ZORLU ENERJİ ELEKTRİK ÜRETİM A.Ş. CONSOLIDATED FINANCIAL STATEMENTS AT 30 JUNE 2008 TOGETHER WITH AUDITOR S REPORT

Transcription

1 ZORLU ENERJİ ELEKTRİK ÜRETİM A.Ş. CONSOLIDATED FINANCIAL STATEMENTS AT 30 JUNE 2008 TOGETHER WITH AUDITOR S REPORT

2 INDEPENDENT AUDITOR S REPORT To The Shareholders and Board of Directors of Zorlu Enerji Elektrik Üretim A.Ş. Introduction We have reviewed the accompanying condensed consolidated interim balance sheet of Zorlu Enerji Elektrik Üretim A.Ş. (the Company ) and its subsidiaries listed under note 1 as of 30 June 2008, and the related consolidated interim statements of income, changes in equity and cash flows for the six-month period then ended. Management is responsible for the preparation and fair presentation of this interim financial information in accordance with International Financial Reporting Standards. Our responsibility is to express a conclusion on this interim financial information based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. During 2006, there have been changes in the regulations related to investment allowances. According to these changes investment allowances have been discontinued as from 01 January However investment allowances unused and carried forward as of 31 December 2005 and investment allowances on projects approved as of 31 December 2005 on which expenditure continues to be incurred after 31 December 2005 may be deducted from the profits for the years 2006, 2007 and However, the profit remaining after deduction of investment allowances for the said three years will be subject to 30% corporation tax. The Company has become entitled to investment allowances of YTL as of 30 June 2008 and the Company has exercised the option of using investment allowances and pay corporation tax at 30%. The deferred tax asset related to investment allowances as of 30 June 2008 was calculated as YTL The realization of this deferred tax asset is dependent upon generation of sufficient profits until and including 2008.

3 Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim consolidated financial information is not prepared, in all material respects, in accordance with International Financial Reporting Standards. EREN Bağımsız Denetim ve Yeminli Mali Müşavirlik A.Ş. Member Firm of Grant Thornton International Nazım Hikmet Partner Istanbul,

4 1 CONSOLIDATED BALANCE SHEETS AT AND Note ASSETS Current assets Cash and cash equivalents Financial assets held-to-maturity Trade receivables Inventories Other assets Total current assets Non-current assets Financial assets available-for-sale Property, plant and equipment Intangible assets Other assets Deferred tax asset Total non-current assets TOTAL ASSETS The accompanying notes are an integral part of these consolidated financial statements.

5 LIABILITIES AND EQUITY 2 CONSOLIDATED BALANCE SHEETS AT AND Note Current liabilities Borrowings Trade payables Taxation on income Provision for expenses Due to related parties Other liabilities Total current liabilities Non-current liabilities Borrowings Trade payables Provision for expenses Reserve for retirement pay Deferred tax liability Total non-current liabilities Equity Share capital Minority interest Translation reserve ( ) ( ) General reserves Total equity Commitments and contingencies 19 TOTAL LIABILITIES AND EQUITY The accompanying notes are an integral part of these consolidated financial statements.

6 3 CONSOLIDATED INCOME STATEMENTS FOR THE SIX MONTH PERIODS ENDED AND 2007 Note Revenue Cost of sales ( ) ( ) Gross profit Selling expenses ( ) ( ) General and administrative expenses ( ) ( ) Other income Other expense 22 ( ) ( ) Operating profit (loss) ( ) Financing income Financing expense 23 ( ) ( ) Loss before taxation ( ) ( ) Taxation charge Current 16 ( ) ( ) Deferred 16 ( ) Taxation on income ( ) ( ) NET LOSS FOR THE PERIOD ( ) ( ) Net loss attributable to: Equity holders of the Company ( ) ( ) Minority interest ( ) ( ) Basic and fully diluted earnings per share 4 (0,00) (0,00) The accompanying notes are an integral part of these consolidated financial statements.

7 4 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE SIX MONTH PERIODS ENDED 30 JUNE 2008 AND 2007 Share capital Minority interest Translation reserve General reserves Total equity Balance at 01 January Consolidated subsidiaries as from 01 January ( ) ( ) ( ) Cash increase in subsidiaries share capital Translation differences ( ) -- ( ) Net loss for the period ( ) ( ) Balance at 30 June ( ) Balance at 01 January ( ) Changes in minority interest -- ( ) Cash increase in subsidiaries share capital Translation differences -- ( ) ( ) -- ( ) Net loss for the period ( ) ( ) Balance at 30 June ( ) The accompanying notes are an integral part of these consolidated financial statements.

8 5 CONSOLIDATED CASH FLOW STATEMENTS FOR THE SIX MONTH PERIODS ENDED 30 JUNE 2008 AND 2007 Note Loss before tax ( ) ( ) Adjustment to reconcile net income to net cash provided from operating activities: Depreciation of property plant and equipment Amortization of intangible assets Increase in provisions Provision for retirement pay Profit on sale of fixed assets ( ) (1.388) Loss on sale of fixed assets Interest expense Interest income 23 ( ) ( ) Unearned interest on receivables (70.549) Unearned interest on payables ( ) ( ) Provision for diminution in value of inventories Provision for doubtful receivables Operating profit before changes in working capital Changes in operating assets and liabilities Trade receivables ( ) Inventories ( ) Other assets ( ) ( ) Trade payables Due to related parties ( ) Other liabilities Taxes paid ( ) ( ) Net cash provided by (used in) operating activities ( ) Cash flows from investing activities Consolidated subsidiaries as from 01 January -- ( ) Cash increase in subsidiaries share capital Purchases of investments ( ) ( ) Purchases of property, plant and equipment ( ) ( ) Purchases of intangible assets ( ) (79.567) Proceeds from sale of property, plant and equipments Net cash used in investing activities ( ) ( ) Cash flows from financing activities Proceeds from borrowings Repayments of borrowings ( ) ( ) Interest received Interest paid ( ) ( ) Net cash provided by financing activities Translation differences ( ) ( ) Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of period The accompanying notes are an integral part of these consolidated financial statements.

9 6 1. ORGANISATION AND NATURE OF ACTIVITIES Zorlu Enerji Elektrik Üretim A.Ş. (the Company or Zorlu Enerji ) is a member of the Zorlu Group of Companies which are under the control of the Zorlu Family. The Company and its subsidiaries were established to meet the power requirements of Zorlu Group establishments and other industrial companies. The registered office address of the Company is Nilüfer Organize Sanayi Bölgesi, Pembe Caddesi, Bursa /Turkey. For the purpose of consolidated financial statements Zorlu Enerji and its subsidiaries will be referred to collectively as the Group. Consolidated company Operating Location Ownership interest (%) Economic interest (%) Zorlu O/M Enerji Tesisleri İşletme ve Bakım Hizmetleri A.Ş. Turkey Zorlu Endüstriyel ve Enerji Tesisleri İnşaat Ticaret A.Ş. Turkey Zorlu Petrogas, Petrol, Gaz, Petrokimya Ürünleri İnşaat Sanayii ve Ticaret A.Ş. Turkey Zorlu Elektrik Enerjisi İthalat İhracat ve Toptan Ticaret A.Ş. Turkey 3 2 Zorlu Doğalgaz İthalat İhracat ve Toptan Ticaret A.Ş. Turkey 3 2 Trakya Bölgesi Doğalgaz Dağıtım A.Ş. Turkey Gazdaş Gaziantep Doğalgaz Dağıtım A.Ş. Turkey Amity Oil International Pty. Ltd. Turkey Rosmiks International B.V. Holland Rosmiks LLC Russia ICFS International LLC USA Rotor Elektrik Üretim A.Ş. Turkey Zorlu Hidroelektrik Enerji Üretim A.Ş. Turkey Zorlu Elektrik Enerji İthalat İhracat A.Ş., Zorlu Doğalgaz İthalat İhracat A.Ş., Trakya Bölgesi Doğalgaz Dağıtım A.Ş. and Gazdaş Gaziantep Doğalgaz Dağıtım A.Ş. are consolidated because they are under the effective control and management of the Group. Nature of activities of the Group Zorlu Enerji Elektrik Üretim A.Ş. (Bursa / Turkey) Zorlu Energy was established in 1993 for the purpose of generating electricity and steam mainly for Zorlu Holding Group Companies. Zorlu Enerji Elektrik Üretim A.Ş. supplies uninterrupted power to around some industrial users and mainly DUY system, by its natural gas combined cycle plants in Bursa (90 MW), in Ankara (50,3 MW), in Kayseri (189 MW) and by its cogeneration plants in Lüleburgaz (66 MW), in Kayseri (7MW) and Yalova (16MW). Zorlu O&M Enerji Tesisleri İşletme ve Bakım Hizmetleri A.Ş. (Istanbul / Turkey) Zorlu O&M Powerplant Operation and Maintenance Services was established 2000 to provide operational and maintenance services to power plants. Zorlu Endüstriyel ve Enerji Tesisleri İnşaat Ticaret A.Ş. (Istanbul / Turkey) - This company became operational in 2000 for the purpose of developing, implementing and providing financial support to industrial and energy plant projects. Zorlu Petrogas, Petrol, Gaz ve Petrokimya Ürünleri İnşaat Sanayi ve Ticaret A.Ş. (Istanbul / Turkey) Zorlu Petrogas, Petroleum, Gas and Petrochemical Products, Construction was established 2000 to engage in natural gas distribution projects, petroleum and petrochemical production facilities, as well as marketing of petroleum and natural gas.

10 7 Zorlu Elektrik Enerji İthalat İhracat A.Ş. (Istanbul / Turkey) - Zorlu Elektrik was established in 2003 for the purpose of procurement of wholesale electricity from domestic sources, free trade zones and international grid-connected countries for resale; on wholesale and retail basis. Zorlu Doğalgaz İthalat İhracat A.Ş. (Istanbul / Turkey) Zorlu Doğalgaz was established in 2003 for the purpose of wholesale procurement of compressed natural gas and/or liquefied natural gas to other wholesale companies, free trade zones and countries abroad; owns license for wholesale and retail sales and direct sales to free consumers. Trakya Bölgesi Doğalgaz Dağıtım A.Ş. (Istanbul / Turkey) This company was established in 2005 for the purpose of city gas distribution in Edirne-Kırklareli-Trakya, Turkey. Gazdaş Gaziantep Doğalgaz Dağıtım A.Ş. (Istanbul / Turkey) This company was established in 2005 for the purpose city gas distribution in Gaziantep-Kilis region, Turkey. Amity Oil International Pty. Ltd. Zorlu Petrogas acquired the 100% shares in Amity Oil in Amity Oil is engaged in petroleum and natural gas exploration and production in Turkey. Rosmiks International B.V. (Holland) This company was established in 2006 for the purpose of providing financial support to two energy plant projects in Russia and owns 100% of Romiks LLC. Rosmiks LLC Rosmiks LLC was established for the purpose of building and operating two energy plants respectively in Kozukhovo and Tereskhova regions in Russia with a capacity of 170MW each. Rosmiks LLC started these projects around mid 2007 and plans to complete them by the end in 4 rd quarter of 2008 and operate them thereafter. ICFS International LLC ( ICFS ) ICFS was established in the USA in 2005 and owns 100% of Rosmiks International BV established in Holland. Rotor Elektrik Üretim A.Ş. ( Rotor ) Rotor was established for the purpose of building wind power plants and was acquired by Zorlu Energy Group in Zorlu Hidroelektrik Enerji Üretim A.Ş. ( Hidroelektrik ) Zorlu Hidroelektrik was established in 2007 for the purpose of building hydroelectric power plants and other power plants based on renewable energy sources.

11 8 2. BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as developed and published by the International Accounting Standards Board ( IASB ). The Company, which is quoted on the Istanbul Stock Exchange, maintains its books of account and prepares its statutory financial statements in accordance with the Turkish Commercial Code, accounting policies prescribed by the Turkish Capital Markets Board and tax legislation and since 1994 has adopted the Uniform Chart of Accounts issued by the Ministry of Finance (collectively Turkish Practices ). Its subsidiaries which are incorporated in Turkey maintain their books of account and prepare their statutory financial statements in accordance with the Turkish Commercial Code and Tax Legislation and the Uniform Chart of Accounts issued by the Ministry of Finance. The foreign subsidiaries maintain their books of account and prepare their statutory financial statements in their local currencies and in accordance with the regulations of the countries in which they operate. The financial statements of overseas subsidiaries are converted into New Turkish Lira (YTL) by closing rate method. The consolidated financial statements have been prepared from statutory financial statements of the Company and its subsidiaries and presented in New Turkish Lira (YTL) with adjustments and reclassifications for the purpose of fair presentation in accordance with IFRS. Such adjustments mainly comprise deferred taxation, employee termination benefits, fixed assets and borrowing costs, receivables, interest expense accruals on bank loans. Measurement currency and reporting currency The financial statements have been prepared under the historical cost convention, other than financial assets which are stated at fair value. The restatement for the changes in the general purchasing power of YTL as of 31 December 2005 is based on IAS 29 ( Financial Reporting in Hyperinflationary Economies ). IAS 29 requires that financial statements prepared in the currency of a hyperinflationary economy be stated in terms of the measuring unit current at the balance sheet date and the corresponding figures for previous periods be restated in the same terms. One characteristic (but not limited to) that necessitates the application of IAS 29 is a cumulative three year inflation rate approaching or exceeding 100%. As of 31 December 2005, the three year cumulative rate has been 36% (31 December 2004: 70% - 31 December 2003: 181%) based on the Turkish countrywide wholesale price index published by the State Institute of Statistics. As of 1 January 2006, it has been decided to discontinue the adjustment of financial statements for inflation after taking into account that hyperinflation period has come to an end as indicated by existing objective criteria and, that other signs indicating the continuance of hyperinflation have largely disappeared the financial statement as of 31 December 2006 have therefore, not been subjected to any adjustment for inflation. The effects of ending the adjustments for inflation on financial statements are summarized as follows: The financial statements as of 31 December 2006 have not been subjected to any inflation adjustment whereas the financial statements for previous periods have been adjusted for inflation on basis of the measuring unit current at the last preceding balance sheet date namely 31 December Together with the ending of the hyperinflationary period the balances adjusted for inflation as of the last preceding balance sheet date form the opening balances of the assets, liabilities and equity accounts as of 1 January Offsetting Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to set off the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.

12 9 Comparable financial information and reclassification of prior period financial statements The balance sheets with the accompanying notes as of and and statement of income, cash flow and changes in equity with the accompanying notes for the six month period ended and are presented as comparatively. For the compatibility of the current financial statements these financial statements are reclassified if necessary. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies followed in the preparation of the accompanying financial statements are summarized below: Basis of consolidation The consolidated financial statements incorporate the financial statements of Zorlu Enerji and entities controlled by Zorlu Enerji (listed under note 1). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Minority interests in the net assets of consolidated subsidiaries are identified separately from the Group s equity therein. Minority interests consist of the amount of those interests at the date of the original business combination and the minority s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority s interest in the subsidiary s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. The Company has always exercised effective control over the management of each of the companies included in the group consolidation. The direct and indirect shareholding of Zorlu Enerji in their capital, are: Business combinations The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquire, plus any costs directly attributable to the business combination. The acquirer s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair values at the acquisition date. Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group s interest in the net fair value of the acquirer s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss. The interest of minority shareholders in the acquire is initially measured at the minority s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.

13 10 Foreign currency translations Foreign currency transactions and translation - Transactions in foreign currencies during the period have been translated into YTL at the exchange rates prevailing at dates of these transactions. Balance sheet items denominated in foreign currencies have been translated at the exchange rates prevailing at the balance sheet dates. Exchange gains or losses arising from settlement and translation of foreign currency items have been included in the income or expense accounts as appropriate. The foreign exchange rates used by the Company are as follows: US Dollar 1,2237 1,1647 EUR 1,9271 1,7102 Foreign entities - Foreign consolidated subsidiaries are regarded as foreign entities since they are financially, economically and organizationally autonomous. Their reporting currencies are the respective local currencies. Financial statements of foreign consolidated subsidiaries are translated at year-end exchange rates with respect to the balance sheet and at exchange rates at the dates of the transactions with respect to the income statement. All resulting translation differences between the closing balances and opening balances due to the difference in inflation and devaluation are included in currency translation adjustment in equity. Property, plant and equipment Property, plant and equipment held for use in the production or supply of goods or services, or for administrative purposes, are stated in the balance sheet at cost, restated in equivalent purchasing power at 31 December 2005 less any subsequent accumulated depreciation and subsequent accumulated impairment losses. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. The recoverable amount of property, plant and equipment is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Property, plant and equipment in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less any identified impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalized in accordance with the Company s accounting policy. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. Depreciation is charged so as to write off the cost or valuation of assets, other than land and properties under construction, over their estimated useful lives, using the straight line basis over the following years stated below: Useful life in years Land improvements Buildings Leasehold improvements 3-5 Machinery and equipment Furniture and fixtures 5-10 Motor vehicles 5

14 11 Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in income. Leases Finance lease - Assets held under finance leases are recognized as assets of the Company at their fair value at the date of acquisition. The corresponding liability to the Company is included in the balance sheet as a finance lease obligation. Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are charged to the income statement over the term of the relevant lease so as to produce a constant periodic rate of interest on the remaining balance of the liability for each accounting period. Operating lease - Leases of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease payments on operating lease are recognized as an expense on a straight-line basis over the lease term. Intangible assets Rights and other intangible assets are capitalized and amortized on a straight line basis over their estimated useful lives, not exceeding a period of 5 years. Natural gas exploration expenses Costs directly associated with an exploration well, and exploration and property leasehold acquisition costs are capitalised until the determination of reserves is evaluated. If it is determined that commercial discovery has not been achieved, these costs are charged to expense. Capitalisation is made within property, plant and equipment or intangible assets according to the nature of the expenditure. Once commercial reserves are found, exploration and evaluation assets are tested for impairment and transferred to development tangible and intangible assets and depreciation and/or amortisation is charged during the exploration and evaluation phase. Development tangible and intangible assets Expenditure on the construction, installation or completion of infrastructure facilities, such as platforms, pipelines and the drilling of commercially proven development wells, is capitalised within tangible and intangible assets according to nature. When development is completed on a specific field, it is transferred to production assets. Depreciation and/or amortisation are charged during the exploration and evaluation phase. Depreciation/amortisation Natural gas properties/intangible assets are depreciated/amortised using the unit-of-production method. Unit-of-production rates are based on proved developed reserves, which are oil, gas and other mineral reserves estimated to be recovered from existing facilities using current operating methods. Impairment exploration and evaluation assets An impairment loss is recognised for the amount by which the exploration and evaluation assets carrying amount exceeds their recoverable amount. The recoverable amount is the higher of the exploration and evaluation assets fair value less costs to sell and their value in use. Inventories Inventories are stated at the lower of cost and net realizable value. Costs comprise direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition but excludes borrowing cost. Cost is calculated by using the weighted average method. Net realizable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marketing, selling and distribution.

15 12 Related parties Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making the financial and operating decisions. For the purpose of these financial statements shareholders are referred to as related parties. Related parties also include individuals that are principle owners, management and members of the Group's Board of Directors and their families. Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is shown net of value added and sales taxes, discounts and returns. Revenue from the rendering of services is recognised by reference to the stage of completion of the transaction when the following conditions are met: the amount of revenue can be measured reliably, the flow of economic benefits to the entity is probable, the stage of completion at the period end can be measured reliably and the costs incurred to date can be measured reliably. Revenue for services provided initially is measured at the fair value of the consideration receivable. Expenses is included in operating expenses at cost unless the expense was permitted or required to be included in the financial statements on another basis. Cost is the fair value of the consideration given for the materials or services used in the production of goods or provision of services. Cost of sales is presented as a separate line item on the face of the income statement for the functional analysis of expenditures is chosen for the format of the income statement. Other revenues earned by the Group are recognized on the following bases: Rental income on an accrual basis. Interest income on an effective yield basis. Borrowing cost Borrowing cost 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 borrowings pending their expenditure on qualifying assets is deducted from the cost of those assets. All other borrowing costs are recognized in net profit or loss in the period in which they are incurred. Bank borrowings Interest-bearing bank loans and overdrafts are recognized at fair value at initial recognition which equate to the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption, are accounted for on an accruals basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Income taxes Tax expense (income) is the aggregate amount included in the determination of net profit or loss for the period in respect of current and deferred tax. Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognized for all taxable temporary differences. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

16 13 Use of estimates The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. These estimates are reviewed periodically, and as adjustments become necessary, they are reported in earnings in the periods in which they become known. Estimation have been used mainly for provision for possible losses due to lawsuits, warranty provision, provision for retirement pay, doubtful receivables and deferred taxation. Estimations have been made on basis previous experience and other appropriate data supplied by the management. Provisions Employee benefits - Under Turkish labour law, the Group and its Turkish subsidiaries are required to pay termination benefits to each employee who has completed one year of service and whose employment is terminated without due cause, or who retires in accordance with social insurance regulations or is called up for military service or dies. Other provisions - Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, 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. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. Financial assets Financial assets other than hedging instruments are divided into the following categories: available-for-sale financial assets held-to-maturity investments. Financial assets are assigned to the different categories on initial recognition, depending on the characteristics of the instrument and its purpose. A financial instrument's category is relevant for the way it is measured and whether any resulting income and expenses is recognised in profit or loss or directly in equity. Generally, the Group recognises all financial assets using settlement day accounting. An assessment of whether a financial asset is impaired is made at least at each reporting date. All income and expense relating to financial assets are recognised in the income statement line item "finance costs" or "finance income", respectively. Available-for-sale financial assets are non-derivative financial assets that do not qualify for inclusion in any of the other categories of financial assets. The Group s available-for-sale financial assets include unconsolidated investments. Unconsolidated investments which are not quoted at any stock exchange are reported at cost less any impairment charges, as its fair value can currently not be reliably estimated. Gains and losses arising from financial instruments classified as available-for-sale are only recognised in profit or loss when they are sold or when the investment is impaired. In the case of impairment, any loss previously recognised in equity is transferred to the income statement. Losses recognised in the income statement on equity instruments are not reversed through the income statement but charged to equity. Losses recognised in prior period consolidated income statements resulting from the impairment of debt securities are reversed through the income statement, if the subsequent increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss. Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity. Investments are classified as held-to-maturity if it is the intention of the Group's management to hold them until maturity. The Group currently holds time deposits that fall into this category. Held-to-maturity investments are subsequently measured at amortised cost using the effective interest method. In addition, if there is objective evidence that the investment has been impaired, the financial asset is measured at the present value of estimated cash flows. Any changes to the carrying amount of the investment are recognised in profit or loss.

17 14 Trade receivables Trade receivables are measured at initial recognition at fair value and are subsequently measured at amortized cost using the effective interest rate method to set an allowance for unearned interest. Appropriate allowances for estimated irrecoverable amounts are recognized in profit or loss when there is objective evidence that the asset is impaired. The allowance recognized is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Trade payables Trade payables are initially measured at fair value and are subsequently measured at amortized cost using the effective interest rate method to set an allowance for unearned interest. Recognition and derecognition of financial instruments The Company recognizes a financial asset or financial liability in its balance sheet when and only when it becomes a party to the contractual provisions of the instrument. The Company derecognizes a financial asset or a portion of a financial asset when and only when it loses control of the contractual rights that comprise the financial asset or a portion of a financial asset or when a financial asset or a portion of a financial asset expires. The Company derecognizes a financial liability when and only when a liability is extinguished and that is when the obligation specified in the contract is discharged, cancelled and expires. Earnings per share Earnings per share ( EPS ) disclosed in the income statements are determined by dividing net income by the weighted average number of shares that have been outstanding during the related year or period and taking into account bonus issues and right issues. There is no difference between basic and diluted earnings per share for any class of shares for any of the years. Cash and cash equivalents For the purpose of cash flow statement, cash and cash equivalents comprise cash in hand; deposits with banks and other financial institutions with the original maturity of three months or less.

18 15 4. EARNINGS PER SHARE Net profit attributable to shareholders ( ) ( ) Weighted average number of ordinary shares in issue Basic and diluted earnings per share (0,00) (0,00) 5. CASH AND CASH EQUIVALENTS Cash in hand Demand deposit at banks Time deposit at banks Cash and cash equivalents Bank overdrafts (-) ( ) ( ) Cash and cash equivalents presented in cash flow statement As of , the interest rate varied between 2,25% and 4,5% ( : 3,75% and 4,5%) per year for foreign currency and 16,75% and 17,5% ( : 16,5% - 16,75%) per year for YTL. 6. TRADE RECEIVABLES Current accounts - Third parties Related parties, note Notes receivable - Third parties Others Unearned interest on receivables (-) ( ) ( ) Allowance for doubtful receivables (-) ( ) ( ) Movement of doubtful receivables is as follows: Opening balance as of 01 January Charge for the period Ending balance

19 16 7. INVENTORIES Raw materials Spare parts Merchandise Allowance for diminution in value (-) ( ) ( ) Movement of allowance for diminution in value of inventories is as follows: Opening balance as of 1 January Charge for the year Ending balance OTHER ASSETS Current Prepaid expenses Income accruals VAT receivable Work advances Due from personnel Prepaid taxes Advances given Other Income accruals relate to natural gas provided to customers up to the balance sheet date but invoiced in following month. Non-current Prepaid expenses

20 17 9. FINANCIAL ASSETS Financial assets held-to-maturity Time deposits (USD) As of , the interest rate varies between 4,04% and 7,28% ( : 10%) per year for time deposits and matures between and ( : ). Unquoted investments whose fair value cannot be measured reliably are carried at cost and classified as available-for-sale financial assets. Financial assets available-for-sale Equity investments Unconsolidated investments Share % Amount Non-current Country Equity investments Solbar Energy Ltd. Israel Dorad Enerji Ltd. Israel Unconsolidated investments LLC Zorlu Enerji Ukraine Ramat Negev Energy Ltd. Israel Ashdod Energy Ltd. Israel Zorlu Intergas GMBH Austria Zorlu Enerji Pakistan Ltd. Pakistan As of the balance sheet dates, the companies listed under equity investments and unconsolidated investments in which the Company has controlling interest or significant influence are not consolidated or equity accounted as they are immaterial individually and in aggregate to the results and financial position of the Group.

21 PROPERTY, PLANT AND EQUIPMENT Additions Disposals Translation reserve Transfers Cost Land Land improvements Buildings Leasehold improvements Plant and machinery Motor vehicles (20.642) Furniture and fixtures (4.933) Natural gas drilling cost (25.575) Construction in progress - Natural gas drilling expenses ( ) Energy power plants Other ( ) (25.575) Accumulated depreciation Land improvements Buildings Leasehold improvements Plant and machinery Motor vehicles (17.546) Furniture and fixtures (29) -- (228) Natural gas drilling cost (17.575) Net book value The Group s policy is to trace all material and significant fixed asset additions under construction in progress and transfer to the related fixed asset accounts when the construction process is completed. Significant portion of the construction-in-progress balance represented the investment made in; - natural gas exploration in Thrace region, - construction of two energy power plants in Russia and - laying down natural gas pipeline infrastructure in Lüleburgaz, Edirne, Çerkezköy, Kırklareli and Tekirdağ. The guarantees given to secure bank loans are set out in note 19.

22 INTANGIBLE ASSETS Additions Transfer Cost Production rights of wind energy Natural gas drilling rights Other rights Other intangible assets Accumulated amortization Production rights of wind energy Natural gas drilling rights Other rights Other intangible assets Net book value

23 BORROWINGS Current New Turkish Lira bank loans Foreign currency bank loans Finance lease liabilities, net Non-current Foreign currency bank loans Finance lease liabilities, net As of foreign currency bank loans effective interest rates vary between 3,4% and 7,6% (2007: 3,6% and 8,9%). The Group obtained a loan from Standard Bank PLC (Holland) amounting to USD 500 million with a maturity of Interest rate of the loan is libor+2,9% per year. Summary maturity schedule of bank loans is given below: YTL USD EUR YTL Equivalent

24 YTL USD EUR YTL Equivalent The payment schedules of finance lease liabilities are given below: Finance lease instalments: Due in one year Due between one to five years Future finance charges on finance leases (6.465) (9.918) The present value of finance lease liabilities: Due in one year Due between one to five years

25 TRADE PAYABLES Current Current accounts - Third parties Related parties, note Notes payable - Third parties Other Unearned interest on payables (-) ( ) ( ) Non-current Deposits and guarantees received PROVISION FOR EXPENSES Current Provision for share of TRT Provision for legal claims Non-current Provision for share of TRT An accrual for the share of Turkish Radio Television ( TRT ) charged to the Company in regards the license agreement signed with EPDK (Energy Market Regulatory Board) on According to the representation furnished by the Company s management, the Company filed a lawsuit against EPDK to object to such amounts claimed. The related court proceeding is in progress and the outcome of the court decision is being awaited. In the accompanying financial statements full provision was set aside for this claim. Movement of provision for expenses is as follows: Legal claims Provision for share of TRT Opening balance Additions Disposals (32.819) -- Ending balance

26 OTHER LIABILITIES Income tax and social security premiums payable Advances received Due to personnel Other TAXATION ON INCOME In Turkey, the corporation tax rate on the profits for the calendar year 2008 is 20% (2007: 20%). Taxable profits are calculated by modifying accounting income for certain exclusions and allowances for tax purposes from the profit disclosed in the statutory income. No other taxes are paid unless profits are distributed. In Turkey no taxes are withheld from undistributed profits, profits added to share capital (bonus shares) and dividends paid to other resident companies. Other than those, profits distributed in dividend to individuals and non-resident companies are subject to withholding at the rate of 15%. In Turkey, the tax legislation does not permit a parent company and its affiliates to file a consolidated tax return. Therefore, provision for taxation charge, as reflected in the accompanying consolidated financial information, has been calculated on a separate-entity basis. The exemption period granted on profits from the sale of investment shares and immovable property by Corporation Tax Law transitory articles No. 28 and 29 expired on 31 December However this exemption was re-enacted by Law No on permanent basis in effect from 1 January Accordingly, 75% of profits from the sale of investments and immovable s held for a minimum of two years will be tax exempt provided the sale proceeds are collected within two years and 75% of the profit is added to share capital or is kept in a special reserve account for a minimum of five years Companies were allowed to deduct 40% of the value of fixed assets (exceeding YTL 6.000) purchased after 24 April 2003 (investment allowances) from their taxable profits as investment incentive. Such investment deduction is also not subject to income tax withholding. The investment deductions not used in any year because of insufficient profits may be carried to future periods. Investment allowances related to fixed assets purchased or to be purchased under Investment Incentive Certificates granted or applied for before 24 April 2003, may be based on up to 100% of the investment value in fixed assets, but these are subject to tax at 19.8%. Investment allowances have been cancelled as from 1 January 2006 but investment allowances earned prior to this date may be used up to 31 December 2008; any balance unused after this date may not be carried forward; if this option is exercised the balance of taxable profit after deduction of investment allowances is to be taxed at 30%. Tax losses that are reported in the Corporation Tax in Turkey return may be carried forward and deducted from the corporation tax base for a maximum of five consecutive years. The Turkish Tax Procedural Law does not include a procedure for formally agreeing tax assessments. Tax returns must be filed within three and half months of the year-end and may be subject to investigation, together with their underlying accounting records, by the tax authorities at any stage during the following five years.