Industrial Holding Bulgaria AD

Consolidated Financial Statements

For the year ended 31 December 2010

With Independent Auditors' Report Thereon

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INDUSTRIAL HOLDING BULGARIA AD

Contents

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Page

Consolidated income statement

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3

Consolidated statement of comprehensive income

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4

Consolidated statement of financial position

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5

Consolidated statement of cash flows

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6

Consolidated statement of changes in equity

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7

Notes to the consolidated financial statements

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9

Independent auditors’ report

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Consolidated income statement

For the year ended 31 December

In thousands of BGN / Note / 2010 / 2009
Revenue / 7 / 88,563 / 72,646
Other operating revenue / 8 / 3,512 / 3,501
Increase (decrease) in work-in-progress / 9 / (32,160) / 32,813
Capitalalized expenses for construction of own assets / 10 / 46,397 / 46,467
Expenses for materials / 11 / (75,073) / (88,563)
Expenses for hired services / 12 / (26,342) / (26,833)
Depreciation and amortization / 18,19 / (7,800) / (7,432)
Personnel expenses / 13 / (22,633) / (25,836)
Cost of assets sold / 14 / (1,337) / (1,514)
Other operating expenses / 15 / (3,698) / (9,543)
Profit/ (loss) from operations / (30,571) / (4,294)
Finance income / 10,963 / 4,471
Finance expenses / (6,734) / (2,545)
Net finance income / 16 / 4,229 / 1,926
Share of profit of equity accounted associates / 20 / 1,761 / 1,995
Profit (loss) before tax / (24,581) / (373)
Income tax expense / 17 / (109) / (747)
Profit (loss) after tax / (24,690) / (1,120)
Attributable to owners of the Company / (13,176) / 1,634
Non-controlling interests / (11,514) / (2,754)
Net profit (loss) for the year / (24,690) / (1,120)
Equity holder’s earnings per share
Basic earnings per share (BGN) / 27 / (0.253) / 0.037
Diluted earnings per share (BGN) / - / -

The notes on pages 10 to 71 are an integral part of this consolidated income statement.

Consolidated statement for comprehensive income
For the year ended 31 December
In thousands of BGN / Note / 2010 / 2009
Net profit (loss) for the year / (24,690) / (1,120)
Other comprehensive income
Movement in the revaluation reserve from sale of assets / -
Revaluation of buildings / 18 / - / 130
Revaluation of land / 37,087 / -
Revaluation of property, plant and equipment / 18 / - / (6,935)
Tax effect from revaluation / 17, 31 / (3,709) / 680
Effects from hedging / 16 / (306) / (29)
Other changes / 1 / (168)
Translation difference / 89 / 34
Other comprehensive income for the period, net of income tax / 33,162 / (6,288)
Total comprehensive income for the period / 8,472 / (7,408)
Total comprehensive income attributable to:
Owners of the Company / 7,127 / (3,805)
Non-controlling interests / 1,345 / (3,603)
Total comprehensive income for the period / 8,472 / (7,408)
The notes on pages 10 to 71 are an integral part of this consolidated statement of comprehensive income.
Daneta Zheleva / Toshka Vassileva
Chief Executive Director / Chief Accountant
Gilbert McCaul / Dobrina Kaloyanova
Partner / Registered Auditor
Consolidated statement of financial position

As at 31 December

In thousands of BGN / Note / 2010 / 2009
Assets
Property, plant and equipment / 18 / 273,150 / 192,621
Intangible assets / 19 / 5,061 / 5,468
Goodwill / 19 / 6,212 / 6,212
Investments in equity accounted associates / 20 / 15,132 / 14,997
Other investments / 21 / 8 / 8
Long-term receivables / 22 / 9,127 / 354
Total non-current assets / 308,690 / 219,660
Inventories / 23 / 100,706 / 140,794
Trade and other receivables / 24 / 10,525 / 15,439
Cash and cash equivalents / 25 / 8,906 / 6,013
Total current assets / 120,137 / 162,246
Total assets / 428,827 / 381,906
Equity
Issued capital / 26 / 58,282 / 43,756
Share premium / 30,313 / 24,503
Reserves / 67,394 / 48,821
Retained earnings (net) / 68,179 / 79,625
Total equity and reserves attributable to owners of the Company / 224,168 / 196,705
Non-controlling interest / 26,529 / 25,561
Total equity / 250,697 / 222,266
Liabilities
Loans and borrowings / 28 / 41,915 / 22,607
Debenture loan / 28 / - / 21,650
Other long-term payables / 29 / 1,656 / 477
Provisions / 30 / 239 / 473
Deferred tax liabilities / 31 / 8,418 / 5,230
Total non-current liabilities / 52,228 / 50,437
Loans and borrowings / 28 / 31,432 / 12,043
Debenture loan / 28 / 21,650 / -
Debenture loan interest / 304 / 304
Trade and other payables / 32 / 72,200 / 96,602
Provisions / 30 / 316 / 254
Total current liabilities / 125,902 / 109,203
Total equity and liabilities / 428,827 / 381,906

The notes on pages 10 to 71 are an integral part of this consolidated statement of financial position.

Consolidated statement of cash flows
For the year ended 31 December
In thousands of BGN / Note / 2010 / 2009

Operating activities

Proceeds from clients / 63,601 / 81,558
Payments to suppliers / (40,309) / (100,330)
Payments related to employees / (21,833) / (25,673)
Corporate income tax paid, net / (902) / (887)
Exchange rate differences / 114 / 677
Other proceeds (payments) / 5,842 / 4,477
Cash flows from operating activities / 6,513 / (40,178)

Investing activities

Proceeds from sale of non-current assets / 441 / 355
Payments for acquisition and construction of property, plant and equipment / (52,146) / (48,065)
Proceeds from borrowings and interest / 12 / 940
Loans granted / (2,422) / (196)
Payments for acquisitions / (50) / (50)
Dividends received / 1,075 / 874
Interest received from loans, deposits and current bank accounts / 94 / 1,356
Other proceeds (payments) / 166 / (1,320)
Cash flows from investing activities / (52,830) / (46,106)

Financing activities

Proceeds from issuance of shares / 20,388 / -
Loans and credits received / 77,757 / 40,250
Repayment of borrowings / (40,150) / (14,584)
Dividends paid / (371) / (371)
Payments of interest, fees and commissions regarding loans / (6,656) / (3,452)
Other proceeds (payments) / (1,180) / (675)
Cash flows from financing activities / 49,788 / 21,168
Net increase (decrease) in cash and cash equivalents / 3,471 / (65,116)
Cash and cash equivalents at 1 January / 25 / 5,435 / 70,551
Cash and cash equivalents at 31 December / 25 / 8,906 / 5,435

The notes on pages 10 to 71 are an integral part of this consolidated statement of cash flows.

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INDUSTRIAL HOLDING BULGARIA AD
Consolidated statement of changes in equity
For the year ended 31 December 2009
In thousands of BGN /
Note / Share capital / Share premium / Additional and legal reserves / Hedging reserve / Revaluation reserves / Retained earnings / Total Group / Non-controlling interests / Total
Balance as at 1 January 2009 / 43,756 / 24,503 / 11,296 / - / 42,693 / 78,262 / 200,510 / 29,614 / 230,124
Total comprehensive income for the period
Profit or loss / - / - / - / - / - / 1,634 / 1,634 / (2,754) / (1,120)
Other comprehensive income
Revaluation of land and buildings / 18 / - / - / - / - / (6,054) / - / (6,054) / (881) / (6,935)
Revaluation of buildings / 18 / - / - / - / - / 104 / - / 104 / 26 / 130
Tax effect from the revaluation / 17,31 / - / - / - / - / 595 / - / 595 / 85 / 680
Other movements in revaluation reserves / - / - / - / - / (81) / 81 / - / - / -
Effects from hedging / - / - / (18) / - / - / (18) / (11) / (29)
Other changes / - / - / - / - / (100) / (100) / (68) / (168)
Translation difference / - / - / - / - / 34 / 34 / - / 34
Total other comprehensive income / 26 / - / - / (18) / (5,436) / 15 / (5,439) / (849) / (6,288)
Total comprehensive income for the period / - / - / (18) / (5,436) / 1,649 / (3,805) / (3,603) / (7,408)
Transactions with owners of the Company, reported in equity
Contributions by and distributions to owners of the Company
Distributions of profit and reserves / - / - / 286 / - / - / (286) / - / - / -
Dividend distributed / - / - / - / - / - / - / - / (377) / (377)
Acquisition of non-controlling interest / - / - / - / - / - / - / - / (73) / (73)
Total transactions with owners of the Company / - / - / 286 / - / - / (286) / - / (450) / (450)
Balance at 31 December 2009 / 43,756 / 24,503 / 11,582 / (18) / 37,257 / 79,625 / 196,705 / 25,561 / 222,266
Consolidated statement of changes in equity for the year ending 31 December 2010, continued
In thousands of BGN /
Note / Share capital / Share premium / Additional and legal reserves / Hedging reserve / Revaluation reserves / Retained earnings / Total Group / Non-controlling interest / Total
Balance at 1 January 2010 / 43,756 / 24,503 / 11,582 / (18) / 37,257 / 79,625 / 196,705 / 25,561 / 222,266
Total comprehensive income for the period
Profit or loss / - / - / - / - / - / (13,176) / (13,176) / (11,514) / (24,690)
Other comprehensive income
Revaluation of land / 18 / - / - / - / - / 22,809 / - / 22,809 / 14,278 / 37,087
Tax effect from revaluation / 17, 31 / - / - / - / - / (2,281) / - / (2,281) / (1,428) / (3,709)
Net effects from hedging / 16 / - / - / (317) / - / - / (317) / 11 / (306)
Translation difference / 89 / 89 / 89
Other changes / - / - / - / - / - / 3 / 3 / (2) / 1
Total other comprehensive income / - / - / (317) / 20,528 / 92 / 20,303 / 12,859 / 33,162
Total comprehensive income for the period / - / - / (317) / 20,528 / (13,084) / 7,127 / 1,345 / 8,472
Transactions with owners of the Company, reported in equity
Contributions by and distributions to owners of the Company
Distributions of profit and reserves / - / - / 32 / - / - / (32) / - / - / -
Distributions of reserves for covering loss / (350) / - / - / 350 / -
Dividend paid / - / - / - / - / - / - / - / (377) / (377)
Increase in equity / 26 / 14,526 / 5,810 / - / - / - / - / 20,336 / - / 20,336
Total transactions with shareholders / 14,526 / 5,810 / (318) / - / - / 318 / 20,336 / (377) / 19,959
Transfer of revaluation reserves of sold assets to retained earnings / - / - / - / - / (1,320) / 1,320 / - / - / -
Balance at 31 December 2010 / 58,282 / 30,313 / 11,264 / (335) / 56,465 / 68,179 / 224,168 / 26,529 / 250,697
The notes on pages 10 to 71 are an integral part of this consolidated statement of changes in equity.

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INDUSTRIAL HOLDING BULGARIA AD
Notes to the consolidated financial statements
Content
Note / Page / Note / Page
1. / Reporting entity / 10 / 19. / Intangible assets / 45
2. / Basis of preparation / 10 / 20. / Investments in equity accounted associates / 46
3. / Significant accounting policies / 13 / 21. / Other investment / 50
4. / Determination of fair values / 30 / 22. / Long-term receivables / 50
5. / Financial risk management / 30 / 23. / Inventories / 50
6. / Segment Reporting / 33 / 24. / Trade and other receivables / 51
7. / Revenue / 37 / 25. / Cash and cash equivalents / 51
8. / Other operating revenue / 37 / 26. / Share capital and reserves / 52
9. / Increase/(decrease) in work-in-progress / 37 / 27. / Earning per share / 53
10. / Capital expenses for construction / 38 / 28. / Loans and borrowings / 54
11. / Expenses for materials / 38 / 29. / Other long-term liabilities / 58
12 / Expenses for hired services / 38 / 30. / Provisions / 58
13. / Personnel expenses / 39 / 31. / Deferred tax assets and liabilities / 60
14. / Cost of assets sold / 39 / 32. / Trade and other payables / 61
15. / Other operating expenses / 39 / 33. / Financial instruments / 62
16. / Net finance income/ (expenses) / 40 / 34. / Related parties / 66
17. / Income tax expense / 41 / 35. / Subsequent events / 69
18. / Property, plant and equipment / 43 / 36. / Contingent liabilities / 70
1. / Reporting entity
Industrial Holding Bulgaria AD (the Company or the Holding) is a joint stock company domiciled in Bulgaria with registered address: Sofia 1000, 47, Vassil Levski Blvd. The consolidated financial statements of the Company for the year ended 31 December 2010 comprise the financial statements of the Company and its subsidiaries (together referred to as the “Group”) and the Group’s investments in associates.
The operations of the Group include production and trading of heavy machinery, shipbuilding, ship repair and transportation, furniture production, operations with real estates, port services, support services to vessels and vehicles, maintenance and repair and other services.
Industrial Holding Bulgaria AD as well as some of its subsidiaries are traded on the Bulgarian Stock Exchange, Sofia.
2. / Basis of preparation

(а)