transat annual report and fs 2008 - final...

TRANSAT AD

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ANNUAL REPORT TOGETHER WITH INDEPENDENT AUDITOR'S REPORT AND FINANCIAL STATEMENTS FOR THE YEAR 2008 Unofficial translation from the original in Bulgarian

TRANSAT AD

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CONTENT

ANNUAL REPORT .............................................................................................................................. 3

INDEPENDENT AUDITOR'S REPORT ............................................................................................19

FINANCIAL STATEMENTS ..............................................................................................................22

NOTES TO THE FINANCIAL STATEMENTS AS OF DECEMBER, 31 2008 .................................27

TRANSAT AD

ANNUAL REPORT

TRANSAT AD

Annual report 2008 4

SELECTED PERFORMANCE INDICATORS Financial indicators 2008 2007 2006 2005 2004 2003

Sales volume (BGN thousand) 3,960 3,989 4,161 3,835 2,018 2,495

EBITDA (BGN thousand)1 1,592 1,521 1,712 1,466 134 (390)

EBIT (BGN thousand)2 570 514 764 653 (236) (420)

Net result after taxes (BGN thousand) 502 374 516 336 (581) (482)

ROE (%)3 27 26 51 (235) 78 225

ROACE (%)4 17 11 14 13 (6) (23)

ROA (в %)5 13 10 13 10 (4) (19)

Assets (BGN thousand) 3,912 4,553 5,600 6,382 6,309 4,276

Debt (BGN thousand) 1,332 2,331 3,795 4,446 5,417 3,493

Equity (BGN thousand) 2,142 1,640 1,266 750 (1,036) (455)

Debt / Assets (%) 34 51 68 70 86 82

Equity / Assets (%) 55 36 23 12 (16) (11)

Debt / Equity (%) 62 142 300 593 (523) (768)

Debt / EBITDA (%) 84 153 222 303 4,043 (896)

Working capital (BGN thousand) (440) (2,127) (3,563) (4,797) (6,184) (146)

Capital expenses (BGN thousand) 77 70 962 1,427 1,678 3,060

Current liquidity (co-efficient) 0.69 0.22 0.14 0.12 0.15 0.88

1 EBITDA - earnings before interest, tax, depreciation and amortization 2 EBIT - earnings before interest and tax 3 ROE (return on equity) – calculated as ratio between the net financial result after taxes and the averaged value of equity. 4 ROACE (return on average capital employed) – calculated as ratio between EBIT and the average value of the capital employed. The latter represents the difference between the total amount of assets and the current liabilities to third parties (that are not part of Petrol Holding Group AD) 5 ROA (Return on assets) – calculated as ratio between EBIT and the averaged value of assets.

TRANSAT AD


Transat AD (JSC) is a Bulgarian VSAT operator, part of Petrol Holding Group AD (JSC), providing telecommunications services based on two modern broadband VSAT data transfer technological platforms. The services are supplied through managing station located in teleport on the territory of the country and transponders from two satellites located at geostationary orbit around the planet are used.

Transat AD provides connectivity in Europe, North Africa, Near and Middle East and part of Asia.

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Operational indicators 2008 2007 2006 2005 2004 2003

Market share of satellite networks (%) ** 5* 6 14 19 12 -

Number of operated VSAT terminals 675 710 700 629 574 2

Availability of the basic service (%) 99.99 99.99 99.98 99.93 99.83 -

Number of personnel 26 24 25 27 22 15 * Preliminary estimation ** Based on data of the Communications Regulation Commission; including satellite broadcasting of TV and

radio programmes

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Annual report 2008

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STATEMENT OF THE EXECUTIVE DIRECTOR

Ladies and gentlemen, I have the pleasure to present you the activity and performance results of Transat for the year 2008. I so am glad to share with you the fact that the year 2008 was a successful one for the accomplishment of the long-term goals targeted by the team of Transat AD. During the sixth year after its foundation, the Company kept its sustainable development in accordance with the tasks assigned by the shareholders at its

creation. During the last year the telecommunications market in Bulgaria kept to be one of the most dynamically changing sectors of the Bulgarian economy with an annual growth rate of 10%, while the sector's share in the GDP persisted around 6%. In 2008 was adopted the secondary normative basis in compliance with the Law on electronic communications, which enabled better regulation of the processes in the sector. The last year 2008 proved to be an important period for the development and further strengthening of the positions of Transat AD. The revenues from sales of goods and services in 2008 amounted to BGN 3,926 thousand, which was almost the amount of BGN 3,984 thousand reached in 2007. The increase of the financial result was achieved due to decrease in the operational costs, mainly in the costs related to the satellite segment. The Company operated 675 VSAT terminals during the year, which represents 5%-decrease compared to the preceding year. For the good results achieved by Transat AD in 2008, I would like to thank to our customers, partners and shareholders for the support and trust they are giving us, and to the whole team and our colleagues for the shared values and their contribution to the implementation of our mission and goals. Mincho Pankov Executive director Sofia March, 18 2009

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PROFILE OF THE COMPANY

Transat AD is registered by Sofia City Court at the end of year 2000. Both the seat and registered office are at the following address: Sofia, Pancharevo region, Trakia high-way, 1st kilometer. Shareholders in the Company are Transhold Bulgaria Holding EAD (sole owner JSC) and Mincho Pankov. The basic activity of the Company is provision of public electronic communications services through construction, maintenance and operation of satellite communications networks.

In order to carry out its basic activity, the Company has obtained the following authorizations for usage of individually assigned scarce resource, issued by thе Communications Regulation Commission of Republic of Bulgaria:

No 00580/ 17.06.2008 (reissued No 109–2351/30.01.2003 and No 112–2351/15.12.2005);

No 00580/ 17.06.2008 (reissued No 112–2955/21.10.2004); No 00358/ 03.06.2008 (reissued No 113–02673/25.09.2003).

In April 2005 the Company was certified by Lloyd’s Register Quality Assurance for compliance of its Quality management system with the following standards: ISO 9001:2000, EN ISO 9001:2000, BS EN ISO 9001:2000. In January 2009 the Company was certified again in compliance with the new 2008 version of the standard. Since 2007 the Company is a member of Global VSAT Forum (www.gvf.org) and since 2008 a member of Association Telecommunications (ASTEL) (www.astel-bg.com). Structure and management bodies The Company has the following management bodies structure, including:

General assembly of shareholders; Board of directors; Executive director; Marketing and Sales Directorate and Technical Directorate; Accounting department and Administration.

The Board of directors consists of three members. Ognyan Drenski is chairing the Board, while members are Miroslav Valkov and Mincho Pankov, the latter being also executive director.

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Mission of the Company Our main goal is to build up a VSAT network for provision of telecommunication services on the Bulgarian market. In order to achieve this goal we make principal relationships with all the parties interested in our activity. Clients: We support the sustainable business development in our trade companies through development and introduction of leading world manufacturers' technologies. We create a modern communications environment for effective functioning of the state administration. Shareholders: The Company develops new products and retains its positions on the communication technologies market, aiming at achievement of both sustainable financial results and investment policy for long-term success. Personnel: We invest in training of our staff; create security, good social environment and opportunities for further development. The management and all the employees of the Company are engaged in effective operation of the Quality management system in compliance with standard BDS EN ISO 9001:2001. Our employees are proud to be part of the team, as we take the challenge to provide unique services. Suppliers: Our partners and suppliers are leading foreign and Bulgarian companies, to which the Company aims to be a certified partner. Our work contributes to their success. The Society: We serve the territory of the whole country through build-up, maintenance and operation of highly reliable communications infrastructure for the needs of business entities and state administration. We follow safety and nature protection requirements. Stages of development The Company has developed following a couple of stages:

Foundation – end of year 2002; Obtaining a license for public telecommunications VSAT operator – beginning of year 2003; Carrying out of contests and selection of strategic partners – suppliers of satellite segment and terrestrial equipment – middle of year 2003; Supply and installment of managing HUB station for the VSAT network – second half of year 2003; Design, supply, installment and operation of client VSAT networks for companies from Petrol Holding Group, using capacity of the NSS-7 satellite – since first half of year 2004; Design, supply, installment and operation of client VSAT networks for clients from Bulgaria and the neighboring countries, using capacity of the NSS-7 and HellasSat-2 satellites – since second half of year 2004.

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REVIEW OF THE ACTIVITIES OF THE COMPANY 1. Market environment analysis During the second year after the accession of Bulgaria to the European Union the macroeconomic stability persists, as indicated through the following macroeconomic indicators.

Selected macroeconomic indicators

2008 2007 2006 2005 2004 2003

Exchange rate of the Bulgarian National Bank at the end of the period (BGN/USD) 1.3873 1.3312 1.4850 1.6579 1.4358 1.5485

Inflation rate on annual basis (%)

7.8 12.5 7.3 5.0 6.1 2.3

Unemployment rate (%)

5.6 7.75 9.12 10.73 12.16 13.52 In 2008, with the revoke of the Telecommunication Law in force and entering into force of the Law on Electronic Communications and its secondary normative basis, the implementation of the 2002 European Regulatory Framework has started, which had an effect over the market behaviour of the main players and resulted in consolidation and more intensive competition. On a worldwide scale, the telecommunications market volume for 2008 amounts to around USD 1,500 trillion, having an annual growth rate of around 2.4%. The telecommunications market in Bulgaria in 2008 kept a level of around BGN 3.3 billion. The basic market trends are:

Intensive competition; Annual growth rate of around 10%; Increasing significance of the broadband access.

There are two market segments with revenue growth in Bulgaria: mobile services and fixed satellite networks (for the sub-segment of TV/radio broadcasting). All the rest of segments stagnate or have registered slight decrease. It is expected that in 2008 the revenues generated from mobile services shall still be 60% from the total, while those generated from fixed satellite networks shall be over 1% of the total volume:

Fixed satellite networks** 2008 2007 2006 2005 2004 2003 2002

Share in the Bulgarian telecommunications market (%)

1.00* 1.10 0.56 0.45 0.54 0.16 0.14

* Preliminary estimation ** Inclusive of satellite broadcasting of TV and radio channels

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Market environment analysis (continued) The VSAT technologies as share of the fixed satellite networks maintain its significance on a worldwide scale, regardless of the availability of various alternative technologies. Based on data of Global VSAT Forum (www.gvf.org) and Comsys (www.comsys.co.uk), at present there are over 2 million VSAT installed worldwide, while the growth since 2005 is over 50 %. The basic growth comes from the TDMA technologies and SCPC. The necessity for usage of Ka-band has increased substantially due to the lack of a segment in the other bands. There are three types of direct competition for Transat in the country:

direct competitors possessing licenses for build-up and operation of VSAT network; direct competitors with managing stations out of Bulgaria (foreign VSAT operators, carrying out activities with the same geographical scope); sales representatives of foreign VSAT operators.

Actually there are no direct competitors of the first type operating in practice. The regulator does not report on the activities carried out by the last two groups for part of the telecommunications market in the country. The main advantage of Transat compared to its direct competitors remains the availability of managing station in the country and the possibility for connection of computers and other IP client devices located in distant sites to servers in a corporate office through only one transition via satellite. The technology based competition in the country provides for alternative data transfer to sites with the same geographical scope through technologies of other market segments, such as leased lines, mobile networks and data transfer networks using other scarce or unlimited resource. The technology based competition gives serious price advantages; still there are some unique advantages of the VSAT communications:

independence from the terrestrial infrastructure; high level of connection’s security and reliability; response to the needs of communication services of the same high quality to the entire territory of the country, including remote and hard accessible areas, etc.

The loyalty of the customers goes down at strong competition in the market. Providing discounts for certain periods based on price reductions for a term contract re-sign (up to 2 years) is the most common way to retain the customer base. The world economic crisis which started at the end of 2008 caused additional problems for the sector.

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2. Performance results In 2008 the Company reports decrease in the sales revenue amounting to BGN 58 thousand, basically due to reduced revenues from maintenance and servicing of telecommunication equipment. During the year the Company registered reduction of the operational costs of BGN 85 thousand. The reduction arises from reduced expenses on hired services, mainly expenses on the satellite segment. An increase of the remuneration expenses was registered in 2008 compared to previous years, due to the will of the company to retain its key personnel. The performance financial indicators of the Company have improved: EBITDA and EBIT rates amount respectively to BGN 1,592 thousand for 2008 compared to BGN 1,521 thousand for 2007, and to BGN 570 thousand for 2008 compared to BGN 374 thousand for 2007. Transat AD has generated net profit amounting to BGN 502 thousand for 2008 compared to BGN 374 thousand for 2007. 3. Financial position The financial position of the Company has remained stable during the year and at the end of the period. The financial indicators' analysis shows that they keep trend of improvement. The return on capital employed (ROACE) rate has increased from 11% for 2007 to 17% for 2008. The return on assets has grown up by 30%, from 10% for 2007 to 13% for 2008. The assets decrease is determined by accumulated fixed assets depreciation for the period. Debt’s reduction amounts to BGN 999 thousand. The trend to report profit at the end of the reporting period is kept, which has resulted respectively to equity increase of BGN 502 thousand. The negative value of the working capital is determined by bank loan payment due next year, while the current receivables are formed of receivables for the following month. The incoming cash flow coming from the customers is enough to eliminate the liquidity risk for the Company. All liabilities are paid in due time. A bank loan agreement was concluded in 2008 for the amount of BGN 2,100 thousand and period of 2 years through which is refinanced a loan lent by the controlling company for investment expenses. In 2008 the loan payments were made in due time, while the related liabilities as of December, 31 amount to BGN 1,313 thousand. Compared to 2007 current liabilities have been reduced to BGN 1,339 thousand. Investment expenses made in 2008 are mainly for spare components for the main station. 4. Share capital In 2008 there were no transferred or acquired shares of the Company. The Company does not possess own shares. Information about the Company’s capital is announced in Note 23 to the Annual financial statements.

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5. Human resources The strategic goals related to human resource management find expression in manifestation of organizational responsibility when achieving results and support of the management team and the employees in the accomplishment of the targeted goals and management’s priorities. These goals are reached through formation of qualified and motivated team, which is able to implement strategic and operational plans in long-term perspective and within the budget limitations of the Company. The Company has enough human resources, capable to cope with the targets assigned. Personnel development is arranged through trainings, performance-based bonus systems for remuneration, additional social benefits are also provided. The average salary in the Company is close to the average monthly remuneration for the telecommunications sector in the country. Human resources development policy follows the business goals of the Company and its needs of labour resources for their accomplishment. The personnel engaged with certain work shall be qualified based on proper education, training, skills and experience. The following activities are carried out within the implemented and certified management system of the Company:

definition of the necessary competence for carrying out the activities having impact over the product quality; relevant training is provided or other necessary actions are undertaken to satisfy the need; the efficiency of the actions undertaken is evaluated; creation of employees’ awareness for the sense and importance of their activities and understanding for their contribution to the achievement of the Company’s business goals.

Based on the above, human resources planning, analysis and planning of the positions, staff selection, personnel training and development, provision of healthy and safe labour conditions, remuneration system and motivation, attestation and personnel release are carried out. In 2008 the expenses for personnel remuneration have increased by 15%, while for 2009 their level will be kept. Efficiency calculated as ratio between annual revenue and total number of personnel of the Company is used as main indicator for the sector (IDG study, Bulgaria – Top 100), measuring the labour productivity for the services provided by the Company; the value of this indicator for 2008 reached BGN 152 thousand at BGN 204 thousand on average for the telecom operators for last year.

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5. Human resources (continued) Below are provided details about the professional biography of the Board members’ and their participation as unlimitedly liable partners in trade companies, as well as the possession of more than 25 per cent of other company’s capital, participation in the management of other companies or co-operations as procurators, managers or board members:

Ognyan Drenski – chairman of the Board of directors of Transat AD; higher education, subject: Mathematics, graduated Sofia University “Kliment Ohridski”in 1979, member of the Board and executive director of Transhold Bulgaria Holding EAD (sole owner JSC);

Miroslav Valkov – member of the Board of directors of Transat AD and technical director of Transat AD; technical higher education, graduated Technical University of Sofia in 2002, master in Telecommunications techniques and technologies; master in Business administration;

Mincho Pankov – member of the Board of directors of Transat AD and executive director of Transat AD; higher education, subject radio electronics, graduated Technical University of Sofia in 1981. From 1982 to 1988 worked for the Technical University, Sofia; from 1988 to 1998 occupied positions from programmer to deputy head of Information technologies in the Office for Information and Analytical Work of the Ministry of Interior and its former structures; from 1999 to 2000 was executive director of Teleport Bulgaria JSC; for the period 2000 – 2002 was director in Information Services JSC and OTE Consulting Ltd.

In 2008 there were no agreements concluded by the Board members or their related parties which were out of the scope of the basic activity of the Company or deviate significantly from the market conditions. The total amount of remunerations and insurance payments received by the Board members and the executive director during the year is BGN 137 thousand and has increased by BGN 1 thousand compared to the preceding year.

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6. Risk management and internal control Common risks Risks could arise from natural disasters, thunderbolts, electric shocks, thefts, vandalism, etc. – because of their impact over the availability of the basic service, special attention to their management shall be paid. They are managed through usage of appropriate insurance products. Sector risks They are related to the condition and development trends in the sector; managed through effective planning and follow-up control over the supply of goods and services. Company-specific risk It is related to the professional qualities of the Company’s management. In order to minimize it, increased efficiency of the internal planning, prognosing and follow-up control is needed. Operational risk The probability for direct or indirect losses due to inadequate functioning or stoppage of internal for the Company processes, systems or personnel. The main operational risk is relevant to:

maintenance of constant operation of the main managing (HUB) station in the VSAT network;

winning and retaining customers’ trust;

good relationships with the strategic partners (suppliers of terrestrial equipment and satellite segment);

support from the companies of Petrol Holding Group. Credit risk It is the probability for the Company not to gain income from supplied service as stipulated in the relevant contracts. The credit risk is managed through clauses providing for pre-payment of services and through concluding deals with customers having suitable credibility. Liquidity risk It is the probable inability of the Company to pay in due time and the full amount due or the complete inability to pay any financial liability. Its management is based on the fact that as part of Petrol Holding Group AD the Company can rely on financial support by the other trade companies from the Group. Currency risk It is related to the deals in foreign currency and the probable changes of the exchange rate. No derivative instruments are used. The risk is determined as insignificant and is not managed.

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6. Risk management and internal control (continued) Interest rate risk The interest rate risk, to which the company is exposed, is managed through constant monitoring and analysis of the basic interest rate exposures and through creation of various scenarios for optimization, such as re-financing, renewal of existing loans, as well as calculation of the impact of the interest rate change in certain range over the financial result. Market risk It is the probability for the Company to lose its gained market positions. The risk is managed through marketing activities for attraction of new customers and retention of the present ones.

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PROSPECTS FOR FUTURE DEVELOPMENT

The Company expects to keep the sustainable development rates also for the year 2009. It is expected that the revenues shall reach and exceed the amount of BGN 3,843 thousand, while the EBITDA rate shall reach BGN 729 thousand; reduction of the revenues up to 33% is foreseen in case of unfavorable market conditions. The capital investment planned for the next budget period includes provision of components for the main station, in case substitution or enlargement is needed

The products and services shall be further developed in order to enlarge the portfolio supplied, based on the possibilities given by the technological platforms. Activities which are similar to the Company’s basic activity shall be carried out. Analysis of the necessity for assets depreciation was done and based on it was decided that it is not needed at this time, as the free equipment after termination of lease contracts shall be used for other customers. Reconstruction regarding the activities of the Company and any additional costs arising from it are not foreseen. Self-training activities and specialized seminars and courses for further qualification of the human resources are planned.

TRANSAT AD


CORPORATE MANAGEMENT The management of the Company is carried out based on the following documentation: primary and secondary legislation in force, Company’s regulations, Board of directors’ statute, rules for internal work order, manuals for quality and processes management, orders and instructions for the relevant technological activities and tasks assigned. The quality management system of the Company is constantly being renewed and controlled periodically through supervise audits carried out by Lloyd’s Register Quality Assurance.

Independent Auditors’s Report 19

INDEPENDENT AUDITOR'S REPORT


INDEPENDENT AUDITOR'S REPORT To the shareholders of Transat JSCo

Report on the financial statements

We have audited the accompanying financial statements of Transat JSCo (the Company), which comprise balance sheet as of December, 31 2008, income statement, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. Responsibility of the management for the financial statements

The management bears responsibility for the preparation and fair presentation of these financial statements in accordance with the International Financial Reporting Standards (IFRS), as adopted by the European Commission. This responsibility covers: design, implementation and maintenance of internal control system relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error; selection and application of appropriate accounting policies; and making of accounting estimations that are reasonable under the specific circumstances. Responsibility of the auditor

Our responsibility is to express an opinion on these financial statements, based on the audit we carried out. Our audit was conducted in compliance with the provisions of the International Standards on Auditing. These standards impose observance of the ethical norms, as well as planning and conduct of the audit in such a way that allows obtaining reasonable assurance as to whether the financial statements are free of material misstatement. An audit involves performance of procedures in order to obtain audit evidence about the amounts and disclosures presented in the financial statements. The procedures selected depend on the auditor’s judgment, including assessment for risks of material misstatement in the financial statements, whether due to fraud or error. When making such risk assessments the auditor considers the internal control system relevant to the preparation and fair presentation of the Company’s financial statements in order to design audit procedures which are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control system of the Company. An audit also includes assessment of the appropriateness of accounting policies applied and the reasonableness of accounting estimates made by the management, as well as assessment of the overall presentation of the financial statements.

We believe that the audit evidence obtained by us is sufficient and appropriate to provide a basis for our audit opinion.

Qualified opinion In our opinion, the financial statements present fairly, in all material aspects, the financial position of the Company as of December, 31 2008, as well as its financial performance and cash flows for the year then ended, in accordance with IFRS, as adopted by the European Commission.


Emphasis of matter Without any reserves to our opinion, we emphasize on the following: A) As disclosed in note 17 to the accompanying financial statements as of December, 31 2008, the Company has reported non-secured loan interest receivable of the Controlling Company as of December, 31 2008, amounting to BGN 480 thousand. At the balance sheet date, the receivable amount represents significant part of the Company’s net assets, which raises concentration of credit and liquidity risk in case of fully or partially non-collectible amounts receivable. B) As disclosed in note 5 to the accompanying financial statements, around 92 per cent of the sales revenue in 2008 is generated based on agreements with three key customers. The relative share of these customers in the total revenue is respectively 56%, 29% and 7%. The agreement with the customer having greatest sales revenue share expires in 2009. At the date of financial statements’ issuance, the agreement with the third customer is in process of termination. These circumstances give rise to significant insecurity, which may provoke serious doubts regarding the viability of the Company to further operate as a going concern. Report on other legal and regulatory requirements – annual report on the activities of the Company pursuant to article 33 of the Accountancy Act

In compliance with the Accountancy Act, article 38, par.4, we have reviewed the accompanying Annual report of the Company, prepared by the Company. The annual report for the activities of the Company is not part of the financial statements. The historical financial information presented in the Annual report prepared by the management corresponds in all material aspects to the financial information containing in the financial statements of the Company as of December, 31 2008, which is prepared based on International Financial Reporting Standards, as adopted by the European Commission. The management of the Company bears the responsibility for the preparation of the Annual report for the activities of the Company dated March, 18 2009.

Deloitte Audit OOD Silvia Peneva Managing Director Registered auditor April, 14 2009 Sofia

Transat AD

Financial Statements as of December, 31 2008 22

FINANCIAL STATEMENTS

AS OF DECEMBER, 31ST, 2008

Transat AD


INCOME STATEMENT for the year ended December, 31 2008

Note No December, 31 2008

BGN thousand

December, 31 2007

BGN thousand

Sales 5 3,926 3,984 Other revenue 6 34 5

Book value of goods sold (45) (12) Material expenses 7 (132) (134) Expenses for hired services 8 (1,334) (1,533) Employee benefits expenses 9 (818) (711) Depreciation and amortization 13 (1,022) (1,007) Other expenses 10 (39) (78)

Financial income 11 27 4 Financial expenses 11 (153) (191)

Profit before tax 444 327

Tax income 12 58 47

Profit for the period 502 374

These financial statements have been approved on behalf of Transat AD by:

Mincho Pankov Ludmila Nikolova Executive director Chief Accountant

March, 20 2009

Silvia Peneva Registered auditor April, 14 2009

(The accompanying notes from page 27 to page 54 are an integral part of these financial statements)

Transat AD


BALANCE SHEET as of December, 31 2008

Note No December, 31 2008

BGN thousand

December, 31 2007

BGN thousand

Fixed assets

Tangible and intangible fixed assets 13 2,814 3,829 Long-term receivables 14 128 4 Restricted cash 15 - 98

Total fixed assets 2,942 3,931

Current assets

Inventory 16 15 26 Receivables on interest bearing loans 17 480 - Trade and other receivables, net 18 306 356 Cash and cash equivalents 19 169 240

Total current assets 970 622

Total assets 3,912 4,553

Current liabilities

Trade and other payables 20 351 437 Payables on interest bearing loans 21 1,050 2,303 Financial lease payable 22 9 9

Total current liabilities 1,410 2,749

Long-term liabilities

Interest bearing loans payable 21 263 - Financial lease payable 22 10 19 Deferred taxes 12 87 145

Total long-term liabilities 360 164

Net assets 2,142 1,640

Equity and reserves

Equity 23 1,500 1,500 Other reserves 140 85 Accumulated profit 502 55

Total equity and reserves 2,142 1,640 These financial statements have been approved on behalf of Transat AD by:

Mincho Pankov Ludmila Nikolova Executive director Chief Accountant March, 20 2009 Silvia Peneva Registered auditor April, 14 2009


Transat AD


STATEMENT OF CHANGES IN EQUITY for the year ended December, 31 2008 Equity

BGN

thousand

Other reserves

BGN thousand

Accumulated profit (loss)

BGN thousand

Total

BGN thousand

Balance at January, 1 2007 1,500 34 (268) 1,266

Profit for the period - - 374 374

Total income recognized for the period - - 374 374

Profit paid out - 51 (51) -

Balance at December, 31 2007 1,500 85 55 1,640

Profit for the period - - 502 502

Total income recognized for the period - - 502 502

Profit paid out - 55 (55) -

Balance at December, 31 2008 1,500 140 502 2,142 These financial statements have been approved on behalf of Transat AD by:

Mincho Pankov Ludmila Nikolova Executive director Chief Accountant

March, 20 2009 Silvia Peneva Registered auditor April, 14 2009


Transat AD


STATEMENT OF CASH FLOWS for the year ended December, 31 2008 December, 31

2008 BGN thousand

December, 31 2007

BGN thousand (recalculated)

Cash flows from operating activities

Cash flows from contractors 4,550 4,779 Payments to contractors (1,503) (1,886) Payments to employees (857) (635) Value added tax paid (660) (628) Restricted cash released - 211

Net cash flows from operating activities 1,530 1,841

Cash flow from investment

Purchase of fixed assets (77) (70) Interest bearing loans granted (480) - Interest rates received 20 4

Net cash flows from investment (537) (66)

Cash flows from financing activities

Interest bearing loans received 2,100 - Interest bearing loans granted (3,090) (1,492) Interest rates and commissions paid off (164) (181) Financial lease payments (9) -

Net cash flows from financing activities (1,163) (1,673)

Net increase (decrease) of cash and cash equivalents during the period

(170)

102

Cash and cash equivalents at the beginning of the period 240 141

Exchange rate changes 1 (3)

Cash and cash equivalents at the end of the period (see also note 19)

71

240

These financial statements have been approved on behalf of Transat AD by:

Mincho Pankov Ludmila Nikolova Executive director Chief Accountant March, 20 2009

Silvia Peneva Registered auditor April, 14 2009


Transat AD NOTES TO THE FINANCIAL STATEMENTS for the year ended December, 31 2008

Notes to the Financial Statements as of December, 31 2008 27

NOTES TO THE FINANCIAL STATEMENTS AS OF DECEMBER, 31 2008



1. Legal status Transat AD (JSC) (the Company) is registered by Sofia City Court in the year 2000. Both the seat and registered office of the Company are at the following address: Sofia, Trakia high-way, 1st kilometer. Shareholders in the Company are Transhold Bulgaria Holding EAD (sole owner JSC) and a physical person (see also note 23). The basic activity of the Company is construction, maintenance and operation of satellite telecommunication networks and provision of services through them on the territory of the country and abroad. In order to carry out its basic activity, the Company has obtained individual authorizations issued by thе Communications Regulation Commission, as follows: No 00580 of 17.06.2008, No 00581 of 17.06.2008 and No 00358 of 03.06.2008. In 2005 the Company was certified by Lloyd’s Register Quality Assurance for compliance with the quality management standards ISO 9001:2000, EN ISO 9001:2000, BS EN ISO 9001:2000. In the beginning of 2009 the Company was certified again in compliance with the new 2008 version of the standard. The financial statements are approved for issuance by the Board of directors on March, 20 2009. 2. Basis for preparation of the financial statements and accounting principles 2.1. General principles The Company has prepared and presented its financial statements in accordance with the International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB), as well as their interpretations issued by the IFRS Interpretation Committee (IFRIC), adopted by the European Commission (the Commission) and applicable in Republic of Bulgaria. IFRS adopted by the Commission do not differ from the standards issued by IASB in force for the annual periods ended until December, 31 2008, excluding some requirements regarding hedge accounting in compliance with International Accounting Standard (IAS) 39 Financial Instruments: Recognition and Measurement, which were not adopted by the Commission. The management is of the opinion that if the hedge accounting requirements were adopted by the Commission, it would not have any effect over the present financial statements. In 2008 the Company has adopted all new and amended standards of IASB, as approved by the Commission, in force for the year 2008 and applicable for its activity. Namely, these are the amendments to IAS 39 Financial Instruments: Recognition and Measurement and to IFRS 7 Financial Instruments: Disclosures (in force as of July, 1 2008) regarding reclassification of financial assets. The implementation of these amendments and interpretations would not lead to any changes in the accounting policy of the Company. The financial statements are prepared following the principle of historical cost. At the date of preparation of the present financial statements, the management has made an evaluation for the potential of the Company to continue operating as a going concern. In order to make the evaluation, all available information about the foreseeable future, which is at least, but not limited to twelve months since the balance sheet date, was taken into account (see note 5).



2.2. Functional currency and currency for presentation of the financial statements Functional currency is the monetary unit of account of the principal economic environment in which an economic entity operates and in which an entity primarily generates and expends cash. It measures the main transactions, events and circumstances of significance for the entity. The monetary unit used by the Company for accounting and financial reporting is the national currency of Republic of Bulgaria – Bulgarian lev (BGN), this is the functional currency adopted by the Company. The present financial statements are prepared in BGN thousand. 2.3. Foreign currency Foreign currency transactions are reported initially with the amount in foreign currency recalculated by the central exchange rate of Bulgarian National Bank (BNB) at the transaction date. Exchange rate differences arising upon settlement of foreign currency positions or reporting of these positions using exchange rates which are different from the one used when they were initially recognized, are recognized in the Income statement for the relevant period. Monetary positions denominated in foreign currency as of December, 31 2008 and December, 31 2007 are reported at the closing exchange rate of BNB. The closing exchange rates of BGN to USD for the periods relevant to the present financial statements are, as follows: December, 31 2008: 1 USD = 1.38731 BGN December, 31 2007: 1 USD = 1.33122 BGN 2.4. Accounting estimates and reasonable assumptions The IFRS implementation in the preparation of the financial statements requires from the management to make some accounting estimates and assumptions in measuring the value of certain assets, liabilities, income and expenses. These estimates and assumptions are made based on the best possible assessment done by the management, historical experience and analysis of all factors having influence under certain circumstances as of the date of the financial statements’ preparation. The real values may differ from those reported in the present financial statements. 2.5. Changes in accounting policy

The company changes its accounting policy only if the change is imposed by a certain Standard or Interpretation, or, if it would enable provision of reliable or more appropriate information regarding the operations’ effect, other events or circumstances having impact over the financial position, results or cash flows. A change in the accounting policy arising from initial implementation of a new standard or interpretation takes effect in compliance with the final and transitional provisions of the relevant standard or interpretation. When there are no changes or changes are applied voluntarily, they take effect retrospectively through adjustments of the starting balance of each affected capital element or other comparative amounts, while it is presumed that the newly adopted policy has always been applied. For the current year the Company has adopted policy of reporting payments and proceeds regarding loans granted or received as net overdraft amounts in the Statement of cash flows. The change has been made retrospectively; therefore, the comparative information presented in these financial statements contains recalculated values.



3. Definition and assessment of the balance sheet and income statement elements 3.1. Tangible and intangible fixed assets Tangible and intangible fixed assets are recognized initially at their cost, inclusive of purchase price, import duties and non-recoverable taxes, as well as all direct costs attributable to installing the asset and arranging the place for its usage, as intended by the management. After their initial recognition tangible and intangible fixed assets are reported at their cost less accumulated depreciation and possible impairment losses (see also note 3.2). When the tangible fixed assets contain substantial components with different useful life length, these components are reported separately. Additional costs, including those incurred due to replacement of an asset component, are capitalized in the asset value only if they meet the criteria for recognition of fixed assets. The book value of replaced components is written off in compliance with the provisions of IAS 16 Property, Plant and Equipment. All other following costs shall be recognized on a current basis during the period when they are incurred. Depreciation is calculated based on the estimated useful life, through consecutive application of the straight-line method. Depreciation is reported in the Income statement for the current period. The assets’ useful life is determined, as follows: Useful life 2008 2007

Plant and equipment 2–25 years 2–25 yearsMotor vehicles 4 years 4 yearsOffice equipment 6 years 6 yearsIntangible fixed assets 4-10 years 4-10 years Depreciation is calculated for the period from the beginning of the month following the month when the assets is available for usage, to the earlier of the date of its classification as held for sale in compliance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations and its write-off date. Land, expenses on acquisition of fixed assets and fully depreciated assets are not depreciated. 3.2. Impairment of tangible and intangible fixed assets At the date of financial statements preparation the management of the Company makes an assessment if there are any indications for impairment of tangible and intangible fixed assets. In case of such indications, approximate estimation is made to determine the recoverable value of the assets. When it is not possible to calculate the recoverable value of the asset itself, the Company approximates the recoverable value for the cash flow generating unit to which the asset belongs.



3.2. Impairment of tangible and intangible fixed assets (continued) Recoverable value is the higher value of fair value less costs to sell the asset and value in use. When the recoverable value of an asset (or cash-generating unit) is lower than its book value, the latter is decreased to the amount of recoverable value. Impairment loss is recognized as an expense in the Income statement, unless it is a revaluated asset. In this case impairment loss is recognized as revaluation reserve deduction. If the impairment loss is recovered, the carrying amount of the asset (or cash-generating unit) is increased up to its recalculated recoverable value. This increase shall not lead to carrying amount higher compared to the amount that would be calculated in previous periods when impairment loss for the asset has not been recognized. Recoverable amount related to impairment loss is recognized immediately as income in the Income statement. 3.3. Materials and supplies Materials and supplies are presented at the lower value of acquisition cost and net realisable value. Acquisition price covers purchase price, cost of transportation, import and excise duties, etc. Net realisable value is the estimated selling price, less estimated costs necessary to make the sale.

Materials and supplies are expensed when utilized using their weighted-average value. 3.4. Financial instruments Financial instrument is every contract that gives rise to a financial asset for one entity, as well as a financial liability or equity instrument of another entity. An entity shall recognise a financial asset or a financial liability in its statement of financial position when, and only when, the entity becomes a party to the contractual provisions of the instrument. An entity shall derecognise a financial asset when the contractual rights to the cash flows from the financial asset expire; or it transfers the financial asset and the transfer qualifies for derecognition in accordance with IAS 39: Financial Instruments: Recognition and Measurement. A financial liability is removed from the balance sheet when, and only when, it is extinguished—ie when the obligation specified in the contract is discharged or cancelled or expires. At their initial recognition financial assets (liabilities) are evaluated at fair value plus all transaction costs directly attributable to the acquisition or issue of the financial assets (liability), unless the financial asset (liability) is recognized at fair value in the Income statement.



3.4. Financial instruments (continued) For the purpose of measuring a financial asset after initial recognition, IAS 39: Financial Instruments: Recognition and Measurement classifies financial assets and liabilities into the following categories: loans and receivables and financial liabilities at depreciated value. Classification in a certain category depends on the purpose and duration of a certain contract. The Company does not apply this assets and liabilities classification for the purposes of their recognition in the balance sheet. Information about the relevant categories of financial instruments is presented in note 24. 3.4.1. Loans and receivables Loans and receivables are any non-derivative financial assets with fixed or determinable payments, which are not quoted in an active market. Assets of this category are presented in the balance sheet of the Company as trade and other receivables and cash/cash equivalents. Trade and other receivables After initial recognition trade receivables are valued at depreciated value calculated based on the effective interest method, less possible impairment loss. Current receivables are not depreciated. Impairment loss is incurred in case of objective evidence for significant financial difficulties for the debtor, certain probability for the debtor to go into liquidation, etc. (see also note 3.4.2). Cash and cash equivalents For the purposes for Income statement preparation, cash and cash equivalents comprise cash in hand and cash in banks, excluding restricted cash, for which the Company has no rights of use or order (see also notes 15 and 19). When the period for which the Company does not have rights of use or to order exceeds twelve months after the balance sheet date, restricted cash is recognized as fixed assets in the Balance sheet of the Company. 3.4.2. Impairment of financial assets At the date of financial statements preparation the management of the Company makes an assessment if there are any indications for impairment of all financial assets. A financial asset is impaired only in case of objective evidence that the expected cash flows shall decrease as a result of one or more events that occurred after the initial recognition of the asset. In case of such indications for the assets reported at fair value, impairment loss is calculated as difference between the book value and the present value of expected future cash flows discounted with current market interest rate for similar assets. Impairment loss for loans and receivables reported at depreciated value is calculated as difference between the book value and the present value of expected future cash flows discounted with the initial effective interest rate. Impairment loss is recognized in the Income statement. It is recovered if the subsequent increase of the recoverable value can be objectively bound to an event that occurred after the date of impairment recognition.



3.4.3. Financial liabilities carried at amortised cost After their initial recognition the Company recognizes all financial liabilities at amortised cost, excluding financial liabilities carried at fair value in the Income statement; financial liabilities incurred when the transfer of an asset does not meet the write-off requirements; contracts for financial guarantee, engagements for grant of a loan with interest rate lower than the market interest rate. These liabilities are reported in the balance sheet of the Company as trade and other receivables and receivables on interest bearing loans. Trade and other payables Trade and other payables arise from supplied good and services. Current payables are not depreciated. Payables on interest bearing loans Interest bearing loans are initially recognized at fair value formed from the generated revenues, less costs directly attributable to the transaction. After their initial recognition, interest bearing loans are carried at amortised cost, while any difference between the initial value and the maturity value is reported in the Income statement for the period relevant to the loan utilization, based on the effective interest method. Interest bearing loans received, for which transaction costs have incurred, are not amortised. Bank overdrafts received, with an option for repeated loan assimilation or pay-off within certain contractual amount, are treated in the same way. Financial expenses, including direct cost incurred for land acquisition, are reported in the Income statement using the effective interest method, excluding transaction costs for bank operations, which are recognized in the Income statement for the relevant period. Interest bearing loans are classified as short-term in case they shall be settled within twelve months after the balance sheet date. 3.4.4. Equity

The equity of the company is recorded at historical cost at the date of its registration.

3.5. Deferred income and expenses Deferred income and expenses in the balance sheet of the Company are income and expenses pre-paid during the present period, which refer to next accounting periods, such as guarantees, insurance payments, subscriptions, rentals, etc.



3.6. Income tax Income tax includes current tax over profit and deferred taxes. Current tax is calculated based on the taxable (tax) profit for the period through application of the effective tax rate in compliance with the tax legislation effective at the financial statements’ date. Deferred taxes are tax amounts (recoverable) due over deferred profit and relevant to taxable temporary differences (deductible). Temporary differences are differences between the carrying amount of an asset or liability in the statement of financial position and its tax base. Deferred profit tax is calculated based on the passive balance sheet method. Deferred tax liabilities are calculated for all taxable temporary differences, while deferred tax assets for deductible temporary differences are recognized, only if they will probably be reversed in a subsequent period, and if the Company will be able to generate enough profit in the future, therefore, their deduction would be possible. Deferred tax assets and liabilities are calculated based on the putative tax rate for the period when they will be realized or paid off, in accordance with the information available for the Company at the moment when the financial statements are prepared. Deferred taxes are recognized in the Income statement, unless they are incurred with regard to a balance sheet item, which is reported directly as equity of the Company. In this case deferred tax amount is carried immediately as equity and is not reported in the Income statement. Deferred tax assets and liabilities are carried at net values, if they are subject to common regime of taxation. In accordance with the 2007 and 2008 tax legislation in force, the tax rate applied for calculation of the tax liabilities of the Company is 10%. Tax rate of 10% is used also for the calculation of deferred tax assets and liabilities as of December, 31 2007 and 2008. 3.7. Recognition of income and expenses 3.7.1. Sales of goods and services, other revenue Income and expenses are recognized in the same period when they arise, regardless of the moment of proceeds’ receipts or payments. They are reported in compliance with the matching concept. Income is recognized at fair value of received or due revenue, less provided discounts and inclusive of gross economic benefit flows received from or payable by the Company. Amounts collected on behalf of third parties, such as sales taxes, for example value added tax, are excluded from the income.



3.7.1. Sales of goods and services, other revenue (continued) Revenue from the sale of goods should be recognised when all the following conditions have been satisfied:

the enterprise has transferred to the buyer the significant risks and rewards of ownership of the goods;

the enterprise retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

it is probable that the economic benefits associated with the transaction will flow to the enterprise;

both the amounts of revenue and costs incurred or to be incurred in respect of the transaction can be measured reliably.

When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction should be recognised by reference to the stage of completion of the transaction at the balance sheet date. When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue should be recognised only to the extent of the expenses recognised that are recoverable. Profit (loss) from sale of tangible and intangible fixed assets and materials is recognized as other income (expenses). When economic benefits are expected to arise within a couple of financial periods and their relation to the revenues may be defined only in general or indirectly, expenses are recognized in the Income statement based on procedures for systematic and rational distribution. In case of exchange of assets, income (expense) from the exchange transaction is recognized at the difference of the fair values of the received and the exchanged asset. 3.7.2. Financial income and expenses Revenue from and expenses on interest rate payments are carried in the Income statement for all instruments, valued at amortised cost through application of the effective interest method. The effective interest method is method for calculation of the depreciated value of a financial asset or liability and for distribution of the income from or expense on interest rate payments for the same period. The effective interest rate is the one used to discount expected future payments or proceeds during the financial instrument’s life, or, in certain cases for a shorter period, it is applied to the net carried value of a financial assets or liability. In order to calculate the effective interest rate, the Company evaluates the cash flows, taking into account all contractual conditions of the financial instrument, excluding any potential future credit impairment losses. The calculation comprises fees, transaction costs, bonuses or discounts paid or received between the parties of the contract, as they are inseparable part of the effective exchange rate.



3.8. Lease 3.8.1. Financial lease Financial lease is a lease agreement which transfers all significant risks and rewards arising from ownership of an asset. Assets acquired through financial lease are recognized at the lower value of their fair value at the date of acquisition and the present value of the minimum lease payments. The direct costs initially incurred for the lessee are included in the asset’s value. The arising obligation to the lessor is reported in the Balance sheet of the Company as financial lease liability. Lease payments are interest and principal payments resulting in a constant interest rate over the residual value of the lease payable. The financial lease gives rise to depreciation expenses for the depreciable assets, as well as financial expenses for each accounting period. The depreciation policy regarding the depreciable net assets is in compliance with the policy regarding the own depreciable assets. In order to present the financial instruments by categories in accordance with IAS 39: Financial Instrument: Recognition and Measurement, the financial lease payables are classified in the category of financial liabilities at amortised cost. 3.8.2. Operating lease Expenses on net assets arising from operating lease agreements shall be recognized in the Income statement on lineal basis for the term of the lease agreement.



4. IFRS amendments The International Financial Reporting Standards, amendments to IFRS and their interpretations indicated below are adopted by the International Accounting Standards Board and the IFRS Interpretation Committee at the date of financial statements’ approval for issuance, but enter into force for annual periods beginning on or after July, 1 2008. 4.1. Standards and interpretations approved by the Commission at the financial statements date Standard or interpretation, date of entering into force

Name of standard or interpretation

Amendment to IFRS 1, applicable for annual periods beginning on or after January, 1 2009

First-time Adoption of International Financial Reporting Standards

Amendment to IFRS 2, applicable for annual periods beginning on or after January, 1 2009

Share-based Payment: Vesting conditions and cancellations

IFRS 8, applicable for annual periods beginning on or after January, 1 2009

Operating Segments

IFRIC Interpretation 13, applicable for annual periods beginning on or after July, 1 2008

Customer Loyalty Programmes

IAS 1 (amended), applicable for annual periods beginning on or after January, 1 2009

Presentation of Financial Statements

IAS 23 (amended), applicable for annual periods beginning on or after January, 1 2009

Borrowing costs

Amendment to IAS 27, applicable for annual periods beginning on or after January, 1 2009

Consolidated and Separate Financial Statements

Amendment to IAS 32, applicable for annual periods beginning on or after January, 1 2009

Financial Instruments: Presentation

Improvements to IFRS 2008, applicable for annual periods beginning on or after January, 1 2009

In regard to interpretations, presentation, recognition or principles of measurement stated in IFRS 5 and 7, and IAS 1, 7, 16, 19, 20, 23, 27, 28, 29, 31, 32, 36, 38, 39, 40, 41.



4.2. Standards and interpretations, not approved by the Commission at the financial

statements date Standard or interpretation, date of entering into force

Name of standard or interpretation

IFRS 1 (amended), applicable for annual periods beginning on or after July, 1 2009

First-time Adoption of International Financial Reporting Standards

IFRS 3 (amended), together with all relevant amendments to IAS 27, IAS 28 and IAS 31, applicable for annual periods beginning on or after July, 1 2009

Business Combinations

Amendments to IFRS 7, applicable for annual periods beginning on or after January, 1 2009

Financial Instruments: Disclosure

IFRIC Interpretation 12, applicable for annual periods beginning on or after January, 1 2008

Service Concession Arrangements

IFRIC Interpretation 15, applicable for annual periods beginning on or after January, 1 2009

Agreements for the Construction of Real Estate

IFRIC Interpretation 16, applicable for annual periods beginning on or after October, 1 2008

Hedges of a Net Investment in a Foreign Operation


Distributions of Non-cash assets to owners


Transfers of Assets from Customers

Amendment to IAS 39, applicable for annual periods beginning on or after July, 1 2008

Financial Instruments: Recognition and Measurement, regarding reclassifications of assets, effective date of application and transitional provisions

Amendment to IAS 39, applicable for annual periods beginning on or after July, 1 2009

Financial Instruments: Recognition and Measurement, regarding eligible hedged items

Most of the standards and interpretations indicated above are not applicable to the activities of the Company; therefore, they will not have any impact over the financial statements. The annex to the Amendment of IAS 1 Presentation of Financial Statements shall lead to changes in the names and presentation of the financial statements – mainly regarding the Income statement and the Statement of changes in equity. The implementation of the Amendment to IAS 23 Borrowing costs shall have an impact over the recognition of expenses on interest payments, as the costs directly attributable to acquisition or construction of an assets shall be capitalized in its value.



5. Sales revenue

December, 31 2008

BGN thousand

December, 31 2007

BGN thousand

Sale of services 3,853 3,964 Sale of goods 73 20

Total 3,926 3,984 Sale of services include, as follows:

December, 31 2008

BGN thousand

December, 31 2007

BGN thousand

Revenues from telecommunications services 2,269 2,302 Revenues from rental of telecommunications equipment 1,277 1,267 Revenues from maintenance and servicing 190 292 Other revenue 117 103

Total 3,853 3,964 Around 92% of the sales revenue arises from agreements with three key customers. The relative share of these customers in the total revenue is respectively 56%, 29% and 7%. The agreement with the customer having greatest sales revenue share expires in 2009. At the date of financial statements’ issuance, the agreement with the third customer is in process of termination. In addition, the second customer has confirmed to the management that the volume of services used by it shall be maintained in 2009. Despite of the circumstances indicated above, in order to keep the revenue level in 2009, the management of the Company plans to attract new big customers, as well as to conclude agreements with other smaller customers. The Company is also able to decrease its expenses for 2009, if needed. In addition, the management of the Company relies on financial support by the Controlling Company. As a result, the management is of the opinion that the principle of going concern is applicable to the preparation of the present financial statements. 6. Other revenue Other revenue covers revenues from penalties and insurance payments.



7. Material expenses December, 31

2008 BGN thousand

December, 31 2007

BGN thousand

Electricity and heating 40 37 Oil and lubricants 25 22 Spare parts 21 35 Office consumables 12 6 Advertising materials 12 10 Work clothing 2 2 Other 20 22

Total 132 134 8. Expenses for hired services December, 31

2008 BGN thousand

December, 31 2007

BGN thousand

Satellite segment and internet connection 800 951 Repairs and maintenance 186 182 Rentals 91 81 Consultations and training 80 55 Security services 52 48 Communications 50 86 Insurance 21 17 Advertising 2 10 Other 52 103

Total 1,334 1,533



9. Employee benefits expenses December, 31

2008 BGN thousand

December, 31 2007

BGN thousand

Wages and salaries 715 627 Social insurance and social security payables 103 84

Total 818 711 10. Other expenses December, 31

2008 BGN thousand

December, 31 2007

BGN thousand

Expenses on fees payable for authorizations for use of individually assigned scarce resource 13 16 Entertainment allowance 12 24 Business trips 10 27 Obsolete assets, theft and other losses of assets - 7 Taxes over expenses 2 3 Other 2 1

Total 39 78

11. Financial income and expenses December, 31

2008 BGN thousand

December, 31 2007

BGN thousand

Financial income

Loans interest receivables 23 - Other interest receivables 3 4 Other 1 -

Total 27 4

Financial expenses

Bank loans interest payables (91) - Trade loans interest payables (46) (173) Financial lease interest payables (1) - Negative exchange rate differences, net (3) (11) Bank fees, commissions and other financial expenses (12) (7)

Total (153) (191)

Financial income (expenses), net (126) (187)



12. Taxation Tax income in the Income statement covers the amount of current profit tax expenses and deferred profit tax expense, in accordance with IAS 12 Income Taxes. December, 31

2008 BGN thousand

December, 31 2007

BGN thousand

Current tax expense - -

Changes in the value of deferred tax, including (58) (47) Tax differences recognized during the year (8) 1 Tax differences incurred during the year 66 - Corrections of temporary errors - (48)

Total tax income in the Income statement (58) (47) Comparison between profit before tax and tax income amounts, as well as calculations of the effective tax rate as of December, 31 2008 and December, 31 2007 are presented in the table below:

December, 31 2008

BGN thousand

December, 31 2007

BGN thousand

Profit before tax 444 327 Applicable tax rate 10% 10% Profit tax expense at the applicable tax rate 44 33

Tax effect from permanent differences (2) 1 Tax effect from tax assets accrued, but not recognized during the current period (100) (81)

Tax income (58) (47)

Effective tax rate - -



12. Taxation (continued) Deferred tax liability presented in the Balance sheet occurred as a result from accrued profit tax payables over deductive (taxable) temporary differences, having effect, as follows:

December, 31 2008 December, 31 2007 Temporary

difference Tax effect Temporary

difference Tax effect

BGN thousand BGN thousand

BGN thousand BGN thousand

Balance at the beginning of the period

Fixed assets (1,537) (154) (1,936) (194) Accrued leave non-used, pension payables, wages and salaries payable to physical persons 80 8 6 1 Impairment of assets 8 1 8 1

Total (1,449) (145) (1,922) (192)

Occurred during the period

Fixed assets 621 62 400 40 Accrued leave non-used, pension payables, wages and salaries payable to physical persons 43 4 80 8

Total 664 66 480 48

Recognized for the period

Fixed assets (1) - Accrued leave non-used, pension payables, wages and salaries payable to physical persons (80) (8) (6) (1)

Total (80) (8) (7) (1)

Balance at the end of the period

Fixed assets (916) (92) (1,537) (154) Accrued leave non-used, pension payables, wages and salaries payable to physical persons 43 4 80 8 Impairment of assets 8 1 8 1

Total (865) (87) (1,449) (145) At December, 31 2008 the management of the Company analyzes the recoverability of deductive tax temporary differences forming tax assets. As a result, the Company concludes that it will probably generate enough taxable profit in the new future, which would allow their deduction. Therefore, the Company does not recognize any tax assets over the tax loss to be transferred from previous accounting periods. The Company has transferred in the present period loss amounting to BGN 996 thousand and is allowed to transfer the rest amount of BGN 224 thousand until 2011.



13. Tangible and intangible fixed assets

Plant and equipment

BGN thousand

Motor vehicles

BGN thousand

Other tangible

fixed assets

BGN thousand

Expenses on

acquisition of tangible

fixed assets BGN

thousand

Intangible fixed

assets

BGN thousand

Total

BGN thousand

Carrying amount

Balance at January, 1 2007 6,591 - 137 166 20 6,914

Acquired 7 30 1 89 - 127 Transfers 118 - - (118) - - Disposals (24) - (5) (50) - (79)

Balance at December, 31 2007 6,692 30 133 87 20 6,962

Acquired 34 - - 40 3 77 Transfers 6 - - (6) - - Disposals (5) - - (67) - (72)

Balance at December, 31 2008 6,727 30 133 54 23 6,967

Accumulated depreciation

Balance at January, 1 2007 2,076 - 56 - 13 2,145

Accrued 981 - 22 - 4 1,007 Write-offs during the period (15) - (4) - - (19)

Balance at December, 31 2007 3,042 - 74 - 17 3,133

Accrued 992 7 21 - 2 1,022 Write-offs during the period (2) - - - - (2)

Balance at December, 31 2008 4,032 7 95 - 19 4,153

Book value as of January, 1 2007 4,515 - 81 166 7 4,769

Book value as of December, 31 2007 3,650 30 59 87

3 3,829

Book value as of December, 31 2008 2,695 23 38 54

4 2,814

The costs for acquisition of tangible fixed assets refer to telecommunication equipment for provision of telecommunication services to the customers. At the balance sheet date, the Company is not informed whether this equipment will be rented or sold to third parties. 14. Long-term receivables The greater part of long-term receivables comes from pre-paid satellite segment relevant to the last two months of the contract period.



15. Restricted cash As of December, 31 2008 restricted cash amount of BGN 98 thousand is recognized as current asset and represents monetary guarantee granted in favour of a customer regarding the implementation of a long-term contract concluded for data transfer service provision. As the contract expires in 2009, the restricted cash amount as of December 31, 2008 is shown as current asset (see also note 19). 16. Inventory Inventory available as of December, 31 2008 and December, 31 2007 include materials needed to put the telecommunication equipment into operation. 17. Receivables on interest bearing loans Receivables on interest bearing loans represent non-secured financial resource amounting to BGN 480 thousand granted by the Controlling Company. At the balance sheet date, the receivable amount represents significant part of the Company’s net assets, which raises concentration of credit and liquidity risk. The management of the Company founds itself able to manage this risk. Receivables from related parties are disclosed in note 25. 18. Trade and other receivables, net December, 31

2008 BGN thousand

December, 31 2007

BGN thousand

Deferred expenses 167 174 Receivables from related parties 98 31 Receivables from customers, net, inclusive of: 41 10

Initial amount 49 18 Accrued impairment (8) (8)

Deposit guarantee - 133 Other - 8

Total 306 356 Receivables from related parties are disclosed in note 25. As of December 31, 2008 overdue but not impaired receivables amount to BGN 139 thousand (in 2007: BGN 40 thousand). The overdue period for receivables from customers of the Company as of December, 31 2008 and December, 31 2007 is 30 days after the date of payment. The Company has not secured such receivables as there was no significant change in the contractors’ creditability and these amounts are still considered recoverable. The management of the Company is of the opinion that the values at which trade and other receivables are carried in the balance sheet correspond to their fair value as of December, 31 2008 and December, 31 2007.



18. Trade and other receivables, net (continued) The management of the Company considers the overdue receivables as recoverable: at the date when these financial statements were approved for issuance around 71% of them have been paid off. 19. Cash and cash equivalents December, 31

2008 BGN thousand

December, 31 2007

BGN thousand

Cash in banks 67 236 Cash in hand 4 4

Cash and cash equivalents in the Statement of cash flows 71 240

Restricted cash (see also note 15) 98 -

Cash and cash equivalents in the Balance sheet 169 240 20. Trade and other payables December, 31

2008 BGN thousand

December, 31 2007

BGN thousand

Deferred income 122 133 Liabilities to suppliers 103 132 Tax payables 55 50

Value added tax 53 50 Other taxes 2 -

Wages and salaries payable, social security payable 39 81 Liabilities to related parties 32 41

Total 351 437 Liabilities to related parties are disclosed in note 25. The company accrues provision for unused paid leave of employees in compliance with IAS 19 Employee benefits. The movement of these provisions for the period is, as follows: December, 31

2008 BGN thousand

December, 31 2007

BGN thousand

Balance at the beginning of the period 6 6 Accrued during the period 16 6 Utilized during the period (6) (6)

Balance at the end of the period, inclusive of 16 6 Paid leave 14 5 Social security contributions 2 1



20. Trade and other payables (continued) Balance at the end of the period is presented in the Balance sheet together with the current payables to personnel. The management of the Company believes that the carrying amount of the current payables presented in the Balance sheet corresponds to their fair value. 21. Interest bearing loans payable December, 31

2008 BGN thousand

December, 31 2007

BGN thousand

Long-term payables

Bank loans 263 -

Total 263 -

Current payables

Bank loans 1,050 - Trade loans granted by related parties - 2,303

Total 1,050 2,303

Total interest bearing loans payable 1,313 2,303

The effective interest rate on bank and trade loans for 2007 and 2008 ranges between 5.046 % and 8.85 %. Additional information about the interest rate risk, currency risk and liquidity risk to which the interest bearing loans granted to the Company are exposed, is presented in note 24. The Company holds as collateral tangible fixed assets amounting to BGN 2,787 thousand to secure the short-term and long-term loans granted to the Company.



22. Amounts payable under finance lease Minimum lease payments Present value of minimum

payments December 31

2008 BGN thousand

December 31 2007

BGN thousand

December 31 2008

BGN thousand

December 31 2007

BGN thousand

Amounts payable under finance lease

Within one year 9 9 9 9 Within one - two years 11 - 10 - Within three - five years - 23 - 19

Less: Interest payable (1) (4) - -

Present value of amounts payable under finance lease 19 28 19 28

Less: Present value of amounts payable under finance lease within one year 9 (9)

Present value of amounts payable under finance lease over one year 10 19 The assets acquired by the Company under finance lease are mainly motor vehicles. The average lease period is 3 years. As of December, 31 2008 the average effective interest rate for the finance lease contracts is 6.96%. The management of the Company believes that the fair value of the finance lease liabilities does not deviate significantly from their current value. 23. Equity Equity is presented at its nominal value in compliance with the court decision for registration. The fully paid-in share capital at the amount of BGN 1,500 thousand is distributed into 1,500 registered shares by name, each of BGN 1,000 nominal value. At the date of these financial statements, shareholders in the Company are, as follows: Shareholder December, 31

2008 Capital share

December, 31 2007

Capital share

Transhold Bulgaria Holding EAD 98 % 98 % Mincho Pankov Pankov 2 % 2 % 100 % 100 % According to decision of the General meeting of shareholders held on May, 26 2008, the 2007 net profit amounting to BGN 374 thousand was distributed, as follows: BGN 319 thousand covered loss from previous periods and the amount of BGN 55 thousand was transferred to reserve funds.



24. Financial instruments and risk management Carrying amounts of assets and liabilities as December, 31 2008 and December, 31 2007 in compliance with the categories defined in IAS 39 Financial Instruments; recognition and measurement are presented in the following tables: Financial assets Loans and receivables

Note December 31 2008

BGN thousand

December 31 2007

BGN thousand

Receivables on interest bearing loans granted 17 480 - Trade and other receivables, net 18 139 45 Cash and cash equivalents 19 169 338

Total 788 383 Financial liabilities at amortised cost

Note December 31 2008

BGN thousand

December 31 2007

BGN thousand

Trade and other payables 20 135 173 Payables on interest bearing loans received 21 1,313 2,303 Amounts payable under finance lease 22 19 28

Total 1,467 2,504 The Company believes that the carrying amounts of financial liabilities do not deviate significantly from their fair value at the date of financial statements’ approval. The use of financial instrument exposes the Company to market risk, credit risk and liquidity risk. The current note present information about the goals, policies and processes related to management of these risks, as well as equity management. The strategic references for financial risks management are set by the Board of directors of the Company, while the operating performance of the adopted policies and the implementation of processes related to risk management are carried out by the executive director. Market risk

Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes of market prices and may occur as currency risk, interest rate risk or other price risk. Because of the nature of the activities carried out by the Company, it is exposed only to currency risk and interest rate risk.

Currency risk

The Company carries out transactions in currency different from its functional currency; therefore, it is exposed to risk related to possible changes of the exchange rates. Such a risk may arise basically due to changes in the US dollar exchange rate as the Company makes purchases in US dollars. The transactions carried out in Euro do not expose the Company to any currency risk as since January 1, 1999 the Bulgarian lev is fixed to the Euro.



24. Financial instruments and risk management (continued) Financial assets and liabilities denominated in US dollars are presented in the table below:

December, 31 2008 December, 31 2007

USD thousand BGN thousand

USD thousand

BGN thousand

Trade and other receivables, net 89 124 100 133

Total financial assets 89 124 100 133

Trade and other payables (45) (62) (50) (67)

Total financial liabilities (45) (62) (50) (67) The analysis for sensitivity to the currency risk is carried out at a 12%-change of the exchange rate US dollar to Bulgarian lev. The management considers it as a reasonably possible change based on the statistical data analysis of the exchange rate fluctuations for the last year on a daily diversion, calculated for 250 working days. If as of December 2008 the US dollar went up/down by 12% change to the Bulgarian lev, all other risk variables being equal, the profit after tax would grow up/down by BGN 7 thousand, mainly due to exchange rate differences from revaluated US dollar amounts of trade receivables and payables.

Interest rate risk The company is exposed to interest rate risk as the loan received bears changing interest rate contracted at the interest rate of the serving bank plus mark-up, but not less than the rate stipulated in the credit amount agreement. The Company is carrying out constant monitoring and analysis of its basic interest rate exposures and creates various scenarios for optimization, such as re-financing, renewal of existing loans and calculates the impact of the interest rate change in certain range over the financial result. The analysis for sensitivity to the interest rate risk is prepared based on the assumption that the interest rate positions of variable interest rates at the balance sheet date have been constant in amount for the whole year and the reasonably possible increase/decrease of the exchange rate is 0.3 basic points. If the interest rates were higher/lower to 0.3 basic points, all other variables being constant, the profit after tax would grow/decrease by BGN 4 thousand. The sensitivity of the Company to the interest rate risk has become weaker during the current period, mainly due to decrease in the amounts payable on bank loans contracted at variable interest rates.



24. Financial instruments and risk management (continued) Credit risk Credit risk is the risk that one of the parties to a financial instrument will cause loss to the other party by failing to meet its obligation. Financial assets which potentially expose the Company to credit risk are mainly receivables from sales and interest bearing loans granted. As a whole, the Company is exposed to credit risk if the customers fail to meet their payment obligations. The applicable policy of the Company aims at making sales of goods and services to customers having suitable credibility. The credibility of the customers is evaluated based on their financial position, experience and other factors. More than 98% of the sales realized by the Company are sales to regularly paying customers, served by the Company for more than 4 years. The credit risk for cash at banks is minimal, as the Company is served only by banks having high credit rating. The carrying amount of financial assets, less impairment losses, represents the maximum credit risk to which the Company is exposed. Liquidity risk

Liquidity risk is the risk that the Company will fail to meet its financial obligations when they become due. The applicable policy of the Company aims at ensuring availability of enough liquid resources, which are supposed to cover the liabilities when they become due, including in emergency and unforeseen circumstances. The next table presents the contracted maturity of the financial liabilities based on earliest date when the payment is due for the Company. The table indicates non-discounted cash flows, inclusive of principal and interest.

December, 31 2008, BGN thousand

Up to one year From one to two years

Total

Bank loans 1,129 266 1,395 Financial lease 9 10 19 Trade and other payables 135 - 135

Total 1,273 276 1,549

December, 31 2007, BGN thousand

Up to one year From three to five years

Total

Trade loans 2,303 - 2,303 Financial lease 9 23 32 Trade and other payables 167 - 167

Total 2,479 23 2,502



Equity management The company manages its equity aiming at both operating as a going concern and maximizing the return for the share holders through optimization of the debt to equity ratio (return on capital employed). The management’s goal is to obtain time-proof trust of investors, creditors and the market and to guarantee future development of the Company. The management of the Company monitors the capital structure based on the ratio of net debt to adjusted equity. Net debt comprises both long-term and short-term interest bearing loans from non-related parties, as well as long-term and current liabilities under finance lease, less cash and cash equivalents. Share capital, reserves, accumulated profit and loans received by the mother company form the adjusted equity of the Company. The management of the Company (the mother Company) sets the amount of necessary capital proportionate to the specific risk level for the different activities (projects, business segments). The maintenance and adjustment of the capital structure are done in close relation to the economic conditions’ changes, as well as according to the risk level inherent to the relevant investment assets (projects). The ratio net debt to adjusted equity for 2008 and 2007 is, as follows:

December 31

2008 December 31

2007

Debt 1,332 28 Cash and cash equivalents (see note19) (169) (240) Net debt 1,163 - Equity 2,142 1,640 Loans received from the mother company - 2,303 Adjusted equity 2,142 3,943

Ratio debt-equity 0.54 - In compliance with article 252 of the Trade law, the Company shall maintain its net assets over the share capital amount. As of December, 31 2008 and December, 31 2007 the Company meets these requirements: its net assets amount respectively to BGN 2,142 thousand and BGN 1,640 thousand, while the equity is BGN 1,500 thousand.



25. Disclosures of related parties and transactions with them The mother company is Transhold Bulgaria Holding EAD. Controlling company is Petrol Holding AD. Transactions with the following related parties were carried out during the accounting period: Related parties

Petrol Holding AD Controlling Company Varna Business Services EOOD Subsidiary of Petrol Holding AD Interhotel Bulgaria Burgas EOOD Subsidiary of Petrol Holding AD Jurex Consult AD Subsidiary of Petrol Holding AD PSFK Chernomoretz Burgas AD Subsidiary of Petrol Holding AD Petrol AD Subsidiary of Petrol Holding AD Naftex Petrol EOOD Subsidiary of Petrol AD Petrol Technics EOOD Subsidiary of Petrol AD Petrol Trans Express EOOD Subsidiary of Petrol AD Transhold Bulgaria Holding EAD Subsidiary of Petrol Holding AD Trans Telecom EAD Subsidiary of Transhold Bulgaria Holding EAD Transcard AD Subsidiary of Transhold Bulgaria Holding EAD The transactions carried out refer mainly to: sale of telecommunication services; grant and receipt of cash loans and deposits; rentals; servicing supplied and received; holding fees and services.

There were no extraordinary circumstances or deviations from the average market prices regarding the transactions carried out. The volume of transactions carried out with related parties in 2007 and 2008 are as follows:

Related party December, 31 2008

December, 31 2007

December, 31 2008

December, 31 2007

BGN thousand

BGN thousand

BGN thousand

BGN thousand

Sale of goods and services

Sale of goods and services

Purchase of goods and

services

Purchase of goods and

services

Controlling company - - 25 25 Companies under common control 1,318 1,438 182 215

Total 1,318 1,438 207 240



25. Disclosures of related parties and transactions with them (continued)

Related party December 31 2008

December 31 2007

December 31 2008

December 31 2007

BGN thousand BGN thousand BGN thousand BGN thousand Financial

income Financial

income Financial

income Financial

income

Controlling company 24 - 40 140 Mother company - - 6 33 Companies under common control - 1 - -

Total 24 1 46 173 As of December, 31 2008 and December, 31 2007 the unsettled payments to related parties are, as follows: Related parties December 31

2008 December 31

2007 December 31

2008 December 31

2007 BGN thousand BGN thousand BGN thousand BGN thousand Receivable Receivable Payable Payable

Controlling company, including 487 - 6 1,893 Short-term interest bearing loans 480 - - 1,879

Mother company, including - - 1 427 Short-term interest bearing loans - - - 424

Companies under common control 91 31 25 24

Total 578 31 32 2,344 During the current year the Company has granted to the Controlling Company finance resource through interest bearing loans, which total net amount is BGN 480 thousand (see note 17). The total amount of remunerations accrued to the Board members of the Company, included in the employee benefit expenses, is BGN 137 thousand (2007: BGN 136 thousand). 26. Contingent assets The agreement with the second in concentration customer contains a clause providing for payment of a penalty at reduction of the number of served objects under certain percentage compared to the initial configuration. Therefore, for 2009 the management of the Company considers possible economic benefit flow amounting to BGN 118 thousand, due as of December, 31 2008.

transat annual report and fs 2008 - final...

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