CONSOLIDATED ANNUAL REPORT AND CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ADOPTED BY 2018 THE EUROPEAN UNION, PRESENTED TOGETHER WITH THE INDEPENDENT AUDITOR’S REPORT 1 CONTENTS INDEPENDENT AUDITOR’S REPORT 3 WORD OF THE CHAIRMAN OF THE BOARD 9 WORD OF THE CEO 10 GENERAL INFORMATION 11 COMPANY MANAGEMENT 13 DIVIDEND POLICY 20 MAJOR EVENTS OF THE ACCOUNTING PERIOD 21 MAJOR EVENTS THAT OCCURRED AFTER THE END OF THE 22 ACCOUNTING PERIOD KEY PERFORMANCE AND FINANCIAL INDICATORS 23 ACTIVITY DESCRIPTION 30 ACTIVITY OVERVIEW 37 PLANS AND FORECASTS 41 STRATEGY GOALS AND THEIR IMPLEMENTATION 43 MAIN OPERATIONAL RISKS 48 CORRUPTION PREVENTION 50 SOCIAL RESPONSIBILITY 52 INFORMATION ON SPECIAL OBLIGATIONS 57 COMPLIANCE WITH THE TRANSPARENCY GUIDELINES 58 AUDITORS 59 CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS 60 2 WORD OF THE CHAIRMAN OF THE BOARD Dear friends, 2018 was of great importance to the group of Lietuvos paštas companies. This year was marked by targeted changes resulting from a sustainable foundation for further action and a clear identification of business lines. One of the most important cause that has provided a clear, solid foundation for the company's effective management is the formation of a new team of managers. I believe that the new managers, having extensive and broad experience in the largest companies in the country, will be able to firmly hold the steering wheel of the Lietuvos paštas company group in a troubled, shifted sea that has to be passed through. Particular importance for the company's activities was given to the new strategy of the Lietuvos paštas company group adopted in 2018. It has set a clear, firm direction that needs to be taken to become a modern post, to better meet customer needs, to ensure decent working conditions for its employees and sustainable shareholder growth. The strategy of the Lietuvos paštas company group focuses on four priorities: first, the development of e-commerce solutions for customers in both global and local markets; second, performance optimization, automation and digitization; thirdly, the creation of a motivating working environment and, fourthly, ensuring the provision of services of public interest. It is these four strategic directions that clearly reflect the objectives set out for the company in the shareholder's letter of expectations and that is the firm foundation upon which the activities of the Lietuvos paštas company group will be constructed until 2023. It is also worth noting that in 2018, together with the strategy of the Lietuvos paštas company group, important policies (real estate management, coordination of public and private interests, remuneration) were approved, which, without doubt, enabled to form the principles of transparent, sustainable and efficient management. The excellent financial results of the company in 2018, which exceeded the results of the previous year two-fold, show that postal services, which today are inseparable from the growth of e- commerce, are and will be of great public interest. Changing the forms and ways of providing the services and using them, the main point remains the same – people and businesses both in Lithuania and in the world want to receive and send comfortably. And this is the main axis of activity of the Lietuvos paštas company group and the ambition that will be followed clearly and purposefully. Nerijus Datkūnas Independent member of AB Lietuvos paštas Board and Chairman of the Board 9 WORD OF THE CEO Dear customers, colleagues, shareholders, the year 2018 was particularly successful for Lietuvos paštas. With a growing number of parcels and more efficient operation, the Lietuvos paštas company group earned EUR 3.7 million in net profit, EUR 2.1 million more than in 2017. We are proud to have managed to maintain a high quality of service by delivering record quantities of parcels. With excellent performance, we have improved working conditions and salaries for the least-paid employees of the company. Last year, post offices were renovated, mailmen and post office employees were equipped with modern work tools. We became ready to move the distribution activities to new, comfortable premises. Post business is changing as well as customer expectations. Postal companies of other countries, international logistics companies and other parcel delivery service providers are actively involved in the growing Lithuanian market. For this reason, we must ensure a higher quality of service, adapt the network to customer needs, and digitize our operations. We provided city mailmen with tablets and lightweight printers. The first results of this change show that we have accelerated our customer service and streamlined the company's processes by getting rid of complex paper documentation. By the end of 2020, we will provide all of our mailmen with these tools. The total project investment exceeds 1 million euros. Electric bicycles produced in Lithuania will also contribute to these goals, and in the spring of 2019 we will equip 210 mailmen in small towns of Lithuania. We hope that the electric bicycle will ease the workload and speed up the delivery of parcels and correspondence. In 2018, we expanded our customer-favoured post office network. In 2018, 16 new self-service parcel terminals were installed, with investments amounting to approximately 1 million euros. At present, our customers can send and receive parcels at 136 post offices in Lithuania. It is expected that this project will continue to be implemented in 2019. Post offices are also upgraded. In 2018, we developed a program for the upgrading of post offices, which already received 0.4 million euros. The program will continue in 2019. The automated parcel and mail distribution project continues to be of strategic importance for the Lietuvos paštas company group. It must be implemented in order to survive and grow in a highly competitive postal market. After the project, we will be able to substantially modernize postal operations and optimize the entire mail delivery process. The project has been successfully implemented and the contract for the design and construction of the new logistics centre has been signed. At the end of 2018, Nordic Investment Bank and Lietuvos paštas signed a ten-year EUR 17.5 million loan agreement for the implementation of the automated distribution project, which will ensure sustainable financing of this strategic project. The e-self-service system "My consignments" was successfully launched in the electronic space, which is becoming especially important for the new generation of customers. With this system, accessible at manosiuntos.lt, you can easily prepare and send the consignment quickly. These services are actively used by e- commerce customers – one of the fastest growing customer segments. The year 2018 was also a year of improving the company's management. Starting the new board and setting up a team of professional managers, the company's strategy was updated, key projects initiated, focusing on process review, operational efficiency, transparency and risk management. The main strategic activities were refined by getting rid of non-viable services. In 2019 we must maintain the growth rate. We will seek that the changes taking place in Lietuvos paštas will strengthen our competitive advantage in the market, ensure good working conditions for the employees and create a long-term basis for the successful operation of the Group. Asta Sungailienė CEO GENERAL INFORMATION Reference Period The consolidated financial statements of Public Limited Liability Company Lietuvos paštas (hereinafter referred to as Lietuvos paštas, LP or the Company) dated 31 December 2018 have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The Consolidated and Lietuvos paštas Annual Report is prepared in accordance with the Government of the Republic of Lithuania Resolution No. 1052 dated 14 July 2010 "Approval of the Description of the Guidelines for Ensuring Transparency of Activities of State-Owned Enterprises and Designation of a Coordinating Body". Key data about Lietuvos paštas, 31 December 2018 Key data about the Public Limited Liability Company Lietuvos paštas Name Public Limited Liability Company Lietuvos paštas Registered office J. Jasinskio st. 16, 03500 Vilnius Telephone (+370 700) 55 400 Fax (+370 5) 216 3204 E-mail [email protected] Website address www.lietuvospastas.lt Legal status Public limited liability company, private legal entity of limited civil liability Term of activity Open-ended Company code 121215587 VAT identification number LT212155811 Data processor of legal entities State Enterprise Centre of Registers Articles of Association 5 March 2019 registration date Main activities Postal, courier, financial and other services Information about the Lietuvos paštas company group On 31 December 2018, the company group of Public Limited Liability Company Lietuvos paštas (hereinafter referred to as the LP Group) consisted of parent company Lietuvos paštas and subsidiaries, of which Lietuvos paštas holds 100 percent of the shares: •AB Baltic Post, the main activity of which is courier and self-service parcel terminal services. •UAB Lietuvos pašto finansinės paslaugos, the main activity of which is printing services. •UAB LP mokėjimų sprendimai, the main activity of which is consulting services. 11 GENERAL INFORMATION Shareholders All shares of the Group are owned by the Republic of Lithuania.