Lifco AB

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Konzernabschluss zum Geschäftsjahr vom 01.01.2022 bis zum 31.12.2022

2022 Annual Report and Sustainability Report

CONTENTS

Lifco in Brief

Highlights of 2022

Chief executive's review

Business model

Group companies

Acquisations process

Directors' Report

Sustainability Report

Financial results

Business area Dental

Business area Demolition & Tools

Business area Systems Solutions

Share information

Acquisations in 2022

Risks and risk management

Corporate Governance Report

Board of Directors

Group management

Appropriation of retained earnings

Auditor's report

Consolidated financial statements

Income statement and balance sheet

Cash flow statement

Notes

Reconciliation to alternative

performance measures

Parent Company financial statements

Ten-year summary

Acquisitions 2006-2022

GRI Index

Management systems and certifications

Addresses

Definitions and objective

Other information to the shareholders

The Swedish Annual Report and Sustainability Report is the original document. In the event of any discrepancy between the original document and the English translation, the Swedish original shall take precedence.

LIFCO IN BRIEF

We offer secure ownership for small and medium-sized businesses. We acquire and develop profitable, market-leading, sustainable niche businesses with the potential to deliver sustained earnings growth and robust cash flows. Our ownership is very long-term and Lifco's culture is marked by decentralisation, customer focus and an emphasis on sustainability in everything we do.

HIGHLIGHTS OF 2022

Lifco performed strongly in 2022 as a result of generally favourable market conditions as well as acquisitions. During the year, Lifco consolidated twelve acquisitions with estimated total annual net sales of SEK 1,475 million at the time of acquisition.

Net sales increased

23.3%

Organic growth

11.3%

EBITA increased

25.7%

KEY PERFORMANCE INDICATORS

	2022	Change	2021
Net sales, SEK million	21,552	23.3%	17,480
EBITA, SEK million ¹	4,662	25.7%	3,709
EBITA margin, % ²	21.6	0.4	21.2
Earnings per share after tax, SEK	6.13	16.5%	5.26
Cash flow from operating activities, SEK million	3,069	4.5%	2,938
Capital employed, SEK million	20,668	25.7%	16,447
Capital employed excluding goodwill and other intangible assets, SEK million	3.444	50.1%	2,294
Return on capital employed, %	22.6	0.1	22.5
Return on capital employed excluding goodwill and other intangible assets, %	135	-27	162
Net debt, SEK million	8,576	20.6%	7,113
Net debt/equity ratio	0.6	-0.1	0.7
Net debt/EBITDA	1.7	-	1.7
Interest-bearing net debt, SEK million	5,590	21.4%	4,603
Interest-bearing net debt/EBITDA ^*	1.1	-	1.1
Equity/assets ratio, %	44.8	1.6	43.2
Equity per share, SEK	29.14	24.3%	23.44
Number of shares, thousands	454,216	-	454,216

¹ EBITA = operating profit before amortisation of intangible assets arising on acquisitions and acquisition costs.
² EBITDA = operating profit before depreciation, amortisation and acquisition costs.

Q1

Four new businesses are consolidated with total annual net sales of approximately SEK 235 million. The new companies include:

Zenith Dental, a Danish distributor of dental products.

Cormidi, an Italian manufacturer of mini dumpers and skid loaders.

The UK firm Specialist Alarm Services, which provides staff attack and nurse call systems for the healthcare sector.

Q2

BCC Solutions of Finland, a supplier of transceivers, fibre cabling and other products, is consolidated. BCC Solutions has annual sales of around SEK 117 million.

The Estonian company Hekotek, which mainly sells sawmill equipment in Russia, is divested.

Q3

The MTN programme is increased from SEK 5 billion to SEK 6 billion. Lifco sells SEK 750 million of two-year unsecured bonds in two issues.

Four new businesses are consolidated with total annual net sales of approximately SEK 770 million. The new companies include:

EFKA Holding of the Netherlands, which manufactures customised aluminium frames for textiles.

Condale Plastics, a UK manufacturer of bespoke plastic extrusions.

The Italian company Trevi Benne, which manufactures excavator tools and attachments.

Q4

Three new businesses are consolidated with total annual net sales of approximately SEK 354 million. The companies are:

Heinz Schuller of Germany, which sells cable support systems and lightning protection products.

Medtec Medizintechnik, a German maker of equipment and consumables based on MR technology for the treatment of joints.

The UK company Prolec, a niche developer of software and hardware solutions for the construction industry.

Net sales in the consolidated companies refer to estimated annual net sales at the time of acquisition.

Chief executive's review

A CLEAR VALUE-CREATING STRATEGY

The basis for Lifco's historical performance is a clear business strategy centred around sustainable value creation, simplicity and decentralisation. A key driver behind Lifco's success is our Group companies' offerings, which contribute to increased efficiency and enhancement in a number of different areas. They often also contribute to strengthening the customers' sustainability efforts.

Lifco's primary goal is to increase its earnings every year through organic growth and acquisitions. Sales in 2022 increased 23.3 per cent to SEK 21,552 (17,480) million as a result of generally favourable market conditions, acquisitions and positive exchange rate effects. Organic growth was 11.3 per cent, acquisitions contributed 8.7 per cent and changes in exchange rates had a positive effect on net sales of 5.1 per cent. The divestment of the Estonian company Hekotek, which mainly sells sawmill equipment to Russia, impacted net sales negatively by 1.8 per cent. Lifco's average annual sales growth during the period 2006- 2022, including acquisitions, amounts to 14.1 per cent.

In 2022, EBITA increased 25.7 per cent to SEK 4,662 (3,709) million, with organic growth contributing 11.2 per cent, acquisitions 10.8 per cent and currency effects having a positive effect of 4.4 per cent. The EBITA margin improved by 0.4 percentage points to 21.6 (21.2) per cent on the back of organic growth and acquisitions. Lifco's average annual EBITA growth during the period 2006-2022, including acquisitions, is 19.2 per cent.

A SUCCESSFUL ACQUISITION MODEL

In 2022, Lifco acquired twelve businesses and 17 in the previous year. To ensure sustained earnings growth, the Group takes a long-term approach to the companies it acquires. We look for companies engaged in sustainable business activities that are profitable and have achieved stable growth over an extended period of time. Ideally, we like to buy companies that are market leaders in their niche and not overly dependent on individual suppliers and customers. The efforts to meet the UN Sustainable Development Goals (SDGs) and reduce our climate impact are strong, long-term societal trends. That's why we are keen to acquire companies which through their offering directly or indirectly increase efficiency and enhance customers' operations and can contribute to their sustainability efforts. We would like to see the existing management remain active in the company since they know the market and the business best.

We are strongly decentralised, and the companies enjoy a high degree of independence. Our goal is for decisions to be made by the local management teams in the companies where the business is conducted. A key means of implementing a decentralised business model in practice is to minimise central functions and resources.

SECURE OWNERSHIP

Lifco has a unique advantage in that the Group offers secure, long-term ownership for small and medium-sized companies. When we acquire a company it is not our goal to sell the business in the future. Nor do we strive to realise synergies and we have never relocated operations. The idea is that the companies should continue to operate as they did before becoming part of the Lifco Group and thereby deliver steady earnings growth.

Since our ownership perspective is perpetual, it is natural for the subsidiaries to combine a focus on earnings and cash flow with continuous efforts to develop new products and increase their selling power.

Lifco's decentralised business model, which allows for a high degree of autonomy in the subsidiaries, is a key factor during negotiations with potential acquisition candidates. In many of the acquisitions made by Lifco in recent years, our clear and simple corporate culture - a culture which has proved its worth over time - has been crucial in persuading entrepreneurs to sell their life's work to Lifco.

SUSTAINABILITY A KEY FACTOR IN ACQUISITIONS

Lifco is convinced that only with a sustainability perspective it is possible to build companies with sustained profitability, motivated employees and satisfied customers. That's why sustainability is an integral part of Lifco's business model. A sustainability perspective is also a key element of the acquisition process, and we only acquire companies that operate in a sustainable manner. We do not acquire companies which are considered to violate the UN Global Compact's principles on human rights, labour, environment and anti-corruption.

It is essential to the success of our decentralised business model that the Group has a clear and shared view of how to run a sustainable business. We therefore have Group policies which govern sustainability management activities. Our Code of Conduct sets forth our ethical principles, which cover our relations with employees, customers, suppliers, society, the environment and shareholders. This means, for example, that the employees need to be offered good terms and that the company's suppliers need to meet the criteria for sustainable business. Management regularly monitors compliance with the Code of Conduct and takes immediate action in case of any deviations.

CLIMATE IMPACT A FOCAL POINT

Many of Lifco's subsidiaries have for a long time conducted active sustainability work, particularly in the areas of environment and climate impact. Many initiatives are underway in the subsidiaries to reduce the companies' climate impact, for example by switching to renewable energy and reducing energy use. In 2022, we continued to enhance our sustainability reporting, placing particular emphasis on climate impact, employees and sound business practices. As of 2022, we are reporting with reference to GRI (Global Reporting Initiative) for the first time. Our prioritised sustainability topics are reduced environmental and climate impact, motivated employees and a high standard of business ethics.

In December 2016, Lifco signed up to the UN Global Compact, to show our support for internationally recognized business ethical standards and our long-term commitment to sustainability issues. As a member, we have undertaken to actively to implement the Global Compact's ten principles for sustainable development in the areas of human rights, labour, environment and anti-corruption.

STRONG CASH FLOW

A constant focus area for us is the Group's cash flow and changes in capital employed in our businesses. Cash flow from operating activities increased by 4.5 per cent in 2022 to SEK 3,069 million. Organic growth during the year affected cash flow by increasing working capital.

The long-term objective is to ensure stable dividend growth while maintaining a payout ratio of 30-50 per cent of earnings after tax. For the 2022 financial year, the Board of Directors proposes a dividend of SEK 1.80 per share, which is an increase of 20.0 per cent on 2021 and equates to 29.4 per cent of earnings after tax.

MARKET-LEADING NICHE COMPANIES

The Lifco Group encompasses many successful businesses and strong brands. Our Dental business area, which sells consumables, equipment and technical service to dentists, has long had a strong position in distribution to dentists in northern Europe. In recent years, Lifco has strengthened its positions in the dental market through acquisitions of niche companies that manufacture dental materials and dental prosthetics as well as companies that develop software. Our Demolition & Tools business area includes Brokk, a world-leading manufacturer of demolition robots, and Kinshofer, a leading supplier of crane and excavator attachments. In our Systems Solutions business area, we have many businesses with strong, niche market positions and offerings that promote sustainable development.

Lifco has built a strong European market presence and established significant positions in North America and Asia through organic growth as well as acquisitions. Over the period 2006- 2022, Lifco made 108 acquisitions.

A FINANCIALLY STRONG GROUP

Financially, Lifco still has significant scope for further acquisitions. Our target is to maintain interest-bearing net debt in a range of 2-3 times EBITDA. At year-end 2022, interest-bearing net debt stood at 1.1 times EBITDA, which means that Lifco still has significant scope for further acquisitions.

The most important factor for Lifco is our employees. We now have 6,512 employees in 30 countries. Many of our employees have worked in our companies for many years, and their collective experience is Lifco's most important success factor. I would like to thank all our employees for their fantastic contributions in 2022.

LIFCO'S MODEL FOR SUSTAINABLE VALUE CREATION

Lifco's business concept is to acquire and develop market-leading, sustainable niche businesses with the potential to deliver sustainable earnings growth and robust cash flows.

The company's strength lies in its ability to offer a safe haven for small and medium-sized businesses. Lifco is guided by a clear philosophy centred on a long-term approach, a focus on profitability and sustainability along with a strongly decentralised organisation.

Lifco has developed a model for sustainable value creation and development of its subsidiaries. The model is based on Lifco's philosophy, which is centred on earnings, sustainability, decentralisation and a long-term perspective. It is the fruit of many years' experience of building businesses. In simplified terms, the model can be described as follows:

•	Motivated and dedicated heads of subsidiaries and employees
•	Minimal bureaucracy and simple processes
•	A focus on long-term customer relationships and customers with the potential to generate sustainable earnings growth
•	An efficient cost structure with a focus on value-creating functions
•	Monthly monitoring of the subsidiaries' income statements and balance sheets with a focus on EBITA, changes in capital employed and cash flow as well as sustainability indicators

By developing sustainable niche businesses, Lifco creates value and is able to give its shareholders a return on their invested capital while gaining the financial strength to acquire new businesses. The model has proved its strength, as shown by Lifco's average annual growth rate of 14.1 per cent and EBITA growth of 19.2 per cent from 2006-2022. Growth has taken place solely through self-generated capital. During this 16-year period, Lifco consolidated 108 companies with total estimated annual net sales of SEK 12.5 billion at the time of acquisition. Over the same period, the number of employees increased from 1,385 to 6,512, mostly through acquisitions.

A DECENTRALISED ORGANISATION

This decentralised organisation is one of the cornerstones of Lifco's governance philosophy. Lifco's organizational structure is based on a number of group managers - who are previously successful Managing Directors of subsidiaries - acting as board chairmen for the subsidiaries. These managers ensure that the subsidiaries are integrated into the Lifco Group from a business culture perspective.

The individual subsidiaries are given a large degree of freedom, which encourages a strong entrepreneurial spirit. As the subsidiaries are managed independently, each company is able to retain its specific culture. They can also continue to employ the methods that are used in the industries and markets in which they operate.

A strong entrepreneurial spirit is one explanation for the Lifco Group's ability to retain key personnel in the companies which it acquires. In many cases, the key personnel are attracted by Lifco's decentralised structure, which allows them to maintain a high degree of independence also after the acquisition.

A LONG-TERM APPROACH

Lifco's long-term perspective is an asset when negotiating with potential acquisition candidates and in relationships with customers and suppliers. When acquiring a company it is not Lifco's goal to sell the business in the future, nor does Lifco strive to realise synergies. That's why Lifco has never relocated any business.

With a very long-term owner, it is natural for the subsidiaries to combine a focus on earnings, cash flow and sustainability with continuous investments in product development as well as long-term customer and supplier relationships.

Average annual growth 2006-2022 14.1⁒

FINANCIAL GOALS AND DIVIDEND POLICY

Lifco's primary goal is to generate sustainable earnings growth. The Group and all subsidiaries' goal is to ensure that organic EBITA growth exceeds GDP growth in the relevant geographic markets over the course of a business cycle. Additional growth should be achieved through acquisitions.

Efficient use of capital is another important goal for Lifco. Return on capital employed excluding goodwill and other intangible assets should exceed 50 per cent for the last twelve-month period. Interest-bearing net debt should remain in a range of 2-3 times EBITDA.

The long-term objective is to ensure stable dividend growth while maintaining a payout ratio of 30-50 per cent of earnings after tax. Since its IPO on Nasdaq Stockholm's main list in 2014, Lifco's average annual dividend growth has been 16.8 per cent. Over the same period, our profit after tax has increased by an average of 22.2 percent per year.

Average annual EBITA growth 2006-2022 19.2%

LIFCO'S GROUP COMPANIES

Lifco's 211 subsidiaries operate in a large number of industries. The subsidiaries offer dental health and dental care products as well as products and services that improve the customers' resource efficiency and work environment or reduce their environmental impact.

DENTAL	DEMOLITION & TOOLS	SYSTEMS SOLUTIONS
Leading suppliers of consumables, equipment, technical service and dental technology to dentists, mainly in Europe. Manufacturers producing denture attachments, disinfectants, saliva ejectors and other dental products.	World leader in demolition robots and crane attachments. A leading global supplier of excavator attachments.	Five divisions with niche companies in: Construction Materials, Contract Manufacturing, Environmental Technology, Service and Distribution, and Forest.
1,967 employees	1,774 employees	2,759 employees

The blue figure refers to the share of total sales. Number of employees refers to the number of employees on 31 December 2022.

Employees

6,512

Countries

30

Companies

211

Around 80 per cent of Lifco's sales occur in Europe while the rest is evenly distributed between North America and Asia. A key objective for Lifco is to establish long-term customer relationships and to focus on customers in industries with stable underlying growth and value chains that are transparent from a sustainability perspective.

Lifco's customers have a growing emphasis on sustainability, and this affects their demand. We are seeing that customers are increasingly looking for products that are resource-efficient, climate and environmentally friendly, and contribute to better working environments. Like Lifco, customers are also looking for greater insight into resource use, climate and environmental impact and working conditions throughout the value chain.

Lifco's offerings are generally aimed at customers with high quality requirements, such as high standards of patient safety, safe and secure workplaces in heavy industry, and energy saving solutions.

LIFCO'S ACQUISITION PROCESS

Value creation through acquisitions is a key element of Lifco's business concept. Lifco's approach to sustainability is integrated in all stages of the acquisition process. Lifco takes a very long-term perspective on its investments and basically owns the companies for ever.

1. IDENTIFY ACQUISITION CANDIDATES

Lifco looks actively for acquisition candidates. The searches are carried out by the group managers in the business areas and a handful of employees tasked with finding takeover candidates. Lifco's employees working specifically on acquisitions are based in various locations across Europe and report directly to the CEO. Lifco is also often contacted by corporate dealmakers or directly by entrepreneurs who are looking to sell their companies to Lifco.

Lifco acquires both new companies that can form separate divisions and companies that add to and expand its existing divisions. An acquisition must be able to generate profitable growth and good cash flows. The risk taken by Lifco must also be limited.

2. EXCLUDED COMPANIES

Lifco does not acquire companies that manufacture or sell weapons, alcohol, tobacco, fossil fuels or uranium, that sell, distribute or manufacture pornography, games or fast-moving consumer goods, or extract minerals.

3. AN OFFERING THAT PROMOTES SUSTAINABILITY

Lifco recognises that there is a strong trend in society and the business community for increased sustainability. That's why Lifco is keen to acquire companies which through their offering directly or indirectly contribute to their customers' sustainability efforts. Lifco continues to see many opportunities for acquisitions in Europe and will therefore be looking to make further acquisitions in Europe in the coming years.

4. THE ETHICS COMMITTEE REVIEWS AND APPROVES

Lifco's Ethics Committee reviews all acquisition candidates and approves candidates who have passed the previous steps and gives approval for the acquisition process to proceed. In case of doubt, the committee's principle is to refrain from the acquisition. The Ethics Committee consists of the CEO and the Chairman of the Board.

5. MUST RUN A SUSTAINABLE BUSINESS

Potential takeover candidates must meet the following criteria:

1.	They must run a sustainable business
2.	They must be stable businesses
3.	They must be leaders in their niche
4.	They must have an attractive position in the value chain without being dependent on specific suppliers or customers
5.	They must have limited or no exposure to technological risk
6.	They must have documented profitability

Lifco may decide to make an acquisition even where criteria 2-6 have not been met if the company offers attractive strategic or financial opportunities. Lifco never acquires companies that do not run a sustainable business.

6. SUSTAINABILITY DUE DILIGENCE

All acquisition candidates undergo a sustainability due diligence process. Lifco does not acquire companies which are considered to violate or have violated the UN Global Compact's principles on human rights, labour, environment and anti-corruption. The due diligence process includes an investigation into any possible violations or ongoing conflicts related to the environment, human rights, working conditions and business ethics, including tax issues. Lifco also investigates historical violations or conflicts and makes on-site visits to the takeover candidates in order to study the company culture, working conditions and other factors. The candidates' history with regard to managers, customers, suppliers and other factors is also examined. Lifco also looks at the company's strengths in the value chain and how it can promote its customers' sustainability performance by engaging in discussions with suppliers, customers, industry experts and other parties. Lifco naturally also analyses the company's accounts, existing contracts, etc. Lifco also considers whether the Group would be a suitable owner and what Lifco can add to the takeover candidate.

7. THE BOARD REVIEWS AND APPROVES

All acquisitions are presented to and approved by the Group's Board of Directors.

8. REPORTING AND MONITORING

Lifco acquires all shares of or a majority stake in the acquired companies. A fundamental principle is that acquired companies should have a high degree of independence, however Lifco conducts a review aimed at improving the efficiency of the acquired business. Normally, the following actions are taken:

•	The acquired company must immediately adopt Lifco's Code of Conduct and ensure that all employees are informed about the Code of Conduct within one month of the acquisition
•	A new remuneration and reporting system is introduced including sustainability indicators which are reported, analysed and monitored on a regular basis
•	A new board is appointed with a chairman from Lifco who has at least ten years' operational experience of successfully managing companies in the Lifco Group
•	Increased financial awareness with a focus on working capital and controlled financing of growth opportunities
•	Short- and long-term strategic plans which also cover sustainability and sustainability risks are prepared

SUSTAINABILITY REPORT

LIFCO'S SUSTAINABILITY MANAGEMENT

For Lifco, sustainable business is fundamental for longterm value creation. Sustainability is about creating companies with sustained profitability, motivated employees, satisfied customers and strong brands. Lifco has taken a stand on the climate issue and has set as its target to reduce its Scope 1-2 emissions in relation to profit every year. Lifco has begun to investigate the possibility of setting a science-based target for Scope 3 given the Group's operations.

Sustainability is an integral part of Lifco's business model and strategy. Lifco's overall sustainability goals are to reduce the Group's negative environmental impact and conserve the earth's limited resources, to create safe workplaces with fair working conditions and to adhere to a high standard of business ethics. In this way, the Group creates motivated employees, satisfied customers and strong brands, which are essential to sustainable growth with profitability.

Through its efforts to promote sustainability, Lifco influences the entire value chain in key areas such as the environment and climate, working environment and working conditions, human rights and business ethics. With a strong emphasis on sustainability throughout the value chain, Lifco can, for example, help to reduce climate and environmental impact, increase resource efficiency and promote safer working environments, both in the short and long term. At the same time, the Group's sustainability risks are reduced.

For Lifco, sustainability is also about making a positive contribution to society. Lifco contributes directly by paying taxes where value is generated and offering jobs with fair working conditions. Many of the Group's businesses operate outside the metropolitan regions and thus contribute to the development of less densely populated areas. Lifco's high standard of business ethics and respect for human rights are evident in all relationships in the value chain, which contributes positively to society in both the short and long term.

Lifco continuously develops and improves its monitoring and reporting of sustainability management activities. In 2022, the Group increased the number of targets and reported indicators and also reports with reference to GRI (Global Reporting Initiative) for the first time. Lifco is a signatory to the UN Global Compact and issues an annual Communication on Progress report. Since the climate issue is one of the most important issues of our time, Lifco's target is to reduce its Scope 1-2 emissions in relation to profit every year. Lifco has begun to investigate the possibility of setting a science-based target for Scope 3 given the Group's operations.

Lifco's sustainability management and its strategic priorities, results and governance are presented in the Sustainability Report, which comprises pages 14-65.

Lifco has grouped its most important sustainability issues in three main strategic areas: Reduced climate and environmental impact, motivated employees and safe workplaces as well as sound business practices. Progress in the three areas is monitored through quantified targets and indicators.

FOLLOW-UP OF CENTRAL SUSTAINABILITY TARGETS

	2021	2022	Results 2022
Reduce energy consumption in relation to profit of SEK every year, kWh	0.0139	0.0124	Target achieved
Reduce Scope 1-2-emissions in relation to profit of SEK every year, kg	0.0040	0.0035	Target achieved
Reduce staff turnover every year	17.2%	16.2%	Target achieved
Every year reduce the number of workplace accidents per employee leading to more than three days of absence	0,0105	0.0106	Target not achieved
Increase the percentage of female wage-setting managers every year	21.2%	20.1%	Target not achieved
All employees must be informed about the Code of Conduct every year	100%	100%	Target achieved
Increase the percentage of subsidiaries where major suppliers have committed to following the Code of Conduct every year	78.3%	72.4%	Target not achieved

LIFCO ́S VALUE CREATION IN 2022

Stakeholder	Type of value	Value created	Added value created
Revenue
Customers	Sales revenue	SEK 21,552 (17,480) million →	Lifco creates added value by offering high-quality products and services which contribute to increased resource efficiency, a reduced climate impact, increased energy efficiency, safer working environments and safer dental care among other benefits. Lifco also places a strong emphasis on good customer service with fast response times.
Costs
Employees	Salaries, benefits and pensions	SEK 3,456 (2,945) million →	Lifco offers stimulating, non-discriminatory workplaces with a stringent approach to safety. Lifco's businesses are often based in small towns and enable the employees to work and live outside the metropolitan regions.
Suppliers	Purchases of services, materials and products	SEK 12,313 (9,857) million →	Lifco offers long-term collaborations and good conditions for suppliers who meet Lifco's requirements, which include safe workplaces, fair working conditions and high product quality.
Society	Social security contributions and tax paid (tax expense by country see page 35)	SEK 1,531 (1,211) million →	Lifco contributes to economic growth and promotes a culture of equal treatment, safe workplaces, sound business ethics and transparency. Lifco pays tax where value is generated. By being a long-term owner and not seeking synergies among subsidiaries, Lifco contributes to a positive development in the local communities where the Group operates. Lifco's businesses are often based in localities outside the metropolitan regions and contribute to the economic development of less densely populated areas. Lifco makes extensive use of local suppliers, which stimulates economic growth. The Group also works to reduce its negative impact on critical assets such as water.
Owners	Proposed dividend Total return	SEK 818 (681) million -35.0% (72.5%) →	Lifco creates shareholder value through stable long-term earnings and dividend growth as well as the opportunity to invest in a portfolio of market-leading niche companies with good risk diversification.
Lenders	Interest paid	SEK 128 (63) million →	Lifco offers lenders an investment with good cash flows and a strong financial position, as well as a portfolio of market-leading niche companies with good risk diversification.

REDUCED CLIMATE AND ENVIRONMENTAL IMPACT

Climate change is the biggest issue of our time and everyone must do their part to reduce the negative impact. Lifco's target is to reduce its Scope 1-2 emissions in relation to profit every year. The climate transition is also creating greater business opportunities for the Lifco companies.

Reduced climate and environmental impact is a prioritised sustainability area for Lifco. The Group's commitment to reduce its CO ₂ emissions and its striving to minimise its negative environmental impact are expressed in the environmental policy adopted by the Board, which is revised annually. The annual risk process covers the environmental impact of water emissions, waste management, recycling and other factors that the Lifco companies are required to assess.

Under Lifco's environmental policy, the companies are required, as a minimum, to follow environmental laws and guidelines and apply the precautionary principle. During 2022, Lifco incurred no fines or charges due to negligence in the environmental area. The larger Lifco companies have designated environmental officers tasked with monitoring the company's impact on water, for example, and for managing waste and recycling. In the other companies, the Managing Director or another member of management, such as the head of production, has the strategic and day-to-day responsibility for environmental issues. The Group's employees must receive relevant training, for example in hazardous waste management and recycling processes, as well as instructions on how to minimise water consumption and emissions from production processes. Employees who discover deviations from processes or a risk of deviations or negative impact on Lifco's operations are required to report this to their immediate supervisor or the Managing Director of the company concerned. Employees and other stakeholders can also use the whistleblowing service if the risk is serious and deviates from Lifco's policies.

At year-end, 20 Lifco companies, or 9.5 per cent of the total number, had the environmental management system ISO 14001. Decisions about any certifications and management systems are made independently by each subsidiary.

The Group's minimum requirement to follow laws and guidelines in the environmental area also covers suppliers and subcontractors. Lifco should not have business relations with suppliers who violate applicable laws and ignore environmental concerns. The Lifco companies' procedures for assessing suppliers are described on pages 32-33. Lifco companies that identify deviations or risks of deviations from the Group's environmental policy must take action immediately and report this to Group management. In order to identify and manage risks, Lifco companies may collaborate with representatives of local communities, NGOs or trade associations. Lifco did not ask its Group companies in 2022 whether they had discontinued any partnership due to the supplier's environment shortcomings or inability to comply with Lifco's Code of Conduct regarding environmental matters.

As part of its efforts to reduce its climate and environmental impact, Lifco strives to choose the most environmentally friendly products and inputs, minimise the use of non-renewable materials, increase the rate of recycling and the use of recyclable materials in its processes. As guidance for making the most climate- and eco-friendly choices, the Lifco companies use recognised and established environmental and fair-trade certifications.

Lifco is seeing a strong trend of customers placing increasing importance on climate and environmental issues throughout the value chain, which is leading to increased business opportunities for the Lifco companies. These opportunities arise, for example, from increased demand for energy- and resource-efficient products that reduce dependence on fossil fuels, and products that reduce water consumption or the amount of dust particles. The Group also includes companies that sell LED lighting, electrical products for the electrification of society and greentech companies that develop and sell solutions for recycling plastics.

Lifco does not conduct tests on animals in any part of its operations and does not finance studies that include experiments on animals.

REDUCED WATER CONSUMPTION

Access to water has become an increasingly important societal issue. For Lifco, access to clean water is a business-critical factor. The Group's target is to reduce the water consumption associated with Lifco's products. All processes that carry a risk of or result in actual emissions must conform to or exceed the applicable legal requirements and guidelines. Lifco companies work with their customers and suppliers to reduce water and other resource consumption in the value chain.

In 2022, Lifco started collecting data on the Group's total water consumption. The data also covers water consumption from water-stressed areas. Using the collected data, Lifco will in 2023 deepen its knowledge of the Group's water consumption and the associated risks. Lifco intends to set targets for the Group's total water consumption.

HAZARDOUS WASTE

Lifco seeks to ensure that hazardous waste is handled in accordance with laws and guidelines and that precautions are taken to minimise the risks to the environment and employees. In 2022, Lifco began collecting data on the Group's total amount of hazardous waste. The majority of the hazardous waste consists of residual products from painting, oil, rust removal solvents, batteries and excess liquid from refilling disinfectants.

PROTECT ECOSYSTEMS AND BIODIVERSITY

Global biodiversity is rapidly decreasing and Lifco supports the EU's biodiversity strategy for 2030. Lifco's environmental policy states that the Group's operations must not damage or threaten biological diversity, ecosystems or endangered species. In 2022, three of Lifco's companies conducted operations in or near environmentally protected areas with a total of 58 employees, which represents less than 1 per cent of the total number of employees in the Group. The three companies are Swedish. BeGrips and RF-System conduct operations near water protection areas in Sosdala and Vinslöv, respectively. JH Orsing operates in the vicinity of the Raan valley, which is a nature reserve, a Natura 2000 area and of national interest for the preservation of the natural and cultural environment. Before a new operation is established, Lifco companies examine the risks of damage or threats to biological diversity, ecosystems or endangered species. During the due diligence process for acquisitions, Lifco examines the risks that the business will damage or could damage biodiversity, ecosystems or endangered species.

WATER CONSUMPTION

Litres	2022
Water consumption	78,853.8
Water consumption from water-stressed areas	2,646
Water consumption per employee	12.14
Water consumption from waterstressed areas per employee	0.41
Water consumption per SEK of profit	0.000017
Water consumption from water- stressed areas per SEK of profit	0.00000057

The data collected covers 74 (68) companies with more than 25 employees, which account for around 82 (82) per cent of all employees of the Group. The collected data has been used to estimate the water consumption of the Group as a whole. SEK of profit refers to EBITA. Per employee has been calculated based on the average number of employees in 2022.

HAZARDOUS WASTE

Tonnes	2022
Hazardous waste collected for disposal	1,010.5
Hazardous waste per SEK of profit	0,00000022

The data collected covers 74 (68) companies with more than 25 employees, which account for around 82 (82) per cent of all employees of the Group. The collected data has been used to estimate the amount of hazardous waste for the Group as a whole. SEK of profit refers to EBITA.

CLIMATE IMPACT

Lifco's target is to reduce the Group's emissions of greenhouse gases in scope 1-2 every year in relation to profit. Group management is responsible for ensuring that the Lifco companies have processes which aim to reduce greenhouse gases emissions and energy consumption, increase the share of renewable energy and ensure that energy and resources are used efficiently. Achieving the overall target requires that the Lifco companies engage constructively with suppliers and customers, which has a positive climate impact throughout the value chain. To reduce emissions, Lifco and its entire value chain depend on the general availability of more climate-friendly transport and energy sources.

Lifco's biggest estimated climate impact in scope 1-2 comes from energy consumption in commercial premises and production facilities. To achieve the overall climate goal, Lifco companies have, among other initiatives, signed green electricity contracts, installed solar panels and improved the insulation in the premises. Such measures continue to be implemented in the companies, which make independent decisions about which activities are appropriate for their business and when they should be carried out.

Some Lifco companies have service fleets and company cars. In the Dental business in particular, products are extensively distributed by truck, mainly in Europe. Service fleets and company cars need to be as environmentally friendly as possible. For distribution-dependent Lifco companies, emissions are a key issue in procurements and the companies are working to reduce the use of fossil fuels for transportation.

During the pandemic years, the volume of business travel in the Group was very low. As the pandemic restrictions were lifted in spring 2022, business travel increased, which affected the Group's emissions in 2022. Many of the Lifco companies have introduced digital forms of meeting in their relations with customers and suppliers, which is expected to have a continued positive effect on emissions from business travel. In 2022, emissions from business travel increased to 1,845 (798) tonnes. In 2019, emissions from business travel totalled 3,540 tonnes.

Climate change is also creating business opportunities for the Lifco companies. Many of the companies are engaged in continuous development to reduce their products' negative climate and environmental impact. Several Lifco companies offer products where the unique selling point is the product's positive contribution to the customers' climate impact and emissions. The ability to offer energy-efficient and low-emission products is often a strong competitive advantage and has a positive effect on both demand and profit margins.

Lifco has no Group-level information on the extent to which energy consumption and greenhouse gas emissions have been reduced as a result of energy-saving measures. Lifco currently has no Group-wide initiatives to offset emissions. Some of the subsidiaries have chosen to offset emissions from their own operations.

TARGET CLIMATE

In 2022, energy consumption per SEK of profit decreased. Absolute emissions of greenhouse gases increased in 2022.

In relation to EBITA, emissions in scope 1-2 were down.

Scope 1-2 emissions per employee have increased, which reflects generally high production levels.

METHOD OF CALCULATING THE CLIMATE IMPACT

Under the GHG Protocol, emissions are divided into Scope 1, 2 and 3. Scope 1 refers to direct emissions and Scopes 2-3 to indirect emissions. Broadly speaking, Lifco's presented scopes include the following:

Scope 1 includes combustion of fuel in company cars, fuel in boilers and leakage of refrigerants from cooling systems. It is assumed that boilers for which consumption is reported are used in the operations.

Scope 2 includes purchased energy such as electricity, heating and cooling.

Scope 3 includes business travel by air, upstream transport and well-to-tank emissions from fuel and energy production, i.e. maintenance of power plants, production and distribution of fuel, etc.

The emissions included in the calculations are the greenhouse gases CO ₂ , CH ₄ , N ₂ O, HFCs, PFCs, SFe and NF ₃. In its reporting, Lifco uses the term CO ₂ e to cover all these greenhouse gases. Lifco has used GWP100 (Global Warming Potential) in the calculations.

The data collected covers 74 (68) companies with more than 25 employees, which account for 82.2 (82.4) per cent of all employees of the Group. The collected data has been used to estimate the climate impact of the Group as a whole. For energy, Lifco applies a market-based approach and electricity consumption is calculated based on origin. Where a company has not been able to specify the type of electricity used, we have made a conservative estimate and assumed a residual mix as the origin of the electricity. When collecting the data, Lifco has requested data covering Scopes 1 and 2 as well as part of Scope 3.

From 2022, Lifco includes upstream transport in the calculations, which explains the significant increase in reported Scope 3 emissions. Lifco has not reported the energy consumption related to upstream transport and distribution.

In 2022, Lifco has started to investigate the possibility of setting a science-based target for Scope 3 given the Group's operations.

Lifco has no Group-level information on emissions of ozone-depleting substances, nitrogen or sulphur oxides and other significant air emissions.

ENERGY CONSUMPTION

kWh	2021	Change	2022
Cooling	18,192	-43.1%	10,349
Heating	8,594,662	17.7%	10,115,363
Electricity	43,024,939	10.3%	47,448,599
Total	51,637,793	11.5%	57,574,311

Lifco does not collect Group-level information on sold energy.

ENERGY EFFICIENCY

kWh	2019	2020	2021	2022
Total energy consumption	38,904,195	36,677,463	51,637,793	57,574,311
Energy consumption per SEK of profit	0.0154	0.0139	0.0139	0.0124
Energy consumption per SEK of sales	0.0028	0.0027	0.0030	0.0027
Energy consumption per employee	7,403	6,678	8,614	8,864

Total energy consumption has gone up significantly from 2020 because the calculations have changed. The 2019-2020 data includes some electricity for cooling.

From 2021, all electricity for cooling is included. SEK of profit refers to EBITA. Consumption per employee has been calculated using the average number of full-time employees during the year.

RENEWABLE ENERGY

kWH unless otherwise indicated	2021	2022
Energy consumption from renewable energy	32,629,921	35,166,389
Share of renewable energy in relation to total energy consumption/share of non renewable energy	63.2%/36.8%	61.1%/38.9%
Energy consumption from renewable energy per SEK of profit	0.0088	0.0075
Energy consumption from renewable energy per SEK of sales	0.0019	0.0016
Energy consumption from renewable energy per employee	5,443	5.414

The renewable energy sources mainly consist of water, wind and solar power as well as bioenergy. The non-renewable energy sources mainly consist of fossil fuels. Consumption per employee has been calculated using the average number of full-time employees during the year.

CLIMATE IMPACT 2021-2022 PER SCOPE 1-3

Tonnes CO ₂ e	2021	2022	% of total 2022	Change in tonnes	Change in %
Scope 1	6,893	7,740	1%	847	12.3%
Coolants	874	932	0%	58	6.6%
Stationary combustion	2,946	2.870	0%	-76	-2.6%
Vehicles	3,072	3,938	0%	865	28.2%
Scope 2	8,046	8,615	1%	568	7.1%
District cooling	0	0	0%	0	0.0%
District heating	644	460	0%	-184	-28.6%
Electricity	7,402	8,090	1%	688	9.3%
Vehicles	0	64	0%	64	0.0%
Scope 3	3,351	973,139	98%	969,788	28,941%
Business travel	798	1,845	0%	1,047	131%
Fuel- and energy-related activities	2,553	3,782	0%	1,230	48.2%
Upstream transportation and distribution	No data	967,511	98%	967,511	-
Total Scope 1-3	18,290	989,493	-	971,203	5,310%

CLIMATE IMPACT 2019-2022 TOTAL PER SCOPE

Tonnes CO ₂ e	2019	2020	2021	2022
Scope 1	6,328	5,624	6,893	7,740
Scope 2	10,849	10,946	8,046	8,615
Total Scope 1-2	17,177	16,570	14,939	16,355
Kg CO ₂ e Scope 1-2 per SEK of profit	0.0068	0.0061	0.0040	0.0035
Kg CO ₂ e Scope 1-2 per SEK of sales	0.00124	0.00120	0.00086	0.00076
Kg CO ₂ e Scope 1 -2 per employee	3.27	3.02	2.49	2.52
Scope 3	5,734	2,595	3,351	5,628
Total Scope 1-3	22,911	19,165	18,290	21,983
Kg CO ₂ e Scope 1-3 per SEK of profit	0.0091	0.0071	0.0049	0.0047
Kg CO ₂ e Scope 1-3 per SEK of sales	0.00046	0.00041	0.00039	0.00100
Tonnes CO ₂ e Scope 1-3 per employee	4.60	3.49	3.05	3.40

BIOGENIC EMISSIONS

Tonnes CO ₂	2022
Scope 1	1,086
Scope 2	6,338
Scope 3	26,580
Total scope 1-3	34,004

Biogenic emissions are not included where input data has been reported as calculated CO ₂.

To enable comparability, Scope 3 emissions for upstream transport and distribution have been excluded from the 2022 figures in the table Climate impact 2019-2022. Tonnes CO ₂ e per employee has been calculated based on the average number of full-time employees during the year. SEK of profit refers to EBITA.

ALL TARGETS FOR THE SUSTAINABILITY TOPIC REDUCED CLIMATE AND ENVIRONMENTAL IMPACT

	2019	2020	2021	2022
Target: Reduce Scope 1-2 emissions per SEK of profit every year
Kg CO ₂ scope 1-2 per SEK of profit	0.0068	0.0061	0.0040	0.0035
Target: Reduce energy consumption per SEK of profit every year
Energy consumption in kWh per SEK of profit	0.0154	0.0136	0.0139	0.0124
Target: Increase the share of renewable energy every year
Share of renewable energy	Measurement not started	Measurement not started	63.2%	61.1%
Target: No fines or penalties due to negligence in the environmental field
Fines or penalties, SEK	No data	No data	No data	0.0

BROKK

The Greek island of Evia is home to Europe's first fully electric mine. Thanks to Brokk's unique, electric powered demolition robot, the mine is not only emission-free but also very safe.

Evia has one of the richest deposits in the world of magnesite, a valuable mineral. The mining company Grecian Magnesite is now mining the mineral entirely without the use of fossil fuels and without explosives.

"The Brokk robot is the most suitable machine in the world for productive mining," says George Bourmas, the engineer who designed the mining operation. "The extraction is done with surgical precision, which saves us both time and money."

George Bourmas has extensive experience in mining and safety is an area to which he gives the highest priority. At Evia, the magnesite is now mined at a depth of 200 metres.

"I have seen all kinds of mines and tunnels and this is the first one where everyone feels extremely safe," says George Bourmas. "Since we started operations in December 2021, we have not had a single incident and no operator has seen anything fall down. Nor do we need to worry about someone using explosives incorrectly, and there are no diesel fumes."

MOTIVATED EMPLOYEES AND SAFE WORKPLACES

Motivated employees are a prerequisite for long-term sustained value creation and is therefore one of Lifco's prioritised sustainability issues. Creating working environments that contribute to motivation requires safe and secure workplaces, an equal gender distribution, good leadership, opportunities for personal development and stimulating tasks.

Lifco's Code of Conduct and HR policy regulate Lifco's approach to employees with the overall aim of creating motivation and safe workplaces. The Code of Conduct also covers suppliers and subcontractors. Lifco's systems and processes for supplier relations are described on page 32.

LIFCO'S EMPLOYEES

A majority of Lifco's employees are permanent full-time employees. Most, 84.3 per cent, work in Europe, where the countries with the highest number of Lifco employees are Sweden and Germany. The age distribution is satisfactory; of newly recruited employees in 2022, 40.1 per cent were younger than 30, which ensures a good supply of skilled labour for the long term. There were no significant changes in the composition of the workforce in 2022. However, Lifco has a skewed gender distribution in the workforce as a whole and among wage-setting managers, which means that the Group needs to increase its focus on recruiting female employees.

SAFE WORKPLACES

Lifco's vision is that no employee of Lifco or of a supplier or subcontractor should be injured at work. In order to achieve the vision of zero workplace injuries, the Lifco companies assign priority to preventive safety work as well as risk identification. Incidents and accidents of a serious nature must be reported to the Board and Group management, who assess and monitor the measures taken.

Lifco companies are required to conform to or exceed applicable health and safety laws and guidelines. They are also required, at least once a year, to carry out a comprehensive risk analysis of the work environment and take any necessary preventive measures. The Managing Director of each subsidiary is responsible for health and safety and for preventive measures. The Managing Director can delegate this responsibility to a health and safety officer who reports directly to the Managing Director.

A key part of health and safety management is open dialogue between the employees and managers of each company regarding health and safety and other related matter. Some Lifco companies have health and safety committees where representatives from trade unions or persons appointed by the employees work with representatives of the company to assess the work environment on a regular basis. In some cases these committees are legally prescribed functions and in others they are initiated by the Lifco company. The frequency of the meetings are decided upon independently by the health and safety committees or in consultation with the Managing Director of the subsidiary.

Communication with employees, whether permanent or temporary or engaged through third parties, is essential to minimising the risk of workplace accidents, Employees, both permanent and temporary, need to receive relevant instructions and training in how to carry out their duties. Training required to perform the duties of the job must be carried out during paid working hours. Particularly stringent processes are required for work involving hazardous tasks, such as heavy lifting or handling of substances harmful to health. In such cases Lifco must, as a minimum, follow the safety regulations specified in laws, guidelines and instructions from equipment suppliers. The employees are also responsible for keeping up to date on the applicable procedures and processes for handling machines, hazardous substances and other tasks.

Routines and processes related to work environment work also include employees and temporary employees who perform tasks at customers, suppliers or other collaboration partners.

Managers are obliged to report without delay any information they receive about risks of workplace accidents or injuries to the local health and safety officer or subsidiary company Managing Director. In dialogue with the health and safety officer, the subsidiary company Managing Director will decide whether work should be interrupted at the workplace concerned or whether other measures should be taken. No employee of Lifco, whether permanent or temporary, or of its suppliers should be subject to reprisals or discrimination because they have reported risks of injury or ill health to employees at the workplace.

The assessment of health and safety risks is based on factors such as changes in processes or equipment, incident reporting and assessments, changes in staffing or work flows, reports on employee health, and monitoring of noise, vibrations and dust.

In these assessments, potential language barriers or functional variations are also taken into account.

In 2022, 58.2 per cent of all employees were covered by occupational health and safety management systems. Of the total number of employees, 9 per cent were covered by ISO 45001/ OHSAS 18001. These systems were implemented after the companies concerned identified risks or in response to demands for certification from customers or suppliers. Under Lifco's business model, the subsidiary companies make independent decisions about management systems and certifications based on commercial decisions and risk assessments.

Lifco does not have Group-level information on the number of work-related injuries among workers who are not employees. Nor has Lifco collected data on work-related health problems.

OCCUPATIONAL HEALTH AND SAFETY MANAGEMENT SYSTEMS

	2021	2022
Number/proportion of employees covered by an occupational health and safety management system	3,640/58.1%	3,789/58.2%

Calculated as full-time employees at the end of the year (FTE).

At the Lifco companies, as at so many other companies, stress and stress-related illnesses have increased in recent years. As part of its preventive health and safety work, Lifco analyses and seeks to understand the challenges workers face in relation to stress. As part of the effort to reduce stress-related sick leave, the Lifco companies are responsible for ensuring that employees have opportunities to recover after periods of intense work. The Lifco companies have also introduced voluntary health promotion programmes designed, for example, to encourage more physical activity among employees.

OCCUPATIONAL HEALTHCARE

The Lifco companies operate in many different countries with differing access to general healthcare. The Lifco companies decide if there is a need to offer employees occupational healthcare as part of their efforts to promote health and safety. Employees must be clearly informed about how and when they will be offered access to healthcare through the company. Temporary employees must also be informed if they have access to occupational healthcare. In some companies, occupational healthcare is included in the standard employment terms for the industry.

WORKPLACE ACCIDENTS

	2021	2022
Number of workplace accidents leading to more than three days of absence	63	69
By region:
Nordics	14	10
Rest of Europe	44	56
North America	4	1
Asia	1	2
Workplace accidents in relation to average number of employees	0.0105	0.0106
Workplace accidents in relation to number of hours worked ¹	1.00	1.04
Lost working days as a result of workplace accidents	2.548	1,360
Fatal workplace accidents	0	0

The measurement covers all employees and operations.

¹ The calculation is based on 200,000 hours worked.

TARGET WORKPLACE ACCIDENTS

In 2022, Lifco set the target of reducing the number of workplace accidents per employee every year. In 2022, the number of workplace accidents per employee increased. The majority of accidents occur at the assembly units in Demolition & Tools. The accidents are to a large extent hand and foot injuries caused by crushing or impacts. Other more frequent accidents are back injuries from incorrect lifting and head and eye injuries caused by objects that have become detached when machinery is operated. The most common remedial measures are inspection of the equipment and reviews and analyses of safety procedures and processes.

EQUALITY AND MORE FEMALE MANAGERS

Gender-balanced teams perform better than teams with a skewed gender balance. Lifco is therefore aiming to increase the proportion of women among wage-setting managers. To reach the target, Lifco is employing a variety of methods. In the case of managerial appointments, for example when a Managing Director of a subsidiary company is appointed, there must be at least one woman among the final candidates. In 2022, eleven recruitments of new Managing Directors for subsidiary companies were made. Of the appointed candidates, four, or 36.4 per cent, were women. Other methods used include ensuring a good work-life balance and offering opportunities to work from home.

Lifco's operations are characterized by the fact that the managers are often very long-term in the Group, which is positive for the Group. Leaders who create consistently good results can only do so through a positive work climate and good customer and supplier relationships. The disadvantage is that there will be fewer opportunities to recruit new managers and thereby improve the gender distribution. Lifco's ability to increase the proportion of female salary-setting managers is also affected by the acquisitions the Group makes.

WAGE-SETTING MANAGERS BY GENDER

	2021	2022
Number of wage-setting managers, women/men	70/261	66/263
Total number of wage-setting managers	331	329
Proportion of female wage-setting managers, %	21.1	20.1

TARGET PROPORTION OF FEMALE MANAGERS

On 31 December 2022, 20.1 (21.1) per cent of the Group's wage-setting managers were women. The change from the previous year is not significant. In 2022, Lifco set the target of increasing the percentage of female wage-setting managers every year.

PAY GAP ANALYSES

In 2022, 24.6 per cent of all Lifco companies carried out analyses of differences in pay between women and men who perform the same tasks. The companies that identified a difference in pay have addressed the discrepancy through salary adjustments. Lifco has not collected Group-level information regarding identified pay gaps between women and men.

PAY GAP ANALYSES

	2021	2022
Proportion of subsidiaries that carried out gender pay gap analyses	25.3%	24.6%

EMPLOYMENT SALARY CONDITIONS

Lifco aims to pay market salaries and to differentiate the compensation offered to individual employees based on the complexity of the duties, responsibilities and performance, and in compliance with local laws, regulations and generally accepted local industry standards and/or collective bargaining agreements with local trade unions. Other forms of compensation such as pensions and any other benefits are also set in accordance with local laws, regulations and generally accepted local industry standards and/ or collective bargaining agreements with local trade unions. Legal or contractual minimum wage requirements must be followed.

Lifco pays salaries regularly, in full and on time, and does not require employees to pay work-related fees or costs. Employees receive digital or paper payslips which show their salary and any deductions they are eligible for. All employees, including temporary employees, receive their working conditions in writing. The document must be confirmed by both the employer and the employee through signatures. Lifco's policy regarding employment salary conditions also covers suppliers, subcontractors and employees employed through third parties. The Lifco companies decide when and how to carry out audits of suppliers, subcontractors and employment agencies/staffing companies regarding employment salary conditions. Such audits may be initiated in case of concerns about deviations or in response to the companies' annual risk review. Lifco has no Group-level information on benefits that are offered to full-time employees but not to temporary employees or part-time employees in significant businesses.

WORKING HOURS

In order to protect the health and safety of employees, the employees' working hours must be regulated in the terms of employment. Working hours are regulated in accordance with local regulations and guidelines and, where applicable, through collective bargaining agreements.

NON-DISCRIMINATORY WORKPLACES

Lifco's Code of Conduct is based partly on the ten principles of the UN Global Compact and the international human rights framework. Under Lifco's Code of Conduct, no one may be discriminated against, harassed or threatened on account of their sex, gender identity or expression, ethnic background, faith, functional variation, sexual orientation, age, nationality, political opinion, trade union membership, status, social background, language, state of health or marital status. This applies also to Lifco's suppliers and subcontractors.

Employees who discover or become the subject of discrimination should in the first instance address the matter with their immediate supervisor or, if the supervisor is suspected of having committed the discriminatory act, to the Managing Director of the subsidiary concerned. The suspicion can also be escalated to the chairman of the subsidiary or reported through the whistleblowing service. Suspected cases of discrimination are reported to the Board and Group management and investigated internally by an independent party. Cases reported through the whistleblowing service are investigated according to the whistleblower policy.

The measures taken are reported to Group management and the Board. The measures can consist of changes to processes, compensation, relocation or dismissal of the perpetrator.

The section on the priority sustainability topic sound business practices on page 32 describes how Lifco ensures that suppliers comply with the Code of Conduct. The same section also describes how Lifco's whistleblowing channel works, and how incoming messages are addressed. In 2022, no reports relating to discrimination were received.

PROHIBITION OF FORCED LABOUR, MODERN SLAVERY AND CHILD LABOUR

Lifco supports the UN Declaration on the Rights of the Child. Forced labour, modern slavery and child labour are strictly prohibited in all of Lifco's operations as well as among suppliers, their subcontractors and business partners. Monitoring and control of compliance by suppliers is described on page 32. In the risk analysis, Lifco places special emphasis on any use of forced labour, the occurrence of modern slavery or cases of young employees performing dangerous tasks or handling hazardous substances.

PERFORMANCE REVIEWS AND PAID TRAINING

One of Lifco's fundamental values is openness. Open dialogue combined with good leadership based on clear and immediate feedback are fundamental to creating a motivating work climate. Lifco attaches great importance to leadership and the leaders' personal qualities, such as the ability to create a work climate that is appreciated by the employees. Good leadership includes engaging in continuous dialogue with the employees and fostering a culture that allows the employees to grow and develop. Lifco does not believe in structures where the employee/manag- er dialogue is conducted through formal, standardised processes at particular times during the year.

Lifco believes that many employees are stimulated by learning and new knowledge. In Lifco, employees are offered opportunities to learn and acquire new knowledge primarily by taking on new tasks or responsibilities. The Lifco companies themselves decide if, when and for whom there is a need for company-sponsored training. Such training is usually linked to the need for new knowledge about new or changed regulations or new operating procedures.

Part of creating a motivating work climate involves enabling employees to take on new challenges and receive opportunities for advancement. Such opportunities are offered within the companies and between companies that are part of the same division. The Lifco companies must have procedures in place for replacing employees who leave the company or take on new duties within the company.

STAFF TURNOVER

Staff turnover is an indicator of how much the employees enjoy working in the Lifco companies. The Lifco Group has a high staff turnover outside the Nordic region, which refers to individual assembly units. The Group's operations in China and North America normally have a higher staff turnover than the European operations.

STAFF TURNOVER

	2020	2021	2022
Staff turnover, %	19.8	17.2	16.2
Number of employees who have left the organisation and been replaced	1,070	1,078	1,057
Staff turnover by region, %
Nordics	16.8	10.1	9.1
Rest of Europe	17.0	18.9	19.3
North America	24.0	20.7	16.7
Asia	33.9	28.3	24.8

TARGET STAFF TURNOVER

Staff turnover declined from 17.2 per cent to 16.2 per cent in 2022. The number of employees leaving the organisation has remained stable over the years, which means that staff turnover has gone down as the total number of employees has increased. In 2022, Lifco set the target of reducing staff turnover every year.

SICK LEAVE

Sick leave is a key indicator for Lifco and is regularly analysed in the Lifco companies. A high level of sick leave or an increasing trend is followed up and appropriate measures are taken in the entity concerned. When identifying and analysing the problem and deciding on measures to take, the Lifco company may consult health and safety experts such as ergonomists or specialists in stress-related diseases.

SICK LEAVE

	2020	2021	2022
Sick leave (number of days of absence in relation to total working time), %	3.6	3.6	4.3
By region:
Nordics	4.2	4.0	4.7
Rest of Europe	4.3	4.4	5.0
North America	1.3	1.2	1.8
Asia	1.2	0.8	1.5
Number of days of absence	52,763	56,587	73,474
Number of days of absence per employee ¹	9.7	9.0	11.3
Number of working days during the year, thousands	1,470	1,582	1,658

¹ Calculated based on the number of full-time employees at the end of the year (FTE).

Sick leave increased in 2022 as a result of employees spending more time at the workplace than in the previous two pandemic years. Lifco has chosen not to set targets for sick leave in order to reduce the risk of incorrect incentives in the organisation that could potentially be harmful in the long term.

PARENTAL LEAVE

Lifco takes a positive view of parental leave and encourages both fathers and mothers to use their statutory parental leave where it exists. Lifco does not permit discrimination against employees on parental leave, who must be offered the opportunity to take up equivalent duties when returning to work. Lifco does not have Group-level information on the number of employees entitled to parental leave.

NUMBER OF EMPLOYEES ON PARENTAL LEAVE BY GENDER

	2021	2022
Number on parental leave, women/ men	109/218	117/259
Total	327	376

COLLECTIVE BARGAINING

Lifco takes a positive view of collective bargaining and the Code of Conduct regulates the employees' right to freedom of association and the right to bargain collectively. Prior to major organisational changes, the Lifco companies must consult with the relevant trade union or trade unions. In the event of cutbacks, the employees must be notified in advance with a prior notice period equal to or longer than what is consistent with local practice or provided for in local regulations or collective bargaining agreements. For employees not covered by collective bargaining agreements, working and employment terms are usually determined based on collective bargaining agreements covering other employees or from other organisations or on industry practice.

EMPLOYEES COVERED BY COLLECTIVE BARGAINING AGREEMENTS

	2021	2022
Number/proportion of employees covered by collective bargaining agreements	2,860/45.7%	3,087/47.4%
Number/proportion of employees in the Nordic countries covered by CBAs	1,544/72.1%	1,586/69.3%