vessels continue to be managed in a way where efficiency is one of the utmost priorities. Ship management is constantly working towards finding solutions that provide the biggest impact on reducing fuel consumption and decreasing GHG emissions. There are several projects in the pipeline in 2023, improvements in the ships’ measuring equipment forms a cornerstone for further improvements. Hence, the company plans to modernize fuel consumption monitoring equipment and has already introduced a new electronic platform to collect relevant data. Ship management specialists continue to monitor closely the development of technologies that will enable shipping to achieve the goals of reducing carbon intensity and moving towards the decarbonisation of shipping. Environmental protection and management are a clear focus for the Group. The Group is making significant effort across the Group’s fleet to minimize marine and air pollution, increase energy efficiency, control the use of chemicals and other pollutants, save resources and reduce waste wherever possible. The Group’s vessels are managed and operated in full compliance with the MARPOL (the International Convention for the Prevention of Pollution from Ships) and its amendments. The Group continues to operate strictly under a zero-spill policy. The Group’s objective is to avoid any pollution of the marine environment by maintaining the highest standards of ships’ technical condition, safety and crew competencies, and complying with all legal requirements. In addition, the entire group with its activities is committed to continuous improvement of the operations and meeting its goals. The Group still participates in an EU funded project TWIN PORT 3, throughout the period 2018-2023. The project focuses on the reduction of the environmental impact of the increasing Ro-Pax ferry traffic and continues to improve the multimodal transport link between Helsinki and Tallinn. As one of the outputs of this project, the onshore power supply systems are developed and operational in Tallinn Old City Harbour, Helsinki South and West Harbour and Stockholm Värtahamnen harbour. In these ports our vessels are able to connect with shore power for reducing air emissions and noise in city centres of the named capital cities. In 2022 our ships’ operations continued to be influenced by the global pandemic, but as a new factor, also by full scale war in the Ukraine. Several of the Group’s vessels are charted out as accommodation vessels for housing war refugees or asylum seekers. The activities of our fleet are slowly recovering but remain far from our peak operations. However, all required maintenances, including all safety related maintenances are performed to the full extent to keep our fleet in complete readiness for any activities they might be needed to engage in. Auto-mooring systems have been actively used in Tallinn Old City Harbour and in Helsinki West Harbour by our Shuttle ships. This enables our shuttle ships Star, Megastar and, as a new addition to our fleet – MyStar, to optimize time and human resources while in port. This technology enables us to perform mooring operations more efficiently, meanwhile reducing air emissions, noise and saving time. We continue to focus on possible projects that would help us improve our fleet’s energy efficiency. It is our priority to optimize fuel consumption and by doing that also our fleet’s GHG emissions, as the latter is going to be a major area for Regulators (in EU and in IMO). We are expecting further developments in addition to the already enforced measures introduced by IMO as short-term solutions (EEXI, CII). In 2022 the Group’ Ship management branch maintained its ISO 14001:2015 certified status of its Environmental Management System forming integral part of its Safety Management System. The surveillance audit was successfully completed, and the certified status was successfully maintained. 36 | 119 AS Tallink Grupp Annual Report 2022 Environmental and Corporate Social Responsibility Some examples of international certificates held by Group’s companies and ships: → ISO 14001:2015 Environmental Management System Certificate by LRQA (covering entire fleet) → MARPOL International Energy Efficiency Certificate → MARPOL International Air Pollution Prevention Certificate → MARPOL International Sewage Pollution Prevention Certificate → IAFS International Anti-Fouling System Certificate → MARPOL International Oil Pollution Prevention Certificate → Document of Compliance for Anti-fouling System → MARPOL International Garbage Pollution Prevention Attestation → Document of Compliance by Estonian Maritime Administration → Document of Compliance by Finnish Maritime Administration → Document of Compliance by Swedish Maritime Administration → Document of Compliance by Latvian Maritime Administration Social Activities Across the Group In 2022, AS Tallink Grupp, like a vast number of other businesses around Europe and the globe, focused heavily on providing support for initiatives and projects supporting Ukraine. AS Tallink Grupp worked both with the Estonian Government as well as the Scottish Government to provide emergency and temporary accommodation for Ukrainian refugees on its vessels Isabelle and Victoria I, respectively. Both vessels are currently, in spring 2023, still providing this accommodation in Tallinn and Edinburgh. The support for the refugees in Estonia and in the Baltic sea region was not, however, limited only to providing a vessel for accommodation. The Group has additionally provided free maritime transport to more than 11 000 refugees and tons of humanitarian cargo since February 2022; the Group’s employees have organised countless collections of hygiene products, toys, school items and much more for the refugees travelling on the company’s ferries as well as those temporarily residing on the accommodation ferries. This support has been completely altruistic and in many cases grass-roots led. The Group naturally immediately stopped transporting goods and people under sanction, the sale of goods from Russia and Belarus, the use of Russian-origin LNG and took other steps in support of Ukraine. This support will continue as long as it is needed. When the last of the COVID-19 travel restrictions were lifted in Q1 2022, the Group saw a gradual increase in passenger figures throughout 2022, despite the new geopolitical turbulence. The increase in passengers and stabilising core operations, meant that employee numbers also gradually increased in 2022, totalling 4904 at the end of the year. With 6 of the Group’s vessels chartered out long- and short-term at the time of reporting, and the majority of them with technical crew only, there is great potential for jobs in the company once the charters end and the vessels return to regular traffic. In the continuing turbulent times, the company maintained close ties and continuing discussions regarding labour relations directly with employees and also with the unions in all three key markets. Collective bargaining negotiations in Estonia with the Estonian Independent Seamen’s Union successfully completed in early February 2023 with a new collective agreement with the union signed for the next four years, the longest term for a collective agreement for the company yet. In 2022, the health and safety of the Group’s employees continued to be one of the main priorities. Occupational health and safety, workplace injuries rates and relevant data is rigorously monitored, risk assessments performed and steps taken to continuously reduce the number of workplace injuries and accidents, and maintain a zero fatal injuries rate (according to the new sustainability linked loan the company has set itself a target to maintain zero fatal work accidents rate and all other work accidents at or below the Lost Time Injury Frequency Rate (LTIFR) of 13.3 (2021 levels) per annum). 37 | 119 AS Tallink Grupp Annual Report 2022 Environmental and Corporate Social Responsibility As a multinational company, the Group highly values and supports diversity and has zero tolerance for any form of discrimination. The Group regularly trains its employees on human rights issues and, in partnership with regional NGOs and authorities, educates its staff on diversity, equality and human rights topics. The Group’s own gender and nationality mix is a great example of diversity with a gender mix of 53% male, 47% female across the group, and a Management Board mix of 60% male, 40% female. The Group and its management place great emphasis on strong corporate governance principles and transparent business practises. Similarly to previous years, AS Tallink Grupp continued its support of Estonian culture, continuing its headline sponsorship of the Estonia National Opera and the Vanemuine theatre, but it also played a key role in raising the bar for Estonian tennis by sponsoring and supporting the organising of the first ever WTA Tallinn Open in September 2022. The Group continues to support a number of initiatives and projects in the fields of environmental protection and circular economy, children and young people and sports in all its markets. A more detailed overview of the Group’s sustainable development goals, plans, policies and activities in 2022 will be provided in the Group’s Sustainability Report, published in May 2023. Anti-corruption Activities and Human Rights The Group and its management place great emphasis on strong corporate governance principles and transparent business practises. AS Tallink Grupp operates on a zero tolerance for any form of corruption principle and the Group has been enforcing a clear anti-corruption policy with clear reporting and whistleblowing procedures since 2018. The Group has adopted an anti-corruption policy describing the group-wide viewpoints for avoiding the corruptive business activities and code of conduct for potential cases of conflict of interests, declaring gifts and reporting integrity concerns. The policy applies to all subsidiaries of AS Tallink Grupp worldwide, members of their managing bodies and employees, both permanent and temporary ones, and to all related persons and the members of their managing bodies and employees. Conflict of Interest Every employee of AS Tallink Grupp carrying out a transaction on behalf of the company is obliged to report upon the occurrence of a potential conflict of interest by using a specific form on the Group’s insider page. Gift Declaration By making, giving or taking the gift or offering hospitality and entertainment every employee should always follow that the gift is not given with the purpose or perspective to influence or determine the deciding process of the receiver or other activities. The Anti-Corruption Policy sets a requirement to declare gifts set at the value of 50 euros. No gifts exceeding the value of 100 euros per individual shall be offered, provided or accepted without approval from the Group’s Management Board. The gifts are declared by using a specific form on the Group’s insider page. Integrity Concern Reporting The Group is committed to and promotes honest, open and lawful conduct and invites its employees and other natural persons to report information on actual or suspected wrongdoings on incompliances in the operations of the Group that the person has learned about in relation to the performance of his work or professional duties in the Group or in relation to provision of the services to the Group. The reporting will enable the Group to take the necessary action for the elimination of 38 | 119 AS Tallink Grupp Annual Report 2022 Environmental and Corporate Social Responsibility any existing wrongdoings in a timely manner and for the prevention of occurring of such in the future. The Group welcomes submission of the Integrity Concern Reports also in cases when the information about the actual or suspected wrongdoing was learned while establishing contractual relationship with the Group (such as applying for a job or a service contract etc.). Any suspicion may be reported in free form description directly to the Head of AS Tallink Grupp’s Internal Audit department either via the e-mail or by using a specific anonymous form on the Group’s insider page. During 2022 no material incidents of material misconduct were notified. Human Rights We continue to stand up for human rights, which includes taking action to prevent modern slavery and human trafficking in our business and supply chain. We comply with high ethical business conduct in all of our business, and expect our Suppliers to commit to same standards when conducting business and when dealing with its employees, suppliers and customers. The Group’s Supplier Code of Conduct reflects the values of AS Tallink Grupp and sets out the minimum Anti-Corruption and Human Right’s requirements which the Group expects its suppliers and their sub-suppliers to adhere to when doing business with AS Tallink Grupp. Safety and security As ever before the safety and security of people, the environment and property remain the top priority in the Group’s operations. The Group’s Safety Management System continues to be in full compliance with the ISM (International Safety Management) and ISPS (International Ship Port Facility Security) Codes and with the ISO 14001 requirements for Environmental Management Systems. All this provides the basics that enable our ship and onshore operations to prevent accidents, loss of lives and minimize the environmental impact to the environment. Our Integrated Management System is audited by different flag state authorities (Estonian, Finnish, Latvian, and Swedish Maritime Administrations, or recognised organisations duly authorised by these administrations) and by the certification body (LRQA, ISO 14001 Environmental Management System) regularly. The Group’s Safety Management System is designed to maintain and develop safe procedures for ships and create a safe ship environment for both, crew and passengers. Crew skills and their safety and security related knowledge is consistently and continuously developed, tested and practiced through various drills and exercises performed regularly, often in cooperation with relevant local authorities. The competencies are developed by firstly identifying and evaluating any risks and thereafter by establishing possible mitigating measures to manage these risks. We continue to maintain the environmental and safety awareness of the crew at the highest possible level. One of the objectives of the Group’s Safety Management System is to ensure that all applicable provisions set out by the regulators and authorities (e.g., International Maritime Organization, European Union, maritime authorities of the flag states, certification bodies and other relevant organizations) are identified, strictly followed and, where possible, exceeded. Ship Masters have an overall responsibility for onboard safety and security operations. The onshore organisation provides comprehensive support to all the Group’s vessels irrespective of the flag they fly. All Group vessels carry on board adequate lifesaving equipment, which meets all applicable safety standards and is always ready for immediate use when needed. However, the Group’s comprehensive nautical and good-seamanship practices, supported by a top-level safety and security organisation, help ensure that any situations where safety equipment would be needed are avoided in the first place. 39 | 119 AS Tallink Grupp Annual Report 2022 EU Taxonomy Reporting EU TAXONOMY REPORTING Consistent with the Article 8 (1) of Taxonomy Regulation (EU) 2020/852, the Group is obliged to disclose how and to what extent its economic activities are related to environmentally sustainable economic activities as defined by the taxonomy. During the reporting period, the Taxonomy Regulation covers economic activities that can contribute to two environmental objectives: → climate change mitigation → climate change adaptation The taxonomy currently covers two of the Group's economic activities: → transportation of freight by sea and coastal waters (NACE codes H50.2 ) → transportation of passengers by sea and coastal waters (NACE code H50.1) Under Article 8 (2), the group, as a non-financial undertaking, is obliged to disclose key performance indicators relating to revenue, capital expenditure and operating expenses that are classified as environmentally sustainable under Articles 3 and 9 of the taxonomy. The Group’s other activities, that include ship restaurant and onboard sales service, onshore restaurant and hotel service, online shop, and onshore business are classified as taxonomy non- eligible activities. This applies also to the operation of vessels that are not providing transportation services (NACE codes H50.2 and H50.1), but are used for providing accommodation services to refugees or asylum seekers. The Group has presented key performance indicators at the consolidated group level to avoid double counting. 40 | 119 AS Tallink Grupp Annual Report 2022 EU Taxonomy Reporting KPIs related to EU taxonomy – revenue Economic activities Code(s) Absolute revenue (EUR million) Proportion of revenue (%) Climate change mitigation (%) Climate change adaptation (%) Water and marine resources (%) Circular economy (%) Pollution (%) Biodiversity and ecosystems (%) Climate change mitigation (Y/N) Climate change adaptation (Y/N) Water and marine resources (Y/N) Circular Economy (Y/N) Pollution (Y/N) Biodiversity and ecosystems (Y/N) Minimum safeguards (Y/N) Taxonomy- aligned proportion of revenue 2022 (%) Taxonomy- aligned proportion of revenue 2021 (%) Category (enabling activity or) (E) Category '(transitional activity)' (T) A. Taxonomy eligible activities A.1 Environmentally sustainable activities (Taxonomy-aligned) 6.10. Sea and coastal freight water transport, vessels for port operations and auxiliary activities NACE H50.2 83.3 11% 11% 0% 0% 0% 0% 0% N/A Y Y Y Y Y Y 100% N/A T 6.11. Sea and coastal passenger water transport NACE H50.1 98.6 13% 13% 0% 0% 0% 0% 0% N/A Y Y Y Y Y Y 77% N/A T Revenue of Taxonomy-aligned activities 181.9 24% 24% 0% 0% 0% 0% 0% N/A Y Y Y Y Y Y 59% N/A A.2 Taxonomy-Eligible but not aligned activities 6.10. Sea and coastal freight water transport, vessels for port operations and auxiliary activities NACE H50.2 29.7 4% 6.11. Sea and coastal passenger water transport NACE H50.1 95.9 12% Revenue of Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) 125.6 16% Total (A.1 + A.2) 307.4 40% 59% B. Taxonomy non-eligible activities Revenue from non-eligible activities 464.0 60% Total (A+B) 771.4 100% Substantial contribution criteria DNSH criteria ('Does Not Significantly Harm') 41 | 119 AS Tallink Grupp Annual Report 2022 EU Taxonomy Reporting KPIs related to EU taxonomy – capital expenditure Economic activities Code(s) Absolute capex (EUR million) Proportion of capex (%) Climate change mitigation (%) Climate change adaptation (%) Water and marine resources (%) Circular economy (%) Pollution (%) Biodiversity and ecosystems (%) Climate change mitigation (Y/N) Climate change adaptation (Y/N) Water and marine resources (Y/N) Circular Economy (Y/N) Pollution (Y/N) Biodiversity and ecosystems (Y/N) Minimum safeguards (Y/N) Taxonomy- aligned proportion of capex 2022 (%) Taxonomy- aligned proportion of capex 2021 (%) Category (enabling activity or) (E) Category '(transitional activity)' (T) A. Taxonomy eligible activities A.1 Environmentally sustainable activities (Taxonomy-aligned) 6.10. Sea and coastal freight water transport, vessels for port operations and auxiliary activities NACE H50.2 93.3 46% 46% 0% 0% 0% 0% 0% N/A Y Y Y Y Y Y 97% N/A T 6.11. Sea and coastal passenger water transport NACE H50.1 94.6 47% 47% 0% 0% 0% 0% 0% N/A Y Y Y Y Y Y 97% N/A T Capex of Taxonomy-aligned activities 187.9 92% 92% 0% 0% 0% 0% 0% N/A Y Y Y Y Y Y 97% N/A A.2 Taxonomy-Eligible but not aligned activities 6.10. Sea and coastal freight water transport, vessels for port operations and auxiliary activities NACE H50.2 2.9 1% 6.11. Sea and coastal passenger water transport NACE H50.1 3.3 2% Capex of Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) 6.2 3% Total (A.1 + A.2) 194.1 95% 97% B. Taxonomy non-eligible activities Capex from non-eligible activities 9.2 5% Total (A+B) 203.3 100% Substantial contribution criteria DNSH criteria ('Does Not Significantly Harm') 42 | 119 AS Tallink Grupp Annual Report 2022 EU Taxonomy Reporting KPIs related to EU taxonomy – operating expenses Economic activities Code(s) Absolute Opex (EUR million) Proportion of Opex (%) Climate change mitigation (%) Climate change adaptation (%) Water and marine resources (%) Circular economy (%) Pollution (%) Biodiversity and ecosystems (%) Climate change mitigation (Y/N) Climate change adaptation (Y/N) Water and marine resources (Y/N) Circular Economy (Y/N) Pollution (Y/N) Biodiversity and ecosystems (Y/N) Minimum safeguards (Y/N) Taxonomy- aligned proportion of Opex 2022 (%) Taxonomy- aligned proportion of Opex 2021 (%) Category (enabling activity or) (E) Category '(transitional activity)' (T) A. Taxonomy eligible activities A.1 Environmentally sustainable activities (Taxonomy-aligned) 6.10. Sea and coastal freight water transport, vessels for port operations and auxiliary activities NACE H50.2 4.8 8% 8% 0% 0% 0% 0% 0% N/A Y Y Y Y Y Y 65% N/A T 6.11. Sea and coastal passenger water transport NACE H50.1 3.4 6% 6% 0% 0% 0% 0% 0% N/A Y Y Y Y Y Y 58% N/A T Opex of Taxonomy-aligned activities 8.2 14% 14% 0% 0% 0% 0% 0% N/A Y Y Y Y Y Y 62% N/A A.2 Taxonomy-Eligible but not aligned activities 6.10. Sea and coastal freight water transport, vessels for port operations and auxiliary activities NACE H50.2 2.6 4% 6.11. Sea and coastal passenger water transport NACE H50.1 2.5 4% Opex of Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) 5.0 9% Total (A.1 + A.2) 13.3 23% 62% B. Taxonomy non-eligible activities Opex from non-eligible activities 44.9 77% Total (A+B) 58.2 100% Substantial contribution criteria DNSH criteria ('Does Not Significantly Harm') 43 | 119 AS Tallink Grupp Annual Report 2022 EU Taxonomy Reporting Methodology Eligibility The revenue from services related to the taxonomy-eligible activities includes vessels’ ticket revenue, revenue from the chartering of vessels and cargo revenue. The revenue from taxonomy-eligible activities does not include revenue from onboard and onshore restaurant and retail services, the operation of hotels and the online shop. The total revenue used for calculating the share of taxonomy-eligible activities in Group’s revenue includes total revenue without exceptions (note 4). Taxonomy-eligible capital expenditure consists of investments in Group’s sea-going vessels. It does not include investments related to the IT developments of onshore units, hotels and onshore businesses (including onshore restaurants). Due to the nature of the Group’s economic activities, its vessels carry both passengers and cargo, therefore investments in ships contribute to both types of activities. Technical investments into Groups ships are divided equally between passenger and freight transport activities. Capital expenditure related to public areas of the ships are allocated between activities according to the share of passengers and cargo drivers amongst total number of passengers. The total capital expenditure used for calculating the share of taxonomy-eligible activities in Group’s capital expenditure includes total capital expenditure without exceptions (note 14, 15). Operating expenses related to taxonomy-eligible activities include costs directly related to the maintenance of vessels to ensure the continued and efficient operation of assets: maintenance costs and brokerage fees. Operating expenses are broken down between passenger and cargo transport as follows: the costs of cruise vessels are equally split between passenger and freight transport activities. Operating costs of cargo vessels are fully to freight transport. Total operating expenses calculating the share of taxonomy-eligible activities in Group’s operating expenses includes total maintenance costs of the Group, total brokerage fees, total technical personnel costs and ships other expenses. Alignment According to Article 3 of (EU) 2020/852, activity is environmentally sustainable (i.e. taxonomy- aligned), if it: → contributes substantially to one or more of the environmental objectives → does not significantly harm any of the environmental objectives → is carried out in compliance with the minimum safeguards → complies with technical screening criteria Group’s substantial contribution to climate change mitigation was assessed according to the technical criteria listed in the Annex I of (EU) 2021/2139. The appraisal was carried out ship by ship using the threshold provided by technical screening criteria in the Annex I 6.11 (criteria b) or c) depending on the type of the vessel) 1 of (EU) 2021/2139 for transportation of passengers by sea and coastal waters. For transportation of freight by sea and coastal waters, Group used the threshold provided by technical screening criteria in the Annex I 6.10 (b or c depending on the type of the vessel) of (EU) 2021/2139. In case application of the screening criteria was not possible due to technical reasons or lack of data (in case of chartered vessels), indicators of these vessels were classified as not aligned with EU taxonomy. To assess the Group’s substantial contribution to climate change adaptation, the climate change adaptation risk analysis (as foreseen in 2021/2139 Annex I Appendix A) was conducted, revealing that 1 The screening criteria c) provide value for EEDI (Energy Efficiency Design Index), however, EEDI is calculated only for new ships and not for existing ones. As the calculation principle is the same and Group’s fleet consists already existing ships that have no EEDI value, EEXI values are compared with criteria c) EEDI threshold. 44 | 119 AS Tallink Grupp Annual Report 2022 EU Taxonomy Reporting most climate risks have no or positive impact to the Group economic activities. Slight negative impact of certain risks are addressed through appropriate adaptation measures. The Group provides taxonomy eligible services in the Baltic Sea, where strict environmental criteria are applied, compared with world and European average. Do No Significant Harm (DNSH) principle is closely followed in daily operations, the Group taxonomy eligible activities 6.10 and 6.11 are aligned with DNSH principle according to the technical screening criteria established in the EC Delegated Regulation 2021/2139. More information on 2022 activities to ensure the application of the DNSH principle is provided in a separate Sustainability Report to be published in the first half of 2023 on the Group’s website. An overview of the applied minimum safeguards is provided in detail in the respective sections of the Corporate Governance Report (Disclosure of Information, Financial Reporting and Audit) and the Environmental and Corporate Social Responsibility (Social Activities Across the Group, Anti- corruption Activities, Conflict of Interest, Integrity Concern Reporting, Human Rights) of the Annual Report. Contextual (qualitative) information In accordance with Annex I of the Taxonomy Regulation, the Group is obliged to explain its key performance indicators and the reasons for any changes in these indicators during the reporting period. 2022 KPI’s set the baseline for next years. Therefore, it is not possible yet to elaborate on the changes of the KPIs. More contextual information on KPIs is added in the 2023 report, based on yearly change of figures. There were small revisions to the methodology for calculating eligibility figures: → Revenue from charter of vessels was more evenly distributed between passenger and cargo transport → Operating expenses include vessels that are operated outside the EU KPIs related to EU taxonomy – corrections to 2021 figures Share of taxonomy- eligible revenue, 2021 Share of taxonomy- eligible revenue, 2021 (corrected) Share of taxonomy- eligible capital expenditure, 2021 Share of taxonomy- eligible capital expenditure, 2021 (corrected) Share of taxonomy- eligible operating expenses, 2021 Share of taxonomy- eligible operating expenses, 2021 (corrected) 6.10. Sea and coastal freight water transport, vessels for port operations and auxiliary activities 20% 23% 25% 25% 14% 15% 6.11. Sea and coastal passenger water transport 27% 24% 27% 27% 11% 11% Taxonomy eligible activities 47% 47% 52% 52% 25% 26% 45 | 119 AS Tallink Grupp Annual Report 2022 Management Board’s Confirmation MANAGEMENT BOARD’S CONFIRMATION The Management Board confirms that to the best of their knowledge the management report of AS Tallink Grupp for the year 2022, including the remuneration report, presents a true and fair view of significant events and their impact on the Group’s results and financial position and includes an overview of the main risks and uncertainties. Paavo Nõgene Chairman of the Management Board Kadri Land Member of the Management Board Harri Hanschmidt Member of the Management Board Piret Mürk-Dubout Member of the Management Board Margus Schults Member of the Management Board 31 March 2023 This audited annual report has been signed digitally. 46 | 119 AS Tallink Grupp Annual Report 2022 Consolidated Financial Statements CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Profit or Loss and Other Comprehensive Income The Notes on pages 51-108 form an integral part of the financial statements For the year ended 31 December, in thousands of EUR 2022 2021 Revenue (Note 4) 771 387 476 937 Cost of sales (Note 5) -657 917 -455 282 Gross profit/loss 113 470 21 655 Sales and marketing expenses (Note 5) -38 796 -29 262 Administrative expenses (Note 5) -47 555 -45 633 Impairment loss on receivables (Note 25) -153 -99 Other operating income (Note 22) 10 871 16 336 Other operating expenses -164 -28 Result from operating activities 37 673 -37 031 Finance income (Note 5) 215 34 Finance costs (Note 5) -24 871 -21 921 Share of profit/loss of equity-accounted investees (Note 12) -90 -80 Profit/loss before income tax 12 927 -58 998 Income tax (Note 6) 1 008 2 422 Net profit/loss 13 935 -56 576 Net profit/loss attributable to equity holders of the Parent 13 935 -56 576 Other compherensive income Items that may be reclassified to profit or loss Exchange differences on translating foreign operations 480 123 Other comprehensive income 480 123 Total comprehensive income 14 415 -56 453 Total comprehensive income attributable to equity holders of the Parent 14 415 -56 453 Basic and diluted loss per share (in EUR, Note 7) 0.019 -0.081 47 | 119 AS Tallink Grupp Annual Report 2022 Consolidated Financial Statements Consolidated Statement of Financial Position The Notes on pages 51-108 form an integral part of the financial statements As at 31 December, in thousands of EUR 2022 2021 ASSETS Cash and cash equivalents (Note 8) 114 935 127 556 Trade and other receivables (Note 9) 31 380 29 298 Prepayments (Note 10) 9 379 11 924 Prepaid income tax 37 0 Inventories (Note 11) 39 965 34 631 Current assets 195 696 203 409 Investments in equity-accounted investees (Note 12) 75 165 Other financial assets and prepayments (Note 13) 3 622 555 Deferred income tax assets (Note 6) 21 840 21 840 Investment property 300 300 Property, plant and equipment (Note 14) 1 438 286 1 323 353 Intangible assets (Note 15) 31 823 36 293 Non-current assets 1 495 946 1 382 506 TOTAL ASSETS 1 691 642 1 585 915 LIABILITIES AND EQUITY Interest-bearing loans and borrowings (Note 16) 165 049 244 436 Trade and other payables (Note 18) 86 934 91 687 Payables to owners 6 6 Income tax liability 35 47 Deferred income (Note 19) 44 222 21 734 Current liabilities 296 246 357 910 Interest-bearing loans and borrowings (Note 16) 688 465 535 489 Non-current liabilities 688 465 535 489 Total liabilities 984 711 893 399 Share capital (Note 20) 349 477 349 477 Share premium (Note 20) 663 663 Reserves (Note 20) 66 363 67 930 Retained earnings 290 428 274 446 Equity attributable to equity holders of the Parent 706 931 692 516 Total equity 706 931 692 516 TOTAL LIABILITIES AND EQUITY 1 691 642 1 585 915 48 | 119 AS Tallink Grupp Annual Report 2022 Consolidated Financial Statements Consolidated Statement of Cash Flows The Notes on pages 51-108 form an integral part of the financial statements For the year ended 31 December, in thousands of EUR 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net profit/loss for the period 13 935 -56 576 Adjustments for: Depreciation and amortisation (Notes 14, 15) 98 136 95 313 Net gain/loss on disposals of property, plant and equipment -34 -494 Net interest expense (Note 5) 24 622 21 843 Loss from equity-accounted investees (Note 12) 90 80 Net unrealised foreign exchange gain/loss 341 118 Loss from investments 0 75 Income tax (Note 6) -1 008 -852 Adjustments 122 147 116 083 Changes in: Receivables related to operating activities -2 036 -3 918 Prepayments related to operating activities -1 602 -3 007 Inventories -5 334 -6 513 Liabilities related to operating activities 17 415 13 447 Changes in assets and liabilities 8 443 9 Cash generated from operating activities 144 525 59 516 Income tax paid -227 -137 NET CASH FROM/USED IN OPERATING ACTIVITIES 144 298 59 379 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment and intangible assets -203 322 -20 192 Proceeds from disposals of property, plant and equipment 2 768 816 Interest received 215 3 NET CASH USED IN INVESTING ACTIVITIES -200 339 -19 373 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from loans received (Note 16) 196 290 90 000 Repayment of loans received (Note 16) -110 055 -14 667 Change in overdraft (Note 16) -165 -15 556 Payment of lease liabilities -17 157 -14 903 Interest paid -23 516 -19 296 Payment of transaction costs related to loans -1 977 -495 Issue of shares (Note 20) 0 34 633 NET CASH FROM FINANCING ACTIVITIES 43 420 59 716 TOTAL NET CASH FLOW -12 621 99 722 Cash and cash equivalents at the beginning of period 127 556 27 834 Change in cash and cash equivalents (Note 8) -12 621 99 722 Cash and cash equivalents at the end of period 114 935 127 556 49 | 119 AS Tallink Grupp Annual Report 2022 Consolidated Financial Statements Consolidated Statement of Changes in Equity The Notes on pages 51-108 form an integral part of the financial statements In thousands of EUR Share capital Share premium Translation reserve Ships re- valuation reserve Legal reserve Retained earnings Equity attributable to equity holders of the Parent Total equity As at 31 December 2021 349 477 663 360 35 411 32 159 274 446 692 516 692 516 Net profit/loss for 2022 0 0 0 0 0 13 935 13 935 13 935 Other comprehensive income for 2022 Exchange differences on translating foreign operations 0 0 480 0 0 0 480 480 Total comprehensive income for 2022 0 0 480 0 0 13 935 14 415 14 415 Transactions with owners of the Company recognised directly in equity Transfer from revaluation reserve 0 0 0 -2 047 0 2 047 0 0 Total transactions with owners of the Company, recognised directly in equity 0 0 0 -2 047 0 2 047 0 0 As at 31 December 2022 349 477 663 840 33 364 32 159 290 428 706 931 706 931 50 | 119 AS Tallink Grupp Annual Report 2022 Consolidated Financial Statements In thousands of EUR Share capital Share premium Translation reserve Ships re- valuation reserve Legal reserve Retained earnings Equity attributable to equity holders of the Parent Total equity As at 31 December 2020 314 844 663 237 37 458 32 159 328 975 714 336 714 336 Net profit/loss for 2021 0 0 0 0 0 -56 576 -56 576 -56 576 Other comprehensive income for 2021 Exchange differences on translating foreign operations 0 0 123 0 0 0 123 123 Total comprehensive loss for 2021 0 0 123 0 0 -56 576 -56 453 -56 453 Transactions with owners of the Company recognised directly in equity Transfer from revaluation reserve 0 0 0 -2 047 0 2 047 0 0 Issue of shares (Note 20) 34 633 0 0 0 0 0 34 633 34 633 Reduction of share capital 0 0 0 0 0 0 0 0 Total transactions with owners of the Company, recognised directly in equity 34 633 0 0 -2 047 0 2 047 34 633 34 633 As at 31 December 2021 349 477 663 360 35 411 32 159 274 446 692 516 692 516 51 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 1 Corporate Information The consolidated financial statements of AS Tallink Grupp (the “Parent”) and its subsidiaries (together referred to as the “Group”) for the year ended 31 December 2022 were authorised for issue by the Management Board on 31 March 2023. According to the Estonian Commercial Code, the annual report including the consolidated financial statements prepared by the Management Board must first be approved by the Supervisory Board and ultimately by the General Meeting of Shareholders. Shareholders have the power not to approve the annual report prepared and presented by the Management Board and the right to request that a new annual report be prepared. AS Tallink Grupp is a public limited company incorporated and domiciled in Estonia, with a registered office at Sadama 5 Tallinn. AS Tallink Grupp shares have been publicly traded on the Nasdaq Tallinn Stock Exchange since 9 December 2005. The principal activities of the Group are related to marine transportation in the Baltic Sea (passenger and cargo transportation), EMTAK 50101 – Sea and coastal passenger water transport, EMTAK 50201 – Sea and coastal freight water transport, EMTAK 79121 – Travel agency activities. Further information on the Group’s principal activities is presented in Note 4 Segment information. At 31 December 2022 the Group employed 4 904 people (4 785 at 31 December 2021). Note 2 Basis of Preparation 2.1. Statement of Compliance The consolidated financial statements of AS Tallink Grupp and its subsidiaries have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (hereinafter: IFRS EU). 2.2. Basis of Measurement The consolidated financial statements have been prepared on the historical cost basis except for the following items in the statement of financial position: • equity securities are measured at fair value (Note 13) • ships are measured at revalued amounts (Note 14) 2.3. Changes in Accounting Policies Except for the changes below, the Group has consistently applied the accounting policies set out in Note 3 to all periods presented in these financial statements. The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 January 2022. 52 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Changes in significant accounting policies The Group applied the following amendments to standards initially on 1 January 2022. Amendments to IFRS 3 Business Combinations Effective for annual periods beginning on or after 1 January 2022. The amendments to IFRS 3 update a reference in IFRS 3 to the 2018 Conceptual Framework for Financial Reporting instead of the 1989 Framework. At the same time, the amendments add a new paragraph to IFRS 3 to clarify that contingent assets do not qualify for recognition at the acquisition date. The amendments had no material impact on the Group’s financial statements when initially applied. Amendments to IAS 16 Property, Plant and Equipment Effective for annual periods beginning on or after 1 January 2022; to be applied retrospectively. The amendments to IAS 16 require that the proceeds from selling items produced while bringing an item of property, plant and equipment to the location and condition necessary for it to be capable of operating in the manner intended must be recognised, together with the cost of those items, in profit or loss and that the entity must measure the cost of those items applying the measurement requirements of IAS 2. The amendments must be applied retrospectively, but only to items of property, plant and equipment that are brought to the location and condition necessary for them to be capable of operating in the manner intended on or after the beginning of the earliest period presented in the financial statements in which the entity first applies the amendments. The cumulative effect of initially applying the amendments will be recognised as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the beginning of that earliest period presented (if necessary). The amendments had no material impact on the Group’s financial statements when initially applied. Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets Effective for annual periods beginning on or after 1 January 2022, to be applied retrospectively. In determining the costs of fulfilling a contract, the amendments require an entity to include all costs that relate directly to a contract. The amendments clarify that the cost of fulfilling a contract comprises both: • the incremental costs of fulfilling that contract and • an allocation of other costs that relate directly to fulfilling contracts. An entity must apply those amendments to contracts for which it has not yet fulfilled all its obligations at the beginning of the annual reporting period in which it first applies the amendments (the date of initial application). The entity will not restate comparative information. Instead, the entity will recognise the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings or other component of equity, as appropriate, at the date of initial application. The Group does not expect the amendments to have a material impact on its financial statements when initially applied, because in determining the costs of fulfilling a contract the Group takes into account both incremental costs and other costs that relate directly to fulfilling contracts. The amendments had no material impact on the Group’s financial statements when initially applied. 53 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Annual improvements to IFRS standards 2018-2020 Effective for annual periods beginning on or after 1 January 2022. Early application is permitted. Improvements to IFRS (2018-2020) include three amendments to the standards: • the amendments to IFRS 9 Financial Instruments clarify that, when assessing whether an exchange of debt instruments between an existing borrower and lender is on terms that are substantially different, the fees to include together with the discounted present value of the cash flows under the new terms include only fees paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other's behalf. • the amendments to IFRS 16 Leases remove illustrative example 13 accompanying IFRS 16, which in practice creates confusion in accounting for leasehold improvements for both the lessee and lessor. The purpose of the amendment is to remove the illustrative example that creates confusion. • the amendments to IAS 41 Agriculture remove the requirement to use pre-tax cash flows to measure the fair value of agriculture assets. Previously, IAS 41 had required an entity to use pre-tax cash flows when measuring fair value but did not require the use of a pre-tax discount rate to discount those cash flows. The amendments had no material impact on the Group’s financial statements when initially applied. Standards, interpretations and amendments to published standards that are not yet effective Amendments to IAS 1 Presentation of Financial Statements Effective for annual periods beginning on or after 1 January 2023, to be applied retrospectively. Early application is permitted. These amendments are not yet endorsed by the EU. The amendments clarify that the classification of liabilities as current or non-current is based solely on the entity’s right to defer settlement at the end of the reporting period. The entity’s right to defer settlement for at least 12 months from the reporting date need not be unconditional but must have substance. The classification is not affected by management’s intentions or expectations about whether and when the entity will exercise its right. The amendments also clarify the situations that are considered settlement of a liability. The Group does not expect the amendments to have a material impact on its financial statements when initially applied. Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgements Effective for annual periods beginning on or after 1 January 2023. Early application is permitted. The amendments to IAS 1 aim to help entities provide accounting policy disclosures that are more useful by: • Requiring companies to disclose their material accounting policies rather than their significant accounting policies; • Clarifying that accounting policies related to immaterial transactions, other events or conditions are themselves immaterial and as such need not be disclosed; and • Clarifying that not all accounting policies that relate to material transactions, other events or conditions are themselves material to a company’s financial statements. The Board also amended IFRS Practice Statement 2 to include guidance and two additional examples on the application of materiality to accounting policy disclosures. 54 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements The amendments are consistent with the refined definition of material: “Accounting policy information is material if, when considered together with other information included in an entity’s financial statements, it can reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements”. The Group does not expect the amendments to have an impact on its financial statements when initially applied. Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors Effective for annual periods beginning on or after 1 January 2023; to be applied prospectively. Early application is permitted. The amendments introduce a new definition for accounting estimates: clarifying that they are monetary amounts in the financial statements that are subject to measurement uncertainty. The amendments also clarify the relationship between accounting policies and accounting estimates by specifying that a company develops an accounting estimate to achieve the objective set out by an accounting policy. The amendments are not expected to have a material impact on the Group as these amendments provide guidance in determining whether changes are to be treated as changes in estimates, changes in policies, or errors. Amendments to IAS 12 Income Taxes Effective for annual periods beginning on or after 1 January 2023. Early application is permitted. The amendments clarify the accounting for deferred tax on transactions that involve recognising both an asset and a liability with a single tax treatment related to both. The amendments narrow the scope of the initial recognition exemption (IRE) so that it does not apply to transactions that give rise to equal and offsetting temporary differences. As a result, companies will need to recognise a deferred tax asset and a deferred tax liability for temporary differences arising on initial recognition of a lease and a decommissioning provision. The Group does not expect the amendments to have a material impact on its financial statements when initially applied. Amendments to IAS 1 Classification of liabilities as current or non-current, deferral of effective date The amendments to IAS 1 on classification of liabilities as current or non-current was issued in January 2020 with an original effective date 1 January 2022. However in response to the COVID-19 pandemic, the effective date was deferred by one year to provide companies with more time to implement the classification changes resulting from the amended guidance. The Group does not expect the amendments to have a material impact on its financial statements when initially applied. Amendments to IFRS 16 Leases: Lease Liability in a Sale and Leaseback Effective for annual periods beginning on or after 1 January 2024; to be applied retrospectively to the date when the entity initially applied IFRS 16. Early application is permitted. Amendments to IFRS 16 Leases impact how a seller-lessee accounts for variable lease payments that arise in a sale-and-leaseback transaction. The amendments introduce a new accounting model for variable payments. The amendments confirm the following. • On initial recognition, the seller-lessee includes variable lease payments when it measures a lease liability arising from a sale-and- leaseback transaction. • After initial recognition, the seller-lessee applies the general requirements for subsequent accounting of the lease liability such that it recognises no gain or loss relating to the 55 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements right of use it retains. A seller-lessee may adopt different approaches that satisfy the new requirements on subsequent measurement. The Group does not expect the amendments to have a material impact on its financial statements when initially applied. Other changes Other new standards, amendments to standards and interpretations that are not yet effective are not expected to have a significant impact on the Group’s financial statements. 2.4. Functional and Presentation Currency The figures reported in the financial statements are presented in euros, which is the Parent’s functional currency. All financial information presented in euros has been rounded to the nearest thousand unless otherwise indicated. 2.5. Use of Estimates and Judgements The preparation of the consolidated financial statements in conformity with IFRS (EU) requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Judgements In the process of applying the Group’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the financial statements: Lease Term Judgement to determine whether the Group is reasonably certain to exercise extension options. As at 31 December 2022, the Group had entered into lease agreements for 4 hotel buildings, 4 office buildings, 1 warehouse building, 19 restaurant buildings and 5 shops (31 December 2021: 4 hotel buildings, 4 office buildings, 1 warehouse building, 16 restaurant buildings and 5 shops). See Note 17 for more detailed information on the minimum lease payments of the lease agreements. Assumptions and Estimation Uncertainty The following assumptions and estimation uncertainties have a risk of resulting in a material adjustment in the next financial year: Fair Value of Ships For the purpose of revaluation, the Group determined the fair value of its ships as at 31 December 2022. The fair value of ships depends on many factors, including the year of construction, several technical parameters as well as how the ships have been maintained (i.e. how much the owner has invested in maintenance). In order to assess the fair value of ships, the Group’s management used independent appraisers. Revaluation depends upon changes in the fair values of the ships. When the fair value of a ship differs materially from its carrying amount, a revaluation is required. Management is of the opinion that as at 31 December 2022 the carrying value of ships as a group did not materially differ from 56 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements their fair value. Therefore, no revaluation was performed as at 31 December 2022. Further details are given in Note 3.4 and Note 14. Assessment of Impairment of Right-of-Use Buildings and Premises At each reporting date, the Group assesses whether any indications exist of possible impairment of right-of-use buildings. If such indications exist, an impairment test is performed. For estimation of the value, the items’ value in use is determined. For determining the value in use, the discounted cash flow method is used. Further details are given in Note 14. Determination of the Useful Lives of Property, Plant and Equipment and Intangible Assets Management has estimated the useful lives and residual values of property, plant and equipment and intangible assets, taking into consideration the volumes of business activities, historical experience in this area and future outlook. Management’s estimates of the useful lives of the Group’s property, plant and equipment and the Group’s intangible assets are disclosed in Notes 3.4 and 3.5, respectively. Impairment of Goodwill The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which goodwill is allocated. Estimating value in use requires management to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill as at 31 December 2022 amounted to EUR 11 066 thousand (31 December 2021: EUR 11 066 thousand). Further details are given in Note 15. Deferred Tax Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different taxable entities which intend either to settle current tax liabilities and assets on a net basis or to realise the assets and settle the liabilities simultaneously. A deferred tax asset is recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management estimation is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits. Further details are provided in Note 6. 57 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Customer Loyalty Programme Customer loyalty programme (Club One) applies to sales transactions in which the entities grant their customers award credits that, subject to meeting further qualifying conditions, the customers can redeem in the future for free or discounted goods or services. The Group recognises the credits that it awards to customers as a separate performance obligation, which is deferred at the date of the initial sale. The credits are recognised based on the relative stand-alone selling price allocation method. See also Note 19. Note 3 Significant Accounting Policies The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities. 3.1. Basis of Consolidation Business Combinations Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. For acquisitions the Group measures goodwill at the acquisition date as: • the fair value of the consideration transferred; plus • the recognised amount of any non-controlling interests in the acquiree; plus • if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less • the net recognised amount (fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred. Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss. Subsidiaries Subsidiaries are entities controlled by the Group. Control exists when the Group is exposed or has rights to variable returns from its involvements with the investee and it has the ability to affect those returns through its power over the investee and there is a link between power and returns. In assessing control, potential voting rights that currently are exercisable are taken into account. The consolidated financial statements comprise the financial statements of AS Tallink Grupp and its subsidiaries. The financial statements of the subsidiaries used in the preparation of the consolidated 58 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements financial statements are prepared as at the same reporting date. If a subsidiary uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements in preparing the consolidated financial statements. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Investments in Equity-Accounted Investees Equity-accounted investees are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20% and 50% of the voting power of another entity. Equity-accounted investees are accounted for using the equity method (equity-accounted investees) and are initially recognised at cost. The Group’s investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income and equity movements of equity-accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an equity-accounted investee, the carrying amount of that interest (including any long-term investment) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee. Transactions Eliminated on Consolidation Intra-group balances and transactions, and any unrealised gains arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. 3.2. Foreign Currency Foreign Currency Transactions The Parent’s functional currency and presentation currency is the euro. Each entity in the Group determines its own functional currency and the items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are translated into the respective functional currencies of Group companies at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the year and the amortised cost in foreign currency translated at the exchange rate at the end of the year. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on the retranslation of equity instruments which are recognised in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. 59 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Foreign Operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to euros at exchange rates at the reporting date. The income and expenses of foreign operations are translated to euros at exchange rates at the dates of the transactions. Foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation reserve (FCTR) in equity. When a foreign operation is disposed of such that control or significant influence is lost, the cumulative amount in the FCTR related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. 3.3. Financial Instruments Recognition and Initial Measurement Trade receivables are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the Group becomes a party to the contractual provisions of the instrument. A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price. Classification and Subsequent Measurement Financial Assets On initial recognition, a financial asset is classified as measured at: - amortised cost - FVOCI – debt investment - FVOCI – equity investment or - FVTPL Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model. A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL: - it is held within a business model whose objective is to hold assets to collect contractual cash flows and - its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding All financial assets not classified as measured at amortised cost as described above or FVOCI are measured at FVTPL. This includes all derivative financial assets. Financial Assets – Subsequent Measurement and Gains and Losses Financial assets at FVTPL These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss. 60 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Financial assets at amortised cost. These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss. Financial Liabilities – Classification, Subsequent Measurement and Gains and Losses Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss. Derecognition Financial Assets The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control of the financial asset. The Group also enters into transactions whereby it transfers assets recognised in its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognised. Financial Liabilities The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. The Group also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss. Offsetting Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. Share Capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity. 61 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements 3.4. Property, Plant and Equipment Recognition and Measurement Property, plant and equipment, except ships, are measured at cost, less accumulated depreciation and any impairment. Cost includes expenditure that is directly attributable to the acquisition of the asset, including borrowing costs (see 3.8). The cost of self-constructed assets includes the cost of materials and direct labour and any other costs directly attributable to bringing the assets to a working condition for their intended use. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Ships are measured at revalued amounts (i.e. fair value less depreciation charged subsequent to the date of the revaluation). Revaluations are made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. At the revaluation date, the carrying amount of ships is replaced with their fair value at the date of revaluation and accumulated depreciation is eliminated. Any revaluation surplus is recognised in other comprehensive income and presented in the revaluation reserve in equity. A revaluation deficit is recognised in loss, except that a deficit offsetting a previous surplus on the same asset, previously recognised in other comprehensive income, is offset against the surplus in the ‘revaluation of ships’. An annual transfer from the revaluation reserve to retained earnings is made for the difference between depreciation based on the revalued carrying amount of the assets and the depreciation based on the assets’ original cost. Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings. Subsequent Costs Subsequent expenditure relating to an item of property, plant and equipment that has already been recognised (e.g. replacements of parts of some items, dry-dockings with intervals of two or five years) is added to the carrying amount of the asset, if the recognition criteria are met, i.e. (a) it is probable that future economic benefits associated with the item will flow to the Group, and (b) the cost of the item can be measured reliably. The replaced items are derecognised. All other expenditures are recognised as an expense in the period in which they are incurred. Depreciation Depreciation is calculated on a straight-line basis over the estimated useful life of the asset. Depreciation is discontinued when the carrying value of an asset equals its residual value. The residual value of ships is based on their estimated realisable value at the end of their useful life. Depreciation is calculated on a straight-line basis over the estimated useful life of assets as follows: • buildings 5 to 50 years • plant and equipment 3 to 10 years • ships 17 to 40 years • other equipment 2 to 5 years Land is not depreciated. Depreciation is calculated separately for two components of a ship: the vessel itself and dry-docking expenses as a separate component. This is based on the industry accounting practice. 62 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements The depreciation charge is calculated for each part of a ship on a straight-line basis over the estimated useful life as follows: • ships 17 to 40 years • capitalised dry-docking expenses 2 to 5 years The residual values, depreciation methods and useful lives of items of property, plant and equipment are reviewed at least at each financial year-end and, if an expectation differs from previous estimates, the change is accounted for as a change in an accounting estimate. The residual value is calculated as a percentage of the gross carrying amount of the ship. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of an asset is included in profit or loss (in ‘other operating income’ or ‘other operating expenses’) in the financial year the asset is derecognised. 3.5. Intangible Assets Goodwill Goodwill that arises upon the acquisition of subsidiaries is included in intangible assets. Subsequent Measurement Goodwill is measured at cost less accumulated impairment losses. Research and Development Costs Research costs are expensed as incurred. An intangible asset arising from development expenditure on an individual project is capitalised only when the Group can demonstrate (1) the technical feasibility of completing the intangible asset so that it will be available for use or sale; (2) its intention to complete and its ability to use or sell the asset; (3) how the asset will generate future economic benefits; (4) the availability of resources to complete the asset; and (5) the ability to measure reliably the expenditure attributable to the asset during development. Following the initial recognition of development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and any accumulated impairment losses. Any expenditure capitalised is amortised over the period of expected future sales from the related project. Amortisation of the asset begins when development is completed and the asset is available for use. Trademark The cost of a trademark acquired as part of the acquisition of a business is its fair value as at the date of acquisition. Following initial recognition, intangible assets with finite useful lives are carried at cost less accumulated amortisation and any accumulated impairment losses. Other Intangible Assets Other intangible assets (the licences and development costs of IT programs, acquired customer contracts) are initially recognised at cost. Following initial recognition, intangible assets with finite useful lives are carried at cost less accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is expensed in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life on a straight-line basis and assessed for 63 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite life are reviewed at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category according to the function of the intangible asset. Subsequent Expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred. Amortisation Amortisation is calculated on a straight-line basis over the estimated useful life of an intangible asset as follows: • trademarks 20 years • other intangible assets 5 to 10 years Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is derecognised. 3.6. Investment Property Investment property is property held either to earn rental income or for capital appreciation or for both, rather than for sale in the ordinary course of business, use in the supply of goods or services, or for administrative purposes. Investment property is measured at fair value with any change therein recognised in profit or loss. When the use of a property changes such that it is reclassified to property, plant and equipment, its fair value at the date of reclassification becomes its deemed cost for subsequent accounting. 3.7. Inventories Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs necessary to make the sale. The costs of inventories, consisting mostly of fuel, and merchandise purchased for resale are assigned by using the weighted average cost method and include expenditure incurred in acquiring the inventories, conversion costs and other costs incurred in bringing the inventories to their existing location and condition. 3.8. Borrowing Costs Borrowing costs are recognised as an expense when incurred, except those, which are directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to get ready for their intended use or sale (e.g. new ships). Borrowing costs related to the building of new ships are capitalised as part of the cost of related assets up to the delivery date. 64 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements 3.9. Impairment Financial Assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of the asset. At initial recognition of each accounts receivable balance and throughout its life, a lifetime credit loss is recognised in order to arrive at the appropriate impairment under IFRS 9. In order to calculate a lifetime expected credit loss the provision matrix method is used. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of its estimated future cash flows discounted at the original effective interest rate. All impairment losses are recognised in profit or loss and reflected in an allowance account. When the Group considers that there are no realistic prospects of recovery of the asset, the relevant amounts are written off. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost, the reversal is recognised in profit or loss. Non-Financial Assets The carrying amounts of the Group’s non-financial assets, other than ships, investment property, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated at each reporting date. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the cash- generating unit). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to the cash-generating units that are expected to benefit from the synergies of the combination. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of a cash-generating unit are allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indication that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. 65 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements 3.10. Employee Benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under a short-term cash bonus plan if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. 3.11. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. The expense relating to a provision is presented in profit or loss net of any reimbursement. Where discounting is used, the increase in the provision due to the passage of time is recognised in ‘finance costs’. A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract. 3.12. Leases At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS 16. The Group as a Lessee At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand- alone prices. However, for the leases of property the Group has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component. The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the 66 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased. Lease payments included in the measurement of the lease liability comprise the following: • fixed payments, including in-substance fixed payments • variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date • amounts expected to be payable under a residual value guarantee • the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. In 2021 and 2022 the Group negotiated rent concessions with the landlords for the leases of its hotels and retail premises because of the severe impact of the COVID-19 pandemic during the year. The Group applied the practical expedient for COVID-19 related rent concessions consistently to all eligible rent concessions relating to the leases of its hotels and retail premises. The Group presents right-of-use assets that do not meet the definition of investment property in ‘property, plant and equipment’ and lease liabilities in ‘loans and borrowings’ in the statement of financial position. Short-Term Leases and Leases of Low-Value Assets The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets and short-term leases. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. The Group as a Lessor At inception or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative standalone prices. 67 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease. To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Group considers certain indicators such as whether the lease is for the major part of the economic life of the asset. If an arrangement contains lease and non-lease components, then the Group applies IFRS 15 to allocate the consideration in the contract. The Group applies the derecognition and impairment requirements in IFRS 9 to the net investment in the lease. The Group further regularly reviews estimated unguaranteed residual values used in calculating the gross investment in the lease. The Group recognises lease payments received under operating leases as income on a straight-line basis over the lease term as part of ‘other revenue’. 3.13. Revenue Revenue is measured based on the consideration specified in a contract with a customer. The Group recognises revenue when it transfers control over a good or service to a customer. The following provides information about the nature and timing of the satisfaction of performance obligations in contracts with customers, including significant payment terms, and the related revenue recognition policies. The following specific recognition criteria must also be met before revenue is recognised: Sale of Goods – Restaurant and Shop Sales On-Board and Onshore Revenue is recognised when the goods are delivered and have been accepted by customers at their locations, i.e. at the retail stores, bars and restaurants, generally for cash or by card payment. Ticket Sale and Sale of Cargo Transport Revenue from tickets and cargo transport is recognised as the services are rendered. At financial year-end, a revenue deferral is recorded for the part of revenue that has not yet been earned in relation to prepaid tickets and cargo shipments. Sales of Hotel Accommodation Revenue from sales of hotel accommodation is recognised when the rooms have been used by the clients. At financial year-end, a revenue deferral is recorded for the part of revenue that has not yet been earned in relation to prepaid room days. Revenue from Travel Packages The Group sells travel packages, which consist of a ship ticket, accommodation in a hotel not operated by the Group and tours in different cities not provided by the Group. The Group recognises the sales of travel packages in its revenue in full instead of recognising only the commission fee for accommodation, tours and entertainment events, as the Group is able to determine the price of the content of the package and has discretion in selecting the suppliers for the service. Revenue from sales of travel packages is recognised when the package is used by the client. Revenue from travel packages is part of ticket sales revenue. Charter Income Charter income arising from operating charters of ships is accounted for on a straight-line basis over the charter terms. In these financial statements the term ‘charter’ refers to ‘lease’ as defined in IFRS 16. 68 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Customer Loyalty Programme The Group allocates a portion of the consideration received to Club One loyalty points. This allocation is based on the relative stand-alone selling price method. The amount allocated to the loyalty programme is deferred, and is recognised as revenue when loyalty points are redeemed or the likelihood of the customer redeeming the loyalty points becomes remote. The deferred revenue is included in contract liabilities. See also Note 4 and Note 18. 3.14. Government Grants and Assistance Government grants are initially recognised as deferred income where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. Grants related to an expense item are recognised as a reduction of the expense over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Grants that compensate the Group for the cost of an asset are recognised in profit or loss on a systematic basis over the useful life of the asset. Government assistance is action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria. Government assistance is recognised in profit or loss on the date that the Group’s right to receive payment is established. 3.15. Finance Income and Finance Costs Finance income comprises interest income on funds invested (including equity instruments), dividend income, gains on the disposal of equity instruments, and gains on derivative instruments that are recognised in profit or loss. Finance costs comprise interest expense on borrowings, changes in the fair value of financial assets at fair value through profit or loss, impairment losses recognised on financial assets and losses on derivative instruments that are recognised in profit or loss. Borrowing costs not directly attributable to the acquisition or construction of a qualifying asset are recognised in profit or loss using the effective interest method. Foreign currency gains and losses are reported on a net basis. Interest income and expenses are recognised as they accrue in profit or loss, using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability to the carrying amount of the financial asset or liability. When calculating the effective interest rate, the Group estimates future cash flows considering all contractual terms of the financial instrument, but not future credit losses. The calculation of effective interest rate includes all transaction costs and fees and points paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or liability. Dividend income is recognised in profit or loss on the date that the Group’s right to receive payment is established. 69 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements 3.16. Income Tax Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised in other comprehensive income or expense, in which case income tax is also recognised in other comprehensive income or expense. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the distribution of dividends. See below, Group companies in Estonia. Deferred tax is recognised, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available, against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves. Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable profits will be available, against which they can be used. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and the deferred tax assets and liabilities relate to income taxes levied by the same tax authority on the same taxable entity, or on different taxable entities, but they intend either to settle current tax liabilities and assets on a net basis or to realise the assets and settle the liabilities simultaneously. Group Companies in Estonia According to the Estonian Income Tax Act, for Group companies registered in Estonia, including the Parent, net profit is not subject to income tax, but dividends paid are subject to income tax of 14% or 20% (calculated as 14/86 or 20/80 of the net dividends to be paid in 2023). The potential tax liability from the distribution of the entire retained earnings as dividends is not recorded in the statement of financial position for Estonian Group companies. The amount of the potential tax liability from the distribution of dividends depends on the time, amount and sources of the dividend distribution. There is a dividend taxation regime in Estonia including a lower income tax rate of 14% (14/86 of the net amount of the distribution) for regular profit distributions. The lower tax rate may be applied if the amount of the distribution does not exceed the Group's last three years' average profit distributions subject to taxation in Estonia. The portion of the distribution exceeding this threshold remains taxable at 20%. In practice, a lower tax rate can be applied to dividends distributed in annual periods beginning on or after 2019. However, as dividends paid to individuals will be subject to an additional 7% income tax withholding, the change does not lighten the tax burden of shareholders who are individuals. 70 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Income tax from the payment of dividends is recorded as income tax expense in the period in which the dividends are declared. The maximum income tax liability that could arise on the distribution of dividends is disclosed in Note 21. Group companies in Cyprus According to the income tax law of Cyprus, the net profit of shipping companies registered in Cyprus and operating with ships registered in the Cyprus ship register or/and having their business outside Cyprus, and the dividends paid by these companies, are not subject to income tax. Thus, there are no temporary differences between the tax bases and carrying values of assets and liabilities that may cause deferred income tax. Other Foreign Group Companies and Permanent Establishments In accordance with the income tax laws of other jurisdictions, a company’s net profit and the profit from permanent establishments, adjusted for temporary and permanent differences as determined by the local income tax legislation, is subject to current income tax in the countries in which the Group’s companies and permanent establishments have been registered (see Note 6). Tax to be paid is reported under current liabilities and deferred tax positions are reported under non- current assets or liabilities. According to tax law changes that came into force from 1 January 2018, in Latvia the profits of companies derived in 2018 and subsequent periods are taxed similarly to Estonia at the moment of distribution with corporate income tax at a rate of 20% (at 20/80 of the net amount). 3.17. Earnings Per Share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Parent by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees, if any. 3.18. Segment Reporting The Group determines and presents operating segments based on the information that is provided internally to the Group's Management Board that is the Group's chief operating decision maker. An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. All operating segments’ operating results are reviewed regularly by the Group’s Management Board to make decisions about resources to be allocated to the segment and to assess its performance, and for which discrete financial information is available. A segment is a distinguishable component of the Group that is engaged either in providing products or services within a particular economic environment (geographical segment), or in providing related products or services (operating segment), and which is subject to risks and returns that are different from those of other segments. Segment information is presented in respect of the Group’s geographical segments (by routes). Inter-segment pricing is determined on an arm’s length basis. Segment expense is expense resulting from the operating activities of a segment that is directly attributable to the segment and the relevant portion of expenses that can be allocated to the 71 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements segment on a reasonable basis, including expenses relating to sales to external customers and expenses relating to transactions with other segments of the Group. Segment expense does not include administrative expenses, interest expense, income tax expense and other expenses that arise at the Group level and are related to the Group as a whole. Expenses incurred at the Group level on behalf of a segment are allocated to the segment on a reasonable basis, if these expenses relate to the segment’s operating activities and can be directly attributed or allocated to the segment. Segment results that are reported to the Management Board include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Segment assets are those operating assets that are employed by a segment in its operating activities and that either are directly attributable to the segment or can be allocated to the segment on a reasonable basis. Segment assets do not include assets used for general Group or head office purposes or which cannot be allocated directly to the segment. Segment assets include operating assets shared by two or more segments if a reasonable basis for allocation exists. Segment liabilities are those liabilities that are incurred by a segment in its operating activities and that either are directly attributable to the segment or can be allocated to the segment on a reasonable basis. Expenses, assets and liabilities which are not directly related to a segment or cannot be allocated to a segment are presented as unallocated expenses, assets and liabilities of the Group. Segment capital expenditure is the total cost incurred during the financial year to acquire property, plant and equipment, and intangible assets other than goodwill. 3.19. Determination of Fair Values A number of the Group’s accounting policies and disclosures require determination of fair value for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to the asset or liability. When measuring the fair value of an asset or liability, the Group uses observable market data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities • Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs) Ships (Level 3) The market value of ships is the estimated amount for which the property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably and willingly. The Group uses independent appraisers to determine the fair value of the ships. The fair value is calculated using the weighted average of the appraisers valuations and stress-sale valuations. No revaluation will be carried out if the difference between calculated fair value and book value is immaterial. The frequency of revaluation depends upon changes in the fair values of the ships. When the fair value of a ship differs materially from its carrying amount, a revaluation is required. 72 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Intangible Assets (Level 3) The fair value of patents and trademarks acquired in a business combination is determined using the relief from royalty method. The fair value of customer relationships acquired in a business combination is determined using the multi-period excess earnings method, whereby the subject asset is valued after deducting a fair return on all other assets that are part of creating the related cash flows. The fair value of other intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets. Non-Derivative Financial Liabilities (Levels 1 and 2) Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. 3.20. Separate Financial Statements of the Parent In accordance with the Estonian Accounting Act, the notes to the consolidated financial statements have to include the separate primary financial statements (i.e. statement of comprehensive income, statement of financial position, statement of cash flows and statement of changes in equity, collectively referred to as primary financial statements) of the Parent. The separate primary financial statements of AS Tallink Grupp are disclosed in Note 28 Primary Financial Statements of the Parent. These statements have been prepared using the same accounting policies and measurement bases that were used on the preparation of the consolidated financial statements, except for investments in subsidiaries which are stated at cost in the separate primary financial statements of the Parent. Note 4 Segment Information The Group’s operations are organised and managed separately according to the nature of the different markets. As at 31 December 2022 the Group operated in the following business segments: • Estonia-Finland routes: 3 ships (31 December 2021: 4 ships) • Estonia-Sweden routes: 3 ships (31 December 2021: 4 ships) • Latvia-Sweden route: no ships (31 December 2021: 1 ship) 1 • Finland-Sweden routes: 3 ships (31 December 2021: 4 ships) • Other segment - Ships chartered out by the Group: 6 ships (31 December 2021: 1 ship) 2 - Ships chartered out by the Group in the future: no ships (31 December 2021: 1 ship) 3 - Hotels in Estonia: 3 hotels (31 December 2021: 3 hotels) - Hotels in Latvia : 1 hotel, reopening in spring 2023 (31 December 2021: 1 hotel, operations suspended) - Shops in Estonia: 5 shops (31 December 2021: 5 shops) - Online shop: 1 shop (31 December 2021: 1 shop) - Restaurants in Estonia: 10 restaurants (31 December 2021: 8 restaurants) - Restaurants in Latvia: 5 restaurants (31 December 2021: 3 restaurants) - Restaurants in Lithuania: 5 restaurants (31 December 2021: 5 restaurants) 1 Items previously reported under geographical segment Latvia-Sweden routes are included in the segment Other as Latvia-Sweden route has not been operated in 2022 and the amounts are below significance threshold. 73 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements 2 As the chartering out of vessels is not the Group’s core business chartered out ships are shown under Other segment. 3 The ship reported in this category on 31 December 2021 is included in the number of 6 ships charted out on 31 December 2022. The following tables present the Group’s revenue and profit as well as certain asset and liability information regarding reportable segments for the years ended 31 December 2022 and 31 December 2021. 74 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Geographical Segments – by the Location of Assets For the year ended 31 December, in thousands of EUR Estonia-Finland routes Estonia-Sweden routes Finland-Sweden routes Other Intersegment elimination Total 2022 Sales to external customers 277 806 76 835 274 314 142 432 0 771 387 Intersegment sales 0 0 0 4 997 -4 997 0 Revenue 277 806 76 835 274 314 147 429 -4 997 771 387 Segment result 51 664 -10 997 -941 34 948 0 74 674 Unallocated expenses -37 001 Net financial items -24 656 Share of profit/loss of equity-accounted investees -90 Profit/loss before income tax 12 927 Income tax 1 008 Net profit/loss for the period 13 935 Segment's assets 570 069 157 184 317 380 511 676 -462 1 555 847 Unallocated assets 135 795 Assets 1 691 642 Segment's liabilities 28 657 9 843 54 194 128 257 -462 220 489 Unallocated liabilities 764 222 Liabilities 984 711 Capital expenditures Segment’s property, plant and equipment 255 101 4 829 2 295 9 327 0 271 552 Unallocated property, plant and equipment -70 680 Segment’s intangible assets 40 0 103 698 0 841 Unallocated intangible assets 1 609 Depreciation 15 869 9 890 23 640 36 696 0 86 095 Unallocated depreciation 5 121 Amortisation 559 259 563 336 0 1 717 Unallocated amortisation 5 203 75 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements For the year ended 31 December, in thousands of EUR Estonia-Finland routes Estonia-Sweden routes Finland-Sweden routes Other Intersegment elimination Total 2021 Sales to external customers 184 529 49 065 158 697 84 646 0 476 937 Intersegment sales 0 0 0 874 -874 0 Revenue 184 529 49 065 158 697 85 520 -874 476 937 Segment result 11 962 -7 025 -15 587 3 043 0 -7 607 Unallocated expenses -29 424 Net financial items -21 887 Share of profit/loss of equity-accounted investees -80 Profit/loss before income tax -58 998 Income tax 2 422 Net profit/loss for the period -56 576 Segment's assets 401 055 252 227 445 329 257 471 -125 1 355 957 Unallocated assets 229 958 Assets 1 585 915 Segment's liabilities 29 809 8 298 61 865 112 329 -125 212 176 Unallocated liabilities 681 223 Liabilities 893 399 Capital expenditures Segment’s property, plant and equipment 2 890 519 6 362 6 360 0 16 131 Unallocated property, plant and equipment 1 278 Segment’s intangible assets 0 12 23 773 0 808 Unallocated intangible assets 1 975 Depreciation 18 322 11 127 22 884 30 389 0 82 722 Unallocated depreciation 5 668 Amortisation 692 264 388 331 0 1 675 Unallocated amortisation 5 248 76 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Revenue by Type of Services and Goods Sold Contract Balances The following table provides information about receivables, contract assets and contract liabilities from contracts with customers. The contract liabilities relate to the advance consideration received from customers and to the unredeemed customer loyalty points. Loyalty points are recognised as revenue when the points are redeemed by customers, which is expected to occur over the next two years. For the year ended 31 December, in thousands of EUR Routes 2022 Other 2022 Total 2022 Routes 2021 Other 2021 Total 2021 Revenue from contracts with customers Restaurant and shop sales on-board and onshore 323 958 54 205 378 163 188 762 44 614 233 376 Ticket sales 191 920 0 191 920 99 094 0 99 094 Sales of cargo transport 103 183 0 103 183 94 763 0 94 763 Sales of accommodation 0 11 325 11 325 0 3 367 3 367 Other 3 573 11 094 14 667 5 234 6 387 11 621 Total revenue from contracts with customers 622 634 76 624 699 258 387 853 54 368 442 221 Revenue from other sources Income from charter of vessels 0 65 808 65 808 0 30 278 30 278 Other 6 321 0 6 321 4 438 0 4 438 Total revenue from other sources 6 321 65 808 72 129 4 438 30 278 34 716 Total revenue of the Group 628 955 142 432 771 387 392 291 84 646 476 937 In thousands of EUR 31 December 2022 31 December 2021 Trade and other receivables 31 380 29 298 Contract liabilities Club One points 7 016 6 360 Prepaid revenue 37 206 15 374 Total contract liabilities 44 222 21 734 77 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Note 5 Operating Expenses and Financial Items Cost of Sales Sales and Marketing Expenses Administrative Expenses Specification of Staff Costs Included in the Cost of Sales, Sales and Marketing Expenses and Administrative Expenses During the reporting period EUR 32 519 thousand was deducted from the cost of sales in connection with government grants related to seamen’s salaries in Estonia, Finland and Sweden (2021: EUR 26 719 thousand). The grants are received according to law. During the reporting period no COVID-19 related aid was received (2021: EUR 411 thousand). In 2021 EUR 5 980 thousand of COVID-19 related aid was paid directly to the employees by the Estonian Unemployment Insurance Fund, see also Note 22. For the year ended 31 December, in thousands of EUR 2022 2021 Cost of goods sold -160 556 -110 451 Port & stevedoring costs -77 198 -62 998 Fuel costs -144 141 -72 234 Staff costs -120 018 -86 101 Ships’ operating expenses -51 607 -34 363 Depreciation and amortisation (Notes 14, 15) -85 894 -82 394 Cost of travel package sales -6 155 -1 529 Other costs -12 348 -5 212 Total cost of sales -657 917 -455 282 For the year ended 31 December, in thousands of EUR 2022 2021 Advertising expenses -14 811 -8 320 Staff costs -19 580 -16 770 Depreciation and amortisation (Notes 14, 15) -1 918 -2 003 Other costs -2 487 -2 169 Total sales and marketing expenses -38 796 -29 262 For the year ended 31 December, in thousands of EUR 2022 2021 Staff costs -23 255 -21 175 Depreciation and amortisation (Notes 14, 15) -10 324 -10 916 Other costs -13 976 -13 542 Total administrative expenses -47 555 -45 633 For the year ended 31 December, in thousands of EUR 2022 2021 Wages and salaries -148 934 -114 661 Government grants 32 519 27 130 Social security costs -44 592 -34 072 Staff training costs -549 -608 Other staff costs -1 297 -1 835 Total staff costs -162 853 -124 046 78 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Government grants receivable are disclosed in Note 9. The average number of the Group’s employees according to their employment relationship is presented in the table below. Finance Income and Finance Costs Recognised in Profit or Loss Note 6 Income Tax Income tax contains current income tax and deferred income tax. Swedish, Finnish, German, Russian and Singaporean Subsidiaries and Polish Branch Office In accordance with the Swedish, Finnish, German, Russian, Singaporean and Polish tax laws, a company’s net profit, adjusted for temporary and permanent differences as determined by the local income tax legislation, is subject to income tax in Finland, Sweden, Germany, Russia, Poland and Singapore. As at 31 December 2022, the tax rate was 20% in Finland, 20.6% in Sweden, 15% in Germany, 20% in Russia, 19% in Poland and 17% in Singapore (as at 31 December 2021, 20% in Finland, 20.6% in Sweden, 15% in Germany, 20% in Russia, 19% in Poland and 17% in Singapore). For the year ended 31 December 2022 2021 Employees under employment contract 4 780 3 749 Employees under service contract 238 605 Members of the Management Board 5 6 Total average number of employees 5 023 4 360 For the year ended 31 December, in thousands of EUR 2022 2021 Net foreign exchange gain 0 31 Income from other financial assets 215 3 Total finance income 215 34 Net foreign exchange loss -34 0 Expenses from other financial assets 0 -75 Interest expense on financial liabilities measured at amortised cost -22 447 -19 424 Interest expense on lease liabilities related to right-of-use assets -2 390 -2 422 Total finance costs -24 871 -21 921 Net finance costs -24 656 -21 887 79 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Income Tax Expense Major components of the Group’s income tax expense for the year ended 31 December: Reconciliation of the Effective Tax Rate Deferred Tax Assets and Liabilities According to Russian, German, Finnish, Swedish, Polish and Singaporean legislation it is permissible to use higher depreciation and amortisation rates for taxation purposes and thereby defer tax payments. These deferrals are shown as deferred tax liabilities. The Finnish and Swedish subsidiaries have also carry-forwards of tax losses, which are considered in the calculation of deferred tax assets. Deferred Tax Assets and Liabilities are Attributable to the Following 1 Deferred tax assets of EUR 22 799 thousand (2021: EUR 23 029 thousand) in Finland and of 1 076 thousand (2021: EUR 1 429 thousand) in Sweden have been recognised in respect of losses carried forward. The recognised Finnish tax losses will expire from 2028 to 2032 (2021: 2027-2031) and the Swedish tax losses have no expiration date. The tax losses of the Finnish subsidiary that will expire before 2028 have not been recognised due to estimation uncertainty. Such unrecognised tax losses amounted to EUR 161 814 thousand as at 31 December 2022 (EUR 192 598 thousand as at 31 December 2021). The Group has recognised deferred tax assets to the extent that the losses carried forward will be offset against projected future taxable profits. The estimations are based on the business plan of the Finnish operations for the year 2023 and beyond. The revenue growth rate of the Finnish operations For the year ended 31 December, in thousands of EUR 2022 2021 Finnish subsidiaries -178 -190 Other subsidiaries 1 -8 Estonian subsidiaries and Parent company 1 185 1 050 Current period tax expense 1 008 852 Swedish subsidiaries -353 225 Finnish subsidiaries 353 1 345 Deferred tax expense 0 1 570 Total tax expense 1 008 2 422 For the year ended 31 December, in thousands of EUR 2022 % 2021 % Profit/loss before tax 12 927 -58 998 Current income tax expense in foreign jurisdictions 1 008 7.80% 852 -1.44% Change in recognised tax losses -583 -4.51% 987 -1.67% Change in temporary differences 583 4.51% 583 -0.99% Income tax expense 1 008 7.80% 2 422 -4.10% As at 31 December, in thousands of EUR Assets 2022 Liabilities 2022 Assets 2021 Liabilities 2021 Tax loss carry-forward¹ 23 875 0 24 458 0 Intangible assets 0 -2 035 0 -2 618 Tax assets / liabilities 23 875 -2 035 24 458 -2 618 Offset of assets and liabilities -2 035 2 035 -2 618 2 618 Tax assets 21 840 0 21 840 0 80 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements for the years 2023-2032 used in the calculations was 1-7% and the growth rate used for the cost increase was 1.0-7.1% (as at 31 December 2021, the revenue growth rate of the Finnish operations for the years 2023-2031 used in the calculations was 1-9% and the growth rate used for the cost increase was 0.6-5.5%). The sensitivity of the value of recognised deferred tax assets to the main assumptions of the projected future taxable profits is as follows: 1) +/- 10 percentage point change in the average revenue growth rate for the years 2023-2032 would change the value of recognised tax assets by EUR +1 855 thousand / EUR -3 254 thousand, respectively; 2) +/- 5 percentage point change in average operating cost growth rate relative to revenues for the years 2023-2032 would change the value of recognised tax assets by EUR -4 061 thousand / EUR +1 855 thousand, respectively. Movements in Deferred Tax Balances Note 7 Earnings Per Share (EPS) EPS are calculated by dividing the net profit or loss for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. As at 31 December, in thousands of EUR Balance as at 31 December 2022 Recognised in profit in 2022 Balance as at 31 December 2021 Tax loss carry-forward 23 875 0 24 458 Intangible assets -2 035 0 -2 618 Net deferred tax asset 21 840 0 21 840 As at 31 December, in thousands 2022 2021 Shares issued 743 569 743 569 Shares outstanding 743 569 743 569 For the year ended 31 December, in thousands of EUR 2022 2021 Weighted average number of ordinary shares outstanding (in thousands) 743 569 694 444 Net loss attributable to equity holders of the Parent 13 935 -56 576 EPS (EUR) 0.019 -0.081 81 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Note 8 Cash and Cash Equivalents Cash at bank earns interest at floating rates based on daily bank deposit rates. In 2022 the rates were in the range of 0.00-1.75% including short-term deposits (2021: 0.00-0.01%). Short-term deposits are overnight deposits with maturity date of 01.01.2023. The Group’s exposure to currency risk is disclosed in Note 25. Note 9 Trade and Other Receivables During the reporting period EUR 153 thousand of trade receivables was expensed as doubtful and uncollectible (2021: EUR 99 thousand). The Group’s exposure to the credit and currency risks of receivables (excluding government grants receivable) is disclosed in Note 25. Additional information about government grants is disclosed in Note 5. Note 10 Prepayments The balance of prepaid expenses includes mostly prepayments for insurance. As at 31 December, in thousands of EUR 2022 2021 Cash at bank and in hand 42 883 127 380 Cash in transit 411 176 Short-term deposits 71 641 0 Total cash and cash equivalents 114 935 127 556 As at 31 December, in thousands of EUR 2022 2021 Trade receivables 20 384 15 763 Allowance for doubtful receivables -481 -468 Government grants receivable 9 123 9 806 Receivables from related parties 43 69 Other receivables 2 311 4 128 Total trade and other receivables 31 380 29 298 As at 31 December in thousands of EUR 2022 2021 Prepaid expenses 6 462 7 606 Tax prepayments 2 917 4 318 Total prepayments 9 379 11 924 As at 31 December in thousands of EUR 2022 2021 Tax prepayments VAT 2 049 1 504 Other prepayments 868 2 814 Total tax prepayments 2 917 4 318 82 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Note 11 Inventories Fuel price risk The Group is exposed to fuel price risk as part of the fuel used for ship operations is purchased at market prices. At 31 December 2022 (as well as at 31 December 2021) there were no derivative contracts for fuel outstanding. For more information, see Note 25. Note 12 Investments in Equity-Accounted Investees At 31 December 2022 the Group had a 34% interest in the equity-accounted investee Tallink Takso AS, incorporated in Estonia (as at 31 December 2021: 34%). The key figures of the equity-accounted investee Tallink Takso AS are below. The figures as at and for the year ended 31 December 2022 are unaudited (Tallink Takso AS is exempt from audit). The figures reflect 100% of the assets, liabilities and result of the associate. As at 31 December, in thousands of EUR 2022 2021 Raw materials (mostly fuel) 4 681 4 707 Goods for sale 35 284 29 924 Total inventories 39 965 34 631 In thousands of EUR 2022 2021 Investments at the beginning of financial year 165 245 Share of loss of equity-accounted investee -90 -80 Investments at the end of financial year 75 165 In thousands of EUR Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities As at 31 December 2022 293 267 560 325 14 339 As at 31 December 2021 419 341 760 221 55 276 In thousands of EUR Revenues Expenses Loss Equity For the year ended 31 December 2022 2 353 2 281 -271 221 For the year ended 31 December 2021 2 173 2 352 -179 484 83 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Note 13 Other Long-term Financial Assets and Other Prepayments Note 14 Property, Plant and Equipment 1 Additions and reclassifications include a delivery of MyStar with a total cost of EUR 252 027 thousand. As at 31 December, in thousands of EUR 2022 2021 Equity securities 177 177 Other receivables 332 378 Prepaid expenses 3 113 0 Total other financial assets 3 622 555 In thousands of EUR Land and buildings Ships¹ Plant and equipment Right-of-use assets Assets under construction Total Book value as at 31 December 2021 1 582 1 082 535 50 472 108 809 79 955 1 323 353 Additions 1 388 175 893 7 152 8 245 16 362 209 040 Reclassification 0 87 152 5 892 0 -92 967 77 Disposals 0 -2 587 -159 -222 0 -2 968 Depreciation for the period -185 -55 278 -15 425 -20 328 0 -91 216 Book value as at 31 December 2022 2 785 1 287 715 47 932 96 504 3 350 1 438 286 As at 31 December 2022 Gross carrying amount 10 065 1 908 961 131 139 156 638 3 350 2 210 153 Accumulated depreciation -7 280 -621 246 -83 207 -60 134 0 -771 867 Book value as at 31 December 2020 1 477 1 134 564 54 483 94 738 78 223 1 363 485 Additions 259 -398 6 334 35 372 11 239 52 806 Reclassification 140 3 443 5 924 0 -9 507 0 Disposals 0 0 -509 -4 054 0 -4 563 Depreciation for the period -294 -55 074 -15 760 -17 247 0 -88 375 Book value as at 31 December 2021 1 582 1 082 535 50 472 108 809 79 955 1 323 353 As at 31 December 2021 Gross carrying amount 8 677 1 653 461 119 577 151 997 79 955 2 013 667 Accumulated depreciation -7 095 -570 926 -69 105 -43 188 0 -690 314 84 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Right-of-use assets by classes of property, plant and equipment Testing Right-of-Use Assets for Impairment The Group’s right-of-use assets are measured at cost, less accumulated depreciation and any impairment. At the end of the reporting period the Group assesses whether there is any indication of impairment. As at 31 December 2022, the recoverable amount of operational hotels right-of-use lease assets was tested for impairment (book value EUR 68 364 thousand) using the discounted cash flow method. For testing purposes the Group used a detailed budget for the year 2023, assuming a fast recovery after end of the COVID-19 pandemic, and a strategic forecast for the years 2024-2032, which included revenues, expenses and investing activities (2021: a detailed budget for 2022 and a strategic forecast for 2023-2031). For the Estonian hotels, the combined revenue growth rate used in the calculations was 1.7%-7.3% for the years 2024-2032 and the combined operating expense growth rate was 2.5%-14.3% (2021: 2023-2031 revenue growth rate 3.0%-22.4% and operating expense growth rate 1.7%-8.5%). A weighted average cost of capital of 10.0% was used for the years 2023- 2024 and 7.03% for 2025-2032 (2021: 10.0% for 2022-2023 and 6.31% for 2024-2031). Latvian hotel was forecasted to be re-opened in April 2023; the revenue growth rate used for testing period 2024- 2030 was 1.7%-26.3% and operating expense growth rate was 2.7%-8.8%. For the Latvian hotel, a weighted average cost of capital of 10.0% was used for the years 2023-2024 and 7.48% for 2025- 2030. An impairment loss is recognised if the carrying amount of an assets exceeds its recoverable amount. Management is of the opinion that as at 31 December 2022 there were no material differences between the carrying amounts and fair values (as well as at 31 December 2021). In thousands of EUR Buildings and premises Plant and equipment Total right-of- use assets Book value as at 31 December 2021 108 340 469 108 809 Additions 7 548 697 8 245 Disposals -184 -38 -222 Depreciation for the period -19 997 -331 -20 328 Book value as at 31 December 2022 95 707 797 96 504 As at 31 December 2022 Gross carrying amount 154 910 1 728 156 638 Accumulated depreciation -59 203 -931 -60 134 Book value as at 31 December 2020 94 102 636 94 738 Additions 35 159 213 35 372 Disposals -4 019 -35 -4 054 Depreciation for the period -16 902 -345 -17 247 Book value as at 31 December 2021 108 340 469 108 809 As at 31 December 2021 Gross carrying amount 150 576 1 421 151 997 Accumulated depreciation -42 236 -952 -43 188 85 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Revaluation of Ships The Group’s vessels are measured at revalued amounts, which are determined using fair value at the end of the reporting period. The Group used the valuations of three independent appraisers to determine the fair value of ships. Fair value was determined by reference to market-based inputs, which are mainly unobservable (level 3 under the fair value hierarchy). The Group’s management also take into consideration the expected cash flows of chartered ships if needed. The following table shows the valuation techniques used in measuring the ships’ fair values, as well as the significant unobservable inputs used. Valuation technique Significant unobservable inputs Market comparison technique, cost approach: independent appraisers consider both approaches. They scan the market and look at second-hand sales of similar ships and analyse general demand for the particular ship in various parts of the world. Also, they look at the construction cost of the ship less reasonable depreciation and the construction prices of similar new ships today. Sales prices of similar ships Level of demand for particular ships Construction prices of ships Maintenance and repair programme of ships The frequency of revaluations depends on changes in fair values which are assessed at each year- end. When fair value differs materially from the carrying amount, further revaluation is performed. Management is of the opinion that as at 31 December 2022 there were no material differences between the carrying amounts and fair values (as well as at 31 December 2021). As a result of the pandemic that affected ship operations over the past years, and war in Ukraine, the market is very illiquid with very few transactions made in this segment of tonnage. Therefore, the valuations are to be deemed uncertain. Depending on how the situation develops and when passenger traffic resumes to its full extent the values are subject to adjustment in the short term. Management is of the opinion that buyers of this type of asset normally have a long-term view and a planning horizon stretching to 20-30 years and therefore possible market fluctuations are to be regarded as temporary. If the ships were measured using the cost model, the carrying amounts would be as follows: Due to the annual transfer from the revaluation reserve to retained earnings (the difference between depreciation based on the revalued carrying amount of the assets and the depreciation based on the assets’ original cost) the revaluation reserve was decreased as at 31 December 2022 by EUR 2 047 thousand (2021: EUR 2 047 thousand) and retained earnings were increased by the same amount. As at 31 December 2022 In thousands of EUR Cost 2 031 631 Accumulated depreciation -777 280 Net carrying amount 1 254 351 As at 31 December 2021 In thousands of EUR Cost 1 778 543 Accumulated depreciation -731 419 Net carrying amount 1 047 124 86 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements As at 31 December 2022 the Group’s ships with a book value of EUR 1 267 423 thousand (2021: EUR 1 060 950 thousand) were encumbered with first or second ranking mortgages to secure the Group’s bank loans (see also Note 16). Change in useful life of vessel During 2022, the Group conducted an in-service expectancy review of its vessels. Based on the analysis of the intensity of usage, regular maintenance and investments of its vessels, the Group concluded, that the estimated useful life of its vessel Megastar can be extended by 5 years. As a result, the expected useful life of the Group’s vessel Megastar was increased from 35 years to 40 years and vessel’s estimated residual value remained the same. The total effect of the change was EUR 803 thousand less depreciation expense in 2022. Contractual Commitments As at 31 December 2021 the Group had a contractual commitment for a new vessel, MyStar, of EUR 172 900 thousand. MyStar was delivered in December 2022. As at 31 December 2022 the Group had no contractual commitments. The Group did not have any other substantial contractual commitments related to property, plant and equipment. Note 15 Intangible Assets Intangible Asset Classes 1 Goodwill in the amount of EUR 11 066 thousand is related to Estonia-Finland routes segment. In the impairment test of goodwill related to Estonia-Finland routes, the recoverable amount was identified based on value in use. Management calculated value in use based on five-year cash flow perpetuity In thousands of EUR Goodwill¹ Trademark² Other³ Assets under construction Total Book value as at 31 December 2021 11 066 13 090 11 426 711 36 293 Additions 0 0 167 2 360 2 527 Reclassification 0 0 2 456 -2 533 -77 Amortisation for the period 0 -2 916 -4 004 0 -6 920 Book value as at 31 December 2022 11 066 10 174 10 045 538 31 823 As at 31 December 2022 Cost 11 066 58 288 44 071 538 113 963 Accumulated amortisation 0 -48 114 -34 026 0 -82 140 Book value as at 31 December 2020 11 066 16 006 12 829 547 40 448 Additions 0 0 725 2 058 2 783 Reclassification 0 0 1 894 -1 894 0 Amortisation for the period 0 -2 916 -4 022 0 -6 938 Book value as at 31 December 2021 11 066 13 090 11 426 711 36 293 As at 31 December 2021 Cost 11 066 58 288 41 699 711 111 764 Accumulated amortisation 0 -45 198 -30 273 0 -75 471 87 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements and using a discount rate of 7.60% (2021: 6.54%). Five-year cash flow to perpetuity value was used. There was no need to recognise an impairment loss. 2 A trademark of EUR 58 288 thousand was recognised in connection with the acquisition of Silja OY Ab in 2006. The fair value of the trademark at the acquisition date was determined using the relief from royalty method. As at 31 December 2022 the remaining amortisation period of the trademark was 3.5 years. As at 31 December 2022, the book value of the trademark was tested for impairment. For testing purposes revenue was modelled in a short-term recovery stage and long-term stable growth stage. Following recovery the average annual revenue growth rate of 1.6% (2021: 1.5%), a royalty rate of 2.25% (2021: 2.25%) and an equity discount rate of 11.2% (2021: 9.0% weighted average cost of capital) were used. There was no need to recognise an impairment loss. 3 Other intangible assets include mostly the licences and the development costs of IT software. The licenses have finite lives and are amortised over 5 to 10 years. Amortisation of intangible assets is recorded in profit or loss under cost of sales, sales and marketing expenses and administrative expenses. Note 16 Interest-Bearing Loans and Borrowings 1 Lease liabilities related to the adoption of IFRS 16. ² Long-term bank loans include a loan from the financial institution SA Kredex of EUR 100 000 thousand. As at 31 December 2022 the Group had the right to use bank overdrafts of up to EUR 135 000 thousand (2021: EUR 135 000 thousand). Bank overdrafts are secured with a commercial pledge of EUR 20 204 thousand (2021: EUR 20 204 thousand) and mortgages on ships (see Note 14). As at 31 December 2022 the balance of overdrafts in use was EUR 15 thousand (2021: EUR 180 thousand). As at 31 December 2022 AS Tallink Grupp had given guarantees to Nordea Bank Plc, KfW IPEX-Bank GmbH and the Nordic Investment Bank for loans granted to its ship-owning subsidiaries and Tallink Silja OY. The book value of such loans was EUR 404 462 thousand on 31 December 2022 (2021: EUR 247 159 thousand; guarantees were given to Nordea Bank Plc, Danske Bank A/S and Nordic Investment Bank). Ship-owning subsidiaries had given guarantees to Nordea Bank Finland Plc, Swedbank AS and SA KredEx for the loans granted to AS Tallink Grupp. As at 31 December 2022 the book value of such loans was EUR 341 865 thousand (31 December 2021: EUR 416 067 thousand). As at 31 December 2022, in thousands of EUR Maturity Interest rate Current portion Non-current portion Total borrowings Lease liabilities 2023-2024 6.30% 67 10 77 Lease liabilities related to right-of-use assets¹ 2023-2033 2.18-2.42% 20 958 86 137 107 095 Overdraft EURIBOR+2.91% 15 0 15 Long-term bank loans² 2023-2034 EURIBOR+2.68% 144 009 602 318 746 327 Total borrowings 165 049 688 465 853 514 As at 31 December 2021, in thousands of EUR Maturity Interest rate Current portion Non-current portion Total borrowings Lease liabilities 2022-2023 5.67% 73 43 116 Lease liabilities related to right-of-use assets¹ 2022-2033 2.18-2.25% 16 488 99 915 116 403 Overdraft EURIBOR+2.91% 180 0 180 Long-term bank loans² 2022-2029 EURIBOR+2.47% 227 695 435 531 663 226 Total borrowings 244 436 535 489 779 925 88 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Primary securities for the loans are the ships belonging to the overseas subsidiaries and a pledge of the shares in these subsidiaries. The Group has issued counter guarantees to the commercial banks that have issued guarantees to several governmental authorities in favour of Group entities required to perform the Group’s daily operations. As at 31 December 2022 the total amount of the guarantees was EUR 7 132 thousand (2021: EUR 5 763 thousand). The guarantees issued are not recognised in the statement of financial position as, according to historical experience and management’s estimations, none of them is expected to turn into an actual liability. In the loan agreements signed with banks, the Group has agreed to comply with financial covenants related to ensuring certain equity, liquidity and other ratios. As at 31 December 2022 and during 2022 the Group was in compliance with all the covenants as agreed with banks. 89 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Reconciliation of Liabilities Arising from Financing Activities In thousands of EUR Bank overdrafts Long-term bank loans Lease liabilities Right-of-use assets' liabilities Share capital Reserves Retained earnings Total Balance as at 31 December 2021 180 663 226 116 116 403 349 477 67 930 274 446 1 471 778 Changes from financing cash flows Proceeds from loans 0 196 290 0 0 0 0 0 196 290 Repayment of loans 0 -110 055 0 0 0 0 0 -110 055 Change in overdraft -165 0 0 0 0 0 0 -165 Payment of lease liabilities 0 0 -31 -17 126 0 0 0 -17 157 Interest paid 0 0 0 0 0 0 -23 516 -23 516 Payment of transaction costs related to loans 0 -1 977 0 0 0 0 0 -1 977 Total changes from financing cash flows -165 84 258 -31 -17 126 0 0 -23 516 43 420 The effect of changes in foreign exchange rates 0 0 -8 -129 0 480 0 343 Liability-related changes New leases 0 0 0 8 245 0 0 0 8 245 Transfer from revaluation reserve 0 0 0 0 0 -2 047 2 047 0 Termination of old leases 0 0 0 -298 0 0 0 -298 Amortisation of capitalised borrowing costs 0 1 063 0 0 0 0 0 1 063 Capitalised borrowing costs 0 -2 220 0 0 0 0 0 -2 220 Interest paid 0 0 0 0 0 0 23 516 23 516 Total liability-related changes 0 -1 157 0 7 947 0 -2 047 25 563 30 306 Total equity-related changes 0 0 0 0 0 0 13 935 13 935 Balance as at 31 December 2022 15 746 327 77 107 095 349 477 66 363 290 428 1 559 782 90 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements In thousands of EUR Bank overdrafts Long-term bank loans Lease liabilities Right-of-use assets' liabilities Share capital Reserves Retained earnings Total Balance as at 31 December 2020 15 736 586 616 258 102 509 314 844 69 854 328 975 1 418 792 Changes from financing cash flows Proceeds from loans 0 90 000 0 0 0 0 0 90 000 Repayment of loans 0 -14 667 0 0 0 0 0 -14 667 Change in overdraft -15 556 0 0 0 0 0 0 -15 556 Payment of lease liabilities 0 0 -57 -14 846 0 0 0 -14 903 Interest paid 0 0 0 0 0 0 -19 296 -19 296 Payment of transaction costs related to loans 0 -495 0 0 0 0 0 -495 Increase of share capital 0 0 0 0 34 633 0 0 34 633 Total changes from financing cash flows -15 556 74 838 -57 -14 846 34 633 0 -19 296 59 716 The effect of changes in foreign exchange rates 0 0 -4 -1 0 123 0 118 Liability-related changes New leases 0 0 25 35 372 0 0 0 35 397 Transfer from revaluation reserve 0 0 0 0 0 -2 047 2 047 0 Termination of old leases 0 0 -106 -6 631 0 0 0 -6 737 Amortisation of capitalised borrowing costs 0 1 277 0 0 0 0 0 1 277 Capitalised borrowing costs 0 495 0 0 0 0 0 495 Interest paid 0 0 0 0 0 0 19 296 19 296 Total liability-related changes 0 1 772 -81 28 741 0 -2 047 21 343 49 728 Total equity-related changes 0 0 0 0 0 0 -56 576 -56 576 Balance as at 31 December 2021 180 663 226 116 116 403 349 477 67 930 274 446 1 471 778 91 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Note 17 Leases The Group as the Lessee The Group leases hotel and office buildings, warehouse, restaurant and shop premises. The leases typically run for a fixed period, with the Group’s option to renew the lease further. Some lease payments are increased every year and some leases provide for additional lease payments that are based on the result of operations. Right-of-Use Assets Right-of-use assets are presented as property, plant and equipment. Amounts Recognised in Profit or Loss 1 The Group negotiated rent concessions with the landlords for the leases of its hotels and retail premises because of the severe impact of the COVID-19 pandemic during the year. The Group applied the practical expedient for COVID-19 related rent concessions consistently to eligible rent concessions relating to the leases of its hotels and retail premises. In thousands of EUR Buildings and premises Plant and equipment Total right-of-use assets Book value as at 31 December 2021 108 340 469 108 809 Additions 7 548 697 8 245 Disposals -184 -38 -222 Depreciation for the period -19 997 -331 -20 328 Book value as at 31 December 2022 95 707 797 96 504 Book value as at 31 December 2020 94 102 636 94 738 Additions 35 159 213 35 372 Disposals -4 019 -35 -4 054 Depreciation for the period -16 902 -345 -17 247 Book value as at 31 December 2021 108 340 469 108 809 For the year ended 31 December 2022 In thousands of EUR Depreciation for the period -20 328 Interest expense on lease liabilities related to right-of-use assets -2 390 COVID-19 related lease discounts¹ 62 Expenses on short-term and low-value leases -1 434 Lease expenses under IFRS 16 -24 090 For the year ended 31 December 2021 In thousands of EUR Depreciation for the period -17 247 Interest expense on lease liabilities related to right-of-use assets -2 422 COVID-19 related lease discounts¹ 2 083 Expenses on short-term and low-value leases -1 034 Lease expenses under IFRS 16 -18 620 92 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements The Group as the Lessor The Group’s charter income for 2022 was EUR 65 808 thousand (2021: EUR 30 278 thousand). Minimum non-cancellable charter payments are as follows: All charter agreements used by the Group are based on BIMCO Standard Bareboat Charter and BIMCO Time Charter Agreement. Note 18 Trade and Other Payables The Group’s exposure to currency and liquidity risks (excluding tax liabilities and other accruals) is disclosed in Note 25. Additional information about tax liabilities is disclosed below. As at 31 December, in thousands of EUR 2022 2021 < 1 year 74 990 18 281 Year 2 15 629 12 045 Year 3 2 640 12 078 Year 4 0 2 640 Total minimum charter payments 93 259 45 044 As at 31 December, in thousands of EUR 2022 2021 Trade payables 38 309 42 174 Other payables 2 304 2 247 Payables to employees 19 638 19 997 Interest payable 3 527 3 269 Tax liabilities 16 592 17 166 Other accruals 6 564 6 834 Total trade and other payables 86 934 91 687 As at 31 December, in thousands of EUR 2022 2021 Salary-related taxes 11 818 14 429 Excise duties 1 239 1 331 VAT 3 535 1 406 Total tax liabilities 16 592 17 166 93 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Note 19 Deferred Income The Group measures the liability for outstanding Club One points in combination with the value of its services and the averages of the Club One points used to redeem the services, taking into account the pattern of use of the points by the customers and the expiry rates of the points. The calculations are performed for each segment and the deferred income is recognised based on the relative stand- alone selling price allocation method. 1 Prepaid revenue include prepayments related to chartering out of the vessels during 2023. Note 20 Share Capital and Reserves According to the articles of association of the Parent, the maximum number of ordinary shares is 2 400 000 000. Each share grants one vote at the shareholders’ general meeting. Shares acquired by the transfer of ownership are eligible for participating in and voting at a general meeting only if the ownership change is recorded in the Estonian Central Registry of Securities at the time used to determine the list of shareholders for the given General Meeting of Shareholders. Ordinary shares grant their holders all the rights provided for under the Estonian Commercial Code – the right to participate in the general meeting, the distribution of profits, and the distribution of residual assets upon the dissolution of the Company; the right to receive information from the Management Board about the activities of the Company; a pre-emptive right to subscribe for new shares in proportion to the sum of the par values of the shares already held when share capital is increased, etc. During 18 August – 01 September 2021 the Parent held a public offering of new shares. The issue price per one share was EUR 0.47. As a result of the offering a total of 73 687 024 new shares of the Parent were allocated to the investors. Share capital was increased by EUR 34 633 thousand. AS Tallink Grupp has 743 569 064 registered shares (31 December 2021: 743 569 064) without nominal value and the notional value of each share is EUR 0.47 (31 December 2021: EUR 0.47). As at 31 December, in thousands of EUR 2022 2021 Club One points 7 016 6 360 Prepaid revenue¹ 37 206 15 374 Total deferred income 44 222 21 734 As at 31 December, in thousands 2022 2021 The number of shares issued and fully paid 743 569 743 569 Total number of shares 743 569 743 569 As at 31 December, in thousands of EUR 2022 2021 Share capital (authorised and registered) 349 477 349 477 Total share capital 349 477 349 477 Share premium 663 663 Total share premium 663 663 94 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Reserves Translation Reserve The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations. Ships’ Revaluation Reserve The revaluation reserve is related to the revaluation of ships. The ships’ revaluation reserve may be transferred directly to retained earnings when the ship is disposed of. However, some of the revaluation surplus may be transferred when the ship is used by the Group. In such a case, the amount of surplus transferred is the difference between depreciation based on the revalued carrying amount of the ship and depreciation based on the original cost of the ship. The Group uses the latter alternative. Legal Reserve The legal reserve has been formed in accordance with the Estonian Commercial Code. The legal reserve is formed by means of yearly net profit transfers. At least 1/20 of net profit must be transferred to the legal reserve, until the reserve amounts to 1/10 of share capital. The legal reserve may be used to cover losses and to increase share capital but it may not be used to make distributions to owners. Dividends Due to a deteriorated operating environment and considering the Company’s long-term interests, on 09 June 2022 the General Meeting of Shareholder decided not to pay dividends in 2022. There was also no dividend payment in 2021. Note 21 Contingencies and Commitments Key Management Personnel’s Termination Benefits The members of the Management Board are entitled to termination benefits if their service agreement is terminated by the Group’s Supervisory Board. At 31 December 2022 the maximum amount of such benefits was EUR 1 461 thousand (EUR 1 461 thousand in 2021) (see Note 23). Income Tax on Dividends The Group’s retained earnings as at 31 December 2022 were EUR 290 428 thousand (2021: EUR 274 446 thousand). As at 31 December 2022, the maximum income tax liability which would arise if retained earnings were fully distributed is EUR 58 086 thousand (2021: EUR 54 889 thousand). The maximum income tax liability has been calculated using the income tax rate effective for dividends on the assumption that the dividend and the related income tax expense cannot exceed the amount of retained earnings as at 31 December 2022 (2021: 31 December 2021). As at 31 December, in thousands of EUR 2022 2021 Translation reserve 840 360 Ships’ revaluation reserve 33 364 35 411 Legal reserve 32 159 32 159 Total reserves 66 363 67 930 95 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Note 22 Government Assistance Total other income of EUR 10 871 thousand included COVID-19 related government assistance, compensations from insurance companies, fines and late charges in 2022 (2021: EUR 16 336 thousand). In 2022 EUR 3 326 thousand (2021: EUR 12 771 thousand) was received by Group entities as COVID-19 related government assistance from the governments of Estonia, Finland, Sweden and Germany. The assistance has been recognised in other operating income as stated in the table below. Other Operating Income In 2021, EUR 5 980 thousand of COVID-19 related aid was paid directly to employees by the Estonian Unemployment Insurance Fund. No COVID-19 related aid was paid directly to employees by the Estonian Unemployment Insurance Fund in 2022. In 2022, the Group received other aid of EUR 32 519 thousand (2021: EUR 26 719 thousand) which was deducted directly from the cost of sales (see Note 5). No COVID-19 related aid (2021: EUR 411 thousand) was reflected in the cost of sales of the Group in 2022. In the second quarter of 2020, the Estonian parliament approved a change in legislation granting exemption from ships’ fairway dues for 12 months starting from April 2020 and 50% reduction of the ships’ fairway dues for 12 months starting from April 2021. The effect of the exemption and reduction amounted to EUR 2 134 thousand in 2022 (2021: EUR 2 800 thousand). In order to relieve the liquidity issues caused by the COVID-19 situation, Group entities were allowed to postpone tax payments. The postponed tax liabilities, which amounted to EUR 55 thousand (2021: EUR 1 825 thousand) at the year-end, will be settled by spring 2023. For the year ended 31 December, in thousands of EUR 2022 2021 Government assistance Estonia 0 1 174 Finland 3 448 5 127 Sweden -135 5 896 Germany 13 74 Latvia 0 500 Total government assistance 3 326 12 771 Other income 7 545 3 565 Total other income 10 871 16 336 96 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Note 23 Related Party Disclosures For the purpose of these financial statements, parties are related if one controls the other or has significant influence on the other’s financing and operating decisions. In determining possible related party relationships, attention must be paid to the substance of the relationship and not merely the legal form. A related party is a person or a company that is related to the Group to such an extent that transactions between them may be conducted on terms not equivalent to those that prevail in arm’s length transactions. A person or a close member of that person’s family (i.e. a family member who may be associated with significant influence such as the spouse or the domestic partner or a child) is a related party for the company if that person: - is a member of the management of the company or its parent company (i.e. a person having authority and responsibility for planning, directing and controlling the activities of the company, directly or indirectly) or - has control of or significant influence over the company (e.g. through an ownership interest) Another company is a related party for the company if any of the following conditions apply: - the other company and the company are under common control (i.e. they are members of the same group or controlled by the same person (or a close family member of that person)) - one is under the control of a third party (that may be a company or a person) and the other is under the significant influence of that third party (if the third party is a person, then that person or a close family member of that person) - the other company has control of or significant influence over the company - the other company is under the control or significant influence of the company - a member of the management of the company’s parent company (or a close family member of the member of the management) has control or significant influence over the other company - the other company’s management (or their close family members) include persons that have control of or significant influence over the company The Group has conducted transactions with related parties and has outstanding balances with related parties. For the year ended 31 December 2022, in thousands of EUR Sales to related parties Purchases from related parties Receivables from related parties Payables to related parties Companies controlled by the Key Management Personnel 823 22 912 43 94 005 Associated companies 9 142 0 14 Total 832 23 054 43 94 019 For the year ended 31 December 2021, in thousands of EUR Sales to related parties Purchases from related parties Receivables from related parties Payables to related parties Companies controlled by the Key Management Personnel 2 117 24 205 68 100 137 Associated companies 1 128 1 11 Total 2 118 24 333 69 100 148 97 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements The following goods and services were purchased from related parties: Key Management Personnel’s Compensation AS Tallink Grupp members of the Management Board and members of the Supervisory Board are defined as the Key Management Personnel. In 2022, the Key Management Personnel’s compensation was EUR 1 600 thousand (2021: EUR 2 441 thousand). The members of the Management Board are entitled to termination benefits if their service agreement is terminated by the Group’s Supervisory Board. At 31 December 2022 the maximum amount of such benefits was EUR 1 461 thousand (2021: EUR 1 461 thousand). The Key Management personnel’s benefits are presented without social security tax. For the year ended 31 December, in thousands of EUR 2022 2021 Leases 15 815 13 153 Fuel and electricity 5 185 8 818 Other goods and services 2 054 2 362 Total goods and services 23 054 24 333 98 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Note 24 Group Entities 1 Dormant. Group entities Interest as at 31 December 2022 Interest as at 31 December 2021 Country of incorporation Parent company Baan Thai OÜ 100% 100% Estonia Tallink Grupp AS Hansaliin OÜ 100% 100% Estonia Tallink Grupp AS Hansatee Kinnisvara OÜ 100% 100% Estonia Tallink Grupp AS Hera Salongid OÜ 100% 100% Estonia TLG Hotell OÜ HT Laevateenindus OÜ 100% 100% Estonia Tallink Grupp AS HT Meelelahutus OÜ 100% 100% Estonia Tallink Grupp AS LNG Shipmanagement OÜ 100% 100% Estonia Tallink Grupp AS Mare Catering OÜ 100% 100% Estonia Tallink Grupp AS Tallink AS 100% 100% Estonia Tallink Grupp AS Tallink Baltic AS 100% 100% Estonia Tallink Grupp AS Tallink Duty Free AS 100% 100% Estonia Tallink Grupp AS Tallink Fast Food OÜ 100% 100% Estonia Tallink Grupp AS Tallink Scandinavian AS 100% 100% Estonia Tallink Grupp AS Tallink Travel Club OÜ 100% 100% Estonia Tallink Grupp AS TLG Hotell OÜ 100% 100% Estonia Tallink Grupp AS TLG Stividor OÜ 100% 100% Estonia Tallink Grupp AS Baltic SF VII Ltd 100% 100% Cyprus Tallink Grupp AS Baltic SF VIII Ltd 100% 100% Cyprus Tallink Grupp AS Baltic SF IX Ltd 100% 100% Cyprus Tallink Grupp AS Hansalink Ltd 100% 100% Cyprus Tallink Grupp AS Tallink Autoexpress Ltd 100% 100% Cyprus Tallink Grupp AS Tallink Fast Ltd 100% 100% Cyprus Tallink Grupp AS Tallink Hansaway Ltd 100% 100% Cyprus Tallink Grupp AS Tallink High Speed Line Ltd 100% 100% Cyprus Tallink Grupp AS Tallink Line Ltd 100% 100% Cyprus Tallink Grupp AS Tallink Ltd 100% 100% Cyprus Tallink Grupp AS Tallink Sea Line Ltd 100% 100% Cyprus Tallink Grupp AS Tallink Superfast Ltd 100% 100% Cyprus Tallink Grupp AS Tallink Victory Line Ltd 100% 100% Cyprus Tallink Grupp AS Tallinn - Helsinki Line Ltd 100% 100% Cyprus Tallink Grupp AS Tallinn Swedish Line Ltd 100% 100% Cyprus Tallink Grupp AS HTG Stevedoring OY 100% 100% Finland Tallink Grupp AS Tallink Silja OY 100% 100% Finland Tallink Scandinavian AS Sally AB 100% 100% Finland Tallink Silja OY Tallink Silja GMBH 100% 100% Germany Tallink Silja OY Tallink Latvija AS 100% 100% Latvia Tallink Grupp AS BK Properties SIA 100% 100% Latvia Tallink Latvija AS HT Shipmanagement SIA 100% 100% Latvia HT Laevateenindus OÜ TLG Hotell Latvija SIA 100% 100% Latvia TLG Hotell OÜ Tallink Fast Food Latvia SIA 100% 100% Latvia Tallink Fast Food OÜ Tallink Fast Food Lithuania UAB 100% 100% Lithuania Tallink Fast Food OÜ Tallink-Ru OOO¹ 100% 100% Russia Tallink Grupp AS Tallink Asia Pte. Ltd 100% 100% Singapore Tallink Grupp AS Tallink Silja AB 100% 100% Sweden Tallink Grupp AS Ingleby (1699) Ltd. 100% 100% UK Tallink Grupp AS 99 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Note 25 Financial Risk Management Overview Through the use of financial instruments the Group is exposed to the following risks: • credit risk • liquidity risk • market risk This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s capital management. The Management Board has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s financial department is responsible for developing and monitoring the Group’s risk management policies. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. Credit Risk Credit risk is the risk of financial loss that the Group would suffer if the counterparty failed to perform its financial obligations, and arises principally from the Group’s receivables from customers and cash and cash equivalents. The credit risk concentration related to accounts receivable is not material due to the extensive number of customers. Maximum credit risk was as follows: The Group’s credit risk exposure from trade receivables is mainly influenced by the characteristics of each customer. In monitoring credit risk, customers are grouped according to their credit characteristics, including whether they are individuals or legal entities, whether they are travel agents or customers with credit limits, and considering their geographic location, receivable aging profile, and existence of previous financial difficulties. Trade receivables relate mainly to travel agents and customers with credit facilities. The credit risk concentration related to trade receivables is reduced by the high number of customers. The Group’s management has established a credit policy under which each new customer with a credit request is analysed individually for creditworthiness before the Group’s payment terms and conditions are offered. Some customers are obliged to present a bank guarantee to meet the credit sale criteria. Customers are assigned credit limits, which represent the maximum exposure that does not require approval from the Group’s management. Customers that fail to meet the Group’s benchmark creditworthiness may transact with the Group on a prepayment basis only. Charterers hiring the Group’s vessels have to provide bank guarantees to cover their payment risk. As at 31 December, in thousands of EUR 2022 2021 Cash and cash equivalents (Note 8) 114 935 127 556 Trade and other receivables (Notes 9, 13) 22 589 19 870 Total 137 524 147 426 100 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements In accordance with IFRS 9 the Group measures an allowance for impairment of receivables at an amount of lifetime expected credit loss. Lifetime expected credit loss is calculated as a product of total trade receivables in the aging bucket and the respective credit loss ratio. The expected credit loss ratio is recalculated once a quarter based on actual write-offs during the last 12 quarters. The aging of the receivables at the reporting date was: The Group holds cash and cash equivalents with banking groups that have investment grade credit ratings (BBB or higher issued by internationally recognised credit rating agencies). Liquidity Risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when they fall due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to its reputation. The Group’s low current ratio represents the normal course of business. The majority of sales are conducted by prepayment, bank card or cash payment, therefore the cash conversion cycle is negative and in general the Group receives cash from sales before it has to pay to its vendors. The Group’s objective is to maintain a balance between the continuity and flexibility of funding through the use of bank overdrafts, bank loans and bonds. The Group has established Group account systems (the Group’s cash pools) in Estonia and Finland to manage the cash flows in the Group as efficiently as possible. Excess liquidity is invested in short-term money market instruments. AS Tallink Grupp maintains four committed bank overdraft facilities to minimise the Group’s liquidity risk (see Note 16 for details). At 31 December 2022, the Group’s cash and cash equivalents totalled EUR 114 935 thousand (EUR 127 556 thousand at 31 December 2021). In addition, the Group had available unused overdraft credit lines of EUR 134 985 thousand (2021: EUR 134 820 thousand). In thousands of EUR 2022 2021 Balance at 1 January 468 539 Amounts written off -127 -171 Impairment loss recognised 153 99 Reversal of prior period impairment loss -13 1 Balance at 31 December 481 468 As at 31 December 2022, in thousands of EUR Gross Impairment Net Not past due 20 579 -116 20 463 Past due 0-30 days 1 923 -34 1 889 Past due 31-90 days 222 -14 208 Past due 91 days - one year 121 -93 28 Past due over one year 225 -224 1 Total 23 070 -481 22 589 As at 31 December 2021, in thousands of EUR Gross Impairment Net Not past due 18 568 -128 18 440 Past due 0-30 days 1 422 -26 1 396 Past due 31-90 days 2 -2 0 Past due 91 days - one year 82 -48 34 Past due over one year 264 -264 0 Total 20 338 -468 19 870 101 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements In the loan agreements signed with banks, the Group has agreed to comply with financial covenants related to ensuring certain equity, liquidity and other ratios. In management’s opinion, the Group has sufficient liquidity to support its operations. AS Tallink Grupp and its subsidiaries are able to continue as going concerns for at least one year after the date of approval of these consolidated financial statements. The following tables illustrate liquidity risk by periods when financial liabilities as at 31 December will fall due or may fall due based on contractual cash flows. 1 Expected, based on the interest rates and interest rate forward curves Guarantees issued are not recognised in the statement of financial position as, according to historical experience and management’s estimations, none of them has turned into an actual liability. Market Risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of financial instruments held. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. The Group buys and sells derivatives, and also incurs financial liabilities, in order to manage market risk. Foreign Exchange Rate Risk The Group is exposed to exchange rate risk arising from revenues, operating expenses and liabilities in foreign currencies, mainly in the US dollar (USD) and the Swedish krona (SEK). Exposure to USD results from the purchase of ship fuel and insurance and exposure to SEK arises from the fact that it is the operational currency on some routes. The Group seeks to minimise currency risk by matching foreign currency inflows with outflows. In thousands of EUR, 2022 < 1 year 1-2 years 2-5 years >5 years Total Non-derivative financial liabilities Lease liabilities -68 -10 0 0 -78 Lease liabilities related to right-of-use assets -20 958 -16 296 -41 999 -27 842 -107 095 Trade and other payables -63 778 0 0 0 -63 778 Secured bank loan repayments -145 521 -201 722 -248 326 -156 249 -751 818 Interest payments¹ -27 512 -21 523 -21 533 -11 990 -82 558 Total -257 852 -239 551 -311 858 -196 081 -1 005 342 In thousands of EUR, 2021 < 1 year 1-2 years 2-5 years >5 years Total Non-derivative financial liabilities Lease liabilities -73 -43 0 0 -116 Lease liabilities related to right-of-use assets -16 488 -16 751 -44 475 -38 689 -116 403 Trade and other payables -67 687 0 0 0 -67 687 Secured bank loan repayments -228 667 -194 083 -181 500 -61 333 -665 583 Interest payments¹ -16 657 -9 523 -9 962 -3 288 -39 430 Total -329 572 -220 400 -235 937 -103 310 -889 219 102 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements The following tables present the Group’s financial instruments by currency denomination: A 10% strengthening of the euro against the following currencies at the end of the financial year would have increased (decreased) profit or loss and equity by the amounts shown below. This sensitivity analysis assumes that all other variables remain constant. The analysis was performed on the same basis for 2021. Interest Rate Risk The Group is exposed to interest rate risk through funding and cash management activities. The interest rate risk – the possibility that fluctuations in interest rates can have a significant impact on the profitability and cash flows of the Group – results mainly from long term floating rate bank loans. In thousands of EUR, 2022 EUR USD SEK Other Total Cash and cash equivalents 108 335 160 6 334 106 114 935 Trade receivables, net of allowance 19 316 0 610 20 19 946 Other financial assets 1 896 50 658 39 2 643 Total 129 547 210 7 602 165 137 524 Current portion of borrowings -164 061 0 -988 0 -165 049 Trade payables -38 181 -172 -2 049 -205 -40 607 Other current payables -25 156 0 -4 583 -2 -29 741 Non-current portion of borrowings and other liabilities -688 277 0 -188 0 -688 465 Total -915 675 -172 -7 808 -207 -923 862 Net, EUR -786 128 38 -206 -42 -786 338 In thousands of EUR, 2021 EUR USD SEK Other Total Cash and cash equivalents 118 040 32 9 421 63 127 556 Trade receivables, net of allowance 15 140 0 199 25 15 364 Other financial assets 2 834 0 1 662 10 4 506 Total 136 014 32 11 282 98 147 426 Current portion of borrowings -243 481 0 -949 -6 -244 436 Trade payables -39 255 -284 -4 512 -347 -44 398 Other current payables -22 449 0 -7 678 -2 -30 129 Non-current portion of borrowings and other liabilities -534 310 0 -1 162 -17 -535 489 Total -839 495 -284 -14 301 -372 -854 452 Net, EUR -703 481 -252 -3 019 -274 -707 026 As at 31 December, in thousands of EUR 2022 Profit or loss 2021 Profit or loss USD -4 25 SEK 21 302 NOK 0 0 Other 4 27 103 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements At the reporting date the interest rate profile of the Group’s interest-bearing financial liabilities was as follows: The Group’s floating rate loan commitments are mainly based on EURIBOR rates. During 2022, 6-month EURIBOR increased from -0.539% on January 3 to 2.693% on December 30. At the end of February 2023, 6-month EURIBOR had crossed a 3% mark. A change of 10 basis points in the interest rates of interest-bearing financial liabilities at the reporting date would have increased (decreased) profit and equity by the amounts shown below. This analysis assumes that all other variables remain constant. The analysis was performed on the same basis for 2021. When analysing interest rate risks, various hedging options are considered including refinancing floating rate loan commitments with fixed rate loan commitments. The management of the Group has assessed the interest rate risks related to assets and liabilities of the Group and concluded that there are no material risks to outline. Fair Values of Financial Instruments All financial assets and liabilities are measured at amortised cost excluding derivatives, which are measured at fair value. According to the assessment of the Group’s management, as at 31 December 2022 and 31 December 2021 the fair values of assets and liabilities measured at amortised cost did not differ materially from their carrying amounts. Capital Management The Group considers total shareholders’ equity as capital. As at 31 December 2022 the shareholders’ equity was EUR 706 931 thousand (2021: EUR 692 516 thousand). The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and sustain future development of the business. The Group has made significant investments in recent years where strong shareholders’ equity has been a major supporting factor for the investments. The Group seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowing and the advantages and security afforded by a sound capital position. At the General Meeting of Shareholders held on 8 February 2011, management introduced the strategic target of reaching the optimal debt level which would allow the Group to start paying dividends. In management’s opinion, a comfortable level for the Group’s equity ratio is between 40% and 50% and for the net debt to EBITDA ratio an indicator below 5. As at 31 December 2022 the Group’s equity ratio was 41.8% and the net debt to EBITDA ratio was 5.4 (2021: 43.7% and 11.2, respectively). As at 31 December, in thousands of EUR 2022 2021 Fixed rate financial liabilities 294 665 129 628 Variable rate financial liabilities 451 739 533 714 Total 746 404 663 342 In thousands of EUR 2022 2021 10 basis point increase -452 -534 10 basis point decrease 452 534 104 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Due to a complicated operating environment and considering the Company’s long-term interests, management will propose to the General Meeting of Shareholders not to pay a dividend in 2023 for the results for 2022 (2021: not to pay a dividend from the results for 2021). The Group may purchase its own shares from the market; the timing of these purchases may depend on market prices, the Group’s liquidity position and business outlook. Additionally, legal factors may limit the timing of such decisions. Repurchased shares are intended to be cancelled. Currently the Group does not have a defined share buyback plan. Note 26 Going Concern In the beginning of the financial year 2022, the Group’s operations and operating results were influenced by the COVID-19 in all home markets, and by the war in Ukraine that Russia unleashed on 24 February 2022. To ensure the sustainability of the business operations both in 2022 and going forward we took several actions, including: • Restoring profitable operations on our core routes • Focusing on cost savings from previously implemented measures • Chartering out vessels for additional revenue streams • Applying for government assistance measures • Amendment and restatement of EUR 280 million loan agreement from December 2016 At 31 December 2022, the Group’s cash and cash equivalents totalled EUR 114 935 thousand (EUR 127 556 thousand at 31 December 2021). In addition, the Group had available unused overdraft credit lines of EUR 134 985 thousand (2021: EUR 134 820 thousand). As 31 December 2022 current liabilities exceeded current assets by EUR 100 550 thousand (EUR 154 501 thousand at 31 December 2021). Current liabilities exceed current assets to a large extent due to a bank loan maturing in the fourth quarter of 2023. As in previous years the Group plans to refinance the maturing bilateral bank loan and has started preparations for the refinancing process. The Management Board is of the opinion that the Group is able to continue as a going concern. These consolidated financial statements have been prepared on a going concern basis as according to the assessment of the Management Board the Group can continue its operations and meet its obligations for the foreseeable future, i.e. for at least 12 months from the date these financial statements are authorised for issue. Should the economic environment worsen significantly, the Group may have to review its business plan in order to ensure its ability to continue as a going concern. Liquidity can also be strengthened through a shareholder contribution or the sale of assets, if needed. Note 27 Subsequent Events New Collective Agreement On 6 February 2023, AS Tallink Grupp and Estonian Seamen’s Independent Union signed a new collective agreement for the next 4 years. Subject to the agreement, the wages of the Group’s maritime workers in Estonia will increase by 13.5% (service personnel) and 16.1% (technical personnel) compared to the minimum wages of the previous collective agreement. 105 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Note 28 Primary Financial Statements of the Parent Statement of profit or loss and other comprehensive income For the year ended 31 December, in thousands of EUR 2022 2021 Revenue 379 788 243 846 Cost of sales -325 056 -233 324 Gross profit/loss 54 732 10 522 Sales and marketing expenses -24 400 -18 271 Administrative expenses -25 935 -25 789 Impairment loss on receivables -95 -95 Other operating income 6 939 2 411 Other operating expenses -107 -1 025 Result from operating activities 11 134 -32 247 Finance income 15 230 20 703 Finance costs -24 296 -23 631 Share of profit of subsidiaries 24 900 29 190 Share of profit/loss of equity-accounted investees -90 -80 Profit/loss before income tax 26 878 -6 065 Income tax 1 186 1 051 Net profit/loss for the year 28 064 -5 014 106 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Statement of Financial Position As at 31 December, in thousands of EUR 2022 2021 ASSETS Cash and cash equivalents 2 014 2 792 Receivables from subsidiaries 118 693 86 450 Receivables and prepayments 17 829 20 442 Inventories 9 983 8 985 Current assets 148 519 118 669 Investments in subsidiaries 718 677 715 677 Receivables from subsidiaries 580 129 569 580 Investments in equity-accounted investees 75 165 Other financial assets and prepayments 3 148 65 Property, plant and equipment 548 602 482 558 Intangible assets 8 521 10 580 Non-current assets 1 859 152 1 778 625 TOTAL ASSETS 2 007 671 1 897 294 LIABILITIES AND EQUITY Interest-bearing loans and borrowings 208 057 300 291 Payables and deferred income 84 936 70 041 Dividends payable to shareholders 6 6 Tax liabilities 4 310 4 148 Current liabilities 297 309 374 486 Interest-bearing loans and borrowings 761 659 602 169 Non-current liabilities 761 659 602 169 Total liabilities 1 058 968 976 655 Share capital 349 477 349 477 Share premium 663 663 Reserves 32 159 32 159 Retained earnings 566 404 538 340 Equity 948 703 920 639 TOTAL LIABILITIES AND EQUITY 2 007 671 1 897 294 107 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Statement of Cash Flows For the year ended 31 December, in thousands of EUR 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net profit/loss for the period 28 064 -5 014 Adjustment for: Depreciation and amortisation 57 832 57 395 Net gain/loss on disposals of property, plant and equipment and intangible assets -15 0 Net interest expense 8 773 2 890 Income from subsidiaries -24 810 -29 190 Income tax -1 186 -1 051 Other adjustments 0 1 080 Adjustments 40 594 31 124 Changes in: Receivables and prepayments related to operating activities 12 117 -3 008 Inventories -998 74 Liabilities related to operating activities 17 739 33 118 Changes in assets and liabilities 28 858 30 184 Cash generated from operating activities 97 516 56 294 NET CASH FROM OPERATING ACTIVITIES 97 516 56 294 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant, equipment and intangible assets -7 925 -6 355 Proceeds from disposals of property, plant and equipment 0 892 Increase in share capital of subsidiaries -3 000 -108 000 Loans granted to subsidiaries -39 660 -53 220 Repayments of loans granted 54 430 118 640 Dividends received from subsidiaries 22 700 8 500 Interest received 13 139 19 017 NET CASH USED IN INVESTING ACTIVITIES 39 684 -20 526 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from loans from subsidiaries 23 600 3 400 Repayment of loans -73 885 -7 000 Repayment of loans to subsidiaries -16 100 -4 500 Change in overdraft 949 8 838 Payment of lease liabilities -48 542 -46 763 Interest paid -22 883 -22 524 Payment of transaction costs related to loans -1 117 0 Issue of shares 0 34 633 NET CASH USED IN/FROM FINANCING ACTIVITIES -137 978 -33 916 NET CASH FLOW -778 1 852 Cash and cash equivalents at the beginning of period 2 792 940 Change -778 1 852 Cash and cash equivalents at the end of period 2 014 2 792 108 | 119 AS Tallink Grupp Annual Report 2022 Notes to the Consolidated Financial Statements Statement of Changes in Equity In thousands of EUR Share capital Share premium Mandatory legal reserve Retained earnings Total equity As at 31 December 2021 349 477 663 32 159 538 340 920 639 Net profit/loss for 2022 0 0 0 28 064 28 064 As at 31 December 2022 349 477 663 32 159 566 404 948 703 As at 31 December 2020 314 844 663 32 159 543 354 891 020 Net profit/loss for 2021 0 0 0 -5 014 -5 014 Issue of shares 34 633 0 0 0 34 633 Total transactions with owners of the Company recognised directly in equity 34 633 0 0 0 34 633 As at 31 December 2021 349 477 663 32 159 538 340 920 639 In thousands of EUR 2022 2021 Unconsolidated equity at 31 December 948 703 920 639 Interests under control and significant influence: Carrying amount -718 752 -715 842 Value under the equity method 476 980 487 719 Adjusted unconsolidated equity at 31 December 706 931 692 516 109 | 119 AS Tallink Grupp Annual Report 2022 Statement by the Management Board STATEMENT BY THE MANAGEMENT BOARD We hereby take responsibility for the preparation of the consolidated financial statements of AS Tallink Grupp (in the consolidated financial statements referred to as “the Parent”) and its subsidiaries (together referred to as “the Group"). The Management Board confirms that: • The consolidated financial statements are in compliance with International Financial Reporting Standards (IFRS) as adopted by the European Union. • The consolidated financial statements give a true and fair view of the financial position, financial performance and cash flows of the Group and the Parent. • AS Tallink Grupp and its subsidiaries are able to continue as going concerns for at least one year after the date of approval of these consolidated financial statements. Paavo Nõgene Chairman of the Management Board Kadri Land Member of the Management Board Harri Hanschmidt Member of the Management Board Piret Mürk-Dubout Member of the Management Board Margus Schults Member of the Management Board 31 March 2023 This audited annual report has been signed digitally. Independent auditors’ report To the Shareholders of AS Tallink Grupp Report on the Audit of the Consolidated Financial Statements Opinion We have audited the consolidated financial statements of AS Tallink Grupp and its subsidiaries (“the Group”), which comprise the consolidated statement of financial position as at 31 December 2022, the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2022, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (Estonia). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Code of Ethics for Professional Accountants (Estonia) (including International Independence Standards), and we have fulfilled our other ethical responsibilities in accordance with these requirements. 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 consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Fair value of ships Refer to notes 14 to the consolidated financial statements. The key audit matter How the matter was addressed in our audit The Group's property, plant and equipment include ships, which are measured at revalued amounts (i.e. fair value less depreciation charged subsequent to the date of the revaluation). The carrying value of the Group's ships as at 31 December 2022 was EUR 1 287 715 thousand. The fair value of ships depends on many factors, including changes in the fleet composition, current and forecast market values and technical factors which may affect the useful life expectancy of the assets and therefore could have a material impact on any impairment charges or the depreciation charge for the year. In order to assess the fair value of the ships, the Group’s management used independent appraisers. Our audit procedures in this area included, among others: • assessing the methodologies used by the external appraisers to estimate the fair values of the ships; • evaluating the independent external appraisers’ competence, capabilities and objectivity; • evaluating the historical accuracy of the Group’s assessment of the fair values of the ships by comparing them to transaction prices in prior years; • testing the adequacy of the capitalized expenditures of the ships; • analysing the estimates of useful lives and residual values and comparing them to published estimates of other international ship operators; and We have identified the carrying value of ships as a key audit matter because of its significance to the consolidated financial statements and because applying the Group’s accounting policies in this area involves a significant degree of judgement by management in considering the nature, timing and likelihood of changes to the factors noted above which may affect both the carrying value of the Group’s ships as well the depreciation charge for the current year and future years. • assessing the adequacy of the consolidated financial statement disclosures. Recognition of deferred tax assets Refer to Notes 6 to the consolidated financial statements. The key audit matter How the matter was addressed in our audit As at 31 December 2022 the Group has recognised deferred tax assets of EUR 23 875 thousand for deductible temporary differences and unused tax losses that it believes are recoverable. The recoverability of recognised deferred tax assets is in part dependent on the Group’s ability to generate future taxable profits sufficient to utilise deductible temporary differences and tax losses (before the latter expire). We have determined this to be a key audit matter, due to the inherent uncertainty of forecasting the amount and timing of future taxable profits and the reversal of temporary differences. Our audit procedures in this area included, among others: • evaluating the Group’s process to prepare the deferred tax calculation, including the Group’s budgeting procedures upon which the forecasts are based; • using our own tax specialists to evaluate the tax strategies the Group expects will enable the successful recovery of the recognised deferred tax assets; • assessing the accuracy of forecast future taxable profits by evaluating the historical forecasting accuracy and comparing the assumptions, such as projected growth rates, with our own expectations of those assumptions derived from our knowledge of the industry and our understanding obtained during our audit, including where applicable their consistency with business plans; and • evaluating the adequacy of the consolidated financial statement disclosures, including disclosures of key assumptions, judgements and sensitivities. Impairment assessment of right of use assets Refer to Notes 14 to the consolidated financial statements. The key audit matter How the matter was addressed in our audit The Group’s property, plant and equipment include right-of-use assets related to hotels located in Estonia and Latvia (buildings and premises), which at 31 December 2022 amounted to EUR 68 364 thousand and which management has assessed for impairment. The recoverable amounts of the assets were found using the discounted cash flow method. The Group carries out impairment testing on the basis of budgets and forecasts prepared for the lease term. The impairment tests performed did not indicate a need to recognise an impairment loss. We determined the impairment assessment of right-of-use assets to be a key audit matter because it requires management to make significant judgements about the assumptions Our audit procedures in this area included, among others: • reviewing the significant assumptions applied by management in forecasting cash flows, such as projected revenues and expenses; • comparing the inputs used in impairment testing with the approved business plan and detailed budgets; • evaluating the reasonability of the discount rate applied in the impairment assessment; and • assessing the adequacy of the consolidated financial statement disclosures. applied in estimating the recoverable amounts of right-of-use assets. Other Information Management is responsible for the other information. The other information comprises the information included in the management report, the letter to shareholders, the corporate governance report and the remuneration report, but does not include the consolidated financial statements and our auditors’ report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. In addition, our responsibility is to state whether the information presented in the management report has been prepared in accordance with the applicable legal and regulatory requirements. With respect to the remuneration report, our responsibility also includes considering whether the remuneration report has been prepared in accordance with the requirements of Article 135 3 of the Securities Market Act. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard and we state that the information presented in the management report is materially consistent with the consolidated financial statements and in accordance with the applicable legal and regulatory requirements. In our opinion, the remuneration report has been prepared in accordance with the requirements of Article 135 3 of the Securities Market Act. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process. Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing (Estonia) 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 these consolidated financial statements. As part of an audit in accordance with International Standards on Auditing (Estonia), we exercise professional judgement and maintain professional scepticism throughout the audit. We also: - Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control. - Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. - Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. - Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, then we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern. - Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. - Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements Report on Compliance with the Requirements for iXBRL tagging of Consolidated Financial Statements included within the European Single Electronic Format Regulatory Technical Standard (ESEF RTS) We have undertaken a reasonable assurance engagement on the iXBRL tagging of the consolidated financial statements included in the digital files Tallink Grupp 529900QRMWAKKR3L9W75-2022-12-31-en.zip prepared by AS Tallink Grupp. Responsibilities of Management for the Digital Files Prepared in Compliance with the ESEF RTS Management is responsible for preparing digital files that comply with the ESEF RTS. This responsibility includes: – the selection and application of appropriate iXBRL tags using judgement where necessary; – ensuring consistency between digitised information and the consolidated financial statements presented in human-readable format; and – the design, implementation and maintenance of internal control relevant to the application of the ESEF RTS. Auditors' Responsibilities Our responsibility is to express an opinion on whether the electronic tagging of the consolidated financial statements complies in all material respects with the ESEF RTS based on the evidence we have obtained. We apply the provisions of the International Standard on Quality Control (Estonia) 1 and accordingly maintain a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. We are independent of the Group in accordance with the International Code of Ethics for Professional Accountants (Estonia) (including International Independence Standards), and we have fulfilled our other ethical responsibilities in accordance with these requirements. We conducted our reasonable assurance engagement in accordance with International Standard on Assurance Engagements 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information (ISAE 3000) issued by the International Auditing and Assurance Standards Board. A reasonable assurance engagement in accordance with ISAE 3000 (Revised) involves performing procedures to obtain evidence about compliance with the ESEF RTS. The nature, timing and extent of procedures selected depend on the practitioner’s judgment, including the assessment of the risks of material departures from the requirements set out in the ESEF RTS, whether due to fraud or error. A reasonable assurance engagement includes: – obtaining an understanding of the tagging and the ESEF RTS, including of internal control over the tagging process relevant to the engagement; – reconciling the tagged data with the audited consolidated financial statements of the Group dated 31 December 2022; – evaluating the completeness of the tagging of the consolidated financial statements; – evaluating the appropriateness of the Group’s use of iXBRL elements selected from the ESEF taxonomy and the creation of extension elements where no suitable element in the ESEF taxonomy has been identified; – evaluating the use of anchoring in relation to the extension elements. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. In our opinion, the consolidated financial statements included in the annual report of AS Tallink Grupp identified as Tallink Grupp 529900QRMWAKKR3L9W75-2022-12-31-en.zip for the year ended 31 December 2022 are tagged, in all material respects, in compliance with the ESEF RTS. Other Requirements of the Auditors' Report in Accordance with Regulation (EU) No 537/2014 of the European Parliament and of the Council We were appointed by those charged with governance on July 30, 2020 to audit the consolidated financial statements of AS Tallink Grupp for the year ended 31 December 2020-31 December 2022. Our total uninterrupted period of engagement is 16 years, covering the periods ending 31 August 2007 to 31 December 2022. We confirm that: – our audit opinion is consistent with the additional report presented to the Audit Committee of the Group; – we have not provided to the Group the prohibited non-audit services (NASs) referred to in Article 5(1) of EU Regulation (EU) No 537/2014. We also remained independent of the audited entity in conducting the audit. Tallinn, 31 March 2023 /signed electronically/ Andris Jegers Certified Public Accountant Licence No 171 /signed electronically/ Lembi Uett Certified Public Accountant, Licence No 566 KPMG Baltics OÜ Licence no 17 KPMG Baltics OÜ Narva mnt 5 Tallinn 10117 Estonia Tel +372 626 8700 www.kpmg.ee 116 | 119 AS Tallink Grupp Annual Report 2022 Alternative Performance Measures ALTERNATIVE PERFORMANCE MEASURES AS Tallink Grupp presents certain performance measures as key figures, which in accordance with the “Alternative Performance Measures” guidance by the European Securities and Markets Authority (ESMA) are not accounting measures of historical financial performance, financial position and cash flows, defined or specified in IFRS, but which are instead non-financial measures and alternative performance measures (APMs). The non-financial measures and APMs provide the management, investors, securities analysts and other parties with significant additional information related to the Group’s results of operations, financial position or cash flows and are often used by analysts, investors and other parties. The non-financial measures and APMs should not be considered in isolation or as a substitute to the measures under IFRS. The APMs are unaudited. Calculation Formulas of Alternative Performance Measures EBITDA: result from operating activities before net financial items, share of profit or loss of equity- accounted investees, taxes, depreciation and amortisation EBIT: result from operating activities Earnings per share: net profit or loss / weighted average number of shares outstanding Equity ratio: total equity / total assets Shareholder’s equity per share: shareholder’s equity / number of shares outstanding Gross margin: gross profit or loss / net sales EBITDA margin: EBITDA / net sales EBIT margin: EBIT / net sales Net profit margin: net profit or loss / net sales Capital expenditure: additions to property, plant and equipment – additions to right-of-use assets + additions to intangible assets ROA: earnings before net financial items, taxes 12 months trailing / average total assets ROE: net profit or loss 12 months trailing / average shareholders’ equity ROCE: earnings before net financial items, taxes 12 months trailing / (total assets – current liabilities (average for the period)) Net debt: interest-bearing liabilities less cash and cash equivalents Net debt to EBITDA: net debt / EBITDA 12 months trailing Current ratio: current assets / current liabilities 117 | 119 AS Tallink Grupp Annual Report 2022 Alternative Performance Measures Reconciliations of Certain Alternative Performance Measures In thousands of EUR 2022 2021 2020 Depreciation 91 216 88 375 93 306 Amortisation 6 920 6 938 7 354 Depreciation and amortisation 98 136 95 313 100 660 Result from operating activities 37 673 -37 031 -92 621 Depreciation and amortisation 98 136 95 313 100 660 EBITDA 135 809 58 282 8 039 EBITDA 135 809 58 282 8 039 IFRS 16 adoption effect -22 718 -19 669 -18 686 Adjusted EBITDA 113 091 38 613 -10 647 Additions to property, plant and equipment 200 795 17 434 96 565 Additions to intangible assets 2 527 2 783 3 538 Capital expenditures 203 322 20 217 100 103 Net profit/loss 13 935 -56 576 -108 308 Weighted average number of shares outstanding 743 569 064 694 444 381 669 882 040 Earnings/loss per share (EUR) 0.019 -0.081 -0.162 Lease liabilities 77 116 258 Lease liabilities related to right-of-use assets 107 095 116 403 102 509 Overdraft 15 180 15 736 Long-term bank loans 746 327 663 226 586 616 Interest-bearing liabilities 853 514 779 925 705 119 Total equity 706 931 692 516 714 336 Total assets 1 691 642 1 585 915 1 516 201 Equity ratio (%) 41.8% 43.7% 47.1% Equity attributable to equity holders of the Parent 706 931 692 516 714 336 Number of ordinary shares outstanding 743 569 064 743 569 064 669 882 040 Shareholders’ equity per share (EUR) 0.95 0.93 1.07 Gross profit/loss 113 470 21 655 -43 454 Net sales 771 387 476 937 442 934 Gross margin (%) 14.7% 4.5% -9.8% EBITDA 135 809 58 282 8 039 Net sales 771 387 476 937 442 934 EBITDA margin (%) 17.6% 12.2% 1.8% Adjusted EBITDA 113 091 38 613 -10 647 Net sales 771 387 476 937 442 934 Adjusted EBITDA margin (%) 14.7% 8.1% -2.4% EBIT 37 673 -37 031 -92 621 Net sales 771 387 476 937 442 934 EBIT margin (%) 4.9% -7.8% -20.9% Net profit/loss 13 935 -56 576 -108 308 Net sales 771 387 476 937 442 934 Net profit/loss margin (%) 1.8% -11.9% -24.5% 118 | 119 AS Tallink Grupp Annual Report 2022 Alternative Performance Measures In thousands of EUR 2022 2021 2020 Result from operating activities 12-months trailing 37 673 -37 031 -92 621 Total assets 31 March 1 560 167 1 492 507 1 517 773 Total assets 30 June 1 550 110 1 524 741 1 505 876 Total assets 30 September 1 535 300 1 616 656 1 542 932 Total assets 31 December 1 691 642 1 585 915 1 516 201 Average assets 1 584 627 1 547 204 1 523 149 ROA (%) 2.4% -2.4% -6.1% Net profit/loss 12-months trailing 13 935 -56 576 -108 308 Total equity 31 December (previous year) 692 516 714 336 822 837 Total equity 31 March 652 526 680 079 793 224 Total equity 30 June 652 304 655 682 765 349 Total equity 30 September 690 219 695 867 741 507 Total equity 31 December 706 931 692 516 714 336 Average equity 678 899 687 696 767 451 ROE (%) 2.1% -8.2% -14.1% Result from operating activities 12-months trailing 37 673 -37 031 -92 621 Total assets 31 December (previous year) 1 585 915 1 516 201 1 532 963 Total assets 31 March 1 560 167 1 492 507 1 517 773 Total assets 30 June 1 550 110 1 524 741 1 505 876 Total assets 30 September 1 535 300 1 616 656 1 542 932 Total assets 31 December 1 691 642 1 585 915 1 516 201 Current liabilities 31 December (previous year) 357 910 208 347 221 444 Current liabilities 31 March 390 345 233 651 234 336 Current liabilities 30 June 405 694 218 923 254 934 Current liabilities 30 September 383 316 207 183 275 820 Current liabilities 31 December 296 246 357 910 208 347 Total assets - current liabilities 31 December (previous year) 1 228 005 1 307 854 1 311 519 Total assets - current liabilities 31 March 1 169 822 1 258 856 1 283 437 Total assets - current liabilities 30 June 1 144 416 1 305 818 1 250 942 Total assets - current liabilities 30 September 1 151 984 1 409 473 1 267 112 Total assets - current liabilities 31 December 1 395 396 1 228 005 1 307 854 Average assets - current liabilities 1 217 925 1 302 001 1 284 173 ROCE (%) 3.1% -2.8% -7.2% Interest-bearing liabilities 853 514 779 925 705 119 Cash and cash equivalents 114 935 127 556 27 834 Net debt 738 579 652 369 677 285 Net debt 738 579 652 369 677 285 Depreciation 91 216 88 375 93 306 Amortisation 6 920 6 938 7 354 Depreciation and amortisation 98 136 95 313 100 660 EBITDA 135 809 58 282 8 039 Net debt to EBITDA 5.4 11.2 84.2 Current assets 195 696 203 409 89 220 Current liabilities 296 246 357 910 208 347 Current ratio 0.7 0.6 0.4 119 | 119 AS Tallink Grupp Annual Report 2022 Contact Information CONTACT INFORMATION Commercial Registry no. 10238429 Address Sadama 5 10111, Tallinn Republic of Estonia Phone +372 6 409 800 Fax +372 6 409 810 Website www.tallink.com Main activity maritime transport (passenger & cargo transport)