ANNUAL CONSOLIDATED ACTIVITY REPORT OF MONBAT AD, SOFIA FOR THE FINANCIAL 2012

1 ANNUAL CONSOLIDATED ACTIVITY REPORT OF MONBAT AD, SOFIA FOR THE FINANCIAL 2012

2 FORWARD LOOKING STATEMENTS The Annual Report may contain statements which reflect the current view of the members of the Board of Directors of the company in respect of achieving future financial results, execution of business strategy, plans and objectives of the management. These forward-looking statements concern MONBAT AD and the companies included in its economic group as well as the sectors where the Companies operate in. Statements that include the words expects, intends, plans, projects, accepts, will, aims, strives, can, could be, continues, and other such statements with regard to the future presentation of the Company and the Companies included in the economic group constitute forward-looking statements for the purposes of the Bulgarian securities legislation and for other purposes. In case that, forward-looking statements are presented the latter concern the future presentation and results of the Company and the companies in the economic group that involve risks and uncertainty. Therefore factors and events may arise that could cause the actual consolidated results of MONBAT AD to differ significantly from those given in the statements. These factors include but are not limited only to those described in the section entitled RISK FACTORS and should be considered in their interaction as well as in view of the whole financial and economic information presented in this document. The forward-looking statements are upto-date only as at the date of the Annual Report. In compliance with the obligations under the Bulgarian legislation and the approved policy of MONBAT AD, the Board of Directors of the Company will continue announcing publicly, under the legally provided procedure, new forecasts as well as to update already presented forward-looking statement that need to be corrected. Before taking an investment decision, potential investors should carefully consider the factors stated in the Annual Report, which may cause the actual results of MONBAT AD and the companies in its economic group to differ from the ones presented in this document. PRESENTATION OF FINANCIAL, MARKET, ECONOMIC AND STATISTICAL INFORMATION The financial information in the Annual Report has been prepared in compliance with the International Financial Reporting Standards (IFRS). The market, economic and statistical information as well as information regarding the financial and economic situation in the Republic of Bulgaria and the Bulgarian securities market used in the Report has been taken from various sources, explicitly referred in the respective parts where such information is presented. Information presented in this document regarding a part of the systematic risks for MONBAT AD is extracted from publicly available information, including publications and information disclosed in compliance with the requirements of the applicable securities legislation and other regulations. Information presented in this Report regarding the economic sectors where MONBAT AD and the companies in the economic group operate is extracted from publicly available information, including publications and information disclosed in compliance with the requirements of the applicable securities legislation and other regulations. MONBAT AD does not guarantee the accuracy and exhaustiveness of this information and the presence of complete uniformity in the information from all these sources. With this regard, MONBAT AD takes responsibility only for the accurate reproduction of extracts from relevant sources of information.

3 The Board of Directors of MONBAT AD confirms that the information extracted from publications and other publicly available sources is reproduced correctly by the relevant sources and, to the best of its knowledge, no facts which could render the reproduced information inaccurate or misleading are missed. Nevertheless, The Board of Directors of MONBAT AD informs that it had relied on the accuracy of this information without conducting an independent review. DEAR SHAREHOLDERS, We, the members of the Board of Directors of MONBAT AD, led by the desire to manage the company in the interests of the shareholders and pursuant to the provisions of article 33 of the Accountancy Act, article 100n, paragraph 7 of the LPOS and Annex 10 to article 32, paragraph 1, item 2 of Ordinance No. 2 of FCS prepared this Activity Report /the Report/. The Report presents comments and analysis of the financial statements and other essential information regarding the financial situation and the operational results of the company. The Report reflects in a credible way the condition and the development prospects of the Company. In 2011 occurred circumstances that the Company's management believes could be of relevance for investors in taking a decision to acquire, sell or continue holding publicly traded securities. The occurred circumstances have been disclosed within the tetms and in accordance with the procedure as provided by the LPOS to the investors, the regulated securities market and the Financial Supervision Commission. The same are also available on the Company s website www.monbat.com Investor Center section, News Important Information. At the end of 2010 the restructuring process of the economic group of MONBAT AD was concluded which lead to the factual separation of the recycling output in the subsidiary company of MONBAT AD Monbat Recycling EAD and its independent functioning started in 2011. In 2011 was officially opened the second foreign state-of-the-art plant for recycling of used lead-acid batteries Monbat Recycling, Romania. The investment made by MONBAT AD amounts to EUR 13 million and has been made within approximately 3 years. In the beginning of 2011 we officially opened the first of its kind in Bulgaria and the European Union high-tech production line for Power LEDs Octa Light Bulgaria AD. The Company joined the economic group of MONBAT AD in 2010. The financial 2012 was successful for the companies in the economic group of MONBAT AD the consolidated net sales revenues for 2012 are in the amount of BGN 202 068 thousand which is an 11 % growth in comparison with the consolidated net sales revenues generated for 2011 in the amount of BGN 181 311 thousand. The consolidated net profit of MONBAT AD for 2012 is in the amount of BGN 17 307 thousand and reports a 27 % inrease compared to the consolidated net profit of the company for 2011 which is in the amount of BGN 13 613 thousand. І. GENERAL INFORMATION ABOUT THE COMPANY The company was filed by a resolution of 13.06.1990 of the District Court of Montana and based on an Order 45 of 14.05.1990 of the Ministry to Economy and Planning of the PRB (People's Republic of Bulgaria) with the register of state-owned companies and companies of public organizations under 23 as a state company AKUMIKAR with its headquarters - Mihailovgrad, scope of activity: production of accumulator batteries and statutory fund 3 468 thousand Bulgarian levs (state property), provided to the state company in its capacity of the

4 successor of the battery factory - the town of Mihailovgrad from "Pima" company Mihailovgrad, incorporated by a resolution 83 of the Council of Ministers as of June, 1989. By a resolution of 16.02.1999 of Montana District Court in the Commercial Register under the batch of AKUMIKAR AD was filed the change of the business name of the Company from AKUMIKAR AD to MONBAT AD. Following that date the company has not changed its legal and business name. According to the provisions of Article 4 of the Articles of Association of MONBAT AD, the Company shall not be limited by time or other resolutive condition. The company was incorporated in the Republic of Bulgaria in accordance with the Bulgarian legislation. The legal and organizational form of MONBAT AD is a joint stock public company. The company has its registered seat and business address at 4, Golo Bardo Str., Lozenetz district, 1407 Sofia. Telephone: + 359 2 962 1150 Fax: + 359 2 962 1146 E-mail : investorrelations@monbat.com Website: www.monbat.com As at the date of this Activity Report the share registered capital of the company is in the amount of BGN 39 000 000 divided in 39 000 000 dematerialized registered shares with a nominal value of BGN 1.00 each of them. Changes in the capital of MONBAT AD since the establishment of the company to date are as follows: On 16.02.1999 by a resolution of Montana District Court in the Commercial Register were filed the following changes under the batch of AKUMIKAR AD: the company s capital was increased form 101 260 000 Bulgarian levs to 749 300 000 Bulgarian levs through issuance of new 64 804 registered voting shares with a nominal value of 10 000 Bulgarian levs each of them. By a resolution 4 оf 05.07.2000 of Sofia District Court the capital of MONBAT AD was denominated from 749 300 000 Bulgarian levs to BGN 749 300, divided into 74 930 registered voting shares with a nominal value of BGN 10 each of them. By a resolution 8 of 13.01.2003 of Sofia District Court the capital of MONBAT AD was increased from BGN 749 300 to BGN 800 000 through issuance of new 5 070 shares with a nominal value of BGN 10 each of them. By a resolution 10 of 29.12.2005 of Sofia District Court the capital of MONBAT AD was increased from BGN 800 000 to BGN 14 800 000 through issuance of 1 400 000 registered voting shares with a nominal value of BGN 10 each of them. By a resolution 11 of 07.08.2006 of Sofia District Court was filed a change in the type of shares of MONBAT AD from materialized into dematerialized and the nominal value of BGN 10.00 per share was changed to a nominal value of BGN 1.00 per share. By a resolution 12 of 29.11.2006 of Sofia City Court was filed the company s capital increase from BGN 14 800 000 to BGN 19 500 000 through issuance of new 4 700 000 dematerialized shares with a nominal value of BGN 1.00 each of them.

5 At the general assembly of the shareholders of MONBAT AD held on 16.05.2008 was approved a resolution a part of the company s profit for the year 2007, together with the Reserve Fund, to be used for the increase of the Company s capital and the rest of the profit for the year 2007 to be distributed to the shareholders as dividends. The capital increase of MONBAT AD under the procedure of Art.197, para. 1 and Art. 246, para. 4 of the Commercial Act from BGN 19 500 000 to BGN 39 000 000 was filed with the Commercial Register on 15.06.2008. At its session as of 16.07.2008 the Financial Supervision Commission approved a resolution to file the subsequent issue of shares of MONBAT AD, issued as a result of the company s capital increase from BGN 19 500 000 to BGN 39 000 000. The overall amount of the share registered capital of the company was admitted to trading on the Bulgarian Stock Exchange Sofia AD. In 2009, 2010, 2011 and 2012 were not made changes in the amount of the capital of MONBAT AD. Table 1 As at 31.12.2012 the capital structure of MONBAT AD is the following: Name of shareholder Number of shares Percentage of capital Prista Oil Holding EAD, Sofia Monbat Trading OOD, Sofia Monbat AD treasury ordinary shares Other physical and legal persons 26 720 129 68.51 % 2 752 800 7.06 % 2 622 865 6.72 % 6 904 206 17.71 % MONBAT AD is a part of an economic group. Major shareholder of the issuer is Prista Oil Holding EAD, Sofia. Prista Oil Holding EAD and Monbat Trading Ltd. are related parties and jointly hold 75.57 % of the votes at the general assembly of MONBAT AD. Prista Oil Holding EAD was registered under company s case N 13825/1994 of Sofia City Court with registered seat and business address at 9, Layosh Koshut Str., Sofia.

6 AS AT 31.12.2012 THE STRUCTURE OF THE ECONOMIC GROUP OF MONBAT AD IS THE FOLLOWING: At the regular annual session of the general assembly of the shareholders of MONBAT AD, held on 25.06.2012 was approved a decision to change the management system of the company, namely to turn form a two-tier to one-tier management system. At the held session of the general assembly of the shareholders was approved a decision for the company to be managed by a Board of Directors consisting of 9 members, namely: Atanas Bobokov Chairperson of the Board of Directors Petar Petrov Executive Director Ivan Karageorgiev Member of the Board of Directors Plamen Bobokov Member of the Board of Directors Stoyan Stalev Member of the Board of Directors Alexander Chaushev Member of the Board of Directors Nikolay Trenchev Member of the Board of Directors Kamen Zahariev Member of the Board of Directors Florian Huth Member of the Board of Directors The members of the Board of Directors of MONBAT AD were filed with the Commercial Register to the Registry Agency on 25.07.2012 under 20120725103746. At the regular annual session of the general assembly of the shareholders of MONBAT AD, held on 25.06.2012 were adopted new Articles of Association of the company, filed with the Commercial Register to the Registry Agency on 25.07.2012 under 20120725104818.

7 ІІ. OVERVIEW OF THE ACTIVITIES AND THE STATUS OF MONBAT AD AND THE COMPANIES INCLUDED IN THE ECONOMIC GROUP OF THE ISSUER 1. Principal Activiyt The principal activity of MONBAT AD is production of lead-acid starter and stationary accumulator batteries and their servicing. The products of the company can be divided in the following main groups: Starter Batteries Comprehensive lineup of starter batteries, featuring the classic construction "Dynamic", "Maintenance Free", "Premium", "Heavy Duty" and "JIS" series and the AGM range under the label GEM. The batteries application cover the entire range of passenger and commercial vehicles, heavy trucks and agricultural machines, operating in normal and harsh environmental conditions. Stationary Batteries Valve-regulated Lead-acid (VRLA-AGM) batteries, constructed in accordance with the following standards and reference norms: IEC 60 896-21/22, EN 60896-2, BS 6290-4, IEC 707 FVO, UL 94 VO, BS 6334 FVO, BDS 10457 / 88 and EUROBAT specification: Long life. Product range of 2-, 4-, 6- and 12-volt batteries with capacities from 50 to 600 Ah. Semi-traction Batteries An Impressive combination of supperior cycling performance and superb starting power, makes these batteries a multipurpose energy source for applications like small traction, solar systems, cleaning machines, lifting devices, leisure time, lighting, etc. Special Batteries Batteries for military application, suitable for both Russian and NATO designed tanks and armoured vehicles - LAND POWER series, as well as for Russian helicopters and Airplanes - AIR POWER series. Locomotives Batteries Railroad source of starter power - batteries designed to facilitate diesel engines initial cranking and to provide the electronic and control circuits power supply in the electrolocomotives.

8 2. Major raw materials The major raw materials essential to the Company s activities are: lead with purity of 99.99% and 99.985%, lead alloys - antimony and calcium, polypropylene trade-mark 7523, polyethylene separator and sulfuric acid. The availability of these materials that MONBAT AD supports ensures the production process for a period of between 15 and 30 days. Prices of lead and lead alloys and polypropylene are variable and directly dependent on the exchange prices of lead on the London Metal Exchange and the stock exchange price of oil. During the last 4 years the management of MONBAT AD has made considerable investment expenses to ensure resource availability of lead and propylene - own production, by means of building its own recycling facilities in Bulgaria, Serbia and Romania. The share of own recycled lead, that MONBAT AD purchases mainly from its subsidiaries, used in the production process in 2011 represents 85% and the share of the recycled polypropylene - own production - almost 100 %. The share of own recycled lead, that MONBAT AD purchases mainly from its subsidiaries, used in the production process in 2012 represents 95 % and the share of the recycled polypropylene - own production - almost 100 %. By means of creating own recycling facilities, the management of the company strives to reduce the risk of change in the price of the major raw materials. The movement of the lead price in 2012 is shown in the following diagram: MOVEMENT OF THE LEAD PRICE FOR THE PERIOD JANUARY-DECEMBER 2012 2500 2000 1500 1000 500 0 January February March Aoril May June July August September October November December USD/MT The production is dependent on the price of electricity and natural gas, which are currently state-regulated. However, these prices do not significantly affect the cost price formation, as production of accumulator batteries is not energy consuming - up to 3.56 % of the cost price of the output is determined by electricity consumption and 1.37 % of the natural gas consumption. MARKETS AND SALES The companies in the economic group of MONBAT AD produce a wide range of products and have well grounded positions in the local markets, the markets of the Balkan region and expanded presence in the Western European markets, including Germany, France, Italy, Great Britain, Belgium, Switzerland, Norway, England, Sweden, Italy, Poland. The consolidated net sales revenues generated in 2012 are in the amount of BGN 202 068 thousand which is an 11 % increase compared to 2011 when the generated consolidated net sales

9 revenues were in the amount of BGN 181 311 thousand. Breakdown of the markets of MONBAT AD on a consolidated basis in 2012 is presented in the following table: Table 2 31.12.2012 31.12.2011 Country Export (EUR, mln.) % Export (EUR, mln) % GREECE 14.80 15.87 6.41 7.70 POLAND 13.31 14.27 9.70 11.60 FRANCE 9.85 10.57 13.23 15.90 OTHER 8.41 9.03 7.52 9.02 GERMANY 7.33 7.86 13.19 15.80 TURKEY 5.47 5.86 4.66 5.60 GREAT BRITAIN 4.02 4.31 4.03 4.80 ROMANIA 3.12 3.35 3.15 3.80 NETHERLANDS 3.39 3.64 2.99 3.60 SERBIA 3.34 3.59 2.24 2.70 SPAIN 2.79 2.99 2.24 2.70 UKRAINE 2.39 2.57 1.48 1.80 HUNGARY 2.14 2.29 1.66 2.00 IATLY 2.00 2.14 1.89 2.30 BELGIUM 1.95 2.09 1.77 2.10 SOUTH AFRICA 1.88 2.02 0.5 0.65 CZECH 1.68 1.80 1.26 1.50 IRELAND 1.55 1.66 1.51 1.80 FINLAND 1.44 1.54 1.58 1.90 DENMARK 1.27 1.36 1.26 1.43 NORWAY 1.11 1.19 1.07 1.30 TOTAL 93.25 100 83.34 100 For the period 01.01.2012-31.12.2012 the companies of the economic group of MONBAT AD has generated consolidated revenues form exports totaling BGN 182 361 thousand. As at 31.12.2012 major market for the economic group of MONBAT AD was Greece with EUR 14.80 mln. sales revenues which represents 15.87 % of the total export. Poland takes the second place with EUR 13.31 mln. sales revenues which represents 14.27 % of the total export on a consolidated basis. Other important markets are France, Germany, Turkey and Great Britain. The generated consolidated sales revenues on the domestic market as at 31.12.2012 are in the amount of BGN 19 707 thousand and represent 9.75 % of the total consolidated net sales revenues, and the generated revenues from exports, including intra-community supplies, are in the amount of BGN 182 361 thousand and represent 90.25 % of the consolidated net sales revenues.

10 31.12.2012 9,75 % 90,25 % Export Domestic market ІІ. OPERATING RESULTS OF THE GROUP As a result of the business activities carried out in 2012 the companies in the economic group of MONBAT AD report the following financial result on a consolidated basis: The generated consolidated profit before taxes in 2012 is in the amount of BGN 16 553 thousand which represents a 9% increase compared to the consolidated profit before taxes registered for 2011 in the amount of BGN 15 157 thousand. The net amount of the consolidated profit for 2012 is BGN 17 307 thousand and registers an increase by 27 % compared to the consolidated net profit for 2011 in the amount of BGN 13 613 thousand. NET SALES, EBITDA, NET PROFIT 250000 202068 200000 160994 181311 Net sales EBITDA 150000 Net profit 100000 50000 23776 10644 27306 13613 30200 17307 0 2010 2011 2012 * Data presented in BGN 000

11 Table 3 SHAREHOLDERS' EQUITY, MINORITY HOLDINGS AND LIABILITIES 2010 2011 2012 а 1 2 % 3 А. SHAREHOLDERS' EQUITY I. Share capital 37326-1% 36858-1% 36377 II. Reserves 74034 4% 76999-3% 74353 III. Retained earnings 1. Retained earnings from previous periods -5210 0% -8826 0% -1513 undistributed profit 0 0% 0 0% 0 loss not covered -5210 0% -8826 0% -1513 one-time effect from changes in accounting policy 0 0 0 0% 0% 2. Current year profit 10644 28% 13613 27% 17307 3. Current year lost 0 0% 0 0% 0 Total retained earnings 5434-12% 4787 230% 15794 TOTAL SHAREHOLDERS' EQUITY "А" (I+II+III): 116794 2% 118644 7% 126524 Table 4 2010 2011 2012 Operational profit 17 665 18 580 19 308 The generated consolidated operating profit in 2012 is in the amount of BGN 19 308 thousand and reports a 3.92 % increase compared to the operating profit for 2011. The consolidated net sales revenues for 2012 increased by 11 % in comparison with 2011 and the expenditures grew by 12%. Table 5 Operating revenues by category on a consolidated basis Operating expenditures by category on a consolidated basis (in thousand BGN) REVENUES 2010 2011 2012 1 2 % 3 А. Operating revenues I. Net revenues from the sale of: 1. Finished goods 153891 13% 174430 10% 192045 2. Goods for sale 112-69% 35 529% 220 3. Services 832 50% 1244 17% 1452 4. Other 6159-9% 5602 49% 8351 I: Total net revenues from sale 160 994 13% 181 311 11% 202 068 II. Revenues from financing for fixed assets incl. government grants II: Total 0 0% 8 7013% 569 III. Financial income 1. Interest revenue 827-57% 355 0% 356 2. Divident income 0 0% 0 0% 0 3. Gains from operations with financial assets 0 134 and instruments 0% 0% 0 4. Gains from foreign exchange operations 466 288% 1808 83% 3307 5. Other financial income 0 0% 0 0% 150 III: Total financial income 1 293 78% 2 297 66% 3 813 B. Total revenues before extraordinary activities (I+II+III) 162 287 13% 183 616 12% 206 450

12 Table 6 (in thousand BGN) ЕXPENSES 2010 2011 2012 а 1 2 % 3 Expenditures I. Operating expenses 1. Materials 108031 2% 110515 21% 133242 2. External services 15553 9% 16997 6% 18076 3. Depreciation 6111 43% 8718 18% 10323 4. Salaries 9896 21% 12008-5% 11409 5. Social secutiry 2075 29% 2678-3% 2587 6. Net book value of assets sold (finished goods excluded) 2289 100% 2355 45% 3414 7. Assets under construction and write off of assets (3524) 100% 3404-267% -5701 8. Other expenses 2898 109% 6056 55% 9410 incl. impairment of assets 0 0% 0 0% 0 incl. provisions 0 0% 0 0% 0 Total: 143 329 14% 162 731 12% 182 760 1. LIQUIDITY Table 7 FINANCIAL INDICATORS As of 31.12.2010 As of 31.12.2011 As of 31.12.2012 Total liquidity ratio 1,63 1,38 1,41 As of 31.12.2010 As of 31.12.2011 As of 31.12.2012 Quick ratio 1,08 0,80 0,78 As of 31.12.2010 As of 31.12.2011 As of 31.12.2012 Immediate ratio 0,76 0,71 0,78 As of 31.12.2010 As of 31.12.2011 As of 31.12.2012 Absolute liquidity ratio 0,03 0,07 0,04 LIQUIDITY INDICATORS 1,80 1,60 1,63 1,38 1,41 1,40 1,20 1,08 0,80 1,00 0,76 0,71 0,80 0,78 0,78 0,60 0,07 0,40 0,03 0,04 0,20 0,00 As of 31.12.2010 As of 31.12.2011 As of 31.12.2012 Total liquidity ratio Immediate ratio Quick ratio Absolute liquidity ratio

13 The trend of the liquidity indicators over time provides the most valuable information. Liabilities to creditors of MONBAT AD are being paid off in cash rather than using inventories or equipment. I.e., these factors describe the company's ability to pay off its debts on time. TOTAL LIQUIDITY RATIO The total liquidity ratio is one of the earliest formulated indicators and is considered to be universal. The total liquidity ratio represents the ratio of current assets to current liabilities. For 2012 the value of the total liquidity ratio of 1.41 increased compared to its rate of 1.38 for 2011. The increase in the value of this ratio for 2012 compared to 2011 is due to the increase of the current assets by 20 % and the increase of the current liabilities by 17 %. IMMEDIATE LIQUIDITY RATIO The value of the im mediate liquidity ratio for 2012 is 0.78 and registers an increase compared to its rate of 0.71 for 2011. The increase in the value of the immediate liquidity ratio for 2012 compared to 2011 is due to the increase of the amout of current receivables by 36 %, the decrease of the cash by 34 % and the increase of the current liabilities by 17 %. QUICK LIQUIDITY RATIO The quick liquidity ratio represents the ratio of current assets minus inventories to current liabilities. The quick liquidity ratio of the Group of MONBAT AD for 2012 is 0.78 and registers an increase compared to its rate for 2011. In 2012 compared to 2011 the current assets grew by 20%, the current liabilities grew by 17% and the group of inventories increased by 9 %. ABSOLUTE LIQUIDITY RATIO The absolute liquidity ratio is calculated as the ratio of cash and short term liabilities and indicates Company s ability to meet its short term liabilities with its available cash. The absolute liquidity ratio of the Group of MONBAT AD for 2012 is 0.04. For 2012 compared to 2011 the cash decreased by 34 %. 2. Capital resources Table 8 As of 31.12.2010 As of 31.12.2011 As of 31.12.2012 Financial leverage indicator 0,63 0,64 0,68 As of 31.12.2010 As of 31.12.2011 As of 31.12.2012 Debt/Assets 0,38 0,39 0,41 As of 31.12.2010 As of 31.12.2011 As of 31.12.2012 Financial autonomy indicator 1,59 1,55 1,47

14 LEVERAGE INDICATORS 1,80 1,60 1,59 1,55 1,47 1,40 1,20 1,00 0,80 0,60 0,40 0,20 0,63 0,64 0,38 0,39 0,68 0,41 0,00 As of 31.12.2010 As of 31.12.2011 As of 31.12.2012 Financial leverage indicator Financial autonomy indicator Debt/Assets The financial autonomy and financial leverage indicators report on the ratio between own funds and borrowed funds in the capital structure of the company. High rates of the financial autonomy inicator, respectively, low rates of the financial leverage indicator, provide guarantee both for investors /creditors/ and for the owners themselves, on the ability if the company to pay regularly its long-term liabilities. The effect of using borrowed funds (debt) by the company with a view to increase the final total net income from the funds involved in the activity (equity and borrowings) is called financial leverage. The benefit of using financial leverage appears when the company benefits from the investment of borrowed funds more than the expenses (interest) on their attraction. When a company achieves higher yields when using borrowed funds in its capital structure than the expenses on their attraction are, leverage is justified and should be considered in a positive way (with the reservation that the rate of leverage does not significantly negatively influence other financial indicators of the company) FINANCIAL AUTONOMY RATIO The financial autonomy ratio shows what percentage of the total liabilities represents the shareholders equity of the company. As at 31.12.2012 the value of the financial autonomy ratio is 1.47 and decreased in comparison with 2011. In 2012 compared to 2011 the debt of MONBAT AD on a consolidated basis increased by 13 % and the shareholder s equity increased by 6.64 %. FINANCIAL LEVERAGE RATIO

15 The indicators for the share of capital, obtained through loans show what part of the total capital represent the borrowings. The higher the share of long-term debt compared to shareholders equity is, the higher will be the likelihood of failure in the payment of fixed liabilities. As at 31.12.2012 the value of the financial leverage ratio is 0.68 an increased compared to its value of 0.64 for 2011. The indicated increase is due to an increase of the debt of the company on a consolidated basis by 13 %. DEBT TO TOTAL ASSETS RATIO The value of the ratio shows what part of the assets is being financed through debt. Table 9 In 2012 the value of the ratio Debt/Assets remains the same as in the previous two financial years. In 2012 compared to 2011 the debt of MONBAT AD on a consolidated basis increased by 13 % and the total assets increased by 5 %. 3. KEY INDICATORS 2010 2011 2012 Debt/ Assets 0.39 0.39 0.41 Summаrized information on the financial indicators of MONBAT AD on a consolidated basis for 2010,2011 and 2012 is presented in the following table: Table 10 Indicators 2010 2011 2012 Net sales 160 994 181 311 202 068 Earnings before interest, taxes, depreciation and 23 776 27 306 30 200 amortization EBITDA Earnings before interest and taxes EBIT 17 665 18 588 19 877 Net profit 10 644 13 613 17 307 Shareholders equity 116 794 118 644 126 524 Minority shareholdings 2 852 2 447-273 Long-term loabilities 21 604 17 608 17 535 Short-term liabilities 51 979 58 709 68 779 Non-current assets 108 473 116 443 115 744 Short-term (current) assets 84 756 80 965 96 821 Working capital 32 777 22 256 28 042 Cash 1 749 4 007 2 626 Total liabilities (debt) 73 583 76 317 86 314 Total assets 193 229 197 408 212 565 Interest expenses 2 443 2 848 2 549 Inventories 45 158 39 232 42 861 Short-term receivables and expenses for future periods 37 849 37 726 51 334 Operating expenditures 143 329 162 731 182 760 Materials 108 031 110 515 133 242

16 Return on net profit 6.61 % 7.51 % 8.56 % ROA Return on assets 5.51% 6.89 % 8.14% ROE Return on Equity 9.11 % 11.47 % 13.68 % RETURN ON EQUITY (ROE) The Return on Equity indicator is calculated as the profit after taxation from the total income statement is related as a percentage of the Company's shareholders equity. This ratio measures the return to shareholders in terms of their absolute investments. For 2012 the value of the Return on Equity indicator of 13.68 % reports an increase compared to its value of 11.47 % registered in 2011. The increase in the value of this ratio is due to the increase of the consolidated net profit of MONBAT AD by 27 % with a registered increase of the shareholder s equity by 6.64 %. RETURN ON ASSETS (ROA) The Return on Assets indicator shows the effectiveness of using the total assets in the Group of MONBAT AD. The ratio operating profit to total assets increased its value in 2012 compared to 2011 from 6.89 % to 8.14 %. The increase in the value of the Return on Assets indicator in 2012 compared to 2011 is due to the increase of the company s consolidated net profit by 27 % and the increase of the total assets by 8 %. ІІІ. PRINCIPAL RISKS WHICH THE COMPANIES IN THE ECONOMIC GROUP OF MONBAT AD FACE Risks relevant to the Company and its operations can generally be divided into common (systematic) and specific (unsystematic) risks. Systematic risks are related to the macro environment where the companies in the economic group of MONBAT AD operate therefore they are not subject to control by the management team of the companies. Unsystematic risks are directly relevant to the operations of MONBAT AD and its subsidiaries and largely depend on the corporate Board. For their minimization it is relied on increasing the effectiveness of internal business planning and forecasting, which will provide opportunities to overcome the potential negative consequences of risk event occurring. The general risk management plan of the management is focused on the unpredictability of the financial markets and is aimed at minimizing the potential negative impact over the Company s financial standing. Each of the risks associated with the state political, economic, credit, inflation, monetary - has its own importance, but their aggregate consideration and interaction form an overall picture of the economic fundamentals, market conditions, competitive conditions in the country where the respective company operates. SYSTEMIC RISKS O VERALL MACROECONOMIC RISK

17 In 2012, the GDP amounted to BGN 77 583 million in current prices. Recalculated in Euro, GDP is EUR 39 667 million which is EUR 5 436 per person. GDP in 2012 grew in real terms by 0.8 per cent compared to 2011. Pursuant to data of the National Statistical Institute in December 2012, the industrial production index, calculated based on seasonally adjusted data, grew by 2.4 % compared to November 2012. In December 2012, the callendary adjusted industrial production index registered a 4.1 % growth compared to the respective month of 2011. Industrial production Index Percentage change in the Industrial production Index compared to the previous month Construction Production Indexes

18 Percentage change in the Construction Production Indexes compared to the previous month In December 2012 the construction production index, calculated by seasonally adjusted data, reported lower rates compared to the previous month as the civil/engineering construction production decreased by 18.6 % and the building constructin production decreased by 2.9 %. On a yearly basis the decrease of the construction production in December 2012 was determined by the negative rate of the building construction where the decrease, calculated by seasonally adjusted data, was by 15.4 % ans the building construction registered a decrease by 14.7 %. In 2012 the export of Bulgaria for the EU decreased by 3.6 % compared to 2011 and was in the amount of BGN 23.8 billion and the import increased by 7.5 % and amounted to BGN 29.2 billion. In December 2012, exports to the EU decreased by 10.0 % compared to the same month of the previous year and amounted to BGN 1.7 billion and the imports decreased by 7.9 % and were in the amount of BGN2.2 billion. Nominal change in the value of exports to the EU for the period 2011 2012

19 Nominal change in the value of imports from the EU for the period 2011 2012 INTEREST RATE RISK The interest rate risk is related to possible, contingent adverse changes in the interest rates, set by the financial institutions in the Republic of Bulgaria. At the session held on 04.10.2012 the Management Board of the European Central Bank adopted a resolution to leave the main interest rate unchanged 0.75 %. The European Central Bank preserved unchanged also the deposit rate 0 % and the marginal lending rate - 1.50 %. At the session of the European Central Bank held on 09.11.2012 was adopted a resolution the main interest rate to remain unchanged 0.75 %. According to the President of the European Central Bank, the Eurozone economic activity is expected to remain weak and the recent economic researches do not show signs for improvement at the end of the year. On 06.12.2012 was held a session of the European Central Bank where the Bank left the main interest rate unchanged 0.75 % and the President of the Bank expressed an opinion that probably the economy of the Eurozone will decrease in 2013, as he sharply reduced his growth forecast. The new evaluation of the European Central Bank for the GDP in 2013 ranges from a 0.9 % decrease and a growth by slightly 0.3 %. In particular, the European Central Bank has lowered its forecast for the Eurozone economy in 2013 up to minus 0.3 per cent compare to the earlier expected growth of 0.5 per cent. THE BASE INTEREST RATES OF THE BULGARIAN NATIONAL BANK FOR THE PERIOD JANUARY DECEMBER, 2012 ARE THE FOLLOWING: Table 11 Month Interest rate January, 2012 0.22 % February, 2012 0.18 % March, 2012 0.15 % April, 2012 0.15 % May, 2012 0.14 % June, 2012 0.14 % July, 2012 0.16 % August, 2012 0.08 % September, 2012 0.04 % October, 2012 0.03 % November, 2012 0.04 % December, 2012 0.04 %

20 *Source: BNB INFLATION RISK Inflation risk is the overall increase in prices, where money is devalued and there is likelihood for households and businesses to suffer a loss. According to data of the National Statistical Institute the consumer prices index (CPI) for December, 2012 compared to November, 2012 was 100.4 %, i.e. monthly inflation was 0.4 %. The yearly inflation for December 2012 compared to December 2011 was 4.2 %. INFLATION MEASURED BY THE CONSUMER PRICE INDEX (CPI) BY MONTHS The consumer prices index (CPI) for November 2012 compared to October 2012 was 99.9 %, i.e. monthly inflation was minus 0.1 %. The inflation from the beginning of the year (November, 2012 compared to December, 2011) was 3.8 % and the yearly inflation for November, 2012 compared to November, 2011 was 3.9 %. The consumer prices index for October, 2012 compared to September, 2012 was 100.3 %, i.e. monthly inflation was 0.3 %. The inflation from the beginning of the year (October, 2012 compared to December, 2011) was 4.0 % and the yearly inflation for October, 2012 compared to October, 2011 was 4.4 %. INFLATION IN THE COUNTRY FOR THE PERIOD JANUARY DECEMBER 2012 IS THE FOLLOWING: Table 12 Month % of inflation January, 2012 0.2 % February, 2012 0.4 % March, 2012 0.3 % April, 2012 0.2 % May, 2012-0.1 % June, 2012-1.0 % July, 2012 1.5 % August, 2012 0.5 % September, 2012 1.1 % October, 2012 0.3 % November, 2012-0.1 % December, 2012 0.4 % *Source: NSI

21 POLITICAL RISK Political risk is related to the stability of the Government of the country and to eventual adverse changes in its long term foreign and internal economic policy that might affect negatively the investment environment. The unstable political situation in the country as of the beginning of 2013 and the continuing civil protests are factors that inevitably adversely affects all economic actors in 2013. CURRENCY RISK Exposure to currency risk is the dependence on and the effects from changes in the currency exchange rates. Systematic currency risk is the likelihood of any possible change of the currency regime in the country (currency board) which would either lead to devaluation of the BGN or the appreciation of the BGN against foreign currencies. Currency risk will have impact over companies having market shares, payments to which are made in currencies different from the Bulgarian lev and the euro. In view of the fact that according to the current legislation in the country the Bulgarian lev is pegged to the euro at the rate of EUR 1 = BGN 1.95583 and the Bulgarian National Bank is obliged to maintain a level of Bulgarian lev in circulation equivalent to the foreign exchange reserves of the Bank, the risk of devaluation of the lev against the European currency is minimal and consists in a possible elimination of the currency board in Bulgaria ahead of term. At this stage it appears to be unlikely since the the Currency Board is expected to be repealed upon adoption of the euro as an official legal tender in Bulgaria, which was planned for 2012. Theoretically, currency risk could increase when Bulgaria joines the second phase of the European Exchange Rate Mechanism (ERM II). This is a regime under which the country must maintain the currency rate against the euro within a + / -15% from central parity. In practice, all countries which are currently in the mechanism (Denmark, Estonia, Cyprus, Lithuania, Latvia, Malta) have witnessed fluctuations that were significantly smaller than the allowed ± 15%. The fixed rate of the BGN to the EUR does not eliminate the risk for the Bulgarian currency of adverse movements in the euro exchange rate against other major currencies (U.S. dollar, British pound, Swiss franc) in the international financial markets, but at present the company does not consider that this risk would be significant in terms of its activity due to the fact that all purchases and sales of MONBAT AD being carried out in euro. The company might be affected by the currency risk, depending on the type of currency of its cash and the type of currency of the company s contingent loans. NON-SYSTEMIC RISKS RISK OF PRICE CHANGES IN THE BASIC PRIME AND RAW MATERIALS The principal activity of MONBAT AD is production and trading with accumulator and lead-acid batteries starter batteries, stationary batteries for telecom application, semi-traction batteries, specialized batteries army power range and locomotive batteries. Major prime and raw materials for the company s production process are lead and lead alloys, polypropylene, polyethylene separator and sulfuric acid. For the last three years, lead takes the following percentage of the cost structure per unit: 2010-85% 2011-87% 2012 70-72 %

22 MOVEMENT OF THE LEAD PRICE FOR THE PERIOD JANUARY-DECEMBER 2012 2500 2000 1500 1000 500 0 January February March Aoril May June July August September October November December USD/MT Average lead price for 2012 is 2202.76 USD/MT The risk of price change in the basic raw material lead is being managed by means of construction of company s own recycling facilities. DEPENDENCE OF MONBAT AD ON DISTRIBUTORS, SUPPLIERS, CUSTOMERS There is no dependence of MONBAT AD on customers due to the fact that company s sales are not being made directly with customers but through the mediation of an extensive distribution network in the country and abroad. Sales with deferred payment in the country and for export are insured in the Bulgarian Export Insurance Agency (BAEZ) by reason of which the risk of non-payment on the part of the customers is completely eliminated. MONBAT AD is an export-oriented company. The company exports most of its products as the most important markets as Germany, Britain and France. DEPENDENCE OF MONBAT AD ON KEY PERSONNEL The professional activities and efforts, qualifications, motivation and reputation of the members of the corporate boards and the senior officials of MONBAT AD and the companies within the economic group are essential for achieving the strategic and investment objectives of the Company. The leave or release of any member of corporate boards or key executive official would, in the short term, negatively affect the smooth conduct of the company s business activities. Nevertheless, the established management system and consistently applied corporate policy for provision of incentives to motivate employees within the structure, guarantee to a great extent the long-term participation of the corporate boards members and key management personnel in the activities of the company. RISK OF CHANGE IN THE DEMAND AND INTRODUCTION OF NEW TECHNOLOGIES This risk is related to demographic, economic and technological changes and determines the fact that the demand for company s products might change over time also as a result of the introduction of new products. With the introduction of new technologies in the automotive industry (hybrid and electric cars), consistent with environmental protection and reduction of the separate carbon dioxide emissions to a minimum, the need for alternative energy sources such as new generation lead-acid batteries grows. At the same time, the need for multifunctional products

23 - accumulator batteries - as a spare source for the photovoltaic power supply and lighting systems also grows. These new generation products could negatively affect the demand for an existing and approved product as a result of the fact that they are or at least they are perceived by consumers as more effective, more refined, combining new features, as well as due to the fact that they are more advertised. Monbat AD has not yet been exposed to such a risk, but in the future could be relatively exposed to such a risk since the principal products of the company are lead-acid batteries for various applications: starter batteries, stationary batteries for telecommunication application, semi-traction batteries, special batteries for military application and locomotive batteries. In case of introduction of new generation of products and hence of new competitive participants in the accumulator batteries market, and if the company fails to oppose such a pressure, it is possible the demand for its products to decrease over time. However, a large-scale introduction of new technologies in the automotive industry - hybrid and electric cars is not expected in short term. Irrespective of that, the company's management understands that in order to respond to these challenges MONBAT AD and its subsidiary Start AD are necessitated to extend the range of produced batteries. To date the Issuer has successfully developed and increased its sales, which indicates the ability of the management team to anticipate and oppose such a pressure. LIQUIDITY RISK Liquidity risk consists of the likelihood that MONBAT AD is unable to pay its current liabilities. The absolute liquidity ratio is calculated as the ratio of cash and short term liabilities and indicates company s ability to meet its short term liabilities with its available cash. The absolute liquidity ratio of the company for 2012 is 0.04. For 2012 the company s cash reports a dcrease by 34 % compared to the previous 2011 while the rate of the short term liabilities reports an increase by 2 %. ECOLOGICAL RISK The responsibility of MONBAT AD as the largest producer of accumulator batteries in Bulgaria and a dynamically developing public company finds expression also in the attitude towards environment. The management of MONBAT AD considers the activities directed towards pollution prevention or reduction aimed at achieving a maximum level of human health and environmental protection as a major priority and a crucial factor in the long-term and sustainable development. It is a company s practice of long standing to provide clear and accurate environmental information on its products, services and activities to customers, suppliers and the general public. The management of MONBAT AD makes efforts to reduce the impact of the company on the environment through: Effective use of electricity and heat power/thermal energy; minimizing and recycling waste; preventing pollution through reducing and minimizing detrimental emission in the air and water; useing the best available techniques and best management practices when expanding the production; internal monitoring in terms of air, water and soil pollution; Self-control system - the establishment and operation of an internal control system is designed to achieve continuous compliance with the environmental, health and safety regulations on the basis of the Integrated Management System. The self-control system evaluates the

24 efficiency and effectiveness of the management system and the operations of MONBAT AD in general. Pursuant to the requirements of the Law on Health and Safe Labor Conditions and the respective subordinate legislation and the Disaster Protection Act, MONBAT AD has developed an emergency plan to carry out rescue and emergency recovery activities in case of disasters, emergencies and accidents which have occurred in the production process. The purpose of the protection plan is to preventively ensure the necessary materials, equipment and resources for effective activities to prevent the consequences of disasters and accidents; preparation of the personnel on the site for action; way of announcing and preparing the personnel; managing the personnel s activities; procedures for putting the plan into action and informing the competent authorities; ways, means and procedures for notifying, when possible, the endangered population near the site; the procedure for carrying out the relevant rescue and emergency recovery activities on the territory of the site; procedures for restoring the activities on the site; ensuring the necessary measures for recreation of the environment. By a letter ref. 26-00-614/30.06.2006, the Ministry of Environment and Water classified the plant of MONBAT AD in Montana as "a company and/or facility of low risk potential. The development strategy of MONBAT AD includes participation in long-term socially useful projects in the environment protection area. In 2009 the Company set up a system for separate waste collection and disposal by means of building a network of containers for collecting old accumulator batteries with the distributors of MONBAT AD. Old batteries are among the widespread harmful waste and the company significantly contributes to environmental protection by collecting, neutralizing and recycling such batteries. Lead and polypropylene derived form recycling are put again in the production of new accumulator batteries and thus waste has been efficiently utilized. The company has established the only individual system for collecting old batteries in Bulgaria and operates under its own Program for management of spent lead-acid accumulator batteries. FORCE MAJEURE A number of force majeure circumstances such as natural disasters, accidents or intentional acts, could cause substantial property damages that could lead to temporary suspension and even cessation of the activities of the company. MONBAT AD has a full property insurance of the production facilities and storages of materials and production but in case of a continuous violation of the sequence of production activities, that fact could hardly compensate the lost profits. RISKS ASSOCIATED WITH THE STRUCTURE OF MONBAT AD Risks associated with the choice of strategy by the management team of MONBAT AD Future profits and value of MONBAT AD and the companies in its economic group largely depend on the strategy chosen both by the Issuer s management team and the management teams of its subsidiaries. Choosing an inappropriate marketing strategy or nonfulfillment of the chosen one could lead to material losses and affect the value of the company on individual and consolidated basis. The management of MONBAT Plc strives to manage strategic risk by means of continuous monitoring over the implementation of the chosen strategy and the approved strategies of the subsidiaries with a view to undertaking adequate measures and when necessary - changes. Inappropriate or delayed changes in the company's strategy would have a significant adverse effect on its business, operating results and financial condition.

25 Movement in the value of the investments in subsidiaries Since the parent company holds significant investments in subsidiaries in the country and abroad, changes in the value of these assets affect the value of the parent company as well as its balance sheet indicators and could affect the price of the securities of the parent company. None of the subsidiaries of MONBAT AD is a public company, and therefore none of the companies has a market price fixed on the basis of the principle of active supply and demand on the stock exchange. The holdings of MONBAT AD in subsidiaries are subject to fair value assessment at end of the year and the effect of the assessment is reflected the reserves of the company. Nonpublic companies are tested for depreciation at the end of the year and the eventual depreciation may affect negatively the profit for the year when it was made. Risk of sale or dissolution of the subsidiaries The structure of the Issuer includes four major groups of companies setting up separate economic activities: o group of the producers of lead-acid batteries that includes MONBAT AD and Start AD; o group of the recycling companies that includes Monbat DOO, Serbia, Monbat Recycling EAD and Monbat Recycling, Romania; o group of the commercial companies active in optimizing the sales of lead-acid batteries that includes Monbat, Romania; o one separate company Octa Light Bulgaria AD, whose activity is related to production of LEDs for lighting fixtures. The structure allows selling or dissolution of each of the subsidiaries in case that there is a resolution of the shareholders or associates of the company, or when a respective decision has been adopted by the General Assembly of Shareholders to authorize the management body of MONBAT AD to execute such transactions. In this respect, occurrence of potential conflicts of interests and estimations among different shareholders or partners regarding the rationality of such decisions is possible. RISKS ASSOCIATED WITH THE ACTIVITIES OF THE SUBSIDIARIES OF MONBAT AD Due to the specific characteristics and scope of activity of the companies in the Group of MONBAT AD /except for Octa Light Bulgaria AD and the commercial companies MONBAT DOO, Romania and YU MONBAT, Serbia/ and in view of the fact that the activities of the companies in the Group are closely related to the activity of MONBAT AD, the above stated non-systematic risks for the activities of the Issuer are also relevant to the activities of the companies in the Group of MONBAT AD. Below are reviewed some more specific risks on an individual basis for companies in the group of MONBAT AD. MONBAT RECYCLING EAD Dependence on customers A considerable part of the revenues of Monbat Recycling EAD (73 %) have been and will continue to be generated by one customer - MONBAT AD. There are no guarantees that this customer will bring the same amount or more revenues. The financial results of the company and