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REGISTRATION DOCUMENT

IPO Prospectus

INDUSTRIAL HOLDING BULGARIA PLC

TYPE OF SECURITIES OFFERED: ORDINARY DEMATERIALIZED FREELY TRANSFERRABLE REGISTERED SHARES

NUMBER OF SECURITIES OFFERED: 14,585,372

ISSUE VALUE PER SHARE: BGN 1.40

This Registration Document contains the complete information about Industrial Holding Bulgaria PLC required for precise assessment of the economic and financial position of the Issuer and the securities related rights by the investors in terms of the individual characteristics of the Issuer and the publicly offered securities. It is in the investors’ interest to be acquainted with this Registration Document and the Securities Document before they make an investment decision.

THIS IPO PROSPECTUS OF INDUSTRIAL HOLDING BULGARIA PLC HAS BEEN CONFIRMED BY THE FINANCIAL SUPERVISION COMMISSION WITH DECISION № 186-Е/26.03.2010, WHICH DOES NOT MEAN THAT THE COMMISSION APPROVES OR DISAPPROVES INVESTMENTS IN SECURITIES OR BEARS RESPONSIBILITY FOR THE TRUTHFULNESS OF THE INFORMATION PRESENTED HEREIN.

The members of the Management Board of Industrial Holding Bulgaria PLC are jointly liable for any damages caused by untruthful, misleading or incomplete data in the whole Registration Document. The persons, who have prepared the Financial Statements of the Issuer, are jointly liable with the persons specified in the preceding paragraph for any damages caused by untruthful, misleading or incomplete data in the Financial Statements and the registered auditor – for any damages caused by the Financial Statements audited by the auditor.

22 February 2010


Investors interested in the securities offered may get acquainted with the original of and obtain a free-of-charge copy of or additional information about this Registration Document at the offices of:

THE ISSUER INDUSTRIAL HOLDING BULGARIA PLC

Address: 47 Vasil Levski Boulevard

1000 Sofia

Telephone: +359 2 980 71 01

Fax: +359 2 980 70 72

E-mail: [email protected]

Website: www.bulgariaholding.com

Contact person: Bogomila Ivanova Hristova

Investor Relations Director

9.00 h – 17.00 h

THE INVESTMENT INTERMEDIARY KBC SECURITIES N.V. – BULGARIA BRANCH

Address: Entrance 2, 22 Gotse Delchev Boulevard

1404 Sofia

Telephone: +359 2 858 33 11

Fax: +359 2 808 59 98

E-mail: [email protected]

Website: www.kbcsecurities.com

Contact person: Tanya Vasileva

9.00 h – 18.00 h

This Registration Document may be found at www.bulgariaholding.com – the website of Industrial Holding Bulgaria PLC and at www.kbcsecurities.com – the website of KBC Securities N.V. – Bulgaria Branch.

Industrial Holding Bulgaria PLC and the authorized investment intermediary KBC Securities N.V. – Bulgaria Branch hereby inform potential investors that investments in the offered securities bear certain risks.

The risk factors characterizing the activity of the Issuer are described in detail in Item 4. Risk factors of this Registration Document.

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mailto:[email protected]

http://www.kbcsecurities.com/

http://www.bulgariaholding.com/



TABLE OF CONTENTS

1. RESPONSIBLE PERSONS..................................................................................................................................5

2. STATUTORY AUDITORS....................................................................................................................................62.1. INFORMATION ABOUT THE AUDITORS..................................................................................................................6

2.2. RESIGNATION BY OR DISMISSAL OR NO SUBSEQUENT APPOINTMENT OF THE AUDITORS OVER THE PERIOD COVERED BY THE

HISTORICAL FINANCIAL INFORMATION .......................................................................................................................6

3. SUMMARIZED FINANCIAL INFORMATION.......................................................................................................64. RISK FACTORS................................................................................................................................................... 8

4.1. SPECIFIC NON-SYSTEMATIC RISKS OF THE COMPANY.........................................................................................8

4.2. SECTORIAL NON-SYSTEMATIC RISKS ...............................................................................................................12

4.3. SYSTEMATIC RISKS.........................................................................................................................................19

5. INFORMATION ABOUT THE ISSUER..............................................................................................................235.1. BACKGROUND AND DEVELOPMENT OF THE ISSUER ..........................................................................................23

5.2. INVESTMENTS ................................................................................................................................................25

6. OVERVIEW OF ECONOMIC ACTIVITY.............................................................................................................426.1. CORE ACTIVITIES............................................................................................................................................42

6.2. MAJOR MARKETS............................................................................................................................................44

6.3. IMPACT OF EXTRAORDINARY FACTORS ON THE ACTIVITY AND MARKETS OF THE ISSUER ....................................52

6.4. INFORMATION ABOUT DEPENDENCY OF THE ISSUER ON PATENTS, LICENSES, INDUSTRIAL, COMMERCIAL OR FINANCIAL

CONTRACTS OR NEW PRODUCTION PROCESSES......................................................................................................52

6.5. COMPETITIVENESS POSITION OF THE ISSUER...................................................................................................57

6.6. DESCRIPTION OF KEY SEASONAL ACTIVITIES ....................................................................................................58

6.7. DESCRIPTION OF RAW MATERIALS AND MATERIALS OF OPERATIONAL IMPORTANCE AND THEIR AVAILABILITY AND PRICE

VOLATILITY ........................................................................................................................................................... 58

6.8. DESCRIPTION OF MARKETING CHANNELS AND SPECIAL SALE METHODS .............................................................62

7. ORGANIZATIONAL STRUCTURE....................................................................................................................678. PROPERTY, PLANT AND EQUIPMENT...........................................................................................................82

8.1. EXISTING OR PLANNED SIGNIFICANT NON-CURRENT TANGIBLE ASSETS..............................................................82

8.2. ENVIRONMENTAL ISSUES.................................................................................................................................83

9. OVERVIEW OF FINANCIAL POSITION AND OPERATING RESULTS...........................................................909.1. FINANCIAL POSITION ......................................................................................................................................90

9.2. OPERATING RESULTS......................................................................................................................................99

10. CAPITAL RESOURCES.................................................................................................................................11110.1. CAPITAL RESOURCES OF THE ISSUER .........................................................................................................111

10.2. CASH FLOW SOURCES AND FIGURES............................................................................................................113

10.3. INFORMATION ABOUT THE NEEDS OF LOANS AND FINANCING STRUCTURE OF THE ISSUER...............................114

10.4. INFORMATION ABOUT ANY RESTRICTIONS ON THE USE OF CAPITAL RESOURCES.............................................116

10.5. INFORMATION ABOUT PROJECTED SOURCES OF FUNDS REQUIRED FOR FULFILMENT OF THE COMMITMENTS UNDER ITEMS

5.2.3 AND 8.1......................................................................................................................................................116

12. MAJOR TRENDS...........................................................................................................................................12012.1. MAJOR TRENDS SINCE THE END OF THE LAST FINANCIAL YEAR TILL THE DATE OF THE REGISTRATION DOCUMENT120

12.2. TRENDS, UNCERTAINTIES, REQUIREMENTS, COMMITMENTS OR EVENTS, WHICH MAY HAVE MATERIAL IMPACT ON THE

PERSPECTIVES OF THE ISSUER FOR THE CURRENT FINANCIAL YEAR ......................................................................124

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13. PROJECTED PROFIT....................................................................................................................................12814. ADMINISTRATIVE, MANAGEMENT AND SUPERVISORY BODIES AND SENIOR MANAGEMENT .......128

14.1. MANAGEMENT BOARD.................................................................................................................................129

14.2 SUPERVISORY BOARD..................................................................................................................................134

14.3. PARTICIPATION OF THE MEMBERS OF THE MANAGEMENT BOARD AND THE SUPERVISORY BOARD OF THE ISSUER IN THE

MANAGEMENT OF OTHER COMPANIES AND PARTNERSHIPS.....................................................................................138

14.4. CONFLICTS OF INTEREST.............................................................................................................................142

15. REMUNERATIONS AND COMPENSATIONS...............................................................................................14316. GOVERNANCE PRACTICES.........................................................................................................................144

16.1. TERM OF OFFICE........................................................................................................................................144

16.2. CONTRACTS OF THE MEMBERS OF THE MANAGEMENT BOARD AND/OR THE SUPERVISORY BOARD OF THE ISSUER OR ANY

OF ITS SUBSIDIARIES, WHICH PROVIDE FOR COMPENSATIONS UPON CONTRACT TERMINATION..................................144

16.3. INFORMATION ABOUT THE AUDIT COMMITTEE OR THE REMUNERATIONS COMMITTEE OF THE ISSUER, INCLUDING THE

NAMES AND TERMS OF OFFICE OF THE COMMITTEE MEMBERS................................................................................144

16.4. CORPORATE GOVERNANCE.........................................................................................................................144

17. PERSONNEL .................................................................................................................................................14617.1. NUMBER OF EMPLOYEES AND MAIN CATEGORIES OF ACTIVITIES ...................................................................146

17.2. SHAREHOLDING AND STOCK OPTIONS .........................................................................................................146

17.3. DESCRIPTION OF ANY ARRANGEMENTS FOR PARTICIPATION OF THE EMPLOYEES IN THE CAPITAL OF THE ISSUER146

18. PRINCIPAL SHAREHOLDERS......................................................................................................................14718.1. DATA ABOUT THE SHAREHOLDERS HOLDING OVER 5% OF ALL VOTING SHARES ............................................147

18.2. PERSONS EXERCISING CONTROL ON THE ISSUER.........................................................................................148

19. RELATED PARTY TRANSACTIONS ...........................................................................................................14920. FINANCIAL INFORMATION RELATED TO THE ASSETS, LIABILITIES, FINANCIAL POSITION, PROFIT AND LOSS OF THE ISSUER........................................................................................................................................159

20.1. HISTORICAL FINANCIAL INFORMATION ..........................................................................................................159

20.2. PRO-FORMA FINANCIAL INFORMATION..........................................................................................................161

20.3. LAST FINANCIAL INFORMATION.....................................................................................................................161

20.4. DIVIDEND POLICY........................................................................................................................................161

20.5. LAWSUITS AND ADMINISTRATIVE AND ARBITRATION PROCEEDINGS.................................................................161

20.6. MATERIAL CHANGES IN THE FINANCIAL POSITION OR BUSINESS POSITION OF THE ISSUER...............................161

21. ADDITIONAL INFORMATION........................................................................................................................16121.1. SHARE CAPITAL..........................................................................................................................................161

21.2. ARTICLES OF INCORPORATION AND/OR STATUTE..........................................................................................163

22. MATERIAL CONTRACTS..............................................................................................................................17423. INFORMATION ABOUT THIRD PARTIES, EXPERT STATEMENTS AND DECLARATIONS OF INTEREST17424. AVAILABLE DOCUMENTS...........................................................................................................................17425. INFORMATION ABOUT INTERESTS............................................................................................................175

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1 . R E S P O N S I B L E P E R S O N SThis IPO Prospectus is a prospectus for initial public offering of ordinary shares issued by Industrial Holding Bulgaria PLC, a public company (the Issuer, the Company, IHB). The investment intermediary authorized to service the public offering is KBC Securities N.V. – Bulgaria Branch.

This IPO Prospectus has been prepared by Veselin Zahariev – Director of the Corporate Finance Directorate of KBC Securities N.V. – Bulgaria Branch, Atanas Chobanov – Assistant at the Corporate Finance Directorate of KBC Securities N.V. – Bulgaria Branch and Lidiya Shoumkova – Head of the Legal Unit of KBC Securities N.V. – Bulgaria Branch and by Bogomila Hristova – Investor Relations Director at IHB, Neli Kircheva – Financial Analysis and Investments Director at IHB and Gergana Atanasova – Financial Analysis and Investments Expert at IHB.

All aforementioned employees of the Investment Intermediary and the Issuer hereby declare that they have applied all reasonable efforts to ascertain that the information disclosed in the IPO Prospectus is not untruthful, misleading or incomplete.

The Issuer of the offered shares is Industrial Holding Bulgaria PLC, having its seat and address of management at 42 Damyan Gruev Street, Region of Krasno Selo, Sofia.

The members of the Management Board of the Issuer specified in Item 14.1 hereof are jointly liable for any damages resulting from untruthful, misleading or incomplete data disclosed in the whole Registration Document.

The Financial Statements of the Issuer for 2006, 2007 and 2008 have been prepared by Toshka Zlateva Vasileva – Chief Accountant. The person specified in the preceding sentence is jointly liable with the members of the Management Board of the Issuer, in her capacity of a person under Article 34, Paragraph 2 of the Law on Accountancy, for any damages resulting from untruthful, misleading or incomplete data disclosed in the Financial Statements of the Issuer.

Dobrina Dimitrova Kaloyanova, registered auditor No 293, in the capacity of Auditor at KPMG Bulgaria, having its seat and address of management at 37 Fridtjof Nansen Street, Sofia, who has audited the Financial Statements of the Issuer for the last three years, is jointly liable with the members of the Management Board of the Issuer for any damages resulting from the Financial Statements audited by her.

Declarations by the persons responsible for the information disclosed herein are enclosed to the IPO Prospectus and form integral part thereof.

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2 . S TAT U T O RY A U D I T O R S

2.1. INF O RMAT I O N ABO UT T HE AUDI T O RS

The Annual Financial Statements of the Issuer for 2006, 2007 and 2008 have been audited by Dobrina Dimitrova

Kaloyanova, registered auditor No 293, in the capacity of Auditor at KPMG Bulgaria, having its seat and address of

management at 37 Fridtjof Nansen Street, Sofia.

Over the period 2006 – 2008, the aforementioned auditor of the Issuer did not resign and was not dismissed. The said

person was appointed as auditor of the Company for the three financial years.

2.2. RE S I G NAT I O N BY O R DI S MI S S AL O R NO S UBS E Q UE NT AP P O I NT ME NT O F T HE AUDI T O RS O V E R T HE P E RI O D CO V E RE D BY T HE HI S T O RI CAL F I NANCI AL I NF O RMAT I O N

Over the period 2006 – 2008, the aforementioned auditor of the Issuer did not resign and was not dismissed. The said

person was appointed as auditor of the Company for the three financial years.

3 . S U M M A R I Z E D F I N A N C I A L I N F O R M AT I O N

The following Tables No 1 and No 2 present summarized financial information about the Issuer, on consolidated basis and unconsolidated basis, for the last 3 (three) years and the interim periods 1 January 2009 – 31 December 2009 and 1 January 2009 – 30 September 2009, including comparative data about the particular preceding periods.

The data as at the ends of 2006, 2007 and 2008 have been taken from the Audited Annual Financial Statements of the Issuer for 2006, 2007 and 2008.

The data about the interim nine-month periods 1 January 2008 – 30 September 2008 and 1 January 2009 – 30 September 2009 have been taken from the Unaudited Consolidated Financial Statements of the Issuer for the third quarters of 2008 and 2009.

The data about the interim twelve-month periods 1 January 2008 – 31 December 2008 and 1 January 2009 – 31 December 2009 have been taken from the Unaudited Unconsolidated Financial Statements of the Issuer for the fourth quarters of 2008 and 2009.

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Table № 1 Summarized financial information about the Issuer for the period 2006 – 30 September 2009 on consolidated basis

In BGN '000, except for per share data 9М 2009 9М 2008 2008 2007 2006

Net operating revenues 53,434 82,770 143,469 162,393 135,088 Net operating revenues growth %

COGS (69,043) (64,105) (90,107) (92,938) (75,993) Gross profit (15,609) 18,665 53,362 69,455 59,095

Gross margin % -29.2% 22.6% 37.2% 42.8% 43.7%

Operating expenses 26,296 (3,683) (38,486) (52,873) (47,006) D&A (5,538) (3,977) (5,553) (4,500) (3,903) EBIT 5,149 11,005 9,323 12,082 8,186

EBIT Margin % 9.6% 13.3% 6.5% 7.4% 6.1%

Net financial expenses 322 1,856 2,646 (117) 2,667 EBT 6,992 14,695 14,149 14,389 12,825 Net profit after tax 6,229 13,595 12,811 13,338 11,036

Net profit margin % 11.7% 16.4% 8.9% 8.2% 8.2%

EPS 0.11 0.28 0.27 0.34 0.46

Assets 404,342 402,382 377,968 314,349 174,918 Long-term assets 218,367 180,863 184,152 141,048 73,656 Short-term assets 185,975 221,519 193,816 173,301 101,262

Total assets growth % 0.5% 89.9% 20.2% 79.7%

Net assets 199,195 192,692 194,298 180,570 86,337 Net assets growth % 3.4% 92.2% 7.6% 109.1% -

Cashflow from operations (41,834) (7,057) 17,421 (5,894) (21,780) Cashflow from investments (39,036) (25,311) (36,364) (4,016) 13,716 Cashflow from financing 24,015 14,896 35,938 50,873 6,182

Source: Audited Consolidated Financial Statements of the Issuer for the period 2006 – 2008 and Unaudited Consolidated Interim Financial Statements of the Issuer as at 30 September 2008 and 30 September 2009.

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Table № 2 Summarized financial information about the Issuer for the period 2006 – 31 December 2009 on unconsolidated basis

In BGN '000, except for per share data 12М 2009 12М 2008 2008 2007 2006

Net operating revenues 6,423 9,857 9,857 4,814 2,946 Net operating revenues growth % -34.8% 104.8% 104.8% 63.4%

Operating expenses (740) (1,056) (1,056) (1,056) (549) EBIT 5,683 8,801 8,801 3,758 2,397

EBIT Margin % 88.5% 89.3% 89.3% 78.1% 81.4%

Net financial expenses (1,784) (236) (236) (37) (508) EBT 3,899 8,565 8,565 3,721 1,889 Net profit after tax 3,584 8,390 8,390 3,727 1,858

Net profit margin % 55.8% 85.1% 85.1% 77.4% 63.1%

EPS 0.08 0.19 0.19 0.10 0.09

Assets 140,074 136,915 136,915 87,742 42,887 Long-term assets 123,420 83,393 83,393 44,892 36,841 Short-term assets 16,654 53,522 53,522 42,850 6,046

Total assets growth % 2.3% 56.0% 56.0% 104.6%Net assets 98,677 95,093 95,093 86,702 35,719

Net assets growth % 3.8% 9.7% 9.7% 142.7% -

Cashflow from operations (38,120) (23,219) (23,219) (4,221) 459 Cashflow from investments 17 (68) (68) (14) (30) Cashflow from financing (1,732) 21,430 21,430 43,240 (332)

Source: Audited Unconsolidated Financial Statements of the Issuer for the period 2006 – 2008 and Unaudited Interim Financial Statements of the Issuer as at 31 December 2008 and 31 December 2009.

4 . R I S K FA C T O R S

Investments in shares issued by the Company bear certain risks. Potential investors should carefully read and consider the information about the key specific risks accompanying the activity of the Company disclosed below, the information about the risks characterizing the offered ordinary shares disclosed in the Securities Document and all the information disclosed in the IPO Prospectus before deciding on acquisition of securities issued by the Company.

Potential investors should bear in mind that the actual future operating results of the Company may materially differ from preceding results due to a number of factors, including the risk factors disclosed hereinafter.

4.1. SP E CI F I C NO N -S Y S T E MAT I C RI S KS O F T HE CO MP ANY

4.1. Risks related to the holding structure of the Issuer

To the extent that the activity of the Company is related to management of assets of other companies, such activity may not be assigned to a particular sector of the national economy and is exposed to the sectorial risks of the subsidiaries disclosed hereinafter. Moreover, the effect of individual risks is proportional to the share in the particular sector in the long-term investment portfolio of the Holding.

Moreover, the Issuer carries out its key activities through the holding subsidiaries, which means that its financial results directly depend on the financial results and development of the subsidiaries. The poor results of one or more of the subsidiaries may result in worse results on consolidated basis. This is related to the price of the shares of the Issuer, which may change as a result of the expectations of the investors about the perspectives of the Company.

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4.1.2. Risks related to strategy adoption by the Management of the Issuer

The future profits and economic value of the Issuer depend on the strategies adopted by the management bodies of the Issuer and its subsidiaries. The adoption of an improper market strategy may result in losses and benefits foregone. The Issuer aims at strategic risk management through continuing follow-up of the implementation of its strategy and results to react most efficiently if it is to be adjusted. Improper or delayed strategy adjustment may have negative impact on the activities, operating results and financial position of the Holding.

4.1.3. Risks related to the portfol io structure of the Issuer

The investments of the Holding in sectors characterized by low return rates, slow return on invested funds (machine building, shipbuilding) and strong cyclic recurrence, reduce the rate of return on the portfolio as a whole.

4.1.4. Risks related to the vert ical integrat ion of the portfol io companies of the Issuer

The existence of portfolio companies, forming their net sales income also from products sold to other subsidiaries, subject the efficiency of their activities to direct dependency on the income rate of clients – related parties and this may have

negative impact on the profitability of the Group.

4.1.5. Risks related to the legal f ramework regulat ing environmenta l protect ion

The Bulgarian legislation regulating environmental issues envisages undertaking of a number of measures for prevention, control and reduction of the rate of various environmental pollutions. IHB applies a policy aimed at performance of all applicable legal obligations and this is related to permanent expenses related to putting and maintenance of the facilities and processes in compliance with the effective standards. If the Holding is found guilty as to caused environmental damages regardless of the actions undertaken, the Holding is to pay relevant indemnities and penalties, which may affect its operating results and financial position.

Stricter legislation regulating the environmental protection, safety and health and measures stricter than the presently applicable measures may generate considerable liabilities and expenses (capital, etc.) for the Group, having material impact on the activity and results of the Issuer.

4.1.6. Dependency on addit ional f inancing of the act iv i t ies and planned investments of the Issuer

A significant portion of the investments planned by the Issuer is envisaged to be financed by own funds. If unfavourable economic conditions or other unfavourable events occur, preferential use of external sources for such financing may become necessary. It is not certain, however, whether external financing may be provided under acceptable terms and conditions. As a result, the Issuer may become compelled to defer, reduce the volume or suspend some of its projects

and the Group may undergo reduced profits or changes in the plans.

4.1.7. Risks related to pr ices of energy sources

The activities of the group companies are negatively affected by the constant rise in the market prices of fuels and power, which represent subject of international demand and supply and are predetermined by factors beyond their scopes of control. Machine building and shipbuilding are energy intensive, while maritime transport and river cruises depend on the prices of fuels.

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4.1.8. Risks related to fai lure in performance by suppl iers or other interrupt ions

The market realization of the finished products of the group companies may be affected by failure in performance by clients or suppliers or other interruptions. Such difficulties may be legal or technical and would have material impact on the volumes of finished products and the sales and profits of the Group.

4.1.9. Risks related to employing and keeping of experienced and qual i f ied personnel

In consideration of the low standards of the educational system and demographic collapse in Bulgaria, a number of national economy sectors suffer insufficiency of qualified personnel. As a result, the competition among employers is high. The success of IHB is partially due to its capability to employ, train, keep and motivate qualified personnel.

4.1.10. Events of force majeure – f i re , earthquake, f lood

A number of events of force majeure may result in material property damages depending on the natural disaster or failure force, leading to temporary suspension or final termination of the activities of the group companies. At present, the group companies apply proper measures ensuring labour safety.

4.1.11. Str ike act ions

The risk of strike actions is related to the risk of temporary suspension of some of the working processes or overall work suspension at some of the facilities. This would have negative impact on the financial indicators and share price of the Company.

4.1.12. Credit r isk

The credit risk, to which the Group is exposed, is the risk of possible financial loss if a client or a party to financial Document agreement fails to perform its contractual obligations. The credit risk is mainly related to receivables from clients and investments in financial Documents.

Ü Receivables from clients

The exposure of the Group to credit risk results from the specific characteristics of individual clients in the individual sectors. This exposure may also depend on the risk of non-payment characteristic of the industries or markets where the group companies operate. As this risk vary in the different sectors, it is managed based on sectors in proportion to their shares in the investment portfolio of IHB. The credit policies of the group companies provide for investigation of the solvency of each new client before offering standard terms of delivery and payment.

There is a risk of concentration of considerable receivables in the shipbuilding sector, which results in risk of failure in payment by clients that may lead to financial problems for the Company.

The Group reports impairment, which represents the estimated losses as to trade and other receivables and investments. The key impairment components include a component concerning individually significant exposures and a collective component concerning loss as to groups of similar related to incurred but identified losses. The collective component is determined on the basis of historical data about payments related to similar financial assets.

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Ü Investments

The main portion of the investments of the Group includes investments in businesses and companies where the Group has control and may determine their management strategies. As to portfolio investments, the Company aims at investment in liquid securities.

Some of the investments are made for long periods and the Group does not generate profitability and undergoes profit reduction or even losses over such periods.

Ü Guarantees

The policy of the Group envisages issue of financial guarantees only to subsidiaries following preliminary approval by the management bodies. Information about guarantees issued to secure obligations to third parties is disclosed in Item 10.1 Capital resources of the Issuer. There is a risk of claims under the guarantees in case of failure in performance.

4.1.13. Liquidi ty r isk

Liquidity risk originates when the Group is not able to settle its liabilities within the agreed terms. Liquidity risk may arise in case of delayed payments by clients or delayed VAT refund, particularly in relation to the volumes of Bulyard SI. The Group applies a method ensuring necessary liquid resources to settle its liabilities under usual or extraordinary conditions without suffering excessive loss or damaging its reputation or the reputations of the individual companies.

The companies elaborate financial plans to cover their expenses and current payables for periods 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.

The Management of the Holding assists the group 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 the 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 Documents 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.

4.1.14. Market r isk

The market risk originates when the income or the values of the investments of the companies are affected by changes in market prices, exchange rates, interest rates or prices of equity Documents. The purpose of market risk management is the management and control of the exposure to market risk within acceptable limits through return rate optimization. The global economic crisis has resulted in considerable rise in interest rates in the course of financing of the Group, rise in investment value and reduced profit.

Ü Currency risk

Some of the group 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. The Management of the Holding has minimized the payments in foreign currencies other than BGN and EUR to minimize its exposure to currency risk. Therefore, the Management aims at negotiating most transactions in BGN and EUR. Nevertheless, delivery contracts in JPY have been signed and a credit in JPY has been obtained. In this case, the compensation includes long terms and more

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advantageous interest rates. Measures for hedging the currency risk have been undertaken (see Item 9.2.2. Impact of inflation and fluctuations in exchange rates).

Ü Interest rate risk

The group 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.

4.2. SE CT O RI AL NO N -S Y S T E MAT I C RI S KS

The portfolio of IHB includes companies operating in a number of sectors with specific risk characteristics, the more important of which are described hereinafter and have full impact on the business of the Group:

M A R I T I M E B U S I N E S S : S H I P B U I L D I N G A N D S H I P R E P A I R

Ü Lack of protection policy by the State to the sector – the State does not use any tools to protect the sector through subsidies, grants and tax reliefs unlike other countries such as China, Korea, etc.;

Ü Cyclic recurrence of demand – as the products manufactured by the sector have long operation terms, their purchase may be deferred in time in case of unfavorable economic conditions that makes the sector profitability strongly dependent on economy life cycles. The shifting of cargoes from land to water is a trend of positive impact;

Ü Materials market structure – the shipbuilding sector on global level makes the sector strongly dependent on the supplies of materials and equipment and, in most cases, the supplies of the latter for building of a ship at Bulyard SI EAD are performed by a number of suppliers, which makes the process management difficult in terms of synchronization and timeliness. This has impact in case of sector upsurge and even stronger impact in case of recession when the access to financing is tightened and most suppliers require advance payments or other guarantees;

Ü Dependency on regulations and standards – the requirements of the classification organizations and the conventional rules and regulations on human life protection under maritime conditions, prevention of terrorist acts and environmental protection become stricter, including:

Change in the requirements of the world classification organizations to navigation – it affects the obligatory replacement of ships in exploitation on global level and imposes higher requirements to building technology;

High regulatory requirements to ships maintenance in terms of safety – they affect the duration of repair cycles of ships in exploitation;

Stricter environmental restrictions – new environmental standards and directives on environmental pollution and energy saving in shipbuilding are introduced;

Higher requirements to labor safety and environmental protection – they affect the level of minimum investments to be made by the shipyard, including investments related to revision of existing projects and raising of the prices of installed systems and equipment (see the preceding item) to meet the regulatory requirements;

Ü Dependency on atmospheric conditions – most production processes run in the open air, which predetermines their high level of dependency on atmospheric conditions such as temperature, rain, snow, humidity, wind and storms;

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Ü Technological risk – it is predetermined by the resource consuming capacity of used technologies. On global level, new technologies and automated production are introduced to the sector;

Ü Insufficiency of qualified personnel – in periods of sector upsurge, the Company faces the risk of failure in employing a sufficient number of specialists (welders, hull and pipe specialists and qualified managerial and research and technological development personnel in particular) as most of these specialists are freely convertible on international level. The companies operating in the sector compete through offering attractive remunerations even in case of crisis, which strongly affects the production process profitability;

Ü Available industrial facilities (facilities unique for Bulgaria – two dock chambers, cranes, laser cutting machines), geographical location (proximity of Greece, which ranks third based on number of ships in the world) and low salary levels, placing Bulyard SI in a competitive position as to ship repairs as well;

Ü Credit risk – it results from the need of ensuring credit lines for issue of recoverable bank guarantees for shipbuilding, turnover financing and investment purposes. Credit line security imposes weights on the company property, including the property of IHB in its capacity of majority owner and complicates the servicing of cash flows. The effect of this risk is increased by the lack of traditions in shipbuilding financing by the Bulgarian banks. In the conditions of crisis, this risk is actual due to lack of financing of ship owners and ship builders. In 2009, many ship owners failed to finance ordered ships, which resulted in extension of some of the agreed time limits or cancellation of shipbuilding contracts. Extended building time limits increase the market and financial risks for the Company and result in financial loss;

Ü Currency risk – it is related to the negotiation of ship prices in a particular currency, while those of agreed supplies of raw materials are in other currency. Bulyard SI has signed contracts in USD and payables in JPY under delivery contracts. The Management aims at negotiating most shipbuilding contracts in EUR/USD correlation corresponding to the ratio in which the basic materials and equipment for each new ship are agreed. The Management hedges some exposures in currencies other than EUR as well.

M A R I T I M E B U S I N E S S : S H I P D E S I G N

Ü Cyclic recurrence of demand for ship design services – the financial results from the activities depend on the ships market condition. At present, the demand for ships is low and the building is stagnated. As a result, the demand for specialized ship design services is nearly zero. The global crisis has resulted in considerable reduction of ship design orders and cancellation of ship orders and this reduced the 2009 estimated income (see Shipbuilding and ship repair above);

Ü Dependency on regulations and standards – the continuously increasing requirements to newly built ships impose improvement of projects and additional funds for their implementation, affecting the market position and financial results of Wartsila IHB Ship Design Bulgaria AD. In this relation, the results from the negotiations for new environmental standards and directives on environmental pollution and energy saving in shipbuilding will be of great importance. Additional requirements on reduced hazardous emissions to the new ships are expected to be introduced;

Ü Insufficiency of qualified personnel – the labour cost limits service prices. Wartsila IHB Ship Design Bulgaria AD is a comparatively young company, which is to develop and create history in the conditions of the global crisis. The strong market stagnation has resulted in reduced number of orders, discharged personnel and financial loss for the company. The presently hired personnel is insufficient to cover all activities related to the technical and working design in the shipbuilding sector. Although there are specialists qualified to work in particular spheres, at present the company has not the required experience and corporate history in the market in such services and extensive experience in the work under the regulatory procedures to be completed following assignment finalization;

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Ü Presence of a foreign partner experienced in the sector – the opportunities for partnership with and use of the database of the foreign shareholder Wartsila Technology, Finland, is an advantage.

M A R I T I M E B U S I N E S S : M A R I T I M E T R A N S P O R T

Ü Dependency on world economy and trade – the world economy is still unstable. It is quite important whether BRIC, USA and the European Union will offer more goods in the market and funds for transport;

Ü Total number of ships in building process and their penetration into the cargo market – the risk is increased by the negative trend towards saturation with bulk cargo ships and conflicting estimations as to the world economy development, including that of China, which is a main importer/exporter of goods (see Item 12.1 Major trends since the end of the last financial year till the date of the Registration Document and Item 12.2. Trends, uncertainties, requirements, commitments or events, which may have material impact on the perspectives of the Issuer for the current financial year);

Ü Number/tonnages of hyper-old ships and their destiny in 2010 – the possible cutting of these ships into pieces and the fact that most of the new orders for Handysize ships were fulfilled in shipyards with insufficient experience and traditions may have favourable impact as to preservation or slight rise in the rates/freights in this sector where Karvuna Ship and Anteya Ship for the Group belong;

Ü Cyclic recurrence of shipping industry – the cycles depend on the world trade and balance between the offered ship tonnage and the needs of importers/exporters. There is a risk for the operators, which have failed to properly plan and allocate their cash flows in the conditions of difficult access to financing under tightened terms and conditions;

Ü Risk of acts of piracy – the increasing number of cases of maritime piracy have made large regions near the Gulf of Aden dangerous, which renders the way shortening through the Suez useless and imposes the necessity of change in the routes through the Cape of Good Hope along with all related consequences – increased passing costs, worse navigation conditions, more intensive machinery and equipment exploitation. On the other hand, the passing through such regions requires additional insurance costs, convoy waiting, time loss and charter loss;

Ü Crew qualification and professionalism – these have increased their impact for the last several years. While the situation as to the executive personnel is still normal, the issue of finding properly trained officers with serious attitude to official duties is quite disturbing. The risk is increased by the convertible nature of and global demand for this profession. The reduced number of required specialists trained at N. Vaptsarov Higher Military Marine School – Varna has negative effect as well. The suspension of the sector traditions illustrated by the case concerning the training of specialists in river shipping may result in critical deficit of deck and technical personnel;

Ü Lack of sufficiently efficient protection policy by the State – the measures undertaken as to the social security contributions and taxation of the income of the hired personnel in the sector at the end of 2009 mark only the beginning and their impact on the policies and decisions of the Bulgarian ship owners is to be clarified;

Ü Currency risk – it is related to the fact that the basic currency of the income from ships (freights under goods transport contracts and charter rates applied in case of chartered ships) is USD and a portion of the expenses on supply, delivery of spare parts, repairs, inspections by classification organizations, etc. is in EUR;

Ü Credit risk – it is related to the required repayment of credits for shipbuilding from the income from ships exploitation. It is higher in case of low freights and charter rates, in case of crisis in particular. It directly affects the management of the cash flows of ship owners and the operator IHB Shipping Co EAD.

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M A R I T I M E B U S I N E S S : P O R T O P E R A T I O N S

Ü Scope of services offered – the scope of services offered by the two ports within the Group is comparatively limited and this fact places them in unfavourable positions as compared to their competitors carrying out better developed activities. In 2008, Dockyard Port – Bourgas AD started a campaign for grain handling and construction of required assets and infrastructure (see Item 5.2.1. Description of the major investments of the Issuer realized over the last four financial years and till the date of the Registration Document, Item 5.2.2. Description of the major investments of the Issuer in process of realization and Item 5.2.3. Commitments for major future investments of the Issuer);

Ü Cyclic recurrence of demand – the cargo circulation affects the international commodity market and the overall economic environment. The trend towards increased transit transport in the territory of the country and the developing European transit corridors 7, 8, 4 and 9 have positive impact. In spite of the trend towards expanded agricultural activity in Southern and Southeastern Bulgaria, at present Dockyard Port – Bourgas AD does not rely on big circulation of grain cargo due to the relatively low depth of wading at the quay surrounding space and impossibility to shelter big ships;

Ü Seasonal nature of demand – this concerns mainly food-grade cargo. As it forms only 20% of the total cargo handled at Dockyard Port – Bourgas AD in 2009, the seasonal nature of the annual grain crops has partial effect on the income of the company. In the future, this effect may increase following implementation of the project for port expansion and grain terminal construction;

Ü Sector structure – the port services in the Black Sea region mark high competitive rate – there are 5 port terminals in the water territory of the Bay of Bourgas while the state-owned ports offer services at dumping prices;

Ü Lack of stable policy by the State to the sector – the State does not have any overall concept on the business development and there are regulatory impediments as to the development of the existing projects in the port services sector;

Ü Technological risk – the intensive exploitation of basic resources requires high repair and maintenance costs.

M A R I T I M E B U S I N E S S : C L A S S I F I C A T I O N A N D C E R T I F I C A T I O N

Ü Sector structure and market division, competition – the market where ships inspection and classification on global level are offered is relatively stable and its sharing among the individual participants is mainly based on their abilities to undertake timely and objective actions as to ships exploitation. Bulgarian Register of Shipping AD operates in a highly competitive environment, part of which includes reputable and leading international registers such as Lloyd’s Register of Shipping, Bureau Veritas, Germanischer Lloyd, etc., not only in the Bulgarian market but in the world market as well. There is a trend towards increase in the number of worldwide classification organizations, which requires from Bulgarian Register of Shipping AD quick reaction to the dynamic market environment. The Bulgarian Register of Shipping avails with own know-how and the scope and quality and efficient application of the used technology ensures competitive advantages;

Ü Regulatory framework – it depends on institutional and legal factors related to national and international laws development in the field of shipping and the EU membership of the country. The new requirements on the fight against terrorism, navigation safety and security and ecology also have material impact. The requirements in this

field are defined by the International Maritime Organization (IMO) in the capacity of UNO body, whose member the Republic of Bulgaria is. The IMO’s requirements are binding and serve as base for preparation of national regulations, internal rules and technology of registers functioning. At present, this regulatory framework is in an intensive process of revision with a view to ensuring its compliance with the objective requirements on the

fighting against terrorism and environmental protection. The binding nature of the documents and set terms for

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provision of compliance with them are decisive for the activity of each register in general as well as for its competitiveness. Till conducting of the audit to certify the abilities and compliance with the criteria of Europe expected in 2010, the Bulgarian Register of Shipping has not the right to represent any European maritime

administrations except for the Bulgarian one;

Ü Level of innovation – the constantly rising standards concerning ships and the necessity of used technology modernization in compliance with the IMO’s requirements require high investment activity from the companies operating in this sector. The successful application of the technology for ship inspection and class certification requires the use of the latest measurement and defect detection equipment and personnel training;

Ü Technological risk – it is related to the age of supervised ships. The niche of the Bulgarian Register of Shipping, including ships of highly hazardous age that are unwillingly accepted by the large registration organizations, is the most affected by the crisis. The EU membership of Bulgaria is expected to impose restrictions on the age of the ships supervised by the Bulgarian Register of Shipping;

Ü Liquidity risk – it may arise in case of delayed payments by ship owners or other registers, with which bilateral agreements for mutual supersession have been signed;

Ü Currency risk – the change in market directions affects the income from sales through exchange rates. In case of services to foreign clients, the Bulgarian Register of Shipping invoices the charges in EUR where possible.

M A C H I N E B U I L D I N G

Ü Cyclic recurrence of demand – the products represent investment goods and their demand results from the overall investment activity. In the conditions of economic crisis, the business cyclic recurrence results in considerable reduction of orders and cash inflows;

Ü Product life cycle – the products manufactured by the sector are in the mature stage of their life cycles. This limits the possibility to use the profitability rate as a mechanism to improve the financial positions of the companies in the sector and results in increased marketing costs and costs related to services supplementing the products;

Ü Structure of raw materials market – the main portion of used raw materials (chiefly metals) is imported from countries outside the European Union (Russia, Ukraine), which is related to certain problems of regulatory nature due to the existing import and export quotas. Another problem is the regular supply of cast iron scrap due to lack of established channel suppliers. The companies manage this risk through raw materials replacement by raw cast iron in case of deficit. The main risk related to the supply of raw materials is the dynamics of their prices. At the beginning of 2010, the prices of raw materials are comparatively low and stable but the estimates concerning economic revival start imposing pressure on prices towards rise. The raw materials are expected to be offered at quite higher prices in the middle of the year due to the demand and necessity of additional technological time to be supplied from abroad (see Item 6.7. Description of raw materials and materials of operational importance and their availability and price volatility);

Ü Electric power market – electric power is the basic resource for machine building companies and this fact makes the sector profitability strongly dependent on the prices of energy sources, which have been rising. The recent-year energy sources market, the electric power market in particular, is characterized by slight but continuous price rise of 5%-10% on annual basis. As of July 2009, new rise for economic consumers of 1%-3% has been effective;

Ü Insufficiency of qualified personnel – the educational system in the country does not meet the needs of specialists and engineers of the companies operating in this sector. This has negative effect on the overall future development of the sector, on products quality and innovative activity at the companies in particular. To solve

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this problem, IHB has adopted a long-term method of human resources management related to preliminary and

subsequent qualifications of the personnel and close cooperation with the academic society in the country;

Ü Lack of protection policy by the State to the sector – the State does not use any tools to protect the sector through subsidies, grants, tax reliefs, restricted import quotas, etc.;

Ü Level of innovation – the sector is characterized by low level of innovation activity and low frequency of new product generation, which limit its strategic development potential. This is quite characteristic of periods of crisis and reduced demand for investment goods;

Ü Production risk – the long production cycle and the slow rate of return on investments require higher amount of working capital secured mainly through borrowed funds. The lack of flow and predictable repetition rate of supplies determines the impossibility to set aside materials and cooperated supplies ensuring the rhythm of production;

Ü Technological risk – it is determined by the resource consuming technologies used. The slow rate of equipment modernization and introduction of new technologies significantly increases its effect;

Ü Liquidity risk – the significant amount of fixed payments of some of the companies creates financial difficulties in the settlement of their current payables;

Ü Currency risk – it originates from the currency imbalance between the income from external markets in USD exposures and the prevailing supplies of imported materials in EUR and involved labour. At the end of 2007, ZMM Bulgaria Holding successfully introduced a unified price list in EUR for its clients, minimizing the currency risk and eliminating the necessity of permanent adjustment of the prices in the individual markets. In spite of the foreign currency change, the fluctuations in the foreign currency markets makes the export of goods to USD-oriented markets difficult;

Ü Conservative payment policy – the applied scheme for advance payment and final payment upon forwarding limits the orders but minimizes the risk of failure in payment by clients.

F U R N I T U R E P R O D U C T I O N

Ü Cyclic recurrence of demand – the demand for the products manufactured by Augusta Mebel AD is predetermined by macroeconomic environment factors such as purchase capacity of the population (home

furniture) and investment activity of particular business sectors (hotel, office and ship furniture);

Ü Product life cycle – the life cycles of basic products are not long as modern furniture design and fashion trends are quickly changing. Regarding individual orders, to which hotel furniture belongs, the life cycle is quite shorter. The life cycle depends on the demand in the particular market: the furniture intended for the European market has a maximum average life per model of one year, while the furniture intended for the east markets usually has longer life but these countries impose high protection duties;

Ü Lack of protection policy by the State to the sector – the State does not use any tools to protect the sector. At the same time, the competition in the international markets is increasing – countries availing with a variety of raw materials, free trade areas and cheap labour force (China, Indonesia, Malaysia, Thailand, Singapore, etc.) are highly competitive;

Ü Production risk – most foreign clients are wholesalers and large catalogue trading companies selling in markets characterized by various preferences. The contracts are short-term and sometimes for particular sites and seasons. The lack of long-term contracts interrupts the production process and imposes annual search of new partners, reorganization and restructuring of the operations and production items. The production of large quantities of samples or individual orders results in high production costs, which reduces the return rate;

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Ü Technological risk – it is determined by the available machinery stock and the resource consuming technologies. The slow rate of equipment modernization and introduction of new technologies significantly increases its impact, in periods of tightened access to financing under difficult conditions in particular;

Ü Liquidity risk – the amount of fixed payments in relation to working capital financing for operational purposes, the production process interruptions and the constant rise in the prices of wood and other basic materials result in the formation of non-rhythmical cash flows and hampers the company liabilities settlement.

R I V E R C R U I S E S

Ü Competition – the European navigable river tourist (passenger) market is dynamic, well developed and highly competitive;

Ü Nature of demand – the demand in the sector is seasonal, which has adverse effect on the operating income. The tourist season lasts from April till October (inclusive) and is conditionally split into three periods – pre-season, active season and after-season. Dounav Tours aims at increasing the occupancy of the berth capacity before, during and after the tourist season, including using some of the ships as hotels out of the season and increasing the number of cruises through organization of additional excursions during the days of Christmas and New Year;

Ü Risk of events of force majeure, including:

Climate risk – it is determined by the strong dependency of the sector profitability on the level of navigability of the rivers and other natural conditions. There are certain differences in navigation along the Danube River and the Rhein-Main Canal. The most significant climate risks related to navigation along the Danube River are the high and low water levels and the strong wind. They may temporarily cease the navigation of vessels along the river. The Rhein-Main Canal is not so strongly depending on the river water level but it may be affected by partial freezing during a very cold winter. Other impediments that may arise in navigation along the Rhein-Main Canal include the low bridges and the canal width. The cruiser schedules and preliminary planning are also affected by the necessary repairs of the Moselle and Rhein-Main Canal locks. Repair periods are announced in advance – not later than 10-15 days prior to starting date;

Other risks – government or official regulations (for example: interdiction on navigation within particular river sections) and any other events beyond the company scope of control;

Ü The financial and economic crisis and reduction of expenses on recreation – these have negatively affected the tourist trips. The lower number of ship tourists is a material risk. This results in reduced income and cruises and bankrupt of charterers;

Ü Dependency of demand on psychological factors – the existing fashion in tourist destinations reduces the long-term strategic profitability and may lead to partial redirection to another market segment;

Ü Risk of terrorist acts – the internationally increasing terrorist activity may have strong impact on the rate of demand and hence on the profitability of the companies in the sector;

Ü Liquidity risk – it is not expressed in consideration of the charter form chosen by the company. The business is characterized by early reservations and risk sharing by ship owners and tour operators. As ships are chartered under long-term contracts, the short-term risk of decrease in the number of tourists is assumed by the charterers, while ship owners experience difficulty in renewal of charter contracts or reduction of related prices in long-term aspect. There is a risk when events of force majeure occur or the chosen charterer suffers financial losses. Risk diversification may be achieved through optimization of expenses and offering of ancillary services, out-of-season and holiday trips and tourist programs in the country.

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The non-systematic risks of the subsidiaries are reduced through active management and diversification of the investment portfolio of IHB and use of highly qualified specialists in making management decisions on strategic level and increased control on the level of implementation of adopted plans and development strategies. Nevertheless, the global financial crisis has had and still has material adverse impact on the businesses of IHB and its subsidiaries.

4.3. SY S T E MAT I C RI S KS

Systematic risks are related to the market and macro-environment where the Company operates, therefore they cannot be managed and controlled by the Management of the Company. Systematic risks include political risk, macroeconomic risk, credit risk of the State, inflation risk, currency risk, interest rate risk and tax risk.

4.3.1. Pol i t ical r isk

This risk originates from the political processes in the country – risk of political destabilization and changes in the management principles, effective legislation or economic policy. The political risk directly depends on the probable adverse changes in the state long-term policy, resulting in danger of negative changes in the business climate.

The long-term political climate in Bulgaria is stable and does not presuppose any future high risks facing the economic policy of the country. The Citizens for European Development of Bulgaria (GERB), a party that is a member of the European People’s Party, won 48% at the parliamentary elections at the beginning of July 2009. The GERB has constituted an independent government supported by the right parties and is expected to follow the course and key priorities of the future economic policy outlined by the former three governments. They are coherent and strongly depend on the recommendations of the European Commission and the International Monetary Fund. The made commitments and the requirements related to the membership of Bulgaria with the EU as of 1 January 2007 and the forthcoming accession to the European Monetary Union (EMU) presuppose improvement of the business climate in the country and facilitation of the business and entrepreneurship. Therefore, there are not expected any future disturbances or material changes in the applied policy.

4.3.2. Macroeconomic r isk

This is the risk of macroeconomic disturbances, which may affect the economic growth, the income of population, the demand and supply, the profits of economic entities, etc. The trends characterizing the macroeconomic environment have effect on the market presentation and final operating results in all economic sectors.

The Bulgarian economy is in recession, considerable GDP slowdown being expected in 2009. This will affect all macro and micro levels (see Table № 3). The unemployment rate is expected to rise, while the inflation rate is expected to go down to some 2.6% in 2010 – the lowest rates since 2003. The balance of payments is expected to include considerably lower total of direct foreign investments and the state budget may experience deficit for the first time since 1997. The improved trade balance has positive effect considering the reduced import in 2009.

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Table № 3 Basic macroeconomic indicators and forecasts for the period 2007 - 2010

Indicator 2007 2008 2009 F 2010 F

Nominal GDP (BGN million) 56,520.0 66,728.0 67,672.0 70,997.0Real GDP (%) 6.2% 6.0% -4.0% 1.0%Trade deficit (% of GDP) -25.4% -25.2% -12.1% -12.8%Inflation (%) 7.6% 12.0% 2.4% 2.6%Unemployment (%) 6.9% 6.3% 7.2% 6.5%Average annual salary (BGN) 431.0 524.0 566.0 606.0GDP per capita (BGN, PPP) 18,189.2 19,753.9 18,971.6 19,167.1Budget deficit (% of GDP) 0.1% 1.5% -0.5% -0.3%Net FDI (% of GDP) 28.9% 17.0% 6.5% 10.4%FX BGN/USD (end period) 1.33 1.41 1.36 1.45FX BGN/EUROPrime rate (%) 3.9% 5.1% 2.4% 1.8%

Currency board: BGN pegged to EUR at BGN 1.95583 per EUR 1

Source: BNB, NSI, EC, Bloomberg, KBC Securities, Raiffeisenbank

The recession end and economy recovery are expected to occur at the beginning of 2011 and this depends on the stabilization of world economy to a great extent.

The new Government has declared its willingness to commence negotiations with the IMF for readiness for loan in 2010. The present political consensus on currency board preservation till accession to the EMU and the option for loan by the IMF or the EU in case of necessity considerably reduce the risk of change in the BGN/EUR exchange rate. The considerable currency reserves, including recent-year budget surpluses and the low level of national debt provide additional assurance.

The interest rates report stabilization trend but the spread on the EU rates, which has increased compared to 2007, presses the business and proves that the money market conditions are still restrictive.

4.3.3. Credit r isk

The credit risk is the probable worsening of the international credit ratings of the Republic of Bulgaria. Low credit ratings may result in higher interest rates and tightened financing of the economic entities, including the Issuer.

Compared to the other countries in the region, credit agencies give Bulgaria positive assessments in the conditions of the present crisis due to its stable fiscal policy, structural reforms and efforts made by the new Government (see Table № 4). The credit ratings of Bulgaria also depend on the policy on external debt management applied by the Ministry of Finance, including the following key elements:

Ü Control of the amounts, dynamics and servicing of all financial liabilities assumed on behalf and at the expense of the State, forming a liability of the State and including the national and external debts;

Ü Elaboration and implementation of policy on national debt management, ensuring normal budget financing and debt refinancing at minimal prices in medium-term and long-term aspects and under optimal risk level;

Ü Elaboration and implementation of issue policy, control of transactions in government securities, issue of licenses for investment intermediation as to government securities and undertaking of actions aimed at efficient, transparent and liquid internal market of national debt;

Ü Monitoring of the servicing of all financial liabilities as to which guarantees are issued on behalf and at the expense of the State and providing of the official information about the consolidated national debt, including the national debt, the municipal debt and the total debt of social security funds;

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Ü Ensuring of the prerequisites required for efficient functioning of the national debt market and support of the institutional development of internal financial markets in consideration of the challenges and exclusive priority in this field predetermined by the necessity of gradual integration of the internal market to the European capital market;

Ü Identification and monitoring of all possible risks, which may originate in the process of achievement of outlined strategic objectives;

Ü Undertaking of adequate and timely actions to minimize and/or avoid the impact of identified risks and their potential adverse effects.

Table № 4 Credit ratings of the Republic of Bulgaria

Short-term Long-term Perspective Short-term Long-term Perspective

Fitch 4/30/2009 F3 BBB- Negative - BBB -

Standard & Poor's 12/1/2009 A-3 BBB Stable А-3 BBB Stable

Japan Credit Rating Agency 7/24/2009 - BBB Negative - BBB+ Negative

Long-term bank deposits

Bonds and long-term securities Perspective -

Long-term Government

bonds-

Moody's 1/21/2010 Baa3 Baa3 Positive - Baa3 -

Foreign currencyCredit agency Date

Local currency

Source: Ministry of Finance, Republic of Bulgaria

4.3.4. Impact of the global economic cr is is

At present, the global economic crisis has negative impact on the macroeconomic environment in Bulgaria. The excessive stagnation of liquidity of financial institutions, the bankrupts of global banks and funds, the intervention by governments and the regulatory changes have resulted in bankrupts and dismissals in the global financial sector and certain effects leading to adverse effect on the financial and market environment where the Issuer operates.

On economic level, this has resulted in reduced foreign investments in Bulgaria, tightened corporate lending by banks and worsened capital market conditions. This makes difficult future financing through borrowed funds or own funds of the Company and increases the risk related to collection of its receivables.

The actions undertaken by the Bulgarian Government, which are synchronized with the EU actions, may partially neutralize the negative impact on the national economy.

The global financial and economic crisis has affected the businesses of most companies, including the activities of the IHB Group companies. The considerable slowdown of the economic development and entry into recession of most developed countries affect the market and export conditions. Two of the direct effects of the crisis are the collapse in the global capital market, the Bulgarian Stock Exchange in particular and the limited and tightened lending.

The crisis effects make the Company continue its activities in a complex and hardly predictable business environment under the condition of clearly expressed specifics for the individual companies within the Group. At the same time, this is related to projects optimization and revision of project implementation schedules. The timely identification of the threats and risks characterizing the individual sectors allowed the Management of IHB to undertake preventive actions and each subsidiary prepared a crisis action plan to optimize the personnel, reduce the expenses and review the efficiency of production and the technological relations within the Group.

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4.3.5. Inf lat ion r isk

This is the risk of impairment of the national currency and permanent reduction of its purchase capacity. The risk of rise in inflation rate results in impairment of the made investments or the total value of savings in time.

The 2008 inflation rate in the country is 12.3% compared to 7.6% in 2007. In the current year, the inflation rate is expected to be considerably lower as a result of the recession in the country. Nevertheless, considering the movement of the prices of petrol and other energy products over the last several years, the high prices are expected to affect the inflation estimations in the country. In consideration of the commitments and willingness of Bulgaria to become member of the EMU and the related requirements to inflation, measures to keep inflation rate within certain limits may be expected to be undertaken by the BNB and the Government (Maastricht Criteria on membership with the EMU).

4.3.6. Currency r isk

This risk is related to devaluation of the national currency. As to Bulgaria, this means a preliminary denial of the currency board conditions under the fixing of the national currency to the euro at a ratio of BGN 1.95583/EUR 1. In consideration of the policy adopted by the Government and the Central Bank, the currency board is expected to be preserved until accession of the country to the EMU.

Each significant BGN devaluation may have material adverse effect on the economic entities in the country, including the Issuer. Risk also exists when the income and expenses of an economic entity are formed in different currencies. The exposure of companies operating in the territory of Bulgaria to USD, which is the basic currency used in most world raw materials and production markets, is strongly expressed.

4.3.7. Interest rate r isk

The interest rate risk is related to possible changes in the prevailing interest rates in the country. This would affect the activities of the Company insofar as the change in interest rates results in change in the financial resources used by the Issuer to implement various projects under the same other conditions. As a result of the introduced currency board and methodology for charging interest rate based on the primary market in three-month government securities, the interest rates in Bulgaria are stable. The global financial and economic crisis has had negative impact on the interest rates in the EU and in the country.

4.3.8. Tax r isk

The taxes payable by the Bulgarian economic entities include withholding tax, local taxes and charges, corporate tax, value added tax, excise taxes, import and export duties and property taxes. The Bulgarian taxation system is still in process of development and, as a result, conflicting tax practices may originate on national and local levels.

Investors should bear in mind that the value of an investment in ordinary shares may be negatively affected by changes in the effective tax legislation and its interpretation and application.

4.3.9. Regulatory r isk

The regulatory risk is the probability of changes in the effective legislation resulting in unfavourable effect on the economic environment in the country.

Although the main part of the Bulgarian legislation is harmonized with the EU legislation, the laws application is criticized by the European partners of Bulgaria. The court and administrative practices still experience problems, including inability

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of the Bulgarian courts to efficiently settle disputes on titles, failure in compliance with regulatory and contractual obligations and other and, as a result, the systematic regulatory risk is relatively high.

In spite of the problematic issues related to the Bulgarian legal system, the Bulgarian commercial legislation forms part of the European one and is relatively modern. The introduction of new regulatory acts in fields such as corporate law and securities and the harmonization with the EU laws and regulations are expected to reduce the regulatory risk in the near future.

5 . I N F O R M AT I O N A B O U T T H E I S S U E R

5.1. BACKG RO UND AND DE V E L O P ME NT O F T HE IS S UE R

5.1.1. Legal name and trade name of the Issuer

Industrial Holding Bulgaria PLC is a joint-stock company with public status within the meaning of Article 110, Paragraph 1 of the Law on Public Offering of Securities. As at the date of preparation of this Registration Document, the Company is entered into the Commercial Register of the Registry Agency under the name of Industrial Holding Bulgaria PLC

The Company was incorporated as Privatization Fund Bulgaria PLC By virtue of Decision No 5 of 13 March 1998 of Sofia City Court, the Company was renamed to Industrial Holding Bulgaria PLC

5.1.2. Place of registrat ion and ident i f icat ion code of the Issuer

Industrial Holding Bulgaria PLC is a company registered in the Republic of Bulgaria and entered into the Commercial Register of Sofia City Court under batch No 11, volume 1, register I А, page 62, company file No 13081/1996.

At present, the Company is entered into the Commercial Register of the Registry Agency under UIC 121631219.

5.1.3. Date of registrat ion and term of existence of the Issuer

The Company was registered by virtue of Decision dated 7 November 1996 of Sofia City Court. The Company is not bound by any term of existence.

5.1.4. Seat and legal s tatus, legislat ion regulat ing the act iv i t ies, country of registrat ion, address of management and telephone/s of the Issuer

The Issuer is a joint-stock company. Industrial Holding Bulgaria PLC is a public company within the meaning of Article 110, Paragraph 1 of the Law on Public Offering of Securities.

Industrial Holding Bulgaria PLC performs its activities in compliance with the Bulgarian legislation, particularly the provisions of the Law on Commerce and the Law on Public Offering of Securities imposing specific requirements to public companies.

Seat, address of management, telephone/s and website of the Company:

Country Bulgaria

Seat Metropolitan Region of Krasno Selo, 1606 Sofia

Address of management 42 Damyan Gruev Street

Branch seats The Company has not registered any branches

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Office address 47 Vasil Levski Boulevard, 1000 Sofia

Telephone/s +359 2 980 71 01; +359 2 981 55 06

Fax +359 2 980 70 72

E-mail [email protected]; [email protected]

Website www.bulgariaholding.com

5.1.5. Key events in the economic development of the Issuer

Since its registration in 1996 till present date, the Company underwent the following changes:

Transformation of the Issuer

Since its registration by virtue of Decision dated 7 November 1996 of Sofia City Court, the Issuer has not undergone any transformation.

Changes of the name of the Issuer

In 1996, the Company was incorporated as Privatization Fund Bulgaria PLC By virtue of Decision No 5 of 13 March 1998 of Sofia City Court, the Company was renamed to Industrial Holding Bulgaria PLC

Changes in the capital of the Issuer

By virtue of Decision dated 7 November 1996, the Issuer was registered as a company with capital of BGL 2,654,985,000 (two milliard six hundred fifty-four million nine hundred and eighty-five thousand) By virtue of Decision dated 13 March 1998, the capital of the Company was increased to BGL 17,500,000,000 (seventeen milliard and five hundred million) through the issue of registered shares, each having nominal value of BGL 1,000. The capital of the Company was denominated from BGL 17,500,000,000 (seventeen milliard and five hundred million) to BGN 17,500,000 (seventeen million and five hundred thousand) divided into 17,500,000 dematerialized registered voting shares, each having nominal value of BGN 1. Over the period covered by the historical financial information disclosed in this Registration Document, the following changes in the capital of the Company were made:

1. By virtue of Decision No 21 dated 19 July 2007, Sofia City Court registered increase in the capital of Industrial Holding Bulgaria PLC from BGN 21,003,235 (twenty-one million three thousand two hundred and thirty-five) to BGN 26,254,040 (twenty-six million two hundred fifty-four thousand and forty) through the issue of 5,250,805 ordinary dematerialized registered shares, each having nominal value of BGN 1;

2. By virtue of Decision No 22 dated 27 December 2007, Sofia City Court registered increase in the capital of Industrial Holding Bulgaria PLC from BGN 26,254,040 (twenty-six million two hundred fifty-four thousand and forty) to BGN 43,756,118 (forty-three million seven hundred fifty-six thousand one hundred and eighteen).

Changes in the scope of activity of the Issuer

1. By virtue of Decision dated 7 November 1996, Sofia City Court registered the Issuer as a company with scope of activity including acquisition of shares in companies offered for privatization in compliance with the procedure under Chapter Eight of the Law on Transformation of State-Owned and Municipal Enterprises for investment vouchers, management and sale of such shares and investments in securities of other issuers;

2. By virtue of Decision No 5 dated 13 March 1998, Sofia City Court registered new scope of activity of the Company, including acquisition, management, assessment and sale of shares in Bulgarian and foreign companies, acquisition, assessment and sale of bonds, acquisition, assessment and sale of patents, cession of

24





licenses for usage of patents of companies where the Holding holds interests, financing of companies where the Holding holds interests and any other activity not prohibited by law.

By virtue of Decision № 7 dated 19 August 1999, Sofia City Court registered change in the scope of activity of the Company – deletion of acquisition, assessment and sale of bonds.

Changes of the seat and address of management of the Issuer

Industrial Holding Bulgaria PLC has its seat and address of management at 42 Damyan Gruev Street, Region of Krasno Selo, 1606 Sofia. Since its registration in 1996, the Company has not changed its seat and address of management.

5.2. INV E S T ME NT S

5.2.1. Descript ion of the major investments of the Issuer real ized over the last four f inancial years and t i l l the date of the Registrat ion Document

Ü IHB

The Issuer mainly invests in shares of Bulgarian and foreign companies. Table № 5 presents the investments realized since 2006 till the date of the Registration Document.

2006

By virtue of a contract signed with Dockyard Odessoss AD in 2006, IHB purchased 2,401,898 voting shares, representing 10% of the capital of Bulyard AD. Dockyard Odessoss AD terminated its participation in the capital of Bulyard AD and IHB increased its interest to 61.50%. The transaction value is BGN 3,120,100.

2007

In February 2007 Bulyard AD, a subsidiary of IHB, launched a procedure for the acquisition of 25% of the capital of Bulyard Shipbuilding Industry AD, following notification by Navigation Maritime Bulgare EAD on presence of all permissions required. The procedure was finalized on 6 March 2007 when Bulyard AD acquired 5,469,476 shares, representing 25% of the capital of Bulyard Shipbuilding Industry AD. The transaction value is USD 5,555, 555. As a result of the transaction, the control of IHB in Bulyard Shipbuilding Industry AD reached 61.50%.

By virtue of Decision No 5 dated 19 March 2007, Sofia City Court registered increase in the capital of Bulyard AD from BGN 24,018,980 to BGN 32,618,980. The funds raised through the increase were used to pay 25% of the capital of Bulyard Shipbuilding Industry AD, which Bulyard AD acquired from Navigation Maritime Bulgare EAD.

IHB participated in the increase in the capital of Bulyard AD by subscribing 5,289,000 shares, each having nominal value of BGN 1 in proportion to its interest in the capital of Bulyard AD.

By virtue of Decision No 6 dated 20 April 2007, Sofia City Court registered increase in the capital of Bulyard AD from BGN 32,618,980 to BGN 37,292,980. The funds raised through the increase were for increase of the capital of Bulyard Shipbuilding Industry AD by BGN 5,000,000 – from BGN 21,877,905 to BGN 26,877,905.

IHB subscribed 2,874,510 shares, each having nominal value of BGN 1 and issue value of BGN 1 in proportion to its interest in the capital of Bulyard AD.

As a result of the two increases in the capital of Bulyard AD, IHB invested BGN 8,164 thousand, while its interest in the capital of Bulyard reached BGN 25,591 thousand.

In November 2007, the capital of Dockyard Port – Bourgas AD was increased from BGN 135,440 to BGN 635,440 through the issue of 500,000 ordinary registered voting shares. All shares were subscribed by IHB and, as a result, its interest in the capital of the subsidiary increased from 91.74% to 98.24%.

In partnership with a Norwegian company, IHB participated in the incorporation of a joint-stock company named VIK-Sandvik-IHB DESIGN AD, Varna, with scope of activity including ship design. Each company holds 50% of the registered

25


capital of the company, which amounts to BGN 250,000. The new company was registered by virtue of Decision of Varna District Court dated 22 August 2007. The capital of the company is fully paid in.

In 2007, all 38,555 shares in the capital of Bulgartabac Holding AD, held by IHB, were sold at price of BGN 41.77 per share. The net gains on the sale of all shares totaled BGN 250 thousand, while the total income was reduced by the total carrying amount of the sold shares and the costs related to their sale.

The funds invested in corporate securities in 2007 total BGN 8,789 thousand.

2008

IHB started to invest in the building of two new 57,000 DWT ships – Future 56 Type at Bulyard Shipbuilding Industry AD, having total value of EUR 60 million. The investment is financed through KLVK AD. At present, only one of the said ships, which has construction No 102, is in process of building.

In June and November, contributions were made to increase the capitals of two subsidiaries: two contributions totaling BGN 5,000 thousand were made to the capital of KLVK AD and two contributions totaling BGN 4,050 thousand were made to the capital of Privat Engineering AD. The shares from the said increases were subscribed by IHB.

The raised funds have been planned to finance the building of the ships built through the two subsidiaries.

The funds directly invested by IHB (unconsolidated) in corporate securities in 2008 total BGN 9,050 thousand.

2009 – the date of the Registration Document

In September 2009, IHB made contribution of BGN 4,000 thousand to increase the capital of its subsidiary Privat Engineering AD and subscribed all 800,000 shares, each having nominal value of BGN 1 and issue value of BGN 5.

In November 2009, IHB invested in a new company named Rekolta AD with capital of BGN 140,000 divided into 140 shares, each having nominal value of BGN 1,000. IHB subscribed 50% of all voting shares. The newly registered company has scope of activity including purchase of agricultural land, maintenance and enhancement of soil fertility, construction of agricultural systems, biological agriculture, revival and further development of the good agricultural practices typical of the Bulgarian agriculture as well as any other activity not prohibited by law.

The funds directly invested by IHB (unconsolidated) in corporate securities in 2009 total BGN 4,070 thousand.

In January 2010, IHB made contribution of BGN 10,000 thousand to increase the capital of the subsidiary Privat Engineering AD and subscribed all 2,000,000 shares, each having nominal value of BGN 1 and issue value of BGN 5 to ensure the repayment of loans granted for the building of ships at Bulyard SI.

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Table № 5 Investments of the Issuer in Bulgarian and foreign companies realized since 2006 until the date of the Registration Document

Investment in Number of shares Capital expenses (BGN) Equity stake in the company Location Type of financing

Bulyard AD 2,401,898 3,120,100 10% Sofia Cash + corporate bondsDockyard Port – Bourgas AD 20 60 0.01% Burgas CashDunav Turs AD 60 300 0.01% Ruse Cash

Total: 3,120,460

Bulyard AD 8,163,510 8,163,510 61.50% Sofia CashDunav Turs AD 207 940 0.03% Ruse CashDockyard Port – Bourgas AD 500,000 500,000 6.50% Burgas CashVIK - Sandvik - IHB Design AD 125,000 125,000 50.00% Varna Cash

Total: 8,789,450

Privat Engineering AD 750,000 4,050,000 19.00% Sofia CashKLVK AD 5,000,000 5,000,000 98.52% Sofia Cash

Total: 9,050,000

Privat Engineering AD 800,000 4,000,000 16.91% Sofia Cash + corporate bondsRekolta AD 70,000 70,000 50.00% Sofia CashDockyard Port – Bourgas AD 20 60 0.01% Burgas Cash

Total: 4,070,060

Privat Engineering AD 2,000,000 10,000,000 16.91% Sofia Cash

Total: 10,000,000

2010 - 22.02.2010

2006

2007

2008

2009

Source: Industrial Holding Bulgaria PLC

Ü IHB Group companies

IHB finances the investment projects of its group companies, related to high-priority sectors, in the form of extension of loans and/or acquisition of shares of the capitals of these companies, including subscription of shares and capital

increases. The funding of high-priority projects is carried out in the order of their occurrence in time.

The Holding makes foreign investments through its subsidiaries:

1. Privat Engineering AD holds 100% of the capitals of Emona Ltd, Marciana Ltd, Karvuna Ltd and Tirista Ltd registered in the Marshall Islands. The investment activities of Emona Ltd and Marciana Ltd are disclosed in Item 5.2.1. Maritime transport section and those of Karvuna Ltd and Tirista Ltd are disclosed in Item 5.2.2. Maritime transport section;

2. KLVK AD holds 100% of the capitals of Odriya Ltd and Skitiya Ltd registered in the Marshall Islands. The investment in Odriya Ltd is described in Item 5.2.3.

Another company within the IHB Group registered and operating outside the Republic of Bulgaria is International Industrial Holding Bulgaria AG, Switzerland.

Information about the IHB Group companies is disclosed in Item 7. Organizational structure.

Following restructuring and consolidation of the portfolio of IHB, at present the Management focuses on investments in the companies – reconstruction and modernization of their basic production equipment with a view to removal of the gaps in the production process and expansion and renewal of production scopes through introduction of new products demanded in the market and offered at best prices.

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By the end of 2008, each group company realized its investments plans as per the set objectives and directions of development over the individual years as part of the strategy applied by IHB. The hampered production and realization in 2009 have had impact on the investment policy of the Holding. The Management focused its efforts on undertaking of actions to minimize the negative impact of the global financial crisis on the subsidiaries and finalization of commenced investment projects. The investment of fresh funds was a conservative method directed at finalization of commenced projects and realization of urgent recovery events.

The major investments of the Group realized over the last four years by priority sectors and activities are disclosed hereinafter. The data about 2009 are preliminary.


The 2006 expenses on investments of Bulyard SI EAD exceed BGN 4.5 million, including expenses on maintenance and repair works. Major projects were implemented in relation to improvement of labour efficiency, including supply and commissioning of special plasma cutting and welding equipment, three-dimensional optic system for section measurement and TRIBON design system.

The implementation of the 2006 Investment Program was financed by the reinvested profit for 2005 and a special purpose credit of EUR 1 million.

The 2007 expenses on investments of Bulyard SI EAD total BGN 16,575 thousand, including expenses on maintenance and repair totalling BGN 6,782 thousand. Major projects were implemented in relation to improvement of labour efficiency and conditions and production modernization, including purchase of license for ship of the Super Handymax F56 type, small-size ship equipment, certification under ISO 9000:2001, reconstruction of workshop К-1, etc.

The implementation of the 2007 Investment Program was financed by reinvested profit, capital increase and a new special purpose credit of EUR 1 million.

In 2008, the Management of Bulyard SI EAD realized investments under a program for BGN 6,704 thousand and invested BGN 14,102 thousand, including expenses on maintenance and repair totalling BGN 3,082 thousand. There have been settled key issues related to increasing of labour efficiency and improvement of labour conditions. New equipment was purchased, buildings (workshop K-1, administrative building) were reconstructed, working stations were expanded, the controlling and monitoring system and the internal information network software were replaced.

The key projects implemented in 2008 include supply and commissioning of plasma cutting and pipe machines and reconstruction of the 800-ton crane.

The shipyard acquired two highly productive plasma cutting machines and one pipe machine. A total of EUR 705 thousand was utilized. The main portion of the funds was granted under the credit line under an energy efficiency program of the European Bank for Reconstruction and Development, therefore the Bank granted a subsidy of EUR 107 thousand. The plasma cutting machines are highly productive and can process up to 2,000 tons of sheet steel under three-shift regime. They mark cut details, which ensures error avoidance and time saving. Technical gases saving is reported and the additional metal processing is not necessary.

At Bulyard SI, there were performed a thorough audit of the energy efficiency and given recommendations on its improvement, which are set in the investment program of the company. The project for reconstruction of the 800-ton crane at the company was implemented under the conditions of the credit line under the energy efficiency program of the EBRD. BGN 415 thousand was provided through a bank credit. The project was finalized in October. A total of EUR 423 thousand was utilized and EUR 50 thousand of it was refunded by the Bank. The crane reconstruction has reduced the expenses on electric power consumption. The new operation provides better crane reliability and undisturbed functioning. Its technical maintenance became easier. The project contractor is SIEMENS – Germany.

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The implementation of the 2008 Investment Program was financed by special purpose credits and own funds (raised through capital increase, operating income and reinvested profit). Subsidy was granted to partially cover the reported expenses on the two energy efficiency projects (see above).

Based on preliminary date, in 2009 BGN 1,652 thousand was invested, including BGN 841 thousand in maintenance and repair. The year was difficult for Bulyard SI, which resulted in impossibility to set aside a portion of the operating income for investments. Urgent events were realized. The construction of painting facility was commenced, welding and other small-size ship equipment was supplied and reconstruction of under-crane railway was made. Licenses and engineering were purchased – Mitsubishi license, technical project for bulk cargo ships of the Future’56 series, etc. Own funds were invested.

Since operations recovery, Bulyard SI has invested in personnel training, qualification and requalification. The Vocational Training Centre at the company plays the key role in this process.

Consistent work has been done under programs, including several-month specialization courses in the facilities in Tulca, Romania and Japan. Funds were invested in enhancement of the personnel qualification, capacity and labour efficiency to promote the competitiveness of the company in the national and international markets.


Since its incorporation at the end of 2007, Wartsila IHB Ship Design AD (former name: VIK-Sandvik-IHB Design AD) has invested own funds totalling BGN 122 thousand. In consideration of the scope of activity, almost 100% of the funds are invested in technical equipment, including computers, office equipment, etc. Another key item is formed by the used software licenses (see Item 6.4. Information about dependency of the Issuer on patents, licenses, industrial, commercial or financial contracts or new production processes).

Due to activity expansion, in 2008 the company invested in additional working places and equipment and leasing of additional premises for the personnel. Own funds totalling BGN 164 thousand were invested.

In 2009, the crisis resulted in considerable reduction of the number of orders for the company. A number of urgent structural changes were made. The investment activity shrank. At present, the required working equipment and licenses are provided. The expenses on the equipment and access system maintenance are insignificant.


In 2009, the final shipbuilding stages were completed. On 30 May 2009, Emona Ship was officially delivered to its owner. On 7 January 2010, Marciana Ship was delivered to its owner. At present, both ships navigate under time-charter schedules. A total of BGN 25,622 thousand was invested in the building of Emona Ship and a total of BGN 25,377 thousand was invested in the building of Marciana Ship based on preliminary data. The payments for the individual shipbuilding stages are in EUR and USD. The ships building was completed by using own funds of the Group, representing operating income and funds raised through the 2008 increase in the capital of the Holding.

Since its incorporation at the end of 2007, IHB Shipping Co EAD has undertaken the supervision of the building of the ships for the Group and the recruitment and training of crews for both ships subsequently. It is responsible for the overall management of their operations.

In 2008, IHB Shipping Co invested a total of BGN 79 thousand in computer communication equipment, one company car, website development and office equipment. The 2009 activity of the company was secured by additional portable equipment having total value of BGN 4 thousand.

The relatively low level of the investment activity of the company is predetermined by the administrative nature of its activities.

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The change of the basic activity of Dockyard Port – Bourgas AD, i. e. the shift from ship repair to port operations, resulted in changes in the investment policy of the company.

Till 2006, the efforts were focused on increasing the production capacities related to future operations. The implementation of a project for construction of an alternative port entrance/exit point was started and additional terrain was purchased. Two engine-driven trucks were supplied to ensure the smooth running of the loading and unloading activities. Own funds were invested.

In 2006, the investment events were fully directed at port operations. Own and borrowed funds totalling some BGN 1.1 million were invested in special purpose equipment, infrastructure establishment and open and closed store areas. The funds were provided by IHB.

Following suspension of ship repair in August 2007, the company started performing port operations only. A total of BGN 1,922 thousand was invested in two directions: supply, including supply under lease, of specialized port equipment – reloading equipment and construction of the required infrastructure as preparation for the implementation of the project for the expansion and modernization of the port terminal of the company (see Item 5.2.3. Commitments for major future investments of the Issuer).

There were performed activities related to construction of assets of the port infrastructure, including construction of concrete road to the electrical weighing machine, platform of storehouse No 6 and under-crane way, mounting of a travelling bridge crane, fence construction and road re-asphalting. Two dockyard workshops were vacated and transformed into sheltered storehouses – one certified as grain storehouse and one certified as cargo storehouse. Technical workshop for port equipment maintenance and duty, shipping and docker’s premises were established. Fire-alarming installation was purchased to ensure safety. Parallel repair and preventive maintenance works extending asset useful lives were completed.

Own and borrowed funds were invested. The own funds include operating income, proceeds from the sale of the floating dock and the workshop belonging to it and reinvested profit. A portion of the new equipment was purchased under lease. The funds were provided by IHB and Privat Engineering. At the end of 2007, the granted loans were repaid.

In 2008, Dockyard Port – Bourgas continued the port infrastructure construction. A total of BGN 2,570 thousand was invested, including investments in maintenance and repair of assets. Own funds were invested.

The store areas were expanded. New open and sheltered storehouses equipped with reloading equipment were established. Two 12.5-ton travelling bridge cranes with under-crane railway of open storehouses No 2 and No 9 were restructured and mounted. Sewerage system for leading the wastewater of the company to the urban collector was built and the anti-fire and drinking water supply systems were repaired. Three branches of railway line and railway overpass/motor car scaffold bridge and concrete road to the electric weighing machine were built. A front loader, a 5-ton engine-driven truck and two tractors with trailers were purchased. Several internal orders for reorganization of the existing machines were fulfilled.

General repair of the administrative building was made and new working premises were established – operational port, sanitary and quarantine, fuel and lubricant and other premises. Quay expansion, railway reconstruction and others are in process of realization.

A system for video surveillance, covering all store areas and the largest part of the port territory, was integrated. Equipment for alarming the personnel in case of disasters and failures was installed. The events were realized to increase the port security and safety. Following their final realization in 2008, the company was issued Certificate under the International Port and Ship Facility Security Code (ISPS Code).

In 2009, Dockyard Port – Bourgas AD continued the investment of own funds in assets, facilities and expansion of the quay. Based on preliminary data, some BGN 1,018 thousand was invested, including investments in maintenance and

30


repair of assets. Specialized port equipment, including electro-hydraulic and rope grippers, was purchased and repaired, the 12.5-ton crane in storehouse No 5 was reconstructed, etc. The infrastructure was improved through reconstruction of the under-crane railway of storehouse No 8, the eastern approach to the port was designed and the servicing street was re-asphalted. The former dockyard unit was transformed into workshop and general repair of the dining premises was made.

The quay construction continued. In 2009, an additional amount of BGN 216 thousand was invested in pre-project works and the total expenses reached BGN 415 thousand (see Item 5.2.3. Commitments for major future investments of the Issuer).

The company commenced the implementation of a project for grain storehouse construction (see Item 5.2.2. Description of the major investments of the Issuer in process of realization).

In 2006, Odessoss PBM AD invested a total of BGN 425 thousand in the operational infrastructure building through acquisition and commissioning of open and sheltered platforms, application of the prescriptions issued by the Maritime Administration and the Pilot Station to the port territory and approaching canal safety, completion of various works related to the quay wall to ensure safe ship mooring and supplying and construction of underground water main supplying the quay wall. Crane and rear equipment was purchased, moved and commissioned and under-crane ways to it were built.

In 2007, the process of restructuring of the region of the supporting shipbuilding enterprise kept by the company into a port enterprise with established facilities for ship, wagon, motor, storage, container and rear procession of bulk and general cargo was completed. For the purpose, a total of BGN 709 thousand was invested.

In 2008, the company invested a total of BGN 521 thousand in the creation of proper conditions and increase in the cargo

flow through the quay, expansion of operations and the possibilities for cargo storage and procession, expansion of the scope of offered services through commissioning of a 32-ton travelling bridge crane at the rear and possibility for general cargo procession onto/down wagons and construction of distant working facilities at the customs.

Based on preliminary data, in 2009 some BGN 150 thousand was invested in the improvement of existing assets with the purpose of adjustment for more efficient use in the course of the activities of the company and/or in compliance with the prescriptions of the supervisory and controlling bodies (Maritime Administration Executive Agency, State Agency for Metrological and Technical Surveillance, General Inspectorate for State Technical Surveillance Directorate, construction supervision authorities, etc.) applying to additional equipment, completion of electrical power and water supply and sewerage installations, general repairs, etc.

The major investments realized over the year include concreting of the platform of berth No 2, insulation and construction of lighting system, water main and approach to the storehouses, waterproofing of roof structures, construction of stevedore and supply premises, general repair and painting of 5-ton cranes at the quay and equipment of 32-ton travelling bridge crane and 5-ton crane. The made investments increased the volume of processed general cargo from 21,000 tons or 38% in 2008 to 31,000 tons or 59% in 2009.


At the end of 2005, the Bulgarian Register of Shipping won a competition for state subsidy granting by the National Innovation Fund for an applied research project for development of ship inspection and classification technology and internet-based system for inspectors’ work management. Commenced in 2006, the project was realized at the end of 2007 with the support of specialists from the Technical University of Varna. The system was commissioned in August 2008.

Thus, the Bulgarian Register of Shipping met one of the obligatory conditions for its recognition by the European Union. The successful deployment of the system contributes to the synchronization of the rules and regulations of the Bulgarian Register of Shipping with the new requirements on shipbuilding and ship repair safety and security adopted by the

International Maritime Organization and creation of electronic database and possibility for real-time inspector’s work. The project implementation expenses total BGN 379 thousand, including subsidy of BGN 72 thousand granted by the Fund.

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The funds invested in the company in 2007 total BGN 246 thousand, including purchase of a motor car for the inspectors and computer equipment and BGN 204 thousand for the innovation project finalization.

In 2008, the Bulgarian Register of Shipping purchased measuring devices and computer equipment for BGN 10 thousand.

Based on preliminary data, the 2009 expenses on investments total BGN 75 thousand, including BGN 47 thousand on office repair and personnel training. Own funds were invested.

The key factor predetermining the successful performance of the Bulgarian Register of Shipping is the qualification of its inspectors. In this light, the personnel training is an investment generating future benefits for the company. At the beginning of each year, a schedule of training based on individual subjects, including internal seminars and external courses for additional qualification, is approved. The 2009 training schedule was related to the following:

1. New requirements of the Rules of the Bulgarian Register of Shipping, resolutions of the IMO and flag administrations;

2. Training of inspectors in application of the BRIS system;

3. New requirements to newly built cargo bulk ships in compliance with the IMO’s rules;

4. Performance of audits under the ISM and use of the forms of the Bulgarian Register of Shipping;

5. Introduction to and interpretation of the new version of ISO 9001:2008 – Lloyd’s Register Quality Assurance,

6. Training of auditors in application of the requirements of the International Safety Management Code (ISM Code) – Bulgarian Maritime Training Centre;

7. Training in application of the PSPC requirements under the FROSIO system (painting coatings);

8. Training in application of the requirements of Chapter ХІ-2 of SOLAS and the ISPS Code by the flag and port administrations – IMO IMSSEA.

The deployment of the new management system has considerably improved the work of inspectors. The system maintenance and improvement process is continuous. The system extension was planned to be performed in 2009 but the deepening crisis deferred this investment intention for 2010 (see Item 5.2.2. Description of the major investments of the Issuer in process of realization).


The investment policy of machine building companies is determined by ZMM Bulgaria Holding AD as per the group

development priorities. Within it, investments are made in the following three directions:

1. ZMM Bulgaria Holding AD invests in shares of subsidiaries, including subscription of shares upon capital increase;

2. The principal company grants loans to the companies to realize their investment objectives;

3. The companies use own funds, bank loans, loans by the group or various state subsidy funds and structural funds.

ZMM Bulgaria Holding AD has been gradually consolidating its investment portfolio through acquisition of new shares in its subsidiaries. The funds invested by the holding in shares over the years are as follows:

Ü 2006 – BGN 2,109 thousand;

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Ü 2007 – BGN 181 thousand;



Ü 31.01.2010 – none.

ZMM Bulgaria Holding AD changed its interests in the individual companies over the last four years through:

Ü Purchase of shares of ZMM Sliven AD based on a tender offer to the other shareholders in April 2007 and, as a result, its interest reached 95.58%. Own funds were invested. On 24 October 2007, the company was deleted from the Register of Public Companies and Other Issuers of Securities under Article 30, Paragraph 1, Item 3 of the Law on the Financial Supervision Commission kept by the FSC;

Ü Increase of its interest in the capital of Mashstroy AD to 80.81% following a tender offer made in 2005. Own funds were invested. In 2009, 40 shares were sold. At present, the interest of the company is 80.80%;

Ü Increase of its interest in the capital of ZMM Nova Zagora AD to 93.57% in 2006. Own funds were invested. At the beginning of 2007, the company was deleted from the Register of Public Companies and Other Issuers of Securities under Article 30, Paragraph 1, Item 3 of the Law on the Financial Supervision Commission kept by the FSC;

Ü Inclusion of Elprom ZEM AD in its long-term portfolio in 2004. As a result of subsequent purchase and sale of shares in its capital, the interest of ZMM Bulgaria Holding AD changed from 82.19% to 80.38%;

Ü Following the increase in the capital of Leyarmach AD in April 2007 through issue of 500,000 shares, 350,000 of which were subscribed by ZMM Sliven AD and 150,000 of which were subscribed by Mashstroy AD, the interest of the holding changed from 99.99% to 83.87%. In 2009, the holding purchased the interest of Mashstroy and increased its interest to 88.71%. The control over Leyarmach within the group is 100%. Funds of the group were used to finance the transactions;

Ü Incorporation of a subsidiary named Bulkari EAD in February 2006. BGN 2 million was invested, including a loan of BGN 600 thousand granted by IHB. The borrowed funds were repaid.

The major investments of the companies within the group of ZMM Bulgaria Holding AD are directed at renovation and modernization of used equipment and technologies and improvement of produced machines and their structure and design following the world trends in machine building and client preferences. The removal of the gaps results in improvement of the organization and efficiency in the production of heavy profit-generating machines and introduction of new products demanded in the market and offered at best prices. The key events directed at expansion and improvement of the scopes of products of the individual companies to strengthen the market presence are disclosed in Item 11. Research and development activities, patents and licenses.

The funds spent by the companies, including expenses on maintenance and repair, depend on their particular needs and available financial resources and the free funds of the group. In the conditions of the financial and economic crisis and considerably limited resources in 2009, the companies belonging to the machine building holding redirected their investment objectives to finalization of commenced projects, undertaking of urgent actions and available equipment maintenance in proper condition. In case of market environment improvement, the companies will continue to invest in improvement of the offered products and used technologies. The group invests in Bulgaria only.

In 2006, ZMM Sliven AD invested own funds totalling some BGN 130 thousand to purchase a new strip cutting machine, a processing centre, small-size equipment, motor and other non-current tangible assets. At the same time, the existing assets are maintained and rehabilitated on annual basis. Due to the efforts of the technical team of the company, a digital machine and a cutting and planing machine for large-size unit details, a processing centre for rotation and symmetrical

33


details, screw cutting and other unit machines were repaired during the year. The roof waterproofing of the main production unit and the workshop for non-standard technological equipment and Documents was replaced.

In 2007, ZMM Sliven AD invested own funds totalling BGN 554 thousand to purchase non-current tangible assets, subscribed shares from the increase in the capital of Leyarmach AD for BGN 350 thousand and invested BGN 78 thousand in current assets repair and maintenance. A grinding and planing machine, 2 cutting and 2 strip cutting machines, a thread grinder and other necessary equipment were purchased. A 24-ton truck, 3 engine-driven trucks, computer configurations and fixtures and fittings were supplied for the needs of production. The production capacities were reconstructed and modernized, including repairs of buildings, machinery and equipment used in the different workshops.

In 2008, ZMM Sliven AD invested a total of BGN 614 thousand, including BGN 365 thousand in acquisition of non-current tangible assets and BGN 249 thousand in reconstruction and modernization of the production capacities. A high-frequency current unit for hardening of spindles and engine-driven trucks with 3-ton and 8-ton load capacities were purchased. The air ducts and cupels of the main production unit and the workshop for production and mounting of sets for universal lathes were renovated, the roof waterproofing of the tools workshop, premises, electric motor, engine-driven trucks were repaired, etc. Own and borrowed funds were invested.

Based on preliminary data, in 2009 some BGN 271 thousand was invested in the company to purchase machines, facilities, motor vehicles and fixtures and fittings. A vertical centre and an 8-ton electrical hoist with micro-drive were supplied and a bus for personnel transportation, a gear cutting machine, a round grinder, a lathe, a travelling bridge crane, a drilling machine, computers and video surveillance equipment were purchased. Engines, machines, pattern equipment, motor cars and computer equipment were repaired. A grinding and planing machine for grinding of bodies with length of up to 10 metres was commissioned in the large-unit details production workshop. The high-frequency current unit purchased in 2008 was commissioned. Own funds were invested.

In 2006, Mashstroy AD invested own funds totalling some BGN 775 thousand in equipment and building stock improvement. A lathe, a Faro Gage measuring machine, a centring machine for unit details, a grinding and planing machine and a specialized planing machine were purchased. Vertical processing centres, low-oil cases in the power supply stations and 2.5-ton and 5-ton cranes were repaired. New and improved casting pattern and casing equipment was created. New facilities were commissioned. Motor vehicles for production needs, computer equipment and other assets were supplied. The building stock was improved, including repairs of the roofs and sanitary units of some workshops, etc.

In 2007, Mashstroy AD invested own funds totalling some BGN 757 thousand in assets acquisition, maintenance and repair and BGN 150 thousand in the acquisition of shares in the capital of Leyarmach AD. Machines and equipment, including pattern and casing equipment, a high-frequency current unit for hardening, a cutting and planing machine, a vertical processing centre, a digital machine, lathes and a sand drying oven, were commissioned. Two trucks were purchased. Repair of the production unit of the casting workshop, general repairs of equipment used in the various workshops and current maintenance of equipment were performed. The deployment of production management software continued and the structural developments of new model lathes were added.

The 2008 expenses on investments of Mashstroy AD total BGN 1,148 thousand, including BGN 467 thousand on completion of repairs and installation commenced in the preceding year and purchase of new assets. The remaining amount of BGN 681 thousand includes accrued expenses on an investment project for building of a ray heating system to replace the steam plant using mazut commenced during the year.

Based on preliminary data, in 2009 some BGN 94 thousand was invested in the purchase of two lathes, repairs of machines and motor vehicles, construction of an electrostatic chamber for dust painting and completion of the ray heating system, which was commissioned at the beginning of September 2009. The investment value is BGN 718 thousand. The main part of the project was financed through a special purpose credit. The funds were granted under the credit line for energy efficiency and BGN 86 thousand was repaid by the European Bank for Reconstruction and Development in November 2009.

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In 2006, ZMM Nova Zagora AD invested some BGN 189 thousand in specialized equipment, fixtures and fittings and repair of production premises to improve working conditions.

In 2007, the company invested some BGN 234 thousand in the acquisition of machines and equipment for production and maintenance of available equipment in proper conditions. At the end of the year, ZMM Nova Zagora AD won a competition for financing of activities related to improvement of the working environment, social daily conditions and minimization of the risk in the thermal section by the Labour Conditions Fund at the Ministry of Labour and Social Policy. The contract was signed in April 2008. BGN 110 thousand was invested and BGN 20 thousand of it was repaid by the Fund. Waterproofing of the section roof, section façade insulation and design and joining to the gas distribution points were performed. The building of a gas heating installation with infrared rays for the thermal section is in process of building and is to be completed in 2010. BGN 3,000 thousand was utilized for the purpose (see Item 5.2.2. Description of the major investments of the Issuer in process of realization).

In 2008, the company invested BGN 386 thousand, including expenses on current repairs. Machines with CNC control were purchased to ensure renovation of technological equipment and increase of its capacity. Two digital lathes, one universal cutter, six travelling bridge cranes and one strip cutting automatic machine for extending the piston rods production line were supplied. One universal cutter for processing of details for feeding and support boxes for Russia, a gear cutting machine and an electrical lifter were purchased. During the year, the chamber furnaces of the thermal section, the waterproofing of the roof of the administrative building and machines were repaired.

Based on preliminary data, in the 2009 critical conditions and strongly limited resources, BGN 14 thousand was invested in the supply of a machine for shafts and piston rods central cutting, an electric hoist and unit for thermal processing required for increasing the capacity of the thermal section in consideration of the growing interest in induction hardening by the producers of hydraulic elements.

In 2006, Elprom ZEM AD launched an investment project for introduction of VPI-line, including a strip rolling machine, a VPI installation, heating and baking ovens and a pyrolysis burning chamber. The line was completed and commissioned in April 2008. Elprom ZEM AD is the only manufacturer in Bulgaria having such equipment. The investment allows the design and development of machines with high energy efficiency or energy saving electric machinery, improvement of the operational characteristics and quality of the manufactured machines, meeting of the requirements of future European partners and enhancement of competitiveness. A total of BGN 954 thousand was invested in the project, including BGN 91 thousand provided by the National Innovation Fund at the Executive Agency for Small and Medium-Sized Enterprises Promotion for development of a new technology for insulation system building (see Item 11. Research and development activities, patents and licenses).

In 2007, Elprom ZEM AD invested some BGN 1,755 thousand, including expenses on maintenance and repair. The implementation of the 2006 project continued, the building of a laser cutting workshop began and a TRUMPF laser machine for cutting out of sheet material and producing of finished details without using painting tools was supplied. It improves the efficiency in cutting out of stator and rotor units used in the production of electric engines and hydro generators, increases labour efficiency and eliminates the necessity of additional operations for preparing the cut details for further operations and shortens the items development term. In September, the machine was commissioned in a special hall, including the possibility to install a bending machine and establish separate production. Own and borrowed funds, including bank and group loans, were invested.

At the end of 2007, Elprom ZEM AD completed the insulation of the generator workshop and the repair and modernization of its under-crane way. The project was approved by the Labour Conditions Fund at the MLSP in October 2006 and the contract was signed in May 2007. The investment value is BGN 244 thousand, including financing of BGN 61 thousand approved by the Fund. This has improved the working environment and social daily conditions and decreased the risk related to operating lifting equipment in the production of hydro generators. In 2007, the gasification of the company began.

The 2008 expenses on investments total some BGN 1,473 thousand, including expenses on maintenance and repair. Funds were invested in the reconstruction of a boring machine, completion of the VPI installation and purchase of motor cars and a MAN bus. The renovation of the measuring devices for the constructors began, expenses on gasification were

35


incurred and a strip cutting machine, a banding machine and a hydraulic dynamo-metrical machine were purchased for the needs of production. A FARO LAZER TRAKER three-dimensional machine, improving the quality of manufactured products and ensuring better precisions as to the measuring of all unit and prismatic and rotation details, was purchased. Own funds totalling BGN 162 thousand were invested in the project.

Based on preliminary data, in 2009 Elprom ZEM AD invested some BGN 252 thousand. A cutter for mechanical processing with CPU control and reflection spheres for laser tracker were purchased and funds were invested in current repairs and technical maintenance of strip coiling machines, motor cars and engine-driven trucks. The gasification continued. It is expected to be completed in 2010 (see Item 5.2.2. Description of the major investments of the Issuer in process of realization). Own funds totalling BGN 102 thousand has been invested in it.

At the end of 2009, a grant contract was signed under the Competitiveness Enhancement Operational Program for purchase of a technological line for production of pole coils from copper strip. The project implementation will start in 2010 (See Item 5.2.3. Commitments for major future investments of the Issuer).

In 2006, Leyarmach AD invested some BGN 71 thousand in the purchase of machines and equipment and launched a project for capacities renovation and modernization through the supply and installation of two new energy saving induction furnaces equipped with system for mechanical charging with stock and microprocessor control. The investment was to be made due to the higher requirements to the casts quality and quantity and the ensuring of healthy and safe labour conditions.

In 2007, some BGN 1,443 thousand was invested, including expenses on maintenance and repair. The accrued expenses on the induction furnaces project total BGN 1,223 thousand. A transformer, a water cooling unit, a microbus for the personnel transportation, fixtures and fitting and HR manager software were purchased.

In 2008, Leyarmach AD invested some BGN 196 thousand in machines, facilities and motor vehicles. In compliance with the prescriptions on ensuring safe labour conditions issued by the Labour Inspectorate, aspiration system for the new furnaces and anti-lightning system were built, an electric power generator was purchased and funds were invested in casing equipment, a computer, a pneumatic puller and completion of the induction furnaces.

In February 2008, Leyarmach AD finalized the commissioning of the new furnaces. They increase the capacity by 35% under two-shift working regime. The project financing is BGN 1,457 thousand.

In October, the renovation repair and modernization of the old Radine induction furnace, which failed in November 2007, was completed. The expenses were covered by the insurer in full amount.

A bank credit granted under the conditions of the credit line for energy efficiency was used for the furnaces and the aspiration and anti-lightning systems. 15% of it was subsidized by the European Bank for Reconstruction and Development in April 2008. In addition, the company invested own funds, including funds raised through capital increase and funds borrowed from the group.

Based on preliminary data, the 2009 invested funds totalling some BGN 112 thousand, the main portion of them being invested in machines and facilities. To improve the casts quality, the company purchased an apparatus for analyzing metal chemical composition, which ensures proper selection of raw materials and precise liquid metal analysis. A new casting bucket was purchased and mounted and 12 cases were made. A device for carbon and silicon analysis and an electromagnetic crane wheel were supplied and a front loader was repaired. Own funds and funds borrowed from the group were invested.

In March 2009, the company began dismounting of the old cupola furnace and gradual use of steel scrap in the production process.

Following redirection of its activity within the group of ZMM Bulgaria Holding AD, in November 2007 Bulkari EAD acquired 20,000 shares of the capital of Privat Engineering AD. Own funds totalling BGN 400 thousand were invested.

In 2008, the company participated in a tender and purchased an under-block building section from the Municipality of Popovo for BGN 360 thousand and started site renovation.

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In 2009, the reconstruction and renovation of the site in Popovo was completed. Two premises were established – a shop for industrial goods and a bank office. BGN 25 thousand was spent. In April 2009, ½ share of the bank office was sold. Contracts for lease of the shop for industrial goods and the bank office were signed. The company has invested own funds only.


To meet the requirements of new markets and clients to production quality and timely fulfilment of their orders, over the last several years August Mebel AD invested in equipment and facilities to diminish bottlenecks in certain stages of the production process, increase the quality of drying and processing of the materials and manufacture high quality products. The company focused on the gasification and reconstruction of drying chamber with electronic boards. A new computer controlled panel cutting machine was purchased under lease and mounted. It resolved panel cutting and products quality problems to a great extent.

In 2006, Augusta Mebel AD purchased a glue spreader for high quality gluing and pressing of wood. The CNC – a woodworking centre for cutting and profiling details according to preset shapes – was overhauled. Some BGN 100 thousand was invested, the main portion of it being own funds.

In 2007, the replacement of some machines with machines of higher production capacity ensuring quality materials processing continued. An energy saving machine, improving surface processing and decreasing the level of dependency on the subjective factor in grinding, was supplied. The financing was provided through a special purpose credit. Tools for machines, sprayers, needle and clamp pistols, a device for airless lacquer spraying – the so called air-mix system and others were purchased. In April, the company purchased a truck with trailer under finance lease. The company continued paying the lease instalments. BGN 138 thousand was invested during the year.

In 2008, investments were directed at improvement of lacquer spreading conditions, an aspiration ventilator was replaced and roof structures were repaired. The maintenance of the quality management system and the permanent replacement of machine tools and items of equipment, including needle and clamp pistols, sprayers, pistols and other, continued. The 2008 investments totalling BGN 150 thousand were realized with own funds except for the investment credit.

In 2009, the investment credit for the grinder purchase was repaid in full amount and the payment of the truck lease instalments continued. A new one-side edging machine was purchased using a loan granted by IHB. At the end of 2009, the loan was repaid. During the year, minor repairs of machines and equipment were made and tools were replaced. The company participated with furniture compositions in two international exhibitions in implementation of its marketing policy. Based on preliminary data, some BGN 95 thousand was invested.


The major investments of the group of Dounav Tours AD over the last four years include the expansion of its fleet through the acquisition of three ships.

In 2006, Dounav Tours AD expanded its fleet by 2 passenger ships – Heinrich Heine for EUR 4.1 million and Elegant Lady for EUR 7.2 million. Both investments were financed through bank credits and own funds.

In 2007, Dounav Tours AD purchased the state-owned Balkan Yacht. At the end of the year, own funds totalling some EUR 345 thousand were invested. In April 2008, a contract for the yacht repair was signed with a specialized company in Turkey. As a result of the renovation completed in August 2009, the yacht has turned into a modern elegant and comfortable vessel. The repair expenses total EUR 2,034 thousand, including transport costs. EUR 1,500 thousand was provided in the form of a credit, which was repaid at the end of 2009. In May 2009, the yacht was sold.

The annual regular repairs of the vessels also form a major investment. They are carried out with own funds in the period December – March. Sofia Ship, Rousse Ship and Rousse Prestige Ship are repaired in the shipyard in Linz, Austria and

37


the scheduled repairs of Heinrich Heine Ship and Elegant Lady Ship are carried out in the shipyards in Rotterdam, the Netherlands. Current and emergency repair and maintenance works are carried out when necessary.

In addition to technical repairs, furniture is regularly renovated. In 2009, the baths of Rousse Ship and Sofia Ship were renovated, the bar, restaurant and corridor moquette flooring of Sofia Ship was replaced, the curtains of the crew premises of Rousse Ship were replaced, etc. The poly-grass of Rousse Prestige Ship was replaced.

The funds invested in repairs, including expenses on spare parts, dock erection, electric power consumption and other, by years are as follows: 2006 – EUR 670 thousand, 2007 – EUR 762 thousand, 2008 – EUR 816 thousand and 2009 – EUR 846 thousand (based on preliminary data), excluding the investments related to the yacht.

Usually, own funds are invested. In 2009, the repairs of the five ships were financed through a credit under the program of Bulgarian Development Bank EAD for special purpose refinancing of commercial banks. The credit is to be repaid by 2018.

At present, the intentions of the management bodies and the owners to realize major investments (purchase of new engines for Heinrich Heine Ship) are at offers and correspondence stage. If certain events are to be financed, the related decisions will depend on the required investments and available funds of the company as at the particular dates.

In 2006, Dounav Tours AD invested BGN 5,099,999 in the acquisition of shares as follows:

Ü Tourist Company Dounav EAD – BGN 1,000 thousand for shares issued upon capital increase;

Ü Dounav Tours Hotels EAD – BGN 50 thousand for shares issued upon capital increase;

Ü Dounav River Shipping AD – BGN 49,999;

Ü Shipping Company Dounav EAD – BGN 4,000 thousand.

In 2007, Dounav Tours AD acquired the last share of the capital of Dounav River Shipping AD and became its sole owner. At present, Dounav Tours AD has 4 subsidiaries.

5.2.2. Descript ion of the major investments of the Issuer in process of real izat ion


2009 has had impact on the investment activity of economic entities as well. The reduction and cancellation of some commitments resulted in restructuring of the investment objectives within the Group. Commenced projects where funds were invested became priority, while the implementation of non-commenced projects was deferred.


In August 2007, Privat Engineering AD incorporated a subsidiary named Karvuna Ltd, which agreed the building of a 21,000-ton multi-purpose ship with construction No 458 and price of EUR 21 million designed for bulk cargo and unrestricted region of navigation. This is the eight ship under Project 640 built at Bulyard Shipbuilding Industry EAD and the second ship of the last modification. It was commissioned on 3 August 2009. Karvuna Ship is expected to be delivered to its owner in April 2010. Funds raised though the 2008 bonds issue and own funds of the Group were invested. Additional funds are required to finance the last building stage.

At the end of 2009, Privat Engineering AD incorporated a subsidiary named Tirista Ltd and acquired a fourth ship for the Group at advanced building stage through it. On 16 August 2007, the ship was agreed for Navigation Maritime Bulgare EAD as ship with construction No 459 and load capacity of 21,200 tons, which was to be delivered by the end of 2009. On 1 October 2009, the building contract was terminated. The ship became the property of Bulyard Shipbuilding Industry

38


EAD, which sold it to Tirista Ltd on 1 November 2009. At present, the transaction is at commissioning stage. The ship price is USD 21 million. The ship is to be delivered in July 2010. The first advance payment of USD 8,400 thousand for the building of Anteya Ship (ship No 459) was paid. The main portion of this payment was covered with funds raised through the 2008 bonds issue through deduction of loans of Bulyard SI EAD and Privat Engineering AD. Own funds of the Group were invested as well. Additional funds are required to complete the remaining shipbuilding stages.

IHB agreed the construction of two F56 ships, ships with construction No 102 and No 105 (see Item 5.2.3 Commitments for major future investments of the Issuer).


In 2009, Dockyard Port – Bourgas AD launched a project for local grain storehouse construction as part of the planned modernization of the grain cargo processing capacities and construction of a specialized grain terminal in long-term aspect. The latter is a part of the port expansion project (see Item 5.2.3. Commitments for major future investments of the Issuer). The storehouse will avail with 2 silos of total capacity of 6,000 tons and value of some BGN 1,200 thousand. Own funds will be invested and assets lease schedules will be used.

Geological research has been made, the project has been approved and a building permit was issued by the Municipality of Bourgas. Inquiries to specialized companies for offers for the storehouse construction have been made. Based on preliminary schedules, the construction will be completed in the summer of 2010.

The management bodies of Dockyard Port – Bourgas AD and IHB have a long-term vision on the company development, involving high investment activity (see Item 5.2.3. Commitments for major future investments of the Issuer).


The process of maintenance and improvement of the internet-based system for inspectors’ work management is continuous. Its efficient use requires highly qualified personnel.

The planned management system expansion and improvement with charges calculation module, module for ships of the coastal and river shipping category, ISM module, ISPS module and module for creation of new and adjustment of old documents are expected to be completed by the middle of 2010. Based on preliminary calculations, some BGN 12 thousand is required.

Training of additional experts of the Bulgarian Register of Shipping in audits under the ISPS code with the purpose of expanding the scope of offered services and acquaintance with the requirements of the European standards applicable to small-size ships and yachts has been planned. New amendments to SOLAS and MARPOL effective as of January 2010 will be reviewed.


In 2008, ZMM Nova Zagora AD commenced the building of a gas heating installation with infrared rays as part of the project for improvement of the working environment, social daily conditions and minimization of the risk in the thermal section awarded by the Labour Conditions Fund at the Ministry of Labour and Social Policy. The company expects to complete the installation in 2010 and intends to invest own funds totalling some BGN 10 thousand for the purpose.

Elprom ZEM AD has planned to complete the gasification of the company, commenced in 2007, in 2010. Own funds will be invested in the project. A technological line for production of pole coils from copper strip will be purchased (see Item 5.2.3. Commitments for major future investments of the Issuer).

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In 2010, Augusta Mebel AD will continue to pay the truck lease instalments. The process of replacement of tools and small items of fixtures and fittings is permanent.

Own funds are used for works related to working environment assessment, waste destroy and other.

In case of funds availability, the company will continue to purchase computers and software to improve production management and control.

In long-term aspect, the Management has planned to purchase a lacquer pouring machine for BGN 50 thousand on step-by-step basis. Investment credit will be used for the purpose. At present, there are not any solid commitments for the realization of this investment.


Some EUR 1 million has been planned to be invested in ships repair and maintenance within the group of Dounav Tours AD in 2010.

At present, the intentions of the management bodies and the owners to realize major investments (purchase of new engines for Heinrich Heine Ship) are at offers and correspondence stage. The estimated investment value is some EUR 200 thousand.

The company is also looking for a new ship purchase opportunity.

5.2.3. Commitments for major future investments of the Issuer


In 2007, IHB signed a contract for the building of a 56,000-ton F56 ship having value of EUR 30 million, The investment will be realized through the subsidiary KLVK AD. This ship No 102 is to be delivered in 2012. Advance payment of EUR 3 million has been transferred. Its cutting is to start in March 2010. Additional funds are required to complete the remaining shipbuilding stages.

Due to the 2009 deepening crisis, many ship owners experienced difficulty as to the financing of ordered ships, which resulted in renegotiation of some deadlines and cancellation of some shipbuilding orders. This resulted in restructuring of the group investment objectives. The completion of commenced ships building became priority, while non-commenced orders were deferred. The contract for building of ship No 105 was terminated prior to building commencement. In case of ensuring financing and favourable market development, IHB may commence its building.


In 2007, Dockyard Port – Bourgas AD commenced the construction of the required infrastructure as preparation for the implementation of the project for expansion and modernization of the port terminal of the company. It complies with the announced directions of the National Program for Development of Bulgarian Ports 2006-2012. The pre-feasibility studies were carried out early in 2007 and the General Plan for Development of the Port was developed by Transproject – Sofia in July. The Plan envisages extension of the existing quay wall by another 180 metres to the west and utilization of water territories covering 16,468 square meters using a special technology - feather-joint partitioning. In this way, the total area of the port will be some 80,000 square meters. Furthermore, fortification works will be carried out on the old quay wall. The berths will be increased to three of 125 meters each. The project stipulates an option for the construction of an additional quay. In the westernmost part of the port, there will be a specialized grain terminal, the rest will be used for

40


processing and storage of general cargo. The project is expected to be completed in three years and will cost some BGN 23 million.

As at the date of this Registration Document, the project for expansion and modernization of the port terminal of Dockyard Port – Bourgas AD is approved by the Expert Joint Council and the Ministers of Regional Development and Public Works and Transport, Information Technologies and Communications. A procedure for selection of the project works contractor is in process of realization. By the end of 2009, a total of BGN 415 thousand was utilized for preliminary works, including BGN 180 thousand for pre-project and project studies, general plan development, consulting services, etc. The main portion of this amount was used for coastal fortification works in the region of the future construction works due to objective meteorological and physical conditions and works related to maintenance of normal level of wading depth in the port territory. At present, the project is frozen due to vagueness concerning the regulatory framework.


At the end of 2009, Elprom ZEM AD signed a grant contract under the Bulgarian Economy Competitiveness Enhancement 2007-2013 Operational Program for purchase of a technological line for production of pole coils from copper strip. The investment value is BGN 879 thousand, including subsidy of BGN 421 thousand. The performance time limit is 18 months. The new equipment will ensure the automation, intensification and optimization of an overall production cycle, increase in the number of accepted offers for hydro generators production and volume and minimization of the expenses on repair of existing hydro generators, which is a new market niche. The project provides the company with the opportunity to create a new product and use such product to enter the wind generators production and repair market.

Due to the financial and economic crisis, the management bodies of the other subsidiaries have not made any solid commitments for major future investments.

Over the following years, new capital expenses within the Group may be incurred in case of financing the implementation of new or the development of commenced projects of IHB and its subsidiaries, including expenses related to the investment program of the shipyard for the individual year, expansion of the port terminal in Bourgas, purchase of a new river ship, concession of passenger ports along the Danube River, conclusion of contracts for building of new ships, etc. If necessary, the Holding will continue the financing of the development of the group companies on regular basis.

Capital expenses on new acquisitions and expansion of the business related to the development priorities of IHB may be incurred.

A decision on the total amount and sources of required funds will be made as to each individual case.

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6 . O V E R V I E W O F E C O N O M I C A C T I V I T Y

6.1. CO RE ACT I V I T I E S

Industrial Holding Bulgaria PLC is a company registered in 1996 as a privatization fund under the Law on Privatization Funds with core scope of activity including acquisition of shares in companies offered for privatization in compliance with the provisions of Chapter 8 of the Law on Transformation and Privatization of State-Owned and Municipal Enterprises (mass privatization), management and sale of these shares and investments in securities of other issuers.

In February 1998, the Company rearranged its activities as a holding under the Law on Commerce and was renamed to Industrial Holding Bulgaria PLC The core activities of IHB PLC over the last 3 years were focused on:

Ü Acquisition, assessment and sale of shares in other companies

IHB follows a policy for optimization of its portfolio. The Company acquires stakes of shares in companies, in which it has long-term interests. The main objective is to achieve control of over 50%, allowing to determine the development strategy and to manage these companies.

IHB assesses its interests on regular basis. The attractiveness of the sector where the respective company operates is assessed on one hand, as well as the competitiveness of the company itself, on the other. The development opportunities of the specific company are assessed as well as the possibility for IHB to manage the company, contributing through its management for the appreciation of the company. Based on the assessments made, the Management of IHB determines its strategy to the companies within the portfolio, which generally may include:

Keeping the company in the portfolio, ensuring effective management and development and investment in the company;

Keeping the company in the portfolio without making any investments and interfering in the management;

Sale of the interest in the company;

IHB sells the minority interests in companies, in which it cannot influence the management, as well as the majority interests in companies developing in sectors, which fall outside the strategy of the Holding.

Table № 6 Structure of the portfolio of the Issuer for the period 2007 – 2009

Business segment 2009 2008 2007

Maritime 79.5% 78.3% 67.4%Machine building 13.8% 14.7% 17.5%River cruises 4.8% 5.2% 6.2%Funiture manufacturing 1.4% 1.5% 1.9%Other 0.4% 0.3% 6.8%

Total investment, in BGN '000 57,200 53,504 44,455

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79.5%

13.8%

4.8%

1.4% 0.4%

2009 г.

78.3%

14.7%

5.2%

1.5% 0.3%

2008 г.

67.6%

17.5%

6.2%

1.9% 6.8%

2007 г.

MaritimeMachine buildingRiver cruises

Funiture manufacturingOther


Ü Management of portfolio companies where IHB may exercise control directly or through related parties

In its strategy, IHB counts on ensuring the effective management of the portfolio companies where control is exercised and there is long-term interest.

Activities focused in this direction include:

Active participation in the strategic management of the subsidiaries;

Assistance and competent expert support to the subsidiaries in respect of business planning, financial securing, technological securing, implementation of new technologies, installation and commissioning of new equipment and facilities, repairs of equipment and facilities, steps aimed at reducing production costs, development and production of new products, improvement of existing items, quality improvement, marketing and sales, organizational management and human resources.

Ü Incorporation of new companies

IHB has incorporated several new subsidiaries since its incorporation. Through these subsidiaries, the Holding

acquires interests in companies in its portfolio or implements new investment projects.

Ü Investments in portfolio companies, in which IHB has long-term interest

IHB invests in portfolio companies where it has long-term interest and where it assesses development potential. In most cases, investments are made through capital increase or in rare cases – through financing of subsidiaries or acquisition of the interests of remaining shareholders.

Ü Financing of IHB portfolio companies

IHB finances the companies in its portfolio through bank credits and loans. The granted loans are short-term and

long-term – for financing of the production activities and for investments.

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6.2. MAJO R MARKE T S

6.2.1. Major markets of Industr ia l Holding Bulgaria PLC

The core activity of IHB includes the acquisition, management, assessment and sale of shares in other companies and financing of its subsidiaries.

Table No 7 Unconsolidated operating revenues of Industrial Holding Bulgaria PLC for the period 2006 – 31 December 2009

In BGN '000 12М 2009 % ръст 12М 2008 2008 2007 2006 CAGR (2006/08)

Received interest 4,601 32.8% 3,465 3,465 218 220 296.9%Realised profit from sale of shares 369 - - - 250 187 -Unrealized profit from (loss) from asset revaluation - - - - - 281 -Received dividends 738 -88.3% 6,307 6,307 3,907 1,218 127.6%Revenues from services 653 668.2% 85 85 439 1,036 -71.4%Other income 62 - - - - 4 -

Total operating revenues 6,423 -35% 9,857 9,857 4,814 2,946 82.9%

Source: Audited Unconsolidated Annual Financial Statements of IHB for the period 2006 – 2008 and Unconsolidated Interim Financial Statements of IHB for the period 2006 – 2006 – 31 December 2009

6.2.2. Major markets of IHB Group companies

The commercial activities of the companies within the group of ZMM Industrial Holding AD are concentrated within the holding company. It applies a single policy as to the directions of development of its subsidiaries based on the strategy and policy of the majority shareholder.

The following tables present the regional markets of IHB subsidiaries where they realized their sales income over the reporting historical period.

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M A R I T I M E B U S I N E S S

Total export Europe N. America S. America Russia, Ukraine Middle East Australia &

Oceania Africa Asia

9М 2009

Products 54,297 654 53,643 2,016 51,566 61Services 161 161Other 2,691 2,691Total revenues 57,149 3,506 53,643 2,016 51,566 61

incl. export by country * Marshal Islands – 96.1%, Cyprus – 3.8% и Algeria - 0.1%

* Main countries as a % of total export

2008

Products 86,559 2,590 83,969 35,084 48,570 315 Services 683 683 - Other 10,289 10,289 - Total revenues 97,531 13,562 83,969 35,084 - - - - 48,570 315

incl. export by country *

2007

Products 86,195 872 85,323 21,091 - - - - 64,232 - Services 254 254 - - - - - - - - Other 14,795 14,795 - - - - - - - - Total revenues 101,244 15,921 85,323 21,091 - - - - 64,232 -

incl. export by country * Marshal Islands - 75.3%, Norway – 18.3%, Romania – 3.7%, Malta – 1.2%

2006

Products 70,916 2,344 68,572 68,492 80 Services 287 287 - - - - - - - - Other 2,909 2,909 - - - - - - - - Total revenues 74,112 5,540 68,572 68,492 - - - - - - 80

incl. export by country * Malta – 68%, Cyprus – 23%, Romania – 5%, Greece – 2%

Bulyard AD

Revenues (BGN '000) Total revenues Local market

Export

Marshal Islands – 57.8%, Norway – 20.8%, Turkey – 8.7%, Romania – 6.6%, Greece – 5%, Cyprus – 0.7% и Liberia – 0.4%.

Total export Europe N. America S. America Russia, Ukraine Middle East Australia &

Oceania Africa

9М 2009

Services 2,360 2,360 - Other 88 88 - Total revenues 2,448 2,448 - - - - - - - -

incl. export by country*


2008


incl. export by country

2007

Services 2,445 2,285 160 139 21 Other 1,521 267 1,254 1,254 Total revenues 3,966 2,552 1,414 1,393 - - - - 21 -

incl. export by country Turkey – 78%, Greece – 16%, Denmark – 2%, Marshal islands – 1.5%

2006

Services 3,702 1,105 2,597 780 676 1,141 Other 291 291 - Total revenues 3,993 1,396 2,597 780 - 676 1,141 - - -

incl. export by country Denmark – 15%, Russia – 33%, Ukraine – 11%, Greece – 8%, Panama – 26%

Dockyard Port – Bourgas AD


Export

45


Total export Europe N. America S. America Russia Middle East Asia Africa Australia & Oceania

9М 2009

Services 1,765 937 828 173 8 287 145 56 85 74 Other 12 9 3 1 1 1 Total revenues 1,777 946 831 174 8 288 - 146 56 85 74

incl. export by country* Panama – 18%, Syria – 12%, Liberia– 8.8%, Marshal islands – 8.7%, Malta- 7.2%, Belize – 6.7%


2008

Services 2,476 1,688 788 328 23 152 135 6 72 72 Other 10 3 7 2 2 3 Total revenues 2,486 1,691 795 330 23 154 - 138 6 72 72

incl. export by country Syria – 13.3%, Malta – 10%, Panama – 8.9%, Turkey – 7.5%, France – 58%

2007

Services 2,047 1,366 681 304 5 196 143 9 24 Other 22 17 5 3 1 1 Total revenues 2,069 1,383 686 307 5 197 - 144 9 24 -

incl. export by country Malta – 18.5%, Syria – 13.9%, Belize – 12%, Turkey – 11.2%, Panama -7.4%, Israel -7%, Cyprus – 3.2%

2006

Services 1,921 1,428 493 218 5 60 186 15 9 Other 7 6 1 1 Total revenues 1,928 1,434 494 219 5 60 - 186 15 9 -

incl. export by country Israel – 19%, Syria – 18%, Turkey – 10.8%, Malta – 8.8%, Cyprus – 8.4%


Export

Maritime Holding AD

Total export Europe N. America S. America Uzbekistan Middle East Australia & Oceania Africa

9M 2009

Products 1,672 1,370 302 168 134 Services - - Other - - Total revenues 1,672 1,370 302 168 - - - - 134 -

incl. export by country* Marshal islands – 44.37%, Greece – 55.63%


2008

Products 340 298 42 34 8 Services - - Other - - Total revenues 340 298 42 34 - - - - 8 -


IHB Shipping Co JSC


Export

Marshal islands – 19.05%, Greece – 80.95%

Total export Europe N. America S. America Russia Middle East Asia Africa

9M 2009

Services 399 399 - Total revenues 399 399 - - - - - - - -

2008


2007

Services 338 338 - Other 186 186 - Total revenues 524 524 - - - - - - - -

2006


Privat Engineering AD


Export

46



2007

Services 880 880 - Other - - Total revenues 880 880 - - - - - - - -

Local market is Marshal islands.

Karvuna Ltd., Marshal islands


Export


9М 2009

Services 880 880 Total revenues 880 - 880 - - - - - - -

* Main countries as a % of total export: Germany - 86.36%, Bulgaria - 10.68% and Cyprus - 2.96%

Emona Ltd., Marshal islands


Export


The activities of Marciana Ltd, Karvuna Ltd and Tirista Ltd (subsidiaries of Privat Engineering AD) are focused on financing of the building of the ships ordered by them for the Group.

As of June 2009, the Group has been carrying out maritime transport following the navigation of Emona Ship, the first newly built own ship, under a charter contract.

As of February 20010, Marciana Ship has been navigating under time-charter schedule following its delivery to the ship owner at the beginning of January.

Karvuna Ship is expected to be delivered to the ship owner in April 2010.

The deadline for delivery of Anteya Ship (ship No 459) is July 2010.

47



Total export Europe N. America S. America Russia Middle East Asia Africa Australia

9М 2009

Products 3,960 350 3,610 1,871 24 606 322 62 725 Services 44 44 - Other 558 558 - Total revenues 4,562 952 3,610 1,871 - 24 606 322 62 725

incl. export by country* Germany – 34.71%, Italy – 8.25%, Russia – 16.78%, Turkey – 1.43%, Egypt – 11.05%


2008

Products 19,321 869 18,452 10,312 1,174 205 2,767 485 2,386 1,123 Services 121 121 - Other 236 236 - Total revenues 19,678 1,226 18,452 10,312 1,174 205 2,767 485 2,386 1,123

incl. export by country Turkey – 9.56%, Italy – 5.97%, Germany – 25.03%, Russia – 14,99%, Colombia – 3,03%, Egypt – 3,09%

2007

Products 17,273 1,243 16,030 9,282 480 1,570 2,714 349 577 997 61 Services 89 89 - Other 523 523 - Total revenues 17,885 1,855 16,030 9,282 480 1,570 2,714 349 577 997 61

incl. export by country Turkey – 17.02%, Italy – 8.78%, Germany – 17.17%, Russia – 16.93%, Colombia – 5.37%, Egypt – 2.05%

2006

Products 14,228 764 13,464 7,505 841 1,252 1,137 1,633 110 986 Services 67 67 - Other 257 257 - Total revenues 14,552 1,088 13,464 7,505 841 1,252 1,137 1,633 110 986

incl. export by countryTurkey – 20.95%, Italy – 11.66%, Syria – 8.58%, Germany – 17.73%, USA – 5.47%, Colombia – 5.17%, Russia – 8.45%, Egypt -5.39%

Mashstroy AD


Export


9М 2009

Products 5,589 36 5,553 4,314 134 122 348 134 403 98 Goods 5 5 - Services 56 56 - Other 372 372 - Total revenues 6,022 469 5,553 4,314 134 122 348 134 403 98

incl. export by country* Germany – 10.35%, Italy – 17.63%, Russia – 6.27%, England – 14.62%, Turkey – 2.54%, Holland – 7.15%


2008

Products 22,813 262 22,551 15,009 2,598 293 2,820 824 58 949 Goods 24 24 - Services 189 189 - Other 840 840 - Total revenues 23,866 1,315 22,551 15,009 2,598 293 2,820 824 58 949

incl. export by country USA – 10.78%, Italy – 21.29%, Russia – 12.49%, Turkey – 5.58%, Germany – 16.50%, Holland – 7.44%

2007

Products 21,481 352 21,129 10,661 5,772 691 2,779 975 39 212 Goods 22 22 - Services 51 51 - Other 474 474 - Total revenues 22,028 899 21,129 10,661 5,772 691 2,779 975 39 212


2006

Products 17,785 290 17,495 9,731 4,099 534 2,178 459 153 341 Goods 18 18 - Services 43 43 - Other 364 364 - Total revenues 18,210 715 17,495 9,731 4,099 534 2,178 459 153 341


USA – 25.97%, Italy – 18.10%, Russia – 13.15%, Turkey – 9.57%, Germany – 7.58%, Holland – 3.26%, Venezuela – 2.45%

Turkey – 15.03%, Italy – 16.22%, USA – 22%, Russia – 12.46%, Germany – 9.13%, Spain – 2.40%, England – 2.25%

ZMM Sliven AD


Export

48


Total export Europe N. America S. America Russia, Ukraine Middle East Asia Africa

9М 2009

Products 1,925 1,636 289 280 9 Other 146 146 - Total revenues 2,071 1,782 289 280 - - 9 - - -

incl. export by country* Germany – 96.89%, Russia – 3.11%


2008


incl. export by country Germany 87.75%, Russia – 9.76%, Czech Republic – 1.25%

2007

Products 5,014 3,625 1,389 911 478 Other 145 145 Total revenues 5,159 3,770 1,389 911 - - 478 - - -

incl. export by country Germany – 64.72%, Russia – 34.41% и Czech Republic – 0.87%

2006


incl. export by country Germany – 89.81%, Greece – 0.76% и Russia – 9.43%

ZMM Nova Zagora


Export


9М 2009

Products 1,959 1,409 550 550 Goods 3 3 3 Services 9 8 1 1 Other 72 72 - Total revenues 2,043 1,489 554 554 - - - - - -

incl. export by country* Czech Republic – 71.90%, Germany – 27.6%, Turkey – 0.5%


2008

Products 5,138 4,545 593 593 Services 50 42 8 8 Other 160 159 1 1 Total revenues 5,348 4,746 602 602 - - - - - -

incl. export by country Germany – 91%, Czech Republic – 9%

2007

Products 4,542 4,175 367 367 Goods 2 2 - Services 68 55 13 13 Other 141 140 1 1 Total revenues 4,753 4,372 381 381 - - - - - -

incl. export by country Germany – 95%, Italy – 5%

2006

Products 3,419 2,896 523 523 Goods - - Services 357 340 17 17 Other 61 58 3 3 Total revenues 3,837 3,294 543 543 - - - - - -

incl. export by country Germany – 93.01%, Italy – 0.92%, UK – 2.39%

Learmarsh AD


Export

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9M 2009

Products 8,988 2,264 6,724 6,724 Services 3,623 3,623 - Other 143 143 - Total revenues 12,754 6,030 6,724 6,724 - - - - - -

incl. export by country* Czech Republic – 99,2%, Macedonia – 0,65%, Switzerland – 0,15%


2008

Products 4,603 1,304 3,299 1,309 1,990 Services 9,466 9,466 - Other 738 738 - Total revenues 14,807 11,508 3,299 1,309 - - - - 1,990 -

incl. export by country India – 60.32%, Czech Republic – 34,92, Macedonia – 4.76%

2007

Products 3,021 1,945 1,076 1,076 Services 5,992 5,992 - Other 896 896 - Total revenues 9,909 8,833 1,076 1,076 - - - - - -

incl. export by country Czech Republic – 98.61%, Macedonia – 0.93%, Serbia – 0.46%

2006

Products 2,174 1,404 770 770 Services 5,971 5,703 268 268 Other 1,695 1,695 - Total revenues 9,840 8,802 1,038 1,038 - - - - - -

incl. export by country Czech Republic - 73.8%, Albania – 25.8%, Czech Republic – 5.1%, Macedonia – 0.4%


Export

Elprom ZEM AD


9M 2009


incl. export by country*


Bulkari EAD


Export


With its incorporation in 2006, Bulkari EAD participated in the privatization of 69.99% of the capital of Balkancar – Sredets AD, Sofia. Following closure of the privatization procedure initiated by the Privatization Agency, the company redirected its activities within the group of ZMM Bulgaria Holding. Its 2007 and 2008 income is 100% formed by received interests and charges on servicing of loans granted by Bulkari to group companies. The 2006 income of BGN 38,000 represents income from sale of services.

In 2009, the company realized financial income and income from sale of ½ share of the bank office in Popovo and lease of the shop for industrial goods and the bank office.

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Total export Europe N. America S. America Uzbekistan Middle East Asia Africa

9M 2009

Products 1,575 600 975 871 104 Services 11 11 - Other 34 34 - Total revenues 1,620 645 975 871 104 - - - - -

incl. export by country* France – 62.09%, Ireland – 27.16%, USA – 10.67%, UK – 0.08%


2008

Products 3,228 949 2,279 1,898 381 Services 11 11 - Other 13 13 - Total revenues 3,252 973 2,279 1,898 381 - - - - -


2007


incl. export by country Ireland – 30.75%, UK – 10.46%, Greece – 3.56%, France – 40.33%, USA – 14.90%

2006


incl. export by country Ireland – 58.58%, UK – 16.07%, Greece – 13.87%, France – 6.52%, USA – 4.78%

Augusta Mebel AD


Export

Ireland– 21,27%, UK – 12,67%, Greece – 1,2%, France – 48,06%, USA – 16,73%, Switzerland – 0,06%, Belgium – 0,01%


O T H E R


9М 2009


2008

Services - - - Other - - Total revenues - - - - - - - - - -

2007


2006


Hydro Power Bulgaria AD


Export

51



9М 2009


2008


2007


2006



Износ

KLVK AD

Total export Europe СевернаАмерика S. America Russia Middle East Asia Africa

2008

Services 1,157 1,157 - Investments 1,824 1,824 - Total revenues 2,981 2,981 - - - - - - - -

incl. export by country Local market is Switzerland.

2007

Services 844 844 - Investments 474 474 - Total revenues 1,318 1,318 - - - - - - - -


2006

Services 195 195 - Investments - - Total revenues 195 195 - - - - - - - -


International Industrial Holding Bulgaria AG, Switzerland


Износ


6.3. IMP ACT O F E X T RAO RDI NARY F ACT O RS O N T HE ACT I V I T Y AND MARKE T S O F T HE IS S UE R

Over the last 3 financial years and till the date of this Registration Document, the activity of IHB was not affected by any extraordinary factors.

6.4. I NF O RMAT I O N ABO UT DE P E NDE NCY O F T HE IS S UE R O N P AT E NT S , L I CE NS E S , I NDUS T RI AL , CO MME RCI AL O R F I NANCI AL CO NT RACT S O R NE W P RO DUCT I O N P RO CE S S E S

6.4.1. IHB

Since the incorporation of the Company until the date of this Registration Document, its activities were not dependent on any patents, licenses, franchise contracts or other intellectual property items or concession rights.

IHB owns a registered combined trademark No 44809 with an application date 17 May 2003 and protected term 27 June 2011, representing the corporate sign of Industrial Holding Bulgaria PLC

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6.4.2. IHB Group companies

M A R I T I M E B U S I N E S S : S H I P B U I L D I N G

The shipbuilding and ship repair businesses are not subject to patents. The ships built and repaired by Bulyard Shipbuilding Industry EAD are subject to classification and certification by classification organizations. The choice of register depends on the ship owner. Presently, the shipbuilding and repair activities of Bulyard Shipbuilding Industry EAD are supervised by Bulgarian Register of Shipping AD, Germanisher Lloyd, Lloyd’s Register of Shipping, Bureau Veritas, DNV and NKK. Certification is carried out during all building stages – certification of project documentation, supply of materials, monitoring of the building quality at each stage – from the cutting out of the iron sheets to the hoisting of the flag. Inspections are made during the whole building process. Mistakes and incompliance are discovered during the current building stage and eliminated. There have not been any rejections to certify a ship built by Bulyard Shipbuilding Industry EAD.

The shipyard needs to employ certified welders to carry out its activities.

Usually, the ships built by Bulyard SI are of its own design. In 2007, the company purchased from IHI Marine Unitеd Inc. – Japan a license for building a superhandymax F56 ship for bulk cargo and the technical project and agreed cooperation for the building of this type of ships starting in 2008. As at the date of this Registration Document, 3 contracts for building of such ships are effective.

In 2008, Bulyard SI EAD finalized the building of hull for supplying ship No 190 and delivered it to the owner Flekkefjord

Slipp & Maskinfabrikk AS, Norway. It is built under the license and project documentation of Vik Sandvik, a Norwegian ship design company. The contract for the similar ship No 191 was terminated based on mutual agreement due to bankrupt of the general contractor.

Over the period 2007 – 2009, the shipyard worked under projects for improved design and modification of existing ships, involving Bulgarian experts. Under them, the ships for IHB Group are built (see Item 11. Research and development activities, patents and licenses). As of March 2007, the shipyard has been certified under the quality management system in compliance with the requirements of ISO 9001:2000. The scope of the certificate covers ship design, shipbuilding and ship repair. In 2008, Bulyard SI was successful in passing recertification audit and transition to the new version of ISO 9001:2008 standard. Its scope is the same. It was issued by Bureau Veritas Certification.

Shipbuilding depends on the supply of equipment of key importance such as ship engines, generators and cranes. In case of problems with the supply of such equipment, there may be difficulties related to the performance of shipbuilding contracts.

As of 2007, Bulyard has held a special purpose port registration certificate and an operational fitness certificate for carrying out activities technologically related to the production process of the company. The certificates were issued by the Port Administration Executive Agency at the Ministry of Transport, Information Technologies and Communications.

M A R I T I M E B U S I N E S S : S H I P R E P A I R

The carrying out of ship repair requires licenses for welding operations, inspections of the ship condition, the condition of the ship hoisting equipment and the condition of the ship life-guard facilities, a license for non-authoritative control (inspection of the quality of the seams). These licenses are obtained from classification and certification organizations.

Bulyard SI EAD holds a license for welding operations and uses sub-contractors holding the respective licenses for the rest of the operations.

The ship repair requirements are lower than the shipbuilding requirements. Therefore, the licensing of shipbuilding activities is sufficient for ship repair works as well.

53



Technical software licenses are used for ship design. There are several producers and distributors of such software programs in the market. The personnel of Wartsila IHB Ship Design Bulgaria AD is trained in the operation of some of these software programs and their replacement will require additional time and funds for training.

Licenses for Nupas and Tribon, specialized CAD/CAM (computer aided design/computer aided manufacture) software programs, are used. The company purchases license files for definite periods. At present, the license for Nupas is provided by the other shareholder Wartsila Technology – Finland and the license for Tribon is the property of Bulyard SI EAD. Bulyard SI pays monthly rents for some of the licenses, while the rest are provided by clients.


At present, the activity of IHB Shipping Co EAD does not depend on any patents or licenses. If the company decides to provide crews for the ships that it manages, it is to apply for own license.

The contracts for managing the particular ships are the major commercial contracts on which the ordinary activity of the Company depends.

The job descriptions and functional duties of the personnel of the company require certification of security and safety system officers only.

The issue related to ships exploitation and management has two aspects:

Ü Ship documents:

Class documents – they are issued by the ship supervising register. This is Lloyd's Register for Emona Ship and Marciana Ship and Germanischer Lloyd for Karvuna Ship and Anteya Ship;

Conventional (flag) documents – they are issued by the maritime administration where the ship is registered or another administration authorized by it. The documents for Emona Ship and Marciana Ship have been issued by Lloyd's Register under the authorization of the Maritime Administration of Malta.

These documents are renewed on regular basis, but most of them (90%) are subject to annual certification.

Ü Officers certification:

Qualification certificates – they are issued by the competent national administration. The certificates of the present crews of Emona Ship and Marciana Ship have been issued by the Maritime Administration Executive Agency;

Certificates issued by the ship flag administration – this is the Maritime Administration of Malta for Emona Ship and Marciana Ship.

In compliance with the applicable maritime convention, the individual flag administrations (including those of Malta and Bulgaria) recognize such certificates on mutual supersession basis. A Bulgarian certificate is valid for a 5-year period, over which the person is to have minimum length of service of 1 year. An endorsement issued on the basis of such certificate has the validity period of the relevant national one/s.

The ships managed by IHB Shipping Co EAD:

Ü Meet the requirements of the MARPOL Convention and the Directives of the European Union regulating environmental protection;

Ü Have the relevant certificates for the used systems and equipment.

54



The companies performing port operations do not depend on any patents but need to hold licenses. Port registration, port operator and operational fitness certificates are required; such certificates are issued by the Port Administration Executive Agency at the Ministry of Transport, Information Technologies and Communications. To process cargo, a port is to hold a license for processing of the particular cargo issued by the Port Administration Executive Agency.

The two ports within the group, Dockyard Port – Bourgas and Odessoss PBM, hold certificates for ports of regional importance, which need to be renewed every three years and inspections are performed on annual basis. The ports hold port registration, port operator and operational fitness certificates.

Both ports hold certificates for processing of general non-hazardous liquid cargo and bulk food-grade cargo. They are located on their own land, which makes them independent from concessions and represents a competitive advantage.

Since 2006, Dockyard Port – Bourgas AD has been applying a quality management system for port operations under the ISO 9001:2008 International Standard. SGS is the certification organization. Port operations are performed in compliance with the requirements of the Port Administration Executive Agency. The port is subject to regular inspections for ascertaining its operational fitness and compliance with the applicable technical safety requirements.

Specialized training centres recertify the qualifications of the personnel of the Port and Technical Maintenance and Building Units of the company on regular basis.

In 2008, Dockyard Port – Bourgas AD successfully defended Certificate under the ISPS Code.


The activity of Bulgarian Register of Shipping AD does not depend on any patents except for the admission certificates concerning technical laboratories where accreditation documents issued by the competent state authority are required.

The company does not hold any patent.

After the accession of Bulgaria to the European Union, Bulgarian Register of Shipping AD is to be recognized by the European Maritime Safety Agency (EMSA). The recognition is obligatory for the classification organizations of the EU member states in order to operate in the ports, dockyards and shipyards of the EU and to classify and certify ships sailing under the flags of the EU member states. This authorization may be given following audit at the proposal and grounded request of the maritime administration, which has recognized and authorized the independent organization to perform conventional inspections on its behalf. The Bulgarian Register of Shipping has developed own Rules on Classification and Shipbuilding in performance of one of the conditions for its recognition (see below).

The Maritime Administration Executive Agency has submitted all required documents for recognition of Bulgarian Register of Shipping AD by the EMSA. Usually, the approval procedure lasts for several years. At present, Bulgarian Register of Shipping AD is authorized to service ships sailing under the Bulgarian flag only as the Ministry of Transport, Information Technologies and Communications has obtained the relevant authorization by the EMSA through the Maritime Administration Executive Agency, which is valid till the audit for final recognition. Till then, the Bulgarian Register of Shipping is not authorized to represent any European maritime administrations except for the Bulgarian one.

In order to make ship inspections in the USA, it is necessary to hold a license issued by the US Coastal Guard. Bulgarian Register of Shipping AD holds such license as of 1 September 2005.

Mutual supersession contracts with other classification organizations are very important for the activity of Bulgarian Register of Shipping AD. In case of such contracts, one classification organization can inspect ships on behalf of the other if the latter has assigned such an inspection. Bulgarian Register of Shipping AD has concluded bilateral contracts for mutual supersession with almost all classification organizations - members of the International Association of Classification Societies (IACS). Bulgarian Register of Shipping AD has concluded bilateral contracts for mutual supersession with 19 classification organizations from around the world.

55


Since 2004, Bulgarian Register of Shipping AD has had a contract with the Maritime Administration Executive Agency of the Republic of Bulgaria to perform inspections under conventions on behalf of the administration. The Bulgarian Register of Shipping is a recognized organization performing conventional inspections of 7 flag administrations of countries outside the EU.

The quality management system of the Bulgarian Register of Shipping is certified by Lloyd’s Register Quality Assurance (LRQA) under the ISO 9001:2008 International Standard and recertified in January 2009. All activities of the company are documented in quality procedures. All system information was revised in 2009 to introduce the new requirements and responsibilities in compliance with the program for inspectors’ work management and internet-based database about the supervised ships (BRIS). Based on recommendations issued by the Maritime Administration Executive Agency and the LRQA, methodology for attestation of inspectors and criteria for the types of inspections performed by them were elaborated. The individual stages and requirements have been included in the system, which is a positive step towards inspection quality improvement.

The main basis for maintenance of high standards in the course of specific activities performance and services sale is the development and maintenance of a complete set of regulations on classification and maritime shipbuilding, which include standards and requirements to safe ship navigation, protection of human life under maritime conditions and safety of transported cargo. They accumulate interpretations of all effective requirements of the international maritime organizations, large volume of knowledge and experience and particular national requirements. The Bulgarian Register of Shipping developed a ship inspection and classification technology and internet-based system for inspectors’ work management (see Item 5.2.1. Description of the major investments of the Issuer realized over the last four financial years and till the date of the Registration Document), which was introduced in 2008. Thus, the Bulgarian Register of Shipping fulfilled one of the conditions for its recognition by the European Union.


The companies within in the group of ZMM Bulgaria Holding AD – Mashstroy AD, ZMM Sliven AD, ZMM Nova Zagora AD, Leyarmach AD and Elprom ZEM AD – do not depend on any foreign patents or license contracts for the products they manufacture.

The companies own trademarks, service marks and technical documentation for the products they manufacture. The documentation related to own developments is not protected by any patent but it is protected as non-current intangible assets owned by the individual companies.

Leyarmach uses pattern and core equipment owned by clients or develops such equipment based on client drawings. The patterns are kept at the company and delivered back to clients following finalization of the particular works.

All companies of ZMM Bulgaria Holding AD are certified under the ISO 9001:2000 Quality Management System. Elprom ZEM AD holds two more certificates - ISO 14 001:2004 for environmental protection and ecological production and OHSAS 18001:2007 for healthy and safe labor conditions, issued by SGS.


The activity of Augusta Mebel AD does not depend on any patents, licenses or industrial, commercial or financial contracts or new production processes.

The company is certified by SGS for quality under the ISO 9001:2000 International Standard.


56


The activity of Dounav Tours AD does not depend on any patents, licenses or industrial, commercial or financial contracts or new production processes.

The ships of Dounav Tours AD and its subsidiaries are subject to certification for technical compliance from the moment of their building and after repairs have been carried out. It is performed by the certification organizations Germanischer Lloyd, Lloyd' Register, SUK, Inspektie Verkeer en Waterstaat.

Special certificates for the captains of the ships navigating along the Danube and Rhein Rivers and their feeders are required. These certificates are issued by the competent authorities of each country having outlet to the rivers following passing of examinations by the captains. In compliance with the applicable international arrangements, they are valid for each country, through which the particular river flows. In Bulgaria, these certificates are issued by the Maritime Administration Executive Agency at the Ministry of Transport, Information Technologies and Communications.

There are requirements for the minimum number and competence of each ship crew.

The star category of a ship is determined by specialized organizations (such as TUF) and certified through issue of a certificate. Dounav Tours AD categorizes its ships together with their charterers. Ship restaurant and hotel sections do not require any individual categorization.

The ships of Dounav Tours AD sail under the Bulgarian flag and meet all applicable requirements.

6.5. CO MP E T I T I V E NE S S P O S I T I O N O F T HE IS S UE R

The analysis of the activity and the structure of the subsidiaries portfolio of IHB indicates the existence of a number of competitive advantages, which predetermine its ability to maintain the profitability level. The main factors and prerequisites, which determine the high competitiveness of the Holding, are as follows:

Ü Professional training of the Management and the personnel – it determines the efficiency of the management actions for using environment opportunities and adoption of timely and efficient measures for protection and minimization of the effect of risks generated by this environment. As to personnel management, a long-term method is adopted and applied, which is related to preliminary and subsequent personnel qualification and motivation. Efforts are made for attraction and keeping of top and middle management and key experts;

Ü Experience effect – it is expressed in time and money savings as a result of the experience accumulated in the company in respect of the economic situation, regulatory framework, relations and contacts with government authorities and institutions, etc.;

Ü Transparency of the activity of IHB before the investors – information about the activities is provided as comprehensively as possible, in compliance with the applicable laws and best international practices and in due time, to the stock exchange, the regulatory authorities and at the website of the Company;

Ü Access to various sources of financing – the legal organizational form of IHB, its public status and the fact that it is listed on the stock exchange, as well as the existence of a large number of assets on consolidated basis, provide the opportunity for the Company to utilize both internal sources of financing and a wide range of external sources (issue of securities – shares and bonds, bank loans, leases, etc.);

Ü Diversification of the portfolio in various economic sectors – it predetermines the maximization of the rate of return on the portfolio with accompanying decrease of the risk therein;

Ü Existence of subsidiaries focused on export – it contributes to the increased competitiveness of the Holding through reducing the interrelation of its profitability with the income of the population and other factors of the macro-environment and the level of investment activity of the Bulgarian companies;

57


Ü Vertical integration – it reduces the risk of adverse impact by the clients or suppliers on the profitability of some of the subsidiaries of IHB, whose products represent components of the products of other companies within the portfolio;

Ü Scale effect – on one hand, it is expressed in respect of grossing up of the supplies, decreases in the prices of raw materials and materials, deferral of payments and on the other – intensifying of the marketing efforts and improvement of their effectiveness as a result of the existence of strategic units within the portfolio of IHB, operating in one and the same sector of the economy and manufacturing identical or similar products;

6.6. DE S CRI P T I O N O F KE Y S E AS O NAL ACT I V I T I E S

6.6.1. IHB

The activity of IHB is not seasonal in the sense it is considered. However, the following specifics should be pointed out:

Ü The activities related to acquisition and sales of shares are not regular (monthly). IHB acquires shares when lucrative investment opportunity emerges. The Company sells its interests in the same manner – when it no longer has interest in the particular company and/or when it gets a lucrative proposal by a potential investor;

Ü Income from dividends is received once a year, following the holding of the regular annual general meetings of the subsidiaries and if profit is distributed;

Ü Income from interests depend on the financing of the subsidiaries through loans and loan time limits;

Ü Income from services depends on the necessity of services offering.


The activities of the IHB Group subsidiaries are not seasonal. Only the activity of Dounav Tours AD, an associate, has seasonal character. In 2008, Dockyard Port – Bourgas AD launched a campaign for grain cargo processing. As food-grade cargo form only 20% of the cargo processed at the port in 2009, the seasonal character of the annual grain crop partially affects the income of the company. Following finalization of the project for port expansion and grain terminal construction in the territory of Dockyard Port – Bourgas AD, its effect may increase. Information about this seasonal character is disclosed in Item 4. Risk factors.

6.7. DE S CRI P T I O N O F RAW MAT E RI AL S AND MAT E RI AL S O F O P E RAT I O NAL I MP O RT ANCE AND T HE I R AV AI L ABI L I T Y AND P RI CE V O L AT I L I T Y

6 .7 .1. IHB

The core activity of IHB includes acquisition, management, assessment and sale of shares in other companies. In this respect, no raw materials or materials can be discussed.

IHB acquires interests in other companies without limitation as to sector or location. Furthermore, IHB can acquire interests in existing companies and invest in new companies.



For the construction of one ship, Bulyard SI EAD uses over 10,000 items of materials and equipment.

58


The basic raw materials and materials in shipbuilding are metals – sheet and profile steel, pipes, various steel configurations, copper cables, ship paints, plating, insulation, furniture, etc. The equipment includes a main generator, diesel generators, screw propellers, steering gear, heat exchangers, compressors, pumps, cranes, mechanical and life-saving equipment, etc.

After the accession of the Republic of Bulgaria to the European Union, the suppliers have been divided into three main groups – suppliers from EU member states, suppliers from countries outside the EU and local suppliers. Most of the equipment is delivered from the EU member states – main engines, diesel generators, screw propellers, steering gear, heat exchangers, compressors, pumps, cranes, mechanical and life-saving equipment, etc., as well as a small part of the materials such as plate and profile steel, pipes, etc.

The goods supplied by countries outside the EU include the main engines of ships No 458 and No 459, the diesel generators of ships No 457, No 101, No 102 and No 103, the bulk of the sheet and profile steel as well as the GOST standard pipes. In view of worldwide boom of shipbuilding, the supplies of basic equipment (especially main engines), mainly from countries outside the EU (mainly Russia), bear certain risk.

Local suppliers deliver items in compliance with the project documentation of Bulyard SI – hatch lids, boilers, casts and forged items, pressurized vessels, part of the sheet and profile steel and other items bought from retail stores.

The activity of the shipyard depends on the trend of prices of materials and equipment. Following the drastic fall till the middle of 2008, in 2009 the price of diesel fuel fell by 29%, the price of heavy fuel oil fell by 14%, the prices of sheet steel and profiles fell by 36%-40% and the price of pipes fell by 12%-16%. At the end of 2008, the Management of Bulyard SI undertook urgent actions and indexed the supply prices of steel for ship No 101, No 102 and No 103, which partially compensated for the loss on the high-price contracts signed earlier. The trend towards fall, which continued to be observed in 2009, enabled the renegotiation of prices with some suppliers towards reduction and deferred payment of the prices of materials. A number of internal procedures and rules were introduced to control the processes of negotiation with the clients, the work of the subcontractors, etc.

The changes were accompanied by tightened financing of ships in process of building by some ship owners. The cash flow of Bulyard SI went down. Bank credits were utilized to finance the supplies of the packages of materials for ships No 101, No 102 and No 103. At the same time, the lack of financing for some of the projects implemented at Bulyard SI resulted in cancellation of contracts for supplies of ordered equipment and payment of related indemnities.

Bulyard SI concludes its shipbuilding contracts in a ratio of EUR/USD corresponding to the ratio, in which the basic materials and equipment are negotiated for each new ship. For the ships to be built under the license of IHI Marine Unitеd Inc, Japan, the prices are in JPY. The company signs bank contracts to hedge some positions in currencies other than EUR.

To compensate for the annual inflation price rise, Bulyard SI EAD aims at combining supplies for a particular ship with the ones for the next ships to be built according to the construction schedules. This allows for lower price level to be maintained because of the higher supply volumes and retention of these prices for the future supplies.


The problem related to raw materials and materials does not have any direct effect on the activity of IHB Shipping Co EAD as a manager except for the fact that the quality of used parts, materials and equipment and shipbuilding subsequently affects vessels exploitation and the business results of ship owners and operators.

Ships maintenance, including supply of spare parts, replacement of deck and machinery stocks, water supply for systematic mechanisms and hygiene and daily needs, lubricants, etc., is performed at the expense of ship owners.


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The regular fuel supply and undistributed electric power supply are of great importance for each port. The 2009 trend, which continues during the current year, towards continuous growth of energy sources have adverse effect on port operations as well. The prices of transported goods also have adverse effect. In 2009, the demand for and prices of metal products and loading and unloading services in the internal and international markets reported fall.

Some of the loading and clamping devices and stock (slings, ropes and hooks), as to which Dockyard Port – Bourgas AD applies proper methodology and testing technology, are made by its technical personnel. The materials for cargo strengthening (frames, beams, etc.) have been planned for the future. The only dependency is the dependency on the market monopolists – the national electric and water supply and sewerage companies (NEC and ViK).

M A C H I N E B U I L D I N G : M E T A L C U T T I N G M A C H I N E S

The organization for securing the activities of Mashstroy AD, ZMM Sliven AD and ZMM Nova Zagora AD with the necessary raw materials, materials and other goods is carried out on the basis of approved procedures for the operations of the company under the ISO 9001:2000 system and the regulations of ZMM Bulgaria Holding.

The main raw materials and materials of operational importance are:

Ü Cast iron moulds – the main supplier is Leyarmach AD (a company within the group of ZMM Bulgaria Holding AD) and alternative suppliers are relied on as to small-size details;

Ü Steels – different types – standard steel 45, low and high carbon steel alloys used for cogwheels and shafts. The supplies come mainly from countries outside the European Union (Russia and Ukraine) through Bulgarian importers and distributors. Due to the imposed export duties and quotas for the EU import, there are certain difficulties with supplies from these countries – irregularity of supplies and price increases. Options for import from Turkey are being investigated into, but this again poses problem with the EU quotas and quality. The preceding years are characterized by opposite trends. In 2008, the metal prices abruptly rose. The steel and cast iron prices rose by over 25%. The percentages of rises of the prices of different steels differ. St45 reported the highest rise – 34%. At the end of 2008 and in 2009, the prices fell because of the increased supplies of these raw materials. At present, the prices are relatively stable but rise of some 25% is expected in the second quarter of 2010;

Ü High precision bearings imported from Germany and Sweden – there are alternative suppliers and the prices rise on annual basis at least up to the level of inflation;

Ü Assembled products and cooperated supplies – engines, assemblies and tools. Their prices follow the movement of prices of raw materials, materials, electric power, etc. The cogwheels used for metal cutting machines are manufactured by ZMM Nova Zagora AD and represent the basic product of the company.

Direct producers supply some 60% and commercial companies supply some 40% of the total supplies.

In the conditions of the economic crisis in 2009, the prices of raw materials were relatively stable. They are expected to gradually rise in the process of crisis overcoming and economy recovery. The cast iron scrap price at the beginning of 2010 reports rise from BGN 320 to BGN 420 per ton, which presupposes new trends. These trends will affect the prices of other metals and raw materials as well. The actual price level in 2010 is hardly predictable due to a number of unknown characteristics as to recovery growth, demand and supply rates, solvency and liquidity. To secure production with raw materials and materials at lower prices, pre-emptive actions related to their providing and reserve forming is required to avoid potential supply collapse. These actions require additional funds and careful undertaking to avoid excessive reserves and deficit.

M A C H I N E B U I L D I N G : M E T A L C A S T I N G

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The basic raw materials and materials used by Leyarmach AD are metals – cast iron, resin – furan resin and resin catalyst, sand, chamotte, thermal clays, paints, ferroalloys, fuels, padding mass and modifier and other metals.

The main suppliers of these materials are Bulgarian. Supplier selection is based on the ISO 9001:2008 procedures and the price, manner of payment and quality of offered products.

The 2009 import includes mainly furan resin and zircon and graphite paints.

The activity of Leyarmach mainly depends on the fresh cast iron, scrap and electric power prices. In 2009, the price of fresh cast iron fell from BGN 580 to BGN 520 per ton and the price of scrap fell from BGN 400 to BGN 350 per ton.

Due to the low level of demand in 2009, the prices of the casts produced by the company remained the same.

The company faces difficulties with scrap supplies due to the shortage of cast iron scrap in the country, the poor quality of available cast iron scrap and the requirements of suppliers for payment upon delivery. The cast quality depends on scrap quality. In order to reduce its dependency on scrap, in 2007 Leyarmach AD developed a scheme for production of casts with high percentage of new cast iron (up to some 48.3% in 2007, some 59% in 2008 and 15% in 2009 as a result of financial difficulties and savings regime).

M A C H I N E B U I L D I N G : E L E C T R I C M A C H I N E S

The raw materials and materials of key importance for the production process of Elprom ZEM AD include ferrous metals – steel, electro-technical cold rolled, thin sheets, double lacquer (dynamo steel model 2212 under GOST 1427.2-83), corrugated iron, thin sheet and thick sheet iron, cast iron moulds; non-ferrous metals – copper conductors, copper splints, aluminium alloys; power insulation materials (all kinds of insulation bands, glass textolyte, impregnation lacquer, styrol coating, paints, etc.) and rolling bearings (roller and ball bearings).

In 2008, the prices of the basic raw materials and materials used by the company reported average rise of some 22.6%, including rise in the prices of electro-technical steel by 30%, copper conductors by 18%, aluminium by 15%, thick sheet steel by 25% and rolled steel by 25%. The prices of insulation materials remained the same.

The 2009 prices reported the opposite trend – average fall of 23.6%, including fall in the prices of electro-technical steel by 18%, copper conductors by 20%, aluminum by 20%, thick sheet iron by 30% and rolled steel by 30%.

In 2010, the price of copper conductors is expected to rise by 20% and the prices of the other basic materials are expected to remain at their levels in the second half of 2009.

The company is not dependent on its suppliers due to the availability of alternative suppliers in the internal and foreign markets. Nevertheless, the active search for new partners offering better cooperation conditions continued in 2009.

The 2010 supply organization will be fully based on the ISO 9001- 2000 requirements.


The basic raw materials in the production process of Augusta Mebel AD are solid wood and wood panels. Wood is supplied raw – in the form of beams and is dried in own drying ovens. The materials used are furniture casing and edges of solid wood, chemicals – paints, lacquers and glues and packaging materials – corrugated cardboard and craft paper. Direct producers form 99% of all suppliers.

Veneer and MDF are imported and there are not any supply and stock problems. Solid wood – poplar, conifer and HDF is supplied by Bulgarian producers. There are not any supply or availability problems. Materials supplied from by Bulgarian companies require preliminary orders and 15-day supply time limits. Usually, the winter periods are accompanied by tightened availability and supplies. The wood quality and rising prices also represent a problem.

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The prices of raw materials and materials are not constant. They report a trend towards rising. The 2008 rise is within the range of 15%-30%, including rise in the prices of poplar wood by 17%, laminated HDF by 12%, HDF by 36%, MDF by 10%, petroleum by 54%, petrol by 42%, etc. The 2009 rise in the prices of materials is up to 3%, the price of massive wood reporting the highest rise. The rise in the prices of basic and secondary materials expected in 2010 is up to 10% as a result of the expected rise in the fuel and electric power prices.

6.8. DE S CRI P T I O N O F MARKE T I NG CHANNE L S AND S P E CI AL S AL E ME T HO DS

6.8.1. IHB

IHB uses one of the following methods to sell shares in other companies:

Ü Direct negotiations with investors;

Ü Using the services of investment intermediaries.

Various payment methods are used for the share sale transactions – delivery upon payment or rescheduled payment.



Bulyard SI EAD uses two main channels for conclusion of contracts for shipbuilding and ship repair – direct negotiations with ship owners and using the intermediation services of brokers.

The standard practice in the shipbuilding industry is that payments under shipbuilding contracts should be made through advance payments by the ship owners secured by the builder. The number of advance payments is negotiated between the parties. The payments are tied to the building stages.

Bank and/or corporate guarantees issued to the benefit of ship owners are used to secure the advance payments as well as all other lawful collateral acceptable for both parties to the shipbuilding contract.

When building ships for companies associated with the shareholders, lighter security is accepted - promissory notes, pledge of goods, materials and/or marine mortgages.

The company carries out its marketing and advertising campaign though:

Ü Participation in specialized exhibitions such as Posidonia International Shipping Exhibition, Athens, Greece and Norshipping, Oslo, Norway, SMM where companies operating in the maritime business sector, including ship owners, ship repair and shipbuilding companies, registers and other from different countries, are present;

Ü Update of the website information related to current projects and corporate news;

Ü Replies to direct inquiries by e-mail;

Ü Advertising brochures and 3D films and their sending to potential clients.

In April 2009, Bulyard SI participated in the registration of the Bulgarian Shipbuilding and Ship Repair Association (BSSRA). In May 2009, the BSSRA was admitted a regular member of the Community of European Shipyards’ Associations (CESA). The accession to the CESA will enable Bulyard SI to have partial direct influence on the European regulations applicable to shipbuilding.


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Wartsila IHB Ship Design Bulgaria AD has been working under projects based on direct contacts only. It does not use any intermediation. At this stage, the company has not any specialized marketing unit and marketing is the responsibility of its management. The company is a member of the BSSRA.


The relations and contacts of the manager/ship owner with first-class consignors, charterers and/or brokers play key role in ships management and exploitation (service sale – cargo transport). In consideration of the financial abilities of ship owners and the necessity of sufficient free funds, both parties prefer offering and navigating of ships under time-charter schedules. To ensure better financial and commercial conditions, IHB Shipping Co works with a number of intermediary/brokerage offices in Bulgaria and Europe – Germany, Great Britain, Holland, Greece, etc.


Dockyard Port – Bourgas carries out its port operations in direct contact with consignors’ representatives. The prices of various cargo processing depend on the direction and particular manner of cargo processing.

The standard practice is the conclusion of general contracts for processing of particular cargo volumes. The company applies a policy directed at individual approach to each client upon general contract conclusion. Long-term preferential terms and conditions are offered to traditional clients. The company aims at increasing the share of cargo processing in direct manner as a measure for increasing the cargo flow passing through the quay front.

Dockyard Port – Bourgas is a member of the following organizations oriented to the maritime business:

Ü Bulgarian Private Ports Association;

Ü Bourgas Maritime Association;

Ü Bulgarian Industrial Capital Association;

Ü Bulgarian Chamber of Commerce and Industry.

The company actively participates in specialized seminars and exhibitions and advertises through specialized websites. Its Marketing Unit maintains the company website, including current news about informing and establishing contacts with clients.


Bulgarian Register of Shipping AD directly negotiates the maintenance, class recertification and inspections on behalf of maritime administrations, which have duly authorized it, with ship owners and ship management companies. The company receives inspection orders through contracts for mutual supersession with other registers as well.

In 2007, there were signed contracts for authorization by the Maritime Administrations of Dominica, Moldova and Saint Vincent and Grenadines (countersigned in compliance with Directive 94/57/ЕС).

In 2008, the company signed contracts for agency in Syria and China and agreed surveillance of new ships building:

Ü Technical surveillance of the building and classification of a training sailing ship;

Ü Technical surveillance of the building and classification of a ferryboat for Lithuania.

Due to the worsened market conditions, in 2009 there were not signed any contracts for authorization and agency.

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The company marketing is performed by the Classification Unit based on the experience and contacts with various worldwide ship owners. The opportunities for mutually beneficial business with companies operating in the sector and development perspectives through market valuation are assessed.

The Bulgarian Register of Shipping uses the services of agents as well.


The commercial activities of the machine building companies within the structure of IHB are mainly performed by ZMM Bulgaria Holding AD. The main sale channels for the production are:

Ü Sales to specialized commercial companies (distributors), forming relative sales share of 95%;

Ü Sales to end clients.

The traditional payment methods are advance payment upon ordering and final payment before forwarding and up to 30-day deferred payments for long-term key clients. The holding aims at gradual restriction and elimination of this practice.

The group companies participate in specialized international exhibitions and the International Technical Fair in Plovdiv every year.


Leyarmach AD works mainly for the companies within the group of ZMM Bulgaria Holding. After commissioning of the new furnaces, it will rely mainly on direct contacts with local clients and relations with foreign clients. The company presents its products through participation in specialized exhibitions and fairs.


The commercial activity of Elprom ZEM AD is organized in compliance with the specifics and designation of manufactured products. The basic products are products of investment and strategic importance, which considerably reduce the number of potential sale channels. Therefore, it is not expedient to create own distribution network of wholesale shops and storehouses or assign this activity to entities outside the company. Moreover, the list of many products manufactured by Elprom ZEM AD does not justify the maintenance of any stocks of finished products.

The commercial activity is performed on the basis of direct contacts or through intermediaries.

Traditionally, the company presents its activity through participation in specialized tenders for supply of equipment and exhibitions in Bulgaria and abroad. In 2010, the catalogue of the company is to be published in Bulgarian and Russian and a new catalogue related to the plant capacity to build small hydroelectric power plants and produce and repair hydro generators is to be published.

Elprom ZEM AD does not use any special sale methods. The standard practice of the company is to have the sales secured through advance payments or letters of credit and to manufacture products only after an order assignment.


The main marketing and distribution channels of Augusta Mebel AD are design companies, agents and direct contacts. Import to the markets of the EU and Great Britain is performed directly and through agents. The clients for the markets of Ireland, Greece and America perform direct sales to end clients.

Over the past years, Augusta Mebel AD worked mostly with furniture design companies based in Ireland and France.

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The agents of Augusta Mebel AD are wholesale merchants of furniture and raw materials and materials for the furniture industry, including La Redoute – France, Lessoimpex – Bulgaria, Gilos – Greece, Ralitsa Furniture Houses – for the country, etc. The cooperation with these companies is directed at agency for furniture sales and supply of high quality raw materials and materials for the production process.

Direct contacts are mainly contacts with Bulgarian and foreign retail merchants – furniture sales network and furniture houses.

The domestic sales are realized through distributors and consignors and, since 2007, sale networks. The company has two exhibition halls for retail sales in the region of Shoumen. At present, the company does not avail with the necessary network of stores, which requires high expenses justified in case of larger volume of sales in the internal market.

Sales are realized based on the contractual terms and conditions – advance payments and payment upon delivery. Distributors execute the due payments upon delivery and consignors – after realization. The warranty period is one year as of the purchase date or the date of delivery – for hotel furniture.

Traditionally, Augusta Mebel AD participates in one furniture exhibition abroad as minimum – Cologne – Germany, Valencia – Spain or Birmingham – England and in specialized exhibitions in Bulgaria. In January 2010, the company presented own stand in Cologne. The main task of the Commercial Directorate of the company is to reply to all inquiries received after participation and send advertising materials to potential clients who have visited the exhibition stand.

The Marketing Unit of the company carries out annual researches to ascertain the level of client satisfaction based on the following criteria: reduction of the number of claims, retaining the number of old clients and increasing the number of new clients and growth of sales income.


Dounav Tours AD and its subsidiaries offer their own ships for rent to charterers, which organize cruise schedules and provide tourists for the ships. Long terms of 3 to 5 years are negotiated. The financial crisis has resulted in trend towards shortening of charter contractual time limits to 1 to 3 years. Ship owners receive charter prices, which form their main income. Ship owners are responsible for the technical ship maintenance and proper condition, insurances and ship crew and hotel personnel providing.

The major market of the company is the European market, including the following main routes: Budapest – Vienna – Passau and the way back, cruisers to the delta of the Danube River for all ships and navigation along the Rhein-Main-Danube channel for Elegant Lady Ship, Heinrich Heine Ship and Rousse Prestige Ship. The company also offers own cruises along Rhein - Main - the Danube River and Moselle out of the main ship season as well as during Christmas, New Year and Easter days.

In 2008, a new contract for Rousse Prestige Ship chartering for the 2009 – 2012 season was signed with Phoenix Reisen – Germany. The company has been chartering Sofia Ship for two years. Contracts for Heinrich Heine Ship and Rousse Ship chartering for the period after 2010 are to be signed. By present date, Heinrich Heine Ship has been chartered to several charterers and a strategic partner for it has been searched for.

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7 . O R G A N I Z AT I O N A L S T R U C T U R E

Industrial Holding Bulgaria PLC is a member of economic group within the meaning of §1, Item 7 of the Additional Provisions of Ordinance No 2 on Public Offering Prospectuses and Admission to Trade on Regulated Securities Market and Disclosure of Information by Public Companies and Other Issuers of Securities (Ordinance No 2). In compliance with this provision, the economic group includes the principal company and its subsidiaries.

Article 1, Paragraph 1, Letter a of Directive 83/349/EEC defines subsidiary as a company where the principal company holds the majority of the shareholders’ votes.

As at the date of preparation of this Registration Document, the Issuer holds interests of over 50% in 9 subsidiaries:

Ü BULYARD AD

Seat and address of management 47 Vasil Levski Boulevard, Sofia

Scope of activity Shipbuilding, ship repair, commercial shipping, trade, representation, intermediation and agency, foreign economic activities, marketing, consulting and design activities as well as any other activity not prohibited by law

Country of registration Republic of Bulgaria

Capital BGN 37,292,980 (thirty-seven million two hundred ninety-two thousand nine hundred and eighty)

Number of directly held shares and their percentage of the votes in the General Meeting of Shareholders of the company

22,935,183 shares, each having value of BGN 1.00, i. e. 61.50% of the votes in the General Meeting of Shareholders

Ü DOCKYARD – PORT BOURGAS AD

Seat and address of management 3 Industrialna Street, Bourgas

Scope of activity Repairs of Bulgarian and foreign ships, production of machines, facilities, spare parts and non-standard equipment for ships and industrial needs for Bulgarian and foreign companies, repairs and maintenance of coast facilities and vessels, port operations as well as other activities not prohibited by law


Capital BGN 635,440 (six hundred thirty-five thousand four hundred and forty)


624,332 shares, each having value of BGN 1.00, i. e. 98.25% of the votes in the General Meeting of Shareholders

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Ü MARITIME HOLDING AD

Seat and address of management 17 Panagyurishte Street, Varna

Scope of activity Acquisition, assessment and sale of shares in Bulgarian and foreign companies, acquisition, assessment and sale of patents, ceding of licenses for the use of patents to the companies where the holding owns interests, financing of the companies where the holding owns interests, technical consultations about ships, facilities and materials subject to inspection, inspection of ships and cargo, commercial representation and intermediation, consulting services, import and export of goods


Capital BGN 262,200 (two hundred sixty-two thousand and two hundred)


159,942 shares, each having value of BGN 1.00, i. e. 61% of the votes in the General Meeting of Shareholders

Ü ZMM BULGARIA HOLDING AD

Seat and address of management 48 Vasil Levski Boulevard, Region of Sredets, Sofia

Scope of activity Production of goods in the field of machine building and the accompanying industrial productions, respectively sales of such goods, commercial representation and intermediation; storage, acquisition, management, assessment and sale of shares in Bulgarian and foreign companies, acquisition, assessment and sale of patents, ceding of licenses for the use of patents to the companies where the holding owns interests, financing of the companies where the holding owns interests as well as any other activity not prohibited by law


Capital BGN 5,592,000 (five million five hundred and ninety-two thousand)

Number of shares held directly and their percentage of the votes in the General Meeting of Shareholders of the company


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Number of shares held through related parties and their percentage of the votes in the General Meeting of Shareholders of the company

100 shares, each having value of BGN 1.00, i. e. 0.002% of the votes in the General Meeting of Shareholders

Ü AUGUSTA MEBEL AD

Seat and address of management 21 Madara Boulevard, Shoumen

Scope of activity Production of stylish furniture from solid beech, oak and softwood, tiles from wooden particles and natural veneers, home and foreign trade as well as any other activity not prohibited by law


Capital BGN 814,815 (eight hundred fourteen thousand eight hundred and fifteen)



Ü PRIVAT ENGINEERING AD

Seat and address of management 42 D. Grouev Street, Sofia

Scope of activity Engineering in the country and abroad, licenses, know-how, technology transfer, home and foreign trade as well as any other activity not prohibited by law


Capital BGN 6,730,000 (six million seven hundred and thirty thousand)





Ü HYDRO POWER BULGARIA AD

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Scope of activity Commercial representation and intermediation, consulting services, import and export of goods as well as any other activity not prohibited by law


Capital BGN 50,000 (fifty thousand)





Ü KLVK AD


Scope of activity Commercial and production activities, purchase and production of goods for resale/sale, representation and agency, foreign economic activities, marketing, investment and design activities as well as any other activity not prohibited by law


Capital BGN 7,030,630 (seven million thirty thousand six hundred and thirty)




1,980,630 shares, each having value of BGN 1.00, I. e. 28.17% of the votes in the General Meeting of Shareholders

Ü INTERNATIONAL INDUSTRIAL HOLDING BULGARIA AG

Seat and address of management 7 Banhofstrasse, Zug, Switzerland

Scope of activity Acquisition, management and expropriation of shares in domestic and foreign companies of any kind and particularly companies in the sphere of trade, services and production in Bulgaria, provision of guarantees to related parties,

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participation in other companies, acquisition, management and expropriation of subjective rights on intangible benefits and licenses, acquisition, management and expropriation of rights on real properties, granting of loans as well as provision of guarantees and other collaterals

Country of registration Swiss Confederation

Capital CHF 100,000 (one hundred thousand)


10,000 shares, each having value of CHF 10, i. e. 100% of the votes in the General Meeting of Shareholders

Within a broader sense, the economic group of Industrial Holding Bulgaria PLC may include companies beyond the definition under §1, Item 7 of the Additional Provisions of Ordinance No 2:

Ü Associates (as) – companies where IHB has significant influence but not control on their financial and operating policies;

Ü Companies with minority interests (portfolio investments) (pi) – companies where IHB has not any influence;

Ü Subsidiaries of subsidiaries (ss) – companies owned and/or controlled by any subsidiary of IHB, i. e. IHB exercises indirect control on them;

Ü Subsidiaries of associates (sas) – companies owned and/or controlled by any associate of IHB.

The Issuer is a holding company and its portfolio includes other companies operating in the maritime business, machine building, furniture production and river cruises sectors (see Figure № 1, Figure № 2, Figure № 3 and Figure № 4).

Figure № 1 Organizational structure of the Issuer as at the date of preparation of the Registration Document

M A R I T I ME

M A C H I N EB U I L DI NG

R I V E R C R U I S E SF U R N I T URE

M A N U FA CTURI NGO T H E R

I N D U S T R I AL H OL D IN GB U L G AR I A J S C


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M A R I T I M E B U S I N E S S

Figure No 2 Structure of the maritime business sector

M ARI T I M E BUS I NE S S

B U L Y A R D A D

B u l y a r dS h i p b u i l d i n g I n d u s t r y A D

V a r t s i l a I H B K P B A D

D O C K Y A R D P O R TB O U R G A S A D

O d e s o s P B M A D

M A R I T I M E H O L D I N GA D

B u l g a r i a n R e g i s t e r o f S h i p p i n g A D

O d r i a L t d .

S k i t i a L t d .

P R I V A T E N G I N E E R I N GA D

E m o n a L t d .

M a r t s i a n a L t d .

K a r v u n a L t d .

I H B S h i p p i n g C o E A D

S H I P B U IL DI NG , S H I PR E P A IR & D E SI GN P O R T O P E R A TION S

C L A S S IFI CA TIO N & C E R T I FI CA TIO N M A R I T I M E T R A N SPOR T

K L V K A D

T i r i s t a L t d .

A s s o c i a t e d c o m p a n y

S U B S I D I A R Y

S u b s i d i a r y o f s u b s i d i a r y

B U S I N E S S L I N E


M A R I T I M E B U S I N E S S : S H I P B U I L D I N G , S H I P R E P A I R A N D S H I P D E S I G N

Ü BULYARD AD (s)

Bulyard AD was incorporated in 2003 by IHB, Dockyard Odessoss AD, Bulcom Limited and Electromachinery Holding AD. As at its incorporation date, Dockyard Odessoss AD held 25% of the company’s capital. In July 2005 and July 2006, Dockyard Odessoss AD sold 15% and 10% of its interest in Bulyard AD to IHB. As at present date, IHB holds 61.50% of the capital of Bulyard SI EAD.

Since March 2007, Bulyard AD holds 100% of the capital of Bulyard Shipbuilding Industry.

Ü BULYARD SHIPBUILDING INDUSTRY EAD (ss)

Bulyard Shipbuilding Industry EAD holds and manages the assets of the former Varna Shipyard. Its core activity includes building of ships and vessels of all types, ship repair and ship reconstruction and trade in ships and other vessels. The shipyard builds bulk cargo ships – 9800 DWT, 21000 DWT, 42000 DWT to 80 000 DWT multi-purpose ships, Super

handymax F56 - 56000 DWT (under the license of IHI Marine United Inc. – Japan (Mitsubishi Corp.).

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Ü WARTSILA IHB SHIP DESIGN BULGARIA AD (as)

The company was incorporated in August 2007 in Varna by IHB in partnership with Vik Sandvik – Norway, which is a member of Wartsila Group since July 2009. The company has scope of activity including ship design and capital amounting to BGN 250,000 divided into 250,000 shares, each having nominal value of BGN 1. Each shareholder holds 50% of the voting shares.


Ü DOCKYARD PORT – BOURGAS AD (s)

The company was incorporated in 1973. At present, the company renders port services, including:

Loading, unloading and storage services, including weighing through electronic auto weighing machine;

Transport and forwarding services and issue of related documents;

Ancillary services – electric power and water supply, bunkering, acceptance of consumption and hazardous waste, sweeping, washing of loading premises, cargo strengthening, etc.;

Lease of mechanical handling machines, electric power supply devices and stock;

Services rendered on vessels – mooring and opposite actions, quay lease, etc.

Until 2004, the company performed only ship repair. As of November 2004, the company has held a port operational fitness certificate updated on 20 February 2007. It is a port for public transport of regional importance in compliance with the Law on Maritime Space, Inland Waterways and Ports of the Republic of Bulgaria and is intended for handling of harmless general and bulk food-grade cargo.

The company was registered as a port operator on 28 May 2005 in the Port Operators Register of the Republic of Bulgaria.

The port is located on a terrain of 55 decares owned by Dockyard Port - Bourgas AD. The company has a total covered storage area of over 10,000 square metres with possibility for temporary storage and storage under customs surveillance.

It takes ships with wade depth of up to 7.90 metres. The quay wall of the port is 200 linear metres long.

Ü ODESSOSS PBM AD (as)

The core activity of Odessoss PBM AD includes port services and accompanying activities from/on ships and land transport vehicles, loading of goods in containers and unloading them, storage and cargo processing.

The company is entered as a port operator in the Port Operators Register of the Republic of Bulgaria for provision of port services at port Odessoss PBM – Varna.

As of May 2005, the company has held a certificate for the operational fitness of port Odessoss PBM – Varna for public transport of regional importance intended for handling general and bulk cargo and containers. Port Odessoss PBM – Varna is entered into the Register of Ports of the Republic of Bulgaria.

The port is located on a terrain of 155 decares (former 2nd region of Varna Shipyard) owned by Odessoss PBM AD. The company has more than 10,000 square metres covered storage area with possibility for temporary storage and storage under customs surveillance. It takes ships with wade depth of up to 5.8 metres. The quay wall is 500 linear metres long.

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Ü MARITIME HOLDING AD (s)

The company was incorporated in 2001. Its scope of activity includes:

Acquisition, assessment and sale of shares in Bulgarian and foreign companies;

Financing of the companies where the holding owns interests;

Technical consultations about ships, facilities and materials subject to inspection;

Inspection of ships and cargo;

Commercial representation and intermediation;

Consulting services.

In October 2001, the company acquired 80% of the capital of Bulgarian Register of Shipping AD, Varna. As at 31 January 2010, Maritime Holding AD held 100% of the capital of Bulgarian Register of Shipping AD.

Ü BULGARIAN REGISTER OF SHIPPING AD (ss)

Bulgarian Register of Shipping AD performs technical surveillance and classification, including:

Approval of technical documentation for maritime and river shipbuilding and ship repair, drill platforms and containers;

Admittance of companies and laboratories, which produce, repair and test constructions subject to supervision by Bulgarian Register of Shipping AD, furniture, materials and items in the maritime business and industry;

Supervision of shipbuilding and refurbishment, drill platforms and containers;

Certification of ships and containers in operation;

Supervision of the production of materials and items intended for building and repair of ships subject to supervision by Bulgarian Register of Shipping AD;

Supervision and certification of newly built ships, ships in operation, materials and items in compliance with mutual supersession contracts with foreign classification organizations;

Conventional inspections in compliance with contracts for recognition by maritime administrations;

Technical consultations and expert opinions;

Consultations related to introduction and implementation of quality management systems and assistance for certification under the requirements of the ISO 9000 standards;

Certification under the requirements of the ISM and ISP.


Ü PRIVAT ENGINEERING AD (s)

The company was incorporated in 1998 with basic scope of activity including engineering in the country and abroad, licenses, know-how, technology transfer, home and foreign trade as well as any other activity not prohibited by law. The key activities carried out by the company are insurance and reinsurance intermediation and consulting services.

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Since June 2000, Privat Engineering AD has been offering insurance and reinsurance intermediation. The company has a license to operate as insurance broker No 75/30 May 2000.

In June 2003, Privat Engineering AD acquired real property of approximately 92 decares in the Boudzhaka Area near Sozopol. At the end of December 2005, Privat Engineering AD sold this development with the completed infrastructure and terminated its investments in real properties.

In February 2006, Privat Engineering AD incorporated two subsidiaries: Emona Ltd (ss) and Marciana Ltd (ss), which agreed the building of two 9,800-ton multi-purpose ships at Bulyard Shipbuilding Industry. The ships are intended for unrestricted region of navigation and shipping of bulk cargo and containers. On 30 May 2009, Emona Ship was sold and sailed under a charter contract. On 7 January 2010, Marciana Ship was sold and sailed under a charter contract in February 2010.

In August 2007, Privat Engineering AD incorporated another subsidiary: Karvuna Ltd (ss), Marshall Islands, which agreed the building of one 21,000-ton multi-purpose ship at Bulyard Shipbuilding Industry. The ship is intended for unrestricted region of navigation and shipping of bulk cargo. The ship delivery deadline is April 2010.

In September 2009, Privat Engineering incorporated another subsidiary: Tirista Ltd (ss), Marshall Islands. On 1 November 2009, the company purchased ship with construction No 459 at commissioning stage from Bulyard Shipbuilding Industry. The 21,000-dwt ship is intended for unrestricted region of navigation. The ship delivery deadline is the end of July 2010.

In December 2007, Privat Engineering invested in shares of a new company named IHB Shipping Co EAD (ss), Varna, having capital of BGN 200,000 divided into 200,000 shares, each having nominal value of BGN 1 and scope of activity including commercial maritime navigation and related production and technical, forwarding and intermediation activities, ship brokerage and agency, etc. It manages the ships owned by the IHB Group companies.

As at 31 January 2010, Privat Engineering held 100% of the capitals of its subsidiaries Emona Ltd, Marciana Ltd, Karvuna Ltd, Tirista Ltd and IHB Shipping Co EAD.

Ü KLVK AD (s)

The company was incorporated in 2001 with basic scope of activity including commercial and production activities, purchase and production of goods for resale/sale, representation and agency, foreign economic activities, marketing, investment and design activities as well as any other activity not prohibited by law.

The activities are related to the organization, consultations and intermediation for companies’ participation in international exhibitions.

In July 2004, KLVK AD acquired 75% shares of real property of 94 decares located in Shkorpilovtsi – Izgrev Horizont Resort Complex. In April 2005, KLVK AD sold this property and terminated investments in real properties.

In 2008, the company invested in the building of 2 F56 ships of total value of EUR 60 million through its subsidiaries Odriya Ltd (ss) and Skitiya Ltd (ss), Marshall Islands. Ship No 102 owned by Odriya Ltd is expected to be delivered in 2012. The contract for the building of ship No 105 owned by Skitiya Ltd was terminated.

As at 31 January 2010, KLVK AD held 100% of the capitals of its subsidiaries Odriya Ltd and Skitiya Ltd.

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Figure №o 3 Structure of the machine building sector

Z M M S l i v e n A D

Z M M B U L G A R I AH O L D I N G A D

M a s h s t r o y A D

Z M M N o v a Z a g o r a A D

E l p r o m Z E M A D L e y a r m a c h a d

B u l k a r i A D

M ACHI NE BUI L DI NG

M E T A L C U T T I N GM A C H I N ES

E L E C T R I C M A C H I N E S M E T A L C A S T I N G

S U B S I D I A R Y




Ü ZMM BULGARIA HOLDING AD (s)

The company was incorporated in 2001 under the name of ZMM Bulgaria AD with the idea to unite four companies producing metal cutting machines – ZMM Sliven AD, Mashstroy AD, Mashinostroene AD and Leyarmach AD. The scope of activity of ZMM Bulgaria Holding AD includes production and sales of metal cutting machines, commercial representation and intermediation, storage as well as any other activity not prohibited by law.

At present, the company owns 95.98% of the capital of ZMM Sliven AD, 80.80% of the capital of Mashstroy AD, 93.57% of the capital of ZMM Nova Zagora AD, 80.38% of the capital of Elprom ZEM AD, 88.71% of the capital of Leyarmach AD (within the group the control over Leyarmach AD is 100% and the remaining 11.29% is held by ZMM Sliven AD) and 100% of the capital of Bulkari AD.

Ü BULKARI EAD (ss)

In 2006, Bulkari (ss), a company owned by ZMM Bulgaria Holding AD, was incorporated to participate in the privatization of Balkancar – Sredets AD, Sofia. At present, it owns and leases real property in Popovo.


Ü ZMM SLIVEN AD (ss)

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ZMM Sliven AD was incorporated in 1971. The company has mastered and offers the following key groups of machines:

Universal lathes with maximum processed diameter of the processed item between 300 mm and 1,600 mm and distance between the centres between 750 mm and 6,000 mm;

CNC lathes;

Column drilling machines.

Ü MASHSTROY AD (ss)

Mashstroy AD was incorporated in 1947 based on the then existing small artisan metal processing workshops.

The key products manufactured by the company are:

Universal lathes and their type variety and modifications;

CNC lathes;

Digital machines based on universal lathes: C560BE, C630BE, C730BE, C830BE;

СТ lathes with CPC: CT251M with FANUC, SIEMENS , HEIDENHAIN systems;

Column drilling machines.

Ü ZMM NOVA ZAGORA AD (ss)

ZMM Nova Zagora AD was incorporated in 1970.

The core activity of the company is the design and production of units and details for metal cutting and wood processing machines, technological lines, agricultural machines, machines and items for the general machine building, spare parts, repairs and services.

The company produces:

Rotation details;

Metal cutting machine units;

Strip cutting machines: manual, semi-automatic and fully automated with CNC control;

Units and machines input in wood processing complexes;

Crushers PZ5; PZ7; PZ9; PZ11;

Spare parts.


Ü ELPROM ZEM AD (ss)

Elprom ZEM AD was incorporated in 1950 and is a part of the former Vasil Kolarov Machine Building Plant.

Elprom ZEM designs, produces, delivers, installs and repairs the following electric machines:

Asynchronous low voltage electric engines up to 660 V, with rotor connected in short-circuit, power between 7,5 and 315 kW and frequencies 50 and 60 Hz;

Asynchronous high voltage electric engines 3 and 6 кV, power between 200 and 1000 kW, rotation frequency 1500, 1000, 750, 600 and 500 rev/min.;

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Special asynchronous high voltage electric engines;

Vertical asynchronous electric engines;

Synchronous electric engines;

Hydro generators, horizontal and vertical with power up to 200 МVА for various voltages and rotation frequencies.

Elprom ZEM AD is the only producer of hydro generators for water power plants and large non-standard electric machines in the country.


Ü LEYARMACH AD (ss)

Leyarmach AD, Sofia, is a joint-stock company incorporated in 2001 based on separated production facilities of ZMM Sofia. The foundry was built in 1958 and underwent two major reconstructions – in 1970 and in 1989 as well as modernization of the smelter section in 2002.

The company produces a wide variety of casts, which represent full range of components for metal cutting machines, bodies, supports, columns, rear seats, foundations, gear boxes, etc.

Leyarmach AD is specialized in the production of high quality casts:

Grey cast iron moulds with a unit weight of 20 to 10,000 kg and casts from spheroidal-graphite cast iron with unit weight of up to 5,000 kg, with high level of complexity;

Casts from modified grey cast irons;

Casts from spheroidal-graphite cast irons.

Leyarmach AD issues cast quality certificates and avails with own pattern laboratory.

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R I V E R C R U I S E S , F U R N I T U R E P R O D U C T I O N A N D O T H E R

Figure № 3 Structure of the river cruises, furniture production and other sectors

D o u n a v T o u r s A D A u g u s t a M e b e l A D

T o u r i s t C o m p a n y D o u n a v A D

H y d r o P o w e r B u l g a r i a A D

I n t e r n a t i o n a l I n d u s t r i a l H o l d i n g

B u l g a r i a A G

D o u n a v T o u r s H o t e l s E A D

D o u n a v R i v e r S h i p p i n g A D

S h i p p i n g C o m p a n y D o u n a v E A D

R I V E R C R U I S ES F U R N I T U R E P R O D U C T I O N O T H E R

R e k o l t a A D

I NDUS T RI AL HO L DI NGB UL G ARI A AD

S u b s i d i a r y o f a s s o c i a t e d c o m p a n y


A s s o c i a t e d c o m p a n y




Ü DOUNAV TOURS AD (as)

Dounav Tours AD is a joint investment of IHB and Uniontours.

Dounav Tours AD and its subsidiaries own 4 four-star and 1 five-star river passenger ships – Rousse Ship, Sofia Ship, Rousse Prestige Ship, Heinrich Heine Ship and Elegant Lady Ship.

In March 2007, Dounav Tours AD purchased the state-owned Balkan Yacht, used by the former president Todor Zhivkov, from the Bulgarian State. The yacht was renovated and sold in 2009.

The company also offers own cruises along Rhein - Main - the Danube River and Moselle, usually out of the main ship season as well as during Christmas, New Year and Easter days.

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The company has its own pontoon on the Danube River located on a terrain of some 4 decares, suitable for the quayage of all types of river ships, including passenger ones and welcomes over 250 ships per year.

Dounav Tours AD is the majority owner of Dounav Tours Hotels AD, Tourist Company Dounav AD, Dounav River Shipping AD and Shipping Company Dounav EAD.

Ü DOUNAV TOURS HOTELS EAD (sas)

Dounav Tours Hotels AD was incorporated in 2000.

The scope of activity of the company includes commercial representation and intermediation, consulting services, hotel services, intermediation in informing and job recruitment, tour operator activities, ship agency and ship supplies, logistics, forwarding activities, restaurant operation, foreign economic activities, sales of airplane tickets and other activities.

The company:

Renders tourist services to foreign ships in Bulgaria;

Provides ship agency;

Provides tourist agency, member of IATA;

Sells airplane and bus tickets;

Organizes package programs for excursions in the country and abroad;

Provides tourist guides.

Ü TOURIST COMPANY DOUNAV EAD (sas)

Tourist Company Dounav EAD was incorporated in January 2003.

The scope of activity of the company includes hotel operation, restaurant operation, foreign economic activities, operation of ships, sales of goods - imported and domestically produced, organization of excursions in the country and abroad and other activities related to international and domestic tourism.

The company is the owner of Rousse Prestige Ship and Heinrich Heine Ship.

Ü DOUNAV RIVER SHIPPING AD (sas)

Dounav River Shipping AD was incorporated in March 2005.

The scope of activity of the company includes commercial shipping and the related foreign and domestic trade, production, technical, intermediation activities, investment and engineering activities, etc.

Ü SHIPPING COMPANY DOUNAV EAD (sas)

Shipping Company Dounav EAD was incorporated in November 2006

The scope of activity of the company includes hotel operation, restaurant operation, foreign economic activities, operation of ships, sales of goods - imported and domestically produced, organization of excursions in the country and abroad, consumer and public utility, advertising, sports, cultural and additional services related to international and domestic tourism.

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The company is the owner of Elegant Lady Ship.


Ü AUGUSTA MEBEL AD (s)

Augusta Mebel AD produces furniture of various types of solid wood (oak, softwood, lime-tree) and MDF, coated with natural veneers:

Home furniture – bedrooms, sitting rooms, entrance halls;

Children’s rooms furniture;

Hotel furniture;

Office furniture;

Ship furniture.

The production of the company is intended for export. Its clients are retailers, wholesalers, hotels, designers and individuals. Augusta Mebel has long-term relations and exports its products to companies in Great Britain, Ireland, France, USA, Greece, etc.

O T H E R

Ü HYDRO POWER BULGARIA AD (s)

The company was incorporated in April 2000 with basic scope of activity including commercial representation and intermediation, consulting services, import and export of goods as well as any other activity not prohibited by law.

Ü INTERNATIONAL INDUSTRIAL HOLDING BULGARIA AG (s)

The company was incorporated in 2001 in Zug, Switzerland. Its basic scope of activity includes acquisition, management and expropriation of shares in domestic and foreign companies of any kind and particularly companies in the sphere of trade, services and production in Bulgaria, provision of guarantees to related parties, participation in other companies, acquisition, management and expropriation of subjective rights on intangible benefits and licenses, acquisition, management and expropriation of rights on real properties, granting of loans as well as provision of guarantees and other

collaterals. The company gains income mainly from interests in other companies and consulting.

Ü REKOLTA AD (as)

Rekolta AD was incorporated in November 2009 with capital of BGN 140,000 divided into 140 shares, each having nominal value of BGN 1,000. IHB subscribed 50% of all voting shares. The newly registered company has scope of activity including purchase of agricultural land, maintenance and enhancement of soil fertility, construction of agricultural systems, biological agriculture, revival and further development of the good agricultural practices typical of the Bulgarian agriculture as well as any other activity not prohibited by law.

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8 . P R O P E R T Y, P L A N T A N D E Q U I P M E N T

8.1. EX I S T I NG O R P L ANNE D S I G NI F I CANT NO N -CURRE NT T ANG I BL E AS S E T S

Table № 8 presents data about the development of the non-current tangible assets of the Issuer for the last three years on consolidated basis and unconsolidated basis.

Table № 8 Consolidated non-current tangible assets of the Issuer for the period 2006 – 30 September 2009

в хил. лева 9M 2009 9M 2008 2008 2007 2006

Tangible assetsLand 43,226 43,184 43,226 43,185 8,729 Buildings and constructions 33,171 33,542 34,093 33,441 21,179 Machines and equipment 17,274 15,715 19,050 14,011 11,941 Equipment 18,947 14,356 18,722 14,171 12,125 Transport vehicles 27,506 2,048 2,059 1,613 979 Fixtures and fittings 634 640 688 368 265 Capital expenses 50,836 35,689 40,795 12,166 833 Invetment property 32 35 34 36 155 Other 1,306 178 178 227 185

Total tangible assets 192,932 145,387 158,845 119,218 56,391

Source: Audited Consolidated Financial Statements of the Issuer for the period 2006 – 2008 and Unaudited Consolidated Interim Financial Statements of the Issuer as at 30 September 2008 and 30 September 2009

Upon initial acquisition, items of property, plant and equipment are measured at cost, which comprises the purchase price, including customs duties and non-refundable sales taxes and all 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 cost of 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.

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.

Subsequent expenses incurred to replace a major component of an item of property, plant and equipment reported separately are capitalized. Other subsequent expenses are capitalized only if they increase the future economic benefits of the respective asset. All other costs are recognized in the Income Statement in the period they are incurred.

Subsequent valuation – the policy adopted by the Group for 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 values change significantly in shorter intervals.

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The Management of the Group reviews the fair values of land, buildings, plant and equipment on regular basis. Such reviews were made as at 1 January 2003 and 31 December 2007, the particular assets being revalued on the basis of valuation made by an independent licensed valuer. As a result of valuation made by an independent licensed valuer as at 31 December 2007, land and buildings of total value of BGN 47,682 thousand, plant and equipment of total value of BGN 2,898 thousand and other non-current assets of total value of BGN 36 thousand were revalued. The revaluation effect was taken to the revaluation reserve.

As a result of the abrupt changes in the fair value of property over the last two years, the Management of the Holding decided to review the fair values of the land and buildings owned by the group companies as at 31 December 2009. This review in compliance with the requirements of IAS 16 Property, Plant and Equipment was assigned to a team of licensed valuers. The review results will be disclosed upon publishing the Consolidated Financial Statements for 2009 within the statutory time limits.

Some of the assets serve as collaterals under the bank credits of the Group (see Item 10.3. Information about the needs of loans and financing structure of the Issuer).

Information about the planned major investments in non-current tangible assets is disclosed in Item 5.2.3. Commitments for major future investments of the Issue.

Table № 9 Unconsolidated non-current tangible assets of the Issuer for the period 2006 – 31 December 2009

BGN '000 12M 2009 12M 2008 2008 2007 2006

Tangible assetsMachines and equipment 3 8 8 16 15 Transport vehicles 26 37 37 32 66 Fixtures and fittings 3 6 6 10 14 Capital expenses 46 18 18 - - Other - 1 1 1 1

Total tangible assets 78 70 70 59 96

Source: Unconsolidated Financial Statements of the Issuer for the period 2006 – 31 December 2009

The figures in Table № 9 shows that the non-current tangible assets form insignificant portion of the assets of the Holding. The company has not any imposed restrictions on the rights of ownership of the non-current tangible assets or assets pledged to secure liabilities or other.

8.2. ENV I RO NME NT AL I S S UE S

8.2.1. IHB

The nature of the activities of IHB and its assets do not raise any environmental issues. Insofar as the activities of the Holding are determined by its subsidiaries, their environmental issues indirectly affect the use of assets within the IHB Group as a whole.


The accession of Bulgaria to the European Community involves commitments on national level and subsequently – requirements to the business entities operating in the country to meet environmental norms and standards in terms of the production capacities and processes. Increasing emphasis is placed on the solution of the various related issues.

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The Management of IHB monitors the effects of the group production processes on the environment. The companies set different objectives and plan actions depending on the sectors where they operate. The subsidiaries are required to disclose the environmental effect valuation and the measures undertaken in case of adverse effect in their business plans on annual basis.

In case of making decisions on new projects and investments within the Group, the environmental risk is subject to assessment. In case of purchase of machines, their operation is thoroughly studied, including the environmental effect. Preliminary projects related to harmful emissions and options for their neutralization are developed. All investment projects comply with the applicable environmental protection requirements as well. They are approved by the competent authorities – Municipal Services, Regional Public Health Protection and Control Inspectorates, Regional Environment and Water Inspectorates, etc.


The overall technological process at Bulyard SI EAD, complying with all regulatory documents and operative instructions for proper performance of the relevant activities, is compliant with the respective environmental concerns.

Since activity recovery till the end of 2009, the company undertook and solved a number of environmental measures and environmental issues:

Ü Step-by-step thorough cleaning of the whole area of the company from production, construction, residential and petroleum waste;

Ü Strict control was enforced to maintain order and cleanness in the area of the company through regular inspections and monetary sanctions;

Ü The collection and disposal of scrap materials was organized;

Ü Waste materials are collected separately according to financial and environmental concerns;

Ü The company was issued a sanitation certificate for handling of hazardous waste by the Regional Public Health Protection and Control Inspectorate – Varna;

Ü A large-scale inventory of the electric equipment potentially containing polychlorinated biphenyl was made in compliance with the European environmental requirements;

Ü A waste management program effective till 2011 was developed and approved by the Regional Environment and Water Inspectorate. In June 2009, it was updated in compliance with the European requirements and the waste management program of the company. It includes requirements to and rules on waste and materials handling and waste separation upon formation and temporary storage at proper places. A system for separate residential waste collection has been developed and applied. The system is described in the waste management program of the company. If necessary, collected waste is delivered to the organizations holding permits for the particular activities – waste collection, transport, recycling, etc.;

Ü A program for emissions reduction and a plan for solvents management based on the production and technological processes of the company and Ordinance No 7/21 October 2007 were developed and approved; they are updated on annual basis. The levels of dust content, noise and pollution with organic compounds are regularly measured within the statutory time limits;

Ü Sample collection points for the organized emission sources from the installation for sheet iron processing - zero line (1 collection point for the blasting section, 1 for the passivation section and 1 for the drying section) as per the technical documentation of the Technical Unit and Ordinance No 6/26 March 1999 were developed and approved by the Regional Environment and Water Inspectorate;

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Ü Assessment and repair of the sewerage system were performed and the system map with all connection points was updated. Channel pumping station 1 was repaired and commissioned in 2008;

Ü The personnel involved in waste handling is regularly instructed and trained in compliance with Ordinance No РД-07-2/16 December 2009 to ensure safety at work.

The Management has focused its efforts on the following urgent actions:

Ü Reconstruction of sheet iron processing installation (zero line) through mounting of refining devices at its outlet to catch the emitted iron dust;

Ü Creation of permanent organization for reduction of the emissions of volatile organic compounds from the organized sources of emissions from sheet iron processing installations. A plan for reduction of the emissions of volatile organic compounds to report the actions undertaken in 2009 and the good production practices planned for 2010 is in process of development. The plan is subject to approval by the Regional Environment and Water Inspectorate of Varna. It is to be submitted by 31 March 2010. It is updated in compliance with Ordinance No 7 on annual basis;

Ü Replacement of the water supply and sewerage installation to ensure environmental protection against polluted water and wastewater.

For the reconstruction of the zero line and replacement of plumbing installation, the supervisory authorities haven’t issued instructions up to date. The actions have preventive nature, therefore there are no provisioned resources and the management hasn’t taken firm commitment to implement these investments. They are planned to be performed consistently with own funds depending on the financial position of the company. The goal is to reduce air pollution and water loss on highways’ pipelines and to prevent possible environmental contamination with wastewater.

At present there are no plans of commencing reconstruction of the zero line, since the equipment is suspended from service due to insufficient utilization capacity. Steel leaf and profile are being passivated in the closed site for blasting. The project can be implemented by improving the current market environment and increase of the production program.

The Company's management believes that if the actions are not implemented in full amount, or in relatively longer period, this would not lead to violation of the law, as verifications from the supervisory authorities in all aspects of the environment have revealed no serious violations. There are no instituted legal proceedings or complaints concerning matters relating to environmental protection.


The ships managed by IHB Shipping Co EAD:

Ü Meet the requirements of the MARPOL Convention and the Directives of the European Union regulating environmental protection;

Ü Have the relevant certificates for the used systems and equipment.


The adverse environmental effect of the ship repair, performed at Dockyard Port – Bourgas AD till August 2007, was the result of the following generated hazardous waste and compounds:

Ü Wastewater containing petroleum products;

Ü Hazardous volatile compounds from hull painting works;

Ü Hazardous waste – storage batteries and fluorescent lamps.

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The termination of ship repair operations eliminated this environmental effect. The issue related to waste from the loading and unloading operations of the company, which is not hazardous based on the categorization of the Regional Environment and Water Inspectorate, is still pending. This waste includes waste from scattered cargo, torn paper and cardboard cargo packages and wood and metal materials. Dockyard Port – Bourgas AD is under permanent surveillance by the Regional Environment and Water Inspectorate, which inspects the proper waste storage and management on regular basis.

The company holds a valid license for the activities related to hazardous waste, including waste from loading and unloading.

To meet the environmental protection requirements for performing port operations, in 2006 Dockyard Port – Bourgas AD developed a corporate waste management program effective till 2011 in compliance with the European environmental standards, which was duly approved. Since 2009, a plan for shipbuilding waste management, approved by the Ministry of Transport, Information Technologies and Communications and the Ministry of Environment and Water, has been applied. This plan meets the environmental requirements and allows the performance of waste management operations. It is consistent with the geographical location and size of the port, the number and types of the ships sheltered by the port and the types and volume of shipbuilding and cargo waste.

The company has not been imposed any sanctions by the Regional Environment and Water Inspectorate of Bourgas.


The work of the inspectors of the Bulgarian Register of Shipping is not hazardous for the environment. It is related to surveillance of the shipyards as to compliance with the effective environmental requirements in the process of shipbuilding and ship repair.

Environmental protection is set in the requirements of the Rules and International Conventional Requirements, whose compliance by the ships classified by the Bulgarian Register of Shipping is monitored by the inspectors.


The technological processes at ZMM Sliven AD, which have impact on the environment, are directly related to components coating – oxygenation, chroming, galvanization. Details are painted in a painting unit equipped with a floor aspiration system with water curtain to catch organic solvents. The wastewater is collected in a water purification station with separate basins for acid-alkaline water and chrome purification water, where it is neutralized with the necessary chemicals. After deposition, a chemical analysis is carried out and, if the results are satisfactory, the water is discharged into the residential sewerage system and the solid waste, i.e. the deposit, is stored in specialized cisterns on the territory of the company. There is not any government decision yet as to how and where this type of waste is to be stored. In the opinion of the Management, it will be one of the key problems requiring investments for its definitive solution.

ZMM Sliven AD has a dedicated swarf unit where the swarf is stored separately from other waste until it is handed over for recycling. A lubricant unit is also established to store used lubricants, which are regularly handed over to the refineries for secondary processing.

In compliance with Council Directive 99/13/EС and Ordinance No 7/2003 on the limitation of emissions of volatile organic compounds due to the use of organic solvents, the company prepares and presents a plan for solvents management, approved by the Regional Environment and Water Inspectorate of Stara Zagora without remarks, to the competent authorities on annual basis.

An authorized laboratory at the Regional Environment and Water Inspectorate measures the emissions of organic solvents in the working environment and the leading off of volatile gases on annual basis. The Regional Environment and Water Inspectorate made 2 inspections in 2008 and 1 inspection in 2009 and did not ascertained any violations, i. e. ZMM

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Sliven AD was not imposed any sanctions in relations to environmental issues. The controlling bodies issued prescriptions, which were applied in due manner.

At Mashstroy AD, the following production processes have impact on the environment: production of casts from gray cast iron, metal coating, lacquer coating and generation of solid metal waste.

The company uses a technology for quartz sand casting as the principal material used for casts production. Its drying releases gas emissions attracting tiny sand particles and dust. The separation of the solid particles takes place in three cyclones. The gases from the casting section are released directly into the atmosphere through ventilation. In the melting unit, an aspiration system has been mounted for organized release of the emissions from metal melting activities to solve the problem.

Until 2009, the waste sand from casting caused some problems because it was stored on-site at the company. Since the beginning of 2009, following closing of the site in Oreshak and gradual transfer of casts to Leyarmach AD, the casting on the site in Troyan has been performed without using glass water and furan resin. There were made changes in the casting technology, which eliminated the environmental issues. The quartz sand is sifted and used repeatedly.

Since 2008, Mashstroy AD has been using paints, lacquers and solvents on water base without volatile fumes. The painting chambers are quipped with ventilation installations and meet the requirements of the Regional Environment and Water Inspectorate, Council Directive 99/13/EС and Ordinance No 7/2003 on the limitation of emissions of volatile organic compounds due to the use of organic solvents in certain installations. This eliminated the annual presentation of a plan for solvents management by the company to the competent authorities.

A portion of the metal waste is reused.

Over the reporting period, there were not ascertained any violations during the made inspections and Mashstroy AD was not imposed any sanctions in relation to environmental issues. The controlling bodies issued prescriptions, which were applied in due manner.

ZMM Nova Zagora AD has not reported any environmental issues as its core activity have insignificant environmental effect, representing leading of residential wastewater to the urban purification facilities and generation of industrial and residential waste. In compliance with the effective regulatory requirements and good practices, the company undertakes preventive measures to minimize the adverse impact of its activity on the environment.

In addition, all facilities of the company have been designed and built in compliance with the environmental protection requirements upon operation. All preliminary regulated activities are regularly monitored for compliance with the national legislation. In this relation, the company applies a program for waste management and built a waste storage platform in 2007.

To avoid environmental problems, the company has developed a program for waste handling management effective till 2011. The strategy is based on approved and introduced waste management systems.

In compliance with the effective regulatory requirements, waste includes residential waste, building waste and industrial waste. Waste is classified in compliance with the Law on Waste Management and waste types are assigned own codes and information lists.

Elprom ZEM AD has not reported any specific problems with negative environmental impact. The company holds an ISO 18001:2007 certificate for environmental safety and ecological production and an OHSAS 18 001:1999 certificate for healthy and safe labor conditions. The used production technologies do not have any adverse impact on the environment.

The arising problems are related to the regular maintenance of the existing aspiration systems in the impregnation section, the vacuum-compound plant, the lacquer machine and the section-baking unit of the coil workshop. The following actions are forthcoming:

Ü Replacement of the impregnation lacquer, which is used together with a very harmful solvent with a new environment-friendly and water soluble type of lacquer;

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Ü Purchase of a painting chamber for compliance of the painting section with the environmental standards and labor safety requirements;

Ü Construction of filters in the rotor section.

The above mentioned actions are not related to the requirements of supervisory authorities and are not mandatory. At present, funds are not planned for their implementation, as they are medium-term priorities of the management. The Company will implement them according to its financial capabilities. The company plans to raise funds and attract operating and government programs. Even if these actions are not implemented, this will not lead to violation of the law, since the results of its own periodic measurements and those made by RIEW - Sofia, of air emission, noise and analysis of the discharged water meets the requirements specified in the regulations.

In compliance with its integrated system for management of health and labor safety and environmental protection, the company has prepared and approved:

Ü A program for reduction of organic solvents consumption;

Ü A program for Lacquer TM 50 replacement with water-soluble lacquer;

Ü A program for purchase of technical equipment for pole coils from copper strip.

The implementation of these programs will reduce the consumption of electric power, steam and water, the waste from insulation materials and the hazardous emissions.

In terms of environmental safety, Leyarmach AD has made serious investments. The two operational units emitting the most dust – regeneration and shot blasting chamber – are connected with dry filters from where the dust is collected in special containers and bags and disposed of by a specialized company. Sand regeneration makes the process effectively waste-free in terms of molding mixtures. Local aspirators have been built to the separate operational units. In 2007, a new electric hoist was purchased and an additional mixer was installed to intensify the production in the core section. In 2009, the aspiration system in the cleaning section was reconstructed.

The amortization of the melting aggregate of the cupola furnace type and the higher requirements of foreign clients are among the reasons for the decision of the Management of ZMM Bulgaria Holding AD to gradually stop the cupola furnace and start induction melting of the cast iron. In March 2009, the company began dismounting of the old cupola furnace and gradual use of steel scrap in the production process.

Two new induction furnaces equipped with system for mechanical charging with stock and microprocessor control were purchased from Inductotherm – Turkey, installed and commissioned in February 2008. The aspiration system for the new furnaces built in October eliminated the problem related to the smoke gases. In compliance with prescriptions for ensuring safe labor conditions issued by the Labor Inspectorate, in 2008 an anti-lightning system was installed.

In 2009, the company was issued a permit for storing metal waste for 5 years by the Regional Environment and Water Inspectorate.

The efforts of Leyarmach AD for solution of environmental issues are focused on:

Ü Organizational, technical and investment measures for minimization of the principal pollutants – shaking grate, shot blasting chamber and cast cleaning section;

Ü Complex measures for improvement of the environmental conditions in the vicinity of the main technological aggregates.

The following actions are forthcoming: construction of a new section for production of transmission gear cores, reconstruction of the shaking grate encapsulation, repair and rehabilitation works on the regeneration system for the sand, blenders and hoisting equipment and renovation of the casing inventory.

For the above mentioned activities there are no prescriptions by supervisory authorities and there are not mandatory. By their implementation shall be created conditions for production of better castings and will improve working conditions in

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the company. According to preliminary estimates needed are about BGN 200,000. The management plans to implement them gradually with its own funds within three years, according to their financial capabilities. There is an option for attracting financing through special programs. Firm commitments have not been taken on implementing these investments. Their possible non fulfillment shall not provoke environmental concerns because, according to measurements carried out the company’s meeting the requirements specified in the regulations.


The production technology of Augusta Mebel AD has been organized towards meeting the environmental requirements within the presently attainable limits. There are not any prescriptions issued by the Regional Environment and Water Inspectorate of Shoumen, which the company failed to apply. The main raw material – wood in its various aspects – is almost completely utilized. The released solid waste from the wood processing is burnt in one of the steam boilers, which has been modified for this purpose. Other solid waste, including deposits from the lacquer section, deposits from the press unit and empty lacquer containers, is in negligible quantity.

The sources of ionizing radiation from the lacquer spreading line used in the past were dismounted. Their storage time limit expired in 2009. It will be extended till their delivery to the competent organization for burying.

Air protection is a specific company problem regarding negative environmental impact. Air pollution is mainly caused by exhaust gases from the chimney of the steam station and when drying lacquer coating:

Ü In the present conditions, shavings burning cannot ensure the required clearance of released smoke gases. The company has now mounted a gas-powered installation but the burning of the wood waste will not be entirely eliminated. Technical solutions for reduction of hazardous emissions in smoke gases through mounting of deposition cyclones for smoke gases or passing almost entirely on natural gas. Under current conditions, the company chooses to use environmentally friendly fuel as feasible option. This is related to the temporary storage of waste chipboard and MDF of the production ground. The management shall take the necessary action before the competent authorities this year. The non fulfillment may cause financial penalties for the company upon noticing of pollution over the eligible limits. The amount of the sanctions is negligible to the activity;

Ü Аt an annual consumption of solvents over 15 tonnes, the activity of coating wood surfaces falls within the scope of Regulation № 7 of 2003 on standards of eligible emissions of volatile organic compounds into the air resulting from the use of solvents in certain installations. At present the company has not reached the critical volume of used organic solvents and does not fall within the scope of the Ordinance. In case of expansion of the activity and transfering of the annual consumption above that threshold, Augusta Mebel PLC must plan for solvent management scheme and to reduce emissions, whose main objectives are to reduce harmful emissions. The solution is the use of water-soluble, completely harmless, environmentally friendly coatings and adhesives. Currently the company's customers do not require such coatings.


The ships of Dounav Tours AD operate in European waters and their operations comply with the environmental regulations and laws of the countries, through which they navigate and have all required certificates to navigate along the Danube, Rhein, Main and Moselle Rivers.

Potential pollution may occur from the lubricants used for the cruise ship engines. The problem has been solved by disposing the lubricants against payment at places specified for the purpose.

The European Union pays special attention to the solutions to environmental issues in pre-accession and newly-joined countries. It is not a coincidence that this is one of the fields where various institutions extend gratuitous grants and, since 2007, projects under the Accession Funds have been launched in Bulgaria. IHB Group companies have used subsidies from various national and European funds to solve their environmental problems.

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The Labour Conditions Fund at the MLSP financed Elprom ZEM AD in 2005 and 2007 and ZMM Nova Zagora AD in 2008 with the purpose of ensuring healthy and safe labour conditions. In 2007, European funds were granted to finance the energy saving and environment-friendly project of Leyarmach AD. In 2008, the European Bank for Reconstruction and Development partially financed projects of Bulyard SI EAD under the conditions of credit line under an energy efficiency program. In 2009, Mashstroy AD implemented a project under this credit line as well. Detailed information about the implemented projects is disclosed in Item 5.2.1. Description of the major investments of the Issuer realized over the last four financial years and till the date of the Registration Document.

9 . O V E R V I E W O F F I N A N C I A L P O S I T I O N A N D O P E R AT I N G R E S U LT S

9.1. F I NANCI AL P O S I T I O N

Industrial Holding Bulgaria PLC prepares consolidated and individual financial statements. The Consolidated and Individual Financial Statements for 2006, 2007 and 2008, the Consolidated Interim Financial Statements as at 30 September 2008 and 30 September 2009 and the Individual Interim Financial Statements as at 31 December 2008 and 31 December 2009 of the Issuer were used to analyze its financial position.

The financial and business positions of the Holding and the disclosed financial information have not undergone any material change as of the end of the last reporting period (31 December 2009).

Table № 10 below presents information about the elements of the consolidated net profits of Industrial Holding Bulgaria PLC for the financial years ended 31 December 2006, 31 December 2007 and 31 December 2008 and the percentage change of each element.

Table № 10 Consolidated Income Statement of the Issuer for the period 2006 – 2008

In BGN '000, except for per share data 2008 % ръст 2007 % ръст 2006

Operating revenues 132,914 -9.8% 147,386 11.3% 132,404 Other non-operating revenues 10,555 -29.7% 15,007 459.1% 2,684

COGS (90,107) -3.0% (92,938) 22.3% (75,993) Gross profit 53,362 -23.2% 69,455 17.5% 59,095

Gross margin % 37.2% 42.8% 43.7%

Operating expenses (38,486) -27.2% (52,873) 12.5% (47,006) EBITDA 14,876 -10.3% 16,582 37.2% 12,089

EBITDA Margin % 10.4% 10.2% 8.9%

D&A (5,553) 23.4% (4,500) 15.3% (3,903) EBIT 9,323 -22.8% 12,082 47.6% 8,186

EBIT Margin % 6.5% 7.4% 6.1%

Financial income 5,612 232.7% 1,687 -53.4% 3,618Financial expenses -2,966 64.4% -1,804 89.7% -951

EBT 14,149 -1.7% 14,389 12.2% 12,825 EBT Margin % 9.9% 8.9% 9.5%

Net profit after tax 12,811 -4.0% 13,338 20.9% 11,036 Minority interest 898 -16.9% 1,080 -22.2% 1,389

Net profit for common shareholders 11,913 -2.8% 12,258 27.1% 9,647 Net Profit Margin % 8.3% 7.5% 7.1%

Weighted average number of shares (end perid) 43,756 22.3% 35,770 70.3% 21,003Basic EPS 0.27 -20.6% 0.34 -25.4% 0.46

Source: Audited Consolidated Financial Statements of the Issuer for the period 2006 – 2008

2006

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The 2006 consolidated income of IHB amounts to BGN 135,088 thousand, reporting growth of 47% compared to 2005. The operating income amounts to BGN 132,404 thousand compared to BGN 70,097 thousand in 2005, reporting growth of 89%. It includes:

Ü Income from sale of products (including shipbuilding) of BGN 110,611 thousand. The income from sale of products increased by BGN 65,625 thousand, i. e. it reported growth of 146% compared to 2005. This growth resulted from the increased income from shipbuilding of BGN 66,439 thousand compared to BGN 7,327 thousand in the preceding period. The total income from shipbuilding and transport amounted to BGN 80,070 thousand, which formed 59% of the total income. Most of the other group companies also realized increased income in 2006, excluding Bulgarian Register of Shipping AD and Leyarmach AD, which reported slight fall and Privat Engineering AD and KLVK AD, which realized considerably decreased income as a result from the sale of non-current assets in 2005;

Ü Income from sale of services of BGN 18,759 thousand. The income from sale of services reported fall of BGN 4,538 thousand AD or 20% compared to 2005. The income from ship repair decreased as Bulyard Shipbuilding Industry AD started shipbuilding as its main activity;

Ü Income from sale of goods and materials of BGN 3,034 thousand.

The other consolidated income amounts to BGN 2,684 thousand compared to BGN 22,033 thousand in 2005. It includes gains on sale of non-current assets (BGN 1,541 thousand compared to BGN 20,469 thousand in 2005) and other (BGN 1,143 thousand compared to BGN 1,564 thousand).

The increased share of shipbuilding resulted in significant decrease in the operating profit margin (before amortization and depreciation) from 32.7% in 2005 to 8.9% in 2006 due to the increased costs of materials, raw materials and labor. On the other hand, the high margin of the 2005 operating profit resulted from the sale of real properties owned by Privat Engineering AD and KLVK AD.

The 2006 consolidated net profit (excluding minority interest) amounts to BGN 9,647 thousand compared to BGN 29,898 thousand, reporting fall of 68%.

2007

The 2007 consolidated income of IHB amounts to BGN 162,393 thousand, reporting growth of 20.2% compared to 2006 mainly due to the income from shipbuilding, forming relative share of 62% of the total income of the Holding. The following companies reported increased income for 2007: Odessoss PBM (income of BGN 1,452 thousand or growth of 84% on annual basis), Leyarmach (income of BGN 4,753 thousand or growth of 24%), Mashstroy (income of BGN 17,885 thousand or growth of 23%), ZMM Sliven (income of BGN 22,028 thousand or growth of 21%) and ZMM Nova Zagora (income of BGN 5,217 thousand or growth of 20%). The following companies reported decreased income for 2007: Privat Engineering (income of BGN 524 thousand or fall of 67% on unconsolidated basis) and Augusta Mebel (income of 2,551 thousand or fall of 17%).

The operating income amounts to BGN 147,386 thousand compared to BGN 132,404 thousand in 2006, reporting growth of 11.3%. It includes:

Ü Income from sale of products of BGN 51,247 thousand (growth of 16% on annual basis);

Ü Income from shipbuilding of BGN 76,197 thousand (growth of 15% on annual basis);

Ü Income from sale of services of BGN 10,655 thousand (growth of 6% on annual basis);

Ü Income from ship repair of BGN 3,827 thousand (fall of 55% on annual basis);

Ü Income from port operations of BGN 1,898 thousand (nine fold growth on annual basis);

Ü Income from sale of goods and materials of BGN 3,552 thousand (growth of 17% on annual basis).

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Following the start of shipbuilding operations in 2005, in 2006 and 2007 the shipyard was characterized by gradual loading of its production capacities with building of new ships. In 2007, the building of 2 ships was completed and they were delivered to their owners: ship No 516 was delivered in June 2007 and ship No 457 was delivered in October 2007. In 2007, the building of the two ships reported negative financial result due to the agreed lows ship prices and the fact that these were the fist ships built after the recovery of the works at Varna Shipyard. The negative result reported by shipbuilding was compensated through orders of higher return, ship repair and sale of assets.

The income from shipbuilding is recognized through application of the method upon completion of a working stage under a particular contract. To report income based on the key technological stages of a ship building, Bulyard SI EAD has defined three stages of completion under the ship construction contracts, and namely:

Ü Keel placing;

Ü Ship commissioning;

Ü Ship delivery to the client.

Income and expenses are reported upon completion of the particular stage: during the first two stages, the income is accrued up to the amount of the expenses made in relation to the particular stage and upon third stage completion, the financial result is recognized as well. Due to the specific accounting policy applied, the income from shipbuilding in the respective periods should not be compared.

The decreased income from ship repair resulted from two factors. On the one hand, IHB reorganized and redirected ship repair operations to Bulyard SI only. Dockyard Port – Bourgas performed ship repair till August 2007 when it sold its floating dock (EUR 1,150 thousand). On the other hand, Bulyard SI performs ship repair operations only when the chambers are free with the purpose of 100% use of its capacities.

In 2007, 7 repairs of vessels owned by foreign persons were made and their total value is BGN 2,676 thousand (for Bulyard SI). In 2006, 25 repairs of vessels owned by 16 Bulgarian and 9 foreign ship owners were made – their total value is BGN 4,008 thousand (for Bulyard SI). The 2007 income from ship repair forms 3% of the total sales income of the shipyard (BGN 2.6 million) compared to 6% of the total income from ship repair (BGN 4.3 million) in 2006.

The considerable growth of the income from port operations resulted from the expansion of the scope and types of cargo processed by the two group ports and the focus of Dockyard Port – Bourgas on this activity only as of August.

The other operating income amounts to BGN 15,007 thousand, the main portion of it being gains on sale of non-current assets amounting to BGN 12,890 thousand. The main portion of the gains on sale of non-current assets was reported as a result of:

Ü The sale of a building together with the adjacent terrain owned by Bulyard Shipbuilding Industry AD for BGN 10,991 thousand;

Ü The sale of a floating dock and a floating workshop owned of Dockyard Port – Bourgas AD due to suspension of ship repair operations by the company and its reorientation to port operations development for BGN 1,254 thousand;

Ü The sale of a building together with the adjacent terrain owned by Mashstroy AD – Troyan for BGN 292 thousand.

The operating expenses structure remained relatively permanent compared to 2006. The expenses on hired services rendered by subcontractors, amounting to BGN 24,206 thousand (BGN 12,263 thousand in 2006), reported increase (as percentage of the income). With the gradual loading of the production capacities of the shipyard, the volume of works performed by external companies increases. External companies performs orders of other group companies in smaller volumes. In 2007, the operating profit margin (before depreciation and amortization) reported growth of 12.5%.

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The 2007 consolidated net profit (excluding minority interest) amounts to BGN 12,258 thousand, reporting growth of 27.1% on annual basis. Augusta Mebel AD and Privat Engineering AD reported losses of BGN 114 thousand and BGN 105 thousand on unconsolidated basis..

2008

The 2008 consolidated income of IHB amounts to BGN 143,469 thousand, reporting fall of 11.7% compared to 2007. The 2008 operating income amounts to BGN 132,914 thousand, reporting fall of 9.82% compared to 2007 and including:

Ü Income from sale of products of BGN 58,751 thousand (growth of 14.6% on annual basis);

Ü Income from shipbuilding of BGN 48,128 thousand (fall of 36.8% on annual basis);

Ü Income from sale of services of BGN 14,612 thousand (growth of 37% on annual basis);

Ü Income from ship repair of BGN 5,699 thousand (growth of 48.9% on annual basis);

Ü Income from port operations of BGN 3,593 thousand (growth of 89.3% on annual basis);

Ü Income from sale of goods and materials of BGN 2,131 thousand (fall of 14.6% on annual basis).

The main reason for the decrease in the 2008 consolidated income is the elimination of income from completed stages of the building of ships with construction No 289, No 458 and No 288 ordered by group companies in the Income Statement as at 31 December 2008. This income of BGN 30,759 thousand of Bulyard Shipbuilding Industry is not included, while the recognized expense is reported in the item of capitalized expenses on construction of own assets in economic way, amounting to BGN 36,387 thousand as at 31 December 2008 compared to BGN 12,947 thousand in 2007.

The other consolidated income amounts to BGN 10,555 thousand compared to BGN 15,007 thousand in 2007. It includes gains on sale of non-current assets (BGN 7,369 thousand compared to BGN 12,890 thousand in 2007) and other (BGN 3,186 thousand compared to BGN 2,117 thousand in 2007).

The 2008 consolidated net profit (excluding minority interest) amounts to BGN 11,913 thousand compared to BGN 12,258 thousand in 2007 reporting fall of 2.8%, the main reason being the goodwill impairment of BGN 1,628 thousand.

As at 31 December 2008, the Company made a test for impairment of the available goodwill amounting to BGN 7,840 thousand, the major portion of which (BGN 6,842 thousand) was due to the acquisition of Bulyard Shipbuilding Industry. The made analysis is based on the values of assets in use and covers a five-year period. The calculations are based on the financial budgets approved by the Management of Bulyard Shipbuilding Industry. A discount rate of 13.6% was applied as to each year included in the projection.

The structure of the Consolidated Balance Sheet of Industrial Holding Bulgaria PLC as at 31 December 2006, 31 December 2007 and 31 December 2008 is presented in Table № 11 below.

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Table № 11 Consolidated Balance Sheet of the Issuer for the period 2006 – 2008

In BGN '000 2008 % growth 2007 % growth 2006

AssetsLong-term assets

Tangible assets 158,845 33.2% 119,218 111.4% 56,391 Intangible assets 4,954 236.8% 1,471 117.3% 677 Goodwill 6,212 -20.8% 7,840 24.1% 6,318 Investment in associated company (equity method) 13,081 12.5% 11,627 28.1% 9,077 Other investment 8 0.0% 8 0.0% 8 Long-term receivables 1,052 19.0% 884 -25.4% 1,185

Total long-term assets 184,152 30.6% 141,048 91.5% 73,656

Short-term assetsInventories 72,552 32.5% 54,765 10.5% 49,559 Trade receivables 40,695 31.5% 30,942 -6.3% 33,032 Investments held for sale - -100.0% 1,338 - Investments held for trade - - 1,361 Cash and cash equivalents 80,569 -6.6% 86,256 398.3% 17,310

Total short-term assets 193,816 11.8% 173,301 71.1% 101,262

Total assets 377,968 20.2% 314,349 79.7% 174,918

LiabilitiesLong-term liabilitiesLong-term bank loans and leases 5,448 -25.9% 7,351 8.8% 6,757 Corporate bond 21,650 - - Other 327 14.7% 285 1257.1% 21 Provisions 845 40.8% 600 -32.5% 889 Deferred tax liabilities 5,938 -1.8% 6,046 432.2% 1,136 Total long-term liabilities 34,208 139.5% 14,282 62.2% 8,803

Short-term liabilitiesShort-term portion of long-term debt 3,627 -26.5% 4,934 70.6% 2,892 Coporate bond 303 - 5,244 Trade payables 109,444 41.8% 77,205 74.2% 44,315 Provisions 262 -27.8% 363 242.5% 106 Total short-term liabilities 113,636 37.7% 82,502 57.0% 52,557

Total liabilities 147,844 52.8% 96,784 57.7% 61,360

Shareholders' equityRegistered capital 43,756 0.0% 43,756 108.3% 21,003 Additional paid-in capital 24,503 0.0% 24,503 - Reserves 53,989 5.3% 51,269 235.2% 15,296 Retained earnings 78,262 13.6% 68,882 22.2% 56,356 Total shareholders' equity 200,510 6.4% 188,410 103.3% 92,655

Minority interest 29,614 1.6% 29,155 39.5% 20,903

Total liabilities and shareholders' equity 377,968 20.2% 314,349 79.7% 174,918

Source: Audited Consolidated Financial Statements of the Issuer for the period 2006 – 2008

The average annual growth of the assets of the Issuer for the period is 47.0%.

The average annual growth of non-current assets is 58.1%. The dynamics of the non-current assets of the Holding was the result of the Holding’s portfolio restructuring: over the period, IHB increased its shares in some activities (shipbuilding) and terminated other activities (real properties) and the revaluation of land, buildings, plant and equipment as at 31 December 2007. As a result of valuation made by an independent licensed valuer as at 31 December 2007, there were revalued land and buildings of total value of BGN 47,682 thousand, plant and equipment of total value of BGN 2,898

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thousand and other non-current assets of total value of BGN 36 thousand. The effect of this revaluation has been taken to the revaluation reserve.

The average annual growth of current assets is 38.3%. In 2007, cash and cash equivalents considerably increased due to the capital increase in December 2007, reporting average annual growth of 115.7%.

The non-current assets of the Holding for the period include bank loans and three-year issue of convertible bonds converted in July 2007. The loans were granted to finance the investment programs of the group companies. Detailed information about the loans of IHB is disclosed in Item 10. Capital resources.

The current assets reported average annual growth of 47% for the reporting period due to the increased trade receivables and received advance payments. The received advance payments (mainly from Bulyard Shipbuilding Industry AD) reported considerable growth (63% on annual basis) as a result of the practice to finance shipbuilding through advance payments by ship owners secured by the builder. As at the end of 2008, the total advance payments of IHB formed 64.6% of the trade and short-term receivables.

Over the period 2006 – 2008, the equity of the Holding increased by average of 47.1% on annual basis – from BGN 92,655 thousand in 2006 to BGN 200,510 thousand at the end of 2008.

This growth resulted from the two capital increases in 2007, the assets revaluation as at 31 December 2007 and the profit generation during the period.

The following Table № 12 presents the consolidated financial ratios of the Issuer, including rates of return, effectiveness, liquidity and financial autonomy, for the period 2006 – 30 September 2009.

Table № 12 Consolidated financial ratios of the Issuer for the period 2006 – 30 September 2009

Financial ratios 9M 2009 9M 2008 2008 2007 2006

Profitability16 Net profit/operating revenues 11.7% 16.4% 8.9% 8.2% 8.2%17 ROA 1.5% 4.4% 3.7% 5.5% 6.7%18 Net profit/liabilities 3.7% 10.7% 10.5% 16.9% 19.4%19 ROE 2.7% 7.6% 5.7% 8.1% 10.2%

Effectiveness20 Operating revenues/operating expenses (2.6) 10.8 3.3 2.8 2.7 21 Operating expenses/operating revenues (0.4) 0.1 0.3 0.4 0.4

Liquidity22 Current ratio 1.6 1.6 1.9 2.0 2.0 23 Quick ratio 0.6 0.9 1.2 1.3 1.1 24 Cash ratio 0.3 0.3 0.9 0.8 0.4

Financial autonomy25 Financial leverage 1.73 1.71 1.5 1.5 1.5 26 Debt/equity 12.8% 7.6% 0.1 0.1 0.1 27 Debt/assets 0.08 0.05 0.1 0.1 0.1 28 Interest coverage ratio 4.3 21.4 12.1 13.4 21.4


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The following Table № 13 below presents information about the elements of the consolidated net profits of Industrial Holding Bulgaria PLC as at 30 September 2008 and 30 September 2009 and the percentage change of each element.

Table № 13 Consolidated Income Statement of the Issuer as of 30 September 2008 and 30 September 2009

In BGN '000, except for per share data 9M 2009 % ръст 9M 2008

Operating revenues 51,025 -36.9% 80,852 Other non-operating revenues 2,409 25.6% 1,918

53,434 -35.4% 82,770 COGS (69,043) 7.7% (64,105) Gross profit (15,609) -183.6% 18,665

Gross margin % -29.2% 22.6%

Operating expenses 26,296 -814.0% (3,683) EBITDA 10,687 -28.7% 14,982

EBITDA Margin % 20.0% 18.1%

D&A (5,538) 39.3% (3,977) EBIT 5,149 -53.2% 11,005

EBIT Margin % 9.6% 13.3%

Financial income 3,040 -29.4% 4,306Financial expenses -2,718 10.9% -2,450

EBT 6,992 -52.4% 14,695 EBT Margin % 13.1% 17.8%

Net profit after tax 6,229 -54.2% 13,595 Minority interest 1,216 -15.4% 1,438

Net profit for common shareholders 5,013 -58.8% 12,157 Net Profit Margin % 9.4% 14.7%

Weighted average number of shares (end perid) 43,756 0.0% 43,756Basic EPS 0.11 -58.8% 0.28

Source: Unaudited Consolidated Interim Financial Statements of the Issuer as at 30 September 2008 and 30 September 2009

The total consolidated income of IHB for the first nine months of 2009 reports fall of 35.4% compared to the same period of 2008. The operating income amounts to BGN 51,025 thousand, reporting fall of 36.9% compared to the same period of 2008. It includes:

Ü Income from sale of products of BGN 23,649 thousand (fall of 14.6%);

Ü Income from shipbuilding of BGN 14,368 thousand (fall of 28.9%);

Ü Income from sale of services of BGN 7,096 thousand (fall of 28.4%);

Ü Income from ship repair of BGN 2,182 thousand (fall of 49.6%);

Ü Income from port operations of BGN 2,360 thousand (fall of 10.1%);

Ü Income from sale of goods and materials of BGN 1,370 thousand (fall of 30.7%).

Reported income from completed stages of the building of Marciana Ship, Emona Ship and Karvuna Ship, ordered by group companies, were eliminated as at 30 September 2009. This income of BGN 30,759 thousand of Bulyard Shipbuilding Industry AD has been eliminated, while the recognized income is reported in the capitalized expenses on own assets construction as total expenses..

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Over the first nine months of 2009, there were reported completed stages of the building of Marciana Ship amounting to BGN 10,667 thousand and Karvuna Ship amounting to BGN 10,618 thousand and final stage of the building of Emona Ship amounting to BGN 4,606 thousand.

The net profit for the period amounts to BGN 5,013 thousand, reporting net profit rate of 9.4% compared to 14.7% in the preceding period.

The Consolidated Balance Sheet of Industrial Holding Bulgaria PLC as at 31 September 2009 and 31 December 2008 is presented in Table № 14 below.

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Table No 14 Consolidated Balance Sheet of the Issuer for the period 2008 – 30 September 2009

In BGN '000 9M 2009 % growth 2008

AssetsLong-term assets

Tangible assets 192,932 21.5% 158,845 Intangible assets 4,342 -12.4% 4,954 Goodwill 6,212 0.0% 6,212 Investment in associated company (equity method) 14,404 10.1% 13,081 Other investment 8 0.0% 8 Long-term receivables 469 -55.4% 1,052

Total long-term assets 218,367 18.6% 184,152

Short-term assetsInventories 148,050 104.1% 72,552 Trade receivables 24,229 -40.5% 40,695 Investments held for sale - - Investments held for trade - - Cash and cash equivalents 13,696 -83.0% 80,569

Total short-term assets 185,975 -4.0% 193,816

Total assets 404,342 7.0% 377,968

LiabilitiesLong-term liabilitiesLong-term bank loans and leases 33,187 509.2% 5,448 Corporate bond 21,650 0.0% 21,650 Other 597 82.6% 327 Provisions 679 -19.6% 845 Deferred tax liabilities 5,964 0.4% 5,938 Total long-term liabilities 62,077 81.5% 34,208

Short-term liabilitiesShort-term portion of long-term debt 1,014 -72.0% 3,627 Coporate bond 735 142.6% 303 Trade payables 104,643 -4.4% 109,444 Provisions 158 -39.7% 262 Total short-term liabilities 106,550 -6.2% 113,636

Total liabilities 168,627 14.1% 147,844

Shareholders' equityRegistered capital 43,756 0.0% 43,756 Additional paid-in capital 24,503 0.0% 24,503 Reserves 54,225 0.4% 53,989 Retained earnings 82,923 6.0% 78,262 Total shareholders' equity 205,407 2.4% 200,510

Minority interest 30,308 2.3% 29,614

Total liabilities and shareholders' equity 404,342 7.0% 377,968

Source: Unaudited Consolidated Interim Financial Statements of the Issuer as at 30 September 2009 and Audited Consolidated Financial Statements of the Issuer for 2008

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The total assets of IHB as at 30 September 2009 amount to BGN 404.3 million, reporting growth of 7% since the beginning of 2009.

Forming major portion of the working capital, the inventories reported growth of over 100% as a result of the increased raw materials and materials and work in progress in the shipbuilding. Cash reported fall of 83% since the beginning of the year as a result of the fall of 63% of the receivables from clients and other debtors.

Over the reporting period, the total liabilities rose by 81.5% as a result of the received bank loans (BGN 33.2 million as at 30 September 2009), which increased the debt/equity ratio to 0.13 compared to 0.08 at the beginning of 2009.

Over the reporting period, the consolidated equity structure did not undergo any material changes.

9.2. OP E RAT I NG RE S UL T S

9.2.1. Important factors, including unusual or rare events, which have mater ial impact on the operat ing income of the Issuer

Ü IHB

Due to the specifics of the operations, the income of IHB is formed by income from interests, income from investment operations (sale of shares and financial operations), income from dividends, income from sale of services and other.

Over the period 2006 – 2008, the operating income of the Holding was influenced by the following factors:

The major portion of the income from interests is related to interest-bearing receivables from subsidiaries and other companies in respect of deferred payments under share sale contracts. The income from interests generated over the period 2006 – 2009 reports rise as a result of the increased loans granted by IHB to its subsidiaries for investment purposes and working financing in some cases.

IHB implements a policy of consistent restructuring of its portfolio through:

Ü Sale of shares in companies where it does not exercise any control;

Ü Grossing up of existing stakes of shares;

Ü Focus of the operations in the sectors, which form today's image of its investment portfolio.

This process of restructuring and shaping up is accompanied by sale and purchase of shares larger in terms of volumes and capital gains during the early years of the Company’s existence. As a result, the gains on sale of shares have been gradually decreasing. Their considerable rise in 2005 is mainly due to the sale of the remaining stake of shares in the capital of Dockyard Odessoss AD – Varna, of which IHB realized profit of BGN 6,780 thousand. In 2006, gains on sale of the remaining stakes of shares of Chimremontstroy AD and ELPO AD and a portion of the shares of Bulgartabac Holding AD amounting to BGN 187 thousand were reported. In 2007, the Holding sold the remaining stake of shares in the capital of Bulgartabac Holding AD. Thus, the Holding finalized the restructuring and consolidation of its investment portfolio. In 2008, there were not realized any gains on sale of shares. In 2009, 149,000 shares of the capital of Privat Engineering AD were sold to International Industrial Holding Bulgaria, a group company, i. e. the company remained 100% property of IHB Group.

In 2005 and 2008, the 2004 trend towards rise of the income from dividends continued. The 2006 income from dividends of IHB amounts to BGN 1,218 thousand, including BGN 727 thousand allocated by ZMM Bulgaria Holding AD, BGN 456 thousand allocated by Maritime Holding AD and BGN 35 thousand allocated by Bulgartabac Holding AD. In 2007, BGN 3,907 thousand was reported as income from dividends against the 2006 profit, allocated by ZMM Bulgaria Holding AD, Maritime Holding AD and Bulgartabac Holding AD. The 2008 income from dividends amounts to BGN 6,307 thousand, reporting growth of 61.4% compared to 2007, including BGN 5,032 thousand allocated by ZMM Bulgaria Holding AD, BGN 726 thousand allocated by Dounav Tours AD and BGN 549 thousand allocated by Maritime Holding AD. The 2009 income from dividends includes BGN 590 thousand allocated by Maritime Holding AD and BGN 148

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thousand allocated by Wartsila IHB Design, an associate. The considerable fall of the 2009 income from dividends is the result of the worsened results of the companies due to the economic crisis and the retaining of the 2008 profits within these companies.

The income from sale of services is related to services rendered to group and external companies and remunerations to secure the financing of the group companies. In 2006, it was related to contracts for bank and corporate guarantees issued to subsidiaries to secure their liabilities to clients and external client services. In 2007, it decreased to BGN 439 thousand as there were not signed any service contracts with external companies and the commitments for issue of corporate guarantees expired. In 2008, the income from sale of services considerably decreased to BGN 85 thousand. In 2009, this income considerably increased to BGN 653 thousand as a result of the higher volume of financing of some of the group companies.

The following Table № 15 presents the individual items of the total unconsolidated income of IHB and the level of impact of the aforementioned factors on the income..

Table № 15 Individual items of the total unconsolidated income of the Issuer for the period 2006 – 31 December 2009

In BGN '000 12М 2009 % ръст 12М 2008 2008 2007 2006 CAGR (2006/08)

Received interest 4,601 32.8% 3,465 3,465 218 220 296.9%Realised profit from sale of shares 369 - - - 250 187 -Unrealized profit from (loss) from asset revaluation - - - - - 281 -Received dividends 738 -88.3% 6,307 6,307 3,907 1,218 127.6%Revenues from services 653 668.2% 85 85 439 1,036 -71.4%Other income 62 - - - - 4 -

Total operating revenues 6,423 -35% 9,857 9,857 4,814 2,946 82.9%

Source: Unconsolidated Financial Statements of the Issuer for the period 2006 – 31 December 2009


The following Table № 16 presents information about the total consolidated sales income of the Issuer for the last three financial years based on its Audited and Unaudited Consolidated Financial Statements.

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Table № 16 Consolidated revenues by business segments for the period 2006 – 2008

In BGN '000 2008 % growth % share 2007 % growth % share 2006 % share

Revenues by business segmentMaritime 73,721 -27.7% 51.4% 101,925 27.3% 62.8% 80,070 59.3%Machine building 65,383 14.6% 45.6% 57,029 14.1% 35.1% 49,964 37.0%Other 4,365 26.9% 3.0% 3,439 -32.0% 2.1% 5,054 3.7%

Total revenues: 143,469 -11.7% 100.0% 162,393 20.2% 100.0% 135,088 100.0%

51%46%

3%2008

63%

35%

2%2007

59%

37%

4%2006

Приходи от корабостроене и транспорт

Приходи от машиностроене

Приходи от други дейности

51%46%

3%

2008

63%

35%

2%

2007

59%

37%

4%2006

Maritime

Machine building

Other

Source: Audited Consolidated Financial Statements of the Issuer for the period 2006 - 2008

The factors having impact on the income of the Group may be classified by sectors based on their shares in the investment portfolio of IHB.


Over the preceding years, the efforts of the Management of IHB were directed at increasing the share of shipbuilding and ship repair in the investment portfolio and consolidated sales of the Group. In 2005, the Holding acquired control over Bulyard AD, which is 61.5% as at present date. At the beginning of 2007, Bulyard AD increased its interest in Bulyard SI from 75% to 100%, thus at present date IHB controls 61.5% of Bulyard SI EAD through Bulyard AD.

2006 is characterized by:

Ü Gradual loading of its production capacities with the building of new ships with construction No 287, No 516, No 515 and No 457. Shipbuilding became core activity of the company and the income from this activity exceeded the income from ship repair 16.5 times. 5 contracts were signed with Acer Tulcea S.A. for production of hull sections for supplying ships. 3 contracts were signed for new ships – hull No 190 and the first two multi-purpose for the Group – Emona (ship No 288) and Marciana (ship No 289);

Ü Realization of income from ship repair in the periods when the chambers were free and execution of contracts under other orders;

Ü Recruitment of production personnel – hull experts and welders, including from abroad. The insufficient number of employees was compensated through conclusion of contracts with subcontractors for performance of the basic production activity;

Ü Active investment operations with a view to restoration of production capacities, increasing of labour efficiency and introduction of new technologies. In 2006, over BGN 4.5 million was invested.

Events and factors having impact on the 2007 operations and income of Bulyard SI:

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Ü 3 ships were sold: Tangra (ship No 287), the first ship after production recovery – on 17 January, Pirin (ship No 457) – in October and Stara Planina (ship No 516) – on 18 June;

Ü Works on Hemous (ship No 515) for Navigation Maritime Bulgare were performed;

Ü Keel of hull No 190 was placed. A second contract for construction of partially saturated hull No 191 was signed. The project was terminated in 2008 due to bankruptcy of the contractor;

Ü The mounting of sections for Emona Ship began. A keel was placed in September. The cutting of Marciana Ship began;

Ü In August, contracts for building of Karvuna Ship (ship No 458) for the IHB Group and ship No 459 for Navigation Maritime Bulgare were signed. The second contract was terminated in 2009 (see below);

Ü A license for building F56 ships for bulk cargo was purchased from IHI Marine Unitеd Inc. – Japan. 7 contracts for building of ships of this type, including ships No 101, No 102, No 103, No 104, No 105, No 106 and No 107, were signed;

Ü At present, the building of 3 ships of the said type is in process at Bulyard SI – ships No 101 and No 103 for Diler Shipping, Turkey and ship No 102 for the IHB Group. Ship No 101 will be delivered to its owner in 2010 (see Item 5.2.3. Commitments for major future investments of the Issuer). The other 4 contracts were terminated in 2009 (see 2009 below);

Ü 4 contracts for production of hull sections for supplying ships (orders No 372, No 374, No 374А and No 716) were signed with Aker Tulcea S.A., Romania. Hull structures of 1,518.8 tons were produced for the client;

Ü 9 repairs were made and berths were provided for 6 Bulgarian and 3 foreign ship owners;

Ü As of March 2007, the shipyard has been certified under the quality management system in compliance with the requirements of ISO 9001:2000. The scope of the certificate covers design of vessels, ship repair and shipbuilding. It was issued by Bureau Veritas Certification;

Ü The total expenses on investments amount to BGN 16,575 thousand, including expenses on maintenance and repair works. The major projects are described in Item 5.2.1. Description of the major investments of the Issuer realized over the last four financial years and till the date of the Registration Document;

Ü A new organizational structure based on labour payment and final results was introduced. Subcontractors are hired for basic production activities.

Events and factors having impact on the 2008 income of Bulyard SI:

Ü 2 ships were sold: Hemous (ship No 515) – on 19 June and hull No 190 – in September;

Ü The construction of sections for the hull of Marciana Ship continued. A keel was placed on 8 March;

Ü On 12 June, the cutting of ship No 101, the first ship of the F56 type began. A keel was placed on 15 December;

Ü On 16 June, the cutting of sheet iron for ship No 459 began. A keel was placed on 17 November;

Ü As at 31 December 2008, 4 ships were at advanced completion stages – Emona Ship at stocks assembly stage, Marciana Ship in dock chamber and ships No 101 and No 459 as described above;

Ü Hull structures of 2,118 tons were produced for Aker Tulcea S.A., Romania;

Ü 18 contracts for repair and providing berths for vessels were signed and 9 repairs for foreign ship owners and 6 repairs for Bulgarian ship owners were made;

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Ü The total expenses on investments amount to BGN 14,102 thousand, including expenses on maintenance and repair works (see Item 5.2.1. Description of the major investments of the Issuer realized over the last four financial years and till the date of the Registration Document);

Ü Internal procedures and rules were introduced to control the processes of negotiation with the clients, the work of the subcontractors, etc.

Ü The management structure of the company was changed to optimize its activity. Actions related to enhancement of personnel qualification and education were undertaken. The insufficient number of qualified employees is compensated through hiring subcontractors for basic production activities.

Events and factors having impact on the 2009 and expected to have impact on the 2010 income of Bulyard SI:

Ü 2 ships were sold: Emona – on 30 May and Marciana – on 7 January 2010;

Ü On 17 March, the cutting of ship No 103 began. A keel was placed on 5 October. The ship is to be delivered to its owner in 2011;

Ü On 3 August, Karvuna Ship was commissioned. The ship is to be delivered to its owner in April 2010;

Ü Block assembly of ship No 101 in big dock chamber. The ship is to be commissioned on 15 April 2010 and delivered to its owner in 2010;

Ü On 1 October 2009, the contract for ship No 459 for Navigation Maritime Bulgare was terminated. The ship became the property of Bulyard SI, which sold it on 1 November 2009 at commissioning stage. The Buyer is a group company. The deadline for its delivery to the ship owner is April 2010;

Ü Hull structures of 274.5 tons were produced for Aker Tulcea S.A., Romania;

Ü Due to the deep economic crisis, the great uncertainty, the long-term nature of the contracts and the fact that their building was not started, the contracts for building of ships No 104, No 105, No 106 and No 107 were terminated. Bulyard SI terminated the contracts for supply of packages of materials for shipbuilding;

Ü The cutting of ship No 102 for the Group is expected to begin in March 2010. The ships is to be delivered in 2012;

Ü 2 contracts for ship repair and providing of berths for vessels were signed and 3 ship repair contracts commenced in 2008 were performed;

Ü Based on preliminary data, the expenses on investments total BGN 1,652 thousand, including expenses on maintenance and repair works (see Item 5.2.1. Description of the major investments of the Issuer realized over the last four financial years and till the date of the Registration Document);

Ü On 28 April, Bulyard SI participated in the registration of the Bulgarian Shipbuilding and Ship Repair Association (BSSRA). On 29 May 2009, the BSSRA was admitted a regular member of the Community of European Shipyards’ Associations (CESA);

Ü In June, the company participated in the NOR SHIPPING International Exhibition in Oslo, Norway;

Ü Urgent measures were undertaken to reduce the negative crisis effect – the personnel was organized based on the orders and assembly schedule and renegotiations were conducted with individual suppliers for prices reduction and deferred materials payment.


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Following its incorporation in 2007, Wartsila IHB Ship Design Bulgaria AD had to situate, recruit personnel and implement its first projects at the same time (see Item 11. Research and development activities, patents and licenses).

In 2008, the company gained position within the Group as a company offering high quality services in Bulgaria and abroad.

The global crisis resulted in considerable reduction of ship design orders and cancellation of ship orders. The 2009 estimated income was not realized. The company reduced its personnel and suffered financial loss.

Wartsila IHB Ship Design Bulgaria AD offers a product whose prime cost is formed on the basis of labour costs. The quality and timely implementation of agreed projects require highly qualified personnel. The continuous qualification maintenance requires training and skills mastering in the working process. This represents investment for the company, while the dismissal of trained personnel means that it has not any return on the funds invested in training. Although there are experts to work in certain fields, the presently hired personnel is insufficient to cover all activities related to the technical and working design in the shipbuilding sector.

The negotiation of new projects in 2010 depends on the revival of the foreign trade turnover and the facilitation of the access to financing. The positive expectations as to new projects are related to the enforcement of environmental standards and environmental and energy saving directives to apply to shipbuilding (see Item 9.2.3 Information about government, economic, tax, fiscal, monetary or political policies or factors, which have had or may have direct or indirect material impact on the activity of the Issuer).


There is trend towards increase in maritime transport against land transport.

In 2006, Dockyard Port – Bourgas AD processed all types of metal cargo and finished metal products. Port operations developed much faster in terms of infrastructure and processed cargo. A total of 28 tons of metal was processed. The 2006 sales income amounts to BGN 3,993 thousand, including income from port operations of BGN 218 thousand.

The 2007 key event having impact on the income of the company is the sale of the floating dock and workshop, as a result of which ship repair operations were suspended and port operations became the only activity. Cargo of 186.5 tons was processed. The income from port operations amounts to BGN 1,898 thousand, including income from cargo processing, storage and exploitation operations, rent and other accompanying activities.

In 2008, cargo of 359 thousand tons was processed. The 2008 sales income amounts to BGN 3,858 thousand compared to 3,966 thousand in 2007, including income from port operations of BGN 3,593 thousand and other income of BGN 265 thousand.

In 2009, Dockyard Port – Bourgas AD attracted new cargo flows and clients. The cargo turnover was some 371 thousand tons, black metals forming 49% of it. The company continued developing its activity towards processing of bulk food-grade cargo. The company also processes new cargo – sunflower, copper anodes and scrap metals. Based on preliminary data, the 2009 income from port operations remained nearly the same compared to the preceding year.

The 2006 sales income of Odessoss PBM AD amounts to BGN 661 thousand, reporting growth of 2.2 times compared to the preceding year. The major portion of this income represents income from port operations and rent. The other income amounts to BGN 128 thousand, 75% of it being gains on sale of scrap.

The 2007 income of Odessoss PBM amounts to BGN 1,452 thousand, reporting growth of BGN 663 thousand compared to 2006 as a result of the considerably higher income from reloading and the growth of the income from sale of services and including income from quay linear charges, reloading operations at the quay and the rear, cargo storage and rent and other services (including electric power, water, mechanization and packaging of cargo).

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The 2008 income of Odessoss PBM amounts to BGN 1,751 thousand, reporting growth of BGN 286 thousand compared to 2007 as a result of the increased sales of port services. In 2008, the processed cargo reported growth of 23.5% compared to 2007.

The 2009 improvements of existing assets expanded the scope of the general cargo processed through the quay from 21 thousand tons or 38% in 2008 to 31 thousand tons or 59% in 2009. Due to financial difficulties, some of the objectives of the Management related to the introduction of new services were not achieved. They will be realized in 2010 if there are available funds and proper conditions (see Item 12.2. Trends, uncertainties, requirements, commitments or events, which may have material impact on the perspectives of the Issue for the current financial year).


2008 is characterized by strong dynamics of the markets in raw materials and machines. The sweeping growth of the metal prices at the beginning of the year was followed by rise in the prices of completion elements. The lathe selling prices were raised twice during the year to compensate the adverse effect of the price growth.

The growth of the prices of raw materials and materials resulted in excessive stocks of useless unsold products for machine distributors, which reduced the number of their orders. The unfavourable accumulation of negative events and the deepening of the financial crisis and its turning into economic crisis worsened the economic climate and created tension as to the production plan of the machine building holding. These processes, however, did not have any material impact on the sales in kind in 2008 and the companies did not suffer any loss of clients or markets.

Due to the global economic crisis, 2009 has had quite adverse impact on the machine building sector. The demand for machines and products abruptly decreased, which resulted in unnatural production stagnation, increased prime costs of products, unsold finished products and increased work in progress. Urgent measures were undertaken to reduce production costs, the main ones being dismissal of personnel and limitation of stocks of raw materials.

With the purpose of activity optimization, the Management of the majority shareholder made a decision on temporary organization of machines production at one site. As a result, in 2008 ZMM Sliven commenced mastering of some of the products of Mashstroy, while Mashstroy moved to temporary regime of technological capacity maintenance till stabilization of the market in metal cutting machines.

The 2010 forecasts inspire moderate optimism. The machine building companies, however, will be the last to enjoy the potential economic recovery due to the nature of their products and the still weak external markets.

Apart from the crisis, the following factors have impact on the machine building sector:

Ü Territorial division of sales by number of countries, regions and continents and superiority of sales in economically and politically stable regions;

Ü The existing strong price competition in the international machine building market;

Ü Keeping of existing and attraction of new solvent clients through quality and timely supplied products.

Ü Constant rise in the prices of corporate supplies, cast supplies in particular (due to metal prices and increased relative share of cast iron in the contents as a result of the higher quality requirements) and additional equipment completion, which raise end product cost and decrease the gains under the conditions of fixed market prices of end products;

Ü The innovations guaranteeing sales in the existing and penetration into new market niches in the future.

The process of metal cutting machines production is characterized by certain inertia and the impact, which the mentioned factors have on the operating income of the holding company, is delayed in time. The investment production nature and market diversification make the valuations even more conditional and do not allow clear determination of the direct impact of any factor on the income from sale of products. Usually, distributors operating in the particular market are used as

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market information sources and relevant preventive actions are undertaken on the basis of their assessments and recommendations.


To comply with the European directives, the Bulgarian furniture and wood processing sector needs modernization, quick transfer of new technologies, modernization of facilities and use of modern materials. The focus is on quality products combining design and technology with tradition.

Augusta Mebel AD restructures its markets and changes the range of offered products hotel furniture on annual basis. Special attention is paid to hotel furniture, which forms 43.6% of the 2009 sale of products – 39.8% of it represents household, office and other furniture and the rest represents ship furniture. The development and improvement of the company products is permanent – some 70% of the annual production represents new products.

The commercial activity of the company depends on the behaviour of individual clients, the agreed payment terms and conditions and other. The number of clients decreased against the volumes. The following companies have been key clients of the company for the last several years: La Redoute, Zhakadi, Baze – France, Mountain Beech – USA, Gilos – Greece, Castlebrook – Ireland, Roomings – England and Bulyard SI.

With regard to its products intended for export, Augusta Mebel AD seeks to ensure the quality of furniture produced by leading Bulgarian and European companies and to offer its products at higher prices. Most foreign clients require that the furniture be produced from high quality materials, usually including mass softwood, poplar or beech and quality facing. High quality of development is required, especially of furniture surface, which increases product costs.

Another factor having impact on the income of Augusta Mebel AD till 2008 is the increased demand for hotel furniture in the internal market as well as in relation to the higher investment activity in the sector. In spite of being numerous, hotel sites are small and various as to scope of products and this is a problem. The sector stagnation and the opposite trend reduced the number of domestic orders in 2009.

Each year, the company produces a large number of specimens and fulfils individual orders and this increases production costs. In 2006, Augusta Mebel AD fulfilled orders for furnishing of Tokouda Hospital in Sofia and small hotels. In 2007, models for an ethno hotel in Borovets and a hotel of the Hilton Chain in Ireland were made. In the summer of 2007, a model room for the SAS Radisson Hotel in Sofia was made and installed under a client project. In 2008 and 2009, there were made specimens and offers for hotel, ship, hotel-type bungalow, household and office furniture. As a result, the company received an order for furnishing hotels in Ireland and France at the end of 2009. The order will be fulfilled in

2010.

In 2007, Augusta Mebel AD commenced the production of overall ship furniture. 4 ships were furnished in the period 2008 – 2009. The 2010 production plan of the company includes the furnishing of two ships. The company relies on continuous cooperation.

Each year, the company invests in equipment and accessories to increase the quality of materials drying and procession (see Item 5.2.1 and Item 5.2.2 of this Registration Document) and to produce quality products.

9.2.2. Impact of inf lat ion and f luctuat ions in exchange rates

Ü IHB

To the extent that IHB does not perform any production activity and the share of tangible assets of the Company is immaterial within its total assets, the inflation has not any direct impact on the income and expenses of the Holding.

The impact of fluctuations in exchange rates is expressed in the reported income, respectively expenses, resulting from such fluctuations. These are related to foreign exchange gains/losses upon payments on:

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Ü Foreign currency transactions;

Ü Foreign currency loans to and from subsidiaries;

Ü Contracts for issue of bank and corporate guarantees in foreign currencies in favour of subsidiaries to secure their liabilities;

Ü Foreign currency deposits.

The Company manages its currency risk by maintaining its available funds in different currencies in a comparable proportion. Their amounts are determined by the priorities in the development of the Holding in mid-term aspect and the outlined investment objectives. Detailed information about the currency exposures and the outlined investment objectives is disclosed in Items 9.2.1, 5.2.2, 5.2.3 and 6.7 of this Registration Document.


Table № 17 Impact of fluctuations in exchange rates on the consolidated income of the Issuer

In BGN '000 9M 2009 9M 2008 2008 2007 2006

Gain from exchange rate differences (net) 1,987 1,179 (472) (134) 778 Operating revenues 53,434 82,770 143,469 162,393 135,088 As a % of operating revenues 3.72% 1.42% 0.33% 0.08% 0.58%

Source: Audited Consolidated Financial Statements of the Issuer for the period 2006 – 2008 and Unaudited Consolidated Interim Financial Statements of the issuer as at 30 September 2008 and 30 September 2009

In the preceding years of high devaluation of USD, ZMM Bulgaria Holding AD Group companies suffered the most considerable losses. The low USD rates and the restrictions on marketing behaviour as to high price rises in the last several years strengthened the USD-oriented markets against all other but under the conditions of a permanently falling selling price in BGN.

Till 2008, the USD devaluation against the European single currency had adverse impact on the activities of Mashstroy AD, ZMM Sliven AD and ZMM Nova Zagora AD, whose sales in USD formed 50% of the income. At the same time, the materials used for production of lathes represented mainly exported ones in EUR. The policy of the company was directed at reduction of indirect costs and technological waste and increase of labour efficiency so as to compensate for the losses on sales due to the low USD exchange rate.

Over the last two years, ZMM Bulgaria Holding successfully introduced a unified price list in EUR for its clients, minimizing the currency risk and eliminating the necessity of permanent adjustment of the prices in the individual markets. In spite of the orientation to sales in EUR, the machine building holding monitors the fluctuations in exchange rates as they predetermine the marketing behaviour of competitors and the USD-oriented markets environment.

Bulyard SI EAD aims at optimization of the impact of fluctuations in exchange rates through negotiating most shipbuilding contracts in EUR/USD correlation corresponding to the ratio in which the basic materials and equipment for each new ship are agreed. Regretfully, this is not possible in all cases as the payments for new ships in the sector are traditionally made in USD (as the income from charterers is in USD) and almost all suppliers have formed their prices in EUR. The following measures were undertaken to reduce the adverse impact of exchange rates:

Ü Conclusion of bank contracts to hedge some exposures in foreign currencies other than EUR;

Ü Management of cash flow through using the income in USD to pay materials and equipment in USD or other related foreign currencies (for example: JPY).

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The activity of IHB Shipping Co EAD is exposed to currency risk as the basic currency of the income from ships (freights under goods transport contracts and charter rates applied in case of chartered ships) is USD and a portion of the expenses on supply, delivery of spare parts, repairs, inspections by classification organizations, etc. is in EUR. This risk is managed through combining contracts in EUR (at the option of the charterer) and contracts in USD.

The decrease of the equivalency of USD and GBP in BGN has negative impact on the sales income of Augusta Mebel AD. Upon determination of offer prices of furniture requested by clients, usually higher exchange rates are set while the prices confirmed by clients do not undergo any adjustment. This decreases the return on products and volumes of orders by some clients. Actions have been undertaken for overcoming the negative impact of fluctuations in exchange rates – renegotiation of selling prices for Great Britain, agreement of some export prices of production intended for USA in BGN regardless of the exchange rate and production of furniture of higher price class in sufficient volumes and series. Since 2008, there have not been executed any sales in GBP.

On the other hand, the low USD exchange rate predetermined some changes concerning the raw material and material markets. Business contacts were established with Turkish companies, whose quality products are nominated in USD.

9.2.3. Information about government, economic, tax, f iscal , monetary or pol i t ical pol ic ies or factors, which have had or may have direct or indirect mater ial impact on the act iv i ty of the Issuer

Ü IHB

The activity of IHB is subject to the effective governmental, economic, tax, monetary and political factors, which have impact on all economic entities in the country. The following main barriers related to the business environment have negative impact:

Ü Gaps in the effective legislation and amendments to legal provisions on frequent basis;

Ü Presence of a number of regulatory regimes;

Ü Large volume of documents and long periods of issue procedures;

Ü Ineffective judicial system;

Ü Insufficiently competent administration;

Ü Lack of protection policy by the State to a number of sectors;

Ü Negotiations for new environmental standards and directives on environmental pollution and energy saving in shipbuilding;

Ü Penal procedures initiated by the European Commission against Bulgaria in various sectors.

As a public company, the Holding performs its activity in compliance with the Law on Public Offering of Securities and all regulations related to its implementation. The development of the capital market in Bulgaria and its regulatory framework and the adoption of clear rules for conduct have positive impact on the overall activity of the Company.


The mentioned factors have impact on the group subsidiaries insofar as they form their development macro-frame.

The results from the negotiations for new environmental standards and directives on environmental pollution and energy saving in shipbuilding will have material impact on the demand and may give rise to new commitments for Bulyard SI EAD and Wartsila IHB Ship Design Bulgaria AD. The team of Wartsila IHB Ship Design Bulgaria AD is able to develop a project for design of ship with fuel costs reduced by 30%.

Since 2004, various amendments to the Law on Maritime Space, Inland Waterways and Ports of the Republic of Bulgaria have been made, thus enabling Dockyard Port – Bourgas AD to obtain a status of a public transport port of regional

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importance and a license for port operations, the scope of which was expanded in February 2007 with procession of harmless general and liquid cargo and bulk food-grade cargo, including loading and unloading, customs procession and bonded stores.

In December 2006, the port operations were certified under ISO 9001:2000 by SGS. In 2009, the company met all port security and safety requirements and obtained Certificate under the International Port and Ship Facility Security Code (ISPS Code).

Dockyard Port – Bourgas AD is included in the National Program for Development of Bulgarian Ports 2006-2012. Detailed information about the preliminary activities and the project for expansion of the port terminal is disclosed in Items 5.2.2 and 5.2.3 of this Registration Document. At present, the project is frozen due to vagueness concerning the regulatory framework.

Odessoss PBM AD, which is a registered port operator for procession of general and bulk cargo and containers, has developed as Dockyard Port-Bourgas AD.

By virtue of the Law on Maritime Space, Inland Waterways and Ports of the Republic of Bulgaria, Bulyard SI EAD was assigned and issued the status of a special purpose port and an operational fitness certificate for carrying out activities technologically related to the production process of the company.

The lack of interest in the Bulgarian flag due to the vague regulatory framework and lack of privileges for ship owners have negative impact on the activity of Bulgarian Register of Shipping AD. The recognition of the company by the EMSA (see Item 6.4. Information about dependency of the Issuer on patents, licenses, industrial, commercial or financial contracts or new production processes).

The market where Elprom ZEM AD offers its various scope of produced and repaired electric machines strongly depends on world economy, the state of the Bulgarian economy and the region in particular. The following factors have impact on the income of the company, including income from hydro generators whose exclusive producer in Bulgaria is Elprom ZEM AD:

Ü The sector where the product is used is one of the State’s strategic priorities;

Ü The intensive investment activity of the energy sector, a hydro-generator consumer, in the form of activation of the program for rehabilitation of the country’s energy system hydro generators as part of the actions undertaken by the government in relation to the accession of Bulgaria to the European Union;

Ü The stabilization of the country’s macro-economy, which led to activation of investment operations and attraction of foreign investors till the middle of 2008. The deepening of the global crises, however, has had negative impact on their activities. The tightened financing, including the financing of energy projects, had partial impact on the activity of Elprom ZEM AD till the end of 2009. Based on preliminary data, the company realized growth of sales. The good economic indicators are partially the result of the fact that the order fulfilment time limits are longer than one year in most cases and the fact that the company received income from prior-year orders in 2009. In the future, this factor may have negative impact;

Ü The program for rehabilitation of hydro generators of the National Electric Power Company(NEC);

Ü The possibility to agree orders for repairs of private water power plants, which allowed Elprom ZEM AD to reduce its dependency on some key clients;

Ü The change in the national strategy concerning the state energy policy in the form of priority stimulation of ecological power generation through renewable energy sources and the changes made at the end of 2009.

The machine building sector is one of the sectors on which the crisis have material impact. Due to the investment nature of the products, the demand for the latter directly depends on the economic environment. The 2009 official fall in the Bulgarian industrial production is 37.5%.

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As to ZMM Bulgaria Holding AD, which realizes over 95% of its sales in the external market, the crisis have the following impact:

Ü Abrupt reduction of orders for export by some 70% as a result of stagnation of the main industrial activities and industries using lathes: automotive building, shipbuilding, supplies of equipment for the mining industry (petroleum and metal industries) and other machine building segments;

Ü Permanent trend towards limitation of orders due to lack of funds and tightened lending and lease of goods by distributors and end clients;

Ü Reduction and temporary suspension of orders by distributors - some 80% of the sales are realized through distributors. This mainly concerns countries with highly developed economies such as Italy, Russia, Germany, USA and Turkey;

Ü Delayed final payments and forwarding of ordered machines, including machines as to which advance payments have been received – this presupposes longer periods of obtaining return on the working funds (own or borrowed) invested in machines production.

ZMM Sliven AD, Mashstroy AD and ZMM Nova Zagora AD took advantage of the option provided by the Government to pay compensations to employees re-appointed under part-time working schedules.

The furniture industry over the last several years is characterized by increased foreign trade deficit. The import of Asian furniture reported considerable growth. The producers from China, Indonesia, Malaysia, Thailand, Singapore and other countries are the main competitors in the external markets. The Asian furniture has the same or higher quality. It is made from quality tropical wood. Its design is in line with the latest trends, while its price is considerably lower in most cases. The reasons include variety of raw materials, available free trade areas and low labour costs. Some Asian producers avail with high-tech equipment and report good rate of productivity. As to furniture from coniferous wood, the main competitors are the producers from Belarus and Russia, which offer quite attractive prices. One of the reasons is the lower price of local coniferous wood. Most competitors are companies specialized in the production of particular furniture type, which results in higher production efficiency and lower end prices.

The European furniture producers assess design as an element playing key role in the process of sales realization, which is to be paid special attention upon allocation of funds for research and development activities. Based on the 2010 forecasts, furniture trade will enjoy movement. The expectations are more optimistic than the prior-year ones and are related to the rapidly changing requirements to furniture in terms of design and materials and the hope for overcoming the economic crisis.

Augusta Mebel AD has technological resources and equipment allowing the production of large volumes of various furniture types. The offered furniture is characterized by balanced price/quality ratio. The company is one of the few companies in the sector availing with functioning quality system and qualified personnel.

Some group companies have won competitions for financing from various national and structural funds:

Ü Bulgarian Register of Shipping AD – National Innovation Fund for an applied research project (2005);

Ü Elprom ZEM AD – National Innovation Fund for an applied research project (2006), Labour Conditions Fund (2005 and 2007) and Competitiveness Enhancement Operational Program (2009);

Ü ZMM Nova Zagora AD – Labour Conditions Fund (2008).

Leyarmach AD and Bulyard SI EAD were granted in 2008 and Mashstroy AD was granted in 2009 partial financing by the European Bank or Reconstruction and Development for implemented investment projects under the conditions of the credit line for energy efficiency (see Item 5.2.1 Description of the major investments of the Issuer realized over the last four financial years and till the date of the Registration Document).

The funds under various governmental and EU structural fund programs for the period 2007-2013, particularly the funds granted under the Human Resources Development and Development of Bulgarian Economy Competitiveness Operational Programs, may be used as source of financing of future economic events. They support actions related to increase in employment rate, provision of better job opportunities, improvement of education level, increase of production

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capacity and efficiency of the companies in the country, facilitation of the access to financing, stimulation of business and development of knowledge and innovation based economy through encouragement of research and innovation.

1 0 . C A P I TA L R E S O U R C E S

10.1. C AP I T AL RE S O URCE S O F T HE IS S UE R

The Holding avails with the following capital resources:

Ü Equity: the independently generated cash flows from the operations of the Holding and issue of shares (capital increase);

Ü Borrowed funds: the options to utilize and use bank credits, lease and grant scheme, loans from associates and issue of bonds.

The consolidated and unconsolidated capitalization and indebtedness of the Issuer as at 30 September 2009 and 31 December 2009 are presented in the following Tables № 18, № 19, № 20, № 21 and № 22.

Table № 18 Consolidated capitalization of the Issuer for the period 2006 – 30 September 2009

BGN '000 9M 2009 9M 2008 2008 2007 2006

Shareholders' equityRegistered capital 43,756 43,756 43,756 43,756 21,003 Additional paid-in capital 24,503 24,503 24,503 24,503 - Reserves 54,225 53,879 53,989 51,269 15,296 Retained earnings 82,923 78,394 78,262 68,882 56,356 Total equity 205,407 200,532 200,510 188,410 92,655

Minority interest 30,308 30,245 29,614 29,155 20,903


Table № 19 Unconsolidated capitalization of the Issuer for the period 2006 – 31 December 2009

в хил. лева 12M 2009 12M 2008 2008 2007 2006

Shareholders' equityRegistered capital 43,756 43,756 43,756 43,756 21,003 Additional paid-in capital 24,503 24,503 24,503 24,503 - Reserves 6,297 6,297 6,297 3,661 3,475 Retained earnings 24,121 20,518 20,537 14,782 11,241

Total shareholders' equity 98,677 95,074 95,093 86,702 35,719

Source: Audited Unconsolidated Financial Statements of the Issuer for the period 2006 – 2008 and Unaudited Consolidated Interim Financial Statements of the Issuer as at 30 September 2008 and 30 September 2009

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Table № 20 Consolidated liabilities of the Issuer for the period 2006 – 30 September 2009

BGN '000 9M 2009 9M 2008 2008 2007 2006

LiabilitiesLong term liabilitiesBank loans and leases 33,187 9,836 5,448 7,351 6,757 Corporate bonds 21,650 - 21,650 - - Other long term liabilities 597 380 327 285 21 Provisions 679 600 845 600 889 Deferred tax liabilities 5,964 6,049 5,938 6,046 1,136 Total long term liabilities 62,077 16,865 34,208 14,282 8,803

Short term liabilitiesCurrent portion of long term debt 1,014 2,129 3,627 4,934 2,892 Corporate bonds 735 - 303 - 5,244 Trade payables 104,643 152,306 109,444 77,205 44,315 Provisions 158 305 262 363 106 Total short term libilities 106,550 154,740 113,636 82,502 52,557

Total liabilities 168,627 171,605 147,844 96,784 61,360


Table № 21 Unconsolidated liabilities of the Issuer for the period 2006 – 31 December 2009

BGN '000 12M 2009 12M 2008 2008 2007 2006

LiabilitiesLong term liabilities

Corporate bonds 21,650 21,650 21,650 - - Other long term liabilities 3 3 3 3 -

Total long term liabilities 21,653 21,653 21,653 3 -

Short term liabilitiesTrade payables 19,494 20,122 20,122 387 1,915 Corporate bonds - - - - 5,244 Liabilities to related parties 52 - - 649 3 Deferred tax liabilities 198 47 47 1 6

Short term liabilities 19,744 20,169 20,169 1,037 7,168

Total liabilities 41,397 41,822 41,822 1,040 7,168

Source: Audited Unconsolidated Financial Statements of the Issuer for the period 2006 – 2008 and Unaudited Consolidated Interim Financial Statements of the Issuer as at 30 September 2008 and 30 September 2009

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Table № 22 Consolidated capital structure of the Issuer for the period 2006 – 30 September 2009

№ Capital structure (in BGN '000) 9M 2009 9M 2008 2008 2007 2006

1 Short-term assets 185,975 221,519 193,816 173,301 101,262 2 Short-term liabilities 106,550 154,740 113,636 82,502 52,557 3 Working capital 79,425 66,779 80,180 90,799 48,705 4 Total assets 404,342 402,382 377,968 314,349 174,918 5 Shareholders' equity 235,715 230,777 230,124 217,565 113,558 6 Debt (short-term & long-term) 56,586 11,965 31,028 12,285 14,893 7 Long-term libilities 62,077 16,865 34,208 14,282 8,803 8 Long-term debt 54,837 9,836 27,098 7,351 6,757

Financial ratios 9M 2009 9M 2008 2008 2007 2006

9 D/E 0.2 0.1 0.1 0.1 0.110 D/A 0.1 0.0 0.1 0.0 0.111 Equity/Assets 0.6 0.6 0.6 0.7 0.612 E/D 4.2 19.3 7.4 17.7 7.613 Long-term liabilities/Equity 0.3 0.1 0.1 0.1 0.114 Long-term debt/Equity 0.2 0.0 0.1 0.0 0.1


10.2. C AS H F L O W S O URCE S AND F I G URE S

The following Tables № 23 and № 24 present information about the consolidated and unconsolidated cash flows of the Issuer for the period 2006 – 31 December 2009.

Table № 23 Consolidated cash flows of the Issuer for the period 2006 – 30 September 2009

In BGN '000 9M 2009 9M 2008 2008 2007 2006

Cashflow from operations (41,834) (7,057) 17,421 (5,894) (21,780)

Cashflow from investments (39,036) (25,311) (36,364) (4,016) 13,716

Cashflow from financing 24,015 14,896 35,938 50,873 6,182

Net change in cash (56,855) (17,472) 16,995 40,963 (1,882) Cash in the beginning of the period 70,551 53,556 53,556 12,593 14,475 Cash in the end of the period 13,696 36,084 70,551 53,556 12,593


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Table № 24 Unconsolidated cash flows of the Issuer for the period 2006 – 31 December 2009

In BGN '000 12M 2009 12M 2008 2008 2007 2006

Cashflow from operations (38,120) (23,219) (23,219) (4,221) 459

Cashflow from investing 17 (68) (68) (14) (30)

Cashflow from financing (1,732) 21,430 21,430 43,240 (332)

Net change in cash (39,835) (1,857) (1,857) 39,005 97 Cash in the beginning of the period 40,289 42,146 42,146 3,141 3,044 Cash in the end of the period 454 40,289 40,289 42,146 3,141

Source: Unconsolidated Financial Statements of the Issuer for the period 2006 – 30 September 2009

The consolidated cash flows of the Issuer for the last three financial years report movement. The 2008 operating cash flow is positive and amounts to BGN 17.4 million, the main reasons being (1) the growth of contractual proceeds from clients in the key business sectors (32.2% compared to 2007) and (2) refunded prior-period taxes totalling BGN 10 million. The 2008 net investment cash flow is negative and amounts to BGN 36.4 million, mainly formed by increased capital expenses on acquisition of non-current tangible assets (growth of 122.2% compared to 2007) and gains on sale of non-current assets, which reported double decrease (BGN 8.2 million) and total BGN 47.4 million for the period 2006 – 2008. Due to the specifics of the business of the Issuer, the net financial cash flow for the reporting period 2006 – 2008 is positive. Shipbuilding, which forms the highest share of the consolidated financial results of the Issuer, requires securing of advance payments by clients with blocked cash to guarantee performance of the shipbuilding obligations and imposes the necessity of payments to suppliers of materials. For the purpose, IHB (1) utilizes bank loans – their total amount for 2008 is BGN 20.6 million and (2) issues securities – the proceeds from the 2008 issue of corporate bonds total BGN 21.7 million, while the net proceeds from the 2007 issue of ordinary shares total BGN 47.1 million.

Due to the recession in the country, the consolidated income for the first three quarters of 2009 reports fall. The Issuer generated negative operating cash flow of BGN 41.8 million – the proceeds from clients decreased to BGN 58 million, reporting fall of 62.8% compared to the same period of 2008. The cash as at 30 September 2009 is BGN 13.7 million, reporting fall of 62% compared to the same period of 2008.

The unconsolidated operating cash flow of the Issuer for the reporting historical period is negative due to the practice of the Holding to grant the funds borrowed from the credit and capital markets to its subsidiaries operating in the different business sectors with the purpose of core activities financing. The 2008 loans granted to subsidiaries total BGN 65.8 million. The net operating cash flow as at 31 December 2009 is negative – it amounts to BGN 38.1 million, including cash of BGN 454 thousand compared to BGN 40.3 million as at 31 December 2008.

10.3. I NF O RMAT I O N ABO UT T HE NE E DS O F L O ANS AND F I NANCI NG S T RUCT URE O F T HE IS S UE R

The following Table № 25 presents information about the liabilities of the Issuer under bank and debenture loans and finance leases as at 31 January 2010.

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Table № 25 Liabilities under bank and debenture loans and finance leases as at 31 January 2010

№ Bank loand and corporate bonds Date of contract Maturity Amount(BGN '000)

Outstanding amount 31.01.2010(BGN '000)

1 EUR 315,000 - 3-month EURIBOR + 2.3% 7/9/2007 6/7/2010 616 742 EUR 300,000 - 3-month EURIBOR + 2.0% 7/6/2007 7/6/2011 587 4443 Credit line - SOFIBOR + 2% 3/9/2009 3/9/2010 88 574 Credit line - SOFIBOR + 3.5% 1/9/2009 1/8/2011 50 475 Credit line - SOFIBOR + 2% 6/2/2009 6/2/2010 21 216 EUR 430,000- 3-month EURIBOR + 4.9% - investment credit 9/1/2007 9/1/2012 841 5127 Credit line - BGN 200,000 - 1-month SOFIBOR + 2% 9/1/2007 9/1/2010 200 2008 EUR 500,000- prime rate + 1.5% 8/13/2008 12/10/2010 978 3209 BGN 250,000 - 3-month SOFIBOR + 1.64%, min 8.6% 9/25/2007 5/25/2010 250 30

10 BGN 200,000 - 3-month SOFIBOR + 1.64%, min 8.6% 4/23/2008 5/28/2010 200 3211 EUR 330,000 - 1-month EURIBOR + 2.3% - investment credit 7/1/2008 6/20/2014 651 37012 EUR 350,000 - 1-month EURIBOR + 3.5% 12/22/2008 12/22/2013 685 59613 EUR 50,000 - bank's prime rate in EUR 7/1/2008 7/20/2011 99 7214 EUR 712,000- 1-month EURIBOR + 3.5% (min7.5% ) 6/25/2008 11/25/2012 1,393 89515 EUR 335,000 - 1-month EURIBOR + 3.5% ( min 7.5%) 6/25/2008 12/25/2012 655 41416 EUR 10,000,000 - 5% + 2.5% 17.07.209 8/15/2011 19,558 19,55817 EUR 5,000,000 - 3-month EURIBOR + 4.65% 4/22/2008 4/22/2011 9,779 9,77318 BGN 3 000,000 - 1-month SOFIBOR + 3.5% 11/29/2009 11/29/2010 3,000 3,00019 BGN 21,650,000 - 8% corporate bonds 10/29/2008 10/29/2011 21,650 21,650

20 EUR 25,000 - 5% 7/1/2007 7/1/2011 48 2221 BGN 164,000 - 7% 3/27/2008 4/5/2011 163 6622 EUR 20,000 - 7.9% 7/9/2008 7/9/2013 39 25

Total: 61,551 58,178* Note: Only transport vehicles are leased

Bank loans & corporate bonds

Financial lease *


The bank loans are secured by pledged machinery, plant, equipment and motor vehicles (Emona Ship and Marciana Ship, which are in process of building for the Group) and mortgages of land and buildings of total carrying amount of BGN 74,074 thousand as at 31 January 2010. In addition, the business of the subsidiary Dockyard Port – Bourgas AD has been pledged as totality of rights, obligations and factual relations – the main assets have been entered into the particular registers – the Commercial Register, the National Register of Registered Pledges and the Register of Properties at the Registry Agency based on location.

Contingent liabilities

IHB and DSK Bank EAD has signed a contract for credit line of BGN 10,000 thousand for issue of bank guarantees, letters of credit and working capital, secured by registered pledge of the business of the subsidiary Dockyard Port – Bourgas AD. As at 31 January 2010, bank guarantees at the total of BGN 582 thousand were issued and 15 letters of credit at the amount of BGN 3,390 thousand were issued to Bulyard Shipbuilding Industry EAD. BGN 3,000 thousand was utilized for working capital purposes.

The avals provided by Bulyard AD as at 31 January 2010 represent avails of promissory notes issued by its subsidiary Bulyard Shipbuilding Industry EAD totalling EUR 2,297 thousand and USD 16,970 thousand provided in favour of three banks under contracts for bank credits, which will be used for securing repeated issue of bank guarantees for advance payments for shipbuilding, investment purposes and working capital to finance shipbuilding.

KLVK AD and Bulyard SI EAD are co-debtors under a contract for bank credit of JPY 1,122,594 thousand for financing supplies of equipment for the building of ship No 102. The credit is to be utilized by 28 February 2010 and repaid by 30 August 2018. The annual interest rate is the total of the JBIC price and addition of 2,5 points.

IHB has provided a corporate guarantee in the form of warrant for Bulyard Shipbuilding Industry EAD, Varna under a contract for bank credit under the condition of undertaking credit commitments in the form of bank guarantees and

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documentary letters of credit signed by Bulyard Shipbuilding Industry EAD, Varna and UniCredit Bulbank AD, Sofia, under the following terms and conditions:

a) Purpose: undertaking of credit commitments in the form of 3 bank guarantees securing the reimbursement of advance payments under a contract for the building of ship with construction No 103 and all annexes thereto signed by Bulyard Shipbuilding Industry EAD, Varna and Diler Shipping and Trading Inc., Tersane Caddesi Dilerhan No 96, Persembe Pazari, Karakoy, Istanbul, Turkey, the latter being the beneficiary under the bank guarantees;

b) Credit limit: USD 27,589,060 (twenty-seven million five hundred eighty-nine thousand and sixty);

c) Deadline for bank guarantees issue: 3 October 2011.

For the issued corporate guarantee, Bulyard Shipbuilding Industry EAD – Varna pays IHB annual commission of 1% of the actual amount of the said corporate guarantee. On 14 August 2009, Bulyard Shipbuilding Industry EAD – Varna provided real collaterals: conventional mortgages of real properties of total minimal value of 120% (one hundred and twenty per cent) of the value of the provided corporate guarantee.

ZMM Bulgaria Holding AD provided guarantees to secure credit liabilities of its subsidiary ZMM Sliven AD in the form of aval of promissory note at the total of BGN 250 thousand. The company has provided guarantees totalling BGN 1,082 thousand as at 31 January 2010 to secure the performance of orders by Elprom ZEM AD for NEC, MAVEL and VATEH. It is also co-debtor under contracts for credits granted by DSK Bank EAD to Leyarmach AD totalling BGN 712 thousand.

The management of IHB is of the opinion that there are not any notes claiming indications, therefore it has not set aside any provisions for contingent liabilities.

10.4. I NF O RMAT I O N ABO UT ANY RE S T RI CT I O NS O N T HE US E O F CAP I T AL RE S O URCE S

The only restriction on use of capital resources is set forth in Article 280 of the Law on Commerce and is binding on IHB as a holding company. In compliance with this Article:

(1) The holding company may grant loans only to companies where it has direct interests or control.

(2) The amount of granted sums may not exceed the capital of the holding company by 10 times.

(3) The amount of deposits from the subsidiaries and companies within the Group may not exceed the capital by 3 times.

10.5. I NF O RMAT I O N ABO UT P RO JE CT E D S O URCE S O F F UNDS RE Q UI RE D F O R F UL F I L ME NT O F T HE CO MMI T ME NT S UNDE R IT E MS 5 .2 .3 AND 8 .1

Information about the projected sources of funds for fulfilment of the commitments for future investments and the planned major investments is disclosed in Item 5.2.3 of this Registration Document.

11 . R E S E A R C H A N D D E V E L O P M E N T A C T I V I T I E S , PAT E N T S A N D L I C E N S E S

Ü IHB

IHB die not carry out any development activities over the period covered by the historical financial information.


The IHB Group companies do not carry out any research. Developments related to creation of new and improvement of offered products and providing production with the required technical and technological resources are usually made by

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the engineering experts of the companies and, in some cases, in cooperation with technical universities. Certain activities (such as ship design) are assigned to specialized organizations.

The innovation efforts of the teams are focused on improvement of offered products and certain processes of their development through use of modern materials and technologies. The experts of IHB and the machine building holding are relied on and, if necessary, leading experts in the particular sphere are hired.


Usually, Bulyard SI EAD builds ships based on own projects.

In 2007, the company invested in three new projects:

Ü Purchase from IHI Marine Unitеd Inc. – Japan of a license for building of Future’56 ship. Ship No 102 agreed for IHB will be of this type;

Ü Improved design of ship No 287 – a 9,800-ton multi-purpose ship of more modern design and higher containers capacity. The project participants are experts from the Technical University of Varna – technical project, KIPI – working project, hull part, Wartsila IHB Ship Design Bulgaria – hull superstructure, Teva Marine – furniture, KLVK – the remaining part of the working project. Emona Ship and Marciana Ship for the IHB Group have the same design;

Ü Modification of a 21,000-ton ship for dry cargo related to change in the main engine supply. It is in process of design by Wartsila IHB Ship Design Bulgaria. Karvuna Ship and Anteya Ship for the IHB Group will have the same design.

In 2008, the works on the modification of a ship for dry cargo commenced in 2007 were completed. New developments were agreed with Wartsila IHB Ship Design Bulgaria:

Ü Working project – unity;

Ü Documentation for transition to heavy fuel;

Ü Working documentation for the Future'56 series.

In 2009, the following projects were in process of implementation:

Ü Further development of the documentation for the Future'56 series by Wartsila IHB Ship Design Bulgaria;

Ü Working documentation for furnishing a 21,000-ton ship for dry cargo. It is designed by Teva Marine.


The projects developed by the experts of Wartsila IHB Ship Design Bulgaria for Bulyard SI EAD are described above (see Shipbuilding).

The company also works on projects assigned by Wartsila AS, Norway – various parts of the technical and working design of specialized ships for oil prospecting, placement of pipes on the sea floor, maintenance of oil platforms, placement of anchors and buoys, ships for inspection, maintenance and repair, etc.

The developments of Wartsila IHB Ship Design Bulgaria AD are not subject to registration under the Law on Copyrights and Neighbouring Rights. The design know-how bearer is the conceptual project.

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The technology for ship inspection and classification and internet-based system for inspectors’ work management developed by Bulgarian Register of Shipping AD in 2007 in compliance with the contract signed with the Executive Agency for Small and Medium-Sized Enterprises Promotion (see Item 5.2.1. Description of the major investments of the Issuer realized over the last four financial years and till the date of the Registration Document) is the result of research and development carried out by the team of the company and leading experts from the Technical University of Varna. In this sense, it is know-how bearer but it is not subject to registration under the Law on Copyrights and Neighbouring Rights.

The expansion and improvement of the system for inspectors’ work management with several other modules have been planned for 2010 (see Item 5.2.2. Description of the major investments of the Issuer in process of realization). Its continuous development and improvement are not subject to registration under the applicable laws.


The companies within the group of ZMM Bulgaria Holding AD offer basic scopes of products to the market, which they expand through improvement. All products have long life cycles and are characterized by stable market demand under stable economic conditions and over periods of upsurge and abrupt decrease in demand under critical and recession conditions. The product life cycles as to the basic product characteristics are unlimited in terms of time and exceed the physical depreciation. The key changes as to the machines are related to improvement of their appearance (design, paint), improvement of their operation and expansion of their consumer capacities through expanding the offered options.

In 2006, ZMM Sliven AD developed structural documentation and produced 2 experimental large lathe models.

In 2007, the company modernized the scope of heavy lathes with frequency regulation and commenced the production of a new model of digital machine. It produced medium-sized lathes with digital control and developed structural documentation for CNC machine – series M with AMK control.

In 2008, the development of two cyclic machines of new type with systems for axis control and gear box with frequency control commenced in 2007 was finalized. The machines are tailored to the market demand and ensure higher profitability. In 2008, the company developed technical documentation for 3 lathe models with distance between the centres of 7,000 mm to 10,000 mm – this is unique not only for the Bulgarian lathe production but for the world lathe production as well.

In 2009, there was commenced the laying of hybrid modifications from the universal lathes produced by Mashstroy. By the end of the year, 4 modifications were mastered. 7 modifications are planned to be mastered.

In 2006, Mashstroy AD mastered units and details supplied by an external company. A unified feed box was deployed in all types of lathes of the C11MS and C10MS series. There was solved the problem related to the water leaking and protection of the critical zones for work and the mobile protective screens for all machines of the MS series with monolithic unit. The linear directing of the support boxes and support cradles of the CPU machines developed on the basis of the conventional lathes of the MS series was improved. Full set of technical documentation was prepared. New heavy machines with distance between the centres of 3,000 mm and 5,000 mm and cyclic machines with operation systems FANUC – Japan and FAGOR – Spain were structurally developed and presented at the Technical Fair – Plovdiv in the autumn of 2006.

In 2007, the company developed and introduced new lathe modifications and two cyclic machines for production needs. Two cyclic machines developed in 2006 were mastered. A CPU lathe with inclined guide bars was developed and presented at the Technical Fair – Plovdiv in the autumn of 2007. The developments were made in relation to improvement of production technologies and creation of new model and casing equipment.

In 2008, machines with frequency regulation based on prototype model with proved high technical characteristics were improved and introduced to production. In 2008, the team focused its efforts on improvement of the technical characteristics of lathes with distance between the centres of and over 6,000 mm.

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ZMM Nova Zagora AD expanded the scope of strip cutting machines. It built a unit for new products – piston rods. In 2006, it mastered the production of feed and support boxes for lathes for Russia. The Management is of the opinion that there is opportunity to expand its activities through development of full scope of chip transporters for the lathes and centres imported into the country. In 2009, the efforts were focused and lots of work was done on mastering the thermal processing of details for production of hydraulic cylinders and ensuring high quality of inductive hardening. Multiple-disk mechanical clutches – Sigma type, elements of all lathes, were successfully mastered.

The 2009 optimization of the activities within the group of ZMM Bulgaria Holding imposed mastering of the following by ZMM Nova Zagora in short terms:

Ü The technology, equipment and production of the full scope of details produced by Mashstroy;

Ü All connectors for these machines, which are not unified.

Casts form the basic element of machine building and undergo the slowest changes as to innovations. Leyarmach AD mastered a technology for spheroidal-graphite casting. In 2008, two energy saving induction furnaces equipped with system for mechanical charging with stock and microprocessor control were commissioned and the renovation repair and modernization of the old Radine induction furnace, which ensures stable production processes and production capacities saving, was completed.

Elprom ZEM AD deployed a new technology for insulation of piston rods for hydro-generators. A new insulation system

for high voltage stator windings for hydro-generators, developed by the experts of the company and Isovolta – Austria in

2003-2004, ensures the possibility for increasing the energy efficiency of hydro-generators up to 15% and their safety and

reliability and longer warranty periods – from 18 to 48 months. On 29 March 2007 Elprom ZEM, in cooperation with NEC

EAD, patented the development under the name of Stator Unit of High Voltage Generator and Method of Production. The

further development of the new technology was partially financed by the National Innovation Fund at the Executive

Agency for Small and Medium-Sized Enterprises Promotion. The summarized technical project was 100% approved (see

Item 5.2.1. Description of the major investments of the Issuer realized over the last four financial years and till the date of

the Registration Document). In 2007, a new laser line for dynamo steel cutting for rotor and stator packages was

commissioned (see Item 5.2.1. Description of the major investments of the Issuer realized over the last four financial

years and till the date of the Registration Document).

In 2008, the company commissioned a VPI-line for completion of insulation systems and developed technology,

increasing the reliability in the production and exploitation of electric machines with increased energy efficiency. A system

for contactless measuring of special sizes and forms, shortening the time for control and improving the quality of produced

machines, was purchased and deployed (see Item 5.2.1. Description of the major investments of the Issuer realized over

the last four financial years and till the date of the Registration Document).

In 2009, the technology and optimization of the structures of rotary electric machines in the process of the VPI-line use were improved based on the different types of electric machines and the requirements on increasing their energy efficiency. A highly production three-coordinate processing centre with CPU, ensuring precision in the mechanical processing of complex details, was commissioned.

The company continues the works on reducing the weights of produced hydro generators and electric engines with the purpose of structure optimization and quality preservation.


Due to the furniture market dynamics and clients’ preferences, Augusta Mebel AD has been continuously changing its scope of products. New furniture development on annual basis is characteristic of the sector. The applied technologies, used materials and design are regularly modernized. Furniture design has been gaining greater importance following the

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line of technical innovations and optimal product functionality. The modern solutions related to mechanisms and casing increase the quality of furniture and furniture details. The improved drawer systems ensure larger storage space, more efficient use and good reception by clients. Most important are the natural appearance and nice wood-like effects on painted surfaces, expressive wood structures (oak, walnut) and massive wood elements. The variety of veneers reports expansion. The 2009 income from sales of mass wood furniture, including wardrobes, drawers and children’s furniture, forms 24% of the total income from sales of furniture compared to 23.3% in 2008. The other income represents income from sale of furniture from veneered MDF and HDF with fewer details from massive wood.

In 2010, Augusta Mebel focuses on the modernization of its products based on the changing market needs. The total share of new and modernized products will reach 75%. The highest share will be occupied by the markets of France, USA, Ireland and Great Britain.

Products are modernized in two manners – based on models set in conceptual and technical projects of the client or own developments. A large portion of the new furniture models have been designed and developed on the basis of designs proposed by the clients. Augusta Mebel avails with well organized model facilities and sufficient experts to ensure quick model development.

1 2 . M A J O R T R E N D S

Over the next few years, the major trends related to the activities of the Holding are still expected to be related to:

Ü Acquisition, assessment and sale of interests in other companies;

Ü Management of the companies in its own portfolio where IHB can exercise control directly or through related parties;

Ü Incorporation of new companies;

Ü Investments in the portfolio companies where IHB has long-term interests;

Ü Financing of the companies where the Holding holds interests.

The main strategic interests of IHB are focused on the following sectors and activities:

Ü Maritime business, including shipbuilding and ship repair, ship design, port operations, classification and certification and maritime transport;

Ü Machine building;

Ü River cruises.

12.1. M AJO R T RE NDS S I NCE T HE E ND O F T HE L AS T F I NANCI AL Y E AR T I L L T HE DAT E O F T HE RE G I S T RAT I O N DO CUME NT


The world shipbuilding industry mainly depends on the maritime transport trends (see Maritime transport below). Till the beginning of the crisis, the bulk cargo ships were the most demanded ships. In 2006, the contracts for such ships formed 20% of the total ordered tonnage, while the next three years reported boom in their demand. They formed some 70% of all shipbuilding contracts.

The river and maritime cruises development has impact on the shipbuilding industry as well, although such impact is not as great as the impact of maritime transport trends. The effect of the crisis on this market is the restructuring of existing

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ships ownership. Smaller shipyards go bankrupt, while solvent shipyards consolidate their fleets through purchase of their ships. As a result, the contracts for building of new ships for tourist trips report fall.

The market and economic conditions in the shipbuilding and ship repair sector are characterized by instability and opposite trends but provide opportunities related to reduced prices of raw materials and materials and easier access to qualified personnel. The prices of new ships have continued to fall due to the new ships and increased total tonnage in exploitation. The world trends have direct impact on the work load at Bulyard SI. In 2009, the company completed the building of 2 ships. At the end of the year, 2 ships were at advanced building stages and 1 ship was at advanced stocks assembly stage. The cutting of 1 ship is to begin in 2010. The company did not sign any new shipbuilding contracts. The contracts signed over the period 2007 – 2008 ensure 100% loading of the production capacities till 2012. The free capacities are used for ship repair. Information about the orders of the shipyard is disclosed in Item 9.2.1. Important factors, including unusual or rare events, which have material impact on the operating income of the Issuer.

The aim of Bulyard SI is to build ships with insignificant modifications. The acquisition of the license rights for building of ships of the F56 series makes possible the reduction of expenses through production planning and flexible management of production processes and supplies and provides the company with considerably higher competitiveness. At the same time, the lack of ship owners financing considerably reduced the number of shipbuilding orders on world level and resulted in orders cancellation and order time limits deferral.

The crisis has considerably limited the expenses on ship maintenance and repair. At the same time, the imposing of higher requirements and introduction of new requirements to ships technical safety result in the necessity of more frequent repairs – a factor, which have adverse impact on ship repair. Bulyard SI is capable of repairing a wide range of ships as to size – from small ships of up to 5,000 tons to big ships of 80,000 tons.


2009 was relatively comfortable for bulk cargo and not as bad for most ship owners – investors in the sector as expected. Maritime cargo volume reported insignificant fall of 1.4%, which would have been over 3.5% without the role of the Chinese economy. China approved a national plan for economy stimulation through investments totalling USD 585 milliard and implemented an infrastructural program, involving a considerable portion of the tonnage of bulk cargo ships. Steel production rose by 42% - from 35 million tons in November 2008 to 50 million tons per month in August 2009, while the iron ore import rose by 86% to 55 million tons per month. Based on preliminary data, the total annual import exceeds 1.3 milliard tons. Its growth was mainly due to bulk cargo – iron ore, grain and coals, reporting rise of 13% for the first three quarters of 2009 compared to 2008. It is quite interesting that the highest share was formed not by the iron ore but by coals, reporting rise from 39 million tons in 2008 to 84 million tones over the first three quarters of 2009. The stagnated metals market in the Black Sea region (Russia and Ukraine) survived due to the export to China, which turned from net exporter to net importer of metals in 2009. Over the period January – April, 60% of the cast iron exported by Ukraine and 11% of the cast iron exported by Russia and 2/3 of the iron ore volume exported by both countries were exported to China. This fact has positive effect as it secures taking out of cargo from the Black Sea region.

Other Asian countries also contributed to the maritime business development – India reported growth of production of 7.9% for the first three quarters. At the end of November 2009, South Korea reported the first higher export rates for the last 13 months. The third quarter of the year had the most favourable effect for Japan for the last two years. Japan, which ranked second in the world in terms of economy development, reported two successive quarters of positive growth and showed its first steps on the road to overcoming the heavy one-year recession due to increased export and material state investments.

2009 was not a bad year for the Handysize (20 to 30,000 tons) bulk cargo ships built at Bulyard SI for the IHB Group – Karvuna Ship and Anteya Ship. The main characteristic related to these ships was the gradual and even rise in freights in contrast to the of Capesize и Panamax ships, as to which considerable up and down deviations were observed.

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The case with general cargo, the multi-purpose ships including Emona and Anteya – the first two ships built for the needs of IHB respectively, was quite different. Comparatively low time-charter rates were reported over the year. Some of the traditional operators had to exit the market and re-orient to other activities and cargo due to he lack of continuous cargo volumes – raw materials and semi-manufactured items, on the one hand and finished products and estimated cargo, on the other hand.

Following the commissioning of Karvuna Ship and Anteya Ship in 2010, maritime transport will become one of the most important sectors for the IHB Group as to its sales income and profit.


The trends characterizing port operations depend on the global, national and regional economic environment. On global level, there is trend towards increase in maritime transport against land transport. On the other hand, the lack of permanent flows of general cargo had negative business effect. The first signs of worsening of the market of the two ports of IHB appeared in March 2009 for Dockyard Port – Bourgas and in December 2008 for Odessoss PBM. Anti-crisis actions related to expansion of the scope of cargo handled by both ports were undertaken. The aim is to preserve this trend in the future.

The 2009 demand for and prices of loading and unloading services related to metal products in the internal and external markets reported fall. To compensate for the fall in metal cargo volume, in 2008 Dockyard Port – Bourgas AD launched a campaign for grain cargo processing. The company intends to expand its capacities in this direction. In 2009, it launched a project for local grain storehouse construction (see Items 5.2.2 and 5.2.3 of this Registration Document). Odessoss PBM also intends to commence grain cargo processing based on storehouse-ship and truck-ship variants. A specialized machine is required for the purpose (see Item 12.2. Trends, uncertainties, requirements, commitments or events, which may have material impact on the perspectives of the Issuer for the current financial year).

As Dockyard Port – Bourgas and Odessoss PBM are ports of regional importance, their destiny depend on the economy of Southeastern and Northeastern Bulgaria, the fading tourism-related building and the increased number of infrastructure projects. Their activities development will be directed at increasing the grain cargo turnover, which is related to permanent trend towards expansion of the agricultural activities in Southern and Southeastern Bulgaria.

At present, Dockyard Port – Bourgas AD does not rely on big circulation of grain cargo due to the relatively low depth of wading at the quay surrounding space and impossibility to shelter big ships. Another reason is the lack of sufficient specialized equipment for grain processing. Odessoss PBM also needs a specialized machine. Therefore, the key exporters of grain prefer the services of other ports.


Vessels classification and certification depend on shipbuilding and ship repair development. When these sectors are in periods of crisis, the classification and certification of newly built ships and ships in exploitation also report downturn. The abrupt fall in the volume of maritime transport service and low market freights in 2009 resulted in:

Ü Decommissioning of lots of ships due to lack of cargo;

Ü Considerable reduction of expenses on maintenance and repair of ships in exploitation;

Ü Decreased interest in investments in new ships and structures building.

Ship owners have been surviving through shrinking of activities and expenses and the related consequences have impact on the activity of Bulgarian Register of Shipping AD.

The activity of the company is negatively affected by the following factors:

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Ü Old average ship age – the niche of the Bulgarian Register of Shipping includes ships of age of over 15 years, which are the most affected by the crisis as ship owners prefer their decommissioning. These ships require considerable exploitation expenses and, in most cases, their owners experience financial difficulties as to the rise in service prices. The EU membership of Bulgaria is expected to impose restrictions on the age of the ships supervised by the Bulgarian Register of Shipping;

Ü The ships owners, whose ships are outside the risk-age group and operate in European ports, prefer the leading classification organizations recognized by the EMSA and all European Maritime Administrations;

Ü At present, the Bulgarian Register of Shipping is not authorized to represent any European Maritime Administrations except for the Bulgarian (see Item 6.4. Information about dependency of the Issuer on patents, licenses, industrial, commercial or financial contracts or new production processes);

Ü Lack of interest in the Bulgarian flag due to the vague regulatory framework and lack of advantages for the ship owners;

Ü There is not expected any increase in the tonnage of the new ships introduced to the Bulgarian market.

The Bulgarian market still forms the highest share of the income of the Bulgarian Register of Shipping. As a result of unfavourable factors, the number of ships of the key client Navigation Maritime Bulgaria, which are supervised by the Bulgarian Register of Shipping, decreased from 49 to 27.

The active efforts of the Bulgarian Register of Shipping are focused on attraction of ships owned by foreign persons, imposing higher criteria as to the age and technical conditions of ships applying for certification by it and concluding new joint activity contracts with foreign registers. In 2008, the Bulgarian Register of Shipping classified 25 ships owned by foreign persons compared to 38 in 2009.

The market where ships inspection and classification on global level are offered is relatively stable and its sharing among the individual participants is mainly based on their abilities to undertake timely and objective actions as to ships exploitation. Competition is increasing as a result of the great number of registers in the market, the trends towards further increase and the expected ship age restrictions. New higher requirements on shipping safety and security are introduced by the International Maritime Organization, which increase the responsibilities of classification organizations related to their application monitoring. Therefore, Bulgarian Register of Shipping AD has continued to expand its activities abroad and charged flexible tariffs.


The demand for metal cutting machines is relatively permanent and characterized by fluctuations and fall once per 3-4-year period. This is predetermined by the long life cycles of products and their offering to a wide range of clients. Demand mainly depends on the general economic condition of the particular market.

2009 was negatively affected by the global financial crisis, which turned into economic. ZMM Sliven AD and Mashstroy AD reported the lowest sales income since their incorporation.

The key aspects of the production and commercial activities of the two machine building companies within the group, ZMM Sliven AD and Mashstroy AD, are:

Ü Expenses optimization and scope of products expansion and improvement;

Ü Keeping the positions of leading producers and suppliers of universal lathes in Bulgaria and abroad in medium-term and long-term aspects.

The trends for ZMM Nova Zagora AD are related to:

Ü Expansion of the scope of produced hydraulic elements for the key clients and expansion of the volume of produced piston rods;

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Ü Optimization of the investment policy on maintaining the machinery stock in good exploitation condition and creating prerequisites for improving the technologies for the multiple-disk mechanical clutches, details and units mastered in 2009;

Ü Active participation in foreign markets and ensuring financial stability.

The products of Elprom ZEM AD are related to construction of new sites and preventive and failure replacement of existing ones. The key clients are companies operating in the energy, mining, cement, food, wine and tobacco, agricultural, water supply and other sectors. The market strongly depends on the world economy, the national and regional economy in particular.

In the conditions of the global crisis, market stagnation and need of renewable energy sources, the trends accompanying the electric machines building are:

Ü Production of machines with higher energy efficiency;

Ü Optimization of structures and expenses tо reduce finished product costs and prices;

Ü Continuous innovative development of the company in compliance with the latest requirements of the EU on development of energy saving and energy efficiency increase projects;

Ü Relying on high quality and reliability in the production and exploitation of electric machines to increase their competitiveness;

Ü Mastering the production of new and improvement of existing machine structures, using alternative energy from renewable sources (wind and hydro generators).


River cruises form a specific segment of tourism and follow the major trends in the sector. Generally, the financial and economic crisis and the reduction of expenses on recreation have negative impact on the tourist river and maritime trips on global level. This affects mainly the tourist flows from countries outside Europe and the flow of European tourists with relatively stable income to some extent due to the minimal additional and accompanying expenses.

The presence of AROSA and TUI, which are comparatively new operators of river ships along the Danube, becomes stronger. AROSA owns 4 ships and offers dumping prices. TUI operates 2 ships and there is trend towards increase of their number.

In 2009, the crisis did not have any material impact on the operating income of Dounav Tours AD. The company has contracts for chartering of all its ships for 2010 and, for some of them, till 2013. The contracts signed in 2009 offer better financial conditions and this indicate future positive trends. Risk of contracts cancellation or charterers’ bankruptcy always exists. Each material deterioration of the economic environment would have negative impact on the business. Risk diversification may be achieved through expenses optimization and offering of additional services and out-of-season and holiday trips and tourist programs in the territory of the country.

12.2. T RE NDS , UNCE RT AI NT I E S , RE Q UI RE ME NT S , CO MMI T ME NT S O R E V E NT S , W HI CH MAY HAV E MAT E RI AL I MP ACT O N T HE P E RS P E CT I V E S O F T HE IS S UE R F O R T HE CURRE NT F I NANCI AL Y E AR


The performance of the present shipbuilding contracts by Bulyard SI EAD will have material impact on the consolidated income of the Group in 2010 and the following two years. In 2010, the completion of the building of ship No 101 for Diler Shipping – Turkey and Karvuna Ship and Anteya Ship for the IHB Group is expected. Income from ship repair will be generated as well.

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The results of Bulyard SI will depend on the quick and quality building of existing ships and observance of the contractual time limits and the realization of the expected gradual overcoming of the crisis described hereinafter and the related perspectives for new contracts.

The demand for various types of ships is characterized by descending trends. Till the beginning of the crisis in 2008, there were orders for bulk cargo ships of some 300 million dwt. At the beginning of 2010, this tonnage is some 276 million tons (over 60% compared to the present tonnage), reporting fall in demand of 10%. Based on research of Clarkson Research Services reporting cancelled and delayed ships building, the 2010 expected tonnage is some 76 million dwt and the 2011 expected tonnage is 78 million dwt, which represents growth of some 17% compared to the present tonnage in exploitation. Based on other analyses, in case of planned supply of total ship tonnage (tonnage of all types of ships) of some 200 million tons for 2010, this figure may vary within the range of 90 – 160 million tons. The saturation with bulk cargo ships may give rise to problems if China slows down its development, import and export respectively. The present condition will remain relatively unchanged if the ascending trend related to the world trade continues and the ships of age of over 25 years are decommissioned.

The prices of multi-purpose ships fell abruptly due to lack of permanent flows of general cargo. There is not expected any change in 2010.

The 2010 perspectives are still vague. Since the beginning of the year, there has been trend towards increased interest in ships purchase by many ship owners, which did not purchase new tonnage in 2009, believing that the assets value would continue going down due to the building of new ships and the increased total tonnage of ships in exploitation. At the same time, there is not any sufficient information about the negotiations for orders cancellation and price and/or supply time limit renegotiations, which will have positive impact on the market. Analysts base their estimates on the following assumptions:

Ü 20% of all ordered ships will not be built;

Ü The performance of 15% of all orders will be delayed for 1 year;

Ü Upon reaching the age of 25 years, ships will be decommissioned and cut.

Based on some estimates, some 800 ships (including some 520 bulk cargo ships) have been cancelled and there are negotiations as to a number of ships, which may increase the number of ships or whose building will be terminated or delayed.

The number/tonnage of hyper-old ships, which are to be cut in the Far East and decrease the market tension, plays key role in the market status assessment. In 2009, the tonnage of cut ships reported nearly double increase compared to 2008 and considerably exceeded the newly signed contracts and this has had positive impact. Based on some researches, the age of 710 and 498 out of 2,173 Handysize ships is over 26 years and ranges between 21 years and 25 years.

The global crisis affecting the supplies of basic ship equipment (mainly engines and hydro generators) has adverse impact on the activity of Bulyard SI EAD due to failure in obligations performance by suppliers.


The Management of Wartsila IHB Ship Design AD expects law demand for ship design services in 2010 due to the tightened lending and the slow overcoming of the global economic crisis.

The negotiation of new projects directly depends on the revival of foreign trade barter. The company applies a policy directed at covering the full scope of design services in the fulfilment of particular orders, specialization in the design of ships servicing offshore floating facilities and research and trying penetration into the sphere of design of various specialized floating facilities.

Additional requirements to vessels building related to reduction of hazardous emissions, which may result in new ship and existing ship modification projects, are expected to be introduced (see Item 9.2.3 Information about government,

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economic, tax, fiscal, monetary or political policies or factors, which have had or may have direct or indirect material impact on the activity of the Issuer).

If the described events do not occur, the activity of the company may be frozen.


A number of observers and experts expect ascending index start in 2010, supported by the needs of goods from China and other intensively developing counties. The initial indications, however, show that the instability characteristic of the last quarter of 2009 will continue.

Based on analyses, 2010 and 2011 will be the most difficult years for the Panamax, Post-Panamax and Capesize ships (60 – 200,000-ton ships, i. e. the ships setting the general trend in the dry cargo ships sector and having the highest effect on determination of daily market indexes) for the last decade. The 2010 and 2011 estimated growth of offered tonnage ranges between 13% to 17% and 10% to 13% compared to 6% in 2009.

The possible cutting of old ships and the fact that the main portion of new orders for Handysize ships building were fulfilled at shipyards with insufficient experience and traditions may have positive impact as to the preservation or slight rise in the freights in the segment, which is of great importance for Karvuna Ship and Anteya Ship.

In 2010 and 2011, when the slight start of the global economy revival is expected, the estimated maximum growth of cargo flows is 5%-6%.

The fact that the ships are new and require lower exploitation costs represents an advantage for IHB.


The 2010 policy of Dockyard Port – Bourgas AD is focused on the attraction of new cargo flows and clients. In 2010, a local grain storehouse will be built and commissioned. The storehouse is expected to be built by July 2010 and commissioned for the grain processing campaign in the second half of 2010. As to general cargo, the efforts are directed at increasing the share of directly processed cargo as a measure for increasing the cargo flows passing through the quay front.

The company will continue the preliminary works on launching of the port expansion project following elimination of the existing regulatory vagueness.

The 2010 plans of Odessoss PBM AD include expansion of the scope of cargo, increase of the quay wall capacities and creation of new services, including grain cargo processing based on storehouse-ship and truck-ship variants. This will be realized following the purchase of a machine for processing of grain (wheat, sunflower, maize, barley, rapeseeds) through the quay.

The company intends to handle full 20-foot and 40-foot containers in the rear, including refrigerator containers, under bonded storage regime inclusive.


The changing market elements and participants require from Bulgarian Register of Shipping AD quick, quality and flexible reacting to the market requirements and activities expanding.

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The Management will continue the gradual increase in the share of external markets. The ratio is estimated to become in favour of foreign ship owners in several years. Marketing is to be oriented to the East – China, India and Vietnam. The Russian market also offers a number of unexplored opportunities.

The trend towards extending the contacts of the Bulgarian Register of Shipping with foreign ship owners will be maintained through mutually beneficial relations with the representatives of the Bulgarian Register of Shipping abroad, in China in particular where growth of shipbuilding and ship repair is reported. The aim is to achieve reasonable balance between compliance with the technical requirements to ships and offering of advantageous terms for classification by the Bulgarian Register of Shipping. The successful market expansion and diversification are predetermined by the profitable revival of ship business.

In the conditions of the increasing market competition, the Bulgarian Register of Shipping experiences difficulty in competing with similar multinational organizations. The medium-term objectives of the Bulgarian Register of Shipping include meeting the requirements for recognition by the European Union and increasing the number and tonnage of the supervised ships.

The Bulgarian Register of Shipping may develop in the sphere of industrial audit and accompanying activities through expansion of its scope of certification services by including plants producing materials, products and/or offering other services related to shipbuilding and/or ship repair under the supervision of the Bulgarian Register of Shipping and entering the spheres of energy engineering and industry.

The process of maintenance and improvement of the internet-based system for inspectors’’ work management is continuous. The expansion and improvement of the system for inspectors’ work management with several other modules have been planned for 2010 (see Item 5.2.2. Description of the major investments of the Issuer in process of realization). Its efficient application requires highly qualified personnel. Trainings of the experts of the Bulgarian Register of Shipping related to working abroad, acquaintance with the regulatory changes and the expansion of the scope of offered services have been planned.

In 2010, the Bulgarian Register of Shipping will keep updated its Rules on classification and building of maritime ships through the issue of proper bulletins thereto in partnership with the Technical University of Varna and other experts in the filed.


The 2010 efforts of the companies within the group of ZMM Bulgaria Holding will be focused on:

Ü Conducting of centralized negotiations with the suppliers of those materials, which form the highest share of product costs;

Ü Commercial activity directed at search for new markets (the former Soviet Republics) and development of presently fading markets (the countries from South America and the Far East);

Ü Higher price policy flexibility to revive market demand, keep present market positions and secure the production process with minimal volume of orders to ensure profitability of production and keep the personnel;

Ü Optimization of the lathes of various sizes depending on the trend towards increase in the number of large lathes compared to small lathes.


Most foreign clients of Augusta Mebel AD are wholesalers and large catalogue trading companies. The contracts are short-term and sometimes for particular sites and seasons. They cannot be extended with the same clients in all cases. The risk directly depends on the stability of the markets where the clients sell.

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Provoked by the international turmoil, the economic crisis that began in the last quarter of 2008 has resulted in a brand new approach to markets, including traditional ones. The French, Irish and American markets, which are the key consumers of the products of Augusta Mebel AD, have reported the highest stagnation. At present, medium-scale series of furniture with attractive design and good quality offered at average class prices are to be produced to ensure adaptation to the external markets.

At present, the furniture industry is characterized by movement and the 2010 expectations are more optimistic compared to the preceding year. The priorities of Augusta Mebel AD includes keeping the business relations with the present clients and continuing the search for new clients. Companies, which may place series of orders and large volume of orders, form the target group to which the company is oriented in 2010 and is to continue to be oriented.

The efforts of the Management are focused on establishing direct contacts with traders from the EU, USA and other smaller markets, including the internal market. As the results of the corporate marketing (from establishing contact with a new client till potential realization of the first sale) take minimum 6 months, the search for new strategic partners will continue to be priority for Augusta Mebel in 2010 to promote sales and expand the markets in the following years.

The internal market is still stagnated and characterized by strongly decreased demand. The limited financial abilities of the population result in reduced consumption and extended furniture use periods. Based on results from research assigned by the Branch Chamber of Wood Processing and Furniture Industry, only 21% of the Bulgarian population purchased new furniture over the last 2-3 years. The 2010 forecasts concerning the internal market are not optimistic. Augusta Mebel AD has planned to furnish public buildings and small hotels directly agreed with the clients and 2 ships for Bulyard SI in 2010.


Despite the global economic crisis, expansion of the cruise market along the Rhein, Main, Moselle and Danube Rivers where the five ships owned by Dounav Tours operate is expected in 2010. Small ship owners go bankrupt. Some leading river shipping companies have purchased by 5-6 ships from companies experiencing financial difficulties, which will be commissioned in the current year. Despite the crisis, the competition in the sector reports increase.

The ambitions of the Management of Dounav Tours and its owners are focused on:

Ü Increasing the occupancy of the berth capacity before, during and after the tourist season, including using some of the ships as hotels out of the season

Ü Increasing the number of cruises through organization of additional excursions during the days of Christmas and New Year

Ü Development of own pontoon along the Danube in Rousse;

Ü Readiness for concession of the passenger ports along the Danube;

Ü Purchase of a new river ship.

The decisions on financing of the aforementioned actions will depend on the market environment, the required investments and the available funds of the company as at the particular dates.

1 3 . P R O J E C T E D P R O F I T

There have not been prepared any projections for the purposes of this Registration Document.

1 4 . A D M I N I S T R AT I V E , M A N A G E M E N T A N D S U P E R V I S O RY B O D I E S A N D S E N I O R M A N A G E M E N T

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14.1. M ANAG E ME NT BO ARD

Industrial Holding Bulgaria PLC is a joint-stock company with two-tier management system. Its bodies are the Management Board and the Supervisory Board. The activity of the Company is managed by the Management Board whose members are:

Ü Bozhidar Vasilev Danev;

Ü Boyko Nikolov Noev;

Ü Borislav Emilov Gavrilov;

Ü Daneta Angelova Zheleva;

Ü Georgi Yanchev Momchilov.

The term of office of the Management Board of Industrial Holding Bulgaria PLC expires in August 2012 except for the term of office of Georgi Momchilov, which expires in February 2014.

The Company is jointly or severally represented by Daneta Angelova Zheleva – Chief Executive Director and Georgi Yanchev Momchilov – Executive Director.

1. Bozhidar Vasilev Danev – Chairperson of the Management Board

Business address and functions at the Issuer

Bozhidar Vasilev Danev has the following business address: Bulgarian Industrial Association, 16-20 Alabin Street, Sofia.

Bozhidar Vasilev Danev is Chairperson of the Management Board of Industrial Holding Bulgaria PLC

Key functions performed outside the Issuer, which are important for the Issuer

As at the date of preparation of this Registration Document, Bozhidar Vasilev Danev performs the following functions outside the Issuer:

Ü Chairperson of the Management Board and Executive President of the Bulgarian Industrial Association;

Ü Member of the Board of Directors of Solvey Sodi, Devnya;

Ü Member of the Board of Directors of Deven AD, Devnya;

Ü Member of the Board of Directors of Provadsol AD;

Ü Member of the Board of Directors of Free Zone – Rousse EAD;

Ü Executive Director and Member of the Board of Directors of Infralink AD, Sofia;

Ü Executive Director and Member of the Board of Directors of Interlease AD, Sofia;

Ü Member of the Board of Directors of Inter Expo & Congress Centre AD.

Family relationship

Bozhidar Vasilev Danev has not family relationship with any other member of the Management Board or any member of the Supervisory Board of the Company.

Managerial experience and qualification

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Bozhidar Vasilev Danev graduated from the Technical University of Sofia. He holds scientific degree – Doctor of Economics and scientific title – Senior Research Associate – 2nd degree. He has passed post-doctor specialization in Germany.

Bozhidar Vasilev Danev has extensive managerial experience in commercial companies and non-governmental and business organizations.

Data about any conviction, sanction or insolvency over the five years preceding the date of preparation of the IPO Prospectus

Over the last five years, Bozhidar Vasilev Danev was not:

Ü Convicted of any fraud;

Ü Involved in any insolvency, receivership or liquidation proceedings in his capacity of Member of the Management Board;

Ü Officially/publicly incriminated and/or sanctioned by any legal or regulatory bodies (including particular professional bodies);

Ü Deprived by court of the right to be member of the administrative, management or supervisory bodies of any issuer or to hold managerial or executive position at any issuer.

2. Daneta Angelova Zheleva – Chief Executive Director


Daneta Angelova Zheleva has the following business address: Industrial Holding Bulgaria PLC, 47 Vasil Levski Boulevard, Sofia.

Daneta Angelova Zheleva is Member of the Management Board and Chief Executive Director of Industrial Holding Bulgaria PLC


As at the date of preparation of this Registration Document, Daneta Angelova Zheleva performs the following functions outside the Issuer:

Ü Member of the Board of Directors of DZH AD;

Ü Member of the Board of Directors of ZMM Bulgaria Holding AD;

Ü Member of the Board of Directors and Executive Director of Privat Engineering AD;

Ü Member of the Board of Directors of Dockyard Port – Bourgas AD;

Ü Member of the Board of Directors of Dounav Tours AD;

Ü Member of the Board of Directors of Tourist Company Dounav AD;

Ü Member of the Board of Directors and Executive Director of KLVK AD;

Ü Member of the Board of Directors and Executive Director of Bulyard AD;

Ü Member of the Management Board of Bulyard Shipbuilding Industry AD;

Ü Member of the Board of Directors of Odessoss PBM AD;

Ü Member of the Board of Directors of Stadis AD;

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Ü Member of the Board of Directors of Bulls AD;

Ü Member of the Board of Shipping Company Dounav EAD;

Ü Member of the Board of Dounav River Shipping EAD;

Ü Member of the Board of Directors of IHB Shipping Co EAD;

Ü Member of the Board of Directors of Rekolta AD;

Ü Member of the Management Board of Atanas Bourov Foundation;

Ü Member of the National Council of the Bulgarian Industrial Capital Association;

Ü Deputy Chairperson of the Management Board of the Bulgarian Private Ports Association;

Family relationship

Daneta Angelova Zheleva has not family relationship with any other member of the Management Board or any member of the Supervisory Board of the Company.


Daneta Angelova Zheleva graduated from St. Kliment Ohridski Sofia University – Faculty of Law. She is Master of Laws and has 10-year experience as Lawyer at Sofia Bar Association and extensive administrative and managerial experience in commercial companies.


Over the last five years, Daneta Angelova Zheleva was not:


Ü Involved in any insolvency, receivership or liquidation proceedings in her capacity of Member of the Management Board;



3. Borislav Emilov Gavrilov – Member of the Management Board


Borislav Emilov Gavrilov has the following business address: Industrial Holding Bulgaria PLC, 47 Vasil Levski Boulevard, Sofia.

Borislav Emilov Gavrilov is Member of the Management Board of the Company.


Borislav Emilov Gavrilov performs the following functions outside the Issuer:

Ü Manager of Boblo EOOD;

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Ü Manager of Stock Consult OOD;

Ü Manager of Simetriya OOD;

Ü Member of the Board of Directors of Stock – EG AD;

Ü Member of the Board of Directors of Elprom ZEM AD;

Ü Member of the Board of Directors of Hydro Power Bulgaria AD;

Ü Member of the Board of Directors of Mashstroy AD;

Ü Member of the Board of Directors of KLVK AD;

Ü Member of the Board of Directors of Maritime Holding AD;

Ü Manager of Bulgarian Lloyd EOOD.

Family relationship

Borislav Emilov Gavrilov has not family relationship with any other member of the Management Board or any member of the Supervisory Board of the Company.


Borislav Emilov Gavrilov has higher education and qualification awarded by the University in Hull, Great Britain – Economist. He has administrative and managerial experience in commercial companies.


Over the last five years, Borislav Emilov Gavrilov was not:





4. Boyko Nikolov Noev – Member of the Management Board


Boyko Nikolov Noev has the following business address: Centre for the Study of Democracy, 5 Alexander Zhendov Street, Sofia.

Boyko Nikolov Noev is newly elected Member of the Management Board of the Company.


Boyko Nikolov Noev performs the following functions outside the Issuer:

Ü Program Director at the Centre for the Study of Democracy;

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Ü Member of the Supervisory Board of OTSK AD;

Ü Member of the Board of Directors of Intertrust Holding BGN EAD.

Family relationship

Boyko Nikolov Noev has not family relationship with any other member of the Management Board or any member of the Supervisory Board of the Company.


Boiko Nikolov Noev graduated and obtained qualification from the International Relations Institute of Moscow – Diplomat. He has extensive administrative and managerial experience in state institutions. He is former Minister of Defence and Ambassador of the Republic of Bulgaria to NATO, Belgium and Luxembourg.


Over the last five years, Boyko Nikolov Noev was not:





5. Georgi Yanchev Momchilov – Member of the Management Board


Georgi Yanchev Momchilov has the following business address: Industrial Holding Bulgaria PLC, 47 Vasil Levski Boulevard, Sofia.

Georgi Yanchev Momchilov is Member of the Board of Directors and Executive Director of the Company.


Georgi Yanchev Momchilov performs the following functions outside the Issuer:

Ü Member of the Board of Directors and Chief Executive Director of ZMM Bulgaria Holding AD;

Ü Member of the Board of Directors of Elprom ZEM AD;

Ü Member of the Board of Directors of ZMM Nova Zagora AD;

Ü Member of the Board of Directors of Leyarmach AD;

Ü Member of the Board of Directors of Rekolta AD;

Ü Member of the Board of Directors of Allianz Bank Bulgaria AD;

Ü Member of the Board of Directors of О2 Capital AD;

Ü Member of the Board of Directors of Momchilov Capital AD;

Ü Member of the Board of Directors of Solar Energy Engineering AD;

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Ü Manager of GND – Start EOOD;

Ü Manager of Dimos EOOD;

Ü Manager of О2 Ins EOOD;

Ü Member of the Board of Directors of Pingvinite AD.

Family relationship

Georgi Yanchev Momchilov has not family relationship with any other member of the Management Board or any member of the Supervisory Board of the Company.


Georgi Yanchev Momchilov graduated from the University of National and World Economy – Sofia with degree in Finance. He holds MBA degree awarded by the University of Buckingham, Great Britain, where he is making PhD. He has extensive managerial experience in commercial companies in the fields of finance, banking and insurance and is Chief Executive Director of ZMM Bulgaria Holding.


Over the last five years, Georgi Yanchev Momchilov was not:


Ü Involved in any insolvency, receivership or liquidation proceedings in his capacity of Member of the Board of Directors;



14.2 S UP E RV I S O RY BO ARD

The work of the Management Board of the Company is controlled by the Supervisory Board. At present, the Supervisory Board of Industrial Holding Bulgaria PLC consists of:

Ü DZH AD, represented by Elena Petrova Kircheva;

Ü Konstantin Kouzmov Zografov;

Ü Snezhana Ilieva Hristova.

The term of office of the present Supervisory Board of Industrial Holding Bulgaria PLC expires in July 2014 except for the term of office of Konstantin Zografov, which expires in August 2012.

1. DZH AD – Chairperson of the Supervisory Board


DZH AD is entered into the Commercial Register of the Registry Agency under UIC 130020928. It has its seat and address of management at 23 Tenev Bair, Bankya and scope of activity including intermediation, home and foreign trade,

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commercial representation of Bulgarian and foreign individuals and legal entities in the country and abroad, transportation, design and construction as well as any other transactions and services not prohibited by law.

DZH AD is Chairperson of the Supervisory Board of Industrial Holding Bulgaria PLC where it is represented by Elena Petkova Kircheva having the following business address: Vienna Economic Forum, Stubenring 16/3, 1010 Vienna, Austria.


DZH AD does not perform functions outside the Issuer.

The representative, Elena Petkova Kircheva, performs the following functions outside the Issuer:

Ü Member of the Management Board and Secretary General of Vienna Economic Forum, Vienna, registered in April 2004 under the Austrian Law on Associations.

Family relationship

Elena Petkova Kircheva has not family relationship with any other member of the Supervisory Board or any member of the Management Board of the Company.


Elena Petkova Kircheva graduated from St. Kliment Ohridski Sofia University and holds degree in Laws. She has extensive administrative and managerial experience in state institutions and government and non-government organizations, academic and teaching experience in the spheres of finance and economics and extensive experience in diplomacy as many-year ex-ambassador of the Republic of Bulgaria to Switzerland, Liechtenstein, Finland and Austria. She was awarded the Grand Decoration of Honour in Gold with Sash for contribution to the Republic of Austria.


Over the last five years, DZH AD was not:

Ü Involved in any insolvency, receivership or liquidation proceedings in her capacity of Representative of the Supervisory Board;



Over the last five years, the representative Elena Petkova Kircheva was not:


Ü Involved in any insolvency, receivership or liquidation proceedings in her capacity of Representative of the Supervisory Board;



2. Konstantin Kouzmov Zografov – Deputy Chairperson of the Supervisory Board

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Konstantin Kouzmov Zografov has the following business address: Industrial Holding Bulgaria PLC, 47 Vasil Levski Boulevard, Sofia.

Konstantin Kouzmov Zografov is Deputy Chairperson of the Supervisory Board of the Company.


Konstantin Kouzmov Zografov performs the following functions outside the Issuer:

Ü Member of the Board of Directors of Bulyard AD;

Ü Member of the Board of Directors of Privat Engineering AD;

Ü Member of the Board of Directors of Hydro Power Bulgaria AD;

Ü Member of the Board of Directors of KLVK AD;

Ü Member of the Board of Directors of Bulgarian Register of Shipping AD;

Ü Member of the Board of Directors of Maritime Holding AD;

Ü Member of the Board of Directors of IHB Shipping Co EAD;

Ü Manager of EKO Consulting OOD;

Ü Member of the Management Board of Re Energy Association;

Ü Member of the Management Board of AFCEA - Sofia Section;

Ü Regional Vice President for the Mediterranean and Black Sea Region and Associate Director of AFCEA International;

Ü Member of the Management Board of the Bulgarian Institute for Standardization.

Family relationship

Konstantin Kouzmov Zografov has not family relationship with any other member of the Supervisory Board or any member of the Management Board of the Company.


Konstantin Kouzmov Zografov graduated from HNMU Vasil Levski, Veliko Tarnovo with higher education degree in Eastern Languages – Turkish Philology. He has administrative and managerial experience in the Ministry of Defence, the General Staff and commercial companies. Over the period 1999 – July 2003, he was Chairperson of the Supervisory Board of IHB. As of July 2003, he is Deputy Chairperson of the Supervisory Board of IHB.


Over the last five years, Konstantin Kouzmov Zografov was not:


Ü Involved in any insolvency, receivership or liquidation proceedings in his capacity of Member of the Supervisory Board;


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3. Snezhana Ilieva Hristova – Independent member of the Supervisory Board


Snezhana Ilieva Hristova has the following business address: GP Allianz Bulgaria, 42 Damyan Grouev Street, Sofia.

Snezhana Ilieva Hristova is Member of the Supervisory Board of the Company.


Snezhana Ilieva Hristova performs the following functions outside the Issuer:

Ü General Representative of Allianz Bulgaria Holding AD and Owner of ET Snezhana Hristova – 2000;

Ü Member of the Board of Directors of ZAD Allianz Bulgaria Life;

Ü Member of the Board of Directors of Stadis AD;

Ü Member of the Board of Directors of Aladis AD;

Ü Member of the Board of Directors and Executive Director of Astsela AD;

Ü Manager of Alhena EOOD;

Ü Manager of Europa 2007 OOD.

Family relationship

Snezhana Ilieva Hristova has not family relationship with any other member of the Supervisory Board or any member of the Management Board of the Company.


Snezhana Ilieva Hristova graduated from D. A. Tsenov Academy of Economics – Svishtov with higher education degree in Economics – major: Finance. She has administrative and managerial experience in commercial companies.


Over the last five years, Snezhana Ilieva Hristova was not:


Ü Involved in any insolvency, receivership or liquidation proceedings in her capacity of Member of the Supervisory Board;



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14.3. PART I C I P AT I O N O F T HE ME MBE RS O F T HE MANAG E ME NT BO ARD AND T HE SUP E RV I S O RY BO ARD O F T HE IS S UE R I N T HE MANAG E ME NT O F O T HE R CO MP ANI E S AND P ART NE RS HI P S

The following Table № 26 presents data about all companies and partnerships where the members of the Management Board and the Supervisory Board of Industrial Holding Bulgaria PLC have been members of the management bodies or shareholders/partners for the five years preceding the date of preparation of this Registration Document, including current participation. Table № 27 presents information about the participation of the members of BoD and Supervisory Board in the registered capital of the Issuer.

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Table № 26 Data about participation of the members of the Management Board and the Supervisory Board of the Issuer in the management of other companies and partnerships

DZH AD no

Elena Petkova KirchevaMember of the Board of Directors and General Secretary of Vienna Economic Forum, Viena, registered according to the Austrian corporate law in April 2004

Konstantin Kuzmov Zografov Member of the Board of Directors of Bulyard ADMember of the Board of Directors of Privat Engineering ADMember of the Board of Directors of Hydro Power Bulgaria ADMember of the Board of Directors of KLVK ADMember of the Board of Directors of Bulgarian Ship Register ADMember of the Board of Directors of Maritime Holding ADMember of the Board of Directors of IHB Shipping Co EAD, VarnaDirector of ECO Consulting OOD

Snezhana Ilieva Hristova General Representative of Allianz Bulgaria Holding AD and Owner of Snezhana Hristova 2000 ETMember of the Board of Directors of ZAD Allianz Bulgaria LifeMember of the Board of Directors of Stadis ADMember of the Board of Directors of Aladis ADMember of the Board of Directors and CEO of Astsela AD, SofiaDirector of Alhena EOOD, SofiaDirector of Evropa 2007 OOD

Bozhidar Vasilev Danev Chairman of the Board and Executive Chairman of the Bulgarian Commercial ChamberMember of the Board of Directors of Solvey Sodi AD, DevnyaMember of the Board of Directors of Deven AD, DevnyaMember of the Board of Directors of Provadsol ADMember of the Board of Directors of Svobodna Zona - Ruse EADCEO and Member of the Board of Directors of Infralink AD, SofiaCEO and Member of the Board of Directors of Interlease AD, SofiaMember of the Board of Directors of Inter Expo and Congress Center AD

Boyko Nikolov Noev Member of the Supervisory Board of OCK ADMember of the Board of Directors of Intertrust Holding BG EAD

Borislav Emilov Gavrilov Director of Boblo EOODDirector of Stock-Consult OODDirector of Simetria OODMember of the Board of Directors of Stock - EG ADMember of the Board of Directors of Elprom ZEM ADMember of the Board of Directors of Hydro Power Bulgaria ADMember of the Board of Directors of Mashstroy ADMember of the Board of Directors of KLVK ADMember of the Board of Directors of Maritime Holding AD, VarnaDirector of Bulgarian Loyd EOOD

Georgi Yanchev Momchilov Member of the Board of Directors of ZMM Bulgaria Holding ADMember of the Board of Directors of Elprom ZEM ADMember of the Board of Directors of ZMM Nova Zagora ADMember of the Board of Directors of Leyarmash ADMember of the Board of Directors of Rekolta ADMember of the Board of Directors Allianz Bank Bulgaria ADMember of the Board of Directors of O2 Capital ADMember of the Board of Directors of Momchilov Capital ADMember of the Board of Directors и Solar Energy Engineering ADDirector of GND-Start EOODDirector of Dimos EOODDirector of О2 ins EOODMember of the Board of Directors of Pingvinite AD

Daneta Angelova Zheleva Member of the Board of Directors of DZH ADMember of the Board of Directors and CEO of ZMM Bulgaria holding ADMember of the Board of Directors and CEO of Privat Engineering ADMember of the Board of Directors of Dockyard Port - Bourgas ADMember of the Board of Directors of Dounav Tours ADMember of the Board of Directors of Tourist Company Dounav ADMember of the Board of Directors and CEO of KLVK ADMember of the Board of Directors and CEO of Bulyard ADMember of the Board of Directors of Bulyard Shipbuilding Industry ADMember of the Board of Directors of Odessoss PBM ADMember of the Board of Directors of Stadis DMember of the Board of Directors of Bulls ADMember of the Board of Directors of Shipping company Dounav EADMember of the Board of Directors of Dounav River Shipping EADMember of the Board of Directors of IHB Shipping Co EAD, VarnaMember of the Board of Directors of Rekolta AD

Participation in the management of companies as of 22.02.2010

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DZH AD no

Elena Petkova Kircheva no

Konstantin Kuzmov Zografov Member of the Board of Directors of Bulyard ADMember of the Board of Directors of Privat Engineering ADMember of the Board of Directors of Hydro Power Bulgaria ADMember of the Board of Directors of KLVK ADMember of the Board of Directors of Bulgarian Shipping Register ADMember of the Board of Directors of Maritime Holding ADMember of the Board of Directors of IHB Shipping Co EAD, VarnaDirector of ECO Consulting OODMember of the Board of Directors of Dounav River Shipping ADDirector of Bild 2000 EOOD

Snezhana Ilieva Hristova General Representative of Allianz Bulgaria Holding AD and Owner of Snezhana Hristova 2000Member of the Board of Directors of ZAD Allianz Bulgaria LifeMember of the Board of Directors of Stadis ADMember of the Board of Directors of Aladis ADMember of the Board of Directors and CEO of Astsela AD, SofiaDirector of Evropa 2007 OODDirector of Alhena EOOD, SofiaMember of the Board of Directors of Vacation Club Villa Romana ADMember of the Board of Directors of Venzen ADMember of the Board of Directors of Antareya ADMember of the Board of Directors of Aldemarin ADMember of the Board of Directors of Bulgaria Net AD

Bozhidar Vasilev Danev Chaiman of the BoD and CEO of Bulgarian Commercial ChamberMember of the Board of Directors of Solvey Sodi AD, DevnyaMember of the Board of Directors of Deven AD, DevnyaMember of the Board of Directors of Provadsol ADMember of the Board of Directors of Svobodna Zona - Ruse EADCEO and Member of the Board of Directors of Infralink AD, SofiaCEO and Member of the Board of Directors of Interlease AD, SofiaMember of the Board of Directors of Inter Expo and Congress Center ADMember of the Board of Directors of POK Saglasie ADMember of the Board of Directors of Generali Zakrila Health Insurance AD, SofiaMember of the Board of Directors of Hemus Highways AD, SofiaMember of the Board of Directors of Moststroy AD, Sofia

Boyko Nikolov Noev Member of the Supervisory Board of OCK ADMember of the Board of Directors of Intertrust Holding BG EAD

Borislav Emilov Gavrilov Director of Boblo EOODDirector of Stock-Consult OODMember of the Board of Directors of Stock - EG ADDirector of Simetria OODMember of the Board of Directors of Елпром ЗЕМ АДMember of the Board of Directors of Hydro Power Bulgaria ADMember of the Board of Directors of Mashstroy ADMember of the Board of Directors of KLVK ADMember of the Board of Directors of Maritime Holding AD, VarnaDirector of Bulgarian Loyd EOODProcurator of Elprom ZEM ADProcurator of KLVK ADMember of the Board of Directors of Bulgarian Ship Register AD

Georgi Yanchev Momchilov Member of the Board of Directors of ZMM Bulgaria Holding ADMember of the Board of Directors of Elprom ZEM ADMember of the Board of Directors of ZMM Nova Zagora ADMember of the Board of Directors of Leyarmash ADMember of the Board of Directors of Rekolta ADMember of the Board of Directors Allianz Bank Bulgaria ADMember of the Board of Directors of O2 Capital ADMember of the Board of Directors of Momchilov Capital ADMember of the Board of Directors и Solar Energy Engineering ADDirector of GND-Start EOODDirector of Dimos EOODDirector of О2 ins EOODMember of the Board of Directors of Pingvinite ADMember of the Board of Directors and CEO of Allianz Bulgaria Life AD

Daneta Angelova Zheleva Member of the Board of Directors of DZH ADMember of the Board of Directors and CEO of ZMM Bulgaria holding ADMember of the Board of Directors and CEO of Privat Engineering ADMember of the Board of Directors of Dockyard Port - Bourgas ADMember of the Board of Directors of Dounav Tours ADMember of the Board of Directors of Tourist Company Dounav ADMember of the Board of Directors and CEO of KLVK ADMember of the Board of Directors and CEO of Bulyard ADMember of the Board of Directors of Bulyard Shipbuilding Industry ADMember of the Board of Directors of Odessoss PBM ADMember of the Board of Directors of Stadis DMember of the Board of Directors of Bulls ADMember of the Board of Directors of Shipping company Dounav EADMember of the Board of Directors of Dounav River Shipping EADMember of the Board of Directors of IHB Shipping Co EAD, VarnaMember of the Board of Directors of Rekolta ADMember of the Board of Directors of BKR ADMember of the Board of Directors of Dounav Tours Hotels AD

Participation in the management of companies in the last five years

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DZH AD no

Elena Petkova Kircheva no

Konstantin Kuzmov Zografov no

Snezhana Ilieva Hristova Astsela AD, SofiaAladis AD, SofiaSnezhana Hristova 2000 ET, SofiaEvropa 2007 OOD, Sofia

Bozhidar Vasilev Danev no

Boyko Nikolov Noev no

Borislav Emilov Gavrilov Boblo EOOD, SofiaAvans BG EOOD, SofiaSimetria OOD, SofiaStock Consult OOD, Sofia

Georgi Yanchev Momchilov О2 Capital AD, SofiaMomchilov Capital AD, SofiaDimos EOOD, Sofia

Daneta Angelova Zheleva DZH AD, Sofia

DZH AD no

Elena Petkova Kircheva noKonstantin Kuzmov Zografov no

Snezhana Ilieva Hristova Aladis AD, SofiaAstsela AD, SofiaSnezhana Hristova 2000 ET, SofiaEvropa 2007 OOD, Sofia

Bozhidar Vasilev Danev no

Boyko Nikolov Noev no

Borislav Emilov Gavrilov Boblo EOOD, SofiaAvans BG EOOD, SofiaSimetria OOD, SofiaStock Consult OOD, Sofia

Georgi Yanchev Momchilov О2 Capital AD, SofiaMomchilov Capital AD, SofiaDimos EOOD, Sofia

Daneta Angelova Zheleva DZH AD, Sofia

Participation in the capital of companies over 25% as of 22.02.2010

Participation in the capital of companies over 25% in the last five years


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Table №27 - Information on participations of the members of the Board of Directors and the Supervisory Board of the Issuer in the Capital of the Issuer

Number of direclty owned shares

Number of shares, owned through related parties

Total number of shares

% of votes in the General

Shareholders Assembly - directly

and indirectly

Supervisory BoardDZH AD 2,440,655 0 2,440,655 5.58%Snezhana Hristova 1,605 33,140 34,745 0.08%Konstantin Zografov 582 208 790 0.00%

Board of DirectorsBozhidar Danev 208 0 208 0.00%Daneta Zheleva 26,386 2,440,863 2,467,249 5.64%Georgi Momchilov 75 5,000 5,000 0.01%Borislav Gavrilov 208 624 832 0.00%Boyko Noev 0 0 0

Source: Industrial Holding Bulgaria SA

14.4. CO NF L I CT S O F I NT E RE S T

There are not any present or potential conflicts of interest between the obligations of the members of the Management Board or the Supervisory Board to the Issuer and their personal interests and/or other obligations.

There are no potential conflicts of interest between the obligations of Elena Petkova Kircheva, representing DZX AD, to the Issuer and her private interests and/or other obligations.

As at the date of preparation of this Registration Document, the Issuer is not aware of any arrangements or agreements entered into by the principal shareholders, clients, suppliers or other persons, by virtue of which any member of the Management Board or the Supervisory Board of Industrial Holding Bulgaria PLC has been elected member of administrative, management or supervisory bodies or senior management.

There are not any restrictions accepted by the members of the Management Board or the Supervisory Board of Industrial Holding Bulgaria PLC as to the disposal of their assets in securities of the Issuer within a particular time limit.

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Table № 28 Expiry dates of the current contracts with the Members of the Board and Supervisory Board, and periods of position holding

Supervisory Board & Board of Directors Member since: Contract ends:

Supervisory BoardDZH AD, 08.07.2003 Jul-14represented by Elena Kircheva 19.07.2006 Aug-14Snezhana Hristova 08.07.2003 Sep-14Konstantin Zografov 15.09.1999 Aug-12

Board of DirectorsBozhidar Danev 07.11.1996 Aug-12Daneta Zheleva 08.07.2003 Aug-12Georgi Momchilov 17.02.2009 Feb-14Borislav Gavrilov 08.07.2003 Aug-12Boyko Noev 04.03.2003 Aug-12


In compliance with the Statute of IHB, a member of the Management Board or the Supervisory Board is elected for 5-year term of office and may be dismissed prior to the expiry of such term of office.

1 5 . R E M U N E R AT I O N A N D C O M P E N S AT I O N

In 2009, the members of the Management Board and the Supervisory Board of Industrial Holding Bulgaria PLC received the remunerations for performing their functions at the Issuer and its subsidiaries presented in the following Table № 29.

Table № 29 Remunerations received by the members of the Management Board and the Supervisory Board in 2009

From IHB(BGN '000)

From subsidiaries of IHB(BGN '000)

Supervisory Board

DZH AD, represented by Elena Kircheva 12,000 -Snezhana Hristova 12,000 -Konstantin Zografov 12,000 60,557

Board of Directors

Bozhidar Danev 12,000 -Daneta Zheleva 36,000 157,000Georgi Momchilov 20,857 110,500Borislav Gavrilov 12,000 12,000Boyko Noev 12,000 -

Supervisory Board & Board of DirectorsReceived compensation for 2009


The contracts with the members of the Management Board and the Supervisory Board of Industrial Holding Bulgaria PLC do not provide for any compensations upon dismissal.

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1 6 . G O V E R N A N C E P R A C T I C E S

16.1. T E RM O F O F F I CE

In compliance with the Statute of IHB, a member of the Management Board or the Supervisory Board is elected for 5-year term of office. A member of the Management Board or the Supervisory Board may be dismissed prior to the expiry of such term of office.

The term of office of the Management Board of Industrial Holding Bulgaria PLC expires in August 2012 except for the term of office of Georgi Momchilov, which expires in February 2014. The term of office of the present Supervisory Board of Industrial Holding Bulgaria PLC expires in July 2014 except for the term of office of Konstantin Zografov, which expires in August 2012. The Statute of the Company does not provide for any restriction as to the re-election of the members of its Management Board or Supervisory Board.

16.2. CO NT RACT S W I T H T HE ME MBE RS O F T HE MANAG E ME NT BO ARD AND /O R T HE SUP E RV I S O RY BO ARD W I T H T HE IS S UE R O R ANY O F I T S S UBS I D I ARI E S , W HI CH P RO V I DE F O R CO MP E NS AT I O NS UP O N CO NT RACT T E RMI NAT I O N

The contracts with the members of the Management Board and the Supervisory Board with Industrial Holding Bulgaria PLC and/or any of its subsidiaries do not provide for any compensations upon dismissal.

16.3. I NF O RMAT I O N ABO UT T HE AUDI T CO MMI T T E E O R RE MUNE RAT I O NS CO MMI T T E E O F T HE IS S UE R , I NCL UDI NG T HE NAME S AND T E RMS O F O F F I CE O F T HE CO MMI T T E E ME MBE RS

In May 2009, the General Meeting of Shareholders of IHB elected Audit Committee of 3 (three) members with 3-year term of office. Members of the Audit Committee are Maxim Stanev Sirakov – Chairperson, Snezhana Ilieva Hristova and Boryana Vladimirova Dimova.

16.4. C O RP O RAT E G O V E RNANCE

Industrial Holding Bulgaria PLC performs its activity in compliance with the effective legislation of the Republic of Bulgaria. Since 2003, the Company has been preparing Good Corporate Governance Program and includes information about good corporate governance in its annual activity reports on annual basis.

In October 2007, the Company adopted the National Corporate Governance Code corresponding to the internationally adopted and applied corporate governance principles of the Organization for Economic Cooperation and Development (2004).

The Code has been adopted by BSE – Sofia AD. BSE – Sofia AD obligates the companies, whose financial Documents are admitted to regulated markets, to comply with the Code.

On 26 October 2007, Industrial Holding Bulgaria PLC adopted the National Corporate Governance Code and undertook to perform its activity in compliance with its provisions.

In case of any deviation from the principles outlined in the Code, the Management of the Company explains the related reasons (comply with or explain principle). Industrial Holding Bulgaria PLC prepared its first Comply with or Explain Report as part of its Annual Financial Statements for 2007 and, since then, it prepares such report as part of its annual financial statements on annual basis. Such report discloses information about the application of the recommendations outlined in the Code in the process of corporate governance of the Issuer. All reports and statements are published at the website of Industrial Holding Bulgaria PLC – Corporate Governance Section.

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The actions of the Management and employees of Industrial Holding Bulgaria PLC are focused on strengthening of the good corporate governance principles, increasing of the confidence of shareholders, investors and other persons interested in the management and operations of IHB and promotion of successful business operations.

The Code constitutes good practice standards and means for worldwide business communication. It complies with the effective regulatory framework without repeating its provisions and recommends on the manner of application of the good corporate governance practices and principles by the Bulgarian companies. The rules and standards set in the Code constitute standards for management and supervision of public companies with proved efficiency. The Code is based on the understanding of corporate governance as balanced interaction among shareholders, corporate governance bodies and interested persons. Good corporate governance means loyal and responsible corporate management bodies, transparency, independency and corporate responsibility to the public.

The Code sets rules on shareholders’ protection, transparency, actions of corporate governance bodies and consideration of interested parties addressed to public companies and companies planning to become public.

The Code describes the functions and responsibilities of the corporate governance bodies, the structure, competency and key guidelines on election and dismissal of members of the Management Board and the Supervisory Board based on the rules on work continuousness and stability and determination of their remunerations considering the responsibilities and contribution of each member to the activity and results of the company, the option to recruit and keep qualified and loyal members of the Boards and the necessity of compliance of the interests of the members of the Boards and the long-term interests of the company.

The Code provides for avoidance of potential or actual conflicts of interest by the Management Board and the Supervisory Board. In compliance with the principles of the Code, a potential conflict of interest exists when a company intends to conclude transactions with a legal entity where (а) a member of the Management Board and/or the Supervisory Board or its related parties have financial interest; (b) a member of the Board is member of Management Board, Supervisory Board or Board of Directors.

The Code includes rules on auditor selection by recommending compliance with the applicable requirements to professionalism and the rotation principle in the preparation of an auditor selection proposal to the General Meeting by the corporate governance bodies.

The Codes also focuses on the necessity to guarantee equal treatment of all shareholders, including minority shareholders and foreign shareholders and protection of their rights by the corporate governance bodies.

The Code includes guidelines to the corporate governance bodies related to approval of policy on information disclosure in compliance with the applicable regulatory requirements and acts and creation and maintenance of a system for information disclosure, guaranteeing equal treatment of all addressees (shareholders, interested persons and investors) and avoidance of misuse of internal information.

The Code includes instructions to the corporate governance bodies related to identification and efficient interaction with the interested persons. The good corporate governance practice requires consideration of the interests of the interested persons in compliance with the principles of transparency, reporting and business ethics.

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1 7 . P E R S O N N E L

17.1. N UMBE R O F E MP L O Y E E S AND MAI N CAT E G O RI E S O F ACT I V I T I E S

The following Table № 30 presents information about the average list-based number and the list-based number of employees of the Issuer for the last three years and as at 31 January 2010 on consolidated basis.

As of 31 January 2010 till the date of preparation of this Registration Document, the number of employees did not undergo any changes.

Table № 30 Average list-based number and list-based number of employees of the Issuer

Personnel by business lines

31.01.2010 2009 2008 2007 31.01.2010 2009 2008 2007

І. Industrial Holding Bulgaria AD 13 13 10 10 13 13 10 10ІІ. Maritime business 969 1,143 1,234 1,185 968 987 1,258 1,201

Shipbuilding and repair 771 919 1,011 1,011 769 778 1,027 1,016Port operation 128 130 130 114 128 128 137 113Classification and certification 34 35 39 37 34 35 39 36Ship design 21 44 51 23 21 30 51 36Transport 15 15 3 0 16 16 4 0

ІІІ. Machine building 719 979 1,471 1,499 721 713 1,333 1,504ІV. Furniture production 90 97 121 134 90 89 108 120V. River cruises 211 266 239 224 209 262 264 238VІ. Other 0 1 16 16 0 1 6 37Total subsidiaries 1,737 2,154 2,766 2,818 1,738 1,740 2,626 2,840Total associated companies 265 345 325 250 263 325 353 270Total: 2,002 2,499 3,091 3,068 2,001 2,065 2,979 3,110

Average number Total number


In 2009, IHB and its subsidiaries did not hire any considerable number of employees under temporary contracts. In 2009, some 650 persons worked for Bulyard SI EAD in addition to its employees hired under labour contracts – employees of the subcontractors of the shipyard working at the plant site.

17.2. S HARE HO L DI NG AND S T O CK O P T I O NS

There are not any persons holding options on the capital of IHB or the capital of a company, which is member of the economic group or persons as to which there are conditional or unconditional commitments to issue stock options in their favor.

17.3. D E S CRI P T I O N O F ANY ARRANG E ME NT S F O R P ART I C I P AT I O N O F T HE E MP L O Y E E S I N T HE CAP I T AL O F T HE IS S UE R

There are not any arrangements for participation of the employees of the Issuer in its capital.

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1 8 . P R I N C I PA L S H A R E H O L D E R S

18.1. D AT A ABO UT T HE S HARE HO L DE RS HO L DI NG O V E R 5% O F AL L V O T I NG S HARE S

Industrial Holding Bulgaria PLC avails with data about the following shareholders holding over 5% of all voting shares as at the date of preparation of this Registration Document:

Ü VENSIDE ENTERPRISES LIMITED

UIC N/A

Seat Limassol, Republic of Cyprus

Address of managementOffice 607, Floor 6, Block B, Limassol Centre, 2 Riga Ferou Street, Limassol, Republic of Cyprus

Number of held voting shares and their percentage of the votes in the General Meeting of Shareholders of the Company

13,472,245 shares, representing 30.79% of the votes, held directly

Ü BULLS AD

UIC 122082983

Seat Sofia

Address of management 79 Mariya Louiza Boulevard



Bulls AD, through an own subsidiary, excercises control over Venside Enterprises Ltd. and owns 13, 472, 245 shares in its capital.

Ü DZH AD

UIC 130020928

Seat Bankya

Address of management 23 Tenev Bair



Ü DANETA ANGELOVA ZHELEVA

Number of held voting shares and their 26,386 shares, representing 0.06% of the votes,

147


percentage of the votes in the General Meeting of Shareholders of the Company

held directly and 2,467,249 shares, representing 5.64% of the votes, held through related parties (including DZH AD)

Ü DIMITAR GEORGIEV ZHELEV


208 shares, representing 0.0005% of the votes, held directly and 2,467,249 shares, representing 5.64% of the votes, held through related parties (including DZH AD)

As of 22.02.2010 the Issuer does not know any shareholders (individual or institutions), who participate indirectly, through the shareholders – legal entities, in the Issuer’s capital, except the aforementioned legal entities and individuals.

None of the aforementioned shareholders holds different rights to vote in the General Meeting of Shareholders of the Company.

IHB does not avail with any information about persons who exercise direct or indirect control on the Company as at the date of preparation of this Registration Document. The Issuer is not aware of any arrangements, which may change this control on any subsequent date.

18.2. P E RS O NS E X E RCI S I NG CO NT RO L O N T HE IS S UE R

In compliance with the definition of Paragraph 1, Item 13 of the Additional Provisions of the Law on Public Offering of Securities, control exists when a person:

1. Holds over 50% of the votes in the General Meeting of a company or other legal entity directly, through subsidiary or by virtue of agreement with another party or

2. Has the right to determine over 50% of the members of the management body or the supervisory body of a legal entity directly or indirectly or

3. May have decisive influence on making decisions related to the activity of a legal entity in other manner.

IHB does not avail with any information about persons who exercise direct or indirect control on the Company as at the date of preparation of this Registration Document. The Issuer is not aware of any arrangements, which may change this control on any subsequent date.

148


1 9 . R E L AT E D PA R T Y T R A N S A C T I O N S

In compliance with IAS 24 Related Party Disclosures, a person is considered to be related party when:

а) Directly or indirectly through an intermediary or two or more intermediaries, the person:

Ü Controls or is controlled or is under the joint control of the company (including principal companies, subsidiaries and subsidiaries of subsidiaries);

Ü Holds interest in the company, which entitles it to exercise significant influence on the company or

Ü Exercises joint control on the company;

b) The person is an associate (as defined in IAS 28 Investments in Associates) of the company;

c) The person is a joint venture where the company is controlling partner;

d) The person is a member of the key management of the company or its principal company;

e) The person is a close member of the family of an individual under letter a) or d) above;

f) The person is a company controlled, jointly controlled or significantly influenced by a person belonging to the definition under letter d) or e) or holding material powers to vote in the company, directly or indirectly;

g) The person is a post-employment defined benefit plan for the benefit of employees of the company or any of its related parties.

In compliance with IAS 24, a related party transaction is a transfer of resources, services or obligations between related parties no matter whether a price is charged.

Over the period covered by the historical financial information disclosed in this Registration Document, the Issuer concluded the following related party transactions:

2006

Over the period 1 January 2006 – 31 December 2006, IHB granted loans totalling BGN 5,303 thousand to related parties. In 2006, BGN 4,779 thousand was repaid, including as per prior loan repayment schedules. The gains on loans granted represent 3.73% of the 2006 operating income of IHB and the share of income from services rendered is 31.33%. The loans were granted to the following companies:

Loans granted in 2006

Company Amount (BGN '000) Interest rate %

Privat Engineering AD 2,360 6.0%Bulyard Shipbuilding Industry AD 737 10.0%KLVK AD 668 6.0%ZMM Bulgaria Holding AD 600 6.0%Dockyard Port - Bourgas AD 567 8.5%Elprom ZEM AD 316 8.0%Bulyard AD 36 6.0%Augusta Mebel AD 19 6.0%


The receivables of IHB on granted loans, including prior-year loans, as at 31 December 2006 include:

149


Outstanding principals on granted loans

Company Amount (BGN '000)

Dockyard Port - Bourgas AD 437KLVK AD 325Leyarmash AD 166Privat Engineering AD 82Elprom ZEM AD 57Bulyard AD 9Bulyard Shipbuilding Industry AD 3


The guarantees provided by IHB to secure obligations of related parties as at 31 December 2006 are as follows:

To DSK Bank EAD in relation to:

Ü Issued bank guarantees in favor of clients, securing contractual obligations of Elprom ZEM AD as follows:

Date of contract Maturity Amount (EUR '000)

19.08.2005 31.08.2008 402,714.619.08.2005 31.08.2009 134,238.219.08.2005 31.08.2009 134,238.2

Total: 671,191.0


Ü A contract for credit limit for issue of bank guarantees and working capital for financing of the Holding and/or its group companies – as at 31 December 2006 there were not any bank guarantees issued against the credit limit.

The two contracts signed with DSK Bank EAD have been secured with second registered pledge of the business of the subsidiary Dockyard Port – Bourgas, Bourgas, as totality of rights, obligations and factual relations, including entry of basic assets into the respective registers.

To CB Allianz Bulgaria AD: in the form of avals of promissory notes at the total amount of BGN 214 thousand, by means of which the Holding guaranteed the performance bonds undertaken by Elprom ZEM AD to clients. The bonds have different maturity dates depending on the contractual terms of performance.

Corporate guarantees:

Ü In June 2006, IHB issued a corporate guarantee at the amount of EUR 4,280,850 and USD 3,729,018 to secure the third advance payment of Bulyard Shipbuilding Industry AD for the building of ship with construction No 516. The guarantee was closed on 15 December 2006 as a result of a fulfilled obligation on behalf of the shipyard to the ship buyer Varna Maritime Ltd.;

Ü On 15 November 2006. IHB issued a corporate guarantee at the amount of EUR 3,433,424 and USD 2,977,531 to secure the third advance payment of Georgi Maritime Ltd, the buyer of ship with construction No 457.

The corporate guarantees have been secured by pledge of real property of Bulyard Shipbuilding Industry AD.

The Management of IHB believes there are not any indications that the above mentioned payables might not be repaid, therefore there have not been charged any provisions for contingent liabilities.

As at 31 December 2006, there were not any collaterals by third parties, securing obligations of IHB.

150


2007

Over the period 1 January 2007 – 31 December 2007, IHB granted loans totalling BGN 1,579 thousand to related parties. In 2007, BGN 2,039 thousand was repaid, including as per prior loan repayment schedules. The gains on loans granted represent 1.68% of the 2007 operating income of IHB and the share of income from services rendered is 9.12%. The loans were granted to the following companies:

Loans granted in 2007


Bulyard Shipbuilding Industry AD 667 8.0%Privat Engineering AD 555 6.0%-8.0%Elprom ZEM AD 207 8.0%Dockyard Port - Bourgas AD 75 8.0%Bulyard Shipbuilding Industry AD 75 10.0%


The receivables of IHB on granted loans, including prior-year loans, as at 31 December 2007 include:

Outstanding principals on granted loans


Leyarmash AD 60


Over the period 1 January 2007 – 31 December 2007, IHB borrowed funds from the following subsidiaries:


Privat Engineering AD 5,647 5-8%ZMM Bulgaria Holding AD 394 6.0%


Interests on the borrowed funds totalling BGN 162 thousand were paid. The payables of IHB on borrowed funds as at 31 December 2007 include:

Payables


Privat Engineering AD 219


151


In 2007, IHB participated in the increase in the capital of Bulyard AD in proportion to its share therein and paid BGN 8,164 thousand and paid 25% or BGN 125 thousand of the planned increase in the capital of Dockyard Port – Bourgas AD.

The guarantees provided by IHB to secure obligations of related parties as at 31 December 2007 are as follows:

To DSK Bank EAD in relation to:

Ü Issued bank guarantees in favor of clients, securing contractual obligations of Elprom ZEM AD as follows:

Date of contract Maturity Amount (EUR '000)

19.08.2005 31.08.2008 402,714.619.08.2005 31.08.2009 134,238.219.08.2005 31.08.2009 134,238.2

Total: 671,191.0


Ü A contract for credit limit of BGN 4.5 million for issue of bank guarantees, letters of credit and working capital for financing of the Holding and/or its group companies, against which bank guarantees at the total of BGN 763 thousand, securing advance payments of credits, were issued; two letters of credit at the total of BGN 969 thousand were issued to Bulyard Shipbuilding Industry EAD and a bank guarantee of BGN 100 thousand, securing potential customs obligations of Dockyard Port – Bourgas AD related to A-type bonded storehouse located in its territory, was issued to the Regional Customs Directorate of Bourgas as at 31 December 2007.

The two contracts signed with DSK Bank EAD have been secured with second registered pledge of the business of the subsidiary Dockyard Port – Bourgas, Bourgas, as totality of rights, obligations and factual relations, including entry of basic assets into the respective registers.

To CB Allianz Bulgaria AD: in the form of avals of promissory notes at the total amount of BGN 62 thousand, by means of which the Holding guaranteed the performance bonds undertaken by Elprom ZEM AD to clients. The bonds have different maturity dates depending on the contractual terms of performance.


Ü On 15 November 2006, IHB issued a corporate guarantee at the amount of EUR 3,433,424 and USD 2,977,531 to secure the third advance payment of Georgi Maritime Ltd, the buyer of ship with construction No 457. The guarantee was closed in April 2007 due to fulfilled obligations.

Ü In July 2007, IHB issued a corporate guarantee at the total of EUR 4,212,000 and USD 3,595,000 to secure the third advance payment of the buyer for ship No 515.

The corporate guarantees have been secured by pledge of real property of Bulyard Shipbuilding Industry AD.

The Management of IHB believes there are not any indications that the above mentioned payables might not be repaid, therefore there have not been charged any contingent liabilities.

As at 31 December 2007, there were not any collaterals by third parties, securing obligations of IHB.

2008

During the period 01.01.2008 – 31.12.2008, IHB granted loans to related parties in the amount of BGN 65,818,000. During the same period, BGN 23,160,000 was received from these parties. The revenues from the granted loans is 21.19% of total revenues of the Holding in 2008, and the revenues from granted services is 1.26%. Loans were granted to the following related parties in 2008:

152


Company Amount(BGN '000) Interest rate %

Privat Engineering AD 38,449 5.5%Bulyard Shipbuilding Industry EAD 6,276 8.0%KLVK AD 19,370 4 - 6 %Dounav Tours Ad 978 6.5%Bulyard Ad 5 5.5%Leyarmash AD 200 8.0%Odessoss PBM AD 540 10%


As of 31.12.2008 IHB’s receivables from granted loans, including those from past years are:

Company Amount(BGN '000)

Privat Engineering AD 34,290KLVK AD 3,341Leyarmash AD 110Bulyard Shipbuilding Industry EAD 3,454


In January 2008 IHB paid off the loan of BGN 218,000 taken from its subsidiary Privat Engineering PLC in 2007. The loan interest is 5% annually. The interest amount is insignificant as the loan was repaid in January.

In 2008 IHB participated in the capital increase of its subsidiaries Private Engineering PLC and KLVK PLC in the amount of BGN 4,050,000, and BGN 5,000,000 respectively. In both cases IHB subscribed to 100% of the issued shares. In 2008 IHB also deposited 75%, or BGN 125,000, of the capital increase of Dockyard Port – Bourgas PLC

As of 31.12.2008 IHB granted corporate guarantees for liabilities of related parties, as follows:

Bank DSK AD, regarding:

Ü Bank guarantees, in favor of clients, securing liabilities of Elprom ZEM AD:

Date of contract Maturity Amount (EUR)

19.08.2005 31.08.2009 134,238 19.08.2005 31.08.2009 134,238 Total: 268,476


Ü Contract for granting a credit limit for bank guarantees, letters of credit and working capital financing of the Holding and/or the companies in the economic group in the amount of BGN 4.5 million – as of 31.12.2008 guarantees of the amount of BGN 557,000 had been issued, which secure advance payments from clients, 2 guarantees of the amount of BGN 395,000 for recovering paid VAT, three letters of credit to Bulyard Shipbuilding Industry EAD for BGN 3,312,000, and one bank guarantee for BGN 100,000 in favor of RMD – Bourgas, securing potential customs liabilities of Dockyard Port – Bourgas PLC regarding a customs warehouse located on company’s territory.

Both contracts with Bank DSK EAD have been secured with a third-in-line special pledge on the commercial entity of Dockyard Port – Bourgas PLC, as an aggregate of rights, liabilities and factual relationships with registering main assets in the respective registers.

153



Ü On 04.02.2008 the third corporate guarantee, issued by IHB regarding contracts for shipbuilding between Bulyard Shipbuilding Industry EAD and companies of Parahodstvo BMF. This was the third and last corporate guarantee, issued by IHB regarding the construction of ships № 516, № 457 and № 515.

According to IHB’s management, there are no indications that the mentioned liabilities will not be serviced, therefore no provisions have been made in this regard.

As of 31.12.2010 there are no encumbrances by third parties for IHB’s liabilities.

200 9

During the period 01.01.2009 – 31.12.2009, The Issuer granted loans to related parties in the amount of BGN 58,213,000. During the year BGN 19,666,000 was repaid to IHB, including past loans. The income generated by granting of the loans was 59.60% of IHB’s operating revenues in 2009 and the revenues from services was 10.17% of IHB’s operating revenues. Loans were granted to the following companies:


Bulyard Shipbuilding Industry EAD 31,162 5-9%Privat Engineering AD 26,632 4-5%Elprom ZEM AD 98 9.0%Augusta Mebel AD 20 9.0%KLVK AD 20 4.0%Emona Ltd. 85 6.0%Dounav Tours AD 196 6.0%


As of 31.12.2009 IHB’s receivables from granted loans were:

Not repaid loan principals


Bulyard Shipbuilding Industry EAD 19,344Privat Engineering AD 58,895KLVK AD 1,464


In 2009 IHB participated in the capital increase of its subsidiary Privat Engineering AD in the amount of BGN 4,000,000. IHB was the only subscriber of all shares from the capital increase. In the same period, IHB deposited BGN 18,000, or 25% of its share in the capital of the newly registered Rekolta AD.

As of 31.12.2009 IHB had granted guarantees securing related parties’ liabilities, as follows:

Bank DSK EAD, regarding:

Ü The contract between IHB and Bank DSK EAD for providing guarantees for securing the liabilities of its subsidiary Elprom AD towards clients, which expired and 2009, was terminated;

154


Ü The contract for granting a credit limit for bank guarantees, letters of credit and working capital financing of the Holding and/or the companies in the economic group in the amount of BGN 4.5 million, signed in 2006 and annexed on 27.11.2009, was renegotiated and the credit limit was raised to BGN 10,000,000. As of 31.12.2009 six bank guarantees, amounting to BGN 515,000 and securing advance payments from clients, incl. two guarantees amounting to BGN 71,000 to Bulyard Shipbuilding Industry EAD and four guarantees in favor of Elprom ZEM AD amounting to BGN 444,000; nine letters of credit were issued to Bulyard Shipbuilding Industry EAD amounting to BGN 1,865,000 and a revolving credit line for working capital financing was opened amounting to BGN 1,003,000. The contract with Bank DSK EAD was secured with a second-in-line special pledge on Dockyard Port – Bourgas AD, as an aggregate of rights, liabilities and factual relationships with registering main assets in the respective registers.

Corporative guarantees:

IHB issued a corporate guarantee to Bulyard Shipbuilding Industry EAD, Varna according to a contract for a bank loan under the terms for securing credit liabilities with bank guarantees and letters of credit between Bulyard Shipbuilding Industry EAD, Varna and Unicredit Bulbank AD, Sofia, with the following terms:

a) Objective: credit in the form of three bank guarantees for securing advance payments under the terms of a contract for building of a ship №103 and all annexes to the contract, signed between Bulyard Shipbuilding Industry EAD, Varna and Diler Shipping and Trading Inc., Tersane Caddesi Dilerhan № 96, Persembe Pazari, Karakoy, Istanbul, with Diler Shipping and Trading Inc., Turkey as the bank guarantee’s beneficiary.

b) Amount of the credit limit: up to USD 27,589,060;

c) Term: until 03.10.2011;

According to the bank guarantee, Bulyard Shipbuilding Industry EAD, Varna must pay Industrial Holding Bulgaria AD a remuneration of 1% annually of the real amount of the granted guarantee. Also, Bulyard Shipbuilding Industry EAD granted a mortgage on real estate owned by Bulport Logistica AD to the amount of no less than 120% of the total value of the corporate guarantee.

The contract was signed based on the decision by the General Shareholders’ Assembly of IHB, which took place on 07.05.2009.

IHB’s management believes that there are no indications that the mentioned liabilities will not be serviced, therefore no provisions have been made.

As of 31.12.2009 there are no securities from third parties regarding IHB’s liabilities.

2010

During the period 01.01.2010 – 22.02.2010 IHB granted loans to related parties in the amount of BGN 353,000. Loans in the amount of BGN 7,245,000, incl. past loans and interest of the amount of BGN 2,448,000, were repaid to IHB in the same period. The revenues from the granted loans were 50.23% of the total operating revenues of IHB in 2010, and the revenues from granted services were 2.70% of total revenues. Loans were granted to the following related parties:


Privat Engineering AD 293 5.0%Bulyard Shipbuilding Industry EAD 60 8.0%


155


As of 22.02.2010 IHB’s receivables regarding the granted loans, including past loans, are:


Bulyard Shipbuilding Industry EAD 19,404Privat Engineering AD 52,028KLVK AD 1,448


During the period IHB deposited BGN 53,000, which is the remainder of the its owed share in the capital of Rekolta AD.

As of 22.02.2010 IHB had granted guarantees securing related parties’ liabilities, as follows:

Ü The contract for granting a credit limit for bank guarantees, letters of credit and working capital financing of the Holding and/or the companies in the economic group in the amount of BGN 10,000,000. As of 22.02.2010 six bank guarantees, amounting to BGN 707,000 and securing advance payments from clients, incl. two guarantees amounting to BGN 264,000 to Bulyard Shipbuilding Industry EAD and four guarantees in favor of Elprom ZEM AD amounting to BGN 444,000; 19 letters of credit were issued to Bulyard Shipbuilding Industry EAD amounting to BGN 5,032,000 and a revolving credit line for working capital financing was opened amounting to BGN 2,996,000. The contract with Bank DSK EAD was secured with a second-in-line special pledge on Dockyard Port – Bourgas AD, as an aggregate of rights, liabilities and factual relationships with registering main assets in the respective registers.

Corporative guarantees:

The corporate guarantee by IHB to Bulyard Shipbuilding Industry EAD, Varna according to a contract for a bank loan under the terms for securing credit liabilities with bank guarantees and letters of credit between Bulyard Shipbuilding Industry EAD, Varna and Unicredit Bulbank AD, Sofia, remains in force with the following terms:

a) Objective: credit in the form of three bank guarantees for securing advance payments under the terms of a contract for building of a ship №103 and all annexes to the contract, signed between Bulyard Shipbuilding Industry EAD, Varna and Diler Shipping and Trading Inc., Tersane Caddesi Dilerhan № 96, Persembe Pazari, Karakoy, Istanbul, with Diler Shipping and Trading Inc., Turkey as the bank guarantee’s beneficiary.

b) Amount of the credit limit: up to USD 27,589,060;

c) Term: until 03.10.2011;

According to the bank guarantee, Bulyard Shipbuilding Industry EAD, Varna must pay Industrial Holding Bulgaria AD a remuneration of 1% annually of the real amount of the granted guarantee. Also, Bulyard Shipbuilding Industry EAD granted a mortgage on real estate owned by Bulport Logistica AD to the amount of no less than 120% of the total value of the corporate guarantee.

The contract was signed based on the decision by the General Shareholders’ Assembly of IHB, which took place on 07.05.2009.

IHB’s management believes that there are no indications that the mentioned liabilities will not be serviced, therefore no provisions have been made.

The following Tables № 31, № 32 and № 33 present data about the related party transactions concluded by the Issuer in 2008 and 2009 and over the period 1 January 2010 – 22 February 2010.

156


Table № 31 Related party transactions concluded in 2008

Company Relation Amount (BGN '000)

Income from dividendsZMM Bulgaria holding AD Subsidiary 5,032Dounav Tours AD Associated company 726Maritime Holding AD Subsidiary 549Total 6,307

Interest incomePrivat Engineering AD Subsidiary 1,187KLVK AD Subsidiary 648Bulyard Shipping Industry AD Subsidiary 216Odessoss PBM AD Associated company 20Dounav Tours AD Associated company 11Leyarmash AD Indirect control 7Total 2,089

Income from servicesElprom ZEM AD Indirect control 52Bulyard Shipping Industry AD Indirect control 40Augusta Mebel AD Subsidiary 30Dockyard Port - Bourgas AD Subsidiary 2Total 124

Granted loans to:Privat Engineering AD Subsidiary 38,449KLVK AD Subsidiary 19,370Bulyard Shipping Industry AD Indirect control 6,276Dounav Tours AD Associated company 978Odessoss PBM AD Associated company 540Leyarmash AD Indirect control 200Bulyard AD Subsidiary 5Total 65,818

Paid off loans from:KLVK AD Subsidiary 16,029Privat Engineering AD Subsidiary 4,196Bulyard Shipping Industry AD Indirect control 2,800Dounav Tours AD Associated company 978Odessoss PBM AD Associated company 540Leyarmash AD Indirect control 150Bulyard AD Subsidiary 5Total 24,698

Paid-off loans to:Privat Engineering AD Subsidiary 218Total 218

Capital increase installmentsKLVK AD Subsidiary 5,000Privat Engineering AD Subsidiary 4,050Dockyard Port - Bourgas AD Subsidiary 375Total 9,425

Source: Audited Unconsolidated Financial Statements of the Issuer for 2008

157


Table № 32 Related party transactions concluded in 2009


Dividend incomeMaritime Holding AD Subsidiary 590Wartsila IHB Design Associated company 148Total: 738

Interest incomePrivat Engineering AD Subsidiary 2,354Bulyard Shipbuilding Industry EAD Indirect control 1,352KLVK AD Subsidiary 110Leyarmash AD Indirect control 5Elprom ZEM AD Indirect control 3Dounav Tours AD Associated company 2Emona Ltd. Indirect control 2Total 3,828

Services incomeEloprom ZEM AD Indirect control 354Bulyard Shipbuilding Industry EAD Indirect control 263Augusta Mebel AD Subsidiary 20Dockyard Port - Bourgas AD Subsidiary 16Total 653

Gain from sale of shares:Международен индустриален холдинг България АД Subsidiary 370Capital increase installments: 370

Granted loans to:Bulyard Shipbuilding Industry EAD Indirect control 31,162Privat Engineering AD Subsidiary 26,632Dounav Tours AD Associated company 196Elprom ZEM AD Indirect control 98Emona Ltd. Indirect control 85Augusta Mebel AD Subsidiary 20KLVK AD Subsidiary 20Total 58,213

Repaid loans from:Bulyard Shipbuilding Industry EAD Indirect control 15,268Privat Engineering AD Subsidiary 1,992KLVK AD Subsidiary 1,897Dounav Tours AD Associated company 196Leyarmash AD Indirect control 110Elprom ZEM AD Indirect control 98Emona Ltd. Indirect control 85Augusta Mebel AD Subsidiary 20Total 19,666

Capital increase installments:Privat Engineering AD Subsidiary 4,000Rekolta AD Associated company 18Total 4,018

Source: Audited Unconsolidated Financial Statements of the Issuer for 2009

158


Table № 33 Related party transactions concluded over the period 1 January 2010 – 22 February 2010


Dividend incomeMaritime Holding AD Subsidiary 590Total: 590

Interest income:Bulyard Shipbuilding Industry EAD Subsidiary 393Privat Engineering AD Indirect control 232KLVK AD Subsidiary 7Total 632

Services incomeBulyard Shipbuilding Industry EAD Indirect control 34Total 34

Granted loans to:Bulyard Shipbuilding Industry EAD Indirect control 60Privat Engineering AD Subsidiary 293Total 353

Repaid loans from:Privat Engineering AD Subsidiary 7,229KLVK AD Subsidiary 16Total 7,245

Capital increase installments:Privat Engineering AD Subsidiary 10,000Rekolta AD Associated company 52Total 10,052


2 0 . F I N A N C I A L I N F O R M AT I O N R E L AT E D T O T H E A S S E T S , L I A B I L I T I E S , F I N A N C I A L P O S I T I O N , P R O F I T A N D L O S S O F T H E I S S U E R

20.1. H I S T O RI CAL F I NANCI AL I NF O RMAT I O N

The Annual Financial Statements for the last 3 (three) years – 2006, 2007 and 2008, including the Consolidated and Unconsolidated Financial Statements audited by a registered auditor, the Activity Reports in compliance with Article 33, Paragraph 1 of the Law on Accountancy, the Audit Reports for all periods, for which audited financial statements are required as well as the Interim Financial Statements (consolidated and unconsolidated), for the aforementioned years, which are unaudited, have been submitted to the Financial Supervision Commission and Bulgarian Stock Exchange – Sofia AD within the terms specified and, since March 2008, included in the Investor.bg Bulletin (for the Audited Annual Financial Statements for 2007, 2008 and 2009). All financial statements and reports are published at the website of IHB in Bulgarian and English.

The incoming numbers of the Financial Statements of IHB submitted to the Financial Supervision Commission and Bulgarian Stock Exchange – Sofia AD and included in the Investor.bg Bulletin are as follows:

159


Year Financial report Incoming № at FSC Incoming № at BSE Buletine at Investor.bg *

2009 Annual non-consolidated n.a. n.a. n.a.4Q interim consolidated report n.a. n.a. n.a.4Q interim non-consolidated report 10-05-2224/01.02.2010 1044/01.02.2010 29.01.2009/17:383Q interim consolidated report 10-05-11661/30.11.2009 11108/30.11.2009 30.11.2009/16:423Q interim non-consolidated report 10-05-9233/27.10.2009 10014/27.10.2009 27.10.2009/17:162Q interim consolidated report 10-05-7120/28.08.2009 8739/28.08.2009 28.08.2009/16:552Q interim non-consolidated report 10-05-6295/30.07.2009 7880/30.07.2009 30.07.2009/14:30 1Q interim consolidated report 10-05-4035/29.05.2009 5750/29.05.2009 29.05.2009/18:26 1Q interim non-consolidated report 10-05-2819/30.04.2009 4505/30.04.2009 30.04.2009/17:58

2008 Annual consolidated 10-05-2879/30.04.2009 4534/30.04.2009 30.04.2009/20:06 Annual non-consolidated 10-05-1644/30.03.2009 2882/30.03.2009 30.03.2009/17:20 4Q interim consolidated report 10-05-1169/04.03.2009 2078/04.03.2009 04.03.2009/13:49 4Q interim non-consolidated report 10-05-661/30.01.2009 1135/30.01.2009 30.01.2009/17:00 3Q interim consolidated report 10-05-11606/28.11.2008 16148/28.11.2008 28.11.2008/19:41 3Q interim non-consolidated report 10-05-10885/30.10.2008 15096/30.10.2008 30.10.2008/16:23 2Q interim consolidated report 10-05-9860/29.08.2008 12855/29.08.2008 29.08.2008/13:59 2Q interim non-consolidated report 10-05-9022/29.07.2008 11509/29.07.2008 29.07.2008/11:41 1Q interim consolidated report 10-05-7228/30.05.2008 9044/30.05.2008 30.05.2008/12:02 1Q interim non-consolidated report 10-05-6332/30.04.2008 7656/30.04.2008 30.04.2008/17:02

2007 Annual consolidated 10-05-6350/30.04.2008 7669/30.04.2008 30.04.2008/17:21 Annual non-consolidated 10-05-4641/31.03.2008 5938/31.03.2008 31.03.2008/15:114Q interim consolidated report 10-05-2436/29.02.08 4689/29.02.084Q interim non-consolidated report 10-05-253/30.01.08 1932/30.01.083Q interim consolidated report 10-05-4186/28.11.2007 4186/28.11.20073Q interim non-consolidated report 10-05-3769/30.10.07 19826/30.10.072Q interim consolidated report 10-05-3309/28.08.07 15688/28.08.072Q interim non-consolidated report 10-05-2813/24.07.07 13218/24.07.071Q interim consolidated report 10-05-2183/30.05.2007 9831/30.05.071Q interim non-consolidated report 10-05-1587/26.04.2007 7648/26.04.07

2006 Annual consolidated 10-05-2216/31.05.2007 9907/31.05.2007Annual non-consolidated 10-05-767/30.03.2007 5789/30.0320074Q interim consolidated report РГ-05-00/2/01.03.2007 3919/01.03.20074Q interim non-consolidated report РГ-05-00/1/30.01.2007 1688/30.01.20073Q interim consolidated report РГ-05-00/15/29.11.2006 15387/28.11.20063Q interim non-consolidated report РГ-05-00/10/30.10.2006 13520/30.10.20062Q interim consolidated report РГ-05-00/13/30.08.2006 10670/30.0820062Q interim non-consolidated report РГ-05-00/11/24.07.2006 8794/24.07.20061Q interim consolidated report РГ-05-00/10/30.05.2006 6362/30.05.20061Q interim non-consolidated report РГ-05-00//27.04.2006 4718/27.04.2006

All aforementioned documents are available to investors at www.fsc.bg, www.bse-sofia.bg and www.investor.bg and may be accessed in the following manner: go to and open the website of the FSC (www.fsc.bg), select ER&CI (electronic register and card-index) and then – public companies or other issuers. Select the particular issuer or public company by its name initial letter (in this particular case – the letter “I”). Select “IHB PLC” from the list of public companies and issuers, the names of which begin with “I”. Go to the right down part of the page containing information about IHB PLC, including active and inactive menus, and select the active blue-colour menu named “Financial (Regular) Statements/Reports”. There appears a table of five columns, the first two of which contain data about the period covered by the statements/report or their type, while the fifth one contains the statements/report.

The Financial Statements/Reports of the Company are also available at the website of Bulgarian Stock Exchange – Sofia AD (www.bse-sofia.bg) and may be accessed in the following manner: go to and open the website of BSE and select the active red-colour menu named “Financial Information about Issuers”, select the respective annual period, select a sub-period within the year selected (i. e . I, II, III or IV quarter or audited statements for the selected year or consolidated ones). Select a public company or other securities issuer by stock exchange code, i. e. 4ID.

Since the beginning of March 2008, the Financial Statements/Reports of the Company have been also available at www.investor.bg. Select Bulletin active menu from the beginning of the home page and then the code of the Company (4ID), type (Financial Statements/Reports) and period.

All aforementioned documents are available to investors at the website of IHB PLC (www.bulgariaholding.com), Investors Section, Statements/Reports Sub-section.

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http://www.investor.bg/

http://www.bse-sofia.bg/

http://www.investor.bg/

http://www.bse-sofia.bg/

http://www.fsc.bg/


All these documents will be provided by IHB, upon request, to any potential investor. The documents may also be examined at the information centre of the FSC at 33 Shar Planina Street, Sofia and at the building of Bulgarian Stock Exchange – Sofia AD at 10 Tri Ushi Street.

20.2. P RO -F O RMA F I NANCI AL I NF O RMAT I O N

There have not been presented any pro-forma financial information.

20.3. L AS T F I NANCI AL I NF O RMAT I O N

The audited financial information about the last year is not older than 15 (fifteen) months prior to the date of preparation of this Registration Document (the Issuer has included its Unaudited Interim Financial Statements for the 4 th quarter of 2009 in this Registration Document).

20.4. D I V I DE ND P O L I CY

As of its incorporation, the Issuer has been applying a policy on profit reinvestment in the long-term growth and development of the economic group instead of payment of dividends or other allotments to the shareholders. With a view to the good perspectives and continuing development of the economic group, IHB does not envisage any change in its dividend policy in the forthcoming years.

If the Company fails to use its capital efficiently for growth or acquisitions, it will consider dividend distribution to ensure maximum profitability to its shareholders. A decision on future profit distribution to the shareholders of IHB is to be made by the General Meeting of Shareholders in compliance with the provisions of the Law on Commerce, the Law on Public Offering of Securities and the Statute of the Company.

20.5. L AW S UI T S AND ADMI N I S T RAT I V E AND ARBI T RAT I O N P RO CE E DI NG S

At present, IHB is not a party to any pending lawsuits or administrative or arbitration proceedings.

Over the twelve-month period preceding the date of preparation of this Registration Document, the Issuer was not a party to any lawsuits or administrative or arbitration proceedings, which have had or may have material impact on the Issuer or the financial position or profitability of its economic group.

The Issuer is not aware of any potential initiation of lawsuits or administrative or arbitration proceedings, which may have material impact on the Issuer or the financial position or profitability of its economic group.

20.6. M AT E RI AL CHANG E S I N T HE F I NANCI AL P O S I T I O N O R BUS I NE S S P O S I T I O N O F T HE IS S UE R

Over the period covered by the historical financial information, there were not any material changes in the financial positions or business positions of the Issuer and its group companies after the date of publishing of the last Financial Statements.

21. ADDITIONAL INFORMATION

21.1. S HARE CAP I T AL

As at the date of preparation of this Registration Document, the share capital of Industrial Holding Bulgaria PLC amounts to BGN 43,756,118 divided into 43,756,118 ordinary dematerialized registered shares, each having nominal value of BGN 1.

All shares issued by the Company by present date are fully paid in cash, except for the capital increase, in the amount of BGN 130,395, through an IPO of shares in return for investment bonds in 1997.

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Table № 34 Share capital of the Issuer as at the date of preparation of this Registration Document

12/31/2006 12/31/2007 12/31/2008 12/31/2009 As of 22.02.2010

Registered capital (BGN) 21,003,235 43,756,118 43,756,118 43,756,118 43,756,118Total number of shares 21,003,235 43,756,118 43,756,118 43,756,118 43,756,118Number of issued and subscribed shares 21,003,235 43,756,118 43,756,118 43,756,118 43,756,118Nominal price per share (BGN) 1 1 1 1 1Total number of shares outstanding (end period) 21,003,235 43,756,118 43,756,118 43,756,118 43,756,118


Industrial Holding Bulgaria PLC and its subsidiaries do not hold any shares in the capital of the Company.

There are not any persons holding options on the capital of IHB or the capital of a company, which is member of the economic group or persons as to which there are conditional or unconditional commitments to issue stock options in their favor.

In 2008, IHB issued the second issue of corporate convertible bonds. The amount of the loan, which was signed on 29 October 2008, is BGN 21,649,600 and the number of bonds is 216,496, each having nominal value of BGN 100. The bonds are convertible, dematerialized, unsecured and freely transferable, bearing an annual interest of 8%. The loan maturity date is 29 October 2011, the interest payment period is a 6-month period and the fixed interest payment dates are as follows: 29 April 2009, 29 October 2009, 29 April 2010, 29 October 2010, 29 April 2011 and 29 October 2011.

Conversion terms and conditions: The Management Board of the Company has determined a conversion ratio of 12 shares per bond, i. e. the conversion price is BGN 8.33. Conversion will be made on the maturity date of the debenture loan. Interim conversion will be made on the date of the fourth interest payment.

Events, resulting in change in the conversion ratio, may occur by the date of conversion. To avoid such effect, IHB has set in the debenture loan terms and conditions an option to adjust the conversion ratio and the conversion price if certain events occur (see Item 9. Dilution of the Offered Securities Document).

History of share capital

By the date of this Registration Document, the Company issued six issues of shares of the same type – dematerialized registered voting shares, each having nominal value of BGN 1.

1996: The first issues of shares of the Company is related to its incorporation. At the first issue of shares, there were offered 2,200,000 shares with total financial result for allocation of BGN 3,169,072.1.

Number of shares: 650,000

Gross dividend per share: BGN 4.875

Allowed deviations: minimum of 1,606,000 shares and maximum of 3,740,000 shares

2,654,985 shares were subscribed as follows: in investment bonds – BGN 2,634,985 and in cash – BGN 20,00.

1997: The second issue of shares: The capital of the Company was increased through a public issue of shares against investment bonds. This was carried out between the first and the second tender sessions of the first round of the mass privatization in the Republic of Bulgaria in compliance with the provisions of the effective legislation.

The second issue of shares amounts to BGN 130,395 in investment bonds only.

1998: The third issue of shares amounts to BGN 14,714,620 only in cash.

The capital was increased by a decision of the General Meeting of Shareholders of the Company dated 27 February 1998 on capital increase from BGN 2,785,380 to BGN 17,500,000 as follows:

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a) On the basis of Article 197 of the Law on Commerce - through transformation into capital of the portion of the distributed profit for 1997 amounting to BGN 11,141,520 through the issue of 11,141,520 registered voting shares, each having nominal value of BGN 1;

b) On the basis of Article 195 in relation to Article 194, Paragraph 2 of the Law on Commerce – through the issue of 3,573,100 registered voting shares, each having nominal value of BGN 1.

2002: The fourth issue of shares was offered for subscription only to the shareholders of the Company. Therefore, there was not prepared and submitted any prospectus on the basis of Article 79, Paragraph 1, Item 4 of the Law on Public Offering of Securities.

The capital to be raised was up to BGN 14,997,500, but not less than BGN 3,500,000. The nominal value was BGN 1 and the issue value of each share in the capital increase was equal to its nominal value.

3,503,235 with total value of BGN 3,503,235 were subscribed.

2007: The fifth issue of shares: On 2 July 2004, IHB issued an issue of corporate convertible bonds

At a session held on 1 June 2007, the General Meeting of Shareholders of IHB made a decision on the basis of Article 195 of the Law on Commerce on increase in the capital of the Company through conversion of the convertible bonds with ISIN code BG2100010045 into shares.

By virtue of Decision dated 19 July 2007, Sofia City Court registered increase in the capital of IHB from BGN 21,003,235 to BGN 26,254,040 through the issue of 5,250,805 ordinary registered dematerialized voting shares, each having nominal value of BGN 1.

2008: The sixth issues of shares: In August 2007, the General Meeting of Shareholders of IHB made a decision on initiation of procedure for increase in the capital of the Company.

The public offering (subscription) of 17,502,693 ordinary dematerialized voting shares for capital increase was successfully realized over the period 29 October 2007 – 5 December 2007.

By virtue of Decision dated 27 December 2007, Sofia City Court registered increase in the capital of Industrial Holding Bulgaria PLC from BGN 26,254,040 to BGN 43,756,118 through the issues of 17,502,078 ordinary registered dematerialized voting shares, each having nominal value of BGN 1.

21.2. A RT I CL E S O F INCO RP O RAT I O N AND /O R ST AT UT E

21.2.1. Descript ion of the scope of act iv i ty and object ives of the Issuer and references to i ts Art ic les of Incorporat ion and/or Statute

In compliance with Article 4 of the Statute of Industrial Holding Bulgaria PLC, the scope of activity of the Company includes acquisition, management, assessment and sale of shares in Bulgarian and foreign companies, acquisition, assessment and sale of patents, cession of licenses for usage of patents of companies where the Holding holds interests, financing of companies where the Holding holds interests and any other activity not prohibited by law.

21.2.2. Summary of any provisions of the Art ic les of Incorporat ion, the Statute, the Charter and/or the Regulat ions concerning the members of the administrat ive, management and supervisory bodies

Industrial Holding Bulgaria PLC is a joint-stock company with two-tier management system. Its bodies are the General Meeting of Shareholders, the Supervisory Board and the Management Board.

General Meeting of Shareholders

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The General Meeting of Shareholders consists of all shareholders holding voting shares. They participate in the General Meeting of Shareholders in person or by proxy.

The right to vote in the General Meeting of Shareholders of the Company is exercised by the shareholders entered into the registers of Central Depository AD as shareholders not later than 14 (fourteen) days prior to the particular session.

The members of the Supervisory Board and the Management Board participate in the proceedings of the General Meeting of Shareholders without the right to vote unless they are shareholders.

In compliance with the competency provided for in Article 18 of the Statute, the General Meeting of Shareholders:

1. Approves, amends and supplements the Statute of the Company;

2. Increases and reduces the share capital of the Company;

3. Transforms and winds up the Company;

4. Appoints and discharges the members of the Supervisory Board and determines their remunerations;

5. Appoints and discharges a registered auditor or a specialized auditing company;

6. Approves the Annual Financial Statements after their certification by the appointed registered auditor or the specialized auditing company;

7. Distributes the profit of the Company;

8. Makes decisions on and determines the manner of issue and subscription of bonds in compliance with the provisions of the effective Bulgarian legislation;

9. Makes decisions on and determines the manner of issue and subscription of warrants and rights in compliance with the provisions of the effective Bulgarian legislation;

10. Appoints liquidators upon winding-up of the Company, except in case of insolvency;

11. Exempts the members of the Management Board and the Supervisory Board from liability;

12. Makes decisions on redemption of shares of the Company;

13. Makes other decisions on issues within its competence as provided for by law or the Statute.

Supervisory Board

The Supervisory Board does not take part in the management of the Company. The Supervisory Board represents the Company only in its relations with the Management Board.

The Supervisory Board consists of 3 (three) to 7 (seven) members. The General Meeting of Shareholders determines the number and the personality of the members of the Supervisory Board.

The Supervisory Board consists of legally able individuals and/or legal entities, which are to meet the statutory requirements.

At least 1/3 (one third) of all members of the Supervisory Board of the Company are to be independent persons within the meaning of Article 116a, Paragraph 2 of the Law on Public Offering of Securities.

The term of office of the Supervisory Board is 5 (five) years and the term of office of the first Supervisory Board is 3 (three) years.

The members of the Supervisory Board may be discharged from their office prior to the expiry of the term of office, for which they are elected.

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The members of the Supervisory Board may be re-elected without restrictions.

The Supervisory Board approves Operating Rules to regulate its work and elects a chairperson and a deputy chairperson among its members.

The Chairperson convokes the sessions of the Supervisory Board at its own discretion as well as at the request of members of the Supervisory Board or members of the Management Board. The Supervisory Board is to hold a regular session at least once per 3 (three) months.

The Chairperson of the Supervisory Board signs the management and representation contracts with the Executive Directors.

The Supervisory Board may make decisions provided that more than ½ (one half) of its members attend the particular session in person or are represented by another member of the Supervisory Board authorized in writing.

The decisions are made with simple majority of the present members of the Supervisory Board unless otherwise required by law or the Statute.

The Supervisory Board may also make decisions without holding a session provided that all members have agreed upon such decision in writing.

Each member of the Supervisory Board may authorize another member of the latter to represent it and vote on its behalf at the sessions of the Supervisory Board. None of the members of the Supervisory Board is entitled to act as proxy of more than one member of the Supervisory Board.

Each member of the Supervisory Board who authorizes or revokes authorization of a proxy is obliged to duly notify the Chairperson of the Supervisory Board.

All decisions of the Supervisory Board are incorporated in the respective session minutes, which are to be signed by all attending members and indicate the vote of each member on the issues discussed.

The Company pays remunerations to the members of the Supervisory Board to the amount stipulated by the General Meeting of Shareholders of the Company. The relations between the Company and a member of the Supervisory Board are settled by a contract concluded with the Company acting through a person authorized by the General Meeting of Shareholders.

Management Board

The Management Board manages and represents the Company whereby its activity is performed under the supervision of the Supervisory Board.

The Management Board consists of 5 (five) members.

The members of the Management Board are elected by the Supervisory Board, which determines their remunerations and may substitute them at any time.

The members of the Management Board are to meet the statutory requirements.

The members of the Management Board are entitled personally or via third persons to effect business transactions, to hold interests in trading companies as partners with unlimited liability and to be elected procurators, managers or members of boards of other companies, which carry out activities competitive to the activity of the Company only after explicit consent of the Supervisory Board of the Company.

The term of office of the Management Board is 5 (five) years and the term of office of the first Management Board is 3 (three) years.

None of the members of the Management Board is entitled to act as proxy of more than 1 (one) member of the Management Board.

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Each member of the Management Board who authorizes or revokes the authorization of a proxy is to duly notify the Chairperson of the Management Board.

The Management Board elects a chairperson and a deputy chairperson among its members and approves Operating Rules to regulate its work, which are to be approved by the Supervisory Board.

All decisions of the Management Board are incorporated in the respective session minutes, which are to be signed by all attending members and indicate the vote of each member on the issues discussed.

The relations between the Company and a member of the Management Board are settled by a management contract. The contract is concluded in writing with the Company acting through the Chairperson of the Supervisory Board or through another member of the Supervisory Board authorized by the Chairperson.

Subject to the approval of the Supervisory Board, the Management Board appoints a person/persons among its members to represent the Company (Executive Director/s).

The names of the persons authorized to represent the Company are to be entered into the Commercial Register and promulgated.

The convocation and holding of the sessions of the Management Board are provided for in Article 34 of the Statute of the Company.

The Management Board holds a session at least once a month.

The Management Board may make decisions provided that more than ½ (one half) of its members are present at the particular session in person or by proxy.

The decisions are made with a majority of over one-half of the present and/or represented members of the Management Board.

The Management Board may also make decisions without holding a session provided that all members have agreed upon such decision in writing.

The Management Board reports its activity to the Supervisory Board of the Company at least once per 3 (three) months.

The Supervisory Board is entitled to request from the Management Board presentation of information or reports on each issue concerning the Company at any time.

Article 36 of the Statute provides for rules on the activities of the Supervisory Board and the Management Board of the Company.

All members of the Supervisory Board have equal rights and obligations regardless of the internal allocation of their functions. All members of the Management Board have equal rights and obligations regardless of the internal allocation of their functions.

A person who is proposed to be elected a board member is obliged to immediately notify in writing the General Meeting of Shareholders respectively the Supervisory Board prior to its election of:

1. Its participation in trading companies as partner with unlimited liability;

2. Holding of over 25% (twenty five per cent) of the registered capital of another company;

3. Its participation in the management bodies of other companies or cooperatives as procurator, manager or board member.

The person under the previous sentence is also obliged to notify in writing the General Meeting of Shareholders, respectively the Supervisory Board, when these circumstances arise after its election as board member.

The board members (individuals and individuals representing legal entities) and the procurator of the Company are obliged:

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1. To perform their obligations with due diligence in a manner, which they reasonably consider to be in favour of all shareholders of the Company and using only such information they reasonably consider to be detailed and trustworthy;

2. To be loyal with respect to the Company and:

a) To choose the interest of the Company rather than their own;

b) To avoid direct or indirect conflicts between their own interests and the interests of the Company and, in case such conflicts occur, to reveal them entirely, in due course and in writing before the respective body whereby the member in conflict is not entitled to participate and exercise any influence over the other board members during the course of decision making on that issue;

c) Not to disclose non-public information regarding the Company prior and after their dismissal as members of the Management Board or the Supervisory Board or procurators till the moment of public announcement of the respective circumstances by the Company.

The board members are jointly liable for damages, which they guiltily cause to the Company.

Each board member may be exempted from liability if found not guilty for the damages caused.

The members of the Supervisory Board and the Management Board and the procurator are to provide guarantees for their management in BGN up to the amount of their gross quarterly remunerations.

The guarantees under the previous sentence are released in the following two cases:

a) In favour of the person who provides the guarantee – after the date of the decision of the General Meeting of Shareholders on release from liability of such person and after its release from office;

b) In favour of the Company – in case that the General Meeting of Shareholders decides so upon ascertainment of damages caused to the Company.

Each board member may request in writing from the Company to be released from office prior to the expiry of its term of office and deleted from the Commercial Register. In case that the Company fails to enter such release from office within 6 (six) months as of the receipt of the notification, the member may file a request for entry of this circumstance with the court at its own discretion.

21.2.3. Descript ion of the r ights and preferences attached to each class of shares and restr ict ions thereon

In compliance with Article 7 of the Statute, the share capital of the Company is divided into 43,756,118 (forty-three million seven hundred fifty-six thousand one hundred and eighteen) dematerialized registered voting shares, each having nominal value of BGN 1.

Each share gives its holder two main groups of rights – property and non-property.

The property rights of a shareholder include the right to dividend and the right to liquidation quota.

The non-property rights of a shareholder are divided into three groups: managing, controlling and protective.

The managing rights of a shareholders includes the right to vote, the right to manage and the right to elect members and be elected member of the governance bodies of the Issuer.

The group of controlling rights of a shareholder includes the right to information (Article 224 of the Law on Commerce).

The protective rights of a shareholder include the right to appeal against the decisions of the governance bodies of the Company, the right to require appointment of a public accountant and the minority rights.

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Each share gives its holder additional rights arising out of and directly or indirectly related to the basic rights.

Property rights of a shareholder:

1. Right to dividend: The right to dividend is a basic property right of a shareholder – it is the right to receive a portion of the net profit of the Company in proportion to its interest in the capital of the Company provided that the regulatory prerequisites are present – Annual Financial Statements approved by the General Meeting of Shareholders and duly audited and a particular decision on profit distribution made by the General Meeting of Shareholders. The right to receive dividend belongs to the persons entered as shareholders in the registers of the Central Depositary on the 14th (fourteenth) day after the date of the session of the General Meeting of Shareholders, at which the Annual Financial Statements were approved and a decision on profit distribution was made. The Central Depositary provides the Company with a list of the shareholders as at the aforementioned date. The presence of a person in such list is a sufficient condition for that person to receive dividend following due identification. The Company is obliged to pay dividends to shareholders within 3 (three) months as of the date of holding the session of the General Meeting of Shareholders, at which a decision on profit distribution was made. The expenses on dividend payment are covered by the Company. The persons entitled to receive dividends may exercise their said rights till expiration of the total five-year period of limitation, after which the right lapses and the non-received dividends are retained by the Company and taken to the Reserve Fund. The right to dividend is subject to the following restrictions:

Ü Dividends are paid only if the net worth of assets less dividends and interest payables is at an amount not lower than the total of the capital of the Company, the Reserve Fund and other funds, which the Company is to maintain in compliance with its Statute or applicable laws based on the approved and audited Annual Financial Statements for the particular year;

Ü The allocation of dividend exceeding the total of the profit for the particular year, the retained profit and the portion of the Reserve Fund and other funds of the Company exceeding the minimum provided for in its Statute or applicable laws less the uncovered loss and allocations to the Reserve Funds and other funds formed and maintained by the Company is not allowed;

Ü The execution of advance dividend payments, i. e. before approval of the Annual Financial Statements, is not allowed;

Ü At least 1/10 of the profit of the Company is to be taken to the Reserve Fund till it reaches not less than 1/10 of the capital of the Company;

Ü The right to dividend lapses in 5 (five) years.

2. Right to liquidation quota: The right to liquidation quota is a basic property right of a shareholder – it is the right to receive a portion of the remaining assets of the Company in case of winding-up through liquidation in proportion to its interest in the capital of the Company. The exercising of the right to liquidation quota presupposes that the Company is wound up. This right is conditional – it arises and may be exercised only if (and insofar as) there are assets left to be distributed among shareholders and up to the amount of such assets in case of liquidation of the Company provided that there are not any dissenting creditors.

The right to liquidation quota may be exercised by the persons that are shareholders as at the moment of winding-up of the Company only.

Non-property rights of a shareholder:

Managing rights

1. Right to vote: The right to vote is a non-property right of a shareholder entitling the latter to participate in the management of the Company through participation in the making of decisions on issues within the competency of the General Meeting of Shareholders.

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The Company is not entitled to issue any shares giving the right to two or more votes. If a share is held by two or more persons, the right to vote is exercised by them jointly by appointment of proxy.

A shareholder obtains the right to vote after full payment of the issue value of its share/shares and entry of the Company, the increase in its capital respectively, into the Commercial Register. The right to vote may be exercised by the persons which have acquired and are entered as shareholders into the Register of Shareholders kept by the Central Depositary not later than 14 (fourteen) days before the date of the particular session of the General Meeting of Shareholders. The presence of a person in the Register of Shareholders and its proper identification represent a sufficient condition for that person to exercise its right to vote. The shareholders having rights to vote participate in the General Meeting of Shareholders in person or by proxy authorized by a notarized explicit power of attorney in compliance with Article 116, Paragraph 1 of the Law on Public Offering of Securities.

2. Right to participate in the management of the Company and right to elect members and be elected member of the governance bodies of the Company

Controlling rights

The controlling rights of a shareholder include the right to information. It is the right of a shareholder to examine all written materials related to the agendas of the convoked sessions of the General Meeting of Shareholders and obtain these materials free of charge and the related materials and enclosures concerning past sessions of the General Metering of Shareholders, which the Company is obliged to keep. The right to information of a shareholder also includes the right to receive thorough replies by the members of the Management Board of the Company to issues raised at the sessions of the General Meeting of Shareholders. A shareholder is entitled to require and obtain information about the financial and economic positions of the Company from the Investor Relations Director at any time.

Protective rights

1. Right to appeal against the decisions of the governance bodies of the Company

A shareholder is entitled to file a claim against the Company with the district court having jurisdiction in the region of its seat for cancellation of a decision made by the General Meeting of Shareholders, which contradicts the imperative provisions of the effective laws or the Statute (Article 74 of the Law on Commerce).

A shareholder is entitled to file a claim with the district court having jurisdiction in the region of the seat of the Company to protect its right to membership or individual membership rights when they are infringed by the governance bodies of the Company (Article 71 of the Law on Commerce).

2. Right to require appointment of registered auditors from the competent court, if such have not been elected by the General Meeting of Shareholders (Article 249 of the Law on Commerce)

3. Minority rights (rights of a shareholder holding less than 5% of the capital of the Company) include:

Ü The right to convoke sessions of the General Meeting of Shareholders;

Ü The right to require appointment of a controller;

Ü The right to include additional items in the agendas of convoked sessions of the General Meeting of Shareholders as provided for in Article 223 of the Law on Commerce.

Additional rights of a shareholder:

1. Right to subscribe shares upon increase in the capital of the Company in proportion to its interest in the capital till the increase date

In compliance with Article 112, Paragraph 1 of the Law on Public Offering of Securities, upon capital increase, a present shareholder is entitled to acquire a portion of the newly issued shares in proportion to its interest in the capital of the

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Company held until the increase date. This right may not be cancelled or limited by virtue of any provision of the Statute or decision made by the governance bodies of the Company.

2. Pre-emptive right to acquire securities, giving right to acquire shares belonging to the class of the shares of the current issue through their conversion or exercising the rights attached thereto

In compliance with the special provisions of applicable laws, the Company may also issue preference voting or non-voting shares, giving right to additional or guaranteed dividend and redeemable shares.

For the shares subscribed, a shareholder receives a Registered Certificate (Depositary Certificate) in compliance with the provisions of the effective legislation.

The transfer of shares is executed in compliance with the statutory procedure.

All Bulgarian and foreign individuals and legal entities may acquire shares of the Company in compliance with the provisions of the effective Bulgarian legislation.

Central Depositary AD keeps the Register of Shareholders of the Company under the terms and conditions provided for by law.

21.2.4. Descript ion of the act ion required for changing the r ights of a shareholder, indicat ing any terms and condit ions str icter than the ones provided for in the appl icable laws

The Statute of the Company does not include any specific provisions concerning the action required for changing the rights of a shareholder other than the ones provided for in the applicable laws.

21.2.5. Descript ion of the terms and condit ions regulat ing the convocat ion of the annual and extraordinary sessions of the General Meet ing of Shareholders, inc luding admission requirements

In compliance with article 19 of the Statute of the Company, the sessions of the General Meeting of Shareholders of the Company are held at its seat.

A regular session of the General Meeting of Shareholders is held not later than the end of the first half of the year following the reporting year.

In case that the loss of the Company exceeds ½ (one half) of the share capital, a session of the General Meeting of Shareholders is to be held within 3 (three) months as of loss identification.

The General Meeting of Shareholders elects a chairperson, a secretary and a teller.

The General Meeting of Shareholders is convened by the Management Board or the Supervisory Board or at the request of shareholders holding shares representing at least 5% (five per cent) of the share capital of the Company for over 3 (three) months.

In case that the request of the shareholders holding at least 5% (five per cent) of the share capital is not satisfied within 1 (one) month or a session the General Meeting of Shareholders is not held within 3 (three) months as of the request filing date, the competent registration court of the Company convenes the General Meeting of Shareholders or authorize the shareholders demanding the convocation or a representative of theirs to do so. The fact that the shares are held for over 3 (three) months is to be proved before the court by means of a notarized declaration.

Under the provision of art.118, par. 2, item 3 of POSA, persons holding together or separately at least 5 percent of the capital of a public company may ask the district court convening a general meeting or empowerment of their representative to convene a general meeting on their day order. Court rules on the request immediately.

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The convocation of the General Meeting of Shareholders is made by an invitation submitted to the Commercial Register and announced as provided for by law. The invitation is to include the statutory requisites. The period from the date of publication till the opening of the particular session is to be not less than 30 (thirty) days.

All written documents related to the agendas of the sessions of the General Meeting of Shareholders are to be made available to the shareholders not later than the date of publication of the invitation for convocation of the General Meeting of Shareholders. Upon request, these documents are handed over to each shareholder free of charge.

A list of attendants is prepared at each session of the General Meeting of Shareholders, indicating the shareholders or their proxies and the number of owned or represented shares. The shareholders or their proxies ascertain their presence with signature. The list of attendants is certified by the Chairperson and the Secretary of the General Meeting of Shareholders.

Each shareholder is entitled to authorize a proxy to represent it at the sessions of the General Meeting of Shareholders. The proxy may be a person other than a shareholder.

The authorization of a proxy to represent a shareholder at the sessions of the General Meeting of Shareholders of the Company is to be made in writing and issued explicitly for the particular session, bear the notarized signature of the authorizer and have form and minimum contents as provided for by law.

A proposal on representation of a shareholder or shareholders holding over 5% (five per cent) of the votes in the General Meeting of Shareholders of the Company is to be published in a national daily or sent to each shareholder, which is an addressee of the proposal in compliance with the provisions of the effective legislation.

Reauthorization with powers under Paragraph 1 and a power of attorney issued in breach of the requirements under Paragraph 1 is null and void.

Upon opening a session of the General Meeting of Shareholders, the Chairperson informs the persons attending the session of the presented powers of attorney.

The rules on voting by proxy, the power of attorney forms for voting and the manners of notifying the Company of authorization through e-means are determined by the Management Board and published at the website of the Company.

A session of the General Meeting of Shareholders is considered legitimate if over ½ (one half) of the voting shares are presented or represented thereat unless another quorum is provided for by law.

In the absence of quorum in the cases under Paragraph 1, a new session of the General Meeting of Shareholders is set down for a date not earlier than 14 (fourteen) days as of the previous one and this new session is considered legitimate and the General Meeting of Shareholders is entitled to make decisions thereat regardless of the shares capital attending or represented at the session. The date of the new session may be specified in the invitation to the first one. The agenda of the new session may include no items as provided for by Article 223a of the Law on Commerce.

The decisions of General Meeting of Shareholders are made with majority of over ½ (one half) of the voting shares represented at the meeting except for:

a) Decisions on amendment and/or supplement of the Statute, increase or reduction of the capital of the Company, winding-up of the Company or issue of bonds, warrants or rights, which require majority of 2/3 (two thirds) of the voting shares represented at the session;

b) The decisions requiring higher majority in compliance with the effective legislation or the Statute.

A shareholder/a proxy of a shareholder is not entitled to vote at the sessions the General Meeting of Shareholders on:

1. Filing a claim against the shareholder;

2. Undertaking of actions or waiver of such actions in respect of the shareholder’s liability to the Company.

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The decisions of the General Meeting of Shareholders come into force immediately unless the General Meeting of Shareholders makes a decision on another effective date.

The decisions on amendments or supplements to the Statute, increase or reduction of the share capital, transformation or winding-up of the Company, appointment or discharge of the members of the Management Board and the Supervisory Board as well as decisions on the appointment of liquidators come into force as of their entry into the Commercial Register.

The General Meeting of Shareholders is not entitled to make decisions, which have not been communicated or announced under the terms and conditions provided for by law, unless all shareholders or proxies of theirs are present at the session and none of them raises an objection against the particular issue discussion.

At each session of the General Meeting of Shareholders, minutes are prepared and signed as provided for by law. The minutes are to be signed by the Chairperson, the Secretary and the Tellers. The list of attendants and other documents related to the convocation of the General Meeting of Shareholders are to be attached to the minutes. The session minutes form a special book and are kept throughout the term of existence of the Company.

21.2.6. Summary of any provisions of the Art ic les of Incorporat ion, the Statute, the Charter and/or the Internal Regulat ions of the Issuer, which may delay, defer or cancel changes in the control on the Issuer

The Statute does not contain any provisions, which may delay, defer or cancel changes in the control on the Company.

21.2.7. Summary of any provisions of the Art ic les of Incorporat ion, the Statute, the Charter and/or the Regulat ions, i f any, regulat ing the property threshold over which the property of shareholders is subject to disclosure

The Statute does not contain any provisions regulating the property threshold over which the property of shareholders is subject to disclosure. As Industrial Holding Bulgaria PLC is a public company, the obligation to disclose provided for in Article 145 of the Law on Public Offering of Securities applies. In compliance with the said provision, a shareholder who acquires or transfers, directly and/or in compliance with Article 146 of the Law on Public Offering of Securities, any right to vote in the General Meeting of Shareholders of a public company, is obliged to notify the Commission and the public company if, as a result of such acquisition or transfer, its right to vote reaches, exceeds or falls below 5% or a figure divisible by 5 of the number of votes in the General Meeting of Shareholders.

21.2.8. Descript ion of the provisions of the Art ic les of Incorporat ion, the Statute, the Charter and/or the Regulat ions, regulat ing the changes in the capital i f they are str icter than the ones provided for in the appl icable laws

Capital increase

The capital of the Company may be increased based on a decision of the General Meeting of Shareholders through issue of new shares or conversion of convertible bonds into shares.

In case of increase in the capital of the Company through issue of new shares, rights for subscription of shares within the meaning of the Law on Public Offering of Securities are accordingly issued. One right is issued for each share issued.

If the new shares are to be sold at a price higher than the nominal one, their minimum selling price is to be specified in the decision of the General Meeting of Shareholders.

The capital increase is permissible only after full payment of the registered capital specified in the Statute.

Each shareholder is entitled to acquire a portion of the newly issued shares corresponding to its interest in the capital prior to the increase. This right cannot be restricted or redeemed by a decision of the General Meeting of Shareholders.

As to the terms and conditions for subscription of shares, trading in rights and issue of warrants or convertible bonds, the provisions of the effective legislation apply.

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The General Meeting of Shareholders may decide to increase the capital through transformation of a portion of the profit of the Company into capital. This decision is to be made within 3 (three) months after approval of the Annual Financial Statements for the previous year and with majority of ¾ (three thirds) of the votes of shares represented at the particular session of the General Meeting of Shareholders.

In case of capital increase through transformation of profit or reserves of the Company into capital, the newly issued shares are acquired by the shareholders in proportion to their interests in the capital prior to its increase.

In case of issue of warrants within a time limit to be determined by the General Meeting of Shareholders, each shareholder is entitled to acquire a portion of them in proportion to its interest in the capital prior to their issue.

The capital of the Company cannot be increased through in-kind contributions or conditionally based on a decision of the General Meeting of Shareholders or a decision of the Management Board in compliance with Article 196, Paragraph 3 of the Law on Commerce. The restriction under the previous sentence does not apply in case that:

a) The Company is imposed a compulsory measure requiring increase of its capital under condition (in compliance with Article 196, Paragraph 3 of the Law on Commerce);

b) The capital increase under condition (in compliance with Article 196, Paragraph 3 of the Law on Commerce) is necessary for a merger, tender offering for exchange of shares or guaranteeing the rights of the holders of warrants or convertible bonds.

Within 5 (five) years as of 25 July 2008, on the basis of Article 196 of the Law on Commerce, following approval by the Supervisory Board, the Management Board is entitled to make decisions on increase of the registered capital of the Company up to BGN 100,000,000 (one hundred million) through the issue of new dematerialized registered shares, including also the purpose of giving the holders of convertible bonds the rights to convert their bonds into shares.

The Management Board specifies the following in the particular decision on capital increase following approval by the Supervisory Board, and namely: the increase amount and purpose, the number and type of new shares and the rights and preferences on such shares as well as other increase realization procedures and terms and conditions related to the increase purpose (capital raising, bonds conversion into shares), including: deadline for and terms and conditions on transfer of the rights within the meaning of §1, Item 3 of the Law on Public Offering of Securities, issued for the existing shares; the deadline for and terms and conditions on subscription of new shares; the issue value and the deadline for and terms and conditions on its payment; the investment intermediary to be assigned with the subscription realization; in case of bonds conversion into shares, it specifies the conversion procedure and adjusted conversion price in compliance with the debenture loan terms and conditions and all other details required for the capital increase realization in compliance with the applicable legislative documents.

Capital reduction

The reduction of the capital of the Company up to the minimum admissible one is made based on a decision of the General Meeting of Shareholders.

A decision on capital reduction is to indicate the purpose and manner of such reduction.

The capital of the Company may be reduced through reduction of the nominal value of the shares.

The capital of the Company cannot be reduced through compulsory invalidation of shares.

Acquisition of own shares

The Company may acquire shares issued by the Company in compliance with the provisions of the effective legislation only.

Redemption of shares

The Company may redeem shares issued by the Company in compliance with the provisions of the effective legislation only.

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Bonds

The Company may issue bonds in compliance with the provisions of the effective legislation and the Statute. A decision on issue of bonds is made by the General Meeting of Shareholders.

The conversion of bonds into shares is made based on a decision of the General Meeting of Shareholders or a decision of the Management Board in compliance with Article 12a of the Statute subject to the provisions of the effective legislation.

Upon issue of convertible bonds, each shareholder is entitled to acquire a portion of them in proportion to its interest in the capital prior to the increase and within a time limit specified by the General Meeting of Shareholders.

2 2 . M AT E R I A L C O N T R A C T S

Industrial Holding Bulgaria PLC and its subsidiaries did not sign any contracts other than contracts related to their ordinary activities over the last two years preceding the publication of this Registration Document.

As at the date of this Registration Document, there are not any contracts signed by the Issuer or its subsidiaries that contain provisions providing for an obligation or a right of each member of the economic group, which is material for the Group beyond their ordinary activities.

2 3 . I N F O R M AT I O N A B O U T T H I R D PA R T I E S , E X P E R T S TAT E M E N T S A N D D E C L A R AT I O N S O F I N T E R E S T

This Registration Document has been prepared by KBC Securities N.V. – Bulgaria Branch. Information about the persons who are responsible for the preparation of the IPO Prospectus is disclosed in Item 1. Responsible persons.

This document does not contain statements and expert reports from parties other than the parties responsible for completing the prospectus – employees of KBC Securities, N.V. – Bulgarian branch, except for the explicitly cited information sources in (1) 4.3.2. Macroeconomic risk – Bulgarian National Bank, National Statistical Institute, Raiffeisen Bank, EC of EU, and Bloomberg, as information sources for macroeconomic indicators and forecasts for the period 2007 – 2010; and (2) 4.3.3. Credit risk – Ministry of finance, as information source for the credit ratings of Repuplic of Bulgaria.

The information received from third parties is correctly presented in the Registration Document, and as far as the Issuer is aware and can check the information, published by these third parties, no facts, which could lead to incorrect or misleading information, have been omitted.

2 4 . AVA I L A B L E D O C U M E N T S

Copies of the following documents will be available for examination within the usual working hours of the week (excluding Saturday, Sunday and official holidays) at the office of Industrial Holding Bulgaria PLC – 47 Vasil Levski Boulevard, Sofia, Bulgaria and at the website of the Company – www.bulgariaholding.соm for the term of validity of the Prospectus as of the date of its publication, and namely:

1) The Statute of IHB;

2) The Prospectus consisting of this Registration Document, the Offered Securities Document and the Summary, including any and all documents enclosed thereto and any and all documents referred to in the Prospectus as indicated above;

3) Subsequent Financial Statements of the Company accompanied by audit reports following preparation and publication.

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2 5 . I N F O R M AT I O N A B O U T I N T E R E S T S

The companies where the carrying amounts of the interests of IHB exceed 10% of the net assets as at 31 December 2009 (BGN 98.7 million on unconsolidated basis) are as follows:

Ü BULYARD AD


Scope of activity Shipbuilding, ship repair, commercial shipping, trade, representation, intermediation and agency, foreign economic activities, marketing, consulting and design activities as well as any other activity not prohibited by law

Capital as at 31 December 2009 BGN 37,292,980 (thirty-seven million two hundred ninety-two thousand nine hundred and eighty)



Carrying amount of the interest as at 31 December 2009

BGN 25,591 thousand

Reserves as at 31 December 2009 BGN 21 thousand

Loss for the last financial year The 2008 financial result of the company is loss of BGN 89 thousand. There have not been prepared and audited any financial statements for 2009 yet.

Dividends paid to IHB for the last financial year

None

Total receivables and payables of IHB related to its interest in the capital of the company

None

Ü PRIVAT ENGINEERING AD

Seat and address of management 42 D. Grouev Street, Sofia

Scope of activity Engineering in the country and abroad, licenses, know-how, technology transfer, home and foreign trade as well as any other activity not prohibited by law

Capital as at 15 February 2010 * BGN 6,730,000 (six million seven hundred and thirty thousand)



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Carrying amount of the interest as at 15 February 2010 *

BGN 20,477 thousand

Reserves as at 31 December 2009 BGN 10,601 thousand

Loss for the last financial year The 2008 financial result of the company is loss of BGN 629 thousand. There have not been prepared and audited any financial statements for 2009 yet.

Dividends paid to IHB for the last financial year

None

Total receivables and payables of IHB related to its interest in the capital of the company as at 31 December 2009

No payables

Receivables totaling BGN 15,732 thousand, including BGN 9,371 thousand paid in January

* In February 2010, the capital of Privat Engineering AD was increased by BGN 2 million through the issue of 2 million shares, each having nominal value of BGN 1 and issue value of BGN 5. All shares were subscribed by IHB. Therefore, there has been disclosed information about the capital and the carrying amount of the interest of IHB as at 15 February 2010.

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DECLARATION

BY THE PREPARERS OF THE REGISTRATION DOCUMENT

We, the undersigned Veselin Zahariev, Atanas Chobanov, Lydia Shoumkova, Bogomila Hristova, Neli Kircheva and Gergana Atanasova, being the Preparers of this Registration Document, hereby declare that we have applied due care and all reasonable efforts to ascertain that the information disclosed in this Registration Document is true, complete, corresponding to the facts and lacking any omission, which may affect its meaning.

Prepared by:

_______________________ _______________________ _______________________

Veselin Zahariev

Corporate Finance Director

Atanas Chobanov

Associate Corporate Finance

Lidiya Shoumkova

Legal Unit Head

_______________________ _______________________ _______________________

Bogomila Hristova

Investor Relations Director

Neli Kircheva

Financial Analysis and Investments Director

Gergana Atanasova

Expert in Financial Analysis and Investments at IHB

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DECLARATION

BY THE ISSUER AND THE AUTHORIZED INVESTMENT INTERMEDIARY

We, the undersigned, being the Representatives of the Issuer – Industrial Holding Bulgaria PLC and the Authorized Investment Intermediary – KBC Securities N.V. – Bulgaria Branch, hereby declare that the IPO Prospectus meets the regulatory requirements.

For the Issuer – Industrial Holding Bulgaria PLC:

_______________________

Daneta Zheleva

Chief Executive Director of Industrial Holding Bulgaria PLC

For the Investment Intermediary – KBC Securities N.V. – Bulgaria Branch:

_______________________ _________________________

Ilian Scarlatov

Manager

Kliment Rudinski

Manager

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