Operating risk Operating risk is the risk from direct or indirect losses arising from a wide range of reasons related to the processes, personnel, technologies and infrastructure of the Group, as well as from external factors different than credit, market and liquidity risks, such as those arising from legal and regulatory requirements and common standards of corporate behaviour. Operating risks arise from all operations of the Group. 5. Financial risk management (continued) Operating risk (continued) The objective of the Group is to manage operating risk in such a way as to balance between the avoidance of financial losses and injuring the reputation of the Group and the overall efficiency of the costs and the avoidance of the control procedures which limit initiative and creativity. The primary responsibility for developing and implementing operational risk controls is borne by the senior management within each business unit. This responsibility is supported by the development of common Group standards of operational risk management in the following fields: Requirements for appropriate allocation of duties, including independent authorization of transactions; Requirements for monitoring and reconciliation of transactions; Compliance with regulatory and other legal requirements; Control documentation and procedures; Requirements for periodic assessment of operational risks and the adequacy of the controls and procedures to deal with identified risks; Requirements for reporting of operating losses and proposed remedial action; Development of emergency Training and professional development; Ethics and business standards; Reduction of risks, including insurance when expedient; Compliance with the standards of the Group is supported by a program for periodic reviews undertaken by Internal Audit. The results of the reviews of Internal Audit are discussed with the management of the business unit to which they refer, with summaries submitted to the Audit Committee and senior management of the Group. Capital management The policy of the Management is directed at maintenance of strong capital base so as to keep owners’ trust and the market as a whole and ensure future business development conditions The aims at maintaining a balance between the higher return rate that is possible in case of lower indebtedness levels and the benefits and security of a strong capital position. In 2011 the return on equity is minus 2.4% (2010: 5.88%). Over the year no change in the Company’s capital management has occurred.
Financing under the Project for Development of Technologies for Ship Inspection and Certification and Internet-Based System for Inspection Management at the Bulgarian Register of Shipping; financing by the National Investment Fund at the Small and Medium Size Enterprises Promotion Agency for development of a new technology for insulation system at Elprom ZEM AD and financing through DSK Bank AD under the terms and conditions of an EBRD credit line for energy efficiency and renewable energy sources at Leiarmach AD and fund Bulyard Shipbuilding Industry EAD financing through the Ministry of Labour and Social Works and EBRD. 30. Provisions In BGN thousand Guarantees Lawsuits Other Balance as of 1 January 2011 361 10 5 376 Provisions charged over the year 400 - 362 762 Provisions used (142) - (156) (298) Provisions reintegrated (47) - - (47) Balance as of 31 December 2011 572 10 211 793 Balance as of 1 January 2012 572 10 211 793 Provisions charged over the year - - - - Provisions used (72) - (117) (189) Provisions reintegrated - - - - Balance as of 31 March 2012 500 10 94 604 Including: - non-current 35 10 - 45 - current 465 - 94 559 Guarantees Guarantee provision relates mostly to engines sold to Elprom ZEM and guarantee services under shipbuilding contracts of Bulyard Shipbuilding Industry AD. The computation of the provision is based on estimates made by using historical data for guarantees associated with similar products and services. Guarantees relating to a period longer than one year as of the date of the statement are reported as liabilities. Lawsuits provision The estimated expenses on provisions amounting to BGN 10 thousand are based on detailed information about lawsuits initiated against the group companies. Other Provisions for costs relating to commitments under contract for the payment of commissions for equipment manufactured and supplied by Elprom ZEM to Iran. 30a Income of hired people
IHB Shipping CO EAD Bulgaria 100.00 Indirect control Emona LTD Marshal Islands 100.00 Indirect control Karvuna LTD Marshal Islands 100.00 Indirect control Marciana LTD Marshal Islands 100.00 Indirect control Skitia LTD Marshal Islands 100.00 Indirect control Odria LTD Marshal Islands 100.00 Indirect control Tirista LTD Marshal Islands 100.00 Indirect control Rekolta 2011 ЕАD Bulgaria 100.00 Subsidiary Augusta LTD Marshal Islands 100.00 Indirect control Serdika LTD Marshal Islands 100.00 Indirect control Dunav Tours AD Bulgaria 48,44 Associate Odesos PBM АD Bulgaria 30% Associate Istrum Travel Cyprus 50% Associate Related parties transactions are carried out under fair market conditions. Transactions with shareholders with significant influence (not eliminated) In BGN thousand 31 March 2012 2011 BULLS AD – loan interest expenses 11 1 Loans granted to Bulls AD 5,001 453 Loans repaid by Bulls AD 14 - Transactions with companies related with key management personnel (not eliminated) In BGN thousand 31 March 2012 2011 Stadis AD – loan interest expenses 52 186 granted to Stadis AD 1,770 18,446 Loans repaid by Stadis AD - 15,040 Transactions with associates 31 March 2012 2011 In BGN thousand Dunav Tours AD –loan interest income 6 58 Liquidation proceeds from Ship Design AD – in liquidation 26 Dividend income by Odesos PBM AD 99 Loans granted to Dunav Tours AD 561 391 Loans repaid by Dunav Tours AD 86 2,347 Open balances with related parties as at the end of the reporting and previous period are as follows: Payables on loans granted with interest.