CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION FOR THE PERIOD 1 JANUARY 30 JUNE 2014 TOGETHER WITH AUDITOR S REVIEW REPORT

Transcription

1 CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION FOR THE PERIOD 1 JANUARY 30 JUNE 2014 TOGETHER WITH AUDITOR S REVIEW REPORT

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3 CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION FOR THE PERIOD 1 JANUARY 30 JUNE 2014 CONTENTS PAGE CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS CONDENSED CONSOLIDATED INTERIM STATEMENTS OF INCOME... 3 CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME... 4 CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY... 5 CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS... 6 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION NOTE 1 ORGANISATION AND NATURE OF OPERATIONS NOTE 2 BASIS OF PRESENTATION OF FINANCIAL INFORMATION NOTE 3 SEGMENT REPORTING NOTE 4 CASH AND CASH EQUIVALENTS NOTE 5 FINANCIAL LIABILITIES NOTE 6 PROVISIONS, CONTINGENT ASSETS AND LIABILITIES NOTE 7 DERIVATIVE FINANCIAL INSTRUMENTS NOTE 8 EQUITY NOTE 9 EXPENSES BY NATURE NOTE 10 FINANCIAL INCOME AND EXPENSES NOTE 11 RELATED PARTY TRANSACTIONS NOTE 12 EVENTS OCCURING AFTER REPORTING PERIOD

4 CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS AT 30 JUNE 2014 AND 31 DECEMBER 2013 (Amounts expressed in thousands Turkish Lira ( TL ) unless otherwise indicated.) ASSETS Notes 30 June December 2013 Current Assets: Cash and cash equivalents 4 69, ,421 Financial investments 49,133 49,412 Trade receivables - Other trade receivables 34,142 44,569 - Due from related parties 11 80,213 71,564 Other receivables - Other receivables 11,271 4,178 - Due from related parties 11 1,977, ,514 Other current assets 78,157 78,707 Total Current Assets 2,300, ,365 Non-Current Assets: Long term other trade receivables from related parties ,963 2,566,830 Financial assets 8,591 8,591 Associates 93,931 94,800 Property, plant and equipment 2,972,172 2,963,100 Intangible assets 13,900 14,634 Goodwill 83,131 83,131 Deferred tax asset 1,693 1,241 Other non-current assets 29,086 30,583 Total Non-Current Assets 4,048,467 5,762,910 Total Assets 6,349,125 6,349,275 The accompanying notes form an integral part of this condensed consolidated interim financial information. 1

5 CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS AT 30 JUNE 2014 AND 31 DECEMBER 2013 (Amounts expressed in thousands Turkish Lira ( TL ) unless otherwise indicated.) LIABILITIES Notes 30 June December 2013 Current Liabilities: Financial liabilities -Bank borrowings 5 2,284,629 1,460,436 -Finance lease liabilities 5 2,307 3,006 Trade payables - Other trade payables 48,426 82,675 - Due to related parties 11 48,312 13,348 Taxes on income Other payables - Other payables to related parties ,445 60,582 Derivative financial instruments 7 23,982 33,864 Provisions Other current liabilities 3,868 7,754 Total Current Liabilities 3,364,673 1,662,868 Non-Current Liabilities: Financial liabilities -Bank borrowings 5 1,597,138 2,404,051 -Finance lease liabilities Derivative financial instruments 7 38,237 22,611 Other payables to related parties ,783 1,366,500 Deferred tax liability 97, ,512 Provisions for employment benefits 936 1,303 Total Non-Current Liabilities 2,267,998 3,897,620 Total Liabilities 5,632,671 5,560,488 EQUITY Share capital 8 610, ,948 Revaluation fund 534, ,954 Share premium Hedge reserves (11,799) (6,514) Actuarial gain Currency translation adjustment 26,700 25,370 Accumulated deficit (443,679) (394,895) Equity attributable to equity holders of the parent 717, ,079 Non-Controlling Interests (669) 6,708 Total Equity 716, ,787 Total Liabilities and Equity 6,349,125 6,349,275 Provisions, Contingent Assets and Liabilities 6 The accompanying notes form an integral part of this condensed consolidated interim financial information. 2

6 CONDENSED CONSOLIDATED INTERIM STATEMENTS OF INCOME FOR THE PERIOD BETWEEN 1 JANUARY - 30 JUNE 2014 CONTINUING OPERATIONS 1 January - 1 April - 1 January - 1 April - Note 30 June June June June 2013 Revenue 471, , , ,813 Cost of sales (-) 9 (423,754) (214,639) (260,539) (143,906) Gross (loss)/profit 47,523 29,124 (7,683) 2,907 Marketing and selling expenses (-) 9 (844) (437) (820) (338) General and administrative expenses (-) 9 (14,248) (8,034) (13,860) (5,692) Other income 12, ,224 7,025 Other expense (-) (11,045) (3,444) (5,888) (363) Operating (loss)/profit 34,096 17,994 (9,027) 3,539 Share of gain / (loss) of associates 2,011 (808) (1,364) (758) Financing income , , ,295 93,169 Financing expense (-) 10 (255,459) (133,804) (246,437) (169,892) (Loss)/profit before taxation (62,186) 16,200 (126,533) (73,942) Current income tax expense (-) (1,144) (816) (417) (364) Deferred tax income/(expense) 4,810 (1,899) 53,781 9,517 Net (loss) / profit for the period (58,520) 13,485 (73,169) (64,789) Net loss attributable to: Non-controlling interest (710) 7 (1,168) (693) Equity holders of the Company (57,810) 13,478 (72,001) (64,096) (Loss)/earnings per share (0.0012) (0.0014) (0.0013) The accompanying notes form an integral part of this condensed consolidated interim financial information. 3

7 CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME FOR THE PERIOD BETWEEN 1 JANUARY - 30 JUNE January - 1 April - 1 January - 1 April - 30 June June June June 2013 (Loss) / income for the period (58,520) 13,485 (73,169) (64,789) Changes in actuarial gains on employment benefit obligations (133) 16 (269) (739) Changes in currency translation adjustments 1,330 (5,042) 9,047 6,745 Hedge reserves (6,606) 13,892 3,836 5,312 Deferred income tax related to other comprehensive income 1,348 (2,782) (713) (915) Other comprehensive income/(loss) (4,061) 6,084 11,901 10,403 Total comprehensive income/(loss) (62,581) 19,569 (61,268) (54,386) Total comprehensive (loss) / income attributable to: Non-controlling interests (710) 7 (1,168) (693) Equity holders of the parent (61,871) 19,562 (60,100) (53,693) Comprehensive loss) /earnings per share (0.0013) (0.0012) (0.0011) The accompanying notes form an integral part of this condensed consolidated interim financial information. 4

8 CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE PERIOD BETWEEN 1 JANUARY - 30 JUNE 2014 Attributable to equity holders of the parent Currency Non- Share Share Hedge Actuarial translation Revaluation Accumulated controlling Total capital premium reserve gains adjustment fund (**) deficit interests equity 1 January 2013 (previously reported) 610, (4,822) - 211,549 - (251,113) 5, ,546 Effect of restatements (*) (187,752) - 187, January , (4,822) - 23,797 - (63,361) 5, ,546 Capital increase-non-controlling interest ,602 3,602 Total comprehensive loss - - 3,069 (215) 9,047 - (72,001) (1,168) (61,268) 30 June , (1,753) (215) 32,844 - (135,362) 8, ,880 1 January 2014 (previously reported) 610, (6,514) , ,954 (417,916) 6, ,787 Effect of restatements (*) (23,021) - 23, January , (6,514) , ,954 (394,895) 6, ,787 Change in non-controlling interest ,686 (6,771) (6,667) (9,752) Depreciation transfer (**) (15,797) 15, Total comprehensive loss - - (5,285) (106) 1,330 - (57,810) (710) (62,581) 30 June , (11,799) 43 26, ,843 (443,679) (669) 716,454 (*) Refer to Note 2.4 (**) The Group has chosen revaluation method among application methods mentioned under IAS 16 for lands, land improvements, buildings, machinery and equipments belonging its powerplants commencing from 31 December As a result of valuation reports, TL683,692 thousand net improvement is determined as of 31 December Goodwill impairment amounted to TL17,537 thousand is determined and accounted to the statement of profit or loss for the year end ed 31 December Net book value of revalued assets are converted into revalued amount and TL683,692 thousand additional value has been booked as TL546,954 on revaluation fund by offsetting its deferred tax effect. Difference between depreciation and amortisation expenses based on carrying amount and based on these assets acquisition costs is determined as TL19,746 thousand. After offsetting its deferred tax effect TL 15,797 thousand is transferred to accumulated losses from revaluation fund as of 30 June The accompanying notes form an integral part of this condensed consolidated interim financial information. 5

9 CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS FOR THE PERIOD BETWEEN 1 JANUARY - 30 JUNE 2014 Cash flows from operating activities: Loss before tax (62,186) (126,533) Notes 30 June June 2013 Depreciation and amortisation ,416 60,581 Interest income 10 (116,000) (119,251) Interest expense , ,867 Uneraned credit finance income / (expense) 10 (15,752) 7,877 Unrealized foreign exchange gains / (losses) (16,969) 403,404 Income from financial derivative instruments (3,828) (10,484) Change in provision for employment termination benefits (157) 42 Other provisions (233) 147 Profit from sale of tangible fixed assets - (2,963) Changes in financial investments (2,011) (22,611) Currency translation differences (14,208) 9,726 Net cash generated from operating activities before changes in operating assets and liabilities 75, ,802 Changes in trade receivables 1,261 (31,018) Changes in financial investments 279 (4,284) Changes in other receivables (7,093) 406 Changes in other current and non-current assets 2,043 (20,548) Changes in trade payables 874 (141,108) Changes in derivative financial instruments 9,572 (9,040) Changes in other liabilities (3,886) (14,697) Taxes paid (1,410) (2,071) Termination benefits paid (316) (171) Net cash generated from operating activities 77, ,271 Cash flows from investing activities: Purchase of property plant and equipment and intangible assets (62,491) (157,092) Proceeds from sale of property, plant and equipment and intangible assets 123 1,713 Net cash used in investing activities (62,368) (155,379) Cash flows from financing activities: Proceeds from bank borrowings 719, ,004 Repayment of bank borrowings (716,382) (288,207) Changes in other receivables 189 (2,933) Changes in other payables 29,915 (36,990) Changes in hedging reserves (5,285) 3,836 Increase in share capital corresponding to minority interest (9,752) 3,602 Interest received18,661 53,426 Interest paid (145,995) (201,739) Net cash (used in)/ generated from financing activities (109,280) 42,999 Net (decrease)/ increase in cash and cash equivalents (94,590) 23,891 Change in restricted cash 4 (22,193) - Cash and cash equivalents at the beginning of the period 4 164, ,903 Cash and cash equivalents at the end of the period 4 47, ,794 The accompanying notes form an integral part of this condensed consolidated interim financial information. 6

10 NOTE 1 - ORGANISATION AND NATURE OF OPERATIONS Zorlu Enerji Elektrik Üretim A.Ş. ( the Company or Zorlu Enerji ) and its subsidiaries (collectively referred to as the Group ) is engaged in establishing, renting and operating facilities of electrical energy production plant, producing electricity and trading electricity to the customers. The Company was established by Zorlu Holding A.Ş. ( Zorlu Holding ) and Korteks Mensucat Sanayi ve Ticaret A.Ş. ( Korteks ) in The Company is registered in Turkey and its registered address is as follows; Nilüfer Organize Sanayi Bölgesi, Pembe Caddesi, No:13 Bursa /Turkey The Company is registered to the Capital Markets Board ( CMB ), and its shares are publicly traded in Borsa Istanbul A.Ş. ( BIST ) since As of 30 June 2014, 32% of its shares are open for trading (31 December 2013: 32 %). The subsidiaries of the Company, their nature of business and registered addresses are presented as below (Zorlu Enerji and its subsidiaries and associates are called as Group ). Nature of Registered Subsidiaries business address Rotor Elektrik Üretim A.Ş. ( Rotor ) Electricity production Turkey Zorlu Hidroelektrik Enerji Üretim A.Ş.( Zorlu Hidroelektrik ) Electricity production Turkey Zorlu Jeotermal Enerji Elektrik Üretimi A.Ş.( Zorlu Jeotermal ) Electricity production Turkey Zorlu Enerji Pakistan Ltd. ( Zorlu Enerji Pakistan ) Electricity production Pakistan Zorlu Rüzgar Enerjisi Elektrik Üretimi A.Ş. ( Zorlu Rüzgar ) Electricity production Turkey Zorlu Doğal Elektrik Üretimi A.Ş. ( Zorlu Doğal ) Electricity production Turkey Nemrut Jeotermal Elektrik Üretimi A.Ş. Electricity production Turkey ( Nemrut ) Zorlu Kumpınar Enerji Üretim A.Ş. Electricity production Turkey ( Kumpınar ) Zorlu Aliağa Enerji Üretim A.Ş. Electricity production Turkey ( Aliağa ) Zorlu Kıyıköy Enerji Üretim A.Ş. Electricity production Turkey ( Kıyıköy ) Zorlu Soma Enerji Üretim A.Ş. Electricity production Turkey ( Soma ) Nature of Registered Associates Business address Solad Energy Ltd. Electricity production Israel Dorad Energy Ltd. Electricity production Israel Ezotech Ltd. Electricity trading Israel 7

11 NOTE 1 - ORGANISATION AND NATURE OF OPERATIONS (Continued) As per Board of Directors resolution dated 18 September 2013 total number of 3,270,000 shares with a nominal value of TL3,270,000 owned by Rotor Elektrik Üretim A.Ş. which is a 96.73% subsidiary of the Company and, total number of 3,270,000 shares with a nominal value of TL3,270,000 owned by Zorlu Holding A.Ş., total number of 3,270,000 shares with a nominal value of TL3,270,000 owned by Zorlu O/M Enerji Tesisleri İşletme ve Bakım Hizmetleri A.Ş., total number of 3,270,000 shares with a nominal value of TL3,270,000 owned by Zorlu Endüstriyel ve Enerji Tesisleri İnşaat Ticaret A.Ş., total number of 6,540 shares with a nominal value of TL6,540 owned by Zorlu Dış Ticaret A.Ş. has been purchased from the aforementioned shareholders on 2 April 2014 as stated under the material disclosure dated 18 September Pursuant to material disclosure dated 21 April 2014, the proceedings regarding the increase of capital of Zorlu Jeotermal Enerji Elektrik Üretimi A.Ş., a 100% owned subsidiary of the Company from TL19,000,000 to TL22,000,000 has been finalized and registered under Istanbul Trade Registry. Pursuant to material disclosure dated 29 April 2014, the liquidation case which was brought against Yeni Gürsöğüt Enerji Elektrik Üretim A.Ş. on 21 July 2011 is accepted by the Court. The Court decided on the termination and liquidation of Yeni Gürsöğüt Enerji Elektrik Üretim A.Ş. and the decision has been finalized. The investment decision of the combined cycle natural gas power plant with capacity of 1,080 MW, location of Aliağa Izmir, has been waived based on the management s assessment. The Group had applied for the pre-licence to EMRA as stated in the material disclosure dated 31 July The cancellation has been made to EMRA on 2 May Zorlu Doğal Elektrik Üretim A.Ş., which is a 100 % subsidiary of the Company, has decided to build a Geothermal Power Plant (Kızıldere IV), which will have 24,9 MW capacity, located in Denizli/Sarayköy within the scope of geothermal resource operating license numbered 48. In this context, the Company applied to receive pre-license from EMRA for the relevant power plant investment project on 23 June Pursuant to Board of Directors resolution dated 24 June 2014, Zorlu Kıyıköy Enerji Üretim Anonim Şirketi" (Kıyıköy), "Zorlu Aliağa Enerji Üretim Anonim Şirketi" (Aliağa), "Zorlu Kumpınar Enerji Üretim Anonim Şirketi" (Kumpınar) and "Zorlu Soma Enerji Üretim Anonim Şirketi (Soma), the %100 owned subsidiaries of the Company, has been decided to to liquidated. The projects planned to be performed under Kıyıköy, Kumpınar and Soma, as announced in the material disclosures dated 31 July 2013, 14 August 2013 and 5 July 2013, will be performed under Zorlu Enerji. Therefore three pre-license applications to EMRA related to these companies will still be valid and will be proceeded by Zorlu Enerji. 8

12 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL INFORMATION 2.1 Financial Reporting Standards Principles Governing the Preparation of Condensed Consolidated Interim Financial Information The condensed consolidated interim financial information of the Group has been prepared in accordance with International Accounting Standard 34 ( IAS 34 ). The Group maintains its books of account and prepares its statutory financial information ( Statutory Financial Information ) in Turkish Lira ( TL ) in accordance with the requirements of the Turkish Commercial Code (the TCC ), related regulations and tax legislation. This condensed consolidated interim financial information is based on the statutory records, with adjustments and reclassifications for the purpose of fair presentation in accordance with IAS 34. This condensed consolidated interim financial information is prepared under the historical cost convention, adjusted, where required by IAS 34 to measure certain items at fair value. The preparation of condensed consolidated interim financial information in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note Basis of Consolidation a) The condensed consolidated interim financial information includes the accounts of the parent company, Zorlu Enerji, and its Subsidiaries and associates on the basis set out in sections (b) to (c) below. The condensed financial information of the companies included in the scope of consolidation have been prepared at the date of the condensed consolidated interim financial information and have been prepared in accordance with IAS 34 by applying uniform accounting policies and presentation. The results of operations of Subsidiaries are included or excluded from their effective dates of acquisition or disposal respectively. b) Subsidiaries are companies in which Zorlu Enerji has the power to control the financial and operating policies for the benefit of itself, either (1) through the power to exercise more than 50% of voting rights related to shares in the companies as a result of shares owned directly and/or indirectly by itself or (2) although not having the power to exercise more than 50% of the voting rights, through the exercise of actual dominant influence over the financial and operating policies. 9

13 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL INFORMATION (Continued) 2.3 Basis of Consolidation b) The table below sets out all Subsidiaries and demonstrates the proportion of ownership interest as of 30 June 2014 and 31 December 2013: Direct and indirect ownership interest by the Company and its Subsidiaries (%) Subsidiary 30 June December 2013 Zorlu Hidroelektrik (1) Zorlu Jeotermal (1) Zorlu Enerji Pakistan (1) Zorlu Rüzgar (1) Zorlu Doğal (1) Kumpınar (1) Aliağa (1) Kıyıköy (1) Soma (1) Rotor (1) Yeni Gürsöğüt Enerji Elektrik Üretim A.Ş. (2) Nemrut (1) (1) The financial information of subsidiaries are consolidated on a line-by-line basis. (2) Although the Company has the power to exercise more than 50% of the voting rights, the Subsidiary is excluded from the scope of consolidation on the grounds of materiality. This subsidiary has been classified and accounted for as financial assets in the condensed consolidated interim financial information with a carrying value of their initial acquisition costs less impairment, if any. Subsidiaries are consolidated from the date on which the control is transferred to the Group and are deconsolidated from the date that the control ceases. Where necessary, accounting policies for subsidiaries have been changed to ensure consistency with the policies adopted by the Group. Carrying values of the subsidiaries shares held by the Company are eliminated against the related equity of subsidiaries. Intercompany transactions and balances between Zorlu Enerji and its subsidiaries are eliminated on consolidation. Dividends arising from shares held by the Company in its subsidiaries are eliminated from income for the period and equity, respectively. c) Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. 10

14 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL INFORMATION (Continued) 2.2 Basis of Consolidation (Continued) The table below sets out all associates and demonstrates the proportion of ownership interest as of 30 June 2014 and 31 December 2013: Direct and indirect ownership interest by the Company and its Associates (%) Associates 30 June December 2013 Solad Energy Ltd. (2) Dorad Energy Ltd. (1) Ezotech Ltd. (2) (1) Financial information of these entities are consolidated with the method of equity accounting. (2) Despite the fact that the Group has a major voting right (but no control) in such associates, that do not have importance on condensed consolidated interim financial information, are carried at cost less any provision for impairment. d) The minority shareholders share in the net assets and results of subsidiaries for the period are separately classified as minority interest in the condensed consolidated interim balance sheets and statements of comprehensive income. 2.3 Amendments in Turkish Financial Reporting Standards The accounting policies applied during the preparation of this condensed interim financial information are consistent with the accounting policies applied for the financial year between 1 January - 31 December These condensed interim financial information should be read on a comparative basis with annual financial statements for the period between 1 January - 31 December (a) Standards, amendments and IFRICs effective for annual periods beginning on after 1 January 2014: Amendment to IAS 32, Financial instruments: Presentation, on offsetting financial assets and financial liabilities, is effective for annual periods beginning on or after 1 January The amendment updates the application guidance in IAS 32, Financial instruments: Presentation, to clarify some of the requirements for offsetting financial assets and financial liabilities on the balance sheet. The amendment does not have any impact on the Company s financial statements. Amendments to IFRS 10, 12 and IAS 27 on consolidation for investment entities, is effective for annual periods beginning on or after 1 January These amendments mean that many funds and similar entities will be exempt from consolidating most of their subsidiaries. Instead, they will measure them at fair value through profit or loss. The amendments give an exception to entities that meet an investment entity definition and which display particular characteristics. Changes have also been made IFRS 12 to introduce disclosures that an investment entity needs to make. 11

15 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL INFORMATION (Continued) 2.3 Amendments in Turkish Financial Reporting Standards (Continued) Amendment to IAS 36, Impairment of assets on recoverable amount disclosures, is effective for annual periods beginning on or after 1 January This amendment addresses the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. Amendment to IAS 39, Financial Instruments: Recognition and Measurement - Novation of derivatives is effective for annual periods beginning on or after 1 January This amendment provides relief from discontinuing hedge accounting when novation of a hedging instrument to a central counterparty meets specified criteria. FRIC/ IFRIC 21, Levies is effective for annual periods beginning on or after 1 January This is an interpretation of IAS 37, Provisions, contingent liabilities and contingent assets. IAS - 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a present obligation as a result of a past event (known as an obligating event). The interpretation clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. (b) (c) Other new standards, amendments and interpretations issued and effective as of 1 January 2014 have not been presented since they are not relevant to the operations of the Company or have insignificant impact on the financial statements. Standards and amendments to existing standards that are not yet effective and have not been early adopted by the Company: Annual improvements 2012, is effective for annual periods beginning on or after 1 July Annual Improvements to IFRSs Cycle amend the following 8 standards: -IFRS 2, Share-based Payment -IFRS 3, Business Combinations -IFRS 8, Operating Segments -IAS 16, Property Plant and Equipment and IAS 38, Intangible Assets -IFRS 9, Financial Instruments, IAS 37, Provisions, Contingent Liabilities and Contingent Assets -IAS 39, Financial Instruments: Recognition and Measurement Annual improvements 2013, is effective for annual periods beginning on or after 1 July Annual Improvements to IFRSs Cycle amend the following 4 standards: -IFRS 1, First-time Adoption of IFRS -IFRS 3, Business Combinations -IFRS 13, Fair Value Measurement -IAS 40, Investment Property 12

16 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL INFORMATION (Continued) 2.3 Amendments in Turkish Financial Reporting Standards (Continued) (c) Standards and amendments to existing standards that are not yet effective and have not been early adopted by the Company (Continued): IFRS 9 Financial instruments classification and measurement, is effective for annual periods beginning on or after 1 January This standard on classification and measurement of financial assets and financial liabilities will replace IAS 39, Financial instruments: Recognition and measurement. IFRS 9 has two measurement categories: amortised cost and fair value. All equity instruments are measured at fair value. A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. For liabilities, the standard retains most of the IAS 39 requirements. These include amortised-cost accounting for most financial liabilities, with bifurcation of embedded derivatives. 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. This change will mainly affect financial institutions. IFRS 9 (Amendments), Financial instruments, regarding general hedge accounting is e- ffective for annual periods beginning on or after 1 January These amendments to IFRS 9, 'Financial instruments', bring into effect a substantial overhaul of hedge accounting that will allow entities to better reflect their risk management activities in the financial statements. IAS 19 (Amendments), Defined benefit plans, is effective for annual periods beginning on or after 1 January These narrow scope amendments apply to contributions from employees or third parties to defined benefit plans. The objective of the amendments is to simplify the accounting for contributions that are independent of the number of years of employee service, for example, employee contributions that are calculated according to a fixed percentage of salary. IFRS 11 (Amendments), Joint Arrangements, is effective for annual periods beginning on or after 1 July This amendment adds new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business. The amendments specify the appropriate accounting treatment for such acquisitions. IAS 16 and IAS 38 (Amendments), Tangible Assets, Intangible Assets, are effective for annual periods beginning on or after 1 July In this amendment the IASB has clarified that the use of revenue based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. IFRS 14, Regulatory deferral accounts, is effective for annual periods beginning on or after 1 July Regulatory deferral accounts permits first time adopters to continue to recognise amounts related to rate regulation in accordance with their previous GAAP requirements when they adopt IFRS. 13

17 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL INFORMATION (Continued) 2.3 Amendments in Turkish Financial Reporting Standards (Continued) (c) Standards and amendments to existing standards that are not yet effective and have not been early adopted by the Company (Continued): IFRS 15, Revenue from contracts with customers, is effective for annual periods beginning on or after 1 July The International Accounting Standards Board (IASB) and the US national standard-setter, the Financial Accounting Standards Board (FASB), initiated a joint project to clarify the principles for recognising revenue and to develop a common revenue standard for IFRS and US GAAP. The objective of this Standard is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer. The new model employs an asset and liability approach, rather than current revenue guidance focuses on an earnings process. The Company will evaluate the effect of the aforementioned changes within its operations and apply changes starting from effective date. It is expected that the application of the standards and interpretations will not have a significant effect on the financial statements of the Company. 2.4 Comparatives and restatement of prior year financial information The Group prepares comparative financial information, to enable readers to determine financial position and performance trends. For the purposes of effective comparison, comparative financial statements can be reclassified when deemed necessary by the Group, where descriptions on significant differences are disclosed. The condensed consolidated interim balance sheet of the Group at 30 June 2014 has been provided with the comparative financial information of 31 December 2013 and the condensed consolidated interim statements of income and comprehensive income, the condensed consolidated interim statement of changes in equity and the condensed consolidated interim statement of cash flows for the period ended 30 June 2014 have been provided with the comparative financial information, for the period ended 30 June Where necessary, comparative figures are reclassified to conform to changes in presentation in the current period and material differences are disclosed. The Group has performed reclassifications in the condensed consolidated interim financial information as of 30 June 2013 and consolidated financial information as of 31 December 2013 in order to conform to presentation of condensed consolidated interim financial information as of 30 June i. Rosmiks BV share sales currency differences amounting TL187,752 accounted in currency translation adjustment in the consolidated balance sheet as of 31 December 2012 is reclassified under retained earnings in accordance with IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors. ii. Currency differences amounting TL23,021 accounted in currency translation adjustment in the consolidated balance sheet as of 31 December 2013 is reclassified under accumulated deficit in accordance with IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors. iii. Factoring payables amounting to TL52,301 accounted in other trade payables and TL60,000 accounted in trade payables to related parties in the consolidated balance sheet as of 31 December 2013 are reclassified under other payables to related parties. 14

18 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL INFORMATION (Continued) 2.4 Comparatives and restatement of prior year financial information (Continued) iv. The restricted cash amounting to TL49,412 accounted under cash and cash equivalents in the consolidated balance sheet as of 31 December 2013 is reclassified under financial investments. v. Derivative liabilities amounting to TL22,611 accounted in short-term derivative financial instruments in the consolidated balance sheet as of 31 December 2013 is reclassified under long-term derivative financial instruments. vi. The internal consumption amounting TL12,197 is reclassified between revenue and cost of sales in the consolidated balance sheet as of 30 June vii. As a result of share acquisition of Zorlu Jeotermal and Zorlu Hidroelektrik, the amount of TL23,788 accounted under other reserves in the consolidated balance sheet as of 31 December 2013 is reclassified under accumulated deficit. 2.5 Functional and presentation currency Items included in the financial information of each of the Group s entities are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The condensed interim consolidated financial information is presented in TL, which is the functional currency of Group and the presentation currency of the Group. 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 information of foreign consolidated subsidiaries are translated at year-end exchange rates with respect to the financial position 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. 2.6 Summary of significant accounting policies The condensed interim financial information for the period ended 30 June 2014 has been prepared in accordance with IAS 34 Interim Financial Reporting. The condensed interim financial information should be read in conjunction with the annual consolidated financial statements for the year ended 31 December 2013, which have been prepared in accordance with IFRS. 2.7 Financial Risk Management Foreign exchange risk The Group is exposed to foreign exchange risks due to foreign currency transactions. Foreign exchange risk results from the commercial activities and foreign currency denominated assets and liabilities. The Group controls that risk in a natural manner through netting off the foreign currency denominated assets and liabilities. The management limits the foreign currency position of the Group through analyzing it. The details of the foreign currency assets and liabilities as of 30 June 2014 and 31 December 2013 are as follows: 30 June December 2013 Assets 2,977,550 3,021,131 Liabilities (4,149,884) (4,410,890) Net foreign currency position (1,172,334) (1,389,759) 15

19 INFORMATION FOR THE PERIOD BETWEEN 1 JANUARY - 30 JUNE 2014 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL INFORMATION (Continued) 2.7 Financial Risk Management (Continued) TL equivalent of assets and liabilities denominated in foreign currency held by the Group at 30 June 2014 and 31 December 2013 are as follows: 30 June December 2013 TL Equivalent US Dollar Euro Other* TL Equivalent US Dollar Euro Other* Cash and cash equivalents 87,324 36, , ,947 94, ,325 Trade receivables 44,465 13, ,788 30,856 11, ,087 Due from related parties - short term 1,949, ,994-28, ,450 81,098-18,076 Due from related parties - long term 807, , ,232 2,563,460 1,167, ,507 Other assets 88,083 9,671 1,564-40,418 16,311 1,910 - Total Assets 2,977,550 1,352,905 2,031 1,287,969 3,021,131 1,371,615 2, ,995 Trade payables 32,846 7,676 2, ,430 31,873 11,671 1,676 99,181 Short term financial liabilities 1,507, , , , , ,732 73, ,078 Due to related parties - short term 895, , ,212 27, Due to related parties - long term 460, ,264 8,564-1,275, , ,354 28,916 Long term financial liabilities 1,207, ,325 93,081 1,068,365 2,081, , ,527 1,101,497 Other liabilities 45,006 15,128 4,455-49,157 19,139 2,829 - Total Liabilities 4,149,884 1,481, ,492 1,696,172 4,410,890 1,563, ,266 1,383,672 Net Foreign Currency Position (1,172,334) (128,822) (332,461) (408,203) (1,389,759) (191,828) (353,956) (474,677) (*) Other currencies comprise of GBP, CHF, PKR (Pakistan Rupi) and NIS (New Israel Shekel). 16

20 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL INFORMATION (Continued) 2.7 Financial Risk Management (Continued) The Group is mainly exposed to foreign exchange risk through the impact of rate changes in the translation of USD, EUR and other currencies denominated assets and liabilities to local currency. As of 30 June 2014 and 31 December 2013, had the TL appreciated or depreciated by 10% against USD, EUR and other currencies with all other variables held constant, the effect over current period consolidated net income would be as follows: 30 June 2014 Profit / (Loss) Appreciation of Depreciation of Foreign currency Foreign currency 10% increase / decrease in US Dollar exchange rate (Expense) / income (27,354) 27,354 US Dollar Net Effect (27,354) 27,354 10% increase / decrease in Euro exchange rate (Expense) / income (96,144) 96,144 Euro Net Effect (96,144) 96,144 10% increase / decrease in other exchange rates Income / (expense) 6,265 (6,265) Other Currencies Net Effect 6,265 (6,265) Total Net Effect (117,233) 117, December 2013 Profit / (Loss) Appreciation of Depreciation of Foreign currency Foreign currency 10% increase / decrease in US Dollar exchange rate (Expense) / income (40,733) 40,733 US Dollar Net Effect (40,733) 40,733 10% increase / decrease in Euro exchange rate (Expense) / income (102,361) 102,361 Euro Net Effect (102,361) 102,361 10% increase / decrease in other exchange rates Income / (expense) 5,905 (5,905) Other Currencies Net Effect 5,905 (5,905) Total Net Effect (137,189) 137,189 17

21 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL INFORMATION (Continued) 2.8 Critical accounting estimates, assumptions and judgments The preparation of condensed consolidated interim financial information in conformity with IAS 34 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 condensed interim 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. The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date and the significant judgments are set out below: Estimated useful lives Property, plant and equipment held for use in the supply of goods or services, or for administrative purposes, are stated in the balance sheet at cost less any subsequent accumulated depreciation and subsequent accumulated impairment losses. The Group estimates that the useful lives of these assets. Depreciation is charged over their estimated useful lives, using the straight-line basis over the useful lives which depend on the best estimation of the management. Useful lives of property, plant and equipment are reviewed at each balance sheet dates and make changes, if necessary. Deferred tax asset on cumulative tax losses 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 assets it is necessary to make critical estimations and evaluations with regard to taxable profits in the future periods. As of 30 June 2014, the Group has carry forward tax losses amounting to TL356,370 (31 December 2013: TL356,370) which are expected to be deducted from future profits and did not recognize deferred tax assets for the carry forward tax losses amounting to TL406,422 (31 December 2013: TL451,314) for which the Group believes it will not utilize in the future. Going concern assumption The Group has prepared its condensed interim consolidated financial information on a going concern basis in a foreseeable future. The Group is at investment stage and majority of its investments are financed through borrowings. The Group has TL443,679 of accumulated deficit, TL34,096 of operating gain and TL58,520 of net loss for the period ended 30 June Besides, The Group s short term liabilities exceeds its current assets with TL1,064,015 (2013: TL1,076,503). The Group is expecting an improvement in its current ratio and profitability as soon as the power plants that are under construction are brought into operation in the forthcoming years. These under construction projects are stated below: 18

22 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL INFORMATION (Continued) Going concern assumption (Continued) As per the material disclosure dated 13 May 2014, a combined cycle natural gas power plant having a capacity of 840 MW, which was constructed in Ashkelon, Israel by Dorad Energy Limited Şirketi, in which our company has 25% shareholding; is started its commercial operations. The power plants of the Group s subsidiaries Ashdod Energy Limited and Ramat Negev Energy Limited with approximately 55 MW electric generation and 40 tones/h steam capacity and 120 MW electric generation and 70 tones/h steam capacity, respectively, are expected to start commercial operation by the half of first quarter of The wind farm with the installed capacity of 56.4 MW being constructed in Jhimpir area of Pakistan by the Group s 100% subsidiary Zorlu Enerji Pakistan Ltd. started commercial electric energy sales to Pakistan National Transmission and Distribution Company ( NTDC ) on 26 July Additionally, performance and security tests of the first phase of fully constructed Kızıldere II project of Zorlu Doğal Elektrik Üretimi A.Ş. with the installed capacity of 60 MW has been succesfully completed. After the official acceptance of the Ministry, the power plant started to sell commercial electricity commencing from 31 August The official acceptance of the second and last phase with the capacity of 20 MW was completed on 31 October 2013 and, since then the power plant started to operate with full capacity. The capacity increase from 30 MW to 45 MW of geothermal powerplant that will be established in Alaşehir, Manisa by Zorlu Jeotermal Enerji Elektrik Üretimi A.Ş., %100 owned subsidiary of Zorlu Enerji, is approved by the Energy Market Regulatory Authority (EMRA). The 14 year term loan agreement has been signed on 25 November 2013 with Yapı Kredi A.Ş which will provide a fund up to USD113,000,000 in order to finance the project. The plant is planned to start operation by 2015 year end. With the reference to material disclosure dated 6 August 2014, in the context of debt restructuring and simplification of balance sheet within the company group; pursuant to the Board of Directors resolution numbered 44/45 and dated 4 August 2014, - As per material disclosure dated 5 December 2011, the company s remaining debt related to the syndicated loan is USD337,995,000 and EUR54,712,455 (a total of USD411,435,528). The Company acquit the whole related amount of debt with the finance of Zorlu Holding. In the content of the material disclosures dated 2 January 2013 and 31 December 2013; the debts (including accrued interest) of Rosmiks International BV and Rosmiks Netherlands BV, 100% subsidiaries of the Zorlu Holding, owed to the Company the amount of USD579,494,031 and USD576,167,092 respectively ( a total of USD1,155,661,123) is taken over by Zorlu Holding. - The Company owes USD445,190,784 to Zorlu Holding. However, the amount of USD 406,190,784 plus USD411,435,528 (a total of USD817,626,312) paid on account of USD 1,155,661,123 debt owed by Zorlu Holding to the Company, therefore net creditor owed USD338,034, Zorlu Holding will pay its total debt of USD338,034,811 to the Company on 31 December 2020 as batch payment including accrued interest. (7.5% interest rate determined by Zorlu Group correspondingly to the market conditions.) 19

23 NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL INFORMATION (Continued) Going concern assumption (Continued) As a result of restructuring of in-group payables and receivables, financial liabilities in the amount of TL879,836, other payables to related parties in the amount of TL915,986 and other receivables from related parties in the amount of TL1,795,822 are reclassified as short term on the condensed consolidated financial statements for the 30 June 2014 which had been reclassified as long-term on previous periods. The Group forecasts an increase in its profitability through the aforementioned projects and plans to decrease its financial liabilities with the cash generated from such projects which will also improve the Group s current ratio. The Group s operational, investing and financing decisions are taken based on the future positive cash flows and profitability. The Group s ultimate parent company, Zorlu Holding A.Ş. has declared its intend to provide necessary support to the Group to continue on a going concern basis, in the support letter dated 3 January Consequently, the Group management does not foresee any risk regarding going concern and has prepared these consolidated financial statements on the assumption that the Group will continue its operations on a going concern basis in a foreseeable future. 2.9 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. 20

24 NOTE 3 - SEGMENT REPORTING The Company's geographic operating segments are Turkey, Pakistan and other countries. No industrial operating segments have been reported as the Company s product range is the same in all countries. The segment information in country basis is presented below. Earnings before interest, taxes, depreciation and amortization (EBITDA) is considered on evaluation of countries performance. Decision making authority of the Group considers EBITDA as the most appropriate method for comparability with other companies within the same industry. 30 June 2014 Turkey Pakistan Other Total Revenue from external customers 449,240 22, ,277 EBITDA 83,351 23, ,512 Financial income 144,747 12, ,166 Financial expenses (248,773) (6,686) - (255,459) Amortization and depreciation expenses (65,980) (6,436) - (72,416) Share of gain of associates 2, ,011 Purchase of tangible and intangible assets 61,460 1,031-62,491 1 April - 30 June 2014 Turkey Pakistan Other Total Revenue from external customers 227,446 16, ,763 EBITDA 36,470 17,480-53,950 Financial income 121,327 11, ,818 Financial expenses (129,945) (3,859) - (133,804) Amortization and depreciation expenses (32,454) (3,502) - (35,956) Share of loss of associates (808) - - (808) Purchase of tangible and intangible assets 38, , June 2013 Turkey Pakistan Other Total Revenue from external customers 252, ,856 EBITDA 54,740 (3,782) ,554 Financial income 130, ,295 Financial expenses (245,762) (675) - (246,437) Amortization and depreciation expenses (60,408) (173) - (60,581) Share of loss of associates (1,364) - - (1,364) Purchase of tangible and intangible assets 116,198 33, ,109 21

25 NOTE 3 - SEGMENT REPORTING (Continued) 1 April - 30 June 2013 Turkey Pakistan Other Total Revenue from external customers 146, ,813 EBITDA 33,036 (2,441) ,251 Financial income 93,228 (59) - 93,169 Financial expenses (169,245) (671) 24 (169,892) Amortization and depreciation expenses (27,998) (27,712) Share of loss of associates (758) - - (758) Purchase of tangible and intangible assets 61,123 33,910-95,033 As of 30 June 2014, the Group has recognized 15% of its sales to Türkiye Elektrik İletim A.Ş. ( TEİAŞ ), 71% to Zorlu Holding A.Ş. companies, 11% to YEKDEM and remaining 3% to third parties. (As of 30 June 2013, the Group has recognized 19% of its sales to TEİAŞ, 77% to Zorlu Holding A.Ş. Companies and 4% to third parties). 30 June 2014 Turkey Pakistan Other Eliminations Total Segment Assets 6,210, ,791 - (276,759) 6,255,194 Associates 93, ,931 Segment Liabilities 5,684, ,613 - (275,641) 5,632, December 2013 Turkey Pakistan Other Eliminations Total Segment Assets 6,256, ,404 - (298,164) 6,254,475 Associates 94, ,800 Segment Liabilities 5,632, ,724 - (297,850) 5,560,480 Reconciliation between reportable segment income, EBITDA, assets and liabilities and other significant items are as follows: Income 1 April - 1 April - 30 June June June June 2013 Segment revenue 471, , , ,813 Consolidated revenue 471, , , ,813 22