annual report 2007...5 the beginning the company was established in september 1996 as a...

AnnualReport2007

3

ContentsIHB at a glance Management 2007 in figuresIHB portfolioRevenue by industriesExport map Financial highlights

IHB Operating reviewCEO’s letterConsolidated annual management report

2007 Operating resultsIHB operating resultsIHB companies operating resultsFinancial resources managenet. Used financial instuments.Financial risk management. Description of major risksImportant events occured after the annual closure of accounts Important scientific research and developmentsForeseen development of the companyChanges in the price of the company’s sharesData on the trading of the company’s bondsInaformation about holdings of and trading in own sharesShareholding structure as at 31 December 2007

IHB Financial StatementsIndependent Auditor’s Report Consolidated Financial StatementsNotes to the consolidated financial statements

IHB governance“Comply or explain” reportInformation about the members of the MB and SBInvestor Relations Director’s reportIHB teamCorporate social responsibility reportIHB companies

5689

101214

18 202222232864

66676768696970

71727479

107109117118122124130

4

IHB is a public limited company managing investment

portfolio of companies from different industries. IHB

aims to possess controlling interest over 51%, which

gives the opportunity to determine the strategy and to

achieve the strategic management of the companies

from its portfolio. In partnership with other investors,

IHB invests in projects in which it can have significant

influence - up to 50%.

IHB pursues a permanent optimization of the invest-

ment portfolio. As at 2008 the investments are mainly

in maritime business - shipbuilding, ship repair, port

operations, sea transport, classification and certifica-

tion, machine building and river cruises.

IHB is listed on the highest segment A on the offi-

cial market of Bulgarian Stock Exchange - Sofia. IHB

shares are one of the most liquid positions on the stock

exchange and are included in all the Bulgarian ind-

eces and in some indeces of the index families Dow

Jones STOXX and Dow Jones Wilshire.

5

The beginning The company was established in September 1996 as a privatization fund with

the objective of participation in the mass privatization process in Bulgaria during

1996 - 1997.

In February 1998, Privatization Fund Bulgaria PLC was reorganized as a Holding

Company in accordance with the Law of Commerce and was renamed as Indus-

trial Holding Bulgaria PLC /IHB/.

The activitiesIHB’s main activities are acquisition, evaluation and sales of equity in companies,

management of companies in its portfolio, financing its subsidiaries.

The capital andshareholdersIHB is the fifth privatization fund in terms of size of issued capital in investment

bonds and number of shareholders among 81 privatization funds licensed in Bul-

garia. The founding capital was BGN 2 654 985 and the founders were 110 000

shareholders.

After several capital raisings, as at 31 May 2008 the issued capital of IHB is

BGN 43 756 118, distributed in 43 756 118 ordinary voting shares with BGN 1

nominal value. As at 31 May 2008 IHB has over 56 000 natural and 200 legal

persons, possessing respectively 17% and 83% from the voting shares. The four

biggest shareholders holding over 5% of the voting shares posses 55% and the

free float is 45%.

The visionIHB is the biggest industrial holding in Bulgaria. IHB continuously supports its sub-

sidiaries to become best performers in their business activities and encourages

its employees to improve their individual skills. Due to its prosperous subsidiaries,

IHB generates high shareholder value. It is therefore attractive for investors and

reflects the sound image of a solid and sustainable company.

IHB at a glanceIHB at a glance

IHB at a glance

6

Supervisory Board (SB)

DZH AD - ChairmanDZH AD is a family com-pany with main activities investments in real estates and securities. The com-pany is the third one out of the biggest shareholders in IHB.In the SB, DZH AD is repre-sented by Ambassador Dr. Elena Kirtcheva

1. Ambassador Dr. Elena Kirtcheva (58) was elected as representative in SB in 2006. She has great administrative and mana-gerial experience in state institutions, government and non-government or-ganizations, academic and teaching experience in low and economic fields, big experience in diplomacy -

ex-ambassador of Bulgaria in Switzerland, Lichten-stein, Finland and Austria. Awarded with the Grand Decoration of Honour in Gold with Sash for Services to the Republic of Austria. She was member of the First democratic Parlament of Republic of Bulgaria and member of commissions and parlament delegations of Republic of Bulgaria in European Council and Organization for Security and Cooperation in Europe /OSCE/. She graduated law in Sofia University Kliment Ohridski. PhD in Law.Founder, Member of the Board and Secretary Gen-eral of Vienna Economic Forum.

2. Mrs. Snejana Hristova (58) joined the manage-ment team in 2003 when

she was elected member of the Managing Board. In July 2003 she was elected independent member of the SB. She has rich experience in the insurance sector and business ad-ministration of commercial companies. She graduated Insurance in the Economic Academy D.A. Tzenov in Svishtov. MSc in Economics.

3. Mr. Konstantin Zogra-fov (51) joined the SB in September 1999. He has rich experience in busi-ness administration in the Ministry of Defense and General Staff of Bulgar-ian Army, Organization for Security and Cooperation in Europe, commercial com-panies and international non-profit organizations. He graduated National Military

University Vassil Levski in Veliko Tarnovo, with civil major eastern languages, Staff College G.S. Rakovski in Sofia and Defense and Security policy strategic course in the GCSP, Ge-neva, Switzerland. Mr. Zografov is Associated Director of AFCEA Interna-tional and Regional Vice President of AFCEA Inter-national for Mediterranean and Black Sea region.

Managing Board (MB)

4. Mr. Bojidar Danev (69) has been member of the Managing Board and its Chairman since IHB’s establishment. Mr. Danev has a great experience in business administration of commercial companies and non-government organiza-

Management

Management

6

4

7

5

7

tions. He graduated the Technical University, Sofia and has a PhD specializa-tion in Germany. MSc in En-gineering, PhD in Econom-ics and Senior Research Assistant - second degree. Mr. Danev is Chairman of the Managing Board and Executive Chairman of the Bulgarian Industrial Asso-ciation.

5. Mrs. Daneta Zheleva (40) - Chief Executive Offic-er joined the management team of IHB in September 1999 as a representative of Dia Expert EOOD - member of the SB. In July 2003 Mrs. Zheleva was elected mem-ber of MB and CEO. She has a 10 year experience as a lawyer in the Sofia Bar Association. She graduated law in Sofia University Kli-ment Ohridski. MLL in Law.

Mrs. Zheleva is a deputy chairperson of the Manag-ing Board of the Bulgarian Industrial Capital Associa-tion and of the Bulgarian Private Ports Association.

6. Mr. Anguel Katzarov (66) - Chief Executive Officer joined the manage-ment team in July 2002. In July 2003 he was elected CEO of IHB. He has great experience in business ad-ministration in the Ministry of Defense and General Staff of Bulgarian Army, as well as in commercial compa-nies. He graduated National Military University Vassil Levski in Veliko Tarnovo, with civil major mechanical engineering, Staff College Frunze in Moscow and General Staff College in Moscow. MSc in Engineer-ing and Lt. General /ret./.

7. Mr. Borislav Gavrilov (32) joined the manage-ment team of IHB in July 2003. He has been working in IHB, Elprom ZEM and Alcomet before that. He has experience in business ad-ministration of commercial companies. He graduated economics in Hull University, Great Britain. Economist.

8. Ambassador Boyko Noev (54) joined the man-agement team in March 2003. He has rich experi-ence in administration in government institutions - he has been member and deputy-head of the Bulgarian delegations to the CSCE and CFE Vienna negotiations and head of the European Organiza-tions Department, Ambas-sador to NATO, Belgium and Luxembourg, Minister

of Defense in Bulgaria. He graduated International Re-lations in Moscow Institute for International Relations. Ambassador Boyko Noev is Director of European Program at the Center for Study of Democracy.

Management

IHB has a two-tier management system - Managing Board and Supervisory Board

Management

8

2

3

1

8

2007 in fi gures

2007 in figures

80%Consolidated assets growth 2007 to 2006

20%Consolidated total revenue growth 2007 to 2006

27%Consolidated net profit growth 2007 to 2006

92%Consolidated net assets growth 2007 to 2006

11%

89%

Consolidated operating revenue growth 2007 to 2006

Share price rise for 2007

9

PortfolioIHB is a holding company managing a portfolio of companies. Depending on the share and the possibility for IHB to influ-ence their management, these companies are classified as follows:

Subsidiaries (s) - companies controlled by IHB; Associates (a) - in which IHB has significant influence, but not control, over the financial and operating policies; Companies with minority interest /portfolio investments/(pi) - companies over which IHB has no influence.

Some of the companies are indirectly controlled by IHB through affiliates (ss) or (as). These companies are owned and/or controlled by some of IHB subsidiaries.Here are presented IHB subsidiaries and associates with their own subsidiaries.

Portfolio structure by industries as at May 31, 2008

Investments: BGN 44 455 thousand

IHB portfolio

Maritime businessBulyard AD (s) Bulyard Shipbuilding Industry AD (ss)Dockyard Port Bourgas AD (s)Odesos PBM AD (a)Maritime Holding AD (s) Bulgarian Register of Shipping AD (ss)VIK Sandvik IHB Design (as)

Machine buildingZMM Bulgaria Holding AD (s) ZMM Sliven AD (ss) Mashstroy PLC (ss) ZMM Nova Zagora AD (ss) Elprom ZEM PLC (ss) Leyarmach AD (ss) Bulcari (ss)

Furniture productionAvgusta Mebel AD (s)

River cruisesDunav Tours AD (a)Dunav Tours Hotels AD (as)Tourist Company Dunav AD (as)Danube River Navigation AD (as)Ship Company Dunav AD (as)

OtherPrivat Engineering AD (s) Emona Ltd (ss) Marciana Ltd (ss) Karvuna Ltd (ss) IHB Shipping Co AD (ss)KLVK AD (s)Hydro Power Bulgaria AD (s)International IndustrialHolding Bulgaria AG (s)

1 2 3 5

4

IHB Portfolio

34

12

5

67%18%

2%7%6%

10

66 439

7 361

1 039

1 921

0

48 250

36 329

8 145

3 776

11 887

3 032

1 889

82 935

3 827

3 176

2 047

550

57 393

43 768

9 013

4 612

18 412

2 476

1 434

Revenue by industries

The data presents the operating revenue generated by the companies from IHB portfolio, grouped by industries. The data is from the Financial Statements of the companies as at 31 December of the relevant year and is also shown in the Consolidated Annual Management Report 2007 /page 22/. The other operating revenue is not included. The operating revenue by industries is before elimination of intra group transactions.

20062007Industry

including:

Shipbuilding

Machine building

Ship design

Metal cutting machines

Electric machines

River cruises

Furniture production

Other

Ship repair

Port operatiaons

Metal casting

Classification and certification

11

Operating revenue as at 31 December /BGN ,000/

Revenue by industries

7 327

14 627

484

2 076

0

43 997

34 261

5 941

3 795

8 820

2 558

4 174

2005

IHB

Consolidated

Operating

Revenue

/BGN ,000/

147 3862007

2006

132 404

2005

70 097

The operating revenue of IHB (non consolidated) and ZMM Bulgaria Holding (non consolidated) are not shown above. The consolidated operating revenue of IHB comprises the operating revenues of IHB and its subsidiaries (together referred to as the “Group”) and the Group’s interest in associates. The basis of consolidation is explained in the Consolidated Financial Statements /page 80/.

12

Export map of the products and services of IHB companies for 2007

12

Export map

13

Export map

14

Export map 2007 legend

Region CountriesEurope Albania, Austria, Cyprus, Czech Republic, Denmark, France, Germany, Greece, Hungary, Italy, Malta, The Netherlands, Norway, Turkey, Poland, Portugal, Romania, Russia, Spain, Sweden, Ukraine, United Kingdom, Finland, Ireland, Belarus, Norway, Kingdom of Belgium, Moldova, Slovenia, Scotland

Central America St. Vincent, Panama

North America Canada, USA, Mexico

Latin and South Venezuela, Colombia, Peru, Ecuador, Republic of Chile, Argentina, America Belize

Middle East Jordan, Syria, Iran, Israel, Saudi Arabia

Africa Algeria, Egypt, Libya, Tunisia, Marocco

Asia China, Kuwait, India, Thailand, Vietnam

Export

Industry Symbols Products/services Companies

Maritime Shipbuilding Bulyard Shipbuilding Industry ADBusiness Ship repair Dockyard Port - Bourgas AD, Bulyard Shipbuilding Industry AD Port activities Odesos PBM AD, Dockyard Port - Bourgas AD

Classification Bulgarian Register of Shipping AD and Certification Ship design VIK Sandvik - IHB Design AD

Machine- Metal - cutting ZMM Bulgaria Holding AD, ZMM Sliven ADbuilding machines Mashstroy AD, ZMM Nova Zagora AD

Electric machines Elprom ZEM AD

Metal casting Leyarmach AD

River River cruises Dunav Tours AD, Tourist Company Dunav AD, cruises Dunav Tours Hotels AD

Furniture Furniture production Avgusta Mebel ADproduction

Our business

15

Location map

BulgariaLocation map of IHB companies in Bulgaria

Sofia

Troyan

Shumen Varna

BourgasSliven

Nova Zagora

Rousse

16

EBITDA-Financial result from operating activities before amortization and depreciation /BGN’000/

40 000

35 000

30 000

25 000

20 000

15 000

10 000

5 000

02003 2004 2005 2006 2007

change from previots year

5 450 8 034

30 151

12 089 16 582

31% 47% 275% -60% 37%

Total assets /BGN’000/

350 000

300 000

250 000

200 000

150 000

100 000

50 000

02003 2004 2005 2006 2007


63 868 77 991

155 766 174 918

314 349

-13% 22% 100% 12% 80%

Net assets /BGN’000/

200 000

180 000

160 000

140 000

120 000

100 000

80 000

60 000

40 000

20 000

0 2003 2004 2005 2006 2007


39 27947 317

82 059

92 655

188 410

10% 20% 73% 13% 103%

Net profit for the year/BGN’000/

40 000

35 000

30 000

25 000

20 000

15 000

10 000

5 000

0 2003 2004 2005 2006 2007


3 501

7 662

29 898

9 647 12 258

17% 119% 290% -68% 27%

Financial highlightsOperating revenue /BGN’000/

180 000

160 000

140 000

120 000

100 000

80 000

60 000

40 000

20 000

02003 2004 2005 2006 2007


-29% 6% 86% 47% 20%

162 393

46 701 49 531

92 130

135 088

17% 119% 290% -78% 9%

Earnings per share /EPS//BGN’000/

1,60

1,40

1,20

1,00

0,80

0,60

0,40

0,20

0,002003 2004 2005 2006 2007


0,17

0,36

1,42

0,310,34

Return on equity /ROE/ /%/

40,00

35,00

30,00

25,00

20,00

15,00

10,00

5,00

0,00 2003 2004 2005 2006 2007

8,91

16,19

36,43

10,41

6.51

Return on sales revenue /%/

40,00

35,00

30,00

25,00

20,00

15,00

10,00

5,00

0,00 2003 2004 2005 2006 2007

7,50

15,47

32,45

7,147,55

17

Return on assets /ROA//%/

25,00

20,00

15,00

10,00

5,00

0,00 2003 2004 2005 2006 2007

5,48

9,82

19,19

5,52

3.90

Return on invested capital/ROIC/ /%/45,00

40,00

35,00

30,00

25,00

20,00

15,00

10,00

5,00

0,002003 2004 2005 2006 2007

9,55

16,64

41,37

10,39 8.70

P/E-Price/earnings per share

35,00

30,00

25,00

20,00

15,00

10,00

5,00

0,00 2003 2004 2005 2006 2007

2,346,20

2,54

13,19

33,09

Financial highlights

Comparison of IHB share price grouth to indexes SOFIX, BG40 and BGTR 30 grouth 2007

The indicated data are from Bulgarian Stock Exchange - Sofia.IHLBL - IHB shares code of Bulgarian Stock Exchange - Sofia.

P/S-Price/Sales Ratio3.00

2.50

2.00

1.50

1.00

0.50

0.00

0,18

0,96 0,82 0,94

2.50

2003 2004 2005 2006 2007

The given figures are as at 31 December of the respective year as per the audited consolidated financial statements of

IHB for the same period, prepared in compliance with IFRS.

The net assets and net profit figures exclude minority interests. The indicators are calculated on this basis. The total

amount of net assets, including minority interests, as at 31 December 2007 is BGN 217 565 thousand, and the net profit

- BGN 13 338 thousand.

1 BGN = EUR 0.51

19

IHBOPERATINGREVIEW

20

Worldwide, 2007 was strongly influenced by the global financial crises and we still feel its resonance.The dramatic rise of the prices of the energy sources and the raw materials, as well as the high inflation put all industrial com-panies on challenges not seen in the last several decades.

Despite this, IHB Group fulfilled the engagement to investors as for 2007 it reached 20% revenue growth on consolidated bases compared to 2006. The net profit for the Group with minority in-terest amounts to BGN 13,3 million and the profit without minority interest for 2007 marked an increase of 27% compared to 2006.

The company raised its capital with two thirds through initial pub-lic offering of shares and all the new shares were subscribed.

Ceo`s letter

Daneta Zheleva,CEO

21

The past 2007 differed from the others mostly with the significant size of investments for development of the intellectual product. A license agreement for building a modern bulk carrier ship 56 000 dwt, type Future 56 was signed. Thus we laid the foundation of a fruitful and long-term partnership with IHI Marine United Inc. and Mitsubishi Corporation. We founded a new company VIK Sandvik-IHB Design for ship design in which 40 young highly qualified naval architects are working already.Together with Deloitte we realized a project for optimization of the production in the shipyard. At the same time a significant amount of investments were made in new business lines – IHB started to invest in sea transport and ordered new ships for construction in Bulyard Shipbuild-ing Industry. We started the project for expanding the Dockyard Port Bourgas, the technical re-equipment of Elprom ZEM and Leyarmach and the modernization of Bulyard Shipbuilding In-dustry.

During the year, the IHB management’s efforts were also focused on managing the risks for the Group: the process of setting up the internal audit was run; actions were undertaken for hedging the currency risk; long-term contracts for delivery of materials and equipment were signed; actions for importing labor forces from Azerbaijan, Ukraine and Turkey were undertaken.

I would like to thank to our business partners and investors for their support. Their appraisal and trust are extremely valuable for us. I also would like to thank to our team – employees and managers. Despite being in different places of the country, some of them in different countries, they professionally and devotedly work for the prosperity of IHB Group. I am confident that with their support and efforts in 2008 we will keep a stable revenue growth of 20% as well as similar profit growth on consolidated bases.

Ceo`s letter

22

Dear Shareholders, 2007 was another successful year for IHB and its group companies – a year characterized by expan-sion of the investments in the maritime business. IHB increased its interest in the capital of Bulyard Ship-building Industry after the State sold a share of 25% to Bulyard. IHB increased its investments in the sea transport by signature of agreements on construc-tion of another new ship designated for bulk freight. The project for expansion of Dockyard Port Bourgas started. IHB invested in two new companies – for ship design and sea transport.

The strong investment program of IHB and its group subsidiaries resulted in necessity of additional financ-ing, which IHB ensured through increase in its capital two times in 2007. The first increase was realized through conversion of the 2004 issue of convertible bonds, and the second – through a new issue of shares. Thus IHB ensured additional amount of BGN 47 256 thousand – BGN 5 251 thousand and BGN 42 005 thousand through the two issues, and in-creased its registered capital to BGN 43 756 118.

Some key data about IHB operations:The assets of IHB, on consolidated basis, marked an increase of 80% compared to 2006.The net assets marked an increase of 92% com-pared to 2006.The revenue of IHB, on consolidated basis, marked an increase of 20% compared to 2006. The consolidated net profit increased by 27% compared to 2006 and amounts to BGN 12 258 thousand.

The shares of IHB added 89% to their value in 2007, and their rise is higher than the SOFIX index /42%/ and lower than the BG40 index /158%/.

In 2007 the shares continued to be one of the most liquid items on BSE-Sofia.

2007 operating results

IHB Group consolidated financial resultsThe 2007 consolidated revenue of IHB amounts to BGN 162 393 thousand, i. e. it increased by 20% compared to 2006. The operating revenue is BGN 147 386 thousand compared to BGN 132 404 thou-sand in 2006 or an increase of 11%. It includes:

The other operating revenue, on consolidated basis, amounts to BGN 15 007 thousand compared to BGN 2 684 thousand in 2006. It includes gains on sale of non-current assets /BGN 12 890 thousand compared to BGN 1 541 thousand in 2005/ and other /BGN 2 117 thousand compared to BGN 1 143 thousand/.

The 2007 consolidated net profit, excluding minority

Consolidated annual management report of Industrial Holding Bulgaria PLC for 2007

In BGN thousand

Sale of production

Shipbuilding

Sale of services

Ship repair

Port operations

Sale of goods and materials

Total

2007

51 247

76 197

10 665

3 827

1 898

3 552

147 386

2006

44 172

66 439

10 075

8 466

218

3 034

132 404

23

interests, is BGN 12 258 thousand compared to BGN 9 647 thousand in 2006, i. e. it increased by 27%.

IHB operating resultsOrganizational group changes. Portfolio restructuringIn 2007 some changes in the operations of the IHB group were made and investments were made in new projects.

In August Dockyard Port Bourgas terminated its operations in shipbuilding. The core activity of the company includes port operations as of August 2007. The shipbuilding operations within the IHB group were redirected to Bulyard Shipbuilding Industry.

Newly established companies

In partnership with Vik Sandvik, Norway, IHB invested in shares of a new company named VIK-Sandvik-IHB DESIGN AD with scope of activity including ship de-sign. The capital of the company amounts to BGN 250 000 distributed into 250 000 shares of BGN 1 nominal value each. Each shareholder participates with 50% of the voting shares. The new company was regis-tered with a decision of Varna District Court dated 22 August 2007. Over 40 highly qualified ship designers work at VIK-Sandvik-IHB DESIGN AD.Privat Engineering, a subsidiary of IHB, established its subsidiary Karvuna Ltd. The newly established company invested in the building of a 21 000-ton multi-purpose ship at Bulyard Shipbuilding Industry designated for unrestricted region of navigation and

bulk freight. The price of the ship, which is to be deliv-ered by December 2009, is EUR 21 million.

In December 2007 Privat Engineering invested in shares of a new company named IHB Shipping Co EAD having capital of BGN 200 000 divided into 200 000 shares of BGN 1 nominal value each. The scope of activity of the new company includes com-mercial sea navigation and related production and technical, forwarding and intermediation activities, ship brokerage and agency, etc.

Increased shareholding in some portfo-lio companiesIn February 2007 Bulyard, a subsidiary IHB, launched a procedure for the acquisition of 25% of the capital of Bulyard Shipbuilding Industry. The procedure was finalised on 6 March 2007. The transaction values amounts to USD 5 555 555. As a result of the transac-tion, IHB Plc control in Bulyard Shipbuilding Industry reached 61.50%. By virtue of Decision No 5 of 19 March 2007 Sofia City Court entered an increase in the capital of Bulyard 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, which Bulyard acquired from Navigation Maritime Bulgare EAD. IHB participated in Bulyard capital increase by subscribing 5 289 000 shares of BGN 1 nominal value each in proportion to its interest in the capital of Bulyard.By virtue of Decision No 6 of 20 April 2007 Sofia City Court entered an increase in the capital of Bulyard from BGN 32 618 980 to BGN 37 292 980. The funds raised through the increase are for an increase of the

Consolidated annual management report

24

capital of Bulyard Shipbuilding Industry by BGN 5 000 000 – from BGN 21 877 905 to BGN 26 877 905. IHB subscribed 2 874 510 shares of BGN 1 nominal and issue value each in proportion to its interest in the capital of Bulyard.As a result of the two increases in Bulyard capital, in 2007 IHB invested BGN 8 164 thousand and its interest in the capital of Bulyard reached BGN 25 591 thousand.

By virtue of Decision No 4 of 2007 Bourgas District Court entered increase in the capital of Dockyard Port Bourgas from BGN 135 440 to BGN 635 440. All 500 000 new shares from the capital increase of BGN 1 nominal value each were subscribed by IHB. Following the capital increase, the interest of IHB in the capital of its subsidiary Dockyard Port Bourgas reached 98.24%.

In March 2007 the capital of the subsidiary Privat En-gineering, 100% owned by the Group, was increased through the issuance of 140 000 ordinary registered voting shares of BGN 1 nominal value and BGN 7 issue value each In September 2007 the capital of the subsidiary Privat Engineering was increased for the second time through the issuance of 160 000 shares of BGN 1 nominal value and BGN 10 issue value each. The shares have been acquired and fully paid up by a company within the Holding’s group. The capital of Privat Engineering as at the end of 2007 is BGN 3 180 000.

In April 2007 the capital of Leyarmach, a company controlled by the Group, was increased. The shares from the increase were purchased by Mashstroy -

150 000 shares and ZMM Sliven - 350 000 shares of BGN 1 nominal value each and the Group retained 100% control of the company.

ZMM Bulgaria Holding made a tender offer on 25 April 2007 and a revised tender offer on 4 June 2007 to the rest of the shareholders of ZMM Sliven for pur-chase of 20 078 shares at a price of BGN 43.60 per share through Aval In Investment Intermediary. ZMM Bulgaria Holding held 262 488 shares /92.89%/ before the tender offer. The tender offer was suc-cessfully completed and, as a result, ZMM Bulgaria Holding acquired 3 277 shares from the other share-holders.The General Meeting of Shareholders of ZMM Sliven made a decision on dissolution and deletion of the company from the Register of Public Companies at a session held on 3 October 2007 in Sliven. By virtue of Decision No 1308 dated 22 October 2007, the Finan-cial Supervision Commission deleted ZMM Sliven from the Public Register of Securities Issuers.IHB slightly increased its share in Dounav Tours by 0.04% for BGN 1 thousand.

The total amount of funds invested directly by IHB /non-consolidated/ in corporate securities in 2007 is BGN 8 789 thousand.

Sale of portfolio shares

In 2007 all 38 555 shares in the capital of Bulgarta-bac Holding, held by IHB, were sold at a price of BGN 41.77 per share. The net gains on the sale of all shares are BGN 250 thousand. As a result of the restructuring, the IHB portfolio as


25

at 31 December 2007, directly and through related parties, is formed of 29 companies: 9 subsidiaries, 3 associates and 17 subsidiaries of subsidiaries and associates. The direct investments of IHB in corporate securities amounted to BGN 44 454 thousand at the end of the year.

2007 Portfolio structure. Investments: BGN 44 454 thousand

Management of the subsidiaries

Pursuing the tasks set at the beginning of the year with respect to its subsidiaries, in 2007 as well, IHB participated actively in the strategic planning of the business of the subsidiaries. IHB encouraged and as-sisted in the following:

carrying out of investment activities; improvement of their products and services, development and introduction in production of new products and services, depending on market requirements; enhancement of the marketing activities, the hu-man resources management activities, as well as other activities related to the companies’ manage-ment; provision of funds for the operating and investment


1 Maritime business

2 Machine building

3 Furniture production

4 River cruises

5 Other

Graphs 1-2: Structure of the IHB portfolio as at 31 December of the last 2 years

3

12

67.43%17.74%

1.85%

5

6.77%

4

6.21%

2007 Portfolio structure. Investments: BGN 37 027 thousand

34

1

5

57.22%2

.22

%

7.46%11.80%

2

21.30%

26

activities of the companies; analysis and assessment of the possibilities for utilizing the new Internet technologies.

Participating in the process of business planning and control over the results achieved

Realizing the important role of control in the man-agement of the subsidiaries, the IHB management continued applying its practice of business planning and monitoring results.The management of IHB set strategic goals and results, which each company had to achieve in the re-spective year. Each executive director has a personal business task for the year, related to the priorities of the company’s activities.The management and experts of IHB endeavour to be constantly aware of the activities of the subsidiar-ies. Information is exchanged on monthly basis as the companies submit reports on their operations for each month. A total of 3 work meetings are held per year among the management of the Holding and the respective management teams of the companies, at which the results from the past quarter are reported. At the meetings the results for the reporting period are discussed, the difficulties faced by the management teams of the companies are shared and the possibili-ties for resolving the problems are analyzed.

The direct result of the management of the subsidiar-ies is the dividend received upon distribution of their profits.

Providing support in the financing of the subsidiaries. Information about transactions IHB supports the financing of the group companies by granting loans and assistance in the negotiations on financing by banks. In 2007 loans of the total amount of BGN 1 579 thou-sand were granted to subsidiaries. The receivables on loans granted to subsidiaries as at 31 December 2007 amount to BGN 60 thousand. Further information is given hereinafter. The 2007 collaterals provided by IHB are in the form of corporate guarantees and avals of promissory notes. Further information is given hereinafter.In 2007 the subsidiaries of IHB financed their opera-tions through bank loans granted by Bank Allianz Bul-garia AD, DSK Bank EAD, Raiffeisenbank – Bulgaria AD, United Bulgarian Bank AD and Biochim AD. The interests agreed on the loans utilized by the subsidiaries vary between EUROLIBOR + an addition of 2.5% - 4%.Teams of IHB assist in the development of the busi-ness plans of the subsidiaries, required by the banks as substantiation for loan granting. In 2007 IHB concluded no other material transactions except for the investments in subsidiaries and agree-ments on financing of subsidiaries.The 2007 transactions with related parties represent granting of loans by IHB to the group companies and vice versa, interest income and interest expenses, loans repayment by the companies to IHB and vice versa, income from sale of services and capital increase contributions. The transactions executed over the period are characterized by no extraordinary

27

circumstances or deviation from market conditions. Information about the transactions between IHB and related parties executed over the year is given in Item 26. Transactions with related parties of the Notes to the Financial Statements as at 31 December 2007, where the transaction values and types of relation are indicated. No other offers for conclusion of such transactions or transactions out of the usual operations or deviating from the market conditions, to which IHB or a subsidi-ary of IHB is a party, were made. The loans granted by IHB to its companies and vice versa in 2007 are in BGN with interest rates within the range of 6% - 8%, in EUR with interest rate of 8% and in USD with interest rate of 10%.There are no 2007 events or indicators of unusual na-ture to IHB, having material impact on its operations. The guarantees for liabilities of associates provided by IHB as at 31 December 2007 are as follows:In favour of DSK EAD: IHB ensured the issuance of bank guarantees at the amount of EUR 671 thousand to secure liabilities of Elprom ZEM to a client. A contract was signed with DSK Bank EAD for credit limit for issuance of bank guarantees, letters of credit and working capital financing of IHB and/or its group companies at the total of BGN 4 500 thousand. Two guarantees were issued for the credit limit as at 31 December 2007 /BGN 100 thousand for Dockyard Port Bourgas and EUR 339 thousand for Elprom ZEM/ and two letters of credit of Bulyard Shipbuilding Industry for EUR 404 thousand and EUR 92 thousand. The two letters of credit were closed as at 28 February 2008 and new ones were issued for the freed funds. The two contracts with DSK Bank EAD are secured with pledge of the business enterprise of Dockyard

Port Bourgas AD, a subsidiary of the Holding.In favour of Bank Allianz Bulgaria AD: IHB provided avals of promissory notes at the total amount of BGN 62 thousand to secure performance bonds of Elprom ZEM to clients. The guarantees have different maturity dates based on the contract validity terms. Corporate guarantees:On 15 November 2006 IHB Plc issued a corporate guarantee at the amount of EUR 3 433 424 and USD 2 977 531 to secure the third advance payment in fa-vour of Bulyard Shipbuilding Industry before the buyer Georgi Maritime Ltd for ship with construction No 457, which was closed in April 2007 due to performed obligations. In July IHB issued a corporate guarantee at the amount of EUR 4 211 942 and USD 3 595 434 to secure the third advance payment for ship with con-struction No 515 from the buyer Maritime Ltd.All guarantees are secured by pledge of immovable property of Bulyard Shipbuilding Industry. IHB will receive remuneration for the corporate guarantees issued equal to 2% of the amount of each guarantee provided. The Management of the Company is of the opinion that there are no indications for liabilities non-settle-ment so no provisions for contingent liabilities have been charged. As at the date of the Annual Report the corporate guarantees were closed.

Internal control systemThe Internal Control Unit of IHB reviews the operations and finances of the IHB group.


Generally, maritime business includes the following sectors: shipbuilding, ship repair, port operations, classification and certification, sea transport and ship design.

IHB companies` operating results

29

Maritimebusiness

MARITIME BUSINESS

Dockyard Port - Bourgas /s/

Odessoss PBM /as/

Por

t act

iviti

es

Classification &

C

ertification

Maritime Holding /s/

Bulgarian Register of Shipping /ss/

Shipbuilding

Bul

yard

/s/

Bul

yard

Shi

pb

uild

ing

In

dus

try

/ss/

V

ik-S

and

vik-

IHB

d

esig

n /s

s/

Shipping

Priv

at E

ngin

eerin

g /s

/

Kar

vuna

/ss/

Mar

cian

a /s

s/

Em

ona

/ss/

IHB

Shi

pp

ing

Co

/ss/

30

Mr. Todor DaskalovChief Executive, Bulyard Shipbuilding Industry

Shipbuilding and ship repair

Shipbuilding and ship repairAs a whole the world shipbuilding industry enjoys progress. Considerable increase in sea transport

volume is reported, which imposes the necessity of new and more ships for transportation of the big-

ger volume of cargoes among the countries. Supplying and other special purpose ships of moderate

tonnage, high technology and at good prices are most demanded. The second place is occupied by

ships for bulk cargo of 55 000 - 65 000 dwt. All dockyards are 100% work loaded until 2010 and this

increases ship prices.

Since 2007 IHB has reorganized ship repair operations within the group redirecting them to Bulyard

Shipbuilding Industry. Dockyard Port Bourgas performed shipbuilding operations until August 2007

when it sold its floating dock for the price of EUR 1 150 thousand.

The higher requirements and the introduction of new ones on ship technical safety resulted in more

frequent repairs - a factor having favourable effect on shipbuilding operations. Bulyard Shipbuilding

Industry is able to provide ship repairs within a wide capacity range - ships of 5 000 tons up to 100 000

tons.

2007 ended with an income increase of 19% and a profi t of BGN 1 mln. which was within the business plan. For 2008 Bulyard SI will deliver the 43 000 dwt bulk carrier Hemus to Navigation Maritime Bulgare, the supply vessel hull N 190 to the Nor-wegian Solstad Offshore ASA and the fi rst 9800 dwt multi-purpose ship to IHB. Ship repair is contracted for occupation of the free docks till October 2008. We ex-pect the Government, as per the Armed Forces modernization projects, to take a decision for building of corvettes and the related offset program for production of frigates.

31

The core activity of Bulyard Shipbuilding Industry is building of new ships, construction of separate ship sections and units and ship repair.Following the start of shipbuilding operations in 2005, in 2006 and 2007 the dockyard characterizes by gradual loading of its production capacities with building of new ships. In 2007, the building of two ships was completed and they were delivered to their owners: No 516 was delivered in June 2007 and No 457 was delivered in October 2007.In 2007 Bulyard Shipbuilding Industry signed a contract with IHI Marine Unitåd Inc – Japan for licensing the building of a new ship for bulk freight of 56 000 dwt of the type super handymax F56. The ship type is exclusively popular on the market and there is a strong interest in such orders on behalf of ship owners Bulyard Shipbuilding Industry purchased a license for eight ships. In 2007 and by March 2008 Bulyard Shipbuilding Industry signed contracts for purchase of pack-ages of materials for the building of these ships. A package of materials includes a main engine, a diesel generator and other accessories to secure the building of ship F56. The total value of these contracts is some JPY 10 billion or USD 92

million. In 2007 and by the beginning of April 2008 Bulyard Shipbuilding Industry had an agreement on the building of 6 ships F56 – sites 101 and 103 for the client Diler Shipping and Trading - Turkey, sites 102 and 105 – for IHB group companies and sites 106 and 107 for companies of Naviga-tion Maritime Bulgare.In addition to the ships F65, in 2007 the building of some other ships and hulls was agreed.Contracts were signed on the building of two ships for bulk freight of 21 000 dwt – site 459 for Varna Maritime Ltd. – a company of Navigation Maritime Bulgare and site 458 for Karvuna Ltd.- a company of IHB group.Another contract was signed on the hull of a supply ship for the Norwegian Dockyard Flekkefjord Slipp & Maskinfabrikk ASÏ with construction No 191. 4 contracts were signed with Aker Toulcha for the production of hull sections for supply ships /orders 372, 374, 374À, 716/. Navigation Maritime Bulgare is in the process of negotia-tions for the production of hulls for 7-16 frigates FREMM over the period 2008 – 2018. The production of corvettes for the Bulgarian Navy as a part of the offset program of the French

Bulyard AD and its subsidiary Bulyard Shipbuilding Industry EAD

Bulyard Shipbuilding Industry EAD

Financial results of Bulyard /non-consolidated/


The activity of Bulyard is related to the management of its subsidiary Bulyard Shipbuilding Industry EAD. In March 2007 Bulyard acquired 25% of the capital of Bulyard Shipbuilding Industry from Navigation Maritime Bulgare EAD for USD 5 555 555 and became sole owner of Bulyard Ship-building Industry. In 2007 Bulyard increased its capital two times, and as a result its capital was increased from BGN 24 018 980 to BGN 37 292 980. The funds raised through the first increase were used to pay 25% of the capital of Bulyard Shipbuilding Indus-try, while the funds raised through the second increase were used to increase the capital of Bulyard Shipbuilding Industry by BGN 5 million. All shareholders participated in the two

increases in proportion to their interest shares.The 2007 income of IHB amounts to BGN 77 thousand repre-senting financial income /interest income/, i. e. it marked a fall of 48% compared to the 2006 income /BGN 148 thousand /. The expenses of the Company decreased by 25% in 2007, amounting to BGN 112 thousand. They include operating expenses /hired services and other/ and financial expenses /net exchange rate loss/. The 2007 financial result of Bulyard is loss at the amount of BGN 35 thousand. The assets of Bulyard as at 31 December 2007 amount to BGN 37 456,thousand and BGN 36 525 thousand of them represent investments in Bulyard Shipbuilding Industry.

Operating income

BGN`000

60

50

40

30

20

10

02005 2006 2007

5734

0

Profit after taxation

BGN`000

250

200

150

100

50

0

-502005 2006 2007

210

-2-35Profit after taxation

Other operating revenue

32

Shipyard Armaris is in process of negotiations.As of March 2007 the shipyard is certified under the quality management system in compliance with the requirements of ISO 9001:2000. The scope of the certificate includes design of vessels, shipbuilding and ship repair. The certifying organiza-tion is BV – Bureau Veritas Certification – Bulgaria.The 2007 investment program is for EUR 4 714 thousand. There have been implemented key projects for production capacity increase, working conditions improvement and production process modernization, including the purchase of 8 ships of the super handymax F56, small-size ship equip-ment, certification under ISO 9000 – 2001, reconstruction of workshop Ê1 and others. The total expenses on investment amount to EUR 8 475 thousand, including repair and mainte-nance at the amount of EUR 3 468 thousand. The implemen-tation of the 2007 investment program was financed by the reinvested 2006 profit and an investment credit granted by SG Expressbank.The 2007 income of Bulyard Shipbuilding Industry amounts to BGN 101 244.thousand The income from shipbuilding is BGN 82 935 thousand compared to BGN 66 439 thousand in 2006. The result of the two ships – sites 516 and 457, built and delivered to their owners in 2007, is loss at the amount of BGN 9 991 thousand. This is mainly due to the low agreed ship pric-es and that these are the first ships built after the bankruptcy of Varna Shipyard. The negative result from shipbuilding operations is partially compensated for orders of higher return and ship repair.

The Company continues ship repair operations along with shipbuilding with the purpose of 100% use of the capacities. Over the periods when the chambers are free, Bulyard Ship-building Industry executes shipbuilding operations. In 2007 seven repairs of vessels owned by foreign persons were made and their total value is BGN 2 676 thousand, while in 2006 25 repairs of vessels owned by 16 Bulgarian and 9 for-eign ship owners were made – their total value is BGN4 008 thousand.The 2007 income from ship repair operations occupies 3% of the total sales income /BGN’000 86 195 / compared to 6% in 2006.The sales income of Bulyard Shipbuilding Industry amounts to BGN 15 049 thousand, including estates sales, and the gains on these transactions amount to BGN 12 745 thousand. The 2007 financial result of the company is profit at the amount of BGN 213 thousand.In 2008, Bulyard Shipbuilding Industry focuses on production facilities improvement and modernization in compliance with its investment plan and maintenance of quality management system complying with the European standards. Conclusion of contracts securing the implementation of the production pro-gram until 2012, enhancement of the qualification of workers involved in the production processes, reduction of production and administrative and management expenses by 10% com-pared to 2007, finding of new methods for staff recruitment, offering of more motivating social benefits and improvement of working standards.

Financial results of Bulyard Shipbuilding Industry /from all activities – shipbuilding and ship repair/


213

Operating income

BGN`000

120 000

100 000

80 000

60 000

40 000

20 000

02005 2006 2007

8619570 9163 196

74 112

19 2895 007

24 296

15 049

101 244

Profit after taxationBGN`000

5 000

4 000

3 000

2 000

1 000

02005 2006 2007

659

4 102

Sales income


Other income

34

Dockyard Port - Bourgas AD, Odessoss PBM ADPort operations are expected to progress in the forthcoming years. The sea transportation of goods is

expected to mark greater activity against transportation by land due to environmental reasons. The in-

creased economic exchange among the countries, resulting from economies’ growth, is another reason

predetermining this progress. This trend is observed in Bulgaria as well - there are growth in GDP and

growth in export and import. In this aspect, the two ports of the IHB Group have the chance to find plac-

es in this sector. The ports are located in Varna and Bourgas - Odessoss PBM covering an area of 150

decares and Dockyard Port - Bourgas covering an area of 50 decares. The two ports are constructed

on own terrain which represents a competitive advantage and have obtained regional importance port

licenses. Both ports avail with certificates for procession of general, liquid and bulk cargo.

Mr. Vesselin StatevGhief Executive, Dockyard Port - Bourgas

Port operations2007 will take place in the analysis of the company as year or reborn from ship repair company to commercial port. The total handled cargo of 187 000 MT, respectively the achieved incomes are clear evidence for the right business pol-icy.2008 can be described with one word – “growth”. The term will be fulfi lled with consistency by the volume of cargo as well as the assets of the company.

35

Dockyard Port - Bourgas AD

Until the end of July 2007 the company performed two key activities: ship repair and port operations. In July 2007 a float-ing dock, having carrying amount of BGN’ 959 thousand, was sold for the market price of BGN 2 034 thousand and a float-ing workshop, having carrying amount of BGN 36 thousand, was sold for the market price of BGN 215 thousand. Thus, ship repair operations were suspended and port operations became the only operations executed by the company.In 2007 freight of 186 500 tons was processed compared to 26 875 tons processed in 2006. In 2006, metal freight and fin-ished metal products were the main processed items. In 2007, the company expanded its scope of processed freight. There were processed metals and metal products /reinforced iron, profiles, coils, packed iron and pipes/, wood, glass, technical property, salt, vegetable oil and others. During the year there was total income realized for the amount of BGN 3,950 thousand compared to BGN 3,993 thousand in 2006. The income from ship repair operations by July 2007 amounts to BGN 567 thousand compared to BGN 3 484 thousand gained over the whole 2006. The 2007 income from port operations amounts to BGN 2 038 thousand, including freight procession, warehouse and exploi-tation activities /BGN 1 898 thousand/, rent and other accom-panying activities /BGN 140 thousand/ compared to BGN 442 thousand in 2006, including freight procession, warehouse and exploitation activities /BGN 218 thousand/, rent and other accompanying activities /BGN 224 thousand/. Dockyard Port-Bourgas realized gains on the sale of non-cur-rent assets at the amount of BGN 1 345 thousand, including the gains on the floating dock sale. The profit prior to taxation amounts to BGN 1 647 thousand, while the 2007 net profit is BGN 1 477 thousand.In November the capital of the company was increased from BGN 135 440 to BGN 635 440. The new 500 000 shares were

subscribed by IHB.The 2008 policy focuses on ensuring new freight flows and at-tracting new clients. It envisages freight turnover increase and reaching 258 tons of processed freight. In 2008 there will be commissioned two railway lines, two travelling bridge cranes - 12.5 tons, new open warehouse facilities, etc. There are plans for commencement of the construction works related to the port expansion project, and the main portion of the required funds will be secured by bank credit. The project, the value of which is some BGN 23 million, is to be implemented over a period of three years.

Financial results of Dockyard Port-Bourgas /from all activities – ship repair and port operations/

Operating incomeBGN`000

5 000

4 000

3 000

2 000

1 000

02005 2006 2007

3 7023 097

2 465

291205

3 9933 302

1485

3 950


BGN`000

2 000

1 500

1 000

500

02005 2006 2007

370384

1477

Sales income


Other operating revenue


37



1 600

1 400

1 200

1 000

800

600

400

200

0

2005 2006 2007

661

305

1278

128

85

789

390

174

1452


BGN`000

300

250

200

150

100

50

0

-50

-1002005 2006 2007

86

-69

240

Other operating income


Income

Odessoss PBM AD

The 2007 key operating results of Odessos PBM are as fol-lows: income growth of 75.33% as compared to 2006, profit increase by three times compared to 2006, own investments in non-current tangible assets at the amount of BGN 704 638 thousand, increased market share of the services offered by the company and reaching better results due to new partners.The 2007 income of Odessoss PBM amounts to BGN 1 452 thousand, marking a growth of BGN 627 thousand compared to 2006. The growth is mainly due to the significantly higher receipts from reloading operations and increased income from rendered services.The income sources remained the same as the 2006 ones, and namely: receipts from quay lineal charge, reloading operations, freight storage and long-term rents, other income from rendered services, including power and water supply, mechanization and freight packaging.In 2007 freight of 74 759 tons was processed compared to freight of 24 874 tons processed in 2006. In 2006, all types of metal freight and finished metal products were processed. In 2007, the company expanded its scope of processed freight. There were processed metals and metal products /reinforced iron, scrap, sheet iron/, wood, ammonium nitrate and grains. In 2007 freight of 74 759 tons was processed compared to 24 874 tons processed in 2006. In 2006, metal freight and fin-ished metal products were the main processed items. In 2007, the company expanded its scope of processed freight. There

were processed metals and metal products /reinforced iron, scrap, iron sheets/, wood, ammonium nitrate and grain. The 2007 accounting profit of the company after taxation amounts to BGN 240 thousand compared to BGN 86 thou-sand in 2006.In 2007 the process of restructuring of the region of the sup-porting shipbuilding enterprise kept by the company into a port enterprise with established facilities for ship, wagon, motor, warehouse, container and rear procession of bulk and general freight was completed.The 2008 objectives of the Company include increase in the investments for creation of proper conditions and in the freight flow through a quay, expansion of operations and the pos-sibilities for freight storage and procession, expansion of the scope of offered services through commissioning a 32-tones travelling bridge crane at the rear and possibility for general freight procession onto/down wagons. The company intends to perform rear procession of full 20- and 40-foot containers, including refrigerator, and bonded storage regime.

Financial results of Odessoss PBM

38

The 2007 activity of Maritime Holding AD is the management of investments in subsidiaries. Maritime Holding holds 99.81% of the capital of Bulgarian Register of Shipping AD – Varna and 100% of the capital of Bulgarian Lloyd EOOD. In 2007, Maritime Holding realized dividend income at the amount of BGN 699 thousand compared to BGN 749 thousand in 2006. The dividend income was received from its subsidiary Bulgar-ian Register of Shipping AD.

The 2007 financial result of Maritime Holding is profit at the amount of BGN 696 thousand, which is equal to the net profit compared to net profit of BGN 750 thousand in 2006. The amount of the assets of Maritime Holding as at 31 December 2007 is BGN 1 271 thousand, the highest share being occupied by investments in subsidiaries – BGN 1 267 thousand.

Maritime Holding AD

Maritime Holding AD and its subsidiary Bulgarian Register of Shipping ADThe classification and certification of vessels depend on shipbuilding and ship repair development. As

these sectors have been developing and enjoy progress, the classification and certification of newly built

and repaired ships mark growth. Another contributing factor is the introduction of new higher require-

ments on navigation security and safety by the World Maritime Organization..

Mr. Andrei TodorovGhief Executive, Bugarian Register of shipping

Classifi cation and certifi cation

2007 was successful in terms of provided services and in terms of new contracts for partnership: we signed contracts for authorization by three maritime adminis-trations and a contract for joint activities with the Japanese classifi cation society. For 2008 we aim at increasing the number of ships with class from BRS, to sign new contracts for authorization with maritime administrations and to achieve higher fi -nancial results.

39

The 2007 operating income of BRS amounts to BGN 2 047 thousand. In 2007 12 ships owned by foreign persons were issued class by BRS. The process of attraction of ships owned by foreign persons will continue and related requirements on ship age and technical conditions, applying for BRS class, will be increased.In 2006 contracts for authorization by the maritime adminis-trations of Dominica, Saint Vincent and the Grenadines and Moldova were signed.On 2 October 2007 a contract was signed by the Japanese Register NKK and BRS for joint activities in relation to the NKK-class certification. In relation to this contract, the enhancement of the qualification of three inspectors of BRS, acquisition of NKK inspector status and their participation in the new ships building project were agreed.The 2007 income from sales of services of BRS marked an increase of BGN 141 thousand or 7% as compared to the preceding year. The profit of the company increased by BGN 58 thousand or 6% as compared to the preceding year.

The company will proceed with the training of inspectors for employment abroad and finding of new prestigious partners abroad.The mid-term objectives of Bulgarian Register of Shipping AD include the company’s preparation for recognition by the Eu-ropean Union and increase of the tonnage of the supervised fleet. The company has submitted documents for recognition by the European Union as register. The basic classification and certification activity is becom-ing more and more competitive and Bulgarian Register of Shipping AD finds it difficult to compete with its multinational competitors Lloyd’s Register of Shipping, Bureau Veritas, Germanischer Lloyd. Therefore, the objective is development in the sector of industrial audit and related operations. In 2007, BRS certified 137 Bulgarian and 84 foreign ships.The activities related to the Project for Development of Tech-nologies for Ship Inspection and Certification and Internet-Based System for Inspection Management were completed. In March 2008, the system will be put into operation.

Bulgarian Register of Shipping AD /BRS/

Financial results of Maritime Holding

Financial results of BRS



800

700

600

500

400

300

200

100

02005 2006 2007

749

403

699

4

8

753

411


800

700

600

500

400

300

200

100

02005 2006 2007

750

407

696

Dividend income


Other income

Operating income

BGN`000

2 100

2 050

2 000

1 950

1 900

1 850

1 8002005 2006 2007

2 076

1 921

2 047

3

7

2 079

1 928

2 069


BGN`000

1000

950

900

850

800

7502005 2006 2007

915

834

973

Income



22

40

Ship design

41

2007 was the year of establishment of our company. For the four months of existing we managed to enter the market of ship design services. We received a good appraisal from our partners which led to an increase of the signed contracts and doubling the staff of the company in 2008. Our goals for 2008 are to strength-en our positions on the market and to be-come a preferable partner to shipyards and ship owners.

VIK Sandvik – IHB Design AD

Mr. Boyko GeorgievChief Executive, VIK Sandvik-IHB Design


Financial results of VIK Sandvik - IHB Design AD

Sales income

BGN`000

600

500

400

300

200

100

02005 2006 2007

550

Net profit for the periodBGN`000

350

300

250

200

150

50

0

2005 2006 2007

296

Sales income

Year

In August 2007 IHB and VIK Sandvik - Norway established a ship design company in Bulgaria named VIK-Sandvik-IHB Design. The company is an associate of IHB as it holds 50% of its capital.The core activity is development of working documentation and exercising of author’s control. Over the period September 2007 - December 2007 the company realized income at the amount of BGN 550

thousand. The 2007 financial result is profit of BGN 296 thousand. The 2008 objectives include offering of full scope of design services in performing a particular order, specialization in ship design servicing offshore floating facilities and research and experience related to entry into the sphere of design of oil platforms and other special-purpose floating facilities.

42

The machine building sector includes the following sub-sectors: production of metal cutting and electric machines and metal casting.

43

Machine building

MACHINE BUILDING Elprom ZEM /ss/

Ele

ctric

mac

hine

sMetal casting

Leyarmach /ss/


ZM

M S

liven

/ss/

Mas

hstr

oy /s

s/

ZM

M N

ova

Zag

ora

/ss/

ZMM BulgariaHolding /s/

Bulcari /s/

44

Mr. Anguel KatzarovChairman Board of Directors, ZMM Bulgaria Holding

ZMM Bulgaria Holding AD and its subsidiaries ZMM Sliven AD, Mashstroy AD, ZMM Nova Zagora AD, Leyarmach AD and Elprom ZEM

ZMM Bulgaria Holding AD

Metal cutting machines – universal lathes, CNC lathes and column drilling machines belong to the so-called

group of products designated for investment (production) consumption. They are characterized with long

useful lives. The demand for such products directly depends on the overall economic environment and

investment activity in a particular country or on a particular market. They may be used in the processes of

single, retail and serial production and used in all material production sectors. They are purchased by a wide

range of clients and of significant importance to the technical security of each national economy. The de-

mand for metal cutting machines is characterized by a relative permanence in long-term aspect and variation

and decrease per each 3-4 years.

World and regional stagnation and economic crises negatively affect this realization. This fact does not

concern the export and trade in these basic products when the market and their demand are stable. With a

view to improvement of the good business image of these products and prolongation of their life cycles, their

design and technical characteristics and work safety need constant improvement and the standards and

requirements of ISO 9001, as well as the European standards on safety mark (CE), are to be complied with.

We are pleased to report the successful ending of the year 2007. In 2007 the or-ders for heavy duty machines and CNC machines sensibly increased. We consid-er the year for successful also because of the smooth transition of our sales in euro price list only. In 2007 signifi cant invest-ments were made in Leyarmach, Elprom ZEM and the other companies thus ena-bling the improvement of the products’ and services’ quality.

ZMM BH trade in the following basic products produced by the companies under its control:

Universal lathes - produced by ZMM Sliven and Mash-stroy. Over 90% of the income of the company is realized through the sales of universal lathes. The produced lathes are divided into small, medium and large ones. The com-pany has strong positions due to the characteristics of its middle-class machines of this type - a relevant quality for

reasonable price, technical characteristics and mainte-nance;Lathes with CNC control produced by Mashstroy and ZMM Sliven;Lathes with cyclic program operation based on universal machines produced by Mashstroy; Drilling machines produced Mashstroy and ZMM Sliven;Combined wood processing machines produced by ZMM Sliven;

45

Mr. Dobromir TodorovChief Executive, ZMM Bulgaria Holding

Financial results of ZMM Bulgaria Holding /non-consolidated/

In 2008 the ZMM Bulgaria Holding group companies are facing big challenges re-lated with the price rises of row materials and energy sources as well as the lack of qualifi ed working force. The manage-ment has to fi nd the balanced approach to the market, keeping the interest of the clients on one hand and ensuring the process of growth and modernization in the group companies on the another hand. We also have to achieve higher results meeting the expectations of our investors.

Spare parts, units and details for metal cutting machines produced by ZMM Nova Zagora;Strip cutting machines produced by ZMM Nova Zagora;Cast irons produced by Leyarmach AD;Electric machines, hydro-generators, and repair of hydro-generators produced, offered by Elprom ZEÌ.

To gratify customer demand, modifications of new types of universal lathes and lathes with CPU were developed. The objectives for the period 2008-2010 include expan-sion of the range of production of all basic products through improvement of sale effectiveness, promotion of the modified machines with CPU, the configuration of which includes units and details of basic universal lathes. The observed trend is towards increased production and sales of large lathes and lathes with CPU and gradual reduction of the production and sale of small and medium lathes.The 2007 net sales income of ZMM BH amounts to BGN 26 088 thousand compared to BGN 32 054 thousand in

2006. This is the result of a change in the company’s strategy concerning production realization. The net sales income real-ized over the reporting period is at the amount of BGN 26 088 thousand, including income from sale of goods amounting to BGN 23 546 thousand. Compared to 2006, a decrease by BGN 5 966 thousand or 18.61% is reported, and there is a trend towards increase in the income from agency services, marking an increase of BGN 1 560 thousand or 159 %. Their relative share is 2.97% for the preceding year and 9.70% in the current year. The accounting profit before taxation of ZMM BH amounts to BGN 4 079 thousand, i. e. it marked an increase of BGN 717 thousand or 21.32% compared to 2006.In 2007 ZMM BH purchased 8 732 shares of the capital of ZMM Sliven, thus the interest of the Holding reached 95.98%. In January 2007 ZMM BH sold 500 shares to Elprom ZEM and realized profit of BGN 12 thousand.


Sales incomeBGN`000

35 000

30 000

25 000

20 000

15 000

10 000

5 000

02005 2006 2007

29 84226 088


4 000

3 500

3 000

2 500

2 000

1 500

1 000

500

02005 2006 2007

2 963

1 559

3 673

Sales income


32 054

46


47

Mr. Georgi DobrevChief Executive, ZMM Sliven

In 2006 ZMM Sliven produced a total number of 1001 machines, including 995 universal lathes and 6 CNC lathes compared to 960 machines produced in 2006 – 947 univer-sal lathes, 4 CNC lathes and 9 column drilling machines. The 2007 production marked an increase of 4.27% as compared to the preceding year.The 2007 operating income of the company amounts to BGN 22 051 thousand compared to BGN 18 259 thousand in 2006, which represents an increase of 20.77%. The main portion of the operating income represents income from sales of produc-tion, occupying a share of 97.42%. The remaining portion represents income from sales of goods and services, while financial income occupies an insignificant share.In 2007, the company realized material sales on the domestic market for the first time, i. e. sale of 14 machines or 1.46% of the total sales volume. This is due to the favourable develop-ment of the Bulgarian economy over recent years.

Compared to the increase in the operating income in 2007 by 20.79% compared to 2006, the operating expenses for the same period have increased by 22.75% and that reduced the 2007 net profit compared to 2006. The increase in the operat-ing expenses is mainly due to the raised prices of raw materi-als and materials /steel, casts, cooperated deliveries, power supply, etc/. The 2007 payroll costs increased in proportion to the operating income. The amortization and depreciation costs remained nearly the same as the 2006 ones.In 2007, the company invested BGN 554 thousand in acquisi-tion of non-current tangible assets and reconstruction and modernization of the production capacities and BGN 350 thousand in acquisition of financial assets.As the company was deleted from the Register of Public Com-panies at the Financial Supervision Commission, its shares are no longer offered for trade at BSE as of 25 October 2007.

ZMM Sliven

In 2007 ZMM Sliven achieved an income increase of 21% compared to 2006 and kept its position as a leading producer and exporter of lathes in Bulgaria. The company implemented and launched to the market medium dimensions CNC lathes type LCC-5. We plan a 13.5 % increase of sales for 2008 as well as in-crease of the share of heavy duty uni-versal and CNC lathes to more then 30% from all sales.


Operating income

BGN`000

25 000

20 000

15 000

10 000

5 000

02005 2006 2007

17 541 17 785

21 481420 425

17 961 18 210

22 028


800

700

600

500

400

300

200

100

02005 2006 2007

681

209

619

Sales income



547

Financial results of ZMM Sliven

49

Financial results of Mashstroy

Mr. Minko TaslakovChief Executive, Mashstroy

In 2007 Mashstroy achieved a high in-crease in the production of NC and CNC machines as well as of heavy duty uni-versal lathes. The sales increase for 2007 compared to previous year is 23%. For 2008 the company aims at increasing the sales of CNC machines with inclined quideways axis and NC lathes for pipes production.

The 2007 net sales income amounts to BGN 17 885 including income from sales of production at the amount of BGN 17 273 thousand, sales of services at the amount of BGN 89 thousand and other sales at the amount of BGN 523 thousand. In 2007 the company sold machines on the international market at the value of BGN 16 030 thousand, which represents 92.80% of the net sales income, and the remaining 7.20% - on the do-mestic market. The 2007 production sales income increased by BGN 3 045 thousand as compared to 2006. The company sold its shares in Privat Engineering. Over the period the company acquired shares at the total value of BGN 150 thousand or 4.84% of the capital of Leyarmach. In 2007 the company invested mainly in machines and equip-ment and improvement of the buildings fund. The machines and equipment purchased over the year are at the total value of BGN 135 thousand; the company also purchased mo-

tor vehicles at the value of BGN 40 thousand and computer equipment at the value of BGN 12 thousand. The 2007 total value of buildings fund improvement is BGN 34 thousand.In 2007, the company continued its work related to the deploy-ment of a software product for production management and purchased software and new computers. In 2008, the com-pany will invest in the construction of new type of heating of workshops to reduce its heating costs and improve the social and working conditions. The company has been constantly working to innovate and expand its range of products. In 2008, this trend will be pre-served. Two major tasks may be outlined – commissioning into the production process of lathe with inclined guides with CPU model Ñ700Å and lathes with CPU models ÊNÑ 8S and ÊNÑ 10S.

Mashstroy

Operating income

BGN`000

20 000

15 000

10 000

02005 2006 2007

12 90814 228

17 273442

32413 350 14 552

17 885


1000

500

0

-500

-1000

-1500

-20002005 2006 2007

-1569

134532

Sales income


Other operating income612


51

Mr. Margarit TodorovChief Executive, ZMM Nova Zagora


Financial results of ZMM Nova Zagora


6 000

5 000

4 000

3 000

2 000

1 000

02005 2006 2007

3 812

4 3165 014

301234 113

4 339

5 217


6

4

2

0

-2

-4

-62005 2006 2007

5

-4

0

Sales income



203

The products produced and sold in 2007 are split into three major groups: details, units and machines.The equipment dominant within the works allow the production of rotation and symmetrical details such as pivots, shafts, shaft and cogged and cylindrical cogged wheels with involuted profile, chain wheels, gear racks and gåàr pulleys.100% of the units produced in 2007 were designed to be deployed into universal lathes in the country and Russia. In 2008, the company will produce series of feeding and support boxes for export.

In 2007 ZMM NZ produced production for BGN 4 933 thou-sand. The 2007 production volume marked an increase of 113.20% compared to the preceding year. The details occupy a share of 53.10% of this volume but the number of machines produced over the year exceeds the number of produced units due to the number of cutting machines (67 manual for BGN 361 thousand and 4 automated for BGN 156 thousand) and the two types of wood processing machines (23 cap-automated and 92 rotating tables). The units occupy 18.52%

of the 2007 production volume. The 2007 net production sales income and receipts from sale of non-current and current unused tangible assets are re-spectively BGN 5 014 thousand and BGN 203 thousand. The production sales income increased by BGN 699 thousand compared to 2006, which represents an increase of 116.19% and 120.25% compared to all sales realized over the year.The units sold in 2007 for the total price of BGN 2 694 thou-sand represent 53.71% of the total volume of sold production; i. e. the 2006 volume was preserved. The sales rise is the result of the export of 23 cap-automated machines and 92 hoisting rotating tables to Germany at the total value of BGN 672 thousand and the sale of 69 strip cutting machine at the total value of BGN 506 thousand.

ZMM NZ has invested in the development of a full range of chip transporters for the lathes and centres type MAZAK im-ported in the country designated for users in the country and abroad – the Czech Republic and possibly England, and the mastering of metal cutting machine production for export.

ZMM Nova Zagora AD

In 2007 we achieved signifi cant increase of the production of gear wheels and we expect this tendency to remain for 2008.

52

The core activity of the Company is casting of bodies and other details for lathes. The products are designed as a basic machine building element and are the most permanent prod-ucts in terms of innovations. Leyarmach had certain production problems and had to make a strategic decision on its development. Its available furnaces and equipment were not sufficient for ensuring the required quality of produced casts with a view to achievement of good return. On the other hand, the foundry is one of the main suppliers of ZMM Sliven and Mashstroy - it provides 50-55% of the casts used for lathe production but it needs investment to be efficient and profitable. Following thorough analyses, the management of IHB made a decision on development of cast production within the system of ZMM Bulgaria Holding and approved an investment program at the value of BGN 1.5 million for restoration and modernization of the capacities of Leyarmach. The aim is meeting the higher requirements on cast quality and quantity and ensuring environment protection and maintenance of healthy and safe working conditions. The investment in two new Inductotherm heating units, each of 5 tons and working under Dual-Track regime, was completed at the beginning of 2008 and they were commissioned in Febru-

ary 2008. The new furnaces ensured production capacity of the company of some 4 000 tons under two-shift working regime. In 2007 2 371 tons of casts was produced compared to 1 991 tons in 2006. In 2007 a quantity of 1 727 tons /73.45 %/ of casts was sold to ZMM Sliven and Mashstroy, a quantity of 455 tons of casts /19.33%/ was sold to other clients in the country and a quantity of 170 tons /7.22%/ of casts was exported. The 2007 sales volume marked an increase of 377 tons compared to 2006.The total volume to be produced in 2008 is 2 660 tons. The estimated production value is made based on orders made by companies belonging to the Holding, an expert opinion and estimated sales, as well as up-to-now orders by regular clients.2008 will be characterized by increased production volume designated for external clients as well, and the cast quality and profitability will be strictly controlled.In 2008 Leyarmach will rely on the new Inductotherm heating units working under Dual-Track regime to implement the 2008 production plan and increase the volumes by 300 tons/month in 2009 on gradual basis. The two furnaces will operate under economic night working regime to service the intensive daily moulding fields.

Leyarmach AD

Mr. Boyan DimitrovChief Executive, Leyarmach

2007 was a successful year for Leyarmach - the company realized a production in-crease of 19 % and an income increase of 24% compared to 2006 and for the fi rst of several years the company ended at profi t. In 2007 Leyarmach invested in two new induction ovens put into operations in the beginning of 2008. This will help the company to improve the capacity and the quality of the casts’ production and also to make the production more ener-gy and eco effi cient.

Metal casting

Financial results of Leyarmach

Operating income

BGN`000

5 000

4 000

3 000

2 000

1 000

02005 2006 2007

3 795 3 776

4 61270 61

3 865 3 837

4 753


200

100

0

-100

-200

-300

-400

-5002005 2006 2007

-55-422

129

Sales Income



141

53

Electric machines

The 2007 operating income of the company amounts to BGN 9 909 thousand. The production income is BGN 3 021 thousand. 245 electric engines and 11 hydro-generators /HG/ were produced. Repair services for BGN 5 99 thousand were rendered, including the production of a new HG stator of CHKD Blansko, rehabilitation of HG 5 of VETS Peshtera, repair of an electric engine of Kremikovtsi AD, Belovo Paper Works, etc.

The other operating income of Elprom ZEM at the amount of BGN 896 thousand includes rental income, receipts from technological waste sale, etc.

The 2007 operating profit and profit after taxation of Elprom ZEM are respectively BGN 917 thousand and BGN 823 thousand.

In 2007 Elprom ZEM worked under the following major con-tracts: NEC EAD – rehabilitation of stator magnetic circuits, stator windings and stator poles for the rotors of HG1, HG2 and HG4 of VETS Peshtera; VA TECH HYDRO, Austria – as a subcontractor of the production of a HG for VETS Stouden Kladenets and VETS Tsnakov Kamak; CHKD BLANSKO – the Czech Republic – production and delivery of 4 HG; Kiloscar Brothers, India – production of 2 HG.

Elprom ZEM AD

Mr. Valentin FilipovChief Executive, Elprom ZEM

In 2007 we increase the production vol-ume with 10%. 2007 was the year in which Elprom ZEM entered new markets – North America and Africa. During 2008 we will continue the technological and techni-cal renovation of our production and will start the production of hydro-generators and electric motors with increased en-ergy effi ciency.


Elprom ZEM produces the following electric machines - synchronous and asynchronous electric engines,

asynchronous generators and hydro-generators. The Company also repairs hydro-generators and machines

for low and high voltage /HH and BH/.

The produced products are mainly related to the building of new sites and replacement of existing ones in

case of failure. The major consumers are companies operating in the power engineering, mining and ore-

dressing, cement and food, beverage and tobacco industries, agriculture, water supply and other sectors.

The market strongly depends on world economy, the condition of the Bulgarian economy and the region in

particular.

The trend of stimulation of ecological power generation is a prerequisite for increase in the volume of con-

struction of facilities for using renewable energy sources – water and wind. This increased the volume of

production of hydro-generators and machines for small and large water power plants and of generators and

electric motors for wind power plants.

55

In 2007, the company defended a Project for Development and Deployment of New Technology for Construction of In-sulation System Increasing the Efficiency of Low-Voltage and High-Voltage Electric Machines subsidized by the Small and Medium Size Enterprises Promotion Agency. This technology will be deployed in the production process in 2008.

In 2008 the company will focus on expansion of production capacities and product range through development, improve-ment and expansion of the functions of the newly deployed production capacities and new technologies. Develop-ment of new competitive rotating electric engine structures, improvement and expansion of the potential for continuous exploitation and high quality of the machinery fleet operation through planned and preventive maintenance, rehabilitation, modernization, purchase of new machines /large and medium horizontal lathes. Establishment and equipment of new depart-ments – Maintenance and Cooperated Deliveries and further development and equipment of the newly established External Assembly Department and Welding Unit.

In 2008 activities will be carried out under the contract for design and development of a new stator magnetic circuit. A new stator windings for HG 1, 2, 3 and 4 and rehabilitation of the rotor poles of HG 2, 3 and 4 of VETS Stouden Kladenets signed by NEC EAD and Elprom ZEM and the four contracts signed with VAP HYDRO OOD for a HG for MVETS STOB, MVETS DZHERMAN, Blagoevgradska Bistritsa Cascade – MVETS 1-8 and MVETS SLAVOVA.

Financial results of Elprom ZEM

Operating income

BGN`000

12 000

10 000

8 000

6 000

4 000

2 000

02005 2006 2007

5 941

8 1459 013

376

1 695

6 317

9 840 9 909


BGN`000

2 500

2 000

1 500

1 000

500

02005 2006 2007

2 258

1 744

823Production and services sale income



896

56

The world trends regarding the

tourist travel by ship are towards

increase of the number of cruises

and tourists using this kind of holi-

day. This concerns not only sea

cruises but also river cruises.

River cruises

57

In 2007 Dounav Tours and its subsidiaries operated a fleet of five own passenger ships. The major market of the company is the European market. The route of the ships is Budapest – Vienna – Passau and the way back. Some cruisers navigate to the delta of the Danube River. The Elegant Lady, Heinrich Heine and Rousse Prestige ships also navigate along the Rhein-Main-Danube channel. Over 100 passenger ships of various nationalities navigate along the same route. Dounav Tours and its subsidiaries give their own ships to charter companies that provide tourists. Dounav Tours sign agreements on long-term basis – for over 3 years and receives a charter price that is its main income. The company ensures the technical maintenance and proper technical condition of the ships, deals with the insurances and provides crews and hotel staff. In March 2007, Dounav Tours purchased from the Bulgarian State, the Balkan Yacht, used by the former President Todor Zhivkov. It is in process of renovation at a Turkish shipyard.

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.The company has its own pontoon on the Danube River, covering an area of some 4 decares and suitable for the quayage of all types of river ships, including passenger ones and welcomes over 280 ships per year.Dounav Tours AD is majority owner of Dounav Tours Hotels AD, Tourist Company Dounav AD, Dounav River Shipping AD and Shipping Company Dounav EAD.The 2007 consolidated income of the company amounts to BGN 19 955 thousand, of which BGN 18 412 thousand is income from core activity – chartering of the five ships. The income marked an increase of 55% as compared to 2006 when it was BGN 11 887 thousand and this is the result of the start of the exploitation of the newly acquired Elegant Lady Ship in 2007.

Dounav Tours AD

Mrs. Katya StoyanovaChief Executive, Dunav Tours


Financial results of Dounav Tours /consolidated/

Income



5 000

4 000

3 000

2 000

1 000

02005 2006 2007

1 833

982

4 288Other operating income


25 000

20 000

15 000

10 000

5 000

02005 2006 2007

8 820

11 887

18 412

72

1098 892

11 996

19 9551 543

The past 2007 was a successful year for Dunav Tours. In this year started her fi rst season under Bulgarian fl ag the pur-chased in December 2006 passenger ship Elegant Lady.The company achieved a growth of rev-enue 55 % and with the ships of the com-pany sailed 3 763 more passengers.The main strategy of the company for strengthening its position on the strong-ly competitive market was successfully further developed.We managed to ex-pand our positions in Bulgarian and Rus-sian market.

58

Income



BGN`000

100

50

0

-50

-100

-1502005 2006 2007

51

-9-114



3 500

3 000

2 500

2 000

1 500

1 000

500

02005 2006 2007

2 558

3 032

2 476

64

34

2 622

3 066

2 55175

Financial results of Augusta Mebel

Furniture production

59

Augusta Mebel

The 2007 volume of produced and sold products marked a decrease of 17.82% as compared to the preceding year due to insufficient number of orders.Contacts were established with a number of new potential clients and price offers and samples were prepared and provided in due time. The company participated in the furni-ture exhibitions in Cologne, Germany and Athens, Greece. Because of the efforts made, at present the company works jointly with two new clients for hotel equipment – Base, France and Roomings, England. There were achieved good organization and flexibility in the preparation of offers and sample products but not all of them resulted in large orders and related income. The inclusion of new clients requires time for development of samples and their approval by clients, and the resultant orders are made for small quantities. A great number of the prepared offers have resulted in orders but they will be fulfilled in 2008.There were fulfilled a number of orders for furniture of villas and small hotels in the country and households – tables, beds, drawers, plots, etc. in the country and abroad. Business contacts were established with the Bulgarian Hypoland Com-mercial Chain for sale of children’s beds. The products produced and sold by Augusta Mebel in 2007 include 44.8% products for hotel equipment and 55.2% household and other furniture; 27.4% furniture of massive timber, including wardrobes and drawers and 72.6% furniture of veneered MDF and TPS with low percentage of details of massive timber.The major markets of the company are the markets in Great

Britain, France, Greece, USA and Ireland. Most foreign clients of the company are wholesale trades and big companies for catalogue trade. Production renovation to meet new market demand is a per-manent process. The total share of new and improved prod-ucts will reach 75% in 2008. The highest share of this renova-tion will be occupied by the new markets directed at Ireland, Greece, Francem USA and the up-to-now English market where new opportunities will be searched. In 2007, there were produced samples of new furniture models and sample equipment of hotel rooms, and for some of them production contracts were signed – some of the samples, however, will be realized in 2008 or are not the subject of any orders.In 2007, August Mebel introduced a new segment – ship equipment with an order for overall furniture of ship with con-struction No 515 owned by Navigation Maritime Bulgare.

The 2007 net sales income of Augusta Mebel amounts to BGN 2 551 thousand, including income from export of BGN 2 067 thousand /81%/ and income from sales on the domestic market of BGN 484 thousand /19%/. The share of sales of exported products marked an increase of 4.8% as compared to 2006 when the sales income amounted to BGN 3 066 thousand, including sales of exported products of 76.2% and sales of products on the domestic market of 23.8%.

The 2007 financial result of Augusta Mebel after taxation is loss of BGN 114 thousand compared to profit of BGN 51 thousand for 2006.

Mrs. Tamara HristovaChief Executive, Avgusta Mebel

During 2007 Avgusta Mebel retained all of its customers and invested in the es-tablishment of new business partner-ships. In accodance with its strategy to increase the share of contract furniture in its total sales, the company focused on new product development within the framework of an expanded web of cus-tomers.In 2007-2008 we entered the market for ship furniture.


60

Other

61

The basic activity of Privat Engineering is related to the man-agement of projects in various sectors, insurance and reinsur-ance intermediation and consulting services. The 2007 activity of Privat Engineering was carried out in three main directions: investments of its subsidiaries in new ships construction, insurance intermediation and consulting service. In 2006, the subsidiaries Emona Shipping Ltd and Mar-ciana Shipping Ltd agreed the construction of two 9 800-ton multi-purpose ships at Bulyard Shipbuilding Industry EAD. The value per ship is EUR 13.5 million. Ship No 288 will be delivered in December 2008 and ship No 289 – in 2009. In 2007 Karvuna Ltd, a newly established subsidiary of Privat Engineering, agreed the construction of a 21 000-ton multi-purpose ship at Bulyard Shipbuilding Industry EAD. The value of ship No 458, which is to be delivered in 2009, is EUR 21 million. The payments due under the ship building contracts are in EUR and USD. Privat Engineering has financed the ships building with own funds and loans granted by IHB. The financ-ing is made through additional contributions to the capitals of the subsidiaries Emona, Marciana and Karvuna.At the end of 2007 BGN 15 345 thousand of the value of the Emona ship and BGN 7 702 thousand of the value of the Mar-ciana ship were paid. The remaining amounts will be financed through loans from IHB and its group companies. As at 31 De-cember 2007 BGN 4 799 thousand of the value of the Karvuna ship was paid. The financing of the other construction stages may require new increases in the capital of Privat Engineering or utilization of credits or funds generated through operations.

In 2007, the capital of Privat Engineering was increased twice

– in March and in September. International Industrial Holding Bulgaria, a member of the IHB group, subscribed the shares. As a result, the capital of Privat Engineering was increased to BGN 3 180 000.

The 2007 operating income of Privat Engineering amounts to BGN 524 thousand compared to BGN 1 575 thousand in 2006. This decrease is the result of the reduced income from insurance and consulting services. The 2007 financial income is BGN 775 thousand compared to BGN 957 thousand in 2006. They include income from interests on payment and deposit accounts of the company at CB Allianz Bulgaria AD and loans granted to IHB group companies. The 2007 financial result of Privat Engineering is loss at the amount of BGN 116 thousand compared to profit of BGN 1 625 thousand in 2006. This loss is the result of the fact that the company is in a process of material investments and in-curs expenses on a new business – sea transport, which will generate income after completion of the three new ships and commencement of their management. The total amount of the assets of Privat Engineering as at 31 December 2007 is BGN 28 793, of which BGN 28 106 represents receivables from related parties. These are ad-ditional contributions to the capitals of the subsidiaries Emona, Marciana and Karvuna, bearing no interests.The equity of Privat Enginnering AD is at the amount of BGN 25 195 thousand and consists of retained earnings for the amount of BGN 17 928 thousand, share capital for the amount of BGN 3 180 thousand and share premium for the amount of BGN 3 799 thousand.

Privat Engineering AD


Services income



18 000

16 000

14 000

12 000

10 000

8 000

6 000

4 000

2 000

0

-20002005 2006 2007

1 625

15 360

-105


Operating income

BGN`000

25 000

20 000

15 000

5 000

02005 2006 2007

338

16 661

14

19 285

1 575 5241862 624 1 561

62

KLVK AD

International Industrial Holding Bulgaria AD

The 2007 activity of KLVK is related to consulting services. The 2007 operating income of KLVK amounts to BGN 227 thousand compared to BGN 133 thousand in 2006 or an in-crease of 71%. The 2007 expenses of the company, amount-ing to BGN 117 thousand, have increased. In 2007, a part of the construction and design of ships was transferred from Bulyard Shipbuilding Industry EAD to the company, because of which KLVK AD approved a new structure and staff organization. Thirty experts – engineering designers were transferred from Bulyard Shipbuilding Industry EAD.The 2007 financial income amounts to BGN 198 thousand compared to BGN 200 thousand in the preceding year. The main portion of this income is income from interests on deposit accounts of the company at CB Allianz Bulgaria and CB Raif-feisenbank Bulgaria EAD – the banks that issued the bank guarantees. In addition, the company received remuneration of BGN 90 thousand from Bulyard Shipbuilding Industry AD, representing 2% of the blocked deposit amounts per year.KLVK incurred exchange rate loss for BGN 172 thousand. The 2007 financial result of KLVK is profit for BGN 94 thou-

sand, and the net profit after taxation is BGN 84 thousand compared to BGN 26 thousand in 2006. The total amount of the assets of KLVK as at 31 December 2007 is BGN 3 962 thousand, the major amount of which con-sists of cash and cash equivalents – BGN 2 219 thousand, which are funds on blocked deposit accounts under issued bank guarantees securing an obligation of Bulyard Shipbuild-ing Industry EAD in relation to advance payments on ship building contracts /additional information is given in Item 14 of the Notes to the Annual Financial Statements/. The receiva-bles from related parties amount to the total of BGN 1 141 thousand; they are related to loans granted to IHB group companies. The equity of KLVK is at the amount of BGN 3 817 thousand, including retained earnings of BGN 2 892 thousand.The total amount of the payables of the company as at 31 December 2007 is BGN 145 thousand; they represent due retirement compensations calculated on the basis of an actuarial valuation, trade and other payables at the amount of BGN 132 thousand – current payables to suppliers, the staff, the budget, etc.

The 2007 income of the company represents income from consulting services and investments.


BGN`000

1 400

1 200

1 000

800

600

400

200

02005 2006 2007

14

1 283 1 282

Investments income




1 800

1 600

1 400

1 200

1 000

800

600

400

200

02005 2006 2007

1 495

195

844

195

1 690

1 318

474

Services income



BGN`000

3 000

2 500

2 000

1 500

1 000

500

02005 2006 2007

26

2 805

84



3 500

3 000

2 500

2 000

1 500

1 000

500

02005 2006 2007

55 133 227

3 217

3 272

Financial results of KLVK

Financial results of IIHB

63

Personnel. Personnel developmentAs at 31 December 2007, IHB had 10 employees in total. As at the end of 2007 the IHB Group had 3 068 employees in total, of which 250 employed by associates. Besides the employees hired under labour contracts, some 850 persons work for Bulyard Shipbuilding Industry - employ-ees of the companies - dockyard subcontractors of the works site.The table below shows the Group personnel as at 31 Decem-ber 2007, including associates, by sectors and activities as per the approved sector structure of IHB Plc portfolio:

Information about the personnel of IHB on consolidated basis

The specifics of the operations of IHB, its sector portfolio and development of its group individual companies predetermine the requirements to its personnel. For the purpose, the man-agement of the Holding applies a policy directed at enhanc-ing the qualifications of hired employees who are in charge of the various aspects of the company activity. The development of priority sectors and operations and the related new projects imply what experts are needed. In the course of time, the issue concerning the training of employees with secondary special, engineering, and techni-cal education becomes quite serious. Many young people do not want to work in the production and industry sectors. The settlement of this issue directly affects not only personnel provision but also production quality and the opportunities for development of research and innovation activities at the com-panies. To solve the problem, the management of IHB works in close cooperation with the academic society through:

Training of students from technical schools and universi-ties at most companies – Bulyard Shipbuilding Industry AD, Elprom ZEM AD, Mashstroy AD and ZMM Sliven AD;Participation of the companies’ management bodies in boards of technical universities, the Naval School, etc.; Development of joint projects between the higher educa-tion institutions and the Group’s companies in relation to new developments and solving of certain issues related to the production and repair operations of Bulgarian Register of Shipping AD, Elprom ZEM AD and Bulyard Shipbuilding Industry AD; Hiring of trainees and graduates at the companies

The various programs for human resources development and employment encouragement of the Ministry of Labour and So-cial Policy, financed by the pre-accession funds, form another source for solving this problem.

In subsidiariesIn associates

3 500

3 000

2 500

2 000

1 500

1 000

500

02005 2006 2007

2 917 2 8182 647

391 202 250

Personnel by sectors and activities

I. IHB

II. Maritime business

- shipbuilding and ship repair

- port operations

- classification and certification

- ship design

- sea transport

III. Machine building

IV. Furniture production

V. River cruises

VI. Other

Total subsidiaries

Total associates

Total subsidiaries and associates

Average number as per the 2007

list of employees

10

1 185

1 011

114

37

23

-

1 499

134

224

16

2 818

250

3 068

Average number as per the list of

employees as at 31 December

2007

10

1 201

1 016

113

36

36

-

1 504

120

238

37

2 840

270

3 110


64

Financial resources man-agement. Used financial instruments. Financial risk management.Description of major risks and uncertainties faced by the CompanyIHB is able to cover all of its liabilities. The key financial commitments of the Company are related to investment projects of its subsidiaries.

In respect of receivables, the companies form relevant provisions when uncertainty as to their collectibility exists.

IHB has minimised payments in currencies other than BGN and EUR and therefore it does not face currency risk. Bulyard Shipbuilding Industry has signed contracts in USD and has payables under delivery contracts in JPY. Meas-ures have been undertaken to hedge the credit risk.

IHB has no payables on loans from banks or other financial institutions.

The guarantees that IHB has provided for liabilities of subsidiaries are secured. Furthermore, at this stage no risk exists that the subsidiaries may not perform their com-mitments, which the guarantees have been issued for. At present two out of the three corporate guarantees to Navigation Maritime Bulgare have been repaid as a result of performance of the obligations of Bulyard Shipbuilding Industry.

The fall in world stock exchange prices of shares, observed as of the beginning of January 2008, is also observed on the Bulgarian Stock Exchange and affects nearly all shares of Bulgarian companies, in particular the shares of IHB. Ac-cording to international analysts and experts, there is a risk of recession in USA and worsening of economic indicators worldwide. There are financial crises in USA and some European countries. The prices of energy resources such as oil and raw materials petrol are expected to be variable and volatile and there is a risk of rise in these prices. In case of worsening of world economy, the operations of the companies within IHB group may be exposed to risk.

Information about used financial instruments and risk valu-ation is given in Item 25. Financial instruments of the Notes to the Financial Statements as at 31 December 2007. Comments on the risks concerning the company’s op-erations and risk management are given also in Item 5. Financial risk management of the Notes to the Financial

Statements as at 31 December 2007.

Opportunities for investment objectives realization, available funds and pos-sible changes in the structure of opera-tions financing

In 2007 IHB covered its operating expenses with own and borrowed funds. The own funds represent operating income. The 2007 income sources of IHB include dividend income received from subsidiaries, followed by income from sale of services, gains on company shares sale and interests. The Holding used some of these funds to finance its investment program. The available funds raised through the bonds issue were used for the purpose as well.

In 2007 IHB used borrowed funds in the form of convert-ible bonds issue at the amount of BGN 5 250 805 issued in 2004. All bonds were converted on the maturity date in July 2007 and the total issue value was used for increase in the share capital of IHB. The raised funds were used for financing of the investment projects of the Holding and some of its group companies.

In August 2007 the procedure related to the second increase in the capital of IHB for 2007 was commenced by virtue of a decision of the General Meeting of Shareholders. The Prospectus for Public Offering of Shares from the capi-tal increase, and namely 17 502 693 new ordinary dema-terialized voting shares of BGN 1 nominal value and BGN 2.40 issue value each was confirmed by FSC with Decision No 1259-Å dated 3 October 2007. On 19 October 2007, an announcement on public offering of IHB shares was published in the State Gazette, Issue No 84 of 19 October 2007 and in the Dnevnik Newspaper, Issue No 204 of 19 October 2007. The entire information about IHB capital increase, including terms of trade in rights and subscription of shares, is on the website of IHB – www.bulgariaholding.com, Section Investors/ Capital Increase 12.2007.The public offering (subscription) of 17 502 693 ordinary dematerialized voting shares of BGN 1 nominal value and BGN 2.40 issue value each, realized during the period 29 October 2007 – 5 December 2007, was successfully com-pleted. The subscription results are as follows:

Total number of subscribed and paid shares: 17 502 078 shares; Issue value per share: BGN 2.40; Total amount of subscribed and paid shares received: BGN 42 004 987.20; Total public offering costs: BGN 275 399.

By Decision No 22 of 27 December 2007 Sofia City Court entered increase in the capital of IHB from BGN 26 254 040 to BGN 43 756 118.Through the two capital increases in 2007 IHB raised a total of BGN 47 256 thousand – share capital of BGN

65


22 753 thousand and additional reserves of BGN 24 503 thousand. The non-exercised rights of shareholders as at 12 September 2007 were sold at an official auction for the total price of BGN 22 264 thousand. IHB received the amount in January 2008 and started payments to the hold-ers of non-exercised rights on 4 February 2007. IHB has a credit limit, agreed with DSK Bank as of the end of 2006, for issuance of bank guarantees and working capital financing of the Holding and/its group companies at the amount of BGN 4.5 million, BGN 3 million of which is in the form of revolving credit line. In case of necessity, the management uses it to finance the operations of IHB. As a result of the registration at Sofia City Court of the IHB capital increase at the end of December, the available cash as at 31 December 2007 amounts to BGN 42 146 thousand, BGN 42 028 thousand of which is in bank de-posits and the rest on payment accounts.

They will be used for financing the investment projects of IHB and its group subsidiaries in 2008 – the building of the three ships ordered by Privat Engineering at Bulyard Shipbuilding Industry, expansion of Dockyard Port Bour-gas and others.

The receivables of IHB as at 31 December 2007 amount to BGN 1 064 thousand, including receivables in relation to deferred payments on shares sale agreements of BGN 777 thousand /long-term – BGN 363 thousand and short-term – BGN 414 thousand/ and receivables from related parties on granted loans and rendered services of the total of BGN 114 thousand. The others represent receivables on rendered services, refundable taxes, prepaid services, etc.

The equity of IHB as at 31 December 2007 amounts to BGN 86 702 thousand – it has increased by BGN 50 983 thousand or by 143%. The increase is the result of the increase in the share capital by BGN 22 753 thousand, the premium reserves by BGN 24 503 thousand and the retained earnings by BGN 3 541 thousand. The net retained earnings as at 31 December 2007 amount to BGN 14 782 thousand, including the 2007 profit of BGN 3 727 thousand.

The total liabilities of IHB as at 31 December 2007 amount to BGN 1 040 thousand, marking a decrease by BGN 6 128 thousand as compared to those as at 31 December 2006. This decrease is the result of the debenture loan repayment /BGN 5 244 thousand as at 31 December 2006/ due to maturity and conversion of the bonds into shares. The trade and other payables decreased from BGN 1 915 thousand as at the end of 2006 to BGN 387 thousand as at the end of 2007. The payables to related parties of BGN 649 thousand are payables on granted loans, additional contributions in the capital of Dockyard Port Bourgas and others. All payables are short-term except for the long-term payables of BGN 3 thousand.

The necessity of borrowed funds will be assessed for each case depending on the particular investments and avail-able funds of IHB and the group. Additional funds will be ensured from banks or investors.

Utilization of the funds raised through the two issues of shares in 2007

The funds raised through the bonds issue are used for investments of the holding company and of its subsidiaries mainly in the following priority sectors: maritime busi-ness, river cruises and machine building. IHB finances the projects of its group companies in these sectors in the form of granted loans and/ or acquisition of shares in their capitals, including subscription of shares from the increase in their capitals. Priority projects are financed in the order of their arising. The used forms of investment financing and the movement of available free funds of the Holding make it difficult to precisely calculate the debenture loan funds disbursed in relation to the individual projects, some of which undergo changes. Major investments financed with funds raised through the issue:

The Holding granted loans, on stage-by-stage basis, to KLVK and Privat Engineering to finance their investment projects in the real estate sector. The two subsidiaries sold the estates purchased in 2005, fully repaid the funds borrowed, while IHB ceased investing in this sector. The accelerated realization of these in-vestments decreased the risk of changes in the market conditions and enable the redirection of these freed funds to other priority sectors and projects in 2006 and 2007; In April 2006 IHB purchased from Dockyard Odessoss its share of 10% in the capital of Bulyard for USD 2 million, thus the interest of the Holding in the company reached 61.50%;In 2006 the subsidiaries Emona Shipping Ltd and Marciana Shipping Ltd agreed the building of two 9 800-ton multi-purpose ships at Bulyard Shipbuild-ing Industry. The vessels are intended for unrestricted region of navigation and shipping of bulk freights and containers. The value of each ship is EUR 13.5 million. The payments are in EUR and USD. In August 2006 the Holding partially financed the second advance payment for the first ship in the form of a loan of USD 480 thousand. As at 31 December 2006 the remain-ing amount due under the loan amounts to USD 55 thousand;In March 2006 IHB granted a loan of BGN 110 thou-sand to Dockyard Port-Bourgas for construction of a new road to the port, which was repaid. During the second half of the year the company received another financing from the Holding at the amount of EUR 224 thousand for the project for expansion of the port terminal;

66

At the beginning of 2006 IHB granted a loan of BGN 600 thousand to ZMM Bulgaria Holding to support it in its participation in the privatization of Balkancar – Sredets, Sofia. ZMM Bulgaria Holding established a new 100% owned subsidiary under the name of Bulkari, admitted by the Privatization Agency to participate in the publicly announced tender, which was classified second. In July 2006, the funds of the Holding were fully reimbursed; In September 2006 IHB granted a loan of BGN 120 thousand to Elprom ZEM, which was to be repaid by 31 March 2007.

Regarding some of the priority investment projects, be-sides funds collected through the bonds issue, IHB used its own funds depending on the amount of the investment and cash and cash equivalents available as at the particu-lar moment.

The funds raised through the second issue of shares in 2007 will be used for commitments on capital expenses made by IHB.Over the period 2008-2009 capital expenses will be incurred to finance the projects in implementation and the new projects of IHB and its subsidiaries, including extension of the port terminal in Bourgas and financing the next stages of the building of the three multi-purpose ships. Capital expenses may be incurred in conclusion of contracts for new ships building, concession of passenger ports along the Danube, etc. The capital expenses are related to the development priorities of IHB in medium-term aspect and the investment purposes described in the Foreseen Development of the Company Item.

Important events occurred after the annual closure of accounts On 7 January 2008 the Central Depository registered the issue of shares resulting from the second increase in the capital of IHB by a registration document.By a decision of 23 January 2008 the Financial Supervision Commission entered into the Public Register the new issue of shares issued by IHB at the amount of BGN 17 502 078 divided into 17 502 078 ordinary shares of BGN 1 nominal value each.On 30 January 2008 the new issue of shares was listed on BSE – Sofia.On 4 February 2008 the payment of amounts from the sale at an official auction of the non-exercised options of IHB issued in relation to the capital increase in 2007 started. The proceeds from the sale of the non-exercised options of shareholders amount to the total sum of BGN 22 263 578. This amount was transferred to an account of IHB by the Central Depository in January 2008 and, therefore, their total amount has not been reported in the Balance Sheet of the Company as at 31 December 2007 as available funds and a liability for payments to shareholders who have not exercised their options.Until 4 May 2008 due amounts will be paid in the whole coun-try, and after this date – at the business and financial centres in Sofia.On 4 February 2008 the third corporate guarantee of EUR 4 211 942 and USD 3 595 434, issued by IHB in relation to ship building contracts signed by Bulyard Shipbuilding Industry and Navigation Maritime Bulgare, was closed. The guarantee was issued in relation to the third advance payment under a contract for building of ship with construction No 515 and closed due to performance of contractual obligations. This was the third and last corporate guarantee issued by IHB in relation to the aforementioned contracts for the building of ships with construction No 516, No 457 and No 515. IHB commenced investment in the building of two new ships type Future 56, 56 000 dwt, at Bulyard Shipbuilding Industry at the total value of EUR 60 million. The investment will be financed through the subsidiary KLVK. The ships are to be delivered in May 2010 and 2011. The first payment of EUR 3 million has been already paid.On 21 January 2008, Bulyard Shipbuilding Industry commis-sioned ship with construction No 515.

67


Important scientific research and developments IHB did not carry out important scientific research and devel-opments in 2007.IHB Group companies have been permanently carrying out development activities as to their products and technolo-gies. The most innovation efforts of the teams are directed at improvement of offered products and certain processes of their development through use of modern materials and technologies.

Shipbuilding The two ships named Emona and Marciana will be the im-proved design version of ship with construction No 283.

Classification and certificationThe technology for inspection and classification of ships and a web-based system for inspection management, developed by Bulgarian Register of Shipping in 2007 under a contract signed with the Small and Medium-Sized Enterprises Promo-tion Agency, is the result of the research and development activities of the company’s team and top experts in this field from the Technical University in Varna. In this sense, it will be a know-how bearer but it is not subject to registration in compli-ance with the Law on Copyright and Adjacent Rights.

Machine buildingThe companies within ZMM Bulgaria Holding group offer on the market ranges of basic products, which are expanded through improvement and further development on annul ba-sis. At Mashstroy and ZMM Sliven there are developments in progress for improvement of the offered universal lathes with respect to expansion of the range of heavy machines, models with increasing of centre distance with over 5 m and offering of machines with lighter mandrel opening, the range of CNC machines and development of machines with cyclic program operation. Leyarmach mastered the spheroidal-graphite cast iron technology. Elprom ZEM has deployed a new technology for insulation of 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 guarantee period – 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 Produc-tion”.

Furniture poductionDue to the furniture market dynamics, Augusta Mebel, Shoumen, made significant changes in the range of offered products over the last years. New modern furniture is continu-ously developed but this is usual for a company operating in this sector.

Foreseen development of the company

Major trends in the activities of IHB

The major trends regarding the activities of the Holding in the next years are expected to be related to:

acquisition, assessment and sale of interests in other companies;management of the companies in its own portfolio, where IHB can exercise control, directly or through related par-ties; establishment of new companies;investment in the portfolio companies, where IHB has long-term interests;financing of the companies, where the Holding owns interests.

The major strategic interests of IHB are in the following sectors and activities:

maritime business – shipbuilding and ship repair, port operations, classification and certification, sea transport;river cruises; machine building.

Plans of material importance related to IHB operations

Shipbuilding, ship repair and port operationsIHB intends to increase the investments in this sector through supporting the investment projects of the com-panies operating therein: Bulyard Shipbuilding Industry, Dockyard Port- Bourgas and Odessoss PBM. One of the key investment objectives is the implementation of the project for extension and modernization of the port terminal at Dockyard Port Bourgas in compliance with the directions provided for in the 2006-2012 National Program for Development of Bulgarian Ports. At the be-ginning of 2007 the preliminary research was approved, and in July – the General Port Development Plan, developed by Transproject – Sofia In 2007 the activity restructuring is expected to be completed – gradual suspension of ship repair and focusing of efforts on port operations, shifting of the floating dock to Bulyard Shipbuilding Industry or its sale based on market as-sessment made. As initial financing of the project, the Holding obtained a loan of EUR 224 thousand, and leas-ing schemes were agreed for part of the new equipment purchased in 2007.

The plan envisages extension of the existing quay wall with 180 metres westwards, including water area according to special technology – separation by feather-points. Thus the total port area will reach some

68

80 decares. Strengthening works will be done on the old quay wall as well. The ship lots will become 3, each of 125 metres. The project also envisages the construc-tion of additional quay. In the western section of the port there will be built special grains terminal, while the re-maining area will be used for procession and storage of general freight. The project, the value of which is some BGN 23 million, is to be implemented within 3 years and a tender for its implementation has been planned to be announced. Dockyard Port Bourgas received initial financing from IHB in the form of a loan of EUR 224 thousand, and lease schemes were agreed for part of the equipment purchased in 2007. Some EUR 2 million of the funds raised through the last IHB capital increase is planned to be invested in this project.

Sea transport In 2008 the building of the three multi-purpose ships owned by the subsidiaries of Privat Engineering will con-tinue. Some of the funds raised though the new issue of shares of IHB will be used for financing their building. The two 9 800-ton ships are expected to be commis-sioned after delivery – ship No 288 is to be delivered in December 2008 and ship No 289 – in 2009. The third 21 000-ton multi-purpose ship with construction No 458 will be delivered in 2009. The scope of activ-ity of the newly established company IHB Shipping Co EAD includes commercial sea navigation and related production and technical, forwarding and intermediation activities, ship brokerage and agency, etc. The com-pany was established with the purpose of exercising control in the process of building of the ships ordered for the IHB group companies, management and recruit-ment of crew. It is possible that new increases in the capital of Privat Engineering may be required in the future, and related decisions will be disclosed in due time. IHB intends to strengthen its position on the sea trans-port market gradually and to continue building ships for the needs of its companies.

Development of river cruisesOffering cruises by 5 ships along the Rhein, Main, Mosel and Danube Rivers, the ambitions of the management of Dounav Tours and its owners are directed at:

Increase of the occupancy of the bed base before, during and after the tourist season, including using some of the ships as hotels out of the season;Increase of the number of cruises through organiza-tion of additional excursions in the days of Christmas and New Year holidays;Development of own pontoon in Rousse along Dan-ube;Readiness for concession of the passenger ports along Danube, the ones in Rousse and Vidin in particular.

The decision on financing of the above-listed priorities will depend on the needed investments and available funds of the Company as at each particular moment.

Changes in the price of the company’s shares In 2007 the price of IHB shares marked an increase from BGN 6.00 to BGN 11.34 per share at the end of the year or a rise of 89%. The indices of BSE – Sofia marked an increase for the same period – SOFIX by 42%, BG40 by 158 % and BGTR30 by 9%.The shares of IHB enjoyed extremely high popularity among analysts and investors. The shares remained one of the most liquid items on BSE-Sofia during the whole year.

On 1 January 2007 the shares of IHB were included in the Dow Jones indices:

The index Dow Jones STOXX EU Enlarged Total Market Index. The index belongs to the Dow Jones STOXX /www.stoxx.com/ indices family, which cover Europe, the Euro-zone, the region of the countries that became EU mem-bers /EU Enlarged region/, America and Asia /the Pacific Ocean/. The index Dow Jones STOXX EU Enlarged TMI is a sub-class of Dow Jones World Index. As at 1 January 2007 it includes 130 companies established in Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia, Bulgaria and Romania, the last two having being included on 1 January 2007. The indices Dow Jones Wilshire Global Total Market IndexSM, Dow Jones Wilshire Bulgaria IndexSM, Dow Jones Wilshire Specialty Finance IndexSM. The index Dow Jones Wilshire Global Total Market IndexSM includes the national indices Dow Jones Wilshire for 59 countries, including ones with developed and well-developed mar-kets. The index for Bulgaria is Dow Jones Wilshire Bulgaria Index. It belongs to the group of regional indices that also serve as basis of a number of indices on regional princi-ple. Dow Jones Wilshire Specialty Finance Index belongs to the group of indices by sector as it is a sub-sector index included in the General Financial Indices Sector, which forms a part of the Financial Services Sub-sector included in the Finances Sector. The shares of IHB are included in a number of other Dow Jones Wilshire indices measuring through specific sections of the global capital market.

On 1 November 2007 the shares of IHB were included in an-other Dow Jones index - Dow Jones STOXX Balkan 50 Equal Weighted Index, which reflects the movements of the 50 most significant and most liquid shares traded on the Balkan ex-changes. The companies are Croatian, Greek, Macedonian, Romanian, Serbian, Slovenian and Turkish. To ensure bal-anced presence of all mentioned countries, the index includes the top 10 companies in Greece and Turkey and the 5 largest

69


public companies of each of the other 6 countries. The Bulgar-ian companies IHB, Bulgarian Telecommunication Company, Sopharma Chimimport and CB Central Cooperative Bank. The weight of each component (company) in the structure of Dow Jones STOXX Balkan 50 Equal Weighted Index is fixed and equal to 2%, as the index is weighted average and comprises 50 public companies. On 26 February 2007 IHB was included in the SOFIX index fol-lowing its first ranking in the list of the other index of BSE-Sofia - BG40. IHB is the company with the largest free float – 57% of the companies is included in the SOFIX index.As of 3 September 2007 IHB is included in the newly created BG TR30 index based on the change in price of shares in-cluded in the index with equal weight of each included issue. In January 2007 the changes in the structures of BSE – Sofia markets and the considerably higher criteria regarding official markets came into force. The shares of IHB meet the highest criteria and remained tradable on Segment A of the official market. The 2007 data on the trading of shares of IHB /stock ex-change code IHLBL/ are as follows:

Statistics for the period 1 January 2007 - 31 December 2007 /source: BSE- Sofia/

* The values have been adjusted due to capital increase.

Graph of the movement of the price of shares of IHB during the period 1 January 2007 - 31 December 2007

As of the beginning of 2008 there is downturn on the Bulgarian and world securities markets. As of the end of 2007 till 20 March 2008 the indices fell as follows: SOFIX by 30.40%, BG40 by 32.84% and BGTR30 by 27.03%. The price of IHB shares also moved in this direction and the price per share fell by 33.95% to BGN 7.49. It should be mentioned that the new issue of shares /17 502 078 shares/ was registered at the Central Depository and BSE-Sofia in January 2008.

Data on the trading of the company’s bondsIn 2007 the convertible bonds of IHB were traded on the bonds market of BSE-Sofia but no transactions with them were concluded from the beginning of the year till their maturity date - 2 July 2007.

Information about holding of and trading in own shares /Art. 187e of the Law on Commerce/The Company has never hold and does not hold own shares.

Initial price – opening price (BGN)

Last average weighted price (BGN)

Maximum price (BGN)

Historical:

For accounting purposes *

Minimum price (BGN)

Historical:


Average weighted price in 2007 (BGN)


Percentage change

Value change (BGN)

Number of transactions in 2007

Traded volume in 2007 (number of shares)

Average monthly volume 2007 (number of

shares)

Turnover in 2007 (BGN)

Average monthly turnover 2007 (BGN)

Value

6.00

11.34

16.03

16.03

6.00

4.23

8.58

89%

5.34

11 936

6 459 773

538 314

65 576 252.73

5 464 688

Date

03-01-2007

21-12-2007

12-10-2007

03-01-2007

70


Shareholders

All

Legal entities

Individuals

Shareholders owing over 1 000 shares /0004%/

Shareholders – legal entities owing over

1 000 shares

Shareholders – individuals owing over

1 000 shares

Shareholders – foreign persons owing over

1 000 shares, including

Legal entities, including:

Individuals owing over 1 000 shares inclusive

Shareholders owing over 5%, including

Venside Enterprise Limited

Bulls AD

DZH AD

Chimimport AD

Shareholders owing less than 5%

Number of shareholders

56 055

160

55 895

221

111

110

32

14

12

3

-

56 052

Number of shares

26 254 040

19 507 863

6 746 177

19 789 810

19 495 152

294 658

10 957 198

10 920 687

36 511

12 743 640

7 983 247

3 376 000

1384 393

-

13 510 400

% of the capital

100,00%

74.30%

25.70%

75.38%

74.26%

1.12%

41.74%

41.60%

0.14%

48.54%

30.41%

12.86%

5.27%

-

51.46%

Number of shareholders

56 302

182

56 120

313

125

188

32

14

12

4

56 298

Number of shares

43 756 118

36 514 373

7 241 745

37 118 937

36 495 039

623 898

18 299 861

18 271 791

28 070

25 417 570

13 472 245

5 493 333

2 440 655

4 011 337

18 338 548

% of the capital

100,00%

83.45%

16.55%

84.83%

83.41%

1.43%

41.82%

41.76%

0.06%

58.09%

30.79%

12.55%

5.58%

9.17%

41.91%

Shareholding structure as at 31 December 2007The capital of IHB at the Central Depository as at 31 December 2007 is BGN 26 254 040. The new increase in the capital was registered on 7 January 2008.

Information about pend-ing litigation, administrative or arbitration proceedings concerning payables or re-ceivables of IHB at the mini-mum amount of 10% of the equity None.

As at the date of preparation of this Report Chimimport AD held, through the controlled company Central Cooperative Bank AD - Sofia, 2 342 850 shares, representing 5.35%.

As at 31 December 2007- capital: BGN 26.254 040 As at 7 January 2008- capital: BGN 43 756 118

Industrial Holding Bulgaria PLCConsolidated Financial Statements

for the year ended 31 December 2007With Independent Auditors’ Report Thereon

Consolidated Financial Statements

72

Independent Auditors’ Report

To the shareholders of Industrial Holding Bulgaria PLC

Report on the Financial Statements

We have audited the accompanying consolidated financial statements of Industrial Holding Bulgaria PLC, (“the Company”) which comprise the consolidated balance sheet as at 31 December 2007, and the consolidated income statement, con-solidated statement of changes in equity and consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Interna-tional Financial Reporting Standards, adopted by the European Union. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. Except as described in the Basis for qualification in our Оpinion paragraph, we conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial state-ments. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Basis for Qualified Opinion

In the consolidated financial statements of the Company as at 31 December 2007 work-in-progress amounts to BGN 22,649 thousand. Part of the work-in-progress, amounting to BGN 14,733 thousand, relates to uncompleted ship construction in Bul-yard Shipbuilding Industry EAD. Using the current accounting processes of the company, the total amount of costs allocated to each ship construction contract can be sufficiently and reasonable determined and accounted for when the construction of the ship is finished. Аs at 31 December 2007 Bulyard Shipbuilding Industry EAD is in the process of introducing account-ing procedures to determine and account for the costs attributable to each stage of construction of the ship on a forecasted basis. Therefore, due to the long period of construction of ships and transition in different accounting years, we were not able to determine whether any adjustments might be necessary to the amounts shown in the financial statements for work-in-progress and related impact on the income statement for the year ended 31 December 2007.

Qualified Opinion

In our opinion, except for the effects of such adjustments, if any in Bulyard Shipbuilding Industry EAD, as might have been determined to be necessary to work-in-progress, changes in inventory, revenue, income taxes and net profit, the consolidated financial statements give a true and fair view of the financial position of the Company as at 31 December 2007, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Stand-ards, adopted by the European Union.


73

Report on Other Legal and Regulatory Requirements

Annual report of the activities of the Company in accordance with the requirements of article 33 of the Accountancy Act

As required under the Accountancy Act, we report that the historical financial information prepared by Management and disclosed in the annual report of the activities of the Company, as required under article 33 of the Accountancy Act, is con-sistent, in all material aspects, with the financial information disclosed in the audited financial statements of the Company as of and for the year ended 31 December 2007. Management is responsible for the preparation of the annual report of the activities of the Company which was approved by the Management Board of the Company on 25 April 2008.

Gilbert McCaul Dobrina Kaloyanova

Partner Registered auditor

KPMG Bulgaria OOD

25 April 2008

37, Fridtjof Nansen StreetSofia 1142Bulgaria


74

Consolidated income statementFor the year ended 31 December 2007

In thousands of BGN Note 2007 2006

Revenue 7 147,386 132,404Other operating revenue 8 15,007 2,684

Increase in work- in- progress 9 4,103 4,258Capital expenses for construction 10 12,947 1,572Cost of materials 11 (92,938) (75,993)Hired services 12 (33,048) (21,027)Depreciation and amortization (4,500) (3,903)Personnel expenses 13 (31,446) (27,673)Cost of assets sold 14 (1,862) (617)Other operating expenses 15 (3,567) (3,519)Profit from operations 12,082 8,186

Finance income 1,687 3,618Finance expenses (1,804) (951)Net finance income 16 (117) 2,667

Income from equity accounted associates 20 2,424 1,972Profit before tax 14,389 12,825Income tax expense 17 (1,051) (1,789)Profit after tax 13,338 11,036

Attributable to equity holders of the company 12,258 9,647Minority interest 1,080 1,389Net profit for the year 13,338 11,036

Basic earnings per share (BGN) 29 0.343 0.314

The income statement is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 79 to 106.

Daneta Zheleva Toshka Vassileva

Executive Director Chief Accountant



KPMG Bulgaria OOD

25 April 2008



75

The balance sheet is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 79 to 106.





KPMG Bulgaria OOD

25 April 2008


Consolidated balance sheet

For the year ended 31 December 2007In thousands of BGN Note 2007 2006

AssetsProperty, plant and equipment 18 119,218 56,391Intangible assets 19 1,471 677Goodwill 19 7,840 6,318Investments in equity accounted associates 20 11,627 9,077Other investments 21 8 8Long-term receivables 22 884 1,185Total non-current assets 141,048 73,656

Inventories 23 54,765 49,559Trade and other receivables 24 30,942 33,032Non-current assets held for sale 25 1,338 -Financial assets held for trade 26 - 1,361Cash and cash equivalents 27 86,256 17,310Total current assets 173,301 101,262Total assets 314,349 174,918

EquityIssued capital 28 43,756 21,003Share premium 24,503 -Reserves 51,269 15,296Retained earnings (net) 68,882 56,356Total equity attributable to equity holders of the company 188,410 92,655Minority interest 29,155 20,903Total equity 217,565 113,558

LiabilitiesLoans and borrowings 30 7,351 6,757Other long-term payables 31 285 21Provisions 32 600 889Deferred tax liabilities 33 6,046 1,136Total non-current liabilities 14,282 8,803

Loans and borrowings 30 4,934 2,892Debenture loan 30 - 5,244Trade and other payables 34 77,205 44,315Provisions 32 363 106Total current liabilities 82,502 52,557Total equity and liabilities 314,349 174,918


76

Consolidated statement of cash flowsFor the year ended 31 December 2007In thousands of BGN Note 2007 2006

Operating activitiesNet profit for the year 13,338 11,036Adjustments for: Depreciation and amortisation 18, 19 4,500 3,903 Provisions 468 1,685 Foreign exchange losses, net 16 134 (778) Interest expense 16 1,163 628 Interest income 16 (746) (1,280) (Income)/loss from associates 20 (2,424) (1,972) (Gain)/loss on disposal of subsidiary - (549) (Gain)/loss on sale and writing-off of property, plant and equipment 8.а (12,890) (1,541) (Loss)/gain derived from investments available-for-sale - (6) (Loss)/gain derived from investments held for trading (253) (338) Income tax expense 17 1,051 1,789

Operating profit before changes in working capital and provisions 4,341 12,575(Increase)/decrease in trade and other receivables (47,175) (12,963)(Increase)/decrease in inventories (5,206) (19,355)Increase/(decrease) in trade payables, other payables, and provisions 32,383 2,997

Cash generated from operations (15,657) (16,746)Interest paid (1,096) (370)Income taxes paid (1,321) (4,664)Cash flows from operating activities (18,074) (21,780)

Investing activitiesProceeds from sale of plant and equipment 16,323 22,950Proceeds from sale of shares in subsidiaries - 766Interest received 722 1,280Proceeds from sale of investments available for sale - 34Proceeds from sale of investments held for trading 1,614 287Sales of investments in associates - 327Proceeds from repaid loans 6,552 -Loans given (326) (6,259)Acquisition of property, plant and equipment (7,479) (4,160)Acquisition of minority interest (8,491) (1,509)Acquisition of other investments (125) -Dividends received 543 -Cash flows from investing activities 9,333 13,716


77

Consolidated statement of cash flows, continuedFor the year ended 31 December 2007In thousands of BGN Note 2007 2006

Financing activitiesShare issue 47,123 -Loans received 29,273 9,955Loans repaid (25,568) (2,850)

Payment of finance lease liabilities (700) -Other financial expenses paid (157) (637)Dividends paid (267) (286)Cash flows from financing activities 49,704 6,182

Net increase in cash and cash equivalents 40,963 (1,882)Cash and cash equivalents at 1 January 27 12,593 14,475Cash and cash equivalents at 31 December 27 53,556 12,593

The Statement of cash flows is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 79 to 106.





KPMG Bulgaria OOD

25 April 2008



78

Consolidated statement of changes in equity For the year ended 31 December 2007

In thousands of BGN NoteShare capital

Share premium

Additional and legal reserves

Reva-luation

reserves

Retained earnings

Total Group

Minority interest

Total

Balance as at 31 December 2005 21,003 - 6,785 6,950 47,321 82,059 21,303 103,362

Changes in accounting policy - - - - 491 491 574 1,065Adjusted balance as at 1 January 2006 21,003 - 6,785 6,950 47,812 82,550 21,877 104,427Recognised profit for the current year - - - - 9,647 9,647 1,389 11,036Movement from changes in tax rate - - - 526 - 526 72 598Movement in the revaluation reserve from sale of assets

- - - (155) 155 - - -

Allocation of profit for reserves - - 1,190 - (1,190) - - -Other movements - - - - (68) (68) 101 33Dividends paid - - - - - - (292) (292)Acquisition of minority interest - - - - - - (2,460) (2,460)Sale of minority interest - - - - - - 216 216Balance at 31 December 2006 28 21,003 - 7,975 7,321 56,356 92,655 20,903 113,558

Balance as at 1 January 2007 21,003 - 7,975 7,321 56,356 92,655 20,903 113,558Recognized profit for the current year - - - - 12,258 12,258 1,080 13,338Share issue 22,753 24,503 - - - 47,256 - 47,256Share capital increase of a subsidiary - - - - - - 1,925 1,925Increase in share holdings in a subsidiary - - 128 68 67 263 (263) -Revaluation 18 - - - 39,557 - 39,557 11,059 50,616Tax effect from revaluation 17, 33 - - - (3,956) - (3,956) (1,106) (5,062)Movement in the revaluation reserve from sale of assets

- - - (323) 323 - - -

Allocation of profit for reserves - - 488 - (488) - - -Other movements - - (71) 82 116 127 2 129Dividends paid - - - - 273 273 (273) -Acquisition of minority interest - - - - - - (4,172) (4,172)Foreign currency translation difference - - - - (23) (23) - (23)Balance at 31 December 2007 28 43,756 24,503 8,520 42,749 68,882 188,410 29,155 217,565

The statement of changes in equity is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 79 to 106.





KPMG Bulgaria OOD

25 April 2008



79

Notes

to the consolidated financial statementsNote Page1. Reporting entity 802. Basis of preparation 803. Significant accounting policies 804. Determination of fair values 865. Financial risk management 866. Segment Reporting 877. Revenue 888. Other operating revenue 889. Increase/(decrease) in work- in- progress 8910. Capital expenses for construction 8911. Expenses for materials 8912. Expenses for hired services 9013. Personnel expenses 9014. Cost of assets sold 9015. Other operating expenses 9016. Net finance income/(expenses) 9117. Income tax expense 9118. Property, plant and equipment 9219. Intangible assets 9320. Investments in equity accounted associates 9421. Other investments 9622. Long term receivables 9623. Inventories 9624. Trade and other receivables 9625. Non-current assets held for sale 9726. Financial assets held for trade 9727. Cash and cash equivalents 9728. Share capital and reserves 9729. Earnings per share 9830. Loans and borrowings 9831. Other long-term payables 10032. Provisions 10033. Deferred tax assets and liabilities 10034. Trade and other payables 10135. Financial instruments 10136. Related parties 10437. Subsequent events 10538. Contingent liabilities 106


80

1. Reporting entityIndustrial Holding Bulgaria PLC (the Company or the Hold-ing) is a public limited company domiciled in Bulgaria and with registered address: Sofia 1000, 47, Vassil Levski Blvd. The consolidated financial statements of the Company for the year ended 31 December 2007 comprise the financial statements of the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interest in associ-ates. The operations of the Group include production and trading of heavy machinery, shipbuilding, shiprepair and transport, furniture production, operations with real estates, port operations, support activities from/to vessels and vehicles, maintenance and repair and other services.Industrial Holding Bulgaria PLC as well as some of the sub-sidiaries are traded on the Bulgarian Stock Exchange - Sofia.

2. Basis of preparation

(а) Statement of complianceThe consolidated financial statements have been prepared in accordance with International Financial Reporting Stand-ards (IFRS), prepared by the International Accounting Stand-ards Board (IASB) and adopted by the European Union.

(b) Basis of measurementThe consolidated financial statements have been prepared on the historical cost basis except for the following:

Land, buildings, plant, machinery and equipment are presented at a revalued amount, reduced with the accu-mulated depreciation and impairment losses Financial instruments at fair value through profit or loss are measured at fair value Available-for-sale financial assets are measured at fair value.

(c ) Functional and presentation currencyThese consolidated financial statements are presented in Bulgarian Lev (BGN), which is the Company’s functional currency. All financial information presented in leva has been rounded to the nearest thousand.

(d) Use of estimates and judgementsThe preparation of financial statements in compliance with IFRS requires management to make judgements, estimates and assumptions that affect the application of account-ing policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recog-nised in the period in which the estimate is revised and in any future periods affected.

Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that

have the most significant effect on the amount recognised in the financial statements are described in the following notes:Note 18 – Property, plant and equipmentNote 19 – Intangible assetsNote 24 – Trade and other receivablesNote 26 – Financial assets held for tradeNote 32 – ProvisionsNote 33 – Deferred tax assets and liabilities

3. Significant accounting policiesExcept as described below, the accounting policies have been consistently applied by Group enterprises and are consistent with those used in the previous year.

When the presentation or classification of items in the finan-cial statements was amended, comparative amounts have been reclassified, to ensure comparability with the current period. Such reclassifications have resulted from the more detailed presentation of balance sheet and income state-ment items in the notes to the financial statements.

Change of accounting policyIn 2006, the company Bulyard Shipbuilding Industry AD has changed its accounting policy regarding the accounting of indirect production costs. In prior periods, the Company recorded partially its indirect production costs as administra-tive expenses, and charged them as expenses for the period in which they occurred. As of 1 January 2006, those indirect production costs that were previously accounted as adminis-trative expenses were booked as part of the cost of produc-tion and services for which part was recognized as work-in-progress in the balance sheet. Management assessed the new policy as being more appropriate.

The change in accounting policy has been recognized and the comparative information for 2005 has been restated. The opening balance of retained earnings for 2006 has been increased by BGN 1,065 thousand. In 2007 there were no changes in the accounting policy of the Group.

(a) Basis of consolidation(i) SubsidiariesSubsidiaries are the enterprises controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

(ii) AssociatesAssociates are those enterprises in which the Group has significant influence, but not control over the financial and operating policies. The consolidated financial statements include the Group’s share of the total recognised gains and losses of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share


81

of losses exceeds the carrying amount of the associate, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred obligations in respect of the associate.

(iii) Transactions eliminated on consolidationIntra-group balances and transactions, and any unrealized gains arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with associates are elimi-nated to the extent of the Parent interest in the enterprise. Unrealized gains arising from transactions with associates are eliminated against the investment in associates. Unreal-ized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

(b) Foreign currency(i) Foreign currency transactionsTransactions in foreign currencies are translated to the functional currency at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to BGN at the exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in the income statement.

(ii) Foreign operationsThe assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to BGN at exchange rates at the reporting date. The income and expenses of foreign operations are translated to BGN at exchange rates at the dates of the transactions.Foreign currency differences from translation are recognised directly in equity.

(c) Financial instrumentsNon-derivative financial instrumentsNon-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.

Non-derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition non-derivative financial instruments are measured as described below.

A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Finan-cial assets are derecognised if the Group’s contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, i.e., the date that the Group

commits itself to purchase or sell the asset. Financial liabili-ties are derecognised if the Group’s obligations specified in the contract expire or are discharged or cancelled.

(i) Held-to-maturity investmentsIf the Group has the positive intent and ability to hold debt securities to maturity, then they are classified as held-to-maturity. Held-to-maturity investments are measured at amortised cost using the effective interest method, less any impairment losses.

(ii) Available-for-sale financial assetsThe Group’s investments in equity securities and certain debt securities are classified as available-for-sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses, and foreign exchange gains and losses on available-for-sale monetary items, are recognised directly in equity. When an investment is derecognised, the cumulative gain or loss in equity is transferred to profit or loss.

(iii) Investments at fair value through profit or lossAn instrument is classified as at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Financial instruments are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value. Upon initial recognition, attributable trans-action costs are recognised in profit or loss when incurred. Financial instruments at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit or loss.

(iv) Trade and other receivablesTrade and other receivables are stated at amortised cost less any amounts, which are not expected to be collected. The latter are presented as impairment losses on the basis of the calculated recoverable amount of trade receivables.

(v) Cash and cash equivalentsCash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

(vi) Loans and borrowingsInterest-bearing borrowings are recognised initially at cost, less attributable transaction costs. Subsequent to initial rec-ognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis.

(vii) Trade and other payablesTrade and other payables are stated at their amortised cost.


82

(d) Property, plant and equipment(i) Recognition and measurementMeasurement at initial recognitionAt initial recognitions, items of property, plant and equipment are measured at cost, which comprises its purchase price, including import duties and non-refundable purchase taxes and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

The cost of self-constructed assets includes the cost of ma-terials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located.When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Measurement after recognitionThe group has chosen the revaluation model of IAS 16 for carrying land, buildings, plant and machinery at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subseqent accumulated impairment losses.

The fair value of items of land, buildings, plant and machin-ery is usually determined from market-based evidence by an appraisal that is undertaken by professionally qualified valuers.

The revaluation of items of land, buildings, plant and machin-ery is usually made every 5 years. An additional revaluation can be made when the fair value substantially changes from the carrying value within a shorter period.

The Group’s land, buildings, plant and machinery were revalued to their fair market value based on estimates, by an independent registered valuer as at 31 December 2007. Items of vehicles, fixtures and fittings, other tangible assets and assets under construction are stated in the balance sheet at their acquisition cost less accumulated depreciation and impairment losses.

(ii) Reclassification to investment propertyProperty that is being constructed for future use as invest-ment property is accounted for as property, plant and equipment until construction or development is complete, at which time it is remeasured to fair value and reclassified as investment property. Any gain or loss arising on remeasure-ment is recognised in profit or loss.

When the use of a property changes from owner-occupied to investment property, the property is remeasured to fair value and reclassified as investment property. Any gain arising on remeasurement is recognised directly in equity. Any loss is recognised immediately in profit or loss.

(iii) Subsequent expenditureExpenditure incurred to replace a component of an item of

property, plant and equipment that is accounted for sepa-rately, is capitalised. Other subsequent expenditure is capi-talised only when it increases the future economic benefits embodied in the item of property, plant and equipment. All other expenditure is recognised in the income statement as an expense as incurred.

(iv) DepreciationDepreciation is recognised in the income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased as-sets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated.

The estimated useful lives for the assets are as follows: buildings 7 - 50 years plant and equipment 4 – 20 years vehicles 2 –10 years fixtures and fittings 5 – 10 years

Depreciation methods, useful lives and residual values are reassessed at the reporting date.

(e) Intangible assets(i) GoodwillAcquisitionsGoodwill represents the excess of the cost of the acquisi-tion over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative (negative goodwill), it is recognised immediately in profit or loss.

Acquisitions of minority interests Goodwill arising on the acquisition of a minority interest in a subsidiary represents the excess of the cost of the addi-tional investment over the carrying amount of the net assets acquired at the date of exchange.

Subsequent measurementGoodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investees, the carry-ing amount of goodwill is included in the carrying amount of the investment.

(ii) Other intangible assetsOther intangible assets that are acquired by the Group are stated at cost less accumulated amortisation (see below) and impairment losses. Expenditure on internally generated goodwill and brands is recognised in the income statement as an expense as incurred.

(iii) Subsequent expenditureSubsequent expenditure is capitalised only when it increas-es the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.

(iv) AmortisationAmortisation is recognised in the income statement on a straight-line basis over the estimated useful lives of intangi-


83

ble assets, other than goodwill, from the date that they are available for use.

The estimated useful lives are as follows: patents and trademarks 7 years software products 5 years

(f) Leased assetsLeases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accord-ance with the accounting policy applicable to that asset.Other leases are operating leases and, except for invest-ment property, the leased assets are not recognised on the Group’s balance sheet. Investment property held under an operating lease is recognised on the Group’s balance sheet at its fair value.

(g) InventoriesInventories are measured at the lower of cost and net realis-able value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.Write downs are recognised when the cost of inventories ex-ceeds their net realizable value. Write downs are recognised in profit or loss.The cost of inventories is based on the weighted average principle for materials and work in progress. In the case of manufactured inventories (produced goods), cost also includes direct labour, social security and depreciation ex-penses. These expenses are allocated to products based on normal operating capacity.

(h) Impairment(i) Financial assetsA financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its current fair value.

Individually significant financial assets are tested for impair-ment on a individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

All impairment losses are recognised in the income state-ment. Any cumulative loss in respect of an available-for-sale financial asset recognised previously in equity is transferred to the income statement.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost and available-for-sale financial assets that are debt securities, the reversal is recognised in profit or loss. For available-for-sale financial assets that are equity securities, the reversal is recognised directly in equity.

(ii) Non-financial assetsThe carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated.

For goodwill and intangible assets that have indefinite lives or that are not yet available for use, recoverable amount is estimated at each reporting date.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are inde-pendent from other assets and groups.

Impairment losses are recognised in profit or loss. Impair-ment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carry-ing amount of the other assets in the unit (group of units) on a pro rata basis.

(i) Share capital and reservesThe capital of the Group is presented at historical cost at the date of registration.

Additional and legal reserves comprise those reserves of the parent company, as well as the share of subsidiaries’ reserves allocated after the date of acquisition.

Revaluation reserves are allocated as at the date of revalua-tion of property, plant and equipment.

(j) Employee benefits (i) Defined contribution plansAccording to the current legislation, the Government of Bul-garia is responsible for providing pensions in Bulgaria under a defined contribution pension plan. The obligations for contributions to defined contribution pension plans are rec-ognised as an expense in profit or loss when they are due.

(ii) Annual paid leaveThe Company recognises as a liability the undiscounted amount of the estimated costs related to annual leave ex-pected to be paid in exchange for the employee’s service for the period completed.

(iii) Other long-term employee benefitsThe Group has an obligation to pay retirement benefits to


84

those employees, who retire with the Group in accordance with the basic provisions of art.222 Para 3 of the Bulgarian Labor Code. According to the provisions of the Labor code, on termination of the labor contract of a worker or an em-ployee of the Group who has become entitled to retirement, the Group is due to pay him/her a compensation amount-ing to his/her double gross monthly salary. If a worker or an employee has work experience of 10 or more years in the company as at the date of retirement, he or she is entitled to compensation amounting to 6 gross monthly salaries. At each balance sheet date the management makes an ap-proximate estimation of the potential compensations due to employees, using reports from actuaries.

(k) ProvisionsA provision is recognised in the balance sheet when the Group has a legal or constructive obligation as result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the ex-pected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

(i) WarrantiesA provision for warranties is recognised when the underly-ing products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities.

(ii) RestructuringA provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been an-nounced publicly. Future operating costs are not provided for.

(iii) Site restorationIn accordance with the Group’s published environmental policy and applicable legal requirements, a provision for site restoration in respect of contaminated land, and the related expense, is recognised when the land is contaminated.

(iv) Onerous contractsA provision for onerous contracts is recognised when the ex-pected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obliga-tions under the contract. The provision is measured at the present value of the lower of the expected cost of terminat-ing the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract.

(l) Revenue(i) Goods soldRevenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates. Rev-

enue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and pos-sible return of goods can be estimated reliably, and there is no continuing management involvement with the goods. Transfers of risks and rewards vary depending on the indi-vidual terms of the contract of sale.

No revenue is recognized if there are significant uncertain-ties regarding recovery of the consideration due, associated costs or the possible return of goods.

(ii) Services renderedRevenue from services rendered is recognized in the income statement in proportion to the stage of completion of the transaction at the balance sheet date. The stage of comple-tion is assessed by reference to the costs incurred com-pared to the total expected costs under the contract.

(iii) Construction contractsAs soon as the outcome of a construction contract can be estimated reliably, contract revenue and expenses are recognised in the income statement in proportion to the stage of completion of the contact. The stage of completion is assessed by reference to surveys of work performed. An expected loss on a contract is recognised immediately in the income statement.

(iv) Rental incomeRental income from investment property is recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease.

(m) Lease paymentsPayments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.

(n) Finance income and expensesFinance income comprises interest income on funds in-vested, dividend income, gains on the disposal of available-for-sale financial assets, changes in the fair value of financial assets at fair value through profit or loss, foreign currency gains, and gains on hedging instruments that are recognised in profit or loss. Interest income is recognised as it accrues, using the effective interest method. Dividend income is recognised on the date that the Group’s right to receive pay-


85

ment is established, which in the case of quoted securities is the ex-dividend date.

Finance expenses comprise interest expense on borrowings, unwinding of the discount on provisions, foreign currency losses, changes in the fair value of financial assets at fair value through profit or loss, impairment losses recognised on financial assets, and losses on hedging instruments that are recognised in profit or loss. All borrowing costs are rec-ognised in profit or loss using the effective interest method.

(o) Income taxIncome tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the in-come statement, except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date.

Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting pur-poses and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be ap-plied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend.

(p) Segment reportingA segment is a distinguishable component of the Group that is engaged either in providing products or services (busi-ness segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. The Group’s primary format for segment reporting is based on business segments.

(q) Earnings per shareThe Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary sharehold-ers of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to

ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees.

(r) New standards and interpretations not yet adoptedA number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2007, and have not been applied in preparing these consolidated financial statements:

IFRS 8 Operating Segments introduces the “management ap-proach” to segment reporting. IFRS 8, which becomes man-datory for the Group’s 2009 financial statements, will require the disclosure of segment information based on the internal reports regularly reviewed by the Group’s Chief Operating Decision Maker in order to assess each segment’s perform-ance and to allocate resources to them. The management does not expect IFRS 8 to have significant effect on the Company’s financial statements disclosures.

Revised IAS 23 Borrowing Costs removes the option to expense borrowing costs and requires that an entity capi-talise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The revised IAS 23 will become manda-tory for the Company’s 2009 financial statements and will constitute a change in accounting policy for the Company. In accordance with the transitional provisions the Company will apply the revised IAS 23 to qualifying assets for which capitalisation of borrowing costs commences on or after the effective date. The Company is currently assessing the effect of the revised standard.

IFRIC 11 IFRS 2 – Company and Treasury Share Transactions (effective for reporting periods commencing on or after 31 March 2007) requires a share-based payment arrangement in which an entity receives goods or services as considera-tion for its own equity instruments to be accounted for as an equity-settled share-based payment transaction, regard-less of how the equity instruments are obtained. IFRIC 11 will become mandatory for the Company’s 2008 financial statements, with retrospective application required. It is not expected to have any impact on the financial statements.

IFRIC 12 Service Concession Arrangements (effective 1 January 2008) provides guidance on certain recognition and measurement issues that arise in accounting for public-to-private service concession arrangements. IFRIC 12, which becomes mandatory for the Company’s 2008 financial state-ments, is not expected to have any effect on the financial statements.

IFRIC 13 Customer Loyalty Programmes addresses the ac-counting by entities that operate, or otherwise participate in, customer loyalty programmes for their customers. It relates to customer loyalty programmes under which the customer can redeem credits for awards such as free or discounted goods or services. IFRIC 13, which becomes mandatory for


86

the Company’s 2009 financial statements, is not expected to have any impact on the financial statements.

IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Mini-mum Funding Requirements and their Interaction (effective 1 January 2008) – management estimates that IFRIC 14 is not expected to have any effect on the Company’s financial statements due to the Company’s transactions.

4. Determination of fair valuesA number of the Group’s accounting policies and dis-closures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and / or disclosure purposes based on the following methods. Where appli-cable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

(i) Property, plant and equipmentThe fair value of property, plant and equipment are pre-sented on market values determined by an independent registered valuer.

(ii) Investments in equity and debt securitiesThe fair value of financial assets at fair value through profit or loss, held-to-maturity investments and available-for-sale finan-cial assets is determined by reference to their quoted bid price at the reporting date. The fair value of held-to-maturity investments is determined for disclosure purposes only.

(iii) Non-derivative financial liabilitiesFair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases the market rate of interest is determined by reference to similar lease agree-ments.

5. Financial risk managementThe Group has exposure to the following risks from its use of financial instruments:

credit risk liquidity risk market risk

This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. Further quantitative disclo-sures are included throughout these financial statements.

The management has overall responsibility for the establish-ment and oversight of the Group’s risk management frame-work. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and

adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market condi-tions and the Group’s activities.

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and investment securities.

Trade receivablesThe Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. This expo-sure may also depend on the default risk of the industry and the internal market on which the Group operates. In order to diversify the risk the Group manages the risk for each sector in conformity with its weight in the portfolio of Industrial Hold-ing Bulgaria PLC. Because of that the Group diversifies its risk. The credit policy determines that each new customer is analysed individually for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered.

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments. The main compo-nents of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets.

InvestmentsThe Company invests primary in businesses and companies which it controls and could establish their development strategy. In its portfolio construction the Group invests only in liquid securities.

GuaranteesThe Group’s policy is to provide financial guarantees only upon approval from its management board. At 31 December 2007 the Group has provided guarantees for liabilities to third parties as disclosed in note 38.

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

Typically the Group ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 30 days, including the servicing of financial obligations;


87

this excludes the potential impact of extreme circumstances that cannot reasonably be predicted.

The Group management supports the efforts of its subsidiar-ies to receive bank credits for investments and to use the opportunities, provided by revolving credit lines, for working capital management. The amount of borrowed capital is maintained at a certain level and new borrowing is undertak-en only after its economic efficiency is proved by the subsidi-ary. Borrowed capital improves the Company liquidity and is essential for the operations growth. In the last years the man-agement policy aims the Group to obtain new funds from the capital markets by issuing shares, bods and other similar financial instruments. New funds are invested in the subsidi-aries by providing loans in order to finance their projects and by participating in the subsidiaries’ share increases.

Market riskMarket risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk manage-ment is to manage and control market risk exposures within acceptable parameters, while optimising the return.

Currency riskIn order to minimise the exposure to currency risk the management of the Group reduced to a minimum payments in currencies other than the Bulgarian lev (BGN) or Euro (EUR). Some of the companies in the Group are exposed to a limited currency risk mainly due to purchases and/or sales and/or loans in currencies other than the functional cur-rency. A Group tendency is to deal in BGN or EUR. Bulyard Shipbuilding Industry AD has contracts in U.S. Dollars (USD) and Japanese yen (JPY). There are measures undertaken for hedging the currency risk.

Interest rate riskThe group is exposed to interest rate risk. There are loans with flexible interest rates corresponding to the current market prices. To reduce the interest rate risk exposure, the Company is trying to increase the proportion of loans with fixed interest.

Capital managementThe management’s policy is to maintain a strong capital base so as to maintain owners and market confidence and to sustain future development of the business.

The Company seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. In 2007 the Group’s return on equity is 6.51% (2006: 10.41%).

There were no changes in the Company’s approach to capi-tal management during the year.

The Company is not subject to contractual or legally im-posed capital requirements.

6. Segment reportingSegment information is presented in respect of the Group’s business segments. The format is based on the Group’s management and internal reporting structure.Inter-segment pricing is determined on an arm’s length basis.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be al-located on a reasonable basis. Unallocated items comprise goodwill, minority interest, loans and tax liabilities.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.

Business segmentsThe Group comprises the following main business seg-ments:

Machine building. The production and sale of metal-cutting machines, production, repair and sales of electric machines and foundry.

Shipbuilding and transport. The production and reconstruc-tion of ships and all types of vessels, as well as related services, transport services, port activities and classification and certification.

Other operations include provision of consulting services, production of furniture, real estate operations and others.

Geographical segmentsAll of the segments are located and operate in the geo-graphical area of Bulgaria.


88

Business segments Machine

building

Shipbuilding

& transport

Other

operations

Eliminations Consolidated

In BGN thousand 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006

Total revenue from external customers 57,029 49,964 100,521 80,070 4,843 5,054 - - 162,393 135,088Inter-segment revenue - 82 3 - 558 674 (561) (756) - -Total revenue 57,029 50,046 100,524 80,070 5,401 5,728 (561) (756) 162,393 135,088

Profit from operations 6,940 5,450 4,100 1,189 1,042 1,547 - - 12,082 8,186

Net financing costs (117) 2,667Income/(loss) from associates - - 2,424 1,972 - - - - 2,424 1,972Income tax expense (1,051) (1,789)Net profit for the year 13,338 11,036Segment assets 75,781 47,912 161,837 86,974 56,904 18,353 294,522 153,239Investment in associates - - 11,627 9,077 - - 11,627 9,077Unallocated assets - - - - - - 8,171 12,602Total assets - - - - - - 314,320 174,918

Segment liabilities 15,363 10,882 65,498 31,874 2,338 2,716 83,199 45,472Loan liabilities - - - - - - 12,285 14,893Income tax liabilities - - - - - - 1,113 995Total liabilities 96,597 61,360

Capital expenditure 4,599 3,870 10,543 5,576 7,036 169 22,178 9,615Depreciation 1,926 1,672 2,214 1,938 182 165 4,322 3,775Amortisation 70 60 97 62 11 6 178 128

7. RevenueIn BGN thousand Note 2007 2006

Sale of production 51,247 44,172Shipbuilding 7a 76,197 66,439Sale of services 10,665 10,075Ship repair 3,827 8,466Port activities 1,898 218Sale of goods and materials 3,552 3,034

147,386 132,404

7a.As at 31 December 2007 revenues from construction of ship with Hull number 288, commission by a subsidiary, are not rec-ognized in the financial statements. Revenues of Bulyard Shipbuilding Industry AD in the amount of BGN 6,738 thousand are eliminated and the recognized expenditure is reported in note 10 Capital expenses for construction.

8. Other operating revenueIn BGN thousand Note 2007 2006

Gain on disposal of property, plant and equipment 8a 12,890 1,541Other revenue 2,117 1,143

15,007 2,684


89

8a. Gain on disposal of property, plant and equipmentIn BGN thousand 2007 2006

Income from sale of non-current assets 16,479 2,093Carrying amount of assets sold (3,589) (552)

12,890 1,541

Gain on disposal of property, plant and equipment is mainly due to: sale of floating dock, property of Dockyard Port-Burgas AD due to discontinuance of ship repair activities and concentrat-ing on port activities; sale of building and land, property of Bulyard Shipbuilding Industry AD; sale of building and land, property of Mashstroy PLC.

9. Increase in work- in- progressIn BGN thousand 2007 2006

Mashstroy PLC 287 (389)Leyarmash AD (169) (16)ZMM Sliven AD (24) 188Augusta Mebel AD (141) 188Dockyard Port-Bourgas AD (10) 25ZMM Nova Zagora AD 313 250Elprom ZEM PLC 194 995Bulyard Shipbuilding Industry AD 3,623 3,017KLVK AD 30 -

4,103 4,258

10. Capital expenses for constructionIn BGN thousand 2007 2006

Mashstroy PLC 584 329ZMM Sliven AD 20 -Dockyard Port-Bourgas AD 295 72ZMM Nova Zagora AD - 1Elprom ZEM PLC 108 268Bulyard Shipbuilding Industry AD 5,011 743Bulgarian Register of Shipping AD 191 159Emona – ship number 288 6,738 -

12,947 1,572

11. Expenses for materials In BGN thousand 2007 2006

Primary materials 83,782 68,735Supplementary materials 2,436 2,930Energy 3,170 2,710Repair parts 614 362Others 2,936 1,256

92,938 75,993


90

12. Expenses for hired servicesIn BGN thousand 2007 2006

Hired services 24,206 12,263Repairs 1,237 1,107Communications 398 363Security 757 646Naval fee registration and technical documentation 775 1,017Provided guarantees 156 651Insurance 1,267 1,058Intermediation commissions 359 940Advertisements 64 183Rents 555 139Other 3,274 2,660

33,048 21,027

13. Personnel expensesIn BGN thousand 2007 2006

Wages and salaries 25,110 21,742Compulsory social security contributions 6,336 5,931

31,446 27,673

The average staff number for the Group in 2007 was 2,818 employees (2006: 2,917 employees).

14. Cost of assets soldIn BGN thousand 2007 2006

Bulyard Shipbuilding Industry AD 1,688 278Mashstroy PLC 49 37Leyarmash AD 19 3ZMM Sliven AD 62 67Augusta Mebel AD 2 10Dockyard Bourgas AD 16 37ZMM Nova Zagora AD 9 6Elprom ZEM PLC 2 81ZMM Bulgaria Holding 15 98

1,862 617

15. Other operating expensesIn BGN thousand Note 2007 2006

Impairment 15a 457 390Legal obligations and warranties 458 1,504Business trip expenses 363 352Other expenses 2,289 1,273

3,567 3,519

15a Impairment lossesIn BGN thou1sand 2007 2006

Impairment of receivables 407 277Impairment of inventory 50 113

457 390


91

16. Net finance income/(expenses)In BGN thousand 2007 2006

Finance incomeInterest income 746 1,280Dividend income 543 35Net foreign exchange difference - 778Unrealised profit/(loss) from revaluation of financial assets held for trade

- 281

Net profit resulting from trade with financial assets 262 1,215Recognized negative goodwill 136 29

1,687 3,618

Finance expensesInterest expense (1,163) (628)Net foreign exchange difference (134) -Other financial profit /(loss), net (507) (323)

(1,804) (951)(117) 2,667

17. Income tax expenseRecognised in the income statementIn BGN thousand Note 2007 2006

Current tax expenseCurrent year 1,204 1,403

1,204 1,403

Deferred tax expenseOrigination and reversal of timing differences (153) 320Decrease in the tax rate - 84Benefit of tax losses recognised - (18)

33 (153) 386Total income tax expense in income statement 1,051 1,789

Current income tax expense has been calculated using a rate of 10% (2006:15%), applied to the tax base. Deferred taxes are recognized applying the income tax rate for 2008 of 10% (2007: 10%).

Reconciliation of effective tax rateIn BGN thousand 2007 2006

Profit for the period 13,338 11,036Total income tax expense 1,051 1,789Profit excluding income tax 14,389 12,825

Income tax using the tax rate: (10%) (1,459) (15%) (1,935)Non-deductible expenses 0% (52) (3%) (368)Reduction of tax rate 0% - (1%) (84)Tax exempt income – sales of shares 0% 17 1% 105Tax exempt income – dividends 3% 461 3% 314Other 0% (31) 1% 161Utilized tax losses from previous periods 0% 13 0% 18

(7%) (1,051) (14%) (1,789)


92

Income tax recognized directly in equityIn BGN thousand 2007 2006

Property, plant and equipment 5,062 5985,062 598

Including:for the Group 3,956 526for the Minority interest 1,106 72

5,062 598

18. Property, plant and equipmentIn BGN thousand Land

and

buildings

Plant

and

equipment

Other

fixed

assets

Assets

Under

construc-

tion

Total

CostBalance at 1 January 2006 31,207 29,317 2,806 782 64,112Additions 2,300 1,911 499 4,295 9,005Disposals (583) (373) (163) (1,510) (2,629)Transfers 106 2,491 137 (2,734) -Balance at 31 December 2006 33,030 33,346 3,279 833 70,488

Balance at 1 January 2007 33,030 33,346 3,279 833 70,488Additions 99 1,623 1,014 18,939 21,675Disposals (2,586) (1,405) (231) - (4,222)Transfers 3,187 4,038 193 (7,606) (188)Revaluation 47,682 2,898 36 - 50,616Offset of accumulated depreciation to book value (3,815) (5,056) (116) - (8,987)Impairment (27) - - - (27)Transfers to assets held for sale (933) (476) (137) - (1,546)Balance at 1 December 2007 76,637 34,968 4,038 12,166 127,809Depreciation and impairment lossesBalance at 1 January 2006 2,394 6,942 1,442 - 10,778Depreciation charge for the year 834 2,567 374 - 3,775Depreciation for assets written-off (106) (230) (120) - (456)Balance at 31 December 2006 3,122 9,279 1,696 - 14,097

Balance at 1 January 2007 3,122 9,279 1,696 - 14,097Depreciation charge for the year 844 3,036 442 - 4,322Depreciation for assets written-off (23) (453) (157) - (633)Offset of accumulated depreciation to book value (3,815) (5,056) (116) - (8,987)Depreciation of assets transferred to assets held for sale (116) (71) (21) - (208)Balance at 1 December 2007 12 6,735 1,844 - 8,591

Carrying amountAt 1 January 2006 28,813 22,375 1,364 782 53,334At 31 December 2006 29,908 24,067 1,583 833 56,391

At 1 January 2007 29,908 24,067 1,583 833 56,391At 31 December 2007 76,625 28,233 2,194 12,166 119,218

Part of machines, plant and equipment with book value of BGN 39,793 thousand serve as collateral for the Group bank loans.The Group management periodically reviews the fair values of its land, buildings, plant and equipment. Such reviews were made as at 1 January 2003 and 31 December 2007 and the assets were revalued to their fair values, based on estimates performed by an independent registered valuer. Based on the valuation, performed by the independent registered valuer as at 31 December 2007, the carrying amounts of land and buildings; machines, plant and equipment; and other assets were increased by BGN 47,682 thousand, BGN 2,898 thousand and BGN 36 thousand respectively. The effect of the revaluation is recorded in the revaluation reserve (see note 28 Share capital and reserves).


93

19. Intangible assetsIn BGN thousand Patents and

trade-marks

Software Other

intangible

assets

Total

Carrying amountAt 1 January 2006 111 31 41 183At 31 December 2006 88 351 238 677

At 1 January 2007 88 351 238 677At 31 December 2007 462 261 748 1,471

The depreciation charge for the intangible non-current assets for the year ending 31 December 2007 amounts to BGN 178 thousand (2006: BGN 128 thousand). Due to the fact that the intangible non-current assets owned by the Group are immate-rial, no detailed note has been prepared on their movement during 2007 and 2006.

(i) GoodwillIn thousands of BGN Goodwill

Balance at 1 January 2006 5,520Increases through business combinations 798Balance at 31 December 2006 6,318

Balance at 1 January 2007 6,318Increases through acquisition of minority interest 1,522Balance at 31 December 2007 7,840

(ii) Negative goodwillThe negative goodwill which arose as a result of acquisitions in subsidiaries for both reporting periods can be analysed as follows: In BGN thousand 2007 2006

ZMM Nova Zagora AD - 29ZMM Sliven AD 136 -Total negative goodwill, recognised in the Income statement 136 29

Goodwill is due to acquisition of 15.38% of the equity of Bulyard Shipbuilding Industry AD, 3.09% - of ZMM Sliven and 23% of the equity of Hydro Power Bulgaria AD.

(iii) Acquisition of subsidiaries and minority interestAcquisition of minority interestDuring the year the Group acquired additional shares in the following subsidiaries and the relative net identified assets and liabilities:

In BGN thousand Net assets % Net assets %

ZMM Nova Zagora AD - - 135 2.47ZMM Sliven AD 250 3.08 - -Hydro Power Bulgaria AD 8 23.00 3 10.00Bulyard AD, Bulyard Shipbuilding Industry AD 3,914 15.38 2,322 7.50

4,172 2,460

In January a company from the Group purchased 11,500 shares, representing 23% of the equity of the subsidiary Hydro Power Bulgaria AD for the amount of BGN13 thousand. As a consequence the Group became the sole owner of Hydro Power Bulgaria AD. Because of the acquisition, goodwill in the amount of BGN 5 thousand is recognized.


94

In March 2007, Bulyard AD increased its share capital by issuing 8,600 thousand ordinary voting shares with par value BGN 1. Industrial Holding Bulgaria participated in the capital increase proportionately to its shareholding in Bulyard AD and ac-quired 5,289 ordinary voting shares. Bulyard AD used the capital contribution to acquire 25% of the equity shares of Bulyard Shipbuilding Industry AD from Navigation Maritime Bulgare. As a consequence Industrial Holding’s shareholding in Bulyard Shipbuilding Industry AD increased to 61.5% from 46.13% in 2006.

During the period ZMM Bulgaria Holding AD purchased 8,832 shares of ZMM Sliven AD increasing its shareholding in the company to 95.98%. Because of the acquisition, negative goodwill in the amount of BGN 136 thousand is recognized.

ZMM Bulagria Holding AD sold 500 shares, representing 0.0412% of its shareholding in Elprom Zem PLC, at a profit of BGN 7 thousand.

(iv) Share increases of subsidiariesIn April, Bulyard Shipbuilding Industry AD increased its share capital by BGN 5,000 thousand with an issue of 5,000 thousand ordinary voting shares with par value BGN 1 each. All issued shares are subscribed by the parent company Bulyard AD. In-dustrial Holding Bulgaria PLC participated proportionately to its shareholding in the second increase of the capital of Bulyard AD and acquired 2,875 thousand ordinary voting shares.

Privat Engineering AD, a wholly owned subsidiary of the Group, increased its share capital twice by issuing 140 thousand ordinary voting shares with par value BGN 1 and issue price BGN 7 and 160 thousand ordinary voting shares with par value BGN 1 and issue price BGN 10. All new shares are subscribed and paid by another subsidiary of the Group.

In April Leyarmash AD increased its share capital. The issued shares were subscribed by Mashstroy PLC – 150 thousand shares and ZMM Sliven AD – 350 thousand shares with par value and issue price BGN 1 each. As a consequence, the sub-sidiary remains fully controlled by the Group.

In November the share capital of Dockyard Port-Burgas AD was increased by an issue of 500 thousand ordinary voting shares. Shares issued were subscribed by Industrial Holding Bulgaria PLC and its shareholding increased from 91.72% to 98.24%.

(v) New subsidiariesThe subsidiary of Industrial Holding Bulgaria PLC, Privat Engineering AD invested in a new company, IHB Shipping Co EAD, which has registered capital of BGN 200 thousand consisting of 200 thousand shares with par value BGN 1. Operations of the new subsidiary include maritime business and all related production, transportation and intermediation activities, ship brokerage and agency and others. It was created in order to control the building of ships, ordered by Group companies, to manage them and to provide crews. The new company is created with court decision of the Varna regional court from 5.12.2007 and 20.12.2007.

20. Investments in equity accounted associatesThe Group has the following investments in associates:

Country Ownership

2007 2006

Dunav Tours AD Bulgaria 48.45% 48.395%VIK-Sandvik-IHB Design AD Bulgaria 50.00% -Istrum Travel Cyprus 50.00% 50.00%

Odessos PBM AD Bulgaria 30.00% 30.00%

VIK-Sandvik-IHB Design AD, Varna, was created jointly by Industrial Holding Bulgaria and a Norwegian company with intend-ed activity ship design. Each company owns 50% of the registered share capital of BGN 250 thousand. More than 40 highly qualified employees are working in the new company.


95

Summary financial information for equity accounted investees, not adjusted for the percentage ownership held by the Group:

In BGN thousand Owner-

ship

Current

assets

Non-

current

assets

Total

assets

Current

liabilities

Non-

current

liabilities

Total

liabilities

Revenues Expenses Profit /

(loss)

2006Dunav Tours AD 48.395% 860 41,298 42,158 18,254 11,336 29,590 11,996 (10,163) 1,833Istrum Travel 50.00% 3,778 82 3,860 1,047 - 1,047 19,764 (17,710) 2,054Odessos PBM AD 30.00% 622 4,792 5,414 117 - 117 789 (703) 86

5,260 46,172 51,432 19,418 11,336 30,754 32,549 (28,576) 3,973

2007Dunav Tours AD 48.45% 1,370 38,489 39,859 7,161 15,842 23,003 19,955 (15,667) 4,288Istrum Travel 50.00% 4,354 - 4,354 1,286 - 1,286 26,705 (26,449) 256Odessos PBM AD 30.00% 398 5,265 5,663 126 - 126 1,452 (1,212) 240VIK-Sandvik-IHB Design AD

50.00% 961 111 1,072 526 - 526 550 (254) 296

7,083 43,865 50,948 9,099 15,842 24,941 48,662 (43,582) 5,080

The movements in the investment in associates can be presented as follows:In BGN thousand 2007 2006

Dunav Tours ADAt 1 January 6,082 5,157 Share of increase in net assets 2,077 925At 31 December 8,159 6,082

Istrum Travel 2007 2006

At 1 January 1,406 379Share of increase in net assets 128 1,027At 31 December 1,534 1,406

Odessos PBM AD 2007 2006

At 1 January 1,589 1,570Share of increase of net assets 72 19At 31 December 1,661 1,589

VIK-Sandvik-IHB Design AD 2007 2006

At 1 January - -Investment 126 -Share of increase of net assets 147 -At 31 December 273 -

Total investments in associates at 31 December 11,627 9,077

During 2007, the group share of net assets in equity accounted investments has increased by BGN 2,424 thousand (2006: BGN 1,972 thousand).


96

21. Other investmentsIn BGN thousand 2007 2006

Meteko AD 7 7Other 1 1

8 8

22. Long term receivablesIn BGN thousand 2007 2006

Mak – Gabrovo 70 140Chimremontstroy Engineering AD 293 586Elpo AD - 37Other long term receivables 521 422

884 1,185

23. InventoriesIn BGN thousand Note 2007 2006

Raw materials and consumables 30,167 27,145Work in progress 23a 22,649 17,950Finished goods 1,947 2,795Supplies - 1,639Merchandise 2 30

54,765 49,559

23a. Work in progressWork in progress includes:In BGN thousand 2007 2006

Work in progress from shipbuilding 14,733 11,836Work in progress from shiprepair 828 112Work in progress from machine-building 7,039 5,967Other 49 35

22,649 17,950

24. Trade and other receivablesIn BGN thousand Note 2007 2006

Trade receivables 11,210 22,808Court receivables 28 126Related party receivables 36 326 6,298Tax receivables 2,632 2,188Other receivables 359 384Prepayments and deferred expenses 16,387 1,228

30,942 33,032 Related party receivables as at 31.12.2006 refer to a loan given to the minority interest Dunav Tours AD. The latter repaid fully its loan in 2007. As at 31.12.2007 related party receivables refer to prepayments to VIK-Sandvik-IHB Design AD for construc-tion services.


97

25. Non current assets held for saleAs at 31.12.2007 non current assets, amounting to BGN 1,338 thousand, are reclassified as assets held for sale. Reclassifica-tion is made after management decisions in two Group companies to recover the carrying amount of these assets through their sale and not through their continuing use. The carrying amount of these assets is as follows:

In thousands of BGN 2007 2006

Land and Buildings 817 -Plant and equipment 521 -

1,338 -

26. Financial assets held for tradeIn thousands of BGN 2007 2006

Shares at purchase cost 1,361 1,310Disposals (1,361) (230)Revaluation / (Impairment) - 281Cost at 31 December - 1,361

During the year 38,555 shares are sold at an average price of BGN 41,77 per share. The net income from the sale amounts to BGN 253 thousand and results from deducting the shares value and the sale expenses from the revenue amount.

27. Cash and cash equivalentsIn BGN thousand 2007 2006

Cash at bank 53,463 12,391Cash in hand 93 202Cash as per cash flow 53,556 12,593

Blocked cash 32,700 4,717Cash and cash equivalents presented in the Balance sheet 86,256 17,310

Cash at bank include cash reserved for shipbuilding at the amount of BGN 5,640 thousand.

Blocked cash include: BGN 3,411 thousand for collateral of letter of credits, opened in favour of suppliers in relation to activi-ties for shipbuilding and ship repair; BGN 29,270 thousand to secure the issued bank guarantees in favour of third parties; BGN 19 thousand – other blocked cash.

28. Share capital and reservesShare capital is stated at nominal value as per court registration. As at 31 December 2007 the authorised share capital comprised BGN 43,756 thousand ordinary shares (2006: BGN 21,003 thousand) with a par value of BGN 1. In July 2007 after conversion of debenture loan in 5,251 thousand ordinary voting shares with par value BGN 1 each, the Sofia City Court regis-tered the capital increase of Industrial Holding Bulgaria PLC from BGN 21,003 thousand to BGN 26,254 thousand. In Decem-ber 2007, the capital of Industrial Holding Bulgaria was increased from BGN 26,254 thousand to BGN 43,756 thousand with a new issue of 17,502 thousand shares with par value BGN 1 and issue price BGN 2.40. Share premium reserve in the amount of BGN 24,503 thousand is recognized.

The registered capital is stated at par value and is fully paid in. There are no preference or bearer shares.

The holders of ordinary shares are entitled to receive dividends as declared after each year end and are entitled to one vote per share at meetings of the Group. All shares rank equally with regard to the Group’s residual assets.


98

Shareholders Number of

shares

31 December

2007

2007

%

Number of

shares

31 Decem-

ber 2006

2006

%

Venside Enterprises Ltd 13,472,245 30.79% 7,626,799 36.31%Bulls AD 5,493,333 12.55% - -DZH AD 2,440,655 5.58% 1,422,442 6.77%Chimimport AD 4,011,337 9.17% - -Others 18,338,548 41.91% 11,953,994 56.92%

43,756,118 100.00% 21,003,235 100.00%

The second capital increase is registered in the Sofia City Court on 27 December 2007 and in the Central Depository on 7 January 2008. The number of shares presented reconciles to the shareholders’ register on 7 January 2008.

Additional and statutory reservesThe additional and statutory reserves are formed by allocation of 10% of profit in accordance with the requirements of the Trade Act, and by allocating additional reserves from the retained profit. These reserves comprise additional and statutory reserves of the parent company as well as the share of reserves of the subsidiaries formed after the date of acquisition.

Revaluation reserveThe revaluation reserve was formed as a result of the revaluation of property, plant and equipment less the deferred tax liabili-ties arising in respect of the revaluation.

29. Earnings per share

(i) Basic earnings per shareThe calculation of basic earnings per share as at 31 December 2007 was based on the net profit attributable to ordinary shareholders of BGN 12,258 thousand (2006: BGN 9,647 thousand) and a weighted average number of ordinary shares out-standing during the year ended 31 December 2007 of 35,770 thousand (2006: 21,003 thousand), calculated as follows:

Net profit attributable to ordinary shareholdersIn BGN thousand 2007 2006

Net profit for the year 13,338 11,036Net profit attributable to ordinary shareholders 12,258 9,647

Weighted average number of ordinary sharesIn thousands of shares 2007 2006

Issued ordinary shares at 1 January 21,003 21,003Effect of conversion of debenture loan 2,618 -Effect of exercised rights 10,902 -Effect of shares issued in December 1,247 -Weighted average number of shares at 31 December 35,770 21,003

Earnings per share for 2006 are recalculated to include the effect of the rights issue in 2007.

30. Loans and borrowingsThis note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings. For more information about the Group’s exposure to interest rate and currency risk, refer to note 35.

In BGN thousand 2007 2006

Non-current liabilitiesSecured bank loans 7,250 6,757Lease liabilities 101 -

7,351 6,757


99

Current liabilitiesCurrent portion of secured bank loans 4,897 2,892Lease liabilities 37 -

4,934 2,892

Debenture loanCurrent part - 5,244Current part – interest liabilities - 158

- 5,402

In 2007 the debenture loan was converted into shares (See note 28).

Terms and debt repayment schedule2007In BGN thousand Total 1 year

or less

Over 1

year

Secured bank loans:EUR 205 thousand –3- month - EURIBOR - +2,3%-investment loan 100 100 -EUR 100 thousand – 3- month - EURIBOR - +2,3%-working capital loan 49 49 -BGN 200 thousand – flexible BIR +2,7% - working capital loan 200 200 -EUR 430 thousand – 3- month - EURIBOR +2,3%- investment loan 678 - 678EUR 450 thousand – monthly- EURIBOR +2,3%- investment loan 669 422 247BGN 250 thousand – flexible BIR +3,5% - investment loan 220 91 129EUR 690 thousand – 3 - month - EURIBOR +2,4%- investment loan 702 702 -EUR 314 thousand – 3 - month - EURIBOR +2,3% - investment loan 541 224 317Overdraft – 3 - month - EURIBOR +2,0% - working capital loan 436 436 -BGN 75 thousand – flexible BIR +6,2% - working capital loan 75 75 -BGN 125 thousand – flexible BIR +4,3% - investment loan 80 68 12BGN 108 thousand – flexible BIR +4,98% - investment loan 108 108 -BGN 50 thousand – flexible BIR +5,24% - credit line 47 47 -BGN 42 thousand – flexible BIR +4,40% - credit line 42 42 -EUR 1,000 thousand – monthly -EURIBOR+3% 1,956 978 978EUR 5,000 thousand –6 month EURIBOR+2,15% 6,244 1,355 4,889Finance leases:BGN 44 thousand – finance lease -3 month EURIBOR 44 11 33BGN 15 thousand – finance lease – no interest 2 2 -EUR 47 thousand – finance lease – interest rate 6,70% 92 24 68

12,285 4,934 7,351

2006In BGN thousand Total 1 year

or less

Over 1

year

Secured bank loans:EUR 205 thousand – monthly - LIBOR+3.25% 200 100 100EUR 300 thousand – 3-month - LIBOR +2.6% 488 488 -BGN 75 thousand – variable around 9.28% 75 75 -EUR 100 thousand – 3-month - LIBOR +3.2% 147 147 -EUR 450 thousand – 3-month - LIBOR +2.5% 645 645 -USD 400 thousand – 3-month - LIBOR +3.75% 133 133 -EUR 150 thousand – 3-month - LIBOR +3.25% 167 118 49BGN 200 thousand – fixed – 10.5% 200 200 -EUR 1,000 thousand – monthly - EURIBOR+3% 1,956 978 978EUR 5,000 thousand – 6-month - EURIBOR+2.15% 5,630 - 5,630BGN 15 thousand – finance lease – no interest 8 8 -

9,649 2,892 6,757

Bank loans are secured with a pledge on property, plant and equipment with book value of BGN 39,793 thousand as at 31 December 2007 (2006: BGN 4,909 thousand). Dockyard Port-Burgas AD is also pledged as a company.


100

31. Other long-term payablesIn BGN thousand 2007 2006

Financing 170 21Other long-term payables 115 -

285 21

The amount of BGN 79 thousand is received as a financing under project “ Development of a procedure for inspection and acquisition of a ship class and internet based system for management of the inspection activity. In 2007, Elprom Zem PLC received financing from National Investment Fund of the Executive agency for support for small and medium enterprises in the amount of BGN 91 thosuand.

32. ProvisionsIn BGN thousand Retirement

compensations

Warranties Law suites Total

Balance at 1 January 2006 576 236 2,110 2,922Provisions accrued during the year 180 202 1,302 1,684Used provisions (141) (95) (3,375) (3,611)Balance at 31 December 2006 615 343 37 995

Balance at 1 January 2007 615 343 37 995Provisions accrued during the year 75 393 - 468 Used provisions (250) (250) - (500)Balance at 31 December 2007 440 486 37 963

Including:Non-current 440 123 37 600Current - 363 - 363

440 486 37 963

Retirement compensationsThe Group has made an estimate of the due retirement compensations in accordance with the Labor Code and the Collec-tive Labor Contracts, where there are such, on a company by company basis. The provision for retirement compensations is presented as a long term liability in the Group’s balance sheet.

WarrantiesThe provision for warranties relates mainly to engines sold by Elprom ZEM and shipbuilding contracts of Bulyard Shipbuild-ing Industry AD. The calculations of the provision are based on estimations based on historical warranty data associated with similar products and services and based on estimates by technical experts. Warranties, expected to be realized in more than 1 year from the balance sheet date, are presented as long-term liabilities.

Lawsuits provisionsThe estimated provision, amounting to BGN 37 thousand relates to lawsuits against companies in the Group.

33. Deferred tax assets and liabilitiesRecognised deferred tax assets and liabilitiesDeferred tax assets and liabilities are attributable to the following items:

Assets Liabilities Net

In BGN thousand 2007 2006 2007 2006 2007 2006

Property, plant and equipment (36) - 6,395 1,469 6,359 1,469Trade and other receivables (100) (90) - - (100) (90)

Provisions (27) (35) - - (27) (35)Provision for retirement compensations (38) (41) - - (38) (41)Other payables (151) (126) 3 - (148) (126)Tax value of loss carry-forwards recognised - (41) - - - (41)Net tax (assets)/liabilities (352) (333) 6,398 1,469 6,046 1,136


101

The applicable tax rates used for calculation of the deferred tax liabilities are 10 % for 2007 and 15% for 2006.

Movements in timing differences during the year2007In BGN thousand Balance

1 January

2007

Recognised

in income

Recognised

in equity

Balance 31

December

2007

Property, plant and equipment 1,469 (172) 5,062 6,359Trade and other receivables (90) (10) - (100)Provisions (35) 8 - (27)Provisions for retirement compensations (41) 3 - (38)Other payables (126) (22) - (148)Recognised tax asset from loss carried-forward from previous periods (41) 41 - -

1,136 (152) 5,062 6,046

2006In BGN thousand Balance

1 January

2006

Recognised

in income

Recognised

in equity

Balance 31

December

2006

Property, plant and equipment 1,954 113 (598) 1,469Trade and other receivables (87) (3) - (90)Impairment of current financial assets (31) 31 - -Provisions (66) 31 - (35)Provisions for retirement compensations (31) (10) - (41)Other payables (159) 33 - (126)Recognised tax asset from loss carried-forward from previous periods (232) 191 - (41)

1,348 386 (598) 1,136

34. Trade and other payablesIn BGN thousand 2007 2006

Trade payables 17,800 12,592Related party payables 109 -Payables to employees 2,447 2,270Social security due 626 722Payables to the budget 1,113 995Advance payments received 54,328 26,607Short term part of debenture loan - 158Other 782 972

77,205 44,315

35. Financial instrumentsThe exposure to credit, interest rate and foreign currency risk arises in the normal course of the Group’s business. The Group does not use derivatives to reduce exposure to fluctuations in interest rates.

Credit riskThe carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date is:


Cash and cash equivalents 86,256 17,310Financial assets held for sale - 1,361Guarantees 104,741 57,125Trade and other receivables 11,210 22,808Related party receivables 326 6,298Long-term receivables 884 1,185

203,417 106,087


102

The maximum exposure to credit risk for trade receivables at the reporting date by geographic region is:


Domestic 2,702 9,661 Euro-zone countries 357 10,807 Non-euro zone countries 8,151 2,340

11,210 22,808

Impairment lossesThe aging of trade receivables at the reporting date is:

In BGN thousand 31 December 2007 31 December 2006Gross

amount

Impairment Gross

amount

Impairment

Not past due 8,913 - 20,385 -Past due 0-180 days 1,590 - 1,266 -Past due 180-360 days 387 (31) 1,117 -More than 360 days 1,337 (986) 1,014 (974)

12,227 (1,017) 23,782 (974)

The movement in the allowance for impairment in respect of trade receivables during the year was as follows:

In BGN thousand 31

December

2007

31

December

2007

Impairment at 1 January (974) (697)Uncollectible receivables written-off (407) (277)Impairment loss recognized in the year 364 -Impairment at 31 December (1,017) (974)

Liquidity risk31 December 2007In BGN thousand Carrying

amountContractual cash flows

6 months or less

6-12 months

1-2 years 2-5 years

Non-derivative financial liabilitiesLoans and borrowings 12,285 12,389 1,490 3,536 1,910 5,453Related party payables 109 109 109 - - -Trade and other payables 17,800 17,800 17,800 - - -

30,194 30,298 19,399 3,536 1,910 5,453

31 December 2006In BGN thousand Carrying

amount

Contractual

cash flows

6 months

or less

6-12

months

1-2 years 2-5 years

Non-derivative financial liabilitiesLoans and borrowings 9,649 9,674 614 2,303 1,127 5,630 Debenture loan and interest 5,402 5,402 158 5,244 - -Trade and other payables 12,592 12,592 12,592 - - -

27,643 27,668 13,364 7,547 1,127 5,630


103

Currency riskExposure to currency risk of the Group at 31.12.2007 was as follows:

BGN EUR USD JPY BGN EUR USD

In BGN thousand 31 December 2007 31 December 2006

Cash and cash equivalents 48,581 21,574 16,101 - 9,933 1,838 5,539Trade and other payables 2,617 3,285 83 5,225 13,846 4,259 4,703Related party receivables 326 - - - 6,298 - -Long-term receivables 268 616 - - 276 909 -Loans and borrowings (1,254) (11,031) - - (283) (9,233) (133)Debenture loan - - - - (5,402) - -Related party payables (109) - - - - - -Trade and other payables (9,751) (8,049) - - (8,564) (4,028) -

40,678 6,395 16,184 5,225 16,104 (6,255) 10,109

Financial instruments denominated in euro are not exposed to currency risk because of the fixed exchange rate of the Bulgarian lev and the Euro.The following significant exchange rates were applied during the year:

Average rate Reporting date spot

rate

2007 2006 2007 2006

U.S dollars 1.42937 1.55905 1.33122 1.48506Japanese yen 0.11 0.12 0.1177 0.1246

Sensitivity analysisA 10 percent strengthening of the BGN against the following currencies at 31 December would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2006.

31 December 2007In BGN thousand Equity Profit or

loss

U.S dollars - (1,618)Japanese yen - (523)

- (2,141)

31 December 2006In BGN thousand Equity Profit or

loss

U.S dollars - (1,011)

A 10 percent weakening of the BGN against the above currencies at 31 December would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.


104

Interest rate riskAt the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:


Fixed rate instrumentsFinancial assets 87,140 24,760Financial liabilities - (5,444)

87,140 19,316

Variable rate instrumentsFinancial assets - -Financial liabilities (12,283) (9,441)

(12,283) (9,441)

31 December 2007In BGN thousand Equity Profit and

loss

Financial assets - -Financial liabilities - (123)

31 December 2006In BGN thousand Equity Profit and

loss

Financial assets - -Financial liabilities - (94)

Sensitivity analysis for fixed rate instrumentsThe Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss. Therefore a change in interest rates at the reporting date would not affect profit or loss.

Sensitivity analysis for variable rate instrumentsA change of 1 percent in interest rates at 31 December would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2006.

36. Related partiesThe Group has controlling related party relationship with its shareholders.

The Group also has related party relationship with its associates (refer to note 20) and with its directors and executive offic-ers.

Transactions with directors and executive officersIn BGN thousand 2007 2006

Salaries and social security of the Executive Directors, Management Boards and Supervisory Boards, and Board of Directors

989 1,009

989 1,009

Related party receivables In BGN thousand 2007 2006

VIK-Sandvik-IHB Design AD /prepayment for design services/ 326 -

Dunav Tours AD – loan receivable - 6,265Dunav Tours AD – interest receivable - 33

326 6,298

VIK-Sandvik-IHB Design AD /liabilities for performed design services/ 109 -109 -


105

Other related party transactionsAssociatesThe transactions with associates in the year, ended 31 December 2007 are as follows


Income from services of Dunav Tours AD 64 64Income from services of Dunav Tours Hotels AD - 16Interest income from loan given to Dunav Tours AD 107 -Income from sale of materials and services to VIK-Sandvik-IHB Design AD 26 -Expenses for design services performed by VIK-Sandvik-IHB Design AD (475) -

(278) 80

Significant subsidiariesCountry of incorporation Ownership interest

2007 2006

% %

Privat Engineering AD Bulgaria 100.00 100.00Augusta Mebel AD Bulgaria 97.86 97.86Hydro Power Bulgaria AD Bulgaria 100.00 77.00ZMM Bulgaria Holding AD Bulgaria 100.00 100.00ZMM Sliven AD Bulgaria 95.58 92.89ZMM Nova Zagora AD Bulgaria 93.57 93.57Leyarmash AD Bulgaria 100.00 100.00Mashstroy PLC Bulgaria 80.81 80.81Elprom ZEM PLC Bulgaria 79.71 79.75Dockyard Port-Burgas AD Bulgaria 91.72 91.72KLVK AD Bulgaria 100.00 100.00International Industrial Holding Bulgaria AG Switzerland 100.00 100.00Maritime Holding AD Bulgaria 61.00 61.00Bulgarian Register of Shipping AD Bulgaria 61.00 61.00Bulyard AD Bulgaria 61.50 61.50Bulyard Shipbuilding Industry AD Bulgaria 61.50 46.13Bulcari EAD Bulgaria 100.00 100.00Emona Shipping Ltd Malta 100.00 100.00Marciana Shipping Ltd Malta 100.00 100.00IHB Shipping Co EAD Bulgaria 100.00 -Emona Ltd Marshall Islands 100.00 -Karvuna Ltd Marshall Islands 100.00 -Marciana Ltd Marshall Islands 100.00 -

37. Subsequent eventsThe Central Depository registered the share issue of the second capital increase of Industrial Holding Bulgaria PLC with a registration certificate on 7 January 2008.

The Financial supervision commission registered a new share issue from Industrial Holding Bulgaria PLC, Sofia of 17,502 thousand shares with par value BGN 1 in the public register with a decision from 23 January 2008.

The new share issue was registered for trading on the Bulgarian stock exchange - Sofia AD on 30 January 2008.

The payment of funds, received from the auction of unexercised share rights issued by Industrial Holding Bulgaria PLC for the share increase in 2007, started on 4 February 2008. The funds, received from the unused rights of shareholders, amount to BGN 22,264 thousand and were transferred to Industrial Holding Bulgaria PLC from the Central Depository in January 2008. Because of that, theses funds are not recorded in the Industrial holding’s balance sheet as at 31 December 2007 as cash and cash equivalents and liability for payments to shareholders, who have not exercised their rights.

A third corporate guarantee, issued by Industrial Holding Bulgaria PLC to guarantee a shipbuilding contract between Bulyard Shipbuilding Industry and Navigation Maritime Bulgare, was released on 4 February 2008. The released corporate guarantee


106

amounts to EUR 4,212 thousand and USD 3,595 thousand. It guaranteed the third installment for a ship with construction number 515 and was released after the contractual obligations were fulfilled. That was the third and last corporate guarantee related to the building of ships with construction numbers 516, 457 and 515.

Industrial Holding Bulgaria PLC starts the construction of two new ships in Bulyard Shipbuildings Industry AD of the type Future 56, 56000 DWT, for a total amount of EUR 60,000 thousand. The investment will be financed by the subsidiary KLVK AD. The ships are due to be completed in may 2010 and 2011. The first installment of EUR 3,000 thousand was transferred on 3 April 2008.

38. Contingent liabilitiesIndustrial Holding Bulgaria PLC secured the issue of bank guarantees from Bank DSK EAD in the amount of EUR 671 thou-sand to guarantee Elprom ZEM PLC’s payables to a client. An agreement is made for receiving a revolving credit for issuing bank guarantees and working capital financing with a limit of BGN 4,500 thousand. These are secured by a special pledge of Dockyard Port-Bourgas AD, a subsidiary of the holding company. As at 31 December 2007 BGN 763 thousand and BGN 969 thousand are utilized to issue bank guarantees and letters of credits to Bulyard Shipbuilding Industry AD respectively.

Industrial Holding Bulgaria PLC issued first corporate guarantee of the third installment for ship with construction number 515 in the amount of EUR 4,212 thousand and USD 3,595 thousand. The corporate guarantees are secured with a mortgage on property, plant and equipment of Bulyard Shipbuilding Industry AD.

Bulyard AD has guaranteed the promissory notes, issued by its subsidiary Bulyard Shipbuilding Industry AD in the amount of USD 4,006 thousand and EUR 20,074 thousand in front of Raiffeisenbank Bulgaria EAD. The bank will provide credits to be used for multiple issue of bank guarantees of the advance payments for building of ships with construction numbers 515, 457, 190, 191, 459 and 103 and for working capital to finance the building of the ships.

Bulyard Shipbuilding Industry AD has a frame agreement with Allianz Bank Bulgaria AD for bank guarantees and letters of credit issue with a credit limit of UDS 43,500 thousand. As at 31 December 2007 the Company has used the credit line to issue four guarantees amounting to EUR 7,312 thousand and USD 16,440 thousand (approximately BGN 35,413 thousand).

Bulyard AD has guaranteed the liabilities of Bulyard Shipbuilding Industry AD from a promissory note on behalf of SG Ex-pressbank Sofia in the amount of EUR 1,500 thousand, which secures an investment loan, granted to Bulyard Shipbuilding Industry AD.

As at 31 December 2007 ZMM Bulgaria AD has guaranteed by promissory notes loan liabilities of its subsidiaries in the amount of BGN 3,124 thousand /ZMM Sliven AD – BGN 1,794 thousand and Leyarmash AD BGN 1,330 thousand) and by bank guarantee from TB Unicredit Bulbank AD to NSK Polska BGN 59 thousand.

As at 31 December 2007 ZMM Bulgaria AD has issued guarantees in the amount of BGN 918 thousand to NEK on behalf of Elprom ZEM PLC for performance under a public tender. Additionally Elprom ZEM PLC has issued guaranteed on behalf of third parties in the amount of BGN 304 thousand.

The Group management does not expect that the promissory notes will be paid and no provisions have been booked.

According to a court decision from 11 July 2007, the Varna appellate court decided that the Central Cooperative Union, Sofia and the Regional Cooperative Union, Shumen owned 13.69% of the non-current assets of Avgusta Mebel AD, Shumen. The Company legal adviser has informed the Company that the decision is appealed in front of the Supreme Court. The proceed-ings are to be held on 8 December 2008 and it is expected that the claim will be discarded as unjustified. Consequently, no provision is booked in the financial statements for a potential liability.

107

IHBGOVERNANCE

108

In October 2007 the National Corporate Govern-ance Code was adopted.On 26 October 2007 IHB Plc signed a declaration on adoption of the National Corporate Governance Code and will carry out its activity in compliance with its provisions. The document was published by BSE.The compliance with the Code is based on the com-ply with or explain principle.

Corporate governance

109

Intoduction ......................................................................................................................110Chapter One CORPORATE BOARDS .........................................................................111Two-tier System ..............................................................................................................111Chapter Two AUDIT AND INTERNAL CONTROL ........................................... 114Chapter Three PROTECTION OF SHAREHOLDERS’ RIGHTS ...................................114Chapter Four DISCLOSURE OF INFORMATION .........................................................115Chapter Five CORPORATE GOVERNANCE AND STAKEHOLDERS .................116

“Comply or explain”reporton the Bulgarian National Corporate Governance Code of October 2007 Industrial Holding Bulgaria PLC

Content

110

IHB complies with the regulatory requirements

of the Bulgarian legislation. Since 2003 IHB

prepares a Corporate Governance Program

and makes report on the corporate govern-

ance activities in its Annual Management

Reports since 2003.

In October 2007 National Corporate Govern-

ance Code was accepted in Bulgaria. The

Code was accepted by the Bulgarian Stock

Exchange-Sofia. BSE-Sofia requires that the

companies listed on the Official market should

comply with the Code.

On 26 October 2007 IHB signed a declaration

where IHB states that accepts the National

Corporate Governance Code and will make its

activities in compliance with its regulations.

The compliance of the Code is reported on the

“comply or explain” principle, which means

that the Company complies with the Code’s

recommendations or the management explains

the reasons when the activities depart from or

do not comply with the recommendations.

In this Report information on the applying the

recommendations of the Code in IHB corpo-

rate governance is presented.

The actions of IHB management and employ-

ees are in direction of confirming the principles

for good corporate governance, increasing

the trust of the shareholders, investors and the

stockholders and for encouraging the suc-

cessful business activities of IHB.

The IHB management took a decision for

developing a new up-to-day corporate gov-

ernance strategy for IHB in conjunction with

the latest international best practices. Now,

after the acceptance of the National Corporate

Governance Code, IHB will take actions in this

direction.

Introduction

111

Chapter One

CORPORATE BOARDS

IHB has a two-tier management system. That is why the recommendations for one-tier management system of the Code are not applicable and are excluded from this document.

Two-tier System

The Management Board and the Supervisory Board jointly act in the interest of all the company shareholders and take into consideration the interests of the com-pany’s stakeholders.

1. Management Board 1.1. Functions and Tasks

1.1.1. The Management Board manages the company in accordance with the company’s visions, goals and strategies established by the Supervisory Board in the best interest of all shareholders. IHB applies this practice.

1.1.2. The Management Board should implement the strategy of the company in accordance with the direc-tions of the Supervisory Board. IHB applies this practice. 1.1.3. The Management Board should develop the company’s risk management and internal audit policy. It must implement the company’s risk management system and report on implementation to the Supervisory Board. IHB will apply this practice.

1.1.4. The Management Board must ensure that the company meets its contractual obligations. IHB applies this practice.

1.1.5. The Management Board should set up the com-pany’s financial information system and ensures it is efficiently working in accordance with the directions set by the Supervisory Board. IHB applies this practice.

1.1.6. The Management Board should work in coop-eration with the Supervisory Board on developing the company’s business plan; carrying out extraordinary and material transactions; and implementing any other operations and actions required by the company’s by-laws. IHB applies this practice.

1.1.7. The Management Board must inform and report to the Supervisory Board on its actions. Management Board should provide information in the format and within the established deadlines required by the Super-visory Board.IHB applies this practice.

1.1.8. During their mandate the members of the Man-agement Board should act in a professional and diligent manner and conduct themselves according to the com-monly accepted principles of integrity and duty of care. IHB applies this practice. Management Board should adopt and follow a profes-sional ethical code of conduct. IHB will apply this practice. At present IHB does not have a Code of Ethics.

1.2. Structure and Competence

1.2.1. The structure and the number of members on the Management Board should guarantee the effective performance of the company.IHB applies this practice.

1.2.2. The responsibilities, tasks, duty of care and duty of loyalty of members of the Management Board to the company, as well as the criteria and level of remunera-tion and the conditions for removal from the Board should be stipulated by contract. IHB applies this practice.

1.2.3. The required skills, rights and responsibilities of the members of the Management Board must comply with the law and the company’s by-laws, and follow good professional standards and practice.IHB applies this practice.

1.3. Remuneration

1.3.1. The amount and criteria for the remuneration of the members of the Management Board should – in ac-cordance with the law and good corporate governance practices – be based on the following criteria:1.3.1.1. The responsibilities and the contributions of the member of the Management Board to the company’s performance and results; 1.3.1.2. The ability to attract, select and retain qualified and loyal managers; 1.3.1.3. The need to have the interests of the members of the Management Board aligned with the long-term interest of the company;IHB applies this practice. 1.3.2. The remuneration of members of the Management

“Comply or explain” report

112

Board should consist of two parts: fixed compensation and variable incentives.

1.3.2.1. In addition to a fixed compensation, the Compa-ny can offer to the Management Board member shares, options on shares, and other appropriate financial instruments. 1.3.2.2. The guidelines and procedures for the issue and use of additional incentives to the members of the Management Board are set out in the company by-laws.IHB applies this practice. Until now no shares, share options or other suitable financial instruments have been given to the members of the MB.

1.3.3. The remuneration of the members of the Board of Directors must be disclosed in accordance with the law and the company’s by-laws. Shareholders should have easy access to information concerning the remuneration of Management Board members. IHB applies this practice. Information about the remu-neration of the MB is presented in the Annual Report.

1.4. Conflict of Interests

1.4.1. The members of the Management Board should prevent any real or potential conflict of interests. IHB applies this practice.

1.4.2. The procedures for preventing and disclosing conflicts of interests should be provided for in the com-pany’s by-laws. IHB applies this practice.

1.4.3. The members of the Management Board should immediately disclose any conflicts of interests to the Supervisory Board and provide shareholders access to information about transactions concluded between the company and members of the board or any related party.IHB applies this practice.

1.4.4. Each conflict of interests should be disclosed to the Supervisory Board.IHB applies this practice.

1.4.5. A potential conflict of interests exists when the company intends to realize a transaction that involves:(à) a party related to or with financial interest linked to a member of the Management Board; (b) Board members that are either members of the Su-pervisory Board or the Management Board.

2. Supervisory Board 2.1. Functions and Tasks

2.1.1. In accordance with the division of functions within the two-tier governance system, the Supervisory Board must appoint the Management Board of the company, provide it with strategic guidance, oversee and control its activities. IHB applies this practice.

2.1.2. The Supervisory Board should define and oversee the implementation of the vision, goals and strategy of the company. It should provide adequate guidance to the Management Board for implementation. IHB applies this practice.

2.1.3. The Supervisory Board should provide adequate guidance to the Management Board concerning the effective development and implementation of the com-pany’s risk management and internal audit systems and the proper functioning of financial information systems. IHB applies this practice. 2.1.4. The Supervisory Board must ensure the compli-ance of the company with legal, normative and contrac-tual obligations, as well as with the rules embedded in the company by-laws. IHB applies this practice. 2.1.5. In carrying out its tasks, the Supervisory Board should ensure that an effective and proper functioning information exchange system with the Management Board is in place. IHB applies this practice.

2.1.6. At least once a year the Supervisory Board should evaluate the performance of the Management Board as a whole and the work of each of its individual members. IHB will apply this practice. 2.1.7. The Supervisory Board must perform its tasks and carry out its obligations in compliance with the law, the company’s by-laws and according to the commonly ac-cepted principles of integrity and duty of care.IHB applies this practice. 2.2. Appointment and Removal of Management Board Members 2.2.1. The Supervisory Board should appoint and remove the members of the Management Board in compliance with the company’s by-laws and in accord-ance with good corporate governance standards, while

113

respecting the principles of continuity and ensuring the stability of the Management Board’s work. IHB applies this practice. 2.2.2. The compensation policy of the Supervisory Board should guarantee effective performance of the company in the best interest of its shareholders. IHB applies this practice. 2.3. Structure and Competence

2.3.1. The members of the Supervisory Board should carry out their tasks independently and impartiality in the best interest of the company. IHB applies this practice.One of the three members of the SB is independent according to the requirements of the Public Offering of securities Act.

2.3.2. The number of members of the Supervisory Board, including the number of independent members and the proper division of tasks among them, should be provided in the company’s by-laws.IHB applies this practice.

2.3.3. The independent members of the Supervisory Board should be impartial and act in the best interest of the company and all its shareholders. IHB applies this practice.

2.3.4. The members of the Supervisory Board should have appropriate knowledge and experience to inform the decisions and actions they take. At least one of the members should have financial competences. IHB applies this practice.

2.3.5. After their election, the new members of the Su-pervisory Board should attend an induction programme including legal and financial issues related to their task and the company’s activities and performance. IHB will apply this practice. 2.3.6. Continued professional training of members of the Supervisory Board should be encouraged. IHB will apply this practice.

2.3.7. The members of the Supervisory Board should be able to devote sufficient time to carry out their tasks and duties. The company’s by-laws should limit the number of board positions the members of the Supervisory Board is allowed to hold.IHB does not apply this practice. IHB is not able to limit the activities of the members of SB.

2.3.8. The procedures for selecting new Supervisory Board members should take into account the principles

of continuity and ensure the stability of the Supervisory Board’s work.IHB applies this practice.

2.4. Remuneration of Members of Supervisory Board

2.4.1. The amount and criteria for the remunerations of the members of the Supervisory Board must be ap-proved by the General Meeting of Shareholders.IHB applies this practice.

2.4.2. The amount and criteria for the remuneration of the members of the Supervisory Board should be based on their responsibilities and contribution but should not be tied to the company’s results.IHB applies this practice. The remuneration is a con-stant monthly payment for each member of the SB.

2.4.3. The remunerations of Supervisory Board mem-bers should be determined so as to reflect their individ-ual participation in Board meetings, their performance level in regard with their assigned tasks, their ability to oversee and control the operations of executive man-agement. Independent directors should not receive any additional remuneration in any form from the company.IHB applies this practice.

2.4.4. The members of the Supervisory Board should not be compensated for their activity with shares or options. IHB applies this practice. 2.4.5. The remuneration of the members of the Super-visory Board must be disclosed in accordance with the law and the company’s by-laws. Shareholders should have easy access to information concerning the remu-neration of Supervisory Board members.IHB applies this practice. Information about the remu-neration of the SB is presented in the Annual Report.

2.5. Conflicts of Interests

2.5.1. The members of the Supervisory Board should prevent any real or potential conflict of interests. IHB applies this practice.

2.5.2. The procedures for preventing and disclosing conflicts of interests should be provided for by the com-pany’s by-laws. IHB applies this practice.

2.5.3. The members of the Supervisory Board should im-mediately disclose any conflicts of interest and provide shareholders access to information about transactions concluded between the company and members of the


114

board or any related party. IHB will apply this practice.

2.5.4. A potential conflict of interests exists when the company intends to realize a transaction that involves:(à) a party related to or with financial interest linked to a member of the Supervisory Board; (b) Board members that are either members of the Su-pervisory Board or the Management Board. 2.6. Committees

2.6.1. The work of the Supervisory Board should be assisted by committees. The Supervisory Board should determine the need for setting up committees in accord-ance with the specific operations of the company.2.6.2. The Supervisory Board should establish at a mini-mum an audit committee, which should be comprised of independent directors and experts.2.6.3. The committees should be set up according to pre-established and adopted written terms of reference which should include the scope, tasks, modalities and reporting procedures of the committee.IHB will apply this practice. Until now no committees have been founded because of lack of such practice in Bulgaria and recommendations for its foundation.

Chapter Two

AUDIT AND INTERNAL CONTROL

1. In accordance with the established professional standards and requirements, the Board of Directors (in the one tier system) and the Supervisory Board (in the two tier system) should - assisted by the audit com-mittee - present in writing at the General Meeting of Shareholders a motivated proposal for the selection of an external auditor. IHB will apply this practice. Until now the proposal had been motivated orally.

2. The principle of rotation should be applied in select-ing and appointing an external auditor. IHB will apply this practice. Each year the Management examines and discusses offers from different auditors and after careful assessment, the best candidate is offered for election to the General Meeting of Sharehold-ers. The auditors are elected for each financial year.

3. The company should set up an internal control sys-tem that guarantees effective reporting and disclosure of information.

4. The internal control system should be developed and operate in order to ensure the early identification of any material risks the company may face and to effectively

manage those risks. IHB has a system for internal control which is constantly improved according to the legislation requirements and the best practices.

Chapter Three

PROTECTION OF SHAREHOLDERS’ RIGHTS

1. Protection of Shareholders’ RightsThe Board of Directors or the Supervisory Board should ensure the equitable treatment of all shareholders, including minority and foreign shareholders, and should be responsible for the protection of their rights. IHB applies this practice.

2. General Meeting of Shareholders2.1. All shareholders must be able to participate in the General Meeting of Shareholder and to express their opinion. IHB applies this practice.

2.1.1. Shareholders who have the right to vote should have the opportunity to exercise their voting rights through the use of a proxy at the General Meeting of Shareholders.IHB applies this practice.

2.1.2. The Board of Directors or the Supervisory Board should exercise effective oversight and ensure that necessary arrangements are made for the voting by authorised representatives (proxies) in accordance with the instructions of the shareholders and in accordance with the law.IHB applies this practice.

2.1.3. The Board of Directors or the Supervisory Board must establish rules for the organisation and conduct of regular and extraordinary General Meeting of Share-holders. These rules must guarantee the equitable treat-ment of all shareholders and the right of each share-holder to express his/her opinion about the items on the agenda of the General Meeting of Shareholders.IHB applies this practice.

2.1.4. The Board of Directors or the Supervisory Board should establish the rules and procedures for the conduct of the General Meeting of Shareholders in a manner which does not make voting procedure unnec-essarily difficult or expensive.IHB applies this practice.

2.1.5. The Board of Directors or the Supervisory Board should take action to encourage the participation of all

115

shareholders at the General Meeting, including those who cannot make it physically by allowing the use of information technology (including Internet) when ever possible and necessary, and in accordance with item 2.1.3 of the present Code.IHB will apply this practice when there is a legislative re-quirement and a safe and reliable technical opportunity.

2.2. All members of the Board should attend the General Meeting of Shareholders. IHB applies this practice.

2.3. The preparation of written materials for the General Meeting of Shareholders should comply with the follow-ing:

2.3.1. Documentation and reference materials related to the agenda of the General Meeting of Shareholders must be clear, accurate and to the point in order not to mislead the shareholders. All proposals concerning the major corporate events should be presented as separate items on the agenda of the General Meeting of Shareholders, including the proposal for the distribution of dividends.IHB applies this practice.

2.3.2. The company should maintain a special section on its website describing the rights of shareholders and the rules and procedures for their participation in the General Meeting of Shareholders.IHB applies this practice.

2.3.3. The Board of Directors or the Supervisory Board should ensure court-authorized shareholders [share-holders with 5% or more shares] can place additional items on the agenda of the General Meeting of Share-holders. IHB applies this practice.

2.4. The Board of Directors or the Supervisory Board must guarantee the right of all shareholders to be informed on a timely basis about the decisions that have been made at the General Meeting of Shareholders.IHB applies this practice.

Chapter Four

DISCLOSURE OF INFORMATION

1. The Board of Directors or the Supervisory Board must establish the company’s information disclosure policy in compliance with legal requirements and the company’s by-laws. IHB applies this practice.

2. In accordance with established policies, the Board of Directors or the Supervisory Board oversee the implan-tation and ensure proper support for an effective system for disclosure of information.IHB applies this practice.

3. The system for disclosure of information should guarantee equal access to information to shareholders, investors, and other stakeholders and should not allow for any abuse of internal information or insider trading. IHB applies this practice.

4. The Board of Directors or the Supervisory Board should guarantee that the system for information disclosure provide for comprehensive, timely, true and understandable information to allow for objective and well-informed decision making and assessments. IHB applies this practice.

5. The Board of Directors or the Supervisory Board should establish internal rules for the production and dissemination of mid-term and annual reports. The Board of Directors or the Supervisory Board should ensure that these rules are implemented and should oversee the proper disclosure of the information in a way that guarantees compliance with provision # 3 of this chapter.IHB applies this practice.

6. As a part of a well functioning system for the disclo-sure of information, the Company should to set up and maintain a company website. This website should be operated in accordance with approved policies on the content, scope and regularity of information disclosure. The official information posted on the website should include at minimum:

Information about the companyInformation about the joint-stock structureThe company’s by-lawsInformation about the governing bodiesFinancial reports covering at least the previous 3 yearsMaterials for upcoming General Meeting of Share-holdersMinutes of the General Meeting of Shareholders of the last 3 yearsInformation about external auditorsInformation about up-coming corporate eventsAny information that is material to the company’s activities

IHB applies this practice. The whole information about IHB and its current development is published in Bulgar-ian and in English on its website: www.bulgariaholding.com


116

7. The company should regularly disclose informa-tion about its corporate governance. The disclosure of corporate governance information should state the company’s level of compliance with the present Code in accordance with the “comply or explain” principle. This principle requires companies to comply with the recommendations of the present Code or to explain the reasons for not complying with individual provisions of the Code. IHB applies this practice since 2007.

Chapter Five

CORPORATE GOVERNANCE AND STAKEHOLDERS 1. Corporate governance should ensure effective interaction with the company’s stakeholders. To this category fall certain interested parties and groups of individuals who are directly influenced by the company and who influence and/or are in a position to influence the company, including for example: suppliers, clients, employees, creditors, civil society groups, and others. The company should identify the stakeholders who are interested in its activities, on the base of their scale and sphere of influence and impact, as well as their role and relationship to sustainable development.IHB applies this practice.

2. The company’s stakeholder policy must be in compli-ance with existing laws. Good corporate governance practices should require taking into consideration the in-terests of stakeholders in accordance with the principles of transparency, accountability and business ethics. IHB applies this practice.

3. The Board of Directors or the Supervisory Board should establish specific rules for addressing the interests of stakeholders. These rules should ensure appropriate stakeholder engagement when decisions requiring their input are made.These rules should also balance the interests of the company and the interests of the economic, social and ecological environment in which the company operates. IHB will apply this practice.

4. The Board of Directors or the Supervisory Board should support effective stakeholder participation in accordance with the law and international good prac-tices in matters of non-financial information disclosure and reporting. The company should disclose informa-tion about economic, social and environmental issues of concern to stakeholders, for example: anti-corruption policies; labor policies, policies regulating supplier and client relations; the company’s corporate social respon-

sibility policies; environmental protections and nature preservation policies. IHB applies this practice. Since 2005 IHB makes a Corporate Social Responsibility Report. The Report is prepared in accordance with the best international practices for reporting the company’s corporate social responsibility and is part of the Annual Consolidated Report. IHB is the first listed company in Bulgaria which started to prepare and publish CSR report.

117

Information about the members of the Management Board and the Supervi-sory Board

In 2007 no changes were made in the composition of the Management Board and the Supervisory Board. By a decision of the General Meeting of Shareholders dated 29 August 2007 the following members of the management bodies were reelected:

Reelection of Konstantin Kouzmov Zografov, a mem-ber of the Supervisory Board, for another mandate; Reelection of all members of the Management Board – Bozhidar Vasilev Danev, Daneta Angelova Zheleva, Angel Stoyanov Katsarov, Borislav Emilov Gavrilov and Boyko Nikolov Noev; Reelection of Daneta Angelova Zheleva and Angel Stoyanov Katsarov, Executive Directors.

These particulars were registered by Decision No 22 of 27 December 2007 Sofia City Court.

Contracts under Art. 240b of the Law on Commerce signed in 2007The Company signed no contracts with the members of the Board of Directors or their related parties, which are out of its usual operations or materially deviates from market conditions.

Remunerations paid to the members of the Management Board and the Supervisory Board

The remunerations received by the members of the Management Board and the Supervisory Board of IHB include amounts received and non-monetary benefits, contingent or deferred remuneration arising during the year, even if the remuneration is owed at a later date. The 2007 total amount of social security contributions paid by IHB in favour of the members of the Manage-ment Board and the Supervisory Board, including ob-ligatory pension insurance contributions, is BGN 1 440.

IHB and its subsidiaries do not set aside or accrue other amounts for pensions, pension compensations or other similar compensations.The members of the boards received no non-monetary benefits, contingent or deferred remunerations. IHB and its subsidiaries owe no pension, pension compensations

or other similar benefits to the members.

Information about the shares held by the members of IHB Plc Supervisory and Management Boards as at 31

December 2007:As at 31 December 2007 no options on securities of IHB were granted to the members of the Management Board and the Supervisory Board.

Members of the Supervisory Board DZH AD, through Representative Elena KirchevaSnezhana HristovaKonstantin ZografovMembers of the Management BoardBozhidar DanevDaneta ZhelevaAngel KatsarovBorislav GavrilovBoyko Noev

From IHB6 000

6 0006 000

6 00018 00010 0006 0006 000

From IHB subsidiaries

--

62 300

-156 000127 00012 000

-

Remunerations received in 2007

Members of the Supervisory

Board

DZH AD

Snezhana Hristova

Konstantin Zografov

Members of the Management

Board

Bozhidar Danev

Daneta Zheleva

Angel Katsarov

Borislav Gavrilov

Boyko Noev

Acquired over the 4th quar-

ter of 2007

1 056 262

7225

315

83

1 066 899

863

332

0

Transferred over the 4th

quarter of 2007

200 000

0

0

0

200 000

0

0

0

Number of shares held

directly

2 440 655

475

582

208

26 386

0

208

0

Number of shares held

through related parties

0

16 550

208

0

2 440 863

2 158

624

0

% of the votes in the General

Meeting of Shareholders,

directly and through re-

lated parties

5.58%

0.039%

0.002%

0.0006%

5.64%

0.005%

0.002%

0

Total number of shares held

directly and through re-

lated parties

2 440 655

17 025

790

208

2 467 249

2 158

832

Information about the members of the MB and the SB

118

Dear Shareholders,

Bogomila Hristova,Investor Relations Director

Investor relations director’s activities report for 2007

In 2007 we continued our aspiration for maintaining high professionalism in investor relations activities. The IHB’s shares again were one of the most liquid positions on the Bulgarian Stock Exchange (BSE) among the shares of 350 companies.The IHB shares kept their place in the international indexes of Dow Jones: Dow Jones STOXX EU Enlarged Total Market Index and the indexes of Dow Jones Wilshire Global Total Market IndexSM , as well as in the two indexes of BSE-Sofia. In 2007 IHB shares were included in the new index of BSE-Sofia BGTR30 and in one new index of Dow Jones - Dow Jones STOXX Balkan 50 Equal Weighted Index, the latest presenting the movements of the 50 biggest and most liquid shares, traded on the Balkans Stock Exchanges. Following the accession of Bulgaria to EU, a number of other legislative amendments have come into force as of 1 January 2007. Most of them are new to the old EU member states as well – for example: the Transparency Directive. Amendments were adopted in many legal regulations: the Law on Public Offering of Securities, the Ordinance on the Prospectuses and Information Disclosure. The Law on Measures against Market Abuse with Financial Instru-ments and the Law on Financial Instruments Markets are in action. There are other amend-ments in the capital market legislation.The continuous introduction of new higher requirements makes the investor relation activi-ties more complex. This imposes the necessity of thorough study of the obligations of public companies, as well as ensuring proper mechanisms for meeting these obligations. Bulgarian companies have no related experience and a lot of work is to be done so as efficient solu-tions for organization of operations and information flows may be provided.

119

Investor relations of IHB in 2007In 2007 IHB continued to pursue a good investor relations policy. Ïðåç 2007 ã. The ef-fective communication between IHB and its investors, the regulatory authorities, the stock exchange, the Central Depository and the media has been always the main objective of these activities. The communication success is measured by the reputation in the circles of the investors’ society, and we are glad to announce that IHB enjoys a very good reputation. The positive assessment by the investors’ society is also supported by the fact that IHB has always been named as an example for good public company. The operations in 2007, as well as in the last several years, were mainly related to:

Maintenance of effective communication with the investors’ societyProvision of sufficient information on the operations of IHBOrganization of sessions of the General Meeting of Shareholders Administrative support and cooperation to the shareholders Assistance to the managing bodies in their functions performanceMaintenance of effective communication within the Group of IHB

Effective communication with the investors’ comunityWe, at IHB, have always tried to maintain effective communication with investors and the investors’ society and considered it a two-way exchange of information – from IHB to the investors’ society and vice versa. We respect the opinion of the investors’ society about us and seek to receive feedback so as we may act adequately on the market.We used the latest means in the field to achieve effective communication – printed annual reports, webpage, meeting with investors and financial analysts and maintenance of good relations with the media.

IHB took the lead in the rankings for information discloser to investors IHB registered best results in two online information surveys of PFS Program and the Eco-nomic Policy Institute. Both surveys focus on the 40 largest companies based on market capitalization as at 1 March 2007.The first survey has been directed at determination of the extent to which the leading companies in Bulgaria disclose information to present and potential investors, required for investment decision-making purposes. IHB is ranked first. Together with this, IHB is the best company in online reporting corporate social responsibility: corporate governance, envi-ronmental policy and social policy based on the results of the second survey made by PFS Program and the Economic Policy Institute.The whole survey may be found at the following website: http://www.pfsprogram. It is worth noting that these results are based on the old website IHB launched in October 2004. In October 2007 IHB launched a new website and the novelty is in:

Restructured and additional information in Investors Center on IHB and its results, latest news and events, reports, share price and useful information; New section Corporate Governance where the principles of IHB corporate governance are presented; New section Corporate Responsibility where the main aspects determining the social responsibility policy of IHB Group companies are presented.

The website presents also the whole activities of IHB as management, activities and portfolio. The new website meets all the world requirements for presenting comprehensive information to the investors and shareholders of IHB.

The information about IHB - thorough, accessible and timely provided In 2007, we continued to traditionally provide detailed information in the report on operations and share price sensitive information (the so called ad hoc information). All regular reports of the Company required under the Law on Public Offering of Securities and the legislative acts on its implementation, i. e. quarterly and annual reports and consolidated quarterly and

Investor Relations Director`s report

120

annual reports, were timely presented. The reports were prepared so as precise and reliable information about the Company may be provided and full compliance with the applicable legal provisions may be ensured. All reports were published on the webpage of IHB im-mediately upon their publishing in the bulletin of BSE. The reports were published in English in short terms.The 2006 consolidated annual report of IHB was published in English in August 2007. Tradi-tionally, it was prepared in compliance with the international practices and the latest trends in the sphere of annual closure and it, once again, enjoyed a high evaluation. Information about the events related to the operations of IHB and the Group’s companies, considered sensitive to share price, was provided within the legal terms on regular basis.The legal framework regarding the operations of public companies and information disclo-sure is constantly followed up and the new provisions are complied with.

Organization of the General Meeting of Shareholders In 2007 two GMS were held. The regular General Meeting of Shareholders of IHB was held on 1.06.2007. The GMS accepted the Activities Report, The Auditors Report and the Financial Statements for 2006, exonerated of responsibility the members of the Managing and Supervisory Board for their activity in the year 2006, voted remuneration to the members of Supervisory Board and selected KPMG Bulgaria OOD for a registered auditor for 2007 and distributed the profit for 2006. Because of the maturity on 2 July 2007of the issue convertible bonds issued by IHB, the GMS held on 1 June 2007 accepted a decision to increase the capital of the Com-pany by virtue of Article 195 of the Commerce Act through conversion of convertible bonds ISIN code BG 2100010045into shares with up to BGN 5 250 805 – the issue size. At the maturity date, all the convertible bonds were converted. On 29 August 2007 and extraordinary GMS was held and it took a decision for increase of the capital of the company through issue of up to 17 502 693 number new ordinary demate-rialized voting shares with nominal value BGN 1 and issue value BGN 2.40.

The Meetings were convened in compliance with the provisions of the Law on Commerce, the Law on Public Offering of Securities and the Company’s Statutes. The materials were prepared and timely presented to the Financial Supervision Commission, the Bulgarian Stock Exchange, the Central Depository and all shareholders who have requested them and were published on the webpage of IHB. The results from the Meeting proceedings were disclosed in compliance with the applicable provisions and within the legally required terms on the Holding’s webpage as well.

Always at shareholders’ disposalIHB maintains loyal relations with its shareholders through due notification and assistance in relation to certain issues and problems. In 2007, the interest and inquiries on behalf of institutional investors, financial analysts and financial media continued. Foreign investors continued to show even greater interest in meeting investors on their initiative or on the initia-tive of financial analysts and brokers. The number of meetings between professional and institutional investors and the management, during which information about the operations of the Group’s companies and the results of IHB was presented, increased. The interest on be-half of small investors remained almost unchanged as compared to the preceding year and most of the issues raised were about dividend distribution, share trading, decisions made by the General Meeting, the results and operations of IHB and the debenture issue. IHB maintains good relations with the media and always give detailed responses to their inquiries. I am glad to say that IHB is assessed by the investors’ society and the media as one of the most transparent and accessible public companies in Bulgaria.

Administrative support to the managing bodiesIn 2007, all sessions of the Management Board and the Supervisory Board were convened in compliance with the applicable legal provisions and the internal rules and regulations of

121

the Holding. The invitations, containing the agendas and accompanied by relevant materials, were timely sent to all members. The session minutes taken are duly kept.

Cooperation for good corporate governanceIn 2007, as usual, the Investor Relations Director assisted in the realization of the objectives and tasks of the Good Corporate Governance Program of IHB and provided support to the Holding’s Management in the realization of most events envisaged under the Program for 2007.

Effective communication within the IHB Group The communication process accompanying the investor relations also includes exchange of information within the Group. One of my duties, in the capacity of Investor Relations Direc-tor, is ensuring an optimal information flow from the IHB’s subsidiaries to IHB regarding the regular and ad hoc information on their operations. The organization and control of the infor-mation flow is still a great challenge with a view to timely provision of share price sensitive information by IHB to BSE firstly and prevention of information outflow from the subsidiaries. This activity requires constant improvement and will remain a priority in 2007 in consideration of the ongoing introduction of higher requirements on information disclosure as well.

I would like to thank all Members of the managing and controlling bodies, the Executive Directors and all Colleagues who contribute to the implementation of the loyal and effective investor relations policy.

2008 OutlookThe activities related to investor relations will be directed to maintenance of honest relations with the investors’ society and be kept in full compliance with the best and latest international practices in the sphere of investor relations.

April 2008

Bogomila HristovaInvestor Relations Director

Investor Relations Director`s report

122

IHB TEAM

Bogomila HristovaInvestor RelationsDirector

Gergana AtanasovaExpert FinancialAnalyses andInvestment Projects

Kristian VelikovExpert Administration

and Logistics

Georgi YankovInnovation and technology

Toshka VassilevaChief Accountant

Lachezar ValkovInternal audit

123

IHB team

Eli TuechkaAccountant

Nelly KerchevaHead of Financial

Analyses andInvestment Projects

Rositza NikolovaAccountant

Zlatomir Dimitrov Cheef legal advisor

Zlatka Ganeva Office manager

Ivelin GeorgievConstruction Director

Galina DenevaHead of Internal

audit department

124

Corporate socialresponsibility report

This is our first CSR report. We are not obliged to report on CSR issues as far as Bulgarian legislation or any other code or document, regulating the stock market, is con-cerned. However, we decided to start reporting on CSR issues because we consider them very important for the company /IHB/ as a part of the corporate environment and its life. Furthermore, we are trying to act as a modern and socially responsible company, adhering to the best corpo-rate practices known worldwide. At the same time we would be proud to be the first Bulgar-ian company officially reporting on CSR in its annual report. We hope to stimulate other companies in Bulgaria to follow suit, bringing in the international experience and tenden-cies in one of the most discussed issues in corporate life for the last years.

A large number of Bulgarian enterprises went through a complicated process of transformation and stabilization, struggling mainly to survive, restore their production vol-umes and market share after the transition from centralized to a free-market economy. Only after the present economic stabilization and upsurge occurred in the last years, have suitable conditions for turning to social problems and a corporate responsibility for their solving been created. The policy of IHB in this area is based on adhering to the legislation, the European standards for healthy and safe

labor conditions, professional qualification and retraining, opportunities for professional development and growth, creating a healthy corporate culture, a spirit of cooperation and loyalty to the company.We are going to present the basic issues, determining the socially responsible policy of the companies within IHB in this report.

IHB’s contribution to the sustainable economic development IHB invests in companies we want to manage and de-velop in the long term. IHB has the policy of restructuring, improving and developing the enterprises, not the one of bankrupting them in order to sell their assets.

IHB is one of the largest holding companies in Bulgaria. Its revenue for 2007 is BGN 162 m revenue and the profit is BGN 12 m. The profit tax paid in 2007 by the companies in IHB is BGN 1 m. (excluding VAT and other indirect taxes). The social security expense of IHB group is BGN 6 m. Most of the companies within IHB are vital for the economy structure of the country and are socially very important for

“Corporate responsibility: The commitment of business to contribute to sustainable economic development, working with employees, their families, the local community and society at large to improve their quality of life.”

World business Council for Sustainable Development, 2004

125

the areas where they operate. For example, shipbuilding was discontinued for more than seven years, more than 5,000 people lost their job and many subcontractors went out of business after the bankruptcy of Varna Shipyard. Through its investment in Bulyard Shipbuilding Industry /Bulyard SI/, IHB helped revive shipbuilding in Bulgaria and, as of now, more than 1000 people are permanently employed, there are more than 600 subcontractors and a significant number of suppliers from all over the country are engaged. Another traditional branch of a high priority is machine-building. Our goal was to preserve the production capac-ity and keep the highly-skilled work force and, relying on established and competitive products, to keep a part of the existing markets and embark on new ones. This approach guarantees a steady development of our companies and an opportunity to invest in new projects and create new jobs. As a result, more than 1,500 people are employed in ZMM Bulgaria Holding. The group has established itself as a leading producer of universal lathes in Europe and our production is sold all over the world.

IHB and the stakeholders The stakeholders of IHB and its subsidiaries are the share-holders, employees, contractors - clients and suppliers, local communities and the society as a whole.The relations with our shareholders are presented in details in the Investor Relations Director’s report.

Relations with employees of IHB

Labor standards As at May 2008 the employees of IHB and its companies are more than 3,100. The holding puts every effort into set-ting a policy of correct labor relations.No child labor or forced labor is used by the companies of IHB, and extra time is paid for. The requirements and good practices for work and rest are adhered to, and the actual use of yearly paid leaves is encouraged.

Compensation is set in accordance with the acknowledged objective criteria and is paid out on time, together with the social security payments. Payments for additional pen-sion and insurance are made as bonuses. Canteens are set where possible, and additional payments are made to lower the food expense of the employees. Some compa-nies provide transportation to the work site or cover some of the transportation expenses of their employees. Appro-priate free food is provided to the ones working in hazard-ous conditions. Specialized work clothing and personal

protection is provided where necessary and applicable. Most of the companies provide bonus payments for the yearly leave and holidays like Easter and Christmas.No discrimination on the basis of gender, race, religion or political beliefs is allowed at work. Equal rights and op-portunities to work, development and career are offered, based entirely on qualifications, personal qualities and achieved results.

Collective bargaining The management maintains good relations with labor unions and heeds to their position about the rights of the workers. There are existing collective labor contracts in 40 % of the companies, and the terms agreed upon in those contracts are much more favorable than the ones set by the Labor Code.A representative of the unions is on the supervisory board of Bulyard SI.None of the companies has restricted the right of the work-ers to be members of not-for-profit organizations, parties or other informal groups. Certainly, belonging to organizations that foster ideas against moral and socially acceptable norms of social responsibility is not tolerated and sup-ported.

Work conditionsIndustrial Holding Bulgaria strives for healthy and safe work conditions in its companies.All companies are audited in terms of work conditions in accordance of the Bulgarian legislation, and measurement and risk appraisal are done every year. Recommendations are issued if necessary and negligence is remedied in a timely manner. In the past three years almost all of the companies within the group underwent repair works of the buildings, the pro-duction and the utility premises. Projects financed by Work Conditions Fund were carried on in three of the companies: production premises were repaired in Elprom ZEM; crane safety was improved in Leyarmash; a new system for blast-ing and painting was introduced in Bulyard SI.Elprom ZEM implemented and got certified by OHSAS 18001 - a system to maintain healthy and safe work condi-tions.

Work accidentsAs a whole, the number of work accidents can be defined as low. 1% of the employees of the group have suffered a work accident.There are no work accidents in Elprom ZEM, ZMM Nova Zagora, Bulgarian Register of Shipping, Privat Engineer-ing and Dunav Tours for 2007. There are one to three light

Corporate social responsibility report

126

work accidents in KRZ Port Bourgas, Leyarmash, Mash-stroy, ZMM Sliven and Avgusta Mebel. There are about 30 registered work accidents of various severity in Bulyard SI, mainly due to negligence and non-following of the instruc-tions on behalf of the workers. To prevent work accidents and minimize the time till medical help, Bulyard SI has em-ployed a full-time doctor and is in the process of purchas-ing an ambulance and a fire truck.

Additional facilities for the employeesAn 80 bed boarding house for workers who do not live in Varna was restored and furnished in Bulyard SI in 2005. An expansion for another 100 people was put into use in 2006.

Healthcare for the employeesAll companies within the group have a contract with labor medicine facilities. Health files of the employees are kept and preventive examinations are carried out.

The employees are insured against work accidents, and, when necessary, IHB and the companies have a practice of supporting financially their employees when undergoing a medical treatment.

Encouraging employee self-improve-mentAcknowledging the fast pace of development and change, we, at IHB, realize that people have to be prepared for that. On the one hand, self-improving is necessary for the organization to remain adequate and deal with the chal-lenges of competition. On the other hand we acknowledge the need of people for development, qualification and change of careers. Various forms of education are encouraged in IHB - semi-nars, attending domestic and international conferences, company meetings, presentations, etc.

The Center for Professional Training in Bulyard SI was restored in 2005. The Center operates throughout the year with approved curricula for the following professions: welder manual electric arc welding and hullers. Everyone who has finished the training in the Center is offered a full-time job in the factory.

Relations with partners of IHB

IHB and the companies from the group have relations with more than 1,600 companies and people worldwide. More than 700 companies and citizens of more than 70 countries are clients of the group /excluding the clients of Dunav Tours numbering tenths of tousands/.

We aspire to be honest and respectable business partners by maintaining traditionally good relations with suppli-ers and customers and keeping to negotiated terms and strictly fulfilling our obligations.

IHB and the local community

IHB aims for a leading position in each of its activities. As a result from the policy of transparency and full access to the information about the activity, adopted by the manage-ment team, the International Accounting Standards were implemented within the group in 2002, and in 2003 they were implemented in all of its subsidiaries and associated companies. As of 2003, the holding presents to the community a printed version of its annual reports, and maintains a bilin-gual version of the current information and the archive on its web site. As a result, we received the 2004 award of the Bulgarian Stock Exchange for a full disclosure of informa-tion. Furthermore, in 2005 we received the award of the Investors Association for the company with the best corpo-rate governance. In 2007 IHB took the lead in a ranking for best online investor relations.

We try to have a good relationship with the state and municipal administration and to cooperate for the positive business climate of the country. Many of the managers of IHB and its companies are socially active and participate in not-for-profit organization in the country and abroad. Some of them are municipal councilors.IHB is a trustee of the Atanas Bourov Foundation and tradi-tionally supports its main goal - to discover and encourage talents in the sphere of economics among the youth. IHB also supports in various ways orphanages.

Academic involvement

Some of the managers of IHB participate actively in the academic boards of the technical universities in Varna and Sofia.There are practices for scholarship and internship pro-grams for high school and university students, aiming both to help find qualified personnel and to help the young people in their academic endeavors. Students majoring in Shipbuilding in the Technical university of Varna and the students from the Marine High School-Varna have the chance for an internship in the factories.The companies maintain active relations with the Technical University of Varna, the Technical University of Sofia, the University of National and World Economy and the Naval Academy of Varna.


127

Elprom ZEM and Bulyard SI have developed new pro-grams for attracting and development of young experts in four degrees - from scholarship, through bachelor, master and doctorate by covering the education cost and provid-ing employment.

Safe products and servicesThe companies of IHB (ZMM Bulgaria Holding, Bulyard SI, Augusta Mebel) work mainly with investment goods, so their quality, safety and longevity are of a paramount importance. As for the companies, operating on the con-sumer market (KRZ Port Bourgas, Odesos PBM, Bulgarian Register of Shipping and Dunav Tours), the fact that they operate exclusively on the international market imposes a high standard in terms of safety, terms and quality.

All companies have implemented ISO 9001 quality man-agement system and are certified by licensed international companies like Lloyd, SGS and BV.The quality management process in the companies of IHB is looked upon as a system of a few components:

Creation and guarantee of conditions to produce goods and services with the necessary quality;

Supply chain management Post-warranty service Quality performance measurement.

Environment protectionThe management of IHB oversees the environmental impact from the productions in the group. It is required that the sub-sidiary companies report on a yearly basis in their business plans on the environmental impact from their activities and the measures to be taken in case of a negative impact.

The nature of operations of IHB and its assets do not raise environmental issues. Insofar as the operations of the Holding are determined by its subsidiaries, their ecological issues indirectly affect also the use of assets within IHB Group as a whole.

The accession of Bulgaria to the European Community involves commitments at a national level and subsequently – requirements to the business 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.

Shipbuilding and Ship Repair

The overall technological process at Bulyard Shipbuilding Industry, conforming to all normative documents and opera-tive instruction for proper execution of the relevant activities, is compliant with the respective environmental concerns.In 2006 and to present, the company has executed the follow-ing environmental events:

Step-by-step thorough cleaning of the whole area of the company from production, construction, residential, petroleum waste;A program for waste management up to the year 2011 has been elaborated and approved by the Regional Inspector-ate on Environment and Waters;Strict control has been enforced to maintain order and cleanness in the area of the company through regular inspections and monetary sanctions;The collection and disposal of scrap materials has been organized;Waste materials are collected separately according to financial and environmental concerns;Regional Inspectorate on Protection and Control of Public Health - Varna has issued to the company a sanitation certificate for handling of hazardous waste;A large-scale inventory of the electrical equipment poten-tially containing polychlorinated biphenyl has been made, in compliance with European environmental requirements;A scheme for reduction of harmful emissions and a plan for solvents management as per the production and tech-nological processes of the company and in compliance with Regulation ¹ 7/21.10.2007 have been elaborated and approved by the Regional Inspectorate on Environ-ment and Waters;Sample collection points for the organized emission sources from the installation for tin processing - zero line /1 collection point for the blasting sector, one for the sector and one for the drying sector / were determined as per the technical documentation of the technical department and Regulation ¹ 6/26.03.1999. These have been approved by the Regional Inspectorate on Environment and Waters;Inspections by the controlling bodies have been carried out for all environmental aspects, no serious violations have been established, no financial sanctions for environ-mental violations have been imposed.

Urgent measures for the resolution of the following issues are forthcoming:

Estimate and repair of the sewerage system, update of the map of the system with all connection points were carried out in 2007;Development, introduction, and execution of a system for separate collection of residential waste. The task will con-tinue during the following year and will be executed in line


128

with European requirements and the waste management program of the company;On-going regular measurements of the dust, noise, and organic compounds pollution levels;Establishment of a permanent structure for reduction of volatile organic compounds emissions of the organized emissions sources from the tin processing installation – zero line;Construction of an indoors blasting and painting chamber.

Port OperationsIn order to meet the environmental requirements for port activi-ties, in 2006 Dockyad Port – Bourgas developed and ap-proved a Corporate Waste Management Program up to 2011, in compliance with the European environmental standards.

Machine buildingThe technological processes at ZMM Sliven which have an impact on the environment are directly connected to compo-nents coating – oxygenation, chroming, galvanization. The waste waters are collected in a water purification station with separate basins for acid-alkaline waters and chrome purifica-tion waters, where they are 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 no government decision yet as to how and where this type of waste is to be stored. In our opinion it will be one of the key problems requiring investments for its definitive solution.ZMM Sliven 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 periodically handed over to the refineries for secondary processing.At Mashstroy the following production processes have an impact on the environment:

Manufacture of castings from gray cast iron;Metal coating;Lacquer coating;Generation of solid metal waste.

The quartz sand is the principal material used for manufacture of castings. 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. Its commissioning is forthcoming.The waste sand from smelting causes some problems be-

cause until recently it was stored on-site at the company. As a temporary measure the sand is deposited at the specialized site at the old city landfill of Troyan with the permission of the Regional Inspectorate on Environment and Waters – Pleven and Troyan Municipality. Because of the large volumes /1,500 – 2,000 tons per year/, the site is almost full. It is possible to recycle the used smelting sand so that only 20% of it will be deposited to the designated depot.Pursuant to EU Directive 99/13/EC and Regulation No 7 of 2003 on the allowed norms for emissions of volatile organic compounds released into the atmosphere as a result of the use of organic solvents in certain installation, it will be neces-sary to modernize the existing painting chambers. The opera-tors of installations within the scope of the Regulation need to submit to the competent bodies annual plans for solvents management. Such a plan is about to be developed.A part of the metal waste is reused. All plants at ZMM Nova Zagora have been designed and constructed in compliance with the environmental require-ments during operation, and the regulated operations per types of production activities have been determined in advance and are monitored for compliance with the normative legislation of the country.In 2006 Elprom ZEM did not register any specific problems with negative environmental impacts. The company holds an ISO 14 001:2004 certificate for environmental safety and ecological production. The production technologies pres-ently used do not have a negative impact on the environment. Problems occur related to the regular maintenance of the existing aspiration systems in sections impregnation, vacuum-compound plant, lacquer machine, and the section-baking unit of the coil workshop. With the accession of Bulgaria to the European Union and the need of harmonization of the environmental legislation and norms, a solution will need to be found for the following issues:

Replacement of the impregnation lacquer which is used together with a very harmful solvent with a new environ-ment-friendly and water soluble type of lacquer;Purchase of a painting chamber for compliance of the painting section with the environmental norms and labour safety requirements;Construction of filters in the rotor section.

In terms of environmental safety Leyarmach has made serious investments. The two operational units emitting the most dust – regeneration and short blasting chamber – are connected with dry filters from where the dust is collected in special con-tainers and bags and disposed of by a specialized company. Sand regeneration makes the process effectively waste-free in terms of moulding mixtures. Local aspirators have been built to the separate operational units. The aspirators in the cleaning sector are not operational. On the roof there are


129

about 30 axial ventilators coming out from the cupola furnace. The amortization of the heating aggregate of the furnace and the heightened requirements of foreign clients are some of the reasons for the decision of the management of ZMM Bulgaria Holding to gradually stop the cupola furnace and start induc-tion melting of the cast iron. The two new induction furnaces bought from Inductotherm, Turkey, will solve the problem with the gases released by these production processes.It is necessary to construct a new sector for production of transmission gear cores, to carry out a number of repair and rehabilitation works on the regeneration system for the sand, blenders, and hoisting equipment, to renovate the casing inventory. It is urgent to solve the issue with the earthing and lightning protection installations.The efforts of Leyarmach for solution of environmental issues focus mainly in two directions:

Organizational, technical, and investment measures for limiting to the minimum the principal pollutants – washing grate, shot blasting chamber, mould cleaning section;Complex measures for improvement of the environmental conditions in the vicinity of the main technological ag-gregates.

Furniture ProductionThe production technology at Augusta Mebel has been organ-ized towards meeting the environmental requirements within the presently attainable limits. The main raw material – wood in its various aspects – is almost completely utilized. The re-leased solid waste from the wood processing are burnt in one of the steam boilers which has been modified for this purpose. Other solid waste – deposits from the lacquer section, de-posits from the press unit, and empty lacquer containers are in negligible quantities, but at the insistence of the Regional Inspectorate on Environment and Waters they are determined as hazardous and stored in a waste storage facility.Air protection is a specific for the company problem regarding negative environmental impact. Air pollution is effected mainly through exhaust gases from the chimney of the steam station and when drying lacquer coating:

The company has now mounted a gas-powered installa-tion but the burning of the wood waste will not be entirely eliminated;The volatile organic compounds from organic solvents threaten to become a problem for the company in case of an increase of the quantity of the used volatile nitro-cellulose lacquers. As per the above-cited Regulation ¹7, in case of an annual consumption of solvents exceeding 15 tons, the operations of the company fall within the scope of the Regulation. This will require the elaboration of a Solvents Management Plan and Emission Reduc-tion Scheme, whose main objectives are the reduction of

harmful emissions. The solution of the problem is to look for other types of lacquer with minimum or no emission of volatile organic compounds into the atmosphere.

River CruisesThe ships of Dounav Tours operate in European waters and their operations comply with the environmental regula-tions and laws of the countries through which they navigate. Potential pollution may occur from the lubricants used for the cruise ship engines. The problem has been solved by dispos-ing the lubricants against payment at places specified for the purpose.

The European Union pays special attention to the solution of environmental issues in pre-accession and newly-joined countries. It is not a coincidence that this is one of the fields in which various institutions extend gratuitous grants and as of 2007 the Accession Funds will also start subsidizing such project. Companies in the IHB Plc group have used and are currently using subsidies from various state funds for the solu-tion of their environmental problems. In 2004 and 2005 Leyarmach and Elprom were granted funding from the Labor Conditions Fund to the Ministry of Labor and Social Policy in order to ensure healthy and safe working conditions. In 2006 Bulyard Shipbuilding Industry was also approved for funding by the same fund. In 2007 Elprom ZEM launched a second project. The project of Leyarmach with energy saving and environmental effects will also rely on European subsidies.


130

Bulyard Shipbuilding Industry EAD (ss)Founded in 2004

Contact info:South Industrial Zone9000 Varna, Bulgariatel.: + 359 (0) 52 613 192fax: + 359 (0) 52 613 179e-mail: [email protected]

Bulyard AD (s)Founded in 2003

Contact info:47, Vassil Levsky Blvd.1142 Sofia, Bulgariatel.: + 359 (0) 2 980 71 01fax: + 359 (0) 2 980 70 72e-mail: [email protected]

Dockyard Port Bourgas AD (s)Founded in 1974 Contact info:3, Industrialna, Str. 8000 Bourgas, BulgariaP.O.Box 175tel.: + 359 (0) 56 849 006fax: + 359 (0) 56 842 608e-mail: [email protected] web:www.dockyard-portbourgas.com

Odesos PBM AD (a)Founded in 2005

Contact info:South Industrial Zone9000 VarnaBulgariatel.: + 359 (0) 52 686 540 + 359 (0) 52 686 555fax: + 359 (0) 52 686 541e-mail: [email protected]

Bulgarian Register of Shipping AD (ss) Founded in 1950

Contact info:17, Panagjurishte Str.9000 Varna, Bulgariatel.: + 359 (0) 52 681 510fax: + 359 (0) 52 602 864 e-mail: [email protected]

Maritime Holding AD (s)Founded in 2001

Contact info:47, Vassil Levsky Blvd.1142 Sofia, Bulgariatel.: + 359 (0) 2 980 71 01fax: + 359 (0) 2 980 70 72e-mail: [email protected]

Avgusta Mebel AD (s)Founded in 1919

Contact info:21, Madara Blvd.9700 Shoumen, Bulgaria tel: +359 (0) 54 860 063fax: +359 (0) 54 830 588e-mail: [email protected] web: www.avgusta-mebel.com

Dunav Tours AD (a)Founded in 1991

Contact info:5 Olimpi Panov Str. 7000 Rousse, Bulgaria tel: +359 (0) 82 825 051fax: +359 (0) 82 825 064e-mail: [email protected]: www.dunavtours.bg

IHB Companies

ZMM Sliven AD (ss)Founded in 1971

Contact info:16, Bansko shosse Str.8800 Sliven, Bulgariatel: +359 (0) 44 662 108fax: +359 (0) 44 662 563e-mail: [email protected]: www.zmmsliven.com

ZMM Nova Zagora AD (ss)Founded in 1970

Contact info:1, Stoilvoivodsko shosse Str.8900 Nova Zagora, Bulgariatel.: + 359 (0) 457 63056fax: + 359 (0) 457 64311e-mail: [email protected]: www.zmmnz.com

Mashstroy PLC (ss)Founded in 1947Listed on the BSE - Sofia Contact info:5, Academic Angel Balevski Str.5600 Troyan, Bulgariatel.: + 359 (0) 670 66 122fax: + 359 (0) 670 63 213e-mail: [email protected]: www.mashstroy.bg

131

ZMM Bulgaria Holding AD (s)Founded in 2001

Contact info:10-12, Damjan Gruev Str.1606 Sofia, Bulgariatel.: + 359 (0) 2 981 07 53fax: + 359 (0) 2 981 43 14e-mail: [email protected] web: www.zmmbulgaria.com

Elprom ZEM PLC (ss)Founded in 1950Listed on the BSE - Sofia

Contact info:41, Rojen Blvd.1271 Sofia, Bulgariatel.: + 359 (0) 2 936 0753 fax: + 359 (0) 2 936 0347 e-mail: [email protected]: www.elprom-zem.com

Leyarmach AD (ss)Founded in 2001

Contact info:8, Ilijansko Shosse Blvd.1220 Sofia, Bulgariatel.: + 359 (0) 2 938 28 69fax: + 359 (0) 2 938 48 51e-mail: [email protected]

Privat Engineering AD (s)Founded in 1998

Contact info:47, Vassil Levsky Blvd.1142 Sofia, Bulgaria tel.: + 359 (0) 2 980 71 01fax: + 359 (0) 2 980 70 72 e-mail: [email protected]

KLVK AD (s)Founded in 2001

Contact info:47, Vassil Levsky Blvd. 1142 Sofia, Bulgariatel.: + 359 (0) 2 980 71 01fax: + 359 (0) 2 980 70 72 e-mail: [email protected]

Hydro Power Bulgaria AD (s)Founded in 2000

Contact info:47, Vassil Levsky Blvd. 1142 Sofia, Bulgariatel.: + 359 (0) 2 980 71 01fax: + 359 (0) 2 980 70 72 e-mail: [email protected]

VIK Sandvik IHB Design AD (as)Founded in 2007

Contact info:South Industrial Zone9000 Varna, Bulgariatel.: + 359 (0) 52 910 379fax: + 359 (0) 52 910 379e-mail:[email protected]: www.vik-sandvik-ihb.com

IHB Shipping Co AD (ss)Founded in 2007

Contact info:South Industrial Zone9000 Varna, Bulgariatel.: + 359 (0) 52 912 965fax: + 359 (0) 52 623 389e-mail: [email protected]: www.ihbshipping.com

IHB companies

For more information:

Industrial Holding Bulgaria PLC47, Vassil Levsky Blvd.1142 Sofia, Bulgaria

Investor Relationse-mail: [email protected].: + 359 (0) 2 981 55 06fax: + 359 (0) 2 980 70 72

Administratione-mail: [email protected].: + 359 (0) 2 980 71 01fax: + 359 (0) 2 980 70 72

www.bulgariaholding.com

Moira Adv., 2008www.moirabg.com

annual report 2007...5 the beginning the company was established in september 1996 as a...

Documents