Annual Consolidated Financial Statements Annual Consolidated report 31122025 EN Full

MONBAT AD

Annual Consolidated Financial Statements Annual Consolidated Management Report Independent Auditor's Report

31 December 2025

Page

Consolidated Financial Statements

Consolidated statement of profit or loss 1

Consolidated statement of comprehensive income 2

Consolidated statement of financial position 3

Consolidated statement of changes in equity 6

Consolidated statement of cash flows 8

Notes to the consolidated financial statements 9

Annual consolidated management report i

Consolidated corporate governance declaration of Monbat AD of Art. 100n,

Para.8 of the Law on Public Offering of Securities ii

Consolidated information under Art. 8 of the Taxonomy Regulation iii

Declaration under Art. 100n, para. 4 of the Law on Public Offering of

Securities iv

Independent auditor's report

Consolidated statement of profit or loss

The accompanying notes 1 to 44 are an integral part of the consolidated financial statements.

Consolidated statement of comprehensive income

The accompanying notes 1 to 44 are an integral part of the consolidated financial statements.

Consolidated statement of financial position

The accompanying notes 1 to 44 are an integral part of the consolidated financial statements.

Consolidated statement of financial position (continued)

The accompanying notes 1 to 44 are an integral part of the consolidated financial statements.

Consolidated statement of financial position (continued)

The accompanying notes 1 to 44 are an integral part of the consolidated financial statements.

Consolidated statement of changes in equity

The accompanying notes 1 to 44 are an integral part of the consolidated financial statements.

Consolidated statement of changes in equity (continued)

The accompanying notes 1 to 44 are an integral part of the consolidated financial statements.

Consolidated statement of cash flows

The accompanying notes 1 to 44 are an integral part of the consolidated financial statements.

1. General information and nature of operations

   The main activities of Monbat AD (Parent company) and its subsidiaries ("The Group") include manufacturing, maintenance and sale of batteries; engineering and development activity; production and trade of equipment used in battery manufacturing; domestic and foreign trade and establishment of commercial networks; specialized stores and representative offices; recycling of lead and lead containing alloys.

   The parent company Monbat AD ("The Company") has the same main activity. The Company is registered as a joint stock company under company file 4636/1999 of the Sofia City court, UIC 111028849. During the period there was no change in the name of the parent company Monbat AD.

   The Parent company's headquarters, registered address, and correspondence address is: Bulgaria, Sofia, 32 A Cherni Vrah Blvd. The principal place of the Parent company's activity is the town of Montana, 76 'Industrialna' str.

   The Parent company was registered at the Bulgarian stock exchange on 22.12.2006 with stock symbol MONB.

   The Parent company is managed through a one-tier management system consisting of Board of Directors.

   As of 31.12.2025 the Board of Directors of the Parent company is the following:

   1. Chavdar Dochev Danev - Chairman

   2. Viktor Stanimirov Spiriev - Executive Member

   3. Petar Nikolov Bozadzhiev

   4. Petar Hristov Petrov

   5. Krasimira Svetoslavova Staneva

   6. Kyle Anderson

   As of 31.12.2025 the Parent company is being represented separately by Viktor Stanimirov Spiriev and Petar Hristov Petrov.

   The ultimate parent of the Parent company is Prista Oil Group B.V., located in the Netherlands. Atanas Bobokov and Plamen Bobokov are the individuals exercising joint control over Prista Oil Group B.V.

   The management of Monbat AD includes its Board of Directors and its procurators. Information related to the name, country of settlement, shareholding and voting rights of

   each subsidiary included in the consolidation is provided under note 4 "Basis of

   consolidation".

   The operations of no company within the Group are subject to a time limit or any other condition precedent.

2. Basis of preparation of the consolidated financial statements

   The consolidated financial statements of the Group have been prepared on a historical cost basis, except for derivative financial instruments that are measured at fair value.

   The consolidated financial statements are presented in Bulgarian leva (BGN), which is also the functional currency of the Group. All amounts are presented in thousands of Bulgarian leva (BGN '000) (including the comparative information for 2024), unless otherwise stated.

   In addition, when there is a retrospective restatement or reclassification of items in the consolidated financial statements, the Group presents an additional statement of financial position at the beginning of the earliest presented period.

   Statement of compliance with IFRS, as adopted by the EU

   The consolidated financial statements of the Group have been prepared in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board (IASB) and adopted by the EU (IFRS Accounting Standards, as adopted by the EU). They comprise the International Accounting Standards (IAS) adopted in accordance with Regulation (EC) 1606/2002 of the European Parliament and of the Council and in accordance with paragraph 1, subparagraph 8 of the Additional provisions of Bulgarian Accountancy Act.

   Basis of consolidation

   The consolidated financial statements comprise the financial statements of the Group as of 31 December 2025.

   Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:

   • Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee)

   • Exposure, or rights, to variable returns from its involvement with the investee

   • The ability to use its power over the investee to affect its returns.

     Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

   • The contractual arrangement(s) with the other vote holders of the investee

   • Rights arising from other contractual arrangements.

   • The Group's voting rights and potential voting rights.

     The Group reassesses whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control to the date the Group ceases to control the subsidiary.

     Profit or loss and each component of other comprehensive income (OCI) are attributed to the owners of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. The financial statements of the subsidiaries are prepared for the same reporting period as those of the parent company, using consistent accounting policies. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses, and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

     If the Group loses control over a subsidiary, it derecognizes the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognized in profit or loss. Any investment retained is recognized at fair value.

     Monbat AD has prepared and presented separate financial statements for the year ended 31 December 2025, where investments in subsidiaries are presented at acquisition cost less accumulated impairment losses in accordance with IAS 27 "Separate Financial Statements". The individual financial statements of Monbat AD were authorized for issuance by a decision of the Board of Directors on 30 March 2026.

     Review of operations and assessment of the impact of macroeconomic and geopolitical factors

     In 2025, Monbat Group achieved record consolidated sales revenue of over €206 million

     (BGN 403 million), marking an increase of nearly 5% compared to 2024.

     Analysis of risks, measures taken, and financial results achieved:

     • In 2025, the Group reported a 2.6% decline in revenue from sales of rechargeable batteries, as a result of lower lead commodity prices (see below), although the volume of batteries sold was 2.6% higher than in the comparative period. The Group sold 3 355 thousand batteries, with the following specifics by geographical and product segments:

       • Significant growth in battery sales in targeted markets in Middle East and Africa, which offsets the lack of sales to customers in Saudi Arabia, where significant volumes were realized in 2024, albeit at low profitability, as well as a decrease of sales to customers in Spain and Ukraine.

       • In 2025, sales to Saudi Arabia were externally constrained due to the negative effects of the volatility of the euro-dollar exchange rate and the significant depreciation of the US currency, which is traditionally used for trading in the Middle East region.

       • 14% growth in sales of rechargeable batteries and raw materials for their production (lead plates) by the Industrial Group Nour Tunisia to customers in Europe and, above all, North Africa, while maintaining its leading role in the local Tunisian market.

     • In addition to the Group's core business - the production and sale of rechargeable batteries, in 2025, the other segments of the Monbat Group reported significant growth in sales, expressed in:

       • A significant increase of 93% in sales of lead and lead alloys from the Group's recycling plants to third parties, including raw lead produced by the new smelting furnace commissioned in early 2025 at the Group's recycling plant in Italy. In 2025, the Group's recycling companies sold over 9 500 tons of lead and lead alloys to third parties.

       • Higher revenues from consulting, engineering, and logistics services carried out by the Group's companies.

     • As a result of market volatility, the 2025 average market price of lead was around 1 742 EUR/MT (2024: 1 916 EUR/MT). Although the Group traditionally addresses market volatility and the dependence of lead prices on stock market indices by applying standard indexation to the selling prices of its products and purchases of lead-containing raw materials, in the second quarter of 2025 the Group reported a significant negative effect on its profitability (of over BGN 3 million) as a result of the above-mentioned collapse in the price of lead and the realization of available material stocks at lower, downwardly indexed sales prices.

     • To ensure the collectability of its receivables from Ukrainian counterparties for which trade receivables insurance is not available, the Group has adopted a policy of 100% pre-shipment advance payments on all export sales to Ukraine following the outbreak of hostilities in the country. With regards to the trade receivables not settled at commencement of the war, in 2025 The Group recorded impairment charges at the amount of BGN 0 and BGN 3 502 thousand in 2024. As of 31 December 2025, the Group has net trade receivables from Ukrainian customers amounting to BGN 4 144 thousand.

     • In 2025, the European Central Bank (ECB) lowered its base interest rates four times, with a total effect of 100 basis points. As a result, the Group reported a decrease in financing costs of BGN 2 297 thousand, or 16% compared to 2024. In 2024, other income of BGN 2 640 thousand was recognized, resulting from an accounting revaluation of the conversion option for the Group's bond issue, which was fully redeemed in January 2025.

     • At the end of 2025, Monbat AD signed an agreement to acquire the minority stake of 40% in the share capital of the Tunisian company Société Nouvelle des Accumulateurs NOUR. Upon completion of the transaction, Monbat AD will own 100% of the share capital of Industrial Group Nour Tunisia. The total value of the transaction amounts to EUR 9 million, payable in three installments. The transaction is expected to be finalized in the first half of 2026.

       The Group analyzes on an ongoing basis all possible impacts of changing micro and macroeconomic conditions on the Group's future financial position and results of operations. Inflationary processes, expressed in increased costs of direct materials, energy and labour per unit of production, have a significant impact on the Group's operations. The Group has been able to limit the effect of these negative impacts of the macroeconomic environment by refining its customer and product mix (with a focus on higher-margin products and markets) and, where necessary, applying indexation of selling prices to its customers.

       Climate matters

       In its financial statements, the Group discloses information on climate-related issues, viewing this reporting as a long-term commitment that it intends to develop and expand in the future, to the extent that legislation, regulatory authorities, the Group's counterparties, and users of non-financial information place significant emphasis on the impact of climate change.

       Through its production process, the Group does not emit significant direct and indirect emissions to the air. As Group companies are not large emitters of carbon dioxide, the Group does not participate in the emissions trading scheme. However, Management recognizes the important role the Group plays in climate change mitigation and adaptation. Mitigation is concerned with limiting the rate and magnitude of climate change, and adaptation is concerned with the process of adjusting to actual or expected effects of climate change.

       The Group is in the process of analyzing the role of business and the activities carried out and their degree of impact, possible risks and ways to actively participate in decision-making related to climate change.

       At the same time, the following steps are set out in the implementation of the activity, with a view to reducing greenhouse gas emissions from energy consumption from the building stock and transport:

     • Fuel consumption optimization for heating and transport. All newly purchased vehicles comply with EURO Norm VI emission standards.

     • Optimization of heating, ventilation, cooling and lighting systems. Replacement of heating equipment with more energy efficient equipment.

     • Renovation of buildings.

   Through its annual capital expenditure program, the Group plans and implements investments in new production facilities or improvements to existing facilities that optimize the consumption of energy resources.

   As of 31 December 2025 and 31 December 2024, the Group has not identified any significant risks arising from climate change that could have a direct negative and material impact on the Group's financial statements. Management continually assesses the impact of climate related issues.

   In determining the Group's financial position as at 31 December 2025 and 31 December 2024, climate related issues have been considered and taken into account in performing impairment testing, assessing the useful life and determining the fair value of non-current assets and in determining the net realizable value of inventories.

   Application of the going concern principle

   The consolidated financial statements have been prepared under the going concern basis, taking into account the possible long-term effects of the subsequent impacts of the ongoing military conflicts and the impact of macro-economic indicators.

   In these circumstances, the Group's management has made an analysis and assessment of the Group's ability to continue its activities as a going concern based on available information about the foreseeable future. The analysis includes an assessment, supported by historical experience that the Group has with financial institutions, as well as ongoing negotiations and agreements, that the maturity of all short-term loans (Note 23) will be renegotiated by a minimum of 12 months from their due date, or they will be refinanced with a borrowed resource at maturity of at least 12 months.

   In view of the above, management expects that the Group has sufficient financial resources to continue its operating activities in the near future and continues to apply the going concern principle in the consolidated financial statements.

   1. New and amended standards and interpretations

      The Group has adopted the following new standards, amendments and interpretations to IFRS issued by the International Accounting Standards Board and endorsed by EU, which are relevant to and effective for the Group's consolidated financial statements for the annual period beginning 1 January 2025 but do not have a significant impact on the Group's financial performance or position:

      • Amendments to IAS 21 "The effects of changes in foreign exchange rates: Lack of exchangeability", effective from 1 January 2025, adopted by the EU;

   2. Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Group

      At the date of authorization of these consolidated financial statements, certain new standards, amendments and interpretations to existing standards have been issued, but are not effective or adopted by the EU for the financial year beginning on 1 January 2025 and have not been applied early by the Group. They are not expected to have a material impact on the Group's consolidated financial statements, except for the disclosures in accordance with IFRS 18. Management anticipates that all relevant pronouncements will be adopted in the Groups's accounting policies for the first period beginning after the effective date of the pronouncement. The changes refer to the following standards:

      • Annual Improvements, effective from 1 January 2026, adopted by the EU;

      • Amendments to the Classification and Measurement of Financial Instruments (Amendments to IFRS 9 and IFRS 7), effective from 1 January 2026, adopted by the EU;

      • IFRS 18 Presentation and Disclosure in Financial Statements effective from 1 January 2027, adopted by the EU

      • IFRS 19 Subsidiaries without Public Accountability: Disclosures, effective from 1 January 2027, not yet adopted by the EU

      • Amendments to IFRS 19 Subsidiaries without Public Accountability: Disclosures, effective January 1, 2027, not yet adopted by the EU.

3. Significant accounting policy information
   1. Overall considerations

      The most significant accounting policies that have been used in the preparation of these consolidated financial statements are summarized below.

      The consolidated financial statements have been prepared using the measurement bases specified by IFRS for each type of asset, liability, income and expense. The measurement bases are fully described in the accounting policies below.

      It should be noted that accounting estimates and assumptions are used for the preparation of the financial statements. Although these estimates are based on management's best knowledge of current events and actions, actual results may ultimately differ from those estimates.

   2. Presentation of consolidated financial statements

      The consolidated financial statements are presented in accordance with IAS 1 "Presentation of Financial Statements". The Group has elected to present the statement of comprehensive income in two statements: a statement of profit or loss and a statement of comprehensive income.

      Two comparative periods are presented in the consolidated statement of financial position when the Group applies an accounting policy retrospectively, retrospectively restates financial statement items or reclassifies financial statement items and this has a material effect on the information in the individual statement of financial position at the beginning of the previous period.

   3. Business combinations and goodwill

      Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interest in the acquiree at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred and included in hired services expenses.

      When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

      Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IFRS 9 Financial Instruments, is measured at fair value with the changes in fair value recognized in the statement of profit or loss in accordance with IFRS 9. Other contingent consideration that is not within the scope of IFRS 9 is measured at fair value at each reporting date with changes in fair value recognized in profit or loss.

      Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interests and any previous interest held over the net identifiable assets acquired and liabilities assumed). If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognized at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognized in profit or loss.

      After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

      Where goodwill has been allocated to a cash-generating unit (CGU) and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.

   4. Transactions with non-controlling interests

      Changes in the Group's share in the equity of a subsidiary that do not result in a loss of control are treated as transactions with owners of the Group. The carrying amounts of the Group's interest and non-controlling interests are adjusted to reflect the change in their relative share in the subsidiary's capital. Any difference between the amount by which the non-controlling interests are changed and the fair value of the consideration received or paid is recognized directly in equity and relates to the owners of the parent.

   5. Investments in associates

      Associates are those entities in which the Group has significant influence but not control or joint control. Investments in associates are initially recognized at cost and then accounted for using the equity method. The cost of the investments includes transaction costs.

      Goodwill or adjustments to the fair value of the Group's interest in the associate are included in the cost of the investment.

      All subsequent changes in the amount of the Group's interest in the equity of the associate are recognized in the carrying amount of the investment. Changes due to the profit or loss realized by the associate are reflected in the consolidated statement of profit or loss and other comprehensive income of the line "Other operating income" or "Other expenses". These changes include the subsequent depreciation or impairment of the fair value of the assets and liabilities of the associate determined at acquisition.

      Changes in other comprehensive income of the associate and in items recognized directly in equity of the associate are recognized in other comprehensive income or in equity of the Group, respectively. Where the Group's share of the realized losses of the associate exceeds the amount of its interest in the associate, including unsecured receivables, the Group does not recognize its share of further losses of the associate unless the Group has contractual or constructive obligations or has made payments on behalf of the associate. If the associate subsequently realizes profits, the Group recognizes its share to the extent that the share of profits exceeds the cumulative share of losses not previously recognized.

      Unrealized gains and losses on transactions between the Group and its associates are eliminated to the extent of the Group's interest in those associates. When unrealized losses on sales of assets are eliminated, the related assets are tested for impairment from the Group's perspective.

      Amounts recorded in the financial statements of associates have been restated where necessary to ensure consistency with the Group's accounting policies.

      Upon loss of significant influence over an associate, the Group measures and recognizes any retained investment in it at fair value. Any difference between the carrying amount of the investment in the associate in the event of a loss of significant influence and the amount of the fair value of the retained interest and the proceeds of the write-off is recognized in profit or loss.

      If the interest in the associate is reduced but without loss of significant influence, only a proportionate part of the amounts recognized in other comprehensive income is reclassified to profit or loss.

   6. Foreign currency translations

      Foreign currency transactions are translated into the functional currency of the respective Group entity, using the exchange rates prevailing at the dates of the transactions (the official spot exchange rate of the Bulgarian National Bank). Foreign exchange gains and losses resulting from the settlement of such transactions and from the remeasurement of monetary items denominated in foreign currency at period-end exchange rates are recognized in profit or loss.

      Non-monetary items measured at historical cost are translated using the exchange rates at the transaction date (not revalued). Non-monetary items measured at fair value which are translated using the exchange rates at the date when fair value was determined.

      The functional currencies of entities within the Group have remained unchanged during the reporting period.

      On consolidation, assets and liabilities have been translated into BGN at the closing rate at the reporting date. Income and expenses have been translated into the presentation currency at the average rate over the reporting period. Exchange differences are charged or credited to other comprehensive income and recognized in the currency translation reserve in equity. On disposal of a net investment in a foreign operation, cumulative translation differences recognized in equity are reclassified to profit or loss and recognized as part of the gain or loss on disposal. Goodwill and adjustments related to fair value measurements at the acquisition date are treated as assets and liabilities of the foreign operation and translated into Bulgarian levs at the closing rate.

      The Bulgarian lev is fixed to the euro in the ratio 1 EUR = 1.95583 BGN

   7. Revenue

      The Group's activity is related to the sale of products, materials and services.

      To determine whether and how to recognize revenue, the Group follows a 5-step process:

      1. Identifying the contract with a customer

      2. Identifying the performance obligations

      3. Determining the transaction price

      4. Allocating the transaction price to the performance obligations

      5. Recognize revenue when/ as performance obligations are satisfied.

      Revenue is recognized either at a point in time or over time, when (or as) the Group satisfies performance obligations by transferring the promised goods or services to its customers.

      Revenue from contracts with customers is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. In general, the Group has concluded that it is the principal in its revenue arrangements as it generally controls the goods or services before transferring them to the customer, with the exception of certain sales and repurchases of materials and re-invoicing of services for which the Group has concluded that it is acting as an agent as referred to in note 3.26. Revenues from finished goods, materials and services are described in note 28.

      Sale of finished goods

      Revenue from sale of finished goods is recognized at the point in time when control of the asset is transferred to the customer, generally on delivery of the finished product. The normal credit term is between 30 to 90 days after delivery. The Group considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. In determining the transaction price for the sale of finished goods, the Group considers the effects of variable consideration, existence of a significant financing component and consideration payable to the customer (if any).

      If the consideration in a contract includes a variable amount, the Group estimates the amount of consideration to which it will be entitled in exchange for transferring the goods to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognized will not occur when the associated uncertainty with the variable consideration is subsequently resolved. Some contracts for the sale of finished goods provide customers with volume rebates and a right to return the finished goods. The rights of return and volume rebates give rise to variable consideration.

      Volume rebates

      The Group provides retrospective volume rebates to certain customers once the quantity of products purchased during the period exceeds the threshold specified in the contract. Rebates are offset against the amounts payable by the customer. To estimate the variable consideration for the expected future rebates, the Group applies the most likely amount method for contracts with a single volume threshold and the expected value method for contracts with more than one volume threshold. The selected method that best predicts the amount of variable consideration is primarily driven by the number of volume thresholds contained in the contract. The Group then applies the requirements on constraining estimates of variable consideration and recognizes a refund liability for the expected future rebates.

      Rights of return

      Certain contracts provide customers with a right to return the goods within a specified period. The Group uses the expected value method to estimate the goods that will not be returned because this method best predicts the amount of variable consideration that the Group will be entitled. The requirements of IFRS 15 on constraining estimated of variable consideration are also applied in order to determine the amount of variable consideration that can be included in the transaction price. A refund liability, instead of revenue, is recognized for the goods that are expected to be returned. A right of return asset (and corresponding adjustment to cost of sales) is also recognized for the right to recover the goods from a customer.

      Sale of materials

      Revenue from sale of materials is recognized at a certain point in time when control of the asset is transferred to the customer, which is usually the case for the delivery of the materials. The normal credit term is 30 to 60 days after delivery. The Group assesses whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated.

      Rendering of services

      The services provided by the Group mainly include transportation for the delivery of goods. The Group recognizes the services as a single performance obligation and recognizes revenue from them over time as the client simultaneously receives and consumes the benefits provided by the Group. The Group uses the input method based on the cost incurred, relative to the total amount of input expected to satisfy the performance obligation, in order to assess the progress of the satisfaction of the service.

      Contract balances Trade receivables

      Receivable represents the Group's right to an amount of consideration that is unconditional

      (i.e., only the passage of time is required before payment of the consideration due). Please refer to the accounting policies of financial assets set out in Note 3.15.

      Contract assets

      A contract asset is the right to consideration in exchange for the goods or services transferred to the customer. If the Group performs by transferring of the goods or services to a customer before the client pays the consideration or before payment is due, a contract asset is recognized for the earned consideration which is conditional.

      Contract liabilities

      A contract liability is the obligation to transfer goods or services to a customer, for which the Group has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Group transfers goods or services to the customer, a contract liability is recognized when the payment is made, or the payment is due (whichever is earlier). Contract liabilities are recognized as revenue when the Group performs under the contract.

      Right of return assets

      Right-of-return asset represents the Group's right to recover the goods expected to be returned by customers. The asset is measured at the former carrying amount of the inventory, less any expected costs to recover the goods and any potential decreases in the value of the returned goods. The Group updates the measurement of the asset recorded to its expected level of returns as well as any additional decreases in the value of the returned goods.

      Refund liabilities

      A refund liability is the obligation to refund some, or all of the consideration received (or receivable) from the customer and is measured at the amount the Group ultimately expects it will have to return to the customer. The Group updates its estimates of refund liabilities (and the corresponding change in the transaction price) at the end of each reporting period. Please, refer to the variable consideration accounting policy described above.

      Practical expedients

      The Group uses the following practical expedients:

      • Not to consider significant financing components where the time difference between receiving a consideration and transferring control of the products (or services) to a customer is less than or equal to one year; and

      • Recognition in the consolidated statement of profit or loss of additional costs for contracting when the depreciation period of an asset otherwise recognized would be less than or equal to one year.

      Finance income

      Interest income is recognized on an ongoing basis using the effective interest rate method. Dividend income is recognized when the right to receive payment arises.

   8. Operating expenses

      Operating expenses are recognized in profit or loss upon utilization of the service or at the date of their origin. Guarantees costs are recognized and charged against the respective provision when the related revenue is recognized.

   9. Interest expenses and borrowing costs

      Interest expenses are reported on an accrual basis using the effective interest method. Borrowing costs primarily comprise interest on the Group's borrowings. Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalized during the period that is necessary to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed in the period in which they are incurred and reported in line item "Finance costs".

   10. Intangible assets

       Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses. Internally generated intangibles, excluding capitalized development costs, are not capitalized and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred.

       The Group has adopted a threshold of BGN 700 for recognition of intangible assets. The useful lives of intangible assets are assessed by the Group as either finite or indefinite.

       Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the statement of profit or loss in the expense category that is consistent with the function of the intangible assets.

       Depreciation is calculated using the straight-line method over the estimated useful life of individual assets as follows:

       • Development costs up to 10 years;

       • Trademarks up to 10 years / indefinite useful life;

       • Others up to 7 years;

       • Software up to 2 years;

       • Licenses, rights and prototypes indefinite useful life;

       • Customer network up to 5 years

       Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

       An intangible asset is derecognized upon disposal (i.e., at the date the recipient obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss arising upon derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss.

       Research and development costs

       Research costs are expenses as incurred. Development expenditures on an individual project are recognized as an intangible asset when the Group can demonstrate:

       • The technical feasibility of completing the intangible asset so that the asset will be available for use or sale.

       • And its intention to complete and its ability and intention to use or sell the asset.

       • How the asset will generate future economic benefits

       • The availability of resources to complete the asset.

       • The ability to measure reliably the expenditure during development.

       Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortization and accumulated impairment losses. Amortization of the asset begins when development is complete, and the asset is available for use. It is amortized over the period of expected future benefit. Amortization is recorded in cost of sales. During the period of development, the asset is tested for impairment annually.

       Patents, licenses, and technology rights

       The Group made upfront payments to acquire rights to use technology. Rights for the use of technology are granted for an indefinite period. As a result, those rights are assessed as having an indefinite useful life.

   11. Property, plant and equipment

       Items of property, plant and equipment are initially measured at cost, which comprises its purchase price and any directly attributable costs of bringing the asset to working condition for its intended use.

       Subsequent measurement of property, plant and equipment except assets under construction are measured at price of acquisition, less accumulated depreciation and impairment.

       Subsequent expenditure relating to an item of property, plant and equipment is added to the carrying amount of the asset when it is probable that this expenditure will enable the asset to generate future economic benefits in excess of its originally assessed standard of performance. All other subsequent expenditure is recognized as incurred.

       The residual value estimates and useful life of property, plant and equipment are measured by management as of each reporting date.

       In 2025, the Group's management conducted a detailed analysis of the estimated useful lives of the machinery and equipment used in production operations. The analysis included a review of the actual service life of existing assets, as well as the level of maintenance and upgrades performed. As a result of this analysis, management determined that the initially estimated useful lives of this group of assets were more conservative than the actual expected period of economic benefit. Therefore, a decision was made to increase the useful life of machinery and equipment from 10 to 15 years.

       The change is effective as of 1 June 2025, and constitutes a change in accounting estimate in accordance with the requirements of IAS 8 "Accounting Policies, Changes in Accounting Estimates, and Errors" and IAS 16 "Property, Plant, and Equipment." Accordingly, it is applied prospectively and does not result in a retrospective restatement of comparative information for prior reporting periods.

       Property, plant and equipment acquired under leases are depreciated on the basis of the expected useful life, determined by comparison with similar own assets of the Group, or on the basis of the lease agreement, if its term is shorter.

       Depreciation is calculated using the straight-line method over the estimated useful life of individual assets as follow:

       • Buildings up to 40 years (2024: up to 40 years)

       • Equipment up to 20 years (2024: up to 20 years)

       • Machines up to 15 years (2024: up to 10 years)

       • Vehicles up to 7 years (2024: up to 7 years)

       • Fixtures up to 7 years (2024: up to 7 years)

       • Computers up to 2 years (2024: up to 2 years)

       • Others up to 3 years (2024: up to 3 years)

       Depreciation has been included in the statement of profit or loss within 'Depreciation, amortization and impairment of non-financial assets'.

       Gains or losses arising on the disposal of property, plant and equipment are determined as the difference between the disposal proceeds and the carrying amount of the assets and are recognized in the statement of profit or loss within 'Gain/(Loss) on sale of non-current assets'. The Group has adopted a threshold of BGN 700 for recognition of property, plant and equipment.

   12. Investment property

       Investment properties are properties held to earn rentals or for capital appreciation or both. Investment properties are measured initially at cost, including transaction costs. The costs of replacing part of an existing investment property are recognized in it carrying amount at the time that cost is incurred if the recognition criteria are met.

       Subsequent to initial recognition, investment properties are stated at cost model. Depreciation of investment properties is calculated using the straight-line method over the estimated useful life of individual assets as follows:

       • Investment properties up to 40 years

       Depreciation expenses are included in the statement of profit or loss under the line item

       "Depreciation and amortization expenses".

       The residual value and useful lives of investment properties are reviewed by Management at each reporting period.

       Investment properties are derecognized either when they have been disposed of or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal. Profit or loss arising from withdrawal from use or disposal of the investment property is recognized in the statement of profit or loss at the time of withdrawal from use or disposal.

       The Group transfers investment property to inventory (property held for sale) only when there is a change in use evidenced by commencement of development with a view to sale.

       When investment property is transferred to inventory, the property's deemed cost for subsequent accounting is its fair value at the date of the change in use. On transfer from inventories to investment property, the difference between the fair value of the property at that date and its previous carrying amount is recognized in the consolidated statement of profit or loss. When the Group begins to redevelop an existing investment property with a view to its continued future use as such, the property remains classified as investment property during development. When the Group decides to sell an investment property without developing it and the criteria for classification as held for sale are met, the property is classified as held for sale and measured at the lower of their carrying amount immediately after their designation as held for sale and their fair value less costs to sell.

       In April 2022, the General Meeting of Shareholders of Monbat resolved to sell its subsidiary Monbat Immobilien GmbH subject to an appropriate price offer from a potential buyer. As of 31 December 2025, the transaction has not been completed and there has been no change in the Group's intention to complete the sale of its investment in Monbat Immobilien GmbH.

       Accordingly, as of 31 December 2025 and 2024, the Group classifies the investment property owned by Monbat Immobilien GmbH as an asset held for sale.

       As of 31 December 2025, the Group performed impairment tests in accordance with the requirements of IAS 36 "Impairment of Assets" for the asset held for sale, being investment property. Indications of impairment due to the specific nature of this asset were not identified. Management has determined that the carrying value of the asset does not exceed its recoverable amount as determined from a fair value estimate prepared by a licensed appraiser. For this reason, the Group has not recorded impairment charge in 2025 and 2024 in the consolidated statement of profit or loss.

   13. Leases

       The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

       The Group as a lessee

       The Group applies a single recognition and measurement approach for all leases, except for short-term leases (i.e., leases with a lease term up to 12 months) and leases of low-value assets. The Group recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

       Right-of-use assets

       The Group recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities.

       The cost of right-of-use assets includes the amount of the recognized lease liability, the initial direct costs incurred and lease payments made on or before the commencement date of the lease, estimated costs which would be incurred by the lessee for dismantling and transportation of the asset, restoration of the site on which it is located or restoration of the asset to the condition required under the lease terms, less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.

       If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. The right-of-use assets are also subject to impairment. The accounting policy for impairment is disclosed in Note 3.15 "Financial Instruments".

       Lease liabilities

       At the commencement date of the lease, the Group recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate.

       Variable lease payments that do not depend on an index or a rate are recognized as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.

       In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made.

       In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.

       Short-term leases and leases of low-value assets

       The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low- value assets are recognized as expense on a straight-line basis over the lease term.

       The Group as a lessor

       Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned.

   14. Impairment of non-financial assets

       The Group assesses at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset's recoverable amount.

       An asset's recoverable amount is the higher of an assets or CGU's fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

       In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.

       The Group bases its impairment calculation on most recent budgets and forecast calculations, which are prepared separately for each of the Group's CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. A long-term growth rate is calculated and applied to project future cash flows after the fifth year.

       Impairment losses of continuing operations are recognized in the statement of profit or loss in expense categories consistent with the function of the impaired asset, except for properties previously revalued with the revaluation taken to OCI. For such properties, the impairment is recognized in OCI up to the amount of any previous revaluation.

       For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the assets or CGU's recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of profit or loss unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase.

       Goodwill is tested for impairment annually as of 31 December and when circumstances indicate that the carrying value may be impaired.

       Impairment for goodwill is determined by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.

       Intangible assets with indefinite useful lives are tested for impairment annually as of 31 December at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired.

   15. Financial instruments

       Financial assets and liabilities are recognized when the Group becomes party to the contractual provisions of the instrument.

       A financial asset is derecognized when the contractual rights to receive the cash flow from the financial asset, i.e., the rights to receive cash flows from the asset have expired or the Group has transferred substantially all the risks and rewards of the asset.

       A financial liability is derecognized upon its settlement, repayment, cancellation of the transaction or expiration.

       Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

       Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

       All financial assets are recognized on their transaction date.

       Modification of agreed cash flows

       When the agreed cash flows of a financial instrument are being renegotiated or modified and the changes agreed upon do not lead to the writing-off of the financial instrument in place, the Group recalculates the gross carrying amount of the financial instrument and recognizes the profit or loss from the modification in the statement of profit or loss. The gross carrying amount of the financial instrument is recalculated to the present value of the renegotiated or modified cash flows, which are discounted with the initial effective interest rate.

       Changes in the base on which the agreed cash flows are defined in the event of a reform of the base interest rate.

       The base for defining the agreed cash flows of a financial asset or a financial liability can be changed:

       • With an amendment of the agreed clauses, agreed upon at the initial recognition of the financial instrument (for instance, the agreed clauses are altered in order to replace the corresponding base interest rate with the alternative base interest rate).

       • In a way, which has not been considered or foreseen in the agreed clauses during the initial recognition of the financial instrument, without changing the agreed clauses (for instance, the method of calculating the base interest rate could be changed, without changing the agreed clauses); and/or

       • As a result of triggering an existing contract clause (for instance, triggering the existing reserve clause)

       In these cases of a reform of the base interest rate, the Group does not recognize profit or loss. Instead, it recalculates the cash flows with a revised effective interest rate.

       The financial assets and financial liabilities are subsequently measured as described below.

       1. Financial assets

          All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

          All recognized financial assets are measured subsequently in their entirety at either amortized cost or fair value, depending on the classification of the financial assets.

          Debt instruments that meet the following conditions are measured subsequently at amortized cost:

          • The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

          • The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

            Debt instruments that meet the following conditions are measured subsequently at fair value through other comprehensive income (FVTOCI):

          • The financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial assets; and

          • The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

            By default, all other financial assets are subsequently measured at fair value through profit or loss (FVTPL).

            Despite the foregoing, the Group may make the following irrevocable election/designation at initial recognition of a financial asset:

          • The Group may irrevocably elect to present subsequent changes in fair value of an equity investment in other comprehensive income if certain criteria are met.

          • The Group may irrevocably designate a debt investment that meets the amortized cost or FVOCI criteria as measured at FVPL if doing so eliminates or significantly reduces an accounting mismatch.

          The amortized cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. The gross carrying amount of a financial asset is the amortized cost of a financial asset before adjusting for any loss allowance.

          All income and expenses relating to financial assets are recognized in profit or loss when acquired regardless how the financial assets' carrying amount is measured and are presented within 'Finance costs', 'Finance income' or 'Other financial items', except for impairment of trade receivables which is presented within 'Impairment of financial assets and advances'.

          Classification of financial assets Loans and receivables

          Loans and receivables originated by the Group are non-derivative financial assets with

          fixed or determinable payments that are not quoted in an active market. After initial recognition these are measured at amortized cost using the effective interest method, less provision for impairment. The Group's cash and cash equivalents, trade and most other receivables fall into this category of financial instruments. Discounting is omitted where the effect of discounting is immaterial.

          The Group recognizes a loss allowance for expected credit losses on investments in debt instruments that are measured at amortized cost or at FVTOCI, lease receivables, trade receivables and contract assets, as well as on financial guaranteed contracts. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument.

          The Group always recognizes lifetime expected credit loss (ECL) for trade receivables, contract assets and lease receivables. The expected credit losses on these financial assets are estimated using a provision matrix based on the Group's historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate. Lifetime ECL for individually significant receivables is based on factors that are specific for the debtors.

          For all other financial instruments, the Group recognizes lifetime ECL when there has been a significant increase in credit risk since initial recognition. However, if the credit risk on the financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to 12-month ECL.

          Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date. Impairment losses of trade receivables are presented within 'Impairment of financial assets'.

       2. Financial liabilities

          The Group's financial liabilities include bank loans, overdrafts, trade and other payables, finance lease liabilities and convertible bonds.

          Financial liabilities are recognized when the Group becomes a party to the contractual agreements for payment of cash amounts or another financial asset to another company or contractual liability for exchange of financial instruments with another company under unfavorable terms. All interest-related charges and, if applicable, changes in an instrument's fair value that are reported in profit or loss are included within "Finance costs" or "Finance income".

          Financial liabilities are measured subsequently at amortized cost using the effective interest method, except for financial liabilities held for trading or designated at fair value through profit or loss, that are carried subsequently at fair value with gains or losses recognized in profit or loss.

          Bank loans are raised for support of long-term funding of the Group's operations. They are recognized in the consolidated statement of financial position of the Group, net of any costs.

          Trade payables are recognized initially at their nominal value and subsequently measured at amortized cost less settlement payments.

          Dividends payable to shareholders are recognized when the dividends are approved at the general meeting of the shareholders.

          Embedded derivatives

          The Group makes the following accounting policy choices with regards to analysis of embedded derivative separation requirements:

          1. each embedded derivative is assessed on an individual basis

          2. host contract includes these embedded features which do not require separation

          The component parts of convertible loan notes issued by the Group are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

          A conversion option that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Group's own equity instruments is an equity instrument.

          A conversion option that will be settled by the exchange of a fixed amount of cash or another financial asset for a variable number of the Group's own equity instruments is a derivative instrument.

          Conversion features that fail equity classification and are accounted for as derivative liabilities are accounted for separately from the host instruments.

          The embedded derivative liability is calculated first, and the residual value is assigned to the debt host liability component. The embedded derivative liability is accounted for at fair value through profit or loss and is remeasured at each reporting date. Transactions costs related to the derivative liability component are expensed as incurred. Transaction costs relating to the liability component are included in the carrying amount of the liability component and are amortized over the lives of the convertible loan notes using the effective interest method.

          The embedded derivative is presented as a non-current asset liability if the remaining maturity of the instrument is more than 12 months, and it is not expected to be realized or settled within 12 months.

          The debt host liability component is measured at amortized cost after adjusting for transaction costs attributable to the debt host liability using the effective interest method.

       3. Derivative financial instruments

          Derivatives are initially recognized at fair value and subsequently measured at fair value in the consolidated statement of financial position. Changes in the fair value of derivatives are recognized in profit or loss for the period (except for derivative financial instruments, which are defined and effective as hedging instrument).

          In the case of call and put options, the Group considers their exercise or the lack of exercise thereof after the balance date, as a non-adjusting event and it does not take it into consideration when measuring the fair value of these derivatives as of the balance date.

       4. Contracts for sale and redemption of securities

          Securities can be sold or rented if a commitment is made for their redemption (repo). Those securities continue to be recognized in the statement of financial position, when all material risks and benefits, arising from the rights on those shares, continue to be property of the Group. In such case a liability to the other counterparty is recognized in the statement of financial position, when the Group receives the remuneration.

          Similarly, the Group rents or buys securities by committing to reselling them back to the seller (reverse repo) but does not acquire the material risks and benefits of the securities. The transactions with securities are treated as collateralized loans when the monetary remuneration is paid. In this case the securities are not recognized in the statement of financial position.

          The difference between the selling and redemption price is recognized as installments for the whole term of the agreement, by using the effective interest rate method. The securities, rented to counterparties, are recognized in the statement of financial position. The borrowed securities are not recognized in the statement of the financial position, excluding the case in which they are sold to third parties, where the redemption obligation is recognized as a trade liability at fair value and the subsequent gain or loss is included in the net operating activities' result.

   16. Inventory

       Inventories include raw materials, work in progress, and goods. Cost of inventories includes all expenses directly attributable to the purchase or manufacturing process, recycling and other direct expenses connected to their delivery as well as suitable portions of related production overheads, based on normal operating capacity. Financing costs are not included in the cost of the inventories. At the end of every accounting period, inventories are carried at the lower of cost and net realizable value. The amount of the impairment of inventory up to its net realizable value is recognized as an expense for the period of the impairment.

       Net realizable value is the estimated selling price of the inventories less any applicable selling expenses and cost of completion. When inventory have already been impaired up to the net realizable value and when in a subsequent reporting period it is clear that the circumstances that have led to the impairment no longer exist, then the new net realizable value is adopted. The amount of the reversal may only be up to the carrying amount of the inventory before impairment. The reversal of the write-down is accounted for as decrease in inventory expenses for the period in which the reversal takes place.

       The Group determines the cost of inventories by using the weighted average cost. When inventories are sold, the carrying amount of those inventories is expensed in the period in which the related revenue is recognized.

   17. Income taxes

       Current income tax

       Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date. Management evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Current taxes are recognized directly in equity or in other comprehensive income (not in the statement of profit and loss) when tax relates to items recognized directly in equity or in other comprehensive income.

       Deferred income tax

       Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognized for all taxable temporary differences, except:

       • When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

       • In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

         Deferred tax assets are recognized for all deductible temporary differences, unused tax credit carryforwards and unused tax losses to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, unused tax credit carryforwards and unused tax losses can be utilized:

       • When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

       • In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

         The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are re-assessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

         Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

         Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in OCI or directly in equity.

         The Group offsets deferred tax assets and deferred tax liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on the same taxable entity.

         Value added tax (VAT)

         Expenses and assets are recognized net of the amount of VAT, except:

       • When the VAT incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the sales tax is recognized as part of the cost of acquisition of the asset or as part of the expense item, as applicable, and

       • When receivables and payables are stated with the amount of VAT included

       The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.

   18. Cash and cash equivalents

       Cash and cash equivalents comprise cash in hand, current bank accounts and deposits.

   19. Non-current assets and liabilities, classified as held for sale and discontinued operations.

       The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction or discontinuation rather than through continuing use. Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly attributable to the disposal of an asset (disposal group), excluding finance costs and income tax expense.

       The criteria for discontinued operations or held for sale classification is regarded as met only when the sale/disposal is highly probable, and the asset or disposal group is available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that significant changes to the sale will be made or that the decision to sell will be withdrawn. Management must be committed to the plan to sell the asset and the sale expected to be completed within one year from the date of the classification.

       Property, plant and equipment and intangible assets are not depreciated or amortized once they are included in disposal groups and classified as held for sale. Assets and liabilities, included in disposal groups and classified as held for sale are presented separately as current items in the statement of financial position.

       A disposal group qualifies as discontinued operation if it is a component of an entity that either has been disposed of, or is classified as held for sale, and:

       • Represents a separate major line of business or geographical area of operations.

       • Is part of a single plan to dispose of a separate major line of business or geographical area of operations; or

       • Is a subsidiary acquired exclusively with a view to resale.

       Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the statement of profit or loss. All other notes to the consolidated financial statements include information about continuing operations, unless otherwise stated.

   20. Equity, reserves and dividend payments.

       The Share capital of the Group represents the nominal value of shares that have been issued by the parent company Monbat AD.

       Share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from paid share capital, net of any related income tax benefits.

       The revaluation reserve includes gains and losses from the revaluation of non-current assets. General reserves include legal reserves required by the Bulgarian legislation, general reserves from generated profit or loss incurred from prior years.

       Retained earnings include financial performance and accumulated profit and uncovered losses from prior years.

       Dividend payables to shareholders are included in 'Related party payables' in the statement of financial position when the dividends have been approved at the general meeting of shareholders prior to the reporting date.

       All transactions with owners of the parent are recorded separately within statement of

       owner's equity.

       Own equity instruments that are repurchased (own shares) are recognized at cost and deducted from equity. The Group recognizes no gain or loss on the purchase, sale, issuance, or cancellation of its own equity instruments. Any difference between the carrying amount and the consideration, in the event of re-issuance, is recognized as a premium reserve.

   21. Post-employment benefits and short-term employee benefits

       Short-term employee benefits include salaries, interim and annual bonuses, social security contributions and annual compensated absences for current employees expected to be settled wholly within twelve months after the end of the reporting period. They are recognized as an employee benefit expense in the profit or loss or included in the cost of an asset when service is rendered to the Group and measured at the undiscounted amount of the expected cost of the benefit. Information on short-term employee benefits is disclosed in Note 22.

       The Group operates a defined benefit plan arising from the requirement of the Bulgarian labor legislation to pay two or six gross monthly salaries to its employees upon retirement, depending on the length of their service. If an employee has worked for the Group for 10 years, the retirement benefit amounts to six gross monthly salaries upon retirement, otherwise, two gross monthly salaries. These retirement benefits are unfunded. The cost of providing benefits under the retirement benefit plan is determined using the projected unit credit method. Re-measurements, comprising of actuarial gains and losses, are recognized immediately in the statement of financial position with a corresponding debit or credit to retained earnings through other comprehensive income in the period in which they occur. Reassessments are not reclassified to profit or loss in subsequent periods.

       Past service costs are recognized in profit or loss on the earlier of:

       • the date of the plan amendment or curtailment, and

       • the date the Group recognizes restructuring costs.

         Interest expense is calculated by applying the discount rate to the defined benefit liability. The Group recognizes the following changes in the defined benefit obligation in profit or loss for the period:

       • Service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements within "Payroll expense".

       • Interest expense within "Finance costs".

       The Group operates a defined contribution plan arising from the requirement of the Italian labor legislation. Contribution payables to a defined contribution plan are recognized as an expense in the statement of comprehensive income as a percentage of the incurred salary expenses of the Group's employees.

   22. Provisions, contingent liabilities and contingent assets

Provisions are recognized when present obligations as a result of a past event will probably lead to an outflow of economic resources from the Group and amounts can be estimated reliably. Timing or amount of the outflow may still be uncertain. A present obligation arises from the presence of a legal or constructive commitment that has resulted from past events, for example, product warranties granted, legal disputes or onerous contracts.

Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Provisions are discounted to their present values, where the time value of money is material.

Any reimbursement that the Group can be virtually certain to collect from a third party with respect to the obligation is recognized as a separate asset. However, this asset may not exceed the amount of the related provision.

All provisions are reviewed at each reporting date and adjusted to reflect the current best estimate.

Restructuring provisions

Restructuring provisions are recognized only when the Group has a constructive obligation, which is when: (i) there is a detailed formal plan that identifies the business or part of the business concerned, the location and number of employees affected, the detailed estimate of the associated costs, and the timeline; and (ii) the employees affected have been notified of the plan's main features. Provisions are not recognized for future operating losses.

Onerous contracts

If the Group has a contract that is onerous, the present obligation under the contract is recognized and measured as a provision. However, before a separate provision for an onerous contract is established, the Group recognizes any impairment loss that has occurred on assets dedicated to that contract.

An onerous contract is a contract under which the unavoidable costs (i.e., the costs that the Group cannot avoid because it has the contract) of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it. The cost of fulfilling a contract comprises the costs that relate directly to the contract (i.e., both incremental costs and an allocation of costs directly related to contract activities).

Contingent assets and liabilities

In those cases where the possible outflow of economic resources as a result of present obligations is considered improbable or remote, no liability is recognized. Contingent liabilities are subsequently measured at the higher amount of a comparable provision as described above and the amount initially recognized, less any amortization.

Probable inflows of economic benefits that do not meet the criteria for asset recognition are considered contingent liabilities. They are described together with Group's contingent liabilities in note 38.