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INDUSTRIAL HOLDING BULGARIA PLC PUBLIC NOTIFICATION FOR FINANCIAL POSITION ON A CONSOLIDATED BASIS

31 March 2018

INDUSTRIAL HOLDING BULGARIA PLC Public notification for financial position on a consolidated basisFor the period ending 31 March 2018

CORPORATE INFORMATION

Industrial Holding Bulgaria PLC is a joint stock company (PLC), registered in the Republic of Bulgaria under Company File No. 13081 / 1996 with headquarters and registered office at 42 Damyan Gruev Str., Sofia, Bulgaria. The financial year of the Company ends on 31 December.

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

The General Meeting of Shareholders held on 27 February 1998 passed a decision to reorganize the activities of Privatisation Fund Bulgaria PLC into a holding company and to change its name from Privatisation Fund Bulgaria PLC to Industrial Holding Bulgaria PLC. The Company’s registered capital amounted to BGN 77,400,634 at 31 March 2018. On 05 May 2018, an increase in the capital was registered with the Commercial Register at the Registry Agency from BGN 77,400,643 to BGN 107,400,643 through the issuance of new 30,000,000 shares as a result of the conversion of 300,000 bonds. At the date of publication of this notification, the issue from the increase of the capital was registered at the Central Depository. The company has a two-tier system of governance, comprising Supervisory Board and Management Board.

In March 2018, Industrial Holding Bulgaria PLC has 9 direct subsidiaries (31 December 2017: 9), no associates (31 December 2017: Nil), and 12 indirect subsidiaries (31 December 2017: 12 indirect subsidiaries), collectively referred to as “the Group”.

The scope of activity of the Group includes production and trading activities in the area of heavy machinery, shipbuilding, ship repair and maritime transportation, port services, designer’s services, maintenance and repair, and other services.

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

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION

In BGN’000 31 March2018

31 December 2017

AssetsNon – current assetsProperty, plant and equipment 344,430 350,456Intangible assets 3,136 3,499Investment properties 7,666 7,666Goodwill 9,130 9,130Deferred tax assets 80 15Total non-current assets 364,442 370,766

Current assetsInventories 17,695 16,939Trade and other receivables 9,318 8,134Income tax receivable 94 145Cash and cash equivalents 6,515 2,915Total current assets 33,622 28,133Assets classified as held for sale 2,648 16,903TOTAL ASSETS 400,712 415,802

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31 December 2017

CapitalShare capital - registered 77,400 77,400Share capital - in the process of registration 30,000 -Share premium 30,604 30,604Treasury shares redeemed (453) (346)Other reserves 84,033 91,219Translation reserve 9,717 12,700Retained earnings 71,026 59,708

302,327 271,285Non-controlling interests 2,248 2,217Total equity 304,575 273,502

LiabilitiesNon – current liabilities

Interest-bearing loans and borrowings 31,891 2,612Trade and other payables 3,324 21,995Financing 2,000 1,975Retirement benefit liability 829 849Deferred tax liabilities 9,273 9,618Total non-current liabilities 47,317 37,049

Current liabilities

Interest-bearing loans and borrowings 10,055 43,514Debenture loan 21,184 50,563Trade and other payables 16,448 10,778Provisions 30 80Financing 165 231Income tax liability 938 85Total current liabilities 48,820 105,251Total liabilities 96,137 142,300TOTAL EQUITY AND LIABILITIES 400,712 415,802

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to equity holders of the parent

In BGN’000Share capital-

registeredShare capital-in the process of registration

Share premium

Treasury shares

redeemed

Additional and

statutory reserves

Revaluation reserves

Translation reserve

Retained earnings

Total Non-controlling

interest

Total equity

At 1 January 2018 77,400 - 30,604 (346) 4,683 86,536 12,700 59,708 271,285 2,217 273,502Total comprehensive income for the yearProfit / (Loss) for the period - - - - - - - 4,123 4,123 127 4,250Other comprehensive income/ (loss) for the period -

-

- - - - (2,983) - (2,983) - (2,983)Total comprehensive income/ (loss) for the year -

-

- - - - (2,983) 4,123 1,140 127 1,267Transactions with shareholders recognised in equity

-

Dividends paid - - - - - - - - - (95) (95)Bonds converted into shares - 30,000 30,000 30,000Acquisition of non-controlling interest - - - - - 1 - (2) (1) (1) (2)Acquisition of treasury shares - - - (107) - - - 10 (97) - (97)Total transactions with shareholders - 30,000 - (107) - 1 - 8 29,902 (96) 29,806Transfer of revaluation reserve on assets sold and transfer to held-for-sale assets to retained earnings -

-

- - - (7,187) - 7,187 - - -At 31 March 2018 77,400 30,000 30,604 (453) 4,683 79,350 9,717 71,026 302,327 2,248 304,575

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NOTESOperating results

The results are presented in the following table:

Indicators /on a consolidated basis/

In BGN’000 31 March 2018 31 March 2017Operating income 26,573 21,548Operating expenses (20,261) (18,511)Operating profit (loss) 6,312 3,037

Net finance income/costs (1,506) (1,456)Profit (loss) before taxes 4,806 1,581

Tax expenses (556) (254)- current income tax expenses (150) (250)

- deferred income tax expenses/benefits (406) (4)

Profit (loss) after taxes 4,250 1,327 incl. for majority owners 4,123 1,225

Operating revenue

In BGN’000 31 March 2018 31 March 2017

Sale of products 7,590 6,779Sale of services under time charter of ship contracts 3,631 3,697Sale of services under voyage-charter of ship contracts 5,407 5,432Ship repairing 2,209 1,063Port activity 2,621 2,323Sale of other services 1,054 787Rental income 614 485Gain on sale of fixed assets 2,995 548Other income 452 434

26,573 21,548

The Group’s total revenue for 2018 increase compared to revenue reported for the same period of 2017. The dynamics in income are primarily due to:

The recovery of the freight market has a positive impact on the revenue from ship chartering services that, if expressed in their functional currency (US dollars), is growing. However, the significant depreciation of the exchange rate of the US dollar, observed in the first quarter of 2018 compared to the same period of 2017, affected them negatively and the result was that the Group reported lower revenue from chartering serviced presented in Bulgarian leva.

The recovery of the freight market has a positive impact on the revenue from ship repair services in 2018 as well.

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The revenue from sales of universal lathes and lathes using software for digital management scores a growth, regardless of the still unstable political global environment.

Higher revenue from port operations primarily as a result of the larger volumes of cargo processed and better utilization of the capacity of Odessos PBM EAD;

The increase in gain on the sale of fixed assets is due to the sale of land and buildings, plant and equipment of the subsidiary IHB Electric AD, a transaction that was finalized in March 2018.

Gain on sale of fixed assetsIn BGN’000 31 March

201831 March

2017Revenue from sale of fixed assets 17,623 749Carrying amount of held-for-sale assets sold (14,628) (201)

2,995 548

Finance income and finance costs for the reporting period are as follows:In BGN’000 31 March 2018 31 March 2017

Finance income - -

Finance costsInterest expenses (1,170) (1,231)Foreign currency losses, net (293) (164)Other finance costs (43) (61)

(1,506) (1,456)

The interest expenses for the period ended 31 March 2018 amounting to BGN 1,170 thousand (31 March 2017: BGN 1,231 thousand) originate primarily from interest on debenture loan issued by Industrial Holding Bulgaria PLC amounting to BGN 621 thousand (31 March 2017: BGN 621 thousand), cash loans from banks and non-financial institutions amounting to BGN 549 thousand (31 March 2017: BGN 565 thousand), interest on deferred payments to suppliers relating to the purchase of shares amounting to BGN 0 (31 March 2017: BGN 45 thousand).

The financial result before taxes as at 31 March 2018 is a profit of BGN 4,806 thousand compared to profit of BGN 1,581 thousand for the same period of 2017. The result after taxes is a profit of BGN 4,250 thousand vs. profit of BGN 1,327 thousand for the same period of the previous year.

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Assets held for sale

Land and buildings

Plant and equipment

Other assets

Total

Balance at 1 January 2017 7,384 815 17 8,216Sold (240) (278) - (518)Transfer of investment property 87 - - 87Transfer of property, plant and equipment

7,946 1,150 22 9,118

Balance at 31 December 2017 15,177 1,687 39 16,903

Balance at 1 January 2018 15,177 1,687 39 16,903Sold (14,382) (241) (5) (14,628)Costs of repair 373 - - 373Balance at 31 March 2018 1,168 1,446 34 2,648

In December 2017, the Board of Directors of the subsidiary IHB Electric AD announced that an auction for the sale of immovable properties – land properties, together with the buildings built therein, facilities permanently attached thereto and the contracts for construction works in these real estates. The total carrying amount of the assets to be sold, which are part of assets held for sale as at 31 December 2017, is BGN 14,254 thousand. In February 2018, the General Meeting of Shareholders of IHB Electric AD approved the sale. The transaction was finalized in March 2018. The total price was set at BGN 16,944 thousand (net of VAT), which was fully paid. The Buyer in the transaction is a company under common control with the Group and a significant part of the sale proceeds were used to repay payables to related parties.

Bank loans

Short-term

In BGN’000

Currency Interest rate, % Maturity

31March2018

31December

2017Secured bank credit amounting to BGN 19,345 thousand (JPY 1,122,594 thousand)- short-term portion

JPY

JBIC +2.5%

2018 1,046 1,016

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

1 М SOFIBOR +2.9%but min 2.9% 2019 103 103

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

1 М LIBOR + 1.7% but min 2.8% 2018 901 1,277

Secured bank credit amounting to USD 37,300 thousand* USD 1 М LIBOR + 2.25%

2022 8,005 40,920

Secured investment loan amounting to EUR 400 thousand: short-term portion

EUR 3 М EURIBOR + 1.95%

but min 2.9%2020 - 198

10,055 43,514

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Long-term

In BGN’000

Currency Interest rate, % Maturity

31March2018

31December

2017Credit line for working capital amounting to BNG 3,000 thousand (2017: BGN 3,000 thousand) BGN

1 М SOFIBOR +2.5%but min 2.5%

2018 2,042 2,532

Secured bank credit amounting to USD 37,300 thousand USD

1 М LIBOR + 1.95% 2022 29,838 -

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

1 М SOFIBOR +2.9%but min 2.9%

2019 11 37

Secured investment loan amounting to EUR 400 thousand – long-term portion EUR

3 М EURIBOR + 2.9% but min 2.9%

2020 - 43

31,891 2,612

* In March 2018, the Group renegotiated the terms and conditions of a secured bank loan for the amount of USD 37,300 thousand and the maturity was extended until December 2022 by repayment in the form of equal repayment instalments on the principal, while the interest rate was reduced. The Group committed to conclude a transaction to protect the interest risk against changes in the 1M LIBOR on at least 80% of its cash flows for the entire duration of the contract. The interest rate swap agreement was concluded in May 2018.

The bank loans are secured by mortgages on land and buildings, and registered pledges on plant, equipment and motor vehicles, including ships owned by the Group companies, with total carrying amount as at 31 March 2018 of BGN 228,012 thousand (31 December 2017: BGN 209,188 thousand). In addition, KRZ Port Bourgas AD has been pledged as an entity.

As at 31 March 2018, the amount of the liabilities under bank loans from related parties according to IAS 24 amounted to BGN 38,744 thousand (31 December 2017: BGN 42,197 thousand). Further details are provided in the section Related Party Transactions.

As at 31 March 2018, the Group had unutilized limits on bank loans amounting to BGN 958 thousand.

Debenture loan

In BGN’000 31 March 2018 31 December 2017Debenture loan 20,000 50,000Transaction costs (1) (5)Interest charged 1,185 568

21,184 50,563incl. long-term portion - -incl. short-term portion 21,184 50,563

The extraordinary General Meeting of Shareholders of Industrial Holding Bulgaria, held in February 2018, for the purpose of ensuring the rights of holders of convertible bonds passed a decision to increase the capital of the company with up to BGN 50,000 thousand by converting the debenture loan ISIN Code BG2100003156.

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On 26 March 2018, as a result of the conversion procedure 300,000 bonds were converted at a conversion ratio of one hundred shares for one bond, i.e. 30,000,000 shares were subscribed. An application for registration of the increase of the company’s capital as a result of the conversion was filed to the Commercial Register and namely an increase from BGN 77,400 thousand to BGN 107,400 thousand. The increase in the capital was registered with the Commercial Register at the Registry Agency on 05 May 2018.

At the date of approval of this Public Notification, Industrial Holding Bulgaria AD signed a bank loan agreement for the purposes to refinance part of the debenture loan amounting to EUR 10,000 thousand. The total loan was utilised. The loan expires on 30 April 2023 and is to be repaid in equal instalments with effect from May 2018. A fixed interest rate of 1.9% p.a. was agreed. Guarantors on the contract are subsidiaries. The contract is secured by mortgages on real estate (land and buildings) of a subsidiary.

On 10 April 2018, Industrial Holding Bulgaria AD paid the principle due after the conversion on the debenture loan with ISIN code BG 2100003156 of BGN 20,000 thousand and interest accrued thereon.

Equity

Share capital - registeredThe share capital is stated at nominal value according to the registration with the Commercial Register.


31 December 2018

77,400,643 ordinary shares with nominal amount of BGN 1 each 77,400 77,40077,400 77,400

The capital of Industrial Holding Bulgaria PLC comprises 77,400,643 registered dematerialised voting shares with nominal amount of BGN 1 each that are listed for trading on Bulgarian Stock Exchange . The share capital is subscribed at its nominal amount and is paid in full. There is no preference shares or bearer’s shares.

Shareholders

The shareholders of Industrial Holding Bulgaria PLC holding more than 5% of the company’s capital as of 31 March 2018 are as follows:

Shareholder

Number of shares as at 31 March

2018 31 March 201831 December

2017

Venside Enterprises 16,501,834 21.32% 26.36%BULLS AD 13,037,921 16.84% 16.84%MUPF Allianz Bulgaria AD 5,379,344 6.95% 6.95%DZH AD 4,732,574 6.11% 6.11%Other 37,748,970 48.78% 43.74%

77,400,643 100.00% 100.00%

Share capital in the process of registrationIn March 2018, as a result of the conversion of part of debenture issue with ISIN code BG 2100003156, an application for registration of the increase of the company’s capital by BGN 30,000 thousand was filed to the Commercial Register. The increase was registered on 05 May 2018 and as a result, and the capital of Industrial Holding Bulgaria PLC reached BGN 107,400 thousand.

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Treasury shares redeemedThe total number of the treasury shares held as at 31 December 2017 is 421,680 for the total amount of BGN 346 thousand. Over the period 01 January 2018 – 31 March 2018, 50,225 treasury shares amounting to BGN 41 thousand were sold at a selling price of BGN 51 thousand and 147,100 treasury shares were bought up amounting to BGN 148 thousand. The number of the treasury shares redeemed as at 31 March 2018 is 518,555 for the total amount of BGN 453 thousand.

Related party disclosures according to IAS 24

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

Equity interestCountry of

registration31 March

201831 December

2017% %

Industrial Holding Bulgaria PLC Bulgaria Parent company Parent company

Privat Engineering EAD Bulgaria 100.00 100.00ZMM Bulgaria Holding AD Bulgaria 100.00 100.00ZMM Sliven AD Bulgaria 95.98 95.98ZMM Nova Zagora AD Bulgaria 93.57 93.57IHB Metal Castings AD* Bulgaria 100.00 100.00IHB Electric AD Bulgaria 97.87 97.86KRZ Port Bourgas AD Bulgaria 99.65 99.65KLVK AD Bulgaria 100.00 100.00International Industrial Holding Bulgaria AG Switzerland 100.00 100.00Maritime Holding AD Bulgaria 61.00 61.00Bulgarian Register of Shipping EAD Bulgaria 61.00 61.00Bulyard Shipping Industry AD Bulgaria 100.00 100.00IHB Shipping Co EAD Bulgaria 100.00 100.00Emona LTD Marshal Islands 100.00 100.00Karvuna LTD Marshal Islands 100.00 100.00Odria LTD Marshal Islands 100.00 100.00Tirista LTD Marshal Islands 100.00 100.00Serdika LTD Marshal Islands 100.00 100.00Bulport Logistics AD Bulgaria 100.00 100.00Odessos PBM EAD Bulgaria 100.00 100.00IHB Shipdesign AD Bulgaria 70.00 70.00

In view of the definitions contained in IAS 24, the Group deems that it has a related party relationship with the following companies:

I. Persons controlling the activities of the entity within the meaning of IAS 24 Bulls AD, a company that holds a certain percentage of the voting shares in the capital of Industrial Holding

Bulgaria PLC (directly and indirectly, through a subsidiary), which in view of the scattered shareholding structure of Industrial Holding Bulgaria PLC as a former privatization fund with more than 50,000 shareholders

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and the quorums at the GMS during the last two years, has made it possible for Bulls AD to exercise a majority vote and de facto control over the GMS of Industrial Holding Bulgaria PLC;

Dimitar Zhelev, an individual controlling Bulls AD and a husband of Daneta Zheleva, the Chief Executive Director of Industrial Holding Bulgaria PLC.

II. Key management personnel, including the Management and Supervisory Boards of the Company

III. Entities over which the persons exercising control within the meaning of IAS 24 (according to paragraph I) has joint control

IV. Entities over which the persons exercising control within the meaning of IAS 24 (according to paragraph I) has significant influence or are members of their key management personnel

Related party transactions

Related party receivablesIn BGN’000 31 March

201831 December

2017Entities over which the persons exercising control within the meaning of IAS 24 (according to paragraph I) has significant influence or a members of their key management staff 3 27

3 27

Cash with banks – related partiesIn BGN’000 31 March

201831 December

2017Entities over which the persons exercising control within the meaning of IAS 24 (according to paragraph I) has significant influence or a members of their key management staff 5,279 1,987

5,279 1,987

Payables to related parties on bank loans and lease contractsIn BGN’000 31 March

201831 December

2017Entities over which the persons exercising control within the meaning of IAS 24 (according to paragraph I) has significant influence or a members of their key management staff 38,744 42,197

38,744 42,197

Payables to related parties on a debenture loanIn BGN’000 31 March

201831 December

2017Persons exercising control within the meaning of IAS 24 7,686 28,401Key management staff 30 30Entities under common control of the persons exercising control within the meaning of IAS 24 (according to paragraph I) 100 7,737

7,816 36,168

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Trade and other payables to related parties


31 December 2017

Loans payable (incl. interest)Persons exercising control within the meaning of IAS 24 3,933 21,991

3,933 21,991Other payablesEntities over which the persons exercising control within the meaning of IAS 24 (according to paragraph I) has significant influence or a members of their key management staff 19 39

19 393,952 22,030

Sale transactionsIn BGN’000 Transaction type 31 March

201831 December

2017

Entities under common control of the persons exercising control within the meaning of IAS 24 (according to paragraph I)

Sale of fixed assets 16,944 -

Entities over which the persons exercising control within the meaning of IAS 24 (according to paragraph I) has significant influence or a members of their key management staff

Sales of services

22 20


Other sales

4 3

Total 16,970 23

Purchase transactions

In BGN’000Transaction type 31 March

201831 December

2017


Purchase of services 315 402

Total 315 402

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Bank loans and lease contracts from related parties

In BGN’000Amounts

received/ (paid)

Amounts (paid)/

refunded

Interest (expenses)/

income Interest paid


31 March 2018 - (2,340) (382) (380)


31 March 2017 - (1,768) (360) (408)

31 March 2018

- (2,340) (382)(380)

31 March 2017

- (1,768) (360)(408)

Debenture loans from related parties

In BGN’000Amounts

received/ (paid)

Amounts (paid)/

refunded



Persons exercising control within the meaning of IAS 24

31 March 2018 - - (391) -


31 March 2017 - - (274) -

Key management staff 31 March 2018 - - - -

Key management staff 31 March 2017 - - - -Entities under common control of the persons exercising control within the meaning of IAS 24 (according to paragraph I)

31 March 2018 - - (52) -


31 March 2017 - - (170) -

31 March 2018 - - (443) -31 March 2017 - - (444) -

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Loans from related parties included in trade and other payables

In BGN’000Amounts

received/ (paid)

Amounts (paid)/

refunded




31 March 2018 - (17,748) (135) (196)


31 March 2017 - - (100) (72)


31 March 2018 - - - -


31 March 2017 - - (23) (22)

31 March 2018 - (17,748) (135) (196)

31 March 2017

- - (123)(94)

Other finance costsIn BGN’000 31 March 2018 31 March 2017

Entities over which the persons exercising control within the meaning of IAS 24 (according to paragraph I) has significant influence or a members of their key management staff 27 50

Terms and conditions of related party transactions

The sales to and purchases from related parties are made at contractual prices. Outstanding balances at the year-end are unsecured (except for loans), interest free (except for loans) and the settlement is made in cash. There have been no guarantees provided to or received for related party payables or receivables, except for the ones listed below. For the period ended 31 March 2018 (31 December 2017: Nil), the Group had not written down related party receivables. A review for impairment is made every financial year through examining the financial position of the related party and the market in which the related party operates.

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Commitments and contingencies

Legal claims No significant legal claims have been brought against the Group.

Guarantees According to a contract signed with a commercial bank for granting a credit limit for issuance of bank guarantees, letters of credit and working capital financing of the Holding and/or Group entities with a limit of BGN 10,000 thousand, as at 31 March 2018 bank guarantees amounting to BGN 304 thousand (31 December 2017: BGN 318 thousand) were issued to the following Group companies: IHB Electric AD, IHB Metal Castings AD, KRZ Port Bourgas AD, Bulyard KI AD, and Odessos PBM EAD, and a revolving credit line for working capital financing was opened amounting to BGN 3,000 thousand (31 December 2017: BGN 3,000 thousand). As at 31 March 2018, the amount utilised by the subsidiary IHB Electric AD under this revolving working capital credit line was BGN 939 thousand, that utilized by ZMM Sliven AD and by ZNN Nova Zagora AD – BGN 595 thousand and BGN 508 thousand respectively. As of 31 March 2018, the unutilized limit under this bank loan amounted to BGN 958 thousand. The contract with the bank is secured by a registered pledge on the commercial enterprise of KRZ Port Bourgas AD.

Non-systematic group specific risks Risks associated with the structure of the Group’s portfolioThe Group’s investments are focused on industries characterised by slow rotation of funds invested (machine-building), dependency on energy and other resources (machine-building, ship repair, maritime transport) and high cyclicity (ship repair, shop design, maritime transport, classification and certification, port activity), thus reducing the level of return.

Risks arising from the development of the global economy and tradeThe state of the global economy and demand for raw materials underpin the development of trade and all industries in the IHB's investment portfolio are the most important impact on shipping industry. Stress on the infrastructure market and pressure on the freight have a number of divergent factors:

cyclicity of the shipping industry – cycles are linked to the global economy and the balance between the proposed shipping tonnage and the needs of exporters and importers. Risk exists for operators who have failed to properly plan and distribute their cash flows at a time of difficult access to finance under aggravated conditions during crisis and recession;

number of ships in construction and entry into service and state of the ship cutting market - low growth rate of old ships combined with a large number of newly built and put on water ships and tonnage in operation leads to oversupply of ships and lower freight rates;

increased environmental restrictions – the introduction of new eco-norms and directives on environmental pollution and energy savings for vessels imposes mandatory reconstructions of vessels to comply with eco-norms and shortens the time of operation of ships;

global fuel problems - on the one hand, oil can be a cause of conflict and, on the other hand, the price and availability of it can be a cause of erosion or a fall in the freight market, as marine fuels are the main raw material in the industry and stock commodity;

development potential – stems from major infrastructure projects, major investments in the gas and oil sectors, etc.

Risk of political instability in traditional markets and regions, military activities and/or penalties imposedThis risk stems from future changes in economic policy imposed by objective economic or political circumstances - continuing war conflicts around the world, political uncertainty in many places, sanctions and restrictions imposed on trade with a number of countries. The exodus of refugees toward Europe and in particular, toward Bulgaria, as an EU

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external border, is a negative result of these processes as well. This risk mainly affects maritime and port business as it impedes the free movement of goods and leads to a change in trade flows and transport corridors, and hampers the access of registry inspectors to supervised vessels. Additionally, the risk also affects the machine building industry by reducing sales volumes on traditional markets (such as the Russian and the Turkish markets)Risks relating to environment legislationThe legislation of the Republic of Bulgaria on ecology implies compliance with a number of measures on prevention, control and reduction of various types of environmental pollution. The Group's policy is to comply with all regulatory obligations in this respect, which is linked to fixed costs for the alignment and maintenance of facilities and processes in accordance with the required standards and norms. All investment projects are also in line with environmental protection requirements.Risks relating to attracting and retaining experienced and qualified employeesGiven the problems with the effectiveness and relevance of the education system in Bulgaria and the demographic collapse in the country, many sectors of the national economy are experiencing a capacity crunch. Employees’ professional qualities affect directly entity’s financial results and innovation performance. The risk is reinforced by the convertible nature of some professions, their shortage and high worldwide demand for such staff (professionally trained and motivated seamen and officers, registry inspectors, Professional technical and engineering personnel and workers – welders, hull workers (hull fitters), pipe fitters, etc.). Competition among employers is high. The most affected segments are that of machine building, experiencing a serious shortage of mid-level specialists and engineers, maritime transport, ship repair segments. Management has adopted a long-term approach to human resource management related to preliminary and subsequent qualification of staff, as well as a close cooperation with the academic society in the country. Credit riskThe credit risk is the risk of possible financial loss if a client or a party to a financial instrument fails to perform its contractual obligations. The risk is mainly related to receivables from clients and investments in other financial assets.

Receivables from clients – The Group’s credit risk exposure depends on the customer’s individual characteristics that differ between sectors. The most affected segments are that of shipbuilding, ship design, classification and certification, and port activities. The Group’s credit policy provides for that each new client shall be investigated for solvency before being offered the standard delivery and payment terms and conditions. Besides the price offered, when selecting a potential client or a charterer managers consider its credit rating, reputation, popularity, recommendations, etc.Investments – The Group invests mainly in businesses and companies where the Holding holds the control and power to determine their development strategy. With respect to portfolio investments, the ambition is to invest in liquid securities. Part of investments are made over considerable periods of time, during which it is possible that the Group will receive a very limited yield, lower profits, and may even experience losses.

Guarantees - It is a policy of the Group to issue financial guarantees only to subsidiaries and only after obtaining the preliminary approval of the managing bodies. There is a risk that the guarantees may be utilised in the event of non-performance of the covered liabilities. Liquidity risk Liquidity risk is the probability that the Group will be unable to meet all its obligations when they become due. Such risk may arise in case of delayed payments by clients. The Group companies elaborate financial planning to cover their expenses and current payables for a period of 90 days, including settlement of financial liabilities. Where possible, a deferred payment to suppliers and subcontractors is applied in combination with the above measures, but without affecting negatively their businesses. The Holding’s management supports the Group companies’ efforts towards attracting bank financing for investments and capacity utilization in the form of revolving credits for working capital in support of production. The attracted volumes of funds are maintained at pre-determined levels and approved only after their economic effectiveness for each company has been proven.

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The management’s policy has been directed towards accumulation of fresh resource from the market – in the form of shares/stocks, debentures or other financial instruments, to be invested in the subsidiaries in two directions: granting of loans to Group companies to be used to finance their projects and acquiring shares of their capital, incl. subscribing shares from capital increases.

Currency riskSome of the Group companies are exposed to currency risk as they perform purchases and/or sales and/or receive loans in currencies, other than the functional currency. Aiming at minimising the Group’s exposure to currency risk, the Holding’s management minimised the payments in foreign currencies other than the functional currency in the operating activity of most companies. The goal is that transactions with customers and suppliers are agreed primarily in BGN and EUR for the companies the functional currency of which is the Bulgarian lev and in USD for the ship companies, as USD is the main currency, in which the ship business operates. Nevertheless, there are contracts concluded for supplies in JPY, which expire in 2018, and a Group company operates a loan denominated in JPY. The increase in the revenue share from foreign ships in total sales strengthens the impact of currency risk on the financial results of the ship register. Interest rate riskThe Group companies are exposed to interest rate risk as the bank loans are agreed usually with floating interest rate component plus a margin corresponding to the current market prices.

Systematic risksThe Holding and its subsidiaries are exposed to systematic risks relating to the market and macro-environment in which the companies operate; these risks cannot be managed and controlled by the management team.

Trends for business in which Group companies operateMaritime transport

The last year of 2017 was the start of a smooth recovery of the shipping market, which continues in the beginning of 2018 as well. It is expected that the recovery will continue at similar rates throughout the entire year of 2018, the reasons for which are in several directions:

the state of the global economy – it is expected the gradually moving up growth of the world economy to persist in 2018 and subsequent years, accompanied by increased demand for ships, gradual increase in charter rates and growth in trade and shipping industries;

orders for new ships – after the orders for new ships almost stopped in 2016, in 2017, the interest in the construction of new vessels has again revived. Although orders are quite high, they are in market-acceptable levels. Ships expected to come out of water in 2018 and subsequent years are in volumes that the market can take;

ships for scrapping – after the relatively large quantity of cut ships in 2016, the trend continued at a slower pace and in 2017 as well. The price of scrap is relatively high (twice the levels of 2016), which stimulates the owners of old and inefficient ships to scrap them.

entry into force of the conventions on mandatory use by sea vessels of ballast water treatment systems and the sulphur content of fuels – their implementation will decommission a large proportion of older ships over 20 years of age. These are relatively large investments, which, at present market level, are unjustified to be incurred in older ships.

The fleet of Industrial Holding Bulgaria is relatively young and ready to meet the new requirements in global maritime trade.

Shipbuilding and ship repair

Shipbuilding is less dependent on the state of the freight market – the low freights limit the costs of repair and maintenance of ships to a lesser extent compared to their construction. Increasing existing requirements and introducing

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new ones to technical safety of ships calls for more frequent repairs – a factor which favourably affects shipbuilding activities. In Q1’2018, this business grew compared to the previous year.

The aim of Bulyard Shipping Industry is to maintain the employment of its production capacity by ship repair, ship reconstruction and production of metal structures. New construction projects have also been launched, which are expected to be completed by the end of 2018 – subcontracting upon completion of the housing of a specialized ship for offshore operations and construction of floating cranes intended for carrying out loading and unloading activities on board.

The business trends in the medium term are the detection of new customers in the area of ship repair and offshore industry, which started to regain the old vitality with rising fuel prices.

Ship design

In the last few years, there has been an increased demand for ship design and repair services for retrophite, renovation, conversion and addition of new equipment to existing ships.

In the last year of 2017, IHB Shipdesign works on new projects that have opened up new markets and good opportunities; at the same time, the team of specialists was increased and the range of services offered in the field of ship design for both freight and passenger, cruise and specialist ships, was extended. In 2018, the company will continue to develop in the area of the so-called „reverse engineering”, retrophite и 3D laser scanning.

The development trends of IHB Shipdesign in the next few years relate to the following:

approbation of the company as a reliable partner in the field of engineering services related to ballast water treatment systems and 3D scanning. Although there has been a tangible increase in the search for services by companies that need scanning of vessels and preparing documentation for bringing ships under the new requirements, the boom of vessel re-equipment is still pending. The company's team has gained considerable experience in such projects and continues to present its services in the specific area for the purpose of enforcing its positions in this niche on the international market.

opportunities for future developments resulting from increasing restrictions on air pollution from marine fuels. A new convention on emissions of harmful sulphur emissions comes into force since 2020. There are also strict requirements for pollution of the atmosphere with nitrogen oxides. The owners of ships in operation will be faced with a choice whether to repair their vessels in order to switch from heavy to slightly diesel fuel or to supply their vessels with cleaning filters (the so-called scrubber systems) to enable them to use a heavy fuel, and in the case of the older vessels, to scrape them due to the economic inefficiency of the investment;

increasing the complexity of the services offered by the company - the intention is to take complex orders with the full volume of design services (hull-outfitting machines and mechanisms), increasing the proportion of conceptual and technical design to work, adding copyright supervision and supervision in production and installation. In individual tasks, the aim is to take more sophisticated ones requiring higher engineering qualification. This requires upgrading staff qualifications to cover a wider spectrum of services;

maintaining of trends for specialisation of ships serving offshore floating facilities, entry and deployment in the design of oil platforms and other specialised floating facilities;

striving for entry into new areas related to calculation and working documentation of pipelines, gas mains, etc. in industrial construction.

Classification and certification

At the beginning of March, the Bulgarian Register of Shipping (BRS) signed a contract with the Barbados Administration for inspections on its behalf. Barbados's flag is a “white” list of the Paris Memorandum, which assesses the presentation of flags and expectations are of increased interest on the part of ship-owners. Contacts are sought with companies engaged in maritime business in the Black Sea and Mediterranean region to become representatives of the Register. Inspections of small vessels are carried out as a result of the signed additional agreement with the Executive Agency Maritime Administration.

Competition between classification societies remains very strong. The fact that some of the IACS members also take an aggressive pricing policy and guide their efforts to attract old ships which are not in principle in their sector also contributes to these difficulties.

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The management's efforts in 2018 will be in the direction of finding new agents, attracting new ship-owners, developing and offering additional services in addition to the main ones.

Port activity

The trends and prospects for development of Bulgarian ports depend on the economic situation in the countries of Mediterranean and Black Sea regions, in the country and the region.

KRZ Port Bourgas and Odessos PBM ports are of regional importance and their workload reflects the level of competitiveness and the economic situation of the South-eastern and Northeast regions of Bulgaria, in particular the industries of construction, agriculture, extraction of aggregates and infrastructure projects. Their activity is dependent on the seasonality of some types of cargo.

The policy of KRZ Port Bourgas aims at attracting new load flows and customers and developing port infrastructure. The activity of the company is developing in the direction of growth of the turnover of cereals related to the trend towards an increase in agricultural activity in South and South-eastern Bulgaria. In 2018, more efforts will be devoted to the acquisition of new loading-unloading equipment and construction of new warehouses for storage of cereals in view of achieving a narrow specialisation and larger volumes of processed cereals and metals. The activities on the implementation of the port expansion project by building a new quay wall will continue throughout the entire year.

The efforts of the management of Odessos PBM are aimed at attracting new freight flows, general and bulk goods, as well as creating new storage areas for the purpose of processing combined shipping lots. With the introduction of an electronic freight and shipment system, customers have accurate and objective information on the progress of their orders. The aim is to develop and implement all technological options for working with modality of railway transport. The investments made and the optimised management of the overload operations allow an increase of the share of the general cargo processed through the quay and the handling of bulk cargo. New opportunities for handling ships in pier with a maximum deadweight will be sought as well.

Bulport Logistics offers services in the field of small and large vessels and yachts mooring, ships docking for repaid, as well as the rental of premises and areas for storage and production activity. The management of the port has been able to attract new customers, the volume of repairs of small vessels, including those with specific maintenance, has increased. At the end of the last year of 2017, pontoon of a length of 48 m was put into operation, providing mooring of further 15 motor vehicles and sailing yachts, which aims to increase the revenue from port activity in 2018. Launches a project for renovating the administrative building of the company, which will be rented. The project is expected to be completed by the autumn of 2018. The company's strategy is to improve the technical condition of existing buildings and sites and to attract, through active promotional campaigns, new customers in the coming years.

Machine building

The demand for metal cutting machines can be defined as relatively constant over a longer period, with fluctuations and a decrease in every 3-4 years. This is driven by the factors that products are of a high life-cycle and are sold to a wide range of customers both from a geographical point of view and from the point of view of the use of machinery. The current economic situation in the relevant market has a significant impact on demand. Oil price fluctuations also influence, particularly on serious partners such as Russia and the US, as well as other countries of North Africa, the Near and Middle East.

In the beginning of 2018, the trend was maintained for the growth of contracts and sales of metal cutting machines compared to 2017, mainly due to Western European markets (Germany, Italy, France, Austria), but also to the positive development of Russia, Poland and Turkey, as well as to some Latin American countries. The consistent development of the relations and cooperation of ZMM Bulgaria Holding with its traditional long-term partners, as well as the continued pursuit of small customers and looking for new ones, has an important role to play. The latter is imperative against the background of the unstable political environment in many places around the world, which has a significant impact on the investment activity of customers. ZMM Bulgaria Holding participated in the EMO-Hannover - central event for the machine industry during the year, with its own stand and with a project focused on the best practices in the machine building industry. In the first months of 2018, the company's partners presented metal-cutting machines produced by the Group to various exhibitions, such as МЕТАВ- Düsseldorf, Teknik-Show -Utrecht, exhibitions in Ekaterinburg and Parma, and also an information stand at Industry Paris and Machtech – Sofia. This active marketing policy will continue in the future as well.

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The management’s efforts in the coming years will be focused on:

preserving market positions gained, trading activity to search for new markets, and developing markets with potential;

greater flexibility in pricing policy in order to increase market demand and ensure the production process, a good volume of procurement to ensure the profitability of production and stabilise the workforce;

technological renovation of production; development of the range of manufactured machinery by developing new models and nodes, optimising the

different types of lathes according to the trend of increasing the heavier lathes compared to smaller, increased attention to the production of digital machines;

qualitative indicators corresponding to the maximum of European criteria - the high quality of company production is a constant task for the whole team.

INFORMATION PURSUANT TO APPENDIX 9 TO ORDINANCE 2 ON THE PROSPECTUSES TO BE PUBLISHED WHEN SECURITIES ARE OFFERED TO THE PUBLIC OR ADMITTED TO TRADING ON A REGULATED MARKET AND ON DISCLOSURE OF INFORMATION Change in individuals exercising control over the company

There were no charges in the persons exercising control over the Company at 31 March 2018.

As at 31 March 2018, Industrial Holding Bulgaria PLC had information about the following shareholders holding more than 5% of the voting shares, calculated on the grounds of the amount of the registered capital of the company as at 31 March 2018 as equal to BGN 77,400,643, as follows:

1. Venside Enterprises Ltd: Number of voting shares and their share of the votes at the General Meeting of Shareholders of the company:

As at 31 March 2018: 16,501,834 shares representing 21.32% of votes held directly

2. Bulls ADNumber of voting shares and their share of the votes at the General Meeting of Shareholders of the company:

As at 31 March 2018: 13,037,921 shares representing 16.84% of votes held directly Bulls AD own 100% from the capital of Venside Enterprises Ltd and control its shares.

3. DZH ADNumber of voting shares and their share of the votes at the General Meeting of Shareholders of the company:

As at 31 March 2018: 4,732,574 shares representing 6.11% of votes

4. Daneta Angelova Zheleva

Number of voting shares and their share of the votes at the General Meeting of Shareholders of the company:As at 31 March 2018: 41,044 shares held directly, representing 0.05% of votes, directly and through related parties: a total of 4,774,264 shares representing 6.17% of votes.

5. Dimitar Georgiev Zhelev

Number of voting shares and their share of the votes at the General Meeting of Shareholders of the company:As at 31 March 2018: 646 shares held directly, representing 0.0008% of votes, directly and through related parties - a total of 4,774,264 shares representing 5.91%

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of votes, and controlled through Venside Enterprises Ltd and Bulls AD: a total of 29,539,755 shares, representing 38.16% of votes

Dimitar Georgiev Zhelev controls Bulls AD and Venside Enterprises Limited and the votes directly held by these entities.

Dimitar Zhelev and Daneta Zheleva are spouses.

6. MUPF Allianz Bulgaria AD

Number of voting shares and their share of the votes at the General Meeting of Shareholders of the company:As at 31 March 2018: 5,379,344 shares held directly, representing 6.95% of votes

The shares of the other shareholders, in view of the scattered shareholding structure of Industrial Holding Bulgaria PLC as a former privatisation fund (with more than 50,000 shareholders) and the quorums at the General Meeting of Shareholders over the last two years, have allowed that a majority vote and de facto control within the meaning of IAS 24 is exercised by Bulls AD and Venside Enterprises Limited at the GMS of Industrial Holding Bulgaria PLC.

According to a notification of disclosure of interests received on 15 May 2018, as a result of the capital increase of Industrial Holding Bulgaria PLC registered with the Commercial Register and the sales transactions concluded, as at 14 May 2018 Venside Enterprises Ltd held 08.42 % of the voting rights held directly.

According to a notification of disclosure of interests received on 15 May 2018, as a result of the capital increase of Industrial Holding Bulgaria PLC registered with the Commercial Register and the shares acquired by Bulls AD as a result of the conversion of bonds held, as at 11 May 2018 Bulls AD held 35.02 % of the voting rights held directly.

Initiation of bankruptcy proceedings in respect of the Company or its subsidiary and all significant stages relating to the proceedingsThere is no such circumstance.

Conclusion or performance of significant transactions N/A

Decision for conclusion, termination and cancellation of a joint venture contractThere is no such circumstance.

Change in the Company’s auditors and reasons for the changeThere is no such circumstance.

Initiation or termination of court or arbitration proceedings relating to liabilities or receivables of the Company or its subsidiary with a price of the claim of at least 10 per cent of the Company’s equityN/A

Purchase of, sale of or pledge imposed on shares of commercial companies by the issuer or its subsidiaryThere has been no such circumstance during the past quarter.

Other circumstances deemed by the Company as being of importance to the investors in taking a decision to acquire or to continue to hold publicly offered securitiesN/A

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This Public Notification has been prepared in accordance with the requirements of Art. 100о, par. 4 with reference to par. 2 of POSA.

Daneta ZhelevaChief Executive OfficerIndustrial Holding Bulgaria PLC

Ivan RashkovChief Accountant

Vladislava ZgurevaInvestor Relations Director

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report v1.2€¦ · web viewon 05 may 2018, an increase in the capital was registered with the...

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