BEYAZ FİLO OTO KİRALAMA A.Ş.

Transcription

1 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 1 JANUARY- 31 DECEMBER 2011 TOGETHER WITH INDEPENDENT AUDITOR S REPORT (ORIGINALLY ISSUED IN TURKISH)

2 CONVENIENCE TRANSLATION INTO ENGLISH OF INDEPENDENT AUDITOR S REPORT ORIGINALLY ISSUED IN TURKISH INDEPENDENT AUDITOR S REPORT To the Board of Directors of Beyaz Filo Oto Kiralama A.Ş. 1. We have audited the accompanying consolidated financial statements of Beyaz Filo Oto Kiralama A.Ş. and its Subsidiary (together referred as the Group ) which comprise the consolidated balance sheet as of 31 December 2011 and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended and a summary of significant accounting policies and explanatory notes. Management s Responsibility for the Financial Statements 2. Management is responsible for the preparation and fair presentation of these consolidated financial statements that have been prepared in accordance with financial reporting standards issued by the Capital Markets Board of Turkey. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor s responsibility 3. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing principles issued by the Capital Markets Board of Turkey. Those principles require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Group s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Başaran Nas Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. a member of PricewaterhouseCoopers BJK Plaza, Süleyman Seba Caddesi No:48 B Blok Kat 9 Akaretler Beşiktaş İstanbul-Turkey Telephone: +90 (212) Facsimile: +90 (212)

3 Opinion 4. In our opinion, the accompanying consolidated financial statements give a true and fair view of the financial position of Beyaz Filo Oto Kiralama A.Ş. and its Subsidiary as of 31 December 2011 and of its financial performance and its cash flows for the year then ended in accordance with the financial reporting standards accepted by the Capital Markets Board (See Note 2). Additional paragraph for convenience translation into English 5. The accounting principles described in Note 2 to the consolidated financial statements (defined as CMB Financial Reporting Standards ) differ from International Financial Reporting Standards ( IFRS ) issued by the International Accounting Standards Board with respect to the application of inflation accounting for the period between 1 January - 31 December Accordingly, the accompanying consolidated financial statements are not intended to present the financial position and results of operations in accordance with IFRS. Başaran Nas Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. a member of PricewaterhouseCoopers (ORIGINALLY ISSUED IN TURKISH) Murat Sancar, SMMM Partner İstanbul, 21 February 2012

4 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES CONTENTS PAGE CONSOLIDATED BALANCE SHEETS CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME... 3 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY... 4 CONSOLIDATED STATEMENTS OF CASH FLOW GROUP S ORGANISATION AND NATURE OF OPERATIONS BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS CASH AND CASH EQUIVALENTS FIRM COMMITMENT-HEDGE ACCOUNT FINANCIAL LIABILITIES TRADE RECEIVABLES AND PAYABLES OTHER RECEIVABLES AND PAYABLES INVENTORIES ASSETS USED IN OPERATIONAL LEASE PROPERTY AND EQUIPMENT INTANGIBLE ASSETS PROVISIONS, CONTINGENT ASSETS AND CONTINGENT LIABILITIES PROVISIONS FOR EMPLOYEE BENEFITS OTHER ASSETS AND LIABILITIES SHARE CAPITAL SALES AND COST OF SALES MARKETING, SELLING AND DISTRIBUTION EXPENSES, GENERAL ADMINISTRATIVE EXPENSES OTHER OPERATING INCOME/(EXPENSE) FINANCIAL INCOME/(EXPENSE) TAX ASSETS AND LIABILITIES EARNINGS/(LOSS) PER SHARE RELATED PARTY BALANCES AND TRANSACTIONS FINANCIAL INSTRUMENTS AND NATURE AND EXTENT OF RISKS ARISING FROM FINANCIAL INSTRUMENTS FINANCIAL INSTRUMENTS (FAIR VALUE DISCLOSURES) SUBSEQUENT EVENTS OTHER MATTERS THAT SIGNIFICANTLY AFFECT CONSOLIDATED FINANCIAL STATEMENTS OR THAT SHOULD BE EXPLAINED SO THAT THE CONSOLIDATED FINANCIAL STATEMENTS ARE CLEAR, INTERPRETABLE AND COMPREHENSIBLE... 56

5 CONSOLIDATED BALANCE SHEETS AT 31 DECEMBER (Amounts expressed in Turkish Lira ( TL ) unless otherwise indicated.) ASSETS Current assets: Notes Cash and cash equivalents Trade receivables Due from related parties Other trade receivables Other receivables Due from related parties Other receivables Inventories Firm commitment hedge account Other current assets Total current assets Non-current assets: Trade receivables Other receivables Firm commitment hedge account Assets used in operational lease Property and equipment Intangible assets Deferred tax asset Other non-current assets Total non-current assets TOTAL ASSETS The consolidated financial statements as at and for the year ended 31 December 2011 have been approved for issue by the Board of Directors on 21 February The accompanying notes form an integral part of these consolidated financial statements. 1

6 CONSOLIDATED BALANCE SHEETS AT 31 DECEMBER (Amounts expressed in Turkish Lira ( TL ) unless otherwise indicated.) LIABILITIES Current liabilities: Notes Financial liabilities Trade payables Due to related parties Other trade payables Other payables Due to related parties Other payables Provisions for employee benefits Other current liabilities Total current liabilities Non-current liabilities: Financial liabilities Provisions for employee benefits Total non-current liabilities Total liabilities EQUITY Share capital Restricted profit reserves Share premium Accumulated losses 15 ( ) ( ) Net (loss)/income for the year 15 ( ) Total equity TOTAL LIABILITIES AND EQUITY The consolidated financial statements as at and for the year ended 31 December 2011 have been approved for issue by the Board of Directors on 21 February The accompanying notes form an integral part of these consolidated financial statements. 2

7 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED 31 DECEMBER (Amounts expressed in Turkish Lira ( TL ) unless otherwise indicated.) CONTINUING OPERATIONS: Notes Sales (net) Cost of sales (-) 16 ( ) ( ) GROSS PROFIT General administrative expenses (-) 17 ( ) ( ) Marketing, selling and distribution expenses (-) 17 ( ) ( ) Other operating income Other operating expenses (-) 18 ( ) ( ) OPERATING PROFIT Financial income Foreign exchange gain on firm commitment hedge account Financial expenses (-) 19 ( ) ( ) (LOSS)/PROFIT BEFORE TAX FROM CONTINUING OPERATIONS ( ) Income/tax expense from continuing operations Taxes on income Deferred tax income/(loss) ( ) NET LOSS/(PROFIT) FOR THE YEAR FROM CONTINUING OPERATIONS ( ) NET PROFIT/(LOSS) FOR THE YEAR FROM DISCONTINUED OPERATIONS - - (LOSS)/PROFIT FOR THE YEAR ( ) Other comprehensive income - - TOTAL COMPREHENSIVE (LOSS)/INCOME ( ) (LOSS)/EARNINGS PER SHARE FOR EQUITY HOLDERS OF THE PARENT (full TL) 21 (0,11) 0,002 The accompanying notes form an integral part of these consolidated financial statements. 3

8 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR YEARS ENDED 31 DECEMBER (Amounts expressed in Turkish Lira ( TL ) unless otherwise indicated.) Restricted (Loss)/Profit Share Profit Share Accumulated for the Total Capital Reserves Premium losses year Equity Balances at 1 January ( ) Transfers (53.668) - Total comprehensive loss ( ) ( ) Balances at 31 December ( ) ( ) Balances at 1 January ( ) Transfers ( ) ( ) - Total comprehensive income Balances at 31 December ( ) The accompanying notes form an integral part of these consolidated financial statements. 4

9 CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE YEARS ENDED 31 DECEMBER (Amounts expressed in Turkish Lira ( TL ) unless otherwise indicated.) Notes Cash flows from operating activities: (Loss)/profit before tax ( ) Adjustments to reconcile net (loss)/income to cash provided by operating activities: Depreciation and amortisation 10, Operational lease depreciation Interest expense Foreign exchange losses/(income), net ( ) Firm commitment hedge account 19 ( ) ( ) Provision for doubtful receivables, net 6, Reserve for employment termination benefits 13 (33.398) Provision for impairment on inventories 8, ( ) Proceeds from sales of assets used in operational lease and property and equipment Other non-cash items Net cash provided by operating activities before changes in operating assets and liabilities Net decrease in blocked bank deposits Net decrease in trade receivables Net decrease/(increase) in due from related parties ( ) Net increase in inventories ( ) ( ) Net decrease/(increase) in other assets ( ) Net (decrease)/increase in trade payables 6 ( ) Net increase in due to related parties Net increase in other current liabilities Net increase in provisions Proceeds from sales of assets used in operational lease Capital expenditures for operational leases 9 ( ) ( ) Net cash provided by operating activities Net cash used in investing activities: Capital expenditures 10,11 (12.036) (73.637) Net cash used in investing activities (12.036) (73.637) Net cash used in financing activities: Proceeds from financial liabilities Payments of financial liabilities ( ) ( ) Interest paid ( ) ( ) Capital increase - - Net cash used in financing activities ( ) ( ) Effects of exchange-rate changes on cash and cash equivalents (29.478) ( ) Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period The accompanying notes form an integral part of these consolidated financial statements. 5

10 1 - GROUP S ORGANISATION AND NATURE OF OPERATIONS Beyaz Filo Oto Kiralama A.Ş. ( Beyaz Filo or the Company ) and its subsidiary (collectively the Group ) are incorporated in Ankara, Turkey. Beyaz Filo has other correspondence offices in Macunköy, Ankara and Cevizli, Istanbul. The Group is controlled by four real persons as disclosed in Note 15. The Group primarily operates in the operational fleet rental business of all brands of motor vehicles. The Group has also started its own vehicle maintenance workshop in Ankara solely for its own fleet s needs, together with other vehicle maintenance service providers in other regions. The Group moved its workshop, previously located in Şaşmaz, Ankara, to Macunköy, Ankara in 2007 and has established another workshop in Cevizli, Istanbul in Both workshops were transferred to the subsidiary of the related party, Beyaz Sistem A.Ş. on June The number of leased assets used in operations is as of 31 December 2011 (31 December 2010: 5.837). The Company was established with the merger of two companies: Flap A.Ş. ( Flap ) and Beyaz Oto Kiralama, Turizm ve Sigortacılık A.Ş. ( Beyaz Oto ). Flap s origins go back to 1993, while Beyaz Oto was established at the end of Flap had two main activities; congress organisation and fleet rental. Beyaz Oto was owned by Flap and was established for the purposes of the operational fleet rental business, however its activities were extended to cover the sale of pre-owned cars. In 2006 the congress organisation business was spun off as another company, Flap Kongre ve Toplantı Hizmetleri A.Ş. ( Flap Kongre ), the operational fleet rental business was retained in Flap A.Ş. and the company s name changed to Beyaz Filo Oto Kiralama A.Ş. In accordance with Board of Directors Decision No. 37, dated 10 July 2007, the Company established a new company, Beyaz Operasyonel Oto Kiralama A.Ş. ( Subsidiary ), with a share capital of TL This decision was registered in the Trade Registry Gazette dated 23 July In this respect, Beyaz Filo and the Subsidiary have been consolidated on a line-by-line basis (Note 2.1). Registered address of the Company is as follows: Beyaz Filo Oto Kiralama A.Ş. Birlik Mahallesi Şehit Kurbani Akboğa Sokak No: Çankaya ANKARA Tel: The Group head office is located in Ankara and has 92 employees as at 31 December 2011 (31 December 2010: 96). 6

11 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS 2.1 Basis of presentation Principles governing the preparation of financial statements The financial statements of Beyaz Filo Oto Kiralama A.Ş. were prepared in accordance with the financial reporting standards adopted by the Capital Markets Board ( CMB ) ( CMB Financial Reporting Standards ). CMB regulated the principles and procedures of preparation, presentation and announcement of financial statements prepared by the entities with the Communiqué Serial XI No. 29, Principles of Financial Reporting in Capital Markets ( the Communiqué ). According to the Communiqué, entities shall prepare their financial statements in accordance with International Financial Reporting Standards ( IAS/IFRS ) endorsed by the European Union. Until the differences of the IAS/IFRS as endorsed by the European Union from the ones issued by the International Accounting Standards Board ( IASB ) are announced by Turkish Accounting Standards Board ( TASB ), IAS/IFRS issued by the IASB shall be applied. Accordingly, Turkish Accounting Standards/Turkish Financial Reporting Standards ( TAS/TFRS ) issued by the TASB which are in line with the aforementioned standards shall be considered. Beyaz Filo Oto Kiralama A.Ş. and its Subsidiary, maintain their books of account and prepare their statutory financial statements in accordance with the Turkish Commercial Code (TCC), tax legislation and the Uniform Chart of Accounts issued by the Ministry of Finance ( Statutory records ). The consolidated financial statements are adjusted by reflecting necessary adjustments and reclassifications to financial statements that are prepared based on the statutory records of Beyaz Filo Oto Kiralama A.Ş. and its Subsidiary and by using different accounting policies for the purpose of fair presentation in accordance with CMB Financial Reporting Standards. Consolidated financial statements have been prepared on historical cost basis except for the assets and liabilities measured at their fair values. Preparation of consolidated financial statements requires the usage of estimations and assumptions which may affect the reported amounts of assets and liabilities as of the balance sheet date, disclosure of contingent assets and liabilities and reported amounts of income and expenses during financial period. Although the estimations and assumptions are based on the best estimates of the management s existing incidents and operations, they may differ from the actual results. The estimates and assumptions that might lead to significant amendments in the carrying values of assets and liabilities in the following financial reporting periods are stated in Note 2.5. With the decision taken on 17 March 2005, the CMB has announced that, effective from 1 January 2005, the application of inflation accounting is no longer required for companies operating in Turkey and preparing their financial statements in accordance with the accounting and financial reporting principles accepted by the CMB ( CMB Financial Reporting Standards ). Accordingly, the Company did not apply IAS 29 Financial Reporting in Hyperinflationary Economies ( IAS 29 ) issued by IASB in its financial statements for the accounting years starting 1 January

12 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) Group Accounting (i) (ii) The consolidated financial statements include the accounts of the parent company, Beyaz Filo, and the Subsidiary on the basis of accounting principles set out in paragraphs (ii) to (iv) below. The financial statements of the subsidiary included in the consolidation have been prepared as of the date of the consolidated financial statements; and in accordance with the CMB Financial Reporting Standards. A subsidiary is a company over which Beyaz Filo has the power to control the operating and management policies to exercise more than 50% of the voting rights. Subsidiary refers to a company in which more than 50% of whose voting rights belong to the Group due to the shares it owns directly and/or indirectly and companies over which the Group has control on voting rights or financial and business activities, even though it does not own more than 50% of voting rights. (iii) The balance sheet and income statement of the Subsidiary are consolidated on a line-by-line basis and the carrying value of the investment held by the Company and the Subsidiary is eliminated against the related equity. Intercompany transactions and balances between the Company and its Subsidiary are eliminated on consolidation. The cost of, and the dividends arising from, shares held by the Company in its Subsidiary are eliminated from equity and comprehensive income statement, respectively. (iv) The Subsidiary is consolidated from the date on which control was transferred to the Group and is no longer consolidated from the date that control ceases. Where necessary, accounting policies for the Subsidiary have been changed to ensure consistency with the policies adopted by the Company. The table below sets out the consolidated Subsidiary and shows the proportion of ownership interest and effective interest of the Company in this subsidiary at 31 December 2011 and 2010: Direct and indirect Proportion of ownership interest by effective Subsidiary the Company (%) interest (%) Beyaz Operasyonel Oto Kiralama A.Ş. 99,99 99,99 The subsidiary is registered in Turkey in the following address: 8. Cd. No:1 / Birlik -Çankaya and established for attending public tenders Comparatives The current consolidated financial statements of the Group include comparative financial information to enable the determination of the financial position and performance. Comparative figures are reclassified, where necessary, to conform to changes in presentation in the current period consolidated financial statements. 8

13 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2.2 Amendments to International Financial Reporting Standards a) Standards, amendments and interpretations effective for the financial years beginning on or after 1 January 2011 and for the interim periods beginning on or after 1 January 2011 which are relevant to the Group s operations and adopted by the Group : IAS 24 (revised), Related party disclosures, is effective for annual periods beginning on or after 1 January The revised standard removes the requirement for government-related entities to disclose details of all transactions with the government and other government-related entities. It also clarifies and simplifies the definition of a related party. Earlier adoption is permitted either for the entire standard or for the reduced disclosures for government-related entities. b) Standards, amendments and interpretations effective for the financial year beginning on or after 1 January 2011 and for the interim periods beginning on or after 1 January 2011 not having a significant effect on the Group s financial statements: IAS 32 (amendment), Financial instruments: Presentation, is effective for annual periods beginning on or after 1 February The amendment recognizes that the previous requirement to classify foreign-currency-denominated rights issued to all existing shareholders on a pro rata basis as derivative liabilities is not consistent with the substance of the transaction, which represents a transaction with owners acting in their capacity as such. The amendment therefore creates an exception to the fixed for fixed rule in IAS 32 and requires rights issues within the scope of the amendment to be classified as equity. The amendment should be applied retrospectively. Early adoption is permitted. IFRIC 19, Extinguishing financial liabilities with equity instruments, is effective for annual periods beginning on or after 1 July IFRIC 19 clarifies the accounting when an entity renegotiates the terms of its debt with the result that the liability is extinguished by the debtor issuing its own equity instruments to the creditor (referred to as a debt for equity swap ). Early adoption is permitted. The interpretation should be applied retrospectively from the beginning of the earliest comparative period presented, as adoption in earlier periods would result only in a reclassification of amounts within equity. IFRS 1 (amendment), First-time adoption of IFRS, is effective for annual periods beginning on or after 1 July The amendment Provides the same relief to first-time adopters as was given to current users of IFRSs upon adoption of the amendments to IFRS 7. Also clarifies the transition provisions of the amendments to IFRS 7. Earlier adoption is permitted. Early adoption is required for a first-time adopter that has a first reporting period that begins earlier than 1 July 2010 in order to benefit from the disclosure relief. IFRIC 14 (amendment), IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction, is effective for annual periods beginning on or after 1 January The amendment removes unintended consequences arising from the treatment of pre-payments where there is a minimum funding requirement. The amendment also results in pre-payments of contributions in certain circumstances being recognised as an asset rather than an expense. It will apply from the beginning of the earliest comparative period presented. Earlier adoption is permitted. Annual Improvements to IFRSs Amendments effect six standards and one IFRIC: IFRS 1, IFRS 3, IFRS 7, IAS 27, IAS 34 and IFRIC 13. 9

14 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) c) Standards, amendments and interpretations not yet effective and not early adopted by the Group: IFRS 7 (amendment), Financial instruments: Disclosures, 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, 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 non-depreciable 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. IAS 1 (amendment), Presentation of financial statements, 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. 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. IFRS 9, Financial instruments, 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. IFRS 9 was issued in November 2009 and October It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. 10

15 2 - BASIS OF PRESENTATION OF CONSOLIDATED 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. 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 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 10. 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 11. IFRIC 20, Stripping costs in the production phase of a surface mine. 2.3 Errors and changes in accounting policies/estimations Material changes in accounting policies or material errors are corrected, retrospectively; restating the prior year financial statements. There is neither material changes in accounting policies nor errors that requires restating the prior year financial statements. The effect of changes in accounting estimates affecting current year is recognised in the current year; effect of changes in accounting estimates affecting current and future years is recognised in the current year and also in future years. 11

16 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2.4 Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. (a) Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise cash in hand accounts, due from banks and other short term liquid investments with original maturities of three months or less and whose value change is immaterial (Note 3). (b) Related parties For the purpose of these consolidated financial statements, major shareholders, directors and key management personnel, together with their close family members and enterprises controlled by them are considered, and referred to, as related parties. A number of transactions are entered into with related parties in the normal course of business (Note 22). (c) Trade receivables Trade receivables that are created by the Group by way of providing services or goods directly to a debtor are carried at amortised cost using the effective interest method less provision for impairment. A risk provision for trade receivables is established if there is objective evidence that the Group will not be able to collect all amounts due. The amount of the provision is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The provision, if any, is recognised in the statement of income. If the amount of the impairment subsequently decreases due to an event occurring after the writedown, the release of the provision is reversed through other operating income (Note 6). (d) Inventories Inventories are valued at the lower of cost or net realisable value. Cost elements included in inventories comprise all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. The cost of inventories is determined on the specific identification basis for trade goods, moving weighted average basis for spare parts inventory and monthly weighted average basis for other inventories. Net realisable value is the estimated selling price in the ordinary course of business, less completion and selling expenses of the product (Note 8). (e) Trade payables Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method (Note 6). 12

17 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) (f) Financial liabilities Bank borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of income over the period of the borrowings using the effective interest method (Note 5). Borrowing costs incurred for the construction of any qualifying assets are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. The long-term portion of the borrowing of the Group can be included in the short-term liabilities unless the necessary covenants, which cause the recall of the borrowing given by the related financial institute (event of default exercises), are not met in relation with the borrowing obtained and before the balance sheet date. Finance leases Leases of property, plant and equipment where the Group substantially has all the risks and rewards of ownership is classified as finance leases. Finance leases are capitalized at the inception of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The interest element of the finance cost is charged to the comprehensive income statement over the lease period. (g) Assets used in operational lease In the case of the operating lease business, the economic ownership of the object of the lease remains with the lessor. Assets used in operational lease, which consist of motor vehicles, are carried at cost less straight-line depreciation. Depreciation is calculated on a pro rata basis at rates based on the contract periods of assets after deducting the residual value of the assets, in each case restated to the equivalent purchasing power at 31 December 2004 (Note 9). The depreciable amount of an asset used in operational lease is the cost of the asset less its residual value, which is determined as the expected market value at the end of the leasing period. The residual value represents the net amount which the enterprise expects to obtain from an asset at the end of its useful life after deducting the expected costs of disposal. Residual values are initially recorded based on appraisals and estimates. Realisation of the residual values is dependent on the Group s future ability to market the vehicles under the prevailing market conditions. Management reviews residual values periodically to determine that recorded amounts are appropriate and if expectations differ from previous estimates, the change is accounted for as a change in accounting estimate. 13

18 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) Gains or losses on disposal of assets used in operational lease and expenses for repair and maintenance of assets used in operational leases are charged to the comprehensive income statement. (h) Property and equipment and related depreciation Property and equipment are carried at historical cost less accumulated depreciation, in each case restated to the equivalent purchasing power at 31 December Property and equipment are depreciated on the restated amounts on straight-line basis at rates based on the estimated economic useful lives of assets (Note 10). The ranges of estimated useful lives are as follows: Motor vehicles Furniture and fixtures Leasehold improvement 5 years 5 years 5 years Gains or losses on disposal of property and equipment are determined by comparing proceeds with their carrying amounts and are included within the other operating income/(expense), in the income statement. Expenses for the repair of property and equipment are normally charged against income and expense. They are, however, capitalised in exceptional cases if they result in an enlargement or substantial improvement of the respective assets. The assets residual values and useful lives are reviewed and adjusted if appropriate at each balance sheet date. Leasehold improvements comprise primarily of the capitalised refurbishment costs and are amortised on a straight-line basis over the corresponding lease terms or their estimated useful lives, whichever is shorter. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. (i) Intangible assets Computer software licences Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (three to five years) (Note 11). 14

19 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) (j) Impairment of non-financial assets Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised at the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). (k) Deferred income taxes Deferred income tax is provided in full, using the liability method, on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled (Note 20). Deferred income tax liabilities are recognised for all taxable temporary differences, whereas deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax assets and deferred income tax liabilities related to income taxes levied by the same taxation authority are offset accordingly. (l) Employee benefits / employment termination benefits Provision for employment termination benefits represents the present value of future probable obligation of the Group arising from the retirement of its employees regarding the actuarial projections. Under the Turkish Labor Law, Group is required to pay termination benefits to each employee who has completed one year of service and whose employment is terminated without due cause, is called up for military service, dies or who retires after completing 25 years of service (20 years for women) and achieves the retirement age (58 for women and 60 for men) (Note 13). All actuarial gains and losses are recorded under comprehensive statement of income. (m) Foreign currency transactions and translation Transactions in foreign currencies during the period have been translated at the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies have been translated at the exchange rates prevailing at period end. Exchange gains or losses arising on the settlement and translation of foreign currency items have been included in the income statement. 15

20 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) Items included in the financial statements of the Group are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The consolidated financial statements are presented in Turkish lira, which is the Group s functional and presentation currency. (n) Provisions Provisions are recognised when the Group 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. (o) Share capital and dividends Ordinary shares are classified as equity. Pro rata capital increases to existing shareholders are accounted for at par value as approved. Dividends on ordinary shares are recognised as an appropriation of the profit in the period in which they are declared. (p) Offsetting Each material class of similar items according to their nature or function is presented separately in the financial statements. If a line item is not individually material, it is aggregated with other similar items according to their nature or function. If the essence of the transaction and events requires offsetting, presentation of these transactions and events at their net values or following up of the assets at their amounts after the deduction of impairment, is not evaluated as a breach of the non-deductibility rule. The income other than revenues, acquired by the Group as a result of the transactions performed in ordinary work flow, is recorded on the net value on condition that they are in compliance with the substance of the transaction or event. (r) Contingent assets and liabilities Possible assets or obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group are treated as contingent assets or liabilities. The Group does not recognise contingent assets and liabilities. Contingent assets and liabilities are disclosed where an inflow or outflow of economic benefits is probable. When the realisation of income or expense is virtually certain, the related assets and liabilities are not treated as contingent assets or liabilities, and they are recognised in the financial statements. (s) Earnings/(loss) per share Earnings/(loss) per share disclosed in the consolidated statements of income is determined by dividing net income/(loss) by the weighted average number of shares in existence during the period concerned. 16

21 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) In Turkey, companies can increase their share capital by making a pro-rata distribution of shares ( Bonus Shares ) to existing shareholders from retained earnings and revaluation surplus. For the purposes of earnings per share computations, the number of ordinary shares outstanding before the distribution of bonus share is adjusted for the proportionate change as if the event had occurred at the beginning of the earliest period reported and earnings per share is calculated accordingly. There was no difference between basic and diluted earnings per share for any class of shares for any of these years (Note 21). (t) Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. Sales of services Revenues from operational lease transactions are recognised in the period to which they relate under the accrual principle. Revenue is suspended when, in the management s opinion, collection becomes doubtful. Sales of vehicles Revenue is recognised on an accrual basis at the time deliveries or acceptances are made, and measured at the fair value of the consideration received or receivable. Net sales represent the invoiced value of goods shipped less sales returns and commission, excluding sales taxes. When the arrangement effectively constitutes a financing transaction, the fair value of the consideration is determined by discounting all future receipts using an imputed rate of interest. The difference between the fair value and the nominal amount of the consideration is recognised as interest income in the period on an accrual basis. Interest income Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate. 17

22 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) (u) Derivative financial instruments Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at their fair value. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models. Fair values of derivatives are carried as assets when positive and as liabilities when negative. The best evidence of the fair value of a derivative at initial recognition is the transaction price (i.e. the fair value of the consideration given or received). (v) Hedge accounting The Group documents at the inception of the hedge the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the hedging instruments that are used in hedging transactions are highly effective in offsetting changes in the values of hedged items. Fair value hedges The Group hedges the foreign currency risk arising from firm commitments to collect foreign currency denominated lease receivables against providing operating lease service (hedged item) with foreign currency funds borrowed (hedging instrument). The fair value changes in the hedged item attributable to foreign currency risk are recognised as an asset or liability on the balance sheet under the account firm commitment hedge (Note 4) with a corresponding gain or loss which is recognised in the income statement under financial income and expenses (Note 19). The changes in the fair value of the hedging instrument are also recognised in profit or loss under financial income and expenses. (y) Subsequent events The Group adjusts the amounts recognised in its financial statements to reflect the adjusting events after the balance sheet date. If non-adjusting events after the balance sheet date have material influence on the economic decisions of users of the financial statements, they are disclosed in the notes to the consolidated financial statements. (z) Segment reporting As the Group operates in Turkey only in the area of operational leasing, the financial information is not disclosed on segment basis. 18