Eurohol Bulgaria AD. Annual Report

Transcription

1 Eurohol Bulgaria AD Annual Report 2010

2 CONTENTS 1.Annual Director s Report Independent Auditor s Report...32 Further information on: About Us Structure Corporate Management Information for investors Communications and Media you can find on: 3. Financial Statements Notes to the Financial Statements...39

3 KEY INDICATORS Indicators 2010 Income statements Change in comparison to previous period Profit/ loss (before tax) 000 BGN 2,746 34% 2,053 24,475 81, Net profit/ loss (after tax) 000 BGN 2,746 34% 2,053 21,538 71, Revenues 000 BGN 15,367-11% 17,247 42,313 83,720 Statement of Financial Position as at 31 st of December 4. Equity 000 BGN 192,006 1% 189, , , Liabilities (current + non-current) 000 BGN 104,207-18% 127, ,666 61, Assets (current + non-current) 000 BGN 296,213-6% 316, , ,015 Information about shares Share capital (issued) 000 BGN 62,498 0% 62,498 62,498 62,498 Number of shares 000 BGN 62,498 0% 62,498 62,498 62,498 Net profit/ loss per share BGN % Ratios Financial independence Ratio 000 BGN % Leverage Ratio 000 BGN % Gross profitability of revenue 000 BGN 17.87% 50% 11.90% 57.84% 96.85% Net profitability of revenue 000 BGN 17.87% 50% 11.90% 50.90% 85.35% Gross profitability of equity 000 BGN 1.43% 32% 1.08% 13.20% 49.46% Net profitability of equity 000 BGN 1.43% 32% 1.08% 11.61% 43.59% Gross profitability of liabilities 000 BGN 2.64% 64% 1.61% 15.23% % Net profitability of liabilities 000 BGN 2.64% 64% 1.61% 13.41% % Gross profitability of assets 000 BGN 0.93% 43% 0.65% 7.07% 36.03% Net profitability of assets 000 BGN 0.93% 43% 0.65% 6.22% 31.76%

4 15 million BGN 2,746 thousand BGN Total revenue for 2010 see page 14 Net profit for 2010 see page million BGN 296 million BGN Net assets see page 12 Total assets see page 12 (18)% 0.04 BGN Payables decrease see page 13 Earnings per share for 2010 see page 14

5 Annual Report for the Activity of Eurohold Bulgaria AD for the financial 2010 The present Report for the activity is drafted in compliance with the provisions of article 100n of the Law for Public Offering of Securities, article 247 of the Commerce Law, article 33 of the Law of Accounting, and appendix 10 to article 32, paragraph 1, item 2 of Regulation 2 of on the prospects for public offering and admission of securities for trading on regulated market and on the disclosure of information by the public companies and other issuers of securities. The annual report for the activity of Eurohold Bulgaria AD presents comments and analysis on the financial statements and other material information about the financial position and results achieved due to the operations of the company. The report presents the position and the perspectives for development of the company and the main risks it faces. Eurohold Bulgaria AD further drafts Annual Consolidated Report for the Activity including the results of the parentcompany, subsidiaries and associated companies. In order to get full idea of the Group s financial position as a whole, the users of this non-consolidated annual report for activity have to read it together with the consolidated annual report of the Eurohold Group In managing the company, the members of the Managing Board apply the best world practices in corporate management aiming to rank among the leaders who implement transparent corporate practices in Bulgaria. The business model implemented by the company is established on the basis of major principles such as guaranteeing the rights of all shareholders and their equal treatment. In 2010 the process of restructuring of Eurohold Bulgaria was completed. The subsidiaries are classified in three subholdings consolidating the main businesses Euroins Insurance Group (insurance), Avto Union (sales of cars) and Eurolease Group (leasing); furthermore, the holding has an investment intermediary company. Thus, the optimal structure of Eurohold Bulgaria was achieved. The operations at the level of subholding was also improved, mostly in relation to the more efficient management of cash flows, optimization of companies attracted funds structure, optimization of administration, management, outsourcing, and other costs. The process of integration and optimization of the three major business lines was improved. Conditions for the faster and higher quality reporting of business lines operations and analyzing the business on the respective markets were established. 1. COMPANY INFORMATION History Eurohold Bulgaria AD is a holding company, registered in the Republic of Bulgaria, which operates in compliance with the Bulgarian legislation. The company is registered under corporate file as per the inventory of Sofia City Court for 2006, under , book 1509, page 116. The company is reregistered in the Trade Register at the Registry Agency. The company s Bulstat EIK is Eurohold Bulgaria AD is a joint stock company development, significant equity and financial resources. formed through the merger of Eurohold AD and Starcom Holding AD. Through such merger, the position of the newly established holding company Eurohold Bulgaria AD, is strengthen as one of the big holdings in Bulgaria with significant potential for future Scope of Business The scope of business of Eurohold Bulgaria AD is: acquisition, management, assessment and sales of participations in Bulgarian and foreign companies, acquisition, management and sales of bonds, acquisition, assessment and sales of patents, 5

6 granting patent use licenses to companies in which Eurohold Bulgaria participates, funding companies, in which the company participates. Seat and Registered Address The seat and the registered address of the company is in the Republic of Bulgaria, 1592 Sofia, 43 Hristofor Kolumb Blvd. The headquarters of the company is also located at the same address. This is also the official business correspondence address of the company. You can contact the company in the following ways: Business address: Sofia, 43 Hristofor Kolumb Blvd. Phone 02/ ; 02/ Fax 02/ Supervisory Board The Supervisory Board consists of 3 members, including 1 independent member. All members of the Supervisory Board are natural persons. Asen Milkov Hrisotv Chairman of the Supervisory Board since Dimitar Stoyanov Dimitrov Vice Chairman of the Supervisory Board since Ivan Georgiev Munkov Independent member of the Supervisory Board since Managing Board The Managing Board consists of 5 members, including 1 independent member. All members of the Managing Board are natural persons. Kiril Ivanov Boshov Chairman of the Managing Board since Website office@eurohold.bg; investors@eurohold.bg Iva Hristova Garvanska Vice Chairwoman of the Managing Board since Asen Minchev Minchev Executive Member of the Managing Board since Since Eurohold Bulgaria AD was registered as a business company, the name of the company has not been changed. No changes in the company s scope of business were made. The company is not limited with term or another termination condition. Until now, the company has not transferred or pledged its entity, has not acquired and has not disposed with assets of significant value, unless in the usual course of business. Eurohold is not aware of any statements of claim initiated for opening insolvency procedure for it or for any of its subsidiaries. Managing Bodies The managing bodies of Eurohold Bulgaria AD are General Meeting of Shareholders, Supervisory Board and Managing Board. Borislav Nikolaev Feschiev Independent member of the Managing Board since Asen Emanuilov Asenov Member of the Managing Board since The company is represented by the Executive member of the MB, Asen Minchev Minchev, and the Chairman of the MB, Kiril Ivanov Boshov. Share capital As at the date of drafting the present Activity Report, the issued capital of the parent-company is within the amount of BGN 62,497,636, distributed in 62,497,636 ordinary, registered, non-cash shares, with one voting right, with nominal value of BGN 1 each. 6

7 The initial registered capital of Eurohold Bulgaria as at is within the amount of BGN 50,002,586, distributed in 50,002,586 ordinary, registered, non-cash shares, with one voting right, with nominal value of BGN 1 each. The company s capital is formed as a result of merger of Eurohold AD and Starcom Holding AD. The capital amount is provided for in the Contract for Transformation, approved by the general meetings of shareholders of the merging companies. Within the period May June 2007, the holding successfully performed subscription for capital increase through issue of new 12,500,646 shares with nominal value of BGN 1.00 лв. each, and with issue value of BGN 3.35 each. In the course of the subscription, 50,002,586 rights were issued, each of them giving the right for purchase of 0.25 new shares. The total amount of subscribed and paid shares reached 12,495,050 or 99.96% of the offered amount. The shares of Eurohold Bulgaria AD were subject to tender offer within the period to , just after the entry of the company in the trade register. Bulgarian Holding Corporation AD (Starcom Holding AD at present), in its capacity of majority owner who had gained control over Eurohold Bulgaria AD in the process of transformation, was the tender offeror. The price offered under the tender offer was BGN 2.03 per share. The capital of the company has not been increased through contributions of physical assets. The company has not issued shares, which are not capital. All shares issued by Eurohold Bulgaria AD entitle their holders to vote at the General Meeting of the company, excluding the shares held by the subsidiaries. In relation to a resolution of the Managing Board of Eurohold Bulgaria AD dated , and Financial Supervision Commission s confirmation of prospectus for public offering of shares with decision 144-e/ , at the time of drafting the present document, Eurohold Bulgaria AD is in procedure of share capital increase. 62,497,636 shares are subject to public offering. The capital of Eurohold Bulgaria AD will be increased only if at least 25%, and namely 15,624,409 shares, of the offered shares are subscribed and fully paid. The offered shares have an issue value of BGN 1.00 and nominal value of BGN 1.00 each. The ratio between issued rights and the new shares is rights/ shares: 1/1. The start date for subscription of shares is: Any persons who have acquired shares not later than are entitled to participate in the capital increase. Shareholder Structure As at the end date of the financial year, two legal entities exist that nominally hold more than 5 per cent of the shares with voting right. There are no natural persons shareholders, who directly hold more than 5 per cent of the shares with voting rights. All issued shares are one class shares and give one voting right. 14,729,998 8,439,992 4,274,000 Shareholder Structure (number of shares) 35,053,646 Starcom Holding AD Leo Overseas Ltd Other legal entities Other individuals Starcom Holdign AD is the majority shareholder in Eurohold Bulgaria AD. The majority shareholder does not hold different voting rights. Its seat and registered address is in Bulgaria, town of Etropole, 191 Ruski Blvd. An agreement dated between Starcom Holding AD and 16 other natural persons and legal entities for joint exercising of voting right at the general meeting of shareholders of Eurohold Bulgaria AD is known. By this agreement, the sixteen persons transfer the voting rights for the shares they directly hold in the capital of Eurohold Bulgaria AD in favor of Starcom Holding AD. As at the date of drafting the present document, these persons directly hold shares within the amount of 4.33% of the company s capital. The greater part of the members of the Managing and the Supervisory boards of the company, as well as other employees 7

8 of the holding s subsidiaries participate in the agreement. The agreement does not restrict the disposal with shares held by the parties. 23.6% Shareholder Structures(%) 13.5% 6.8% 56.1% Starcom Holding AD Leo Overseas Ltd Other legal entities Other natural persons As at the date of the present document, Starcom Holding AD controls the voting right of 60.42% of the issued shares, 56.09% directly and 4.33% indirectly through the above agreement. Starcom Holding AD is the only entity, which exercise direct control over Eurohold Bulgaria AD. The Chairman of the Supervisory Board of Eurohold Bulgaria AD Asen Hristov, has indirect control over the company. Asen Hristov is a majority shareholder and directly holds 51% of the shares of Starcom Holding AD. Thus, Asen Hristov directly controls the majority shareholder and indirectly controls Eurohold Bulgaria AD. The company Leo Overseas Ltd holds 6,84% of the capital of Eurohold Bulgaria AD. Leo Overseas Ltd does not hold different voting rights. Leo Overseas Ltd belongs to the US Investment Fund Firebird Avrora Fund Ltd, which is one of the eight funds managed by Firebird Management LLC. Eurohold Bulgaria AD neither has arrangements with other persons, nor is aware of such arrangements the enforcement of which might result in future change in the company s control. The basic way for restricting possible abuse on behalf of the majority shareholder with the operations or the assets of the company is the provision of article 114 of the Law for Public Offering of Securities, which stipulates that the company may not, without being explicitly empowered to do this by the general meeting of shareholders, acquire, transfer, obtain or grant for use or as a collateral in any form whatsoever any fixed assets, as well as obligations to be incurred to any stakeholders when the transactions/ obligations exceed 2 per cent of the company s assets. The Statutes of the company do not provide any additional restrictions. The company s capital has not been increased through contribution of physical assets. The company has not issued shares that are not capital. All shares issued by Eurohold Bulgaria AD entitle their holders to vote at the General Meeting of the company. ІІ. ACTIVITY REVIEW Major Scope of Business Eurohold Bulgaria AD is registered in the Republic of Bulgaria. Its main activity includes: Acquisition, management, assessment and sales of participations in Bulgarian and foreign companies; Funding of companies the holding company participates in; Participations in Bulgarian and foreign companies. Eurohold Bulgaria AD s incomes are formed mainly from financial activity relevant to the acquisition and management of participations and funding of related companies. As at , Eurohold Bulgaria AD directly participates in five subsidiaries and two associated companies, which are structured as follows: 8.1% Investments Structure % 6.7% 0.5% 76.3% Insurance Cars Leasing Finance Property The companies within Eurohold Bulgaria AD s portfolio operate on the following markets: insurance and health insurance, leasing, financial, automobile, real estates. The main business is concentrated in the line Sales of cars Leasing - Insurance. 8

9 The companies within Eurohold Bulgaria Group operate in the following regions: Active Operations Main activities of the subsidiaries: Insurance services Health insurance services Financial and operating leasing Financial intermediation Sales of new cars Car repairs services Rent-a-car Investment property management At the beginning of 2010, the Eurohold Group had also other companies carrying out activities, which are considered non strategic. These companies were sold in

10 Main activities of the sold subsidiaries: Introduction of GPS applications for control, security and logistics of the fleet of motor vehicles Tourist property management Production of disposal medical devices Production of instrumental equipment and plastic products Laboratory geochemical research and studies in the field of geology, chemistry and environment. Investments in associated companies as at are in the following companies Formoplast AD 28.55%; Dzhulyunitsa Greenhouses AD 20.02%. As at , Eurohold Bulgaria AD controls the following companies: 10

11 Investment Portfolio Euroins Insurance Group AD Euroins Insurance Group (EIG) is a holding company, which unites the investments of Eurohold in the insurance sector on the Balkans. EIG is well capitalized, having in mind the high regulatory requirements. EIG structure is formed by Insurance Company Euroins AD (77%), Euroins Macedonia (91%), Euroins Romania (87%), Euroins Health Insurance EAD (100%) and investment of 10% of the capital of Takovo Osigurane, Serbia. Eurolease Group AD - Eurolease Group (ELG) is a holding company, which unites the investments of Eurohold in the leasing sector on the Balkans. The company is registered in 2009 in the Netherlands and afterwards the shares of different companies in Bulgaria, Romania and Macedonia are contributed in kind to the company s capital. The company is registered as a Dutch company for the purposes of easier access to financial resources from the international financial markets. Eurolease Auto Bulgaria (100%), Eurolease Auto Romania (71%) and Eurolease Auto Macedonia (100%) are within the structure of ELG. The companies that are part of ELG group offer financial leasing of new and second hand cars, of light- and heavy-duty vehicles, trucks and buses. Euro-Finance AD - Euro-Finance is an investment intermediary with 17 years history. The company is well known on the Bulgarian financial market as it services the investment and financial needs of individual, corporate and institutional investors. Euro-Finance offers a wide range of investment products trading with shares, instruments with fixed yield, derivatives, FOREX transactions, contracts for differences (CFDs), repotransactions. Euro-Finance maintains many years relationships with a number of international financial institutions. Euro-Finance is the first Bulgarian licensed investment intermediary, which is a full member of the Frankfurt stock exchange and the single non banking financial intermediary participating in the international payment system S.W.I.F.T. Avto Union AD Avto Union AD is a holding company unifying the investments of Eurohold Bulgaria in the automobile sector. Avto Union is an automobile subholding, which offers 11 automobile brands on the Bulgarian market. The franchising representation of AVIS and Budget are among the company s operations. 11

12 AVTO UNION Nissan Sofia Bulvaria & Cargo Express Scandi - navia Motors Auto Italia Milano Motors Gransport Auto Star Motors Eurolease Rent-a-car Bulvaria Rent-а-car Auto Plaza Nissan Renault Dacia Opel Chevrolet SAAB Fiat Lancia Alfa Romeo Piaggio Vespa Maserati Mazda Budget Avis Second hand cars One of the major advantages of Eurohold Bulgaria AD, mostly expressed on the Bulgarian market, is the close cooperation between its main divisions generating increasing and stable source of incomes. As a consequence of the integration of the three business lines insurance, leasing and sales of cars, Eurohold Bulgaria AD aims to realize significant synergy. The group has exclusive opportunities to increase the market shares of its subsidiaries through the introduction of new crossed products with added value, and not through decrease of product prices, which is the strategy of the major competitors. Supplying joint products and combining the sales points result in all under one roof type supply car, insurance, leasing. The cross supply of products among the clients of the insurance, leasing and auto-dealing companies decreases the total advertising and marketing costs. The mutually complementing activities provide greater opportunities for quick increase of market shares. The internal operating model is based on the idea that each business division should achieve independent financial profitability and optimization of costs and should be a source of business for the other divisions. 12

13 ІІІ. OPERATING RESULTS Assets Total Assets (000 BGN) The amount of investments in subsidiaries increases with 30.55% as at in comparison to Investments (000 BGN) 274, , , , , , , , The amount of assets has a high growth rate as at the end of 2010 in comparison to 2007, which is mainly due to the investments made. Structure of Assets, % Fixed Assets (0.01%) Investments (92.74%) Trade Receivables (5.13%) Short-Term receivables (2.08%) Financial Assets (0.01%) Cash (0.02%) The total amount of investments decreases in 2010 in comparison to 2009 due to the sale of subsidiaries from the production subholding. Investments as at the end of 2010 are described in item Investments above. Equity and Liabilities As at , equity represents more than 65% of the company s asset. Equity (000 BGN) 185, , ,006 The main share within the structure of assets belongs to investments in subsidiaries, associated and other entities. Receivables rank second according to their share in the company s assets. They are divided into long- and short-term receivables and are formed as a result of the policy for active management of free resources within the group. The fixed assets of Eurohold Bulgaria include office equipment for the amount of BGN 44 thousand. At the end of the period, cash are within the amount of BGN 54 thousand. Financial assets include securities held for current sales and as at the end of 2010 they amount to BGN 24 thousand. 163, For the period in consideration, the amount of equity increases due to the profit formed on nonconsolidated basis. During the reporting period, there is no change in the company s reserves. As at 2010, Eurohold Bulgaria has not adopted resolution for distribution of profits accumulated during previous years. 13

14 72,062 Financial Result 87,350 (000 BGN) 89,403 92,149 In 2010 payables become less as the loan used for working capital of subsidiaries is repaid to Piraeus Bank Bulgaria AD. The obligatory loan of the company has been fully repaid during the period. Obligatory Loans (000 BGN) 19,558 19,558 13, In 2010, the company reports profit within the amount of BGN 2,746 thousand. Liabilities (000 BGN) 160, Short-term payables visualize the holding s obligations to its subsidiaries for managing their free cash. 127, ,207 K Short-term payables (000 BGN) 61,098 72, Obligations to financial institutions have the biggest growth in liabilities, which is due to the funding from Accession Mezzanine Capital II in the form of mezzanine loan agreed in 2008, with term for repayment of 7 years and a principal, pais as a lump sum in Funds attracted are used for Euroins Insurance Group EAD capital increase for the purposes of realization of EIG regional expansion. 2,151 Obligations to financial institutions (000 BGN) 31,661 50,492 40, ,682 21,693 13, In 2010, the short-term payables to financial institutions include the amount of principal payments equal to BGN 3,989 thousand for the overdraft loan with Unicredit Bulbank AD, which are payable in The loan is drafted for the purposes of the leasing company Eurolease Auto AD with limit up to EUR 10,000 million. To this end, at the end of the reporting period Eurohold reports BGN 3,989 thousand as current receivable from related party receivable from Eurolease Auto AD. The total amount of payables to related parties (short- and long-term) as at the end of 2010 is BGN 41,801 thousand (2009 BGN 44,210 thousand). Of them, the payables under repo transactions with Eurofinance and Euroins Insurance Group AD are within the amount of BGN 9,520 thousand (2009 BGN 1,202 thousand) 14

15 Income and Cost Analsysis Incomes of Eurohold Bulgaria AD are formed mainly from operations related to acquisition and management of participations and funding of subsidiaries. +34% net profit growth Net Result (000 BGN) 2,746 Total Income (000 BGN 2,053 83,739 42, ,247 15, The holding s incomes for the current period are within the amount of BGN 15,367 thousand. Eurohold Bulgaria AD forms positive financial result for the period as at , within the amount of BGN 2,746 thousand. The profit per share is BGN 0,04. Profit per Share (BGN) The amount of incomes from interests under granted loans is equal to BGN 1,083 thousand (2009 BGN 1,462 thousand). The share of incomes from interests from subsidiaries is BGN 910 thousand (2009 BGN 1,401 thousand). Total Cost (000 BGN) ,838 15, ,621 Cash Flows 2, Costs for operations of Eurohold Bulgaria AD are within the amount of BGN 12,621 thousand. The costs for interests under loans received and interests accrued under obligatory loan are within the amount of BGN 6,492 thousand (2009 BGN 8,875 thousand). Reduction of costs for interests is due to the debts to financial institutions, obligatory loans to related parties, repaid during the period. The share of costs for interests to subsidiaries is within the amount of BGN 2,439 thousand (2009 BGN 2,572 thousnad). On non-consolidated basis, Eurohold Bulgaria AD generates cash flows from the following activities: Incomes from operations with investments Incomes from dividends Incomes from interests under loans granted to subsidiaries Incomes from services During its operations, the company generates sufficient cash flow. Investments, as increase of capitals in subsidiaries, are funded with own cash. During the periods subject to review, operating cash flows have negative amount and are formed mainly from excess payments to clients and suppliers in comparison to 15

16 the receipts therefrom. The main reason for this are the negative flows relevant to the business nature, the consistent policy implemented for market shares increase in different sectors of the holding, and the need for offering flexible payment schemes cash flows are formed mainly from financial and investment activity of the company upon accumulation of free cash by subsidiaries and the use thereof for funding the current investment activity of other subsidiaries. Lont-Term Liabilities / Equity Cash Flows 000 BGN Operating cash flows (1,141) (562) (2,712) (1,996) Cash flows from investing activity (68,248) (81,428) 5,732 26,402 Cash flows from financial activity 69,721 81,651 (3,040) (24,386) Debt-to-equity ratio and the financial autonomy ratio take in consideration the cover of attracted cash with equity and vise versa. The value of financial autonomy ratio is quite higher than one, which shows very good cover of attracted cash with equity. Financial Autonomy Changes in cash 332 (339) Cash at the beginning of the period Cash at the end of the period Capital Resources Ratios characterizing debt and equity show how company is funded. As at the share of equity in Eurohold Bulgaria AD s assets reaches 64%. In 2009, the long-term liabilities/ equity ratio grows as a result of attracted cash increase, while the amount of equity remains almost unchanged during this period. In 2010, this ratio decreases to This is due to the repayment of party of the company s obligations to banks and repayment of the obligatory loan Financial Indicators Profitability of assets have 43% growth in comparison to 2009 due to the sale of production companies. +43% Profitability of Assets 0.93% 0.65%

17 As a result of sales, the company s equity profitability alsow increases in comparison to Equity Profitability part of financial obligations loans from banks and the obligatory loan (you can find more information in Liabilities hereinabove). Debt-to-Equity Ration % % In 2010, the company shows growth of income profitability, which is due to the realization of less costs in comparison to Gross Profitability of Incomes 11.90% 17.87% Company s payables decrease affect the liability profitability increase in comparison to 2009 Profitability of Liabilities 1.61% 2.64% Debt-to-equity ration has become less than 2009 due to the repayment of ІV. MAIN RISKS AND UNCERTAINTIES FACED BY THE COMPANY As a holding company, the activity of Eurohold Bulgaria AD is mainly related to acquisition, management and sales of participations in Bulgarian and foreign companies. To this end, the main risks and uncertainties faced by Eurohold Bulgaria, are relevant to the investment projects of the company and its subsidiaries specific risks, and namely : Sectoral Risk The sectoral risk arises from the impact of technological changes in the sector on incomes and cash flows generated therein, management aggressiveness and the strong competition. Change in service and product demand; Presence of strong competition and market fragmentation; Presence of strong competition and market fragmentation; Lack of opportunities for expansion of the market in proportion to the increase of the gross domestic product; Risk of changes in the legal regulations. The companies within Eurohold Bulgaria AD group operate in two major sectors: financial sector (insurance, leasing, financial intermediation) and the car sales sector. Other main risks that affect the sector s operations are as follows: 17

18 Corporate Risk Corporate risk is related to the nature of company s activity, and it is important for each company that the invested funds and resources rate of return to correspond to the risk pertaining to this investment. The main corporate risk for Eurohold Bulgaria AD is relevant to the possibility to reduce the incomes from sale of companies it participates in. This affects the dividends received. In this relation, the corporate risk may affect the company s income growth, as well as the change of profitability. Corporate risk unifies the business risk and the financial risk. Business Risk is predetermined by the nature of the company s operations. This risk is defined as an uncertainty pertaining to the receipt of income inherent both for the sector the company functions in, and for the manner of goods and services production. As a holding company, Eurohold Bulgaria AD operates in four major business lines insurance, leasing, finance and sales of cars. The biggest business risk is concentrated in the insurance line, where the biggest part of the group s incomes is generated. The companies that have the biggest part in the income, in the financial result of the insurance line, respectively, are Insurance Company Euroins AD and Euroins Romania. The major business risk in the leasing line is defined by the possibility to ensure acceptable price of sufficient financial resources for expansion of the leasing portfolio. The group s financial lien is represented by the investment intermediary Euro-Finance AD. Business risk in the sector of financial intermediation and asset management is related to the high volatility of debt and capital markets, the changes in financial attitudes and investment culture of the population. The automobile subholding of the group (Avto Union AD) operates mainly in the field of sales, rent, guarantee and post-guarantee service of cars. Such activity is strongly dependents on the availability of permits and authorizations provided to the Avto Union group by the respective car manufacturers. Financial Risk complements the business risk when funds in the form of loans or debt securities are used for the operations of the company. The payments for these funds are considered fixed obligation. Eurohold Bulgaria AD and its subsidiaries are capable to cover all their obligations and are not exposed to financial risk. Liquidity Risk Liquidity risk is relevant to the possibility Eurohold Bulgaria AD or any of its subsidiaries to fail covering its obligations within the agreed amount and/or term. The availability of good financial indicators for profitability and capitalization of a company are not a guarantee for troubleless settlement of current payments. Liquidity risk within Eurohold group is minimized, considering the well developed cash flows management policy and the maintenance of high level of solvency and liquidity. Interest Risk The interest risk is related to the possibility the net incomes of the companies to get less due to the interest levels increase. Eurohold Bulgaria AD manages this risk by means of balanced use of different sources of financial resources. The biggest interest risk is concentrated in the leasing line. The leasing division companies manage the interest risk by means of diversification of funding sources and through negotiating their floating interest rate receivables and payables. Thus, in case of market levels increase, the Companies long-term debt service obligations will increase, but the interest receivables from clients will also increase. Currency Risk As a whole, Eurohold Bulgaria AD s operations within the territory of the Republic of Bulgaria do not generate currency risk due to the existing currency board and the fixed BGN/EUR exchange rate. The investments of the group, mainly insurance and leasing, carried out abroad in Romania and Macedonia, 18

19 are exposed to currency risk. In 2010, the RON/EUR and DEN/EUR exchange rates remain unchanged. Mechanisms for Risk Management and Minimization The elements defining the framework of different risk management are directly related to specific procedure for timely prevention and overcoming possible difficulties in Eurohold Bulgaria AD operations. These include current analysis in the following directions: Market share, pricing policy, carrying out marketing studies and researches of market and market share development; Active management of investments in different industry sectors; Overall policy for asset and liabilities management aimed at optimization of structure, quality and return of company s assets; Optimization of attracted funds structure with view of ensuring liquidity and reduction of company s financial costs. Effective management of cash flows; Optimization of administration, management and outsourcing costs; Human resources management. The occurrence of unforeseen events, wrong assessment of current trends, as well as many other micro- and macroeconomic factors may affect the judgment of the company s management. The only way for overcoming this risk is to work with professionals with long experience, who must to the maximum extent maintain full and updated database for the development and trends on the market in these fields. V. INFORMATION FOR MANAGING AND SUPERVISING BODIES The Supervisory and Managing Board of Eurohold Bulgaria AD, as per the company s Statutes, are elected for five years term of office, whereas the members of the first Supervisory Board are elected for a period of three years. Unless contracts with the members of the Managing and Supervisory Board are not explicitly terminated prior the expiration of the term of office, they are considered automatically renewed for another five years. The members of the Managing and Supervisory Boards are employed under contract for management or supervision. The existing contracts of the members of the Managing and Supervisory Boards are in force until the termination of office. No compensations or indemnities for the individuals in case of early termination are provided for in any of the contracts for management concluded with Eurohold Bulgaria AD or any of its subsidiaries. Supervisory Board Date of Managemen t Contract Until Asen Hristov Until termination Dimitar Dimitrov Until termination Ivan Munkov Until termination Managing Board Kiril Boshov Until termination Asen Minchev Until termination Iva Garvanska Until termination Borislav Feschev Until termination Asen Hristov Until termination As at the date of the present report, the company has an audit committee established. The Audit Committee of Eurohold Bulgaria AD is appointed by the General Meeting of Shareholders of the company on The members of the Audit Committee, with 3 years term of office, are Dimitar Stoyanov Dimitrov, Ivan Georgiev Munkov, Milena Vasileva Avramova. 19

20 VІ. CURRENT TRENDS AND POSSIBLE FUTURE DEVELOPMENT OF THE COMPANY ACTIVITY DEVELOPMENTS The main trends in the development of Eurohold Bulgaria AD in 2010 were related to the implementation of the investment program for restructuring of the company s investment portfolio in the three subholdings insurance, leasing and automobile. For the purposes of implementation of the strategic goals in 2010, the company has developed current objectives and policies for development. They are mainly focused at improvement of integration, profitability and financial position of the company. In 2010 Eurohold Bulgaria AD realized its strategy for sale of non strategic assets such as the production entities, whereas making efforts for the development of its three business lines. The funds received from the sale of non strategic assets are used for repayment of company s loans to financial institutions and related companies thus significantly reducing its costs for interests in Main Goals The main activity of Eurohold Bulgaria AD is dictated by its main goals, and namely: To satisfy the needs of its customers by means of offering innovative and competitive products and services; To increase the amount of sales in combination with high profitability; To ensure the required conditions for continuous improvement of synergies between its subsidiaries; To expand the markets it operates on and to increase the market shares of each of its subsidiaries; To recruit highly qualified management and employees; To provide better opportunities for professional development and promotion for each employee within the group. Mid-Term Goals and Strategies The mid-term goals set by Eurohold Bulgaria AD management are focused on the three subholdings insurance, leasing and automobile, as well as on the management of Group s cash through the investment intermediary Euro- Finance. After the formation of the three subholdings, efforts are directed to strengthening the companies market positions and developing the existing business. The main strategic goals are: Stable increase of market shares in all sectors and markets the group operates in; Continuing the group expansion strategy in the region Achieving loyal and diversified clients base. For the purposes of implementation of the strategic goals, the company developed current goals and policy for development. They are focused mainly on group s integration, profitability and financial position improvement: Real consolidation of the companies at subholding structure level with a common management. Establishment of common positions on subholding level relevant to reaching agreements for better delivery conditions, advertising and participation in public procurements, which significantly affects the reduction of costs pertaining to these activities; Realization of synergies from centralization and optimization of operations, marketing and all other business processes in the structure of the group; Optimization of costs for maintaining stock; Optimization of fixed costs; Optimization of inventory level, etc.; Consolidation of all sources of funding for the purposes of minimizing the administration costs; Opening new locations showrooms and car repairs stations; 20

21 Optimization of staff and equipment in car repairs activity; Introduction of better guarantee conditions for sold cars; Ensuring funding for the leasing subholding; Introduction of system for additional incentives for the insurance agents of Insurance Company Euroins AD who must forward customers to the automobile dealers and leasing companies; Change in the insurance portfolio directed to reduction of motor insurance share and decrease of acquisition costs; Achieving stable market share of the insurance companies on all markets; Continuing the insurance companies conservative policy in relation to the investment portfolio maintained; Development and realization of new competitive products under the main business lines insurance, cars and leasing. VІІ. RESEARCH AND DEVELOPMENT As a holding structure, Eurohold Bulgaria AD does not carry out independent research and development operations. These operations are performed by the established qualified information department for development of high technology information systems for the needs of the subsidiaries. VІІІ. PROTECTION OF ENVIRONMENT As a holding company, Eurohold Bulgaria AD does not carry out independent sales and production operations. To this end, the efforts are directed to the subsidiaries impact on the environment while performing their current operations. ІХ. INFORMATION REQUIRED BY THE PROVISIONS OF THE COMMERCE LAW 1. Number and nominal value of own shares acquired and transferred during the year, part of the capital they represent as well as the price of acquisition or transfer In 2010 the company has not redeemed its own shares, and no such shares are transferred, and at the end of the period the company does not hold its own shares. 2. Number and nominal value of own shares held, and the part of the capital they represent The company does not hold any own shares. 3. Information for the amount of remuneration for each of the members of the managing and supervising bodies for the reported financial year paid by Eurohold Bulgaria and its subsidiaries. In 2010, the members of the managing and supervising bodies have received the following net remunerations from Eurohold Bulgaria and its subsidiaries: from Eurohold Bulgaria AD from subsidiaries ОБЩО Supervisory Board 32, , ,875 Asen Hristov 14, , ,900 Dimitar Dimitrov 7,200 43,975 51,175 Ivan Munkov 10,800-10,800 Managing Board 108, , ,580 Kiril Boshov 24,000 76, ,620 Asen Minchev 24,000 33,600 57,600 Iva Garvanska 24,000 38,160 62,160 Borislav Feschev 24,000 56,740 80,740 Asen Asenov 12,000 65,460 77,460 No remunerations and/or benefits in kind have been paid to the members of the managing and supervisory body during the reporting period. Eurohold Bulgaria, and its subsidiaries, do not allocate amounts for payment of pensions, pension benefits or other similar benefits to the members of the managing and supervisory body. The members of the Managing and Supervisory Boards are appointed under management and supervision contracts. The existing contracts of the members of the managing and supervisory bodies with the company are in force until the termination of office. 21

22 4. Company s shares held by the members of the Managing and the Supervisory Boards As at the date of report, the members of the Managing and Supervisory board hold shares in the capital of Eurohold Bulgaria as follows: Name Supervisory Board Position Number of shares Asen Hristov Chairman of the SB 262,498 Dimitar Dimitrov Vice Chairman of the SB 200 Independent member of Ivan Munkov the SB 25,000 Managing Board Kiril Boshov Chairman of the MB 232,000 Asen Minchev Executive member of the MB 370,700 Iva Garvanska Vice chairwoman of the MB 74,400 Asen Asenov Member of the MB 140,000 Borislav Feschev Member of the MB - Total: 1,104,798 No options for acquisition of shares by the company in favor of the managing bodies, employees and third persons are issued. 5. Rights of the members of the boards to acquire shares and bonds of the company 6. Information for participation of the boards members in business companies as general partners, for holding more than 25 per cent of the capital of another company, as well as for their participation in the management of other companies and cooperative societies in the capacity of authorized representatives, managers or board members Eurohold Bulgaria AD is managed by Managing and Supervisory Board consisting of five and three individuals, respectively. The Managing Board of the company comprises of five members: Kiril Ivanov Boshov, Asen Minchev Minchev, Iva Hristova Garvanska, Borislav Nikolaev Feschiev and Asen Emanuilov Asenov. The Supervisory Board comprises of Asen Milkov Hristov, Dimitar Stoyanov Dimitrov and Ivan Georgiev Munkov. The operating management of Eurohold Bulgaria AD is performed by the executive member of the MB, Asen Minchev, and the Chairman of the MB, Kiril Boshov, jointly and severally. There are no family relations found among the members of the managing and supervising bodies. Company s operations do not depend on the individual professional experience or qualification of other employees. As at the date of the present document, there are no agreements or other arrangements made with Eurohold Bulgaria s employees for their participation in the company s capital. The members of the MB and the SB of the company may freely acquire shares in the capital, as well as company s bonds on regulated market of securities in full compliance with the Law against Market Misuse with Financial Instruments and the Law for Public Offering of Securities. No options for acquisition of shares of the company are issued in favor of managing and supervising bodies, employees or third persons. 22

23 Supervisory Board Name: Position: Business addres: Information for significant participations in the management, operations and/or ownership of other companies: Information for terminated participations in the management, operations and/or ownership of other companies Относим професионален опит Coercive administrative measures and penalties Asen Milkov Hristov Chairman of the Board of Directors and a representative Sofia, 43 Hristofor Kolumb Blvd. Alfa Euroactive EOOD sole owner of the capital and manager; Avto Union Group AD Chairman of the Board of Directors; Avto Union AD Chairman of the Board of Directors; Autoplaza EAD member of the Board of Directors; Cherno More Basketball Club EAD Chairman of the Board of Directors; Balkan International Basketball League OOD manager; Bulstar Investment AD Chairman of the Board of Directors; Euroins Osiguruvanje AD, Macedonia Chairman of the Board of Directors; Euroins Romania Asigurare Reasiguarare S.A., Romania member of the Board of Directors; Inter Sigorta AD Chairman of the Board of Directors; Euro Power AD Chairman of the Board of Directors; Euro Finance AD Chairman of the Board of Directors; Eurohold Bulgaria AD Chairman of the Supervisory Board; Corporate Advisers EOOD sole owner of the capital and manager; Scandinavia Motors AD Chairman of the Board of Directors; Smartnet EAD Chairman of the Board of Directors; Starcom Holding AD Executive member of the Board of Directors; Starcom Hold AD Executive member of the Board of Directors; Star Corporate AD Executive member of the Board of Directors; Formoplast AD representative pursuant to article 234 (1) of the Commerce Law, Executive member of the Board of Directors; Formoplast 98 АD Chairman of the Board of Directors. Geoenergoproekt AD Chairman of the Board of Directors until Eurotest Control EAD Chairman of the Board of Directors until ; Etropal AD Chairman of the Board of Directors until ; Insurance Company Euroins AD member of the Supervisory Board until ; Plastchim T AD member of the Board of Directors until Profonika EOOD sole owner of the capital and manager until Asen Hristov has a master s degree, major Physics in Sofia University St. Kliment Ohridski, and specializes in the Institute of Nuclear Research, town of Dubno, Russia. He has specialized management at Open University London. He speaks Russian and English. Asen Hristov has taken the above managing positions during different periods during the last 5 years. He was Chairman of the Board of Directors of Eurobank AD from 1997 to 2000 and has performed representative functions, he was Chairman of the Supervisory Board of Insurance Company Euroins AD from 2000 to 2007, Chairman of the Board of Directors of Scandinavia Motors AD authorized dealer of SAAB for Bulgaria, from 2005 until now, as well as of the investment intermediary Euro- Finance AD. During the last five years the person has not been imposed any coercive administrative measures or administrative penalties in relation to his activity; he was not sentenced for frauds; in his capacity of responsible person, he has not been, directly or through related parties, involved in insolvency, liquidation procedures, or receiver s administration; he has not been deprived by the court from the right to participate in managing and/or supervising bodies of other companies. 23

24 Name Position: Business address: Information for existing participations in other companies as a member of the managing or supervising body, authorized representative, higher managing authority, general partner Relevant professional experience Information for participations in other companies out of the scope of Eurohold Bulgaria AD group as a member of the managing or supervising body, authorized representatives, higher managing authority, general partner, terminated during the last five years Coercive administrative measures and penalties Name Position: Business address: Information for existing participations in other companies as a member of the managing or supervising body, authorized representative, higher managing authority, general partner Relevant professional experience Information for participations in other companies out of the scope of Eurohold Bulgaria AD group as a member of the managing or supervising body, authorized representatives, higher managing authority, general partner, terminated during the last five years Coercive administrative measures and penalties Dimitar Stoyanov Dimitrov Deputy Chairman of the Supervisory Board Sofia, 43 Hristofor Kolumb Blvd. Eurologistic Technologies EOOD manager; Euro Power AD Executive Director; Insurance Company Euroins AD authorized representative; Green EOOD sole owner of the capital and manager; Cable Network AD Executive Director; Creative Software Solutions EOOD manager and sole owner of the capital; Profonika EOOD manager; Smartnet EAD Executive member of the Board of Directors; Starcom Hold AD member of the Board of Directors; He has master s degree in Electronics and Automation, Technical University Sofia. For the period he was executive director of the holding company Starcom Holding AD. Since 2005, he has been an authorized representative of Insurance Company Euroins AD, and for the period he was Information Service, Statistics and Analyses Director at the same company. Bonds Avisers EOOD sole owner of the capital and manager until Eurohotels AD member of the Board of Directors until ; Iztok Plaza EAD executive director until ; Starcom Holding AD (formerly known as Bulgarian Holding Corporation AD) executive director until During the last five years the person has not been imposed any coercive administrative measures or administrative penalties in relation to his activity; he was not sentenced for frauds; in his capacity of responsible person, he has not been, directly or through related parties, involved in insolvency, liquidation procedures, or receiver s administration; he has not been deprived by the court from the right to participate in managing and/or supervising bodies of other companies. Ivan Georgiev Munkov Independent member of the Supervisory Board Sofia, 43 Hristofor Kolumb Blvd. Bulglass OOD manager Ivan Munkov has master s degree in law from Sofia University St. Kliment Ohridski. Ivan Munkov has been a lawyer in bank Biochim AD (at present HVB Bank Biochim AD), as well as in Promotion Bank AD. He has taken the position of chief lawyer, head of Credit Transactions Legal Service Department in Eurobank AD; Head of Legal Department and Head of Business Responsibilities in Insurance Company Euroins AD. None During the last five years the person has not been imposed any coercive administrative measures or administrative penalties in relation to his activity; he was not sentenced for frauds; in his capacity of responsible person, he has not been, directly or through related parties, involved in insolvency, liquidation procedures, or receiver s administration; he has not been deprived by the court from the right to participate in managing and/or supervising bodies of other companies. 24