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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ AND ITS SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013

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Page 1: ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET …€¦ · ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ AND ITS SUBSIDIARY CONSOLIDATED FINANCIAL

ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE

TİCARET ANONİM ŞİRKETİ AND ITS SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

AND INDEPENDENT AUDITOR’S REPORT

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013

Page 2: ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET …€¦ · ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ AND ITS SUBSIDIARY CONSOLIDATED FINANCIAL

ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

CONTENTS

Independent Auditors’ Opinion

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Consolidated Statements of Changes In Shareholders’ Equity

Consolidated Statements of Cash Flows

Notes to the Consolidated Financial Statements

Page 3: ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET …€¦ · ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ AND ITS SUBSIDIARY CONSOLIDATED FINANCIAL
Page 4: ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET …€¦ · ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ AND ITS SUBSIDIARY CONSOLIDATED FINANCIAL

ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

CONSOLIDATED BALANCE SHEETS AS OF

30 SEPTEMBER 2013, 31 DECEMBER 2012 AND 2011 (Currency - Turkish Lira ‘TRY’ unless expressed otherwise.)

Restated (*) Restated (*)

Current

Period Prior Period Prior Period

Reviewed Audited Audited

Footnote

References 30.09.2013 31.12.2012 31.12.2011

ASSETS

Current Assets

167,169,399 109,403,695 133,232,492

Cash and Cash Equivalents 8 1,072,170 1,662,350 881,903

Trade Receivables 10 91,873,150 58,750,401 73,855,282

- Due from related parties

8,169,083 9,529,594 810,274

- Due from other parties 83,704,067 49,220,807 73,045,008

Other Receivables 11 12,575,775 9,957,455 19,704,628

- Due from related parties

5,994,397 833,101 -

- Due from other parties

6,581,378 9,124,354 19,704,628

Inventories 13 49,645,368 31,571,879 31,527,036

Prepaid Expenses 14 3,646,534 1,412,032 1,609,542

Assets Relevant to Current Period Taxes 30 3,442,062 4,708,498 489,467

Other Current Assets 21 1,618,090 1,341,080 5,164,634

Non-Current Assets Classified Held For Sale 29 3,296,250 - -

Non - Current Assets

133,127,822 120,915,467 141,582,029

Trade Receivables 10 1,365,244 348,725 166,100

- Due from related parties

- - -

- Due from other parties 1,365,244 348,725 166,100

Other Receivables 11 1,572,415 1,337,501 1,804,738

- Due from related parties

- - -

- Due from other parties

1,572,415 1,337,501 1,804,738

Tangible Fixed Assets 15 115,349,297 105,355,002 125,785,583

Intangible Fixed Assets

- Other intangible fixed assets 16 5,638,769 6,594,689 8,487,381

Prepaid Expenses 14 2,330,047 1,826,108 2,055,867

Defferred Tax Assets 30 6,872,050 5,453,442 3,282,360

TOTAL ASSETS 300,297,221 230,319,162 274,814,521

The accompanying notes are an integral part of these financial statements.

(*) Causes and effects of restatement are explained in Note 2.a.

Page 5: ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET …€¦ · ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ AND ITS SUBSIDIARY CONSOLIDATED FINANCIAL

ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

CONSOLIDATED BALANCE SHEETS AS OF

30 SEPTEMBER 2013, 31 DECEMBER 2012 AND 2011 (Currency - Turkish Lira ‘TRY’ unless expressed otherwise.)

Restated (*) Restated (*)

Current

Period Prior Period Prior Period

Reviewed Audited Audited

Footnote

References 30.09.2013 31.12.2012 31.12.2011

LIABILITIES

Current Liabilities 55,115,109 68,375,073 143,247,992

Financial Borrowings 9 3,086,055 10,370,232 6,924,435

Current Installment of Long Term Financial

Borrowings 9 8,283,953 9,658,807 52,747,738

Trade Payables 10 28,447,051 29,116,523 60,839,187

- Due to related parties - 161,643 3,289,585

- Due to other parties 28,447,051 28,954,880 57,549,602

Employee Benefit Liabilities 12 1,489,166 638,428 448,948

Other Payables 11 654,553 135,622 41,869

Defferred Incomes 14 8,423,790 10,388,841 22,178,199

Current Tax Liabilities 30 3,995,812 7,287,514 -

Provision for Short Term Payables

- Provision for employee benefits 20 4,847 - -

- Provision for other short-term payables 18 729,882 779,106 67,616

Non-Current Liabilities 57,530,666 25,191,500 24,539,082

Financial Borrowings 9 40,727,008 8,194,127 4,751,025

Trade Payables 10 4,559,821 4,930,606 7,999,467

- Due to related parties - - -

- Due to other parties 4,559,821 4,930,606 7,999,467

Deferred Incomes 14 1,327,801 1,281,250 1,746,313

Provision for Long Term Payables

- Provision for employee benefits 20 1,387,831 837,992 514,781

Deferred tax Liabilities 30 9,528,205 9,947,525 9,527,496

SHAREHOLDERS' EQUITY 187,651,446 136,752,589 107,027,447

Parent Company’s Equity 187,688,293 136,752,589 107,027,447

Paid In Capital 22.1 60,000,000 50,000,000 46,878,214

Inflation Adjustments of Shareholder's Equity 22.2 746,913 746,913 746,913

Share Premiums/Discounts 22.3 31,399,971 - -

Accumulated Other Comprehensive

Income/(Expenses) Not to Be Reclassified

On Profit or Loss

- Actuarial gain /(loss) from retirement pay

Provision 22.4 (481,661) (178,940) (154,357)

- Changes in revaluation of tangible

fixed assets 22.6 37,507,599 39,380,414 54,717,554

Effect of Business Mergers Subject to Joint

Control and Joint Ventures 22.5 (2,390,557) - -

Restricted Reserves 22.7 2,972,851 1,116,622 436,059

Retained Earnings / Losses 43,831,351 3,722,501 1,930,919

Net Profit / Loss For The Period 14,101,826 41,965,079 2,472,145

Minority Interests 22.9 (36,847) - -

TOTAL EQUITY 300,297,221 230,319,162 274,814,521

The accompanying notes are an integral part of these financial statements.

(*) Causes and effects of restatement are explained in Note 2.a.

Page 6: ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET …€¦ · ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ AND ITS SUBSIDIARY CONSOLIDATED FINANCIAL

ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

FOR THE PERIODS ENDED AT 30 SEPTEMBER 2013 AND 2012 (Currency - Turkish Lira ‘TRY’ unless expressed otherwise.)

Restated (*)

Restated (*)

Current

Period Prior period

Current

Period Prior period

Reviewed Reviewed Reviewed Reviewed

Footnote

References

01.01.-

30.09.2013

01.01.-

30.09.2012

01.07.-

30.09.2013

01.07.-

30.09.2012

OPERATING ACTIVITIES

Sales 23.1 181,224,005 160,290,227 64,329,233 49,593,715

Cost of Sales (-) 23.2 (129,534,373) (114,492,014) (48,288,263) (35,176,850)

GROSS PROFIT / (LOSS)

51,689,632 45,798,213 16,040,970 14,416,865

General Administrative Expenses (-) 25.1 (5,332,958) (4,300,947) (1,421,569) (607,725)

Marketing , Sales and Distribution

Expenses (-) 25.2 (21,936,100) (16,298,792) (7,023,205) (3,836,680)

Research and Development Expenses(-) 25.3 (154,788) (184,663) (75,262) (131,173)

Other Operating Incomes 26 8,520,807 12,706,594 4,105,857 1,782,475

Other Operating Expenses (-) 26 (8,683,214) (10,937,501) (3,165,391) (913,755)

OPERATING PROFIT / (LOSS)

24,103,379 26,782,904 8,461,400 10,710,007

Investment Activities Incomes 27 160,901 6,129,375 102,675 5,727,997

Investment Activities Expenses (-) 27 (308,618) (331,918) (184,435) (195,638)

OPERATING PROFIT / (LOSS) BEFORE

FINANCE INCOME / (EXPENSE) 23,955,662 32,580,361 8,379,640 16,242,366

Finance Incomes 28 2,894,767 10,228,451 2,127,115 1,083,989

Finance Expenses(-) 28 (9,100,543) (6,258,428) (5,701,904) (1,401,645)

OPERATING ACTIVITY PROFIT/

(LOSS) BEFORE TAXATION

17,749,886 36,550,384 4,804,851 15,924,710

Operating Activity Tax Income /

(Expense)

(3,836,222) (3,466,567) (713,180) 318,390

Current Tax (Expense) / Income 30 (3,995,812) (5,258,715) (553,750) (1,637,329)

Deferred Tax (Expense) / Income 30 159,590 1,792,148 (159,430) 1,955,719

NET PROFIT / (LOSS) FOR THE

PERİOD

13,913,664 33,083,817 4,091,671 16,243,100

Distribution of Profit / (Loss) For The

Period

Minority Interest 22.9 (188,162) - 60,949 -

Parent Company's Share 31 14,101,826 33,083,817 4,030,722 16,243,100

Earnings Per Share 31 0.23 0.66 0.07 0.32

The accompanying notes are an integral part of these financial statements.

(*) Causes and effects of restatement are explained in Note 2.a.

Page 7: ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET …€¦ · ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ AND ITS SUBSIDIARY CONSOLIDATED FINANCIAL

ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE PERIODS ENDED AT 30 SEPTEMBER 2013 AND 2012 (Currency - Turkish Lira ‘TRY’ unless expressed otherwise.)

Restated (*) Restated (*)

Current

Period Prior Period

Current

Period Prior Period

Reviewed Reviewed Reviewed Reviewed

Footnote

References

01.01.-

30.09.2013

01.01.-

30.09.2012

01.07.-

30.09.2013

01.07.-

30.09.2012

PROFIT / (LOSS) FOR THE PERIOD 13,913,664 33,083,817 4,091,671 16,243,100

OTHER COMPREHENSIVE INCOME / (LOSS)

Not to Be Reclassified to Profit or Loss (2,177,411) (18,808,191) (916,513) (18,155,807)

Changes in Revaluation of Tangible Fixed

Assets 15 - 30 (2,311,039) (19,922,122) (770,255) (19,123,508)

Actuarial Gain / (Loss) from Retirement

Pay Provision 20 (380,745) (57,488) (365,393) (70,625)

Taxes in Other Comprehensive Income Not to Be

Reclassified on Profit or Loss

- Deferred Tax Expense / Income 30 514,373 1,171,419 219,135 1,038,326

OTHER COMPREHENSIVE

INCOME / (EXPENSE) (2,177,411) (18,808,191) (916,513) (18,155,807)

TOTAL COMPREHENSIVE

INCOME / (EXPENSE) 11,736,253 14,275,626 3,175,158 (1,912,707)

Distribution of Total Comprehensive

Income / (Expense)

Minority Interest (190,037) - 236,387 -

Parent Company's Share 11,926,290 14,275,626 7,664,977 2,948,220

The accompanying notes are an integral part of these financial statements.

(*) Causes and effects of restatement are explained in Note 2.a. .

Page 8: ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET …€¦ · ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ AND ITS SUBSIDIARY CONSOLIDATED FINANCIAL

ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE PERIODS ENDED AT 30 SEPTEMBER 2013 AND 2012 (Currency - Turkish Lira ‘TRY’ unless expressed otherwise,)

Accumulated Other

Comprehensive Income Not to

Be Reclassified on Profit or Loss

Accumulated Profit

/(Losses)

Footnote

References

Paid in

Capital

Inflation

Adjust

ments of

Share

holders'

Equity

Share

Premiums/

Discounts

Actuarial Gain/

(Loss) from

Retirement Pay

Provision

Changes

in

Revaluation

of Tangible

Fixed Assets

Effect of

Business

Mergers

Subject to

Joint Control

And Joint

Ventures

Restricted

Reserves

Retained

Earning /

(Losses)

Net Profit/

(Loss) For

The Period

Parent

Company's

Equity

Minority

Interest

Total

Shareholder's

Equity

Balance at 31 December 2011 46,878,214 746,913 - (154,357) 54,717,554 - 436,059 1,930,919 2,472,145 107,027,447 - 107,027,447

Transfer from retained profit - - - - - - 680,563 1,791,582 (2,472,145) - - -

Capital increase

- Cash 3,121,786 - - - - - - - - 3,121,786 - 3,121,786

Actuarial gain / (loss) from retirement pay provision,

includes deferred tax effect - - - (45,990) - - - - - (45,990) - (45,990)

Total comprehensive income / (expense) , net - - - - (18,762,201) - - - 33,083,817 14,321,616 - 14,321,616

Balance at 30 September 2012 50,000,000 746,913 - (200,347) 35,955,353 1,116,622 3,722,501 33,083,817 124,424,859 - 124,424,859

Balance at 31 December 2012 50,000,000 746,913 - (178,940) 39,380,414 1,116,622 3,722,501 41,965,079 136,752,589 - 136,752,589

Capital increase

- Capital increase by public offering

in cash

22.1 10,000,000 - - - - - - - 10,000,000 - 10,000,000

Premium in excess of par 22.3 - - 31,399,971

- - - - - 31,399,971 - 31,399,971

Transfer from retained profit - - - - - 1,856,229 40,108,850 (41,965,079) - - -

Effect of business mergers subject to joint control and joint ventures

22.5 - - - - (2,390,557) - - - (2,390,557) 153,190 (2,237,367)

Actuarial gain / (loss) from retirement pay provision,

includes deferred tax effect - - - (302,721) - - - - - (302,721) (1,875) (304,596)

Total comprehensive income / (expense) , net - - - - (1,872,815) - - - 14,101,826 12,229,011 (188,162) 12,040,849

Balance at 30 September 2013 60,000,000 746,913 31,399,971 (481,661) 37,507,599 (2,390,557) 2,972,851 43,831,351 14,101,826 187,688,293 (36,847) 187,651,446

The accompanying notes are an integral part of these financial statements.

Page 9: ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET …€¦ · ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ AND ITS SUBSIDIARY CONSOLIDATED FINANCIAL

ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE PERIODS ENDED AT 30 SEPTEMBER 2013 AND 2012 (Currency - Turkish Lira (TRY) unless expressed otherwise.)

Current

Period Prior Period

Reviewed Reviewed

Footnote

References

01.01.-

30.09.2013

01.01.-

30.09.2012

A. CASH FLOW FROM OPERATING ACTIVITIES (39,917,856) 22,955,309

Parent Company’s Profit / (Loss) of the period, net

14,101,826 33,083,817

Adjustments to Reconcile Net Profit / (Loss) for the Period:

Tangible Fixed Assets Amortization 15 6,381,050 5,503,148

İntagible Fixed Assets Depreciation 16 1,576,231 1,513,591

Adjustment to retirement pay provision 20 247,118 65,702

Adjustment to Interest Accruals of Bank Borrowings 9 479,551 627,712

Unrealized Exchange Difference Incomes / (Expenses), net 6,495,056 1,531,869

Adjustment to Provision for Lawsuits 18 (49,224) 4,124,120

Adjustment to Provision for Doubtful Receivables 10 - 25.1 182,153 1,892,513

Adjustment to Unearned Interest on Receivables 10 - 26 2,736,771 1,773,783

Adjustment to Unearned Interest on Notes Payables 10 - 26 (1,755,269) (3,089,548)

Deferred Tax Effect of Business Merger Subject to Joint Control 30 (1,163,965) -

Adjustment to Deferred Tax 30 (159,590) (1,792,148)

Deffered Taxes Accounted For Under Equity 30 (76,149) -

Changes in Operating Assets and Liabilities

Changes in Trade Receivables 10 (36,523,075) 2,831,303

Changes in Other Receivables 11 (2,853,234) 14,617,321

Changes in Inventories 13 (18,073,489) (7,561,754)

Changes in Other Current Assets 21 (475,774) 3,940,772

Changes in Trade Payables 10 (1,372,170) (20,507,933)

Changes in Other Payables 11 (3,840,533) (12,527,791)

Changes in Short Term Provisions 18 4,847 -

Changes in Other Liabilities 21 958,325

Changes in Non-Current Assets Held for Sale 29 (3,296,250) -

Cash Flow From Operating Activities

Taxes Paid 30 (3,442,062) (3,071,168)

B.CASH FLOW FROM İNVESTİNG ACTİVİTİES (21,734,099) (1,300,397)

Cash from Purchases of Tangible and İntangible Non-Current Assets 15 - 16 (18,791,868) (3,294,869)

Cash from Sales of Tangible and İntangible Non-Current Assets 15 - 16 320,682 1,994,472

Effect of Business Mergers Subject to Joint Control and Joint

Ventures 22.5 (2,390,557) -

Changes in minority interests 22.9 (36,847) -

Additions from Acquisition of Subsidiary 15 - 16 (835,509) -

C.CASH FLOW FROM FİNANCE ACTİVİTİES 61,061,775 (21,873,754)

Capital Increase 22.1 10,000,000 3,121,786

Premiums/Discounts in Excess of Par 22.3 31,399,971 -

Changes in borrowings 9 19,661,804 (24,995,540)

NET INCREASE/DECREASE OF CASH AND CASH EQUIVALENTS (A+B+C) (590,180) (218,842) D. CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE

PERIOD 1,662,350 881,903

CASH AND CASH EQUIVALENT AT THE END OF THE PERIOD (A+B+C) 1,072,170 663,061

The accompanying notes are an integral part of these financial statements.

Page 10: ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET …€¦ · ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ AND ITS SUBSIDIARY CONSOLIDATED FINANCIAL

ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-1-

NOTE 1 – ORGANIZATION AND NATURE OF ACTIVITIES

For the purpose of the consolidated financial statements Royal Halı İplik Tekstil Mobilya Sanayi ve Ticaret

Anonim Şirketi (―Parent Company‖) and its subsidiary are referred as ―Group‖.

The summarized information of entities which are consolidated with ―complete consolidation method‖ is

comprised of the following;

Royal Halı İplik Tekstil Mobilya Sanayi ve Ticaret Anonim Şirketi

Royal Halı İplik Tekstil Mobilya Sanayi ve Ticaret Anonim Şirketi (―Parent Company‖ or ―Company‖) was

established in the year of 2000 in Gaziantep, Turkey with the title of Naksan Kimya Sanayi ve Ticaret A.Ş.

which was changed and registered to current name at 31 December 2007. The Company began its activities with

production of fabric canvas, fabric irrigation hoses, polyester canvas, woven sacks, and lamination and

veneering, then changed its area of activities to production of carpets (PP, acrylic, wool) and yarn with BCF

technology in the year 2005 and in the same year, the Company started the investment to establish a new factory

to produce machine carpet. The Company registered ―Royal Halı‖ as a carpet trademark from Turkish Patent

Institute and entered into the domestic and foreign market. As of 2007 Company obtained the rights to use

trademark ―Pierre Cardin‖ in carpet sector and started carpet production activities under this trade mark. In

2010, company rented Pierre Cardin‘s trademark rights to use in the carpet industry for 10 years. In addition to

these two brands, as of 31 December 2010, the Company acquired ―Atlas Halı‖ brand.

As of 30 September 2013 there are 18 main dealers of the Company, the majority of domestic carpet sales are

realized through these dealers. Also, as of 30 September 2013, the Company has 9 showrooms, 4 located in

Gaziantep, 2 located in Hatay, 1 located in Şanlıurfa, 1 located in Diyarbakır and 1 in İkitelli/Istanbul, owned

and operated by the Company itself. No dealer system exists in BCF yarn sale.

For the period ended at 30 September 2013, 662 average personnel were employed by the company (01

January - 31 December 2012: 570).

The company is registered to the Capital Market Board (―CMB‖) and on the date of 03 May 2013, whose

shares are offered to the public at the Borsa İstanbul Anonim Şirketi (by the old name ―ISE‖), in the primary

market. As of 30 September 2013, 28.75% of shares, which represent the company‘s capital, are traded at the

Borsa İstanbul Anonim Şirketi (by the old name ―ISE‖). (31 December 2012: none) As of 30 September 2013

and 31 December 2012, the company‘s partnership structure, as was presented in Note 22.1. The company‘s

main shareholder is Naksan Holding A.Ş. and ultimate shareholders are Nakıboğlu family.

As of report date, registered addresses of the Company are as follows;

Carpet Factory

4. Organize Sanayi Bölgesi

83402 No‘lu Cadde No:3

Başpınar / Gaziantep / Turkey

BCF Yarn Factory

1. Organize Sanayi Bölgesi

83118 No‘lu Cadde No:3

Başpınar / Gaziantep / Turkey

Page 11: ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET …€¦ · ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ AND ITS SUBSIDIARY CONSOLIDATED FINANCIAL

ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-2-

Atlas Halı Aksesuar ve Mobilya Sanayi Ticaret Anonim Şirketi

Atlas Halı Aksesuar ve Mobilya Sanayi Ticaret Anonim Şirketi (‗The company‘ or ‗Atlas Halı‘) was

established on 14 September 2011 in Istanbul / Turkey. The Company is engaged in producing and selling of

machine carpets.

Atlas Halı makes its sales to final consumer by direct dealers channel without using regional dealers.

For the period ended in 30 September 2013, 29 average personnel were employed by the company (01

January - 31 December 2012: 29).

As of 30 September 2013 and 31 December 2012, Company‘s capital structure is as following;

30 September 2013 31 December 2012

Shareholders Ratio

Amount

(TRY) Ratio

Amount

(TRY)

Royal Halı İplik Tekstil Mobilya Sanayi ve Ticaret

Anonim Şirketi 51.00% 2,550,000 - -

Naksan Holding Anonim Şirketi 19.00% 950,000 70.00% 3,500,000

Osman Nakıboğlu 11.40% 570,000 11.40% 570,000

Cahit Nakıboğlu 10.80% 540,000 10.80% 540,000

Bahaeddin Nakıboğlu 3.60% 180,000 3.60% 180,000

Cihan Dağcı 2.50% 125,000 2.50% 125,000

Mehmet Hilmi Nakıboğlu 1.20% 60,000 1.20% 60,000

Taner Nakıboğlu 0.50% 25,000 0.50% 25,000

Total 100.00% 5,000,000 100.00% 5,000,000

Royal Halı İplik Tekstil Mobilya Sanayi ve Ticaret Anonim Şirketi has bought 51% of the shares of Atlas

Halı Aksesuar ve Mobilya Sanayi Ticaret Anonim Şirketi from the company‘s main partner Naksan Holding

Anonim Şirketi in 29 January 2013.

As of report date, registered address of the Company is as follows;

Dünya Ticaret Merkezi

A1 Blok 17.Kat

Yeşilköy / İstanbul / Turkey

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-3-

NOTE 2 – BASIS OF THE CONSOLIDATED FINANCIAL STATEMENTS

2. a Basis of Presentation

Compatibility Statement

Consolidated companies prepare their statutory financial statements in accordance with the principles of CMB,

Turkish Commercial Code and Tax Legislation and the Uniform Chart of Accounts issued by the Ministry of

Finance and presents in Turkish Liras (TRY). The financial statements of the Company have been prepared in

accordance with Communiqué XI, No: 29 ―Accounting Standards in Capital Markets‖ published by the Capital

Markets Board (―CMB‖), the necessary adjustments and reclassifications made for the fair presentation in

accordance with Accounting Standards by CMB.

The Preparation of Financial Statements

The interim condensed consolidated financial statements and disclosures have been prepared in accordance

with the communiqué numbered II-14.1 ―Communique on the Principles of Financial Reporting In Capital

Markets‖ announced by the Capital Markets Board on 13 June 2013 which is published on Official Gazette

numbered 28676, in accordance with article fifth of the ―Related Communique‖, companies should apply

Turkish Accounting Standards/Turkish Financial Reporting Standards and interpretations regarding these

standards as adopted by the Public Oversight Accounting and Auditing Standards Authority of Turkey

(―POA‖).

Financial Statements Correction in High Inflation Period

The CMB has announced that, effective from 1 January 2005, the application of inflation accounting is no longer

required for companies operating in Turkey and preparing their financial statements in accordance with CMB

Accounting Standards. Therefore Group was abolished inflation accounting application for 1 January 2005.

Currency

The financial statements and the prior period financial statements for comparison purpose, in the

accompanying statements are prepared in terms of Turkish Lira (TRY).

Approval of Consolidated Financial Statements

Consolidated financial statements of the Group are approved by the Board of Directors and granted authority

to publish on 25 November 2013. With no intention, the Board of Directors and some regulative agencies have

the right to change the financial statements that were prepared according to legal regulations after they have

been published.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-4-

Basis of Consolidation

The companies are subject to ―Complete Consolidation Method‖ if directly or indirectly 50% or more than

50% of their shares or over 50% of their voting rights or the controlling rights regarding companies‘

operations are belonging to the Parent Company. Parent Company has controlling rights if it is able to govern

the financial and operating policies of an enterprise so as to benefit from its activities. The companies which

have continuous relationship on management and power to govern Parent Company‘s policies and/or which

have direct or indirect capital and management relationship or which have voting share of Parent Company

between the rates 20-50% are accounted by using equity pick-up method.

Complete Consolidation Method

The principles of consolidation followed in the preparation of the accompanying financial statements are as

follows:

- The financial statements of the consolidated subsidiaries have been equipped according to the accounting

principles of the Parent Company.

- The share of the Parent Company in the shareholders equity of subsidiaries is eliminated from the financial

of subsidiaries these are adjusted according to the accounting principles of financials of the Parent

Company.

- All significant intercompany transactions and balances between the Parent Company and the subsidiaries

have been comparatively eliminated.

- The minority part of shareholders‘ equity including paid capital of the companies subject to consolidation

is classified as ―Minority Interest‖ in accompanying financial statement.

- The balance sheet and income statement of the subsidiaries are consolidated on a line by line basis, and the

carrying value of the investment held by the Parent Company is eliminated against the related

shareholders‘ equity accounts.

- The income statements of the Parent Company and the subsidiaries are consolidated a line by line basis

and the transaction between companies are eliminated mutually. Consolidation of income statements of

subsidiaries held in an audit period are based on the investment date and the items after the holding date

are included.

The portion of the third parties other than consolidated companies in the net profit or losses of the subsidiaries

are classified as ―Minority Interest‖ in the income statements.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-5-

As of 30 September 2013, the company that are subject to ―Complete Consolidation Method‖ if directly or

indirectly 50% or more than 50% of their shares or over 50% of their voting rights or the controlling rights

regarding companies‘ operations are belonging to the Parent Company are as below;

30 September 2013

Ownership of the Parent

Company through the

Subsidiary Minority

Interest

Subsidiaries (Direct)

(Direct+

Indirect) (Ratio)

Atlas Halı Aksesuar ve Mobilya Sanayi Ticaret Anonim Şirketi 51.00% 51.00% 49.00%

As of 31 December 2012, Royal Halı İplik Tekstil Mobilya Sanayi ve Ticaret Anonim Şirketi did not have any

subsidiaries, as a result of this, accompanying financial statements which are dated 31 December 2012 are not

consolidated.

Adoption of New and Revised International Financing Reporting Standards

Group has applied the new and revised standards and interpretations of the International Accounting Standards

Committee (IASC) published by International Financial Reporting Interpretations Committee (IFRIC) of

IASC for the interim financial statements dated 30 September 2013 and 31 December 2012, for the related to

its business activities, in the current fiscal period.

New standards, amendments and explanations for the dated 1 January 2013 year ended financial statements:

IFRS 9 - “Financial Instruments, Classification and Measurement”; In November 2009, the first part of IFRS

9 relating to the classification and measurement of financial assets was issued. IFRS 9 will ultimately replace

IAS 39 Financial Instruments: Recognition and Measurement. The standard requires an entity to classify its

financial assets on the basis of the entity‘s business model for managing the financial assets and the

contractual cash flow characteristics of the financial asset, and subsequently measure the financial assets as

either at amortized cost or at fair value. The new standard is mandatory for annual periods beginning on or

after 1 January 2013.

IFRS 9 – “Financial Instruments, Classification and Disclosure”; as amended in December 2011, the new

standard is effective for annual periods beginning on or after January 1, 2015. Phase 1 of this new IFRS

introduces new requirements for classifying and measuring financial instruments. The amendments made to

IFRS 9 will mainly affect the classification and measurement of financial assets and measurement of fair value

option (FVO) liabilities and requires that the change in fair value of a FVO financial liability attributable to

credit risk is presented under other comprehensive income. Early adoption is permitted. This standard has not

yet been endorsed by the EU.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-6-

IFRS 10 – “Consolidated Financial Statements” standard is effective for annual periods beginning on or after

1 January 2013 and is applied on a modified retrospective basis. This new Standard may be adopted early, but

IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities should be also adopted

early. IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses

the accounting for consolidated financial statements. A new definition of control is introduced, which is used

to determine which entities are consolidated. This is a principle based standard and require preparers of

financial statements to exercise significant judgment. This standard has not yet been endorsed by the EU.

IFRS 11 - ―Joint Arrangements‖ standard is effective for annual periods beginning on or after 1 January 2013

and is applied on a modified retrospective basis. This new Standard may be adopted early, but IFRS 10

Consolidated Financial Statements and IFRS 12 Disclosure of Interests in Other Entities should be also

adopted early. The standard describes the accounting for joint ventures and joint operations with joint control.

Among other changes introduced, under the new standard, proportionate consolidation is not permitted for

joint ventures.

IFRS 12 - ―Disclosure of Interests in Other Entities‖ standard is effective for annual periods beginning on or

after 1 January 2013 and is applied on a modified retrospective basis. This new Standard may be adopted

early, but IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements should be also adopted

early. IFRS 12 includes all of the disclosures that were previously in IAS 27 Consolidated and Separate

Financial Statements related to consolidated financial statements, as well as all of the disclosures that were

previously included in IAS 31 Interests in Joint Ventures and IAS 28 Investment in Associates. These

disclosures relate to an entity‗s interests in subsidiaries, joint arrangements, associates and structured entities.

Under the new standard the Group will provide more comprehensive disclosures for interests in other entities.

Revised IFRS 13 - ―Fair Value Measurement‖ standard provides guidance on how to measure fair value under

IFRS but does not change when an entity is required to use fair value. It is a single source of guidance under

IFRS for all fair value measurements. The new standard also brings new disclosure requirements for fair value

measurements. IFRS 13 is effective for annual periods beginning on or after 1 January 2013 and will be

adopted prospectively. Early application is permitted. The new disclosures are only required for periods

beginning after IFRS 13 is adopted — that is, comparative disclosures for prior periods are not required.

IAS 27 - ―Consolidated and Separate Financial Statements‖ As a consequential amendment to IFRS 10, the

IASB also amended IAS 27, which is now limited to accounting for subsidiaries, jointly controlled entities,

and associates in separate financial statements. Transitional requirement of this amendment is similar to IFRS

10. On or after January 1, 2013 shall apply to annual periods beginning on or after that date.

IAS 28 – “Investments in Associates and Joint Ventures (Amended)” - As a consequential amendment to IFRS

11, the IASB also amended IAS 28, which has been renamed IAS 28 Investments in Associates and Joint

Ventures, to describe the application of the equity method to investments in joint ventures in addition to

associates. Transitional requirement of this amendment is similar to IFRS 11. This standard has not yet been

endorsed by the EU.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-7-

IAS 19 - ―Employee Benefits‖ Amended standard is effective for annual periods beginning on or after January

1, 2013, with earlier application permitted. With very few exceptions retrospective application is required.

Numerous changes or clarifications are made under the amended standard. Among there numerous

amendments, the most important changes are removing the corridor mechanism and making the distinction

between short-term and other long-term employee benefits based on expected timing of settlement rather than

employee entitlement.

IAS 32 Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities (Amended)

The amendment alters the definition of a financial liability in IAS 32 to enable entities to classify rights issues

and certain options or warrants as equity instruments. The amendment is applicable if the rights are given pro

rata to all of the existing owners of the same class of an entity‗s non-derivative equity instruments, to acquire a

fixed number of the entity‗s own equity instruments for a fixed amount in any currency. The amendments are

effective for annual periods beginning on or after 1 January 2014 and will be adopted retrospectively.

IFRS 7 Financial Instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities (Amended)

New disclosures would provide users of financial statements with information that is useful in i) evaluating the

effect or potential effect of netting arrangements on an entity‗s financial position and ii) analyzing and

comparing financial statements prepared in accordance with IFRS and other generally accepted accounting

standards. This standard has not yet been endorsed by the EU. The amendments are to be retrospectively

applied for annual periods beginning on or after 1 January 2013 and interim periods within those annual

periods. The amendment affects disclosures only.

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine -The Interpretation is effective for annual

periods beginning on or after 1 January 2013 with earlier application permitted. Entities will be required to

apply its requirements for production phase stripping costs incurred from the start of the earliest comparative

period presented. The Interpretation clarifies when production stripping should lead to the recognition of an

asset and how that asset should be measured, both initially and in subsequent periods. This standard has not

yet been endorsed by the EU.

The Group evaluates possible effects of above standards and changes on their financial position and

performance.

Offsetting

Financial assets and liabilities are offset and the net amount is reported in the consolidated balance sheet when

there is a legally enforceable right to set-off the recognized amounts and there is an intention to settle on a basis,

or realize the asset and settle the liability simultaneously.

Going Concern

The accompanying consolidated financial statements prepared on the principle that the Group will be

obtaining benefits from their assets and meet their liabilities within usual scales for the next year.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-8-

Comparative Information and Previous Period Financial Statements Adjustments

The condensed interim consolidated financial statements of the Group include comparative financial

information to enable the determination of the financial position and performance. Comparative figures are

reclassified, where necessary, to confirm to changes in presentation in the current period.

As part of the amendment effective as of 1 January 2013 in ―Employee Benefits‖ of the IAS 19, regarding the

severance pay liability which is recognized under employee termination benefits of the Group, the total

actuarial gain/(loss) (includes deferred tax effect), is shown in statements of changes in equity ―actuarial gain

/ (loss) from retirement pay provision‖. With the changes in the standard, the Group, for the periods ended at

31 December 2012 and 30 September 2012, prepared their financial statements same way and profit / (loss)

from the period ended at 30 September 2012 amounting to TRY 45,990 was classified under equity

―Accumulated profit and losses‖ in the balance sheet for the period ended at 31 December 2012 amounting to

TRY 24,583 in ―Net profit / (loss) for the period‖ classified to ―Accumulated profit and loss‖ in equity.

Pursuant to the decree taken in the CMB‘s meeting dated 07 June 2013 and numbered 20/670, for capital

market board institutions within the scope of the Communique on Principles Regarding Financial Reporting in

the Capital Market, financial statement models and user guide have been published, effective as of the interim

periods ended after 31 March 2013.Various classifications were made in the Group‘s statement of financial

position pursuant to these formats which have taken effect.

The classifications made in the statement of consolidated financial position of the Group as of 31 December

2012 and 2011 are as follows;

- As of 31 December 2012 and 2011, TRY 4,708,498 TL and TRY 489,467, which are ―Prepaid taxes

and funds‖, as shown in the other current assets, are classified in balance sheet as a separate account

within the scope of the ‗Assets relevant to current period taxes account ‘.

- As of 31 December 2012 and 2011, TRY 1,302,803 and TRY 1,339,586 which are ―Prepaid expenses –

short term‖, as shown in the other current assets, are classified in balance sheet as a separate account

within the scope of the ‗Prepaid expenses account‘.

- As of 31 December 2012 and 2011, TRY 108,504 and TRY 269,956 which are ―Order advances given‖,

as shown in the other current assets, are classified in balance sheet in ‗Prepaid expenses accounts‘.

- As of 31 December 2012 and 2011, TRY 983,083 and TRY 769,765 which are ―Advances given for the

purchases of tangible fixed assets‖, as shown in the other non-current assets, are classified in balance

sheet in ―Prepaid expenses-long term account‖.

- As of 31 December 2012 , TRY 725 which is ―Advances given for the business purposes‖, as shown in

the other current assets, is classified in balance sheet in ―Prepaid expenses account‖.

- As of 31 December 2012 and 2011, TRY 843,025 and TRY 1,286,102 which are ― Prepaid expenses –

long term‖ as shown in the other non-current assets, are classified in balance sheet as a seperate account

whihin the scope of the ‗Prepaid expenses long term account‘.

- As of 31 December 2012 and 2011, TRY 9,619,443 and TRY 52,747,738 which are ―Current

installement of long term financial‖, as shown in the current liabilities, are classified in balance sheet as

a separate account within the scope of the ‗Current installement of long term financial‘.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-9-

- As of 31 December 2012, TRY 39,364 which is ― Current financial lease payables‖ as shown on the

current liabilities, is classified in balance sheet as a separate account within the scope of the ‖Current

installments and interests of long term loans‖ .

- As of 31 December 2012 and 2011, TRY 413,876 and TRY 286,177 which are ―Due to personnel‖, as

shown in the other payables, are classified in balance sheet in ―Employee termination benefits account‖.

- As of 31 December 2012 and 2011, TRY 224,552 and TRY 162,771 which are ―Social security

premiums payable‖, as shown in the other payables, are classified in balance sheet in ―Employee

termination benefits account‖.

- As of 31 December 2012 and 2011, TRY 361,642 and TRY 172,730 which are ―Expense accruals due

to contracts‖, as shown in the provision for payable, are classified in balance sheet in ‗Trade payables

account‘.

- As of 31 December 2012 and 2011, TRY 10,388,841 and TRY 22,178,199 which are ―Advances

received‖, as shown in the other current liabilities account, are classified in balance sheet as a separate

account within the scope of the ‗Deferred incomes‘.

- As of 31 December 2012 and 2011, TRY 1,281,250 and TRY 1,746,313 which are ―Advances

received‖ as shown on the other non-current liabilities, are classified in balance sheet as a separate

account within the scope of ―Deffered incomes- long term account‖.

Reclassifications to Group's income statement at 30 September 2012 are as follows and reclassifications has

no effect on income / (loss);

- In the income statement for the period ended at 30 September 2012, TRY 9,140,382 which are ―Foreign

exchange incomes from commercial activities‖, as shown in the finance incomes, are classified in

income statement in ‗Other operating incomes‘.

- In the income statement for the period ended at 30 September 2012, TRY 9,157,390 which are ―Foreign

exchange expenses from commercial activities‖, as shown in the finance expenses, are classified in

income statement in ―Other operating expenses‖.

- In the income statement for the period ended at 30 September 2012, TRY 3,089,548 which

are"Rediscount incomes‖, as shown in the finance incomes, are classified in income statement in ―Other

operating incomes‖.

- In the income statement for the period ended at 30 September 2012, TRY 1,773,783 which are

―Rediscount expenses‖, as shown in the finance expenses, are classified in income statement in ―Other

operating expenses‖.

- In the income statement for the period ended at 30 September 2012, TRY 417,205 which are ―Interest

incomes from other receivables‖, as shown in the finance incomes, are classified in income statement in

―Investment activities incomes‖.

- In the income statement for the period ended at 30 September 2012, TRY 331,918 which are ―Interest

expenses from other payables‖, as shown in the finance expenses, are classified in income statement in

―Investment activities expenses‖.

- In the income statement for the period ended at 30 September 2012, TRY 40,171 which are ―Due date

difference incomes from trade receivables‖, as shown in the finance incomes, are classified in income

statement in ―Other operating incomes‖.

- In the income statement for the period ended at 30 September 2012, TRY 5,712,170 which are ―Profit

on sale of fixed assets‖, as shown in the other operating incomes, are classified in income statement in

―Investment activities incomes‖.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-10-

2. b Changes in Accounting Policies

A company only could change it s accounting policy under following circumstances;

If a standard or interpretation makes it necessary or

If the change make effect of operations or incidents on financial position and performance or cash flows more

appropriate and reliable.

Financial statements have to be comparable to see trends in financial position of companies, performance and

cash flows for user of financial statements. This is why, if the change is not granting one of above conditions,

each interim and fiscal periods has to be applied same accounting policy.

Changes in Accounting Estimates and Errors

The accompanying consolidated financial statements necessitate that some predictions about income and

expenses regarding possible assets and liabilities in the financial statements prepared by the Group management

to be compatible with statements required by Capital Market Board. Realized amounts can differ from the

predictions. These predictions are observed regularly and reported periodically in income statements. Changes in

accounting estimates and errors explained in title of ―Comparative Information and Previous Periods Financial

Statements Adjustments‖ which is explained below.

Comments those would have significant effect on balances reflected in the consolidated financial statements

and important expectations and valuations considering present or future expectation as of report date, are as

following:

Provision for doubtful receivables

Provision for doubtful receivables reflect the future loss that the Group anticipates to incur from the trade

receivables as of the balance sheet date which is subject to collection risk considering the current economical

conditions. During the impairment test for the receivables, the debtors are assessed with their prior year

performances, their credit risk in the current market, their performance after the balance sheet date up to the

issuing date of the financial statements; and also the renegotiation conditions with these debtors are considered.

The provision for doubtful receivables is presented in Note 10.

Provision for the diminution in value of inventory

During the assessment of the provision for the diminution in value of inventory the following are considered;

analyzing the inventories physically and historically, considering the employment and usefulness of the

inventories respecting to the technical personnel view. Sales prices listed, average discount rates given for sale

and expected cost incurred to sell are used to determine the net realizable value of the inventories. As a result of

this, the provision for inventories with the net realizable values below the costs and the slow moving inventories

are presented. The provision for the diminution in value of inventory is presented in Note 13.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-11-

Useful lifetime of tangible and intangible assets

Group reserves provision for depreciation regarding to footnote 2.c that refers to useful lifetime on fixed

assets. Information about useful lifetime is described in footnote 2.c.

Provision for lawsuits

While setting provision for lawsuits, it has considered probability to lose lawsuit, then the consequences of

loosing case by the legal advisor of the Group. Details of the lawsuits provisions are in Note 18 based on the

estimation by utilizing information given by Group Management.

Severance pay provision

Severance Pay Provision is calculated with actuarial expectation based on assumptions like discount rates, salary

increase in the future and probability to quit the job. This planning covers long term concerns. Hence

assumptions involve vital uncertainty. Provisions for employee benefits are given in detail in Note 20.

Deferred Tax

The Group recognizes deferred tax on the temporary timing differences between the carrying amounts of assets

and liabilities in the financial statements prepared in accordance with IFRS and statutory financial statements

which is used in the computation of taxable profit. The related differences are generally due to the timing

difference of the tax base of some income and expense items between statutory and IFRS financial statements.

The Group has deferred tax assets resulting from tax loss carry-forwards and deductible temporary differences,

which could reduce taxable income in the future periods. All or partial amounts of the realizable deferred tax

assets are estimated in current circumstances. The main factors which are considered include future earnings

potential; cumulative losses in recent years; history of loss carry-forwards and other tax assets expiring, the

carry-forward period associated with the deferred tax assets, future reversals of existing taxable temporary

differences that would, if necessary, be implemented, and the nature of the income that can be used to realize the

deferred tax asset. As a result of the revaluation, as of 30 September 2013, temporary differences due to tax

incentives can be foreseen and the fraction falls in continuity of tax incentives within the context of tax

legislations, can be benefited from and is to be tax assets and accounted. As of balance sheet date, the details

regarding deferred tax calculations are stated in Note 30.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-12-

2. c Summary of Significant Accounting Policies

Cash and Cash Equivalents

Cash and cash equivalent values contain cash on hand, bank deposits and high liquidity investments. Cash and

cash equivalents are showed with obtaining costs and the total of accrued interests.

Financial Investments

Initial measurements of financial asset and financial liabilities

When a financial asset or financial liability is recognized initially, an entity shall measure it at its fair value

plus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction

costs that are directly attributable to the acquisition or issue of the financial asset or financial liability.

When an entity uses settlement date accounting for an asset that is subsequently measured at cost or amortized

cost, the asset is recognized initially at its fair value on the trade date.

Subsequent measurement of financial assets

After initial recognition, an entity shall measure financial assets, including derivatives that are assets, at their

fair values, without any deduction for transaction cost it may incur on sale or other disposal, except for the

following financial assets:

(a) Loan and receivables which shall be measured at amortized cost using the effective interest method,

(b) Held-to-maturity investments which shall be measured at amortized cost using the effective interest

method, and

(c) Investments in equity instruments that do not have a quoted market price in an active market and whose

fair value cannot be reliably measured and derivatives that is linked to and must be settled by delivery of

such unquoted equity instruments which shall be measured at cost.

A financial asset of financial liability at fair value difference through profit or loss:

It is classified as tangible assets hold for future sale. A financial asset or financial liability is classified as

tangible assets hold for future sale if it is:

(a) Acquired or incurred principally for the purpose of selling or repurchasing it in the near term,

(b) Part of a portfolio of identified financial instruments that are managed together and for which there is

evidence of a recent actual pattern of short-term profit making; or

(c) A derivative (except for a derivative that is a financial guarantee contract or a designated and effective

hedging instrument).

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-13-

Held-to maturity investments

Non derivative financial assets with fixed or determinable payments and fixed maturity that an entity has the

positive intention and ability to hold to maturity.

(a) Those that the entity upon initial recognition designates as at fair value through profit or loss,

(b) Those that the entity designates as available for sale, and

(c) Those that meet the definition of loans and receivables.

Available-for-sale financial assets

Non-derivative financial assets that are designated as available for sale or are not classified as loans and

receivables, held-to-maturity investments or financial assets at fair value through profit or loss.

Derivative Financial Assets Held for Cash Flow Hedges

Derivative financial instruments of the group consists of the contracts of forward exchange, (that is forward

and option). The group, reflects fair value difference of derivative financial instruments its consolidated

income statements.

Financial assets carried at cost

If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that

is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is

linked to and must be settled by delivery of such unquoted equity instrument, the amount of the impairment

loss is measured as the difference between the carrying amount of the financial asset and the present value of

estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such

impairment losses shall not be reversed.

Shares

If shares are quoted in Borsa İstanbul, then these shares are revalued with closing price as of balance sheet

date. If shares are not quoted, then these shares are revalued with acquirement price as of balance sheet date.

Funds given against financial assets reverse repo are reflected as reverse repo receivables under marketable

securities in the accompanying consolidated financial statements. The portion of the difference between

purchase and sale back price by these reverse repo agreements for the interim period is calculated by ―internal

discount rate‖ as discounted income and it is accounted by adding to cost of reverse repo.

Marketable securities

Financial assets in which Parent Company has voting right below 20%, or over 20% which Parent Company

does not exercise a significant influence, and subsidiaries or joint venture, which are not included in

consolidation that they are immaterial or which are immaterial, that do not have a quoted market price in

active markets and whose fair value cannot be measured reliably are carried at cost less any provision for

diminution in value.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-14-

Financial Borrowings

Financial borrowings are recognized initially at the proceeds received, net of transaction costs incurred.

Borrowings are subsequently stated at amortized cost using the effective yield method; any difference between

proceeds, net of transaction costs, and the redemption value is recognized in the income statement over the

borrowing period. Borrowing costs are charged to income statement when they incur and reclassed to bank

loans.

Trade Receivables and Payables

The trade receivables and payables derived from providing services or selling goods by Group and purchasing

goods or receiving services are clarified with deferred financial income and expense in the accompanying

financial statements. Post clarification, trade receivables and trade payables are calculated from the values of

following the record of the original invoice values, by rediscounting with effective interest rate method. Short

term receivables without designated interest rate are reflected the invoice values in case the effective interest

rate effect is insignificant.

Provision for Doubtful Receivables

Group sets provisions for doubtful receivable when it is realized uncollectible due to objective findings. Amount

of this provision is the difference of registered and collectible amounts. All cash flow including the collectible

sum amount from guarantee and assurance is discounted on the base of the effective interest rate of trade

receivable occurred.

In case of collecting doubtful receivable that is provided, the collected amount is deducted from the provision for

doubtful receivable and in case of a remaining balance; the balance is added to other operating income.

Inventories

Inventories, valued at the lower of cost or net realizable value. Cost of inventories involves all of the

purchasing cost, conversion cost and other cost for the inventories to make it present. Cost is determined by

the weighted average cost method. Net realizable value is obtained, according to the subscription of estimated

completion cost and estimated costs which are installed in order to realize the sale from estimated selling

price, in ordinary trade activity.The net realizable value is an amount which is got with the reduction of total

estimated necessary sales cost to sell and estimated complementation cost from estimated sales price which

consist of ussual commercial activity.

The allowance for decrease in value of inventories degrade inventories to net realizable value and losses about

the inventories are recognized as expense during the formation of degrade and losses. Allowance for decrease

in value of inventories reversed because of the increase of realizable value, recognized to reduce the accrued

selling cost in the reverse period. As of every financial statement period, net realizable value is reviewed once

again. The provision for losses is reversed in the case of either the conditions causing to degrade the

inventories‘ net realizable value lose validity or changing economic conditions forming an increase in net

realizable value is proved (reversed amount is limited with the previous impairment amount).

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-15-

Tangible Fixed Assets

Tangible fixed assets (except lands, buildings, machineries, plants and equipments) are carried at cost, restated

by deduction of the yearly accumulated depreciation. Depreciation is provided on the acquired values of

property, plant and equipment on a straight-line method starting from the acquirement date. Land is considered

as limitless useful life, so it is not subject to depreciation.

As of 31 December 2012, lands, buildings and machineries, plants and equipments of the Group are revalued

at fair value and reflected in the consolidated financial statements according to the Expert Appraisal Reports

which are prepared by Elit Gayrimenkul Değerleme A.Ş. that is approved by the Capital Market Board. As of

30 September 2013, there is not a new Expert Appraisal Report for Group‘s lands, buildings and machineries,

plants and equipment. For this reason, lands, buildings and machineries, plants and equipments mentioned in

the Expert Appraisal Report are shown in the accompanying consolidated financial statements by reducing

impairment between balance sheet date and appraisal report date. Impairment was calculated with

consideration of mentioned fixed asset‘s remaining useful life.

The revaluation frequency depends on the differences of the realistic values of tangible fixed assets.

If a net book value of an asset increases during the revaluation, this increase will be recognized at other

comprehensive income and allocated under revaluation value increase directly in the owners' equity account.

However a revaluation value increase can only be recognized as the same amount of value decrease occurred

from profit or loss for the same asset.

If a net book value of an asset decreases during the revaluation, this decrease recognized as expense. However

this decrease can only be recognized as much as all kinds of credit balance about this asset in the revaluation

surplus. The subjected decrease recognized in other comprehensive income, decreases the amount

accumulated in owners‘ equity under revaluation surplus.

The depreciation rates for tangible fixed assets, which approximate the useful economic lives of these assets,

are as follows:

Useful life

Infrastructure and land improvements 25 years

Buildings 50 years

Machinery, plants and equipments 12 years

Motor vehicles 6 years

Furniture and fixtures 10 years

Leasehold improvements Rent period Intangible Fixed Assets Intangible fixed assets comprise of rights and they are recorded at acquisition cost. Intangible fixed assets are

amortized on a straight-line method with prorate basis over period of maximum 10 years from the date of

acquisition.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-16-

Financial Leases

Group acquired assets under finance lease agreements and capitalized at the inception of the lease starting from

acquired date. Payables to lease are pursued under financial leasing liability in balance sheet (It was included in

the related tangible fixed assets in the financial statements). Calculation of minimum leasing payment is to find

out current market value as the valid proportion is calculated practically in financial leasing process then it is,

otherwise proportion of interest rate of loan is used as discount factor. Expenses of asset acquisition through

financial leasing are included in costs. The liability from financial leasing is decomposed into interest rate and

the main loan. Expenses of interest rate are calculated with the fixed interest rate and are issued in related

periods.

Assets Held for Sale

The Group measures assets held for sale at the lower of its carrying amount and fair value less costs to sell.

Assets held for sale are not depreciated. Just before the first classification of related asset (or the group of

assets held for sale) as asset held for sale, the book value of the asset is measured within the context of related

IFRS.

The Group classifies a non-current asset (or the group of assets held for sale) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. For this to be the case, the asset (or the group of assets held for sale) must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets and its sale must be highly probable. For the sale to be highly probable management must be committed to a plan to sell the asset (or the group of assets held for sale) and an active program to locate a buyer and complete the plan must have been initiated. Furthermore, the asset (or the group of assets held for sale) must be actively marketed for sale at a price that is reasonable in relation to its fair value. In addition, the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification and actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Impairment of Assets Tangible and intangible assets are reviewed for impairment whenever events or changes in circumstances

indicate that the carrying amount of an asset may not be recoverable. Whenever the carrying amount of an

asset exceeds its recoverable amount, an impairment loss is recognized in income for items of tangibles and

intangibles carried at cost. Borrowing Costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which

are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added

to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on

qualifying assets is deducted from the borrowing costs eligible for capitalization. All of the other borrowing

costs are recorded in the income statement in the period in which they are incurred. For the periods ended at 30

September 2013 and 31 December 2012 there is no capitalized borrowing cost.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-17-

Effects of Change in Currency Rate

Assets and liabilities in foreign currency and purchase and sale commitments create exchange risk. Foreign

exchange risk stemming from depreciation or appreciation of Turkish Lira managed by top management by

following the currency position of Group and taking position according to approved limits.

Taxes on Income

Taxes on income for the period comprise current tax and the change in the deferred taxes.

Current Tax Provision

The charge for current tax is based on the results for the period as adjusted for items which are non-assessable

or disallowed. Taxable profit differs from profit as reported in the income statement because it excludes tems

of income or expense that taxable or deductible in other years and it further excludes items that are never

taxable or deductible.

Deferred tax

Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financial

statements and the corresponding tax bases use in the computation of taxable profit, and are accounted for

using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable

temporary differences and deferred tax assets are recognized for all deductable temporary differences to the

extent that it is probable that taxable profits will be available against which those deductible temporary

differences can be utilized. Such assets and liabilities are not recognized if the temporary differences arisen

from goodwill or from the initial recognition (other than in a business combination) of other assets and

liabilities in a transaction that affects neither the taxable profit not the accounting profit.

Deferred tax liabilities are recognized for taxable temporary differences associates with investments in

subsidiaries and associates and interests in joint ventures, except where the group is able to control the reversal

of the temporary differences and it is probable that the temporary differences associated with such investments

and interests are only recognized to the extent that it is probable That there will be sufficient taxable profits

against which to utilize the benefits of the temporary differences and they are expected to reverse in the

foreseeable future.

The carrying amounts of deferred tax assets is reviewed at each balance sheet date and reduce to extent that is

no longer probable that sufficient taxable profits will be available to allow all part of the assets to be

recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in

which the liability is settled or the asset realized, based on tax rates (and the tax laws) that have been enacted

or substantively enacted by the balance sheet date. The measurement of deferred tax liabilities and assets

reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting

date, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax

assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority

and the Group intends to settle its current tax assets and liabilities on a net basis.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-18-

Current and deferred tax are recognized as an expense or income in profit or loss, except when they relate to

items credited or debited directly to equity, in which case the tax is also recognized directly in equity, or where

they arise from the initial accounting for a business combination. In the case of a business combination, the tax

affect is taken into account in calculating goodwill or determining the excess of the acquirer‘s interest in the

net fair value of the acquire‘s identifiable assets liabilities and contingent liabilities over cost.

Mergers and Goodwill

Business merger and acquisition is combining of two separate legal entities or organizations into an entity that makes reporting. Business merger is accounted based on acquisition method within the context of IFRS 3.

Acquisition cost contains the fair value of assets given in purchase date; issued capital instruments, assumed and realized payables due to change, the costs that can be associated with additional acquisition. If the business merger agreement includes articles that foresees that cost can be adjusted according to the future actions, this adjustment is probable, and this adjustment is include into merger cost that formed on the day of acquisition when the value is detected. Related the aquired company‘s assets, which are determined according to IFRS 3, liabilities and conditioned liabilities are reflected from fair value at acquisition date, to account. The aquired company is involved in income statement as of acquisition date.

The difference between the acquisition cost coming from purchase of an organization and fair value of identifiable asset, liability and conditioned liabilities is accounted as goodwill in consolidated financial statements.

Goodwill occurred during business merger is not subject to depreciation, instead of this, impairment test is used once in a year or frequently when the conditions indicate impairment. Impairment losses calculated over goodwill is not associated with income statement even in case when impairment disappears in following periods. Goodwill is associated with cash generating units at the time of impairment test.

If real value of acquired assets, liability and contingency liabilities exceeds the business merger cost, then the

difference is accounted in the consolidated income statements as goodwill.

Business Mergers Subject to Joint Control

Business mergers including joint ventures or joint control means all ventures or businesses, before and after the merge, being controlled by the same person or group and their control is not temporary. Business mergers subject to joint control should be recognized using the pooling of interest method, and thus goodwill should not be included in the financial statements. While using the pooling of interest method, the financial statements should be prepared as if the combination has taken place as of the beginning of the reporting period in which the common control occurs and should be presented comparatively from the beginning of the reporting period in which the common control occured. It‘s admissible to look at the business mergers subject to joint control from parent company‘s point of view, from beginning of the consolidation date and after Group‘s parent company obtained the common control, accounting of combined financial statements regulated in regard of the UMS standards as if the financial statements prepared with IAS standards. To fix the inconsistency between assets – liabilities, as a result of the business mergers subject to joint control, ―Effect of the Mergers Subject to Joint Control‖ account classified under equity is used.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-19-

Provisions, Contingent Liabilities and Assets

Provisions

Provisions are recognized when an enterprise has a present obligation (legal or constructive) as a result of a

past event and it is probable that an outflow of resources will be required to settle the obligation, and a reliable

estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and

adjusted to reflect the current best estimate.

Contingent liabilities and assets

Transactions that may give rise to contingencies and commitments are those where the outcome and the

performance of which will be ultimately confirmed only on the occurrence or non occurrence of certain future

events, unless the expected performance is not very likely. Accordingly, contingent losses are recognized in

the financial statements of Group if a reasonable estimate of the amount of the resulting loss can be made.

Contingent gains are reflected only if it is probable that the gain will be realized. Renting Transactions Group – As renter Financial leasing Group acquired assets under finance lease agreements and capitalized at the inception of the lease starting from acquired date. Payables to lease are pursued under financial leasing liability in balance sheet. Calculation of minimum leasing payment is to find out current market value as the valid proportion is calculated practically in financial leasing process then it is, otherwise proportion of interest rate of loan is used as discount factor. Expenses of asset acquisition through financial leasing are included in costs. The liability from financial leasing is decomposed into interest rate and the main loan. Expenses of interest rate are calculated with the fixed interest rate and are issued in related periods.

Operating Leases

Leases where a significant portion of the risks and rewards of ownership a retained by the lesser a classified as

operating leases. Payments made under operating leases are charged to the income statement on a straight-line

basis over the period of lease.

Income Accruals

Revenue is recognized on the accrual basis at the time deliveries are made, at the invoiced values. Net sales reflect gross sales, net of sales discounts and returns.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-20-

Related Parties In the presence of one of the following criteria, parties are considered as related to Group,

(a) Directly, or indirectly through one or more intermediaries, the party,

(i) Controls, is controlled by, or is under common control with, Group (this includes parents, subsidiaries and

fellow subsidiaries);

(ii) Has an interest in Group that gives it significant influence over the Company; or

(iii) Has joint control over Group;

(b) The party is an associate of Group,

(c) The party is a joint venture, in which Group is a venture,

(d) The party is member of the key management personnel of Group or its parent,

(e) The party is a close member of the family of any individual referred to in (a) or (d),

(f) The party is an entity that is controlled, jointly controlled or significantly influenced by, or for which

significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e)

(g) The party has a defined benefit plan for the employees of the Company or a related party of the Company.

Transactions with related parties are transfer of resources or obligations between related parties, regardless of

whether a price is charged. Group interacts with its related parties within the frame of ordinary business

activities (Note 7).

Summarized info about related parties of Group is as follows:

Naksan Holding A.Ş. (Naksan Holding): Naksan Holding Anonim Şirketi was established in Gaziantep,

Turkey in 2007 and moved to its‘ head office to Istanbul, Turkey in the year of 2009. Naksan Holding was

established as a corporation taking part in the management and auditing of the companies operating in

production of plastic, packaging, carpets, production plant of electricity, building mining concerns and other

sectors and providing consultancy about financing, investment, organization, marketing and selling.

Naksan Plastik Sanayi ve Ticaret A.Ş. (Naksan Plastik): The Company was established in 1980 in Gaziantep

and it is mainly engaged with production of plastic packaging materials such as Shrink films, stretch films,

plastic bags, carrier bags, garbage bags, refuse sacks, plain PP films, PE bubble films and also printed flexible

packaging products.

Nakpilsa Dokuma Sanayi ve Ticaret A.Ş. (Nakpilsa Dokuma): The Company was established in 2005 and the

activities of the Company are primarily concentrated on production of PE-PP coated and uncoated woven

tarpaulin, big bag fabric and big bag (FIBC), PVC coated polyester tarpaulin, Packaging Products and the sale

of these products in domestic markets. Company merged with Naksan Plastik ve Enerji Sanayi ve Ticaret

Anonim Şirketi with complete transfer of all assets and liabilities in accordance with article 451 of the 6762

numbered Turkish commercial law and Corporate Tax Law no: 19 and 20 of 5520 dated 18 August 2010 on 31

March 2012

Adularya Enerji Elektrik Üretimi ve Madencilik A.Ş. (Adularya Enerji): The Company was established in

2007 in Ankara and it is mainly engaged with establishing production plant of electricity, building mining

concerns, searching for subsurface and surface mines and selling and marketing of these goods.

Naksan Kollektif Şti. (Naksan Kollektif): The Company was incorporated on 30 May 2000 in Gaziantep free

trade zone and engages in trading of raw materials to the Company.

Cahit ve Osman Nakıboğlu: It is an ordinary partnership and engages in sales and marketing on behalf of

Company.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-21-

Bilim Plastik Kimya Nakliyat Turizm Sanayi Ticaret Anonim Şirketi (Bilim Plastik): The Company was

incorporated in Aliağa, Izmir in 1997 and engages in chemical and transportation.

Akkoza Mensucat Sanayi ve Ticaret A.Ş. (Akkoza Mensucat): The Company was incorporated in 1973 in

Gaziantep and engages in production of yarn.

Elmacı Pazarı Bilgisayar Yazılım ve İletişim Sanayi ve Ticaret A.Ş. (Elmacı Pazarı): The Company was

incorporated on 01 September 2008 in Gaziantep and is engaged in production, sales, marketing and after

sales services of any kind of computer, hardware, and software and computer spare parts.

Naksan Elektrik Enerjisi Toptan Satış A.Ş.: The Company was established on 23 July 2010 in Gaziantep,

Turkey. The activities of the Company are primarily concentrated on wholesale activity of the electrical

energy to the direct consumers.

Naksan Enerji Elektrik Üretimi A.Ş.: The Company was established on 23 July 2010 in Gaziantep, Turkey.

The Company engages in constructing production facility of electrical energy, processing of the facility and

producing the electrical energy.

Naksan Teknoloji ve İletişim Sistemleri Sanayi ve Ticaret A.Ş.: The Company was established on 25 June

1988 with the title of Naksan Sigorta Aracılık Hizmetleri Ltd. Şti. The name of the Company was changed and

registered to the current name on 21 July 2010. The activities of the Company are primarily concentrated on

production and marketing of the computer equipments.

Bakım Elektrik Plastik Tekstil Sanayi ve Ticaret A.Ş: The Company was originally incorporated on 9 May

2006 in Gaziantep. The Company primarily engages in production and repairing activities of the electrical

equipments. The Company also concentrated on converting plastic raw materials to the semi-finished goods

and trading these goods.

Naksan Gıda ve Tarımsal İşletmeleri Sanayi ve Ticaret A.Ş.: The Company was established on 13 September

2004 with the title of Naksan Kimya Sanayi ve Ticaret Ltd. Şti. The name of the Company was changed and

registered to the current name on 29 December 2010. The activities of the Company are primarily

concentrated on producing and trading of the agricultural goods.

Gülnak Elektrik Üretim A.Ş.: Gülnak Elektrik Üretim A.Ş. was established in 2011 in Ankara, Turkey. It is

engaged in building of electricity production plant from natural gas. As of 31 December 2012, the Company

has not started its‘ operational activities yet and there is no personnel employed by the Company.

Foreign Currency Assets and Liabilities

Foreign currency transactions are entered in the accounts with current rates in transaction date. Foreign

currency assets and liabilities in the balance sheet are converted to the TRY as the rates in the balance sheet

date. Foreign exchange profit and loss are reflected to the income statements.

Foreign currency rates that are used at the end of the periods are as follows;

30.09.2013 31.12.2012

USD 2.0342 1.7826

EUR 2.7484 2.3517

GBP 3.2665 2.8708

CHF 2.2370 1.9430

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-22-

Segment Reporting of Operation Results A business segment is distinguishable component of an enterprise that is engaged in providing an individual

product or service or a group of related products or services and that is subject to risks and returns that are

different from those of other business segments. A geographical segment is a distinguishable component of an

enterprise that is engaged in providing products or services within a particular economic environment and that is

subject to risks and returns that are different from those of components operating in other economic

environments.

A reportable segment is business segment or a geographical segment identified based on the foregoing

definitions for which segment information is required to be disclosed. A business segment or geographical

segment should be identified as a reportable segment if a majority of its revenue is earned from sales to external

customers and its revenue from sales to external customers and from transactions with other segments is 10% or

more of the total revenue, external and internal, of all segments; or its segment result, whether profit or loss, is

10% or more of the combined result of all segments in profit or the combined result of all segments in loss,

whichever is the greater in absolute amount; or its assets are 10% or more of the total assets of all segments.

Group operates in same geographical area and operates in yarn and carpet sector. Because of this reason,

segment reporting of yarn and carpet are described in Note 6.

Severance Pay Provision / Employee Benefits

Severance Pay

Under Turkish Labor Law, Group is required to pay termination benefits to each employee who has completed

one year of service and whose employment is terminated without due cause, or who retires in accordance with

social insurance regulations or is called up for military service or dies. As of 30 September 2013 payments are

calculated on the basis of 30 days‘ pay limited to a maximum of TRY 3,129 (31 December 2012: TRY 3,034 )

per year of employment at the rate of pay applicable at the date of retirement.

Group calculates provisions for severance pay in the attached consolidated financial statements in

consideration of previous years experiences on deserving severance pay and also, discount rate generated from

effective interest rate and inflation on balance sheet period was included in calculations. All of profits and

losses except calculated actuarial profit / (loss) was shown in consolidated statements of income, actuarial profit

/ (loss) was shown in consolidated statements of changes in equity.

The rates of basic assumptions used at balance sheet date are as follows;

30 September 2013 31 December 2012

Rediscount rate 8.50% 10.00%

Inflation rate 5.00% 6.07%

Real discount rate 3.33% 3.71%

Social Insurance Premium

Group pays social security contribution to social security organization compulsorily. So long as Group pays

these premiums, it has no liability. These premiums are reflected as personnel expenses in the period in which

they are paid.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-23-

Dividends

Dividends receivable are recognized as income in the period when they are declared and dividends payables

are recognized as an appropriation of profit in the period in which they are declared.

Paid in Capital

Common stocks are classified to equity. Costs related to new shares and option issued, are shown in equity by

deducting the collected amounts whose tax effect was deducted. Share Premiums / Discounts Share premium represents differences resulting from the sale of the Group‘s subsidiaries and associates‘ shares

at a price exceeding the face value of those shares and differences between the face value and fair value of

shares issued for acquired Companies.

Government Incentive and Grants

It is a procedure to assist the companies that are unable to achieve certain businesses. It is to stimulate the

businesses with the incentives. Government incentives, including those followed at their fair values will be

included in the financial statements only if there is reasonable assurance that the Company will fulfill all

required conditions and acquire the incentive.

Government incentives, including non-monetary grants at fair value, are included in the financial statements

only if there is reasonable assurance that the Company will fulfill all required conditions and acquire the

incentive.

Post Balance Sheet Events

Although post balance sheet events arise after the explanation of the financial information to the public or any

announcement related to profitability, it encloses all the events with balance sheet date and authorization date

for the diffusion of the balance sheet.

Group adjusts the amounts in the consolidated financial statements if there exists any events necessitates

adjustment. Subsequent events are stated in the consolidated notes to financial statements, if they do not need

adjustments.

Earnings Per Share

Earnings per share in the consolidated income statements are calculated by dividing the net profit for the year

by the weighted average number of ordinary shares outstanding during the year.

In Turkey, companies can increase their share capital by making distribution of ―bonus shares‖ to existing

shareholders from inflation adjustment difference in shareholder‘s equity. For the purpose of the earnings per

share computations, the weighted average number of shares outstanding during the year has been adjusted in

respect of ―bonus shares‖ issued without corresponding change in resources by giving them retroactive effect

for the period in which they were issued and each earlier period.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-24-

Revenue

Revenues are recognized on an accrual basis at the time deliveries or acceptances are made, the amount of the

revenue can be measured reliably and it is probable that the economic benefits associated with the transaction

will flow to Group, at the fair value of consideration received or receivable. Net sales represent the invoiced

value of goods shipped less sales returns, commission and sales taxes. The Group‘s sales are comprised of

machine carpet, BCF yarn and other sales of merchandises.

Sales of goods

Revenue from sales of coal is recognized when all the following conditions are satisfied:

- Company has transferred to the buyer the significant risks and rewards of ownership of the goods,

- Company retains neither continuing managerial involvement to the degree usually associated with ownership

nor effective control over the goods sold,

- The amount of revenue can be measured reliably,

- It is probable that the economic benefits associated with the transaction will flow to the entity,

- The costs incurred or to be incurred in respect of the transaction can be measured reliably.

Rendering of services

When the outcome of a transaction of transportation incomes and license fee involving the rendering of

services can be estimated reliably, revenue associated with the transaction shall be recognized by reference to

the stage of completion of the transaction at the balance sheet date. The outcome of a transaction can be

estimated reliably when all the following conditions are satisfied:

- The amount of revenue can be measured reliably;

- It is probable that the economic benefits associated with the transaction will flow to the company;

- The stage of completion of the transaction at the balance sheet date can be measured reliably; and

- The costs incurred for the transaction and the costs to complete the transaction can be measured reliably.

Interest income

Interest income is accrued in proportion as effective interest rate which reduces estimated cash addition to

recorded value of the asset in corresponding period.

Dividend and other incomes

Dividend income which obtained from share investments, is recorded when shareholders‘ have the right to get

dividend.

Other incomes are recorded with the possibility of having the worth giving service or accrual of the facts

related with income, making the transfer of risk and benefit, determination of income amount and enrollment

of economic benefits related with the procedure.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-25-

Cash Flow Statement

The Group prepares statement of cash flows to inform users of financial statements about changes in net assets

and ability to direct financial structure, amounts and timing of cash flows according to changing situations. In the

statement of cash flows, current period cash flows are grouped according to operating, financing, and investing

activities. Operating cash flows resulting from activities in scope of Group's main operating scope. Cash flows

related to investing activities are cash flows resulting from investing activities (fixed investments and financial

investments) of the company. Cash flows related to financing activities comprise of funds used in financing

activities of the Group and their repayments. Cash and cash equivalents comprise cash on hand and demand

deposits and other short-term highly liquid investments which their maturities are three months or less from

date of acquisition and that are readily convertible to a known amount of cash and are subject to an

insignificant change in value.

NOTE 3 – BUSINESS MERGERS

None (31 December 2012 - None).

NOTE 4 – BUSINESS MERGERS SUBJECT TO JOINT CONTROL

Business mergers including joint ventures or joint control means all ventures or businesses, before and after the merge, being controlled by the same person or group and their control is not temporary.

For the period ended at 30 September 2013 details of business mergers subject to joint control is as follows;

Royal Halı İplik Tekstil Mobilya Sanayi ve Ticaret Anonim Şirketi (―Royal Halı‖) acquired 2,550 shares

corresponding to 51% of Atlas Halı Aksesuar ve Mobilya Sanayi Ticaret Anonim Şirketi (―Atlas Halı‖)‘s

shares from its main shareholder company Naksan Holding Anonim Şirketi with a price amounting to TRY

2,550,000 at 29 January 2013.

As a result of these acquisition details of acquired net assets and negotiated purchase shown in equity as

―Merger Effect of Businesses Subject to Joint Control or Joint Ventures‖ is as follows;

Book value before

merger

Fair value

Adjustment Fair value

Short term assets 7,134,123 779 7,134,902

Long term assets 636,621 1,430,093 2,066,714

Short term liabilities 8,873,902 (83,225) 8,790,677

Long term liabilities 7,062 91,244 98,306

Net assets / (liabilities) 312,633

The ratio of Royal Halı‘s partnership 51.00%

Net assets / (liabilities) acquired from the company 159,443

Acquisition cost 2,550,000

Merger Effect of Businesses Subject to Joint Control or Joint Ventures (Note 22.5) 2,390,557 1

For the period ended 31 December 2012, there are no any business mergers subject to joint control.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-26-

NOTE 5 – SHARES IN OTHER COMPANIES

As of 30 September 2013, the detail of Parent Company‘s direct or indirect shares in other companies and

datas of these companies is as follows;

Ownership of the Parent

Company through the

Subsidiary

Minority

Interest

Subsidiaries (Direct)

(Direct+

Indirect) Ratio

Atlas Halı Aksesuar ve Mobilya Sanayi Ticaret Anonim Şirketi %51.00 %51.00 %49.00

For the period ended at 30 September 2013, summaries of financial information about Parent Company‘s

subsidiary are as follows;

Subsidiaries Nature of

Activities

Total

Assets

Total

equity

Revenue,

net

Period

profit /

(loss)

Atlas Halı Carpet Sector 15,220,814 (75,198) 8,717,966 (384,005)

Detailed information about subsidiary is presented in Note 1.

As of 31 December 2012, Parent Company does not have any shares in other companies.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-27-

NOTE 6 – SEGMENT REPORTING

Group operates in same geographical area and operates in yarn and carpet sector. For this reason, segment

reporting is based on the yarn and carpet sectors.

As of 30 September 2013 and 31 December 2012, segment reporting of balance sheet is as following;

30 September 2013 Carpet Sector Yarn Sector Other (*) Total

Trade receivables 82,572,959 1,907,144 8,758,291 93,238,394

Inventories 40,935,116 8,054,049 656,203 49,645,368

Tangible fixed assets 80,410,949 34,938,348 - 115,349,297

Intangible fixed assets 5,638,769 - - 5,638,769

Other assets 36,425,393

Total assets

300,297,221

Trade payables 27,421,035 5,585,837 - 33,006,872

Other payables and liabilities

79,638,903

Total liabilities 112,645,775

31 December 2012 Carpet Sector Yarn Sector Other (*) Total

Trade receivables 50,973,911 5,148,288 2,976,927 59,099,126

Inventories 28,869,198 2,664,809 37,872 31,571,879

Tangible fixed assets 72,309,992 33,045,010 - 105,355,002

Intangible fixed assets 6,594,689 - - 6,594,689

Other assets 27,698,466

Total assets 230,319,162

Trade payables 30,066,366 3,980,763 - 34,047,129

Other payables and liabilities 59,519,444

Total liabilities 93,566,573

(*) Related amounts consist of operations excluding carpet and yarn operations.

As of 30 September 2013 and 31 December 2012, segment reporting of provision for doubtful receivables is as

following;

30 September 2013 Carpet Sector Yarn Sector Total

Provision for doubtful trade receivables 1,209,814 21,920,189 23,130,003

Total 23,130,003

31 December 2012 Carpet Sector Yarn Sector Total

Provision for doubtful trade receivables 1,059,460 21,920,189 22,979,649

Total 22,979,649

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-28-

For the periods ended at 30 September 2013 and 2012 segment reporting of consolidated income statement is

as follows;

01 January - 30 September 2013 Carpet Sector Yarn Sector Other (*) Total

Sales 96,040,790 71,249,233 13,933,982 181,224,005

Cost of sales (57,532,029) (58,406,266) (13,596,078) (129,534,373)

General administrative expenses (4,609,475) (723,483) - (5,332,958)

Marketing, sales and distribution

expenses (21,092,388) (527,475) (316,237) (21,936,100)

Research and development expenses (154,788) - - (154,788)

Other operating income / (expenses), net

(162,407)

Investment activities income / (expenses), net

(147,717)

Financial income / (expenses), net

(6,205,776)

Tax expenses for the period

(3,995,812)

Deferred tax income / (expense)

159,590

Profit / (loss) for the period, net 13,913,664

01 January - 30 September 2012 Carpet Sector Yarn Sector Other (*) Total

Sales 83,225,339 63,064,617 14,000,271 160,290,227

Cost of sales (51,521,734) (49,192,436) (13,777,844) (114,492,014)

General administrative expenses (3,915,054) (385,893) - (4,300,947)

Marketing, sales and distribution

expenses (15,584,084) (386,281) (328,427) (16,298,792)

Research and development expenses (184,663) - - (184,663)

Other operating income / (expenses), net

1,769,093

Investment activities income / (expenses), net

5,797,457

Financial income / (expenses), net

3,970,023

Tax expenses for the period

(5,258,715)

Deferred tax income / (expense)

1,792,148

Profit / (loss) for the period, net 33,083,817

(*)Related amounts consist of operations excluding carpet and yarn operations.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-29-

The distribution of depreciation of tangible fixed assets and amortization of intangible fixed assets by

segments for the periods ended at 30 September 2013 and 2012 are as below,

01 January - 30 September 2013 Carpet Sector Yarn Sector Total

Depreciation of tangible fixed assets 3,608,871 2,772,179 6,381,050

Amortization of intangible fixed assets 1,547,328 28,903 1,576,231

Total 5,156,199 2,801,082 7,957,281

01 January - 30 September 2013 Carpet Sector Yarn Sector Total

Depreciation of tangible fixed assets 3,165,133 2,338,015 5,503,148

Amortization of intangible fixed assets 1,513,591 - 1,513,591

Total 4,678,724 2,338,015 7,016,739

NOTE 7 – RELATED PARTY TRANSACTIONS

i) Due from/to related parties:

a) Due from related parties in trade receivables are as following (Note 10):

30.09.2013 31.12.2012

Naksan Plastik (**) 7,736,637 4,906,228

Elmacı Pazarı Bilgisayar Yazılım 261,892 -

Paralel Gayrimenkul 150,586 -

Zirve Üniversitesi 19,392 -

Cahit ve Osman Nakıboğlu 576 -

Elma Sepeti - 4,645

Atlas Halı (*) - 4,618,721

8,169,083 9,529,594

(*) This amount is composed of carpet sales to the Company. For the period ended at 30 September 2013,

Royal Halı acquired 51% of Atlas Halı‘ shares, as a result Atlas Halı is included in complete

consolidation.

(**) This amount is composed of BCF yam and carpet sales to the Company.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-30-

b) Due to related parties in trade payables are as following (Note 10):

30.09.2013 31.12.2012

Cahit ve Osman Nakıboğlu - -

Elmacı Pazarı - 197

Naksan Elektrik Enerji Üretim - 161,446

- 161,643

c) Due from shareholders in other short term receivables is as following (Note 11):

30.09.2013 31.12.2012

Naksan Holding 5,994,397 833,101

5,994,397 833,101

ii) Sales, purchases and operations to related parties:

a) Net sales to related parties classified under sales revenue is as following:

01.01.-

30.09.2013

01.01.-

30.09.2012

Naksan Plastik (*) 68,603,786 51,555,052

Paralel Gayrimenkul 146,376 -

Elmacı Pazarı 133,880 -

Zirve Üniversitesi 17,956 -

Naksan Holding 7,514 -

Cahit ve Osman Nakıboğlu 1,904 96,862

Adularya Enerji 942 -

Atlas Halı (**) - 2,937,570

Elma Sepeti - 4,361

68,912,358 54,593,845

(*) These amounts are composed of BCF yam and carpet sales to the Company. For the period ended at 30

September 2013 TRY 53,627,571 of sales consists of export registered sales (01 January - 30 September

2012: TRY: 35,363,051).

(**) These amounts are composed of carpet sales to the Company. For the period ended at 30 September 2013,

Royal Halı acquired 51% of Atlas Halı‘ shares, as a result Atlas Halı is included in complete

consolidation.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-31-

b) Purchases from related parties classified under cost of sales are as follows:

01.01.-

30.09.2013

01.01.-

30.09.2012

Naksan Plastik 25,010,048 25,691,689

Elmacı Pazarı 73,915 52,147

Atlas Halı - 36,789

25,083,963 25,780,625

For the period ended at 30 September 2013 and 2012 details of purchases from the Group companies under

cost of sales are as follows;

01 January - 30 September 2013

Raw material

purchases

Merchandise

purchases

Energy

purchases

Rent

expenses

Other

purchases Total

Naksan Plastik 3,503,881 14,164,526 6,668,599 217,440 455,602 25,010,048

Elmacı Pazarı - 73,915 - - - 73,915

3,503,881 14,238,441 6,668,599 217,440 455,602 25,083,963

01 January - 30 September 2012

Raw material

purchases

Merchandise

purchases

Energy

purchases

Rent

expenses

Other

purchases Total

Naksan Plastik 6,054,245 13,349,306 5,833,473 207,000 247,665 25,691,689

Elmacı Pazarı - 52,147 - - - 52,147

Atlas Halı - 36,789 - - - 36,789

6,054,245 13,438,242 5,833,473 207,000 247,665 25,780,625

c) Purchases from related parties classified under marketing, selling and distribution expenses are as follows:

01.01.-

30.09.2013

01.01.-

30.09.2012

Naksan Holding 53,886 28,588

Naksan Plastik 15,770 -

Adularya Enerji 4,000 -

Elmacı Pazarı - 69

Atlas Halı - 2,700

73,656 31,357

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-32-

d) Purchases from related parties classified under general administrative expenses are as follows:

01.01.-

30.09.2013

01.01.-

30.09.2012

Naksan Holding 155,789 37,775

Zirve Üniversitesi 88,000 -

Naksan Plastik 11,081 -

Elmacı Pazarı 152 923

255,022 38,698

e) Rent and other incomes from related parties classified under other operating incomes are as follows;

01.01.-

30.09.2013

01.01.-

30.09.2012

Naksan Plastik 44,000 4,500

Atlas Halı - 4,754

44,000 9,254

f) Foreign exchance gains from related parties classified under other operating incomes are as follows;

01.01.-

30.09.2013

01.01.-

30.09.2012

Naksan Plastik 1,049,408 190,960

Elmacı Pazarı 1,519 5,821

1,050,927 196,781

g) Foreign exchance losses from related parties classified under other operating incomes are as follows;

01.01.-

30.09.2013

01.01.-

30.09.2012

Naksan Plastik 498,078 9,774

Elmacı Pazarı - 143

498,078 9,917

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-33-

h) Interest incomes from related parties classified under investment activities incomes are as follows;

01.01.-

30.09.2013

01.01.-

30.09.2012

Naksan Holding 123,091 172,190

Naksan Plastik - 245,015

123,091 417,205

i) Interest expenses to related parties classified under investment activities expenses are as follows;

01.01.-

30.09.2013

01.01.-

30.09.2012

Naksan Holding 157,727 326,357

Nakpilsa Dokuma - 5,561

157,727 331,918

j) Profit on sales of fixed assets from related parties classified under investment activities incomes are as

follows;

01.01.-

30.09.2013

01.01.-

30.09.2012

Naksan Plastik 37,810 5,710,190

37,810 5,710,190

k) Foreign exchange gains from related parties classified under financial incomes are as follows;

01.01.-

30.09.2013

01.01.-

30.09.2012

Naksan Holding 174,161 62,219

174,161 62,219

l) Interest expenses to related parties classified under financial expenses are as follows:

01.01.-

30.09.2013

01.01.-

30.09.2012

Naksan Holding 211,239 326,357

211,239 326,357

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-34-

m) Purchases of tangible and intangible fixed assets from related parties are as follows;

01.01.-

30.09.2013

01.01.-

30.09.2012

Naksan Holding 56,620 -

Elmacı Pazarı - 13,796

56,620 13,796

n) Details of share purchases from shareholders are as follows;

01.01.-

30.09.2013

01.01.-

30.09.2012

Naksan Holding (*) 2,550,000 -

2,550,000 -

(*) In 29 January 2013 Royal Halı İplik Tekstil Mobilya Sanayi ve Ticaret Anonim Şirketi, acquired 2,550 of

Atlas Halı Aksesuar ve Mobilya Sanayi Ticaret Anonim Şirketi‘s shares amounting to TRY 2,550,000 from

Naksan Holding Anonim Şirketi.

o) Incomes from shareholders classified under share premiums / discounts are as follows;

01.01.-

30.09.2013

01.01.-

30.09.2012

Naksan Holding (**) 1,110,362 -

1,110,362 -

(**) The parent company reflected parts of expenses related to public offering to its main partner, Naksan

Holding. The incomes that consist of reflection of these expenses were clarified in the same account

because of expenses that directly related with public offering shown on Premiums in excess of par

account.

p) Wage and benefits provided for the board members and managers are as follows;

01.01.-

30.09.2013

01.01.-

30.09.2012

Short term employee benefits 668,714 198,834

Benefits provided after leaving - -

Other long term benefits - -

Benefits provided due to termination - -

Share based payments - -

668,714 198,834

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-35-

NOTE 8 – CASH AND CASH EQUIVALENTS

As of 30 September 2013 and 31 December 2012, the details of cash and cash equivalents are as follows;

30.09.2013 31.12.2012

Cash 46,314 82,028

Banks 728,296 1,487,435

Other Liquid Assets 297,560 92,887

1,072,170 1,662,350

As of 30 September 2013 and 31 December 2012 Group‘s bank deposits are composed of demand deposits. As

of 30 September 2013, there are no blokage over the demand deposits. (31 December 2012: TRY 133,695

blocked account). Other liquid assets are composed of the receivables from banks due to credit card transaction

in the Group.

NOTE 9 – FINANCIAL BORROWINGS

As of 30 September 2013 and 31 December 2012 the details of short and long term financial borrowings are as

follows;

30.09.2013 31.12.2012

Short term bank borrowings 2,606,504 9,893,900

Short term lease payables, net 1,485,477 39,364

Current installments of long term bank borrowings 6,798,476 9,619,443

Accrued interest of bank borrowings and financial leases 479,551 476,332

Total short term financial payables 11,370,008 20,029,039

Long term bank borrowings 25,998,405 7,716,516

Long term lease payables, net 14,728,603 477,611

Total long term financial borrowings 40,727,008 8,194,127

Total financial borrowings 52,097,016 28,223,166

As of 30 September 2013 the average effective interest rates of USD, EUR and TRY bank borrowings are

3,25%, 3,92% and 9,25%. (31 December 2012: USD - 3,66%, EUR - 5,20%, TRY - 7.15%).

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-36-

As of 30 September 2013 and 31 December 2012 maturity analysis of bank borrowings (except accrued

interest on borrowings) is as follows::

30.09.2013 31.12.2012

Due in 0 - 1 years 9,404,980 19,513,343

Due in 1 - 2 years 8,207,440 2,204,719

Due in 2 - 3 years 5,134,482 2,204,719

Due in 3 - 4 years 4,528,217 2,204,719

Due in 4 - 5 years 2,709,422 1,102,359

Due in 5 - 6 years 2,709,422 -

Due in 6 - 7 years 2,709,422 -

35,403,385 27,229,859

As of 30 September 2013, the details of the bank borrowings (except accrued interest on borrowings) based on

currency are as follows:

Currency Amount Currency rate TRY Equivalent

TRY 1,080,855 1.0000 1,080,855

USD 2,651,480 2.0342 5,393,641

EUR 10,525,720 2.7484 28,928,889

Total 35,403,385

As of 31 December 2012, the details of bank borrowings (except accrued interest on borrowings) based on

currency is as follows:

Currency Amount Currency rate TRY Equivalent

TRY 3,977,000 1.0000 3,977,000

USD 2,833,334 1.7826 5,050,701

EUR 7,740,000 2.3517 18,202,158

Total 27,229,859

As of 30 September 2013 and 31 December 2012 maturity analysis of financial lease payables (except accrued

interest) are as below:

30.09.2013 31.12.2012

Due in 0 - 1 years 1,485,477 39,364

Due in 1 - 2 years 3,964,369 125,173

Due in 2 - 3 years 4,198,715 145,467

Due in 3 - 4 years 4,401,890 131,657

Due in 4 - 5 years 2,163,629 75,314

16,214,080 516,975

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-37-

As of 30 September 2013, the details of financial lease payables (except accrued interest) based on currency are

as below:

Currency Amount Currency Rate TRY Equivalent

EUR 5,899,462 2.7484 16,214,080

Total 16,214,080

As of 31 December 2012, the details of financial lease payables (except accrued interest) based on currency are

as below:

Currency Amount Currency Rate TRY Equivalent

EUR 219,830 2.3517 516,975

Total 516,975

As of 30 September 2013, the Group, guaranteed to export with the amounting to TRY 16,276,021 to the

banks as provision of the group‘s borrowings, (31 December 2012: TRY 4,134,300) and given letter of

guarantees with the amounting to TRY 19,863,236 to Türkiye İhracat Kredi Bankası Anonim Şirketi. In

addition, there is warranty of the related parties and shareholders for the borrowings.

NOTE 10 – TRADE RECEIVABLES AND PAYABLES

As of 30 September 2013 and 31 December 2012 the details of trade receivables are as follows;

Short term trade receivables

30.09.2013 31.12.2012

Trade receivables 23,051,702 12,818,949

Unearned interest on trade receivables (-) (1,741,476) (1,169,495)

Notes receivables 55,921,533 37,235,911

Income accruals in accordance with the aggrements 15,000 -

Trade receivables from related parties (Note 7) 8,169,083 9,529,594

Doubtful trade receivables 29,587,311 23,315,091

Provision for doubtful trade receivables (-) (23,130,003) (22,979,649)

91,873,150 58,750,401

As of 30 September 2013 average maturity of trade receivables is 102 days (31 December 2012: 66 days).

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-38-

As of 30 September 2013 and 31 December 2012 maturity schedule of notes receivables is as follows:

30.09.2013 31.12.2012

Overdue 1,286,236 783,889

1-30 days 7,327,477 4,145,939

31-60 days 2,639,106 3,832,152

61-90 days 8,124,012 4,033,608

91-120 days 7,097,220 4,985,408

121-150 days 9,798,801 5,165,711

151-180 days 3,940,669 4,410,978

181-210 days 6,339,603 3,587,867

211-240 days 3,652,160 2,549,644

241-270 days 1,956,600 1,725,560

271-300 days 1,805,331 1,060,755

301-330 days 659,500 612,100

331-360 days 1,294,818 342,300

55,921,533 37,235,911

As of 30 September 2013 and 31 December 2012 aging of overdue receivables that are not impaired are as

following;

30.09.2013 31.12.2012

Within 30 days 1,286,236 748,237

31 - 60 days - 35,652

1,286,236 783,889

The management of Group do not estimate a collection risk for these receivables as the significant portion of

these receivables is due from significant customers where sales are made regularly and maturity period of

overdue receivables is at a reasonable level (Note 32 Credit Risk).

For the periods ended at 30 September 2013 and 31 December 2012 the movement schedule of provision for

doubtful receivables is as follows:

01.01.-

30.09.2013

01.01.-

31.12.2012

Opening balance 22,979,649 21,071,572

Collections - (7,003)

Provisions for the period 150,354 1,915,080

Closing balance 23,130,003 22,979,649

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-39-

Long term trade receivables

30.09.2013 31.12.2012

Notes receivables 1,469,895 378,200

Unearned interest on notes receivables (-) (104,651) (29,475)

1,365,244 348,725

Maturities of long term notes receivables are between one and two years.

As of 30 September 2013, Group has received mortgages amounting to TRY 8,390,000 security bonds

amounting to TRY 8,000,000 and letters at guarantees amounting to TRY 7,334,000 (Note 18) (31 December

2012 : TRY 7,300,000 letters of guarantee, TRY 10,940,000 mortgages and TRY 3,556,685 security bonds).

As of 30 September 2013, Group‘s trade receivables amounting to TRY 883,526 are insured by the finance

and insurance companies.

As of 30 September 2013 and 31 December 2012 the details of trade payables are as follows;

Short term trade payables

30.09.2013 31.12.2012

Trade payables 13,269,682 9,362,556

Due to related parties (Note 7) - 161,643

Accrued expenses in accordance with aggrements 2,297,909 361,642

Notes payables 13,101,742 19,414,274

Unearned interest on payables (-) (222,282) (183,592)

28,447,051 29,116,523

As of 30 September 2013, average maturity of trade payables is 76 days (31 December 2012: 53 days).

As of 30 September 2013, notes payables do not consist of bill surety payables (31 December 2012: TRY

10,256,496).

As of 30 September 2013, amounting to TRY 949,534 of trade payables consists of letters or credits. (31

December 2012: None).

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-40-

Maturity schedule of notes payables as of 30 September 2013 and 31 December 2012 are as following:

30.09.2013 31.12.2012

Overdue

1-30 days 4,938,419 6,334,965

31-60 days 3,303,432 4,405,742

61-90 days 1,771,003 1,255,675

91-120 days 1,495,558 4,312,680

151-180 days 13,000 1,000,000

181-210 days - 1,105,212

241-270 days 1,580,330 -

331-360 days - 1,000,000

13,101,742 19,414,274

Long term trade payables

30.09.2013 31.12.2012

Notes payables 4,878,410 5,526,495

Unearned interest on payables (-) (318,589) (595,889)

4,559,821 4,930,606

Maturity schedule of notes payables as of 30 September 2013 and 31 December 2012 are as follows:

30.09.2013 31.12.2012

1 - 2 years 3,229,370 2,704,455

2 - 3 years 1,649,040 1,411,020

3 - 4 years - 1,411,020

4,878,410 5,526,495

Long term notes payable are given to Pls Marka Ticaret Ltd. Şti. For the usage right of ―Pierre Cardin‖ trade

mark (Note 16).

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-41-

NOTE 11 – OTHER RECEIVABLES AND PAYABLES

As of 30 September 2013 and 31 December 2012 the details of other receivables are as follows;

Other current receivables

30.09.2013 31.12.2012

Deposits and guarantees given 112,295 116,316

Due from shareholders (Note 7) 5,994,397 833,101

Due from personnels 409 -

Notes receivables which are received as advance 4,573,417 8,286,842

VAT receivables from the tax office (*) 1,895,257 721,196

12,575,775 9,957,455

(*) VAT receivables, consist of VAT receivables from exports and VAT receivables from reduced VAT rates.

As of 30 September 2013 and 31 December 2012 the details of non trade receivables from related parties are indicated in Note 7. For these non trade receivables, Group had calculated interest and reflected the amounts to the consolidated financial statements (Note 7 and 27).

Other non-current receivables

30.09.2013 31.12.2012

Deposits and guarantees given 246,379 56,251

Notes receivables which are received as advance 1,326,036 1,281,250

1,572,415 1,337,501

As of 30 September 2013 and 31 December 2012 the details of other payables are as follows;

Other current payables

30.09.2013 31.12.2012

Taxes and funds payable 654,347 135,622

Other payables 206 -

654,553 135,622

Other non-current payables

None (31 December 2012 - None).

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-42-

NOTE 12 – PAYABLES FROM EMPLOYEE BENEFITS

As of 30 September 2013 and 31 December 2012, payables from employee benefits are as follows;

30.09.2013 31.12.2012

Social security premiums payable 437,004 224,552

Due to personnel 1,052,162 413,876

1,489,166 638,428

NOTE 13 – INVENTORIES

As of 30 September 2013 and 31 December 2012 the details of inventories are as follows;

30.09.2013 31.12.2012

Raw materials 31,458,037 22,200,379

Finished goods 16,033,326 7,901,918

Merchandises 995,065 495,727

Other inventories 1,159,005 1,126,834

Provision for diminution in value of inventories (-) (65) (152,979)

49,645,368 31,571,879

As of 30 September 2013, the insurance on inventories is amounting to TRY 53,438,960.

For the periods ended at 30 September 2013 and 31 December 2012, the movement schedule of diminution in

value of inventories is as follows;

01.01.-

30.09.2013

01.01.-

31.12.2012

Beginning balance 152,979 -

Reversal of unnecessary provision (-) (152,914) -

Provision set within the period - 152,979

65 152,979

As of 30 September 2013 and 31 December 2012 provision for diminution in value of inventories based on

inventory type is as follows;

30.09.2013 31.12.2012

Finished goods 65 152,979

65 152,979

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-43-

NOTE 14 – PREPAID EXPENSES AND DEFERRED INCOME

As of 30 September 2013, and 31 December 2012, the details of prepaid expenses are as follows;

Prepaid expenses short term

30.09.2013 31.12.2012

Order advances given 1,684,012 108,504

Prepaid expenses - short term 1,782,323 1,302,803

Advances given for business purposes 180,199 725

3,646,534 1,412,032

Prepaid expenses long term

30.09.2013 31.12.2012

Advances given for tangible fixed assets 1,706,416 983,083

Prepaid expenses - Long Term 623,631 843,025

2,330,047 1,826,108

As of 30 September 2013 and 31 December 2012, the details of deferred income is as following;

Deferred income short term

30.09.2013 31.12.2012

Advances received (*) 8,416,727 10,388,841

Deferred income short term 7,063 -

8,423,790 10,388,841

(*) As of 30 September 2013, TRY 4,573,417 of advances received (31 December 2012: TRY 8,286,842)

consists of notes receivables qualified as sale advances.

Deferred income long term

30.09.2013 31.12.2012

Advances received (**) 1,326,036 1,281,250

Deferred income long term 1,765 -

1,327,801 1,281,250

(**) All of the advances received consist of notes receivables qualified as sale advances.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-44-

NOTE 15 – TANGIBLE FIXED ASSETS

Movements in tangible fixed assets for the periods ended at the date of 30 September 2013 and 31 December 2012 are as follows:

Costs

31

December

2011 Addition Disposal

Revaluation

funds(*) Transfer

31

December

2012 Addition Disposal

Revaluation

funds

Additions due

to acquisition

of subsidiary Transfer

30

September

2013

Land 34,670,000 127,507 (1,990,452) (15,877,055) - 16,930,000 151,950 - - - - 17,081,950

Land improvements 483,586 - - 6,225 - 489,811 29,070 - - - - 518,881

Buildings 23,411,280 158,184 - (5,174,823) 1,695 18,396,336 26,561 - - - - 18,422,897

Plants, machinery and

equipment 89,721,217 2,923,228 (213,353) 5,820,288 808,150 99,059,530 15,784,615 (1,058,242) - - 5,906 113,791,809

Vehicles 91,949 44,845 - - - 136,794 56,621 (50,292) - - - 143,123

Fixtures and fittings 7,886,818 1,467,115 (916,497) - (824,792) 7,612,644 2,236,674 (2,090) - 593,392 (5,906) 10,434,714

Leasehold improvements 661,551 103,393 - - 14,947 779,891 199,854 - - 136,213 - 1,115,958

Total 156,926,401 4,824,272 (3,120,302) (15,225,365) - 143,405,006 18,485,345 (1,110,624) - 729,605 - 161,509,332

Accumulated Depreciation (-)

Land improvements 38,586 1,225 - - - 39,811 1,278 - 14,257 - - 55,346

Buildings 996,280 184,407 - - 649 1,181,336 139,152 - 145,636 - - 1,466,124

Plants, machinery and

equipment 27,073,042 6,261,180 (81,461) - 441,769 33,694,530 5,344,428 (747,824) 2,151,146 - 835 40,443,115

Vehicles 38,593 16,595 - - - 55,188 15,944 (41,491) - - - 29,641

Fixtures and fittings 2,717,898 779,510 (392,528) - (445,283) 2,659,597 740,266 (627) - 102,957 (835) 3,501,358

Leasehold improvements 276,419 140,258 - - 2,865 419,542 139,982 - - 104,927 - 664,451

Total 31,140,818 7,383,175 (473,989) - - 38,050,004 6,381,050 (789,942) 2,311,039 207,884 - 46,160,035

Net Book Value 125,785,583 105,355,002 115,349,297

(*) For the periods ended at 31 December 2012, negative valuation effect is due to sale of lands which had fair value increase in previous periods.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-45-

As of 30 September 2013, the total amount of insurance on tangible fixed assets is amounting to TRY

212,956,525.

Additions due to acquisition of subsidiary contain acquired subsidiary‘s tangible fixed assets for the period

ended at 30 September 2013.

As of 31 December 2012, lands, buildings and machineries, plants and equipments of the Group are revalued

at fair value and reflected in the consolidated financial statements according to the Expert Appraisal Reports

which are prepared by Elit Gayrimenkul Değerleme A.Ş. that is approved by the Capital Market Board. As of

30 September 2013, there is not a new Expert Appraisal Report for Group‘s lands, buildings and machineries,

plants and equipment. For this reason, lands, buildings and machineries, plants and equipments mentioned in

the Expert Appraisal Report are shown in the accompanying consolidated financial statements by reducing

impairment between balance sheet date and appraisal report date. Impairment was calculated with

consideration of mentioned fixed asset‘s remaining useful life.

As of 30 September 2013 there is a mortgage amounting to EUR 41,250,000 in favor of Türkiye Vakıflar

Bankası T.A.O. over Group‘s lands located in Gaziantep/Turkey against the borrowings of the Naksan

Holding Anonim Şirketi which is the shareholder of Group (Note 18) (31 December 2012: EUR 41,250,000).

As of 30 September 2013, amounting to TRY 15,235,653 of plants, machineries and devices of the Group are

acquired with financial leasing method and as of 30 September 2013, net book value of leased fixed assets

is TRY 14,665,193 (31 December 2012: acquired to TRY 506,424 – Net book value: TRY 499,672).

For the periods ended at 30 September 2013 and 2012, details of fixed asset purchases from related parties are

stated in Note 7.

NOTE 16 – INTANGIBLE FIXED ASSETS

Movements in intangible fixed assets for the period ended at the date of 30 September 2013 and 31 December

2012 are as follows:

Cost

31 December

2011 Addition Disposal

31 December

2012 Addition

Additions due

to acquisition

of subsidiary

30 September

2013

Rights (*) 10,729,765 3,814 - 10,733,579 107,546 388,133 11,229,258

Other tangible fixed assets 1,599,659 119,171 (6,000) 1,712,830 198,977 - 1,911,807

Total 12,329,424 122,985 (6,000) 12,446,409 306,523 388,133 13,141,065

Accumulated Depreciation (-)

Rights 3,136,075 1,923,831 - 5,059,906 1,505,114 74,345 6,639,365

Other tangible fixed assets 705,968 87,826 (1,980) 791,814 71,117 - 862,931

Total 3,842,043 2,011,657 (1,980) 5,851,720 1,576,231 74,345 7,502,296

Net Book Value 8,487,381 6,594,689 5,638,769

(*) In the year of 2010, Group has made an agreement with Pls Marka Pazarlama Ticaret Ltd.Şti. For usage

rights of ―Pierre Cardin‖ trademark for ten years and the amount of first five years is TRY 10,592,805

(exclude VAT). As of 30 September 2013, amounting to TRY 6,320,966 (exclude VAT) is classified in notes

payables (Note 10) (31 December 2012: TRY 6,378,386). Remaining balances paid as cash.

Additions due to acquisition of subsidiary contain acquired subsidiary‘s intangible fixed assets for the period

ended at 30 September 2013.

As of 30 September 2013, there is no internally created tangible and intangible fixed assets within Group

(31 December 2012: None).

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-46-

NOTE 17 – GOVERNMENT INCENTIVE AND GRANTS

Parent Company made investment valued at TRY 9,547,924 between 01 January 2010 - 31 December 2012.

According to the incentive from Turkish Ministry of Economy, Parent Company was exempted from value-

added tax on investment made. In addition, it has exemption of corporation tax in proportion 40% of related

investment amounts. In addition, Group‘s required by law social security institution 4857 and 5510 for the

period ended 30 September 2013 amounting to TRY 611,242 has received incentive income. (31 December

2012: TRY 206,573 ).

NOTE 18 – PROVISIONS, CONTINGENT ASSETS AND LIABILITIES

As of 30 September 2013 and 31 December 2012 provisions, commitments and contingent liabilities are as

follows;

Short term provisions

30.09.2013 31.12.2012

Provision for the lawsuits 729,882 779,106

729,882 779,106

For the periods ended at 30 September 2013 and 31 December 2012, movement schedule of provision for the

lawsuits are as follows;

01.01.-

30.09.2013

01.01.-

31.12.2012

Opening balance 779,106 67,616

Provision for the period 44,616 711,490

Payments done in the period (93,840) -

Closing balance 729,882 779,106

Long term provisions

None (31 December 2012 - None).

Contingent Assets

Contingent assets of Group are as follows;

Letters of guarantee - As of 30 September 2013, Group has received letters of guarantee amounting to TRY

7,334,000 for its long and short term trade receivables from customers (Note 10) (31 December 2012: TRY

7,300,000 ). The details of the letters of guarantee based on currency is as below;

Currency

Currency

Amount

TRY

Equivalent

Letters of guarantees TRY 7,334,000 7,334,000

7,334,000

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-47-

Mortgages - As of 30 September 2013, Group has received mortgages amounting to TRY 8,390,000 from the

customers for the short and long term trade receivables (Note 10) (31 December 2012 : TRY 10,940,000). The

details of the mortgages based on currency are as following;

Currency

Currency

Amount

TRY

Equivalent

Mortgages TRY 8,390,000 8,390,000

8,390,000

Security bonds - As of 30 September 2013, the Group has received security bonds amounting to TRY

8,000,000 from the customers for the short and long term trade receivables (Note 10) (31 December 2012:

TRY 3,556,685 ). The details of the security bonds based on currency are as following;

Currency

Currency

Amount

TRY

Equivalent

Security bonds TRY 8,000,000 8,000,000

8,000,000

Contingent Liabilities

As of 30 September 2013 and 31 December 2012 guarantee / security / mortgage (―GSM‖) of the Parent

Company are as follows:

Given GSM (Guarantee-Security-Mortgage) by Parent Company 30.09.2013 31.12.2012

A. Total Amount of GSM given on behalf of legal entity 22,203,515 1,361,378

B. Total Amount of GSM given for partnerships which are included in

full consolidation None None

C. Total Amount of GSM given for the purpose of guaranteeing third

party loans to carry the regular trade activities None None

D. Total Amount of other GSM given 113,371,500 97,007,625

I. Total Amount of GSM given for the Parent Company 113,371,500 97,007,625

ii. Total Amount of GSM given for Other Group Companies not

included in B and C clauses None None

iii. Total Amount of GSM given for third parties not included in C

clause None None

135,575,015 98,369,003

Ratio of other GSM given by the Parent Company to Shareholders‘ Equity as of 30 September 2013 is 60%

(31 December 2012: 71%).

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-48-

The details of the Group‘s contingent liabilities are as follows;

Letters of guarantees – As of 30 September 2013, Group has given letters of guarantee amounting to TRY

22,203,515 to various parties (31 December 2012: TRY 1,361,378). The details of the letter of guarantees are

as follows;

30.09.2013 31.12.2012

Türkiye İhracat Kredi Bankası A.Ş. 19,863,236 -

Custom authorities 1,253,449 1,172,635

Tax offices 846,000 -

Other corporations 240,830 188,743

22,203,515 1,361,378

As of 30 September 2013, the details of the letter of guarantees based on banks and currencies are as follows;

Currency

Currency

Amount

Currency

Rate

TRY

Equivalent

T. Vakıflar Bankası T.A.O. EUR 4,417,200 2.7484 12,140,232

ING Bank A.Ş. EUR 2,810,000 2.7484 7,723,004

T. İş Bankası A.Ş. EUR 17,325 2.7484 47,616

Alternatif Bank A.Ş. EUR 26,639 2.7484 73,214

Kuveytürk Katılım Bankası A.Ş. TRY 306,757 1.0000 306,757

T.C. Ziraat Bankası A.Ş. TRY 414,646 1.0000 414,646

Halkbank A.Ş. TRY 67,123 1.0000 67,123

Alternatif Bank A.Ş. TRY 1,430,923 1.0000 1,430,923

22,203,515

As of 31 December 2012, the details of the letter of guarantees based on banks and currencies are as follows;

Currency

Currency

Amount

Currency

Rate

TRY

Equivalent

Alternatif Bank A.Ş. TRY 910,434 1.0000 910,434

Türkiye İş Bankası A.Ş. EUR 17,325 2.3517 40,743

T.C. Ziraat Bankası A.Ş. TRY 148,000 1.0000 148,000

HSBC Bank A.Ş. EUR 111,494 2.3517 262,201

1,361,378

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-49-

Mortgages – As of 30 September 2013, there is mortgage over Group‘s lands with the amount of EUR

41,250,000, TRY equivalent of related amount is TRY 113,371,500 against the borrowings of the Naksan

Holding Anonim Şirketi which is the main shareholder of Group (31 December 2012: TRY 97,007,625). The

detail of the mortgages is as follows;

Mortgage given to: Location of land Degree EUR

Türkiye Vakıflar Bankası T.A.O. Gaziantep 1/0 41,250,000

41,250,000

Indorsed notes receivables – As of 30 September 2013, note receivables which are received from customers

are indorsed to Naksan Holding Anonim Şirketi; who is a shareholder of Group with the amount of

TRY 2,241,250 Naksan Holding Anonim Şirketi and to various suppliers with the amount of TRY 2,322,481

adding up to an amount of TRY 4,563,731 (31 December 2012: Naksan Holding Anonim Şirketi: TRY

22,273,882, Naksan Plastik ve Enerji Sanayi ve Ticaret Anonim Şirketi: TRY 243,000 and various suppliers:

TRY 1,785,663; in total: TRY 24,302,545).

Litigations – Group, from time to time is defendant in law suits related business issues. As of 30 September

2013 all the lawsuits brought against Group are about personnel. Related risks have been analyzed as to

likelihood of occurrence. As a result of these analyses, as of 30 September 2013, Group management made

provision for cases at an amount of TRY 729,882 (31 December 2012: TRY 779,106).

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-50-

NOTE 19 – COMMITMENTS

As of 30 September 2013, Group has amounting to TRY 16,276,021 export commitments to the banks for the

export borrowings (Note 9) (31 December 2012: TRY 4,134,000).

Bank name

Maturity

of commitments

Currency

type

Currency

Amount

TRY

Equivalent

Türkiye İş Bankası A.Ş. In the year of 2015 EUR 500,000 1,374,200

Türkiye İhracat Kredi Bankası A.Ş. In the year of 2020 EUR 5,421,999 14,901,821

16,276,021

As of 31 December 2012, the details of the export commitments are as follows;

Bank name

Maturity

of commitments

Currency

Type

Currency

Amount

TRY

Equivalent

Türkiye Garanti Bankası A.Ş. In the year of 2013 USD 1,000,000 1,782,600

Türkiye İş Bankası A.Ş. In the year of 2013 EUR 1,000,000 2,351,700

4,134,300

The Parent Company's Board of Directors, with the decree of 25 on 3 April 2013 in Borsa İstanbul A.Ş.

shares of Royal Halı at the start of trading on 3 May 2013 from the date of the 180 (one hundred eighty) days,

- Not to any paid capital increase and thereby not to increase the amount of shares in circulation,

- Not to make any other decisions which would result to make a new sale and public offering or to increase

the amount of shares in circulation during this time,

- They made a commitment not to make any other statements which would result to make a new sale and

public offering or to increase the amount of shares in circulation dring this time.

NOTE 20 – PROVISIONS FOR EMPLOYEE BENEFITS

As of 30 September 2013 and 31 December 2012, the short and long-term provisions for employee benefits

are as follows;

Short term provisions for employee benefits

As of 30 September 2013 and 31 December 2012, the Group have been recognized for the employees who

have earned as of the date of the balance sheet but have not used it yet for the annual permits in the

accompanying consolidated financial statements .

30.09.2013 31.12.2012

Accumulated leave 4,847 -

4,847 -

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-51-

Long term provisions for employee benefits

The severance pay provision has been calculated as expressed in Note 2. As of 30 September 2013, the

liability is calculated on a thirty day wage base with a maximum of TRY 3,254 for each year of service,

utilizing the rates on date of retirement or departure (31 December 2012: TRY 3,034).

For the period ended at 30 September 2013 and 31 December 2012, based on mentioned principles above,

Group reflected severance pay liabilities which was reduced to the date of balance sheet by the using expected

inflation rate and real discount rate to consolidated financial statements. All gain and losses other than

calculated actuarial gain / (losses) in the consolidated income statement, Actuarial gain / (losses) are shown in

the consolidated statement of changes in equity.

30.09.2013 31.12.2012

Discount rate 8.50% 10.00%

Inflation rate 5.00% 6.07%

Real discount rate 3.33% 3.71%

Group does not provide any other employee benefit other than the reserve for retirement pay described above.

The movement schedule of severance pay provision is as follows:

01.01.-

30.09.2013

01.01.-

31.12.2012

Balance of 01 January 837,992 637,971

Additions due to business merger 29,572 -

Severance pay paid in the period (138,815) (8,197)

Cost of services 200,362 193,467

Interest cost 77,975 45,480

Actuarial profit / (loss) 380,745 (30,729)

Closing Balance 1,387,831 837,992

NOTE 21 – OTHER ASSETS AND LIABILITIES

As of 30 September 2013 and 31 December 2012, the details of other assets and liabilities are as follows;

Other Current Assets

30.09.2013 31.12.2012

Income Accruals 147,550 -

VAT carried forward 1,470,540 1,341,080

1,618,090 1,341,080

Other Non-Current Assets

None (31 December 2012 - None).

Other Current and Non-Current Liabilities

None (31 December 2012 - None).

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-52-

NOTE 22 – SHAREHOLDERS’ EQUITY, RESERVES AND OTHER EQUITY COMPONENTS

22.1 Paid in Capital

As of 30 September 2013, Parent Company‘s share capital consists of 60,000,000 unit shares each valued at

TRY 1.

As of 30 September 2013 and 31 December 2012 the capital structure is as follows:

30 September 2013 31 December 2012

Shareholders Ratio

Amount

(TRY) Ratio

Amount

(TRY)

Naksan Holding Anonim Şirketi %46.25 27,750,000 %70.00 35,000,000

Public Shares %28.75 17,250,000 - -

Osman Nakıboğlu %9.00 5,400,000 %10.80 5,400,000

Cahit Nakıboğlu %6.25 3,750,000 %7.50 3,750,000

Bahaeddin Nakıboğlu %3.00 1,800,000 %3.60 1,800,000

Cihan Dağcı %2.08 1,250,000 %2.50 1,250,000

Emre Nakıboğlu %2.00 1,200,000 %2.40 1,200,000

Ferhan Nakıboğlu %1.25 750,000 %1.50 750,000

Mehmet Hilmi Nakıboğlu %1.00 600,000 %1.20 600,000

Taner Nakıboğlu %0.42 250,000 %0.50 250,000

Total %100.00 60,000,000 %100.00 50,000,000

The Parent Company, the Capital Markets Board dated 19 March 2013 and in 2758 was with the permission

of the registered capital system. The Parent Company's registered capital ceiling of TRY 200,000,000, TRY

60,000,000 of the Company's issued share capital is fully paid share capital committed by the shareholders.

Naksan Holding A.Ş and Nakıboğlu family who owned Group A shares a nominal value of TRY 5,000,000

have a privilege to determine members of the boards of directors and use the group‘s voting rights under the 8

and 11 of the articles of association. Group B shares offered to the public, does not have a privilege.

According to the 8 of the articles of Association that Board of Directors consist of six members and three

members elected by the General Assembly from among the candidates nominated by Group A shareholders.

According to the 11 of the articles of Association in the Ordinary and Extraordinary General Assemblies of

the Company, each Group A shareholders has 15 (fifteen) and each group B shareholders has 1(one) voting

rights. However, according to the Turkish Commercial Law numbered 6102 479/3 of the articles, Privilege

right does not use to make decisions in the General Assembly regarding to file acquittance and obligation

cases with the change of the articles of association.

22.2 Inflation Adjustment of Shareholders’ Equity

As of 30 September 2013 and 31 December 2012, the details of inflation adjustment to shareholders‘ equity

are as follows;

30.09.2013 31.12.2012

Inflation adjustments of shareholder‘s equity 746,913 746,913

746,913 746,913

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-53-

22.3 Share Premiums / Discounts

Share premiums account, which express to be obtained by cash inflow as a result of sale of Parent Company‘s

shares within market prices.These premiums are shown under equity and not to be subject to dividend

distribution but can be used in capital increases in the future.

The parent company comprised premium related to the shares with the amounting to TRY 34,500,000 by

selling 10.000.000 shares, one of whose has the TRY 1 value, with the unit price of TRY 4.45 in the Borsa

İstanbul A.Ş. by providing capital increase. TRY 3,100,029 which is the Company‘s total cost of public

offerings, is accounted for the condition of reduction on share premium amount related to the shares. The

detail related to the account is as follows;

30.09.2013 31.12.2012

Premiums from the sale of shares in Borsa İstanbul A.Ş. 34,500,000 -

Expenses relevant to the public offering process (4,210,391) -

Part of the amount of reflected to shareholders which expenses relevant to

the public offering process (Note 7) 1,110,362 -

31,399,971 -

22.4 Actuarial Profit / (Loss) of the Calculation Severance Pay Provision

The Group, for the period ended at 30 September 2013 and 31 December 2012, reflected severance pay

liabilities which was calculated by reducing financial statements date and using expected inflation rate which

details relying on basis explained in Note 20 to consolidated financial statement. All of profits and losses

except calculated actuarial profit / (loss) was shown in consolidated statements of income, actuarial profit /

(loss) was shown in consolidated statements of changes in equity.

30.09.2013 31.12.2012

Actuarial profit / (loss) of the calculation severance pay provision (481,661) (178,940)

(481,661) (178,940)

22.5 Effect of Business Mergers Subject to Joint Control and Joint Ventures

As of 30 September 2013 and 31 December 2012, the details of relevant account are as following;

30.09.2013 31.12.2012

Effect of business mergers subject to joint control and joint ventures 2,390,557 -

2,390,557 -

Royal Halı İplik Tekstil Mobilya Sanayi ve Ticaret Anonim Şirketi (―Royal Halı‖) acquired 51% of shares of

Atlas Halı Aksesuar ve Mobilya Sanayi Ticaret Anonim Şirketi with the amount of TRY 2,550,000 in 29

January 2013. The acquisition value of acquired company was accounted as a separate item in consolidated

financial statements within equity since the related amount is more than TRY 2,390,557 from the fair value of

the company‘s share of identifiable assets, liabilities and contingent liabilities. The details for the calculation

of relevant amount is in Note 4.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-54-

22.6 Revaluation Funds

Revaluation funds are comprised from the buildings, lands, facilities, devices and machineries over indexed

value and the deferred tax calculated from the value exceeding indexed value. Buildings, lands and

machineries are stated in the financial statements at expertise value determined by Elit Gayrimenkul

Değerleme Anonim Şirketi, which is accredited by Capital Market Board as of 31 December 2012. As of 30

September 2013, there is not a new Expert Appraisal Report for Group‘s lands, buildings and machineries,

plants and equipment. For this reason, lands, buildings and machineries, plants and equipments mentioned in

the Expert Appraisal Report are shown in the accompanying consolidated financial statements by reducing

impairment between statement date and appraisal report date. Impairment was calculated with consideration

of mentioned fixed asset‘s remaining useful life.

The details of the revaluation funds are as following:

30.09.2013 31.12.2012

Expertise values over indexed value 42,309,900 44,620,939

Deferred tax liabilities (4,802,301) (5,240,525)

Total revaluation fund 37,507,599 39,380,414

22.7 Restricted Reserves

In the legal book, the accumulated profits can be distributed except the claim related legal reserves stated below.

According to the Turkish Commercial Code, legal reserves consist of first and second legal reserves. The first

legal reserve is appropriated out of the statutory profits at the rate of 5%, until the total reserve reaches a

maximum of 20% of the Company‘s share capital. The second legal reserve is appropriated at the rate of 10%

of all distributions in excess of 5% of the Company‘s share capital. The first and second legal reserves are not

available for distribution unless they exceed 50% of the share capital, but may be used to absorb losses in the

event that the general reserve is exhausted. The statutory accumulated profits and statutory current year profit

are available for distribution, subject to the reserve requirements referred to above.

As of 30 September 2013 and 31 December 2012, the details of restricted reserves are as following;

30.09.2013 31.12.2012

Restricted Reserves 2,972,851 1,116,622

2,972,851 1,116,622

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-55-

22.8 Retained Earnings / Losses

In accordance with the communiqué Serial: XI No: 29, effective from 1 January 2008, and its related

announcements, ―Paid-in Share Capital‖, ―Restricted Reserves Appropriated from Profit‖ and ―Share

Premium‖ should be presented with statutory amounts. The restatement differences arise during the

application of the communiqué should be presented in ―Adjustment to Share Capital‖, if the difference is

resulted from paid-in share capital and has not added to capital yet; should be presented in ―Retained Earnings

/ Losses‖, if the difference is resulted from ―Restricted Reserves Appropriated from Profit‖ and ―Share

Premium‖ and has not been subject to profit distribution or has not added to capital yet.

According to the decision dated 30 December 2003 and numbered 66/1630 of Capital Market Board,

―Previous Year‘s Losses‖ account which arises from first time application of inflation adjustment on financial

statements is taken into consideration as deductible item, during the calculation of distributable profit for the

inflation adjusted financial statements under the profit distribution principles of the Capital Market Board.

Nonetheless, it is also possible to set off ―Previous Year‘s Losses‖ with the Company‘s current profit and

accumulated profit. The remaining part of prior year‘ loss is possibly set off extraordinary reserves, legal

reserves and inflation effect on shareholder‘s equity account, respectively.

In accordance with Turkish Commercial Code, legal reserves consist of first and second legal reserves. Until

the Company‘s legal reserve reaches 20% of the nominal paid-up share capital, legal reserves are set aside as

the first 5% of net income. The second legal reserve, on 5% of the Company‘s share capital is divided into

10% of all profits from the distribution. According to the Turkish Commercial Code, legal reserves for

distribution unless they exceed 50%, but can be used to offset losses at the point of profit reserves have been

exhausted.

Listed companies are subject to dividend requirements regulated by the CMB as follows:

In addition, based on the CMB Decree 7/242, dated 25 February 2005, if the amount of profit distributions

calculated in accordance with the net distributable profit requirements of the CMB does not exceed the

statutory net distributable profit, the whole amount of distributable profit should be distributed. If it exceeds

the statutory net distributable profit, the whole amount of the statutory net distributable profit should be

distributed. It is stated that dividend distributions should not be made if there is a loss in either the financial

statements prepared in accordance with CMB regulations or in the statutory consolidated financial statements.

In accordance with CMB decision No:1/6 dated January 9, 2009; with regard to the determination of

principles to be followed regarding distribution of profits obtained from 2008 activities by the publicly held

incorporated companies, the shares of which are traded on the exchange market, the minimum profit

distribution rate of 20% shall be applied as indicated in Article 5 of the Communiqué No:27 Series: IV; this

distribution shall be performed by distributing the shares to be exported by means of adding cash or dividend

to the capital in accordance with the decision of general assemblies, to the shareholders free of charge or by

distributing certain amount in cash and certain amount in free shares. Again, in accordance with the decision

mentioned above, as long as in the calculation of profit distributable by the enterprises obliged to prepare

consolidated financial table, the profit amounts appearing in the profit in the consolidated financial tables and

transferred from subsidiaries, enterprises and associates under joint management to consolidated financial

tables of the parent company are met from the resources in the legal records of the companies, the profit

amount to be distributed shall be calculated considering the net current profits in the financial tables to be

prepared and disclosed in the frame of CMB‘s ―Communiqué on Principles regarding Financial Reporting in

Capital Market‖ No: 29 Series: XI, regardless of the profit distribution decision made by general assemblies.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-56-

In accordance with the CMB decision dated 27 January 2010, it‘s decided to remove the obligation related

with the minimum dividend distribution rate for publicly traded companies.

Inflation adjustment to shareholders' equity and book value of extraordinary reserves can be used as an

internal source in capital, dividend distribution in cash or net-off against prior years‘ loss. In case the inflation

adjustment to shareholders‘ equity is used for dividend distribution in cash, the distribution is subject to

corporate tax

22.9 Minority Interest

As of 30 September 2013 and 31 December 2012 details of minority interests are as follows;

30.09.2013 31.12.2012

Capital 2,450,000 -

Retained earnings/(losses) (2,298,685) -

Profit / (loss) for the period, net (188,162) -

(36,847) -

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-57-

NOTE 23 – SALES AND COST OF SALES

23.1 Sales revenue

Details of sales for the periods ended at 30 September 2013 and 2012 are as follows;

01.01.-

30.09.2013

01.01.-

30.09.2012

01.07.-

30.09.2013

01.07.-

30.09.2012 Domestic Sales

BCF yarn sales 2,624,374 7,528,713 698,289 25,375,680

Machine carpet sales 83,358,798 68,441,145 29,154,223 19,515,423

Raw material sales (PP and Yarn) 1,813,736 4,665,363 432,143 985,248

Merchandise sales 3,376,748 1,673,624 9,936 302,184

Other sales 132,375 281,379 30,458 9,957

91,306,031 82,590,224 30,325,049 46,188,492

Export Sales

BCF yarn sales 67,817,722 53,204,582 24,285,468 (5,330,277)

Machine carpet sales 16,680,377 14,890,887 5,832,802 4,496,637

Merchandise sales 14,062,306 13,573,388 6,566,963 5,144,461

Other sales - 268,766 - 74,615

98,560,405 81,937,623 36,685,233 4,385,436

Sales returns and discounts (8,642,431) (4,237,620) (2,681,049) (980,213)

181,224,005 160,290,227 64,329,233 49,593,715

For the periods ended at 30 September 2013 and 2012, the details of amount of sales are as following;

01.01. - 30.09.2013 01.01. - 30.09.2012

Type of product Unit Amount Unit Amount

Machine Carpet m² 1,688,068 m² 1,430,244

Commercial Carpet m² 47,576 m² 57,049

BCF Yam kg 13,035,992 Kg 11,963,841

For the period ended at 30 September 2013, amounting to TRY 56,047,047 of export registered sales is

classified to export sales (01 January – 30 September 2012: TRY 29,509,125).

Sales to related parties which are classified under sales account are indicated in Note 7.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-58-

23.2 Cost of Sales

Details of cost of sales for the periods ended at 30 September 2013 and 2012 are as follows;

01.01.-

30.09.2013

01.01.-

30.09.2012

01.07.-

30.09.2013

01.07.-

30.09.2012

Direct material expenses 82,784,191 77,485,839 29,130,302 21,558,867

Direct labor expenses 8,631,173 4,669,889 3,327,171 1,689,274

General production overheads expenses 13,657,741 10,593,711 4,605,652 3,586,169

Depreciation and amortization expenses 7,085,046 6,406,374 2,498,259 2,139,326

Cost of Finished Goods Produced 112,158,151 99,155,813 39,561,384 28,973,636

Changes in finished goods inventory

1. Beginning inventory (+) 7,901,918 10,240,557 7,901,918 10,240,557

2. Ending inventory (-) (16,033,326) (15,887,795) (7,060,947) (11,177,454)

Cost of finished goods sold 104,026,743 93,508,575 40,402,355 28,036,739

Cost of merchandise

1. Beginning merchandise inventory (+) 495,727 590,881 495,727 590,881

2. Additions due to business merger(+) 4,916,325 - - -

3. Purchases during the period (+ ) 21,090,643 21,879,819 7,223,015 6,331,176

4. Ending merchandise inventory (- ) (995,065) (1,487,261) 167,166 218,054

Cost of merchandise sold 25,507,630 20,983,439 7,885,908 7,140,111

Cost of sales, net 129,534,373 114,492,014 48,288,263 35,176,850

For the periods ended at 30 September 2013 and 2012, the details of amount of production are as following;

01.01. - 30.09.2013 01.01. - 30.09.2012

Type of product Unit Amount Unit Amount

Machine Carpet m² 1,735,155 m² 1,557,864

BCF Yarn kg 13,239,255 kg 12,441,799

Purchases from related parties which are classified under cost of sales account indicated in Note 7.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-59-

NOTE 24 – GENERAL ADMINISTRATIVE EXPENSES, MARKETING, SELLING AND

DISTRIBUTION EXPENSES AND RESEARCH AND DEVELOPMENT EXPENSES

For the periods ended at 30 September 2013 and 2012, marketing, selling and distribution, general

administrative and research and development expenses are mentioned below;

01.01.-

30.09.2013

01.01.-

30.09.2012

01.07.-

30.09.2013

01.07.-

30.09.2012

General administrative expenses 5,332,958 4,300,947 1,421,569 607,725

Marketing, sale and distribution expenses 21,936,100 16,298,792 7,023,205 3,836,680

Research and Development Expenses 154,788 184,663 75,262 131,173

27,423,846 20,784,402 8,520,036 4,575,578

NOTE 25 – EXPENSES ACCORDING TO QUALIFICATIONS

25.1 General administrative expenses

Details of general administrative expenses for the periods ended at 30 September 2013 and 2012 are as

following;

01.01.-

30.09.2013

01.01.-

30.09.2012

01.07.-

30.09.2013

01.07.-

30.09.2012

Representation and accomodation expenses 144,363 37,437 38,834 10,272

Personnel expenses 2,683,067 1,201,498 978,677 428,411

Communication expenses 84,065 18,959 22,438 9,705

Provision for law suits 44,616 335,650 44,616 47,594

Travel expenses 73,260 24,939 22,233 5,276

Depreciation and amortization expenses 180,252 48,025 57,780 17,467

Provision for diminution in value of

inventories - - (250,313) -

Provision for doubtful expenses 182,153 1,892,513 (18,163) 225

Provision for severance pay 139,522 65,702 63,122 (1,687)

Consultancy fee 252,898 161,294 100,255 49,643

Donation expenses 433,403 454,679 145,515 22,098

Taxes and duties 596,534 33,149 22,060 17,903

Other expenses 518,825 27,102 194,515 818

5,332,958 4,300,947 1,421,569 607,725

Details of expenses from related parties classified in general administrative expenses account for the periods

ended at 30 September 2013 and 2012 indicated in Note 7.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-60-

25.2 Marketing, selling and distribution expenses

For the periods ended at 30 September 2013 and 2012, the details of marketing, selling and distribution

expenses are as following;

01.01.-

30.09.2013

01.01.-

30.09.2012

01.07.-

30.09.2013

01.07.-

30.09.2012

Fair expenses 1,097,998 460,888 312,510 113,193

Personnel expenses 1,520,291 147,535 554,855 66,775

Transportation expenses 1,155,905 725,714 391,581 189,407

Insurance expenses 900,456 1,016,648 235,669 325,609

Export and custom expenses 265,276 281,481 119,150 92,932

Advertising expenses 4,419,979 2,819,261 1,487,869 1,413,624

Depreciation and amortization expenses 647,652 542,748 255,055 189,124

Sales premium expenses 10,004,604 8,805,157 3,295,743 966,766

Travel expenses 267,849 108,010 71,630 47,819

Representation and accomodation expenses 480,426 380,319 120,275 131,048

Rent expenses 617,539 345,847 157,603 117,651

Other expenses 558,125 665,184 21,265 182,732

21,936,100 16,298,792 7,023,205 3,836,680

Details of expenses from related parties classifies in marketing, selling and distribution expenses account for

the periods ended at 30 September 2013 and 2012 indicated in Note 7.

25.3 Research and development expenses

For the periods ended at 30 September 2013 and 2012, the details of research and development expenses are

as follows;

01.01.-

30.09.2013

01.01.-

30.09.2012

01.07.-

30.09.2013

01.07.-

30.09.2012

Personnel expenses 99,581 40,228 44,528 16,575

Travel expenses 8,336 7,530 563 7,530

Consultancy fee - 80,942 - 69,692

Analysis – Laboratory expenses - 33,341 - 23,341

Depreciation and amortization expenses 44,331 19,592 30,071 9,592

Other expenses 2,540 3,030 100 4,443

154,788 184,663 75,262 131,173

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-61-

NOTE 26 – OTHER OPERATING INCOME / ( EXPENSES)

Details of other operating income for the periods ended at 30 September 2013 and 2012 are as following;

01.01.-

30.09.2013

01.01.-

30.09.2012

01.07.-

30.09.2013

01.07.-

30.09.2012

Foreign exchange income from commercial

operations 6,120,319 9,140,382 3,914,166 1,785,981

Rediscount income 1,755,269 3,089,548 (72,104) (161,872)

Due date differences income from trade

receivables 37,146 40,171 8,408 20,730

Insurance income 499,808 133,041 222,655 43,182

Rent income 93,435 4,500 31,435 1,500

Other incomes 14,830 298,952 1,297 92,954

8,520,807 12,706,594 4,105,857 1,782,475

Details of other operating expenses for the periods ended at 30 September 2013 and 2012 is as following;

01.01.-

30.09.2013

01.01.-

30.09.2012

01.07.-

30.09.2013

01.07.-

30.09.2012

Rediscount expense (2,736,771) (1,773,783) (116,595) 1,003,485

Foreign exchange expense from commercial

operations (5,940,834) (9,157,390) (3,048,618) (1,911,154)

Other expenses (5,609) (6,328) (178) (6,086)

(8,683,214) (10,937,501) (3,165,391) (913,755)

Details of expenses from related parties classifies in other operating income / (expenses) account for the

periods ended at 30 September 2013 and 2012 indicated in Note 7.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-62-

NOTE 27 - INVESTMENT ACTIVITIES INCOME / (EXPENSES)

Details of investment activities income for the periods ended at 30 September 2013 and 2012 are as following;

01.01.-

30.09.2013

01.01.-

30.09.2012

01.07.-

30.09.2013

01.07.-

30.09.2012

Profit on sale of fixed assets 37,810 5,712,170 - 5,712,170

Interest income from other receivables 123,091 417,205 102,675 15,827

160,901 6,129,375 102,675 5,727,997

For the periods ended at 30 September 2013 and 2012 details of interest incomes from related parties are

indicated in Note 7.

Details of investment activities expense for the periods ended at 30 September 2013 and 2012 are as

following;

01.01.-

30.09.2013

01.01.-

30.09.2012

01.07.-

30.09.2013

01.07.-

30.09.2012

Loss on sale of fixed assets (150,891) - (150,716) -

Interest expense to other payables (157,727) (331,918) (33,719) (195,638)

(308,618) (331,918) (184,435) (195,638)

For the periods ended at 30 September 2013 and 2012 details of interest incomes to related parties are

indicated in Note 7.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-63-

NOTE 28 – FINANCE INCOME / (EXPENSES)

For the periods ended at 30 September 2013 and 2012 finance incomes are as follows;

01.01.-

30.09.2013

01.01.-

30.09.2012

01.07.-

30.09.2013

01.07.-

30.09.2012

Foreign exchange gains 2,747,217 10,228,451 1,979,565 1,083,989

Foreign exchange income from forward

exchange 147,550 - 147,550 -

2,894,767 10,228,451 2,127,115 1,083,989

Foreign exchange income from forward exchange consists of forward exchange agrgrement difference from

the fair value on 30 September 2013. (Note 32 – Derivative Financial Assets).

For the periods ended at 30 September 2013 and 2012 finance expenses are as follows:

01.01.-

30.09.2013

01.01.-

30.09.2012

01.07.-

30.09.2013

01.07.-

30.09.2012

Interest paid on loans (1,052,236) (2,966,683) (96,607) (877,137)

Foreign exchange losses (7,354,466) (3,175,415) (5,034,527) (516,728)

Letter of guarantees commission expenses (76,279) (99,966) (34,804) (3,794)

Other finance expenses (617,562) (16,364) (535,966) (3,986)

(9,100,543) (6,258,428) (5,701,904) (1,401,645)

For the periods ended at 30 September 2013 and 2012 the details of finance expenses to related parties are

indicated in Note 7.

NOTE 29 – NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

Parent Company acquired two lands for the trade receivables from its customer with the amount of

TRY 3,296,250. The Group has not calculated provision for impairment for the lands, because the fair value of

the lands, which is calculated by TSKB Gayrimenkul Değerleme A.Ş. that is approved by CMB, are higher than

the cost amounts of the lands.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-64-

NOTE 30 –TAX ASSETS AND LIABILITIES

Deferred Taxes

The potential deferred tax assets / (liabilities) of the Company represents the tax effects of temporary

differences, arising between the financial statements reported for IFRS purposes and the statutory tax financial

statements. Such differences arise due to the different treatment of certain items of income and expense

included in the IFRS financial statements compared to the local tax return, in accordance with applicable tax

laws.

As of balance sheet date, accrued temporary differences and deferred tax assets and liabilities prepared by

using current tax rates are as following:

30 September 2013 31 December 2012

Total

Temporary

Differences

Deferred Tax

Assets /

(Liabilities)

Total

Temporary

Differences

Deferred Tax

Assets /

(Liabilities)

Deferred Tax Assets:

Tax incentive

-discounted tax rate 17,754,708 2,840,753 20,143,330 3,222,933

Taxable losses 7,107,848 1,421,570 - -

Severance pay provision 1,387,831 277,566 837,992 167,598

Unearned interests on receivables 1,847,816 369,563 1,199,496 239,899

Provision for doubtful receivables 6,809,054 1,361,811 6,626,901 1,325,380

Accrued interest expenses on loans 5,138 1,028 14,031 2,806

Provision for diminution in value of inventories 65 13 152,979 30,596

Provision for lawsuit 729,882 145,976 779,106 155,821

Expense accruals 216,334 43,266 - -

Reversal of research expenses capitalization 301,131 60,226 189,655 37,931

Foreign exchange losses 1,751,388 350,278 1,352,388 270,478

Deferred tax assets 6,872,050 5,453,442

Deferred Tax Liabilities:

Capitalization of expenses (461,935) (92,387) (567,639) (113,528)

Depreciation and indexation differences of lands and buildings (163,719) (8,186) (138,529) (6,926)

Depreciation and indexation differences of tangible and intangible

fixed assets (Except land, land improvements and buildings) (21,540,133) (4,308,027) (22,146,419) (4,429,284)

Unearned interest on payables (540,871) (108,174) (779,481) (155,896)

Fair value adjustment for lands and buildings (24,397,861) (1,219,893) (24,557,754) (1,227,888)

Fair value adjustment for machinery and plants (17,912,039) (3,582,408) (20,063,185) (4,012,637)

Foreign exchange gains (26,875) (5,375) (6,830) (1,366)

Income accruals (1,018,773) (203,755) - -

Deferred Tax Liabilities (9,528,205) (9,947,525)

Deferred tax assets / (liabilities), net (2,656,155) (4,494,083)

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-65-

For the periods ended at 30 September 2013 and 2012 tax income / (expense) on income statement are as

follows;

01.01.-

30.09.2013

01.01.-

30.09.2012

01.07.-

30.09.2013

01.07.-

30.09.2012

Net Income / (Expense) for the Period (3,995,812) (5,258,715) (553,750) (1,637,329)

Deferred Tax Income / (Expense) 159,590 1,792,148 (159,430) 1,955,719

Tax income / (expense), net (3,836,222) (3,466,567) (713,180) 318,390

As of 30 September 2013 and 2012, the movements of deferred tax assets and liabilities are as follows:

01.01.-

30.09.2013

01.01.-

30.09.2012

Opening balance 4,494,083 6,245,136

Deferred tax recognized in equity (514,373) (1,171,419)

Deffered tax effect of business mergers subject to joint control (1,163,965) -

Deferred tax assets / (liabilities), net (2,656,155) (3,281,569)

Deferred tax income / (expense), net 159,590 1,792,148

As of 30 September 2013, the carry forward taxables losses of Net Group‘s related parties and the last periods

of that this losses could be used are as below;

The last period of using taxable losses

Period financial

loss occurred

Deferred

taxable losses

2016 2011 1,449,553

2017 2012 4,660,667

2018 2013 997,628

Total 7,107,848

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-66-

Tax provision reconciliation shown in Group‘s income statement is as follows;

01.01.-

30.09.2013

01.01.-

30.09.2012

Unaudited profit / (loss) before tax 21,658,126 33,061,636

Total additions to tax base 935,958 550,441

Total deductions from tax base 730,399 10,069,589

Discounted corporate tax base 2,388,623 -

Unaudited financial profit / (loss) 21,863,685 23,542,488

Corporate tax rate 20% 20%

Calculated tax 3,995,812 4,708,498

Stoppage tax effect of tax incentive - 550,217

Corporate tax provision in the income statement 3,995,812 5,258,715

(*) Companies covered by the full consolidation calculated on the basis of the tax provision. For the

companies that tax for the period do not occur, reconciliation of the tax provision is not presented.

As of 30 September 2013 and 31 December 2012, Group‘s assets relevant current period tax is as following;

30.09.2013 31.12.2012

Prepaid Taxes 3,442,062 4,708,498

3,442,062 4,708,498

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-67-

Corporation Tax

Company is liable to corporation tax valid in Turkey. The necessary provisions are made on the attached

financial statements for expected tax liabilities related to the Company‘s current period activity results.

Corporation tax rate that will be accrued over corporation tax base is calculated over the tax base that remains

after adding expenses recorded as expense in determination of commercial earnings that are nondeductible

from tax base and subtracting tax-exempt profit, tax- free income and other deductions (if there are losses

from previous years and used investment allowances if preferred).

The applied effective interest rate in 2013 is 20% (2012: 20%).

Permanent tax is calculated and accrued quarterly in Turkey. As of temporary tax periods, the effective

corporation tax rate is 20% in 2013 (2012: %20).

There is no absolute and certain confirmation procedure related to tax evaluation in Turkey. Companies

prepare their tax return between 1-25 Aprils coming after the related year‘s balancing period (for the

companies having special account period, between 1st and 25th of fourth month following the closing of

period). These tax returns and related accounting records may be inspected and changed by tax department in

five years.

There are some exceptions on Corporation Tax Law. These exceptions that company will possibly utilize are

explained as below;

Taxable losses

According to Turkish Tax Legislation, deduction of financial losses which are decelerated on financial

statements, are possible to deduct from profit of the company with the condition not exceeding 5 years.

However, financial losses are not possible to be set-off from previous year profits.

Issue Premium Exception

The Premium income provided by the disposing of stocks, formed whiles the establishments of Incorporated

Companies or while increasing their capital, below their nominal values is an exemption from Corporation

tax.

The Real Estate and Subsidiary Share Sales Gain Exemption

The 75 % of income of corporations composed of subsidiary shares, real estates, privilege, and promoter‘s

stock and perpetual bonds are exemptions of Corporation tax. In order to benefit from exemption, the

questioned income should be kept in a fund account in liabilities and should not be removed of operation

during 5 years. The sale price should be received at the end of the following 2nd calendar year. Corporations

getting income from the sale of such kind of values they own, like Stocks and bonds and real estate trading

and renting are beyond the scope of exemption.

Investment Allowance Exemptions

Post abolishment of the law numbered 5479, temporary 69th article is added to Income Tax Legislation

related investment allowance.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-68-

According to this execution, Income and Corporation Taxpayers;

a. As of 31 December 2005, its existence is subject and the investment allowance amount that was not able to

be deducted from 2005 earnings,

b. In the extent of investment incentive certificate which were issued and based on the application before 24

April 2003, ante abolishment of Income Tax Legislation numbered 193 and dated 09 April 2003 and law

numbered 4842, in the extent of certificate the commenced investment projects relying on 1, 2, 3, 4, 5 and 6th

the article of appendix and the ones commenced after 01 January 2006,

c. In the extent of abolished 19th article of Income Tax Legislation numbered 193, they started investments

prior to 01 January 2006, in terms of economical and technical completeness the ones started post the date,

In terms of regulatory provisions effective on 31 December 2005, calculated amounts of exemptions from

investment allowances, again in the extent of legal provisions valid on 31 December 2005 (including tax rate

related legal provisions) was deducted merely from earnings of 2006, 2007 and 2008. However, with the

decision numbered 2006/95, which was taken during the meeting of the Constitutional Court on 15 October

2009, the phrase ― ... only related to the years 2006, 2007 and 2008…‖ which was a part of the Temporary

Article 69 of the Income Tax Law was cancelled and the cancellation became effective from the date the

decision has been published in the Official Gazette on 8 January.2010. According to the decision, the

investment incentive amount outstanding that cannot be deducted from 2008 taxable income previously will

be deducted from taxable income of the subsequent profitable years.

Regarding the cancellation decision taken by the Constitutional Court, an amendment was made in the 69th

article in Income Tax Regulation using the regulation numbered 6009 and dated 23/07/2010. Consequently, in

compliance with the cancellation decision of the Constitutional Court, the year limitation has been abolished

and investment allowance has been limited to 25% of the profit. Corporate tax ratio of 30% in the previous

regulation for the ones who benefit from investment allowance has been decreased to the effective corporate

tax with the amendment made (2010: 20%).

Within the frame of the Communiqué ―Decision regarding Government Incentive Assistance in Investment‖

dated 16 July 2009 and numbered 2009/01, newly investing companies are held subject to investment

incentives based on the some regions.

Investment incentives and grants are; discount in corporation and income taxes (differs from region to region),

provision for the investment, interest support.

Royal Halı İplik Tekstil ve Mobilya Sanayi ve Ticaret Anonim Şirketi is qualified for the investment

incentives stated above due to the current and future investment expenditures. The investment area is within

the 3rd Region according to the communiqué numbered 2009/01; so the Company is qualified for 80%

discount on corporation tax rate, which reduces corporation tax rate to 4% in accordance with Communiqué,

40% of total investment expenditures will be deducted from accrued corporation tax amount in the coming

periods.

Withholding Tax

In addition to Corporation tax, it is required to calculate withholding tax from the dividends distributed by full

pledge taxpayer enterprise and include in its income tax base and except dividends distributed by foreign

companies to its subsidiary in Turkey. As of 23 July 2006 income tax stoppage rate was altered to 15%.

Dividends that are added to capital without distribution are not subject to income tax stoppage. It is necessary

to make tax withholding at 19.8% over investment allowance balance utilized based on investment incentive

certificate received prior to 24 April 2003. 40% of company activities directly related to production investment

certificate. Investment expenses made after this date can be deducted. Tax withholding cannot be made on

investment expenses without incentive certificate.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-69-

NOTE 31 – EARNINGS PER SHARE

For the periods ended at 30 September 2013 and 2012 profit / (loss) per share whose nominal value is TRY 1

is as follows:

01.01.-

30.09.2013

01.01.-

30.09.2012

Net profit / (loss) for the period 13,913,664 33,083,817

Net Profit/(loss) relevant to minority interests 188,162 -

Net profit (loss) relevant to Parent company 14,101,826 33,083,817

Total number of shares outstanding 60,000,000 50,000,000

Profit/ (loss) per share (TRY ) 0.23 0.66

NOTE 32 – EXPOSURE TO FINANCIAL RISKS DUE TO FINANCIAL INSTRUMENTS

Financial Instruments

Credit Risk

The company is subject to credit risk arising from trade receivables related to credit sales and deposits at

banks. These risks are managed by limiting the aggregate risk from any individual counterparty and obtaining

sufficient collateral where necessary and making only cash based sales to customer considered as having a

higher risk. Collect ability of trade receivables are evaluated by management depending on their past

experiences and current economic condition, and presented in the financial statements net of adequate

doubtfulprovision.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-70-

As of 30 September 2013 and 31 December 2012 credit risk of Company in terms of financial instruments is as

follows:

30 September 2013

Trade receivables Other receivables Bank

Related

party Other

Related

party Other Deposits Other

Maximum net credit risk as of balance

sheet date (A+B+C+D+E) (*) 8,169,083 85,069,311 5,994,397 8,153,793 728,296 297,560

The part of maximum risk under guarantee

with collateral - 24,607,526 - - - -

A. Net book value of financial assets that are

neither overdue nor impaired 8,169,083 77,325,767 5,994,397 8,153,793 728,296 297,560

B. Net book values of financial assets that

are renegotiated, if not that will be accepted

as overdue or impaired - - - - - -

C. Book value of financial assets that are

overdue but not impaired (**) - 1,286,236 - - - -

- The part under guarantee with collateral

etc - - - - - -

D. Net book value of impaired assets - 6,457,308 - - - -

- Overdue (gross book value amount) - 29,587,311 - - - -

- Impairment (-) - (23,130,003) - - - -

The part of net value under guarantee with

collateral etc - - - - - -

Non overdue (gross book value amount) - - - - - -

Impairment (-) - - - - - -

- The part of net value under guarantee

with collateral - - - - - -

E. Factors Including Off-Balance Sheet Risk - - - - - -

(*) This line represents the total of the rows A, B, C, D and E. Factors mitigating credit risk such as

guarantees received have not been taken into consideration.

(**) As of 30 September 2013 explanations related to the aging of overdue but not impaired receivables are

mentioned in Note 10.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-71-

31 December 2012

Trade receivables Other receivables Bank

Related

Party Other

Related

Party Other Deposits Other

Maximum net credit risk as of balance

sheet date (A+B+C+D+E) (*) 9,529,594 49,569,532 833,101 10,461,855 1,487,435 92,887

The part of maximum risk under guarantee

with collateral - 18,240,000 - - - -

A. Net book value of financial assets that are

neither overdue nor impaired 9,529,594 48,450,201 833,101 10,461,855 1,487,435 92,887

B. Net book values of financial assets that

are renegotiated, if not that will be accepted

as overdue or impaired - - - - - -

C. Book value of financial assets that are

overdue but not impaired (**) - 783,889 - - - -

- The part under guarantee with collateral

etc - - - - - -

D. Net book value of impaired assets - 335,442 - - - -

- Overdue (gross book value amount) - 23,315,091 - - - -

- Impairment (-) - (22,979,649) - - - -

The part of net value under guarantee with

collateral etc - - - - - -

Non overdue (gross book value amount) - - - - - -

Impairment (-) - - - - - -

- The part of net value under guarantee

with collateral - - - - - -

E. Factors Including Off-Balance Sheet Risk - - - - - -

(*) This line represents the total of the rows A, B, C, D and E. Factors mitigating credit risk such as

guarantees received have not been taken into consideration.

(**) As of 31 December 2012 explanations related to the aging of overdue but not impaired receivables are

mentioned in Note 10.

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-72-

Derivative Financial Instrument

Forward Exchange

The Group's activities, mainly due to changes in foreign exchange rates and interest rates, which is exposed to

financial risks. Group, which is used derivative financial instruments (primarily foreign currency forward

contracts) for the purposes of avoiding fair value risk.

Derivative financial instruments which is calculated with the fair value on the aggrement date, is calculated

again with the fair value on the financial statements date. When changes in fair value of derivative financial

instruments occur, they are accounted for income statement.

As of 30 September 2013, foreign currency purchase / sale agreement details are given below;

Foreign

exchange range

TRY equivalent as of

the balance sheet date of

foreign currency which

will be given to the bank

According to the

contract , TRY

equivalent for the

foreign currency

which will be

taken from the

bank

Fair Value

Difference

(TRY)

EUR Purchases - TL Sales

1- 4 months 2.7516 - 2.8160 17,860,552 18,008,102 147,550

As of 30 September 2013, foreign exchange income with the amount of TRY 147,550 which was consist of

the related future contruct is accounted in the consolidated income statements. (Note 28).

Interest Rate Risk

The value of a financial instrument will fluctuate as a result of changes in market prices whether those changes

are caused by factors specific to the individual security or its issuer or factors affecting all securities traded in the

market. The Group‘s interest rate risk is primarily attributable to its borrowings.

Although interest rates of financial borrowings with interest may change, financial assets with interest have fixed

interest rate and cash flows in future do not change with the extent of these assets. Risk exposure to changing

market interest rate of the Group, is mostly based on the borrowing liabilities with variable interest rate of the

Group. The policy of the Group is managing interest cost by using borrowings with fixed and variable interest.

Interest rate sensitivity

If the interest rates of variable interest-bearing USD and EUR denominated borrowings were 100 basis points

(1%) higher / lower with all other variables held constant, profit before tax for the year would have been

lower/higher by TRY 272,315 at 30 September 2013, due to higher / lower interest expense ( 01 January-31

December 2012 TRY 146,587).

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-73-

Liquidity risk

Fair liquidity risk management implies maintaining sufficient cash and marketable securities, the availability

of funding through an adequate amount of committed credit facilities and the ability to close out market

positions. Due to the dynamic nature of the underlying business the Group aims at maintaining flexibility in

funding by keeping committed credit lines. The Group management manages liquidity risk by distributing the

funds and by keeping sufficient cash and cash equivalents resources to cover the current and possible

liabilities. As of 30 September 2013 and 31 December 2012 liquidity risk table of the Group is as following;

30 September 2013 Book value

Cash outflow

according to

agreement

(=I+II+III+IV)

Less than 3

months (I)

Between 3-

12 months

(II)

Between 1-

5 years

(III)

More

than 5

years

(IV)

Non-derivative financial liabilities

Financial liabilities 52,097,016 62,032,272 4,253,956 9,580,253 41,388,199 6,809,864

Trade payables

Third party 33,006,872 34,238,084 23,182,800 6,176,874 4,878,410 -

Other payables

Third party 2,143,719 2,143,719 1,091,352 1,052,367 - -

Provisions 734,729 729,882 - 729,882 - -

87,982,336 99,143,957 28,528,108 17,539,376 46,266,609 6,809,864

31 December 2012 Book value

Cash outflow

according to

agreement

(=I+II+III+IV)

Less than 3

months (I)

Between 3-

12 months

(II)

Between 1- 5

years (III)

More

than 5

years

(IV)

Non-derivative financial liabilities

Financial liabilities 28,223,166 29,578,072 5,521,790 15,416,078 8,640,204 -

Trade payables

Related party 161,643 161,643 - 161,643 - -

Third party 33,885,486 34,664,967 19,499,070 9,639,402 5,526,495

Other payables

Related party - - - - - -

Third party 135,622 135,622 135,622 - - -

Provisions and other liabilities 20,375,139 20,375,139 638,428 18,455,461 1,281,250 -

82,781,056 84,915,443 25,794,910 43,672,584 15,447,949 -

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-74-

Foreign Currency Risk

The effects occurring from exchange rate fluctuation, in case of having foreign currency assets, liabilities, off-

balance sheet liabilities, are foreign currency risk. Transactions in foreign currencies during the year have

been translated at the exchange rate prevailing at dates of the transactions. Monetary assets and liabilities

denominated in foreign currencies are translated at the exchange rates prevailing at the balance sheet dates.

Foreign exchange gains or losses arising from the settlement of such transactions and from the translation of

monetary assets and liabilities are recognized in the statement of profit/loss. Monetary liabilities of the

Company exceed monetary assets of the Group; in case of exchange rate rise, the Group is exposed to foreign

currency risk.

As of 30 September 2013 and 31 December 2012 exchange rates are as following;

30.09.2013 31.12.2012

USD 2.0342 1.7826

EUR 2.7484 2.3517

GBP 3.2665 2.8708

CHF 2.2370 1.9430

RUB 0.06238 0.05782

Foreign Currency Risk Sensitivity

As of 30 September 2013, if TRY evaluates / devaluates against foreign currency by 10% and all other variables

remains the same, profit before tax which occurs as a result of the foreign exchange loss / gain arising from net

foreign exchange exposure would have been TRY 2,369,979 more / less.

FX Sensitivity Analysis by Fx Type

As of 01.01. - 30.09.2013

Profit / (Loss)

Appreciation of foreign

currency

Appreciation of foreign

currency

against TRY against TRY

In case of appreciation / depreciation of USD against TRY by 10%

1-USD net asset / liability (401,631) 401,631

2- Hedged amount against USD risk (-) - -

3-USD net effect (1+2) (401,631) 401,631

In case of appreciation / depreciation of EUR against TRY by 10%

4- EUR net asset / liability (1,968,388) 1,968,388

5- Hedged amount against EUR risk (-) - -

6- EUR net effect (4+5) (1,968,388) 1,968,388

In case of appreciation / depreciation of GBP against TRY by 10%

7- GBP net asset / liability 30 (30)

8- Hedged amount against GBP risk (-) - -

9- GBP net effect (7+8) 30 (30)

In case of appreciation / depreciation of CHF against TRY by 10%

10- CHF net asset / liability 11 (11)

11- Hedged amount against CHF risk (-) - -

12- CHF net effect (10+11) 11 (11)

TOTAL (3+6+9+12) (2,369,979) 2,369,979

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-75-

As of 31 December 2012, if TRY evaluates / devaluates against foreign currency by 10% and all other variables

remains the same, profit before tax which occurs as a result of the foreign exchange loss / gain arising from net

foreign exchange exposure would have been TRY 4,204,767 more / less.

FX Sensitivity Analysis by Fx Type

As of 01.01. - 31.12.2012

Profit / (Loss)

Appreciation of foreign currency Appreciation of foreign currency

against TRY against TRY

In case of appreciation / depreciation of USD against TRY by 10%

1-USD net asset / liability (1,753,410) 1,753,410

2- Hedged amount against USD risk (-) - -

3-USD net effect (1+2) (1,753,410) 1,753,410

In case of appreciation / depreciation of EUR against TRY by 10%

4- EUR net asset / liability (2,451,386) (2,451,386)

5- Hedged amount against EUR risk (-) - -

6- EUR net effect (4+5) (2,451,386) 2,451,386

In case of appreciation / depreciation of GBP against TRY by 10%

7- GBP net asset / liability 26 (26)

8- Hedged amount against GBP risk (-) - -

9- GBP net effect (7+8) 26 (26)

In case of appreciation / depreciation of GHF against TRY by 10%

10- CHF net asset / liability 3 (3)

11- Hedged amount against CHF risk (-) - -

12- CHF net effect (10+11) 3 (3)

TOTAL (3+6+9+12) (4,204,767) 4,204,767

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-76-

As of 30 September 2013, amounts of assets and liabilities of the Group in foreign currency are as follows:

30 September 2013

TRY

equivalent

functional

currency

USD EUR GBP RUB

1. Trade Receivables 23,839,955 5,102,321 4,897,691 - -

2a. Monetary Financial Assets (including cash, banks) 27,566,314 4,754,848 6,510,550 91 1,749

2b. Non-monetary financial assets - - - - -

3. Other 924,103 70,618 283,966 - -

4. Current Assets (1+2+3) 52,330,372 9,927,787 11,692,207 91 1,749

5. Trade Receivables - - - - -

6a. Monetary financial assets - - - - -

6b. Non-monetary financial assets - - - - -

7. Other 1,754,018 - 638,196 - -

8. Non-Current Assets (5+6+7) 1,754,018 - 638,196 - -

9. Total Assets (4+8) 54,084,390 9,927,787 12,330,403 91 1,749

10. Trade Payables 20,461,243 8,312,815 1,292,139 - -

11. Financial Liabilities 9,809,604 1,685,984 2,321,342 - -

12a. Other monetary financial liabilities 1,907,916 937,887 24 - -

12b. Other non-monetary financial liabilities - - - - -

13. Current Liabilities (10+11+12) 32,178,763 10,936,686 3,613,505 - -

14. Trade Payables 4,878,410 - 1,775,000 - -

15. Financial Liabilities 40,727,006 965,496 14,103,840 - -

16a. Other monetary financial liabilities - - - - -

16b. Other non-monetary financial liabilities - - - - -

17. Non-Current Liabilities (14+15+16) 45,605,416 965,496 15,878,840 - -

18. Total Liabilities (13+17) 77,784,179 11,902,182 19,492,345 - -

19. Net asset / liability position of off- balance sheet

derivative instruments (19a-19b) - - - - -

19a. Hedged amount of assets - - - - -

19b. Hedged amount of liabilities position - - - - -

20. Net foreign currency position asset / liabilities (9-18+19) (23,699,789) (1,974,395) (7,161,942) 91 1,749

21. Net foreign currency asset / liability position of monetary

items (IFRS 7.B23) (=1+2a+5+6a-10-11-12a-14-15-16a) (23,699,789) (1,974,395) (7,161,942) 91 1,749

22. Fair value of derivative instruments used in foreign

currency hedge - - - - -

23. Exports 29,666,219 12,522,652 1,926,673 - -

24. Imports 43,987,992 21,167,752 1,653,350 - -

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-77-

As of 31 December 2012, amounts of assets and liabilities of the Group in foreign currency are as follows:

31 December 2012

TRY

equivalent

functional

currency

USD EUR GBP RUB

1. Trade Receivables 13,015,296 6,909,108 297,283 - -

2a. Monetary Financial Assets (including cash, banks) 775,714 270,013 125,058 91 15

2b. Non-monetary financial assets - - - - -

3. Other 833,827 467,759 - - -

4. Current Assets (1+2+3) 14,624,837 7,646,880 422,341 91 15

5. Trade Receivables 58,078 - 24,696 - -

6a. Monetary financial assets - - - - -

6b. Non-monetary financial assets 938,284 38,335 369,923 - -

7. Other - - - - -

8. Non-Current Assets (5+6+7) 996,362 38,335 394,619 - -

9. Total Assets (4+8) 15,621,199 7,685,215 816,960 91 15

10. Trade Payables 26,701,574 13,762,424 922,174 - -

11. Financial Liabilities 15,575,706 2,833,334 4,475,488 - -

12a. Other monetary financial liabilities - - - - -

12b. Other non-monetary financial liabilities 1,670,963 925,708 8,843 - -

13. Current Liabilities (10+11+12) 43,948,243 17,521,466 5,406,505 - -

14. Trade Payables 5,526,495 - 2,350,000 - -

15. Financial Liabilities 8,194,127 - 3,484,342 - -

16a. Other monetary financial liabilities - - - - -

16b. Other non-monetary financial liabilities - - - - -

17. Non-Current Liabilities (14+15+16) 13,720,622 - 5,834,342 - -

18. Total Liabilities (13+17) 57,668,865 17,521,466 11,240,847 - -

19. Net asset / liability position of off- balance sheet

derivative instruments (19a-19b) - - - - -

19a. Hedged amount of assets - - - - -

19b. Hedged amount of liabilities position - - - - -

20. Net foreign currency position asset / liabilities (9-18+19) (42,047,666) (9,836,251) (10,423,887) 91 15

21. Net foreign currency asset / liability position of monetary

items (IFRS 7.B23) (=1+2a+5+6a-10-11-12a-14-15-16a) (42,148,814) (9,416,637) (10,784,967) 91 15

22. Fair value of derivative instruments used in foreign

currency hedge - - - - -

23. Exports 39,413,684 21,988,142 - - -

24. Imports 47,996,576 26,776,374 - - -

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-78-

Capital Risk Management

In capital management, the Group‘s aims at enhancing profitability while keeping a reasonable leverage, on

the other hand rendering sustainability in its operations.

The Group follows capital by using debt to equity ratio. This rate is found by dividing net debt to total equity.

Net debt is calculated by deducting cash and cash equivalents from total payable amount (as shown in balance

sheet, trade and other payables and loans). Total capital, as shown in balance sheet, is calculated by adding up

equity and net debt.

As of 30 September 2013, 31 December 2012 net debt / total equity ratio is as follows;

30.09.2013 31.12.2012

Total debts 112,645,775 93,566,573

Less: Liquid assets 1,072,170 1,662,350

Net debt 111,573,605 91,904,223

Total equity 187,651,446 136,752,589

Total capital 299,225,051 228,656,812

Net Debt/Total Equity ratio 37% 40%

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ROYAL HALI İPLİK TEKSTİL MOBİLYA SANAYİ VE TİCARET ANONİM ŞİRKETİ

AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED AT 30 SEPTEMBER 2013 (Currency - Turkish Lira ‗TRY‘ unless expressed otherwise.)

-79-

NOTE 33 – FINANCIAL INSTRUMENTS (FAIR VALUE DISCLOSURES AND HEDGE

ACCOUNTING DISCLOSURES)

Fair value is the amount at which a financial instrument could be exchanged in a current transaction between

willing parties, other than in a forced sale or liquidation, and is best evidenced by a quoted market price, if

one exists. The estimated fair values of financial instruments have been determined by the Group using

available markets information in Turkey and appropriate valuation methodologies. However, judgment is

necessarily required to interpret market data to estimate the fair value. Accordingly, the estimates presented

herein are not necessarily indicative of the amounts the Group could realize in a current market exchange.

The following methods and assumptions are utilized for the current values of financial instruments which are

predictable in practice:

Financial Assets

Monetary assets for which fair value approximates carrying value:

-Balances denominated in foreign currencies are converted at period exchange rates.

-The fair value of certain financial assets carried at cost, including cash and cash equivalents are considered

to approximate their respective carrying amounts in the financial statements.

-The carrying value of trade receivables, net of allowances for possible non-recovery of uncollectible are

considered to approximate their fair values.

Financial Liabilities

Monetary liabilities for which fair value approximates carrying value:

-The fair value of short-term bank loans and other monetary liabilities are considered to approximate their

respective carrying values due to their short-term nature.

-The fair values of long-term bank borrowings, which are denominated in foreign currencies and converted at

period exchange rates, are considered to approximate their carrying values.

-The carrying amount of accounts payable and accrued expenses reported in the financial statements for

estimated third party payer settlements approximates its fair values.

NOTE 34 – POST BALANCE SHEET EVENTS

None.

NOTE 35 – OTHER ISSUES AFFECTING THE CONSOLIDATED FINANCIAL STATEMENTS

SIGNIFICANTLY OR REQUIRED TO BE DISCLOSED FOR CLEAR, UNDERSTANDABLE AND

INTERPRETABLE PRESENTATION

None (31 December 2012 - None).