Annual Report (ESEF) • Apr 26, 2024
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Download Source File5299005U9E85Y55OHK452023-01-012023-12-315299005U9E85Y55OHK452023-12-315299005U9E85Y55OHK452022-12-315299005U9E85Y55OHK452022-01-012022-12-315299005U9E85Y55OHK452021-12-31ifrs-full:IssuedCapitalMember5299005U9E85Y55OHK452021-12-31ifrs-full:TreasurySharesMember5299005U9E85Y55OHK452021-12-31ifrs-full:StatutoryReserveMember5299005U9E85Y55OHK452021-12-31ifrs-full:OtherReservesMember5299005U9E85Y55OHK452021-12-31ifrs-full:RetainedEarningsMemberiso4217:EURiso4217:EURxbrli:shares5299005U9E85Y55OHK452021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember5299005U9E85Y55OHK452021-12-31ifrs-full:NoncontrollingInterestsMember5299005U9E85Y55OHK452021-12-315299005U9E85Y55OHK452022-01-012022-12-31ifrs-full:IssuedCapitalMember5299005U9E85Y55OHK452022-01-012022-12-31ifrs-full:TreasurySharesMember5299005U9E85Y55OHK452022-01-012022-12-31ifrs-full:StatutoryReserveMember5299005U9E85Y55OHK452022-01-012022-12-31ifrs-full:OtherReservesMember5299005U9E85Y55OHK452022-01-012022-12-31ifrs-full:RetainedEarningsMember5299005U9E85Y55OHK452022-01-012022-12-31ifrs-full:EquityAttributableToOwnersOfParentMember5299005U9E85Y55OHK452022-01-012022-12-31ifrs-full:NoncontrollingInterestsMember5299005U9E85Y55OHK452022-12-31ifrs-full:IssuedCapitalMember5299005U9E85Y55OHK452022-12-31ifrs-full:TreasurySharesMember5299005U9E85Y55OHK452022-12-31ifrs-full:StatutoryReserveMember5299005U9E85Y55OHK452022-12-31ifrs-full:OtherReservesMember5299005U9E85Y55OHK452022-12-31ifrs-full:RetainedEarningsMember5299005U9E85Y55OHK452022-12-31ifrs-full:EquityAttributableToOwnersOfParentMember5299005U9E85Y55OHK452022-12-31ifrs-full:NoncontrollingInterestsMember5299005U9E85Y55OHK452023-01-012023-12-31ifrs-full:IssuedCapitalMember5299005U9E85Y55OHK452023-01-012023-12-31ifrs-full:TreasurySharesMember5299005U9E85Y55OHK452023-01-012023-12-31ifrs-full:StatutoryReserveMember5299005U9E85Y55OHK452023-01-012023-12-31ifrs-full:OtherReservesMember5299005U9E85Y55OHK452023-01-012023-12-31ifrs-full:RetainedEarningsMember5299005U9E85Y55OHK452023-01-012023-12-31ifrs-full:EquityAttributableToOwnersOfParentMember5299005U9E85Y55OHK452023-01-012023-12-31ifrs-full:NoncontrollingInterestsMember5299005U9E85Y55OHK452023-12-31ifrs-full:IssuedCapitalMember5299005U9E85Y55OHK452023-12-31ifrs-full:TreasurySharesMember5299005U9E85Y55OHK452023-12-31ifrs-full:StatutoryReserveMember5299005U9E85Y55OHK452023-12-31ifrs-full:OtherReservesMember5299005U9E85Y55OHK452023-12-31ifrs-full:RetainedEarningsMember5299005U9E85Y55OHK452023-12-31ifrs-full:EquityAttributableToOwnersOfParentMember5299005U9E85Y55OHK452023-12-31ifrs-full:NoncontrollingInterestsMember CONFIRMATION BY RESPONSIBLE PERSONS March 2024 Telšiai We, AB “Žemaitijos pienas” general director Robertas Pažemeckas and senior accountant Dalia Gecienė, hereby confirm that, in so far as we are aware, the attached 2023 AB „Žemaitijos pienas“ consolidated audit report and company financial statements prepared in accordance with International Financial Reporting Standards adopted in the European Union are true and correctly reflect the assets, liabilities, financial status, income or losses, and cash flows of the company and the group of enterprises while the consolidated annual statement provides proper overview of business development and activities and status of the company and the group of enterprises as well as description of the main encountered risks and uncertainties. General director Robertas Pažemeckas Senior accountant Dalia Gecienė 1 ŽEMAITIJOS PIENAS AB Consolidated Annual Report, Financial Statements, and Consolidated Financial statements for the year end ed 31 December 20 2 3 ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER, 2023 2 CONTENTS PAGE CONSOLIDATED AND COMPANY’S ANNUAL REPORT----------------------------------------- 3 - 31 FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS: STATEMENTS OF FINANCIAL POSITION ------------------------------------------------- 32 STATEMENTS OF COMPREHENSIVE INCOME------------------------------------------ 33 STATEMENTS OF CHANGES IN EQUITY-------------------------------------------------- 34-35 STATEMENTS OF CASH FLOW---------------------------------------------------------------- 36 EXPLANATORY NOTES--------------------------------------------------------------------------- 37-82 AB “ŽEMAITIJOS PIENAS” Company code 180240752, Sedos Str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 3 CONTENTS I. GENERAL INFORMATION ------------------------------------------------------------------------- ---------- 4 II. INFORMATION ON SALE OF SECURITIES BY THE ISSUE AT THE REGULATED MARKET --------------------------------------------------------------------------------- -------------------------------- 6 III. REVIEW OF THE ACTIVITY OF THE GROUP OF COMPANIES, RISKS AND PERSPECTIVES ------------------------------------------------------------------------------------ ------------ 10 IV. OTHER INFORMATION ------------------------------------------------------------------------- ------------ 30 ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 4 GENERAL INFORMATION Reporting period for which the report is developed Consolidated semi-annual report are prepared and provided for period of 2023, moreover, the report contains the significant events occurred after the end of the reporting period. This document refers to ŽEMAITIJOS PIENAS, AB (hereinafter referred to as the Company or Issuer), Šilutės Rambynas, ABF (hereinafter referred to as the Group Company or Associated Company), and in cases when facts on both Companies are described and/or specified, the Companies shall refer to as the Companies of the Group. Brief history of the Company The beginning of ŽEMAITIJOS PIENAS, AB dates back to 1924, when Telšiai dairy plant of high capacity was incorporated. In the end of 1984 Telšiai dairy plant activity moved to new premises and operated until opening and privatization of Telšiai cheese plant which was one of the largest in the Baltic States. ŽEMAITIJOS PIENAS, AB was registered in the Register of Legal Entities on 23 June 1993 in Telšiai District Board and on 16 October 1998 it was re-registered in the Ministry of Agriculture of the Republic of Lithuania. Upon the decision of the General Meeting of Shareholders of 1 May 2004, it was reorganized by way of division, separating a part of assets, rights and liabilities, and establishing Žemaitijos pieno investicija, AB. Upon the decision of the General Meeting of Shareholders of 18 December 2019, the Company was reorganized by merging the Public Limited Liability Company Baltijos mineralinių vandenų kompanija, which after the merging on 10 January 2020 was deregistered from the Register of Legal Entities. Company information and contact details Data on AB “ŽEMAITIJOS PIENAS” are collected and stored in the Register of Legal Entities of the State Enterprise Centre of Registers. Name of the Company: Joint-stock company ŽEMAITIJOS PIENAS Legal status: Joint-stock company Company code: 180240752 VAT number: LT802407515 Authorized share capital: 12,103,875 EUR Address: Sedos g. 35, Telšiai, Lietuva Telephone number: + 370 444 22201 Fax number: + 370 444 74897 E-mail address: [email protected] Internet site: www.zpienas.lt Stock trading code: ZMP1L ISIN number: LT0000121865 GENERAL INFORMATION ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 5 LEI number: 5299005U9E85Y55OHK45 STRUCTURE OF THE GROUP ŽEMAITIJOS PIENAS, AB branches: Name of the branch Information Vilnius Branch Id. number 123809154, address: Algirdo Str. 40, Vilnius Kaunas Branch Id. number 134853981, address: Europos Ave. 36, Kaunas Telšiai Branch Id. number 110893017, address: Sedos str. 35, Telšiai Panevėžys Branch Id. number 148133399, address: J. Janonio Str. 9, Panevėžys Branches of the Company fulfil the functions related to sale of goods (dairy products) within the set territory of the branch and take other actions or fulfil orders of the Company. The Company has no incorporated representative offices. Name of the company: Joint-stock company (firm) Šilutės Rambynas Legal status: Joint-stock company (firm) Company code: 277141670 VAT number: LT714167015 Authorized share capital: 2,493,028.50 EUR Address: Klaipėdos g. 3, Šilutė, Lietuva Telephone number: + 370 441 77442 ŽEMAITIJOS PIENAS, AB ŽEMAITIJOS PIENAS, AB Vilniaus branch ŽEMAITIJOS PIENAS, AB Kauno branch ŽEMAITIJOS PIENAS, AB Telšių branch ŽEMAITIJOS PIENAS, AB Panevėžio branch Šilutės Rambynas, ABF ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 6 Fax number: + 370 441 77443 E-mail: [email protected] Associated company – Šilutės Rambynas, ABF The basic activity of Šilutės Rambynas, ABF is the production and sale of fermented cheese and cheese products, as well as the production and sale of pasteurized cream, pasteurized whey and concentrated whey (NACE: C 10.5. Manufacture of dairy products; C 10.51. Operation of dairies and cheese making). Furthermore, the company provides transportation and storage Services, Services related to servicing of milk buying-up points and other Services. Šilutės Rambynas, ABF has no incorporated branches and representative offices. Basic objectives and nature of economic activities The Companies of the Group pursue economic and commercial activities (production, trade, provision of services, etc.) in order to get benefit for themselves and their shareholders. The objectives of the activity are the organisation and pursuing of the activities provided for in the Articles of Association to earn income and profit, satisfy the property interests of shareholders and the interests of employees. The main activity of AB ŽEMAITIJOS PIENAS is production of dairy products (fermented cheeses and cheese products, packaged cheeses and cheese products, processed cheeses and cheese products, creams, curd creams, butter milk product spreads, mixed spreads, milk fat, pasteurized cream, buttermilk, whey, dried milk products, fresh milk products (milk, cream, curds, curd products, yoghurts, desserts, cheese curds, glazed cheese curds, fermented milk products) (EVRK, group 10.5 "Manufacture of dairy products", class 10.51 "Operation of dairies and cheese making") and sale of such products in Lithuanian and foreign markets. According to the ICB (Industry Classification Benchmark) widely used global company activity classification standard, ŽEMAITIJOS PIENAS, AB refers to the companies - everyday consumer goods - food, beverages and tobacco. On 16 July 2004 the Company concluded a contract with Šiaulių bankas, AB, under which management of securities accounts of the Company was delegated to Šiaulių bankas, AB competence as of 23 July 2004. The register (accounting) of securities of Šilutės Rambynas is kept by Šiaulių bankas, AB under the contract dated of 16 July 2004. ŽEMAITIJOS PIENAS, AB shares ISIN number: LT0000121865 Abbreviation: ZMP1L List / segment: Baltic Secondary List Nominal value: EUR 0.29 Name of securities: Ordinary registered shares INFORMATION OF SALES OF SECURITIES BY THE ISSUER AT THE REGULATED MARKET ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 7 Issued number (pcs.): 41,737,500 Listed issued number: 41,737,500 Number of shares with voting rights: 41,737,500 Listing start date: 13-10-1997 Shares listed in supplementary list 13-10-1997 Share capital: EUR 12,103,875 Only the shares issued by the Company are quoted on the supplementary list of NASDAQ OMX Vilnius (hereinafter referred to as Vilnius Stock Exchange) (Ticker symbol: ZMP1L). Securities of ŽEMAITIJOS PIENAS, AB were first time listed at Vilnius Stock Exchange on 13 October 1997. ISIN code of the securities: LT0000121865. Below is the schedule of the Company's securities trading on the public exchange, from which it can be seen that from 2 January 2023 until 29 December 2023 the price of the shares decreased during the year, the change at the end of the reporting period is – EUR 0.11 or - 6.11 %. During reporting period, 234,080 units of shares were transferred in transactions. Capitalization of ŽEMAITIJOS PIENAS, AB shares on 31 December 2023 was EUR 70.54 million, compared to 2022 the value of the Company's capital decreased by EUR 4,59 million. During the reporting period, the sales volumes of shares and their price dynamics are demonstrated in the diagram (see below). Historical data on shares is presented in the table below (see below): ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 8 Securities of the Issuer have not been sold at other stock exchanges and other organized regulated markets. Šilutės Rambynas, ABF shares ISIN number: LT LT0000109217 LT 0000118945 LT 0000125668 Nominal value: EUR 2.90 Name of securities: Ordinary registered shares Issued number (pcs.): 859,665 Listed issued number: Non-listed Number of shares with voting rights: 859,665 Securities (shares) of Šilutės Rambynas, ABF Šilutės Rambynas, ABF shares are not traded on the Vilnius Stock Exchange and other organized regulated markets. ŽEMAITIJOS PIENAS, AB owns 87.82% of Šilutės Rambynas, ABF ordinary registered shares (has both property and non-property rights without any restrictions), Šilutės Rambynas, ABF does not own ŽEMAITIJOS PIENAS, AB shares. Both Companies do not hold shares of each other neither based on orders nor on other contractual bases. Dividends ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 9 The Ordinary General Meeting of Shareholders of ŽEMAITIJOS PIENAS, AB of 21 April 2023 decided to allocate part of the profit to employee bonuses in the amount of EUR 200,000 and did not pay dividends to the shareholders. The shareholders of Šilutės Rambynas, ABF also did not pay dividends. Authorised capital As of 31 December 2023 the authorised capital of ŽEMAITIJOS PIENAS, AB consisted of: All shares of the Company are fully paid up and were not the subject to restrictions on stock reassignment (in so far as the Issuer knows) over the course of the reporting period. The Issuer is unaware of any individual agreements between the shareholders, which may result in restrictions on stock reassignment and (or) voting rights. According to the data available to the Company there are no shareholders who would have special control rights. As of 31 December 2023, the authorized capital of Šilutės Rambynas, ABF consisted of: All Šilutės Rambynas, ABF shares are fully paid up and are subject to no restrictions on stock reassignment (in so far as the Issuer knows). The Issuer is also unaware of any individual agreements between the shareholders, which may result in restrictions on stock reassignment and (or) voting rights. According to the Company’s knowledge there are no shareholders who would have special control rights. Acquisition and disposal of own shares On 21 April 2023, the General Meeting of Shareholders decided to allocate a reserve for the purchase of own shares and set the conditions for the buy-back of shares. Purpose of the share acquisition: cancellation of shares in order to increase each investor's ownership interest in the Company's capital. Nevertheless, during the Reporting Period, the Company did not implement this decision by buying its own shares. The Company also did not dispose of any of its own shares or enter into any other transactions during the period under review, e.g. there were no pledges or other encumbrances on, or other restrictions or limitations over, the shares and there are no disputes or claims. At the end of the reporting period, the Company held 222,020 treasury shares acquired in 2022, representing 0.53% of the total number of shares of AB ŽEMAITIJOS PIENAS quoted on the NASDAQ OMX Vilnius Stock Exchange. ABF Šilutės Rambynas has not bought back its own shares and does not hold its own shares on any other basis. Šilutės Rambynas has no subsidiaries. It does not buy its own shares. Type of shares Number of shares (pcs.) Nomina value (EUR) Total nominal value (EUR) Share of the authorized capital (%) Ordinary registered shares 41,737,500 0.29 12,103,875 100 Type of shares Number of shares (pcs.) Nominal value (EUR) Total nominal value (EUR) Share of the authorized capital (%) Ordinary registered shares 859,665 2.90 2,493,028.50 100 ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 10 Product safety and international recognition In 2023, ŽEMAITIJOS PIENAS AB invested in the renewal and modernisation of the equipment of individual production units in order to: optimise production processes, ensure the efficiency of the management of food safety risk factors in the production process. The company was assessed in 2023 against the requirements of international standards for food safety and quality management: 1. On 24 January 2023. Bureau Veritas auditors carried out a remote risk assessment of the processes in the Mineral Water Division in accordance with BRC requirements. The remote assessment led to the renewal of the certification with an extended scope of certification. 2. On 7-10 March 2023, Bureau Veritas carried out a risk assessment of the Company’s processes in accordance with the FSSC requirements. 3. On 4 April 2023, the US Force conducted an audit to assess the Mineral Water Production Division’s compliance with NATO requirements. 4. On 7-10 August 2023. Global Quality Certification Agency conducted a process assessment of the Company’s individual divisions and confirmed compliance with the requirements of the BRC standard. 5. On 7-11 August 2023, Global Quality Certification Agency conducted an assessment of all the Company’s processes and confirmed compliance with the requirements of the IFS standard. 6. On 6 September 2023, Halal Correct carried out an assessment of individual processes against the Halal requirements and a renewed certificate was issued. 7. An unannounced audit of the Company’s mineral water production department took place on 10-11 September 2023. The assessment was carried out by the certification company Bureau Veritas Lit. 8. On 9 September 2023, an annual inspection of the organic dairy production processes was carried out by Ekoagros. Conclusion of the audits: ŽEMAITIJOS PIENAS AB complies with the requirements of the above international food safety standards, which are recognised by the Global Food Safety Initiative (GFSI). ŽEMAITIJOS PIENAS AB keeps pace with global trends in sustainability, environmental protection and circular production: Optimisation of the amount of packing and packaging materials used is ongoing; The possibility of reducing the amount of plastic used in the packaging of products without affecting the safety and quality of the product itself is being evaluated. Work started in mid-2023 has led to a reduction of 2,500 kg of plastic on the market; Tests are underway to replace multi-component plastics labelled “7Other” with single-component, more recyclable plastics; OVERVIEW OF ECONOMIC ACTIVITIES OF THE GROUP COMPANIES, RISKS AND OUTLOOK ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 11 Following evaluation and logistical considerations for packaging the product, corrugated cardboard boxes made from 100% recycled cardboard are used, or by replacing part of the corrugated cardboard with recycled cardboard; The change in corrugated cardboard box designs has facilitated the packaging of the products and eliminated the use of adhesive tape. The changes were made in order to reduce the amount of corrugated cardboard, to facilitate the work of the staff, to optimise the packaging materials available and to meet the requirements of the shelves of the supermarkets. Change in the design of the two boxes from mid-2023. The company continues to focus on meeting consumer expectations by developing products with a focus on functionality. According to research, lactose intolerance is present in 32% of the Lithuanian population. Some consumers are also allergic to casein, a milk protein. With this in mind, we were the first in Lithuania to bring to market a unique product: A2 MILK WITHOUT LACTOSE, which is suitable for consumers who previously wanted to consume it but could not. We carried out genetic studies, selected herds of cows with only a special combination of a2a2 milk protein genes, consulted nutritionists, EU and LT scientists. Furthermore, in an additional manufacturing process, we have broken down lactose, resulting in a product suitable for lactose intolerant and casein allergic consumers. A wide range of protein-enriched products are becoming part of the food range. According to nutrition experts, the popularity of protein products is due to people’s more responsible approach to nutrition and healthy lifestyle. In response, the Company has launched a new product on the market: three flavours of collagen-coated cottage cheese. The company’s technologists regularly undertake internships in foreign countries, participate in trade fairs, consult EU consultants on various technological and technical issues, and receive training and seminars. They are constantly looking for sustainable technologies and innovative production methods. Helped save 33,814 kg of corrugated cardboard; During 2023, corrugated cardboard containers were phased out for internal production needs (transport between production units) and replaced by recyclable containers. The amount of corrugated cardboard saved was 10,884 kg; Tests are being carried out with attached caps: At the end of 2023, ŽEMAITIJOS PIENAS AB was the first dairy producer in Lithuania to introduce pure pack fresh dairy products to the market with an attached cap; Tests are underway with recycled PET packaging (PET bottles and shrink films). In order to meet the requirements of export markets and their trading networks, the following is foreseen for 2024: 1. Continue certification to the current BRC and IFS food safety standards. 2. Meet the food safety and product quality requirements of individual EU and other export markets (by hiring in-house assessors/auditors). 3. Comply with packaging and product requirements of individual EU networks. 4. Optimise in-house processes. Aim to reduce manual labour, save energy resources and increase productivity. Strong focus on the Company’s employees, by improving the qualifications of the Company’s employees, by participating in international exhibitions and conferences presenting equipment innovations and innovative technologies related to environmental protection and sustainability (recycling of waste and circular production trends). Cooperation with academic institutions and research to find added values for products. ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 12 During 2023, the Company’s main investment objective, as in previous years, was to increase the Company’s competitiveness and to seek and develop measures to address and improve product quality and the working conditions and safety of employees. A large number of minor operational, repair and programming works were carried out to improve safety, the technical level of the equipment, reduce pollution and energy costs. The main investments were: 1. Replacement of worn-out equipment in the cheese department, for technical condition and quality assurance. 2. Phase I of the construction of the wind farms (construction of access roads, sites and foundations). 3. Upgrading of the yoghurt packing line. 4. Acquisition of equipment for the preparation and packaging of grated and dried cheese. Šilutės Rambynas also pays great attention to the quality and safety of its products, and in 2023 operated under the following integrated food safety and quality management systems: BRC Global Standard for Food Safety (BRC: British Retail Consortium), since 2010; Certified to the HALAL standard since 2015; EkoAgros—for organic products—since 2007; IFS Food (International Food Standard) since 2018; FSSC 22000 food safety management system since 2018. “Šilutės Rambynas” also pays great attention to ensuring the quality and safety of production, so in 2022 it worked according to the following integrated food safety and quality management systems: BRC Global Standard for Food Safety (BRC – British Retail Consortium), since 2010; Certified according to the requirements of the HALAL standard since 2015; EkoAgros – for the production of organic products – since 2007; IFS Food (International Food Standard) – since 2018; FSSC 22000 food safety management system – since 2018. The subsidiary Šilutės Rambynas ABF will acquire and put into operation fixed assets for 108,000 EUR in 2023, with assets of EUR 1,231,000 bought in 2022. The largest purchases were EUR 66 thousand for a cheese slicer, EUR 19 thousand for a second-hand tractor, while the remainder was for the purchase of machinery and equipment used in cheese production, IT equipment and other equipment. Products and trademarks In response to the needs and expectations expressed by consumers, 27 new products were developed in 2023, which have been accepted by consumers and have been successfully “established” on the market: Q1: 1. Actifeel fibre yoghurt with avocado and apple 3% fat, 300 g. 2. Actifeel fibre yoghurt with carrots and oranges 2.6 % fat, 300 g. 3. Actifeel fibre yoghurt with figs and millet 2.6% fat, 300 g. 4. Magija cottage cheese bar with raisins and apples 7.2 % fat, 100 g. 5. Magija cottage cheese bar with strawberries 7.2 % fat, 100 g. ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 13 6. Magija cottage cheese bar with cranberries 7.1 % fat, 100 g. 7. Magija cottage cheese bar with plombyr flavour 7.9% fat, 100 g. 8. Žemaitijos kastinys with herbs, 200 g. Q2: 1. Magija glazed cottage cheese bar with salted caramel, coated with milk chocolate 24.3% fat. 40 g. 2. Magija cottage cheese cream-apple cake 8.4% fat. 180 g. 3. Magija cottage cheese cream with pears and salted caramel 8.4% fat, 180 g. 4. Magija cottage cheese cream with strawberries 8.4 % fat, 180 g. 5. Žemaitijos milk A2 lactose-free of at least 3.5% fat. 0.9 l, the first and only milk of this type in the Baltic States, which is suitable for everyone, even those who are allergic to milk protein and/or lactose intolerant. 6. Džiugas hard cheese Delicious 100 g. 7. Jums lactose-free yoghurt 2.9% fat. 125 g. 8. Jums yoghurt with carrots and oranges 2.5% fat 125 g. 9. Jums yoghurt with figs and millet groats 2.5% fat 125 g. 10. Tichė sparkling strawberry flavoured table water 1.5 l. 11. Tichė sparkling raspberry flavoured table water 1.5 l. Q3: 1. Rambyno smoked processed cheese snack, BBQ flavour with chilli peppers Chipotle 45% fat 75 g. 2. Carbonated table water MONA 1.5 g. Q4: 1. Magija glazed cottage cheese bar with rum and chocolate coating 19.6% fat. 40 g. 2. Magija glazed cottage cheese bar with creamy liqueur, covered with milk chocolate 20.3% fat. 40 g. 3. Magija glazed cottage cheese bar with balsamic and chocolate coating 19% fat. 40 g. 4. Protein M collagen-coated cottage cheese bar with vanilla flavour 14.2% fat. 40 g. 5. Protein M collagen-coated cottage cheese bar with strawberry flavour 14.2% fat. 40 g. 6. Protein M collagen-coated cottage cheese bar with chocolate flavour 14.4% fat. 40 g. Every year brings new experiences and challenges for the Company, which encourage us to move forward and spread the message of the unique products of ŽEMAITIJOS PIENAS AB to the world. The year 2023 was a year of astonishing results that build consumer confidence in the Company’s products. The products of ŽEMAITIJOS PIENAS AB are appreciated and noticed not only in the Lithuanian market, but also worldwide. The pride of 2023—cheese Džiugas—has won 4 international awards, highlighting the ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 14 taste and quality of this cheese. It is gratifying that the number of achievements of Džiugas is fully approaching the 100th number, which is of great value and importance to the Company. In 2023, Džiugas won three awards in the United Kingdom. The Great Taste 2023 award recognises two maturities of Džiugas cheese: 12 months and 36 months in 180 grams. It also won a gold medal at the International Cheese and Dairy Awards 2023 with a 36-month matured Džiugas cheese in a 180 grams pack. Džiugas produced by ŽEMAITIJOS PIENAS AB has also been recognised and appreciated in Poland at the Good Cheese Awards. Džiugas 12-month aged, packaged in cheese cubes, was awarded a silver medal for its genuine taste and quality. The Pik-Nik brand has also been added to the awards shelf this year. The brand was awarded two prize positions in the United Kingdom. Winning silver and bronze medals at the International Cheese and Dairy Awards 2023, specifically for Pik-Nik Original 80 grams cheese sticks. International recognition was also given to the Magija milk chocolate line’s cottage cheese, which was recognised for its quality in Poland. The biscuit-flavoured cottage cheese was awarded a gold medal at the Good Cheese Awards, while the caramel and peanut cottage cheese won two awards. A gold medal was awarded for winning the children’s treat position and securing a win at the Innovative Product 2023 Awards. The importance of cheese and the traditions it creates is also inseparable from the Company’s activities: in 2023, the 21st Džiugiadienis was held in Telšiai, which virtually united Džiugas cheese lovers from Lithuania, Germany, Hungary, the United Kingdom, Croatia, the Czech Republic, Poland, Spain and France. The event included judging and tasting of 12-month, 18-month, 24-month and 36-month Džiugas cheeses. One of the traditions favoured by the Pik-Nik brand is the championship of cheese sausage ripping, which has been held in the Baltic States and Spain. This event brought people together and, in the form of a game, made it possible to like and get to know cheese sticks. It is also important to mention the exceptional national campaign for Pik-Nik tattoos, which was organised in the Baltic States, Hungary, Spain and Croatia. The interest in the campaign was very successful. The children’s audience was fully engaged in the game of colourful tattoos, while Pik-Nik attracted new consumers and broadened brand awareness. The Magija brand organised a national campaign in Lithuania, Latvia and Estonia in 2023. The purchase of 3 Magija cheesecakes was entered into a game where the main prize was a trip to Disneyland. We can be pleased with the excellent results and the high level of consumer engagement. Financial information The Company has selected the key standard financial indicators for its analysis, which many companies use in their practice to analyse their financial data. The main financial performance indicators reflecting the activities of the Group and the Company for the years 2023 and 2022 are as follows: Financial indicators The Group The Company 2023 2022 Change , % 2023 2022 Change, % Turnover, thousand euros 278,004 263,394 5.55 277,305 262,671 5.57 ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 15 Gross profitability, % 21.93 17.38 26.2 20.67 17.41 18.7 Net profitability, % 7.72 1.50 414.6 7.09 2.08 241.2 EBITDA, thousand euros 32,251 11,241 186.9 29,748 12,223 143.4 EBITDA profitability, % 11.60 4.27 171.8 10.73 4.65 130.5 ROE profitability, % 17.33 3.87 348.1 17.05 5.72 198.2 ROA profitability, % 12.88 2.40 437.9 12.51 3.48 259.3 Current ratio 3.33 2.01 65.4 3.21 1.98 62.3 Quick ratio 1.54 0.60 157.5 1.48 0.59 150.8 Debt-to-Equity ratio 0.35 0.61 -42.6 0.36 0.64 -43.8 Debt ratio 0.26 0.38 -31.6 0.27 0.39 -30.8 Amount of investments in fixed assets, thousand euros 13,482 6,821 -97.7 12,215 5,356 128.1 The indicators presented above are calculated using the following formula: Gross profitability = gross profit / sales revenue. Gross profitability (or gross margin) is the ability of a company to earn a profit from its main business, to control the level of sales revenue and cost of sales. The higher the gross margin earned for each euro of sales revenue, the more efficient a company is. Net profitability = net profit / sales revenue. Net profitability ratio is the financial result of a business, one of the most important (if not the most important one) ratios for a business owner. Net profitability, as a ratio of sales revenue and net profit, properly describes ultimate profitability of a company. The monetary value demonstrates the net profit for one euro of sales. A higher value indicates higher profitability of a company. EBITDA = Net profit + income tax + interest expense + depreciation and amortization expenses. Earnings before interest, taxes, depreciation and amortization (EBITDA) are easily calculated by adding income tax and interest expense to net profit, and the amount of depreciation and amortization. This amount is important to separate the cost of financing an entity’s operations and the impact of amortization and depreciation. EBITDA profit is often used together or even in place of the value of cash flows. EBITDA profitability = EBITDA / sales revenue ROE profitability = net profit / equity. The Return on Equity (ROE), also known as Return on Net Worth, is a measure of the efficiency of use of the funds invested by owners. It helps to see how effective is the use of owners’ funds. It mainly depends on a company’s capital structure. ROE shows how much the management of a company has earned through the use of the company’s capital owned by the shareholders. ROA profitability = net profit / assets. Return on Assets (ROA) is a measure of how well the assets are used. Return on assets describes the ability to use all assets in a more profitable manner. It shows the share of total assets recovered in the form of profit. ROA shows how much the management of a company has been able to earn from the total assets used. Current ratio = current assets / short-term liabilities. Current ratio, also known as Current Liquidity ratio, shows the ability of a company to meet short-term liabilities with its current assets. It determines how ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 16 much current assets exceed short-term liabilities. It defines the ability of a company to cover its short-term liabilities with its current assets. The value shows how much current assets cover a single euro of short-term liabilities. Quick ratio = (current assets - inventories) / short-term liabilities. Critical Liquidity ratio, also known as Quick ratio, shows the ability of company to use promptly (quickly) sold current assets to meet short-term liabilities, which is why the inventories are subtracted from the current assets as low-liquidity assets. It determines how much the most liquid assets exceed short-term liabilities. Critical liquidity determines the ability of a company to meet short-term liabilities using its most mobile (quickly monetizable) assets. Debt-to-Equity ratio = amounts payable and liabilities / equity. Debt-to-Equity ratio, also known as Leverage ratio, shows how much debt there is for each euro of equity. This indicator is also used as an indicator of the capital structure and financial leverage group. In this case, in contrast to the gross solvency ratio, the higher the value of the ratio, the worse a company`s solvency position. Debt (Indebtedness) ratio = amounts payable and liabilities / assets. Indebtedness ratio, also known as Debt ratio, shows how much debt there is for each euro of assets. The lower the value of this indicator, the more the assets cover the debts, which is why banks and other creditors value low debt ratio. This indicator is also used as an indicator of the capital structure and financial leverage group. When calculating the financial indicators for the years 2023 and 2022, all changes in the statement of financial position were assessed in accordance with the requirements of IFRS 16. What is more, the amortization of the received support and the depreciation of the assets owned by the right of use were also assessed. Although sales under customer contracts in 2023 compared to 2022 grew at a moderate pace, the Company's gross margin in 2023 compared to 2022 increased from 17.41% to 20.67%. The Group's gross profitability in 2023 increased by 26.2%. The increase in gross profit for both the Company and the Group in 2023 is due to the decrease in raw material purchase prices. The war between Russia and Ukraine, which broke out on 24 February 2022, led to faster-than-ever increases in the prices of electricity and other energy sources, gas, fuel, packaging and nutrients, as well as in the price of raw milk in 2022, with the price of raw milk in 2023 recovering to the level it was at in 2021; electricity and other prices have also fallen, with a significant impact on gross margins. The shortage of skilled labour and the demand for higher wages by existing workers has not diminished in 2023. The calculation of net profit includes all expenses of the Company and the Group, even those that may not be related to direct activities or may be one-off, as well as estimated expenses such as accruals, depreciation, etc. The net profitability of the Company and the Group in 2023 compared to 2022 has significantly increased due to successful / profitable sales in export markets. The net sales profitability indicator reflects the actual profitability of the sales, taking into account all revenue and expenses. In 2023, the Company’s EBITDA increased by 143.4 %, if compared to the year 2022, and this was the effect of an increase of net profit. ABF "Šilutės Rambynas" ended 2023 with a profit, resulting the Group's 2023 Compared to 2022, EBITDA increased by 186.9%. In 2023, the current ratio of the Company was 3.21, compared to 1.98 in 2022. In 2023, the current ratio of the Group was 3.33, compared to 2.01 in 2022. The current ratio shows how many times current assets of a company exceed its short-term liabilities, i. e. the value of the indicator shows how much one euro of short- term liabilities is covered by short-term assets. The most acceptable variation of the indicator is in the range of 1.2-2.0. The range limits vary in different industry sectors. The quick (solvency) ratio of the Company in 2023 was 1.48, compared to 0.59 in 2022. The quick (solvency) ratio of the Group in 2023 was 1.54, compared to 0.60 in 2022. The quick (solvency) ratio of the Company ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 17 and the Group in 2023 compared to 2022 increased more than twice. The increase was caused by the repayment of a working capital loan to SEB Bank. The quick (solvency) ratio shows whether a company could quickly pay off its short-term liabilities from its most mobile (potentially quick to cash) assets. A normal value reads from 0.5 to 1.5, a value lower than 0.5 is considered unsatisfactory. The debt-to-equity ratio (indicator) of the Company and Group increased in 2023, if compared to 2022, decreased by more than 1.5 times. The debt-to-equity ratio, which can be referred to elsewhere as the financial dependency ratio, reveals the capital structure of a company. This is done by comparing the debts of a company with the equity of a company. This solvency ratio is close to the equity-to-debt ratio (constant solvency ratio), the only difference being that it is the opposite, i.e., the numerator and denominator change their places with each other. As a rule, if the value of the indicator does not differ much from the number 1, then a company’s condition in terms of solvency is considered normal, the value close to 0.5 is considered as good. It should be noted that the interpretation of the meaning of this indicator is highly dependent on the industry in which the company operates. Let’s say that in industries that require large capital investments, even a value of 2 can be considered as good. In 2023, the debt ratio / coefficient of the Company was 0.27, compared to 0.39 in 2022. The debt ratio / coefficient of the Group was 0.26 in 2023, compared to 0.38 in 2022. This indicator shows what proportion of borrowed funds is used to form the assets of a company. A lower value of this indicator is considered to be better because then a company is considered to be less risky. As the Company had financial liabilities in 2023, the Company calculated the interest coverage ratio. Interest service ratio is a financial indicator that compares a company’s EBIT profit with its interest expenses. This coefficient indicates the ability of a company to redeem its debts. The lower this indicator is, the worse is the situation of a company. The higher this ratio is, the easier it is for a company to cope with its financial leverage. If the interest coverage ratio was close to or below 1, it would signal a critical situation for a company. The interest ratio is calculated as follows: Interest ratio = EBIT / Interest expense. The interest (coverage) ratios of the Company and the Group for the year 2023 are higher than 30. The Company’s operating expenses in 2023 accounted for (EUR 34.120 million) 12.23% from its turnover, whereas in 2022 it accounted for (EUR 39.895 million) 15.2 % from its turnover. In 2023, the turnover of the Company increased by 5.57 % and operating expenses grew by 14.5 %. Operating expenses mainly consisted of remuneration expenses and marketing expenses. The Group’s operating expenses in 2023 (EUR 35.757 million) accounted for 12.86 % from its turnover, whereas in 2022 (EUR 41.422 million) it accounted for 15.73 % from its turnover. In 2023, the sales of the Group increased by 5.55 %, whereas operating expenses decreased by 13.68 % due to not fully used marketing tools. Comparison of amounts and prices of raw milk purchased by ŽEMAITIJOS PIENAS, AB in 2023 and 2022 * The milk purchased is converted into a basic fat and protein content, using a specific coefficient Purchase of raw milk (converted to basic content) 2023 2022 Change when comparing 2023 to 2022, % Amount of purchased milk, thousand tons 426 437 -2.52 % Milk purchase price, EUR/t 310.6 416 -25.34 % ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 18 Dairy farming in Lithuania is one of the most important and priority branches of the country's agriculture, which has not only economic, but also social significance, because the money received for milk constitutes a significant part of the income received in agriculture, therefore ŽEMAITIJOS PIENAS, AB has been paying a competitive price to milk producers for the production of higher quality milk than that determined by the EU standard for many years. The average amount of purchased raw milk converted to basic indicators in 2023 amounted to 426 thousand tons, which is -2.5% less than in 2022 (437 thousand tons in 2022). The year 2023 in the Lithuanian raw milk market was complicated and full of challenges: increased prices of fertilizers and diesel fuel, reduced harvest and more expensive fodder due to drought and prolonged winter, lack of fodder, increasing environmental protection requirements for dairy farms, increased cost of milk and other factors reduced the number of dairy farms and the number of cows kept in them. Also, the decrease in the purchase of raw milk was promoted by the liquidation of dairy farms. The largest decrease in sales came from farms keeping 1-5 cows and farms keeping 6-14 cows. Although the level of farm entrepreneurship remains low, the number of dairy farms that sell milk is decreasing, but dairy farms are gradually getting larger, the amount of milk produced from a cow is increasing, as well as the number of large dairy farms and the share of milk sold by them is also increasing. The average price of recalculated milk purchased in 2023 is 310.5 EUR/t, which is -25.34% lower than in 2022 (in 2022, the average price of recalculated milk purchased is 415.9 EUR/t). The market for dairy products is characterized by large price fluctuations. Such large changes in the prices of dairy products were caused by fluctuations in the demand and supply of dairy products. ŽEMAITIJOS PIENAS, AB operates on the open market. Since it is export-oriented (more than half of all processed milk in the form of products is exported), all market changes also affect the selling prices of Lithuanian dairy products, as well as the level of milk purchase prices in Lithuania. Due to seasonality, in the fourth quarter of 2023, the average price of raw natural milk (424.0 EUR/t) was 3.89% higher compared to the first quarter of 2023 (408.1 EUR/t), this was influenced by the increase in protein and fat content indicators, the export markets also sent signs of recovery. For many years, ŽEMAITIJOS PIENAS, AB has based its activities with milk producers on honest and fair partnership and promoted dairy farm owners who achieve the best milk quality indicators. In order to promote the production of milk of the highest possible quality, in December of 2023, ŽEMAITIJOS PIENAS, AB paid farmers an annual partnership bonus in the amount of EUR 879,382.42 for the natural milk sold in 2023. The subsidiary company Šilutės Rambynas, ABF does not buy raw milk directly from dairy farms as it buys raw milk for the production of its products from ŽEMAITIJOS PIENAS, AB. In 2023, the sales of ŽEMAITIJOS PIENAS, AB Group amounted to EUR 279 million (EUR 278,004 thousand). This is an increase of 5,55% compared to the year 2022 (in 2022, the sales amounted to EUR 263,394 thousand). In 2023, the sales of the Company amounted to EUR 277 million (EUR 277,305 thousand), which is an increase of 5.57 % compared to the year 2022 (in 2022, the sales amounted to EUR 262,671 thousand). ŽEMAITIJOS PIENAS, AB receives the largest share of income from Lithuania, which amounts to more than half of all income (50.5% in 2023). The export countries with the highest turnover in 2023 included Poland, Latvia, Estonia, Germany, Holland, Italy, Kazakhstan, USA. The sales of ŽEMAITIJOS PIENAS, AB according to geographic segments (secondary segments) in 2023 and 2022: ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 19 Row No. Geographic breakdown of sales, thousand euros 2023 Per cent from total revenue in 2023 2022 Per cent from total revenue in 2022 Change when comparing 2023 to 2022, per cent 1 Lithuania 140,049 50.50% 139,953 53.28% 0.07% 2 EU countries 97,068 35.00% 87,165 33.18% 11.36% 3 Other countries 40,188 14.49% 35,553 13.54% 13.03% 4 Total: 277,305 100% 262,671 100% 5.57% The sales of the companies of the Group according to geographic segments (secondary segments) in 2023- 2022: Row No. Geographic breakdown of sales, thousand euros 2023 Per cent from total revenue in 2023 2022 Per cent from total revenue in 2022 Change when comparing 2023 to 2022, per cent 1 Lithuania 139,220 50.08% 139,058 52.79% 0.12% 2 EU countries 97,931 35.23% 88,076 33.44% 11.19% 3 Other countries 40,853 14.69% 36,260 13.77% 12.67% 4 Total: 278,004 100% 263,394 100% 5.55% AB ŽEMAITIJOS PIENAS exported its products to 47 countries in 2023. In the competitive struggle, we successfully carried out development in the Polish market, introduced new protein curd snacks Mprotein, which successfully conquered the hearts of residents of Poland. We are increasing sales and brand development in Croatia. We have introduced PIK NIK cheese strings in Hungary, which are confidently making their way in the snack category in the country. Buyers from the Baltic countries have met and already appreciated the unique A2 milk. In order to gain a stronger foothold in the export markets, like every year we have signed direct contracts with large retail chains, thus trying to ensure the highest level of satisfaction of the end user needs, the adaptation of the product in the market, the possibility of direct cooperation with the owners of the shelves. We are getting closer to the user, our buyer and the sales channels. As the awareness of our brands and the number of sales channels and countries keep growing, we consistently and constantly face the need to improve the processes of service provision, implement individual country requirements for the product and its storage, initiate and implement advertising projects, i. e. we must ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 20 constantly strengthen our management, marketing, technological, personnel management, financial law, and other competencies. The Company's goal is to develop its universal brands with minimal adaptation to export markets. With such goals we constantly analyze markets and available resources in a global context. Thus, we are faced with considerable challenges: to stand out in the context of competitors, to create exceptional prices for market users, to increase the frequency of shopping in each country individually, taking into account the maturity of the market, traditions, and the level of competition. The distribution of products sold by ŽEMAITIJOS PIENAS, AB in 2023-2022 by groups of products was as follows: Row No. Sales by groups of products, thousand euros 2023 Per cent from total revenue in 2023 2022 Per cent from total revenue in 2022 Change when comparing 2023 to 2022, per cent 1 Fermented and processed cheeses 117,207 42.27% 103,613 39.45% 13.12% 2 Fresh dairy products 95,098 34.29% 88,320 33.62% 7.67% 3 Butter and spreads 27,783 10.02% 25,742 9.80% 7.93% 4 Dry dairy products 24,849 8.96% 25,419 9.68% -2.24% 5 Other 12,368 4.46% 19,577 7.45% -36.82% 6 Total: 277,305 100% 262,671 100% 5.57% The distribution of products sold by ŽEMAITIJOS PIENAS, AB Group in 2022 and 2023 by groups of products was as follows: Row No. Sales by groups of products, thousand euros 2023 Per cent from total revenue in 2023 2022 Per cent from total revenue in 2022 Change when comparing 2023 to 2022, per cent 1 Fermented and processed cheeses 118,465 42.61% 105,934 40.22% 11.83% 2 Fresh dairy products 95,584 34.38% 88,851 33.74% 7.58% 3 Butter and spreads 27,783 10.00% 25,742 9.77% 7.93% 4 Dry dairy products 24,849 8.94% 25,419 9.65% -2.24% ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 21 5 Other 11,323 4.07% 17,448 6.62% -35.10% 6 Total: 278,004 100% 263,394 100% 5.55% Other products include sales of raw milk, raw cream, curds, water products and ice cream. Comparing 2023 with 2022, the sales of other products decreased by 36.82%. This was due to the dencrease in the price of raw cream. Compared to 2023 with 2022 the turnover of sales of fresh dairy products increased by 7.67%, which was influenced by the increase in the average selling price of cottage cheese and glazed cheese (in 2023, compared to 2022, the average selling price increased by 9.76%). Comparing 2023 with 2022, the sales turnover of butter and spreads increased by 7.93%. This was a result of the increase in demand of butter (compared to 2023, in 2022 the demand for butter and grease spreads increased by 27.17%). The sales turnover of dry dairy products decreased by 2.24%, this was as a result of the decrease in the average sales price (compared to 2023, in 2022 the average sales price decreased by 21.12%). Overview of Šilutės Rambynas, ABF activities The main activity of the company is production of dairy products. Moreover, the company provides rental, transportation, storage, maintenance of milk purchasing points and other services. The company does not buy raw materials directly from producers - the milk required for production is purchased from ŽEMAITIJOS PIENAS, AB. The purchase price of the raw material is determined according to the formula: milk price plus collection costs of ŽEMAITIJOS PIENAS, AB without transportation costs. In 2023 5,042 tons of natural milk were purchased, while in 2022 – 5,704 tonnes. The decrease is 662 tonnes or 11.6 %. The average price of purchased milk recalculated according to the basic parameters was 319.3 EUR/t, while in 2022 – 427.7 EUR/t, so the price of raw milk increased by 108.4 EUR/t or 25.3 % during the Period. The amount of raw material purchased is still significantly lower than the pre-pandemic level. This is influenced by the reduced demand for the company's products. Šilutės Rambynas specializes in the production of cheese. Production volumes in 2022 and 2023 are shown in the diagram below: ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 22 During 2023, 4,543 tons of cheese were produced, or 582 tons (11.4%) more compared to 2022 period. The decrease in production volumes was caused by the suspension of the production of fermented cheeses and cheese products for a period of four months due to reconstruction. Also the big impact was caused in 2020 when a new half-hard fermented cheese production line was put into operation at AB ŽEMAITIJOS PIENAS factory. For this reason, the production of fermented cheeses (Gouda and Tilsit) continued to decrease in 2023 - by 50%, from 558 to 279 tons. Fermented cheese production decreased by 415 tons or 34.4% in 2023. The production of cheese strings increased by 3.6 percent in the comparative period. from 2,924 t in 2022 to 3,027 tons in 2023. Production of other cheeses creased by 1.4% or 6 tons. In both 2022 and 2023 all the raw material was processed into cheeses. Most of the products produced in Šilutės Rambynas are sold through the parent company - ŽEMAITIJOS PIENAS, AB. During 2023, production was sold for EUR 33,338 thousand or 14.3 % less than during the 2022, when sales amounted to EUR 38,896 thousand. The decline in sales was determined by the significant decrease in the prices and the production (due to the 2023 performed reconstruction) of fermented cheese and cheese products. Also the decline in sales was determined by the decrease of raw cream prices. In the comparable period, the average price of raw cream with 40 % fat content decreased from 3,061 Eur / ton to 2,204 Eur / ton. The structure of sales by markets is graphically represented: Whereas the main sales are carried out through ŽEMAITIJOS PIENAS, AB, the company does not invest separately in marketing. In 2023 insignificant amounts were allocated to the development of sales in the markets of the Middle East. For the same reason that large sales are carried out through the parent company, the company is not directly exposed to significant risks due to market uncertainty and customer reliability. In order to manage the risk of direct sales, customers are subject to a prepayment system for production or a deferral of payments, but transactions are prohibited within the insurance limit set by the trade credit insurance company. Type of risks, their factors and uncertainties, risk management Information on the extent of risk and risk management, current and potential types of risks, uncertainties, risk mitigation measures and the internal control system implemented in the company is provided in the Company’s Governance Report. AB "ŽEMAITIJOS PIENAS" 88% Lithuania kt. 3% Latvia 6% other ES countries 1% other countries 2% 2021 m. ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 23 Financial and other risks and their management have also been disclosed in Chapter 29 “Financial Risk Management” of the Explanatory Notes to the Annual Audited Financial Statements for the year 2023. Also should be mentioned, that the Company and the Group companies have Activity and Product and Management Liability Insurance. All assets of the Company and Group companies, including stocks, are insured against all risks, including damage caused by overvoltage fluctuations. The impact of the war on the Company's activities In 2022 February 24 the war between Russia and Ukraine disrupted plans to increase sales to Ukraine and Belarus. AB ŽEMAITIJOS PIENAS' sales to these countries before the start of the war amounted to about 2.5% of all sales. The Company and the Group conducted sales to these countries safely, i.e. unloaded products only in case of advance payment or having Credit insurance limits. As of 12/31/2023, the Company and the Group have no receivables from buyers located in those countries, so there is no impairment of receivables. The period of 2023 was very dynamic due to the ongoing war in Ukraine and the start of the war in Israel, in any case, the Company managed not to lose its position and brand awareness in the markets where the Company was active before the war, not only that, in Ukraine the Company managed to conclude contracts with new retail chains and even increase sales to this country. After the start of the war in Israel, sales temporarily decreased due to security restrictions imposed in the country, but at the end of the year the situation began to stabilize and return to the former pre-war situation. Sales to Ukraine in 2022 accounted for 1.2% of all sales. Sales are made with an INVEGA export credit guarantee for each buyer or prepayment. At the end of the year, the Company and the Group did not have any balances of production exclusively intended for the above-mentioned countries. AB "ŽEMAITIJOS PIENAS" did not have any real estate in these countries, therefore it does not assess any decrease in the value of long-term assets. The management of the Company and the Group closely monitors the situation in Ukraine and imposed sanctions in order to comply with them. The current political situation does not affect the ability of the Company and the Group to continue its activities. Business plans and forecasts of the Companies of the Group The upcoming year is very important and symbolic for the Company, as it will mark the anniversary of one hundred years of experience in the production of dairy products (hereinafter referred to as the Centenary). So already in 2023, the Centenary communication was started - the promotion of the TOP 5 brands of ŽEMAITIJOS PIENAS in Lithuania ‘Top products to your home all year long’ was carried out, in which such brands as Džiugas, Magija, Pik-Nik, Rambynas, and Tichė were involved. This promotion increased the awareness of the said brands and carried the message of the important anniversary. The past years have been full of many awards, projects, and events, thus the Company is entering the year 2024 with great impatience, new ideas, and goals, which are special and symbolic as the Centenary of ŽEMAITIJOS PIENAS, AB approaches. The managers of the Company, while considering the operational plans and strategy, proved that the Centenary teaches: courage, truth, and mutual respect are ageless. The goal of the Company and companies of the Group is to develop their universal brands with minimal adaptation to export markets. With such goals in mind, we constantly analyse markets and available resources in a global context. Thus, we are faced with significant challenges, i.e. stand out in the context of competitors, create exceptional prices for market consumers, increase the frequency of shopping in each country individually, while taking into account the maturity of the market, traditions, and the level of competition. Nevertheless, we believe in what we do. We are growing sustainably, together with Partners, markets, Consumers, and employees of our Company, who ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 24 create and change our everyday life. The Company sought and will seek to optimally use the opportunities for rapid expansion in a competitive environment. The main goal was and is - the direct sale of the products produced by the Company and the Group to the shelves of strategic foreign countries with their own trademarks and brands, and that the products of the Company and the Group are of the highest quality in their segment and best meet the customer's expectations, so that the customer has the opportunity to choose health-friendly and organic food. The products produced and sold by the company make Lithuania and the Samogitian region famous in various countries of the world. The purpose of the company is to protect and preserve what has been created, to look for ways, to do something different that has not been tried yet. The long-term goals of AB ŽEMAITIJOS PIENAS group companies are to become and stay strong, competitive, technically modern, reliable, attractive companies for investors, so that the Company's return to shareholders would be one of the highest among equal companies. To find and maintain the most profitable markets for our products in the European Union, the Baltic states and other countries of the world by giving priority to the closest markets, as well as the markets of Germany, France, England, and Hungary. To make maximum possible use of existing production capacities. By continuaslly carrying studies of the consumer market, consumer needs for new products, tastings, with the help of scientists and new scientific methods, the aim is to improve and create new dairy products. In addition, the Company's goal is to get as close as possible to consumers by directly supplying and selling goods to consumers. The essential current objectives and plans of the Company are as follow: to purchase milk in accordance with market conditions but not at a higher price than that paid for raw milk by other market participants in Lithuania and purchase high-quality milk only; encourage and assist farmers in improving milk quality; to increase sales at the prices favourable to the Company; to focus on the sales of higher value-added products on export markets; whatever we do, always remain a reliable, socially oriented and responsible company. The lack of skilled labour forces the Company to focus on human resources, so special attention is paid to team building, development of competence and qualification, formation of special skills, revision, and improvement of motivation systems. Regularly changing and dynamic market of the sale of products and the purchase of raw milk, as well as other factors, force the Group to refrain from publishing the turnover and profit forecasts for the upcoming activity period. In the face of volatile production prices, Šilutės Rambynas plans to pay more and more attention to the search for new export markets and establishing a foothold in the existing ones. Šilutės Rambynas will give priority to further modernization, reduction of energy, material and labor resources, optimization of operations, production of profitable products. Priority will be given to increasing the production and improving the quality of Pik-Nik cheese sausages, searching for new markets. In 2024, it is planned to allocate up to 2.0 million for new acquisitions. Eur. The largest investments are planned for equipment that will allow to increase the production of Pik-Nik cheese strings and at the same time with the aim of improving the quality of production, reducing the influence of the human factor on production and reducing the increasingly expensive labor costs. Investments will also be made in ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 25 modernization of raw milk processing, improving work and conditions for employees, improving and modernizing existing equipment, repairing premises and replacing old, worn-out equipment with new ones. Information of research and development activities of the Company The company continues to pay great attention to justifying the expectations of consumers by creating products focused on certain functionality. According to research data, lactose intolerance is characteristic of 32% of the Lithuanian population. Also, some consumers are allergic to milk protein - casein. Taking this into account, we were the first in Lithuania to present a unique product to the market – A2 MILK WITHOUT LACTOSE, which is suitable for consumers who previously wanted to but could not consume it. We carried out genetic tests, selected herds of cows that have only a special combination of a2a2 milk protein genes, consulted with nutritionists, EU and LT scientists. Next, in the technological process of production, we additionally split the lactose and got the following result: a product suitable for lactose-intolerant, casein- allergic consumers. Various protein-enriched products are establishing themselves in the range of food products. According to nutrition experts, protein products have become popular due to people’s more responsible attitude towards nutrition and a healthy lifestyle. In response to this, the company introduced a new product to the market: glazed cottage cheese bars with collagen available in three flavours. The company's technologists are constantly doing internships in foreign countries, participating in exhibitions, consulting with EU consultants on various technological and technical issues, raising their qualifications at trainings and seminars. The specialists are constantly looking for sustainable technologies and innovative production methods. The company is constantly looking for ways to ensure constant growth of income and better implementation of operational efficiency. The Company plans to allocate up to EUR 18 million for investments in 2024. The investments are planned for the saving of energy resources, the acquisition of new equipment, the renewal and automation of production equipment, the development of technologies for renewable energy sources, and the creation of new processes. The Company and its subsidiary (jointly or separately) continuously make investments and seek ways to ensure continuous growth of income and improvement of activity effectiveness. In 2023 the Company plans to allocate up to 14 million euros for investments. All investments are planned to reduce energy costs, for the acquisition of new equipment, the renewal and automation of production equipment, and the development of renewable energy source technologies and for the development of new processes. The Company's goal is to ensure the highest quality standards, the production of products that meet and create the greatest added value and their supply to the consumer. Therefore, the Company's product development technologists, in cooperation with Lithuanian scientists, as well as with experts from foreign countries, create new products that meet the needs of the modern consumer. Looking for new innovative production technologies, taking into account the concept of sustainability and circular production, looking for more sustainable raw materials and a more sustainable way of producing products. The further use of recycled packaging materials and by-products (formed after the technological process) is evaluated. We continue to search for innovative technologies to obtain the added value of products, focusing on the support of a certain functionality of the human body. The Company's specialists are constantly doing internships in foreign countries, participating in exhibitions, conferences, raising their qualifications in training and seminars. Laboratory tests of products are constantly carried out at the National Institute of Food and Veterinary Risk Assessment, Eurofins, Hamilton, KTU MI, VU, LSMU Veterinary Academy, etc. in laboratories. The ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 26 research is aimed at the improvement of the products of the existing product basket and the search for functional properties. Activities of the Companies of the Group in the field of environmental protection ŽEMAITIJOS PIENAS, AB, a company that produces and sells dairy products, which, in accordance with the criteria laid down in the Regulations for the issue, amendment and revocation of Integrated Pollution Prevention and Control Permits, refers to companies that use the equipment subject to a special permit for the performance of its activities in accordance with the above rules. Still in 2006 the Company received an Integrated Pollution Prevention and Control Permit, which is not limited in time, but is the subject to adjustment due to changes. The Company does not have a negative impact on the environment, which should be mitigated by immediate measures, however, the Company constantly monitors its performance indicators, plans and implements the latest technologies that would reduce production and operating costs and energy costs, and improve the Company’s environmental condition in every way. The company strives to save as much as possible and rationally use natural resources by various means. The company is well aware that, acting irresponsibly, its activities can cause great damage to nature, and only the complex use of economic, legal, technical and biological measures can guarantee the rational use of natural resources now and in the future, therefore the impact on the environment is controlled according to coordinated monitoring programs. When the company expands or renews facilities and technologies, an environmental impact assessment is carried out to ensure that the Company's development does not exceed the permitted environmental norms. Being socially responsible and taking care of the environment and its preservation, the company invests in saving energy, improving business management processes, and tries to allocate funds for other activities as much as possible. In 2022, we used independent auditors to conduct an audit of the energy consumption of technological processes and devices, the conclusions of which will be used to determine the need for projects in the future, reducing the use of energy resources. The Company constantly implements investment projects, during which it implements new modern technologies that allow more efficient use of renewable energy resources, reduce the amount of pollutants released into the environment, and apply other environmental protection measures. One of the priority areas of sustainability is the impact on the environment, the Company constantly monitors its performance indicators, plans and implements the latest technologies that would reduce production and operational costs and energy costs, conserve natural resources and improve the Company's environmental status in every way. In our activities, we monitor the CO₂ footprint and aim to eliminate or significantly reduce the emission of such emissions as sulfur dioxide, solid particles or nitrogen oxides. The monitoring of pollutant emissions is carried out in accordance with the environmental monitoring programs of business entities approved by the responsible institutions. in 2022 Planned and unplanned inspections by inspectors of the Department of Environmental Protection were carried out in the company, during which not a single violation was found. In the future, AB ŽEMAITIJOS PIENAS will continue to make every effort to become an increasingly environmentally friendly company. It is expected that it will be possible to use more energy obtained from renewable sources in its activities and to reduce the amounts of pollutants emitted into the environment. During the year 2022, the amount of energy and renewable resources used during the activities of the group of companies is listed in the social responsibility and sustainability report. ABF "Šilutės Rambynas" has been paying great attention to environmental protection for several years, and the most important goal is to reduce production waste and conserve natural resources: ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 27 after concentrating the whey, the remaining whey water is purified by the membrane system to water suitable for washing equipment, thus reducing the amount of water and wastewater used; for the management of industrial wastewater, the company has installed wastewater accumulation and mixing capacities, which allow to avoid instant pollution and to control the quality of wastewater discharged to the Šilute water treatment plant; highly concentrated wastewater is collected in a separate container and, depending on the volume of production, it is taken to Tytuvenai 1-2 times a week and delivered to biogas producers. Aspects on management of employees and human resources of the Companies of the Group The main assets of the Company are its employees, the most important link in achieving goals of the Company. In 2023, the annual turnover of employees increased to 12.08% (according to 2022 - 9.61%). The Company's personnel policy is focused on the formation of teamwork, continuous professional development, optimal use of work resources, recruitment and training of competent employees. During the reporting period, a lot of attention was paid to investigating the job satisfaction of already employed employees, attracting young specialists. To increase youth interest in the Company. In the employee job satisfaction survey, 481 employees of the Company were interviewed, the insights, conclusions and implementation plan of the survey were presented to the Board of the Company and presented separately to departments and divisions according to relevance. In order to improve the results and trace the change in the job satisfaction indicator, an identical study will be conducted in 2024, and the results obtained will be compared and analysed. Taking into account the prevailing average age of employees and in order to ensure their turnover, a lot of attention is paid to youth and their attraction. In 2023, organized and participated in the German Language Day, the youth forum "Education for a career in the direction of STEAM", the opportunity exhibition "Telšiai - Jaunimui. Discover, know, find out". The long-term "Pušelė" project, which promotes employment and entrepreneurship of the youth of the Telšiai district, has been implemented. The Curators and Mentors Project, which started in 2022 and was in progress during the reporting period, was successfully implemented. In the course of this project, employee turnover decreased, the rate of adaptation during the trial period increased, and the number of employees who left after the first month of work decreased. Despite ongoing new projects, employees are also encouraged on the occasion of seniority and birth anniversaries, benefits upon the birth of a child, marriage, recommending a person for employment, obtaining a higher education diploma, having 3 (three) or more children and/or preparing for the start of a new academic year. Children of the employees are congratulated on the occasion of the holidays and former, long-term employees who worked in the Company until retirement age are not forgotten. ŽEMAITIJOS PIENAS, AB According to the data available by 31 December 2022, AB “ŽEMAITIJOS PIENAS” had 1288 employees. According to the data available by 31 December 2022, AB “ŽEMAITIJOS PIENAS” had 1271 employees. According to the data available by 31 December 2021, the Company had 1249 employees. According to the data available by 31 December 2020, the Company had 1242 employees. According to the data available by 31 December 2019, the Company had 1210 employees. Comparing to the previous year the number of employees slightly increased in almost 1 %. ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 28 Groups of ŽEMAITIJOS PIENAS, AB employees by education (2021, 2022, 2023): Number of employees 31-12-2021 31-12-2022 31-12-2023 With university education 175 177 181 With college degree 305 286 270 With vocational education 358 384 395 With secondary education 341 345 358 With unfinished secondary education 70 79 84 Is viso: 1249 1271 1288 Number of ŽEMAITIJOS PIENAS, AB employees by their corresponding groups and their average wages in EUR for corresponding employee work groups make up: 12/31/2021 12/31/2022 12/31/2023 Number of employees by groups Number of employees Average wage, EUR Number of employees Average wage, EUR Number of employees Average wage, EUR Director 6 7314 6 7710 7 7870 Specialists 316 2453 309 2890 311 2832 Workers 927 1466 956 1769 970 1819 In total: 1249 1271 1288 College, 270 University, 181 Lower secondary; 77 Primary; 7 Vocational, 395 Secondary, 358 Employee distribution according to education (Diagram 1) ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 29 Number of employees by age groups 2023: Šilutės Rambynas, ABF At the end of the period, the company had 157 employees, their number increased by 1 employer (0.6 %) compared to 2022. Changes of groups of employees by education are provided in the Table below: Education of employees 31-12-2023 31-12-2022 With Master’s degree 5 5 With University Degree 19 21 With College Degree 35 35 With Vocational Education 55 61 With Secondary Education 33 25 With unfinished Secondary Education 10 9 In total: 157 156 The average salary during 2023 was 1,943 EUR/month or 14,5% lower than in 2022. Changes in wages by employee groups are given in the Table below: Number of employees by groups 31-12-2023 31-12-2022 Number of employees Average wage, EUR/month Number of employees Average wage, EUR/month Director 6 4075 5 3375 Specialists 23 2675 23 2277 7 149 328 292 351 155 6 0 100 200 300 400 Iki 19 metų 20-29 metų 30-39 metų 40-49 metų 50-59 metų 60-69 metų virš 70 metų Number of employees according to age groups (diagram 4) ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 30 Workers 128 1712 128 1524 Iš viso: 157 1943 156 1697 The Company seeks to develop and maintain long-term relationships with its employees, especially when the labour market is not satisfying - the lack of highly qualified employees. Therefore, employees are constantly encouraged to develop in the professional field. The Company employees could improve their knowledge and skills in seminars and courses. There are training programs that train and certify specialists, production workers, technicians, operators, locksmiths, brigades, masters, and masters. Transactions with associated parties Transactions of associated parties during the first half of the current financial year that have a material effect on the financial position or performance of the company and / or group of companies during that period, including the amounts of those transactions, are reported in Explanatory Note for the year 2023. Legal disputes The company has submitted a lawsuit to the court regarding the award of an insurance payment in the amount of EUR 248,028.62 from the insurance company “Compensa Vienna Insurance Group”. On 1 July 2021, when a large amount of precipitation fell, the roof of one building belonging to the Company was completely damaged – broken: the supporting structures of the building and the roof covering were damaged. The company suffered a loss of EUR 303,993.42 (excluding VAT) due to the insured event. The insurance company only partially satisfied the Company’s claim to pay the insurance benefit by paying the Company an insurance benefit of EUR 55,964.80. The insurance company refused to cover the rest of the damage suffered by the Company. In view of this, the Company, defending its interests, was forced to apply to the court with a claim for the award of an insurance payment. The hearing of the case is still going on; Other cases in which the Company would be a participant in civil, criminal or administrative proceedings and which could in any way fundamentally affect the Company’s financial situation have not been initiated at this time. Regulated information published by the Company During the reporting period, the Company submitted 13 notices via the information system of the Vilnius Stock Exchange (AB NASDAQ OMX Vilnius) (on the website). All facts (events) are stored in the Central Regulated Information Database, as well as this information is available on the Company’s website www.zpienas.lt. Public notices shall be published in accordance with the procedure established by legal acts. Notices on convocation of the General Meeting of Shareholders and other material events are published in accordance with the procedure established by the Law on Securities in the Central Regulated Information Database www.crib.lt and on the Company’s website www.zpienas.lt. The most important events of the reporting period were published of 2023: Date The most important notices of the reporting period 2023-09-29 ŽEMAITIJOS PIENAS AB Group half-year information for the I-st half of 2023 OTHER INFORMATION ŽEMAITIJOS PIENAS, AB Registration number 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2023 31 Information related to the Corporate Governance Code of the Companies. During the reporting period there were no significant changes related to compliance with the Corporate Governance Code of the Companies. Other information related to compliance with the Corporate Governance Code is provided in consolidated annual report of the Company for 2022, in the annex to this annual report - in the report on compliance with the Governance report. The most important post-reporting events The Court of Appeal of Lithuania examined the civil case according to the appeal of ADT Sp. z. o. o., the company registered in the Republic of Poland, the defendant (hereinafter - the Defendant) and on 27 February 2023, appealing the decision of 19 September 2023 of the Šiauliai Regional Court in civil case according to the lawsuit of the Company against the Defendant for damages and decided to reject the Defendant’s appeal and leave the decision of 19 September 2023 of the Šiauliai Regional Court unchanged. The Company reminds that, due to the Defendant’s improper performance of contractual obligations, it filed a lawsuit in the Šiauliai Regional Court for awarding of damages in the amount of EUR 630,521.00 from the Defendant. Šiauliai Regional Court in its decision of 19 September 2023 satisfied the lawsuit in full and awarded compensation of losses in the amount of EUR 630,521.00 from ADT Sp. z o. o. in favor of the Company. 2023-09-20 Financial results of ŽEMAITIJOS PIENAS AB for the first six months of 2023 2023-09-19 New wording of the Articles of Association of ŽEMAITIJOS PIENAS, AB was registered 2023-07-25 Decisions made by extraordinary general meeting of shareholders of ŽEMAITIJOS PIENAS, AB 2023-07-04 Regarding the Convening of the Extraordinary General Meeting of Shareholders of the Company 2023-06-19 Election of members of the Audit Committee of ŽEMAITIJOS PIENAS, AB 2023-06-12 ŽEMAITIJOS PIENAS, AB has agreed with bank on the loan of 12 millions 135.2 thousand euros 2023-04-21 Annual information of ŽEMAITIJOS PIENAS, AB 2023-04-21 Decisions made by Ordinary General Meeting of Shareholders of ŽEMAITIJOS PIENAS, AB 2023-04-20 Update: Regarding alternative draft decision on agenda item 6 of the general meeting of shareholders, to be held on 21 April 2023, related to establishment of the reserve for the purchase of own shares and the determination of the procedure 2023-03-30 Regarding the convening of the Ordinary General Meeting of Shareholders of ŽEMAITIJOS PIENAS, AB 2023-03-16 Unaudited financial results of ŽEMAITIJOS PIENAS, AB group business activity during 2022 2023-02-23 ŽEMAITIJOS PIENAS, AB concluded a transaction for the acquisition of wind power plants ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS STATEMENTS OF FINANCIAL POSITION FOR THE YEAR ENDED 31 DECEMBER, 2023 (All amounts in EUR thousands unless otherwise stated) 32 The Group The Company As at 31 As at 31 As at 31 As at 31 Notes December December December December ASSETS 202 3 202 2 202 3 202 2 Non - current assets Intangible assets 5 144 131 144 131 Property, plant and equipment 5 66.559 59.520 58.868 52.113 Investment property 6 2.551 2.754 2.468 2.670 Right-of-Use assets 7 1.367 1.844 1.367 1.844 Investments in subsidiaries and associates 1 - - 3.150 3.150 Loans granted 8 1.400 1.645 1.400 1.645 Other financial assets - 126 - 126 Deferred income tax asset 27 293 600 395 495 Total non-current assets 72.314 66.620 67.792 62.174 Current assets Inventories 9 50.580 69.045 48.225 66.208 Prepayments 426 284 388 259 Trade accounts receivable 10 23.273 23.370 23.235 23.307 Other accounts receivable 11 1.636 3.831 1.636 3.787 Cash and cash equivalents 12 18.246 1.725 15.905 1.064 Total current assets 94.161 98.255 89.389 94.625 TOTAL ASSETS 166.475 164.875 157.181 156.799 EQUITY AND LIABILITIES Capital and reserves Share capital 13 12.104 12.104 12.104 12.104 Own shares ( - ) 13 (3 89) (389) (389) (389) Legal reserve 13 1.403 1.403 1.403 1.403 Other reserves 13 1 0.200 11.600 10.200 11.600 Retained earnings 98.841 75.989 92.020 70.753 Equity attributable to equity holders 122.159 100.707 115.338 95.471 of the Company Non-controlling interest 16 1.585 1.389 - - Total Equity 123.744 102.096 115.338 95.471 Non-current liabilities Grants received 14 2.445 2.736 2.175 2.428 Loans received 19 7.041 5.750 7.041 5.750 Obligations under finance lease 18 1.126 1.617 1.126 1.617 Deferred Corporate income tax liability - - - - Long term provision for defined employee benefits 15 3.862 3.913 3.669 3.728 Total non-current liabilities 14.474 14.016 14.011 13.523 Current liabilities Loans received 19 2.933 20.735 2.933 20.735 Obligations under finance lease 18 796 917 796 917 Trade accounts payable 20 15.389 20.085 15.751 19.671 Income tax payable 2.295 511 2.225 511 Accrued expenses and other current liabilities 15, 21 6.844 6.515 6.127 5.971 Total current liabilities 28.257 48.763 27.832 47.805 Total liabilities 42.731 62.779 41.843 61.328 TOTAL EQUITY AND LIABILITIES 166.475 164.875 157.181 156.799 The accompanying explanatory notes are an integral part of these consolidated and Company‘s financial statements. ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER, 2023 (All amounts in EUR thousands unless otherwise stated) 33 The Group The Company Notes 2023 2022 2023 2022 REVENUE FROM CONTRACTS WITH CUSTOMERS 22 2 78.004 263.394 277.305 262.671 SALES 22 - - Cost of sales (217.036) (217.612) (219.987) (216.930) GROSS PROFIT 60.968 45.782 57.318 45.741 Operating expenses 23 (35.757) (41.422) (34.120) (39.895) Other operating income and expenses 24 253 308 209 275 PROFIT (LOSS) FROM OPERATIONS 25.464 4.668 23.407 6.121 Financial income and expenses 25 (401) (107) (401) (104) PROFIT (LOSS) BEFORE TAX 25.063 4.561 23.006 6.017 Income tax benefit (expense) 26 (3.614) (612) (3.338) (557) NET PROFIT (LOSS) 21.449 3.949 19.668 5.460 ATTRIBUTABLE TO: Equity holders of the Company 21.253 4.150 19.668 5.460 Non -controlling interest 196 (201) - - 21.449 3.949 19.668 5.460 Basic and diluted earnings per share 17 0,51 0,10 0,47 0,13 (EUR) Other comprehensive income (loss) not to be reclassified to profit or loss in subsequent periods Actuarial gains (losses) from long term 199 (445) 199 (446) provision for defined employee benefits, less deferred income tax Net other comprehensive income (loss) not to be reclassified to profit or loss in subsequent periods 199 (445) 199 (446) Total comprehensive income (loss) for the year, net of tax 21.648 3.504 19.867 5.014 ATTRIBUTABLE TO: Equity holders of the Company 21.452 3.705 19.867 5.014 Non -controlling interest 196 (201) - - 21.648 3.504 19.867 5.014 The accompanying explanatory notes are an integral part of these consolidated and Company‘s financial statements. ŽEMAITIJOS PIENAS AB Company code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR, in thousands, unless otherwise stated) 34 Equity Non- Total The Group Share Own shares Legal Other Retained attributable to controlling equity capital (-) reserve reserves earnings equity holders interest of the Company Balance as of 31 December 2021 13.449 (8.151) 1.403 14.250 76.440 97.391 1.590 98.981 Net profit - - - - 4.150 4.150 (201) 3.949 Other comprehensive income - - - - (445) (445) - (445) Total comprehensive income - - - - 3.705 3.705 (201) 3.504 Acquisition of own shares - (389) - - - (389) - (389) Transfer to/from reserves - - - 1.600 (1.600) - - - Used of reserves - - - (4.250) 4.250 - - - Authorized capital increase-decrease (1.345) 8.151 - - (6.806) - - - Balance as of 31 December 2022 12.104 (389) 1.403 11.600 75.989 100.707 1.389 102.096 Net profit - - - - 21.253 21.253 196 21.449 Other comprehensive income - - - - 199 199 - 199 Total comprehensive income - - - - 21.452 21.452 196 21.648 Acquisition of own shares - - - - - - - - Transfer to/from reserves - - - 200 (200) - - - Used of reserves - - - (1.600) 1.600 - - - Authorized capital increase-decrease - - - - - - - - Balance as of 31 December 2023 12.104 (389) 1.403 10.2 00 98.841 122.159 1.585 123.744 ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 35 The Company Share capital Own shares ( - ) Legal reserve Other reserves Retained earnings Total equity Balance as of 31 December 20 21 13.449 (8.151) 1.403 14.250 69.895 90.846 Net profit - - - - 5.460 5.460 Other comprehensive income - - - - (446) (446) Total comprehensive income - - - - 5.014 5.014 Acquisition of own shares - (389) - - - (389) Transfer to/from reserves - - - 1.600 (1.600) - Used of reserves - - - (4.250) 4.250 - Authorized capital increase- decrease (1.345) 8.151 - - (6.806) - Balance as of 31 December 202 2 12.104 (389) 1.403 11.600 70.753 95.471 Net profit - - - - 19.668 19.668 Other comprehensive income - - - - 199 199 Total comprehensive income - - - - 19.867 19.867 Acquisition of own shares - - - - - - Transfer to/from reserves - - - 200 (200) - Used of reserves - - - (1.600) 1.600 - Authorized capital increase- decrease - - - - - - Balance as of 31 December 2023 12.104 (389) 1.403 10.200 92.020 115.338 The accompanying explanatory notes are an integral part of these consolidated and Company‘s financial statements ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS CASH FLOW STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 36 The Group The Company Cash flow s to operating activities Notes 2023 2022 2023 2022 Profit (loss) for the period 21.449 3.949 19.668 5.460 Adjustments: Depreciation and amortization 5,6 6.029 5.902 5.545 5.388 Amortization of grants received 14 (2 91) (297) (253) (255) Depreciation right-of-use assets 7 705 723 705 723 Gain (loss) on disposal and write offs of non-current assets 0 (52) 4 (62) Decrease (increase) in deferred tax asset 27 307 (781) 100 (835) Impairment (reversal) of accounts receivable 10 532 104 532 104 Net financial expenses (income) 389 3 73 427 396 Impairment (reversal) of inventories to net realizable value 9 (2.321) 3.643 (2.441) 3.546 Elimination of non-cash items 325 (8.596) 325 (8.596) Net cash flows from ordinary activities before changes in working 27.124 4.968 24.612 5.869 capital Changes in working capital: (Increase) decrease in inventories 9 20.785 (29.816) 20.424 (28.698) (Increase) decrease in trade receivables 10 206 (3.800) 180 (3.927) (Increase) decrease in prepayments (141) 9 (129) 13 (Increase) decrease in other receivables 581 (317) 538 (308) (Decrease) increase in trade payables 20 (4.696) 4.329 (3.920) 567 (Decrease) increase other accounts payable 21,22 2.903 1 .144 2.651 1.271 Decrease) increase income tax payables (666) 445 (666) 445 Net cash flows from operating activities 46.096 (23.038) 43.690 (24.768) Cash flows from (to) investing activities (Acquisition) of intangible assets and property, plant and equipment. 5 (13.482) (6. 821) (12.215) (5.356) Proceeds on sale of property, plant and equipment 604 449 100 436 Acquisition of right-of-use assets 7 (219) (1. 762) (219) (1.762) Repayment of loans granted 8 2.484 1 .181 2.484 1.181 Loans granted 8 (1.267) (2 .332) (1.267) (2.332) Interest received 26 210 107 210 107 Net cash flows (to) investing activities (11.670) (9. 178) (10.907) (7.726) Cash flows from (to) financing activities (Acquisition) of own shares 13 - 7.762 - 7.762 Grants received 14 93 88 56 61 Financial lease payments 18 (786) 744 (786) 744 Loan received 19 3.724 24.735 3.724 24.735 Loan (payments) 19 (20.235) (2. 750) (20.235) (2.750) Other financial (income) and expenses 26 44 (42) 44 (42) Interest (payments) (745) (352) (745) (350) Net cash flows from (to) financial activities (17.905) 3 0.185 (17.942) 30.160 Net increase (decrease) in cash and cash equivalents 16.521 (2. 031) 14.841 (2.334) Cash and cash equivalents at the beginning of the year 1.725 3 .756 1.064 3.398 Cash and cash equivalents at the end of the year 18.246 1.725 15.905 1.064 The accompanying explanatory notes are an integral part of these consolidated and Company‘s financial statements. ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 37 1.GENERAL INFORMATION Reporting entity AB “Žemaitijos Pienas” (hereinafter – the Company) is a public limited liability company registered in the Republic of Lithuania. The address of the Company’s registered office is as follows: Sedos Str. 35, Telšiai, Lithuania. The Company produces dairy products and sells them in the Lithuanian and foreign markets. The Company has a number of wholesale departments with storage facilities and transport means in major Lithuanian towns. The Company started its operations in 1984. AB “Žemaitijos Pienas” is a Lithuanian public listed company with shares traded on AB NASDAQ OMX Vilnius. The nominal value of one share is 0,29 EUR. As at 31 December 2023 and 2022, its shares are held by the following shareholders: 31 12 2023 31 12 2022 Shareholder Number of Ownership Number of Ownership shares % shares % Pažemeckas Algirdas 14.063.152 33,69% 14.063.152 33,69% Pažemeckienė Danutė 14.014.581 33,58% 14.014.581 33,58% AB Klaipėdos pienas, code 240026930, Šilutės pl. 33, 91107 Klaipėda 2.901.844 6,95% 2.901.844 6,95% UAB Baltic Holding, code 302688114. 4.530.380 10,86% 4.530.380 10,86% Vilhelmo Berbomo g. 9 - 4, Klaipėda Other shareholders 6.005.523 14,39% 6.005.523 14,39% “Žemaitijos pienas” AB 222.020 0,53% 222.020 0,53% Total share capital, shares units 41.737.500 100,00% 41.737.500 100,00% The management report provides detailed information about the main shareholders, see p.8 All shares are issued, subscribed and paid for. 30 08 2022 The Management Board of AB Žemaitijos Pienas , taking into account the existence of a reserve for the acquisition of treasury shares and in accordance with the Company's resolution of 2 April 2021. AB Žemaitijos pienas, on the basis of the decision of the Ordinary General Meeting of Shareholders of AB Žemaitijos pienas, has decided to buy back the Company's ordinary registered shares with a nominal value of EUR 0.29 through the official offering market of the Nasdaq Vilnius stock exchange. In 2022, the Company additionally acquired 222,020 units of its own shares for 389 thousand EUR, respectively in 2021 – 3,145,999 units for 5,517 thousand EUR. During 2023, there was no movement of own shares. As at 31 December 2023 and 2022 the Group consisted of AB “Žemaitijos Pienas” and the subsidiary of the Company ABF Šilutės Rambynas: Ownership Percentage Cost of Cost of Net assets Subsidiary Registration of the in investment investment as of 31 Main address Group consolidation 2023 2022 December activities Šilutės Klaipėdos g. Cheese Rambynas 3, Šilutė, 87,82% 87,82% 3.150 3.150 13.014 production ABF Lietuva and selling 20 2 3 The subsidiary ABF Šilutės Rambynas does not hold any shares of AB “Žemaitijos Pienas” as at 31 December 2022 and 2023. The Company employed 1.288 employees as at 31 December 2023 (1.271 employees as at 31 December 2022). The Group employed 1.445 employees as at 31 December 2023 (1.427 employees as at 31 December 2022). ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 38 The shareholders of the Company have a statutory right to either approve these financial statements or not approve them and require the management to prepare a new set of financial statements. 2. BASIS FOR DRAWING UP FINANCIAL STATEMENTS The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union (EU). Basis of preparation of the financial statements The amounts in these financial statements are presented in EUR, rounded to thousands. Due to rounding errors, the numbers in the statements may not match. The financial statements are prepared on the historical cost basis. The financial year of the Company and other Group companies coincides with the calendar year. When preparing financial statements in accordance with IFRS adopted for EU application, management is required to make calculations and estimates on the basis of certain assumptions that influence the choice of accounting principles and the amounts of Assets, Liabilities, Income and Costs. Estimates and related assumptions are based on historical experience and factors reflecting current conditions. On the basis of the above assumptions and estimates, the residual values of assets and liabilities are deduced from other sources. Actual results may differ from estimates. The estimates and their assumptions are reviewed on an ongoing basis. The effect of a change in an accounting estimate is recognized in the period in which the estimate is revised if it only affects that period, or in the period of the revision and subsequent periods if the estimate affects both the revision and future periods (Note 4). The accounting policies set out below have been consistently applied and are in line with those applied last year. Principles of consolidation and investments in subsidiaries and associates The consolidated financial statements of the Group include AB Žemaitijos Pienas and its subsidiary and associate. The financial statements of the subsidiary and the associate are prepared for the same reporting period and use the same accounting principles. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date on which control is transferred outside the Group. All intercompany transactions, balances and unrealized profit and losses on transactions between Group companies have been eliminated. Equity and net income attributable to a minority of shareholders, if any, are disclosed separately in the statement of financial position and comprehensive income. Control is achieved when the Group determines whether it is entitled to variable returns from its involvement in the investment and has the ability to affect that return through its influence on the investment. The Group controls an investment when, and only when, the Group has: - Impact on the investment (i.e. rights exist that allow the management of the investment activity in question); - The right to variable returns from its participation in the investment; - The ability to use its influence on the investment to influence returns. It is commonly assumed that most voting rights confer control. The net result of a subsidiary is attributable to a minority of shareholders even if the result is negative. Acquisitions and disposals of minority interest in the Group are accounted for as an equity transaction: the difference between the net assets acquired/transferred to the minority in the Group's financial statements and the purchase/sale price of the shares is recognized directly in equity. Investment in an associate ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 39 An associate is an entity over which the Company has significant influence, but does not control the financial and operating policies. Significant influence is presumed to exist when the Company holds between 20 and 50 percent of the voting power of another company. The Group accounts for investments in associates using the equity method. Under the equity method, an investment in an associate is carried in the statement of financial position at cost adjusted for the change in the net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment and is not subject to depreciation or individual impairment. The result of the associate is recognized in the statement of comprehensive income. Business combinations Business combinations are accounted for using the acquisition method. The cost of an acquisition is determined by adding the fair value of the consideration transferred at the acquisition date to the amount of the minority interest in the acquire, if any. For each business combination, the acquirer shall measure the minority interest in the acquire either at fair value or at the proportionate share of the acquire's identifiable net assets. Acquisition costs incurred are written off and included in administrative expenses. If the business combination is achieved in stages, the acquirer's previously owned interest in the acquire is measured at fair value at the acquisition date through the statement of comprehensive income. A contingent consideration to be paid by the buyer is recognized at fair value at the acquisition date. Subsequent estimates of the contingent consideration that is considered an asset or liability are recognized at fair value through profit or loss or as a change in other comprehensive income. If the contingent consideration is classified as equity, it is not remeasured and its subsequent payment is recognized in equity. Goodwill is recognized at cost and is the amount by which the full amount of the consideration transferred, including the amount recognized as a minority interest, exceeds the net amount of the assets acquired and liabilities recognized. If this consideration is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized in the statement of comprehensive income. Subsequent to initial recognition, goodwill is stated at cost less any accumulated impairment losses. For the purpose of assessing impairment, goodwill acquired in a business combination from the acquisition date is allocated to those cash generating units of the Group that are expected to benefit from the combination, whether or not the acquire's other assets or liabilities are classified as such. When goodwill forms part of a cash-generating unit and part of the activities of that unit is sold, the goodwill relating to the sale is included in the carrying amount of the sale of the business for the purpose of determining profit or loss on disposal. In this case, the goodwill sold is measured by the relative value of the activity sold relative to the rest of the cash-generating unit. Investments (Companies in separate statements) Investments in an associate The Company accounts for its investments in subsidiaries using the acquisition cost method. The Company determines at the end of each period whether there are objective reasons that could determine the value of an investment in a subsidiary. Investments in subsidiaries In the statement of financial position of the Company, investments in subsidiaries are accounted for at cost less impairment. Accordingly, at initial recognition, the investment is carried at cost, being the fair value of the consideration paid, less any impairment loss. The carrying amount of an investment is measured when events or changes in circumstances indicate that the investment's carrying amount may exceed its recoverable amount (higher of fair value less costs to sell or value in use). In case of such circumstances, the Company makes an assessment of ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 40 the recoverable amount of the investment. If the carrying amount of an investment exceeds its recoverable amount, the investment is written down to its recoverable amount. Impairment is recognized in the statement of comprehensive income, under general and administrative expenses. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS In the current year, the Company and the Group has adopted all of the new and revised Standards and Interpretations that are relevant to its operations and effective for accounting periods beginning on 1 January 2023 (a) The following standards, amendments and interpretations are mandatory for accounting periods beginning on or after 1 January 2023 Amendments to IFRS 17 and IFRS 4: The deferral of effective dates for IFRS 17 and IFRS 9 for insurers (published 25 June 2020, effective from 1 January 2023) The amendments to IFRS 17 are effective, retrospectively, for annual periods beginning on or after 1 January 2023, with earlier application permitted. The amendments aim at helping companies implement the Standard. In particular, the amendments are designed to reduce costs by simplifying some requirements in the Standard, make financial performance easier to explain and ease transition by deferring the effective date of the Standard to 2023 and by providing additional relief to reduce the effort required when applying IFRS 17 for the first time. The amendments to IFRS 4 change the fixed expiry date for the temporary exemption in IFRS 4 Insurance Contracts from applying IFRS 9 Financial Instruments, so that entities would be required to apply IFRS 9 for annual periods beginning on or after 1 January 2023. The management has assessed that these amendments will not have any impact on the Company’s financial statements. IFRS 17: Insurance Contracts (published 18 May 2017, effective from 1 January 2023) The standard is effective for annual periods beginning on or after 1 January 2021 with earlier application permitted if both IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments have also been applied. In its March 2020 meeting the Board decided to defer the effective date to 2023. IFRS 17 Insurance Contracts establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts issued. It also requires similar principles to be applied to reinsurance contracts held and investment contracts with discretionary participation features issued. The objective is to ensure that entities provide relevant information in a way that faithfully represents those contracts. This information gives a basis for users of financial statements to assess the effect that contracts within the scope of IFRS 17 have on the financial position, financial performance and cash flows of an entity. This IFRS will not have any impact on the financial position or performance of the Company as insurance services are not provided. Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction (issued on 7 May 2021, effective from 1 January 2023) The amendments require companies to recognise deferred tax on transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences. The amendments are effective for annual reporting periods beginning on or after 1 January 2023. Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies (issued on 12 February 2021, effective from 1 January 2023) The Amendments are effective for annual periods beginning on or after January 1, 2023 with earlier application permitted. The amendments provide guidance on the application of materiality judgements to accounting policy disclosures. In particular, the amendments to IAS 1 replace the requirement to disclose ‘significant’ accounting ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 41 policies with a requirement to disclose ‘material’ accounting policies. Also, guidance and illustrative examples are added in the Practice Statement to assist in the application of the materiality concept when making judgements about accounting policy disclosures. Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates (issued on 12 February 2021, effective from 1 January 2023) The amendments introduce a new definition of accounting estimates, defined as monetary amounts in financial statements that are subject to measurement uncertainty. Also, the amendments clarify what changes in accounting estimates are and how these differ from changes in accounting policies and corrections of errors. The amendments become effective for annual reporting periods beginning on or after January 1, 2023 with earlier application permitted and apply to changes in accounting policies and changes in accounting estimates that occur on or after the start of that period. (b) Standards and amendments that have been approved but are not yet effective and have not been applied in advance Amendments to IAS 1: Classification of Liabilities as Current or Non-current and Classification of Liabilities as Current or Non-current (issued on 23 January 2020, effective from 1 January 2024) The amendments aim to promote consistency in applying the requirements by helping companies determine whether, in the statement of financial position debt and other liabilities with an uncertain settlement date should be classified as current or non-current. The amendments affect the presentation of liabilities in the statement of financial position and do not change existing requirements around measurement or timing of recognition of any asset, liability, income or expenses, nor the information that entities disclose about those items. Also, the amendments clarify the classification requirements for debt which may be settled by the company issuing own equity instruments. Management has not yet assessed the impact of applying these amendments. The amendments in Non-current Liabilities with Covenants (Amendments to IAS 1) (issued on 31 October 2022, effective from 1 January 2024): Modify the requirements introduced by Classification of Liabilities as Current or Non-current on how an entity clas- sifies debt and other financial liabilities as current or non-current in particular circumstances: only covenants with which an entity is required to comply on or before the reporting date affect the classification of a liability as current or non-current. In addition, an entity has to disclose information in the notes that enables users of financial statements to understand the risk that non-current liabilities with covenants could become repayable within twelve months. The amendments are effective for reporting periods beginning on or after 1 January 2024. The amendments are applied retrospectively in accordance with IAS 8 and earlier application is permitted. Management has not yet assessed the impact of applying these amendments. Amendments to IFRS 16 Lease Liability in a Sale and Leaseback with amendments that clarify how a seller- lessee subsequently measures sale and leaseback transactions that satisfy the requirements in IFRS 15 to be accounted for as a sale (issued on 22 September 2022, effective from 1 January 2024): Lease Liability in a Sale and Leaseback (Amendments to IFRS 16) requires a seller-lessee to subsequently measure lease liabilities arising from a leaseback in a way that it does not recognise any amount of the gain or loss that relates to the right of use it retains. The new requirements do not prevent a seller-lessee from recognising in profit or loss any gain or loss relating to the partial or full termination of a lease. The amendments are effective for annual reporting periods beginning on or after 1 January 2024. Earlier application is permitted. A seller-lessee applies the amendments retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to sale and leaseback transactions entered into after the date of initial application. ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 42 Amendments to IAS 7 and IFRS 7 Supplier Finance Arrangements (issued on May 2023, effective from 1 January 2024, early application is possible): Supplier Finance Arrangements amends IAS 7 Statement of Cash Flows to require an entity to provide additional disclosures about its supplier finance arrangements. The amendments also add supplier finance arrangements as an example within the liquidity risk disclosure requirements of IFRS 7 Financial Instruments: Disclosures. The Amendments have not yet been endorsed by the EU. The Company has not yet evaluated the impact of the implementation of these amendments. Amendments to IAS 21 Lack of Exchangeability (issued on August 2023, effective from 1 January 2025, early application is possible): Lack of Exchangeability amends IAS 21 The Effects of Changes in Foreign Exchange Rates to require an entity to apply a consistent approach to assessing whether a currency is exchangeable into another currency and, when it is not, to determining the exchange rate to use and the disclosures to provide. The Amendments have not yet been endorsed by the EU. The Company has not yet evaluated the impact of the implementation of these amendments. 3. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES Property, plant and equipment Recognition and evaluation Property, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses. The cost of acquisition of an asset of the Company/Group consists of the costs directly attributable to the acquisition of the asset. The cost of an item of property, plant and equipment includes the cost of materials, direct labour, and other costs incurred in producing the asset before it is used, dismantling, removing, and reconditioning the asset. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Subsequent costs Subsequent to initial recognition, any costs incurred in replacing a component of property, plant and equipment or related to its reconstruction are capitalized only to the extent that it is probable that future economic benefits will flow to the asset and the cost of the new component can be measured reliably. All other costs are recognized as an expense when they are incurred. Depreciation Depreciation (amortization) starts on the month following the commencement date of the respective unit of plant, property and equipment. The commencement date is the date when the asset is actually ready for use. The transfer of non-current assets for use is formalized by the transfer and acceptance of non-current assets. Depreciation (amortization) is no longer calculated from the following month when the non-current asset is classified as held for sale or is written off, sold or otherwise disposed of. Depreciation (amortization) on property, plant and equipment and intangible assets is calculated using the proportional (straight-line) method of depreciation (amortization) over the estimated useful life of the asset. The amount of depreciation (amortization) accrued during the period is recorded in the depreciation (amortization) expense accounts. If, after the repair of an item of property, plant and equipment or after an impairment assessment, an asset changes its useful life, the carrying amount of the asset, beginning at the date of adjusting its useful life, shall be depreciated over the restated useful life. ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 43 The useful lives of the Company's/Group's property, plant and equipment and intangible assets are determined separately for each asset, taking into account future economic benefits as well as the expected period of use in the Company/Group, the intensity of use, the environment in which the asset is used, changes in its useful life, technological and economic progress, morally aging assets, legal and other factors limiting the useful life of property, plant and equipment. Based on the resolution of the Company/Group Management Board, as at 1 January 2017, the useful life of newly acquired production lines accounted for in “Machinery and equipment” is 10-15 years. In 2018, the Company and the Group restated the carrying amounts and useful lives of property, plant and equipment as defined in IAS 16 Property, Plant and Equipment and decided to adjust the carrying amounts and useful lives of those items that were not fully depreciated as at 1 January 2018, prospectively. Based on the assessment made, the amendments became effective on 1 January 2018 (Note 5). As at 1 January 2019, new non-current assets useful lives/depreciation/amortization rates have been approved. Below are the average useful lives of the Company's/Group's property, plant and equipment by asset class: Buildings and structures 20-40 years Machinery and equipment 5-15 years Production lines 10-15 years Vehicles and other assets 3-10 years Depreciation methods, residual values and useful lives of assets are/will be reviewed at the reporting date to ensure that the depreciation period is consistent with the expected useful lives of the property, plant and equipment. Construction in progress (non-current assets prepared for use) Construction in progress is stated at cost less impairment losses. Cost includes design, construction, plant and equipment outsourced and other direct costs. Depreciation on unfinished construction is not calculated. Construction in progress is transferred to the appropriate groups of property, plant and equipment when it is completed and the asset is ready for its intended use. When property, plant and equipment is derecognised or otherwise disposed of, its cost and related depreciation are no longer recognized in the financial statements and the related profit or loss, calculated as the difference between the proceeds and the carrying amount of the non-current tangible asset disposed of. Investment assets Investment property of the Company/Group includes land and buildings that are leased and earns lease income and are not used for the Group's and the Company's operating activities. Investment property is stated at cost less accumulated depreciation and impairment losses. Depreciation is calculated on a straight-line basis over the estimated useful life of 20 to 40 years. Investment property is written off only when the property is sold or permanently discontinued and no economic benefits are expected from its sale. Any profit or loss on disposal or sale of an investment property is recognized in the statement of comprehensive income in the period in which the asset is sold or otherwise disposed of. Transfers to investment property are made when, and only when, there is a change in use, when the owner discontinues the use of the property for its own use or when the operating lease begins. Transfers from investment property are made when, and only when, there is a change in use through the use of the property by the owner or the beginning of reconstruction with a view to sale. Property, plant and equipment Intangible assets with finite useful lives that are comprised of purchased computer software and licenses and trademarks are stated at cost less accumulated amortization and impairment. ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 44 Amortization is charged to the statement of comprehensive income on a straight-line basis over its estimated useful life. The useful lives of intangible assets are as follows: Software, licenses, acquired rights 3 years Subsequent expenditure on an intangible asset is capitalized only when it increases the future economic benefits of the asset to which it relates. All other costs are expensed as incurred. Intangible assets are reviewed for impairment whenever there is an indication that the asset may be impaired. The useful lives, residual values and amortization method are reviewed annually to ensure that they are consistent with the expected pattern of use of the intangible asset. The Company/Group has no intangible assets with indefinite useful lives. Leased property Leases where the Company/Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Assets acquired under finance leases are recognized as assets of the Company/Group at the commencement date of the lease term and are stated at the lower of fair value of the asset and the present value of the minimum lease payments, less depreciation and impairment losses. All other leases are treated as operating leases. Assets treated as leases shall be depreciated over the expected useful life on the same basis as the property. A decision or agreement is a lease based on the substance of the agreement, at the time the agreement is made, to determine whether performance of the agreement is dependent on the use of the particular asset or on whether the agreement grants the right to use the asset. Stocks Stocks, including in-progress and finished production, shall be accounted for in the financial statements as the lower of the values (cost or net realised value), after the valuation of impairment for slow-moving and obsolete stocks. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The write-down of stocks to net realizable value below their cost is made when the cost of inventories may not be recoverable through their sale or use. Unrealisable stocks are written off completely. The cost of stocks is calculated using the FIFO method. Where stocks are produced and in the case of unfinished production, the cost price shall also include an appropriate proportion of the indirect cost of production, allocated at rates calculated on the basis of the utilisation of production capacity. Auxiliary materials and stocks are accounted for as costs when they are put into use or included in the price of finished goods if they are used in production. Cash and cash equivalents Cash consists of cash on hand and in bank accounts. Cash equivalents are current, highly liquid investments that are easily converted into a known amount of money. Such investments have a maturity of less than 3 months at the date of the contract and the risk of a change in value is negligible. Bank accounts held for automated payment of taxes and repurchase of overpayments are also considered cash equivalents. For the purposes of the cash flow statement, cash and cash equivalents include cash on hand and in bank current accounts, deposits with maturity equal to or less than 3 months at the date of the agreement and tax accounts with the bank. Government grants related to cost compensation Grants are accounted for on an accrual basis, i.e. grants received or parts of grants are recognized as being used in the periods in which they are incurred. ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) Grants related to property compensation Grants related to assets include grants received in the form of non-current assets or intended for the acquisition of non-current assets. Grants are recognized as deferred income at the fair value of the non-current assets received or acquired and subsequently recognized as income. Amortization of a grant reduces the depreciation expense of the related non-current assets over the useful life of those non-current assets. Impairment of non-financial assets The carrying amounts of the Company's/Group's non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. The recoverable amount of intangible assets with indefinite useful lives and intangible assets not yet available for use is estimated at the reporting date. An impairment loss is recognized when the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest group of cash-generating assets that generates cash flows that are independent of other assets or groups of assets. Any impairment loss is recognized in the statement of comprehensive income. Calculation of recoverable amount The recoverable amount of a non-financial asset is the greater of its fair value less costs to sell and value in use. The value in use of an asset is calculated by discounting the future cash flows from the use of the asset to its present value using a tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Reversal of impairment If there is any change in the events or circumstances that led to the measurement of the recoverable amount of the non-financial asset that indicate that the carrying amount of the non-financial asset may be recovered, an impairment loss is reversed. An impairment loss is reversed so that the carrying amount of the asset does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. Dividends Dividends are recognized as a liability in the period in which they are declared (i.e. approved by the general meeting of shareholders). Foreign currency Valuation of foreign currency amounts in national currency Foreign currency transactions are translated into euro at the official exchange rate between the euro and the foreign currency (hereinafter referred to as the official exchange rate) published by the Bank of Lithuania on the day of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to the euro at the official exchange rate ruling at the date of the statement of financial position. Exchange differences arising on the settlement of these transactions are recognized in the statement of comprehensive income. The following exchange rates were used for the preparation of the financial statements as at 31 December 2022 and 2023: 2023 2022 USD 1 = EUR 0,904977 USD 1 = EUR 0,939055 Financial instruments 45 ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 46 A financial instrument is any contract that gives rise to a financial asset between one entity and a financial liability or equity instrument. Financial assets Initial recognition and evaluation Financial assets at initial recognition are classified as subsequently measured at amortized cost, fair value through other comprehensive income, or fair value through profit or loss. The designation of financial assets at initial recognition depends on the contractual cash flow characteristics of the financial assets and the business model of the Group/Company that governs the management of the financial assets. Except for trade receivables and contract assets (if any) that do not have a significant financing component, the Group/Company measures at initial recognition financial assets at fair value plus, when financial assets are not carried at fair value through profit or loss, transaction costs. Trade receivables and contract assets (if any) that do not include a significant financing component are measured at the transaction price in IFRS 15. For a financial asset to be designated and measured at amortized cost or fair value through other comprehensive income, the cash flows arising from a financial asset need only be the principal and the interest payable (SPPI) on the uncovered principal. This assessment is called the SPPI test and is performed for each financial instrument. The Group/Company's financial asset management model describes how the Group/Company manages its financial assets to generate cash flows. The business model determines whether the cash flows will be generated by collecting the contractual cash flows, selling the financial asset, or both. A regular way purchase or sale of a financial asset is recognized on the trade date, i.e. the date on which the Group/Company commits to purchase or sell financial assets. Subsequent assessment After initial recognition, the Company evaluates financial assets: a) Amortized cost (debt instruments); b) At fair value through other comprehensive income, when the profit or loss on derecognition is transferred to profit or loss (debt instruments). As at 31 December 2023 and 2022, the Group/Company did not have such measures; c) At fair value through other comprehensive income, when the gain or loss is derecognised, it is not transferred to profit or loss (equity instruments). As at 31 December 2023 and 2022, the Group/Company did not have such measures; d) At fair value through profit or loss. As at 31 December 2023 and 2022, the Group/Company did not have such measures; Financial assets at amortized cost (debt instruments) The Group/Company measures financial assets at amortized cost if both of the following conditions are met: i) Financial assets are held in accordance with a business model that seeks to hold financial assets for the purpose of collecting contractual cash flows; and ii) The contractual terms of financial assets may give rise to cash flows at specified dates that are only interest payments on the principal and the principal outstanding. Financial assets carried at amortized cost are subsequently measured using the effective interest rate method (EIR), less impairment losses. Gains and losses are recognized in the statement of comprehensive income when the asset is derecognised, replaced or impaired. ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 47 The Group's/Company's financial assets at amortized cost include trade receivables, other current and non-current receivables, loans issued. Impairment of financial assets In accordance with IFRS 9, the Group/Company generally recognizes an expected credit loss (ECL) for all debt instruments that are not measured at fair value through profit or loss. The ECL is based on the difference between the contractual receivable cash flows and the cash flows the Group/Company expects to receive, discounted at the approximate effective initial interest rate. ECLs are recognized in two stages. For credit exposures where the credit risk has not materially increased since initial recognition, the ECL shall be calculated for the credit losses arising from default events occurring within the next 12 months (12-month ECL). For those credit exposures with a significant increase in credit risk since initial recognition, the impairment loss is formed by the amount of credit loss expected to be incurred during the remaining life of the credit exposure, regardless of the default maturity (ECL). For trade receivables and assets arising from customer contracts (if any), the Group/Company applies a simplified method of calculating ECL. Therefore, the Group/Company does not monitor changes in credit risk, but recognizes impairment at each reporting date based on the effective ECL. The Group/Company has constructed a matrix of expected loss rates based on historical credit loss analysis and adjusted to reflect future factors specific to borrowers and the economic environment (market macroeconomic factors, employment rate, consumer price index, etc.). The Company estimates and records the expected credit loss for 12 months when issuing a loan. In subsequent reporting periods, in the absence of a significant increase in the credit risk associated with the borrower, the Company adjusts the expected credit loss balance for the 12 months against the outstanding loan amount at the measurement date. If the borrower's financial position is determined to have materially deteriorated compared to the condition prevailing at the time of the loan issuance, the Company accounts for all expected credit losses over the life of the loan. Loans with expected credit losses during the life of the loan are considered to be credit impaired financial assets. The Group/Company considers that a debtor has defaulted on a financial asset if the contractual payments are overdue by more than 90 days, or where there are indications that the debtor or group of debtors is in serious financial difficulties, defaulting on payments or interest, it is probable that they will enter bankruptcy or reorganization proceedings, and where observable data indicate that future cash flows are expected, such as changes in debt arrears or changes in economic conditions that correlate with defaults. The total amount of expected credit losses on trade receivables and trade receivables is recognized through profit or loss using a counterpart receivable account. Financial assets are derecognised when there is no reasonable expectation of recovering the contractual cash flows. Financial liabilities Initial recognition and evaluation Financial liabilities at initial recognition are classified as financial liabilities at fair value through profit or loss, loans and receivables. All financial liabilities are initially recognized at fair value and, in the case of loans and receivables, less any directly attributable transaction costs. Financial liabilities of the Group/Company include trade and other payables, loans received and finance lease liabilities. Subsequent assessment The assessment of financial liabilities depends on their classification as described below. Financial liabilities Loans received and similar accounts payable ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 48 Subsequent to initial recognition, loans and receivables are carried at amortized cost using the effective interest rate method (EIR). Gains and losses are recognized in the statement of comprehensive income when the liabilities are derecognised or amortized. Amortized cost is calculated by taking into consideration the discount or premium on the acquisition as well as the taxes or expenses that are an integral part of the EIR. Amortization of an EIR is included in financial expenses in the statement of comprehensive income. Write-offs of financial instruments Financial assets and financial liabilities are offset and the net amount is recognized in the statement of financial position if there is an enforceable right to clear recognized amounts and it is intended to be settled on a net basis, i.e. realize assets and fulfil liabilities at the same time. Contingent non-current liabilities to employees Social security contributions The Company and the Group pay social security contributions to the State Social Insurance Fund (hereinafter referred to as the Fund) for their employees in accordance with a defined contribution plan and in accordance with the laws of the country. A defined contribution plan is a plan under which the Company and the Group make a defined contribution and will have no future legal or constructive obligation to continue to pay such contributions if the Fund does not have sufficient assets to pay all employees related benefits in the current or prior periods. Social security contributions are recognized as an expense on an accrual basis and classified as an expense for employees. Non-current employee benefits 1. Non-current liabilities (Employee benefit plans under company ordinances) The Company and the Group recognizes a liability and an expense for additional benefits based on the Company's and the Group's additional benefit policy, the amount of which depends on the length of service completed in the Company and the Group under 5, 10, 15, 20, 25, etc. years of service. Such changes to the Order came into effect in 2017. The liability under the entity's employee benefit orders is calculated on the basis of actuarial estimates using the projected unit credit method. Reassessments of actuarial profits and losses are recognized immediately in the statement of financial position with an appropriate debit or credit in retained earnings in other comprehensive income in the period in which they are incurred. Reassessments are not carried forward to profit or loss in subsequent periods. The liability is recognized in the statement of financial position and reflects the present value of those benefits at the statement of financial position date. The present value of the employee benefit obligation is determined by discounting the estimated future cash flows based on the interest rate on government securities denominated in the same currency as the benefits and having a payout period similar to the expected payout period. 2. Retirement benefits for employees In accordance with the requirements of the Labour Code of the Republic of Lithuania, every employee leaving the Company/Group at the age of retirement is entitled to a lump sum of 2 months' salary. Liabilities to employees are recognized as an expense in the current year in the statement of comprehensive income. Past costs are recognized as an expense on an equal basis over the average period until the benefits become vested. Any gain or loss resulting from a change (decrease or increase) in the benefit terms is recognized immediately in the statement of comprehensive income. The retirement benefit obligation is calculated on the basis of actuarial assumptions using the projected unit credit method. Reassessments of actuarial profits and losses are recognized immediately in the statement of financial position with an appropriate debit or credit in retained earnings in other comprehensive income in the period in which they are incurred. Reassessments are not carried forward to profit or loss in subsequent periods. The liability is recognized in the statement of financial position and reflects the present value of those benefits at the statement of financial position date. The present value of the employee benefit obligation is determined by discounting the estimated future cash flows based on the interest rate on government securities denominated in the same currency as the benefits and having a payout period similar to the expected payout period. Revenue ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 49 Revenue from contracts with customers. Sales The Company and the Group are engaged in the production, sale and distribution of dairy products. Revenue from contracts with customers is recognized when the control of goods or services passes to the customer, the amount the Group/Company expects to receive in exchange for the goods or services. The Company/Group estimates that the contracts have only one operating obligation. Revenue from contracts with customers is recognized net of value added tax, excise duties and discounts directly attributable to the sale (usually at the time of sale). Management considers the impact of other items on revenue recognition, such as: 1) Whether the contracts contain several different operational obligations; 2) Whether the contracts provide for variable consideration (other than discounts at the point of sale as described above) and restrictions, if any; 3) Whether the contracts include non-monetary consideration or significant funding components; 4) Whether the other promises in the contracts that should be considered as part of the transaction price; 5) Whether the contractual arrangements (if any) are considered consideration or purchase from the buyer to the customer; 6) Whether the contracts include a non-refundable advance payment to the customer. The Company sells to its subsidiary raw material (i.e. milk) which is purchased from milk suppliers. The raw material is used by the subsidiary for the production of cheese, which is subsequently purchased by the Company and sold to third parties. Because these raw materials are the major ingredient used in cheese production, the income and expense of such transactions are recorded net in the Company's separate financial statements to avoid artificially inflating revenue as customer contracts are made with the Company and the subsidiary operates as a production unit. When the Company sells goods purchased from its subsidiary to third parties (retail entities), the Company assumes all risks associated with these transactions, so that income is not offset as stated in IFRIC 15 relating to the assessment of whether the Company is acting on its own account or as an agent. Due to the Group's/Company's business model, management has not made any significant accounting judgments, estimates or assumptions related to the recognition of contract revenue with customers other than those disclosed in Note 4. Services rendered, assets transferred, interest income Revenue from the rendering of services is recognized in the statement of comprehensive income on the basis of the level of performance of the services over the period. Revenue is recognized net of value added tax and discounts. Lease income is recognized in the statement of comprehensive income on a straight-line basis over the lease term. Revenue from disposal of assets is recognized in the statement of comprehensive income when the control of goods or services is transferred to the customer, in the amount that the Group/Company expects to receive in exchange for the goods or services. Revenue is not recognized if there are significant doubts about the recovery of the revenue or the incurrence of the expense associated with the revenue, or when the expected return of the goods or the probable significant risk and the goods cannot be considered as passed on to the buyer. Interest income is recognized in the statement of comprehensive income as it accrues, using the effective interest method. The interest expense component of finance lease payments is recognized in the statement of comprehensive income using the effective interest method. Costs Costs are recognized on an accrual basis as incurred. ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 50 Operating lease payments Operating lease payments under operating leases are recognized in the statement of comprehensive income on a systematic basis over the lease term. Financial lease payments Minimum lease payments are apportioned between the finance charge and the outstanding liability, using the effective interest method. Finance charges are spread over the term of the finance lease at a constant periodic rate of interest on the outstanding balance of the liability. Net financing costs Net financing costs include interest expense, calculated using the effective interest rate method, interest income on invested funds and the effect of changes in foreign exchange rates. Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of assets that take time to be prepared for their intended use or sale are capitalized as part of the cost of the asset. All other borrowing costs are expensed as incurred. The Group capitalizes borrowing costs on assets whose construction commenced after 1 January 2009. Debts are initially recognized at the fair value of the proceeds received, less the transaction costs. They are subsequently carried at amortized cost (using the effective interest rate method) and the difference between the proceeds and the amount that will be payable on the debt (excluding the capitalized portion) is included in profit or loss for the period. Segment disclosure A segment is a significant part of the Company's/Group's operations, distinguished by the products or services being supplied (business segment) or by the provision of products or services in a particular economic environment with specific risks and economic benefits (geographical segment). For the purposes of this financial statements, a business segment is a distinguishable component of the Group's and the Company's operations that are involved in the production of a single product or service or a group of related products or services with different risk and returns. Income tax Current and prior tax assets and liabilities are measured at the amount expected to be recovered or paid to the tax authorities, including adjustments for prior years. The tax rates used to calculate this amount are those that are (in principle) applicable before the date of the statement of financial position. The calculation of the income tax is based on the annual profit, taking into account the calculation of the deferred income tax. Income tax is calculated according to the requirements of Lithuanian tax laws. In 2023, the corporate tax rate in the Republic of Lithuania is 15 percent (in 2022 – 15 percent). Deferred tax is provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred income taxes are calculated using the liability method. Deferred tax assets and liabilities are calculated using tax rates that are expected to apply to taxable profit in the year in which the temporary differences are realized, taking into account the tax rates enacted or substantively enacted at the reporting date. Deferred tax assets are recognized in the statement of financial position to the extent that the management of the Company/Group expects it to be realized in the foreseeable future, based on taxable profit forecasts. If part of the deferred tax is not expected to be realized, this part of the deferred tax is not recognized in the financial statements. From 1 January 2014 the amount of deductible tax losses carried forward cannot exceed 70 percent of the taxable profit for the current year. Tax losses may be carried forward for an indefinite period, except for losses arising from the disposal of securities and/or derivatives. Such a transfer is terminated if the Company/Group discontinues operations that caused the loss, unless the Company/Group discontinues operations for reasons beyond its control. ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 51 Losses arising from the disposal of securities and/or derivative financial instruments may be carried forward for 5 years and only be offset against profits from transactions of the same nature. Deferred tax assets and liabilities are offset to the extent that the laws permit the offsetting of the income tax expense and the deferred tax assets of the same enterprise and the same tax authority. In accordance with applicable tax laws, the tax office may at any time during the 5 consecutive years following the reported tax year carry out a tax audit of the Company and the Group and recalculate additional taxes and fines. The management of the Group believes that all taxes have been correctly calculated and paid in accordance with applicable law and are not aware of any circumstances that could give rise to a potential material liability for unpaid taxes. Basic and diluted earnings per share The Company/Group reports basic earnings (losses) per share and diluted earnings (losses) per share. Earnings per share is calculated by dividing the profit/loss attributable to shareholders of the Company/Group by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share are calculated by adjusting the profit (loss) attributable to shareholders and the weighted average number of ordinary shares outstanding during the period by all potential ordinary shares. During the reporting period, the Company/Group had not issued any potential ordinary shares . Post-balance sheet events Subsequent events that provide additional information about the financial position of the Group and the Company at the balance sheet date (adjusting events) are reflected in the financial statements. Subsequent events that are not adjusting events are disclosed in the notes when material. 4. MATERIAL VALUATIONS IN THE CONTEXT OF GROUP AND COMPANY ACCOUNTING POLICIES Estimates and assumptions are reviewed on an ongoing basis and are based on historical experience and other factors, which reflect the current situation and the reasonably foreseeable future events. The management of the Company/Group, having regard to forecasts and budget, borrowing requirements, performance of its obligations, products and markets, financial risk management, after conducting business continuity assessment, believes that there are no uncertainties and uncertainties regarding the Company's/Group's business continuity. The Company/Group makes estimates and assumptions about future events, so accounting estimates by definition will not always be consistent with actual results. The preparation of the financial statements of the Group and the Company requires management to make judgments, estimates and assumptions that affect the reported amounts of income, expenses, assets and liabilities and contingencies at the reporting date. However, the uncertainty about these assumptions and estimates may affect results, which may require a significant adjustment to the carrying amounts of assets or liabilities in the future. As of the date of these financial statements, there was no material risk that the carrying amounts of assets and liabilities would be materially adjusted in the next reporting year due to changes in the related estimates in the following financial years. Revenue The management of the Group and the Company has adopted a significant accounting valuation assumption relating to accounting for marketing services (purchased from customers) (whether considered as consideration payable to the customer or purchase from the customer as noted above). Based on management's assessment, marketing services acquired from customers (retail entities) are treated as a separate service related to various advertising and marketing services provided to the Group, therefore all advertising and marketing expenses incurred during the financial year are accounted as operating expenses in the consolidated and separate reports. Impairment of loans and receivables The Company/Group regularly reviews receivables for impairment. As described in the accounting policy, the Company/Group uses the ECL provisioning matrix defined in IFRS 9 for the measurement of impairment, in addition to which individual debtors are individually assessed. The Company/Group has determined that credit losses are less ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 52 than 1% of total receivables, and, considering the effect of future factors, they have been determined to have no impact on the level of losses. The Company/Group used a matrix of expected credit loss provisions for most receivables, and individual estimates were used for a few individual, non-homogeneous cases as described below. In assessing whether an impairment loss should be recognized in the statement of comprehensive income, the Company/Group adopts an estimate of whether there is an indication of a material decrease in expected cash flows from the receivables portfolio and whether the decrease can be related to a separate receivable in that portfolio. Such evidence may include data showing the existence of adverse changes in borrowers' payments or in national or local economic conditions that are directly correlated with the class of receivables. Impairment losses on receivables are usually recognized in the event of late payment by the debtor by 90 days or more depending on the payment terms that have been set. Management estimates the expected cash flows from borrowers based on the historical loss experience of borrowers with similar credit risk. The methods and assumptions used to estimate the amount and timing of cash flows are reviewed regularly to reduce any difference between loss estimates and actual loss experience. Loans granted by management are rated as having low credit risk. Such an assessment is based on an assessment of the structure of debtors and their ability to repay debt, including historical (very low) default rates and the projected impact of the economic environment. In addition, it is noted that loan repayment is secured by a pledge of assets with a high loan-to-value ratio (LTV). Therefore, the expected credit losses are considered to be insignificant. An estimate of the impairment of receivables from related parties is disclosed in Note 29 Net realizable value of inventories and impairment of obsolete inventories Inventories represent a significant proportion of the assets of the Group and the Company. As at 31 December 2023 and 2022, the management of the Group and the Company had assessed whether the carrying amount of inventories was greater than their net realizable value (summarized in Note 9). Management has also assessed the value of obsolete inventories by applying depreciation rates (based on historical data and projected sales) and assessing whether the amount of depreciation of obsolete inventories was sufficient. As at 31 December 2023, Impairment losses recognized by the Group and the Company were EUR 1.877 thousand and EUR 1.351 thousand, respectively (as at 31 December 2022: EUR 4.198 thousand and EUR 3.792 thousand, respectively). The impairment was based on information such as the date of manufacture, product quality specifications and management's sales forecast calculations. The summarized information related to impairment of stocks is disclosed in Note 9. Transactions with related parties The Company and the Group conducts business with related parties in the ordinary course of business. These transactions are mainly aimed at market prices. In the absence of an active market for these transactions, the valuation is used to determine whether the transactions correspond to market prices or not. The basis for measurement is pricing for similar transactions with unrelated parties, if such information is available to the Company or the Group. Non-current liabilities to employees As disclosed in Note 3 to the financial statements, the Company and the Group has accounted for non-current liabilities to the employees in accordance with the Labour Code of the Republic of Lithuania and the applicable Company/Group employee benefits policy. As disclosed in Note 15, the present value of the liabilities includes a range of significant estimates for the assumptions used regarding the level of inflation, the employee turnover rate, the discount rate, etc. Profit sharing bonuses for milk suppliers The Company and the Group pay various bonuses to milk suppliers, which are calculated on the basis of the quantity and quality of milk delivered, with regular payments. In addition, the Company/Group may pay additional bonuses to suppliers based on market conditions, annual results of the Company/Group, etc. ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 53 The decision as to the fact and the amount of the additional payments to the milk suppliers is a matter of significant appreciation. As at 31 December 2023, the Company and the Group did not recognize any liabilities relating to the payment of additional bonuses as the Company and the Group had no contractual obligation to the suppliers for these benefits. These benefits are a unilateral decision by the Company and the Group. About the annual bonuses assigned and accumulated as at 31 December 2022 and 2023 by the Company to raw material suppliers are disclosed in Note 20 Contingent liabilities As disclosed in Note 28 to these financial statements, the Company and the Group have been involved in a number of ongoing legal disputes whose outcome and potential economic loss or gain could not be measured reliably to date. Management estimates that the Company and the Group does not expect to incur material losses in the future due to legal disputes. The effect of legal disputes on financial statements for the purpose of measuring the amount of a potential liability and its recognition in balance sheet items, and the appropriate disclosure of such disputes in the notes to the financial statements, is within the scope of significant measurement. Valuation of deferred tax assets and liabilities Deferred tax assets and liabilities are recognized at the balance sheet date, taking into account temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Significant amounts of deferred tax assets are recognized based on the Company's and the Group's management's estimates, taking into account the expected periods and amounts of future taxable profits and the Company's/Group's tax planning strategies. Correction of accounting estimates and errors Change in accounting estimate is an adjustment to the carrying amount of an asset or liability or the amount of a periodic disposal of an asset by measuring the present condition of the asset or liability, its expected future benefits and future liabilities. Changes in accounting estimates result from new information or new circumstances and are not considered as corrections to errors. The accounting estimate shall be revised if the circumstances on which it was based change or if new information or experience becomes available. Revisions to the estimate, by their nature, are not related to prior reporting periods and are not a correction of an error. The result of a change in an accounting estimate is recognized prospectively. In 2018, the Company and the Group reviewed the applicable rates of depreciation of property, plant and equipment for certain classes of property, plant and equipment as disclosed in Note 5. To the extent that a change in an accounting estimate changes an asset or a liability or relates to an equity item, the result of that change is the adjustment to the carrying amount of the related asset, liability or equity item during the period. Previous period errors – omissions or misstatements omission or misstatement of the data in the prior period financial statements due to failure to use or misuse reliable information available for the reporting periods for which the financial statements were requested to be published; and could have been received and used properly (and could reasonably have been expected) in the preparation and presentation of the financial statements for that reporting period. Such errors include the consequences of inaccurate mathematical calculations, misapplication of accounting policies, errors, misinterpretation of facts in the recognition, measurement or presentation of financial statements. ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 54 Effects of climate-related matters on financial statements 2023, complying with consistent application of requirements in International Financial Reporting Standards (IFRS) Most industries have been, or may be, affected by climate change and efforts to manage its effects. It is therefore a topic in which investors and other stakeholders are increasingly interested due to its potential impact on corporate business models, cash flows, financial position and financial performance. IFRSs do not explicitly address climate- related matters, however companies must consider those issues in applying IFRSs when the effect of those matters is material in the context of the financial statements taken as a whole. Information is material if its omission, misstatement or non-disclosure could reasonably be expected to influence decisions made by major users of financial statements (investors). The Company's and the Group's Management understands the importance of integrating climate-related matters into the risk management system and disclosing these risk management solutions in the financial statements. The following are key climate issues and Management's assessment of the impact of climate issues in applying the principles of many IFRSs, IASs (International Accounting Standards). When preparing the financial statements, it was also considered whether additional information is available if the specific requirements of IFRS are not sufficient to enable investors to understand the impact of climate-related matters on the Company's and the Group's financial position and financial performance: ABBREVIATIONS USED: FS – Financial statements. GOING CONCERN 1. At the date of submission of the FS, the Company and the Group companies did not have (and / or did not receive such information) any real estate, movable property, infrastructure objects, which had some carrying value at December 31 2023, but in 2024 or later will have to be written off, dismantled, utilized due to the requirements of climate change policy and environmental regulations, regardless of whether they are completely depreciated. 2. At the date of submission of the FS, the Company and the Group companies did not have (and / or did not receive such information) any real estate, movable property, infrastructure objects, which regardless of their carrying value, will continue to be used in the company's operations in 2024 (or longer), but adapting to the requirements of climate change policy and environmental regulations requires investments, expensive permits, or other significant costs continuing to use such objects in activities. 3. When preparing FS 2023, the Company's and the Group's Management considered whether in 2024 or further significant investments in production technologies or other significant costs (e. g. expensive staff training, increased fees, etc.) will be required to adapt, to meet climate change policies, to comply with environmental regulations. At the date of submission of the FS there was no such information, except for the fact that the tax from stationary and mobile sources of pollution has been increasing since 2021. According to preliminary estimates, the increased pollution tax will not have a significant impact on performance and financial condition of the Company and Group in 2021 - 202 3 . 4. At the date of submission of the FS no information was known, other than the general guidelines for climate change policy, on specific existing climate change and environmental issues that give rise to uncertainty in the future: - how they will need to be addressed, - what the regulations might be, how they will need to be implemented. INVENTORY VALUATION 1. At the date of submission of the FS, the Company and the Group companies did not have (and / or did not receive such information) any goods, whose realizable value may have been decreased due to the requirements of climate change policy and environmental regulations, compared to: - the price at which the goods were expected to realize, - the self - cost (carrying value). ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 55 2. At the date of submission of the FS there were no (and / or no any information was received) such raw materials, materials, other production component inventory, whose value has decreased or has been lost due to the climate change policy and environmental regulation requirements. 3. At the date of submission of the FS there was no any reasonable information / facts / circumstances on the likely increase in the cost of certain products in the near future (2024) due to the requirements of the climate change policy and environmental regulations (e. g. more expensive or additional production components). The Company and the Group have identified potential threats to cost growth beyond 2024 financial periods. The 2024 budget does not provide for self-cost growth. Examples of such threats may be: - 2019 an EU directive on the restriction of single-use plastics has been adopted: In the production of PET bottle in 2025, it will have to contain 25% secondary, i.t. - processed raw materials. This can lead to self-cost growth (if in 2025 the supply of secondary raw materials will remain the same as in 2023), but there may be no such effect (if e. g. there were to occur more companies involved in plastics recycling who are willing and able to offer more secondary raw materials to the market). - Rising pollution charges for the handling of packaging placed on the market. DEFERRED TAX ASSETS 1. At the date of submission of the FS no such facts / prospective information was known, that the climate change policy and the requirements of environmental regulations may affect the assessment of a company's taxable profit in 2023, and in such a way that the enterprise will not be able to recognize the deferred tax asset or will be forced to restore the recognition of the previously recognized deferred tax asset. BUSINESS ADAPTION AND FAIR VALUE OF PRODUCTION ASSETS 1. At the date of submission of the FS there was no any specific and reasonable information, that climate-related matters may prompt expenditure to change or adapt business activities and operations of the Company and the Group in 202 4 , including research and development. 2. No climate change related costs were recognized as an asset (long-term tangible and intangible) during the reporting period 2023. In 2024 there are no such planned expansion, development, equipment adaptation costs that would need to be recognized as assets. 3. During the 2023 reporting period, it has not caused any unusual costs associated with climate change policies and environmental legislation requirements that have been recognized as an expense. 4. In 2023, regulations related to climate change policy and environmental requirements did not affect residual value and useful life of the Company's and the Group's any long-term assets (due to obsolescence, legal restrictions or unavailability). At the date of submission of the FS there was no any information on such possible impact in 202 4 . IMPAIRMENT OF ASSETS 1. At the date of submission of the FS no such substantiated facts were known, that in 2024 and further climate- related matters may give rise to indications that an asset (or a group of assets) is impaired. For example, a decline in demand for products that emit greenhouse gases could indicate that a manufacturing plant may be impaired, requiring the asset to be te sted for impairment. 2. If there were a need to estimate the recoverable amount of any assets by measuring their value at value in use, given the expected future cash flows from the assets and the expected changes in the amount or timing of those future cash flows, independent valuers would be invoked for this purpose in accordance with the current practice of the Company and the Group. At the date of submission of the FS there was no any substantiated evidence that climate change - related regulations could affect future (202 4 and beyond) cash flows. 3. During the reporting period 2023 no impairment losses were incurred due to the regulations of environmental legislation. Such losses are not expected in 2024 and beyond, as there is no substantiated facts and information to do so. PROVISIONS, CONTINGENT LIABILITIES, CONTINGENT ASSETS 1. Climate change-related policy issues and regulations did not affect the recognition, measurement and disclosure of liabilities of the Company and the Group in the financial statements for the reporting period 2023. There is also no such knowledge and / or reliable information that such impact could be in 2024 and subsequently due to: ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 56 - levies imposed by authorities for failure to meet climate-related targets or to discourage or encourage specified activities, - regulatory requirements to remediate environmental damage, - contracts that may become onerous (for example, due to potential loss of revenue or increased costs as a result of climate-related changes in legislation); or - restructurings to redesign products or services to achieve climate-related targets, - other reasons. 2. At the date of submission of the FS, the Company's and the Group's Management did not have any information to make assumptions about future events that should be reflected in the amounts of the provisions. IMPAIRMENT OF FINANCIAL ASSETS 1. At the date of submission of the FS, no strong arguments or substantiated information were known that to climate-change policy related matters may affect the increase in credit risk of the Company and the Group companies. 2. At the date of submission of the FS, the Company's and the Group's management does not anticipate and does not have any assumptions that climate change related regulations give rise or could lead to market, financial or any other risks (e. g. impairment of assets due to market changes), associated with financial assets during the next 12 months. 3. Climate change related issues and / or regulations did not During the reporting period of 2023, the issues, circumstances and regulations related to climate change did not affect the changes in the value of financial assets and there is no such substantiated data that it may have an impact on 202 4 or further. FAIR VALUE MEASUREMENT 1. Climate change policy and related regulatory requirements did not have any impact on the determination of the fair value of assets and liabilities in the financial statements of the Company and the Group companies during the reporting period 2023, and there is no information available that those could affect during the period 2024 or further. INSURANCE CONTRACTS 1. During the reporting period 2023, climate change-related matters did not in any way lead to any insured events (e. g. business interruption, property damage, illness and death). There is no reasonable information to assume that the probability of such insured events will increase in 2024 and further. 2. At the date of submission of the FS, the Company's and the Group's Management did not have any reasonable information on the assumptions used to assess the impact of climate change-related matters and circumstances on insurance contract liabilities. 3. At the date of submission of the FS there were no any specific and reasonable facts and information, that climate- related matters may affect: - the significant judgements and changes in judgements made in applying IFRS 17, - a company’s exposure to risks, concentrations of risk, how it manages risks and sensitivity analysis showing the effect of changes in risk variables. 5. INTANGIBLE AND TANGIBLE NON-CURRENT ASSETS Changes in intangible assets of the Group: The Group Aquired rights Computer Licenses Total a nd patents software Acquisition cost As of 31 December 2021 279 142 631 1.052 -acquisition 76 - 3 79 -incorporation/mergers - - - - -sold or written-off assets - - - - As of 31 December 2022 355 142 634 1.131 ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 57 -acquisition 74 31 6 111 -reclassification - - - - -sold or written-off assets (0) (8) (300) (308) As of 31 December 2023 429 165 340 934 Accumulated amortisation As of 31 December 2021 198 131 524 853 -amortization 50 6 91 147 --reclassification - - - - -amortization of sold and written-off assets - - - - As of 31 December 2022 248 137 615 1.000 -amortization 69 11 17 97 -reclassification - - - - -amortization of sold and written-off assets (0) (8) (299) (307) As of 31 December 2023 317 140 333 790 Net Book Value As of 31 December 2021 81 11 107 199 As of 31 December 2022 107 5 19 131 As of 31 December 2023 112 25 7 144 Changes in intangible assets of the Company: The Company Aquired rights Computer Licenses Total a nd patents software Acquisition cost As of 31 December 2021 279 121 631 1.031 -acquisition 76 - 3 79 -incorporation/mergers - - - - -sold or written-off assets - - - - As of 31 December 2022 355 121 634 1.110 -acquisition 74 31 6 111 -reclassification - - - - -sold or written-off assets (0) (8) (300) (308) As of 31 December 2023 429 144 340 913 Accumulated amortisation As of 31 December 2021 198 110 524 832 -amortization 50 6 91 147 - incorporation/mergers - - - - -amortization of sold and written-off assets - - - - As of 31 December 2022 248 116 615 979 -amortization 69 11 17 97 - reclassification - - - - -amortization of sold and written-off assets (0) (8) (299) (307) As of 31 December 2023 317 119 333 769 Net Book Value As of 31 December 2021 81 11 107 199 As of 31 December 2022 107 5 19 131 As of 31 December 2023 112 25 7 144 In 2023 amortization of non-current intangible assets of the Group and the Company amounts to EUR 97 thousand and EUR 97 thousand respectively (In 2022 – EUR 147 thousand and EUR 147 thousand, respectively). ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 58 Amortization expenses of intangible assets are recognized as Operating expenses in the statement of comprehensive income (Note 23). Investments in the purchase of non-current intangible assets made by the Group and the Company in 2023 amount to EUR 111 thousand and EUR 111 thousand, respectively (in 2022 - EUR 79 thousand and EUR 79 thousand). As at 31 December 2023, the Company and the Group have EUR 606 thousand and EUR 629 thousand (EUR 791 thousand and EUR 814 thousand as at 31 December 2022, respectively) of fully amortized non-current intangible assets that are still in use. Changes in property, plant and equipment of the Group : Land, Machinery Other Construction buildings and and Vehicles property, in progress Total The Group constructions equipment plant and and equipment prepayments Acquisition cost As of 31 December 2021 27.363 93.740 12.103 5.261 1.141 139.608 -acquisition 128 1.287 1.081 247 3.999 6.742 -sold or written-off assets (117) (455) (399) (71) - (1.042) -reclassification 672 966 36 1 (1.675) - --internal operatios - - 36 - - 36 -transfers to investment property (385) - - - - (385) -transfers from investment property - - - - - - As of 31 December 2022 27.661 95.538 12.821 5.438 3.465 144.923 -acquisition 129 1.788 732 174 10.548 13.371 -sold or written-off assets (505) (62) (406) (284) - (1.257) -reclassification 524 982 1 2 (1.509) - -incorporation/mergers - - - - - - -internal operatios - - - - - - -transfers to investment property - - - - - - -transfers from investment property - - - - - - As of 31 December 2023 27.809 98.246 13.148 5.330 12.504 157.037 Accumulated depreciation As of 31 December 2021 9.864 58.598 8.995 3.298 - 80.755 -depreciation 648 3.859 614 421 - 5.542 -depreciation of written-off and sold (20) (359) (337) (70) - (786) assets -incorporation/mergers - - - - - - -reclassification ( subsidiary) - - - - - - -transfers to investment property (108) - - - - (108) -transfers from investment property - - - - - - As of 31 December 2022 10.384 62.098 9.272 3.649 - 85.403 -depreciation 635 3.995 703 395 - 5.728 -depreciation of written-off and sold (9) (56) (320) (268) - (653) assets -incorporation/mergers - - - - - - -reversals (subsidiary) - - - - - - -reclassification (subsidiary) - - - - - - -transfers to investment property - - - - - - -transfers from investment property - - - - - - As of 31 December 2023 11.010 66.037 9.655 3.776 - 90.478 Impairment As of 31 December 2021 - - - - - - -impairment losses - - - - - - -transfers to investment property - - - - - - ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 59 -reversal of impairment - - - - - - As of 31 December 2022 - - - - - - -impairment losses - - - - - - -transfers to investment property - - - - - - -reversal of impairment - - - - - - As of 31 December 2023 - - - - - - Net book value As of 31 December 2021 17.499 35.142 3.108 1.963 1.141 58.853 As of 31 December 2022 17.277 33.440 3.549 1.789 3.465 59.520 As of 31 December 20 2 3 16.799 32.209 3.493 1.554 12.504 66.559 Changes in property, plant and equipment of the Company: Land, Machinery Other Construction buildings and and Vehicles property, in progress Total The Company constructions equipment plant and and equipment prepayments Acquisition cost As of 31 Decmber 2021 24.543 84.035 10.605 4.753 354 124.290 -acquisition 128 1.259 1.092 151 2.647 5.277 -incorporation/mergers - - - - - - -sold or written-off assets (117) (453) (303) (65) - (938) -adding value - - - - - - -reclassification - 531 36 1 (568) - -transfers to investment property (385) - - - - (385) -transfers from investment property - - - - - - As of 31 December 2022 24.169 85.372 11.430 4.840 2.433 128.244 -acquisition 128 1.714 714 159 9.389 12.104 -incorporation/mergers - - - - - - -sold or written-off assets - (61) (406) (224) - (691) -adding value - - - - - - -reclassification - 982 - 2 (984) - -transfers to investment property - - - - - - -transfers from investment property - - - - - - As of 31 December 2023 24.297 88.007 11.738 4.777 10.838 139.657 Accumulated depreciation As of 31 December 2021 8.652 52.824 7.505 2.936 - 71.917 -depreciation 600 3.420 620 388 - 5.028 -incorporation/mergers - - - - - - -depreciation of written-off and sold assets (19) (358) (266) (63) - (706) - transfers to investment property (108) - - - - (108) -transfers from investment property - - - - - - As of 31 December 2022 9.125 55.886 7.859 3.261 - 76.131 -depreciation 585 3.578 728 355 - 5.246 -incorporation/mergers 1 - - - - 1 -depreciation of written-off and sold assets - (55) (320) (214) - (589) -transfers to investment property - - - - - - -transfers from investment property - - - - - - As of 31 December 2023 9.711 59.409 8.267 3.402 - 80.789 Impairment As of 31 December 2021 - - - - - - ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 60 - impairment losses - - - - - - -reversal of impairment - - - - - - As of 31 December 2022 - - - - - - - impairment losses - - - - - - - reversal of impairment - - - - - - As of 31 December 2023 - - - - - - Net book value As of 31 December 2021 15.891 31.211 3.100 1.817 354 52.373 As of 31 December 2022 15.044 29.486 3.571 1.579 2.433 52.113 As of 31 December 2023 14.586 28.598 3.471 1.375 10.838 58.868 In order to make energy resources cheaper, increase competitiveness and achieve sustainability, the Company started the implementation of the wind power plant construction project in 2022. In 2023, EUR 7.2 million has been allocated for these investments, respectively – in 2022 – EUR 700 thousand. Expected start of operation of wind power plants – the first-second quarter of 2025. For the year ending at 31 December 2023 the depreciation costs of the Group’s and the Company’s property, plant and equipment amount to EUR 5.728 thousand and EUR 5.246 thousand, respectively (2022 – EUR 5.542 thousand and EUR 5.028 thousand). The amount of depreciation accounted under the caption ‘Cost of Sales’ for the financial years 2023 and 2022 amounts to EUR 3.997 thousand and EUR – 2.989 thousand by the Company, respectively. By the Group, EUR 4.649 thousand and 3.545 thousand, respectively. The rest of the Company‘s and the Group‘s depreciation is accounted under the ‘Operating expenses’ caption. Part of the depreciation amount is also accounted under the ‘Inventory’ caption in the value of unsold Inventories as of 31 December 2022 and 2023. Part of property, plant and equipment of the Company and the Group with the acquisition cost amounting to EUR 41.722 thousand and EUR 49.338 thousand, respectively, was fully depreciated as at 31 December 2023 (EUR 41.207 thousand and EUR 48.733 thousand as at 31 December 2022), but was still in use. 6. INVESTMENT PROPERTY The Group The Company Acquisition cost As of 31 December 2021 4.449 3.712 - acquisition - - - transfers from property, plant and equipment 385 385 -reversals (subsidiary) - - -sold or written-off investment property (198) (198) -transfers to property, plant and equipment - - As of 31 December 2022 4.636 3.899 -acquisition - - -transfers from property, plant and equipment - - -reversals (subsidiary) - - -sold or written-off investment property - - -transfers to property, plant and equipment - - As of 31 December 2023 4.636 3.899 Accumulated depreciation As of 31 December 2021 1.617 966 - depreciation 214 213 -transfers to property, plant and equipment (57) (57) -reversals (subsidiary) - (1) -sold or written-off investment property - - - transfers from property, plant and equipment 108 108 ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 61 As of 31 December 2022 1.882 1.229 -depreciation 203 202 -transfers to property, plant and equipment - - -reversals (subsidiary) - - -sold or written-off investment property - - -transfers from property, plant and equipment - - As of 31 December 2023 2.085 1.431 Impairment As of 31 December 2021 - - -impairment losses - - -reversal of impairment - - -transfers from property, plant and equipment - - As of 31 December 2022 - - -impairment losses - - -reversal of impairment - - -transfers from property, plant and equipment - - As of 31 December 2023 - - Net book value, Eur thousand: As of 31 December 2021 2.832 2.746 As of 31 December 2022 2.754 2.670 As of 31 December 2023 2.551 2.468 Investment property has been evaluated by independent valuator on 20 April 2018 (adjusted comparable price method was used as primarily valuation method to establish fair value, level 3 in fair value hierarchy). The company's investment property was leased to a related party UAB Čia Market and to other unrelated parties as well as natural persons. According to the assessment findings, the fair value of the investment property as at 31 December 2022 and 31 December 2023 differs slightly from the residual book value. At the moment of acquisition, the Company and the Group use independent valuator valuations in case the assets are bought/sold within related parties. In other case assets are purchased in competitive market at the market price. For the year ending at 31 December 2023 the depreciation costs of the Company’s investment property amount to EUR 202 thousand (2022 – EUR 213 thousand). Rental income and related costs are disclosed in Notes 23,24. All rent contracts are easily cancellable with a few months prior notice made by the lessee or the lessor. There was no investment property under construction in 2023 and 2022. Depreciation of investment property is included in the ‘Operating expenses’ caption. 7.RIGHT-OF-USE-ASSET According to IFRS 16 “Leases” the right-of use asset account to the following: The Group Land, buildings Movable Vehicles Total Acquisition cost and constructions property As of 31 December 2021 2.412 507 103 3.022 - acquisition 1.719 92 - 1.811 - reclassification - 1 - 1 - the end of the contract (1.637) - (103) (1.740) Acquisition cost As of 31 December 2022 2.494 600 - 3.094 ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 62 - acquisition 52 236 - 288 - reclassification - - - - - the end of the contract - (600) - (600) Acquisition cost As of 31 December 2023 2.546 236 - 2.782 Accumulated depreciation As of 31 December 2021 1.549 414 83 2.046 - depreciation 618 92 13 723 - reclassification - 2 2 4 - the end of the contract (1.629) - (98) (1.727) Accumulated depreciation As of 31 December 2022 538 508 0 1.046 - depreciation 623 82 - 705 - reclassification - - - - - the end of the contract - (531) - (531) Accumulated depreciation As of 31 December 2023 1.161 59 - 1.220 Impairment (31) - - (31) As of 31 December 2021 Impairment losses (173) - - (173) Impairment (204) - - (204) As of 31 December 2022 Impairment losses 23 (14) - 9 Impairment (181) (14) - (195) As of 31 December 202 3 Net book value, Eur thousand : As of 31 December 2021 832 93 20 945 As of 31 December 2022 1.752 92 - 1.844 As of 31 December 2023 1.204 163 - 1.367 The Company Land, buildings and Movable Vehicles Total Acquisition cost constructions property As of 31 December 2021 2.412 507 103 3.022 - acquisition 1.719 92 - 1.811 - reclassification - 1 - 1 - the end of the contract (1.637) - (103) (1.740) Acquisition cost As of 31 December 2022 2.494 600 - 3.094 - acquisition 52 236 - 288 - reclassification - - - - - the end of the contract - (600) - (600) Acquisition cost - As of 31 December 2023 2.546 236 - 2.782 Accumulated depreciation As of 31 December 2021 1.549 414 83 2.046 - depreciation 618 92 13 723 - reclassification - 2 2 4 - the end of contract (1.629) - (98) (1.727) Accumulated depreciation As of 31 December 2022 538 508 - 1.046 - depreciation - reclassification - the end of the contract Accumulated depreciation As of 31 December 2023 Impairment (31) - - (31) As of 31 December 202 1 Impairment loses (173) - - (173) Impairment (204) - - (204) As of 31 December 202 2 Impairment loses 23 (14) - 9 Impairment (181) (14) - (195) As of 31 December 202 3 ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 63 Net book value, Eur thousand: As of 31 December 2021 832 93 20 945 As of 31 December 2022 1.752 92 - 1.844 As of 31 December 2023 1.204 163 - 1.367 8.LOANS GRANTED The Company and the Group have granted loans to 20 Company‘s employees as at 31 December 2023 (16 as at 31 December 2022). The average annual loan interest rate: about 5 %. Loans have been granted to the employees as a motivating tool based on the Regulations for Provision of Loans to employees. The maximum limit of the fund intended for these loans granted makes up EUR 231.696. On all occasions loans are being granted to a borrower after he/she undertakes to secure repayment of a loan by pledging his/her or another person’s real estate property or using other means of security of repayment of a loan acceptable to the company (a credit institution guarantee or other). Upon assessment of a possible risk, liquidity of property being pledged and etc. a fair value of the property being pledged makes up from 100% to 200% of an amount being borrowed. The Company and the Group have also granted loans to 67 farmers (milk-suppliers) as at 31 December 2023 (72 as at 31 December 2022). Loans in the amount of EUR 1.113,5 thousand had been granted to farmers within the period from 01/01/2023 to 31/12/2023. The average interest rate on loans granted: until 5 %. All long-term loans have been granted with collateral (land have been pledged at market prices). The related party Klaipėdos pienas AB owed EUR 300 thousand to the Company as at 31 December 2023 (as at 31 December 2022 – EUR 412,5 thousand). The loan has been granted on 29 12 2014 with a variable/floating annual average 2,6% interest rate a loan repayment period – the year 2029; pledged shares. On the 1 st of October 2022, a short-term loan of 1.2 million EUR with average 3,9% annual variable interest rate was additionally granted to Klaipėdos pienas AB. The repayment term of the loan – 30 th of September 2023. In 2022, 140,000 EUR of this loan was repaid. In 2023, the Company repaid the remaining share of this loan amounting to EUR 1,060 million. The Group The Company 31 st Dec 2023 31 st Dec 2022 31 st Dec 2023 31 st Dec 2022 Loans granted: 2.421 3.638 2.421 3.638 Loans granted to related parties 300 1.473 300 1.473 Loans granted to milk suppliers 1.849 1.967 1.849 1.967 Loans granted to the staff 272 198 272 198 Loans granted to not related parties - - - - Current portion of loans granted (Note 11) (1.021) (1.993) (1.021) (1.993) In the number loans granted to milk suppliers - - - impairment Non- current loans granted 1.400 1.645 1.400 1.645 All granted loans are in EUR. Granted loan’s payback periods are between 1 – 12 years. 9. INVENTORIES The Group The Company 31 st Dec 2023 31 st Dec 2022 31 st Dec 2023 31 st Dec 2022 Raw materials 6.743 7.278 5.957 6.286 Finished goods and work in progress 45.225 65.454 43.130 63.203 ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 64 Goods for resale 489 511 489 511 52.457 73.243 49.576 70.000 Less: Allowance for inventories (1.877) (4.198) (1.351) (3.792) Total 50.580 69.045 48.225 66.208 Changes in the allowance for impairment of inventories (EUR thousand): The Group The Company 31 st Dec 2023 31 st Dec 2022 31 st Dec 2023 31 st Dec 2022 Balance at beginning of year 4.198 555 3.792 246 Additional allowance made - 3.643 - 3.546 Reversals of allowance made (2.321) - (2.441) - Write-off - - - - Balance at end of year 1.877 4.198 1.351 3.792 The acquisition cost of the Group’s and the Company’s inventories accounted at net realizable value as at 31 December 2023 amounted to EUR 15.299 thousand and EUR 13.482 thousand, respectively (as at 31 December 2022, EUR 28.645 thousand and EUR 26.394 thousand, respectively). Changes in impairment allowance for inventories during 2023 and 2022 were recorded within the Group’s and the Company’s operating expenses (Note 23). As at 31 December of 2023 the Company held a stock of EUR 244,5 thousand at the third parties (as at 31 December 2022 EUR 339 thousand, respectively). The allowance formed by the Company for the inventories as at 31 December 2023 and 2022 (EUR 1.351 thousand and EUR 3.792 thousand, respectively) was formed for illiquid –stationary material and amounts of inventories was greater than their net realizable value. The amount of inventory used (written-off) by the Group and the Company in production of goods for the financial year 2023 accounted under the caption ‘Cost of Sales’ amounts to EUR 185.324 thousand and EUR 161.938 thousand, respectively (EUR 194.989 thousand and EUR 162.016 thousand in 2022, respectively). 10. TRADE ACCOUNTS RECEIVABLE The Group The Company 31 st Dec 2023 31 st Dec 2022 31 st Dec 2023 31 st Dec 2022 Trade accounts receivable 22.087 21.715 22.068 21.684 Accounts receivable from related parties 1.270 1.848 1.251 1.816 Total accounts receivable: 23.357 23.563 23.319 23.500 Allowance for bad debts (84) (193) (84) (193) Allowance for bad debts of related parties - - - - Net trade receivables: 23.273 23.370 23.235 23.307 Changes in the allowance for impairment of trade accounts receivable (EUR thousand): The Group The Company 2023 2022 2023 2022 Balance at beginning of year 193 89 193 89 Additional allowance made - - - - Reversals of allowance made (21) 104 (21) 104 Write-off - - - - Balance at end of year 172 193 172 193 ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 65 Analysis of trade receivables based on the terms of payment on the 31 st December, 2023 (EUR thousand): Trade accounts receivables past due The Group Trade accounts More than 120 receivables, not Less than 60 days 60-120 days Total (EUR thousand) past due days Trade account receivables 18.703 3.265 36 83 22.087 Allowance formed - - (1) (83) (84) Trade accounts receivables 1.060 209 1 - 1.270 from related parties Allowance formed - - - - - Trade accounts receivables passed due The Company Trade accounts More than 120 receivables, not Less than 60 days 60-120 days Total (EUR thousand) past due days Trade account receivables 18.685 3.264 36 83 22.068 Allowance formed - - (1) (83) (84) Trade accounts receivables 1.046 204 1 - 1.251 from related parties Allowance formed - - - - - Analysis of trade receivables based on the terms of payment on the 31 st December, 2022 (EUR thousand): Trade accounts Trade accounts receivables which due term has passed The Group receivables, More than 120 Less than 60 days 60-120 days Total (EUR thousand) which period days has not passed Trade account receivables 17.420 3.433 41 821 21.715 Allowance formed - - (2) (191) (193) Trade accounts receivables 1.409 430 9 - 1.848 from related parties Allowance formed - - - - - Trade accounts Trade accounts receivables which due term has passed The Company receivables, More than 120 Less than 60 days 60-120 days Total (EUR thousand) which period days has not passed Trade account receivables 17.390 3.432 41 821 21.684 Allowance formed - - (2) (191) (193) Trade accounts receivables 1.377 430 9 - 1.816 from related parties Allowance formed - - - - - F or the assessment of allowance on intercompany trade receivables, please refer to Note 29. 11. OTHER ACCOUNTS RECEIVABLE The Group The Company 31 st Dec 2023 31 st Dec 2022 31 st Dec 2023 31 st Dec 2022 Prepaid income tax - - - - ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 66 Current portion of long-term loans granted (Note 8) 1.021 1.993 1.021 1.993 VAT receivable 520 1.668 520 1.624 Other receivables 747 182 747 182 2.288 3.843 2.288 3.799 Other receivables allowance formed (652) (12) (652) (12) Total: 1.636 3.831 1.636 3.787 * 652 thousand Eur - ADT Sp.Z.o.o. debt with interest – in 2023 from customers’ debts to other receivables. See more 27.2 COMMITMENTS AND CONTINGENCIES 12. CASH AND CASH EQUIVALENTS The Group The Company 31 st Dec 2023 31 st Dec 2022 31 st Dec 2023 31 st Dec 2022 Cash at bank 18.092 1.721 15.751 1.060 Cash on hand 26 2 26 2 Provided guarantees 128 2 128 2 Total: 18.246 1.725 15.905 1.064 * Securities are frozen funds kept at SEB bank, the value of which on 31-12-2023 and 31-12-2022 amounted to EUR 128 thousand, and on 31-12-2022 the security of EUR 126 thousand was recorded as a long-term financial asset. 13. CAPITAL AND RESERVES Share capital The share capital is fully paid. Only fully paid ordinary share entitles its owner to one vote at a meeting of shareholders. Shareholders have the right to receive dividends when they are announced, to withdraw part of the capital in the event of a reduction of the share capital, and other property and non-property rights established in the Law on Joint-Stock Companies of Republic of Lithuania and other laws and legal acts. The Company's share capital as at 31 December 2021 amounted to EUR 13.448.750, divided into 46.375.000 ordinary registered shares with a par value of EUR 0,29 per share. On the 15 th of April 2022, the ordinary general meeting of shareholders adopted a decision to reduce the authorized capital of the Company in order to annul 4,637,500 units of its own ordinary registered shares acquired by the Company during share redemption processes. The authorized capital of the Company was reduced from 13,448,750 EUR to 12,103,875 EUR by annulling and declaring invalid 4,637,500 units of ordinary registered shares of the Company, each of which having a nominal value of 0.29 EUR. As of 05/07/2022, the authorized capital consisted of 41,737,500 ordinary registered shares for the amount of 12,103,875 EUR. The nominal value of the share is 0.29 EUR. In 2022, the Company additionally acquired 222,020 units of its own shares for 389 thousand EUR, respectively in 2021 – 3,145,999 units for 5,517 thousand EUR. The reason and purpose of acquiring own shares is to maintain and increase the share price in the market. In 2023, there were no changes in the authorized capital or the acquisition of own shares. Legal reserve Legal reserve is compulsory reserve under Lithuanian legislation. Annual contributions of at least 5% of the annual ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 67 profit are required until legal reserve reaches 10% of the authorised capital. This reserve cannot be distributed. It can be used only for covering accumulated losses. Legal reserve of the Company wasn’t fully formed. Other reserves Other reserves are formed on basis of a decision of the General Shareholders’ Meeting on appropriation of distributable profit. These reserves can be used only for the purposes approved by the General Shareholders’ Meeting. According to the Law of Stock Companies, the reserves formed by the Company other than the legal reserve if not used or not planned to be used should be restored to retained earnings and redistributed. Through the allocation of distributable profit of the year 2021, the shareholders of the Company formed a reserve of EUR 10,000 thousand for the acquisition of the own shares, which was redistributed in the same amount in the year 2022 and 2023. Also, by the decision of the ordinary general meeting of shareholders in April 2023, it was decided to allocate EUR 200 thousand for employee bonuses. 14. GOVERMENT GRANTS RECEIVED Changes in the grants received by the Group and the Company ( EUR thousand): The Group The Company Grants received As of 31 December 2021 (balance) 11.101 8.651 - received - - As of 31 December 2022 (balance) 11.101 8.651 - received - - As of 31 December 2023 (balance) 11.101 8.651 Accumulated amortisation As of 31 December 2021 (balance) 8.068 5.968 - amortization 297 255 As of 31 December 2022 (balance) 8.365 6.223 - amortization 291 253 As of 31 December 2023 (balance) 8.656 6.476 Net book value (EUR thousand) As of 31 December 2021 3.033 2.683 As of 31 December 2022 2.736 2.428 As of 31 December 2023 2.445 2.175 The amounts of the grant received are amortized in equal parts within the respective useful service life of the asset acquired from these funds. Grant amortization is included in the statement of comprehensive income, under the caption ‘Cost of Sales’ and reduces depreciation costs of non-current assets. As according to the grant agreement, the Company and the Group is obligated to fulfil the requirements related to Company‘s and Group‘s revenue and net profit. In 2023, the Company and the Group was in compliance with the grant agreement requirements. On the 18 th of December 2020, a contract was signed between the European Social Fund Agency and ABF Šilutės Rambynas, in order to improve the qualifications of employees of AB Žemaitijos pienas and ABF Šilutės Rambynas at the workplace. The financing funds were received for AB Žemaitijos pienas back in 2021 – 129 thousand EUR, for ABF Šilutės Rambynas – 39 thousand EUR, during 2022 – 61 thousand and 26 thousand EUR, respectively. ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 68 The aforementioned funding was finalised in 2023: Žemaitijos Pienas, AB received EUR 56 thousand and Šilutės Rambynas, ABF – EUR 37 thousand. The funding compensates up to 50% of the salary costs of the production workers and their teachers involved in the project. The funding compensates up to 50% of the salary costs of the production workers and their teachers involved in the project. 15. DEFINED BENEFIT OBLIGATIONS The Company has accounted for long-term defined benefit obligations for its employees based on requirements of the Lithuanian Labour Code and also based on additional contractual obligations concluded in the Company’s employee additional rewards policy. The Company 31 st Dec 2023 31 st Dec 2022 Long term liability of post retirement employee benefits 691 773 Short term liability of post retirement employee benefits 214 205 (Note 2 1 ) Long term liability under additional rewards policy 2.978 2.955 Short term liability under additional rewards policy 440 502 (Note 2 1 ) Total: 4.323 4.435 The Group 31 st Dec 2023 31 st Dec 2022 Long term liability of post retirement employee benefits 727 812 Short term liability of post retirement employee benefits 277 231 (Note 2 1 ) Long term liability under additional rewards policy 3.135 3.101 Short term liability under additional rewards policy 485 582 (Note 2 1 ) Total: 4.624 4.726 The movement of defined benefit obligations The Group The Company Post retirement employee benefits and Post retirement employee benefits and long terms employee benefits (Premium long terms employee benefits (Premium based on additional rewards policy) based on additional rewards policy) Balance as at 31 December 2021 4.254 3.924 Change accounted in the statements of comprehensive income 27 65 Actuarial (gain) loss 445 446 Balance as at 31 December 2022 4.726 4.435 Change accounted in the statements of comprehensive income 97 87 Actuarial (gain) loss (199) (199) Balance as at 31 December 2023 4.624 4.323 The main assumptions used in assessing the liability of the Company's long-term employee benefits are presented below: 31 st Dec 2023 31 st Dec 2022 Discount rate 3,78-5,55% 1,75-3,78% Inflation rate 4,16% 6,00% Turnover rate 20%-24% 20%-24% ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 69 16. NON-CONTROLLING INTEREST Financial information of subsidiaries that have material non-controlling interests is provided below. Summarised financial information of the subsidiary is as follows (in EUR thousand): Silutes Rambynas ABF 31 st Dec 2023 31 st Dec 2022 Current assets 6.433 4.871 Non-current assets 9.233 9.225 Current liabilities 2.087 2.199 Non-current liabilities 295 186 Revenue 33.339 38.896 Profit 1.611 (1.651) Total comprehensive income 1.611 (1.651) The subsidiary paid no dividends neither in year 2023 no in year 2022. 17. EARNINGS AND DIVIDENDS PER SHARE Basic earnings (loss) per share are calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary circulation shares in issue during the year. The Group The Company 31 st Dec 2023 31 st Dec 2022 31 st Dec 2023 31 st Dec 2022 Net profit (loss) attributable to the equity shareholders in EUR thousand 21.253 4.150 19.668 5.460 Weighted average number of circulation shares (units) 41.515.480 41.515.480 41.515.480 41.515.480 Basic earnings (loss) per share in EUR 0,51 0,10 0,47 0,13 The Company has not issued any other securities convertible to shares. Therefore, the diluted earnings per share are equal to basic earnings per share. The Group The Company 31 st Dec 2023 31 st Dec 2022 31 st Dec 2023 31 st Dec 2022 Dividends declared - - - - Weighted average number of circulation shares (units) 41.515.480 41.515.480 41.515.480 41.515.480 Dividends declared per share in EUR - - - - 18. FINANCIAL LEASE As at 31 December 2023, finance lease liabilities of the Group and the Company included liabilities from lease contracts concluded with the leasing companies and liabilities for the right-of-use assets. Future financial lease payments according to the signed financial lease contracts and liabilities for the right-of-use assets are as follows (EUR thousand): 2023 12 31 2022 12 31 Minimal financial Present value of Minimal Present value of The Group lease payments financial lease financial lease financial lease minimal payments payments minimal payments Less than 1 year 821 796 926 917 ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 70 2 – 5 years 1.158 1.126 1.631 1.617 Minimal financial lease payments, EUR 1.979 1.922 2.557 2.534 thousand Less: future interest (57) - (23) - Present value of minimal financial lease 1.922 1.922 2.534 2.534 payments, EUR thousand 2023 12 31 2022 12 31 Minimal financial Present value of Minimal Present value of The Company lease payments financial lease financial lease financial lease minimal payments payments minimal payments Less than 1 year 821 796 926 917 2 – 5 years 1.158 1.126 1.631 1.617 Minimal financial lease payments, EUR thousand 1.979 1.922 2.557 2.534 Less: future interest (57) - (23) - Present value of minimal financial 1.922 1.922 2.534 2.534 lease payments, EUR thousand As at 31st December 2023, 2022 the financial lease contracts of the Company and the Group are signed in EUR. The terms and conditions of the contract with all later additions do not provide any restrictions on the Company’s and Group’s activities, associated with dividends, additional borrowings or additional long-term rent. 19. LOANS RECEIVED The loans of the Company and the Group as at 31 st December 2023 (EUR thousand): Creditor Date of Loan maturity Currency 2023.12.31 2022.12.31 agreement date AB SEB bank 2018-06-11/ 2024-03-30 EUR 1.000 2.500 2019 - 07 - 16 AB SEB bank 2018-06-11/2022- 2027-05-23 EUR 5.250 6.750 AB SEB bank 2018-06-11/2023 2028-06-07 EUR 3.724 - AB SEB bank Overdraft limit 2024-06-30 EUR - 17.235 Total: thousand EUR 9.974 26.485 06 . - 06 1) In June 2018, AB Žemaitijos pienas and SEB Bank signed the credit contract. In July 2019, the Company and SEB Bank signed an amendment to the credit contract of June 2018, based on which the Company was granted a new business credit of 6 million EUR. The credit was granted with variable annual interest until March 2024. The production building in Telšiai together with the equipment therein were additionally pledged. 2) In accordance with the additional amendments to this credit contract, SEB bankas granted the Company a credit of 7.5 million EUR in June 2022. The credit is granted until the 23 rd of May 2027. The purpose of the loan is to refinance the investments of AB Žemaitijos pienas and ABF Šilutės Rambynas. 3) In accordance with the additional amendments to this credit contract, SEB Bankas granted the Company a credit of EUR 12,135 million in June 2023 (Business Credit III). The last day for granting this credit is 31 December 2024. Additional security for the obligations under this contract is the construction of a wind farm with all its appurtenances and equipment. Under this agreement, in 2023 the Company was granted a credit facility of EUR 3,724 thousand. 4) In June 2020, the Company signed the annex “Account credit overdraft limit I” to the credit contract dated 11/06/2018 for the amount of the overdraft limit of 5 million EUR. Means of ensuring the performance of obligations ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 71 under the credit contract: the Company’s current account within AB SEB bank, and real and movable property located at Klaipėdos str. 3, Šilutė. In June 2022, the Company signed an annex “Account credit overdraft limit I” to the credit contract dated 11/06/2018 for the increased amount of the overdraft limit of 10 million EUR. In August 2022, an annex “Account credit overdraft limit I” was signed according to the same credit contract for the increased amount of the overdraft limit of 18 million EUR. Means of ensuring the performance of obligations under the credit contract: the Company’s current account within AB SEB bankas, and real and movable property located at Klaipėdos str. 3, Šilutė. In addition to the credit contract, the Company has signed a contract with AB SEB bankas on financial indicators and other obligations. The financial indicators and non-financial obligations specified in the contract are being implemented. In 2023, the Group and the Company repaid 20.235 thousand EUR of loans. As of 31 st of December 2023, the balance of loans received by the Group and the Company amounted to 9,974 thousand EUR. 20. TRADE PAYABLES The Group The Company 31 st Dec 2023 31 st Dec 2022 31 st Dec 2023 31 st Dec 2022 Payables to suppliers 14.471 17.675 13.273 16.647 Annual bonuses to the suppliers of raw material - - - - Payables to related parties 184 1.549 1.816 2.163 Advances received 734 861 662 861 Total: 15.389 20.085 15.751 19.671 Trade payables are non-interest bearing and are normally settled on 30-day terms. * For the year 2021-2022 and subsequent years, the preliminary annual partnership fund is formed by a decision of the Company's Board of Directors. The decision of the Company's Board of Directors is based on the Company's performance, export development, the execution of turnover plans and the number of additional contracts signed for the payment of the annual bonus. If the annual net profitability is less than 5%, the partnership’s bonus may not be formed. As at the date of signing the accounts, the decision of the Board of Directors on the granting of the Partnership’s bonuses has not been approved and due to the uncertainty of this matter, the accrual for the 2021-2022 annual bonus has not been accounted for. Annual bonuses amounting to EUR 879 thousand were paid to milk suppliers in December 2023 based on the quantities and quality of milk delivered in 2023. 21. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES The Group The Company 31 st Dec 2023 31 st Dec 2022 31 st Dec 2023 31 st Dec 2022 Vacation reserve 1.464 1.599 1.269 1.415 Bonuses for employees - - - - Wages and salaries payable 1.607 1.405 1.447 1.263 Social security payable 1.113 914 1.004 853 Dividends payable 772 796 772 796 ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 72 Payables based on defined obligations to employees (Note 762 814 654 707 15) Management Bonus - - - - Accrued expenses 288 404 288 404 Taxes payable, other than income tax 753 571 662 528 Other short-term liabilities 85 12 31 5 Total: 6.844 6.515 6.127 5.971 Other payables are non-interest bearing and have an average term of one month. 22. INFORMATION ON SEGMENTS For management purposes the Group‘s and the Company‘s business activity is organized as one main segment – dairy products production and trading: The Group Sales, EUR thousand Variation in % 2023 2022 As comparing 2023 with 2022 Fermented cheese 118.465 105.934 11,83% Fresh dairy products 95.584 88.851 7.58% Butter and spreadable fat mixes 27.783 25.742 7,93% Dry dairy products 24.849 25.419 (2,24)% Other 11.323 17.448 (35,10)% Total: 278.004 263.394 5,55% The Company Sales, EUR thousand Variation in % 2023 2022 As comparing 2023 with 2022 Fermented cheese 117.207 103.613 13,12% Fresh dairy products 95.098 88.320 7,67% Butter and spreadable fat mixes 27.783 25.742 7,93% Dry dairy products 24.849 25.419 (2,24)% Other 12.368 19.577 (36,82)% Total: 277.305 262.671 5,57% In order to better plan, organise and control sales, employees of the Marketing and Sales Division are assigned different geographic regions according to the location of final market of the products‘ sale. Information on revenue made in different geographical markets is provided below: The Group The Company 2023 2022 2023 2022 Sales, EUR thousand: Lithuania 139.220 139.058 140.049 139.953 EU countries 97.931 88.076 97.068 87.165 Other countries 40.853 36.260 40.188 35.553 Total, EUR thousand: 278.004 263.394 277.305 262.671 Other non-core activities are considered to be not significant, therefore such information is not provided separately to the decision makers. For the disclosure on the revenues from transactions with a single external customer that amount to 10% or more of the entty's revenues, please refer to Note 28. ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 73 23. OPERATING EXPENSES The Group The Company 2023 2022 2023 2022 Wages, salaries and social security 18.553 16.857 18.144 16.514 Marketing expenses 7.652 8.112 7.650 8.086 Rent and insurance 827 818 802 805 Logistic services 1.564 2.001 1.375 1.833 Repairs 280 915 275 911 Materials 1.225 1.183 1.176 1.131 IT consulting 424 357 413 346 Taxes, other than income tax 867 950 756 855 Consulting 283 264 243 158 Depreciation or amortisation 1.159 1.161 1.123 1.126 Business trips 213 169 213 160 Trade accounts receivable impairment (reversal) 532 104 532 104 Utilities 403 532 293 361 Production for advertising purposes 114 164 113 160 Telecommunication 55 50 51 45 Pension reserve and other employee related accruals 50 (6) 41 30 Employee bonuses 2.011 1.553 2.011 1.553 Other expenses 1.459 2.285 1.350 2.171 Inventory allowance (reversal) (1.914) 3.953 (2.441) 3.546 Total: 35.757 41.422 34.120 39.895 ** A part of salary and social security expenses and employee bonuses is accounted under Cost of Sales (the Company during 2023 and 2022 accounted EUR 15.512 and 11.655 thousand respectively, the Group accounted EUR 18.069 and EUR 13.944 thousand respectively) 24. INCOME AND EXPENSES OF OTHER ACTIVITIES The Group The Company 2023 2022 2023 2022 Other operating income Goods for resale sales income 277 284 263 307 Gain on disposal of property, plant and equipment 22 131 19 114 Rental income 610 480 573 434 Other 6 109 7 127 915 1.004 862 982 Other operating expenses Cost of goods for resale sold (205) (239) (210) (228) Rental expenses (320) (317) (318) (315) Other (137) (140) (125) (164) (662) (696) (653) (707) Net income and expenses of other activities: 253 308 209 275 Future rent income according to the signed rent agreements are as follows (EUR thousand): Rent Income The Group The Company 31 st Dec 2023 31 st Dec 2022 31 st Dec 2023 31 st Dec 2022 Less than 1 year 657 449 658 449 2 – 5 years 1.109 1.330 1.109 1.330 ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) Over 5 years - - - - Total: 1.766 1.779 1.767 1.779 In the year 2023 and 2022 the currency of the rent income agreements was EUR. 25. FINANCIAL AND INVESTMENT ACTIVITY INCOME AND EXPENSES The Group The Company 2023 2022 2023 2022 Income from financial and investment activities Interest income 210 107 210 107 Foreign currency exchange gain - 42 - 42 Other financial income 190 93 190 93 Goodwill/merger result - - - - 400 242 400 242 Expenses from financial and investment activities Foreign currency exchange (loss) (53) - (53) - Interest expense (745) (352) (745) (350) Other financial expenses (3) 3 (3) 4 (801) (349) (801) (346) Total: (401) (107) (401) (104) 26. CORPORATE INCOME TAX EXPENSES (BENEFIT) The Group The Company 2023 2022 2023 2022 Current income tax expenses 3.307 1.393 3.238 1.393 Change in deferred income tax asset 307 (781) 100 (836) Change in deferred income tax accounted through OCI - - - - The correction of prior year income tax - - - - Income tax expenses (income) recognised in the 3.614 612 3.338 557 statement of comprehensive income The Group The Company 2023 2022 2023 2022 Profit before tax 25.063 4.561 23.006 6.017 Income tax, applying valid tax rate (15%) 3.521 903 3.451 903 Permanent differences 375 (176) 169 (231) Investment incentive utilization (282) (115) (282) (115) Change in deferred tax allowance - - - - Deffered tax recognition from investment incentive that was not previously recognised - - - - Income tax expenses (income) reported in the 3.614 612 3.338 557 statement of comprehensive income The correction of prior year income tax - - - - Income tax expenses (income) reported in the 3.614 612 3.338 557 statement of comprehensive income The Group The Company 31 Dec 2023 31 Dec 2022 31 Dec 202 31 Dec 2022 st st st st Deferred income tax asset Accounts receivable 110 31 110 31 74 ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 75 Inventory allowance 282 630 203 569 Accrued vacation reserve 191 213 190 212 Other accrued expenses 698 708 654 665 Tax loss 93 273 - - Investment incentive - - - - Total deferred income tax asset 1.374 1.855 1.157 1.477 Deferred income tax asset realization allowance (-) (-) (-) (-) Deferred income tax asset (after realization allowance) 1.374 1.855 1.157 1.477 Deferred income tax liability Change in depreciation rates of tangible assets (1.081) (1.255) (762) (982) Total deferred income tax liability, in total (1.081) (1.255) (762) (982) Deferred income tax asset, net 293 600 395 495 27. COMMITMENTS AND CONTINGENCIES During the financial year 2023 the Company had litigation proceedings indicated below. The list of important decisions of judicial, enforcement cases, administrative processes that have been or are being carried out by state institutions and that have been examined and are being examined in 2023. 1. The Company has submitted a lawsuit to the court regarding the award of an insurance payment in the amount of EUR 248,028.62 from the insurance company “Compensa Vienna Insurance Group”. On 1 July 2021, when a large amount of precipitation fell, the roof of one building belonging to the Company was completely damaged – broken: the supporting structures of the building and the roof covering were damaged. The company suffered a loss of EUR 303,993.42 (excluding VAT) due to the insured event. The insurance company only partially satisfied the Company’s claim to pay the insurance benefit by paying the Company an insurance benefit of EUR 55,964.80. The insurance company refused to cover the rest of the damage suffered by the Company. In view of this, the Company, defending its interests, was forced to apply to the court with a claim for the award of an insurance payment. The hearing of the case is still going on. 2. The Court of Appeal of Lithuania examined the civil case according to the appeal of ADT Sp. z. o. o., the company registered in the Republic of Poland, the defendant (hereinafter - the Defendant) and on 27 February 2023, appealing the decision of 19 September 2023 of the Šiauliai Regional Court in civil case according to the lawsuit of the Company against the Defendant for damages and decided to reject the Defendant’s appeal and leave the decision of 19 September 2023 of the Šiauliai Regional Court unchanged. The ruling of the Court of Appeal of Lithuania entered into force upon its adoption. The Company reminds that, due to the Defendant’s improper performance of contractual obligations, it filed a lawsuit in the Šiauliai Regional Court for awarding of damages in the amount of EUR 630,521.00 from the Defendant. Šiauliai Regional Court in its decision of 19 September 2023 satisfied the lawsuit in full and awarded compensation of losses in the amount of EUR 630,521.00 from ADT Sp. z o. o. in favor of the Company. 28. FINANCIAL RISK MANAGEMENT In the course of using financial instruments, the Company and the Group face the following risks: Credit risk; Liquidity risk; Market risk. The present note provides information on each of the aforementioned risks the Company/Group faces, the Company’s/Group’s risk evaluation goals, policy and risk valuation and management processes, as well as the Company’s/Group’s capital management. ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 76 The Company’s management is completely responsible for development and supervision of the Company’s/Group’s risk management structure. The Company’s/Group’s risk management policy is devoted to identification and analysis of the risks the Company faces, determination of respective risk limits and controls, and monitoring of the observance of risks and limits. Risk management policy and risk management system are regularly revised to match the changes of market conditions and the Company’s/Group’s activities. With the help of trainings, procedures of management standards, the Company/Group aims to develop a disciplined and constructive management environment, where every employee knows his/her functions and duties. Credit risk Credit risk is the risk that the Company will suffer financial losses in case if a customer or another party fails to fulfil their respective obligations, and in most cases such risk is related with amounts receivable from the Company’s customers. The Company’s and the Group’s credit risk consisted of the following: The Group The Company 31 12 2023 31 12 2022 31 12 2023 31 12 2022 Cash and cash equivalents 18.246 1.725 15.905 1.064 Loans granted 1.400 1.645 1.400 1.645 Trade accounts receivable 23.273 23.370 23.235 23.307 Other accounts receivable 1.636 3.831 1.636 3.787 Other - 126 - 126 Total financial assets 44.555 30.697 42.176 29.929 The Group and the Company have no significant concentration of trading counterparties, which is related with one partner or group of partners with similar characteristics. In 2022, there was one client in the Group and in the Company with the outstanding trade receivables higher than 10% calculated from total trade receivables before trade receivables allowance whereas in 2023 Client No. 1 and Client No. 2 had outstanding trade receivables higher than 10%. The composition of trade receivables is presented in the table below. Moreover, Client No. 1 generated more than 10% of total Company’s revenue during 2022 and 2023. The Group The Company 2023 12 31 2022 12 31 2023 12 31 2022 12 31 Customer No. 1 17% 19% 17% 19% Customer No. 2 11% 10% 11% 10% Customer No. 3 (related 3% 5% 3% 5% party) Customers’ credit risk, or the risk, that the partners will not keep to their obligations, is managed by approving credit terms and procedures of control. The Group’s procedures are in force to ensure on a permanent basis that sales are made to customers with an appropriate credit history and do not exceed an acceptable credit exposure limit. An impairment analysis is performed at each reporting date using a provision matrix and individual assessment to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns. The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. Based on the analysis performed, the Company/Group concluded that its customers fall under the low-credit risk category. ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 77 The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, if any, in the statement of financial position. Consequently, the Group considers that its maximum exposure is reflected by the amount of financial assets presented above. With respect to loans granted, trade receivables and other receivables that are neither impaired nor past due, there are no indications as of the reporting date that the debtors will not meet their payment obligations since the Company trades only with recognized, creditworthy third parties. The credit risk on liquid funds is limited because the counterparties of the Group and the Company are banks belonging to international financial groups with high credit ratings assigned by international credit-rating agencies. Liquidity risk Liquidity risk is the risk that, upon maturity, the Company and the Group will be unable to fulfil its financial liabilities. The Group’s liquidity management objective is to maximally secure sufficient liquidity of the Group, which enables the Group to fulfil its obligations under both, normal and complicated circumstances, without suffering unacceptable losses and being exposed to the risk of losing its good reputation. The Group’s policy is to maintain sufficient cash and cash equivalents or have available funding through an adequate amount of committed credit facilities, bank overdrafts and credit lines to meet its commitments at a given date in accordance with its strategic plans. The tables below summarise the maturity profile of the Group’s and the Company’s financial liabilities to banks and suppliers based on contractual undiscounted payments: On Up to 3 From 3 From 1 More The Group demand months months to to 5 than Total 1 year years 5 years Trade payables - 18.535 - - - 18.535 Trade payables to related parties - 1.550 - - - 1.550 Loans received - 875 19.860 5.750 - 26.485 Financial lease - 271 646 1.617 - 2.534 Other financial debts - - - - - - Balance as of 31 December 20 2 2 - 21.231 20.506 7.367 - 49.104 Trade payables - 15.204 - - - 15.204 Trade payables to related parties - 185 - - - 185 Loans received - 1.375 1.558 7.041 - 9.974 Financial lease - 228 568 1.126 - 1.922 Other financial debts - - - - - - Balance as of 31 December 202 3 - 16.992 2.126 8.167 - 27.285 On Up to 3 From 3 From 1 More The Company demand months months to to 5 than Total 1 year years 5 years Trade payables - 17.508 - - - 17.508 Trade payables to related parties - 2.163 - - - 2.163 Loans received - 875 19.860 5.750 - 26.485 Financial lease - 271 646 1.617 - 2.534 Other financial debts - - - - - - Balance as of 31 December 20 2 2 - 20.817 20.506 7.367 - 48.690 Trade payables - 13.935 - - - 13.935 Trade payables to related parties - 1.816 - - - 1.816 Loans received - 1.375 1.558 7.041 - 9.974 Financial lease - 228 568 1.126 - 1.922 ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 78 Other financial debts - - - - - - Balance as of 31 December 202 3 - 17.354 2.126 8.167 - 27.647 Market risk Market risk is the risk that market price changes, e.g. raw materials (i.e. milk), foreign exchange rates or interest rates, will affect the Company’s income or the value of financial instruments. The objective of market risk management is to manage and control the market risk, considering certain limits, through optimization of the return. Foreign exchange risk Major currency risks of the Group and Company occur due to the fact that the Group and Company is involved in imports and exports. The Group’s policy is to match cash flows arising from highly probable future sales and purchases in each foreign currency. The Group does not use any financial instruments to manage its exposure to foreign exchange risk other than aiming to borrow in EUR. The monetary assets and liabilities stated in various currencies were as follows (EUR thousand): The Group The Company 31 12 2023 31 12 2023 Assets Liabilities Assets Liabilities EUR 39.450 40.223 37.033 39.605 USD 4.419 28 4.419 28 PLN 730 21 730 21 GBP 29 1 29 1 HUF 351 13 351 13 Other 2 - 2 - Total: 44.981 40.286 42.564 39.668 The Group The Company 31 12 2022 31 12 2022 Assets Liabilities Assets Liabilities - - EUR 30.415 59.993 29.622 58.850 USD 249 29 249 29 PLN 115 12 115 12 GBP 40 0 40 0 HUF 160 9 160 9 Other 2 0 2 0 Total: 30.981 60.043 30.188 58.900 Fair value of assets and liabilities The fair value of the Group’s and the Company’s investment property was estimated based on the third level of fair value hierarchy (Note 6). The fair value of financial assets and liabilities provided in the statement of financial position as at the 31 December 2023 does not significantly differ from their carrying amounts. Trade payables and receivables accounted for in the Group’s and the Company’s statement of financial position should be settled within a period shorter than three months, therefore, it is deemed that their fair value equals their carrying amount as at 31 December 2023 and 2022 (third level of fair value hierarchy). ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 79 The fair value of non-current borrowings is based on the similar non-current borrowings available in the market or on the current rates available for borrowings with the same maturity and risk profile. The fair value of non-current borrowings with variable interest rates approximates their carrying amounts (third level of fair value hierarchy). Capital management The objective of the Group‘s and the Company’s management policy is to maintain a significant level of owner’s equity compared to borrowed funds to avoid discrediting investors, creditors and market trust, as well as maintain development of activities in the future. The management observes the return on capital and presents offers on payment of dividends to owners of ordinary shares, considering the Company’s financial results and strategic plans. The primary objectives of the capital management are to ensure that the Group and the Company comply with externally imposed capital requirements and that the Group and the Company maintains healthy capital ratios in order to support its business and to maximise shareholders’ value. As of 31 December 2023 The Group‘s and Company’s capital consists of share capital in the amount of EUR 12,104 million, own shares (-) EUR 389 million, retained earnings, other reserves and legal reserve. Under the Lithuanian laws a company has to maintain its equity at no less than ½ of its share capital, the Company was in compliance with this requirement as of 31 December 2023 and 2022. No changes were made to the objectives, policies or processes of the Group’s and Company’s capital management during the year ending as of 31 December 2023. The Group and the Company manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of its activities. The Group and the Company monitor capital using debt to equity ratio. There is no specific target for debt to equity ratio set out by the Group’s and the Company’s management, however the management strives for maintaining the balance between higher return, which could be achieved through a higher level of liabilities, and safety, which is provided by a higher level of owner’s equity. 29. RELATED PARTY TRANSACTIONS Related parties of the Group and the Company are: - the parties that control, are controlled by or are under common control with the Company; - the parties that have significant influence over the Company; - the parties that are management members of the Company or its parent company; - close members of the family of the aforesaid persons; - the companies that are under control or significant influence of the aforesaid persons. The main related parties of the Group and the Company are: Item Company Name Company Details Nature of Main Activities No. 1. Šilutės Rambynas, ABF Company code: 277141670; address: Klaipėdos g. 3, Dairy activities and cheese making Šilutė, LT-99115 2. Žemaitijos pieno investicija, AB Company code: 300041701; address: Sedos g. 35, Telšiai Renting and operating own and rented real , LT-87101 estate 3. Klaipėdos pienas, AB Company code: 240026930; address: Šilutės pl. 33, Ice-cream production Klaipėda, LT-91107 4. Čia Market, UAB Company code: 141354683, address: Sedos g. 35A, Retail trade in non-specialized stores. Telšiai LT-87101 5. Muižas piens, SIA Company code: 4 0003786632, address: Bauskas iela Wholesale trade in food products, marketing 58a-8, 5stavs room 507, Riga, LV-1004, Latvia 6. Samogitija, UAB Company code: 302501454, address: Narutavičių g. 4, Production, transportation, storage, distribution, Telšiai, LT-87101 etc. of dairy and other food products. 7. S.A.R. Dziugas France Company code: 75186 0669, address: Rue 10 de Production and sale of dairy products Penthievre 75008, Paris 8. Dziugas USA L.L.C. Company code: 0400754292, address: Five greentree Wholesale import, marketing of dairy products centre, ste. 104, 525 Route 73 North Marlon, NJ08053, 9. Dziugas Eesti OU Company code: 14324189, address: Punane 56, Tallinn, Wholesale import, sales and marketing of dairy Estonia products ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 80 10. Dziugas Poland Company code: 368496450, address: ul. Luki Wielke 5, Activities of agents trading in food and Warsaw, Poland beverages 11. Baltic Holding, UAB Company code: 302688114, address: Įgulos g. 18B -4, IT services Klaipėda 12. Nepriklausoma tyrimų laboratorija, Company code: 110824551, address: Narutavičių g. 4, Laboratory and other tests of materials and UAB Telšiai analysis services 13. Dziugas Deutschland GmbH Company code: HRB 154342, address: Neuer Wall 41, Marketing and product sales 20354 Hamburg , Germany 14. Dziugas Hungary Kft Company code: 01-09-325932, address: 1064 Budapest, Wholesale import, sales and marketing of dairy Podmaniczky u. 57.2 emelet 14, Vengrija products 15. Dziugas UK Ltd Company code: 11405400; address: 10 Bloomsbury Activities of agents trading in food and Way, London WC1A 2SL, United Kingdom beverages 16. Danutė Pažemeckienė Virvytės 36, Telšiai Rent of premises Milk purchase/sales, acquisition/sales of fixed assets and inventory, purchase/sales of services and other transactions between associated parties are carried out under normal/usual market conditions. Sales to and purchases from related parties (EUR thousand): The Group The Company 31 12 2023 31 12 2022 31 12 2023 31 12 2022 1)Sales Sales of goods To the subsidiary Šilutės Rambynas ABF - - 1.132 2,695 - - 1.132 2.695 To other related parties Klaipėdos pienas AB 1.454 1.835 1.403 1.292 Žemaitijos pieno investicija AB 496 0 - 0 Čia Market UAB 5.490 5.733 5.491 5.733 Dziugas USA LLC - - - - Dziugas UK Ltd 898 210 898 210 S.A.R.Dziugas France - - - - Dziugas Deutschland GmbH 0 10 0 10 Dziuugas Hungary Kft 430 205 430 205 Dziugas Eesti OU 0 4 0 4 Dziugas Poland 1.553 1.004 1.553 1.004 Nepriklausoma tyrimų laboratorija UAB 21 17 19 14 Muizas piens SIA 756 977 756 977 11.098 9.995 10.550 9.449 Sales of inventory and services To the subsidiary Šilutės Rambynas ABF - - 30 114 - - 30 114 To other related parties Klaipėdos pienas AB 651 530 649 525 Žemaitijos pieno investicija AB 67 332 67 332 Samogitija UAB 0 0 0 0 Čia Market UAB 395 387 386 379 Muizas piens SIA 4 3 4 3 Nepriklausoma tyrimų laboratorija UAB 101 92 62 54 S.A.R.Dziugas France 1 2 1 2 Dziugas UK Ltd 2 1 2 1 Dziugas Deutschland GmbH 1 10 1 10 Dziugas Hungary Kft 10 12 10 12 Dziugas Eesti OU 8 6 8 6 ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 81 Dziugas USA LLC - - - - Dziugas Poland 35 33 35 33 1.275 1.408 1.225 1.357 Total Sales: 12.373 11.403 12.937 13.615 The Group The Company 31 12 2023 31 12 2022 31 12 2023 31 12 2022 2) Purchases From the subsidiary - - - - Šilutės Rambynas ABF - - 12.717 8.105 - - 12.717 8.105 From other related parties Samogitija UAB 19 12 19 12 Čia Market UAB 1.535 2.237 1.533 2.236 Klaipėdos pienas AB 86 98 86 98 Žemaitijos pieno investicija AB 914 910 913 910 Muizas piens SIA 449 460 449 460 Nepriklausoma tyrimų laboratorija UAB 1.521 1.451 1.195 1.127 Dziugas Poland 819 645 819 645 Dziugas UK Ltd 280 190 280 190 Dziugas Hungary Kft 393 338 393 338 Dziugas Deutschland GmbH 101 362 101 362 S.A.R.Dziugas France 85 256 85 255 Dziugas USA LLC - - - - Dziugas Eesti OU 346 288 346 288 Danutė Pažemeckienė 114 112 114 112 6.662 7.359 6.333 7.033 Total Purchases: 6.662 7.359 19.050 15.138 Balances outstanding with related parties The Group The Company 31 12 2023 31 12 2022 31 12 2023 31 12 2022 3) Accounts receivable and financial debts Subsidiary Šilutės Rambynas ABF - - - - - - - - Other related parties Samogitija UAB - 0 - 0 Čia Market UAB 709 1.155 707 1.154 Klaipėdos pienas AB (including loan) 477 1.781 461 1.750 Žemaitijos pieno investicija UAB - - - - Muizas piens SIA 128 119 128 119 Dziugas Hungary Kft 30 33 30 33 Dziugas Deutschland GmbH 1 0 0 0 S.A.R.Dziugas France 8 0 8 0 Dziugas Eesti Ou - 1 - 1 Dziugas Poland 81 180 81 180 Dziugas UK Ltd 136 52 136 52 Dziugas USA LLC - - - - 1.570 3.321 1.551 3.289 Total balances of receivables: 1.570 3.321 1.551 3.289 ŽEMAITIJOS PIENAS AB Company’s code 180240752, Sedos str. 35, Telšiai, Lithuania CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS EXPLANATORY NOTES FOR THE YEAR ENDED 31 DECEMBER 2023 (All amounts in EUR thousands unless otherwise stated) 82 The Group The Company 31 12 2023 31 12 2022 31 12 2023 31 12 2022 4) B alances of payables Subsidiary Šilutės Rambynas ABF - - 1.661 1.242 - - 1.661 1.242 Other related parties Žemaitijos pieno investicija UAB 16 1.346 16 746 Klaipėdos pienas AB - - - - Čia Market UAB - - - - Muizas piens SIA - - - - Samogitija UAB 11 40 11 40 Nepriklausoma tyrimų laboratorija UAB 126 125 96 96 Dziugas Poland - - - - Dziugas UK Ltd - - - - S.A.R.Dziugas France - 10 - 10 Dziugas USA LLC - - - - Dziugas Deutschland GmbH - - - - Dziugas Hungary Kft - - - - Dziugas Eesti OU 32 29 32 29 185 1.550 155 921 Total balances of payables: 185 1.550 1.816 2.163 In 2023-2022, the Company did not account for the impairment of debts related to amounts that belong to related parties. The assessment of these doubtful debts is reviewed each financial year by examining the related party's financial position, the market in which the related party operates and future factors as described in Note 3 (Impairment of Financial Assets). The main assumptions used by the Company's management in assessing the value of doubtful debts were as follows: (a) the period during which it is expected to recover the existing debt balance. As at 31 December 2023, the debts were due for repayment (as at 31 December 2022, it was one year). As at 31 December 2023 and 31 December 2022, there were no indications of applying related party impairment to receivables. The Company and the Group have concluded a number of transactions with related parties (AB “Žemaitijos pieno investicija” group companies) and the Group's profit and sales are significantly affected by transactions with AB “Žemaitijos pieno investicija” group. Transactions include the leasing of fixed assets, the sale of raw materials and the purchase of manufactured products (cheese) from ABF “Šilutės Rambynas”, the sale of the finished products to UAB “Čia Market”, and the sale of raw materials, production and services to AB "Klaipėdos Pienas". 30. EVENTS AFTER THE REPORTING PERIOD There were no significant events after the balance sheet date that could significantly affect the financial reporting of the Company and the Group as at 31 December 2023. 83 2023 AB „ŽEMAITIJOS PIENAS“ CONSOLIDATED GOVERNANCE REPORT AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 1 CONTENT General information on corporate governance report ...................................... 2 Main risk factors and risk management .......................................................... 2 Management of companies (group) ................................................................ 7 Other governance information ...................................................................... 14 Compliance with the corporate governance code ......................................... 15 AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 2 Governance report of AB ŽEMAITIJOS PIENAS (hereinafter – Report) provides main information and principles regarding management and related processes. During development of the Consolidated governance report one followed the Law on Financial Statements of Companies of the Republic of Lithuania and Law on Consolidated Financial Statements of Groups of Companies of the Republic of Lithuania, Law on Companies of the Republic of Lithuania, legal acts regulating issuer legal form and activities, documents on incorporation of issuer and affiliated Company and other legal acts. AB ŽEMAITIJOS PIENAS (hereinafter - the Company) is a large public interest entity whose securities are traded on the regulated market of the Republic of Lithuania. The Company has a subsidiary (subsidiary) - ABF Šilutės Rambynas, which is a medium-sized company (hereinafter - the Companies or the Group). As both Companies are related, therefore the consolidated Report is provided. The Report indicates key risks faced during pursuant in economic activities, their mitigation measures and processes, provides information on the structural bodies of both Companies, data on shareholders and their (directly or indirectly) shareholdings, shareholders' rights, transactions concluded by the Group in accordance with the procedure established in Article 37 2 of the Law on Companies of the Republic of Lithuania as well as data on the Group management and other bodies, systems policies on election of their members, powers and functions of bodies, information on following to the Corporate Governance Code for the Companies, review of other information related to the Group management. other information required by law. The governance report for 2023 is an integral part of the consolidated annual report and is published on the Company's website http://www.zpienas.lt/lt and www.nasdaqomxbaltic.com in accordance with the procedure established by legal acts. INTERNAL CONTROL SYSTEM, RISK MANAGEMENT OBJECTIVES The risk management of the Group's companies is based on the principles of COSO ERM (The Committee of Sponsoring Organizations’ Enterprise Risk Management (ERM) Framework), which defines ERM as: „Enterprise risk management is not a function or a division, but the culture, capabilities, and practices, integrated with strategy-setting and performance, that organizations rely on to manage risk in creating, preserving, and realizing value “. Organizational structure, roles and responsibilities of risk management Risks in our operations are inherent and may be related to strategic objectives, performance, compliance with laws and regulations, and key environmental, social and governance priorities. Risk management starts with the individual and collective abilities of the organization’s employees; knowledge of risks, their significance and impact on the organization; approach to strong risk management as an important contribution to effective organizational governance. All employees of the Group are encouraged to be open, honest and guided by the facts when discussing risks and their management, thus enabling the Group to consider all possible opportunities and risks and to make informed decisions. GENERAL INFORMATION ON CORPORATE GOVERNANCE REPORT RISK SCOPE, FACTORS AND RISK MANAGEMENT AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 3 The main objectives of risk management are: • Expeditious management of internally identified risks related to compliance with laws and other legal acts by ensuring the production and supply of quality products, consumer safety, satisfaction and proper customer relations; • Supporting strategies to ensure resource efficiency; enabling an optimized, proactive approach to audit and compliance identification/recovery processes; promoting monitoring and reporting of functional compliance; • Continuous improvement of decision-making, planning and prioritization in the assessment of opportunities and threats; • Promoting value creation by enabling the management to respond quickly, effectively, and efficiently to future events that create uncertainty and indicate a significant threat or opportunity. Risk management enables the successful business development of the Group of companies in line with our business principles and organizational values. MAIN RISKS, THEIR FACTORS AND RISK MANAGEMENT Risk - the influence of surprise, uncertainty on goals (deviation from what we expected). The approach of the Group of companies is twofold: RISK = THREATS + OPPORTUNITIES. Risks are rarely isolated, so management identifies the interactions between risks when identifying them. The risk is assessed according to its consequences and probability of occurrence. Risk management requires a broad understanding of the business environment (internal and external factors) that may affect the achievement of strategic and business objectives. As the business environment changes, so do the risks, their impact, and management priorities. In the Group of companies, risks are divided into categories. Reviewing and categorizing risks is an ongoing, uninterrupted process, the frequency and extent of which depend on changes in the business environment. The following are selected examples of risks specific to our industry. A definitive and static definition of all possible types of risks is not possible due to the ever-changing business environment. Risk categories, description, examples Risk categories Description, examples Strategic ◦ Reduction in business vitality due to competition and increasing pricing pressures ◦ Loss of intellectual property and trade secrets ◦ Increasing geopolitical barriers to trade in the form of protectionism and nationalism ◦ Production quality control, including changes in food safety standards ◦ Negative impact to reputation/loss of public trust Operational ◦ Supply chain breakdown and / or- insufficient / inappropriate information flow within the organization and / or with suppliers and buyers ◦ Loss of business continuity or resilience ◦ Third party risk - the quality of relations with external business partners and their relations with their partners, including human rights issues ◦ Availability of key materials, labour and other critical resources ◦ Inefficient use of resources/increased product cost Cybersecurity ◦ Hacking, data loss, breach, fraud ◦ Impact to availability of critical information systems ◦ Security incident at critical third-party affecting business operations Environmental ◦ Environmental, social and governance perceptions - opportunities to identify strategies to address long- term sustainability ◦ Restriction of labour resources and trade due to the effects of diseases and viruses ◦ Increased severe weather events such as storms, flooding, drought Social ◦ Human capital development risks, including leadership sustainability, management succession and capability, employee engagement and accountability ◦ Unfair labour practices, including collective bargaining, freedom of association and grievance processes Compliance ◦ Increasing regulatory changes and enforcement in areas such as: - Animal welfare and protection - Protection and handling of personal information in accordance with data protection requirements - Employee health and safety - Selling and promotion of products, including health compliance, healthy eating promotion, climate change programs, anti-corruption trade requirements, other governmental, international programs ◦ Product quality, safety and effectiveness concerns ◦ Significant legal proceedings, including product liability Financial ◦ Credit risk related with the fulfilment of obligations of customers or other parties to the Group of companies ◦ Liquidity risk related with the fulfilment of the Group's obligations to suppliers and other bound parties ◦ Achievement of the set / planned financial results, economic exponents ◦ Changes in tax laws or exposures to additional tax liabilities ◦ Fluctuating currency exchange rates; inflation and currency devaluation ◦ Impact of interest rates changes AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 4 Risk categories Description, examples ◦ Risk of errors / non-compliances in financial statements ◦ Risk of changes in the value of assets and liabilities ◦ Risk of capital adequacy ratio and maintenance Depending on the complexity of the risks, their interactions, probabilities, impacts and ability to manage the situation, the behavior of the risks (response) is different. In the general case, the access to risk response of the Group companies is as follows: • Accept – no action is taken to affect likelihood or impact. This is how risks are treated within tolerance limits (risk appetite). In this case decision to self-insure can be taken against loss because insurance costs and deductibles exceed the cost of replacement. • Avoidance - steps are taken to stop risky activities. Risk aversion is perceived as, for example, a decision not to undertake or terminate a project due to the excessive probability of unstable cash flows. • Aiming - action is taken to take greater risks to achieve better results (seizing opportunities). Management understands the nature and extent of the changes required for improvements, such as the development of new products, services, and the expansion of operations through more aggressive growth strategies. • Mitigation - actions are taken to reduce the likelihood and/or impact of the risk. This can include many day-to- day business solutions, such as diversifying product offerings, maintaining significant cash reserves, investing in technology upgrades that reduce the likelihood of system failures, and so on. • Sharing/Transfer - actions are taken to reduce the likelihood or impact of a risk by transferring or otherwise sharing a portion of the risk. Examples include risk sharing with customers or suppliers through contract terms; purchase of insurance to protect against large unexpected losses; business partnerships, etc. The following is a more detailed description of the risks that the Group companies identify as the most important (priority) for the period 2023 and the directions of management of these risks: Strategic/operational risk category Business resilience risk is highly related to the environment in which the Company and the Group operate and which affect the Company's and the Group's performance. This is the competitiveness of the Company and the Group; economic viability of the Company's and the Group's largest customers; the political and economic environment in the European Union and Russia; legal regulations for the purchase of the main raw materials. The major risk faced by AB ŽEMAITIJOS PIENAS is raw milk seasonality: in summer one purchases twice as much milk than in winter, therefore such situation at the raw milk market has negative impact on both Companies. Therefore, production capacities of the Company are used irregularly: in summer the Company operates with full capacity, and in winter – could be with only 60 per cent capacity. So, wishing to ensure raw milk supply, the Company pays to raw milk suppliers (farmers) higher price than it is paid at the market. The main reasons for the Company's lack of milk as a milk processor are the high standards of milk quality and dairy farms in the EU, including regulations related to the Climate change policy; A large part of the milk purchased by cooperatives in Lithuania is exported from the country, because milk processors can no longer pay higher raw material prices due to cheaper milk products imported into the country more freely by foreign competitors (e. g. Poland). The rise in energy prices is affecting the Company and the Group due to rising production costs. As the price of fuel becomes more expensive, the transportation costs of importing raw materials and distributing products increase. In order to reduce these risks, the Company and the Group streamline production by digitizing and standardizing workplaces, investing in energy cost optimization solutions, optimizing logistics routes. In order to move in the direction of sustainable business, in 2023 the Company has concluded a transaction with the wind power plant manufacturer ENERCON GmbH for the purchase and installation of 2 (two) wind power plants at Telšiai district. The total value of the transaction reaches over 10 million Euros (excl. VAT). The installation completion of power plants is scheduled for the end of 2024. The total power of power plants will reach 8.4 MW. By investing in green energy, the Company aims to continue going in the direction of sustainable business, thereby contributing to the fight against climate change. It is expected that the amount of green electricity produced by these wind power plants will meet the most part of Company's electricity consumption needs. Competitive risk. The Company and the Group face competitive risk at the local market, so the main objective of the Company and Group is to increase export sales directly to “shelves” of marketing networks. In order to avoid lack of sales specialists, the Company has associated companies in strategic countries that employ sales specialists in those countries, thus reducing the risk of shortage of specialists. Ambitious goals are also being set for the increasing export to EU countries, development of e-commerce and export distribution channels. AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 5 Reputation risk is related to the decisions made by the Company and the behavior of employees. Reputation and honor in the Company and the Group are valued as the foundation of business and business relationships. The Company has the Code of Ethics. The Code of Ethics sets standards of conduct for all employees, regardless of their position, scope of employment and other conditions. With regard to reduce the risk of corruption and bribery, the Company and the Group have implemented appropriate internal processes, also has approved Anti-corruption policy. Also Company's and the Group's has equal opportunities policy was approved as well. In order to achieve high standards of compliance with competition law and ethical treatment of its competitors the Company has approved Competition Compliance Policy. According to the management assessment, the implemented measures are effective. Purchase and supply risk. Purchases of goods (basic, auxiliary materials, parts, equipment, etc.) and services in the Company are carried out by public and closed tenders or by sending inquiries/inquiries to suppliers of services or goods. The supplier of goods or services is usually selected from three commercial offers. The Company and the Group have procedures for identifying and analyzing purchase and supplier risk factors. When selecting key suppliers, internal audits of suppliers are performed. Contracts with suppliers are prepared and signed in accordance with the procedures provided for in the approved procedure for concluding, coordinating and approving contracts between the Company and the Group. The Company has a legal department that oversees all signed contracts between the Company (or Group companies) and the suppliers and buyers. Environmental / cyber risk category The Company and the Group companies, as well as all Lithuanian and World business organizations, live in the conditions of increased threat and impact of these risks. The most important risks in this category today are the impact of the Russia’s war in Ukraine, impact of climate change and the increased threat of cyber-attacks and hacking. Due to their uniqueness and importance in today's context, these risks and their management approaches have been discussed in the Annual Report and the impact on the financial statements in the Explanatory Note. Therefore, the information in the Management Report is no longer duplicated. The influence of the war in Ukraine is managed by the Company's management closely monitoring the situation in Ukraine and sanctions in order to comply with them. The Company has an approved Sanctions Policy, which helps to ensure that no transactions are made with sanctioned persons. The impact of climate change and compliance with legal requirements are managed on the basis of the company's established procedures, procedures and through targeted project activities. The threat of cyber-attacks and possibilities of break-ins are managed according to the company's current procedures. The company has implemented modernization work for critical communications, server, software and also security systems. Financial risk category The Company and the Group are exposed to major financial risks, most of which are market risks. Financial risk management is an integral part of the Group's Financial Management Policy, which in turn is an integral part of the Group's Risk Management System. The main risks of the financial category faced by the Company and the Group to date are interest rate, exchange rate risk, liquidity and credit risks. The Company and the Group operate internationally, therefore they are exposed to the risk of foreign exchange rate fluctuations. International business involves settlements in foreign currencies, which exposes it to the risk of foreign exchange fluctuations, which are related to fluctuations in the exchange rates of the Polish zloty, the US dollar and other currencies. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations when the recognized assets and liabilities are denominated in a currency that is not the functional currency of the Company and of the Group. The primary currency in which the Company and the Group makes settlements is the Euro. The Company's and the Group's operating income and expenses are largely independent of changes in market interest rates. However, the Company is exposed to interest rate change risk due to long-term loans. In order to determine the impact of interest rates on the Company's performance, positions are identified that give rise to the interest rate risk. Assets and liabilities that are sensitive to changes in interest rates include the Company's actual transactions, such as: deposits, investments, loans granted, securities held by the Company and any other on-balance sheet and off-balance sheet transactions whose value depends on fixed or variable interest rates and positively correlates with interest rate fluctuations. The Company does not use any financial instruments to hedge against the risk of interest rate fluctuations, but the situation is constantly monitored to ensure that such decisions are made in a timely manner if necessary. Credit risk. In order to ensure the timely settlement of receivables, before signing purchase and sale agreements with the client/buyer, the buyer's financial and economic situation is checked through available sources (data provided by the client, various databases, registers, etc.). The concentration of customers in the dairy industry determines the overall credit risk of the Company and the Group, as these customers may be similarly exposed to changes in environmental and economic conditions. The Company has procedures in place, including a Credit Risk Management Policy, to ensure that sales do not exceed AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 6 the accepted credit risk limit, i. e. the Company evaluates the reliability of each business partner both when selling and buying goods or services, i.e. - performs reliability analysis. Sale of products (dispatch of goods) in the Company begins if there is a 90-100% payment guarantee. Various payment guarantees apply, such as: 100% prepayment; mortgage of liquid real estate (value is determined by property valuers); a bank guarantor (this is a settlement security, but not a settlement instrument, it is used when payment is not made); documentary letter of credit (L/C); the most commonly used trade credit limit insurance; document collection (payment procedure when the bank undertakes to mediate for the seller of the goods in order to obtain payment for the goods from the buyer). The Company is among those Lithuanian companies that pays for purchased goods and services on time, and evaluates, rates and determines the reliability of their customers. In each case, it is decided what kind of hedging can and must be required from customers, what kind of credit limit and payment deferral in days may be granted. Customers’ settlements are constantly monitored and analysed. Because this type of risk is well managed, the Company does not have new large “bad” debts, which makes it easier to plan its cash flows Liquidity risk. The Company's policy is to maintain a sufficient amount of cash and cash equivalents and, if necessary, to attract additional external financing in order to fulfil its strategic plans and commitments and maintain an optimal capital structure. As liquidity is determined by the asset-liability ratio, the aim is to have a liquidity ratio close to or higher than 1. Liquidity risk is managed by planning and forecasting cash flows, which helps to pro-proactively identify potential cash shortages and facilitate the choice of financing method. Cash flow forecasts are prepared for one month, year and long-term - up to 3-5 years. The cash flow forecast anticipates cash receipts and payments and enables to plan short-term borrowing and investing money. Until the end of the current year, the forecast shows the main trends in working capital and cash flow: the need for external financing of activities or the possibility of investing funds is identified, the impact of possible interest rates and currency exchange risk is assessed. At the end of the current year, the monetary budget for the following year is drawn up. Long-term forecasting (over a year) is part of strategic business planning. These cash flow projections provide with information on the extent of the cash surplus or extra need: when the cash surplus or extra need will arise, the extension of the period of the surplus or extra need, how the cash surplus will be used or the need will be financed. For the cash flow projections until the end of the month or the current year the cash payments and receipts method is exploited, and the sources and uses of funds method is embraced for the next year's budget plan or for the next 3- 5 years. Cash flow forecasting is necessary due to the uneven distribution of income and expense flows. Payments for goods sold are deferred from 14 to 30 days, in rare cases - up to 60-90 days. Suppliers are paid for services and goods on average within thirty days, and raw milk providers / farmers – within 15-20 days from the end of the decade. Based on these facts, the forecasts for the month, week are quite accurate. There is the aim to agree on a deferral of payments with suppliers of goods and services for up to 60 days. The company has a loan committee that assesses the risk of loans granted to employees and milk providers / farmers. The Company has approved lending regulations, based on which the members of the loan committee evaluate the applications of borrowers. Loans are not granted if the borrower does not have to offer liquid real estate / movable property as collateral. A conservative approach to liquidity risk management allows the Company to maintain the required amount of cash while maintaining funding flexibility. Compliance risk category The Company seeks to minimize the risk of legal non- compliance and ensure that the Company's activities comply with applicable legal requirements and standards. For this purpose, the Company's lawyers participate in decision-making, preparation of various procedures and agreements, coordination processes. Representatives of potential clients, who visited the Company several times with the independent audit engagements, positively assessed the conditions of the existing infrastructure, the organization of the main operational and safety processes, cooperation with related third parties and the designed control system. The Company's Audit Committee supervises the preparation of consolidated financial statements; internal control and financial reporting risk management system; compliance with the legislation governing the preparation of consolidated financial statements. The Company is responsible for the quality and timely preparation of the consolidated financial statements. The Company's and the Group's risk management is implemented through a Risk Management System with integrated internal policies, procedures and regulations in line with the organization's operating principles, values and business philosophy. The proper functioning of internal control is implemented through the development and maintenance of an appropriate control environment; continuous monitoring and evaluation; horizontal and vertical communication, including information systems supporting business processes. The Company has separated business decision-making and operational functions from controlling functions; the limits of decision-making power are set and their control is provided for; defined collegial decision-making in business processes, etc. The overall logic of the functioning of internal control is presented in the Map of the Risk Management System AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 7 Map of the risk management system BENDROVIŲ (GRUPĖS) VALDY MANAGEMENT STRUCTURE Management bodies of AB „ŽEMAITIJOS PIENAS“ are: (i) The General Meeting of Shareholders; (ii) The Supervisory council; (iii) The Board; ir (iv) Chief Executive Officer (CEO, General Manager). Administration of the Company, consisting of structural divisions – departments, is subordinate to General Manager. The Company has the following departments: (i) Financial; (ii) Legal and personnel; (iii) Logistics; (iv) Production and Raw material purchase; (v) Sales and Marketing; and (vi) Central purchasing. Also the Company has operating Audit Committee. ORGANIZATIONAL AND MANAGEMENT STRUCTURE OF THE COMPANY: GENERAL MEETING OF SHAREHOLDERS PRODUCTION AND RAW MATERIAL PURCHASE DEPARTMENT SALES AND MARKETING DEPARTMENT FINANCIAL DEPARTMENT LEGAL AND PERSONNEL DEPARTMENT LOGISTICS DEPARTMENT CENTRAL PURCHASING DEPARTMENT OF GROUP COMPANIES BOARD CHIEF EXECUTIVE OFFICER (CEO) INTERNAL AUDITOR SUPERVISORY COUNCIL MANAGEMENT OF THE COMPANIES AUDIT COMMITTEE SECRETARIAT AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 8 The General Meeting of Shareholders is the supreme body of the Company responsible for taking of decisions. Competence of the General Meeting of Shareholders, its convocation procedure, rights and obligations do not differ from competence of the General Meeting of Shareholders, its convocation procedure and rights and obligations provided for in the Law on Companies of the Republic of Lithuania, other legal acts and Articles of Association of the Company. It should be noted that due to the fact that the shares of ŽEMAITIJOS PIENAS, AB are traded on the stock exchange, the number of shareholders and their structure are constantly changing. Assessing the data obtained from the intermediary of public trading in securities, on 31 of December 2023, there were 3182 shareholders (natural and legal persons). While at the beginning of the year 2023 there were 3152 shareholders. Thus, the number of shareholders increased during the reporting period. On 2023 the structure of the Company’s major shareholders holding more than 5 % of the capital had no changes. It should also be noted, that during 2023 the Company still owns 222,020 of its own shares or 0,53% of its authorized capital. MAIN SHAREHOLDERS 2023-12-31 (≥ 5% CAPITAL): Shareholder Number of shares owned, pcs. Proportion of the authorized capital owned, % Share of votes owned, % Proportion of votes held together with related, % Pažemeckas Algirdas 14 063 152 33,69 33,69 67,27 Pažemeckienė Danutė 14 014 581 67,27 67,27 UAB “Baltic Holding” į. k.: 302688114, adresas: Vilhelmo Berbomo g. 9-4, Klaipėda 4 530 380 10,85 10,85 10,85 AB “KLAIPĖDOS PIENAS” į. k.: 240026930, Šilutės pl. 33, 91107, Klaipėda 2 901 844 6,95 6,95 6,95 * - Algirdas Pažemeckas and Danutė Pažemeckienė hold 14 063 152 pcs. of shares (votes) under the right of joint ownership; ** - Danutė Pažemeckienė holds 14 014 581 pcs. of shares by the right of personal ownership and it is considered that Danutė Pažemeckienė owns together with her spouse 28 077 733 pcs. of shares or 67,27 percent (in aggregate) of the shares (votes) The largest shareholder of Šilutės Rambynas, ABF is ŽEMAITIJOS PIENAS, AB. This Company directly owns 87.82 % of shares. The remaining shares are held by minor shareholders, the majority of which are raw milk producers. The total number of shareholders is 601. Šilutės Rambynas, ABF is not subject to share management and usage restrictions. Šilutės Rambynas, ABF does not own shares of any other significant entities either directly or indirectly. INFORMATION ON RIGHTS OF SHAREHOLDERS, THEIR REALISATION, RESTRICTIONS OF VOTING RIGHTS OR SPECIFIC VOTING RIGHT USE SYSTEMS Neither AB ŽEMAITIJOS PIENAS, nor ABF Šilutės Rambynas have been restricted in terms of the transfer (disposal of) securities, or subject to any other constraints, including those imposed on voting rights. The shareholders of both Companies exercise their property and non-property rights, and are obliged to perform the duties specified in the Republic of Lithuania Law on Companies, and the Articles of Association of the Company. All of the issued shares grant their holders equal rights laid out in the Republic of Lithuania Law on Companies, other legislation, and the Company’s Articles of Association. Restrictions imposed on voting rights or other rights. All registered ordinary shares of the companies carry equal voting rights and are of equal nominal value. Each share grants its holder one vote during general shareholder meetings. The companies do not know of any restrictions, bans and/or other special conditions which have been applicable to their securities or shareholdings AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 9 during the reporting period, and are not aware of (have no data on) any systems in accordance with which the property rights attached to securities have been separated from the holders thereof. The companies do not know of any special control rights held by any individual shareholders (shareholder), which leads them to believe that no such shareholders exist, and are not aware of any special agreements drawn up between shareholders or Groups thereof which could fundamentally alter, give rise to, or terminate their rights and duties with regards to controlling the Company, including affecting the interests of the Group or the shareholders. Shareholders of the Companies shall have the following property rights: (i) to receive a part of the Company profit; (ii) to receive a part of the assets of liquidated companies; (iii) to receive shares free of charge, provided that authorized capital has been increased using Company funds, except in cases specified by the law; (iv) in cases where the shareholder is a natural person – to bequeath all shares, or a part thereof, to one or more persons; (v) having regard to the procedure and conditions laid out by the law, to sell or otherwise transfer all shares, or part thereof, to other persons; (vi) other rights conferred by legislation; Shareholders of the Companies shall have the following non-property rights: (i) to attend meetings; (ii) according to the rights granted by the shares to vote at the meetings; (iii) to receive non- confidential information about the economic activity of the company under the conditions and on the grounds established by legal acts; (iv) to elect and be elected to the management and control bodies of the company, to hold any position in the company, unless otherwise provided by the Law on Companies of the Republic of Lithuania; (v) to submit specific proposals for the improvement of the company's financial, economic, organizational, etc. activities, to appeal to the court against the decisions or actions of the shareholders' meetings, the Supervisory Board, the Board and the manager of the company that violate the laws of the Republic of Lithuania, the Company's Articles of Association, shareholders' property and non-property rights. One or more shareholders have the right to claim compensation for damage caused to shareholders without a separate authorization; (vii) other non-property rights established by law. A person acquires all the rights and obligations granted to him by the part of the authorized capital and / or voting rights acquired in the company: in case of increase of authorized capital - from the date of registration of amendments to the Company's Articles of Association related to increase of the authorized capital and/or voting rights, in other cases - from the acquisition of ownership rights to the part of the authorized capital of the Company and/or voting rights. INFORMATION ON THE MUTUAL AGREEMENTS, THEIR SPECIAL CONTROL RIGHTS, RESTRICTIONS IMPOSED ON VOTING RIGHTS, AND OTHER FEATURES RELATED TO THE HOLDING OF SHARES The companies do not know of any significant agreements drawn up between shareholders or by any shareholders who have been conferred any special control rights. Furthermore, based on the available data, shares held by the shareholders are not subject to any restrictions, constraints, or special rights. As far as the Company is aware, all shareholders are free to exercise their property and non-property rights attached to the shares. There have been no arrangements wherein AB ŽEMAITIJOS PIENAS is a party and which would enter into force, change, or be terminated in the event of a change in control of the issuer, or the effects thereof, except in cases where due to the nature of the arrangements the disclosure thereof would cause significant damage to the issuer. The same situation is with ABF Šilutės Rambynas. The companies have not entered into any unusual agreements with members of the bodies or employees that would would provide for compensation in the event of their resignation or dismissal without just cause or if their employment is terminated due to a change in control of the issuer. During the reporting period, there have been no harmful transactions which: fail to comply with the aims of the Company or the Group, or with regular market conditions; violate the interests of the shareholders or other groups of persons; and have had any negative impact on the operations of the Company or the performance thereof, or might have such an impact in the future. There were also no transactions concluded due to conflicts of interest between the Company's managers, controlling shareholders or other parties' obligations to the Company and their private interests and (or) obligations. The Supervisory Board of the Company is a collegial supervisory body, responsible for the Company activity supervision, managed by the Chairman. Supervisory Board of the Company consists of 3 members elected by the General Meeting of Shareholders for the period of four years. Articles of Association of the Company provide that number of cadencies of the Board members is unlimited. By 31 December 2023 the Supervisory Board was independent, because all members of the Supervisory Board do not have any relationships with the Company. More detailed aspects related to the Supervisory Board and its activities are reviewed in the Report on Following to the Corporate Governance Code. It should be noted AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 10 that no special rules regulating election, replacement of members of the Supervisory Board are applied. These actions are taken in accordance with provisions of the Law on Companies and Articles of Association of the Company. No special policies related to age, gender, education, professional experience applied to election of members. We appreciate personal properties which would be the best for interests of the Group and shareholders. Functioning of the Supervisory Board is regulated in the Work Procedure of the Supervisory Board. Linas Siraštanovas (independent member) Chairman of the Company’s Supervisory Council. Elected to the Supervisory Council on the 2 August, 2021, by the ordinary General Meeting of Shareholders for a four- year term. Education: Vilnius university, Master of commerce. Participation in activities of other companies and (or) organizations: Compensa Vienna Insurance Group, Head of Klaipėda region. Supervising Company’s field of sales of products and finances. Gražina Norkevičienė (independent member) Member of the Company’s Supervisory Council. Elected to the Supervisory Council on the 2 August, 2021, by the ordinary General Meeting of Shareholders for a four- year term. Education: Kaunas Polytechnic Institute, mild and dairy products technologist-engineer. Does not participate in any activities of other companies, institutions and (or) organizations. Supervising Company’s field of quality parameters in production processes, performs quality control of raw milk and also controls companies that provide raw milk test services, also performs tasting supervision. Virginija Vaitkuvienė (independent member) Member of the Company’s Supervisory Council. Elected to the Supervisory Council on the 2 August, 2021, by the ordinary General Meeting of Shareholders for a four- year term. Education: Kaunas Polytechnic Institute, milk and dairy products technologist-engineer. Does not participate in any activities of other companies, institutions and (or) organizations. Supervising Company’s manufacturing processes and development of new products. During 2023, the following amounts were accrued to the members of the Supervisory Board for their work on the Supervisory Board: • Gražina Norkevičienė – 11 741 Eur; • Virginija Vaitkuvienė – 12 918 Eur; • Linas Siraštanovas – 11 741 Eur. No loans were granted to the members of the Supervisory Board, no guarantees were issued, no assets were disposed of. The Board of the Company – a collegial management body representing the shareholders of the Company within the period between their meetings and making decisions on the most important issues of the Company’s economic activities. The Board of the Company does not perform supervisory functions since these functions are delegated to the Supervisory Board of the Company. All members of the Board have the powers provided for by law, the Articles of Association of the Company and the Rules of Procedure of the Board adopted by it. All members of the Board are responsible for the specific economic activity spheres of the Company. Currently, the Board consists of 5 (five) members. The members of the Board are elected by the Supervisory Council for a maximum four-year period. The number of their cadencies is unlimited. It should be noted that no special rules regulating election, replacement of members of the Board are applied. These actions are taken in accordance with provisions of the Law on Companies and Articles of Association of the Company. The election of members is not subject to special policies related to age, gender, education, professional experience, and the qualities that would best suit the interests of the Group and shareholders are assessed. The activities of the Board are managed by the chairman who is elected by the members of the Board. Specific aspects related to the Board and its activity is provided in the Report on Following to the Company Management Code. Below are the data about the members of the Board of ŽEMAITIJOS PIENAS, AB. In addition to the general and statutory functions, the members of the Board of the Company also carry out delegated special and individual functions directly related to the activities of the Companies, including some functions oriented to prevention in order to avoid various negative external impacts. Robertas Pažemeckas Member of the Board of the Company since 24-08-2021, until the term of office of the acting Board of Company. Chairman of the Board. Education: Vilnius University, Master of laws. Workplace: General Manager of the Company. Does not participate in the management of BENDROVĖS STEBĖTOJŲ TARYBOS NARIAI 2021 M. GRUODŽIO 31 D. BENDROVĖS VALDYBA IR JOS NARIAI 2021 M. GRUODŽIO 31 D. MEMBERS OF THE BOARD AS AT 31-12-2023 MEMBERS OF THE SUPERVISORY COUNCIL AS AT 31-12-2023 AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 11 other companies. Holds 2540 pcs. of Company’s shares. The shareholding of the Company is less than 0.05%. Marius Dromantas Member of the Board of the Company since 24-08-2021, until the term of office of the acting Board of Company. Education: Kaunas University of Technology, bachelor of transport engineering; Vilnius Gediminas Technical University, master of transport engineering. Workplace: ŽEMAITIJOS PIENAS, AB Logistics director. Participation in the management of other companies - Member of the Board of Čia Market, UAB (code 141354683, Sedos 35a, Telšiai, LT-87101). Do not hold Company shares. Dalia Gecienė Member of the Board of the Company since 24-08-2021, until the term of office of the acting Board of Company. Education: Kaunas Polytechnic Institute (KTU), engineer - economist. Workplace: ŽEMAITIJOS PIENAS, AB Chief Accountant. Does not participate in the management of other companies. Holds 475 160 pcs of Company shares. The Company's shareholding is 1.14%. Algirdas Pažemeckas Member of the Board of the Company since 27-07-2022, until the term of office of the acting Board of Company. Education: University degree - Kaunas Polytechnic Institute - mechanical engineer. Workplace: ŽEMAITIJOS PIENAS, AB Sales manager. Does not participate in the management of other companies. Together with the spouse under the right of joint ownership holds 33.69% of the Company’s shares Monika Jasiulionienė Member of the Board of the Company since 24-08-2021, until the term of office of the acting Board of Company. Education: Kaunas University of Technology, Bachelor of food chemistry and engineering; Kaunas University of Technology, Master of manufacturing/engineering. Workplace: ŽEMAITIJOS PIENAS, AB Chief production manager. Does not participate in the management of other companies. Do not hold Company shares. During 2023, no remuneration or other monetary amounts were accrued to the members of the Board of Company. Board member Monika Jasiulionienė had a balance of unpaid loans of 135,948 euros on 31/12/2023. Loans were granted with interest and mortgage of real estate. Loans were granted with interest and mortgage of real estate. No loans were granted to other members of the Board, no guarantees were issued, no assets were disposed of. All members of the Board are employees of the Company, therefore they were paid according to their duties. The Manager of Company is the CEO, who is acting on the basis of the Company’s Articles of Association, the decisions of the General Meeting of Shareholders, Board decisions and other Company’s local acts. The manager of the Company is elected by the Board of the Company. The Manager shall organise Company’s daily activities and implement the actions required to perform the functions, to implement the decisions of Company’s management bodies and to ensure Company’s business. The CEO of the Company is a responsible one and reports to the Board on a regular basis. It should be noted that no special rules, regulating selection or replacement of the Manager of the Company, are applied; when taking these actions the Company shall follow the Law on Companies and the provisions of Articles of Association of the Company. The members of management, control and supervisory bodies of the Company are elected in accordance with the requirements of the legislation, considering the skills, qualifications and professional experience of these persons; moreover, before being elected to the relevant body each candidate shall fill in a declaration of conflict of interests. The Company believes that such a system of election of candidates for a position fully meets the interests of the Company and the majority of shareholders. The administration of the Company consists of the CEO, Chief production officer, Logistics director, Sales and marketing department director, Procurement manager, Legal and personnel department director, Chief financial officer, Chief Accountant and other staff performing administrative functions. Administration of the Company is managed by the CEO. The departments of the Company are the structural subdivisions of the Company that execute and implement the decisions, orders and other instructions of the Board and the CEO of the Company. INFORMATION ABOUT ADMINISTRATION AS AT 31-12-2023 AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 12 Robertas Pažemeckas General Manager. Employed in the company since August 26, 2002. Holds 2540 pcs. Company shares. The shareholding of the Company is less than 0.05%. The position of CFO is currently vacant. Dalia Gecienė Chief Accountant. Has been working for the company since July 29, 1986. Holds 475,160 pcs. Company shares. The Company's shareholding is 1.14%. Monika Jasiulionienė Chief Production Officer. Has been working for the company since August 10, 2020. Has no shares of the Company. Marius Dromantas Director of Logistics. Employed in the Company since 01/12/2003. Has no shares of the Company. The position of Director of the Personnel and Legal Department is currently vacant. Asta Gaubienė Director of Sales and Marketing. Employed in the Company since October 1, 1998. Has no shares of the Company. Severina Butkė Marketing Manager. Has been working since November 28, 2018. Education: Vilnius Gediminas Technical University, Bachelor of Communication. Has no shares of the Company. Nijolė Penkovskienė Head of Purchasing Department. Has been working in the company since 2017-07-03. Education: higher. Has no shares of the Company. Audit Committee of the Company – the Company has an Audit Committee consisting of three members. On 19 June, 2023 the Supervisory Board of the Company has elected the following members of the Company's Audit Committee, two of whom are independent: Nijolė Zibalienė (chairwoman), Regina Domarkienė and Sigita Leonavičienė. The main functions of the audit committee are to perform unexpected financial inspections, inventories of material values, to submit proposals on the optimization of processes, to perform other duties assigned by legal acts. This committee also performs the advisory function of the Company's Supervisory Board, and its main task is to increase the efficiency of the work of the Supervisory Board in the field of the Company's financial supervision, to help ensure that impartial and well-considered decisions are made. It should be noted that there are no other committees or bodies established in the Company. No loans were granted to the members of the Audit Committee, no guarantees were issued, no assets were transferred, no premiums, extra fees, bonuses, bonuses and any other benefits were paid, except for the amount paid to the chairwoman of the Audit Committee under the service agreement. Angelė Taraškevičienė An independent member of the Audit Committee since 2017. Former chairwoman of the Audit Committee. During 2023 the calculated remuneration with taxes is EUR 5,000. Term ended on 06/19/2023. Zina Sakalauskienė Has been serving as an independent member of the Audit Committee until 19/06/2023. Sigita Leonavičienė Member of the Audit Committee since 2017. On 06/19/2023, she was elected for a new term until the Company body that elected the member revokes her position. Regina Domarkienė An independent member of the Audit Committee, elected on 06/19/2023, until the Company body that elected the member removes her from her position. Nijolė Zibalienė A chairwoman of the of the Audit Committee (independent member), elected on 06/19/2023, until the Company body that elected the member removes her from her position. MEMBERS OF THE AUDIT COMMITTEE MANAGEMENT OF SUBSIDIARY ABF „ŠILUTĖS RAMBYNAS“ AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 13 The bodies of ABF Šilutės Rambynas (hereinafter - Šilutės Rambynas) are: (i) the General Meeting of Shareholders; (ii) the Management Board; and (iii) the sole managing body is the head of the company (CEO). There are also administrative staff working under the authority of the manager. The company does not have a supervisory board and an audit committee. The competence of the General Meeting of Shareholders, the rights and duties of the shareholders are provided by the Law on Companies of the Republic of Lithuania, as well as other legal acts and the Articles of Association of the Company. The Articles of Association of Šilutė Rambynas are being amended or separate new provisions are being adopted in accordance with the usual procedure established by legal acts. The activities of the Board of Šilutė Rambynas, the election and replacement of its members are subject to the same rules as those established by AB ŽEMAITIJOS PIENAS, as well as the requirements of the Law on Companies and the Articles of Association of the Company. The members of the Board are not granted any other or special powers than provided by law and the Articles of Association of the Company. The members of the Board of Šilutės Rambynas do not have special functions or authorizations, e.g. certain activities of the company are not assigned, except those that perform the duties arising from the employment contract, if they are employees of the company. Algirdas Bladžinauskas Member of the Board of the Company re-elected for a new term from 20/04/2023 until the end of the current term of the Company's Board (20/04/2027). Chairman of the Board. Education: Lithuanian Academy of Agriculture, Master of Agronomy. Workplace: Šilutė Rambynas Director General. Does not participate in the management of other companies. Šilutė Rambynas has no shares. Irena Baltrušaitienė Member of the Board re-elected for a new term from 20/04/2023 until the end of the current term of the Company's Board (20/04/2027). Education: Kaunas Polytechnic Institute, Master of Milk and Milk Products Technology. Workplace: not working. Does not participate in the management of other companies. He has no shares in the company. Linas Puskunigis Member of the Board of the Company re-elected for a new term from 20/04/2023 until the end of the current term of the Company's Board (20/04/2027). Education: Lithuanian Academy of Agriculture, Master of Economics and Organization. Workplace: Šilutė Rambynas accountant. Does not participate in the management of other companies. Holds 2076 pcs. Šilutė Rambybas shares. The shareholding is 0.24%. Robertas Pavelskis Member of the Board re-elected for a new term from 20/04/2023 until the end of the current term of the Company's Board (20/04/2027). Education: VMU Agricultural Academy. Workplace: AB “ŽEMAITIJOS PIENAS” technical manager. Does not participate in the DIRECTOR GENERAL MANAGEMENT BOARD PRODUCTION DEPARTMENT GENERAL MEETING OF SHAREHOLDERS QUALITY MANAGER TECHNICAL DEPARTMENT LOGISTICS DEPARTMENT ADMINISTRACIJOS PADALINYS MEMBERS OF ŠILUTĖ RAMBYNAS BOARD,, 2023-12-31 AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 14 management of other companies. He has no shares in the company. Renata Rupšienė Member of the Board of the Company re-elected for a new term from 20/04/2023 until the end of the current term of the Company's Board (20/04/2027). Education: Kaunas University of Technology - Bachelor of Food Chemistry and Engineering; Kaunas University of Technology, Master of Manufacturing Engineering. Workplace: Production Director of AB ŽEMAITIJOS PIENAS. Does not participate in the management of other companies. He has no shares in the company. The administration of Šilutė Rambynas consists of the l Director General, Chief Production Officer, Technical Director, Transport Manager, Sales Manager, Production Manager, Chief Accountant and other employees. The administration of the company is headed by the CEO. The directors / managers implement the goals and tasks set by the management bodies of the Company, perform the functions according to the competencies assigned to them and manage the subordinate employees. During the reporting period (2023), no amounts were accrued to the members of the Board of Šilutė Rambynas for their work in the Board. The directors / managers of the administration were paid EUR 224 thousand under their employment contracts. The average amount per administration manager was € 56,936. During the reporting period, no guarantees or sureties were given to the members of the Board, the General Manager and the Chief Accountant, no property or other property rights were transferred. Board members, company director, chief accountant has no material obligations to the company, just as the company has no obligations to those persons. There were no guarantees and sureties and / or other means of securing obligations to ensure the fulfillment of obligations of other entities (manager, chief accountant) on behalf of the issuer during 2023, the issuer did not grant loans to these entities either. During 2023 ŽEMAITIJOS PIENAS, AB and Šilutės Rambynas, ABF transactions with related parties as provided for in Article 37(2) of the Law on Companies of the Republic of Lithuania, were not concluded. Other transactions between the parties referred to the company's financial statements ŽEMAITIJOS PIENAS AB, acting in compliance with Paragraph 3 of Article 12 of the Law of the Republic of Lithuania on Securities and Paragraph 24.4 of the Listing Rules of NASDAQ Vilnius AB, hereby discloses how the Company complies with the Corporate Governance Code of NASDAQ Vilnius, as well as its specific provisions and recommendations. In the event of non-compliance with this Code or any of its provisions or recommendations, the specific provisions or recommendations which are not complied with and the reasons for such non-compliance must be stated. In addition, other explanatory information provided in this form must be provided. The Company’s management structure consists of four levels – general meeting of shareholders, supervisory board, management board and manager. In 2023, the supervisory board consisted of three members, whereas the management board consisted of five members; members of the management board are elected and dismissed from office by the supervisory board; the management board has a competence to elect and dismiss from office the manager of the company. The Company generally complies with the recommendations of the Corporate Governance Code of the companies listed on the NASDAQ VILNIUS, except for the recommended conditions related to the establishment of nomination and remuneration committees and the assignment of certain functions to the competence of these committees (clauses 5.2 and 5.3). The Company has the opinion that the emergence of these bodies would INFORMATION ABOUT COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE ŠILUTĖ RAMBYNAS MANAGER AND ADMINISTRATION OTHER GOVERNANCE INFORMATION AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 15 be excessive, disproportionate to the Company's management objectives, increase the Company's administrative costs, and the Company's Board and Supervisory Board are responsible for performing these functions (according to their competence). PRINCIPLES / RECOMMENDATIONS YES /NO / IRELEVANT COMMENT 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 The Company publishes the most significant information in public, provides it at general meetings of shareholders, as well as provides other ways of access to it and participation in the company’s governance in the manner and under the procedure laid down in legal acts. 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 Company’s shares currently grant equal rights to all 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 recommendations are complied according to the procedure laid down in legal acts. 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 According to the procedure laid down in legal acts. 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 According to the procedure laid down in legal acts. 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 Yes The recommendation is complied with, rights of shareholders living abroad to access the information and/or familiarise with it are ensured. AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 16 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. 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 are furnished with the opportunity to vote both, in advance and in person in general meetings of shareholders. 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 . Yes The company, after assessing justified, real and reasonable proposals on the application of electronic means of communication in general meetings of shareholders, also after assessing other conditions, including interests of all shareholders, economic costs, technological feasibility and other aspects, would consider this recommendation. 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 It is complied with in so far as it is reasonable and practicable. 1.10. Members of the company’s collegial management body, heads of the administration1 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 It is complied with in so far as it is reasonable and practicable. Principle 2: Supervisory board 2.1. Functions and liability of the supervisory board The supervisory board of the company should ensure representation of the interests of the company and its shareholders, accountability of this body to the shareholders and objective monitoring of the company’s operations and its management bodies as well as constantly provide recommendations to the management bodies of the company. The supervisory board should ensure the integrity and transparency of the company’s financial accounting and control system. AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 17 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 The majority of the supervisory board is independent. This enables to ensure their responsible actions with respect to all interest holders. 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 majority of the supervisory board is independent. This enables to ensure their responsible actions with respect to all interest holders. 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 majority of the supervisory board is independent. This enables to ensure their responsible actions with respect to all interest holders. 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. Independent2 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 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 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 Conditions are established for proper discharge of duties. 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 AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 18 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 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 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 2 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 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 annual budget of remuneration to 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 organisation 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 Partly carried out. Principle 3: Management board 3.1. Functions and liability of the management board The management board should ensure the implementation of the company’s strategy and good corporate governance with due regard to the interests of its shareholders, employees and other interest groups. AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 19 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 carries out and implements strategic plans and goals. 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 management board, while performing the functions assigned to it, takes into account the needs of the company, shareholders, employees and other interest groups by striving to achieve sustainable business development. 3.1.3.The management board should ensure compliance with the laws and the internal policy of the company applicable to the company or a group of companies to which this company belongs. It should also establish the respective risk management and control measures aimed at ensuring regular and direct liability of managers. Yes 3.1.4.Moreover, the management board should ensure that the measures included into the OECD Good Practice Guidance3 on Internal Controls, Ethics and Compliance are applied at the company in order to ensure adherence to the applicable laws, rules and standards. Yes As far as practicable. 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 3.2. Formation of the management board 3 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 AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 20 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 3.2.3.All new members of the management board should be familiarised with their duties and the structure and operations of the company Yes All members of the management board are familiarised with and explained their rights and duties. 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 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/No Chair of the management board holds office of the CEO, however he does not vote when voting on decisions that may cause a conflict of interest. 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 3.2.7. In the event that the management board is elected in the cases established by the Law where the supervisory board is not formed at the company, and some of its members will be independent4, it should be announced which members of the management board are deemed as independent. The management board may decide that, despite the fact that a particular member meets all the criteria of independence established by the Law, he/she cannot be considered independent Irrelevant AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 21 due to special personal or company-related circumstances. 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 The budget of remuneration to independent members is approved by the company’s general meeting of shareholders. No additional remuneration is paid to members of the management board who work at the company on the basis of employment agreements. 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 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 organisation 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 Partly carried out. 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 4.2. It is recommended that meetings of the company’s collegial bodies should be held at Yes A preliminary schedule is approved in which the time, date and agenda of the meeting are set out. AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 22 the respective intervals, according to the pre- approved schedule. Each company is free to decide how often meetings of the collegial bodies should be convened but it is recommended that these meetings should be convened at such intervals that uninterruptable resolution of essential corporate governance issues would be ensured. Meetings of the company’s collegial bodies should be convened at least once per quarter. 4.3. Members of a collegial body should be notified of the meeting being convened in advance so that they would have sufficient time for proper preparation for the issues to be considered at the meeting and a fruitful discussion could be held and appropriate decisions could be adopted. Along with the notice of the meeting being convened all materials relevant to the issues on the agenda of the meeting should be submitted to the members of the collegial body. The agenda of the meeting should not be changed or supplemented during the meeting, unless all members of the collegial body present at the meeting agree with such change or supplement to the agenda, or certain issues that are important to the company require immediate resolution. Yes Are informed beforehand by e-mail and/or other means of communication. 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 Principle 5: Nomination, remuneration and audit committees 5.1.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/Ne An audit committee has been formed. AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 23 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. Functions of committees are currently performed by the collegial bodies themselves. 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. Yes/No This principle is partly complied with. 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 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/No 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 5.2. Nomination committee AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 24 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; 4) devote the attention necessary to ensure succession planning. No Has not been formed. The functions are carried out by the collegial bodies. 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. No 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. No Has not been formed. The functions are carried out by the collegial bodies. 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 AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 25 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 All members of the audit committee are familiarised with peculiarities of activities of the company, excluding information that is treated as confidential. 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 Conditions for realising the principle are established. 5.4.4. The audit committee should be informed about the internal auditor’s work programme and should be furnished with internal audit reports or periodic summaries. The audit committee should also be informed about the work programme 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 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 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 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. 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 The principle is complied with, each member of the supervisory and management body declares in writing and confirms his interests, as well as undertakes to avoid a conflict of interest. AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 26 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 The company has a remuneration policy for the members of the management, the board and the supervisory board, which is made public. 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 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. Irrelevant Severance pay is not specified in the Company's Remuneration Policy. 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. Irrelevant The Company does not have a system of remuneration for financial instruments. 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 Information on the implementation of the Company's remuneration policy and the average amounts of remuneration of individual groups of employees are published in the Company's annual report, which is published on the Company's website. AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 27 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 The company does not apply the mentioned schemes. Principle 8: Role of stakeholders in corporate governance The corporate governance framework should recognise 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 The implementation of the recommendation of Principle 8 is ensured by the precise supervision and control of the state institutions that regulate and control the activities of the Company. The Company conducts consultations with employee representatives on the business processes carried out in the Company. Stakeholders may participate in the management of the Company to the extent provided by law. 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 authorised capital, involvement of creditors in corporate governance in the cases of the company’s insolvency, etc. Yes 8.3. Where stakeholders participate in the corporate governance process, they should have access to relevant information. Yes 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 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: 9.1.1.operating and financial results of the company; 9.1.2.objectives and non-financial information of the company; 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; 9.1.4.members of the company’s supervisory and management bodies who are deemed independent, the manager of the Yes Information is published according to the procedure laid down by legal acts; shareholders are provided with an opportunity to become familiar with it also in other ways, excluding the information and data that are treated as confidential. AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 28 company, the shares or votes held by them at the company, participation in corporate governance of other companies, their competence and remuneration; 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; 9.1.6.potential key risk factors, the company’s risk management and supervision policy; 9.1.7.the company’s transactions with related parties; 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.); 9.1.9.structure and strategy of corporate governance; 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 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 See comment on point 9.1 above 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 See comment on point 9.1 above 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 See comment on point 9.1 above 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. AB ŽEMAITIJOS PIENAS GOVERNANCE REPORT For the financial year ending on 31 December 2023 29 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 Audit is carried out by an independent company. 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 An audit company is selected by way of public competition out of several (at least) three proposals. 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 AB ŽEMAITIJOS PIENAS REMUNERATION REPORT FOR 2023 The Remuneration Report of ŽEMAITIJOS PIENAS, AB (hereinafter – the Company) has been prepared for reporting financial year 2023, which coincides with the calendar year. The Remuneration Report (hereinafter – Report) has been prepared in accordance with the Law on Financial Statements of Entities of the Republic of Lithuania, the Remuneration Policy of the Chairman and other members of the Board and the Supervisory Council of the Company ŽEMATIJOS PIENAS, AB (hereinafter – Remuneration Policy) and other legal acts. On 9 April 2020 the General Meeting of Shareholders approved the Remuneration Policy of the Chairman and other members of the Board and also members of the Supervisory Council of ŽEMAITIJOS PIENAS, AB. This Remuneration Policy applies to the General manager and members of the management bodies of the Company insofar as it relates to the payment of monetary remuneration for activities in the management and / or supervisory bodies of the Company. The Remuneration Report shall include information on remuneration of each member of the management and supervisory bodies, information on other (un)received benefits, other data. The remuneration accrued to the General manager (or CEO) of the Company during 2023, which was determined by the Board, ant the additional salary not exceeded the amount provided/confirmed for in the Remuneration Policy (Paragraph 4.1 and 4.2. of the Remuneration Policy). General manager did not receive any remuneration from the companies referred to the group of companies, as defined in the Law on Consolidated Financial Statements of Companies of the Republic of Lithuania. Incentive benefits were paid to the General manager of the company, as it is provided for in paragraph 4.6 of the Remuneration Policy. The salary for the General manager was paid in accordance with the procedure, scope and terms provided for in the Employment Contract. The General manager did not receive any other property benefits during 2023, including the award of shares or other transactions in his favor of and in his interests. According to the Remuneration Policy approved by the General Meeting of Shareholders of the Company, the permanent and additional remuneration is paid only to independent members of the management bodies and the Supervisory Council, bonuses approved by the General Meeting of Shareholders, - to all members of the management bodies. According to the Remuneration Policy, the members of the management bodies who do not have an employment or other relationship with the Company and / or its subsidiaries are considered independent members of the management bodies. The Company has 3 (three) independent members of the Supervisory Council. During the reporting period (2023), the Company (Issuer) accrued EUR 36,400 to independent members of the Supervisory Council under activity agreements, on average EUR 12,133 per year for one independent member of the Supervisory Council. Members of Supervisor Council did not receive any payments from subsidiary or other companies that are related to ŽEMAITIJOS PIENAS, AB. All members of the Board of the Company are employees of the Company and during 2023 they were not paid any fixed or additional remunerations for their work in the Board of the Company. Their remuneration was received only that was based on the employment. The average monthly salaries by employee groups are presented on page Annual Report. Remuneration paid to the members of the management bodies and Supervisory Board would be recovered (refunded) in accordance with the procedure established by legal acts, upon certain grounds and conditions. If the General manager of the Company or any member of the Board or Supervisory Council resigns, expires his membership or is removed from office, no benefits are paid, but remuneration is paid in proportion to the time spent in the office (time of his membership). No bonuses were paid to the member of the Board and / or Supervisory Council of the Company. During the reporting period (2023), no guarantees or sureties were given to the members of the Board, Supervisory Board and the General manager of the Company. No assets or other property rights were transferred, no other benefits were received from the Company. GENERAL INFORMATION ON THE REMUNERATION REPORT INFORMATION ON THE REMUNERATION RECEIVED BY MEMBERS OF THE MANAGEMENT AND SUPERVISORY BODIES Members of the Board and Supervisory Council, General manager and members of the Audit Committee have no significant material obligations to the Company (Issuer), except that one Member of the Board as of 31-12- 2023 has EUR 135,948 of obligations to the Company according to 2 (two) loan agreements, the Company (Issuer) has no obligations to these persons. Guarantees and sureties and / or other measures to secure the fulfilment of the obligations of the General manager, members of the Board and Supervisory Council were not granted on behalf of the Issuer during 2023. The Issuer did not grant loans except for one board member and Company shares to any of these persons. The remuneration paid to the General manager of the Company, members of the Board and the Supervisory Council in 2023 complied with the principles, grounds and conditions approved in the Remuneration Policy. The Report approved by the Board of the Company is submitted to the ordinary General Meeting of Shareholders, which decides whether to approve the Remuneration Report or not. Such (non) approval does not release the Board from the responsibility for the decision taken. The consolidated remuneration report together with the set of financial statements for 2023 was approved at general meeting of shareholders held on 21 April 2023. The Remuneration Report for 2023 is an integral part of the Consolidated Annual Report and is published on the website of the Company www.zpienas.lt/en and www.nasdaqomxbaltic.com in accordance with the procedure established by legal acts. FINAL PROVISIONS OF THE REMUNERATION REPORT 2023 ŽEMAITIJOS PIENAS AB Group SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT CONTENT LETTER FROM OUR CEO ABOUT THE SUSTAINABILITY REPORT ACTIVITIES AND STRUCTURE Sustainability principles and commitments Sustainability management Our achievements Stakeholder engagement Material topics ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREA 3 4 5 7 9 10 11 12 14 26 37 50 SUSTAINABILITY AT THE GROUP 6 2 ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT 45 EU TAXONOMY GRI INDEX EU TAXONOMY LETTER FROM OUR CEO 2023 was a dynamic year with a complex geopolitical situation. Fragile global food supply chains had a further direct impact on global food security and affordability. The uncertainty and heightened risk environment did not go away, but we managed to stay focused and navigated significant damage, striking a balance in line with our strategic commitments and the principles of the United Nations Global Compact, taking into account and engaging with the expectations of all our stakeholders when making key decisions about our business. One of our main objectives continues to be to ensure the production and supply of products that meet the highest quality standards and add value to the consumer. As we did last year, this year we have continued our cooperation with researchers from Lithuanian universities and experts from abroad. This cooperation has enabled us to bring 27 dairy products to the market. Our commitment to environmental, social and governance sustainability objectives enables our employees to work safely, reliably and responsibly. We enter 2024 focused, responsive, and listening to our employees, customers and partners, always welcoming feedback from so that we can continue to succeed. 3 AB ''ŽEMAITIJOS PIENAS'' Managing Director Robertas Pažemeckas ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY GRI 2-2 ABOUT THE SUSTAINABILITY REPORT 4 Corporate Social Responsibility (Sustainability) Report (hereinafter referred to as "Sustainability Report") for group of companies (hereinafter referred to as "Group’’), AB ŽEMAITIJOS PIENAS, operating in Lithuania at Sedos g. 35, LT-87101 Telšiai (hereinafter referred to as "ŽEMAITIJOS PIENAS", the "Company"), and ABF Šilutės Rambynas (hereinafter referred to as the "Group company" or the "subsidiary company"), is presented for the period from 1 January 2023 to 31 December 2023. The Group submits this report in accordance with the Global Reporting Initiative (GRI) Standard, 2021 updated version. The content of the report includes the latest information available at the time of publication. This report is a stand-alone document but should be read in conjunction with the Group's Consolidated Annual Report, which is available on the Group’s website. This Sustainability Report was published on 15 March 2024. The Sustainability Report for 2022 also referred to the GRI standard but did not fully comply with it. A materiality assessment was carried out in 2023 and a materiality matrix was established. This step was omitted in the preparation of the 2022 report. The Sustainability Report complies with the requirements of the Social Responsibility Report of the Republic of Lithuania and the European Commission's Guidelines for Non-Financial Reporting, and is issued annually. Activities and achievements described cover environmental, social and governance (ESG) areas. The Sustainability Report is classified as a non-financial corporate report and is therefore reviewed and audited by an independent auditor together with the consolidated set of financial statements and the annual report. All information related to the audit of the accounts is available on the website. If you have any questions about the content of this Sustainability Report or the Group's activities, please contact [email protected]. GRI 2-1 | GRI 2-2 | GRI 2-3 | GRI 2-4 | GRI 2-5 ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY AB ŽEMAITIJOS PIENAS, together with its subsidiary, is engaged in the production and marketing of milk products. Its products include cheese and cheese products, pre-packaged cheese, processed cheese and processed spreadable cheese, cream, buttermilk mixtures, milk fat, pasteurized cream, dried milk products, and fresh milk products. The company sells its products under the brand names 'Džiugas', 'Germantas', 'Žemaitijos', 'Magija', 'Pik-Nik', 'Rambyno', 'Dobilas', 'Gaja' and 'TICHĖ'. ACTIVITIES AND STRUCTURE 5 GRI 2-1 | GRI 2-2 | GRI 2-6 | GRI 2-9 AB ŽEMAITIJOS PIENAS ABF Šilutės Rambynas AB ŽEMAITIJOS PIENAS Vilnius branch AB ŽEMAITIJOS PIENAS Kaunas branch AB ŽEMAITIJOS PIENAS Telšiai branch AB ŽEMAITIJOS PIENAS Panevėžys branch The Group of companies consists of AB ŽEMAITIJOS PIENAS (code: 180240752, address: Sedos g. 35, Telšiai) and its subsidiary ABF Šilutės Rambynas (code: 277141670, address: Klaipėdos g. 3, Šilutė), and branches: Vilnius branch (code: 123809154, address: Algirdo g. 40/13, Vilnius, Kaunas branch (code: 134853981, address: Europos pr. 36, Kaunas), Telšiai branch (code: 110893017, address: Sedos g. 35, Telšiai), Panevėžys branch (code: 148133399, address: J. Janonio g. 9, Panevežys). The Company's branches shall perform the functions of selling goods (dairy products) within the defined territory of the branch's activity and shall perform other actions or carry out the Company's orders. The Company has not established any representative offices. AB ŽEMAITIJOS PIENAS is a Lithuanian company with a long tradition of milk processing, cherishing classical recipes and technologies of dairy production, promoting the revival and consumption of heritage and cultural products reflecting centuries of history. The Company is a private legal entity with economic, financial, organizational and legal autonomy, and is guided in its activities by the laws of the Republic of Lithuania, Government Decrees and other applicable normative acts of the Republic of Lithuania. The main activities of ABF Šilutės Rambynas are the production and sale of fermented cheeses and cheese products, the production and sale of unripened cheeses, and the production and sale of pasteurized cream and pasteurized whey. It also provides rental, transport, warehousing, milk collection point services and other services. Main objectives and nature of the economic activity The companies in the Group engage in economic and commercial activities for their own benefit and for the benefit of their shareholders. The objectives of the business are to organize and carry out the activities set out in the articles of association with a view to generating income and profits, and to satisfy the shareholders' proprietary interests and the interests of the employees. ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY SUSTAINABILITY AT THE GROUP SUSTAINABILITY PRINCIPLES AND COMMITMENTS 7 GRI 2-22 | GRI 2-23 | GRI 2-24 The Group’s sustainability principles and commitments are defined based on its activities and interaction with nature, people and the economy. The Group understands its corporate responsibility in a broader context, and aims to contribute to the United Nations Sustainable Development Goals (SDGs), adhere to the European Green Deal and the Paris Agreement on climate change, and support and act in accordance with the principles of the United Nations Global Compact on human rights, workers' rights, environmental protection and the prevention of corruption. Identifying and managing the Group's impacts and associated risks is critical to the long-term success of the business. Thus, the Group is committed to sustainable and responsible business principles in its day- to-day operations. In 2024, the Group plans to prepare and adopt a Sustainability Policy to further enhance relevant practices within its group companies. The Group’s management reviewed the Group’s sustainability strategy and reconfirmed that in 2024 the Group will continue to actively pursue sustainability efforts. The Group's objective is to sell its products directly to the strategic foreign markets under its own brands and to provide the customer with a choice of healthy and organic food products. Long-term objectives of the Group companies: To become and remain strong, competitive, modern, reliable and attractive to investors, with the aim of generating one of the highest returns to shareholders among peer companies. To find and maintain the most profitable markets for its products in the European Union and other countries around the world. Priority should be given to markets as close as possible to the Company's production, including Germany, France, England, and Hungary. Maximize the use of existing production capacity. To improve and develop new dairy products through continuous research of the consumer market and their needs for new products, tastings, scientific research, and new scientific methods. ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY 8 GRI 2-22 | GRI 2-23 | GRI 2-24 VISION MISSION VALUES Creating unique and tasty products, anticipating the future needs of consumers today. Representing a culture of Žemaitija to the world. To be considerate to the environment and appealing to employees and society. Effective time and workflow management, delivering on promises and commitments, direct communication, integrity, willingness to learn and develop, and a desire to do more and better every day. To continuously add value to the Customer and the Company by retaining existing Customers and attracting new ones, ensuring the highest level of product quality from field to shelf. LINK TO SUSTAINABILITY Supporting and ensuring sustainable development when it comes to environment, people, and society. Responsibility to achieve a better quality of life for all. Resilience, cost savings, talent attraction and retention, Customer attraction and satisfaction, brand and reputation, innovation, and productivity. Promote sustainability across the food industry through a common voice, working with stakeholders and relevant sectors to deliver sustainable practices. SUSTAINABILITY AS A LONG-TERM STRATEGY see AB ŽEMAITIJOS PIENAS website section "About us" ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY SUSTAINABILITY MANAGEMENT 9 The Group strives to implement sustainability by applying the recommendations of international sustainability standards and best practices. Our activities encompass social, environmental, and economic responsibility along the sustainable value chain, from raw milk suppliers to waste managers and beyond. Board members closely monitor sustainability matters and are involved in strategic sustainability management. They receive information on the execution of the strategy, the development of sustainability issues, the projects planned and underway, and the progress made by the initiatives. The Boards of Žemaitijos pienas AB and Šilutės rambynas ABF are collegial management bodies representing the Board's shareholders in the period of time between their meetings and taking decisions on the most important issues related to the Company's business activities. The Board of Directors of the Group shall consider and approve: The Company's and its subsidiary company’s operational structure. Determine and approve, on a monthly basis, the range and quantity of products to be made available free of charge to customers for tasting, for the purpose of market research and/or development. The management structure of the Group companies (including sustainability) and the roles of the staff. The regulations of the Group's branches and representative offices. The positions to be filled by competitive recruitment. Members of the Management Board shall be elected by the Supervisory Board for a period not exceeding four years. They shall serve for an unlimited number of terms. There are no special rules governing the election or replacement of the members of the Group company's Management Board. It is governed by the provisions of the Companies Act and the Articles of Association of the Company. The election of members is based on the best interests of the Group and its shareholders. The activities of the Board shall be managed by a Chairman who shall be elected by the Board from among its members. The Chairman of the Board shall be the Chief Executive Officer. The Group also has a Supervisory Board to prevent conflicts of interest. The Groups' sustainability matters and the preparation of the Sustainability Report are handled by a Sustainability Working Group, delegated and approved by the Chief Executive Officer. The Sustainability Group consists of specialists from different related business areas. They deepen their knowledge in the specific fields of sustainability through various seminars and training courses related to their areas of work. The Sustainability Working Group coordinates and monitors the progress towards the sustainability goals. Such monitoring reports are then presented to the highest governance body during each quarterly meeting. In critical situations, urgent matters are reported immediately to those responsible. In order to further enhance its commitment to sustainability efforts, the Group plans to develop a Sustainability Policy that will define clear principles for the management of environmental, social, and governance (ESG) parts and sets guidelines to be followed by top management and all other responsible persons. For more information on the Group's organizational structure and governance, please refer to the Annual Report. GRI 2-9 | GRI 2-10 | GRI 2-11 | GRI 2-12 | GRI 2-13 | GRI 2-14 | GRI 2-15 | GRI 2-16 | GRI 2-17 | GRI 2-18 ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY At the end of 2023, the Company became the first dairy producer in Lithuania to bring fresh dairy products to the market in "pure pack" packaging with an integrated stopper. This innovation has significantly improved the efficiency and sustainability of product packaging. Opportunities to reduce the amount of plastic in the packaging of products without compromising the safety and quality of the product itself have been assessed and implemented. Actions launched in mid-2023 led to a reduction in 2,500 kilograms of plastic. During 2023, the Company moved away from using corrugated containers for internal production needs (e.g. transport between production departments) and switched to returnable containers. This move resulted in an additional saving of 10,884 kg of corrugated cardboard. Investments were made in EURO 6 trucks and hybrid vehicles, contributing to the reduction of GHG emissions. The Company's hard cheese "DŽIUGAS" has participated in competitions and international projects. It has been awarded and recognised with top marks for taste and quality, approaching its 100th award. The longest cheese string in the history of ABF Šilutės Rambynas was produced. The cheese string was an incredible 699.56 metres long, weighed 91.2 kg and required more than 970 litres of milk. OUR ACHIEVEMENTS 10 Redesign of corrugated cardboard boxes has facilitated the packaging of products and allowed the use of adhesive tape to be eliminated. These changes have saved 33,814 kg of corrugated cardboard since mid-2023. It also made it easier for employees, helping to optimize packaging materials and meet the requirements of supermarket shelves. New products introduced 27 Reduction in waste generated 3% ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY STAKEHOLDER ENGAGEMENT 11 GRI 2-25 | GRI 2-26 | GRI 2-29 Successful dialogue with relevant stakeholders inside and outside our sector is crucial for inclusive and sustainable business growth. The Group considers its stakeholders to be those that are relevant and/or significantly impacted by the Group’s activities, as well as individuals or organizations that have a significant influence on the Group’s businesses. Without stakeholder feedback, some valuable insights and opportunities might be missed. Thus, the Group engages with stakeholders as often as possible: through customer and partner meetings, employee and customer satisfaction surveys, as well as Group’s events, career fairs, audits and social media. CLIENTS KEY STAKEHOLDERS WITHIN THE GROUP EMPLOYEES BOARD SUPPLIERS REGULATORY BODIES FUTURE GENERATION ACADEMIA Complaints & Reporting Channels For any potentially negative impacts to be effectively remediated, a survey form is in place for both internal and external stakeholders. This channel is used to submit and receive information regarding concerns and / or to report potential violations. Reports received are dealt with by the responsible persons in accordance with internal procedures, ensuring confidentiality. For each report or complaint received, measures are taken to remedy the negative impact as soon as possible. The effectiveness of the measures taken are also assessed by the Group at a later stage. ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY MATERIALITY ASSESSMENT 12 In 2023, the Group carried out its first materiality assessment of sustainability topics according to GRI guidelines. The purpose of this assessment was to review matters that are material for the Group in environmental, social, and economic areas. The material topics identified are disclosed in detail in this Sustainability Report. In 2024, the Group plans to carry out a double materiality assessment in accordance with the European Sustainability Reporting Standards and will update the list of material topics accordingly. Main steps for 2023 materiality assessment: 1. Identification of relevant topics amongst sector participants. The Group has reviewed the sustainability topics relevant to the participants in the dairy sector and identified a list of potential sustainability topics. Topics recommended by other widely used international standards and guidelines for the sector were also included at this stage. 2. Stakeholder engagement. The Group conducted an anonymous survey to find out the most important sustainability topics for its stakeholders. The survey was carried out from 13 December 2023 to 5 January 2024 by sending a questionnaire to relevant contacts from each stakeholder group. A total of 369 responses were received. 3. Development of the materiality matrix. After obtaining the stakeholders' view, the Group assessed each sustainability topic in terms of its potential environmental and social impacts, as well as its influence on the business strategy (including risks and opportunities). In developing the matrix, the Group followed the process of GRI and the European Commission's Guidelines for Non-Financial Reporting. The topics falling under the high-impact areas on the horizontal axis were assessed from two perspectives: the extent of the impact of the activities on society and the environment, and the financial materiality of the Group's results. GRI 3-1 ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY – environmental area – social area – governance area MATERIALITY MATRIX 13 GRI 3-2 | GRI 3-3 The materiality matrix presents and prioritizes the Group's key sustainability topics. All topics in the matrix are material to the Group’s sustainability and are described in this report, however the most important topics are those that are of high relevance to stakeholders (vertical axis) and/or reflect a very significant impact on the environment, society, and our performance (horizontal axis). Due to their high relevance to the implementation of the strategy, the nine high-impact, stakeholder-relevant themes at the centre of the matrix are also included in the matrix. Diversity, equality and inclusion Moderate importance Very important Moderate Very high IMPORTANCE TO STAKEHOLDERS IMPACT ON SOCIETY, ENVIRONMENT AND BUSINESS RESULTS Important High Energy and GHG management Product safety and quality Waste management (incl. packaging) Water and effluent management Occupational Health and Safety (incl. Human rights) Risk management Employee training Anti-corruption Biodiversity Management of sustainability topics The principles for the management of all material sustainability topics are described in accordance with GRI 3-3 in the relevant chapters of this report, arranged by each of the specific topics themselves. ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY ENVIRONMENTAL AREA ENERGY & GHG EMISSIONS 15 Environmental impact is one of the sustainability priority areas for the Group, therefore AB Žemaitijos Pienas Group continuously monitors its performance indicators, plans and implements the latest technologies to reduce production and operating costs, conserve energy and natural resources, and improve the Group's environmental performance in every way. The Group is well aware that its activities can cause significant damage to the environment if not handled responsibly, and that only an integrated use of economic, legal, technical, and biological measures can guarantee the rational use of natural resources, both now and in the future. Environmental impact is therefore controlled in accordance with agreed monitoring programs. As the Group expands or upgrades its facilities and technological processes, an environmental impact assessment is carried out to ensure that the expansion does not exceed permissible environmental standards. As a socially responsible company concerned about the environment and its preservation, the Group invests in energy saving, improvement of its business management processes, and makes every effort to allocate resources to other related activities. The Group's environmental matters are considered and reviewed each year during a strategy review. During this review, opportunities in each of the relevant topics are assessed and investments are planned or adjusted. GRI 302-1 ENERGY & ENERGY EFFICIENCY In 2022, the Group engaged independent auditors to conduct an energy audit of its processes and facilities. The findings of this audit were used by the Group to identify the need for new projects and to reduce the use of energy resources. Large companies are required to undergo energy audits every four years, and the Group anticipates conducting another audit of this nature in 2026. By 2025, the Group intends to invest more than €10 million in renewable electricity generation facilities that will enable it to reduce the use of grid electricity, thus contributing to the creation of a sustainable energy infrastructure and reducing greenhouse gas emissions. The Group’s objective is to source more than 70% of its electricity needs from renewable energy generation facilities. During 2023, the Group obtained all necessary permits (including a construction permit) from the relevant authorities for the construction of wind power plants. ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY Energy consumption TJ 2022 2023 Energy use from non-renewable sources: Petrol 0,154 0,404 Diesel 121,742 114,557 LPG 49,579 57,758 Natural gas 53,725 42,188 Energy use from renewable sources: Wood 213,581 201,412 Energy, heating, cooling and steam consumption: Electricity 107,544 107,053 Central heating 0,318 0,319 Cooling 0 0 Steam 0 0 Total: 546,643 523,691 ENERGY & GHG EMISSIONS 16 GRI 302-1 Notes: Energy consumption data are provided by internal metering tools. Total energy consumption is calculated according to the GRI 302-1 indicator formula. Biofuels 38,46% Diesel 21,87% Electricity 20,44% Natural gas 8,06% Liquefied petroleum gas 11,03% Distribution of the Group's energy consumption in 2023, %. Petrol - 0,08% District heating - 0,06% ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY ENERGY & GHG EMISSIONS 17 GRI 302-3 REDUCING EMISSIONS OF GREENHOUSE GAS & AIR POLLUTANTS The Group welcomes the European Union's Green Deal policy initiative, which aims to support the EU's green transformation, with the ultimate goal of achieving climate neutrality by 2050. Additionally, due to the use of industry specific dairy processing equipment, the Group’s falls under the Integrated Pollution Prevention and Control Permit (IPPCP) mechanism, which means that air emissions are strictly regulated. GHG emission reductions are addressed at Board level in meetings. Matters addressed include planned investments, budget, environmental impact assessment and the review of project progress. In order to better assess the Group's current situation and its prospects for competitive success, the Group has started to develop an environmental plan (Environmental Policy) which will set out the objectives and targets for managing benefits and impacts. We monitor emissions of our operations and aim to eliminate or significantly reduce not only GHG emissions, but also others such as sulfur dioxide, particulate matter, and nitrogen oxides. Emissions monitoring is carried out in accordance with the environmental monitoring programs of operators approved by the responsible authorities. In 2023, the Group was subject to scheduled and unscheduled inspections by inspectors of the Department of Environmental Protection, during which one violation was detected at one of the Group's milk collection points (related to management of wastewater). The Group has taken appropriate action to remedy this violation. Energy intensity Energy intensity is calculated on the basis of the Group's data for the financial year 2023. During 2023, the Group's activities consumed 523,691 TJ (terajoules) of energy. Consumption in 2022 was 546,643 TJ. Energy intensity metrics 2022 2023 TJ / ‘000 Eur revenue 0,00202 0,001884 TJ / 1 employee 0,37263 0,375138 TJ / tonne FPCM milk 0,001252 0,001228 TJ / tonne of cheese 0,04139 0,046402 Revenue, ‘000 Eur 263 394 278 004 No. of employees 1 427 1 396 FPCM milk, ‘000. tonnes 437 426 Cheese, tonnes 12 847,8 11 286,0 Note: The energy intensity index is calculated according to the GRI 302 Energy methodology. ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY Intensity metric Emissions intenstity, tonnes CO2e 2022 2023* 2023 Per 1 employee 17,10 20,73 411,13 Per 1M Eur of revenue 92,91 104,11 2 064,5 Per tonne of FPCM milk 0,056 0,068 1,35 ENERGY & GHG EMISSIONS 18 GRI 305-1 | GRI 305-2 | GRI 305-3 | GRI 305-4 Emissions Notes: Selected main method for reporting is market-based. Using location-based method total emissions in 2023 are 567 142 t CO2e The increase in indirect emissions is due to the elimination of certificates proving the origin of green electricity, as a result of the energy crisis caused by the Russian war in Ukraine, which has led to higher energy prices. 2023m. For the first time, Scope 3 emissions were systematically assessed and included the following categories in 2023: purchased goods and services, fixed assets, other energy and fuel related emissions, business travel, waste generated, upstream transport. Calculations were made in accordance with the Greenhouse Gas Protocol (GHG) and IPCC guidelines. The calculation of emissions (Scope 1 and Scope 2) includes not only CO₂ but also other greenhouse gases (CH4, N2O, HFCs) generated in the activity by converting them to CO₂ equivalent according to the standard coefficients (IPCC, EEA Inventory guidebook, AIB for electricity), and denoting the final total number CO₂eq. Emission intensity of the Group Notes: Direct (Scope 1) and indirect energy emissions (Scope 2) are included in the calculation of the intensity ratio. The increase in emission intensity is due to the proportionally lower amount of green electricity purchased in 2023. ** Scope 3 emissions have been assessed from 2023 onwards, so the total intensity of all three assessment areas has been highlighted in a separate column to maintain the comparability of Scope 1 and Scope 2 with 2022. ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY Emissions category Emissions, tonnes CO2e 2022 2023 Direct (Scope 1) GHG emissions 15 382 15 062 Indirect (Scope 2) emissions (market- based) 9 022 13 880 Other indirect (Scope 3) emissions - 544 997 Total: - 573 939 Other emissions (outside of Scopes) Biogenic CO2 40 501 38 612 Indirect (Scope 2) emissions (location- based) 7 116 7 084 WATER & EFFLUENT MANAGEMENT 19 GRI 303-1 | GRI 303-2 | GRI 303-5 By saving water and limiting wastewater, the Group can reduce its operating costs. This includes lower water supply and thus lower wastewater management costs which translates to overall better use of resources. The Group conducts its water extraction operations in full compliance with statutory regulations. All existing water points are registered, water resources have been examined, approved and documented in the Land Registry. In order to manage the extracted resources efficiently, the Group conducts appropriate accounting and control procedures, reports, and pays taxes accordingly. Although there is no shortage of water in Lithuania, the Group strives to minimize any significant negative impact on the environment in its operations. The Group uses fresh water in Telšiai for its operations, and the water required for its production needs is extracted from its own boreholes at the water point. Additionally, some water is supplied by the centralized district water system (grid water), which accounts for less than 1% of the total annual water consumption. TICHĖ mineral water from own borehole is bottled using advanced production technology and equipment compliant with EU standards and national Food Quality and Safety Management System both of which ensures the highest quality of mineral water. Šilutės Rambynas consumes a relatively large amount of water. In order to conserve water resources as much as possible, modern technologies are being introduced to conserve water in production. During whey processing, after concentrating the whey, the remaining whey water is purified by a membrane system to ensure the water is then suitable for washing the equipment. A project to modernize the dewatering baths is planned: the equipment acquired will allow the production process to reduce the need for manual labor, improving working conditions, and ensure a consistently high product quality. The Group complies with the requirements of the Law on Drinking Water of the Republic of Lithuania, the Lithuanian Hygienic Standard HN 24:2023 "Safety and Quality Requirements for Drinking Water" approved by the Order of the Minister of Health of the Republic of Lithuania No. V-455 of 23 July 2003 (wording of the Order No. V-141 of 31 January 2023), their amendments, and other legal acts. The Group ensures the quality of drinking water supply and wastewater management services in compliance with the Quality Requirements for Public Drinking Water Supply and Wastewater Management Services approved by Order No D1-639 of the Minister of the Environment of the Republic of Lithuania of 29 December 2006 (Order No D1-15 of 13 January 2023, as amended from time to time); procedure “PR-32 Drinking Water Supply and Maintenance. Wastewater disposal”. Also, conducts programmatic supervision of drinking water in accordance with Control Scheme CH, M30. In accordance to a contractual agreement with a local wastewater treatment provider, at the facility at Sedos str. 35, Telšiai, the Group is allowed to discharge wastewater with the following pollution concentrations: BOD7 - daily average concentration of pollutants 1100 mgO2/l; suspended solids - daily average concentration of pollutants 350 mg/l; total nitrogen - daily average concentration of pollutants 100 mg/l; total phosphorus - daily average concentration of pollutants 20 mg/l. Type Quantity in megaliters (ML) 2021 2022 2023 Underground water 1037,530 1109, 26 1065,010 Grid supplied water 99,400 90,897 82,094 Total: 1136,93 1200,045 1147,104 Water consumption Note: Water consumption accounting is carried out according to internal procedures. The Company does not consume water in areas of water scarcity. ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY WATER & EFFLUENT MANAGEMENT 20 The amount of water drawn from the city water supply in 2023 was 0.036 % for AB Žemaitijos pienas and 44.3 % for AB Šilutės Rambynas. The total amount of water abstracted by the group from the district grid was 7.16%. WATER SOURCES ŽEMAITIJOS PIENAS The Company uses the following water boreholes in its food production process: 3 fresh water boreholes 1 mineral water borehole "Tiche" for the production of mineral water (Mažeikių g.4, Telšiai); 3 fresh water inlets from the city water supply of UAB "Telšių vandenys" - backup in case of need in the food production process; 1 fresh water inlet (Mažeikių g.4, Telšiai) from the city water supply to UAB "Telšių vandenys" - backup in case of need in the process of mineral water production. 2 fresh water inlets from the city water supply of UAB "Telšių vandenys" - fire-fighting inlets; Improving water boreholes involves the following processes: removal of hydrogen sulphide by aeration, removal of iron, manganese, ammonium and mechanical impurities in filters, flushing of filters, final disinfection of the treated water with chlorine dioxide. The treated water is supplied/used for steam production, hot water production, process equipment needs, domestic use, replenishment of the refrigeration circulating water system). The Group’s current wastewater management partner is UAB "Telšių vandenys". Wastewater from milk processing must be properly managed to prevent water pollution. The wastewater treatment shall separate and dispose of particularly polluting wastewater for biogas production. Monitoring of borehole water is carried out by Vilniaus Hidrogeologija; In accordance with the IPPCP, “Nepriklausoma tyrimų laboratorija” monitors production and rainwater effluents; regular communication is maintained with Telšių vandenys UAB regarding water and wastewater quality matters. Contaminated wastewater is transported for biogas production. Every year the Group draws up investment and operational plans, as well as an energy conservation action plan; sets wastewater pollution targets (lower than contractual targets with the wastewater manager or the IPPCP); sets targets to reduce water/wastewater use per unit of product produced; cooperates with public authorities in adapting to prevailing political and legal frameworks. Šilutės Rambynas AB-F "Šilutės Rambynas" uses two sources of drinking water. Water is drawn from the district water grid for the main cheese-making processes and for washing the surfaces of the equipment in contact with foodstuffs. Drinking water extracted from its own operational borehole is used for technological processes, tanker washing, and the domestic needs of employees. ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY Effluents Unit 2022 2023 Change, % Wastewater transferred for wastewater treatment Domestic and industrial wastewater m³ 1 288 440 1 258 012 -2,36 Animal by-products - ABP Transferred for biogas production t 12 390 13 217 +6,67 Transferred to economic operators t 15 005 13 207 -11,98% 21 WASTEWATER (EFFLUENT) MANAGEMENT A substantial quantity of by-products are generated during the dairy processing process, such as milk and whey residues in tanks and pipelines, as well as residues in mixing plants. As part of the circular economy principles for reducing waste and pollution and restoring & renewing natural systems, the Group sends the by-products to a biogas plant, where by-products are mainly converted into organic fertilizers and biogas, and then into electricity and heat. Some of the animal by-products are handed over to local farmers to be used as a feed for livestock. Today, the Group considers this use of animal by-products to be the most cost-effective and environmentally friendly, which is why a continuous cooperation with biogas plants and local farmers is envisaged for the future. In order to ensure the quality and reliability of the domestic and industrial wastewater treatment, the wastewater is transferred to a licensed wastewater management company. Surface wastewater is discharged separately to a surface water treatment-filtration outfall. At Šilutės Rambynas, the company carries out an in-house treatment of contaminated industrial wastewater that is later discharged into the district sewerage network. Wastewater storage and mixing tanks are installed, which prevent instant contamination and allow for quality control of the wastewater discharged into the treatment plant owned by UAB Šilutės vandenys. Notes: Accounting of wastewater generation is carried out in accordance with approved internal procedures, in units of m³ (cubic metres) and t (tonnes). ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 WATER & EFFLUENT MANAGEMENT CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY WASTE MANAGEMENT (INCL. PACKAGING) 22 ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 Waste and packaging management is an integral part of the Group’s environmental sustainability management. The Group's operations generate a significant amount of waste and, in line with other EU Member States, the Group is committed to the Green Deal principles to reduce the use of natural resources. The use of recyclable containers is being increased, and recyclable containers have been developed separately for internal use and have been successfully adapted and integrated into the recovery process. Products are supplied to customers in returnable containers where possible. The aim is to replace the multi-component plastics labelled "7 Other" with single-component plastics that are easier to recycle, while maintaining the same shelf- life. Tests are being carried out with the aim of reducing the amount of packing/packaging material for internal use. Packaging made from recycled rPET is being tested, both in bottles and in heat shrink. For the correct identification and segregation of packaging waste in the individual units, the Group has developed a procedure "Waste Management PR-31”, which has been approved by the CEO. As a dairy producer, the Group faces a constant challenge to select the right packaging to balance maintaining the integrity of the product with minimizing the environmental impact. Or plastic and paper packaging, where the plastic is free from ink contamination and can be easily separated from the cardboard Replacing non- recyclable packaging with single-component plastic packaging Possibility of generating less waste Searching for ways to reduce cost associated with waste management Regular packaging review Design, materiality, weight CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY WASTE MANAGEMENT (INCL. PACKAGING) 23 In order to develop efficient waste management of packaging, the Group fulfills tasks set out by the Ministry of the Environment of the Republic of Lithuania for the management of packaging and packaging waste. All collected and sorted waste is transferred to a licensed packaging waste management facility. The waste generated by product packaging (including packaging for transporting products) is sorted into recyclable (PET, HDPE, LDPE, PP) and non-recyclable (OTHER, C/PAP, etc.) materials. In line with sustainable waste management procedures, the Group's internal sorting and separating procedures are being reviewed and adjusted in order to maximize the proportion of recyclable plastics, cardboard, and other types of waste to be recycled. The management of negative impacts depends on both the Group and third-party waste management facilities in the waste management chain. Waste and product packaging matters are generally reviewed annually, unless a need for new EU legislation arises. The Group’s waste management processes are subject to inspections and assessments by regulatory authorities and audits by the Group’s team of approved auditors, which assess the state of practices in place and their compliance with the regulatory procedures. The Groups’ own procedure "Waste Management PR-31” is fully audited once a year and periodic limited-scale audits are carried out at individual processing units. The Group is committed to applying circular economy principles in all areas of its operations to the extent that’s possible. The Group shall, wherever possible, select only the waste handlers who are registered in the State Registry of Waste Handlers, ensuring that waste management is carried out to the highest standards. The cooperation contracts with these waste managers are reviewed annually, assessing the quality of the services provided and evaluating the waste managers using a 100- point scoring system. The Group also places great emphasis on waste sorting and control. The waste generated is carefully managed, including sorting and weighing, both at the point of generation and at the point of storage. These measures enable the Group to manage waste efficiently, reducing its environmental impact and ensuring sustainable waste management. Waste by composition Weight, t 2022 2023 Recyclable waste Paper 267,0 247,0 Plastic packaging 48,9 71,0 Wood packaging 67,0 42,5 PET packaging 1,0 3,4 Glass packaging 1,8 3,0 Metals 97,2 0 Dairy industry waste 0 5587,0 Non-recyclable waste Other waste 307,3 186,4 Multi-component packaging 107,2 109,8 Total 897,5 6250,2 Note: Data based on product logistic tables and data from GPAIS. GRI 306-2 | GRI 306-3 Waste generated in operations ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY Waste by composition Weight, t 2022 2023 PET and other plastic packaging 57,4 49,7 Glass and glass packaging 2,4 3,8 Paper and cardboard packaging 239,1 242,9 Paper products 17,6 20,3 Wood packaging 70,1 31,8 Dairy processing waste 0 5587,0 Other waste 501,3 270,5 Total 888,0 6205,8 Dangerous waste diverted from disposal 78,6 113,5 of which is directed to recycling (offsite) 4,6 4,0 Non-dangerous waste diverted from disposal 809,4 6092,3 of which is directed to recycling (offsite) 386,7 5935,3 Total directed to recycling (offsite): 391,2 5939,3 WASTE & PRODUCT PACKAGING MANAGEMENT 24 GRI 306-4 Waste diverted from disposal Notes: data is collected in accordance with legal requirements in the Unified Product, Packaging and Waste Accounting Information System (GPAIS). ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY WASTE MANAGEMENT (INCL. PACKAGING) 25 2023 ACHIEVEMENTS PLANS FOR 2024 Started optimization for the amount of packaging and packaging materials used. Trials are underway to replace multi-component plastics labelled "7Other" with single-component (more recyclable) plastics. Conducted tests with recycled PET packaging (PET bottles and shrink films). Implemented a change in corrugated cardboard box design which made packing process easier as well as eliminating the use of adhesive tape. The changes were made in order to reduce the amount of corrugated cardboard, to improve labor efficiency, optimize the use of available packaging materials and to meet the shelf requirements of the supermarkets. The change in the design of the two boxes from mid-2023 onwards resulted in a saving of 33 814 kg of corrugated board. Conducted tests with attached caps: At the end of 2023, we were the first dairy producer in Lithuania to introduce fresh dairy products in pure-pack packaging with an attached cap. Eliminated the use of corrugated cardboard containers for internal production needs (transportation between production departments) in favor of reusable containers. The amount of corrugated cardboard saved is 10 884 kg. Initiated assessment of the potential to reduce the amount of plastic used for product packaging without affecting the safety and quality of the product itself. The process started in mid-2023 and has led to a reduction of 2500 kg of plastic that would have otherwise been released to the market. Began using corrugated cardboard boxes made of part or fully recycled cardboard. Complying with the packaging and product requirements of individual EU networks. Optimizing the Group’s internal processes in order to reduce manual labor, save energy resources, and increase productivity. Optimizing the amount of packaging and packaging materials used. Increasing the use of reusable containers for the local market. This will be achieved by actively collaborating with local chains to ensure that short shelf-life fresh dairy products are placed on the shelves in reusable containers only. ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY SOCIAL AREA Shortening transport distances for raw materials and products by using electric hydraulic trolleys. Installing robotic packaging and palletizing equipment for packaging the final product. Increasing digitalization for the display of information, thus reducing "paper logs". EMPLOYEE WELLBEING 27 Employee wellbeing is the key to business success. To create and maintain a sustainable workplace and ensure employee wellbeing, we focus our efforts on the following key areas: We use a variety of tools to monitor employee well-being: Microclimate surveys - confidential personal interviews in which employees express their views on working conditions, supervisors, colleagues and other relevant issues. Employee Opinion Analysis - this is used to make decisions on measures to improve the microclimate and working conditions. Investing in reducing heavy work - reducing manual labor in technological processes through mechanization or automation: Creating opportunities for all to prosper. With more than 1,300 employees, we have a strong responsibility towards our employees and the people who work for us in our value chain. Our people are vital to our success, so we strive to create a workplace for everyone who wants one. Safe workplaces. The aim is to ensure that all employees are trained and instructed in occupational health and safety. All new employees are trained in occupational health and safety, as well as fire safety before starting work. All new recruits receive first aid training also. Talent attraction & development. The Group is constantly looking after the career opportunities of young people, and is committed to ensuring that long-standing employees with long and meaningful experience pass on the knowledge they have gained to young potential talents. Diversity & inclusion. The Group pursues an active and responsible human resources policy, does not discriminate on any grounds, and integrates employees of all ages into the workplace. In 2023, the Group carried out employee job satisfaction surveys in its production units and branches in Vilnius, Kaunas, Telšiai, and Panevėžys. The survey covered 401 out of 449 production employees and 35 out of 48 professionals working in the branches. Following the surveys, improvement action plans were drawn up in each department, and the surveys were repeated 6 months later in 2 of the 4 branches, to assess the implementation of the action plan and the effectiveness of the measures. A re-survey of the production units is planned for 2024. ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY MATERIAL WELLBEING PACKAGE 28 We are committed to the material well-being of our employees, which is why we not only pay a competitive salary that is in line with legal requirements and labor market conditions, but also ensures that employees who achieve their goals receive an adequate material welfare package. To ensure that employees consistently perform at their best, the Group encourages all employees to ensure that their pay is linked to their performance as much as possible. Employees are given opportunities to earn additional income: By completing additional tasks. By doing extra work. By applying for vacancies. Additional benefits that may be granted to employees: On the occasion of a first marriage. On the death of a family member. In case of financial hardship, a loan is granted. Funding for studies. Children of employees (16+ years old) could be employed during summer time for fixed remuneration. Incentive payments for the award of a bachelor's or master's degree. For staff work anniversaries and jubilees. Other benefits are also provided, such as leisure activities (health hikes with the participation of employees' family members), the possibility for employees to come to work by bicycle or scooter, for which the CGroup has a dedicated storage area where loading of these vehicles can also be arranged, and two days of paid leave to go to a medical institution. ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY DIVERSITY, EQUALITY & INCLUSION (INCL. HUMAN RIGHTS) 29 GRI 406-1 | GRI 2-23 | GRI 2-30 The Group does not discriminate and does not differentiate on the basis of gender, age, race, creed, or any other aspect in the context of promotion opportunities or remuneration. We strive to ensure diversity in the workplace based on mutual respect and trust, promoting equal opportunities and allowing colleagues to reach their full potential. These aspirations are enshrined in relevant procedures and policies: The Equal Opportunities Policy and its implementing procedures The Policy on Prevention of Violence and Harassment Human Rights Policy Code of Ethics Standard of Procedures - Personnel Procedure (ISO) PR-03 During 2023, all these documents were reviewed and updated. The Group shall at all times strive to respect and protect human rights as defined in the Universal Declaration of Human Rights adopted by the General Assembly of the United Nations and shall do so in accordance with the conventions relating to human rights. In accordance with the Labor Code of the Republic of Lithuania, the Group has an elected Labor Council which performs clearly defined social partnership functions. The Works Council represents the rights and interests of employees by participating in information, consultation, and other procedures which involve employees and their representatives in the employer's decision-making. Žemaitijos pienas has a Labor Council with 11 members. It also has an elected Chairperson of the Labor Council and a Secretary of the Labor Council. A new Labor Council was elected on 14 April 2022 for a three-year term. During the year 2023, 3 meetings of the Labor Council were held. The Group does not have any collective agreements with its employees, but the possibility of concluding them in the future is not excluded. During 2023, there were no cases of discrimination and human rights violations in the Group. Šilutės Rambynas is temporarily recruiting young, inexperienced employees who are able to integrate well into the day-to-day operations and adapt to the processes at hand. They are eager to get to know the specifics of the work and to learn from the experienced ones. During 2023, 3 young staff members (17-18 years old) were recruited on a temporary summer basis. Šilutės Rambynas also recruits trainees. During the reporting period, 19 students had internships with the Company. ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY 30 GRI 2-7 | GRI 2-8 | GRI 401-1 Employees Category Total number Permanent employees Temporary employees Full-time employees Part-time employees Non-guaranteed hours employees 2023 Total number, of which: 1288 1215 73 1199 89 0 By gender: Women 584 550 34 519 65 0 Men 704 665 39 680 24 0 By company: Žemaitijos pienas 1288 1215 73 1199 89 0 Šilutės rambynas 157 157 0 157 0 0 Notes: The number of staff actually employed on 31 December 2023 is given. The number of employees (total) is given for the end of the reporting period; the number of redundancies and hires is given for the whole reporting period. The figures presented are headcount figures. The number of staff has varied only slightly between reporting periods and during the reporting period. There are no staff members who are not employees of the organization during the reporting period and none during the reporting period. New employees Employee turnover Total number per category Number of new employees Rate, % Number of employees who left the Group Rate, % 2023 By gender: Women 584 99 16.95 % 62 10.62 % Men 704 180 25.57 % 124 17.61 % By age group: under 30 years old 156 110 70.51 % 66 42.31 % 30-50 years old 654 135 20.64 % 101 15.44 % more than 50 years old 478 34 7.11 % 19 3.97 % By company: Žemaitijos pienas 1288 279 21.66% 186 14.44 % Šilutės rambynas 157 43 27,39 % 32 20,38 % Notes: The rate is calculated as follows: the number of new staff in a given category divided by the total number of staff in that category. For example, the number of female recruits among all female employees. ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 DIVERSITY, EQUALITY & INCLUSION (INCL. HUMAN RIGHTS) CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY All employees Board Top management ŽEMAITIJOS PIENAS Šilutės Rambynas ŽEMAITIJOS PIENAS Šilutės Rambynas ŽEMAITIJOS PIENAS Šilutės Rambynas 2023 Total number, of which: 1288 157 5 5 7 (5 of which are board members) 3 By gender: Women 584 77 2 2 4 (2 of which are board members) 1 Men 704 80 3 3 3 (board members) 2 By age group: under 30 years old 156 14 0 0 0 0 30-50 years old 654 59 3 0 4 (3 of which are board members) 0 more than 50 years old 478 84 2 5 3 (2 of which are board members) 3 Annual total compensation ratio 2023 Annual total compensation for the organization’s highest- paid individual to the median annual total compensation for all employees (excluding the highest-paid individual) 3:1 Percentage increase in annual total compensation for the organization’s highest-paid individual to the median percentage increase in annual total compensation for all employees (excluding the highest-paid individual) 2.03 Percentage increase in median annual remuneration for all employees 2.39 31 GRI 2-19 | GRI 2-10 | GRI 2-21 | GRI 405-1 Diversity of governance bodies and employees Notes: the data for gender and age distribution does not include the data for Šilutė Rambynas. Šilutė Rambynas plans to start measuring and reporting data for next year's report. ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 DIVERSITY, EQUALITY & INCLUSION (INCL. HUMAN RIGHTS) CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY Average number of training hours Employees 2023, hrs By gender: Women 2,83 Men 2,69 By employee category: Management 9,60 Specialists 6,59 Workers 1,69 STAFF TRAINING & DEVELOPMENT 32 The Group's priority remains and will continue to be skills development. All employees of the Group have the opportunity to improve their knowledge and skills in person or remotely through internal and external training, courses, seminars, conferences or exhibitions. The Group invests in staff development and competence development in various areas to increase staff motivation and to enable them to do their job even better. The management of this topic is defined in the Procedure "Personnel Management" PR-03. In 2023, 1,476 employees participated in internal and 605 in external training at Group level. In 2022, 1,712 staff participated in internal training and 849 in external training. In 2023, the ŽEMAITIJOS PIENAS participated in: Youth Forum "Challenge. Youth Challenge "Active Summer". Presentations of the project "Career Education in STEAM". Opportunities exhibition "Telšiai - For Youth. Discover, Explore, Learn". VGTU Career Days. ŽEMAITIJOS PIENAS also runs adaptation programs for new employees and employees changing positions. To be implemented in 2023: EU "Apprenticeship Project" - on-the-job training. Mentor and Mentee Project - Mentors train new recruits and those wishing to change roles, e.g. a production worker is trained for an operator position; a technician who has moved to another department is trained by a Mentor to work in a new position etc. A total of 3885.26 hours of training will be provided in 2023. The contract for the EU Structural Funds co-funded project 09.4.3-ESFA- K-827-04-0028 "Improving the skills of employees in the workplace" was signed at the end of 2020, with the aim of ensuring that employees are continuously upskilled, are professionally mobile and able to move quickly to other activities. The project aimed to provide on-the-job training for employees. The project will run from 2020 to 16 June 2023. 160 employees were trained in the production and transport departments. In the near future, the Group plans to carry out a digitization project of its internal training in order to further encourage and involve employees in the learning process. GRI 404-1 | 404-2 Executive Reserve Programme - a multi-module training programme for managerial candidates. ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY OCCUPATIONAL SAFETY & HEALTH 33 The Group has established an Occupational Safety and Health Service, consisting of occupational safety and health specialists, to implement occupational safety and health measures. Each year, these specialists participate in various training courses, seminars and conferences to improve their qualifications. The Group also has an Occupational Health and Safety Policy. All the Group's structural units and departments have designated employees trained in occupational health and safety or departmental employees who are responsible for the safety, health, and fire safety of the employees in the department. They carry out: Continuous risk assessments, Control of breaches, Employee briefings, And other functions to ensure the health and safety of employees. The Group provides the following health and safety training: Induction and fire safety training for all employees. Occupational safety training for specialist professions (locksmiths, production workers, etc.). Occupational safety training for higher risk jobs (forklift work, telfer work, well work, etc.) All new employees are trained in occupational health and safety, fire safety, first aid and preventive measures before starting work. Before being employed, workers must undergo a health check-up and hygiene training for working with foodstuffs at the health facility. Hazard identification, risk assessment, and incident investigation Designated staff are responsible for occupational health and safety within the units. All incidents shall be investigated and recorded in accordance with the Regulations on the Investigation and Recording of Accidents at Work approved by the Government of the Republic of Lithuania. Work-related hazards are identified by the Group's Occupational Safety and Health Service during regular and periodic inspections of the units, as well as by means of video surveillance cameras installed in the workplaces to monitor occupational safety violations. Hazards identified shall be recorded in the Group's network and sent to the head of the unit with the measures to eliminate the hazard and the time limit for implementation of the measure specified. The Group hires an external company authorized to carry out the work to assess occupational risks in all workplaces, and to carry out the assessment and propose measures to prevent or reduce the risks. The results of the occupational risk assessment are used to improve workplaces, select personal protective equipment and develop safety legislation. The Group's rules of procedure state that every worker must immediately report work-related hazards and dangerous situations to the head of the unit or to the occupational safety and health service. The Group's workplace rules state that an employee has the right to refuse to work when there is a risk of injury or danger to his health. Anonymous messages are provided in the form of message boxes into which workers can drop anonymous written messages. The Group ant its companies has adopted a procedure for recording and investigating incidents. All employees are made aware of the obligation to report incidents to the Head of Unit during briefings and training. All incidents occuring are investigated, the causes are recorded and measures are planned to prevent similar incidents. GRI 403-1 | GRI 403-2 | GRI 403-5 ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY 2022 2023 Žemaitijos pienas Šilutės rambynas Žemaitijos pienas Šilutės rambynas Number of fatalities as a result of work-related injury 1 (traffic accident) 0 0 0 Rate of fatalities as a result of work-related injury 0,4 0 0 0 Number of high- consequence work-related injuries (excluding fatalities) 0 0 1 0 Rate of high-consequence work-related injuries (excluding fatalities) 0 0 0,8 0 Number of recordable work- related injuries 2 0 8 0 Rate of recordable work- related injuries 0,8 0 3,1 0 The main types of work- related injury Traffic accident (fatal) and minor injuries Fracture, contusion of limb Mild accidents N/A Total number of hours worked per year by all employees together 2522520 332309 2562560 332309 OCCUPATIONAL SAFETY & HEALTH 34 GRI 403-9 Work related injuries Notes: Rates are based on 1 000 000 hours worked. The company does not employ non-employees. ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY COMMUNITY SUPPORT 35 ŽEMAITIJOS PIENAS projects and awards in 2023 Every year brings new experiences and challenges that encourage us to move forward and spread the message of ŽEMAITIJOS PIENAS products to the world. Last year was a year for projects and awards, of results achieved, and appreciation received from consumers of the products we supply. ŽEMAITIJOS PIENAS products have been appreciated and noticed not only in the Lithuanian market, but also worldwide. In 2023, the Company's pride and joy, cheese "Džiugas", won 4 international awards, highlighting the impeccable taste and quality of this cheese. ŽEMAITIJOS PIENAS is delighted that Džiugas' many achievements are moving full steam ahead towards the 100th milestone of value and importance to the Company. "Džiugas has been awarded three medals in the UK. "The Great Taste 2023 award, which recognizes two maturities of Džiugas cheese - 12 months and 36 months in 180 grams. Also a 36-month matured Džiugas cheese in a 180 gram pack was awarded a gold medal at the International Cheese and Dairy Awards 2023. "Džiugas has also been recognized in Poland, where ŽEMAITIJOS PIENAS products were recognized and appreciated at the Good Cheese Awards. Džiugas 12- month aged cheese, packaged in cheese pieces, was awarded a silver medal for its genuine taste and quality. Pik-Nik CHAMPIONSHIP "PASIPLĖŠOM" One of Pik-Nik's favourite traditions is the cheese sausage ripping championship held in the Baltic States, Hungary, and Spain. In 2023, this event brought people together and, in the form of a game, allowed them to get to know and love cheese sticks. It is also important to mention the exceptional Pik-Nik National Tattoo Campaign organized in the Baltic States, Hungary, Spain, and Croatia. The interest and involvement in the campaign was felt in all these countries. The children's audience was the most engaged in the color tattoo game, while Pik-Nik attracted new consumers and broadened brand awareness. France, the Czech Republic, Hungary, Germany, Poland and other countries participating remotely. The event included judging and tasting of 12-month, 18-month, 24-month, 36-month and 36-month old products. "Maturity of Džiugas cheeses. Not only guests, but also the Company's employees were able to enjoy the range of flavors of these cheeses. This year, the Pik-Nik brand was also added to the Company's award shelf. In the United Kingdom, this product line was awarded two prize positions, winning silver and bronze medals at the International Cheese and Dairy Awards 2023 for the Pik-Nik Original 80 gram pack of cheese sticks. It is important for ŽEMAITIJOS PIENAS to share the history, tradition and exceptional taste of Džiugas cheese in the planning of the annual Džiugiadienė. In 2023, on the first Friday in May, the 21st Džiugiadienis took place in Telšiai, with guests from mmm ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY COMMUNITY SUPPORT 36 MAGIC - for MAGICAL moments The milk chocolate line Magija's cottage cheese has also been internationally recognized for its quality in Poland. The biscuit-flavored curd cheese was awarded a gold medal at the Good Cheese Awards, while the caramel and peanut curd cheese received two awards. The gold medal was awarded for the winning position of the children's treat and secured a win at the Innovative Product 2023 Awards. It is important to note that the Magija brand has organized an exclusive national campaign in Lithuania, Latvia, and Estonia in 2023. The purchase of 3 Magija cheesecakes was entered into a game where the main prize was an unforgettable trip to Disneyland theme park. The company is delighted with the excellent results and the high level of consumer engagement. 2024 will be a very important and symbolic year for the Company, as it will mark the centenary of its rooted, centenary experience in dairy production. Therefore, the 100th anniversary communication - "Tops to Home all year round" - was already launched in 2023. The following brands participated in the ZEMAITIJOS PIENO TOP Brands campaign in Lithuania: "Magija", "TICHĖ", "Pik-Nik", "Džiugas" and "Rambynas". The campaign broadened the awareness of these brands and spread the message of the important anniversary. Support for Ukraine The unprecedented war launched by Russia in Ukraine, which has led to the death of innocent civilians, the destruction of critical engineering and public infrastructure, broken supply chains, and disrupted logistics, and has led to a shortage of clean water and drinking water. In 2023, the Company was not indifferent and contributed to the relief effort in Ukraine with a donation of EUR 14 000. ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY GOVERNANCE / ECONOMIC AREA PRODUCT SAFETY & QUALITY 38 The quality of our products is of the utmost importance to us, so we control every step of the production chain, from the supply of raw materials to the delivery of the product to the consumer. The Group is guided by a Quality and Food Safety Policy approved by the Board of Directors. Aims and objectives of the Food and Safety Policy include: To meet the requirements of the legislation and other regulatory documents applicable to the Group and the requirements of the interested parties by ensuring the quality and safety of the products. To protect the environment by reducing material and energy consumption in all stages of production. Ensuring food safety in the supply chain, from the receipt of raw materials to the final product the consumer receives. To continuously improve production technology and products. To provide consumers and customers with wholesome, authentic, quality, and safe food products in a timely manner. To carefully and competently study the needs of our consumers and to react promptly to changes. To continuously improve the performance of our integrated food safety and quality management system in line with the requirements of our customers, our retailers, and the international standards, ISO 22000, FSSC 22000, BRC, and others. To systematically improve the skills and awareness of all levels of staff, ensuring their responsibility for product safety and quality, their duties and their competences. Žemaitijos pienas continues to be assessed against international standards for food safety and quality management. During 2023, 8 assessments were carried out at ŽEMAITIJOS PIENAS and 4 at Šilutės rambynas. The conclusions of which confirm that both companies comply with the requirements of international food safety standards. Šilutės Rambynas pays great attention to ensuring the quality and safety of its products. Šilutė Rambynas operates under the following integrated food safety and quality management systems: BRCGS (BRC Global Standard) - since 2010 FSSC 2200 (includes ISO 22000:2005) - since 2019 HALAL Standard - since 2015 EcoAgros certification - since 2007 GRI 416-1 | 416-2 ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY PRODUCT SAFETY & QUALITY 39 The Group has set the following food safety and quality targets for 2024- 2025: Improving the quality of dairy products Ensure food safety in the supply chain, from the receipt of raw materials, to materials used in the final product Remain at the level of the most advanced dairy producers in Eastern Europe Implement the proven New Product Development Plan Ensure on-time delivery of products without transport irregularities Meet the requirements of international food safety standards To improve the IMSMS system of AB "žemaitijos pienas" in accordance with LEAN methods and to standardize workplaces, ensuring that the production of products is carried out identically in different shifts and by different employees During the reporting period, 100% of the company's product and service categories were tested for health and safety impacts. There were no non-conformities related to the health and safety impacts of products and services during 2023. ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY RISK MANAGEMENT 40 The Group's risk management strategy is implemented through the organization's operating principles, values and business philosophy, consistent with a Risk Management Framework, including integrated internal policies, procedures, and practices. The general logic of the functioning of internal control is presented in the Risk Management Framework Map. The proper functioning of internal control is achieved through: Establishing and maintaining an appropriate control environment. Continuous monitoring and evaluation. Horizontal and vertical communication, including information systems supporting business processes. It separates business decision-making and operational functions from controlling functions; sets limits and controls on decision-making powers; and defines collegial decision-making in business processes. ŽEMAITIJOS PIENAS | Risk management map Increasing level of detail in risk management system Org. strategy Risk management strategy Risk management policies Limits on material risks General guidelines by area of activity Detailed guidelines (approval procedures, procedures, orders, action plans) Risks Goals Internal control systems ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY RISK MANAGEMENT 41 SUSTAINABILITY RISK ASSESSMENT In order to ensure the sustainability of the business due to the increasing commitment of companies to and understanding of the benefits of stricter regulation, the Group needs to take into account the environmental, social, and economic (ESG) factors that affect the entire value chain, both in the short and long term. Anything that challenges the smooth functioning of supply and demand for goods and services can pose a risk to value and supply chain management. In order to manage potential risks, the Group commits and obliges its suppliers and partners to actively pursue a social responsibility policy in terms of environment, transparency, and employees before signing contracts with suppliers. This clause is included in all (100%) contracts signed with suppliers. Risk assessment and management refers to the process of identifying, assessing, and controlling any threats to the Group's capital and earnings. Some degree of risk is always present in any operating system and is important in determining sustainability risk management for all businesses, organizations, and governments. By proactively identifying and managing the risks that affect our supply chains, production, operations, and other functions, we can build effective systems to ensure business sustainability. Below is a model for assessing sustainability and disclosing risks. Employees Culture, talent, leadership, wellbeing and development Resources Energy, water, raw materials, waste, air quality, GHG emissions Finance Profitability, return on investment, risk management Services Buildings, landscape, public services, infrastructure management Value chain Supply chain, customers, business model, product innovation Profitability modelling Setting financial targets and priorities Sustainability assessment Identify areas of risk and opportunity GRI 414-1 | GRI 308-1 ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY RISK MANAGEMENT 42 Early identification of risks is essential for effective risk management. Industries with longer supply chains tend to face higher risks, which may arise from occupational health and safety incidents, shortages of natural resources, or technical failures leading to shortages of raw material supply. Risks can manifest themselves in a variety of ways, ranging from those that are market-related to those that affect the operations of our Group companies. Effective risk management is becoming increasingly important, and we therefore present a number of risk sub-systems that we need to take into account in our day-to-day operations. SUPPLY CHAIN SUSTAINABILITY RISKS As a dairy farmer, an uninterrupted supply of raw milk is crucial for us. When identifying supply chain risks, we need to look not only at the suppliers of raw milk, but also at the suppliers of other raw materials that supply the materials needed to produce and market our products. ENVIRONMENTAL RISKS Physical. Extreme weather and loss of biodiversity. From the business development side to the supply chains, inadequately managed physical risks to the Group's environment can have serious consequences. Political. New legislation is being adopted and existing legislation is being strengthened for all EU Member States. Aggressive climate mitigation actions are proposed, with sustainable products becoming the norm. HEALTH & SAFETY RISKS To prioritize active and engaged employees, we need to identify and manage occupational health and safety risks that can threaten the sustainability of the business, including workplace environment, air quality, or other workplace hazards. EMPLOYEE RISKS Employee risk refers to the consequences of the actions of our Company's employees when they deviate from the approved internal regulatory documents and may damage the business reputation through fraud or other illegal activities. QUALITY RISK When the quality of products or services does not meet the Company's stated quality objectives and customer expectations, we are exposed to quality risk. From production equipment to transportation, products can be exposed to a range of quality risks at all stages of their life cycle. TECHNOLOGICAL RISKS Risks related to technology include hardware or software failures, data risks, hardware attacks and non-compliance with data management or others. Technological risks are affecting equipment and processes associated with many business systems. SECURITY RISKS Security risks include physical risks, such as theft of documents or intrusion into private domains, and cyber-security threats related to data. A cyber-attack can lead to loss of information and economic costs, with the risk of reputational damage or loss of sales and customers. ENERGY RISKS Energy risks expose us to risks including increases in the price of energy resources, energy supply triggers, regulatory changes affecting energy consumption, and customer demands to reduce our carbon footprint. ECONOMIC RISKS Economic risk refers to the risk that macroeconomic conditions, such as inflation, changes in interest rates, exchange rate fluctuations or economic sanctions pose to the Group. LIABILITY PROTECTION RISK We may be liable if our activities cause damage or injury to third parties, whether to people, property, or business. ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY COMPLIANCE & PREVENTION OF CORRUPTION 43 Code of Ethics The Group operates in accordance with a Code of Ethics approved in 2018. This Code sets out standards of conduct for all employees, regardless of position, scope of employment, etc. The Group has appropriate internal processes in place to mitigate the risk of corruption and bribery. An Equal Opportunities Policy for the Group was approved in 2018. The Company's Competition Compliance Policy was approved in 2021 in order to achieve high standards of competition law compliance and ethical behaviour towards its competitors. In our management's assessment, the measures put in place are effective. Oversight & responsibilities The Group seeks to minimize the risk of legal non-compliance and to ensure that the Group's operations comply with legal requirements and standards. To this end, the Group's lawyers are involved in the decision- making process and in the drafting and coordination of various policies, procedures, and contracts. Tax transparency The Group's commitment is to calculate, declare, and pay taxes correctly and in good faith, in accordance with the applicable laws of the Republic of Lithuania. The Department of Finance is the overseeing body for fair payment of taxes. The Group’s Management team is tasked with preparation and fair presentation of the Group's consolidated financial statements in accordance with EU Adopted International Financial Reporting Standards. This includes overseeing and implementing the necessary and adequate internal control measures which ensure that the Group's consolidated financial statements are prepared in a manner that is free from material misstatement, whether due to fraud or error. In preparing the Group and consolidated financial statements, management is required to make an assessment of the Company's and the Group's ability to continue as an ongoing concern and to disclose, as necessary, matters relating to ongoing concern, and the application of the relevant basis of accounting, unless management intends to liquidate the Company and the Group or to cease operations, or unless management has no realistic alternative but to do so. During the reporting period, the Group did not impose any fines or non- monetary sanctions for material non-compliance with laws and regulations. The Company is a member of the Lithuanian Dairy Farms Association and the Lithuanian Food Exporters Association. Prevention of corruption The Group has a zero-tolerance approach to corruption and makes significant efforts to prevent it in all its activities. The Code of Conduct obliges employees to avoid situations that could lead to conflicts of interest. The Group's policy in this respect strictly prohibits the acceptance of gifts, invitations to meetings, cultural or other events, that could lead to a mutual obligation of the parties. Efforts are continuously made to ensure the widest or largest possible range of suppliers. In addition to price, quality and reliability of the supplier are important criteria in the Group's evaluation methodology when purchasing goods and selecting a supplier. Suppliers are audited before the purchase of goods and only afterwards a decision is taken on the purchase of goods or services. The Group purchases goods and services in accordance with the principles of equality, non-discrimination, mutual recognition, proportionality, and transparency. GRI 2-25 | GRI 2-27 | GRI 2-28 | GRI 205-3 ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY COMPLIANCE & PREVENTION OF CORRUPTION 44 One of the Group's guiding principles is to develop fair and transparent cooperative relationships with suppliers, customers, and other entities. However, the Group's policy prohibits its employees from offering gifts to customers, suppliers, partners, or other persons that would help to maintain cooperation. This rule does not apply to gifts of extremely low value, such as holiday cards or greeting cards. There were no confirmed incidents of corruption during the reporting period. Competition The Group has a strong competition law culture. In order to ensure effective compliance with competition rules, it has adopted a Competition Law Compliance Policy. The main objective of this policy is to provide guidance to all employees from all Group companies on the basic principles of competition law and to enable them to comply with them. The policy aims to enhance the integration of competition rules across the Group, to set out rules of conduct in dealing with competitors, customers, and suppliers, and to provide guidelines for assessing such conduct. Privacy Policy The Group takes the protection of personal data seriously and therefore strives to ensure the protection of personal data rights processing by all means. Data subjects are the users of the products, partners, and other persons who entrust us with their personal information, with the Group being responsible for justifying this trust. GRI 2-25 In this Privacy Policy, the Group: Defines the commitment and responsibility to protect and respect individual privacy. Explains how it collects, uses, and protects (processes) personal data. Informs data subjects about how their personal data is processed and what rights each data subject has. When processing the personal data of data subjects, the Group complies with the Law on Legal Protection of Personal Data of the Republic of Lithuania, the Law on Electronic Communications of the Republic of Lithuania, and other directly applicable legal acts regulating the protection of personal data, as well as with the instructions of the competent authorities. ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY OVERVIEW OF THE EU TAXONOMY ASSESSMENT 45 The European Union (EU) taxonomy (Taxonomy Regulation, 2020/852, and related delegated acts) is a system for classifying economic activities in order to guide private investment towards environmentally sustainable activities that contribute to the environmental objectives of the European Green Deal. The taxonomy defines the following environmental objectives: Climate change mitigation. Adaptation to climate change. Sustainable use and protection of water and marine resources. Transition to a circular economy. Prevention and control of pollution. Protecting and restoring biodiversity and ecosystems. The taxonomy sets out criteria based on scientific evidence to assess the sustainability of activities. Business activities that are included in the taxonomy and meet its criteria can be classified as sustainable and attract green investments. Taxonomy-eligible economic activity is defined as an activity described in the relevant delegated acts of the Taxonomy Regulation, i.e. it is included in the Taxonomy. Companies that have identified that their economic activity's revenue (Turnover), capital expenditure (CapEx) and/or operating expenses (OpEx) are related to the activities described in the delegated acts are required to carry out an analysis and disclose the extent to which their activities meet the criteria of the taxonomy in relation to these indicators. Taxonomy-aligned activity is one that meets the criteria of the technical screening of the taxonomy, i.e. contributes significantly to at least one of the six environmental objectives, causes no significant harm to the other five, and complies with the minimum safeguards. In this report, in accordance with the provisions of the Taxonomy Regulation and the related delegated acts, we provide the main performance indicators of the group of companies (AB ŽEMAITIJOS PIENAS together with its subsidiary) and information on the compliance of taxonomy-eligible activities with the criteria. Identifying taxonomy-eligible activities and calculating indicators The Group carries out taxonomy-eligible activities and/or invests in taxonomy-eligible measures that can contribute to the objectives of climate change mitigation, adaptation and the transition to a circular economy. The Group does not carry out activities that may contribute to other environmental objectives of the taxonomy. The assessment of the compliance of the Group's activities with the criteria of the taxonomy has revealed that the Group has not prepared the climate change risk and vulnerability assessment, i.e. it does not meet one of the criteria for not causing significant harm. It is therefore concluded that the group's companies do not currently carry out activities that are sustainable in terms of the taxonomy (meeting the criteria). It is important to underline that the Group fulfils the minimum safeguards condition: it has implemented the recommended measures for socially responsible and ethical business as set out in the OECD Guidelines for Multinational Enterprises, and complies with the UN Guiding Principles on Business and Human Rights. Revenue The main activities of the group - production and marketing of dairy products - are currently not included in the taxonomy and are therefore not subject to the taxonomy criteria. The fact that an activity is not included in the taxonomy does not mean that it cannot be carried out in an environmentally sustainable manner. ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY OVERVIEW OF THE EU TAXONOMY ASSESSMENT 46 Group companies derive income from other additional activities that are included in the taxonomy. Some of the revenues generated by the Company and its subsidiary in 2023 are consistent with these activities defined in the taxonomy: Renting of premises in own buildings - Acquisition and ownership of buildings. Transport services - Freight transport services by road. Collection and transport of deposit containers - Collection and transport of non-hazardous and hazardous waste. The share of revenue from taxonomy-eligible activities is calculated by dividing the revenue from products and services related to taxonomy- eligible activities by the total revenue of the group. Only 1.89% of the group's revenue is attributable to taxonomy-eligible activities (see Table 1). CapEx Some of the group’s additions to long-term assets through 2023 correspond to the following activities as defined in the taxonomy: Buildings and building construction - Acquisition and ownership of buildings. Acquisition of light (passenger) vehicles - Transport by motorbikes, passenger cars and light commercial vehicles. Acquisition of a wind power plant - Installation, maintenance and repair of renewable energy technologies. Acquisition of freight vehicles - Freight transport services by road. Road construction - Infrastructure enabling road transport and public transport. Capital expenditure for taxonomy-eligible activities is calculated as the investment related to the activities defined in the taxonomy divided by the total capital expenditure. In total, 59.18% of the Group's capital expenditure is attributable to taxonomy-eligible activities (see Table 2). OpEx Part of the Group's operating costs according to the taxonomy through 2023 correspond to the following activities defined in the taxonomy: Repair and maintenance of buildings - Acquisition and ownership of buildings. Maintenance and repair of light (passenger) vehicles - Transport by motorbikes, passenger cars and light commercial vehicles. Maintenance and repair of own freight vehicles - Freight transport services by road. Periodical repair and rental of equipment - Production of heat/cool from bioenergy. The taxonomy's definition of OpEx differs from the definition normally used in financial accounting and covers a much smaller proportion of expenses. Applying the taxonomy definition, we have included the costs of renting and maintaining assets in the denominator of OpEx. In total, 56.37% of the Group's operating expenses are classified as taxonomy- eligible activities (see Table 3). ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY 47 Table 1. Revenue according to taxonomy in 2023 Substantial contribution criteria Do no significant harm criteria Economic activity NACE code(s) Absolute revenue 2023 Proportion of revenue, 2023 Climate change mitigation Climate change adaptation Climate change mitigation Climate change adaptation Water and marine resources Circular economy Pollution Biodiversity and ecosystems Minimum safeguards Taxonomy- aligned proportion of revenue, 2023 Taxonomy- aligned proportion of revenue, 2022 Category (enabling) Category (transitional) thousand Eur % % % Y/N Y/N Y/N Y/N Y/N Y/N Y/N % % E T A. Taxonomy-eligible activity: A.1. Environmentally sustainable activities (Taxonomy-aligned) Revenue of environmentally sustainable activities (Taxonomy- aligned) (A.1) 0 0% - - - - - - - - Y 0% 0% - - A.2. Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) Acquisition and ownership of buildings L68 372 0.14% Freight transport services by road H49.41, H53.10, H53.20, N77.12 3 572 1.28% Collection and transport of non-hazardous and hazardous waste E38.11, E38.12, F42.9 1 315 0.47% Total: A.1 + A.2 5 259 1.89% B. Taxonomy-non-eligible activities Revenue of taxonomy-non- eligible activities (B) 272 745 98.11% TOTAL: A + B 278 004 100% OVERVIEW OF THE EU TAXONOMY ASSESSMENT ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY 48 Table 2. Capital expenditure (CapEx) according to taxonomy in 2023 Substantial contribution criteria Do no significant harm criteria Economic activity NACE code(s) Absolute Taxonomy CapEx in 2023 Proportion of CapEx, 2023 Climate change mitigation Climate change adaptation Climate change mitigation Climate change adaptation Water and marine resources Circular economy Pollution Biodiversity and ecosystems Minimum safeguards Taxonomy- aligned proportion of CapEx, 2023 Taxonomy- aligned proportion of CapEx, 2022 Category (enabling) Category (transitional) thousand Eur % % % Y/N Y/N Y/N Y/N Y/N Y/N Y/N % % E T A. Taxonomy-eligible activity: A.1. Environmentally sustainable activities (Taxonomy-aligned) CapEx of environmentally sustainable activities (Taxonomy-aligned) (A.1) 0 0% - - - - - - - - Y 0% 0% - - A.2. Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) Acquisition and ownership of buildings L68 120 0.89% Transport by motorbikes, passenger cars and light commercial vehicles H49.32, H49.39, N77.11 101 0.75% Freight transport services by road H49.41, H53.10, H53.20, N77.12 522 3.87% Installation, maintenance and repair of renewable energy technologies F42, F43, M71, C16, C17, C22, C23, C25, C27, C28 5 922 43.93% Infrastructure enabling road transport and public transport F42.11, F42.13, M71.12, M71.20 1 313 9.74% Total: A.1 + A.2 7 978 59.18% B. Taxonomy-non-eligible activities CapEx of taxonomy- non-eligible activities (B) 5 504 40.83% TOTAL: A + B 13 482 100% OVERVIEW OF THE EU TAXONOMY ASSESSMENT ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY 49 Table 3. Operating expenditure (OpEx) according to taxonomy in 2023 Substantial contribution criteria Do no significant harm criteria Economic activity NACE code(s) Absolute operating expenditure in 2023 Percentage of operating expenditure, 2023 Climate change mitigation Climate change adaptation Climate change mitigation Climate change adaptation Water and marine resources Circular economy Pollution Biodiversity and ecosystems Minimum safeguards Taxonomy- aligned percentage of operating expenditure, 2023 Taxonomy- aligned percentage of operating expenditure, 2022 Category (enabling) Category (transitional) thousand Eur % % % Y/N Y/N Y/N Y/N Y/N Y/N Y/N % % E T A. Taxonomy-eligible activity: A.1. Environmentally sustainable activities (Taxonomy-aligned) OpEx of environmentally sustainable activities (Taxonomy-aligned) (A.1) 0 0% - - - - - - - - Y 0% 0% - - A.2. Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) Acquisition and ownership of buildings L68 154 5.55% Transport by motorbikes, passenger cars and light commercial vehicles H49.32, H49.39, N77.11 38 1.36% Freight transport services by road H49.41, H53.10, H53.20, N77.12 1 314 47.25% Production of heat/cool from bioenergy D35.30 59 2.11% Total: A.1 + A.2 1 565 56.37% B. Taxonomy-non-eligible activities OpEx of taxonomy-non- eligible activities (B) 1 216 43.63% TOTAL: A + B 2 782 100% OVERVIEW OF THE EU TAXONOMY ASSESSMENT ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY GRI INDEX 50 Statement of use AB „ŽEMAITIJOS PIENAS“ group of companies have reported in accordance with the GRI Standards for the period from 1 January to 31 December 2023 GRI 1 used GRI 1: Foundation 2021 Applicable GRI Sector Standards Not applicable GRI 2: General Disclosures 2021 Disclosure Location 1. The organisation and its reporting practices 2-1 Organizational details 4, 5 p. 2-2 Entities included in the organization’s sustainability reporting 3, 4, 5 p. 2-3 Reporting period, frequency and contact point 4 p. 2-4 Restatements of information 4 p. 2-5 External assurance 4 p. 2. Activities and workers 2-6 Activities, value chain and other business relationships 5 p. 2-7 Employees 30 p. 2-8 Workers who are not employees 30 p. 3. Governance 2-9 Governance structure and composition 9 p. 2-10 Nomination and selection of the highest governance body 9 p. 2-11 Chair of the highest governance body 9 p. 2-12 Role of the highest governance body in overseeing the management of impacts 9 p. 2-13 Delegation of responsibility for managing impacts 9 p. Disclosure Location 2-14 Role of the highest governance body in sustainability reporting 9 p. 2-15 Conflicts of interest 9 p. 2-16 Communication of critical concerns 9 p. 2-17 Collective knowledge of the highest governance body 9 p. 2-18 Evaluation of the performance of the highest governance body 9 p. 2-19 Remuneration policies 31 p. 2-20 Process to determine remuneration 31 p. 2-21 Annual total compensation ratio 31 p. 4. Strategy, policies and practices 2-22 Statement on sustainable development strategy 3, 7, 8 p. 2-23 Policy commitments 7, 8, 29 p. 2-24 Embedding policy commitments 7, 8 p. 2-25 Processes to remediate negative impacts 11, 43, 44 p. 2-26 Mechanisms for seeking advice and raising concerns 11 p. 2-27 Compliance with laws and regulations 43 p. 2-28 Membership associations 43 p. 5. Stakeholder engagement 2-29 Approach to stakeholder engagement 11 p. 2-30 Collective bargaining agreements 29 p. Risk management 40 p. 1GRI 3: Key Sustainability Themes 2021 3-1 Process to determine material topics 12 p. 3-2 List of material topics 13 p. ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY GRI INDEX 51 Disclosure Location 3-3 Management of material topics 13 p. Economic topics GRI 414: Supplier Social Assessment 2016 414-1 New suppliers that were screened using social criteria 41 p. GRI 205: Anti-corruption 2016 205-3 Confirmed incidents of corruption and actions taken 43 p. Environmental topics GRI 302: Energy 2016 302-1 Energy consumption within the organisation 15, 16 p. 302-3 Energy intensity 17 p. GRI 303: Water and Effluents 2018 303-1 Interactions with water as a shared resource 19 p. 303-2 Management of water discharge related impacts 19 p. 303-5 Water consumption 19 p. GRI 305: Emissions 2016 305-1 Direct (Scope 1) GHG emissions 18 p. 305-2 Energy indirect (Scope 2) GHG emissions 18 p. 305-3 Other indirect (Scope 3) GHG emissions 305-4 GHG emissions intensity 18 p. GRI 306: Waste 2020 306-2 Management of significant waste-related impacts 23 p. 306-3 Waste generated 23 p. 306-4 Waste diverted from disposal 24 p. Disclosure Location GRI 308: Supplier Environmental Assessment 2016 308-1 New suppliers that were screened using environmental criteria 41 p. Social topics GRI 401: Employment 2016 401-1 New employee hires and employee turnover 30 p. GRI 403: Occupational health and safety 2018 403-1 Occupational health and safety management system 33 p. 403-2 Hazard identification, risk assessment, and incident investigation 33 p. 403-5 Worker training on occupational health and safety 33 p. 403-9 Work-related injuries 34 p. GRI 404: Training and Education 2016 404-1 Average hours of training per year per employee 32 p. 404-2 Programs for upgrading employee skills and transition assistance programs 32 p. GRI 405: Diversity and Equal Opportunity 2016 405-1 Diversity of governance bodies and employees 31 p. GRI 406: Non-discrimination 2016 406-1 Incidents of discrimination and corrective actions taken 29 p. GRI 416: Customer Health and Safety 2016 416-1 Assessment of the health and safety impacts of product and service categories 38 p. 416-2 Incidents of non-compliance concerning the health and safety impacts of products and services 38 p. ŽEMAITIJOS PIENAS AB | SOCIAL RESPONSIBILITY (SUSTAINABILITY) REPORT | 2023 CONTENT LETTER FROM A CEO ACTIVITIES AND STRUCTURE ENVIRONMENTAL AREA SOCIAL AREA ECONOMIC AREASUSTAINABILITY AT THE GROUPABOUT THE SUSTAINABILITY REPORT EU TAXONOMY
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