Shelly Group SE

SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY ANNUAL SEPARATE FINANCIAL STATEMENTS DECEMBER 31, 2023 ANNUAL SEPARATE REPORT ON THE ACTIVITY SHELLY GROUP AD FOR 2023 THIS REPORT ON THE ACTIVITY HAS BEEN PREPARED IN ACCORDANCE WITH THE PROVISIONS OF ART. 39 AND THE FOLLOWING OF THE ACCOUNTANCY ACT, ART. 100N, PARA 7 OF THE PUBLIC OFFERING OF SECURITIES ACT AND APPENDICES No. 2 AND No. 3 OF ORDINANCE No 2 of 9.11.2021 ON INITIAL AND SUBSEQUENT DISCLOSURE OF INFORMATION IN CASE OF PUBLIC OFFERING OF SECURITIES AND ADMISSION OF SECURITIES TO TRADING ON A REGULATED MARKET. SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 1 DEAR SHAREHOLDERS, We, the members of the Board of Directors of SHELLY GROUP AD (former ALLTERCO AD) /”the Company”/, committed to manage the company in the best interest of the shareholders, as well as following the requirements of the provisions of Art. 39 and the following of the Accountancy Act (effective since 01.01.2021), Art. 100n, Para 7 of the Public Offering of Securities Act and Appendix No. 2 and No. 3 of Ordinance No. 2 of 9 November on initial and subsequent disclosure of information in case of public offering of securities and admission of securities to trading on a regulated market, have prepared this report on the activity (hereinafter "The Report"). The Report provides comments and analysis of the separate financial statements and other material information regarding the financial position and the financial performance of the company. The report contains an objective review that presents fairly the development and performance of SHELLY GROUP AD, as well as its position, including a description of the main risks it faces. The circumstances that occurred in 2023, which the Company's management believes may be of significance to the investors in deciding to acquire, sell or continue to hold publicly offered securities, have been disclosed within the time limits provided for in the Public Offering of Securities Act and by the Financial Supervision Commission, investors and the regulated securities market. SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 2 This Report on the activity of Shelly Group (“the Company”/ “the Issuer”) presents information about the Company on a separate basis as of December 31, 2023 and covers the period 01.01.2023-31.12.2023 (“the reporting period”). 1. GENERAL INFORMATION ABOUT THE COMPANY Shelly Group AD is a public joint-stock company, established in 2010 in the city of Sofia and entered into the Commercial Register with the Registry Agency on 11.02.2010 under UIC (unified identification code): 201047670 and LEI code (identification code of the legal entity) 8945007IDGKD0KZ4HD95 for unlimited period of time. The name in Latin shall be written as follows: Shelly Group AD (previous name „ALLTERCO AD“). The Company’s seat and management address is: 103, Cherni Vrah Blvd., 1407 Sofia, Capital Municipality, Republic of Bulgaria. The correspondence address is the same; tel.: +359 2 957 12 47. The Company’s website is corporate.shelly.com. The Company is public in the sense of the Public Offering of Securities Act, as it is entered as a public company in the register kept by the FSC with Decision 774 - PD of November 14, 2016 as a result of a successfully completed primary public offering of shares from the Company's capital increase. As of 22.11.2021, the shares of Shelly Group AD are traded on two EU regulated markets - the Bulgarian Stock Exchange and the Frankfurt Stock Exchange. The Company operates in accordance with Bulgarian legislation. The economic group that consists of the parent company SHELLY GROUP AD and its subsidiaries is presented below in p. 2: As of 31.12.2023, the structure of the capital of SHELLY GROUP AD is the following: Table 1 SHAREHOLDER % OF CAPITAL Svetlin Todorov 30,39 % Dimitar Dimitrov 32,00 % Other individuals and legal entities 37,61 % 1.1. In-kind contributions made in the last three financial years In the last three financial years, no in-kind contributions were made to the Company's share capital. 1.2. Information about the management system As of 31.12.2023 SHELLY GROUP AD has a one-tier management system - 5-member Board of Directors (BD). During the reporting period there was a change in the personnel composition of the Board of Directors of the Company. By decision of the General Meeting of the Shareholders dated 18.12.2023 a change in the personnel was voted in the Board of Directors. Effective from 01.01.2024. Mr. Christoph Vilanek replaced Mr. Gregor Bieler, who has left his role as board member due to increase in his professional engagements. The change is reflected in the Commercial Register and Register of Non-Profit Entities with the Register Agency on 08.01.2024. As of the date of the preparation of this report, the Board of Directors includes: SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 3 • Christoph Vilanek – Chairman; • Nikolay Martinov – Deputy Chairman; • Dimitar Dimitrov – Executive Director and representative; • Wolfgang Kirsch – Executive Director and representative; • Svetlin Todorov – BD Member and representative; The representative members of the Board of Directors represent the Company jointly or separately. 2. REVIEW OF THE COMPANY’S BUSINESS ACTIVITY AND STATUS As of 31.12.2023 SHELLY GROUP AD reports investments in other companies. Structure of the economic group as of 31.12.2023: * The subsidiary Shelly Europe EOOD (former “Allterco Robotics”) has a branch in Ireland, registered in the Companies Registration Office of Ireland under registration number 909893, address 38, Upper Mount Street, Dublin, D02 PR89, Ireland. ** In January 2023 the Company concluded the first phase of the acquisition of the Slovenian IoT provider Shelly Tech (former Goap d.o.o. Nova Gorica), hereinafter “Slovenian company”/”Shelly Tech”, which consisted of the acquisition of 60% of the capital of the Acquiree. Share purchase agreements ("SPA") have been concluded with all four shareholders in the Slovenian company for the transaction, The total price of the transactions in the first phase amounts to EUR 2 million. SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 4 The remaining 40% of the capital of the Slovenian company, owned by three owners – individuals, are subject to call options contract, which was concluded together with the acquisition agreements. The terms of the option contract, SHELLY GROUP AD has an unconditional option to purchase (call option), and the sellers – conditional option to sell (put option) two packages of company shares (the exercise of sellers' option is subject to achieving certain minimum KPIs for the period 2023 - 2025, including EBITDA and revenue). One of the options is for the acquisition of 16% and the other for the acquisition of 24% of the capital of the Slovenian company. The total price of the shares from both packages depends on the level of achievement of the agreed KPIs and may vary in the range from EUR 699 999.70 (BGN 1 369 080.41) to EUR 3 449 998.60 (BGN 6 747 610.76). Shelly Tech d.o.o,, Slovenia has an interest of 1,56% of the capital of INSTALACIJE d.d. montaža in trgovina - v stečaju, with headquarters and management address Goriška cesta 66, 5270 Ajdovščina, Slovenia, and registration number: 5279330000. The company is in a process of liquidation, which is expected to be completed in 2024. *** At the end of 2023 the subsidiary Shelly Trading EOOD registered a branch in the United Kingdom, Great Britain (UK establishment number BR 026108). SHELLY GROUP AD has an associate company in China, Allterco Asia Ltd., with seat and management address, province of Gangxia, Shenzhen, China. The share capital of the new company is CNY 100 000, and the share of SHELLY GROUP AD is 30% with an option to acquire additional up to 50% and reach a controlling stake of up to 80% at the discretion of SHELLY GROUP AD. SHELLY GROUP AD has interest in the associate of 625 new privileged company shares, representing 10% of the capital of Corner Solutions OOD. The interest was acquired for BGN 196 thousand (EUR 100 000) as a result of Investment agreement concluded in the reporting period between SHELLY GROUP AD and Vitosha Venture Partners - Fund I KD, UIC: 206223492, in their capacity of co-investors, on the one hand and Ground Solutions Group AD, its founders Mr. Vladimir Konstantinov Todorov, Mr. Denis Krasimirov Florov, Mr. Nikola Konstantinov Ruichev and Corner Solutions OOD, UIC 206375571, on the other hand. The main activity of SHELLY GROUP AD according to Art. 4 of the Statute is: acquisition, management, evaluation and sale of interests in Bulgarian and foreign companies; acquisition, management and sale of bonds; acquisition, evaluation and sale of patents, assignment of licenses for the use of patents to entities in which the Company participates; financing of companies in which the Company participates: purchase of goods and other items for resale in original, processed form; sale of goods of own production; foreign trade transactions; commission, forwarding, warehouse and leasing transactions; transport transactions in the country and abroad; transactions of commercial representation and mediation of local and foreign individuals and legal entities; consulting and marketing transactions; provision of management and administration services to local and foreign legal entities; as well as any other commercial transactions not prohibited by law. SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 5 As a result of the strategic transactions, corporate changes and decisions in 2019 and 2021, the main activity of the Company and its economic group during the reporting period of 2023 remains the development, production and sale of IoT devices. Since 2015, the business of the Group companies has organically grown in the IoT sector through the development and implementation of two main product categories – tracking devices under the MyKi brand and home automation systems under the Shelly brand. 3. RESULTS FROM OPERATIONS 3.1. Revenue and result of operations At the end of the reporting period SHELLY GROUP AD reports on separate basis a profit in the amount of BGN 7 852 thousand, which represents an increase of 642.2% compared to 2022. During the reporting period SHELLY GROUP AD reports on a separate basis revenue from dividends in the amount of BGN 11 000 thousand, which is an increase of 174.9% compared to the prior year. In 2023 the company sold its exposure to financial instruments that are traded on regulated market and has realized a profit in the amount of BGN 181 thousand. Table 2 REVENUE 2021 Change 2022 Change 2023 BGN’000 % BGN’000 % BGN’000 Dividend income 5 000 -20.0% 4 001 174.9% 11 000 Other income 22 -100% - - 36 Total operating revenue 5 022 -20.3% 4 001 175.8% 11 036 Gains (losses) on operations with financial assets 250 -148% (119) 252% 181 3.2. Operating expenses At the end of the reporting period the total operating expenses of SHELLY GROUP AD have increased by 15.8% compared to the same reporting period of the prior year. This increase was largely due to an increase in salary expenses by 29.5% and hired services by 41.1%. The largest part of the reported operating expenses for the reporting period are the expenses for salaries and social security with a share of 47.5% of the total expenses, followed by the expenses for hired services with a share of 35.7%. Salary expenses include the remuneration of the members of the Board of Directors, which is determined by a decision of the general meeting of shareholders, as well as the remuneration of 4 employees who have employment contracts with the Company. SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 6 Table 3 EXPENSES 2021 Change 2022 Change 2023 BGN’000 % BGN’000 % BGN’000 Expenses for materials (2) 50.0% (3) 100.0% (6) Hired services expenses (923) -7.8% (851) 41.1% (1 201) Depreciation/ amortization expenses (3) 533.3% (19) 147.4% (47) Salaries (389) 206.7% (1 193) 29.5% (1 545) Social insurance and health insurance contributions (40) 20.0% (48) 12.5% (54) Other expenses (13) -84.6% (2) 600.0% (14) Total administrative expenses (1 370) 54.5% (2 116) 35.5% (2 867) Receivables/impairment written off (239) 221.3% (768) -36.6% (487) Other operating expenses (25) -24.0% (19) -57.9% (8) Sales expenses (2) -100.0% - - - Total operating expenses (1 636) 77.4% (2 903) 15.8% (3 362) 3.3. Financial indicators Liquidity Table 4 LIQUIDITY RATIOS 31-12-2021 31-12-2022 31-12-2023 Current ratio 17.70 13.80 14.50 Quick ratio 17.70 13.80 14.50 Absolute liquidity ratio 13.47 7.07 2.83 Cash ratio 17.65 13.57 13.84 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00 20.00 Current ratio Quick ratio Absolute liquidity ratio Cash ratio 31/12/2021 31/12/2022 31/12/2023 SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 7 The current liquidity ratio at the end of the reporting period increased due to the following: current assets have increased by 3.1% compared to the end of 2022, while the current liabilities have decreased by 1.9%. The quick liquidity ratio at the end of the reporting period increased due to the following: current assets have increased by 3.1% compared to the end of 2022, while the current liabilities have decreased by 1.9%. The absolute liquidity ratio at the end of the reporting period decreased due to the following: current liabilities have decreased by 1.9% compared to the end of 2022, while cash has decreased by 60.7% mainly due to the payment of dividend in the third quarter of 2023. The cash ratio at the end of the reporting period increased due to the following: Current liabilities decreased by 1.9% compared to the end of 2022, while cash has decreased by 60.7%, trade receivables decreased by 36.0%, and receivables from related companies have increased by 84.3%. Capital leverage ratios Table 5 FINANCIAL LEVERAGE RATIOS 31-12-2021 31-12-2022 31-12-2023 Debt/Equity 0.09 0.09 0.07 Debt/Assets 0.08 0.08 0.06 Equity/Debt 11.08 11.66 14.70 The change in the debt/equity ratio at the end of the reporting period is due to the following: the liabilities of the Company have decreased by 7.2% compared to the end of 2022 and equity has increased by 17.0%. The change in the debt/assets ratio at the end of the reporting period is due to the following: the assets of the Company have increased by 15.1% compared to the end of 2022, while the liabilities have decreased by 7.2%. The change in the equity/debt ratio at the end of the reporting period is due to the following: the liabilities of the Company have decreased by 7.2% compared to the end of 2022 and equity has increased by 17.0%. 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 Debt / Equity Debt / Assets Equity/ Debt 31/12/2021 31/12/2022 31/12/2023 SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 8 3.4. Key indicators Summary information on the financial performance of SHELLY GROUP AD for the last three financial periods is presented in the following charts and tables: Table 6 2021 BGN’000 2022 BGN’000 2023 BGN’000 EBITDA 3 552 1 117 7 627 EBIT 3 549 1 098 7 674 The calculation of the above indicators does not include the gains on sale of financial assets. Table 7 INDICATORS 2021 BGN’000 2022 BGN’000 2023 BGN’000 Dividend income 5 000 4 001 11 000 Equity 31 401 28 496 33 335 Non-current liabilities 1 615 1 383 1 228 Current liabilities 1 220 1 060 1 040 Non-current assets 12 645 16 312 20 526 Current assets 21 591 14 627 15 077 Working capital 20 371 13 567 14 037 Cash 16 434 7 490 2 943 Total debt 2 835 2 443 2 268 Interest expense 61 53 45 Current receivables 5 094 6 895 11 450 Expenses for ordinary activities 1 636 2 093 3 362 Materials expenses 2 3 6 3.5. Profitability ratios 0.000 0.050 0.100 0.150 0.200 0.250 0.300 0.350 0.400 0.450 0.500 Return on registered capital ROE ROA 2021 2022 2023 SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 9 Table 8 PROFITABILITY RATIO 2021 2022 2023 Return on registered capital 0.178 0.059 0.435 ROE 0.102 0.037 0.236 ROA 0.093 0.034 0.221 Return on equity (ROE) As of the end of 2023, the return on equity ratio increased by 0.236 compared to the same period of the prior year. This is due to the growth of 642.2% of the net profit of the Company. In 2023 compared to 2022 the equity of the Company increased by 17.0%. Return on assets (ROA) The value of ROA ratio as of the end of 2023 is 0.221 and has increased compared to the prior financial year. For 2023 SHELLY GROUP AD reports an increase of net profit and at the same time the assets of the Company increased by 15.1%. Return on registered capital As of the end of the reporting period, the Return on registered capital is 0.435 and has increased compared to 2022. In 2023 compared to 2022, the net profit reported by the Company increased, while in the same period the registered capital of the Company also increased by, but only by 0.3%. 4. HUMAN RESOURCES As of the end of the reporting period, the average number of employees in SHELLY GROUP AD is 7 people, including key management personnel of 4 people related to the group operations. The relationships with workers and employees are regulated under separate labour contracts. The Company's management strives to improve the standard of living of its employees beyond the working hours during which they are directly focused on their business commitments. The expenses for salaries and social security for 2023 amount to BGN 1 599 thousand (2022: BGN 1 241 thousand). 5. ENVIRONMENTAL PROTECTION POLICY The Company does not carry out activities that have negative impact on the environment. Nevertheless, the Company strives to limit the use of materials produced from non-renewable energy sources and implements an energy safety program. 6. NON-FINANCIAL REPORTING In accordance with the requirements of Directive 2014/95/EU of the European Parliament on non-financial reporting and the provisions of the Accountancy Act, for a number of companies arises an obligation to publish non-financial information separately or as part of the annual reports on the activity. The obligation arises for large public-interest entities which, as at 31 December of the reporting period, exceed the criterion for an average number of employees in the financial year of 500 people. Public interest entities are: public entities and other issuers of securities; credit institutions; financial institutions; insurers and reinsurers, pension insurance companies and funds managed by them; investment intermediaries; trading companies that produce, distribute and sell electricity and heat; commercial companies that import, transport, distribute and transit natural gas; commercial companies providing water, sewer and telecommunications services; Bulgarian State Railways EAD and its subsidiaries. SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 10 Large enterprises are defined as those with net sales revenues - BGN 76 million or the carrying amount of the assets - BGN 38 million. Given the criteria set out in the Accountancy Act, it can be concluded that SHELLY GROUP AD, on a separate basis, is not obliged to report non-financial information separately or as part of the report of the Board of Directors. 7. MAIN RISKS FOR THE COMPANY The risks related to the business operation of the Company can be generally divided into systematic (overall) and non-systematic (related specifically to its activity and the industry where it operates). The Company is also associated with the similar risk categories inherent in its activity and the industry where its subsidiaries operate insofar as they are the main source of the Company's revenue. In addition, the investors in financial instruments of the Company are exposed to risks related to investments in securities (derivative and underlying). 7.1. SYSTEMATIC RISKS Systematic risks are related to the market and the macro environment in which the Company operates, which is why they cannot be managed and controlled by the company's management team. Systematic risks are the following: political risk, macroeconomic risk, inflation risk, currency risk, interest rate risk, tax risk and unemployment risk. Table 9 Type of risk Description POLITICAL RISK Political risk is the likelihood of a change of Government, or of a sudden change in its policy, of occurrence of internal political upheavals and unfavourable changes in European and/or national legislation, which would have an adverse impact on the environment in which local businesses operate, and investors would incur losses. In April 2023 early parliamentary elections were held and as of the date of this report a regular coalition government was formed of the two first political formations. Political risks for Bulgaria internationally are related to the commitments undertaken to implement serious structural reforms in the country in its capacity as an equal member of the EU, increasing social stability, limiting inefficient spending, on the one hand, as well as to the strong destabilization of the Middle East countries, the military interventions and conflicts in the region of the former Soviet Union, the refugee waves generated by these factors, and the potential instability of other key countries in the immediate vicinity of the Balkans. Other factors that also affect this risk are the possible legislative changes and in particular, those concerning the economic and investment climate in the country. GENERAL MACRO- ECONOMIC RISK According to the National Statistical Institute, in December 2023 the total business climate indicator decreased by 1.8 percentage points compared to previous month (from 21.6% to 19.8%) due to unfavorable business climate in the sectors of construction, retail and services. 1 Overall, average annual real GDP growth is expected to slow from 3.4% in 2022 to 0.6% in 2023, then recover to 0.8% in 2024 and stabilize at 1.5% in 2025. and 2026. Compared to the September 2023 projections, the GDP growth outlook has been slightly revised downwards for 2023-24 due to recent data releases and weak survey data, while for 2025 1 https://www.nsi.bg/sites/default/files/files/pressreleases/Economy2023-12_024GKPK.pdf SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 11 Type of risk Description it is unchanged. 2 INTEREST RATE RISK The interest rate risk is related to possible, eventual, adverse changes in the interest rates established by the financial institutions of the Republic of Bulgaria. At its meeting on December 14, 2023, the Governing Council took a decision to keep the ECB's three key interest rates unchanged. The Governing Council is determined to ensure that inflation returns to its medium-term target of 2% in due course. Based on its current assessment, the Governing Council believes that interest rates are at levels that, sustained over a sufficiently long period of time, will contribute significantly to a timely return of inflation to target. Future Governing Council decisions will ensure that key ECB interest rates are set at sufficiently restrictive levels for as long as necessary to ensure such a timely return. 3 Basic interest rate Date % 01.12.2023 3.80 01.11.2023 3.79 01.10.2023 3.64 01.09.2023 3.53 01.08.2023 3.29 01.07.2023 3.12 01.06.2023 2.96 01.05.2023 2.77 01.04.2023 2.47 01.03.2023 2.17 01.02.2023 1.82 01.01.2023 1.42 Source: BNB4 INFLATION RISK Inflation risk is a general rise in prices in which money depreciates and there exists a probability of loss to households and firms. The consumer price index (CPI) is an official measure of inflation in the Republic of Bulgaria. It estimates the total relative change in the prices of goods and services used by households for personal (non-production) consumption and the index is calculated by applying the structure of the final cash consumer expenditure of Bulgarian households. According to the NSI in December 2023 monthly inflation is 0.3%, while annual inflation is 4.7%. Inflation is measured by the consumer price index and the monthly inflation is for December 2023 compared to the previous month, whereas annual inflation is for December 2023 compared to same month of the prior year. In December 2023 monthly inflation is 0.3%, while the annual inflation for December 2023 December 2022 is 4.7%. The average annual inflation for the period January - December 2023 compared to the period January - December 2022 is 9.5%. 5 2 https://www.bnb.bg/bnbweb/groups/public/documents/ecb_publication/publications_ecb_mb_202308_bg.pdf 3 https://www.bnb.bg/bnbweb/groups/public/documents/ecb_publication/publications_ecb_mb_202308_bg.pdf 4 https://www.bnb.bg/Statistics/StBIRAndIndices/StBIBaseInterestRate/index.htm 5 https://nsi.bg/sites/default/files/files/pressreleases/Inflation2023-12_EVM5IO7.pdf SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 12 Type of risk Description Source: NSI The harmonized index of consumer prices is a comparable measure of inflation across EU countries. It is one of the criteria for price stability and for Bulgaria’s accession to the Eurozone. The HICP, as well as the CPI, measure the total relative change in the level of prices of goods and services. According to NSI the monthly inflation according to the HICP in December 2023 is 0.3%, and the annual inflation for December 2023 compared to December 2022 is 5.0%. The average annual inflation for the period January - December 2023 compared to the period January - December 2022 is 8.6%. 6 According to the macroeconomic forecasts of the employees of the Euro-system of the Eurozone for December 2023 inflation is expected to decrease gradually in 2024, before approaching the target of the Governing Council of 2% in 2025. In general, the employees of the Euro-system expect general inflation to be on average 5.4% in 2023, 2.7% in 2024, 2.1% in 2025 and 1.9% in 2026. Compared to the macroeconomic forecasts of the employees of the ECB for the Eurozone for September 2023 this represents a downward revision for 2023 and especially for 2024. In general, with medium-term inflation expectations, estimated to remain anchored at the level of the inflationary target of the ECB of 2%, total HICP inflation is expected to decrease from 5.4% in 2023 to average 2.7% in 2024, 2.1% in 2025. 7 CURRENCY RISK Currency risk will have an impact on companies with market shares, the payments of which are made in a currency other than BGN and EUR. Since, according to the current legislation in the country the Bulgarian lev is fixed to the euro in the ratio EUR 1 = BGN 1.95583, and the Bulgarian National Bank is obliged to maintain a level of Bulgarian levs in circulation equal to the bank’s foreign exchange reserves, the risk of devaluation of the BGN compared to the European currency is minimal and consists in the eventual early abolition of the currency board in the country. At this stage, this seems unlikely, as the currency board is expected to be abolished upon the adoption of the EUR in Bulgaria as an official unit of payment. Theoretically, currency risk could increase when Bulgaria joins the second stage of the European Exchange Rate Mechanism (ERM II). This is a regime in which the country must maintain the exchange rate compared to the EUR within +/- 15% against the central parity. In practice, all countries currently in this mechanism (Denmark, Estonia, Cyprus, Lithuania, Latvia, Malta) are witnessing fluctuations that are significantly less than the allowed ones of ± 15%. 6 https://nsi.bg/sites/default/files/files/pressreleases/Inflation2023-12_EVM5IO7.pdf 7 https://www.bnb.bg/bnbweb/groups/public/documents/ecb_publication/publications_ecb_mb_202308_bg.pdf SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 13 Type of risk Description On July 10, 2020, Bulgaria joined the ERM II exchange rate mechanism, known as the ‘euro area’s waiting room’. The central rate of the Bulgarian lev is fixed at EUR 1 = BGN 1.95583. Around this central exchange rate of the BGN, the standard range of plus or minus 15 percent will be maintained. Bulgaria joins the exchange rate mechanism with its existing currency board regime, as a unilateral commitment and without additional requirements to the ECB 8 . At the same time, our country must enter into close cooperation with the unified banking supervision. The fixed exchange rate of the BGN to the EUR does not eliminate for the Bulgarian currency the risk of unfavorable movements of the euro exchange rate against other major currencies (US dollar, British pound, Swiss franc) on the international financial markets, but at present the Company does not consider that such a risk would be material to its business. The Company may be affected by currency risk depending on the type of cash flow currency and the type of currency of the Company’s potential loans. The SHELLY GROUP AD’s Group companies operate in Bulgaria as well as in EU countries and other countries, mainly in the USA, Latin America and Australia. At present, the main revenues from the Group companies’ IoT business are in BGN or EUR, and the costs of delivery of goods in this segment are mainly in US dollars and are largely tied to the Chinese yuan, which is why the appreciation of the US dollar or Chinese yuan would have an adverse effect on the business performance. In terms of US dollar exposure, the Group companies are expected to have significant US dollar sales revenue in the US and other non-EU markets in the future, which to some extent balances the Group’s net exposure to this major currency. To limit the effects of the currency risk, the companies of the Group have introduced a system for planning the deliveries from countries inside and outside the EU, as well as procedures for ongoing monitoring of the movements in the exchange rates of the foreign currencies and control over the forthcoming payments. Currently, the Group companies do not use derivative instruments for hedging the currency risk but, if necessary, the management is ready to enter into such transactions. Credit risk of the state Credit risk represents the probability of deterioration of Bulgaria's international credit ratings, caused by the inability of the state to regularly repay its liabilities. Low credit ratings of the state may lead to higher interest rates, more difficult financing conditions for both state and individual entities, including the Company. Credit ratings are prepared by specialized credit rating agencies and serve to determine and measure a state's credit risk. Bulgaria's credit rating is presented in the table below: Table 1: Credit risk of Bulgaria (source: Ministry of Finance) Credit agency Date of last modification Long-term rating Perspective Standard & Poor‘s 25.11.2023 9 BBB/A-2 Stable Fitch 28.10.2023 10 BBB Positive The international rating agency S&P Global Ratings increased its rating from stable to positive and confirmed the long-term and short-term credit rating of Bulgaria in foreign and local currency 'BBB/A-2'. The positive outlook reflects the opinion of the rating agency that there is at least a one to three probability that Bulgaria will join the Eurozone in the next 24 months. 8 https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200710~4aa5e3565a.en.html 9 https://www.minfin.bg/bg/news/12432 10 https://www.minfin.bg/bg/news/12383 SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 14 Type of risk Description The governing coalition, formed in June, represents Bulgaria's first stable government in the last two years, after five parliamentary elections. One of the main political goals of the government is the country's accession to the Eurozone, planning to achieve it from January 1, 2025. Bulgaria may not meet all convergence criteria, especially that of price stability. Even if Bulgaria does not join the Eurozone in 2025, the rating agency expects that the accession will likely be delayed until January 1, 2026. Despite the aging workforce, Bulgaria's economy has strong prospects for real growth, with average rates of 3% for the period 2024-2026, driven mainly by domestic demand. Consumption will remain strong due to the good performance of the labor market, which is supporting real wage growth. Sufficient EU funds for Bulgaria, which S&P Global Ratings estimates at over 30% of GDP for 2023, will support investment activity in the coming years. Obtaining and using all available funds will be challenging due to the approaching deadlines of the main funding programs - the EU's Multiannual Financial Framework 2014-2020 and the Recovery and Resilience Facility - under the EU Next Generation Program (NGEU). S&P Global Ratings rates Bulgaria's fiscal performance as one of the best among Central and Eastern European countries and expects current fiscal plans to result in deficits below 3% of GDP in the period to 2026, keeping net government debt below 20 % of GDP. The agency expects the current account deficit to remain low and overfinanced by EU funds and foreign direct investment flows, limiting the need for external financing and maintaining a stable external position. S&P Global Ratings would increase the credit rating in the next two years, potentially by several notches, if Bulgaria becomes a member of the Eurozone. S&P noted that they would revise the outlook to stable if expectations of Bulgaria joining the Eurozone become less likely. 11 The international rating agency Fitch Ratings confirmed the long-term credit rating of Bulgaria in foreign and local currency 'BBB' with a positive outlook. Bulgaria's rating is supported by the country's strong external and fiscal position compared to countries with the same rating, the reliable political framework of EU membership and the long-term functioning of the currency board regime. On the other hand, the low share of investment relative to GDP and unfavorable demographic factors weigh on potential economic growth and public finances in the long term. The positive outlook reflects the country's plans for Eurozone membership, which could lead to further improvements in the country's external position indicators. Despite the delay in the process of joining the Eurozone, the analysts of the rating agency believe that there is a broad political commitment to adopt the euro in 2025. After the formation of the new government, the parliament has accepted all the remaining commitments after the country's entry into ERM II. Adoption of the Euro: The inflation rate (HICP) in Bulgaria follows a downward trend, but remains significantly above that of the three EU member states with the lowest inflation and currently does not meet the price stability criterion. Given the significant uncertainty regarding inflationary processes, for Fitch Ratings the fulfillment of the price stability criterion in mid-2024 (the key date for adoption into the Eurozone in 2025) remains questionable. Bulgaria is likely to meet all other nominal criteria for adopting the Euro (public finances, interest rate and exchange rate). Analysts from the agency believe that the adoption of the 11 https://www.minfin.bg/bg/news/12432 SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 15 Type of risk Description Euro is in support of the rating, since, other things being equal, it would improve the assessment of the country's rating by about two notches. Accelerating growth: After reporting growth in the first half of 2023, despite slowing external demand, high inflation and heightened uncertainty, Fitch raised its forecast for GDP growth this year to 1.9% (from 1.3% expected in May) . Household consumption is expected to be supported by higher budget spending, a stable labor market, a decrease in the money saving tendency and strong credit growth. Investment growth is expected to gradually improve in the second half of 2023 due to increased transfers from the EU. GDP growth will accelerate to 2.8% in 2024 and 3% in 2025, with weaker private consumption balanced by stronger investments supported by EU transfers. The rating agency also considers the government's commitment to implementing reforms related to the Recovery and Resilience Mechanism, after the submission of the second payment request at the amount of EUR 724 million (0.8% of GDP for 2023). Gradual decline in inflation: Fitch forecasts that headline HICP inflation will continue to gradually decelerate, while core inflation will decline more slowly due to strong private consumption, tight labor market conditions and spillover effects. The agency expects average annual inflation of 9.1% in 2023, 4.6% in 2024 and 2.9% in 2025. The inflation forecast remains subject to significant uncertainty arising mainly from the dynamics of commodity prices and the manifestation of spillover effects. Growing medium-term budget deficit and low debt: A budget deficit of 2.6% of GDP is forecast in 2023, as a result of lower-than-planned spending on energy support measures, higher social and capital spending, and public sector wage increases. Despite achieved fiscal prudence, the current government is expected to maintain slightly higher deficits in the medium term to boost public investment and social transfers to reduce inequality. A budget deficit of 2.8% of GDP in 2024 and 3.5% of GDP in 2025 is expected. Despite larger fiscal deficits, Bulgaria's public debt level will remain much lower compared to EU countries, as well as countries with the same rating. The ratio of total government debt to GDP is forecast to remain below 30% until 2027. Main factors that could lead to positive rating actions are: progress towards joining the Eurozone, including confidence that Bulgaria meets the membership criteria and the deadline for adopting the Euro; improving the growth potential of the economy, for example by introducing structural and management reforms to improve the business environment and/or efficient use of EU funds. Factors that could lead to negative rating actions are: lack of progress in joining the Eurozone due to continued political instability or failure to meet convergence criteria; lower medium-term growth prospects, caused for example by a significant adverse macroeconomic shock or inflation that has persisted at high levels. 12 Risk of unemployment As a major factor affecting consumer purchasing power, an increase in unemployment would reduce the demand for IoT products. On the other hand, the demand for personnel by the businesses continues to be very active and such risk seems insignificant in the coming year. According to Eurostat estimates, in December 2023, 12.936 million people in the EU, of which 10.909 million in the Eurozone (EZ), will be unemployed. Compared to November 2023, unemployment in the Euro area fell by 17,000 people, remaining at a record low. Compared to December 2022, unemployment fell by 299,000 in the EU and by 369,000 in the Eurozone. 13 12 https://www.minfin.bg/bg/news/12383 13 https://ec.europa.eu/eurostat/statistics- explained/index.php?title=Unemployment_statistics#Unemployment_in_the_EU_and_the_euro_area SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 16 Type of risk Description Legal Risk Although Bulgaria has introduced a number of significant legislative changes since joining the EU and most of the Bulgarian legislation has been harmonized with EU legislation, the legal system in the country is still in the process of reform. Judicial and administrative practices remain problematic and it is difficult to effectively resolve property disputes, breaches of laws and contracts, etc. Deficiencies in the legal infrastructure can result in uncertainty arising from the implementation of corporate actions, supervision and other issues. Tax Risk It is essential for the financial performance of the companies to maintain the current tax regime. There is no guarantee that the tax legislation, which is directly relevant to the core business of the Company, will not be changed in a direction that would lead to significant unforeseen expenses and, accordingly, would adversely affect its profit. The taxation system in Bulgaria is still developing, as a result of which a contradictory tax practice may arise. 7.2. UNSYSTEMATIC RISKS Risks related to the industry in which the Company operates Such risks are the Risk Of Key Personnel Shortage, Competitive Risk, Personal Data Security and Cyber Attacks Risk, Risk Of Changing Technologies. Risk of key personnel shortage One of the biggest challenges facing technology companies such as the Group companies, as well as considering the specific scope of their activity in the field of telecommunications and engineering and software development, is the shortage of qualified personnel. The insufficient availability of suitable personnel in the subsidiaries could adversely affect the future development of the Group, due to delays in the development of new products/services or the maintenance of existing ones. On the other hand, the high competition for attracting personnel in this sector raises the price of labor. As a result, the financial position and market share of the Group’s companies would suffer. Competitive Risk Following the sale of the Shelly Group's telecommunications business, the Group's companies operate primarily on the Internet of Things (IoT) segment. This segment is one of the most modern and promising sectors of the industry, which attracts the interest of many technological giants and start-ups. The loss or inability to capture market share and declines in final product prices due to increased competition could have a negative effect on revenues, earnings and profit margins. Maintaining a competitive position requires investment in creating new useful devices, improving existing solutions and expanding market share, and it cannot be taken for granted that new developments will prevail among competitors on the market. Personal Data Security and Cyber Attacks Risk The technology industry is characterized by the digital transfer of information that could be strictly confidential, containing personal data of product users, financial information of companies, information about new products, etc. The protection of such information is a critically important factor for the normal functioning of companies in the industry, including the companies of the Group. The sales of the devices and the use by customers of the accompanying mobile applications and cloud services provided by the Group are related to the exchange and storage of personal data. A potential breach in information security may lead to: SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 17 i) Loss of customers and/or partners and their migration to competitive companies; ii) Imposing sanctions and lawsuits with regard to violations of applicable data protection and privacy laws; iii) Lost or delayed orders and sales; iv) Adverse effect on reputation, business, financial position, profit and cash flows. Regulatory and specific technical requirements Risk The offering of IoT devices is subject to a regulation for the certification of the products for sale in the respective country. In the European Union, products must be marked ‘CE’, thus indicating that the product has been evaluated and meets safety, health and environmental requirements. The US equivalent is UL Certification. For the purposes of certification, accredited laboratories are assigned the compliance tests, which is associated with significant costs. In addition, specifics in the requirements of local regulators and counterparties (especially mobile operators) may require the performance of additional tests and certification, which increases the cost of entering a certain market or a certain distribution channel. The sales of the products of the Group’s companies cover more and more markets, which often have local regulation regarding the certification of similar products in the respective country. Compliance with local regulatory requirements is time and resource intensive and may delay the Company's entry into new markets or impose additional costs to meet different standards. The change in regulatory requirements for devices may involve additional costs to bring them into compliance with the new requirements, including costs of recalling products from the market to bring them into compliance with those requirements. The companies of the Group and their local partners monitor for planned legislative changes on a regular basis in order to take measures to ensure product compliance. Any changes in the regulations of telecommunications services may also have some impact on the Group's operations, as mobile operators are one of the main sales channels for the existing MyKi series products. A large part of the IoT devices developed and sold by the companies in the Group use Internet-based technology and can work with the services of any Internet provider. In this respect, the Group is already less dependent on regulations in the field of telecommunications, insofar as the companies in its structure are not telecommunication service providers and mobile operators are only one of the channels for trading and distribution of IoT devices. Risk of change in technology SHELLY GROUP AD and its subsidiaries operate in a highly dynamic segment where technology has a significant impact and is a source of competitive advantage. As a result, there is a risk of delayed adaptation to new technologies, due to lack of knowledge, experience or sufficient funding, which may have a negative effect on the Company. Slow adaptation to new realities may lead to loss of competitive positions and market shares, which in turn will lead to deterioration of the Group's results. Risks related to the Company's activities Such risks are: operational risk, risk related to business partners, risks arising from new projects and liquidity risk. SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 18 Operational risk Operational risk can be defined as the risk of losses caused by flawed or failed internal processes related to management. Such risks may arise as a result of: • Wrong operational decisions related to current project made by the management; • Shortage of qualified personnel necessary for the development and implementation of new projects; • Resigning key personnel impossible to replace; • Risk of an excessive increase in management and administrative costs, leading to a decrease in the overall profitability of the Company; • Technical failures leading to long interruptions is providing services may lead to the termination of contracts with customers. The effects of such circumstances may reduce the Company’s revenues and deteriorate the results of its activity. Risk related to business partners Manufacturing activity in the IoT segment has been outsourced, primarily to China, and is concentrated in a few manufacturers. Potential risks associated with key subcontractors are related to accurate and timely delivery or termination of business relationships. Although, management believes there is a wide range of alternative suppliers, the possible transfer of production to new partners and diversification of subcontractors may give rise to delays in deliveries and additional costs, which may affect the ability of the companies in the Group to fulfil agreed orders from customers and adversely affect the reputation and financial results of the Group. Risks arising from new projects The main activity of SHELLY GROUP AD is investments in subsidiaries. There is a risk that some of the subsidiaries may not be able to meet their objectives, resulting in a lower or negative return on investment. The development of new products and services by SHELLY GROUP AD’s subsidiaries is related to the investment in human resources, software, hardware, materials, goods and services. In case the new products and services fail to be realised on the market, such investments would be unjustified. This, in turn, would have a negative impact on the Company's expenses and assets, as well as on the results of its operations. In order to manage the risk arising from new projects, the companies of the Group make market and financial analyses with different scenarios, and in some cases discuss the concept of the new service / product with potential customers. Liquidity risk With regard to the Group the manifestation of liquidity risk is associated with the possibility of a lack of timely and/or sufficient available funds to meet all current obligations. This risk can occur both in case of a significant delay in payments by the Company's debtors, and in case of insufficiently effective management of cash flows from the Company's activities. Some of the companies in the Group use bank funding such as investment loans, overdrafts or revolving credit lines, which can be used in case of liquidity problems. SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 19 The company implements a conservative liquidity management policy, through which it constantly maintains an optimal liquid cash reserve and a good ability to finance its business activity. In order to control the risk, the Company is trying to pay its liabilities within the agreed deadlines. The Company monitors and controls the actual and estimated cash flows for future periods and maintains a balance between the maturity limits of the Company's assets and liabilities. 8. SIGNIFICANT EVENTS AFTER THE DATE OF PREPARATION OF THE ANNUAL FINANCIAL STATEMENTS The events after the reporting date are disclosed in Note 11 to the 202.32 separate financial statements. 9. CURRENT TRENDS AND POSSIBLE FUTURE DEVELOPMENT OF THE COMPANY SHELLY GROUP AD does not carry out direct production activities. The production activity is carried out by the subsidiaries. In 2023, SHELLY GROUP AD will continue to operate in the following main areas: 1. Observation, control and decision-making on important issues affecting subsidiaries as sole proprietor or majority owner through: • applying the principles of good corporate governance; • providing efficient and transparent work conditions; • improving the quality of services/products offered; • operational reorganization and optimization. 2. Transactions with assets of the Company and its subsidiaries 3. Management structure establishment 4. Funding the investments and the working capital of subsidiaries 5. Establish a unified financial reporting and accounting policy. 10. RESEARCH AND DEVELOPMENT ACTIVITIES The Company has not carried out any research and development activities and is not planning such activities in the foreseeable future. The subsidiaries Shelly Europe EOOD and Shelly Tech, Slovenia carried out such activity in 2023. 11. INFORMATION ON ACQUISITION OF OWN SHARES REQUIRED UNDER ART. 187D OF THE COMMERCE ACT 11.1. Number and nominal value of own shares acquired and transferred during the year, their capital share, as well as acquisition or the transfer price As of December 31, 2023, the Company does not own any own shares. 11.2. Number and nominal value of own shares and their capital share As of the end of the reporting period, the Company does not own any own shares, as specified in item 11.1. above. SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 20 12. INFORMATION REQUIRED UNDER ART. 247 OF THE COMMERCE ACT 12.1. Total remuneration received by the members of the Board of Directors during the year The following remunerations were appointed to the members of the Board of Directors of SHELLY GROUP AD in 2023. Table 10 Full name Position Gross/thousand BGN Gregor Bieler Chairman of the Board of Directors 243 Dimitar Stoyanov Dimitrov Executive Director 60 Wolfgang Kirsch Executive Director 587 Svetlin Iliev Todorov Member of the Board of Directors 60 Nikolay Angelov Martinov Independent member 60 * Gregor Bieler is not member of the Board of Directors from January 1, 2024. The decision was entered in the Trade Register on January 9, 2024. As oft the end of the reporting period, the remunerations appointed to the members of the Board of Directors have been paid. There are no provisions in the Company's Articles of Association regarding special rights or any privileges of the members of the Board of Directors. During the reporting year, some of the members of the Board of Directors received remuneration from the subsidiaries for performing other functions, subject of the Report on the implementation of the Remuneration Policy 12.2. Company’s shares and bonds acquired, owned and transferred by the members of the Board of Directors during the year As of the end of the reporting period, the shares owned by members of the Board of Directors of SHELLY GROUP AD are: Table 11 Members of the Board of Directors NAME OF THE BD MEMBER PERCENT OF THE CAPITAL Svetlin Todorov 30,39 % Dimitar Dimitrov 32,00 % Nikolay Martinov 0 % Wolfgang Kirsch 0 % Gregor Bieler 0 % * Nikolay Martinov has no direct interest in the capital of the Issuer. The companies Unicom Consult EOOD, where he is sole owner of the capital and Managing Director, Impetus Capital EOOD and Impetus Partners EOOD, where he is a Manager and a partner holding 50% and 43.75% of the capital, respectively, as well as Imventure I KDA and Imventure II KDA, where he is a representative of the legal entity Impetus Capital OOD, own respectively: Unicom Consult EOOD - 84,750 shares (0.47%), Impetus Capital OOD 162 000 shares (0.9%), Impetus Partners OOD 405,000 shares (2.25%), Imventure I KDA 123,288 shares (0.68%), Imventure II KDA - 68,493 shares (0.38%) in the Issuer's capital and a total of 843,531 shares (4.686%) of voting rights in its General Meeting. SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 21 ** Gregor Bieler owns approximately 0.03% of the voting rights in the Company's General Meeting, acquired prior to his election as a member of the Board of Directors. By decision of the General Meeting of Shareholders dated December, 18, 2023, from January 1, 2024 Gregor Bieler is not a member of the Board of Directors. *** Wolfgang Kirsch owns approximately 0.03% of the voting rights in the Company's General Meeting. 12.3. Rights of the members of the Board of Directors to acquire shares and bonds of the Company The members of the Company's Board of Directors may freely acquire shares from the capital of the Company on a regulated securities market in compliance with the provisions of the Law on Measures against Market Abuse with Financial Instruments, Regulation (EU) No. 596/2014 of the European Parliament and of the Council of April 16, 2014 on market abuse (Market Abuse Regulation) and the Public Offering of Securities Act. In accordance with the provision of Art. 19 of the Market Abuse Regulation, the members of the Company's Board of Directors, other individuals with managerial functions in the Issuer, and individuals closely related to them, shall notify the Company and the Financial Supervision Commission (FSC) in writing of any transaction carried by them with Shelly Group AD’s shares within 3 working days after the transaction. The notification obligation does not apply when the total amount of transactions made by an individual with managerial functions in the Issuer, or a closely individual does not exceed EUR 5,000 within a calendar year. 12.4. Participation of the members of the Board of Directors in companies as unlimited partners, holding more than 25 percent of the capital, as well as their participation in the management of other companies or cooperatives as procurators, managers or board members as of the end of the reporting period Table 12 Dimitar Dimitrov as of 31.12.2023 Participation in the governing and supervisory bodies of other companies, their participation as procurators and unlimited partners Participation in the capital of other companies outside the Group of Shelly Group AD Companies in which the person exercises control DVR Review EOOD entered in the Commercial Register at the Registry Agency under Unified Identification Code (UIC): 130554234, having its registered seat and headquarters address in the town of Samokov, 1, Zhitna Charshiya Street, Floor 1 DVR Review EOOD entered in the Commercial Register at the Registry Agency under Unified Identification Code (UIC): 130554234, having its registered seat and headquarters address in the town of Samokov, 1, Zhitna Charshiya Street, Floor 1 - direct DVR Review EOOD entered in the Commercial Register at the Registry Agency under Unified Identification Code (UIC): 130554234, having its registered seat and headquarters address in the town of Samokov, 1, Zhitna Charshiya Street, Floor 1 - direct Shelly USA Inc. (former name Allterco Robotics US), USA, having its registered seat and headquarters address in 5851 W. Charleston Blvd, Las Vegas, NV 89146, USA - indirect Teracomm OOD, UIC 131267949 having its registered seat and headquarters address in city of Sofia, Mladost district, 113A, Tsarigradsko Shose Blvd - direct Shelly Europe EOOD, UIC 202320104, having its registered seat and headquarters address in the city of Sofia, 103, Cherni Vrah Blvd. – indirect through Shelly Group AD SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 22 Sat Health AD, entered in the Commercial Register at the Registry Agency under UIC 204705650, having its registered seat and headquarters address in the city of Sofia, Vitosha district, Malinova dolina area, 4-6, Racho Petkov Kazandzhiata Street, office 2 Web Engine OOD, UIC 200303120, having its registered seat and headquarters address in the city of Sofia, Vitosha district 5A, Nikola Petkov Blvd.- direct Shelly Trading EOOD, UIC 203348672 having its registered seat and headquarters address in the city of Sofia, 103, Cherni Vrah Blvd. – indirect through Shelly Group AD Shelly Properties EOOD, UIC 204639442, having its registered seat and headquarters address in the city of Sofia, 103, Cherni Vrah Blvd. – indirect through Shelly Group AD Shelly DACH GmbH, registered number HRB 271205, having its registered seat and headquarters address at: Lothstr. 5, 80335 München, Federal Republic of Germany - indirect through Shelly Group AD Shelly Tech avtomatizacija stavb, d.o.o. (former name Goap d.o.o. Nova Gorica) having its registered seat and headquarters address at Ulica Klementa Juga 7, 5250 Solkan, Slovenia, registered number in Slovenian Trade register 5414083000 - indirect through Shelly Group AD Shelly USA Inc. (former name Allterco Robotics US), USA, having its registered seat and headquarters address at 5851 W.Charleston Blvd. Las Vegas, NV 89146, USA - indirect through Shelly Group AD Allterco Asia Ltd. registered number 91440300MA5GMK2T5B, having its registered seat and headquarters address at number 716, Building A, XingHe Shiji, Cai Tian road 3069, Gangxia, Futian, Shenzhen, China – indirect through Shelly Group AD SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 23 Svetlin Todorov as of 31.12.2023 Participation in the governing and supervisory bodies of other companies, their participation as procurators and unlimited partners Participation in the capital of other companies outside the Group of Shelly Group AD Companies in which the person exercises control Teracomm OOD, UIC 131267949 having its registered seat and headquarters address in city of Sofia, 113A, Tsarigradsko Shose Blvd. FF Film Haus OOD, UIC 130627604, having its registered seat and headquarters address in the city of Sofia, 60, Osogovo Street - direct Shelly Europe EOOD, UIC 202320104, having its registered seat and headquarters address in the city of Sofia, 103, Cherni Vrah Blvd. – indirect through Shelly Group AD FF Film Haus OOD, UIC 130627604, having its registered seat and headquarters address in the city of Sofia, 60, Osogovo Street Teracomm OOD, UIC 131267949 having its registered seat and headquarters address in city of Sofia, 113A, Tsarigradsko Shose Blvd. - 20% - direct Shelly Properties EOOD, UIC 204639442, having its registered seat and headquarters address in the city of Sofia, 103, Cherni Vrah Blvd. – indirect through Shelly Group AD Shelly USA Inc. (former name Allterco Robotics US), USA, having its registered seat and headquarters address in 5851 W. Charleston Blvd, Las Vegas, NV 89146, USA - indirect Web Engine OOD, UIC 200303120, having its registered seat and headquarters address in the city of Sofia, 5A, Nikola Petkov Blvd. - 20% - direct Shelly Trading EOOD, UIC 203348672 having its registered seat and headquarters address in the city of Sofia, 103, Cherni Vrah Blvd. – indirect through Shelly Group AD Shelly USA Inc. (former name Allterco Robotics US), USA, having its registered seat and headquarters address in 5851 W. Charleston Blvd, Las Vegas, NV 89146, USA - indirect FF Film Haus OOD, UIC 130627604, having its registered seat and headquarters address in the city of Sofia, 60, Osogovo Street - direct Shelly DACH GmbH, registered number HRB 271205, having its registered seat and headquarters address: Lothstr. 5, 80335 München, Federal Republic of Germany - indirect through Shelly Group AD Shelly Tech avtomatizacija stavb, d.o.o. (former name Goap d.o.o. Nova Gorica) having its registered seat and headquarters address at Ulica Klementa Juga 7, 5250 Solkan, Slovenia, registered number in Slovenian Trade register 5414083000 - indirect through Shelly Group AD Allterco Asia Ltd. registered number 91440300MA5GMK2T5B, having its registered seat and headquarters address at number 716, Building A, XingHe Shiji, Cai Tian road 3069, Gangxia, Futian, Shenzhen, China – indirect through Shelly Group AD SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 24 Nikolay Martinov - as of 31.12.2023 Participation in the governing and supervisory bodies of other companies, their participation as procurators and unlimited partners Participation in the capital of other companies outside the Group of Shelly Group AD Companies in which the person exercises control Unicom Consult EOOD, UIC 121082655, having its registered seat and headquarters address in the city of Sofia 1619, Vitosha municipal district, 271, Tsar Boris III Blvd., Floor 5, Apt. 9 Unicom Consult EOOD, UIC 121082655, having its registered seat and headquarters address in the city of Sofia 1619, Vitosha municipal district, 271, Tsar Boris III Blvd., Floor 5, Apt. 9 - direct Shelly Europe EOOD, UIC 202320104, having its registered seat and headquarters address in the city of Sofia, 103, Cherni Vrah Blvd. – indirect through Shelly Group AD Online Media OOD, UIC:117004285, having its registered seat and headquarters address in the city of Sofia 1415, 11, Nevena Kokanova Street, fl. 5 Online Media OOD, UIC:117004285, having its registered seat and headquarters address in the city of Sofia 1415, 11, Nevena Kokanova Street, floor 5– direct and indirect through е Unicom Consult EOOD, UIC 121082655 Shelly Properties EOOD, UIC 204639442, having its registered seat and headquarters address in the city of Sofia, 103, Cherni Vrah Blvd. – indirect through Shelly Group AD Inbro OOD, UIC 121003506, having its registered seat and headquarters address in the city of Sofia 1619, Vitosha District, 271, Tsar Boris III Blvd., fl. 5 United Commercial Outlets AD, UIC: 205329927, having its registered seat and headquarters address in the city of Sofia 1618, Ovcha Kupel municipal district, Ovcha Kupel 1 residential district, Block 48, Entrance B, Apt. 47 - indirect through ImVenture I KDA, UIC: 204870431 and ImVenture II KDA, UIC 205737996 Shelly Trading EOOD, UIC 203348672 having its registered seat and headquarters address in the city of Sofia, 103, Cherni Vrah Blvd. – indirect through Shelly Group AD Bioseek AD, UIC 204790412, having its seat address and management address in the city of Sofia 1505 Oborishte municipal district, 42, Ilarion Dragostinov Street, Apt. 37 Inbro OOD, UIC 121003506, having its registered seat and headquarters address in the city of Sofia 1619, Vitosha municipal district, 271, Tsar Boris III Blvd., fl. 5 - direct and indirect through Unicom Consult EOOD, UIC 121082655 Shelly USA Inc. (former name Allterco Robotics US), USA, having its registered seat and headquarters address at 5851 W. Charleston Blvd. Las Vegas, NV 89146, USA - indirect Biodit AD, UIC 203854303, having its seat address and management address in the city of Sofia 1756, Studentski municipal district, 125, Kliment Ohridski Blvd. - through Impetus Capital OOD, UIC: 203592737 Impetus Capital OOD, UIC 203592737, having its seat address and management address in the city of Sofia 1784, Mladost district, Mladost 1 residential district, bl. 29А, entrance А, floor 8 - direct Shelly DACH GmbH, registered number HRB 271205, having its registered seat and headquarters address: Lothstr. 5, 80335 München, Federal Republic of Germany - indirect through Shelly Group AD ImVenture I KDA, UIC 204870431, having its seat address and management address in city of Sofia 1784, Mladost municipal district, Mladost 1 residential district, Block 29А, Entrance А, Floor 8, Apt. 38 - as a representative representing legal entity - Impetus Capital OOD, UIC 203592737 Impetus Partners OOD, UIC 205679429, having its registered seat and headquarters address in the city of Sofia 1784, Mladost municipal district, Mladost 1 residential district, Block of flats 29А, Entrance А, Floor 8 – indirect through Unicom Consult EOOD, UIC 121082655 - direct Shelly Tech avtomatizacija stavb, d.o.o. (former name Goap d.o.o. Nova Gorica) having its registered seat and headquarters address at Ulica Klementa Juga 7, 5250 Solkan, Slovenia, registered number in Slovenian Trade register 5414083000 - indirect through Shelly Group AD SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 25 ImVenture II KDA, UIC 205737996 Sofia 1784, Mladost municipal district, Mladost 1 residential district, Block 29А, Entrance А, Floor 8, Apt. 38 - as a representative representing legal entity - Impetus Capital OOD, UIC: 203592737 Housmeister AD, UIC 203037803, having its registered seat and headquarters address in Sofia region, Stolichna Municipality, Sofia 1404, Bulgaria Blvd, No 53, floor 3 - direct Unicom Consult EOOD, UIC 121082655, having its registered seat and headquarters address in the city of Sofia 1619, Vitosha municipal district, 271, Tsar Boris III Blvd., Floor 5, Apt. 9 - direct Impuls I AD, UIC 206421264, Sofia 1784, district Mladost, Mladost 1, block 29А, entrance А, floor 8, apt. 38 – as representative of Impetus Capital OOD, UIC: 203592737 Bioseek AD, UIC 204790412, having its seat address and management address in the city of Sofia 1505 Oborishte municipal district, 42, Ilarion Dragostinov Street, Apt. 37 - indirect through Imventure I KDA, UIC: 204870431 and Imventure II KDA, UIC 205737996 and Impetus Capital OOD, UIC 203592737 Online Media OOD, UIC:117004285, having its registered seat and headquarters address in the city of Sofia 1415, 11, Nevena Kokanova Street, floor 5 - direct United Commercial Outlets AD, UIC 205329927, having its registered seat and headquarters address in the city of Sofia 1618, Ovcha Kupel municipal district, Ovcha Kupel 1 residential district, Block 48, Entrance B, Apt. 47 Inbro OOD, UIC 121003506, having its registered seat and headquarters address in the city of Sofia 1619, Vitosha municipal district, 271, Tsar Boris III Blvd., fl. 5 - direct Impetus Capital OOD, UIC 203592737, having its seat address and management address in Sofia 1784, Mladost district, Mladost 1 residential district, bl. 29А, entrance А, floor 8, apt. 38 Impetus Capital OOD, UIC 203592737, having its seat address and management address at city of Sofia 1784, Mladost district, Mladost 1 residential district, bl. 29А, entrance А, floor 8, apt 38 - direct Impetus Partners OOD, UIC 205679429, having its registered seat and headquarters address in the city of Sofia 1784, Mladost municipal district, Mladost 1 residential district, Block 29А, entrance А, floor 8 Impetus Partners OOD, UIC 205679429, having its registered seat and headquarters address in the city of Sofia 1784, Mladost municipal district, Mladost 1 residential district, Block 29А, entrance А, floor 8 – indirect through Unicom Consult EOOD, UIC 121082655 Storied Data Inc., having its registered seat and headquarters address at: State of Delaware, 251 Little Falls Drive, city of Wilmington, Delaware 19808, Country of New Castle, USA Biodit AD, UIC 203854303, having its seat address and management address in the city of Sofia 1756, Studentski municipal district, 125, Kliment Ohridski Blvd – indirect through Impetus Capital OOD, UIC 203592737 NOESIS EAD, UIC 207339610, having its registered seat and headquarters address in Plovdiv 4000, Central district, 2, Lyuben Karavelov Str. – as representative of IMPETUS CAPITAL OOD, UIC 203592737 Bioseek AD, UIC 204790412, having its seat address and management address in the city of Sofia 1505 Oborishte municipal district, 42, Ilarion Dragostinov Street, Apt. 37 -indirect through Imventure I KDA, UIC 204870431 Boleron AD, UIC 205595422, having its registered seat and headquarters address in Sofia 1000, Oborishte district, 24, Georgi Benkovski Blvd. - as representative of IMPETUS CAPITAL OOD, UIC 203592737 ImVenture I KDA, UIC 204870431, Sofia 1784, Mladost municipal district, Mladost 1 residential district, Block 29А, Entrance А, Floor 8, Apt. 38 – indirect through Impetus Capital OOD, UIC 203592737 SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 26 Kikimora io AD, UIC 207472703 through IMPETUS CAPITAL OOD, UIC 203592737, represented by Viktor Manev ImVenture II KDA, UIC 205737996 Sofia 1784, Mladost municipal district, Mladost 1 residential district, Block 29А, Entrance А, Floor 8, Apt. 38 – indirect through Impetus Capital OOD, UIC 203592737 ImPuls I AD, UIC 206421264, Sofia 1784, district Mladost, Mladost 1, block 29А, entrance А, floor 8, ap. 38 – indirect through Impetus Capital OOD, UIC 203592737 United Commercial Outlets AD, UIC 205329927, having its registered seat and headquarters address in the city of Sofia 1618, Ovcha Kupel municipal district, Ovcha Kupel 1 residential district, Block 48, Entrance B, Apt. 47 – indirect through ImVenture I KDA, UIC 20487043 and ImVenture II KDA, UIC 205737996 А4Е OOD, UIC 203608928, having its registered seat and headquarters address in the city of Sofia 1618, Ovcha Kupel district, 56, Buket Street, floor 15, аpt. 59 – indirect through Impetus Capital OOD, UIC 203592737, ImVenture I KDA, UIC 204870431 and ImVenture II KDA, UIC 205737996 Allterco Asia Ltd. registered number 91440300MA5GMK2T5B, having its registered seat and headquarters address at number 716, Building A, XingHe Shiji, Cai Tian road 3069, Gangxia, Futian, Shenzhen, China – indirect through Shelly Group AD SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 27 Wolfgang Kirsh as of 31.12.2023 Participation in the governing and supervisory bodies of other companies, their participation as procurators and unlimited partners Participation in the capital of other companies outside the Group of Shelly Group AD Companies in which the person exercises control Shelly DACH GmbH, registration number HRB 271205, registered office: Lothstr. 5, 80335 München, Federal Republic of Germany – indirect through Shelly Group AD Vitaboni AD, registration number HRB 226533 at the Munich Registry Office, having its registered seat and headquarters address: Schellingstr. 48, 80799 München Shelly Europe EOOD, UIC 202320104, having its registered seat and headquarters address in the city of Sofia, 103, Cherni Vrah Blvd. – indirect through Shelly Group AD Vitaboni AD, registration number HRB 226533 at the Munich Registry Office, having its registered seat and headquarters address: Schellingstr. 48, 80799 München Kirsch Consulting ЕООD, UIC 207060742, having its registered seat and headquarters address in Sofia, 13 Cherni Vrah Blvd. Shelly Trading EOOD, UIC 203348672 having its registered seat and headquarters address in the city of Sofia, 103, Cherni Vrah Blvd. – indirect through Shelly Group AD Kirsch Consulting ЕООD, UIC 207060742, having its registered seat and headquarters address in Sofia, 13 Cherni Vrah Blvd. Shelly Properties EOOD, UIC 204639442, having its registered seat and headquarters address in the city of Sofia 103, Cherni Vrah Blvd. – indirect through Shelly Group AD Allterco Asia Ltd., registered number 91440300MA5GMK2T5B, having its registered seat and headquarters address at number 716, Building A, XingHe Shiji, Cai Tian road 3069, Gangxia, Futian, Shenzhen, China – indirect through Shelly Group AD Shelly DACH GmbH, registered number HRB 271205, having its registered seat and headquarters address: Lothstr. 5, 80335 München, Federal Republic of Germany - indirect through Shelly Group AD Vitaboni AD, registration number HRB 226533 at the Munich Registry Office having its registered seat and headquarters address: Schellingstr. 48, 80799 München Kirsch Consulting ЕООD, UIC 207060742, having its registered seat and headquarters address in Sofia, 13 Cherni Vrah Blvd. Shelly Tech avtomatizacija stavb, d.o.o. (former name Goap d.o.o. Nova Gorica) having its registered seat and headquarters address at Ulica Klementa Juga 7, 5250 Solkan, Slovenia, registered number in Slovenian Trade register 5414083000 - indirect through Shelly Group AD SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 28 Gregor Beiler as of 31.12.2023 (as of the date of preparation of this Report Gregor Beiler is no longer member of the Board of Directors) Participation in the governing and supervisory bodies of other companies, their participation as procurators and unlimited partners Participation in the capital of other companies outside the Group of Shelly Group AD Companies in which the person exercises control Digital OOD, having its registered seat and headquarters address at 49, Reuterweg Street, 60323 Frankfurt, Federal Republic of Germany ICapital Partners AD having its registered seat and headquarters address at Bundesstrace 3, Switzerland – 63.2, Zug Shelly Europe EOOD, UIC 202320104, having its registered seat and headquarters address in the city of Sofia, 103, Cherni Vrah Blvd. – indirect through Shelly Group AD Padres Consulting OOD having its registered seat and headquarters address, 25, Bayerbrunnerstrasse, Federal Republic of Germany – 81479, München Shelly Trading EOOD, UIC 203348672, having its registered seat and headquarters address in the city of Sofia 103, Cherni Vrah Blvd. – indirect through Shelly Group AD Shelly Properties EOOD, UIC 204639442, having its registered seat and headquarters address in the city of Sofia 103, Cherni Vrah Blvd. – indirect through Shelly Group AD Allterco Asia Ltd., registered number 91440300MA5GMK2T5B, having its registered seat and headquarters address at number 716, Building A, XingHe Shiji, Cai Tian road 3069, Gangxia, Futian, Shenzhen, China – indirect through Shelly Group AD Shelly DACH GmbH, registered number HRB 271205, having its registered seat and headquarters address: Lothstr. 5, 80335 München, Federal Republic of Germany - indirect through Shelly Group AD Shelly Tech avtomatizacija stavb, d.o.o. (former name Goap d.o.o. Nova Gorica) having its registered seat and headquarters address at Ulica Klementa Juga 7, 5250 Solkan, Slovenia, registered number in Slovenian Trade register 5414083000 - indirect through Shelly Group AD 12.5. Agreements signed in the reporting period with the members of the Board of Directors or related to them parties that fall outside of the usual scope of business activity of the Company or deviate significantly from the market conditions In 2023, no contracts were concluded with the members of the Board of Directors of the Company or with person related to them, that go beyond the ordinary activities of the Company or significantly deviate from market conditions. SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 29 12.6. The planned economic policy in the next year, incl. expected investments and staff development, expected income from investments and development of the Company, as well as forthcoming transactions of material importance for the Company’s activity Changes in the economic policy of the Company in 2024 are not foreseen. The revenues of the Company will continue to be generated mainly from dividends. It is expected that in 2024 the number of employees in the subsidiaries will increase significantly due to: 1. the expanding of the market presence 2. increase of the R&D capacity of the subsidiaries 13. AVAILABLE BRANCHES OF THE COMPANY The Company has no registered branches. Two of the subsidiaries have registered branches – Shelly Europe has a branch in Ireland and Shelly Trading in Great Britain. 14. FINANCIAL INSTRUMENTS USED BY THE COMPANY Shelly Group AD has not used financial instruments in 2023 to hedge risks from changes in foreign currency exchange rates, interest rates or uncertainty of cash flows. During the reporting year, the Company has not performed currency risk hedging transactions. During the reporting period the Company sold long-term financial instruments (see note 4.04 to the separate financial statements). The Company could have exposure to liquidity, market, interest rate, currency and operational risks arising from the use of financial instruments. 15. ADDITIONAL INFORMATION UNDER APPENDIX No 2 OF ORDINANCE No 2 OF FSC 15.1. Information about the value and quantity on the main categories of goods, products and/or services provided, indicating their share in the issuer's sales revenue as a whole and the changes occurring during the accounting financial year SHELLY GROUP AD does not carry out direct production activities. The production activity is carried out by the issuer’s subsidiaries. 15.2. Information on revenues broken down by category of activity, internal and external markets as well as information on the sources of supply of materials necessary for the production of goods or the provision of services reflecting the degree of dependence on each individual seller or buyer/user, in case the relative share of any of them exceeds 10 per cent of the costs or revenues from sales, information is provided for each person separately, about their share in the sales or purchases and their relations with the issuer: Information on revenue, broken down by main category of activities is presented in p. 3.1. of this Report. 15.3. Information about concluded significant deals During the reporting period Shell Group AD has concluded transactions, which might be considered significant due to their specifics: Within the ordinary scope of business the Company has concluded the following transactions: SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 30 • In the first quarter of 2023, the Company acquired 60% of the capital of the Slovenian IoT provider Računalniški inženiring in avtomatizacija procesov d.o.o. Nova Gorica (present company name Shelly Tech avtomatizacija stavb, d.o.o.), referred to as the "Slovenian company" or the "Acquired company". For the transaction, Share Purchase Agreements ("SPA") have been signed with all four shareholders of the Slovenian company. The total price of the first stage transactions amounts to EUR 2 million. • The remaining 40% of the acquiree, belonging to three owners – individuals, is subject to an option contract that was signed together with the acquisition agreements. According to the terms of the option contract, Shelly Group AD has an unconditional option to purchase (call option), and the sellers – conditional option to sell (put option) two packages of company shares (the exercise of sellers' option is subject to achieving certain minimum KPIs for the period 2023 - 2025, including EBITDA and revenue). One of the options is for the acquisition of 16% and the other for the acquisition of 24% of the capital of Slovenian company. The total price of the shares depends on the level of achievement of the agreed terms and may vary in the range from EUR 699 999.70 (BGN 1 369 080.41) to EUR 3 449 998.60 (BGN 6 747 610.76). • In the first quarter of 2023, Shelly Group AD granted a loan to its subsidiary Shelly Tech avtomatizacija stavb, d.o.o. (former Računalniški inženiring in avtomatizacija procesov d.o.o. Nova Gorica), referred to as the "Slovenian company" /„Shelly Tech", a limited liability company under the legislation of the Republic of Slovenia, at the amount of BGN 978 thousand (EUR 500 thousand) under the following conditions: repayment term 31.12.2029, interest according to the statistic information published by Bulgarian National Bank regarding Interest Rates and Volumes on Credit Balances, Other Than Overdrafts, for the Non-Financial Enterprises Sector (in EUR for a period of more than 5 years). • In the second quarter of 2023, Shelly Group AD granted an additional cash contribution to its subsidiary Shelly Tech avtomatizacija stavb, d.o.o. (former Računalniški inženiring in avtomatizacija procesov d.o.o. Nova Gorica), referred to as the "Slovenian company" /„Shelly Tech", a limited liability company under the legislation of the Republic of Slovenia, at the amount of BGN 978 thousand (EUR 500 thousand) under the following conditions: repayment term 1 year from cash payout; annual interest of 1% paid at the end of the period; the additional cash is granted to cover losses from previous years and to support temporary need for cash and continuation of normal operating activities of the subsidiary. • In the second quarter of 2023, Shelly Group AD concluded an Investment Agreement regarding its investment in "Ground Solutions Group" AD through participation in the capital increase and registration of new privileged company shares from the capital of its subsidiary "Corner Solutions" OOD („the Investment“), namely 625 new privileged company shares, representing 10% of the capital of "Corner Solutions" OOD after the increase, for a price of EUR 100,000. No interested parties are involved in the transaction. Parties to the Investment Agreement are: SHELLY GROUP AD and Vitosha Venture Partners - Fund I Partnership, UIC: 206223492, in their capacity as investors, on the one hand and "Ground Solutions Group" AD, its founders Mr. Vladimir Konstantinov Todorov, Mr. Denis Krassimirov Florov, Mr. Nikola Konstantinov Ruichev and "Corner Solutions" OOD, UIC 206375571, on the other hand. SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 31 The Company has also concluded the following transactions with companies outside its economic group, which are not characterized as "significant" within the meaning of §1, para 1, p. 2 of the Additional Provisions of Regulation 2 of the FCS dated 09.11.2021: • In the second quarter of 2023, SHELLEY GROUP AD granted a cash loan to a third non- related and non-interested party - "Expat Capital" AD, UIC: 175192462, a joint-stock company, according to the legislation of the Republic of Bulgaria, at the amount of EUR 280,000 (BGN 547,632) under the following conditions: repayment term – 1 year from the date of granting the loan to the borrower, annual interest at 1% on the loan amount in proportion to the period for which the amount was utilized, which interest is charged at the end of the period. 15.4. Information on transactions concluded between the issuer and related parties during the reporting period, proposals for such transactions as well as transactions that are outside its ordinary activity or materially deviate from the market conditions, where the issuer or its subsidiary is a party with indication of the value of the transactions, the nature of the relationship and any information necessary to assess the impact on the issuer's financial position During the reporting period the Company has not entered into any transactions with interested parties within the meaning of POSA. The Company has not entered into transactions with its subsidiaries and associated companies that are outside of its usual business or significantly deviate from market conditions. Transactions in the ordinary course of business with subsidiaries include: • The Company uses cars leased from one of its subsidiaries, for which it has recognized right-of-use assets in the separate statement of financial position. The present value of the lease liability recognized as of December 31, 2023 under these contracts is BGN 207 thousand - current liability amounting to BGN 47 thousand and the non-current liability amounting to BGN 160 thousand. Depreciation costs for the reporting period amount to BGN 45 thousand. • In 2023, Shelly Group AD granted a loan to its subsidiary Shelly Tech avtomatizacija stavb, d.o.o. (former GOAP Računalniški inženiring in avtomatizacija procesov d.o.o. Nova Gorica) at the amount of BGN 978 thousand (EUR 500 thousand) under the following conditions: repayment term 31.12.2029, interest according to the statistic information published by Bulgarian National Bank regarding Interest Rates and Volumes on Credit Balances, Other Than Overdrafts, for the Non- Financial Enterprises Sector (in EUR for a period of more than 5 years). Accrued interest income for the reporting period amount to BGN 41 thousand. • In the second quarter of 2023, Shelly Group AD granted an additional cash contribution to its subsidiary Shelly Tech avtomatizacija stavb, d.o.o. (former Računalniški inženiring in avtomatizacija procesov d.o.o. Nova Gorica), at the amount of BGN 978 thousand (EUR 500 thousand) under the following conditions: repayment term 1 year from cash payout; annual interest of 1% paid at the end of the period; the additional cash is granted to cover losses from previous years and to support temporary need for cash and continuation of normal operating activities of the subsidiary. Accrued interest income for the reporting period amount to BGN 6 thousand. SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 32 • During the period, SHELLY GROUP AD has accrued interest income at the amount of BGN 18 thousand for an additional cash contribution to Shelly USA Inc. • During the reporting period SHELLY GROUP AD recognized income from dividends from its subsidiary Shelly Europe EOOD at the amount of BGN 11,000 thousand. For further information on transactions with companies within the Group, see Note 6 of the annual separate financial statements as of December 31, 2023. 15.5. Information about events and indicators of unusual for the issuer nature that have a significant impact on its activities and its realized revenues and expenses; assessment of their impact on results in the current year During the reporting period there were no events or indicators of unusual nature for SHELLY GROUP AD. SHELLY GROUP AD is a joint stock company - holding, whose scope of business includes acquisition, management, assessment and sale of participations in Bulgarian and foreign companies. Within the scope of activities during the reporting period the Company has carried out transactions as indicated in p. 15.3 of this Report. 15.6. Information about off-balance-sheet transactions - nature and business purpose, indication of the financial impact of transactions on the business if the risk and benefits of those transactions are material to the issuer and disclosure of such information is material to the issuer's financial condition During the reporting period the Company has not entered into transactions that were conducted off-balance sheet. 15.7. Information on shareholdings of the issuer, its main 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/ways of financing As of the end of the reporting period SHELLY GROUP AD owns shares of subsidiaries as indicated in p. 2 of this Report. 15.8. Information about loan agreements concluded by the issuer or its subsidiary or parent company, in their capacity of borrowers, with specification of their terms, including deadlines for repayment, as well as information on guarantees and commitments The Company is a borrower under a Mortgage (investment) loan agreement dated 25.08.2017, concluded with UBB AD, secured by a guarantee of the subsidiary Shelly Properties EOOD The Company has assumed joint liability and a guarantee obligation for securing the following bank financing agreements concluded by its subsidiary Shelly Europe EOOD with UBB AD. For further information see Note 7 of the separate financial statements of the Company as of December 31, 2023. SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 33 15.9. Information on loan agreements concluded by the issuer, its subsidiary or parent company, in their capacity as lenders, including the provision of guarantees of any kind, including to related parties, with specification of their special terms, including the final payment deadlines, and the purpose for which they were granted In the first quarter of 2022 SHELLY GROUP AD has approved financing of the activities of the subsidiary Shelly USA Inc. (former Allterco Robotics Inc, USA) with the following parameters: (1) providing additional cash contribution in the amount of USD 1 million, for a one- year term as of the date of granting the loan, at annual interest rate of 1% and (2) increase of the capital in the amount of USD 500 000. At the end of the reporting period the financing was provided fully to the subsidiary. During the reporting period, SHELLY GROUP AD has accrued interest income in the amount of BGN 18 thousand on an additional cash contribution to Shelly USA Inc. (former Allterco Robotics Inc, USA). In the first quarter of 2023, Shelly Group AD granted a loan to its subsidiary Shelly Tech avtomatizacija stavb, d.o.o. (former Računalniški inženiring in avtomatizacija procesov d.o.o. Nova Gorica), a limited liability company under the legislation of the Republic of Slovenia, at the amount of BGN 978 thousand (EUR 500 thousand) under the following conditions: repayment term 31.12.2029, interest according to the statistic information published by Bulgarian National Bank regarding Interest Rates and Volumes on Credit Balances, Other Than Overdrafts, for the Non-Financial Enterprises Sector (in EUR for a period of more than 5 years). Accrued interest income for the reporting period amount to BGN 41 thousand. In the second quarter of 2023, Shelly Group AD granted an additional cash contribution to its subsidiary Shelly Tech avtomatizacija stavb, d.o.o. (former Računalniški inženiring in avtomatizacija procesov d.o.o. Nova Gorica), a limited liability company under the legislation of the Republic of Slovenia, at the amount of BGN 978 thousand (EUR 500 thousand) under the following conditions: repayment term 1 year from cash payout; annual interest of 1% paid at the end of the period; the additional cash is granted to cover losses from previous years and to support temporary need for cash and continuation of normal operating activities of the subsidiary. Accrued interest income for the reporting period amount to BGN 6 thousand. In the second quarter of 2023, Shelley Group AD granted a cash loan to a third non-related and non-interested party - "Expat Capital" AD, UIC: 175192462, a joint-stock company, according to the legislation of the Republic of Bulgaria, at the amount of EUR 280,000 (BGN 547,632) under the following conditions: repayment term – 1 year from the date of granting the loan to the borrower, annual interest at 1% on the loan amount in proportion to the period for which the amount was utilized, which interest is charged at the end of the period. The accrued interest income at the end of fourth quarter amount to BGN 2 thousand. SHELLY GROUP AD has not granted any other loans, provided guarantees or assumed obligations in general to a single person or its subsidiary, including related parties. The subsidiaries have provided guarantees in the form of joint liability under bank financing agreements, as indicated in Note 7 of the separate financial statements of the Company. SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 34 15.10. Information on the use of funds from new issue of securities during the reporting period In July 2023, the Company’s share capital is increased to BGN 18 050 945, divided into 18 050 945 ordinary, dematerialized, registered voting shares with a nominal value of BGN 1 each. The increase was made through a cash contribution of a total value of BGN 50 946 in a procedure for initial public offering of shares, held in the period from 28.06.2023 to 29.06.2023 inclusive, in accordance with the Art. 112, para. 3 of the Public Offering of Securities Act, without a prospectus according to the Information Document pursuant to Art. 1, para 4 ("j") in connection with Art. 1, para 5("h") of Regulation (EU) 2017/1129. Only employees (except for members of the Board of Directors) of companies within the group of Shelley Group AD registered in the Republic of Bulgaria had the right to subscribe for shares in the specified procedure. The funds from the increase will be used to finance Shelley Group's operations. 15.11. Analysis of the relationship between the achieved financial results reflected in the financial statements for the financial year and previously published forecasts of these results SHELLY GROUP AD has not published forecasts on an individual basis. The Company has published financial forecasts only on a consolidated basis as part of the Prospectus for public offering of shares from the capital increase of SHELLY GROUP AD in 2020, together with the amendments thereto. SHELLY GROUP AD periodically updates its financial expectations and goals on a consolidated basis, and last update was made in May 2023. 15.12. Analysis and evaluation of the policy on financial resources management, specifying the capabilities for servicing the obligations, possible threats and measures that the issuer has undertaken or is about to undertake to eliminate the risks SHELLY GROUP AD carries out its operational activities in a way that the management of the financial resources is exclusively subordinated to the maintaining of such a capital structure that will allow to combine the lower risk of using only own funds with the higher efficiency and flexibility of cash flow under conditions of debt financing so that the Company is able at any time to switch from one type of financing to another, depending on its specific needs. 15.13. Assessment of the possibilities for realization of investment intentions, indicating the amount of the available funds and stating the possible changes in the structure of financing this activity The Company plans to continue investing in 2023 in the development of Internet of Things through its subsidiaries. The investment program will be funded with the Company’s own cash and raised funds, if necessary. 15.14. Information on changes that occurred during the reporting period in the key management principles of the issuer and its Group of companies within the meaning of the Accountancy Act During the reporting period, there were no changes in the basic principles for managing the Company and its Group of companies. SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 35 15.15. Information on the main features of the internal control and the risk management system applied by the issuer in the financial reporting process A general description of the internal control and risk management system The Company has a system of internal control and risk management ("the system") that guarantees the effective functioning of the reporting and disclosure systems as well as an Audit committee. The system is built and functioning in order to identify the risks associated with the Company's activities and their effective management. The Board of Directors has the primary responsibility and role in establishing the internal control and risk management system. It performs both managing and guiding function as well as ongoing monitoring. The ongoing monitoring by the management consists of assessing whether the system is still appropriate for the Company in a changed environment, whether it operates as expected and whether it adapts successfully to the changed conditions. The evaluation of selected areas is in line with the Company's priorities. The evaluation is also commensurate with the specifics of the Company and the impact of the identified risks. The Board of Directors monitors the main features and characteristics of the system, including identified incidents and the respective applied corrective actions. The Audit Committee assists the Board of Directors in the execution of their control functions and powers with regard to the financial reporting process, the internal control system, the audit process and monitoring on compliance of the activities of Shelly Group AD with the provisions of applicable national and European legislation, as well as the Company's internal policies. The Audit Committee holds regular meetings, fulfilling the functions assigned to it by law and the General Meeting of Shareholders in accordance with the adopted Statutes. Control environment The control environment includes the functions of general management, as well as the attitude, awareness and actions of the corporate management pertaining to internal control. • Commitment for competence. The Board of Directors of the Company, as well as those involved in the internal control and risk management process, have the relevant knowledge and skills necessary to perform the tasks. The executive members of the Board of Directors of the Company monitor the levels of competence required for the specific jobs and the ways in which those competences become required skills and knowledge. • Participation of those charged with governance. The awareness of control in the Company is greatly influenced by those charged with governance, namely the Board of Directors. The responsibilities of the members of the Board of Directors are stated in the Statutes of the Company and the management contracts. In addition, the Executive Members of the Board of Directors are also responsible for the supervision of the effective functioning of the early warning procedures and of improving the Company's internal control. • Philosophy and operational style of the management. The philosophy and operational style of the management cover a wide range of characteristics. The attitudes of the members of the Board of Directors and their actions in relation to financial reporting are manifested through the choice of more conservative accounting principles. • Organizational structure. Establishing an appropriate organizational structure includes determining the main areas of authority and responsibility and the appropriate hierarchical levels of accountability and reporting. The Board of Directors assesses the appropriateness of the organizational structure of the Company, taking into consideration the size and nature of the activities performed. • Assignment of powers and responsibilities. When assigning powers and responsibilities of the employees in the Company, the management shall take into account the business practices applicable to the sector, knowledge and experience of employees and available resources available in the Company. SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 36 • Policies and practices related to human resource. When recruiting staff, the executive members of Board of Directors focus on qualifications, previous professional experience, past accomplishments, and evidence of integrity and ethical conduct. The purpose of corporate management is to hire competent and reliable employees. Risk assessment process for the Company The process of risk assessment is the basis on which the Board of Directors of the Company determines the risks to be managed. The Board of Directors of the Company identifies the following types of risk that affect the Company and its activities: general (systematic) and specific (non-systematic) risks. Systematic risks are related to the macro environment in which the Company operates, which is why in most cases they cannot be controlled by the management team. Non-systematic risks are directly related to the activities of the Company and depend mainly on corporate governance. To minimize them, we rely on increasing the efficiency of internal company planning and forecasting, which provides opportunities to overcome possible negative consequences of a risky event. Each of the risks related to the country - political, economic, credit, inflation, foreign exchange, has its own significance, but the interaction between them forms a comprehensive picture of the main economic indicators, market and competitive conditions in the country in which the Company operates. A detailed description of the risks typical for the activity of Shelly Group AD is presented in the section VII. MAIN RISKS, WHICH THE COMPANY FACES in this Report. 15.16. Information about the changes in the Board of Directors of the Company During the reporting period, changes were made to the composition of the Board of Directors of the Company. With a decision of the General Meeting of Shareholders held on 18.12.2023 changes were made to the composition of the Board of Directors of the Company. As of 01.01.2024 Mr. Christoph Vilanek replaced Mr. Gregor Bieler, who has left the role of board member due to increase in his professional engagements. This change is reflected in the Commercial register with the Registry Agency on 09.01.2024. As of the date of preparation of this report, the Board of Directors includes: • Christoph Vilanek – Chairman; • Nikolay Martinov – Deputy Chairman; • Dimitar Dimitrov – Executive Director and representative; • Wolfgang Kirsch – Executive Director and representative; • Svetlin Todorov – Member of the Board of Directors and representative; The members of the Board of Directors representing the Company represent the Company jointly or severally. 15.17. Information on the amount of remuneration, rewards and/or additional benefits of each member of the Board of Directors for the reporting financial year paid by the issuer and its subsidiaries, regardless of whether they were included in the issuer's expenses or are attributable to distribution of profits, including: А) received amounts and non-monetary remunerations During the reporting period, the members of the Board of Directors received from Shelly Group AD cash /gross/ in the total amount of BGN 1 010 thousand in accordance with the effective Remuneration Policy. • Dimitar Stoyanov Dimitrov – BGN 60 thousand. • Svetlin Iliev Todorov – BGN 60 thousand. • Nikolay Angelov Martinov – BGN 60 thousand. • Wolfgang Kirsch – BGN 587 thousand. SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 37 • Gregor Beiler – BGN 243 thousand. During the reporting period the following members of the Board of Directors received cash remuneration /gross/ from subsidiaries: • Dimitar Stoyanov Dimitrov – BGN 543 thousand. • Svetlin Iliev Todorov – BGN 380 thousand. • Wolfgang Kirsch – BGN 411 thousand. The members of the Board of Directors have not received any non-cash remuneration during the reporting period. B) contingent or deferred remuneration arising during the year, even if the remuneration is due at a later date At the General Meeting of Shareholders held on December 13, 2022, a decision was adopted to amend the Remuneration policy of the members of the Board of Directors (“Policy”), as well as Scheme for granting variable remuneration in shares of the Company to the executive members of the Board of Directors for the period 2022 – 2025 (“Scheme”). Based on the adopted decisions on December 13, 2023, at the General Meeting of the Shareholders a decision was taken to grant variable remuneration in shares to the executive members of the Board of Directors of Shelly Group AD in the form of options, according to the Scheme, namely: (1) to the director Mr. Dimitar Dimitrov for the Period of execution of the Scheme is granted a package of conditional options, the conditions and order for exercising are in accordance with the Scheme and Policy, and the remuneration may reach maximum number of 296 750 shares of the capital of Shelly Group AD, as follows: The basic options, each for the specified number of shares, the conditions of exercise of which include the achievement of the specified Quarterly Average Share Price ("QASP") on one of the alternatively specified reference dates and other conditions under the Scheme are as follows: (i) 59 350 shares at QASP of at least ЕUR 11.16 ("Basic option 11.16 DD"); (ii) 44 512 shares at QASP of at least ЕUR 18.00 ("Basic option 18 DD"); (iii) 44 513 shares at QASP of at least ЕUR 27.00 ("Basic option 27 DD"); (iv) 44 512 shares at QASP of at least ЕUR 38.00 ("Basic option 38 DD"); (v) 44 513 shares at QASP of at least ЕUR 46.00 ("Basic option 46 DD"); (vi) 59 350 shares at QASP of at least ЕUR 55.00 ("Basic option 55 DD"). Reserve options, each for the indicated number of shares, whose conditions for exercise for the specified reference period are determined according to the Scheme, as follows: (i) 29 513 shares upon meeting conditions provided for in the Scheme for reference year 2022 ("Reserve option 2022 DD"); (ii) 34 675 shares upon meeting conditions provided for in the Scheme for reference year 2023 ("Reserve option 2023 DD"); (iii) 39 675 shares upon meeting conditions provided for in the Scheme for reference year 2024 ("Reserve option 2024 DD"); (iv) 44 512 shares upon meeting conditions provided for in the Scheme for reference year 2025 ("Reserve option 2025 DD"). (2) to the director Wolfgang Kirsch for the Period of execution of the Scheme is granted a package of conditional options, the conditions and order for exercising are in accordance with the Scheme and Policy, and the remuneration may reach maximum number of 593 500 shares of the capital of Shelly Group AD, as follows: Reserve options, each for the indicated number of shares, whose conditions for exercise for the specified reference period are determined according to the Scheme, are as follows: SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 38 (i) 59 025 shares upon meeting conditions provided for in the Scheme for reference year 2022 ("Reserve option 2022 WK"); (ii) 69 350 shares upon meeting conditions provided for in the Scheme for reference year 2023 ("Reserve option 2023 WK"); (iii) 79 350 shares upon meeting conditions provided for in the Scheme for reference year 2024 ("Reserve option 2024 WK"); (iv) 89 025 shares upon meeting conditions provided for in the Scheme for reference year 2025 ("Reserve option 2025 WK"). The occurrence of the conditions for exercising the options granted by this decision is subject to assessment by the General Meeting of Shareholders of Shelly Group AD after the expiration of the Period of execution according to the Scheme and with the decision of the general meeting, which determines the number of shares that the directors of the Company are entitled to receive upon exercising the respective options, the manner in which Shelly Group AD will secure the shares that it should provide to the directors upon exercising the options granted to them is also determined. The selection of the method of securing the shares to fulfil the obligations under the granted options should be oriented, when other conditions are equal, to achieving the most favourable financial conditions possible for the Company and its shareholders, such as analysis and justification of costs when applying different scenarios, together with the non-financial advantages and disadvantages of the respective scenarios, should be presented in the motives for the proposal. C) an amount owed by the issuer or its subsidiaries for the payment of pensions, retirement benefits or other similar benefits The Company has prepared an actuarial evaluation of the retirement benefits of the staff as of December 31, 2023. As a result of the evaluation long-term retirement obligations to employees are reported in the statement of financial position amounting to BGN 48 thousand. 15.18. Information about shares of the issuer owned by members of the Board of Directors, procurators and senior management, including the shares held by each of them as a percentage of the shares of each class, as well as options provided by it on securities- the type and amount of the securities on which the options are issued, the exercise price, the purchase price, if any, and the term of the options As of the end of the reporting period, the shares held by members of the Board of Directors of Shelly Group AD are: Table 13 Name PERCENTAGE OF THE CAPITAL Svetlin Todorov 30.39% Dimitar Dimitrov 32.00% Nikolay Angelov Martinov * 0% Wolfgang Kirsch 0% Gregor Beiler 0% * Nikolay Martinov has no direct interest in the capital of the Issuer. The companies Unicom Consult EOOD, in which he is the sole owner of the capital and manager, Impetus Capital OOD and Impetus Partners OOD, in which he is a partner respectively with 50% and 43,75 % of the capital and manager, as well as ImVenture I KDA and ImVenture II KDA, in which he is a representative of the legal entity - Impetus Capital OOD, have respectively: Unicom Consult EOOD – 84,750 shares (0.47%), Impetus Capital OOD 162,000 shares (0.9%), Impetus Partners OOD 405,000 shares (2.25%) ImVenture I KDA 123,288 shares (0.68%), ImVenture II KDA - 68,493. shares (0.38%) in the capital of the Issuer and a total 843 531 number of shares (4.686%) of the voting rights in its General Meeting. SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 39 ** Gregor Bieler has approximately 0.03% of the voting rights in the General meeting of the Issuer, acquired before his appointment as member of the Board of Directors. With a decision of the General Shareholders’ Meeting of 18.12.2023, effective from 01.01.2024 Gregor Bieler is no longer member of the Board of Directors. *** Wolfgang Kirsch has approximately 0.03% of the voting rights in the General meeting of the Issuer. 15.19. Information for the commitments known to the Company (including after the end of the financial year), which in the future may result in changes in the relative portion of shares or bonds held by present shareholders or bondholders The Company is not aware of any commitments that may in the future result in a change in the number of shares or bonds held by current shareholders. Changes may occur in the shareholder's relative shareholding Dimitar Dimitrov in his capacity as executive director of the Company upon fulfilment of the conditions under the Scheme for granting variable remuneration in shares of the Company to the members of the Board of Directors in the period 2023 – 2025, as described in p. 15.17, letter „b“ of this Report. 15.20. Information on pending litigation, administrative or arbitration proceedings concerning payables or receivables of the issuer amounting to at least 10 percent of its equity At the end of the reporting period the Company has no pending litigation, administrative or arbitration proceedings concerning payables and receivables of the issuer amounting to at least 10 percent of its equity. 15.21. Information on the Investor Relations Director, including telephone and correspondence address For Bulgaria Denitsa Stefanova tel. +359 2 9571247 e-mail: [email protected] For Germany CROSS ALLIANCE communication GmbH, Sven Pauly Tel: +49 89 125 09 0331, E-Mail: [email protected] www.crossalliance.de 15.22. Non-financial declaration under Article 41 of the Accounting Act - for financial statements on an individual basis, respectively under Article 51 of the Accounting Act - for financial statements on a consolidated basis, where applicable The Company has no obligation for non-financial reporting. 15.23. Other information at the discretion of the Company Other circumstances which the Company considers may be relevant to the investors in deciding whether to buy, sell or continue to hold shares are disclosed publicly, including in the Company's Report on the Activity and the Notes to the separate financial statements. SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 40 16. CHANGES IN THE PRICE OF THE SHARES ON THE BSE Table 14 Date Volume Turnover Highest value Lowest value Opening value Closing value 11.03.2024 16729 1012546.20 62,800 58,600 59,000 62,800 29.02.2024 55900 3232975.80 59,400 56,600 58,400 59,200 31.01.2024 109042 5719979.30 59,200 46,000 47,300 58,800 29.12.2023 77927 3291462.70 47,400 40,400 40,700 47,100 30.11.2023 53132 2192537.60 42,500 39,900 40,000 40,800 31.10.2023 28132 1166419.60 43,000 39,500 42,900 40,700 29.09.2023 39468 1675929.00 46,400 39,200 46,400 43,100 31.08.2023 129013 5001155.40 47,800 29,900 30,200 46,400 31.07.2023 85850 2472426.30 30,400 26,300 26,300 30,400 30.06.2023 51854 1406551.80 28,000 26,000 27,400 26,000 31.05.2023 112738 2721969.50 27,400 21,800 22,000 27,400 28.04.2023 20486 458881.90 22,700 22,000 22,500 22,000 31.03.2023 79538 1791590.70 23,000 22,000 22,500 22,000 28.02.2023 49044 1099266.80 23,000 21,000 21,100 22,800 31.01.2023 25137 539302.60 22,200 20,200 20,600 21,100 Source: Investor.bg Information on the trading in the shares of Shelly Group AD during the reporting period on the Frankfurt Stock Exchange is available at https://www.boerse-frankfurt.de/equity/allterco-jsco/price-history/historical-prices- and-volumes 17. INFORMATION ABOUT THE PUBLIC COMPANY UNDER APPENDIX 3 TO ORDINANCE No 2 OF THE FINANCIAL SUPERVISION COMMISSION 17.1. Information on securities not admitted to trading on a regulated market in the Republic of Bulgaria or another Member State As of the end of the reporting period, the issued, subscribed, paid-in and registered capital of the Company amounts to BGN 18 050 945 (eighteen million fifty thousand nine hundred and forty five) divided into 18 050 945 (eighteen million fifty thousand nine hundred and forty five) ordinary registered, dematerialized voting shares with a nominal value of BGN 1(one) each. All shares of the Company are of one class and each share gives the right to one vote in the General Meeting of Shareholders, the right to dividend and liquidation share, proportional to the nominal value of the share. The Company has not issued any shares that are not admitted to trading on a regulated market in the Republic of Bulgaria or another Member State. As at the end of the reporting period, the Company's entire share issue was listed for trading on the Bulgarian Stock Exchange and the Frankfurt Stock Exchange. SHELLY GROUP AD ANNUAL SEPARATE REPORT ON THE ACTIVITY UIC 201047670 41 17.2. Information on the direct and indirect ownership of 5 per cent or more of the voting rights in the general meeting of the company, including details of the shareholders, the amount of their shareholding and the manner in which the shares are held As of the end of the reporting period, the capital structure of Shelly Group AD is as follows: Table 15 SHAREHOLDER PERCENTAGE OF THE CAPITAL Svetlin Todorov 30.39% Dimitar Dimitrov 32.00% Other individuals and legal entities 37.61% 17.3. Details of shareholders with special control rights and description of these rights Shelly Group AD has no shareholders with special controlling rights. 17.4. Agreements between the shareholders which are known to the Company and which may result in restrictions on the transfer of shares or voting rights The Company is not aware of any other shareholders' agreements in force at the date of this document which may result in restrictions on the transfer of shares or voting rights. 17.5. Substantial contracts of the Company that are effective, altered or terminated due to a change in the Company control in the course of a mandatory tender offer and the consequences thereof, unless the disclosure of such information could cause serious damage to the Company; exception under the preceding sentence shall not apply in cases where the Company is obliged to disclose the information under the law The Company has not entered substantial contracts that are effective, amended or terminated due to change in the Company control in the course of a mandatory tender offer. 18. INFORMATION PURSUANT TO ART. 10, ITEM 4 OF REGULATION NO. 2 OF THE FINANCIAL SUPERVISION COMMISSION REGARDING THE PUBLISHED INSIDE INFORMATION UNDER ART. 7 OF REGULATION (EC) NO 596/2014 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL OF 16 APRIL 2014 ON MARKET ABUSE (MARKET ABUSE REGULATION) AND THE NEWS AGENCY OR OTHER MEDIA CHOSEN BY THE ISSUER THROUGH WHICH THE COMPANY MAKES THE INSIDE INFORMATION PUBLIC Detailed information on significant events that occurred during the reporting period for Shelly Group AD, including inside information within the meaning of Article 7 of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on Market Abuse (Market Abuse Regulation), as well as other information that could be relevant for investors is regularly disclosed by the Company in accordance with regulatory requirements (“regulated information”). The Company is disclosing the regulated information to the public through a selected information medium. All information provided to the media in full unedited text is available at: http://www.x3news.com/ The required information is submitted to the FSC - through the unified electronic information submission system established and maintained by the FSC - e-Register. The information is also available on the Company's website at: https://corporate.shelly.com/ and inside information for the reporting year is available in a separate dedicated section on the website. Date: 15.03.2024 Executive Director /Dimitar Dimitrov/ Dimitar Stoyanov Dimitrov Digitally signed by Dimitar Stoyanov Dimitrov Date: 2024.03.15 16:37:28 +02'00' 42 REPORT ON THE IMPLEMENTATION OF THE REMUNERATION POLICY FOR THE MEMBERS OF THE BOARD OF DIRECTORS OF SHELLY GROUP AD REPORTING PERIOD 01.01.2023 – 31.12.2023 pursuant to Art. 13 of Ordinance No. 48 of the Financial Supervision Commission of March 20, 2013 on the requirements to the remuneration SHELLY GROUP AD UIC 201047670 43 This report has been prepared by the Board of Directors of SHELLY GROUP AD (the Company) in compliance with the provisions of art. 13 in connection with art. 12, par. 1 of ORDINANCE No. 48 of the Financial Supervision Commission of March 20, 2013 on the requirements to the remuneration and represents a separate document which is part of the annual financial statements of the Company as of December 31, 2023. The report contains a review of the method of implementation of the remuneration policy in 2023 (the reporting year) and information on the implementation of the remuneration policy for the next financial year is attached. SHELLY GROUP AD UIC 201047670 44 1. Information on the decision-making procedure on remuneration policy, including, if applicable, information on the mandate and members of the remuneration committee, names of external consultants whose services are used when defining remuneration policy The remuneration policy for the members of the Board of Directors of SHELLY GROUP AD, as well as any amendments and supplements thereto are prepared by the Board of Directors of the Company and approved by the General Meeting of Shareholders. The current Policy was prepared by the Board of Directors of the Company in compliance with regulatory requirements. The policy was adopted by the annual regular General Meeting of Shareholders held on June 28, 2021. The applicable Remuneration policy is in force as of June 28, 2021, amended and supplemented on December 13, 2022 and December 19, 2023 (the Policy). Pursuant to the effective remuneration policy for the members of the Board of Directors of SHELLY GROUP AD, the Company has no remuneration committee. The Board of Directors has hired external consultants in the process of defining the Policy. The Remuneration policy for the members of the Board of Directors of SHELLY GROUP AD, as well as any amendments and / or supplements or revisions, shall be developed by the Board of Directors of the Company and adopted by the Company based on a decision of the General Meeting of Shareholders, by including a separate item on the agenda announced in the convocation of the General meeting. A description and clarification of the significant changes and the way in which the results of the General Meeting votes were taken into account, the opinions of the shareholders and the minutes of the General Meetings at which the Remuneration policy was discussed and voted are reflected in Appendix 1 thereto. The Company shall disclose the Remuneration Policy of the members of the Board of Directors and any subsequent changes in a clear and accessible manner, without disclosing sensitive commercial information or other information constituting a secret protected by law, by publishing it on the Company's website. The adopted Remuneration Policy, including its adoption date and effective date and the results of the voting at the General Meeting is published on the Company's website and is available free of charge. The Remuneration Policy shall be reviewed, amended and / or supplemented at least once every 4 years as well as when it requires substantial changes and/or additions or it is necessary to achieve the objectives set out therein. During the reporting financial year SHELLY GROUP AD applied the Remuneration policy for the members of the Board of Directors in compliance with regulatory requirements for public entities, the Company’s objectives, long-term interests and strategy for future development as well as its financial and economic position in the context of national and European economic environment. 2. Information on the relative weight of the variable and permanent remuneration of the members of the management and supervisory bodies Pursuant to the valid Remuneration Policy for the members of the Board of Directors of SHELLY GROUP AD, during the reporting financial year the Company paid the members of the Board of Directors permanent remuneration which amount was approved by the General Meeting of Shareholders, considering the following: • the obligations, the degree of workload, commitment and loyalty of the members of the Board of Directors related to the management of the Company; • the possibility for selection and retention of qualified and loyal members of the Board of Directors, including those with proven previous professional experience at the international level; • compliance with the interests of the members of the Board of Directors and the long-term interests of the Company; SHELLY GROUP AD UIC 201047670 45 • the market levels of remuneration for the relevant position in similar companies on the domestic and international labour market, taking into account the place of activity of the relevant member of the Board of Directors, • the expected contribution of each member of the Board of Directors to the development of the Company internationally, based on their qualifications, professional experience and field of activity; The permanent remuneration (salary) is not related to the achievement of certain results. The permanent remuneration is in accordance with: i. the main Company’s activity and related revenue, taking into account that as a holding pursuant to art. 277 and art. 278 of the Commerce Act the Company performs no production or commercial activities but generates its revenue mainly from dividends and management fees from its subsidiaries; ii. the Company's development strategy aimed at sustainable development by introducing international business practices and attracting foreign investors to strengthen the Company's shares on the German capital market. Pursuant to Art. 14 of the Policy, in view of the financial and economic position of the Company, as well as considering the specific commitment of each BoD member, until January 1, 2024 (effective as of the date of adoption of new amendment by a decision of the General Meeting of the Shareholders), the maximum permissible permanent remuneration of the BoD members is determined as follows: - Executive BoD member • the total gross monthly remuneration shall not exceed the amount of EUR 25 000 (BGN 48 895.75); - Non-executive BoD member: • the total gross monthly remuneration shall not exceed the amount of EUR 10 000 (BGN 19 558.3) • the permanent gross additional remuneration for participation in a regular meeting of the Board of Directors shall not exceed the amount of EUR 2 000 per month (BGN 3 911.66). The specific amount of remuneration for each BoD member is determined individually by the General Meeting of Shareholders within the framework defined in this Remuneration Policy. The permanent remuneration thus determined represents a sufficiently large portion of the total remuneration of each BoD member, which allows the implementation of a flexible policy by the Company regarding the variable remuneration, including the possibility no remuneration to be paid when the criteria for achieved results are not met, as well as in case there is a significant deterioration in the Company’s financial position. In the reporting period the General Meeting of the Shareholders has approved a Share-based Remuneration Scheme for the period 2022 - 2025. According to the Scheme, the executive members of the Board of Directors are granted conditional options, as indicated in item 15.17., letter "b" of the Report on the activity. The occurrence of the conditions for exercising the granted options is subject to assessment by the General Meeting of Shareholders of SHELLY GROUP AD after the expiration of the Implementation Period according to the Scheme. The Board of Directors proposes for approval by the General Meeting of Shareholders a Remuneration Scheme, which determines the amount of the variable remunerations, the criteria for their provision and the criteria for exercising the rights under the remuneration options granted, including by specifying their exact amounts (for quantitative measurable criteria). The Board of Directors proposes for voting by the General Meeting the provision of share-based remuneration for a reporting period, according to the Share-based Remuneration Scheme as approved by the General Meeting. SHELLY GROUP AD UIC 201047670 46 The decision to grant the executive BoD members a share-based remuneration is taken by the General Meeting of Shareholders, where a specific share-based remuneration scheme shall be approved. According to the Scheme effective at the end of the reporting period, the variable remuneration provided under this Scheme is in the form of package of Basic and Reserve Options. The General Meeting of Shareholders decides to which directors the Company provides a package of options as provided in this Scheme, by which decision the specific parameters of each option included in the package of options provided to the respective director are determined. With an amendment to the Remuneration Policy, in force as of 01.01.2024, adopted by a decision of the General Meeting of Shareholders dated 19.12.2023, the Company may pay to the executive members of the Board of Directors an annual variable remuneration in the form of a cash bonus ("Annual Bonus"). The annual bonus is linked to the financial results of the Company's activities on an annual consolidated basis and to the fulfilment of one or more non-financial performance criteria, which shall be determined by a decision of the General Meeting of Shareholders. The degree of achievement of the financial and non-financial criteria is reported on a consolidated basis as at 31 December of the year for which performance is assessed ("Year of performance") according to the annual consolidated financial statements audited and adopted by the General Meeting of Shareholders. The decision to grant the executive members of the Board of Directors an Annual Bonus is taken by the General Meeting of Shareholders, which determines the maximum amount of the Annual Bonus and the conditions (type and degree of financial and non-financial criteria achieved, period for which it is provided) under which the payment of an Annua Bonus will be due. The Annual Bonus is paid by decision of the General Meeting of Shareholders, which determines its amount based on the degree of achievement of the financial criteria and non-financial criteria and the manner of its payment. In case of non-compliance with the non-financial criteria, the Annual Bonus may be paid by decision of the General Meeting of Shareholders in a reduced amount. A decision for payment of an Annual Bonus may be adopted only after adoption by the General Meeting of Shareholders of the annual consolidated financial statements of the Company for the Year of performance. In view of the relative weight of the Annual Bonus to the permanent remuneration of the executive members of the Board of Directors, the payment of 40% of the Annual Bonus is deferred for a period of not less than 3 years. The payment of the deferred part of the Annual Bonus may be made proportionally or by gradual increase during the deferred period, according to the decision of the General Meeting of Shareholders for payment of the Annual Bonus. In case of termination of a management contract with an executive member of the Board of Directors, when such termination is not related to his/her non-performance or other culpable conduct, the deferred part of the Annual Bonus, completed at the date of termination of the Year of Performance, which has not been paid at the date of termination, is subject to payment in full, as defined in accordance with Art. 26 (whether before or after the date of termination), unless otherwise determined by a decision of the General Meeting of Shareholders or in the management contract. The receipt by an executive director of variable remuneration from any subsidiary within the group as referred to in the preceding subparagraph shall not waive his/her right to receive an Annual Bonus or other variable remuneration from the Company, insofar as such remuneration has been granted by decision of the General Meeting of Shareholders, unless such exclusion is expressly provided for when the relevant remuneration is granted. SHELLY GROUP AD UIC 201047670 47 Where an executive member of the Board of Directors receives variable remuneration from subsidiaries within the group of the Company in respect of the functions performed by him in those companies under an employment or equivalent relationship (including under a management contract), the maximum total amount of all variable cash remuneration, including the Annual Bonus, that such executive member may receive, may not exceed the gross amount of EUR 240 000 per year. The Company may grant and pay an Annual Bonus independently of and in addition to the provision and payment of Variable Remuneration in shares. The Company may also pay an Annual Bonus to non-executive members of the Board of Directors by decision of the General Meeting of Shareholders and by applying the rules under Art. 24 to 28 inclusive. As of 31.12.2023, the Company has not provided an Annual Bonus to the members of the Board of Directors. 3. Information on the criteria for achieved results that are the grounds for receiving share options, shares of the company or other type of variable remuneration and explanation of the way the criteria in art. 14, par. 2 and 3 of Ordinance 48 contribute to long-term company interests. According to the Remuneration Policy the variable remuneration in shares is dependent on performance of objective and measurable financial and non-financial criteria for the results achieved by the executive directors of the Board of Directors, which promote the stability of the Company and its development in the long-term. The assessment regarding the performance of the financial and non-financial indicators for results achieved, is performed according to the adopted Scheme for payment of variable remuneration by the General Meeting of the Shareholders on the basis of the consolidated annual report on activities of the Company and appendices thereto, as well as on other publicly available relevant information. The adopted at the General Meeting of Shareholders on December 13, 2022 Scheme sets complex criteria for assessment of the results of the activities of the Directors and the performance incentives set are directed towards sustainable and long-term value creation. When determining the remuneration and conditions for their granting, the external environment in which the Company operates, and the competitive market are taken into consideration. The combination of criteria when the rights for exercising the granted options arise in accordance with this Scheme aims to ensure an optimum balance between the long-term and short-term objectives of the Company, which is in the interest of the Company, its shareholders and interested parties. The granting of variable remuneration in shares in the form of conditional options according to the Scheme is dependent on the performance of objective and measurable financial and non-financial criteria for results achieved, which promote the stability of the Company and the development of its activity in the long-term. When achieving the set criteria for performance the director will have the right to exercise the respective option in accordance with the conditions stipulated in it and in compliance with the rules in the Scheme. The mandatory condition for the occurrence of rights for the exercising of each granted option under this Scheme is the fulfilment of at least one non-financial indicator. The performance criteria are set in view of the development strategy of the Company and are the same for all directors taking into consideration their functions, their interrelation and achieved total result of the Company and the companies in its Group. Nevertheless, in view of their different internal organizational functions, which contribute in a different way to the performance of the criteria set and their different geographical place, it is admissible to set different remunerations in shares within the framework set in the Scheme. The performance criteria, including the specific values of the indicators set in the Scheme, on which the respective criteria are based, are subject to change only by motivated decision of the General Meeting of the Shareholders when there is a significant change in the economic environment, market conditions, expectations for development of the Company and other important reasons, which necessitate such amendment. SHELLY GROUP AD UIC 201047670 48 The financial criteria include: i. Quarterly average share price ("QASP"), which represents the average arithmetical value of the price of shares to the determined reference date calculated in the following manner: QASP =sum of weighted-average price (WAP) for each day of the period / number of days during the period Where, "period" means three months, immediately preceding the date on which the QASP was determined; "WAP" means weighted-average price (in the foreign currency of trading) on daily basis as per the information, provided by the Bulgarian Stock Exchange and the Frankfurt Stock Exchange. For the purpose of clarity, the weighted-average daily price is a historical value that is not adjusted by dividend, emission of rights, split or other changes in capital. QASP is determined in accordance with the information provided by Bulgarian Stock Exchange or by the Frankfurt Stock Exchange, which of the two leads to higher QASP, however the information provided by the two stock exchanges cannot be used in combination; "day" means a date from the period, for which WAP is provided in accordance with the information, provided by the respective stock exchange; The circle of alternative determined reference dates on which the assessment is made for the performance of the Basic targets consists of the last calendar days of each of the years, included in the Period of performance. Each Basic target may be achieved only once when this criterion is considered to be fulfilled. After a Basic target is achieved at one of the alternatively set reference dates for calculation, its fulfilment at the next reference dates (if any) is not assessed. Also, at a given reference date two or more Basic targets may be achieved simultaneously. ii. Annual turnover of the Company, which is assessed on consolidated basis in accordance with the annual consolidated financial statements which have been audited and adopted at the General Meeting of the Shareholders for each year of the Period of performance. Non-financial criteria include activities and projects with long-term and strategic significance for the development of the business of the Company and the Group managed by it, therefore the fulfilment of at least one of these criteria is a condition for the occurrence of rights for exercising the options granted according to this Scheme. Non-financial criteria according to the Scheme include: (i) Realization of strategic projects of the Company, such as, but not only: a) transactions on sale and acquisition of participations in other companies; b) ensuring external financing for specific projects, including by fundraising of capital or ensuring a strategic partner or investor; c) reorganization and restructuring of business or separate units of it; as well as other projects, apart from the those listed, which could have significance for the development of the business of the Company; (ii) Development of the production and logistics, such as, but not only: a) expansion of portfolio of products, introduction of new or optimization of existing productions practices; b) expansion and/or reorganization of production; c) reorganization and optimization of logistics; d) opening new commercial offices, logistic centers; SHELLY GROUP AD UIC 201047670 49 as well as other activities, apart from those mentioned, which might be significant for optimization, expansion and/or improvement in another manner of the production and/or logistics; (iii) Development of commercial and distribution channels, such as, but not only: a) reorganization or optimization of existing commercial and distribution channels; b) establishing strategic trade partnerships; as well as other activities, apart from those listed, which might be significant for the trade and distribution of the goods and services offered by the companies in the group of the Company; (iv) Improvement of client servicing, such as, but not only: a) expansion, re-organization and/or optimization of contact centers and channels for clients’ servicing in view of providing higher efficiency of processes related to receiving clients’ feedback regarding the products and services provided by the companies within the group of the Company; b) improvement of processes for measurement and analysis of customer satisfaction; c) improvement of products and/or services provided by the Company compared to the results from the analysis of customer satisfaction; d) establishing training centers of working groups for servicing and assembly of devices, by the companies within the group of the Company; as well as other activities, apart from those listed, related to improvement of servicing of clients; (v) conducting procedures for the issuance by the Company of financial instruments on the basis of or related to shares, regardless of the regulated market on which they have been issued; (vi) promotion of the Company among potential investors and retaining a good investor image by, but not only: a) holding regular meetings with investors and analysts; b) participation in investor forums and conferences; c) ensuring transparency regarding the activities of the Company and its management and adhering to the laws and regulations and good investor and business practices. 4. Explanation of methods applied for the assessment of performance criteria Basic options 1. Target values (Basic targets) by financial indicator Quarterly average share price (see §10 of the Scheme). SHELLY GROUP AD UIC 201047670 50 Table 16 Reference dates (1) QASP (2) Number of shares (3) 31.12.2022, 31.12.2023, 31.12.2024 and 31.12.2025 EUR 11,16 178 050 EUR 18,00 133 537 EUR 27,00 133 538 EUR 38,00 133 537 EUR 46,00 133 538 EUR 55,00 178 050 Total shares: 890 250 1 Alternatively determined reference date as of which the QASP is calculated and an assessment is made regarding the performance of each of the Basic targets, with the exception of already achieved Basic targets. 2 Quarterly average share price. 3 Maximum eligible number of shares for all directors, who may be granted Basic options, whose exercise is dependent on the performance of the respective Basic target (the value of QASP, indicated on the same line). Reserve options 2. Target values (Reserve targets) by financial indicator Annual turnover Table 17 Reference year (1) Annual turnover (2) (in million EUR) Number of shares (3) 2022 г. 43.5 88 538 2023 г. 62.5 104 025 2024 г. 89 119 025 2025 г. 125 133 537 Total shares: 445 125 1 Reporting year to which the audited and approved at the Annual General Meeting of the Shareholders annual consolidated financial statements refer to. 2 Minimum value of Annual turnover, realized during the year indicated on the same line. 3 Maximum eligible number of shares for all directors, who may be granted Reserve options, whose exercise is dependent on the performance of the respective Reserve target (value of the Annual turnover, indicated in the same line). 5. Explanation of the relation between remuneration and achieved results According to the Remuneration Policy, the permanent remuneration is not linked to the performance. Such a link exists in respect of the variable remuneration in shares as described in the preceding p. 4, here above. 6. Basic payments and justification of the annual scheme of payment of bonuses and/or other non- monetary additional remuneration The amount of basic payments is fixed in the Remuneration Policy. A possibility is provided for payment of additional variable remuneration in shares to the executive members of the Board of Directors, according to the Scheme adopted by the General Meeting of Shareholders. By an amendment in Remuneration policy effective January 1, 2024 adopted by a decision of the General Meeting of the Shareholders on December 19, 2023 a possibility is provided for payment of variable cash remuneration according to p. 2 of this Report. SHELLY GROUP AD UIC 201047670 51 As of December 31, 2023 the Company has not provided Annual bonus to the members of the Board of Directors. 7. Description of the basic characteristics of the additional voluntary pension insurance scheme and information on contributions paid and/or due by the company in favour of the director for the relevant financial year, as applicable The Company has no obligation for paying additional voluntary pension insurance for the members of the Board of Directors of SHELLY GROUP AD and the Company is not obliged to make contributions in favor of the directors for the reported financial year. 8. Information on periods of delay of payment of variable remuneration The period of execution of the Scheme is 2022, 2023, 2024 and 2025. The granting of variable remuneration in shares in the form of conditional options under this Scheme is subject to the fulfilment of objective and measurable financial and non-financial criteria for achieved results. The fulfilment of the conditions for exercising the options is assessed by the General Meeting of Shareholders at the end of the Performance Period, after or simultaneously with the adoption of the Annual Consolidated Report of the Company for the last year of this period. The General Meeting of Shareholders assesses with respect to each director who has been granted a package of options in accordance with the Scheme, for which of the granted options the conditions for their exercise have been met in accordance with the results achieved by the Company and for the relevant director during the Period of execution. The general meeting adopts decision for the total number of shares which the director has rights to receive from the Company exercising its share options. Meeting the conditions for exercising of each of the provided options is estimated according to the rules under this Scheme. Options granted which have become exercisable by the relevant director (as set out above) are exercisable in full (for all options for which the conditions for their exercise are met, for all shares for which the relevant options can to be exercised) or partially (for part of the options for which the conditions for their exercise are met and/or for part of the shares for which the corresponding options can be exercised) once with a notification addressed to the Company, within a period of one year which starts from the later date between: • the third year of the date of the decision of the General Meeting of Shareholders to grant it; and • the date of the decision of the General Meeting of Shareholders. Options are considered void if not exercised within the specified period. The granting of shares under an option validly exercised by the director occurs within a period of up to one year from the date of exercise of the option. In the presence of extraordinary circumstances, this term can be extended by a decision of the General Meeting of Shareholders for no more than one year. 9. Information on the compensation policy in case of contract termination Upon termination of the contract with a member of the Company's Board of Directors, due to expiration and non-renewal of the mandate for which he was elected, the Company does not owe compensation. In the event of early termination of the contract with a member of the Board of Directors by the Company without giving a reason, the amount of compensation payable by the Company, in addition to the compensation due by law (when applicable), is agreed in the contract or in an agreement between the parties, as the maximum total amount of all compensation payable by the Company cannot exceed: 1. the total amount of gross monthly remunerations paid to him up to the time of termination, and in all cases this amount cannot exceed the sum of 12 permanent gross monthly remunerations - for an executive member of the Board of Directors; 2. three gross monthly remunerations – for a non-executive member of the Board of Directors; SHELLY GROUP AD UIC 201047670 52 3. part of the permanent gross monthly remuneration, proportional to the missed notice period by the Company, applying the maximum values specified in items 1 and 2 . Compensation is not due in case the termination of the contract is due to unsatisfactory results and/or culpable behaviour of the relevant director. 10. Information on the period when shares may not be transferred and share options may not be exercised, in case of variable remuneration based on shares The current Share-based Remuneration Scheme of the Board of Directors, which is in force from December 13, 2022, does not provide for a lock-up period after the actual transfer of the shares. 11. Information on the policy of retaining a certain number of shares until the end of the mandate of the members of the managing and supervisory bodies after expiry of the period in p. 10 The Remuneration Policy and the Share-based Remuneration Scheme of the executive members of the Board of Directors, which is in force as of December 13, 2022, does not provide for retaining a certain number of shares until the end of the mandate. It should be taken into consideration that the period of execution of the Scheme, which concludes on December 31, 2025 covers almost the full mandate of the Board of Directors, which ends on January 5, 2026. 12. Information on the contracts of the members of the managing and supervisory bodies, including the term of each contract, period of notice on termination and details on compensations and/or other payments due in case of early termination The executive members of the Board of Directors perform their functions on the grounds of contracts, which are in force as of the date of their election until January 5, 2026, and a one-month termination notice for Mr. Wolfgang Kirsch and two-month termination notice for Mr. Dimitar Dimitrov. The obligations of the independent members of the Board of Directors start with their entry in the Trade Register. All members of the Board of Directors are appointed by the General Meeting of Shareholders with mandate until January 5, 2026, and without limit to their re-election. Details on compensations and/or other payments due in case of early termination are set in the Remuneration Policy of the Board of Directors. 13. Full amount of remuneration and other incentives for the members of the Board of Director for the relevant financial year The members of the Board of Directors of SHELLY GROUP AD have received the following gross remuneration for 2023. Table № 18 Name Position Gross/BGN’000 Dimitar Dimitrov Executive Director 60 Svetlin Todorov Member of the Board of Directors 60 Wolfgang Kirsch Executive Director 587 Gregor Bieler (effective as of January 1, 2024 г. he is no longer member of BoD) Independent member and Chairman of the Board of Directors 243 Nikolay Martinov Independent member and Deputy-chairman of the Board of Directors 60 SHELLY GROUP AD UIC 201047670 53 During the reporting period the members of the Board of Directors of the Company have not received other incentives in this capacity. Based on the approved by the General Meeting Share-based Remuneration Scheme for the executive members of the Board of Directors for the period 2022 – 2025, the executive members Mr. Dimitar Dimitrov and Mr. Wolfgang Kirsch have been granted remuneration in shares in the form of package of conditional options, as indicated in p. 15.17, of letter “b” of the Report on activities. During the reported financial year, part of the members of the Board of Directors received remuneration from subsidiaries for other functions performed in these companies under employment or other employment relations, as follows: Table № 19 Full name Gross/BGN’000 Dimitar Stoyanov Dimitrov 543 Svetlin Iliev Todorov 380 Wolfgang Kirsch 411 14. Information on the remuneration of persons who have been members of a management or supervisory body of a public company for a specified period during the reported financial year: а) the full amount of the person's remuneration paid and/or accrued for the reported financial year The members of the Board of Directors of SHELLY GROUP AD have received in their capacity remuneration under employment contracts and other employment relations in 2023, paid by SHELLY GROUP AD, as indicated in p. 13, Table 18 above. During the reporting period the members of the Board of Directors of the Company have not received non- cash remuneration. The Company does not have contingent or deferred payables arising during the year, even if the remuneration is due at a later stage. As of December 31, 2023, SHELLY GROUP AD has no amounts due for pensions and compensation upon retirement to the members of the Board of Directors. During the reported period the members of the Board of Directors of the Company received remuneration for their positions in subsidiaries. b) remuneration and other cash and non-cash incentives received by the person from other companies in the group; During the reported financial year part of the members of the Board of Directors received from subsidiaries remuneration for other functions performed in these companies under employment contracts or other employment relations, as indicated in p. 13, Table 19 above. c) remuneration received by the person in the form of profit distribution and/ or bonuses and grounds for their payment In the reported period, none of the members of the Board of Directors of SHELLY GROUP AD received remuneration from the Company in the form of profit distribution and/or other bonuses, except the conditional remuneration in shares, as indicated in p. 15.17, letter “b” in the Report on activities. d) All additional payments for services provided by the person outside his usual functions, where such payments are eligible under his contract The contracts with the members of the Board of Directors of SHELLY GROUP AD provide for no additional payments for services provided by them outside their usual functions. SHELLY GROUP AD UIC 201047670 54 e) compensation paid and/ or accrued on termination of his functions during the last financial year During the reported period, no compensation was paid for the dismissal of members of the Board of Directors. f) overall assessment of all non-cash benefits equivalent to remuneration other than those referred to in clauses “a”- “e” In the reported period none of the members of the Board of Directors of SHELLY GROUP AD received non- cash remuneration in addition to those specified in clauses (a) to (e). g) information on all loans granted, payments for social and household expenses and guarantees from the Company or its subsidiaries or other companies that are subject to consolidation in its annual financial statements, including data on the outstanding balance and interest In the reported period, there are no loans, payments for social and household expenses and guarantees provided by the Company or its subsidiaries or other companies to any of the members of the Board of Directors of SHELLY GROUP AD, that are subject to consolidation in its annual financial statements. Remuneration paid by subsidiaries to the Executive Director Wolfgang Kirsch (table 19) at the amount of BGN 411 thousand includes BGN 6 thousand income in accordance with the laws of the Republic of Germany related to the right to use a company car. 15. Information regarding shares and/or share options and/or other share-based incentive schemes: By decision of the General Meeting of Shareholders dated December 13, 2022 the executive directors Mr. Dimitar Dimitrov and Mr. Wolfgang Kirsch have been granted remuneration in shares in the form of package of conditional options as indicated in p. 15.17, letter “b” of the Report on activities. The variable remuneration in the form of packages of conditional options refers to ordinary registered dematerialized shares of the capital of SHELLY GROUP AD (stock exchange code SLYG, ISIN BG1100003166), with voting rights, with nominal value of BGN 1 each. After their transfer no privileges or limitations are provided for the rights incorporated therein. The shares are traded simultaneously on the Bulgarian Stock Exchange and the Frankfurt Stock Exchange. 16. Annual change in the remuneration, the results of the company and the average amount of remuneration on the basis of full-time work of company employees, who are not directors, during at least five previous financial years is as follows Annual change in the remuneration, Company results and the average amount of remuneration based on full- time work of Company employees who are not directors, during at least five previous financial years, is as follows: Table № 20 2017 2018 2019 2020 2021 2022 2023 Change in the remuneration Number of employees, excluding BoD members 4 4 4 4 4 5 5 Salary expense, incl. social security contributions, BGN 224 015 230 507 374 100 245 627 298 929 372 484 464 697 annual % change 7.7% 2.9% 62.3% -34.3% 21.70% 24.61% 24.76% Average annual remuneration/employee, BGN 56 004 57 627 93 525 61 407 74 732 74 497 92 939 SHELLY GROUP AD UIC 201047670 55 Company results Total revenue (incl. financial), BGN’000 1,666 1 598 9 598 3 632 5 365 4 177 11 285 Net profit on individual basis, BGN’000 549 713 4 483 2 330 3 270 1 058 7 852 Salary Expense as % of the revenue 13% 14% 4% 7% 6% 9% 4% In 2023 there is a decrease of expenses for salaries of employees as a per cent of the revenue. The expenses for salaries have increased on average by 12.9% on annual basis in the period 2017 – 2023, except in 2019, when the growth was higher due to the bonuses paid in relation to the successful completion of the sale of 5 subsidiaries. 17. Information on exercising the possibility to demand a refund of paid variable remuneration According to the current Remuneration Policy, there is no provision for refund of payment of variable remuneration. 18. Information on all deviations from the procedure for the implementation of the Remuneration Policy in connection with extraordinary circumstances under Art.11, para.13, including an explanation of the nature of the extraordinary circumstances and identification of the specific components that have not been implemented In the reported period there were no extraordinary circumstances where the Company temporarily suspended the implementation of the Remuneration Policy. 19. Information on the implementation of the Remuneration Policy for the members of the Board of Directors of SHELLY GROUP AD for the next financial year By decision of the General Meeting of Shareholders dated December 19, 2023, an amendment to the Remuneration Policy was adopted, effective as of January 1, 2024. The current Policy is available on the Company's official website. If necessary, the Board of Directors may propose a change and/or addition to the Remuneration Policy in force. SHELLY GROUP AD: ............................................... Dimitar Dimitrov /Executive Member of the Board of Directors/ Dimitar Stoyanov Dimitrov Digitally signed by Dimitar Stoyanov Dimitrov Date: 2024.03.15 16:37:47 +02'00' SHELLY GROUP AD UIC 201047670 CORPORATE GOVERNANCE DECLARATION 56 CORPORATE GOVERNANCE DECLARATION OF SHELLY GROUP AD in accordance with the provisions of art. 100n, para. 8 of the Public Offering of Securities Act for the period 01.01.2023 – 31.12.2023 This Corporate Governance Declaration of Shelly Group AD (the “Company”) has been prepared in accordance with the requirements of art. 100n, para. 8 of the Public Offering of Securities Act (POSA) and applies to the period 01.01.2023 - 31.12.2023 (“reporting period”) 1. Information whether SHELLY GROUP AD complies, as appropriate, with the Corporate Governance Code, approved by the Deputy Chairman, or another corporate governance code SHELLY GROUP AD and its management comply, as appropriate, with the National Corporate Governance Code. Some of the recommendations of the National Code are not yet fully implemented by the corporate management of the Company, but the Board of Directors is committed to continue to bring the activities of SHELLY GROUP AD in line with them in 2024. SHELLY GROUP AD does not implement other corporate governance practices in addition to the National Corporate Governance Code 2. Explanation by SHELLY GROUP AD which parts of the National Corporate Governance Code are not observed and what are the reasons for this are During the reporting period, the activities of the Board of Directors of SHELLY GROUP AD were carried out in full compliance with the regulatory requirements set out in the Public Offering of Securities Act and the acts on its implementation, and the Statutes of the Company. The corporate management of SHELLY GROUP AD considers that there are still parts of the National Corporate Governance Code that the Company does not comply with, but in the following reporting period the management will continue to perform all necessary legal and factual actions to bring the activities in line with the principles and recommendations of the Code, as well as best practices in the field of corporate governance. The Code is applied on the basis of the “comply or explain” principle. This means that the Company complies with the Code, and in case of deviation, its management clarifies the reasons. І. Chapter One – Corporate management SHELLY GROUP AD is a Company with a one-tier management system and is managed by a Board of Directors. Functions and obligations The Board of Directors steers and controls independently and responsibly the activities of the Company in accordance with the established vision, goals, strategies of the Company and the interests of shareholders and stakeholders. It is recommended that the vision, goals and strategies be established in accordance with the economic, social and environmental priorities of the Company. The Board of Directors monitors the results of the Company’s activities on a quarterly and annual basis and, if necessary, initiates change in the management of the activities. SHELLY GROUP AD CORPORATE GOVERNANCE DECLARATION UIC 201047670 57 The Board of Directors treats all shareholders equally, acts in their interest and with due diligence. The members of the Board of Directors are guided in their activities by the generally accepted principles of integrity and managerial and professional competence. The Board of Directors has not adopted a Code of Ethics. In performing its functions, the Board of Directors strives to follow the economic, social and environmental priorities of the Company. The Board of Directors has built and ensured the functioning of a risk management system, including for internal control. The Board of Directors promotes the implementation and observes compliance by the subsidiaries with the adopted principles for sustainable development at the group level. It helps to establish a culture of sustainable development. The Board of Directors has ensured and controls the integrated operation of the accounting and financial reporting systems. The Board of Directors provides guidelines, approves and controls the implementation of the Company’s business plan, substantial transactions, as well as other activities stipulated in its statutes. In accordance with the requirements of the Public Offering of Securities Act, the Board of Directors monitors all substantial transactions and approves them. If there are transactions, which individually or collectively exceed the thresholds specified in Art. 114, para. 1 of the Public Offering of Securities Act, the Board of Directors prepares a motivated report and adopts a decision to convene a General Meeting of Shareholders, at which the shareholders authorize it to carry out these transactions. The Board of Directors reports on its activities to the General Meeting of Shareholders, submitting the annual activity report and the Report on the Implementation of the Remuneration Policy for approval by the shareholders. Election and dismissal of members of the Board of Directors The General Meeting of Shareholders elects and dismisses the members of the Board of Directors in accordance with the law and the Statutes of the Company, as well as in accordance with the principles of continuity and sustainability of the work of the Board of Directors. In case of proposals for election of new members of the Board of Directors, the principles of compliance of the candidates’ competence with the nature of the National Corporate Governance Code in the activity of the Company are observed. All members of the Board of Directors meet the legal requirements for holding office. The functions and obligations of the corporate management, as well as its structure and competence are in accordance with the requirements of the Code. The contracts for assignment of the management, concluded with the members of the Board of Directors, define their obligations and tasks, the criteria for the amount of their remuneration, their obligations for loyalty to the Company and the grounds for dismissal. SHELLY GROUP AD CORPORATE GOVERNANCE DECLARATION UIC 201047670 58 During the reporting financial year, SHELLY GROUP AD implemented the Remuneration Policy of the members of the Board of Directors, adopted by the Annual General Meeting of Shareholders of SHELLY GROUP AD, last modified through decision dated 19.12.2023. The remuneration of the members of the Board of Directors and information on its amount is duly disclosed in the activity report of the Board of Directors, as well as in the Report on the Implementation of the Remuneration Policy of the members of the Board of Directors, which are an integral part of the annual financial statements of the Company. Structure and competence The number of members and the structure of the Board of Directors are determined in the Statutes of the Company. The composition of the Board of Directors is structured in a way that guarantees professionalism, impartiality and independence of its decisions in relation to the Company’s management. The functions and obligations of the corporate management, as well as its structure and competence are in compliance with the requirements of the Code. The Board of Directors ensures the proper allocation of tasks and responsibilities among its members. The independent members of the Board of Directors of SHELLY GROUP AD control the actions of the executive management and participate effectively in the Company’s operations in accordance with the interests and rights of the shareholders. The Chairperson of the Board of Directors is an independent director. The competencies, rights and obligations of the members of the Board of Directors follow the requirements of the law, the statutes and the standards of good professional and managerial practice. The members of the Board of Directors have the appropriate knowledge and experience required by the position they hold. Information about their professional qualification and experience is disclosed during the election of the members of the Board of Directors with the materials for the General Meeting of the Shareholders. After the election of new members of the Board of Directors, they get acquainted with the main legal and financial issues related to the Company's activities. Improving the qualifications of the members of the Board of Directors is their constant commitment. The members of the Board of Directors have the necessary time to perform their tasks and duties, even though the statutes of the Company do not determine the number of companies in which the members of the Board of Directors may hold managerial positions. This circumstance is taken into account in the proposals and election of new members of the Board of Directors. The election of the members of the Board of Directors of the Company is performed by means of a transparent procedure, which provides, among other things, timely and sufficient information about the personal and professional qualities of the candidates for members. As part of the materials for the General Meeting, at which the election of a new member of the Board of Directors is proposed, all declarations required by POSA and the Commercial Act, a criminal record certificate and a professional biography of the candidate for elected position are to be submitted. When electing members of the Board of Directors, the candidates confirm with a declaration or in person to the shareholders the accuracy of the submitted data and information. The election procedure is conducted by show of hands and counting the votes “For”, “Against” and “Abstentions”. The voting results are announced through the minutes of the General Meeting of Shareholders. The number of consecutive mandates of the members of the Board of Directors ensures efficient operation of the Company and compliance with the legal requirements. The statutes of the Company do not provide for a limit on the number of consecutive mandates of the independent members, but this circumstance is observed in the proposal for election of independent members. SHELLY GROUP AD CORPORATE GOVERNANCE DECLARATION UIC 201047670 59 Remuneration The Board of Directors has developed a clear and specific policy for the remuneration of the members of the Board of Directors, which was approved by the Annual General Meeting of Shareholders of SHELLY GROUP AD and sets the principles for forming the amount and structure of the remuneration. The remuneration of the Executive Member of the Board of Directors consists of a basic remuneration and additional incentives. The additional incentives are subject to clear and specific criteria and indicators regarding the Company's results and/or the achievement of targets set in the Share-Based Remuneration Scheme for executive members of the Board of Directors. In accordance with the legal requirements and the good practice of corporate governance, the amount and structure of the remuneration, according to the Remuneration Policy adopted by the General Meeting of Shareholders, take into account: − The duties and contribution of each member of the Board of Directors in the Company’s activities and results; − The ability to select and retain qualified and loyal members of the Board of Directors; − The need to match the interests of the members of the Board of Directors and the long-term interests of the Company, as well as its sustainable development. Pursuant to the Remuneration Policy adopted by the General Meeting of Shareholders, the Company may pay executive members of the Board of Directors variable share-based remuneration in order to directly engage management in the achievement of long-term corporate objectives. Variable share-based remuneration is not provided for non-executive members of the Board of Directors. The share-based remuneration of the Company, the criteria for granting and the amounts are determined on the basis of the Share-based Remuneration Scheme, as approved by the General Meeting of Shareholders and adopted with decision dated 13.12.2022, which is in force as of the date hereof. The independent members of the Board of Directors receive remuneration in accordance with the principles for forming the amount and the structure of remuneration, set out in the Remuneration Policy adopted by the General Meeting of Shareholders. As mentioned above, the disclosure of information on the remuneration of the Board of Directors members is done in accordance with the legal norms and the statutes of the Company - by disclosing in the Annual Report on the Activity and the Report on the Implementation of the Remuneration Policy for the members of the Board of Directors. The Remuneration Policy is published on the Company’s website. In this way, the shareholders have easy access to the policy observed by the Company regarding the basic and additional remuneration for the members of the Board of Directors. Conflict of interests The members of the Board of Directors avoid and do not allow real or potential conflicts of interest. During the reporting period, no transactions have been concluded between the Company and members of the Board of Directors or persons related to them. The members of the Board of Directors immediately disclose conflicts of interest and provide the shareholders with access to information on transactions between the Company and members of the Board of Directors or persons related to them by presenting the declaration under Art. 114b of the Public Offering of Securities Act. The Board of Directors has not established a specific procedure for avoiding conflicts of interest in transactions with interested parties and disclosing information in the event of such, but controls the conclusion of significant transactions through voting and approval of such transactions. SHELLY GROUP AD CORPORATE GOVERNANCE DECLARATION UIC 201047670 60 Committees Board of Directors’ work is supported by committees and the Board of Directors determines the need for their establishment according to the specifics of the Company. In compliance with the requirements of the effective legislation and based on the criteria it determines, the Board of Directors annually proposes to the General Meeting of Shareholders to appoint an audit committee with a composition that meets the specific needs of the Company. The Audit Committee carries out its activities in accordance with the legal requirements. ІІ. Chapter Two – Audit and internal control The Board of Directors is assisted by an Audit Committee. The Board of Directors and the Audit Committee ensure compliance with the applicable law regarding the independent financial audit. The rotation principle is applied regarding proposals and appointment of external auditors. The Audit Committee monitors the overall relationship with the external auditor, including the nature of non- audit services provided by the Company's auditor, if any. The Company has established and operates an internal control system, which includes identifying the risks associated with the Company's activities and supporting their effective management. It also ensures the effective functioning of the accountability and information disclosure systems. ІІІ. Chapter Three - Protection of shareholders’ rights The Board of Directors ensures equal treatment of all shareholders, including minority and foreign shareholders, protects their rights and facilitates exercising them within the scope permitted by the applicable law and in accordance with the provisions of the Company's statutes. In the reporting period, the Company held one regular and two extraordinary General Meetings of Shareholders, complying with all the requirements of Art. 115 et seq. of the POSA, announcing the decision for its convention and publishing the invitation together with the materials thereto in the manner specified by the law. The shareholders were guaranteed the opportunity to add new items to the agenda under Art. 223a of the Commercial Act. The Statutes of the Company provide for the invitation to the General Meeting to contain the information required under the Commercial Act and POSA, as well as additional information on exercising the right to vote and the possibility to add new items to the agenda under Art. 223a of the CA. The corporate management ensures that all shareholders are informed about their rights through the information publishing system and the Company's website, the announced Statutes of the Company and invitations for each General Meeting of Shareholders together with the materials to it. SHELLY GROUP AD CORPORATE GOVERNANCE DECLARATION UIC 201047670 61 General Meeting of Shareholders All shareholders are informed about the rules according to which General Meetings of Shareholders are convened and held, including the voting procedures, through the Statute of the Company and invitations for each General Meeting of Shareholders. The Board of Directors provides sufficient and timely information on the date and place of the General Meeting, as well as complete information on the issues to be discussed and resolved at the Meeting. The invitation and materials for the General Meeting of Shareholders are announced to the public through the selected media agencies, the Financial Supervision Commission and the regulated securities market. After presenting the invitation and the materials for the General Meeting of Shareholders, they are also made available on the Company's website. The Company’s management maintains a database with contact information of its shareholders owning 5% or more of the Company’s capital, allowing direct messages to be sent to them or to a person designated by them, when necessary. The Company's corporate management ensures that all shareholders are able to express their opinion and ask questions during the General Meeting. Shareholders with voting rights have the opportunity to exercise their voting rights at the General Meeting of the Company in person or through representatives and voting by correspondence might be allowed for a specific General Meeting of the Shareholders. As part of the materials for the General Meeting of Shareholders, the Board of Directors provides a sample power of attorney. The Company indicates the Rules for voting by proxy and the Rules for voting by correspondence (when applicable) in the content of the invitation or as a separate document - part of the materials to it. The Board of Directors has undertaken all necessary actions to bring the Company’s activities in line with the recommendations of the Code. The Statutes of the Company allow exercising the right to vote by electronic means and/or by correspondence by decision and rules determined by the Board of Directors in the invitation to convene a General Meeting. The Board of Directors exercises effective control by creating the necessary organization for the voting of the authorized persons in accordance with the instructions of the shareholders and in the ways permitted by law. The Board of Directors appoints a mandate commission, which registers the shareholders for each General Meeting and proposes to the General Meeting to appoint a Chairperson, Secretary and Vote Tellers. The management of the General Meeting strictly monitors the lawful conduct of the General Meeting, including the manner of voting of the authorized persons. When differences are noticed in the will of the principal and the vote of the authorized person, this circumstance is entered in the minutes and the will of the principal is taken into account accordingly. The Board of Directors has not prepared and adopted a specific policy for the organization and holding of ordinary and extraordinary General Meetings of Shareholders, but at the same time monitors compliance with the principles of equal treatment of all shareholders and the right of each shareholder to express their opinion on the items on the agenda of the General Meeting. The Board of Directors prepares Rules for voting by proxy and Rules for voting by correspondence (when applicable) to the materials for convening General Meetings. The Board of Directors organizes the procedures and order for holding the General Meeting of Shareholders in a way that does not complicate or increase the cost of voting unnecessarily. SHELLY GROUP AD CORPORATE GOVERNANCE DECLARATION UIC 201047670 62 The Board of Directors encourages the participation of shareholders in the General Meeting of Shareholders but has not provided the opportunity for remote presence through technical means (including the Internet), due to the lack of economic grounds for such a method of participation in the General Meeting. Insofar as the members of the Company's Board of Directors spend most of their time outside the country, it is not always possible to ensure the presence of all of them at the General Meetings of Shareholders, but some of them, including at least one executive director, are present at the General Meetings of the Company's shareholders. Materials for the General Meeting of Shareholders The texts in the written materials related to the agenda of the General Meeting are specific and clear and do not mislead the shareholders. All proposals regarding major corporate events are presented as separate items on the agenda of the General Meeting, incl. the profit distribution proposal. The Company maintains a special section on its website regarding the rights of shareholders and their participation in the General Meeting of Shareholders. The Board of Directors assists the shareholders entitled under the current legislation to include additional items and to propose resolutions for items already included on the agenda of the General Meeting, by performing all necessary legal and factual actions to announce the additional items added to the agenda of the already convened General Meeting. The Board of Directors ensures the right of the shareholders to be informed about the decisions taken by the General Meeting of Shareholders by announcing the Minutes of the General Meeting of Shareholders through the selected media agencies. Equal treatment of shareholders of the same class According to the Company’s Statute and internal acts, all shareholders of the same class are treated equally, and all shares within one class give equal rights to shareholders of the same class. The Board of Directors ensures that sufficient information is provided to investors regarding the rights granted by all shares of each class prior to their acquisition through the information published on the Company’s website, as well as through interviews and personal meetings with the management and/or the Director of Investor Relations. Consultations between shareholders regarding their basic shareholder rights The Board of Directors does not prevent shareholders, including institutional ones, from consulting each other on matters relating to their basic shareholder rights in a manner that prevents abuse. Transactions of shareholders with controlling rights and abusive transactions The Board of Directors does not allow transactions with shareholders with controlling rights, which violate the rights and/or legitimate interests of other shareholders, including under the conditions of agreement with themselves. Conducting this type of transactions requires an explicit decision of the Board of Directors and the interested parties are excluded from the voting. In case of indications for crossing the statutory thresholds under Art. 114, para. 1 of POSA, the Board of Directors prepares a motivated report and initiates the convening and holding of a General Meeting of Shareholders, at which the transactions are put to a vote. ІV. Chapter Four – Disclosure of financial and non-financial information The Board of Directors has adopted a policy for disclosure of information (financial and non-financial) in accordance with the legal requirements and the Statutes of the Company. In accordance with the adopted policy, the corporate management has created and maintains a system for disclosure of information. SHELLY GROUP AD CORPORATE GOVERNANCE DECLARATION UIC 201047670 63 The information disclosure system ensures equality of the addressees of information (shareholders, stakeholders, investment community) and does not allow misuse of inside information. The information disclosure system ensures complete, timely, accurate and understandable information, enabling taking objective and informed decisions and assessments. The inside information is disclosed in the legally established forms, order and terms through the selected media agencies. The Company uses a single point to disclose information by electronic means, thus the information reaches the public, FSC and the regulated securities market in unmodified form. Information in unmodified form and volume is also published on the Company’s website. In this way, the Company’s executive management ensures that the information disclosure system provides complete, timely, accurate and understandable information, allowing taking objective and informed decisions and assessments. The Executive Management and the Board of Directors promptly disclose the Company’s capital structure and agreements that lead to exercising control in accordance with its disclosure rules. Disclosure is made through the provisions of the Public Offering of Securities Act and the acts for its implementation, as well as the applicable European regulation. The Board of Directors ensures, by exercising control over the implementation of the disclosure policy, that the rules and procedures according to which the acquisition of corporate control and extraordinary transactions such as mergers and sale of significant parts of assets are clearly and timely disclosed. The Board of Directors approves and together with the independent auditor controls internal rules for the preparation of the annual and interim reports and the procedure for disclosure of information. The Company maintains a website - https://corporate.shelly.com/ with approved content, scope and frequency of the information disclosed through it. The content of the Company's website fully covers the recommendations of the National Corporate Governance Code. The Company also maintains an English language version of the corporate website with the same content. The Company periodically discloses information about the corporate governance. The Company’s Board of Directors believes that its activities in the reporting period created prerequisites for sufficient transparency in its relations with investors, financial media and capital market analysts. In the reporting period, the Company disclosed all regulated information within the deadlines and in accordance with the procedure provided for in the Public Offering of Securities Act and the acts on its implementation. Insofar as the Company has no obligation for non-financial reporting, the corporate management has not adopted rules to ensure disclosure on an annual basis of non-financial information in accordance with the national legislation and applicable European law. As part of the information disclosure system, the Company has developed and maintains a corporate website with approved content, scope and frequency of information disclosure, which includes the recommended minimum required information according to the National Corporate Governance Code. The Company also maintains an English version of the website. The Company periodically discloses information on corporate governance by annually updating this Corporate Governance Statement as part of the annual financial statements. Corporate management ensures the disclosure of any significant periodic and ad-hoc information about the Company through channels that provide equal and timely access to relevant information to users. SHELLY GROUP AD CORPORATE GOVERNANCE DECLARATION UIC 201047670 64 V. Chapter Five – Stakeholders. Sustainable development. The corporate management ensures effective interaction with stakeholders. This category includes certain groups of persons who are directly affected by the Company and who in turn can influence its activities. The Company identifies as stakeholders in relation to its activities based on their degree and spheres of influence, role and relation to its sustainable development. The Company, through its subsidiaries, regularly communicates with the various groups of stakeholders non- financial information in connection with corporate socially responsible practices established at the Company. In its policy regarding stakeholders, the Company complies with the legal requirements based on the principles of transparency, accountability and business ethics. The corporate management ensures that all stakeholders are sufficiently informed of their statutory rights. As at the end of the reporting period, the corporate management has not developed specific policies to address stakeholder interests, but is committed to taking appropriate action to comply with this requirement in 2024. The corporate management is committed to establishing specific actions and policies regarding the sustainability of the Company, including disclosure of information related to the climate and the social aspects of their activities. The corporate management maintains effective relations with stakeholders and is prepared to disclose, when necessary in compliance with legal standards and good international practices, non-financial information on economic, social and environmental issues of concern to stakeholders, such as: anti-corruption; dealing with employees, suppliers and customers; the Company's social responsibility; environmental protection and human rights violations. The corporate management ensures the right to timely and regular access to relevant, sufficient and reliable information about the Company when stakeholders are involved in the corporate governance process. 3. Description of the main characteristics of the internal control and risk management systems of SHELLY GROUP AD with regard to the financial reporting process When describing the main characteristics of the internal control and risk management systems, the fact that neither POSA nor the National Code for Corporate Governance define an internal control framework for public companies in Bulgaria to follow shall be taken into account. Therefore, for the purposes of fulfilling the Company’s obligations under Art. 100n, para. 8, item 4 of the POSA, in the description of the main characteristics of the system, the framework of the International Auditing Standard 315 was used. General description of the internal control and risk management system, the control environment, the Company's risk assessment process, the information system and related business processes essential for financial reporting and communication, as well as the ongoing monitoring of controls are listed in item 15.15 of the Report on the Activity. 4. Information under Article 10, para. 1, letters "c", "d", "f", "h" and "i" of Directive 2004/25/EC of the European Parliament and of the Council of April 21, 2004 on takeover bids 4.1. Information under Article 10, para. 1, letters "c" of Directive 2004/25/ЕC of the European Parliament and of the Council of April 21, 2004. on takeover bids - 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 As at the end of the reporting period, the shareholders holding 5 percent or more of the capital, as well as voting rights in the Company's General Meeting, are: SHELLY GROUP AD CORPORATE GOVERNANCE DECLARATION UIC 201047670 65 Table № 21 NAME OF SHAREHOLDER PERCENT OF THE CAPITAL Svetlin Todorov 30,39 % Dimitar Dimitrov 32,00 % Other individuals and legal entities 37,61 % The Company has no other shareholders who directly or indirectly own 5 percent or more of the voting rights in the General Meeting. 4.2. Information under Article 10, paragraph 1, letters "d" of Directive 2004/25/ЕC of the European Parliament and of the Council of 21 April 2004 on takeover bids - the holders of all securities with special control rights and a description of these rights SHELLY GROUP AD has no shareholders with special control rights. 4.3. Information under Article 10, para. 1, letters "f" of Directive 2004/25/ЕC of the European Parliament and of the Council of 21 April 2004 on takeover bids - any restrictions on voting rights, such as restricting 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 of the shareholders of SHELLY GROUP AD. To participate in the General Meeting, shareholders must be identified with the documents provided for in the law, the Articles of Association and the invitation to the General Meeting, certifying their identity and representative authority, and be registered by a mandate commission in the list of attending shareholders prior to the starting time of the General Meeting. 4.4. Information under Article 10, para. 1, letters "h" of Directive 2004/25/ЕC of the European Parliament and of the Council of 21 April 2004 on takeover bids - the rules governing the appointment and replacement of the members of the Board of Directors and the amendments of the Articles of Association Pursuant to the provisions of the Company's Articles of Association, the General Meeting of Shareholders determines the number, elects and dismisses the members of the Board of Directors and determines their remuneration. Pursuant to Art. 25, para. 1 of the Company's Articles of Association, the Board of Directors’ mandate is determined by the General Assembly, but it cannot be longer than 5 years. The General Meeting of Shareholders may at any time decide to make changes in the number and composition of the Board of Directors, and the members of the Board may be re-elected without limitation. A member of the Board of Directors can be any individual or legal entity that meets the requirements of the law and has the necessary professional qualifications related to the Company's activities. 4.5. Information under Article 10(1)(i) of Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids - powers of the members of the Board of Directors, and the right to issue or repurchase shares in particular The Board of Directors of SHELLY GROUP AD has the following powers: Discusses and resolves all issues, except those that are within the exclusive competence of the General Meeting of Shareholders, explicitly related, but not limited to: SHELLY GROUP AD CORPORATE GOVERNANCE DECLARATION UIC 201047670 66 (i) plans and programs for the Company's activities; (ii) organizational structure of the Company; (iii) participation in tenders and competitions; (iv) adopts the rules for the Board of Directors’ activities, as well as changes to these rules; (v) election and dismissal of its Executive Members; (vi) acquisition by the Company of interests in other companies; (vii) opening and closing branches of the Company in the country and abroad; (viii) acquisition and disposal of real estate and limited real estate rights owned by the Company; (ix) establish a mortgage on Company’s real estate or a pledge on fixed tangible assets of the Company; (x) granting loans to non-related third parties, providing guarantees, taking out guarantees and providing collaterals for obligations of non-related third parties, signing bank credit agreements for amounts (excluding interest and expenses) exceeding 3% (three percent) the amount of the Company’s consolidated revenues reported in the last audited annual financial statements of the Company; (xi) operating or finance lease contracts for amounts exceeding BGN 250,000 (excluding interest and expenses due) sighed by the Company; (xii) disposal of intellectual property rights, including the acquisition, sale and assignment of licenses to use patents, know-how and other intellectual property rights (except for intellectual property rights granted to third parties with regard to the provision of products and services of end users, within the Company's scope of activity); (xiii) determining the conditions for the appointment and acceptance of financial incentive programs on an annual basis for key management personnel of the Company's subsidiaries, namely executive directors, procurators and managers of the Company's subsidiaries; (xiv) to constitute and reconstitute the Advisory Board, to make decisions on all issues concerning the Advisory Board, except those previously determined by these Articles of Association or by a decision of the General Meeting of Shareholders, including, but not limited to: determining the numerical and personal composition of the Advisory Board with the right to appoint and dismiss its members at its discretion, the term of its existence, the remuneration and tenure of its members, to adopt, amend, revoke and monitor the implementation of all and any documents relating to the Advisory Council, including Rules of the Advisory Council’s functions. The Board of Directors makes decisions for and authorises the individuals who manage and/or represent the Company in making transactions with interested parties under Art. 114, para. 2 of the POSA, for which no prior authorisation by the General Meeting of Shareholders is required. By Decision of the General Meeting of Shareholders dated October 15, 2021, the Board of Directors is authorised for a period of up to five years from June 27, 2019. The Board of Directors has the right to make decisions to increase the Company's capital using any of the provided in para. 1 methods, with the exception of converting part of the profit into capital until reaching a total nominal amount of BGN 25 million (twenty- five million Bulgarian leva) through the issuance and public offering of up to 10,000,000 (ten million) new dematerialized, ordinary, registered voting shares with a nominal value of BGN 1 (one) each and an issue value for one share determined by an explicit decision of the Company's Board of Directors. The restrictions set out above are generally applied regardless of which of the methods provided for in para. 1 above, was used to increase the capital. The Company can repurchase own shares without making a tender offer when acquiring in one calendar year no more than 3 percent of own voting shares by decision of the General Meeting of Shareholders for a period not longer than eighteen months from the date of the decision of the relevant body of the Company. The Company may repurchase own shares by decision of the General Meeting of Shareholders for the purposes of implementing incentive bonus programs for employees within its economic group with shares from the capital and schemes for providing variable remuneration to the executive members of the Board of Directors in shares, in accordance with the remuneration policy for the members of the Company’s Board of Directors. SHELLY GROUP AD CORPORATE GOVERNANCE DECLARATION UIC 201047670 67 5. Members and functions of the administrative, management and supervisory bodies of SHELLY GROUPAD and their committees SHELLY GROUP AD has a one-tier management system. The Company is managed and represented by a Board of Directors, which, as of the date of preparation of this Declaration, has the following members, according to a decision of the General Meeting of Shareholders held on December 19, 2023: • Dimitar Stoyanov Dimitrov • Svetlin Iliev Todorov • Nikolay Angelov Martinov • Wolfgang Kirsch • Gregor Bieler (until 31.12.2023) • Christof Vilanek (effective as of 01.01.2024) The Board of Directors of SHELLY GROUP AD elects the Chairperson and a Deputy Chairperson from its members. The Board of Directors holds regular meetings at least once every three months to discuss the position and development of the Company. Each member of the Board of Directors may request the Chairperson to call a meeting to discuss specific issues. Decisions of the Board of Directors are made by a majority of more than half of all members of the Board of Directors. A quorum at the meetings of the Board of Directors is present if the number of members present at the meeting is sufficient to make decisions on the issues of the agenda. In the event that a quorum is not available for any of the issues requiring a qualified majority, the lack of quorum is noted in the minutes and this issue is not considered at the meeting. The Board of Directors can make decisions in absentia. Committees: The Company has an audit committee elected by the Annual General Meeting of Shareholders consisting of: Anelia Petkova Angelova - Tumbeva, Albena Benkova Beneva and Milena Rangelova. The Audit Committee performs its functions in accordance with the Articles of Association adopted by the Annual General Meeting of Shareholders and the requirements of the Independent Financial Audit Act. The Company's Articles of Association provide for the possibility of establishing an Advisory Board by decision of the Board of Directors. The Advisory Board is a collective advisory body that assists the members of the Board of Directors and the senior management of the Company, based on the expertise of each of its members and according to the goals set by the Board of Directors during its constitution, to prepare and provide strategic guidelines and programs for development of the Company: (i) to monitor the activity and results of the Company's activity, prepare reports and make suggestions for improvement of some aspects of its activity; (ii) to provide information regarding current developments and trends in the business sector in which the Company operates; (iii) to provide information on innovative practices, as well as to recommend and develop programs for the implementation of such practices in the Company's activities; (iv) to propose improvements regarding the products and/or services offered by the Company, as well as development of new ones; (v) to propose strategies to improve the Company's positions on the current markets in which it operates, to explore opportunities to access new markets, as well as to implement new market mechanisms; (vi) to perform any other activity assigned to him by the Board of Directors, which is in the interest of the Company’s development. SHELLY GROUP AD CORPORATE GOVERNANCE DECLARATION UIC 201047670 68 The Advisory Board explicitly will not and cannot be assigned any management, supervisory or control functions. The members of the Advisory Board have the right to access information belonging to the Company in a volume determined by the Board of Directors and subject to compliance with the requirements for handling such information no less restrictive than the requirements applicable to the members of the Board of Directors. As of 31.12.2023 there is no Advisory Board in the Company. 6. Description of the diversity policy applied to the administrative, management and supervisory bodies of SHELLY AD with regard to aspects such as age, gender or education and professional experience, the objectives of this diversity policy, the application approach and the results from the reporting period; where no such policy applies, the declaration shall contain an explanation as to why The Company has not developed a special diversity policy regarding the administrative, management and supervisory bodies of the Company related to aspects such as age, gender or education and professional experience, as it falls under the exceptions of Art. 100n, para. 12 of the Public offering of securities Act (POSA). However, there are long-established practices that can be classified as diversity policy relating to the management bodies with regard to aspects such as age, gender or education and professional experience. In essence, these practices form the Company's diversity policy of the management bodies in relation to aspects such as age, gender, education and professional experience. Adopted practices require that the Company implements a balanced policy for nominating members of the corporate management who have education and qualifications that correspond to the nature of the Company's activity, its long-term goals and business plan. The practices adopted by the Company encourage the pursuit for gender balance at all management levels. The Company does not discriminate against members of corporate management based on age. …………………………………………………………. Dimitar Dimitrov Executive Director of SHELLY GROUP AD Dimitar Stoyanov Dimitrov Digitally signed by Dimitar Stoyanov Dimitrov Date: 2024.03.15 16:38:05 +02'00' SHELLY GROUP AD CORPORATE GOVERNANCE DECLARATION UIC 201047670 69 DECLARATION under to Art. 100n, para. 4, item 4 of the Public Offering of Securities Act We, the undersigned, DIMITAR STOYANOV DIMITROV, in my capacity as Executive Director of SHELLY GROUP AD and SVETOZAR GOSPODINOV ILIEV, in my capacity as Chief Financial Officer of SHELLY GROUP AD Hereby DECLARE that to the best of our knowledge: 1. The annual financial statements of 2023, prepared in accordance with the applicable accounting standards, present correctly and fairly the information about the assets and liabilities, financial standing and profit or loss of SHELLY GROUP AD; 2. The 2023 report on the activities contains a truthful overview of the development and results of the activities of SHELLY GROUP AD, as well as the position of SHELLY GROUP AD, together with a description of the main risks and uncertainties it faces. Declarants: ……………………………….. Dimitar Dimitrov Executive Director ……………………………….. Svetozar Iliev Chief Financial Officer Dimitar Stoyanov Dimitrov Digitally signed by Dimitar Stoyanov Dimitrov Date: 2024.03.15 16:38:21 +02'00' Svetozar Gospodinov Iliev Digitally signed by Svetozar Gospodinov Iliev Date: 2024.03.15 16:45:44 +02'00' SHELLY GROUP AD SEPARATE FINANCIAL STATEMENTS 31 DECEMBER 2023 SEPARATE STATEMENT OF FINANCIAL POSITION SHELLY GROUP AD AS OF DECEMBER 31, 2023 UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated The separate statement of financial position shall be read together with the accompanying notes on pages 7-54. The notes are an integral part of these separate financial statements. Page 2 of 54 Note December 31, 2023 December 31, 2022 ASSETS Non-current assets Right-of-use assets 4.01 207 17 Intangible assets 1 3 Investments in subsidiaries 4.02 18 004 14 357 Investments in associates 4.03 203 8 Other equity investments 4.04 - 830 Loans granted to related companies 6.01 1 019 - Trade receivables 4.05 1 027 1 027 Deferred tax assets 4.06 65 70 Total non-current assets 20 526 16 312 Current assets Receivables from related parties 6.02 10 781 5 849 Trade receivables 4.07 669 1 046 Other receivables 4.08 19 21 Short-term financial assets 4.09 - 175 Receivables from loans granted 4.10 550 - Cash and cash equivalents 4.11 2 943 7 490 Prepaid expenses 4.12 115 46 Total current assets 15 077 14 627 TOTAL ASSETS 35 603 30 939 Date: March 15, 2024 Preparer: /Sylvia Ivanova Tomova/ Executive Director: /Dimitar Stoyanov Dimitrov/ Desislava Dinkova Registered auditor in charge of the audit Statutory Manager at Deloitte Audit OOD Registration number 033 in the Register under Art. 20 of IFAA Silviya Ivanova Tomova Digitally signed by Silviya Ivanova Tomova Date: 2024.03.15 14:49:29 +02'00' Dimitar Stoyanov Dimitrov Digitally signed by Dimitar Stoyanov Dimitrov Date: 2024.03.15 16:38:51 +02'00' Desislava Dinkova Peneva Digitally signed by Desislava Dinkova Peneva Date: 2024.03.15 17:13:09 +02'00' SEPARATE STATEMENT OF FINANCIAL POSITION SHELLY GROUP AD AS OF DECEMBER 31, 2023 UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated The separate statement of financial position shall be read together with the accompanying notes on pages 7-54. The notes are an integral part of these separate financial statements. Page 3 of 54 Note December 31, 2023 December 31, 2022 LIABILITIES Non-current liabilities Bank loans 4.13 1 020 1 322 Lease liabilities 4.01 160 - Retirement benefit obligations 4.14 48 61 Total non-current liabilities 1 228 1 383 Current liabilities Bank loans 4.13 302 293 Lease liabilities 4.01 47 17 Trade payables 4.15 168 158 Payables to employees and social security obligations 4.16 89 42 Tax payables 4.17 19 15 Other liabilities 4.18 415 535 Total current liabilities 1 040 1 060 TOTAL LIABILITIES 2 268 2 443 EQUITY Share capital 4.19 18 051 18 000 Purchased own shares - (780) Retained earnings 4.20 8 090 4 580 Legal reserves 4.21 1 800 1 800 Premium reserve 4.22 5 403 5 403 Revaluation reserve 4.23 - (507) Reserves from revaluation of defined benefits plans 4.24 (9) - TOTAL EQUITY 33 335 28 496 TOTAL EQUITY AND LIABILITIES 35 603 30 939 Date: March 15, 2024 Preparer: /Sylvia Ivanova Tomova/ Executive Director: /Dimitar Stoyanov Dimitrov/ Desislava Dinkova Registered auditor in charge of the audit Statutory Manager at Deloitte Audit OOD Registration number 033 in the Register under Art. 20 of IFAA Silviya Ivanova Tomova Digitally signed by Silviya Ivanova Tomova Date: 2024.03.15 14:49:45 +02'00' Dimitar Stoyanov Dimitrov Digitally signed by Dimitar Stoyanov Dimitrov Date: 2024.03.15 16:39:08 +02'00' Desislava Dinkova Peneva Digitally signed by Desislava Dinkova Peneva Date: 2024.03.15 17:14:34 +02'00' SEPARATE STATEMENT OF COMPREHENSIVE INCOME SHELLY GROUP AD FOR THE YEAR ENDED DECEMBER 31, 2023 UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated The separate statement of comprehensive income shall be read together with the accompanying notes on pages 7-54. The notes are an integral part of these separate financial statements. Page 4 of 54 Note 2023 2022 Dividend income 5.01 11 000 4 001 Other income 36 - Administrative expenses 5.02 (2 867) (2 116) Impairment losses 5.03 - (768) Impairment of investment in subsidiaries 4.02, 5.04 (487) - Other expenses 5.05 (8) (19) Profit from operating activity 7 674 1 098 Finance income 5.06 249 176 Finance expense 5.07 (121) (212) Profit before tax 7 802 1 062 Income tax benefit/(expense) 5.08 50 (4) Net profit 7 852 1 058 Items that will not be subsequently reclassified to profit or loss: Other long-term equity instruments 4.04 442 (1 439) Deferred tax on other comprehensive income (56) 56 Actuarial loss from defined benefit plans 4.14 (10) - Deferred tax on actuarial loss 1 - Total other comprehensive income for the period 377 (1 383) TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 8 229 (325) Earnings per share in BGN 5.09 0.44 0.06 Weighted average number of shares 18 004 306 17 979 835 Date: March 15, 2024 Preparer: /Sylvia Ivanova Tomova/ Executive Director: /Dimitar Stoyanov Dimitrov/ Desislava Dinkova Registered auditor in charge of the audit Statutory Manager at Deloitte Audit OOD Registration number 033 in the Register under Art. 20 of IFAA Silviya Ivanova Tomova Digitally signed by Silviya Ivanova Tomova Date: 2024.03.15 14:50:03 +02'00' Dimitar Stoyanov Dimitrov Digitally signed by Dimitar Stoyanov Dimitrov Date: 2024.03.15 16:39:25 +02'00' Desislava Dinkova Peneva Digitally signed by Desislava Dinkova Peneva Date: 2024.03.15 17:15:46 +02'00' SEPARATE STATEMENT OF CHANGES IN EQUITY SHELLY GROUP AD FOR THE YEAR ENDED DECEMBER 31, 2023 UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated The separate statement of changes in equity shall be read together with the accompanying notes on pages 7-54. The notes are an integral part of these separate financial statements. Page 5 of 54 Note Share capital Redeemed shares Retained earnings Premium reserve Legal reserves Reserve from revaluation of defined benefits plans Revaluat ion reserve Total Balance at January 1, 2022 18 000 - 5 162 5 403 1 800 - 1 036 31 401 Total comprehensive income for the period, incl.: - - 1 058 - - - (1 383) (325) Profit for the period - - 1 058 - - - - 1 058 Other comprehensive income from equity instruments - - - - - - (1 383) (1 383) Distribution of dividends - - (1 800) - - - - (1 800) Redeemed shares - (780) - - - - - (780) Other movements - - 160 - - - (160) - Balance at December 31, 2022 4.19, 4.20, 4.21, 4.22, 4.23; 4.24 18 000 (780) 4 580 5 403 1 800 - (507) 28 496 Balance at January 1, 2023 18 000 (780) 4 580 5 403 1 800 - (507) 28 496 Total comprehensive income for the period, incl.: - - 7 852 - - (9) 386 8 229 Profit for the period - - 7 852 - - - - 7 852 Other comprehensive income from equity instruments - - - - - - 386 386 Actuarial loss from defined benefit plans - - - - - (9) - (9) Increase of share capital 51 - - - - - - 51 Distribution of dividends - - (4 500) - - - - (4 500) Redeemed shares - 780 280 - - - - 1 060 Other movements - - (122) - - - 121 (1) Balance at December 31, 2023 4.19, 4.20, 4.21, 4.22, 4.23; 4.24 18 051 - 8 090 5 403 1 800 (9) - 33 335 Date: March 15, 2024 Preparer: /Sylvia Ivanova Tomova/ Executive Director: /Dimitar Stoyanov Dimitrov/ Desislava Dinkova Registered auditor in charge of the audit Statutory Manager at Deloitte Audit OOD Registration number 033 in the Register under Art. 20 of IFAA Silviya Ivanova Tomova Digitally signed by Silviya Ivanova Tomova Date: 2024.03.15 14:50:23 +02'00' Dimitar Stoyanov Dimitrov Digitally signed by Dimitar Stoyanov Dimitrov Date: 2024.03.15 16:39:41 +02'00' Desislava Dinkova Peneva Digitally signed by Desislava Dinkova Peneva Date: 2024.03.15 17:17:17 +02'00' SEPARATE STATEMENT OF CASH FLOWS SHELLY GROUP AD FOR THE YEAR ENDED DECEMBER 31, 2023 UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated The separate statement of cash flows shall be read together with the accompanying notes on pages 7-54. The notes are an integral part of these separate financial statements. Page 6 of 54 2023 2022 Cash flows from operating activities Payments to suppliers (833) (1 204) Taxes reimbursed 104 93 Payments to employees and social security institutions (1 539) (1 171) Other payments, net (10) (19) Net cash flows used in operating activities (2 278) (2 301) Cash flows from investing activities Purchase of investments (4 449) (6 550) Dividends received 7 000 - Loans granted (2 503) - Proceeds from the sale of investments 1 462 2 798 Other payments for investment activity - (94) Net cash flows from/ (used in) investing activities 1 510 (3 846) Cash flows from financing activities Increase of share capital 51 - Proceeds from / (payments for) redeemed shares 1 064 (780) Dividends paid (4 500) (1 800) Lease payments (45) (17) Loans paid (293) (285) Cash flows related to interest, commissions, etc. (44) (50) Other payments (13) (31) Net cash flows used in financing activities (3 780) (2 963) Effect of change in exchange rates 1 166 Net decrease in cash and cash equivalents (4 547) (8 944) Cash and cash equivalents at the beginning of the year 7 490 16 434 Cash and cash equivalents at the end of the year 2 943 7 490 Date: March 15, 2024 Preparer: /Sylvia Ivanova Tomova/ Executive Director: /Dimitar Stoyanov Dimitrov/ Desislava Dinkova Registered auditor in charge of the audit Statutory Manager at Deloitte Audit OOD Registration number 033 in the Register under Art. 20 of IFAA Silviya Ivanova Tomova Digitally signed by Silviya Ivanova Tomova Date: 2024.03.15 14:50:39 +02'00' Dimitar Stoyanov Dimitrov Digitally signed by Dimitar Stoyanov Dimitrov Date: 2024.03.15 16:39:58 +02'00' Desislava Dinkova Peneva Digitally signed by Desislava Dinkova Peneva Date: 2024.03.15 17:18:52 +02'00' SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 7 of 54 C O N T E N T S 1. Legal status and general information .................................................................................................................. 9 2. Basis for preparation and accounting principles ................................................................................................. 9 2.1. Basis for preparation ........................................................................................................................................... 9 2.2. Initial application of new and amended IFRSs ................................................................................................... 9 2.3. Accounting principles ....................................................................................................................................... 12 2.4. Subsidiaries. Consolidation. ............................................................................................................................. 12 2.5. Functional and presentation currency ............................................................................................................... 12 2.6. Foreign currency ............................................................................................................................................... 13 2.7. Significant judgements in applying the Company’s accounting policy. Key estimates and assumptions with high uncertainty. ............................................................................................................................................... 13 2.8. Comparative data .............................................................................................................................................. 14 3. Definition and assessment of the financial statements’ items ........................................................................... 15 3.01. Investments in subsidiaries and associates ....................................................................................................... 15 3.02. Other long-term capital investments ................................................................................................................. 15 3.03. Financial instruments ........................................................................................................................................ 15 3.04. Authorized share capital ................................................................................................................................... 21 3.05. Reserves ............................................................................................................................................................ 21 3.06. Lease ................................................................................................................................................................. 21 3.07. Payables to employees ...................................................................................................................................... 23 3.08. Recognition of income and expenses ................................................................................................................ 23 3.09. Income tax expense .......................................................................................................................................... 24 3.10. Fair value measurement .................................................................................................................................... 25 3.11. Earnings per share ............................................................................................................................................ 25 4. Notes to the Statement of financial position ..................................................................................................... 26 4.01. Leases ............................................................................................................................................................... 26 4.02. Investments in subsidiaries ............................................................................................................................... 27 4.03. Investments in associates .................................................................................................................................. 28 4.04. Other long-term capital investments ................................................................................................................. 28 4.05. Long-term trade receivables ............................................................................................................................. 28 4.06. Deferred tax assets ............................................................................................................................................ 28 4.07. Trade receivables .............................................................................................................................................. 29 4.08. Other receivables .............................................................................................................................................. 29 4.09. Short-term financial assets ................................................................................................................................ 29 4.10. Receivables from loans granted ........................................................................................................................ 30 4.11. Cash and cash equivalents ................................................................................................................................ 30 4.12. Prepaid expenses ............................................................................................................................................... 30 SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 8 of 54 4.13. Bank loans ........................................................................................................................................................ 31 4.14. Retirement benefits obligation .......................................................................................................................... 31 4.15. Trade payables .................................................................................................................................................. 32 4.16. Payables to employees and social security obligations ..................................................................................... 32 4.17. Tax liabilities .................................................................................................................................................... 32 4.18. Other liabilities ................................................................................................................................................. 32 4.19. Registered capital ............................................................................................................................................. 32 4.20. Retained earnings ............................................................................................................................................. 34 4.21. Legal reserves ................................................................................................................................................... 34 4.22. Premium reserve ............................................................................................................................................... 34 4.23. Revaluation reserve .......................................................................................................................................... 34 4.24. Reserve from revaluation of deferred benefits plans ........................................................................................ 34 5. Notes to the Statement of comprehensive income ............................................................................................ 35 5.01. Revenue from dividends ................................................................................................................................... 35 5.02. Administrative expenses ................................................................................................................................... 35 5.03. Written off receivables ..................................................................................................................................... 35 5.04. Impairment of investments in subsidiaries ....................................................................................................... 35 5.05. Other expenses .................................................................................................................................................. 35 5.06. Financial income ............................................................................................................................................... 36 5.07. Financial expenses ............................................................................................................................................ 36 5.08. Tax expense ...................................................................................................................................................... 36 5.09. Earnings per share in BGN ............................................................................................................................... 37 6. Transactions and balances with related parties ................................................................................................. 38 6.01. Loans granted to related parties ........................................................................................................................ 38 6.02. Receivables from related parties ....................................................................................................................... 39 6.03. Payables to related parties ................................................................................................................................ 39 6.04. Transactions and balances with related parties ................................................................................................. 40 6.05. Key managerial personnel ................................................................................................................................ 40 7. Contingent liabilities and commitments ........................................................................................................... 41 8. Financial instruments by categories .................................................................................................................. 42 9. Financial risk management ............................................................................................................................... 43 10. Fair values ........................................................................................................................................................ 52 11. Events after the end of the reporting period ...................................................................................................... 54 SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 9 of 54 1. Legal status and general information Shelly Group AD (the Company), former Allterco AD, is entered into the Commercial Register with the Registry Agency under UIC 201047670. The Company’s seat and management address is 103, Cherni Vrah Blvd., 1407 Sofia, Bulgaria. Shelly Group AD’s shares have been traded on the Bulgarian Stock Exchange since December 2016 and on the Frankfurt Stock Exchange since November 22, 2021. The main activity of Shelly Group AD is acquisition, management, evaluation and sale of interests in Bulgarian and foreign companies; acquisition, management and sale of bonds; acquisition, evaluation and sale of patents, assignment of licenses for the use of patents to entities in which the Company participates; financing of companies in which the Company participates. The Company is managed by a Board of Directors (BD) and is represented by Svetlin Todorov, Dimitar Dimitrov and Wolfgang Kirsch. By Decision of the General meeting of shareholders dated 18.12.2023 a change in the Board of Directors’ composition was voted. As of 01.01.2024 Mr. Christoph Vilanek replaced Mr. Gregor Bieler, who has left the role of board member due to increase in his professional engagements. This change is reflected in the Commercial register with the Registry Agency on 08.01.2024. 2. Basis for preparation and accounting principles 2.1. Basis for preparation The Company keeps its current accounting and prepares its financial statements in accordance with the requirements of the Bulgarian commercial and accounting legislation. These separate financial statements have been prepared in accordance with the requirements of the International Accounting Standards (IAS), published by the International Accounting Standards Board (IASB) and adopted by the European Union (EU). As of December 31, 2023, IASs consist of: International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC), approved by the IASB, and the International Accounting Standards and Interpretations of the Standing Interpretations Committee (SIC), approved by the International Accounting Standards Committee (IASC), effective from January 1, 2023, and adopted by the EU. 2.2. Initial application of new and amended IFRSs 2.2.1. Standards effective for the current reporting period The Company's management has complied with all standards and interpretations that are applicable to its activity and have been officially adopted by the EU as of the date of preparation of these separate financial statements. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 10 of 54 The management has reviewed the changes in the existing accounting standards effective from January 1, 2023 and believes that they do not require changes in terms of the accounting policy applied in the current year. At the date of preparation of these separate financial statements, the following new standards, issued by IASB and adopted by the EU are effective: • IFRS 17 Insurance Contracts including amendments to IFRS 17 adopted by the EU in June 2020 and December 2021 (effective for annual periods beginning on or after January 1, 2023). The financial position and the result of the Company are not impacted by the implementation of this standard; • Amendments to IAS 1 Presentation of Financial Statements: Disclosure of Accounting policies adopted by the EU on March 2, 2022 (effective for annual periods beginning on or after January 1, 2023); • Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates adopted by the EU on March 2, 2022 (effective for annual periods beginning on or after January 1, 2023); • Amendments to IAS 12 Income Taxes - Deferred Tax related 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 January 1, 2023). • Amendments to IAS 12 International Tax Reform — Pillar Two Model Rules (IASB effective date: January 1, 2023); * exception specified in amendments to IAS 12 (that an entity does not recognise and does not disclose information about deferred tax assets and liabilities related to the OECD pillar two income taxes) is applicable immediately upon issuance of the amendments and retrospectively in accordance with IAS 8. The remaining disclosure requirements are required for annual reporting periods beginning on or after January 1, 2023. 2.2.2. Standards and amendments to the existing standards issued by IASB and adopted by the EU but not yet effective At the date of authorisation of these financial statements, the following revised IFRS Accounting Standard has not been applied that has been issued by IASB and adopted by EU but are not yet effective: • Amendments to IFRS 16 Leases - Lease Liability in a Sale and Leaseback issued by IASB on September 22, 2022 (effective for annual periods beginning on or after January 1, 2024); SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 11 of 54 2.2.3. New standards and amendments to the existing standards issued by IASB but not yet adopted by the EU At present, IFRS as adopted by the EU do not significantly differ from regulations adopted by the International Accounting Standards Board (IASB) except for the following new standards and amendments to the existing standards, which were not endorsed for use in EU as at the date of publication of these separate financial statements (the effective dates stated below is for IFRS as issued by IASB): • Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current and Non-current Liabilities with Covenants (effective for annual periods beginning on or after January 1, 2024); • Amendments to IAS 7 and IFRS 7: Supplier Finance Arrangements (effective for annual periods beginning on or after January 1, 2024); • Amendments to IAS 21: The Effects of Changes in Foreign Exchange Rates - Lack of Exchangeability (IASB effective date: January 1, 2025); • IFRS 14 Regulatory Deferral Accounts (effective for annual periods beginning on or after January 1, 2016) - the European Commission has decided not to launch the endorsement process of this interim standard and to wait for the final standard; • Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture and further amendments (effective date deferred by IASB indefinitely but earlier application permitted). Endorsement process postponed indefinitely until the research project on the equity method has been concluded. The Company anticipates that the adoption of these new standards and amendments to the existing standards will have no material impact on the separate financial statements of the Company in the period of initial application. Hedge accounting for a portfolio of financial assets and liabilities whose principles have not been adopted by the EU remains unregulated. According to the Company’s estimates, the application of hedge accounting to a portfolio of financial assets or liabilities pursuant to IAS 39 Financial Instruments - Recognition and Measurement would not significantly impact the financial statements, if applied as at the reporting date. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 12 of 54 2.3. Accounting principles The separate financial statement of the Company have been prepared on the going concern principle, as it is expected that the Company shall continue its operating activity in near future. During the reporting period the military conflict between Russia and Ukraine continued, but since the Company did not have transactions and accounts with customers from these two countries, management believes that this event is not expected to directly or indirectly affect the Company's results and financial position in the future. The military conflict in the Middle East that broke out at the beginning of October 2023 is also not expected to affect the Company's results and financial situation. Management has no plans or intentions to sell the business or cease operations, which could materially change the carrying amount or classification of assets and liabilities reported in the separate financial statements. The assessment of assets and liabilities and the measurement of income and expenses is made in compliance with the historical cost principle. This principle is modified in specific cases by the revaluation of certain assets and/or liabilities to their fair value as of December 31 of the reporting year and December 31 of the previous year, as indicated in the relevant notes below. 2.4. Subsidiaries. Consolidation. A subsidiary is an entity controlled by a parent company. The investor controls the investee when it is exposed to or has rights to the variable returns from its interest in the investee and has the ability to influence those returns through its power in the investee. As of December 31, 2023, the Company owns three subsidiaries registered in the country, three subsidiaries abroad and two associated companies (one local and one abroad). In these separate financial statements, investments in subsidiaries are presented at acquisition cost and these statements do not constitute a consolidated financial statements within the meaning of IFRS 10 Consolidated Financial Statements. In order to gain a full understanding of the financial position, results of the activity and changes in the financial position of the Shelly Group AD’s Group as a whole, readers of these separate financial statements should read them together with the Company’s consolidated financial statements for the year ended December 31, 2023, which shall be prepared and published within the deadline requirements of the Bulgarian legislation. 2.5. Functional and presentation currency A functional currency is the currency of the primary economic environment in which a company operates and in which cash is primarily generated and spent. It reflects the main transactions, events and conditions significant for the Company. The Company keeps its current accounting and prepares its financial statements in the national currency of the Republic of Bulgaria - the Bulgarian lev, adopted by the Company as the functional currency and as the currency of presentation of the financial statements. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 13 of 54 These separate financial statements have been prepared in thousands of BGN, unless otherwise stated. Earnings per share are presented in BGN. 2.6. Foreign currency Foreign currency transactions are initially reported at the exchange rate of the Bulgarian National Bank (BNB) on the date of the transaction. Exchange rate differences arising from the settlement of foreign currency monetary items or from the reporting of these monetary items at rates other than the ones at which they were originally recognised are reported in the statement of comprehensive income for the relevant period. Monetary items in foreign currency as of December 31, 2023 and December 31, 2022 are reported in these financial statements at the closing exchange rate of the BNB, respectively, as of December 31, 2023 - BGN 1.76998 for USD 1; BGN 1.73998 for NOK 10 and BGN 1.95583 for EUR 1 and as of December 31, 2022 - BGN 1.83371 for USD 1; BGN 1.86025 for NOK 10 and BGN 1.95583 for EUR 1. 2.7. Significant judgements in applying the Company’s accounting policy. Key estimates and assumptions with high uncertainty. When applying the accounting policy, the Company's management makes certain estimates that have a significant effect on these separate financial statements. These estimates may differ from actual results. Given their nature, these estimates are subject to ongoing review and updating and summarize historical experience and other factors, including expectations of future events that management believes are reasonable under current circumstances. Estimates and assumptions that carry a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities in the next financial year are set out below. 2.7.1 Impairment of investments in subsidiaries and associates Management analyses and assesses if any indications for impairment of its investments in subsidiaries exist. The main indicators of impairment are as follows: a significant reduction in the volume or discontinuation of the activity of the invested company; accounting for losses over a longer period of time, as well as reporting negative net assets or assets below registered share capital. Management performs tests and makes judgments for impairment of investments based on its plans and intentions regarding the future economic benefits expected to be received by the subsidiaries, incl. commercial and production experience, securing positions in foreign markets, expected future sales, etc. For this purpose, a number of forecasts are performed, taking into account various assumptions about risks, uncertainty and probabilities for future realization of cash flows and income from these investments. Each option is carefully analysed by the management and the results are weighted when calculating the recoverable amount of the respective investment. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 14 of 54 2.7.2 Employee retirement benefits The employee retirement benefit obligation is determined by actuarial valuation. The valuation requires assumptions to be made about the discount rate, future wage growth, staff turnover and mortality rates. Due to the long-term nature of employee retirement benefits, these assumptions are subject to significant uncertainty. The Company has prepared an actuarial valuation of the retirement obligations and has reflected them in the separate financial statements as of 2023 (Note 4.14). 2.7.3 Useful life of property, plant and equipment and intangible assets Accounting for property, plant and equipment and intangible assets involves the use of estimates of their expected useful lives and carrying amounts, which are based on judgments by the Company's management. 2.7.4 Impairment of receivables Management estimates the amount and timing of expected future cash flows related to receivables based on experience versus current circumstances. Due to the inherent uncertainty of this estimate, actual results may differ from those anticipated. The Company's management reviews prior year estimates and compares them with actual results from previous years. The Company applies a simplified approach in accounting for trade and other receivables and recognizes an impairment loss as expected credit losses over their lifetime. They represent the expected shortfall in contractual cash flows, given the possibility of default at any point in the lifetime of the financial instrument. The Company uses its accumulated experience, external indicators and long-term information to calculate expected credit losses. 2.7.5 Lease Determining the term of the lease for contracts with renewal and termination options - Company as lessee The Company defines the term of the lease as the irrevocable term of the lease, together with any periods covered by an option to extend it if it is reasonably certain that the option will be exercised, or any periods covered by an option to the termination of the lease if it is reasonably certain that the option will not be exercised (Note 4.01). 2.8. Comparative data According to Bulgarian accounting legislation, the financial year ends on December 31 and companies should submit annual financial statements as of this date, including comparative data as of the same date for the previous year. If necessary, the data presented for the prior reporting period is adjusted to obtain a better comparability with the data for the current period. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 15 of 54 3. Definition and assessment of the financial statements’ items 3.01. Investments in subsidiaries and associates Long-term investments, such as shares and interests in subsidiaries and associates, are presented in the separate statement of financial position at acquisition cost (cost), which represents the fair value of the consideration that was paid, including the direct costs of acquiring the investment less accumulated impairment. The Company’s investments in subsidiaries and associates are subject to an annual impairment review and their results are compared with the approved development plans. When impairment indications are established, the impairment is recognised in the statement of comprehensive income. When buying and selling investments in subsidiaries and associates, the ‘transaction date’ is applied. Investments are written off when the rights arising from them are transferred to other parties when legally possible and thus control over the economic benefits of the relevant specific type of investment is lost. The profit/(loss) from their sale is presented under ‘finance income’ or ‘finance expense’, respectively, in the separate statement of comprehensive income. 3.02. Other long-term capital investments The other long-term capital investments are non-derivative financial assets, such as shares and shares of other companies (minority participation), held with a long-term perspective. Initial measurement Capital investments are initially recognised at acquisition cost, which represents the fair value of the consideration that was paid, including the direct costs of acquiring the investment (financial asset). All capital investments’ purchases and sales are recognised on the ‘date of the transaction’. Subsequent measurement The Company’s capital investments are subsequently measured at fair value. The effects of the subsequent measurement to fair value are presented in the separate statement of comprehensive income (in other items of comprehensive income) and, respectively, in a reserve related to financial assets at fair value through other comprehensive income. These effects are transferred to retained earnings upon disposal (sale) of the respective investment. 3.03. Financial instruments A financial instrument is any contract that simultaneously gives rise to both a financial asset in one entity and a financial liability or equity instrument in another entity. Financial assets and liabilities are recognised in the separate statement of financial position when the Company becomes a party to the contractual terms of the relevant financial instrument that gave rise to this asset or liability. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 16 of 54 а) Financial assets Initial recognition and measurement Upon initial recognition, financial assets are classified as financial assets that are subsequently measured at amortized cost, at fair value in other comprehensive income (OCI) and as financial assets at fair value in profit or loss. Financial assets are classified upon their initial acquisition according to the characteristics of the contractual cash flows of the financial asset and the Company's business management model. The Company initially measures the financial asset at fair value plus transaction costs, in the case of financial assets that are not measured at fair value through profit or loss. Trade receivables that do not have a significant financing component, and for which the Company has applied a practically expedient measure, are stated at the transaction price determined according to IFRS 15. The Company reclassifies financial assets only when its business model changes. In order to be classified and measured at amortized cost or at fair value in OCI, the financial asset should generate cash flows that represent "solely payments of principal and interest" (SPPI) on the outstanding principal amount. This measurement is called the "SPPI test" and is performed at the relevant instrument level. The Company's business model for managing financial assets refers to how the Company manages its financial assets to generate cash flows. The business model determines whether cash flows will arise from the collection of contractual cash flows, the sale of financial assets, or both. Purchases or sales of financial assets, the terms of which require the delivery of the assets within a certain period of time, usually established by a regulatory provision or current practice in the relevant market (regular purchases), are recognized on the date of trading (transaction), i.e. on the date on which the Company has committed to buy or sell the asset. Subsequent measurement For the purposes of subsequent measurement, financial assets are classified into four categories: • Financial assets at amortized cost (debt instruments); • Financial assets at fair value in other comprehensive income with "recycling" of cumulative profit or loss (debt instruments); • Financial assets designated as financial assets at fair value in other comprehensive income with no "recycling" of cumulative profit or loss at their derecognition (equity instruments); • Financial assets at fair value through profit or loss. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 17 of 54 Financial assets at amortized cost (debt instruments) The Company measures financial assets at amortized cost if both of the following conditions are met: • The financial asset is held within a business model aimed at obtaining the contractual cash flows, and • The terms of the contract for the financial asset give rise to cash flows on specific dates that represent solely payments of principal and interest on the outstanding principal amount. Financial assets at amortized cost are subsequently measured using the effective interest rate (EIR) method and are subject to impairment. Gains and losses are recognized in profit or loss when the asset is derecognized, modified or impaired. The Company's financial assets at amortized cost include trade and other receivables, loans (to related parties and third parties), term deposits and cash at bank accounts. Financial assets at fair value in other comprehensive income (debt instruments) The Company measures its debt instruments at fair value in other comprehensive income if both of the following conditions are met: • The financial asset is held within a business model aimed at obtaining the contractual cash flows, and its disposal as well; and • On the specified dates, the contractual terms of the financial asset give rise to cash flows that represent solely payments of principal and interest on the outstanding principal amount. In respect of debt instruments at fair value in other comprehensive income, interest income, currency revaluation and impairment losses or their reversal are recognized in profit or loss and calculated in the same way as those for financial assets measured at amortized cost. Other changes in fair value are recognized in other comprehensive income. Upon derecognition, the cumulative change in fair value recognized in other comprehensive income is stated in profit or loss. Financial assets designated as financial assets at fair value through other comprehensive income (equity instruments) Upon initial recognition, the Company may elect to classify irrevocably as equity instruments designated as measured at fair value in other comprehensive income when they meet the equity requirements under IAS 32 Financial Instruments: Presentation and when they are not held for trading. The classification is determined on an individual instrument basis. Gains and losses on these financial assets are never "recycled" in profit or loss. Dividends are recognized as income in the statement of comprehensive income when the right to payment is established, except when the Company derives benefits from these receipts as a refund of part of the acquisition price of the financial asset, in which case the gains are reported in other comprehensive income. Equity instruments designated as measured at fair value through other comprehensive income are not subject to an impairment test. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 18 of 54 Derecognition A financial asset (or, where applicable, part of a financial asset or part of a group of similar financial assets) is derecognised (i.e. removed from the Company's statement of financial position) when: • the rights to receive cash flows from the asset have expired; or • the rights to receive cash flows from the asset have been transferred or the Company has assumed the obligation to pay the received cash flows in full, without significant delay, to a third party through a transfer agreement; where either (a) the Company has transferred substantially all the risks and rewards of ownership of the asset; or (b) the Company has neither transferred nor retained substantially all the risks and rewards of ownership of the asset but has not retained control. When the Company has transferred its rights to receive cash flows from the asset or entered into a transfer agreement, it evaluates whether and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all the risks and rewards of ownership of the financial asset, nor has it transferred control over it, it still recognizes the transferred asset to the extent of its continuing involvement in it. In this case, the Company also recognizes the related obligation. The transferred asset and related liability are valued on a basis that reflects the rights and obligations that the Company has retained. A continuing involvement being a security of the transferred asset is valued at the lower of the original book value of the asset and the maximum amount of consideration that the Company may be required to pay. The Company applies the same derecognition policies for impaired financial assets. Impairment of financial assets Additional disclosures related to impairment of financial assets, are included in the following notes as well: • Significant judgements in applying the Company’s accounting policy. Key estimates and assumptions with high uncertainty. (Note 2.7); • Dividend and other receivables from related parties (Note 6.02) • Trade receivables (Notes 4.07). The Company recognizes an allowance for expected credit losses (ECL) for all debt instruments that are not measured at fair value through profit or loss. ECL are based on the difference between the contractual cash flows due under the terms of the contract and any cash flows the Company expects to receive, discounted at an approximation of the original effective interest rate. Expected cash flows include cash flows from the sale of collateral held or other credit enhancements that are an integral part of the terms of the contract. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 19 of 54 ECL are recognized in three stages. For exposures for which there has been no significant increase in credit risk since initial recognition. Allowances for ECL are recognized for credit losses that arise as a result of default events that are possible occur within the next 12 months (12-month ECL). For exposures for which there has been a significant increase in credit risk since initial recognition, an allowance for expected credit loss is required in respect of credit losses expected over the remaining term of the exposure, regardless of when the default occurs (ECL over the lifetime of the instrument). A significant increase in credit risk is observed in the case of material financial difficulties of the debtor, probability of declaring bankruptcy and liquidation, financial restructuring or inability to repay the debt (overdue for more than 30 days) are taken as an indicator for impairment of the asset. Regarding cash and cash equivalents, the Company applies the credit ratings of the banks in order to prepare an impairment assessment. Cash at banks with a high and stable rating are not subject to impairment. The Company considers a financial instrument in default when contractual payments are overdue for 90 days. However, in certain cases, it may consider a financial asset to be in default when internal or external information provides an indication that it is unlikely that the Company will receive the outstanding contractual amounts in full before taking into account any credit improvements. All financial assets measured at amortized cost are subject to collective impairment, except for those in default (phase 3). Financial liabilities Initial recognition and measurement Upon initial recognition, financial liabilities are classified as financial liabilities at fair value through profit or loss, incl. derivatives or as financial liabilities at amortized value, incl. loans and other borrowings and trade and other payable as appropriate. Initially, all financial liabilities are recognized at fair value, and in the case of loans and borrowed funds and liabilities, net of direct transaction costs. The Company's financial liabilities include trade and other payables, bank loans and lease liabilities. Subsequent measurement Financial liabilities are measured according to their classification as specified below: Financial liabilities at amortized cost The Company's financial liabilities at amortized cost are reported at amortized cost after applying the effective interest method. Derecognition A financial liability is derecognized when the obligation is discharged, cancelled or expires. When an existing financial liability is exchanged with another from the same creditor under substantially different terms, or the terms of an existing liability are substantially changed, this exchange or modification is treated as extinguishment of the original financial liability and recognition of a new financial liability. The difference in the respective carrying amounts is recognized in the statement of comprehensive income. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 20 of 54 The Company's activity does not imply various financial instruments. The main financial instruments included in the separate statement of financial position of the Company are presented below. Trade and other receivables Trade receivables are amounts owed by customers for goods sold and services performed in the ordinary course of business. They are usually due for short-term settlement and are therefore classified as current. Trade receivables are initially recognized at the amount of the unconditional consideration due, unless they contain significant financing components. The Company holds trade receivables for the purpose of collecting contractual cash flows and therefore measures them at amortized cost using the effective interest method. No discounting is applied when the effect is immaterial. Future cash flows determined for a group of financial assets that are collectively measured for impairment are determined on the basis of historical information regarding financial assets with credit risk characteristics similar to the characteristics of the group of financial assets. Assets that are subject to individual impairment are not included in an impairment group. The Company applies a simplified approach in recognizing impairment of trade and other receivables and recognizes loss allowance for lifetime expected credit losses. In estimating expected credit losses on trade receivables, the company uses a provision matrix. When estimating expected credit losses on trade receivables, the Company uses its experience gained in the field of credit losses on trade receivables to estimate the expected credit losses for the entire life of the financial assets. The substantial part of contracts with customers and additional cash contributions are with entities that are related parties, as a result of which the Management believes the possibility of occurrence of credit losses is minimal. Cash and cash equivalents Cash and cash equivalents in BGN are stated at their nominal value, and cash in foreign currency - at the closing BNB exchange rate at the end of each reporting period. Cash for the purposes of preparing the statement of cash flows include the cash on hand and at bank accounts. Loans granted to related parties and third parties Loan receivables are reported at cost, less any impairment, based on management's review of year-end balances. Uncollectible receivables are recognized as an expense in the period in which they are established. Interest-bearing loans are classified as current, except for the portion that will be settled within 12 months from the end of the reporting period. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 21 of 54 Borrowings Borrowings are recognized initially at fair value, which is formed by the cash proceeds received, less the inherent transaction costs. After their initial recognition, interest-bearing loans are measured at amortized cost, where any difference between the initial cost and the maturity value is recognized in profit or loss over the period of the loan by applying the effective interest method. Finance costs, including direct borrowing costs, are included in profit or loss using the effective interest method, except for transaction costs on bank overdrafts, which are recognized in profit or loss on a straight- line basis for the period, for which the overdraft was agreed upon. Loans are classified as current when they are to be settled within twelve months from the end of the reporting period. Payables to suppliers, other current liabilities and advances received Trade and other payables arise as a result of goods or services received. Current liabilities are not amortized. Trade payables are recognized initially at fair value and subsequently at amortized cost using the effective interest method. 3.04. Authorized share capital The Company's authorized share capital is stated at par value of the Company's issued shares and corresponds to its current court registration. Redeemed shares are presented in the statement of financial position at cost (acquisition cost), and the Company's equity is reduced by their gross purchase value. 3.05. Reserves The accumulated financial results from prior years, premium reserves related to the issuance of shares, reserves from investments measured at fair value through other comprehensive income, as well as legal reserves required under the provisions of the Commerce Act and the Company’s Statute are presented in the separate financial statements as reserves. The Company's shareholders may dispose of the capital reserves following a decision of the General Meeting. 3.06. Lease On the effective date of the contract, the Company assesses whether the contract is or contains a lease. In particular, whether the contract transfers the right to control the use of the identified asset for a certain period of time. The Company as a lessee The Company applies a unified approach to the recognition and assessment of all leases, except for short-term leases (i.e., leases with a lease term of up to 12 months) and leases of low-value assets. The Company recognises lease liabilities for the payment of lease instalments and right-of-use assets, representing the right to use the assets. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 22 of 54 Right-of-use assets The Company recognizes right-of-use assets from the inception date of the lease (i.e. the date on which the underlying asset is available for use). Right-of-use assets are measured at acquisition cost less accumulated depreciation and impairment losses and adjusted for any revaluation of lease liabilities. The acquisition cost of right-of-use assets includes the amount of recognized lease liabilities, the initial direct costs incurred and the lease payments made on or before the inception date of the lease, an estimate of the costs to be incurred by the lessee in dismantling and relocating the asset, the restoration of the site on which it is located or the restoration of the asset to the condition required under the terms of the lease, less any incentives received under the lease. The right-of-use assets are depreciated on a straight-line basis over the lease term. If at the end of the lease term the ownership of the leased asset is transferred to the Company, or the acquisition cost reflects the exercise of a purchase option, depreciation is calculated using the expected useful life of the asset. Lease liabilities From the inception date of the lease, the Company recognises lease liabilities measured at the present value of the lease payments to be made during the lease term. Lease payments include fixed payments (including in- substance fixed payments) less any eligible lease incentives, variable lease payments depending on an index or an interest rate, and amounts that are expected to be paid under guarantees for residual value. Lease payments also include the exercise price of a purchase option if the Company is reasonably certain to exercise that option, as well as penalties for terminating the lease, if the lease term reflects the Company's exercising an option to terminate the lease. Variable lease payments, not depending on an index or an interest rate, are recognised as expense in the period in which the event or condition triggering the payment occurs. In calculating the present value of lease payments, the Company uses an intrinsic interest rate at the inception date of the lease because the interest rate implicit in the lease cannot be determined reliably. After the inception date, the amount of lease liabilities is increased by the interest and reduced by the lease payments made. In addition, the carrying amount of lease liabilities is revalued, if there is a modification, a change in the lease term, a change in lease payments (for example, changes in future payments resulting from a change in the index or interest rate used to determine those lease payments) or a change in the measurement of the option to purchase the underlying asset. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 23 of 54 Short-term leases and low-value assets leases The Company applies recognition exemption for short-term leases to its short-term building leases (for example, leases with lease term of 12 months or less from the inception date and not containing a purchase option). The Company also applies the recognition exemption of low-value assets leases to leases of office equipment which is considered low-value. Lease payments on short-term leases and low-value assets leases are carried as an expense on the straight-line basis over the lease term. 3.07. Payables to employees Defined benefit plans The Government of the Republic of Bulgaria is responsible for providing pensions under defined benefit plans. The liabilities under the Company’s commitment to transfer accrued amounts to defined benefit plans are recognised in the separate statement of comprehensive income when they are incurred. Paid annual leave The Company recognises as a liability the undiscounted amount of the estimated costs of paid annual leave, in accordance with the Labor Code and its internal rules, expected to be paid to employees in exchange for their labor for the past reporting period. Retirement benefit plans In accordance with the requirements of the Labor Code, upon termination of the employment contract of an employee who has acquired the right to a pension, the Company pays the employee a compensation in the amount of two gross salaries, if the accumulated service at the Company is less than ten years, or six gross salaries, in case of accumulated service time at the Company of over ten consecutive years. Based on their characteristics, these schemes are retirement benefit plans. The measurement of long-term employee benefits is carried out using the projected unit credit method and the estimate at the date of the individual statement of financial position is made by licensed actuaries. The amount recognised in the separate statement of financial position is the present value of the liabilities. The revaluations of the retirement benefit plan liability (actuarial gain or loss), arising from experience and changes in actuarial financial and demographic assumptions, are recognised in equity through other comprehensive income as a reserve for retirement liabilities. The amounts released from this reserve are transferred through other comprehensive income into retained earnings. 3.08. Recognition of income and expenses Revenue Dividend income Dividend income is recognised in the separate statement of comprehensive income in the period when the right to receive it is established. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 24 of 54 Finance income and expenses Finance income and expenses are recognised in profit or loss for all instruments measured at amortised cost using the effective interest method. The effective interest rate method is a method for calculating the amortised cost of a financial asset or liability and allocating interest income or expense over the relevant period. An effective interest rate is one at which the estimated future cash payments or receipts during the life of the financial instrument or, in certain cases, for a shorter period, are accurately discounted to the net carrying amount of the financial asset or liability. In calculating the effective interest rate, the Company measures cash flows taking into account all the contractual terms of the financial instrument, but excluding potential future credit impairment losses. The calculation includes fees, transaction costs, premiums or discounts paid or received between the parties to the contract, which are an integral part of the effective interest rate. Expenses Expenses at the Company are recognised when incurred. Expenses are recognised when there is a decrease in future economic benefits associated with a decrease in an asset or an increase in a liability that can be measured reliably. Recognition of expenses for the current period is made when the corresponding income is accrued. An expense is recognised immediately in the separate statement of comprehensive income, when the expense does not generate a future economic benefit or when, and to the extent that, future economic benefit does not qualify or no longer qualifies for recognition of an asset in the separate statement of financial position. Expenses are accounted for on the accrual basis and comparability with reported income. They are measured at the fair value of the liability paid or to be paid. 3.09. Income tax expense Income tax expense is the sum of the current income tax and the tax effect on temporary tax differences. The current income tax is determined on the basis of the taxable profit for the year, applying the tax rate according to the tax legislation as at the date of the separate financial statements. Deferred tax assets and/or liabilities are the amounts of recoverable and deferred income taxes due in respect of deductible and taxable temporary tax differences. Temporary tax differences are identified by comparing the carrying amount of an asset or liability in the separate statement of financial position and its tax base obtained by applying the tax rules. Deferred income tax is calculated applying the balance sheet liabilities method. Deferred tax liabilities are calculated and recognised for all taxable temporary differences, while deferred tax assets are recognised only if their reversal is probable and provided the Company will be able to generate sufficient profit in the future from which they can be deducted. The effect of recognising deferred tax assets and/or liabilities is reflected where the effect of the event giving rise to them is presented. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 25 of 54 For events that affect profit or loss and other comprehensive income, the effect of deferred tax assets and liabilities is recognised in the separate statement of comprehensive income. For events initially recognised in equity (revaluation reserve), deferred tax assets and liabilities are recognised at the expense of equity. In the separate statement of financial position, deferred tax assets and/or liabilities are recognized through offsetting because they are subject to a uniform taxation regime. According to the Bulgarian tax legislation, the Company owes corporate tax at the amount of 10% of the taxable profit for the accounting year. 3.10. Fair value measurement Some of the Company's accounting policies and disclosures require a fair value measurement of financial and non-financial assets and liabilities. When measuring the fair value of an asset or liability, the Company uses observable data as far as possible. Fair values are categorized at different levels in the fair value hierarchy based on the inputs to the valuation techniques as follows: • Level 1: quoted prices (unadjusted) in active markets for similar assets or liabilities. • Level 2: inputs other than quoted prices included in Level 1 that, directly (i.e., as prices) or indirectly (i.e., derived from prices), are available for observation for the asset or liability. • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable input data). If the inputs used to measure the fair value of an asset or liability can be categorized at different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety at that level of the fair value hierarchy whose input information is relevant to the overall assessment. The Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period in which the change occurs. In 2023 and 2022 there have been no transfers between the levels of the fair value hierarchy. More information on the assumptions made in measuring fair values is included in the relevant notes. 3.11. Earnings per share Basic earnings incomes per share are calculated by dividing the net profit or loss for the period to be distributed among the shareholders holding ordinary shares by the weighted average number of ordinary shares held for the period. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 26 of 54 The weighted average number of shares represents the number of ordinary shares held at the beginning of the period, adjusted by the number of repurchased ordinary shares and the number of newly issued shares during the period multiplied by the average time factor. This factor expresses the number of days during which the specific shares were held, compared to the total number of days during the period. Earnings of diluted shares are not calculated because there are no diluted shares issued. 4. Notes to the Statement of financial position 4.01. Leases Vehicles 01.01.2022 г. Cost - Depreciation - Book value - Additions for the year 34 Depreciation for the year (17) Book value at 17 31.12.2022 г. Cost 34 Depreciation (17) Book value 17 01.01.2023 Cost 34 Depreciation (17) Book value 17 Additions for the year 235 Depreciation for the year (45) Book value at 207 31.12.2023 Cost 269 Depreciation (62) Book value 207 At the end of the reporting period, the Company is a party to vehicle lease agreements signed with the subsidiary Shelly Properties EOOD (former Allterco Properties EOOD) for which it has recognised in the separate statement of financial position right-of-use assets with a book value of BGN 207 thousand. Present value of the lease liability: December 31, 2023 December 31, 2022 Shelly Properties EOOD including - up to 1 year 47 17 - over 1 year 160 - Total lease liability 207 17 SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 27 of 54 2023 2022 Total amount of leasing payment for the period (45) (17) Interest expense under lease contracts - - Leases for vehicles have an average term of 3 years. The discount rate used by the Company for the described leases is on average – 1.35%. 4.02. Investments in subsidiaries Company Share in capital December 31, 2023 Share in capital December 31, 2022 % % Shelly Trading EOOD (former Allterco Trading EOOD) 100 1 100 1 Shelly Europe EOOD (former Allterco Robotics EOOD) 100 7 000 100 7 000 Shelly Properties EOOD (former Allterco Properties EOOD) 100 5 405 100 5 405 Shelly USA Inc., USA 100 486 100 973 Shelly DACH GmbH, Germany 100 978 100 978 Shelly Tech d.o.o. (former GOAP), Slovenia 60 4 134 - - Total 18 004 14 357 As of the end of 2023, the Company has recognized a 50% impairment on its investment in Shelly USA Inc. in the amount of BGN 487 thousand based on an internal assessment of the Company's business plan implementation. On 04.01.2023, Shelly Group AD announced the first stage of acquisition of 60% participation in the capital of Slovenian IoT provider Shelly Tech d.o.o, Slovenia, (former GOAP). Share Purchase Agreements ("SPA") have been signed with all four shareholders of Shelly Tech d.o.o. The total amount of the first stage transactions was 3.9 million BGN (2 million EUR). The acquisition cost of the new subsidiary includes additional expenses related to the transaction amounting to BGN 222 thousand. The remaining 40% of the capital of Shelly Tech d.o.o., Slovenia, belonging to three owners – individuals, is subject to an option contract that was signed together with the acquisition agreements. The terms of the option contract, Shelly Group AD has an unconditional option to purchase (call option), and the sellers – conditional option to sell (put option) two packages of company shares (the exercise of sellers' option is subject to achieving certain minimum KPIs for the period 2023 - 2025, including EBITDA and revenue). One of the options is for the acquisition of 16% and the other for the acquisition of 24% of the capital of Shelly Tech d.o.o. The total price of the shares from both packages depends on the level of achievement of the agreed KPIs and may vary in the range from EUR 699 999.70 (BGN 1 369 080.41) to EUR 3 449 998.60 (BGN 6 747 610.76). SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 28 of 54 4.03. Investments in associates Shelly Group AD has a participation in an associated company - Allterco Asia Ltd. With a seat and management address at Shenzhen, Guangdong province, China. The registered capital of the company is CNY 100 000 and the participation of Shelly Group AD is 30% (BGN 8 thousand) with an option to acquire additional up to 50% and reach a controlling stake of 80%, at the discretion of Shelly Group AD. In 2023, Shelly Group" AD concluded an Investment Agreement with "Ground Solutions Group" AD for participation in the capital increase and registration of new privileged company shares from the capital of its subsidiary "Corner Solutions" OOD. As a result, the Company acquired 625 new privileged company shares, representing 10% of the capital of "Corner Solutions" OOD after the increase, for a price of BGN 196 thousand (EUR 100,000). 4.04. Other long-term capital investments December 31, 2023 December 31, 2022 Ordinary registered shares - Link Mobility Group, in the beginning of the year 830 2 624 Increase 442 - Effect from subsequent revaluation of financial instruments 442 - Decrease (1 272) (1 794) Effect from subsequent revaluation of financial instruments - (1 439) Expenses related to transactions with financial assets and instruments (1 272) (355) Ordinary registered shares - Link Mobility Group, at the end of the year - 830 4.05. Long-term trade receivables In September 2021 the Company sold its investments in ALLTERCO PTE, Singapore, ALLTERCO SDN Malaysia and ALLTERCO CO. LTD Thailand. As part of the clauses of the sales contract, the payment of part of the value of the transaction was deferred. In July 2023, an additional agreement was signed with the seller for rescheduling of the amounts due, as a result of which BGN 1 027 thousand are due for more than 12 months, and therefore they are presented as a non-current receivable in these separate financial statements. 4.06. Deferred tax assets December 31, 2023 December 31, 2022 Deferred tax on revaluation reserve 1 56 Deferred tax on accrued costs 55 4 Deferred tax on unused paid leave 3 4 Deferred tax on pensions cost 5 - Deferred tax on actuarial valuation 1 6 Total: 65 70 SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 29 of 54 4.07. Trade receivables December 31, 2023 December 31, 2022 Receivables from clients 669 1 046 Impairment of receivables - - Receivables from clients, net 669 1 046 As at December 31, 2023 the trade receivables amounting to BGN 669 thousand represent a receivable under the sale transaction of Asian telecom business of Shelly Group, due in the next 12 months, as a result of signed agreement for debt rescheduling of the buyer of the Asian entities. The receivables from clients are in the following currencies: December 31, 2023 December 31, 2022 By types of currency In NOK - 9 In EUR 669 1 037 Total: 669 1 046 The movement of the impairment of trade receivables is as follows: December 31, 2023 December 31, 2022 Impairment at the beginning of the year - 152 Reversed and written-off impairment - (152) Impairment charged for the year - - Impairment at the end of the year - - The movement of the impairment in the prior year is entirely related to the receivable from Link Mobility Group and the agreement signed in June 2022 for debt settlement. An ageing analysis of the gross amount of the trade receivables is presented in the table below: December 31, 2023 December 31, 2022 Current 669 1 046 Overdue up to 30 days - - Overdue up to 60 days - - Overdue up to 90 days - - Overdue over 90 days - - Total: 669 1 046 4.08. Other receivables December 31, 2023 December 31, 2022 VAT receivable 19 21 Total: 19 21 4.09. Short-term financial assets At the end of 2022, the Company reported current financial assets amounting to BGN 175 thousand, which include costs of legal and advisory services related to the acquisition of the Slovenian company Shelly Tech d.o.o. After the successful completion of the transaction in the beginning of 2023, these costs were added to the value of the investment. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 30 of 54 4.10. Receivables from loans granted On September 23, 2023, the Company provided a short-term loan to a third party at the amount of BGN 548 thousand, with a term of 1 year and 1% annual interest. The loan is unsecured. The accrued interest payable at the end of the year is BGN 2 thousand. 4.11. Cash and cash equivalents December 31, 2023 December 31, 2022 CASH, including 3 7 Cash in BGN 3 7 CASH IN CURRENT BANK ACCOUNTS, including 2 940 3 572 Current bank account in BGN 1 214 2 038 Current bank account in foreign currency 1 716 1 524 Cash equivalents 10 10 Other cash - 3 911 Total: 2 943 7 490 As of December 31, 2022 other cash includes funds intended for the acquisition of the Slovenian company Shelly Tech d.o.o, which were transferred to a notary's account in Slovenia (escrow account). At the beginning of 2023, the transaction for the acquisition of the new subsidiary was finalized and accordingly the amount presented as other cash above was utilized. By currency December 31, 2023 December 31, 2022 In BGN 1 227 2 053 In USD 7 493 In EUR 491 4 341 Other 1 218 603 Total: 2 943 7 490 The Company's cash is in bank accounts with trade banks with a stable long-term rating. The Management has assessed the expected credit losses on Cash and cash equivalents. The estimated credit losses are insignificant compared to the gross value of the cash deposited with financial institutions, therefore they are considered insignificant and are not recognized in the separate financial statements of the Company as of December 31, 2023. Cash at bank accounts are held in three banks. 4.12. Prepaid expenses December 31, 2023 December 31, 2022 Insurances 22 20 Subscription to Information services 33 26 SAP licenses 42 - Others 18 - Total: 115 46 SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 31 of 54 4.13. Bank loans December 31, 2023 December 31, 2022 UBB Bulgaria, including.: − to one year 302 293 − over one year 1 020 1 322 Total bank loans – non-current portion: 1 020 1 322 Total bank loans – current portion: 302 293 The bank loan is obtained under the following conditions: Bank UBB AD Date of the contract: August 25, 2017 Contracted credit amount: 1 620 000 Original currency EUR Purpose Financing of up to 90% (VAT exclusive) of the final price of all company shares, representing 100% of the capital of the Joint Debtor Shelly Properties EOOD, defined in an Agreement concluded between the Borrower and JFC Developments OOD for transfer of the company shares in the Final Agreement. Repayment deadline February 10, 2028 Collateral: Mortgage of real estate, owned by Shelly Properties EOOD, joint debtor - Shelly Properties EOOD, pledge of receivables from bank accounts of the company. Pledge under the Financial Collateral Contracts Act (FCCA). 4.14. Retirement benefits obligation As of December 31, 2023, the Company reports obligations for a defined benefit plan upon retirement of BGN 48 thousand. The amount of the obligation is determined on the basis of an actuarial assessment based on assumptions about mortality, disability, probability of leaving, salary growth, etc. (see Note 2.7.2). The movements of the present value of the defined benefits plan upon retirement are presented below: December 31, 2023 December 31, 2022 Liabilities at the beginning of the year 61 - Liabilities paid during the year (30) - Expenses recognized in profit or loss Current service expense - 60 Financial costs on future liabilities 7 1 Actuarial loss, recognized in other comprehensive income 10 - Liabilities at the end of the period 48 61 December 31, 2023 December 31, 2022 Present value of the liability 38 61 Recognized actuarial losses 10 - Liabilities at the end of the period 48 61 SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 32 of 54 In the case of early retirement due to disability, the staff shall be entitled to a benefit of up to two months' salaries, increased by 100% for a minimum period of five years and provided that no such benefits have been received during the last five years of service. The demographic statistical assumptions used are based on the following: - turnover rate of the Company's staff over the past few years; - mortality of the population of Bulgaria in the period 2020 – 2022 according to the data of the National Statistical Institute; - statistics of the National Center for Health Information on disability of the population and premature retirement. 4.15. Trade payables December 31, 2023 December 31, 2022 Suppliers 168 158 By currency December 31, 2023 December 31, 2022 in BGN 131 74 in EUR 37 84 Total: 168 158 4.16. Payables to employees and social security obligations December 31, 2023 December 31, 2022 Liabilities for non-used leaves 80 33 Social security and health contributions 6 7 Social security contributions on non-used leaves 3 2 Total: 89 42 4.17. Tax liabilities December 31, 2023 December 31, 2022 Personal income tax 15 15 Other taxes 4 - Total: 19 15 4.18. Other liabilities December 31, 2023 December 31, 2022 Liabilities for purchase of shares 415 535 Total 415 535 4.19. Registered capital Shelly Group AD is registered in 2010. The registered capital of the Company as of December 31, 2023, amounts to BGN 18 050 945 (eighteen million fifty thousand nine hundred forty-five) and is distributed in 18 050 945 ordinary registered shares with value of BGN 1 each. The registered capital is fully paid in four instalments: SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 33 of 54 The first issue was made upon the establishment of the Company in the form of a non-monetary contribution in the amount of BGN 50,000 by Dimitar Stoyanov Dimitrov and Svetlin Iliev Todorov. In 2010 a second non-monetary contribution was made in the amount of BGN 5,438,000 by Dimitar Stoyanov Dimitrov and Svetlin Iliev Todorov. The subject of the non-monetary contribution was shares from the capital of Tera Communications AD. At the end of 2015, a new issue of 8,012,000 ordinary registered voting shares was issued, with a nominal value of BGN 1 each. At the end of 2016 the capital was increased with a new issue for the amount of 1,500,000 shares on the basis of a successful initial public offering, according to the Prospectus for public offering of shares. In 2020 the capital of the Company was increased by cash contributions in the total amount of 2,999,999 against 2,999,999 subscribed and paid dematerialized ordinary registered voting shares with a nominal value of BGN 1 as a result of a procedure for Public Offering of a new issue of shares. In July 2023, the Company successfully completed a public offering of shares from the capital increase of Shelly Group AD (the Company), addressed to employees of the Company and its subsidiaries. The capital increase is in the amount of BGN 50 946, representing 50 946 ordinary, dematerialized, registered voting shares with a nominal value of BGN 1 each. The capital of Shelley Group after the increase is BGN 18 050 945, representing 18 050 945 ordinary, dematerialized, registered shares with voting rights and a nominal value of BGN 1 each. As of December 31, 2023, the shareholders in the Company are: Name/business name Number of shares: % in the capital Svetlin Todorov 5 485 620 30.39% Dimitar Dimitrov 5 776 120 32.00% Persons possessing less than 5% of the capital Other individuals and legal entities 6 789 205 37.61% Total 18 050 945 100.00% On 30.06.2022, the Company acquired 40,000 own shares at a price of BGN 19.50 per share, (for a total of BGN 780 thousand) representing 0.22% of the registered capital through over-the-counter transactions (OTC transactions) from two independent shareholders. At the end of the second quarter of 2023, the Company has sold all repurchased shares. In accordance with paragraph 33 of IAS 32, the consideration paid or received for them is recognized directly in equity, and in this regard the net result of this operation in the amount of BGN 280 thousand is reflected in retained earnings. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 34 of 54 4.20. Retained earnings December 31, 2023 December 31, 2022 Retained earnings in the beginning of the year 4 580 5 162 Profit for the reporting period 7 852 1 058 Gain on sale of shares repurchased 280 - Reclassified other comprehensive income (122) 160 Distribution of dividends (4 500) (1 800) Retained earnings at the end of the year 8 090 4 580 4.21. Legal reserves December 31, 2023 December 31, 2022 Legal reserves in the beginning of the year 1 800 1 800 Legal reserves at the end of the year 1 800 1 800 4.22. Premium reserve As of December 31, 2023, the reserves from issue of shares of the Company amount to BGN 5 403 thousand. They are formed by the excess of the proceeds from new shares issued in 2020 above their nominal value, amounting to BGN 6 000 thousand, reduced by the costs related to the capital increase, amounting to BGN 297 thousand and by BGN 300 thousand that were transferred to Legal reserves by a decision of General Meeting of Shareholders held on June 28, 2021. 4.23. Revaluation reserve December 31, 2023 December 31, 2022 Balance at the beginning of the year (507) 1 036 Other comprehensive income 442 - Reserve related to long-term equity instruments at fair value through other comprehensive income - (1 439) Deferred tax (56) 56 Reserve transferred to retained earnings 122 (160) Other changes (1) Balance at the end of the year - (507) The change in the reserve related to long-term equity instruments is a result of the sale of financial instruments during the reporting period. 4.24. Reserve from revaluation of deferred benefits plans December 31, 2023 December 31, 2022 Balance at the beginning of the year - - Loss as a result of actuarial revaluation of defined benefit plans (10) - Deferred tax on actuarial loss 1 - Balance at the end of the year (9) - SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 35 of 54 5. Notes to the Statement of comprehensive income 5.01. Revenue from dividends 2023 2022 Revenue from dividends 11 000 4 001 During the reporting period SHELLY GROUP AD recognized revenue from dividends from its subsidiary Shelly Europe EOOD. 5.02. Administrative expenses 2023 2022 Materials, including (6) (3) Office supplies, machinery and consumables (6) (3) Hired services, including: (1 201) (851) Office rent and other utilities (1) (1) IT Infrastructure (160) (71) Membership fee, Communications Regulation Commission (54) (75) Civil contracts (40) (40) Consultancy, legal, accounting and audit services (831) (590) Advertising (70) (61) Other external services (45) (13) Depreciation (47) (19) Payroll expenses (1 545) (1 193) Social security expenses (54) (48) Other expenses (14) (2) Total (2 867) (2 116) 5.03. Written off receivables At the end of 2022 the Company reports written off receivables at the amount of BGN 768 thousand, most of which is related to the signed agreement with Link Mobility Group. 2023 2022 Written off receivables - (920) Reversed/(Expenses for) impairment of receivables - 152 Total: - (768) 5.04. Impairment of investments in subsidiaries At the end of 2023 the Company has recognized 50% impairment of its investment in Shelly USA Inc. In the amount of BGN 487 thousand based on an internal assessment of the business plan performance of the company. 5.05. Other expenses 2023 2022 Bank fees (8) (19) SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 36 of 54 5.06. Financial income 2023 2022 Interest income 68 15 Net earnings on foreign exchange operations - 161 Income from sales of financial assets, incl. 181 - - income from sale of financial assets 1 455 - - Book value of assets sold (1 274) - Total: 249 176 5.07. Financial expenses 2023 2022 Interest expenses on bank loan (45) (53) Bank financial services (14) (40) Net foreign exchange rates expenses (62) - Loss from operations with financial assets - (119) - Income from sales of financial assets - 236 - Carrying amount of assets sold - (355) Total financial expenses (121) (212) 5.08. Tax expense 2023 2022 Current tax expense - - Tax effect from temporary differences 50 (4) Tax income/(expense) 50 (4) 2023 2022 Accounting profit before tax 7 802 1 062 Income tax expense at applicable tax rate of 10% for 2023 (2022: 10%) (780) (106) Tax effect of permanent differences, incl.: 1 130 309 Tax effect of non-taxable income 1 130 413 Tax effect of unrecognized expenses for tax purposes - (104) Tax effect of unrecognized tax assets (300) (207) Income tax income/(expense) 50 (4) SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 37 of 54 The Company realized tax losses as follows: Tax period Period for tax loss deduction Tax loss Unrecognized deferred tax asset 2019 from 2020 to 2024 - - 2020 from 2021 to 2025 - - 2021 from 2022 to 2026 (5 660) 566 2022 from 2023 до 2027 (2 065) 207 2023 from 2024 to 2028 (2 998) 300 Applicable tax rate 10% Total (10 723) 1 073 Deferred taxes as of December 31, 2023 and December 31, 2022: 2023 2022 Deferred tax assets Compensated leave 3 2 Pension expenses 1 6 Audit expenses 6 4 Income of individuals/bonuses 1 - Other 49 - Deferred tax liabilities Impairment of receivables - (15) Other (10) (1) Deferred tax income/(expense) 50 (4) 5.09. Earnings per share in BGN 2023 2022 Net profit for the reporting period in BGN’000 7 852 1 058 Weighted average number of shares 18 004 306 17 979 835 Earnings per share in BGN 0.44 0.06 In June 2023, the Company sold 40 000 own shares which were bought in the prior year. In July 2023 the Company increased its share capital by issuing 50 956 new ordinary dematerialized registered voting shares with par value of BGN 1 each. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 38 of 54 6. Transactions and balances with related parties As of the end of the reporting period the related parties are as follows: Company Relationship Shelly Trading EOOD Subsidiary Shelly Properties EOOD Subsidiary Shelly Europe EOOD Subsidiary Shelly USA Inc. Subsidiary Shelly DACH GmbH Subsidiary Allterco Asia Ltd. Associate Corner Solutions OOD Associate During the year the Company has carried out transactions with the following related parties: Company Relationship Shelly Trading EOOD Subsidiary Shelly Properties EOOD Subsidiary Shelly USA Inc. Subsidiary Shelly Tech d.o.o. Subsidiary Shelly Europe EOOD Subsidiary information of transactions of the Company with related parties is presented below. 6.01. Loans granted to related parties Long-term loans On 23.03.2023 Shelly Group AD granted loan to its subsidiary Shelly Tech d.o.o at the amount of BGN 978 thousand (EUR 500 thousand) under the following conditions: repayment term 31.12.2029, interest according to the statistic information published by Bulgarian National Bank regarding Interest Rates and Volumes on Credit Balances, Other Than Overdrafts, for the Non-Financial Enterprises Sector (in EUR for a period of more than 5 years). The purpose of the loan is to support the operating activity of the subsidiary. Short-term loans During the second quarter of 2023 Shelly Group AD has granted additional cash contribution to its subsidiary Shelly Tech d.o.o in the amount of BGN 978 thousand (EUR 500 thousand) under the following conditions: repayment term 1 year from cash payout; annual interest of 1% paid at the end of the period; the additional cash is granted to cover losses from previous years and to support temporary need for cash and continuation of normal operating activities of the subsidiary. At the end of 2022 Shelly Group AD has granted additional cash contribution in the amount of BGN 1 834 thousand (1 million USD) to its subsidiary Shelly USA Inc. with annual interest of 1%. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 39 of 54 6.02. Receivables from related parties December 31, 2023 December 31, 2022 Shelly Properties EOOD (deposit) - 5 Shelly Europe EOOD, incl.: 8 000 - Dividends 8 000 - Shelly Trading EOOD, incl.: - 4 001 Dividends - 4 001 Shelly USA Inc., incl.: 1 797 1 843 - Interest on additional cash contributions 27 9 - Funds provided for additional contributions 1 770 1 834 Shelly Tech d.o.o., incl.: 2 003 - - Interest on additional cash contributions 6 - - Interest on loans 41 - - Funds provided for additional contribution 978 - - Loan provided 978 - Total incl.: 11 800 5 849 Current: 10 781 5 849 Non-current: 1 019 - All receivables from related companies are reviewed for impairment, however no such were identified, neither accrued for the reporting period. Receivables from related companies are in the following currencies: December 31, 2023 December 31, 2022 By currency in BGN 8 000 4 006 in EUR 2 003 - in USD 1 797 1 843 Total: 11 800 5 849 6.03. Payables to related parties The payables to related parties during the year are related to the lease agreements concluded with Shelly Properties EOOD for vehicles, for which the Company has recognized in the separate statement of financial position right-of-use assets. As of December 31, 2023, the present value of the lease liability recognized under these agreements amounts to BGN 207 thousand, which is split by current portion BGN 47 thousand BGN and non-current amounting to BGN 160 thousand. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 40 of 54 6.04. Transactions and balances with related parties During the reporting period the Company recognised dividend revenue from its subsidiary Shelly Europe at the amount of BGN 11 000 thousand. At the end of the reporting period the outstanding receivable is at the amount of BGN 8 000 thousand. At the end of 2022 Shelly Group AD has recognised revenue from dividends at the amount of BGN 4 001 thousand from its subsidiary Shelly Trading. At the end of 2022 Shelly Group AD had made the additional cash contribution in the amount of BGN 1 834 thousand (USD 1 million) to its subsidiary Shelly USA Inc., with annual interest rate of 1.0%. The interest income accrued for 2023 amounts to BGN 18 thousand. The interest income for year 2022 are in the amount of BGN 9 thousand. On March 23, 2023, Shelly Group AD provided to its subsidiary Shelly Tech d.o.o a loan of BGN 978 thousand (EUR 500 thousand). The recognized income from interest at the end of 2023is at the amount of BGN 41 thousand. On June 1, 2023, Shelly Group AD has granted to Shelly Tech d.o.o an additional cash contribution in the amount of BGN 978 thousand (EUR 500 thousand) at the following terms – repayment period within 1-year, annual interest rate 1%. The recognized income from interest at the end of 2023 is in the amount of BGN 6 thousand. 6.05. Key managerial personnel During the reporting period to the members of the Board of Directors is accrued and paid gross renumeration (including employer’s social security contributions) at the total amount of BGN 1 039 thousand (2022: BGN 750 thousand.). The remuneration paid was in accordance with the disclosed Remuneration policy and the changes made in the number and composition of the members of the Board of Directors, adopted at the extraordinary General Meetings held on April 8, 2022 and December 13, 2022. At the end of the reporting period the Company has no obligations to its key managerial personnel. On 18.12.2023 the General Meeting of Shareholders voted a change in the Board of directors’ personnel. As of 01.01.2024 Mr. Christoph Vilanek replaced Mr. Gregor Bieler, who has left the role of board member due to increase in his professional engagements. This change is reflected in the Commercial Register and Register of Non-Profit Entities with the Register Agency on 08.01.2024. The members of the Board of Directors (since January 8, 2024) are: - Christoph Vilanek - Chairman - Nikolay Martinov - Deputy Chairman - Dimitar Dimitrov - Executive Director and Representative - Wolfgang Kirsch - Executive Director and Representative - Svetlin Todorov - Member of the Board of Directors and Representative SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 41 of 54 7. Contingent liabilities and commitments The contingent liabilities at the end of the reporting period include: Contract Annex Creditor Debtor Joint debtor / Guarantor Amount / Limit Financial conditions Maturity Collateral provided by the borrower Investment loan August 25, 2017 Annexes No. 1/ October 31, 2018 UBB AD Shelly Group AD Shelly Properties EOOD – joint debtor BGN 3 168 thousand. (EUR 1 620 tho usand) Fixed interest rate for the whole period 3% per year; Management fee February 10, 2028 Mortgage on real estate owned by Shelly Properties EOOD; Pledge of receivables on bank accounts of the company in the bank. Pledge under the Financial Collateral Contracts Act Overdraft September 30, 2019 Annexes No 1/ August 28, 2020 UBB AD Shelly Europe EOOD Shelly Group AD – guarantor BGN 1 955 thousand (EUR 1 million) One-month EURIBOR, increased by 2.5 percentage points, but not less than 2.5%; management fee; commitment fee; commission for issuing guarantees September 29, 2023 Pledge of receivables on accounts of the Company in the bank As of 31.12.2022 the contingent liabilities include: Contract Annex Creditor Debtor Joint debtor / Guarantor Amount / Limit Financial conditions Maturity Collateral provided by the borrower Investment loan August 25, 2017 Annexes No. 1/ October 31, 2018 UBB AD Shelly Group AD Shelly Properties EOOD – joint debtor BGN 3 168 thousand. (EUR 1 620 tho usand) Fixed interest rate for the whole period 3% per year; Management fee February 10, 2028 Mortgage on real estate owned by Shelly Properties EOOD; Pledge of receivables on bank accounts of the company in the bank. Pledge under the Financial Collateral Contracts Act Overdraft September 30, 2019 Annexes No 1/ August 28, 2020 UBB AD Shelly Europe EOOD Shelly Group AD – guarantor BGN 1 955 thousand (EUR 1 million) One-month EURIBOR, increased by 2.5 percentage points, but not less than 2.5%; management fee; commitment fee; commission for issuing guarantees September 29, 2023 Pledge of receivables on accounts of the Company in the bank SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 42 of 54 8. Financial instruments by categories The structure of the financial assets and liabilities as of December 31, 2023 and December 31, 2022 by categories is as follows: December 31, 2023 December 31, 2022 Financial assets at amortized cost - Cash Financial assets at amortized cost Financial assets at fair value through other comprehensi ve income Total Financial assets at amortized cost - Cash Financial assets at amortized cost Financial assets at fair value through other comprehensi ve income Total Financial assets according to the Statement of financial position Cash and cash equivalents 2 943 - - 2 943 7 490 - - 7 490 Long term trade receivables - 1 027 - 1 027 - 1027 - 1 027 Other long - term capital investments - - - - - - 830 830 Non-current loans to related parties - 1 019 - 1 019 - - - - Current receivables from related companies - 10 781 - 10 781 - 5 849 - 5 849 Short-term financial assets - - - - - 175 - 175 Commercial loan - 550 - 550 - - - - Trade receivables - 669 - 669 - 1 046 - 1 046 TOTAL FINANCIAL ASSETS 2 943 14 046 - 16 989 7 490 8 097 830 16 417 December 31, 2023 December 31, 2022 Financial liabilities at amortized cost Total Financial liabilities at amortized cost Total Financial liabilities according to the Statement of financial position Bank loans 1 322 1 322 1 615 1 615 Lease liabilities 207 207 17 17 Trade payables 168 168 158 158 Other liabilities 415 415 535 535 TOTAL FINANCIAL LIABILITIES 2 112 2 112 2 325 2 325 The fair value of the bank loan that the Company is using, is determined based on market interest rate applicable for similar instruments with similar term. The Company has no practice of working with derivative instruments. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 43 of 54 9. Financial risk management The Company’s activities are exposed to several risks related to objective conditions such as market unpredictability, general economic trends, changes in exchange rates. To minimize the potential negative effects, the Company has adopted policies for overall risk management and assessment and establishing procedures for addressing the identified risks. The overall risk management is focused on forecasting the results of certain areas of the markets where the Company operates in order to minimize the potential negative effects that could affect the financial results. Financial risks are currently identified, measured and monitored using various control mechanisms to adequately assess market conditions and their effects on Company’s investments and to maintain sufficient liquid funds to avoid unjustified concentration of any specific risk. Risk management is carried out on an ongoing basis under the direct supervision of the Executive Director and the Company's financial experts in accordance with the policy set by the Board of Directors. The risk management strategy is regularly reviewed in order to update the policies to the dynamics in the market and economic conditions. The Company aims to develop discipline and a constructive control environment in which all employees understand their responsibilities through periodic training and application of established standards. The following describes the different types of risks to which the Company is exposed in carrying out its business operations, as well as the approach taken in managing these risks. Market risk Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market prices. A. Currency risk The Company carries out its transactions mainly on the domestic market and in the European Union. It is not exposed to significant currency risk because almost all its operations and transactions are denominated in Bulgarian levs and euros, and the latter has a fixed exchange rate against the lev by law. During the previous financial year, the Company transferred part of its cash in USD in order to optimize its expenses related to keeping available cash at current accounts. The Company has also provided an additional cash contribution in USD to its subsidiary. The Company makes its main deliveries in BGN. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 44 of 54 The tables below summarize the exchange rate exposure: December 31, 2023 In EUR In USD In other foreign currency In BGN total Cash and cash equivalents 491 7 1 218 1 227 2 943 Long term trade receivables 1 027 - - - 1 027 Non-current loans granted to related parties 1 019 - - - 1 019 Receivables from related companies 984 1 797 - 8 000 10 781 Receivables on loans granted 550 - - - 550 Trade receivables 669 - - - 669 TOTAL ASSETS 4 740 1 804 1 218 9 227 16 989 Bank loans 1 322 - - - 1 322 Lease liabilities - - - 207 207 Trade payables 37 - - 131 168 Other liabilities - - - 415 415 TOTAL LIABILITIES 1 359 - - 753 2 112 December 31, 2022 In EUR In USD In other foreign currency In BGN Total Cash and cash equivalents 4 341 493 603 2 053 7 490 Long-term receivables 1 027 - - - 1 027 Other long-term equity instruments - - 830 - 830 Receivables from related companies - 1 843 - 4 006 5 849 Short-term financial assets 173 - - 2 175 Trade receivables 1 037 - 9 - 1 046 TOTAL ASSETS 6 578 2 336 1 442 6 061 16 417 Bank loans 1 615 - - - 1 615 Financial lease - - - 17 17 Trade payables 84 - - 74 158 Other liabilities - - - 535 535 TOTAL LIABILITIES 1 699 - - 626 2 325 Currency sensitivity analysis The Company is not exposed to currency risk with respect to its euro exposures since the Bulgarian lev has a fixed exchange rate against the euro. With respect to its positions in US dollars, it carries a risk, but since they amount is a bit more than 10% of all currency exposures of the Company, and a large part of them are to related companies, the management considers this risk to be insignificant, at least at this stage. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 45 of 54 At the end of 2023 the Company has exposure to Norwegian krones (7.1% of the assets) as a result of received funds from sale of finance assets denominated in Norwegian krones. In the table below, a sensitivity analysis is presented to the possible changes in the exchange rate BGN/USD and BGN/NOK (Norwegian krone) and the profit before taxes (through changes in the book values of monetary assets and liabilities), provided that all other variables are assumed to be constant. Increase/ Decrease in exchange rate BGN/ USD Effect on the profit before tax Increase/ Decrease in exchange rate BGN/ NOK Effect on profit before tax % % 2023 +/-1.00% 18 +/-1.00% 12 2022 +/-1.00% 23 +/-1.00% 14 B. Price risk At the of end of 2022 The Company owns shares that are subject to trading on a regulated market and in this regard, it is exposed to a risk of negative changes on the regulated markets in Norway. At the end of 2023 the Company has sold all its shares mentioned above. C. Risk of the interest-bearing cash flows The Company does not have a significant concentration of interest-bearing assets, except for free cash on current accounts with banks and the loans to the related companies and third parties, therefore the revenues and inflows of operating cash flows are not largely dependent on changes in market interest rates. At the same time, the outgoing cash flows of Shelly Group AD are not exposed to interest rate risk from utilizing a bank loan and lease, as they are agreed with a fixed interest rate. Cash on current accounts with banks bear interest at interest rates according to the tariffs of the respective banks. The management of the Company currently monitors and analyses its exposure to changes in market interest rates. Different refinancing scenarios, renewal of existing interest-bearing positions and alternative financing are simulated. Calculations are made for significant interest-bearing positions. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 46 of 54 December 31, 2023 Interest-free With floating interest % With fixed interest % total Cash and cash equivalents - - 2 943 2 943 Long term trade receivables 1 027 - - 1 027 Loans granted to related parties - 1 019 - 1 019 Receivables from related companies 8 033 - 2 748 10 781 Receivables on loans granted - - 550 550 Trade receivables 669 - - 669 TOTAL ASSETS 9 729 1 019 6 241 16 989 Bank loans - - 1 322 1 322 Lease liabilities - - 207 207 Trade payables 168 - - 168 Other liabilities 415 - - 415 TOTAL LIABILITIES 583 - 1 529 2 112 December 31, 2022 Interest-free With floating interest % With fixed interest % total Cash and cash equivalents - - 7 490 7 490 Other receivables 1 027 - - 1 027 Receivables from related companies 4 015 - 1 834 5 849 Trade receivables 1 046 - - 1 046 TOTAL ASSETS 6 088 - 9 324 15 412 Bank loans - - 1 615 1 615 Lease liabilities - - 17 17 Trade payables 158 - - 158 Other liabilities 535 - - 535 TOTAL LIABILITIES 693 - 1 632 2 325 D. Credit risk Credit risk is the risk that one party to a financial instrument will fail to meet its obligation and thereby cause a loss to the other party. The financial assets that potentially expose the Company to credit risk are mainly receivables from sales of investments. The Company is exposed to credit risk if in case customers fail to pay their receivables. The financial assets of the Company are concentrated in the following groups: cash (cash on hand and at bank accounts), receivables from clients and additional cash contributions and loans provided to its subsidiaries. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 47 of 54 Over 80% of trade receivables (short-term and long-term) represent receivables related to the sale of long-term investments in subsidiaries, part of them is secured, receivables from dividends of subsidiaries, as well as receivables related to financing of subsidiaries. The collection and concentration of receivables is monitored on an ongoing basis, according to the established policy of the Company. For this purpose, the open positions by clients, as well as the received receipts, are periodically reviewed by the financial and accounting department and the management, and an analysis of the unpaid amounts is performed. The Management follows an internal policy for assessing credit losses. For receivables from related parties and trade receivables the simplified method is applied, as the percentages are determined based on historical data. As of December 31, 2023 the Company has no written off receivables and impairment of receivables. As of December 31, 2022, the Company reports written-off receivables in the amount of BGN 920 thousand and reversed impairment of receivables at the amount of BGN 152 thousand. Company’s exposure to credit risk arising from its financial assets as of December 31, 2023 and December 31, 2022 is presented below: As of December 31, 2023 As of December 31, 2023 Cash and cash equivalents 2 943 7 490 Long-term trade receivables 1 027 1 027 Receivables from related parties 1 019 - Receivables from related companies 10 781 5 849 Receivables from loan granted 550 - Short-term financial assets - 175 Trade receivables 669 1 046 Total 16 989 15 587 The staging of the financial assets of the Company as of December 31, 2023, and December 31, 2022 is presented in the table below: SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 48 of 54 31.12.2023 Stage 1 Stage 2 Stage 3 Total Financial assets Cash and cash equivalents 2 943 - - 2 943 Long-term trade receivables 1 019 - - 1 019 Receivables from related parties 1 027 - - 1 027 Receivables from related parties 10 781 - - 10 781 Receivables from loan granted 550 - - 550 Trade receivables 669 - - 669 Total 16 989 - - 16 989 Accrued provisions (ECL) for financial assets - - - - Financial assets, net of accrued provisions 16 989 - - 16 989 31.12.2022 Stage 1 Stage 1 Stage 1 Stage 1 Financial assets Cash and cash equivalents 7 490 - - 7 490 Long-term trade receivables 1 027 - - 1 027 Receivables from related parties 5 849 - - 5 849 Short-term financial assets 175 - - 175 Trade receivables 1 046 - - 1 046 Total 15 587 - - 15 587 Accrued provisions (ECL) for financial assets - - - - Financial assets, net of accrued provisions 15 587 - - 15 587 SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 49 of 54 The changes in the gross carrying amount of the financial assets are presented below: Gross carrying amount of the financial assets Stage 1 - expected credit loss for 12 months period Stage 2 - expected credit loss for the period of the financial asset life Stage 3 - expected credit loss for the period of the financial asset life TOTAL Gross carrying amount as of December 31, 2022 15 587 - - 15 587 Changes during the year: Transfer from Stage 1 to Stage 2 - - - - Transfer from Stage 1 to Stage 3 - - - - Transfer from Stage 2 to Stage 3 - - - - New financial assets 28 062 - - 28 062 Maturity of financial assets (26 660) - - (26 660) Gross carrying amount as of December 31, 2023 16 989 - - 16 989 Gross carrying amount of the financial assets Stage 1 - expected credit loss for 12 months period Stage 2 - expected credit loss for the period of the financial asset life Stage 3 - expected credit loss for the period of the financial asset life TOTAL Gross carrying amount as of December 31, 2021 20 257 - 3 477 23 734 Changes during the year: Transfer from Stage 1 to Stage 2 - - - - Transfer from Stage 1 to Stage 3 - - - - Transfer from Stage 2 to Stage 3 - - - - New financial assets 15 096 - - 15 096 Maturity of financial assets (19 766) - (3 477) (23 243) Gross carrying amount as of December 31, 2022 15 587 - - 15 587 SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 50 of 54 The changes in booked ECL provision for financial assets in 2023 and 2022 are presented below: Stage 1 - expected credit loss for 12 months period Stage 2 - expected credit loss for the period of the financial asset life Stage 3 - expected credit loss for the period of the financial asset life TOTAL ECL provision as of December 31, 2022 - - - - Changes during the year: - Transfer from Stage 1 to Stage 2 - - - - Transfer from Stage 1 to Stage 3 - - - - Transfer from Stage 2 to Stage 3 - - - - New financial assets - - - - Maturity of financial assets - - - - ECL provision as of December 31, 2023 - - - - Stage 1 - expected credit loss for 12 months period Stage 2 - expected credit loss for the period of the financial asset life Stage 3 - expected credit loss for the period of the financial asset life TOTAL ECL provision as of December 31, 2021 - - (152) (152) Changes during the year: - - Transfer from Stage 1 to Stage 2 - - - - Transfer from Stage 1 to Stage 3 - - - - Transfer from Stage 2 to Stage 3 - - - - New financial assets - - - - Maturity of financial assets - 152 152 ECL provision as of December 31, 2022 - - - - E. Liquidity risk The liquidity risk is expressed in the negative situation that the Company will not be able to meet unconditionally all its obligations, according to their maturity. It pursues a conservative liquidity management policy, through which it constantly maintains an optimal liquidity reserve of monetary funds and a good ability to finance its business activities. In order to control the risk, the Company monitors the timely payment of the incurred liabilities. The Company monitors and controls the actual and projected cash flows for periods ahead and maintains a balance between the maturity limits of the assets and liabilities of the Company. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 51 of 54 On an ongoing basis the maturity and timely execution of payments is monitored by the finance and accounting department, maintaining daily information on available cash and upcoming payments. December 31, 2023 to 1 m. 1-3 m. 3-6 m. 6-12 m. 1-2 y. 2-5 y. over 5 y. without maturity total Cash and cash equivalents - - - - - - - 2 943 2 943 Long-term trade receivables - - - - 1 027 - - - 1 027 Loans granted to related parties - - - - - 1 019 - - 1 019 Receivables form related companies - 8 000 - 2 781 - - - - 10 781 Receivables from loan granted - - 550 - - - - - 550 Trade receivables 176 - 176 317 - - - - 669 TOTAL ASSETS 176 8 000 726 3 098 1 027 1 019 - 2 943 16 989 Bank loans 24 49 76 153 307 713 - - 1 322 Lease liabilities 13 27 41 79 47 - - - 207 Trade payables 72 96 - - - - - - 168 Other liabilities 10 20 30 355 - - - - 415 TOTAL LIABILITIES 119 192 147 587 354 713 - - 2 112 December 31, 2022 to 1 m. 1-3 m. 3-6 m. 6-12 m. 1-2 y. 2-5 y. over 5 y. without maturity total Cash and cash equivalents Long-term trade receivables - - - - - - - 7 490 7 490 Receivables from related companies - - - - 1 027 - - - 1 027 Trade receivables - 5 4 010 1 834 - - - - 5 849 TOTAL ASSETS - 19 1 027 - - - - - 1 046 December 31, 2022 - 24 5 037 1 834 1 027 - - 7 490 15 412 Bank Loans 24 48 73 148 302 961 59 - 1 615 Lease liabilities 1 3 4 9 - - - - 17 Trade payables 119 39 - - - - - - 158 Other liabilities - - - 535 - - - - 535 TOTAL LIABILITIES 144 90 77 692 302 961 59 - 2 325 SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 52 of 54 F. Capital risk management With the capital management the Company aims to create and maintain opportunities for it to continue to operate as a going concern and to ensure the appropriate return on investment of shareholders, and to maintain optimal capital structure, to reduce capital expenses. The Company on a regular basis monitors the security and capital structure based on the debt ratio. This ratio is calculated between the net debt capital and the total amount of capital. Net debt capital is defined as the difference between all borrowings (current and non-current) as stated in the statement of financial position and the cash and cash equivalents. The total amount of capital is equal to the equity and net debt capital. The table below presents the debt ratios based on the capital structure: December 31, 2023 December 31, 2022 Total debt capital incl. 2 268 2 443 Less: cash and cash equivalents 2 943 7 490 Net debt capital (675) (5 047) Total equity 33 335 28 496 Total capital 32 660 23 449 Debt ratio 0.00% 0.00% As the cash is larger than the debt capital, the Company has no indebtedness at the end of 2022 and 2023. 10. Fair values For the purposes of disclosing fair value, the Company determines different classes of assets and liabilities depending on their nature, characteristics and risk and the respective level of the fair value hierarchy specified in item 3.10 from the Notes to the separate financial statements. The Company's management has determined that the book values of cash and cash equivalents, receivables from related companies and other trade receivables approximate their fair values due to the short-term nature of these financial instruments. The attached table shows the book values and fair values of financial assets and liabilities, including their levels in the fair value hierarchy. Fair value information is not included if the book value is reasonably close to the fair value. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 53 of 54 The table below presents the hierarchy of the fair value of the Company's assets and liabilities in accordance with IFRS 13: As of 31 December 2023 Book value Level 1 Level 2 Level 3 Financial assets Long term receivables 1 027 - 1 027 - Cash and cash in bank 2 943 - 2 943 - Loans granted to related parties 1 019 - - - Receivables from related companies 10 781 - - - Receivables from loan granted 550 - - - Trade receivables 669 - - Total: 16 989 - 3 970 - Financial liabilities Bank loans 1 322 - 1 239 - Lease liabilities 207 - 203 - Trade payables 168 - - - Other liabilities 415 - - - Total: 2 112 - 1 442 - As of 31 December 2022 Book value Level 1 Level 2 Level 3 Financial assets Long-term trade receivables 1 027 - 988 - Other long - term capital investments 830 830 - - Cash and cash in bank 7 490 - 7 490 - Receivables from related companies 5 849 - - - Short-term financial assets 175 - - - Trade receivables 1 046 - - - Total: 16 417 830 8 478 - Financial liabilities Bank loans 1 615 - 1 491 - Lease liabilities 17 - 17 - Trade payables 158 - - - Other liabilities 535 - - - Total: 2 325 - 1 508 - The fair value of the financial liabilities included in Level 2 in the table above was determined in accordance with the generally accepted valuation model based on discounted cash flows, the interest rate on the loan was used as a discount factor. SHELLY GROUP AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS UIC 201047670 All amounts are in thousand Bulgarian leva unless otherwise stated Page 54 of 54 The fair value of receivables from related companies (loans granted, including), trade payables, granted commercial loans and other liabilities approximates their carrying amount as these assets/liabilities are not subject to effects, that lead to different fair value. The fair value of financial assets included in Level 1 is determined using the market quotation for the price of the asset at the reporting date. 11. Events after the end of the reporting period The general meeting of shareholders voted a change in the Board of directors’ personnel. Effective from 01.01.2024. Mr. Christoph Vilanek replaced Mr. Gregor Bieler, who has left his role as board member due to increase in his professional engagements. The change is reflected in the Commercial Register and Register of Non-Profit Entities with the Register Agency on 08.01.2024. On February 22, 2024. Shelly Group AD has announced that it is exercising a Call option to acquire an additional 16% stake in its Slovenian IoT subsidiary Shelly Tech (former name GOAP Računalniški inženiring in avtomatizacija procesov d.o.o. Nova Gorica). The exercise of the Call option is the second stage of the acquisition of the Slovenian company based on Option Agreement between Shelly Group and the partners in the Slovenian company, signed and announced in January 2023. The total acquisition price of the share amounts to EUR 586 666.30 calculated in accordance with the terms of the Option Agreement. The remaining 24% of the shares of the Company, owned by three partners, are subject to an additional Call/Put option that can be exercised in 2026. according to the agreed conditions. On March 5, 2024, the subsidiary Shelly Europe EOOD signed a lease contract of office premises for 10 years term. Subject of the contract are 2,840 sq. m. office space, 60 parking lots and utility, located in office building Office X, Building 3, the use of which is provided for a monthly fee at the total amount of BGN 113,270.72 (EUR 57,914.40), VAT excluded, subject to annual indexation or total BGN 13,592,486.51 (EUR 6,949,728) VAT excluded for the entire term of the contract. Deloitte Audit OOD UIC 121145199 4 Mihail Tenev Str., fl. 12 Balkan Business Center 1784 Sofia, Bulgaria Tel: +359 (2) 802 3300 Fax: +359 (2) 802 3350 www.deloitte.bg Делойт Одит ООД ЕИК 121145199 ул. Михаил Тенев 4, ет. 12 Балкан Бизнес Център 1784 София, България Tел: +359 (2) 802 3300 Факс: +359 (2) 802 3350 Делойт се отнася към едно или повече дружества - членове на Делойт Туш Томацу Лимитид („ДТТЛ“ ), както и към глобалната мрежа от дружества – членове и свързаните с тях дружества (заедно наричани „организацията на Делойт). ДТТЛ (наричано също “Делойт Глобъл“) и всяко дружество– член и неговите свързани дружества са юридически самостоятелни и независими лица, които не могат да поемат задължения или да се обвързват взаимно по отношение на трети страни. ДТТЛ и всяко дружество член на ДТТЛ и свързаните с него дружества са отговорни единствено и само за своите собствени действия и бездействия, но не и за тези на останалите. ДТТЛ не предоставя услуги на клиенти. Моля, посетете www.deloitte.com/about, за да научите повече. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities (collectively, the “Deloitte organization”). DTTL (also referred to as “Deloitte Global”) and each of its member firms and related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please see www.deloitte.com/about to learn more. INDEPENDENT AUDITOR’S REPORT To the shareholders of SHELLY GROUP AD REPORT ON THE AUDIT OF THE SEPARATE FINANCIAL STATEMENTS Opinion We have audited the accompanying separate financial statements of SHELLY GROUP AD (the Company), which comprise the separate statement of financial position as at December 31, 2023, and the separate statement of comprehensive income, the separate statement of changes in equity and the separate statement of cash flows for the year then ended, and notes to the separate financial statements, including material accounting policy information and other explanatory information. In our opinion, the accompanying separate financial statements present fairly, in all material respects, the separate financial position of the Company as at December 31, 2023, and its separate financial performance and its separate cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) 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 Auditor’s Responsibilities for the Audit of the Separate Financial Statements section of our report. We are independent of the Company in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) of the 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 separate 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. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the separate financial statements of the current period. We have determined that there are no key audit matters to communicate in our report. Information Other than the Separate Financial Statements and Auditor’s Report Thereon The Board of Directors of the Company (Management) is responsible for the other information. The other information comprises the annual separate report on the activity, the corporate governance declaration and the report on the implementation of the remuneration policy, prepared by the management in accordance with Chapter Seven of the Accountancy Act, but does not include the separate financial statements and our auditor’s report thereon. 2 Our opinion on the separate 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 auditor’s report and to the extent it is specifically stated. In connection with our audit of the separate financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the separate 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 Separate Financial Statements Management is responsible for the preparation and fair presentation of the separate financial statements in accordance with IFRSs as adopted by the EU, and for such internal control as management determines is necessary to enable the preparation of separate financial statements that are free from material misstatement, whether due to fraud or error. In preparing the separate financial statements, management is responsible for assessing the Company’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 Company or to cease operations, or has no realistic alternative but to do so. The Audit Committee of the Company (Those charged with governance) is responsible for overseeing the Company’s financial reporting process. Auditor’s Responsibilities for the Audit of the Separate Financial Statements Our objectives are to obtain reasonable assurance about whether the separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s 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 separate financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the separate 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 Company's internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 3 • 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 Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the separate 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 auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the separate financial statements, including the disclosures, and whether the separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 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 to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the separate 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. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS Reporting in relation to the compliance with the electronic format of the separate financial statements, included in the annual separate financial report on activities under Art. 100m, para 4 of the Public Offering of Securities Act (POSA) with the requirements of the ESEF Regulation In addition to our reporting responsibilities according to ISAs described in the section above Auditor’s Responsibilities for the Audit of the Separate Financial Statements, we performed the procedures in accordance with the Guidelines on the issuing of audit opinion with respect to the application of the European Single Electronic Format (ESEF) to the financial statements of companies which securities are admitted to trading on a regulated market in the European Union (EU) by the Professional Organization of the Registered Auditors in Bulgaria - Institute of Certified Public Accountants (ICPA). These procedures are related to the verification of the structure and whether the human readable part of this electronic format corresponds to the audited separate financial statements and issuing an opinion on the compliance of the electronic format of the separate financial statements of SHELLY GROUP AD for the year ending on December 31, 2023, attached in the electronic file "8945007IDGKD0KZ4HD95-20231231-EN-SEP.xhtml", with the requirements of the Commission Delegated Regulation (EU) 2019/815 from December 17, 2018 supplementing Directive 2004/109/EC of the European Parliament and of the Council by means of regulatory technical standards to define the European Single Electronic Format for reporting (ESEF Regulation). Based on these requirements, the electronic format of the separate financial statements included in the annual financial report on activities under Art. 100m, para. 4 of POSA, should be presented in XHTML format. 4 The Management of the Company is responsible for the application of the requirements of the ESEF Regulation in preparing the electronic format of the separate financial statements in XHTML. Our report covers only the electronic format of the separate financial statements, attached in the electronic file "8945007IDGKD0KZ4HD95-20231231-EN-SEP.xhtml" and does not cover the other information, included in the annual separate financial report on activities under Art. 100m, para. 4 of the POSA. Based on the procedures performed in our opinion, the electronic format of the separate financial statements of the Company for the year ended December 31, 2023, contained in the attached electronic file "8945007IDGKD0KZ4HD95-20231231-EN-SEP.xhtml", has been prepared in all material respects in accordance with the requirements of the ESEF Regulation. Additional Matters Required to be Reported by the Accountancy Act and Public Offering of Securities Act (POSA) In addition to our reporting responsibilities according to ISAs described in section Information Other than the Separate Financial Statements and Auditor’s Report Thereon, with respect to the annual separate report on the activity, the corporate governance declaration and the report on the implementation of the remuneration policy, we have also performed the procedures, together with the required under ISAs, in accordance with the Guidelines regarding new extended reports and communication by the auditor of the Professional Organization of Registered Auditors in Bulgaria - Institute of Certified Public Accountants (ICPA). 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 th e disclosures and reporting as required by Chapter Seven of the Accountancy Act and the Public Offering of Securities Act (Art. 100m, paragraph 10 of POSA in relation to Art. 100m, paragraph 8, p. 3 and 4 of POSA, as well as Art. 100m, paragraph 13 of POSA in relation to Art. 116c, paragraph 1 of POSA), applic able in Bulgaria. Opinion under Art. 37, paragraph 6 of the Accountancy Act Based on the procedures performed, in our opinion: • The information included in the annual separate report on the activity for the financial year for which the separate financial statements have been prepared, is consistent with the separate financial statements. • The annual separate report on the activity 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, paragraph 8 of the Public Offering of Securities Act is presented in the corporate governance declaration covering the financial year for which the separate financial statements have been prepared. • The report on the implementation of the remuneration policy, covering the financial year for which the separate financial statements have been prepared, has been provided and meets the requirements defined in the Ordinance referred to in Art. 116c, paragraph 1 of the Public Offering of Securities Act. 5 Opinion under Art. 100m, paragraph 10 in relation to Art. 100m, paragraph 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 Company and the environment in which it operates, acquired during our audit, in our opinion, the description of the main features of the Company’s internal control and risk management systems in relation to the financial reporting process as part of the annual separate report on the activity (as element of the content of the corporate governance declaration) and the information under Art. 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 do not contain cases of material misrepresentations. Additional Reporting in Relation to the Audit of the Separate Financial Statements under Art. 100m, paragraph 4, p. 3 of the Public Offering of Securities Act Reporting in relation to Art. 100m, paragraph 4, p. 3, l. "b" of the Public Offering of Securities Act Information on related party transactions is disclosed in Note 6 to the accompanying separate financial statements. Based on the procedures performed on related party transactions in the context of our audit of the separate financial statements as a whole, nothing has come to our attention indicating that the related party transactions are not disclosed in the accompanying separate financial statements for the year ended December 31, 2023, in all material respects, in accordance with the requirements of IAS 24 Related Party Disclosures. We have considered the results of our audit procedures on related party transactions in forming our opinion on the separate financial statements as a whole and not for the purpose of providing a separate opinion on the related party transactions. Reporting in relation to Art. 100m, paragraph 4, p. 3, l. "c" of the Public Offering of Securities Act Our responsibilities for the audit of the separate financial statements described in section Auditor’s Responsibilities for the Audit of the Separate Financial Statements include evaluating whether the separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Based on the procedures performed on the material transactions underlying the separate financial statements for the year ended December 31, 2023, nothing has come to our attention indicating any instances of material unfair presentation and disclosure under the applicable IFRSs as adopted by the EU. We have considered the results of our audit procedures on the material transactions underlying the separate financial statements in forming our opinion on the separate financial statements as a whole and not for the purpose of providing a separate opinion on these material transactions. 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. • Deloitte Audit OOD was appointed as a statutory auditor of the separate financial statements of the Company for the year ended December 31, 2023 by the General Meeting of Shareholders held on June 19, 2023 for a period of one year. • The audit of the separate financial statements of the Company for the year ended December 31, 2023 represents second total consecutive statutory audit engagement for that entity carried out by us. • We hereby confirm that the audit opinion expressed by us is consistent with the additional report, provided to the Company’s Audit Committee on March 15, 2024, in compliance with the requirements of Art. 60 of the Independent Financial Audit Act. 6 • We hereby confirm that 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 Company. • For the period to which our statutory audit refers, we have not provided other services to the Company in addition to the statutory audit, Deloitte Audit OOD Reg. No 033 in the Register of the registered auditors under Art. 20 Independent Financial Audit Act Desislava Dinkova Registered Auditor, in charge of the audit Statutory Manager Deloitte Audit OOD 4, Mihail Tenev Str. 1784 Sofia, Bulgaria Desislava Dinkova Peneva Digitally signed by Desislava Dinkova Peneva Date: 2024.03.15 17:20:49 +02'00' Deloitte Audit OOD UIC 121145199 4 Mihail Tenev Str., fl. 12 Balkan Business Center 1784 Sofia, Bulgaria Tel: +359 (2) 802 3300 Fax: +359 (2) 802 3350 www.deloitte.bg Делойт Одит ООД ЕИК 121145199 ул. Михаил Тенев 4, ет. 12 Балкан Бизнес Център 1784 София, България Tел: +359 (2) 802 3300 Факс: +359 (2) 802 3350 Делойт се отнася към едно или повече дружества - членове на Делойт Туш Томацу Лимитид („ДТТЛ“ ), както и към глобалната мрежа от дружества – членове и свързаните с тях дружества (заедно наричани „организацията на Делойт). ДТТЛ (наричано също “Делойт Глобъл“) и всяко дружество– член и неговите свързани дружества са юридически самостоятелни и независими лица, които не могат да поемат задължения или да се обвързват взаимно по отношение на трети страни. ДТТЛ и всяко дружество член на ДТТЛ и свързаните с него дружества са отговорни единствено и само за своите собствени действия и бездействия, но не и за тези на останалите. ДТТЛ не предоставя услуги на клиенти. Моля, посетете www.deloitte.com/about, за да научите повече. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities (collectively, the “Deloitte organization”). DTTL (also referred to as “Deloitte Global”) and each of its member firms and related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please see www.deloitte.com/about to learn more. To The shareholders of SHELLY GROUP AD DECLARATION Under art. 100m, para 4, p. 3 of the Public Offering of Securities Act The undersigned: Desislava Dinkova, in my capacity of: - Statutory Manager of audit firm Deloitte Audit OOD, with UIC 121145199, with a seat and management address in Sofia 1784, 4, Mihail Tenev Str., and correspondence address in in Sofia 1784, 4, Mihail Tenev Str., and - Registered auditor (with reg. № 67 of the register of CPOSA under art. 20 of the Independent Financial Audit Act), responsible for the audit engagement performed by the audit firm Deloitte Audit OOD (with reg. № 033 the register of CPOSA under art. 20 of the Independence Financial Act), Declare that: Deloitte Audit OOD was engaged to perform statutory financial audit of the separate financial statements of SHELLY GROUP AD for 2023, prepared in accordance with the International Financial Reporting Standards, as endorsed by EU, generally accepted name of accounting framework, as defined in art. 8 of the additional provisions of the Accountancy Act with name “International accounting standards”. As a result of our audit we issued audit report dated March 15, 2024. Hereby I declare that as reported in our auditor’s report regarding the separate financial statements of SHELLY GROUP AD for 2023, issued on March 15, 2024, that: 1. Art. 100m, para 4, p. 3, l. “a” Audit opinion: In our opinion, the accompanying separate financial statements present fairly, in all material respects, the separate financial position of the Company as at December 31, 2023, and its separate financial performance and its separate cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU). (page 1 of the auditor’s report); 2. Art. 100m, para 4, p. 3, l. “b” Information regarding Korado-Bulgaria AD related party transactions. Information on related party transactions is disclosed in Note 6 to the accompanying separate financial statements. Based on the procedures performed on related party transactions in the context of our audit of the separate financial statements as a whole, nothing has come to our attention indicating that the related party transactions are not disclosed in the accompanying separate financial statements for the year ended December 31, 2023, in all material respects, in accordance with the requirements of IAS 24 Related Party Disclosures. We have considered the results of our audit procedures on related party transactions in forming our opinion on the separate financial statements as a whole and not for the purpose of providing a separate opinion on the related party transactions. (page 5 of the auditor’s report). 3. Art. 100m, para 4, p. 3, l. “c” Information regarding material transactions. Our responsibilities for the audit of the separate financial statements described in section Auditor’s Responsibilities for the Audit of the Separate Financial Statements include evaluating whether the separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Based on the procedures performed on the material transactions underlying the separate financial statements for the year ended December 31, 2023, nothing has come to our attention indicating any instances of material unfair presentation and disclosure under the applicable IFRSs as adopted by the EU. We have considered the results of our audit procedures on the material transactions underlying the separate financial statements in forming our opinion on the separate financial statements as a whole and not for the purpose of providing a separate opinion on these material transactions. (page 5 of the auditor’s report). The declarations made in the current declaration should be considered only in the context of our auditor’s report regarding the performed independent financial audit of the annual separate financial statements of SHELLY GROUP AD for the reporting period ended December 31, 2023, dated March 15, 2024. This declaration is intended only for the above stated addressee and is prepared solely and only for the purpose of complying with the requirements of Art. 100m, para 4, p.3 of the Public Offering of Securities Act (POSA) and should not be accepted as replacement of our conclusions, included in our auditor’s report, dated March 15, 2024 regarding the matters, as scoped by art. 100m, para 4, p. 3 of POSA. March 15, 2024 For audit firm Deloitte Audit OOD: Sofia Desislava Dinkova Statutory Manager Registered Auditor, in charge of the audit Desislava Dinkova Peneva Digitally signed by Desislava Dinkova Peneva Date: 2024.03.15 17:22:55 +02'00'

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