CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 SEPTEMBER 2016

Transcription

1 CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 SEPTEMBER 2016 (ORIGINALLY ISSUED IN TURKISH)

2 CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 SEPTEMBER 2016 CONTENTS PAGE CONSOLIDATED BALANCE SHEETS CONSOLIDATED STATEMENTS OF PROFIT AND LOSS... 3 CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME... 4 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY... 5 CONSOLIDATED STATEMENTS OF CASH FLOWS... 6 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 GROUP S ORGANISATION AND NATURE OF OPERATIONS... 7 NOTE 2 BASIS OF PRESENTATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 CASH AND CASH EQUIVALENTS NOTE 4 FINANCIAL ASSETS NOTE 5 FINANCIAL LIABILITIES NOTE 6 TRADE RECEIVABLES AND PAYABLES NOTE 7 RECEIVABLES FROM FINANCE SECTOR OPERATIONS NOTE 8 INVENTORIES NOTE 9 INVESTMENT PROPERTIES NOTE 10 PROPERTY, PLANT AND EQUIPMENT NOTE 11 INTANGIBLE ASSETS NOTE 12 PROVISIONS, CONTINGENT ASSETS AND LIABILITIES NOTE 13 OTHER ASSETS AND LIABILITES NOTE 14 REVENUE NOTE 15 MARKETING EXPENSES AND GENERAL ADMINISTRATIVE EXPENSES NOTE 16 OTHER INCOME AND EXPENSES FROM MAIN OPERATIONS NOTE 17 FINANCIAL INCOME AND EXPENSES NOTE 18 TAX ASSETS AND LIABILITIES NOTE 19 RELATED PARTY DISCLOSURES NOTE 20 EARNINGS PER SHARE NOTE 21 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

3 CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH CONSOLIDATED BALANCE SHEETS AT 30 SEPTEMBER 2016 AND 31 DECEMBER 2015 ASSETS Unaudited Audited Notes 30 September December 2015 Current assets: Cash and cash equivalents 3 1,701,294 2,386,516 Financial assets ,742 Trade receivables - Related parties , ,761 - Third parties 6 489, ,294 Receivables from finance sector operations 7 1,351,496 1,091,366 Other receivables Inventories 8 1,088, ,251 Prepaid expenses 13 40,862 22,947 Current tax assets 18 2,621 9,657 Other current assets ,616 32,997 Total current assets 5,597,026 5,208,731 Non-current assets: Receivables from finance sector operations 7 777, ,775 Investment properties 9 29,515 29,515 Property, plant and equipment 10 2,163,917 2,111,520 Intangible assets 11 1,658,838 1,283,973 Deferred tax assets , ,133 Prepaid expenses 13 22,510 21,643 Other non-current assets 6,578 5,276 Total non-current assets 5,196,286 4,657,835 Total assets 10,793,312 9,866,566 These condensed interim consolidated financial statements as of and for the interim period 1 January - 30 September 2016 have been approved for issue by the Board of Directors on 3 November The accompanying notes form an integral part of these condensed consolidated interim financial statements. 1

4 CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH CONSOLIDATED BALANCE SHEETS AT 30 SEPTEMBER 2016 AND 31 DECEMBER 2015 LIABILITIES Unaudited Audited Notes 30 September December 2015 Current liabilities: Short-term financial liabilities 5 267, ,281 Short-term portion of long-term financial liabilities 5 1,874,055 1,521,200 Trade payables - Related parties 19 1,480,669 1,491,421 - Third parties 6 977, ,123 Employee benefit liabilities 56,887 57,663 Deferred income 25,076 15,592 Government incentives and grants 8,374 8,374 Short-term provisions ,154 99,313 Other current liabilities ,621 66,493 Total current liabilities 4,984,762 4,527,460 Non-current liabilities: Long-term financial liabilities 5 2,765,750 2,553,582 Government incentives and grants 32,391 38,672 Long-term provisions - Provisions for employment termination benefits 166, ,561 Total non-current liabilities 2,964,259 2,756,815 Total liabilities 7,949,021 7,284,275 Equity: Paid-in share capital 500, ,000 Inflation adjustment on equity items 348, ,382 Other comprehensive income/(losses) not to be reclassified under profit and losses - Actuarial loss on post employment termination benefit obligation (18,545) (18,545) Other comprehensive income/(losses) to be reclassified under profit and losses - Cumulative losses on hedging (215,362) (152,938) Restricted reserves 277, ,363 Retained earnings 1,263, ,228 Net profit for the year 689, ,801 Total equity 2,844,291 2,582,291 Total liabilities and equity 10,793,312 9,866,566 The accompanying notes form an integral part of these condensed consolidated interim financial statements. 2

5 CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH CONSOLIDATED STATEMENTS OF PROFIT AND LOSS FOR THE INTERIM PERIODS ENDED 30 SEPTEMBER 2016 AND 2015 Unaudited Unaudited Unaudited Unaudited 1 January - 1 July - 1 January - 1 July - Notes 30 September September September September 2015 Revenue 14 9,479,811 3,111,974 6,952,609 2,271,560 Cost of sales (-) 14 (8,597,557) (2,836,322) (6,101,682) (1,990,156) Gross profit from operations 882, , , ,404 Revenue from finance sector operations 272,116 94, ,781 63,059 Expenses from finance sector operations (-) (192,273) (66,408) (123,109) (44,720) Gross profit from finance sector operations 79,843 27,911 53,672 18,339 Gross profit 962, , , ,743 Marketing expenses (-) 15 (212,465) (65,147) (193,282) (58,361) General administrative expenses (-) 15 (177,987) (61,874) (152,282) (50,589) Research and development expenses (-) (16,834) (4,956) (5,744) (2,979) Other income from main operations , , , ,546 Other expenses from main operations (-) 16 (583,875) (241,177) (551,374) (359,722) Operating profit 540, , ,840 82,638 Financial income , , , ,113 Financial expenses (-) 17 (550,580) (174,284) (621,852) (369,649) Profit before tax from continued operations 537, , , ,102 Tax expenses 151,808 43, ,690 42,219 - Taxes on income (16,465) 1,366 (7,096) 4,676 - Deferred tax income ,273 42, ,786 37,543 Net profit for the period 689, , , ,321 Attributable to: Non-controlling interests Parent company interests 689, , , ,321 Earnings per share (Kr) The accompanying notes form an integral part of these condensed consolidated interim financial statements. 3

6 CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME FOR THE INTERIM PERIODS ENDED 30 SEPTEMBER 2016 AND 2015 Unaudited Unaudited Unaudited Unaudited 1 January - 1 July - 1 January - 1 July - 30 September 30 September 30 September 30 September Net profit for the period 689, , , ,321 Other comprehensive income: Other comprehensive income not to be reclassified under profit and loss - Actuarial loss on post employment termination benefit obligation - - (2,940) (2,940) Taxes relating to other comprehensive income not to be reclassified under profit and loss Actuarial loss on post employment termination benefit obligation, tax effect Other comprehensive income to be reclassified under profit and loss - Cumulative (losses)/gains on hedging (78,030) (92,083) (196,998) (172,577) Taxes relating to other comprehensive income to be reclassified under profit and loss - Cumulative (losses)/gains on hedging, tax effect 15,606 18,417 39,400 34,516 Other comprehensive loss (62,424) (73,666) (159,950) (140,413) Total comprehensive income 627, , ,223 33,908 Total comprehensive income attributable to: Non-controlling interests Parent company interests 627, , ,223 33,908 The accompanying notes form an integral part of these condensed consolidated interim financial statements. 4

7 CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE INTERIM PERIODS ENDED 30 SEPTEMBER 2016 AND 2015 Other Other compherensive compherensive income not to be income to be reclassified under reclassified under profit and loss profit and loss Retained earnings Actuarial loss on employment Equity Non- Paid in Adjustments termination benefit Loss on Restricted Retained Net profit holders of the controlling Total share capital to share capital obligation cash flow hedge reserves earnings for the period parent interests equity Balances at 1 January , ,382 (21,879) (144,469) 213, , ,238 2,241,171-2,241,171 Transfers , ,986 (574,238) Total comprehensive income - - (2,352) (157,598) , , ,223 Dividends paid (484,546) - (484,546) - (484,546) Balances at 30 September , ,382 (24,231) (302,067) 243, , ,173 2,169,848-2,169,848 Balances at 1 January , ,382 (18,545) (152,938) 243, , ,801 2,582,291-2,582,291 Transfers , ,801 (830,801) Total comprehensive income (62,424) , , ,000 Dividends paid (365,000) - (365,000) - (365,000) Balances at 30 September , ,382 (18,545) (215,362) 277,363 1,263, ,424 2,844,291-2,844,291 The accompanying notes form an integral part of these condensed consolidated interim financial statements. 5

8 CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE INTERIM PERIODS ENDED 30 SEPTEMBER 2016 AND 2015 Unaudited Unaudited Notes 30 September September 2015 A. Cash flows from operating activities: 48, ,431 Net profit for the period 689, ,173 Adjustments to reconcile profit for the period 327, ,501 - Depreciation and amortization 369, ,066 - Adjustments related to interest income 17 (155,587) (50,376) - Adjustments related to provision for inventories 8 5,515 3,315 - Gain on sale of property, plant and equipment (1,571) (1,418) - Provision for employment termination benefits 17,090 15,753 - Adjustments related to warranty provisions 12 47,237 41,786 - Adjustments related to doubtful receivables 7,6 10,877 8,515 - Adjustments related to interest expense 17 52,684 35,881 - Adjustments for tax losses/ income (151,808) (104,690) - Due date charges on term purchases 4,788 1,475 - Adjustments related to unrealized gain / (loss) on foreign currency differences 16,17 128,615 96,194 Changes in net working capital (901,500) (286,908) - Change in inventories (533,774) (257,381) - Change in receivables from third parties 208,677 90,730 - Change in receivables from related parties (482,429) (131) - Change in other receivables from operating activities (1,228) (669) - Change in trade payables due to third parties 21,077 (193,249) - Change in trade payables due to related parties (10,752) 309,945 - Change in receivables from finance sector operations (197,885) (306,563) - Change in prepaid expenses (18,782) (64,681) - Change in deferred revenue 9,484 (2,994) - Change in government incentives and grants (6,281) (6,281) - Change in other assets from operating activities (94,493) (10,176) - Change in other liabilities from operating activities 125, ,168 - Change in financial assets 79,494 28,374 Net cash generated from operating activities 115, ,766 - Income taxes paid 18 (9,429) (8,484) - Payments related to employment termination benefits (16,309) (17,849) - Other cash outflows (41,897) (33,002) B. Cash flows from investing activities (807,860) (616,410) - Purchases of tangible assets 10 (566,304) (369,633) - Purchases of intangible assets 11 (246,610) (249,806) - Proceeds from sale of tangible and intangible assets 5,054 3,029 C. Cash flows from financing activities 85, ,827 - Proceeds from financial liabilities 1,022,722 2,993,182 - Bank loans paid (682,713) (1,778,878) - Dividends paid (365,000) (484,546) - Interest received 156,334 49,697 - Interest paid (45,965) (30,628) Net (decrease) / increase in cash and cash equivalents before currency translation differences (674,390) 668,848 D. Effects of currency translation differences on cash and cash equivalents (36,960) 84,793 Net change in cash and cash equivalents (711,349) 753,641 E. Cash and cash equivalents at the beginning of the period 2,383,242 1,681,933 Cash and cash equivalents at the end of the period 3 1,671,893 2,435,574 The accompanying notes form an integral part of these condensed consolidated interim financial statements. 6

9 CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH NOTE 1 - GROUP S ORGANISATION AND NATURE OF OPERATIONS Tofaş Türk Otomobil Fabrikası A.Ş. ( the Company or Tofaş ) was established in 1968 as a Turkish-Italian cooperation venture. The core business of the Company is manufacturing, exporting and selling passenger cars and light commercial vehicles under licenses of Fiat Auto S.p.A. ( Fiat ). The Company, which is a joint venture of Koç Holding A.Ş. ( Koç Holding ) and Fiat, also produces various automotive spare parts used in its automobiles. The Company s head office is located at Büyükdere Cad. No: 145 Zincirlikuyu Şişli, İstanbul. The manufacturing facilities are located at Bursa. The Company manufactures its cars, except for Mini Cargo and New Doblo, pursuant to license agreements between the Company and Fiat. The Company has been registered with the Turkish Capital Market Board ( CMB ) and quoted on the İstanbul Stock Exchange ( ISE ) since 1991, its shares are still exchanged in Borsa İstanbul A.Ş. ( BIST ). The Company conducts a significant portion of its business with affiliates of Koç Holding and Fiat Group (Note 19). As of 30 September 2016 and 31 December 2015, consolidated subsidiaries of the Company are as follows: Rate of ownership of the Company (%) Name of the company Operating area 30 September December 2015 Koç Fiat Kredi Finansman A.Ş. ( KFK ) Consumer financing Fer Mas Oto Ticaret A.Ş. Trading of automobile and spare parts For the purpose of the condensed consolidated financial statements, the Company and its consolidated subsidiaries are referred to as the Group. The average number of personnel in accordance with their categories is as follows: 30 September December 2015 Blue-collar 7,739 5,490 White-collar 1,668 1,582 Total 9,407 7,072 7

10 CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS 2.1 Basis of presentation Financial reporting standards The accompanying condensed consolidated interim financial statements are prepared in accordance with the Communiqué Serial II, No: 14.1, Principles of Financial Reporting in Capital Markets ( the Communiqué ) published in the Official Gazette numbered on 13 June According to the article 5 of the Communiqué, consolidated financial statements are prepared in accordance with Turkish Accounting Standards/Turkish Financial Reporting Standards ( TAS/TFRS ) and its addendum and interpretations ( IFRIC ) issued by Public Oversight Accounting and Auditing Standards Authority ( POA ) Turkish Accounting Standards Boards. Group prepared its condensed consolidated interim financial statements for the period ended 30 September 2016 in accordance with the TAS 34 Interim financial reporting in the framework of the Communiqué Serial: XII and numbered 14.1 and its related announcements. The interim condensed consolidated financial statements and its accompanying notes are presented in compliance with the format recommended by CMB, including its mandatory information. In compliance with the TAS 34, entities have preference in presenting their interim consolidated financial statements whether full set or condensed. In this framework, Group prefered to present its interim consolidated financial statements in condensed. Group s condensed consolidated interim financial statement does not include all disclosures and notes that should be included at year-end financial statements. Therefore the interim condensed consolidated financial statements should be examined together with financial statements as of 31 December The condensed consolidated interim financial statements and its accompanying notes are prepared with in accordance with the decision taken in the CMB meeting held on 7 June 2013, and in compliant with the announcement related to the format of financial statements and its accompanying notes. Group and its subsidiaries operating in Turkey, maintains its accounting records and prepares its statutory financial statements in accordance with the Turkish Commercial Code (the TCC ), tax legislation and the uniform chart of accounts issued by the Ministry of Finance. The interim condensed consolidated financial statements, except for the financial asset and liabilities presented with their fair values, are maintained under historical cost conversion in TRY. These interim condensed consolidated financial statements are based on the statutory records, which are maintained under historical cost conversion, with the required adjustments and reclassifications reflected for the purpose of fair presentation in accordance with the TAS/TFRS. 8

11 CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.1 Basis of presentation (Continued) Comparatives and adjustment of prior periods financial statements In order to allow for the determination of the financial situation and performance trends the Group s consolidated financial statements have been presented comparatively with the previous year. Where necessary, comparative figures have been reclassified to conform to the changes in presentation in the current period. The Group has amended the calculation method of unused and deferred investment incentive used in corporate tax income calculation for 2015 and correspondingly in the final Corporate Tax Income Declaration, subject to tax calculation in the consolidated financial statements at 31 December As a result of the mentioned method change and in order to be consistent with the financial statements of the current period, deferred tax assets have decreased by TRY1,459 and current tax assets have increased by TRY1,459. Deferred tax income classified under the consolidated profit or loss have decreased by the same amount and taxes on income classified under the consolidated profit or loss have decreased by TRY1,459 the same amount in the consolidated financial statements for the period ended 31 December 2015 accordingly Functional and reporting currency The Group s functional and reporting currency is Turkish Lira ( TRY ). Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation are recognized in the consolidated statement of profit and loss Basis of consolidation The group controls an entity when the group is exposed to, or has rights to,variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. During consolidation inter-company balances and transactions, including inter-company profits and unrealized profits and losses are eliminated. The consolidated financial statements are prepared using consistent accounting policies for similar transactions and other events in similar circumstances. Minority shares of the Company in subsidiaries were not recognized under non-controlling interest ( Minority Interests or Non-controlling Interests ) since they do not have a material effect in consolidated financial statements. Financial statements of the Company and its subsidiaries subject to consolidation were prepared as of the same date Significant accounting judgments, estimates and assumptions The preparation of financial statements requires the Group management to make estimates and assumptions that affect certain 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 year. Actual results could differ from those estimates. Those estimates are reviewed periodically, and as adjustments become necessary, they are reported in earnings in the periods in which they become known. 9

12 CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.1 Basis of presentation (Continued) Significant estimates used in the preparation of these financial statements and the significant judgments with the most significant effect on amounts recognized in the financial statements are as follows: a) The Group determines warranty provision by considering the past warranty expenses and remaining warranty period per vehicle. In calculation of the warranty provision; vehicle quantity, warranty period and the historical warranty claims incurred are considered. As of 30 September 2016, warranty expenses amounted to TRY47,237 has occurred (30 September 2015: TRY41,786) (Note 12). b) A specific credit risk provision for loan impairment has been established to provide for management s estimate of credit losses as soon as the recovery of an exposure is identified as doubtful. Impairment and uncollectability are measured and recognized individually for loans and receivables that are individually significant, and measured and recognized on a portfolio basis for a group of similar loans and receivables that are not individually identified as impaired. As of 30 September 2016, general provisions for finance loans amounted to TRY22,905 (31 December 2015: TRY20,626) has been booked in the condensed consolidated financial statements (Note 7). 2.2 Amendments in International Financial Reporting Standards Group has implemented the new and revised standards and interpretations issued by POA effective from 1 January 2016 which are related to its main operations. a) New standards, amendments and interpretations effective as of 30 September 2016: - Amendment to TFRS 11, 'Joint arrangements' on acquisition of an interest in a joint operation, effective from annual periods beginning on or after 1 January 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. - Amendments to TAS 16 Property, plant and equipment, and TAS 41, Agriculture, regarding bearer plants, effective from annual periods beginning on or after 1 January These amendments change the financial reporting for bearer plants, such as grape vines, rubber trees and oil palms. It has been decided that bearer plants should be accounted for in the same way as property, plant and equipment because their operation is similar to that of manufacturing. Consequently, the amendments include them within the scope of TAS 16, instead of TAS 41. The produce growing on bearer plants will remain within the scope of TAS

13 CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.2 Amendments in International Financial Reporting Standards (Continued) - Amendment to TAS 16, 'Property, plant and equipment' and TAS 38, 'Intangible assets', on depreciation and amortisation, effective from annual periods beginning on or after 1 January In this amendment, it 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. It is also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. - TFRS 14 Regulatory deferral accounts, effective from annual periods beginning on or after 1 January TFRS 14, 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 TFRS. However, to enhance comparability with entities that already apply TFRS and do not recognise such amounts, the standard requires that the effect of rate regulation must be presented separately from other items. - Amendments to TAS 27, Separate financial statements on the equity method, effective from annual periods beginning on or after 1 January These amendments allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. - Annual improvements 2014, effective from annual periods beginning on or after 1 January These set of amendments impacts 4 standards: - TFRS 5, Non-current assets held for sale and discontinued operations regarding methods of disposal. - TFRS 7, Financial instruments: Disclosures, (with consequential amendments to TFRS 1) regarding servicing contracts. - TAS 19, Employee benefits regarding discount rates. - TAS 34, Interim financial reporting regarding disclosure of information. - Amendment to TAS 1, Presentation of financial statements on the disclosure initiative, effective from annual periods beginning on or after 1 January 2016, these amendments are as part of the IASB initiative to improvepresentation and disclosure in financial reports. - Amendment to TFRS 10 Consolidated financial statements and TAS 28, Investments in associates and joint ventures, effective from annual periods beginning on or after 1 January 2016.These amendments clarify the application of the consolidation exception for investment entities and their subsidiaries. 11

14 CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.2 Amendments in International Financial Reporting Standards (Continued) b) Standards and amendments issued but not yet effective as of 30 September 2016: - Amendments to TAS 7 Statement of cash flows on disclosure initiative, effective from annual periods beginning on or after 1 January These amendments introduce an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendment is part of the TASB s Disclosure Initiative, which continues to explore how financial statement disclosure can be improved. - Amendments TAS 12 Income Taxes, effective from annual periods beginning on or after 1 January The amendments clarify the accounting for deferred tax where an asset is measured at fair value and that fair value is below the asset s tax base. It also clarify certain other aspects of accounting for deferred tax assets. - Amendments to TFRS 2, Share based payments on clarifying how to account for certain types of share-based payment transactions, effective from annual periods beginning on or after 1 January This amendment clarifies the measurement basis for cash-settled, share-based payments and the accounting for modifications that change an award from cash-settled to equity-settled. It also introduces an exception to the principles in TFRS 2 that will require an award to be treated as if it was wholly equity-settled, where an employer is obliged to withhold an amount for the employee s tax obligation associated with a share-based payment and pay that amount to the tax authority. - TFRS 9 Financial instruments, effective from annual periods beginning on or after 1 January This standard replaces the guidance in TAS 39. It includes requirements on the classification and measurement of financial assets and liabilities; it also includes an expected credit losses model that replaces the current incurred loss impairment model. - TFRS 15 Revenue from contracts with customers, effective from annual periods beginning on or after 1 January TFRS 15, Revenue from contracts with customers is a converged standard from the TASB and FASB on revenue recognition. The standard will improve the financial reporting of revenue and improve comparability of the top line in financial statements globally. - Amendment to TFRS 15, Revenue from contracts with customers, effective from annual periods begining on or after 1 January These amendments comprise clarifications of the guidance on identifying performance obligations, accounting for licences of intellectual property and the principal versus agent assessment (gross versus net revenue presentation). New and amended illustrative examples have been added for each of those areas of guidance. The TASB has also included additional practical expedients related to transition to the new revenue standard. 12

15 CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.2 Amendments in International Financial Reporting Standards (Continued) - TFRS 16 Leases, effective from annual periods beginning on or after 1 January 2019, This standard replaces the current guidance in TAS 17 and is a farreaching change in accounting by lessees in particular. Under TAS 17, lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). TFRS 16 now requires lessees to recognise a lease liability reflecting future lease payments and a right-of-use asset for virtually all lease contracts. The TASB has included an optional exemption for certain short-term leases and leases of low-value assets; however, this exemption can only be applied by lessees. For lessors, the accounting stays almost the same. However, as the TASB has updated the guidance on the definition of a lease (as well as the guidance on the combination and separation of contracts), lessors will also be affected by the new standard. At the very least, the new accounting model for lessees is expected to impact negotiations between lessors and lessees. Under TFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. - Amendments to TFRS 4 Insurance contracts regarding the Implementation of TFRS 9 Financial Instruements, effective from annual periods beginning on or after 1 January These amendments introduce two approaches: an overlay approach and a deferral approach. The amended standard will: - give all companies that issue insurance contracts the option to recognise in other comprehensive income, rather than profit or loss, the volatility that could arise when TFRS 9 is applied before the new insurance contracts standard is issued; and - give companies whose activities are predominantly connected with insurance an optional temporary exemption from applying TFRS 9 until The entities that defer the application of TFRS 9 will continue to apply the existing financial instruments standard, TAS 39. The Group will evaluate the effect of the aforementioned changes within its operations and apply changes starting from effective date. 13

16 CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.3 Summary of significant accounting policies The condensed consolidated interim financial statements as of and for the period ended 30 September 2016 have been prepared in accordance of TAS 34. Except for the above mentioned policy change in Note 2.1.2, the accounting policies used in the preparation of these condensed interim consolidated financial statements as of and for the period ended 30 September 2016 are consistent with those used in the preparation of annual consolidated financial statements as of and for the year ended 31 December Accordingly, these condensed interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements as of and for the year ended 31 December Segment reporting Since the Company operates in one business segment and the operations are held in Turkey, there is no segment reporting. The information regarding the sales of the Company as to domestic and export sales and the categorization of sales as to product type is disclosed in Note 14. NOTE 3 - CASH AND CASH EQUIVALENTS 30 September December 2015 Cash in hand 21 8 Due from banks - demand deposits 139, ,760 - time deposits 1,561,644 2,268,748 The breakdown of time deposits is as follows: 1,701,294 2,386, September December 2015 Effective Effective interest rate interest rate Amount per annum (%) Amount per annum (%) TRY 580, ,178, EUR 981, ,090, ,561,644 2,268,748 As of 30 September 2016, the maturities of time deposits vary between 3-77 days (31 December 2015: between 4 and 49 days). 14

17 CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH NOTE 3 - CASH AND CASH EQUIVALENTS (Continued) As of 30 September 2016, the portion amounting to TRY675,496 (31 December 2015: TRY1,395,025) of the total demand and time deposits are deposited at the bank which is a related party of the Group (Note 19). As of 30 September 2016, company s TRY26,874 worth of restricted cash consists of required reserve balance of the Central Bank of Turkish Republic. As of 30 September 2016 and 2015, the cash and cash equivalents for the purpose of cash flows are as follows: Cash and banks 1,701,294 2,440,373 Less: interest accruals (2,527) (4,799) Less: restricted cash (26,874) - 1,671,893 2,435,574 NOTE 4 - FINANCIAL ASSETS a) Short-term financial assets: As of 30 September 2016 Group does not have short term financial assets of the Group consists of time deposits (31 December 2015: TRY79,440 with a maturity of 96 days bearing an interest rate of 1.60%). b) Available for sale financial investments: As of 30 September 2016, the Group has available for sale financial investments amounting to TRY248 (31 December 2015: TRY302). NOTE 5 - FINANCIAL LIABILITIES a) Short-term financial liabilities 30 September December 2015 Original Effective Original Effective amount Amount interest rate amount Amount interest rate (thousand) (TRY) per annum (%) (thousand) (TRY) per annum(%) Borrowings in EUR 56, ,834 Euribor , ,481 Euribor Euribor Borrowings in TRY - 77, , , ,281 15

18 CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH NOTE 5 - FINANCIAL LIABILITIES (Continued) b) Short-term portion of long-term financial liabilities 30 September December 2015 Original Effective Original Effective amount Amount interest rate amount Amount interest rate (thousand) (TRY) per annum (%) (thousand) (TRY) per annum (%) Borrowings in TRY(*) - 996, , Borrowings in EUR 184, ,119 Euribor , ,989 Euribor Euribor Euribor Bonds ( 1,2,3 8 ) - 258, , c) Long-term financial liabilities 1,874,055 1,521, September December 2015 Original Effective Original Effective amount Amount interest rate amount Amount interest rate (thousand) (TRY) per annum (%) (thousand) (TRY) per annum(%) Borrowings in EUR 612,318 2,057,878 Euribor ,793 1,762,911 Euribor Euribor Euribor Borrowings in TRY (*) - 569, , Borrowings in USD (*) 10,000 29, Bonds ( 1,2,3 8 ) - 108, , ,765,750 2,553,582 (*) As of 30 September 2016 and 31 December 2015 the whole short and long term bank borrowings which are denominated in TRY and USD comprise bank borrowings obtained by KFK, consolidated subsidiary, to finance consumer financing loans. (1) Based on the board of directors meeting decision at 18 April 2014, according to the Capital Market Law with the necessary permission, comprise of bonds which is issued on 7 November 2014 with 24 months maturity, 10.07% coupon interest rate and TRY50,000 nominal value with principle and interest payment at maturity. These commercial papers were sold to Yapı Kredi Yatırım Menkul Değerler A.Ş. which is a related party to the Group with closed issuance. (2) Based on the board of directors meeting decision at 18 April 2014, according to the Capital Market Law with the necessary permission, comprise of bonds which is issued on 26 November 2014 with 24 months maturity, 9.54% coupon interest rate and TRY30,000 nominal value with principle and interest payment at maturity. These commercial papers were sold to TSKB A.Ş. with closed issuance. (3) Based on the board of directors meeting decision at 18 April 2014, according to the Capital Market Law with the necessary permission, comprise of bonds which is issued on 11 December 2014 with 24 months maturity, 9.37% coupon interest rate and TRY60,000 nominal value with principle and interest payment at maturity. These commercial papers were sold to Yapı Kredi Yatırım Menkul Değerler A.Ş. which is a related party to the Group with closed issuance. 16

19 CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH NOTE 5 - FINANCIAL LIABILITIES (Continued) (4) Based on the board of directors meeting decision at 14 April 2015, according to the Capital Market Law with the necessary permission, comprise of bonds which is issued on 12 November 2015 with 20 months maturity, 11.68% coupon interest rate and TRY50,000 nominal value with principle and interest payment at maturity. These commercial papers were sold Yapı Kredi Yatırım Menkul Değerler A.Ş. which is a related party to the Group with closed issuance. (5) Based on the board of directors meeting decision at 14 April 2015, according to the Capital Market Law with the necessary permission, comprise of bonds which is issued on 18 December 2015 with 16 months maturity, 12.51% coupon interest rate and TRY62,380 nominal value with principle and interest payment at maturity. These commercial papers were sold to Yapı Kredi Yatırım Menkul Değerler A.Ş. which is a related party to the Group with closed issuance. (6) Based on the board of directors meeting decision at 14 April 2015, according to the Capital Market Law with the necessary permission, comprise of bonds which is issued on 9 May 2016 with 18 months maturity, 11.49% coupon interest rate and TRY45,000 nominal value with principle and interest payment at maturity. These commercial papers were sold to Yapı Kredi Yatırım Menkul Değerler A.Ş. which is a related party to the Group with closed issuance. (7) Based on the board of directors meeting decision at 26 February 2016, according to the Capital Market Law with the necessary permission, comprise of bonds which is issued on 3 June 2016 with 20 months maturity, 11.26% coupon interest rate and TRY30,000 nominal value with principle and interest payment at maturity. These commercial papers were sold to Yapı Kredi Yatırım Menkul Değerler A.Ş. which is a related party to the Group with closed issuance. (8) Based on the board of directors meeting decision at 26 February 2016, according to the Capital Market Law with the necessary permission, comprise of bonds which is issued on 10 August 2016 with 24 months maturity, 11.13% coupon interest rate and TRY30,000 nominal value with principle and interest payment at maturity. These commercial papers were sold to Yapı Kredi Yatırım Menkul Değerler A.Ş. which is a related party to the Group with closed issuance. Financial liabilities denominated in TRY and USD have bear fixed interest rates while financial liabilities denominated EUR bear floating interest rates. As of 30 September 2016, the portion amounting to TRY356,992 (31 December 2015: TRY234,607) of short-term and long-term financial liabilities are obtained through banks which are related parties of the Group (Note 19). The redemption schedule of the long-term bank borrowings as of 30 September 2016 and 31 December 2015 is as follows: 30 September December years 1,086,776 1,299, years 559, , years 393, , years 364, ,123 More than 5 years 362, ,379 2,765,750 2,553,582 17

20 CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH NOTE 5 - FINANCIAL LIABILITIES (Continued) At 4 March 2008, a loan agreement has been signed between the Company and i) Societe Generale, Credit Agricole, Fortis Bank S.A., Ing Bank NV and Intesa Sanpaolo banks as regulator, grantor and guarantor ii) EIB as guarantor and credit grantor and iii) Servizi Assicurativi per il Commercio Estreo S.p.A. (SACE) as guarantor role in the consortium amounting to EUR450 million. The loans, amounting to TRY290,799 (equivalent of EUR86,527 thousand) have been utilized as of 30 September 2016 (31 December 2015: TRY366,597 equivalent of EUR115,369 thousand) and have a maturity of ten years with two years grace period and it has been used for financing investment expenditures regarding the development and production of New Doblo. The Group s exposure to foreign exchange rate and interest fluctuations for the loan obtained in relation with the investment for New Doblo model is undertaken by Fiat. In 2011, the Group has obtained a credit line by EUR36 million in order to use in capacity increase of New Doblo constructions. The repayment of principle amounts will be on equal installments between 2012 and As of 30 September 2016, the remaining balance of the loan amount to TRY43,210 (equivalent of EUR12,857 thousand) (31 December 2015: TRY49,026 (equivalent of EUR15,429 thousand)). On the consolidated financial statements, the total carrying value of the Group s loans obtained from Eximbank on 30 June 2016 and 19 August 2016 is TRY174,709 (equivalent of EUR51,984 thousand) (31 December 2015: the total carrying value of the loans obtained on 19 October 2015, 22 October 2015 and 10 December 2015 is TRY238,320 (equivalent of EUR75,000 thousand)). The Group has obtained a credit by TRY138,633 (equivalent of EUR41,250 thousand) (31 December 2015: TRY145,640 (equivalent of EUR45,833 thousand) ) at 9 December 2014 from European Investment Bank (EIB) with a maturity until 2020 in order to use in New Sedan R&D projects as of 30 September The Company has obtained a working capital loan from HSBC PLC on 31 March 2016 amounting to TRY98,023 (equivalent of EUR29,167 thousand) (31 December 2015: TRY119,160 (equivalent of EUR37,500 thousand)) which has a maturity until At 17 February 2015 a loan agreement has been signed between the Company and HSBC Bank plc, J.P.Morgan Limited, Societe General and BNP Paribas as regulators, HSBC Bank plc, J.P.Morgan Limited/ JPMorganChase Bank N.A. London Branch, Societe General ve BNP Paribas Fortis SA/NV as creditor, HSBC Bank plc as coordinator BNP Paribas Fortis SA/NV as credit agent role amounting to EUR250,000 thousand. The balance of the loan as of 30 September 2016 is TRY654,228 (equivalent of EUR194,664 thousand) (31 December 2015: TRY674,259 (equivalent of EUR212,191 thousand)). At 11 August 2015 a loan agreement has been signed between the Company and HSBC Bank Plc and Ing Bank, A Branch Of Ing-Diba Ag as creditor, HSBC Bank Plc as coordinator SACE as credit agent role amounting to EUR200,000 thousand with a maturity until Maturity schedule of interest payments every six months, which expires in December 2022 and the average maturity is taken into account, the total annual costs, including insurance premiums will be about 6 months Euribor + 2.4%. As of 30 September 2016 the remaining amount is TRY634,338 (the equivalent of EUR188,746 thousand) (31 December 2015: TRY593,060 (equivalent of EUR186,638 thousand)). 18

21 CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH NOTE 5 - FINANCIAL LIABILITIES (Continued) The Group signed the loan agreement amounting to EUR200 million with European Bank for Reconstruction and Development, HSBC Bank Plc and Bank of America, N.A., London Branch as authorized regulators and as per procuration of creditors on 22 October Considering the expected loan usage schedule and average term of the aforementioned six-monthly paid loan with the due date of December 2022, Yearly total cost will be 6 months Euribor + 2.3%. EUR100 million of the total loan has been used as of 5 November 2015 and the remaining EUR100 million is used on March The remaining balance of the loan which is used Egea Hatchback and Station Wagon projects investments as of 30 September 2016: TRY668,882 (EUR199,025 thousand in equivalent in TRY) (31 December 2015: TRY314,080 (equivalent of EUR98,842 thousand). The Group signed the loan agreement amounting to EUR44,300 thousand with Citibank NA Jersey for, MCV FL project as of 24 May Yearly total cost will be 5 years Euribor %. The carrying amount of aforementioned loan in the consolidated balance sheet is TRY148,883 as of 30 September NOTE 6 - TRADE RECEIVABLES AND PAYABLES a) Trade Receivables 30 September December 2015 Trade receivables 492, ,425 Doubtful trade receivables 7,337 7,311 Less: provision for doubtful receivables (7,119) (7,093) Less: unearned credit finance income (3,082) (3,349) Movement of the provision for doubtful receivables in the current period is as follows: 489, , January 7,093 7,093 Increases during the period September 7,119 7,093 Collaterals received related with trade receivables As of 30 September 2016, the letter of guarantees, guarantee notes, mortgages and direct debit system limit (payment guarantee limit secured by the banks) obtained as collateral for trade receivables amounts to TRY86,803 letter of guarantees, TRY38,800 mortgages and TRY527,784 direct debit system limit, respectively (31 December 2015: letter of guarantees amounting to TRY131,792, guarantee notes amounting to TRY3,648, mortgages amounting to TRY38,800 and direct debit system limit amounting to TRY518,995). 19

22 CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH NOTE 6 - TRADE RECEIVABLES AND PAYABLES (Continued) b) Trade payables 30 September December 2015 Trade payables 981, ,632 Less: not accrued credit finance expense (4,617) (4,509) 977, ,123 NOTE 7 - RECEIVABLES FROM FINANCE SECTOR OPERATIONS 30 September December 2015 Short-term consumer financing loans 1,335,234 1,064,911 Non-performing loans 59,439 59,711 Provisions for impairment on loans 1,394,673 1,124,622 Less: provision for specific loan impairment (28,349) (21,540) Less: provision for general loan impairment (14,828) (11,716) 1,351,496 1,091,366 Long-term consumer financing loans 785, ,685 Less: provision for general loan impairment Provision for general loan impairment (8,077) (8,910) 777, ,775 As of 30 September 2016, TRY denominated loans originated by the Group bear fixed interest rates ranging between 0.01% and 1.54% per month (31 December 2015: between 0.01% and 1.49%) and there is no foreign exchange loans as of 30 September 2016 and 31 December

23 CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH NOTE 7 - RECEIVABLES FROM FINANCE SECTOR OPERATIONS (Continued) The maturities of long-term consumer financing loans are as follows: Years 30 September December to 2 years 520, ,838 2 to 3 years 209, ,268 3 to 4 years 55,542 52,629 More than 4 years 20 8, , ,685 The 30 September 2016 and 2015 movements of the provision for loan impairment are as follows: January 42,166 31,863 Current year provision 10,851 8,515 Collections from loans under follow-up (1,763) (3,024) 30 September 51,254 37,354 The Group has obtained pledge rights as a guarantee for its consumer financing loans, up to total amount of receivables, depending on the agreement between the Group and the consumers. As of 30 September 2016 the fair value of guarantees obtained for the consumer loans, which have been impaired, amounts to TRY2,479,575 (31 December 2015: TRY2,261,081). Furthermore, the Group obtains mortgage guarantees where necessary. The Group has mortgage guarantee on vehicles for all consumer financing loans that Group booked special provision amounting to TRY28,349 (31 December 2015: TRY21,540) as well as TRY3,000 of morgage guarantee. NOTE 8 - INVENTORIES 30 September December 2015 Raw materials 276, ,960 Work-in-progress 111,456 94,542 Finished goods 187,250 63,450 Imported vehicles 182,523 89,532 Spare parts 60,456 46,184 Goods in transit 280, ,311 Less: provision for impairment on inventories (-) (10,065) (6,728) 1,088, ,251 21