Industrial Holding Bulgaria Plc
Interim Consolidated Financial Statements
For the period ended 31 December 2011
Consolidated Income Statement
For the period ended 31 December 2011
In BGN thousand
Note
31 December
2011
31 December
2010
Revenue
Other operating income
7
8
109,621
10,222
88,563
3,512
Increase (reduction) of work in progress
Capitalized expenses on own assets creation
Costs of materials
Costs of hired services
Depreciation and amortization costs
Payroll costs
Cost of assets sold
Other operating expenses
Operating profit/(loss)
9
10
(6,415)
8,475
(32,160)
46,397
18,19
11
12
(63,052)
(25,697)
(9,713)
(23,591)
(716)
(9,179)
(10,045)
(75,073)
(26,342)
(7,800)
(22,633)
(1,337)
(3,698)
(30,571)
Financial income
Financial expenses
Net financial income
601
10,963
(13,202)
(6,734)
13
(12,601)
4,229
Profit of associates reported under the capital method
Operating profit/(loss) prior to taxation
20
2,532
1,761
Tax expenses
Operating profit/(loss) after taxation
14
Profit/(loss) distribution
For the majority owners of the company
For the non-controlling interest
Income per share for the majority owner
Basic earnings per share (in BGN)
Diluted earnings per share (in BGN)
27
(20,114)
(24,581)
(634)
(20,748)
(109)
(24,690)
(7,859)
(13,176)
(12,889)
(20,748)
(11,514)
(24,690)
(0.090)
-
(0.253)
-
The Income Statement should be considered together with the notes thereto, which form integral part of
the Consolidated Financial Statements presented on pages 8 to 55.
Daneta Zheleva
Chief Executive Officer
Ms. Toshka Vassileva
Chief Accountant
2
Consolidated Statement of Comprehensive
Income
For the period ended 31 December 2011
In BGN thousand
Note
Operating profit/(loss) after taxation
31 December
2011
(20,748)
31 December
2010
(24,690)
Other comprehensive income
Land revaluation
Tax effects from revaluation
Hedging effects
Other changes
Revaluation difference
37,087
(3,709)
(350)
89
-
(306)
1
89
(261)
33,162
Total comprehensive income for the period
(21,009)
8,472
Total comprehensive income for:
For the majority owners of the company
For the non-controlling interest
Total comprehensive income for the period
(8,121)
(12,888)
(21,009)
7,127
1,345
8,472
Other comprehensive income for the period, net of tax
13
The Income Statement should be considered together with the notes thereto, which form integral part of
the Consolidated Financial Statements presented on pages 8 to 55.
Daneta Zheleva
Chief Executive Officer
Ms. Toshka Vassileva
Chief Accountant
3
Consolidated Statement of Financial Position
As of 31 December 2011
In BGN thousand
Assets
Property, plant and equipment
Note
18
31 December
2011
31 December
2010
Intangible Assets
Goodwill
Investments in associates reported under the capital
method
Other investments
Long-term receivables
Total non-current assets
19
19
320,250
4,635
6,212
273,150
5,061
6,212
20
21
22
17,565
5
7,218
15,132
8
9,127
355,885
308,690
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
23
24
25
66,767
10,923
11,221
100,706
10,525
8,906
Equity
Share Capital
Premium reserve
Reserves
Retained earnings (net)
Capital and reserves of majority owners
Non-controlling interest
Total equity and reserves
Liabilities
Borrowings
Debenture loan
Other long-term payables
Provisions
Deferred tax liabilities
Total non-current liabilities
Borrowings
Debenture loan
Interest charged on debenture loan
Trade and other payables
Provisions
Total current liabilities
Total equity and liabilities
26
28
28
29
30
28
28
32
30
88,911
120,137
444,796
428,827
67,978
30,604
63,187
64,458
58,282
30,313
67,394
68,179
226,227
13,054
224,168
26,529
239,281
250,697
106,487
21,529
805
8,138
41,915
1,656
239
8,418
136,959
52,228
23,049
357
44,192
958
31,432
21,650
304
72,200
316
68,556
125,902
444,796
428,827
The Income Statement should be considered together with the notes thereto, which form integral part of
the Consolidated Financial Statements presented on pages 8 to 55.
Daneta Zheleva
Chief Executive Officer
Ms. Toshka Vassileva
Chief Accountant
4
Consolidated Cash Flow Statement
For the period ended 31 December 2011
In BGN thousand
Note
Operating cash flow
Proceeds from clients
Payments to suppliers
Remuneration related payments
Paid corporate profit tax, net
Foreign exchange differences
Other proceeds (payments)
Net operating cash flow
31
December
2011
87,178
(71,062)
(22,596)
(535)
(259)
3,317
31
December
2010
63,601
(40,309)
(21,833)
(9029)
114
5,842
(3,957)
6,513
1,209
441
(53,824)
2,348
(391)
(1,326)
794
99
164
(3)
(52,146)
12
(2,422)
(50)
(50,998)
(52,830)
17,987
172,476
(125,297)
20,388
77,757
(40,150)
(311)
(7,335)
(250)
(371)
(6,656)
(1,180)
57,270
49,788
2,315
3,471
25
8,906
5,435
25
11,221
8,906
Investment cash flow
Proceeds from sale of non-current tangible assets
Payments for acquisition of non-current tangible assets
and their economic construction
Recovered loans and interest
Loans granted
Purchase of investments
Proceeds from sale of investments
Received dividends from investments
Interest received on loans, deposits and current accounts
Other proceeds (payments)
Net investment cash flow
Financial cash flow
Proceeds from securities issue
Credits and loans received
Credits and borrowings repaid
Dividends paid
Loan interests, charges and commission fees paid
Other proceeds (payments)
Net financial cash flow
Net increase in cash and cash equivalents
Cash and cash equivalents as of 1 January
1,075
94
166
Cash and cash equivalents at the end of the period
The Income Statement should be considered together with the notes thereto, which form integral part of
the Consolidated Financial Statements presented on pages 8 to 55.
Daneta Zheleva
Chief Executive Officer
Ms. Toshka Vassileva
Chief Accountant
5
Consolidated Equity Statement
For the period ended 31 December 2011
Share Capital
In BGN thousand
Note
Balance as of 1 January 2010
43,756
Total comprehensive income for the period
Profit and loss
-
Premium Additional and
reserve
statutory
reserves
24,503
11,582
-
-
Hedging Revaluati
reserve on reserve
Retained Total for the
earnings
Group
(18)
37,257
79,625
196,705
NonTotal
controlling
interest
25,561 222,266
-
-
(13,176)
(13,176)
(11,514) (24,690)
(317)
-
22,809
(2,281)
-
89
3
22,809
(2,281)
(317)
89
3
14,278
(1,428)
11
(2)
37,087
(3,709)
(306)
89
1
20,528)
20,528)
92
(13,084)
20,303
7,127
12,859
1,345
33,162
8,472
20,336
-
(377)
-
20,336
(377)
-
(377)
19,959
Other comprehensive income
Land revaluation
Tax effects from revaluation
Hedging effects, net of taxes
Exchange differences on translation
Other changes
Total other comprehensive income
Total comprehensive income for the period
18
-
-
-
-
-
(317)
(317)
Capital increase
Profit distribution for reserves
Dividends paid
Loss reserves coverage
14,526
-
5,810
-
32
(350)
-
-
(32)
350
Total transactions with shareholders
Transfer from revaluation reserve to retained profit
14,526
5,810
(318)
-
(1,320)
318
1,320
20,336
Balance as of 31 December 2010
58,282
30,313
11,264
(335)
56,465
68,179
224,168
Transactions with shareholders reported
Statement of Equity
Contributions by and allocations to shareholders
26
in
-
the
6
26,529 250,697
Consolidated Equity Statement (continued)
For the Period Ended 31 December 2011
In BGN thousand
Note
Balance as of 1 January 2011
Total comprehensive income for the period
Profit and loss
Other comprehensive income
Hedging effects, net of taxes
Other changes
Total other comprehensive income
13
Total comprehensive income for the period
Transactions with shareholders reported in the
Statement of Equity
Contributions by and allocations to shareholders
Acquisition of non-controlling interest
Profit distribution for reserves
Distribution of reserves for loss coverage
Dividends paid
Capital increase
Total transactions with shareholders
Transfer from revaluation reserve to retained profit
Balance as of 31 December 2011
Share
Capital
Premium
Additional and
reserve statutory reserves
Revaluation
reserve
Retained Total for
earnings
the
Group
Total
30,313
11,264
(335)
56,465
68,179
224,168
26,529
250,697
-
-
-
-
-
(7,859)
(7,859)
(12,889))
(20,748)
-
-
(4)
(350)
-
79
13
(350)
88
1
(350)
87
-
-
(4)
(350)
79
13
(262)
1
(261)
-
-
(4)
(350)
79
(7,846)
(8,121)
(12,888)
(21,009)
-
99
-
65
(1,222)
4,951
-
193
9,987
(276)
-
(83)
-
(311)
-
(311)
9,987
9,696
291
9,696
291
(3,700)
-
99
(331)
3,794
331
10,180
(504)
9,676
67,978
30,604
7,560
(685)
56,312
64,458
226,227
13,054
239,281
The Income Statement should be considered together with the notes thereto, which form integral part of the Consolidated Financial Statements presented on
pages 8 to 55.
Daneta Zheleva
Chief Executive Officer
Noncontrolling
interest
58,282
29
1,222
(4,951)
26
Hedging
reserve
Ms. Toshka Vassileva
Chief Accountant
7
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
1
Status and scope of operations
Industrial Holding Bulgaria PLC (the Company or the Holding) is a public limited company having its seat in
Sofia, Bulgaria and address of management at 42 Damyan Gruev Blvd, Sofia 1000. The consolidated
statements of the Company for the period ended 31 December 2010 comprise the statements of the Company
and its subsidiaries (together referred to as the “Group”), as well as the interests of the Group in associates.
The scope of activity of the Group include production of and trading in heavy machinery, shipbuilding, ship
repairs and transportation, furniture production, real estate transactions, port services and accompanying
activities from /to ships and land transport vehicles, maintenance and repairs and other services.
Industrial Holding Bulgaria and some of the subsidiaries are listed at the Bulgarian Stock Exchange – Sofia.
2 Basis of preparation
(а) Statement of compliance
These Consolidated Financial Statements have been prepared in compliance with the International Financial
Reporting Standards (IFRS) adopted by the European Union (EU).
The consolidated financial statements were approved for publication by the management of the Company on
29 November 2011.
These Interim Consolidated Financial Statements should be considered in relation to the Annual Consolidated
Financial Statements of the Group as of 31 December 2010.
(b) Basis of valuation
These Consolidated Financial Statements have been prepared based on historical cost with the exception of the
following material articles in the statement of financial position:

Derivative financial instruments measured at fair value;

Land, buildings, plant and equipment, which have been presented at a revalued amount less the
accumulated depreciation and impairment losses

Financial assets measured at fair value through gains and loss;

Financial assets available for sale, which have been valued at their fair value.
(c) Functional currency and reporting currency
These Consolidated Financial Statements are presented in BGN, which is the functional currency of the
Company and the Group. The financial data in the Annual Financial Statements are given in BGN thousand.
(d) Use of estimates and assumptions
The drafting of the consolidated financial statements under IFRS requires that the management makes
judgments, estimates and assumptions which affect the application of the accounting policies and of the
reported amounts of the assets, liabilities, gains and losses. The actual results may differ from such estimates.
The expectations and key assumptions are revalued on a current basis. The revaluation of the accounting
estimates is recognized for the period when the estimate is revalued when the revaluation affects only this
period, or in the period of revaluation and future periods if the revaluation affects future periods.
Information about critical estimates in the application of the accounting policies which have the most
significant effect on the amounts recognized in the consolidated financial statements, is given in the following
notes:
8
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
2 Basis of preparation (continued)
(d) Use of estimates and assumptions (continued)
Note 18 – Property, plant and equipment
Note 23 – Inventories
Note 24 – Trade and other receivables
Note 31 – Deferred tax assets and liabilities
Information about the uncertainty in the assumptions and estimates which carry a significant risk for material
adjustments in the following financial year is included in the following notes:
Note 19 – Intangible assets
Note 30 – Provisions
(e) Going concern
The Financial Statements are prepared on the basis of the assumption that the Group is a going concern and
will continue to operate in the foreseeable future.
In 2011the Bulgarian and global economy have been developing in the conditions of stabilization after the
critical stage of the financial and economic crisis. As a whole the development is characterized with a
geographic heterogeneity and different speed for the various economies, which is associated with the different
severity of the crisis and the delayed manifestation of some of the consequences in the separate economies and
industries. Regardless of estimates generally predicting the start of an upward trend, the considerable delay of
the economic growth and the unstable growth of the leading states and economic centres are the reason that the
negative effect of a number of factors remains even during the period of recovery. This effect is mainly
manifested through: collapse and slow recovery of the capital markets both worldwide and with particular
severity for the Bulgarian markets; very difficult extension of credits under heavier financial conditions;
reduced investment relations and sporadic projects; harder market export conditions and difficult forecasting
and planning; exhaustion of reserves and weakening of the financial, manufacturing and human resource
potential of the entities, etc. The positive projections for recovery from the crisis and the indication for growth
of the European and Asian economies, including the Bulgarian economy, create moderately optimistic
expectations for increase of sales revenues and revitalization of exports. As a result of the measures undertaken
by the management to optimize costs, improve productivity and efficiency and launch new investment projects
the company remained stable and foundations for future growth were established.
Shipbuilding and ship repairing industries continue to operate under the conditions of limited demand and
global competition caused by the completion of started projects and release of production capacities. However,
in the field of maritime transport the advantage is on the side of newly-built ships due to the better
characteristics and lower operational costs. The Management estimates that the technical capacity of the ship
building plant will make possible to achieve a balance between new construction and repairs and the existing
capital resources and funding sources will be adequate for the liquidity needs in 2011.
The companies in the machine building sector, in view of their specialization in the manufacture of produce for
the basic sectors of the economy and infrastructure are strongly dependent on the investment costs worldwide.
At the same time their export orientation is a favourable competitive advantage for the markets, which recover
faster from the crisis and register growth. The restructuring and the internal optimization within the framework
of the corporate structure of ZMM Bulgaria Holding AD represent an additional possibility for higher
flexibility and redirection of production and technological tasks among all entities in the Group. The expected
positive effect from the unification of products and the centralised marketing creates prerequisites to maintain
and expand market positions with more competitive products.
(f) Changes in the accounting policies
(i) Reporting of business combinations
9
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
As of 1 January 2010 the Group applies IFRS 3 Business Combinations (2008) in the reporting of business
combinations. The change in the accounting policy is applied prospectively and does not have a material effect
on the earnings per share.
Business combinations are reported using the acquisition method as of the date of acquisition, which is the
date on which control is transferred to the Group. Control is the right to operate the financial and operating
policies of the entity in such as way as to derive benefits from its activity. When assessing the control the
Group takes into account the provisional voting rights which may be exercised at present.
Acquisition on or after 1 January 2010.
For acquisitions on or after 1 January 2010 the Group measures its reputation as of the date of acquisition as:
 The fair value of the transferred compensation, plus
 The recognized value of all non-controlling interests in the acquired entity, plus
 If the business combination is achieved in stages, the fair value of the existing share in the acquired
entity, minus
 the net recognized value (in the general case - the fair value) of the acquired separable assets and
undertaken liabilities.
When the difference is negative, the gain from a profitable acquisition is recognized immediately in profit and
loss.
The transferred compensation does not include amounts related to the settlement of priory existing rights and
obligations. Such amounts are generally recognized in profit or loss.
Costs related to the acquisition, except for those related to the issue of debt or equity securities which the
Group issues in relation with a business combination are reported as costs upon occurrence.
Each due contingent compensation is recognized at fair value on acquisition date. If the contingent
compensation is classified as equity, it is not revalued and its settlement is reported in the equity. Otherwise
the subsequent changes in the fair value of the provisional compensation are recognized in profit or loss.
10
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
2 Basis of preparation (continued)
(f) Changes in the accounting policies (continued)
(i) Reporting of business combinations(continued)
When compensations with share-based payments are required (substitute compensations) to be replaced with
compensations for the personnel of the acquired entity (compensations of the acquired entity) and they are for
previous services, then all or part of the amount of the substitute compensations of the acquiring entity is
included in the evaluation of transferred compensation for the business combination. This determination is
based on the market value of the substitute compensations compared with a market-based value of the
compensations of the acquired entity and the level to which the substitute compensations relate to previous
and/or future periods.
Acquisitions prior to 1 January 2010.
For acquisitions made before 1 January 2010, goodwill represents the difference between the cost of
acquisition and the interest of the Group in the recognized value (in general, the fair value) of the separable
assets, liabilities and contingent liabilities of the acquired entity. When the difference is negative, the profit
from a profitable acquisition is recognized immediately in profit and loss.
Costs related to the acquisition, except those related to the issuance of debt or equity securities that the Group
issues in connection with a business combination, are reported as expenses upon occurrence.
(ii) Reporting of the acquisition of non-controlling interest
As of 1 January 2010 the Group applies IFRS 27 Business Combinations (2008) in the reporting of business
combinations. The change in the accounting policy is applied prospectively and does not have a material effect
on the earnings per share.
As per the new accounting policy the acquisition of a non-controlling interest is reported as a transaction with
owners in their capacity of owners and therefore goodwill is not recognized as a result of such a transaction.
The adjustments of the non-controlling interest are based on the proportional value of the net assets of the
subsidiary.
Before, goodwill was recognized upon acquisition of a non-controlling interest in a subsidiary and it
represented an increase of the acquisition price for the additional investment beyond the carrying amount of
the share in the net assets acquired on the date of the transaction.
3
Significant accounting policies
The significant accounting policies described below are consistently applied over all periods included in these
Financial Statements.
Certain comparative figures were reclassified to conform with the representation for the current year (see Note
6 Operating Segments).
11
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
3 Significant accounting policies (continued)
(а) Basis of consolidation
(i) Subsidiaries
Subsidiaries are the entities controlled by the Group. Control exists when the Group has the power, directly or
indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
When assessing the level of control, the Group takes into account the potential voting rights which may be
exercised currently. The acquisition date is the date on which control is transferred to the acquisitor.
Assessment is made when determining the date of acquisition and whether control was transferred from the
one side to the other. The financial statements of subsidiaries are included in the consolidated financial
statements from the date that control commences until the date control ceases.
(ii) Investments in associates ( reported under the capital method)
Associates are entities in which the Group has significant influence, but not control, over the financial and
operating policies. Significant influence is considered existing when the Group holds between 20 and 50
percent of the voting rights in another company. Associated companies are reported using the capital method
and they are initially recognized at acquisition price. The consolidated financial statements include the Group’s
share in the profit and loss and other comprehensive income after adjustments made for alignment of the
accounting policies with those of the Group, from the date on which significant influence is identified until the
date on which such influence ceases. When the Group’s share of the losses exceeds the carrying amount of the
investment in the associate, the carrying amount is reduced to nil and recognition of further losses is
discontinued except to the extent that the Group has incurred obligations or makes payments on behalf of the
associate.
(iii) Balances and transactions eliminated on consolidation
Intra-group balances and transactions and any unrealized gains arising from intra-group transactions are
eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with
associates are eliminated against the investment in associates. Unrealized losses are eliminated in the same
way as unrealized gains, but only to the extent that there is no evidence of impairment.
(b) Foreign currency
(i) Foreign currency transactions
Transactions in foreign currencies are revalued in the functional currency, at the exchange rate applicable on
the day of the transaction. Monetary assets and liabilities denominated in foreign currencies are reported in the
functional currency at the closing foreign exchange rate on the date of drafting of the statement of financial
position. Foreign currency gain or loss arising from cash positions represents the difference between the
depreciated value in the functional currency at the beginning of the period adjusted by the effective interest
and payments during the period and the depreciated value of the foreign currency recalculated as per the
exchange rate at the end of the period.
12
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
3. Significant accounting policies (continued)
(b) Foreign currency (continued)
(i) Foreign currency transactions (continued)
Non-monetary assets and liabilities denominated in foreign currency, valued at fair value, are recalculated in
Bulgarian leva applying the foreign exchange rate effective on the date of fair value determination. Foreign
currency gain and loss arising as a result of the recalculation into the functional currency is recognized as
profit and loss, except for gain and loss resulting from recalculation into the functional currency of equity
instruments available for sale or effective cash flow hedging meeting the requirements, which are recognized
in another comprehensive income.
The exchange rate of the Bulgarian lev (BGN) has been pegged to the euro (EUR) since 1998. During the
current and previous periods the exchange rate is BGN 1.95583 / EUR 1.0.
(ii) Foreign operations
Assets and liabilities of foreign operations, including goodwill and adjustment to the fair value, arising upon
acquisition, are translated to Bulgarian leva applying the foreign exchange rate effective as of reporting date.
Income from and expenses on foreign operations are translated into Bulgarian leva applying the foreign
exchange rate effective as at transaction date.
Exchange differences arising on translation are recognized in other comprehensive income and are presented in
retained earnings in the statement of equity. When a foreign operation is derecognized, partially or totally, the
part of the translation reserve is reclassified into profit or loss as part of the result of the derecognition.
(c) Financial instruments
(i) Non-derivative financial instruments
The Group initially recognizes loans and receivables and deposits on the date of their occurrence. All other
financial assets (including assets reported at fair value in the profit and loss) are initially recognized on their
transaction date when the Group became a party to the contractual provisions of the instrument.
The Group writes off a financial asset when the contractual rights on the cash flows of the assets are repaid or
the Group transfers the rights for receipt of the agreed cash flows from the financial asset in a transaction
under which a considerable part of all risks and benefits pertaining to the ownership of the financial assets
have been transferred. Any participation in a transferred financial asset which is created or retained by the
Group is recognized as a separate asset or liability.
Financial assets and liabilities are netted and their net value is presented in the statement of financial position
only when the Group has a legal justification to net the amounts and intends to either settle at net base or
realize the asset and settle the liability simultaneously.
The Group classifies non-derivative financial assets in the following categories: financial assets reported at fair
value in the profit and loss, financial assets held to maturity, loans and receivables, and financial assets
available for sale.
13
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
3. Significant accounting policies (continued)
(c) Financial instruments (continued)
Financial assets measured at fair value through profit and loss
A financial asset is classified as a financial asset measured at fair value through profit or loss if held for trading
or if designated as such at initial recognition. Financial assets are determined as such measured at fair value
through profit or loss if the Group manages such investments and makes decisions for purchase and sale based
on their fair value in compliance with the Group’s documented risk management strategy or investment
strategy. Upon their initial recognition the expenses associated with the transaction are recognised through
profit or loss at their occurrence. Financial assets measured at fair value through profit and loss are valued at
fair value and the resultant changes are measured through profit and loss.
Held-to-maturity Financial Assets
When the Group has the intention and capacity to hold debt securities to maturity, these are classified as heldto-maturity financial assets. The held-to-maturity financial assets are initially recognized at fair value plus all
direct transaction costs. After the initial recognition the held-to-maturity financial assets are measured at
impairment cost based on the effective interest method less impairment loss. Any sale or reclassification of a
more than an insignificant amount from the investment held to maturity on a date which is not close to their
maturity would result in a reclassification of all held-to-maturity investments as investments available for sale
and would lead to a prohibition for the Group to classify investments as held to maturity for the current
financial year and the following two financial years.
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments which are not quoted at an
active market. Such liabilities are initially recognized at fair value plus all direct transaction costs. After the
initial recognition the loans and receivables are measured at impairment cost based on the effective interest
method less impairment loss.
Loans and receivables include cash and cash equivalents and trade and other receivables.
Cash and cash equivalents include cash and call deposits with initial maturity of three months or less. Ban
overdrafts which are payable on demand and form an integral part of the cash flows managed by the Group are
included as a component of cash and cash equivalents for the purpose of the cash flows statement.
Financial assets available for sale
Financial assets available for sale are non-derivative financial assets which designated as financial assets
available for sale and are not classified in any of the preceding categories. The Group’s investments in shares
and certain debt securities are classified as financial assets available for sale. After the initial recognition they
are measured at fair value and the changes in that value different than impairment losses and exchange rate
differences from capital instruments available for sale are reported in another comprehensive income and are
shown in the reserve for changes in the fair value in the equity. When an investment is written off the
accumulated profit and loss in another comprehensive income are re-classified as profit or loss.
3. Significant accounting policies (continued)
(c) Financial instruments (continued)
(ii) Non-derivative financial liabilities
14
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
The Group initially recognizes issued debt securities and subordinate liabilities on the date of their occurrence.
All other financial liabilities (including financial liabilities designated as measured at fair value through profit
and loss) are initially recognized on their transaction date when the Group became a party to the contractual
provisions of the instrument.
The Group writes off a financial liability when its contractual obligations have been fulfilled or have been
revoked or a no longer valid.
Financial assets and liabilities are netted and their net value is presented in the statement of financial position
only when the Group has a legal justification to net the amounts and intends to either settle at net base or
realize the asset and settle the liability simultaneously.
The Group classifies non-derivative financial liabilities in the following categories: loans, bank overdraft and
commercial and other liabilities. Such financial liabilities are initially recognized at fair value plus all directly
related transaction costs. After the initial recognition these financial liabilities are measured at impairment cost
based on the effective interest method.
(iii) Share Capital
Ordinary shares
Ordinary shares are classified as equity. The costs directly related to the issue of ordinary shares and share
options are recognized as a decrease of the equity, net of all tax effects. The capital of the Company is
presented at historical cost at the date of registration.
Redemption of shares
Upon redemption of shares the paid amount, which includes the directly related costs, net from taxes, is
recognized as a reduction of the total amount of the equity. When redeemed shares are subsequently sold or
reissued the received amount is recognized as capital increase and the profit/loss from the transaction is
reported in premium reserve.
(iv) Complex financial instruments
The complex financial instruments issued by the Group include bonds which may be converted into shares at
the discretion of the holder, with the number of shares to be issued is not affected by the changes in their fair
value.
The liability component of a complex financial instrument is recognized initially according to the fair value of
a similar liability which does not have the option to be converted into shares. The capital component is
recognized initially as the difference between the fair value of the complex financial instrument as a whole and
the fair value of the liability component. All directly related costs for the transaction are recorded as a liability
and the capital component – proportionally to their initial carrying amounts. After the initial recognition the
liability component is measured at impairment cost based on the effective interest method. The capital
component is not re-valued after the initial recognition. Interests, dividends, losses and profits related to a
financial liability are recognized in profit and loss. Upon conversion the financial liability is reclassified as
equity and no gains or losses are recognised.
3. Significant accounting policies (continued)
(c) Financial instruments (continued)
15
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
(v) Derivative financial instruments, including reporting in case of hedging
The Group uses derivative financial instruments to hedge its exposures to currency and interest risks. The
embedded derivatives are separated from the main contract and reported separately if the economic
characteristics and risks of the main contract and of the embedded derivative are not closely related, a separate
instrument under the same terms as the embedded derivative meets the definition of derivative and the
combined instrument is not reported at fair value in profit or loss.
Upon the initial determination of the hedging the Group formally documents the relation between the hedging
instrument(s) and the hedged position(s), including risk management objectives and strategies regarding the
hedging transaction, together with the methods to be used to measure the efficiency of the hedging relation.
The Group makes an assessment both upon the start of the hedging relation and also on a current basis as to
whether the hedging instruments are expected to be “highly efficient” to compensate for the changes in the fair
values or cash flows from the respective hedged positions for the period for which the hedging is determined,
and whether the actual results of each hedging are within the range of 80-125 percent. When hedging cash
flows the projected transaction which is the subject of the hedging must be of high probability and represent an
exposure to the changes in the cash flows which ultimately affect the profit or loss.
Derivatives are initially recognized at fair value, the transaction costs are recognized in profit and loss upon
occurrence. Following initial recognition, the derivatives are measured at fair value and the changes reported
as described below.
Hedging of cash flow
When a derivative is determined as a hedging instrument upon hedging the changes in cash flows due to a
certain risk related to a recognized asset or liability or a highly probable projected transaction which may
affect the profit and loss, the effective part of the changes in the fair value of the derivative is recognized in
another comprehensive income and represented in the equity hedging reserve. The sum recognized in anther
comprehensive income is reclassified in profit or loss for the same period when the cash flows from the hedged
position affect the profit or loss in the same article of the statement of comprehensive income as a hedged
position. All non-efficient parts of the changes in the fair value of the derivative are recognized immediately in
profit or loss.
If the hedging instrument ceases to meet the hedging reporting criteria, it expires or is sold, repaid, exercised
or the determination is withdrawn, then the reporting of hedging is terminated prospectively. The accumulated
profit or loss reported before in another comprehensive income and represented in the equity hedging reserve
remains there until the projected transaction affects profit and loss. When the hedged position is a nonfinancial asset the sum recognized in another comprehensive income is reclassified in the carrying amount of
the asset when the asset is recognized. If the projected transaction is not expected to occur any longer the sum
in another comprehensive income is recognized immediately in profit or loss. In other cases the sum
recognized in another comprehensive income are reclassified in profit or loss in the same period when the
hedged position affects profit or loss.
Other derivatives
When a derivative financial instrument is not held for trading and is not determined in a hedging relationship
which meets the hedging reporting conditions, all changes in its fair value are recognized immediately in profit
or loss.
3. Significant accounting policies (continued
(d) Property, plant and equipment
16
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
(i) Recognition and measurement
Initial acquisition
Upon the initial acquisition, items of property, plant and equipment are measured at cost, which comprises the
purchase price, including custom duties and non-refundable sales taxes, and all direct expenses required for
bringing the asset to its location and working condition as required for its use intended by the management.
The cost of self-constructed items of property, plant and equipment includes expenses on materials, expenses
on direct labour and the relevant pro rata portion of the indirect production expenses; expenses directly related
to bringing the asset to its location and working condition for its intended use; the initial estimate of the
expenses on dismantling and removal of the asset and for restoration of the surface it has been situated on and
the capitalized interest costs. Acquired software without which the functioning of the purchased equipment is
impossible is capitalized as part of such equipment.
When an item of property, plant and equipment comprises major components having different useful lives,
they are accounted for as separate items of property, plant and equipment.
Gains and loss resulting from write-off of property, plant and equipment are measured by comparison of the
sales income and the carrying amount of the asset and are recognized net as other income through profit and
loss. When the revalued assets are sold the amounts included in the revaluation reserve are reclassified as
accumulated profit and loss.
Upon the initial acquisition, items of property, plant and equipment are measured at cost, which comprises the
purchase price, including custom duties and non-refundable sales taxes, and all direct expenses required for
bringing the asset to its location and working condition as required for its use intended by the management.
Subsequent valuation
The policy adopted by the Group for a subsequent balance sheet valuation of the land, buildings, plant and
equipment is the revaluation model allowed by IAS 16. The revalued amount is the fair value of the asset as at
the date of revaluation less subsequent depreciation and any subsequent impairment losses.
Usually, fair values of land, buildings, plant and equipment are determined on the basis of market evidence
through valuation performed by licensed valuers.
Land, buildings, plant and equipment are usually revalued in every 5 years. This revaluation may be carried
out more frequently if their fair value changes significantly in shorter intervals.
.
3. Significant accounting policies (continued)
(d) Property, plant and equipment (continued)
(ii) Reclassification to investment property
An item of property that is constructed with the aim to be used in the future as an investment property is
reported as an item of property, plant and equipment by the time of completion of the construction works.
Then, this item is revalued to fair value and is reclassified as an investment property. Any gain or loss arising
out of the revaluation is recognized in profit or loss.
17
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
(ii) Reclassification to investment property
When the intended use of a certain item of property is changed from an asset available for use by the owner to
an investment property, the property is revalued to fair value and reclassified as an investment property. Each
profit arising from the recalculation is recognized in profit and loss as far as it reverses a previous impairment
loss for the specific property, with each residual profit recognized in other comprehensive income and
presented in the revaluation reserve in equity. Each loss is recognized in another comprehensive income and is
represented in the equity revaluation reserve to the extent that an amount was included before that in the
revaluation reserve for the specific property and each residual loss is recognized immediately in profit or loss.
(iii) Subsequent expenses
Arising subsequent costs in order to replace a part of an asset of the property, plant, equipment and facilities
are capitalized in the carrying amount of in the respective asset only when it is possible that the Group could
receive future economic benefits related to that part of the asset and the costs may be duly measured. The
carrying amount of the replaced part is derecognised. Costs for daily servicing of the assets re recognized as
profit and loss as costs at the time of occurrence.
(iv) Depreciation
Depreciation is calculated on the basis of the acquisition cost of the asset reduced by its residual value. When
an item of property, plant and equipment comprises major components having different useful lives, they are
depreciated as separate items of property, plant and equipment.
Depreciation is recognised as profit and loss on a straight-line basis over the estimated useful lives of each
component of property, plant and equipment. Depreciation of assets acquired under finance lease terms is
charged for the shorter of the contract term or their useful life, except in the case when obtaining ownership on
them by the end of the contractual term is fairly certain. Land is not depreciated.
The expected useful lives are as follows:

Buildings

Plant and equipment
4 - 20 years

Motor vehicles
2 - 10 years
7 - 50 years

Fixtures and fittings
5 - 10 years
The method of depreciation, useful lives and the remaining value are reviewed at each statement date.
3 Significant accounting policies (continued)
(e) Intangible assets
(i) Goodwill
Goodwill which arises upon acquisition of subsidiaries is included in intangible assets. For initial measurement
of goodwill see Note 2(f)(i).
Subsequent valuation
Goodwill is stated at cost less any accumulated impairment losses. Regarding the investments in entities
reported using the capital method, the carrying amount of the positive goodwill is included in the carrying
amount of the investment and impairment losses for such an investment are not distributed on the assets,
including on the goodwill, which is a part of the carrying amount of the investment reported using the capital
method.
(ii) Other intangible assets
18
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
The other intangible assets acquired by the Group are stated at cost less accumulated amortization (see below)
and impairment losses. Expenses on internally generated goodwill and brands are reported in the income
statement as incurred.
(iii) Subsequent expenses
Subsequent expenses on intangible assets are capitalized only when it increases the future economic benefits
embodied in the specific asset to which it relates. All other expenses are recognized as expenses in the profit
and loss upon occurrence.
(iv) Depreciation
Depreciation is calculated on the basis of the acquisition cost of the asset reduced by its residual value.
Amortization is charged in profit and loss on a straight-line basis over the estimated useful lives of intangible
assets. Intangible assets are amortized from the date they are available for use. The expected useful life is as
follows:

Patents and trademarks
7 years

Software products
5 years
(f) Hired assets
Leasing contracts under which all material risks and rewards of ownership are transferred to the Group are
classified as financial leasing. Upon initial recognition hired assets are reported at the lower from the fair value
and the present value of the minimum lease payments. After the initial recognition the asset is reporting in
accordance with the accounting policy applicable for the respective asset.
Other leasing contracts are operating leases and are not recognised in the statement of the financial position of
the Group.
3 Significant accounting policies (continued)
(g) Inventories
Inventories are stated at the lower of the cost and net realizable value. Net realizable value is the estimated
selling price in the ordinary course of business less the estimated costs of completion and selling expenses.
The prime cost of inventories is reported following the principle of the average weighed value of materials
and unfinished production. In cases of manufactured output, the prime cost also includes labour costs, social
security and amortization costs. These costs are allocated to output on the basis of the standard production
capacity. The prime cost may include gains and losses reclassified from equity, from hedging of cash flows
for acquisition of inventories in foreign currency.
19
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
(i) Unfinished production under construction contracts
The unfinished production is measured at the value of the accumulated costs. The value includes all costs
directly related to the separate orders and the respective part of the relative permanent costs of the Group
allocated on the basis of the direct labour costs (see Note 3(j)), as well as capitalized borrowing expenses.
The relative permanent (indirect) production costs are a quantity which is not directly affected by the volume
of the output produced. They represent the amortization costs, remunerations, social security and other costs
for personnel of the auxiliary units and costs for consumables for the workshops.
The unfinished production is presented as part of the inventories as of the date of the statement.
(h) Impairment
(i) Non-derivative financial assets
A financial asset which is not measured at fair value as profit and loss is reviewed as of each reporting date
with a view to establishment of possible impairment indications. A financial asset is considered impaired if
there is objective proof that an event of loss has occurred after the initial recognition of the assets and that this
event has negatively affected the projected cash flows from this asset and that this effect may be duly
measured.
An objective evidence that a financial asset (including capital securities) is impaired may include a default or
delay on the part of the debtor, restructuring of the due amount for the Group under conditions which the
Group would not consider in other circumstances, indicators that the debtor or issue will become insolvent, the
absence of an active market for a given security. In addition for an investment in a capital security a
considerable or lengthy decline of the fair value below its acquisition price represents an objective evidence of
impairment.
3 Significant accounting policies (continued)
(h) Impairment (continued)
Loans and receivables and investments in securities held to maturity
The Group takes into account evidence of impairment of receivables and investments in securities held to
maturity both for a specific asset and also on a collective level. All individually significant receivables and
held-to-maturity securities are reviewed for specific impairment. All individually significant receivables and
held-to-maturity securities for which there is no specific impairment are further reviewed collectively for
impairment which has occurred but is not yet identified. Receivables and held-to-maturity securities which are
not individually significant are reviewed collectively for impairment as they are grouped together as
receivables and held-to-maturity securities with similar risk characteristics.
Upon the collective-level review for impairment the Group uses the historic trends of the probability for
default on the obligations, the recovery time and the amount of the occurring losses, adjusted with the
assessment of the management as to whether the current economic and credit conditions are such that it is
probable that the actual losses would be higher or lower that the estimates on the basis of the historic trends.
20
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
The loss from impairment of a financial asset reported at depreciated value is calculated as the difference
between its carrying amount value and present value of the expected future cash flows discounted by the initial
effective interest rate. Impairment loss is recognized as profit and loss and is not reported in a special
corrective account reducing the receivables. When a subsequent event reduces the impairment loss this
reduction is not recognized through profit and loss.
Financial assets available for sale
Impairment loss regarding a financial asset available for sale is reported so that the accrued loss, recognized
previously in another comprehensive income and shown in the reserve of fair values in the equity is transferred
in profit and loss. The cumulative loss which is transferred from another comprehensive income and is
recognized as profit and loss is the difference between the acquisition price, net from the repayments of the
principal and depreciation and the current fair value reduced by the impairment loss previously recognized as
profit and loss. Changes in the impairment due to the application of the effective interest method are
recognized as a component of the interest income.
If during a subsequent period the fair value of an impaired debt security available for sale increases and the
increase may be objectively connected to an event occurring after the recognition of the impairment loss as
profit or loss, then the impairment loss is recovered back and the sum is recognized as profit or loss.
Nevertheless, each subsequent recovery of the fair value of an impaired capital security which is available for
sale is recognized as another comprehensive income.
(ii) Non-financial assets
The reported values of the non-financial assets of the Group, different from investment property, inventories
and deferred tax assets are reviewed as of each reporting date with a view to establishment of possible
impairment indications. If such indications exist, an approximate calculation of the asset recoverable amount is
made. The recoverable value for goodwill and intangible assets with undetermined useful life is determined
every year at the same time.
3 Significant accounting policies (continued)
(h) Impairment (continued)
(ii) Non-financial assets (continued)
The recoverable amount of an asset or a cash-generating unit (CGU) is the higher of its value in use and its fair
value less any sale costs. Upon value in use measurement, the estimated cash flows are discounted to their
current value applying a discount rate prior to taxation, reporting the current market assessments, the price of
money in time and specific asset-related risks. For an assets which does not generate cash proceeds
independently the recoverable value is determined for the group of cash-generating assets to which it belongs.
For the purposes of the impairment test of goodwill, CGU to which the goodwill is allocated are aggregated in
such a way that the level at which impairment tests are made reflects the lowest level at which goodwill is
monitored for internal reporting purposes (it cannot be higher than an operating segment). Goodwill acquired
in a business combination is allocated to the CGU groups, which are expected to benefit from the synergies of
the combination.
The corporate assets of the Group do not generate separate cash inflows and are used by more than one CGU.
The corporate assets are allocated to CGU on a reasonable and consistent basis and are tested for impairment
as part of the test of the respective CGU to which they are allocated.
21
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
Impairment loss is always recognized if the carrying amount of an asset or the cash-generating unit to which it
belongs exceeds its recoverable value. Impairment losses are recognized in profit or loss. Impairment losses
recognized as cash generated units are first allocated in order to reduce the carrying amount of the goodwill
allocated to the units and after that to reduce the reported values of other assets in the site, proportionately.
Loss from goodwill impairment is not subject to recovery. Regarding other assets, impairment loss recognized
in previous periods is reviewed at each reporting date for indications whether the loss is reduced or does not
exist any longer. Impairment loss is recovered back if there has been a change in the estimates used to
determine the recoverable value. Impairment loss is recovered to such an extent that the carrying amount of
asset does not exceed the carrying amount which has been determined after the deduction of impairment if no
impairment loss has been recognized.
Goodwill which is a part of the balance value of an investment in an associate is not recognized separately and
therefore is not tested for impairment separately. Instead the whole amount of the investment in the associate is
tested for impairment as one asset when there is objective evidence that the investment in the associate may be
impaired.
3 Significant accounting policies (continued)
(i) Non-current assets held for sale
Non-current assets or groups for decommissioning comprising the assets and liabilities whose value is
expected to be recovered mainly through sale, not through continued use, are classified as held for
sale.Immediately before being classified as held of sale the assets or components of a group for
decommissioning are valued in compliance with the accounting policy of the Group.After that the assets or the
group for decommissioning are usually valued at the lower of their carrying amount and fair value reduced by
the sales costs.Each impairment loss of a group for decommissioning is allocated first to goodwill and then to
the remaining assets and liabilities proportionally, with the exception that the loss is not allocated to
inventories, financial assets, deferred tax assets, assets comprising income of employees, investment property
and biological assets which continue to be reported in compliance with the accounting policy of the Group.
Impairment losses on initial classification as held for sale and subsequent gains or losses from revaluation are
recognized in profit or loss.Gains are not recognized at a value greater than the cumulative impairment loss.
Once classified as held for sale, intangible assets and property, plant and equipment are not depreciated. In
addition, the accounting by the equity method of investments accounted for by this method is terminated after
these investments are classified as held for sale.
(j) Income of hired people
(i) Defined contribution plans
A defined contribution plan is an income plan after leaving according to which the Company pays
contributions to another person and does not have any legal or constructive obligation to pay any additional
sums thereafter. The Government of Bulgaria bears the responsibility to ensure pensions under defined
contribution plans. The expenses related to the Company’s commitment to make contributions under the
defined contribution plans are recognized currently as profit and loss. Contributions under a defined
contribution plan which are due more than 12 months after the period of the provision of the services by the
employees are discounted to their present value.
22
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
(ii) Defined income planes
A defined income plan is a plan for income after leaving different than a defined contribution plan. The net
liability of the Group regarding defined income plans is calculating by estimating the amount of the future
income which the employees have acquired in compensation for their services in the current and previous
periods and this income is discounted in order to determine its current value. The Group is obliged to pay
income upon retirement to those of its employees who retire in compliance with the requirements of Article
222, § 3 of the Labour Code (LC) in Bulgaria. Pursuant to these provisions of LC upon termination of the
labour contract of an employee who has obtained the right to a pension, the employer has to pay to this
employee a remuneration amounting to two monthly gross salaries. If an employee has worked for the same
employer for 10 or more years as at the date of retirement with the same employer, the retirement benefit
amounts to six gross monthly salaries. The Management estimates the total amount of potential payables to all
employees as of the date of the statement based on an actuarial report using projected credit unit method. The
total amount of the charged payable and the main assumptions on which the payable estimation is made are
disclosed in Note 30.
3 Significant accounting policies (continued)
(j) Personnel income (continued)
The Group recognizes all actuarial profit and loss arising from the defined income plan in other comprehensive
income and all costs arising from the defined income plan - in personnel costs in the profit or loss.
(iii) Short-term income of hired persons
Liabilities for short-term income of hired persons are measured on a non-discounted basis and are reported as
cost when the related services are provided. A liability is recognized for the amount which is expected to be
paid as short-term bonus in cash or plans for distribution of the profit, if the Group has a legal or constructive
obligation to pay this amount due to past services rendered by an employee and the obligation may be duly
measured. The Group recognizes the total amount of the non-discounted expenses on paid annual leaves
expected to be paid to employees for their work over the preceding reporting period as liability.
(iv) Termination benefits
Termination benefits are recognized as an expense when the Group has committed itself clearly, without a
realistic possibility of withdrawal, to an official and detailed plan to either terminate the working relationship
before the normal retirement date, or to provide termination benefits as a result of a proposal made to
encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognized as an
expense if the Group has made a formal proposal for voluntary termination and it is probable that the offer will
be accepted and the number of adopters can be estimated reliably. If benefits are due for more than 12 months
after the end of the reporting period, they are discounted to their present value.
23
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
(к) Provisions
A provision is recognised when the Group has a legal or constructive obligation as result of past events, and it
is probable that an outflow of resources and economic benefits will be required to settle the obligation. When
the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate
that reflects current market assessments of the time value of money. The charging of interest on the discounted
value is recognized as a financial cost. Where appropriate, other specific risks specific to the liability are also
taken into consideration.
(i) Guarantees
Guarantee provisions are recognised when the respective products and services are realised. The provision is
based on the historical information for guarantees claimed, taking into account the probability of occurrence of
such future expenses as well.
(ii) Restructuring
Restructuring provisions are recognised when the Group has an approved formal plan for restructuring and the
restructuring either has commenced or has been announced publicly. Future operating costs are not provided
for.
(iii) Provisions for terrain restoration
According to the published Group’s environmental policy and the applicable law requirements, provisions for
terrain restoration in connection to contaminated land and the costs related thereto are recognised upon the
occurrence of the contamination.
3 Significant accounting policies (continued)
(к) Provisions (continued)
(iv) Onerous contracts
A provision for onerous contracts is recognized where the unavoidable costs of meeting the obligations under
the onerous contract exceed the expected economic benefits for the Group from this contract. Provision is
accrued as the present value of the lower of these two – the estimated costs of exiting the contract or the
expected net costs of continuing to fulfil it. Before a separate provision for an onerous contract can be made,
the Company should recognize any impairment that has occurred on assets dedicated to that contract.
(l) Revenue
(i) Revenue from sold output and goods
Revenue from sale of goods is measured at the fair value of the consideration received or receivable net of
returns and allowances, trade discounts and volume rebates. Revenue from sale of goods is recognized in the
statement of comprehensive income when the significant risks and rewards of ownership are transferred to the
buyer; the amount of revenue can be measured reliably, and it is probable that the economic benefits associated
with the transaction will flow to the company; the costs made and the possible return of the good may be
measured reliably, and when there is no future involvement in the goods management.
The transfer of all significant risks and rewards of ownership depends on the individual terms of the sale
contract.
No revenue is recognized if there are significant uncertainties regarding recovery of the consideration due,
associated costs or the possible return of the goods.
24
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
(ii) Services
Revenue from services rendered is recognized in the income statement in proportion to the stage of completion
of the transaction at the reporting date. The state of completion is assessed by reference to the ratio between
costs incurred for the work performed so far and the total expected costs under the contract.
(iii) Revenue from ship construction contracts
Revenue from shipbuilding is recognized on the basis of the method of the percentage of works completed
according to which the revenue is recognised on the basis of the stage of completion of the works under a
specific contract. Contract revenues are compared with contract cost arising in the process of reaching this
stage of completion, leading to reporting of income, expenses and profit under the contract based on the
proportion of work completed. The recognized revenue from shipbuilding at each completed stage represents
the same percentage from the expected income from the specific contract, as the percentage of the costs made
for the stage to the expected total costs under the contract. The contractual revenues include the initially agreed
value plus all amendments to the agreed work, claims, bonus payments, to the extent that it is probable that
they will result in revenues and may be duly measured.
3 Significant accounting policies (continued)
(l) Provisions (continued)
(iii) Revenue from ship construction contracts (continued)
When the results from a given construction contract cannot be measured in a reliable manner, revenue from
this contract is recognized only to the extent of contract costs incurred that are likely to be recovered. The
expected loss arising under a construction contract is recognised immediately in the income statement.
Based on the basic technological stages of the construction of the vessel, three stages of completion of
shipbuilding contracts are defined:
 K1 – keel laying;
 K2 – float up;
 Finishing works – until delivery of the ship to the client.
In order to determine the completion stage of shipbuilding contracts the method of the completed units of work
is used.
Shipbuilding contract costs include:
 direct costs attributable to the specific contract;
 indirect (overhead) costs allocated on the basis of direct costs for labour performed for the period of the
specific contract.
(iv) Rental income
Income from rent is recognized in the statement of comprehensive income on the basis of the straight-line
method for the duration of the lease contract. Received additional payments are recognized as an integral part
of the total rental income for the period of the rent. Rental income for property for re-rent are recognized as
other income.
25
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
(m) Gratuitous funds provided by the State
Gratuitous funds provided unconditionally by the State and related to biological assets are recognized in profit
or loss as other income when they are received. Other gratuitous funds provided by the State are recognized
initially as deferred income at fair value when there is sufficient probability that they will be received and the
Group will fulfil the conditions attached to the funds. Gratuitous funds which compensate the Group for costs
incurred are recognized in profit or loss as other income on a systematic bases in the periods when the costs are
recognized. Gratuitous funds which compensate the Group for costs incurred are recognized in profit or loss as
other income on a systematic basis in the periods when the costs are recognized.
(m) Payments under lease contracts
Payments under operating lease are recognized in profit or loss based on the straight-line method over the term
of the lease contract. Additional payments received are recognized in profit or loss as an inseparable party of
the total lease payments for the period of the contract.
Minimum lease payments under financial lease contracts are apportioned out between the financial costs and
the settlement of the outstanding liabilities. Financial costs are allocated to each reporting period over the term
of the lease contract so that to achieve a constant periodic interest rate payable on the remaining amount of the
liability. Potential lease payments are accounted for by re-assessing the minimum lease payments over the
remaining lease term, when the lease adjustment is confirmed.
3 Significant
Значими счетоводни
(продължение)
accounting политики
policies (continued)
(m) Payments under lease contracts (continued)
Determining whether a given agreement contains leasing
Upon occurrence of the agreement the group determines whether it is or contains leasing components. A given
asset is the subject of a lease if the execution of the agreement depends on the use of this given asset. The
agreement represents a transfer of the right of use of the asset if the agreement provides to the Group the right
to exercise control on the use of the base asset.
Upon occurrence or after a subsequent assessment of the agreement, the Group divides the payments and other
required compensations under this agreement to leasing payments and payments for the other elements on the
basis of their relative fair values. If the Group comes to the conclusion that it is not possible to reliable divide
the payments for a given financial leasing, the assets and liabilities are recognized to an amount equal to the
fair value of the base asset. After that the liability is reduced when the payments are made and the incurred
financial cost on the liability is recognized using the differential interest rate of the Group.
(n) Financial income and costs
Financial income comprise interest receivable on funds invested, dividend income, profit from sale of financial
assets available for sale, changes in the fair value of financial assets stated at fair value when the change is
reported as profit or loss, and foreign currency exchange gains. Interest income is charged according to the
effective interest rate method. Dividend income is recognized on the date of establishment of the Company’s
right to receive the payment, which is the date after which shares does not give the right to receiving the last
dividend in case of quoted/ tradable securities.
Financial costs comprise interest payable on borrowings, costs incurred as a result of an increased liability with
a view to approaching the date set for provision realization by one period, foreign currency exchange losses,
changes in the fair value of financial assets stated at fair value when the change is reported as profit or loss,
and write down of financial assets. All expenses on interest payable on loans are recognised as profit or loss
using the effective interest rate method.
26
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
Profit and loss from foreign currency gain and loss are measured on a net basis.
(о) Profit tax
Profit taxes for the year represent the current and deferred taxes. The profit tax is recognized in the profit and
loss, with the exclusion of the one related to business combinations or articles which are recognized directly in
the equity or in another comprehensive income.
The current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax
rates enacted as of the balance sheet date and all corrections for taxes due for previous years.
Deferred tax is calculated on the temporary differences between the amount of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes.
3 Significant
Значими счетоводни
(продължение)
accounting политики
policies (continued)
(о) Profit tax (continued)
A deferred tax is not recognized as time differences from the initial recognition of assets and liabilities for a
transaction different than a business combination which does not affecting the profit and loss, neither for
accounting, nor for taxation purposes and as differences related to investments in subsidiaries jointly
controlled companies, as long as it is probable that there will be no reversal in the foreseeable future. In
addition, deferred tax is not recognized for taxable temporary differences arising from initial recognition of
goodwill.
Deferred tax is measured at the tax rates expected to apply for temporary differences when they appear back,
on the basis of laws which are enacted or are in essence introduced as of the reporting date.
Deferred tax assets and liabilities are netted if there is a legal justification for netting of current tax assets and
liabilities and they refer to profit taxes levied by the same revenue authorities on one company ,or on different
companies which intend to settle the tax assets and liabilities on a net basis, or their tax assets and liabilities
will be realized simultaneously.
An asset to deferred taxes is charged on unused tax losses, credits and deductible temporal differences only to
the amount to which it is possible for the future taxable profit to be available provided against which these can
be used. The deferred tax assets are reviewed as of each reporting date and are reduced as long as it is no
longer possible for future benefits to be realized.
When determining the current and deferred taxes the Group uses the accounting base described in Note 2(b)
above.
27
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
(p) Reporting by segments
An operating segment is a component of the Group which carries out activities which may generate revenues
and incur costs, including revenues and costs which may refer to transactions with any of the other
components of the Group. The operating results of the operating segments are reviewed regularly by the Chief
Executive Officer so that decisions can be made regarding the allocation of the resources to the segments and
their performance assessed, and for which differentiated financial information is available.
Results by segment, which are reported to the Executive Director, include both items that can be attributed
directly to the segment, and those can be attributed to a reasonable basis. Unallocated items, mainly corporate
assets (primarily the headquarters of the Company), main office expenses, and income tax assets and
liabilities.
Capital costs by segment represent the total costs during the year for acquisition of property, plant and
equipment and for intangible assets other than goodwill.
3. Significant accounting policies (continued)
(r) Basic earnings per share
The Group presents the base net earnings per share (NES) and diluted earnings per share for its ordinary
shares. The base NES is calculated by dividing the profit or loss for the holders of ordinary shares of the
Company by the average weighted number of ordinary shares during the period, adjusted for equity held. NES
with diluted value are calculated by adjusting the profit or loss for the holders of ordinary shares and the
average weighted number of ordinary shares adjusted for held equity and to reflect the effects from all
potential diluting ordinary shares, including convertible bonds and share options provided to workers and
employees.
4
Fair value measurement
Some accounting policies and disclosures of the Group require that fair values are determined for both the
financial and non-financial assets and liabilities. Fair values have been determined for the purposes of
measurement and disclosure based on the methods discussed below. Where applicable, supplementary
information about the assumptions made in measurement of the fair values has been disclosed in the notes for
the specific assets and liabilities.
(i) Property, plant and equipment
Fair values of property, plant and equipment are recognized in the result of valuation based on market prices,
performed by certified qualified valuers. The fair value of plant, equipment and facilities is based on the
market approach and the approach of the acquisition price using quoted market prices for similar positions
when such are available and the value of replacement, when applicable. An estimate of the depreciated cost of
replacement reflects adjustments for physical deterioration and functional and economic obsolescence.
28
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
4 Fair value measurement (continued)
iii) Non-derivative financial liabilities
The fair values measured to be disclosed are determined on the basis of the present value of future cash flows
related to principals and interests discounted by the market interest rate as of the statement’s date. Regarding
the liability component from convertible bonds, the market interest is determined from similar liabilities
without the option of conversion. The market interest rate applicable to financial leases is measured on the
basis of similar lease agreements.
(iv) Derivatives
The fair value of interest rate swaps is based on quotes from brokers. These quotes are tested for
reasonableness by discounting expected future cash flows based on the conditions and maturity of each
contract and using market interest rates for similar instruments at the date of assessment. Fair value reflects the
credit risk of the instrument and includes adjustments to account for the credit risk of the Group entity and the
contracting party, where appropriate.
5.
Financial risk management
The Company is exposed to the following risks resulting from the use of financial instruments:
 Credit risk
 Liquidity risk
 Market risk
 Operating risk
This note gives information on the Group’s exposure to each of the aforementioned risks, the purposes of the
Group, policies and processes related to risk assessment and management and management of the capital of the
Group. Additional quantity disclosures are included in the Notes to the Consolidated Financial Statements.
Key risk management positions
The Audit Committee of the Group observes how the management ensures compliance with the risk
management policies of the Group and reviews the adequacy within the risk management framework regarding
the risks facing the Group. The Audit Committee of the Group uses the support of the Internal Control
Department. The Internal Control Department handles both planned and surprise reviews of the risk
management controls and procedures, the results of which are reported to the Audit Committee.
Credit risk
The credit risk, to which the Group is exposed, is the risk of possible loss in case a client or a party to financial
instrument agreement fails to perform its contractual obligations. The credit risk is mainly related to
receivables from clients and investments in securities.
29
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
5.
Financial risk management (continued)
Trade and other receivables
The exposure to credit risk of the Group results from the specific characteristics of individual clients that vary
for the different segments. This exposure may also depend on the risk of non-payment characteristic to the
industry or markets where the Group’s companies operate. As this risk is different for the various segments, it
is managed on the basis of their share in the portfolio of IHB Plc. Thus, the Group’s risk is diversified. The
credit policy of the Group provides for investigation of the solvency of each new client before offering
standard terms of delivery and payment.
The Group reports impairment representing estimated loss in relation to trade and other receivables and
investments. The main impairment components include a component concerning individually significant
exposures and a collective component concerning loss on groups of similar assets as to losses that have been
incurred but not identified yet. The collective component is determined on the basis of historical data on
payments related to similar financial assets.
Investments
The Group invests mainly in businesses and companies in which it has control and may determine their
management strategies. As to portfolio investments, the Group aims at investment in liquid securities.
Guarantees
The policy of the Group envisages issuance of financial guarantees only following preliminary approval by the
management bodies. As of 31 December 2010 the Group provided guarantees to secure obligations to third
parties, as per the information provided in Note 36.
Liquidity risk
Liquidity risk originates when the Group does not settle its liabilities when they become due. The Company
applies a method ensuring necessary liquid resources to settle its liabilities under usual or extraordinary
conditions without suffering excessive loss or damaging its reputation.
The companies elaborate financial planning to cover their expenses and current payables for a period of 30
days, including settlement of financial liabilities; this planning excludes the potential effect of extraordinary
circumstances that may not be foreseen under usual conditions.
30
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
5.
Financial risk management (continued)
Liquidity risk (continued)
The Holding’s management assists the Group’s companies in their efforts to borrow funds from banks for
investments and use revolving working capital loans to secure production. The amounts of these borrowed
funds are maintained at certain rates and allowed following proving economic effectiveness as to each
company. Borrowed funds improve liquidity and are necessary for the production growth. The policy applied
by the Management over the last several years is directed at raising fresh market resources by the Holding in
the form of shares, bonds and other similar instruments with the purpose of investing in its subsidiaries in two
directions: granting of loans to its group companies to finance their projects and acquisition of shares in their
capitals, including subscription of shares upon capital increase.
Market risk
The market risk originates when the income or the value of the investments of the companies are affected by
changes in market prices, exchange rates, interest rates or prices of equity instruments. The purpose of market
risk management is the management and control of market risk within acceptable limits through return rate
optimization.
Currency risk
The Holding’s management has minimized the payments in foreign currency other than BGN and EUR to
minimize the Group’s exposure to currency risk. Some of the Group’s companies are exposed to limited
currency risk upon purchase and/or sale and/or receiving loans denominated in foreign currencies other than
the functional currency. Bulyard Shipbuilding Industry EAD, KLVK AD and Tirista Ltd have signed
contracts in USD and payables in JPY under delivery contracts. Measures for hedging the currency risk have
been taken.
Interest rate risk
The Group’s companies are exposed to interest rate risk as loans are agreed under the condition of floating
interest rates relevant to current market prices. The interest rate risk management is directed at increasing the
number of fixed interest rate loans.
In some cases when floating rate loans are obtained, upon the request of the lender a part of the interest
payments is protected from an increase of the interest rate through an interest rate swap.
Operating risk
Operating risk is the risk from direct or indirect losses arising from a wide range of reasons related to the
processes, personnel, technologies and infrastructure of the Group, as well as from external factors different
than credit, market and liquidity risks, such as those arising from legal and regulatory requirements and
common standards of corporate behaviour. Operating risks arise from all operations of the Group.
31
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
5.
Financial risk management (continued)
Operating risk (continued)
The objective of the Group is to manage operating risk in such a way as to balance between the avoidance of
financial losses and injuring the reputation of the Group and the overall efficiency of the costs and the
avoidance of the control procedures which limit initiative and creativity.
The primary responsibility for developing and implementing operational risk controls is borne by the senior
management within each business unit.This responsibility is supported by the development of common Group
standards of operational risk management in the following fields:





Requirements for appropriate allocation of duties, including independent authorization of transactions;
Requirements for monitoring and reconciliation of transactions;
Compliance with regulatory and other legal requirements;
Control documentation and procedures;
Requirements for periodic assessment of operational risks and the adequacy of the controls and
procedures to deal with identified risks;
 Requirements for reporting of operating losses and proposed remedial action;
 Development of emergency plans;
 Training and professional development;
 Ethics and business standards;
 Reduction of risks, including insurance when expedient;
Compliance with the standards of the Group is supported by a program for periodic reviews undertaken by
Internal Audit. The results of the reviews of Internal Audit are discussed with the management of the business
unit to which they refer, with summaries submitted to the Audit Committee and senior management of the
Group.
Capital management
The policy of the Management is directed at maintenance of strong capital base so as to keep owners’ trust
and the market as a whole and ensure future business development conditions
The Group’s aims at maintaining a balance between the higher return rate that is possible in case of lower
indebtedness levels and the benefits and security of a strong capital position. In 2010 the return on equity is
minus 5.88% (2009: 0.83%).
The Company is the subject of no contractual or regulatory capital requirements.
6.
Operating segments
The information by sectors is provided as per the business sectors of the Group. The format is based on the
internal management structure of the Group.
The internal sector price formation is based on direct buyer-seller relationships.
32
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
6.
Operating segments (continued)
The financial results for the respective sector, the assets and liabilities include the respective amounts that
can be directly attributed to a given sector and those that can be allocated on a reasonable basis. The assets
and liabilities, revenues and expenses which are not allocated include goodwill, non-controlling interest,
loans and related expenses, tax assets and liabilities.
Capital costs for a given sector are the total costs incurred in the period for acquisition of assets that are
expected to be used for more than one period.
Business sectors
The Group includes the following business sectors:
Maritime transportation: management, commercial maritime navigation, related production and technical
activities, forwarding and intermediary activities, ship brokerage and ship agency.
Port operations: provision of port services and auxiliary services to/from ships and land transportation,
loading and unloading of containers, warehousing, processing of cargo, loading and unloading and storage
services, transportation and forwarding services, provision of electric power, water and bunkers, storage of
waste, hiring of lifting and transportation machinery, etc.
Machine building: Production and sales of metal cutting machinery, production, repairs and sales of electric
machinery and smelting.
Shipbuilding and ship repairing: Manufacture and repairs of ships, finishing works and reconstruction of
vessels and all kinds of floating facilities and related services.
River cruises - operation of ships, hotels, restaurants, sales of goods, travel agency in the country and
abroad and other activities not prohibited by law.
Other. Constancy services, furniture production, real estate dealings, classification and certification,
technical supervision of ships, independent construction supervision in design and construction, etc.
The Group includes the following business sectors:
Geographic sectors
All sectors are located and carry out their business in the territory of Bulgaria with the exclusion of
companies - ship owners registered on the Marshall Islands.
33
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
7. Revenue
In BGN thousand
Note
Sale of output
Shipbuilding
Sale of services
- including charter services
Ship repairing
Port operations
Sale of goods and materials
31 December
2011
31 December
2010
31,292
41,118
27,476
21,254
2,712
4,604
2,419
109,621
21,820
40,026
18,827
11,758
1,162
3,537
3,191
88,563
Due to the policies applied by the Group the acquisition cost of ships is equal to the buying cost which is agreed
under the construction contracts and some additional expenses related to the launch of the ship that are made by
the parent company. Thus, in the consolidated financial statement only income and expenses from construction
of ships are eliminated and profit or loss are not eliminated but remain for the Group. In the view of specificity
of the applied accounting policy income from construction of ships in the respective periods should not be
compared.
8. Other operating income
In BGN thousand
Gains on sale of non-current assets
Rental income
Funding income
Acquisition income
Other income
Note
8а
31 December
2011
630
810
30
6,973
1,779
10,222
31 December
2010
368
934
46
2,164
3,512
8а Gains on sale of non-current assets
In BGN thousand
Revenue from sale of non-current assets
Carrying amount of assets sold
31 December
2011
1,158
(528)
630
31 December
2010
521
(153)
368
9. Increase/(reduction) of work in progress
In BGN thousand
Mashstroy AD
Leiarmach AD
ZMM Sliven AD
Augusta Mebel AD
ZMM Nova Zagora AD
Elprom ZEM AD
Bulyard Shipbuilding Industry AD
31 December
2011
(339)
24
846
57
(72)
(797)
(6,134)
(6,415)
31 December
2010
(215)
(40)
(17)
35
86
(943)
(31,066)
(32,160)
34
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
10. Capitalized expenses on own assets creation
In BGN thousand
Mashstroy AD
Elprom ZEM AD
Dockyard Port Burgas AD
Karvuna – ship with construction number 458
Augusta Mebel AD
ZMM Bulgaria Holding AD
Bulyard Shipbuilding Industry AD
Ship Odria
Ship Karvuna
Ship Antea
Ship Diamond Sea
ZMM Nova Zagora AD
11. Payroll costs
In BGN thousand
Salaries and other payments
Compulsory social security
31 December
2011
29
8
17
75
8,341
5
8,475
31 December
2010
41
55
5
8,637
1
9
8,806
8,570
28,910
46,397
31 December
2011
31 December
2010
20,021
3,570
23,591
19,076
3,557
22,633
31 December
2011
31 December
2010
386
202
13
601
187
10,776
10,963
13. Net financial income/(expenses)
Recognised in profit or loss
In BGN thousand
Financial income
Income from interests
Gains on exchange differences, net
Gains from operations with financial assets
Other financial income
Financial expenses
Interest expenses
Loss on exchange differences, net
Loss on operations with financial assets
Other financial gains/(loss), net
Net financial revenue recognised in profit or loss
(4,980)
(7,756)
(238)
(228)
(13,202)
(12,601)
(2,862)
(3,283)
(205)
(384)
(6,734)
4,229
The reported positive exchange differences are mainly due to revaluation of a bank loan in JPY amounting to
35
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
JPY 1,122,594 thousand used by Bulyard Shipbuilding Industry EAD for acquisition of a package of materials
for the construction of the ship with construction number 102 and maturity in 2018; bank credit of USD 10
million received by Privat Engineering AD, with maturity in February 2017, used to partially finance the
construction of ships Karvuna and Emona; investment loan of 11 million, used by subsidiary Tirista Ltd, and
USD 37 300 thousand used by the subsidiary Serdika Ltd, as well as working capital loans in USD used by the
companies.
The interest rate costs under the debenture loans (repaid and issued in 2011) issued by Industrial Holding
Bulgaria Plc. for the period 01 January 2011 – 31 December 2011 amounts to BGN 1,787 thousand.
Recognised in other comprehensive income
In BGN thousand
31 December
2011
Effective part of the changes in the fair value on cash flow
hedges, net of taxes as of 31 December 2011
Value included in the price of acquisition of non-financial asset
on cash flow hedges
(350)
31 December
2010
(335)
29
(350)
(306)
In 2010 the Privat Engineering AD signed a contract for interest rate swap with Societe Generale Expressbank
designed to protect against the risk of changes in future cash flows related to interest payments on a bank loan.
The interest rate swap is designated to hedge cash flows and the changes in its fair value reported as part of
other comprehensive income.
14. Tax expenses
Reported in the Income Statement
Note
In BGN thousand
Current tax expenses
Deferred tax expenses
Origination and reversal effect of temporary differences
Total tax expenses based on the Income Statement
31 December
2011
31 December
2010
844
844
595
595
(210)
(210)
(486)
(486)
634
109
The current expenses on profit taxes are calculated at the rate of 10% (2010: 10%) on the tax base. Deferred tax
expenses are calculated by applying the 2011 tax rate of 10% (2010: 10%).
36
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
18. Property, plant and equipment
In BGN thousand
Land and
buildings
Plant and
Other non-
Ships Costs of non-
equipment current assets
Total
current
Carrying amount
tangible
assets
acquisition
Balance as of 1 January 2010
Acquired
Disposals
Transfers
Transfers to non-current intangible assets
Land revaluation
Revaluation of buildings
Depreciation elimination against carrying
amount
Assets impairment
Balance as of 31 December 2010
Balance as of 1 January 2011
Acquired
Disposals
Other reductions
Transfers
Balance as of 31 December 2011
69,914
793
(3,431)
3,910
49,792
158
(1,062)
931
6,741
276
(98)
292
50,999
33,654
53,429
70,599
(75,732)
(52)
108,273
49,819
7,211 121,598
11,299
298,200
108,273
33
(417)
(793)
107,096
49,819
1,679
(525)
7,211 121,598
397 54,200
(858)
-
11,299
1,608
-
298,200
105,542
(1,800)
(793)
2,987
53,960
68
6,818 175,798
(3,055)
9,852
353,524
Depreciation and impairment losses
Balance as of 1 January 2010
Depreciation costs for the year
Depreciation of assets written-off
Other changes
Balance as of 31 December 2010
640
894
(63)
1,471
14,451
2,922
(560)
16,813
2,880
685
(98)
3,467
508
2,791
3,299
-
18,479
7,292
(721)
25,050
Balance as of 1 January 2011
Depreciation costs for the year
Depreciation of assets written-off
Other changes
Balance as of 31 December 2011
1,471
870
(49)
2,292
16,813
2,708
(451)
19,070
3,467
684
(508)
3,643
3,299
4,970
8,269
-
25,050
9,232
(1,008)
33,274
Carrying amount
As of 1 January 2010
As of 31 December 2010
69,274
106,802
35,341
33,006
3,861 50,491
3,744 118,299
33,654
11,299
192,621
273,150
As of 1 January 2011
As of 31 December 2011
106,802
104,804
33,006
34,890
3,744 118,299
3,175 167,529
11,299
9,852
273,150
320,250
37,087
211,100
54,656
(4,591)
(52)
37,087
In connection with the issue of bank guarantees and/or letters of credit to suppliers and used bank loans
mortgages are registered or special pledges established on property, plant, equipment and facilities and
transportation vehicles (ships) with a total carrying amount as at 31 December 2011 amounting to BGN 252,904
thousand (31 December 2010: BGN 201,556 thousand).The carrying amount of non-current tangible assets of
Dockyard Port Burgas AD, company that is pledged with Bank DSK EAD, amount to BGN 20,850 as at 31
37
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
December 2011.
After cancelling the contract with the Turkish Diler Shipping end Trading Ink. for building a ship with
construction number 103, the ship remained a property of Bulyard Shipbuilding Industry and built for Serdika
Ltd, a subsidiary which is fully owned by the Group.
On 20 October 2011 Bulyard Shipbuilding Industry delivered officially the new ship Diamond Sea to the ship
owner Serdika Ltd. The ship is 55 500 DWT bulk carrier with unlimited region of sailing.
.
19. Intangible assets
Patents and
Software
trade marks
Other
intangible
In BGN thousand
assets
Total
Carrying amount
As of 1 January 2010
As of 31 December 2010
1,248
1,130
224
225
3,996
3,706
5,468
5,061
As of 1 January 2011
1,130
225
3.706
5,061
As of 31 December 2010
1,042
218
3,375
4,635
The total depreciation accrual for intangible assets for the period ended 31 December 2011 amounts to BGN
479 thousand (31 December 2010: BGN 508 thousand). As the non-current intangible assets held by the Group
represent insignificant portion, no detailed note concerning any changes in them for 2010 and 2011 was made.
(i) Goodwill
In BGN thousand
Goodwill
Balance as of 1 January 2010
Movement in the period
Balance as of 31 December 2010
6,212
6,212
Balance as of 1 January 2011
Movement in the period
Balance as of 31 December 2011
6,212
6,212
As of 31 December 2010 the Group made an impairment test on the current goodwill amounting to BGN 6,212
thousand, the main portion of which – BGN 5,214 thousand is due to the acquisition of Bulyard Shipbuilding
Industry EAD. The analysis is based on the value of assets in use by the method of discounted cash flows for a
forecast period of 5 years and a terminal value calculated by the constant growth model. The discount rates
used are determined by the method of weighted average cost of capital and the model for evaluation of capital
assets.
To the date of this report no impairment test on the goodwill has been made.
Acquisitions in subsidiaries and non-controlling interests
38
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
IHB subscribed for all shares from the capital increase of KLVK AD and as a result of this in June 2011
acquired 48.99 % of the capital of the company. KLVK is a subsidiary of IHB and the remaining shares are
held by International Industrial Holding Bulgaria AG of which IHB owns 100%.
Subsidiary Rekolta AD was sold in June 2011.
Newly established subsidiaries
In December the Holding acquired 100% of Rekolta 2011 EAD through a share swap with Agromanage AD,
company in which the Holding owned 33,33% of the capital.
The General Meeting of Hydro Power Bulgaria AD held on 10 th June 2011 took a decision for winding up the
company. As the company did not have active operations its liquidation will not have an significant impact on
the Consolidate Financial Statement of the Group and the amount of capital left after the liquidation will cover
the investments made by the companies.
20.
Investments in associates reported under the capital method
The Group owns the following investments in associates:
Country
Dunav Tours AD
Instrum Travel
Odesos PBM AD
Bulgaria
Cyprus
Bulgaria
Ownership
31 December
2011
48.44%
50.00%
30.00%
31 December 2010
48.44%
50.00%
30.00%
As at 11 February 2011 Ship Design AD was deleted from the Trade Register and its activity was terminated.
.
39
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
20. Investments in associates reported under the capital method (continued)
Movements in investments in associates can be analyzed as follows:
In BGN thousand
Dunav Tours AD
As of 1 January
Share in the net assets increase
Distributed as dividend
As of the end of the period
Instrum Travel
Investment
Share in the net assets increase / (decrease)
Distributed as dividend
Adjustment of net assets 2009
As of the end of the period
Odesos PBM AD
As of 1 January
Share in the net assets increase
Distributed as dividend
As of the end of the period
Ship Design AD – in liquidation
As of 1 January
Distributed as dividend
Share in the decrease of the net assets
Transferred as a subsidiary and impaired
As of the end of the period
Rekolta AD
As of 1 January
Investment
Transferred as a subsidiary
As of the end of the period
Agromanage AD
As of 1 January
Acquired in June 2011 and in November 2011
Swap with shares of Rekolta 2011 AD
31 December
2011
11,882
1,119
13,001
31 December
2010
11,386
982
(486)
11,882
31 December
2011
1,423
1,257
2,680
31 December
2010
1,500
882
(685)
(214)
1,423
31 December
2011
1,827
156
(99)
1,884
31 December
2010
1,716
171
(60)
1,827
31 December
2011
-
31 December
2010
325
(98)
(227)
-
31 December
2011
-
31 December
2010
70
(70)
-
0
1,100
(1,100)
-
Total investments in associates as of the end of the period
17,565
15,132
For the period from 1 January 2011 to 31 December 2011 is reported share of adjustment of the net assets of
the associate companies in BGN 2,532 thousand.
40
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
21. Other investment
In BGN thousand
31 December 2011
31 December 2010
4
1
5
7
1
8
Meteko AD
Other
22. Long-term receivables
In BGN thousand
31 December
31 December
2010
2011
Receivables on cession agreement
Receivable from related companies - Dunav Tours
AD
Receivables on loans granted and due interest
Other long-term receivables
-
34
1,955
6,923
295
7,218
7,052
86
9,127
To the date of this report the receivable from associate Dunav Tours AD due in connection with a loan granted
amounting to EUR 1,000 thousand at an interest rate 6.5% on an annual basis, with repayment period December
2013 is fully paid. The receivables from loans granted include a receivable from a trade company amounting to
BGN 6,963 thousand which is secured by a pledge of shares.
23. Inventories
In BGN thousand
Raw materials, materials and other consumables
Impairment of raw materials, materials and other consumables
Work in progress
Impairment of work in progress
Finished products
Impairment of finished goods
Supplies
Goods
Note
23а
23а
31 December
2011
38,802
(138)
25,967
(7)
2,442
(301)
2
66,767
31 December 2010
67,954
(138)
31,078
(100)
2,191
(284)
5
100,706
23а Work in progress
Work in progress includes:
41
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
31 December
2011
31 December 2010
21,422
43
4,466
29
25,960
25,847
4
5,122
5
30,978
31 December
2011
31 December 2010
5,544
22
1,478
540
3,339
11,221
4,856
19
7
1,418
285
3,940
10,525
In BGN thousand
Work in progress in shipbuilding
Others related to shipbuilding
Work in progress in machine building
Others
24.
Trade and other receivables
In BGN thousand
Trade receivables
Court receivables
Receivables from related parties
Tax receivables
Other receivables
Prepayments and prepaid expenses
Note
34.
.
25. Cash and cash equivalents
In BGN thousand
Cash at banks
Cash in hand
Cash based on cash flow
Blocked cash
Cash and cash equivalents in statement of financial
position
31 December
2011
31 December
2010
11,166
55
11,221
8,852
54
8,906
-
-
11,221
8,906
42
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
26. Share capital and reserves
The share capital is stated at nominal value as per the court registration. As of 31 December 2011 the share
capital comprises of 67 978 543 ordinary shares.
With decision N 20100607151811 as of 7 June 2010 the Registry Agency entered into the trade register an increase of
the capital of Industrial Holding Bulgaria Plc. from BGN 43,756,718 to BGN 58,282,079 through the issue of
14,525,961 ordinary, registered, dematerialized, freely transferable shares with the right to 1 vote in the General
Meeting of the Shareholders (GMS), with nominal value BGN 1.00 and issue value BGN 1.40 per share. The increase
of the capital is the result of the public offering (subscription) of shares in the capital of Industrial Holding Bulgaria
Plc., which was successfully completed on 27 May 2010.
On 11th June 2010 the issue was registered with the Central Depository. The shares were registered for trading on the
Bulgarian Stock Exchange - Sofia as at 4 August 2010.
On 7 April 2011 the Registry Agency entered the capital increase of Industrial Holding Bulgaria from 58,282,079 to
BGN 67,978,543 through the issue of 9,696,464 new dematerialized registered voting shares with par and issue value of
BGN 1 and issue value of BGN 1.03. The share capital has been subscribed at par value and is fully paid.
There are no preference shares and bearer shares.
Holders of ordinary shares are entitled to dividend as disclosed at the end of each year and one vote per share in the
Group’s meetings. All Group’s shares give equal rights as to assets upon liquidation.
Shareholders in Industrial Holding Bulgaria Plc holding over 5% of the capital of Industrial Holding Bulgaria Plc as of
31 December 2011:
Shareholder
Number of shares
31 December 2011
2011
%
Number of shares
December
31
2010
%
2010
Venside Entities AD
BULLS AD
DZH AD
MUPF Allianz Bulgaria AD
Other
20,399,604
9,537,921
3,513,143
4,646,278
29,881,597
67,978,543
30.01%
14,03%
5,17%
6,83%
43,96 %
100,00%
17,485,375
5,831,539
2,914,786
4,007,095
28,043,284
58,282,079
30.00%
10.00%
5.00%
6.88%
48.11%
100,00%
Additional and statutory reserves
Additional and statutory reserves include reserves formed by setting aside 10% of the profit in accordance
with the provisions of the Law on Commerce as well as additional reserves set aside as a result of profit
distribution. They also include additional and statutory reserves of the Parent, as well as the share held in the
reserves of subsidiaries after the acquisition date.
Revaluation reserve
Revaluation reserve is formed in consequence of revaluation of property, plant and equipment and is reduced
by the deferred tax liabilities originating from the revaluation.
Hedging reserve
The hedge reserve contains the effective portion of the net change in the fair value of cash flow hedges related
to hedged transactions that have not yet occurred.
43
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
27.
Earnings per share
(i)
Basic earnings per share
The calculation of basic earnings per share as of 31 December 2011 is based on the net profit/loss
attributable to the majority owners of ordinary shares, amounting to BGN 7,859 thousand loss (31
December 2010: Loss of BGN 13,176 thousand) and the weighted average number of ordinary shares
available for the period ended 31 December 2011 of 65,428 thousand (31 December 2010: 52,34
thousand). The calculation is as follows:
(i)
Basic earnings per share (continued)
Net profit attributable to holders of ordinary shares
In BGN thousand
Net profit (loss) for the period
Net (loss)/profit attributable to majority owners of
ordinary shares
31 December
2011
31 December
2010
(20,748))
(24,690)
(5,859)
(13,176)
31 December
2011
31 December
2010
Weighted average number of ordinary shares
In thousands of shares
Number of issued ordinary shares as of 1 January
Issue of new shares in circulation 7 June 2010
Issue of new shares in circulation 14 April 2011
Number of ordinary shares as of the end of the respective
period
Weighted average number of shares as of the end of the
period
58,282
9,696
43,756
14,526-
67,978
58,282
65,428
52,034
The Group does not disclose diluted earnings per share as it considers that the convertible debenture loan does
not have a reducing effect on the yield per share due to the fact that the interest on it (net from taxes),
calculated for one ordinary share, exceeds the main yield per share.
28.
Borrowings
This note gives information on the contractual terms and conditions on the Group’s borrowings.
In BGN thousand
Non-current liabilities
Secured bank loans
Lease payables
Payables to non-financial institutions
31 December
2011
31 December 2010
104,971
789
727
106,487
41,389
526
41,915
44
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
Current liabilities
Current portion of secured bank loans
Lease payables
Payables to non-financial institutions
Debenture loan
Current portion
Long term portion
Current portion – payable interest
19,542
354
3,153
23,049
31,244
188
31,432
21,529
357
21,650
21,886
21,954
304
With Decision No 20081104114240 of the Commercial Register, there has been published an announcement
on signed debenture loan of IHB Plc under the following terms and conditions:
∙ ISIN code: BG2100024087
∙ Total nominal value (debenture loan amount): BGN 21,649,600 (twenty-one million six hundred forty-nine
thousand and six hundred Bulgarian leva) divided into 216,496 (two hundred sixteen thousand four hundred
and ninety-six) dematerialized interest-bearing convertible freely transferable unsecured shares, each having
nominal value of BGN 100 (one hundred leva);
∙ Debenture loan maturity:
3 /three/ years (36 months of 1.095 days), as of the issue date;
∙ Initial maturity date: 29 October 2008
∙ Interest rate: 8.00% (eight per cent) per year;
∙ Interest payment period:
6-month;
On 18 October 2011 the Management Board stated that within the defined term according to the conditions
determined beforehand there are no bondholders of bond issue ISIN BG2100024087 of Industrial Holding
Bulgaria PLC willing to convert bonds into shares. To this end, the capital of Industrial Holding Bulgaria PLC
was not increased by converting of bonds into shares.
On 29 October 2011 (value date 28 October 2011) the last interest payment and the payment of the principal of
the issue convertible bonds issued by Industrial Holding Bulgaria PLC, ISIN code: BG2100024087 and BSE
code: 4IDC was made. Bondholders registered with the Central Depository as of 24.10.2011 (Record Date)
will have the right on interest payment and payment of principal. The interest rate is 8 % annually.
.
45
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
On 30th June 2011 the General Meeting of the shareholders adopted a decision for the issuance under the
conditions of an initial public offering of an issue of dematerialized, interest-bearing, convertible, freelytransferable and unsecured bonds with the following parameters and purpose:
Total nominal and issue value of the debenture loan: Up to BGN 21,718,000 /twenty-one million, seven
hundred and eighteen thousand/;
Nominal value per bond: BGN 100 /one hundred/.
Issue value per bond: BGN 100 /one hundred/.
Number of bonds: Up to 217,180;
Minimal amount at which the loan is deemed as concluded: the loan shall be deemed as concluded upon
subscription and payment of bonds of a total nominal value of no less than BGN 11,000,000 /eleven million/;
Term (maturity of the debenture loan: 3 /three/ years (36 months);
Interest rate: 8.00% per year;
Interest payment period: 6 months;
Procedure for conversion of bonds into shares (conversion procedure): conversion - on the maturity date of the
bonds, each bond holder shall be entitled, under the terms of the debenture loan and prospectus for public
offering of the issue of convertible bonds, instead of repayment of the bonds held, to exchange (convert) them
for such a number of shares as would correspond to the conversion ratio valid at the time of the exchange.
The public offering of convertible bonds was closed successfully and at the closing date of the offering
217 139 convertible bonds were subscribed and paid for. The amount received from the subscribed and paid
convertible bonds in the special account of IHB is BGN 21,713,900and the funds raised through the issue will
be used to reimburse the debenture loan under a previous issue of convertible bonds - ISIN BG2100024087,
issued by Industrial Holding Bulgaria Plc.
46
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
Terms and maturity – 31 December 2011
In BGN thousand
Secured bank loans:
EUR 430 thousand – 3-month EURIBOR + 4.9% investment
BGN 21,714 thousand – 8% debenture loan
EUR 350 thousand – BIR-EUR + 1% annually
EUR 333 thousand BIR-EUR + 2.3 %
BGN 170 thousand - 8%
EUR 185 thousand , 6.3%
BGN 200 thousand 1-month. SOFIBOR +2% - credit line
EUR 350 thousand BIR-EUR +3.50% revolving
JPY – CIRR+Risk Premium + 2.5%
EUR 600 thousand 6-month EURIBOR + 5%, but no less
than 7%
EUR 712 thousand – 1-month EURIBOR + 3.5% (min.
7.5%) investment loan
EUR 335 thousand – 1-month EURIBOR + +3.5% (min.
7.5%) investment loan
USD 575 thousand – 1-month LIBOR + 5%
USD 390 thousand – 1-month LIBOR+5%
USD 37,300 thousand – 3-months LIBOR+2.25 %
USD 10,000 thousand – 1-month LIBOR+5%
USD 10,000 thousand – 1-month LIBOR+4,75%
USD 11,000 thousand – 1-month LIBOR+3%, but no
less than 4.25%- framework agreemnet
BGN – credit line – 1-month SOFIBOR +3.5%
USD 1,600 thousand – 1-month LIBOR + 5%
BGN 590 thousand , SOFIBOR +4,7%
BGN 94 thousand, 3 months SOFIBOR+3%
Finance leases:
EUR 25 thousand – 7.50%
EUR 73 thousand –7.7%
EUR 1,033 thousand –1M EURIBOR + 7.5%
Total
1 year or below
over 1 year
135
135
-
21,529
319
210
170
362
200
304
17,804
1,173
319
84
170
200
152
2,739
1,173
21,529
126
362
152
15,065
-
291
291
-
135
135
-
870
590
55,949
11,318
14,753
13,864
870
590
2,401
2,191
1,089
1,397
53,548
9,127
13,664
12,467
3,000
2,418
590
58
3,000
2,418
141
47
449
11
12
13
1,118
12
7
335
6
783
147,185
19,896
127,289
It was established a pledge on receivables from clients, mainly charterers, amounting to not less than USD 11 000
thousand.
To secure contracts, for issuance of bank guarantees and for bank loans mortgages of land and buildings have been
registered and pledges set up on machinery, facilities, equipment and vehicles - four ships owned by companies in the
Group with a total carrying amount at 31 December 2011 amounting to BGN 252,904 thousand. Furthermore Dockyard
Port Burgas AD has been pledged as a whole entity (see contingent liabilities).
47
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
Terms and maturity – 31 December 2010
In BGN thousand
Secured bank loans:
EUR 430 thousand – 3-month EURIBOR + 4.9% investment
BGN 21,650 thousand - 8% debenture loan
EUR 300 thousand - 3-month EURIBOR + 4.65%
overdraft
EUR 5 million -- 3-month EURIBOR + 4.65%
EUR 333 thousand BIR - EUR + 2.3% -investment
Overdraft – 3-month EURIBOR + 4.65%
EUR 50 thousand BIR-EUR + 2.3 %
BGN 90 thousand - 8%
BGN 80 thousand - 8%
BGN 200 thousand – 1-month SOFIBOR +2% - credit
line
EUR 350 thousand BIR – EUR +3.50% revolving
JPY – CIRR+Risk Premium + 2.5%
EUR 600 thousand 6-month EURIBOR + 5%, but no less
than 7%
EUR 712 thousand – 1-month EURIBOR + 3.5% (min.
7.5%) investment loan
EUR 335 thousand – 1-month EURIBOR + +3.5% (min.
7.5%) investment loan
EUR 7,190 thousand – JBIC+2.5%
EUR 2,810 thousand JBIC + 2.5%
USD 10,000 thousand – 1 months LIBOR+5%
USD 8,000 thousand – 1-month LIBOR+3%, but not less
than 4.25%
USD 55 thousand -1month LIBOR+5%
BGN – credit line – 1-м. SOFIBOR +3.5%
USD 1,600 thousand – 1-month LIBOR + 5%
Finance leases:
EUR 25 thousand - 10.50%
EUR 73 thousand –average rate 7.5%
EUR 17 thousand – 3-month EURIBOR + 4.6%
EUR 47 thousand - 6.70%
EUR 484 thousand - 7.5%
Total
1 year or below
over 1 year
332
197
135
21,650
62
21,650
62
-
9,779
293
188
29
90
30
200
9,779
188
29
90
30
200
293
456
19,017
1,173
235
2,536
1,173
221
16,481
-
606
315
291
281
146
135
7,031
2,748
13,161
11,782
7,031
2,748
2,143
1,323
11,018
10,459
81
2,938
2,356
81
2,938
-
2,356
32
44
10
16
612
94,997
19
30
10
16
113
53,082
13
14
499
41,915
-
29. Other long-term payables
48
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
In BGN thousand
31 December
2011
31 December 2010
492
313
805
516
1,075
65
1,656
Financing
Deferred payment to suppliers
Other long-term payables
Funding under the Project for Development of Technologies for Ship Inspection and Certification and InternetBased System for Inspection Management at the Bulgarian Register of Shipping; financing by the National
Investment Fund at the Small and Medium Size Enterprises Promotion Agency for development of a new technology
for insulation system at Elprom ZEM AD and financing through DSK Bank AD under the terms and conditions of an
EBRD credit line for energy efficiency and renewable energy sources at Leiarmach AD and fund Bulyard
Shipbuilding Industry EAD financing through the Ministry of Labour and Social Works and EBRD.
The deferred payment to suppliers is on the occasion of land acquired by Dockyard Port Burgas AD in connection
with the expansion of the port operations. As at 31 December 2011 the amount of BGN 1,075 thousand is fully paid.
30. Provisions
In BGN thousand
Retirement Guarantees
benefits
215
522
Lawsuits
Other
10
211
Total
958
Retirement benefits
The Group has estimated the total amount of benefits that would be due upon retirement in compliance with the
Labour Code and the Collective Labour Agreements, if any, by company.
Guarantees
Guarantee provision relates mostly to engines sold to Elprom ZEM and guarantee services under shipbuilding
contracts of Bulyard Shipbuilding Industry AD. The computation of the provision is based on estimates made by
using historical data for guarantees associated with similar products and services. Guarantees relating to a period
longer than one year as of the date of the statement are reported as non-current liabilities.
Lawsuits provision
The estimated expenses on provisions amounting to BGN 10 thousand are based on detailed information about
lawsuits initiated against the group companies.
Other
The provisioned amount of BGN 450 thousand in connection with an audit act by the National Revenue Agency to
a subsidiary in the Group is reversed after the certificate of audit has been overruled in an appeal and the amount
has been reimbursed to the Group.
49
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
32. Trade and other payables
In BGN thousand
Trade payables
Loan from a non-financial institution
Payables to the personnel
Social security contributions
Payables to the budget
Prepayments received
Payables on rights sold to shareholders
Fair value of interest swap
Other
Note
31 December
2011
31 December
2010
19,235
25,389
1,447
277
230
25,337
18,763
372
385
72,200
1,684
329
316
2,549
18,594
762
723
44,192
32а
32а In 2010 a subsidiary signed an interest rate swap contract with a commercial bank. It is designed to protect against the
risk of changes in future cash flows (hedging of cash flows), related to interest payments on a bank loan resulting
from a change in LIBOR. Under the swap contract the company pays a fixed interest rate and receives floating interest
rate (1-month LIBOR), with the payments made on a net basis. The contractual maturities are at 1-month intervals,
with the first maturity date is 30 March 2012 and the last maturity date – 28 February 2017. The fixed interest rate for
the period 28 February 2012 – 28 February 2017 for the swap is 4.30%. The nominal value of the swap is USD 5,820
thousand for the first period and is reduced by BGN 97 thousand for each following period so that for the last period
the nominal value is BGN 97 thousand.
The interest rate swap as at 31 December 2011 is measured at fair value amounting to BGN 762 thousand, a liability
for the Company, and is reported in the statement of financial position as a current liability.
The fair value of the interest rate swap designed for hedging of the interest payments under the bank loan of the
Company is reported as an individual equity component in the hedge reserve (negative).
There is no negative effect from the interest rate swap recognized in the current profit for the period.
33
Related parties
Receivables from related parties
In BGN thousand
Dunav Tours AD –receivables from loans granted
Dunav Tours AD – interest receivables
Odesos PBM – dividends receivables
31 December
2011
31 December 2010
-
1,955
7
1,962
Transactions with other related parties
Associates
Transactions with associates are as follows:
In BGN thousand
Income from sales of the services of Dunav Tours AD
Income from interests on loan of Dunav Tours AD
Income from dividends of Dunav Tours
Income from dividends from Vartsilla IHB Ship Design Bulgaria
AD – in liquidation
Liquidation income from Ship Design AD
Income from dividends from Istrum Travel
Income from dividends of Odesos PBM AD
31 December
2011
58
-
31 December 2010
48
6
486
98
26
99
480
60
50
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
Borrowings
Loan granted to Dunav Tours AD
Loan reimbursed by Dunav Tours AD
183
1,178
391
2,347
2,738
1,955
1,955
Significant subsidiaries
Country of registration
Privat Engineering AD
Augusta Mebel AD
Hydropower Bulgaria AD
ZMM Bulgaria Holding AD
ZMM Sliven AD
ZMM Nova Zagora AD
Leiarmach AD
Mashstroy AD
Elprom ZEM AD
Dockyard Port Burgas AD
KLVK AD
International Industrial Holding Bulgaria AG
Maritime Holding AD
Bulgarian Register of Shipping AD
Bulyard AD
Bulyard Shipbuilding Industry AD
Bulkari EAD
IHB Shipping CO EAD
Emona LTD
Karvuna LTD
Marciana LTD
Skitia LTD
Odria LTD
Tirista LTD
Serduka LTD
Augusta LTD
Bulgaria
Bulgaria
Bulgaria
Bulgaria
Bulgaria
Bulgaria
Bulgaria
Bulgaria
Bulgaria
Bulgaria
Bulgaria
Switzerland
Bulgaria
Bulgaria
Bulgaria
Bulgaria
Bulgaria
Bulgaria
Marshal Islands
Marshal Islands
Marshal Islands
Marshal Islands
Marshal Islands
Marshal Islands
Marshal Islands
Marshal Islands
Ownership percentage
31 December
2010
2011
%
100.00
97.86
100.00
100.00
95,98
93.57
100.00
80.81
80.78
99.64
100.00
100.00
61.00
61.00
61.50
61.50
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
%
100.00
97.86
100.00
100.00
95.98
93.57
100.00
80.81
80.38
98.24
100.00
100.00
61.00
61.00
61.50
61.50
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
-
34. Events after the date of the report
There are no important events after the date of the balance sheet which will require corrections in the
amounts and announcements in the present financial statement.
35. Contingent liabilities
51
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
Under a contract signed with Bank DSK EAD for extension of a credit limit for issuance of bank guarantees,
letters of credit and working capital funding for the Holding and/or companies from its Group amounting to
a maximum of BGN 10,000 thousand as of 31 December 2011 bank guarantees amounting to BGN 136
thousand were issued, securing advance payments from clients, letters of credit were opened to Bulyard
Shipbuilding Industry EAD and Elprom ZEM for BGN 6,795 thousand and a revolving credit line was
established for BGN 3,000 thousand. The contract with Bank DSK EAD is secured with a second ranking
special pledge on company Dockyard Port Burgas AD as a set of rights, obligations and factual relations,
with registration of the main assets with the respective registries.
The subsidiary Bulyard Shipbuilding Industry EAD has agreements for revolving bank credits with two
commercial banks in order to secure bank security for credits used for collateral of multi-issue of bank
guarantees for advance payments for the buildings of ships with construction numbers 103, as well as for
working capital for funding of the costs for the construction of the ship. The credit are secured with real
estate of Bulyard Shipbuilding Industry EAD and with promissory notes for the sum of each issued bank
guarantee and the sum of the used working capital. The promissory notes are issued by Bulyard Shipbuilding
Industry EAD and avals are provided by the parent company – Bulyard AD. As at 31 December 2011
Bulyard AD has provided avals to the banks under these contract for promissory notes amounting to EUR
1,047 thousand and USD 12,900 thousand.
Due to clearing of debt of Bulyard Shipbuilding Industry EAD, Varna pursuant to a Bank Loan Agreement
under the provisions of credit undertaking in the form of bank guarantees and documented letters of credit
between Bulyard Shipbuilding Industry EAD, Varna and Unicredit Bulbank AD, Sofia, provided corporate
security in the form of surety from Industrial Holding Bulgaria to Bulyard Shipbuilding Industry EAD has
been cancelled.
The subsidiary KLVK AD is a joint debtor with Bulyard Shipbuilding Industry EAD under a bank credit
contract for funding of supplies of equipment for the construction of ship with construction number 102
amounting to JPY 1,122,594 thousand, with effective date of the credit 28 February 2010 and repayment
term until 30 August 2018.
KLVK AD is a joint debtor with its subsidiary Serdika Ltd. under a contract for a syndicated loan amounting
to USD 37 300 thousand for financing the purchase of DIAMOND SEA ship, with the effective date of the
credit 28 December 2011 and repayment term until 31 March 2013.
In February 2010 subsidiary Privat Engineering AD signed a contract with a commercial bank under which it
received a credit of USD 10,000 thousand. As collateral for the loan a first-rank maritime mortgage of trade
ship Karvuna, owned by a company in the Group was registered and a guarantee contract was signed
between the bank and Industrial Holding Bulgaria Plc.
On 29 August 2011 Privat Engineering AD signed an agreement with a commercial bank for a credit
amounting to USD 10,000 1 month Libor+ 4.75%. As collateral for the loan a first-rank maritime mortgage
of trade ship Karvuna, owned by a company in the Group was registered and a surety contract was signed
between the bank and Industrial Holding Bulgaria Plc.
The outstanding balance of the loans as at 31 December 2011 amounts to UDS 17 278 thousand.
Privat Engineering AD has signed an agreement with Allianz Bank Bulgaria for a credit amounting to USD
800 000.00 (eight hundred thousand) which provisions that the bank can issue bank guarantees or make
payments on performance guarantees bonds in order to reimburse advanced payments or other similar
payments to third parties. As of 31 December 2011 the amount that has been disbursed is USD 403 200.
52
INDUSTRIAL HOLDING BULGARIA PLC
Notes to the consolidated financial statements
In December 2010 subsidiary Tirista Ltd obtained an investment credit amounting to USD 8,000 thousand
from a commercial bank. On 31 March 2011 the company and the same bank concluded a framework
agreement for a revolving credit limit amounting to a total of USD 3,000 thousand. A first-rank maritime
mortgage of ship Anteya was registered as collateral for the credits. Subsidiary Privat Engineering AD is a
joint debtor under the credit contracts.
On 7 November 2011 ZMM Bulgaria AD became a joint debtor under a contract for a loan for working
capital amounting to EUR 185 thousand signed between its subsidiary ZMM Nova Zagora AD and United
Bulgarian Bank AD.
ZMM Bulgaria Holding AD has provided performance bonds for orders of Elprom ZEM AD amounting to
BGN 960 thousand for NEK EAD, MABEL and BATEX. It is also a co-debtor under a credit agreement
with DSK Bank AD for loans extended to Leiarmach AD for investment purposes and a credit line for the
remaining amount as of 31 December 2011 amounting to BGN 335 thousand. Due to the expire of the
guarantees as at February 2012 the debt of Elprom Zem amounting to BGN 960 has been cancelled and the
promissory notes returned.
ZMM Bulgaria Holding AD is the guarantor to a credit limit contract for issuance of bank guarantees by
commercial Bank Allianz Bank Bulgaria of Dunav Tours AD amounting to EUR 1,000 thousand
Subsidiary Elprom ZEM AD uses performance bonds under a contract for performance guarantees bonds
issuance. As of 31 December 2011 performance bonds were issued to ANDRITZ HYDRO GmbH and
Mavel Uganda amounting to BGN 1,009 thousand and secured with a pledge on machinery and equipment
and promissory note.
Pursuant to a court decision a third person obtained co-ownership amounting to 13.69% share participation
in the tangible property of Augusta Mebel, Shumen.
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