Електроразпределение Плевен ЕАД
Industrial Holding Bulgaria AD
Non-consolidated Financial Statements
For the year ended 31 December 2008
With Independent Auditors' Report Thereon
Income Statement
For the year ended 31 December 2008
| |Note |2008 | |2007 |
|In thousands of BGN | |31 December | |31 December |
| | | | | |
|Income from interest, dividends and investment activities |6 |9,772 | |4,375 |
|Other operating income |7 |85 | |439 |
| | |9,857 | |4,814 |
| | | | | |
|Personnel expenses |8 |(404) | |(280) |
|Hired services | |(303) | |(531) |
|Other operating expenses |9 |(349) | |(245) |
| | | | | |
|Net income from operations | |8,801 | |3,758 |
| | | | | |
|Finance income | |284 | |437 |
|Finance expenses | | (520)| | |
| | | | |(474) |
|Net finance income/ (expenses) |10 | | | (37)|
| | |(236) | | |
| | | | | |
|Income/(expenses/ from tax | |- | |- |
|Profit before tax | |8,565 | |3,721 |
| | | | | |
|Income/(expenses/ from tax |11 |(175) | |6 |
| | | | | |
|Profit after tax | |8,390 | |3,727 |
| | | | | |
|Basic earnings per share (BGN) |21 (а) |0,191 | |0,104 |
| | | | | |
The Income Statement is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 6 to 32.
| | |
| | |
|Daneta Zheleva |Toshka Vassileva |
|Executive Director |Chief Accountant |
| | |
| | |
|Gilbert McCaul |Dobrina Kaloyanova |
|Partner |Registered Auditor |
|KPMG Bulgaria OOD | |
|37, Fridtjof Nansen Str. | |
|Sofia 1142 | |
|София 1142 | |
Balance sheet
As at 31 December 2008
| | | | | |
|In thousands of BGN |Note |2008 | |2007 |
| | |31 December | |31 December |
|Non-current Assets | | | | |
|Tangible and intangible assets |12 |79 | |69 |
|Investments in subsidiaries |13 |49,033 | |39,983 |
|Investments in associates |14 |4,471 | |4,471 |
|Long-term loans to related parties |15 |29,810 | |- |
|Other long-term receivables |16 |- | |363 |
|Deferred tax assets | |- | |6 |
|Total non-current assets | |83,393 | |44,892 |
| | | | | |
|Currents assets | | | | |
|Trade and other receivables |17 |266 | |587 |
|Related-party receivables |18 |12,964 | |114 |
|Cash and cash equivalents |19 |40,289 | |42,146 |
|Inventories | |3 | |3 |
|Total current assets | |53,522 | |42,850 |
|Total assets | |136,915 | |87,742 |
| | | | | |
|Equity | | | | |
|Issued capital |20 |43,756 | |43,756 |
|Share premium | |24,503 | |24,503 |
|Reserves | |6,297 | |3,661 |
|Retained earnings (net) | |20,537 | |14,782 |
|Total equity | |95,093 | |86,702 |
| | | | | |
|Liabilities | | | | |
|Debenture loan | |21,650 | |- |
|Long-term liabilities | |3 | |3 |
|Total non-current liabilities |21 |21,653 | |3 |
| | | | | |
|Current liabilities | | | | |
|Trade and other payables |22 |20,122 | |387 |
|Related party payables |23 |- | |649 |
|Tax liabilities | |47 | |1 |
|Total current liabilities | |20,169 | |1,037 |
|Total equity and liabilities | |136,915 | |87,742 |
The Balance Sheet should be read in conjunction with the notes to and forming part of the financial statements set out on pages 6 to 32.
|Daneta Zheleva | |Toshka Vassileva |
|Executive Director | |Chief Accountant |
|Gilbert McCaul | |Dobrina Kaloyanova |
|Partner | |Registered Auditor |
| | | |
|KPMG Bulgaria OOD | | |
|37, Fridtjof Nansen Str. | | |
|Sofia 1142 | | |
Statement of cash flows
For the year ended 31 December 2008
| In thousands of BGN |Note |31 December 2008 | |31 December 2007 |
| | | | | |
|Operating activities | | | | |
|Proceeds from sale of shares and other trade receivables | | | | |
| | |884 | |2,546 |
|Dividends received | |5,043 | |3,909 |
|Loans repaid | |24,698 | |1,436 |
|Interest received | |2,999 | |146 |
|Acquisition of shares | |(9,425) | | |
| | | | |(9,989) |
|Loans granted | |(65,817) | |(1,578) |
|Salaries and remunerations | |(378) | |(257) |
|Foreign exchange gains/(losses) | |52 | |(18) |
|Income tax paid | |(78) | |- |
|Cash flows related to not exercised rights of shareholders (net) | |19,672 | |- |
|Other payments | |(869) | |(416) |
|Net cash flow from operating activity | |(23,219) | |(4,221) |
| | | | | |
|Investing activities | | | | |
|Acquisition/(disposal) of property, plant and equipment | |(68) | |(14) |
|Net cash flow from investing activity | |(68) | |(14) |
| | | | | |
|Financing activity | | | | |
|Proceeds from securities issue | |21,650 | |42,013 |
|Debenture loan interest paid | |- | |(304) |
|Bank loan received | |- | |6,044 |
|Repaid bank loans and interest | |(219) | |(4,502) |
|Other financial expenses paid | |(1) | |(11) |
|Net cash flow from financing activity | |21,430 | |43,240 |
| | | | | |
|Increase/(decrease) in cash and cash equivalents | |(1,857) | |39,005 |
|Cash and cash equivalents at the beginning of the period | |42,146 | |3,141 |
|Cash and cash equivalents at 31 December 2008 |19 |40,289 | |42,146 |
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 32.
|Daneta Zheleva | |Toshka Vassileva |
|Executive Director | |Chief Accountant |
|Gilbert McCaul | |Dobrina Kaloyanova |
|Partner | |Registered Auditor |
|KPMG Bulgaria OOD | | |
|37, Fridtjof Nansen Str. | | |
|Sofia 1142 | | |
Statement of changes in equity
For the year ended 31 December 2008
The Statement of Changes in Equity is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 6 to 32.
| |
| | |Share capital |Legal |Additional |Retained earnings | |
|In thousands of BGN |Note | |reserves |reserves | |Total |
| | | | | | | |
|Balance at 1 January 2007 | |21,003 |1,554 |1,921 |11,241 |35,719 |
|Profit for the year | |- |- |- |3,727 |3727 |
|Increase of capital | |22,753 |- |24,503 |- |47,256 |
|Increase of reserve chargeable to retained | |- |186 |- |(186) |- |
|earnings | | | | | | |
|Balance at 31 December 2007 |21 |43,756 |1,740 |26,424 |14,782 |86,702 |
| | | | | | | |
|Balance at 1 January 2008 | |43,756 |1,740 |26,424 |14,782 |86,702 |
|Profit for the year | |- |- |- |8,390 |8,390 |
|Increase of reserve chargeable to retained | |- |2,636 |- |(2,636) |- |
|earnings | | | | | | |
|Other movements | |- |- |- |1 |1 |
|Balance at 31 December 2008 | |43,756 |4,376 |26,424 |20,537 |95,093 |
Notes to the financial statements
| | |Page | | |Page |
| | | | | | |
|1. |Reporting entity |7 |15. |Long-term receivables from related parties |23 |
| | | | | | |
|2. |Basis of preparation |7 |16. |Other long-term receivables |23 |
| | | | | | |
|3. |Significant accounting policies |8 |17. |Trade and other receivables |23 |
| | | | | | |
|4. |Determination of fair values |17 |18. |Receivables from related parties |24 |
| | | | | | |
|5. |Financial risk management |18 |19. |Cash and cash equivalents |24 |
| | | | | | |
|6. |Income from interest, dividends and investment |20 |20. |Share capital |24 |
| |activities | | | | |
| | | | | | |
|7. |Other operating income |20 |21. |Long-term liabilities |25 |
| | | | | | |
|8. |Personnel expenses |20 |22. |Trade and other payables |26 |
| | | | | | |
|9. |Other operating expenses |20 |23. |Related parties payables |26 |
| | | | | | |
|10. |Net finance income/(expense) |21 |24. |Financial instruments |26 |
| | | | | | |
|11. |Tax expenses |21 |25. |Related party transactions |30 |
| | | | | | |
|12. |Tangible and intangible assets |21 |26. |Contingent liabilities |32 |
| | | | | | |
|13. |Investments in subsidiaries |22 |27. |Subsequent events |32 |
| | | | | | |
|14. |Investments in associates |22 | | | |
| | | | | | |
| | | | | | |
Notes to the financial statements
1. Reporting entity
Industrial Holding Bulgaria AD (the Company or the Holding) is a joint stock company, registered in Republic of Bulgaria under court case № 13081 from 1996 and is domiciled in Sofia, 42, Damyan Gruev Str.
Initially the Company was founded as a Privatization Fund according to the Privatisation Contracts Act
under the name Privatization Fund Bulgaria AD.
The General shareholders meeting held on 27.02.1998 decided to reorganize the activities of the Privatization Found into a holding company and changed its name to Industrial Holding Bulgaria AD. The Company’s share capital is BGN 43,756 thousand. The Company has a two-tier management structure comprising Supervisory and Management Boards
The Company’s activities include acquisition, management, assessment and sale of shares in Bulgarian and foreign companies; acquisition, assessment and sale of patents, re-letting of licences to use patents to the Company’s subsidiaries and associates, financing of its subsidiaries and associates as well as other activities not forbidden by 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 the ID code BG 121631219. The Holding is also registered with the Social Security System and 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 (IFRS), prepared by the International Accounting Standards Board (IASB) and adopted by the European Union.
(b) Basis of measurement
The financial statements have been prepared on the historical cost basis except for the following:
• Investments at fair value through profit or loss, which are presented at fair value;
• Financial assets available for sale, which are presented at fair value.
Methods used for defining fair value are disclosed in details 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 presented in leva has been rounded to the nearest thousand.
Notes to the financial statements
2. Basis of preparation, continued
(d) Use of estimates and judgements
The preparation of financial statements in conformity 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) 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 the last three months of 2008, 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 2009.
3. Significant accounting policies
The accounting policies described below have been consistently applied by Company and are consistent with those used in the previous year.
(а) Basis of consolidation
The Company prepares consolidated financial statements, and consolidates all its local and international subsidiaries.
The consolidation is made based on the purchase method and assets, liabilities, equity and profit and loss of all subsidiaries of Industrial Holding Bulgaria AD are consolidated.
Significant investments in associates are consolidated based on the equity method by recording the investments initially at cost and subsequently is remeasured to include the investor’s share of the net assets of the investee.
(i) Subsidiaries
Subsidiaries are the enterprises controlled by the Company. Control exists when the Company has the power, directly or indirectly, 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 control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Company.
Notes to the financial statements
3. Significant accounting policies, continued
(а) Basis of consolidation, continued
In the individual financial statements subsidiaries are stated at cost less impairment losses.
The share in the net profit for distribution by the subsidiary (i.e. the dividends) is reported as current financial 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 recognised after being declared. In the individual financial statements associates are stated at cost less impairment losses.
(b) Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of the Company 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 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, a financial liability designated as a hedge of the net investment in a foreign operation, or qualifying cash flow hedges, which are recognised directly in equity.
(c) Financial instruments
(i) Non-derivative financial instruments
Non-derivative financial instruments comprise equity and debt securities, trade and other receivables, cash and cash equivalents, loans, trade and other payables.
Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below.
Non-derivative financial instruments are recognised initially at fair value. A financial instrument is recognised if the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Company's contractual rights to the cash flows from the financial assets expire or if the Company transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, i.e., the date that the Company commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Company's obligations specified in the contract expire or are discharged or cancelled.
Notes to the financial statements
3. Significant accounting policies, continued
(c) Financial instruments, continued
Cash and cash equivalents
Cash and cash equivalents comprise cash balances, bank current accounts, letters of credit and short-term bank deposits with original maturity 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.
For cash flow statement purposes:
• Cash proceeds from clients and cash payments to suppliers are presented gross (with VAT 20 % included)
• Cash flows for acquisition and sale of shares of companies in which the Holding invests as well as dividends received from them are included in proceeds and payments from operating activities
• Cash flows related to loans granted to subsidiaries according to Art. 280 from the Commercial Act and the cash inflows from their repayment are presented as proceeds and payments from operating activity.
• Proceeds from issue of shares, debt or equity securities, from short and long-term loans received from external lenders or cash loans from non-bank institutions, including companies from the Group and their repayment as well the dividends distribution are presented as proceeds and payments from/ for financing activities.
Held-to-maturity investments
If the Company has the positive intent and ability to hold debt securities to maturity, then they are classified as held-to-maturity. Held-to-maturity investments are measured at amortised cost using the effective interest method, less any impairment losses.
Financial assets, held for trade
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 exchange gains and losses on available-for-sale monetary items (see note 3 (b)), are recognised directly in equity. When an investment is derecognised, the cumulative gain or loss in equity is transferred to profit or loss.
Financial assets at fair value through profit or loss
An instrument is classified at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Financial instruments 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 when incurred. Financial instruments at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit or loss.
Notes to the financial statements
3. Significant accounting policies, continued
(c) Financial instruments, continued
Other
Other non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses.
Trade and other receivables
Trade and other receivables are stated at amortised cost less any amounts, which are not expected to be collected. The latter are presented as impairment losses on the basis of the calculated recoverable amount of trade receivables. As short-short term portion are presented those receivables related to sales realised from share sale agreements where the payment terms as pre contract are set within one year from balance sheet date. The receivables from loans granted in accordance with Art. 280, paragraph 1 from the Commercial Act is stated in the same way.
Receivables from share-sale agreements and loans granted are divided into short and long-tem portion depending on the repayment terms.
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at cost, less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis.
Trade and other payables
Short and long term payables in BGN are stated at amortised cost. Dividends payables and the current portion of long-term liability are presented in the Balance sheet as short-term payables.
(ii) 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.
(d) Property, plant and equipment
Items of property, plant and equipment are measured at acquisition cost less accumulated depreciation and impairment losses. 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 (major components) of property, plant and equipment.
The Company has a threshold of BGN 700 below which the acquisition cost of assets are presented as current expenses.
Notes to the financial statements
3. Significant accounting policies, continued
(d) Property, plant and equipment, continued
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 surplus reserve are transferred to retained earnings.
The cost of replacing 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 Group 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.
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 Group 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 it 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 for the current and comparative periods are as follows:
• Computers and computer equipment 2-5 year
• Vehicles (automobiles) 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 charged on a straight-line basis over the estimated useful lives of the assets.
• Patents and trade marks 4 - 7 years
• Software 4 - 7 years
(f) Impairment
(i) Financial assets
A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
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 original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its current fair value.
Notes to the financial statements
3. Significant accounting policies, continued
(f) Impairment, continued
Individually significant assets are tested for impairment on a individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.
All impairment losses are recognised in the income statement. Any cumulative loss in respect of available-for-sale financial assets recognised previously in equity is transferred to the Income statement.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost and available-for-sale financial assets that are debt securities, the reversal is recognised in profit or loss. For available-for-sale financial assets that are equity securities, the reversal is recognised directly in equity.
(ii) Non-financial assets
The carrying amounts of the Company’s non-financial assets, other than 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 intangible assets that have indefinite lives or are not yet available for use, recoverable amount is estimated at each reporting date.
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 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”).
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, 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 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.
Notes to the financial statements
3. Significant accounting policies, continued
(g) 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 charged to the income statement as incurred. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.
(ii) Other long-term employee benefits
The Company’s net obligation in respect of other long-term employee benefits other than a defined contribution plan, is calculated separately for each plan 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 and the determined liability is reduced by the fair value of related assets. The discount rate is the yield at the reporting date on AA credit-rated bonds that have maturity dates approximating the terms of the Company’s obligations. The calculation is performed annually using the projected unit credit method. When the calculation results in a benefit to the Company, it is recognised in the profit or loss for the current period.
According to the provisions of the Labor code, on termination of the labor contract of a worker or an employee of the Company who has become entitled to retirement, the Company is due to pay him/her compensation amounting to double his/her gross monthly salary. If a worker or an employee has work experience of 10 or more years in the company as at the date of retirement, he or she is entitled to compensation amounting to 6 gross monthly salaries.
Management estimates the potential liabilities to employees as at the balance sheet date based on an actuarial report. Note 21 explain further the recognized provision and key assumptions applied in measuring the liability.
( iii) Short-term 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.
(h) 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.
(i) Recognition of income and expenses
Revenues and expenses are recognized as they occur, regardless of cash inflows and outflows. They are recognised following the matching principle. Revenues are measured at the fair value of the consideration received or receivable net of returns and allowances, trade discounts and volume rebates.
Notes to the financial statements
3. Significant accounting policies, continued
((i) Recognition of income and expenses, continued
Revenue from sale of goods is recognized, when the significant risks and rewards of ownership are transferred to the buyer.
Revenue from services rendered is recognized in the Income statement in proportion to the stage of completion of the transaction at the reporting date.
Operational income comprises interest income on funds invested, dividend income, gains/(loss) on the disposal of available-for-sale financial assets and change in the fair value of financial assets measured 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) Net finance income/ (expenses)
Net finance income/ (expenses) comprise interest expenses on loans, net foreign exchange gains/(losses). All interest payable/ receivable on loans are recognised as profit or loss using the effective interest rate method.
(k) Income tax
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the Income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable profit for the year, using tax rates enacted or substantially enacted at the balance sheet date.
Deferred tax is recognised using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of carrying amount of assets and liabilities using tax rates enacted at the date of preparation of the Balance sheet. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which deferred tax assets 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 realized.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is recognised.
Notes to the financial statements
3. Significant accounting policies, continued
(l) 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. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees.
(m) 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 2008, and have not been applied in preparing these financial statements:
• Amendment to IFRS 2 Share-based Payment – vesting and termination conditions (effective to 1 January 2009). The amendments to the Standard clarify the definition of vesting conditions and introduce the concept of non-vesting conditions. Non-vesting conditions are to be reflected in grant-date fair value and failure to meet non-vesting conditions will generally result in treatment as a cancellation. The amendments to IFRS 2 will be effective for financial statements for 2009 and will be adopted retrospectively. The Company’s management has not yet determined the potential effect of the amendment.
• IFRS 8 Operating Segments (effective 1 January 2009). The Standard introduces the “management approach” to segment reporting and requires segment disclosure based on the components of the entity that management monitors in making decisions about operation matters. Operating segments are components of an entity about which separate financial information is available that is evaluated regularly by the Group’s Chief Operating Decision Maker in deciding how to allocate resources and in assessing of the performance. The Standard will have no effect on the profit and loss or equity and the management expects that the new Standard will not alter significantly the presentation and disclosure of its operating segments in the financial statements.
• Revised IAS 1 – Financial statements presentation (effective for annual periods beginning on or after 1 January 2009). The revised standard requires information in financial statements to be aggregated on the basis of shared characteristics and introduces a statement of comprehensive income. Items of income and expense and components of other comprehensive income may be presented either in a single statement of comprehensive income (effectively combining the income statement and all non-owner changes in equity in a single statement), or in two separate statements (a separate income statement followed by a statement of comprehensive income). The Company plans to provide one statement for the comprehensive income in the non-consolidated financial statements for 2009.
• Revised IAS 23 Borrowing Costs removes the option to expense borrowing costs and requires that an entity capitalize borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The revised IAS 23 will become mandatory for the Company’s 2009 financial statements and will constitute a change in accounting policy for the Company. In accordance with the transitional provisions the Company will apply the revised IAS 23 to qualifying assets for which capitalization of borrowing costs commences on or after the effective date. The Company considers that there will be no impact on comparative information included in the non-consolidated financial statements for 2009.
Notes to the financial statements
3. Significant accounting policies, continued
(m) New standards and interpretations not yet adopted, continued
• IFRIC 13 Customer Loyalty Programmes addresses the accounting by entities that operate, or otherwise participate in, customer loyalty programmes for their customers. It relates to customer loyalty programmes under which the customer can redeem credits for awards such as free or discounted goods or services. Such entities are required to allocate some of the proceeds of the initial sale to the award credits and recognize these proceeds as revenue only when they have fulfilled their obligations. IFRIC 13 is applicable for the first time in the Company’s 2009 financial statements, and management considers it will not have any significant effect on the financial statements.
Management believes that it is appropriate to disclose that the following revised standards, new interpretations and amendments to current standards, which are included under the accounting IFRS framework as approved by the International Accounting Standards Board (IASB), but are not yet endorsed for adoption by the European commission, and therefore are not taken into account in preparing these financial statements:
• 35 Improvements to 24 IFRSs and IASs (2008)
• Revised IFRS 3 Business Combinations (2008)
• Revised IFRS 1 First-time adoption of IFRS
• Amendments to IFRS 1 and IAS 27 related to Cost and an Investment in a Subsidiary, Jointly-Controlled Entity or Associate
• Amendments to IAS 32 and IAS 1 related to Puttable financial instruments and obligations arising on liquidation
• Amendments to IAS 39 related to Eligible hedged items; effective date and transition
• IFRIC 12 Service Concession Arrangements
• IFRIC 15 Agreements for the Construction of Real Estate
• IFRIC 16 Hedges of a Net Investment in a Foreign Operation
• IFRIC 17 Distributions of Non-cash Assets to Owners.
As at the date of preparation of these financial statements, management considers that adopting these revised standards, new implementation 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 significant impact on the financial statements.
4. Determination of fair values
A number of the 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.
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 bid price at the reporting date. The fair value of held-to-maturity investments is determined for disclosure purposes only.
Notes to the financial statements
4. Determination of fair values, continued
Trade and other receivables
The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date.
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. For finance leases the market rate of interest is determined by reference to similar lease agreements.
5. Financial risk management
The Company has exposure to the following risks from its use of financial instruments:
• credit risk
• liquidity risk
• market 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.
The management 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.
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 receivables
The Companies’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. This exposure may also depend on the default risk of the industry and the internal market on which the Company operates. The credit policy determines that each new customer is analysed individually for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered.
Investments
The Group limits its exposure to credit risk by only investing in liquid securities and only with counterparties that have a high credit rating. Investments are mainly in businesses and companies in which the Holding has control and could determine strategy for development. In portfolio investments the tendency is to invest in liquid securities. Management does not expect any counterparty to fail to meet its obligations.
Notes to the financial statements
5. Financial risk management, continued
Guarantees
The Group’s policy is to provide financial guarantees only to subsidiaries upon approval from its Management and Supervisory board.
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.
Capital management
The management’s policy is to maintain a strong capital base so as to maintain owners 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 contractual or legally imposed capital requirements.
Notes to the financial statements
6. Income from interest, dividends and investment activities
|In thousands of BGN | |31 December 2008 | |31 December 2007 |
| | | | | |
|Interest income | |3,465 | |218 |
|Income from sale of shares | |- | |1,614 |
|Net book value of shares written-off | |- | |(1,361) |
|Expenses related to sale of shares | |- | |(3) |
|Dividend income | |6,307 | |3,907 |
| | |9,772 | |4,375 |
The substantial part of the interest income is related to the interest-earning receivables from subsidiaries – granted loans at the amount of BGN 2,089 thousand, interests on deposit and current bank accounts - at the amount of BGN 1,358 thousand, as well as other companies regarding deferred payments agreed for sale of shares at the amount of BGN 18 thousand.
The reported dividend income amounts to BGN 6,307 thousand and comprises BGN 549 thousand distributed from Maritime Holding AD, BGN 5,032 thousand distributed from ZMM Bulgaria Holding AD and BGN 726 thousand from the associated company Dunav Tours AD.
7. Other operating income
|In thousands of BGN | |31 December 2008 | |31 December 2007 |
| | | | | |
|Revenue from services rendered | |85 | |439 |
| | |85 | |439 |
The revenue from services rendered is related to consulting and other services provided to companies from the Holding and to third parties.
8. Personnel expenses
|In thousands of BGN | |31 December 2008 | |31 December 2007 |
| | | | | |
|Wages and salaries | |314 | |229 |
|Social security contributions and other social expenses | |90 | |51 |
| | |404 | |280 |
9. Other operating expenses
|In thousands of BGN | |31 December 2008 | |31 December 2007 |
| | | | | |
|Depreciation | |54 | |52 |
|Materials | |23 | |21 |
|Other operating expenses | |272 | |173 |
| | |349 | |246 |
Notes to the financial statements
10. Net finance income/(expenses)
|In thousands of BGN | |31 December 2008 | |31 December 2007 |
| | | | | |
|Foreign exchange gains | |284 | |437 |
|Financial income | |284 | |437 |
| | | | | |
|Interest expenses related to debenture loan and other | |(304) | |(326) |
|Foreign exchange losses | |(214) | |(146) |
|Other expenses | |(2) | |(2) |
|Financial expenses | |(520) | |(474) |
|Net finance income/(expenses) | |(236) | |(37) |
During the period 29.10.2008 - 31.12.2008 the attributable portion of interest on the debenture loan is accrued for which the first payment will be made at 29.04.2009.
11. Tax expenses
|In thousands of BGN | |31 December 2008 | |31 December 2007 |
| | | | | |
|Current tax expenses | |169 | |- |
|Deferred income tax | |6 | |(6) |
| | |175 | |(6) |
Current tax expenses comprise income tax accrued at 10% (2007: 10%). In accordance with the provisions of the Corporate Income Tax Act for the period 01.01.2008 – 31.12.2008 corporate tax at the amount of BGN 169 thousand is due by the Company.
12. Tangible and intangible assets
Property, plant and equipment
|In thousands of BGN |Computers and |Vehicles |Fixtures and fittings | |
| |equipment | |and others |Total |
|Cost | | | | |
|Balance at 1 January 2007 |67 |139 |63 |269 |
|Acquisitions |12 |- |3 |15 |
|Balance at 31 December 2007 |79 |139 |66 |284 |
| | | | | |
|Balance at 1 January 2008 |79 |139 |66 |284 |
|Acquisitions |6 |39 |18 |63 |
|Balance at 31 December 2008 |85 |178 |84 |347 |
| | | | | |
|Depreciation and impairment losses | | | | |
|Balance at 1 January 2007 |52 |73 |48 |173 |
|Depreciation for the year |11 |34 |7 |52 |
|Balance at 31 December 2007 |63 |107 |55 |225 |
| | | | | |
|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 |
| | | | | |
|Carrying amount | | | | |
|At 1 January 2008 |16 |32 |11 |59 |
|At 31 December 2008 |8 |37 |25 |70 |
Notes to the financial statements
12. Tangible and intangible assets, continued
Property, plant and equipment, continued
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 2008 is BGN 9 thousand (2007: BGN 10 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 2008 and 31 December 2007:
| |31 December 2008 | |31 December 2007 |
|In thousands of BGN |Participation |Percentage | |Participation |Percentage |
| | | | | | |
|ZMM Bulgaria Holding |7,885 |99.998 | |7,885 |99.998 |
|Privatengineering AD |6,850 |90.331 | | 2,800 | 97.220 |
|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 AD | | | | | |
| |130 |100.000 | |130 |100.000 |
|KLVK AD |5,044 | 99.510 | |44 |66.844 |
|Hydropower Bulgaria AD |34 | 67.000 | |34 |67.000 |
| |49,033 | | |39,983 | |
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 30 shares of Dockyard Port-Burgas AD capital amounting at BGN 90.90. In June 2008 contributions in share capital increase of two subsidiaries have been made – KLVK AD amounting to BGN 2,000 thousand and Privat Engineering AD, amounting to BGN 1,050 thousand. In August 2008 an increase in share capital was registered of the two companies in the Registry agency. In November 2008 a second increase of share capital of the subsidiaries Privat Engineering AD and KLVK AD of BGN 3,000 thousand for each has been registered, by issue of new shares with nominal value of 1 BGN.
14. Investments in associates
| |31 December 2008 | |31 December 2007 |
|In thousands of BGN |Participation |Percentage | |Participation |Percentage |
| | | | | | |
|Dunav Tours AD |2,762 |48.45 | |2,762 | 48.45 |
|Odessos PBM AD |1,584 |30.00 | |1,584 |30.00 |
|VIK-Sandvik-IHB Design |125 |50.00 | |125 |50.00 |
| |4,471 | | |4,471 | |
Notes to the financial statements
14. Investments in associates, continued
Industrial holding takes part jointly with a Norwegian company in the establishment of the company VIK-Sandvik-IHB Design AD – Varna, whose operating activity is shipping design. Each of the parties owns BGN 250 thousand which represent 50% of the registered share capital. The company is registered with a court decision of Varna district court from 22.08.2007. The share capital is paid in.
15. Long-term receivables from related parties
|In thousands of BGN | |31 December 2008 | |31 December 2007 |
| | | | | |
|Privat Engineering | |26,670 | |- |
|KLVK AD | |2,441 | |- |
|Bulyard shipbuilding industry EAD | |699 | |- |
| | |29,810 | |- |
The loan to Privat Engineering AD is granted with the purpose of financing the construction of ships with building numbers 288, 289 and 458, ordered by companies from the group of Industrial Holding Bulgaria AD and the loan to KLVK AD with the purpose of financing the construction of two new ships type Future 56, 56000 DWT in Bulyard Shipbuilding Industry EAD.
Other long-term receivables
As other long-term receivables the Company includes receivables on contracts for sale of shares and other receivables which under the payment schedule should be paid during a period longer than one year after the reporting date.
|In thousands of BGN | |31 December 2008 | |31 December 2007 |
| | | | | |
|Chimremontstroy Engineering AD | |- | |293 |
|MAK AD | |- | |70 |
| | |- | |363 |
| | | | | |
Receivables from Chimremontstroy Engineering AD, amounting to BGN 293 thousand , denominated in Euro – EUR 150 thousand at the reporting date are paid ahead of term and those of MAK AD should be repaid until November 2009 and are presented as current receivables.
17. Trade and other receivables
|In thousands of BGN | |31 December 2008 | |31 December 2007 |
| | | | | |
|Receivables from share sales agreements | |103 | |414 |
|Trade receivables | |- | |117 |
|Impairment of receivables | |(33) | |(58) |
|Taxes reimbursable | |19 | |76 |
|Prepaid services | |19 | |11 |
|Other receivables | |158 | |27 |
| | |266 | |587 |
Receivables, amounting to BGN 103 thousand (2007: BGN 414 thousand), represent short-term portion of deferred payment scheme from share sale agreements at the amount of BGN 70 thousand (last payment) from Mak AD and BGN 32 thousand from Elpo AD (together with interest charged).
Notes to the financial statements
18. Receivables from related parties
|In thousands of BGN | | 31 December 2008 | | 31 December 2007 |
|Receivables from loans granted, together with interests | | | | |
|charged | | | | |
|Privatengineering AD | |7,915 | |- |
|Leyarmash AD | |110 | |60 |
|KLVK AD | |901 | |- |
|Odessos PBM AD | |9 | |- |
|Bulyard shipbuilding industry EAD | |2,764 | |- |
| | |11,699 | |60 |
|Services rendered | | | | |
|Avgusta Mebel AD | |- | |51 |
|Other receivables | |- | |3 |
| | |- | |54 |
|Dividend receivables | | | | |
|ZMM Bulgaria Holding AD | |539 | |- |
|Dunav Tours AD | |726 | |- |
| | |1,265 | |- |
| | |12,964 | |114 |
19. Cash and cash equivalents
|In thousands of BGN | | 31 December 2008 | | 31 December 2007 |
| | | | | |
|Cash in hand | |13 | |- |
|Bank balances | |299 | |118 |
|Bank deposits | |39,977 | |42,028 |
| | |40,289 | |42,146 |
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.
The Company does not have blocked cash at the balance sheet date.
20. Share capital
The share capital of the Company comprises 43,756,118 personal voting shares with par value of BGN 1 each.
The fixed capital is recorded by its nominal value and is fully contributed. There are no preference shares.
Certain shareholders in Industrial Holding Bulgaria AD as at 31 December 2008 possess over a 5% share of the Company’s capital.
|Shareholder | |Number of shares | | 31 December 2008 | | 31 December 2007 |
| | | | | | | |
|Venside Enterprises AD | |13,472,245 | |30.79% | |30.79% |
|DZH AD | |2,440,655 | |5.58% | |5.58% |
|BULSS AD | |5,783,211 | |13.22% | |12.55% |
|General Stock Investment | |2,342,850 | |5.35% | |- |
|Other | |19,717,157 | |45.06% | |51.08% |
| | |43,756,118 | |100.00% | |100.00% |
Notes to the financial statements
20(а) Basic earnings per share
The calculation of the basic earnings per share at 31 December 2008 is based on the net profit due to the ordinary shareholders amounting to BGN 8,390 thousand (31 December 2007: profit of BGN 3,727 thousand) and the weighted average number of ordinary shares available for the period ended 31 December 2008 of BGN 43,756 thousand (2007:BGN 35,770 thousand). The calculation is as follows:
|In thousands of BGN | | 31 December 2008 | | 31 December 2007 |
| | | | | |
|Net profit for the year | |8,390 | |3,727 |
|Net profit attributable to ordinary shareholders | |8,390 | |3,727 |
| | | | | |
|In thousands of shares | |2008 | |2007 |
|Ordinary shares issued at 1 January | |43,756 | |21,003 |
|Conversion of debenture loan – July 2007 | |- | |5,251 |
|Issue of shares – court decision from 27.12.2007 | |- | |17,502 |
|Ordinary shares issued at 31 December | |43,756 | |43,756 |
|Weighted average number of shares at 31 December | |43,756 | |35,770 |
In 2007 the Company’s capital was increased twice. In June 2008 was registered the increase with 5,250,805 shares by converting the corporate bonds in shares and in December 2008 by issuance of new emission of 17,502,078 shares with nominal value 1 BGN and issuance value 2.40 BGN each. As a result, that all rights were exercised the Company’s capital has increased from BGN 26,254 thousand to BGN 43,756 thousand and a premium reserve of BGN 25,503 thousand has been formed.
21. Long-term liabilities
|In thousands of BGN | | 31 December 2008 | | 31 December 2007 |
|Debenture loan | |21,650 | |- |
|Provision for retirement compensation | |3 | |3 |
| | |21,653 | |3 |
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 thousand forty-nine and six hundred), distributed in 216,496 (two thousand sixteen 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;
- Date of the maturity period starting: 29.10.2008
- Interest – 8.00% (eight percent) on annual base;
- Period with interest payment – 6 month
- Conversion ratio: 12, which determines conversion price of BGN 8.(33);
Notes to the financial statements
21. Long-term liabilities, continued
- 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 there is a crisis situation on stock exchange and lack of increase of share prices in the next three years, it is likely that the conversion debentures amounting at BGN 21,649,600 which Industrial Holding Bulgaria AD issues in 2008 and which maturity is 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.
22. Trade and other payables
|In thousands of BGN | |31 December 2008 | |31 December 2007 |
| | | | | |
|Payables for sold rights of shareholders | |19,797 | |124 |
|Interest on debenture loan | |303 | |- |
|Payables to suppliers | |19 | |263 |
|Payables to personnel | |3 | |- |
| | |20,122 | |387 |
23. Related parties payables
|In thousands of BGN | |31 December 2008 | |31 December 2007 |
| | | | | |
|Privatengineering AD – liability related to loan received – | |- | |219 |
|principal and interest | | | | |
|Dockyard Port-Burgas AD - liability for share capital not paid | |- | |375 |
|in | | | | |
|Bulyard Shipbuilding Industry AD | |- | |53 |
|Other | |- | |2 |
| | |- | |649 |
|24. |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 2008 | |31 December 2007 |
| | | | | |
| |Cash and cash equivalents |40,276 | |42,146 |
| |Trade and other receivables |228 | |950 |
| |Related parties receivables |42,774 | |114 |
| | |83,278 | |43,210 |
Notes to the financial statements
|24. |Financial instruments, continued |
| | |
| |Credit risk, continued |
| | |
| |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 2008 | |31 December 2007 |
| | | | | |
| |Trade and other receivables from third parties, registered in |228 | |950 |
| |Bulgaria | | | |
| |Receivables from Group companies, registered in Bulgaria |42,774 | |114 |
| | |43,002 | |1,064 |
| | |
| | |
| | |
| |Impairment losses |
| |The aging of trade receivables at the reporting date was:: |
| | |
| | |31 December 2008 |31 December 2007 |
| | |In thousands of BGN |In thousands of BGN |In thousands of BGN |In thousands of BGN |
| | |Gross amount |Impairment |Gross amount |Impairment |
| |Not past due |43,002 |- |363 |- |
| |Past due 0-180 days |19 |(19) |643 |- |
| |Past due 180-360 days |14 |(14) |- |- |
| |More than 360 days |- |- |117 |(59) |
| | |43,035 |(33) |1,123 |(59) |
| | | | | | |
| | |
| |The movement in the allowance for impairment in respect of trade receivables during the year was as follows: |
| | |
| | |31 December 2008 | |31 December 2007 |
| | |In thousands of BGN | |In thousands of BGN |
| |Impairment at the beginning of the year |(59) | |- |
| |Accrued impairment during the period |(33) | |(59) |
| |Written-off uncollectible receivables |59 | |- |
| |Impairment at the end of the year |(33) | |(59) |
| | |
| | |
| | |
| |Liquidity risk |
| | |
| |31 December 2008 | | | | | |
| |In thousands of BGN |Carrying amount |Contractual cash | 6 months or | 6-12 months|Up to 5 years |
| | | |flows |less | | |
| |Non-derivatives liabilities | | | | | |
| |Trade and other payables |19,816 |19,816 |19 |- |19,797 |
| |Debenture loan and interests |21,953 |26,846 |864 |868 |25,114 |
| | |41,769 |46,662 |883 |868 |44,911 |
| | |
Notes to the financial statements
|24. |Financial instruments, continued |
| | |
| |Liquidity risk, continued |
| | | | | | | |
| |31 December 2007 | | | | | |
| |In thousands of BGN |Carrying amount |Contractual cash | 6 months or | 6-12 months|1-2 years |
| | | |flows |less | | |
| |Non-derivatives liabilities | | | | | |
| |Loans from related parties |219 |219 |219 |- |- |
| |Liability for capital contribution in |375 |375 |375 |- |- |
| |Dockyard Port-Burgas AD | | | | | |
| |Other related party payables |55 |55 |55 |- |- |
| |Trade and other payables |387 |387 |387 |- |- |
| | |1,036 |1,036 |1,036 |- |- |
| | |
| |Currency risk |
| |Exposure to currency risk of the Company as at 31 December 2008 is as follows:: |
| | |BGN |EUR |USD |BGN |EUR |USD |
| |In thousands of BGN |31 December 2008 |31 December 2007 |
| |Trade and other receivables |228 |- |- |363 |587 |- |
| |Related party receivables by dividends |1,264 |- |- |54 |- |- |
| |Related party loans and borrowings |10,417 |29,676 |1,416 |60 |- |- |
| |Cash and cash equivalents |2,498 |37,772 |19 |42,113 |- |33 |
| |Loans received from related parties |- |- |- |- |- |(219) |
| |Liability for capital contribution in Dockyard |- |- |- |(375) |- |- |
| |Port-Burgas AD | | | | | | |
| |Other related party payables |- |- |- |(55) |- |- |
| |Trade and other payables |(41,769) |- |- |(387) |- |- |
| | |(27,361) |67,448 |1,435 |41,773 |587 |(186) |
| | |
| |Financial instruments denominated in EUR have limited exposure to currency risk due to the fixed exchange rate EUR/BGN. |
| |Receivables in USD are received in January 2009. |
| | |
| | |
| |The following significant exchange rates were applied during the year: |
| | |Average rate | |Reporting date spot rate |
| | |2008 |2007 | |31 December 2008 |31 December2007 |
| |USD |1.33683 |1.42937 | |1.3873 |1.3312 |
| | |
| | |
| |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. |
| |Notes to the financial statements |
|24. |Financial instruments, continued |
| | |
| |Currency risk, continued |
| | |
| |31 December 2008 |
| |In thousands of BGN |Equity | |Profit or loss |
| | | | | |
| |USD |- | |144 |
| | |- | |144 |
| | | | | |
| |31 December 2007 |
| |In thousands of BGN |Equity | |Profit or loss |
| | | | | |
| |USD |- | |19 |
| | |- | |19 |
| | | | | |
| |A 10-percent weakening of the BGN against the currencies mentioned above at 30 September 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 2008 | |31 December 2007 |
| |Fixed rate instruments | | | |
| |Financial assets |81,175 | |60 |
| |Financial liabilities |(21,650) | |(219) |
| | |59,525 | |(159) |
| | | | | |
| |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
25. Related party transactions
Related party transactions are executed at usual trading terms.
|In thousands of BGN |Relation |2008 |
| | | |
|Dividend income | | |
|-Maritime Holding AD |Subsidiary |549 |
|-ZMM Bulgaria holding AD |Subsidiary |5,032 |
|- Dunav Tours AD |Associate |726 |
| | | |
|Interest income | | |
|- Privatengineering AD |Subsidiary |1,187 |
|- Leyarmash AD |Indirect control |7 |
|- KLVK AD |Subsidiary |648 |
|- Bulyard Shipbuilding Industry EAD |Subsidiary |216 |
|- Dunav Tours AD |Associate |11 |
|- Odessos PBM AD |Associate |20 |
| | | |
| Revenue from sale of services | | |
|- Elprom ZEM AD |Indirect control |52 |
|- Avgusta Mebel AD |Subsidiary |30 |
|- Bulyard Shipbuilding Industry EAD |Indirect control |40 |
|- Dockyard Port-Burgas AD |Subsidiary |2 |
| | | |
|Loans granted to related parties | | |
|- Privatengineering 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 to related parties | | |
|- Privatengineering AD |Subsidiary |4,196 |
|- Leyarmash AD |Indirect control |150 |
|- Dunav Tours AD |Associate |978 |
|- KLVK AD |Subsidiary |16,029 |
|- Bulyard Shipbuilding Industry EAD |Indirect control |2,800 |
|- Odessos PBM AD |Associate |540 |
|- Bulyard AD |Subsidiary |5 |
| | | |
|Loans returned | | |
|- Privatengineering AD |Subsidiary |218 |
| | | |
|Contributions in share capital increase | | |
|- Privatengineering AD |Subsidiary |4,050 |
|- KLVK AD |Subsidiary |5,000 |
|- Dockyard Port-Burgas AD |Subsidiary |375 |
Notes to the financial statements
25. Related party transactions, continued
|In thousands of BGN |Relation |31 December 2007 |
| | | |
|Dividend income | | |
|-Maritime Holding AD |Subsidiary |427 |
|-ZMM Bulgaria holding AD |Subsidiary |3,411 |
| | | |
|Interest income | | |
|- Privat Engineering AD |Subsidiary |2 |
|- Leyarmash AD |Indirect control |10 |
|- Elprom ZEM AD |Indirect control |5 |
|- KLVK AD |Subsidiary |6 |
|- Bulyard Shipbuilding Industry EAD |Indirect control |32 |
|- Dockyard Port-Burgas AD |Subsidiary |26 |
| | | |
|Interest expenses | | |
|- Privat Engineering AD |Subsidiary |160 |
|- ZMM Bulgaria AD |Subsidiary |2 |
|Revenue from sale of services | | |
|- Augusta Mebel AD |Subsidiary |60 |
|- Dunav Tours AD |Associate |48 |
|- Elprom ZEM AD |Indirect control |62 |
|- Bulyard Shipbuilding Industry EAD |Indirect control |267 |
|- Dockyard Port-Burgas AD |Subsidiary |2 |
|Loans granted | | |
|- Privat Engineering AD |Subsidiary |555 |
|- Elprom ZEM AD |Indirect control |207 |
|- Dockyard Port-Burgas AD |Subsidiary |75 |
|- Bulyard Shipbuilding Industry EAD |Indirect control |742 |
| | | |
|Loans repaid | | |
|- Elprom ZEM AD |Indirect control |264 |
|- Privat Engineering AD |Subsidiary |83 |
|- KLVK AD |Subsidiary |324 |
|- Bulyard AD |Subsidiary |9 |
|- Leyarmash AD |Subsidiary |105 |
|- Dockyard Port-Burgas AD |Subsidiary |512 |
|- Bulyard Shipbuilding Industry EAD |Indirect control |742 |
|Loans granted | | |
|- Privat Engineering AD |Subsidiary |5,647 |
|- ZMM Bulgaria AD |Subsidiary |394 |
| | | |
|Loans returned | | |
|- Privat Engineering AD |Subsidiary |3,949 |
|- ZMM Bulgaria AD |Subsidiary |394 |
|Contributions in share capital increase: | | |
|- Bulyard AD |Subsidiary |8,164 |
|- Dockyard Port-Burgas AD |Subsidiary |125 |
Notes to the financial statements
26. Contingent liabilities
In July 2005 Industrial Holding Bulgaria AD secured the issue of a bank guarantee from DSK Bank EAD amounting to EUR 671 thousand to secure the liabilities of Elprom ZEM to a client.
In November 2006 a credit line agreement of BGN 4,500 thousand has been concluded for bank guarantees and operational financing. The credit line is secured with special pledge of undertaking of Dockyard Port-Burgas AD – a subsidiary of the Holding. Under the two contracts, as at 31 December 2008 bank guarantees in the amount of BGN 1,577 thousand and three letters-of-credit are issued to Bulyard Shipbuilding AD in the amount of BGN 3,312 thousand.
On 04.02.2008 the third corporate guarantee ceased. It was issued by Industrial Holding Bulgaria AD in connection with a contract for construction of vessels between Bulyard Shipbuilding Industry AD and companies of Navigation Maritime Bulgare. The ceased corporate guarantee amounted to EUR 4,212 thousand and USD 3,595 thousand. The guarantee was issued in connection with the third advance installment for construction of a vessel under construction number 515 and ceased due to completion of the contract’s obligations. That was the third and last corporate guarantee, issued by Industrial Holding Bulgaria AD in connection with abovementioned contract for construction of vessels under construction numbers 516, 457 and 515.
27. Subsequent events
At the beginning of January 2009 Bulyard Shipbuilding Industry AD repaid the loan granted to it in USD (USD 455 thousand).
-----------------------
|Daneta Zheleva | |Toshka Vassileva |
|Executive Director | |Chief Accountant |
|Gilbert McCaul | |Dobrina Kaloyanova |
|Partner | |Registered Auditor |
|KPMG Bulgaria OOD | | |
|37, Fridtjof Nansen Str. | | |
|Sofia 1142 | | |
| | | |
KPMG Bulgaria OOD
37, Fridtjof Nansen Str.
Sofia 1142
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