EKO FAKTORİNG A.Ş. FINANCIAL STATEMENTS AT 31 DECEMBER 2012 TOGETHER WITH INDEPENDENT AUDITOR S REPORT

Transcription

1 FINANCIAL STATEMENTS TOGETHER WITH INDEPENDENT AUDITOR S REPORT

2

3

4 FINANCIAL STATEMENTS CONTENTS PAGES BALANCE SHEET (STATEMENT OF FINANCIAL POSITION)... 1 STATEMENT OF COMPREHENSIVE INCOME... 2 STATEMENT OF CHANGES IN EQUITY... 3 STATEMENT OF CASH FLOWS NOTE 1 ORGANISATION AND NATURE OF OPERATIONS... 5 NOTE 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS NOTE 3 FINANCIAL RISK MANAGEMENT NOTE 4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS NOTE 5 CASH AND CASH EQUIVALENTS NOTE 6 FACTORING RECEIVABLES, NET NOTE 7 ASSET HELD FOR SALE NOTE 8 BORROWINGS NOTE 9 FINANCIAL LEASE PAYABLES NOTE 10 ISSUED DEBT SECURITIES NOTE 11 OTHER ASSETS AND PREPAID EXPENSES NOTE 12 PROPERTY AND EQUIPMENT NOTE 13 INTANGIBLE ASSETS NOTE 14 TAXES ON INCOME NOTE 15 EMPLOYMENT BENEFIT OBLIGATIONS NOTE 16 OTHER LIABILITIES AND ACCRUED EXPENSES NOTE 17 SHARE CAPITAL NOTE 18 RETAINED EARNINGS AND LEGAL RESERVES NOTE 19 OTHER OPERATING INCOME/(EXPENSES), NET NOTE 20 OPERATING EXPENSES NOTE 21 FACTORING REVENUES NOTE 22 FOREIGN EXCHANGE GAINS/(LOSSES), NET NOTE 23 TRANSACTIONS AND BALANCES WITH RELATED PARTIES NOTE 24 COMMITMENTS AND CONTINGENT LIABILITIES NOTE 25 SUBSEQUENT EVENTS... 33

5 BALANCE SHEET (STATEMENT OF FINANCIAL POSITION) (Amounts expressed in thousands of Turkish lira ( TL ) unless otherwise indicated.) ASSETS Notes Cash and cash equivalents 5 19,363 7,320 Factoring receivables, net 6 296, ,550 Assets held for sale Other assets and prepaid expenses 11 1, Property and equipment, net 12 7,829 6,209 Intangible assets, net Deferred tax asset, net 14 5,598 4,968 Total assets 330, ,541 LIABILITIES AND EQUITY Bank borrowings 8 193, ,960 Lease payables, net Issued debt securities 10 50,466 - Factoring payables Current income taxes payable, net Other liabilities and accrued expenses 16 1, Employment benefit obligations Total liabilities 247, ,612 EQUITY Share capital 17 21,026 21,026 Adjustment to share capital Total paid-in share capital 17 21,450 21,450 Share premiums 16,410 16,410 Revaluation fund 1, Retained earnings 44,689 30,368 Total equity 83,886 68,929 Total liabilities and equity 330, ,541 The accompanying notes form an integral part of these financial statements. 1

6 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2012 Notes Factoring interest income 21 67,149 42,776 Factoring commissions 21 7,335 5,125 Income from factoring operations 74,484 47,901 Interest expenses (28,271) (18,838) Foreign exchange gains and losses, (net) 22 (132) 29 Impairment loss on factoring receivables 6 (7,771) (8,817) Recoveries from impaired factoring receivables 6 1,050 5,706 Income after foreign exchange gains and losses, net and provision for impaired factoring receivables 39,360 25,981 Interest income other than factoring Other income/(expense), net 19 (315) 392 Operating profit 39,078 26,454 Operating expenses 20 (18,201) (15,959) Income before taxes from 20,877 10,495 Taxation on income from operations - Current year tax expense 14 (4,976) (2,554) - Deferred tax income ,128 Net profit for the year 16,611 9,069 Revaluation differences of tangible assets Deferred taxes related to revaluation differences 14 (80) - Total comprehensive income for the year 17,247 9,069 The accompanying notes form an integral part of these financial statements. 2

7 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2012 Adjustment Share to share Share Revaluation Retained Total capital capital premium fund earnings equity 1 January , , ,338 60,899 Dividend paid (1,039) (1,039) Net profit for the year ,069 9, December , , ,368 68,929 1 January , , ,368 68,929 Dividend paid (2,290) (2,290) Revaluation fund Net profit for the year ,611 16, December , ,410 1,337 44,689 83,886 The accompanying notes form an integral part of these financial statements. 3

8 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2012 Cash flows from operating activities Notes Net profit for the year 16,611 9,069 Adjustments to reconcile net income for the year to net cash provided from operating activities: Depreciation of property and equipment Amortization of intangible assets Proceeds from sale of property and equipment (2) - Reserve for employment benefit obligations Provision for impaired factoring receivables 6 7,771 8,817 Interest income, net (38,909) (23,938) Interest paid (26,338) (18,838) Interest received 67,180 48,242 Current year taxation expense 14 4,266 1,426 Other 72 - Cash flows from operating profit before changes in operating assets and liabilities 31,576 25,537 Net decrease/ (increase) in restricted cash 5 50 (50) Net increase in factoring receivables (64,340) (60,765) Net increase/ (decrease) in other assets and prepaid expenses (984) 66 Net decrease in asset held for sale Net increase/ (decrease) in other liabilities and accrued expenses 188 (10,091) Income taxes paid 14 (4,729) (2,547) Employment termination benefit paid 15 (95) (237) Net cash used in operating activities (38,298) (48,052) Cash flows from investing activities: Purchase of property, plant and equipment 12 (1,343) (121) Purchases of intangible assets-net of disposals 13 (85) - Proceeds from sale of property, plant and equipment 2 (34) Redemption of held-to-maturity securities - 5 Net cash used in investing activities (1,426) (150) Cash flows from financing activities: Proceeds/ (payments) of borrowings 5,039 50,781 Issuance of debt securities 48,840 - Increase in finance lease payables Dividends paid (2,290) (1,039) Net cash provided from financing activities 51,815 49,742 Net increase in cash and cash equivalents 12,091 1,540 Effect of foreign exchange rate changes on cash and cash equivalents Cash and cash equivalents at beginning of the year 5 7,270 4,948 Cash and cash equivalents at end of the year 5 19,361 7,270 The accompanying notes form an integral part of these financial statements. 4

9 NOTE 1 - ORGANISATION AND NATURE OF OPERATIONS Eko Faktoring A.Ş. ( the Company ) was established in The Company provides domestic factoring services. The company has 99 employees at 31 December 2012 (2011: 84). The registered office address of the Company is Eski Büyükdere Asfaltı, Ayazağa Yolu Cad., No: 4 Kat: 4 İz Plaza Giz Maslak, Istanbul/Turkey. The financial statements of the Company are authorized for issue by the Board of Directors on 1 March NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS The principal accounting policies adopted in the preparation of the financial statements at 31 December 2012 are set out below. These policies have been consistently applied to the year presented, unless otherwise stated. Accounting standards The Company maintains its books of account and prepares its statutory financial statements in Turkish Lira ( TL ), in accordance with the communiqué Uniform Chart of Accounts, Disclosures together with Form and Nature of Financial Statements to be Issued by Leasing, Factoring and Consumer Finance Companies ( Financial Statement s Communiqué ) issued by the Banking Regulation and Supervision Agency ( BRSA ) in the Official Gazette dated 17 May 2007, numbered 26525; and in accordance with Turkish Accounting / Financial Reporting Standards ( TAS/TFRS ) and their additions and comments issued by the Turkish Accounting Standard s Board ( TASB ). These financial statements are based on the statutory records with adjustments and reclassifications for the purpose of fair presentation in accordance with International Financial Reporting Standards ( IFRS ). The balance sheet and the income statement of the Subsidiary are on basis and the carrying value of the Subsidiary held by the Company eliminated against the related equity. Company s going concern The Company has prepared the financial statements according to the going concern assumption. Accounting for the effects of hyperinflation Prior to 1 January 2006, International Accounting Standard 29 ( IAS29 ), Financial Reporting in Hyperinflationary Economies, requires that the financial statements prepared in the currency of a hyperinflationary economy be stated in terms of the purchasing power of this currency at balance sheet date and restatement of the financial statements of the comparative periods within same terms. As the characteristics of the economic environment of Turkey indicate that hyperinflation has ceased, effective from 1 January 2006, the Company has no longer applied IAS 29. Accordingly, the measuring unit current at 31 December 2005 is treated as the basis for the valuation of the amounts in these financial statements. 5

10 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) Amendments in standards and interpretations The Company adopted the standards, amendments and interpretations published by the International Accounting Standards Board ( IASB ) and International Financial Reporting Interpretation Committee ( IFRIC ) and which are mandatory for the accounting periods beginning on or after 1 January 2012 which are related to the Company s operations. Standards, amendments and IFRICs applicable to 31 December 2012 year ends - IFRS 7 (amendment), Financial instruments: Disclosures on transfers of assets, is effective for annual periods beginning on or after 1 July This amendment will promote transparency in the reporting of transfer transactions and improve users understanding of the risk exposures relating to transfers of financial assets and the effect of those risks on an entity s financial position, particularly those involving securitisation of financial assets. Comparative information is not needed in the first year of adoption. Earlier adoption is permitted. - IFRS 1 (amendment), First-time adoption of IFRS, is effective for annual periods beginning on or after 1 July These amendments include two changes to IFRS 1. The first replaces references to a fixed date of 1 January 2004 with the date of transition to IFRSs, thus eliminating the need for entities adopting IFRSs for the first time to restate derecognition transactions that occurred before the date of transition to IFRSs. The second amendment provides guidance on how an entity should resume presenting financial statements in accordance with IFRSs after a period when the entity was unable to comply with IFRSs because its functional currency was subject to severe hyperinflation. Earlier adoption is permitted. - IAS 12 (amendment), Income taxes on deferred tax, is effective for annual periods beginning on or after 1 January This amendment introduces an exception to the existing principle for the measurement of deferred tax assets or liabilities arising on investment property measured at fair value. As a result of the amendments, SIC 21, Income taxes - recovery of revalued nondepreciable assets, will no longer apply to investment properties carried at fair value. The amendments also incorporate into IAS 12 the remaining guidance previously contained in SIC 21, which is withdrawn. Early adoption is permitted. New IFRS standards, amendments and IFRICs effective after 1 January IAS 19 (amendment), Employee benefits, is effective for annual periods beginning on or after 1 January These amendments eliminate the corridor approach and calculate finance costs on a net funding basis. Early adoption is permitted. - IAS 1 (amendment), Presentation of financial statements, regarding other comprehensive income is effective for annual periods beginning on or after 1 July The main change resulting from these amendments is a requirement for entities to group items presented in other comprehensive income (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). The amendments do not address which items are presented in OCI. Early adoption is permitted. 6

11 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) - IFRS 10, Consolidated financial statements, is effective for annual periods beginning on or after 1 January The standard builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. This new standard might impact the entities that a group consolidates as its subsidiaries. - IFRS 11, Joint arrangements, is effective for annual periods beginning on or after 1 January IFRS 11 is a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement rather than its legal form. There are two types of joint arrangement: joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue and expenses. Joint ventures arise where the joint operator has rights to the net assets of the arrangement and hence equity accounts for its interest. Proportional consolidation of joint ventures is no longer allowed. - IFRS 12, Disclosures of interests in other entities, is effective for annual periods beginning on or after 1 January The standard includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. - IFRS 10, 11 and 12 on transition guidance (amendment), is effective for annual periods beginning on or after 1 January The amendment also provide additional transition relief in IFRSs 10, 11 and 12, limiting the requirement to provide adjusted comparative information to only the preceding comparative period. For disclosure related to unconsolidated structured entities, the amendments will remove the requirement to present comparative information for the periods before IFRS 12 is applied. - IFRS 13, Fair value measurement, is effective for annual periods beginning on or after 1 January The standard aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP. - IAS 27 (revised), Separate financial statements, is effective for annual periods beginning on or after 1 January The standard includes the provisions on separate financial statements that are left after the control provisions of IAS 27 have been included in the new IFRS IAS 28 (revised), Associates and joint ventures, is effective for annual periods beginning on or after 1 January The standard includes the requirements for joint ventures, as well as associates, to be equity accounted following the issue of IFRS IFRS 7 (amendment), Financial instruments: Disclosures, on offsetting financial assets and financial liabilities, is effective for annual periods beginning on or after 1 January The amendment reflects the joint IASB and FASB requirements to enhance current offsetting disclosures. These new disclosures are intended to facilitate comparison between those entities that prepare IFRS financial statements and those that prepare US GAAP financial statements. 7

12 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) - IAS 32 (amendment), Financial instruments: Presentation, on offsetting financial assets and financial liabilities, is effective for annual periods beginning on or after 1 January The amendment updates the application guidance in IAS 32, Financial instruments: Presentation, to clarify some of the requirements for offsetting financial assets and financial liabilities on the balance sheet. - IFRS 1 (amendment), First time adoption, on government loans, is effective for annual periods beginning on or after 1 January The amendment addresses how a first-time adopter would account for a government loan with a below-market rate of interest when transitioning to IFRS. It also adds an exception to the retrospective application of IFRS, which provides the same relief to first-time adopters granted to existing preparers of IFRS financial statements when the requirement was incorporated into IAS 20 in Annual Improvements to IFRSs 2011 is effective for annual periods beginning on or after 1 January Amendments effect five standards: IFRS 1, IAS 1, IAS 16, IAS 32 and IAS IFRS 9, Financial instruments: Classification and Measurement, is effective for annual periods beginning on or after 1 January The standard addresses the classification, measurement and recognition of financial assets and financial liabilities. It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. - IFRS 10, (amendment) Consolidated Financial Statements, IFRS 12 and IAS 27 for investment entities is effective for annual periods beginning on or after 1 January These amendments mean that many funds and similar entities will be exempt from consolidating most of their subsidiaries. Instead, they will measure them at fair value through profit or loss. The amendments give an exception to entities that meet an investment entity definition and which display particular characteristics. Changes have also been made IFRS 12 to introduce disclosures that an investment entity needs to make. Early adoption of standards The Company did not early-adopt new or amended standards at 31 December Considering the financial statement items of the Company, it is deemed that the prospective changes would have no significant effect to over the financial position and performance of the Company. Cash and cash equivalents Cash and cash equivalents are initially recognised at cost in the balance sheet. Cash and cash equivalents consist of cash on hand, deposits at banks, defined amounts those are convertible to cash and highly liquid investments not significantly exposed to revaluation risk with maturities three months or less than three months (Note 5). Related parties In these financial statements, major shareholders of the Company, the organizations directly or indirectly financially related to the Company, key management personnel, board members of the Company and their families, in each case together with, companies controlled by or affiliated with them are considered and referred to as related parties (Note 23). 8

13 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) Factoring receivables and provision for impaired factoring receivables Factoring receivables originated by the Company by providing money directly to the borrower are considered as factoring receivables and are carried at amortised cost. All factoring receivables are recognised when cash is advanced to borrowers against their domestic and foreign receivables. A credit risk provision for impairment of the factoring receivables is established if there is objective evidence that the Company will not be able to collect all amounts due as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the receivables. The amount of the provision for impaired factoring receivables is the difference between the carrying amount and recoverable amount, being the present value of expected cash flows, including the amount recoverable from guarantees and collateral, discounted based on the interest rate at inception. For restructured receivables, the Company initially determines as to whether there has been an impairment as a result of the restructuring, and if so, a provision for impairment is recorded representing the difference between the recoverable amount, being the present value of expected cash flows from restructured receivables discounted using the interest rate of the original receivables, and the carrying amount. The provision also covers losses where there is objective evidence that probable losses are present in components of the portfolio at the balance sheet date. These have been estimated based upon historical loss experience which is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist. The provision made during the year is charged against the income for the period. Receivables that cannot be recovered are written off and charged against the provision for impaired factoring receivables. These receivables are written off after all the necessary legal procedures have been completed and the amount of the loss is finally determined. Recoveries of amounts previously provided for are treated as a reduction of the charge for provision for impaired factoring receivables for the period (Note 6). Property and equipment The Company has chosen the revaluation method as defined in (IAS 16) Plant, property and equipment in subsequent measurement of its buildings stated in its properties. The Company presents the buildings at the fair value based on valuation report of an independent licensed valuation company. Valuations are performed with sufficient regularity to ensure that fair value of buildings does not differ materially from its carrying amounts. Accumulated depreciation concerning the buildings is restated proportionate to the change in the gross carrying amount of the asset such that the net book value of the asset after revaluation equals its revaluated amount. All other property and equipment is stated at their net value which is their historical costs less any accumulated depreciation and impairment (Note 12). If a revaluation results in an increase in value, it should be credited to as other comprehensive income under the Statement of Comprehensive Income and accumulated in equity under the heading revaluation funds unless it represents the reversal of a revaluation decrease of the same asset previously recognised as an expense, in which case it should be recognised as income. Property and equipment are presented at recorded amount after the deduction of impairment and accumulated depreciation (Note 12). 9

14 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) Depreciation is calculated on the booked amounts of property and equipment using the straight-line method. The ranges of estimated useful lives are as follows: Buildings 50 years Office equipment, furniture and fixtures Leasehold improvements 4-5 years 4-5 years Estimated useful life and depreciation method is checked for every year in order to determine the probable effects of the changes in estimation and these changes are recorded. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down to its recoverable amount and the impairment provision is accounted for related to the income statement. Gains or losses on disposal of property and equipment are determined with the comparison of restated amounts and sales amounts and recorded to the related income or expense accounts. Intangible assets Intangible assets comprise of software expenses and amortized over their estimated useful lives of five years. Expenses for the repair and maintenance of computer software are accounted for in the income statement. However, the expenses are capitalized if they result in an enlargement or substantial improvement of the respective assets (Note 13). Impairment of assets At each reporting date, the Company evaluates whether there is any impairment indication on the asset. When an indication of impairment exists, the Company estimates the recoverable values of such assets. Impairment exists if the carrying value of an asset or a cash generating unit is greater than its recoverable amount which is the higher of value in use or fair value less costs to sell. Assets held for sale A tangible asset (or a disposal Company of tangible assets) classified as asset held for sale is measured at lower of carrying value or fair value less costs to sell. An asset (or a disposal group of assets) is regarded as asset held for sale only when the sale is highly probable and the asset (disposal group) is available for immediate sale in the frame of the common conditions for sale of assets. Financial liabilities and issued debt securities Financial liabilities are recognized initially at fair value, including the transaction costs incurred. Subsequently, financial liabilities are measured at amortized cost using the effective yield method. Any difference between initial amount after transaction costs and the amortized value is recognized in the income statement as finance cost over the redemption period of the financial liability. 10

15 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) Accounting for Finance Lease (where the Company is lessee ) Under the finance leases, the Company recognizes the assets, with the fair value of the leased asset or, if lower, the present value of the minimum lease payments each determined at the inception of the lease. The assets that are obtained with finance lease agreements are classified as property and equipment. The useful life of an asset leased under a finance lease is considered equal to the lease term and leased assets are depreciated over the period of lease term. The finance lease liabilities are presented in the balance sheet as Finance lease payables and related interest expenses and exchange gains and losses are charged to the income statement in the period that they occur (Note 9). Income taxes a. Income taxes currently payable Income taxes ( corporation tax ) currently payable are calculated based in accordance with the Turkish tax legislation (Note 14). Taxes other than on income are recorded within operating expenses (Note 20). b. Deferred income taxes Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. The rates enacted, or substantively enacted, at the balance sheet date are used to determine deferred income tax. The principal temporary differences arise from the provision for impaired factoring receivables, property and equipment, reserve for annual leave and provision for employment termination benefits (Note 14). Deferred tax liabilities and assets are recognised when it is probable that the future economic benefit resulting from the reversal of temporary differences will flow to or from the Company. Deferred tax assets resulting from temporary differences in the recognition of expense for income tax, and for financial reporting purposes are recognised to the extent that it is probable that future taxable profit will be available against which the deferred tax asset can be utilised. Provisions Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. If mentioned criteria are not formed, then the Company presents these cases in the related financial notes. Where the effect of the time value of money is material, the amount of a provision shall be the present value of the expenditures expected to be required to settle the obligation. The discount rate reflects current market assessments of the time value of money and the risks specific to the liability. The contingent assets are not accounted for in the financial statements unless they are realized and disclosed in the related notes to the financial statements. 11

16 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) Employment termination benefits Provision for employment termination benefits represents the present value of the future probable obligation of the Company. According to the labour laws and regulations in Turkey, the Company is required to provide compensation payments to employees who retires, leaves or is dismissed due to any inappropriate act defined in Turkish Labour Law. In this context, provision for employment termination benefits that represents the present value of the future probable obligation of the Company, is calculated with defined actuarial estimations and accrued to the financial statements (Note 15). Revenue recognition Factoring service revenues are the interest income collected from the customers and accrued on the cash advances paid to these customers. Commission income is composed of a percentage of the amounts on invoices subject to factoring. All income and expenses are recognised on the accrual basis. In finance leasing, the asset subject to leasing is accounted for in financial statements at a receivable amount equal to the net leasing investment. Finance income under finance lease is identified by applying a constant rate of return to the net investment subject to lease. Received lease payments are deducted from the gross lease investment by decreasing the cost and unearned finance income. The unearned finance income represents the difference between the gross amount of the leasing investment and the present value of the investment calculated by a rate of return used in leasing. Rate of return represents the rate that equalizes the sum of the minimum lease payments and the non-guaranteed remaining balance to the sum of the fair value and initial cost of the leased asset. Commissions and fees, resulted from factoring and finance lease operations, are accrued on a time basis. Foreign currency transactions Foreign currency transactions are translated into Turkish Lira using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are accounted for in the income statement. Translation of those balances is performed with the year-end exchange rates. Comparatives Financial statements of the Company have been prepared comparatively with the prior period in order to give information about financial position and performance. If the presentation or classification of the financial information is changed, in order to maintain consistency, financial information of the prior periods are also reclassified in line with the related changes. No material reclassification has been made in the prior period financial statements of the Company. 12

17 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) Reporting of cash flows For the purposes of statement of cash flows, cash and cash equivalents include cash and due from banks with original maturity periods of less than three months, excluding the interest income accruals accrued over time deposits (Note 5). Changes in accounting policies Material changes in accounting policies are applied retrospectively and previous period financial statements are rearranged. There is no material change in Company s accounting policies in current year. Changes in accounting estimates and errors Significant changes in accounting policies or significant errors are corrected, retrospectively; by restating the prior period consolidated financial statements. The effect of changes in accounting estimates affecting the current period is recognised in the current period; the effect of changes in accounting estimates affecting current and future periods is recognised in the current and future periods. Shareholders equity and dividends The ordinary shares are classified as share capital. The dividends distributed over the ordinary shares are recognized in the period when they are declared. The necessary expenses that incur directly from the increase in share capital are recognized under total paid-in share capital. Subsequent events Certain subsequent events that require an adjustment are provided with additional information regarding the position of Company as of the balance sheet date are recognised in the financial statements. Events that do not require an adjustment are presented at the notes to these financial statements, if they meet a certain level of importance (Note 25). 13

18 NOTE 3 - FINANCIAL RISK MANAGEMENT Credit risk Credit risk is the risk that one party to a financial instrument will fail to meet the terms of their agreements as foreseen and cause the Company to incur a financial loss. The Company is subject to risks as a result of factoring activities. Credit risk is controlled by allocating specific limits to parties that create the credit risk and following the anticipated collections from customers. Credit risk is fully concentrated in Turkey where the Company mainly operates. Serving many customers from different sectors allows the company to spread the credit risk. Geographical distribution of Company s assets and liabilities are as follows: Total Total 31 December 2012 assets % liabilities % Turkey 330, , European countries - - 9, , , Total Total 31 December 2011 assets % liabilities % Turkey 258, , European countries - - 2,760 1 Market risk 258, , Market risk is the risk of negative effect of fluctuations in interest rates, exchange rates, inflation rates, and market prices on the Company s share capital, income and ability to reach their objectives. The Company follows market risk under the headings, liquidity risk, exchange rate risk and interest rate risk. 14

19 NOTE 3 - FINANCIAL RISK MANAGEMENT (Continued) Interest rate risk The table below analyses assets and liabilities of the Company into relevant maturity buckets based on the remaining period at balance sheet date to the contractual repricing dates. Up to 3 3 to12 Over Non-interest 31 December 2012 months months 1 year bearing Total Assets Cash and cash equivalents ,363 19,363 Factoring receivables, net 187,927 66,103 42, ,639 Assets held for sale Other assets and prepaid expenses ,246 1,246 Property and equipment, net ,829 7,829 Intangible assets, net Deferred tax asset, net ,598 5,598 Total assets 187,927 66,103 42,609 34, ,926 Liabilities Bank borrowings 150,874 40,432 2, ,306 Issued debt securities 1,319 3,786 45,361-50,466 Factoring payable Current income taxes payable, net Financial lease payable Other liabilities and accrued expenses ,035 1,035 Employment benefit obligations Total liabilities 152,215 44,285 47,498 3, ,040 Net repricing gap 35,712 21,818 (4,889) 31,245 83,886 Up to 3 3 to12 Over Non-interest 31 December 2011 months months 1 year bearing Total Assets Cash and cash equivalents ,320 7,320 Factoring receivables, net 167,293 72, ,550 Assets held for sale Other assets and prepaid expenses Property and equipment, net ,209 6,209 Intangible assets, net Deferred tax asset, net ,968 4,968 Total assets 167,293 72,257-18, ,541 Liabilities Bank borrowings 161,884 26, ,960 Current income taxes payable, net Other liabilities and accrued expenses Employment benefit obligations Total liabilities 161,884 26,076-1, ,612 Net repricing gap 5,409 46,181-17,339 68,929 15

20 NOTE 3 - FINANCIAL RISK MANAGEMENT (Continued) Average interest rates of financial instruments are as follows: USD EUR CHF TL USD EUR CHF TL Assets Banks - Time deposit Factoring receivables Liabilities Financial liabilities Currency risk The exchange rate risk originates from the foreign currency denominated assets and liabilities. The Company holds certain amount of foreign exchange position result of its operations. The table below shows the Company s sensitivity to 10% change in USD, EUR and CHF rates. The table below presents the effect of 10% increase in USD, EUR and CHF rates against TL on income statement. In this analysis, all other variables, in particular the interest rates are assumed to remain constant. Profit/(Loss) Profit/(Loss) USD (14) (465) EUR - 3 CHF - (87) In case of 10% decrease in exchange rates against TL, there will be a negative effect on the income statement same as the amounts above. The Company s assets and liabilities denominated in foreign currencies are as follows: 31 December 2012 USD EUR CHF Total Assets Cash and cash equivalents Other assets and prepaid expenses Total assets Liabilities Financial lease payable Total liabilities Net balance sheet position (135) 4 - (131) 16

21 NOTE 3 - FINANCIAL RISK MANAGEMENT (Continued) 31 December 2011 USD EUR CHF Total Assets Cash and cash equivalents Other assets and prepaid expenses Total assets Liabilities Bank borrowings 6, ,438 Total liabilities 6, ,438 Net balance sheet position (6,138) 33 (871) (6,976) As of 31 December 2012 and 2011, exchange rates of the foreign currencies used by the Company are as follows: USD EUR CHF Liquidity risk Liquidity risk is the possibility that the Company will be unable to fund its net funding requirements. Liquidity risk can be caused by market disruptions or credit downgrades, which may cause certain sources of funding to dry up immediately. To hedge against this risk, management has diversified funding sources, and assets are managed with liquidity in mind, maintaining a proper balance of cash and cash equivalents. The table below analyses liabilities of the Company into relevant maturity buckets as at 31 December 2012 and 2011, based on the remaining period to the contractual maturity dates. Additionally, the interests that will be collected based on the assets and liabilities of the Company, are included in the table below. The amounts disclosed in the table are the contractual undiscounted cash flows. Up to 3 3 to12 Over No definite 31 December 2012 months months 1 year maturity Total Bank borrowings 142,159 53,975 2, ,336 Factoring payables Financial lease payables Issued debt securities 1,329 4,035 54,035-59,399 Total liabilities 143,514 58,089 56, ,507 17

22 NOTE 3 - FINANCIAL RISK MANAGEMENT (Continued) Up to 3 3 to12 Over No definite 31 December 2011 months months 1 year maturity Total Bank borrowings 163,470 28, ,435 Total liabilities 163,470 28, ,435 Fair value of financial instruments Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The fair value is best evidenced by a quoted market price, if one exists. The estimated fair values of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, judgement is necessarily required to interpret market data to develop the estimated fair value. Accordingly, the estimates presented herein are not necessarily indicators of the amounts the Company could realise in a current market exchange. The fair values of current financial assets and short term borrowings are considered to approximate their respective carrying values due to their short term nature and the insignificant discount effect. The carrying value of factoring receivables including the provision for doubtful receivables is also considered to approximate the fair value due to their short-term nature. Since the Company does not have any financial assets carried at fair value, no additional disclosure of fair value measurements by level of fair value hierarchy has been presented. Capital risk management According to 23rd article of Regulation on the Establishment and Operations of Factoring, Leasing and Consumer Finance Companies which was published in the Official Gazette dated 10 October 2006, total volume of factoring receivables originated from the funding activities of factoring companies cannot exceed 30 times of the equity. As of 31 December 2012, total volume of statutory factoring receivables (net) granted by the Company in its records is not exceeding 30 times of the statutory equity (2011: Not exceeding). 18

23 NOTE 4 - CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The Company makes accounting estimates and assumptions that may affect the reported amounts of assets and liabilities within the next financial year. Estimations and judgements are continually evaluated and are based on Management s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgements, apart from those involving estimations, in the process of applying the accounting policies. These disclosures supplement the commentary significant accounting policies (Note 2) and financial risk management (Note 25). Judgements that have the most significant effect on the amounts recognised in the financial statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include: Allowance for impairment of factoring receivables: A credit risk provision for impairment of factoring receivables is established if there is objective evidence that the Company will not be able to collect all amounts due. The estimates used in evaluating the adequacy of the provision for impairment of factoring receivables are based on the aging of these receivable balances, the historical trend of collection performance. Recognition of deferred tax asset: Deferred tax assets can be recorded as much as the said tax benefit is probable. Amount of taxable profits and possible tax benefits in the future is based on medium term business plan and expectations prepared by the company. The business plan is based on rational expectations of the company under current circumstances. The Company intends to not to distribute capital gains which may arise in next periods out of the sale of tangible fixed assets that the Company has accounted with fair value, for 5 years period subsequent to such transactions, in order to benefit from the tax exemptions specified in relevant legislation. Consequently, deferred tax liabilities which have been calculated from temporary differences derived between cost and fair value of the asset are calculated by taking into consideration of relevant exemptions (Note 14). NOTE 5 - CASH AND CASH EQUIVALENTS Cash on hand Banks: - Demand deposits 4,444 7,277 - Time deposits 14,902-19,363 7,320 As of 31 December 2012, time deposits are shorter than 3 months and also as of 31 December 2012, there is no blockage over bank deposits. (2011: TL50). For the purposes of the cash flow statement, cash and cash equivalents amounting to TL19,361 (2011: TL7,270) as of 31 December 2012 comprised from cash and due from banks excluding accrued interest and blocked deposits. 19

24 NOTE 6 - FACTORING RECEIVABLES, NET Domestic transactions 312, ,440 Impaired factoring receivables 42,282 35,266 Gross factoring receivables 354, ,706 Less: allowance for specific provision (42,282) (35,266) Less: allowance for general provision (2,099) (2,394) Less: unearned revenue (13,471) (9,496) Factoring receivables, net 296, ,550 Unearned revenue represents advance collections of factoring fees, recognised on pro-rata basis over the term of the collection of factoring receivables. At 31 December 2012 and 2011, factoring receivables are fixed interest rated. Factoring receivables can be analyzed as below; Neither past due nor impaired 297, ,779 Past due but not impaired 1,217 2,165 Impaired 42,282 35,266 Gross factoring receivables 341, ,210 Less: allowance for impairment (44,381) (37,660) Net factoring receivables 296, ,550 The aging analysis of the factoring receivables past due but not impaired is as follows: 1-3 months 1,217 2,165 Prospective aging analysis of the net factoring receivables is as follows. The balances have been stated excluding impaired factoring receivables and the general portfolio provision. Up to 3 month 190, ,663 3 month to 1 year 66,103 72,124 1 year more 42,609 9, , ,944 20

25 NOTE 6 - FACTORING RECEIVABLES, NET (Continued) Movements in the provision for impaired factoring receivables during the year are as follows: 1 January 37,660 34,425 Charge for the year 7,771 8,941 Recoveries of amounts previously provided (1,050) (5,706) 31 December (*) 44,381 37,660 (*) The total impairment provision for factoring receivables at 31 December 2012 amounts to TL44,381 (2011: TL37,660) of which TL42,282 (2011: TL35,266) represents the specific provisions for individually impaired receivables and the remaining amount of TL(2,099) (2011: TL2,394) represents the general portfolio provision. As of 31 December 2012, the total of post-dated cheques and notes for the factoring receivables of the Company is TL315,383 (2011: TL273,445) (Note 24). These cheques and notes are followed up under off-balance sheet accounts. Economic sector risk concentrations of gross factoring receivables are shown in the table below. The balances have been stated excluding impaired factoring receivables and the general portfolio provision % 2011 % Construction 51, , Consultancy, entertainment, advertising and media operations 45, , Sport activities 33, , Textile and textile products 30, , Mining industry 25, , Food, beverage and tobacco industry 17, , Transportation, warehousing and communication 14, , Electrical and optical equipment 12, , Transportation Vehicles Industry 10, , Tourism 10, , Health 10, , Nuclear energy, oil and coal products manufacturing 6, , Wholesale and retail trade 5, , Machinery and equipment 4, , Metal industry and processed material production 4, , Leather industry 3, , Wood and wooden products industry 2, , Paper and printing industry 2, , Agriculture, farming and forestry 1, , Chemical products industry 1, , Rubber and plastic products industry 1, , Electric, gas and water resources , Other 2, , , ,

26 NOTE 7 - ASSETS HELD FOR SALE Assets held for sale At 31 December 2012 and 2011 asset held for sale comprised of the tangible assets obtained against delinquent receivables. Movement for assets held for sale for the period ended 31 December is as follows: Cost: 1 January 31 December 2012 Additions Disposals 2012 Buildings Securities 38 - (36) (36) 116 Cost: 1 January 31 December 2011 Additions Disposals 2011 Buildings Securities 3 36 (1) 38 Land 14 - (14) (15) 152 NOTE 8 - BORROWINGS Borrowings at 31 December 2012 and 2011 are set out below according to their currencies: Domestic banks (*) Effective Original Effective Original interest rate currency TL interest rate currency TL Fixed rate borrowings: TL , , , ,522 USD ,477 4,678 EUR Total domestic bank borrowings 183, ,200 (*) The effective interest rates of borrowings from domestic banks have been calculated together with the Banking and Insurance Transactions Tax ( BITT ) rate. 22

27 NOTE 8 - BORROWINGS Foreign banks Effective Original Effective Original interest rate currency TL interest rate currency TL Fixed rate borrowings: TL ,511 9, USD ,000 1,889 CHF Total foreign bank borrowings 9,511 2,760 Total borrowings 193, ,960 NOTE 9 - FINANCIAL LEASE PAYABLES Net and gross financial lease liabilities that the Company has leased tangible fixed assets with financial leasing agreements are as follows: Gross leasing liabilities Up to 1 year years Gross leasing payables Deferred finance lease expenses (-) (26) - Net leasing payables NOTE 10 - ISSUED DEBT SECURITIES Bonds issued 50,466-50,466 - The Company has bonds those were issued through private placement. The details of those bonds are as follows: ISIN CODE Issue Date Issued Amount Redemption date Coupon period TRSEKOF July 2012 TL50,000, July Month 23

28 NOTE 10 - ISSUED DEBT SECURITIES (Continued) The coupons of the issued bonds have floating interest rates. For each coupon payment, the nominal interest rates are calculated with respect to the rates of related government debt securities issued by the Undersecretariat of Treasury with the methods defined in the circulars for those bonds. NOTE 11 - OTHER ASSETS AND PREPAID EXPENSES Advances given to courts Advances given to suppliers Prepaid expenses Deposits and guarantees given Advances given to personnel 47 - Receivable from personnel Other , NOTE 12 - PROPERTY AND EQUIPMENT Cost: 1 January 31 December 2012 Additions Disposals Revaluation 2012 Buildings (**) 6, ,447 Machinery and equipments (*) 1, (83) - 2,266 Furniture and fixtures (28) Leasehold improvements Accumulated Depreciation: 8,325 1,343 (111) 164 9,721 Buildings (498) (125) (71) Machinery and equipments (1,350) (249) 83 - (1,516) Furniture and fixtures (211) (41) 26 - (226) Leasehold improvements (57) (22) - - (79) (2,116) (437) (1,892) Net book value 6, (2) 716 7,829 24