„GRADUS“ AD

Consolidated financial statements

Consolidated Management Report

Corporate Governance Statement

Non-financial statement

Audit Report

31 December 2023

GRADUS AD

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDING DECEMBER 31, 2023

Income

24

144 293

149 944

Other operating income, net

25

10 937

27 984

Changes in stock of finished products

18 861

19 388

change in production inventorie

1 745

4 279

Capitalised own costs

26

420

417

Book value of assets sold (other than finished products)

(4 571)

(520)

Expenses on raw materials and materials

27

(97 443)

(117 561)

Hired service expenses

28

(7 546)

(7 367)

Depreciation / amortization expenses

4,5

(8 567)

(8 379)

Personnel expenses

29

(36 353)

(33 000)

Impairment of assets

30

(31 213)

(32 129)

Other operating expenses

31

(3 762)

(3 508)

Operating profit / (loss)

(13 199) (452)

Finance income

32

215

262

Finance costs

32

(264)

(124)

Finance income /(costs), net

(49)

138

Profit before income tax

(13 248) (314)

Income tax expense

33

777

(40)

Profit for the period after taxes

(12 471) (354)

Other components of comprehensive income

Items not to be reclassified to profit or loss

Changes in the reserve from actuarial gains and losses, net of

(187)

(57)

Changes in the revaluation reserve of property, plant and

equipment, net of taxes

(8 175) (30)

(20 833)

(441)

Equity owners of the parent company

(12 263)

(129)

Non-controlling interest

(208)

(225)

Equity owners of the parent company

(20 625)

(216)

Non-controlling interest

(208)

(225)

Loss per share in BGN

15

(0.05)

0.00

The notes on pages 5 to 47 form an integral part of the interim consolidated financial statements.

Prepared by:

Executive Director:

/Antoaneta Boeva/

/Georgi Babev/

Chairman of the Board of Directors:

/Angel Angelov/

Auditing company 129 Baker Tilly Klitou and Partners EOOD:

Ivaylo Yanchev

Galina Lokmadjieva - Nedkova

Registered auditor, responsible for the audit

Managing Director

Baker Tilly Klitou and Partners EOOD

Total comprehensive income attributable to:

Note

2023

BGN'000

2022

BGN'000

Total comprehensive income for the period

Net profit for the period attributable to:

1

GRADUS AD

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS OF 31 DECEMBER 2023

ASSETS

Non-current assets

Property, plant and equipment

4

186 689

200 427

Intangible assets

5

34 162

42 257

Goodwill

6

20 656

Investment property

9

10 461

9 622

Investments

1

Total non-current assets

251 969

272 963

Current assets

Inventories

10.1

40 151

46 699

Biological assets

10.2

11 255

10 100

Related party receivables

37

5 878

4 575

Trade receivables

11

11 530

12 794

Loans granted

12

640

3 443

Other current receivables and prepayments

13

2 771

3 891

Cash and cash equivalents

14

2 096

4 628

Total current assets

74 321

86 130

TOTAL ASSETS

326 290

359 093

EQUITY AND LIABILITIES

EQUITY

Capital attributable to the equity owners of the parent company

Share capital

243 609

Own shares repurchased

(4 135)

-

Issue premium

60 354

62 287

Restructuring reserve

(247)

Revaluation reserve

4 834

13 009

Reserve from actuarial revaluation

(473)

(286)

Accumulated profit/loss

(18 757)

(1 494)

15

285 185

316 878

Non-controlling interest

8

1 385

1 593

Total equity

286 570

318 471

LIABILITIES

Non-current liabilities

Deferred tax liabilities

16

13 075

15 104

Bank Loans

19

10 000

5 533

Long-term payables to personnel

17

517

478

Leasing liabilities

196

-

Deferred revenue from government grants

18

1 288

1 550

Total non-current liabilities

25 076

22 665

Current liabilities

Bank Loans

19

3 700

7 000

Payables to related parties

37

614

356

Trade payables

20

4 674

4 543

Tax liabilities

21

944

779

Payables to personnel and social security

22

3 747

3 533

Leasing liabilities

106

53

Other current liabilities

23

859

1 693

Total current liabilities

14 644

17 957

TOTAL LIABILITIES

39 720

40 622

TOTAL EQUITY AND LIABILITIES

326 290

359 093

Консолидираният финансов отчет е одобрен за издаване от Съвета на директорите на Градус АД и е подписан на 28.04.2022 г.

The notes on pages 5 to 47 form an integral part of the interim consolidated financial statements.

Prepared by:

Executive Director:

/Antoaneta Boeva/

/Georgi Babev/

Chairman of the Board of Directors:

/Angel Angelov/

Auditing company 129 Baker Tilly Klitou and Partners EOOD:

Ivaylo Yanchev

Galina Lokmadjieva - Nedkova

Registered auditor, responsible for the audit Managing Director

Baker Tilly Klitou and Partners EOOD

Бележки

31 December

2023

BGN'000

31 December

2022

BGN'000

2

GRADUS AD

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDING DECEMBER 31, 2023

2023 2022

BGN'000 BGN'000

Cash flows from operating activity

Proceeds from customers 174 055 178 624

Payments to suppliers (130 519) (160 804)

Payments to personnel and social security (35 912) (32 003)

Taxes paid/ refunded, other than income tax, net (5 112) (3 269)

Income taxes paid 44 (2 499)

Financing of current activity 6 598 20 109

Foreign exchange differences and bank charges, net (35) (51)

Other proceeds, net 167 (870)

Net cash flows from operating activity 9 286 (763)

Cash flows from investing activity

Acquisition of property, plant and equipment (3 937) (8 014)

Proceeds from sales of property, plant and equipment 455 19

Purchase of investments (6) -

Loans repaid by related parties 2 050 433

Loans granted to unrelated parties - (313)

Loans repaid by unrelated parties 90 1 294

Interest proceeds from loans to related parties 96 38

Interest proceeds from loans to unrelated parties 35 85

Net cash flows used in investing activity

(1 217) (6 458)

Cash flows from financing activity

Payments on securities buy-back

(6 068) -

Proceeds from bank loans

24 384 36 140

Payments on bank loans

(23 217) (23 628)

Interest and charges paid on bank loans

(178) (113)

Dividends paid

(5 019) (10 502)

Taxes paid on dividends paid

(213) (728)

Payments on leasing contracts

(109) (118)

Other proceeds, net

(181) (3)

Net cash flows used in financing activity

(10 601) 1 048

Net increase / decrease in cash

(2 532) (6 173)

Cash and cash equivalents on 01 January 14 4 628 10 801

Cash and cash equivalents on 30 September

14 2 096 4 628

The notes on pages 5 to 47 form an integral part of the interim consolidated financial statements.

Prepared by: Executive Director:

/Antoaneta Boeva/ /Georgi Babev/

Chairman of the Board of Directors:

/Angel Angelov/

Auditing company 129 Baker Tilly Klitou and Partners EOOD:

Ivaylo Yanchev Galina Lokmadjieva - Nedkova

Registered auditor, responsible for the audit Managing Director

Baker Tilly Klitou and Partners EOOD

Note

3

GRADUS AD

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDING DECEMBER 31, 2023

BGN'000

Balance at 01 January 2022 year 243 609

-

62 287 (247) 13 039 (229) 9 597 328 056 1 818 329 874

Net profit for the period

- - - - - - (129)

(129)

(225)

(354)

Distributed profit for dividends

- - - - - - (10 962)

(10 962)

-

(10 962)

Changes in revaluation reserve

- - - - (30) - -

(30)

-

(30)

Changes in the reserve from actuarial

- - - - - (57) -

(57)

-

(57)

Balance at 31 December 2022 year 243 609

-

62 287 (247) 13 009 (286) (1 494) 316 878 1 593 318 471

Net profit for the period

- - - - - - (12 263)

(12 263)

(208)

(12 471)

Distributed profit for dividends

- - - - - - (5 000)

(5 000)

-

(5 000)

Changes in revaluation reserve

- - - - (8 175) - - (8 175) -

(8 175)

Changes in the reserve from actuarial

- - - - - (187) -

(187)

-

(187)

Other

- (4 135) (1 933) - - - -

(6 068)

-

(6 068)

Balance at 31 December 2023 year 243 609 (4 135) 60 354 (247) 4 834 (473) (18 757) 285 185 1 385 286 570

The notes on pages 5 to 47 form an integral part of the interim consolidated financial statements.

Prepared by: Executive Director:

/Antoaneta Boeva/ /Georgi Babev/

Chairman of the Board of Directors:

/Angel Angelov/

Auditing company 129 Baker Tilly Klitou and Partners EOOD:

Ivaylo Yanchev Galina Lokmadjieva - Nedkova

Registered auditor, responsible for the audit Managing Director

Baker Tilly Klitou and Partners EOOD

Total to the

equity owners

of the parent

company

Noncontrolling

interest

Total share

capital

Share

capital

Issue

premium

Restructuring

reserve

Revaluation

reserve

Reserve from

actuarial

revaluations

Retained

earnings

Own shares

repurchased

4

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

5

1. Information about the economic group

Economic Group "Gradus" AD (the Group) includes a parent company and eight subsidiaries.

The scope of activity of the companies of the Group is:

• poultry farming – raising parents for broilers,

• production and marketing of breeding eggs,

• production and marketing of fattened poultry – broilers, chick hatching, processing and marketing of

poultrymeat products,

• manufacture of compound feedingstuffs intended for the market, containing grains and feed additives

inproportion according to specified and validated recipes.

• rental of means of transport."Gradus" AD is a joint-stock company incorporated on November 28, 2017.

and entered in the Commercial Register of Registry Agency with UIC: 204882907.

Gradus AD is a parent company.

Address of management: Republic of Bulgaria

Stara Zagora 6000, kvartal "Industrialen", Ptyceclanica "Gradus"

LEI: 485100VMOUDWWCUDJ690

On 30.07.2018 by decision No770 – PA/30.07.2018, the Financial Supervision Commission entered "Gradus"

AD,

public company in the register of public companies and other issuers of securities under Article 30, para 1, item

3 of the FSC, led by the Financial Supervision Commission (FSC).

The shares of the Company are traded on the Main Market of bse – segment "Standart" with stock code of the

issue

GR6 and ISIN: BG1100002184

In 2023 Gradus AD (parent company) has not changed its name.

Gradus AD is not a subsidiary of another parent company.

Ownership and management

Gradus AD is a public company in accordance with the Public Offering of Securities Act. Shareholders of the

company as at 31 December 2023:

•

Gradus AD - 1.70% of the capital

•

Luka Angelov Angelov – 40.77% of the capital

•

Ivan Angelov Angelov – 20.68% of the capital

•

Angel Ivanov Angelov - 20.68% of the capital

•

Legal entities – 14.35% of the capital

•

Individual shareholders – 1.82% of the capital.

Management bodies of the company

•

General Meeting of Shareholders

•

Board of Directors

As of December 31, 2023, the Board of Directors shall consist of three (3) members composed of:

• Angel Ivanov Angelov - Chairman of the Board of Directors of Gradus AD

• Georgi Alexandrov Babev - Member of the Board of Directors and Executive Director of Gradus AD

• Bistra Stoyanova Kotseva - Member of the Board of Directors of Gradus AD

Audit Committee:

The Audit Committee supports the work of the Board of Directors, has the role of persons entrusted with

general management, who monitor and supervise the internal control system, risk management and financial

reporting system of the company.

Members of the Audit Committee are:

• Hristina Atanasova Filipova - Chairman of the Audit Committee;

• Ivaylo Nikolaev Nikolov - Member of the Audit Committee;

• Radka Dimcheva Peneva - Member of the Audit Committee.

Macroeconomic situation

The parent company and subsidiaries operate in the face of rising inflation. Management manages to maintain a

good financial position of the Group by indexing its revenues and expenses within reasonable limits. A direct

effect of the changed macroeconomic environment is the increase in the discount rate with which the Company

tests its assets for impairment. (see note 5 and 6).

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

6

1. Information about the economic group (continued)

War in Ukraine – Impact and Effects

On 24.02.2022 a military conflict between Ukraine and Russia occurred. Subsequently, a number of countries

imposed sanctions against certain individuals and entities in Russia. The Russia-Ukraine conflict and the related

economic sanctions and other measures taken by governments around the world have had a significant effect on

both the local economies of individual countries and the global economy.

The Group has no investments on the territory of the countries involved in the military conflict. The Group has

no trading relationships with sanctioned counterparties. The Group has no suppliers of goods or services from

the parties to the conflict. Sales to customers in the affected countries are not significant to the Group's operations

and are redirected to other markets on the same or more favourable terms.

Climate issues

The Group sees environmental protection and reducing the rate of climate change as part of its corporate social

responsibility policy and operates in an environmentally conscious manner. The Group has not identified any

direct effects on financial statement reporting units as a result of changes in climate-related legislation.

2. Basis of preparation of the consolidated financial statements

The consolidated financial statements have been prepared in accordance with International Financial Reporting

Standards (IFRS), as endorsed by the European Union (EU). These consolidated financial statements have been

prepared based on the principles of going concern, current accrual and historical cost, except for items of property,

plant and equipment that are measured using the revaluation model of IAS 16 Property, Plant and Equipment

and investment property that is measured at fair value in accordance with IAS 40 Investment Property, and

biological assets that are measured at fair value in accordance with IAS 41 Agriculture.

Functional currency and currency of presentation

Pursuant to the requirements of the Bulgarian legislation, the Group keeps its accounting books and records and

prepares its consolidated financial statements in the national currency of the Republic of Bulgaria – the Bulgarian

lev. Since 1 January 1999 the exchange rate of the Bulgarian lev has been pegged to the exchange rate of the

Euro in a ratio of EUR 1 = BGN 1.95583.

These consolidated financial statements have been prepared in thousands of Bulgarian leva (BGN’000).

Comparative data

The Group presents comparative data in these financial statements for one previous year. Where necessary,

comparatives are reclassified (and restated) in order to achieve comparability with any changes in the current

year’s presentation.

3. Significant accounting policies

(а) Foreign currency transactions

Foreign currency transactions are translated into the functional currency using the exchange rate prevailing on

the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into

the functional currency using the closing exchange rate prevailing on the date of preparation of the statement of

financial position. Foreign exchange gain or loss originating from monetary items is the difference between the

amortised cost in the functional currency at the beginning of the period adjusted by the effective interest and the

payments over the period and the amortised cost in foreign currency translated at the exchange rate at end of the

period.

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

7

3. Significant accounting policies (continued)

(а) Foreign currency transactions (continued)

Non-monetary assets and liabilities that are measured in terms of fair value in a foreign currency are translated

using the exchange rate at the date of measurement of the fair value. Non-monetary assets and liabilities that are

measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the

transaction. Any foreign exchange differences, which occur upon translation into the functional currency, are

reported as profits and losses, except for differences arising on the translation into the functional currency of

available-for-sale equity instruments or eligible cash flow hedges that are recognised in other comprehensive

income (if any).

(b) Property, plant and equipment

(i) Recognition and measurement

Initial recognition

Items of property, plant and equipment are measured initially at cost, which comprises all directly attributable

costs of acquisition of the asset.

The cost comprises the asset’s purchase price, including any import duties and non-refundable purchase taxes,

and any costs directly incurred in bringing the asset to its location and working condition necessary to prepare

the asset for its intended use.

The cost of self-constructed assets includes the cost of materials, direct labour and the appropriate proportion of

indirect production overheads; costs directly incurred in bringing the asset to its location and working condition

necessary to prepare the asset for its intended use; initial estimate of the costs of dismantling and removing the

assets, and restoring the site on which they are located, and capitalised interest expenses. Software acquired

without which it is impossible to operate equipment purchased is capitalised as part of the equipment. When

items of property, plant and equipment contain components with different useful lives, they are reported

separately.

Subsequent recognition

Subsequent to initial acquisition, fixed tangible assets are carried under the revaluation model of IAS 16. The

fair value of fixed tangible assets is determined on the basis of market evidence presented in a report prepared

by an approved licensed valuer. Revaluation is scheduled to take place every 3 years. When the fair value changes

significantly over a shorter period of time, the revaluation may be made more often to ensure that their carrying

amount at the relevant reporting date does not materially differ from their fair value. Gains or losses on

derecognition of certain assets from the group of property, plant and equipment are determined by comparing

the proceeds to which the Group expects to be entitled (sales revenue) with the carrying amount of the asset at

the date the purchaser acquires the control over the asset. The proceeds are recognised net in other operating

income, net on the face of the statement of comprehensive income. When the revalued assets are sold or

derecognised on other grounds, the amounts included in the revaluation reserve are reclassified to retained

earnings or losses.

(i) Subsequent costs

Subsequent costs of replacing part of the property, plant and equipment are capitalised to the carrying amount of

the relevant asset only to the extent that it is probable that economic benefits originating from that part of the

asset will flow to the company and the expenditure can be measured reliably. Current repairs and maintenance

are recognised as an expense when incurred.

(ii) Depreciation

An item of property, plant and equipment is depreciated from the date on which it is installed and ready for use,

or for the self-constructed assets, from the date on which the asset is completed and ready for use. Depreciation

charges are recognised up to the amount of the asset's original value minus the estimated residual value of the

asset based on the straight-line method over the estimated useful life of each component of property, plant and

equipment. Depreciation charges are recognised through profit or loss unless they are included in the carrying

amount of another asset. Assets acquired under leases are depreciated over the shorter of the estimated useful

life of the asset and the lease term, unless it is virtually certain that the ownership of the asset will be acquired

by the end of the lease term. Land is not depreciated.

Depreciation rates are defined as follows:

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

8

3. Significant accounting policies (continued)

b) Property, plant and equipment (continued)

2023

2022

Annual depreciation

rate , %

Annual depreciation

rate, %

Buildings

1.5 – 1.67

1.5

Facilities and roads

1.5- 24.41

1.5

Machinery and equipment

8 – 26.65

8

Motor vehicles

10

Hardware

33.3

Business inventory

10 - 15

10

Other fixed assets

10 - 25

4 – 10

The methods of depreciation, useful lives and assets residual values (if not immaterial) are reviewed at each

date of preparation of consolidated financial statements.

(c) Intangible assets

(i)

Goodwill

Goodwill is the excess of the acquisition cost (consideration paid) over the fair value of the Group's share of the

net identifiable assets of the acquiree at the acquisition date (business combination).

Goodwill arising on the acquisition of a subsidiary is presented in the consolidated statement of financial position

in the Intangible Assets group.

In the consolidated financial statements, goodwill is measured initially at acquisition cost (cost) and

subsequently, at acquisition cost less any accumulated impairment losses. Goodwill is not amortised.

(ii)

Intangible assets, other than goodwill

Intangible assets consist of trademarks, licenses, software, and other intangible assets.

Intangible assets acquired by subsidiaries that have a limited useful life are carried at cost less accumulated

amortisation and any impairment losses.

The carrying amount of intangible assets is tested for impairment when events or changes in circumstances

indicate that the carrying amount could exceed their recoverable amount. If this is the case, the impairment is

included as amortisation costs in the consolidated statement of comprehensive income (through profit or loss for

the year). Intangible assets are derecognised from the consolidated statement of financial position when they are

permanently retired and no future economic benefit is expected from their disposal, or when they are sold. Gains

or losses on disposal of individual assets in the Intangible Assets group are determined by comparing disposal

proceeds and the asset’s carrying amount at the date of sale.

Gains or losses on derecognition of certain assets from the group of intangible assets are determined by

comparing the proceeds to which the Group expects to be entitled (sales revenue) with the carrying amount of

the asset at the date the purchaser acquires the control over the asset. The proceeds are recognised net in other

operating income, net on the face of the statement of comprehensive income (profit or loss for the year).

(iii)

Subsequent costs

Subsequent costs are capitalised only when they increase the future economic benefit from the specific asset to

which they relate. Any other costs, including costs of internally generated goodwill and trademarks, are

recognised as an expense when incurred.

(iv)

Amortisation

Intangible assets, other than goodwill and trademarks, are amortised on a straight-line basis in profits and losses

over the estimated useful economic life from the date on which they are ready for use.

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

9

3. Significant accounting policies (continued)

(c) Intangible assets (continued)

2023

2022

Annual amortisation

rate, %

Annual amortisation

rate, %

Intellectual property rights

15

Industrial property rights

15

Other intangible assets

6,67 - 33,3

6,67 – 33,3

The methods of amortisation, useful lives and assets residual values are reviewed at each date of preparation of

financial statements.

(d) Investments

The long-term investments representing investments in financial instruments are presented in the consolidated

financial statements at acquisition price (cost), which is:

-

the fair value of the consideration paid for the acquisition of shares and / or

-

the value of the paid-up monetary shareholding

(e) Investment property

Investment property is held to earn rentals and/or for capital appreciation. Initially, investment property is

recognised at acquisition cost plus any costs related to its acquisition. Subsequent to initial recognition,

investment property is measured under the fair value model in accordance with IAS 40 Investment Property.

Gains or losses due to changes in the fair value are included in profit or loss in the period in which they have

occurred.

An investment property is derecognised on disposal or when the investment property is permanently withdrawn

from use and no future economic benefits are expected from its disposal. Gains or losses arising from the disposal

of investment property is recognised through profit or loss in the current period. They are stated net to the Other

operating income / (loss), net in the consolidated statement of comprehensive income (through profit or loss for

the year). Transfers from and to Investment property are made when there is a change in the functional purpose

and use of a property. In the case of a transfer from Investment property to Business-occupied property, in its

new group the asset is carried at its deemed historical cost that is its fair value at the date of the transfer.

Conversely, when there is a transfer to Investment property from Business-occupied property, the asset is

measured at its fair value at the date of the transfer and the difference to its carrying amount is presented as a

component of the consolidated statement of comprehensive income.

(f) Inventories

Inventories are valued at the lower of cost and net realisable value.

Cost of inventories - materials and work in progress - is reported on a weighted average cost basis and comprises

costs of acquiring the inventories, costs of production or processing, and any other costs incurred in bringing the

inventories to their current location and condition. In the case of manufactured products, the cost also includes

costs of labour, social security expenses, depreciation / amortisation expenses, and other overheads allocated on

the basis of normal production capacity.

Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of

completion and the estimated costs necessary to make the sale.

(g) Biological assets and government funding

An entity recognises a biological asset or agricultural produce if and only if:

а.) the entity controls the asset as a result of past events;

b.) it is probable that the future economic benefits associated with the asset will flow to the entity; and

c.) the asset’s fair value or cost can be measured reliably.

Upon initial recognition and at the date of each balance sheet, a biological asset is measured at fair value, less

costs to sell.

A gain or loss that has occurred on initial recognition of a biological asset at fair value less costs to sell the

biological asset is recognised through profit or loss for the period in which it has occurred.

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

10

3. Significant accounting policies (continued)

(g) Biological assets and government funding (continued)

Government funding is a variety of forms of grants from the State (local and central authorities and institutions)

and/or intergovernmental agreements and organisations. Government funding related to compensation of costs

incurred on biological assets is recognised in current gains and losses on a systematic basis for the same period

as expenses are recognised.

(h) Impairment of non-financial assets

The book values of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed

at each reporting date to determine whether there is any indication of impairment. If any such indications exist,

then the asset’s recoverable amount is estimated. For intangible assets with indefinite useful life or not yet

brought into use, the recoverable amount is estimated annually. An impairment loss is recognised always when

the carrying amount of an asset or a cash-generating unit (CGU) exceeds its recoverable amount.

The recoverable amount of an asset or CGU is the greater of value in use and fair value less costs to

sell. In assessing value in use, the estimated future cash flows are discounted to their present value

using the pre-tax discount rate that reflects current market assessments of the time value of money

and the risks specific to the asset or CGU. For impairment testing, assets that cannot be tested

individually are grouped together into the smallest group of assets that generates cash inflows from

continuing use that are largely independent of the cash inflows of other assets or CGUs.

For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the

smallest possible group of assets generating cash inflows from continuing use that are largely independent of

cash inflows from other assets or CGUs.

Impairment losses are recognised in profit or loss. Impairment losses recognised for CGUs are allocated so as to

reduce the carrying amounts of the assets at the site proportionately.

An impairment loss is reversed only to the extent that the carrying amount of the asset does not exceed the

carrying amount that would have been determined, net of depreciation, if no impairment loss had been

recognised.

(i) Trade and other receivables

Trade receivables are an unconditional right of the Group to receive remuneration under contracts with customers

and other contractors.

Initial recognition

Initially, trade receivables are presented and measured at fair value based on the transaction price, which value

is usually equal to the invoice amount, unless they contain a significant financing component that is not charged

additionally. If this is the case, they are recognised at their present value calculated at a discount rate equal to the

interest rate that is considered inherent to the debtor.

Subsequent measurement

The Company holds trade receivables solely for the purpose of collecting contractual cash flows and measures

them subsequently at amortised cost less the accumulated impairment for expected credit losses.

Impairment

The Group applies the lifetime expected credit losses model for its trade receivables using the simplified

approach required by IFRS 9. The expected credit loss from receivables is stated as Impairment of assets in the

statement of comprehensive income.

(j) Cash and cash equivalents

Cash comprises cash on hand and cash in current accounts, and cash equivalents comprises deposits with banks

with an original maturity of three months or less, and deposits with longer maturity that are freely disposable by

the Group in accordance with the arrangement with bankers during the term of the deposit.

Subsequent measurement

Cash and cash equivalents in banks are measured subsequently at amortised cost, less any accumulated

impairment for expected credit losses.

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

11

3. Significant accounting policies (continued)

(j) Cash and cash equivalents (continued)

Subsequent measurement (continued)

For the purposes of the preparation of the cash-flow statement:

•

cash equivalents from customers and cash payments to suppliers are presented gross, VAT inclusive (20%);

•

interest received on current accounts are presented as operating activity;

•

VAT paid under purchases of long-term assets is specified on the “payments to suppliers” line to the

cash- flows from operating activity, as long as it is included into and recovered together with the operating flows

of the Group for the respective period (month).

(k) Financial instruments

A financial instrument is each contract that gives rise to both a financial asset of one enterprise and a financial

liability or equity instrument of another enterprise.

Financial assets

Initial recognition, classification and measurement

On initial recognition, financial assets are classified in three groups according to which they are subsequently

measured at amortised cost, at fair value through other comprehensive income and at fair value through profit or

loss.

The Group initially measures financial assets at fair value and, in the case of financial assets which are not carried

at fair value through profit or loss, plus the direct transaction costs. Trade receivables that do not contain a

significant financing component are an exception - they are measured on the basis of the transaction price

determined in accordance with IFRS 15.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation

or convention in the market place (regular way trades) are recognised on the trade (transaction) date, i.e., the date

that the Group commits to purchase or sell the asset.

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow

characteristics and the Group’s business model for managing them. In order for a financial asset to be classified

and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are ‘solely

payments of principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as

the SPPI test and is performed at an instrument level.

The Group’s business model for managing financial assets refers to how it manages its financial assets in order

to generate cash flows. The business model determines whether cash flows will result from collecting contractual

cash flows, selling the financial assets, or both.

Subsequent measurement

For purposes of subsequent measurement, financial assets are classified in four categories:

• Financial assets at amortised cost (debt instruments)

• Financial assets at fair value through other comprehensive income with recycling of cumulative gains

and losses (debt instruments)

• Financial assets designated at fair value through other comprehensive income with no recycling of

cumulative gains and losses upon derecognition (equity instruments)

• Financial assets at fair value through profit or loss (debt and equity instruments).

Classification groups

Financial assets at amortised cost (debt instruments)

The Group measures financial assets at amortised cost if both of the following conditions are met:

• The financial asset is held and used within a business model with the objective 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

Financial assets at amortised cost are subsequently measured using the effective interest method. They are subject

to impairment. Gains and losses are recognised in the statement of comprehensive income. The Group’s financial

assets at amortised cost include cash and cash equivalents, trade receivables, loans to related parties and loans to

third parties.

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

12

3. Significant accounting policies (continued)

(k) Financial instruments (continued)

Derecognition

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is

primarily derecognised (i.e., removed from the Group’s statement of financial position) when:

• The rights to receive cash flows from the asset have expired; or

• The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation

to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement;

and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has

neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of

the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through

arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has

neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of

the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In

that case, the Group also recognises an associated liability. The transferred asset and the associated liability are

measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of

the original carrying amount of the asset and the maximum amount of consideration that the Group could be

required to repay.

Expected credit loss on financial assets

The Group recognises an allowance (impairment provision) for expected credit losses for all debt instruments

not held at fair value through profit or loss. Expected credit losses are based on the difference between the

contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to

receive, discounted at an approximation of the original effective interest rate. The expected cash flows will

include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual

terms.

For the purposes of calculation of expected credit losses on loans to related and third parties, and cash and cash

equivalents with banks, the Group has adopted the general approach to impairment as set by IFRS 9. According

to this approach, the Group applies a three-stage impairment model based on changes compared to the initial

recognition of the financial instrument’s credit quality.

Expected credit losses are recognised in two stages.

а. A financial asset that has not been credit impaired at its initial origination/acquisition is classified in phase

1. Since its initial recognition, its credit risk and qualities are subject to continuous monitoring and analyses. The

expected credit losses on financial assets classified in Phase 1 are determined on the basis of expected credit

losses resulting from possible default events which could occur within the next 12 months of the life of the asset

concerned (12-month expected credit losses for the instrument).

b. In cases where, after initial recognition of a financial asset, its credit risk increases significantly and as a result

its qualities deteriorate, it is classified in phase 2.

Expected credit losses on financial assets classified in phase 2 are determined over the remaining life (term) of

the relevant asset (lifetime expected credit losses for the instrument).

The Group's management has developed a policy and a set of criteria for analysis, identification and evaluation

of the occurrence of a status of a “significant increase in credit risk”.

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

13

3. Significant accounting policies (continued)

(k) Financial instruments (continued)

In cases where the credit risk of a financial asset increases to a level indicating that an event of default has

occurred, the financial asset is considered to be impaired and it is classified in phase 3. At this stage, losses

incurred by the relevant asset for its entire remaining lifetime (term) are established and calculated.

The Group adjusts expected credit losses based on historical data using forecast macroeconomic indicators that

are found to be correlated and are expected to affect the amount of the expected credit losses in the future.

In calculating expected credit losses on trade receivables, assets under contracts with customers and lease

receivables, the Group applies a simplified approach to calculate expected credit losses and does not follow

subsequent changes in their credit risk. According to this approach, the Group recognises an allowance

(impairment provision) based on the expected credit loss over the entire period of the receivables at each

reporting date.

Financial liabilities

Initial recognition, classification and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss,

loans and borrowings, trade and other payables, as appropriate.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables,

net of directly attributable transaction costs.

The Group’s financial liabilities comprise trade and other payables, loans, lease liabilities, and other borrowings.

Subsequent measurement

The subsequent measurement of financial liabilities depends on their classification.

Classification groups

Loans and other borrowings

After initial recognition, interest-bearing loans and borrowings are subsequently measured by the Group at

amortised cost using the effective interest rate method. Gains and losses are recognised in the statement of

comprehensive income when the relevant financial liability is derecognised as well as through the effective

interest rate amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition, and fees or costs

that are an integral part of the effective interest rate. The effective interest rate amortisation is included as finance

costs in the statement of comprehensive income (in the profit or loss for the year).

Derecognition

Financial liabilities are derecognised when the obligation under the liability is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms,

or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a

derecognition of the original liability and the recognition of a new liability. The difference in the respective

carrying amounts is recognised in the statement of comprehensive income.

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial

position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is

an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

This requirement derives from the idea of the real business nature of the group's relationship with a counterparty

that, in the simultaneous existence of these two requirements, the expected actual cash flow and benefits from

these estimates to the enterprise is the net flow, i.e. the net amount reflects the actual right or liability of the

Group originating from these financial instruments – in any case, its right to receive or pay only the net amount.

If both conditions are not met simultaneously, it is assumed that the rights and obligations of the Group in respect

of these counter-balances (financial instruments) are not covered only and solely by the receipt or payment of

the net amount.

The netting policy is also linked to the assessment, presentation and management of the actual credit and liquidity

risks associated with these counter-balances.

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

14

3. Significant accounting policies (continued)

(k) Financial instruments (continued)

Criteria applicable to establishing the existence of a current and legally enforceable netting right are as follows:

not to depend on future event, i.e. it shall be enforceable not only if a particular future event occurs; it should be

possible to exercise the right and to defend it by employing legal means in the course of (taken cumulatively):

-

the ordinary activity,

-

in case of default/delay, and

-

in case of bankruptcy and insolvency.

The applicability of criteria shall be assessed against the requirements of Bulgarian legislation and the established

arrangements between the parties. The condition for the existence of a current and legally enforceable netting

right is always and mandatorily assessed together with a second condition: for the existence of obligatory intention

to settle these balances on a net basis.

(l) Interest-bearing loans and other financial resources provided

Loans and other financial resources are presented initially at an acquisition price which is considered fair value

of consideration given in a transaction, net of direct costs associated with these loans and resources. Subsequent

to initial recognition, interest-bearing loans and borrowings, and other resources given, are measured

subsequently and presented in the statement of financial position at amortised cost determined by applying the

effective interest rate method. The amortised cost has been calculated by taking into account of all types of

charges, commissions and other amounts relating to these loans. Gains and losses are recognized in the statement

of comprehensive income as finance income or finance costs during the amortisation period.

Interest income is presented depending on the phase in which the relevant loan or other receivable on financial

resource granted, as the case may be, has been classified using the effective interest rate method.

m) Trade and other payables

Trade and other current liabilities in the statement of financial position are stated at cost of acquisition, which is

deemed to be the fair value of the transaction and will be paid in future against the goods and services received.

In cases of deferred payments beyond the usual credit term on which no additional payment of interest is

envisaged or interest is quite different from the usual market interest rate, the liabilities are initially assessed at

their fair value at the discount rate inherent to the Group, and subsequently, at amortised cost.

(n) Employee benefits

(i) Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which the Group pays fixed contributions

to a separate entity and has no legal or constructive obligations to pay further amounts. The Government of

Bulgaria is responsible for providing pensions in Bulgaria under defined contribution plan. The Group’s

contributions to the defined contribution pension plan are recognised as incurred through profit or loss.

Contributions to a defined contribution plan past due for more than 12 months following the period of provision

of services are discounted to their present value.

(ii) Defined benefit plans

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’s

net obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that

employees have earned in return for their service in the current and prior periods; that benefit is discounted to

determine its present value.

The Group has an obligation to pay termination benefits to those employees who retire in accordance with Art.

222,

§ 3 of the Bulgarian Labour Code. According to these Labour Code provisions, when a labour contract of an

employee, who has acquired a pension right, is ended, the employer is obliged to pay him or her compensations

amounting to two months' gross salaries. Where the employee has been with the same employer for the past 10

years or more, this employee is entitled to a compensation amounting to six months' gross salaries. At the date

of these financial statements, management estimated the potential expenses for all employees using the projected

credit unit method.

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

15

3. Significant accounting policies (continued)

(n) Employee benefits

(iii) Termination benefits

Termination benefits are recognised as an expense where the Group has clearly committed, without realistic

possibility of withdrawal, to a formal detailed plan either to terminate employment before the normal retirement

date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy.

Termination benefits for voluntary redundancies are recognised as an expense if the Group has made a formal

offer of voluntary redundancy, and it is probable that the offer will be accepted, and the number of acceptances

can be estimated reliably. If benefits are payable more than 12 months after the reporting period, they are

discounted to their present value.

(iv) Short-term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are accounted for as an

expenditure, as the related service is provided. A liability is recognised for the amount expected to be paid under

short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay

this amount as a result of past service provided by the employee, and the liability can be estimated reliably. The

Group recognises as a liability the undiscounted amount of the estimated costs related to annual leave expected

to be paid in exchange for the employee’s service for the past reporting period.

(о) Provisions

Provisions are recognised when the Group has a present legal or constructive liability as a result of past event

and it is probable that an outflow of resources embodying economic benefits will be required to settle the liability.

Provisions are determined by discounting the estimated future cash flows with a pre-tax interest rate that reflects

the time value of money and the risks specific to the liability. Interest accrued on the discounted value is

recognised as finance costs.

Onerous contracts

Provision for onerous contracts is recognised when the economic benefits expected to be received by the Group

under it are lower than the unavoidable costs of meeting the obligations under the contract. This provision is

measured at the present value of the lower of the two values: the costs of exiting from the contract and the

estimated net costs of continuing it. Prior to the establishment of the provision, the Group recognises impairment

losses on assets related to this contract.

(p) Revenue

Recognition of revenue from contracts with customers

The Group’s usual revenue originates from the following activities: sale of products, goods and services. The

Group’s revenue is recognised when the control over the goods and/or services promised in the contract with the

customer is transferred to the customer. The control is transferred to the customer upon satisfaction of the

performance obligations under the contract by transferring the promised goods and/or providing the promised

services.

Measurement of a contract with a customer

There is a contract with a customer if:

-

the contract has been approved by the parties;

-

each party’s rights can be identified;

-

the payment terms can be identified;

-

the contract has a commercial substance;

-

the collection of the consideration is probable after the goods and services have been transferred.

If a contract does not yet meet any of the above criteria, the entity will continue to re-assess the contract in every

reporting period. The consideration received under such a contract is recognized as a liability (a contract liability)

in the statement of financial position until all criteria for recognition of a contract with a customer are satisfied

and the Group performs its obligations. In the initial assessment of its contracts with customers, the group makes

further analysis and judgement whether two or more contracts must be considered as combination and be

accounted for as one.

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

16

3. Significant accounting policies (continued)

(p) Revenue (continued)

Measurement of a contract with a customer (continued)

Each promise to transfer goods and/or services that are identifiable, or a series of identifiable goods and services

that are identical in substance, is reported as a single performance obligation. The Group recognises income for

each individual performance obligation at the level of an individual contract with a customer by analysing the

type, duration and terms and conditions of each specific contract.

Measurement of revenue from contracts with customers

Revenues is measured on the basis of the transaction price determined for each contract. The transaction price is

the amount of consideration to which the group expects to be entitled, excluding amounts collected on behalf of

third parties. When determining the transaction price, the group takes into account the terms and conditions of

the contract and customary business practices, including the impact of variable consideration, the existence of a

significant financing component, non-cash consideration, and consideration payable to the customer. In the case

of contracts with more than one performance obligation, the transaction price is allocated to each performance

obligation based on the individual selling prices of each good or service.

The change in the contract scope and price is reported as a separate contract or as part of an existing contract,

depending on whether the change relates to adding identifiable goods and services as also on their price.

Performance obligations under contracts with customers

Revenue generated by the Group originates mainly from the sale of products, goods and services. In general, the

Group has concluded that it acts as a principal in its arrangements with customers as it typically controls the

goods and services before transferring them to the customer.

Revenue from sale of goods

Upon its sale, the control of the good is transferred to the customer at a particular point in time, which is usually

when the good is delivered to a client’s site.

Revenue from sale of services

Services provided by the Group consist of transport services and rents. The control of the services is transferred

at the time of their provision. Sales revenue is measured over time by measuring the stage of performance of the

group’s Liabilities (a stage of completion). To measure the stage of completion, the Group applies the straight-line

method. The assessments of income, expenses, and stage of completion are re-reviewed if circumstances change.

Each subsequent increase or decrease in estimated income and expenses is recognized through profit or loss in

the period in which the circumstances having necessitated the re-review become known to management.

Transaction price and terms of payment

The transaction price normally includes a fixed selling price, according to a general or customer price list, and

different forms of variable consideration. In determining the price of the transaction, amounts due to the

customer, non-cash consideration and the existence of a significant financial component are also taken into

account.

Variable consideration

The variable consideration is included in the transaction price only to the extent that it is very likely that there

will be no substantial adjustment in the amount of revenue recognised cumulatively. The forms of variable

consideration include: price discounts, rebates, bonus turnover, logistics bonus, marketing bonus. The discounts,

rebates and bonuses granted are compensated against the amounts due by the customer.

Significant financial component

The Group has conducted an analysis and has determined that the length of time between the time the customer

pays for the promised goods and services and the time of transfer of control of these goods and services is within

twelve months, and the agreed consideration does not have a significant financing component. The advance

payments collected by the customer are presented in the statement of financial position as liabilities under

contracts with customers.

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

17

3. Significant accounting policies (continued)

(q) Leases

The Group as a lessee

Assessment for measurement of a lease

A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period of

time in exchange for consideration.

Initial recognition and measurement

At the commencement date of the lease (the date on which the underlying assets is available for use) the Group

recognises a right-of-use asset and a lease liability.

The cost of acquisition of a right-of-use assets included:

- the initial amount of the lease liability;

- any lease payments made as of or before the commencement date, minus any incentives received under

the lease contract;

- lessee’s initial direct costs;

- provisions for costs of decommissioning and shifting the asset.

The Group amortises right-of-use assets on a straight-line basis over the shorter of their useful lives and the lease

term.

The right-of-use assets are presented under the heading of Property, plant and equipment in the statement of

financial position, and their depreciation – under the heading of Depreciation expenses in the statement of

comprehensive income.

The lease liability includes the net present value of the following lease payments:

- fixed payments less leasing incentives to be paid;

- variable lease payments based on indices or rates;

- the price for exercising the purchase option if it is reasonably certain that the Group will exercise that option;

- payments of penalties for termination of the lease;

- residual value guarantees.

Lease payments are discounted at the interest rate set out in the contract if it can be directly determined or at the

Group's differential interest rate reflecting the interest rate that would be applicable to borrowings having a

similar term, similar collateral, and in a similar economic environment.

Lease payments comprise, in a certain proportion, of finance costs (interest) and the attributable portion of the

lease liability (principal) so that to achieve a constant interest rate for the remaining unpaid portion of the

principal of the lease liability.

Subsequent measurement

The Group has chosen to apply the cost model to all its right-of-use assets. They are presented at cost less

accumulated depreciation, impairment losses and adjustments resulting from revaluations and adjustments to the

lease liability.

The Group subsequently measures the lease liability by:

- increasing the carrying amount to reflect the interest accrued;

- reducing the carrying amount to reflect the lease payments made;

- reassessing the carrying amount of the liabilities to reflect the revaluation or changes to the lease.

Reporting of revaluations and amendments to the lease contract

As a result of a revaluation, the lessee recognises the amount of the revaluation of the lease liability as an

adjustment in the right-of-use asset. If the carrying amount of the asset is lower, the revaluation residual amount

is recognized in profit or loss.

The lessee considers a change in the lease as a separate lease if:

- the amendment extends the scope of the lease by adding a new "right of use" to one or more additional

underlying assets; and

- the lease fee is increased by an amount corresponding to the stand-alone price for the increase in scope and any

adjustments reflecting the circumstances of the specific contract.

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

18

3. Significant accounting policies (continued)

(q) Leases (continued)

Short-term lease payments and payments under contracts where the underlying asset is a low-value asset, as well

as variable lease payments not included in the measurement of the lease liability, are recognised directly as

current expenses in the statement of comprehensive income on a straight-line basis over the lease term.

(r) Finance income and finance costs

Finance income is reported in the statement of comprehensive income (in the profit or loss for the year), when

occurs, and comprises of: interest income on loans granted and term bank deposits, interest income on

receivables, and net foreign exchange gains.

Finance income is presented separately from finance costs on the face of the statement of comprehensive income.

Interest income is calculated by applying the effective interest rate to the gross carrying amount of financial

assets in phases 1 and 2. Interest income on financial assets in phase 3 is calculated by applying the effective

interest rate to their amortised cost (i.е. the gross carrying amount adjusted by expected credit losses).

Foreign currency gains and losses are reported net as either finance income or finance costs depending on

whether the foreign currency differences represent a net gain or a net loss.

Finance costs include interest expenses on loans and expenses incurred as a result of an increase in the obligation

due to approaching with one period the date set for implementation of provisions.

Borrowing costs that cannot be attributed directly to the acquisition, construction or production of an eligible

asset are recognised through profit or loss using the effective interest rate method.

(r) Income tax

Income tax for the year consists of current and deferred taxes. Income tax is recognised in profit and loss, except

to the extent that it relates to business combinations or items recognised directly in equity or in other

comprehensive income.

Current income tax is the expected tax payable on the taxable profit or loss for the year, using the tax rates that

are enacted or substantially enacted by the reporting date, and any adjustments to tax payable in respect of

previous years. Current income tax includes also any tax effects from dividends.

Deferred income tax is provided on temporary differences between the tax bases of assets and liabilities and their

carrying amounts for financial reporting purposes. Deferred tax is recognised for all temporary differences that

arise from the initial recognition of an asset or liability in a transaction that is not a business combination and

affects neither the accounting nor taxable profit nor loss.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when

the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or

substantively enacted at the reporting date.

Deferred income tax assets and deferred income tax liabilities are offset only if a legally enforceable right exists

to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same

taxation authority.

Deferred income tax assets are recognised for all unused tax losses, credits and deductible temporary differences

to the extent that it is probable that taxable profit will be available against which they can be utilised. Deferred

income tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that

future benefits will be realised.

In assessing its current and deferred taxes the Group takes into account the effect of uncertain tax items and

whether additional taxes or interest might be due. The Group is of the opinion that the tax liability accruals are

adequate for all open tax years based on an assessment of lots of factors, including interpretation of tax laws and

previous experience. The assessment is based on estimates and assumptions and may include judgements for

future events. New information may appear as well, according to which the Group may change its judgements

on the adequacy of the existing tax liabilities; any such changes in the tax liabilities would affect the tax expense

for the period in which such assessment is made.

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

19

3. Significant accounting policies (continued)

(s) Segmental reporting

The Group identifies its reportable segments and discloses information by segment in accordance with the organisational

and reporting structure used by management of the parent company for the day-to-day general monitoring and management

of the Group and its components. Operating segments are components of the business that are evaluated regularly by key

management operating decision makers - using segment-specific financial and operating information for the purposes of

ongoing monitoring and evaluation of the Group's performance and allocation of resources.

The Group's operating segments are monitored and guided separately on an ongoing basis, with each operating segment

representing a separate business area that carries different business benefits and risks. The operating segments by which the

Group's management monitors, measures and controls risks and returns are segregated according to the principal business

activities, namely Meat and Meat Products, Breeding Eggs, Grain and Component Trading.

(t) Key estimates and assumptions

Calculation of expected credit losses on loans granted, trade receivables and assets under contracts with

customers

The measurement of the expected credit loss for financial assets carried at amortised cost (loans granted,

receivables and assets under contracts with customers) is an area, which requires the use of significant

assumptions about future economic conditions and credit behaviour of customers and debtors (for example, the

likelihood of counterparties not fulfilling their obligations and the resulting losses).

Aiming at achieving compliance with these requirements, the Group's management makes a number of important

judgments, such as:

(a)

defines criteria for identifying and evaluating a significant increase in credit risk;

(b)

selecting appropriate models and assumptions for measuring expected credit losses;

(c)

formation of groups of similar financial assets (portfolios) for the purpose of measuring expected credit

losses,

(d)

establishing and evaluating the correlation between historical default rates and behaviour of certain

macroeconomic indicators to reflect the effects from forecasts in future when calculating expected credit losses.

Estimates when recognising revenue from contracts with customers

When recognising revenue and preparing the annual financial statements, management makes different

judgements, estimates and assumptions, which influence the reported income, expenses, assets and liabilities

under contracts, and their corresponding disclosures. Despite the uncertainty regarding these assumptions and

estimates, the Group does not expect substantial adjustments to the carrying amount of the assets and liabilities

in the future, and respectively, the reported costs and revenue.

Impairment of inventories

At the end of each financial year, the Group reviews the condition and usability of available inventories. When

inventories are identified that are potentially unlikely to be realized at their current carrying amount in subsequent

reporting periods, the entity impairs the inventories to net realizable value. Inventories in stock but expired are

impaired 100%.

Useful life of fixed assets

The Group examines the estimated useful lives of Property, plant and equipment and Intangible assets at the end

of each reporting period.

Lease contracts

The application of IFRS 16 requires the Group’s management to make judgments, estimates and assumptions

that have an impact on the reported intangible assets and lease liabilities. The main key considerations concern

the determination of an appropriate discount rate and the determination of the lease term, including whether it is

sufficiently certain that the options for extending / terminating the contract term will be exercised.

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

20

3. Significant accounting policies (continued)

(t) Key estimates and assumptions (continued)

Uncertainties regarding these assumptions and estimates may result in significant adjustments in the future to

the carrying amount of the assets and liabilities concerned, and respectively, reported expenses and revenue.

Goodwill - It is tested for impairment annually and when circumstances indicate that its value may be

overestimated. Impairment of goodwill is determined by measuring the recoverable amount of each cash-

generating unit (or a group of cash-generating units) to which goodwill relates. When the recoverable amount of

the cash-generating unit is less than its carrying amount, an impairment loss is recognised. Impairment losses

associated with goodwill cannot be recovered in future periods.

Trademarks - At the end of each financial year, the Group reviews the impairment of trademarks. Where the

recoverable amount of the trademark is less than its carrying amount, an impairment loss is recognised.

Impairment losses associated with trademarks cannot be recovered in future periods.

Recognition of tax assets - When recognising deferred tax assets, it is assessed the probability that individual

deductible temporary differences will reverse in the future and the ability of each of the Group companies to

generate sufficient tax profits to offset them against those profits.

(u) Subsidiaries

Subsidiaries and entities, including unincorporated partnerships, where the parent company holds, directly or

indirectly, more than 50% of the votes in the General Meeting (share capital) and/or the right to appoint more

than 50% of the Board of Directors of the entity, or by virtue of a written control agreement concluded between

the shareholders it is able to exercise control over the entity’s financial and operating policies (including by

virtue of a control agreement concluded between the shareholders).

Subsidiaries are consolidated from the date that effective control is acquired by the Group and cease to

consolidate from the date that control is deemed to have ceased and is transferred outside the Group. For their

consolidation, the full consolidation method is applied.

(v) Consolidation principles

Consolidation of subsidiaries

In preparing consolidated financial statements, the financial statements of the parent and its subsidiaries are

combined on a line-by-line basis by applying consistent accounting policies to all significant items. The parent

company’s investments are eliminated against the share in the equity of the subsidiaries at the date of acquisition.

Intragroup transactions and balances and resulting unrealised profits are eliminated in full. Upon these eliminating

consolidation entries, the deferred tax effect has been taken into account.

Business combinations

Business combinations are accounted for by the Group using the acquisition method at the date the Group

acquires control. The cost of acquisition is measured as the aggregate of the assets transferred, measured at fair

value, the liabilities assumed to the previous owners, and the amount of any interest in the Group’s capital. The

consideration transferred consists of the fair value of all assets or liabilities originating from arrangements to

transfer contingent consideration. Identifiable net assets acquired and liabilities assumed are measured at the fair

value at the date of acquisition. Acquisition costs are expensed when incurred.

Non-controlling interest

For each business combination, the Group chooses to measure the non-controlling interest in the acquiree on the

basis of:

●

fair value; or

●

the proportion of identifiable net assets at the acquisition date, which is generally measured at fair

value.

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

21

3. Significant accounting policies (continued)

(v) Consolidation principles (continued)

Changes in the Group's share of a subsidiary that do not result in a loss of control are recognised in equity.

Changes in non-controlling interest are determined on the basis of the proportional share of the net asset of the

subsidiary. Changes in goodwill or gains or income on acquisition are not made.

Acquisitions of companies under common control

Acquisition under common control is a transaction in which the participating companies or businesses are

controlled by the same person or persons, both before and after the transaction. These transactions arise when

there is a change of the direct owner of the subsidiaries but the ultimate controlling entity remains unchanged.

Where the consideration transferred is less than the fair value of the identifiable net assets acquired, the difference

is recognised in equity as contributions from the shareholders of the acquirer. Where the consideration transferred

exceeds the fair value of the identifiable net assets acquired, the difference is recognised as a reserve from

transformation in the consolidated statement of financial position.

Provisional accounting for of acquisitions

The Group applies provisional accounting for of acquisitions on the assumption that accounting for the

acquisition for some amounts may be incomplete. Adjustments made in accounting for the acquisition during the

measurement period may affect the recognition and measurement of assets acquired and liabilities assumed, non-

controlling interests, consideration transferred, all existing interests in the acquiree before acquisition, and

goodwill arising or the amount of the bargain purchase gain recognised. During the assessment period, the

acquirer retrospectively adjusts the amounts recognised at the acquisition date on a pro-rata basis that result from

new information about facts and circumstances that existed at the acquisition date and, if known, the ones that

have affected the amount recognised at that date. The measurement period ends when the acquirer obtains all the

information necessary to record fully the acquisition or finds out that additional information is not available and

may not exceed one year from the acquisition date. Adjustments made during the measurement period are

recognised retrospectively, and comparative information is adjusted, i.e. as if the business combination had been

recognised fully at the acquisition date.

(w) New standards and interpretations

Initial application of new standards and amendments to existing standards effective in the current reporting

period

The following standards and amendments to existing standards issued by the International Accounting

Standards Board (IASB) and adopted by the EU are effective for 2023:

- Amendments to IAS 12 Income Taxes: International Taxation - Pillar 2 Model Rules - adopted by the EU on

8 November 2023 (effective immediately and for annual periods beginning on or after 1 January 2023); Not

applicable to Gradus Group companies.

- Amendments to IFRS 17 Insurance Contracts: Initial Application of IFRS 17 and IFRS 9 - Comparative

Information - adopted by the EU on 8 September 2022 (effective for annual periods beginning on or after 1

January 2023);

- Amendments to IAS 12 Income Taxes: Deferred Tax Relating to Assets and Liabilities Arising from a Single

Transaction - adopted by the EU on 11 August 2022 (effective for annual periods beginning on or after 1

January 2023);

- Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of

Accounting Policies - adopted by the EU on 2 March 2022 (effective for annual periods beginning on or after

1 January 2023);

- Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors - adopted by the EU

on 2 March 2022 (effective for annual periods beginning on or after 1 January 2023);

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

22

3. Significant accounting policies (continued)

(w) New standards and interpretations (continued)

- IFRS 17 Insurance Contracts, including Amendments to IFRS 17 - adopted by the EU on 19 November 2021

(effective for annual periods beginning on or after 1 January 2023).

The adoption of these standards and amendments to existing standards has not resulted in any material changes

to the Group's financial statements.

Published standards, interpretations and amendments not yet effective and not previously adopted

Published standards and amendments to existing standards issued by the IASB/ IFRIC and endorsed by the EU

that are not yet effective and have not been previously applied

At the date of approval of these financial statements, the following amendments to existing standards have been

issued by the IASB and endorsed by the EU but have not yet become effective:

- Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-

current, Classification of Liabilities as Current or Non-current - Deferral of Effective Date and Non-current

Liabilities with Covenants (effective for annual periods beginning on or after 1 January 2024);

- Amendments to IFRS 16 Leases: Sale and Leaseback Obligations (effective for annual periods beginning on

or after 1 January 2024).

New standards and amendments issued by the IASB not yet adopted by the EU

Currently, IFRSs adopted by the EU do not differ materially from those adopted by the IASB, except for the

following amendments to existing standards that have not yet been endorsed by the EU (the effective dates

given below are for full IFRSs):

- Amendments to IAS 21 The Effects of Changes in Exchange Rates: No Exchange Option (effective for annual

periods beginning on or after 1 January 2025);

- Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures: Vendor

Financing Arrangements (effective for annual periods beginning on or after 1 January 2024).

The Group is in the process of assessing the potential impact of the application of these standards and

amendments to existing standards on the Group's financial statements in the period of initial application.

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

23

4. Property, plant and equipment

In BGN’000

Land

Buildings

Plant and

equipment

Facilities

Motor

vehicles

Fixtures and

fittings and

other fixed

assets

In the

process of

acquisition

and

construction

Total

Book value

Balance at 01.01.2022

17 431

106 683

45 848

31 193

15 385

3 992

3 325

223 857

Additions

-

140

910

42

370

87

5 984

7 533

Transfer

178

2 315

2 223

1 108

901

17

(6 742)

-

Transfer to investment

property

-

(478)

-

(478)

Disposals

-

(45)

(29)

(342)

(22)

-

(438)

Balance at 31.12.2022

17 609

108 660

48 936

32 314

16 314

4 074

2 567

230 474

Acquired assets

-

411

285

34

170

39

3 676

4 615

Transfer

-

633

1 214

2 066

453

9

(4 375)

-

Elimination of

depreciation before

revaluation

-

(2 748)

(11 627)

(1 416)

-

(15 791)

Revaluation

222

422

(5 356)

(4 371)

-

(9 083)

Transfer to investment

properties

-

(456)

-

(456)

Written-off assets

-

(347)

(1)

(2)

(1 594)

(2)

-

(1 946)

Balance at 31.12.2023

17 831

106 575

33 451

28 625

15 343

4 120

1 868

207 813

Depreciation

Balance at 01.01.2022

-

(3 315)

(5 307)

(670)

(9 892)

(3 049)

-

(22 233)

Depreciation charge for

the period

-

(1 775)

(4 662)

(535)

(960)

(211)

-

(8 143)

Transfer to investment

property

-

27

-

27

Witten-off depreciation

-

24

1

255

22

-

302

Balance at 31.12.2022

-

(5 063)

(9 945)

(1 204)

(10 597)

(3 238)

-

(30 047)

Depreciation for the

year

-

(1 774)

(4 771)

(545)

(1 013)

(203)

-

(8 306)

Еlimination of

depreciation before

revaluation

-

2 748

11 627

1 416

-

15 791

Transfer to investment

properties

-

30

-

30

Written-off depreciation

-

317

1

-

1 088

2

-

1 408

Balance at 31.12.2023

-

(3 742)

(3 088)

(333)

(10 522)

(3 439)

-

(21 124)

Net book value

At 31 December 2022

17 609

103 597

38 991

31 110

5 717

836

2 567

200 427

At 31 December 2023

17 831

102 833

30 363

28 292

4 821

681

1 868

186 689

The Group has established a registered pledge over buildings, plant and equipment in connection with loan contracts

(see Note 19).

The Group's policy for subsequent measurement of Property, Plant and Equipment is a revaluation model under IAS

16 Property, Plant and Equipment. The Group carries out a valuation every three years (or more frequently if there are

significant changes in market prices) with the last valuation in 2023. The Group has used the services of an external

expert to determine the value of its assets. The table below sets out a description of the valuation techniques used in

determining the fair value of the individual property, plant and equipment groups for 2023 and the inputs used:

Group of assets

Level

Valuation methods and techniques

Significant non-observable inputs and

quantitative parameters

Land

Buildings

Plant and equipment

2

3

Cost approach. Valuation technique:

Cost-effective method for developing or replacing

an asset - amortized recoverable cost method -

based on the combined application of the following

techniques:

- The value of the sites as new with correction for

obsolescence and wear and tear to reflect their

physical condition, functionality and economic

usefulness.

- The value of the land is assessed on the basis of

information on actually concluded transactions.

* Price inflation index depending on the period

between the moment of commissioning the asset and

the current moment of valuation

* Index of market prices of production - warehousing

and service facilities

* Weight ratio between the techniques applied

individually to each asset, according to the

assessment of the reliability of the comparative data

used and the asset’s specifics

* Adjusted prices for construction of identical sites

and delivery prices of analogues

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

24

4. Property, plant and equipment (continued)

Further details about the right-of-use assets, disclosed in Note Property, plant and equipment, are presented in

the following table:

In BGN’000

Net book

value as at

01.01.2022

Additions

during 2022

Depreciation

charge for 2022

Net book value

as at 31

December 2022

Land and buildings

159

-

(106)

53

Motor vehicles

29

-

(29)

-

Total

188

-

(135)

53

In BGN’000

Net book

value as at

01.01.2023

Additions

during 2023

Depreciation

charge for 2023

Net book value

as at 31

December 2023

Land and buildings

53

354

(109)

298

Total

53

354

(109)

298

The Group has reported the right-of-use assets under the same heading in which they would have been reported

if they were its own assets.

5. Intangible assets

Intangible assets comprise trademarks, software, certificates, permits, etc.

In BGN’000

Trademarks

Software

Leasehold

improvements

Licenses and

others

Total

Book value

Balance at 01 January 2022

53 273

709

783

369

55 134

Additions

-

382

-

382

Impairment

(12 012)

-

(12 012)

Written-off

-

(137)

-

(137)

Balance at 31 December 2022

41 261

954

783

369

43 367

Acquired

-

92

-

92

Impairment

(7 926)

-

(7 926)

Balance at 31 December 2023

33 335

1 046

783

369

35 533

Amortization

Balance at 01 January 2022

-

(172)

(550)

(275)

(997)

Amortisation charge for the

year

-

(110)

(121)

(5)

(236)

Written-off amortisation

-

123

-

123

Balance at 31 December 2022

-

(159)

(671)

(280)

(1 110)

Amortisation charge for the

year

-

(189)

(69)

(3)

(261)

Balance at 31 December 2023

-

(348)

(740)

(283)

(1 371)

Net book value

At 31 December 2022

41 261

795

112

89

42 257

At 31 December 2023

33 335

698

43

86

34 162

On the establishment of Gradus AD and the contribution in kind of shares of Gradus-1 EOOD, identifiable

intangible assets Trademarks with an unlimited useful life are recognised. They were initially recognised at fair

value as determined by an independent licensed appraiser's report. The fair value of trademarks is not different

from their carrying amount. The trademarks capitalised as a result of the business combinations are: "GRADUS"

and "I EAT".

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

25

5. Intangible assets (continued)

The Group’s management conducted an analysis and assessment whether there were any indications of

impairment of trademarks. The calculations were made by management in cooperation with independent licensed

valuers. Estimates for expected cash flows were used in their calculations, based on financial budgets covering

a five-year period.

The discount rate used for the trademark "GRADUS" (based on WACC) was 7.66%. As a result of the

calculations made in 2023, no need to recognise an impairment of trademarks was established (2022: BGN 0).

The discount rate used for the trademark "I EAT" (based on WACC) was 7.66%. As a result of the calculations

made in 2023, need to recognise an impairment of trademarks was established in the amount of BGN 7 926

thousand (2022: BGN 12 012 thousand).

Trademark „GRADUS“

31.12.2023

31.12.2022

Discount rate ((based on WACC)

7.66%

6.64%

Interest rate (debt price)

4.4%

13.0%

Trademark "I EAT"

31.12.2023

31.12.2022

Discount rate ((based on WACC)

7.66%

6.64%

Interest rate (debt price)

4.4%

3.0%

6. Goodwill

The acquisition of Gradus-1 EOOD, Zhyuliv EOOD, Lora-2004 EOOD, Millennium 2000 EOOD and Gradus-

98 AD was made at the establishment of the capital of Gradus AD through in-kind contributions representing

100% of the share capital of Gradus-1 EOOD, Lora- 2004 EOOD and Millennium 2000 EOOD, and 99.94% of

the capital of Gradus-98 AD, which have been evaluated by a licensed appraiser at the date of the transaction.

The valuation method used is the asset’s net value. Gradus AD was registered with the Commercial Register on

28 November 2017.

Goodwill arises when the parent company acquires control. It is defined as the excess of the consideration

transferred at fair value and the non-controlling interest in the acquired entity over the fair value of the

identifiable net assets therein as at the date of the acquisition. As of 31 December 2023, the goodwill amounted

to BGN 20,656 thousand (2022: BGN 20,656 thousand).

Goodwill is tested for impairment annually and when circumstances indicate that its value may be overestimated.

Impairment of goodwill is determined by measuring the recoverable amount of each cash-generating unit (or

group of cash-generating units) to which that goodwill relates. When the recoverable amount of the cash-

generating unit is lower than its carrying amount, an impairment loss is recognised. Impairment losses associated

with goodwill cannot be recovered in future periods.

The key assumptions used in the recoverable amount calculations as at 31.12.2023 are:

31.12.2023

31.12.2022

Discount rate ((based on WACC)

от 7.66% до 9.77%

от 6.23% до 7.41%

7.41% 5.06%

Interest rate (debt price)

4.4%

3.0%

Gradus AD Group

Gradus-1

Millennium

2000

Gradus-98

Total

Remuneration transferred

149 760

63 000

52 200

264 960

Non-controlling interest

1 514

-

31

1 545

Fair value of net assets

(140 739)

(57 876)

(47 234)

(245 849)

Goodwill

10 535

5 124

4 997

20 656

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

26

6. Goodwill (continued)

Gradus-1 EOOD Sub-Group

Gradus-1

Gradus-3

Total

Remuneration transferred

113 836

35 924

149 760

Non-controlling interest

-

1 514

Fair value of net assets

(102 901)

(37 838)

(140 739)

Goodwill

10 935

(400)

10 535

Gradus-1 EOOD holds 96% of the capital of Gradus-3 AD, the same percentage is held by Gradus AD.

On 30.06.2023 three of the subsidiaries of Gradus AD (Lora-2004 EOOD, Gold Farm 91 EOOD and Zhyuliv

EOOD) merged into the subsidiary Milenium 2000 EOOD.

7. Group structure

Effective

participation

of the parent

company at

31.12.2023

Effective

participation

of the parent

company at

31.12.2022

Gradus AD

Parent company

-

Gradus-1 EOOD (Note 6)

Subsidiary of Gradus AD

100%

Zhyuliv EOOD (Note 6)

Subsidiary of Gradus AD

-

100%

Lora-2004 EOOD (Note 6)

Subsidiary of Gradus AD

-

100%

Millennium 2000 EOOD (Note 6)

Subsidiary of Gradus AD

100%

Gradus-98 AD (Note 6)

Subsidiary of Gradus AD

99,94%

Gradus-3 AD (Note 6)

Subsidiary of Gradus-1 EOOD

96%

Gold Farm 91 EOOD (Note15)

Subsidiary of Gradus AD

-

100%

Gradus Logistics EOOD

Subsidiary of Gradus AD

100%

8. Non-controlling interest

In BGN’000

Non-controlling interest, %

Balance at

01.01.2022

Result for

the year

Balance at

31.12.2022

Gradus-3 AD

4%

1 786

(227)

1 559

Gradus-98 AD

0,066%

32

2

34

1 818

(225)

1 593

Non-controlling interest, %

Balance at

01.01.2023

Result for

the year

Balance at

31.12.2023

Gradus-3 AD

4%

1 559

(204)

1 355

Gradus-98 AD

0,066%

34

(4)

30

1 593

(208)

1 385

9. Investment property

In BGN’000

Land and

buildings

Total

Balance at 01.01.2022

8 940

Transfer from property, plant and equipment

451

Revaluation of investment property

231

Balance at 31.12.2022

9 622

Transfers from Property, plant and equipment

426

Revaluation of investment property

413

Balance at 31 December 2023

10 461

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

27

9. Investment property (continued)

Investment property comprises land and buildings leased out. The Group hires an external expert - "Intellect -

Diamandiev & Co.", which assesses the Investment property as of 31 December 2023 year. The revaluation of

the investment property is recurring (annual) and is due to the application of the fair value model under IAS 40.

It is performed regularly at the date of each annual financial statement.

The table below provides a description of the valuation techniques used to determine the fair value of the

individual investment property groups for 2023, as well as the inputs used:

Group of assets

Level

Valuation methods and techniques

Significant non-observable inputs and

quantitative parameters

Land

Buildings

2

3

Cost approach. Valuation technique:

Cost-effective method for developing or replacing

an asset - amortized recoverable cost method -

based on the combined application of the following

techniques:

- The value of the sites as new with correction for

obsolescence and wear and tear to reflect their

physical condition, functionality and economic

usefulness.

- The value of the land is assessed on the basis of

information on actually concluded transactions.

* Price inflation index depending on the period

between the moment of commissioning the asset and

the current moment of valuation

* Index of market prices of production - warehousing

and service facilities

* Weight ratio between the techniques applied

individually to each asset, according to the

assessment of the reliability of the comparative data

used and the asset’s specifics

* Adjusted prices for construction of identical sites

and delivery prices of analogues

10.1 Inventories

In BGN’000

31 December

2023

31 December

2022

Main materials

34 263

37 254

Products

4 074

7 428

Goods

385

1 007

Work in progress

1 429

1 010

Total

40 151

46 699

10.2 Biological assets

In BGN’000

31 December

2023

31 December

2022

Biological assets carriers, incl.:

Immature biological assets - growing roosters and hens

6 041

5 851

Mature biological assets - roosters and hens

2 922

1 749

Total biological assets carriers

8 963

7 600

Biological assets for consumption, incl..:

Immature biological assets - growing chickens

2 292

2 500

Total biological assets for consumption

2 292

2 500

Total:

11 255

10 100

11. Trade receivables

In BGN’000

31 December

2023

31 December

2022

Trade receivables from counterparties, gross

8 556

11 466

Expected credit losses

(568)

(2 085)

Trade receivables from counterparties, net

7 988

9 381

Advances to suppliers

3 542

3 413

Total

11 530

12 794

Trade receivables are current, interest-free, denominated in Bulgarian leva and relate to the sale of goods,

products and services.

The Group applied the simplified approach of IFRS 9 to measure the expected credit losses on trade receivables

by recognising lifetime expected losses over the expected life of the financial instrument for all trade receivables.

The Group has established a registered pledge of receivables in connection with loan contracts. (See Note 19).

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

28

12. Loans granted

In BGN’000

Maturity

Collateral

Interest

rate

31 December

2023

31 December

2022

Company C

12.2024

Не

2%

-

2 698

Company E

12.2024

Не

3.2%

421

446

Company F

12.2024

Не

3.2%

219

299

Total

640

3 443

13. Other current receivables and prepayments

In BGN’000

31 December

2023

31 December

2022

Taxes refundable

1 614

2 507

Court and awarded receivables

177

873

Prepayments

339

297

Other receivables

641

214

Total

2 771

3 891

14. Cash and cash equivalents

In BGN’000

31 December

2023

31 December

2022

Cash on hand

100

257

Cash in current accounts

1 996

4 371

Total

2 096

4 628

The Group assesses expected credit losses on cash and cash equivalents as immaterial and therefore, no expected

credit loss on cash and cash equivalents was accrued.

15. Equity

Share capital

Number of

voting shares

Number of non-

voting shares

Total

number of

shares

Value in

BGN

thousand

As of 31 December 2021

243 608 710

-

243 608 710

243 609

As of 31 December 2022

243 608 710

-

243 608 710

243 609

As of 31 December 2023

239 473 416

4 135 294

243 608 710

243 609

Shareholders of GRADUS AD as at 31 December 2023:

Number of

voting shares

Number of

non-voting

shares

Total number

of shares

Shareholding,

%

Gradus AD

-

4 135 294

1,70

Luka Angelov Angelov

99 316 945

-

99 316 945

40,77

Ivan Angelov Angelov

50 373 165

-

50 373 165

20,68

Angel Ivanov Angelov

50 372 417

-

50 372 417

20,68

Legal entities

34 961 310

-

34 961 310

14,35

Individual shareholders

4 449 579

-

4 449 579

1,82

Total:

239 473 416

4 135 294

243 608 710

100,00

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

29

15. Equity (continued)

Shareholders of GRADUS AD as at 31 December 2022:

Number of

voting shares

Shareholding,

%

Luka Angelov Angelov

99 316 945

40,77

Ivan Angelov Angelov

50 373 165

20,68

Angel Ivanov Angelov

50 372 417

20,68

Legal entities

38 628 449

15,86

Individual shareholders

4 917 734

2,01

Total:

243 608 710

100,00

Equity

In BGN’000

31 December

2023

31 December

2022

Share capital

243 609

Repurchased treasury shares

(4 135)

-

Issue premium

44 200

Issue premium from the issue of securities

16 154

18 087

Reserve from transformation

(247)

Revaluation reserve

4 834

13 009

Reserve from actuarial revaluations

(473)

(286)

Uncovered loss

(18 757)

(1 494)

Capital relating to the owners of the parent company

285 185

316 878

Non-controlling interest

1 385

1 593

Total equity

286 570

318 471

Transaction under joint control

In BGN’000

Gold Farm 91

EOOD

Remuneration transferred

(4 052)

Fair value of net assets

3 805

Reserve from transformation

(247)

On 27 December 2019, the Group acquired Gold Farm 91 EOOD. The acquisition is treated as a transaction

under joint control with the effect thereof being reported under the heading of „Reserve from transformation“

(See Note 7).

Losses per share

Lossesper share are calculated by dividing the net loss attributable to shareholders with the average weighted

number of ordinary shares circulating throughout the year.

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

30

15. Equity (continued)

Losses per share (continued)

2023

2022

Net loss in BGN’000

(12 471)

(354)

Average weighted number of ordinary shares

239 473 416

243 608 710

Loss per share in BGN

(0.05)

0.00

16. Deferred tax assets and liabilities

Deferred tax assets and liabilities recognised

Deferred tax assets and liabilities recognised originate from the following:

Assets

Liabilities

Net

In BGN’000

31.12.2023

31.12.2022

31.12.2023

31.12.2022

31.12.2023

31.12.2022

Property, plant and equipment

-

(12 372)

(12 979)

(12 372)

(12 979)

Intangible assets

-

(3 333)

(4 126)

(3 333)

(4 126)

Investment property

-

(732)

(652)

(732)

(652)

Inventories and biological assets

884

948

-

884

948

Tax loss

475

397

-

475

397

Trade receivables and loans

granted

24

14

-

24

14

Employee benefits

92

49

-

92

49

Long-term retirement benefits

1 797

1 169

-

1 797

1 169

Compensated leaves

90

76

-

90

76

3 362

2 653

(16 437)

(17 757)

(13 075)

(15 104)

Movements in temporary differences in 2023

In BGN’000

Balance

31.12.2023

Profits and

losses

Other

compreh

ensive

income

Balance

31.12.2023

Property, plant and equipment

(12 979)

(391)

998

(12 372)

Intangible assets

(4 126)

793

-

(3 333)

Investment property

(652)

(80)

-

(732)

Inventories and biological assets

1 169

628

-

1 797

Tax loss

948

(64)

-

884

Trade receivables and loans granted

397

78

-

475

Employee benefits

14

10

-

24

Long-term retirement benefits

49

30

13

92

Compensated leaves

76

14

-

90

Total:

(15 104)

1 018

1 011

(13 075)

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

31

16. Deferred tax assets and liabilities (continued)

Deferred tax assets and liabilities recognised

(continued)

Movements in temporary differences in 2022

In BGN’000

Balance

01.01.2022

Profits and

losses

Other

comprehen

sive income

Balance

31.12.2022

Property, plant and equipment

(12 926)

(54)

1

(12 979)

Intangible assets

(5 327)

1 201

-

(4 126)

Investment property

(634)

(18)

-

(652)

Inventories and biological assets

996

173

-

1 169

Tax loss

646

302

-

948

Trade receivables and loans granted

405

(8)

-

397

Employee benefits

59

(45)

-

14

Long-term retirement benefits

47

(7)

9

49

Compensated leaves

67

9

-

76

Total:

(16 667)

1 553

10

(15 104)

17. Long-term payables to personnel

Long-term payables to personnel comprise the Group’s obligation to pay termination benefits to those employees

who retire as of 31 December 2023 and 31 December 2022. Pursuant to the Labour Code provisions, every

employee is entitled to compensation amounting to two months' gross salaries upon retirement. If he/she has

been with the same employer for the past 10 years or more, this employee is entitled to a compensation amounting

to six months' gross salaries. At the time of retirement.

To determine these liabilities, the Group companies made an actuarial valuation as of 31 December 2023 and 31

December 2022 by employing the services of an accredited actuary.

The change in the present value of payables to employees upon retirement is as follows:

In BGN’000

2023

2022

Present value of the obligation on 31 December

478

453

Current service costs

72

139

Interest expense

13

9

Payments during the period

(203)

(84)

Effects from subsequent valuation for the year

157

(39)

Present value of the obligation on 31 December

517

478

In assessing the present value of the obligations as at 31 December, the following actuarial assumptions were

made:

•

a rate based on the annual interest rate in the range from 1.50 percent to 3.74 percent was used to

determine the discount factor;

•

the assumption for the future level of salaries is based on a range from 1 to 5 percent increase compared

to the previous year level;

•

mortality – according to the table of the NSI for the total mortality of the Bulgarian population during

the period 2020 – 2022;

•

other assumptions – the retirement entitlement legislation will not be subject to amendments.

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

32

18. Deferred income from financing

In BGN’000

31 December

2023

31 December

2022

The financing obtained is from the State Fund Agriculture and relate to the acquisition of fixed tangible assets.

19. Bank loans

Bank

Currency

Interest rate %

Maturity

31.12.2023

31.12.2022

Liability

BGN’000

Approved

limit

BGN’000

Liability

BGN’000.

Approved

limit

BGN’000

"Bank 1" - borrower Gradus-1 EOOD

Loan 1

BGN

1 m EURIBOR+1.3%

30.09.2024

-

12 000

-

12 000

Loan 2

BGN

1 m EURIBOR+1.3%

30.09.2024

-

2 800

-

2 800

Loan 3

BGN

1 m EURIBOR+1.3%

30.09.2024

-

15 000

-

15 000

"Bank 1" - borrower Gradus-3 AD

Loan 1

BGN

1 m EURIBOR+1.3%

30.09.2024

-

12 000

-

12 000

Loan 2

BGN

1 m EURIBOR+1.3%

30.09.2024

-

2 800

-

2 800

Loan 3

BGN

1 m EURIBOR+1.3%

30.09.2024

-

15 000

-

15 000

"Loan 2" - borrower Gradus-3 AD

Loan 1

BGN

Average deposit index+1.55%

20.08.2024

3 700

10 000

7 000

10 000

" Loan 3" - borrower Gradus-3 AD

Loan 1

BGN

Reference interest rate+0.85%

20.02.2025

10 000

5 133

10 000

Loan 2

BGN

Reference interest rate+0.85%

20.03.2026

-

10 000

-

" Loan 3" - borrower Gradus-1 EOOD

Loan 1

BGN

Reference interest rate+0.85%

20.02.2025

-

10 000

-

10 000

Loan 2

BGN

Reference interest rate+0.85%

20.03.2026

-

10 000

-

" Loan 3" - borrower Gradus-98 AD

Loan 1

BGN

Reference interest rate+0.85%

20.02.2025

-

10 000

400

10 000

Loan 2

BGN

Reference interest rate+0.85%

20.03.2026

-

10 000

-

" Loan 3" - borrower Milenium 2000 EOOD

Loan 1

BGN

Reference interest rate+0.85%

20.02.2025

-

10 000

-

10 000

Loan 2

BGN

Reference interest rate+0.85%

20.03.2026

-

10 000

-

Total short-term debts::

3 700

7 000

Total long-term debts:

10 000

5 533

Gradus - 1 EOOD

589

745

Millennium 2000 EOOD

699

2

Lora 2004 EOOD

-

803

Total long-term portion of financing for FTAs

1 288

1 550

Gradus - 1 EOOD

156

Millennium 2000 EOOD

103

-

Lora 2004 EOOD

-

103

Total short-term portion of financing for FTAs (Note 23)

259

Total

1 547

1 809

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

33

19. Bank loans (continued)

The bank loans are secured by Group’s assets, as follows:

In BGN’000

31 December

2023

31 December

2022

Fixed assets

24 582

49 905

Receivables

3 335

3 560

Total

27 917

53 465

20. Trade payables

In BGN’000

31 December

2023

31 December

2022

Payables to suppliers

4 674

4 432

Payables under contracts with customers

-

111

Total

4 674

4 543

21. Tax liabilities

In BGN’000

31 December

2023

31 December

2022

VAT payable

786

655

Corporate income tax

43

8

Individuals’ income tax

95

Other taxes

20

21

Total

944

779

22. Payables to personnel and social security

In BGN’000

31 December

2023

31 December

2022

Payables to personnel

2 108

1 961

Payables to social security

720

706

Payables on unused paid leave

919

866

Total

3 747

3 533

23. Other current liabilities

In BGN’000

31 December

2023

31

December

2022

Liability under a bird Financing Contract

-

1 325

Liability under a contract for the supply of FTAs

381

-

Short-term portion of financing of FTAs

259

Insurance liabilities

21

20

Pledge

17

18

Dividends payable to individuals

4

9

Other liabilities

177

62

Total

859

1 693

24. Revenue

In BGN’000

2023

2022

Sale of products

138 504

148 214

Sale of good

4 450

641

Sale of services

1 339

1 089

Total

144 293

149 944

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

34

24. Revenue (continued)

Revenue comprises:

In BGN’000

2023

2022

Goods and products transferred at a point in time

142 954

148 855

Services transferred over time

1 339

1 089

Total:

144 293

149 944

25. Other operating income

In BGN’000

2023

2022

Income from financing

8 740

25 101

Rental income

594

924

Surpluses of inventories

118

184

Sale of materials and FTAs, net

850

956

Gain on revaluation of investment property

413

231

Liabilities derecognized

32

478

Other income

190

110

Total

10 937

27 984

26. Own costs capitalised

In BGN’000

2023

2022

Costs of materials

70

37

Costs of personnel

348

380

Other expenses

2

-

Total

420

417

27. Expenses on materials

In BGN’000

2023

2022

Raw materials

80 020

89 724

Electricity

5 929

13 223

Heating materials

3 334

3 139

Fuel and lubricants

2 792

3 491

Natural gas

1 845

3 562

Expenses on repair and spare parts

1 398

2 048

Water and steam

537

433

Other expenses

1 588

1 941

Total

97 443

117 561

28. Hired service expenses

In BGN’000

2023

2022

Transport services

1 303

918

Repair and maintenance

980

843

Taxes and charges

901

848

Subscription fees

572

246

Veterinary services and researches

471

336

Consulting services

450

320

Insurances

410

353

Security

367

389

Marketing and advertising

268

346

Forwarding services and commissions

206

386

Commissions

190

267

Rentals

160

82

Audit fees

131

117

Legal services

43

114

Incinerator

38

96

Translation / interpretation services

10

14

Storage of inventories

2

25

Other expenses

1 044

1 667

Total

7 546

7 367

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

35

29. Personnel expenses

In BGN’000

2023

2022

Salaries and wages

30 292

27 370

Social security expenses

5 070

4 697

Social benefits expenses

893

878

Other expenses

98

55

Total

36 353

33 000

30. Impairment expenses

In BGN’000

2023

2022

Impairment of biological assets

22 907

19 350

Impairment of Intangible assets- trademark

7 926

12 012

Write off of receivables

380

767

Total

31 213

32 129

31. Other expenses

In BGN’000

2023

2022

Scrap of inventories

2 804

2 397

Liquidated damages

381

165

Entertainment expenses

137

208

Shortage of assets

71

177

Donations

52

48

Business trip expenses

28

14

Unrecognized taxes

12

15

Natural wastage

12

7

Written-off receivables

4

289

Scrap of FTAs

-

42

Social expenses

-

1

Other expenses

261

145

Total

3 762

3 508

32. Finance income and finance costs

In BGN’000

2023

2022

Interest income

215

176

Profit from foreign currency transactions

-

86

Total finance income

215

262

Interest expenses on bank loans

(98)

(57)

Bank charges and commissions

(101)

(56)

Interest expenses on lease contracts

(3)

Foreign exchange loss

(44)

-

Others

(18)

(8)

Total finance costs

(264)

(124)

Total finance income, net

(49)

138

33. Tax expenses

2023

2022

Current income tax expense – 10% (2022: 10%)

(241)

(1 593)

Deferred income taxes relating to:

Origination and reversal of temporary differences

1 018

1 553

Total income tax expense

777

(40)

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

36

33. Tax expenses (continued)

Reconciliation of income tax expenses determined compared to the

accounting result

2023

2022

Accounting profit for the year

(13 248)

(314)

Income taxes – 10% (2022 :10%)

1 325

31

Non-deductible expenses

(548)

(71)

Total income tax expense

777

(40)

34. Segment reporting

The Group identifies three main operating segments:

•

Meat and meat products

•

Breeding eggs

•

Trade in grain and components

Segment assets as at 31.12.2032 include:

Segment liabilities as at 31.12.2023 include:

Non-current liabilities

Meat and

meat

products

Breeding

eggs

Trade in

grain

and

components

Total:

Long-term payables to personnel

219

242

56

517

Segment liabilities

219

242

56

517

Unallocated liabilities

-

24 559

Total non-current liabilities

25 076

Meat and

meat

products

Breeding

eggs

Trade in

grain

and

components

Total:

Non-current assets

Property, plant and equipment

96 875

76 657

13 157

186 689

Intangible assets

34 162

-

34 162

Goodwill

20 559

97

-

20 656

Segment assets

151 596

76 754

13 157

241 507

Retained earnings

-

10 462

Total non-current assets

251 969

Current assets

Inventories

7 846

2 650

28 226

38 722

Biological assets

2 292

8 963

-

11 255

Related party receivables

2 555

-

1 345

3 900

Trade receivables

7 881

2 086

1 562

11 529

Cash

970

717

41

1 728

Segment assets

21 544

14 416

31 174

67 134

Unallocated assets

-

7 187

Total current assets

74 321

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

37

34. Segment reporting (continued)

Current liabilities

Bank loans

-

3 700

Payables to related parties

17

5

592

614

Trade payables

2 357

1 386

917

4 660

Payables to personnel and social security

1 918

1 493

316

3 727

Segment liabilities

4 292

2 884

5 525

12 701

Unallocated liabilities

-

1 943

Total current liabilities

14 644

Segment income, expenses and results for 2023 include:

Meat and

meat

products

Breeding

eggs

Trade in

grain

and

components

Total:

2023

Revenue

84 371

53 735

4 811

142 917

Other operating income, net

1 890

6 850

-

8 740

Changes in stock of finished products

(2 315)

-

480

(1 835)

Changes in biological assets

1 310

18 327

-

19 637

Capitalised own costs

-

420

-

420

Segment costs

(94 623)

(76 823)

(11 067)

(182 513)

Result of the segment:

(9 367)

2 509

(5 776)

(12 634)

Unallocated revenue

1 376

Unallocated other income

2 197

Unallocated costs

(4 138)

Finance costs, net

(49)

Profit before tax

(13 248)

Income tax expense

777

Net profit for the year

(12 471)

Segment assets as at 31.12.2022 include:

Non-current assets

Property, plant and equipment

114 856

71 622

13 949

200 427

Intangible assets

42 257

-

42 257

Goodwill

20 559

97

-

20 656

Segment assets

177 672

71 719

13 949

263 340

Retained earnings

-

9 623

Total non-current assets

272 963

Inventories

13 392

2 379

30 928

46 699

Biological assets

2 500

7 600

-

10 100

Related party receivables

2 751

819

1 005

4 575

Trade receivables

10 736

1 295

763

12 794

Cash

930

927

60

1 917

Segment assets

30 309

13 020

32 756

76 085

Unallocated assets

-

10 045

Total current assets

86 130

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

38

34. Segment reporting (continued)

Meat and

meat

products

Breeding

eggs

Trade in

grain

and

components

Total:

Non-current liabilities

Long-term payables to personnel

79

312

87

478

Segment liabilities

79

312

87

478

Unallocated liabilities

-

22 187

Total non-current liabilities

22 665

Current liabilities

Bank loans

-

7 000

Payables to related parties

16

-

112

128

Trade payables

4 071

-

308

4 379

Payables to personnel and social security

3 058

281

194

3 533

Segment liabilities

7 145

281

7 614

15 040

Unallocated liabilities

-

2 917

Total current liabilities

17 957

Segment income, expenses and results for 2022 include:

Meat and

meat

products

Breeding

eggs

Trade in

grain

and

components

Total:

2022

Revenue

88 374

59 127

1 278

148 779

Other operating income, net

9 425

15 158

515

25 098

Changes in stock of products

2 882

-

75

2 957

Biological assets

2 299

18 411

-

20 710

Capitalised own costs

-

417

-

417

Segment costs

(105 866)

(88 473)

(4 728)

(199 067)

Result of the segment:

(2 886)

4 640

(2 860)

(1 106)

Unallocated income

1 165

Unallocated other income

2 886

Unallocated costs

(3 397)

Finance income, net

138

Profit before tax

(314)

Income tax expense

(40)

Net profit for the year

(354)

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

39

35. Cash flows from financing activity

In BGN’000

01/01/2023

Cash received

Cash paid

Interest

and bank

charges

accrued

Interest

an

d charges

Others

31/12/2023

Lease contracts

53

-

(106)

3

(3)

355

302

Bank loans

12 533

24 384

(23 217)

199

(178)

(21)

13 700

Dividend payable

-

(5 019)

-

5 019

-

Total

12 586

24 384

(28 342)

202

(181)

5 353

14 002

In BGN’000

01/01/2022

Cash received

Cash paid

Interest

and bank

charges

accrued

Interest

and

charges

Others

31/12/2022

Lease contracts

180

-

(115)

3

(3)

(12)

53

Bank loans

-

36 140

(23 628)

113

(113)

21

12 533

Dividend payable

-

(10 502)

-

(460)

10 962

-

Total

180

36 140

(34 245)

116

(576)

10 971

12 586

36. Financial instruments

Categories of financial instruments

Financial assets at amortised cost

31.12.2023

31.12.2022

In BGN’000

Trade receivables

7 988

9 381

Related party receivables

5 878

4 575

Loans to related parties

640

3 443

Cash and cash equivalents

1 996

4 371

Total

16 502

21 770

Financial liabilities at amortised cost

31.12.2023

31.12.2022

In BGN’000

Bank loans

13 700

12 533

Payables to related parties

614

356

Lease liabilities

302

53

Trade payables

4 674

4 432

Total

19 290

17 374

In the course of its ordinary activity the Group is exposed to various financial risks, the most significant of which

are the following: market risk (including currency risk, risk of changes in fair value and price risk), credit risk,

liquidity risk and risk of interest-bearing cash flows.

The overall risk management is focused on difficulties in forecasting financial markets aimed at minimising the

potential negative effects that might impact the financial results and performance of the Group.

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

40

36. Financial instruments (continued)

Financial risks are identified, measured and monitored currently, using different control mechanisms, in order to

determine adequate prices of the group’s goods and services, and of its borrowings, as well as to assess

adequately the market circumstances of its investments and the forms of maintenance of free liquidity without

permitting unjustified concentration of a particular risk.

Risks faced by the Group are managed on an ongoing basis in accordance with a policy elaborated by

management. Management has set the main principles of the overall financial risk management on the basis of

which specific procedures for management of particular risks, such as currency risk, price risk, interest rate risk,

credit risk, and liquidity risk, have been developed.

Credit risk

The main financial assets of the Group comprise cash on hand and cash in bank accounts, trade receivables and

receivables on loans granted.

Credit risk is the risk that the group's counterparties might not be able to repay fully and within the usual time

limits the amounts they owe on trade and credit receivables.

Trade receivables

The Group has segmented trade receivables into different groups. A collection analysis has been carried out for

each type of financial asset classified in different ranges of the aging analysis. The provisioning rates applied are

based on the days of past due determined as a result of the aging analysis. These percentages have been

determined initially using historical data observed by the Group for a period of 2 years.

The Group has analysed the effects on calculated default rates based on historical data of forecast information

for certain macroeconomic parameters, such as GDP and unemployment rate. Management has made an analysis

of the future information on these parameters and has determined that the effects are negligible and therefore,

the historical loss rates have not been corrected for 2023.

The expected credit losses are calculated on each reporting date.

Monetary, including payment transactions are limited to banks with good reputation and stability from the

position of liquidity. Moreover, the Group has a policy to limit its exposure to a separate bank.

To calculate the expected credit losses on trade receivables, the Group applies a simplified approach for

calculating expected credit losses and does not follow subsequent changes in their credit risk. According to this

approach, the Group recognises an allowance (impairment provision) based on the expected credit loss over the

entire period of the receivables at each reporting date.

The age structure of trade receivable before impairment is as follows:

In BGN’000

31.12.2023

31.12.2022

Current

7 086

5 412

Within 90 days

518

3 304

From 90 to 365 days

454

795

Over 365 days

498

1 955

Total trade receivables, gross

8 556

11 466

Expected credit loss

(568)

(2 085)

Total trade receivables, net

7 988

9 381

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

41

36. Financial instruments (continued)

31 December 2023

BGN’000

Current

Past due

from 1 to

90 days

Past due

from 90 to

365 days

Over 365

days

Total

Expected percentage of credit losses

0.10%

3.7%

9.7%

100%

Trade receivables, gross

7 086

518

454

498

8 556

Expected credit loss as at 31.12.2023

7

19

44

498

568

31 December 2023

BGN’000

Current

Past due

from 1 to

90 days

Past due

from 90 to

365 days

Over 365

days

Total

Expected percentage of credit losses

0.10%

4%

10%

95.5%

Trade receivables, gross

5 412

3 304

795

1 955

11 466

Expected credit loss as at

31.12.2022

5

133

80

1 867

2 085

Loans and financial guarantees granted

The Group measures the credit risk of loans to related parties by using the probability of default (PD), exposure

at default (EAD) and loss given default (LGD). To determine the credit risk, the Group's management uses

internal estimates that reflect the probability of default for individual counterparties. The activity, financial

performance of the borrower and the value of the collateral received is included in the risk assessment.

The Group considers that a financial instrument has undergone a significant increase in credit risk (migration

from phase 1 to phase 2) when one or more of the following quantitative or qualitative criteria are met:

• the borrower is past due by more than 60 days;

• significant adverse changes in business, financial and economic conditions in which the borrower

operates;

• actual or expected significant adverse changes in the operating results of the borrower;

The criteria used to determine whether there is a significant increase in credit risk are monitored and reviewed

periodically.

The Group considers a financial instrument as being in default and exposed to a credit loss (migration from phase

1 or phase 2 to phase 3) when one or more of the following quantitative or qualitative criteria are met:

• the borrower is past due by more than 90 days;

• the borrower experiences significant financial difficulties;

• the borrower is in an insolvency / liquidation procedure.

GRADUS AD Translation from Bulgarian

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

42

36. Financial instruments (continued)

Calculation of expected credit losses

Expected credit losses are calculated by discounting the resulting value of the product of: the probability of

default (PD), exposure at default (EAD) and loss given default (LGD), determined as follows:

• PD the probability of that the borrower would fail to perform its financial obligation either in the next

12 months or for the entire lifetime of the financial asset;

• EAD is the amount due by the Group at the time of default;

• LGD is the expectation of the Group for the amount of the loss in case of exposure at default. The LGD

amount has been reduced by the insured portion of the financial asset.

The discount rate used to calculate the expected credit loss (ECL) is the instrument’s original effective interest

rate.

When determining the 12-month and lifetime PD, EAD and LGD for the instrument, forecast information has

been employed as well. The Group's management has conducted an historical analysis and has identified the

main economic variables affecting credit risk and expected credit losses.

The expected credit losses on certain loans classified in Phase 1 are determined on the basis of expected credit

losses resulting from possible default events which could occur within the next 12 months of the lifetime of the

relevant asset (12-month expected credit losses for the instrument).

Analysis of the expected losses on loans granted as at 31 December 2023:

In BGN’000

Loan

granted as

at

31.12.2023

Interest

rate

Probability

of default in

%

Loss given

default

Expecte

d

credit

losses

Discounted

credit loss

Loan

granted,

net

Company E

425

3,20%

1,00%

425

1%

4

421

Company F

221

3,20%

1,00%

221

1%

2

219

Total loans to non-related parties (note 12)

640

Energy-2 ООD

181

3,20%

1,00%

181

1%

2

179

М.О. Stara Zagora

OOD

2 500

2,50%+3m

Euribor

75,8%

2 500

75.8%

1

895

605

Farmpro ООD

1 644

3,20%

1,00%

1 644

1%

16

1 628

Total loans to related parties (note 37)

2 412

Total

4 971

1 919

3 052

GRADUS AD

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

42

36. Financial instruments (continued)

Analysis of the expected losses on loans granted as at 31 December 2022:

In BGN’000

Loan

granted as at

31.12.2022

Interest

rate

Probability of

default in %

Loss given

default

Expected

credit

losses

Discounted

credit loss

Loan

granted,

net

Company F

302

2,50%

1,00%

302

1%

3

299

Company C

2 725

2,00%

1,00%

2 725

1%

27

2 698

Company E

450

2,50%

1,00%

450

1%

4

446

Total loans to non-related parties (note 12)

3 443

Energy-2 ООD

883

2,50%

1,00%

883

1%

9

874

М.О. Stara Zagora

OOD

2 397

2,50%+3m

Euribor

56,86%

2 397

56.86%

1 363

1 034

Agro Invest- 7 ООD

271

2,50%

1,00%

271

1%

3

268

Total loans to related parties (note 37)

2 176

Total

7 028

1 409

5 619

Currency risk

Exposure to currency risk

Sometimes, the Group companies undertake transactions denominated in foreign currencies. The Group is

exposed to currency risk relating to possible fluctuations in exchange rates of foreign currencies. Currently, such

risk originates from fluctuations in the USD exchange rate upon trading in agricultural produce.

Liquidity risk

Liquidity risk is reflected in the adverse situation of the Group not being able to meet unconditionally all of its

liabilities as they fall due. The Group applies conservative liquidity management policy through which it

constantly maintains optimal cash levels. The Group does not experience a shortage of cash.

The following table contains the financial liabilities’ contractual maturities, including estimated interest

payments, but excluding the effect of netting arrangements:

31 December 2023

In BGN’000

Carrying

amount

Contractual

cash

flows

Within

6

months

6-12

months

1-2

years

2-5

years

Over 5

years

Bank loans

13 700

-

3 700

10 000

-

Lease liabilities

302

317

54

209

-

Payables to related

parties

614

-

Trade payables

4 674

-

Total

19 290

19 305

5 342

3 754

10 209

-

GRADUS AD

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

43

36. Financial instruments (continued)

31 December 2022

In BGN’000

Carrying

amount

Contractual

cash

flows

Within

6

months

6-12

months

1-2

years

2-5

years

Over 5

years

Bank loans

12 533

-

7 000

5 533

-

Lease liabilities

53

40

13

-

Payables to related

parties

356

-

Trade payables

4 432

-

Total

17 374

4 828

7 013

5 533

-

Interest rate risk

Generally, the Group has no significant interest-bearing assets. Therefore, revenue and operating cash flows are

to a large extent independent from changes in market interest rates. At the same time, the Group is exposed to

interest rate risk originating from its bank loans. Usually, they bear variable interest rates, which exposes its cash

flows to interest rate risk.

In BGN’000

Interest-bearing

Interest-free

Total

31 December 2023

Fixed

interest rate

%

Variable

interest rate

%

Related party receivables

1 807

605

3 466

5 878

Trade receivables

-

7 988

Loans granted

640

-

640

Cash and cash equivalents

-

1 996

-

1 996

Total financial assets

2 447

2 601

11 454

16 502

Bank loans

-

13 700

-

13 700

Lease liabilities

302

-

302

Trade payables

-

4 674

Payables to related parties

-

614

Total financial liabilities

302

13 700

5 288

19 290

In BGN’000

Interest-bearing

Interest-free

Total

31 December 2021

Fixed

interest rate

%

Variable

interest rate

%

Related party receivables

1 142

1 034

2 399

4 575

Trade receivables

-

9 381

Loans granted

3 443

-

3 443

Cash and cash equivalents

-

4 371

-

4 371

Total financial assets

4 585

5 405

11 780

21 770

Lease liabilities

-

12 533

-

12 533

Trade payables

53

-

53

Payables to related parties

-

4 432

Total financial liabilities

-

356

36. Financial instruments (continued)

GRADUS AD

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

44

Fair values

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable,

willing parties in an arm's length transaction. The policy of the company is to disclose in its separate financial

statements the fair value of financial assets and liabilities, primarily for which there are quoted market prices.

The fair value of financial instruments not traded on active markets is determined using valuation techniques

based on various valuation methods and management’s assumptions made on the basis of market conditions

prevailing at the balance sheet date.

The concept of fair value implies the realization of financial instruments through sale. In most cases, especially

in respect of trade receivables and payables, loans and deposits, the Company expects to realize these financial

assets through their full repayment or, respectively, repayment over time. That is why they are stated at their

amortised cost. The Company’s financial assets and liabilities are mainly short-term in nature (trade receivables

and payables, short-term loans) and therefore, it is assumed that their carrying amount approximates their fair

value. The Company's management considers that, under the existing circumstances, the estimates of financial

assets and liabilities included on the balance sheet are the most reliable, adequate and trustworthy as possible for

the purposes of financial reporting.

The fair value of financial instruments is determined in accordance with the valuation methodology

corresponding to Level 3 in the fair value hierarchy.

Fair values vs carrying amounts

The fair values of financial assets and liabilities, together with the carrying amounts included in the statement of

financial position, are as follows:

31 December 2023

31 December 2022

In BGN’000

Carrying

amount

Fair value

Carrying

amount

Fair value

Related party receivables

5 878

4 575

Trade receivables

7 988

9 381

Loans granted

640

3 443

Cash and cash equivalents

1 996

4 371

Total assets

16 502

21 770

Payables to related parties

614

356

Lease liabilities

302

53

Trade payables

4 674

4 432

Bank loans

13 700

12 533

Total liabilities

19 290

17 374

37. Related party transactions

Identification of related parties

GRADUS AD

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

45

For the purposes of preparing these consolidated financial statements, the owners, the companies under their

control, the senior management (key management staff) and close family members, including companies

controlled by them, are treated as related parties.

Related parties:

Type of relationship

Period

Luka Angelov Angelov

Equity owner

2022 г и 2023 г.

Ivan Angelov Angelov

Equity owner

2022 г и 2023 г.

Angel Ivanov Angelov

Equity owner

2022 г и 2023 г.

Georgi Aleksandrov Babev

Member of the Board of Directors and Executive director

2022 г и 2023 г.

Bistra Stoyanova Kotseva

Member of the Board of Directors

От 04.01.2023 г.

Gradus-1 EOOD

Subsidiary

2022 г и 2023 г.

Gradus-3 АD

Subsidiary

2022 г и 2023 г.

Millennium 2000 EOOD

Subsidiary

2022 г и 2023 г.

Gradus-98 АD

Subsidiary

2022 г и 2023 г.

Zhyuliv EOOD

Subsidiary

До 30.06.2023 г.

Lora-2004 EOOD

Subsidiary

До 30.06.2023 г.

Gold Farm 91 EOOD

Subsidiary

До 30.06.2023 г.

Gradus Logistics EOOD

Subsidiary as of 09 November 2020

2022 г и 2023 г.

Energy-2 ООD

Relationship through a person exercising significant influence

2022 г и 2023 г.

Agro Invest-7 OOD

Relationship through a person exercising significant influence

2022 г и 2023 г.

Ayazmo AD

Relationship through a person exercising significant influence

2022 г и 2023 г.

Ralitsa-2004 OOD

Relationship through a person exercising significant influence

2022 г и 2023 г.

Biser Oliva AD

Relationship through a person exercising significant influence

2022 г и 2023 г.

Equity Invest -1 AD

Relationship through a person exercising significant influence

2022 г и 2023 г.

Equity Invest -2 OOD

Relationship through a person exercising significant influence

2022 г и 2023 г.

M.O. Stara Zagora OOD

Relationship through a person exercising significant influence

2022 г и 2023 г.

Biser Distribution OOD

Relationship through a person exercising significant influence

2022 г и 2023 г.

LG Auto OOD

Relationship through a person exercising significant influence

2022 г и 2023 г.

Next Capital OOD

Relationship through a person exercising significant influence

2022 г и 2023 г.

LG Auto 2 OOD

Relationship through a person exercising significant influence

2022 г и 2023 г.

AA Invest EOOD

Relationship through a person exercising significant influence

От 04.01.2023 г.

AP Investments AD

Relationship through a person exercising significant influence

От 04.01.2023 г.

AP Capital AD

Relationship through a person exercising significant influence

От 04.01.2023 г.

Angels Estate AD

Relationship through a person exercising significant influence

От 04.01.2023 г.

ACIBADEM CITY CLINIC EAD

Relationship through a person exercising significant influence

От 04.01.2023 г.

Gallery Varna AD

Relationship through a person exercising significant influence

От 04.01.2023 г.

West Mall AD

Relationship through a person exercising significant influence

От 04.01.2023 г.

Farmpro OOD

Relationship through a person exercising significant influence

От 04.01.2023 г.

ACIBADEM CITY CLINIC

MLADOST EOOD

Relationship through a person exercising significant influence

От 04.01.2023 г.

ACIBADEM CITY CLINIC

UMBAL TOKUDA EAD

Mirena OOD – in liquidation

APL Capital AD

BGK AD

Vladista EOOD

Auto Spa Center OOD

Wolf OOD – in liquidation

Marieta EOOD

Trade home EOOD

Gold Agro – 2005 OOD

Relationship through a person exercising significant influence

От 04.01.2023 г.

2022 и 2023 г.

От 04.01.2023г.

До 04.01.2023г.

Remuneration to key management staff

The total remuneration accrued to key management staff amounts to BGN 2,816 thousand (2022: BGN 2,541

thousand).

37. Related party transactions (continued)

Related party transactions 2023

GRADUS AD

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

46

In BGN’000

Type of

transaction

Transactio

n amount

Total

receivables

Total payables

As at 31.12.2023

Agro Invest-7 OOD

Sales

425

100

-

Energy- 2 OOD

Sales

2 080

2 101

-

Energy- 2 OOD

Loan granted

-

179

-

М.О. Stara Zagora OOD

Loan granted

-

605

-

Biser Oliva AD

Sales

7

-

Equity Invest-1 AD

Sales

1

-

Equity Invest-2 OOD

Sales

1

-

Farmpro OOD

Sales

853

1 263

-

Farmpro OOD

Loan granted

-

1 628

-

Ivan Angelov Angelov

Sales

70

2

-

Agro Invest-7 OOD

Purchases

918

-

Farmpro OOD

Purchases

18

-

12

Biser Oliva AD

Purchases

5 531

-

602

Total balances related parties outside the

Group:

5 878

614

Including:

Loans granted

2 412

-

Trade receivables

3 466

-

Trade payables

-

614

Related party transactions 2022

In BGN’000

Type of

transaction

Transaction

amount

Total

receivables

Total payables

As at 31.12.2022

Agro Invest-7 OOD

Sales

390

422

-

Agro Invest-7 OOD

Loan granted

-

268

-

Energy- 2 OOD

Sales

1 579

1 954

-

Energy- 2 OOD

Loan granted

-

874

-

М.О. Stara Zagora OOD

Loan granted

-

1 034

-

Biser Oliva AD

Sales

6

-

Mirena OOD

Loan granted

81

-

Equity Invest-1 AD

Sales

1

-

Equity Invest-2 OOD

Sales

1

-

Ivan Angelov Angelov

Sales

212

23

-

Ivan Angelov Angelov

Dividents

-

114

Luka Agnelov Agnelov

Dividents

-

114

Agro Invest-7 OOD

Purchases

599

-

56

Biser Oliva AD

Purchases

4 704

-

72

Ralitsa 2004 ООD

Purchases

441

-

Total balances related parties outside the

Group:

4 575

356

Including:

Loans granted

2 176

-

Trade receivables

2 399

-

Trade payables

-

356

38. Contingent liabilities

GRADUS AD

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

47

As of 31 December 2023 and 31 December 2022 the Group has no contingent liabilities.

39. Events after the reporting date

There were no significant events occurring after 31 December 2023 that require additional adjustments and / or

disclosures in these consolidated financial statements.

DECLARATION

under Article 100n, par. 4, item.4 of the Public Offering of Securities Act

The undersigned,

Georgi Aleksandrov Babev – Executive Director of Gradus AD

Angel Ivanov Angelov – Chairman of the Board of Directors

and

Antoaneta Nikiforova Boeva – Chief Accountant of Gradus AD

DECLARE HEREBY, that to the best of our knowledge:

a. The annual consolidated financial statements for 2023, prepared in accordance with the applicable

accounting standards, accurately and fairly reflect the information on the assets and liabilities, financial

condition and profit of Gradus AD and the companies included in the consolidation;

b. The consolidated management report for 2023 contains a reliable overview of the development and

results of the activity of Gradus AD, as well as the condition of the companies included in the

consolidation, together with a description of the main risks and uncertainties it faces.

26 April 2024

A. Boeva G. Babev

/Chief Accountant/ /Executive Director/

A. Angelov

/Chairman of the Board of Directors/

CONSOLIDATED

ACTIVITY REPORT OF GRADUS AD

for 2023

2 
   
Table of Contents    
I.
  Introduction. General information about Gradus Group. ........................................................................................... 3 
1.1.
  Information about the Group ................................................................................................................................. 3 
1.2.
  Ownership and management of the parent company ............................................................................................. 4 
1.3.
  Subject of activity of the companies in the Group ................................................................................................. 4 
1.4.
  Shareholder structure of the parent company as of 31.12.2023. ............................................................................ 5 
1.5.
  Board of Directors ................................................................................................................................................. 5 
1.6.
  Audit Committee ................................................................................................................................................... 6 
II.
  Objective review of the development and results of the enterprise, as well as its condition, together with a 
description of the main risks it faces. ......................................................................................................................... 6 
2.1.
  Activity development............................................................................................................................................. 6 
2.2.
  Results of the activity ............................................................................................................................................ 6 
2.3.
  Key events that have affected the Group's results and that will affect future results ........................................... 10 
III. Analysis of the main financial and non-financial indicators for the result from operations, which are related to the 
economic activity, including information on ecology and employees related matters ............................................. 12 
IV. Important events, which have occurred after the date as at which the annual consolidated financial statements have 
been prepared ........................................................................................................................................................... 13 
V. Envisaged future development of the Group ............................................................................................................. 13 
VI. Research and development activities ........................................................................................................................ 13 
VII. Information about acquisition of own shares, as required by virtue of Art. 187e of the Commercial Act .............. 13 
VIII. Branches ................................................................................................................................................................ 13 
IX. Financial instruments used by the Company ............................................................................................................ 14 
X. Additional information pursuant to Appendix 2 of Ordinance 2 of FSC ................................................................... 14

3

I.

Introduction. General information about Gradus Group.

1.1.

Information about the Group

The management presents a report on the activities of Gradus Group for 2023.

Gradus Group includes the parent company and its five subsidiaries:

The parent company

Gradus AD (the “Company”) is a company registered in Bulgaria, in the Commercial Register of the Registry Agency with

UIC: 204882907 on 28 November 2017.

It is registered for an indefinite period of time.

Address of management:

Republic of Bulgaria,

6000 Stara Zagora, Industrial residential district, Gradus Poultry Slaughterhouse.

On 30 July 2018 with decision No. 770 - PD/ 0.07.2018, the Financial Supervision Commission entered Gradus AD as a

public company in the register of public companies and other issuers of securities under Art. 30, paragraph 1, item 3 of the

FSCA, kept by the FSC.

The shares of the Company are traded on the Main Market of the BSE - “Standard” segment and stock exchange code GR6.

Subsidiaries:

As of 31 December 2023 the subsidiaries are:

•

Millennium 2000 * (the Company) is registered as a limited liability company (OOD) with decision No.

1976/20.12.2001 in the Sliven District Court under company case 948/2001. On 14 December 2017, it was registered in the

Commercial Register as a sole-owner limited liability company (EOOD) with sole owner of the capital Gradus AD.

Address of management: Stara Zagora, Industrial district, Gradus Poultry Slaughterhouse

• Gradus-1 * (the Company) is registered with the Pazardzhik District Court under company case 732/1995. On 14

December 2017, its legal form was changed to a sole-owner limited liability company (EOOD) with sole owner of

the capital Gradus AD.

Address of management: Stara Zagora, Industrial district, Gradus Poultry Slaughterhouse

• Gradus-3 ** (the Company) was established on 20 April 1999 by a decision of the Stara Zagora District Court

under company case 895/1999.

Address of management: Stara Zagora, Industrial district, Gradus Poultry Slaughterhouse

•

Gradus-98 * (Biser Oliva-98 AD) was registered on 10 July 1998, with a decision of the Stara Zagora District Court

under company case No. 1399/1998. With a decision of the General Meeting of Shareholders in the Joint Stock Company

held on 08 August 2017, the General Meeting of Shareholders decided to change the name of the company from Biser Oliva-

98 AD to Gradus-98 AD, entered in the Commercial Register on 06 September 2017.

Address of management: Stara Zagora, Industrial district, Gradus Poultry Slaughterhouse

•

Gradus Logistics EOOD * (the Company) is registered in the Commercial Register with sole owner of the capital

Gradus AD.

Address of management: Stara Zagora, Industrial district, Gradus Poultry Slaughterhouse

*

Effective percent of participation

** indirect participation

4

Management bodies of the parent company

•

General meeting of the shareholders

•

Board of Directors

1.2.

Ownership and management of the parent company

Gradus AD (the parent company) has a one-tier management system with a Board of Directors consisting of three (3)

members. The management of the parent company with regard to the Board of Directors has the following composition as

of 31 December 2023:

•

Angel Ivanov Angelov – Chairman of the Board of Directors of Gradus AD

•

Georgi Aleksandrov Babev - Member of the Board of Directors and Executive Director of Gradus AD

•

Bistra Stoyanova Kotseva - Member of the Board of Directors of Gradus AD

The parent company has the following capital participation in the subsidiaries:

•

Millennium-2000 EOOD - 10 shares with a nominal value of BGN 500 each representing 100% of the capital of

Millennium-2000 EOOD;

•

Gradus-1 EOOD - 100 shares with a nominal value of BGN 50 each representing 100% of the capital of Gradus-1

EOOD;

•

Gradus AD participates indirectly in the capital of Gradus-3 AD through a subsidiary Gradus-1 EOOD - owning

96.00% of the capital of Gradus-3 AD;

•

Gradus-98 AD - 49,967 ordinary material registered voting shares with a nominal value of BGN 10 each

representing 99.94% of the capital of Gradus 98 AD;

•

Gradus Logistics EOOD - 400 shares with a nominal value of BGN 100 each representing 100% of the capital of

Gradus Logistics EOOD.

1.3.

Subject of activity of the companies in the Group

The main activity of the companies in the Group is concentrated in the Poultry sector, with the exception of companies whose

activity also includes "compound fodder production and trade" and “renting of vehicles”

The subject of activity of the companies in the Group is as follows:

•

Millennium 2000 EOOD - the main activity of the company is poultry farming - raising parents for broilers,

production and sale of breeding eggs, production and sale of fattened broilers;

•

Gradus-1 EOOD - the main activity of the company is processing and sale of poultry meat products;

•

Gradus-3 AD - the main activity of the company is the production of compound fodder intended for the market

and containing grains and fodder additives in a ratio according to certain and approved recipes. For the exercise of the activity

the company is entered in the register under Art. 19, paragraph 11 of the Fodder Act and has received a certificate for approval

No. 00041 of 26 January 2007 from the National Grain and Fodder Service.

•

Gradus-98 AD - the main activity of the company is production, processing and sale of all types of agricultural

and animal products.

•

Gradus Logistics EOOD - the main activity of the company is rental of vehicles.

The parent company and the subsidiaries operate in Bulgaria.

5

1.4.

Shareholder structure of the parent company as of 31.12.2023.

1.5.

Board of Directors

Gradus AD has a one-tier management system with a Board of Directors. The Board of Directors

consists of three (3) members as of 31 December 2023:

•

Angel Ivanov Angelov - Chairman of the Board of Directors of Gradus AD

•

Georgi Aleksandrov Babev - Member of the Board of Directors of Gradus AD and Executive Director of Gradus AD

•

Bistra Stoyanova Kotseva – Member of the Board of Directors of Gradus AD

The participation of the members of the Board of Directors in business companies as unlimited liable partners, the

ownership of more than 25 percent of the capital of another company, as well as their participation in the management of

other companies or cooperatives such as procurators, managers or board members:

Angel Angelov

1.1. As an unlimited liable shareholder - NO

1.2. Directly owns more than 25 percent of the capital of:

"Equity Invest-2" OOD (UIC 204746138), "Energy-2" OOD (UIC 123655788), ,,Agro Invest-7" OOD (UIC 123654743),

"Ralitsa 2004" OOD (UIC 123658631), "Biser Distribution" OOD (UIC 200090633), "AP Investments" AD (UIC

203580119), "AA Invest 1" EOOD (UIC 206791146), "AP Capital" AD (UIC 206420290), "MIRENA" OOD - in liquidation

(UIC 123655806)

1.3. Participates in managing bodies of:

"Ajazmo" AD (UIC 201974859), "Ecuity Invest 1" AD (UIC 204750154), "Biser Distribution" OOD (UIC 200090633),

"Galeria Varna" AD (UIC 204702565), "Farmpro" OOD (UIC 123761581), "M.O. Stara Zagora" OOD (UIC 123753969),

"Gradus-98" AD (UIC 123120561), "Biser Oliva" AD (UIC 123036597), "Gradus" AD (UIC 204882907), "ACIBADEM

CITY CLINIC MLADOST" EOOD (UIC 206222487), "ACIBADEM CITY CLINIC" EAD (UIC 203279315),

"ACIBADEM CITY CLINIC UMBAL TOKUDA" EAD (UIC 175077093), "AP Investments” AD (UIC 203580119), “AA

Invest 1” EOOD (UIC 206791146), “AP Capital” AD (UIC 206420290), “APL Capital” AD (UIC 206726483), “Angels

Estate” AD (UIC 201009171), “West Mall” AD (UIC 207366073), “BGK” AD (UIC 207064349), “GRADUS – 3” AD

(UIC 123152751)

Georgi Aleksandrov Babev

1.1.

As an unlimited liable shareholder – NO

1.2. He directly owns over 25 percent of the capital of:

LG Auto OOD (UIC 205395076), Next Capital OOD (UIC 206378635), LG Auto 2 OOD (UIC 206928367)

1.3. He participates in managing bodies of:

“GRADUS” AD (UIC 204882907), LG Auto OOD (UIC 205395076), Next Capital OOD (UIC 206378635), LG Auto 2 OOD

(UIC 206928367), MILENIUM 2000 EOOD (UIC 119591422).

1.70%

40.77%

20.68%

14.35%

1.82%

Gradus AD

Luka Angelov Angelov

Ivan Angelov Angelov

Angel Ivanov Angelov

Legal entities

Individuals

6

Bistra Stoyanova Kotseva

1.2.

As an unlimited liable shareholder – NO

1.2. Directly owns over 25 percent of the capital of - NO

1.3. Participates in managing bodies of:

“GRADUS” AD (UIC 204882907)

1.6.

Audit Committee

The Audit Committee is composed of:

•

Hristina Atanasova Filipova - Chairman of the Audit Committee;

•

Ivaylo Nikolaev Nikolov - Member of the Audit Committee;

•

Radka Dimcheva Peneva - Member of the Audit Committee.

II.

Objective review of the development and results of the enterprise, as well as its condition, together

with a description of the main risks it faces.

2.1.

Activity development

The companies of Gradus Group have modern production units and are also constantly striving to expand and modernize

their production facilities.

2.2.

Results of the activity

For the period 01.01.2023 - 31.12.2023, the Group reported an operating loss of BGN 13 199 thousand and net loss in the

amount of BGN 12 471 thousand. (for the period 01.01.2022 - 31.12.2022 the Group reported an operating profit of BGN

19,629 thousand and a net profit of BGN 17,894 thousand).

Consolidated results of Gradus plc were impacted by:

- Limited exports of breeder eggs to third countries due to low selling prices not providing economic benefit to the Group.

- Losses from restocking with feed raw materials purchased in 2022 at substantially higher prices than their market prices in

the 2023 reporting period;

- Impairment of grains and components in the subsidiary Gradus-3 S.A. in the amount of BGN 4,832 thousand. The carrying

amount of these assets was adjusted to their net realisable value as at 31.12.2023.

The impairment of BGN 4 832 thousand will be reflected in improved results in 2024.

- Impairment of the AZ YAM trademark in the amount of BGN 7,926 thousand.

Due to the lack of competitive advantages in the current macroeconomic and geopolitical environment, a decision has been

taken to limit the range of products produced with pork under the brand name "Az Yam!". This necessitates an impairment of

the carrying value of the brand. As at 31.12.2023, it was reduced by BGN 7 926 thousand.

7

REVENUE

The reported sales revenue of the Group in 2023 amount to BGN 144 293 thousand and include:

2023

2022

Change

%

Relative share

for 2023

%

Sales revenue

Revenue from sales of products

138 504

148 214

-7%

96%

Revenue from sales of goods

4 450

641

594%

3%

Revenue from sales of services

1 339

1 089

23%

1%

Total sales revenue

144 293

149 944

-4%

100%

Revenues from sales of production for the reporting period decreased by BGN 9,710 thousand or by 6.55% compared to the

same period of 2022, reflecting the unrealized due to economic inefficiencies transactions in third party markets in the

Breeding Eggs segment.

Revenues from sales of goods for the period increased by BGN 3,809 thousand or 594.23% compared to the same period of

2022, reflecting the transactions realized in the Grains and Components segment in the domestic market.

Revenue from sales of services for the reporting period increased by BGN 250 thousand or 22.96% compared to the same

period in 2022.

Geography of sales

2023

2022

Change

Relative share

2023

%

BGN'000

%

Domestic market

92 551

96 148

-4%

64%

Europe

36 980

29 001

28%

26%

Third countries

14 762

24 795

-40%

10%

Total

144 293

149 944

-4%

100%

92 551

36 980

14 762

96 148

29 001

24 795

DOMESTIC MARKET EUROPE THIRD PARTIES

GEOGRAPHY OF SALES

2023 2022

8

Reported revenue by key segments

Segments

2023

BGN’000

2022

BGN’000

Change

%

Relative share

2023

%

Meat and meat products

84 371

88 374

-5%

59%

Breeding eggs

53 735

59 127

-9%

37%

Grains and components

4 811

1 278

276%

3%

Other

1 376

1 165

-18%

1%

Total

144 293

149 944

-4%

100%

For the reporting period, the segment with the largest share of sales revenue by major segments was „Meat and meat

products“ with 58.47% of the total revenue of BGN 144,293 thousand (For the same period of the previous year, the

segment with the largest share of sales was „Meat and meat products“ – 58.94% of the total revenue of BGN 149,944

thousand).

REVENUE BY KEY SEGMENTS AND BY MARKETS

Main segments

Domestic market

Europe

Third countries

2023

2022

2023

2022

2023

2022

BGN'000

Meat and meat products

83 182

87 469

1 007

774

182

131

Breeding eggs

3 182

6 236

35 973

28 227

14 580

24 664

breeding eggs

2 819

5 381

13 776

10 093

14 580

24 664

one-day-old chicks

363

855

22 197

18 134

-

Grains and components

4 811

1 278

-

Total

91 175

94 983

36 980

29 001

14 762

24 795

Segments “Meat and meat products”

The realized sales revenues in the meat and meat products segment in the period recorded an increase of 4.53 % or

BGN 4 003 thousand compared to the previous 2022 year.

The uncertainty caused by the coronavirus infection and dynamic prices on global markets suggests future volatility in

the price levels of meats and meat products.

The high production costs of raw materials and auxiliary materials limited the assortment of products under the brand

"I eat" in "Gradus – 1" EOOD. The released capacities as a result enable the company to focus on the production of

final products with higher demand, higher added value and margins.

84 371

53 735

4 811

88 374

59 127

1 278

MEAT AND MEAT PRODUCTS BREEDING EGGS GRAIN AND COMPONENTS

REVENUE BY MAIN SEGMENTS

2023 2022

9

The management expects the strategic reorientation of the subsidiary to continue this year and to lead to positive results

in the medium term.

Segments “Breeding eggs”

Breeding eggs

Realized sales revenues in this segment for the reporting period decreased by 9.12% or by BGN 5 392 thousand

compared to the same period of the previous year.

Breeding eggs

Realized revenues from sales of breeding eggs for the reporting period decreased by 22.33% or by

BGN 8 963 thousand compared to the same period of the previous year. In the current year, volatile prices of breeding

eggs were observed on the international markets.

Revenues from sales of breeder eggs on the domestic market registered a decline of 47.61% or BGN 2 562 thousand

compared to the same period of 2022.

During the reporting period, the revenue from sales of breeder eggs on the European market increased by 36.49% or

BGN 3 683 thousand compared to the same period of 2022.

The Group reported a decrease in revenues from sales of breeder eggs to third countries for the period under review by

40.89% or BGN 10,084 thousand compared to the same period of 2022.One-day old chickens

The Group realized an increase in revenue from sales of day-old chicks in the amount of BGN 3 571 thousand or 18.81%

compared to the same period in 2022.

Realized revenue from sales of day-old chicks in the domestic market decreased by 57.54% or by BGN 492 thousand

compared to the same reporting period in 2022.

Sales of day-old chicks in Europe recorded an increase in revenues by 22.41% or by BGN 4,063 thousand compared to

the same reporting period in 2022.

Segments “Grains and components”

For the reporting period, the Group's sales in the Grains and Components segment increased by 276.45% or by BGN

3,533 thousand compared to the same period of 2022.The Group does not focus on this segment of its activities, but if

there are good opportunities for transactions in this segment, they will be utilized.

The processes of optimization and restructuring in order to reduce costs and increase revenues continue.

The other income from operations amounts to BGN 10 937 thousand and include:

Change

Relative

OTHER INCOME

2023

2022

%

share 2023

%

Other operating income

Income from financing

8,740

25,101

-65%

80%

Gains on sale of materials and fixed tangible

assets, net

850

956

-11%

8%

Rentals

594

924

-36%

5%

Gain on sale of investment properties

413

231

79%

4%

Excess inventories

32

478

-93%

-

Derecognition of liabilities

190

110

73%

2%

Other

413

231

79%

4%

Total other operating income

10,937

27,984

-61%

100%

EXPENSES

Operating expenses

10

In 2023, the Group reported the following expenses:

EXPENSES

2023

2022

Change %

Relative

share/2023

%

Operating costs

Costs by economic elements

Costs of raw materials and supplies

97 443

117 561

-17%

52%

Hired service expenses

7 546

7 367

2%

4%

Staff costs

36 353

33 000

10%

19%

Depreciation / amortisation expenses

8 567

8 379

2%

5%

Book value of goods sold

4 571

520

779%

2%

Impairment of assets

31 213

32 129

-3%

16%

Others

3 762

3 508

7%

2%

Total costs by economic elements:

189 455

202 464

-6%

100%

During the period under review, operating expenses decreased by BGN 13,009 thousand or by 6.43% compared to the

same period in 2022.

The cost of raw materials and supplies decreased by BGN 20,118 thousand or 17.11% compared to the same period in

2022;

The cost of external services increased by BGN 179 thousand or 2.43% compared to the same period in 2022;

Personnel expenses in the reporting period of 2023 increased by BGN 3 353 thousand or by 10.16% compared to the

same period of 2022.

Depreciation and amortization expenses increased marginally by BGN 188 thousand or by 2.24% over the same period

in 2022.

The carrying amount of goods sold increased by BGN 4,051 thousand or by 779.04% compared to the same period of

2022. This is due to the sales of goods located in the "Grains and components" segment.

Other operating expenses increased by BGN 254 thousand or by 7.24% in the reporting period compared to the same

period of 2022.

FINANCE INCOME AND FINANCE COSTS

Finance income

2023

2022

Change

%

Relative

share/2023

%

Interest income on loans granted

215

176

22%

100%

Gains on changes in exchange rates

-

86

-

Total finance income:

215

262

-18%

100%

Finance costs

2023

2022

Change

%

Relative

share/2023

%

Interest expenses on loans received

98

57

72%

37%

Bank fees on loans

101

56

79%

38%

Negative exchange differences

44

-

17%

Interest on leases

3

-

1%

Other finance costs

18

8

125%

7%

Total finance costs:

264

124

113%

100%

2.3.

Key events that have affected the Group's results and that will affect future results

2.3.1. Investments

11

In 2022. The Group has made investments to expand its core business in the following areas: acquisition of FTAs

(buildings, machinery, equipment, vehicles) and management system (ERP).

2.3.2. Factors that will positively affect the results

The group is currently in the process of fully introducing a Management and Control System (Microsoft Dynamics

NAV 2018). At the date of preparation of this declaration, the ERP software was implemented in six companies (at

individual level).

For the subsidiary Gradus-1 EOOD, the implementation in the production processcontinues.

Periodic renegotiation of commercial terms for the services provided to us in order to optimize and cost efficiency.

The group is in an ongoing process of optimisation and a change in the way it operates in order to reduce costs and

increase its revenue.

2.4. Risk factors for activity

The Risk Management Group's policy is aimed at identifying and analysing the risks to which the Group is exposed

in order to establish risk-taking limits. On the basis of the analysis of these risks, the Group shall develop and

implement appropriate controls to address these risks.

Continued uncertainty regarding expected economic developments at national, regional and global level, as well as

the observed inflation processes, are challenging in determining the Group's strategy and may therefore affect its

performance. The geopolitical risk associated with the conflict in Ukraine can have a negative effect on the economic

processes in Bulgaria and the region, as well as in particular on supply chains in a number of sectors of the economy,

and thus affect the group's activities. Despite the weakening of the Covid-19 pandemic, its impact remains broad and

continues to poses significant challenges not only for supply chains, but also for the global economy as a whole. This

uncertainty creates risks that the Group analyses and assesses their impact.

Credit risk

Credit risk arises mainly from receivables from customers. The exposure to credit risk is a result of the individual

characteristics of each individual customer.

The Group manages credit risk mainly by setting credit limits for each customer individually depending on the volume

of sales and its credit history, as well as by constant control over late payments.

Currency risk

In some cases, the Companies in the Group carry out transactions denominated in foreign currency. The Group is

exposed to currency risk related to possible fluctuations in the exchange rate of foreign currencies. At present, this risk

is associated with fluctuations in the US dollar exchange rate used by the Group in the trade in agricultural production.

Liquidity risk

Liquidity risk is the risk that the Group companies will have difficulty in meeting their obligations related to financial

liabilities. The approach to liquidity management is aimed to ensure, as far as possible, that there is sufficient liquidity

to meet obligations, both under normal and stressful conditions, and without incurring unacceptable losses or damaging

the Group's reputation. For this purpose, the subsidiaries maintain credit facilities and use short-term loans from banks.

Market risk

Market risk is the risk that changes in market prices, such as foreign currency exchange rates, interest rates or prices

12

of equity instruments, the Companies’ income or the value of their investments, will be affected. The prices of the

goods are monitored by the management of the Group. Sales are managed locally by using competitive market prices.

The main factors determining the changes in prices are the changes in the prices of the competitors, as well as the

changes in the prime cost of the products.

Political risk

The political risk is the likelihood of a change of Government, or a sudden change in its policy, of internal political

turmoil and adverse changes in European and/or national legislation, with the result that the environment in which local

businesses operate will change negatively and investors suffer losses.

The political situation on the Export Markets of the Group has a significant effect on the operations and financial

position of the Group. Russia is still inaccessible as a breeding egg market for the group.

At the date of the report, the Russian invasion of Ukraine created preconditions for uncertainty and negative

consequences for Bulgaria in many dimensions, including economic.

During the reporting period, the Group did not generate any revenue from sales in Ukraine (BGN 5.08 million in the

same reporting period of 2022 and BGN 6.9 million in the same reporting period of 2021). Typically, these sales are

located in the Breeding Eggs segment.

Macroeconomic risk

This is the risk of macroeconomic shocks, which are measured by economic stability and the growth prospects of the

national economy. Trends in the macroeconomic environment directly or indirectly influence the formation and change

of market conditions, as well as the investment climate.

III. Analysis of the main financial and non-financial indicators for the result from operations, which are related

to the economic activity, including information on ecology and employees related matters

3. 1. Analysis of the main indicators

• Profit margin (Profit before taxes/Sales)

2023

2022

Profit before taxes

(13 248)

(314)

Income

144 293

149 944

Gross profit margin

-9.18%

-0.21%

•

EBITDA margin (EBITDA- Earnings before finance costs, taxes, depreciation / amortization / Sales)

2023

2022

EBITDA (Earnings before finance costs, taxes, depreciation /

amortization)

(4 632)

7 927

Income

144 293

149 944

EBITDA margin

-3.21%

5.29%

Main indicators followed by the Group's Management with respect to the debt amount and the financial stability:

13

• Net debt (total debt minus funds)/EBITDA

2023

2022

Net debt

11 604

7 905

EBITDA (Profit before financial expenditure, taxation and

amortization)

(4 632)

7 927

Net debt/EBITDA

-2.51

1.00

• Debt/assets ratio (total liabilities/total assets). By using this indicator the Management follows the part of

the assets financed by a debt in some form.

31.12.2023

31.12.2022

Total liabilities

39 728

40 622

Total assets

326 298

359093

Debt/assets ratio

0.12

0.11

3.2. Non-financial Declaration

Gradus presented a Consolidated Non-financial Declaration as a separate document deemed an integral part of the

present Report.

The Consolidated Non-financial Declaration includes a description of the Group's Policies and their objectives as

regards the activities implemented for environmental protection, the social issues and those connected with employees,

their rights, gender equality.

IV. Important events, which have occurred after the date as at which the annual consolidated financial statements

have been prepared

There are no material events that have occurred since 31 December 2022 that require additional adjustments and/or

disclosures in this consolidated financial statements.

V. Envisaged future development of the Group

The Group's management continues its policy of effectively and successfully achieving its main goals:

- increasing the number of main flocks, increasing the number of fattened broilers, increasing the production and

marketing of breeding eggs, as well as achieving full compliance with all European standards for the protection of the

environment and the environment;

- full utilization of production capacities;

- development of existing and new business lines related to the production of high-margin food products.

VI. Research and development activities

For the period under review there were no scientific researches and developments taken place within the Group.

VII. Information about acquisition of own shares, as required by virtue of Art. 187e of the Commercial Act

In 2023, Gradus AD acquired 4,135,294 treasury shares at an average price of BGN 1.46 per share.

As of 31.12.2023 Gradus AD holds 1.70% of the voting rights of the company. Pursuant to the provision of Article 187a

paragraph 3 of the Commercial Act, the exercise of rights, including voting rights, shall be suspended for the repurchased

treasury shares in the amount of 4,135,294 shares until the moment of their transfer.

During the year under review, the Company did not sell any treasury shares.

VIII. Branches

The Company has no branches.

14

IX. Financial instruments used by the Company

Financial instruments are described in detail in the note "Financial instruments" to the accompanying consolidated

financial statements.

X. Additional information pursuant to Appendix 2 of Ordinance 2 of FSC

1. Information, in terms of value and quantity, of the basic categories of goods, products and/or services provided,

with an indication of their share in sales revenue of the issuer, respectively the entity under § 1e from the

additional regulations of POSA, as a whole and the changes, which have occurred during the reporting financial

year

The information on the value of sales, indicating their share, is set out in this Report in Section II.

2. Information on revenue, broken down by category of activity, domestic and foreign markets, as well as

information on the sources of supply of materials necessary for the production of goods or the provision of

services with an indication of the degree of dependency in respect of each individual seller or buyer/user, and if

the relative share of any of them exceeds 10 per cent of the sales expenses or revenue, information on each person

separately, its share in sales or purchases, and its relationships with the issuer, respectively the entity under § 1e

from the additional regulations of POSA.

Information on revenue is disclosed in Section II. hereof.

Main suppliers

In view of the vertical integration of the Group, the main products taking direct part in the production process, which are

provided by external suppliers, are the raw materials for the production of fodder, one-day old parent birds, as well as pork

meat, additives and subsidiary materials for the production of sausages.

The raw materials supplied by external companies for preparation of fodder are mostly agricultural production and in

particular – mixtures and additives selected by technologists.he agricultural production, which is purchased from external

suppliers, includes sunflower, corn, wheat, and barley. There is great offering of agricultural production, and the Group

maintains relations with a number of local and foreign suppliers, thus allowing it to purchase the optimum price/quality

ratio. The suppliers in question have no material impact upon negotiation of the prices of their production, as the production

processes of the Group do not depend on a given supplier. The offering of mixtures and additives in the required quantities

is more limited, but the additives used may be often replaced by others without having any material impact on the food

qualities of the fodder. Owing to the expert opinion of the technologists of the Group, the Company replaces those additives

that have grown more expensive with alternative ones, thus decreasing the level of dependency on a given supplier of

mixtures and additives. The main suppliers of additives of the Company are "Viand" EAD, "Biser Oliva" AD and "Mixxa"

EOOD.

One-day old parent birds, which are consequently bred with the purpose of production of breeding eggs, are of significant

importance for the entire production cycle of the Group. Birds are imported from EU member states, as in 2023 the Group

imported a total of 956 thousand one-day old parent birds (2022: 944 thousand).

950

1107

1105

944

956

2019 2020 2021 2022 2023

ONE DAY OLD PARENTS IMPORTED IN THOUSAND

15

Birds are supplied all year round according to a schedule. The offering of pure-breed birds in the required quantities is

limited and the Group's dependency on its suppliers may be defined as significant. In order to decrease this dependency,

the Group has built and maintains long-term relations with its trading partners, as the Group is a main client, thus allowing

negotiation of preferential prices and terms of supply. The Group imports one-day old parent birds mostly from Hungary,

as its main supplier is Aviagen.

There are requirements established at the Group for ethical and responsible behaviour both on the part of employees and

suppliers, which directly or indirectly also include the other companies within the Group. The Company's Management has

developed norms and rules of behaviour intended for the personnel and suppliers, as all companies rendering

products/services to the Company are obligated to observe them. All external suppliers of the Group are selected under

conditions of free market choice. Selected suppliers are assessed according to a methodology of implemented IFQSMS

(Integrated Food Quality and Safety Management System), and depending on the obtained results the Management

distinguishes two types of suppliers:

• main - suppliers with proven reliability and offering products/services of the best price/quality ratio;

• episodic – suppliers with their services used for the satisfaction of unforeseen needs.

Depending on the level of impact on the work process, the products/services are divided into two types, namely:

• taking direct part in the production process – red meat, additives, etc.;

• having an indirect impact on the quality of the manufacturing process – e.g. technical equipment, appliances,

consumables, etc.

The control on the performance of supplies is exerted by the person receiving the product/service, as the execution of

quality control is verified via internal audits, which are carried out according to established practices. The Group usually

enters into frame agreements with its suppliers for a term of one or several years, as the prices and quantities for a given

year are specified in the annexes to the agreement, which are updated on an yearly basis. The manufacturing enterprise of

the Group supplies the following main categories of raw materials, materials and services from suppliers that are external

to the Group:

• Main raw materials – red meat;

• Additional raw materials – seasonings, supplements, additives, etc.;

• Subsidiary materials – packages, covers, labels, etc.;

• Services – electricity, gas, water, transportation activity, etc.;

• Technological equipment;

The Company's policy in the field of supply through suppliers external to the Group is directed towards ensuring supplies

from at least two sources and in sufficient quantities, in case of any problem with a given supplier. The necessary

products/services are supplied by companies registered according to the Food Act and based in EU member states, approved

for trade with the EU member states. All suppliers the Company works with offer products/services that correspond to the

requirements of the national laws and the European legislation and, if applicable, to the IFQSMS introduced to the

Company, according to ISO 9001:2015, ISO 22000:2005 and IFS 6:2014. Based on the principle of "timely supply", the

Group does not store any significant quantities but orders in advance on a two-three month basis.

The main suppliers of the Poultry Slaughterhouse and Meat processing enterprise of the Group are as follows:

-

of main raw materials – Nova Targovska Kompaniya 2004 AD

-

of additional raw materials – Campus Balkani EOOD, Tea Trading LTD, German Bulgarian Business Group

Ltd.

-

of subsidiary materials - Skipter LTD, Intrama Invest EOOD, Sidorenko Foodtech EOOD, Bulpro 2004 Ltd.

The production company is supplied with water from its own water source, as the water corresponds to the quality of

drinking water according to the requirements of Ordinance No.9/2001 of the Ministry of Health, the Ministry of Regional

Development and Public Works, and the Ministry of Environment and Water. In case of missing water supply, the site is

provided with sufficient quantities of reserve drinking water from the urban public water main.

In view of the above-described established practices and the strong offering of the products and services, which are supplied

by external companies, the production of the Group does not depend on a given supplier. For the last years, the Group has

not had any significant problems with its suppliers and believes that, unless unforeseen circumstances occur, every

approved supplier may provide the necessary quantity on time and with due quality.

16

3. Information on significant transactions

In 2023, no major transactions were concluded essential for the group's activities

4. Information on transactions concluded between the issuer, respectively the entity under § 1e from the additional

regulations of POSA, and related parties over the reporting period, proposals for concluding such transactions, as

well as transactions that are outside its normal business or substantially deviate from the market conditions to which

the issuer or its subsidiary is a party, with an indication of the value of the transactions, the nature of the

relationship, and any other information necessary to assess the impact on the financial position of the issuer,

respectively the entity under § 1e from the additional regulations of POSA

Information on the deals concluded between Gradus Group and related parties in the period under review is announced in

the Note “Related Parties” to the consolidated annual financial statements.

5. Information on events and indicators of unusual nature for the issuer, respectively the entity under § 1e from the

additional regulations of POSA, having a significant impact on its activity, and revenue and expenses incurred; an

assessment of their impact on the current year results

There were no events and indicators of unusual nature, having influence over the Group.

6. Information on off-balance sheet transactions – nature and business goals; an indication of the financial impact

of these transactions on the activity, if the risks and rewards of these transactions are material to the issuer,

respectively the entity under § 1e from the additional regulations of POSA, and if the disclosure of that information

is essential for the assessment of the financial position of the issuer, respectively the entity under § 1e from the

additional regulations of POSA

There were no such transactions.

7. Information on the shareholdings of the issuer, respectively the entity under § 1e from the additional regulations

of POSA, with respect to its major investments in the country and abroad (in securities, financial instruments,

intangible assets and real estate), as well as investments in equity securities outside its group of companies within

the meaning of the Accountancy Act and the sources/methods of financing

Information on share participation of Gradus AD is disclosed in Section I.

8. Information about the concluded by the issuer, by its subsidiary or parent undertaking, in their capacity of

borrowers, loan contracts with indication of the terms and conditions thereof, including the deadlines for repayment

as well as information on the provided guarantees and assuming of liabilities

Information on loan agreements entered into by the subsidiary companies is given in the Note “Bank Loans” to the

consolidated annual financial statements.

9. Information on loans granted by the issuer, respectively the entity under § 1e from the additional regulations of

POSA, or by their subsidiaries, provision of guarantees or assumption of obligations to one person or to its

subsidiary, including related parties, with an indication of the name and UIC of the person, the nature of the

relationship between the issuer, the entity under § 1e from the additional regulations of POSA, or their subsidiaries,

and the borrower, the amount of outstanding principal, interest rate, contract date, repayment deadline, amount of

the commitment, specific terms and conditions, other than those provided for in this provision, as well as the purpose

for which they were granted, in case they were concluded as target ones.

Information about loans granted by the Group is given in the disclosures to the consolidated annual financial statements.

10. Information on the use of the funds from a new issue of securities during the reporting period

During the reporting period, there was no new issue of securities

17

11. Analysis of the ratio between the financial results achieved, as reported in the financial statements for the

financial year, and the estimates of such results published earlier.

There are no forecasts published by the Group for the respective period.

12. Analysis and evaluation of the financial resource management policy with an indication of the ability to service

the liabilities; potential threats and measures the issuer, respectively the entity under § 1e from the additional

regulations of POSA, has taken or is about to take with a view to their elimination

The Group's management currently monitors the collectability of the receivables and controls the servicing of the liabilities

under bank loans and its tax liabilities.

13. Assessment of the possibilities for realization of investment intentions with indication of the amount of available

funds, as also of any changes in the financing structure of this activity

The planned Investment Program of Gradus Group for 2023 includes investments for the acquisition of tangible fixed assets

(buildings, machinery, equipment, vehicles).

14. Information about changes occurred in the period under review in the main principles of management of the

emitter and its economic group.

Gradus AD manages its investments by setting high but achievable goals as regards the quality, productivity and

profitability. Special attention is paid to environmental protection, development of human resources and corporate social

liability.

15. Information on the main characteristics of the internal control system and risk management system applied by

the issuer, respectively the person under § 1e of the additional provisions of POSA, in the process of preparing the

financial statements.

The Group has an established internal control and risk management system. Regarding the financial reporting process,

financial statements are drawn up in accordance with International Financial Reporting Standards. The current financial

and accounting activity of the company is subject to periodic control and analysis by the management body. The company

has implemented a well-established practice for periodic discussion of the current financial performance of the companies

included in its strategic investment portfolio with a view to ensuring the implementation of their business programmes and

a precise analysis of the possibilities for the implementation of future investment projects.

16. Information on changes in management and supervisory bodies during the reporting financial year. .

During the financial year under review, there were changes in the management and supervisory bodies as follows:

An Extraordinary General Meeting of Shareholders was held on 19 December 2022, where the following resolutions were

passed in relation to the dismissal of members of the Board of Directors of Gradus plc and the election of new members of

the Board of Directors of Gradus plc.

The following persons are hereby released:

- Luka Angelov Angelov - "Deputy Chairman of the Board of Directors" of Gradus AD;

- Ivan Angelov Angelov - "Chairman of the Board of Directors" and "Executive Director" of Gradus AD.

The elected new members of the Board of Directors are:

- Angel Ivanov Angelov - "Chairman of the Board of Directors" of Gradus AD;

- Bistra Stoyanova Kotseva - "Deputy Chairman of the Board of Directors" of Gradus AD.

The change was registered on the Company's account in the Commercial register and register of NPLE on 04.01.2023 with

entry No. 20230104143850.

Detailed information on the members of the Board of Directors is presented in Section IX, Item 6 of the Report.

Detailed information on the members of the Board of Directors is provided in Section I, Item 1.3 of the Report.

A Management Board/Council was also established in 2023 as the corporate governance structure of the Gradus Group.

The following have been elected as its members:

1. Stoyka Stanilova Dencheva

18

2. Krasimira Stanilova Kirkova

3. Radka Dimcheva Peneva

4. Martin Vladimirov Dimitrov

5. Georgi Ganchev Dyulgyarov

The Management Board was established on the basis of Article 32, Clause 19 of the Articles of Association of Gradus AD

to assist the Board of Directors in achieving the Company's objectives with its expertise.

The purpose of the Management Board is to contribute to the efficient and quality management of the Gradus Group.

The work of the Management Board is based on effective interaction between its members and the Board of Directors of

Gradus plc to achieve the Group's strategic objectives.

17. Information on the amount of remuneration, awards and/or benefits of each of the members of the management

and control bodies for the reporting financial year paid by the issuer, which is not a public company, respectively

the person under § 1e of the additional provisions of POSA and its subsidiaries, regardless of whether they have

been included in the costs of the issuer which is not a public company, respectively, the person under § 1e of the

additional provisions of POSA, or arise from a distribution of profits, including:

a) amounts received and in-kind benefits;

b) conditional or postponed remuneration over the year, even if the remuneration is due at a later point in time;

c) amount due by the issuer or its subsidiaries for payment of pensions, retirement benefits or other similar

compensation

The total amount of accrued remuneration for the issuer’s key management personnel is as follows:

-

Board of Directors - BGN 515 thousand;

-

Audit Committee – BGN 11 thousand.

18. Information about shares of the issuer owned by the members of the management and of the control bodies,

procurators and the senior management, including shares held by anyone of them separately or as a percent from

the shares of each class, as well as provided to them options on securities of the issuer by the latter – type and amount

of the securities over which the options have been set up, price of exercising of the options, purchase price, if any,

and term of the options.

Shares held at 31 December 2023 by the members of the Board of Directors:

Name, father’s name, family name

Number of shares

%

Angel Ivanov Angelov

50 372 417

20,68%

Georgi Aleksandrov Babev

0

0%

Bistra Stoyanova Kotseva

3 500

0,001%

19. Information about agreements known to the Company (including also after the fiscal year closing) as a result of

which changes may occur at a future time in the owned percent of shares or bonds by current shareholders and

bondholder.

No such agreements are known.

20. Information on pending judicial, administrative or arbitration proceedings concerning obligations or claims of

the issuer, respectively the person under § 1e of the additional provisions of POSA, amounting to at least 10% of its

own funds; if the total value of the issuer's liabilities or receivables, respectively the person referred to in § 1e of the

additional provisions of POSA, in all proceedings initiated exceeds 10 % of its own funds, information on each

proceedings shall be provided separately.

The Group is not a party to pending court, administrative or arbitration proceedings, nor there are any decisions taken or

claims to terminate the activity and announce it in liquidation.

21. Contact information of the Investor Relations Director, including telephone number and correspondence

address

19

Marieta Babeva

0883 773 993

ir@gradusbg.com

Sofia, 110B Simeonovsko Shosse Boulevard, floor 1, office 4 B

22. Non-financial statement under Art. 41 of the Accountancy Act - for financial statements on an individual basis,

respectively under Art. 51 of the Accountancy Act - for financial statements on a consolidated basis, where

applicable.

Degree AD presents in a separate document "Non-financial statement under Art. 41 of the Accountancy Act"

23. Other information at the company's discretion.

There is no such

26 April 2024

EXECUTIVE DIRECTOR:

/Georgi Babev/

CHAIRMAN OF BD:

/Angel Angelov/

DECLARATION

under Article 100n, par. 4, item.4 of the Public Offering of Securities Act

The undersigned,

Georgi Aleksandrov Babev – Executive Director of Gradus AD

Angel Ivanov Angelov – Chairman of the Board of Directors

and

Antoaneta Nikiforova Boeva – Chief Accountant of Gradus AD

DECLARE HEREBY, that to the best of our knowledge:

a. The annual consolidated financial statements for 2023, prepared in accordance with the applicable

accounting standards, accurately and fairly reflect the information on the assets and liabilities, financial

condition and profit of Gradus AD and the companies included in the consolidation;

b. The consolidated management report for 2023 contains a reliable overview of the development and

results of the activity of Gradus AD, as well as the condition of the companies included in the

consolidation, together with a description of the main risks and uncertainties it faces.

26 April 2024

A. Boeva G. Babev

/Chief Accountant/ /Executive Director/

A. Angelov

/Chairman of the Board of Directors/

1

Translation from Bulgarian

NON-FINANCIAL DECLARATION

To the annual consolidated financial report of Gradus Group for 2023

pursuant to the requirements of Article 48-52 of the Accounting Act

CONTENTS

I.

GENERAL INFORMATION .......................................................................................................................... 3

Business model ....................................................................................................................................................... 4

Ownership and governance of the parent company ................................................................................................ 4

Scope of business of the group companies .............................................................................................................. 5

Shareholding structure as at 31 December 2023 ................................................................................................ 5

Products ................................................................................................................................................................... 5

Personnel ................................................................................................................................................................ 6

II.

ENVIRONMENT PROTECTION .................................................................................................................. 6

Description of policies and their objectives ............................................................................................................ 6

Main activities and costs incurred in 2023 .............................................................................................................. 6

Environmental risks ................................................................................................................................................. 8

III.

SOCIAL ISSUES........................................................................................................................................…9

Description of policies and their objectives ........................................................................................................... 9

Main and future activities ....................................................................................................................................... 9

I.

General information about the Group

Gradus Group includes the parent company and its seven subsidiaries:

Parent company

Gradus AD (the "Company") is a company registered in Bulgaria in the Commercial Register of the Registry Agency,

with UIC: 204882907 on 28 November 2017.

The company is a parent company.

It is registered for not limited period of time.

Management address: Republic of Bulgaria, 6000 Stara Zagora, Industrial residential district, Gradus Poultry.

On 30 July 2018, the Financial Supervision Commission, by decision No. 770 - PD / 30 July 2018, entered Gradus AD

as a public company in the register of public companies and other issuers of securities under Article 30, paragraph 1, item

3 of the Financial Supervision Commission Act (FSCA), kept by the Financial Supervision Commission (FSC). The

shares of the Company are traded on the Main Market of the BSE - the Standard segment and the GR6 stock code.

As of 31 December 2023, Gradus AD owned and managed the following subsidiary companies, grouped in the Gradus

Economic Group that carry out the following operating activities:

• Millennium 2000 EOOD - breeding of parent birds for production of eggs, hatching of day-old chicks and

fattening of broilers

• Gradus-1 ЕООD – production of meat and meat products; transport services for the other companies in the

Group (except for Gradus-3 AD)

• Gradus-98 АD - raising of parent birds for production of eggs

• Gradus-3 АD - production of fodder and trade in agricultural products.

• Gradus Logistics EOOD – hire-purchase of motor vehicles, transport services

On 30 June 2023 the subsidiaries “Zhyuliv” EOOD, “Lora-2004” EOOD and “Gold Farm 91” EOOD merged into

the subsidiary “Milenium 2000” EOOD.

Gradus АD owns directly:

• 100% of the capital of Millennium 2000 ЕООD, Gradus-1 ЕООD, Gradus Logistics EOOD;

• 99.994% of Gradus-98 АD;

• Indirectly 96% in Gradus-3 АD through Gradus -1 ЕООD.

BUSINESS MODEL

Ownership and governance of the parent company

Gradus AD (the parent company) has a one-tier management system with a Board of Directors consisting of three

(3) members. The management of the parent company by the Board of Directors has the following composition

as of 31 December 2023:

•

Angel Ivanov Angelov - Chairman of the Board of Directors of Gradus AD

•

Georgi Aleksandrov Babev - Member of the Board of Directors and Executive Director of Gradus AD

•

Bistra Stoyanova Kotseva - Member of the Board of Directors Gradus AD

The parent company holds the following equity interest in the subsidiaries:

•

Millennium-2000 EOOD - 10 shares with a nominal value of BGN 500 each representing 100% of the

capital of Millennium-2000 EOOD;

•

Gradus-1 EOOD - 100 shares with a nominal value of BGN 50 each representing 100% of the capital

of Gradus-1 EOOD;

•

Gradus AD participates indirectly in the capital of Gradus-3 AD through its subsidiary Gradus-1 EOOD

- owning 96.00% of the capital of Gradus-3 AD;

•

Gradus-98 AD - 49,967 common registered voting shares with a nominal value of BGN 10 each,

representing 99.94% of the capital of Gradus 98 AD.

•

Gradus Logistics EOOD – 400,000 shares with a nominal value of BGN 100 each, representing 100%

of the capital of Gradus Logistics EOOD.

Scope of business of the Group companies

The main scope of business of the Group companies is concentrated in the Poultry sector, except for companies

whose activity is also "production of compound fodder and trade", and „Hire-purchase of motor vehicles,

transport services“.

The scope of business of the Group companies is as follows:

•

Millennium 2000 ЕООD – the main business of the company is poultry breeding - breeding parent

birds for broilers, production and sale of breeding eggs, hatching of day-old chicks, production and

sale of fattening broilers;

•

Gradus-1 ЕООD – the main business of the company is the processing and sale of poultry meat products;

•

Gradus-3 АD - the main business of the company is the production of compound fodder intended for

the market containing grains and fodder additives in proportion according to established and approved

recipes. For the exercise of its business the company is entered in the register pursuant to Article 19,

paragraph 11 of the Fodders Act and has received a certificate of approval No. 00041 dated 26 January

2007 from the National Grain and Fodder Service.

• Gradus-98 АD – the main business of the company is production, processing and sale of all kind of

agricultural and animal products.

• Gradus Logistics EOOD - the main business of the company is hire-purchase of motor vehicles, and

provision of transport services.

Shareholding structure as at 31.12.2023

Products

Gradus is a group operating in the meat processing sector, which includes a vertically integrated business for

the production of chicken meat and chicken meat products, as well as sausages and frankfurters from pork

meat. Gradus products are produced in a closed cycle which ensures that at every stage the company's highest

standards are strictly adhered to. The product chain for the production of chicken meat and chicken meat

products includes: production of fodder, production of breeding eggs, production of one-day broilers, breeding

of broilers for fattening, chicken meat and products of processed chicken meat.

1.70%

40.77%

20.68%

14.35%

1.82%

Gradus AD

Luka Angelov Angelov

Ivan Angelov Angelov

Angel Ivanov Angelov

Legal entities

Individuals

Personnel

By the end of 2023, the average number of Gradus Group staff was 1,175 employees: The company with the highest

number of staff was Millennium 2000 EOOD, followed byGradus 1 EOOD , and the company with the lowest number

of staff was the parent company Gradus AD, as well as Gradus Logistics EOOD.

II. Environment protection

Description of policies and their objectives

Being a holding company, which does not carry out independent business activity, Gradus AD has focused with priority

its activity on the management of subsidiaries. The company pays particular attention to the environmental impact

exercised by the activity. The companies report annually on environmental impact assessment and the measures taken

in this direction.

Gradus Group has a policy and aspiration to contribute to the eco-balance, to improve and support educational

institutions by planting plants and reducing the carbon footprint it leaves in its operations. In 2023, the Group is

partnering with the “Kiril Hristov” Primary School in the town. The Group planted different types of plants in the

school's courtyard.

Main activities and costs incurred in 2023

Companies from Gradus Group pay particular attention to and care for the environmental impact imposed by the

production activities of its facilities. Taking into account the scale of the production processes that exceed the

thresholds specified in the Environmental Protection Act, the facilities of Gradus Holding AD carry out their activities

on the basis of Complex Licenses issued (pursuant to Article 117 of the Law). The facilities of Gradus Group hold

Complex Licenses and, under the terms of these Complex Licenses, they implement Environmental Management

Systems (EMS) that comply with the applicable best available techniques conclusions for the sector concerned. All

operating and maintenance instructions, for monitoring of technical and emission indicators, periodic assessment of

the compliance of the measured values with the permitted ones, for establishing the reasons for the non-conformities

and taking corrective actions have been prepared and applied. Both inflows to installations - water, energy, fuels, raw

materials and auxiliary materials, as well as outflows - emissions to the air, emissions to waste and groundwater,

pollutant release into the soil, noise generated waste are monitored. EMSs shall be reviewed annually and, where

necessary, updated in order to ensure that the achieved level of environmental performance is maintained and improved.

The companies have an organizational structure established for environmental management. Responsible officials are

designated to perform and carry out the specific terms and provisions contained in the Complex Licenses, who also are

responsible for controlling the results of the elimination of the non-conformities that have been identified. Continuous

control of efficient use and minimization of resource use is carried out during the operation of installations, with regular

monitoring of the efficiency of the production activity with regard to the use of water, energy, auxiliary materials and

fuels.

1342

1335

1277

1271

1175

2019 2020 2021 2022 2023

Average staff number

The water for watering the birds, as well as the water for the production and sanitary needs at Gradus Poultry is supplied

from own water sources - tubular wells based on permits under the Water Act. Each quarter, monitored is conducted an

accredited laboratory to determine the compliance of the water produced by the wells with the requirements of Ordinance

No. 9 of 2001 on the quality of water intended for drinking household purposes. Water costs are calculated on a monthly

basis to determine the annual rate of effectiveness. In order to reduce the cost of water on the sites, the necessary

instructions for the operation and maintenance of the technological equipment, which is the main water consumer, for

the maintenance and verification of the water supply network, leakage removal and identification of the causes for

them, have been applied. Where nonconformities are detected, immediate corrective actions are taken to address them.

The management of the holding company from time to time evaluates the energy output of the installations and takes

measures aimed at reaching optimal consumption standards in the operation of the facilities. Instructions for the

operation and maintenance of the equipment, which is the main consumer of electricity, have been applied. Where

immediate nonconformities are detected, immediate corrective actions are taken to remove them. In order to protect

soils and underground water from pollution with hazardous chemical substances and mixtures, for the use of such

substances, mainly disinfectants, special storage areas are used such as closed warehouses which are equipped with

floor and side insulation, preventing the leakage of water or other liquids into the soil, and they are not connected to

the water sewerage system. Collector tanks are provided for the occurrence of any spills and suitable absorbing

materials are in place. The premises are equipped with forced ventilation and are permanently locked. All chemical

substances and mixtures classified under one or more hazard categories pursuant to Regulation (EC) No. 1272/2008

on classification, labelling and packaging of substances and mixtures are provided with safety data sheets that meet the

requirements of Annex II to Regulation (EC) 1907/2006 on the Registration, Evaluation, Authorization and Restriction

of Chemicals (REACH) as amended by subsequent amendments and corrections. The storage of the chemical

substances and mixtures meets the storage conditions specified in the safety data sheets and the Ordinance of the

Council of Ministers pursuant to Article 4b of the Protection against the Harmful Impact of Chemical Substances and

Mixtures Act. Instructions for maintenance and periodic inspection of the conformity of the facilities and the storage

sites with the requirements of the regulations for the procedure and the manner of storage of hazardous chemical

substances are applied. Where immediate nonconformities are detected, immediate corrective actions are taken to

address them. In order to preserve the cleanness of the atmospheric air, the organized and non-organized emissions

from the activity of the holding's facilities are controlled and monitored. Once at every two years, the company is

carrying out self- monitoring using an accredited laboratory to monitor the emissions of harmful substances released

into the atmosphere by Gradus Poultry and the Fodder Plant in the town of Nova Zagora. The results of the monitoring

carried out so far show compliance with the emission standards set. To minimize non-organized emissions, including

emissions into the air of ammonia and dust from activities, as well as the emissions of intense odorous substances, a

set of measures complying with the requirements of the applicable best available techniques conclusions have been

applied for the respective sector – poultry breeding, slaughterhouses and the production of fodder for birds.

The control for compliance with the set individual emission limits of discharged production and household faeces

waste water from Gradus Poultry and the Fodder Plant in the town of Nova Zagora is carried out through self-

monitoring carried out twice a year. Sampling and analysis are performed by an accredited laboratory. The results of

the monitoring carried out so far show compliance with the norms set.

For the environmentally sound management of the waste generated from the activities of the holding's facilities, separate

collection of waste is applied. Waste is handed over for recovery prior to its disposal. On the territory of the companies

there is a site for pre-storage of industrial and hazardous waste generated from work activities. The designated

sites have a durable concrete/asphalt covering. In order to avoid mixing different types of waste, the sites are separated

by placing boards with the name of the waste and their codes under Ordinance 2 of 23 July 2014 on the classification

of the waste.

For the preliminary storage of hazardous waste, closed warehouses are designated, with a resistant floor covering,

without connection to the sewage system, permanently locked and marked with sign boards. The waste is handed over

for recovery, incl. recycling and disposal outside the territory of the site, only to persons holding a document under

Article 67 and/or under Article 78 of the Waste Management Act or a complex permit for the specific type of waste and

for carrying out the respective activity on the basis of a written contract.

The complex permits of the poultry farms have been reviewed and updated by the competent body, namely the

Executive Environment Agency, Sofia, in connection with the Commission Implementing Decision (EU) 2017/302 of

15 February 2017 establishing best available techniques (BAT) conclusions. The new conditions set therein and their

implementation by us guarantee the application of the best global techniques in the poultry industry, which minimizes

the negative impacts of our activities on the environment.

The animal by-products generated from the activities of facilities that are not utilized are handed over for disposal to

incinerator plants. The cost of rendering incurred by the Group's subsidiaries in 2023 amounts to BGN 38 thousand.

As far as the environmental impact is concerned, poultry farming is an indispensable part of the circular economy that

the European Union seeks to impose as a sustainable economic model. Fertilizers formed after the end of the poultry

life cycle are utilized for the production of biogas in power plants, and animal waste from meat production for human

consumption (from Gradus Poultry) is utilized for the production of food for small mammals.

The activities carried out on the production sites are performed in a manner that will not allow noise emissions in the

environment above the equivalent noise level /at day, in the evening and at night at the boundaries of the site and at

the place of impact/. This is evidenced by the results of self-monitoring carried out once at every two years where noise

emission tests are conducted by an accredited laboratory. The results of the monitoring carried out show compliance

with the emission standards set.

For the activities related to the protection of environmental components and factors through the execution of the issued

complex permits, according to the requirements of the Environmental Protection Act, the companies annually prepare

and submit to the supervisory body - the respective Regional Inspectorate of Environment and Waters /RIEW/, an Annual

Environmental Report. Once being verified, the reports are published on the website of the Executive Environment

Agency, city of Sofia.

The costs incurred by the Group's subsidiaries in 2023 amount to BGN 368 thousand and are directed to water studies,

wastewater treatment plants, waste collection and household waste charges, etc.

Ecological Risks

Pursuant to Article 3, paragraph 1 of Ordinance No. 1 of 2008 on the type of preventive and remedial measures in the

cases provided by the Law on the responsibility for prevention and removal of ecological damages and on the

minimum amount of the costs for their implementation, for all facilities of Gradus Holding Assessments have been

prepared for possible cases of imminent threat of environmental damages and cases of environmental damages caused.

According to these assessments, the following environmental damages may occur:

1.

Soil and/or underground water penetration of concentrated hazardous chemical substances and mixtures as

a result of spillage when unloaded and/or during activities with them;

2.

Contamination of soils and/or underground water as a result of damaging the integrity of watertight sewage

pits for waste water;

3.

Contamination of soil with mercury as a result of breakage of luminescent tubes and/or other mercury-

containing waste;

4.

Contamination of soil and underground water with diesel fuel as a result of leakage of diesel fuel from the

company gas station tanks, equipment or fuel pumps;

5.

Ignition of diesel fuel and penetration of contaminated firefighting water into the soil and underground water.

Analysis and evaluation of the information: the methodology of analysis and evaluation of events is based on the

principle of the three factors - event, event probability and event severity. The probability of occurring of any of the

above listed events and the severity of the environmental damage occurring from the realization of this event is

evaluated. Preventive measures are proposed to manage the risk of occurrence of the event and remedial measures to

be implemented should one of the preventive measures fail.

The preventive and remedial measures envisaged in the assessments are carried out by the designated persons

responsible and are supervised by the managers of the facilities. The remedial measures envisaged for the possible

occurrence of environmental damages are valued and financial resources are provided for this purpose.

In 2023 the costs related to the environment amounted to BGN 368 thousand.

The Challenges of Climate Change

Climate change is recognized globally as a major challenge for humanity. Taking into account the role of human

activity, the release of carbon dioxide, methane, nitrous oxide, fluorine containing and other gases into the atmosphere

causes a greenhouse effect, with measurements of global atmospheric concentration of greenhouse gases showing

significant increases, with an increase in average global air temperature. The effects of changing climatic conditions

are extremely serious for the Earth - they include temperature changes in the oceans and its oxidation, massive melting

of snow and ice layers, extreme climatic events that in turn create the risk of forest fires, landslides and floods,

biodiversity, arable land and water resources loss.

Given the global nature of the processes related to climate change, the policy of GRADUS AD in the area is determined

on the one hand by the legislation and on the other by voluntarily adopted and implemented commitments.

The following greenhouse gases are released from poultry farming activities: methane and nitrous oxide. The gases are

released from the bird's excrements on the fertilizer bedding. Methane and nitrous dioxide emissions are calculated

annually and reported to the Environment Executive Agency in the European Pollutant Release and Transfer Register.

During the 14 years of reporting, the calculated quantities of emitted methane and nitrous oxide for each facility of

Gradus AD are separately below the thresholds of Regulation 166/2006 for establishing a European Pollutant Release

and Transfer Register.

The activities carried out on sites fully comply with the recommendations of the BREF-document Best Available

Techniques Reference Document for Intensive Rearing of Poultry and Pigs - July 2017 and the conclusions of the Best

Available Techniques /BAT/ on intensive farming of birds or pigs adopted with Commission Implementing Decision

(EU) 2017/302 of 15.02.2017.

The measures implemented to reduce methane emissions from poultry farming are:

1. Frequent removal of the firmly accumulated semi-liquid fertilizer litter from the poultry premises resulting in

low relative weight of methane producing bacteria. No fertilizer is stored on the site of the poultry farms. The

production process is organized in such a way that at the end of the bird's life cycle, the fertilizer is removed from the

halls and transported to a cogeneration plant using anaerobic digestion of biomass from plant and animal substances

in the town of Nova Zagora.

2. Creating favourable conditions for methane-producing bacteria and building a facility for biogas utilization.

Biogas is utilized at the Power Plant for the production of electricity and heat.

The application of any of the best techniques for reducing ammonia emissions also indirectly reduces the formation

of nitrous oxide. Measures taken to reduce ammonia emissions, respectively of nitrous oxide in the poultry farms of

GRADUS AD are as follows:

1. Equipping existing buildings with a nipple type drinking system. According to the BAT document for poultry

farming, water is a significant factor in the level of emissions of methane, ammonia and bad odorous substances from

production buildings. When the bedding is moistened in the production buildings, the quantities of pollutants emitted

into the ambient air increase.

The nipple type drinking systems used by the operator are in accordance with the ones recommended in the BREF

document. They do not allow wetting of the bedding and minimize the conditions for the release of these pollutants.

2. Balanced nutritional diet of birds. The use of additives to fodder - enzymes, which is in line with the worldwide

practice of poultry farming - guarantees the maximum reduction of odours from excrements and the products of

biochemical and microbiological processes with them.

3. Regular removal of fertilizer from buildings after the end of the bird's life cycle. The fertilizer is regularly

removed from the halls. After completion of the life cycle of the birds and their removal from the buildings, the fertilizer

bedding is loaded onto a trailer and transported from the site to the Power Plant for combined production of electricity

and heat using anaerobic digestion of biomass from plant and animal substances in Nova Zagora.

4. Equipping the poultry premises with a heating and ventilation system contributes to keeping the bedding in the

production halls dry and thus reducing the ammonia emissions, respectively nitrous oxide.

5. Compliance with the BAT requirements for bird placement density;

The combination of the techniques used for the density of birds in the halls, keeping the bedding dry, as well as

the application of appropriate nutritional diets reduce ammonia emissions, respectively nitrous oxide more than 20%

from the baseline.

The heating of the poultry farming premises is carried out with solid fuel stoves (coal) or with natural gas heaters.

The stoves are new, with combustion chambers in which complete combustion of the fuel takes place, resulting in the

simulation of smaller amounts of carbon dioxide in the atmosphere. Carbon dioxide emissions from the combustion of

natural gas are not released.

In order to provide the necessary technological steam, there are steam power plants in Gradus poultry

slaughterhouse and the Fodder Plant with natural gas fired boilers installed in them. Its combustion emits no greenhouse

gas emissions.

With regard to the available equipment containing fluorinated greenhouse gases - air conditioning and

refrigeration installations, leakage inspections shall be carried out by authorized persons on a regular basis in

accordance with Regulation /EU/517/2014 on fluorinated greenhouse gases. The inspections are designed to prevent

gas leakage into the atmosphere. Reports for the previous year are submitted annually to RIEW.

In accordance with the E.U. Taxonomy Regulation and the supplementary elegated acts, the Nonfinancial

Statement includes the proportion of the Group’s taxonomy-eligible andtaxonomy-aligned turnover, capital

expenditures and operating expenditures for 2023. This applies to the environmental objectives of climate

change mitigation and climate change adaptation currently addressed in the E.U. taxonomy.

Regulation 2020/852 of the European Parliament and of the Council of 18 June 2020 establishing a framework to

facilitate sustainable investments and its published delegated regulations (the EU Taxonomy, the Taxonomy)

establishes the criteria determining whether an economic activity qualifies as environmentally sustainable in order to

establish the degree of environmental sustainability of an investment. The EU Taxonomy is a classification system

that establishes a list of economic activities by defining the methodology for determining their environmental

sustainability. It aims to contribute to the EU's climate and environmental objectives and the achievement of climate

neutrality by 2050. An economic activity is considered eligible if it is included in the EU Taxonomy and can

potentially contribute to at least one of the six environmental objectives defined by the EU:

- Goal 1 - Climate Change Mitigation;

- Objective 2 - Adaptation to climate change;

- Objective 3 - Sustainable use and protection of water and marine resources;

- Goal 4 - Transition to a circular economy;

- Goal 5 - Pollution prevention and control;

- Goal 6 - Protect and restore aquatic biodiversity and aquatic ecosystems.

For the purposes of the Taxonomy, an economic activity is considered environmentally sustainable, i.e. compliant

with the Taxonomy, only if it meets the following three conditions:

- the activity makes a significant contribution to one or more of the environmental objectives. This condition is

fulfilled if the activity meets the technical screening criteria (TSC) set for it within the relevant environmental

objective;

- the activity does not cause significant harm to one or more of the other environmental objectives. This condition is

met if the activity meets the No Significant Adverse Effect (NSA) criteria set for it within the relevant environmental

objective;

- the activity is carried out in compliance with minimum safeguards that apply to all economic activities and relate to

human rights, taxation, corruption and bribery and fair competition.

б. Economic activities of the Group eligible for the Taxonomy

The Group's businesses include feed production, breeder egg production, production and sale of day-old chicks,

poultry fattening, poultry slaughter and meat processing and other operations. It is assessed, based on the regulatory

framework in place at the end of 2023, that certain of the Group's economic activities included in the EU Taxonomy

can contribute significantly to the achievement of the first environmental objective, "Climate change mitigation".

These activities have been assessed as eligible for the Taxonomy and are as follows:

- (4.1) Electricity generation through solar photovoltaic technology

- (5.1) Construction, expansion and operation of water collection, treatment and supply systems

The activity (4.1) Generation of electricity through solar photovoltaic technology includes the Group's commissioned

solar power plants and expansion projects. Some of the facilities are entirely for the Group's own use and others for

the Group's own use and for the sale of electricity on the open market.

The activity (5.1) Construction, expansion and operation of water collection, treatment and supply systems includes

the operation of an own-owned asset, a wastewater treatment plant;.

Other activities of the Group, such as transport carried out with own vehicles; rental of own needs and buildings,

repair of buildings can also fall under the description of activities in the EU taxonomy. These activities are ancillary

to the Gradus Group and are therefore not shown separately. They are included and disclosed as part of the core

businesses.

The analysis in the context of the EU Taxonomy did not reveal any economic activities of Gradus contributing to the

second environmental objective, "Adaptation to climate change", as a prerequisite for eligibility under this objective

is the implementation of physical and non-physical solutions that ensure a significant reduction of the most important

physical climate risks relevant to the specific activity. As of the end of 2023, the Group has not implemented such

adaptation solutions.

The remaining economic activities in the Gradus Group have been assessed as ineligible for the EU Taxonomy.

Gradus has determined the eligible Turnover, Capital Expenditure (CE) and Operating Expenditure (OE) as follows:

III. Social Issues

Description of policies and their objectives

Gradus AD and Group companies apply social corporate strategy and policy. The companies have a Code of Ethics

designed to establish and strengthen the principles and rules of conduct to be respected by managers and employees in

connection with the exercise of their powers.

Main and future activities

The management’s actions related to employee are aimed at improving the working conditions and raising earnings.

In some companies, a bonus scheme was introduced to motivate employees to carry out their duties properly. Gradually,

social policies are introduced into subsidiaries that include a set of incentives with bonus elements such as contracted

discounts for employee for the conclusion of insurances and preferential service in financial institutions with which

the company operates, as well as mobile operators.

Monthly food vouchers were introduced in all Group companies. Some of the employees go through training courses

for acquiring and enhancing their professional qualification. Free commuting is arranged under certain conditions.

Some of the employees are provided with housing.

A Group company has a contract concluded with a physician, who takes care of the employees’ health, if need arises.

The Group companies finance various social, sport and cultural events, and participates in donation campaigns of

importance to the society.

The active implementation of policies on the sustainable development of companies lead to creating a more favourable

social environment, creating the necessary conditions and prerequisites for fulfilling the professional duties of the staff,

mastering good manufacturing practices, motivation and satisfaction with working conditions and remuneration.

26 April 2024

EXECUTIVE DIRECTOR:

/Georgi Babev/

CHAIRMAN OF THE BOARD OF DIRECTORS:

/Angel Angelov/

1

Translation from Bulgarian

CORPORATE GOVERNANCE STATEMENT PURSUANT TO

ARTICLE 100m, PARAGRAPH 8 OF POSA

1. Information whether the issuer complies as appropriate:

• Corporate Governance Code approved by the Deputy Chairperson of the Financial

Supervision Commission, or

• Another Corporate Governance Code;

• Information regarding the corporate governance practices, which are applied by Gradus AD in

addition to the code under Letter "a" or Letter "b";

Gradus AD complies with the National Corporate Governance Code /NCMC/ elaborated in October 2007

and approved by the National Corporate Governance Committee, as subsequently amended in February

2012, April 2016 and July 2021; it was approved by the Deputy Chairperson of the Financial Supervision

Commission.

The basis for corporate governance is the interaction between the Board of Directors of the company, the

management bodies of subsidiaries, shareholders, potential investors and trading partners. Good corporate

governance means loyal and responsible corporate management bodies, transparency and independence,

as well as the responsibility of the company to society.

The code should be applied on the basis of the “comply or explain” principle. This means that the

company complies with the Code and, in the event of a deviation, the management should clarify the

reasons thereof.

According to the Group, the adoption and implementation of a “Program for Implementation of

Internationally Recognised Good Corporate Governance Standards” will facilitate investment decisions

by shareholders and enhance the confidence of potential investors, given the Group's willingness to

improve and optimise the information disclosure processes.

Considering the Program, the main goals of the Group are:

• introduction and implementation by the Group of good corporate governance principles;

• facilitating and supporting communication, and raising the level of awareness of the Group’s

shareholders, regulatory authorities, financial media and analysts;

• improving the information disclosure processes of the Group, including the quality and relevance of

information;

• enhancing the confidence of shareholders, investors and any other interested parties in the

management of the Group and its development;

2. Explanation by the issuer as to which parts of the corporate governance code under Item 1,

Letter "a" or Letter "b" the issuer does not comply with and as to what the ground for this non-

compliance are, and when the issuer has opted not to refer to any of the rules of the corporate

governance code - the grounds for that:

While performing its activity, the Group complies with all sections of the National Corporate Governance

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Code.

3. Description of the main characteristics of the internal control system and of the risk

management system of the Group in connection with the financial reporting process:

The internal financial reporting and accounting control system of Gradus Group is developed on the basis

of good reporting and control practices in the country and in compliance with the legislative framework.

For the purpose of maximum improvement, it is subject to continuous monitoring by the management and

represents a set of rules, procedures and control actions, which are developed according to the specific

features of the Group companies, their activity and reporting system. It is directed towards:

• ongoing monitoring and distribution of reporting activities against their objectives;

• adequate and timely localisation of identified business risks affecting financial, management and

operational reporting.

Using the system, the management is able to assure itself that:

• the Group applies the requirements of the accounting and reporting legislation, and in particular,

the requirements of the Accounting Act and International Financial Reporting Standards;

• the Group observes the instructions and recommendations of senior management with regard to

reporting and documentation;

• the necessary efficiency and efficiency in the financial and accounting process exist;

• there is a high degree of security for the protection and maintenance of the assets of the companies,

including prevention of fraud and errors;

• there is reliable, qualitative and timely financial and operational information to be provided to

internal and external users.

The main components of the internal financial reporting control system are:

1) adoption and observance of ethical principles and rules of conduct adopted by the Ethics Code of

Conduct of the employees of Gradus Group and with regard to financial reporting;

2) development of and setting an optimal structure of units involved in financial reporting processes

with clearly defined responsibilities and powers;

3) implementation and maintenance of control procedures and rules for each stage of accounting and

financial reporting processes;

4) development of policies for selecting, training and developing staff employed in accounting and

financial reporting processes;

5) development of procedures for identifying, monitoring and managing risks relating to accounting,

financial reporting and reporting, including development of adequate measures and actions to minimise

those risks;

6) development of and maintaining the information system organisation, including access controls,

commissioning, data processing, system changes, allocation of responsibilities of persons employed to

operate it, and preserving of data integrity in the system.

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Control

Main ethical principles and rules in accounting and financial reporting processes

Management at the various levels of Group companies constantly monitors compliance with ethical values

such as integrity, independence and objectivity as foundations of the professional conduct of all

individuals involved in the accounting and financial reporting processes of the Group. Integrity and ethical

conduct are a product of the established common ethical and behavioural standards. They are clearly

communicated to all financial and accounting and control staff, and they are constantly being promoted

in practice.

Ethical principles to be followed by all persons involved directly or indirectly in accounting and financial

reporting processes are: objectivity; impartiality; independence; conservatism; transparency;

methodological justification; consistency, and use of independent experts. These principles apply to all

stages of financial reporting upon selection of accounting policies; closure of accounts; preparation and

application of accounting estimates and preparation of public and management financial statements, other

public reports and documents containing financial information.

Management bodies in charge of the separate components of the overall accounting and financial

reporting process

The management bodies entrusted with certain responsibilities and powers concerning the financial

reporting and other associated processes are different for the different Group companies. For the Group as

a whole these are: Board of Directors, Audit Committee, Executive Director, Financial Director, Chief

Accountant.

Their functions and responsibilities include:

• The Board of Directors accepts and approves: accounting policies and any changes thereto for every

reporting period, accounting estimates developed at the date of every reporting period, including the

methodology applied; financial statements and reports, and other public documents containing financial

information; functions, organisation and responsibilities of all structural units and their managers involved

in processes on and relating to financial reporting; development, implementation and current monitoring

on the operation of various controls;

• The Audit Committee monitors independently the implementation of the financial reporting

processes, accounting policies applied, as well as the financial performance and results from the external

and internal audit;

• The Executive Director is responsible for the overall organisation, operation and ongoing control

over accounting and financial reporting. He manages directly the overall process and takes all key

decisions on financial statements and other public documents containing financial information. Moreover,

he approves as a first level the accounting policies, key reporting methodologies, and evaluates and

accepts the work of independent experts (valuers, actuaries, advisors, etc.), involved in the financial

reporting process. He exercises, together with the Chief Accountant, ongoing control on the risk for

financial statements arising out of the business risks faced by the company;

• The Financial Director is responsible for the overall organisation, operation and ongoing control

over accounting and financial reporting. He manages directly the overall process and takes all key

decisions on financial statements and other public documents containing financial information. Moreover,

he approves as a first level the accounting policies, key reporting methodologies, and evaluates and

accepts the work of independent experts (valuers, actuaries, advisors, etc.), involved in the financial

reporting process. He exercises, together with the Chief Accountant, ongoing control on the risk for

financial statements arising out of the business risks faced by the company;

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• The Chief Accountant organises and manages the accounting and reporting activity of the

companies – he/she exercises control and provides methodological guidance on the current accounting;

manages the preparation of financial and management reports; bears the responsibility for the

development and implementation of accounting and reporting methods and techniques; bears the

responsibility for the process of closing the accounts and the preparation of all accounting estimates,

proposes and develops accounting policies and changes thereto; follows-up any current amendments to

IFRS. The Chief Accountant is the person for direct contact will all internal and external experts involved

in financial reporting processes.

Human resource policy and practice in the financial and accounting departments

The Group has policies and rules established related to the management of human resources employed in

the financial reporting process and other associated processes. These include imposed and implemented

policies and procedures in the selection and appointment of such staff aimed at their education and

professional experience, computer literacy and foreign language competence of applicants. The selection

is guided by the requirements laid down in the job descriptions of individual positions. Staff management

policies also include continuing vocational training, upgrading and expanding the knowledge and skills of

employees. Trainings are mandatorily carried out in the event of changes in statutes, IFRS, tax laws, etc.

relating directly to their work. The goal of this policy is to improve their expertise and skills aiming at

increasing their effectiveness in carrying out the duties being entrusted to them.

Assessment of risk relating to financial reporting – structure of the process within the Group

The Board of Directors, the Audit Committee, the Financial Director and the Chief Accountant of the

parent company play a key role in the process of constant identification, monitoring and control of

business risks, including to identify and control the effects of those of them, which have a direct impact on

individual processes and accounting items, financial reporting and companies’ reporting. They ensure an

overall monitoring over the risk management process.

Gradus AD has also a Risk Manager who conducts an economic assessment of the risks taken by the

company and takes the necessary actions to diminish those risks by employing contemporary financial

techniques and instruments. The Risk Manager identifies any possible weaknesses of business processes

and evaluates the costs of operating risks and informs management of the existence of any uncovered

risks, as well as of their value.

Risk factors relevant to ensuring a reliable financial reporting include external and internal events,

transactions and circumstances that may arise and negatively affect the ability of an enterprise to create,

maintain and process accounting and operational data in a way that ensures reliable financial reporting,

financial statements and reports.

5

The following factors have been identified as key factors within the Group:

а) external risks are: a change in the business environment and the market environment of companies, and

their main products; the activities of competitors; a change in the legal and regulatory framework; changes

in key suppliers or clients; unconscientious or malicious actions by external parties;

b) internal risks include: a change in the technological base of the companies, as well as in the manner

and intensity of use of their assets and resources; new products and activities; new accounting policies

and IFRS; changes in the staff of departments responsible for and/or involved in financial reporting;

changes in information systems; errors and/or insufficient knowledge or skills of staff; application of

multiple estimates – particularly application of fair values and calculation of recoverable amounts of

certain non-current assets in which external experts are involved.

Risk factors of recurring nature and/or are related to the implementation of accounting policies and

estimates are currently monitored by the Chief Accountant of the Group, who provides solutions for the

management and proper reflection of their effects in the financial statements.

The new risk factors are identified by the Executive Director of the parent company; these are evaluated

and developed by the Executive Director, jointly with the Chief Accountant. Where necessary, advisory

assistance from independent consultants, including and for the application of new IFRSs, is used as well.

The Audit Committee of the company carries out overall monitoring of the risk management process

related to financial reporting.

Information system of the Group companies. Accounting Department – organisation of the accounting

function and financial reporting process within the Group companies

Information system

The information system of Gradus comprises of infrastructure (physical and hardware components),

software, people, procedures, and data. In 2023, the subsidiary Gradus-1 Ltd. successfully started the

process of introducing a management and control system(Microsoft Dynamics NAV 2018). At the date

of preparation of this declaration, the ERP product was fully implemented in six companies (at individual

level).

For the subsidiary Gradus-1 EOOD, the overall implementation processes continue. Until the full

coverage of all of the Group’s business processes in a uniform management software, various software

are applied, the data of which is summarized in a specialized software for consolidation purposes.

Accounting Department – performance of the accounting function and a key role in the financial reporting

process

The Accounting Department of the parent company is directly subordinated to the Executive Director. It

is headed by a Chief Accountant. According to its functional characteristics, the Accounting Department

covers and fully implements the accounting and reporting function, including the preparation of financial

statements.

Its responsibilities include also the correct and consistent application of the developed accounting policies;

the development and implementation of an internal Chart of Accounts; reporting methodologies, the

ongoing keeping of accounting; the current accounting analysis and control of the reporting data and

documentation; the collection and classification of reporting data for the purposes of the financial

statements; the preparation and/or processing of input data for accounting estimates together with the

6

experts involved, as well as reporting of deviations and discrepancies found, and compliance with

statutory requirements in the field of accounting, taxes and other related areas.

Relevant structures have been established in each one of the Group companies that ensure the proper

functioning of the company itself and control on its financial and accounting activities.

The accounting policy of the parent company and the Group respectively, for the purposes of preparation of

the consolidated financial statements, are subject to approval by the Financial Director and the Board of

Directors of the parent company on an annual basis. The most important aspects necessary for the proper

understanding of financial statements are required to be disclosed.

The selection of the reporting framework is defined on the basis of the requirements of the Accountancy

Act. The Group applies International Financial Reporting Standards (IFRS), adopted by the European

Union. The current control on the proper application of IFRSs is carried out by the Chief Accountant, the

Financial Manager, the Executive Director, and the Audit Committee.

Further confirmation of the correctness of the application is obtained by external auditors. The preparation

of the financial statements of the parent company for public use is a result of a comprehensive accounting

process for the reporting period.

Certain actions and procedures are to be carried out, and certain documents are to be drawn up by persons

from the Accounting Departments, or by other officials, and these actions and procedures are aimed at:

carrying out of stocktaking; analyses of accounts; sending letters of confirmation; determining best

estimates, such as depreciation / amortisation charges, revaluations, impairments and accruals, which are

based on reasonably justified assumptions; collection and classification of accounting data; investigation

and analyses of certain legal documents (contracts, court cases, legal advisers’ opinions); investigation

and evaluation of experts’ reports (valuers, actuaries, internal auditors, other internal experts and

officials); preparation of reference sheets and financial packages for consolidation purposes; preparation,

analysis and discussion of draft financial statements.

The closure of accounts process is directly managed by the Chief Accountant. Monitoring is carried out

by the Financial Manager, the members of the Board of Directors and the Executive Director, and they

take the final decisions on key issues relating to the recognition, classification, assessment, presentation

and disclosures of certain items, transactions and events, as well as the overall presentation in the financial

statements – separate and consolidated financial statements of the parent company.

Control activities

Control activities and processes include: reviews of performance and operating results; processing of

information; physical controls, and division of duties and responsibilities.

The general controls relevant to financial reporting can be classified as procedures related to current and

periodic reviews and analyses of financial indicators and inputs, through which the financial performance

and operating results of the Group companies are presented in the financial statements.

The physical controls applied by the Group companies include:

а) measures for the physical safety of assets - safety facilities and premises, as well as special

conditions for access to assets and documents;

b) a special procedure for approval of the access to software and data files;

c) periodical stocktaking - procedures for the organisation and carrying out of stocktaking by way

of physical counting / weighting of stock / sending relevant letters of confirmation and comparison with

the amounts recorded in the checklists and accounting documents/registers. Procedures have been

implemented for the timely analysis of the stocktaking results, elaboration of decisions on their accounting

for, and respectively, obtaining the approval of the Executive Director.

7

The Group is in a process of constantly expanding the formal control procedures and activities.

4. Information under Article 10, Paragraph 1, Letters "c", "d", "f", "h" and "i" of Directive

2004/25/EC of the European Parliament and of the Council of 21 April 2004 regarding take-over

offers:

4.1. Significant direct and indirect shareholdings (including indirect shareholdings through

pyramid structures and cross-shareholdings) within the meaning of Article 85 of Directive

2001/34/EC

No proposals for takeover and/or merger with another company were made to the Company as of 31

December 2023.

4.2. Holders of any securities with special control rights and a description of those rights

There are no shareholders enjoying special control rights in the Company. Pursuant to the Articles of

Association of Gradus AD, all shares issued by the Company are of one class, ordinary, registered,

dematerialised. All shares give the right to one vote at the General Meeting of Shareholders, right to

dividend and right to liquidation share proportionate to the share’s nominal value.

4.3. Restrictions on voting rights, such as limitations of the voting rights of holders of a given

percentage or number of votes, deadlines for exercising voting rights, or systems whereby, with the

company’s cooperation, the financial rights attaching to securities are separated from the holding

of securities

There are no restrictions on the voting rights attached to shares.

4.4. Rules governing the appointment and replacement of board members and the amendment of

the articles of association

According to the applicable legal framework and Articles of Association of Gradus AD, the election and

discharge of the members of the Board of Directors, as well as the determination of their remuneration

and the guarantee of their management, are part of the competence of the General Meeting of Shareholders

of the Company.

The Board of Directors of the Company is elected and exercises its powers in accordance with the

decisions of the General Meeting, the Articles of Association of the Company, and the applicable law.

The term of office of the members of the Board of Directors is five years, without limitation of re-election.

Upon termination of the term of office of a member of the Board of Directors, regardless of the grounds

therefor, he/she shall continue to perform his/her functions and duties as a member of the Board of

Directors until the election of a new member by the General Meeting.

4.5. Powers of board members, and in particular, the power to issue or buy back shares

According to the Articles of Association of Gradus AD, the Company's Board of Directors decides on all

matters relating to the activities of the Company, with the exception of those which are of exclusive

competence of the General Meeting.

The Company is managed and represented by the Board of Directors in accordance with the law and the

Company’s Articles of Association. The Board of Directors of the Company takes decisions on the

following:

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✓ organizes the implementation of the decisions taken at the General Meeting and controls this

implementation;

✓ elects the Executive Director / representative(s), defines the limits of his / her / their competence

and controls his / her / their activity;

✓ decides on long-term cooperation essential to the Company or terminates such cooperation;

✓ takes decisions on the establishing and / or closing a branch;

✓ takes decisions to increase the Company's capital, in cases where it is expressly authorized to do

so by the General Meeting;

✓ approves disposition (including, but not limited to, transfer, encumbrance, burden, etc.) to the

Company's business or parts thereof;

✓ approves the conclusion of transactions with shareholders, members of the Board of Directors

or employees of the Company (or members of their families);

✓ approves borrowing or otherwise forming a Company's financial debt to a third party at a value

above BGN 50,000 as a result of a single transaction or a series of transactions;

✓ decides on the participation and / or termination of the Company's participation in other

companies in the Republic of Bulgaria and abroad;

✓ decides to exercise rights as a shareholder / partner in subsidiaries;

✓ decides to grant a loan or other form of financing the companies in which the Company owns

and / or exercises control;

✓ decides to dispose of intellectual property of the Company as well as to grant intellectual

property rights on assets of the Company;

✓ prepares, accepts and signs a prospectus for public offering of securities issued by the Company;

✓ elects and releases investment intermediaries to take and/or administer a securities issue issued

by the Company, which will be subject to public offering;

✓ approves the conclusion of transactions other than those specified in Art.114, para.1 of the Public

Offering of Securities Act (POSA) with the participation of interested persons within the meaning of

Art.114, para.7 of POSA;

✓ approves the conclusion of transactions under Art.114, para.3 of the POSA by the subsidiaries

of the Company,

✓ resolves on all matters that are not within the exclusive competence of a General Meeting.

5. Composition and functioning of the administrative, managerial and supervisory bodies and

their committees

Members of the Board of Directors at the date of preparation of this report are:

• Angel Ivanov Angelov – Chairman of the Board of Directors

• Georgi Aleksandrov Babev – Member of the Board of Directors and Executive Director

• Bistra Stoyanova Kotseva - Member of the Board of Directors

The company has a one-tier management system.

Management bodies of Gradus AD:

• General Meeting of Shareholders

• Board of Directors

9

General Meeting, Participation in a General Meeting

• The General Meeting comprises all shareholders with voting rights.

• The shareholders with voting rights are able to exercise their vote at a General Meeting of the

company by a proxy;

• The members of the Board of Directors who are not shareholders participate in the General

Meetings without a right to vote.

Competence of the General Meeting:

• Amends and supplements the Articles of Association of the Company;

• Increases and decreases the capital of the Company;

• Transforms and terminates the Company;

• Elects and dismisses the members of the Board of Directors;

• Determines the remuneration of the members of the Board of Directors, to whom corporate

governance functions will not be entrusted, including their right to receive a portion of the Company’s

profit, as well as the right to acquire shares and bonds of the Company;

• Appoints and dismisses registered auditors, when the audit is mandatory in the cases provided

for in a law or when a decision has been taken that an independent financial audit shall be carried out;

• Approves the annual financial statements after they have been certified by the appointed registered

auditor in the cases where an independent financial audit has been carried out; takes a decision for profit

distribution, for making contributions to the Reserve Fund and for payment of dividends;

• Resolves on the issuance of bonds;

• Appoints liquidators in the event of termination of the Company, except for the case of

termination by bankruptcy;

• Releases from liability the members of the Board of Directors;

• Resolves on redemption of treasury shares of the Company;

• Elects an Audit Committee; determines the number and mandate of its members and approves

its Rules of Procedure in compliance with the provisions of the Independent Financial Audit Act;

• Empowers the persons managing and representing the Company to conclude deals under Article

114, paragraph 1 of POSA;

• Resolves on all other matters within its competence according to the law and/or the Articles of

Association.

Board of Directors:

• The Board of Directors manages and represents the company;

• The Board of Directors exercises its powers in compliance with the decisions of the General

Meeting, these Articles of Association and the applicable law.

Competence of the Board of Directors:

• Organises the implementation of the decisions taken at the General Meeting and control this

implementation;

• Elects the Executive Director(s)/representative(s), determines the limits of his/their competence

and controls his/their activity;

• Takes decisions on long-term cooperation essential to the Company on the termination of such

cooperation;

• Takes decisions on the establishment and/or closure of a branch;

10

• Takes decisions to increase the capital of the Company, in cases where it is expressly authorized

to do so by a General Meeting;

• Approves the disposal (including, but not limited to, transfer, closure, burdening, etc.) of the

Company's business or parts thereof;

• Approves the conclusion of transactions with Shareholders, members of the Board of Directors

or employees of the Company (or members of their families);

• Approves the taking of a loan or otherwise forming a Company's financial debt to a third party

at a value exceeding BGN 50,000 as a result of a single transaction or a series of transactions;

• Takes decisions on the participation and/or termination of the Company's participation in other

companies in the Republic of Bulgaria and abroad;

• Takes decisions on the exercise of rights of the Company as a shareholder/partner in subsidiaries;

• Takes decisions on granting a loan or other form of financing to companies in which the

Company has equity participation and /or on which it exercises controls;

• Takes decisions on disposal of Intellectual Property Rights of the Company, as well as on

granting rights to objects of Intellectual Property of Company;

• Prepares, accepts and signs a prospectus for public offering of securities issued by the Company;

• Selects and releases investment intermediaries which to take over and/or administer the issue of

securities issued by the Company, which will be subject to public offering;

• After obtaining a public status from the Company, it shall approve the conclusion of transactions

other than those specified in Art.114, para.1 of the Public Offering of Securities Act with the participation

of interested persons within the meaning of Art.114, para.7 of POSA,

• After obtaining a public status from the Company, it shall approve the conclusion of transactions

under Art.114, para.3 of POSA by the subsidiaries of the Company;

• Approves the consolidated financial statements of the Company;

• Resolves all matters which are not within the exclusive competence of the General Meeting.

Remuneration

The amount and structure of remuneration of the members of the Board of Directors are regulated by the

Articles of Association of Gradus AD, approved by the General Meeting of the company, their

management contracts, and the Remuneration Policy of the Board of Directors, adopted by the General

Meeting held on 11 June 2021.

Conflict of interest

The company has implemented a related party transactions policy, approved by minutes of the Board of

Directors dated 01 August 2018.

Supervisory bodies

The company has a one-tier management system and thus, an Audit Committee has been established in

accordance with Article 107of the Independent Financial Audit Act. The Audit Committee consists of 3

(three) members elected by the Board of Directors for a 4 (four)-year mandate. The majority of the

members of the Audit Committee, including its Chairperson, should be independent.

The Audit Committee is composed as follows:

• Hristina Atanasova Filipova – Chair of the Audit Committee;

• Ivaylo Nikolaev Nikolov – Member of the Audit Committee;

11

• Radka Dimcheva Peneva – Member of the Audit Committee.

The Chair of the Audit Committee complies with the independence requirements applicable to members

of Audit Committees, as defined in article 107, paragraph 4 of the Independent Financial Audit Act.

The Audit Committee is a specialised body entrusted with the following powers:

• Informs the Board of Directors of the results of the statutory audit and clarifies how the statutory

audit has contributed to the credibility of financial reporting, and the role of the Audit Committee in this

process;

• monitors the financial reporting and audit processes, internal control and risk management of

the company, and provides recommendations and proposals to ensure their efficiency;

• monitors the statutory audit of the company's annual financial statements;

• inspects and monitors the independence of the registered auditors of the Company;

• is responsible for the registered auditor selection procedure and recommends the appointment of

a registered auditor;

• perform other functions provided for by law.

A Management Board/Council was also established in 2023 as the corporate governance structure of the

Gradus Group.

The following have been elected as its members:

1. Stoyka Stanilova Dencheva

2. Krasimira Stanilova Kirkova

3. Radka Dimcheva Peneva

4. Martin Vladimirov Dimitrov

5. Georgi Ganchev Dyulgyarov

The Management Board was established pursuant to Article 32, Clause 19 of the Articles of Association

of Gradus AD to assist the Board of Directors in achieving the Company's objectives with its expertise.

The purpose of the Management Board is to contribute to the efficient and quality management of the

Gradus Group.

The work of the Management Board is based on effective interaction between its members and the Board

of Directors of Gradus plc to achieve the Group's strategic objectives

6. Description of the diversity policy applied as regards the administrative, managerial and

supervisory bodies of the issuer in connection with aspects such as age, gender or education and

professional experience, the objectives of such diversity policy, its method of application and the

results therefrom during the reporting period; when no such policy is applied, the declaration shall

contain an explanation regarding the reasons for that:

The Group makes every effort to ensure equal opportunities for recruitment and respect in form and

substance of the whole range of laws relating to fair practices in the working environment and the

prevention of discrimination.

Discrimination and harassment, whether based on race, gender, feeling or expression of sex, colour of

the skin, belief, religion, national origin, nationality, citizenship, age, disability, family status (including

partnerships without marriage and civil alliances, defined and recognised by the current legislation),

12

sexual orientation, culture, pedigree, veteran status, socio-economic situation or other law- protected

personal characteristics are unacceptable and totally incompatible with the traditions of the Group, for

ensuring a reputable, professional and decent job. Repressive measures to persons raising complaints

about discrimination or harassment are also prohibited.

The main goals of the Group in implementing diversity policies include:

• attracting, hiring and retaining at work of people possessing a wide range of talents. The diverse

abilities and talent of managers and employees open up new opportunities for innovative and creative

solutions, increase creativity and innovation. This in turn would also lead to a more effective adaptation

to the impact of globalisation and technological change. A more diverse workforce can improve the

ability of the Company to achieve its objectives. This approach can raise the spirit of employees, give

access to new market segments and increase productivity;

• promoting a working atmosphere that respects ethical diversity and in which differences between

people are valued and respected;

• solving one of the most important problems for the employer – that of labour shortages, as well as

problems relating to the recruitment and retention of highly skilled workers;

• improving the reputation and overall representation of the company vis-à-vis external

stakeholders and society;

• creating opportunities for disadvantaged groups and building the unity of society.

The Group aims to achieve the goals set by promoting and implementing in practice the types of

diversity that are of importance to the companies. By adopting good practices applied by other

companies and institutions, the Group's management aims at making diversity management a

functioning part of the company. Management devotes its efforts to inform its employees, consumers,

customers and investors of the importance of diversity for them and their work, aiming to build trust

willingness to render support.

26 April 2024

Executive Director:

Georgi Babev

Chairman of Board of Directors:

Angel Angelov

Baker Tilly Klitou and Partners EOOD

5 Stara planina str, floor 5

Sofia 1000

Bulgaria

T: +359 2 9580980

F: +359 2 8592139

info@bakertillyklitou.bg

www.bakertillyklitou.bg

ADVISORY  ASSURANCE  TAX

Baker Tilly Klitou and Partners EOOD trading as Baker Tilly is a member of the global network of Baker Tilly International Ltd., the members of

which are individual and independent legal entities.

This document is a translation of the original text in Bulgarian,

in case of divergence the Bulgarian original is prevailing.

INDEPENDENT AUDITORS’ REPORT

To the Shareholders of GRADUS AD

REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

Opinion

We have audited the accompanying consolidated financial statements of GRADUS AD and its

subsidiaries (together “the Group”), which comprise the consolidated statement of financial position as

of December 31, 2023, and the consolidated statement of comprehensive income, the consolidated

statement of changes in equity and the consolidated statement of cash flows for the year then ended,

and notes to the consolidated financial statements, including significant information for the accounting

policies and other information.

In our opinion, the accompanying consolidated financial statements present fairly, in all material

respects, the financial position of the Group as of December 31, 2023, and its financial performance

and its cash flows for the year then ended in accordance with International Financial Reporting

Standards ("IFRS"), as adopted by the European Union (“EU”).

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our

responsibilities under those standards are further described in the Auditors’ Responsibilities for the

Audit of the consolidated financial statements section of our report. We are independent of the Group

within the meaning of the International Code of Ethics for Professional Accountants (including

International Independence Standards) issued by International Ethics Standards Board for Accountants

(IESBA Code) together with the ethical requirements of the Independent Financial Audit Act (IFAA)

that are relevant to our audit of the consolidated financial statements in Bulgaria, and we have fulfilled

our other ethical responsibilities in accordance with the IESBA Code and the requirements of IFAA.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for

our opinion.

2

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our

audit of the consolidated financial statements of the current period. These matters were addressed in

the context of our audit of the consolidated financial statements as a whole, and in forming our opinion

thereon, and we do not provide a consolidated opinion on these matters.

Key audit matter

How our audit addressed the key audit matter

1. Valuation of intangible assets and

goodwill

As disclosed in Notes № 5 and № 6 to the

consolidated financial statements as of 31

December 2023, the Group reports intangible

assets (trademarks), amounting to BGN 33,335

thousand and goodwill, amounting to BGN

20,656 thousand related to subsidiaries.

The review and the tests of the Group’s

management for necessity of impairment of

the intangible assets and goodwill related to

subsidiaries is a complex process, through

which are considered forecasts of the Group

regarding future estimated benefits and gains,

expected to be received from them. In its

calculations the Group management needs to

apply significant assumptions, various

judgments and estimates, as for valuation

determination they use the method of

discounted future cash flows.

Due to the circumstances that (a) the process

of estimating and testing of possible

impairment losses of the intangible assets and

goodwill related to subsidiaries assumes a

number of judgments, higher degree of

subjectivity and uncertainty related to the

projection assumptions, including revenue

projections, cash flow projections and growth

rate, the level of uncertainty, and (b) the

significance of the reporting item itself, as

disclosed above, we have determined this

matter as a key audit matter.

In this area our audit procedures performed

are:

• Analyses and assessment of the

appropriateness of Group’s budget and

projections as of 31 December 2023

• Examination of the calculations and the

results from the test for impairment of the

intangible assets and goodwill, made by

the Group’s management with the

assistance of independent external

appraisers;

• Assessment of the objectivity,

independence and competency of the

external certified appraisers.

• Analysis and assessment of the

appropriateness of the key judgments and

assumptions, used by the Group’s

management, including the discount rate

used in the application of the discounted

cash flows model;

• Assessment and testing the completeness,

appropriateness and adequacy of the

disclosures in the Group’s consolidated

financial statements with regard to the

valuation of intangible assets and goodwill

related to subsidiaries.

3

Information Other than the consolidated financial statements and Auditors’ Report Thereon

The Management is responsible for the other information. The other information comprises of the

annual report on activities, the corporate governance statement and the non-financial declaration,

prepared by the management in accordance with Chapter Seven of the Accountancy Act, but does not

include the consolidated financial statements and our auditors’ report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do

not express any form of assurance conclusion thereon, unless it is not specifically stated in our

auditors’ report and to the extent it is specifically stated.

In connection with our audit of the consolidated financial statements, our responsibility is to read the

other information and, in doing so, consider whether the other information is materially inconsistent

with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears

to be materially misstated. If, based on the work we have performed, we conclude that there is a

material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the consolidated

financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial

statements in accordance with IFRS as adopted by the EU, and for such internal control as

management determines is necessary to enable the preparation of consolidated financial statements that

are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the

Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going

concern and using the going concern basis of accounting unless management either intends to liquidate

the Group or to cease operations, or has no realistic alternative but to do so.

The Audit Committee of the Group (“Those charged with governance”) are responsible for overseeing

the Group’s financial reporting process.

Auditors’ Responsibilities for the Audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements

as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’

report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a

guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement

when it exists. Misstatements can arise from fraud or error and are considered material if, individually

or in the aggregate, they could reasonably be expected to influence the economic decisions of users

taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain

professional skepticism throughout the audit. We also:

4

• Identify and assess the risks of material misstatement of the consolidated financial statements,

whether due to fraud or error, design and perform audit procedures responsive to those risks,

and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.

The risk of not detecting a material misstatement resulting from fraud is higher than for one

resulting from error, as fraud may involve collusion, forgery, intentional omissions,

misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing an

opinion on the effectiveness of the Group's internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting

estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting

and, based on the audit evidence obtained, whether a material uncertainty exists related to

events or conditions that may cast significant doubt on the Group’s ability to continue as a

going concern. If we conclude that a material uncertainty exists, we are required to draw

attention in our auditors’ report to the related disclosures in the consolidated financial

statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are

based on the audit evidence obtained up to the date of our auditors’ report. However, future

events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial

statements, including the disclosures, and whether the consolidated financial statements

represent the underlying transactions and events in a manner that achieves fair presentation.

• Receive adequate and relevant audit evidence regarding the financial information of the

companies part of the Group in order to express an opinion on the consolidated financial

statements. We bear responsibility for the instruction, supervision and execution of the audit of

the consolidated financial statements. We bear the ultimate responsibility for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned

scope and timing of the audit and significant audit findings, including any significant deficiencies in

internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant

ethical requirements regarding independence, and will communicate with them all relationships and

other matters that may reasonably be thought to bear on our independence, and where applicable,

related safeguards.

From the matters communicated with those charged with governance, we determine those matters that

were of most significance in the audit of the consolidated financial statements of the current period and

are therefore the key audit matters. We describe these matters in our auditor’s report unless law or

regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we

determine that a matter should not be communicated in our report because the adverse consequences of

doing so would reasonably be expected to outweigh the public interest benefits of such

communication.

5

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

Additional matters, required to be reported by the Accountancy Act and Public Offering of

Securities Act

In addition to our reporting responsibilities according to ISAs described in section “Information Other

than the consolidated financial statements and Auditors’ Report Thereon”, with respect to the annual

report on activities, the corporate governance statement and the non-financial declaration, we have also

performed the procedures required by the Guidelines related to new extended audit reports and

communication from the auditors of the Professional Organization of Registered Auditors in Bulgaria -

Institute of Certified Public Accountants. These procedures include tests over the existence, form and

content of the other information in order to assist us in forming an opinion as to whether the other

information includes the disclosures and reporting as required by Chapter Seven of the Accountancy

Act and the Public Offering of Securities Act (art. 100m, para 10 of POSA in relation to art. 100m,

para 8, p. 3 and 4 of POSA), applicable in Bulgaria.

Opinion under Article 37, paragraph 6 of the Accountancy Act

Based on the procedures performed, in our opinion:

• The information included in the annual report on the activities for the financial year for which

the consolidated financial statements have been prepared, is consistent with the consolidated

financial statements.

• The annual report on the activities has been prepared in accordance with the requirements of

Chapter Seven of the Accountancy Act and of Art. 100m, paragraph 7 of the Public Offering of

Securities Act.

• The information required by Chapter Seven of the Accountancy Act and Art. 100m, para 8 of

the Public Offering of Securities Act is presented in the corporate governance statement

covering the financial year for which the consolidated financial statements have been prepared.

• The non-financial Declaration, covering the financial year for which the consolidated financial

statements have been prepared, has been provided and prepared in accordance with the

requirements of Chapter Seven of the Accountancy Act.

Opinion under Art. 100m, para 10 in relation to art. 100m, para 8, p. 3 and 4 of the Public

Offering of Securities Act

Based on the procedures performed and as a result of the acquired knowledge and understanding of the

Group and the environment in which it operates, acquired during our audit, in our opinion, the

description of the main features of the Group’s internal control and risk management systems in

relation to the financial reporting process as part of the annual report on activities (as element of the

content of the corporate governance statement) and the information under Article 10, paragraph 1,

letter "c", "d", "f", "h" and "i" of the Directive 2004/25/EC of the European Parliament and of the EU

Council of April 21, 2004 related to takeover bids, included in the corporate governance statement do

not contain cases of material misrepresentations.

6

Additional Reporting on the audit of the consolidated financial statements under Art. 100m,

para 4, p.3 of the Public Offering of Securities Act

Reporting under Art. 100m, para 4, p.3 b) “b” of the Public Offering of Securities Act

The information on transactions with related parties is disclosed in Note 37 to the consolidated

financial statements. Based on the audit procedures performed on the transactions with related parties,

we have not identified any facts or other information, based on which we could conclude that the

transactions with related parties are not disclosed in the attached financial statements for the year

ended 31 December 2023, in all material aspects, in accordance with the requirements of IAS 24

Disclosure of related parties. The results of our audit procedures regarding transactions with related

parties are considered in the context of forming our audit report on the consolidated financial

statements taken as a whole, and not with the purpose of expressing the audit opinion on transactions

with related parties.

Reporting under Art. 100m, para 4, p.3 b) “c” of the Public Offering of Securities Act

Our responsibilities for the audit of the consolidated financial statements as a whole, described in the

section Auditors’ Responsibilities for the Audit of the consolidated financial statements include

assessment whether the consolidated financial statements presents true and fair view of material

transactions and events. Based on the audit procedures performed on the material transactions,

underlying the consolidated financial statements for the year ended 31 December 2023, no facts,

circumstances or other information have come to our attention, based on which we can conclude that

there are cases of material misstatements and disclosures in the consolidated financial statements in

accordance with the requirements of IFRS, adopted by EU. The results of our audit procedures on the

material transactions and events related to the Group are considered in the context of forming our audit

report on the consolidated financial statements taken as a whole, and not with the purpose of

expressing the audit opinion on these material transactions.

Reporting on compliance of the electronic format of the consolidated financial statements,

included in the annual consolidated financial statements according to art. 100m, para 4 of the

Public Offering of Securities Act with the requirements of the ESEF Regulation

We have conducted engagement to express reasonable assurance regarding the compliance of the

electronic format of the consolidated financial statements of Gradus AD for the year ended 31

December 2023, in the attached electronic file “485100VMOUDWWCUDJ690-20231231-BG-

CON.zip", with the requirements of Commission Delegated Regulation (EU) 2018/815 of 17

December 2018 supplementing Directive 2004/109/EC of the European Parliament and of the Council

with regard to regulatory technical standards on the specification of a single electronic reporting

format (“Regulation ESEF”). Our conclusion is only regarding the electronic format of the

consolidated financial statements and does not cover the other information included in the annual

consolidated financial statements for the activity under Art. 100m, para. 5 of the POSA.

7

Description of a subject matter and applicable criteria

The management has prepared the electronic format of the consolidated financial statements of the

Group for the year ended 31 December 2023 under the ESEF Regulation in order to comply with the

requirements of the POSA. The requirements for the preparation of consolidated financial statements

in this electronic format are contained in the ESEF Regulation and, in our view, have the

characteristics of appropriate criteria for forming a reasonable assurance conclusion.

Responsibilities of the management and those charged with governance

The Group's management is responsible for applying the requirements of the ESEF Regulation when

preparing the electronic format of the consolidated financial statements in XHTML. These

responsibilities include the selection and application of appropriate iXBRL markups using the

taxonomy of the ESEF Regulation, as well as the design and implementation of such internal control

system that management determines necessary to prepare the electronic format of the Group's annual

consolidated financial statements that does not contain material non-compliance with the requirements

of the ESEF Regulation.

Those charged with governance are responsible for overseeing the process for preparation the Group's

annual consolidated financial statements, including the application of the ESEF Regulation.

Auditor's responsibilities

Our responsibility is to express a reasonable assurance conclusion as to whether the electronic format

of the consolidated financial statements is in compliance with the requirements of the ESEF

Regulation. For this purpose, we have complied with the „Guidelines related to issuing of audit

opinion in relation to the application of the European single electronic format (ESEF) for the financial

statements of entities, which shares are traded on a regulated market in the European union (EU)” of

the Professional Organization of Registered Auditors in Bulgaria - Institute of Certified Public

Accountants and we have conducted an engagement to express reasonable assurance in accordance

with ISAE 3000 (revised) “Assurance Engagements Other than Audits or Reviews of Historical

Financial Information" (ISAE 3000 (revised)).

This standard requires us to comply with ethical requirements, plan and perform appropriate

procedures to obtain reasonable assurance whether the electronic format of the Group's consolidated

financial statements has been prepared, in all material respects, in accordance with the applicable

criteria mentioned above.

The nature, timing and scope of the selected procedures depend on our professional judgment,

including the assessment of the risk of material non-compliance with the requirements of the ESEF

Regulation, whether due to fraud or error.

A reasonable assurance is a high level of assurance, but it does not guarantee that an engagement

performed in accordance with ISAE 3000 (revised) will always detect material non-compliance, when

such exist.

8

Quality management requirements

We apply the requirements of the International Standard on Quality Management (ISQM) 1, which

requires development, implementation and maintenance of system for quality management,

including policies or procedures regarding compliance with ethical requirements, professional

standards and applicable legal and regulatory requirements for registered auditors in Bulgaria.

We comply with the ethical and independence requirements of the International Code of Ethics for

Professional Accountants (including International Standards of Independence) of the International

Ethics Standards Board for Accountants (IESBA Code), adopted by ICPA through the IFAA.

Summary of the work performed

The purpose of the procedures planned and performed by us was to obtain a reasonable assurance that

the electronic format of the consolidated financial statements has been prepared, in all material

respects in accordance with the requirements of the ESEF Regulation. As part of our assessment of

compliance with the ESEF Regulation's electronic (XHTML) format for reporting on the Group's

consolidated accounts, we maintained professional skepticism and used professional judgment. We

also:

- obtained understanding of the internal control and the processes related to the application of the

ESEF Regulation regarding the consolidated financial statements of the Group and including the

preparation of the consolidated financial statements of the Group in XHTML format and its marking

up in machine readable language (iXBRL);

- checked if the applied XHTML format is valid;

- checked whether the human readable part of the electronic format of the consolidated financial

statements corresponds to the audited consolidated financial statements;

- assessed the completeness of the marking up in the consolidated financial statements of the Group

using the machine-readable language (iXBRL) in accordance with the requirements of the ESEF

Regulation;

- assessed the appropriateness of the iXBRL markups selected from the main taxonomy used, as well

as the creation of an extended taxonomy element in accordance with the ESEF Regulation where an

appropriate element in the main taxonomy is missing;

- assessed the appropriateness of anchoring of the elements of the extended taxonomy in accordance

with the ESEF Regulation.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our

conclusion.

9

Conclusion on the compliance of the electronic format of the consolidated financial statements with

the requirements of the ESEF Regulation

In our opinion, based on the procedures performed, the electronic format of the consolidated financial

statements of the Group for the year ended 31 December 2023, contained in the attached electronic file

“485100VMOUDWWCUDJ690-20231231-BG-CON.zip", has been prepared in all material respects

in accordance with the requirements of the ESEF Regulation.

Reporting in accordance with Art. 10 of Regulation (EU) No 537/2014 in connection with the

requirements of Art. 59 of the Independent Financial Audit Act

In accordance with the requirements of the Independent Financial Audit Act in connection with Art. 10

of Regulation (EU) No 537/2014, we hereby additionally report the information stated below.

• Baker Tilly Klitou and Partners EOOD were appointed as statutory auditors of the consolidated

financial statements of the Group for the year ended December 31, 2023 by the general meeting

of shareholders held on June 30th, 2023 for a period of one year.

• The audit of the consolidated financial statements of the Group for the year ended December

31, 2023 represents seventh statutory audit engagement for that entity carried out by Baker

Tilly Klitou and Partners EOOD.

• We hereby confirm that the audit opinion expressed by us is consistent with the additional

report provided to the Audit committee, in compliance with the requirements of Art. 60 of the

Independent Financial Audit Act.

• No prohibited non-audit services referred to in Art. 64 of the Independent Financial Audit Act

were provided.

• We hereby confirm that in conducting the audit we have remained independent of the Group.

• For the period, for which is related our statutory audit, no other services are provided to the

Group.

Audit company 129 Baker Tilly Klitou and Partners EOOD

Ivaylo Yanchev

Registered auditor, responsible for the

audit

April 26, 2024

Galina Lokmadjieva – Nedkova

Managing Director

Baker Tilly Klitou and Partners EOOD

5, Stara Planina Str., 5th floor

1000 Sofia, Bulgaria

TO

SHAREHOLDERS OF

GRADUS AD

DECLARATION

Art. 100m, para 4, item 3 from

Public Offering of Securities Act

The undersigned:

Ivaylo Yanchev, in the capacity of registered auditor from Baker Tilly Klitou and Partners EOOD, with

UIC 131349346, with headquarters and management address: 5, Stara Planina Str.,5, floor 5, Sofia, 1000

and address for correspondence: Sofia, 1000, 5, Stara Planina Str., 5, floor 5, declare that:

Baker Tilly Klitou and Partners EOOD was engaged to carry out a mandatory financial audit of the

consolidated financial statements of Gradus AD (“The Group”) for the year 2023, prepared in accordance

with the International Financial Reporting Standards, as adopted by the EU, a generally accepted name of

the accounting base defined in paragraph 8 of the Supplementary part of the Accounting Act under the name

"International Accounting Standards". As a result of our audit, we issued an audit report on April 26, 2024.

We hereby certify that as reported in our audit report on the annual consolidated financial statements

of Gradus AD for 2023 issued on April 26, 2024:

1. Art. 100m, para. 4, item 3, letter "a" Audit opinion: In our opinion, the accompanying consolidated

financial statements give a true and fair view of the financial position of the Group as of 31 December 2023

and of its financial performance and its cash flows for the year ending on that date in accordance with the

International Financial Reporting Standards (IFRS), as adopted by the European Union (EU).

2. Art. 100m, para. 4, item 3, letter "b" Information related to the transactions of GRADUS AD with

related parties. Information about related party transactions is duly disclosed in Note 37 to the consolidated

financial statements. Based on the audit procedures we performed on related party transactions as part of

our audit of the consolidated financial statements as a whole, we have not become aware of any facts,

circumstances or other information on the basis of which we may conclude that related party transactions

are not disclosed in the accompanying consolidated financial statements for the year ended 31 December

2023 in all material respects in accordance with IAS 24 Related Party Disclosures. The results of our audit

procedures on related party transactions have been reviewed by us in the context of forming our opinion on

the consolidated financial statements as a whole, rather than in order to express a separate opinion on related

party transactions.

3. Art. 100m, para. 4, item 3, letter "c" Information relating to material transactions. Our audit

responsibilities for the consolidated financial statements as a whole described in the section of our report

"Auditor's Responsibilities for the Audit of the Consolidated Financial Statements" include assessing

whether the consolidated financial statements present the material transactions and events in a manner that

delivers credible performance. Based on the audit procedures we performed on the material transactions

underlying the consolidated financial statements for the year ended 31 December 2023, no facts,

circumstances or other information have been disclosed to us in order to conclude that there are cases of

material misrepresentation and disclosure in accordance with the applicable IFRS requirements adopted by

the European Union.

The results of our audit procedures on the Group's transactions and events that are material to the Group's

financial statements are reviewed by us in the context of our opinion on the consolidated financial statements

as a whole and not for the purpose of obtaining a separate opinion on these material transactions.

The representations made by this declaration should be considered only in the context of our audit

report as a result of the independent financial audit of the consolidated annual financial statements of

GRADUS AD for the reporting period ending 31 December 2023, dated April 26, 2024. This declaration

is intended solely for the above-mentioned addressee and has been prepared solely and solely in

compliance with the requirements set forth in Art. 100m, para. 4 item 3 of the Public Offering of

Securities Act (POSA) and should not be accepted as a substitute for our opinion expressed in the audit

report issued by us on April 26, 2024 regarding the issues covered by Art. 100m, para. 4, item 3 of POSA.

____________________________

26 April 2024 Ivaylo Yanchev

Sofia Registered auditor, responsible for the

audit