TKL GmbHLiquidiert

Polygon Group AB

Stockholm

Konzernabschluss zum Geschäftsjahr vom 01.01.2022 bis zum 31.12.2022

Annual Report and consolidated financial statements 2022

Contents

Administration report

Operations

Ownership structure

2022 financial year

Financing and liquidity

Capital expenditures

Research and development

Employees

Tax

Significant risks and uncertainties and risk management

Sustainability report in accordance with the Swedish Annual Accounts

Act

Parent Company

Proposed appropriation of earnings

Consolidated financial statements

Consolidated income statement

Consolidated statement of comprehensive income

Consolidated balance sheet

Consolidated statement of cash flow

Consolidated statement of changes in equity

Notes to the consolidated financial statements

Note 1 Corporate information

Note 2 Accounting policies for the consolidated

financial statements

Note 2.1 Significant accounting policies

Note 2.2 Changes in accounting policies

Note 2.3 Summary of key accounting policies

Note 2.4 Key accounting assessments, estimates and assumptions.

Note 3 Business combinations and divestments

Note 4 Sales of service

Note 5 Breakdown of expenses by category

Note 6 Audit fees

Note 7 Lease costs

Note 8 Salaries, social security expenses and employee benefits

Note 9 Financial income and expenses

Note 10 Tax

Note 11 Goodwill

Note 12 Other intangible assets

Note 13 Impairment testing of goodwill and trademarks

Note 14 Right-of-use assets

Note 15 Property, plant and equipment

Note 16 Accounts receivable

Note 17 Contract assets and liabilities

Note 18 Prepaid expenses and accrued income

Note 19 Cash and cash equivalents

Note 20 Equity

Note 21 Leases

Note 22 Pension provisions

Note 23 Other provisions, non-current

Note 24 Other Provisions, current

Note 25 Other liabilities

Note 26 Accrued expenses and deferred income

Note 27 Pledged assets

Note 28 Contingent liabilities

Note 29 Financial instruments and financial risk management

Note 30 Interest-bearing loans and borrowings

Note 31 Changes in financial liabilities

Note 32 Related party transactions and list of Group companies

Note 33 Adjustment for non-cash items in the statement of cash flows

Note 34 Significant events after the end of the financial year

Note 35 Alternative performance measures

Parent Company financial statements

Parent Company income statement

Parent Company statement of comprehensive income

Parent Company balance sheet

Parent Company statement of cash flows

Parent Company statement of changes in equity

Notes to the Parent Company financial statements

Note 1 Basis of presentation

Note 2 Breakdown of sales

Note 3 Salaries, remuneration to employees and other fees

Note 4 Audit fees

Note 5 Other operating expenses

Note 6 Interest income and interest expenses

Note 7 Tax

Note 8 Appropritioans

Note 9 Participations in Group companies

Note 10 Non-current financial liabilities

Note 11 Accrued expenses and deferred income

Note 12 Pledged assets

Note 13 Adjustment for non-cash items in the statement of cash flows

Note 14 Related party transactions

Note 15 Proposed appropriation of earnings

Note 16 Significant events after the end of the financial year

Definitions

Signatures of the Board of Directors and CEO

Administration report

The Board of Directors and the CEO of Polygon Group AB, corporate identity number 559324-6548, hereby present the Annual Report and consolidated financial statements for the 2022 financial year.

Operations

Polygon Group AB and its subsidiaries perform services primarily in the area of water and fire damage restoration and also offer other services such as temporary climate solutions, leak detection and moisture investigations.

The Polygon Group's customers are insurance companies as well as commercial and private property owners. The Polygon Group conducts business in Europe, North America and Asia and has a strong local presence through many local service depots. Through professional and secure claims processing on behalf of the insured using efficient technology, costs are minimised and the extent of the damage is limited.

The Polygon Group consists of the Parent Company Polygon Group AB, which was formed on 17 June 2021, and 63 (51) subsidiaries. The Group was established in the beginning of October 2021 when AEA Investors Fund and Co-Investors, via Polygon Group AB, acquired 100% of the shares in Polygon Holding AB.

Ownership structure

Polygon Group AB is under the controlling influence of PolyStorm Jersey Limited, of which AEA Investors Fund VII LP is the majority shareholder.

2022 financial year

Consolidated sales for the financial year amounted to EUR 1,121.1 million (282.5) and operating income to EUR 27.0 million (-12.8). Operating income was charged with items affecting comparability of EUR 9.1 million (19.3).

Operating profit adjusted for items affecting comparability (adjusted EBITA) amounted to EUR 53.9 million negatively affected by high cost inflation, high sick ratios, higher employee turnover and underperformance in some countries.

In the first quarter, SAT in France and Luxembourg and Sartek in Finland were acquired. These acquisitions add about EUR 14 million of annual net sales and 115 employees.

In the second quarter, BMS and Uni Promotion in France, ISS Damage control in the UK and Probaco Sanering in Sweden were acquired.

These acquisitions contributed annual net sales of EUR 40 million and 290 employees.

In the third quarter Aquaser in France, J.W. Ortungstechnik in Austria, Odermatt Group in Switzerland, Caption Data in the UK and Celler Trocknungs Service in Germany were acquired. These acquisitions contributed annual net sales of EUR 25 million and 110 employees.

In the fourth quarter Polygon Bau Service in Austria and All Consulting Service in Italy were acquired. Polygon Bau Service has annual net sales of EUR 1 million and 5 employees. All Consulting Service has annual net sales of EUR 2 million and 4 employees.

The total cash expenditure for acquisitions amounted to EUR 44,618 thousand 2022.

Items affecting comparability comprise the following expenses (revenue):

Acquisition costs include primarily directly attributable costs such as lawyer and other consulting fees. Monitoring fee pertains fee to AEA for review of Polygon's management and financial information. Restructuring costs include costs for significant changes to operations and major personnel changes.

Financing and liquidity

The Group's long-term loan financing mainly consists of First Lien Facility EUR 485 million (430) which matures in October 2028, Second Lien Facility EUR 120 million (120) which matures in October 2029 and Revolving Facility EUR 10 million (0) which matures in April 2028.

During the year new borrowing were made under First Lien for a total amount of EUR 55 million and under Revolving Facility with a total amount of EUR 10 million. The weighted average interest rate on external loans and borrowings, including margins, was 4.96 % (4.65%) per annum.

Cash and cash equivalents at 31 December 2022 amounted to EUR 7.6 million (26.1). Cash flow from operating activities in 2022 was EUR 55.0 million (16.1). Operating cash flow amounted to EUR 10.4 million (20.9).

Capital expenditures

The Group's capital expenditure on property, plant and equipment for the period amounted to EUR 24.7 million (5.9). In addition, the Group upgraded its IT systems for EUR 4.1 million (0.2). Total depreciation and amortisation excluding right-of-use assets amounted to EUR 39.8 million (14.3) during the period, of which EUR 22.3 million (5.2) pertained to depreciation of property, plant and equipment and EUR 17.4 million (9.1) to amortisation of intangible assets. Capital expenditure on right-of-use assets amounted to EUR 39.3 million (11.9) for the year. Depreciation of right-of-use assets amounted to EUR 34.7 million (8.1).

Amortisation of intangible assets mainly refers to orderbacklog and customer relations in connection with business combinations, amortisation of capitalised costs for development of the Group's IT systems and amortisation of right-of-use assets.

Research and development

The Group's development work primarily focuses on services, including investments in the digitalisation and development of the service delivery process.

The development work is mainly conducted as an integrated part of daily operations and development costs are recognised directly in the income statement under operating expenses.

Employees

The average number of employees in the Group during 2022 was 6,691 (5,773). For more information, see Note 8 Salaries, social security expenses and employee benefits.

Tax

The recognised effective tax rate is 137.1% (8.7%). During the year, a deferred tax expense of EUR 14.0 million related to unrealized FX effects (between SEK and EUR) on intra-group loan receivables held by the Swedish companies have impacted the Group's tax expense. This temporary difference is not expected to reverse unless the concerned intra-group loans are repaid, which is not planned or expected in the next coming years.

The average tax rate in the countries where the Group operates is approximately 27.3%.

Significant risks and uncertainties and risk management

Polygon is a leader in quality and technology, with a strong brand and a comprehensive service offering. The Group's strength lies in its broad local presence in geographically dispersed markets and flexible cost structure. The risks faced by the Group consist of variations in revenue resulting from changes in the weather and temperature, and the related damage frequency. The Group's operations also have extensive exposure to the insurance industry, which leads to a mutual dependency.

Competition comes from a few larger operators, but mainly from a large number of local players.

Risks

Polygon is exposed to a number of risks: market risk (primarily currency risk and interest rate risk), liquidity risk, credit risk and operational risk.

Currency risk

The Group's currency exposure is divided into transaction exposure (exposure in foreign currency related to contractual cash flows) and translation exposure (equity in foreign subsidiaries). The Group's currency exposure arises from inter-company financing and from translation of the income statements and balance sheets of foreign subsidiaries to EUR. At year-end, the Group had no hedging products to minimise its currency exposure.

Currency risk refers to the risk of changes in foreign exchange rates that could negatively affect the Group's earnings. The Group's transaction exposure is considered low since the extent of the flows between currency zones is limited. The Group's translation exposure relates primarily to translation from Swedish kronor (SEK), Danish kroner (DKK), Norwegian kroner (NOK), Canadian dollars (CAD), US dollars (USD), British pounds (GBP) and Swiss francs (CHF).

Interest rate risk

Interest rate risk refers to the risk of changes in market interest rates that could affect cash flow, earnings and/or the fair value of financial assets and liabilities. At year-end, the Group had significant exposure to floating interest rates. The Group seeks to minimize the effect of this risk by using derivatives to hedge the exposures. At year end, an interest rate cap at EURIBOR 400 bps with a notional of EUR 302.5 million is in place based on current hedging policy. The interest rate cap is effective from January 2023 and matures in December 2025.

Liquidity risk

Liquidity risk refers to risk that the Group will be unable to meet its short-term payment obligations. The Group carries out continuous liquidity monitoring and forecasts to manage the liquidity fluctuations that are expected to arise. At 31 December 2022, the Group had EUR 60.8 million (130.6) in unutilised loan commitments.

Credit risk

Credit risk refers to the risk that the counterparty in a transaction will not fulfil its obligations under the agreement and that any collateral will not cover the Group's receivable. For commercial counterparties where the Group has a large exposure, an individual credit assessment is carried out. The Group also works regularly to shorten the effective credit period.

Credit risk is limited, since no individual customer accounts for more than 5% of the Group's total revenue, meaning that credit risk is dispersed both geographically and among a large number of customers. For further information, see Note 16 Accounts receivable.

Operational risk

Polygon is a service company and, as such, is dependent on the skills, experience and commitment of its employees and its ability to recruit and retain new competent employees. Polygon's operations are characterised by a low dependency on individual customers combined with strong relationships with large insurance companies. These key partners account for approximately two thirds of the company's business operations. Polygon is dependent on maintaining and developing strong relationships with these partners as well as ensuring the operation, security and development of the Group's business- critical IT systems. Acquisitions remain an important part of Polygon's development agenda and efficient, satisfactory integration is key to the Group's success in this regard.

Sustainability report in accordance with the Swedish Annual Accounts Act

According to Chapter 6, Sections 10-14 of the Swedish Annual Accounts Act, large companies are required to prepare a sustainability report. This sustainability report is to contain the sustainability disclosures required to provide an accurate understanding of the company's development, position and earnings and the impact of the operations, including disclosures concerning environmental issues, social conditions, employees, respect for human rights and anti-corruption measures. The sustainability report was submitted to the company's auditors on the same date as the Annual Report.

Parent Company

Polygon Group AB's operations include ownership and management of shares in Group companies. Polygon Group AB had no employees during the year. Income before tax amounted to EUR -33.0 million (- 22.1). Cash and cash equivalents at the end of the year amounted to EUR 34.3 million (1.5), which was included in the Group's cash pool. The Parent Company's assets amounted to EUR 1,310.5 million (1,270.4) and equity to EUR 495.9 million (528.7).

Proposed appropriation of earnings

Proposed appropriation of the Parent Company's earnings:

The Board of Directors propose that the loss for the year of EUR 32,760,664, together with retained earnings of EUR 528,680,268, amounting to a total of EUR 495,919,605, to be carried forward.

Consolidated financial statements

Consolidated income statement

Consolidated statement of comprehensive income

Consolidated balance sheet

Pledged assets and contingent liabilities are stated in 27 and 28.

Consolidated statement of cash flow

^* of which paid interest expenses EUR 35.0 million (12.9)

Consolidated statement of changes in equity

Notes to the consolidated financial statements

Note 1 Corporate information

These consolidated financial statements include the Parent Company Polygon Group AB, corporate identity number 559324-6548, and its subsidiaries. The postal address of the head office is Sveavagen 9, SE-111 57 Stockholm, Sweden.

Polygon Group AB is a wholly owned subsidiary of PolyStorm Pledgeco AB, corporate identity number 559324-6530, domiciled in Stockholm, Sweden. PolyStorm Pledgeco AB is 100 % owned by PolyStorm Midco AB, which in turn is 100 % owned by PolyStorm Topco AB, which in turn is 96.3 % owned by PolyStorm Jersey Limited. PolyStorm Jersey Limited corporate identity number 136636 and domiciled in Jersey is the highest level at which consolidated financial statements are prepared. PolyStorm Jersey Limited is under the controlling influence of AEA Investor Fund.

Note 2 Accounting policies for the consolidated financial statements

Note 2.1 Significant accounting policies

Rules and regulations applied

The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB), and the interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) as adopted by the EU for financial years beginning on or after 1 January 2022. In addition, the Swedish Annual Accounts Act and the Swedish Financial Reporting Board's recommendation RFR 1 Supplementary Accounting Rules for Groups has been applied.

The Parent Company applies the same accounting policies as the Group, with the exception of those cases specified in Note 1 to the Parent Company financial statements.

Presentation currency

The presentation currency of the Group is the euro (EUR), which is the functional currency of the Parent Company. The preceding financial year the presentation currency of the Group was Swedish kronor (SEK). As from 1 January 2022, the parent Company has changed the functional currency from Swedish kronor (SEK) to euro (EUR). Unless otherwise specified, all amounts are stated in thousands of euros.

The financial statements are presented euro (EUR), rounded off to the nearest thousand, unless otherwise specified. All individual figures (including totals and sub-totals) are rounded off to the nearest thousand. From a presentation standpoint, certain individual figures may therefore differ from the computed totals.

Reporting period

The reporting period is the financial year from 1 January 2022 to 31 December 2022, and all balance sheet items refer to 31 December 2022. The preceding financial year was 29 June 2021 to 31 December 2021 and the balance sheet items for this period refer to 31 December 2021.

Basis of presentation

The consolidated financial statements have been prepared based on the assumption of a going concern. Assets and liabilities are measured at historical cost with the exception of contingent considerations, which are measured at fair value.

Basis of consolidation

The consolidated financial statements include the Parent Company and its subsidiaries. The financial statements of the Parent Company and the subsidiaries that are a part of the consolidated financial statements refer to the same period and are prepared in accordance with the same accounting policies.

All inter-company items are eliminated in full and are consequently not included in the consolidated financial statements.

Definition of subsidiary

The term "subsidiary" includes all companies over which Polygon Group AB holds a controlling influence. Controlling influence means that Polygon has the ability to govern the subsidiary, is entitled to the return that it generates and can use its influence to control the activities that impact this return. The consolidated financial statements are prepared according to the acquisition method.

Translation of financial statements of foreign subsidiaries

Subsidiaries with a functional currency other than EUR are translated to EUR, since this is the presentation currency of the Group and the functional currency of Polygon Group AB. Income statement items are translated at the average exchange rate and balance sheet items are translated at the closing day rate. All surplus values recognised in connection with the acquisition of a foreign subsidiary, such as goodwill and other previously unrecognised intangible assets, are regarded as belonging to the respective unit and are therefore translated at the closing day rate. Translation differences are recognised in other comprehensive income. On the divestment of a subsidiary, the accumulated translation differences are reversed to profit or loss.

The exchange rates applied for foreign currency translation are as follows:

Gross accounting

Gross accounting is applied consistently in the recognition of assets and liabilities, with the exception of cases when there is both a receivable and a liability against the same counterparty and Polygon has a legally enforceable right to offset these and intends to do so.

Unless otherwise stated, gross recognition is also applied for revenue and expenses.

Classification of assets and liabilities

Non-current assets, non-current liabilities and provisions are expected to be recovered or settled more than 12 months after the balance sheet date. Current assets and current liabilities are expected to be recovered or settled within 12 months after the balance sheet date.

Note 2.2 Changes in accounting policies

IFRS adopted by the EU that came into effect in 2022

None of the IFRS adopted by the EU during the year impacted the company.

Note 2.3 Summary of key accounting policies

Recognition of foreign exchange effects

Transactions denominated in a currency other than the Group's functional currency are restated at the rate prevailing on the transaction date. Assets and liabilities denominated in a currency other than the Group's functional currency are restated at the closing day rate. Exchange differences are recognised in profit or loss as they arise.

Receivables and liabilities in foreign currency

Receivables and liabilities denominated in foreign currency have been restated at the closing day rate. Exchange gains and losses pertaining to operating receivables and liabilities are recognised in operating income. Exchange differences related to financial assets and liabilities are recognised among financial items. Exchange differences related to inter-company financial assets and liabilities are recognised in other comprehensive income, together with the related deferred tax effect.

Intangible assets

An intangible asset is an identifiable non-monetary asset that lacks physical substance. Intangible assets that are identified and measured separately from goodwill from business combinations may include trademark-related, customer-related, contract-related and/or technology-related assets. Typical marketing and customer-related assets are trademarks and customer relationships. Customer contracts and customer relationships are attributable to expected customer loyalty and the cash flow that is expected to arise over the remaining useful lives of these assets. The cost for this type of intangible asset consists of the fair value on the acquisition date, calculated according to established valuation methods.

Development costs are recognised as an intangible asset only if it is sufficiently probable that the development project will generate economic benefits in the future and the cost of the asset can be measured reliably. The cost of capitalised development costs includes only expenses directly attributable to the development project. Other internally generated intangible assets are not recognised as assets. Instead, the costs are recognised as an expense in the period in which they arise.

Separately acquired intangible assets are recognised at cost less accumulated amortisation and impairment.

All intangible assets are amortised on a straight-line basis over their estimated useful lives and are reviewed on every balance sheet date.

Amortisation begins when the asset is available for use. Certain trademarks have an unlimited lifetime and are not amortised at all.

Depreciation is calculated as follows:

Where appropriate, order value is amortised over a period of one to three months.

Business combinations and goodwill

Business combinations are recognised according to the acquisition method. When a business combination occurs, the company's assets (including previously unrecognised intangible assets) and liabilities (including contingent liabilities and excluding future restructuring costs) are identified and measured at fair value.

If the consideration paid by the Group is greater than the fair value of the identified net assets, the difference is recognised as consolidated goodwill. Goodwill is continuously measured at cost less accumulated impairment. Since it is not possible to individually test goodwill for impairment, goodwill is allocated to one or more cash-generating units, depending on how the goodwill is monitored for internal control purposes. Polygon has allocated goodwill to three cashgenerating units: Nordics & UK, Continental Europe, and North America & Asia.

Goodwill is not amortised, but is instead tested for impairment annually.

See Note 11 Goodwill and Note 13 Impairment testing of goodwill and trademarks.

Right-of-use assets

Lease payments per lease are calculated at present value and a right- of-use asset arises. The depreciation period amounts to the term of the lease, including any extension options that will be exercised by Polygon. The asset is checked continuously, and impairment requirements are identified as soon as such a change arises. For further information, see below under Impairment of intangible assets and property, plant and equipment. If payment or other terms and conditions are amended, the asset is remeasured, and this also applies if the term is extended. Polygon has chosen to apply the exemption rules for short-term leases and low-value leases (EUR 5 thousand or the corresponding amount in the currency concerned). These leases are not included in the right-of-use asset or the liability but are recognised in profit or loss.

Depreciation is calculated as follows:

For further information, see Note 21 Leases.

Property, plant and equipment

Property, plant and equipment are physical assets that are used in the Group's operations and have an expected useful life exceeding one year. Property, plant and equipment are initially measured at cost and are depreciated on a straight-line basis over their estimated useful lives. When property, plant and equipment are recognised, any residual value is taken into account when the depreciable amount of the asset is determined. Depreciation begins when the asset is ready to be taken into use. Land is not depreciated.

Property, plant and equipment are derecognised from the balance sheet on divestment or when no future economic benefits are expected from either their use or their sale. Any gains or losses are calculated as the difference between the sale proceeds and the asset's carrying amount. The gain or loss is recognised in profit or loss as other expenses or other income in the accounting period when the asset was divested.

The residual value, useful life and depreciation rate of an asset are reviewed at the end of each financial year and adjusted, if necessary, for subsequent periods.

Customary costs for maintenance and repairs are expensed as incurred. However, costs related to significant renewals and improvements are recognised in the balance sheet and depreciated over the remaining useful life of the underlying asset.

Depreciation is calculated as follows:

Impairment of intangible assets and property, plant and equipment

If the Polygon Group sees internal or external indications that the value of an asset has declined, the asset is to be tested for impairment. For goodwill and trademarks, with indefinite useful lives, such impairment testing is to be carried out at least annually regardless of whether there is evidence of impairment or not. If an asset cannot be tested separately, it is assigned to a cash-generating unit to which identifiable cash flows can be allocated.

An impairment loss is to be recognised for an asset or a group of assets (cash-generating units) if the carrying amount is higher than the recoverable amount. The recoverable amount is the higher of value in use and net realisable value. Impairment losses are recognised in profit or loss.

For all assets except goodwill and intangible assets with indefinite useful lives, an assessment is made on each balance sheet date as to whether there is an indication that an earlier impairment loss, in whole or in part, is no longer justified. If the assumptions underlying the calculation of an asset's recoverable amount have changed, the carrying amount of the asset or assets is increased to its recoverable amount. Such a reversal is not to exceed the amount the company would have recognised after depreciation and amortisation if the impairment had not been recognised. The reversal is recognised in profit or loss unless the asset is recognised in a restated amount in accordance with another standard.

Goodwill is allocated to different cash-generating units. If the allocation of goodwill cannot be completed before the end of the year during which the acquisition was carried out, the initial allocation should then be carried out before the end of the financial year following the year when the acquisition was carried out. In such cases, amounts relating to non-allocated goodwill and the reason why they have not been allocated should be stated. Impairment of goodwill and intangible assets with indefinite useful lives is not reversed.

Financial instruments

A financial instrument is any type of contract that gives rise to a financial asset in one company and a financial liability or equity instrument in another company. Financial instruments recognised in the balance sheet include account receivables, other current assets, cash and cash equivalents, loans payable, lease liability, account payables, other current liabilities and other provisions (contingent considerations).

A financial asset or financial liability is recognised in the balance sheet when the company becomes a party in accordance with the contractual terms of the instrument. Financial assets and loans are recognised on the settlement date. Account receivables and account payables are recognised in the balance sheet once the invoice has been sent or received respectively. A liability is recognised when the counterparty has performed and a contractual obligation to pay exists, even if an invoice has not yet been received.

A financial asset is derecognised from the balance sheet when the contractual rights have been realised, mature or the company loses control over them. The same applies for a portion of a financial asset. A financial liability is derecognised from the balance sheet when the contractual obligation has been fulfilled or otherwise extinguished. The same applies for a portion of a financial liability. Gains and losses on derecognition from the balance sheet and modifications are recognised in profit or loss.

Classification and measurement

The classification of financial assets that are debt instruments is based on the Group's business model for managing the asset and the nature of the contractual cash flows.

Amortised cost

Financial assets classified at amortised cost are held for the purpose of collecting the contractual cash flows, which exclusively comprise payments of the principal and interest on the outstanding principal. In accordance with the business model all of Polygons financial assets are classified at amortised cost, except for derivatives. Account receivables and lease receivables are initially recognised at their invoiced amount. Other financial assets classified at amortised cost are initially measured at fair value plus transaction costs. After initial recognition, the financial assets are measured according to the effective interest method.

The main rule is that financial liabilities are measured at amortised cost. All of Polygon financial liabilities, with the exception of contingent considerations, are measured at amortised cost.

Financial liabilities recognised at amortised cost are initially measured at fair value less transaction costs. After initial recognition, they are measured at amortised cost according to the effective interest method.

Fair value through profit or loss

Some of the Group's acquisitions include contingent considerations. These are recognised as a financial liability measured at fair value through profit or loss. Contingent considerations are based on an assessment made by executive management concerning the probable outcome and have been classified at level 3 since there is no observable market data to apply. Fair value is determined according to the description in Note 29 Financial instruments and financial risk management.

Derivative financial instruments are measured initially and subsequently at fair value. Changes in fair value are recognised through profit or loss unless they comprise part of an effective hedging relationship and hedge accounting is applied.

Impairment of financial assets

The Group's financial assets measured at amortised cost are continuously reviewed according to the expected credit loss model to assess need for credit loss provisions. Impairment is recognised in profit or loss. Accounts receivable are the most important financial asset subject to this model. Account receivables mainly pertain to large and well-established customers (insurance companies) with good ability to pay, which is taken into consideration in the loss allowance for expected credit losses. Credit terms are normally shortterm, in the range of ten to 60 days with a standard of 30 days. The credit losses incurred by the Group over the past three years have been minor. The loss allowance for expected credit losses as of 31 December 2022 is presented in Note 16 Accounts receivable.

Since all of Polygon's financial assets that are subject to a loss risk are more current in nature, the simplified method is used for impairment testing. In accordance with IFRS 9, impairment losses are recognised prospectively and a loss allowance is recognised when there is exposure to credit risk, usually on initial recognition.

Cash and bank balances

Cash and current bank balances in the balance sheet consist of bank deposits, available cash and demand deposits with a maturity of three months or less from the date of acquisition. Cash and bank balances are subject to the requirements for a loss allowance for expected credit losses.

Provisions

A provision is recognised when the Group has a present obligation, either legal or informal, as a result of a past event, it is probable that a payment will be required to settle the obligation and the amount of the obligation can be reliably measured. When the company expects some or all of the expenditure required to settle an obligation to be reimbursed by another party, for example within the framework of an insurance agreement, the expected reimbursement is recognised as a separate asset, but only when it is virtually certain that reimbursement will be received.

If the time value is material, the present value of the future payment is calculated using a discount rate that reflects the current market assessments of the time value of money and the risks specific to the liability. The increase in the obligation due to the time value is recognised as an interest expense.

Employee benefits including salary, bonuses and other benefits

The Group's employees receive a fixed salary based on their employment contract and performance and, in certain cases, bonuses are also paid mainly based on earnings targets, which are followed up annually. Other benefits include company car benefits, car allowances and health insurance.

Remuneration of employees in respect of pensions and other non- current remuneration

The Group has both defined-benefit and defined-contribution pension plans as well as other long-term employee benefits.

Provisions for defined-benefit plans are calculated using the projected unit credit method. In addition to taking the pensions and statutory rights that are known on the balance sheet date into consideration, assumptions are made regarding expected pension and salary increases and other significant factors. The calculation is based on actuarial computation methods.

Items attributable to the vesting of defined-benefit pensions during the current period and net interest on the defined-benefit net liability (asset) are recognised in profit or loss. Costs for service in earlier periods that are attributable to a change in the pension plan or a reduction are also recognised in profit or loss, as are any gains or losses that arise on settlement of the pension liability. Remeasurements, which are recognised in other comprehensive income under the heading "Items that will not be reclassified to profit or loss", comprise actuarial gains and losses, the difference between actual return and interest income on plan assets and the effect of changes in asset caps excluding net interest. Actuarial gains and losses arise due to changes in actuarial assumptions and differences between previous actuarial assumptions and the actual outcome.

A net liability or net asset comprising the net of the present value of the defined-benefit pension obligations and the fair value of the plan assets is recognised in the balance sheet for each pension plan. The carrying amount of the net asset is limited to the asset ceiling, which comprises the present value of repayments from the plan or reduced future payments to the plan.

The total net obligation for all plans is recognised in the consolidated balance sheet. The net obligation is divided into a current and a non- current portion.

The Group's costs for defined-contribution pension plans are charged to profit or loss in the year to which they are attributable.

Termination benefits

A provision is recognised in conjunction with the termination of employment only if the company is obligated to either terminate the employment of an employee or group of employees before the normal point in time or to pay remuneration upon termination through an offer of voluntary resignation. In the latter case, a liability and expense are recognised if it is probable that the offer will be accepted and the number of employees who will accept the offer can be reliably estimated.

Revenue

Polygon provides services in the area of preventing, controlling and mitigating the effects of water, fire and climate.

The customer base includes insurance companies, companies in the private and public sectors, and households.

The scope and complexity of the projects vary from simple leak detection to large restoration projects, with most of the projects being small (under EUR 2 thousand ) and short-term (with a duration of under three months). Typical examples of services that Polygon provides are repair and restoration of equipment, restoration services for everything from documents to buildings, leak detection and moisture control as well as keeping certain climate conditions at a constant level.

Polygon's operations are characterised by a local presence and strong ties to local customers. International cooperation has become increasingly significant in the major & complex claims service lines.

Payment terms are determined according to industry practices and vary from country to country and project to project (from advance and partial payments to payments due after performance obligations are satisfied). Polygon's payment terms do not include financial components; nor are they subject to any type of variable or restricting conditions.

Warranties are provided according to business practices and legal requirements in the country where the project is performed.

The allocation of performance obligations is straightforward due to the nature of Polygon's business - one job is considered one performance obligation, which makes it easy to allocate the price to the performance obligation, regardless of whether it is a fixed price or current account.

Polygon's revenue is generated from the sale of services in the area of preventing, controlling and mitigating the effects of water, fire and climate.

Most of Polygon's revenue is generated from performance obligations that are satisfied over time since Polygon performs restoration and humidity control services on assets controlled by the customer. Revenue from such projects is recognised over the period during which the performance obligation is carried out. For consulting services, equipment rental and other services billable by the hour or other fixed time periods, the practical expedient is used and revenue is recognised at the amount at which Polygon has a right to invoice during the current accounting period.

The exception from the above is leak detection projects where the performance obligation is satisfied upon receipt of a leak detection report. Revenue for these jobs is recognised at a specific point in time.

See the below breakdown by geographical market:

Polygon uses the portfolio approach for revenue recognition, which allows bundling of similar agreements and performance obligations for more effective handling. The portfolio approach is applied to the large amount of small (under EUR 2 thousand) and short-term (under three months) obligations that make up the bulk of the Group's business. The remaining obligations with a longer duration are recognised using the percentage of completion method.

Polygon uses costs incurred to determine the percentage of completion of the performance obligation (based on costs incurred to date). In certain projects where the degree of invoicing reflects the progress of the performance obligation, actual outgoing invoicing is used for revenue recognition. Combined, these two methods provide a fair presentation of the transfer of goods and services and show the Group's completion of the promised deliveries to the customer.

In loss-making projects where it is not likely that the customer will compensate Polygon for services rendered, the loss is recognised immediately.

In addition to exchange gains on accounts receivable and trade payables, other operating income includes capital gains on property, plant and equipment sold. Financial income is allocated using the effective interest method.

Commission fees from the franchise part of the business are recognised at the amount to which Polygon has the right to invoice the franchisee during the current accounting period.

In Norway, the Group has agreements with franchisees under which Polygon receives commission on sales to end customers. Polygon issues an invoice for the entire amount to the end customer and receives an invoice from the franchisee for services rendered. The difference corresponds to the commission. These transactions are recognised net as sales revenue, meaning that the commission is recognised in sales revenue. Because revenue from the franchise business is not material, the Group has decided not to report this separately in Note 4 Sales of service.

Income tax

Current tax

Current tax assets and liabilities for the current and prior periods are measured at the amount that is expected to be recovered from or paid to the respective tax authorities. The Group's current tax is calculated using the tax rates and tax laws enacted or substantively enacted on the balance sheet date.

Current tax attributable to items recognised in equity and in other comprehensive income is recognised in equity and in other comprehensive income and not in profit or loss.

Deferred tax

Deferred tax is recognised on the balance sheet date in accordance with the balance sheet method for temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences:

The carrying amounts of deferred tax assets are reviewed on each balance sheet date and adjusted to the extent that it is no longer probable that sufficient taxable income will be available to allow part of or the entire deferred tax asset to be utilised.

Deferred tax assets and liabilities are measured at the tax rates that apply for the period when the asset is realised or the liability is settled, based on the tax rates (and laws) that have been enacted or substantively enacted on the balance sheet date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets against current tax liabilities and the deferred tax amounts are related to the same entity in the Group and the same tax authority.

Recognition of cash flow

Cash received and paid is recognised in the statement of cash flows. Cash flow from operating activities is recognised in accordance with the indirect method.

Events after the balance sheet date

Events after the balance sheet date that confirm the existing terms as of the balance sheet date are taken into consideration in the measurement of assets and liabilities.

Note 2.4 Key accounting assessments, estimates and assumptions

In preparing the financial statements in accordance with the applicable accounting policies, the Board and CEO are required to make certain estimates and assumptions that impact the carrying amounts of assets, liabilities, income and expenses. The areas where estimates and assumptions are of material importance to the Group and which may affect the financial statements are described below:

Lease liabilities and right-of-use assets

When calculating the present value of lease liabilities and right-of-use assets where the final date is lacking, a clear breakdown of lease payments and other payments or an implicit interest-rate component are not apparent, assumptions about these have to be made.

Lease payments are discounted at the implicit interest rate of the lease. If this interest rate cannot be easily determined, as is normally the case for the Group's leases, incremental borrowing rate for each country is used. The rate is set in line with the Group's internal borrowing rate.

Should the leases lack final dates, a period of three years is used for premises, four years for vehicles and three years for other assets. These Group-wide assumptions are based on a combination of experience and the average for the respective right-of-use asset.

When calculating the lease liability and the right-of-use asset, the lease payment is used as the basis and, should this be difficult to separate from the total payment, a standard formula established by the Group is used. The standard formula is based on an average of costs that do not transfer a good or service to the lessee in relation to the total payment. The remaining proportion of the payment is recognised continuously in profit or loss An assessment is made of the probability of utilising extension options, should these be included in the leases.

Impairment of intangible assets

Intangible assets other than goodwill and trademarks, with an indefinite useful life, are amortised over the period in which they will generate revenue, meaning their useful lives. If there is any indication that an asset may be impaired, the recoverable amount of the asset is calculated. The recoverable amount is determined according to management's estimates of future cash flows.

Deferred tax assets

Deferred tax is recognised for temporary differences arising between the tax bases and carrying amounts of assets and liabilities as well as for unutilised loss carryforwards. A deferred tax asset is recognised only to the extent that it is probable it can be utilised against future profit. In the event that the actual outcome differs from the applied assumptions, or management adjusts these assumptions in the future, the value of the deferred tax assets could change.

Revenue recognition based on individual assessment

The Group applies the percentage of completion method on an individual basis for significant customer contracts, meaning contracts with a value of more than EUR 100 thousand and a term longer than three months. The estimate of total contract costs and revenue is critical for revenue recognition and provisions for onerous contracts and the outcome of additional invoicing may affect profit.

Provisions for expected credit losses on accounts receivable

Accounts receivable are initially recognised at transaction price in accordance with IFRS 15 and thereafter at amortised cost. A loss allowance for expected credit losses is made on every balance sheet date in an amount that corresponds to the expected credit losses for the remaining term. The assessment is based on criteria that show whether the risk has changed since the initial measurement date. Loss allowances for expected credit losses are recognised in profit or loss under other operating expenses (See Note 16 Accounts receivable).

Pension and other post-retirement benefits

Defined-benefit pension provisions are calculated based on actuarial calculations with assumptions about the discount rate, inflation, future salary increases and demographic factors. These assumptions are updated annually, which affects the recognised provisions. The most significant assumptions relate to the discount rate and future salary increases. In the Swedish pension plans, mortgage bonds are used as the basis for the discount rate. For other pension liabilities, the discount interest rate has been based on first-class corporate bonds.

Note 3 Business combinations and divestments

The fair value of assets and liabilities identified on the acquisition date is presented below.

For acquisitions of service companies, Polygon pays not only a consideration for the net asset value of the company but also a surplus value, for example, for the acquisition of new customer relationships and knowledgeable, well-educated and experienced employees. A service company's employees are its single most important value creator, but they are not recognised as an asset in the acquired businesses. Therefore, they represent the goodwill arising in the Polygon Group together with the expected synergies between existing and acquired units.

In the first quarter, SAT in France and Luxembourg and Sartek in Finland were acquired. These acquisitions add about EUR 14 million of annual net sales and 115 employees.

In the second quarter, BMS and Uni Promotion in France, ISS Damage control in the UK and Probaco Sanering in Sweden were acquired. These acquisitions contributed annual net sales of EUR 40 million and 290 employees.

In the third quarter Aquaser in France, J.W. Ortungstechnik in Austria, Odermatt Group in Switzerland, Caption Data in the UK and Celler Trocknungs Service in Germany were acquired. These acquisitions contributed annual net sales of EUR 25 million and 110 employees.

In the fourth quarter Polygon Bau Service in Austria and All Consulting Service in Italy were acquired. Polygon Bau Service has annual net sales of EUR 1 million and 5 employees. All Consulting Service has annual net sales of EUR 2 million and 4 employees.

The total cash expenditure for acquisitions amounted to EUR 44,618 thousand for the year.

During the year, the above acquisitions contributed net sales of EUR 43.1 million, if had they been owned for the entire year, they would have contributed sales of EUR 75.7 million.

The amounts and assessments for 2022 are preliminary.

Business combinations in 2022

Contingent considerations are included in the row "Other provisions" in the balance sheet and are divided into current and non-current liabilities. Contingent considerations totalled EUR 51.9 million (30.4) and were distributed as follows: EUR 47.7 million (26.0) in non-current liabilities and EUR 4.2 million (4.4) in current liabilities.

No operations were divested during 2022.

^* at the time of acquistion

Note 4 Sales of service

The Group has three service lines which are divided by geographical market.

Sales per service in the tables above do not include franchise revenue. Sales in respect of franchise fees account for 0.1% (0.2%) of total sales.

The timing of revenue recognition is shown in the table in Note 2.3 - Summary of key accounting policies.

Note 5 Breakdown of expenses by category

The expenses above are included in the cost of sales, selling and administrative expenses, and other operating income and expenses.

Note 6 Audit fees

Audit assignment refers to auditing of the annual report and financial accounts and the administration by the Board as well as other audit tasks that are incumbent upon the company's auditors.

Note 7 Lease costs

^* Recognised in the cost of sales and administrative expenses.

Note 8 Salaries, social security expenses and employee benefits

Average number of employees per country

Gender distribution of the Board and other senior executives

^*) In 2022 executives of the Group comprised the CEO, CSO, COO, CFO and six country presidents. In 2021 executives of the Group comprised the CEO COO, CFO and three country presidents.

Salaries, social security expenses and employee benefits

Polygon Group AB is under the controlling influence of PolyStorm Jersey Limited. The Board in PolyStorm Jersey Limited consists of 7 men and 1 woman.

Salaries to the CEO and other senior executives are established by the Board. Salary level is to be based on market conditions in relation to qualifications and performance. In addition to fixed salary, remuneration may include a maximum bonus of 100% of fixed salary. The outcome of the bonus is mainly based on the attainment of financial targets.

The company uses only defined-contribution pension solutions for senior executives. These pension solutions are maximum 35% of annual fixed salary. Other benefits include company car benefits, car allowances and health insurance.

The notice period for senior executives is between six and twelve months, plus six months of termination benefits that cover only fixed salary. The CEO has a notice period of six months and termination benefits are paid during this period. In the event of termination of employment on the part of the company, the notice period is six months.

Note 9 Financial income and expenses

Note 10 Tax

The main components of the tax expense are as follows:

Deferred tax asset/tax liability

The deferred tax asset and provision recognised in the balance sheet are attributable to the following assets and liabilities:

The recognised effective tax rate is 137.1% (8.7%). During the year, a deferred tax expense of EUR 14.0 million related to unrealized FX effects (between SEK and EUR) on intra-group loan receivables held by the Swedish companies have impacted the Group's tax expense. This temporary difference is not expected to reverse unless the concerned intra-group loans are repaid, which is not planned or expected in the next coming years.

The average tax rate in the countries where the Group operates is approximately 27.3%.

Change in deferred tax on temporary differences and loss carryforwards

Deferred tax assets related to loss carryforwards are recognised to the extent it is deemed probable that there will be sufficient future taxable income against which they can be utilised.

Loss carryforward

Loss carryforwards at year-end totalled EUR 63.9 million (61.2). Loss carryforwards for which a deferred tax asset has not been recognised amounted to EUR 19.1 million (27.4). Accordingly, loss carryforwards of EUR 44.8 million (33.8) are subject to recognition of deferred tax assets.

Note 11 Goodwill

Note 12 Other intangible assets

In the income statement, amortisation of EUR 0.4 million (0.0) is included in the cost of services sold, EUR 2.1 million (3.0) in selling and administrative expenses and EUR 15.3 million (6.1) in other operating expenses. The impairment loss primarily pertained to development costs for internal computer systems that have been put into operation and amounted to EUR 0.0 million (0.5). Other consist of licenses, software and projects in progress.

Note 13 Impairment testing of goodwill and trademarks

Polygon Group AB has three geographical markets that comprise cash-generating units. Goodwill and other intangible assets with indefinite useful lives acquired through business combinations are specified in the table below.

Polygon's impairment test for goodwill and trademarks was performed through an estimation of value in use. This calculation includes several assumptions about future conditions and estimates of parameters, such as discount rates, the growth rate for revenue and salary and overhead levels. Changes in these assumptions and estimates could affect the carrying amount of goodwill.

Value in use is determined through cash flow calculations, where the first five years are based on the five-year business forecast established by management. This assessment is based on country-specific market assessments, competition analyses and product mix development. The cash flows estimated after the first five years are based on an annual growth rate of 5%, which is assessed to correspond to the long-term growth in the unit's markets.

The discount rate was determined based on the Group's weighted average cost of capital (WACC), which is based on assumptions concerning the interest rate on long term government bonds as well as the company-specific risk factor and beta value. The estimated cash flows have been discounted to present value using a discount rate (WACC) of 10%. The conclusion of the impairment test is that there is no indication of impairment, since value in use exceeds the carrying amount including goodwill and other intangible assets.

A sensitivity analysis was carried out regarding the significant assumptions applied in the impairment test. A change of 0.5 % in WACC or terminal growth rate would lead to impairment and material changes in cost trends or if the companies should be unable to achieve the business plan on which the cash flow calculations are based, could lead to impairment. The sensitivity analyses are based on a change in one assumption while all other assumptions are kept constant.

Note 14 Right-of-use assets

In the income statement, depreciation of EUR 14.3 million (3.4) is included in the cost of services sold and EUR 20.4 million (4.7) in selling and administrative expenses.

Note 15 Property, plant and equipment

In the income statement, depreciation of EUR 16.5 million (3.8) is included in the cost of services sold, EUR 3.7 million (0.9) in selling and administrative expenses and EUR 2.2 million (0.5) in other operating expenses.

Note 16 Accounts receivable

No pledged assets (collateral) have been received for accounts receivable.

Age analysis of accounts receivable

Provision for expected credit losses

Note 17 Contract assets and liabilities

Most of the assignments received by Polygon are carried out over a short period of between one and three months and the average contract amount is EUR 2 thousand. Polygon receives a large number of orders and manages them using the portfolio approach with an average contract margin. A small number of Polygon's projects continue for a longer period and have a higher contract amount. These projects are recognised individually on an ongoing basis using the percentage of completion method.

Note 18 Prepaid expenses and accrued income

Note 19 Cash and cash equivalents

At year-end, the Group had EUR 60.8 million (130.6) available in unutilised loan commitments.

Note 20 Equity

Share capital

Each share has a quotient value of EUR 0.1 per share. All shares are of the same class and carry the same voting rights. All shares are paid in full. All shares carry the same entitlement to the company's assets and profit. There are no restrictions on the transferability of the shares according to the law or the Articles of Association.

Foreign currency translation reserve

The foreign currency translation reserve covers all exchange differences arising on translation of the financial statements of foreign operations that are presented in a currency other than that used for presentation of the consolidated financial statements. The Parent Company and the Group present their financial statements in EUR.

Actuarial gains/losses

Refer to Note 22 Pension provision

Note 21 Leases

Lease liability

Maturity dates for lease liabilities are as shown in the following table:

Undiscounted future lease payments

Lease obligations

Polygon has entered into leases that had not yet taken effect at year- end, according to the table below:

Note 22 Pension provisions

The Polygon Group has established pension plans for its employees in the countries where the Group operates. The plans generally conform to local practice in the respective countries and may take the form of defined-contribution or defined-benefit plans. Polygon has defined-benefit plans in Sweden, Germany, France and the UK.

The defined-contribution plans mainly include retirement pensions, disability pensions and survivor pensions. The contributions are paid during the year by the respective Group company to separate legal entities, for example, insurance companies. The Group has no further obligations once the contributions have been paid.

The defined-benefit pension plans mainly encompass employees in Sweden, but also employees in France. In the other countries, the defined-benefit plans are closed and no new vesting is made. All pension plans are based on final salary, and provide benefits in the form of a guaranteed level of pension payments, usually as a percentage of final salary, to the plan participants during their entire lifetimes or parts thereof.

The total pension cost for 2022 amounted to EUR 9,946 thousand (2,231), of which EUR -651 thousand (162) pertained to defined-benefit pensions. The pension cost for defined-contribution pensions amounted to EUR 12,289 thousand (2,079). Expected pension costs for defined-benefit pensions for 2022 amounted to EUR 350 thousand.

The lower pension cost in respect of defined-benefit pensions for 2022 is mainly due to changes in the pension plan in Sweden, which resulted in a reduced cost for the year of EUR 1,107 thousand.

The pension plan in the UK is funded and also includes a defined- contribution component. The pension plan is closed, which means that no new vesting is made. The plan assets are exposed to market risks, among other risks. The Trustees of the pension scheme entered into a buy-in policy with Aviva on 2 September 2022, where risk related to benefits payable became insured. They will complete a full buy-out in 2023. A full buy-out will transfer the responsibility to meet scheme members benefits and remove the risk and the related liability from the balance sheet.

The pension plan in Sweden consists of the collectively agreed ITP plan. This plan includes both defined-contribution and defined-benefit components. The defined-benefit pension obligation is secured through provisions in the balance sheet, combined with credit insurance in PRI Pensionsgaranti. The pension plan exposes the Group to risks such as a change in the discount rate, increased life expectancy, higher inflation and salary increases. As of January 2023, Polygon Sweden will insure future accruals with Alecta and no new vesting will be made. Alecta lacks the possibility of establishing an exact distribution of assets and provisions therefore the cost of these benefits will be recognised as defined contribution plans. During 2022, impact of this decision is a reduction of EUR 1,107 thousand due to the removal of the already allowed future salary increases for all active members. The reduction is recognised as Past service cost.

In France and Germany, there are unfunded pension obligations in minor amounts. The present value of these pension plans is mainly impacted by changes in the discount rate.

The tables below summarise the components of the net pension expense that are recognised in profit or loss and in other comprehensive income as well changes in the value of the defined-benefit pension obligation recognised in the balance sheet.

All plan assets are assets with a quoted market price in an active market. None of the plan assets are invested in the Group's own equity instruments, debt instruments, real estate or other assets that are used by the company.

^* France and Germany

The most important financial actuarial assumptions that have been used to determine the pension obligations for the Group's significant pension plans are as follows:

Assumptions about life expectancy are based on official statistics and experience from life expectancy surveys in the respective countries and are determined after consultation with experts in the actuarial field. The discount rate is determined based on high-quality corporate bonds that are traded in a deep market with consideration given to the duration of the pension obligation. In Sweden, the discount rate is based on the discount rate on covered mortgage- backed bonds.

An increase in the discount rate of 0.5 percentage points would reduce the pension obligation by EUR 558 thousand, corresponding to a debt reduction of 7.3%. A decrease in the discount rate of 0.5 percentage points would increase the pension obligation by EUR 618 thousand corresponding to a debt increase of 8.0%.

An increase in inflation of 0.5 percentage points would increase the pension obligation by EUR 500 thousand, corresponding to a debt increase of 6.7%. A decrease in inflation of 0.5 percentage points would reduce the pension obligation by EUR 446 thousand, corresponding to a debt reduction of 6.0%.

The sensitivity analysis is carried out by changing one actuarial assumption while the other assumptions remain constant. This method shows the obligation's sensitivity to an individual assumption. This is a simplified method, since the actuarial assumptions are normally correlated.

The weighted average duration of the pension obligation is approximately 16 years.

The Group's expected contributions to defined-benefit pension plans as well as pension payments directly from the employer for the next annual reporting period amount to EUR 101 thousand (350).

Note 23 Other provisions, non-current

Note 24 Other Provisions, current

Note 25 Other liabilities

Note 26 Accrued expenses and deferred income

Note 27 Pledged assets

The shares in 13 subsidiaries are pledged as collateral for the Group's financing. The amounts presented under pledged assets correspond to the total net assets in the pledged subsidiaries.

Note 28 Contingent liabilities

The Group has no contingent liabilities.

Note 29 Financial instruments and financial risk management

Polygon is exposed to a number of financial market risks that the Group is responsible for managing under the finance policy approved by the Board of Directors. The overall objective is to have cost-effective funding in the Group. Impact of the financial risks on the Group's earnings is managed through exchange of non-EUR cash into EUR. The main risk exposures for the Group are liquidity risk, interest rate risk, currency risk, credit risk and counterparty risk.

The table below shows the Group's significant assets and liabilities.

Breakdown of financial liabilities measured at fair value:

The Group categorises financial assets and financial liabilities that are measured at fair value in a fair value hierarchy based on the inputs that are used to measure each asset and liability.

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Quoted prices in markets that are not active, quoted prices for similar assets or liabilities, inputs other than quoted prices that are observable, directly or indirectly, for essentially the instrument's entire duration as well as the inputs used in valuation techniques that have been derived from observable market data.

Level 3 - Inputs that are essential for the fair value of the asset or liability are not observable, and the Group's own assessments are instead applied.

Interest- rate derivatives are measured according to level 2.

Financial liabilities at level 3 consist of contingent considerations for acquired operations. The measurement of this is based on the acquired operations' expected future financial performance, which has been assessed by management.

Breakdown of liabilities measured at fair value:

Maturity dates for financial liabilities are as follows:

The carrying amounts above include financial liabilities. The nondiscounted cash flows above include financial liabilities and interest payments. All amounts in currencies other than EUR are translated at the closing day rate and interest payments on loans with variable interest have been calculated at the closing day rate.

The weighted average interest rate on external loans and borrowings, including margins, was 4.96% per annum.

Currency risk

Currency risk primarily impacts the Group's financial statements through the translation of capital employed and interest-bearing net liability as well as through the translation of earnings in foreign subsidiaries. The Group's interest-bearing net liability is mainly denominated in EUR (see the table below for a breakdown of interest-bearing net liability by currency).

Interest-bearing net liability by currency

Transaction exposure

The Polygon Group's operations are local in nature and most transactions take place in local markets in the local currency. Since the flow of services between countries is highly limited, the earnings effect is not material for the Group.

Translation exposure

Polygon's assets in foreign subsidiaries are financed through loans or equity. If a foreign subsidiary that has a reporting currency other than EUR is financed through equity, a translation risk arises in connection with the translation of the subsidiary's balance sheet. Translation risk is the risk that changes in foreign exchange rates will negatively impact Polygon's net assets in foreign operations in connection with the translation of the foreign units' income statements and balance sheets. Currency effects arising on translation are recognised in the consolidated statement of other comprehensive income.

Since many significant subsidiaries have EUR as their functional currency, the Group's translation risk is limited. The table below shows the impact of changes in foreign exchange rates on the net assets of subsidiaries in each currency:

The table below shows the impact of a 10-percent of changes in foreign exchange rates against the Group's main currencies on consolidated income before tax.

Interest rate risk

Fluctuations in interest rates impact the Group's interest expenses. Polygon's policy for interest rate risk is designed to reduce the impact of interest rate changes on earnings. In the case of interest-bearing assets, the fixed interest period is to be short and matched against repayment of loans. On the balance sheet date, Polygon had an interest rate cap in place.

At 31 December 2022, a simultaneous change in interest rates of +/- 1 percentage point, would have impacted annual net interest expenses by EUR 7.2 million (3.2), assuming that the Group's duration and funding structure remain constant throughout the year. The variable rate interest-bearing net liability position for the Group as a whole, including cash and bank balances, was EUR 701.2 million (604.2).

Customer credit risk

Management's assessment is that there is no significant concentration of credit risk with any individual customer, counterparty or geographical region for Polygon. An age analysis of accounts receivable is presented in Note 16 Accounts receivable.

Liquidity and refinancing risk

Financing risks refer to the risk of difficulty in obtaining financing for operations at a given point in time. Polygon's finance policy states that the Group's external loan portfolio is to have a maturity structure that guarantees that Polygon will not be exposed to refinancing risks.

Polygon is also subject to covenants that are specified in the terms and conditions of the loan and in the terms and conditions of the bank overdraft facility, such as key ratios and performance measures linked to the consolidated income statement and balance sheet. These covenants were fulfilled for 2022.

Capital risk management

The Group's capital structure should be maintained at a level that ensures the ability to advance the business in order to generate returns for the shareholders and benefits for other stakeholders, while at the same time maintaining an optimal capital structure to reduce capital costs.

To maintain or adjust the capital structure, the Group may, upon approval by the shareholders and external lenders when appropriate, vary the dividend that is paid to the shareholders, reduce the share capital to enable payments to the shareholders, issue new shares or sell assets to reduce its debt. The Group continuously analyses the relationship between debt and equity.

Note 30 Interest-bearing loans and borrowings

The table below shows the Group's various loans and borrowings.

^* Financing costs are allocated over the duration of the loans.

Note 31 Changes in financial liabilities

Reconciliation of opening and closing balances of financial liabilities and their movement in cash flow are presented in the table below:

^* See Note 21 Leases for details.

Note 32 Related party transactions and list of Group companies

Polygon Group AB paid fees of EUR 3 million (0.7) for advisory and consulting services acquired from AEA Investors LP. Further, Polygon Group AB incurred other related party expenses of EUR 0.3 million (0). Polygon AB raised a loan with PolyStorm Topco AB of EUR 8 million. Group contribution was given by Polygon International AB to PolyStorm Topco AB of EUR 0,4 million and remains unpaid as of December 2022.

For information concerning remuneration to senior executives and the Board of Directors, see Note 8 Salaries, social security expenses and employee benefits.

POLYGON HoldCo GmbH, POLYGON Deutschland GmbH, RecoSan GmbH, POLYGONVATRO Abbruch-Service GmbH, SMD Sanierungs-Management GmbH & Co. KG and TKL GmbH are included as German subsidiaries in the consolidated financial statements of Polygon Group AB and, as a result, makes use of the exemption provision of section 264 (3) and 264 b HGB (German Commercial Code).

Group subsidiaries

Note 33 Adjustment for non-cash items in the statement of cash flows

Non-cash changes in financial liabilities are recognised in Note 31 Changes in financial liabilities.

Note 34 Significant events after the end of the financial year

After the end of the financial year, Neways Property Care Ltd decided to acquire F.S.H (Holdings) Limited.

Note 35 Alternative performance measures

Parent Company financial statements

Parent Company income statement

Parent Company statement of comprehensive income

Parent Company balance sheet

Parent Company statement of cash flows

^* Cash and cash equivalents is included in the cashpool of the Group and is therefore presented in Receivables from subsidiaries.

Parent Company statement of changes in equity

Notes to the Parent Company financial statements

Note 1 Basis of presentation

Rules and regulations applied

In addition to the Group's accounting policies, the financial statements of the Parent Company have been prepared in accordance with the Swedish Annual Accounts Act and the Swedish Financial Reporting Board's recommendation RFR 2 Accounting for Legal Entities. This means that IFRS is applied with the exception of the additions presented below.

The Parent Company's bank balances are not recognised as cash since they are part of the Group's cash pool. However, the bank balances are presented as cash in the statement of cash flows.

Financial instruments

Due to the relationship between accounting and taxation, the rules concerning financial instruments under IFRS 9 are not applied in the Parent Company as a legal entity. Instead, the Parent Company applies the acquisition method in accordance with the Swedish Annual Accounts Act. Accordingly, the Parent Company measures non-current financial assets at cost and current financial assets at the lower of cost or net realisable value, applying the rules for impairment of expected credit losses in accordance with IFRS 9 with respect to assets that are debt instruments. For other financial assets, impairment is based on market value.

The Parent Company applies the exemption option not to measure financial guarantee contracts that benefit subsidiaries, associated companies and joint ventures in accordance with the rules of IFRS 9, but rather applies the measurement principles in IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

Shareholder contributions

Shareholder contributions are recognised directly in equity by the recipient and are capitalised in shares and participations by the renderer insofar as impairment is not required.

Note 2 Breakdown of sales

Polygon Group AB had internal sales of EUR 3.1 million during the period, relating to management services. No purchases were made from Group companies during the period.

Note 3 Salaries, remuneration to employees and other fees

The Parent Company had no employees.

Note 4 Audit fees

Audit assignment refers to auditing of the annual report and financial accounts and the administration by the Board as well as other audit tasks that are incumbent upon the company's auditors.

Note 5 Other operating expenses

Note 6 Interest income and interest expenses

Note 7 Tax

As of 31 December 2022, Polygon Group AB had a gross accumulated loss carryforward of EUR 0.5 million (3,5) with no maturity date, of which EUR 0.1 million (0) is recognised as a deferred tax asset.

Note 8 Appropriations

Note 9 Participations in Group companies

Indirect holdings and the Group structure are described in Note 32 Related party transactions (notes to the consolidated financial statements).

Note 10 Non-current financial liabilities

^* Financing costs are allocated over the duration of the loan.

Note 11 Accrued expenses and deferred income

Note 12 Pledged assets

The table below shows the carrying amount of the Parent Company's subsidiaries that are pledged as collateral for the Group's financing.

Note 13 Adjustment for non-cash items in the statement of cash flows

Note 14 Related party transactions

Polygon Group AB paid fees of EUR 3 million (0.7) for advisory and consulting services acquired from AEA Investors LP. Further, Polygon Group AB incurred other related party expenses of EUR 0.3 million (0). Polygon Group AB received a group contribution of EUR 4.6 million from Polygon International AB and EUR 0.7 million from Polygon Holding AB. Polygon Group AB had internal sales of EUR 3.1 million during the period, relating to management services that were provided to Polygon Holding AB.

Note 15 Proposed appropriation of earnings

Proposed appropriation of the Parent Company's earnings:

The Board of Directors propose that the loss for the year of EUR 32,760,664, together with retained earnings of EUR 528,680,268, amounting to a total of EUR 495,919,605, to be carried forward.

Note 16 Significant events after the end of the financial year

Definitions

Polygon presents certain financial performance measures that are not defined in accordance with IFRS. Polygon believes that these performance measures provide useful supplementary information for investors and company management to enable an assessment of trends and the company's performance. Since not all companies calculate financial performance measures in the same manner, these performance measures are not always comparable with those used by other companies. The performance measures used are not to be seen as a replacement for the performance measures defined in accordance with IFRS but rather as a complement.

Signatures of the Board of Directors and CEO

The Board of Directors and the CEO hereby certify that the annual accounts were prepared in accordance with generally accepted accounting standards in Sweden, and that the consolidated financial statements were prepared in accordance with the International Financial Reporting Standards (IFRS) as defined in regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards, and provide a fair presentation of the Group and the Parent Company's financial position and earnings. The Board of Directors and the CEO also certify that the statutory administration report provides a fair presentation of the Group's and the Parent Company's operations, financial position and earnings and describes the material risks and uncertainties facing the Parent Company and the companies included in the Group.