1 AKDENİZ GÜVENLİK HİZMETLERİ A.Ş. CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH AS OF TOGETHER WITH INDEPENDENT AUDITORS REPORT
3 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES AS OF CONTENTS CONSOLIDATED BALANCE SHEETS CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 1 ORGANIZATION AND NATURE OF OPERATIONS... NOTE 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS... NOTE 3 BUSINESS COMBINATIONS... NOTE 4 JOINT VENTURES... NOTE 5 SEGMENT REPORTING... NOTE 6 CASH AND CASH EQUIVALENTS... NOTE 7 FINANCIAL ASSETS... NOTE 8 FINANCIAL LIABILITIES... NOTE 9 OTHER FINANCIAL LIABILITIES... NOTE 10 TRADE RECEIVABLES AND PAYABLES... NOTE 11 OTHER RECEIVABLES AND PAYABLES... NOTE 12 RECEIVABLES AND PAYABLES FROM ACTIVITIES OF FINANCE SECTOR... NOTE 13 INVENTORIES... NOTE 14 BIOLOGICAL ASSETS... NOTE 15 CONTRACT PROGRESS COSTS AND INCOME... NOTE 16 INVESTMENTS VALUED BY EQUITY METHOD... NOTE 17 INVESTMENT PROPERTIES... NOTE 18 PROPERTY, PLANT AND EQUIPMENT... NOTE 19 INTANGIBLE ASSETS... NOTE 20 GOODWILL... NOTE 21 GOVERNMENT GRANTS... NOTE 22 PROVISIONS, CONTINGENT ASSETS AND LIABILITIES... NOTE 23 COMMITMENTS... NOTE 24 PROVISIONS FOR EMPLOYEE BENEFITS... NOTE 25 PENSION PLANS... NOTE 26 OTHER ASSETS AND LIABILITIES... NOTE 27 EQUITY... NOTE 28 SALES AND COST OF SALES... NOTE 29 REASEARCH AND DEVELOPMENT EXPENSES, MARKETING, SELLING AND DISTRIBUTION EXPENSES, GENERAL ADMINISTRATIVE EXPENSES... NOTE 30 EXPENSES BY ATTRIBUTE... NOTE 31 OTHER OPERATING INCOME / EXPENSES... NOTE 32 FİNANCIAL INCOMES... NOTE 33 FİNANCIAL EXPENSES... NOTE 34 FIXED ASSETS AND DISCONTINUED OPERATIONS NOTE 35 HELD FOR SALE... TAX ASSETS AND LIABILITIES (INCLUDED DEFERRED ASSETS AND LIABILITIES)... NOTE 36 EARNINGS / LOSS PER SHARE AND CALCULATION OF EBITDA... NOTE 37 RELATED PARTY DISCLOSURES... NOTE 38 NATURE AND LEVEL OF RISKS ARISING FROM FINANCIAL INSTRUMENTS... NOTE 39 FİNANCIAL INSTRUMENTS (DISCLOSURES FOR THE PURPOSE OF FAIR VALUE DISCLOSURES AND HEDGE ACCOUNTING)... NOTE 40 SUBSEQUENT EVENTS... NOTE 41 OTHER MATTERS WHICH ARE SIGNIFICANT TO THE FINANCIAL STATEMENTS OR WHICH SHOULD BE DISCLOSED FOR THE PURPOSE OF TRUE AND FAIR INTERPRETATION OF THE FINANCIAL STATEMENTS...
4 AKDENİZ GÜVENLİK HİZMETLERİ A.Ş. CONSOLIDATED BALANCE SHEETS AS OF AND (Amounts are expressed in Turkish Lira (TL) unless otherwise stated) Reviewed Audited Note ASSETS Current Assets Cash and Cash Equivalents Financial Assets Trade receivables - Trade Receivables from Related Parties Other Trade Receivables Other Receivables - Non-trade Receivables from Related Parties Other Non-trade Receivables Inventories Other Current Assets Fixed Assets Property, Plant and Equipment Intangible Assets Deferred Tax Asset TOTAL ASSETS The accompanying accounting policies and notes form an integral part of these consolidated financial statements.
5 AKDENİZ GÜVENLİK HİZMETLERİ A.Ş. CONSOLIDATED BALANCE SHEETS AS OF AND (Amounts are expressed in Turkish Lira (TL) unless otherwise stated) Reviewed Audited Note LIABILITIES Short-term Liabilities Financial Liabilities Trade Payables - Trade Payables to Related Parties Other Trade Payables Other Payables - Non-trade Payables to Related Parties Other Non-trade Payables Current Income Tax Liabilities Other Short-term Liabilities Long-term Liabilities Financial Liabilities Provisions for Employee Benefits Deferred Tax Liabilities EQUITY Parent Company's Equity Paid-in Capital Share Premium Revaluation Funds Appropriated Reserves Set Aside from Profits Previous Year's Profit ( ) Net Profit / (Loss) for the Period Minority Interest TOTAL LIABILITIES The accompanying accounting policies and notes form an integral part of these consolidated financial statements.
6 AKDENİZ GÜVENLİK HİZMETLERİ A.Ş. CONSOLIDATED INCOME STATEMENTS FOR THE SIX MONTHS PERIODS ENDED AND (Amounts are expressed in Turkish Lira (TL) unless otherwise stated) Note Reviewed Reviewed CONTINUING OPERATIONS Sales Cost of Sales (-) 28 ( ) ( ) GROSS PROFIT Marketing, Selling and Distribution Expenses (-) 29 (67.691) (29.537) General Adminsitrative Expenses (-) 29 ( ) ( ) Other Operating Income Other Operating Expenses (-) ( ) PROFIT FROM MAIN OPERATES Share in Profit / Losses of Investments Valued by Equity Method Financial Income Financial Expenses (-) 33 ( ) ( ) PROFIT BEFORE TAX Tax Expenses ( ) ( ) - Tax Expenses for the Period 35 ( ) ( ) - Deferred Tax Expenses 35 (45.138) (7.790) PROFIT OF CONTINUING OPERATIONS DISCONTINUED OPERATIONS After Tax Profit / Loss of the Discontinued Operations PROFIT FOR THE PERIOD TOTAL COMPREHENSIVE INCOME/EXPENSE Profit/ (Loss) Distribution for the Period Minority Interest (288) (396) Parent Company's shares Total Comprehensive Income Distribution Minority Interest (288) (396) Parent Company's shares Earnings Per Share 36 0,32 3,82 Earnings Per Share from Continuing Operations 36 0,32 3,82 The accompanying accounting policies and notes form an integral part of these consolidated financial statements.
7 AKDENİZ GÜVENLİK HİZMETLERİ A.Ş. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE SIX MONTHS PERIODS ENDED AND (Amounts are expressed in Turkish Lira (TL) unless otherwise stated) Capital Share Premium Balance at ( ) Transfer to Accumulated Profits ( ) Net profit for the period (396) Balance at ( ) Revaluation Funds Appropriated Reserves Set Aside From Profits Previous Years Profits/(Losses) Net profit/(loss) for the period Minority Interest Total Equity Balance at ( ) Transfer to Accumulated Profits ( ) Share Premiums Revaluations of Land and Buildings by Selection of Revaluation Model (Note 18) Tax Effect on Revaluations of Land and Buildings by Selection of Revaluation Model (Note 18) (5.009) (5.009) Cpital Payment - Cash Net Profit for the Period (288) Balance at The accompanying accounting policies and notes form an integral part of these consolidated financial statements.
8 AKDENİZ GÜVENLİK HİZMETLERİ A.Ş. CONSOLIDATED CASH FLOW STATEMENTS FOR THE SIX MONTHS PERIODS ENDED AND (Amounts are expressed in Turkish Lira (TL) unless otherwise stated) Reviewed Audited A.CASH FLOWS FROM OPERATING ACTIVITIES Note Net Profit for the Period (Before Tax) Adjustments required to reconcile the profit before tax to the effects of non-cash items of income and expenses Depreciation Expenses Provision for Employment Termination Benefits Net Profit on Sales of Intangible Fixed Assets 31 (2.955) (36.884) Interest Income 32 ( ) -- Interest and Comission Expenses Discount on Receivables 10 (3.683) (3.201) Discount on Payables Operating Income Before Change in Assets and Liabilities Related with Operations Change in Trade Receivables ( ) Change in Inventories (22.166) Change in other receivables ( ) ( ) Change in other current assets ( ) Change in trade payables ( ) Change in other payables ( ) Change in other current liablities ( ) Tax paid ( ) ( ) Cashflows used in Operating Activities B.CASH FLOWS FROM INVESTING ACTIVITIES Purchases of Property, Plant and Equipment 18 ( ) (67.575) Purchases of Intangible Assets 19 (92.259) -- Selling of Property, Plant and Equipment Net Cash Flows Used in Investing Activities ( ) C.CASH FLOWS FROM FİNANCİNG ACTİVİTİES Financial Liabilities, Net ( ) ( ) Interest and Comission Expenses 33 ( ) ( ) Interest Income Capital Payment - Cash Share Premium Net Cash Flows Generated From Financing Activities ( ) Changes in Cash and Cash Equivalents Cash Equivalent, Begining of Period Cash Equivalent, End of Period The accompanying accounting policies and notes form an integral part of these consolidated financial statements.
9 1 NOTE 1 ORGANIZATION AND NATURE OF OPERATIONS Akdeniz Güvenlik Hizmetleri A.Ş. ( Akdeniz Güvenlik or the Parent Company ) was established with commercial form as Akdeniz Güvenlik Hizmetleri Ltd.Şti. in 2001 in Istanbul, Turkey. The current form of Anonim Şirketi has been registered on Main activity of the Akdeniz Güvenlik is guard and security services. The Company also provides consultancy and training for private security. The Company provides all these private services in line with the Turkish law no In addition, the Company provides set-up safety systems, technical support and monitoring services. Main clients of Akdeniz Güvenlik include state institutions and organizations, airports, open area security, hospitals, media-press, educational institutions, exhibition and congress security, public transportation services security, site and housing security, establishment and foundation security, stadium security at home and abroad. The Company holds all the certificates needed to provide private security services. These certificates are namely; activity permit certificate of Private Security Company, service adequacy certificate, setting up an alarm center and monitoring certificate, brand registration certificate and international quality standards certificate. The Company s registered address is at Mahmutbey Mahallesi, Kuğu Sokak No: Bağcılar- Istanbul. Atak Koruma ve Güvenlik Hizmetleri Ltd.Şti. Main activity of Atak Koruma ( Subsidiary Company ) is guard and security services. The Company operates within the framework of the Turkish law no.5188 which is Law of Private Security Services. Atak Koruma became a 99% subsidiary of Akdeniz Güvenlik in Erpa Joint Venture Erpa Joint Venture ( Erpa Joint Venture ) was established in Erpa Joint Venture works on project basis. Main activity of Erpa Joint Venture is private guard and security services. It operates within the framework of the Turkish Law no.5188 which is Law of Private Security Services. Akdeniz Güvenlik has 51% share in this joint venture. The business contract of the joint venture covers the years of 2011 and Pusula Joint Venture Pusula Joint Venture ( Pusula Joint Venture ) was established in Pusula Joint Venture works on project basis. Main activity of Pusula Joint Venture is private guard and security services. It operates within the framework of the Turkish Law no.5188 which is Law of Private Security Services. Akdeniz Güvenlik has 51% share in this joint venture. The business contract of the joint venture covers the year of 2012.
10 2 NOTE 1 ORGANIZATION AND NATURE OF OPERATIONS (Continued) Number of employees of the Group by years is as follows: Center personnel 30 8 Security personnel 7,552 5,560 7,582 5,568 NOTE 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS 2.1. Basis of Presentations The Group maintains its books of account and prepares its statutory financial statements in accordance with accounting principles in the Turkish Commercial Code ( TCC ) and tax legislation. The Communiqué No: XI/29 published by the Turkish Capital Markets Board (CMB) in respect of Financial Reporting in the Capital Markets entered into effect as from the first interim financial statements subsequent to In accordance with that Communiqué, the financial statements will be prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union. However, International Financial Reporting Standards (IFRS) will continue to be applied until the differences between the International Financial Reporting Standards (IFRS) and those adopted by the European Union will be declared by the Turkish Accounting Standards Board (TASB). Within this framework, the Turkish Accounting / Financial Reporting Standards (TFRS) which are published by the Turkish Accounting Standards Board and which are in compliance with the adopted standards will be applied. Turkish Capital Markets Board made an announcement on to the effect that inflation accounting should be discontinued for companies that operate in Turkey and prepare their financial statements in accordance with Accounting and Reporting Standards issued by the Capital Markets Board in effect from Based on this resolution the financial statements of the Group as from were not restated for the effects of inflation accounting as required by IAS 29 Financial Reporting in Hyperinflationary Economies. As the differences of the IAS/IFRS endorsed by the European Union from the ones issued by the IASB have not been announced by TASB as of the date of preparation of these consolidated financial statements, the consolidated financial statements have been prepared within the framework of Communiqué XI, No: 29 and related promulgations to this Communiqué as issued by the CMB in accordance with the accounting and reporting principles accepted by the CMB ( CMB Financial Reporting Standards ) which are based on IAS/IFRS. The consolidated financial statements and the related notes to them are presented in accordance with the formats required at the announcements of CMB those numbered 2008/16, 2008/18, 2009/2, 2009/4 and 2009/40. As per CMB s Communiqué Serial XI, No:29 and its announcements clarifying this communiqué enterprises are obliged to present the hedging rate of their total foreign exchange liability and total export and import amounts in the notes to the financial statements (Note 38).
11 3 NOTE 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) The financial statements are prepared in local currency (TL) under the historical cost convention as modified by the financial assets and financial liabilities carried at fair value based on the statutory records with adjustments and reclassifications for the purpose of fair presentation in accordance with Capital Markets Board Communiqué No. XI/ Functional and Presentation Currency The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in TL, which is the functional and presentation currency of the Group Basis of Consolidation a) The consolidated financial statements include the accounts of the Parent Company (Akdeniz Güvenlik), its Subsidiary Company (Atak Koruma) and its Joint Ventures (Erpa Joint Venture and Pusula Joint Venture) on the basis set out in sections below. The financial statements of the companies included in the scope of consolidation have been prepared as of the date of the consolidated financial statements and have been prepared in accordance with CMB Financial Reporting Standards applying uniform accounting policies and presentation. The results of Subsidiaries and Joint Ventures are included or excluded from their effective dates of acquisition or disposal respectively. b) Subsidiaries are companies over which Akdeniz Güvenlik has capability to control the financial and operating policies for the benefit of Akdeniz Güvenlik, through the power to exercise more than 50% of the voting rights relating to shares in the companies owned directly and indirectly by itself having the power to exercise control over the financial and operating policies. c) Joint Ventures are the business partnerships which are controlled by Akdeniz Güvenlik and one or more enterprising partner. Joint ventures are consolidated by using proportionate consolidation method. In other words, by way of shares of assets, liabilities, income and expenses of the partnerships are included at the rate of Akdeniz Güvenlik s share amount. In essence, proportionate consolidation method is the same with transaction of full consolidation method.
12 4 NOTE 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) d) The Subsidiary (Atak Koruma) is included in the consolidation dating from the transfer of control and ownership transferred to Akdeniz Güvenlik (2010). Joint ventures are included in the consolidation dating from when they were established (Erpa Joint Venture: 2009, Pusula Joint Venture: 2012). As of and effective percentage of shares and direct ownership rate of Akdeniz Güvenlik in the Subsidiary (Atak Koruma) and Joint Ventures (Erpa and Pusula) are as follows: Direct Ownership Rate (%) Effective Percentage of Shares (%) Consolidated Companies Atak Koruma ve Güvenlik Hizmetleri Ltd.Şti. 99% 99% 99% 99% Erpa Joint Venture (*) 51% 51% 51% 51% Pusula Joint Venture (*) 51% -- 51% -- (*) Joint ventures are established for specific business contracts and they are based on profit partnerships Assumption of Going Concern The consolidated interim financial statements of the Group are prepared on a going concern basis 2.5. Measurement Currency and Reporting Currency Functional and presentation currency of the Group is TL. The consolidated financial statements have been prepared under the historical cost convention, other than financial assets which are stated at fair value. The Group maintains its books of account and prepares its 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 and accounting principles issued by the Turkish Capital Markets Board (CMB).
13 5 NOTE 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.6. Prior Period Comparative Information To enable the determination of financial condition and performance trends, the Group discloses comparative information is respect of the previous period. Comparative figures are reclassified, where necessary, to conform to changes in presentation in the current year so that the reclassification will result in a more appropriate presentation of events or transactions Changes in Accounting Policies Estimates and Errors Material changes in accounting policies are applied retrospectively and the prior year consolidated financial statements are restated. If the application of changes in accounting estimates affects the financial results of a specific period, the accounting estimate change is applied in that specific period, if they affect the financial results of current and following periods; the accounting policy estimate is applied prospectively in the period in which change is made Significant Accounting Judgments, Estimates and Assumptions The preparation of financial statements in conformity with Communiqué XI-29 requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities for the next reporting period are as follows: (a) Provisions Provisions are recognized when, and only when the Group has a present obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date and the significant judgments are as follows: Allowance for doubtful debts reflect the amount set aside for the losses in the future related to receivables which exist at the balance sheet date but which, in the opinion of the management, carry the risk of collection due to current economic conditions. When evaluating whether receivables have suffered a loss in value the past performance of the debtors, their credibility in the market and their performance between the balance sheet date and report date together with changed circumstances are taken into consideration. In addition the collaterals existing as at the balance sheet date together with new collaterals obtained between the balance sheet date and report date are also taken into consideration. The allowance for doubtful receivables as of the balance sheet dates are explained under Note 10 and 11.
14 6 NOTE 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) When setting aside the provision for legal claims the probability of losing the related case and the results expected to be suffered in the event that the legal counsel of the Group and management of the Group make their best estimates to calculate the provision required. As for the diminution in value of inventories, all inventories are subjected to review and their usage possibility ascertained on the basis of the opinion of the technical personnel; provisions are set aside for items expected not to have usage possibility. Calculation of net realizable values of inventories is based on selling prices as disclosed by selling price lists after deduction of average discounts given during the year and selling expenses to be incurred for the realization of inventories. If the net realizable value of any inventory falls under its cost price appropriate provisions are accordingly set aside (Note 13). According to the accounting policy specified in Note 2.9, as of the date of and prior dates, land and buildings are shown by means of deduction of provisions of impairment and accumulated depreciation from cost value. As of and , land and buildings are accounted with respect to revalued cost model. Depreciation is written up by using straight-line method and based on useful life of tangible assets. Useful life is based on best predictions of method, reviewed in each balance sheet date and make amendment needed. Deferred tax assets are accounted for only where it is likely that related temporary differences and accumulated losses will be recovered through expected future profits. When accounting for deferred tax losses it is necessary to make important estimations and evaluations with regard to taxable profits in the future periods Summary of significant accounting policies Significant accounting policies for consolidated financial statements are summarized below: Revenue Revenues are reflected to the financial statements when revenues provide economical advantages to the Group and measured reliably, for reflection of the revenue, criteria below must be implemented. Sales of services For recording sales of services as sales, important risks and return about delivery of services must be transplant to the receiver. Management is not interested in procedures of sales of services and is devoid of effective control about service. Measurability of earnings reliably and costs and attainment of economic advantages are conditions. Income and expenses about same transactions are recording at financial statements. Net sales are purged form of billed cost of delivered services and netted of sales returns and discounts too.
15 7 NOTE 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) Trade receivables / payables Trade receivables that are created by the Group by way of providing goods or services directly to a debtor are recorded at invoice values after deducting provision for doubtful trade receivables carried at amortized cost. Finance cost imputed in trade receivables is computed by discounting the receivables at the current market rate of return for government bonds quoted in an organized stock exchange or for a similar financial asset with appropriate due dates and is reflected in the financial statements. Short term trade receivables with no stated interest rate are measured at invoice amount unless the effect of imputing interest accrual is significant. A credit 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 carrying amount and the recoverable amount, being the present value of all cash flows, including amounts recoverable from guarantees and collateral, discounted based on the original effective interest rate of the originated receivables at inception. Credit risk provision is made based on the best estimates of the Management about the market conditions. If the amount of the impairment subsequently decreases due to an event occurring after the write-down, the release of the provision is credited to other income. Inventories Inventories are valued at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. Financing costs incurred for inventories purchased on deferred settlement terms are excluded from the cost of inventories. Cost is calculated by the weighted average method. Property, plant and equipment As of and property, plant and equipment (except land and buildings) are carried at cost less accumulated depreciation and permanent impairment. Land and buildings are stated at fair values based on revalued amounts. Depreciation is provided on a straight-line basis based on the approximate economic useful lives taken into consideration. Differences between net book values and fair values of land and buildings, is followed under Equity in revaluation funds as offset by future relevant deferred tax liability. There is no depreciation for land as they have infinite lives. The Company has valuation reports for its land and buildings from 1A Grup Gayrimenkul Değerleme ve Danışmanlık A.Ş. dated A Grup Gayrimenkul Değerleme ve Danışmanlık A.Ş. is authorized by Turkish Capital Markets Board. As of and , net book values and revalued amounts of the Company s land and buildings are explained in Note 18. Revalued amounts of land and buildings owned by the Company are also approved by court decision of T.C Bakırköy 7 th Commercial Court with law no.2012/23 and 2012/28 and dated based on the court s expert s report dated
16 8 NOTE 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) The estimated useful lives for the current and comparative periods are as follows: Years Buildings 50 Machinery and equipment Vehicles 8 14 Fixed assets 7-20 Leasehold improvements 5 Depreciation is provided for assets when they are ready for use. Depreciation continues to be provided on assets when they become idle. The gain or loss arising from the disposal or derecognition of an item of property, plant and equipment is the difference between the net sales proceeds, if any, and the restated carrying amount. The gain or loss arising from the disposal of an item of property, plant and equipment is recognized in profit or loss. Property, plant and equipment are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of asset net selling price or value in use. The recoverable amount of the property, plant and equipment is the higher of future net cash flows from the utilization of this property, plant and equipment or fair value less cost to sell. Intangible assets An intangible asset is recognized if it meets the identifiable criteria of intangibles, control exists over the asset and it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity and the costs can be measured reliably. Intangible assets are carried at cost less accumulated amortization and impairment. Amortization of intangible assets except goodwill for which the accounting is explained above is allocated on a systematic pro-rata basis using the straight-line method. Years Other intangible fixed assets (mainly computer licenses) 3-5
17 9 NOTE 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) Impairment of assets The Group assesses for assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment loss is recognized for 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 or value in use. Impairment losses are recognized in the income statement. Financial assets Financial assets are initially recognized in the consolidated financial statements at their acquisition costs including the operational costs. Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale in accordance with the requirements of IAS 39, Financial Instruments. These are included in non-current assets unless management has the express intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. Management determines the appropriate classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of financial assets classified as available for sale, a significant or prolonged decline in the fair value of the assets below its cost is considered as an indicator that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value- is removed from Financial Assets Fair Value Reserve in equity and the remained amount recognized as loss in the comprehensive income statement of the period. The unrealized gains and losses arising from changes in the fair value of available-for-sale securities are recognized in Financial Assets Fair Value Reserve in equity. Gains and losses previously recognized in Financial Assets Fair Value Reserve are transferred to the statement of income when such available-for-sale financial assets are derecognized. Effective interest method The effective interest method is a method of calculating the amortized cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period.
18 10 NOTE 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowing pending their expenditure on qualifying assets is deducted from the borrowing cost eligible for capitalization. All other borrowing costs are recognized in the profit or loss in the period in which they are incurred. Foreign currency transactions Transactions in foreign currencies during the periods have been translated at the exchange rates prevailing at the dates of these transactions. Balance sheet items denominated in foreign currencies have been translated at the exchange rates prevailing at the balance sheet dates. The foreign exchange gains and losses are recognized in the income statement. Earnings per share Earnings per share disclosed in the consolidated statement of income are determined by dividing net income by the weighted average number of shares outstanding during the year concerned. In Turkey, companies can increase their share capital by making a pro-rata distribution of shares ("bonus shares") to existing shareholders from retained earnings. For the purpose of earnings per share computations, the weighted average number of shares in existence during the year has been adjusted in respect of bonus share issue without a corresponding change in resources, by giving them a retroactive effect for the year in which they were issued and for each earlier year, as if the event had occurred at the beginning of the earliest period reported. EBITDA This financial data is an indicator of income measured without considering expenses not requiring financing, tax, cash outflow, depreciation expenses and provisions for severance pay expenses. This financial knowledge has to evaluate with other financial data listed in cash flow statement. Provisions, contingent liabilities and contingent assets Provisions are recognized when present obligations will probably lead to an outflow of economic resources from the Group and they can be estimated reliably. Timing or amount of the outflow may still be uncertain. A present obligation arises from the presence of a legal or constructive commitment that has resulted from past events, for example, product warranties granted legal disputes or onerous contracts. Restructuring provisions are recognized only if a detailed formal plan for the restructuring has been developed and implemented, or management has at least announced the plan s main features to those affected by it. Provisions are not recognized for future operating losses. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the balance sheet date, including the risks and uncertainties associated with the present obligation. Any reimbursement expected to be received in the course of settlement of the present obligation is recognized, if virtually certain as a separate asset, not exceeding the amount of the related provision.
19 11 NOTE 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. In addition, long term provisions are discounted to their present values, where time value of money is material. All provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. In those cases where the possible outflow of economic resource as a result of present obligations is considered improbable or remote, or the amount to be provided for cannot be measured reliably, no liability is recognized in the balance sheet. Probable inflows of economic benefits to the Company that do not yet meet the recognition criteria of an asset are considered contingent assets. Leases The Group as the lesser Operational Leases Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. Related parties In the presence of one of the following criteria, a party is considered to be an associate of the Group if: (a) The certain party, by way of one or more intermediary, directly or indirectly: (i) has control the entity, controlled by the entity or brought under control with the entity (including parents, subsidiaries and subsidiaries under the same sector) (ii) has own share for providing significant effect over the Company or (iii) has posses joint control over the Company; (b) has become a subsidiary of the Company; (c) has posses a joint venture that the Company is joint venturer too; (d) has to be a member of the Company s managerial personnel; (e) has to be a family member of the person identified in(a) or (d); (f) has to be a management which is controlled or controlled mutually or where anyone identified in (d) or (e) hold voting right directly or indirectly; (g) has posses benefit plans for employers of management after they release.
20 12 NOTE 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) Subsequent events Subsequent events are composed of any event between the balance sheet date and the publication date of the balance sheet, even if they arise after any announcements of profits or other financial data. Provisions, contingent liabilities and contingent assets Provisions are recognized when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. Segment reporting of financial information The operating segments are evaluated in parallel to the internal reporting and strategic sections presented to the organs or persons authorized to make decisions regarding the activities of the Group. There is no segment reporting because of all activities of the Group comprise of security services. Taxes calculated on the basis of the company s earnings Income tax expense represents the sum of the tax currently payable and deferred tax. Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
FINANCIAL STATEMENTS TOGETHER WITH INDEPENDENT AUDITOR S REPORT FINANCIAL STATEMENTS CONTENTS PAGES BALANCE SHEET (STATEMENT OF FINANCIAL POSITION)... 1 STATEMENT OF COMPREHENSIVE INCOME... 2 STATEMENT
Summary of significant accounting policies Basis of preparation DSM s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted
46 Unless otherwise stated, the following accounting policies have been applied consistently in dealing with items which are considered material in relation to the financial statements. The Company and
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