İskenderun demİr ve Çelİk a.Ş. · to the board of directors of iskenderun demir ve Çelik...

(CONVENİENCE TRANSLATION INTO ENGUISH OF THE JNDEPENDENTAUDITORS’ REPORT AND FINANCİAL STATEMENTS ORIGİNALLY İSSUED İNTURKİSH - SEE NOTE 33)

İSKENDERUN DEMİR VE ÇELİK A.Ş.

flNANCIAL STATEMENTS FOR THE PERIOD 1 JAr,İJARY -31DECEMBER 2016 AND LNDEPENDENT AUDİTORS’ REPORT

Ey GLınev Bağımsız Denetim ve TeL ÷90 212 315 3000SMMM AŞ Fax: ÷90 212 230 8291MostaR Mahallesi Eski Buyükdere ey corn

Buildinq a better Caddesi Na 27 Daire 54-57-59 Ticaret Sici Na : 479920workinq world Kat2-3-4 Sarıyer! Istanbıl, Turkey Mersis Na 04350-3032-6000017

(Convenience translation into English of the Independent Auditors’ Report and Financial Statements originaliyissued in Turkish)

INDEPENDENT AUDITORS’ REPORTON THE FINANCİAL STATEMENTS

To the Board of Directors of Iskenderun Demir ve Çelik AŞ.;

Report on Financial Statements

We have audited the accompanying statement of financial position of Iskenderun Demir ve Çelik A.Ş. (theCompany) as at 31 December 2016 and the related statement of profit or loss, statement of othercomprehensive income, statement of changes in equity and statement of cash flows for the year thenended and a summary of signiflcant accounting policies and explanatary notes.

Management’s Responsibility for the Financial Statements

The Company’s management is responsible for the preparation and fair presentation of financialstatements in accordance with the Turkish Accounting Standards published by the Public OversightAccounting and Auditing Standards Authority (‘P0K) of Turkey and for such internal controls asmanagement determines is necessary to enable the preparation and fair presentation of financialstatements that are free from material misstatement, whether due ta error and/or fraud.

Independeat Auditors’ Responsibility

Dur responsibility is to express an opinion on these financial statements based on our audit. Our auditwas conducted in accordance with Standards on Auditing issued by the Capital Markets Board of Turkeyand Auditing Standards which are part of the Turkish Auditing Standards issued by POA. Those standardsrequire that ethical requirements are complied with and that the independent audit is planned andperformed to obtain reasonable assurance whether the financial statements are free from materialmisstatement.

Independent audit involves performing independent audit procedures ta obtain independent auditevidence about the amounts and disclosures in the financial statements. The independent auditprocedures selected depend on aur professional judgment, including the assessment of the risks ofmaterial misstatement of the financial statements, whether due ta errar and/or fraud. in making those riskassessments; the entitys internal contral system is taken into cansideration. Our purpose, however, isnot ta express an opinion on the effectiveness of internal control system, but ta design independent auditpracedures that are appropriate for the circumstances in order ta identify the relation between the financialstatements prepared by the Company and its internal control system. Our independent audit inciudesalso evaluating the appropriateness of accounting policies used and the reasonableness of accountingestimates made by the Company’s management, as weil as evaluating the overaii presentation af theflnancial statements.

We believe that the audit evidence we have obtained during our independent audit is sufficient andappropriate ta provide a basis for our audit opinion.

Ey Güney Bağımsız Denetim e Te1 ÷90 2123153000SMMMAŞ Fax: ÷90 212230 0291Maslak MahaLesı Eski Büyükdere ey corn

Buildinq a bahar Caddesi Na 27 Daire 5257-59 Ticaret SciI Na 479920working world Kat2-3-4 Sarıyer! IstanbuL Turkey Meras No 04350-3032-6000017

(Convenjence translation into English of the independent Auditors’ Report and Financial Statements originallyissued in Turkish)

Opinion

in our opinion, the accompanying financial statements present fairly, in alI material respects, the financialposition of Iskenderun Demir ve Çelik A.Ş. as at 31 December 2016 and their financial performance andcash flows for the year then ended in accordance with the Turkish Accounting Standards.

Reports on Other Responsibiiities Arising From Regulatory Requirements

1) In accordance with paragraph 4, Article 402 of the TCC, no significant matter has come to ourattention that causes us to believe that the Company’s bookkeeping activities for the period 1January — 31 December 2016 and financial statements are not in compliance with the code andprovisions of the Company’s articles of association in relation to financial reporting.

2) in accordance with subparagraph 4, Article 402 of the TCC. the Board of Directors submitted to usthe necessary explanations and provided required documents within the context of audit.

Güney Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik Anonim ŞirketiA me -- bertm-ş>,of Emst 8< YoungGlobal Limited

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thehı Kütuular-SMMMEŞrnentPartnp

21 February 2017Istanbul, Turkey

TABLE OF CONTENTS Page

STATEMENT OF FİNANCİAL POSİTİON 1-2

STATEMENT OF INCOME 3

STATEMENT OF COMPREHENSIVE INCOME 4

STATEMENT OF CHANGES İN EQUİTY

STATEMENTOFCASH FLOW 6

NOTES TO THE FINANCİAL STATEMENTS 7-70

NOTE 1 THE COMPANYS ORGANIZATİON AND NATURE OF OPERATIONS 7NOTE 2 BASIS OF PRESENTATİON OF Tl lE FİNANCİAL STATEMENTS 8-28NOTE 3 SEOMENTAL REPORTING 28NOTE 4 CASH AND CASH EQUIVALENTS 28-29NOTE 5 FINANCİAL INVESTMENTS 29NOTE 6 FINANCIAL DERİ VATI VE INSTRUMENTS 30-31NOTE 7 FINANCİAL LİABILİTIES 32-33NOTE 8 TRADE RECEİVABLES AND PAYABLES 33-34NOTE 9 OTİ-IER RECEİVABLES AND PAYABLES 34-35NOTE 10 INVENTORİES 35NOTE Il PREPAİD EXPENSES 36NOTE 12 PROPERTY,PLANFANDEQU1PMENT 37-39NOTE 13 INTANGİBLE ASSEİS 3940NOTE 14 GOVERNM[NT GRANTS AND INCENTIVES 40NOTE 15 EMPLOYEEBENEFİTS 40-43NOTE 16 PROVISİONS 43-44NOTE 17 COMMİTMENTS AND CONTİNOENCİES 45NOTE 18 OT[İER ASSETS AND LİABİLİTIES 46NOTE 19 DEFERREDREVENUE 46NOTE 20 EQUİTY 46-47NOTE2I SALESANDCOSTOFSALES 48NOTE 22 RESEARCIl AND DEVELOPMENT EXPENSES. MARKETING. SALES AND DISTRİBUTİON

EXPENSES. GENERAL ADMINISTRATİVE EXPENSES 49NOTE 23 OPELATİNG EXPENSES ACCORDING TO THEIR NATURE 49NOTE24 OTHEROPERAIING INCOME/EXPENSES 50NOTE 25 FİNANCİAL INCOME 50NOTE26 FİNANCIALEXPENSE 51NOTE 27 TAX ASSETS AND LİABILITIES 5 1-54NOTE28 EARNINGSPERSHARE 55NOTE 29 RELATED PARTY TRANSACTIONS 55-57NOTE 30 NATURE AND LEVEL OF RISKS DERİ VED FROM FINANCİAL INSTRUMENTS 58-67NOTE 31 FİNANCİAL İNSTRUMENTS (FAİk VALUE AND FİNANCİAL RİSK

MANAGEMENT DISCLOSURES) 68-69NOTE 32 SUBSEQUENT EVENTS 70NOTE 33 OTHER İSSUES AFFECTING THE COMPANY’S FINANCİAL STATEMENTS MATERIALLY

OR THOSE REQUİRED TO BE DISCLOSED FOR A CLEAR. UNDERSTANDABLE ANDINTERPREFABLE PRESENTATİON 70

(Convenience Translation into English of Financial Statements Originaliy Issued in Turkish — See Note 33)


STATEMENT OF FINANCIAL POSITION AS OF 3! DECEMBER 2016(Amounts are cxpressed in Tlıousand Turkish Lira (“TRY Thousand) unless otlıcnvise indicated)

TOTAL :SS EfS 3.397.616 11.956.889 3.05039! 8.869316

The functional currency of the Company is USD Dollars. The details of the ıranslation to prescnlation currency ofTRY explainedinNole2.I.

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

(Aucite (Allditc(D (Audited) (Auditcd)Currcnt rcrh>d Current Period I’reious Period Preijoos Period

31 flecemlxr 3! flet£mIxr 31 Ucctmkr 31 fleccmtxr2016 2016 2015 2015

Nole tSIY000 TRI’000 LSD’OOO 11<I’OOOASS EFS

Currvnt Asscts 1317.624 4.636.984 912.203 2.652319

üs], and Cash Equiva]ents 4 3.998 14.069 3.721 10.819Financial Derivative Instn,nrnts 6 9.060 31.885 7.718 22.441Trade Receivables 8 171.129 602.240 153.295 445.720

Duc FromRelağedPartk’s 29 97.890 343.396 103.260 300.239

OıIıer Trade Receirahks 8 73.239 257. 741 50.035 145.481OtherReceivahles 9 583.183 2.052.335 258.941 752.897

Dut, Fmın Relaged Pan/es 28 582.695 2.050.619 258,298 751.026OıherRc’ceh’abks 9 488 1.716 633 1.871

lnvenIoes 10 513.110 1.911.311 478.785 1.392.115

I’wpaid Eçenses Il 4.115 14.483 8.133 24.520ühcrCurn1nt Asseis 18 3.029 10.661 1310 3.807

Non Currenı Asçı,ts 2.079.992 7.319.905 2.138.188 6.216.997

Otherkeceivables 9 3.639 12.80$ 4.827 14.036Financial Inveslrnents 5 35 122 27 79Finanebi Derivative InstmnnIs 6 . . 13.982 40.655Pmpefly, Plant and Equiprnent 12 2.025.995 7.129.883 2.063.629 6.000.209Inlangible Assets 13 46.917 165.111 47.873 139.195Pıepaid Ewenses Il 3.106 11.981 7.850 22.83

(Convenence Translation into English of Financial Statements Originally lssued in Turkish — Sec Note 33)


STATEMENT OF FINANCIAL POSITION AS OF 31 DECEMBER 2016(Amounts are exprcsscd in Thousand TurLislı Lira (“TRY Tlıousand”) unless odıcrnise indicated.)

LhBW[JIES

The functional cunenev of the Compan is USD Dollars. The deıails of the translation to prescntation currencv of TRY explainedinNole2.1.

(Arntted) (Autfited) (ArnIte» (ArnIIec

Currcnt Period Curreot Period Preüous Period Preıious Period

31 Dccemkr il Decemr 31 DecenIr il Decenılwr2016 1086 2085 2085

Nole USD600 TRV000 13W000 TRV000

Currenl Uablities 558.784 1.966.469 328328 934192

ShciTtızr.zs 7 847572 519335 3.183 9256

Short TcrmPorlion ofLongTeraBoroügs 7 145.639 512.534 114252 332.899

Financial Derivalive Insınn’nıs 6 5.382 18.693 6,181 17.972

Tmdc Payables 8 116.814 411.091 83.2 241.982

DııetoftefatedPonies 29 /9.376 68/88 8.108 25.6/1

Other Trade Paı’abies 8 97.438 342.903 74 392 2/6,301

086cr Payabks 9 4.776 6.807 4.589 13.341

Dc!cned Revcnc 89 5233 18.416 7.5% 21.615

Cuntn:Taüahi5ıks 27 88,720 312225 70.999 2(6438

Shen Ter,. Pm\6oNs 16 7274 25.599 8536 24.819

Payab:cs !o:*accBer±s 85 2fL8 73228 16.051 46.678

Oıhcr[urrenl Liabilities 88 16.636 58.548 6.131 19.856

Non Current LiaIities 427.656 1.505.009 460.830 1339.911

I.nng TcnnBorowings 7 102.715 368.476 (68.450 489.786

Financial Dedative Inslmn’tnts 6 67 237 7.326 21.305

Pmvisions for En’(loyce Benc0ts 15 66.198 231.965 70.637 205.385

Defencd TaLiabiIiıies 27 258.676 910.331 214.417 623.410

tm’ 2.41 1,176 8.485A1 1 2168233 6395.113

Stacapital 20 1.474.105 1.474.105

lnf.atian Adi’jslnrn: :o CaitaI 20 85 8M 85 8M

OıhcrCcnçrchcısivc kcontEcnscNo:!o bcRecassifrito PmfL’(Loss) (18.698) (38.758) (l9.%I) (51.765)

.401110fi01 (Loss4 Gam Funüs 20 (18 6984 (48 758) (/9.061) (51.765)

0therCoşchensiveIncoın/EenscıobeRecIassiflcd la I’mlit/([üss) (2.1(8) 392.758 (4.148) 2.105.316

Cash F(oır Ikdging Gam (Loss 20 (2.118) (4.148) (12.060)

Foreign Currency Trans/afion Resen’es 20. 3.550 212 . 2.117,376

Restrioted Rcscres Assoıicd fmmPro0t 20 94473 240.817 68.808 165.142

Retained Eamings 20 550.972 937.581 537.563 %1.013

NelProO ibrlhePe±d 312357 942.849 2)8.588 575243

TOTAL LIAB1LES AND EQUTV 3397,686 11.956.889 3.050391 8.869316

The accompanying notes form an integral pan of these financial statements.

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5

(Convenience Translation into Enghsh of Financial Statements Originaliy lssued in Turkish—See Note 33)


STATEMENT OF CASH FLOW FOR THE YEAR ENDED 31 DECEMBER 2016(Arnouoıls are exprcsscd as Thousaoıd Turkish Lira (“TRV Thousand’) unlcss othcnvise indica(cd.)

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The accompanying notes form an integral pan of these financial staıemenLs.

1 lndilrd) (hadi ad) ) ladiled)

6

(Convenience Translation into English of Financial Statements Originally lssued in Turkish — See New 33)


NOTES TO THE FINANCİAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Amounts are cxprcssed as Thousand Turkisi, Lira (TRY Thousand”) unlcss olhcnvise ındicaled)

NOTE 1- COMPANY’S ORGANIZATİON AND NATURE OF OPERATİONS

Iskenderun Demir ve Çelik A.Ş. (“the Company”) registered in 12 November 1968 and pııblished at 19November 1968 in the İrade registry gazette. The Company eslabhished in 3 October 1970 in thesouthern of Turkey on the Mediterranean coast in the distance of 17 km from Iskenderun in Payasregion. The principal activities of the Company are production and sale of iron produets, fiat and longsteel products and their by-products. The Company’s main products are billet,slab,coil,plate,wire rodand by-products are coke,benzol,ammonium sulphate and slag.

The Company had become an affihiated company of the Turkish Iron and Steel Administration withthe decision no 93/T-85 dated September 10, 1993 of Supreme Planning Comrnittee.Then with thedecision no 98/20 of Privatization Comminee dated March 2, 1998, the Company was transferred toTurkish Privatization Administration.Ultimatehy, shares of the Company vere transferred to EreğliDemir ve Çelik Fabrikaları T.A.Ş. (“Erdemir”) in 31 January 2002 by the Turkish PrivatizationAdministration with dıe decision no 200 1/08 which dated Februan 8, 2001. The immediate parent ofEreğli Demir ve Çelik Fabrikaları T.A.Ş is Ataer Holding A.Ş. The ııltimate controlling party is OrduYardımlaşma Kurumu.

The main operations of the subsidiary company and the share percentage of the İsdemir for the companyare as follows:

Country of 2016 2015Name of the Company Operation Operation Share % Share %Teknopark Hatay A.Ş. Turkey RSD Centre 5 5İsdernir Linde Gaz Ortaklığı A.Ş. Turkey Ener’ 50 -

As of 18 November 2016, Isdemir Linde Gaz Ortaklığı A.Ş. has been estabhished through 50%-50%partnership with the Linde Gaz A.Ş. in order to supply the additional industrial gases required for theCompany’s production and to reduce the costs with an effective and efflcient management. lsdemirLinde Gaz Ortaklığı A.Ş. which wilI be recognised by using the equity pick-up metlıod is not includedin the financial statements as of the reporting period. by reason of not functioning yet, and ıhat thefinancial statemenis are not affected significantly (Note 5).

The registered address of the Company is Karayılan Beldesi, 31319 Iskenderun/HATAY.

The number of the personnel employed by the Company as at 31 December 2016 and 31 December2015 are as follows:

3 1 December 201 6 3 1 December 201 5Personnel Personnel

Paid Hourly Personnel 3.286 3.446Paid Monthly Personnel 1.742 1.816

5.028 5.262

7

(Convenience Trunslation into English of Financial Statements Originaliy Issued in Turkish — See Note 33)

ISKENDERUN DEMİR VE ÇELİK A.Ş.

NOTES TO THE FINANCİAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Amounts ait cxpressed as Thousand Turkısh Lira (‘TRY Timosand’) unlcss otlıcrwise indicaled.)

NOTE 2- BASIS OF PRESENTATİON OF THE FINANCİAL STATEMENTS

2.1 Basis of Presentation

The Company maintains its legal books of account and prepares their statutory financial staternents(“Statutory Financial Statements”) in accordance with accounting principles issued by the TurkishCommercial Code (“TCC9 and tax legislation.

The Company’s financial statements and diselosures have been prepared in accordance wiih thecomrnuniqu numbered 11-14,1 “Cornmuniqu on the Principles of Financial Reporting in CapitalMarkets” (“the Cornrnunique’) announced by the Capital Markets Board (“CMB”) (hereinafter wiil bereferred to as “the CMB Accounting Standards”) on 13 June 2013 which k published on OfflcialGazette numbered 28676. The CMB Accounting Standards contains Turkish Accounting Standards andTurkish Financial Reporting Standards with iheir notes and interpretations.

in accordance with article 511 of the CMB Repoding Standards, companies should apply TurkishAccounting Standardsrfurkish Financial Reporting Standards and its interpretations issued by thePubiic Oversighı Accounting and Audiling Standards Authority ofTurkey (“POA”).

Functional and Reporting Currency

TRY k accepted as the Company’s funetional and presentation currency until 30 June 2013. Dııe tochanges in sale and collection policies of Cornpany. the functional currency changed frorn TRY to USDollars in accordance with TAS 21 (The Effects of Foreign Exchange Rates”) starting from the 1 iuIy2013. Therefore the Cornpany’s functionai currency k US Dollars as of 31 December 2016 and 31December 2015.

Presentation currency translation

Presentation currency of the financial staternents is TRY. According to IAS 21 (“The Effects ofClıanges in Foreign Exchange Rates”) financial statements that are prepared in USD Dollars for theCompany have been translated in TRY as the following method:

a) The assets and liabilities on financial position as of3 1 December 2016 are transiated from USDDoilars into TRY using the Central Bank ofTıırkey’s exchange mte which is TRY 3,51 92US $1 and TRY 3.7099=EUR 1 on the balance sheet date (3! December 2015: TRY 2,9076= US 5, TRY 3,1776=EUR 1).

b) For the tweive months period ended 31 December 2016, incorne statements are translated fromthe average TRY 3,0185 = US$1 and TRY 3,3377=EUR 1 rates of 2016 Januaıy - Decemberperiod(31 December20l5:TRY2,7187US$ 1 TRY3,0181 = 1 EUR).

c) Exchange differences are shown in other comprehensive income as of foreign currencytranslation reserve.

d) The ditferences between presentation of statutory and historical figures are recognised astnnslation differences under equity. Ali capital, capital measures and other measures arerepresented with their statutoıy figures. other equity accounts are represented with their historiccost figures in the accompanying flnanciai statemenıs.

8

(Convenience Translation into English of Financial Statemerus Originally lssued in Turkish — See Note 33)

İSKENDERUN DEMİR VE ÇELiK A.Ş.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Amounts are exprcsscd as Thousand TtırLish Lira (TRY Thousand) unless otIıcnise ındicaıcd.)

NOTE 2- BASIS OF PRESENTATİON OF THE FINANCİAL STATEMENTS (cont’d)

2.1 Basis of Presentation (cont’d)

USD amounts presented in the financial statements

The figures in USD arnounts presented in the aceompanying financial staternents comprising thestatements of financial position as of 31 December 2016 and 31 December 2015, statement of incomeand oılıer coınprehensive incorne. and statement of cash flows for the year ended 31 December 2016representing the financial staternents within the frame of functional currency change that the Companyhas made. which is effective as ofiuly l, 2013. prepared in accordance with the TAS 21- Effects ofChanges in Foreign Exchange Rates.

Goma concern

The Cornpany prepared its financial slaternents in aceordance with the going concern assumption.

Approval of the financial statements

The financial statements liave been approved and authorized to be published on 07 Februaıy 2017 bythe Board of Directors. The General Asseınbly has the authority to revise the financial statenıents.

2.2 Changes in Accounting Estimates and Errors

The ehanges in accounting estimates affecting the current period are recognized in the current period,the changes in accounting estimates affecting both in the current and future periods, prospectively.Where İhere are no transition requirements for any changes or optional signiflcant changes in accountingpohicies and identifled accounting errors, those are apphied retrospectively and prior period financialstatements are restated aceordingiy.

2.3 Comparative Information and Restatement of Financial Statements with Prior Periods

The Company’ s financial statements are presented in accordance with the communiqu numbered 11-14.1 “CornmuniquĞ on the Principles of Financial Reporling in Capital Markets” (“the Communiqu”)announced by the Capital Markets Board (“CMB”). The Company’s financial statements are preparedin comparison with the previous period in order to allow for the determination of the financial positionand performance trends in accordance with a new illustrative financial statements and guidance that hasbeen eftective frorn the interim periods ended afler 30 June 2013.

Reclassiflcations at financial position are as follows:

(PreviouslyReported) (Restated) (Difference)

1 January- 1 January- 1 JanuaıyAccount 31 December 2015 31 December 2015 31 December 2015

Finance Expense (312.680) (99.622) 213.058

Deferred Tax (Expense)İlncome 61.146 (151.912) (213.058)

(1) Foreign exchange loss from deferred tax base amounting to TRY 213.058 thousand which verereported under “Finance Expense” was reciassifled to “Deferred Tax (Expense) Income” on thestatement of income for the year ended 31 December 2015.

9

(Convenience Transiation into English of Financial Statements Originaliy Issued in Turkish — See Note 33)

İSKENDERUN DEMiR VE ÇELİK A.Ş.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Amounts m-e exprcsscd as Thousand Turkish Lira (TI(Y Thousand) unless othcnvise indicated


2.4 Significant Judgments and Estimates of the Company on Application of Accounting Policies

The Company makes estimates and assumptions prospectively while preparing its financial statements.These accounting estimates are rareiy identical to the actual restılts. The estimates and assumptions thatmay cause signiflcant adjustınents to the canying values of assets and liabiLities in the following reportingperiods are listed below:

2.4.1 Useful lives of property, plant and cquipment and intangible assets

The Coınpany calculates depreciation for the flxed assets by taking into account tlıeir production amountsand useful lives that are stated in Note 2.7.3 and 2.7.4 (Note 12, Note 13).

2.4.2 Deferred tax

The Company recognizes deferred tax on the temporaiy tirning differences between the canyingamounts of assets and liabilities in the financial statements prepared in accordance with TAS andstatuton’ financial statements which is used in the computation oftaxabie profit. The related differencesare generally due to the timing difference of the fax base of some income and expense items betweenfinancial staternents prepared in accordance with statııtory and TAS (Note 27).

2.4.3 Fair values of derivative financial instruments

The Coınpany values its derivative (inancInI instnıments bv tısing the foreign exchange and interest rateestimations and based on the valuation estimates of the market vaiues as of the balance sheet date (Note6).

2.4.4 Provision for doubtful receivables

Allowance for doubtfui receivables reflect the future ioss tlıat the Company anticipates to incur fromthe trade receivables as of the balance sheet date which is subject to collection risk considering thecurrent economic conditions. During the impairment test for the receivables, the debtors are assessedwith their prior year performances. their credit risk in the current market, their performance after thebalance sheet date up to the issuing date of the financial statements; and also the renegotiation conditionswith these debtors are considered. The provision for doubtful receivables is presented in Note 8 and Note9.

2.4.5 Provision for inventories

During the assessment of the provision for inventoıy the foilowing are considered; analyzing theinventories physicaily and historically, considering the employment and usefuiness of the inventoriesrespecting to the technicai personnel view. Sales prices ilsted and related data by sales prices ofreaiizedsales after balance sheet date, average discount rates giyen for sale and expected cost incurred to seliare used to determine the net realizable value of the inventories. As a result of this. the provision forinvenıories wiıh the net realizable vaiues below the costs and the slow moving inventories are presentedinNote 10.

2.4.6 Provisions for empioyec beneflts

Actuarial assumptions about discount rates, infiation rates, future salary increases and empioyeeturnover rates are made to calculate the Company’s provision for employee beneflts. The details reiatedwith the defined benefit plans are stated in Note 15.

I0

(Convenience Translation into English of Financial Statemenis Originally Issued in Turkish — See Note 33)


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Anmonis are cxprcsscd as Thousand Turkish Lira (‘TRY Thousand) unless olhcnvisc indicalcd


2.4 Significant Judgments and Estimates of the Company on Application of Accounting Policies(cont’d)

2.4.7 Provision for lawsuits

Provision for lawsııits is evaluated by the Companv Management based on opinions of Company’sLegal Council and legal consultants. The Cornpany Managernent delermines the amount of provisionsbased on best estimates. As of the balance sheet dale, the provision for lawsuits 15 stated in Note 16.

2.4.8 lmpairments on Assets

The Company performs impairment tesis for assets tlıat are sııbject to depreciation and amortization incase of being not possible lo prevent recovery of the asseis al each reporting period. Assets are carriedat the lowest levels which there are separately identifiable cash flows for evaluation of impairment (cashgenerating units). As a result of the impairrnent works performs by the Cornpany ınanagement, as ofthe reporting date any impairment except calcıılated provision on non-financial assets has not beenestirnated.

2.5 Offsetting

Financial assets and liabilities are offset and the net amoıınts are reported with their net values in thebalance sheet where either there k a legally enforceable right to offset the recognized amounts or thereis an intention to settle on a net basis. or realize the asset and senle the liability simultaneouslv.

2.6 Adoption of New and Revised Financial Reporting Standards

The accounting policies adopted in preparation of the financial statements as at 31 December 2016 areconsistent with ihose of the previous financial year, except for the adoption of new and arnended TFRSand TFRIC inıerpretations effective as of 1 January 2016. The effects of these standards andinterpretations on the Company’s financial position and performance have been disclosed in the relatedparagraphs.

The new standards, amendments and inlerpretations which are effective as at 1 Januaı 2016 are asfollows:

TERS Il Acquisition of an Interest in a Joint Operation (Amendment)

TERS 11 k arnended to provide guidance on the aceoıınting for acquisitions of interests injoint

operations in which the activity constitutes a business. This amendment requires the acquirerofan interest in ajoint operation in which the activity constitutes a bıısiness, as defined in TERS3 Business Combinations, to apply alI of the principles on business combinations accounting inTFRS 3 and other TFRSs except for those principles that conflict with the guidance in thisTERS. in addition. the acquirer shall disclose the information required by TERS 3 and otherTFRSs for business combinations. The Company is in the process of assessing the irnpact ofthe standard on financial position or performance of the Company.

TAS 16 and TAS 38 - Clariflcation of Acceptable Methods of Depreciadon and Amortisation(Amendments to TAS 16 and TAS 36)

The amendments to TAS 16 and TAS 38, have prohibited the use of revenue-based depreciationfor property, plant and equipment and signiflcantly limiting the use of revenue-basedamortisation for intangible assets. The amendments did not have an impact on the financialposition or performance of the Company.

Il

(Convenience Translation into English of Financial Staternents Originaliy lssued in Turkish — See Note 33)

ISKENDERUN DEMİR VE ÇELiK A.Ş.

NOTES TÜ THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(AmrnınLs are cxpresscd as Thousand TurLish Lira (‘TRY 1housand’) unlcss olhcnvisc indicated.)


2.6 Adoption of New’ and Revised Financial Reporting Standards (cont’d)

The new standards, amendments and interpretations which are effective as at 1 January 2016 are asfollows: (cont’d):

e TAS 16 Property, Plant and Equipment and TAS 41 Agriculture — Bearer Plants (Amendment)

TAS 16 is amended to provide guidaııce that bearer plants, such as grape vines. rubber treesand oil paims shouid be accounted for in the same way as property. plant and equipment in TAS16. Once a bearer plant is mature, apart from bearing produce, its biological transformation 15no longer signiflcant in generating future economic beneflıs. The only signiflcant futureeconomic benefits it generates come from the agricultural produce that it creates. Because theiroperation 15 similar to that of manufacturing. either the cost model or revaluation model shouldbe applied. The produce growing on bearer plants wili remain within the scope of TAS 41,measured at fair value less costs to seli. The amendment did not have an impact on the financiaiposition or performance of the Company.

• TAS 27 Equity Method in Separate Financial Statements (Amendments to TAS 27)

Public Oversight Accounting and Auditing Standards Authority (POA) of Turkey issued anamendment to TAS 27 to reslore the option to use the equity method to account for investmentsin subsidiaries and associates in an entity’s separate flnanciai statements. Therefore, an entitymust account for these investments either:

o At costo La accordance with IFRS 9, Oro Using the equity method defined in TAS 28

The entity must apply the same accounting for each categoıy of investments. The amendmentis not apphicable for the Company and did not have an impact on the financial position orperformance of the Company.

• TFR5 10 and TAS 28: Sale or Contribution ofAssets behveen an Investor and its Associate orJoint Venture (Amendments)

Amendments issued to TFRS 10 and TAS 28, to address the acknowledged inconsistencybetween the requirements in TFRS 10 and TAS 28 in dealing with the loss of control of asubsidiary that is contributed to an associate or a joint venture, to clarify that an investorrecognises a full gam or loss on the sale or contribution of assets that constitute a business, asdefined in TFRS 3, between an investor and its associate or joint venture. The gam or lossresulting from the re-measurement at fair value ofan investment retained in ü former subsidiaıyshould be recognised only to the extent of unrelated investors’ interests in that formersubsidiary. The amendment did not have an impact on the financial position or perfonnance ofthe Company.

12

(Convenience Translation irno English of Financial Statements Originally Issued in Turkish — See Note 33)


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMRER 2016(AmounLs are cxprcssed as Tbousand Turkish Lira (TRY Thousand) unlcss othenvisc indicated


2.6 Adoption of New and Revised Financial Reporting Standards (cont’d)

The new standards, amendrnents and interprelaiions which are effeetive as at 1 January 2016 are asfollows: (cont’d):

TFRS 10, TFRS 12 and TAS 28: lnvestment Entities: Applying the Consolidation Exception(Amendments to IFRS 10 and IAS 28)

in February 2015, Amendrnents issued to TFRS 10, TFRS 12 and TAS 28, to address thefoliowing issues that have arisen in applying İlie investment entities exception ıınder TFRS 10Consolidated Financial Statements; 1) the exemption from presenting consolidated financialstatements applies to a parent entiiy that is a subsidiary of an investment entity. when theinvestmenl entiiy measures ali of its subsidiaries at fair value, ii) oniy a subsidiary that is notan investment entity itseif and provides support services to the investrnent entity isconsolidated. Ali other sııbsidiaries of an investment entity are measured al fair value. iii) theamendments to TAS 28 Investments in Associates and Joint Ventures ailow the investor, whenapplying the equity method. ta retain the fair value measıırernent applied by the investmententity associate orjoint venture ta its interesıs in subsidiaries. The amendment did not have anirnpact on the financial position or performance of the Cornpany.

• TAS 1: Disclosure Initiative (Amendrnents to TAS 1)

The amendments issued lo TAS 1. Those amendrnents include narrow-focus improvements inthe foliowing fıve areas: Materiality, Disaggregation and subtotals, Notes structure, Disclosureofaccounting policies, Presentation of items of other comprehensive income (OCI) arising fromequity accounted investments. The amendment did not have an impact on the financial positionor performance of the Cornpany.

Annual Improvements to TFRSs - 2012-2014 Cycle

POA issııed. Annual lrnprovements to TFRSs 2012-2014 Cvcle. The document sets mit fiveaınendments to four standards. excluding those standards that are consequentially amended, and therelated Basis for Concitısions. The standards affected and the subjects of the amendments are:

• IFRS 5 Non-current Assets Heid for Sale and Discontinued Operations — clarities that changesin methods of disposal (through sale or disiribution to owners) would not be considered a newplan ofdisposai, rather it is a continuation of the original plan

• IFRS 7 Financial Instruments: Diselosures — ciarifles İhat the assessment ofservicing contractsthat includes a fee for the continuing involvement of financial assets in accordance with IFRS7; the offseuing diselosure requirements do not apply ta condensed interim financial statements,

• IAS 19 Employee Beneflts — clarifies İhat market depth of high quality coşomte bonds isassessed based on the currency in which the obligation is denominated, rather than the countrywhere the obligation 15 located.

13

(Convenience Translation mü English of Financial Statements Originaliy Issued in Turkish — See Note 33)


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMI3ER 2016(Anıounts arc cxprcsscd as Thousand Turkish Lira (TRY Thousand) unlcss otlıcnvise ndicaıcdj



Annual Improvements to TFRSs - 2012-2014 Cycle (cont’d)

IAS 34 Interim Financial Reporting —clarifles that the required interim disclosures mııst eitlıerbe in the interim financial statements or incorporated by cross-reference between the interimfinancial statements and wherever they are inclııded withiıı the interim financial report.

The amendmenıs did not have an impacı on the financial position or perfonnance of the company.

Sıandards issued but not vet effective and not early adopted:

Standards. interpretations and ameııdments to existing standards that are issued but not yet effective upto the date of issuance of the financial statements are as follows. The Company wilI make the necessarychanges if not indicated otherwise. which vill be affecting the financial sıalements and diselosures.when the new standards and interpretations become effective.

• TFRS 15 Revenue from Contracts wiih Customers

in September 2016, POA issııed TFRS 15 Revenue from Contracts with Cııstorners. The newstandard issued includes the clarifying amendments to IFRS 15 made by IASB in April 2016.The new üve-step model in the standard provides the recognition and measurementrequirements of revenue. The standard applies to revenue from contracts with customers andprovides a model for the sale of some non-financial assets that are not an output of the entiwsordinary activities (e.g.. the sale of property, plant and equipment or intangibles). TFRS 15effective date is Januarv 1,2018. with early adoption pennitted. Entities wiil transition to thenew standard following either a full retrospective approach or a modifled retrospectiveapproach. The modifled retrospective approach would allow the standard to be appliedbeginning with the current period. with no restatement of the comparative periods. butadditional disclosLıres are required. The Company is in the process of assessing the impact ofthe standard on finanelal position or performance of the Company.

• TFRS 9 Financial Instruments

in January 2017, POA issued the final version of TFRS 9 Financial lnstruments. The finalversion of TFRS 9 brings together alI tlıree aspects of the accounting for financial instrumentsproject: elassification and measuremeııt, impairment and hedge accoıınting. TFRS 9 is bullt ona logical, single ciassification and measurement approach for financial assets that reflects thebusiness model in which they are managed and their cash flow characteristics. Built upon thisis a fonvard-looking expected credit loss model that wilI result in more tirnely recognition ofban losses and is a single model that is applicable to alI financial instruments subject toimpairment accounting. bn addition. TFRS 9 addresses the so-cabled ‘own credit’ issue,whereby banks and others book gains through profit or loss asa result of the value of their owndebt fabling due tü a decrease in credit worthiness wlıen they have elected to measure that debtat fair value. The Sıandard also includes an improved hedge accounting model to bener link theeconomics of risk management with its accounting treatment. TFRS 9 is eWective for annualperiods beginning on or afler 1 ianuaıy 2018, with earby application permitted by applying alIrequirements of the standard.

14

(Conyenlence Translation into English of Financial Statements Originaliy Issued in Turkish — See Note 33)


NOTES TÜ THE FINANCİAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Arnounts are cxprcsscd as Thousand Turkislı Lira (TRY i]ıousand] unlesı otlıcnvisc indicaıcd

NOTE 2— BASIS OF PRESENTATİON OF THE FINANCİAL STATEMENTS (cont’d)


Standards issued but not yet effective and not eariy adopted (cont’d):

TFRS 9 Financial instrunients (cont’d)

Aitematively, entities may eiect to early apply oniy the requirernents for the presentation ofgains and losses on financial liabilities designated as FVTPL without applying the otherrequirements in the standard. The Cornpanv has performed a high-ievel irnpact assessınent ofTFRS 9. This preliminary assessment k based on currentiy available information and may besubject to ehanges arising from furiher detailed analyses or additional supportable informationbeing made avaliable to the Company in the future. The Company 15 in the process ofassessingthe impact of the standard on fınancial posilion or performance of the Cornpaııy.

The new standards, arnendments and interpretations that are issııed by the international AccountingStandards Board (IASB) but not issued by Pubiic Oversight Authority (POA):

The foiiowing standards, interpretations and amendments lo existing IFRS standards are issued by ilieIASB but not yet effective up to the date of issuance of the financial statements. However, thesestandards, interpretations and amendrnents to existing IFRS standards are not yet adapted/issued by thePOA. thus tlıey do not constiwte part of TFRS. The Company wili make the necessaıy changes to itsfinancial statemenis afler the new standards and interpretations are issued and become effective underTFRS.

• IFRS 10 and IAS 28: Sale or Contribution ofAssets between an investor and its Associate orJoint Venture (Arnendments)

in December 2015, the IASB postponed the effective dale of this arnendment indefiniteiypending the onicome of its researeh project on the equity method of accounting. Earlyapplication of the amendrnents k stili permined.

Annual Improvements — 2010—2012 Cycle

• IFRS 13 FairValue Measurement

As clarifıed in the Basis for Conclusions short-term receivables and payabies with no statedinterest rates can be heid at invoice amounts when the effect of discounting k immaterial. Theamendment is effective immediately.

15



NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Amourns are cxprcsscd as Tlıousand Turkislı Lira CTRY Thousand) unlcss oflıcrwisc ındica[cd


2.6 Adoption of Ncw and Revised Financial Reporting Standards (cont’d)

Annual Improvements — 2011—2013 Cycle

IFRS 16 Leases

The IASB has pııblished a new standard, IFRS 16 Leases’. The new standard brings nıosl leaseson-balance sheet for Iessees under a single model, eliminating the distinetion between operatingand finance eases. Lessor accounting however remains largeiy ıınchanged and the distinctionbetween operating and finance leases is retained. IFRS 16 supersedes IAS 17 Leases’ andrelated interpretations and is effective for periods beginning on or after January 1, 2019, withearlier adoption permilled ifIFRS 15 ‘Revenue from Contracts with Customers’ has also beenapplied. The Company is in the process of assessing the impact of the standard on financialposition or perfonnance of the Company.

IAS 12 lncome Taxes: Recognition of Deferred Tax Assets for Unrealised Losses(Amendrnents)

The IASB jssued amendrnents to RS 12 Incorne Taxes. The amendments cIari’ 1mw toaccount for deferred tax assets related to debt instruments measured at fair value. Theamendments cIarif’ the requirements on recognition ofdeferred tax assets for unrealised losses,to address diversity in practice. These amendments are to be retrospectively applied For annualperiods beginning on or after Januaıy 1,2017 with earlier application permitted. However, oninitial application of the amendment, the change in the opening equity of the earliestcomparative period may be recognised in opening retained eamings (or in another cornponentofequity. as appropriate), without allocating the change between opening retained earnings andother components of equity. If the Company applies this relief. it shall disclose that fact. TheCompany is in the process of assessing the impact of the arnendments on financial position orperformance oftlıe Company.

• IAS 7 Staternent of Cash Flows (Amendments)

The IASB isstıed amendments to IAS 7 Statement of Cash Flows. The amendments areintended to cIarif’ IAS 7 to improve information provided to users of financial statements aboutan entity’s financing activities. The irnprovements to disclosures require companies to provideinformation about changes in their finaneing Iiabilities. These amendments are to be appliedfor annual periods beginning on or after Januaıy 1, 2017 with earlier application permitted.When the Company first applies those arnendments, it is not required to provide comparativeinformalion for precedin periods. The Company is in the process of assessing the impact ofthe amendments on financial position or performance of the Company.

• IFRS 2 Classification and Measurernent of Share-based Payment Transactions (Amendments)

The IASB issued arnendments to IFRS 2 Share-based Payment. cIarifing how to account forcertain types of share-based paymeni transactions.

16

(Convenience Translation into English of Financial Statements Originaliy Issued in Turkislı — See Note 33)


NOTES TÜ THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 3! DECEMBER 2016(,rnounts are exprcssed as ihousand Tıırkish Lira (“II<Y Thousand’) unlcss olhcnvisc indicaled.)



Annual Improvements —2011—2013 Cycle (cont’d)

IFRS 2 Ciassification and Measureıuent of Share-based Payrnent Transactions (Amendrnents)(cont’d)

The arnendrnents, provide requirements on the aceounting for:

a) The effects of vesting and non-vesting conditions on the measurement of cash-seuledshare-based payments,

b) Share-based payrnent transactions with a net settlement feature for withholding taxobligations. and

e) A modification to the İerms and conditions of a share-based payment tlıat changes theciassification of the transaction from cash-settled to equity-senled.

These arnendrnents are to be applied for annual periods beginning on or after 1 January 2018.Earlier application k permitted.

IFRS 4 Insurance Contracis (Arnendments)

in September 2016, the IASB issued amendments to IFRS 4 Insurance Contracts. Theamendınents introduce two approaches: an overlay approach and a deferral approach. Theamended Standard wiil:

a) Give alI companies that issue insurance contracts the option to recognise in olhercornprehensive incorne, rather than profit or loss, the volatility that eould arise whenIFRS 9 Financial instruments k applied before the new insurance contracts Sİandard kissued; and

b) Give companies whose activities are predominantiy connected with insurance anoptional temporary exemption from applying IFRS 9 Financial instruments unlu 2021.The entitles that defer the application of IFRS 9 Financial instrııments viIl continue 10apply the existing financial instruments Standard—IAS 39.

These amendments are to be applied for annual periods beginning on or after 1 Januaıy 2018.Earlier appiication is permilled.

IAS 40 investment Property: Transfers of Investment Properiy (Amendments)

The IASB issued amendments tü IAS 40 lnvestrnent Property . The amendments state that achange in use occurs when the properiy meets, or ceases to meet, the definition of investrnentproperty and there is evidence of the change in use. These amendments are tü be appiied forannual periods beginning on or after 1 January 2018. Enrlier application is permifled.

17



NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Arnounls are exprcssed as Dıousand Turkish Lira (TRY Tlıousand) unlcss othen’ ise indicaled.)


2.6 Adoption of New and Revised Financial Reporting Slandards (cont’d)

Annual Improvements — 2011—2013 Cycle (cont’d)

IFRIC 22 Foreign Currency Transacrions and Advance Consideration

The interpretation ciarifles the accounting for transactions that include the receipt or paymentofadvance consideration in a foreign cıırrency.

The Interpretation states that the date of the transaction for the purpose of detennining theexehange rate to use on initial recognition of the relaled asset, expense or income is the date onwhich an enlity initially recognises the non-monetaıy asset or non-monetary Iiability arisingfrom the payrnent or receipt of advance consideration. An entity is not required to appiy thislnterpretation to incorne taxes; or insurance contracts (inclnding reinsurance contracts) it issuesor reinsurance contracts that it holds.

The interpretation is efl’ective for annual reporting periods beginning on or aher 1 January 2018.Earlier application is permitted.

Annual Improvements 10 IFRSs - 2014-2016 Cyclc

The IASB issued Annual Improvements to IFRS Standards 2014—2016 Cycle, arnending the followingstandards:

• IFRS 1 First-time Adoption of international Financial Reporting Standards: This amendrnentdeletes the shod-term exemptions about sorne IFRS 7 disclosures, IAS 19 transition provisionsand IFRS 10 Investrnent Entities. These amendments are to be applied for annual periodsbeginning on or after 1 Janııaıy 2018.

• IFRS 12 Disclosure of Interests in Other Entities: This amendment ciarifles that an enrity is notrequired to disclose summarised (inancial information for interests in subsidiaries, associatesorjoirn ventures that is classifled. or included in a disposal compan that is ciassifled. as heidfor sale in accordance with IFRS 5 Non-cıırrent Assets Heid for Sale and DiscontinuedOperations. These amendments are 10 be applied for annual periods beginning on or after 1Januaıy 2017.

• IAS 28 Investments in Associates and Joint Ventures: This amendment ciarifles that theelection to measııre an investment in an associate or a joint venture held by, or indirectlythrough, a venture capital organisation or other qualifying entitş at fair value through profit orloss applying IFRS 9 Financial Instruments is available for each associate orjoint venture, althe initial recognition of the associate orjoint venture. These amendments are to be applied forannual periods beginning on or after 1 January 2018. Eariier application is permiued.

The Company is in the process of assessing the impact of the standard on financial position orperformance of the Company.

18

(Convenience Translation into Englkh of Financiai Statemerns Originaily Issued in Turkish — See Note 33)


NOTES TÜ THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Arnounts ara exprcssd as Timosand Turkish Lira (TRY Timusand’) unlcss oıhcnvisc indicaled


2.7 Valuation Principles Applicd / Significant Accounting Policics

Valuation principles and accounting policies used in the preparation of the financial staternents are asfoliows:

2.7.1 Revenuc recognition

Revenııe is measured at the fok vaiue of ilie received or receivable amount. The estimated cusiomerreturns, rebates, and other similar allowances are deducted from this amount.

Sale of ızoods

Revenne frorn the sale ofgoods k recognized when ali the foliowing conditions are satisfled:

• The Company transfers the significant risks and beneflts of the ownerslıip of the goods to the buyer:• The Company retains neither a con6nuing managerial invoivement usualiy associated with

ownership nor effective control over the goods sold;• The amount of revenue k measured reliably;• it is probable that econornic beneflts associated with the transaction wili flow to the Cornpany and• The costs incurred or to be incurred due to the transaction are measured reliably.

Dividend and interest revenue

Interest revenue is accrued ona time basis, by reference to the principal outstanding and ot the effectiveinterest rate appiicable, which is the roLe that exactly discounts the estimated future cash receiptsthrough the expected life of the financial asset to that asset’s net canying amount. The Cornpany’sinterest income from time deposits is recognized in financial income. The Company’s interest incomefrom sales with maturities is recognized in other operating income.

The Company’s dividend income from equity investrnents is recognized when shareholders can getdividends.

Rental income

Rental income from investment properties is recognized on a straight-Iine basis over the term of therelevant iease.

2.7.2 Inventorics

Inventories are valued at the iower of cost or net realizabie vaiue. The costs, including an appropriateportion of flxed and variabie overhead expenses, are assigned to inventories heid by the method mostappropriate to the particular ciass of inventory, with the majority vahued by using the monthly weightedaverage method. Net realizable value is the estimated seiiing price in the ordinary course of business,less estimated costs of completion and the estimated costs necessary to make the sale.

2.7.3 Propertv, plant and equipment

Property, plant and equipment purchased before 30 June 2013 are disclosed in the financial statementsat their indexed historical cost for infiation effects as at 30 June 2013, on the other hand the purchasesmade in 30 June 2013 and in later periods are presented nt their historicai cost, Iess depreciation andimpairment loss.

19



NOTES TO THE FINANCİAL STATEMENTS FOR THE YEAR ENDED 31 DECEMHER 2016(Amounıs are cxprcsscd as 1housand Turkish Lira (TRY Thoı,sand) unlcss othcnvise indicated.)

NOTE 2- BASIS OF PRESENTATİON OF THE FLNANCIAL STATEMENTS (cont’d)

2.7 Valuation Principles Applicd / Significant Aceounting Policies (cont’d)

2.73 Property, plant and equipment (cont’d)

Except for Iand and construetion in progress, other tangible assets are depreciated aceording to straightline basis or uniis of production method basis using the expecled ııseful lives and production amountsof the assets.

The carrying values of property, plant and equiprnent are reviewed for impairment when events orchanges in circumstances indicate the carrying value may not be recoverable. If any such indicationexists and where the carıying values exceed the estimated recoverable amount, the assets or cashgenerating uniis are written down to their recoverable amounts. The recoverable amount of property,plant and equipment k the greater of net selling price and value in use.

in assessing the value in use, the estimated future cash flows are discounted to their present values usinga pre-tax discount rate that reflects current market assessrnents of the time value of money and the risksspecific to the asset. For an asset that does not generate largeiy independent cash inflows. therecoverable amount is detennined for the cash-generating unit to which the asset belongs. lınpairmentlosses are recognized in the income staternent.

The rates that are used to depreciate the flxed assets are as followsRates

Buildings 2-16%Land improvemenıs 2-33% and units of production levelMachineıy and equipment 3-50% and units of production levelVehicles 5-25% and units ofproduction levelFurniture and fixtures 5-33%Other tangible flxed assets 5-25%

2.7.4 Intangible assets

Intangible assets purchased before 30 June 2013 are recognized at their acquisition cost indexed forinfiation effects as at 30 June 2013, on the other hand the purchases made in and after 30 June 2013 arerecognized aL acquisition cost less any amortization and impairment loss. Intangible assets are amortizedprincipaliy on a straight-line basis over Iheir estimated useful lives and production amounts. Theestimated useful life and amortization method are reviewed at the end ofeach annual reporting period,and any changes in the estimate are accounted for on a prospective basis.

The amortization rates of the intangible assets are stated below:

RatesRights 2-33%

2.7.5 Impairment of assets

Assets sııbject to depreciation and amortization are tested for impairment when events or changes incircumstances indicate the carrying value may not be recoverable. An impairıneni Ioss is recognized forthe amount by which the asset’s carıying amount exceeds its recoverable amount. The recoverableamount is the greater of net selling price and value in use.

20

(Convenience Translation into English of Financial Statements Originally lssued in Turkish — See Note 33)


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Anıounts are cxprcsscd as Tlıousand Turkish Lira CTRY Tlıousand) unless othcnvisc indicated.)


2.7 Vatuation Principles Appiied / Significant Accounting Policics (cont’d)

2.7.5 Impairmeut of assets (cont’d)

Recoverable arnounts are estimated for individual assets (for the cash-generating unu). Non-tinancialasseis that are impaired are evaluated for reversal of impairment amount at each reporting dale.

2.7.6 Borrowing costs

Borrowing costs İhat are directly auributable to ilie aequisition, construction or production ofqualifyingassets. one that takes a substantial period of time to get ready for use or sale, are capitalized as pad ofthe cost of that asset in the period in which the asset is prepared for its intended ıse or sale. investmentrevenues arising from the temporary utilization of the unused portion of faciiity loans are netted offfrom the costs eligible for capitalization.

Ali other borrowing costs are recognized directly in the income statement of the period in wlıich theyare incurred.

2.7.7 Financial Instrumcnts

Financial assets and financial hiabilities are recognized in the Companvs balance sheet shen theCompany becomes a legal party for the contractııal provisions of the financial instmment.

Financial assets

Financial assets, are initialiy measured al fair value, less transaction costs except for those financialassets classifled as at fair value through profit or loss, which are initialiy measured at fair value. Alifinancial assets are recognized and derecognized ona trade dale where the purchase or sale ofa flnanciaiasset 15 under a contract whose terms require delivery of the financial asset within the timeframeestablished by the market.

Other financial assets are ciassifled into the following specifled categories: financial assets as ‘at fairvalue through profit or loss’, ‘held-to-maturity investments’, availabIe-for-sale financial assets’ andioans and receivables’. The classiflcation depends on the nature and purpose of the financial assets andis determiııed at the time of initial recognition.

Effec!iıe in!eres! me!hod

The effective interest rate method is a method ofcalculating the amortized cost ofa financial asset andof aiiocating the interest income over the relevant period. The effective interest rate is the ratio exactlydiscounts the estimated future cash receipts through the expected iife of the financial asset to the netpresent vaiue of the financial asset or in a shorter period where appropriate.

Incomes reiated to the debt instruments that are heid to maturity and are avaiiable for sale, and financialassets that are classifled as loans and receivabies are caiculated according to the effective interest ratemethod.

21

(Convenience Translation into English of Financial Statements Originaliy Issued in Turkish — Sec Note 33)


NOTES TÜ THE FINANCİAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Arnuunts are cxprcsscd as Tlıousand Turkish Lira CTRY Thousand’) unlcss othcnvise indicatctL)


2.7 Valuation Principles Applied / Significant Accounting Policies (cont’d)

2.7.7 Financial Instruments (cont’d)

Financial assets (cont’d)

Aıaikıbk for sakfinwıcial asse!s

Some of the shares and long term marketable securities heid by the Company are classifled as availablefor sale and recognized nt their fair values.

The financial assets. which are not priced in an active market and the fair value cannot be recognizedaccurately. are recognized at cost Iess accumulated impairrnents.

Gains and losses arising from changes in fair value are recognized directly in the investmentsrevaluation resen’e with the exception of irnpairrnent losses, interest calculated using the elTecriveinterest method and foreign exchange gains and losses on monelary assets which are recognized directlyin the incorne statement. Where the investment is disposed of or is determined to be impaired, thecumulative gam or Ioss previously recognized in the investments revaluation reserve is ineluded in theincome statement for the period.

Some of the shares and long term marketable securities heid by the Company are classifled as availablefor sale and recognized at their fair values.

Reccivahks

Trade receivables and other receivables are initially recognized at their fair value. Subsequently.receivables are measured at amortized cost using the efYective interest method.

hupairmenı offinancial asseıs

Financial assets, other than those at fair value through profit or loss. are assessed for indicators ofirnpairrnent at each reporting period. Financial assets are impaired where there 15 objective evidencethat, asa resıılt of one Dr more events that occLlrred after the initial recognition of the financial asset,the estimated future cash flows of the investment have been impacted.

For receivables, the amount of the impairment is the difference between the asset’s carrying amountand the present value of estimated future cash flows, discounted at the original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment ioss directiy for ali financialassets with the exception of trade receivables where the carrying amount is reduced through the use ofan allowance account. When a trade receivable is uncollectible. it is wrihen offagainst the allowanceaccount. Subsequent recoveries of amounts previously wrillen off are credited against the allowanceaccount. Changes in the carn’ing amount of the ailowance account are recognized in the incomestatement under general administrative expenses.

With the exception of available for sale equity instrııments, if. in a subsequent period, the amount ofthe impairment loss decreases and the decrease can be related objectively to an event occurring afterthe impairment was recognized, the previously recognized impairment loss is reversed through profitor loss to the extent that the carrying amount of the investment at the date the impairment is reverseddoes not exceed what the amortized cost would have been had the impairment not been recognized inrespect of available for sale equity securities, any inerease in fair value subsequent to an impairmentloss is recognized directly in the statement of comprehensive incorne.

‘T)

(Convenience Translation into English of Financial Staternents Originaliy Issued in Turkish — See Note 33)


NOTES TÜ THE FINANCİAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(AmoLınts are exprcsscd as Timosand Turkish Lira (‘TRY Thoıısand”) unlcss oIiıenisc indicated.)


2.7 Valuation Principles Applied / Significant Accounting Policics (cont’d)

2.7.7 Financial Jnstrumcnts (cont’d)

Financial assets (cont’d)

Cash and cash equh’aleııts

Cash and cash equivalents comprise cash on Iıand and dernand deposits and other slıort-term highlyliquid investments which their rnaturities are three-rnonths or Iess from date ofacquisition and that arereadily eonvertible to a known amount of cash and are subject to an insigniflcant risk of changes invalue. The carryng arnount of these assets approxirnates their fair value.

Financial Iiabilities

Financial liabilities and equity instruments ksued by the Company are classiüed aceording to thesubstanee of the contractual arrangements entered into and the definitions ofa financial Iiability and anequity instrument. An equity instrunıent k any contract that evidences a residual interest in the assetsof the Cornpany afler deducting alI of its liabilitles. The accounting policies adopted for speciflcfinancial liabilities and equity instrııments are set otu below.

Financial Iiabilities are classitied as either financial liabilities ‘at fair valuc through profit or loss’ orother financial Iiabilities.

OıIwrfiııanckıl liabilitles

Other financial Iiabilities are initially accounied at fair value, net oftransaction cosis.

Subsequently otlıer financial Iiabilities are accounted at amortized cost using the effective interestmethod, with interest expense recognized on an effective interest rate basis.

The effective interest method is a method of calculating the amortized cost of a financial liability andofallocating the interest expense to the relevant period. The effective interest rate k the rate that exactlydiscounts the estimated future cash payments through the expected life of the financial Iiability, or,where appropriate. a shofler period to the net carrving amount.

Derivative financial instruments and hedge accounting

Derivatives are initially recognized at cost of acquisition and are subsequently accounted to their fairvalue at the end of each reporting period. The method of recognizing the resuh of gam or Ioss isdependent on the nature of the item being hedged.

23



NOTES TO THE FINANCİAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Anıounts are cxprcsscd as Thousand Turkish Lira (TRY Thousand”) unkss olhcnvisc indicaled.)


2.7 Valuation Prirıciples Appiied / Significant Accounting Policies (cont’d)

2.7.7 Financial Jnstruments (cont’d)

Derivative financial instruments and hedEe accounting (cont’d)

On the date a derivative contraci k enlered into, the Cornpany designates certain derivatives as eiiher ahedge of the fair valııe of a recognized asset or Iiability (fair value hedge) or a hedge from changes thatcould affect the statement of income due to a specific risk in cash flow ofa forecasted transaction (cashflow hedge). Fair value of İlie Cornpany’s interest swap contracts is determined by valuation methodsdepending on anaiyzable market data.

Changes in the fair value of the derivatives İhat are designated and qııalifled as cash flow hedges andthat are highly effective. are recognized in equity as hedging reserve. Where the forecasted transactionor ünu commitrnent results in the recognition of an asset or a IiabiIity, the gains and losses previouslybooked under equity are İransferred frorn equity and ineluded in the initial measurement of the cost ofacquisition of the asset or liabiiity. Otlıerwise, amounts booked under equity are ıransferred to thestatement of incorne and ciassifled as revenue or expense in the period in which the hedged item affectsthe staternent of incorne.

When the hedging instrurnent expires, is sold, or when a hedge no longer rneets the criteria for hedgethan hedge accounting is tenninated. Any curnulative gam or loss existing in equity at that time rernainsin eqııiti and 15 recognized when the committed or forecasted transaction ultimately is recognized inthe staternent of incorne. However, ifthe hedged transaction is not realized. the cumulative gam or losstlıat was reported in equity is immediateiy transferred to the profit or loss of the current period.

The Company measures the derivative financial instrurnents held for fair value hedge purpose with theirfair vaiues and recognizes thern in the incorne statement under financial income/(expense).

2.7.8 The Effects of Foreign Exclıange Rate Changcs

The Company’s financial statements are enclosed with the functional curencv. The Cornpany’s financialposition and operating resuits are enciosed with the Turkislı Lira (“TRY”) which is presentation currencyof the financial staternents.

The Company records foreign curency (currencies other than the functional cureney of the relatedcornpany) transactions using exchange rates of the date the transaction is completed. Foreign curreneymonetary items are evaluated with exchange rates as of reporting date and arising foreign exchangeincome/expenses are recorded in statement of income. Ali monetary assets and Iiabiiities are evaluatedwith exchange rates of the reporting date and related foreign cunency transiation differences aretransferred to staternent of income. Non-monetaıy foreign currency items that are recognized al cost areevaiuated with historic exchange rates. Non-monetarv foreign currencv items that are recognized at fairvalue are evaluated with exchange rates of the dates their fair values are determined.

24

(Convenence Translation into English of FinancaI Statements Originaliy lssued in Turkish — See Note 33)


NOTES TO THE FINANCİAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Amounts arc cxprcsscd as Thousand Turkislı Lira (TRY 1]ıousand’) unlcss otlıcnvise indicated.)


2.7 Valuation Principles Applied / Signiiicant Accounting Policies (cont’d)

2.7.9 Subsequent Events

Subsequent events inelude ali events that take place between the balance sheet date and the date ofauthorization for the release of the balance sheet. aithough the events occurred after the announcernentsrelated to the net proflUloss or even after İlie public disclosure of other selective financial information.

in the case that events occur requiring an adjustment. the Cornpany adjusts the amounts recognized inits financial statements to reflect the adjustrnents after the balance sheet dale.

2.7.10 Provisions, Contingent Liabilitics and Contingent Assets

Provisions are recognized when the Cornpany has a present obligation asa result ofa past legal or subtleevent, where it is probable that the Cornpany wili be required to settle that obligation and when a reliableestimate can be made of the amount of the obiigation. Contingent liabilities are assessed continuouslyto determine the probabiliiy of outfiow of the economicaliy beneficial assets. For contingent liabilities.when an outflow of resources embodying econornic beneflts are probable. provision is recognized forthis contingent liability in the period when the probability has changed. except for the cases where areliable estimate cannot be made.

2.7.11 Related Partles

A related party is a person or entity that k related to repoding entity, the entity that k preparing itsfinancial staternents

(a) A person or a ciose member ofthat person’s family is related to a reporting entity ifthat person:

(1) has control orjoint control over the reporting entity:(ii) has signiflcant influence over the reporting entity; or(iii) is a member of the key management personnel of the reporting entity or of a parent of the

reponing entity.

(b) An entity is related to a reponin entity ifany of the foliowing conditions appiies:

(i) The entity and the reporting entity are members of the same company (which means that eachparent, subsidiary and fellow subsidiary is related to the others).

(ii) One entity k an associate orjoint venture of the other entity (or an associate orjoint ventureof a member of a company of which the other entity is a member).

(ili) Both entities arejoint ventures of the same third party.(Iv) One entity is ajoint venture of a third entity and the other entity is an associate of the third

ent it>.(v) The entity is a post-empioyment benefit plan for the benefit of employees of either the repofting

entity oran entity related to the reporting entity. If the reporting entity is itselfsuch a plan,the 5ponsoring employers are aiso related to the reponing entity.

(vi) The entiw is controlled orjointiy controlled by a person identifled in (a).(vii)A person identified in (a) (1) has signiflcant influence over the entity or k a mernber of the

key managernent personnel of the entity (or of a parent of the entity).

A related party transaction is a transfer of resources, services or obligations between a reporting entityand a related party, regardiess of whether a price k charged.

25

(Convenience Translation into Engiish of Financial Staternents Originaliy Issued in Turkish — See Note 33)


NOTES TÜ THE FINANCİAL STATEMENTS FÜR THE YEAR ENDED 31 DECEMBER 2016(Arnounts are exprcssed as Tlıousand Turkish Lira (TRY liıousand) unlcss ollıcnvise indicaled.)


2.7 Valuation Principles Applied / Signilicant Accounting Policies (cont’d)

2.7.12 Taxation and Dcfcrred Income Taxcs

Incorne tax expense represents the sum of the current tax and deferred tax.

Current tax

The tax currently payable is based on taxabie profit for the year. Taxable profit differs from profit asreported in the income statement because it excludes items of income or expense that are taxable ordeductible in future and it furiher excludes ilerns liıat are never taxabie or deduclible. The Company’sliability for current tax 15 calcıılated using ıax rates thıat have been enacted or subslantively enacled bythe balance sheet dale.

Deferred tax

Deferred tax is determined by calculating the ternporaıy differences between the carrying arnounts ofassels/Iiabilities in the financial statemenls and the corresponding lax bases, used in the computalion ofthe taxable profit. using currentiy enacled lax rales. Deferred tax Iiabihities are generaliy recognized forali laxable ternporaıy differences where deferred lax assets resuhling frorn deductible lemporarydifferences are recognized ta the extent that it is probable that future laxable profit wiil be availableagainst which the deduciible temporary difference can be utilized. Such assets and hiabiiities are notrecognized iflhe lernporaıy difference arises from goodwill or from the inilial recognition (other thanin a business combination) ofolher assels and liabiiities in a transaction that affects neilher the İaxableprofit nor the accounting profit.

Deferred tax liabihities are recognized for taxabie temporary differences associated with investrnents insubsidiaries and associates, and interests injoint venttıres, except where the Cornpany is able to controlthe reversal of the temporaiy difference and it is probable that the lemporaiy difference wiil not reversein the foreseeable fulure. Deferred tax assets arising from deductible temporaıy differences associatedwith such investments and inlerests are only recognized if it is probable that there wili be sufficienttaxable proflts against which to utilize the beneflts of the temporaıy differences and they are expectedto reverse in the foreseeable future.

The carıying amounl of deferred tax assels is reviewed at each balance sheet dale and reduced lo theextent Ihat it is no longer probable Ihat sufflcient taxable proflts wili be available to ailow alI or part ofthe assel to be recovered.

Defered tax assets and liabiiities are measured at the lax rates Ihat are expected to apply in the periodin which the liability is senled or the asset realized, based on lax rates (and tax laws) that iıave beenenacred or substantively enacted by the balance sheet date. The measurement of deferred tax iiabilitiesand assets reflecls the lax consequences thal would follow from the manner in which the Companyexpects, at the reporting date, to recover or senle the carıying amount of its assets and hiabihities.

Deferred tax assets and hiabiiities are offset when there Isa hegahly enforceable right to set offcurrenttax assets against current ta hiabihities and when they reiate ta incarne taxes Ievied by the same taxationauthority and the Company inlends to senle its current tax asseis and hiabilities on a net basis.

26



NOTES TÜ THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Amounls are expressed as Tlıousand Turkisi, Lira (TRY llıousand) unless othençise indicLned.)

NOTE 2- BASIS OF PRESENTATİON OF THE FINANCIAL STATEMENTS (cont’d)

2.7 Valuation Principles Applied / Signiflcant Accounting Policies (cont’d)

2.7.12 Taxation and Deferred Income Taxes (cont’d)

Current and deferred tax for the period

Current and deferred tax are reeognized as an expense or incorne in the income statement, except when(hey relate to the iterns eredited or debited directly to the equity (in this case the deferred tax related tathese items is aiso recognized directly in the equfty). ur where they arise frorn the initial accounting ofa business combination.

2.7.13 Employee Bendits

According to the Turkish law and union agreements. employee termination payments are made toeınployees in the case of retiring or involuntarily Leaving. Such payrnents are considered as a pan ofdeflned retirernent benefit plan in accordance with TAS 19 (revised) “Ernployee Beneflis” (“TAS 19”).

The termination indernnities accounted in the balance sheet and senioriiy incentive premium inaceordance with the union agreements in force represent the present value of the residual obligation.Actuarial gains and losses, on the other hand, are recognized in the statement of other cornprehensiveincome.

The Company makes certain assurnptions about discount rates, infiation rates, future salaıy increasesand ernployee tumover rales in calculalion of provisions for ernployee benefils. The present value ofernployee benefits k calculated by an independeni actuan and some changes are done in accountingassumptions used in calculations. The impact of the changes in assurnptions is recognized in thestatement of incorne. The details related with the defined benefit plans are stated in Note 14.

Liabilities due to unused vacations ciassifled as provisions due to ernployee beneflts are accrued anddiscounted if the discount efl’ect k material.

The Company is required to pay social insurance premiums to the Social Security Agency. As long asii pays these insurance premiums, the Company does not have an>’ further obligation. These premiumsare reflected in the payroll expenses incurred in the period.

2.7.14 Government Grants and Incentives

Government grants and incentives are recognized at fair value when there is assurance İhat these grantsand incentives wiil be received and the Company has met alI conditions required. Oovernrnent grantsand incentives related 10 costs are recognized as revenue during the periods they are matehed with thecosts they wiil cover.

27

(Convenience Translation into Engiisli of Financial Statements Originaliy lssued in Turkish — See Note 33)


NOTES TO THE FINANCİAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016

(Aıııounls arc cprcsscd as Timosand Turkish Lira (‘TRY Thousand) unicss atiıcnvise indicamed


2.7 Valuation Principles Applied / Significant Accounting Policics (cont’d)

2.7.15 Statement of Caslı Flows

Cash flows during the period are elassifled and repoded as operating, investing and finaneing activitiesin the stateınent of cash flows.

Cash flows arising from operating activities represent the eash flows that are used in or provided by theCoınpany’s steel products and bv-product5 sales activities.

Cash flows arising frorn investrnent activities represent the cash flows that are used in or provided bythe investing activities (direct investrnents and tinancial investments) of the Cornpany.

Cash flows arising from financing activities represent the cash proceeds frorn the financing activities ofthe Cornpany and the repayments of these funds.

Cash and cash equivalents comprises of the cash on hand, the demand deposiis and highly Iiquid othershort-terrn investments whieh their maturities are three months or Iess frorn the date ofacquisition, arereadiiy convertible to cash and are not subjeet to a signiflcant risk ofchanges in value.

The translation difference that occurs dııe to translation from funetional curreney to presentationcurreney 15 shown as translation difference on cash flow statement.

2.7.16 Share Capital and Dividends

Common shares are ciassifled as equity. Dividends on common shares are recognized in equity in theperiod which they are approved and declared.

NOTE 3- SEGMENTAL REPORTING

The segrnents with similar economic characteristics have been combined into a single operatingsegment considering the nature of the producıs and the production processes, methods to allocate theproducts and the type of customers or to provide senices.

NOTE 4- CASH AND CASH EQUIVALENTS

The detail ofcash and cash equivalents as of3 1 Deceınber 2016 and 31 December 2015 is as follows:

31 December 3 1 December

Banks — demand deposits

2016 2015

14.069 10.81914.069 10.819

28

(Convenience Translation into English of Financial Staternents OrginaIly Issued in Turkish — See Note 33)


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 3! DECEMBER 2016(Arnounts are cpresscd as Thousand Turkisl, Lira (IRV Thousund) unless othcnvisc ndicatcd

NOTE 4- CASH AND CASH EQUIVALENTS (cont’d)

The breakdown of dernand deposits k presented below:

US Dollars

T RYEU ROGB PoundOther

31 December2015

NOTE 5- FINANCIAL INVESTMENTS

2016

122 79

122 79

As of 31 December 2016 and 3! December 2015, ratios and amounts of subsidiaries of IskenderunDemir ve Çelik A.Ş. which is a subsidiaıy of the Company are as followings:

Financial invcstıncnls ııiıhouı an active market

(*) Since theof TRY 605stal cınen ts. it

iınpact of flnancial staternents of İsdeınir Linde Gaz Ortaklığı A.Ş.. hiclı has an assetsthousand and is not active as of the reporting period. is immaterial on the flnancialhas not becn consolidated and carried al cost.

3 1 December2016

12.737 6.060903 1.327325 3.406

87 617 20

14.069 10.819

Long tenıı financial investments:

Available for sale financial asseis

3 1 December 31 December2015

Ratio0/Company /0

31 December Ratlo

Teknopark Hatay A.Ş. 5

Joint ren! Ufl!

İsdemir Linde Gaz Ortaklığı A.Ş. (*) 50

3 1 December20152016

95

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122

5

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79

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30

(Convenience Translation into Engiish ofFinancial Statemenıs Originally Issued in Turkish — See Note 33)İSKENDERUN DEMİR VE ÇELİK A.Ş.

NOTES TO THE FINANCİAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Amounts are exprcssed as Tlıousand Turkısh Lira (‘TRV Thoıısand) unlcss othençise indicated.)

NOTE 6- FINANCIAL DERİVATIVE INSTRUMENTS (cont’d)

Derivative instruments for fair value hedıze

As of 31 December 2016 and 31 December 2015, the details of cross currency swap transactions for fairvalue hedge are as follows:

Assets Uabilities

Nominal . Nominal3! Deceniber 2016 Far Value FaırValueValue Vaiue

Cross currency. Ierest rate swap contıacisBuy EUR / Seli TRY lletween 6-12 months 51,616 22.612 51.616 133

51.616 22.642 51.616 133Basis interest swap conlracts

USD basis floating hıterest collection / Basisfloathıg interest payment Between 1-5 years - - 57.963 237

-- 57.963 237

51.616 22.612 109.579 370

Msets Liabiities

Nominal . Nominal- Faır Value Fair Value31 December2Ob Value

___________

Value

___________

Cross cunency. inlerest rate swap coniracls

Boy USD/ Sel TRY Belween 6-12 months 44.811 22.386 11.841 13.946BuyEUR/SeIITRY Moreıhan l2monıhs 88.421 30.528 88.421 69

133.262 52.914 133.262 14.015

Derivative instrumenls for cash flow hedee

(‘ross cıırreııcı’ and inıerest role swap conlracis for cashfloıı hcdges of interest Pale and curre,ıcv risk ofborroıvb?gs.

The Company has flxing contracts for future interest and principle payments of fioating interest rateborrowings. The fair values of these contracts match the floating rate borowings and was included in othercomprehensive income. The maturities of these transactions wilI be cornpleted in December 2017.

The terms and conditions ofihose contracts match the tenns and conditions of the floating rate borrowings.As a result 110 hedge ineffectiveness arises requiring recognition through profit or Ioss and recognition inother cornprehensive income/expense.

in respect of these contracts which has a nominal value of TRY 60.738 thousand, for the purpose ofhedgingcash flow risk, with related deferred tax effect TRY (9.317) thousand was ineluded in other comprehensiveincome (31 December 2015: TRY (15.075) thousand).

31

(Convenience Translation into English of Financial Staternents Originaliy Issued in Turkish — See Note 33)


NOTES TÜ THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Anıounts are cxprcsscd as J]sousand Turkisi, Lira (TRY Tlıausand) unlcss otherwisc indicated

NOTE 7- FINANCIAL LİABILITIES

As of the balance sheet dale, the delalis of the Company’s liabilitles are as follows:

Short term flnanc aI IiabilitiesCurrent portion of long terrn financial liabilitiesTotal short term financial Iiabillties

Total tong term financial Iiabllities

As of 31 December 2016, the breakdown of the Company’s loans with their original currency and theirweighted average interest rates is presented as follows:

Weighted Average

As of3I December 2015, the breakdown of the Company’s loansweighted average interest rates is presented as follows:

We ighted

with their original curreney and their

31 December 31 December2016 2015

519.335 9.256512.534 332.199

1.031.869 341.455

361.476 489.786

1.393.345 831.241

Type of Rate of Interest Short Term hong TermInterest Type Cunencj’ (%) Portion Portion 31 December 2016

Fixed US Dollars 1,72 503.784 . 501.784Fixed TRY 12,45 14.566 - 14.566Floating US Dollars hibor+2.16 397.436 64.654 462.090Floatftig EURO Eunbor+1,67 99.282 296.822 396.104Floating Japanese Yen JPY’0,22 18.801 - 18.801

1.031.869 361.476 1.393.345

No interest TRY

Type of Average Rate of Sbort Terrn hong TermInterest Type Currency Interest (%) Portion Portion 31 December 2015

9.2568059Fixed VS Dollars 2,05 7.684 15.743

Fixed TRY 9,76 79.694 12.866 92.560Floating VS Dollars Liboftl.97 140.660 356.846 497.506Fbating EURO Euribor+033 88.558 97.832 186.390Floating Japanese Yen JPY+O,22 15.228 14.558 29.786

341.455 489.786 831.241

9.256

32

(Convenience Translation into English of Financial Statemenıs ÜriginalI issued in Turkish — See Note 33)


NOTES TÜ THE FINANCİAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Arnoıınts are exprcsscd as Thoıısand Turkish Lira (TRY Thousand’) unlcss oıhnvise ndicalcd

NOTE 7- FINANCIAL LİABIUTIES (cont’d)

The breakdown of the ban repayrnents with respeot to their rnaturities as foblows:

31 December 31 December2015

Witlıin 1 yearBetween 1-2 yearsBetween 2-3 yearsBetween 3-4 yearsBetween 4-5 yearsFive years or more

2016

As of the balance sheet date, the detalis of the Cornpany’s irade receivables are as follows:

Short term irade receivablesTrade receivablesDue from related parties Note 29)Discount on receivables (-)Provision for doubtfui irade recdvables (-)

_____________________

The movemeni of the provision for shoıt term doubtful trade receivables are as follows:

Opening balanceProvision for the periodProvision released (-)Translation differenceCiosing balance

According to the market conditions and product types, a cedain interest charge is applied for deferred İradereceivables and overdue interest is applied for overdue trade receivables.

As the Company provides services and products to a large number of customers, collection risk is widelydistributed amongst these customers and there is no signiflcant credit risk exposure. Therefore, theCompanv does not provide for any further provision beyond the doubtfub receivables provisions that theCompany has abready provided for in the financial statements.

Other explanatory notes related to the credit risk of the Company are diselosed in Note 30.

As of the balance sheet date. there is no signiflcant arnount of overdue receivables within the tradereceivables.

1.031.869 341.455109.625 420.15066.994 49.11258.713 13.68350.433 6.84175.711 -

1.393.345 831.241

NOTE 8- TRADE RECEİVABLES AND PAYABLES


266.220 152.778333.496 300.239

(1) (3)(8.475) (7.294)

602.240 445.720

1 Januaıy- 1 Januaıy31 December 2016 31 December 2015

7.294 1891.173 6.737

(234) (59)

242 4278.475 7.294

ii

(Convenience Translation into English of Financial Statements Originaliy lssued in Turkish — See Note 33)


NOTES TO THE FINANCİAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(MnoUnts are cxprcsscd as Thuusand Torkish Lira CTRY Timosand) unlcss oiIıcnise indicaled

NOTE 8— TRADE RECEİVABLES AND PAYABLES (cont’d)

The Company provides provision according to the balances of alI unsecured receivables under legal followtip.

As of the balance sheet date, the details of the Cornpany’s trade payables are as follows:

31 December 31 DecemberShorttemıtradepavables 2016 2015

Trade payablesDuc tü related par6es Note 29)Discount on frade payables (-)

___________________ ___________________

NOTE 9- OTHER RECEİVABLES AND PAYABLES

As of the balance sheet date. the detalls of the Companys other receivables and paabIes are as follows:

Short term other receivables

Other receivables from related parties (Note 29)Receivables from water system construction

Deposits and guarantees giyen

___________________________________________

Lon2 term other receivables

Receivables from Privatization AuthorityReceivables from water system constructionProvision for receivables from Privatization Authority (-)

The movement of the provision for other doubtful receivables are as follows:

Opening balance

Provision for the period

Other doubtfiil receivables collected (-)Translation difference

Ciosing balance

314.101 217.35068.188 25.611(1.198) (1.049)

411.091 241.912

31 December

201631 December

2015

2.050.619 751.0261.592 1.763

124 1082.052.335 752.897

31 December 3! December2016 2015

70.236 67.39712.808 14.036

(70.236) (67.397)

12.808 14.036

1 Januaıy- 1 Januaıy

31 December 2016 31 December 2015

67.397 62.4032.887 5.436(227) (482)

179 40

70.236 67.397

34

(Convenience Translation into English ofFinancial Statements Originaliy Issued in Turkish —. See Note 33)


NOTES TO THE FINANCİAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Arnoonıs are cxprcssed as llrnusand TurtisIı Lira (TRY Tlıousand) unlcss othcnvisc indıcated.)

NOTE 9- OTHER RECEİVABLES AND PAYABLES (cont’d)

31 December 31 DecemberShort term otlıer pavables

_____________________ _____________________

Taxes payable

Deposits and guarantees received

Dividend payables 10 shareholders (*)

___________________ ___________________

(*) Dividend payables to shareholders represents the uncollected balances by shareholders related to theprior years.

NOTE 10- INVENTORIES

As of the balance sheet dale, the delails of the Cornpany’s inventories are as follows:

The movernent of the allowance for impairment on inventories:

Opening balanceProvision for the periodProvision released (-)Translation differenceCiosing balance

31 December 31 December20152016

The Company has provided an allowance for the impairment on the inventories of finished goods, work inprogress and raw materials within the scope of aging repoııs in the cases when their net realizable valuesare Iower ihan their costs or for slow moving inventories. The provision released has been recognized undercost of sales (Note 21).

2016 20158.678 7.9107.359 5.029

770 40516.807 13.344

Raw materialsWork in progressFinished goodsSpare partsGoods in transitOther inventoriesAllowance for irnpairment on inventories (-)

426.944 342.594316.501 243.416216.121 291.256259.528 196.171627.772 241.695126.908 121.800

(62.463) (44.817)1.911.311 1.392.115

1 Januaıy - t January -


44.817 25.47416.727 12.154

(9.677) (115)10.596 7.30462.463 44.817

35

(Convenience Translation into English ofEinancial Staternenis OHginallv Issued in Turkish — Sec Note 33)


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Amounts are cxprcsscd as Thousand Turkish Lira (TRY Thousaııd’) unlcss oıhenvisc iııdicalcd.)

NOTE 11— PREPAID EXPENSES

As of the balance sheet date, the detajis of the Company’s short terrn prepaid expenses are as follows:


Insurance expensesOrder advances giyenPrepaid utility allowance 10 employeesOther prepaid expenses

______________________ ______________________

As of the balance sheet daLe, the detalis of the Company’s long tenu prepaid expenses are as foUows:

Order advances giyenInsurance expensesOther prepaid expenses

6.857 13.5614.070 3.7301.423 1.6722.133 5.557

14.483 24.520


11.960 14.074- 8.593

21 15611.981 22.823

36

(Con

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into

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sor

pled

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onta

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sets

(31

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emb

er2

ols

:N

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37

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nto

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ofFi

nanc

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Stat

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tsO

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edin

Turk

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—Se

eN

ote

33)

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EN

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RU

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(Not

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38



NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMHER 2016(Arnounts are expresscd as Tlıousand TurLısh lira (“TRY liıousand’) unless otlıcnvısc ındıcaled

NOTE 12— PROPERTY, PLANT AND EQUIPMENT (cont’d)

The breakdown of depreciation expenses related to property, plant and cquiprnent is as follows:

Associated with cost of productionGeneral adm inistrative expensesMarketing, sales and distribııtion expenses

31 December

2016

334.1252.403

9.545

346.073

3 1 December

2015

282.418

1.803

7.962292.183

NOTE 13- INTANGIBLE ASSETS

Cost

Opening balance as of 1 JanuaryTranslation differenceAdditionsTransfers frorn CIPCiosing balance as of 31 December 2016

Accumulated arnortization

Opening balance as of 1 JanuaryTranslation differenceCharge for the periodCiosing balance as of 31 December 2016

Net book value as of 31 December 2015

Net book value as of 3 1 December 20 1 6

Riuhts Total

210.296 210.29644.960 44.960

1.743 1.7432.642 2.642

259.641 259.641

(71.101) (71.101)(16.161) (16.161)(7.268) (7.266)

(94.530) (94.530)

139.195 139.195

165.111 165.111

As of 31 December 2016, the Company has rio collaterais or pledges on(31 December 2015: None).

incangible assets

39

(Convenience Translation into Engiish of Financial Statements Originaliy Issued in Turkish — See Note 33)


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Anırnınts are cxprcsscd as Thousand Turkish Lira (“TRY Tiıousand) unless othcrwise indicaıcd

NOTE 13- INTANGIBLE ASSETS (cont’d)

Rights TotalCost

Opening balance as of 1 JanuaryTranslation differenceAdditionsTransfers from CIP

_______________ _____________

Closing balance as of 31 December 2015

________________ ______________

Accumulated amortization

Opening balance as of 1 JanuaryTranslation differenceCharge for the period

_________________ _______________

Closing balance as of 31 December 2015

________________ ______________



The breakdown ofarnortization expenses related to intangible assets 15 as follows:


NOTE 14- GOVERNMENT GRANTS AND INCENTIVES

These grants and incentives can be used by ali companies, which meet the related legislativerequirements and tlıose grants have no sectoral differences:

İ Incentives under the jurisdiction of the research and development Iaw (100% corporate taxexemption etc.),

V’ Cash incentives from Tübitak — Teydeb for cost of research and development,İ Inward processing permission certificates and Social Security Institution incentives,/ Insurance premium employer slıare incentive.

NOTE 15— EMPLOYEE BENEFITS

The Company’s slıort term payables for empioyee beneflts are as follows:

31 December2015

37.6379.034

163.330 163.33041.599 41.599

4.896 4.896471 471

210.296 210.296

(51.897) (51.897)(13.567) (13.567)

(5.637) (5.637)(71.101) (71.101)

111.433 111.433

139.195 139.195

Associated with cost of production 7.268 5.6377.268 5.637

Due to personnelSocial security premiums payable

3 1 December2016

53.46219.76673.228 46.671

40

(Convenience Translation into English ofFinancial Statemenıs OriginalIy lssued in Turkish — See Note 33)


NOTES TO THE FINANCİAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Arnounıs ve expressed as Thousand Turkish Lira (TRY Thousand”) unless olhenvise indicated.)

NOTE 15— EMPLOYEE BENEFITS (cont’d)

Long terrn provision of the employee termination beneflis of the Cornpany is as follows:

31 December 3! December

Provisions for ernployee termination benefitsProvisions for seniority incentive premiıımProvision for unpaid vacations

2016 2015

188.399 172.35017.305 12.54727.261 20.488

232.965 205.385

According to the articles ofTurkish Labor Law in force, Ihere k an obligation to pay the legal employeetennination beneflts to cadı ernployee whose employrnent contracts are ended properiy entitling thernto receive employee termination beneflis. Also, in accordance with the effective Iaws of the SocialInsurance Act No: 506 No: 2422 on 6 Mareh 1981 and No: 4447 on 25 Atıgust 1999 and with thearnended Article 60 of the related Act, it is obliged to pay the ernployees their legal ernployeeterınination beneflts, who are entitled to ternıinate.

As of 31 December 2016, the amount payable consists of one rnonth’s salary limited to a rnaxirnum ofTRY 4.297,21 (31 December 2015: TRY 3.828,37). As of] January 2016, the ernployee terminationbenefit has been updated to a maximum of TRY 1.426.16.

The ernployee termination benefit legaliy is not sııbject to any ftınding requirernent.

The employee termination benefit has been calculated by estirnating the present valııe of the futureprobable obligation of the Cornpany arising frorn the retirernent of ernployees. TAS 19 (“ErnployeeBeneflıs”) requires actuarial valuation methods 10 be developed to estirnate the Cornpany’s obhigationunder defined benefit plans. The obligation as of 31 December 2016 has been calculated by anindependent actuary. The actuarial assurnptions used in the calculation of the present value of the futureprobable obligation are as follows:

3 1 December 2016 3 1 December 201 5

11,00% 10,70%7,80% 7.75%

real 1,5% real 1,5%7,80% 7.75%

Discount rates are determined considering the expected duration of the retirernent obligations and thecurrency in which the obligations wilh be paid. in calculations as of3 1 December 2016, a flxed discountrate is used. Long term infiation estirnates are made using an approach consistent with discount rateestirnates and long term infiation rate flxed over years 15 used.

Discount rateInflation rateSalan increaseMaximum hiability increase

41

(Convenience Translation irna English of Financial Statements Originaliy Issued in Turkish — See Note 33)


NOTES TÜ THE FINANCİAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Arnoun(s um cxprcsscd as llıousand TurLish Lira (“THY Tlıousand”) unlcss otlıcnvisc iııdicalcd


The aınicipated rate of resignation which do not resulı in the payment of ernployee beneflts is alsoconsidered in the calculation. The anticipated rate of resignation is assumed to be related with the pastexperience, therefore past experiences of ernployees are analyzed and considered in the calculation. inthe actuarial calculation as of 3 December 2016, the anticipated rate of resignation is considered ta beinverselv proponional to the past experience. The anticipated rate of resigaation is between 2%-0% for theernployees with past experience between 0-15 vears or over.

The movemeat of the provision for ernplovee termination beneflts is as fohlows:

Opening balanceService costInterest costActuarial Ioss / (gam)Terrnination beneflıs paid (-)Translation differenceCiosing balance


172.350 174.09716.684 18.06417.367 13.688

(3.759) (10.819)(14.286) (22.557)

43 (123)188.399 172.350

The sensitivky analysis of the assumptions vhich was used for the calculation of provision foremployrnent termination beneflts as of 31 December 2016 as follows:

Sensitivity level

RateChage in ernployee benefits Iiability

Üpening babnceServke costInterest costActuarial Ioss/(gain)Termination beneflts paid (-)Translation differenceCiosing balance

Discount rate1% increase 1% decrease

(16706) 19.393

Infiation rate1% increase 1% decrease

19.816 (17.009)

1 January- 1 ianuary -

RateChage in ernployee benetits hiability

According to the curent labor agreernent, employees cornpleting their 1 Oth, 1 5th and 2Oth service yearsreceive senioritş incentive premiıım payments.

The movement of the provision for seniority incentive premium is as follows:

1 January - 1 January -


12.547 11.0681.722 1.6191.415 1.0171.753 (1.137)(129) (95)

(3) 7517.305 12.547

42

(Convenience Translation irno English of Financial Statements Originaliy lssued in Turkislı — See Note 33)


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 3! DECEMBER 2016(ApooLınis are eNprcsscd as Thousand Turkish Lira (“TRY Tbousand”) unlcss otlıcrwkt, indicalcd )


The znovernent of the provision for unused vacation is as follows

Opening balanceProvision for the periodVacation paid during the period (-)Provisions released (-)Translation difference

_______________________ _______________________

Ciosing balance

Provision for IawsuitsPenalty prov. for ernplovment shortage of disabled pers.Provision for Iand occupation

Lawsuits fUed by the CompanyProvision for Iawsuits filed by the Company

3 1 December2016

t46.6821.419

31 December2015

146.824116

The provisions for the Iawsuits filed by the Company represents the doubtful İrade receivables.

Lawsuits filed against the CompanyProvision for lawsuits filed against the Company

3 1 December2016

17.24620.910

31 December2015

15.45821.196

1 Januar>’ -31 December 2016

1 January -31 December 2015

20.488 19.11317.329 15.144

(1.516) (1.929)(9.077) (11.822)

37 (18)27.261 20.488

NOTE 16- PROVISIONS

The Cornpany’s short term provisions are as follows:

31 December 31 December

2016 2015

20.910 21.196

3.993 3.623

696 -

25.599 24.819

As of3l December 2016 and 31 December 2015, Iawsuts filed by and againstfol Iows:

the Company are as

43

(Con

veni

ence

Tran

slat

ion

into

Engi

islı

ofFi

nanc

ial

Stat

emen

tsO

rigin

aliy

lssu

edin

Turk

ish

—Se

eN

ote

33)

ISK

EN

DE

RU

ND

EM

İRV

EÇ

EL

İKA

.Ş.

NO

TE

ST

üT

HE

FIN

AN

CİA

LST

AT

EM

EN

TS

FOR

TH

EY

EA

RE

ND

ED

31D

EC

EM

BE

R20

16(A

rnou

nts

are

cxpr

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das

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usan

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(TR

YT

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)un

lcss

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nvis

cin

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tcd.

)

NO

TE

16—

PR

OV

ISIO

NS

(con

(’d)

The

mov

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the

shon

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prov

isio

nsis

asfo

llow

s:

Pro

visi

onfo

rIa

wsu

its

Pen

ahy

prov

.fo

rem

ploy

men

tsl

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age

of

disa

bled

Pro

visi

onfo

rla

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cupa

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Pro

visi

onfo

rIa

wsu

its

Pen

afty

prov

.fo

rer

nplo

ymen

tsh

orta

geof

disa

bled

1Ja

nuar

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hang

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rovi

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Tra

nsla

tion

31D

ecem

ber

2016

for

the

peri

odP

aym

ents

rele

ased

dif

fere

nce

2016

21.1

964.

789

(1.7

85)

(4.0

24)

734

20.9

103.

623

1.22

4-

(897

)43

3.99

3-

1.08

9(3

73)

-(2

0)69

624

.819

7.10

2(2

.158

)(4

.921

)75

725

.599

1Ja

nuaı

yC

hang

eP

rovi

sion

Tra

nsla

tion

31D

ecem

ber

2013

for

the

peri

odP

aym

ents

rele

ased

dif

fere

nce

2015

17.0

0713

.634

(814

)(9

.279

)64

821

.196

3.04

01.

576

(869

)(2

60)

136

3.62

3

20.0

4715

.210

(1.6

83)

(9.5

39)

784

24.8

19

44

(Convenience Transladon into English of Financial Staternents Originally Issued in Turkish — See Note 33)

ISKENDERUN DEMiR VE ÇELiK A.Ş.

NOTES TÜ THE FINANCIAL STATEMENTS FÜR THE YEAR ENDED 31 DECEMBER 2016(Aınounts are exprcsscd as Thousand Turkish Lira (‘iRY Thousand) unlcss oılıcnvisc indicatcdj

NOTE 17- COMMITMENTS AND CONTINGENCIES

The guarantees received by the Cornpany are as follows:

Leuers of guarantees receved

31 December2016

223.156

221.156

31 December2015

251494251.494

The Collaterals, Pledges and Mortgages (CPM) giyen by the Company are as follows:

31 December

201631 December

2015

A. Total CPM giyen for the Companys own legal entityB. Total CPM giyen in favour of subsidiaries consolidated online-by-Iine basisC. Total CPM giyen in favour of other 3rd parties for ordinarytrading operations

D. Other CPM giyen1. Tolal CPM giyen in favour of parent entityü. Total CPM giyen in favour of other Group companies out

of the scope of clause B and Ciii. Total CPM giyen in favour of other Jrd parties out of the

scope of clause C

As of 3 1 December 201 6. the ratio of the other CPM giyen0% (3! Decernber 2015: 0%).

63.542 60.801

by the Compaay to shareholders equity is

The breakdown of the Company’s collaterals giyen regarding service purchases according to theirTRY equivalents of foreign currency is as follows:

31 December 3! December

TRYEURÜ

2016 2015

54.471 53.3079.071 7.494

63.542 60.801

63.542 60.80!

45

(Convenience Translalion into English oFFinancial Statements Originaliy Issued in Turkish — See Noe 33)

iSKENDERUN DEMiR VE ÇELİK A.Ş.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(ArnoLınis are cxpresscd as 1housand Turkish Lira (TRY llıousand) unlcss ollıcnvısc indicaıcd)

NOTE 18- OTHER ASSETS AND LİABILITIES

As of the balance sheet dale, the detalls of the Cornpany’s other assets and Iiabilities are as follows:

Other ctırrent assets

Other VAT receivable

Prepaid taxes and funds

Other current assets

Other current liabilities

VAT payable

Other current liabilitles

NOTE 19-DEFERRED REVENUE


As of the balance sheet date, the detalls of the Company’s short term deferred revenue are as follows:

Advances receivedDeferred income

NOTE 20- EQUITY

As of the balance sheet date, the capital structure is as follows:

ShareholdersEreğli Demir ve Çelik Fabrikaları T.A.Ş.Ouoted in Stock ExchangeHistorical Capital


Effect of infiationRestated capftal

1642.900.164

1642.900.164

5.978 3.065

881 699

3.802 43

10.661 3.807

3 t December 3 1 December2016 2015

51.533 15.7547.008 4.102

58.541 19.856

16.661 21.8251.755 -

18.416 21.825

31 December 31 December2016 f% 2015

95,07 2.756.978 95.07 2.756.9784.93 143.022 4.93 143.022

2.900.000 2.900.000

46

(Convenience Translauon into English of Financial Statements Originaliy lssued in Turkislı — Sec Note 33)


NOTES TO THE FINANCİAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Amounts are cxprcssed as Thousand Turkislı Lira (TRY Tlıousanfl unless otIıcnise indicated.)

NOTE 20— EQUITY (cont’d)

31 December 31 DecemberOther equity items 2016 2015

Cash flow hedging reservesForeign currencv translation resen’esActuarial (Ioss)! gam fundRestricted reserves assorted frorn profit-Legal reserves

Retained earnings

(7.454) (12.060)3.550.212 2.117.376

(48.758) (51.765)240.817 165.142

240.817 165.142907.581 901.013

4.642.398 3.119.706

According to the Turkish Commercial Code (“TCC”). legal resen’es spiit up as the first legal reservesand the seeond legal resen’es. According tü the Turkish Commercial Code 5% of the profit shall beallocated as the first legal reserves. up tü 20% of the paid/ issued capital. After dedııcting dividendsamounting to 5% of the paid/issued capital from the part decided to be allocated; ten perceat of theremaining balance slıall be appropriated to second legal resenes. Also according to the “TCC” 5% ofthe net profit for the period after taxation is estimated tü be allocated as legal reserves tıp until reaehing50% of the paid/issued capital.

Cash flow hedging reserve arises from the recognition of the changes in the fair value of derivativefinancial instruments that are designated and effective as hedges of future cash flows directly in equity.The arnounts defered in equity are recognized in the statement of incorne in the same period, if thehedged item affects profit or Ioss.

The amendment in IAS-19 “Ernployee Benefits” does not permit the actuarial gam /loss considered inthe calculation of provision for employee termination benefits to be accounted for under the staternentof income. The gains and losses arising frorn the changes in the actuarial assumption have beenaccounted for by “Actuarial (Loss)İGain Funds” under the equity. The funds for actuarial gains/ (losses)in the eınployee terrnination beneflts k not in a position to be reclassified under profit and loss.

As it stated in Note 2.1, foreign currency translation reserve arises from expressing the assets andliabilities of the Companys foreign operations in reporting currency TRY by using exchange ratesprevailing on the balance sheet date. Exchange differences arising, if any, are recognized undertranslation reserve in equity.

47



NOTES TO THE FINANCİAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016{AmoLınts are cprcsscd as Thousand Turkish Lira (“TRY Thousand”) unlcss olhcnvisc indicalcd.)

NOTE 21- SALES AND COST OF SALES

Sales revenue

Domestic salesExport salesOther revenucs (t)

Sales retums ()

______________________ ______________________

Cost of sales (-)

___________________ ___________________

Gross profit

___________________ ___________________

(flThe total arnount of by product exports in other revenues 15 TRY 61.316 thousand (31 December2015: TRY 67.473 thousand).

The breakdown of cost of goods sales for the periods 1 January — 31 December 2016 and 1 Janııary —31 December 2015 is as follows:

1 lanuan- 1 Januan31 December2ol6 31 December2ol5

Raw material usage (3.626.892) (3.758.559)Personnel costs (470.612) (457.886)Ener costs (278.618) (233.813)Depreciation and amortization expenses (341.896) (280.125)Factory overheads (160.512) (126.785)Other cost of good sotds (70963) (70.385)Non-operatingcosts (t) (7.535) (11.605)Freit costs for sales delivered to customers (53.816) (48.584)Inventon write-downs tvfthin the period (Note 10) (16.727) (12.154)Reversal of inventory write-downs (Note 10) 9,677 115Other (2.055) (982)

(5.019.949) (5.000.763)

(*) Due to İlie planned! unplanned halt production of plant of the Company’s, operations veresuspended temporariiy in the current period. As a result of this. unallocated overheads. TRY (7.535)thousand. has been accounted directly under cost of goods sold (31 December 2015: TRY 11.605thousand).

1 Janua

31 December 20161 Januaıv

31 December 2015

5.457.179 5.020.279882.008 729.046132.786 172.220(1.305) (5.160)

6.470.668 5.916.385

(5.019.949) (5.000.763)

1.450.719 915.622

48

(Convenience Translation into English of Financial Statements Originally lssued in Turkish — See Note 33)


NOTES TÜ THE FINANCIAL STATEMENTS FÜR THE YEAR ENDED 3! DECEMBER 2016(Amounts are cxprcssed as Tjıousand Turkish Lira (TRY Tlıousand] unlcss o(hcnvjsc indicaled.)

NOTE 22 - RESEARCH AND DEVELOPMENT EXPENSES, MARKETING, SALES ANDDISTRIBUTİON EXPENSES, GENERAL ADMINISTRATIVE EXPENSES

The breakdown of operational expenses according to their nature for the periods 1 ianuary — 31December 201 6 and 1 Janııary — 31 December 2015 is as fol lows:

Marketing. sales and distribution expenses (-)General administrative expenses (-)Research and development expenses (-)

____________________ ____________________

NOTE 23- OPERATING EXPENSES ACCORDING TO TIIEİR NATURE

The breakdown of marketing, sales and distribution expenses according to their nature for the periods1 Januan —31 December 2016 and 1 January —31 December 2015 is as follows:

Personnel expenses (—)Depreciation and amortization expenses (-)Ta’L duty and charges (-)Senice expenses (-)

1 Januao- 1 January31 Dccember 2016 31 December 2015

(22.913) (21.963)(9.545) (7.962)

(480) (469)(36.532) (28.966)

(69.470) (59.360)

The breakdown of general administrative expenses for the periods 1 Januaıy —3! December 2016 and1 January —31 December 2015 is as follows:

Personnel expenses (-)Depreciation and amortization expenses (-)Provision for doubtful receivables (-)Ta\. duty and charges (-)Sen ice expenses (-)

1 January

31 December2ül6

(41.231)

(2.403)(3.826)(5.465)

(57.849)

(110.774)

1 Ianuaıy3l December 2015

(39.758)(1803)

(11.632)(5.268)

(51.737)

(110.198)

1 ianuan

31 December2ül61 Januan’

31 December 2015

(69.470) (59.360)(110.774) (110.198)

(689) (122)(180.933) (169.680)

49

(Convenience Translation into English of Financial Statements Originally Issued in Turkish — See Note 33)


NOTES TO THE FINANC!AL STATEMENTS FOR THE YEAR ENDED 3 DECEMBER 2016(Anıoun(s are exprcssed as Thousand Turkisi, Lira (TRY Thnusand) unless oII,cnvisc indicaled

NOTE 24- OTHER OPERATING INCOME/(EXPENSES)

The breakdown of other operating ineome for the periods 1 Januaıy —31 December 2016 and 1 ianuary—31 December 2015 is as follows:

Interest ncome from sales viıh maturitiesDiscount incomeProvision releasedSenice incomeMaintenance repair and rent incomelndemnitv and penalty detention incomeInsurance indemnity incomeGam on sale of tangible assetsOther income and gains

42.191

The breakdown of other operating expenses for the periods 1 January — 31 December 2016 and 1Januan’ —31 December 2015 is as follows:

Other operatinı expenses (-)

______________________ _______________________

Provision expenses

Donation expenses

Discount expenses

Port facilitv pre-licence expensesLausuit compensation expenses

Penaltv expenses

Impairmenı of property. plant and equipment (Note 12)Other expenses and loses

NOTE 25- FINANCIAL INCOME

The breakdown of financial income for the periods 1 January —3December 2015 is as follows:

1 JanuaR- 1 ianuan’Financbl incomes 31 December 2016 31 December2ü!5

Interest income on nk deposs 1 3Interest income on swap contracts 9.317 -Foreign exchange gains (net) 161.091 216.707Interest income on related party 40.254 41.462

210.666 258.172

Other operatirw income1 January

31 December20l61 January

31 December 2015

10.753

4.9219.5168.23!

1,962742

4.73!

14.355

10.227

9.539t, ,rjim)

11.08!1.954

12.511

86

3.975

77.093

1 January31 December 2016

1 ianua

31 December 2015

(6.013) (15.210)(2.363) (1.455)

(5.638) (15.986)(5.399) (7.235)(2.298) (1.632)(1.787) (2.09!)(8.713) -

(7.942) (4.383)

(40.153) (47.992)

1 December20!6 and 1 Januaıy—31

50

(Convenience Translation inlo English of Financial Statements Originally lssued in Turkish — See Note 33)


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Arnounls are exprcsscd as Thousand Tıjrkjslı Lü-a (‘TRY Thousand”) unlcss oıIıcr’isc indicaled.)

NOTE 26- FINANCIAL EXPENSES

The breakdown of financial expenses for İlie periods 1 January31 December 2015 is as follows:

Financial expenses ()

Interest expenses on borrowingsInterest cost of employee benefltsInterest expenses on related partyGuarantee expensesFair valuc dilTerences of derivative flnancial instruments (net)

Taxation:Current corporate tax expenseDeferred İax (income) / expense

— 31 December 2016 and 1 Janııaıy —

The Company k subject to corporation İax applicable in Turkey.

Corporate tax is apphied on taxable corporate income, wlıich is calculated from the statııtoıy accountingprofit by adding non-dedtıctible expenses, and by deducting dividends received from residentcoınpanies. otlıer exempt income and investrnent incentives utilized.

The effective corporate tax rate in Turkey is 20% for the year ended in 3 1 December 20 1 6 (3 1 December2015: 20%).

Advance tax returns are filed on a quarterly basis in Turkey.calculated over the corporate eamings using the rate 20%, during20%).

The temporary tax of 2016 has beenthe temporary taxation period (2015:

Losses can be carried forward to offset the future taxable income for tıp to maximum 5 years. However,losses cannot be carried back to offset the proflts of the previous periods, retrospectively.

in Turkey, a deflnite and distinct reconciliation procedure for tax assessment does not exist. Cornpanies[ile their tax retums between 1 April - 25 April following the closing period of the related year’saccounts. Tax returns and related accounting records may be examined and revised within üye years.

1 Januarv- 1 Januan

3! December 2016 3! December 2015

NOTE 27— TAX ASSETS AND LİABILITIES

(34.080) (56.000)(18.782) (14.705)

(2.925) (14.038)

(4.386) (6.331)(35.456) (8.518)

(95.629) (99.622)

1 Januaıy - 1 January -


312.225 206.438131.787 151.912444.012 358.350

Corporate tax

51

(Convenience Translation into English of Financial Statements Originaliy Issued in Turkish — See Noe 33)


NOTES TÜ THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Arnounts arc cxprcsscd as Tlıuusand Turkisb Lira <TRY Ttıousand) unlcss oıIıcrise indicated.)

NOTE 27— TAX ASSETS AND LİABILITIES (cont’d)

Incorne withholding tax

in addition to corporate taxes, conıpanles should also calculate incorne withholding taxes on dividendsdistributed. except for the dividends distributed to fuliy fledged taxpayer companies receiving anddeciaring these dividends and to Turkislı branehes of foreign companies. Tlıis rate was changed to 15%as of22 July 2006 by the decision oftlıe Councii ofMinisters, numbered 2006/1073!. Undistributeddividends incorporated in share capital are not subject to the incorne withholding taxes.

19,8% withholding tax must be applied to the investrnent allowances relating to investment incentivecertificates obtained prior to 24 April 2003. lnvestment disbursements witlıout any investmeııt incentivecertiücate after this dale which are direcüy related to production facilities of the cornpany can bededucted by 40% from the taxable income. The investrnents without investment incentive certificatesdo not quaIiI’ for tax aliowance.

Investment allowance appllcation

Witlı the decision numbered 2006/95, which was taken during the rneeting of the Constitutional Courton 15 October 2009, the phrase “oniy related tü the years 2006. 2007 and 2008...” which was a part ofthe Temporaıy Article 69 of the Incorne Tax Law was cancelled and the cancellation became effectivefrom the date the decision has been published in the Offlcial Gazelle on 8 Janunıy 2010. According tothe decision. the investment incentive amount outstanding that cannot be deducted frorn 2008 taxableincorne previously ‘vii! be deducted from taxable income of the subsequent profitable years.

Regarding the cancellation decision taken by the Constitutional Court, an arnendrnent was made in the69111 anicle in incorne Tax Regıılation using the regulation nıımbered 6009 and dated 23 JuIy 2010.Consequently, in compliance with the cancellation decision of the Constitutional Court, the yearlimitation has been abolished and investment allowance has been lirnited to 25% of the profit. Aslimitation of investment allowance to 25% of the profit by regulation numbered 6009 is found to becontraıy to iaw by the Constitutional Court, the Constitutional Court cancelled the regulation and stayedan execution. Corporate tax ratio of 30% in the previous regulation for the ones who benefit frominvestment allowance has been decreased to the efTective corporate tax with the amendment made(2015: 20%).

Deferred tax

The Company recognizes deferred tax assets and Iiabilities based upon the temporaıy differences arisingbetween its taxable statutoıy financial staternents and its financial statements prepared in accordancewith the CMB’s Communiqu on Accounting Standards. These differences usually result in therecognition of revenue and expenses in different reporting periods for the CMB regulations and taxpurposes and are explained below.

Tax rate ıısed in the calculation of deferred tax assets and Iiabilities (excluding Iand) are 20% in Turkey (31December 2015: 20%). Deferred ta.x related with the temporary differences arising from Iand parcels iscalculated with the tax rate of 5% (31 December 2015: 5%).

52

(Convenience Transiation inlo English of Financial Staternents Originaliy Issued in Turkish — Sec Note 33)


NOTES TÜ THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Arnonnis are cxprcsscd as Thousand Turkish Lira (‘TRY Thousand) unless olhcnvise indiculed.)

NOTE 27- TAX ASSETS AND LİABILITIES (cont’d)

Deferred fax asseis:Provisions for eınployee bene fıtslnvestment incentiveProvision for lawsuitsDiscount on receivables adjustmentProvision for other doubtful receivablesOther

Deferred fax Iiabilities:Tangible and intangible fıxed assetsFair values of the derivative financial instrumentsArnortized cost adjustment on IoanslnventoriesOther

3! December 3! December2015

The temporary differences diselosed above besides the deferred tax asset and liabilities, have beenprepared on the basis of the gross values and show the net deferred fax position.

The breakdown of deferred fax asset / (liability) is as foliows:

Deferred tax asseUfliabiliw) movemenis:1 Januan’

3 December206

(623.440)(131.787)

(1.904)(153.200)(910.33!)

1 January -

31 December 2015

(366.879)(151.912)

(587)

(104.062)(623.440)

46.593 41.0777.760 10.5334.32! 4.2395.928 5.008

14.047 13.47911.964 9.70890.613 84.044

(964.019) (692.322)(2.591) (4.765)(1.342) (2.343)

(30.972) (6.79!)(2.020) (1.263)

(1.000.944) (707.484)

(910.33!) (623.440)Presentatbn of deferred tax assets/(hiabilities) net:

Opening balanceDeferred tax (expense) / incomeThe amount in cornprehensive (expense) / incomeTranslatbn differenceClosing balance

53

(Convenience Translation into English ofFinancial Statements Originally Issued in Turkish — See Note 33)


NOTES TO THE FINANCİAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Amounts are exprcsscd as Timosand Turkish Lira (“TRY Thousand’) unlcss otlıcrwise indicaled.)

NOTE 27— TAX ASSETS AND LİABILİTIES (cont’d)

Reconciliation oftax provision is as follows:

Profil before tax

Statutory İax rate

Calculated tax expense ace. to effective tax rate

Reconciliation between the tax provision and calcubted tax:- Non-deductible expenses- Effect of exchange difference arising from deferred bx bases- Effect of currency İranslation to non taxable assets- lnveslment incentives

Tax expense in reported in the consolidate staternent of incorne

1 Januaıy

31 December 2016 31

(*) The difference between the Company’s fLınctional curreney and the currency incause to translation difference.

As of 1 January — 31 December 2016 and 1 January — 31 December 2015, the details of the taxgains/(Iosses) of the other comprehensive incorne/(expense) are as follows:

Other comprehensive income!(loss) in the current periodChange in actuarial (Ioss)/gainChange in cash flow hedging resen’esChange in foreign currency translation resenes

Other comprehensive income/doss) in the current period

1 Januarv—31 December 2016Amount Tax income! Amount

before rax (e.wense) after tax3.759 (752) 3.0075.758 (1.152) 4.606

1.432.836 - 1.432.8361.442.353 (1.904) 1.440.449

I Ianuarv —31 December 2015Amounl Tax income/ Amounl

before tax (e’şense) after tax10.819 (2.164) 8.655

(7.883) 1.577 (6.306)1.348,619 . 1.318.6191.351.585 (587) 1.350.998

1 ianuaıy -

December 2015

1.386.861 933.593

20% 20%

277.372 186.719

706 5551 15.273 170.44647.888 11.163

2.773 (10.533)

444.012 358.350

basis of tax base

Change in actuarial (Ioss)/gainChange in cash flow hedging resen’esChange in foreign currency translatinn resenes

54

(Convenience Translation into English of Financial Staıernents OriginalIy lssued in Turkish — See Note 33)


NOTES TÜ THE FINANCİAL STATEMENTS FOR THE YEAR ENDED 3) DECEMBER 20)6(Amcunis are cxprcsscd as Thousand Tu,kish Lira (“rRY Thousand’) unlcss oıhenğsc indıcated.)

NOTE 28- EARNINGS PER SIIARE

1 Januaıy -

3! Decernber20l61 ianuan

31 December 2015

Number of shares outstandint

Net profit attributable to equity holders - TRY thousand

290.000.000.000

942.849

290.000.000.000

575.243

Profit per share with 1 TRY nominal value TRY % 0,3251 / %3 2,5 1 0,1984/%19,84

NOTE 29- RELATED PARTY DISCLOSURES

The immediaıe parent and ultimate controlling parent of the Company are Ereğli Demir ve ÇelikFabrikaları T.A.Ş. and Ordu Yardımlaşma Kurumu respectively (Note 1).

The details oftransactions between the Coınpany and other related partles are diselosed below:

Due from related parties (short ternüEreğli Demir ve Çelik Fabrikaları TAŞ. <‘>

(2)Erdemır Çelık Servıs Merkezi San. ve Tıc. A.Ş.

Adana Çimento Sanayi T.A.Ş.(3)

Aslan Çimento A.Ş. <‘>

Erdemir Asia Pacific PTE LTD(2)

Omsan Lojistik A.Ş.(3)

Oyak Pazarlama Hizmet ve Turizm AŞ.(3)

Oyak Savunma ve Güvenlik Sistemleri A.Ş.t3(3)Omsan Denızcılik A.Ş.

The details of non-trade transactions between the Company and other related parties are disclosedbelow:

Other receivables from related panies (shofl term)

___________________ ___________________

Ereğli Demfr ve Çelik Fabrikaları T.A.Ş.


308.982 277.578

23.817 10.930

6.066 6.070

645 168

4.804 5.243

41 98

84 39

53 54

4 59

344.496 300.239


2.050.619 751.026

2.050.619 751.026

lmmediaie parent company(2) Subsidiaries of the immediate parent company(3) Subsidiaries of the ultimate company

55



NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Amounls are cxprcsscd as Thousand Turkish Lira (TRY Thousand’) unicss otimüvise indıcaled

NOTE 29— RELATED PARTY DISCLOSURES (cont’d)

Other receivables from related parties are consist of cash receivables within the scope of central cashplanning.

Erdemir’s personnel, data system infrastructure and marketing management system are used by TheCompany for selling fiat products lo third paıties. Fiat products which are produced in isdernir. directlyselling over Erdemir and Erdemir takes these inventories as a “Trade goods’. Erdemir selis suchproducis through their bııying price and date, without adding any profit. Accordingly, in the financialstatements, balances oftrade receivables and other receivables are arisen from centralized selling.

The details ofiransactions between the Company and otlıer related parties are disclosed below:

Due lo related parties(shorı term)

_____________________ _____________________

Erdemir Madencilik San. ve Tic. A.Ş. (2)

Oyak Pazarlama Hizmet ve Turizm A.Ş.Erdemir Asia Pacific PTE LTD -

Omsan Lojistik A.Ş.(3)

OYAK Savunma ve Güvenlik Sistemleri A.Ş.(3)

Erdemir Müh. Yön. ve Dan. Hiz. A.Ş.(2)

Omsan Denizcilik A.Ş.(3)

Erdemir Çelik Servis Merkezi San. ve Tic. A.Ş.(2)

Diğer

Maior sales to related parties

Ereğli Demir ve Çelik Fabrikaları T.A.Ş. ‘>

Erdemir Çelik Servis Merkezi San. ve Tic. A.Ş.

Adana Çimento Sanayi T.A.Ş.(3)

Erdemir Asia Pacific PTE LTD(2)

Erdemir Madencilik San, ve Tic. A.Ş.(2)

(3)Aslan Çimento A.Ş.

Erdemir Müh. Yön. ve Dan. Hiz. A.Ş.(2>

Diğer

<> Immediate parent company(2) Subsidiaries of the immediate parent company(3) Subsidiaries of the ultimate company

31 December 31 December

Trade payables to relaled parıies mainly arise from

2016 2015

24.641 5.0511.907 2.242

28.137 5.214

3.680 1.5392.053 1.4983.722 7.7671.640 1.4361.458 715

950 14968.188 25.611

pıırchased service transactions.

1 Janııaıy - 1 January -


4.004.851 3.585.2491.810 2.586

16.523 20.700

60.158 50.636

- 47

1.635 1.209

476 3152.183 3.272

4.087.636 3.664.014

56

(Convcniencc Translation into English of Financial Stateınents OriinaIIy Issued in Turkish — Sec Note 33)


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Arnounts are eprcssed as Thousand TurLish Lira (1 RY Thousand) unlcss othenvisc indıcaıcd.)

NOTE 29— RELATED PARTY DISCLOSURES (cont’d)

1 January - 1 Ianuary -

Major purchases from related parties 3! December 2016 31 December 2015

Erdemir Madencilik San. ve Tie. A.Ş.(2)

329.217 355.478Erdemir Asla Pacific PTE LTD (2)

95.044 77.459

Ereğli Demir ve Çelik Fabrikaları T.A.Ş. (ı)113.120 70.785

Oyak Pazarlama Hizmet ve Turizm A.Ş.(3)

18.720 22.741(3) — —Omsan DenEcıld<A.Ş. 27.IOD ID.230

Oyak Savunma ve Güvenlik SistemleriA.Ş. <3)17.519 16.805

(3)Omsan Lojstık A.Ş. 30.827 11.811Erdemir Çelik Servis Merkezi San. ve Tie. A.Ş.

(2)8.232 8.028

Erdemir Müh. Yön. ve Dan. Hiz. A.Ş.(2)

25.319 10.043Diğer

0) Immediate parent company<2) Subsidiaries ofthe immediate parent company< Subsidiaries of the ultimate company

3.153 3.281668.256 591.661

The terms and policies applied to the transactions with related paflies:

The period end balances are secured and their collections wiil be done in cash. Other receivables fromrelated partles balances are non-secured. interest free and their collections vill be done in cash. As of31 December 2016, the Company provides no provision for the receivables from related partles (31December 2015: None).

For the year ended 31 December 2016, the tom! compensation consisting of short term beneflts such assalarles, bonuses and other beneflts of the key management of the Company 15 TRY 4.192 thousand(31 December 2015: TRY 4.933 İhousand).

57

(Convenience Translation into English of Financial Statements Originally Issued in Turkish — See Note 33)

iSKENDERUN DEMİR VE ÇELiK A.Ş.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMHER 2016(Anıounts are exprcsscd as Thousand Turkish Lira (TRY Thousand) unlcss oihcnvise indicalcd.)

NOTE 30 - NATURE AND LEVEL OF RISKS DERIVED FROM FINANCİALINSTRUMENTS

Additional information about financial instruments

(a) Capital risk managernent

The Company manages its capital through the optimization of the debt and the equity balance thatminimizes the financial risk.

Throngh the forecasts regularly prepared by the Compuny, the future capital amount, debt to equityratio and similar ratios are forecasted and required precautions are taken to strengtlıen the capital.

The capital structure of the Company consists of debt which includes the financial Iiabilities diselosedin Note 7, cash and cash eqııivalents and eqııity attributable to equity lıolders of the parent company,coınprising issued capital, reserves and retained earnings as disclosed in Note 20.

The Cornpany’s Board of Directors analyzes the capital structure in regıılar meetings. During theseanalyses, the Board of Directors also evaluates the risks associated with each class of capital togetherwith the cost ofcapital. The Company. by considering the decisions of the Board of Directors. aims tobalance its overail capital structure through the payment ofdividends, new share issues and share buybacks as veIl as the issue of new debt or the redemption of existing debt.

As of 31 December 2016 and 3! December 2015 the net debüequity ratio is as follows:

31 December 31 DecemberNote 2016 2015

Total rmanciaı liabilities 7 1.393.345 831.241Less: Other receivables from related parties 29 2.050.619 751.026Less: Cash and cash equivalents 4 14.069 10.819Net debt (671.343) 69.396Total adjusted equity (“9 8.541.623 6.658.938Total resources 7.870.280 6.728.334

Net debt / Total adjusted equity ratio -8% 1%Distribution of net debt / Total adjusted equity -9/109 1/99

(*) Total adjusted equity is calculated by subtracting cash flow hedging resenes and actuarial (Ioss)/gainfund.

(b) Signiflcant accounting policies

The Company’s accounting policies related to the financial instruments are disclosed in Note 2“Surnmaıy of Signiflcant Accounting Policies, 2.7.7 Financial lnstruments”.

(c) Market risk

The Company is exposed primariiy to the financial risks of changes in foreign exchange rates andinterest rates. The Company utilizes the following financial instruments to manage the risks associatedwith the foreign exchange rates and inlerest rates. Also, the Company foliows price changes and marketconditions regularly and takes action in pricing instantaneously.

The Company prefers floating interest rates for long term borrowings. To hedge against the interest riskthe Company uses interest swap agreements for some of its borrowings.

in the cıırrent period, there is no signiflcant change in the Company’s exposure to the market risks orthe manner which it manages and measures risk when compared to the previous year.

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60

(Conveniencc Translation into English of Financial Statemenis Originaliy Issued in Turkish — Sec Note 33)


NOTES TÜ THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(AIfloUfltS arc expressed as Thousand Turkislı Lira (“TRY Tlıousand”) unlcss ollıcnvise indicaıed.)

NOTE 30-NATURE AND LEVEL OF RISKS DERIVED FROM FINANCİAL INSTRUMENTS(cont’d)

Addifional information about financial instruments (cont’d)

(e) Foreign cıırrency risk management

As of3l December 2016, stated in Note 2.7.8 the foreign cuneney position of the Company in termsoforiginal eurrency is calculated as it as follows:

31 December 2016

TRY TRY EURO Jap. Yen(ToıaI in (Original (Odginal (Oıiginal

reponing currency) runeney) wrrnwy) curreney)• Trade Receivahles 165841 16.233 40.323

2a. Monetary flnancial assets 622.336 55.525 152.760 232b. Non- monetary financial asscts . . -

3.00ıer 19.013 18.638 8084. Currrnl acI% (1+2+3) 807.190 90.406 193.185 235. Trade rcceivaNes

. . . —

6a. Monctary önancial asseis. . . —

6b. Non- moneiary flnancial asseis . . . -

7.Oıhcr 22.156 19.589 6928. Non-current asçets (5+6+7) 22.156 19.589 692 -

9. To1,I asseh (4+8) %29.346 109.99$ 193.877 23l0.Tradepayables 186.833 173.425 3.127Il. Financial Iiabiliıies 131.913 10.201 27.515 653.84112a. Other monetary financial Iiabilities 169.137 168.519 16712b. Other non-monetary flnancial Iiabililies 323.219 326180 68383. Current Iiahilitics (10+11+12) 811.103 673.828 31.493 653.84114.Tradcpa>aNes . . -

15. Financial Iiabiliıies 297.657 . 80.23316a. Other rnonctary financial Iiabiliıies 232.965 231.9651 6b. Other non-monetary önancial Iiabilities . -

87. Non-currcnt IiabiIi(ie (14+15+16) 530.622 232.065 80.23318. Total Iiahililies (13+17) 1.331.725 906.793 111.726 653.84819. Nı asset/Iiahility posilion of off-halance shct derivative financialinstrumcnlç (19a.19h) 44.842 (448) 13.913 -

19a. Off-balance sheet foreign currency derivative flnancial asseis 73.116 28.533 13.913 -

19b. Off-balance sheet foreign curreney derivative flnancial (iabilities 28.974 28974 -

20. Net foreign currency assec/Iiahility position (9-18+19) (468.237) (797.239) 96.064 (653.818)21. Net foreign currenev asset / IiabLlitv positinıt of monctary itcms(l+2a+56a-I0-ll-12a-14-15-16a) (230.329) (513.335) 82.042 (653.888)

22. Fairahof derivatıveflnancial instruments usedin foreigncrnency hedec 22.580 22.580

23. Hcdecd foreign cLntency ascts 28974 28974

24. flcdEed foreign currency habililies 73.116 28.533 13.913 -

25. Exports 943.324 . - -

26. Imports 2.783.095 - - -

68

(Convenience Translation into English of Financial Statements Originally Issued in Turkish — Sec Note 33)


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Arnotıns are cxprcssed as Tlıousand Turkish Lira (“TRY Tlıousand”) unless otIıcn1sc indicaıcd

NOTE 30 - NATURE AND LEVEL OF RISKS DERIVED FROM FINANCİALINSTRUMENTS (cont’d)

Additional information about financial instruments (cont’d)

(e) Foreign currency risk nıanagernent (cont’d)

As of3I December 2015, the foreign currency position of the Company in terrns oforiginal currencyis as follows:

31 December 2015

TRY TRV EUKO Jap Yen

(rota! in (Original (Oniginal (Onginal

reporttng cuncncy) cu[rcnc) cumrnLy) CUrrenLy)

1. Trade Rcceivahles 100.415 19,600 25,4332a. Monetary financial assets 4.741 1.54% 981 2.9102K Non- monetary flnancial assets . . -

3.Othcr 112.009 18.845 29.3194. Current asseis (1+2+3) 217.16$ 39.993 55.733 2.9105. TrmkrcceivaNes .

6a. Monetary financial asseis.

6b. Non- monetary financial asseis .

7.Othcr 24.808 21.263 1.1168. Non-currenl nssets (5+6+7) 24.808 21.263 1.1169. Total nssets (4+8> 241.973 61.256 56.849 2.910I0.Tradcpayahles 166,138 154,019 3.814Il. Financial liabilities 192.483 86.348 28.446 653.97112a. Othcr monetary flnancial (iahilities 94.958 92.635 45712K Other non-monetary Onancial Iiahilities 206.444 206.41413. Current Iiahilities (10+11+12) 660.023 539.456 32.717 653.97114. TraLk pavahks

.

l5. Financial Iiabilities 121.537 3.962 32.047 653,77816a. Other moncıary fmancial IiaMities 205.385 205.3858Gb. Other non-monctar financial Iiabilitics .

17. Non-current liabilitles (14+15+16) 326.922 209.347 32.047 653.77818. Total Ijnbilities (13+17> 986.945 748.803 64.764 1.307.74919. Net assetfliability position ofoff-balance sheet derivative financialinstruments (19a-19b) 76.196 (12.224) 27.826

19a. Off-Kılance sheet foreign currcncy derivative financial assets 156.598 68.178 27.826l9b. Off-lxılance sheet foreign currencv derivative financial Iiabilities 80.402 80.402

20. Net foreign curreney assetfliability position (9-18+19) (668.776) (669.771) 19.911 (1.303.839)21. Net foreign en rrency asset 1 Iiability position of monetary items(l+2a+5+6a-I0-I l-12a-14-15-16a) (675.345) (521.211) (38.350) (1.304.839)22. Fair vakıc of derivative financial instnmıents used in foreign currency hedge 38.900 38.900 - -

23. Hedgcd foreign currency asseis 80.402 80.402 -

24. fledged foreign currency liahiliıies 156,598 68.178 27.826 -

25.Exporls 796.519 - - -

26. Imports 2.853.582 -

62

(Convenience Translalion into English of Financial Statements Originaliv Issued in Turkish — Sec Note 33)


NOTES TO THE FINANCİAL STATEMENTS FOR THE YEAR ENDED 33 DECEMBER 2016(Anıuunls are cxpresscd as Thousand Turkish Lira (TRY Thousand”) unlcss otlıcnvise indicated.)

NOTE 30 - NATURE AND LEVEL OF RISKS DERIVED FROM flNANCIALINSTRUMENTS (cont’d)


(e) Foreign curreney risk rnanagement (conCd)

The following table shows the Company’s sensitivity to a 10% (+İ-) ehange in the TRY, USD, EUROand Japanese Yen. 10% is the sensitiviiy rate used when reporting foreign currency risk intemaliy tokey nıanagement personnel and represents ınaııagement’s assessment of the possible clıange in foreignexciıange rates.

As ofJl December 2016 asset and Iiability balnnces are Iranslated by using the following exchangerates: TRY 3,5192 = USS 1. TRY 3,7099 = EUR 1 and TRY 0,0300= JPY 1(31 December 2015: TRY2,9076= US$ 1, TRY 3,1776 = EUR 1 and TRY 0,02411PY 1)

31 December 2016

___________________ ___________________

1- TRY net asset/Iiability2- Hedged portion from TRY risk (-)3. Effect of capitalization (-)

_______________________ _________________________

4. TRY net effect (1+2+3)

______________________ _______________________

5. US Dollars net asset/Iiability6- Hedged portion from US Dollars risk (-)7. Effect of capitalization (-)

_______________________ _________________________

8- US Dollars net effect (5+6+7)

______________________ _______________________

9. Euro net asset/Iiability10- Hedged portion from Euro risk (-)11- Effect of capitalization (-)

_______________________ _________________________

12- Euro net effect (9+10+11)

_______________________ _________________________

13- iap. Yen net asset/Iiability14- Hedged portion [romiap. Yen risk (-)15- Effect of capitalization (-)

_______________________ _________________________

16- iap. Yen net effect (13+14+15)

______________________ _______________________

TOTAL (4+8+12+16)

Proflt/(Ioss) before tax andAppreciation of

foreign currency —(79.680)

2.853

non-controlling interestDepreciation ot

foreign currency

79.680(2.853)

(76.827) 76.827

30.477 (30.477)5.162 (5.162)

35.639 (35.639)

(1.963) 1.963

(1.963) 1.963

(43.151) 43.151

63



NOTES TÜ THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Amonnis are cxprcsscd as Thnusand Turkish Lira (‘TRY ThDusand”) unless olhcrwise indicaled


Additional information ahuut financial instruments (cont’d)

(e) Foreign currency risk management (cont’d)

31 December 2015

1-111V net asset/liability2- Hedged portion from TRY risk (-)3. Effect of capitalization (-)4- TRY net effect (1+2+3)

5- US Dollars net asset/Iiability6- Hedged portion from US Oollars risk (.)7- Effect of capitalization (-)8- US Dollars net effect (5+6+7)

9- Euro net asset/Jiability10- Hedged portion from Euro risk (-)11- Effect of capitahzation Ç-)12- Furo net effect (9+10+11)

13- iap. Yen net asset/Iiability14- Hedged portion from iap. Yen risk (-)15- Effect of capitalization (-)16- iap. Yen net effect (13+14+15)

TOTAL (4+8+12+16)

(0 Liquidity risk rnanagernent

ProflU(Ioss) before taxAppreciation of Depreciation of

foreign curreney foreign curreney

(68.755) 68.7556.818 (6.818)

(61.937) 61.937

(2.515) 2.5158.842 (8.842)

6.327 (6.327)

(3.142) 3.142

(3.142) 3.142

(58.752) 58.752

Ultimate responsibility for liquidity risk rnanagement resis with the Board of Directors, which has builtan appropriate Iiquidity risk management framework for the managernent of the Company’s short,medium and long-terrn funding and Iiquidity management requirements. The Company managesIiqııidity risk by continuously monitoring forecasted and actual cash flows and matching the maturityprofiles of financial assets and Iiabilities and maintaining adequate funds and reserves.

Lişuidirv risk iabks

ConseRative Iiquiditv risk management includes maintaining sufticient cash, availability ofsufflcientamount of borrowings and ftınds and ability to senle market positions.

The Company manages its funding of actual and forecasted financial obligations by maintaining theavailability ofsufficient number of high quality ban providers.

The following table details the Company’s expected maturity for its derivative and non derivativefinancial liabilities. lnterests which wilI be paid on borrowings in the futLıre are included in the relevantcolumns in the following taNe.

64

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66

(Convenience Translation into Engiislı of Financial Statements Originaliy Issued in Turkish — Sec Note 33)

ISKENDERUN DEMİR VE ÇELiK A.Ş.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016tArnounts are expressed as Tlıousand Turkish Lira (TRY Thousand’) unless oIhcn ise indicated



(g) Interest rate risk management

The majority of the Cornpany’s borrowings are based on floating interest rate terms. in order to managethe exposure to interest rate rnovernents on certain portion of the bank borrowings, the Company usesinterest rate swaps and changes floating rates to flxed rates.

Fudherrnore. for borrowings denominaled in foreign currencies, except for US Dollars. the Cornpanvıııinimizes its interest rate risk by leveraging in foreign cıırrencies that bear Iower interest rate. inaddition, a higher interest rale is appiied to the irade receivables witlı a maturity when compared to theinterest rate exposed for trade payables.

in!erest nile seıısiIiı’i!’

The following sensitivity analysis is based on forecasted imerest rate ehanges for the liabilitiesdenominated in variable interest rates. The information deıails the Company’s sensitivity to aninerease/decrease of 0,50% for US Dollars and EURO, 0,25% for Japanese Yen and 1,00% for TRYdenominated interest rates.

Since the principal payınents of the Ioans with floating interest rates are not affected fronı ehanges ininterest rates, the risk exposure of the Cornpany Ioans is measured using a sensitivity anaiysis insteadof a Value at Risk calculation.

Interest Position Table


floating Interest Ratc Rnaneial InstnımentsFinancial Iiabilities 676.995 713.682

For the year round, if the US Dollars, EURO and iapanese Yen denominated interest ratesincreaseİdecrease by 100 base points in TRY, 50 base points in US Dollars and EURO and 25 basepoints in Japanese Yen respectively ceteris paribus, the profit before taxation and non-controllinginterest after considering the effect of capitalization and hedging would be Iower/higher TRY 3.932thoıısand (31 December 201 5: TRY 2.496 tlıousand).

67

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68

(Convenience Translation into English of Financial Statements Originally Issued in Turkislı — Sec Note 33)


NOTES TÜ THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Arnounls are cxprcssed as Tlıousand Turkish Lira (TRY Tlıousand’) unlcss olhcnvisc ındıcated

NOTE 31 - FINANCİAL INSTRUMENTS (FAİR VALUE AND FINANCİAL RİSKMANAGEMENT DISCLOSURES) (cont’d)


Calegories of the financial instrurnents and İheir fair values (cont’d)

Financial asset and liabilitles nt fair valuc Fair value level as of reporting dale31 December 2016 Level 1 Level 2 Level 3

Financial asscts and Iiabilities nt hür valucIhrough pmfidlossDerivative financial asseis 22.642 - 22.642 -

Derivative financial Iiabilities (370) - (370) -

Financial asscts and Iiabilitics nt fair valucthrough othcr compwbcnsivc incomc/cxpcnseDerivalive financial asseis 9.243 - 9.243 -

Derivative financial Iiabiiities (18.560> - (18.560) -

Tolal 12.955 - 12.955

Financial asset and Iiabllhics nt fair valuc Fafr value level as of reporting dale31 December 2015 Level 1 heyet 2 Level 3

Financial assets and Iiabilities at fair valucthmugh pmfit/IossDerivative fınancialasseis 52.914 - 52.914 -

Derivative fmancbl liabilities (14.015) - (14.015) -

Financial assets and Iiabilities at fair valucthmugh other comprchcnsive income/cxpcnse

Derivative financialassets 10.182 - 10.182 -

Derivative financial liabilities (25.257) - (25.257) -

Total 23.824 - 23.824

First heyet: Quoled (fon adjusted) prices in active markets for identical assets or Iiabiiities.

Second Level: Other valuation techniques for which ali inputs which have a signiflcant effecl on therecorded fair value are obsen’abie, either dircetiy or indirectiy.

Third Level: Valuation lechniques which use inputs which have a signiflcant effect on the recorded fairvalue timi are not based on obsen’able market data.

69

(Convenience Translation into English of Financial S(atements OrginaIIy lssued in Turkish — See Note 33)


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Amounts are exprcsscd as Thousand Turkisi, Lira (TRY TilaLısaad) untess othcnvisc indicated)

NOTE 32- SUBSEQUENT EVENTS

in annııal General Assembiy dated 16 January 2017, the slıare capilal of İsdemir Linde Gaz OrtaklığıA.Ş. has been increased from 50.000 TRY to 27.000.000 TRY and 26.950.000 TRY paid in cash byshareholders on 27 Januaıy 2017.

NOTE 33- OTHER ISSUES AFFECTING THE COMPANY’S FINANCİAL STATEMENTSMATERIALLY OR THOSE REQUIRED TO BE DISCLOSED FOR A CLEAR,UNDERSTANDABLE AND INTERERETABLE PRESENTATİON

Convenience translation to English:

As at December 31,2016, the accoıınting principles described in Note 2 (defined as Turkislı AccountingStandards/Turkish Financial Reporting Standards) to the accornpanying financial statements differ fronıinternational Financial Reporting Standards (“IFRS”) issııed by the international Accounting StandardsBoard wiih respect to the application of infiation accounting, ceıtain reclassiflcations and also forcertain disciosures reqııirenıent of the POA/CMB. Accordingly, the accornpanying financial staternentsare not intended to preseııt the financial position and results of operations in accordance with IFRS.

70

İskenderun demİr ve Çelİk a.Ş. · to the board of directors of iskenderun demir ve Çelik...

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