as of 31march · web viewthe drafting of the consolidated financial statements under ifrs requires...

Industrial Holding Bulgaria Plc

Interim Consolidated Financial Statements

For the period ended 31 March 2012

Consolidated Income Statement

For the period ended 31 March

In BGN thousand

Note

31 March 2012

31 March 2011

Revenue

7

18,807

14,668

Other operating income

8

783

300

Increase (reduction) of work in progress

9

8,636

14,131

Capitalised expenses on own assets creation

10

75

22

Costs of materials

-

(12,819)

(14,862)

Costs of hired services

-

(3,420)

(5,324)

Depreciation and amortization costs

18,19

(2,612)

(2,382)

Payroll costs

13

(6,071)

(5,679)

Cost of assets sold

-

(273)

(262)

Other operating expenses

-

(581)

(926)

Operating profit/(loss)

2,525)

(314)

Financial income

4,586

3,417

Financial expenses

(1,722)

(975)

Net financial income

16

2,864

2,442

Profit of associates reported under the capital method

20

-

-

Operating profit/(loss) prior to taxation

5,389

2,128

Tax expenses

17

(177)

(147)

Operating profit/(loss) after taxation

5,212)

1,981

Profit/(loss) distribution

For the majority owners of the company

4,748

2,017

For the non-controlling interest

464

(36)

5,212

1,981)

Income per share for the majority owner

Basic earnings per share (in BGN)

27

(0.069)

(0.034)

The Income Statement should be considered together with the notes thereto, which form integral part of the Consolidated Financial Statements presented on pages 8 to 55.

Daneta Zheleva

Ms. Toshka Vassileva

Chief Executive Officer

Chief Accountant

Consolidated Statement of Comprehensive Income


In BGN thousand

Note

31 March 2012

31 March 2011

Operating profit/(loss) after taxation

5,212

1,981

Other comprehensive income

Land revaluation

-

-

Tax effects from revaluation

17, 31

-

-

Hedging effects

13

10

9

Other changes

-

3

Other comprehensive income for the period, net of tax

10

12

Total comprehensive income for the period

5,222

1,993

Total comprehensive income for:

For the majority owners of the company

4,759

2,031

For the non-controlling interest

463

(38)


5,222

1,993

The Consolidated Statement of Comprehensive Income should be considered together with the notes thereto, which form integral part of the Consolidated Financial Statements presented on pages 10 to 54. (Daneta ZhelevaMs. Toshka VassilevaChief Executive OfficerChief Accountant)

Consolidated Statement of Financial Position

As of 31March

In BGN thousand

Note

31 March 2012

2011

Assets

Property, plant and equipment

18

319,200

321,120

Intangible Assets

19

4,584

4,658

Goodwill

19

6,212

6,212

Investments in associates reported under the capital method

20

17,837

17,837

Other investments

21

5

5

Long-term receivables

22

8,861

7,214

Total non-current assets

356,699

357,046

Inventories

23

71,621

67,023

Trade and other receivables

24

11,099

10,968

Cash and cash equivalents

25

5,029

11,075

Total current assets

87,749

89,066

Total assets

444,448

446,112

Equity

Share Capital

26

67,978

67,978

Premium reserve

30,604

30,604

Reserves

63,104

63,083

Retained earnings (net)

71,608

66,870

Capital and reserves of majority owners

233,294

228,535

Non-controlling interest

13,825

13,673

Total equity and reserves

247,119

242,208

Liabilities

Borrowings

28

60,050

106,465

Debenture loan

28

21,528

21,528

Other long-term payables

29

408

408

Provisions

30

45

45

Income of hired people

30а

222

222

Deferred tax liabilities

31

6,159

6,187

Total non-current liabilities

88,412

134,855

Borrowings

28

69.318

23,056

Debenture loan

28

-

-

Interest charged on debenture loan

28

790

357

Trade and other payables

32

38,233

44,862

Provisions

30

559

748

Income of hired people

30а

17

26

Total current liabilities

108,917

69,049

Total equity and liabilities

444,448

446,112

The Consolidated Statement of Financial Position should be considered together with the notes thereto, which form integral part of the Consolidated Financial Statements presented on pages 10 to 54.

(Daneta ZhelevaMs. Toshka VassilevaChief Executive OfficerChief Accountant)

Consolidated Cash Flow Statement


In BGN thousand

Note

31 March 2012

31 March 2011

Operating cash flow

Proceeds from clients

22,387

15,937

Payments to suppliers

(19,730)

(19,058)

Remuneration related payments

(5,751)

(5,200)

Paid corporate profit tax, net

(346)

(192)

Foreign exchange differences

(94)

(66)

Other proceeds (payments)

1,143

917

Net operating cash flow

(2.391)

(7,662)

Investment cash flow

Proceeds from sale of non-current tangible assets

390

12

Payments for acquisition of non-current tangible assets and their economic construction

(610)

(659)

Recovered loans and interest

438

392

Loans granted

(2,632)

(515)

Purchase of investments

-

-

Proceeds from sale of investments

-

-

Received dividends from investments

-

-

Interest received on loans, deposits and current accounts

110

46


48

26

Net investment cash flow

(2,256)

(698)

Financial cash flow

Proceeds from securities issue

-

-

Received debenture loan

-

-

Credits and loans received

8,043

11,500

Credits and borrowings repaid

(7,533)

(6,447)

Dividends paid

(306)

(270)

Loan interests, charges and commission fees paid

(1,548)

(1,323)


(55)

(15)

Net financial cash flow

(1,399)

3,410

Net increase in cash and cash equivalents

(6,046)

(4,950)

Cash and cash equivalents as of 1 January

25

11,075

8,906

Cash and cash equivalents as at 31 March

25

5,029

3,956

The Consolidated Cash Flow Statement should be considered together with the notes thereto, which form integral part of the Consolidated Financial Statements presented on pages 10 to 55.


INDUSTRIAL HOLDING BULGARIA PLC

66

5

Consolidated Equity Statement

For the period ended 31 March 2011

In BGN thousand

Note

Share Capital

Premium reserve

Additional and statutory reserves

Hedging reserve

Revaluation reserve

Retained earnings

Total for the Group


Total

Balance as of 1 January 2011

58,282

30,313

11,264

(335)

56,465

68,179

224,168

26,529

250,697


Profit and loss

-

-

-

-

-

2,017

2,017

(36)

1,981


Hedging effects, net of taxes

0

-

-

-

9

-

-

9

-

9

Exchange differences on translation

-

-

-

-

(2)

2

-

-

-

Other changes

-

-

-

-

-

5

5

(2)

3

Total other comprehensive income

-

-

-

9

(2)

7

14

(2)

12


-

-

-

9

(2)

2,024

2,031

(38)

1,993

Transactions with shareholders reported in the Statement of Equity

Contributions by and allocations to shareholders

Profit distribution for reserves

-

-

-

-

-

-

-

-

-

Loss reserve coverage

-

-

-

-

-

-

-

-

-

Dividends paid

-

-

-

-

-

-

-

(311)

(311)

Capital increase

26

-

-

-

-

-

-

-

-

-

Total transactions with shareholders

-

-

-

-

-

-

-

(377)

19,959

Transfer of revaluation reserve to retained profit

-

-

-

-

-

-

-

-

-

Balance as of 31 March 2011

58,282

30,313

11,264

(326)

56,463

70,203

226,199

26,180

252,379

Consolidated Equity Statement (continued)

For the Period Ended 31 March 2012

In BGN thousand

Note

Share Capital

Premium reserve

Additional and statutory reserves

Hedging reserve

Revaluation reserve

Retained earnings

Total for the Group


Total

Balance as of 1 January 2012

67,978

30,604

7,569

(685)

56,199

66,870

228,535

13,673

242,208


Profit and loss

-

-

-

-

-

4,748

4,748

464

5,212


Hedging effects, net of taxes

16

-

-

-

10

-

-

10

-

10

Exchange differences on translation

-

-

-

-

(1)

1

-

-

-

Other changes

1

1

(1)

-

Total other comprehensive income

-

-

-

10

(1)

2

11

(1)

10


-

-

-

10

(1)

4,750

4,759

463

5,222

Transactions with shareholders reported in the Statement of Equity

Contributions by and allocations to shareholders

Profit distribution for reserves

-

-

12

-

-

(12)

-

-

-

Dividends paid

-

-

-

-

-

-

-

(311)

(311)

Capital increase

26

-

-

-

-

-

-

-

-

-

Total transactions with shareholders

-

-

12

-

-

(12)

-

(311)

(311)

-

Transfer of revaluation reserve to retained profit

-

-

-

-

-

-

-

-

-

Balance as of 31 March 2012

67,978

30,604

7,581

(675)

56,198

71,608

233,294

13,825

247,119

Consolidated Equity Statement should be considered together with the notes thereto, which form integral part of the Consolidated Financial Statements presented on pages 10 to 55.


56

1

Status and scope of operations

Industrial Holding Bulgaria PLC (the Company or the Holding) is a public limited company having its seat in Sofia, Bulgaria and address of management at 42 Damyan Gruev Blvd, Sofia 1000. The consolidated statements of the Company for the period ended 31 December 2011 comprise the statements of the Company and its subsidiaries (together referred to as the “Group”), as well as the interests of the Group in associates.

The scope of activity of the Group include production of and trading in heavy machinery, shipbuilding, ship repairs and transportation, furniture production, real estate transactions, port services and accompanying activities from /to ships and land transport vehicles, maintenance and repairs and other services.

Industrial Holding Bulgaria and some of the subsidiaries are listed at the Bulgarian Stock Exchange – Sofia.

2

Basis of preparation

(а)Statement of compliance

These Consolidated Financial Statements have been prepared in compliance with the International Financial Reporting Standards (IFRS) adopted by the European Union (EU).

The consolidated financial statements were approved for publication by the management of the Company on 30 May 2012.

These Interim Consolidated Financial Statements should be considered in relation to the Annual Consolidated Financial Statements of the Group as of 31 December 2011.

(b)Basis of valuation

These Consolidated Financial Statements have been prepared based on historical cost with the exception of the following material articles in the statement of financial position:

· Derivative financial instruments measured at fair value;

· Land, buildings, plant and equipment, which have been presented at a revalued amount less the accumulated depreciation and impairment losses

· Financial assets measured at fair value through gains and loss;

· Financial assets available for sale, which have been valued at their fair value.

· Liability regarding defined income plan reported at present value

(c)

Functional currency and reporting currency

These Consolidated Financial Statements are presented in BGN, which is the functional currency of the Company and the Group. The financial data in the Annual Financial Statements are given in BGN thousand.

(d)

Use of estimates and assumptions

The drafting of the consolidated financial statements under IFRS requires that the management makes judgments, estimates and assumptions which affect the application of the accounting policies and of the reported amounts of the assets, liabilities, gains and losses. The actual results may differ from such estimates.

The expectations and key assumptions are revalued on a current basis. The revaluation of the accounting estimates is recognized for the period when the estimate is revalued when the revaluation affects only this period, or in the period of revaluation and future periods if the revaluation affects future periods.

Information about critical estimates in the application of the accounting policies which have the most significant effect on the amounts recognized in the consolidated financial statements, is given in the following notes:

2

Basis of preparation (continued)

(d)

Use of estimates and assumptions (continued)

Note 18 – Property, plant and equipment

Note 23 – Inventories

Note 24 – Trade and other receivables

Note 31 – Deferred tax assets and liabilities

Information about the uncertainty in the assumptions and estimates which carry a significant risk for material adjustments in the following financial year is included in the following notes:

Note 19 – Intangible assets

Note 30 – Provisions

Note 30a – Income of hired people

(e)

Going concern

The Financial Statements are prepared on the basis of the assumption that the Group is a going concern and will continue to operate in the foreseeable future.

In 2011the Bulgarian and global economy have been developing in the conditions of stabilization after the critical stage of the financial and economic crisis. As a whole the development is characterized with a geographic heterogeneity and different speed for the various economies, which is associated with the different severity of the crisis and the delayed manifestation of some of the consequences in the separate economies and industries. Regardless of estimates generally predicting the start of an upward trend, the considerable delay of the economic growth and the unstable growth of the leading states and economic centres are the reason that the negative effect of a number of factors remains even during the period of recovery. This effect is mainly manifested through: collapse and slow recovery of the capital markets both worldwide and with particular severity for the Bulgarian markets; very difficult extension of credits under heavier financial conditions; reduced investment relations and sporadic projects; harder market export conditions and difficult forecasting and planning; exhaustion of reserves and weakening of the financial, manufacturing and human resource potential of the entities, etc. As a result of the measures undertaken by the management to optimize costs, improve productivity and efficiency and launch new investment projects the company remained stable and foundations for future growth were established.

Shipbuilding and ship repairing industries continue to operate under the conditions of limited demand and global competition caused by the completion of started projects and release of production capacities. However, in the field of maritime transport the advantage is on the side of newly-built ships due to the better characteristics and lower operational costs. The Management estimates that the technical capacity of the ship building plant will make possible to achieve a balance between new construction and repairs and the existing capital resources and funding sources will be adequate for the liquidity needs in 2012.

The companies in the machine building sector, in view of their specialization in the manufacture of produce for the basic sectors of the economy and infrastructure are strongly dependent on the investment costs worldwide. At the same time their export orientation is a favourable competitive advantage for the markets, which recover faster from the crisis and register growth. The restructuring and the internal optimisation within the framework of the corporate structure of ZMM Bulgaria Holding AD represent an additional possibility for higher flexibility and redirection of production and technological tasks among all entities in the Group. The expected positive effect from the unification of products and the centralised marketing creates prerequisites to maintain and expand market positions with more competitive products.

2


(f)

Changes in the accounting policies

(i)

Reporting of business combinations

As of 1 January 2010 the Group applies IFRS 3 Business Combinations (2008) in the reporting of business combinations. The change in the accounting policy is applied prospectively and does not have a material effect on the earnings per share.

Business combinations are reported using the acquisition method as of the date of acquisition, which is the date on which control is transferred to the Group. Control is the right to operate the financial and operating policies of the entity in such as way as to derive benefits from its activity. When assessing the control the Group takes into account the provisional voting rights which may be exercised at present.

Acquisition on or after 1 January 2010.

For acquisitions on or after 1 January 2010 the Group measures its reputation as of the date of acquisition as:

· The fair value of the transferred compensation, plus

· The recognized value of all non-controlling interests in the acquired entity, plus

· If the business combination is achieved in stages, the fair value of the existing share in the acquired entity, minus

· the net recognized value (in the general case - the fair value) of the acquired separable assets and undertaken liabilities.

When the difference is negative, the gain from a profitable acquisition is recognized immediately in profit and loss.

The transferred compensation does not include amounts related to the settlement of priory existing rights and obligations. Such amounts are generally recognized in profit or loss.

Costs related to the acquisition, except for those related to the issue of debt or equity securities which the Group issues in relation with a business combination are reported as costs upon occurrence.

Each due contingent compensation is recognized at fair value on acquisition date. If the contingent compensation is classified as equity, it is not revalued and its settlement is reported in the equity. Otherwise the subsequent changes in the fair value of the provisional compensation are recognized in profit or loss.

2


(f)

Changes in the accounting policies (continued)

(i)

Reporting of business combinations(continued)

When compensations with share-based payments are required (substitute compensations) to be replaced with compensations for the personnel of the acquired entity (compensations of the acquired entity) and they are for previous services, then all or part of the amount of the substitute compensations of the acquiring entity is included in the evaluation of transferred compensation for the business combination. This determination is based on the market value of the substitute compensations compared with a market-based value of the compensations of the acquired entity and the level to which the substitute compensations relate to previous and/or future periods.

Acquisitions prior to 1 January 2010.

For acquisitions made before 1 January 2010, goodwill represents the difference between the cost of acquisition and the interest of the Group in the recognized value (in general, the fair value) of the separable assets, liabilities and contingent liabilities of the acquired entity. When the difference is negative, the profit from a profitable acquisition is recognized immediately in profit and loss.

Costs related to the acquisition, except those related to the issuance of debt or equity securities that the Group issues in connection with a business combination, are reported as expenses upon occurrence.

(ii)

Reporting of the acquisition of non-controlling interest

As of 1 January 2010 the Group applies IFRS 27 Business Combinations (2008) in the reporting of business combinations. The change in the accounting policy is applied prospectively and does not have a material effect on the earnings per share.

As per the new accounting policy the acquisition of a non-controlling interest is reported as a transaction with owners in their capacity of owners and therefore goodwill is not recognized as a result of such a transaction. The adjustments of the non-controlling interest are based on the proportional value of the net assets of the subsidiary.

Before, goodwill was recognized upon acquisition of a non-controlling interest in a subsidiary and it represented an increase of the acquisition price for the additional investment beyond the carrying amount of the share in the net assets acquired on the date of the transaction.

3

Significant accounting policies

The significant accounting policies described below are consistently applied over all periods included in these Financial Statements.

Certain comparative figures were reclassified to conform with the representation for the current year.

3

Significant accounting policies (continued)

(а)Basis of consolidation

(i)

Subsidiaries

Subsidiaries are the entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. When assessing the level of control, the Group takes into account the potential voting rights which may be exercised currently. The acquisition date is the date on which control is transferred to the acquisitor. Assessment is made when determining the date of acquisition and whether control was transferred from the one side to the other. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date control ceases.

(ii)

Loss of control

In loss of control the Group derecognises the assets and liabilities of the subsidiary, non-controlling interest and other components of equity related to the company. The gain and loss resulting from loss of control is recognised in profit and loss. If the Group retains any investment in a former subsidiary this investment is valued at fair value at the date of loss of control. It is subsequently reported under the equity method or as a financial asset available for sale depending on the retained level of control.

(ii)

Investments in associates ( reported under the capital method)

Associates are entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is considered existing when the Group holds between 20 and 50 percent of the voting rights in another company.

Associated companies are reported using the capital method and they are initially recognized at acquisition price.

The consolidated financial statements include the Group’s share in the profit and loss and other comprehensive income after adjustments made for alignment of the accounting policies with those of the Group, from the date on which significant influence is identified until the date on which such influence ceases.

When the Group’s share of the losses exceeds the carrying amount of the investment in the associate, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred obligations or makes payments on behalf of the associate.

(iii)

Balances and transactions eliminated on consolidation

Intra-group balances and transactions and any unrealized gains arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with associates are eliminated against the investment in associates. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

3.Significant accounting policies (continued)

(b)Foreign currency (continued)

(i)

Foreign currency transactions

Transactions in foreign currencies are translated to the Company’s functional currency at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the reporting period.

Non-monetary assets and liabilities denominated in foreign currency, valued at fair value, are recalculated in Bulgarian leva applying the foreign exchange rate effective on the date of fair value determination. Foreign currency gain and loss arising as a result of the recalculation into the functional currency is recognized as profit and loss, except for gain and loss resulting from recalculation into the functional currency of equity instruments available for sale or effective cash flow hedging meeting the requirements, which are recognized in another comprehensive income.

The exchange rate of the Bulgarian lev (BGN) has been pegged to the euro (EUR) since 1998. During the current and previous periods the exchange rate is BGN 1.95583 / EUR 1.0.

(ii)

Foreign operations

Assets and liabilities of foreign operations, including goodwill and adjustment to the fair value, arising upon acquisition, are translated to Bulgarian leva applying the foreign exchange rate effective as of reporting date. Income from and expenses on foreign operations are translated into Bulgarian leva applying the foreign exchange rate effective as at transaction date.

Exchange differences arising on translation are recognized in other comprehensive income and are presented in retained earnings in the statement of equity. When a foreign operation is derecognized, partially or totally, the part of the translation reserve is reclassified into profit or loss as part of the result of the derecognition.

(c)

Financial instruments

(i)

Non-derivative financial instruments

The Group initially recognizes loans and receivables and deposits on the date of their occurrence. All other financial assets (including assets reported at fair value in the profit and loss) are initially recognized on their transaction date when the Group became a party to the contractual provisions of the instrument.

The Group writes off a financial asset when the contractual rights on the cash flows of the assets are repaid or the Group transfers the rights for receipt of the agreed cash flows from the financial asset in a transaction under which a considerable part of all risks and benefits pertaining to the ownership of the financial assets have been transferred. Any participation in a transferred financial asset which is created or retained by the Group is recognized as a separate asset or liability.

Financial assets and liabilities are netted and their net value is presented in the statement of financial position only when the Group has a legal justification to net the amounts and intends to either settle at net base or realize the asset and settle the liability simultaneously.


(c)

Financial instruments (continued)

The Group classifies non-derivative financial assets in the following categories: financial assets reported at fair value in the profit and loss, financial assets held to maturity, loans and receivables, and financial assets available for sale.

Financial assets measured at fair value through profit and loss

A financial asset is classified as a financial asset measured at fair value through profit or loss if held for trading or if designated as such at initial recognition. Financial assets are determined as such measured at fair value through profit or loss if the Group manages such investments and makes decisions for purchase and sale based on their fair value in compliance with the Group’s documented risk management strategy or investment strategy. Upon their initial recognition the expenses associated with the transaction are recognised through profit or loss at their occurrence. Financial assets measured at fair value through profit and loss are valued at fair value and the resultant changes are measured through profit and loss.

Held-to-maturity Financial Assets

When the Group has the intention and capacity to hold debt securities to maturity, these are classified as held-to-maturity financial assets. The held-to-maturity financial assets are initially recognized at fair value plus all direct transaction costs. After the initial recognition the held-to-maturity financial assets are measured at impairment cost based on the effective interest method less impairment loss. Any sale or reclassification of a more than an insignificant amount from the investment held to maturity on a date which is not close to their maturity would result in a reclassification of all held-to-maturity investments as investments available for sale and would lead to a prohibition for the Group to classify investments as held to maturity for the current financial year and the following two financial years.

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments which are not quoted at an active market. Such liabilities are initially recognized at fair value plus all direct transaction costs. After the initial recognition the loans and receivables are measured at impairment cost based on the effective interest method less impairment loss.

Loans and receivables include cash and cash equivalents and trade and other receivables.

Cash and cash equivalents

Cash and cash equivalents include cash and call deposits with initial maturity of three months or less. Ban overdrafts which are payable on demand and form an integral part of the cash flows managed by the Group are included as a component of cash and cash equivalents for the purpose of the cash flows statement.

Financial assets available for sale

Financial assets available for sale are non-derivative financial assets which designated as financial assets available for sale and are not classified in any of the preceding categories. The Group’s investments in shares and certain debt securities are classified as financial assets available for sale. After the initial recognition they are measured at fair value and the changes in that value different than impairment losses and exchange rate differences from capital instruments available for sale are reported in another comprehensive income and are shown in the reserve for changes in the fair value in the equity. When an investment is written off the accumulated profit and loss in another comprehensive income are re-classified as profit or loss.


(c)


(ii)

Non-derivative financial liabilities

The Group initially recognizes issued debt securities and subordinate liabilities on the date of their occurrence. All other financial liabilities (including financial liabilities designated as measured at fair value through profit and loss) are initially recognized on their transaction date when the Group became a party to the contractual provisions of the instrument.

The Group writes off a financial liability when its contractual obligations have been fulfilled or have been revoked or a no longer valid.

Financial assets and liabilities are netted and their net value is presented in the statement of financial position only when the Group has a legal justification to net the amounts and intends to either settle at net base or realize the asset and settle the liability simultaneously.

The Group classifies non-derivative financial liabilities in the following categories: loans, bank overdraft and commercial and other liabilities. Such financial liabilities are initially recognized at fair value plus all directly related transaction costs. After the initial recognition these financial liabilities are measured at impairment cost based on the effective interest method.

(iii)

Share Capital

Ordinary shares

Ordinary shares are classified as equity. The costs directly related to the issue of ordinary shares and share options are recognized as a decrease of the equity, net of all tax effects. The capital of the Company is presented at historical cost at the date of registration.

Redemption of shares

Upon redemption of shares the paid amount, which includes the directly related costs, net from taxes, is recognized as a reduction of the total amount of the equity. When redeemed shares are subsequently sold or reissued the received amount is recognized as capital increase and the profit/loss from the transaction is reported in premium reserve.

(iv)Complex financial instruments

The complex financial instruments issued by the Group include bonds which may be converted into shares at the discretion of the holder, with the number of shares to be issued is not affected by the changes in their fair value.

The liability component of a complex financial instrument is recognized initially according to the fair value of a similar liability which does not have the option to be converted into shares. The capital component is recognized initially as the difference between the fair value of the complex financial instrument as a whole and the fair value of the liability component. All directly related costs for the transaction are recorded as a liability and the capital component – proportionally to their initial carrying amounts.

After the initial recognition the liability component is measured at impairment cost based on the effective interest method. The capital component is not re-valued after the initial recognition.

Interests, dividends, losses and profits related to a financial liability are recognized in profit and loss. Upon conversion the financial liability is reclassified as equity and no gains or losses are recognised.


(c)


(v)Derivative financial instruments, including reporting in case of hedging

The Group uses derivative financial instruments to hedge its exposures to currency and interest risks. The embedded derivatives are separated from the main contract and reported separately if the economic characteristics and risks of the main contract and of the embedded derivative are not closely related, a separate instrument under the same terms as the embedded derivative meets the definition of derivative and the combined instrument is not reported at fair value in profit or loss.

Upon the initial determination of the hedging the Group formally documents the relation between the hedging instrument(s) and the hedged position(s), including risk management objectives and strategies regarding the hedging transaction, together with the methods to be used to measure the efficiency of the hedging relation. The Group makes an assessment both upon the start of the hedging relation and also on a current basis as to whether the hedging instruments are expected to be “highly efficient” to compensate for the changes in the fair values or cash flows from the respective hedged positions for the period for which the hedging is determined, and whether the actual results of each hedging are within the range of 80-125 percent. When hedging cash flows the projected transaction which is the subject of the hedging must be of high probability and represent an exposure to the changes in the cash flows which ultimately affect the profit or loss.

Derivatives are initially recognized at fair value, the transaction costs are recognized in profit and loss upon occurrence. Following initial recognition, the derivatives are measured at fair value and the changes reported as described below.

Hedging of cash flow

When a derivative is determined as a hedging instrument upon hedging the changes in cash flows due to a certain risk related to a recognized asset or liability or a highly probable projected transaction which may affect the profit and loss, the effective part of the changes in the fair value of the derivative is recognized in another comprehensive income and represented in the equity hedging reserve. The sum recognized in anther comprehensive income is reclassified in profit or loss for the same period when the cash flows from the hedged position affect the profit or loss in the same article of the statement of comprehensive income as a hedged position. All non-efficient parts of the changes in the fair value of the derivative are recognized immediately in profit or loss.

If the hedging instrument ceases to meet the hedging reporting criteria, it expires or is sold, repaid, exercised or the determination is withdrawn, then the reporting of hedging is terminated prospectively. The accumulated profit or loss reported before in another comprehensive income and represented in the equity hedging reserve remains there until the projected transaction affects profit and loss. When the hedged position is a non-financial asset the sum recognized in another comprehensive income is reclassified in the carrying amount of the asset when the asset is recognized. If the projected transaction is not expected to occur any longer the sum in another comprehensive income is recognized immediately in profit or loss. In other cases the sum recognized in another comprehensive income are reclassified in profit or loss in the same period when the hedged position affects profit or loss.

Embedded derivatives that can be separated

Changes in the fair value of separate embedded derivatives are recognized immediately in profit or loss.

3.Significant accounting policies (continued

(d)


(i)

Recognition and measurement

Initial acquisition

Upon the initial acquisition, items of property, plant and equipment are measured at cost, which comprises the purchase price, including custom duties and non-refundable sales taxes, and all direct expenses required for bringing the asset to its location and working condition as required for its use intended by the management.

The cost of self-constructed items of property, plant and equipment includes expenses on materials, expenses on direct labour and the relevant pro rata portion of the indirect production expenses; expenses directly related to bringing the asset to its location and working condition for its intended use; the initial estimate of the expenses on dismantling and removal of the asset and for restoration of the surface it has been situated on and the capitalized interest costs. Acquired software without which the functioning of the purchased equipment is impossible is capitalized as part of such equipment.

When an item of property, plant and equipment comprises major components having different useful lives, they are accounted for as separate items of property, plant and equipment.

Gains and loss resulting from write-off of property, plant and equipment are measured by comparison of the sales income and the carrying amount of the asset and are recognized net as other income through profit and loss. When the revalued assets are sold the amounts included in the revaluation reserve are reclassified as accumulated profit and loss.

Subsequent valuation

The policy adopted by the Group for a subsequent balance sheet valuation of the land, buildings, plant and equipment is the revaluation model allowed by IAS 16. The revalued amount is the fair value of the asset as at the date of revaluation less subsequent depreciation and any subsequent impairment losses.

Usually, fair values of land, buildings, plant and equipment are determined on the basis of market evidence through valuation performed by licensed valuers.

Land, buildings, plant and equipment are usually revalued in every 5 years. This revaluation may be carried out more frequently if their fair value changes significantly in shorter intervals.

Land and building are revalued to fair value based on the valuation of a licensed valuer as at 31 December 2009. Land is revalued to fair value based on the valuation of a licensed valuer as at 31 December 2010. Vehicles and other non-current assets, including ships and acquisition cost of non-current assets are reported at acquisition cost less depreciation and impairment loss.

3.


(d)

Property, plant and equipment (continued)

(ii)

Reclassification to investment property

Property that are constructed with the aim to be used in the future as an investment property are reported as an item of property, plant and equipment by the time of completion of the construction works. Then, this item is revalued to fair value and is reclassified as an investment property. Any gain or loss arising out of the revaluation is recognized in profit or loss.

(ii)

Reclassification to investment property

When the intended use of a certain item of property is changed from an asset available for use by the owner to an investment property, the property is revalued to fair value and reclassified as an investment property. Each profit arising from the recalculation is recognized in profit and loss as far as it reverses a previous impairment loss for the specific property, with each residual profit recognized in other comprehensive income and presented in the revaluation reserve in equity. Each loss is recognized in another comprehensive income and is represented in the equity revaluation reserve to the extent that an amount was included before that in the revaluation reserve for the specific property and each residual loss is recognized immediately in profit or loss.

(iii)Subsequent expenses

Arising subsequent costs in order to replace a part of an asset of the property, plant, equipment and facilities are capitalized in the carrying amount of in the respective asset only when it is possible that the Group could receive future economic benefits related to that part of the asset and the costs may be duly measured. The carrying amount of the replaced part is derecognised. Costs for daily servicing of the assets are recognized as profit and loss as costs at the time of occurrence.

(iv)Depreciation

Depreciation is calculated on the basis of the acquisition cost of the asset reduced by its residual value. When an item of property, plant and equipment comprises major components having different useful lives, they are depreciated as separate items of property, plant and equipment.

Depreciation is recognised as profit and loss on a straight-line basis over the estimated useful lives of each component of property, plant and equipment. Depreciation of assets acquired under finance lease terms is charged for the shorter of the contract term or their useful life, except in the case when obtaining ownership on them by the end of the contractual term is fairly certain. Land is not depreciated.

The expected useful lives are as follows:

· Buildings 7 - 75 years

· Plant and equipment 4 - 30 years

· Motor vehicles 2 - 30 years

· Ship repairing 2 – 5 years

Fixtures and fittings 5 - 10 years

The method of depreciation, useful lives and the remaining value are reviewed at each statement date and when significant deviations from the future expectations for the duration of use are found, the latter is adjusted prospectively.

3Significant accounting policies (continued)

(e)Intangible assets

(i)Goodwill

Goodwill which arises upon acquisition of subsidiaries is included in intangible assets. For initial measurement of goodwill see Note 2(f)(i).

Subsequent valuation

Goodwill is stated at cost less any accumulated impairment losses. Regarding the investments in entities reported using the capital method, the carrying amount of the positive goodwill is included in the carrying amount of the investment and impairment losses for such an investment are not distributed on the assets, including on the goodwill, which is a part of the carrying amount of the investment reported using the capital method.

(ii)

Other intangible assets

The other intangible assets acquired by the Group are stated at cost less accumulated amortization (see below) and impairment losses. Expenses on internally generated goodwill and brands are reported in the income statement as incurred.

(iii)Subsequent expenses

Subsequent expenses on intangible assets are capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenses are recognized as expenses in the profit and loss upon occurrence.

(iv)Depreciation

Depreciation is calculated on the basis of the acquisition cost of the asset reduced by its residual value.

Amortization is charged in profit and loss on a straight-line basis over the estimated useful lives of intangible assets. Intangible assets are amortized from the date they are available for use. The expected useful life is as follows:

· Patents and trademarks 7 years

· Software products 5 years

(f)Hired assets

Leasing contracts under which all material risks and rewards of ownership are transferred to the Group are classified as financial leasing. Upon initial recognition hired assets are reported at the lower from the fair value and the present value of the minimum lease payments. After the initial recognition the asset is reporting in accordance with the accounting policy applicable for the respective asset.

Other leasing contracts are operating leases and are not recognised in the statement of the financial position of the Group.

3Significant accounting policies (continued)

(g)Inventories

Inventories are stated at the lower of the cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and selling expenses.

The prime cost of inventories is reported following the principle of the average weighed value of materials and unfinished production. In cases of manufactured output, the prime cost also includes labour costs, social security and amortization costs. These costs are allocated to output on the basis of the standard production capacity. The prime cost may include gains and losses reclassified from equity, from hedging of cash flows for acquisition of inventories in foreign currency.

(i)Unfinished production under construction contracts

The unfinished production is measured at the value of the accumulated costs. The value includes all costs directly related to the separate orders and the respective part of the relative permanent costs of the Group allocated on the basis of the direct labour costs (see Note 3(j)), as well as capitalized borrowing expenses.

The relative permanent (indirect) production costs are a quantity which is not directly affected by the volume of the output produced. They represent the amortization costs, remunerations, social security and other costs for personnel of the auxiliary units and costs for consumables for the workshops.

The unfinished production is presented as part of the inventories as of the date of the statement.

(h)Impairment

(i)Non-derivative financial assets

A financial asset which is not measured at fair value as profit and loss is reviewed as of each reporting date with a view to establishment of possible impairment indications. A financial asset is considered impaired if there is objective proof that an event of loss has occurred after the initial recognition of the assets and that this event has negatively affected the projected cash flows from this asset and that this effect may be duly measured.

An objective evidence that a financial asset (including capital securities) is impaired may include a default or delay on the part of the debtor, restructuring of the due amount for the Group under conditions which the Group would not consider in other circumstances, indicators that the debtor or issue will become insolvent, the absence of an active market for a given security. In addition for an investment in a capital security a considerable or lengthy decline of the fair value below its acquisition price represents an objective evidence of impairment.

3


(h)

Impairment (continued)

Loans and receivables and investments in securities held to maturity

The Group takes into account evidence of impairment of receivables and investments in securities held to maturity both for a specific asset and also on a collective level. All individually significant receivables and held-to-maturity securities are reviewed for specific impairment. All individually significant receivables and held-to-maturity securities for which there is no specific impairment are further reviewed collectively for impairment which has occurred but is not yet identified. Receivables and held-to-maturity securities which are not individually significant are reviewed collectively for impairment as they are grouped together as receivables and held-to-maturity securities with similar risk characteristics.

Upon the collective-level review for impairment the Group uses the historic trends of the probability for default on the obligations, the recovery time and the amount of the occurring losses, adjusted with the assessment of the management as to whether the current economic and credit conditions are such that it is probable that the actual losses would be higher or lower that the estimates on the basis of the historic trends.

The loss from impairment of a financial asset reported at depreciated value is calculated as the difference between its carrying amount value and present value of the expected future cash flows discounted by the initial effective interest rate. Impairment loss is recognized as profit and loss and is not reported in a special corrective account reducing the receivables. When a subsequent event reduces the impairment loss this reduction is not recognized through profit and loss.

Financial assets available for sale

Impairment loss regarding a financial asset available for sale is reported so that the accrued loss, recognized previously in another comprehensive income and shown in the reserve of fair values in the equity is transferred in profit and loss. The cumulative loss which is transferred from another comprehensive income and is recognized as profit and loss is the difference between the acquisition price, net from the repayments of the principal and depreciation and the current fair value reduced by the impairment loss previously recognized as profit and loss. Changes in the impairment due to the application of the effective interest method are recognized as a component of the interest income.

If during a subsequent period the fair value of an impaired debt security available for sale increases and the increase may be objectively connected to an event occurring after the recognition of the impairment loss as profit or loss, then the impairment loss is recovered back and the sum is recognized as profit or loss. Nevertheless, each subsequent recovery of the fair value of an impaired capital security which is available for sale is recognized as another comprehensive income.

(ii)Non-financial assets

The reported values of the non-financial assets of the Group, different from investment property, inventories and deferred tax assets are reviewed as of each reporting date with a view to establishment of possible impairment indications. If such indications exist, an approximate calculation of the asset recoverable amount is made. The recoverable value for goodwill and intangible assets with undetermined useful life is determined every year at the same time.

3


(h)

Impairment (continued)

(ii)Non-financial assets (continued)

The recoverable amount of an asset or a cash-generating unit (CGU) is the higher of its value in use and its fair value less any sale costs. Upon value in use measurement, the estimated cash flows are discounted to their current value applying a discount rate prior to taxation, reporting the current market assessments, the price of money in time and specific asset-related risks. For an assets which does not generate cash proceeds independently the recoverable value is determined for the group of cash-generating assets to which it belongs. For the purposes of the impairment test of goodwill, CGU to which the goodwill is allocated are aggregated in such a way that the level at which impairment tests are made reflects the lowest level at which goodwill is monitored for internal reporting purposes (it cannot be higher than an operating segment). Goodwill acquired in a business combination is allocated to the CGU groups, which are expected to benefit from the synergies of the combination.

The corporate assets of the Group do not generate separate cash inflows and are used by more than one CGU. The corporate assets are allocated to CGU on a reasonable and consistent basis and are tested for impairment as part of the test of the respective CGU to which they are allocated.

Impairment loss is always recognized if the carrying amount of an asset or the cash-generating unit to which it belongs exceeds its recoverable value. Impairment losses are recognized in profit or loss. Impairment losses recognized as cash generated units are first allocated in order to reduce the carrying amount of the goodwill allocated to the units and after that to reduce the reported values of other assets in the site, proportionately.

Loss from goodwill impairment is not subject to recovery. Regarding other assets, impairment loss recognized in previous periods is reviewed at each reporting date for indications whether the loss is reduced or does not exist any longer. Impairment loss is recovered back if there has been a change in the estimates used to determine the recoverable value. Impairment loss is recovered to such an extent that the carrying amount of asset does not exceed the carrying amount which has been determined after the deduction of impairment if no impairment loss has been recognized.

Goodwill which is a part of the balance value of an investment in an associate is not recognized separately and therefore is not tested for impairment separately. Instead the whole amount of the investment in the associate is tested for impairment as one asset when there is objective evidence that the investment in the associate may be impaired.

3


(i)

Non-current assets held for sale

Non-current assets or groups for decommissioning comprising the assets and liabilities whose value is expected to be recovered mainly through sale, not through continued use, are classified as held for sale. Immediately before being classified as held of sale the assets or components of a group for decommissioning are valued in compliance with the accounting policy of the Group. After that the assets or the group for decommissioning are usually valued at the lower of their carrying amount and fair value reduced by the sales costs. Each impairment loss of a group for decommissioning is allocated first to goodwill and then to the remaining assets and liabilities proportionally, with the exception that the loss is not allocated to inventories, financial assets, deferred tax assets, assets comprising income of employees, investment property and biological assets which continue to be reported in compliance with the accounting policy of the Group. Impairment losses on initial classification as held for sale and subsequent gains or losses from revaluation are recognized in profit or loss. Gains are not recognized at a value greater than the cumulative impairment loss.

Once classified as held for sale, intangible assets and property, plant and equipment are not depreciated. In addition, the accounting by the equity method of investments accounted for by this method is terminated after these investments are classified as held for sale.

(j)Income of hired people

(ii)

Defined income planes

A defined income plan is a plan for income after leaving different than a defined contribution plan. The net liability of the Group regarding defined income plans is calculating by estimating the amount of the future income which the employees have acquired in compensation for their services in the current and previous periods and this income is discounted in order to determine its current value.

The Group is obliged to pay income upon retirement to those of its employees who retire in compliance with the requirements of Article 222, § 3 of the Labour Code (LC) in Bulgaria. Pursuant to these provisions of LC upon termination of the labour contract of an employee who has obtained the right to a pension, the employer has to pay to this employee a remuneration amounting to two monthly gross salaries. If an employee has worked for the same employer for 10 or more years as at the date of retirement with the same employer, the retirement benefit amounts to six gross monthly salaries. The Management estimates the total amount of potential payables to all employees as of the date of the statement based on an actuarial report using projected credit unit method. The total amount of the charged payable and the main assumptions on which the payable estimation is made are disclosed in Note 30a.

The Company recognises all actuarial profit and loss arising from the defined income plan as personnel costs in other comprehensive income/personnel costs and all costs arising from the defined income plan - in personnel costs in the profit or loss.

3


(j)

Personnel income (continued)

(ii)

Short-term income of hired persons

Liabilities for short-term income of hired persons are measured on a non-discounted basis and are reported as cost when the related services are provided. A liability is recognized for the amount which is expected to be paid as short-term bonus in cash or plans for distribution of the profit, if the Group has a legal or constructive obligation to pay this amount due to past services rendered by an employee and the obligation may be duly measured. The Group recognizes the total amount of the non-discounted expenses on paid annual leaves expected to be paid to employees for their work over the preceding reporting period as liability.

(iii)Termination benefits

Termination benefits are recognized as an expense when the Group has committed itself clearly, without a realistic possibility of withdrawal, to an official and detailed plan to either terminate the working relationship before the normal retirement date, or to provide termination benefits as a result of a proposal made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognized as an expense if the Group has made a formal proposal for voluntary termination and it is probable that the offer will be accepted and the number of adopters can be estimated reliably. If benefits are due for more than 12 months after the end of the reporting period, they are discounted to their present value.

(к)Provisions

A provision is recognised when the Group has a legal or constructive obligation as result of past events, and it is probable that an outflow of resources and economic benefits will be required to settle the obligation. When the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money. The charging of interest on the discounted value is recognized as a financial cost. Where appropriate, other specific risks specific to the liability are also taken into consideration.

(i)Guarantees

Guarantee provisions are recognised when the respective products and services are realised. The provision is based on the historical information for guarantees claimed, taking into account the probability of occurrence of such future expenses as well.

(ii)

Restructuring

Restructuring provisions are recognised when the Group has an approved formal plan for restructuring and the restructuring either has commenced or has been announced publicly. Future operating costs are not provided for.

(iii)

Provisions for terrain restoration

According to the published Group’s environmental policy and the applicable law requirements, provisions for terrain restoration in connection to contaminated land and the costs related thereto are recognised upon the occurrence of the contamination.

3


(к)Provisions (continued)

(iv)

Onerous contracts

A provision for onerous contracts is recognized where the unavoidable costs of meeting the obligations under the onerous contract exceed the expected economic benefits for the Group from this contract. Provision is accrued as the present value of the lower of these two – the estimated costs of exiting the contract or the expected net costs of continuing to fulfil it. Before a separate provision for an onerous contract can be made, the Company should recognize any impairment that has occurred on assets dedicated to that contract.

(l)Revenue

(i)Revenue from sold output and goods

Revenue from sale of goods is measured at the fair value of the consideration received or receivable net of returns and allowances, trade discounts and volume rebates. Revenue from sale of goods is recognized in the statement of comprehensive income when the significant risks and rewards of ownership are transferred to the buyer; the amount of revenue can be measured reliably, and it is probable that the economic benefits associated with the transaction will flow to the company; the costs made and the possible return of the good may be measured reliably, and when there is no future involvement in the goods management.

The transfer of all significant risks and rewards of ownership depends on the individual terms of the sale contract.

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

(ii)Services

Revenue from services rendered is recognized in the income statement in proportion to the stage of completion of the transaction at the reporting date. The state of completion is assessed by reference to the ratio between costs incurred for the work performed so far and the total expected costs under the contract.

(iii)

Revenue from ship construction contracts

Revenue from shipbuilding is recognized on the basis of the method of the percentage of works completed according to which the revenue is recognised on the basis of the stage of completion of the works under a specific contract. Contract revenues are compared with contract cost arising in the process of reaching this stage of completion, leading to reporting of income, expenses and profit under the contract based on the proportion of work completed. The recognized revenue from shipbuilding at each completed stage represents the same percentage from the expected income from the specific contract, as the percentage of the costs made for the stage to the expected total costs under the contract. The contractual revenues include the initially agreed value plus all amendments to the agreed work, claims, bonus payments, to the extent that it is probable that they will result in revenues and may be duly measured.

3


(l)Provisions (continued)

(iii)Revenue from ship construction contracts (continued)

When the results from a given construction contract cannot be measured in a reliable manner, revenue from this contract is recognized only to the extent of contract costs incurred that are likely to be recovered. The expected loss arising under a construction contract is recognised immediately in the income statement.

Based on the basic technological stages of the construction of the vessel, three stages of completion of shipbuilding contracts are defined:

· K1 – keel laying;

· K2 – float up;

· Finishing works – until delivery of the ship to the client.

In order to determine the completion stage of shipbuilding contracts the method of the completed units of work is used.

Shipbuilding contract costs include:

· direct costs attributable to the specific contract;

· indirect (overhead) costs allocated on the basis of direct costs for labour performed for the period of the specific contract

(iv)

Rental income

Income from rent is recognized in the statement of comprehensive income on the basis of the straight-line method for the duration of the lease contract. Received additional payments are recognized as an integral part of the total rental income for the period of the rent. Rental income for property for re-rent are recognized as other income.

(m)

Gratuitous funds provided by the State

Gratuitous funds provided unconditionally by the State and related to biological assets are recognized in profit or loss as other income when they are received. Other gratuitous funds provided by the State are recognized initially as deferred income at fair value when there is sufficient probability that they will be received and the Group will fulfil the conditions attached to the funds. Gratuitous funds which compensate the Group for costs incurred are recognized in profit or loss as other income on a systematic bases in the periods when the costs are recognized. Gratuitous funds which compensate the Group for costs incurred are recognized in profit or loss as other income on a systematic basis in the periods when the costs are recognized.

(m)Payments under lease contracts

Payments under operating lease are recognized in profit or loss based on the straight-line method over the term of the lease contract. Additional payments received are recognized in profit or loss as an inseparable party of the total lease payments for the period of the contract.

Minimum lease payments under financial lease contracts are apportioned out between the financial costs and the settlement of the outstanding liabilities. Financial costs are allocated to each reporting period over the term of the lease contract so that to achieve a constant periodic interest rate payable on the remaining amount of the liability. Potential lease payments are accounted for by re-assessing the minimum lease payments over the remaining lease term, when the lease adjustment is confirmed.

3Значими счетоводни политики (продължение)


(m)Payments under lease contracts (continued)

Determining whether a given agreement contains leasing

Upon occurrence of the agreement the group determines whether it is or contains leasing components. A given asset is the subject of a lease if the execution of the agreement depends on the use of this given asset. The agreement represents a transfer of the right of use of the asset if the agreement provides to the Group the right to exercise control on the use of the base asset.

Upon occurrence or after a subsequent assessment of the agreement, the Group divides the payments and other required compensations under this agreement to leasing payments and payments for the other elements on the basis of their relative fair values. If the Group comes to the conclusion that it is not possible to reliable divide the payments for a given financial leasing, the assets and liabilities are recognized to an amount equal to the fair value of the base asset. After that the liability is reduced when the payments are made and the incurred financial cost on the liability is recognized using the differential interest rate of the Group.

(n)Financial income and costs

Financial income comprise interest receivable on funds invested, dividend income, profit from sale of financial assets available for sale, changes in the fair value of financial assets stated at fair value when the change is reported as profit or loss, and foreign currency exchange gains. Interest income is charged according to the effective interest rate method. Dividend income is recognized on the date of establishment of the Company’s right to receive the payment, which is the date after which shares does not give the right to receiving the last dividend in case of quoted/ tradable securities.

Financial costs comprise interest payable on borrowings, costs incurred as a result of an increased liability with a view to approaching the date set for provision realization by one period, foreign currency exchange losses, changes in the fair value of financial assets stated at fair value when the change is reported as profit or loss, and write down of financial assets. All expenses on interest payable on loans are recognised as profit or loss using the effective interest rate method.

(n)Financial income and costs

Profit and loss from foreign currency gain and loss are measured on a net basis.

(о)Profit tax

Profit taxes for the year represent the current and deferred taxes. The profit tax is recognized in the profit and loss, with the exclusion of the one related to business combinations or articles which are recognized directly in the equity or in another comprehensive income.



(о)

Profit tax (continued)

The current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted as of the balance sheet date and all corrections for taxes due for previous years.

Deferred tax is calculated on the temporary differences between the amount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

A deferred tax is not recognised for:

· time differences from the initial recognition of assets and liabilities for a transaction different than a business combination which does not affecting the profit and loss, neither for accounting, nor for taxation purposes

· differences related to investments in subsidiaries jointly controlled companies, as long as it is probable that there will be no reversal in the foreseeable future.

· taxable temporary differences arising from initial recognition of goodwill.

Deferred tax is measured at the tax rates expected to apply for temporary differences when they appear back, on the basis of laws which are enacted or are in essence introduced as of the reporting date.

When determining current and differed tax the Company takes into account the effect of uncertain tax position and if additional taxes or interest are due. The Company considers that accrued taxes are adequate for all open tax years based on the assessment of several factors including tax laws interpretation and experience over previous years. This assessment is based on approximate valuations and presumptions and may include estimation for foreseeable events. New information may appear according to which the Company will change its estimation for adequacy of current tax liabilities; changes in tax liabilities would affect tax expenses at the period when such determination is made.

Deferred tax assets and liabilities are netted if there is a legal justification for netting of current tax assets and liabilities and they refer to profit taxes levied by the same revenue authorities on one company ,or on different companies which intend to settle the tax assets and liabilities on a net basis, or their tax assets and liabilities will be realized simultaneously.

An asset to deferred taxes is charged on unused tax losses, credits and deductible temporal differences only to the amount to which it is possible for the future taxable profit to be available provided against which these can be used. The deferred tax assets are reviewed as of each reporting date and are reduced as long as it is no longer possible for future benefits to be realized.

When determining the current and deferred taxes the Group uses the accounting base described in Note 2(b) above.



(p)Reporting by segments

An operating segment is a component of the Group which carries out activities which may generate revenues and incur costs, including revenues and costs which may refer to transactions with any of the other components of the Group. The operating results of the operating segments are reviewed regularly by the Chief Executive Officer so that decisions can be made regarding the allocation of the resources to the segments and their performance assessed, and for which differentiated financial information is available.

Results by segment, which are reported to the Executive Director, include both items that can be attributed directly to the segment, and those can be attributed to a reasonable basis. Unallocated items, mainly corporate assets (primarily the headquarters of the Company), main office expenses, and income tax assets and liabilities.

Capital costs by segment represent the total costs during the year for acquisition of property, plant and equipment and for intangible assets other than goodwill.

(r)Basic earnings per share

The Group presents the base net earnings per share (NES) and diluted earnings per share for its ordinary shares. The base NES is calculated by dividing the profit or loss for the holders of ordinary shares of the Company by the average weighted number of ordinary shares during the period, adjusted for equity held. NES with diluted value are calculated by adjusting the profit or loss for the holders of ordinary shares and the average weighted number of ordinary shares adjusted for held equity and to reflect the effects from all potential diluting ordinary shares, including convertible bonds and share options provided to workers and employees.

(s)

New standards and interpretations not yet adopted

Certain new standards, amendments to standards and interpretations that will become effective for financial periods beginning after January 1, 2011 have not been applied previously in the preparation of these financial statements. Management does not expect these changes to affect future financial statements of the Company.

Standards, interpretations and amendments not yet adopted and applied earlier – endorsed by the EC

· Amendments to IFRS 7 Financial Instruments: Disclosures effective for the first financial year beginning after July 1, 2011

· Improvements to IFRS 2010 in force on different dates, in general from 1 January 2011

IASB/IFRIC documents not yet endorsed by EC:

Management believes that it is appropriate to disclose that the following revised standards, new interpretations and amendments to current standards, which are already issued by the International Accounting Standards Board (IASB), are not yet endorsed for adoption by the European Commission, and therefore are not taken into account in preparing these financial statements. The actual effective dates for them will depend on the endorsement decision by the EC.


(s)

New standards and interpretations not yet adopted (continued)

· IFRS 9 Financial Instruments (issued November 2009) and Supplements to IFRS 9 (issued October 2010) with effect from 1 January 2015 and may change the classification and valuation of financial instruments.

· In May 2011 the IASB issued IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities and IFRS 13 Fair Value Measurement, effective from 1 January 2013. The IASB also issued IAS 27 Separate Financial Statements (2011) which supersedes IAS 27 (2008) and IAS 28 Investment in associates and joint ventures предприятия (2011) which supersedes IAS 28 (2008). These standards are effective from 1 January 2013.

· Amendments to IAS 12 Deferred taxes: Recovery of the underlying assets (issued December 2010) with effect from 1 January 2012.

Amendments to IFRS 1 Strong hyperinflation and the elimination of fixed dates in the original application (issued December 2010) with effect from 1 July 2012.

In June 2011 the IASB issued Presentation of Other comprehensive income (amendments to IAS 1) effective from 1 July 2012.

In June 2011 IASB issued amended IAS 19 Employment benefits with effect from 1 January 2013.

In December 2011 the IASB issued amendments to IFRS 7 Financial Instruments: Disclosures with effect from 1 January 2013.

In December 2011 the IASB issued amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities effective from 1 January 2014.

· Issued IFRIC 20: Stripping Costs in the Production Phase of a Surface Mine effective from 1 January 2013.

4

Fair value measurement

Some accounting policies and disclosures of the Group require that fair values are determined for both the financial and non-financial assets and liabilities. Fair values have been determined for the purposes of measurement and disclosure based on the methods discussed below. Where applicable, supplementary information about the assumptions made in measurement of the fair values has been disclosed in the notes for the specific assets and liabilities.

(i)


Fair values of property, plant and equipment are recognized in the result of valuation based on market prices, performed by certified qualified valuers. The fair value of plant, equipment and facilities is based on the market approach and the approach of the acquisition price using quoted market prices for similar positions when such are available and the value of replacement, when applicable. An estimate of the depreciated cost of replacement reflects adjustments for physical deterioration and functional and economic obsolescence.

(iii)

Non-derivative financial liabilities

The fair values measured to be disclosed are determined on the basis of the present value of future cash flows related to principals and interests discounted by the market interest rate as of the statement’s date. Regarding the liability component from convertible bonds, the market interest is determined from similar liabilities without the option of conversion. The market interest rate applicable to financial leases is measured on the basis of similar lease agreements.

4

Fair value measurement (continued)

(iv)

Derivatives

The fair value of interest rate swaps is based on quotes from brokers. These quotes are tested for reasonableness by discounting expected future cash flows based on the conditions and maturity of each contract and using market interest rates for similar instruments at the date of assessment. Fair value reflects the credit risk of the instrument and includes adjustments to account for the credit risk of the Group entity and the contracting party, where appropriate.

5.Financial risk management

The Company is exposed to the following risks resulting from the use of financial instruments:

· Credit risk

· Liquidity risk

· Market risk

· Operating risk

This note gives information on the Group’s exposure to each of the aforementioned risks, the purposes of the Group, policies and processes related to risk assessment and management and management of the capital of the Group. Additional quantity disclosures are included in the Notes to the Consolidated Financial Statements.

Key risk management positions

The Audit Committee of the Group observes how the management ensures compliance with the risk management policies of the Group and reviews the adequacy within the risk management framework regarding the risks facing the Group. The Audit Committee of the Group uses the support of the Internal Control Department. The Internal Control Department handles both planned and surprise reviews of the risk management controls and procedures, the results of which are reported to the Audit Committee.

Credit risk

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

5.Financial risk management (continued)

Trade and other receivables

The exposure to credit risk of the Group results from the specific characteristics of individual clients that vary for the different segments. This exposure may also depend on the risk of non-payment characteristic to the industry or markets where the Group’s companies operate. As this risk is different for the various segments, it is managed on the basis of their share in the portfolio of IHB Plc. Thus, the Group’s risk is diversified. The credit policy of the Group provides for investigation of the solvency of each new client before offering standard terms of delivery and payment.

The Group reports impairment representing estimated loss in relation to trade and other receivables and investments. The main impairment components include a component concerning individually significant exposures and a collective component concerning loss on groups of similar assets as to losses that have been incurred but not identified yet. The collective component is determined on the basis of historical data on payments related to similar financial assets.

Investments

The Group invests mainly in businesses and companies in which it has control and may determine their management strategies. As to portfolio investments, the Group aims at investment in liquid securities.

Guarantees

The policy of the Group envisages issuance of financial guarantees only following preliminary approval by the management bodies. As of 31 December 2010 the Group provided guarantees to secure obligations to third parties, as per the information provided in Note 36.

Liquidity risk

Liquidity risk originates when the Group does not settle its liabilities when they become due. The Company applies a method ensuring necessary liquid resources to settle its liabilities under usual or extraordinary conditions without suffering excessive loss or damaging its reputation.

The companies elaborate financial planning to cover their expenses and current payables for a period of 30 days, including settlement of financial liabilities; this planning excludes the potential effect of extraordinary circumstances that may not be foreseen under usual conditions.

5.

Financial risk management (continued)

Liquidity risk (continued)

The Holding’s management assists the Group’s companies in their efforts to borrow funds from banks for investments and use revolving working capital loans to secure production. The amounts of these borrowed funds are maintained at certain rates and allowed following proving economic effectiveness as to each company. Borrowed funds improve liquidity and are necessary for the production growth. The policy applied by the Management over the last several years is directed at raising fresh market resources by the Holding in the form of shares, bonds and other similar instruments with the purpose of investing in its subsidiaries in two directions: granting of loans to its group companies to finance their projects and acquisition of shares in their capitals, including subscription of shares upon capital increase.

Market risk

The market risk originates when the income or the value of the investments of the companies are affected by changes in market prices, exchange rates, interest rates or prices of equity instruments. The purpose of market risk management is the management and control of market risk within acceptable limits through return rate optimization.

Currency risk

The Holding’s management has minimized the payments in foreign currency other than BGN and EUR to minimize the Group’s exposure to currency risk. Some of the Group’s companies are exposed to limited currency risk upon purchase and/or sale and/or receiving loans denominated in foreign currencies other than the functional currency. Bulyard Shipbuilding Industry EAD, KLVK AD and Tirista Ltd have signed contracts in USD.

Interest rate risk

Th

as of 31march · web viewthe drafting of the consolidated financial statements under ifrs requires...

Documents