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INDUSTRIAL HOLDING BULGARIA PLC

Interim Consolidated Financial Statements

For the period ended 31 March 2016

INDUSTRIAL HOLDING BULGARIA PLC

General Information

Managing BoardDaneta Angelova ZhelevaBoyko Nikolov NoevBorislav Emilov GavrilovEmilian Emilov Abadjiev

Supervisory BoardKonstantin Kuzmov ZografovDZH AD, represented by Elena Petkova KirchevaSnejana Ilieva Hristova

AuditorErnst & Young Audit OODPolygraphia Office Centre47 A, Tsarigradsko shosе Blvd., fl.41124 SofiaBULGARIA

INDUSTRIAL HOLDING BULGARIA PLCINTERIM CONSOLIDATED INCOME STATEMENTFOR THE PERIOD ENDED 31 MARCH 2016

BGN’000 Notes 31 March 2016 31 March 2015Restated*

Continuing operationsRevenue 8 18,270 20,377Other operating income 9 655 554

Changes in stock of work in progress and finished goods 10 2 603 1,546Self-constructed assets in progress 11 158 -Costs of materials 12 (7,057) (6,890)Costs of hired services 13 (5,007) (3,893)Depreciation/amortisation expenses 18,19 (3,597) (3,568)Costs of personnel 14 (5,992) (5,806)Other operating expenses 15 (660) (984)Operating profit (627) 1,336

Finance income 16 33 7Finance costs 16 (1,356) (5,501)Share of profit from associates 20 -(Loss ) / Profit before tax from continuing operations (1,950) (4,158)

Income tax expense 17 (201) (213)(Loss ) / Profit for the year from continuing operations (2,151) (4,371)

Discontinued operationsLoss for the year from discontinued operations, net of taxes 7 -

(Loss ) / Profit for the year: (2,151) (4,371)

Attributable to: Equity holders of the parent (2,168) (4,700) Non-controlling interests 17 329

(2,151) (4,371)

Earnings per share for the majority owner Basic earnings per share (BGN ) (0,028) (0,070) Diluted earnings per share (BGN ) - -

* The comparative information has been restated to reflect the effect of the translation of the financial statements of the companies from Maritime

transportation segment due to the significant fluctuations observed in the exchange rate of USD vs. that of BGN. For further details, see Note 2.3,

Comparative Data Restatement section.

The notes on pages 10 to 60 form an integral part of these consolidated financial statements. The consolidated financial statements were authorised for issue by resolution of the Management Board and the Supervisory Board dated 30 May 2016.

Daneta ZhelevaChief Executive Officer

Toshka VassilevaPreparer

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INDUSTRIAL HOLDING BULGARIA PLCINTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD ENDED 31 MARCH 2016

BGN’000 Notes 31 March 2016

31 March 2015Restated*

(Loss) / Profit for the year (2,151) (4,371)Other comprehensive income / (loss)Other comprehensive income/ (loss) to be reclassified to profit or loss in subsequent periodsExchange differences on translation of financial statements of foreign operations (5,335) 16,436Income tax effect - -

-Other comprehensive income to be reclassified to profit or loss in subsequent periods, net of taxes (5,335) 16,436Other comprehensive income / (loss) not to be reclassified to profit or loss in subsequent periodsOther movements (3) 2Other comprehensive income/ (loss) not to be reclassified to profit or loss in subsequent periods, net of taxes (3) 2

Other comprehensive income for the year, net of taxes (5,338) 16,438

Total comprehensive income for the year, net of taxes (7,489) 12,067

Attributable to: Equity holders of the parent (7,502) 11,738 Non-controlling interests 13 329

(7,489) 12,067* The comparative information has been restated to reflect the effect of the translation of the financial statements of the companies from Maritime




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INDUSTRIAL HOLDING BULGARIA PLCINTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2016


31 December 2015

AssetsNon – current assetsProperty, plant and equipment 18 392,120 401,906Intangible assets 19 5,807 5,997Investment properties 21 7,587 7,587Goodwill 19 9,130 9,130Investments in associates 20 -Investments held for sale 22 4 4Long-term receivables 23 55 55Deferred tax assets 17 16 29Total non-current assets 414,719 424,708

Current assetsInventories 24 19,656 17,972Trade and other receivables 25 8,130 9,641Receivables from related parties 35.2 -Income tax receivable 66 67Cash and cash equivalents 26 4,511 3,839Total current assets 32,363 31,519Assets classified as held for sale 7 1,168 1,168TOTAL ASSETS 448,250 457,395




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INDUSTRIAL HOLDING BULGARIA PLCINTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2016(continued)BGN’000 Notes 31 March 2016 31 December 2015

EquityShare capital 27 77,400 77,400Share premium 27 30,604 30,604Treasury shares redeemed 27 (891) (873)

Equity component of convertible bonds issued 27 2,507 2,507Other reserves 27 90,787 90,464Translation reserve 27 17,950 23,285Retained earnings 60,505 62,724

278,862 286,111Non-controlling interests 6,647 7,119Total equity 285,509 293,230

LiabilitiesNon – current liabilitiesInterest-bearing loans and borrowings 29 10,137 9,835

Liability component of issued convertible bonds 29 47,455 47,450Loans from related parties 35.2 1,653 1,709Trade and other payables 33 8,002 9,803Financing 30 2,615 2,663Provisions 31 51 51

Retirement benefit liability 32 792 799Deferred tax liabilities 17 9,361 9,353Deferred income 33 329 176Total non-current liabilities 80,395 81,839

Current liabilitiesInterest-bearing loans and borrowings 29 55,198 57,379

Liability component of issued convertible bonds 29 1,188 567Loans from related parties 35.2 3,908 3,347Trade and other payables 33 21,620 20,634Provisions 31 25 25Financing 30 226 226Income tax liability 181 148Total current liabilities 82,346 82,326Liabilities directly associated with the assets classified as held for sale 7

--

Total liabilities 162 741 164,165TOTAL EQUITY AND LIABILITIES 448 250 457,395




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INDUSTRIAL HOLDING BULGARIA PLCINTERIM CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIOD ENDED 31 MARCH 2016


31 March 2015

Operating activitiesReceipts from customers 22,111 18,795Payments to suppliers (12,730) (10,954)Personnel and social security payments (6,030) (5,727)Corporate income tax paid (148) (49)Exchange rate differences (13) 239Other payments 115 (386)Cash flows from operating activities, net 3,305 1,918

Investing activitiesProceeds from sale of property, plant and equipment 18 23,841Payments relating to self-constructed fixed assets (1,223) (1,797)Dividends received from investments - -Proceeds from sale of shares and other receivables 14 -Acquisition of subsidiaries / increasing share participation in subsidiaries 6 (1,611) (10,685)Interest received from loans granted, deposits and current bank accounts 4 3Proceeds from government grants 30 16 465Other proceeds / payments - (20)Cash flows from / (used in) investing activity (2,782) 11,807

Financing activityDebenture loan received - -Payment on redemption of securities 27 (18) 12Interest-bearing loans and borrowings received 1,787 1,301Debenture loan repaid -Interest-bearing loans and borrowings repaid (943) (13,573)Dividends paid (15) (128)Interest, fees and commissions on loans paid (569) (1,063)Other payments (93) (93)Cash flows used in financing activities, net 149 (13,544)Net decrease in cash and cash equivalents 672 181Cash and cash equivalents at 1 January 26 3,839 4,652Cash and cash equivalents at 31 March 26 4,511 4,833




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INDUSTRIAL HOLDING BULGARIA PLCINTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE PERIOD ENDED 31 MARCH 2016

Attributable to equity holders of the parent

BGN’000Share capital Share

premiumTreasury

shares redeemed

Additional and

statutory reserves

Equity compone

nt

Revaluation reserves

Translation reserve

Retained earnings

Total Non-controlling

interest

Total equity

At 1 January 2016 77,400 30,604 (873) 4,097 2,507 86,367 23,285 62,724 286,111 7,119 293,230Total comprehensive income for the year(Loss)/ Profit for the year - - - - - - - (2,168) (2,168) 17 (2,151)Other comprehensive income/ (loss) for the year (Note 27) - - - - - - (5,335) 1 (5,334) (4) (5,338)Total comprehensive income/ (loss) for the year - - - - - - (5,335) (2,167) (7,502) 13 (7,489)Transactions with shareholders recognised in equityAcquisition of non-controlling interest (Note 4) - - - 16 - 228 - 27 271 (333) (62)Transfer form profit to reserves - - - 79 - - - (79) - - -Dividends paid - - - - - - - - - (152) (152)Treasury shares redeemed - - (18) - - - - - (18) - (18)Total transactions with shareholders - - (18) 95 - 228 - (52) 253 (485) (232)Transfer of revaluation reserve on assets sold to retained earnings

- - - - - - - - - - -At 31 March 2016 77,400 30,604 (891) 4,192 2,507 86,595 17,950 60,505 278,862 6,647 285,509




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INDUSTRIAL HOLDING BULGARIA PLCINTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE PERIOD ENDED 31 MARCH 2016

Attributable to equity holders of the parent

BGN’000Share

capitalShare

premium

Treasury shares

redeemed

Additional and

statutory reserves

Hedging reserve

Revaluation reserve

Translation reserve

(Restated*)

Retained earnings

Total Non-controlling

interest

Total equity

At 1 January 2014 (restated*) 67,978 30,604 (771) 4,920 (293) 63,944 (5,834) 84,773 245,321 19,308 264,629At 31 December 2014 (restated*) 67,978 30,604 (776) 4,671 - 86,016 10,217 68,139 266,849 16,654 283,503At 1 January 2015 67,978 30,604 (776) 4,671 - 86,016 10,217 68,139 266,849 16,654 283,503Total comprehensive income for the yearProfit / (Loss) for the year - - - - - - - (4,700) (4,700) 329 (4,371)Other comprehensive income/ (loss) for the year (Note 27) - - - - - - 16,436 2 16,438 - 16,438Total comprehensive income/ (loss) for the year - - - - - - 16,436 (4,698) 11,738 329 12,067Transactions with shareholders recognised in equityTransfer form profit to reserves - - - 9 - - - (9) - - -Dividends paid - - - - - - - - - (246) (246)Acquisition of non-controlling interest (Note 6) - - - - - - 2,991 2,991 (8,858) (5,867)Treasury shares redeemed - - 12 - - - - - 12 - 12Total transactions with shareholders - - 12 9 - - - 2,982 3,003 (9,104) (6,101)Transfer of revaluation reserve on assets sold and transfer to assets held for sale to retained earnings - - - - - (61) - 61 - - -At 31 March 2015 (restated*) 67,978 30,604 (764) 4,680 - 85,955 26,653 66,484 281,590 7,879 289,469

* The comparative information has been restated to reflect the effect of the translation of the financial statements of the companies from Maritime transportation segment due to the significant fluctuations observed in the

exchange rate of USD vs. that of BGN. For further details, see Note 2.3, Comparative Data Restatement section.




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INDUSTRIAL HOLDING BULGARIA PLCNOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 MARCH 2016

1. Corporate information

The consolidated financial statements of Industrial Holding Bulgaria PLC (the Company or IHB PLC) and its subsidiaries (the Group) for the period ended 31 March 2016 were authorised for issue by resolution of the Management Board and the Supervisory Board dated 30 May 2016.

Industrial Holding Bulgaria PLC is a joint stock company (PLC), registered in the Republic of Bulgaria under Company File nr. 13081 / 1996 with headquarters and registered office at 42 Damian Gruev Str., Sofia, Bulgaria. 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 company name Privatisation Fund Bulgaria PLC.

The General Meeting of Shareholders held on 27 February 1998 passed a decision to reorganize the activities of Privatisation Fund Bulgaria PLC into a holding company and to change its name from Privatisation Fund Bulgaria PLC to Industrial Holding Bulgaria PLC. The Company’s registered capital amounted to BGN 77,400,634 at 31 December 2015. The company has a two-tier system of governance, comprising Supervisory Board and Management Board.

As of 31 March 2016 Industrial Holding Bulgaria PLC had 11 direct subsidiaries (2015: 11), no associates (2015: Nil), and 13 indirect subsidiaries (2015: 13 indirect subsidiaries), collectively referred to as “the Group”.

The scope of activity of the Group includes production and trading activities in the area of heavy machinery, shipbuilding, ship repair and maritime transportation, port services, support services from/to vessels and road motor vehicles, maintenance and repair, and other services.

The Company is registered with the Register kept by the Registry Agency under unified identification code (UIC) 121631219. It is registered pursuant to the Value Added Tax Act. Industrial Holding Bulgaria and its subsidiary IHB Eclectic PLC are listed on the Bulgarian Stock Exchange, Sofia.

2.1. Basis of preparation

The consolidated financial statements have been prepared on a historical cost basis, with the exception of land, buildings and certain specialised equipment that are measured at revalued amount less accumulated depreciation, investment properties that are measured at fair value, and derivative financial instruments that are measured at fair value.

The consolidated financial statements have been presented in Bulgarian lev (BGN) and all figures have been rounded to the nearest thousand Bulgarian lev (BGN’000), unless stated otherwise.

Statement of compliance

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

These condensed interim financial statements do not contain all information and data to be disclosed in the annual financial statements and shall be read together with the annual consolidated financial statements of the Group as at 31 December 2015, published on 28 April 2016.

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2.1 Basis of preparation (continued)

Basis of consolidation

The consolidated financial statements comprise the financial statements of Industrial Holding Bulgaria PLC and its subsidiaries for the period ended as at 31 March 2016.

Subsidiaries are fully consolidated from the date of their acquisition, being the date on which Industrial Holding Bulgaria PLC obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as that of 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.

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

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

- Derecognise assets (including goodwill) and liabilities of the subsidiary;- Derecognise the carrying amount of non-controlling interest ;- Derecognise the cumulative differences from converting foreign currency, reported in equity;- Recognise the fair value of the consideration received;- Acknowledge the investment retained at fair value;- Acknowledge the outcome of the transaction on loss of control in the profit or loss for the period;- Reclassify the share of the parent company of the components previously recognised in other comprehensive

income to profit or loss.

Industrial Holding Bulgaria PLC has prepared and presented separate financial statements for the period ended 31 March 2016, in which the investments in subsidiaries, associates and joint ventures have been stated at acquisition cost, less any accumulated impairment losses. The separate financial statements of Industrial Holding Bulgaria PLC were approved for issue by resolution of the Managing Board and the Supervisory Board, and published on 28 April 2016.

Going concern

The consolidated financial statements of the Group have been prepared on a going concern basis.

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2.2 Summary of significant accounting policies

а) Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The cost of acquisition is measured as the aggregate of the consideration transferred, measured at fair value as of the acquisition date, 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 taken to profit or loss for the period.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for the purposes of their 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 a business combination is achieved in stages, the fair value at the acquisition date of the acquirer’s previously held equity interest in the acquiree is remeasured, through profit and loss, to the fair value as at the acquisition date.

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

Goodwill is initially measured at cost, being the excess of the consideration paid over the net identifiable assets acquired and liabilities assumed by the Group. If this consideration is lower than the fair value of the subsidiary’s net assets, the difference is recognised 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 is, from the acquisition date, allocated to each of the Group’s cash generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill has been allocated to cash-generating units and part of the operation within those units 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 values of the operation disposed of and the portion of the cash-generating unit retained.

If the initial accounting for of 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 accounts for the combination using those provisional values. The Group recognises adjustments to those provisional values as a result of the finalisation of the initial reporting within twelve months from the date of acquisition and retrospectively from that date.

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2.2 Summary of significant accounting policies (continued)

b) Investments in associates

The Group’s investments in associates are accounted for under the equity method. An associate is an entity over which the Group exercises significant influence.

Under the equity method, the investment in an associate is initially recognised in the statement of financial position at cost, plus post-acquisition changes in the Group’s share of net assets the associate. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor tested individually for impairment.

Income statement reflects the share in the associate’s operating results. If there are changes, which have been recognised directly in the associate’s other comprehensive income, the Group recognises its share of these changes and discloses them, where applicable, in other comprehensive income. Any unrealised gains and losses resulting from transactions between the Group and the associate are eliminated to the extent of the Group’s interest in the associate.

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

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

After application of the equity method, the Group assesses whether it is necessary to recognise an additional loss due to impairment of the investment made. At the end of each financial year, the Group assesses whether there are any objective evidence that indicate impairment of its investment may have incurred. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and the carrying amount, and recognises this amount in the income statement.

Upon loss of significant influence over the associate, the Group measures and recognises any retained investment at its fair value. Any difference between the associate’s carrying amount upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.

c) Foreign currency translation

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

i. Transactions and balances

Transactions in foreign currencies are initially recorded at the functional currency rates at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the closing exchange rate published by Bulgarian National Bank, effective for the reporting date. Differences arising on settlement or translation of monetary items are recognised in the income statement with the exception of monetary items that are designated as part of an effective hedge of a net investment of a foreign operation. These are recognised in other comprehensive income until the net investment is disposed of, at which time they are reclassified to the income statement. Any tax effects attributable to exchange differences on those monetary items in foreign currencies are also recognised in equity.

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c) Foreign currency translation (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 rate at the date of the initial transaction (acquisition). Non-monetary assets and liabilities measured at fair value in a foreign currency are translated into the functional currency using the average exchange rate. Any exchange differences arising on this translation are recognised in the income statement with the exception of differences arising on translating into the functional currency of available-for-sale equity instruments or items that meet the criteria for recognition as an effective cash flow hedge, which are recognised in other comprehensive income.

ii. Group companies

Assets and liabilities of foreign operations, including goodwill and fair value adjustments, are translated into Bulgarian lev at the exchange rate on the reporting date and their income statements are translated at the exchange rates on the date of the transactions. Any exchange differences arising on this conversion are recognised in other comprehensive income. Upon disposal 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 regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or due based on the agreed payment terms, excluding discounts, rebates, and other sales taxes or customs duties. The Group analyses its selling arrangements against specific criteria to determine whether it acts as a principal or as an agent. It has concluded that it acts as principal in some arrangements and as agent in others. The following specific recognition criteria must also be met before revenue is recognised:

Sales of finished products, goods and materialsRevenue from sales of finished products, goods and materials is recognised when the significant risks and rewards of ownership have been transferred to the buyer, usually on their dispatch.

Rendering of servicesRevenue from 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 transaction (contract) outcome cannot be estimated reliably, revenue is recognised only to the extent that the expenses incurred are eligible to be recovered.

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d) Revenue recognition (continued)

Rendering of services (continued)

Revenue from ship repair services is recognised by reference to the stage of completion of the transaction, which may be either the partial acceptance of the work done or the full completion of the ship repair service.

The sections are constructed primarily by using materials provided by the contracting party and therefore, revenue is recognised as revenue from rendering of services. The stage of completion is evidenced by drawing up acceptance protocols, signed by the contracting party, for periodic acceptance of the work performed under each of the contracts.

Revenue from voyage charters is recognised by reference to the stage of completion, measured based on the passed voyage days as compared to the total voyage days (on the basis of loading-unloading operations). Therefore, revenue is recognised based on the estimated duration of each voyage from the first to the last port of unloading.

Revenue from time charters is recognised in the income statement on a straight line basis over the term of the charter contract. Any additional payments received under charter contracts are recognised as an integral part of the total time charter income for the term of the charter.

Revenue from port activitiesRevenue from warehouse services is recognised on a straight line basis over the contract term. Revenue from cargo processing is recognised by reference to the stage of completion as at the reporting date. The stage of completion is measured based on the actual work done under the contract as at the reporting date.

Rental incomeRental income is recognised in the income statement on a straight line basis for the duration of the rental agreement. Any additional payments received are recognised as an integral part of the total rental income for the period of the rent.

Interest incomeInterest income is recognised using the effective interest method that is the rate that discounts exactly the estimated future cash flows over the estimated useful life of the financial instrument, or a shorter period, where appropriate, to the carrying amount of the financial asset. Interest income is included in the finance income in the income statement.

Dividend income

Dividend income is recognised when the right to receive them is established.

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e) Taxes

Current income tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted by the reporting date in the countries in which the Group carries out its activities.

Current income tax is recognised directly in the equity (and not in the income statement) where the tax relates to items that have been recognised directly in the equity. Management analyses the individual items of the tax return for which the applicable tax provisions are subject to interpretation and recognises provisions where appropriate.

Deferred income tax

Deferred income tax is provided using the liability method on all 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 recognised for all taxable temporary differences: except where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in

a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in jointly controlled entities, where the timing of the reversal of the temporary differences can be controlled by the Group and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised:

except where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in jointly controlled entities, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

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e) Taxes (continued)

Deferred income tax (continued)

The carrying amount of deferred income tax assets is reviewed by the Group at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity.

Deferred income tax assets and deferred income tax liabilities are offset by the Group only if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.

Value added tax (“VAT”)Revenue, expenses and assets are recognised net of the amount of value added tax (VAT) except:

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

receivables and payables that are stated with the amount of VAT included.

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

f) Employee benefits

Short-term employee benefits include salaries, interim and annual bonuses, social security contributions and paid annual leave of current employees expected to be settled wholly within 12 months after the end of the reporting period. They are recognised as an employee benefit expense in the profit or loss or included in the cost of an asset when service is rendered to the Group company and measured at the undiscounted amount of the expected cost of the benefit.

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f) Employee benefits (continued)

The Group companies operate a defined benefit plan arising from the requirement of the Bulgarian labour legislation to pay two or six gross monthly salaries to its employees upon retirement, depending on the length of their service. These retirement benefits are unfunded. The cost of providing benefits under the retirement benefit plan is determined by the Group using the projected unit credit method. Re-measurements, comprising of actuarial gains and losses, are recognised immediately in the statement of financial position with a corresponding debit or credit to retained earnings through other comprehensive income in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods. Past service costs are recognised in profit or loss on the earlier of:

The date of the plan amendment or curtailment, and The date the restructuring-related costs are recognised.

Interest expense is calculated by applying the discount rate to the defined benefit liability. The changes in the latter (service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements) are recognised in the consolidated income statement, within “Employee benefit expense”.

g) Financial instruments - initial recognition and subsequent measurement

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, or loans and receivables, or held to maturity investments, or 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.

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

Purchases or sales of financial assets that require the transfer of the asset over a period of time established normally by regulation or practice in the respective market (regular way purchases) are recognised on the trading (the date of the transaction), i.e. the date when the Group has committed to buy or sell the asset.

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g) Financial instruments - initial recognition and subsequent measurement (continued)

Financial assets (continued)

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

Loans and receivablesLoans 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. Impairment losses are recognised in the consolidated income statement in other expenses.

Investments available for sale Available-for-sale financial investments include equity securities that are designated as available-for-sale or are not classified in any of the other categories.

The Group has available for sale financial investments – equity investments. As these equity instruments are not quoted on an active market and respectively, their fair value cannot be reliably measured, they are measured 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 contractual 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 contractual rights to receive cash flows from a financial 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 financial 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.

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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/announce over-indebtedness or other financial reorganisation and when 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 costFor 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. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

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 income statement. Interest income is recognised as part of finance income in the income statement. Loans, 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 consolidated income statement.

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Impairment of financial assets (continued)

Investments available for sale and investments in associatesIf there is objective evidence that an investment in unquoted equity instruments not measured at fair value, as the latter cannot be properly measured, is impaired, the amount of the impairment loss is measured as the difference between the financial instrument’s book value and the value expected to be recovered from it, if it can be measured reliably. An impairment testing of the associates is carried out in accordance with IAS 36. Impairment losses are recognised in the income statement and are not reversed.

Financial liabilities

Initial recognition and measurementFinancial 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 measurementThe measurement of financial liabilities depends on their classification as follows:

Loans and borrowingsSubsequent to initial recognition, loans and borrowings are measured at amortised cost using the EIR method. Gains and losses relating to loans and borrowings are recognised in the income statement when the liabilities are derecognised, as well as through the 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. Gains on derecognition of financial liabilities are recognised as other operating income in the consolidated income statement.

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 consolidated income statement.

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h) Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and the Group intends to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

i) Fair value measurement

The Group reports its financial instruments, such as, derivatives, as well as non-financial assets, such as investment properties and land, buildings and specialised equipment, at fair value at each reporting date. The Group does not report available-for-sale financial assets at fair value.

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

In the principal market for the asset or liability, or In the absence of a principal market, in the most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible to by the Group.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement

is directly or indirectly observable Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement

is unobservable.

For assets and liabilities that are recognised at fair value in the financial statements on a recurring basis, the Group determines whether transfer(s) have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

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i) Fair value measurement (continued)

The Group’s management sets the policies and procedures to apply to both the regular fair value measurements, such as those of land, buildings and specialised equipment and investment property, and to ad hoc fair value measurements, such as those of assets held for sale/distribution to owners.

External independent valuers are involved usually for valuation of significant assets, such as land, buildings and specialised equipment and investment property. Involvement of valuation experts is decided upon annually by the Group’s management.

At the end of each financial year, management analyses the movements in the values of assets and liabilities which are required to be re-measured or re-assessed as per the Group’s accounting policies. For this analysis, the major inputs applied in the latest valuation are verified by agreeing the information in the valuation computation to contracts and other relevant documents.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks and the level of the fair value hierarchy as explained 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 recognised 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 financial assets when their fair value is positive and as financial liabilities when it is negative.

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

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

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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 consolidated income statement in finance costs.

Amounts recognised 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 recognised or when the forecasted sale. When the hedged item is the price of acquisition of non-financial asset or non-financial liability recognised 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 recognised 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 its designation as a hedge is revoked, the cumulative gain or loss previously recognised 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.

Current versus non-current classification

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

Where the Group will hold a derivative as an economic hedge (and does not apply hedge accounting), for a period beyond 12 months after the balance sheet date, the derivative is classified as non-current (or separated into current and non-short-term portions) consistent with the classification of the underlying item.

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j) Derivative financial instruments and hedge accounting (continued)

Embedded derivatives that are not closely related to the host contract are classified consistent with the cash flows of the host contract.

Derivative instruments that are designated as, and are effective hedging instruments, are classified consistent with the classification of the underlying hedged item. The derivative instrument is separated into a short-term portion and non-short-term portion only if a reliable allocation can be made.

k) Share capital

The share capital is presented at the par value of shares issued and paid. Any proceeds from shares issued over their nominal value are stated as issue premium. Costs directly attributable to the issue of ordinary shares are recognised in decrease of equity, net of any tax effects.

l) Cash dividends and non-cash distributions to equity owners

A liability to make cash or non-cash distributions to equity holders is recognised when the distribution is authorised and is no longer at the discretion of the Group. A corresponding amount is recognised directly in equity.

Non-cash distributions are measured at the fair value of the assets to be distributed with fair value re-measurement recognised directly in equity.

Upon distribution of non-cash assets, any difference between the carrying amount of the liability and the carrying amount of the assets distributed is recognised in the profit or loss for the period.

m) Redemption of treasury shares

Own equity instruments that are redeemed (redeemed treasury shares) are recognised at the fair value of the consideration transferred and are deducted from equity. The Group recognises neither gain nor 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, in the event of cancellation of redeemed shares, is recognised as decrease/increase of share premium. No dividends are allocated to redeemed voting shares.

n) Convertible bonds

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

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

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n) Convertible bonds (continued)

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

Transaction costs are apportioned between the liability and equity components of the convertible bonds based on the allocation of the proceeds when the instrument is recognised initially.

On conversion of convertible bonds at maturity, the Group derecognises the liability component and recognises it in the equity. The original equity component continues to be reported as equity (although it can be transferred into another equity component). There is no gain or loss on conversion at maturity.

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

The Group classifies non-current assets and disposal groups as held for sale or for distribution to equity holders if their carrying amounts will be recovered principally through a sale or distribution rather than through continuing use. They are measured at the lower of their carrying amount and fair value less costs to sell or to distribute. Costs to distribute are the incremental costs directly attributable to the distribution, excluding the finance costs and income tax expense.

The criteria for non-current assets and disposal group classification is regarded as met only when the distribution is highly probable and the asset or disposal group is available for immediate distribution in its present condition. Actions required to complete the actual distribution should indicate that it is unlikely that significant changes to the distribution will be made or that the distribution with be withdrawn. Management must be committed to the distribution expected within one year from the date of the classification. Similar considerations apply to assets or a disposal group held for sale.

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

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

A disposal group qualifies as discontinued operation if it is:

A component of the Company that is a CGU or a group of CGUsClassified as held for sale or distribution or already disposed in such a way, orA major line of business or major 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 statement of comprehensive income.

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p) Property, plant and equipment

Property, plant and equipment are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of the property, 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/or equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in the profit or loss as incurred.

Subsequent to 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. Revaluations are performed with sufficient frequency (usually at 5-year intervals) 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 revaluation of land, buildings and special equipment was carried out by independent appraisers as at 31 December 2013.

Motor vehicles and other fixed assets, including the ships and fixed tangible assets under construction, are measured in the financial statements at acquisition cost, less accumulated depreciation and impairment losses.

The increase in the asset’s carrying amount as a result of revaluation (revaluation surplus) is reported as revaluation reserve in other comprehensive income. However, to the extent that it reverses a revaluation deficit of the same asset previously recognised as an expense in the income statement, the revaluation surplus is recognised in in the income statement as well. The decrease in the asset’s carrying amount as a result of revaluation (revaluation deficit) is recognised as an expense in the income statement, except to the extent that it offsets an existing revaluation reserve for the same asset. Any depreciation accumulated as at the date of the revaluation, is derecognised against a decrease of the asset’s book value. The so-calculated deemed cost of the asset is adjusted to the asset’s fair value. On asset derecognition, the corresponding 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 the appropriate proportion of indirect 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 assets and restoring the site on which they are located, and capitalized interest expenses.

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

Buildings 7 – 50 yearsSpecialised equipment 5 – 50 yearsPlant and equipment 4 – 50 yearsMotor vehicles (including ships) 2 – 30 yearsShip repairing 2 – 5 yearsFixtures and fittings 5 – 15 years

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p) Property, plant and equipment (continued)

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated income statement for the period when the asset is derecognised.

In 2015 the useful life of motor vehicles was reconsidered, and in particular, that of ships, and was changed from 30 to 25 years.

The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.

q) Investment propertyInvestment properties are measured initially at cost, including transaction costs. Costs of replacement of parts of investment properties are stated at carrying amount when incurred, if they meet the recognition criteria; costs of current maintenance of investment properties are excluded from the carrying amount.

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

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on derecognition of the property is included in the income statement in the period in which the property is derecognised.

Transfers are made to or from investment property only when there is a change in use of the property. When an investment property is transferred to owner-occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. When an owner-occupied property becomes an investment property, the Group accounts for such property and equipment in accordance with its accounting policies for property, plant and equipment up to the date of change in use of the property.

r) LeaseThe 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.

The Group as a lessee

Finance leases that 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 directly in the consolidated income statement.

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r) Lease (continued)

The Group as a lessee (continued)A leased asset is 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 for the period on a straight-line basis over the lease term.

The Group as a lessor Leases, in which the Group does not transfer substantially all the risks and benefits of ownership of an 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 recognised as an expense over the lease term on the same basis as the lease income. Contingent rents are recognised as revenue in the period in which they are earned.

s) Borrowings 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.

t) 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 by the Group 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 yearsSoftware 2 – 10 yearsLeasehold improvements 14.7 years

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t) Intangible assets (continued)

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the consolidated income statement for the period when the asset is derecognised.

u) Inventories

Inventories are valued at the lower of cost and net realisable 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 basisFinished goods and work in progress

– cost of direct materials and labour, general overheads, provisional fixed costs, distributed based on the allocation of the direct labour cost and the quantity of finished products.

Net realisable 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.

v) 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 an 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 pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, or other available information on the fair value of an asset or cash-generating unit.

Impairment calculations are based on detailed budgets and forecast calculations, which are prepared 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 it is applied after the fifth year of the future cash flows.

Impairment losses are recognised as other expenses in the consolidated 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 was recognised in other comprehensive income. In this case, the impairment loss is also recognised in other comprehensive income to the extent of previously recognised revaluation of the asset.

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v) Impairment of non-financial assets (continued)

The Group assesses whether there is any indication that an impairment loss of an asset other than goodwill recognised 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 unit. An impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal of an impairment loss is limited so that the carrying amount of the asset does not exceed its recoverable amount nor exceed the carrying amount (net of depreciation ) that would have been determined, had no impairment loss been recognised for the asset in prior years. Such reversal of an impairment loss is recognised in the consolidated 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:

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

Goodwill is tested for impairment and the recoverable amount of the cash-generating units to which the goodwill relates is assessed. Where the recoverable amount of the cash-generating units is less than their carrying amount an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.

w) Cash and cash equivalentsCash and cash equivalents in the statement of financial position comprise cash on hand and in bank accounts, 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.

x) 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 finance costs.

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x) Provisions (continued)

Warranty provision

Warranty provisions are recognised when the product is sold or the service is provided. Assumptions used to calculate the provision for warranties are based on historical experience about warranty claims raised, taking into account the probability of such costs in the future.

Onerous contracts

A provision for onerous contracts is recognised when the expected economic 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 for onerous contracts is established, the Group recognises all impairment losses on the assets associated with that contract.

y) Earnings per share

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

Diluted earnings per share are calculated by dividing the net profit for the year accruing to the equity owners of the parent company (after adjustments for interest on convertible bonds) by the weighted average number of the 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.

z) Government grants (deferred financing)

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 on a systematic basis over the periods that the costs, which it is intended to compensate, are expensed. When the grant relates to an asset, it is recognised as income in equal amounts over the expected useful life of the related asset.

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2.3 Changes in accounting policies and disclosures

New and amended standards and interpretations

The accounting policies adopted by the Group are consistent with those of the previous financial year. The following amendments to standards have been adopted by the Group as of 1 January 2015:

Annual improvements to IFRSs 2011-2013 Cycle which comprise minor clarification changes in:- IFRS 3 Business Combinations- IFRS 13 Fair Value Measurement- IAS 40 Investment Property

The adoption of the above amendments to standards has no effect on these consolidated financial statements.

Restatement of comparative information

Due to the significant fluctuations of the USD exchange rate vs. the BGN exchange rate, with such development being confirmed as a sustained upward trend, in 2015 the Group conducted a review of all significant USD exposures as at 31 December 2015 and in particular, of those occurring as a result of translation of the financial statements of the entities – part of the Maritime transportation segment, the functional currency of which is USD (other than the Group’s presentation currency – the Bulgarian lev). The Group has not followed-up and reported separately all assets and liabilities of these entities. However, the exchange rate fluctuations for the last three years have been investigated in order to determine the time origin of this cumulative translation effect.

In view of the significance of the so-calculated effects, the comparative information as at 1 January 2014 and 31 December 2014 has been restated. The following table presents details about each item of the financial statements for the previous periods, which has been affected by the restatement:

Effect on the equity ( increase / (decrease) in equity)

BGN’000 31 December 2014 1 January 2014

Property, plant and equipment 14,329 (8,854)

Total assets 14,329 (8,854)

Net effect on the equity 14,329 (8,854)

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2.3 Changes in accounting policies and disclosures (continued)

Restatement of comparative information (continued)

Effect on the statement of other comprehensive income ( increase / (decrease) in other comprehensive income)

BGN’000 31 December 2014

Exchange differences on translation of financial statements of foreign operations 23,183

Income tax effect -

Net effect on comprehensive income 23,183

Attributable to:

Equity holders of the parent 23,183

Non-controlling interests -

These effects have been taken into account when preparing the financial statements for the year ended 31 December 2015; however, they have not been quantified by quarters and therefore, the comparative data should have been restated by quarters as well. The effects for the first quarter of 2015 are as follows:

Effect on the equity ( increase / (decrease) in equity)

BGN’000 31 March 2015 31 December 2014

Property, plant and equipment 24,586 14,329

Total assets 24,586 14,329

Net effect on the equity 24,586 14,329

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2.3 Changes in accounting policies and disclosures (continued)Restatement of comparative information (continued)

Effect on the statement of other comprehensive income ( increase / (decrease) in other comprehensive income)

BGN’000 31 March 2015

Exchange differences on translation of financial statements of foreign operations 24,180

Income tax effect -

Net effect on other comprehensive income 24,180

Attributable to:

Equity holders of the parent 24,180


Effect on the income statement ( increase / (decrease) in profit/( loss))

BGN’000 31 March 2015

Exchange differences on translation of financial statements of foreign operations 749

Costs of depreciation of ships* (343)

Net effect on the income statement 406

Attributable to:

Equity holders of the parent 406


* In 2015 the Group reconsidered the useful lives of fixed assets and changed the useful life of ships from 30 to 25 years (note 2.2p of the significant accounting policies to the annual financial statements). The effect for the first quarter amounted to BGN 343 thousand.

The change has not affected the Group’s cash flows from operating, investing and financing activities.

Effect on the basic earnings per share

31 March 2015

Basic earnings per share for the period, attributable to the equity owners of the parent 0.006

35


3. Operating segments

The Group has the following operating segments: Maritime transportation: ship management, commercial maritime transportation, the related production,

technical, logistics and intermediary activities, ship brokerage and ship agency activities.

Port activity: provision of port services and auxiliary activities from / to ships and road motor vehicles, unloading and uploading of containers, warehousing, docker, freight and cargo services, transportation and shipment, utility services, waste management, rent of elevating machines and other.

Machine building: Manufacture and sale of metal-cutting, metal-processing and other machines and components for the machine-building industry; manufacture, repairs and sale of electrical machines; and metalworking.

Shipbuilding and ship repairing: Manufacture and repairing of ships, finishing works, reconstruction of all kinds of vessels and related services. The efforts are devoted to construction of ship components; conversion and manufacture of metal constructions for the needs of ship-building operations; design and automation of the plant engineering and technological activities, and retrofitting the equipment in compliance with the new requirements of IMO.

Other operations: Advisory services, real estate transactions, certification and classification, attestation and technical supervision on ships, ship exploitation, sale of goods, and other activities not forbidden by law.

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

4. Business combinations and acquisition of non-controlling interests

Acquisition of subsidiaries in 2016 In the first quarter of 2016 and 2015 the Group neither acquired nor incorporated new companies.

Acquisition of additional interest in IHB Electric in the first quarter of 2016

In the first quarter of 2016 the Group acquired additional share of 2.13% of the capital of IHB Electric AD, representing 25,860 ordinary voting shares with par value of BGN each, for the amount of BGN 62 thousand. At 31 March the amount was paid in full. Thus, the Group’s share reached 87.31% of the capital of IHB Electric AD.

The following table shows the acquired additional share of the capital of IHB Electric AD:

BGN’000

Cash consideration to be paid to non-controlling interest 62

Transfer to revaluation reserve 228

Transfer to additional statutory reserves 16

Carrying amount of the additional share of IHB Electric AD (333)

Difference recognised in retained earnings (27)

36


4. Business combinations and acquisition of non-controlling interests (continued)

Acquisition of additional interest in Odessos PBM AD in 2015

On 12 January 2015 the Group acquired additional share of 30% of the capital of Odessos PBM AD, representing 1,584,000 ordinary voting shares with par value of BGN 1 each, for the amount of EUR 3,000 thousand (BGN 5,867 thousand). As at 31 December 2015 EUR 1,500 thousand were paid (BGN 2,938 thousand). Thus, the Group’s share reached 90% of the capital of Odessos PBM AD.

8. Revenue

BGN’000 31 March 2016

31 March 2015

Sale of services 7,022 9,016

Including chartering services 5,914 7,997

Sale of products 6,639 8,057

Ship repairing 796 619

Port activity 2,003 2,479

Construction of sections for ships 1,684 -

Sale of goods and materials 126 206

18,270 20,377

9. Other operating income

BGN’000 31 March 2016

31 March 2015

Rental income 514 437

Income from financing 48 22

Gain on sale of fixed assets 12 27

Other income 81 68

655 554

37


9а. Gain on sale of fixed assets

BGN’000 Note 31 March 2016

31 March 2015

Gain on sale of fixed assets 19 29

Carrying amount of assets sold (7) (2)

9 12 27

10. Change in stock of work-in-progress and finished products

BGN’000 31 March 2016

31 March 2015

KRZ Port Bourgas AD - 13

IHB Shipdesign AD 2 -

IHB Electric AD 305 (809)

IHB Metal Castings AD 77 52

ZMM Nova Zagora AD 6 (160)

ZMM Sliven AD 443 1,128

Bulyard Shipping Industry AD 1,770 1,322

2,603 1,546

11. Self-constructed assets in progress

BGN’000 31 March 2016

31 March 2015

KRZ Port Bourgas AD 2 -

Odessos PBM 3 -

Bulyard Shipping Industry AD 153 -

158 -

38


14. Costs of personnel

BGN’000 31 March 2016

31 March 2015

Salaries (5,154) (5,001)

Social security contributions (838) (805)

(5,992) (5,806)

The average number of employees for the Group as at 31 March 2016 is 1,253 employees (31 March 2015: 1,235 employees).

16. Finance income and finance costs

BGN’000 31 March 2016

31 March 2015

Finance income

Foreign currency gains, net 25 -

Interest income 6 7

Other finance income 2 -

33 7

Finance costs

Interest expenses (1,269) (1,513)

Foreign currency losses, net - (3,783)

Other financial costs (85) (180)

Revaluation of cash flow hedge (2) (25)

(1,356) (5,501)

The interest expenses for the period ended 31 March 2016 amounting to BGN 1,269 thousand originate primarily from interest-bearing loans from banks and non-financial institutions amounting to BGN 537 thousand (31 March 2015: BGN 879 thousand), interest on debenture loan issued by Industrial Holding Bulgaria PLC amounting to BGN 629 thousand

39


(31 March 2015: BGN 499 thousand), and interest on deferred payments to suppliers relating to the purchase of shares amounting to BGN 93 thousand (31 March 2015: BGN 128 thousand).

17. Income taxThe main components of income tax expense for the periods ended 31 March 2016 and 31 March 2015 include:

Consolidated income statement

31 March 2016

31 March 2015

BGN’000Current income tax charge (180) (216)

Deferred tax relating to origination and reversal of temporary differences (21) 3

Income tax expense recognised in the consolidated income statement (201) (213)

18. Property, plant and equipment

BGN’000

Land and

buildings

Plant and equipment

Other non-current

assets

Ships FTAs in progress

Total

Cost:

At 1 January 2015 151,680 63,012 8,121 220,953 3,760 447,526

Additions 211 2,450 286 65 5,452 8,464

Asset revaluation 45 - - - - 45

Disposals (99) (1,657) (338) - - (2,094)

Transfers 341 6,236 342 596 (7,515) -

Transfer among classes 28 (46) 18 - - -

Transfer to materials - - (18) - (16) (34)

Transfer to investment property (321) - - - (365) (686)

Transfer to intangible assets - - - - (35) (35)

Translation effect - 19 - 20,499 - 20,518

At 31 December 2015 151,885 70,014 8,411 242,113 1,281 473,704

At 1 January 2016 151,885 70,014 8,411 242,113 1,281 473,704

Additions - 245 77 0 1,392 1,714

Disposals - (67) (20) 0 - (87)

Transfers - 580 3 0 (583) 0

Translation effect - (7) 0 (8,063) (9) (8,079)

40


At 31 March 2016 151,885 70 765 8,471 234,050 2,081 467,252

18. Property, plant and equipment (continued)

* The comparative information has been restated to reflect the effect of the translation of the financial statements of the companies from Maritime



BGN’000

Land and

buildings

Plant and equipment

Other non-current

assets

Ships FTAs in progress

Total

At 1 January 2015 911 21,986 4,789 26,390 - 54,076

Depreciation/amortisation expenses for the year 1,062 2,768 906 7,874 - 12,610

Transfer to materials - - (3) - - (3)

Transfer to investment property (8) - - - - (8)

Transfer among classes 8 (14) 6 - - -

Impairment - - - 6,075 - 6,075

Disposals (7) (680) (265) - - (952)

At 31 December 2015 1,966 24,060 5,433 40,339 - 71,798

At 1 January 2016 1,966 24,060 5,433 40,339 - 71,798

Depreciation/amortisation expenses for the period

259 707 209 2 237 0 3,412

Disposals 0 (67) (11) 0 0 (78)

At 31 March 2016 2,225 24,700 5,631 42,576 0 75,132

Net book value:

As at 1 January 2015 150,769 41,026 3,332 194,563 3,760 393,450

As at 31 December 2015 149 919 45 954 2 978 201 774 1 281 401 906

As at 31 March 2016 149 660 46 065 2 840 191 474 2 081 392 120

41


18. Property, plant and equipment (continued)

Impairment of property, plant and equipment

The Group’s management conducted an analysis at 31 December 2015 and concluded that there were indications of impairment of the following reported assets - ships: the ships Emona, Karvuna, Antea, Diamond Sea and Diamond Sky. Management conducted an impairment testing of the ships as at 31 December 2015, by taking into account any negative effects of the reduced charter levels for ships and record low levels in the global freight market in 2015. To this end, in 2015 the Group recognised impairment of tangible fixed assets – ships amounting to BGN 6,075 thousand (2014: Nil).

Assets pledged

In relation to the issuance of bank guarantees and/or letters of credit in favour of suppliers and utilised bank loans, mortgages and registered pledges were subscribed on property, plant, equipment, installations, motor vehicles, including on the three out of the five vessels, owned by Group entities, with total net book value of BGN 224,591 thousand as at 31 March 2016 (2015: BGN 231,691 thousand). This amount includes also all property, plant and equipment of KRZ Port Bourgas AD amounting to BGN 30,148 thousand (2015: BGN 30,466 thousand) – a company, which was pledged to the benefit of a commercial bank for securing a loan contract and a contract for issuance of bank guarantees in favour of the parent company.

Plant and equipment under finance leases

Fixed tangible assets with net book value as of 31 March 2016 of BGN 2,728 thousand (2015: BGN 2,772 thousand) have been acquired under finance lease terms. As at the date of the consolidated financial statements the outstanding portion of the finance lease contract amounted to BGN 1,184 thousand (2015: BGN 1,359 thousand).

Property, plant and equipment under construction

Assets under construction represent machines purchased still to be brought to a working condition for their intended use, as well as expenses on overhaul of existing assets not yet completed as of 31 March 2016 amounting to BGN 640 thousand (2015: BGN 693 thousand); expenses on the development of a general plan for expansion of the port KRZ-Port Bourgas AD amounting to BGN 240 thousand (2015: BGN 237 thousand); costs of facilities, specialised equipment and storage areas facilitating the other ports amounting to BGN 1,201 thousand (2015: BGN 351 thousand).

42


19. Intangible assets

BGN’000

Patents and trademarks

Software Other intangible assets

Total

Net book value

At 31 December 2014 3,650 481 2,669 6,800

At 31 December 2015 3,081 607 2,309 5,997

At 31 March 2016 3,031 562 2,214 5,807

The amortization charge for intangible assets for the period ending 31 March 2016 amounts to BGN 185 thousand (31 December 2015: BGN 945 thousand).

(i) Goodwill

BGN’000 Goodwill

At 1 January 2015 10,842

Impairment (1,712)

At 31 December 2015 9,130

At 1 January 2016 9,130

At 31 March 2016 9,130

Impairment testing of goodwill

The main portion of goodwill (BGN 5,082 thousand) is due to the acquisition of Odessos AD in 2014.

Management conducted an impairment testing of goodwill allocated to the cash-generating unit (CGU) and as a result of the test held, the Group recognised impairment for goodwill amounting to BGN 1,712 thousand, as the so-determined recoverable amount of CGU Odessos PBM AD is lower than its carrying amount as at 31 December 2015.

Part of goodwill as at 31 December 2015 amounting to BGN 3,050 thousand was due to the acquisition of Bulyard Shipbuilding Industry AD.

As a result of the test held, the Group has not recognised impairment for goodwill as at 31 December 2015 since the so-determined recoverable amount of GCU Shipbuilding industry exceeds its carrying amount as at 31 December 2015 (2014 : impairment has not been recognised).

43


21. Investment property

Investment properties comprise warehouses in Varna city, part of an administrative building and the adjacent land in the territory of the town of Popovo, which are leased out.

Fair value reconciliation

As at 31 March 2016

BGN’000 Investment property

Offices

Commercial

properties Warehouses Total

At 1 January 2016 87 153 7,347 7,587

At 31 March 2016 87 153 7,347 7,587

As at 31 December 2015

BGN’000 Investment property

Offices

Commercial

properties Warehouses Total

At 1 January 87 153 6,144 6,384

Transfers of property, plant and equipment - - 313 313

Improvements - - 365 365

Revaluation through the consolidated income statement - - 525 525

At 31 December 87 153 7,347 7,587

The Group evaluates investment property annually.

Fair value measurement

The fair value of the offices, commercial properties and warehouses has been determined by an independent accredited valuer by employing the method of capitalization of future income.

In assessing the fair value of the offices, commercial properties and warehouses by employing the method of capitalization of future income, the calculated adjusted annual net rental income has been capitalised over the estimated residual useful life of the asset.

44


22. Investments available for sale

BGN’000 31 March 2016

31 December 2015

Meteko AD 3 3

Other 1 1

4 4

23. Long-term receivables

BGN’000 31 March 2016

31 December 2015

Deferred interest bearing receivable on a contract for sale of shares - -

Other interest bearing trade receivables 55 55

55 55

24. Inventories

BGN’000 31 March 2016

31 December 2015

Raw materials, materials and consumables 11,061 11,392

Work in progress (Note 24а) 7,568 4,647

Finished products 1,026 1,932

Goods 1 1

19,656 17,972

45


24а. Work in progress

31 March 2016

31 December 2015

BGN’000

Work-in-progress in machine building 5,447 4,298

Other related to shipbuilding and ship repairing 2,121 349

7,568 4,647

25. Trade and other receivables

BGN’000 31 March 2016

31 December 2015

Trade receivables 6,547 7,786

Advance payments and prepayments 559 574

Receivables on government grants - 16

Tax receivables 782 1,076

Court receivables 22 23

Other receivables 220 166

8,130 9,641

The subsidiary IHB Electric AD performs public procurement contracts signed with state companies in the energy sector and the contractual terms provide for deferred payment within up to 2 months after the acceptance of the work assigned by the client. As at 31 December 2015 the delayed payments after maturity owed by TPP Maritsa East 2 and Maritza East amounted to BGN 1,054 thousand and represented 70.78 % of all short-term trade receivables of the Company. They were fully paid during the period February – May 2016.

46


26. Cash and cash equivalents

BGN’000 31 March 2016

31 December 2015

Cash with banks 4,461 3,780

Cash on hand 50 59

Cash and cash equivalents as per consolidated statement of financial position 4,511 3,839

27. Share capital and reserves

The share capital is reported at par value in accordance with the court registration.

BGN’000 31 March 2016

31 December 2015

77,400,643 ordinary shares with par value of BGN 1 each 77,400 77,400

77,400 77,400

The capital of the Group comprises of 77,400,643 dematerialized registered voting shares with nominal value of BGN 1 each. The share capital has been subscribed at its par value and is fully paid. There are no preference or bearer shares.

In connection with an option for conversion of bonds issued by Industrial Holding Bulgaria PLC, issue ISIN code BG2100006134, the results of the procedure for allowing holders of convertible bonds issued by Industrial Holding Bulgaria issue ISIN code BG2100006134, to convert their bonds into shares as follows:

Completion date for submission of applications for conversion of the bonds – 03 April 2015; Number of bondholders having expressed their wish to convert bonds into shares - 9 /nine/. Total number of bonds subscribed for conversion into shares – 94,221 /ninety four thousand two hundred twenty

one/ with nominal value of BGN 100 /one hundred/ each; Total number of shares subscribed for convertible bonds – 9,422,100 /nine million four hundred and twenty two

thousand one hundred/; The issuer and the investment intermediary have not encountered difficulties; there were no disputes in

converting bonds and subscription for shares.

The capital increases through the issuance of 9,422,100 (nine million four hundred and twenty-two thousand one hundred/ new ordinary registered dematerialized voting shares, due to the conversion of 94,221 (ninety-four thousand two hundred twenty-one) registered dematerialized convertible bonds ISIN code BG2100006134 with nominal value of BGN 100 (one hundred) each into 9,422,100 (nine million four hundred and twenty-two thousand one hundred) ordinary, registered, dematerialized voting shares with nominal value of BGN 1 /one/ each.

47


27. Share capital and reserves (continued)

By decision nr. 20150416111903 dated 16.04.2015 the Registry Agency registered with the Trade Register the increase of the capital of Industrial Holding Bulgaria PLC from BGN 67,978,543 to BGN 77,400,643 by the issuance of new 9,422,100 ordinary, registered, dematerialized, freely transferable shares giving right to 1 vote at the General Meeting of Shareholders, with nominal value BGN 1 (one) each, issued due to the conversion of 94,221 registered dematerialized convertible bonds, ISIN code BG2100006134, into shares.

The shareholders of Industrial Holding Bulgaria PLC as at 31 March 2016 holding over a 5% of the Group’s capital are as follows:

Shareholder

Number of shares as at 31 March

2016 31 March 2016 2015

Venside Enterprises AD 20,399,604 26.36% 26.36%

BULLS AD 13,037,921 16.84% 16.84%

MUPF Allianz Bulgaria AD 5,263,209 6,80% 6.78%

Allianz Bulgaria Voluntary Pension Fund

5,202,314 6.72% 6.72%

DZH AD 4,732,574 6.11% 6.11%

Other 28,765,021 37.17% 37.19%

77,400,643 100.00% 100.00%

Reconciliation of shares issued:Number of

shares Amount

BGN’000

Ordinary shares issued and fully paid

At 1 January 2015 67,978,543 67,978

Issuance of new 9,422,100 ordinary, registered, dematerialized, freely transferable shares as a result of the conversion of 94,221 registered, dematerialized, convertible bonds (16 April 2015 ) 9,422,100 9,422

At 31 December 2015 77,400,643 77,400

At 31 March 2016 77,400,643 77,400

48



Reconciliation of premium reserve Amount

BGN’000

At 1 January 2015 30,604

At 31 December 2015 30,604

At 31 March 2016 30,604

Statutory and additional reservesStatutory reserves are set aside by joint-stock companies as profit distribution in accordance with the provisions of Art. 246 of the Commercial Act. They are set aside until they reach one-tenth or more of the capital. The sources that form the statutory reserves include at least one-tenth of the net profit, share premium and funds envisaged in the articles of association or decision of the General Meeting of Shareholders. The statutory reserves may only be used to cover losses from the current and prior reporting periods. As at 31 March 2016 the statutory and additional reserves amounted to BGN 4,192 thousand (31 December 2015 : BGN 4,097 thousand).

Treasury shares redeemed

In relation to the decision of the General Meeting of Shareholders for share redemption, the Managing Board of Holding Bulgaria PLC passed a decision that the number of shares to be bought every year for a period of four years shall be up to 3% of the registered capital of the Group comprising 67,978,543 shares as at 31 December 2012, or up to 2,039,356 shares per year.

The investment intermediary chosen for the redemption of the shares is Allianz Bank Bulgaria AD.

For the period 01 January 2013 - 31 December 2013, 967,141 shares were redeemed at an average price of BGN 0.794 per share and for the period 01 January 2014 - 31 December 2014, 6,125 shares were redeemed at an average price of BGN 0.84 per share.

In January 2015, 11,600 shares were sold out of all treasury shares held at the weighted average price per share of BGN 1.07, and in the period August – December, additional 127,589 shares were acquired at an average price of BGN 0.851 per share. The total number of the treasury shares held as at 31 December 2015 was 1,089,255.

During the first quarter of 2016 additional 22,393 shares for the total amount of BGN 18 thousand were redeemed. The total number of the redeemed treasury shares as at 31 March 2016 was 1,111,648.

In 2013, the total of 5,440 shares of the subsidiary IHB Electric AD was redeemed at an average price of BGN 3.50, for the total amount of BGN 19 thousand. The shares redeemed were reported in reduction of non-controlling interest at their redemption value. In the first quarter of 2016, 2015 and 2014 the Company did not redeem any treasury shares.

Revaluation reserveRevaluation reserve is used to record increases in the fair value of land, buildings and specialised equipment (net of any deferred tax effects), and decreases to the extent that such decreases relate to an increase of the value of the same asset previously recognised in other comprehensive income. As at 31 March 2016 the revaluation reserve amounted to BGN 86,595 thousand (31 December 2015 : BGN 86,367 thousand). The increase is due to the increase in the Group’s share of the capital of IHB Electric AD.

49


50



Reserves from translation of financial statements of foreign operations

The reserves from translation of financial statements of foreign operations represent exchange differences due to the translation of financial statements of companies with functional currencies other than the Bulgarian lev, as also due to the translation of net investments in foreign operations for the purposes of their consolidation. Such reserves are reclassified to profit or loss in the period of disposal of the relevant investments in foreign subsidiaries.

Other equity reserves

Convertible bonds

Industrial Holding Bulgaria PLC issued 499,996 dematerialized, convertible, freely transferable, unsecured bonds with nominal and issue price of BGN 100 each bearing a 5.00% annual fixed interest rate payable in every six months; the term of the bond issue is 36 months. At maturity of the bonds, each bondholder shall be entitled, according to the terms of the debenture loan and the Prospectus for public offering of the issue of convertible bonds, to exchange (convert), instead of repayment of the bonds held, the bond for such a number of shares as would correspond to the conversion ratio valid at the time of the exchange. The amount of BGN 50,000 thousand was received in the Group’s accounts.

At the time of the bonds issue, an analysis was conducted by the Group’s management and it had been established that the prevailing market interest rate applicable to similar debts without conversion options was 6.99%, which was used to calculate the present value of the liability component of the bonds. As a result, the present value of the liability component amounts to BGN 47,455 thousand and it is reflected in long-term liabilities, while and the equity component amounts to BGN 2,507 thousand and it is disclosed in the equity as a separate component titled Equity component of convertible bonds issued.

This classification does not affect the calculation of the financial ratios, which IHB PLC is obliged to maintain throughout the entire period until the full repayment of the debenture loan, i.e. when making the calculations, the entire bond issue has been recognised as a liability.

28. Earnings per share

Basic earnings per share are calculated by dividing the financial result for the year by the weighted average number of ordinary shares outstanding for the year.

The calculation of basic earnings per share as of 31 March 2016 is based on the net loss attributable to the equity holders of the parent amounting to BGN 2,168 thousand (31 March 2015: loss amounting to BGN 4,700 thousand) and the weighted average number of the ordinary shares outstanding during the period ended 31 March 2016 of 76,297 thousand (31 March 2015: 67,013 thousand).

Diluted earnings per share are calculated by dividing the net profit for the year attributable to the holders of ordinary shares (after adjusting for interest on the convertible bonds) by the weighted average number of ordinary shares for the year increased by the weighted average number of ordinary shares that would have been issued had all potential convertible bonds been converted.

51


28. Earnings per share (continued)

The calculations are as follows:

BGN’000 31 March 2016

31 March 2015

Net (loss) / profit for the year (2,151) (4,371)

Net (loss) / profit, attributable to the equity holders of the parent (2,168) (4,700)

Interest expense on debenture loans, net of taxes 563 448

Net (loss) / profit, attributable to the equity holders of the parent as diluted earnings per share (1,605) (4,252)

Weighted average number of ordinary shares

In thousands of shares 31 March 2016 31 March 2015

Ordinary shares issued as at 1 January 76,311 67,005

Treasury shares redeemed (22) 12

Number of ordinary shares as at the end of the respective period 76,289 67,017

Weighted average number of shares as at 31 March 76,297 67,013

In thousands of shares31 March 2016

31 March 2015

Weighted average number of ordinary shares as at 31 March 76,297 67,013

Weighted average effect of convertible bonds 50,000 30,000

Weighted average number of ordinary shares adjusted for the effect of convertible bonds 126,297 97,013

Basic earnings per share attributable to the equity holders of the parent (in BGN) (0.028) (0.070)

Diluted earnings per share attributable to the equity holders of the parent (in BGN) - -

The Group does not disclose diluted earnings per share as it believes that the convertible debenture loan has no effect on the earnings per share due to the fact that the interest thereon (net of taxes) calculated per one ordinary share exceeds the basic earnings per share.

52


53


29. Interest-bearing loans and borrowings

This note provides information about the contractual terms and conditions of the Group’s loans :

BGN’000 31 March 2016 2015

Long-term liabilities

Secured bank loans 9,522 9,197

Lease payables 615 638

10,317 9,835

BGN’000 31 March 2016 2015

Debenture loan

Long-term portion 47,455 47,450

47,450

Current liabilities

Short-term portion of secured bank loans 54,629 56,658

Lease payables 569 721

55,198 57,379

Debenture loan

Short-term portion 1,188 567

1,188 567

54


29. Interest-bearing loans and borrowings (continued)

29а Debenture loan

BGN’000 31 March 2016 2015

Debenture loan 50,000 50,000

Transaction costs (38) (43)

Interest charged 1,188 567

51,150 50,524

incl. long-term portion 47,455 47,450

incl. short-term portion 1,188 567

incl. equity component of convertible bonds issued (equity component) (Note 27) 2,507 2,507

On 24 April 2013 the Trade Register published announcement for opening a debenture loan and invitation to the First General Meeting of Bondholders on issue of convertible bonds, ISIN code BG 2100006134, issued by Industrial Holding Bulgaria PLC.

In consequence of converting 94,221 /ninety-four thousand two hundred and twenty-one/ registered, dematerialised, convertible bonds, ISIN code BG2100006134, with par value of BGN 100 /one hundred/ each into 9,422,100 /nine million four hundred and twenty-two thousand and one hundred/ ordinary, registered, dematerialised voting shares with par value of BGN 1 /one/ each, the Holding’s capital was increased by issuing new 9,422,100 / nine million four hundred and twenty-two thousand and one hundred / ordinary, registered, dematerialised voting shares.

Within the legally established deadline, in April 2015 was made the last interest and principal payment of a bond issue ISIN code BG2100006134 regarding bondholders, who have not exercised their right to convert the bonds they hold into the corresponding number of shares within the deadline for submission of requests for conversion, and thus, the obligations of IHB PLC under the debenture loan were extinguished.

On 20 October 2014 the Supervisory Board of Industrial Holding Bulgaria PLC passed a decision to convene an extraordinary general meeting of the shareholders of Industrial Holding Bulgaria PLC, which was held on 04 December 2014 under the following agenda:

I. Decision for the issuance under the conditions of an initial public offering of an issue of dematerialized, interest-bearing, convertible, freely-transferable and unsecured bonds with the following parameters:

Total nominal and issue value of the debenture loan: Up to BGN 50,000,000; Nominal value per bond: BGN 100. Issue value per bond: BGN 100. Number of bonds: Up to 500,000; Minimal amount at which the loan is deemed as concluded: the loan shall be deemed as concluded upon

subscription and payment of bonds of a total nominal value of no less than BGN 30,000,000; Term (maturity) of the debenture loan: 3 /three/ years (36 months); Interest rate: 5% per annum; Interest payment: in every 6 months.

55



29а Debenture loan (continued)

Procedure for conversion of bonds into shares (conversion procedure): conversion - on the bond’s maturity date each bondholder shall be entitled, under the terms and conditions of the debenture loan and the Prospectus for public offering of the issue of convertible bonds, instead of repayment of the bonds held, to exchange (convert) them for such a number of shares as would correspond to the conversion ratio valid at the time of the exchange.

Purpose of the debenture loan: the funds raised through the issue will be used to reimburse the debenture loan under a previous issue of convertible bonds - ISIN 2100006134, issued by Industrial Holding Bulgaria PLC, as well as to refinance the investments in KRZ-Port Bourgas AD and other projects of Industrial Holding Bulgaria PLC and its subsidiaries.

By decisions nr. 106-E dated 18.02.2015 and nr. 127-E dated 25.02.2015 the Financial Supervision Commission approved the Prospectus for the initial public offering by Industrial Holding Bulgaria PLC of an issue of 500,000 dematerialized, convertible, freely transferable, unsecured bonds with nominal and issue price of BGN 100 each, bearing a 5.00% annual fixed interest rate payable in every six months and a term of the debenture loan of 36 months.

The public offering of the convertible bonds of Industrial Holding Bulgaria PLC closed successfully with the following results:

• Closing date of the public offering – 09 April 2015;• Total number of the rights issued – 67,978,543;• Total number of the convertible bonds offered for subscription – 500,000;• Number of convertible bonds subscribed and paid– 499,996;• Amount received from the subscribed and paid convertible bonds in the special escrow account opened with Allianz

Bank Bulgaria AD – BGN 49,999,600.00.

The terms and conditions of the debenture loan with ISIN code BG 2100003156 require compliance with certain financial ratios to the maturity date of the bond issue. Issuer is obliged to maintain Liabilities / Assets ratio not higher than 65%, Interest Coverage ratio not lower than 1.2. and Interest-bearing Debt / Assets ratio not higher than 50%. These financial indicators are calculated and reported quarterly, on an individual basis. If the specified financial ratios are not complied with, IHB PLC should take actions to bring the ratios according to the parameters set within a six-month period.

The financial ratios was complied with by the issuer as at 31 March 2016, in accordance with its commitments.

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29б. Bank loans

Short-term

BGN’000 Currency Interest rate, % Maturity31 March

2016 2015

Short-termSecured bank credit amounting to BGN 19,345 thousand (JPY 1,122,594 thousand)- short-term portion JPY JBIC +2.5% 2018 2,145 2,085

Secured investment credit amount of BGN 814 thousand - short-term portion BGN

1 М SOFIBOR +3.70 % 2019 77 103

Secured bank credit amounting to USD 11,000 thousand - short-term portion USD

1 М LIBOR + 2.5% but min 2.95% 2017 2,670 2,308

Secured bank credit amounting to USD 37,300 thousand* USD 3 М LIBOR + 2.25% 2017 49,737 52,162

Finance lease amounting to EUR 744 thousand: short-term portion EUR

1 М EURIBOR + spread 5.89-6% 2016 356 470

Finance lease amounting to EUR 170 thousand: short-term portion EUR

Annual interest rate-4% 2017 91 98

Finance lease contract for delivery of equipment – BGN 65 thousand EUR

1 М EURIBOR + spread 3.89-4% 2017 27 27

Finance lease contract for purchase of laser machine for EUR 518 thousand EUR

3.9% annual interest rate 2020 95 126

55,198 57,379

By annex dated 30 March 2016 the Group re-negotiated some of the terms and conditions applicable to the short-term, secured syndicated bank loan amounting to BGN 49,737 thousand and an annex was signed for extending the due date by 31 March 2017.

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29б. Bank loans (continued)

Long-term portion

BGN’000 Currency Interest rate, % Maturity31 March

2016 2015

Long-term portion

Credit line amounting to BGN 3, 000 thousand EUR3 М EURIBOR +

3.2% 2016 587 -

Credit line for working capital amounting to BNG 3,000 thousand BGN

1 М SOFIBOR +3.2 % 2016 2,181 1,690

Secured bank loan amounting to BGN 19,345 thousand (JPY 1,122,594 thousand) JPY JBIC +2.5% 2018 3,219 3,126

Secured bank credit amounting to USD 11,000 thousand USD

1 М LIBOR + 2.5%, (min 2.95%) 2017 3,283 4,129

Secured investment credit amount of BGN 814 thousand - long-term portion BGN

1 М SOFIBOR +3.70 % 2019 252 252

Finance lease contract for delivery of equipment – BGN 65 thousand EUR

1 М EURIBOR + spread 3.89-4% 2017 1 7

Finance lease amounting to EUR 170 thousand: long-term portion EUR

Annual interest rate-4% 2017 - 17

Finance lease contract for purchase of laser machine for EUR 518 thousand EUR

3.9% annual interest rate 2020 614 614

10,137 9,835

The bank loans are secured by mortgages on land and buildings, and registered pledges on plant, equipment and motor vehicles, including ships owned by the Group companies, with total carrying amount as at 31 March 2016 of BGN 224,591 thousand (31 December 2014: BGN 231,691 thousand). Also, KRZ Port Bourgas AD has been pledged as an entity.

The Group’s unutilized limits on bank loans as at 31 March 2016 amounted to BGN 232 thousand.

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29в. Finance lease liabilities

The finance lease liabilities as at 31 March 2016 include payables under a contract for the purchase of equipment. The contractual interest rate was set on the basis of the one-month Euribor plus margin, and was fixed at 6% at the inception of the contract.

In 2015 a finance lease contract was concluded for the purchase of a wheeled loader. The contractual interest rate was set on the basis of the one-month Euribor plus fixed margin and was equal to 4 % at the inception of the contract.

The Group is a lessee under a finance lease contract concluded in 2015 on the condition of a fixed interest rate, for the purchase of FTAs – a laser machine TruLaser 3030. A registered pledge was imposed on the lease liability, which was registered with the Central Register of Registered Pledges.

The Group is a lessee under a finance lease contract concluded in 2015 for the purchase of a 3D scanner. The contractual interest rate was set on the basis of the one-month Euribor plus margin varying from 3.89 % to 4%.

The future minimum lease payments under finance leases together with the present value of net minimum lease payments are as follows:

31 March 2016 2015

BGN’000

Present value of lease payments

Within one year 569 721

From one to five years 615 638

Total minimum lease payments 1,184 1,359

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30. Financing

BGN’000 31 March 2016 2015

At 1 January 2,889 2,660

Received - 427

Approved, but not received in the bank account - 16

Recognised in the consolidated income statement (48) (214)

As at the end of the period 2,841 2,889

Short-term 226 226

Long-term portion 2,615 2,663

As at 31 March 2016 the Group reported financing, the most significant of which are as follows: Financing under Operational Programme "Development of the Competitiveness of the Bulgarian Economy 2007-

2013" for the purchase of new equipment. The total value of approved financing is BGN 1,059 thousand and as of the reporting date the amount is fully received.

Financing under Operational Programme " Development of the Competitiveness of the Bulgarian Economy" of the Bulgarian Small and Medium Enterprises Promotion Agency (BAMEPA) for the purchase of a technological line for production of copper wire coils. The total amount of the approved financing by BAMEPA is BGN 421 thousand and the last tranche thereof was received in 2012.

Financing under OP "Competitiveness" of MIET, ERDF OP "Competitiveness" for implementation of a new insulation system. The total eligible cost is BGN 693 thousand, of which BGN 346 thousand will be financed under OP "Competitiveness". The project was completed successfully in 2014.

Financing under OP "Competitiveness" for implementation of new equipment. The scope of the project provides for investments in the acquisition of tangible and intangible assets – customised software for designing of measuring devices. The cost of the project is BGN 325 thousand, with 10% co-financing by the Group equal to BGN 32 thousand. The approved project subsidy amounting to BGN 101 thousand was reimbursed finally in 2015.

90% financing of the supply of new equipment. The total value of the approved project cost is BGN 399 thousand, and the cost of financing is BGN 359 thousand, or 90% of the eligible costs, which include also consultancy costs incurred in connection with obtaining financing. The amount of BGN 359 thousand was transferred to the bank account of the relevant subsidiary in March 2015.

Financing of the implementation of an innovative technological project. The approved financing for purchase of equipment and auxiliary services is BGN 716 thousand. The project is completed. The full payment under the project amounts to BGN 529 thousand and is less than the amount of the approved financing as the Group, as a whole, has reached the maximum amount of government grants at the level of the Group of Industrial Holding Bulgaria PLC.

All terms and conditions relating to the above financing have been complied with as at the date of approval of the financial statements.

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31. Provisions

BGN’000 Guarantees Lawsuits Total

At 1 January 2015 37 10 47

Provisions arising during the year 45 - 45

Utilised (16) - (16)

At 31 December 2015 66 10 76

At 1 January 2016 66 10 76

Provisions arising during the year - - -

Utilised - - -

At 31 March 2016 66 10 76

Incl.

Long-term portion 51 - 51

Short-term portion 15 10 25

Guarantee

The warranty provision relates primarily to commitments for warranty maintenance under contracts executed by IHB Electric AD in prior years. The calculations of the provision are based on estimates made on the basis of historical data on warranties on similar products and services. Warranties for periods longer than one year after the date of the financial statements are presented as long-term liabilities.

Litigation provisionsThe expected provision expenses amounting to BGN 10 thousand are based on probability of outflow of resources related to lawsuits against Group companies.

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32. Retirement benefit obligations

BGN’00031 March

2016 2015

Defined benefit pension obligations 792 799

792 799

Changes in the present value of the liability for employee benefits upon retirement as at 31 December 2015 and 2014 are as follows:

BGN’000 31 March 2016 2015

Present value of the liability as at 1 January 799 532

Remuneration paid for the period (7) (151)

Expenses recognised in the income statement - 78

Expenses recognised in the statement of comprehensive income - 340

Present value of the liability as at 31 December 792 799

33. Trade and other payables

BGN’000 31 March 2016 2015

Trade payables 22,082 24,897

Advances and prepayments 3,852 1,914

Payables to personnel 1,675 1,841

Social security payables 412 440

Payables to the State budget 494 263

Fair value of interest rate swap 35 56

Liabilities under shareholder rights sold 69 69

Other payables 1,332 1,133

29,951 30,613

incl. short-term portion 21,620 20,634


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33. Trade and other payables (continued)

Trade payables consist of liabilities amounting to BGN 17,418 thousand (2015 : BGN 19,546 thousand), which were incurred in connection with the purchase of shares in Odessos PBM AD and Bulport Logistics AD, as also shares of the capital of Odessos PBM AD, purchased subsequently, which have been deferred and are to be paid by the end of 2017. The long-term portion thereof amounts to BGN 8,001 thousand (2015: BGN 9,803 thousand) and the short-term portion amounts to BGN 9,417 thousand (2015 : BGN 9,743 thousand), including interest accrued amounting to BGN 107 thousand (2015 : BGN 105 thousand).

34. Financial instruments

Financial risk management

Overview

The Group is exposed to the following risks relating to the use of financial instruments:

credit risk liquidity risk; market risk operating risk.

This Note discloses information on the Group’s exposure to each of the aforementioned risks, the Group’s objectives, policies and processes for measuring and managing those risks, as also for managing the Group’s capital.

General risk management considerations

The Group’s risk management policy is elaborated in such a way as to identify and analyse the risks facing the Group, to set limits for assuming risks and controls, to monitor the risks and the compliance with the limits set. This policy is subject to regular review to identify possible changes in the market conditions and the Group’s operations. The Group, through its training and management standards and procedures, aims to develop a constructive control environment where all employees understand their roles and duties.

The Audit Committees of some of the Group companies observe how management ensures compliance with the risk management policies and review the adequacy within the risk management framework regarding the risks facing the Group. The Internal Audit Department supports the Audit Committee of the Company. The Internal Audit Department handles both planned and unannounced checks of the risk management controls and procedures, the results of which are reported to the Audit Committees.

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34. Financial instruments (continued)

Credit riskThe credit risk, to which the Group is exposed, is the risk of possible financial loss if a client or a party to a financial instrument fails to perform its contractual obligations. The credit risk is mainly related to receivables from clients.

Other receivablesThe Group’s credit risk exposure depends on the customer’s individual characteristics, which vary from one sector to another. This exposure may also depend on the risk of non-payment specific to the industry or the markets in which the Group companies operate. As this risk is different for the different sectors, it is managed by sectors in view of the weight of each sector within the investment portfolio of Industrial Holding Bulgaria PLC. Therefore, the Group's risk is diversified. The credit policies of the Group companies require the solvency of each new customer to be analysed before offering standard terms of delivery and payment.

The Group recognises impairment allowance being its estimate of losses relating to trade and other receivables. The impairment allowance comprises a specific loss component that relates to individually significant exposures and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective component is determined based on historical data on payments related to similar financial assets.

GuaranteesIt is a policy of the Group to issue financial guarantees only to subsidiaries and only after obtaining the preliminary approval of the Managing and Supervisory Boards.

Liquidity risk

Liquidity risk is the probability that the Group will be unable to meet all its obligations, which are settled in cash or through another financial asset. The Group's approach to managing the liquidity risk is to secure sufficient liquidity, wherever possible, so as to cover its liabilities, in both ordinary and abnormal conditions, ensuring the Group will not suffer unacceptable losses or reputation damages.

The Group elaborates financial planning to cover its 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.

Market risk

Market risk is the risk that affects the Group’s revenue or the value of its investments due to fluctuations resulting from changes in market prices, such as exchange rates, interest rates or prices of equity instruments. The objective of market risk management is to control the exposure to market risk within acceptable limits through return rate optimization.

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Currency risk

The Group is exposed to currency risk as it performs purchases and/or sales and/or receives loans in currencies, other than the functional currency - the Bulgarian lev. The main part of these transactions is denominated in EUR and USD. Effective 1999, the exchange rate BGN/EUR is fixed at ratio of EUR 1 : BGN 1.95583.

Interest on loans is denominated in the currency of the loan. Generally, loans are denominated in currencies that match the cash flows generated by the underlying operations of the counterparty to the loan, primarily BGN and Euro, but also USD. This provides an economic hedge without derivatives being entered into and therefore, hedge accounting is not applied in these circumstances.

The Group’s management has minimised the payments in currencies, other BGN and EUR, aiming at minimizing the Group’s exposure to currency risk. Some of the companies are exposed to limited currency risk on purchases and/or sales and/or receiving loans denominated in currencies other than the presentation currency. The Group also recognises commercial obligations arising from the purchase of shares in USD.

Interest rate risk The Group companies are exposed to interest rate risk mainly with respect to its loans bearing floating (variable) interest rates corresponding to the current market prices. Interest rate risk is managed through using loans with fixed interest rates.

In certain cases loans bearing floating rates have been obtained in accordance with the requirement of the lender that part of the interest payments are protected from a rise in interest rates by signing interest rate swaps.

The Group manages the interest rate risk by signing fixed-rate loans.

Operating risk

Operating risk is the risk of direct or indirect losses due to lots of reasons relating to the processes, personnel, technologies and infrastructure of the Group, as well as to external factors, other than credit, market and liquidity risks, such as those originating from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operating risks arise from all transactions of the Group.

The Group's objective is to manage operational risk to avoid financial losses and damage to the Group's reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.

The primary responsibility for developing and implementing operational risk control is assigned to senior management within each business unit. This responsibility is supported by the development of overall Group standards for the operational risk management in the following areas:

requirements for proper allocation of liabilities, including independent authorization of transactions requirements for reconcilement and monitoring of transactions compliance with the regulatory and other legal requirements control documentation and procedures requirements for periodic assessment of operating risks and adequacy of controls and procedures for dealing

with risks identified requirements for reporting operating losses and proposed corrective measures training and professional development ethic and business standards risk diminishing, including insurance, where effective.

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Compliance with the Group’s standards has been supported by a program for periodic reviews to be carried out by the Internal Audit. The results from the reviews of Internal Audit are discussed with the managing staff of the business unit they relate to, in the form of summaries provided to the Audit Committee and senior management of the Group.

Capital management

The policy of the Managing Board (MB) is to maintain a strong capital base so as to maintain investor, creditor and market confidence, and to sustain future development of the business. The capital consists of share capital, reserves and retained earnings. The MB seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. There were no changes in the Group’s approach to capital management in both years of 2016 and 2015.

35. Related party disclosures

The consolidated financial statements of the Group include the following companies:

Equity interest

Country of registration 31 March 2016 2015

% %

Industrial Holding Bulgaria PLC Bulgaria Parent company Parent company

Privat Engineering AD Bulgaria 100.00 100.00

ZMM Bulgaria Holding AD Bulgaria 100.00 100.00

ZMM Sliven AD Bulgaria 95.98 95.98

ZMM Nova Zagora AD Bulgaria 93.57 93.57

IHB Metal Castings AD* Bulgaria 100.00 100.00

IHB Electric AD Bulgaria 87.31 85.18

KRZ Port Bourgas AD Bulgaria 99.64 99.64

KLVK AD Bulgaria 100.00 100.00

International Industrial Holding Bulgaria AG Switzerland 100.00 100.00

Maritime Holding AD Bulgaria 61.00 61.00

Bulgarian Register of Shipping EAD Bulgaria 61.00 61.00

Bulyard AD Bulgaria 98.00 98.00

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35. Related party disclosures (continued)

Bulyard Shipping Industry AD Bulgaria 99.97 99.97

Bulkari EAD Bulgaria 100.00 100.00

IHB Shipping Co EAD Bulgaria 100.00 100.00

Emona LTD Marshal Islands 100.00 100.00

Karvuna LTD Marshal Islands 100.00 100.00

Odria LTD Marshal Islands 100.00 100.00

Tirista LTD Marshal Islands 100.00 100.00

Rekolta 2011 EAD Bulgaria 100.00 100.00

Serdika LTD Marshal Islands 100.00 100.00

Bulport Logistics AD Bulgaria 100.00 100.00

Odessos PBM AD Bulgaria 90.00 60.00

IHB Shipdesign AD Bulgaria 75.00 100.00

*As of 24 March 2016 the former company name was changed from Leyarmash AD to IHB Metal Castings AD.

Bulls AD is a shareholder with significant influence of Industrial Holding Bulgaria PLC. According to IAS 24, paragraph 9b) ii) and iv) Bulls AD and all its subsidiaries, associates and joint ventures are related parties to Industrial Holding Bulgaria PLC.

DZH AD is a related party to Industrial Holding Bulgaria PLC because the key management staff of Industrial Holding Bulgaria PLC owns 50% of the capital of DZH AD.

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35.1. Related party transactions

Transactions with a shareholder with significant influence

BGN’000 31 March 2016

31 March 2015

Interest expenses on loans receivable 58 163

Loan revaluation - 200

Monetary loans received 509 -

Monetary loans repaid and interest paid 62 2,246

BGN’000 31 March 2016

31 March 2015

Transactions with other related parties

Interest expenses - 10

Loan revaluation - 65

Monetary loans repaid and interest paid - 53

35.2. Related party balancesPayables in connection with loans received (incl. interest)

BGN’000 31 March 2016

2015

Shareholder with significant influence 5,561 5,056

5,561 5,056


incl. short-term portion 3,908 3,347

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Terms and conditions of related party transactions

The sales to and purchases from related parties are made at contractual prices. Outstanding balances at the year-end are unsecured (except for loans), interest free (except for loans) and the settlement is made in cash. There have been no guarantees provided to or received for related party payables or receivables, except for the ones listed below. For the period ended 31 December 2015, the Group had not written down related party receivables (2014: Nil). A review for impairment is made every financial year through examining the financial position of the related party and the market in which the related party operates.

36. Commitments and contingencies

Legal claims

No significant legal claims have been initiated against the Group.

The subsidiary IHB Electric AD utilises good performance bank guarantees under contracts for the issuance of good performance bank guarantees. As of 31 March 2016 the bank guarantees issued in favour of customers amounted to BGN 399 thousand (2015: BGN 399 thousand) and are claimed. IHB Electric AD brought an action in Germany.

In 2015 and as of the reporting date, no court ruling as to the substance was issued. Despite all the evidence collected and expectations that the court ruling will be in favour of IHB Electric AD, in view of the fact that in 2015 and to date no payments on the receivable have been made by the customer and considering the development of the case at the Berlin Regional Court, an allowance for doubtful debts amounting to BGN 246 thousand (31 December 2015: BGN 246 thousand) was recognised.

Guarantees

As per a contract signed with a commercial bank for granting a credit limit for issuance of bank guarantees, letters of credit and working capital financing of the Holding and/or Group entities with a limit of BGN 10,000 thousand, as at 31 March 2016 bank guarantees amounting to BGN 1,408 thousand (2015: BGN 1,101 thousand)were issued to the following Group companies: IHB Electric AD, IHB Metal Castings AD, KRZ Port Bourgas AD, ZMM Bulgaria AD, and Bulyard Shipping Industry AD, as also letters of credits amounting to BGN 98 thousand (2015: BGN 98 thousand) and a revolving credit line was opened for working capital financing amounting to BGN 3,000 thousand (2015: BGN 3,000 thousand). As at 31 March 2016 the amount utilised by the subsidiaries under this revolving credit line for working capital financing was BGN 2,768 thousand. As at 31 March 2016 the unutilised limit under this bank loan amounted to BGN 232 thousand. The contract with the bank is secured by a second ranking registered pledge on the commercial enterprise of KRZ Port-Bourgas AD. After annual renegotiation of the terms and conditions of the contract, Bulyard Shipbuilding Industry AD surety ship on the limit provided in the form of working capital was cancelled.

Collateral

At the date of these financial statements, the shares acquired in November 2014 and January 2015 by Industrial Holding Bulgaria PLC in Odessos PBM AD and the shares acquired by KLVK AD in Bulport Logistics AS are pledged in order to secure payment of the price under the contracts until its full payment in 2017.

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36. Commitments and contingencies (continued)

Other

The Group’s management believes that no material risks exist as a result of the dynamic fiscal and regulatory environment in Bulgaria, which might require adjustments in the financial statements for the year ended 31 March 2016.

39. Events after the reporting date

Over the period from 31 March 2016 to the date of approval of these financial statements, Industrial Holding Bulgaria PLC redeemed additional treasury shares amounting to 1,087 at an average price of BGN 0.80 each.

The second interest payment on the debenture loan ISIN code BG 2100003156 dated 2015 was made on 10 April 2016.

Industrial Holding Bulgaria PLC consider different opportunities for optimization of the operations of Rekolta 2011 EAD and Bulkari EAD. In April 2016, a trilateral contract for transformation through merger was signed between BKI AD (surviving company), Rekolta 2011 EAD and Bulkari EAD (transforming entities). The procedure is in progress and is to be completed by the end of the year. As a result of this transformation, Rekolta 2011 EAD and Bulkari EAD will discontinue their independent existence as legal entities and their net assets will be transferred to the successor. The merger comes into force on the date of its registration with the Commercial Register.

Besides the disclosed above, no other significant events have occurred after 31 March, which require additional adjustments and/or disclosures in the Group’s consolidated financial statements for the period ended 31 March 2016.

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