Vilkyskiu Pienine

Annual Report (ESEF) • Apr 26, 2024

5299005NNDRP09PFOY812023-01-012023-12-315299005NNDRP09PFOY812023-12-315299005NNDRP09PFOY812022-12-315299005NNDRP09PFOY812022-01-012022-12-315299005NNDRP09PFOY812021-12-31ifrs-full:IssuedCapitalMember5299005NNDRP09PFOY812021-12-31ifrs-full:SharePremiumMember5299005NNDRP09PFOY812021-12-31ifrs-full:RevaluationSurplusMember5299005NNDRP09PFOY812021-12-31ifrs-full:StatutoryReserveMember5299005NNDRP09PFOY812021-12-31ifrs-full:RetainedEarningsMemberiso4217:EURiso4217:EURxbrli:shares5299005NNDRP09PFOY812021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember5299005NNDRP09PFOY812021-12-31ifrs-full:NoncontrollingInterestsMember5299005NNDRP09PFOY812021-12-315299005NNDRP09PFOY812022-01-012022-12-31ifrs-full:IssuedCapitalMember5299005NNDRP09PFOY812022-01-012022-12-31ifrs-full:SharePremiumMember5299005NNDRP09PFOY812022-01-012022-12-31ifrs-full:RevaluationSurplusMember5299005NNDRP09PFOY812022-01-012022-12-31ifrs-full:StatutoryReserveMember5299005NNDRP09PFOY812022-01-012022-12-31ifrs-full:RetainedEarningsMember5299005NNDRP09PFOY812022-01-012022-12-31ifrs-full:EquityAttributableToOwnersOfParentMember5299005NNDRP09PFOY812022-01-012022-12-31ifrs-full:NoncontrollingInterestsMember5299005NNDRP09PFOY812022-12-31ifrs-full:IssuedCapitalMember5299005NNDRP09PFOY812022-12-31ifrs-full:SharePremiumMember5299005NNDRP09PFOY812022-12-31ifrs-full:RevaluationSurplusMember5299005NNDRP09PFOY812022-12-31ifrs-full:StatutoryReserveMember5299005NNDRP09PFOY812022-12-31ifrs-full:RetainedEarningsMember5299005NNDRP09PFOY812022-12-31ifrs-full:EquityAttributableToOwnersOfParentMember5299005NNDRP09PFOY812022-12-31ifrs-full:NoncontrollingInterestsMember5299005NNDRP09PFOY812023-01-012023-12-31ifrs-full:IssuedCapitalMember5299005NNDRP09PFOY812023-01-012023-12-31ifrs-full:SharePremiumMember5299005NNDRP09PFOY812023-01-012023-12-31ifrs-full:RevaluationSurplusMember5299005NNDRP09PFOY812023-01-012023-12-31ifrs-full:StatutoryReserveMember5299005NNDRP09PFOY812023-01-012023-12-31ifrs-full:RetainedEarningsMember5299005NNDRP09PFOY812023-01-012023-12-31ifrs-full:EquityAttributableToOwnersOfParentMember5299005NNDRP09PFOY812023-01-012023-12-31ifrs-full:NoncontrollingInterestsMember5299005NNDRP09PFOY812023-12-31ifrs-full:IssuedCapitalMember5299005NNDRP09PFOY812023-12-31ifrs-full:SharePremiumMember5299005NNDRP09PFOY812023-12-31ifrs-full:RevaluationSurplusMember5299005NNDRP09PFOY812023-12-31ifrs-full:StatutoryReserveMember5299005NNDRP09PFOY812023-12-31ifrs-full:RetainedEarningsMember5299005NNDRP09PFOY812023-12-31ifrs-full:EquityAttributableToOwnersOfParentMember5299005NNDRP09PFOY812023-12-31ifrs-full:NoncontrollingInterestsMember VILVI GROUP Annual report 2023 Annual report for the year ended 31 December 2023 and consolidated and the parent company’s financial statements for the year ended 31 December 2023, prepared in accordance with International Financial Reporting Standards as adopted by the European Union. VILVI GROUP ANNUAL REPORT 2023 2 VILVI GROUP Annual report is an integrated report, including the following reports: Governance report The reporting period: 1 January – 31 December 2023. The report is available: • on the Group’s website www.vilvigroup.lt. • on the website of NASDAQ OMX Vilnius stock exchange www.nasdaqbaltic.com. This report has been issued in Lithuanian and English languages. Consolidated and the parent company‘s separate financial statements Sustainability report (Corporate social responsibility report) 3 CONTENTS OVERVIEW ................................................................................................................................................................. 4 ABOUT VILVI GROUP .................................................................................................... 5 CEO‘S STATEMENT .......................................................................................................... 6 HIGHLIGHTS 2023 ............................................................................................................ 7 BUSINESS ENVIRONMENT ............................................................................................................................ 8 HISTORY ................................................................................................................................. 9 MARKETS ............................................................................................................................... 11 STRATEGY AND TARGETS ......................................................................................... 12 SOLUTIONS FOR CUSTOMERS .............................................................................. 13 RESULTS ..................................................................................................................................................................... 14 VILVI GROUP RESULTS ............................................................................................... 15 AB VILKYŠKIŲ PIENINĖ RESULTS ........................................................................ 17 RAW MATERIALS ............................................................................................................. 18 BUSINESS SEGMENTS ................................................................................................. 19 SALES ....................................................................................................................................... 21 INFORMATION ON SHARES AND BONDS ................................................... 22 MANAGEMENT REPORT ................................................................................................................................ 23 GOVERNANCE MODEL ............................................................................................... 24 AUTHORIZED CAPITAL STRUCTURE AND SHAREHOLDERS ......... 25 GENERAL MEETING AND SHAREHOLDER RIGHTS …………………...…… 26 SUPERVISORY COMMITTEE ................................................................................... 27 BOARD AND ITS COMMITTEES ............................................................................. 28 KEY MANAGERS ............................................................................................................... 32 GOVERNANCE PRINCIPLES .................................................................................... 34 DIVIDENDS ........................................................................................................................... 35 REMUNERATION REPORT ........................................................................................ 38 RISK MANAGEMENT ..................................................................................................... 40 SUSTAINABILITY REPORT (CSR REPORT) ....................................................................................... 45 ESG CONTENTS ............................................................................................................... 46 SUSTAINABILITY IN THE GROUP ........................................................................ 47 MATERIALITY ASSESSMENT ................................................................................... 49 ESG PRIORITIES ............................................................................................................... 51 POLICIES .............................................................................................................................. 54 TAXONOMY OVERVIEW.............................................................................................. 55 ENVIRONMENTAL PROTECTION ...................................................................... 62 SOCIAL ENVIRONMENT ............................................................................................. 67 ADDITIONAL INFORMATION ...................................................................................................................... 79 ALTERNATIVE INDICATORS ........................................................................................................................... 80 COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE ............................................ 81 FINANCIAL STATEMENTS .............................................................................................................................. 95 COMPANY DETAILS ............................................................................................................................................. 96 MANAGEMENT‘S STATEMENT ON THE CONSOLIDATED AND PARENT COMPANY‘S SEPARATE ANNUAL FINANCIAL STATEMENTS ............................................... 97 CONSOLIDATED AND SEPARATE STATEMENTS OF FINANCIAL POSITION………..… 98 CONSOLIDATED AND SEPARATE STATEMENTS OF PROFIT OR LOSS ……………….….. 99 CONSOLIDATED AND SEPARATE STATEMENTS OF OTHER COMPREHENSIVE INCOME …..………………………………………………………………………………………………..… 100 SEPARATE STATEMENT OF CHANGES IN EQUITY ……………………………………………………….….. 101 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ………………………………….……………. 102 CONSOLIDATED AND SEPARATE STATEMENTS OF CASH FLOWS ………………………….. 103 NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS …….…. 105 VILVI GROUP ANNUAL REPORT 2023 4 OVERVIEW ABOUT VILVI GROUP ....... 5 CEO‘S STATEMENT ....... 6 HIGHLIGHTS 2023 ....... 7 VILVI GROUP ANNUAL REPORT 2023 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS AB VILKYŠKIŲ PIENINĖ AB KELMĖS PIENINĖ AB KELMĖS PIENAS SIA BALTIC DAIRY Board AB MODEST FERMENTED CHEESES MOZZARELLA, MOLD CHEESE AND OTHER CHEESE PRODUCTS FRESH DAIRY PRODUCTS DRY PRODUCTS – INGREDIENTS THE PARENT COMPANY OF THE GROUP Vilkyškiai Tauragė Kelmė Bauskė 5 RENT OF BUILDINGS, MILK COLECTION & LOGISTICS AB PIENO LOGISTIKA The main activity of VILVI GROUP is the production and sale of dairy products. The companies of the Group produce: • various cheeses and cheese products; • cream; • various fresh dairy products (kefir, sour cream, yogurts, cottage cheese, glazed cottage cheese bars, etc.); • dry milk and whey products (whey protein concentrate, whey permeate, skimmed milk powder, sweet whey flour and proteins for athletes); • ingredients of high added value dairy products. CREAM INGREDIENTS OF HIGH ADDED VALUE DAIRY PRODUCTS Founded in 1993 Founded in 1992, belongs to the Group since 2008. Founded in 1993, belongs to the Group since 2008. A subsidiary company of AB Kelmės pieninė. Founded in 2020, after the separation of fresh and dry milk products activities of AB Kelmės pieninė. Founded in 2013, belongs to the Group since 2013. Founded in 2013, belongs to the Group since 2021 ABOUT VILVI GROUP VILVI GROUP ANNUAL REPORT 2023 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS 6 Last year was extremely important for the region where most of the Group’s companies are located. Tauragė was the capital of culture of Lithuania, and VILVI GROUP was its main sponsor. We constantly strive to contribute to the promotion of culture in the region, therefore this cooperation provided even more opportunities to organize top-level events and ensure that Tauragė is famous as a modern city that appreciates its history and is open to residents and guests from all over the world. Since we are one of the largest companies in the region, we feel the responsibility and obligation to contribute to the cultural growth and development of the community. Sustainability remains an important measure of our daily actions, based on which we review, improve our operations, search for optimal solutions, make changes and investments. We are proud to be appreciated by our users and partners for this. In a study conducted by the Swedish research company SB Insight in 2023, Vilkyškių pieninė ranked second among the most sustainable brands in the food and beverage industry in Lithuania. We are leaders when comparing our positions with other milk producers. This encourages us not to stop and to achieve even more ambitious goals. In 2024, we will focus on operational efficiency – both organizational and management changes, and automation of production processes. By maintaining our direction of sustainability with its main points of support – well-being for the environment and people – we consistently implement our strategic promise to partners, customers and consumers, which is to supply exceptional and affordable dairy products worldwide. Gintaras Bertašius Manager of VILVI GROUP CEO of AB Vilkyškių pieninė and Chairman of the Board CEO’S STATEMENT The year 2023 was a jubilee year for VILVI GROUP, we celebrated the 30 th anniversary of our activity, we are very proud that despite various fluctuations in the markets, it was a year of development, new projects and good results for our Group. Good performance indicators allow us to continue planning investments in advanced technologies and innovations, maintaining the Group’s future direction, as well as to focus on modernization, successful implementation of new projects, and improvement of conditions for employees. The year 2023 in the history of VILVI GROUP will mark the year in which the Latvian company SIA Baltic Dairy Board, which specializes in the production and trade of ingredients for dairy products and the separation of milk and whey, finally joined our family of companies. It was last year that the final buyout of the company’s shares took place and a firm step was taken outside the borders of Lithuania. In 2023, a decision was made to invest EUR 50 million in this Latvian company and to build a new cheese factory. This is the largest investment project in the entire 31-year history of the operation, and the project is planned to be implemented until 2027. We continue to move decisively in the direction of biotechnology. In 2023, significant investments in new technologies at Vilkyškių Pieninė will help us to further expand the range of milk ingredients produced. We are also actively working to achieve a significant change in human nutrition and maintaining good health. In cooperation with the scientists of the Lithuanian University of Health Sciences, we created an innovative product for the elderly – a food supplement made from whey protein concentrate powder. It is a unique multicomponent composition of whey proteins, macronutrients, micronutrients, water- and fat-soluble vitamins, which helps to prevent senile frailty syndrome and insufficient nutritional status. VILVI GROUP ANNUAL REPORT 2023 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS EBITDA of 2023 amounts to 21.0 million euros. Investments of 10 million euros. Vilkyškių pieninė is recognized as one of the most sustainable brands in Lithuania. In the SB Insight Sustainable Brand Index study, it ranked second in the food and beverage category for the second consecutive year (in 2022 – 2 nd place, in 2021 – 3 rd place). VILVI GROUP’s parent company AB Vilkyškių pieninė acquired the remaining 30% share of SIA Baltic Dairy Board and now owns 100% of the shares. It is a Latvian company that specializes in the production and trade of ingredients for dairy products and the separation of milk and whey. In order to conserve natural resources and reduce greenhouse gas emissions into the environment, solar power plants were started to be installed on the roofs of factories. In 2023, a solar power plant was installed on the roofs of UAB Kelmės pienas with its own funds, partial EU financing was received for projects on the roofs of AB Vilkyškių pieninė and AB Modest. The food safety and quality certificates were updated: - AB Vilkyškių pieninė and AB Modest had their Halal and FSSC 22000 certificates extended. - AB Kelmės pieninė had its Halal, Kosher and FSSC 22000 certificates extended; - UAB Kelmės pienas was awarded the certificate of organic production and labeling of organic products, the IFS Food Version 7 certificate was extended; - SIA Baltic Dairy Board extended Halal and organic production certificates; In order to save water, reduce the amount of wastewater AB Vilkyškių Pieninė started implementing a technology that cleans permeate water so that it can be used again in production processes. Due to them, the amount of wastewater is reduced by 30%. The project is partially financed by EU funds. AB Vilkyškių pieninė has started construction of a new workshop based on biotechnology, which will allow to expand the range of milk ingredients produced by VILVI GROUP. 7 HIGHLIGHTS 2023 The long-standing cooperation with the basketball club Žalgiris was extended The long-term partnership has become an integral part of both brands. Vilkyškių products with a black cat have been marked with the Žalgiris logo for several years. By purchasing Vilkyškių black cat products, the team’s fans directly contribute to the Lithuanian Champions Club. VILVI GROUP – the main partner of Tauragė – Lithuanian Capital of Culture 2023. This cooperation provided even more opportunities to organize top-level events and to ensure that Tauragė is famous as a modern city that appreciates its history and is open to residents and guests from all over the world. As one of the largest companies in the region, we understand our responsibility to contribute to the cultural growth and development of the community. In cooperation with the scientists of the Lithuanian University of Health Sciences (LSMU), an innovative product for the elderly was created – a food supplement with a unique composition made from whey protein concentrate powder, which helps prevent senile weakness syndrome and insufficient nutritional status. A decision was made to invest EUR 50 million in the construction of a new cheese factory in Latvia, at SIA Baltic Dairy Board. In 2023, VILVI GROUP made a significant contribution to the activities, sports and cultural events of communities in the Tauragė region. Financial support amounted to more than EUR 30 thousand. The Vilkyškių less sugar line of fresh dairy products, introduced to the market in 2022, has been supplemented with new products: yogurt with mango, passion fruit and Spanish sage Chia seeds as well as caramelized banana flavored cottage cheese bar. VILVI GROUP actively participated in international exhibitions: Gulfood 2023 and Gulfood Manufacturing 2023 (Dubai, UAE), Anuga (Cologne, Germany), Food Ingredients (Frankfurt, Germany), Dubai Muscle Show (Dubai, UAE). A step into a new category with fresh dairy products: - Vilkyškių cream cheese was introduced to the market; - VILVI yogurt bars were presented at the Anuga exhibition. In order to effectively manage innovation implementation projects, a new investment project management unit was created. VILVI GROUP ANNUAL REPORT 2023 The Supervisory board was formed and started its work. OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS 8 BUSINESS ENVIRONMENT VILVI GROUP HISTORY AND STRUCTURE ............ 9 MARKETS AND ACHIEVEMENTS .......... 11 STRATEGY AND TARGETS ......... 12 SOLUTIONS FOR CUSTOMERS ......... 13 VILVI GROUP ANNUAL REPORT 2023 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS 1993 2000 2006 2008 2010 2011 2013 2015 2016 2017 2018 2019 2020 AB Vilkyškių pieninė was founded AB Modest was acquired AB Pieno logistika was founded A new factory for dry milk products has started operations 2021 A 70% share package of SIA Baltic Dairy Board was acquired 2022 2023 VILVI GROUP HISTORY AB Kelmės pieninė was acquired ISO 9001 and ISO 22000 certificates were issued to AB Vilkyškių pieninė AB Vilkyškių pieninė became a listed company Participation in international exhibitions has begun The VILVI brand has been used for export Halal certificates were issued to AB Vilkyškių pieninė and AB Modest for the first time FSSC 22000 certificates were issued to AB Vilkyškių pieninė and AB Modest for the first time Vilkyškių pieninė recognized as Brand of the Year Lithuanian Export Prize 2017 was awarded to AB Vilkyškių pieninė ISO 22000/FSSC 22000 and Halal certificates were issued to AB Kelmės pieninė for the first time AB Vilkyškių pieninė Corporate Group starts operating as VILVI GROUP AB Vilkyškių pieninė has been granted an export license to the EU UAB Kelmės pienas was founded The remaining 30% of the shares of SIA Baltic Dairy Board was acquired Vilkyškių pieninė was recognized for the first time as one of the most sustainable brands in Lithuania AB Kelmės pieninė was excellently evaluated in the social audit SMETA 9 VILVI GROUP ANNUAL REPORT 2023 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS 10 VILVI GROUP STRUCTURE VILVI GROUP ANNUAL REPORT FOR 2023 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS AB Vilkyškių pieninė AB Modest AB Kelmės pieninė SIA Baltic Dairy Board AB Pieno logistika • Parent company. • Established in 1993. • Production of hard daily cheeses, cream, processing of whey. • Subsidiary. • Established in 1992, since 2006 it has been part of VILVI GROUP. • Production of moldy, melted, smoked, mozzarella cheeses, cream. • Subsidiary. • Established in 1993, since 2008 it has been part of VILVI GROUP. • Production of dry milk products (skimmed milk, permeate, WPC80 and whey flour). UAB Kelmės pienas • Subsidiary of AB Kelmės pieninė. • Established in 2020, activities are carried out from 1 March 2021. • Production of fresh dairy products. • Subsidiary. • Established in 2008, since 2021 it has been part of VILVI GROUP. • Breakdown of milk/whey, production of dairy ingredients. • Subsidiary of UAB Kelmės pienas since 2022. • Established in 2013. • Building rental, milk collection and transportation. 11 EMPLOYEES 919 MASTERY SINCE GROUP’S NUMBERS 1934 6 EXPORT COUNTRIES 2023 >300 EPORT SHARE 2023 83% FACTORIES 5 THE COMPANY WAS FOUNDED IN 1993 There are numerous places all over the world where people have limited access to quality dairy products, well- rounded nutrition, and taste experiences, which Lithuanians have been enjoying for many years. Together with our products we spread the belief that ability to enjoy natural and wholesome foods makes the world a better place. EXPERIENCE 30 years AREA OF PRODUCTION AND ADMINISTRATIVE PREMISES >19,000 sq. m. >60 CUSTOMERS MARKETS AND ACHIEVEMENTS VILVI GROUP ANNUAL REPORT 2023 COMPANIES OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS © Australian Bureau of Statistics, GeoNames, Microsoft, Navinfo, Open Places, OpenStreetMap, TomTom, Zenrin Powered by Bing Our goal is to be a leader in innovation in the dairy sector and to create maximum value from a drop of milk. We aim at making higher quality dairy products and ingredients more available around the world to give people more opportunities to enjoy them wherever they are. All over the world, there are many places where people have limited access to quality dairy products, wholesome nutrition and taste experiences, while Lithuanians have been enjoying it for years. Based on our knowledge and the latest technologies, we offer solutions to countries and markets where the need for an affordable and authentic dairy experience is still very challenging. Our roots remain the basis of our success - lush meadows of the Nemunas, tasty and high-quality milk and the desire that as many people as possible can enjoy authentic experiences of dairy products. Along with our products, we also share the belief that the opportunities provided to enjoy natural and wholesome foods contribute to the creation of a better world. Environment in which we operate VILVI GROUP is an international market participant, therefore the business is affected by both the global environment and changes in it, as well as demand and the competitive environment in local markets. Environmental challenges of 2023: • Dairy products remain an important part of the diet, consumption is growing in Asia and other developing markets; • Consumption of alternative herbal products is growing in Western markets; • The importance of sustainability is increasing in the world, a lot of attention is paid to climate change in the European Union; • The rapidly changing legal environment increases business responsibility in ESG areas and requires rapid changes; • The expectations and requirements of European customers in the areas of sustainability are increasing; • The impact of the war in Ukraine on people’s psychological and emotional health is still felt; • New unrest in the world (the war in Israel and the Gaza Strip, the blockade of the Red Sea logistics routes) encourages us to be constantly ready for new challenges. Our vision We aim at making higher quality dairy products and ingredients more available around the world to give people more opportunities to enjoy them wherever they are. Our goals Sales of finished milk products in the nearest markets Ingredients and product solutions for businesses worldwide Search for innovation and new solutions Challenges in the regions of operation We operate in Tauragė, Šiauliai and Bauska (LV) regions. Carrying out activities in the regions is favorable because we can be closer to each other, get to know and understand each other better. But we also face challenges when we are looking for new employees, especially highly qualified specialists. We constantly evaluate the problems of the operational regions, actively search for and find solutions for attracting employees. For more information, see Recruiting and retaining employees, p. 75. Climate change and adaptation challenges In the European Union, great attention is paid to the Green Course, and ambitious climate change mitigation goals are set. The requirements for business are growing and changing very rapidly. This requires both a quick reaction and additional investments, which will only increase in the future. Essential challenges for VILVI GROUP: • Environmental impact assessment and setting impact reduction goals; • Assessment of climate change scenarios and adaptation to the possible impact on places of activity and the Group’s activities; • Climate change adaptation planning and management. In the short term, a lot of additional human and financial resources are required to respond to the changing regulation, but the largest part of the resources is planned in the long term, i.e. implementing a real change, increasing the efficiency and circularity of resource use, in order to switch to renewable energy. 12 OUR STRATEGY AND GOALS Our values Responsibility and respect Responsiveness to needs Curiosity Better than yesterday VILVI GROUP ANNUAL REPORT 2023 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS • Special solutions according to customer needs • Private labels VILVI GROUP ANNUAL REPORT 2023 13 SOLUTIONS FOR CUSTOMERS Products and ingredients for business Brands Solutions for business • Cheese and cheese products Mozzarella / Cagliata / Tilsit / Gouda / Edam • Dry whey and milk products Whey protein concentrate 80 / Whey permeate / Sweet whey powder / Skimmed milk powder / Lactose / Protein for athletes • Fresh milk products Butter / Cream / Sour cream / TRM, GRM OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS RESULTS VILVI GROUP RESULTS ......... 15 AB VILKYŠKIŲ PIENINĖ RESULTS ......... 17 RAW MATERIALS ........ 18 BUSINESS SEGMENTS ........ 19 SALES ........ 21 INFORMATION ON SHARES AND BONDS ….… 22 14 VILVI GROUP ANNUAL REPORT 2023 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS 15 OVERVIEW OF VILVI GROUP RESULTS EUR 210.5 million consolidated sales turnover EUR 14.7 million consolidated net profit EUR 21 million in consolidated EBITDA EUR 17 mln. in taxes paid to the state in 2023 (for 2022) >350 thousand tons of purchased milk EUR 10 million in development and supporting investments during the reporting period VILVI GROUP ANNUAL REPORT 2023 83% of exports to > 60 countries Despite a 10,1% decrease in sales turnover in 2023, VILVI GROUP’s consolidated net profit increased to EUR 14.7 million and was 15.4% higher than in 2022. During the reporting period, the Group’s EBITDA increased by 8,9% and amounted to EUR 21.0 million. The growth of the Group’s EBITDA and net profit was mainly influenced by the processing activities of purchased whey products, which are not directly related to milk processing. See the comparison of other indicators of the Company and the Group in p.16-17 respectively. Group revenue, million EUR Group net profit, million EUR Group EBITDA, million EUR 2019 2020 2021 2022 2023 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS PERFORMANCE RESULTS OF VILVI GROUP 2019 2020 2021 2022 2023 Change in 2023/2022 Change in 2023/2022 Revenue, thousand EUR 114,581 120,873 156,045 234,083 210,536 -10% 50% Gross profit, thousand EUR 7,096 10,629 17,196 24,274 27,687 14% 41% Gross profit margin, % 6.2% 8.8% 11.0% 10.4% 13.2% 3 p.p. -1 p.p. EBITDA, thousand EUR 3,698 8,271 14,122 19,280 21,003 9% 37% EBITDA margin, % 3.2% 6.8% 9.0% 8.2% 10.0% 2 p.p. -1 p.p. Operating profit (EBIT), thousand EUR -206 4,332 7,134 14,921 16,778 12% 109% EBIT margin, % -0.20% 3.60% 4.60% 6.4% 8.0% 2 p.p. 2 p.p. Profit before tax (EBT), thousand EUR -1,448 3,142 6,156 14,180 15,439 9% 130% EBT margin, % -1.3% 2.6% 3.9% 6.1% 7.3% 1 p.p. 2 p.p. Net profit (loss), thousand EUR -446 3,872 5,500 12,699 14,652 15% 131% Net profit margin, % -0.4% 3.2% 3.5% 5.4% 7.0% 2 p.p. 2 p.p. Net profit per share, Eur -0.04 0.32 0.46 1.06 1.23 15% 131% The ratio of the share’s market price and profit per share – P/E ratio - 7.59 7.95 4.50 4.27 -5% -43% Return on equity (ROE), % -1.4% 11.7% 14.8% 28.4% 26.4% -2 p.p. 14 p.p. Return on assets (ROA), % -0.6% 5.0% 6.7% 13.6% 14.3% 1 p.p. 7 p.p. Return on capital employed (ROCE), % -0.4% 10.1% 11.7% 22.0% 20.5% -2 p.p. 10 p.p. Debt ratio 0.60 0.55 0.55 0.49 0.43 -13% -10% Debt to equity ratio 0.88 0.62 0.61 0.46 0.33 -28% -25% Liquidity ratio 0.72 0.64 1.24 1.46 1.77 21% 17% Asset turnover 1.47 1.57 1.77 2.38 1.97 -17% 34% Capital to asset ratio 0.40 0.45 0.45 0.51 0.57 12% 13% Financial debts, thousand EUR 27,483 21,660 24,163 22,929 20,185 -12% -5% Net debt, thousand EUR 27,185 21,479 23,364 22,308 11,460 -49% -5% Net debt/EBITDA 7.35 2.60 1.65 1.16 0.55 -53% -30% VILVI GROUP ANNUAL REPORT 2023 16 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS In addition to the main indicators defined and applied according to the International Financial Reporting Standards (IFRS), AB Vilkyškių pieninė also presents in its financial statements financial performance indicators not provided for by IFRS – alternative performance indicators (API), which, in the Company’s assessment, are important and provide additional information to investors and other users of financial reporting. Alternative performance indicators should be treated as additional information prepared on the basis of IFRS. Taking into account the guidelines published by the European Securities and Markets Authority on alternative performance indicators (ESMA/2015/1415), AB Vilkyškių pieninė presents comparative historical API data. Information about the calculation of AVR and what useful information they provide is provided in the section Additional information page 144. PERFORMANCE RESULTS OF THE PARENT COMPANY AB VILKYŠKIŲ PIENINĖ 2019 2020 2021 2022 2023 Revenue, thousand EUR 140,492 148,738 196,442 288,643 245,072 Gross profit, thousand EUR 325 913 9,031 17,195 9,013 Gross profit margin, % 0.2% 0.6% 4.6% 6.0% 3.7% EBITDA, thousand EUR -2,504 2,994 13,079 15,530 4,500 EBITDA margin, % -1.8% 2.0% 6.7% 5.4% 1.8% Operating profit(EBIT), thousand EUR -4,322 1,394 11,450 13,893 2,912 EBIT margin, % -3.1% 0.9% 5.8% 4.8% 1.2% Profit before tax (EBT), thousand EUR -5,061 640 11,194 13,733 2,574 EBT margin, % -3.6% 0.4% 5.7% 4.8% 1.1% Net profit (loss), thousand EUR -4,059 1,371 10,774 12,599 2,527 Net profit margin, % -2.9% 0.9% 5.5% 4.4% 1.0% Net profit per share, Eur -0.34 0.11 0.90 1.05 0.21 The ratio of the share’s market price and profit per share – P/E ratio - - - - - Return on equity (ROE), % -14.6% 5.2% 33.5% 29.9% 5.4% Return on assets (ROA), % -7.7% 2.8% 19.9% 19.4% 3.6% Return on capital employed (ROCE), % -15.6% 4.5% 28.3% 27.7% 5.7% Debt ratio 0.49 0.44 0.37 0.33 0.34 Debt to equity ratio 0.44 0.27 0.19 0.12 0.11 Liquidity ratio 0.83 0.99 1.47 1.87 1.58 Asset turnover 2.77 3.05 3.31 4.10 3.49 Capital to asset ratio 0.51 0.56 0.63 0.67 0.66 Financial debts, thousand EUR 11,287 7,432 6,941 5,665 5,085 Net debt, thousand EUR 11,056 7,277 6,362 5,340 2,231 Net debt/EBITDA -4.42 2.43 0.49 0.34 0,50 VILVI GROUP ANNUAL REPORT 2023 17 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS MAIN RAW MATERIALS In 2023, 352 thousand tons of milk were purchased according to the basic indicators, which is 2.6% more than in 2022. The price of milk in 2023 decreased by 25.9% compared to 2022 (in 2022, the level of milk purchase prices was historically high due to the increased selling prices of dairy products in the markets, which was caused by the increased demand in the export and local markets). 2019 2020 2021 2022 2023 Purchased basic indicators milk, in tons 268,555 287,370 314,540 342,953 351,832 Milk price, EUR/t 255.9 246.2 287.9 422.7 313,3 RAW COW’S MILK Raw cow’s milk is the main raw material for the products produced by AB Vilkyškių pieninė, AB Modest and UAB Kelmės pienas. According to the calculations of AB Vilkyškių pieninė, the Group occupies about 20% of the domestic market in terms of the amount of milk processed, the third place among producers, after AB Rokiškio sūris and AB Žemaitijos pienas. In 2023, Group companies bought this raw material from Lithuanian and Latvian milk suppliers. Almost a third of the milk was imported. VILVI GROUP ANNUAL REPORT 2023 18 2019 2020 2021 2022 2023 Purchased whey concentrates from VILVI GROUP companies, in tons 28,564 40,641 43,593 60,297 64,692 Purchased whey concentrates from other suppliers, in tons 20,886 30,999 35,730 37,075 33,908 In 2023, 99 thousand tons of whey concentrates were purchased, which is 1.3% more than in 2022. MILK WHEY The main raw material of AB Kelmės pieninė is WPC and whey permeate concentrates, which are obtained from whey by breaking it down and concentrating it. Whey is a secondary product left over from cheese production. Most of the raw materials needed in the production of dry milk products are supplied by VILVI GROUP companies, the other part is purchased from suppliers in Latvia and Estonia. Milk purchased by VILVI GROUP: Raw material purchased by AB Kelmės pieninė: OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS 255,9 246,2 287,9 422,7 313,3 -5 0 50 150 250 350 450 2019 2020 2021 2022 2023 thousand tons Pu rcha sed basic indicators milk, thousand tons Milk price, Eur/tons 0 20 40 60 80 100 120 2019 2020 2021 2022 2023 thousand tons Whey concentrates were bought from VILVI GROUP companies from other suppliers • Cheese, cheese products and other – cheese, cheese products, cream, etc. produced by the Company and its subsidiaries. • Fresh milk products – fresh dairy products produced by the subsidiary company (kefir, yogurts, sour cream, butter, curd products, etc.); • Dry milk products – WPC, MPC, skimmed milk, permeate and whey flour produced by subsidiaries; VILVI GROUP OPERATING SEGMENTS 2019 2020 2021 2022 2023 Change in 2023/2022 Change in 2022/2021 Cheese, cheese products and other 36,095 39,187 43,970 47,575 48,809 2.6% 8.2% Fresh milk products 12,277 12,696 14,048 15,174 15,741 3.7% 8.0% Dry milk products 15,310 19,006 21,416 21,886 22,486 2.7% 2.2% Volumes of VILVI GROUP’s products for sale by segments, in tons: In 2023, the production of cheese, cheese products and other increased by 2.6% compared to 2022. 15.7 thousand tons of fresh milk products were produced, i.e. 3.7% more than in 2022. 22.5 thousand tons of dry milk products were produced in 2023 – production increased by 2.7%. compared to 2022. 2019 2020 2021 2022 2023 Chnage in 2023/2022 Change in 2022/2021 Cheese, cheese products and other 81,909 84,134 109,199 170,589 139,603 -18.2% 56.2% Fresh milk products 17,803 16,252 18,710 26,864 32,962 22.7% 43.6% Dry milk products 14,869 20,487 28,136 36,630 37,971 3.7% 30.2% Total: 114,581 120,873 156,045 234,083 210,536 -10.1% 50.0% VILVI GROUP income from main products by segments, thousand EUR: VILVI GROUP ANNUAL REPORT 2023 19 VILVI GROUP revenue from main products by segments. Operting segments: Cheese, cheese products and other 66% Fresh milk products 16% Dry milk products 18% 2023 Cheese, cheese products and other 73% Fresh milk products 11% Dry milk products 16% 2022 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Cheese, cheese products and others The total turnover of the segment in 2023 was 18,2% lower than in 2022. This was influenced by a sharp drop in export prices at the beginning of the reporting year, which, according to market experts, was a response to the historically intense price growth in 2022. In the first quarter of 2023, cheese prices fell by an average of 20%. This level of prices, fluctuating in short periods, remained until the fourth quarter of the year, when the markets again observed price growth. The decrease in turnover was partially compensated by increased sales volume (10% more than in 2022). The turnover of industrial cream fell the most in this segment (27% lower than in 2022). Although the amount sold in 2023 increased by 9% compared to the previous year, the average price of cream in 2023 was 27% or 0.84 EUR/kg lower. 17,8 16,3 18,7 26,9 33,0 turnover, mln. EUR Fresh milk products In the reporting period, turnover increased by 22,7% compared to 2022. More than 80% of fresh milk products were sold in the domestic market, where prices were higher compared to 2022. Also, in 2023, more products were sold, such as curd cheese bars, yogurts, butter – their added value is higher than other products, so this also affected the overall sales growth. Dry milk products In 2023, the volume of production and sales increased by 19.9% in quantitative terms compared to 2022. However, the sales turnover grew slightly – 3,7% compared to last year. This was influenced by the decrease in prices due to the surplus of products in the market. VILVI GROUP generates the most revenue in this segment from the sale of whey proteins - about 60% (although in quantitative terms it accounts for only 13%). In 2023, whey protein prices on the market fell by more than 30%, as a result of which whey protein flour was sold 1.3 thousand tons more than in 2022 (+4 p.p.). 0 5 10 15 20 25 30 35 40 2019 2020 2021 2022 2023 Quantity, thousand tons Turnover, million EUR ANALYSIS OF CHANGES IN SALES REVENUE IN 2023 BY BUSINESS SEGMENTS VILVI GROUP ANNUAL REPORT FOR 2023 20 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS 0 30 60 90 120 150 180 2019 2020 2021 2022 2023 54,3 57,8 63,3 92,2 84,4 27,6 26,3 43,5 74,8 54,6 2,5 3,6 0,6 million Eur Ch ees e and c heese products Cream Others VILVI GROUP’S SALES BY MARKETS In 2023, VILVI GROUP’s sales revenue in export markets decreased by 16.1% compared to 2022. Exports accounted for 83% of the Group’s total sales in 2023. This is 6 p.p. lower than in 2022. The drop in sales revenue both in the European Union and in other foreign countries is associated with a general decrease in the market prices of cheese and dry milk products. The structure of sales regions and sales channels remained stable, sufficiently diversified, not posing any risk due to economic or political influence. In 2023, exports took place to more than 60 countries, but the most important export markets of VILVI GROUP continue to be Poland, Holland, Italy, Germany, Saudi Arabia. In 2023, as every year, an active search for new markets was carried out - successfully launched in the Cuban market. In 2023, no products were exported to countries subject to EU sanctions. In 2023, sales in Lithuania increased by 37% compared to the previous year. This was influenced both by the increase in the prices of fresh dairy products in the country and by the larger quantities of production sold. 2019 2020 2021 2022 2023 Change in 2023/2022 Change in2022/2021 European Union 61,591 63,745 80,647 132,771 103,079 -22.4% 64.6% Lithuania 22,526 20,234 21,748 26,751 36,624 36,9% 23.0% Other countries 30,464 36,894 53,650 74,561 70,833 -5.0% 39.0% Total revenue 114,581 120,873 156,045 234,083 210,536 -10.1% 50.0% 0 30 60 90 120 150 180 210 240 2019 2020 2021 2022 2023 54% 20% 26% 57% 49% 53% 17% 30% 11% 17% 52% 14% 34% 32% 34% Million Eur Other countries Lithuania European Union VILVI GROUP ANNUAL REPORT 2023 21 Sales structure OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Sales revenues by markets, kEur: 22 INFORMATION ON SHARES • The name of the securities is AB Vilkyškių pieninė ordinary registered shares. • The number of securities admitted to trading is 11,943,000 units. • The nominal value of one share is EUR 0.29. • The securities issued by the company are included in the Official List of AB NASDAQ OMX Vilnius. • Securities ISIN code – LT0000127508, symbol – VLP1L. • The company’s shares have been included in the trading list since 17 May 2006. The securities of the company’s subsidiaries are not publicly traded.. Information on shares AB Vilkyškių pieninė share price change and turnover in 2021-2023. Comparison of AB Vilkyškių pieninė share prices and AB Nasdaq OMX Vilnius indices in 2021-2023. 0% 50% 100% 150% 200% 250% 2021/01 2021/06 2021/11 2022/04 2022/09 2023/02 2023/07 2023/12 OMX Vilnius VLP1L VILVI GROUP ANNUAL REPORT 2023 2019 2020 2021 2022 2023 Opening price, EUR 2.09 2.26 2.46 3.67 4,79 Highest price, EUR 3.13 2.48 3.68 4.91 5,36 Lowest price, EUR 2.07 1.39 2.40 3.00 4,12 Average price, EUR 2.47 1.93 2.90 4.12 4,88 Last price, EUR 2.24 2.46 3.66 4.79 5,24 Turnover, units 762,071 1,138,435 1,060,431 637,222 337,974 Turnover, mln. EUR 1.88 2.20 3.08 2.63 1.65 Capitalization, mln. EUR 26.75 29.38 43.71 57.21 62.58 0 20 40 60 80 100 120 0,00 1,00 2,00 3,00 4,00 5,00 6,00 2021/01 2021/08 2022/03 2022/10 2023/05 2023/12 Share price, EUR Turnover, thsd., EUR OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS VILVI GROUP ANNUAL REPORT 2023 23 MANAGEMENT REPORT MANAGEMENT MODEL ............. 24 AUTHORIZED CAPITAL STRUCTURE AND SHAREHOLDERS .............. 25 GENERAL MEETING OF SHAREHOLDERS ............... 26 SUPERVISORY BOARD ............... 27 BOARD AND ITS COMMITTEES ............... 28 KEY MANAGERS ............... 32 GOVERNANCE PRINCIPLES ............... 34 DIVIDENDS .............. 35 REMUNERATION REPORT .............. 38 RISK MANAGEMENT.............. 40 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS General Meeting of Shareholders The General Meeting of Shareholders is the highest body of the parent company, which makes decisions based on the Law on Companiesof the Republic of Lithuania and the company’s articles of association. More in p. 26. Supervisory board The Supervisory board is a collegial supervisory body of the Company, which represents the shareholders and performs the functions of supervision and control of the Company’s activities. The Supervisory board of AB Vilkyškių pieninė consists of 3 members, elected for a four-year term. The Supervisory board is elected by the General Meeting of Shareholders. More in p. 27. CEO The head of the company is the CEO, who organizes the company’s activities, hires and fires employees, concludes and terminates employment contracts with them, acts on behalf of the company and unilaterally concludes transactions, except for the cases provided by the Company’s articles of association and legal acts. In his/her activities, the CEO is guided by laws, other legal acts, the company’s articles of association, the decisions of the General Meeting of Shareholders, the decisions of the Supervisory board and the Board. The CEO is elected and dismissed by the company’s Board. MANAGEMENT MODEL Management bodies of VILVI GROUP’s parent company AB Vilkyškių pieninė General Meeting of Shareholders Supervisory board Board CEO Committees Committees The Board forms the Appointments and Remuneration Committee and approves the committee’s regulations. The General Meeting of Shareholders elects members of the Audit Committee and approves the regulations of the Audit Committee. More in p. 31. Management bodies of subsidiaries: AB Kelmės pienė, UAB Kelmės pienas, AB Modest and SIA Baltic Dairy Board: General Meeting of Shareholders Board Head of the Company The sole management body of AB Pieno logistika is the director. Implementation of shareholder rights Supervision and control functions Activity organization function Management function Advisory and supervisory functions Board The Board is a collegial management body of the Company, which performs the function of company management. The Board of AB Vilkyškių pieninė consists of 6 Board members. Board members. The Supervisory board elects the members of the Board for a four-year term. More in p. 28. VILVI GROUP ANNUAL REPORT FOR 2023 24 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS The total number of shareholders on 31-12-2023 was 1,685. Swisspartners Versicherung AG Zweigniederlass ung Österreich 60,4% Multi Asset Selection Fund 17,0% Other small shareholders 22,6% Distribution of shareholders of AB Vilkyškių pieninė by legal entity – 18.2% natural persons, 81.8% - legal entities. AB Vilkyškių pieninė 99,7% Other small shareholders 0.3% AB Modest AB Vilkyškių pieninė AB Vilkyškių pieninė 100% AB Kelmės pieninė AUTHORIZED CAPITAL STRUCTURE AND SHAREHOLDERS As of 31 December 2023, G. Bertašius did not have shares in Vilkyškių pieninė AB, but he owns 60.4% of the votes in the General Meeting of Shareholders (a joint life insurance policy was concluded in the insurance company Swisspartners Versicherung AG Zweigniederlassung Österreich, which has taken over ownership rights to 7,213,680 shares of AB Vilkyškių pieninė). AB Kelmės pieninė 100% UAB Kelmės pienas AB Vilkyškių pieninė 100% SIA Baltic Dairy Board VILVI GROUP ANNUAL REPORT 2023 25 Company name Type of shares Number of shares Nominal value of 1 share, EUR Total nominal value, EUR Largest shareholders owning and controlling more than 5% of the authorized capital AB Vilkyškių pieninė Ordinary registered shares 11,943,000 0.29 3,463,470 Swisspartners Versicherung AG Zweigniederlassung Österreich – 60,4%; Multi Asset Selection Fund – 17,0%. AB Kelmės pieninė Ordinary registered shares 2,457,070 0.29 712,550 AB Vilkyškių pieninė – 100%. AB Modest Ordinary registered shares 5,617,118 0.29 1,628,964 AB Vilkyškių pieninė – 99.7%. AB Pieno logistika Ordinary registered shares 371,333 0.29 107,687 UAB Kelmės pienas – 58,9%, UAB Kelmės pienas Ordinary registered shares 2,500 1.00 2,500 AB Kelmės pieninė – 100%. SIA Baltic Dairy Board Ordinary registered shares 777,778 1.00 777,778 AB Vilkyškių pieninė – 100%. AB Pieno logistika OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS UAB Kelmės pienas 58,9% Other small shareholders 41,1% The shareholders of AB Vilkyškių pieninė exercise their rights during the General Meeting of Shareholders. Notices about the convening of the General Meeting of Shareholders, issues to be resolved at the meeting and decisions of the General Meeting of Shareholders are published on the company’s website General Meeting of Shareholders – VILVI GROUP. Meetings are also reported on the Nasdaq Vilnius stock exchange. GENERAL MEETING OF SHAREHOLDERS AND SHAREHOLDER RIGHTS During the reporting period, the Company’s shareholders had equal rights (property and non-property), provided for by laws, other legal acts and the Company’s articles of association. Neither shareholder had any special control rights. During the reporting period, the Company’s management bodies created suitable conditions for the implementation of shareholders’ rights. There are no restrictions on voting rights in the Company. Shareholders have the following non-property rights: • To participate and vote in General Meetings of Shareholders; • To receive information about the Company, as stipulated in Part 1 of Article 18 of the Law on Companies of the Republic of Lithuania; • To apply to the court with a claim for compensation for damage to the Company caused by the Company’s manager not performing or improperly performing his/her duties, as well as in other cases established by law; • Other non-property rights provided for by law. Shareholders have the following property rights: • To receive a share of the Company’s profit (dividend); • To receive a share of the liquidated Company’s assets; • To receive shares for free if the authorized capital is increased from the Company’s funds, except for the exceptions established by the Law on Companies; • With the pre-emption right to purchase shares or convertible bonds issued by the Company, except for the case when the General Meeting of Shareholders decides to revoke this right for all shareholders in accordance with the procedure established by the Law on Companies; • To transfer all or part of the shares to the ownership of other persons in accordance with the procedure established by the Law on Companies; • Other property rights provided for by law. Competence of the General Meeting of Shareholders • Changing the articles of association of the parent company; • Electing and recalling the members of the Supervisory board of the parent company, determining the remuneration for the independent members of the Supervisory board; • Making a decision on the approval of the Remuneration Policy; • Approval of the annual financial statements of the parent company and the set of annual consolidated financial statements of the Group; • Approval of the parent company’s annual report and the Group’s consolidated annual report; • Adoption of a decision on the distribution of profit (losses) and on the allocation of dividends for a period shorter than the financial year; • Making a decision on the establishment, use, reduction and destruction of reserves; • Making a decision on increasing or decreasing the authorized capital of the parent company; • Adoption of decisions on restructuring, reconversion, reorganization, liquidation of the parent company; • Making a decision on the acquisition of the company’s own shares; • Selecting and recalling an auditor or an audit firm to audit a set of annual financial statements, setting the terms of payment for audit services. VILVI GROUP ANNUAL REPORT FOR 2023 26 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Valdyba SUPERVISORY BOARD The main functions and competences of the Supervisory board: • Consideration and approval of the operating strategy of the parent company and Group companies, as well as analysis and evaluation of information on the implementation of the operating strategy, presentation of this information to the ordinary General Meeting of Shareholders; • Electing and recalling the Board members; • Adoption of decisions on transactions with related parties, as stipulated in Part 2 of Article 37 of the Law on Companies of the Republic of Lithuania; • Supervision of the activities of the Board and the manager; • Providing feedback and suggestions on the set of annual financial statements, the profit (loss) distribution project and the company’s annual report to the General Meeting of Shareholders; • Submitting proposals to the Board and the company’s manager to revoke their decisions that contradict laws and other legal acts, the company’s articles of association or the decisions of the General Meeting of Shareholders; • Providing feedback and proposals on the draft Remuneration Policy and the draft remuneration report to the eneral Meeting of Shareholders; • The Supervisory board also examines other issues within its competence, specified in the articles of association of the parent company and the Law on Companies of the Republic of Lithuania. Name, Surname, position Education Information about the main workplace and participation in the management of other companies: Owned share of the company’s capital and votes as of 31-12-2023, % Algimantas Lekevičius Chairman of the Supervisory board since 28 April 2023. aukštasis, inžinierius Project Manager of the Issuers Department of the Markets and Treasury Department of AB Šiaulių bankas 2000/0.02% Chairman of the Užupis Community Senate Marijana Juškienė Member of the Supervisory board since 28 April 2023. higher education, engineer- mathematician - - Martynas Bertašius Member of the Supervisory board since 28 April 2023. higher education, economics He as been working at AB Vilkyškių pieninė since 2016. - Manager and actual member of ŪKB „RELI“ (company code 306286230, address: Kęstučio str. 13, LT-99182 Šilutė) Supervisory board’s activities in 2023 Two meetings of supervisory board have occurred in 2023. Requires quorum was reached in both meetings. During the meetings head of supervisory board of AB Vilkyškių pieninė was elected, board’s work regulations and members of management board were approved. VILVI GROUP ANNUAL REPORT FOR 2023 27 Members of the supervisory board of AB Vilkyškių pieninė The Supervisory board is a collegial body of the Company, represents the shareholders and performs the functions of supervision and control of the Company’s activities. The supervisory board is elected by the General Meeting of Shareholders for four years. The Supervisory board elects the chairman of the Supervisory board from among its members. OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Other functions of the Board: • The Board elects and dismisses the CEO, determines working conditions and remuneration, following the Remuneration Policy, as established in Article 373 of the Law on Companies of the Republic of Lithuania; • Determines the information that is considered the company’s commercial (production) secret and confidential information; • Analyzes and evaluates the material provided by the company’s CEO about the organization of the company’s activities, financial condition, performance results, etc.; • Analyzes and evaluates the company’s set of annual financial statements, profit (loss) distribution and Remuneration Policy projects and together with feedback and proposals on them and the company’s annual report submits them to the Supervisory board and the General Meeting of Shareholders; • Analyzes and evaluates the project of the decision on the allocation of dividends for a period shorter than the financial year and for its adoption the compiled set of interim financial statements, which, together with feedback and proposals on them and the company’s interim report, are submitted to the Supervisory board and the General Meeting of Shareholders; • Resolves other issues stipulated in the company’s articles of association. The Board considers and approves the following: • The company’s interim and annual report; • The management structure of the company and the positions of employees; • Positions to which employees are recruited by tender procedure; • Other issued that provided for in the procedure established by the Law on Companies of the Republic of Lithuania and the Company’s Articles of Association. BOARD The Board is a collegial management body of the Company. The Board of AB Vilkyškių pieninė consists of 6 Board members. Members of the Board, Supervisory board are elected for a four-year term in accordance with the procedure established by the Law on Companies of the Republic of Lithuania. The chairman of the Board is elected by the Board from among its members for a four-year term. The Company does not have rules governing the election of the members to the Board of the Company. In its activities, the Company is guided by the Law on Companies of the Republic of Lithuania, the Company’s Articles of Association and other legal acts. The members of the Board have not authorized other persons to perform the functions assigned to the competence of the Board. Activities of the company’s Board in 2023 In 2023, the meeting of the Board of AB Vilkyškių pieninė were held regularly according to the established schedule. During 2023, twelve regular meetings of the Board took place. At all meetings of the Board, there was a quorum required by normative acts. The Board approved the Company’s interim financial statements for the twelve months of 2022 and the three, six and nine months of 2023, the annual financial statements and the annual report for 2022, convened an ordinary General Meeting of Shareholders, proposed the 2022 profit distribution to the ordinary General Meeting of Shareholders. At regular meetings of the Board, development plans were considered, loan granting/extension and other ongoing issues were examined. The Board meetings of other VILVI GROUP companies - AB Kelmės pieninė, UAB Kelmės pienas, SIA Baltic Dairy Board ׅ and AB Modest are held regularly, and issues corresponding to the competence of the Board are considered. VILVI GROUP ANNUAL REPORT 2023 28 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS MEMBERS OF THE BOARD VILVI GROUP ANNUAL REPORT 2023 29 Education Information about the main workplace and participation in the management of other companies: Available share of the company’s capital and votes as of 31-12-2023, % Gintaras Bertašius Chairman of the Board higher education, engineer - mechanic CEO of AB Vilkyškių pien inė, chairman of the Board of AB Kelmės pieninė, AB Modest and UAB Kelmės pienas, member of the Board of SIA Baltic Dairy Board As of 31 December 2023, G. Bertašius had no shares in AB Vilky š kių pieninė, but he owns 60.4% of the votes at the General Meeting of Shareholders (a joint life insurance policy was concluded with the insurance company Swisspartners Versicherung AG Zweigniederlassung Österreich, which has taken ownership rights to 7,213,680 shares of AB Vilkyškių pieninė). Vilija Milaševičiutė Member of the Board higher education, finance and credit AB Vilkyškių pieninė Director of Economics and Finance, member of the Board of SIA Baltic Dairy Board, AB Modest, AB Kelmės pieninė and UAB Kelmės pienas 9,588 pcs./0.08% Linas Strėlis Member of the Board higher education Director of UAB LS Capital (company code 133118295, address: V. Kudirkos str. 9, Kaunas) and UAB Biglis (company code 133688345, address: V. Kudirkos str. 9, LT- 50283 Kaunas), chairman of the board of Socialinių įmonių asociacija (company code 300542019, address: Raudondvario pl. 107, Kaunas), Board member of AB Umega (company code 126334727, address: Metalo str. 5, LT-28216 Utena) and AB East West Agro (company code 300588407, address: Tikslo str. 10, Kumpiai, LT- 54311 Kaun as district), EISME member of the investment fund committee of UAB Lords LB Asset Management (company code 301849625, address: Jogailos str. 4, LT -01116 Vilnius.). Member of the Supervisory board of SIA Preses nams. - Chairman of the Board and members for re-election for a four-year term on 04-29-2022 during the General Meeting of Shareholders. OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS MEMBERS OF THE BOARD VILVI GROUP ANNUAL REPORT 2023 30 Education Information about the main workplace and participation in the management of other companies: Available share of the company’s capital and votes as of 31-12-2023, % Sigitas Trijonis Board member higher education, engineer – mechanic. Director of the Investment Projects Department of AB Vilkyškių pieninė 425,607 pcs./3.56% Rimantas Jancevičius Board member higher education, zootechnician Director of Raw Material Purchase of AB Vilkyškių pieninė 339,863 pcs./2.85 % Andrej Cyba Board member higher education, business administration and management CEO of UAB PEF GP1 (company code 302582709, address: Maironio str. 11, Vilnius), UAB PEF GP2 (company code 302582716, address: Maironio str. 11, Vilnius), UAB Piola (company code 120974916, address: Mindaugo str. 16-52, LT-03225 Vilnius), UAB Ymmalu (company code 305765142, address: Šaltinių str. 24-10, LT-03233, Vilnius) and UAB LAMA Capital (company code 306178639, address: Šaltinių str. 24 - 10, LT -03233, Vilnius), Business Development Manager of UAB INVL Asset Management (company code 126263073, address: Gynėjų str. 14, LT-01109 Vilnius), Chairman of the Board of UAB FMĮ INVL Finasta (company code 304049332, ad dress: Gynėjų str. 14, LT-01109 Vilnius) and SIA Baltic Dairy Board, Chairman of the Supervisory board of IPAS INVL Asset Management (company code 40003605043, ad dress: Smilšu iela 7-1, LV1050, Ryga) and AS Pirmais atklātais pensiju fonds (company code 40003377918, address: Smilšu iela 7-1, LV1050, Ryga, Member of the Board and Chairman of the Audit Committee of AB AUGA group (company code 126264360, address: Konstitucijos pr. 21C, LT08130 Vilnius). OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Appointment and Remuneration Committee Audit Committee Members: Birutė Butkienė (ŪKB Šilgaliai Agro accountant), Giedrė Krinicina (AB Vilkyškių pieninė employee), Živilė Žymantaitė (AB Vilkyškių pieninė employee). All members are not leading employees of the administration, they do not participate in the authorized capital of the Company. Forms and approves the regulations of the committee – the Board. Functions of the committee: • Provides management bodies with assistance in all matters related to the appointment of candidates to the positions of the Company’s manager or other managerial employees; • Recommends to the Board candidates for other Board committees; • Collects, analyzes and processes all information related to the Company’s employee hiring policy; • Assesses the possible conflicts of interest of each managing employee of the Company; • Provides assistance to governing bodies in all matters related to the determination of salaries for management personnel; • Resolves other issues necessary for the proper performance of the Committee’s functions. Members: Aušra Lobinienė (Head of Internal Audit Service of Tauragė Credit Union), Vilma Morkaitienė (UAB Bonus modus senior Accountant) Sigita Montvilaitė (AB Vilkyškių pieninė employee). All members are not leading employees of the administration, they do not participate in the authorized capital of the Company. Forms and approves the regulations of the committee – General Meeting of Shareholders. Functions of the committee: • Monitors the process of preparing the Company’s financial statements; • Provides management bodies with recommendations related to the selection of an audit firm; • Monitors the effectiveness of the company’s internal control, risk management and internal audit systems; • Monitors the audit process; • Monitors how the auditor and the audit firm adhere to the principles of independence and objectivity; • Performs other functions provided for by legislation; • Immediately informs the head of the Company about the information provided to the Audit Committee by the audit company about problematic issues that arose during the audit, especially when significant internal control deficiencies related to financial statements are identified. Valdyba COMMITTEES Activities of the Appointment and Remuneration Committee in 2023 In 2023, two meetings of the committee took place, during which the salaries of the Company’s employees were reviewed, recommendations were made regarding the company’s internal procedures and Remuneration Policy, and the appointment of candidates to the positions of Director of Transport and Logistics and Investment Projects. All committee members attended the meetings. VILVI GROUP ANNUAL REPORT 2023 31 Committees are not formed in subsidiaries. Activities of the Audit Committee in 2023 In 2023, three committee meetings were held, during which drafts of the Company’s 2022 financial statements, 2022 annual report and 2022 profit (loss) distribution were discussed and the 2023 budget was discussed. Recommendations have been made for selecting audit firms that audit a group of companies. Revised risk management systems for sales to various countries. All committee members attended the meetings. OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS KEY MANAGERS VILVI GROUP ANNUAL REPORT 2023 32 Education Information about participation in the management of other companies: Owned share of the company’s capital and votes as of 31 -12-2023, % Gintaras Bertašius CEO higher education, engineer - mechanic Chairman of the Board of AB Vilkyškių pieninė, AB Modest, AB Kelmės pien inė and UAB Kelmės pienas, member of the Board of SIA Baltic Dairy Board No shares owned /60.40% Vilija Milaševičiutė Director of Economics and Finance higher education, finance and credit Member of the Board of AB Modest, AB Kelmės pien inė, UAB Kelmės pienas and SIA Baltic Dairy Board 9,588 pcs./0.08% Sigitas Trijonis Director of the Investment Projects Department higher education, engineer - mechanic Member of the Board of AB Vilkyškių pieninė 425,607 pcs./3.56% Rimantas Jancevičius Director of Raw Material Purchase higher education, zootechnician Member of the Board of AB Vilkyškių pieninė 339,863 pcs./2.85% Vaidotas Juškys Executive Director higher education, information technologies - 17,756 pcs./0.15% OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS KEY MANAGERS VILVI GROUP ANNUAL REPORT 2023 33 Education Information about participation in the management of other companies: Owned share of the company’s capital and votes as of 31 -12-2023, % Arvydas Zaranka Production Director AB Kelmė pieninė director higher education, dairy technology Member of the Board of AB Modest 1,933 pcs./0.02 % Rita Juodikienė Director of Management and Quality master’s degree, business management Member of the Board of AB Kelmės pien inė and UAB Kelmės pienas 2,175 pcs./0.02 % Paulinas Stanaitis Director of Transport and Logistics higher education, Management and business administration - - Jolita Valantinienė Director of AB Kelmės pienas master’s degree, management and business administration - - Matas Pozingis Director of AB Modest higher education, management and business administration - - OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Governance based on respect and fundamental human rights VILVI GROUP management is based on fundamental human rights and respect for others. We follow these principles when managing company processes and communicating both with people within the Group and with business partners and other stakeholders. Ethical employment provisions In order for all employees to clearly understand the principles of respectful communication, the Code of Ethical Employment was approved in 2022, which sets out the natural human rights respected by the Group, emphasizing the intolerance of discrimination, disrespectful or inhumane behavior. We apply the principles of ethical employment that we apply to all of our stakeholders. We also inform our business partners and suppliers about the principles of ethical employment that are important to us. We aim not to have business relations with partners who do not comply with our established provisions. Ethical principles of activity and equality and a respectful approach to every person are also applied when it comes to shareholders who have equal rights (property and non- property), provided for in laws, other legal acts and the company’s articles of association. No shareholder has any special control rights that can confer privileges. All shareholders have the same rights. All key policies and codes are publicly available on the Group’s website so that all stakeholders are aware of our ethical employment principles. Code of Ethical Employment Code of Ethical Business Business ethics and intolerance to bribery and corruption In 2022, the Code of Ethical Business was also approved, which sets out the main principles and priorities of our activities and the kind of behavior that we identify as undesirable in our Group. We do not tolerate any acts of corruption, including bribery and kickbacks, we promote honest business and transparent cooperation with state institutions and other interested parties. Transparent, honest and open business activities are one of the most important elements of an impeccable business reputation and success. We pay all taxes, keep honest records, and follow a transparent salary policy. We ensure transparency in the procurement we organize and require potential and existing suppliers to act transparently and fairly. We sell our products in accordance with the principle of transparency, we do not participate in transactions that ask for bribes or offer to act in a non-transparent manner. We have clearly stated the principles of our activities and cooperation in the Code of Ethical Business and familiarized our partners and suppliers with it, we also constantly remind our employees what behavior or agreements are intolerable and what threats may arise when communicating with stakeholders both in Lithuania and abroad. The Group has decided to be politically neutral and not to provide any financial support to political parties, groups or politicians. We also inform our partners and suppliers both in Lithuania and abroad about the responsible approach to people and the environment in order to create an honest and responsible environment for business development towards people and nature – a responsible supply chain is ensured. These provisions are established by: These provisions are established by: https://vilvigroup.lt/politikos/ 34 GOVERNANCE PRINCIPLES VILVI GROUP ANNUAL REPORT 2023 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS In 2012, AB Vilkyškių pieninė approved a dividend policy. Excerpt from the provisions of the dividend policy: Dividends and amount of dividends The Law on Companies of the Republic of Lithuania stipulates that the dividend is a share of the profit allocated to the shareholder, proportional to the nominal value of the shares owned by the shareholder. 1. During the General Meeting of Shareholders, the Company’s shareholders cannot make a decision to pay out dividends if: 1) the Company is insolvent; 2) the distributed result of the financial year is negative; 3) the Company’s equity capital is lower or, after paying dividends, would become lower than the Company’s authorized capital and the amount of reserves. 2. The Company’s Board should propose the amount of dividends to the General Meeting of Shareholders depending on the Company’s audited net profit of the relevant financial year. 3. If the Company operates profitably, the Board of the Company allocates a certain part of the income to the amount of dividends, as determined in point 2.6, and reinvests the remaining income in order to increase the Company’s capitalization. 4. The Company pays dividends in cash. 5. The Board of the Company has determined the amount of dividends based on the Company’s consolidated net profit of the previous year. The determined amount of dividends must be at least 25% of the Company’s consolidated net profit for the previous year, but not more than the Company’s annual consolidated net profit. 6. The Company reserves the right to deviate from the dividend amount criteria by disclosing the reasons for such deviation. 2019 (for 2018) 2020 (for 2019) 2021 (for 2020) 2022 (for 2021) 2023 (for 2022) Dividends (EUR) - - 955,440 2,388,600 3,164,744 Dividends per share (EUR) - - 0.08 0.20 0.265 Number of shares 11,943,000 11,943,000 11,943,000 11,943,000 11,943,000 DIVIDENDS VILVI GROUP ANNUAL REPORT 2023 35 Payment of dividends by AB Vilkyškių pieninė in the last years: Payment of dividends by AB Kelmės pieninė in the last years: AB Kelmės pienas in 2023 (for 2022) paid out dividends of EUR 1.2 million. AB Modest, AB Pieno logistika and SIA Baltic Dairy Board have not paid dividends in the past 5 years. Payment of dividends in other VILVI GROUP companies 2019 (for 2018) 2020 (for 2019) 2021 (for 2020) 2022 (for 2021) 2023 (for 2022) Dividends (EUR) 1,719,949 5,651,261 7,371,210 3,931,312 1,523,383 Dividends per share (EUR) 0.70 2.30 3.00 1.60 0.62 Number of shares 2,457,070 2,457,070 2,457,070 2,457,070 2,457,070 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS 1. Links to the applicable Corporate Governance Code and all necessary information about corporate governance practices: The Company’s Management Report for 2023, the Company’s and its Group’s audited financial statements, the consolidated annual report are published on the Company’s website VILVI GROUP and on the page of the stock exchange AB Nasdaq Vilnius Vilkyškių pieninė | Prekyba — Nasdaq Baltijos birža (nasdaqbaltic.com). 2. Information on transactions with related parties During 2023, the company did not have transactions with related parties that would meet the criteria specified in Article 372 of the Law on Companies. More detailed information on transactions with related parties and financial relationships with company managers is provided in Note 28 of the financial statements for 2023. 3. Deviations from the provisions of the applicable Corporate Governance Code Information on non-compliance with the provisions of the Corporate Governance Code is provided in clauses 1.8 of the Governance Code page 147. 4. Diversity policies apply to the election of the company’s manager, members of the management and supervisory bodies The Company does not have a diversity policy for the election of the manager, management and supervisory bodies. When nominating candidates for the members of the Company’s management bodies, they are not discriminated against due to age, gender, education or professional experience. The Company does not set any restrictions for individuals to apply due to gender or age. The main criterion for selecting members of management bodies is the competence of the candidate. 5. Agreements between shareholders The Company does not have data on mutual agreements between shareholders. In 2023, the Companies have not entered into agreements with members of their bodies or employees that would provide for compensation if they resign or are dismissed without reasonable cause or if their employment ends due to a change in control of the issuer. During the reporting period, there were no harmful transactions that did not meet the goals of the Company or the Group, normal market conditions, violated the interests of shareholders or other groups of persons and had or may have a negative impact on the Company’s activities or performance results in the future. VILVI GROUP ANNUAL REPORT 2023 36 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Valdyba REMUNERATION REPORT General information AB Vilkyškių pieninė remuneration report has been prepared for the reporting financial period of 2023, which coincides with the calendar year. The preparation of the remuneration report (hereinafter - the Report) was guided by the Law on Financial Reporting of Companies of the Republic of Lithuania, VILVI GROUP’s employee Remuneration Policy (hereinafter - the Remuneration Policy) and other legal acts. The Remuneration Policy of AB Vilkyškių pieninė group of companies’ employees was approved at the General Meeting of Shareholders on 28 April 2023. The Remuneration Report contains information on the remuneration of each member of the management and supervisory bodies, provides information on other types of (not) received benefits, other data. Principles of remuneration determination The members of the Board of the Company may be paid bonuses, which are allocated according to the procedure established by legal acts by the decision of the General Meeting of Shareholders of the Company. After the General Meeting of Shareholders adopts a decision on the payment of royalties, the share of royalties attributable to a specific member of the Board is determined by the decision of the Board, taking into account the contribution of a specific member of the Board to the Company’s activities. The remuneration for the head of the company – the CEO is determined by the decision of the Board of the Company. When determining the amount of salary, the level of payment of managers of companies of similar size is evaluated, taking into account the level of the position, as well as the manager’s personal competence, experience, knowledge and abilities. VILVI GROUP’s remuneration for top-level managers, II-level managers, middle-level managers and other employees consists of two main parts: fixed and variable. Incentive payments may also be made. The company’s employees are paid: fixed part of remuneration (FPR) - the employee’s basic or hourly monthly monetary wage established in the employment contract, variable part of remuneration (VPR) - additional monetary remuneration of the employee, determined taking into account the quality and results of work performance, the goals set for the company and the individual goals of the employee achievement, level of competences and compliance with the values of the Company and the Group of Companies. Other benefits (OB) – other possible benefits given to employees as incentives. Board members’ remuneration for the year 2022 – 2023 Two members of the Board of AB Vilkyškių pieninė do not work in the company and four members of the Board are employed under employment contracts. All members were not paid any fixed or additional remuneration for their work on the Board during the year 2023. Board members working under an employment contract received salary only on the basis of employment relations. The wages calculated and paid during 2023 correspond to the amounts provided for in the Remuneration Policy approved by the Company. Annual salary before taxes of the Board members working under an employment contract, thousand EUR Name, surname, position 2022 2023 Fixed salary Variable salary Total Fixed salary Variable salary Total Gintaras Bertašius, CEO 101.4 - 101.4 115,2 1115,2 Vilija Milaševičiūtė, Director of Economics and Finance 66.9 11.2 78.1 72,2 12,8 85,0 Sigitas Trijonis, Director of the Investment Projects Department 66.6 11.4 78.0 72,7 12,3 85,0 Rimantas Jancevičius, Director of Raw Material Purchase 66.0 11.8 77.8 72,3 12,1 84,4 The CEO and members of the Board did not receive any remuneration from the companies belonging to the Corporate Group. The salary was paid according to the procedure, scope and terms stipulated in the employment contract, no other financial benefits were received in 2023, including no shares or other transactions concluded for the benefit and interests of the managers. During the reporting period (2023), no guarantees or sureties were given to the members of the Board, the head of the company, no assets or other property rights were transferred. VILVI GROUP ANNUAL REPORT 2023 37 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Remuneration for the activity in the Board of the Supervisors, in Audit and Nomination and Remuneration Committees is paid to a non-attached member, however, it is included into remuneration for attached members and additional remuneration is not paid. The amounts of annual remuneration for the activity in the Company to the members of the Company are provided for in Annex of Remuneration Policy. Valdyba REMUNERATION REPORT Remuneration of employees of the parent company and Group companies The wage fund of the Corporate Group in 2023 was equal to EUR 19,108 million (EUR 15,792 million in 2022) Average monthly salary before taxes of the employees of VILVI GROU, EUR Staff group 2019 2020 2021 2022 2023 Number of employees Average wage Number of employees Average wage Number of employees Average wage Number of employees Average wage Number of employees Average wage Managers 28 3,919 29 3,997 30 4,261 30 4,799 31 5,240 Specialists 298 1,258 301 1,311 310 1,434 310 1,711 319 1,961 Workers 502 872 500 924 527 1,020 544 1,209 569 1,435 Total: 828 1,107 830 1,166 867 1,281 884 1,508 919 1,746 Average monthly salary before taxes of the employees of AB Vilkyškių pieninė, EUR Staff group 2019 2020 2021 2022 2023 Number of employees Average wage Number of employees Average wage Number of employees Average wage Number of employees Average wage Number of employees Average wage Managers 22 4,020 21 4,198 19 4,565 20 5,029 22 5,478 Specialists 170 1,304 155 1,338 147 1,506 150 1,777 150 2,038 Workers 285 930 283 948 274 1,059 292 1,253 252 1,507 Total: 477 1,197 459 1,228 440 1,365 462 1,581 424 1,884 In the period of 2023, the remuneration paid to the members of the Board of AB Vilkyškių pieninė and the employees corresponded to the principles, bases and conditions approved in the Remuneration Policy. The members of the company’s Audit Committee and Remuneration Committee were not paid any fixed or additional remuneration for their work on the committees. VILVI GROUP ANNUAL REPORT 2023 38 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Risk management is an integral part of the Group’s activities. We identify, analyze and evaluate risks taking into account the Group’s goals, activities and external environment. The Board is responsible for approving the Group’s overall risk management model, the Board of Directors is responsible for supervision. The Group applies the Committee of Sponsoring Organizations of the Treadway Commission (COSO) internal control and risk management model. The risk management process covers all companies and functions of the Group. It is constantly reviewed, assessing the Group’s risk appetite and strategic aspirations, adjusted to market conditions and changes in the Group’s activities. We conduct regular monitoring of risk management in the Group. Every quarter, the Board of Directors reviews internal and external risks, assesses risk indicators, and determines risk management measures as needed. Stages of risk management: 39 RISK MANAGEMENT General Meeting of Shareholders of AB Vilkyškių pieninė Supervisory board Board Directors meeting Validation of a risk management model: risk appetite and strategic objectives Risk assessment, review of indicators, plan of measures. Directors of the companies of the Group Directors of functional divisions of the parent company • Internal and external risks arising in management activities. • Risk management tools. • Periodic monitoring of risk indicators. COMBINATION OF RISK APPETITE AND STRATEGY IDENTIFICATION OF RISKS RISK ASSESSMENT RISK MANAGEMENT: MEASURES AND ACTIONS RISK MONITORING Regular monitoring Quarterly discussion and reconciliation Approval of risk assessment once a year Monitoring Objectives of risk management: • To ensure the activities of the Group. • To manage the impact of risks on the Group’s objectives. • To ensure the Group’s reputation. • To protect the interests of stakeholders. Types of risks: by period: • Short-term (0-1 y.) • Medium-term (1-4 y.) • Long-term (>5 y.) by source: • Internal • External by ESG area: • E (Environment) – affecting the field of environmental protection; • S (Social) – affecting social factors, their management; • G (Governance) – affecting the field of governance. Types of risks: Strategic risks affecting the Group’s strategic goals. Operational risks affecting the efficient operation of the Group. Compliance risks affecting compliance with laws and requirements. Financial risks affecting the Group’s financial result. VILVI GROUP ANNUAL REPORT 2023 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Audit Committee Remuneration Committee RISK MANAGEMENT 40 VILVI GROUP ANNUAL REPORT 2023 TYPE OF RISKS RISK FACTORS RISK SOURCE SOURCE TYPE (internal/external) PERIOD (short-term, medium-term, long-term) INFLUENCE STRATEGIC DIRECTION/ AREA OF INFLUENCE RISK MANAGEMENT ESG TYPE: E / S / G STRATEGIC RISKS The risk of strategic investment projects not being completed or not being completed on time Unplanned external circumstances, problems in project management. Internal / external Medium-term FINANCE • A new Investment Projects department has been created for the management of investment projects, and project management competence has been raised. • The project implementation plan and emerging risks are regularly monitored. • External professionals and consultants are used as needed. - Price jumps of raw materials and energy resources Energy prices: fluctuating production costs. external long-term FINANCE • Regular monitoring of price fluctuations. • Diversification of strategic raw material procurement sources. • Technological solutions have been implemented that allow diversification of the energy resources used. - Insufficient amount of the main raw material - milk Seasonality of raw material supply, insufficient amount of raw material. external long-term FINANCE • Regular market monitoring. • Diversification of purchasing sources. - Dependence on the branch of activity or large clients Changes in the branch of activity, changes in the purchasing power of customers, competition. internal long-term FINANCE • Regular market monitoring. • Diversification of business branches. • Diversification of the client portfolio. - Risk of not selling the product Fluctuations in demand and price. external long-term FINANCE • Regular market monitoring. • Diversification of business branches. • Diversification of the client portfolio. • Loyal customer database. - Unfair competition Demand and price fluctuations caused by unfair competition. external long-term FINANCE • Regular market monitoring. • Diversification of business branches. • Diversification of the client portfolio. • Loyal customer database. - The risk of not securing supply chains, logistics Disruptions in logistics chains caused by global political or other unrest. external long-term FINANCE • Regular market monitoring. • Diversification of the client portfolio. • Loyal customer database. - Reputational risks Poor quality products, uncontrolled stakeholder accountability and uncontrolled communication, unfair labor practices, corruption and bribery. internal long-term FINANCE • Implementation of food safety and quality standards. • Timely and regular reporting to stakeholders. • The distribution of communication responsibilities and principles are defined in the Business Ethics Policy. • Policies and processes defining different areas of sustainability. • The possibility of confidential and anonymous messages is ensured. S, G OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS RISK MANAGEMENT 41 VILVI GROUP ANNUAL REPORT 2023 TYPE OF RISKS RISK FACTORS RISK SOURCE SOURCE TYPE (internal/external) PERIOD (short-term, medium-term, long-term) INFLUENCE STRATEGIC DIRECTION/ AREA OF INFLUENCE RISK MANAGEMENT ESG TYPE: E / S / G FINANCIAL RISKS Financial liquidity risk The risk that the Group and the Company can no longer fulfill their financial obligations on time. internal long-term FINANCE • Sufficient flow of cash and cash equivalents or have financing through appropriate credit. • Maintaining a balance between funding continuity and flexibility. - Credit risk In the course of trading activities, the Group and the Company sell products and services with a deferred payment term, therefore there may be a risk that customers will not pay the Group’s and the Company’s receivables from the sale of products and Services. external long-term FINANCE • Application of credit limit principles that determine the amount of credits granted to customers and the corresponding types of collateral, such as: limit, guarantees, insurance. • Foreign buyers insurance. • Customer credit risk assessment. - Market risk Changes in market prices, e.g. foreign currency exchange rates and interest rate impact on the result of the Group and the Company or the value of available financial instruments. external long-term FINANCE • Management of foreign exchange rates. - OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS RISK MANAGEMENT 42 VILVI GROUP ANNUAL REPORT 2023 TYPE OF RISKS RISK FACTORS RISK SOURCE SOURCE TYPE (internal /external) PERIOD (short-term, medium-term, long-term) INFLUENCE STRATEGIC DIRECTION/ AREA OF INFLUENCE RISK MANAGEMENT ESG TYPE: E / S / G OPERATIONAL RISKS Product quality and safety risks. Inadequate assessment and management of risk factors (biological, chemical, physical). Internal long-term FINANCE • Food safety, quality and management standards are implemented and continuously updated. • Regular training of employees and maintenance of competence. • Regular internal and external audit. S Attracting and retaining employees. Population decline in the region, lack of highly qualified workers. Internal / External long-term ORGANIZATION / FINANCE • Close cooperation with organizations and scientific institutions. • Search for motivational tools within the organization. • Training of competence improvement. • Loyalty incentives. S Risk of accidents, incapacity. Failure to manage occupational risks, safety and health violations. Internal long-term ORGANIZATION • The Employee Safety and Health Policy has been approved, safety and health briefings and trainings are conducted regularly. • Regular assessment of occupational risks. • Reduction of ergonomic, chemical and other risk factors by technological means and by implementing internal programs. S The risk of compliance of working conditions and employee well- being with market conditions and customer requirements. Increasing customer standards for employee well-being. External long-term FINANCE / COMPLIANCE • Regular monitoring of customer requirements. • Approved Remuneration Policy where remuneration is benchmarked against market conditions. • Regular monitoring and improvement of conditions. S Human rights violations: discrimination and failure to ensure equal opportunities. Inconsistency of employee behavior with the Group’s values and established regulations. Internal long-term ORGANIZATION • Human Rights, Equal Opportunities, Violence and Harassment at Work policies and their implementation procedures have been approved. • Employee training. • The possibility of confidential and anonymous messages is ensured. S Improper separation of waste streams, waste reduction rates are too slow. Improper separation of waste in production processes, human factor, solutions offered by waste managers. Internal medium-term ORGANIZATION / REPUTATION • Approved waste management procedures and processes. • Contracts have been signed with waste managers. • Technical solutions for waste separation and collection. • Employee education. E Risk of data traceability and correctness of GHG emission assessment and reduction targets. Incorrect data collected, inappropriate data depth, human factor. Internal medium-term ORGANIZATION / COMPLIANCE • Automation of data collection. • External consultants are used as needed. E Risk of adverse environmental impact. The risk of environmental pollution due to the consumption and release of large amounts of natural resources, technology failures. Internal long-term ORGANIZATION / COMPLIANCE • Approved Environmental Protection Policy, compliance with laws. • Regular monitoring, impact assessment, pollution monitoring programs. • Implementation of mitigation technologies. E Failure to ensure data security, cyber attacks. Physical and software data security is not ensured. External long-term ORGANIZATION / REPUTATION • Approved IT security policy. • GDPR approved. • Continuous improvement of physical and software data security. • External consultants are used as needed. G OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS RISK MANAGEMENT 43 VILVI GROUP ANNUAL REPORT 2023 TYPE OF RISKS RISK FACTORS RISK SOURCE SOURCE TYPE (internal/external) PERIOD (short-term, medium-term, long-term) INFLUENCE STRATEGIC DIRECTION/ AREA OF INFLUENCE RISK MANAGEMENT ESG TYPE: E / S / G OPERATIONAL RISKS Risks of non-timely data management/inaccuracy Slow digitization processes due to long-term acquisition of software and technological solutions, delayed implementation process. Internal medium-term ORGANIZACIJA • Implementation of data automation solutions. • Structural changes are being implemented to speed up implementation processes. S Business continuity risk Compliance with laws, extreme events caused by climate change, uncertainty caused by political and other unrest (e.g. pandemic, mobilization, civil security, etc.). External / internal long-term ORGANIZATION / FINANCE • Business continuity plans have been approved. S, G Physical risks of climate change Deterioration of factors affecting activity due to climate change: deterioration of the environment (air, water, soil pollution), deterioration/lack of water, climate warming. External long-term ORGANIZATION / FINANCE • Regular environmental factor monitoring programs. E Climate change transition risk The need for financial and human resources in adapting to climate change: implementation of low- emission technological measures, resources for continuous impact assessment and mitigation. External long-term ORGANIZATION / FINANCE • Continuous assessment of organizational sustainability. • Continuous monitoring of EU and LR law and action planning. • A new Investment Projects department has been created for the management of innovation projects, which also manages low-emission technology implementation projects. G OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS RISK MANAGEMENT 44 VILVI GROUP ANNUAL REPORT 2023 TYPE OF RISKS RISK FACTORS RISK SOURCE SOURCE TYPE (internal/ external) PERIOD (short-term, medium- term, long-term) INFLUENCE STRATEGIC DIRECTION/ AREA OF INFLUENCE RISK MANAGEMENT ESG TYPE: E / S / G RISKS OF COMPLIANCE Untimely reporting to shareholders / NASDAQ Uncontrolled internal information and untimely communication to shareholders. internal long-term FINANCE • Regular reporting according to the plan. • Confirmed responsibilities for providing information. G Climate change transition compliance risks Unmanaged adaptation to changing regulation – failure to meet stakeholder requirements. internal long-term FINANCE / COMPLIANCE • Continuous assessment of organizational sustainability. • Continuous monitoring of EU and LR law and action planning. • Impact mitigation strategy, impact mitigation plans for individual areas. • Confirmed responsibility for the implementation of the plan. • Regular monitoring of mitigation results. E Preparation of SUSTAINABILITY REPORT according to the CSRD directive is too slow Decisions not approved on time and necessary information and evidence not collected. internal medium-term COMPLIANCE • Preparation plan for the implementation of the directive. • Confirmed responsibility and regular communication of readiness. • Implementation of technological solutions for data collection. G Supply chain sustainability compliance risks Growing customer demands on the supply chain. internal medium-term COMPLIANCE • Regular monitoring of customer requirements. • Implementation of sustainability actions in the Group. • Bringing sustainability requirements to the supply chain. G Taxonomic investment growth too slow Decisions not approved on time and necessary information and evidence not collected. internal long-term FINANCE / COMPLIANCE • Taxonomic Information Management Program. • Implementation of data traceability and storage solutions. G Risk of adverse and unplanned regulatory changes Uncontrolled or too slow adaptation to new regulatory changes. external medium-term COMPLIANCE • Confirmed responsibilities for different areas of activity. • Information management and risk assessment at the Group level. G OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS SUSTAINABILITY REPORT (Corporate Social Responsibility report) VILVI GROUP ANNUAL REPORT 2023 45 ESG CONTENTS ................... 46 SUSTAINABILITY IN THE GROUP ................... 47 MATERIALITY ASSESSMENT ................... 49 ESG PRIORITIES .................... 51 POLICIES ................... 54 TAXONOMY OVERVIEW ..................... 55 ENVIRONMENTAL PROTECTION .................... 62 SOCIAL ENVIRONMENT ..................... 67 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS The VILVI GROUP's annual report discloses environmental, social and governance information. It includes an information index for faster reading of sustainability information. The Group is preparing for disclosures under the Corporate Sustainability Reporting Directive (CSRD) for 2024. ESG CONTENTS VILVI GROUP ANNUAL REPORT 2023 46 ESG contents Page Sustainability governance and priorities 47-53 Taxonomy overview 55-61 Environmental protection 62 Climate risks 39 – 44 Polution 65 – 66 Resources concumption 64 Social environment 67 Employees 69 – 75 Comunities 78 Conusmers 76 – 77 Governance Policies and report channels 54 Risk management and ESG risks 39 – 44 Business ethics and intolerance to bribery and corruption 34 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS About the report This report introduces Vilvi Group (further on – the Group) activities in the fields of responsible business and sustainability in 2023. This document reveals how responsible business approach and the Group’s management principles translate into the company’s daily activities and future plans. It also presents the Group’s strategic perspectives, actions and achievements in terms of social responsibility and sustainability, introducing progress-oriented environmental, social and governance aspects (further on – ESG areas). The sustainability (social responsibility) report is part of the 2023 audited annual report of AB Vilkyškių pieninė consolidated and parent company. This report has been issued according to NASDAQ environmental, social and governance guidelines, the United Nations Global Compact, the United Nations Sustainable Development Goals, and the European Commission's communication on ‘Guidelines for Non-Financial Reporting’ (2017/C215/01). SUSTAINABILITY IN THE GROUP VILVI GROUP ANNUAL REPORT 2023 Sustainability in VILVI GROUP We aim to make sustainability a core value of our organization, a part of our culture, and be integrated into all business processes. We monitor, measure and assess the impact of the Group’s activities on the environment and on people. We understand that this is important not only for us, but also for stakeholders, therefore, we publish a sustainability (social responsibility) report every year. The Group employs a sustainability specialist, therefore, the importance of sustainability is understood in all staff lines and everyone strives to make their own contribution to building a sustainable organization. Sustainability issues are addressed not only in the top management team, but also in the Groups’s Board. Sustainability is integrated into the business processes of VILVI GROUP: from operational activities, work with suppliers and partners, to the implementation of sustainable innovations. We aim to reduce the negative impact on the environment. Although the assessment given by consumers and partners allows us to call ourselves the leaders of the country’s milk market, we realize that only the cooperation of all market players will ensure significant changes in sustainability in the entire sector, therefore, we strive for respectful competition and partnership, guaranteeing the well-being of society and positive changes towards nature. Internal responsibility, transparency and accountability to society are the starting points for further sustainable growth of VILVI GROUP, development of employees and mutually beneficial cooperation with all stakeholders both in Lithuania and abroad. Sustainable development goals of VILVI GROUP This is not the first year we have joined the United Nations Organization’s Sustainable Development Goals (SDG https://unglobalcompact.org/sdgs). From the 17 points identified as the biggest global sustainability challenges, we have selected those areas where we believe we can make a positive impact, we aim to turn the negative impact into a positive one or at least significantly reduce it. The goals we set become our daily push to find sustainable solutions. 47 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS The Group has a wide variety of stakeholders both inside and outside the Group. The concept of stakeholders refers to natural and legal entities, also organisations that could experience positive or negative impact, caused by the operations of Vilvi Group and all those who are interested in the company. The list has been compiled based on the company’s internal information. Interested group Interests Business clients Partnership, rational product and service prices, precise and relevant information, ensured product and service quality, responsible supply chain. End consumers Product safety and quality, variety and availability, complete nutrition, social responsibility (transparency and reducing environmental impact). Employees Responsible employment: safe workplace, fair salary, guarantees, employment and social integration, equal opportunities, improvement opportunities. Management Development of the Group’s value in the long term, product development perspectives. Shareholders and investors Fulfilment of financial goals, business efficiency, increasing the company’s value, transparency and accountability. Suppliers Partnership, rational product and service prices, guaranteed supply of services and settlement, available, precise and relevant information, ensured product and service quality, efficient cooperation. Suppliers of raw materials Partnership, rational production price, responsibility in the supply of products. National regulatory authorities Consistent compliance with the requirements of the legislation, operations’ control and monitoring, report assessment, transparent dialogue. Local communities Responsible employer and active membership in the community, transparency, reduction of environmental impact. Educational institutions (colleges, universities, etc.) Cooperation, sharing experience, career opportunities, investments into scientific research. Competitors Respect, fair, transparent and ethical business. Non-governmental organisations Cooperation, transparency, accountability, reduction of environmental impact. Media Transparency, responsibility and dialogue. STAKEHOLDERS VILVI GROUP ANNUAL REPORT 2023 48 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Importance to stakeholders Impact on business/importance for Vilvi Group Low Medium High Very high Low Medium High Very high ENVIRONMENTAL PROTECTION • Reduction of GHG emissions • Responsible use of water resources • Responsible use of energy resources • More sustainable packaging • Waste reduction and management • Animal welfare • Soil protection • Biodiversity • Sustainability and responsibility in the supply chain SOCIAL ENVIRONMENT • Occupational safety, conditions and staff well-being • Product safety and quality • Consumer well-being • Human rights • Diversity and equal opportunities at work • Recruiting and retaining employees • HELPING COMMUNITIES • Social standards of the supply chain GOVERNANCE • Product innovation • Supply chain management • Ethical standards of the supply chain • Business ethics and anti-corruption • Transparency and compliance with the legal regulation • Accountability to stakeholders The assessment of the significance of ESG aspects was carried out for the first time in 2022. The purpose of this assessment was to clarify the sustainability aspects, to be used as the foundation for Vilvi Group sustainability priorities. The assessment was conducted based on GRI guidelines and SASB and MSCI recommendations, taking into account the activities and the sector in which we operate. Targeted stakeholder groups were interviewed, an internal strategic discussion was conducted and a matrix of significance of the Group's sustainability aspects was compiled. VILVI GROUP’S SUSTAINABLE DEVELOPMENT GOALS CORRESPONDING TO RELEVANT ESG ASPECTS RELEVANT ESG ASPECTS OF VILVI GROUP ASSESSMENT OF SIGNIFICANCE OF SUSTAINABILITY ASPECTS VILVI GROUP ANNUAL REPORT 2023 49 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS SUSTAINABILITY ASPECT SIGNIFICANCE ESG AREA Product safety and quality Ensuring safety and quality of the production. SOCIAL ENVIRONMENT Work safety, conditions and staff wellbeing Creating a safe working environment, taking care of the employees’ physical, psychological and emotional health, ensuring proper working conditions, balanced work-reset regime, and a proper salary. SOCIAL ENVIRONMENT Reducing GHG emissions Assessment of greenhouse gas emissions, and setting and achieving reduction goals. ENVIRONMENTAL PROTECTION Consumer well-being Proper product marking, indicating product nutritional value, consumer education, responsible marketing communication. SOCIAL ENVIRONMENT Product innovation Introduction of innovation to achieve efficient and modern production and business processes. GOVERNANCE Human rights Ensuring fundamental human rights. SOCIAL ENVIRONMENT Diversity and equal opportunities Maintaining diversity and ensuring inclusion of sensitive social groups, social justice. SOCIAL ENVIRONMENT Business ethics and anti-corruption Ethical and transparent operation. GOVERNANCE Transparency and compliance Compliance with the law and legislation. GOVERNANCE Responsible use of water resources Responsible management of water resources, introducing sustainable technology. ENVIRONMENTAL PROTECTION Responsible use of energy resources Responsible management of energy resources, introduction of sustainable technology, using renewable energy resources. ENVIRONMENTAL PROTECTION HELPING COMMUNITIES Inclusion of the community, cooperation in various projects, and assistance to community in relevant areas. SOCIAL ENVIRONMENT Accountability to stakeholders Transparency and accountability according to the legislation of the Republic of Lithuania. GOVERNANCE Supply chain management Efficient supply chain management, risk diversification. GOVERNANCE Recruiting and retaining employees Active recruitment action, staff competence improvement, career opportunities, promotions. SOCIAL ENVIRONMENT RELEVANT ESG ASPECTS OF VILVI GROUP Sustainability aspects, which complied with the criterion of average, high or very high significance both to the stakeholders and Vilvi Group in the significance assessment. These ESG aspects receive the greatest attention in planning and fulfilment of sustainable business management on the Group level. VILVI GROUP ANNUAL REPORT 2023 50 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS ATSA K I N G A V E RSLO P R AKTIKA Produktų sauga ir kokybė: Reducing GHG emissions VILVI GROUP PRIORITIES GOALS ACTIONS IN 2023 EXTERNAL FACTORS RESPONSIBLE USE OF THE NATURAL RESOURCES AND ENERGY EFFICIENCY LONG-TERM DIRECTION: Development and introduction of new, environmentally- friendly technology and saving natural resources thus ensuring a clean environment and a high quality of air, soil and water. GOALS FOR 2023-2024: • natural resource consumption monitoring system on the Group level; • renewable energy projects; • reducing water consumption and wastewater. • Introduction of the unified VILVI GROUP natural resource use monitoring system. • Start of the installation of private solar power plants on the roofs of factories. • Local system upgrade works on the sites of operations. • AB Vilkyškių Pieninė started implementing a technology that cleans permeate water so that it can be used again in production processes (reducing water consumption and amounts of wastewater). • AB Modest installed heating and cooling regeneration technologies. • Installation of own electric vehicle charging stations. • In 2023, green electricity is significantly more expensive than non-renewable energy, which led to the termination of the purchase of green energy and the installation of own solar power plants. REDUCING ENVIRONMENTAL IMPACT LONG-TERM DIRECTION: reducing GHG emissions by joining the global climate change agreement goals. GOALS FOR 2023-2024: • regular environmental impact assessment; • assessment of GHG emissions; • setting environmental impact reduction goals. • Scope 1, Scope 2 assessment of GHG emissions. • Internal environmental audit to identify areas of greatest impact. REDUCING AND CIRCULARITY OF WASTE LONG-TERM DIRECTION: reducing production waste and increasing reusability. GOALS FOR 2023-2024: • development of a waste monitoring system on the Group level; • adapting to new regulations in the field of chemical material/waste management; • adaptation to new regulations in the field of packaging; • installation of primary wastewater treatment equipment. • A unified VILVI GROUP monitoring system for the use of natural resources is being prepared. • Management of the use of chemicals at the Group level. • Consistent implementation of projects for more sustainable packaging.. • Preparing to adapt to the EU single-use plastics directive - tying beverage stoppers to beverage packaging. • Changing and growing requirements in the fields of chemicals and packaging. ASPECTS SIGNFICANT TO VILVI GROUP IN THE FIELD OF ENVIRONMENTAL PROTECTION: Sustainable packaging Reducing and managing waste Responsible use of energy resources Responsible use of water resources ENVIRONMENTAL PRIORITIES VILVI GROUP ANNUAL REPORT 2023 51 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS ATSA K I N G A V E RSLO P R AKTIKA Produktų sauga ir kokybė: Product safety and quality VILVI GROUP PRIORITIES GOALS ACTIONS IN 2023 EXTERNAL FACTORS TO ENSURE PRODUCT SAFETY AND QUALITY LONG-TERM DIRECTION: ensuring product safety and quality with adherence to the highest food safety and quality standards, and legal regulation. GOALS FOR 2023-2024: • schedule food safety certificate renewal;; • scheduled internal audits;; • client and state institution audits according to the need.. • Upgraded all planned food safety and quality standards. • Scheduled internal audits. • SFVS and potential client audits according to the need. SUPPLY THE MARKET WITH PRODUCTS THAT ENSURE CONSUMER WELL-BEING LONG-TERM DIRECTION: Promote healthier nutrition by offering the market healthier and accessible products (with favourable prices); conduct product marking and marketing communication with adherence to all legal regulations, and take additional steps to educate the consumers. GOALS FOR 2023-2024: • introducing the market to a dairy line with less sugar content; • research and development (R&D) project with the Lithuanian University of Health Sciences; • educate the consumer in the fields of healthier nutrition and sustainability. • Development of a product line with less sugar content. • Completed R&D project with the Lithuanian University of Health Sciences (LUHS). • Implementation of continuous educational projects. ENSURING STAFF WELL- BEING LONG-TERM DIRECTION: Ensuring ethical employment with respect to the fundamental human rights, equality, a right to a fair salary, and safe working conditions that are favourable to health and personal growth; putting an active effort in recruiting and retaining employees. GOALS FOR 2023-2024: • Ensuring safe working conditions; • Improvement of processes and tools to ensure the human right and equality; • Ensuring fair working conditions and qualification improvement opportunities. • Increased attention on accident prevention. • Internal qualification management projects. • Leadership and specialty training. • Improving financial working conditions. • Projects for improving ergonomic working conditions. • Growing customer demands for employee well- being. STRENGTHENING COMMUNITIES LONG-TERM DIRECTION: Developing an open dialogue, creating partnerships and strengthening local communities. GOALS FOR 2023-2024: • An open dialogue with local communities; • Offering support, based on the established criteria. • Offering support, based on established selection criteria. • Active support for regional organizations. • Sponsorship of Tauragė - Lithuanian capital of culture in 2023. ASPECTS SIGNFICANT TO VILVI GROUP IN THE SOCIAL FIELD: Recruiting and retaining employees Human rights Work safety, conditions and staff well-being Consumer well-being Diversity and equal opportunities HELPING COMMUNITIES PRIORITIES IN THE SOCIAL FIELD VILVI GROUP ANNUAL REPORT 2023 52 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS ATSA K I N G A V E RSLO P R AKTIKA Produktų sauga ir kokybė: Transparency and compliance VILVI GROUP PRIORITIES GOALS ACTIONS IN 2023 EXTERNAL FACTORS TECHNOLOGICAL INNOVATIONS LONG-TERM DIRECTION: Introduce innovations to obtain the maximum value from each drop of milk and reduce the impact on the environment. GOALS FOR 2023-2024: • Innovations, focused on developing the range of products; • Innovations, increasing energy-independence and the use of renewable energy; • Improvement of the project management competence. • Creation of the investment projects department. • Execution of innovation implementation projects according to the plan. • Biotechnology innovations/investments AB Vilkyškių pieninė. • Approved investments in the construction of a new factory of SIA Baltic Dairy Board, in Latvia. • Commencement of the installation of own solar power plants on the roofs of factories. • Heat regeneration project by AB Modest. TRANSPARENCY AND COMPLIANCE TO THE LAW LONG-TERM DIRECTION: Ethical business in compliance with the law and legislation. GOALS FOR 2023-2024: • To deepen the knowledge and competence of business ethics at the Group level; • Adapting to the new requirements regarding the EU Green Deal: Increasing sustainability disclosure requirements, taxonomy.. • Active exploration of disclosure requirements for non- financial information. • The development of an information monitoring system for taxonomy eligible activities on the group level.. • The Supervisory Board was formed and started its work. ACCOUNTABILITY TO STAKEHOLDERS LONG-TERM DIRECTION: transparent and timely information to shareholders and investors, trust-based relationship with all stakeholders. GOALS FOR 2023-2024: • Timely provision of relevant information to shareholders and investors, as established by the law; • Creating a dialogue and trust with stakeholders. • Regular provision of information to shareholders and investors.. SUPPLY CHAIN MANAGEMENT LONG-TERM DIRECTION: Resilient and efficient supply chains. GOALS FOR 2023-2024: • Increasing energy independence;; • improvement of the supplier screening system by increasing the integration of aspects on social responsibility. • Commencement of the installation of own solar power plant on factory roofs. • Improvement of the supplier screening system. • Growing customer demands for supply chain management. ASPECTS SIGNFICANT TO VILVI GROUP IN THE FIELD OF GOVERNANCE: Business ethics and anti- corruption Supply chain management Product innovation Accountability to stakeholders PRIORITIES IN THE FIELD OF GOVERNANCE VILVI GROUP ANNUAL REPORT 2023 53 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Policies and codes are certified on the scale of the entire Group or, if required the legislation – at each Company individually. Each policy has designated responsible persons at senior management or department head level. Policies and codes have:: - An established implementation procudure (established in the same policy or individual implementation procedures); - Processes of monitoring and control. Employees and other stakeholders can report cases of non-compliance to:: - In case of suspicion of harm to the public interest – the roup’s Reporting Channel on the Group’s website; - All worrying situations can be reported to the Group’s Trust Line on the Group’s website. This channel also has an anonymous reporting option. The Group’s Reporting Channel and Trust Line has established procedures of how the persons, responsible for these channels, should react and what process applies to the situation analysis and finding a solution. Confidentiality and personal data protection are guaranteed. Policy/procedure Short description Human Rights Policy The major principles of respect to people, their rights and choices, based on the document of the United Nations, and procedure of adherence to these principles. Code of Ethical Employment The Group’s established aim to ensure that all employees feel safe, respected and valued, know their rights and opportunities, which are equal to everyone. Code highlights the position not to employ children or minors, respect and support to the employees’ right to unite into peaceful associations, and the right to collective negotiations, also taking care of employees’ safety and well-being. Equal Opportunities Policy This policy establishes the fact that the Group has zero tolerance to direct or indirect discrimination, harassment or discriminative orders. It also lists the equal opportunities at work, applicable to all employees. Policy for the Prevention of Violence and Harassment at Work We strive to create a safe working environment not only physically, but also emotionally. Therefore, this document clearly lists the cases and behaviours that cannot and will not be tolerated in the Group, including preventive actions and control measures. Code of Ethical Business Lists the requirements for everyone working in the Group and those that we work with in order to ensure transparent, ethical and fair business and cooperation in terms of people and the environment, evading corruption, bribery or other cases of unauthorised agreements. It also establishes provisions regarding disclosure of information. Occupational Safety and Health Policy This policy reflects our priority of people and their well-being at work, focusing on the aim to provide each of our employees with safe working conditions that comply with the law, wellness culture development, promotion and support. Environmental protection policy This policy lists the principles, established according to the expectations of all of our stakeholders, and the Groups goals to reduce the negative and increase the positive impact on the environment. Food Safety and Quality Policy Since the Group aims to produce quality and safe food products, this policy lists all related goals and their implementation measures. This policy also highlights the efforts of creating a sustainable environment and reducing the impact on nature. Last, but not least, it also emphasizes the importance of close cooperation with milk suppliers. Remuneration Policy Establishes the principles of employee remuneration, the major provisions of efficient work pay cost management, at the same time creating motivational incentives for the employees to contribute to the mission, vision, values and goals of the responsibly managed Group. It highlights the principle of justice, which means paying equal salaries for employees with the same level of duties. IT Safety Policy This policy aims to define the necessary procedures and rules, applicable to employees using the Group’s IT infrastructure resources to maintain their security, integrity and accessibility. Rules of Personal Data Processing Establishes personal data processing compliance with the provisions of the General Data Protection Regulation (GDPR). GROUP POLICIES THAT HAVE THE GREATEST IMPACT ON ESG AREAS VILVI GROUP ANNUAL REPORT 2023 54 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Taxonomy overview process at Vilvi Group: The analysis of the Group’s activities is based on the following process;: • identification of taxonomy activities;; • technical assessment of each of the activities to see compliance to technical and significant contribution to impact reduction and (or) adaptation goals;; • assessment if the activities does not pose significant harm to other environmental; • assessment of the provision of necessary protective measures;; • final assessment of the activity’s compliance; • calculation of taxonomy indices for each of the activities; TAXONOMY OVERVIEW Delegated Act (EU) 2021/2139 Delegated Act (EU) 2021/2178 Documents used as guidelines: GENERAL PRINCIPLES OF ACCOUNTING POLICIES: In 2023, the VILIVI GROUP has set three key performance indicators for Taxonomy: - Turnover, which is the external revenue in accordance with International Financial Reporting Standards, which corresponds to consolidated sales in the statement of comprehensive income of AB Vilkyškių pieninė. - CAPEX, which is the increase in the value of property, plant and equipment and intangible assets before depreciation, amortisation and impairment over the previous financial year. The increase is the investment during the financial year (net of any government grants received), the amount of long-term investments presented in the consolidated financial statements excludes increases due to business combinations and liabilities related to the write-down of assets, but includes advances and prepayments. - Operating Expenses (OPEX for the purposes of the Taxonomy), which is the direct non-capitalised expenses relating to research and development, building renewal measures, short-term leases, maintenance and repairs, and any other direct costs relating to the day-to-day maintenance of property, plant and equipment carried out by the undertaking or by the third party from which the services are procured, and which is necessary in order to ensure the uninterrupted and efficient operation of such assets. Double counting: All disclosed indicators in the Taxonomy avoid double counting as each indicator is attributed to different activities. Intra-Group transactions are eliminated where necessary to avoid double counting. VILVI GROUP's activities are assessed against the climate change mitigation objective and are therefore disclosed only against this objective. Internal reporting systems and processes are continuously improved to adapt to Taxonomy reporting requirements The Group reveals the valuation of taxonomic economic activities. The Taxonomy Regulation (EU) 2020/852, Delegated Acts (EU) 2021/2139, (EU) 2021/2178, (EU) 2023/2486 are being actively studied, the ongoing activities are being analysed, and the aim is to increase the taxonomy indicators. The Group's main activity is dairy processing, food production is not included in Delegated Act (EU) 2021/2178 or the additional Delegated Acts published in 2022. 55 Delegated Act (EU) 2023/2486 Taxonomy Regulation (EU) 2020/852 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS VILVI GROUP ANNUAL REPORT 2023 Taxonomy-eligible activities Taxonomy- eligible activity code Taxonomy-eligible activity description for Climate change mitigation objective Corresponding activity in the Group Collection and transport of non-hazardous waste in source segregated fractions CCM 5.5 Separate collection and transport of non-hazardous waste in single or comingled fractions aimed at preparing for reuse or recycling. Collection and transport of non-hazardous waste in single or comingled fractions aimed at preparing for reuse or recycling. Transport by motorbikes, passenger cars and light commercial vehicles CCM 6.5 Purchase, financing, renting, leasing and operation of vehicles designated as category M1, N1, both falling under the scope of Regulation (EC) No 715/2007 of the European Parliament and of the Council, or L (2- and 3-wheel vehicles and quadricycles). Purchase and operation of vehicles. Purchase of EV. Freight transport services by road CCM 6.6 Purchase, financing, leasing, rental and operation of vehicles designated as category N1, N2 or N3 falling under the scope of EURO VI, step E or its successor, for freight transport services by road. Purchase and operation of vehicles. Construction of new buildings CCM 7.1 Development of building projects for residential and non-residential buildings by bringing together financial, technical and physical means to realise the building projects for later sale as well as the construction of complete residential or non-residential buildings, on own account for sale or on a fee or contract basis. Construction of new buildings. Renovation of existing buildings CCM 7.2 Construction and civil engineering works or preparation thereof. Renovation of existing buildings. Installation, maintenance and repair of charging stations for electric vehicles in buildings (and parking spaces attached to buildings) CCM 7.4 Installation, maintenance and repair of charging stations for electric vehicles in buildings and parking spaces attached to buildings. Installation, maintenance and repair of charging stations for electric vehicles. Installation, maintenance and repair of renewable energy technologies CCM 7.6 Installation, maintenance and repair of renewable energy technologies, on- site. Installation, maintenance and repair of renewable energy technologies. Acquisition and ownership of buildings CCM 7.7 Buying real estate and exercising ownership of that real estate. Buing and ownership of real estate. Professional services related to energy performance of buildings CCM 9.3. Professional services related to energy performance of buildings. Professional services related to energy performance of buildings Taxonomy-eligible and -aligned activities of the VILVI Group in 2023: TAXONOMY OVERVIEW 56 In the list are provided Taxonomy-eligible activities, which were implemented in 2023. The activity 5.4. Renewal of waste water collection and treatment from 2022 is not included into the list of 2023 as it was no longer active. In case it will be renewed, it will be included in the list. The main objective of VILVI GROUP activities is to contribute to climate change mitigation, therefore they are not fully assessed for climate change adaptation and disclosed as not aligned. VILVI GROUP ANNUAL REPORT 2023 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS CCM – Climate Change Mitigation. TAXONOMY OVERVIEW, REVENUE 57 Revenue under the Taxonomy Regulation Financial year 2023 Substantial contribution criteria DNSH criteria Minimum safeguards Proportion of Taxonomy - aligned or eligible revenue of 2022 Category enebling activity Category transitional activity Economic activities under the Taxonomy Regulation Taxonomy code Revenue Proportion of Revenue Climate change mitigation Climate change adaptation Water Pollution Circularity Biodiversity Climate change mitigation Climate change adaptation Water Pollution Circularity Biodiversity kEur % Y, N, N/EL Y, N, N/EL Y, N, N/EL Y, N, N/EL Y, N, N/EL Y, N, N/EL Y/N Y/N Y/N Y/N Y/N Y/N Y/N % E T A. Taxonomy-eligible activities A.1 Environmentally sustainable activities (Taxonomy-aligned) Collection and transport of non- hazardous waste in source segregated fractions CCM 5.5 37,17 0,02 Y N N/EL N/EL N/EL N/EL - Y - - Y - Y 0,03 - - A.1 Total 37,17 0,02 0,03 of which Enabling 0 0 0 of which Transitional 0 0 0 A.2 Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) A. 2 Total 0 0 0 Revenue of Taxonomy-eligible activities (A.1+A.2) 37,17 0,02 0,,03 B. Taxonomy non-eligible activities Revenue of Taxonomy-non-eligible activities 210 499 99,98 Total (A+B) 210 536 100 Taxonomy-eligible activity 5.5. is the only Taxonomy-aligned activity which generated revenues, due to that other activities are not included in the table above. VILVI GROUP ANNUAL REPORT 2023 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS CCM – environmental objective - Climate Change Mitigation; Y – Yes/ Yes, Taxonomy-eligible and Taxonomy-aligned activity with the relevant environmental objective; ; N – No/ No, Taxonomy-eligible but not Taxonomy-aligned activity with the relevant environmental objective; ; N/EL– Not eligible, Taxonomy-non-eligible activity for the relevant environmental objective; EL – Taxonomy-eligible activity for the relevant objective. TAXONOMY OVERVIEW, CAPEX 58 Capital expenditure (Taxonomy CAPEX) under the Taxonomy Regulation Financial year 2023 Substantial contribution criteria DNSH criteria Minimum safeguards Proportion of Taxonomy - aligned or eligible Taxonomy CAPEX of 2022 Category enebling activity Category transitional activity Economic activities under the Taxonomy Regulation Taxonomy code Taxonomy CAPEX Proportion of Taxonomy CAPEX Climate change mitigation Climate change adaptation Water Pollution Circularity Biodiversity Climate change mitigation Climate change adaptation Water Pollution Circularity Biodiversity kEur % Y, N, N/EL Y, N, N/EL Y, N, N/EL Y, N, N/EL Y, N, N/EL Y, N, N/EL Y/N Y/N Y/N Y/N Y/N Y/N Y/N % E T A. Taxonomy-eligible activities A.1 Environmentally sustainable activities (Taxonomy-aligned) Collection and transport of non-hazardous waste in source segregated fractions CCM 5.5. 0 0 Y N - - - - - Y - - Y - Y 0 - - Transport by motorbikes, passenger cars and light commercial vehicles CCM 6.5 120,9 0,90 Y N - - - - - Y - Y Y - Y 0 - - Installation, maintenance and repair of charging stations for electric vehicles in buildings (and parking spaces attached to buildings) CCM 7.4. 0,8 0,01 Y N - - - - - Y - - - - Y 0,04 E - Installation, maintenance and repair of renewable energy technologies CCM 7.6. 18,77 0,14 Y N - - - - - Y - - - - Y 0 E - A.1 Total 140,47 1,05 0,04 of which Enabling 19,57 0,15 of which Transitional 0 0 VILVI GROUP ANNUAL REPORT 2023 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS CCM – environmental objective - Climate Change Mitigation; Y – Yes/ Yes, Taxonomy-eligible and Taxonomy-aligned activity with the relevant environmental objective; ; N – No/ No, Taxonomy-eligible but not Taxonomy-aligned activity with the relevant environmental objective; ; N/EL– Not eligible, Taxonomy-non-eligible activity for the relevant environmental objective; EL – Taxonomy-eligible activity for the relevant objective. TAXONOMY OVERVIEW, CAPEX 59 Capital expenditure (Taxonomy CAPEX) under the Taxonomy Regulation Financial year 2023 Substantial contribution criteria DNSH criteria Minimum safeguards Proportion of Taxonomy - aligned or eligible Taxonomy CAPEX of 2022 Category enebling activity Category transitional activity Economic activities under the Taxonomy Regulation Taxonomy code Taxonomy CAPEX Proportion of Taxonomy CAPEX Climate change mitigation Climate change adaptation Water Pollution Circularity Biodiversity Climate change mitigation Climate change adaptation Water Pollution Circularity Biodiversity kEur % Y, N, N/EL Y, N, N/EL Y, N, N/EL Y, N, N/EL Y, N, N/EL Y, N, N/EL T/N T/N T/N T/N T/N T/N T/N % E T A.2 Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) Collection and transport of non-hazardous waste in source segregated fractions CCM 5.5. 0 0 EL EL N/EL N/EL N/EL N/EL 0 Transport by motorbikes, passenger cars and light commercial vehicles CCM 6.5. 94,49 0,70 EL EL N/EL N/EL N/EL N/EL 0 Freight transport services by road CCM 6.6. 1 028,95 7,65 EL EL N/EL N/EL N/EL N/EL 0 Construction of new buildings CCM 7.1. 1 314,13 9,78 EL EL N/EL N/EL N/EL N/EL 0 Renovation of existing buildings CCM 7.2. 403,4 3 EL EL N/EL N/EL N/EL N/EL 0 Acquisition and ownership of buildings CCM 7.7 0 0 EL EL N/EL N/EL N/EL N/EL 0 Professional services related to energy performance of buildings CCM 9.3 0 0 EL EL N/EL N/EL N/EL N/EL 0 A. 2 Total 2 840,97 21,14 0 CAPEX of Taxonomy-eligible activities (A.1+A.2) 3 121,91 23,23 B. Taxonomy non-eligible activities Taxonomy CAPEX of Taxonomy-non-eligible activities 10 320 76,77 Total(A+B) 13 442 100 VILVI GROUP ANNUAL REPORT 2023 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS CCM – environmental objective - Climate Change Mitigation; Y – Yes/ Yes, Taxonomy-eligible and Taxonomy-aligned activity with the relevant environmental objective; ; N – No/ No, Taxonomy-eligible but not Taxonomy-aligned activity with the relevant environmental objective; ; N/EL– Not eligible, Taxonomy-non-eligible activity for the relevant environmental objective; EL – Taxonomy-eligible activity for the relevant objective. TAXONOMY OVERVIEW, OPEX 60 Operating expenses (Taxonomy OPEX) under the Taxonomy Regulation Financial year 2023 Substantial contribution criteria DNSH criteria Minimum safeguards Proportion of Taxonomy - aligned or eligible Taxonomy OPEX of 2022 Category enebling activity Category transitional activity Economic activities under the Taxonomy Regulation Taxonomy code Taxonomy OPEX Proportion of Taxonomy OPEX Climate change mitigation Climate change adaptation Water Pollution Circularity Biodiversity Climate change mitigation Climate change adaptation Water Pollution Circularity Biodiversity kEur % Y, N, N/EL Y, N, N/EL Y, N, N/EL Y, N, N/EL Y, N, N/EL Y, N, N/EL Y/N Y/N Y/N Y/N Y/N Y/N Y/N % E T A. Taxonomy-eligible activities A.1 Environmentally sustainable activities (Taxonomy-aligned) Collection and transport of non-hazardous waste in source segregated fractions CCM 5.5. 175,95 0,1 Y N - - - - - Y - - Y - Y 0,05 - - Transport by motorbikes, passenger cars and light commercial vehicles CCM 6.5. 1,05 0,00 Y N - - - - - Y - Y Y - Y 0 - - Installation, maintenance and repair of charging stations for electric vehicles in buildings (and parking spaces attached to buildings) CCM 7.4. 0,1 0,00 Y N - - - - - Y - - - - - 0 E - Installation, maintenance and repair of renewable energy technologies CCM 7.6. 0 0 Y N - - - - - Y - - - - Y 0 E - A.1 Total 177,1 0,1 0 of which Enabling 0,1 0 of which Transitional 0 0 VILVI GROUP ANNUAL REPORT 2023 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS CCM – environmental objective - Climate Change Mitigation; Y – Yes/ Yes, Taxonomy-eligible and Taxonomy-aligned activity with the relevant environmental objective; ; N – No/ No, Taxonomy-eligible but not Taxonomy-aligned activity with the relevant environmental objective; ; N/EL– Not eligible, Taxonomy-non-eligible activity for the relevant environmental objective; EL – Taxonomy-eligible activity for the relevant objective. TAXONOMY OVERVIEW, OPEX 61 Operating expenses (Taxonomy OPEX) under the Taxonomy Regulation Financial year 2023 Substantial contribution criteria DNSH criteria Minimum safeguards Proportion of Taxonomy - aligned or eligible Taxonomy OPEX of 2022 Category enebling activity Category transitional activity Economic activities under the Taxonomy Regulation Taxonomy code Taxonomy OPEX Proportion of Taxonomy OPEX Climate change mitigation Climate change adaptation Water Pollution Circularity Biodiversity Climate change mitigation Climate change adaptation Water Pollution Circularity Biodiversity kEur % Y, N, N/EL Y, N, N/EL Y, N, N/EL Y, N, N/EL Y, N, N/EL Y, N, N/EL Y/N Y/N Y/N Y/N Y/N Y/N Y/N % E T A.2 Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) Collection and transport of non-hazardous waste in source segregated fractions CCM 5.5. 30,11 0,02 EL EL N/EL N/EL N/EL N/EL 0,01 Transport by motorbikes, passenger cars and light commercial vehicles CCM 6.5. 3,13 0,00 EL EL N/EL N/EL N/EL N/EL 0 Freight transport services by road CCM 6.6. 10,57 0,01 EL EL N/EL N/EL N/EL N/EL 0 Construction of new buildings CCM 7.1. 0 0 EL EL N/EL N/EL N/EL N/EL 0 Renovation of existing buildings CCM 7.2. 0 0 EL EL N/EL N/EL N/EL N/EL 0 Acquisition and ownership of buildings CCM 7.7 0 0 EL EL N/EL N/EL N/EL N/EL 0 Professional services related to energy performance of buildings CCM 9.3. 4,97 0,00 EL EL N/EL N/EL N/EL N/EL 0 A. 2 Total 48,78 0,03 0,12 OPEX of Taxonomy-eligible activities (A.1+A.2) 402,98 0,22 0,0,6 B. Taxonomy non-eligible activities Taxonomy OPEX of Taxonomy-non-eligible activities 182 446 99,78 Total(A+B) 182 849 100 VILVI GROUP ANNUAL REPORT 2023 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS CCM – environmental objective - Climate Change Mitigation; Y – Yes/ Yes, Taxonomy-eligible and Taxonomy-aligned activity with the relevant environmental objective; ; N – No/ No, Taxonomy-eligible but not Taxonomy-aligned activity with the relevant environmental objective; ; N/EL– Not eligible, Taxonomy-non-eligible activity for the relevant environmental objective; EL – Taxonomy-eligible activity for the relevant objective. ENVIRONMENTAL PROTECTION ENVIRONMENTAL MANAGEMENT ....... 63 psl. ENERGY AND NATURAL RESOURCE USE ....... 64 psl. ENVIRONMENTAL IMPACT ....... 65 psl. WASTE REDUCTION ....... 66 psl. VILVI GROUP ANNUAL REPORT 2023 62 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Vilvi Group management is based on general principles and values of the Group, thus, the environmental management is conducted according to the same principles. In 2022, the Group certified the Environmental Protection Policy, which defines the guidelines and principles of implementing a culture and practice of a sustainable business in all companies of the Group. The policy lists the major areas of environmental impact and goals of reducing the negative and increasing the positive impact. Group companies seek to optimize energy consumption by active monitoring. Until 2023 VILVI GROUP purchased only green energy, i.e. derived from renewable sources. Due to the increases price spreads of green energy, the decision was made to cancel green energy purchases and invest into internal solar energy generation projects (solar panels on the roofs of manufacturing facilities). Towards the end of 2024 solar panels will start generating energy on the majority of manufacturing buildings. Group actively measures CO2 emissions and environmental impact. In 2023 Scope 1 and Scope 2 measurement of CO2 emissions was implemented. In 2024 Scope 3 measurement will take place. The business development is based on all applicable environmental protection legislation requirements, including taking pollution prevention actions, cooperation with business partners, state institutions, improvement of staff competence and responsible attitude towards environmental protection. Seeking for its strategic goals, the Group is doing its best to reduce the negative impact on the environment, being on the path of continuous change towards being a more environmentally-friendly organization. Policies, certified within the Group: Environmental Protection Policy We are aware of our impact on the environment in the following aspects: • air pollution with greenhouse gasses; • using a significant amount of energy and natural resources; • generating production waste, surface wastewater and other waste during our operations; • physical environmental pollution: noise, smells; • using a significant amount of product packaging̨ ; • using chemical substances; • impact on biodiversity and animal well- being. We aim to control and reduce the negative impact on the environment, and increase the positive impact by adhering to the following principles: • monitoring our impact on the environment – the use of natural and energy resources, accumulation of production and surface waste water, packaging and other wastę; • we aim to assess the organisation’s carbon footprint, setting targets to reduce it; • our goal is to evade, limit or reduce the negative impact on the climate, protecting the air, water and soil from more pollution, and to control the physical pollution of the environment; • we seek to process the waste, accumulating at the company, by following the ‘reduce, reuse, recycle’ principle; • we initiate more sustainable packaging choices; • we aim to increase the use of renewable energy (by reducing the use of other types of energy); • we do our best to use high-quality and more environmentally-friendly materials and measures, applying processes and technology that do not increase the pollution or other negative impact on the environment. How do we do it: • we conduct our business according to all applicable environmental protection legislation requirements̨ ; • we cooperate with other environmental improvement stakeholders – business partners, state institutions, authorities, and communities that we impact; • we conduct regular reviews of the environmental impact, monitoring and inspecting our efficiency, improving our environmental protection policy, and informing the society of our advancement̨; • we take pollution prevention action; • we develop our staff competence and responsible attitude towards environmental protection̨ . ENVIRONMENTAL MANAGEMENT VILVI GROUP ANNUAL REPORT 2023 63 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Energy resource use In 2023, the Group’s energy consumption was a little lower than in 2022, while the energy consumed was used particularly efficiently due to increased production scope and implemented technology. The amount of energy, used to produce 1 t of production and attributed to 1 unit of revenue (million Eur) was significantly lower in 2023 than 2022. As the circumstances of the war in Ukraine strongly affected the energy sector, the Group was forced to quickly respond to the situation and adapt to the market changes. Under enormous energy price differences and in attempts to maintain stability, wherever technologically possible, plants quickly switched to using cheaper types of fuel. The boiler rooms of AB Modest and AB Kelmės Pieninė were equipped with technology, enabling to change the type of fuel. Changed market conditions in early 2023 enabled to switch back to the previously used less polluting solutions. Due to the significant differences in the prices of green energy and electricity from non-renewable sources, the purchase of green electricity was stopped after several years of breaks. A decision was made to install our own solar power plants on the roofs of the factories. UAB Kelmės pienas installed a solar power plant with its own funds, in 2023 partial EU financing was approved for solar power plants on the roofs of AB Vilkyškių pieninė and AB Modest factories. After the implementation of the projects, the Group will produce more than 1000 MWh of electricity per year. ENERGY AND NATURAL RESOURCE USE Energy resource use 2021 2022 2023 Total energy consumed, GWh 99.77 98.45 95.23 of which: energy from renewable electricity, GWh 27.99 27.00 0 of which: energy from non-renewable electricity, GWh 0 0 28.43 of which: energy from natural gas, GWh 53.21 48.48 27.33 of which: energy from liquefied petroleum gas, GWh 18.57 21.52 75.14 of which: energy from diesel fuel, GWh 0 1.44 0.17 Most of the natural and petroleum gas is used for the production of steam used in technological processes. Intensity of energy consumption 2021 2022 2023 Energy, consumed to produce 1 t of production, MWh 1.25 1.16 1,09 Production, t. 79434 84635 87036 Energy consumption per one unit of revenue, GWh 0.64 0.42 0,45 Turnover, million EUR 156 234 210,5 Energy according to type 2021 2022 2023 Renewable energy, % 28 27 0 Non-renewable energy, % 72 73 100% Water consumption 2021 2022 2023 Total water consumed, m3 890264 867398 848496 Amount of water to produce 1 t of production, m3 11.21 10.25 9.75 Production, t 79434 84635 87036 Sustainable consumption of water AB Vilkyškių pieninė has its own water source, where it extracts water. Other companies in the Group are supplied with water by centralised water production companies. In 2023, Vilkyškių Pieninė started introducing a technology that cleans permeate water so that it can be reused in production processes. This is aimed at sustainable use of water – to reduce not only the amount of water consumed, but also the amount of wastewater. VILVI GROUP ANNUAL REPORT 2023 64 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Air pollution and waste water management At AB Vilkyškių pieninė Water is extracted from an underground water well. The wastewater generated by production processes at AB Vilkyškių Pieninė, is cleaned by the plant's own mechanical-biological treatment equipment. The wastewater treatment efficiency amounts to 99%. In 2020, the company installed an automatic waste water release control system, preventing excess waste water sludge from entering the environment with cleaned wastewater. In order to save water, reduce the amount of wastewater and the amount of pollutants entering the environment, wastewater treatment facilities have been successfully installed, which enable the reuse of water used in production processes. Thanks to them, the amount of wastewater is reduced by 30%. The project is partially financed by EU funds. The activity also involves: 2 boilers using natural gas, underground fuel tanks that release volatile organic compounds into the air. UAB Kelmės pienas wastewater generated during the production of fresh milk products is discharged to UAB Kelmės vanduo treatment facilities. Water is extracted from an underground water well owned by UAB Kelmės pienas. AB Kelmės pieninė dry milk products factory produces bulk, dusty products, therefore it is very important to minimize the entry of solid particles and pollutants into the air and environment. The air contaminated with solid particles from the dryers is directed to the cyclones and cleaned in them is released into the environment. Wastewater generated during production is discharged to the treatment facilities of UAB Tauragės vandenys. At AB Modest wastewater generated in the company during production is discharged into the city's sewage system, which is operated by UAB Tauragės vandenys. In 2023, a wastewater primary treatment project was prepared, which will be implemented in 2024. Pollution permits AB Vilkyškių pieninė has an integrated pollution prevention and control (IPPC) permit. TIPK was issued to the company based on its activities, when more than 200 tons of milk are processed per day. The amount of carbon monoxide, nitrogen, sulfur oxides, solid particles, volatile organic compounds and other pollutants emitted into the air is controlled according to the values set in the IPPC permit. The pollution of wastewater discharged into the environment is also controlled. UAB Kelmės pienas has been issued a pollution permit for the management of environmental air pollution. According to this permit, the amount of nitrogen oxides emitted into the ambient air is controlled.. Pollution permits are not mandatory for other companies of the Group. Monitoring programmes AB Vilkyškių Pieninė developed a monitoring programme for the impact of their water source on the groundwater and conducts surveillance. The monitoring programme is also used to control the possible impact of the gas station for the groundwater, and conduct the monitoring of the pollutants emitted into the air and sources of pollution. UAB Kelmės pienas has approved a monitoring program for the impact on groundwater due to the available water well, and regular observations are carried out. GHG emissions Our priority until 2024 is to determine where in our business cycle we have the greatest impact on the environment, so we use the latest analysis methods and methods in order to achieve effective solutions. In 2023, GHG emissions of Scopes 1 and 2 were assessed, in 2024 it is planned to evaluate emissions of Scope 3. Methodology ENVIRONMENTAL IMPACT VILVI GROUP ANNUAL REPORT 2023 65 GHG emissions Unit of measurement 2023 Direct emissions (Scope 1) Thousand t of CO2 eq. 19 150,59 Indirect emissions (Scope 2) 12 319,13 Total (Scopes 1 and 2) 31 469,73 GHG emission intensity Amount of emissions per unit of income t CO2 eq./ mln. EUR 82,45 Amount of emissions per ton of purchased raw material t CO2 eq./ 0,064 Amount of emissions per ton of manufactured products t CO2 eq./ t 0,119 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS More sustainable packaging The Group keeps investing into environmentally-friendlier solutions with responsible packaging choices. We’re on a continuous mission of searching for more sustainable packaging. We keep looking for ways to reduce the consumption of plastic or paper by replacing materials, packaging size or thickness. We also look for ways to replace our combined packaging with monopackaging. This is an area of continuous investigation and discovery and we do it in close cooperation with packaging producers and suppliers. The packaging waste, generated by Vilvi Group companies is handled and accounted according to established environmental requirements in product, packaging and waste accounting information systems – GPAIS. Our greatest attention is focused on preservation of nature, so we urge our consumers to sort dairy product packaging by clearly indicating the waste containers they should be placed in We also make the sorting easier by marking separation points of multilayer packaging with perforation. Changing packaging regulations European Union packaging regulations are changing rapidly, we are constantly monitoring the changes and preparing for them. In 2023, we prepared for the upcoming changes due to the EU single-use plastic directive 2019/904/EU. The requirement to attach the beverage lid to the packaging affects our line of kefir and drinkable yogurts – a new production line is being installed that will allow this requirement to be implemented. We actively follow discussions and possible changes regarding the EU Green Deal, which may also be relevant for our packaging solutions. From 2023, according to the new requirements, we calculate the amount of disposable plastic products (kefir, drinkable yogurt packages) used. Sustainable solutions We invest in solutions that are more environmentally friendly. When manufacturing products, we responsibly choose packages and packaging materials. Every day we look for more sustainable choices in our activities, every year we carry out packaging reduction, thinning and replacement projects that allow us to reduce the amount of raw materials used. Since 2018, we have been transporting fresh dairy products intended for consumers in reusable boxes, cardboard secondary boxes have been gradually abandoned. In 2023, a request was received from Lithuanian retail chains to return to cardboard secondary packaging. Such a decision again significantly increased the previously effectively reduced amounts of secondary packaging used. WASTE REDUCTION VILVI GROUP ANNUAL REPORT 2023 66 Waste management and accounting The accounting of pollutants emitted into the air and sources of pollution is carried out in accordance with the procedure established by the companies. In the entire Group, the waste generated during production is managed and accounted for in accordance with the established environmental requirements in the product, packaging and waste accounting information systems – GPAIS and AIVIKS. Waste is sorted, temporarily stored, collected, transported and processed in such a way that it does not have a negative impact on public health and the environment. All waste, including hazardous and chemical substances, is handled in accordance with the laws and regulations of the Republic of Lithuania. Each company of the Group has entered into contracts with waste managers. All whey is used for production. Whey is used to obtain energy by transferring it to energy-producing companies that have permits to engage in such activities. OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Type of waste 2022 2023 Packaging waste, t 134,09 199,60 Hazardous waste, t 23,54 20,18 Production waste, t 8153,14 8803,57 Other waste, t 35,93 62,17 In total 8346,7 9085,51 SOCIAL ENVIRONMENT PRODUCT SAFETY AND QUALITY ....... 68 psl. EMPLOYEES AND THEIR WELL-BEING ....... 69 psl. RESPECTING HUMAN RIGHTS ........70 psl. OCCUPATIONAL SAFETY AND HEALTH ........ 71 psl. REMUNERATION POLICY ....... 72 psl. INCLUDING SENSITIVE GROUPS ....... 73 psl. EMPLOYEE GROWTH ....... 74 psl. RECRUITING AND RETAINING EMPLOYEES ....... 75 psl. CONSUMER WELL-BEING ....... 76 psl. HELPING COMMUNITIES ....... 78 psl. VILVI GROUP ANNUAL REPORT 2023 67 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Food safety and culture development, as well as ensuring product safety and quality is one of our major priorities. Our goods are produced and controlled by adherence to adherence to the highest food safety and quality standards, and legal regulation. The Group follows the certified Food Safety and Quality Policy. The Group is also subject to audits of controlling and certifying institutions, inspections by current and potential clients or their representatives, and the State Food and Veterinary Service (SFVS). Consumer inquiries, feedback and complaints can be submitted to the quality line and by e-mail. We analyse all consumer complaints, engaging in a dialogue to clarify the circumstances. We register, analyse and respond to complaints according to certified Complaint Guidelines and Non-compliance Management Procedure.. Management of customer expectations In order to ensure the highest product quality and compliance with client demands, we actively cooperate by collecting information on their specific needs and marking requirements. This makes us sure that we meet their expectations from the selection of raw materials and production processes. We conduct annual client and consumer surveys and use this date for further analysis of their needs. The Group sets new measurable food safety and quality goals every year. We aim for guaranteed food safety and quality and thus keep improving our internal processes. Policies and procedures, certified within the Group: Food Safety and Quality Policy Quality lines: +370 800 20802 Food Safety and Quality System info@vilvi.eu ENSURING PRODUCT SAFETY AND QUALITY VILVI GROUP ANNUAL REPORT 2023 68 Food safety and quality certificates of VILVI GROUP companies: OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Sertifikatai AB Vilkyškių pieninė AB Modest AB Kelmės pieninė UAB Kelmės pienas AB Pieno logistika SIA Baltic Dairy Board ISO 22000 FSSC 22000 ISO 50001 HALAL Kosher IFS Food Version 7 Certificate of ecological production People, ensuring human rights and equal opportunities – this is our priority. In 2023, VILVI GROUP's greatest focus was on employees: their well-being, safety, health, attraction and retention, competence development and career opportunities. The year 2023 was dedicated to the personal and professional growth of employees. We continue to nurture a culture of respect and open communication and cooperation within the Group. We try to create the most favorable conditions for sharing knowledge and improving skills. We create a supportive and inspiring environment for employees through internal and external training, so that everyone can find the most acceptable way for them to grow and develop. We encourage the involvement of employees, accept their ideas, create conditions for active participation in improving the company's operational processes. In order to preserve the good physical health of employees, we are continuing the project of purchasing ergonomic tools for the production employees of the Group, and the Group’s administration employees are given additional health motivational measures. We take care of not only the physical but also the emotional health of our employees, continuing to focus on psychosocial factors. Remdamiesi Based on the data of the risk assessment of psychosocial factors conducted in 2021, we are continuing the program for reducing stress at work, implementing measures and improving solutions. Good emotional health requires communication and leisure activities that connect employees, common interests. In order to foster a close and sincere relationship within the Group, in 2023 we brought back festive events and gatherings to the lives of VILVI GROUP employees. We continue and their number is only increasing. In the summer, we invited employees, their families, residents of the surrounding community and towns to the 30 th anniversary celebration of VILVI GROUP. During it, the long-term employees of VILVI GROUP were congratulated and honored. 354 employees have been sharing their knowledge and skills for more than 10 years. NUMBER OF EMPLOYEES AS OF 31-12-2023 919 pilnu etatu OUR EMPLOYEES Most of the part-time employees are persons with limited working capacity (retired, people with disabilities, who have lost professional or general working capacity). In the group, they are given the conditions to work and integrate into the team. VILVI GROUP ANNUAL REPORT 2023 69 Under 30 11% 30-50 44% > 50 45% 2022 Employees by contract type Part-time Full-time Fixed-term contract Indefinite contract Women 78 410 17 471 Men 51 380 15 416 Total 129 790 32 887 By age Men 47% Women 53% By gender OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS 2021 2022 2023 Women 56% 52% 53% Men 44% 48% 47% Distribution of all employees by gender: Distribution of managers by gender: 2021 2022 2023 Middle-level managers women 47% 47% 58% Top-level managers 30% Middle-level managers men 53% 53% 42% Top-level managers 70% Distribution of members of management bodies by gender: RESPECT FOR HUMAN RIGHTS AND DIVERSITY VILVI GROUP ANNUAL REPORT 2023 70 2021 2022 2023 Board women 17% 17% 17% men 83% 83% 83% Committees (audit, remuneration) women 100% 100% 100% men 0% 0% 0% Supervisory board women - - 33% men - - 67% We are proud to maintain an excellent gender balance both at the level of all employees and at the management level. Since the entire personnel management policy of the Group is based on the principle of non-discrimination, both men and women are provided with equal conditions to work, develop and advance in their careers. Our Remuneration Policy, Pay System and Equal Opportunities Policy also ensure that equally qualified men and women doing the same job are paid the same wages. Essential policies have been approved in the Group so that not only within the Group we know what principles of work and cooperation are most important to us, but also to inform the communities around us, the partners we work with and other interested parties. To make sure that our responsible attitude always reflects on our business, we established the necessary procedures, appointed responsible persons and certified control mechanisms. We’ve always emphasized zero tolerance to any forms of violence or any other attempts of harm. We keep on watch to prevent this in our daily work and business overall. We’ve also certified the Policy for the Prevention of Violence and Harassment at Work and initiated employee trainings. Fundamental policies and codes, certified within the Group: The Group as reporting channels, where employees and other stakeholders can report situations that concern them: Human Rights Policy Code of Ethical Employment Trust line Rules of Personal Data Processing The number of complaints, received on the Reporting channel: 2021 – 0, 2022 – 0, 2023 – 1. IT Safety Policy Reporting channel Equal Opportunities Policy Policy for the Prevention of Violence and Harassment at Work OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS The Group adheres to all laws and legislation applicable to occupational safety and health, has appointed responsible persons and established processes to ensure adherence to the rules of occupational safety and health procedures, regular staff instructions, certifications, necessary training and exercises. Companies of the Group conduct regular risk assessments, trainings and instructions, while the employees are provided with all necessary personal safety measures. Seeking to encourage our employees to take a better care of their health, the Group conducts various projects and programmes: • Administrative employees are provided with additional motivational wellness measures: the opportunity for detailed health examinations/specialist consultations, use of sports club, dentist, rehabilitation and other services; • All employees are welcome to check their eyes and get their flu vaccinations for free; • In order to prevent possible chronic occupational diseases and preserve the health of employees, the project of ergonomic measures is in progress – employees are provided with ergonomic measures, workplace improvements are implemented, which will allow to preserve health, prevent injuries and other consequences for health; • During the trainings, we urge our employees to take a better care of their health and acquire the necessary skills. Each accident is followed by a detailed investigation of the situation, immediately initiating changes and introducing the necessary measures to prevent new cases. The Group follows the Implementation Plan for Prevention Measures to Evade Accidents at Work and Occupational Diseases, certified every year. 2022 marked the introduction of external trainings on preventing accidents at work for managers of all levels. The training will continue in 2023 as well. 2021 2022 2023 Total number of accidents 11 10 13 of which accidents on the way to/from work 6 5 7 of which accidents at work 5 5 6 TRIR (total recordable employee injury rate) n.a. n.a. 1,8 TRIR, KPI n.a. n.a. <2 Nnumber of accidents: Policies certified within the Group: Occupational Safety and Health Policy 2021 2022 2023 Number of employees that have used health services (health insurance, vaccinations, vision screening, etc.) 192 214 200 Number of employees vaccinated against flu 110 94 122 Total wellness, EUR 37.000 44.000 38.000 Employees that have used health services: OCCUPATIONAL SAFETY AND HEALTH VILVI GROUP ANNUAL REPORT 2023 71 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Policies and procedures certified within the Group: : Remuneration Policy Work Pay System All employees contribute to the creation of the company’s value, thus, seeking to remain a competitive employer, we stand for clear, reasonable and fair wages. The remuneration system is based on the principles of gender equality, non- discrimination and fair remuneration, and is also based on the LR legislation and Vilvi Group’s certified Remuneration Policy.. The remuneration system clearly defines the categories of the employees and the positions, attributed to these categories. The work remuneration provisions, established in the system and its annexes, are applied in a way to evade any gender or other types of discrimination. Men and women must receive equal payment for the same or equal work.. The content of the work, done by the employees, applicable qualification requirements (if any), compulsory and voluntary qualification improvement procedures are established in the job description and/or employment contract.. We focus special attention on the internal promotion and professional improvement of our employees. All vacant positions, subject to higher requirements, are firstly offered to our company’s employees that comply with the requirements. Employees may receive benefits for their qualifications obtained and/or premiums for additional work or fulfilment of additional duties or tasks. Additional benefits and the welfare package Due to the difference in the age and education of our employees, our goal is to offer a balanced package, which meets the needs of different groups. The employees are offered all kinds of financial assistance and other incentives: financial assistance in case of a death in the family; shopping centre vouchers for a birth of a child or weddings; presents for birthdays, anniversaries, Christmas or retirement; taking care of the employees’ arrival to work; administration employees are given additional health motivational measures.. At the end of 2023, as in 2022., in view of the inflation that has strongly affected people's incomes, each employee of the Group was given a shopping center gift voucher worth EUR 100 as a gift. We value clarity and transparency, when it comes to remuneration, so we use the services of Korn Ferry Hay Group the leading supplier of precise remuneration information and analysis. Korn Ferry Hay Group remuneration market analysis enables us to compare Vilvi Group's remuneration policy with the local market, helping to ensure that our wages are competitive and reasonable. 2021 2022 2023 Salary median, Eur 1281 1508 1746 MEN : WOMEN 1:0.92 EUR 1,289 : EUR 1,186 1:0.87 1619 Eur. : 1413 Eur. 1 : 0,90 1875 Eur. : 1689 Eur. Salary median by employee groups, MEN : WOMEN workers 1 : 0,77 1 : 0,79 1 : 0,83 specialists 1 : 0,89 1 : 0,85 1 : 0,87 managers 1 : 0,9 1 : 0,9 1 : 0,83 Median salary ratio by gender: The Remuneration Policy and Work Pay System, adopted by the Group ensures that men and women receive equal payment for the same or equal work. The Group employs a large number of employees with different competencies for various positions. This complexity is the reason for the median salary ratio. REMUNERATION POLICY VILVI GROUP ANNUAL REPORT 2023 72 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS At Vilvi Group we always do our best to create suitable working conditions for people with limited working capacity. These include persons of retirement age and people that have lost their vocational or general working capacity, are unable to compete in the labour market under equal conditions and, based on the official statistics, possible encounter a higher risk of poverty. We value these employees and they have all the conditions to work according to their abilities and to integrate both into the labour market and in the staff of the Group. In 2022, the Group employed 48 employees of retirement age and 68 employees with a disability. The Group enables people of mature age to work as long as they want. Our employees are welcome to continue their employment and enjoy the community, achievements, and joint work even when they reach retirement age. Our Group’s employees belong to various age groups. We’re proud of our different generations working together with the older employees sharing their good practice with the young and newlyhired employees. This means sharing not only the experience, but also culture and values, cherished by the Group for many years. Seeking to ensure better conditions for employees with small children, in 2010, with the EU support, one of the Group’s companies established a childcare room, referred to as the kindergarten by the residents of Vilkyškiai town. As of 2013, upon the expiry of the project funds, the kindergarten has been further partially funded by the Group. Children can take part at pre-school education while their parents are at work. VILVI GROUP also employs employees from other countries. In 2023, 7 citizens of other countries worked. The group ensures the same working conditions and remuneration for migrant workers as for Lithuanian citizens. Sharing the experience with the employees and their family members The offspring of our employees is also welcome to get to know their parents’ workplace. Excursions are held, during which children can take a closer look at what their mother or father are doing at the plants or the administrative premises, the processes, manufacturing and creation of the products many of them enjoy every day. Every year, we show attention to the minor children of employees on the occasion of the biggest holidays of the year – we give gifts or experiences at events. In 2023, VILVI GROUP participated in a children's diabetes camp with its low-sugar fresh milk product line. INCLUDING SENSITIVE GROUPS VILVI GROUP ANNUAL REPORT 2023 73 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Our greatest attention is focused not only on maintaining a good physical emotional health of our employees, but also on the development of their competencies and opening career opportunities. We help people grow and improve, encouraging them and doing our best to keep an open and safe environment, reflecting the major human values, encouraging cooperation and sharing knowledge. Targeted employee training is organized in the Group, taking into account the Group’s goals, employee needs and competence expectations. Both specialized, vocational and general competence trainings are carried out at the organization level. We cooperate with various scientific and training institutions, employees are provided with opportunities to acquire missing competences both in internal and external trainings, seminars or conferences. It is important for us that all links improve, achieve the same goals and foster the same values that are the basis of VILVI GROUP’s activities. In 2023, great attention was paid to the leadership training of managers, during which the main practices of leading a team were explored in detail - the development of a leader’s mindset, mobilizing and leading a team through change, time and energy management, and creating a culture of feedback. Managers also deepened their knowledge and skills during individual sessions with lecturers. 2021 2022 2023 Specialist trainings, h in total 2300 2017 944 Hours per specialist 19 Out of them, 4 hours for the lowest qualified employees 17 Out of them, 8 hours for the lowest qualified employees. 12 Out of them, 4 hours for the lowest qualified employees. Manager trainings, h in total 2827 2240 3908 Hours per manager 35 22 44 Staff training hours: SPECIAL ATTENTION TO EMPLOYEE GROWTH VILVI GROUP ANNUAL REPORT 2023 74 The company has a book library where employees can read professional, motivational and fiction literature. OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS We remain the major employer in regions, where all of our plants are located. We are valued for stability, taking care of our employees and the surrounding communities. One of the advantages of business development in rural areas is being able to be close to each other, getting to know and understanding each other better. Yet it also poses certain challenges in finding new staff, because the population away from the metropolitan areas is shrinking. However, we find solutions and manage to lure specialists from other, larger cities. We actively cooperate with vocational and higher schools, organize professional information, career planning presentations, familiarization tours to factories, participate in career fairs organized by higher schools. Graduates are encouraged to do an internship in order to get a better understanding of working in a manufacturing company and possibly secure a job after graduation. Our programme Bring Your Friend has been open for several years, enabling our employees to recommend the Group as an employer to their friends, relatives or acquaintances, receiving a monetary bonus. We’re proud of our people becoming the ambassadors of Vilvi Group, attracting new employees that they love working with, building the company’s microclimate together. In 2023, this programme brought us 21 new employees (22 in 2022, 9 in 2021). We keep polishing the systems of introducing new employees into the team and work. Responding to the changing situation, we also keep improving the processes of recruiting, screening, introduction and integration. The consistent introduction of new staff members introduces them to the company’s culture, improving the efficiency of integration and training, building their motivation to work. We have a motivational system not only for the newly-hired, but also employees that have already been working with us for a while. We do our best to find out and respond to our employees’ needs, offering them namely what they need most. 2021 2022 2023 Average length of employment 7 years 8 years 8 years Employee turnover (voluntary) 23% 16% 18% VILVI GROUP ANNUAL REPORT 2023 75 By gender New employees Women 140 Men 131 Total 271 By age New employees Under 30 81 30-50 120 >50 70 CHALLENGES AND SOLUTIONS IN ATTRACTING NEW EMLOYEES 30 th anniversary celebration of VILVI GROUP Employee turnover indices: OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Responsible development of quality products for Lithuania and the world We’re proud of the fact that Lithuanian people value our products. We aim to make our quality products available to enjoy not only for Lithuanians, but citizens in neighbouring and other countries as well. We believe that the opportunities to enjoy our whole foods contribute to creating a better world. Technological improvement in combination with the mastery and traditions enables us to provide our consumers in the closest foreign markets with their favourite highest quality goods that meet their expectations. The experience we have gained and the skills we are developing allow us to enter larger markets, delivering products to the most distant lands and not only catering for their people, but also successfully cooperating with local businesses, supplying them with ingredients and products that later are turned into delicious dishes. Dairy products for a healthier daily life Our goal is to produce healthy and quality products. By constantly updating, supplementing and reacting to the latest trends in healthy food and lifestyle, we aim for our consumer to choose what is best for their health. In the selection of the highest quality products, you can find specialized products manufactured by VILVI GROUP. Priority on product safety Every day, we do our best to supply people with quality, tasty and healthy products, which supplement their nutrition with the necessary nutrients, enabling to enjoy a full life. Product safety is our highest priority. We set the highest standards and monitor our daily processes to ensure the quality and safety of our goods. Quality dairy products, available to all We find it crucial not only to ensure that our products are safe and of high quality, but also to make dairy products available to be enjoyed by people in a more difficult financial situation both in Lithuania and abroad. Our products with plant-based fats have been popular both here and in other countries for a while, thus, responding to an increasing demand, we released the MILIKO product line. This wide range of products is characterised by excellent flavours and attractive prices. In 2023, the product range was expanded. CONSUMER WELL-BEING VILVI GROUP ANNUAL REPORT 2023 76 Healthier choice every day Both doctors and nutritionists encourage people to consume as little sugar as possible. Realizing the importance of such a choice for health, we created the Vilkyškių less sugar product line, which includes a healthier selection of your favorite dairy products. These cottage cheese bars contain 40 to 43% less sugar, compared to the average sugar in other cottage cheese bars sold in Lithuania, and yogurts have 35 to 36% less sugar compared to other yogurts on store shelves. Proteins for the active ones GymON products are dedicated for those who are determined to achieve their goals - to grow muscles or maintain muscle mass, balance their diet or control body weight. This is a high- quality whey protein powder for making smoothies. Whey proteins are complete proteins consisting of essential and replaceable amino acids, including branched-chain amino acids (BCAAs): isoleucine, leucine, valine. Whey protein concentrate is one of the sources from which the body absorbs proteins best. Recent discoveries to supplement the nutrition of the elderly In 2023, with the help of partial EU funding, together with the Lithuanian University of Health Sciences (LSMU), we completed a R&D project lasting several years, which will allow us to offer a line of products with a special composition for the elderly in the future. Together with scientists, we developed an innovative nutritional supplement for the elderly to prevent geriatric frailty syndrome and malnutrition or to recover from surgery. OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Sharing knowledge about healthier choices We follow scientific innovations and healthy lifestyle tendencies, applying this knowledge in creating new products or improving the ones that are already enjoyed by our consumers. We want to share the knowledge accumulated with our consumers as well. All products are marked according to the LR legislation requirements. We also add additional useful information about the health benefits of each product. Shopping for their food, people find the good qualities, valuable ingredients, and other important information (e.g. less sugar, a source of protein, more fibre, etc.) listed on the packaging, and this helps them pick the products that suit their needs best.. During 2023 was implemented marketing campaign for lower sugar products, which educated consumers about the benefits of lower sugar consumption when choosing sugar lower products: CONSUMER WELL-BEING VILVI GROUP ANNUAL REPORT 2023 77 Simple recipes – ideas for healthier daily choices We seek to demonstrate our care about our consumers’ health by not only producing highest quality ready-to-use dairy goods, but also offer ideas on enriching their diet with dishes, containing our dairy products as ingredients. Our social media followers can find inspiring ideas, offered by popular food bloggers and recipe book authors: Liucina Rimgailė, Kitchen Julie, Ant Medinės Lentelės, etc. We think it’s important that people include more healthy food options into their daily diet. Project for shaping traditions We produce different types of cheese and want to offer them to as many people as possible. To make this product a discovery, a healthy choice, and a part of the daily diet, we cooperate with the blogger Urtė Mikelevičiūtė of myliusuri.lt blog, which offers lots of ideas to unfold the many flavours cheese can offer. The blog not only offers a number of simple recipes, but also ideas for lunch, a special dinner or celebrations, brought from abroad. We want our consumers to not only enjoy a healthy product, but also additional suggestions on how to eat as healthy as possible and enjoy good health for as long as possible. A call to join a more sustainable life Realising the situation and feeling responsible for the climate change, we not only took the path of sustainability, but also invite our consumers join us. We focus special attention on preserving nature, striving to reduce our footprint and make our products not only beneficial to people, but also environmentally- friendly. We help our consumers with sorting our product packaging by giving clear indications on their sorting and disposal. We also create packaging that is easy to sort and recycle. Fair marketing and communication We highly value, appreciate, cherish and do not abuse our consumers’ positive feedback and trust. We always clearly list all ingredients of our products, introducing them to our consumers, never boasting fake facts or using marketing tricks, because our goal is building a long-term connection rather than attracting short-term interest. We do our best to respond to our consumer needs, improving our products, their production technology, and looking for solutions enabling us to produce highest quality dairy goods to be enjoyed by dairy consumers in Lithuania and abroad. OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Vilvi Group is an active community member. Fulfilling the principles of a responsible business in the social area, the Group has been actively cooperating with local communities and the society, strengthening the ties between business and academic community, contributing to youth employment, and improving career opportunities. Support to communities and various initiatives based on pre-established criteria is offered as an additional measure of social responsibility fulfilment, contributing to building partnerships and implementing the Group’s priorities. Vilvi Group supports and takes part at cultural, educational events, featuring educational activities or entertainment for both adults and children, thus contributing to a more active social life in the region and building mutual relationships. We’ve been closely cooperating and offering assistance in both finances or our goods to the communities of not only Vilkyškiai, but also Pagėgiai, Tauragė and Kelmė for already a few years. In 2022, we supported cultural, wellness and sport initiatives, local community celebrations and green initiatives. Long-term partnership with Žalgiris basketball team Supporting the ideas of a healthy lifestyle, movement, sport, and Lithuanian traditions, Vilvi Group has been sponsoring Kaunas Žalgiris team since 2009. This long and sustainable partnership has already become an inseparable part of both of the brands. The cooperation between Vilvi Group and Žalgiris is also notable during the matches as well with the symbol of Vilkyškiai brand – the black cat – entertaining the audience during the breaks. We also organise various partner competitions. The Group contributes to organising the matches, while our employees support Žalgiris team in every game. HELPING COMMUNITIES VILVI GROUP ANNUAL REPORT 2023 78 VILVI GROUP – the main partner of Tauragė – Lithuanian Capital of Culture 2023 Being one of the largest business companies in the region, we feel obliged and proud to be able to contribute to such an important project for Tauragė. We helped to ensure the smooth and meaningful implementation of the year-long project – we contributed financially, we donated much-needed durable and more sustainable chairs for outdoor events to the cultural organizers of the district and the community, we were participants and speakers in the program of conferences and events of this project, and we treated the event participants with our products. The year 2023 was a jubilee year for VILVI GROUP, we celebrated the 30 th anniversary of our activity OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS Additional information ALTERNATIVE INDICATORS .......................... 144 COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE ..........................145 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS VILVI GROUP ANNUAL REPORT 2023 79 Gross profit is an indicator presented in the company's profit (loss) statement, which is calculated after subtracting the cost from sales revenue. Usually, this profit is the highest compared to other types of profit. Gross profit margin shows how much profit is made for each unit of sales revenue. The indicator is calculated by dividing gross profit by revenue. EBITDA - earnings before interest, taxes, depreciation, and amortization, which shows the profit earned by the company before the company’s financing policy, as well as the assessment of the impact of corporate tax on profit. Vilkyškių pieninė JSC calculates this indicator by adding depreciation and amortization of fixed assets to the operating result and deducting grants. Elements that are not directly influenced by the nature of the company’s activities may be eliminated when calculating EBITDA. EBITDA margin is a profitability indicator that can be used to compare the profitability of companies (in the same industry) and to monitor changes in the profitability of the same company. The higher the value of the indicator, the higher the profitability of the company. The indicator is calculated by dividing EBITDA by revenue. EBIT (Operating Earnings) – earnings before interest and taxes. It shows the company’s profit earned during the operating and investment cycle (before assessing the impact of the company’s financing policy on profit and deducting corporate tax). This indicator reflects the company’s ability to generate cash flow. The indicator is calculated by adding financial activity costs to pre-tax profit and subtracting financial activity income. EBIT margin is an indicator of operational efficiency, calculated by dividing operating profit by revenue. EBT (Earnings before taxes) is earnings before taxes. The indicator is calculated by adding corporate tax expenses to net profit. EBT margin is calculated by dividing earnings before taxes by revenue. Shows the ratio of the company’s earnings before taxes to sales. The higher value of the indicator the higher the profitability of the company. Financial debts are the sum of short-term and long-term debts, showing the amount of indebtedness of the company. The indicator is calculated by adding long-term and short-term rental obligations to long- term and short-term loans. Net profit (loss) is a financial indicator calculated by deducting all expenses and taxes from revenue. Net profit margin is an indicator showing the company’s profitability. It is calculated by dividing net profit by revenue. Net profit per share is one of the most popular share valuation indicators, which shows what is a profit of the company per share. The ratio is calculated by dividing the net profit by the number of shares in circulation. Net debt is all financial obligations of the company without available cash and cash equivalents. This indicator can be used during credit rating review. The indicator is calculated by subtracting cash and cash equivalents from financial debt. ALTERNATIVE INDICATORS Net Debt/EBITDA shows a company’s ability to pay back its debts from profits earned. This indicator can also be used during a credit rating review. The indicator is calculated by dividing net debt by EBITDA. The capital-to-asset ratio shows the proportion of total asset financing with equity capital. This indicator shows the share of equity capital in the capital structure. The lower this ratio, the more dependent the company is on borrowed funds. The indicator is calculated by dividing equity by total assets. The liquidity ratio shows the company’s ability to meet short-term obligations by using available short- term assets. The higher the ratio, the better the liquidity position. The indicator is calculated by dividing current assets by current liabilities. Return on equity (ROE) is the ratio of net income to equity. The indicator shows how efficiently the company uses shareholders' assets to generate profit. This indicator is important for shareholders in assessing the return of their past period investment in the company. The higher the return on equity, the more efficient the company's operations, the more profit it earns for its shareholders. The indicator is calculated by dividing the net profit by the average of equity at the beginning and equity at the end of the reporting period. P/E ratio is the ratio of the share’s market price to earnings per share. The indicator shows what is the cost of company's shares compared to its net profit. The P/E ratio provides information on whether a company is expensive compared to its earnings. The higher the net profit, the lower the P/E ratio, and in turn, the more attractive such shares are for investment. The indicator is calculated by dividing the market price of the share by the net profit per share. Return on capital employed (ROCE) - the profitability indicator evaluates the profitability of the funds necessary for the constant operation of the company. It is often compared to the loan interest rates in the market at that time. A company’s ROCE is required to be greater than the cost of borrowed capital at that time. The indicator is calculated by dividing EBIT by the difference between total assets and current liabilities. Debt ratio reflects how much of the company’s assets are purchased with borrowed funds. The indicator is calculated by dividing all the liabilities of the company by assets. Debt to equity ratio. This is one of the main financial indicators of leverage. The debt-to-equity ratio shows amount of euros of short-term and long-term debt per euro of equity. The indicator is calculated by dividing financial debt by equity. Asset turnover. It is an efficiency ratio that shows the ratio of sales revenue to assets. This ratio shows how efficiently the company uses its capital. The higher the value the higher the degree of overall asset management efficiency and vice versa. The indicator is calculated by dividing sales revenue by total assets. Return on assets (ROA) is the ratio of net profit to assets. Return on assets shows how much net profit a company earns per euro of assets. This value can be used as a measure of the efficiency of the company’s asset utilization. The higher the value of ROA, the more efficiently the assets are ‘employed’, the more profit is earned. The indicator is calculated by dividing the net profit by the average of assets at the beginning and assets at the end of the reporting period. VILVI GROUP ANNUAL REPORT 2023 80 COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE AB VILKYŠKIŲ PIENINĖ CORPORATE GOVERNANCE REPORT FORM FOR THE YEAR THAT ENDED ON 31 DECEMBER 2023 The public limited liability company AB ,Vilkyškių pieninė (hereinafter referred to as the “Company”), acting in compliance with Article 22 (3) of the Law of the Republic of Lithuania on Securities and paragraph 24.5 of the Listing Rules of AB Nasdaq Vilnius, hereby discloses how it complies with the Corporate Governance Code for the Companies listed on Nasdaq Vilnius as well as its specific provisions or recommendations. In case of non-compliance with this Code or some of its provisions or recommendations, the specific provisions or recommendations that are not complied with must be indicated and the reasons for such non-compliance must be specified. In addition, other explanatory information indicated in this form must be provided. 1. Summary of the Corporate Governance Report: According to the Articles of Association of the Company, the bodies of the Company are the General Meeting of Shareholders, the Supervisory Board, the Management Board, and the Manager of the Company. The Supervisory Board is a collegial supervisory body of the Company, which represents the shareholders and performs the functions of supervision and control of the Company's activities. The Supervisory Board of AB Vilkyškių pienienė consists of 3 members, elected for a term of four years. The Management Board is a collegial management body of the Company, which performs the function of company management. The Management Board of AB Vilkyškių pieninė consists of 6 board members. The Management Board elects and removes the Manager of the Company, determines his/her remuneration and other terms of the employment agreement. The company is managed by the Manager of the Company. The Company has two committees - Audit Committee and Nomination and Remuneration Committee. The Nomination and Remuneration Committee shall perform the functions of the Remuneration and Nomination Committees. The Company does not currently comply with the requirement established by Paragraph 1.8 of the Corporate Governance Code, because does not provide the possibility for the shareholders to participate and vote in the general meeting of shareholders by means of electronic communication. More information on the Company’s Governance, shareholders’ rights, activities of the Management Board and Committees, Management Board members, as well as systems of internal control and risk management is provided in the Company’s Consolidated Annual Report for the year that ended on 31 December 2023. VILVI GROUP ANNUAL REPORT 2023 81 PRINCIPLES/ RECOMMENDATIONS YES/NO/ NOT APPLICABLE COMMENTARY Principle 1: General meeting of shareholders, equitable treatment of shareholders, and shareholders’ rights The corporate governance framework should ensure the equitable treatment of all shareholders. The corporate governance framework should protect the rights of shareholders. 1.1. All shareholders should be provided with access to the information and/or documents established in the legal acts on equal terms. All shareholders should be furnished with equal opportunity to participate in the decision-making process where significant corporate matters are discussed. Yes Shareholders are furnished with equal opportunity to access the and documents established in the legal acts, as well as to participate in the corporate decision-making process. The Company’s documents and information established in the legal acts are publicly available on the Company’s website and through the information disclosure system used by Nasdaq Vilnius in Lithuanian and English. 1.2. It is recommended that the company’s capital should consist only of the shares that grant the same rights to voting, ownership, dividend and other rights to all of their holders. Yes The capital of the Company consists of ordinary registered shares, which grant their owners equal personal property and non- property rights. Each share grants one vote at the general meeting of shareholders. 1.3. It is recommended that investors should have access to the information concerning the rights attached to the shares of the new issue or those issued earlier in advance, i.e. before they purchase shares. Yes The Articles of Association of the Company, which set out the rights conferred to the holders of Company’s shares, are publicly available on the Company’s website. 1.4. Exclusive transactions that are particularly important to the company, such as transfer of all or almost all assets of the company which in principle would mean the transfer of the company, should be subject to approval of the general meeting of shareholders. Yes Transactions shall be approved in accordance with the procedure set forth in the Law on Companies of the Republic of Lithuania and the Articles of Association of the Company. Where necessary, important transactions are subject to approval of the general meeting of shareholders, despite the fact that such a procedure is not established in the Articles of Association of the Company. 1.5. Procedures for convening and conducting a general meeting of shareholders should provide shareholders with equal opportunities to participate in the general meeting of shareholders and should not prejudice the rights and interests of shareholders. The chosen venue, date and time of the general meeting of shareholders should not prevent active participation of shareholders at the general meeting. In the notice of the general meeting of shareholders being convened, the company should specify the last day on which the proposed draft decisions should be submitted at the latest. Yes The Articles of Association of the Company provide that all persons, who on the day of the meeting are the shareholders of the Company, their authorized representatives, or persons with whom the voting rights transfer agreement has been concluded shall have the right to participate and vote in the general meeting of shareholders. A shareholder who has the right to vote and is familiar with the agenda may also inform the general meeting of shareholders in writing about his or her “for” or “against” choice with respect to each resolution individually. These notifications shall be credited to the quorum of the general meeting of shareholders as well as the voting results. Meetings of the Company’s shareholders are held at the registered office of the respective company of the Company Group (during quarantine/epidemics shareholders are encouraged to vote in writing). Ordinary meetings of shareholders are held in the second half of April. The notice convening the general meeting of shareholders shall state that the proposed new draft resolutions must be submitted in writing at any time before the general meeting of shareholders. 1.6. With a view to ensure the right of shareholders living abroad to access the information, it is recommended, where possible, that documents prepared for the general meeting of shareholders in advance should be announced publicly not only in Lithuanian language but also in English and/or other foreign languages in advance. It is recommended that the minutes of the general meeting of shareholders after the signing thereof and/or adopted decisions should be made available publicly not only in Lithuanian language but also in English and/or other foreign languages. It is recommended that this information should be placed on the website of the company. Such documents may be published to the extent that their public disclosure is not detrimental to the company or the company’s commercial secrets are not revealed. Yes All documents and information related to the general meeting of shareholders, including notice of the meeting convened, draft resolutions, resolutions and minutes of the meeting, are announced publicly and at the same time in two languages - Lithuanian and English - through the Nasdaq regulated notice distribution system and on the Company’s website VILVI GROUP ANNUAL REPORT 2023 82 PRINCIPLES/ RECOMMENDATIONS YES/NO/ NOT APPLICABLE COMMENTARY 1.7. Shareholders who are entitled to vote should be furnished with the opportunity to vote at the general meeting of shareholders both in person and in absentia. Shareholders should not be prevented from voting in writing in advance by completing the general voting ballot. Yes Shareholders of the Company may exercise the right to participate in the shareholders’ meeting either in person or through a representative, if the person has a proper Power of Attorney or a voting rights transfer agreement has been concluded in accordance with the procedure established by legal acts. The Company shall also furnish the opportunity to shareholders to vote by filling out a general ballot as required by law. 1.8. With a view to increasing the shareholders’ opportunities to participate effectively at general meetings of shareholders, it is recommended that companies should apply modern technologies on a wider scale and thus provide shareholders with the conditions to participate and vote in general meetings of shareholders via electronic means of communication. In such cases the security of transmitted information must be ensured and it must be possible to identify the participating and voting person. No The Company does not comply with the provisions of this recommendation as the Company does not provide the possibility for the shareholders to participate and vote in the general meeting of shareholders by means of electronic communication. However, in all cases, the Company makes it possible for shareholders to vote in writing. 1.9. It is recommended that the notice on the draft decisions of the general meeting of shareholders being convened should specify new candidatures of members of the collegial body, their proposed remuneration and the proposed audit company if these issues are included into the agenda of the general meeting of shareholders. Where it is proposed to elect a new member of the collegial body, it is recommended that the information about his/her educational background, work experience and other managerial positions held (or proposed) should be provided. Yes The Company informs about the educational background, work experience, and position of the candidates to the members of the collegial body during the general meeting of shareholders by submitting the curriculum vitae of the candidates in the material of the meeting. The name of the proposed audit firm shall be submitted to the general meeting in advance as a draft resolution. During the election a new member to the collegial body, the Company will publish the above information on each member in the draft resolutions of the general meeting. 1.10. Members of the company’s collegial management body, heads of the administration or other competent persons related to the company who can provide information related to the agenda of the general meeting of shareholders should take part in the general meeting of shareholders. Proposed candidates to member of the collegial body should also participate in the general meeting of shareholders in case the election of new members is included into the agenda of the general meeting of shareholders. Yes Members of the company’s collegial management body, heads of the administration or other competent persons related to the company who can provide information related to the agenda of the general meeting of shareholders, as well as candidates proposed to members of the collegial body participate in the general meeting of shareholders. Principle 2: Supervisory board Functions and liability of the supervisory board The supervisory board of the company should ensure representation of the interests of the company and its shareholders, accountability of this body to the shareholders and objective monitoring of the company’s operations and its management bodies as well as constantly provide recommendations to the management bodies of the company. The supervisory board should ensure the integrity and transparency of the company’s financial accounting and control system. 2.1.1. Members of the supervisory board should act in good faith, with care and responsibility for the benefit and in the interests of the company and its shareholders and represent their interests, having regard to the interests of employees and public welfare. Yes AB "Vilkyškių pieninė" in 2023 the supervisory board established and elected in April adheres to this principle. 2.1.2. Where decisions of the supervisory board may have a different effect on the interests of the company’s shareholders, the supervisory board should treat all shareholders impartially and fairly. It should ensure that shareholders are properly informed about the company’s strategy, risk management and control, and resolution of conflicts of interest. Yes The Supervisory Board ensures that shareholders are properly informed about actions that may affect the interests of the company's shareholders. VILVI GROUP ANNUAL REPORT 2023 83 PRINCIPLES/ RECOMMENDATIONS YES/NO/ NOT APPLICABLE COMMENTARY 2.1.3. The supervisory board should be impartial in passing decisions that are significant for the company’s operations and strategy. Members of the supervisory board should act and pass decisions without an external influence from the persons who elected them. Yes The Supervisory Board adheres to this principle. 2.1.4. Members of the supervisory board should clearly voice their objections in case they believe that a decision of the supervisory board is against the interests of the company. Independent members of the supervisory board should: a) maintain independence of their analysis and decision-making; b) not seek or accept any unjustified privileges that might compromise their independence. Yes The members of the Supervisory Board shall comply with the following provisions. 2.1.5. The supervisory board should oversee that the company’s tax planning strategies are designed and implemented in accordance with the legal acts in order to avoid faulty practice that is not related to the long-term interests of the company and its shareholders, which may give rise to reputational, legal or other risks. Yes The Supervisory Board oversees the Company's strategy on tax planning matters. 2.1.6. The company should ensure that the supervisory board is provided with sufficient resources (including financial ones) to discharge their duties, including the right to obtain all the necessary information or to seek independent professional advice from external legal, accounting or other experts on matters pertaining to the competence of the supervisory board and its committees. Yes The company adheres to this principle. The Supervisory Board is provided with all necessary resources to perform its functions. The Supervisory Board is technically served by the Company's administration. 2.2.Formation of the supervisory board The procedure of the formation of the supervisory board should ensure proper resolution of conflicts of interest and effective and fair corporate governance. 2.2.1. The members of the supervisory board elected by the general meeting of shareholders should collectively ensure the diversity of qualifications, professional experience and competences and seek for gender equality. With a view to maintain a proper balance between the qualifications of the members of the supervisory board, it should be ensured that members of the supervisory board, as a whole, should have diverse knowledge, opinions and experience to duly perform their tasks. Yes The company's 2023 in April the board of supervisors established and elected at the held general meeting of shareholders has the necessary professional experience and qualifications, it consists of representatives of both sexes. 2.2.2. Members of the supervisory board should be appointed for a specific term, subject to individual re-election for a new term in office in order to ensure necessary development of professional experience. Yes The Supervisory Board consists of 3 members elected for a period of 4 years. The number of terms of office of members of the Supervisory Board is unlimited. The company's articles of association provide for the possibility to re-elect an individual member of the supervisory board. 2.2.3. Chair of the supervisory board should be a person whose current or past positions constituted no obstacle to carry out impartial activities. A former manager or management board member of the company should not be immediately appointed as chair of the supervisory board either. Where the company decides to depart from these recommendations, it should provide information on the measures taken to ensure impartiality of the supervision. Yes The company adheres to this principle. VILVI GROUP ANNUAL REPORT 2023 84 PRINCIPLES/ RECOMMENDATIONS YES/NO/ NOT APPLICABLE COMMENTARY 2.2.4. Each member should devote sufficient time and attention to perform his duties as a member of the supervisory board. Each member of the supervisory board should undertake to limit his other professional obligations (particularly the managing positions in other companies) so that they would not interfere with the proper performance of the duties of a member of the supervisory board. Should a member of the supervisory board attend less than a half of the meetings of the supervisory board throughout the financial year of the company, the shareholders of the company should be notified thereof. Yes This principle is followed. 2.2.5. When it is proposed to appoint a member of the supervisory board, it should be announced which members of the supervisory board are deemed to be independent. The supervisory board may decide that, despite the fact that a particular member meets all the criteria of independence, he/she cannot be considered independent due to special personal or company-related circumstances. Yes When the members of the Supervisory board are elected (appointed), the draft decisions indicate which members are independent. 2.2.6. The amount of remuneration to members of the supervisory board for their activity and participation in meetings of the supervisory board should be approved by the general meeting of shareholders. Yes The amount of remuneration for the activities of the members of the Supervisory board is approved by the general meeting of shareholders. 2.2.7. Every year the supervisory board should carry out an assessment of its activities. It should include evaluation of the structure of the supervisory board, its work organization and ability to act as a group, evaluation of the competence and work efficiency of each member of the supervisory board, and evaluation whether the supervisory board has achieved its objectives. The supervisory board should, at least once a year, make public respective information about its internal structure and working procedures. Yes This principle is followed. Principle 3: Management Board Functions and liability of the management board The management board should ensure the implementation of the company’s strategy and good corporate governance with due regard to the interests of its shareholders, employees and other interest groups. 3.1.1. The management board should ensure the implementation of the company’s strategy approved by the supervisory board if the latter has been formed at the company. In such cases where the supervisory board is not formed, the management board is also responsible for the approval of the company’s strategy. Yes The Management board ensures the implementation of the Company's strategy. 3.1.2. As a collegial management body of the company, the management board performs the functions assigned to it by the Law and in the articles of association of the company, and in such cases where the supervisory board is not formed in the company, it performs inter alia the supervisory functions established in the Law. By performing the functions assigned to it, the management board should take into account the needs of the company’s shareholders, employees and other interest groups by respectively striving to achieve sustainable business development. Yes The functions specified (except maintenance) in the recommendation are performed by the management board (except for AB Pieno logistika of the Company Group, where the management board is not formed), taking into account the needs of the Company, shareholders, employees, and other interest groups. The Supervisory board of Vilkyškių pieninė AB performs the supervisory functions provided for in the Law. The Management Board of LTD ,,Baltic dairy board“ of the Company Group, located in Latvia, performs the functions provided for by the laws of Latvia and the Articles of Association of this company. 3.1.3. The management board should ensure compliance with the laws and the internal policy of the company applicable to the company or a group of companies to which this company belongs. It should also establish the respective risk management and control measures aimed at ensuring regular and direct liability of managers. Yes The management board ensures that the Company complies with laws, internal policies of the Company and approved procedures (e.g. Remuneration Policy, Procurement Process and Procedures, Equal Opportunities Policy, Personal Data Processing Rules, etc.), and, it also ensures the accountability of the management in accordance with the established internal measures of governance and control. VILVI GROUP ANNUAL REPORT 2023 85 PRINCIPLES/ RECOMMENDATIONS YES/NO/ NOT APPLICABLE COMMENTARY 3.1.4. Moreover, the management board should ensure that the measures included into the OECD Good Practice Guidance on Internal Controls, Ethics and Compliance are applied at the company in order to ensure adherence to the applicable laws, rules and standards. Yes The management board ensures compliance with applicable laws, regulations, and standards. 3.1.5. When appointing the manager of the company, the management board should take into account the appropriate balance between the candidate’s qualifications, experience and competence. Yes When appointing the manager of the company, the management board takes into account the candidate’s qualifications, experience, and competence. 3.2. Formation of the management board 3.2.1. The members of the management board elected by the supervisory board or, if the supervisory board is not formed, by the general meeting of shareholders should collectively ensure the required diversity of qualifications, professional experience and competences and seek for gender equality. With a view to maintain a proper balance in terms of the current qualifications possessed by the members of the management board, it should be ensured that the members of the management board would have, as a whole, diverse knowledge, opinions and experience to duly perform their tasks. Yes The Company follows the recommendations of this paragraph. The members of the management board have the necessary variety of knowledge, opinions, and experience to perform their tasks properly (2 board members have economic education, 2 board members have technical education, 1 board member has management education and one board member has education related to agriculture.) There is one woman on the management board of AB Vilkyškių pieninė and one on the management board of AB Modest and one on the management board of LTD Baltic Dairy Board of the Company Group; and two women on the management board of AB Kelmės pieninė and on the management board UAB Kelmės pienas of the Company Group. 3.2.2. Names and surnames of the candidates to become members of the management board, information on their educational background, qualifications, professional experience, current positions, other important professional obligations and potential conflicts of interest should be disclosed without violating the requirements of the legal acts regulating the handling of personal data at the meeting of the supervisory board in which the management board or individual members of the management board are elected. In the event that the supervisory board is not formed, the information specified in this paragraph should be submitted to the general meeting of shareholders. The management board should, on yearly basis, collect data provided in this paragraph on its members and disclose it in the company’s annual report. Yes The curriculum vitae of the candidates to become members of the management board and information on the candidates‘ participation in the activities of other companies are submitted to the body electing them without violating the requirements of the legal acts regulating the handling of personal data. In the annual report, the company indicates the necessary information about the members of the Management Board: education, qualifications, professional experience, current position, etc. 3.2.3.. All new members of the management board should be familiarized with their duties and the structure and operations of the company. Yes After the election, all members of the management board shall be familiarized with their rights and obligations under the legal acts of the Republic of Lithuania and the Articles of Association of the Company. Members of the management board are regularly informed at the Board meetings and individually, as required or per own request of the members, about the Company’s activities and its changes, material changes in the legal acts regulating the Company’s activities, and other circumstances affecting the Company’s activities. 3.2.4. Members of the management board should be appointed for a specific term, subject to individual re-election for a new term in office in order to ensure necessary development of professional experience and sufficiently frequent reconfirmation of their status. Yes According to the Articles of Association of the Company, the members of the management board are elected for a term of four years, without limiting the number of their terms. The Articles of Association of the Company provide for the possibility of re-election of the entire management board or its individual member. 3.2.5. Chair of the management board should be a person whose current or past positions constitute no obstacle to carry out impartial activity. Where the supervisory board is not formed, the former manager of the company should not be immediately appointed as chair of the management board. When a company decides to depart from these recommendations, it should furnish information on the measures it has taken to ensure the impartiality of supervision. Yes AB Vilkyškių pieninė the chairman of its management board is the manager of the company. The impartiality of the activity is guaranteed by the Supervisory Board of the Company and five other members of the Board. 86 VILVI GROUP ANNUAL REPORT 2023 PRINCIPLES/ RECOMMENDATIONS YES/NO/ NOT APPLICABLE COMMENTARY 3.2.6. Each member should devote sufficient time and attention to perform his duties as a member of the management board. Should a member of the management board attend less than a half of the meetings of the management board throughout the financial year of the company, the supervisory board of the company or, if the supervisory board is not formed at the company, the general meeting of shareholders should be notified thereof. Yes In 2023, the management board members attended the management board meetings (a quorum was present during all meetings), with each member devoting sufficient time to perform the duties of the management board member. There were no management board members who attended less than half of the management board meetings during fiscal year of 2023. 3.2.7. In the event that the management board is elected in the cases established by the Law where the supervisory board is not formed at the company, and some of its members will be independent, it should be announced which members of the management board are deemed as independent. The management board may decide that, despite the fact that a particular member meets all the criteria of independence established by the Law, he/she cannot be considered independent due to special personal or company-related circumstances. Not applicable The company has a supervisory board. 3.2.8. The general meeting of shareholders of the company should approve the amount of remuneration to the members of the management board for their activity and participation in the meetings of the management board. Yes Members of the management board of AB Vilkyškių pieninė, AB Modest, AB Kelmės pieninė, UAB Kelmės pienas and LTD ,,Baltic dairy board“ may be compensated for their work in the management board with tantiemes approved by the general meeting of shareholders. No tantiemes were paid to management board members in 2023. 3.2.9. The members of the management board should act in good faith, with care and responsibility for the benefit and the interests of the company and its shareholders with due regard to other stakeholders. When adopting decisions, they should not act in their personal interest; they should be subject to no-compete agreements and they should not use the business information or opportunities related to the company’s operations in violation of the company’s interests. Yes According to the information available to the Company, the members of the management board act in good faith with respect to the Company, following the interests of the Company and not their own or those of third parties, adhering to the principles of honesty, reasonableness, confidentiality, and responsibility, trying to remain independent during the decision-making. 3.2.10. Every year the management board should carry out an assessment of its activities. It should include evaluation of the structure of the management board, its work organization and ability to act as a group, evaluation of the competence and work efficiency of each member of the management board, and evaluation whether the management board has achieved its objectives. The management board should, at least once a year, make public respective information about its internal structure and working procedures in observance of the legal acts regulating the processing of personal data. Yes Every year the management board is carry out an assessment of its activities, review the management board’s annual performance goals and evaluate their achievement. The management structure of the Company is published annually in the annual report of the Company. Principle 4: Rules of procedure of the supervisory board and the management board of the company The rules of procedure of the supervisory board, if it is formed at the company, and of the management board should ensure efficient operation and decision-making of these bodies and promote active cooperation between the company’s management bodies. 4.1. The management board and the supervisory board, if the latter is formed at the company, should act in close cooperation in order to attain benefit for the company and its shareholders. Good corporate governance requires an open discussion between the management board and the supervisory board. The management board should regularly and, where necessary, immediately inform the supervisory board about any matters significant for the company that are related to planning, business development, risk management and control, and compliance with the obligations at the company. The management board should inform he supervisory board about any derogations in its business development from the previously formulated plans and objectives by specifying the reasons for this. Yes The company will follow this principle. If necessary, the management board informs the supervisory board about all important issues for the Company. 4.2. It is recommended that meetings of the company’s collegial bodies should be held at the respective intervals, according to the pre-approved schedule. Each company is free to decide how often meetings of the collegial bodies should be convened but it is recommended that these meetings should be convened at such intervals that uninterruptable resolution of essential corporate governance issues would be ensured. Meetings of the company’s collegial bodies should be convened at least once per quarter. Yes Management board meetings are held at least once a month at the end of the month, and more frequently if the need arises. Meetings of the company's supervisory board are organized at least quarterly. 87 VILVI GROUP ANNUAL REPORT 2023 PRINCIPLES/ RECOMMENDATIONS YES/NO/ NOT APPLICABLE COMMENTARY 4.3. Members of a collegial body should be notified of the meeting being convened in advance so that they would have sufficient time for proper preparation for the issues to be considered at the meeting and a fruitful discussion could be held and appropriate decisions could be adopted. Along with the notice of the meeting being convened all materials relevant to the issues on the agenda of the meeting should be submitted to the members of the collegial body. The agenda of the meeting should not be changed or supplemented during the meeting, unless all members of the collegial body present at the meeting agree with such change or supplement to the agenda, or certain issues that are important to the company require immediate resolution. Yes Members of a collegial body shall be provided in advance with the information of the meeting convened, the agenda of the meeting, and any material related to the issues to be discussed at the meeting. Each member of the collegial body shall have access to the materials of the meeting before the date of the meeting. As a general rule, the published agenda of a meeting shall not be changed, unless otherwise decided at a meeting where all the members of the collegial body of the Company are present, and the material submitted for the meeting shall be sufficient for the additional issue to reach a decision on the issue that is not announced in the agenda. 4.4. In order to coordinate the activities of the company’s collegial bodies and ensure effective decision-making process, the chairs of the company’s collegial supervision and management bodies should mutually agree on the dates and agendas of the meetings and close cooperate in resolving other matters related to corporate governance. Meetings of the company’s supervisory board should be open to members of the management board, particularly in such cases where issues concerning the removal of the management board members, their responsibility or remuneration are discussed. Yes The chairpersons of the collegial bodies coordinate with each other the dates and issues of the meetings of the convened bodies. Principle 5: Nomination, remuneration and audit committees Purpose and formation of committees The committees formed at the company should increase the work efficiency of the supervisory board or, where the supervisory board is not formed, of the management board which performs the supervisory functions by ensuring that decisions are based on due consideration and help organise its work in such a way that the decisions it takes would be free of material conflicts of interest. Committees should exercise independent judgment and integrity when performing their functions and provide the collegial body with recommendations concerning the decisions of the collegial body. However, the final decision should be adopted by the collegial body. 5.1.1. Taking due account of the company-related circumstances and the chosen corporate governance structure, the supervisory board of the company or, in cases where the supervisory board is not formed, the management board which performs the supervisory functions, establishes committees. It is recommended that the collegial body should form the nomination, remuneration and audit committees. Yes AB Vilkyškių pieninė has 2 committees: Nomination and Remuneration Committee and Audit Committee. Prior to the election of the Company's supervisors, the Appointments and Remuneration Committee was formed by the Board, and now by the Supervisory Board. 5.1.2. Companies may decide to set up less than three committees. In such case companies should explain in detail why they have chosen the alternative approach, and how the chosen approach corresponds with the objectives set for the three different committees. Yes The members of the Audit Committee and the Regulations of the Committee is approved by the general meeting of shareholders. AB Modest, AB Kelmės pieninė, AB Pieno logistika, UAB Kelmės pienas and LTD ,,Baltic dairy board“ have no committees. The functions of the Nomination and Remuneration Committee shall be carried out by a formed single Nomination and Remuneration Committee. 5.1.3. In the cases established by the legal acts the functions assigned to the committees formed at companies may be performed by the collegial body itself. In such case the provisions of this Code pertaining to the committees (particularly those related to their role, operation and transparency) should apply, where relevant, to the collegial body as a whole. Not applicable 5.1.4. Committees established by the collegial body should normally be composed of at least three members. Subject to the requirements of the legal acts, committees could be comprised only of two members as well. Members of each committee should be selected on the basis of their competences by giving priority to independent members of the collegial body. The chair of the management board should not serve as the chair of committees. Yes Each committee of AB ,,Vilkyškių pieninė” is composed of 3 members. All members of the Audit Committee have financial education, and 2 of them are independent members. All members of the Nomination and Remuneration Committee shall have managerial experience and one of them shall be an independent member. 88 VILVI GROUP ANNUAL REPORT 2023 PRINCIPLES/ RECOMMENDATIONS YES/NO/ NOT APPLICABLE COMMENTARY 5.1.5. The authority of each committee formed should be determined by the collegial body itself. Committees should perform their duties according to the authority delegated to them and regularly inform the collegial body about their activities and performance on a regular basis. The authority of each committee defining its role and specifying its rights and duties should be made public at least once a year (as part of the information disclosed by the company on its governance structure and practice on an annual basis). In compliance with the legal acts regulating the processing of personal data, companies should also include in their annual reports the statements of the existing committees on their composition, the number of meetings and attendance over the year as well as the main directions of their activities and performance. Yes AB "Vilkyškių pieninė" The activities of the Nomination and Remuneration Committee until the election of the Supervisory Board were regulated by the committee regulations approved by the Board, and now by the committee regulations approved by the Supervisory Board. Regulations of the Audit Committee of AB Vilkyškių pieninė are approved by the general meeting of shareholders. Both committees regularly inform the collegial body about their activities and results. Information on Committee activities and attendance of Committee meetings is presented in the consolidated annual report of 2023. 5.1.6. With a view to ensure the independence and impartiality of the committees, the members of the collegial body who are not members of the committees should normally have a right to participate in the meetings of the committee only if invited by the committee. A committee may invite or request that certain employees of the company or experts would participate in the meeting. Chair of each committee should have the possibility to maintain direct communication with the shareholders. Cases where such practice is to be applied should be specified in the rules regulating the activities of the committee. Yes The members of the collegial body, who are not members of the Committee, shall participate in the meetings of the committees, if necessary, at the invitation of the respective Committee. If necessary, the Committee may invite relevant Company personnel, responsible for the matters discussed in the Committee, to attend the meeting. The chairman of the committee is also provided with the possibility to communicate with the shareholders as necessary. 5.2. Nomination committee 5.2.1. The key functions of the nomination committee should be the following: 1) to select candidates to fill vacancies in the membership of supervisory and management bodies and the administration and recommend the collegial body to approve them. The nomination committee should evaluate the balance of skills, knowledge and experience in the management body, prepare a description of the functions and capabilities required to assume a particular position and assess the time commitment expected; 2) assess, on a regular basis, the structure, size and composition of the supervisory and management bodies as well as the skills, knowledge and activity of its members, and provide the collegial body with recommendations on how the required changes should be sought; 3) devote the attention necessary to ensure succession planning. Yes The functions of the Nomination Committee specified in this recommendation are essentially performed by the Nomination and Remuneration Committee of AB Vilkyškių pieninė. 5.2.2. When dealing with issues related to members of the collegial body who have employment relationships with the company and the heads of the administration, the manager of the company should be consulted by granting him/her the right to submit proposals to the Nomination Committee. Yes 5.3. Remuneration committee The main functions of the remuneration committee should be as follows: 1) submit to the collegial body proposals on the remuneration policy applied to members of the supervisory and management bodies and the heads of the administration for approval. Such policy should include all forms of remuneration, including the fixed-rate remuneration, performance-based remuneration, financial incentive schemes, pension arrangements and termination payments as well as conditions which would allow the company to recover the amounts or suspend the payments by specifying the circumstances under which it would be expedient to do so; 2) submit to the collegial body proposals regarding individual remuneration for members of the collegial bodies and the heads of the administration in order to ensure that they would be consistent with the company’s remuneration policy and the evaluation of the performance of the persons concerned; 3) review, on a regular basis, the remuneration policy and its implementation. Yes The functions of the Remuneration Committee specified in this recommendation are essentially performed by the Nomination and Remuneration Committee of AB ,,Vilkyškių pieninė”. The Nomination and Remuneration Committee submits proposals to the collegial body on the remuneration policy, reviews it regularly, and monitors its implementation. 89 VILVI GROUP ANNUAL REPORT 2023 PRINCIPLES/ RECOMMENDATIONS YES/NO/ NOT APPLICABLE COMMENTARY 5.4. Audit committee 5.4.1. The key functions of the audit committee are defined in the legal acts regulating the activities of the audit committee. Yes The functions of the Audit Committee are defined in the Regulations of the Audit Committee approved by the General Meeting of Shareholders. 5.4.2. All members of the committee should be provided with detailed information on specific issues of the company’s accounting system, finances and operations. The heads of the company’s administration should inform the audit committee about the methods of accounting for significant and unusual transactions where the accounting may be subject to different approaches. Yes The members of the Committee shall be provided with all the detailed information necessary for the performance of its functions. 5.4.3. The audit committee should decide whether the participation of the chair of the management board, the manager of the company, the chief finance officer (or senior employees responsible for finance and accounting), the internal and external auditors in its meetings is required (and, if required, when). The committee should be entitled, when needed, to meet the relevant persons without members of the management bodies present. Yes After the members of the Audit Committee decide who must attend the meeting of the Committee, these persons shall be invited, ensuring possibility that the members of the managerial bodies would not be present at the same meeting. 5.4.4. The audit committee should be informed about the internal auditor’s work program and should be furnished with internal audit reports or periodic summaries. The audit committee should also be informed about the work program of external auditors and should receive from the audit firm a report describing all relationships between the independent audit firm and the company and its group. Yes External auditors shall regularly present their activity plans and reports to the Audit Committee. 5.4.5. The audit committee should examine whether the company complies with the applicable provisions regulating the possibility of lodging a complaint or reporting anonymously his/her suspicions of potential violations committed at the company and should also ensure that there is a procedure in place for proportionate and independent investigation of such issues and appropriate follow-up actions. Yes The Audit Committee shall have the opportunity to periodically verify whether employees have the possibility to lodge a complaint or report anonymously any suspected violations by the Company. Complaints are filed in the Company through the established complaint/report handling channels. 5.4.6. The audit committee should submit to the supervisory board or, where the supervisory board is not formed, to the management board its activity report at least once in every six months, at the time that annual and half-yearly reports are approved. Yes Reports of the Audit Committee are presented at management board meetings twice a year. Principle 6: Prevention and disclosure of conflicts of interest The corporate governance framework should encourage members of the company’s supervisory and management bodies to avoid conflicts of interest and ensure a transparent and effective mechanism of disclosure of conflicts of interest related to members of the supervisory and management bodies. The Corporate Governance Framework should recognize the rights of the stakeholders as established by law and promote active cooperation between the company and its stakeholders in the creation of the well-being, jobs, and financial stability of the Company. Within the context of this principle, the term “stakeholders” includes investors, employees, creditors, suppliers, customers, the local community, and other persons with interests in a particular company. Any member of the company’s supervisory and management body should avoid a situation where his/her personal interests are or may be in conflict with the company’s interests. In case such a situation did occur, a member of the company’s supervisory or management body should, within a reasonable period of time, notify other members of the same body or the body of the company which elected him/her or the company’s shareholders of such situation of a conflict of interest, indicate the nature of interests and, where possible, their value. Yes Members of the company's supervisory and management boards avoid situations where their personal interests may be in conflict with the company’s interests. 90 VILVI GROUP ANNUAL REPORT 2023 PRINCIPLES/ RECOMMENDATIONS YES/NO/ NOT APPLICABLE COMMENTARY Principle 7: Remuneration policy of the company The remuneration policy and the procedure for review and disclosure of such policy established at the company should prevent potential conflicts of interest and abuse in determining remuneration of members of the collegial bodies and heads of the administration, in addition it should ensure the publicity and transparency of the company’s remuneration policy and its long-term strategy. 7.1. The company should approve and post the remuneration policy on the website of the company; such policy should be reviewed on a regular basis and be consistent with the company’s long-term strategy. Yes Approved remuneration policy is published on the Company’s website and is regularly reviewed. 7.2. The remuneration policy should include all forms of remuneration, including the fixed-rate remuneration, performance-based remuneration, financial incentive schemes, pension arrangements and termination payments as well as the conditions specifying the cases where the company can recover the disbursed amounts or suspend the payments. Yes 7.3. With a view to avoid potential conflicts of interest, the remuneration policy should provide that members of the collegial bodies which perform the supervisory functions should not receive remuneration based on the company’s performance. Yes The approved Remuneration Policy does not provide for the possibility to receive remuneration depending on the Company's performance. 7.4. The remuneration policy should provide sufficient information on the policy regarding termination payments. Termination payments should not exceed a fixed amount or a fixed number of annual wages and in general should not be higher than the non-variable component of remuneration for two years or the equivalent thereof. Termination payments should not be paid if the contract is terminated due to inadequate performance. Yes The Company adheres to the requirements of applicable laws (provisions of the Labor Code of the Republic of Lithuania) regarding termination payments. 7.5. In the event that the financial incentive scheme is applied at the company, the remuneration policy should contain sufficient information about the retention of shares after the award thereof. Where remuneration is based on the award of shares, shares should not be vested at least for three years after the award thereof. After vesting, members of the collegial bodies and heads of the administration should retain a certain number of shares until the end of their term in office, subject to the need to compensate for any costs related to the acquisition of shares. Not applicable The Company has no system of employee incentivisation or remuneration with Company shares. 7.6. The company should publish information about the implementation of the remuneration policy on its website, with a key focus on the remuneration policy in respect of the collegial bodies and managers in the next and, where relevant, subsequent financial years. It should also contain a review of how the remuneration policy was implemented during the previous financial year. The information of such nature should not include any details having a commercial value. Particular attention should be paid on the major changes in the company’s remuneration policy, compared to the previous financial year. Yes The implementation of the Remuneration Policy is disclosed in the Remuneration Report, which is published on the Company's website. 7.7. It is recommended that the remuneration policy or any major change of the policy should be included on the agenda of the general meeting of shareholders. The schemes under which members and employees of a collegial body receive remuneration in shares or share options should be approved by the general meeting of shareholders. Yes In the event of a material change in the remuneration policy, such change shall be included in the agenda of the general meeting of shareholders. The Company does not employ schemes under which the remuneration is provided in shares or share options, or other rights to purchase shares or receive remuneration based on the changes in the share price. 91 VILVI GROUP ANNUAL REPORT 2023 PRINCIPLES/ RECOMMENDATIONS YES/NO/ NOT APPLICABLE COMMENTARY Principle 8: Role of stakeholders in corporate governance The corporate governance framework should recognize the rights of stakeholders entrenched in the laws or mutual agreements and encourage active cooperation between companies and stakeholders in creating the company value, jobs and financial sustainability. In the context of this principle the concept “stakeholders” includes investors, employees, creditors, suppliers, clients, local community and other persons having certain interests in the company concerned. 8.1. The corporate governance framework should ensure that the rights and lawful interests of stakeholders are protected. Yes All stakeholders are provided with the possibility to participate in corporate governance and access to the necessary information. 8.2. The corporate governance framework should create conditions for stakeholders to participate in corporate governance in the manner prescribed by law. Examples of participation by stakeholders in corporate governance include the participation of employees or their representatives in the adoption of decisions that are important for the company, consultations with employees or their representatives on corporate governance and other important matters, participation of employees in the company’s authorized capital, involvement of creditors in corporate governance in the cases of the company’s insolvency, etc. Yes All stakeholders are provided with the possibility to participate in corporate governance in the manner prescribed by law. 8.3. Where stakeholders participate in the corporate governance process, they should have access to relevant information. Yes The stakeholders involved in the corporate governance process shall be granted access to the necessary information, without prejudice to the interests of the Company and other related parties. 8.4. Stakeholders should be provided with the possibility of reporting confidentially any illegal or unethical practices to the collegial body performing the supervisory function. Yes The Company provides the possibility to confidentially report any illegal or unethical practices to the collegial body performing the supervisory function. Principle 9: Disclosure of information The corporate governance framework should ensure the timely and accurate disclosure of all material corporate issues, including the financial situation, operations and governance of the company. 9.1. In accordance with the company’s procedure on confidential information and commercial secrets and the legal acts regulating the processing of personal data, the information publicly disclosed by the company should include but not be limited to the following: Yes 9.1.1. operating and financial results of the company; Yes On a quarterly basis, the Company reports its operating and financial results on the Company’s website and through the information disclosure system used by Nasdaq Vilnius. 9.1.2. objectives and non-financial information of the company; Yes Information on the Company’s activities, objectives and corporate governance is disclosed through press releases and notifications on material events, as well as on the Company’s website, and the information disclosure system used by Nasdaq Vilnius. 9.1.3. persons holding a stake in the company or controlling it directly and/or indirectly and/or together with related persons as well as the structure of the group of companies and their relationships by specifying the final beneficiary; Yes Information is provided on the Company’s website and in its interim and annual reports. 9.1.4. members of the company’s supervisory and management bodies who are deemed independent, the manager of the company, the shares or votes held by them at the company, participation in corporate governance of other companies, their competence and remuneration; Yes Information is provided on the Company’s website and in its interim and annual reports. 92 VILVI GROUP ANNUAL REPORT 2023 PRINCIPLES/ RECOMMENDATIONS YES/NO/ NOT APPLICABLE COMMENTARY 9.1.5. reports of the existing committees on their composition, number of meetings and attendance of members during the last year as well as the main directions and results of their activities; Yes Information on the composition of committees and the number of meetings is provided in the annual reports. 9.1.6. potential key risk factors, the company’s risk management and supervision policy; Yes The information is provided in interim and annual reports 9.1.7. the company’s transactions with related parties; Yes Information is provided on the Company’s website and in its interim and annual reports. 9.1.8. main issues related to employees and other stakeholders (for instance, human resource policy, participation of employees in corporate governance, award of the company’s shares or share options as incentives, relationships with creditors, suppliers, local community, etc.); Yes The information is provided in interim and annual reports. 9.1.9. structure and strategy of corporate governance; Yes Information is provided on the Company’s website and in its interim and annual reports. 9.1.10. initiatives and measures of social responsibility policy and anti-corruption fight, significant current or planned investment projects. This list is deemed minimum and companies are encouraged not to restrict themselves to the disclosure of information included into this list. This principle of the Code does not exempt companies from their obligation to disclose information as provided for in the applicable legal acts. Yes Information is provided in interim and annual reports, notifications on material events, on the Company’s website, and in the Company’s social report. 9.2. When disclosing the information specified in paragraph 9.1.1 of recommendation 9.1, it is recommended that the company which is a parent company in respect of other companies should disclose information about the consolidated results of the whole group of companies. Yes When disclosing the information specified in paragraph 9.1.1 of recommendation 9.1, the company which is a parent company in respect of other companies discloses information about the consolidated results of the whole group of companies in the interim and annual reports. 9.3. When disclosing the information specified in paragraph 9.1.4 of recommendation 9.1, it is recommended that the information on the professional experience and qualifications of members of the company’s supervisory and management bodies and the manager of the company as well as potential conflicts of interest which could affect their decisions should be provided. It is further recommended that the remuneration or other income of members of the company’s supervisory and management bodies and the manager of the company should be disclosed, as provided for in greater detail in Principle 7. Yes The Company discloses in its consolidated annual report information on the amount of annual remuneration and other income paid to the Company’s key management and members of the managerial bodies, as well as education, qualifications and participation in the activities and capital of other companies. 9.4. Information should be disclosed in such manner that no shareholders or investors are discriminated in terms of the method of receipt and scope of information. Information should be disclosed to all parties concerned at the same time. Yes AB Vilkyškių pieninė submits information via the information disclosure system used by Nasdaq Vilnius in Lithuanian and English at the same time, thus ensuring simultaneous disclosure of information to everyone. The Company seeks to publish the information before or after the Nasdaq Vilnius trading session and simultaneously submit it to all markets where the Company’s securities are traded, and also makes it publicly available on the website. 93 VILVI GROUP ANNUAL REPORT 2023 PRINCIPLES/ RECOMMENDATIONS YES/NO/ NOT APPLICABLE COMMENTARY Principle 10: Selection of the company’s audit firm The company’s audit firm selection mechanism should ensure the independence of the report and opinion of the audit firm. 10.1. With a view to obtain an objective opinion on the company’s financial condition and financial results, the company’s annual financial statements and the financial information provided in its annual report should be audited by an independent audit firm. Yes The Company adheres to this recommendation because the Company’s annual consolidated financial information is audited by an independent audit firm. 10.2. It is recommended that the audit firm would be proposed to the general meeting of shareholders by the supervisory board or, if the supervisory board is not formed at the company, by the management board of the company. Yes The management board of the Company (AB Vilkyškiu pienine Supervisory board, manager in AB Pieno logistika of the Company Group) submits the candidacy of the audit company to the meeting of shareholders. The Audit Company shall be approved by the general meeting of shareholders of the Company. 10.3. In the event that the audit firm has received remuneration from the company for the non-audit services provided, the company should disclose this publicly. This information should also be available to the supervisory board or, if the supervisory board is not formed at the company, by the management board of the company when considering which audit firm should be proposed to the general meeting of shareholders. Yes In 2023, the audit company did not provide non-audit services to the Company. Should the audit company provide non-audit services, then the Company would inform about it publicly. 94 VILVI GROUP ANNUAL REPORT 2023 Consolidated and the parent company’s separate financial statements for the year ended 31 December 2023 VILVI GROUP ANNUAL REPORT 2023 95 OVERVIEW BUSINESS ENVIRONMENT RESULTS MANAGEMENT REPORT SUSTAINABILITY REPORT FINANCIAL STATEMENTS VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 96 Company details VILKYŠKIŲ PIENINĖ AB Telephone: +370 441 55330 Company code: 277160980 Registered office address: P. Lukošaičio g. 14, Vilkyškiai, LT-99254 Pagėgiai municipality, Lithuania Supervisory Board Algimantas Lekevičius (Chairman) Marijana Juškienė Martynas Bertašius Board Gintaras Bertašius (Chairman) Sigitas Trijonis Rimantas Jancevičius Vilija Milaševičiutė Andrej Cyba Linas Strėlis Management Gintaras Bertašius, General Manager Vaidotas Juškys, Executive Director Sigitas Trijonis, Director of Investment Project Department Rimantas Jancevičius, Director for Purchasing Raw Materials Arvydas Zaranka, Production Director Vilija Milaševičiutė, Director for Economic and Financial Affairs Rita Juodikienė, Director for Corporate Governance and Quality Paulinas Stanaitis, Director for Transport and Logistics Auditor PricewaterhouseCoopers UAB Banks SEB Bankas AB Swedbank AB Luminor Bank AB Šiaulių Bankas AB OP Corporate Bank plc Lithuania branch AS Citadele Banka Lithuania branch SC Citadele Bank VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 97 Management’s statement on the consolidated and parent company’s separate annual financial statements On this day the management has discussed and authorised for issue the following set of separate and consolidated annual financial statements. The separate and consolidated annual financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. In our opinion, the accounting policies applied are appropriate and the separate and consolidated annual financial statements give a true and fair view, in all material respects, in accordance with International Financial Reporting Standards as adopted by the European Union. We recommend that the General Meeting of Shareholders approve the separate and consolidated annual financial statements. Vilkyškiai, 5 April 2024 Gintaras Bertašius General Manager (The document has been signed by a qualified electronic signature) Vilija Milaševičiutė Director for Economic and Financial Affairs (The document has been signed by a qualified electronic signature) VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 98 Consolidated and separate statements of financial position EUR ‘000 GROUP COMPANY At 31 December Note At 31 December 2023 2022 Assets 2023 2022 - - Investment property 12,14 6,903 6,527 56,178 48,365 Property, plant and equipment 12 18,370 13,052 1,542 1,082 Right-of-use assets 12,13 1,483 1,050 4,168 4,175 Intangible assets 15 2 5 - - Investments in subsidiaries 16 11,318 10,918 913 111 Non-current amounts receivable 17 2,022 1,008 62,801 53,733 Non-current assets 40,098 32,560 17,627 25,493 Inventories 18 8,988 9,188 17,207 17,875 Trade and other receivables 19 17,686 27,795 679 741 Prepayments 20 527 596 8,725 621 Cash and cash equivalents 21 2,854 325 44,238 44,730 Current assets 30,055 37,904 107,039 98,463 Total assets 70,153 70,464 Equity 3,463 3,463 Share capital 3,463 3,463 3,301 3,301 Share premium 3,301 3,301 1,883 2,068 Reserves 1,248 1,400 52,379 40,749 Retained earnings 38,610 39,096 61,026 49,581 Equity attributable to owners of the Company 46,622 47,260 5 321 Non-controlling interest - - 61,031 49,902 Equity 22 46,622 47,260 Liabilities 15,706 12,978 Borrowings 23 2,569 1,499 775 399 Lease liabilities 23 728 374 3,598 3,743 Government grants 24 671 520 - 42 Trade and other payables 26 - - 930 790 Deferred income tax liabilities 568 518 ___ ___ _ _ 21,009 17,952 Non-current liabilities 4,536 2,911 3,235 9,238 Borrowings 23 1,356 3,483 469 314 Lease liabilities 23 432 309 512 344 Income tax payable 146 20,783 20,713 Trade and other payables 26 17,207 16,355 24,999 30,609 Current liabilities 18,995 20,293 46,008 48,561 Liabilities 23,531 23,204 107,039 98,463 Total equity and liabilities 70,153 70,464 22 The notes on pages 105 to 164 form an integral part of these separate and consolidated financial statements, which were issued and signed on 5 April 2024. General Manager (the document has been signed by a qualified electronic signature) Gintaras Bertašius Director for Economic and Financial Affairs (the document has been signed by a qualified electronic signature) Vilija Milaševičiutė VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 99 Consolidated and separate statements of profit or loss EUR ‘000 The notes on pages 105 to 164 form an integral part of these separate and consolidated financial statements. GROUP COMPANY 2023 2022 EUR ‘000 Note 2023 2022 210,536 234,083 Revenue 1 245,072 288,643 -182,849 -209,809 Cost of sales 2 -236,059 -271,448 27,687 24,274 Gross profit 9,013 17,195 275 313 Other operating income 3 5,598 11,592 -4,438 -4,149 Distribution expenses 6 -4,224 -3,843 -6,662 -5,427 Administrative expenses 7 -4,434 -3,855 -305 -179 Other operating expenses 4 -3,264 -6,951 221 89 Other gain (loss) – net 5 223 -245 16,778 14,921 Results of operating activities 2,912 13,893 39 127 Finance income 100 193 -1,378 -868 Finance costs -438 -353 -1,339 -741 Finance costs, net 9 -338 -160 15,439 14,180 Profit (loss) before income tax 2,574 13,733 -787 -1,481 Income tax 10 -47 -1,134 14,652 12,699 Profit (loss) for the reporting year 2,527 12,599 Attributable to: 14,666 12,511 Shareholders of the Company 2,527 12,599 -14 188 Non-controlling interest - - 14,652 12,699 Profit (loss) for the reporting year 2,527 12,599 1.23 1.05 Basic and diluted earnings per share (in EUR) 11 0.21 1.05 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 100 Consolidated and separate statements of other comprehensive income EUR ‘000 GROUP COMPANY 2023 2022 EUR ‘000 2023 2022 14,652 12,699 Profit (loss) for the reporting year 2,527 12,599 Other comprehensive income - - Items that will not be reclassified to profit or loss - - - - Items that are or may be subsequently reclassified to - - profit or loss Other comprehensive income for the year, net of - - income tax - - 14,652 12,699 Total comprehensive income for the year 2,527 12,599 Attributable to: 14,666 12,511 Shareholders of the Company 2,527 12,599 -14 188 Non-controlling interest - - 14,652 12,699 Total comprehensive income for the year 2,527 12,599 The notes on pages 105 to 164 form an integral part of these separate and consolidated financial statements. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 101 Separate statement of changes in equity EUR ‘000 Share capital Share premium Revaluation reserve Legal reserve Retained earnings Total Balance at 1 January 2022 3,463 3,301 1,099 346 28,841 37,050 Profit (loss) for the period - - - - 12,599 12,599 Other comprehensive income - - - - - - Total comprehensive income for the year - - - - 12,599 12,599 Depreciation, write-off of revalued assets - - -45 - 45 - Transactions with owners recognised directly in equity Dividends - - - - -2,389 -2,389 Total transactions with owners recognised directly in equity - - - - -2,389 -2,389 Balance at 31 December 2022 3,463 3,301 1,054 346 39,096 47,260 Balance at 1 January 2023 3,463 3,301 1,054 346 39,096 47,260 Profit (loss) for the period - - - - 2,527 2,527 Other comprehensive income - - - - - - Total comprehensive income for the year - - - - 2,527 2,527 Depreciation, write-off of revalued assets - - -152 - 152 - Transactions with owners recognised directly in equity Dividends - - - - -3,165 -3,165 Total transactions with owners recognised directly in equity - - - - -3,165 -3,165 Balance at 31 December 2023 3,463 3,301 902 346 38,610 46,622 The notes on pages 105 to 164 form an integral part of these separate and consolidated financial statements. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 102 Consolidated statement of changes in equity Equity attributable to owners of the Company EUR ‘000 Non- con- Revalua- Retained trolling Share Share tion re- Legal earnings inte- capital premium serve reserve (deficit) Total rest Total equity At 1 January 2022 3,463 3,301 1,828 346 30,510 39,448 133 39,581 Comprehensive income for the year Net profit (loss) - - - - 12,511 12,511 188 12,699 Other comprehensive income - - - - - - - - Total comprehensive income for the year - - - - 12,511 12,511 188 12,699 Depreciation, write-off of revalued assets - - -106 - 106 - - - Transactions with owners recognised directly in equity Dividends - - - - -2,389 -2,389 - -2,389 Change in fair value of put option - - - - 11 11 - 11 Total transactions with owners - - - - -2,378 -2,378 - -2,378 recognised directly in equity Changes in the Group not resulting in a loss of control Non-controlling interests on acquisition of subsidiary - - - - - - - - Total transactions with owners - - - - -2,378 -2,378 - -2,378 At 31 December 2022 3,463 3,301 1,722 346 40,749 49,581 321 49,902 At 1 January 2023 3,463 3,301 1,722 346 40,749 49,581 321 49,902 Comprehensive income for the year Net profit (loss) - - - - 14,666 14,666 -14 14,652 Other comprehensive income - - - - - - - - Total comprehensive income for the year - - - - 14,666 14,666 -14 14,652 Depreciation, write-off of revalued - - -185 - 185 - - - assets Transactions with owners recognised directly in equity Dividends - - - - -3,165 -3,165 - -3,165 Change in fair value of put option - - - - 42 42 - 42 Total transactions with owners - - - - -3,123 -3,123 - -3,123 recognised directly in equity Changes in the Group not resulting in a loss of control Non-controlling interests on acquisition of subsidiary - - - - -98 -98 -302 -400 Total transactions with owners - - - - -3,221 -3,221 -302 -3,523 At 31 December 2023 3,463 3,301 1,537 346 52,379 61,026 5 61,031 The notes on pages 105 to 164 form an integral part of these separate and consolidated financial statements. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 103 Consolidated and separate statements of cash flows EUR ‘000 GROUP COMPANY 2023 2022 EUR ‘000 2023 2022 Cash flows from operating activities 14,652 12,699 Profit (loss) for the year 2,527 12,599 Adjustments for: 4,648 4,742 Depreciation of property, plant and equipment 1,719 1,793 - Loss (gain) on change in fair value of investment - property -123 280 7 11 Amortisation of intangible assets 3 9 -430 -394 Amortisation and write-off of grants -134 -165 -1,413 2,593 Change in inventory write-down allowance 59 521 - - Impairment of goodwill - - -33 -28 Loss (gain) from disposal and write-off of property, plant and equipment 12 29 - - Losses (gain) from disposal of investments - 2 - - Other operating income -1,523 -3,931 787 1,481 Income tax expenses 47 1,134 1,339 741 Finance costs, net 338 160 19,557 21,845 2,925 12,431 9,278 -10,461 Change in inventories 141 -1,663 -802 177 Change in non-current amounts receivable -1,014 108 541 -4,159 Change in trade and other receivables and prepayments 8,566 -8,070 -292 365 Change in trade and other payables 2,100 2,881 28,282 7,767 12,718 5,687 -1,225 -393 Interest paid -287 -178 -364 -222 Income tax paid - - 26,693 7,152 Net cash flows generated from operating activities 12,431 5,509 Cash flows from investing activities -12,151 -3,958 Payments for acquisition of property, plant and equipment -6,773 -3,384 - - Payments for acquisition of intangible assets - 1 557 83 Proceeds from sale of property, plant and equipment 137 8 - - Proceeds from disposal of investments - 63 - - Acquisition of ownership interest in subsidiary -400 - -170 -800 Loans granted -320 -800 285 13 Government grants 285 - - - Dividends received 1,631 1,000 381 1,361 Repayment of loans 381 1,361 -400 - Outflow of cash to acquire subsidiary, net of cash acquired - - -11,498 -3,301 Net cash flows (used in) investing activities -5,059 -1,751 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 104 Consolidated and separate statements of cash flows (continued) EUR ‘000 GROUP Note COMPANY 2023 2022 EUR ‘000 2023 2022 Cash flows from financing activities 2,134 6,911 Proceeds from borrowings 23 2,134 669 -5,410 -8,165 Repayments of borrowings 23 -3,191 -1,913 -650 -386 Lease payments -621 -379 -3,165 -2,389 Payment of dividends -3,165 -2,389 -7,091 -4,029 Net cash flows (used in) financing activities -4,843 -4,012 8,104 -178 Net increase (decrease) in cash and cash 2,529 -254 equivalents 621 799 Cash and cash equivalents as at 1 January 325 579 8,725 621 Cash and cash equivalents as at 31 December 21 2,854 325 The notes on pages 105 to 164 form an integral part of these separate and consolidated financial statements. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 Notes to the consolidated and separate financial statements General information The following companies are part of the Vilvi Group (hereinafter the “Group”): • VILKYŠKIŲ PIENINĖ AB, a parent company (hereinafter the “Parent” or the “Company”); • Modest AB, a subsidiary (hereinafter the “subsidiary Modest AB” or “Modest AB”); • Kelmės Pieninė AB, a subsidiary (hereinafter the “subsidiary Kelmės Pieninė AB” or “Kelmės Pieninė AB”). • Kelmės Pienas UAB, a subsidiary of Kelmės Pieninė AB (hereinafter the “Kelmės Pienas UAB”). • Pieno Logistika AB, a subsidiary of Kelmės Pienas UAB (hereinafter “Pieno Logistika AB”). • Baltic Dairy Board SIA, a subsidiary (hereinafter the “subsidiary Baltic Dairy Board SIA“ or “Baltic Dairy Board SIA“). VILKYŠKIŲ PIENINĖ AB was established in 1993. The Parent has no branches or representative offices. VILKYŠKIŲ PIENINĖ AB is a Lithuanian company listed on the Nasdaq OMX Vilnius AB stock exchange. As at 31 December 2023, the Company’s shareholder structure was as follows: Number of Nominal value, Shareholder shares held EUR Total value, EUR Swisspartners Versicherung AG 7,213,680 0.29 2,091,968 Zweigniederlassung Österreich Multi Asset Selection Fund 2,035,729 0.29 590,361 Other minority shareholders 2,693,591 0.29 781,141 Total capital 11,943,000 0.29 3,463,470 As at 31 December 2022, the Company’s shareholder structure was as follows: Number of Nominal value, Shareholder shares held EUR Total value, EUR Swisspartners Versicherung AG 6,994,316 0.29 2,028,352 Zweigniederlassung Österreich Multi Asset Selection Fund 2,035,729 0.29 590,361 Mr. Gintaras Bertašius 219,364 0.29 63,616 Other minority shareholders 2,693,591 0.29 781,141 Total capital 11,943,000 0.29 3,463,470 The Company’s ultimate controlling party is Mr Gintaras Bertašius and persons related to him (Mrs. R. Bertašienė, Mrs. G. Jozūnienė, Mr. M.Bertašius) . As at 31 December 2023, Mr. Gintaras Bertašius held no shares of Vilkyškių Pieninė AB, however, he held 60.4% of voting rights at the General Meeting of Shareholders (since 2018, a joint life insurance policy has been drawn up with insurance company Swisspartners Versicherung AG Zweigniederlassung Österreich, which at 31 December 2023 has taken over ownership rights to 7,213,680 shares of Vilkyškių Pieninė AB). As at 31 December 2022, Mr. Gintaras Bertašius held 219,364 shares of Vilkyškių Pieninė AB, however, he also held 60.4% of voting rights at the General Meeting of Shareholders (As at 31 December 2022, insurance company Swisspartners Versicherung AG Zweigniederlassung Österreich, has taken over ownership rights to 6,994,316 shares of Vilkyškių Pieninė AB). For the entire validity term of the insurance policy, the insurance company has irrevocably authorised Mr. Gintaras Bertašius and persons related to him to fulfil all non-property rights of a shareholder, including the right to vote at the General Meeting of Shareholders. The Parent’s core line of business is production and sale of fermented cheese, cream, whey products. Business activities are carried out at the main production facilities located in Vilkyškiai, Pagėgiai region municipality. 105 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 106 Notes to the consolidated and separate financial statements General information (continued) The Parent controls the subsidiary Modest AB, which is engaged in production of blue-veined cheese, processed cheese, smoked cheese, Mozzarella cheese, and cream. At 2023 The Company owns 99.7% of shares with voting rights in the subsidiary Modest AB (2022: 99.7%). The Parent also controls the subsidiary Kelmės Pieninė AB, which is engaged in production of dry milk products – WPC, skimmed milk, permeate, and whey powder. At 2023 The Company owns 100% of shares with voting rights in the subsidiary Kelmės Pieninė AB (at 2022: 100%). As from 28 February 2021, Kelmės Pieninė AB controls the subsidiary Kelmės Pienas UAB, which is engaged in production of fresh milk products – kefir, sour cream, yoghurts, curd, glazed curd cheese snacks, butter. At 2023 Kelmės Pieninė AB owns 100% of shares in Kelmės Pienas UAB (at 2022: 100%). Kelmės Pienas UAB controls the subsidiary Pieno Logistika AB with the main business activity of lease of buildings and transport of milk. At 2023 Kelmės Pienas UAB owns 58.9% of shares with voting rights in Pieno Logistika AB (at 2022: 58.9%). Since 1 April 2021, the group also includes the subsidiary Baltic Dairy Board SIA, which specializes in milk and whey separation. As from 14 April 2023, the Company owns 100% of shares with voting rights in the subsidiary Baltic Dairy Board SIA (at 2022: 70%). As at 31 December 2023, the Group had 919 (31 December 2022: 884) employees. As at 31 December 2023, the Company had 424 (31 December 2022: 462) employees. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 107 Notes to the consolidated and separate financial statements Basis of preparation Statement of compliance The Group’s consolidated and the Company’s separate financial statements (hereinafter the “financial statements” or the “consolidated and separate financial statements”) have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union (hereinafter “the EU”). Pursuant to the Law on Companies of the Republic of Lithuania, the annual financial statements prepared by management shall be approved by the General Meeting of Shareholders. The shareholders of the Company have a statutory right to approve these financial statements or not to approve them, and to request preparation of a new set of the annual financial statements. These financial statements include the consolidated financial statements of the Group and the separate financial statements of the Company. Measurement basis The financial statements have been prepared on a historical cost basis except for: • buildings that are a part of property, plant and equipment measured at fair value, less any subsequent accumulated depreciation and impairment loss; • buildings that a part of investment property measured at fair value. Functional and presentation currency All amounts in these financial statements are presented in the euros (EUR) and they have been rounded to the nearest thousand. Foreign currency transactions Foreign currency transactions are translated into the euros using the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in a foreign currency are translated in the euros using the exchange rate prevailing at the date of the preparation of the statement of financial position. All foreign currency transactions have been translated in accordance with the provisions of the Law on Accounting using the exchange rate of the euro against the foreign currency prevailing at the date of the transaction. Foreign exchange differences arising from the settlement of such transactions are recognised in the statement of profit or loss. Non-monetary assets and liabilities that are measured at historical cost in a foreign currency are translated into the euros using the official exchange rate prevailing at the date of the transaction. Consolidation basis Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of the subsidiaries are included in the Group’s consolidated financial statements from the date on which the Group obtains control, and continue to be included until the date that such control ceases. All intra-group transactions and balances are eliminated for the purpose of the consolidated financial statements. The acquisition method is used to account for business combinations. The consideration transferred in return for the acquisition of the subsidiary is the fair value of the assets transferred, the liabilities assumed and the Group‘s equity interest. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed when incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Under the acquisition method, the Group recognises the non-controlling interest in the acquiree either at the fair value or at the non-controlling interest’s proportionate share of net assets in the acquiree. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the Group’s share of net assets in the acquiree, the difference is recognised directly in the statement of profit and loss as negative goodwill. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 Buildings Notes to the consolidated and separate financial statements Summary of material accounting policies The accounting policies set out below have been consistently applied by the Group/Company to all the periods presented in these financial statements, except for those which have changed due to the IFRS amendments and newly issued IFRS, as presented in the section below Impact of adoption of new standards, amendments and Property, plant and equipment, excluding buildings, is stated at acquisition cost, less subsequent accumulated depreciation and impairment losses. Costs related to the acquisition of the assets are included in the acquisition cost. The cost of assets produced internally by the Parent and the subsidiaries comprises the cost of materials, direct labour costs and indirect labour costs allocated on a proportionate basis. When parts of the items of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Buildings are recorded at revalued amounts, being their fair value at the date of the revaluation less any subsequent accumulated depreciation and impairment. Revaluations are carried out at regular intervals, i.e. at least every five years, to ensure that the carrying amount of buildings does not materially differ from their fair value at the date of the preparation of the statement of financial position. The fair value of buildings is determined by certified independent property valuers. Depreciation is calculated on a straight-line basis over the estimated useful lives of assets. The revaluation reserve for buildings is transferred to retained earnings in In case of revaluation, when the estimated fair value of an asset is lower than its net book value, the net book value of the asset is immediately reduced to the fair value and such impairment is recognised as expenses. However, such impairment is deducted from the previous revaluation increase of the asset accounted for in the revaluation reserve, to the extent it does not exceed the amount of such increase. In case of revaluation, when the estimated fair value of an asset is higher than its net book value, the net book value of the asset is increased to the fair value and such increase is recorded in the revaluation reserve of property, plant and equipment under the shareholder’s equity in the statement of other comprehensive income. Depreciation is recognised on a straight-line basis to write down the cost of the asset over its useful life, less its residual amount. 8-40 years interpretations on the financial statements. Property, plant and equipment proportion to the depreciation of revalued buildings. The estimated useful lives are as follows: Plant and machinery 4-20 years Other PP&E The useful lives, residual values and depreciation methods are reviewed regularly to ensure that the deprecation period and other estimates are consistent with the expected pattern of economic benefits from property, plant and equipment. 3-15 years 108 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 109 Notes to the consolidated and separate financial statements Summary of material accounting policies (continued) Investment property Property that is held for long-term rental yields or for capital appreciation or both, and that is not occupied by the Company, is classified as investment property. Investment property also includes property that is being constructed or developed for future use as investment property. Investment property is measured initially at its cost, including related transaction costs and where applicable borrowing costs. After initial recognition, investment property is carried at fair value. Investment property that is being redeveloped for continuing use as investment property, or for which the market has become less active, continues to be measured at fair value. Investment property under construction is measured at fair value if the fair value is considered to be reliably determinable. Investment properties under construction for which the fair value cannot be determined reliably, but for which the Company expects the fair value of the property will be reliably determinable when construction is completed, are measured at cost less impairment until the fair value becomes reliably determinable or construction is completed - whichever is earlier). It may sometimes be difficult to determine reliably the fair value of the investment property under construction. In order to evaluate whether the fair value of an investment property under construction can be determined reliably, management considers the following factors, among others: • the provisions of the construction contract; • the stage of completion; • whether the project/property is standard (typical for the market) or non-standard; • the level of reliability of cash inflows after completion; • the development risk specific to the property; Fair value is based on active market prices, adjusted, if necessary, for differences in the nature, location or condition of the specific asset. If this information is not available, the Company uses alternative valuation methods, such as recent prices on less active markets or discounted cash flow projections. Valuations are performed as at the financial position date by professional valuers who hold recognised and relevant professional qualifications and have recent experience in the location and category of the investment property being valued. These valuations form the basis for the carrying amounts in the Company’s financial statements. The fair value of investment property reflects, among other things, rental income from current leases and other assumptions market participants would make when pricing the property under current market conditions. Subsequent expenditure is capitalised to the asset’s carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced, the cost of the replacement is included in the carrying amount of the property, and the fair value is remeasured. Changes in fair values are recognised in the statement of profit and loss. Investment properties are derecognised when they have been disposed of. Where the Company disposes of a property at fair value in an arm’s length transaction, the carrying value immediately prior to the sale is adjusted to the transaction price, and the adjustment is recorded in the income statement within net gain from fair value adjustment on investment property. If an investment property becomes owner occupied, it is reclassified as property, plant and equipment. Its fair value as at the date of reclassification becomes its cost for subsequent accounting purposes. If an item of owner-occupied property becomes an investment property because its use has changed, any difference resulting between the carrying amount and the fair value of this item as at the date of transfer is treated in the same way as a revaluation under IAS 16. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 110 Notes to the consolidated and separate financial statements Summary of material accounting policies (continued) Any resulting increase in the carrying amount of the property is recognised in the income statement to the extent that it reverses a previous impairment loss, with any remaining increase recognised in other comprehensive income and increased directly to equity in revaluation surplus within equity. Any resulting decrease in the carrying amount of the property is initially charged in other comprehensive income against any previously recognised revaluation surplus, with any remaining decrease charged to the income statement. Where an investment property undergoes a change in use, such as commencement of development with a view to sell, the property is transferred to inventories. A property’s deemed cost for subsequent accounting as inventories is its fair value at the date of change in use. Intangible assets Intangible assets with definite useful lives acquired by the Parent and the subsidiaries are stated at cost, less accumulated amortisation and impairment loss. Amortisation is calculated on a straight-line basis over the period of 3 years and reported in the statement of profit or loss. Goodwill Goodwill is an asset representing the future economic benefits arising from assets that cannot be separated from other assets and recognised on a business combination. Goodwill arising on acquisition of subsidiaries is recognised as intangible assets. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses (tested on an annual basis). For the purposes of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Cash-generating units are operations of Modest AB relating to production and sale of cheese and cheese products, and operations of Kelmės Pienas UAB relating to production and sale of fresh milk products. Where goodwill is a portion of a cash-generating unit, and a portion of an operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the carrying amounts of the operation disposed of and the portion of the cash-generating unit retained. Non-controlling interest Non-controlling interest is the equity in a subsidiary not attributable directly or indirectly to the Parent. Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognised as a result of such transactions. Adjustments to non- controlling interest not resulting in a loss of control are based on a proportionate amount of the controlled net assets of the subsidiary. Investments in subsidiaries Investments in subsidiaries in the separate financial statements are stated at acquisition cost, less impairment loss. Inventories Inventories comprise finished products, work in progress, and goods and materials. Inventories are initially measured at acquisition or production cost. The production cost includes direct labour costs, costs of materials and conversion costs incurred during the production period. Production costs also include a systematic allocation of fixed and variable production overheads. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 111 Notes to the consolidated and separate financial statements Summary of material accounting policies (continued) At the end of the reporting period inventories are measured at the lower of cost or net realisable value, less any write-downs. Net realisable value is the estimated selling price, less the estimated costs of completion and selling expenses. Write-downs of inventories to net realisable value are included in the cost of sales. The utilisation of inventories is determined using the first-in, first-out (FIFO) method. Financial assets and liabilities The Group/Company classifies the financial assets into the following categories: • financial assets subsequently measured at fair value (either at fair value through other comprehensive income or at fair value through profit or loss), and the Group/Company has no such assets; • financial assets measured at amortised cost. The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. The Group reclassifies debt instruments when and only when its business model for managing those assets changes. All regular way purchases and sales of financial assets are recognised on trade-date, the date on which the group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the group has transferred substantially all the risks and rewards of ownership. On initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Financial assets measured at amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses. Trade receivables Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within 30 to 60 days, and therefore, are all classified as current. Trade receivables are recognised initially at the amount of consideration that is unconditional. The Group/Company holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. The carrying amounts of the trade receivables include receivables which are subject to a factoring arrangement. Under this arrangement, the Group/Company has transferred the relevant receivables to the factor in exchange for cash and the Group/Company is prevented from selling or pledging the receivables. Under the factoring with recourse agreements, the Group/Company retains the risk of late payment and credit risk. The Group/Company, therefore, continues recognising the transferred assets in their entirety in the statement of financial position. The amount repayable under the factoring agreement is presented as secured borrowing. The Group/Company considers the ‘hold to collect’ business model to remain appropriate for these receivables and hence continues measuring them at amortised cost. Under the factoring without recourse agreements, the Group/Company does not retain any risks, and therefore, these assets are derecognised from the statement of financial position and there is no balances outstanding at year-end. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 112 Notes to the consolidated and separate financial statements Summary of material accounting policies (continued) Financial assets and liabilities (continued) Impairment The Group/Company assesses on a forward-looking basis the expected credit losses associated with its debt instruments measured at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the trade receivables and contract assets. To measure the expected credit losses, trade and other receivables have been grouped based on shared credit risk characteristics and the days past due. The expected loss rates are based on the profiles of receivables from sale of goods over the period of 48 months before 31 December 2022 or 31 December 2021, respectively, and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to the amounts due. Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, failure of a debtor to engage in a repayment plan with the Group, and contractual payments past due more than 180 days. Impairment losses on trade receivables are presented as net impairment losses within operating profit. Subsequent recoveries of amounts previously written off are credited against the same line item. Trade and other payables These amounts represent outstanding liabilities for goods and services provided to the Group prior to the end of the financial year. The amounts payable are unsecured and are usually paid within 30 days after their recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest rate method. Borrowings costs General and specific borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale. Other borrowing costs are expensed in the period in which they are incurred. Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest rate method. Costs incurred in relation to collateralisation of borrowing facilities are recognised as transaction costs of the borrowings to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the related costs are capitalised as a prepayment for liquidity services and amortised over the period of the loan facility to which it relates. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 113 Notes to the consolidated and separate financial statements Summary of material accounting policies (continued) Financial assets and liabilities (continued) Interest-bearing amounts Interest-bearing amounts are recognised initially at fair value, plus transaction costs. Subsequently, interest- bearing amounts are recognised at amortised cost using the effective interest method. Reversal of impairment An impairment loss on amounts receivable carried at amortised cost is reversed, if, in a subsequent period, the increase in the recoverable amount can be related to an event occurring after the impairment loss was recognised. The impairment loss is reversed to the extent that the carrying value of the asset does not exceed its value that would have been determined had no impairment loss been recognised. Fair value measurement The fair value of investments traded in an active market is based on quoted market prices at the reporting date. If the market for a financial asset is not active (and for unlisted securities), the Group/Parent establishes the fair value by using the valuation techniques. These include the use of recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis or other valuation models. In determining the fair value of assets or liabilities the Group/Company uses, if possible, inputs that are observable in the market. A fair value hierarchy categorises into three levels inputs used in the valuation techniques to measure the fair value: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); Level 3: inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) . The inputs used to measure the fair value of an asset or a liability might be categorised within different levels of the fair value hierarchy. In those cases, the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Group/Company recognises the amounts transferred within the fair value hierarchy levels at the end of the reporting period in which the change occurred. Fair values measured for the purposes of assessment and (or) disclosure are calculated using the below presented methods. When applicable, further information on assumptions used in determining fair values is disclosed in the note related to specific assets or liabilities. Derecognition of financial assets and financial liabilities Financial assets A financial asset (or a part of a financial asset or part of a group of similar financial assets) is derecognised when: − the rights to receive cash flows from the asset have expired; or − the Group/Company has retained the right to receive cash inflows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass through” arrangement; or − the Group/Company has transferred their rights to receive cash flows from the asset and/or (a) has transferred all the risks and rewards of the asset, or (b) has neither transferred nor retained all the risks and rewards of the asset, but has transferred control of the asset. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 114 Notes to the consolidated and separate financial statements Summary of material accounting policies (continued) Where the Group/Company has transferred their rights to receive cash flows from the asset and has neither transferred nor retained all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Parent’s/subsidiary’s continuing involvement in the asset. Financial liabilities A financial liability is derecognised when the obligation under the liability is settled, cancelled or expires. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and cash at bank. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less and that are subject to an insignificant risk of change in value. For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand, demand deposits in bank accounts and other short-term liquid investments. Bank overdrafts are recognised in the statement of financial position as current borrowings and are not attributed to cash equivalents in the statement of cash flows as usually their balance is negative. Interest and dividends received are attributed to cash flows of investing activities, interest paid are attributed to cash flows from operating activities, whereas dividends paid – to cash flows from financing activities. Impairment Non-financial assets Non-financial assets, except for inventories and deferred tax assets, are reviewed for impairment whenever events or changes in circumstance indicate that the asset may be impaired. If such an indication exists, the asset's recoverable amount is estimated. The recoverable amount of an asset or cash-generating unit is the higher of its value in use and its fair value, less costs to sell. The asset’s value in use is calculated by discounting future cash flows to their present value using a pre-tax discount rate reflecting current market assumptions regarding time value of money and risk specific to the asset concerned. For the purpose of impairment testing, assets that cannot be tested individually are grouped into the smallest group of assets that generates cash inflows through the asset’s continuous use and is independent from cash flows generated by other assets or the groups of assets (“the cash generating unit” or “CGU”). Whenever the net book value of an asset exceeds its recoverable amount, an impairment loss is recognised in the statement of profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of 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. Reversal of impairment losses recognised in prior years is recorded when there is an indication that the impairment losses recognised for the asset no longer exist or have decreased. Reversal is accounted for in the statement of profit or loss under the same caption as impairment loss. An impairment loss allocated to goodwill is not reversed. Provisions Provisions for liabilities are recognised in the statement of financial position when there are commitments as a result of past events and it is probable that additional funds will be required to settle these obligations. If the impact is material, provisions are estimated by discounting future cash flows to their present value using a pre- tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 115 Notes to the consolidated and separate financial statements Summary of material accounting policies (continued) Leases Where the Group/Company is a lessee The Group/Company leases out buildings, motor vehicles, plant and machinery, and other assets. The Group‘s term of lease ranges up to 8 years, but they contain an extension option. As the management determines the lease term, it considers all relevant facts and circumstances that create an economic incentive for the lessee to exercise the option to extend the lease, or not to exercise the option to terminate the lease. The extension option is included in the lease term only when it is reasonably certain that the lease will be extended (or will not be terminated). The lease terms and conditions are negotiated individually, however, there are no non-standard terms and conditions. The lease contracts do not stipulate any financial performance covenants that the Group/Company would be required to comply with. The lease liabilities arising from a lease are measured by a lessee at the commencement date on a present value basis, including the following payments: • fixed payments (including in-substance fixed payments), less any lease incentives receivable; • variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date; • amounts expected to be payable by the group under residual value guarantees; • payments of penalties for terminating the lease, if the lease term reflects the group exercising that option. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, the lessee’s incremental borrowing rate is used. The interest rate implicit in the lease is the interest rate as a result of which the present value of the lease payments and unguaranteed residual value is equal to the sum of fair value of leased assets and any other initial direct costs of the lessor. The lease liability is measured at amortised cost using the effective interest rate, which represents the discount rate used in discounting of lease payments. Interest expenses relating to the lease liability are allocated over the lease period and recognised through profit or loss. Right-of-use assets are initially measured at cost comprising the following: • the amount of the initial measurement of lease liability; • any lease payments made at or before the commencement date, less any lease incentives received; • any initial direct costs incurred by a lessee; and • restoration costs. Subsequently the right-of-use assets are recognised by the lessee at cost less accumulated depreciation and impairment losses. When the title of ownership is transferred to the lessee at the end of the lease period or when the price of the right-of-use assets shows that the lessee will exercise the buy option, then the lessee estimates depreciation of right-of-use assets from the commencement date to the end of the useful life of the leased assets. Otherwise, the lessee estimated depreciation for right-of-use assets from the commencement date to the end of the useful life of the right-of-use assets or the end of the lease period, depending on which occurs earlier. Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases that, at the commencement date, have a lease term of 12 months or less, and that do not contain a purchase option. Low-value assets mostly represent milk products. Operating lease -– where the Group/Company is a lessee Operating lease payments are recognised as expenses in profit or loss using the straight-line method over the lease term. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 116 Notes to the consolidated and separate financial statements Summary of material accounting policies (continued) Dividends Dividends are recorded as a liability or an amount receivable in the period in which they are declared. Government grants Grants received as a compensation for the costs incurred are recognised in profit or loss over the period in which the costs are incurred. Government and the EU grants and third-party compensations received in the form of non-current assets or intended for the purchase of non-current assets are considered as asset-related grants. Grants are initially recorded at the fair value of the asset received and subsequently amortised. Amortisation costs of grants are included in the cost of production or administrative expenses as well as in the depreciation charge of property, plant and equipment for which the grant was received. Revenue The Group/Company manufactures and sells a range of cheese and milk products in the wholesale market. Sales are recognised when control of the products has been transferred, being when the products are delivered to the wholesaler, the wholesaler has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the wholesaler’s acceptance of the products. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the wholesaler, and either the wholesaler has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or the Group/Company has objective evidence that all criteria for acceptance have been satisfied. Income from transport services is recognised in the period in which the services are rendered. The goods are sometimes sold with retrospective volume discounts based on aggregate sales over a month or a 12-months period. Revenue from these sales is recognised based on the price specified in the contract, net of the estimated volume discounts. Accumulated historical experience is used to estimate and provide for the discounts, using the expected value method, and revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur. A refund liability is recognised for expected volume discounts payable to customers in relation to sales made until the end of the reporting period. It is considered that there is no significant financing component, since customers are offered a credit period of 30 days to settle their obligations, which is in line with the market practice. Receivable is recognised when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due. The Group/Company does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust any of the transaction prices for the time value of money. Contract liabilities are recognised and presented as advance amounts received. Cost of sales Cost of sales consists of direct and indirect costs, including depreciation and remuneration expenses incurred in order to achieve the turnover set for a respective year. Expenses are recognised on an accrual basis and matching principle. Distribution and administrative expenses Distribution and administrative expenses comprise expenses related to transportation, administrative staff, coordination activities, office supplies, etc. and also comprise depreciation and amortisation expenses. Operating expenses are recognised on an accrual basis. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 117 Notes to the consolidated and separate financial statements Summary of material accounting policies (continued) Other operating income and expenses Other operating income and expenses comprise gain or loss from the disposal of non-current assets as well as other income and expenses not directly related to the operating activities of the Group/Company. Finance income and costs Income and expenses of financing activities include interest receivable and payable, realised and unrealised foreign exchange gain and loss related to borrowings and financial liabilities denominated in foreign currencies. Interest income is recognised in profit or loss using the effective interest method. Interest expenses on leases is recognised in profit or loss using the effective interest rate method. Employee benefits Short-term employee benefits are recognised as current expenses of the period in which the services have been rendered. Such employee benefits include wages and salaries, social security contributions, extra pays, paid vacation, contributions to pension funds, and other benefits. There are no long-term employee benefits. The Company also pays contributions to Pillar III investment fund on behalf of its employees based on the defined contribution plan. The contributions are recognised as expenses on an accrual basis and included in general and administrative expenses. Income tax Income tax comprises current and deferred tax. Income tax is recognised in the statement of profit or loss, except to the extent that it relates to line items recognised directly in equity or through other comprehensive income, in which case the tax is recognised in equity through other comprehensive income. Current income tax is calculated in accordance with the tax legislation, using the tax rates enacted and effective as at the reporting date in the countries where the Company and its subsidiaries generate revenue. A standard income tax rate of 15% is applied to companies registered in the Republic of Lithuania. Tax losses, except for those arising on disposal of securities and/or derivative financial instruments, can be carried forward for unlimited period, provided the entity continues the operations, which generated these tax losses. Tax losses available for carry forward cannot exceed 70% of income for the tax period, calculated by deducting non-taxable income, allowable deductions and limited allowable deductions. The procedure of carrying forward losses arising on disposal of securities and/or derivative financial instruments has not changed, therefore, these losses can be carried forward for the period of 5 years and can only be used to reduce taxable income earned from transactions of the similar nature. The Group companies operating in the Republic of Latvia pay income tax upon distribution of profit for the reporting year. Income tax rate of 20% is payable on distributed profit (calculated dividends, dividend equivalent income and conditional dividends) and conditional distributed profit (non-operating expenses, etc.). Income tax rate of 20% is applied to gross taxable amount. Gross tax base for the tax period is calculated as net tax base (distributed profit and conditionally distributed profit) divided by 0.8 coefficient. Deferred income tax is calculated on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts reported in the financial statements. Deferred income tax is not calculated on temporary differences arising on initial recognition of an asset or liability, which at the time of the transaction affect neither accounting nor taxable profit. Deferred income tax is determined using the tax rates that are expected to apply when the related temporary differences are expected to reverse and that are known at the date of the preparation of the statement of financial position. Deferred income tax assets are recognised VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 118 Notes to the consolidated and separate financial statements Summary of material accounting policies (continued) only when the Group/Company expects that future taxable profit will be available against which tax assets can be utilised. Deferred income tax is reviewed at each date of the statement of financial position and reduced by the amount of tax assets that will not be utilised. Earnings per share The Group/ Company discloses information on basic and diluted earnings per share. Basic earnings per share are calculated by dividing profit or loss attributable to the shareholders of the Parent by the weighted average number of ordinary shares during the period. Diluted earnings per share are calculated by adjusting profit or loss attributable to the shareholders, and the weighted average number of ordinary shares during the year, for the effects of all potential ordinary shares. During the reporting periods, the Group/Company did not issue potential ordinary shares. Segment information Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board making the strategic decisions, and the General Manager. An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including intra-segment revenues and expenses. The Group has three reportable segments established on the basis of different groups of products (cheese, cheese products and others, dry milk products, and fresh milk products). Impact of adoption of new standards, amendments and interpretations on the financial statements The accounting policies applied in the preparation of these financial statements are consistent with those applied in the previous periods, except for the following: a) Standards and amendments to the existing standards that became effective on 1 January 2023 There are no standards, amendments to standards or interpretations that are effective for annual periods commencing on 1 January 2023 and that would have a material impact on the Group’s financial statements, except for: Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of accounting policies (issued on 12 February 2021 and effective for annual periods commencing on or after 1 January 2023). IAS 1 was amended to require companies to disclose their material accounting policy information rather than their significant accounting policies. The amendment provided the definition of material accounting policy information. The amendment also clarified that accounting policy information is expected to be material if, without it, the users of the financial statements would be unable to understand other material information in the financial statements. The amendment provided illustrative examples of accounting policy information that is likely to be considered material to the entity’s financial statements. Further, the amendment to IAS 1 clarified that immaterial accounting policy information need not be disclosed. However, if it is disclosed, it should not obscure material accounting policy information. To support this amendment, IFRS Practice Statement 2, ‘Making Materiality Judgements’ was also amended to provide guidance on how to apply the concept of materiality to accounting policy disclosures. The Group has applied the amendment to IAS 1 when preparing its financial statements for the year 2023. In accordance with the recommendations set out in IAS 1, only a material accounting policy information is presented in the notes to the financial statements. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 119 Notes to the consolidated and separate financial statements Summary of material accounting policies (continued) b) Standards, interpretations and their amendments that became effective after 1 January 2023 and that have not been early adopted by the Group Several new standards, amendments to standards and interpretations are effective for annual periods commencing after 1 January 2023, but they have not been applied in the preparation of these financial statements. None of them are expected to have a material impact on the Group’s financial statements. c) The following standards have been issued, but not yet endorsed by the EU There are no other IFRS or IAS amendments or IFRIC interpretations that are not yet effective and that would be expected to have a significant impact on the Company/Group. Events after the reporting period Events after the reporting period that provide additional information about the Group’s and the Company’s position at the reporting date (adjusting events) are reflected in the financial statements. Events after the reporting period that are not adjusting events are disclosed in the notes to the financial statements when material. Offsetting financial assets and financial liabilities Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty. Accounting estimates and assumptions The preparation of financial statements in conformity with IFRS as adopted by the European Union requires the use of accounting estimates and assumption by management that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. The accounting estimates and the related assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements about the net book amounts of assets and liabilities that are not readily apparent from other sources. The actual results may ultimately differ from those estimates. The accounting estimates and underlying assumptions are regularly reviewed and are based on historical experience, other factors reflecting a current situation and reasonably possible future events. The Group/Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant effect on the amounts of assets and liabilities and can cause a significant adjustment to these amounts within the next financial year are addressed below. Impairment losses on property, plant and equipment and intangible assets The Company/Group did not identify any impairment indications in respect of property, plant and equipment as at 31 December 2023 and 2022, and accordingly, no impairment test was performed. Assumptions and results of impairment test performed by the Group in respect of goodwill as at 31 December 2023 and 2022 are disclosed in Note 15. Measurement of inventories The Group/Company reviews the movement on the inventory account, assesses the carrying amount on a quarterly basis. The carrying amount of inventories should not exceed future economic benefits expected to be received from the disposal or use of inventories. Loss on inventory write-down to net realisable value is recognised in the statement of profit or loss during the period in which the inventory measurement and write- down were performed. Inventory write-down is assessed considering the historical data and actual sales of inventories below cost. For more information refer to Note 18 ‘Inventories’ . VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 120 Notes to the consolidated and separate financial statements Summary of material accounting policies (continued) Useful life of property, plant and equipment Useful lives of the assets are reviewed annually and revised when there are grounds for believing that the remaining useful lives do not reflect technical conditions, economic utilisation or physical conditions of the assets. Financial risk management The use of the financial instruments exposes the Group/Company to the following risks: • credit risk; • liquidity risk; • market risk. Information on each type of the above-mentioned risks to which the Group/Company is exposed, objectives, policies and processes for managing the risk and the methods used to measure the risk is set out in this section. Note 29 ‘Financial instruments and risk management’ discloses quantitative information on each type of the above-mentioned risks and on the Group’s/Company’s capital management. Risk management framework The Board is responsible for the development and monitoring of the Group’s/Company’s overall risk management programme. The Group’s/Company’s risk management policy defines and analyses risks to which the companies are exposed, establishes appropriate risk limits, controls risks and adherence to risk limits. The risk management policy and systems are reviewed on a regular basis to reflect market conditions and the Group’s/Company’s operational changes. The Group/Company, through its training and management standards and procedures, seeks to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Credit risk In conducting trading activities, the Group/Company applies deferred payment in respect of sale of products and services, and therefore, a risk may arise that clients will not pay for products and services provided by the Group/Company. The Group/Company seeks to minimise credit risk through credit limit approach, based on which the amounts of credits granted to clients and the types of credit enhancements are established as follows: • limit, • guarantees, • insurance. The Group/Company has insurance for their sales to foreign clients under the credit insurance agreement concluded with the company Euler Hermes for the term of two years. On November 2022, the insurance was extended for additional two years. For each client, the credit risk is assessed individually. Trade receivables are regularly monitored by the Finance Department. In the event of overdue amounts receivable, the sale is suspended and debt recovery procedures are initiated. Liquidity risk Liquidity risk is a risk that the Group/Company will not be able to meet their financial liabilities in due time. The Group/Company manages the liquidity risk with the aim to achieve the best possible liquidity of the Group/Company, thereby allowing to settle obligations both in the ordinary course of business and under complicated operating conditions, and preventing from incurring unacceptable losses and damaging the Group’s/Company’s reputation. The Group’s/Company’s policy is aimed at maintaining sufficient cash and cash equivalents or ensuring funding through an adequate amount of committed credit facilities in order to meet their commitments at a given date in accordance with the strategic plans. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 121 Notes to the consolidated and separate financial statements Summary of material accounting policies (continued) The Group’s/Company’s objective is to maintain balance between the continuity and flexibility of funding. The Group/Company generates a sufficient amount of cash form activities, and therefore, the management is responsible for ensuring a sufficient level of the Group’s/Company’s liquidity. Market risk Market risk is a risk that changes in market prices, e.g. foreign exchange rates and interest rates, will affect the Group’s/Company’s results of operations or the value of financial instruments held. The purpose of the market risk management is to manage open risk positions in order to optimise rate of return. The Group/Company manage foreign exchange risk by minimising the open position in a foreign currency. Further information on hedging against foreign exchange risk is disclosed in Note 29 ‘Financial instruments and risk management’. The Group’s/Company’s income and operating cash flows are substantially independent of market interest rates. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 Notes to the consolidated and separate financial statements Notes 1 Segment information GROUP The Group cmprises 6 legal entities: Vilkyškių Pieninė AB, Kelmės Pieninė AB, Kelmės Pienas UAB, Modest AB, Baltic Dairy Board SIA, and Pieno Logistika AB. The main business activity of each entity (operating segment) is the production of milk products, except for Pieno Logistika AB that is engaged in lease of buildings, collection and transportation of raw milk. The Group has several operating segments as described below. The operating segments represent different product groups that are managed separately, because they require different technologies and marketing strategies. The Board and the General Manager review the internal management reports prepared for each operating segment on a monthly basis. The following summary describes the products in each operating segment of the Group: • Cheese, cheese products and other. The operating segment comprises cheese, cheese products, cream, and liquid whey that remains during the process of cheese production; • Dried milk products. The operating segment comprises WPC, skimmed-milk, permeate, whey powder produced by the subsidiaries; • Fresh milk products. The operating segment comprises fresh milk products produced by the subsidiaries (kephir, yoghurt, sour cream, butter, curd products). Information on the results of operations of each operating segment is presented below. Performance is assessed based on the gross profit of the operating segments, which is presented in the internal management reports reviewed by the Board and the General Manager. The operating segment’s gross profit is used to assess performance, as the management believes it is the most appropriate indicator for that purpose. Results of operations of the operating segments at 31 December 2023: Cheese, cheese Dried milk Fresh milk EUR ‘000 products and other products products Total Revenue 139,603 37,971 32,962 210,536 Cost of sales -130,634 -26,152 -26,063 -182,849 Gross profit 8,969 11,819 6,899 27,687 Other operating income 275 Distribution, administrative and other operating expenses -11,405 Other gain (loss) – net 221 Operating result 16,778 Finance income 39 Finance costs -1,378 Finance costs, net -1,339 Profit (loss) before income tax 15,439 In 2023, gross profit from the Group’s operating segment Dried milk products increased by EUR 8,603 thousand compared to 2022 due to lower prices of raw materials and energy. In 2023, gross profit from 122 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 123 operating segment Cheese, cheese products and other decreased by 50.4% due to decrease in price levels of export markets. Results of operations of the operating segments at 31 December 2022: EUR ‘000 Cheese, cheese products and Dried milk Fresh milk other products products Total Revenue 170,589 36,630 26,864 234,083 Cost of sales -152,498 -33,414 -23,897 -209,809 Gross profit 18,091 3,216 2,967 24,274 Other operating income 313 Distribution, administrative and other operating expenses -9,755 Other gain (loss) – net 89 Operating result 14,921 Finance income 127 Finance costs -868 Finance costs, net -741 Profit (loss) before income tax 14,180 Information on the operating segments’ assets, liabilities, interest income, interest expenses, depreciation, results of operations before tax, income tax and other non-cash items is not reported to the Board and the General Manager. In the management’s opinion, the allocation of such items to the operating segments is not reasonable. Revenue, cost of sales and gross profit reported to the management are the same as reported in the financial statements. In 2023 and 2022, all revenue was recognised at a point in time. For the purpose of disclosure by geographical location, revenue is recognised with reference to the place of registration of a client. Assets are allocated with reference to their geographical location. Breakdown by geographical location for 2023: GROUP COMPANY EUR ‘000 Revenue Assets Revenue Assets Lithuania 36,624 86,756 77,693 54,228 European Union (excluding Lithuania) 103,079 15,844 96,758 11,486 Other countries 70,833 4,439 70,621 4,439 210,536 107,039 245,072 70,153 Breakdown by geographical location for 2022: GROUP COMPANY EUR ‘000 Revenue Assets Revenue Assets Lithuania 26,751 80,468 101,179 58,691 European Union (excluding Lithuania) 132,771 10,515 117,049 4,293 Other countries 74,561 7,480 70,415 7,480 234,083 98,463 288,643 70,464 Information on major clients. In 2023, the Group had one client with sales revenue representing 11.3% of its total revenue. (In 2022, the Group had no clients with sales revenue representing over 10% of total revenue). VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 Notes to the consolidated and separate financial statements Notes (continued) 2 Cost of sales (EUR ’000) GROUP COMPANY 2023 2022 2023 2022 -143,805 -168,220 Raw materials -117,098 -147,779 - - Resale cost of goods produced by the subsidiaries -102,928 -105,268 -10,817 -9,916 Employee expenses, including social security contributions -3,974 -3,323 -3,562 -3,750 Depreciation and grants’ amortisation -952 -1,117 -6,387 -5,922 Milk collection and transportation costs -5,445 -5,758 -7,758 -14,186 Gas, electricity, water -1,827 -3,844 -2,109 -2,205 Transport costs -2,109 -2,205 -8,411 -5,610 Other -1,726 -2,154 -182,849 -209,809 -236,059 -271,448 As at 31 December 2023, the Group’s and the Company’s inventory write-down to net realizable value amounted to EUR 1,218 thousand and EUR 617 thousand, respectively. In 2022, the Group’s and the Company’s inventory write-down to net realizable value amounted to EUR 2,630 thousand and EUR 558 thousand, respectively. 3 Other operating income (EUR ’000) GROUP COMPANY 2023 2022 2023 2022 183 89 Income from rendering of services 3,625 7,300 - - Dividends 1,523 3,931 16 16 Income from accounting services 388 197 76 208 Other income 62 164 275 313 5,598 11,592 4 Other operating expenses (EUR ’000) GROUP COMPANY 2023 2022 2023 2022 -80 -82 Cost of services rendered -3,260 -6,950 -225 -97 Other expenses -4 -1 -305 -179 -3,264 -6,951 5 Other gain (loss) – net (EUR ’000) GROUP COMPANY 2023 2022 2023 2022 221 89 Gain (loss) from disposal of raw materials, non-current assets 98 35 - - Gain (loss) from fair value change of investment property 125 -280 221 89 223 -245 6 Distribution expenses (EUR ’000) GROUP COMPANY 2023 2022 2023 2022 -1,602 -1,530 Logistics and transport services -1,427 -1,332 -549 -499 Marketing and advertising services -481 -446 -1,201 -1,126 Personnel expenses, including social security contributions -1,201 -1,126 -39 -65 Depreciation expenses -21 -48 -1,047 -929 Other selling expenses -1,094 -891 -4,438 -4,149 -4,224 -3,84 3 124 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 Notes to the consolidated and separate financial statements Notes (continued) 7 Administrative expenses (EUR ’000) GROUP COMPANY 2023 2022 Personnel expenses, including social security 2023 2022 -3,239 -2,441 contributions and change in vacation reserve -2,374 -1,822 -155 -140 Depreciation and amortisation, including amortisation -99 -92 of subsidies -451 -393 Services received -192 -175 -282 -242 Taxes, other than income tax -201 -179 -131 -126 Veterinary services -82 -80 -198 -210 Consultation services -136 -151 11 - Inventory write-down, reversal 11 - -166 -142 Security -62 -54 -93 -22 Fines and interest paid on late payments -1 -9 -209 -52 Write-off of bad debt expenses -209 -52 -209 -205 Computer expenses -197 -194 -55 -85 Fuel -48 -46 -65 -66 Repair expenses -44 -55 -47 -44 Fee for membership in association -47 -44 -34 -31 Stock exchange expenses -31 -29 -16 -132 New product development expenses - -98 -84 -99 Insurance -36 -52 -65 -23 Bank charges -52 -18 -1,174 -974 Other -634 -705 -6,662 -5,427 -4,434 -3,855 In 2023, the Group’s and the Company’s social security contributions payable by an employer amounted to EUR 533 thousand and EUR 182 thousand, respectively (2022: EUR 420 thousand and EUR 160 thousand, respectively). Social security amount includes social security contributions on vacation and pension reserves. 8 Services provided by the audit firm to the Company and the Group in 2023 (EUR ’000) GROUP COMPANY 2023 2022 2023 2022 UAB PricewaterhouseCoopers financial statement audit 90 74 64 65 services under the agreements Audit services of financial statements of other independent 22 20 - - auditors under the agreements 1 2 Other services 1 1 113 96 Total 65 66 125 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 126 9 Finance costs, net (EUR ’000) GROUP COMPANY 2023 2022 Finance income 2023 2022 34 19 Interest 98 87 - 95 Foreign exchange gain - 95 5 13 Other 2 11 39 127 Total finance income 100 193 Finance costs -1194 -671 Interest -257 -162 -37 -17 Interest on lease -32 -17 -129 -119 Factoring charges -129 -116 -18 - Foreign exchange loss -20 - - -61 Other - -58 -1,378 -868 Total finance costs -438 -353 -1,339 -741 -338 -160 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 Notes to the consolidated and separate financial statements Notes (continued) 10 Income tax expenses (EUR ’000) Recognised in profit or loss GROUP COMPANY 2023 2022 2023 2022 Current year income tax expenses -647 -386 Reporting period 3 -146 Deferred income tax expenses -140 -1,095 Change in deferred income tax -50 -988 -787 -1,481 -47 -1,134 Reconciliation of effective income tax rate (EUR ’000) GROUP COMPANY 2023 2022 2023 2022 15,439 14,180 Profit for the year 2,574 13,733 2,316 2,127 Income tax calculated at a rate of 15% 386 2,060 - - Gain from inter-company disposal of business - - - - Dividend income -228 -589 -128 -27 Other non-taxable income -1 -2 - - Impairment of goodwill - - -12 -17 Charity expenses deductible twice for tax -11 -16 purposes -12 -40 R&D expenses deductible thrice for tax - - purposes -107 -592 Investment project relief -87 -363 -67 -86 Tax loss utilisation -67 - 151 402 Other expenses not deductible for tax purposes 55 44 -1,354 -286 Other expenses deductible for tax purposes - - 787 1,481 Income tax expenses (benefit) 47 1,134 Pursuant to the effective laws, the State Tax Inspectorate may at any time inspect the books and accounting records of the Group/Company for 3 years preceding the reporting tax period and may assess additional taxes or fines (a 5-year period is applied to some types of transactions). The Company’s management is not aware of any circumstances that might result in a potential material tax liability in this respect for the Group/Company. 127 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 Notes to the consolidated and separate financial statements Notes (continued) 11 Earnings per share GROUP COMPANY 2023 2022 Net profit attributable to holders of ordinary shares 2023 2022 14,666 12,511 of the Parent, EUR ‘000 2,527 12,599 Number of issued shares calculated based on the 11,943 11,943 weighted average unit cost method, ‘000 units 11,943 11,943 1.23 1.05 Basic earnings (loss) per share (EUR 0.21 1.05 The diluted earnings per share are the same as basic earnings per share. 12 Property, plant and equipment GROUP Right-of- Land and Plant and Other Construction EUR ‘000 use assets buildings machinery assets in progress Total Cost/revalued amount Balance at 1 January 2022 1,986 19,438 61,470 3,684 355 86,933 Additions 335 26 442 150 3,383 4,336 Disposals - -133 -114 -27 - -274 Reclassifications -475 71 710 8 -314 - Balance at 31 December 2022 1,846 19,402 62,508 3,815 3,424 90,995 Balance at 1 January 2023 1,846 19,402 62,508 3,815 3,424 90,995 Additions 956 1 761 284 11,440 13,442 Disposals -155 -42 -1,487 -277 - -1,961 Reclassifications -565 725 1,461 47 -1,668 - Balance at 31 December 2023 2,082 20,086 63,243 3,869 13,196 102,476 Depreciation and impairment losses Balance at 1 January 2022 878 4,025 29,675 2,476 - 37,054 Depreciation charge for the year 211 679 3,523 300 - 4,713 Disposals - -91 -104 -24 - -219 Reclassifications -325 - 325 - - - Balance at 31 December 2022 764 4,613 33,419 2,752 - 41,548 Balance at 1 January 2023 764 4,613 33,419 2,752 - 41,548 Depreciation charge for the year 199 631 3,586 229 - 4,645 Disposals -85 -35 -1,131 -186 - -1,437 Reclassifications -338 - 338 - - - Balance at 31 December 2023 540 5,209 36,212 2,795 - 44,756 Net book amount At 1 January 2022 1,108 15,413 31,795 1,208 355 49,879 At 31 December 2022 1,082 14,789 29,089 1,063 3,424 49,447 At 31 December 2023 1,542 14,877 27,031 1,074 13,196 57,720 * For more details on right-of-use assets, see Note 13. 128 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 Notes to the consolidated and separate financial statements Notes (continued) 12 Property, plant and equipment (continued) COMPANY Right-of-use Land and Plant and Other Construct assets buildings machinery assets ion in Total EUR ‘000 progress Cost/revalued amount Balance at 1 January 2022 2,015 6,792 22,133 1,373 237 32,550 Additions 289 - 248 48 3,157 3,742 Increase in value - - - - - - Disposals - -80 -97 -7 - -184 Reclassifications -476 8 487 - -83 -64 Balance at 31 December 2022 1,828 6,720 22,771 1,414 3,311 36,044 Balance at 1 January 2023 1,828 6,720 22,771 1,414 3,311 36,044 Additions 858 - 452 76 6,414 7,800 Increase in value 72 - - - - 72 Disposals -171 -41 -985 -131 - -1,328 (a) Reclassifications -565 415 1,115 - -1,275 -310 Balance at 31 December 2023 2,022 7,094 23,353 1,359 8,450 42,278 Depreciation and impairment losses Balance at 1 January 2022 886 1,626 16,620 1,199 - 20,331 Depreciation charge for the year 215 274 1,256 48 - 1,793 Impairment 2 - - - - 2 Disposals - -80 -97 -7 - -184 Reclassifications -325 - 325 - - - Balance at 31 December 2022 778 1,820 18,104 1,240 - 21,942 Balance at 1 January 2023 778 1,820 18,104 1,240 - 21,942 Depreciation charge for the year 194 242 1,227 56 - 1,719 Impairment -96 - - - - -96 Disposals 1 -34 -931 -118 - -1,082 Reclassifications -338 -58 338 - - -58 Balance at 31 December 2023 539 1,970 18,738 1,178 - 22,425 Net book amounts At 1 January 2022 1,129 5,166 5,513 174 237 12,219 At 31 December 2022 1,050 4,900 4,667 174 3,311 14,102 At 31 December 2023 1,483 5,124 4,615 181 8,450 19,853 * For more details on right-of-use assets, see Note 13. (a) Amount of EUR 310 thousand is related to reclassification of assets to investment property. Prepayments made for non-current assets are classified under additions. 129 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 Notes to the consolidated and separate financial statements Notes (continued) 12 Property, plant and equipment (continued) Pledged assets To secure the repayment of its bank borrowings, the Group has pledged the following PP&E: - Land and buildings with the carrying amount of EUR 7,780 thousand as at 31 December 2023 (31 December 2022: EUR 9,753 thousand); - Production plant and machinery, fixtures and equipment with the net book amount of EUR 23,078 thousand as at 31 December 2023 (31 December 2022: EUR 24,382 thousand) (Note 23). To secure the repayment of its bank borrowings, the Company has pledged the following PP&E: - Buildings with the carrying amount of EUR 3,427 thousand as at 31 December 2023 (31 December 2022: EUR 3,640 thousand); - Production plant and machinery, fixtures and equipment with the net book amount of EUR 2,923 thousand as at 31 December 2023 (31 December 2022: EUR 3,792 thousand) (Note 23). The acquisition cost of the Group’s property, plant and equipment fully depreciated but still in use amounted to EUR 12,138 thousand as at 31 December 2023 (31 December 2022: EUR 12,540 thousand). The acquisition cost of the Company’s property, plant and equipment fully depreciated but still in use amounted to EUR 10,628 thousand as at 31 December 2023 (31 December 2022: EUR 11,365 thousand). Depreciation Depreciation was included in the following line items: GROUP COMPANY 2023 2022 EUR ‘000 2023 2022 4,426 4,517 Cost of finished products 1,447 1,543 219 196 Distribution and administrative expenses 144 131 - - Other operating expenses 128 119 4,645 4,713 1,719 1,793 Valuation of buildings The Group/Company accounts for the buildings at a revalued amount, less subsequent accumulated depreciation and impairment. In the management’s opinion, there were no significant changes in the domestic real estate market or the Company’s operations, and the fair value of investment property did not change significantly. In 2023, the following valuations were carried out for part of the Group’s buildings: • The valuation performed by independent property valuation corporation Matininkai UAB included determining the fair value of the buildings and structures owned by the Company under the title at address Gaurės g. 23 and Gaurės g. 31O in Tauragė, as at 1 December 2023. The total market/fair value of part of the Company’s buildings and structures, which were included in the valuation under the market approach, amounted to EUR 7,891 thousand at the date of valuation. • The valuation performed by an independent property valuation company SIA NEWSEC VALUATIONS LV included determining the fair value of part of buildings and structures owned by the Group under the title at address Stacijas g. 2 and Stacijas g. 4 in Bauska (Latvia), as at 7 February 2023. The total market/fair value of part of the Group‘s buildings and structures, which were included in the valuation under the discounted cash flow approach, amounted to EUR 2,300 thousand at the date of valuation. 130 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 131 Notes to the consolidated and separate financial statements Notes (continued) 12 Property, plant and equipment (continued) Based on the valuation of part of the Group’s buildings and structures, it was concluded that the carrying amount of property did not differ significantly from the potential market price of property, and accordingly, no revaluation was performed for the property. In 2023, no revaluation was performed for the Group’s and the Company’s assets because, in the management‘s opinion, there were no significant changes in the domestic real estate market and in the Group’s/Company’s operations, nor were there any significant changes in the fair value of buildings. As at 31 December 2023, the net value of the Group’s revaluation reserve amounted to EUR 1,537 thousand (31 December 2022: EUR 1,722 thousand). As at 31 December 2023, the net value of the Company’s revaluation reserve amounted to EUR 902 thousand (31 December 2022: EUR 1,054 thousand). If the Group’s buildings were carried at cost, their net book amount would be EUR 9,471 thousand (revalued amount would is EUR 11,339 thousand) as at 31 December 2023 (31 December 2022: net book amount – EUR 9,115 thousand, revalued amount – EUR 11,077 thousand). If the Company’s buildings were carried at cost, their net book amount would be EUR 2,464 thousand (revalued amount would be EUR 3,443 thousand) as at 31 December 2023 (31 December 2022: net book amount – EUR 2,663 thousand, revalued amount – EUR 3,817 thousand). 13 Leases Amounts recognised in profit or loss were as follows: EUR ‘000 GROUP COMPANY 2023 2022 2023 2022 199 211 Depreciation of right-of-use assets 194 215 - - Impairment of right-of-use assets 1 2 37 18 Interest expenses (included in finance costs) 32 17 39 34 Expenses related to short-term leases (included in cost of 31 27 sales and general and administrative expenses) Expenses related to leases of low-value assets not 78 67 included in the above short-term leases (included in cost 25 15 of sales, general and administrative expenses, other operating expenses) Expenses related to variable lease payments not included 24 37 in lease liabilities (included in cost of sales, general and 24 37 administrative expenses, other operating expenses) 377 367 307 313 Movements in right-of-use assets during 2023 and 2022 are disclosed in Note 12. Lease liabilities, including the breakdown of lease liabilities by maturity are disclosed in Note 23. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 132 Notes to the consolidated and separate financial statements Notes (continued) 14 Investment property EUR ‘000 2023 2022 Balance at 1 January 6,527 6,780 Additions 38 64 Disposals - -37 Net gain/(loss) on fair value adjustment 123 -280 Reclassification from/(to) inventories and owner-occupied PP&E 215 - Balance at 31 December 6,903 6,527 () Amount of EUR 215 thousand is related to reclassification of investment property from owner-occupied PP&E. Investment property is leased out to tenants under operating lease contracts. The costs incurred in relation to maintenance of investment property are covered by the tenants. The lease payments are fixed. The contracts do not contain variable lease payments that depend on an index or a rate. Investment property consists of production facilities leased out to the subsidiaries. Based on the terms and conditions of the lease contracts, the assets have been leased for the term of 5 to 7 years, and the lease term expires by 31 December 2023-2026. The fulfilment of lease contracts has not been secured with any collateral, guarantees or other pledges. Fair value of investment property Below is allocation of the Company’s investment property to hierarchy levels for fair value measurement purposes: EUR ‘000 31/12/2023 31/12/2022 Hierarchy level 2 (a) 2,821 1,614 Hierarchy level 3 (b) 4,082 4,913 6,903 6,527 (a) The Company’s investment property, the fair value of which was determined using the market approach, are attributed to level 2 in the fair value measurement hierarchy. The fair value was determined with reference to the valuation performed on 1 December 2023 by an independent property valuation corporation Matininkai UAB (the same approach was applied on 1 December 2022). The market approach was used to evaluate the general-purpose buildings. The market approach was used to evaluate the differences between the subject asset and analogous or similar asset to which the subject asset is being compared, and to make adjustments (if necessary) to the transaction prices of analogous or similar asset in terms of timing, location, and other circumstances conveying the differences between the subject asset and analogous or similar comparable asset. For the purpose of valuation, the assets selected were similar to the specific subject asset. The inputs used included data on the purchase and sale transactions that occurred over the last thirty-six months. (b) The Company’s buildings leased to produce processed whey products (whey protein concentrate WPC80 and permeate) are evaluated using the income approach and attributed to level 3 in the fair value measurement hierarchy. The fair value was determined with reference to the valuation performed on 1 December 2023 by an independent property valuation corporation Matininkai UAB. The valuation of assets encompasses fair value measurement of a complex of assets of whey processing facilities (including buildings, plant and machinery, and other assets) constituting a cash-generating unit. The measured fair value is attributed to each item of property, plant and equipment, and accordingly, the fair value of buildings is known. The value of assets is determined using a discounted cash flow model. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 133 Notes to the consolidated and separate financial statements Notes (continued) 14 Investment property (continued) The value in use is determined by discounting the post-tax future cash flows to their present value based on a discount rate that reflects current market conditions, the existing time value of money and the risks specific to the asset, which was not taken into consideration. The adjusted weighted average cost of capital (pre-tax) was 16.3% (2022: 15.5%). Key assumptions used in calculation of value of in use were as follows: • Future cash flows are estimated based on historical experience and 2024-2028 business forecasts based on the existing long-term contracts with the customers of the products, and the expected expansion of sales (production) in view of growth in demand for whey processing products on the domestic and global markets. • Forecasts of production costs are estimated on the basis of factual production, including the expected fluctuations therein due to growth of production. Based on 2024-2028 forecast, the annual average growth of production and sales is expected to be 2%. The same approach was applied on 1 December 2022. Minimum lease payments receivable on lease of investment property: EUR ‘000 31/12/2023 31/12/2022 Within one year 330 293 Between 1 and 5 years 941 878 After 5 years - - 1,271 1,171 In 2023, the Company’s rental income amounted to EUR 330 thousand (2022: EUR 293 thousand). Rental income is included in other operating income. There were no direct operating expenses from investment property that generated rental income during 2023 and 2022. The Company’s investment property with the carrying amount of EUR 5,106 thousand as at 31 December 2023 (31 December 2022: EUR 6,527 thousand) was pledged to the banks as a security for bank borrowings. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 Notes to the consolidated and separate financial statements Notes (continued) 15 Intangible assets GROUP EUR ‘000 Computer Other intangible Goodwill software assets Total Cost Balance at 1 January 2022 6,915 546 17 7,478 Additions - - - - Disposals - - - - Reclassifications - - - - Balance at 31 December 2022 6,915 546 17 7,478 Balance at 1 January 2023 6,915 546 17 7,478 Additions - - - - Disposals - - - - Reclassifications - - - - Balance at 31 December 2023 6,915 546 17 7,478 Amortisation and impairment Balance at 1 January 2022 2,749 533 10 3,292 Amortisation charge for the year - 11 - 11 Disposals - - - - Impairment - - - - Balance at 31 December 2022 2,749 544 10 3,303 Balance at 1 January 2023 2,749 544 10 3,303 Amortisation charge for the year - 2 5 7 Disposals - - - - Impairment - - - - Balance at 31 December 2023 2,749 546 15 3,310 Net book amounts At 1 January 2022 4,166 13 7 4,186 At 31 December 2022 4,166 2 7 4,175 At 31 December 2023 4,166 - 2 4,168 Amortisation charge for the year was included in administrative expenses. 134 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 135 Notes to the consolidated and separate financial statements Notes (continued) 15 Intangible assets (continued) COMPANY EUR ‘000 Goodwill Computer software Other intangible assets Total Cost Balance at 1 January 2022 - 656 17 673 Additions - - - - Disposals - - - - Reclassifications - - - - Balance at 31 December 2022 - 656 17 673 Balance at 1 January 2023 - 656 17 673 Additions - - - - Disposals - - - - Reclassifications - - - - Balance at 31 December 2023 - 656 17 673 Amortisation and impairment Balance at 1 January 2022 - 646 13 659 Amortisation charge for the year - 8 1 9 Disposals - - - - Balance at 31 December 2022 - 654 14 668 Balance at 1 January 2023 - 654 14 668 Amortisation charge for the year - 2 1 3 Disposals - - - - Balance at 31 December 2023 - 656 15 671 Net book amounts At 1 January 2022 - 10 4 14 At 31 December 2022 - 2 3 5 At 31 December 2023 - - 2 2 Amortisation charge for the year was included in administrative expenses. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 Notes to the consolidated and separate financial statements Notes (continued) 15 Intangible assets (continued) Recoverable amount of cash-generating units to which goodwill is attributed Goodwill is attributed to the following cash-generating units of the Group (Modest AB’s business activities relating to production and sale of cheese and cheese products; Kelmės Pienas UAB’s business activities relating to production and sale of fresh milk products), as specified below: EUR ‘000 31/12/2023 31/12/2022 Kelmės Pienas UAB (fresh milk products) 3,867 3,867 Modest AB (cheese, cheese products) 299 299 4,166 4,166 * Before 1 March 2021, the business activities of fresh milk products were conducted by the subsidiary Kelmės Pieninė AB. As from 1 March 2021, the business activities of fresh milk products have been transferred to Kelmės Pienas UAB. Goodwill arising on business combination is attributable mostly to synergy, which has resulted from the integration of the Companies into the existing operations of the Group relating to production of milk products. These cash-generating units were tested for impairment when calculating the recoverable amount. Recoverable amount of cash-generating unit of Kelmės Pienas UAB The recoverable amount of cash-generating unit (production of fresh milk products) of Kelmės Pienas UAB was determined by an independent property valuation corporation Matininkai UAB. The date of valuation was 31 December 2023. The recoverable amount was calculated by discounting future cash flows to their present value based on a five-year financial forecast approved by the management. Key assumptions used in the calculation of the recoverable amount were as follows: • The future cash flows were calculated based on historical experience and a 5-year business plan. Cash flows in a long-term perspective were estimated by extrapolating the fifth-year cash flows at a projected long-term growth rate of 1,5% (2022: growth rate of 1%). • The recoverable amount was calculated using a pre-tax discount rate that reflects current market conditions, the existing time value of money and the risks specific to the asset, which was not taken into consideration. Pre-tax rate of weighted average cost of capital was 12.74% (2022: 15.55%). • The annual revenue growth rate is projected to be 0.2% in 2024 and 2.5% during 2024-2028. Growth of revenue is projected due to the expected increase in production volumes, introduction of new products to the market, and expansion into the new markets. • Gross profit is expected to decrease in 2024 due to the rising prices of raw milk, other raw materials and consumables. • The capital expenditures for maintenance of production-technological assets are projected to be EUR 958 thousand in 2024 (additional capital expenditures of EUR 450 thousand are projected for the modernization of production line of glazed curd cheese snacks), and on average EUR 541 thousand during 2025-2028. When calculating the terminal value (capitalising the last cash flows), the amount of deductible capital expenditures is equal to the aggregate amount of depreciation of capital expenditures. • The basic components of the working capital: inventory requirement, trade receivables and trade payables are taken as the factual amounts at the end of 2023. Subsequently (starting from 2024), the working capital requirement is calculated in view of the production growth and inventory, trade receivables and trade payables requirement, as a proportionate share of the cost of sales and revenue. 136 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 137 Notes to the consolidated and separate financial statements Notes (continued) 15 Intangible assets (continued) The sensitivity analysis shows the impact of changes in discount rate and long-term growth rate on the results of valuation. These variable inputs were chosen for the sensitivity analysis because, as a result of valuation, they were noted as having the most impact on the entity’s business value: • Had the budgeted gross margin used in the value-in-use calculation for Kelmės Pienas UAB been 3% lower as at 31 December 2023 compared to the management’s forecast, no impairment would have been recognised for the Group’s goodwill. The reasonably possible change of 3% lower budgeted gross margin represents a reasonably possible increase in raw milk price by 1%. • Had the pre-tax discount rate used in the cash flow forecast for Kelmės Pienas UAB been 1% higher compared to the management’s estimates (16.5% instead of 15.5%), no impairment would have been recognised for the Group’s goodwill. Based on the above assumptions, the calculated recoverable amount of the cash-generating unit was higher than the carrying amount, and therefore, no impairment was recognised. Recoverable amount of cash-generating unit of Modest AB For Modest AB, the value in use was calculated using the future cash flows discounted to their present value. Key assumptions used in the calculation of the value in use were as follows: • The future cash flows were calculated based on historical experience and a 5-year business plan. Cash flows in a long-term perspective were estimated by extrapolating the fifth-year cash flows at a projected long-term growth rate of 1,5% (2022: growth rate of 1%). • The recoverable amount was calculated using a pre-tax discount rate that reflects current market conditions, the existing time value of money and the risks specific to the asset, which was not taken into consideration. Pre-tax rate of weighted average cost of capital was 12.74% (2022: 15.5%). • Based on the management’s budget for Modest AB, revenue budgeted for 2024 amounts to EUR 43,390 thousand. Compared to 2023, revenue is expected to decrease by 2.1%. The annual revenue growth rate of 8.0% is expected in 2025 and 5% during 2026-2028. • In 2024, gross profit margin is expected to decrease by 1.2 p.p. down to 2.7% compared to 2023 because of decreasing price levels in export markets. During 2025-2028, gross profit margin is expected to reach 3.1% during the entire forecast period. Based on these assumptions, the recoverable amount of the cash-generating unit calculated for Modest AB exceeded the carrying amount, and no impairment was recognised. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 138 Notes to the consolidated and separate financial statements Notes (continued) 16 Investments in subsidiaries EUR ‘000 31/12/2023 31/12/2022 Cost of shares of Modest AB 1,991 1,991 Cost of shares of Kelmės Pieninė AB 8,656 8,656 Cost of shares of Pieno Logistika AB - - Cost of shares of Baltic Dairy Board SIA 671 271 11,318 10,918 The Company acquired control over Modest AB in 2006. The ownership interest held by the Company was 99.7% as at 31 December 2023 (31 December 2022: 99.7%). On 30 April 2008, the Company acquired the shares of Kelmės Pieninė AB. The ownership interest held by the Company was 100% as at 31 December 2023 (31 December 2022: 100%). On 1 April 2021, Vilkyškių Pieninė AB acquired 70% of shares in Baltic Dairy Board SIA (in total 544,446 shares were acquired for the acquisition cost of EUR 271 thousand. On 14 April 2023, Vilkyškių Pieninė AB acquired the remaining 30% of shares in Baltic Dairy Board SIA (in total 233,332 shares were acquired for the acquisition cost of EUR 400 thousand). The transaction price was set in the agreement. As at 31 December 2023, the ownership interest held was 100%, and the total acquisition cost was EUR 671 thousand. As at 31 December 2023 (and 31 December 2022), there were no indications of impairment for investments in subsidiaries. Key financial indicators of Pieno Logistika AB: EUR ‘000 31/12/2023 31/12/2022 Total assets 559 174 Shareholders’ equity 68 105 Net profit (loss) -37 -4 Key financial indicators of Modest AB: EUR ‘000 31/12/2023 31/12/2022 Total assets 7,692 15,409 Shareholders’ equity 5,664 5,053 Net profit (loss) 611 1,351 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 Notes to the consolidated and separate financial statements Notes (continued) 17 Non-current amounts receivable (EUR ‘000) GROUP COMPANY 31/12/2023 31/12/2022 Note Financial instruments 31/12/2023 31/12/2022 - - 28 Loans granted to related parties (a) 1,111 897 600 - Loans granted to related parties (b) 600 - 600 - 1,711 897 Non-financial assets - - 28 Prepayments made to related parties - - 311 111 Non-current amounts receivable 311 111 from farmers (c) 2 - Other non-current amounts receivable - - 313 111 311 111 913 111 2,022 1,008 (a) In December 2021, a loan was granted to the subsidiary Baltic Dairy Board SIA. As at 31 December 2023, the outstanding balance of the loan was EUR 980 thousand (31 December 2022: EUR 830 thousand) and interest was EUR 131 thousand (31 December 2022: EUR 67 thousand). The loan is to be repaid by 31 January 2026. (b) The Group’s and the Company’s loan receivable from other related parties amounted to EUR 600 thousand as at 31 December 2023. The loan is to be repaid by 31 December 2025. Interest is charged on the outstanding balance of the loan. (c) Non-current amounts receivable from farmers and agricultural companies comprise prepayments made to milk suppliers for milk. An administration fee is charged on these prepayments. The Group’s/Company’s exposure to credit and foreign exchange risks, impairment losses related to trade and other amounts receivable are disclosed in Note 29 . 139 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 Notes to the consolidated and separate financial statements Notes (continued) 18 Inventories (EUR ‘000) GROUP COMPANY 31/12/2023 31/12/2022 31/12/2023 31/12/2022 11,343 21,063 Finished products 5,958 7,709 1,650 - Products in transit 1,650 - 12,993 21,063 7,608 7,709 324 449 Raw materials 105 158 4,016 3,661 Consumables 1,275 1,321 294 320 Work in progress - - - - Non-current assets held for sale - - 17,627 25,493 8,988 9,188 Raw materials include milk and other materials used in the production. As at 31 December 2023, the Group’s materials (packaging, auxiliary materials, etc.) written down to net realisable value amounted to EUR 26 thousand (31 December 2022: EUR 37 thousand). As at 31 December 2022, the Company’s materials (tare, packaging, auxiliary materials, etc.) written down to net realisable value amounted to EUR 26 thousand (31 December 2022: EUR 37 thousand). The write-down of inventories (finished products) to net realisable value and its reversal were included in the cost of sales. As at 31 December 2022, the Group's and the Company's inventories (finished products) written down to net realisable value amounted to EUR 1,192 thousand and EUR 591 thousand, respectively (31 December 2022: EUR 2,593 thousand and EUR 521 thousand, respectively). As at 31 December 2023, the inventories of the Group/Company (cheese, cheese products, dry milk products) were pledged to the financial institutions (as at 31 December 2023, the net book amount of the Group’s and the Company’s inventories was EUR 12,091 and EUR 8,988 thousand, respectively. In 2022, the net book amount of inventories pledged as collateral was up to EUR 25,493 thousand for the Group, and up to EUR 9,188 thousand for the Company) (Note 23). 19 Trade and other receivables (EUR ‘000) GROUP Note 31/12/2023 31/12/ 2022 Trade receivables 14,815 14,133 Impairment losses -307 -99 Trade receivables from related parties 88 30 Loans granted to related parties, including interest 28 - charged and administration fee 928 Financial assets 14,596 14,992 Taxes receivable (other than income tax) 2,593 2,764 Other receivables from related parties - - Other receivables 18 119 Total trade and other receivables 17,207 17,875 140 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 Notes to the consolidated and separate financial statements Notes (continued) 19 Trade and other receivables (continued) COMPANY 31/12/2023 31/12/2022 Trade receivables 11,686 13,808 Impairment losses j -307 -99 Trade receivables from related parties 28 499 8,762 Loans granted to related parties, including interest 28 - 928 charged and administration fee Financial assets 11,878 23,399 Taxes receivable (other than income tax) 2,283 2,665 Other receivables from related parties 28 - 1,631 Other receivables 3,525 100 Total trade and other receivables 17,686 27,795 Trade and other receivables are non-interest bearing and their settlement term is 30 days. Taxes receivable consist of VAT receivable. As at 31 December 2023, the Group’s/Company’s receivables were not pledged (31 December 2022: all receivables of the Group/Company were pledged as collateral (Note 27). The Group’s/Company’s exposure to credit and foreign exchange risks, impairment losses related to trade and other receivables are disclosed in Note 29. The ageing analysis of trade receivables is disclosed in Note 29. 20 Prepayments (EUR ’000) GROUP COMPANY 31/12/2023 31/12/2022 Note 31/12/2023 31/12/2022 608 544 (a) Prepayments 456 399 71 - Advance income tax 71 - - 197 28 Prepayments to related parties - 197 679 741 527 596 (a) Prepayments consist of prepayments made to the companies for goods and services and to the farmers for milk. 21 Cash and cash equivalents (EUR ’000) GROUP COMPANY 31/12/2023 31/12/2022 31/12/2023 31/12/2022 8,609 596 Cash at bank 2,740 301 116 25 Cash on hand 114 24 8,725 621 2,854 325 As at 31 December 2023, cash balances on bank accounts were not pledged as collateral to secure repayment of bank borrowings (31 December 2022: all cash balances on bank accounts were pledged as collateral to secure repayment of bank borrowings . The Group’s and the Company’s exposure to interest rate risk arising from cash and cash equivalents is disclosed in Note 29. 141 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 142 Notes to the consolidated and separate financial statements Notes (continued) 22 Capital and reserves As at 31 December 2023 and 2022, the Company’s authorised share capital was divided into 11,943,000 ordinary shares with the nominal value of EUR 0.29 each. All the shares are fully paid. Ordinary shares are stated at their nominal value. Consideration received for the shares sold in excess over their nominal value is shown as share premium. Incremental external costs directly attributable to the issue of new shares are accounted for as a deduction from share premium. Pursuant to the Law on Companies, the holders of ordinary shares have one vote per share at the Company's shareholders' meeting, the right to receive dividends, and the right to receive payments in the event of liquidation of a company. Legal reserve Pursuant to the Law on Companies of the Republic of Lithuania, annual transfers of 5% from distributable profit are required until the legal reserve reaches 10% of the authorised share capital. Pursuant to the Law the legal reserve may be used to cover accumulated losses only. As at 31 December 2023, the Company’s/ Group’s legal reserve amounted to EUR 346 thousand (31 December 2022: EUR 346 thousand). Share premium Share premium is the difference between the nominal value and issue price of the shares. Revaluation reserve Revaluation reserve is related to the revaluation of the buildings and is stated net of deferred income tax liability. The reserve is reduced in proportion to the depreciation and disposal of the revalued assets. Transfers from the revaluation reserve to retained earnings are performed when the revalued buildings are being depreciated. The amount transferred is determined as a difference between depreciation calculated from the revalued amount and depreciation calculated from the initial cost of the buildings. Revaluation reserve can be used to increase the share capital. Other reserves Other reserves are formed by the decision of the annual meeting of shareholders on profit appropriation, and they are established in the Company’s Articles of Association. These reserves can be used only for the purposes approved by the general meeting of shareholders. The Group/Company has no other reserves. Dividends In 2023, dividends of EUR 0.265 per share were paid out to the shareholders (2022: dividends of EUR 0.20 per share were paid out to the shareholders) . VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 Notes to the consolidated and separate financial statements Notes (continued) 23 Borrowings and lease liabilities GROUP COMPANY 31/12/2023 31/12/2022 Note 31/12/2023 31/12/2022 15,706 12,978 Non-current borrowings 27,28 2,569 1,499 775 399 Lease liabilities 13 728 374 16,481 13,377 Non-current 3,297 1,873 3,235 9,238 Current bank borrowings and other 1,356 3,483 borrowings 27,28 469 314 Lease liabilities 13 432 309 3,704 9,552 Current 1,788 3,792 20,185 22,929 Total borrowings and lease 5,085 5,665 liabilities As at 31 December 2023, the Company/Group had no short-term credit limits (2022: the undrawn balance of short-term credit limits amounted to EUR 465 thousand). As at 31 December 2023, the Company/Group had no long-term credit limits, but there was an undrawn balance of a long-term credit limit of the Company from Swedbank AB amounting to EUR 5,408 thousand (for the purchase of production equipment). Under the agreements signed with the banks, the Company’s/Group’s credits are subject to the following interest rates: 6-month EURIBOR + margin and 3-month EURIBOR + margin. Under the agreements signed with the banks, the Company/Group has committed to comply with certain covenants, such as financial debt and net financial debt to EBITDA ratio, debt service coverage ratio and equity ratio. These ratios are calculated according to the data reported in the consolidated financial statements. The Company and the Group complied with these covenants in 2023 and 2022. Borrowings by maturity (EUR ’000): GROUP COMPANY 31/12/2023 31/12/2022 31/12/2023 31/12/2022 3,234 9,238 Within 1 year 1,356 3,483 15,706 12,978 Between 1 and 5 years 2,569 1,499 18,940 22,216 3,925 4,982 In 2023, the Group’s borrowings were subject to annual effective interest rate of 6.10% (2022: 3.0%). In 2023, the Company’s borrowings were subject to annual effective interest rate of 5.68% (2022: 3.16%). Lease liabilities (EUR ‘000): GROUP COMPANY 31/12/2023 31/12/2022 31/12/2023 31/12/2022 469 314 Within 1 year 432 309 775 399 Between 1 and 5 years 728 374 1,244 713 1,160 683 The right-of-use assets recognised in relation to lease liabilities is disclosed in Notes 12 and 13. 143 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 144 Notes to the consolidated and separate financial statements Notes (continued) 23 Borrowings and lease liabilities (continued) Cash flows from financing activities COMPANY Liabilities arising from financing activities Total Current portion of lease liabilities Non- current portion of lease liabilities Current portion of non-current borrowings, current borrowings Credit lines and over- drafts Non-current portion of non-current borrowings At 1 January 2023 309 374 1,079 2,404 1,499 5,665 Cash inflows - proceeds from borrowings - 278 1,856 2,134 Cash outflows - repayments of borrowings - -787 -2,404 -3,191 Additions - lease 401 697 1,098 Repayments – lease -621 -621 Other non-cash changes (reclassification of current/non- current portion, impairment, write-offs) 343 -343 786 -786 - At 31 December 2023 432 728 1,356 - 2,569 5,085 Liabilities arising from financing activities Non- Credit GROUP Current current Current portion of lines Non-current portion of portion of non-current and portion of lease lease borrowings, current over- non-current liabilities liabilities borrowings drafts borrowings Total At 1 January 2023 314 399 6,834 2,404 12,979 22,930 Cash inflows - proceeds from borrowings 278 1,856 2,134 Cash outflows - repayments of borrowings -3,006 -2,404 -5,410 Additions - lease 353 828 1,181 Repayments – lease -650 -650 Other non-cash changes (reclassification of current/non- current portion, impairment, write-offs) 452 -452 -871 871 - At 31 December 2023 469 775 3,235 - 15,706 20,185 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 Notes to the consolidated and separate financial statements Notes (continued) 23 Borrowings and lease liabilities (continued) Liabilities arising from financing activities Non- COMPANY Current current Current portion of Non-current portion of portion of non-current Credit lines portion of lease lease borrowings, current and over- non-current liabilities liabilities borrowings drafts borrowings Total At 1 January 2022 301 414 2,206 1,735 2,285 6,941 Cash inflows - proceeds from borrowings - - - 669 - 669 Cash outflows - repayments of borrowings - - -786 -1,127 - -1,913 Additions - lease - 347 - - - 347 Repayments – lease -379 - - - - -379 Other non-cash changes (reclassification of current/non- current portion, impairment, write- offs) 387 -387 786 - -786 - At 31 December 2022 309 374 2,206 1,277 1,499 5,665 Liabilities arising from financing activities Non- GROUP Current current Current portion of Credit Non-current portion of portion of non-current lines and portion of lease lease borrowings, current over- non-current liabilities liabilities borrowings drafts borrowings Total At 1 January 2022 290 403 4,685 1,735 17,050 24,163 Cash inflows - proceeds from - - 4,642 669 1,600 6,911 borrowings Cash outflows - repayments of - - -3,872 - -4,293 -8,165 borrowings Additions - lease 13 393 - - - 406 Repayments – lease -386 - - - - -386 Other non-cash changes (reclassification of current/non- 397 -397 1,379 - -1,379 - current portion, impairment, write- offs) 314 399 6,834 2,404 12,978 22,929 At 31 December 2022 145 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 146 Notes to the consolidated and separate financial statements Notes (continued) 24 Government grants EUR ‘000 GROUP COMPANY 31/12/2023 31/12/2022 31/12/2023 31/12/2022 3,743 4,125 Opening net book amount 520 685 285 13 Grants received 285 - - - Grant receivable - - -417 -456 Amortisation recognised in profit or loss and -134 -165 write-off of grants -13 61 Write-off of grants upon disposal of assets - - 3,598 3,743 Closing net book amount 671 52 0 The Group/Company received support from the EU funds under the Lithuanian Rural Development Programmes from the National Paying Agency under the Ministry of Agriculture. The support was received for the acquisition of non-current assets. The amounts of support are amortised in proportion to the depreciation of the related assets. On 8 July 2021, Kelmės Pieninė AB and public enterprise Lithuanian Business Support Agency signed an agreement on project No. 01.2.1-LVPA-K-856-02-0037 for the Development of an innovative food supplement for the elderly to prevent senile weakness syndrome and malnutrition. During 2020–2023, the amount of support received was EUR 277 thousand (whereof EUR 32 thousand was received in 2023). In December 2022, Vilkyškių Pieninė AB and National Paying Agency under the Lithuanian Ministry of Agriculture signed an agreement on project No Nr. 17PP-KT-22-1-04217-PR001 for the Lithuanian Rural Development Programme 2014-2020 measure "Investments in tangible assets" of the activity area "Support for investments in the processing, marketing and/or development of agricultural products". Up to EUR 1 million is expected to be allocated to the Company for the implementation of this project. Amount of EUR 191 thousand was received in 2023. In 2022, Vilkyškių Pieninė AB and the Environmental Project Management Agency under the Lithuanian Ministry of Environment signed an agreement on the financial support of EUR 150 thousand for the implementation of the project Installation of wastewater treatment facilities for Vilkyškių Pieninė AB. In 2023, amount of EUR 90 thousand was received. 25 Deferred income tax assets (liabilities) Deferred income tax assets and liabilities calculated at a 15% tax rate in 2023 (2022: 15%) relate to the following line items: COMPANY: Assets Liabilities Net value EUR ‘000 31/12/2023 31/12/2022 31/12/2023 31/12/2022 31/12/2023 31/12/2022 Property, plant and equipment - - 1,725 1,741 1,725 1,741 Vacation reserve -252 -174 - - -252 -174 Inventories -92 -84 - - -92 -84 Government grants -62 -78 - - -62 -78 Tax loss carry forward -751 -887 - - -751 -887 Deferred income tax (assets)/liabilities -1,157 -1,223 1,725 1,741 568 518 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 147 Notes to the consolidated and separate financial statements Notes (continued) 26 Deferred income tax assets (liabilities) In 2023, the Group’s deferred income tax assets and liabilities were calculated at the effective tax rate of 15% in accordance with the Lithuanian laws and the effective tax rate of 25% in accordance with the Latvian laws. Tax rate 25% was applied to deferred tax assets and liabilities relating to Baltic Dairy Board SIA. The Group’s deferred tax assets and liabilities relate to the following line items: GROUP Assets Liabilities Net value EUR ‘000 31/12/2023 31/12/2022 31/12/2023 31/12/2022 31/12/2023 31/12/2022 Property, plant and equipment - - 1,960 1,896 1,960 1,896 Vacation reserve -316 -214 - - -316 -214 Inventories -92 -84 - - -92 -84 Government grants -62 -78 - - -62 -78 Tax loss carry forward -751 -887 - - -751 -887 Fair value adjustment to assets and liabilities of Baltic Dairy Board SIA - - 191 157 191 157 Deferred income tax (assets)/liabilities -1,221 -1,263 2,151 2,053 930 790 COMPANY: EUR ‘000 01/01/2023 Recognised in profit or loss Recognised in equity 31/12/2023 Property, plant and equipment 1,741 -16 - 1,725 Vacation reserve -174 -78 - -252 Inventories -84 -8 - -92 Government grants -78 16 - -62 Tax loss carry forward -887 136 - -751 Deferred income tax (assets)/liabilities 518 50 - 568 EUR ‘000 01/01/2022 Recognised in profit or loss Recognised in equity 31/12/2022 Property, plant and equipment 1,832 -91 - 1,741 Vacation reserve -117 -57 - -174 Inventories -6 -78 - -84 Government grants -103 25 - -78 Tax loss carry forward -2,076 1,189 - -887 Deferred income tax (assets)/liabilities -470 988 - 518 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 Notes to the consolidated and separate financial statements Notes (continued) 26 Deferred income tax assets (liabilities) The difference between the tax base and the reported net book amount of property, plant and equipment occurred mainly due to revaluation of the buildings, different depreciation periods and recognition of tax losses as at 31 December 2023. GROUP: Recognised in Recognised in 01/01/2023 profit or loss equity 31/12/2023 Property, plant and equipment 1,896 64 - 1,960 Vacation reserve -214 -102 - -316 Inventories -84 -8 - -92 Government grants -78 16 - -62 Tax loss carry forward -887 136 - -751 Adjustment to assets and liabilities of Baltic Dairy Board SIA 157 34 - 191 Deferred income tax (assets)/liabilities 790 140 - 930 Recognised in Recognised in 01/01/2022 profit or loss equity 31/12/2022 Property, plant and equipment 1,903 -7 - 1,896 Vacation reserve -145 -69 - -214 Inventories -6 -78 - -84 Government grants -103 25 - -78 Tax loss carry forward -2,076 1,189 - -887 Adjustment to assets and liabilities of Baltic Dairy Board SIA 123 34 - 157 Deferred income tax (assets)/liabilities -304 1,094 - 790 GROUP COMPANY 31/12/2023 31/12/2022 EUR ‘000 31/12/2023 31/12/2022 Deferred income tax assets/(liability) 470/-442 376/ -404 Deferred income tax assets (liability), which 273/ -16 382/ -91 will be realised within 12 months 751/ -1,709 887/ -1,649 Deferred income tax assets (liability), which 884/ -1,709 840/ -1,649 will be realised after 12 months -930 -790 Net deferred income tax assets (liability) -568 -518 The Group/Company does not recognise deferred income tax assets on investment project relief. The amount of unused benefits in the Group and the Company on December 31, 2023 amounts to EUR 626 thousand, respectively on December 31, 2022 - there were none. 148 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 Notes to the consolidated and separate financial statements Notes (continued) 26 Trade and other payables GROUP COMPANY 31/12/2023 31/12/2022 EUR ‘000 31/12/2023 31/12/2022 Financial instruments Note 13,171 14,328 Trade payables 9,903 11,162 - 8 Trade payables to related parties 2 3,798 2,831 13,171 14,336 Non-financial instruments 13,701 13,993 4,684 3,319 Employment-related liabilities 2,575 1,949 781 302 Advance amounts received 781 296 73 74 Dividends payable - - 1,680 2,560 Taxes payable (other than income tax) 77 71 394 122 Accrued expenses and provisions 71 45 - - Other amounts payable 2 1 7,612 6,377 3,506 2,362 20,783 20,713 17,207 16,355 * In December 2022, the Group received a tax-related aid measure for the repayment of the loan in amount of EUR 1,900 thousand. The final loan repayment date is 25 December 2024. The Group committed to pay interest at the rate set by the Lithuanian Ministry of Finance. As at 31 December 2023, the outstanding balance of the loan was EUR 871 thousand. The Group’s/Company’s exposure to foreign exchange and liquidity risks arising from trade and other payables is disclosed in Note 29. 149 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 150 Notes to the consolidated and separate financial statements Notes (continued) 27 Contingent liabilities Significant contractual commitments: GROUP COMPANY 31/12/2023 31/12/2022 EUR ‘000 31/12/2023 31/12/2022 39,577 6,387 Acquisition of PP&E 6,353 6,353 5,692 7,251 Purchase of raw materials 5,583 7,251 45,269 13,638 11,936 13,604 *Contracts were signed with the suppliers regarding supply of the main equipment for the new cheese production plant at the subsidiary Baltic Dairy Board SIA. As at 31 December 2023, the Group’s/Company’s assets pledged to secure the repayment of bank borrowings and other collaterals were as follows: GROUP: • immovable property with the carrying amount of EUR 7,780 thousand; • movable property with the carrying amount of EUR 23,078 thousand; • inventories in turnover with the carrying amount of EUR 15,977 thousand; • lease rights to state-owned land. COMPANY: • the Company’s immovable property located at address: P. Lukošaičio g. 14, Vilkyškiai, P. Lukošaičio g. 3, Vilkyškiai and Sodų g, 13, Eržvilkas, Jurbarko r. sav., with the carrying amount of EUR 3,297 thousand – to secure fulfilment of the Company’s obligations to Swedbank AB; • the Company’s investment property located at address: Gaurės g. 23, Tauragė, with the carrying amount of EUR 5,106 thousand, to secure fulfilment of obligations of Kelmės Pieninė AB to OP Corporate Bank plc; • the Company’s lease rights to state-owned land; • the Company’s movable property located at address: P. Lukošaičio g. 14, Vilkyškiai, with the carrying amount of EUR 2,955 thousand to secure fulfilment of the Company’s obligations to Swedbank AB; • all the Company’s inventories in turnover to secure fulfilment of the Company’s obligations to Swedbank AB; Other collaterals: • the sureties issued by Kelmės Pieninė AB, Modest AB, Kelmės Pienas UAB and Baltic Dairy Board SIA to secure proper fulfilment of the Company’s obligations under the loan agreement with Swedbank AB. The outstanding balance of the loan was EUR 3,499 thousand as at 31 December 2023 (the surety agreements were signed in 2021 and 2022). VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 151 Notes to the consolidated and separate financial statements Notes (continued) 27 Contingent liabilities (continued) Sureties and guarantees issued: • surety issued to AS Citadele Banka to secure fulfilment of financial liabilities of SIA Baltic Dairy Board in amount of EUR 3,536 thousand as at 31 December 2023. (the surety agreement was signed in 2021). • surety issued to Op Corporate bank to secure fulfilment of financial liabilities of Kelmės Pieninė AB in amount of EUR 11,479 thousand as at 31 December 2023 (the surety agreement was signed in 2021). The Group’s/Company’s management is aware that pursuant to the effective laws, the State Tax Inspectorate may at any time inspect the books and accounting records of the Group/Company for 5 years preceding the reporting tax period and may assess additional taxes or fines. The Group’s/Company’s management is not aware of any circumstances that might result in a potential material tax liability in this respect. 28 Transactions with related parties and management personnel The parties of the Group/Company are related when one party has a power to exercise control over the other party or make significant influence on its financial and operation decisions. The main related parties of the Group/Company are as follows: Kelmės Pieninė AB, Modest AB, Kelmės Pienas UAB, Pieno Logistika AB, Baltic Dairy Board SIA, Management personnel, Other related parties. (i) Transactions with related parties: Purchases of raw materials, products, non-current assets and services, interest expenses GROUP EUR ‘000 COMPANY 2023 2022 2023 2022 - - Kelmės Pieninė AB 34,606 31,071 - - Kelmės Pienas UAB 30,806 26,659 - - Modest AB 43,579 47,724 Pieno Logistika AB 142 - - - Baltic Dairy Board SIA 20 351 1 - Management personnel 1 - 1,076 3,085 Other related parties 1,076 3,085 1,077 3,085 110,230 108,890 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 152 Notes to the consolidated and separate financial statements Notes (continued) 29 Transactions with related parties and management personnel (continued) (ii) Transactions with related parties: Sale of raw materials, products, non-current assets and services, interest income GROUP COMPANY 2023 2022 EUR ‘000 2023 2022 - - Kelmės Pieninė AB 5,659 14,945 - - Kelmės Pienas UAB 12,126 14,190 - - Modest AB 33,752 43,702 - - Pieno Logistika AB 143 1 - - Baltic Dairy Board SIA 4,088 5,072 - 1 Management personnel - 1 45 45 Other related parties 45 45 45 46 55,813 77,956 (iii) Year-end balances of transactions with related parties: GROUP COMPANY 31/12/2023 31/12/2022 EUR ‘000 31/12/2023 31/12/2022 - - Loan payable (Kelmės Pieninė AB) - - - - Trade and other amounts payable 3,799 2,824 - - (Kelmės Pieninė AB) 3,762 - - - (Kelmės Pienas UAB) - 2,824 - - (Pieno Logistika AB) 37 - - - Trade and other receivables 499 10,393 - - (Kelmės Pieninė AB) - 2,021 (Kelmės Pienas UAB) 377 - - - (Modest AB) 63 8,196 - - (Baltic Dairy Board SIA) 59 146 - - (From other related parties) - 30 - - Loan receivable (Baltic Dairy Board 1,111 897 SIA, including interest) - 13 Loan receivable (including interest from - 13 management personnel) - - Other receivables (from management - - personnel) Trade and other payables (to other 54 8 related parties) 54 8 - 36 Trade receivables (from other related - 36 parties) Advance amounts receivable (from - 197 other related parties) - 197 Loan receivable (including interest and administration fee from other related 600 915 parties) 600 915 Loan payable (including interest to - - other related parties) - - VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 Notes to the consolidated and separate financial statements Notes (continued) 28 Transactions with related parties and management personnel (continued) Assets pledged, guarantees/sureties issued by the Group/Company to secure the fulfilment of financial liabilities of related parties, and assets pledged, guarantees/sureties issued by related parties to secure the fulfilment of financial liabilities of the Company are disclosed in Note 27. The main terms and conditions for the Group’s/Company’s amounts payable and receivable under the loan agreements are as follows: - The Company granted a loan of EUR 980 thousand to the subsidiary Baltic Dairy Board SIA. The loan has to be repaid by 31 January 2026. The outstanding balance of the loan was EUR 980 thousand as at 31 December 2023. Interest receivable in 2023 was EUR 131 thousand. - The Group’s/Company’s loans receivable from other related parties amounted to EUR 600 thousand as at 31 December 2023. The loan has to be repaid by 31 December 2025. Interest is charged on the outstanding balance of the loan. In 2023, personnel expenses included payments of EUR 728 thousand and EUR 501 thousand to the Group‘s and the Company‘s management personnel, including social security contributions (2022: EUR 708 thousand and EUR 465 thousand, respectively). In 2023, the Group’s and the Company’s payments for employees to Pillar III investment funds under the defined plan for contributions amounted to EUR 194 thousand (2022: EUR 290 thousand). 29 Financial instruments and risk management Credit risk The maximum exposure to credit risk is the net book amount of financial assets designated at 31 December 2023 as financial assets measured at amortised cost. The maximum exposure to credit risk at the reporting date was as follows: GROUP EUR ‘000 Net book amount Note 31/12/2023 31/12/2022 Non-current amounts receivable 17 600 - Trade and other amounts receivable, net of tax 19 14,596 14,992 Cash and cash equivalents 21 8,725 621 23,921 15,613 153 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 154 Notes to the consolidated and separate financial statements Notes (continued) 29 Financial instruments and risk management (continued) The table below analyses by geographical region the maximum exposure to credit risk at the reporting date arising from trade receivables: EUR ‘000 Net book amount 31/12/2023 31/12/2022 Lithuania 2,977 1,922 Great Britain 140 2,009 Israel - 594 Saudi Arabia 1,400 2,871 Portugal 609 788 Italy 237 640 Poland 2,477 1,593 Latvia 219 556 Estonia 140 56 Republic of Korea 236 - Kazakhstan - 76 Belgium - 81 Egypt - 141 Albania 336 170 Denmark 203 433 The Netherlands 1,550 254 Azerbaijan 441 192 Macedonia 67 - Qatar - 91 Thailand - 237 Germany 787 551 Libya 78 94 Lebanon - 58 Dominican Republic 69 - Greece 157 422 Bosnia-Herzegovina 447 307 Slovakia 200 28 Finland 246 186 Spain 203 - Czech 37 2 South Africa 79 86 Slovenia 35 - Norway - 5 UAE 456 299 Kosovo 78 - India 99 - Vietnam 580 226 USA 11 23 Other 2 1 14,596 14,992 As at 31 December 2023, significant credit risk concentration was related to three customers, the receivables from which accounted for 21% of total trade receivables (31 December 2022: 41%). VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 Notes to the consolidated and separate financial statements 29 Financial instruments and risk management (continued) COMPANY EUR ‘000 Net book amount Note 31/12/2023 31/12/2022 Non-current amounts receivable 17 1,711 897 Trade and other receivables 19 11,878 23,399 Cash and cash equivalents 21 2,854 325 16,443 24,621 The table below analyses the maximum exposure to credit risk by geographical region arising from trade receivables at the reporting date: EUR ‘000 Net book amount 31/12/2023 31/12/2022 Lithuania 572 10,572 Great Britain 140 2,009 Israel - 594 Saudi Arabia 1,400 2,871 Portugal 609 788 Italy 237 640 Poland 2,439 1,533 Latvia 59 555 Estonia 47 56 Republic of Korea 236 - Kazakhstan - 76 Belgium - 81 Egypt - 141 Albania 336 170 Denmark 203 433 The Netherlands 1,550 72 Azerbaijan 441 192 Qatar - 91 Thailand - 237 Germany 787 551 Libya 78 94 Lebanon - 58 USA 11 23 Greece 157 422 Bosnia-Herzegovina 447 307 Slovakia 200 28 Finland 226 186 Spain 203 - Czech 37 2 South Africa 79 86 Norway - 5 Sakartvelo 78 - Kosovo 99 - India 580 226 Vietnam 456 299 UAE 67 - Macedonia 35 - Slovenia 69 - Dominican Republic 572 10,572 Other - 1 11,878 23,399 155 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 Notes to the consolidated and separate financial statements Notes (continued) 29 Financial instruments and risk management (continued) As at 31 December 2023, a significant credit risk concentration was related to four customers, the receivables from which accounted for 30% of total trade receivables (31 December 2022: 20t%). Impairment losses The Group/Company establishes provisions for impairment losses representing the estimate of incurred losses in respect of trade and other receivables. Such provisions includes only specific losses associated with individual significant items of trade and other receivables. The ageing analysis of trade and other receivables and non- current amounts receivable at the reporting date is as follows: GROUP Total amount Impairment Total amount Impairment EUR ‘000 31/12/2023 31/12/2023 31/12/2022 31/12/2022 Related parties: Not past due 688 - 862 - Past due 0-30 days - - - - Past due 31-60 days - - - - More than 60 days - - 96 - 688 - 958 - Not past due 13,059 - 9,500 - Past due 0-30 days 1,502 - 3,935 - Past due 31-60 days 82 - 479 - More than 60 days 172 -307 219 -99 14,815 -307 14,133 -99 15,503 -307 15,091 -99 Impairment losses related to trade and other receivables amounted to EUR 307 thousand as at 31 December 2023 (2022: EUR 99 thousand). 156 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 157 Notes to the consolidated and separate financial statements Notes (continued) 29 Financial instruments and risk management (continued) COMPANY Total amount Impairment Total amount Impairment EUR ‘000 31/12/2023 31/12/2023 31/12/2022 31/12/2022 Related parties: Not past due 2,152 - 10,346 - Past due 0-30 days 59 - - - Past due 31-60 days - - - - More than 60 days - - 242 - 2,211 - 10,588 - Other parties: Not past due 10,011 - 9,293 - Past due 0-30 days 1,420 - 3,930 - Past due 31-60 days 82 - 471 - More than 60 days 172 -307 113 -99 11,685 -307 13,807 -99 13,896 -307 24,395 -99 Impairment losses related to trade and other receivables amounted to EUR 307 thousand as at 31 December 2023 (2022: EUR 99 thousand). Movements on the account of provisions for impairment of trade and other receivables during the year were as follows: Based on historical payment statistics and detailed analysis of customer solvency, the Company’s management considers that the amounts which are past due more than 30 days and not impaired are still recoverable. During the recent five years, the Company recognised amounts receivable of EUR 307 thousand as bad debts. GROUP Net book amount COMPANY 2023 2022 (EUR ‘000) 2023 2022 -99 -59 Balance at 1 January -99 -59 -268 -75 Impairment losses recognised -268 -75 - 11 Write-off of bad debts - 11 60 24 Impairment losses reversed 60 24 -307 -99 Balance at 31 December -307 -99 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 158 Notes to the consolidated and separate financial statements Notes (continued) 29 Financial instruments and risk management (continued) Liquidity risk The table below analyses financial liabilities, including interest charged thereon, based on their contractual maturities: GROUP At 31 December 2023 Net book Contractual Less than 6-12 EUR ‘000 amount cash flows 6 months months 1-2 years 2-5 years Financial liabilities Bank borrowings 18,515 -21,088 -1,893 -1,992 -4,324 -12,879 Other borrowings - - - - - - Lease liabilities 1,244 -1,390 -321 -246 -386 -437 Factoring 426 -443 -443 - - - Trade payables 13,171 -13,171 -13,171 - - - 33,356 -36,092 -15,828 -2,238 -4,710 -13,316 At 31 December 2022 Net book amount Contractual cash flows Less than 6 months 6-12 months 1-2 years 2-5 years EUR ‘000 Financial liabilities Bank borrowings 21,781 -22,921 -1,583 -7,761 -2,486 -11,091 Other borrowings - - - - - - Lease liabilities 713 -747 -189 -142 -219 -197 Factoring 435 -448 -448 - - - Trade payables 14,336 -14,336 -14,336 - - - 37,265 -38,452 -16,556 -7,903 -2,705 -11,288 COMPANY At 31 December 2023 Net book amount Contractual cash flows Less than 6 months 6-12 months 1-2 years 2-5 years EUR ‘000 Financial liabilities Bank borrowings 3,499 -3,824 -496 -626 -1,679 -1,023 Lease liabilities 1,160 -1,268 -274 -227 -357 -410 Factoring 426 -443 -443 - - - Trade payables 13,701 -13,701 -13,701 - - - 18,786 -19,236 -14,914 -853 -2,036 -1,433 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 Notes to the consolidated and separate financial statements Notes (continued) 29 Financial instruments and risk management (continued) At 31 December 2022 Net book Contractual Less than 6-12 EUR ‘000 amount cash flows 6 months months 1-2 years 2-5 years Financial liabilities Bank borrowings 4,690 -4,937 -414 -2,945 -827 -751 Lease liabilities 683 -717 -187 -139 -202 -190 Factoring 292 -301 -301 - - - Trade payables 13,993 -13,993 -13,993 - - - 19,658 -19,948 -14,895 -3,084 -1,029 -941 As at 31 December 2023, the Group’s and the Company’s current assets exceeded the current liabilities by EUR 19,282 thousand and EUR 11,162 thousand, respectively. As at 31 December 2023, the Group’s and the Company’s borrowings and lease liabilities totalled EUR 20,185 thousand and EUR 5,085 thousand, respectively. Under the effective loan and other agreements with the banks, the outstanding balances of the Group and the Company to be repaid in 2023 amounted to EUR 3,704 thousand and EUR 1,788 thousand, respectively (see Note 23). The export is particularly important for the Group, since it accounts for 83% of total annual turnover. It is expected that in 2024 the level of sale prices of products will be similar to that in 2023. Borrowings and lease liabilities are expected to amount to around EUR 30 million as at 31 December 2024. With due consideration of all the projections for 2024, the Group’s net debt to EBITDA ratio will be around 1.8 as at 31 December 2024. Foreign exchange risk Exposure to foreign exchange risk at the exchange rates effective at 2023 31 December: GROUP (COMPANY) EUR ‘000 USD PLN 2023 2022 2023 2022 Trade and other receivables, net of tax 1,451 3,211 38 47 Cash and cash equivalents - - - - Trade payables - - - - Net exposure 1,451 3,211 38 47 During the year the exchange rates against the euro were as follows: Average 2023 2022 USD 1.0809 1.0522 PLN 4.5441 4.6856 The exchange rates against the euro applied as at 31 December: 2023 2022 USD 1.1050 1.0666 PLN 4.3395 4.6808 159 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 160 Notes to the consolidated and separate financial statements Notes (continued) 29 Financial instruments and risk management (continued) Analysis of sensitivity to changes in the exchange rates The Company’s foreign exchange risk arises from purchases and sales denominated in currencies other than the euro. In 2023, the Company’s transactions were mostly conducted in the euros, and therefore, the Company was not exposed to significant foreign exchange risk. The Group’s and the Company’s borrowings bear variable interest rates linked to EURIBOR + margin. Interest rates applied to the Group’s and the Company’s financial instruments as at 31 December 2023 were as follows: GROUP COMPANY Net book amount EUR ‘000 Net book amount 31/12/2023 31/12/2022 Financial instruments with fixed interest 31/12/2023 31/12/2022 rates - - Loan granted to Baltic Dairy Board SIA 980 830 - 800 Current portion of loan granted - 800 - 11 Short-term loan granted to management - 11 personnel - - Current borrowings of management - - personnel - 811 980 1,641 GROUP COMPANY Net book amount EUR ‘000 Net book amount 31/12/2023 31/12/2022 Financial instruments with variable 31/12/2023 31/12/2022 interest rates -18,515 -21,781 Bank borrowings -3,499 -4,690 -426 -435 Factoring -426 -292 -1,244 -713 Lease liabilities -1,160 -683 -20,185 -22,929 -5,085 -5,665 -20,185 -22,118 -4,105 -4,024 In 2023, the Group paid interest of EUR 1,162 thousand on borrowings. In 2024, interest payments are projected to approximate EUR 1 million, provided there is a similar level of borrowings. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 Notes to the consolidated and separate financial statements Notes (continued) 29 Financial instruments and risk management (continued) Analysis of sensitivity of cash flows to instruments bearing variable interest rates A shift in interest rates by +/- 100 basis points (bps) would increase/decrease equity and profit/(loss) by the amounts set out in the table below. This analysis assumes that all other variables, in particular exchange rates, are held constant. The analysis for 2022 was performed using the same basis. GROUP COMPANY Profit (loss) Impact (EUR ’000) Profit (loss) 100 bp 100 bp 100 bp 100 bp increase decrease At 31 December 2023 increase decrease -202 202 Financial instruments bearing variable -41 41 interest rates At 31 December 2022 -221 221 Financial instruments bearing variable -40 40 interest rates Fair value of financial instruments / Fair value hierarchy Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the main (or most advantageous) market between market participants at the measurement date, regardless of whether the price is directly observed or determined using a valuation methodology. The table below analyses financial instruments carried at fair value, by valuation method. The following methods and assumptions are used by the Group/Company to determine the fair value of these financial instruments: Financial instruments that are not measured at fair value The main financial instruments of the Group/Company that are not measured at fair value are trade and other amounts receivable, term deposits, trade and other amounts payable, non-current and current borrowings. The Group’s/Company’s management is of the opinion that the carrying amounts of these financial instruments approximate their fair values because borrowing costs are linked to an interbank lending rate EURIBOR, and other financial assets and liabilities are of short-term nature; therefore, their fair value variation is not significant. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement hierarchy has three levels: Level 1 includes fair value of assets based on quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 includes fair value of assets based on directly or indirectly observable inputs; Level 3 includes fair value of assets based on unobservable inputs. Financial instruments measured at fair value The Group/Company has no financial instruments measured at fair value. 161 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 Notes to the consolidated and separate financial statements Notes (continued) 29 Financial instruments and risk management (continued) GROUP At 31 December 2023 EUR ’000 Level 1 Level 2 Level 3 Total Non-current amounts receivable - - 600 600 Trade and other receivables - - 14,596 14,596 Cash and cash equivalents 8,725 - - 8,725 Borrowings and lease liabilities - - -20,185 -20,185 Trade and other payables - - -13,171 -13,171 8,725 - -18,160 -9,435 At 31 December 2022 EUR ’000 Level 1 Level 2 Level 3 Total Non-current amounts receivable - - - - Trade and other receivables - - 14,992 14,992 Cash and cash equivalents 621 - - 621 Borrowings and lease liabilities - - -20,601 -20,601 Trade and other payables - - -14,336 -14,336 621 - -19,945 -19,324 COMPANY At 31 December 2023 EUR ’000 Level 1 Level 2 Level 3 Total Non-current amounts receivable- - 1,711 1,711 Trade and other receivables- - 11,878 11,878 Cash and cash equivalents2,854 - - 2,854 Borrowings and lease liabilities- - -5,085 -5,085 Trade and other payables- - -13,701 -13,701 2,854 - -5,197 -2,343 At 31 December 2022 EUR ’000 Level 1 Level 2 Level 3 Total Non-current amounts receivable- - 897 897 Trade and other receivables- - 23,399 23,399 Cash and cash equivalents325 - - 325 Borrowings and lease liabilities- - -5,090 -5,090 Trade and other payables- - -13,993 -13,993 325 - 5,213 5,538 162 VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 163 Notes to the consolidated and separate financial statements Notes (continued) 29 Financial instruments and risk management (continued) Capital management The policy of the management bodies is to ensure a significant share of equity compared to borrowings in order to maintain trust of investors, creditors and the market, to facilitate development of operations in the future, and to ensure compliance with the externally imposed capital requirements. Capital is defined as equity attributable to equity holders. The management bodies also aim to maintain balance between a higher rate of return, which could be achieved through more borrowings, and security, which is ensured by a larger amount of equity. The Group/Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of their activities. To maintain or adjust the capital structure, the Group/Company may adjust the amount of dividend payments to shareholders, return capital to the shareholders or issue new shares. There were no changes in the capital management objectives, policies or processes during the financial years ended 31 December 2023 and 31 December 2022. The Law on Companies of the Republic of Lithuania require that the Group/Company keep equity at no less than 50% of the share capital. The Group has a commitment to comply with the external capital requirements set by the banks. Based on the requirements of the banks (equity – revaluation reserve) / (total assets) ratio should not be less than 30%. Management monitors the compliance with the requirements set for the Group. Further details are given in Note 22. Risk of changes in energy prices In 2023, the Group’s energy consumption was slightly higher compared to 2022. Due to the increased production volume and implemented technologies, there was an improvement in energy efficiency. In 2023, the energy consumption per 1 tonne of production was lower compared to 2022 (3.03 MWh/t in 2023 and 3.12 MWh/t in 2022). The energy prices sharply increased in spring 2022 and continued to rise through to the year end, thereby resulting in a high level of energy prices in 2022. In 2023, a significantly lower demand for natural gas and electricity was observed in the EU, which was one of the major factors for a lower price level of energy prices. In 2023, the electricity consumption remained at the same level as in 2008, whereas electricity generation from renewable sources rapidly increased in the EU during 2023. The local electricity generation from renewable sources also increased, which in turn contributed to a lower level of electricity prices in Lithuania. The gas consumption in the EU in 2023 declined by even 11%. In 2023, efforts were made across the EU to replace the Russian gas and to diversify the import channels. New LNG terminals were built, thereby opening more import possibilities and allowing to achieve a record EU gas storage filling level in 2023. The year 2024 was marked by a still high level of reserves for the EU, i.e. the gas storage filling level reaching as much as 86%, which allows projecting a stable price level throughout the cold season 2024. Although the above-mentioned factors will have a favourable effect on a stable and similar price level in the upcoming year 2024, both the EU and Lithuania are dependent on the energy imports, and accordingly, there remains a risk of disruption of import channels given the current geopolitical environment. The commodity prices on the exchanges have become sensitive to various incidents, such as attempts on the LNG terminals, strikes, various attacks only inside the EU, but also far away outside the EU. VILKYŠKIŲ PIENINĖ AB Consolidated and separate financial statements for the year ended 31 December 2023 164 Notes to the consolidated and separate financial statements Notes (continued) 30 Impact of the war in Ukraine and Israel In the opinion of the Group‘s and the Company‘s management, the geopolitical changes in 2023 had no significant impact on the Group‘s and the Company's operations At the end of February 2022, after the Russian Federation announced a military operation in Eastern Ukraine, Vilvi Group's strong and unequivocal position and support for Ukraine allowed to strengthen relations with existing partners in Ukraine and gain greater trust from new trade partners. At the beginning of the war, projects with the largest retailers were frozen until fourth quarter of 2022, were updated and the product range expanded. The group's sales to Ukraine in 2022 reached EUR 477 thousand, and in 2023 it increased 2.5 times to EUR 1,169 thousand. The Company's and Group’s sales to Russia and Belarus were insignificant in 2022, and there were none in2023. In October 2023 the outbreak of the war in Israel did not have a significant impact on the Group's sales. At the beginning of the war, the amount of production sold fell from 200 tons in September to 72 tons in October and 48 tons in December, but the goods were diverted to other markets. The management did not identify any other additional threats to business continuity of the Group and the Company. The management monitors the changing situation on a daily basis and, if necessary, makes decisions to ensure the stable operation of the Group and the Company. 31 Events after the reporting period VILVI GROUP plans to invest about EUR 50 million in new cheese production capacity in Bauska, Latvia, on the territory of the Group's company SIA Baltic Dairy Board. The project is planned to be completed by 2027. The project is financed with own resources and loans from Citadele Bank. In March 2024, The Latvian Government, through the Latvian State Development Finance Institution decided to provide EUR 8,52 million loan for the project "Investments in the creation of a new cheese production line, including the purchase of equipment" to be implemented together with AS Citadele bank under the support program "Large loan with capital discount". AB "Vilkyškių pieninė", the sole shareholder of SIA "Baltic Dairy Board", increased the authorized capital of SIA "Baltic Dairy Board". On 26 March 2024, the authorized capital of VILVI GROUP subsidiary SIA "Baltic Dairy Board" was increased by EUR 10,070,000, the nominal value of the share - EUR 1. The amount of the increased authorized capital is EUR 10,847,778. PricewaterhouseCoopers UAB, J. Jasinskio str. 16B, 03163 Vilnius, Lithuania +370 (5) 239 2300, lt_vilnius@pwc.com, www.pwc.lt Company code 111473315, registered with the Legal Entities’ Register of the Republic of Lithuania Independent auditor’s report To the shareholders of VILKYŠKIŲ PIENINĖ AB Report on the audit of the consolidated and separate financial statements Our opinion In our opinion, the consolidated and separate financial statements give a true and fair view of the consolidated and separate financial position of VILKYŠKIŲ PIENINĖ AB (the “Company”) and its subsidiaries (together - the “Group”) as at 31 December 2023, and of the Group’s and of the Company’s consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union. Our opinion is consistent with our additional report to the Audit Committee dated 5 April 2024. What we have audited The Group’s and the Company’s consolidated and separate financial statements comprise: ● the consolidated and separate statements of financial position as at 31 December 2023; ● the consolidated and separate statements of profit or loss and statements of other comprehensive income for the year then ended; ● the consolidated and separate statements of changes in equity for the year then ended; ● the consolidated and separate statements of cash flows for the year then ended; and ● the notes to the consolidated financial statements, comprising material accounting policy information and other explanatory information. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group and the Company in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA Code) and the Law of the Republic of Lithuania on the Audit of Financial Statements that are relevant to our audit of the separate and consolidated financial statements in the Republic of Lithuania. We have fulfilled our other ethical responsibilities in accordance with the IESBA Code and the Law of the Republic of Lithuania on the Audit of Financial Statements. To the best of our knowledge and belief, we declare that non-audit services that we have provided to the Group and the Company are in accordance with the applicable law and regulations in the Republic of Lithuania and that we have not provided non-audit services that are prohibited under Article 5(1) of Regulation (EU) No 537/2014 considering the exemptions of Regulation (EU) No 537/2014 endorsed in the Law of the Republic of Lithuania on the Audit of Financial Statements. The non-audit services that we have provided to the Group and the Company, in the period from 1 January 2023 to 31 December 2023, are disclosed in note 8 to the financial statements. Our audit approach Overview ● Overall Group and Company materiality: Euro 1,480 thousand and Euro 1,480 thousand respectively • We conducted audit at 3 Group entities, all operating in Lithuania; • Our audit addressed 97% of the Group’s revenues and 99% of the Group’s total assets. • Impairment testing of goodwill (Group) • Inventory write-down to net realisable value (Group and Company) As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated and separate financial statements (together “the financial statements”). In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including, among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud. Materiality The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Group and Company materiality for the financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, if any, both individually and in aggregate on the financial statements as a whole. Overall Group materiality EUR 1,480 thousand (in 2022 – EUR 1,750 thousand). Overall Company materiality EUR 1,480 thousand (in 2022 – EUR 1,750 thousand). How we determined it 0.70% of the Group’s and 0.60% of the Company’s total revenue. Materiality Group scoping Key audit matters Rationale for the materiality benchmark applied Significant fluctuations in the Group’s and the Company’s profit depend on the prevailing trends in global dairy markets. We have, therefore, chosen revenue as a benchmark for determining the materiality because, in our view, it provides the stakeholders consistent information year-on-year basis, reflecting the Group’s and the Company’s growth. Revenue and market share are also considered to be important business performance indicators. We chose the thresholds of 0.70% and 0.60%, which is within the range of acceptable quantitative materiality thresholds for this benchmark. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above EUR 74 thousand for the Group and the Company, respectively, as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter How our audit addressed the key audit matter Impairment testing of goodwill (Group) Refer to accounting policy on impairment testing on page 114, accounting estimates and assumptions on page 119 and note 15 ‘Intangible assets’ in the financial statements. We focused on this area because of the significance of the goodwill balance (the Group has goodwill balance of EUR 4,166 thousand as at 31 December 2023) and because the impairment assessment involved significant management’s judgements about the future results and the discount rates applied to future cash flows forecasts. Under the requirements of IAS 36 Impairment of assets goodwill has to be tested for impairment at least on an annual basis. The determination of recoverable amount, being the higher of value in-use and fair value less costs of disposal, requires judgment from management and management expert’s when identifying and valuing the relevant cash- generating units. Recoverable amounts are based on management’s view of internal and market conditions such as future prices and We focused on goodwill attributable to the cash generating unit from fresh milk products of Kelmės pienas UAB, which represents 93% of the entire goodwill balance of the Group. We assessed that the Group’s accounting policies with respect to impairment of goodwill are based on IFRS. Our audit procedures included challenging management on the appropriateness of the impairment models and the reasonableness of the assumptions used by performing the following: - Assessing the reliability of the cash flow forecast by checking the actual past performance and comparing to previous forecasts and by inspecting internal documents, such as budget forecasts for 2024–2028; - Benchmarking market related assumptions like discount rate and long-term growth rate against external data. Where it was considered necessary, we involved our valuation experts; - Testing the mathematical accuracy of the model and assessing the sensitivity of the impairment test to key inputs. volume growth rate, the timing of future operating expenditure and the most appropriate discount and long-term growth rates. As at 31 December 2023, based on the impairment test performed for that day, no further impairment was identified for cash generating unit of Kelmės pienas UAB related to fresh milk products as recoverable amount exceeded its carrying amount. We found the assumptions used by management in the calculation of discounted cash flows to be within acceptable range of our expectations. We also reviewed the disclosures in the financial statements regarding impairment tests. Inventory write-down to net realisable value (Group and Company) Refer to accounting policy on inventory on page 110, accounting estimates and assumptions on page 119 and note 18 ‘Inventories’ in the financial statements. We focused on this area due to the size of the inventory balance (EUR 17,627 thousand and EUR 8,988 thousand as at 31 December 2023 at the Group and the Company, respectively), and because the management’s assessment of the net realisable value of inventory involved estimates about the future discounts and sales of goods below their cost. As at 31 December 2023 the Group’s and the Company’s inventory (finished goods) write- down to net realisable value allowance amounted to EUR 1,192 thousand and EUR 591 thousand, respectively. We assessed that the Group’s and the Company’s policies and methodology in respect of inventory write-downs to net realisable value are based on IFRS. We analysed, on sample bases, sales prices of the finished goods items sold after the balance sheet date and compared results with the figures used in the management’s calculation of inventory write-down allowance. We analysed the aging of inventories other than finished goods, by periods, to identify slow-moving or obsolete items. We also verified the reliability of the inventory ageing report and compared our estimated inventory write-down allowance to the management’s calculations. We found the assumptions used by management in the calculation of inventory write-down to net realisable value to be within acceptable range of our expectations. How we tailored our Group audit scope We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates. The Group comprises of parent and 5 subsidiaries four of which operate in Lithuania and one in Latvia. Based on our risk and materiality assessments, we determined which entities were required to be audited, by taking into account the relative significance of each entity to the Group as a whole and in relation to each material line item in the consolidated financial statements. We performed full scope audits of the parent entity VILKYŠKIŲ PIENINĖ AB and its subsidiaries Kelmės Pieninė AB and Modest AB. For Kelmės pienas UAB and Baltic Dairy Board SIA we have carried audit work on selected balances and transactions which were assessed by us as material from the Group audit perspective. The remaining component of the Group was immaterial. Our audit addressed 97% of the Group’s revenues and 99% of the Group’s total assets. Reporting on other information including the consolidated annual report Management is responsible for the other information. The other information comprises the consolidated annual report, including the corporate governance report, remuneration report and social responsibility report (but does not include the financial statements and our auditor’s report thereon). Our opinion on the financial statements does not cover the other information, including the consolidated annual report. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. With respect to the consolidated annual report, including the corporate governance report and remuneration report, we considered whether the consolidated annual report, including the corporate governance report and remuneration report, includes the disclosures required by the Law of the Republic of Lithuania on Consolidated Reporting by Groups of Undertakings, the Law of the Republic of Lithuania on Reporting by Undertakings. Based on the work undertaken in the course of our audit, in our opinion: ● the information given in the consolidated annual report, including the corporate governance report and remuneration report, for the financial year for which the financial statements are prepared, is consistent with the financial statements; and ● the consolidated annual report, including the corporate governance report and remuneration report, has been prepared in accordance with the Law of the Republic of Lithuania on Consolidated Reporting by Groups of Undertakings and the Law of the Republic of Lithuania on Reporting by Undertakings. The Group has prepared the social responsibility report that was presented as a separate report. In addition, in light of the knowledge and understanding of the Group and the Company and their environment obtained in the course of the audit, we are required to report if we have identified material misstatements in the consolidated annual report which we obtained prior to the date of this auditor’s report. We have nothing to report in this regard. Responsibilities of management and those charged with governance for the financial statements Management is responsible for the preparation of the financial statements that give a true and fair view in accordance with 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 financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group and the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s and the Company’s financial reporting process. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: ● Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. ● Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Company’s internal control. ● Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. ● Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group and the Company to cease to continue as a going concern. ● Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves 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 have communicated with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on other legal and regulatory requirements Report on the compliance of the format of the consolidated financial statements with the requirements of the European Single Electronic Reporting Format We have been engaged based on the amendment to our audit agreement by the management of the Company to conduct a reasonable assurance engagement for the verification of compliance with the applicable requirements of the European single electronic reporting format of the Group’s consolidated financial statements, including the consolidated annual report, for the year ended 31 December 2023 (the “Single Electronic Reporting Format of the consolidated financial statements”). Description of a subject matter and applicable criteria The Single Electronic Reporting Format of the consolidated financial statements has been applied by the management of the Company to comply with the requirements of art. 3 and 4 of the Commission Delegated Regulation (EU) 2019/815 of 17 December 2018 supplementing Directive 2004/109/EC of the European Parliament and of the Council with regard to regulatory technical standards on the specification of a single electronic reporting format (the “ESEF Regulation”). The applicable requirements regarding the Single Electronic Reporting Format of the consolidated financial statements are contained in the ESEF Regulation. The requirements described in the preceding sentence determine the basis for application of the Single Electronic Reporting Format of the consolidated financial statements and, in our view, constitute appropriate criteria to form a reasonable assurance conclusion. Responsibility of the management and those charged with governance The management of the Company is responsible for the application of the Single Electronic Reporting Format of the consolidated financial statements that complies with the requirements of the ESEF Regulation. This responsibility includes the selection and application of appropriate markups in iXBRL using ESEF taxonomy and designing, implementing and maintaining internal controls relevant for the preparation of the Single Electronic Reporting Format of the consolidated financial statements which is free from material non-compliance with the requirements of the ESEF Regulation. Those charged with governance are responsible for overseeing the financial reporting process, which should also be understood as the preparation of financial statements in accordance with the format resulting from the ESEF Regulation. Our responsibility Our responsibility was to express a reasonable assurance conclusion whether the Single Electronic Reporting Format of the consolidated financial statements complies, in all material aspects, with the ESEF Regulation. We conducted our engagement in accordance with International Standard on Assurance Engagements 3000 (Revised) ‘Assurance Engagements other than Audits and Reviews of Historical Financial Information’ (“ISAE 3000 (R)”). This standard requires that we comply with ethical requirements, plan and perform procedures to obtain reasonable assurance whether the Single Electronic Reporting Format of the consolidated financial statements complies, in all material aspects, with the applicable requirements. Reasonable assurance is a high level of assurance, but it does not guarantee that the service performed in accordance ISAE 3000 (R) will always detect the existing material misstatement (significant non- compliance with the requirements). Summary of the work performed Our planned and performed procedures were aimed at obtaining reasonable assurance that the Single Electronic Reporting Format of the consolidated financial statements was applied, in all material aspects, in accordance with the applicable requirements and such application is free from material errors or omissions. Our procedures included in particular: • obtaining an understanding of the internal control system and processes relevant to the application of the Single Electronic Reporting Format of the consolidated financial statements, including the preparation of the XHTML format and marking up the consolidated financial statements; • verification whether the XHTML format was applied properly; • evaluating the completeness of marking up the consolidated financial statements using the iXBRL markup language according to the requirements of the implementation of single electronic format as described in the ESEF Regulation; • evaluating the appropriateness of the Group’s' use of XBRL markups selected from the ESEF taxonomy and the creation of extension markups where no suitable element in the ESEF taxonomy has been identified; and • evaluating the appropriateness of anchoring of the extension elements to the ESEF taxonomy. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion. Conclusion In our opinion, the Single Electronic Reporting Format of the consolidated financial statements for the year ended 31 December 2023 complies, in all material aspects, with the ESEF Regulation. Report on the compliance of the format of the separate financial statements with the requirements of the European Single Electronic Reporting Format The European single electronic reporting format has been applied by the management of the Company to the Company’s financial statements to comply with the requirements of Article 3 of Commission Delegated Regulation (EU) 2019/815 of 17 December 2018 supplementing Directive 2004/109/EC of the European Parliament and of the Council with regard to regulatory technical standards on the specification of a single electronic reporting format (the “ESEF Regulation”). These requirements specify the Company’s obligation to prepare its financial statements in a XHTML format. We confirm that the European single electronic reporting format of the financial statements for the year ended 31 December 2023 complies with the ESEF Regulation in this respect. Appointment We were first appointed as auditors of the Group and the Company on 28 April 2017. Our appointment has been renewed by shareholder resolution representing a total period of uninterrupted engagement appointment of 7 years. Our appointment for the year ended 31 December 2023 was approved by the shareholder’s resolution on 28 April 2023. The key audit partner on the audit resulting in this independent auditor’s report is Rasa Selevičienė. On behalf of PricewaterhouseCoopers UAB /signed with electronic signature/ Rasa Selevičienė Assurance director Auditor's Certificate No.000504 Vilnius, Republic of Lithuania 5 April 2024 The auditor's electronic signature is used herein to sign only the Independent Auditor's Report