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QUARTERLY FINANCIAL ACTIVITY

REPORT

AS OF 31 December 2015

/consolidated/

As per the requirements of article 100o, para. 4 of LPOS and

article 33, paragraph 1 of Regulation 2 on the prospectuses for the public offering and admission to trade at a regulated securities market and the disclosure of information by the public companies and the other issuers of securities

INTERIM ACTIVITY REPORT /consolidated/

I. Significant events occurring during 1Q, 2Q, 3Q and 4Q 2015 and their impact on the results in the financial statements

Operating results
The resultsare presentedin the following table:

Indicators
/on consolidated basis/
In BGN thousand / 01.01.2015-31.12.2015 / 01.01.2014-31.12.2014
Revenue from sales / 99,296 / 97,226
Operating profit/loss / 2,839 / 9,064
Net financial income/expense / (8,823) / (2,506)
Profit from associates / 113
Profit / lossbefore tax / (5,984) / 6,671
Profit/loss after tax from continued operations / (6,781) / 5,360
Profit/loss for the period from discontinued operations / (574)
Profit / loss after tax for the majority owners / (6,879) / 8,027

Revenues for 4Q of 2015 increased compared to the same period of 2014. The increase due to:

- increase in revenues from sales of products in relation to the increased sales volume of universal and CNC lathes, despite the continuing unstable economic environment.

-increase in revenues from port activity due to increased flow of goods in 2015 compared to the same period of 2014

- increase in revenue from ship repair

Net financial expenses in 4Q of 2015 increased compared to the same period last year.

The result from operating activities is a loss of BGN 5,984 thousand.

The financial result before tax for the second quarter of 2015 is a loss of BGN (6,781) thousandcompared to a profit of BGN 5,360 thousand for the same period of 2014.

The result after tax is a loss of BGN (6,781) thousandincluding BGN (6,879) thousand for majority owners.

Main activity

On 06.01.2015 subsidiary "Agro money" AD - in liquidation, Sofia was removed from the Trade Register upon completion of liquidation at the end of December 2014.

On 12.01.2015 Industrial Holding Bulgaria AD acquired 1,584,000 shares (one million five hundred and eighty-four thousand) ordinary voting shares with, with a nominal value of BGN 1 (one) each, representing 30% of the capital of Odessos AD by thus increasing its share to 90%.

On February 13, 2015 Marciana Ltd., Marshall Islands, a subsidiary of subsidiary of IHB - Privat Engineering AD was removed from the Trade Register of the Marshall Islands upon completion of voluntary liquidation.

As a result of transactions concluded on 31.03.2015 "Industrial Holding Bulgaria" transfered 25,000 shares representing 25% of the capital of IHB Shipdizayn EAD, thus IHB participation decreased to 75% of the capital.

Corporate events

Share buyback

On the grounds of Artcle 187b of the Commercial Act and Article 111, para 5 of the Initial Public Offering of Securities Act, the General Meeting of the shareholders adopts a decision on share buyback of ‘Industrial Holding Bulgaria’ AD under the following terms:

  1. Maximum number of shares to be bought back – up to 3% for each calendar year as from the buyback period under paragraph 2 from the total number of shares issued by ‘Industrial Holding Bulgaria’ AD but not more than 10% in total for the whole buyback period;
  2. Buyback period – up to 4 (four) calendar years from adopting the decision on shares buyback of ‘Industrial Holding Bulgaria’ AD;
  3. Minimum buyback price - BGN 0.56 per share;
  4. Maximum buyback price - BGN 1.05 per share;

5. The chosen investment intermediary for the share buyback is Allianz Bank Bulgaria AD.

Regarding the decision of the General Meeting of the Shareholders for share buyback, the Managing Board of Industrial Holding Bulgaria took the decision that for 2015 will be bought up to 3% of the registered capital of the Company, which at present is 77 400 643 shares, namely up to 2322 019 shares.

In January 2015 Industrial Holding Bulgaria AD has not acquired shares. At the same time, the Company sold 11,600 shares at the weighted average price per share of BGN 1.07. The total number of company shares as at 30.06.2015 was 961,666. From February to July 2015 there was no shares buy back.

In August 2015 Industrial Holding Bulgaria PLC acquired 1600 tresure shares at the weighted average price per share BGN 0.949.
In September 2015 Industrial Holding Bulgaria PLC acquired 15 989 tresure shares at the weighted average price of BGN 0.864 per share. In October IHB acquired 10000 treasure shares at the weighted average price of BGN 0,86 per share. In November IHB acquired 100000 treasure shares at the weighted average price of BGN 0,84 per share.

The total number of own shares the Company possesses as at 30 November 2015 is 1 089 255 shares.

There were no transactionsof share buyback in December

New bond issue

At the Extraordinary general meeting of Industrial Holding Bulgaria held on 04.12.2014 was decided to issue under the initial public offering of up to 500,000 under the conditions of an initial public offering of an issue of dematerialized, interest-bearing, convertible, freely-transferable and unsecured bonds with a total nominal and issue value of the debenture loan: Up to BGN 50,000,000 /fifty million/;nominal value per bond: BGN 100 /one hundred/, issue value per bond: BGN 100 /one hundred/; number of bonds: Up to 500,000;Minimal amount at which the loan is deemed as concluded: the loan shall be deemed as concluded upon subscription and payment of bonds of a total nominal value of no less than BGN 30,000,000 /thirty million/;Term (maturity of the debenture loan: 3 /three/ years (36 months); interest rate: 5% per year; interest payment period: 6 months;

On the maturity date of the bonds, each bond holder shall be entitled, under the terms of the debenture loan and prospectus for public offering of the issue of convertible bonds, instead of repayment of the bonds held, to exchange (convert) them for such a number of shares as would correspond to the conversion ratio valid at the time of the exchange.The funds raised through the issue will be used to reimburse the debenture loan under a previous issue of convertible bonds - ISIN 2100006134, issued by Industrial Holding Bulgaria Plc, refinancing of investments in KRZ-Port Burgas AD and other projects of IHB and its subsidiaries. The decisions were approved by the General Meeting of Bondholders held on 04.12.2014.

With decisions № 106-E of 18.02.2015 and № 127-E of 25.02.2015 the Financial Supervision Commission approved the Prospectus for the initial public offering of Industrial Holding Bulgaria AD of issue in the amount of 500,000 dematerialized convertible freely transferable unsecured bonds with nominal and issue price of BGN 100 each with a fixed interest rate of 5.00% per annum payable every six months and the term of the debenture loan 36 months.

The public offering of convertible bonds of Industrial Holding Bulgaria closed successfully with the following results:

  • Closing date of the public offering – 09.04.2015;
  • Total number issued rights – 67 978 543;
  • Total number of convertible bonds offered for subscription – 500 000;
  • Number of subscribed and paid convertible bonds – 499 996;
  • Amount received from the subscribed and paid convertible bonds in the special account in Allianz Bank Bulgaria AD – BGN 49 999 600.00;
  • Expenses in relation with the public offering – commissions, remuneration and other expenses, including the fees paid to the FSC – BGN 52 100.

The issuer and the investment intermediary for the offering did not meet any difficulties, there were no disputes and other of the kind during the trading of rights and subscription of shares.

Anouncemnet for the debenture loan

On 20.04.2015 the Trade Registry published announcement for opening of debenture loan and invitation to the First General Meeting of Bondholders of issue of convertible bonds ISIN code BG2100003156 issued by Industrial Holding Bulgaria:

The Management Board of "Industrial Holding Bulgaria", pursuant to Art. 206, para. 6 of the Commercial Law announces the conclusion of a debenture loan through the issue of convertible bonds, ISIN code BG2100003156 as follows:

Total nominal value (debenture loan amount) –BGN 49,999,600 (forty nine million nine hundred and ninety-nine thousand six hundred), divided into 499 996 (four hundred and ninety-nine thousand nine hundred ninety-six) dematerialized interest-bearing convertible freely transferable unsecured bonds with a par value and issue price of BGN 100 (one hundred);

  • Total nominal value (bond issue amount) - BGN 49 999 600 (forty nine million nine hundred ninety nine thousand six hundred), distributed in 499 996 four hundred ninety nine thousand nine hundred ninety six) dematerialized interest-bearing convertible freely transferable unsecured bonds of par value BGN 100 (one hundred) each;
  • Term (maturity) of the bond issue: 3 /two/ years (36 months) as of the issue date;
  • Date from which the maturity term is counted - 10.04.2013;
  • Interest - 5 % (five percent) on an annual basis;
  • Period of interest payment: 6 months;
  • Conversion rate: 100, which defines conversion price of BGN 1.00 (one);
  • Conversion: on the due date of the issue;
  • Payment dates: for the principal - single, on the due date; for interest payments: 10.10.2015, 10.04.2016, 10.10.2016, 10.04.2017, 10.10.2017, 10.04.2018;
  • Servicing the bond issue payments – The payments are made by the Central Depositary with abidance by the requirements of Ordinance No. 8

On 10 October 2015 the first interest payment of the issue convertible bonds issued by Industrial Holding Bulgaria PLC, ISIN code: BG2100003156 and BSE code: 4IDF was made. The right on interest payment will be entitled to all bondholders registered with the Central Depository as of 07.10.2015 (Record Date).

First General Meeting of Bondholders, possessing convertible bonds issue ISIN code BG2100003156:

On the grounds of Art. 206, para 6 of the Commerce Act, the Managing Board of Industrial Holding Bulgaria summons the First General Meeting of Bondholders, possessing convertible bonds issue ISIN code BG2100003156. The General Meeting shall be held on 12.05.2015 at 10.00 a.m. in the city of Sofia, 16-20 Alabin St., Bulgarian Industrial Chamber, in the meeting room on the first floor with the following agenda:

1. Electionof representative/s of the bondholders.
Decision: The General Meeting of Bondholders took the following decision:
1. The bondholders of Industrial Holding Bulgaria, possessing convertible bonds issue ISIN code BG2100003156 shall have one representative;
2. Elects Antoaneta Mihailova Dimolarova, attorney, Civil Identification Number 6601118259 as a representative of the bondholders of convertible bonds ISIN code BG 2100006134.
2. Fixing the remuneration of the representative/s of the bondholders
Decision: The General Meeting of Bondholders took the following decision:
Determines a monthly remuneration of BGN 250 /two hundred and fifty/ for the Bondholder’s Representative.
3. Miscellanies. No decisions were taken

Repayment of debenture loan convertible bonds ISIN code BG 2100006134, payment of interest and principal

On 20.04.2015 was made the last interest and principal payment of a bond issue ISIN code BG2100006134 regarding bondholders who have not exercised their right to convert the bonds they hold into corresponding number of shares within the deadline for submission of requests for conversion with which the IHB obligation under the debenture loan is repaid.

Capital increase of Industrial Holding Bulgaria and changes in the Statute

With decision № 20150416111903 from 16.04.2015 г. the Registration Agency registered in the Trade Register changes in the circumstances about Industrial Holding Bulgaria PLC as follows:

1. Increase of the capital of Industrial Holding Bulgaria PLC from BGN 67 978 543 to BGN 77 400 643 by the issue of new 9 422 100 ordinary, dematerialized, registered, freely transferable shares giving right for 1 vote in the General Meeting of Shareholders, with nominal value BGN 1 each, issued due to the conversion of 94 221 registered dematerialized convertible bonds ISIN code BG2100006134 into shares.

2. Changes in the Statute regarding the change in capital and the number of shares.

With decision № 20150701125754 from 01.07.2015, the Registration Agency registered in the Trade Register changes in the Statute of Industrial Holding Bulgaria PLC as follows:

1.Article 32, Paragraph 2: Management Board consists of 3 /three/ to 5 /five/ members. The number of members of the Management Board shall be determined by the Supervisory board.

2.In paragraph 2 of the Final Provisions after the phrase "and with decision of the Management Board of 06.04.2015 on the basis of art. 12a of the Statute, in conjunction with art. 196 of the Commerce Act in connection with the conversion of bonds issued by the Company in shares, a comma shall be added and the phrase "and by the General Meeting of the Company held in Sofia on 24.06.2015.

Annual General Meeting of shareholder of Industrial Holding Bulgaria

The Supervisory Board of INDUSTRIAL HOLDING BULGARIA Plc. /hereinafter referred to as the Company/, with seat and management address 42 Damyan Gruev Str., Sofia, with UIC 121631219, with its decision from12.05.2015convenes a regular annual General Meeting of the Shareholders of the Company on24.06.2015from10.00 a.m.to be held at 16-20 Alabin Str.,Sofia, in the building of the Bulgarian Chamber of Commerce, the conference hall on the first floor, under the following Agenda and the following decisions:

1. Acceptance of the Activity Report of the Company for 2014 and the Consolidated Activity Report of the Company for 2014
Decision:The General Meeting of the Shareholders accepts the Activity Report of the Company for 2014 and the Consolidated Activity Report of the Company for 2014.
2. Acceptance of the Report of the Registered Auditor for the audit made of the Annual Financial Statements of the Company for 2014 and the Report of the Registered Auditor for the audit made of the Consolidated Annual Financial Statements of the Company for 2014.
Decision:The General Meeting of the Shareholders accepts the Report of the Registered Auditor on the audit made of the Annual Financial Statements for 2014 and the Report on the audit made of the Consolidated Annual Financial Statements of the Company for 2014.
3. Acceptance of the Annual Financial Statements of the Company for 2014 and the Consolidated Financial Statements of the Company for 2014
Decision:The General Meeting of the Shareholders accepts the Annual Financial Statements of the Company for 2014 and the Consolidated Financial Statements of the Company for 2014
4. Adopting of a decision for allocation of the earnings of the Company for 2014.
Decision:The General Meeting of the Shareholders adopts a decision for allocation of the earnings of the Company for 2014 amounting to BGN 800 857,46 (eight hundred thousand eight hundred fifty seven levа and forty six stotinki) as follows:

  • 10% of the earnings of the Company for 2014 to be allocated to the Reserve Fund;
  • The rest BGN 720 771,71 (seven hundred and twenty thousand seven hundred seventy one leva and seventy one stotinki) to remain as retained earnings of the Company

5. Report on the Activity of the Investor Relations Director for 2014.
No decision taken.
6. Report on the Activity of the Audit Committee of the Company for 2014.
No decision taken.
7. Report on implementation of remuneration policy for members of the Supervisory and Managing boards of "Industrial holding Bulgaria" AD 2014
No decision taken.
8. Release from liability of the members of the Manager Board and the Supervisory Board for their activities in 2014.
Decision:The General Meeting of the Shareholders releases from liability for their activities in 2014:

As members of the Supervisory Board

  • Snezhana Ilieva Hristova
  • Konstantin Kumov Zografov
  • DZH AD, represented by Elena Petkova Kircheva.

As members of the Management Board:

  • Bozhidar Vasilev Danev,
  • Daneta Angelova Zheleva,
  • Emilian Emilov Abadjiev,
  • Borislav Emilov Gavrilov,
  • Boyko Nikolov Noev,

9. Determining of the remuneration of the members of the Supervisory Board and the Management Board of the Company for 2015.
Decision:The General Meeting of the Shareholders determines the monthly remuneration of the members of the Supervisory Board and the Management Board of the Company for 2015 amounted to 1000 leva.
10. Amendments to the Articles of Association of the Company.
Decision:The General Meeting of Shareholders approves the following changes in the Articles of Association of the Company:
1. In Article 32, Paragraph 2 shall take the following wording:
The Management Board shall consist of 3 /three/ to 5 /five/ members. The Supervisory Board shall determine the number and the personality of the members of the Management Board.;
2. In Paragraph 2 of the Final Provisions after the phrase “and a decision of the Management Board on 06.04.2015 г. and on the grounds of Article 12а of the Statute, in relation with Article 196 of the Law on Commerce in connection with the conversion of bonds issued by the Company in shares” a comma shall be added and the phrase “and with a decision of the General Meeting of the Company held in the city of Sofia on 24.06.2015.” shall be supplemented.
11.Selection of a registered auditor of the Company for 2015.
Decision:The General Meeting of the Shareholders selects the recommended by the Audit Committee registered auditor of the Company for 2015 – Ernst & Young Audit OOD.

12. Miscellaneous

Materials and proxy draft

II. Description of the main risks and uncertainties facing the Company for the remainder of the year

The main financial undertakings of the company are related to aquisiotion of 60% of the capital of Odesos PBM AD and investment projects of its subsidiaries.

Regarding receivable, when there is an uncertainty as to their collectability, the companies make the respective provisions.

Bulyard Shipbuilding Industry has liabilities in connection with a bank credit in Japanese yen with KLVK being a joint debtor

IHB has obligations to bond holders issue of convertible bonds issue 2015 with maturity on 10.14.2018.

IHB has a credit line for issuance of bank guarantees, opening of letters of credit and operating funding of IHB and its subsidiaries with a commercial bank with a set limit amounting to BGN 10,000 thousand.

IHB has surety contract with a commercial bank as collateral to a loan granted to Privat Engineering AD which is fully repaid as of the date of publication of this report.

KLVK AD is a joint debtor with its subsidiary Serdika Ltd. under a contract for a syndicated loan with repayment terms until March 2016 for financing the purchase of DIAMOND SEA ship and with an outstanding balance amounting to USD 29 117 thousand as of 31.12.2015.

Privat Engineering AD is a joint debtor with Tirista AD for a bank loan from a commercial bank with a maturity date in December 2017 for the purchase of Antea ship with an outstanding balance amounting to USD 3,594 thousand as at 31.12.2015.

Detailed information about risk management is presented in Financial tools in the financial statements for 1Q, 2Q, 3Q and 4Q 2015.

Trends for the businesses where IHB and the companies in the Group operate

Maritime transport

The downward trend in the freight market continued at the beginning of 2015, reaching record low levels. The second half of the year saw some slow recovery, which continued in the third quarter. Overall, the recovery was insignificant and continued for 2 months.