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's activity report 2022

The main activity of the Warmeston Group is the production and sale of biomass fuels for industrial and domestic use. The company uses only low-value logging wood and wood processing waste for the production of wood pellets, for which there is no alternative use outside of bioenergy in Estonia in the volumes used in pellet production. By creating a stable demand for low-value wood, the pellet sector improves

the competitiveness of the Estonian forestry and wood industry and brings money into Estonia through mainly export-oriented sales.

Wood pellets are used for renewable energy production. Electricity and heat produced from wood pellets replace the use of energy produced from fossil fuels. The use of wood pellets and biomass more broadly is a very low-carbon alternative that helps reduce the negative impacts of climate change on society.

The advantage of wood pellets in domestic and industrial solutions is their high energy content and the ability to automate and control energy production. In this way, renewable energy produced from wood pellets complements energy produced from the sun and wind, the production of which is variable depending entirely on the weather.

Market Overview 2022

The past financial year was extraordinary for all companies operating in the wood and energy sectors.

The challenge was the skyrocketing costs in several categories, but also increased demand.

Both raw material and sales markets reached historical record levels. The behavior of the markets was significantly influenced by the sanctions imposed by the European Union on the import of biomass and wood pellets from Russia and Belarus into the European Union. Despite rapid inflation, challenges in supply chains and high price volatility, the sector as a whole was able to cope well with the situation. By the end of the year, the market has shown signs of calming down and stability is returning.

Production and sales In 2022, according to short-term statistics from Statistics Estonia, 1,507,269 tons of wood pellets were produced in Estonia (2021: 1,260,554 tons, 2020: 1,269,125 tons, 2019: 1,244,050 tons). According to foreign trade statistics, 1,377,970 tons were sold for export (2021: 1,563,805 tons, 2020: 1,090,074 tons, 2019: 1,126,192 tons). 2022 was entered with significantly smaller stocks than in 2021 and mainly pellets produced in the same year were realized. According to FAOSTAT data for 2021, Estonia was 10th in the world in terms of annual production volume (2020: 9, 2019: 11, 2018: 10) and sixth in terms of export volume (2020: 6, 2019: 6).

It is estimated that Estonian production capacity actually exceeded the volumes produced in 2021 by more than 15%.

The Warmeston Group includes four wood pellet production plants in Estonia: (cid:127) Sauga plant (up to 210,000 tons of pellets per year) (cid:127) Järvere plant (up to 110,000 tons of pellets per year) (cid:127) Purila plant (up to 105,000 tons of pellets per year) (cid:127) Sõmeru plant (up to 90,000 tons of pellets per year) - Ardor OÜ

The estimated annual production capacity of the four plants was up to 515,000 tons of wood pellets at the end of the year. Due to the unstable situation in the raw material markets, the actual production volume decreased by 7% in annual comparisons, reaching a total of 440,633 tons across all plants. In terms of production volume, Warmeston is the second largest wood pellet producer in the Baltics and among the top five in Europe. 77% of the produced wood pellets were sold for export (2021: 77%), mainly to Denmark, Finland and Latvia. In Estonia, wood pellets produced in the Warmeston Group's plants are mainly marketed under the A-pellet brand (www.apellet.ee).

Group companies

The subsidiaries and affiliates of Warmeston include the 50% owned affiliate OÜ Ardor, established in 2013, whose main activity is to operate the group's Sõmeru pellet plant and a 1260 kW solar park. The 50% owned affiliate Combitrans OÜ, focused on the production and logistics of wood chips, was established in 2016, and the 100% owned forestry company Timberstock OÜ was acquired in 2017. As a long-term financial investment, a 12.5% stake in the forestry and timber transport company Iriscorp Transport OÜ was acquired in 2018.

An average of 92 people worked in the group during the financial year and their labor costs amounted to 3.8 million euros (in 2021, 91 people worked and their labor costs amounted to 3.5 million euros). Related to Warmeston