Industrial Holding Bulgaria AD

Individual Financial Statements

For the year ended 31 December 2009

With Independent Auditors' Report Thereon INDUSTRIAL HOLDING BULGARIA AD INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009

Statement of comprehensive income For the year ended 31 December 2009

Note 2009 2008 In thousands of BGN 31 December 31 December

Income from interest, dividends and investment activities 6 5,708 9,772 Other operating income 7 715 85 6,423 9,857

Personnel expenses 8 (433) (404) Hired services (160) (303) Other operating expenses 9 (147) (349)

Net income from operations 5,683 8,801

Finance income - 284 Finance expenses (1,784) (520) Net finance income / (expenses) 10 (1,784) (236)

Profit before tax 3,899 8,565

Income tax (expense) / benefit 11 (315) (175) Profit after tax 3,584 8,390

Other comprehensive income for the period - -

Total comprehensive income for the period 3,584 8,390

Basic earnings per share (BGN) 19 (а) 0.082 0.191

The notes on pages 6 to 35 are an integral part of these financial statements.

Daneta Zheleva Toshka Vassileva Chief Executive Director Chief accountant

In accordance with an Independent Auditors’ Report: KPMG Bulgaria OOD

Gilbert McCaul Dobrina Kaloyanova Partner Registered Auditor 2 INDUSTRIAL HOLDING BULGARIA AD INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009

Statement of financial position As at 31 December 2009

In thousands of BGN Note 2009 2008 31 December 31 December Assets Tangible and intangible non-current assets 12 84 79 Investments in subsidiaries 13 52,660 49,033 Investments in associates 14 4,540 4,471 Long-term loans to related parties 15 66,136 29,810 Total non-current assets 123,420 83,393

Trade and other receivables 16 24 266 Receivables from related parties 17 16,173 12,964 Cash and cash equivalents 18 454 40,289 Materials 3 3 Total current assets 16,654 53,522 Total assets 140,074 136,915

Equity Issued capital 19 43,756 43,756 Share premium 24,503 24,503 Reserves 6,297 6,297 Retained earnings (net) 24,121 20,537 Total equity 98,677 95,093

Liabilities Debenture loan 21,650 21,650 Long-term liabilities 3 3 Total non-current liabilities 20 21,653 21,653

Trade and other payables 21 19,494 20,122 Related party payables 22 52 - Tax liabilities 198 47 Total current liabilities 19,744 20,169 Total liabilities 41,397 41,822 Total equity and liabilities 140,074 136,915

Gilbert McCaul Dobrina Kaloyanova Partner Registered Auditor

3 INDUSTRIAL HOLDING BULGARIA AD INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 Statement of cash flows For the year ended 31 December 2009

In thousands of BGN Note 31 December 31 December 2009 2008

Cash flows from operating activities Proceeds from sale of shares and other trade receivables 1,395 884 Dividends received 2,003 5,043 Loans repaid 5,926 24,698 Interest received 2,625 2,999 Payments regarding acquisition of shares and stakes (4,018) (9,425) Loans granted (44,481) (65,817) Salaries and remunerations (409) (378) Foreign exchange gains / (losses) (1) 52 Income tax paid (164) (78) Cash flows related to not exercised rights of (625) 19,672 shareholders (net) Payments to suppliers and other payments (371) (869) Net cash flow from operating activity (38,120) (23,219)

Investing activities Acquisition / (disposal) of property, plant and equipment 17 (68) Net cash from in investing activities 17 (68)

Cash flows from financing activities Proceeds from securities issues - 21,650 Repaid bank loans and interest - (219) Debenture loan interest paid (1,731) - Other financial expenses paid (1) (1) Net cash flows from financing activities (1,732) 21,430

Increase / (decrease) in cash and cash equivalents (39,835) (1,857) Cash and cash equivalents at the beginning of the period 40,289 42,146 Cash and cash equivalents at 31 December 2009 18 454 40,289

The Statement of cash flows is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 6 to 35.

Gilbert McCaul Dobrina Kaloyanova Partner Registered Auditor

4 INDUSTRIAL HOLDING BULGARIA AD INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009

StatementDaneta Zheleva of changes in equity Toshka Vassileva Chief Executive Director Chief accountant For the year ended 31 December 209 In accordance with an Independent Auditors’ Report: Note Share Premium Reserves Retained Total KPMG Bulgaria OOD In thousands of BGN capital reserves earnings equity

Balance at 1 January 2008 43,756 24,503 3,661 14,782 86,702 Gilbert McCaul Dobrina Kaloyanova Total comprehensive income for the Partner Registered Auditor period

Profit for the period - - - 8,390 8,390 Other changes - - - 1 1

Other comprehensive income for the - - - - - period Total comprehensive income for the - - - 8,391 8,391 period Transactions with owners reported in - - 2,636 (2,636) - equity Balance at 31 December 2008 19 43,756 24,503 6,297 20,537 95,093

Balance at 1 January 2009 43,756 24,503 6,297 20,537 95,093

Total comprehensive income for the period Profit for the period - - - 3,584 3,584

Other comprehensive income for the period - - - - - Total comprehensive income for the period - - - 3,584 3,584 Transactions with owners reported in equity - - - - - Balance at 31 December 2009 19 43,756 24,503 6,297 24,121 98,677

Notes to the financial statements

Note Page

1. Reporting entity 7 15. Long-term loans to related parties 27

2. Basis of preparation 7 16. Trade and other receivables 27

5 INDUSTRIAL HOLDING BULGARIA AD INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 3. Significant accounting policies 8 17. Receivables from related parties 27

4. Determination of fair values 20 18. Cash and cash equivalents 28

5. Financial risk management 20 19. Share capital 28

6. Income from interest, dividends and 23 19(а) Basic earning per share 28 transactions with investments

7. Other operating income 23 20. Long-term payables 29

8. Personnel expenses 23 21. Trade and other payables 29

9. Other operating expenses 23 22. Payables to related parties 30

10. Net financial income / (expenses) 24 23. Financial instruments 30

11. Income tax expense 24 24. Related party transactions 33

12. Tangible and intangible assets 25 25. Contingencies 35

13. Investment in subsidiaries 26 26. Subsequent events 35

14. Investment in associates 26

1. Reporting entity

Industrial Holding Bulgaria AD (the Company or the Holding) is a joint stock company, registered in Republic of Bulgaria incorporated under No 13081 from 1996 with headquarters and management address Sofia, 42 Damian Gruev Str. Initially the Company has been established as a Privatisation Fund according the Privatisation Funds Act under the name Privatisation Fund Bulgaria AD.

6 INDUSTRIAL HOLDING BULGARIA AD INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 The General shareholders meeting held on 27.02.1998 decided to reorganize the activities of the Privatization Fund Bulgaria AD into a holding company and changed its name from Privatization Fund Bulgaria AD to Industrial Holding Bulgaria AD. The Company’s registered capital amounts to BGN 43,756,118. It has two-tier management system comprising Supervisory and Management boards.

The Company’s activities include acquisition, management, assessment and sale of shares in Bulgarian and foreign entities, acquisition, assessment and sale of patents, re-letting of licences to use patents to the companies in which the Holding participates, financing of its subsidiaries and associates, as well all other activities not prohibited by the Law.

The Company’s activity is not limited by an expiry date or any other termination condition.

The Company is registered in the United State Register BULSTAT under identification number BG121631219, as well in the State Social Security system. It is registered under the Value Added Tax Act. Company’s shares are traded on the Bulgarian Stock Exchange, Sofia.

2. Basis of preparation

(а) Statement of compliance These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) prepared by the International Accounting Standards Board (IASB) and endorsed by the European Commission.

The financial statements were authorised for issue by the Board of Directors on 19 March 2010.

(b) Basis of measurement These financial statements have been prepared on historical cost basis except for the following items:  Financial instruments at fair value through profit or loss are measured at fair value;  Available-for-sale financial assets are measured at fair value; The methods used for fair value measurement are disclosed in Note 4.

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

2. Basis for preparation, continued (d) Use of estimates and judgments The preparation of financial statements in compliance with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods, if the revision affects both current and future periods.

There have not been estimations made by the Management in the application of IFRS that may have significant impact on these financial statements and estimates and with significant risk of material adjustment in the next period.

(e) Changes in accounting policies (i) Overview Starting as of 1 January 2009, the Company has changed its accounting policies in the following areas: • Presentation of financial statements.

(ii) Presentation of financial statements The Company applies revised IAS 1 Presentation of Financial Statements (2007), which became effective as of 1 January 2009. As a result, the Company presents in the statement of changes in equity all owner changes in equity, whereas all non-owner changes in equity are presented in the statement of comprehensive income. Comparative information has been re-presented so that it also is in conformity with the revised standard. The change in accounting policy only impacts presentation aspects.

(f) Going concern These financial statements have been prepared applying the assumption that the Company is a going concern and will continue to operate in the foreseeable future. In 2009, the world credit crisis has, in practice, transformed into a world economic market crisis. It has its impact over all sectors and industries. The probability of slowdown of the economic growth, and even entering into recession of some economic regions and countries, is significant. This affects the Company in continuing its operations in a more difficult and unpredictable business environment. The Company’s management anticipates that its existing capital resources and sources of funding will be adequate to satisfy its liquidity requirements through calendar year 2010.

3. Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these financial statements. In addition, the comparative statement of comprehensive income has been re-presented to include other comprehensive income items.

(а) Basis of consolidation The Company prepares consolidated financial statements on the basis of consolidation of all local and foreign subsidiaries. The consolidation is performed on the basis of the purchase accounting method and consolidates the assets, the liabilities, the equity and the financial results of all subsidiaries of Industrial Holding Bulgaria AD. Significant investments in associates are consolidated based on the equity method by recording the investments initially at cost (acquisition costs) and subsequently is remeasured to include the investor’s share of the net assets of the investee.

3. Significant accounting policies, continued

(а) Basis of consolidation, continued (i) Subsidiaries Subsidiaries are the enterprises controlled by the Company. Control exists when the Company has the power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that 8 INDUSTRIAL HOLDING BULGARIA AD INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 control commences until the date that control ceases. The accounting policies of the subsidiaries changes when necessary in order to align them with the policies adopted by the Company. In the Company’s individual financial statements the investments in subsidiaries are reported at cost less impairment losses. The share in the net profit for distribution by the subsidiary, i.e. the dividend after its distribution, is reported as current finance income by the parent.

(ii) Associates Associates are those enterprises in which the Group has significant influence, but not control over the financial and operating policies. Income under the form of dividends is recognized after being declared. In the Company’s individual financial statements the investments in associates are reported at cost less impairment losses.

(b) Foreign currency transactions Transactions in foreign currencies are translated to the Company’s functional currency at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the reporting period. Non- monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments, or qualifying cash flow hedges, which are recognised in other comprehensive income.

Effective 1998, the Bulgarian Lev (BGN) rate is fixed to the Euro (EUR). The exchange rate applicable in the current and previous reporting periods is BGN 1.95583 / EUR 1.0.

(c) Financial instruments

(i) Non-derivative financial assets The Company initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument. The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognised as a separate asset or liability.

(c) Financial instruments, continued

(i) Non-derivative financial assets, continued

9 INDUSTRIAL HOLDING BULGARIA AD INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Company has the following non-derivative financial assets: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables and available-for-sale financial assets.

Financial assets at fair value through profit or loss A financial asset is classified at fair value through profit or loss if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through profit or loss if the Company manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Company’s documented risk management or investment strategy. Upon initial recognition attributable transaction costs are recognised in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit or loss.

Held-to-maturity financial assets If the Company has the positive intent and ability to hold debt securities to maturity, then such financial assets are classified as held-to-maturity. Held-to-maturity financial assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition held-to-maturity financial assets are measured at amortised cost using the effective interest method, less any impairment losses. Any sale or reclassification of a more than insignificant amount of held-to-maturity investments not close to their maturity would result in the reclassification of all held-to-maturity investments as available- for-sale, and prevent the Company from classifying investment securities as held-to-maturity for the current and the following two financial years.

Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Company’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

(i) Non-derivative financial assets, continued

10 INDUSTRIAL HOLDING BULGARIA AD INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are designated as available-for- sale and that are not classified in any of the previous categories. The Company’s investments in equity securities and certain debt securities are classified as available-for-sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on available-for-sale equity instruments, are recognised in other comprehensive income and presented within equity in the fair value reserve. When an investment is derecognised, the cumulative gain or loss in other comprehensive income is transferred to profit or loss.

(ii) Non-derivative financial liabilities The Company initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument. The Company derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Company has the following non-derivative financial liabilities: loans and borrowings, bank overdrafts, and trade and other payables. Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest method.

(iii) Share capital

Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. The equity is presented at historical value at registration date.

Repurchase of share capital When share capital recognised as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognised as a deduction from equity. When repurchased shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to / from retained earnings.

(iv) Compound financial instruments Compound financial instruments issued by the Company comprise convertible notes that can be converted to share capital at the option of the holder, and the number of shares to be issued does not vary with changes in 11 INDUSTRIAL HOLDING BULGARIA AD INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 their fair value. The liability component of a compound financial instrument is recognised initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognised initially at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective interest method. The equity component of a compound financial instrument is not remeasured subsequent to initial recognition. Interest, dividends, losses and gains relating to the financial liability are recognised in profit or loss. Distributions to the equity holders are recognised in equity, net of any tax benefit.

(d) Property, plant and equipment

(i) Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. The acquisition cost includes purchase price, including customs duties and non- refundable taxes upon purchase, as well as all other costs directly attributable to its setting on a specific site and bringing the asset to a working condition for its intended use. The newly acquired items of property, plant and equipment are measured at acquisition cost, which includes purchase price and all directly attributable costs for bringing the asset into use.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

The Company’s management has adopted policy to capitilise assets when their acquisition cost is equal or surpasses the materiality level set out on BGN 700.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised net within other income in profit or loss. When revalued assets are sold, the amounts included in the revaluation reserve are transferred to retained earnings.

(d) Property, plant and equipment, continued

(ii) Subsequent costs The cost of replacing a part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company, and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

(iii) Depreciation Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. Land is not depreciated.

Depreciation of an asset begins when it is available for use, i.e. when is in the location and condition necessary for it to be capable of operating in the manner intended by management. Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognised.

The estimated useful lives are as follows:  Computers and computer equipment 2-5 years  Vehicles (cars) 5 years  Fixtures and fittings and others 6-10 years

Depreciation methods, useful lives and residual values are reviewed at each reporting date.

(e) Intangible assets Intangible assets acquired by the Company are stated at cost less accumulated amortisation and impairment losses (if any).

Amortisation is recognised in profit or loss on a straight-line basis over their estimated useful lives.  Patents and trade marks 4 - 7 years  Software products 4 - 7 years

(e) Impairment (i) Financial assets (including receivables)

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliable.

(e) Impairment of assets, continued

(i) Financial assets (including receivables), continued

Objective evidence that financial assets (including equity securities) is impaired can include default or delinquency by a debtor, restructuring of an amount due to the Company on terms that the Company would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

The Company considers evidence of impairment for receivables and held-to-maturity investment securities at both a specific asset and collective level. All individually significant receivables and held-to-maturity investment securities are assessed for specific impairment. All individually significant receivables and held- to-maturity investment securities found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables and held-to-maturity investment securities that are not individually significant are collectively assessed for impairment by grouping together receivables and held-to-maturity investment securities with similar risk characteristics. In assessing collective impairment the Company uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

Impairment losses on available-for-sale investment securities are recognised by transferring the cumulative loss that has been recognised in other comprehensive income, and presented in the fair value reserve in equity, to profit or loss. The cumulative loss that is removed from other comprehensive income and recognised in profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss. Changes in impairment provisions attributable to time value are reflected as a component of interest income.

If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognised in profit or loss, then the impairment loss is reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income.

(e) Impairment of assets, continued

(ii) Non-financial assets The carrying amounts of the Company’s non-financial assets, other than investment property, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. 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. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit, or CGU”). The Company’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs. An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated to reduce the carrying amounts of the assets in the unit (group of units) on a pro rata basis. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(f) Employee benefits

(i) Defined contribution plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. The Government of Bulgaria is responsible for providing pensions in Bulgaria under a defined contribution pension plan. The Company’s contributions to the defined contribution pension plan are recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees.

(f) Employee benefits, continued

(ii) Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company’s net obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The Company has obligation to pay certain amounts to each employee who retires with the Company in accordance with Art. 222, § 3 of the Labor Code (LC). According to these regulations in the LC, when a labor contract of a company’s employee, who has acquired a pension right, is ended, the Company is obliged to pay him compensation amounting to two gross monthly salaries. If the employee’s length of service in the company equals to or is greater than 10 or more years, as at retirement date, then the compensation amounts to six gross monthly salaries. As at the reporting date, the Management of the Company estimates the approximate amount of the potential expenditures for every employee based on a calculation performed by a qualified actuary using the projected unit credit method. The estimated amount of the obligation and the main assumptions, on the base of which the estimation of the obligation has been made, is disclosed to the financial statements in note 20. The Company recognises all actuarial gains and losses arising from defined benefit plans in personnel expenses for the period in profit and loss.

(iii) Short-term employee benefits The Company recognises as a liability the undiscounted amount of the estimated costs related to annual leave expected to be paid in exchange for the employee’s service for the period completed.

(g) Provisions A provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost.

(h) Recognition of income and expenses Revenues and expenses are accrued as they occur, regardless of cash inflows and outflows. They are accounted on the matching principle basis. Revenue is measured at fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates.

Revenue from the sale of goods is recognised, when the significant risks and rewards of ownership have been transferred to the buyer.

Revenue from services rendered is recognised in profit or loss in proportion to the stage of completion of the transaction at the reporting date.

(h) Recognition of income and expenses, continued

Operational income comprises interest income on funds invested, dividend income, gains / (loss) on the disposal of available-for-sale financial assets, changes in the fair value of financial assets at fair value through profit or loss. Interest income is recognised as it accrues, using the effective interest method. Dividend income is recognised on the date that the Company’s right to receive payment is established, which in the case of quoted securities is the ex-dividend date.

(j) Lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.

Determining whether an arrangement contains a lease At inception of an arrangement, the Company determines whether such an arrangement is or contains a lease. A specific asset is the subject of a lease if fulfillment of the arrangement is dependent on the use of that specified asset. An arrangement conveys the right to use the asset if the arrangement conveys to the Company the right to control the use of the underlying asset. At inception or upon reassessment of the arrangement, the Company separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Company concludes for a finance lease that it is impracticable to separate the payments reliably, an asset and a liability are recognised at an amount equal to the fair value of the underlying asset. Subsequently the liability is reduced as payments are made and an imputed finance charge on the liability is recognised using the Company’s incremental borrowing rate.

(k) Finance income and finance costs Finance income comprises changes in the fair value of financial assets at fair value through profit or loss, foreign exchange gains and gains on hedging instruments that are recognised in profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Finance costs comprise interest expense on loans and borrowings, unwinding of the discount on provisions, dividends on preference shares classified as liabilities, changes in the fair value of financial assets at fair value through profit or loss, impairment losses recognised on financial assets, and losses on hedging instruments that are recognised in profit or loss. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method. Foreign currency gains and losses are reported on a net basis.

(l) Income tax Income tax expense comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income. Current tax is the expected tax payable on the taxable profit for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for temporary differences from the initial recognition of assets or liabilities in a transaction that affects neither accounting, nor taxable profit nor loss. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset, if there is a legally enforceable right to offset current tax liabilities and assets or the tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Upon determination of current and deferred tax the Company uses the accounting basis described in Note 2 above.

(m) Earnings per share The Company presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees.

(n) New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2009, and have not been applied in preparing these financial statements.

New, amended, revised or improved standards: Revised IFRS 3 Business Combinations (2008) is effective for the first financial year starting after 1 July 2009. Management does not expect Revised IFRS 3 to have an effect on the financial statements as the Company does not have any interests in subsidiaries that will be affected by the revisions to the Standard. Amendments to IAS 27 Consolidated and Separate Financial Statements are effective for the first financial year starting after 1 July 2009. Management does not expect Amendments to IAS 27 to have an effect on the financial statements as the Company does not have any interests in subsidiaries that will be affected by the revisions to the Standard. Amendment to IAS 32 Financial Instruments: Presentation – Classification of Rights Issues is effective for annual period beginning on or after 1 February 2010. Management does not expect Amendment to IAS 32 to have an effect on the financial statements as the Company has not issued such instruments at any time in the past.

18 INDUSTRIAL HOLDING BULGARIA AD INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 Notes to the financial statements

3. Significant accounting policies, continued (n) New standards and interpretations not yet adopted, continued Amendments to IAS 39 Financial Instruments: Recognition and Measurement: Eligible Hedged Items are effective for the first financial year starting on or after 1 July 2009. Management does not expect Amendments to IAS 39 to have an effect on the Company’s financial statements.

New interpretations: IFRIC 12 Service Concession Arrangements shall be applied, at the latest, as from the commencement date of the first financial year starting after 1 April 2009. Management does not expect IFRIC 12 to have an effect on the Company’s financial statements, as the Company is not a party in a service conscession agreement.

IFRIC 15 Agreements for the Construction of Real Estate is effective for the first financial year starting after 1 January 2010. Management does not expect IFRIC 15 to have an effect on the Company’s financial statements as the Company does not provide construction of real estate and does not construct real estate properties for sale.

IFRIC 16 Hedges of a Net Investment in a Foreign Operation Estate is effective for the first financial year starting after 1 July 2009. Management does not expect IFRIC 16 to have an effect on the Company’s financial statements, as the Company does not have investments in foreign operations. IFRIC 17 Distributions of Non-cash Assets to Owners shall be applied, at the latest, as from the commencement the first financial year starting on or after 1 November 2009. As far as this interpretation is not applicable for the periods prior it has entered into force, as well the fact that applies to future dividends subject of the competencies of the General Assembly, it is not possible to foresee the effects from its application. IFRIC 18 Transfers of Assets from Customers shall be applied prospectively at the latest as from the commencement the first financial year starting on or after 1 November 2009. Management does not expect IFRIC 18 to have an effect on the Company’s financial statements, as the Company does not receive transfers of assets from Customers.

IASB/IFRIC documents not yet endorsed by EC: Management believes that it is appropriate to disclose that the following revised standards, new interpretations and amendments to current standards, which are already issued by the International Accounting Standards Board (IASB), are not yet endorsed for adoption by the European commission, and therefore are not taken into account in preparing these financial statements. The actual effective dates for them will depend on the endorsement decision by the EC.  Improvements to IFRSs 2009 (issued April 2009), various effective dates, generally 1 January 2010;  Amendment to IFRS 2 Group Cash-Settled Share-based payment Transactions (issued June 2009), effective from 1 January 2010;  Amendments to IFRS 1 Additional exemptions for first-time adopters (issued July 2009), effective date 1 January 2010;  Amendments to IAS 32 Classification of Rights Issues (issued October 2009), effective date 1 February 2010;  Revised IAS 24 Related Party Transactions (issued November 2009), effective date 1 January 2011;  IFRS 9 Financial Instruments (issued November 2009), effective date 1 January 2013;  Amendments to IFRIC 14 Limit on a Defined benefit Asset, Minimum Funding Requirements and their Interactions (issued November 2009), effective date 1 January 2011;  IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (issued November 2009), effective date 1 July 2010.

19 INDUSTRIAL HOLDING BULGARIA AD INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 Notes to the financial statements (n) New standards and interpretations not yet adopted, continued As at the date of preparation of these financial statements, management believes that the implementation of these revised standards, new interpretations and amendments to current standards in future, once they are endorsed by the European Commission for adoption by the European Union, is not expected to have a significant impact on the financial statements.

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

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

(ii) Trade and other receivables The fair value of trade and other receivables, excluding construction work in progress, is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. This fair value is determined for disclosure purposes.

(iii) Non-derivative financial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. In respect of the liability component of convertible notes, the market rate of interest is determined by reference to similar liabilities that do not have a conversion option.

5. Financial risk management Overview The Company has exposure to the following risks from its use of financial instruments:   credit risk   liquidity risk   market risk   operational risk This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk, and the Company’s management of capital. Further quantitative disclosures are included throughout these financial statements.

Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Company Audit Committee oversees how management monitors compliance with the Company’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The Company Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

5. Financial risk management, continued

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

Trade and other receivables The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the default risk of the industry and country in which customers operate. The credit policy under which each new customer is analysed individually for creditworthiness before the Company’s standard payment and delivery terms and conditions are offered. Investments The Company limits its exposure to credit risk by investing only in liquid securities and only with counterparties that have a highest credit rating. Investments are mainly in businesses and companies where the Holding has control interest and can determine the strategy for development. Investements in portfolios are mainly in liquid securities. Management does not expect any counterparty to fail to meet its obligations. Guarantees The Company’s policy is to provide financial guarantees only to subsidiaries, after obtaining approval from the Management and Supervisory Boards.

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

Typically the Company ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 30 days, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted.

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

Foreign currency risk The Company is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currency such as U.S. Dollars (USD) and Sterling (GBP). Company lends and borrows in U.S. Dollars.

Interest rate risk The Company manages its exposure to interest rate risk by borrowing and lending at fixed rates.

5. Financial risk management, continued

Operational risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Company’s processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behavior. Operational risks arise from all of the Company’s operations. The Company’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Company’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity. The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management. This responsibility is supported by the development of overall Company standards for the management of operational risk in the following areas:  requirements for appropriate segregation of duties, including the independent authorization of transactions  requirements for the reconciliation and monitoring of transactions  compliance with regulatory and other legal requirements  documentation of controls and procedures  requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified  requirements for the reporting of operational losses and proposed remedial action  development of contingency plans  training and professional development  ethical and business standards  risk mitigation, including insurance where this is effective Compliance with Company standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted to the Audit Committee and senior management of the Company.

Capital management The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.

Company is not subject of special capital requirements imposed legally or by a contract.

The Company and its subsidiaries are not subject to externally imposed capital requirements.

6. Income from interest, dividends and investment activities In thousands of BGN 31 December 2009 31 December 2008

Interest income 4,601 3,465 Income from sale of shares 743 - Net book value of shares written-off (374) - Dividend income 738 6,307 5,708 9,772

The substantial part of the interest income is related to the interest-earning receivables from subsidiaries – granted loans at the amount of BGN 3,828 thousand, interests on deposit and current bank accounts - at the amount of BGN 768 thousand, as well as other companies regarding deferred payments agreed for sale of shares at the amount of BGN 5 thousand. The reported dividend income amounts to BGN 590 thousand which represent distributed dividend from Maritime Holding AD, BGN 148 thousand distributed from the associate company Vartzila IHB DESIGN (new name of VIK – Sandvik - IHB DESIGN). During the period 149 thousand shares from the capital of Privat Engineering AD have been sold to a company from the Group - International Industrial Holding Bulgaria AG, as a result the company’s ownership remains entirely within the Group of Industrial Holding Bulgaria AD. The Company also sold 55 shares from the capital of the associated company Dunav Tours.

7. Other operating income In thousands of BGN 31 December 2009 31 December 2008

Revenue from services rendered 653 85 Other 62 - 715 85

The revenue from services rendered is related to consulting and other services as well as fees for provided financial securities to companies from the Holding. Other revenue at 31 December includes gains from sale of vehicles BGN 45 thousand, reintegrated provisions BGN 15 thousand and other, amounting to BGN 2 thousand. 8. Personnel expenses In thousands of BGN 31 December 2009 31 December 2008

Wages and salaries 379 314 Social security contributions and other social contributions 54 90 433 404

9. Other operating expenses In thousands of BGN 31 December 2009 31 December 2008

Depreciation 23 54 Materials 22 23 Other operating expenses 102 272 147 349

10. Net finance income/(expenses) In thousands of BGN 31 December 2009 31 December 2008

Foreign exchange gains net - 284 Financial income - 284

Interest expenses from debenture loan and other (1,732) (304) Foreign exchange losses (50) (214) Other expenses (2) (2) Financial expenses (1,784) (520) Net finance income/(expenses) (1,784) (236)

During the period 01.01.2009 – 31.12.2009 the attributable portion of interest on the debenture loan is accrued for which the first payment was made on 29.04.2009 and the second on 29.10.2009.

For 2009 the foreign exchange gains and losses are presented net.

11. Tax expenses In thousands of BGN 31 December 2009 31 December 2008

Current tax expenses (315) (169) Deferred income tax - (6) (315) (175)

Reconciliation of effective tax rate

In thousands of BGN 2009 2009 2008 2008 % % Profit for the period 3,584 8,390 Total income tax expense 315 175 Profit before tax 3,899 8,565 Income tax using the Company's domestic tax rate 10.00% 390 10.00% 857 Not recognized expenses for tax purposes 0.05% 2 - - Effect of the reported dividends (1.97)% (77) (7.37)% (631) Effect of utilized tax losses from previous period - - (0.64)% (55) Other - - 0.05% 4 8.08% 315 2.04% 175

Current tax expenses comprise income tax accrued at 10% (2008: 10%). In accordance with the provisions of the Corporate Income Tax Act for the period 01.01.2009 – 31.12.2009 corporate tax at the amount of BGN 315 thousand is due by the Company.

12. Tangible and intangible assets Property, plant and equipment

In thousand of BGN Computers and Fixtures and fittings equipment Vehicles and others Total Cost Balance at 1 January 2008 79 139 66 284 Acquisitions 6 39 18 63 Balance at 31 December 2008 85 178 84 347

Balance at 1 January 2009 85 178 84 347 Acquisitions 3 - 26 29 Written-off - (140) - (140) Balance at 31 December 2009 88 38 110 236

Depreciation and impairment losses Balance at 1 January 2008 63 107 55 225 Depreciation for the year 14 34 4 52 Balance at 31 December 2008 77 141 59 277

Balance at 1 January 2009 77 141 59 277 Depreciation for the year 8 10 3 21 Depreciation of written-off assets - (140) - (140) Balance at 31 December 2009 85 11 62 158

Carrying amount At 1 January 2009 8 37 25 70 At 31 December 2009 3 27 48 78

The Company has no imposed restriction regarding the ownership rights of its property, plant and equipment and no assets have been pledged as security for liabilities or other commitments.

Intangible assets The intangible assets of the company are immaterial therefore a detailed note for their movement during the year has not been prepared. The carrying amount of the intangible assets as at 31 December 2009 is BGN 6 thousand (2008: BGN 9 thousand). The accrued depreciation for the period is BGN 2 thousand.

13. Investments in subsidiaries

The Company has the following investments in subsidiaries at 31 December 2009 and 31 December 2008: 31 December 2009 31 December 2008 In thousands of BGN Participation Percentage Participation Percentage

ZMM Bulgaria Holding 7,885 99.998 7,885 99.998 Privat Engineering AD 10,476 88.830 6,850 90.331 Dockyard Port-Burgas AD 2,277 98.240 2,277 98.240 Augusta Mebel AD 823 97.860 823 97.860 Bulyard AD 25,591 61.500 25,591 61.500 Maritime Holding AD 400 61.000 400 61.000 International Industrial Holding Bulgaria AG 130 100.000 130 100.000 KLVK AD 5,044 71.83 5,044 99.510 Hydropower Bulgaria AD 34 67.000 34 67.000 52,660 49,033

The Company holds 2 shares from the capital of Leyarmash AD which is controlled by the Group ZMM Bulgaria Holding AD. In the present period, the Company has purchased additionally 24 shares of Dockyard Port-Burgas AD capital amounting at BGN 72.

In September 2009 the Holding registered all of the 800 000 ordinary shares issued for the capital increase of Privat Engineering AD at par value of BGN 1 and amount of issue BGN 5. The increase of the share capital was registered with the Registry Agency on 25.09.2009.

During the period 148,5 thousand shares from the capital of Privat Engineering AD have been sold to a company from the Group - International Industrial Holding Bulgaria AG, as a result the company’s ownership remains entirely within the Group of Industrial Holding Bulgaria AD.

14. Investments in associates

31 December 2008 31 December 2007 Participation Percentage Participation Percentage In thousands of BGN

Dunav Tours AD 2,761 48.44 2,762 48.45 Odessos PBM AD 1,584 30.00 1,584 30.00 Vartzila IHB DESIGN 125 50.00 125 50.00 Rekolta AD 70 50.00 - - 4,540 4,471

On 17.11.2009 was established a joint stock company Rekolta AD with share capital BGN140 thousand, divided to 140 ordinary registered shares with par value of BGN 1000 each. The share capital is paid in equally by the founding shareholders Lekart OOD and Industrial Holding Bulgaria AD. Each of the founders registered 50 % of the registered capital. The company is registered with the Registry Agency on 16.12.2009.

15. Long-term loans to related parties In thousands of BGN 31 December 2009 31 December 2008 Privat Engineering 45,328 26,670 KLVK AD 1,464 2,441 Bulyard shipbuilding industry EAD 19,344 699 66,136 29,810 The loan to Privat Engineering AD is granted to finance the construction of the ships Karvouna and Martziana, ordered by the companies from the Group Industrial Holding Bulgaria AD and the loan to KLVK is granted to finance the construction of ship No 102 by Bulyard shipbuilding industry EAD. During the year BGN 31,162 thousand have been extended in loans with annual interest rate of 8 % to Bulyard shipbuilding industry EAD which have been compensated against the installments due for construction of the ships with construction numbers 288, 289 and 459, owned by the Group. The intention of the management is the advance installments due for ship with construction No 459 to be fully or partially compensated against the balance of receivables related to these loans.

16. Trade and other receivables In thousands of BGN 31 December 2009 31 December 2008 Receivables from contracts for sale of shares 17 103 Impairment of receivables (17) (33) Tax receivables 1 19 Prepaid services 12 19 Other receivables 11 158 24 266

17. Receivables from related parties In thousands of BGN 31 December 2009 31 December 2008 Receivables from loans granted, together with interests charged Privatengineering AD 15,732 7,915 Leyarmash AD - 110 KLVK AD 18 901 Odessos PBM AD - 9 Elprom ZEM AD - - Bulyard shipbuilding industry EAD 251 2,764 16,001 11,699 Services rendered Avgusta Mebel AD 9 - Bulyard shipbuilding industry EAD 158 - Elprom ZEM AD 1 - Other 4 - 172 - Dividends receivable ZMM Bulgaria Holding AD - 539 Dunav Tours AD - 726 - 1,265 16,173 12,964

In January 2010 BGN 9,371 thousand were repaid comprising principal and interest, from the amounts due by Privat Engineering AD at 31.12.2009.

18. Cash and cash equivalents In thousands of BGN 31 December 2009 31 December 2008

Cash in hand 15 13 Bank balances 432 299 Bank deposits 7 39,977 454 40,289

Cash and cash equivalents in BGN are measured at nominal value and those in foreign currency – at the closing rate of BNB at the end of the reporting period. The foreign exchange loses/gains are reported as current income/expenses. 19. Share capital The share capital of the Company comprises 43,756,118 personal voting shares with par value of BGN 1 each. The share capital is recorded at nominal value and is fully paid. There are no preference shares and shares payable to bearer. Shareholders in Industrial Holding Bulgaria AD as at 31 December 2009 who hold over a 5% of the share capital of the Company: Shareholder Number of 31 December 2009 31 December 2008 shares

Venside Enterprises AD 13,472,245 30.79% 30.79% DZH AD 2,440,655 5.58% 5.58% BULSS AD 5,863,673 13,40% 13.22% General Stock Investment - - 5.35% Other 21,979,545 50,23% 45.06% 43,756,118 100.00% 100.00%

19(а). Basic earning per share The calculation of the basic earning per share at 31 December 2009 is based on the net profit due to the ordinary shareholders amounting to BGN 3,584 thousand (31 December 2008: profit of BGN 8,390 thousand), and the weighted average number of ordinary shares available for the period ended 31 December 2009 of BGN 43,756 thousand (31.12.2008: BGN 43,756 thousand). The calculation is as follows:

In thousands of BGN 31 December 2009 31 December 2008 Net profit for the year 3,584 8,390 Net profit attributable to ordinary shareholders 3,584 8,390

In thousands of shares 1 January 2009 1 January 2008 Ordinary shares issued at 1 January 43,756 43,756 Ordinary shares issued at 31 December 43,756 43,756 Weighted average number of shares at 31 December 43,756 43,756

In 2007 the Company’s capital was increased twice. In June was registered the increase with 5,250,805 shares by converting the corporate bonds in shares and in December by issue of new emission of 17,502,078 shares with nominal value of BGN 1 and issue value BGN 2.40 each. As a result of all rights being exercised the Company’s capital has increased from BGN 26,254 thousand to BGN 43,756 thousand and a premium reserve of BGN 24,503 thousand has been formed. The Company does not disclose diluted earning per share as the convertible debenture loan does not have dilutive effect on the capital as the interest (net from taxes), stated for one ordinary share is higher than the basic earning per share.

20. Non-current payables In thousands of BGN 31 December 2009 31 December 2008 Debenture loan 21,650 21,650 Provision for retirement compensation 3 3 21,653 21,653

With Decision 20081104114240, the Trade Register has published an announcement for the concluded debenture loan of Industrial Holding Bulgaria AD under the following terms:

 ISIN code: BG2100024087  Total nominal value (amount of the debenture loan) – BGN 21,649,600 (twenty-one million six hundred forty-nine thousand and six hundred), distributed in 216,496 (two hundred and sixteen thousand four hundred ninety-six) interest-bearing, convertible, free transferable, unsecured debentures, each with nominal value of BGN 100 (one hundred);  Period (maturity) of the debenture loan: 3 (three) years (36 months or 1,095 days), commencing from the issuance date;  Starting ate of the maturity period: 29.10.2008  Interest – 8.00% (eight percent) on annual base;  Period of interest payment – 6 months  Conversion ratio: 12, which determines conversion price of BGN 8.(33);  Conversion: on maturity of emission and intermediate conversion on the fourth interest payment date;  Dates of payment: for principal – one-time at maturity; for interest payments: 29.04.2009, 29.10.2009, 29.04.2010, 29.10.2010, 29.04.2011 and 29.10.2011;  Bank, servicing the payments on debenture loan – Allianz Bank Bulgaria AD and meeting the requirements of Regulation No8 of Central Depository for securities. If the the crisis situation on stock exchange continues and and if the share prices do not recover in the next three years, it is likely that the conversion debentures amounting at BGN 21,649,600 which Industrial Holding Bulgaria AD issued in 2008 and which mature on 29.10.2011 will not be converted fully at the announced conversion price of BGN 8.33. The Company has made an approximate estimation of the employees’ compensations at retirement in accordance with the requirements of the Labour Code and of IAS 19 on the basis of a report, prepared by an actuary. On 29.04.2009 and 29.10.2009 the first and the second debenture loan interest payments took place.

21. Trade and other payables In thousands of BGN 31 December 2009 31 December 2008

Payables for sold rights of shareholders 19,171 19,797 Interest on debenture loan 304 303 Payables to suppliers 19 19 Payables to personnel - 3 19,494 20,122

Notes to the financial payments

22. Payables to related parties In thousands of BGN 31 December 2009 31 December 2008

Liability related to payment of share capital of Rekolta AD 52 - 52 -

In January 2010 the liability for payment in full of the share capital of Rekolta AD has been settled.

23. Financial instruments

Credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: In thousands of BGN 31 December 2009 31 December 2008

Cash and cash equivalents 439 40,276 Trade and other receivables 11 228 Related parties receivables 82,309 42,774 82,759 83,278

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

In thousands of BGN 31 December 2009 31 December 2008

Trade and other receivables from third parties, registered in Bulgaria 11 228 Receivables from Group companies, registered in 82,309 42,774 Bulgaria 82,320 43,002

Impairment losses The aging of trade receivables at the reporting date was: 31 December 2009 31 December 2008 In thousands of In thousands of In thousands In thousands BGN BGN of BGN of BGN Gross amount Impairment Gross Impairment amount Not past due 82,320 - 43,002 - Past due 0-180 days - - 19 (19) Past due 180-360 days - - 14 (14) More than 360 days 18 (18) - - 82,338 (18) 43,035 (33)

30 INDUSTRIAL HOLDING BULGARIA AD INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 Notes to the financial statements

23. Financial instruments, continued

31 INDUSTRIAL HOLDING BULGARIA AD INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 31 December 2009 31 December 2008 In thousands of BGN

Impairment at the beginning of the year (33) (59) Accrued impairment during the period - (33) Written-off uncollectible receivables - 59 Reintegrated 15 Impairment at the end of the year (18) (33)

Liquidity risk

31 December 2009

In thousands of BGN Carrying Contractual 6 months 6-12 up to 5 amount cash flows or less months years Non-derivatives liabilities Trade and other payables 19,190 19,190 19,190 - - Debenture loan and interests 21,954 25,114 868 864 23,382 Liabilities for full payment of share capital 52 52 52 - - 41,196 44,356 20,110 864 23,382

31 December 2008 In thousands of BGN Carrying Contractual 6 months 6-12 up to 5 amount cash flows or less months years Non-derivatives liabilities Trade and other payables 19,816 19,816 19,816 - - Debenture loan and interests 21,953 26,846 864 868 25,114 41,769 46,662 20,680 868 25,114

Currency risk Exposure to currency risk of the Company as at 31 December 2009 is as follows:: BGN EUR USD BGN EUR USD In thousands of BGN 31 December 2009 31 December 2008 Trade and other receivables 11 - - 228 - - Related party receivables by 2,606 - - 1,264 - - dividends Related party loans and 9,511 68,665 1,527 10,417 29,676 1,416 borrowings Cash and cash equivalents 85 352 2 2,498 37,772 19 Other related party payables ------Trade and other payables (41,196) - - (41,769) - - (28,983) 69,017 1,529 (27,362) 67,448 1,435

Financial instruments denominated in EUR have limited exposure to currency risk due to the fixed exchange rate EUR/BGN.

23. Financial instruments, continued

The following significant exchange rates were applied during the year: Reporting date spot rate 31 December 2009 31 December 2008

USD 1.36409 1.3873

Sensitivity analysis A 10 percent strengthening of the BGN against USD at 31 December would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.

31 December 2009 In thousands of BGN Equity Profit or loss

USD - (153) - (153) 31 December 2008 In thousands of BGN Equity Profit or loss

USD - 144 - 144

A 10-percent weakening of the BGN against the currencies mentioned above at 31 Decenber would have the same as amounts, but opposite as direction effect in the assumption that all other variables remain constant.

Interest rate risk At the reporting date the interest rate profile of the Company’s interest-bearing financial instruments is:

In thousands of BGN 31 December 2009 31 December 2008

Fixed rate instruments Financial assets 80,142 81,175 Financial liabilities (21,650) (21,650) 58,492 59,525

Variable rate instruments Financial assets - - Financial liabilities - - - -

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

Notes to the financial statements 24. Transactions with related parties Related party transactions are executed at usual trading terms.

33 INDUSTRIAL HOLDING BULGARIA AD INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 In thousands of BGN Relation 2009 Dividend income  Maritime Holding AD Subsidiary 590  Vartzila IHB DESIGN Associate 148

Interest income  Privat Engineering AD Subsidiary 2,354  Leyarmash AD Indirect control 5  KLVK AD Subsidiary 110  Bulyard Shipbuilding Industry EAD Indirect control 1,352  Dunav Tours AD Associate 2  Elprom ZEM Indirect control 3  Emona LTD Indirect control 2

Revenue from sale of services  Elprom ZEM AD Indirect control 354  Bulyard Shipbuilding Industry EAD Indirect control 263  Dockyard Port-Burgas AD Subsidiary 16  Avgusta Mebel AD Subsidiary 20

Income from sale of shares International Industrial Holding Bulgaria AG Subsidiary 743 Loans granted to related parties:  Dunav Tours AD Associate 196  Bulyard Shipbuilding Industry EAD Indirect control 31,162  Avgusta Mebel AD Subsidiary 20  KLVK AD Subsidiary 20  Elprom ZEM AD Indirect control 98  Privat Engineering AD Subsidiary 26,632  Emona LTD Indirect control 85

Loans repaid to:  Avgusta Mebel AD Subsidiary 20  Bulyard Shipbuilding Industry EAD Indirect control 15,268  Dunav Tours AD Associate 196  Emona LTD Indirect control 85  KLVK AD Subsidiary 1,897  Elprom ZEM AD Indirect control 98  Leyarmash AD Indirect control 110  Privat Engineering AD Subsidiary 1,992

Contributions in share capital increase  Privat Engineering AD Subsidiary 4,000  Rekolta AD Associate 18

Paid remunerations to Directors, Managing and Supervisory Boards, including social insurance contributions 134 Under the terms of a cession agreement between Industrial Holding Bulgaria AD and Privat Engineering AD, IHB transfers the loan receivables amounting to BGN 13,731 thousand from Bulyard Shipbuilding Industry EAD to Privat Engineering AD.

34 INDUSTRIAL HOLDING BULGARIA AD INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 24. Transactions with related parties, continued

In thousands of BGN Relation 31 December 2008

Dividend income  Maritime Holding AD Subsidiary 549  ZMM Bulgaria holding AD Subsidiary 5,032  Dunav Tours AD Associate 726

Interest income  Privat Engineering AD Subsidiary 1,187  Leyarmash AD Indirect control 7  KLVK AD Subsidiary 648  Bulyard Shipbuilding Industry EAD Indirect control 216  Dunav Tours AD Associate 11  Odessos PBM AD Associate 20

Revenue from sales of services  Elprom ZEM AD Indirect control 52  Augusta Mebel AD Subsidiary 30  Bulyard Shipbuilding Industry EAD Indirect control 40  Dockyard Port Bourgas AD Subsidiary 2

Loans granted to:  Privat Engineering AD Subsidiary 38,449  KLVK AD Subsidiary 19,370  Dunav Tours AD Associate 978  Bulyard Shipbuilding Industry EAD Indirect control 6,276  Odessos PBM AD Associate 540  Leyarmash AD Indirect control 200  Bulyard AD Subsidiary 5

Loans repaid from:  Privat Engineering AD Subsidiary 4,196  Leyarmash AD Subsidiary 150  Dunav Tours AD Associate 978  Privat Engineering AD Subsidiary 16,029  Bulyard Shipbuilding Industry EAD Indirect control 2,800  Odessos PBM AD Associate 540  Bulyard AD Subsidiary 5

Loans returned to:  Privat Engineering AD Subsidiary 218

Contributions in share capital increase:  Privat Engineering AD Subsidiary 4,050  KLVK AD Subsidiary 5,000  KRZ Port Bourgas Subsidiary 375

Paid remunerations to Directors, Managing and Supervisory Boards, 134 including social insurance contributions

35 INDUSTRIAL HOLDING BULGARIA AD INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 25. Contingencies The contract between IHB AD and Bank DSK AD for insurance of bank warranties amounting to EUR 286 thousand for securing of liabilities of Elprom ZEM AD to a client has been terminated because of expiration of the obligation. In November 2006 was concluded a credit line contract for bank warranties and current financing amounting to BGN 4,500 thousand, secured by a special pledge of undertaking of Dockyard Port Bourgas AD, a subsidiary of the Holding. With an Annex from 27.11.2009 the limit has been increased to BGN 10,000 thousand. As of 31.12.2009 bank warranties of BGN 515 thousand have been issued, nine letters of credit for BGN 1,865 have been established for Bulyard Shipbuilding Industry AD and a revolving credit for ensuring of working capital of BGN 1,003 thousand have been opened.

Industrial Holding Bulgaria AD has issued a corporate warranty to Bulyard Shipbuilding Industry AD, Varna to guarantee the bank credit and documentary letters of credit between Bulyard Shipbuilding Industry AD, Varna and Unicredit Bulbank AS, Sofia with the following parameters: а/ Purpose: credit engagements as three bank guarantees for recovery of advance payments due under the conditions of a contract for shipbuilding under No 103 and all annexes to it, concluded between Bulyard Shipbuilding Industry AD and Diler Shipping and Trading Inc., Tersane Caddesi Dilerhan № 96, Persembe Pazari, Karakoy, Istanbul, Turkey with beneficiary Diler Shipping and Trading Inc., Turkey; b/ Amount of the credit limit USD 27,589,060 /twenty seven million five hundred eighty nine thousand and sixty USD/; c/ Term of the bank warranties 03.10.2011. The fee for the issued corporate guarantee by Bulyard Shipbuilding Industry AD, Varna payable to Industrial Holding Bulgaria AD is 1 % from the actual value of the guarantee on annual basis. Additionally on 14.08.2009 Bulyard Shipbuilding Industry AD, Varna has given in kind security - a real estate mortgage, owned by Bulport Logistika AD amounting to not less than 120% (one hundred twenty percent) from the amount of the corporate guarantee issued. The transaction is based on a Decision of the General Assembly of the shareholders of Industrial Holding Bulgaria AD from 07.05.2009.

26. Subsequent events In January 2010 a decision has been taken by the subsidiary Privat Engineering to increase its capital by BGN 2,000 thousand by issuing 2,000,000 ordinary shares with par value of BGN 1and issue value of BGN 5 in order to repay the Company liabilities for shipbuilding. The increase has been registered by IHB and fully paid in. In January 2010 the amount due for full payment of the capital in the Rekolta AD has been paid in full.

In January 2010 BGN 9,371 thousand principal and interest from the amount due from Privat Engineering AD have been repaid. In February 2010 Industrial Holding Bulgaria AD enters into agreement with a commercial bank under the provisions to become a guarantor for a loan agreement for USD 10,000 thousand which are to be granted to its subsidiary Privat Engineering AD. In February 2010 the management of Industrial Holding Bulgaria AD took decision to increase its capital by issue of new 14,585,372 ordinary, non-cash, free transferable and personal shares each amounting to BGN 1.40 and in total amount of the issue of BGN 20,419,520.80. The Prospectum for this increase has been deposited with the Commission for financial supervision for confirmation.