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90
Industrial Holding Bulgaria Plc Interim Consolidated Financial Statements For the period ended 30 September 2015

Transcript of 1. · Web vieware classified as either financial assets at fair value through profit or loss, loans...

INDUSTRIAL HOLDING BULGARIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD 30 SEPTEMBER 2015

Industrial Holding Bulgaria Plc

Interim Consolidated Financial Statements

For the period ended 30 September 2015

ИНДУСТРИАЛЕН ХОЛДИНГ БЪЛГАРИЯ АД

Съдържание

66

Managing Board

Daneta Angelova Zheleva

Bozhidar Vasilev Danev

Boyko Nikolov Noev

Borislav Emilov Gavrilov

Emilian Emilov Abadzhiev

Supervisory Board

Konstantin Kuzmov Zografov

DZH AD, represented by Elena Petkova Kircheva

Snezhana Ilieva Hristova

Auditor

Ernst & Young Audit OOD

Polygraphia Office Centre

47 A, Tsarigradsko shosе Blvd., fl.4

1124 Sofia

Bulgaria

INDUSTRIAL HOLDING BULGARIA AD

Content

i

In BGN thousand

Notes

30 September 2015

30 September 2014

Continuing operations

Revenue

8

68,428

64,140

Other operating revenue

9

1,710

1,788

Changes in inventories of work in progress and finished goods

10

3,040

2,976

Own work capitalised

11

1,129

615

Expenses for materials

12

(21,697)

(22,925)

Expenses for hired services

13

(15,696)

(13,818)

Depreciation and amortization

18,19

(9,125)

(10,045)

Personnel expenses

14

(18,026)

(16,162)

Other operating expenses

15

(2,323)

(2,279)

Profit/loss from operations

7,440

4,290

Financial income

16

45

42

Financial expenses

16

(7,418)

(6,768)

Profit of associates

20

-

55

Profit/loss before tax from continuing operations

67

(2,381 )

Income tax (expense) / gain

17

(646)

(635)

Profit/loss for the year from continuing operations

(579)

(3,016)

Discontinued operations

Profit for the year from discontinued operations, net of taxes

7

-

(626)

Profit for the year:

(541)

(2,642)

Attributable to:

Equity holders of the parent

(741)

(1,394)

Non-controlling interests

162

(2,248)

(579)

(3,642)

The notes on pages 3 to 62 form an integral part of these consolidated financial statements. The consolidated financial statements were authorised for issue with a resolution of the Management Board and Supervisory Board dated 30 November 2015.

Daneta Zheleva

Chief Executive Director

Toshka Vassileva

Chief accountant

(Continued)

Note

30 September 2015

30 September 2014

Net earnings per share

Basic earnings per share attributable to ordinary equity holders of the parent company (BGN)

28

(0,010)

(0,020)

Diluted earnings per share, attributable to owners of the parent company (in BGN)

28

0,008

(-)

The notes on pages 3 to 62 form an integral part of these consolidated financial statements. The consolidated financial statements were authorised for issue with a resolution of the Management Board and Supervisory Board dated 30 November 2015.

Daneta Zheleva

Chief Executive Director

Toshka Vassileva

Chief accountant

INDUSTRIAL HOLDING BULGARIA PLC

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 SEPTEMBER 2015

INDUSTRIAL HOLDING BULGARIA PLC

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 SEPTEMBER 2015

3

4

In BGN thousand

Notes

30 September 2015

30 September 2014

Profit / (Loss) for the period

(579)

(3,642)

Other comprehensive income

Other comprehensive income subject to reclassification to profit or loss in subsequent periods

Exchange differences on translation of foreign operations

(5,616)

(5,219)

Tax effect on income

-

-

(5,616)

(5,219)

Net movement on cash flow hedges

33

-

120

Tax effect on income

17

-

(12)

-

108

Other comprehensive income subject to reclassification to profit or loss in subsequent periods, net of taxes

(5,616)

(5,111)

Other comprehensive not income subject to reclassification to profit or loss in subsequent periods

-

-

-

Other movements

7

18

Other comprehensive not income subject to reclassification to profit or loss in subsequent periods, net of taxes

7

18

Other comprehensive income for the year, net of tax

(5,609)

(5,093)

Total comprehensive income for the year, net of tax

(6,188)

(8,735)

Attributable to:

Equity holders of the company

(6,368)

(6,489)

Non-controlling interests

180

(2,246)

(6,188)

(8,735)

The notes on pages 3 to 62 form an integral part of these consolidated financial statements. The consolidated financial statements were authorised for issue with a resolution of the Management Board and Supervisory Board dated 30 November 2015.

Daneta Zheleva

Chief Executive Director

Toshka Vassileva

Chief accountant

In BGN thousand

Notes

30 September

2015

31 December

2014

Assets

Non – current assets

Property, plant and equipment

18

376,033

379,121

Investment properties

19

6,140

6,800

Other intangible assets

21

6,978

6,384

Goodwill

19

10,842

10,842

Investments in associates

20

-

-

Investments held for sale

22

4

4

Non-current receivables

23

62

1,059

Deferred tax assets

17

34

35

Total non-current assets

400,093

404,245

Current assets

Inventories

24

20,814

19,258

Trade and other receivables

25

9,094

29,409

Income tax receivable

116

112

Cash and cash equivalents

26

7,575

4,652

Total current assets

37,599

53,431

Assets classified as held for sale

7

1,247

1,247

TOTAL ASSETS

438,939

458,923

The notes on pages 3 to 62 form an integral part of these consolidated financial statements. The consolidated financial statements were authorised for issue with a resolution of the Management Board and Supervisory Board dated 30 November 2015.

Daneta Zheleva

Chief Executive Director

Toshka Vassileva

Chief accountant

INDUSTRIAL HOLDING BULGARIA

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE PERIOD 30 SEPTEMBER 2015

INDUSTRIAL HOLDING BULGARIA

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

FOR THE PERIOD 30 SEPTEMBER 2015

6

(Continued)

In BGN thousand

Notes

30 September 2015

31 December 2014

Equity

Share capital

27

77,400

67,978

Share premium

27

30,604

30,604

Shares buyback

27

(780)

(776)

Other reserves

27

89,965

90,687

Retained earnings

61,697

64,027

258,886

252,520

Non-controlling interests

7,216

16,654

Total equity

266,102

269,174

Liabilities

Non – current liabilities

Interest-bearing loans and borrowings

29

10,818

26,944

Debenture loan

29

49,953

Payables to related parties

35.2

1,853

4,348

Trade and other payables

33

17,568

14,833

Grants

30

2,762

2,409

Provisions

31

27

27

Retirement benefit liability

32

442

532

Deferred tax liabilities

17

9,568

9,569

Deferrals

33

255

191

Total non-current liabilities

93,246

58,853

Current liabilities

Interest-bearing loans and borrowings

29

56,078

61,987

Debenture loan

29

1,192

30,381

Payables to related parties

35.2

561

11,260

Trade and other payables

33

21,195

26,816

Provisions

31

10

20

Grants

30

185

251

Income tax payable

370

181

Total current liabilities

79,591

130,896

Liabilities directly associated with the assets classified as held for sale

7

-

-

Total liabilities

172,837

189,749

TOTAL EQUITY AND LIABILITIES

438,939

458,923

The notes on pages 3 to 62 form an integral part of these consolidated financial statements. The consolidated financial statements were authorised for issue with a resolution of the Management Board and Supervisory Board dated 30 November 2015.

Daneta Zheleva

Chief Executive Director

Toshka Vassileva

Chief accountant

INDUSTRIAL HOLDING BULGARIA

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

FOR THE PERIOD 30 SEPTEMBER 2015

7

In BGN thousand

Notes

30 September 2015

30 September 2014

Operating activities

Receipts from customers

70,649

66,032

Payments to suppliers

(40,216)

(37,632)

Personnel and social security payments

(17,796)

(15,983)

Income tax paid

(420)

(957)

Exchange rate differences

167

45

Other proceeds

(1,033)

(467)

Cash flows from operating activities, net

11,351

11,038

Investing activities

Proceeds from sale of property, plant and equipment

23,823

269

Purchase and construction of property, plant and equipment

(4,256)

(3,938)

Proceeds from repaid loans and interests

10

-

Loans granted

-

-

Payments for transactions with financial assets

-

30

Dividends received from investments

(12,458)

-

Proceeds from sales of investments

6

49

Interests received from loans granted, deposits and current bank accounts

994

1,457

Other proceeds

-

102

Cash flows used in investing activities, net

8,119

(2,031)

Financial activities

Proceeds from issuance of securities

12

Payments in bay-back of securities

(16)

(5)

Interest-bearing loans and borrowings received

2,647

5,169

Received debenture loan

50,000

-

Repaid debenture loan

(20,578)

-

Repayment of interest-bearing loans and borrowings

(44,985)

(11,541)

Dividends paid

(257)

(96)

Payments of interests, fees and commissions regarding loans

(3,197)

(4,016)

Other payments

(173)

(582)

Cash flows (used in) / from financing activities, net

(16,547)

(11,071)

Net decrease in cash and cash equivalents

2,923

(2,064)

Cash and cash equivalents at the begging of the period

26

4,652

5,249

Cash and cash equivalents as at 31 September 2015

26

7,575

3,185

The notes on pages 3 to 62 form an integral part of these consolidated financial statements. The consolidated financial statements were authorised for issue with a resolution of the Management Board and Supervisory Board dated 30 November 2015.

Daneta Zheleva

Chief Executive Director

Toshka Vassileva

Chief accountant

INDUSTRIAL HOLDING BULGARIA

CONSOLIDATED CASH FLOW STATEMENT

FOR THE PERIOD 30 SEPTEMBER 2015

8

Attributable to equity holders of the parent

In BGN thousand

Share capital

Share premium

Share buyback

Additional and legal reserves

Hedging reserve

Revaluation reserves

Retained earnings

Total

Non-controlling interest

Share capital

As at 1 January 2015

67,978

30,604

(776)

4,671

-

86,016

64,027

252,520

16,654

269,174

Total comprehensive income for the year

Profit/Loss for the year

-

-

-

-

-

-

(741)

(741)

162

(579)

Other comprehensive income/loss (Note 27)

-

-

-

-

-

-

(5,627)

(5,627)

18

(5,609)

Total comprehensive income/loss for the year

-

-

-

-

-

-

(6,368)

(6,368)

180

(6,188)

Transactions with shareholders recognized directly in equity

Transfer form retained profit to reserve

-

-

-

(653)

-

-

653

-

-

-

Dividend distribution

-

-

-

-

-

-

(13)

(13)

(261)

(274)

Acquisition of non-controlling interest

-

-

-

-

-

3,329

3,329

(9,357)

(6,028)

Sale of own shares

-

-

(4)

-

-

-

-

(4)

-

(4)

Capital increase

9,422

9,422

9,422

Total transactions with shareholders

9,422

-

(4)

(653)

-

-

3,969

12,734

(9,618)

3,116

Transfer of revaluation reserve on assets sold

-

-

-

-

-

(69)

69

-

-

-

As at 30 September 2015

77,400

30,604

(780)

4,018

-

85,947

61,697

258,886

7,216

266,102

The notes on pages 3 to 62 form an integral part of these consolidated financial statements. The consolidated financial statements were authorised for issue with a resolution of the Management Board and Supervisory Board dated 30 November 2015.

Daneta Zheleva

Chief Executive Director

Toshka Vassileva

Chief accountant

INDUSTRIAL HOLDING BULGARIA

CONOLIDATED EQUITY STATEMENT

FOR THE PERIOD 30 SEPTEMBER 2015

9

(Continued)

Attributable to equity holders of the parent

In BGN thousand

Share capital

Share premium

Share buyback

Additional and legal reserves

Hedging reserve

Revaluation reserves

Retained earnings

Total

Non-controlling interest

Share capital

As at 1 January 2014

67,978

30,604

(771)

4,920

(293)

63,944

87,793

254,175

19,308

273,483

Total comprehensive income for the year

-

-

-

-

-

-

-

-

-

-

Profit/Loss for the year

-

-

-

-

-

-

(1,394)

(1,394)

(2,248)

(3,642)

Other comprehensive income/loss (Note 27)

-

-

-

-

108

4

(5,210)

(5,095)

2

(5,093)

Total comprehensive income/loss for the year

-

-

-

-

108

4

(6,604)

(6,489)

(2,246)

(8,735)

Transactions with shareholders recognized directly in equity

Transfer form retained profit to reserve

Dividend distribution

-

-

-

(248)

-

-

248

-

-

-

Acquisition of non-controlling interest

-

-

-

-

-

-

-

-

(355)

(355)

Sale of own shares

-

-

-

-

-

-

-

-

-

-

Capital increase

-

-

(6)

-

-

-

-

(6)

-

(6)

Total transactions with shareholders

-

-

(6)

(248)

-

-

248

(6)

(355)

(361)

Transfer of revaluation reserve on assets sold

-

-

-

-

-

(53)

53

-

-

-

As at 30 September 2014

67,978

30,604

(777)

4,675

(185)

63,895

81,490

247,680

16,707

261,387

The notes on pages 3 to 62 form an integral part of these consolidated financial statements. The consolidated financial statements were authorised for issue with a resolution of the Management Board and Supervisory Board dated 30 November 2015.

Daneta Zheleva

Chief Executive Director

Toshka Vassileva

Chief accountant

INDUSTRIAL HOLDING BULGARIA

CONOLIDATED EQUITY STATEMENT

FOR THE PERIOD 30 SEPTEMBER 2015

10

1. Corporate information

The consolidated financial statements of Industrial Holding Bulgaria AD and its subsidiaries (the Group) for the period ended 30 September 2015 were authorised for issue with a resolution of the Management and the Supervisory Board dated 30 November  2015.

Industrial Holding Bulgaria AD (the Company or IHB AD) is a joint stock company, registered in Republic of Bulgaria incorporated under No 13081 from 1996 with headquarters and registered office: Sofia, 42 Damian Gruev Str. The financial year of the Company ends on 31 December.

Initially the Company has been established as a Privatisation Fund according to the Privatisation Funds Act under the name Privatisation Fund Bulgaria AD.

The General shareholders meeting held on 27.02.1998 decided to reorganize the activities of the Privatization Fund Bulgaria AD into a holding company and changed its name from Privatization Fund Bulgaria AD to Industrial Holding Bulgaria AD. The Company’s registered capital amounts to BGN 67,978,543. It has two-tier management system comprising Supervisory and Management Boards.

As of 30 June 2015, Industrial Holding Bulgaria AD has 13 direct subsidiaries (2014: 12), no associate (2014: 0) and 11 sub-subsidiaries collectively referred to as “the Group”. Further information is presented in Note 35.

The operations of the Group include production and trading of heavy machinery, shipbuilding, ship repair and transportation, ship management, furniture production, operations with real estates, port services, support services to vessels and vehicles, maintenance and repair and other services.

The operation of any of the entities in the Group is not limited to a certain period or other termination condition.

The Company is registered in the United State Register BULSTAT under identification number BG 121631219, as well in the State Social Security system. It is registered under the Value Added Tax Act. Industrial Holding Bulgaria AD as well as some of its subsidiaries (IHB Eclectic (former Elprom Zem AD) and Mashstroy AD-in liquidation) are traded on the Bulgarian Stock Exchange, Sofia.

2.1. Basis of preparation

The consolidated financial statements have been prepared on historical cost basis except for land, buildings and certain specialized equipment presented at a revalued amount, less accumulated depreciation and impairment losses and derivative financial instruments that are measured at fair value;

The consolidated financial statements are presented in Bulgarian Leva (BGN) and all values are rounded to the nearest thousand (BGN thousand or BGN ‘000) except when otherwise indicated.

Statement of compliance

The consolidated financial statements of Industrial Holding Bulgaria AD have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted for use in the European Union (EU).

This Interim Financial Statement should be read in relation to the annual financial statement of the Company as of 31 December 2014 published on 30.04.2015.

Basis of consolidation

The consolidated financial statements comprise the financial statements of Industrial Holding Bulgaria AD and its subsidiaries as at 30 June 2015.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which Industrial Holding Bulgaria AD obtains control, and continues to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, income and expenses, unrealised gains and losses and dividends resulting from intra-group transactions are eliminated in full.

The profits and losses as well as each component of the other comprehensive income are allocated between the equity holders of the parent and the non-controlling interest in accordance with the respective effective equity interests. This allocation is performed even in case that at the reporting date the profits and losses attributable to the non-controlling interest result in a deficit balance.

Change in ownership in a subsidiary that do not result in change of control, is presented as an equity transaction . If Industrial Holding Bulgaria AD loses control over a subsidiary, it :

- Derecognises assets (including goodwill) and liabilities of the subsidiary ;

- Derecognises the carrying amount of non-controlling interest ;

- Derecognises the cumulative differences from converting foreign currency, reported in equity;

- Recognises the payment received at the fair value;

- Acknowledges safeguarding investments at fair value;

- Acknowledges the outcome of the transaction loss of control in profit or loss for the period;

- Reclassifies share of the parent company in the components previously recognized in other comprehensive income to profit or loss.

Industrial Holding Bulgaria AD prepared and presented separate financial statements for the year ended 30 September 2015 in which the investments in subsidiaries, associates and joint ventures are presented at acquisition cost and impairment test. The separate financial statements of Industrial Holding Bulgaria AD were approved for issue in accordance with a resolution of the Managing and Supervisory Boards on 30 October 2015.

Going concern

The consolidated financial statements of the Group are prepared on the going concern basis.

2.2 Summary of significant accounting policies

a) Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value as at the acquisition date through profit and loss.

Contingent consideration to be transferred by the acquirer is recognized at fair value at the acquisition date. Subsequent changes in fair value of contingent consideration that is classified as an asset or liability is recognized in accordance with IAS 39 Financial Instruments: Recognition and Measurement, in profit or loss or in other comprehensive income. If the contingent consideration is classified as equity instruments , it is not remeasured until it is finally settled within equity.

Goodwill is initially measured at cost, which represents the excess of the consideration transferred over the Group acquired identifiable net assets and liabilities. If the fee is less than the fair value of the net assets of the subsidiary acquired , the difference is recognized in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing , goodwill acquired in a business combination from the acquisition date , allocated to each cash generating flows of the Group that are expected to benefit from the combination, irrespective of whether these objects are distributed other assets or liabilities of the acquiree.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative fair values of the operation disposed of and the portion of the cash-generating unit retained.

If the initial accounting for a business combination is not completed by the end of the reporting period in which the combination occurs because the fair values to be set for the identifiable assets acquired and liabilities assumed of the acquiree or the amount of the consideration transferred , or the value of non-controlling participation can be determined only provisionally , the Group account for the combination using those provisional values. The Group recognizes adjustments to those provisional values as a result of the finalization of the initial accounting within twelve months from the date of acquisition and retrospectively from that date.

2.2 Summary of significant accounting policies (continued)

b) Investment in an associate

The Group’s investment in its associate, an entity in which the Group has significant influence, is accounted for using the equity method. An associate is an entity in which the Group has significant influence.

Under the equity method, the investment in the associate is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the associate since the acquisition date. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment.

The share of profit of associates is shown on the face of the income statement. This is the profit attributable to the owners of equity and therefore is profit after tax and non-controlling interests in the subsidiaries of associates.

The financial statements of the associate are prepared for the same reporting period as those of the parent company. Where necessary, adjustments are made to bring the accounting policies into line with those of the Group.

c) Foreign currency transactions

These consolidated financial statements are presented in BGN, which is also the parent company’s functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.

· Transactions and balances

Transactions in foreign currencies are initially recorded by the Group entities at their respective functional currency rates prevailing at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of exchange ruling at the reporting date. All differences are taken to the income statement with the exception of all monetary items that provide an effective hedge for a net investment in a foreign operation. These are recognised in other comprehensive income until the disposal of the net investment, at which time they are recognised in the income statement. Tax charges and credits attributable to exchange differences on those monetary items are also recorded in equity.

2.2 Summary of significant accounting policies (continued)

c) Foreign currency transactions (continued)

i Transactions and balances (continued)

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. Differences arising on settlement or translation of monetary items are recognised in profit or loss with the exception of monetary items that are designated as part of the hedge of the Group’s net investment of a foreign operation.

ii Companies in the Group

Assets and liabilities of foreign operations, including goodwill and fair value adjustments, are translated into Bulgarian lev exchange rate at the reporting date and their income statements are translated at the exchange rates on the transaction date. Exchange differences arising from this conversion are recognized in other comprehensive income. Upon release of a foreign operation, the component of other comprehensive income relating to that foreign operation is reclassified to the income statement.

d) Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, and other sales taxes or duty. The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Group has concluded that it is acting as a principal in some of its revenue arrangements and as agent in other. The following specific recognition criteria must also be met before revenue is recognised:

Sales of finished goods, goods and materials

Revenue from sales of finished goods, goods and materials is recognised when the significant risks and rewards of ownership have been transferred to the buyer, usually on transfer / delivery of the assets.

Rendering of services

Revenue from the rendering of services is recognised by reference to the stage of completion. Stage of completion is measured by reference to expenses incurred to date as a percentage of total estimated expenses for rendering of the service. Where the contract outcome cannot be measured reliably, revenue is recognised only to the extent that the expenses incurred are eligible to be recovered.

2.2 Summary of significant accounting policies (continued)

d) Revenue recognition (continued)

Rendering of services (continued)

Considering the relatively short periods for completion of ship repairs services, revenue from ship repairs is recognised when the ship is delivered back the ship-owner.

Revenue from voyage charters is recognised by reference to the stage of completion, measured based on passed voyage days as compared to total voyage days.

Revenue from port activities

Revenue from warehouse services is recognised on a straight line basis over the contract term. Revenue from loading and discharging services is recognised by reference to the stage of completion, measured based on actual work done as at the reporting date.

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.

Income from time charter of vessels is recognised in the income statement on a straight-line basis for the duration of the contract. Additional payments under the charter contracts are recognised as an integral part of the total income for time charter for the duration of the charter.

Interest income

Interest income is reported under the effective interest rate method which represents the rate that discounts estimated future cash payments through the expected life of the financial instrument or for shorter period where appropriate, to the net carrying amount of the financial asset. Interest income is included in the financial statement of comprehensive income.

Dividend income

Dividend income is recognised on the date of establishment of the Company’s right to receive the payment.

2.2 Summary of significant accounting policies (continued)

e) Taxes

Current tax on income

Current tax assets and liabilities for the current and prior periods are recognised at the amount expected to be refunded from or paid to the taxation authorities. Current tax assets and liabilities are measured at the amount expected to be paid to (recovered from) taxation authorities, using the rates/laws that have been enacted or substantively enacted as the balance sheet date.

Current tax is recognised directly in equity statement (not in comprehensive income statement) when the tax is related to items that are directly recognised in equity. The management analyses various items in the tax form where tax legislation regulations are subject to interpretation and recognises provisions where appropriate.

Deferred tax

Deferred tax is calculated using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes

Deferred tax liabilities are recognized for all taxable temporary differences:

• except to the extent that the deferred tax liability arises from the initial recognition of an asset or liability in a transaction other than a business combination and affects neither the accounting profit nor taxable profit or loss at the time of the transaction ; and

• in respect of taxable temporary differences associated with investments in subsidiaries , associates and interests in joint ventures, except to the extent that the Group is able to control the timing of the reversal of the temporary difference and there is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profits against which the deductible temporary differences , carry forward of unused tax credits and unused tax losses:

· except where the deferred tax asset arises from the initial recognition of an asset or liability in a transaction other than a business combination and affects neither the accounting profit nor taxable profit or loss at the time of the transaction;and

·

2.2 Summary of significant accounting policies (continued)

e) Taxes (continued)

Deferred tax (continued)

· for deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax asset is recognized only to the extent it is probable that the temporary difference will reverse in the foreseeable future and taxable profit, against which to utilize the temporary difference.

The Group reviews the carrying value of deferred tax assets at each reporting date and reduces it to the extent that it is no longer likely to be sufficient taxable profit allowing all or part of the deferred tax asset to be recovered. Unrecognised deferred tax assets are reviewed at each reporting date and are recognized to the extent that it has become likely to be future taxable profit to allow the deferred tax asset to be recovered

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or entered into force, at a significantly degree at the reporting date.

Deferred taxes relating to items recognized outside profit or loss are recognized outside profit or loss. Depending on the type of transaction, deferred taxes are recognized either in other comprehensive income or directly in equity.

The Group offset deferred tax assets and liabilities only when there is a legal right to set off current tax assets against current tax liabilities and deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on the same taxable entity.

Value added tax (VAT)

Revenues, expenses and assets are recognized net of VAT, except when:

• VAT incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case VAT is recognized as part of the acquisition cost of the asset or as part of the expense item as applicable; and

• receivables and payables are repored with VAT.

The net amount of VAT recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.

f) Employee benefits

Short-term employee benefits include salaries , annual bonuses , social security contributions , and annual paid leaves to employees who are expected to be fully settled within 12 months after the reporting period. When a Group company received the services they are recognized as personnel expense in the income statement or capitalized in the value of the asset. Short-term employee benefits are measured at the undiscounted amount of the estimated settlement costs. Additional information is provided in Note 33.

Companies in the Group have pension plans with defined benefits arising from obligations under the Bulgarian labor law to pay employees upon retirement two or six gross monthly salaries depending on the length of service. The plan is not funded. The Group determines its obligations by actuarial method of projected unit credit. Revaluations of pension plan with defined benefits including actuarial gains and losses are recognized immediately in the statement of financial position on debit or credit of retained earnings through other comprehensive income in the period they occur. Revaluations are not subject to reclassification in profit or loss in subsequent periods. Past service costs are recognized in profit or loss earlier than:

• the date of addition or reduction in the plan, and

• the date of recognition of restructuring costs, accompanying amendments to the plan.

Interest expense is recognized by applying a discount factor to the obligation for employee benefits upon retirement. Changes in the latter (cost of service, including the costs of current and past service, and gains and losses resulting from cuts or non-routine settlements and expenses) are recognized in the consolidated income statement and presented in the article "Staff costs".

g) Financial assets - initial and subsequent recognition

Financial assets

Initial recognition

Financial assets within the scope of IAS 39 Financial Instruments: Recognition and Measurement are classified as either financial assets at fair value through profit or loss, loans and receivables, held to maturity investments, available for sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets upon initial recognition.

All financial assets are recognised initially at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

Subsequent measurement

The subsequent measurement of the financial assets depends on their classification as follows:

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate method (EIR), less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the income statement. The losses arising from impairment are recognised in the income statement in finance costs.

Investments available for sale

Available-for-sale financial investments include equity investments, which are classified as available for sale when are neither classified as held for trading nor designated at fair value through profit or loss.

The Group has available for sale financial investments – equity investments (Note 22). As these equity instruments are not quoted on an active market and respectively their fair value cannot be reliably measured, they are presented at cost.

Derecognition

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:

* The rights to receive cash flows from the asset have expired;

* The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

2.2 Summary of significant accounting policies (continued)

g) Financial assets - initial and subsequent recognition (continued)

Financial assets (continued)

Impairment of financial assets

The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortised cost

For financial assets carried at amortised cost the Group first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. The carrying amount of the asset is reduced directly and the amount of the loss is recognised in the income statement.

If there is objective evidence that an impairment loss has incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial assets original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.

The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the statement of comprehensive income. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income in the income statement. Loans and receivables together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is recognised in the profit or loss for the period.

2.2 Summary of significant accounting policies (continued)

g) Financial assets - initial and subsequent recognition (continued)

Financial assets (continued)

Impairment of financial assets (continued)

Investments available for sale and investments in associates

If there is objective evidence that the investment in unquoted equity instruments not measured at fair value, as the latter can not be properly evaluated is impaired , then the amount of the impairment loss is determined as the difference between the carrying value of the financial instrument and the value expected to be recovered from him, if it can be measured reliably. Impairment test in associates are carried out in accordance with IAS 36. Impairment is recognized in the income statement and is not refundable

Financial liabilities

Initial recognition and measurement

Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition.

Financial liabilities are recognised initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs.

The Group’s financial liabilities include trade and other payables, interest bearing loans and borrowings and debenture loans.

Subsequent measurement

The measurement of financial liabilities depends on their classification as follows:

Loans and borrowings

After initial recognition, loans and borrowings are subsequently measured at amortised cost using the effective interest rate (EIR) method. Gains and losses relating to loans and borrowings are recognised in the income statement for the period when the liabilities are derecognised as well as through the effective interest rate method (EIR) amortisation process.

Amortised cost is calculated by taking into account any discounts or premiums on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance cost in the income statement.

Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement.

2.2 Summary of significant accounting policies (continued)

h) Offsetting financial instruments

Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when there is a legally enforceable right to offset the recognized amounts and the Group intends to settle on a net basis, or to simultaneously realize the asset and settlement of liabilities.

i) Fair value

The Group evaluates its financial instruments such as derivatives and non-financial assets such as investment properties and land, buildings and specialized equipment at fair value at the reporting date. The Group does not account for financial assets available for sale at fair value. The fair values of financial instruments measured at amortized cost are disclosed in Note 38.

The fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is based on the assumption that the transaction to sell the asset or transfer a liability shall be:

• the principal market for the asset or liability , or

• in the absence of a major market, the most advantageous market for the asset or liability.

Principal or most advantageous market should be available to the Group.

The fair value of an asset or liability is measured by making assumptions that market participants would make in pricing the asset or liability , assuming that they act in their best economic interest.

The fair value of non-financial asset takes into account the ability of a market participant to generate economic benefits of the asset by the most effective and best its intended use or sale of the asset to another market participant who will use the asset as the most effective and best use.

The Group uses valuation techniques appropriate in the circumstances for which there is sufficient data to estimate fair value by maximizing the use of appropriate observed inputs and minimizes the use of unobservable inputs.

All assets and liabilities that are measured at fair value or requiring disclosure of fair value in the financial statements are grouped into categories according to the fair value hierarchy as described below , based on the lowest level input used data have a significant impact on the fair value as a whole:

• Level 1 - Use quoted ( unadjusted) prices in active markets for identical assets or liabilities

• Level 2 - Valuation techniques are applied , in which the lowest level used inputs essential for the fair value were observed either directly or indirectly

• Level 3 - valuation techniques used where the lowest level used inputs essential for the fair value are unobservable

Assets and liabilities that are measured at fair value on a regular basis is reviewed categorizing them the appropriate level of the fair value hierarchy (based on the lowest level input used to have a significant impact on the fair value measurement in general) to end of the reporting period and determine whether there is a need for a transfer (s) from one level to another.

2.2 Summary of significant accounting policies (continued)

i) Fair value (continued)

The Group's management determines the policies and procedures that apply to both the regular fair value such as land, buildings and specialized equipment and investment property and irregular fair value of these assets held for sale / distribution to owners .

Usually the fair value of significant assets such as land, buildings and specialized equipment and investment properties as well as the assential liabilities engage external independent valuers as the need for them is assessed each year by the Group . External evaluators are selected based on their professional experience, and reputation . After discussion with the specialists - appraisers, management decides which valuation methods and inputs are the most appropriate to be used in each case.

Management analyzes the changes in the amounts of assets and liabilities to be reassessed according to the accounting policies of the Group. This includes a review of key inputs used in the final evaluation and comparing them with the appropriate historical information such as contracts and other relevant documents. Also, leadership , together with the specialists - appraisers compares changes in the fair value of any asset or liability with relevant external sources to determine whether changes are reasonable.

For the purposes of disclosure of fair value, the Group defines different classes of assets and liabilities according to their nature, characteristics and risks and the appropriate level of the fair value hierarchy described above.

j) Derivative financial instruments and hedge accounting

The Group uses derivative financial instruments such as interest rate swaps to hedge interest rate risks. These derivative financial instruments are initially recognized at fair value on the date on which the derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when fair value is positive and as financial liabilities when it is negative.

Gains or losses arising from changes in fair value of derivatives are recognized directly in the income statement, except for the effective portion of cash flow hedges, which are recognized in other comprehensive income.

For the purpose of hedge accounting, the Group uses and reports only cash flow hedges.

2.2 Summary of significant accounting policies (continued)

j) Derivative financial instruments and hedge accounting (continued)

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

Hedges which meet the strict criteria for hedge accounting are accounted for as follows:

Cash flow hedges

The effective portion of the gain or loss on the hedging instrument is recognised directly as other comprehensive income in the cash flow hedge reserve, while any ineffective portion is recognised immediately in the income statement in other operating expenses.

Amounts recognized in other comprehensive income are transferred to the income statement when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognized or when the forecasted sale. When the hedged item is the price of acquisition of non-financial asset or non-financial liability recognized in other comprehensive income amounts are transferred to the initial carrying amount of the non-financial asset or liability.

If it is no longer expected occurrence of forecast transaction or firm commitment, the cumulative gain or loss previously recognized in equity is transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or transfer, or if it is determined as a hedge is revoked, the cumulative gain or loss previously recognized in other comprehensive income remains there until the forecast transaction or firm commitments affect profit or loss.

The Group uses interest rate swap contracts as hedges of its exposure to volatility in interest rates in firm loan commitments. Refer to Note 33 for more details.

Classification current to non-current

Derivative instruments that are not designated as effective hedging instruments are classified as current or non-current, or separated into current and non-current portion based on an assessment of the particular facts and circumstances of the transaction (ie, the underlying contracted cash flows).

When the Group intends to keep the derivative as an economic hedge (and does not apply hedge accounting) for a period longer than 12 months after the reporting date, the derivative is classified as non-current (or separated into current and non-current portions) in accordance with classification of the underlying object.

2.2 Summary of significant accounting policies (continued)

j) Derivative financial instruments and hedge accounting (continued)

Embedded derivatives that are not closely related to the host contract are classified depending on the cash flows arising from the contract.

Derivative instruments that are designated as and are effective hedging instruments are classified according to the classification of the underlying hedged item. Derivative instruments are divided into current and non-current portion only if it can be reliably split.

k) Share capital

The share capital represents the par value of the shares issued and paid. The difference between the par value and the price paid for the shares is accounted for as share premium. Incremental costs directly attributable to the issue of ordinary shares are recognized as a deduction from equity, net of any tax effects.

l) Cash dividends and non-cash distributions to owners

Obligation for cash or non-cash distributions to owners is recognized when the distribution is approved by them and is independent of the Group. The corresponding amount is debited directly to equity .

The obligation of non-cash distributions measured at the fair value of the assets subject to distribution by subsequent revaluation is recognized directly in equity.

In actual distribution of non-cash assets, the difference between the carrying value of recognized responsibility and that of the assets distributed is recognized in profit or loss.

m) Treasury shares

Own equity instruments that are reacquired (treasury shares) are recognized at fair value of the consideration transferred and deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any difference between the nominal amount and the fair value of the consideration transferred, if reissued, is recognised as decrease/increase in share premium. No dividends are allocated to voting shares related to treasury shares.

n) Convertible debentures

Convertible debentures are separated into liability and equity components based on the terms of the contract.

On issuance of the convertible debentures, the fair value of the liability component is determined using a market rate for an equivalent non-convertible bond. This amount is classified as a financial liability measured at amortised cost (net of transaction costs) until it is extinguished on conversion or redemption.

2.2 Summary of significant accounting policies (continued)

n) Convertible debentures (continued)

The remainder of the proceeds is allocated to the conversion option that is recognised as equity instrument. The conversion option recognized as equity instrument is not remeasured in subsequent years.

Transaction costs are apportioned between the liability and equity components of the convertible debentures based on the allocation of proceeds to the liability and equity components when the instruments are initially recognised.

o) Non-current assets held for sale and discontinued operations

The Group classifies non-current assets and disposal groups as held for sale or distributed to the owners if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. They are measured at the lower of their carrying amount and fair value less costs to sell or distribution. Distribution costs are those that are directly related to the distribution arise from it, and do not include financial expenses and income tax.

The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Actions necessary to complete the actual distribution must show that is not likely for substantial changes to occur or will not be done. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Similar criteria are applied to classification of non-current assets or groups held for sale.

Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale.

Assets and liabilities classified as held for sale or distribution are presented separately as current items in the statement of financial position.

Group, subject to exemptions, can be defined as a discontinued operation if it is:

• Component Group company that is CGU or group of CGU

• Classified as held for sale or distribution, or has been released in this way, or

• Represents the core business or geographical area.

Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the consolidated income statement.

Additional disclosures are provided in Note 7. All other notes to the consolidated financial statements include information on ongoing activities, unless stated otherwise.

2.2 Summary of significant accounting policies (continued)

p) Property, plant and equipment

Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of the plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred.

After initial recognition, land, buildings and certain specialised equipment are measured at fair value less accumulated depreciation on buildings and impairment losses recognised after the date of the revaluation. Valuations are performed frequently (usually at 5 year interval) to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. When their fair value is significantly changed at shorter time intervals revaluation shall be performed more frequently. The last valuation of land, buildings and special equipment was preformed as at 31.12.2009 and land only as at 31 December 2013 by independent appraisers.

Vehicles and other fixed assets, including the ships and assets under construction are measured at acquisition cost, less accumulated depreciation and impairment losses.

Any revaluation surplus is credited to the assets revaluation reserve included in the equity section of the statement of financial position, except to the extent that it reverses a revaluation decrease of the same asset previously recognised in the income statement, in which case the increase is recognised in the income statement. A revaluation deficit is recognised in the income statement, except to the extent that it offsets an existing surplus on the same asset recognised in the asset revaluation reserve.

Accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings.

The increase in the carrying value of the asset as a result of revaluation is recorded as a revaluation reserve in other comprehensive income. Revaluation increase , however , is recognized in the income statement , as far as recovering a revaluation decrease of the same asset recognized as an expense in the income statement. Reduction in the carrying value of the asset as a result of revaluation is recognized as an expense in the income statement except to the extent that it compensates existing revaluation reserve relating to that asset. Accumulated depreciation at the date of revaluation is written off on account of decrease in the carrying value of the asset. The value of the asset is adjusted to its fair value. Upon derecognition of the asset the revaluation reserve is transferred to accumulated profits and losses.

Self-constructed assets

The cost of self-constructed assets includes the cost of materials, direct labour and appropriate proportion of production overheads ; costs directly attributable to bringing the asset to a working condition for its intended use ; initial estimate of the costs of dismantling and removing the items and restoring the site on which they are located, and capitalized borrowing costs .

Depreciation is calculated on a straight-line basis over the useful life of the assets , which are defined as follows:

Buildings

7 – 50 years

Specialised equipment

5 – 50 years

Machinery and equipment

4 – 50 years

Vehicles (including ships)

2 – 30 years

Ship repairing

2 – 5 years

Inventories

5 – 15 years

2.2 Summary of significant accounting policies (continued)

p) Property, plant and equipment (continued)

Property , plant and equipment is derecognised upon disposal or when no future economic benefits from its use or disposal are expected. Gains or losses arising on derecognition of the asset (calculated as the difference between the net disposal proceeds, if any, and the carrying amount of the asset ) is included in the income statement when the asset is derecognised.

At the end of each financial year a review of the residual values, useful lives and methods of depreciation and, if expectations differ from previous estimates , the recent change in future periods.

r) Investment properties

Investment properties are measured initially at cost, including transaction costs. Such cost includes the cost of replacing part of the investment property if the recognition criteria are met. The cost for maintenance of investment property will be excluded from the cost.

Subsequent to initial recognition, investment properties are measured at fair value, which reflects market conditions at reporting date. Gains or losses arising from changes in fair values of investment properties are recognized in the consolidated income statement in the period in which they arise

Investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. The gain or loss arising from the retirement or disposal of an investment property are recognized in the income statement in the same period of release.

Transfers to or from investment property are carried out only when there is a change in use of the property. When an investment property is transferred to owner-occupied property, the deemed cost of property for subsequent accounting is its fair value at the date of change in use. When used property becomes an investment property, the Group applies an accounting policy for property, plant and equipment up to the date of change in use of the property.

s) Leases

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date: whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.

Group as a lessee

Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in the income statement.

2.2 Summary of significant accounting policies (continued)

s) Leases (continued)

Group as a lessee (continued)

Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

Operating lease payments are recognised as an expense in the income statement on a straight line basis over the lease term.

The Group as lessor

Leases where the Group retains substantially all the risks and rewards of ownership of the leased asset are classified as operating leases. Initial direct costs incurred by the Group in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized as an expense over the lease term on the same basis as the lease income. Contingent rents are recognized as revenue in the period in which they are earned.

t) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

u) Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.

The useful lives of intangible assets are assessed as either finite or indefinite.

Intangible assets with finite lives are amortised over their useful lives and tested for impairment when there are indications that their value is impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year. Changes in the expected useful life or pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates.

Intangible assets with finite useful lives are amortized on a straight line basis estimated useful lives as follows:

Patents, licenses and trademarks

2 – 20 years

Software

2 – 10 years

Improvement of hired assets

14.7 years

The gain or loss arising on derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and is recognized in the income statement in the period of derecognition.

2.2 Summary of significant accounting policies (continued)

v) Inventories

Inventories are valued at the lower of cost and net realizable value.

Costs incurred in bringing each inventory to its present location and condition are accounted for as follows:

Materials

purchase cost on a weighted average cost basis

Finished goods and work in progress

Cost of direct materials and labour and a proportion of manufacturing overheads based on the allocation of labour cost and produced quantity.

Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

w) Impairment of non-financial assets

The Group assesses at each reporting date whether there are indications that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value in use. It is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate before tax that reflects current market assessments of the market value and the risks specific to the asset. Fair value less costs to sell is determined on the basis of recent market transactions, if any. If such transactions can not be identified , a proper assessment model is applied. These calculations are corroborated by valuation models or other available sources of information on the fair value of an asset or cash-generating unit.

Impairment calculations are based on detailed budgets and forecast calculations which are made separately for each CGU to which the individual assets are allocated. These budgets and forecast calculations usually cover a period of five years. For longer periods is calculated index for long-term growth and applies it after the fifth year of the future cash flows.

Impairment losses are recognized as other expenses in the income statement or as a separate item, if material, with the exception of impairment losses on assets that were revalued in prior periods and the revaluation is recognized in other comprehensive income. In this case, the impairment loss is also recognized in other comprehensive income to the extent of previously recognized revaluation of the asset.

2.2 Summary of significant accounting policies (continued)

w) Impairment of non-financial assets

The Group assesses whether there is any indication that an impairment loss of an asset other than goodwill recognized in prior periods may no longer exist or may have decreased. If such indication exists , the Group estimates the recoverable amount of the asset or the cash-generating streams. An impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of the asset since the last impairment loss. Recovery of an impairment loss is limited so that the carrying amount of the asset does not exceed its recoverable amount or nor does not exceed the carrying amount (net of depreciation ) that would be determined if it has been recognized impairment loss for asset in prior years. Recovery of an impairment loss is recognized in the income statement unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase.

The Group applies the following criteria in testing for impairment of specific assets:

Good will

The Group carries out an impairment test of goodwill annually or more frequently when events or changes in circumstances indicate that it might be impaired.

Goodwill is tested for impairment by determining the recoverable amount of the cash-generating unit to which it is distributed. When the recoverable amount of the cash-generating unit is less than the carrying amount is recognized as an impairment loss. Impairment loss on goodwill is not recoverable in future periods.

x) Cash and cash equivalents

Cash and cash equivalents in the statement of financial position comprise cash at bank and on hand and short-term deposits with an original maturity of three months or less.

For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above.

y) Provisions

General

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement, net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

2.2 Summary of significant accounting policies (continued)

y) Provisions (continued)

Warranty provision

Provisions for warranty-related costs are recognised when the product is sold or service provided to the customer. Initial recognition is based on historical experience. The initial estimate of warranty-related costs is revised annually.

Onerous contracts

A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating 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.

z) Earnings per share

Basic earnings per share amounts are calculated by dividing the net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share is calculated by dividing the net profit for the year accruing to the owners of the parent company (after adjustments for interest on convertible bonds) by the weighted average number of ordinary shares for the year increased by the weighted average number ordinary shares that would be issued on conversion of all dilutive potential convertible bonds.

) Government grants

Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. When the grant relates to an asset, it is recognised as deferred income and released to income in equal amounts over the expected useful life of the related asset.

2.3 Changes in accounting policies and disclosures

3. Significant accounting judgments, estimates and assumptionsThe preparation of the Group’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.

Estimates

In applying accounting policies, besides valuations, the management has made the following estimates that have most significant effect on the amounts recognized in the consolidated financial statements.

Going concern

As of March 30, 2015 the Group recognized in the consolidated financial statements negative working capital amounting to BGN 43,745 thousand (2014: 76.218 thousand). In the consolidated statement of financial position was reported short-term secured bank loan of BGN 51,409 thousand. The loan is reported as short under the terms of the loan agreement that requires annual renegotiation under certain conditions. The management does not consider that in the future will arise conditions for breach of contract and advance repayment will be required.

As a result of the circumstances above, there are no significant uncertainties regarding the principle - the going concern assumption of the Group as a whole.

Commitments under operating leases - Group as lessee

The Group signed agreements for the lease of property, buildings and equipment. Management believes that since all the significant risks and rewards of ownership of these assets are not covered by the Group, contracts are treated as operating leases.

3. Significant accounting judgments, estimates and assumptions

(continued)

Estimates (continued)

Income from examinations carried out through foreign agents and inspectors - when acting as principal

On the basis of agreements with foreign agents and inspectors, some inspections are carried out by these agents and inspectors, for which an invoice is issued to the customer - shipowner by the agent/surveyor. These arrangements are analyzed according to specific criteria to determine if it is acting as a principal or as an agent. It is considered that for both types of arrangements is acted as a principal because:

- accepts responsibility to the client for the provision of service and class, which carry certified ships.

- inspections are carried out at prices set by the service provider;

- present credit risk of uncollectible receivables from customers - shipowners.

Time charter contracts for ships - when acting as lessor

Based on agreements ships are chartered to third parties (charterers) for a certain period of time, as all the variable costs associated with ship maintenance are paid by the charterer. Fixed costs in operating the vessels are paid by the owner.

The contracts are analyzed to specific criteria and it is considered that they include lease agreements. The management believes that since all substantial risks and benefits of ownership of the vessels are not borne by the charterer, time charter contracts are considered operating leases in the consolidated financial statements.

Functional currency of subsidiaries

In preparing the current consolidated statements the Group has analyzed the transactions executed and reported by the subsidiaries in segment " Maritime transport ", registered in Marshall Islands. The bulk of the revenue, cost and financing of these companies are denominated in USD. The group analyzed the circumstances connected with the company in this segment and has concluded that its functional currency should be USD. As a result of this analysis, effective from January 1, 2013 exchange differences arising from the conversion of assets, liabilities and income statements of these foreign operations are recognized in other comprehensive income

Other

Depending on how the process of working capital and long term financing of the Group is managed and monitored, the management believes that the utilized portion in the amount of BGN 3,000 thousand of financing from a contract concluded with a commercial bank for credit limit for issuance of bank guarantees , letters of credit and working capital financing of Industrial Holding Bulgaria PLC and / or its group companies should be represented as a long-term commitment. The assessment was made based on the history of the contract, which dates from 2006, its terms of annual extension on written request by the user, the management intends to continue to use the limit for more than 12 months, and the lack of grounds for early repayment by the lending bank .

4. Segment reporting

Operating segment information is presented in respect of the Group’s business sectors, based on the Group’s organizational management internal reporting structure.

The Group has the following reportable operating segments (business sectors):

· Maritime transportation: ship management, commercial maritime transportation, the related production, technical, logistic and intermediary activities, ship brokerage and ship agency activities.

· Port activity: rendering of port services and accompanying activities from and to ships and land transportation, unloading and uploading of containers, warehouse activity, docker, freight and cargo services, transportation and shipment, utility services, waste management, rent of elevating machines and other.

· Machine building: Production and sale of metal-cutting machines; production, repairs and sale of electrical machines; and metalworking.

· Shipbuilding and ship repairing: Production and repairing of ships, finishing works, reconstruction of all kinds vessels and related services.

· Other operations: Consultation services, furniture production, real estate transactions, certification and classification, attestation and technical supervision on ships, river cruises, ship exploitation, hotel and restaurant management, sale of goods, tour operations domestically and abroad and other activities not forbidden by law.

All of the segments are located and operate in the geographical area of Bulgaria, except for the ship owning companies registered on the Marshall Islands (operating segment Maritime transport).

INDUSTRIAL HOLDING BULGARIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD 30 SEPTEMBER 2015

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5. Business combinations

Acquisition of additional interest in Odessos AD

On 12.01.2015 Industrial Holding Bulgaria AD acquired 1,584,000 shares (one million five hundred and eighty-four thousand) ordinary voting shares with, with a nominal value of BGN 1 (one) each, amounting to EUR 3000 thousand.

As at 30.09.2015 EUR 1500 were paid representing 90% of the capital of Odesos PBM AD

In July Industrial Holding Bulgaria AD acquired additional 4,40% from the capital of IHB Electric through the purchase of 53 331 shares amounting to BGN 161 thousand by thus increasing its the share to 85,18%.

7. Discontinued operations

On April 18, 2013 the Commercial Register to the Registry Agency registered the winding up of Mashstroy and declaration of its liquidation. The liquidation was completed in 2014. On 22.08.2014 Mashstroy AD was deleted from the Commercial Register

At the general meeting of shareholders held on February 18, 2014 subsidiary Agro money AD took a decision to discontinue the company’s operation and to open of liq