SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of August 2007
Commission File Number 001-15092
TURKCELL ILETISIM HIZMETLERI A.S. |
(Translation of registrants name into English) |
Turkcell Plaza Mesrutiyet Caddesi No. 153 34430 Tepebasi Istanbul, Turkey |
(Address of principal executive offices) |
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F
Form 20-F: ý Form 40-F: o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders. |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrants home country), or under the rules of the home country exchange on which the registrants securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrants security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR. |
Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes: o No: ý
If Yes is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b) 82
EXHIBIT INDEX
1 | Turkcell Iletisim Hizmetleri A.S. Notes to the Consolidated Interim Financial Statements As at and for the six months ended 30 June 2007 |
2 | Press Release dated August 8, 2007 |
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
CONSOLIDATED INTERIM BALANCE SHEET
As at 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
|
|
|
Note |
|
30 June |
|
31 December |
2007 |
2006 | ||||||
Assets |
|
|
|
|
|
| |
|
Property, plant and equipment |
|
11 |
|
1,996,579 |
|
1,916,991 |
|
Intangible assets |
|
12 |
|
1,269,407 |
|
1,234,668 |
|
Investments in equity accounted investees |
|
13 |
|
566,009 |
|
523,840 |
|
Other investments, including derivatives |
|
14 |
|
37,812 |
|
35,095 |
|
Due from related parties |
|
31 |
|
70,747 |
|
72,506 |
|
Other non-current assets |
|
15 |
|
34,075 |
|
121,465 |
|
Deferred tax assets |
|
16 |
|
4,798 |
|
3,052 |
Total non-current assets |
|
|
|
3,979,427 |
|
3,907,617 | |
|
|
|
|
|
|
|
|
|
Inventories |
|
|
|
11,512 |
|
11,018 |
|
Other investments, including derivatives |
|
14 |
|
42,452 |
|
61,733 |
|
Due from related parties |
|
31 |
|
33,508 |
|
66,101 |
|
Trade receivables and accrued income |
|
17 |
|
438,288 |
|
318,973 |
|
Other current assets |
|
18 |
|
383,920 |
|
125,653 |
|
Cash and cash equivalents |
|
19 |
|
1,672,491 |
|
1,598,640 |
Total current assets |
|
|
|
2,582,171 |
|
2,182,118 | |
|
|
|
|
|
|
| |
Total assets |
|
|
|
6,561,598 |
|
6,089,735 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
| |
|
Share capital |
|
20 |
|
1,636,204 |
|
1,636,204 |
|
Share premium |
|
20 |
|
434 |
|
434 |
|
Reserves |
|
20 |
|
390,418 |
|
(4,884) |
|
Retained earnings |
|
20 |
|
2,420,133 |
|
2,394,838 |
Total equity attributable to equity holders of the Company |
|
4,447,189 |
|
4,026,592 | |||
|
|
|
|
|
|
|
|
Minority interest |
|
20 |
|
92,942 |
|
91,375 | |
|
|
|
|
|
|
|
|
Total equity |
|
|
|
4,540,131 |
|
4,117,967 | |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
| |
|
Loans and borrowings |
|
22 |
|
141,630 |
|
113,503 |
|
Employee benefits |
|
23 |
|
22,801 |
|
17,648 |
|
Other non-current liabilities |
|
|
|
967 |
|
8,683 |
|
Deferred tax liabilities |
|
16 |
|
165,707 |
|
196,260 |
Total non-current liabilities |
|
|
|
331,105 |
|
336,094 | |
|
|
|
|
|
|
|
|
|
Bank overdraft |
|
19 |
|
12,007 |
|
285 |
|
Loans and borrowings |
|
22 |
|
550,146 |
|
526,083 |
|
Income taxes payable |
|
10 |
|
195,021 |
|
309,470 |
|
Trade and other payables |
|
26 |
|
716,999 |
|
579,421 |
|
Due to related parties |
|
31 |
|
8,279 |
|
6,844 |
|
Deferred income |
|
24 |
|
185,682 |
|
184,337 |
|
Provisions |
|
25 |
|
22,228 |
|
29,234 |
Total current liabilities |
|
|
|
1,690,362 |
|
1,635,674 | |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
2,021,467 |
|
1,971,768 | |
|
|
|
|
|
|
| |
Total equity and liabilities |
|
|
|
6,561,598 |
|
6,089,735 |
The notes on page 6 to 77 are an integral part of these consolidated financial statements.
1
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
CONSOLIDATED INTERIM INCOME STATEMENT
For the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
|
|
|
|
Six months ended |
|
Three months ended | ||||
|
|
Note |
|
30 June 2007 |
|
30 June 2006 |
|
30 June 2007 |
|
30 June 2006 |
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
7 |
|
2,798,277 |
|
2,297,548 |
|
1,503,516 |
|
1,165,347 |
Direct cost of revenue |
|
|
|
(1,454,421) |
|
(1,314,352) |
|
(768,426) |
|
(646,998) |
Gross profit |
|
|
|
1,343,856 |
|
983,196 |
|
735,090 |
|
518,349 |
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
|
8,352 |
|
10,116 |
|
5,242 |
|
8,624 |
Selling and marketing expenses |
|
|
|
(513,313) |
|
(402,955) |
|
(281,618) |
|
(196,865) |
Administrative expenses |
|
|
|
(106,859) |
|
(85,545) |
|
(54,427) |
|
(44,272) |
Other expenses |
|
|
|
(4,099) |
|
(6,689) |
|
(2,083) |
|
(3,061) |
Results from operating activities |
|
|
|
727,937 |
|
498,123 |
|
402,204 |
|
282,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance income |
|
9 |
|
130,044 |
|
80,482 |
|
53,274 |
|
26,879 |
Finance expenses |
|
9 |
|
(214,675) |
|
(108,756) |
|
(163,535) |
|
(88,604) |
Net finance cost |
|
|
|
(84,631) |
|
(28,274) |
|
(110,261) |
|
(61,725) |
|
|
|
|
|
|
|
|
|
|
|
Share of profit of equity accounted investees |
13 |
|
26,150 |
|
35,765 |
|
8,471 |
|
19,917 | |
Profit before income taxes |
|
|
|
669,456 |
|
505,614 |
|
300,414 |
|
240,967 |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
10 |
|
(147,034) |
|
(252,327) |
|
(46,422) |
|
(164,880) |
Profit for the period |
|
|
|
522,422 |
|
253,287 |
|
000,000 |
|
76,087 |
|
|
|
|
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company |
|
|
|
545,769 |
|
274,045 |
|
273,631 |
|
86,860 |
Minority interest |
|
|
|
(23,347) |
|
(20,758) |
|
(19,639) |
|
(10,773) |
Profit for the period |
|
|
|
522,422 |
|
253,287 |
|
000,000 |
|
76,087 |
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share |
|
21 |
|
0.248077 |
|
0.124566 |
|
0.124378 |
|
0.039482 |
(in full USD) |
|
|
|
|
|
|
|
|
|
|
The notes on page 6 to 77 are an integral part of these consolidated financial statements.
2
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENT OF RECOGNIZED INCOME AND EXPENSE
For the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
|
|
Six months ended |
|
Three months ended | ||||
|
|
30 June 2007 |
|
30 June 2006 |
|
30 June 2007 |
|
30 June 2006 |
|
|
|
|
|
|
|
|
|
Foreign exchange translation differences |
|
284,541 |
|
(540,841) |
|
207,586 |
|
(542,907) |
Change in fair value of available-for-sale securities, net of deferred taxes |
|
2,200 |
|
(233) |
|
1,851 |
|
(623) |
Income/(expense) recognized directly in equity |
|
286,741 |
|
(541,074) |
|
209,437 |
|
(543,530) |
|
|
|
|
|
|
|
|
|
Profit for the period |
|
522,422 |
|
253,287 |
|
253,992 |
|
76,087 |
|
|
|
|
|
|
|
|
|
Total recognized income/(expense) for the period |
|
809,163 |
|
(287,787) |
|
463,429 |
|
(467,443) |
|
|
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
|
|
Equity holders of the Company |
|
831,385 |
|
(267,029) |
|
481,943 |
|
(456,670) |
Minority interest |
|
(22,222) |
|
(20,758) |
|
(18,514) |
|
(10,773) |
Total recognized income/(expense) for the period |
|
809,163 |
|
(287,787) |
|
463,429 |
|
(467,443) |
The notes on page 6 to 77 are an integral part of these consolidated financial statements.
3
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS
For the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
|
Six months ended | |||
|
|
2007 |
|
2006 |
Cash flows from operating activities |
|
|
|
|
Profit for the period |
|
522,422 |
|
253,287 |
Adjustments for: |
|
|
|
|
Depreciation |
|
260,268 |
|
269,281 |
Amortization of intangibles |
|
126,294 |
|
113,845 |
Foreign exchange loss, net |
|
177,508 |
|
65,527 |
Net finance costs |
|
(98,594) |
|
(40,689) |
Provision for doubtful receivables |
|
14,303 |
|
12,008 |
Income tax expense |
|
147,034 |
|
252,327 |
Share of profit of equity accounted investees |
|
(47,494) |
|
(35,765) |
Gain on sale of property, plant and equipment |
|
(4,323) |
|
- |
Translation reserve |
|
23,570 |
|
(45,219) |
Net gain/(loss) on remeasurement of investments |
|
(181) |
|
5,888 |
Amortization of transaction costs of borrowings |
|
12,393 |
|
4,191 |
|
|
1,133,200 |
|
854,681 |
Change in trade receivables |
|
(110,494) |
|
(56,169) |
Change in due from related parties |
|
37,887 |
|
12,110 |
Change in inventories |
|
358 |
|
(11,318) |
Change in other current assets |
|
(221,025) |
|
(45,347) |
Change in trading securities |
|
- |
|
(123,301) |
Change in other non-current assets |
|
88,626 |
|
499 |
Change in due to related parties |
|
1,123 |
|
27 |
Change in trade and other payables |
|
101,763 |
|
24,251 |
Change in other non-current liabilities |
|
(7,846) |
|
3,497 |
Change in employee benefits |
|
3,787 |
|
1,745 |
Change in deferred income |
|
(12,926) |
|
10,614 |
Change in provisions |
|
(8,459) |
|
(7,063) |
|
|
1,005,994 |
|
664,226 |
Interest paid |
|
(25,289) |
|
(24,203) |
Income taxes paid |
|
(336,578) |
|
(62,755) |
Dividend received |
|
11,960 |
|
- |
Net cash from operating activities |
|
656,087 |
|
577,268 |
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
Acquisition of property, plant and equipment |
|
(237,208) |
|
(160,955) |
Acquisition of intangibles |
|
(83,473) |
|
(56,904) |
Proceeds from sale of property plant and equipment |
|
11,586 |
|
- |
Acquisition of equity accounted investees and other investments |
|
- |
|
(6,168) |
Acquisition of minority interest |
|
(751) |
|
(22,691) |
Payment of currency option contracts premium |
|
(3,489) |
|
- |
Proceeds from currency option contracts |
|
3,851 |
|
- |
Acquisition of available-for-sale financial assets |
|
(119) |
|
(5,464) |
Proceeds from sale of available-for-sale financial assets |
|
17,386 |
|
6,712 |
Proceeds from settlement of held-to-maturity investments |
|
7,665 |
|
- |
Interest received |
|
123,047 |
|
74,591 |
Dividends received |
|
16,744 |
|
- |
Net cash used in investing activities |
|
(144,761) |
|
(170,879) |
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
Payment of transaction costs |
|
(205) |
|
(52,126) |
Proceeds from issuance of loans and borrowings |
|
436,647 |
|
819,999 |
Repayment of borrowings and finance lease liabilities |
|
(426,154) |
|
(857,259) |
Dividends paid |
|
(457,625) |
|
(342,166) |
Change in minority interest |
|
71,377 |
|
37,617 |
Net cash used in financing activities |
|
(375,960) |
|
(393,935) |
|
|
|
|
|
Effects of foreign exchange rate fluctuations on balance sheet items |
|
104,271 |
|
(128,569) |
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
|
239,637 |
|
(116,115) |
Cash and cash equivalents at 1 January |
|
1,598,355 |
|
808,153 |
Effect of exchange rate fluctuations on cash and cash equivalents |
|
(177,508) |
|
(65,527) |
Cash and cash equivalents at 30 June |
|
1,660,484 |
|
626,511 |
The notes on page 6 to 77 are an integral part of these consolidated financial statements.
4
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
Notes to the consolidated interim financial statements
|
Page |
||||
|
1. Reporting entity |
6 | |||
|
2. Basis of preparation |
7 | |||
|
3. Significant accounting policies |
8 | |||
|
4. Determination of fair values |
19 | |||
|
5. Segment reporting |
20 | |||
|
6. Acquisitions of joint ventures and minority interests |
25 | |||
|
7. Revenue |
26 | |||
|
8. Personnel expenses |
26 | |||
|
9. Finance income and expense |
26 | |||
|
10. Income tax expense in the income statement |
27 | |||
|
11. Property, plant and equipment |
29 | |||
|
12. Intangible assets |
31 | |||
|
13. Equity accounted investees |
33 | |||
|
14. Other investments, including derivatives |
34 | |||
|
15. Other non-current assets |
35 | |||
|
16. Deferred tax assets and liabilities |
35 | |||
|
17. Trade receivables and accrued income |
37 | |||
|
18. Other current assets |
37 | |||
|
19. Cash and cash equivalents |
38 | |||
|
20. Capital and reserves |
39 | |||
|
21. Earnings per share |
41 | |||
|
22. Loans and borrowings |
42 | |||
|
23. Employee benefits |
44 | |||
|
24. Deferred income |
44 | |||
|
25. Provisions |
44 | |||
|
26. Trade and other payables |
45 | |||
|
27. Financial instruments and financial risk management |
46 | |||
|
28. Operating leases |
53 | |||
|
29. Capital commitments |
54 | |||
|
30. Contingencies |
55 | |||
|
31. Related parties |
72 | |||
|
32. Group entities |
77 | |||
|
33. Subsequent events |
77 |
5
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
1. | Reporting entity |
Turkcell Iletisim Hizmetleri Anonim Sirketi (the Company) was incorporated in Turkey on 5 October 1993 and commenced its operations in 1994. It is engaged in establishing and operating a Global System for Mobile Communications (GSM) network in Turkey and regional states. |
In April 1998, the Company signed a license agreement (the License) with the Ministry of Transportation and Communications of Turkey (the Turkish Ministry), under which it was granted a 25 year GSM license in exchange for a license fee of $500,000. The License permits the Company to operate as a stand-alone GSM operator and releases it from some of the operating constraints in the Revenue Sharing Agreement, which was in effect prior to the License. Under the License, the Company collects all of the revenue generated from the operations of its GSM network and pays the Undersecretariat of Treasury (the Turkish Treasury) an ongoing license fee equal to 15% of its gross revenue from Turkish GSM operations. The Company continues to build and operate its GSM network and is authorized to, among other things, set its own tariffs within certain limits, charge peak and off-peak rates, offer a variety of service and pricing packages, issue invoices directly to subscribers, collect payments and deal directly with subscribers. |
On 25 June 2005, the Turkish government declared that GSM operators are required to pay 10% of their existing monthly ongoing license fee to the Turkish Ministry as a universal service fund contribution in accordance with Law No 5369. As a result, starting from 30 June 2005, the Company pays 90% of the ongoing license fee to the Turkish Treasury and 10% to the Turkish Ministry as universal service fund. |
In July 2000, the Company completed an initial public offering with the listing of its ordinary shares on the Istanbul Stock Exchange and American Depositary Shares, or ADSs, on the New York Stock Exchange. |
In November 2006, Cukurova Group sold 5.88% of the total shares through secondary offering. The Company did not receive any proceeds from this offering. |
As at 30 June 2007, two significant founding shareholders, Sonera Holding BV and Cukurova Group own approximately 37.1% and 21.2%, respectively, of the Companys share capital, and are ultimate counterparties to a number of transactions that are discussed in the related party footnote. On 28 November 2005, upon completion of a series of transactions, Alfa Group acquired 13.2% indirect ownership in the Company through its Altimo subsidiary, one of Russias leading private telecommunications investors. |
The consolidated interim financial statements of the Company as at and for the six and three months ended 30 June 2007 comprise the Company and its seventeen subsidiaries (together referred to as the Group) and the Groups interest in one associate and one joint venture. The Companys and each of its subsidiaries, associates and joint ventures interim financial statements are prepared as at and for the six and three months ended 30 June 2007. |
6
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
2. | Basis of preparation |
(a) | Statement of compliance |
The consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and its interpretations adopted by the International Accounting Standards Board (IASB). |
The Groups consolidated interim financial statements were approved by the Board of Directors on 8 August 2007. |
(b) | Basis of measurement |
The accompanying consolidated interim financial statements are based on the statutory records, with adjustments and reclassifications for the purpose of fair presentation in accordance with IFRSs. They are prepared on the historical cost basis adjusted for the effects of inflation during the hyperinflationary period lasted by 31 December 2005, except that the following assets and liabilities are stated at their fair value: derivative financial instruments, financial instruments held for trading and financial instruments classified as available-for-sale. The methods used to measure fair value are further discussed in note 4. |
(c) | Functional and presentation currency |
The consolidated interim financial statements are presented in US Dollars, rounded to the nearest thousand. Moreover, all financial information expressed in new Turkish Lira (TRY), Euros (EUR) and Swedish Krona (SEK) have been rounded to the nearest thousand. The functional currency of the Company and its consolidated subsidiaries located in Turkey and Northern Cyprus and Financell BV (Financell) is TRY. The functional currency of Euroasia Telecommunications Holding BV (Euroasia) is US Dollars. The functional currency of LLC Astelit (Astelit) and East Asian Consortium BV (Eastasia) is Ukrainian Hryvnia and EUR, respectively. |
(d) | Use of estimates and judgments |
The preparation of interim financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses and disclosure of contingent assets and liabilities. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. |
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. |
Management discussed with the Audit Committee the development, selection and disclosure of the Companys critical accounting policies and estimates and the application of these policies and estimates. Information about estimates, uncertainty and critical judgements about the contingencies are described in note 30 and detailed analysis with respect to accounting estimates and judgements of bad debts, useful life or expected pattern of consumption of the future economic benefits embodied in depreciable assets is provided below: |
7
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
2. | Basis of preparation (continued) |
(d) | Use of estimates and judgments (continued) |
Key sources of estimation uncertainty |
In note 27, detailed analysis is provided for the foreign exchange exposure of the Company and risks in relation to foreign exchange movements. |
Critical accounting judgements in applying the Companys accounting policies |
Certain critical accounting judgements in applying the Companys accounting policies are described below. |
Trade receivables and accrued income |
The impairment losses in trade and other receivables are based on managements evaluation of the volume of the receivables outstanding, past experience and general economic conditions. |
Useful life of assets |
The useful economic lives of the Groups assets are determined by management at the time the asset is acquired and regularly reviewed for appropriateness. The Group defines useful life of its assets in terms of the assets expected utility to the Group. This judgment is based on the experience of the Group with similar assets. In determining the useful life of an asset, the Group also follows technical and/or commercial obsolescence arising on changes or improvements from a change in the market. The useful life of the License is based on duration of the license agreement. |
Commission fees |
Commission fees relate to services performed in relation to betting games where the Group acts as an agent in the transaction rather than as the principal. In the absence of specific guidance in IFRSs on distinguishing between an agent and a principal, management considered the following factors: |
| The Group does not take the responsibility for fulfillment of the games. |
| The Group does not collect the revenue from the final customer and it does not bear the credit risk. |
| The Group earns a stated percentage of the total turnover. |
3. | Significant accounting policies |
The accounting policies set out below have been applied consistently to all periods presented in these consolidated interim financial statements. |
(a) | Basis of consolidation |
(i) | Subsidiaries |
Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The interim financial statements of subsidiaries are included in the consolidated interim financial statements from the date that control commences until the date that control ceases. |
8
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
3. | Significant accounting policies (continued) |
(a) | Basis of consolidation (continued) |
(ii) | Associates and joint ventures (equity accounted investees) |
Associates are those entities in which the Company has significant influence, but not control, over the financial and operating policies. Joint ventures are those entities over whose activities the Company has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. Associates and joint ventures are accounted for using the equity method (equity accounted investees). The consolidated interim financial statements include the Companys share of the income and expenses of equity accounted investees, after adjustments to align the accounting policies with those of the Company, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When the Companys share of losses exceeds its interest in an equity accounted investee, carrying amount of that interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Company has incurred legal or constructive obligations or made payments on behalf of an associate. The Companys equity accounted investees as at 30 June 2007 are Fintur Holdings B.V. (Fintur) and A-Tel Pazarlama ve Servis Hizmetleri AS (A-Tel). |
(iii) | Transactions eliminated on consolidation |
Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions are eliminated in preparing the consolidated interim financial statements. Unrealised gains arising from transactions with equity accounted investees are eliminated to the extent of the Groups interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. |
(iv) | Acquisition from entities under common control |
Business combinations arising from transfers of interests in entities that are under the control of the shareholder that controls the Group are excluded from the scope of IFRS 3 Business Combinations (IFRS 3). The assets and liabilities acquired from entities under common control are recognised at the carrying amounts recognised previously in the Companys controlling shareholders consolidated financial statements. The components of equity of the acquired entities are added to the same components within the Company equity except that any share capital of the acquired entities is recognised as part of share premium. |
(b) | Foreign currency |
(i) | Foreign currency transactions |
Transactions in foreign currencies are translated to the respective functional currencies of the Group entities at exchange rate ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate ruling at that date. Foreign exchange differences arising on translation of foreign currency transactions are recognised in the income statement. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments or a financial liability designated as a hedge of the net investment in a foreign operation. |
9
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
3. | Significant accounting policies (continued) |
(b) | Foreign currency (continued) |
(ii) | Foreign operations |
The assets and liabilities of foreign operations, including fair value adjustments arising on acquisition, are translated to US Dollars at foreign exchange rates ruling at the reporting date. The income and expenses of foreign operations are translated to US Dollars at rates approximating to the exchange rates ruling at the dates of the transactions. Since 1 January 2005, the Groups date of transition to IFRS, such differences have been recognized in the foreign currency translation reserve. When a foreign operation is disposed of, in part or in full, the relevant amount in the translation reserve is transferred to profit or loss. Foreign exchange differences arising on retranslation are recognized directly in a separate component of equity. |
(iii) | Translation from functional to presentation currency |
Items included in the financial statements of each entity are measured using the currency of the primary economic environment in which the entities operate, normally under their local currencies. |
The consolidated interim financial statements are presented in US Dollars, which is the presentation currency of the Group. The Group uses US Dollars as the presentation currency for the convenience of investor and analyst community. |
Assets and liabilities for each balance sheet presented (including comparatives) are translated to US Dollars at exchange rates at the balance sheet date. Income and expenses for each income statement (including comparatives) in non-hyperinflationary economies are translated to US Dollars at rates approximating to exchange rates at the dates of the transactions. |
Foreign exchange differences arising on retranslation are recognised directly in a separate component of equity. |
(iv) | Net investment in foreign operations |
Foreign exchange differences arising from the translation of the net investment in foreign operations are recognized in translation reserve. They are transferred to the income statement upon disposal. |
(c) | Financial instruments |
(i) | Non-derivative financial instruments |
Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables. |
Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs, except as described below. Subsequent to initial recognition, non-derivative financial instruments are measured as described below. |
A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Groups contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, i.e., the date that the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Groups obligations specified in the contract expire or are discharged or cancelled. |
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Groups cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. |
10
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
3. | Significant accounting policies (continued) |
(c) | Financial instruments (continued) |
(i) | Non-derivative financial instruments (continued) |
Accounting for finance income and expense is discussed in note 3(m). |
Held-to-maturity investments |
If the Group has the positive intent and ability to hold debt securities to maturity, then they are classified as held-to-maturity. Held-to-maturity investments are measured at amortised cost using the effective interest method, less any impairment losses. |
Available-for-sale financial assets |
The Groups investments in equity securities and certain debt securities are classified as available-for-sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses (see note 3(h)(i)), and foreign exchange gains and losses on available-for-sale monetary items (see note 3(b)(i)), are recognised directly in equity. When an investment is derecognised, the cumulative gain or loss in equity is transferred to profit or loss. |
Investments at fair value through profit or loss |
An instrument is classified as investment at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Financial instruments are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value. Upon initial recognition, attributable transaction costs are recognised in profit or loss when incurred. Financial instruments at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit or loss. |
Other |
Other non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses. |
(ii) | Derivative financial instruments |
The Group holds derivative financial instruments to hedge its foreign currency risk exposures arising from operational, financing and investing activities. In accordance with its treasury policy, the Group engages in forward and option contracts. However, these derivatives do not qualify for hedge accounting and are accounted for as trading instruments. |
Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss. |
Derivatives are recognised initially at fair value; attributable transaction costs are recognised in profit or loss when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognized in income statement. |
11
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
3. | Significant accounting policies (continued) |
(c) | Financial instruments (continued) |
(iii) | Share capital |
Ordinary shares |
Incremental costs directly attributable to issue of ordinary shares and share options are recognised as a deduction from equity. |
Repurchase of share capital |
When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. |
(d) | Property, plant and equipment |
(i) | Recognition and measurement |
Items of property, plant and equipment are stated at cost adjusted for the effects of inflation during the hyperinflationary period lasted by 31 December 2005 less accumulated depreciation (see below) and impairment losses (see note 3(h)). |
Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. |
Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. |
(ii) | Subsequent costs |
The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the item will flow to the Group and the cost of the item can be measured reliably. All other costs are recognised in the income statement as expense as incurred. |
(iii) | Depreciation |
Depreciation is recognized in the income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated. The estimated useful lives for current and comparative periods are as follows: |
|
Buildings |
25 50 years | |||||
|
Network infrastructure |
5 10 years | |||||
|
Equipment, fixtures and fittings |
4 5 years | |||||
|
Motor vehicles |
4 5 years |
|||||
|
Central betting terminals |
1 5 years |
|||||
|
Leasehold improvements |
5 years |
|||||
Depreciation methods, useful lives and residual values are reassessed at the reporting date. |
12
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
3. | Significant accounting policies (continued) |
(d) | Property, plant and equipment (continued) |
(iii) | Depreciation (continued) |
During March 2007, Inteltek renewed its fixed odds betting contract reducing the period of the contract to March 2008 from September 2011, which resulted in change in expected usage of betting property, plant and equipment. As a result, expected useful lives of operational assets decreased. Effect of this change on depreciation expense recognized in direct cost of revenues in current and future periods is as follows: |
|
|
Six months ended 30 June 2007 |
|
Year ended |
|
Year ended |
Increase/(decrease) in depreciation |
|
3,851 |
|
10,112 |
|
(1,155) |
(e) | Intangible assets |
Intangible assets acquired by the Group are stated at cost adjusted for the effects of inflation during the hyperinflationary period lasted by 31 December 2005 less accumulated amortization (see below) and impairment losses (see note 3(h)). |
Expenditure on internally generated goodwill and brands is recognised in the income statement as an expense as incurred. |
(i) | Subsequent expenditure |
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure including expenditure on internally generated goodwill and brands, is expensed as incurred. |
(ii) | Amortization |
Amortization is recognized in the income statement on a straight line basis over the estimated useful lives of intangible assets unless such lives are indefinite from the date that they are available for use. Goodwill and intangible assets with an indefinite useful life are systematically tested for impairment at each balance sheet date. The estimated useful lives for the current and comparative periods are as follows: |
|
Computer software |
3 8 |
years | |||
|
GSM and other telecommunications license |
3 25 |
years | |||
|
Transmission lines |
10 |
years | |||
|
Central betting system operating right |
1 5 |
years | |||
|
Customer base |
2 |
years | |||
(f) | Leased assets |
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. |
Other leases are operating leases and the leased assets are not recognized on the Groups balance sheet. |
13
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
3. | Significant accounting policies (continued) |
(g) | Inventories |
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less selling expenses. The cost of inventory is determined using the weighted average method and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. At 30 June 2007, inventories mainly consist of simcards and scratch cards. |
(h) | Impairment |
(i) | Financial assets |
A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. |
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its current fair value. |
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. |
All impairment losses are recognised in profit or loss. Any cumulative loss in respect of an available-for-sale financial asset recognised previously in equity is transferred to profit or loss. |
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost and available-for-sale financial assets that are debt securities, the reversal is recognised in profit or loss. For available-for-sale financial assets that are equity securities, the reversal is recognised directly in equity. |
(ii) | Non-financial assets |
The carrying amounts of the Groups non-financial assets, inventories, property, plant and equipment and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the assets recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, recoverable amount is estimated at each reporting date. |
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. |
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. |
14
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
3. | Significant accounting policies (continued) |
(h) | Impairment (continued) |
(ii) | Non-financial assets (continued) |
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognised. |
(i) | Employee benefits |
(i) | Retirement pay liability |
In accordance with existing labor law in Turkey, the Company and its subsidiaries in Turkey are required to make lump-sum payments to employees who have completed one year of service and whose employment is terminated without cause or who retire, are called up for military service or die. Such payments are calculated on the basis of 30 days pay maximum full TRY 1,961 as at 30 June 2007 (equivalent to full $1,503 as at 30 June 2007) (31 December 2006: full TRY 1,857 (equivalent to full $1,423 as at 30 June 2007)) per year of employment at the rate of pay applicable at the date of retirement or termination. Reserve for retirement pay is computed and reflected in the consolidated interim financial statements on a current basis. The reserve has been calculated by estimating the present value of future probable obligation of the Group arising from the retirement of the employees. The calculation was based upon the retirement pay ceiling announced by the government. |
(ii) | Defined contribution plans |
Obligations for contributions to defined contribution plans are recognised as an expense in the income statement as incurred. Turkcell initiated a defined contribution retirement plan for all eligible employees during 2005. Besides, Inteltek Internet Teknoloji Yatirim ve Danismanlik Ticaret AS (Inteltek) and Bilyoner Interaktif Hizmetler AS (Bilyoner), other consolidated subsidiaries, initiated a defined contribution retirement plan for all eligible employees during 2006. The assets of the plan are held separately from the consolidated interim financial statements of the Group. The Company, Inteltek and Bilyoner are required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Company, Inteltek and Bilyoner with respect to the retirement plan is to make the specified contributions. |
(j) | Provisions |
A provision is recognised in the balance sheet if the Group has a present legal or constructive obligation as a result of a past event that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. |
Onerous contracts |
A provision for onerous contracts is recognized when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognizes any impairment loss on the assets associated with that contract. |
15
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
3. | Significant accounting policies (continued) |
(k) | Revenue |
Communication fees include all types of postpaid revenues from incoming and outgoing calls, additional services and prepaid revenues. Communication fees are recognized at the time the services are rendered. |
With respect to prepaid revenues, the Group generally collects cash in advance by selling scratch cards to distributors. In such cases, the Group does not recognize revenue until the subscribers use the telecommunications services. Instead, deferred revenue is recorded under current liabilities. |
Both postpaid and prepaid services may be bundled with handset or other services and these bundled services and products involve consideration in the form of fixed fee or a fixed fee coupled with continuing payment stream. Deliverables are accounted separately where a market for each deliverable exists and if the recognition criterion is met individually. Costs associated with each deliverable are recognized at the time of revenue recognized. The arrangement consideration is allocated to each deliverable in proportion to the fair value of the individual deliverables. |
Commission fees mainly comprised of net takings earned to a maximum of 7% of gross takings, as a head agent of fixed odds betting games starting from 15 March 2007 and 4.3% commission recognized based on the para-mutual and fixed odds betting games operated on Central Betting System. Prior to 15 March 2007, under the former head agency agreement, head agency commission fees were earned to a maximum of 12% of gross takings. Commission revenues are recognized at the time all the services related with the games are fully rendered. Under the head agency agreement, Inteltek is obliged to undertake any excess payout, which is presented on net basis with the commission fees. |
Monthly fixed fees represent a fixed amount charged to postpaid subscribers on a monthly basis without regard to the level of usage. Fixed fees are recognized on a monthly basis when billed. |
Simcard sales are recognized net of returns, discounts and rebates upon initial entry of a new subscriber into the GSM system only to the extent of direct costs. Excess simcard and prepaid simcard sales, if any, are deferred and amortized over the estimated effective subscriber life. |
Call center revenues are recognized at the time the services are rendered. |
(l) | Lease payments |
Payments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognized in the income statement as an integral part of the total lease expense, over the term of the lease. |
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed. |
16
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
3. | Significant accounting policies (continued) |
(m) | Finance income and expenses |
Finance income comprises interest income on funds invested, gains on the disposal of available-for-sale financial assets, changes in the fair value of financial assets at fair value through profit or loss, net foreign currency gains, and gains on hedging instruments that are recognised in profit or loss. Interest income is recognised as it accrues, using the effective interest method. |
Finance expenses comprise interest expense on borrowings, unwinding of the discount on provisions, net foreign currency losses, changes in the fair value of financial assets at fair value through profit or loss, impairment losses recognised on financial assets, and losses on hedging instruments that are recognised in profit or loss. All borrowing costs are recognised in profit or loss using the effective interest method. |
(n) | Transactions with related parties |
A related party is essentially any party that controls or can significantly influence the financial or operating decisions of the Group to the extent that the Group may be prevented from fully pursuing its own interests. For reporting purposes, investee companies and their shareholders, key management personnel, shareholders of the Group and the companies that the shareholders have a relationship with are considered to be related parties. |
(o) | Income tax expense |
Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. |
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. |
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. |
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. |
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is recognised. |
Information as to the calculation of income tax expense in the income statement for the interim periods presented is included in note 10. |
17
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
3. | Significant accounting policies (continued) |
(p) | Earnings per share |
The Group presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is equal to basic EPS because the Group does not have any convertible notes or share options granted to employees. |
(q) | Segment reporting |
A segment is a distinguishable component of the Group that is engaged either in providing related products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. The Groups primary segment reporting is based on geographical segment and secondary segment reporting is based on business segments. |
(r) | New standards and interpretations not yet adopted |
A number of new standards, amendments to standards and interpretations are not yet effective for the period ended 30 June 2007, and have not been applied in preparing these consolidated interim financial statements: |
| IFRS 8 Operating Segments requires that an entity should disclose information to enable users of its financial statements to evaluate the nature and financial effects of the types of business activities in which it engages and the economic environments in which it operates. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the entity that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. IFRS 8 is effective for annual financial statements for periods beginning on or after 1 January 2009 and will require additional disclosures for the Group. Earlier adoption is permitted. |
| IFRIC 12, Service Concession Arrangements provides guidance to private sector entities on certain recognition and measurement issues that arise in accounting for public to private service concession agreements. IFRIC 12 becomes effective for annual periods beginning on or after 1 January 2008 and the Group is evaluating the potential effects on its consolidated financial statements. |
| IFRIC 13 Customer Loyalty Programmes requires that an entity recognise credits that it awards to customers as part of a sales transaction as a separately identifiable component of revenue, which would be deferred at the date of the initial sale. IFRIC 13 is effective for annual periods beginning on or after 1 July 2008 and the Group is evaluating the potential effects on its consolidated financial statements. |
| IFRIC 14IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction clarifies when refunds or reductions in future contributions in relation to defined benefit assets should be regarded as available and provides guidance on the impact of minimum funding requirements on such assets. It also addresses when a minimum funding requirement might give rise to a liability. IFRIC 14 is effective for annual periods beginning on or after 1 January 2008, and is not expected to have any impact on the consolidated financial statements of the Group. |
18
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
4. | Determination of fair values |
A number of the Groups accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. |
(i) | Property, plant and equipment |
The fair value of property, plant and equipment recognised as a result of a business combination is based on market values. The market value of property is the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arms length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The market value of items of plant, equipment, fixtures and fittings is based on the quoted market prices for similar items. |
(ii) | Intangible assets |
The fair value of intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets. |
(iii) | Investments in equity and debt securities |
The fair value of financial assets at fair value through profit or loss, held-to-maturity investments and available-for-sale financial assets is determined by reference to their quoted bid price and over the counter market price at the reporting date. The fair value of held-to-maturity investments is determined for disclosure purposes only. |
(iv) | Trade and other receivables |
The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. |
(v) | Derivatives |
The fair value of forward exchange contracts and option contracts is based on their listed market price, if available. If a listed market price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate (based on government bonds) or option pricing models. |
(vi) | Non-derivative financial liabilities |
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases, the market rate of interest is determined by reference to similar lease agreements. |
19
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
5. | Segment reporting |
Primary reporting format geographical segments |
Segment information is presented in respect of the Groups geographical and business segments. The primary format, geographical segments, is based on the dominant source and nature of the Groups risk and returns as well as the Groups internal reporting structure. |
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly investments and related revenue, loans and borrowings and related expenses, corporate assets and income tax assets and liabilities. |
Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill. |
Geographical segments: |
A geographical segment is a distinguishable component of an enterprise that is engaged in providing products or services within a particular economic environment and that is subject to risks and returns that are different from those of components operating in other economic environments. |
In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of the entities. Segment assets are based on the geographical location of the assets. |
The Group comprises the following main geographical segments: Turkey, Ukraine, Turkish Republic of Northern Cyprus. |
Business segments: |
In presenting information on the basis of business segments, segment revenue is based on the operational activity of the entities. Segment assets are based on the intended use of the assets. |
The Group comprises the following main business segments: Telecommunications and betting businesses |
20
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
5. | Segment reporting (continued) |
Six months ended 30 June | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Turkey | Ukraine |
Turkish Republic of Northern Cyprus |
Other | Elinations | Consolidated | ||||||||||||||||||||
2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||
Total external revenues | 2,661,336 | 2,228,966 | 96,794 | 36,854 | 40,147 | 31,728 | | | | | 2,798,277 | 2,297,548 | |||||||||||||
Intersegment revenue | 2,004 | 597 | 616 | | 2,876 | 947 | | | (5,496 | ) | (1,544 | ) | | | |||||||||||
Total segment revenue | 2,663,340 | 2,229,563 | 97,410 | 36,854 | 43,023 | 32,675 | | | (5,496 | ) | (1,544 | ) | 2,798,277 | 2,297,548 | |||||||||||
Segment result | 785,018 | 573,241 | (64,290 | ) | (81,776 | ) | 3,708 | 2,393 | | | (752 | ) | 838 | 723,684 | 494,696 | ||||||||||
Unallocated income, net | | | | | | | | | | | 4,253 | 3,427 | |||||||||||||
Results from operating activities | | | | | | | | | | | 727,937 | 498,123 | |||||||||||||
Net finance cost | | | | | | | | | | | (84,631 | ) | (28,274 | ) | |||||||||||
Share of profit/(loss) of equity | |||||||||||||||||||||||||
accounted investees | (17,926 | ) | | | | | | 44,076 | 35,765 | | | 26,150 | 35,765 | ||||||||||||
Income tax expense | | | | | | | | | | | (147,034 | ) | (252,327 | ) | |||||||||||
Profit for the period | | | | | | | | | | | 522,422 | 253,287 | |||||||||||||
21
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
5. | Segment reporting (continued) |
Three months ended 30 June | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Turkey | Ukraine |
Turkish Republic of Northern Cyprus |
Other | Elinations | Consolidated | ||||||||||||||||||||
2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||
Total external revenues | 1,428,306 | 1,129,427 | 54,016 | 19,787 | 21,194 | 16,133 | | | | | 1,503,516 | 1,165,347 | |||||||||||||
Intersegment revenue | 1,284 | 250 | 616 | | 1,759 | 695 | | | (3,659 | ) | (945 | ) | | | |||||||||||
Total segment revenue | 1,429,590 | 1,129,677 | 54,632 | 19,787 | 22,953 | 16,828 | | | (3,659 | ) | (945 | ) | 1,503,516 | 1,165,347 | |||||||||||
Segment result | 427,062 | 318,006 | (29,193 | ) | (42,476 | ) | 2,034 | 1,217 | | | (858 | ) | 465 | 399,045 | 277,212 | ||||||||||
Unallocated income, net | 3,159 | 5,563 | |||||||||||||||||||||||
Results from operating activities | | | | | | | | | | | 402,204 | 282,775 | |||||||||||||
Net finance cost | | | | | | | | | | | (110,261 | ) | (61,725 | ) | |||||||||||
Share of profit/(loss) of equity | |||||||||||||||||||||||||
accounted investees | (13,549 | ) | | | | | | 22,020 | 19,917 | | | 8,471 | 19,917 | ||||||||||||
Income tax expense | | | | | | | | | | | (46,422 | ) | (164,880 | ) | |||||||||||
Profit for the period | | | | | | | | | | | 253,992 | 76,087 | |||||||||||||
22
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
5. | Segment reporting (continued) |
As at 30 June 2007 and 31 December 2006 | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Turkey | Ukraine |
Turkish Republic of Northern Cyprus |
Other | Elinations | Consolidated | ||||||||||||||||||||
2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||
Segment assets | 3,410,852 | 3,154,146 | 672,853 | 572,474 | 65,897 | 35,529 | 15 | | (19,827 | ) | (563 | ) | 4,129,790 | 3,761,586 | |||||||||||
Investment in equity accounted | |||||||||||||||||||||||||
investees | 133,101 | 147,568 | | | | | 432,908 | 376,272 | | | 566,009 | 523,840 | |||||||||||||
Unallocated assets | | | | | | | | | | | 1,865,799 | 1,804,309 | |||||||||||||
Total assets | | | | | | | | | | | 6,561,598 | 6,089,735 | |||||||||||||
Segment liabilities | 842,202 | 736,753 | 96,942 | 76,753 | 37,669 | 12,993 | 43 | 119 | (19,071 | ) | (451 | ) | 957,785 | 826,167 | |||||||||||
Unallocated liabilities | | | | | | | | | | | 1,063,682 | 1,145,601 | |||||||||||||
Total liabilities | | | | | | | | | | | 2,021,467 | 1,971,768 | |||||||||||||
Six months ended 30 June | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Turkey | Ukraine |
Turkish Republic of Northern Cyprus |
Other | Elinations | Consolidated | ||||||||||||||||||||
2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||
Capital expenditure | 188,440 | 124,751 | 103,009 | 89,371 | 29,232 | 3,737 | | | | | 320,681 | 217,859 | |||||||||||||
Depreciation | 235,486 | 231,983 | 21,488 | 34,446 | 3,294 | 2,852 | | | | | 260,268 | 269,281 | |||||||||||||
Amortization of intangible assets | 108,969 | 101,151 | 16,482 | 12,261 | 843 | 433 | | | | | 126,294 | 113,845 | |||||||||||||
Impairment losses | 14,970 | 14,312 | 115 | (206 | ) | 262 | 184 | | | | | 15,347 | 14,290 |
Three months ended 30 June | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Turkey | Ukraine |
Turkish Republic of Northern Cyprus |
Other | Elinations | Consolidated | ||||||||||||||||||||
2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||
Capital expenditure | 109,647 | 45,225 | 53,038 | 33,701 | 28,000 | 1,269 | | | | | 190,685 | 80,195 | |||||||||||||
Depreciation | 120,479 | 111,000 | 11,928 | 18,740 | 1,644 | 1,384 | | | | | 134,051 | 131,124 | |||||||||||||
Amortization of intangible assets | 55,870 | 48,562 | 7,428 | 6,417 | 553 | 227 | | | | | 63,851 | 55,206 | |||||||||||||
Impairment losses | 7,789 | 7,493 | 74 | (13 | ) | 139 | 307 | | | | | 8,002 | 7,787 |
23
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
5. | Segment reporting (continued) |
Business segments |
Six months ended 30 June | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Telecommunications | Betting | Other operations | Consolidated | ||||||||||||||
2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | ||||||||||
Total external revenues | 2,714,553 | 2,202,223 | 76,088 | 87,814 | 7,636 | 7,511 | 2,798,277 | 2,297,548 | |||||||||
Capital expenditures | 318,230 | 214,629 | 742 | 1,392 | 1,709 | 1,838 | 320,681 | 217,859 |
Three months ended 30 June | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Telecommunications | Betting | Other operations | Consolidated | ||||||||||||||
2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | ||||||||||
Total external revenues | 1,481,711 | 1,133,362 | 17,932 | 27,816 | 3,873 | 4,169 | 1,503,516 | 1,165,347 | |||||||||
Capital expenditures | 189,356 | 78,007 | 105 | 1,156 | 1,224 | 1,032 | 190,685 | 80,195 |
As at 30 June 2007 and 31 December 2006 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Telecommunications | Betting | Other operations | Consolidated | ||||||||||||||
2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | ||||||||||
Segment assets | 4,083,014 | 3,712,408 | 21,117 | 23,418 | 25,659 | 25,760 | 4,129,790 | 3,761,586 |
24
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
6. | Acquisitions of joint ventures and minority interests |
Business combination |
During August 2006, the Company acquired 50% shares of A-Tel for a consideration of TRY 218,715 (equivalent to $167,649 and $150,000 at 30 June 2007 and 9 August 2006, respectively). At 30 June 2007, management has not yet completed the evaluation of the fair value of identifiable assets and liabilities of A-Tel and its allocation of the purchase price. The Company has a period up to one year to complete purchase price allocation effective from August 2006, which is the date of acquisition. Therefore, final purchase accounting adjustments may differ from the Companys initial estimates and the allocation of purchase price is subject to refinement. A-Tel is accounted for under equity method and results of the operations for the six and three months ended 30 June 2007 are included in the accompanying consolidated interim financial statements using ownership rate of 50% as at and for the six and three months ended 30 June 2007. Besides, during February 2007 and September 2006, A-Tels General Assembly decided to distribute dividends and accordingly the Company reduced the carrying value of its investment in A-Tel by the dividends declared of TRY 37,448 (equivalent to $28,704 at 30 June 2007) and TRY 30,300 (equivalent to $23,225 at 30 June 2007) as at 30 June 2007 and 31 December 2006, respectively. On 9 March 2007 and 16 October 2006, such dividends are collected by the Company. |
A-Tel is involved in the marketing, selling and distributing the Companys prepaid systems. A-Tel acts as the only dealer of the Company for Muhabbet Kart (a prepaid card), and receives dealer activation fees and simcard subsidies for the sale of Muhabbet Kart. In addition to the sales of simcards and scratch cards through an extensive network of newspaper kiosks located throughout Turkey, the Company has entered into several agreements with A-Tel for sale of campaigns and for subscriber activations. Since 1999, the business cooperation between the Company and A-Tel has provided important support to the Companys sales and marketing activities. With the brand name Muhabbet Kart, A-Tel has proved success in a competitive environment through well structured campaigns. With the acquisition of 50% stake in A-Tel, management believes that the Company will be better positioned in the changing competitive environment and achieve increased benefits by optimizing sales and marketing efforts. A-Tel is a joint venture and its remaining 50% shares are held by Turkeys Savings and Deposit Insurance Fund (the SDIF). |
Acquisition of minority interests |
In January, March and May 2007, the Company made contribution to capital increase of Euroasia for $27,500 each. As Eurocorp did not participate in these capital increases, ownership of the Company increased from 54.8% to 55.0%. The Group recognised a decrease in minority interests of $751. |
25
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
7. | Revenue |
|
|
Six months ended |
|
Three months ended | ||||
|
|
30 June 2007 |
|
30 June 2006 |
|
30 June 2007 |
|
30 June 2006 |
Communication fees |
|
2,628,509 |
|
2,158,719 |
|
1,435,170 |
|
1,111,132 |
Commission fees on betting business |
|
76,088 |
|
87,814 |
|
17,932 |
|
27,816 |
Monthly fixed fees |
|
26,062 |
|
27,271 |
|
13,467 |
|
13,373 |
Simcard sales |
|
13,421 |
|
12,041 |
|
6,548 |
|
6,260 |
Call center revenues |
|
5,603 |
|
4,524 |
|
2,553 |
|
2,131 |
Other revenues |
|
48,594 |
|
7,179 |
|
27,846 |
|
4,635 |
|
|
2,798,277 |
|
2,297,548 |
|
1,503,516 |
|
1,165,347 |
8. | Personnel Expenses |
|
|
Six months ended |
|
Three months ended | ||||
|
|
30 June 2007 |
|
30 June 2006 |
|
30 June 2007 |
|
30 June 2006 |
Wages and salaries (*) |
|
160,216 |
|
132,799 |
|
84,001 |
|
65,480 |
Increase in liability for long-service leave |
|
5,450 |
|
2,935 |
|
1,500 |
|
322 |
Contributions to defined contribution plans |
|
573 |
|
537 |
|
313 |
|
285 |
|
|
166,239 |
|
136,271 |
|
85,814 |
|
66,087 |
* Wages and salaries include compulsory social security contributions.
9. | Finance income and expense |
|
|
Six months ended |
|
Three months ended | ||||
|
|
30 June 2007 |
|
30 June 2006 |
|
30 June 2007 |
|
30 June 2006 |
Interest income |
|
108,614 |
|
55,361 |
|
44,068 |
|
25,416 |
Late payment interest income |
|
13,947 |
|
16,720 |
|
6,773 |
|
7,796 |
Premium income on option contracts |
|
2,937 |
|
5,120 |
|
1,245 |
|
2,986 |
Other interest income |
|
2,508 |
|
3,281 |
|
835 |
|
1,520 |
Gain on financial assets |
|
2,038 |
|
- |
|
353 |
|
(2,981) |
Net foreign exchange gain |
|
- |
|
- |
|
- |
|
(7,858) |
Finance income |
|
130,044 |
|
80,482 |
|
53,274 |
|
26,879 |
|
|
|
|
|
|
|
|
|
Net foreign exchange loss |
|
(177,508) |
|
(65,527) |
|
(139,877) |
|
(65,527) |
Interest expense on financial liabilities/assets measured at amortised cost |
|
(24,194) |
|
(34,120) |
|
(12,783) |
|
(14,641) |
Debt extinguishment cost |
|
(7,878) |
|
- |
|
(7,878) |
|
- |
Other |
|
(5,095) |
|
(9,109) |
|
(2,997) |
|
(8,436) |
Finance expenses |
|
(214,675) |
|
(108,756) |
|
(163,535) |
|
(88,604) |
Net finance cost |
|
(84,631) |
|
(28,274) |
|
(110,261) |
|
(61,725) |
Debt extinguishment cost consists of the difference between the net present value and the face value of the long term syndicated loan on the date of payment date. |
Interest expense on borrowings capitalized on fixed assets amounts to $4,328, $1,524, $2,381 and $1,524 for the six and three months ended 30 June 2007 and 2006, respectively. |
26
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
10. | Income tax expense in the income statement |
|
|
Six months ended |
|
Three months ended | ||||
|
|
30 June 2007 |
|
30 June 2006 |
|
30 June 2007 |
|
30 June 2006 |
|
|
|
|
|
|
|
|
|
Current tax expense |
|
(193,640) |
|
(154,320) |
|
(79,374) |
|
(84,814) |
Current period |
|
(193,640) |
|
(154,320) |
|
(79,374) |
|
(84,814) |
|
|
|
|
|
|
|
|
|
Deferred tax benefit/(expense) |
|
|
|
|
|
|
|
|
Origination and reversal of temporary differences |
|
30,571 |
|
43,386 |
|
17,140 |
|
46,953 |
Benefit of investment incentive recognized |
|
16,035 |
|
11,416 |
|
15,812 |
|
(1,673) |
Reduction in tax rate |
|
- |
|
(152,809) |
|
- |
|
(125,346) |
|
|
46,606 |
|
(98,007) |
|
32,952 |
|
(80,066) |
Total income tax expense |
|
(147,034) |
|
(252,327) |
|
(46,422) |
|
(164,880) |
Income tax recognized directly in equity is amounting to $1,345, $126, $467 and $(364) for the six and three months ended 30 June 2007 and 2006, respectively. |
Reconciliation of effective tax rate |
The reported income tax expense for the six and three months ended 30 June 2007 and 2006 are different than the amounts computed by applying the statutory tax rate to profit before income tax of the Company, as shown in the following reconciliation: |
|
|
Six months ended |
|
Three months ended | ||||
|
|
30 June 2007 |
|
30 June 2006 |
|
30 June 2007 |
|
30 June 2006 |
Profit before income taxes |
|
669,456 |
|
505,614 |
|
300,414 |
|
240,967 |
|
|
|
|
|
|
|
|
|
Income tax using the Companys domestic tax rate |
20% |
(133,891) |
20% |
(101,123) |
20% |
(60,083) |
20% |
(48,193) |
Effect of tax rates in foreign jurisdictions |
(1)% |
4,085 |
(1)% |
5,187 |
(1)% |
2,091 |
(1)% |
3,605 |
Tax exempt income |
(1)% |
6,233 |
0% |
248 |
0% |
922 |
0% |
210 |
Non deductible items |
0% |
(3,062) |
1% |
(5,782) |
(1)% |
3,103 |
(2)% |
5,577 |
Investment tax credit |
(2)% |
16,035 |
(2)% |
11,416 |
(5)% |
15,812 |
1% |
(1,673) |
Effect of gradual tax rate |
3% |
(19,126) |
- |
- |
0% |
(390) |
- |
- |
Change in tax rate |
- |
- |
30% |
(152,809) |
- |
- |
52% |
(125,346) |
Unrecognized deferred tax assets |
3% |
(21,760) |
4% |
(19,372) |
4% |
(10,998) |
3% |
(6,919) |
Other |
(1)% |
4,452 |
(2)% |
9,908 |
(1)% |
3,121 |
(3)% |
7,859 |
Total income tax expense |
22% |
(147,034) |
50% |
(252,327) |
15% |
(46,422) |
68% |
(164,880) |
The income taxes payable of $195,021 at 30 June 2007 represents the amount of current income taxes payable in respect of related taxable profit for the six months ended 30 June 2007. The income taxes payable of $309,470 at 31 December 2006 represents the amount of income taxes payable for the year ended 31 December 2006. |
27
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
10. | Income tax expense in the income statement (continued) |
According to the article 32 of New Corporate Tax Law No. 5520, the corporate tax rate was reduced from 30% to 20%. In this respect, corporate income of the companies are subject to corporate tax at the rate of 20%, effective from 1 January 2006 onwards. It has been also stated that the advance corporate tax that was calculated and collected on the rate of 30% for the advance corporate tax periods after 1 January 2006 that is in excess of the amount calculated by the new rate for the same periods will be offset against the advance corporate tax for the following advance tax periods. |
According to the Income Tax Law which was published in Official Gazette on 8 April 2006, the investment allowance application has been abolished effective from 1 January 2006. Accordingly, tax payers have been granted an option to use the tax benefits of investment incentive certificates given that they file tax returns at 30% corporate tax rate; or file tax returns at 20% corporate tax rate (which is the new comparable tax rate effective from 1 January 2006) without using the tax benefits of investment incentive certificates. The Company used the tax benefit of investment incentive certificates which provides 0.2% net benefit on corporate taxes. However, the respective law allows the taxpayers to utilize their investment allowance rights obtained under the scope of the previous provisions only from their income generated in the years 2006, 2007 and 2008. |
28
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
11. | Property, plant and equipment |
Cost or deemed cost |
Balance at 1 January 2006 |
Additions | Disposals | Transfers* |
Effect of movements in exchange rates |
Balance at 31 December 2006 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Network infrastructure (All Operational) | 4,220,485 | 14,453 | (1,897 | ) | 424,458 | (180,707 | ) | 4,476,792 | |||||
Land and buildings | 250,517 | 3,972 | (386 | ) | 10,874 | (11,269 | ) | 253,708 | |||||
Equipment, fixtures and fittings | 292,428 | 6,634 | (1,597 | ) | 7,675 | (12,657 | ) | 292,483 | |||||
Motor vehicles | 18,982 | 589 | (915 | ) | 15 | (853 | ) | 17,818 | |||||
Leasehold improvements | 137,196 | 544 | (17 | ) | | (5,893 | ) | 131,830 | |||||
Construction in progress | 385,367 | 464,588 | | (563,425 | ) | (19,343 | ) | 267,187 | |||||
Total | 5,304,975 | 490,780 | (4,812 | ) | (120,403 | ) | (230,722 | ) | 5,439,818 | ||||
Accumulated Depreciation | |||||||||||||
Network infrastructure (All Operational) | 2,675,018 | 465,549 | (1,261 | ) | | (113,520 | ) | 3,025,786 | |||||
Land and buildings | 59,342 | 10,615 | | | (2,514 | ) | 67,443 | ||||||
Equipment, fixtures and fittings | 287,901 | 16,649 | (1,228 | ) | | (12,694 | ) | 290,628 | |||||
Motor vehicles | 14,991 | 1,895 | (632 | ) | | (653 | ) | 15,601 | |||||
Leasehold improvements | 125,013 | 3,825 | (15 | ) | | (5,454 | ) | 123,369 | |||||
Total | 3,162,265 | 498,533 | (3,136 | ) | | (134,835 | ) | 3,522,827 | |||||
Total property, plant and equipment | 2,142,710 | (7,753 | ) | (1,676 | ) | (120,403 | ) | (95,887 | ) | 1,916,991 | |||
*The remaining portion of transfer amounting to $120,403 comprises intangible assets.
29
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
11. | Property, plant and equipment (continued) |
Cost or deemed cost |
Balance at 1 January 2007 |
Additions | Disposals | Transfers* |
Effect of movements in exchange rates |
Balance at 31 December 2007 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Network infrastructure (All Operational) | 4,476,792 | 17,422 | (196,891 | ) | 216,453 | 322,848 | 4,836,624 | ||||||
Land and buildings | 253,708 | 8,435 | (85 | ) | (4,164 | ) | 18,346 | 276,240 | |||||
Equipment, fixtures and fittings | 292,483 | 4,602 | (5,501 | ) | 9,868 | 20,924 | 322,376 | ||||||
Motor vehicles | 17,818 | 207 | (4,218 | ) | | 1,373 | 15,180 | ||||||
Leasehold improvements | 131,830 | 536 | (162 | ) | (5,149 | ) | 9,638 | 136,693 | |||||
Construction in progress | 267,187 | 251,952 | | (262,954 | ) | 16,422 | 272,607 | ||||||
Total | 5,439,818 | 283,154 | (206,857 | ) | (45,946 | ) | 389,551 | 5,859,720 | |||||
Accumulated Depreciation | |||||||||||||
Network infrastructure (All Operational) | 3,025,786 | 242,880 | (189,872 | ) | | 243,355 | 3,322,149 | ||||||
Land and buildings | 67,443 | 5,680 | (35 | ) | | 5,350 | 78,438 | ||||||
Equipment, fixtures and fittings | 290,628 | 9,141 | (5,459 | ) | | 22,513 | 316,823 | ||||||
Motor vehicles | 15,601 | 655 | (4,142 | ) | | 1,239 | 13,353 | ||||||
Leasehold improvements | 123,369 | 1,912 | (86 | ) | | 7,183 | 132,378 | ||||||
Total | 3,522,827 | 260,268 | (199,594 | ) | | 279,640 | 3,863,141 | ||||||
Total property, plant and equipment | 1,916,991 | 22,886 | (7,263 | ) | (45,946 | ) | 109,911 | 1,996,579 | |||||
*Transfer amounting to $45,946 comprises transfers to intangible assets
30
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
11. | Property, plant and equipment (continued) |
Leased assets |
The Group leases equipments under a number of finance lease agreements. At the end of each of the lease period, the Group has the option to purchase the equipment at a beneficial price. As at 30 June 2007, net carrying amount of fixed assets acquired under finance leases amounted to $93,499 (31 December 2006: $92,956). |
Property, plant and equipment under construction |
Construction in progress consisted of expenditures in GSM network of the Company, Astelit and Kibris Mobile Telekomunikasyon Limited Sirketi (Kibris Telekom) and non-operational items as at 30 June 2007 and 31 December 2006. |
As at 30 June 2007, a mortgage is placed on Izmir and Davutpasa buildings amounting to $1,150 and $383, respectively (31 December 2006: $1,067 and $356, respectively). |
12. | Intangible assets |
In April 1998, the Company signed the License with the Turkish Ministry, under which it was granted a GSM license, which is amortized in 25 years with a carrying amount of $555,130 as at 30 June 2007 (31 December 2006: $531,598). The amortization period of the licence will end in 2023. |
Cost |
|
Balance at 1 January 2006 |
|
Additions |
|
Disposals |
|
Transfers* |
|
Effects of movements in exchange rates |
|
Balance at 31 December 2006 |
| ||||||||||||
GSM and other telecommunication operating licences |
940,015 |
|
242 |
|
- |
|
7,574 |
|
(45,404) |
|
902,427 | |
Computer Software |
1,454,453 |
|
13,356 |
|
(204) |
|
163,531 |
|
(65,802) |
|
1,565,334 | |
Transmission Lines |
31,735 |
|
1,287 |
|
(305) |
|
9 |
|
(1,440) |
|
31,286 | |
Central Betting System Operating Right |
4,431 |
|
201 |
|
(393) |
|
- |
|
(201) |
|
4,038 | |
Customer Base |
1,255 |
|
- |
|
- |
|
- |
|
- |
|
1,255 | |
Other |
|
79 |
|
3 |
|
- |
|
- |
|
2 |
|
84 |
Construction in progress |
|
- |
|
98,890 |
|
|
|
(50,711) |
|
(614) |
|
47,565 |
Total |
|
2,431,968 |
|
113,979 |
|
(902) |
|
120,403 |
|
(113,459) |
|
2,551,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
GSM and other telecommunication operating licences |
280,629 |
|
58,875 |
|
- |
|
- |
|
(11,675) |
|
327,829 | |
Computer Software |
833,459 |
|
168,192 |
|
(70) |
|
- |
|
(35,068) |
|
966,513 | |
Transmission Lines |
16,660 |
|
3,067 |
|
(33) |
|
- |
|
(707) |
|
18,987 | |
Central Betting System Operating Right |
2,146 |
|
1,038 |
|
(394) |
|
- |
|
(80) |
|
2,710 | |
Customer Base |
1,002 |
|
297 |
|
- |
|
- |
|
(44) |
|
1,255 | |
Other |
|
17 |
|
11 |
|
- |
|
- |
|
(1) |
|
27 |
Total |
|
1,133,913 |
|
231,480 |
|
(497) |
|
- |
|
(47,575) |
|
1,317,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
1,298,055 |
|
(117,501) |
|
(405) |
|
120,403 |
|
(65,884) |
|
1,234,668 |
(*) Refer to note 11.
31
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
12. | Intangible assets (continued) |
Cost |
|
Balance at 1 January 2007 |
|
Additions |
|
Disposals |
|
Transfers* |
|
Effects of movements in exchange rates |
|
Balance at 30 June 2007 |
| ||||||||||||
GSM and other telecommunication operating licences |
902,427 |
|
26,610 |
|
- |
|
7,661 |
|
63,077 |
|
999,775 | |
Computer Software |
1,565,334 |
|
4,283 |
|
(22) |
|
69,915 |
|
115,803 |
|
1,755,313 | |
Transmission Lines |
31,286 |
|
307 |
|
- |
|
- |
|
2,421 |
|
34,014 | |
Central Betting System Operating Right |
4,038 |
|
47 |
|
- |
|
- |
|
313 |
|
4,398 | |
Customer Base |
1,255 |
|
- |
|
- |
|
- |
|
97 |
|
1,352 | |
Other |
|
84 |
|
3 |
|
- |
|
20 |
|
3 |
|
110 |
Construction in progress |
|
47,565 |
|
6,277 |
|
- |
|
(31,650) |
|
- |
|
22,192 |
Total |
|
2,551,989 |
|
37,527 |
|
(22) |
|
45,946 |
|
181,714 |
|
2,817,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
GSM and other telecommunication operating licences |
327,829 |
|
20,966 |
|
- |
|
- |
|
23,153 |
|
371,948 | |
Computer Software |
966,513 |
|
103,126 |
|
(15) |
|
- |
|
79,102 |
|
1,148,726 | |
Transmission Lines |
18,987 |
|
1,639 |
|
- |
|
- |
|
1,547 |
|
22,173 | |
Central Betting System Operating Right |
2,710 |
|
547 |
|
- |
|
- |
|
235 |
|
3,492 | |
Customer Base |
1,255 |
|
- |
|
- |
|
- |
|
97 |
|
1,352 | |
Other |
|
27 |
|
16 |
|
- |
|
- |
|
13 |
|
56 |
Total |
|
1,317,321 |
|
126,294 |
|
(15) |
|
- |
|
104,147 |
|
1,547,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
1,234,668 |
|
(88,767) |
|
(7) |
|
45,946 |
|
77,567 |
|
1,269,407 |
(*) Refer to note 11.
32
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
13. | Equity accounted investees |
The Groups share of profit in its equity accounted investees for the six and three months ended 30 June 2007 and 2006 is $26,150, $35,765, $8,471 and $19,917, respectively. Summary financial information for equity accounted investees, not adjusted for the percentage ownership held by the Group is as follows: |
Ownership | Current Assets |
Non-current Assets |
Total Assets |
Current Liabilities |
Non-current Liabilities |
Total Liabilities |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
30 June 2007 | |||||||||||||||||
Fintur | 41.45 | % | 314,937 | 1,227,426 | 1,542,363 | 254,179 | 43,593 | 297,772 | |||||||||
A-Tel | 50.00 | % | 60,122 | 279 | 60,401 | 13,842 | 314 | 14,156 | |||||||||
375,059 | 1,227,705 | 1,602,764 | 268,021 | 43,907 | 311,928 | ||||||||||||
31 December 2006 | |||||||||||||||||
Fintur | 41.45 | % | 310,410 | 1,103,420 | 1,413,830 | 255,319 | 47,445 | 302,764 | |||||||||
A-Tel | 50.00 | % | 103,446 | 105 | 103,551 | 12,301 | 247 | 12,548 | |||||||||
413,856 | 1,103,525 | 1,517,381 | 267,620 | 47,692 | 315,312 | ||||||||||||
Six months ended 30 June | Three months ended 30 June | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | Direct cost of revenue |
Profit for the period |
Revenues | Direct cost of revenue |
Profit/(Loss) for the period |
||||||||
2007 | |||||||||||||
Fintur | 652,573 | (263,653 | ) | 106,335 | 354,842 | (144,241 | ) | 53,125 | |||||
A-Tel | 41,044 | (38,749 | ) | 5,287 | 22,907 | (28,425 | ) | (4,203 | ) | ||||
693,617 | (302,402 | ) | 111,622 | 377,749 | (172,666 | ) | 48,922 | ||||||
2006 | |||||||||||||
Fintur | 517,118 | (225,502 | ) | 86,285 | 279,150 | (121,845 | ) | 48,051 |
* A-Tel is acquired during August 2006, therefore, income statement of A-Tel is not included in the summary financial information for the six and three months ended 30 June 2006.
33
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
13. | Equity accounted investees (continued) |
In 2006, the Group acquired a 50% investment in A-Tel. Details of the transaction and A-Tels operations are described at Note 6. The Companys investment in Fintur and A-Tel amounts to $432,908 and $133,101, respectively as at 30 June 2007 (31 December 2006: $376,272 and $147,568, respectively). |
14. | Other investments, including derivatives |
Non-current investments: |
|
|
|
|
30 June 2007 |
|
31 December 2006 | ||
|
|
Country of incorporation |
|
Ownership |
Carrying |
|
Ownership |
Carrying |
| ||||||||
Aks Televizyon Reklamcilik ve Filmcilik Sanayi ve Ticaret AS (Aks TV) |
|
Turkey |
|
6.24 |
25,959 |
|
6.24 |
24,093 |
|
|
|
|
|
|
|
|
|
T Medya Yatirim Sanayi ve Ticaret AS (T Medya) |
|
Turkey |
|
9.23 |
11,853 |
|
8.23 |
11,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,812 |
|
|
35,095 |
In 2003, the Group acquired a 6.24% interest in Aks TV and a 8.23% interest in T-Medya, media companies owned by Cukurova Group. On 27 June 2007, T-Medya took over Asli Gazetecilik ve Matbaacilik AS and, as a result of this restructring, interest of the Group in T-Medya increased from 8.23% to 9.23%. |
Investment in Aks TV and T-Medya are classified as available-for-sale financial assets. However, there is not active market available for these equity instruments, and application of valuation techniques is impracticable. Accordingly, the company measured these investments at cost. |
Current investments: |
|
|
|
30 June |
|
31 December |
|
|
|
2007 |
|
2006 |
Held to maturity debt securities |
|
- |
|
7,045 | |
|
Government bonds, treasury bills |
|
- |
|
7,045 |
|
|
|
|
|
|
Available for sale securities |
|
42,177 |
|
54,688 | |
|
Government bonds, treasury bills |
|
9,763 |
|
20,683 |
|
Foreign investment equity funds |
|
32,414 |
|
34,005 |
|
|
|
|
|
|
Derivatives |
|
275 |
|
- | |
|
|
|
42,452 |
|
61,733 |
34
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
14. | Other investments (continued) |
Current investments (continued): |
Interest bearing available-for-sale TRY denominated, US Dollars denominated and Euro denominated government bonds and treasury bills with a carrying amount of $8,042, $1,440 and $281, respectively as at 30 June 2007 (31 December 2006: TRY denominated $18,961, US Dollars denominated $1,449 and Euro denominated $273) have stated interest rates of 20.61%, (31 December 2006: 20.61%), Libor+1%-Libor+1.6% (31 December 2006: Libor+1% -Libor+1.6%) and Euribor+1.8% (31 December 2006: Euribor+1.8%), respectively and mature in 2 to 4 years (31 December 2006: 2 to 4 years). |
Foreign investment equity funds are denominated in US Dollars with a carrying amount of $32,414 as at 30 June 2007 (31 December 2006: $34,005). |
Derivatives are composed of embedded derivatives which are separated from the host contract and accounted for separately at fair value. |
15. | Other non-current assets |
|
|
30 June |
|
31 December |
|
|
2007 |
|
2006 |
Prepaid expenses |
|
25,862 |
|
12,687 |
Deposits and guarantees given |
|
5,542 |
|
2,275 |
Restricted cash |
|
- |
|
105,378 |
Others |
|
2,671 |
|
1,125 |
|
|
34,075 |
|
121,465 |
16. | Deferred tax assets and liabilities |
Unrecognised deferred tax assets |
Deferred tax assets have not been recognised in respect of the following items: |
|
|
30 June |
|
31 December |
|
|
2007 |
|
2006 |
Deductible temporary differences |
|
10,691 |
|
227 |
Tax credit carry forwards |
|
126 |
|
117 |
Operating loss carry forwards |
|
61,990 |
|
49,633 |
Total unrecognised deferred tax assets |
|
72,807 |
|
49,977 |
The deductible temporary differences do not expire under current tax legislation. Turkish tax legislation does not allow companies to file tax returns on a consolidated basis. Therefore, deferred tax assets have not been recognised in respect of these items resulting from certain consolidated subsidiaries because it is not probable that future taxable profit will be available against which the Group can utilise the benefits therefrom. |
35
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the six months ended 30 June 2007
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)
16. | Deferred tax assets and liabilities (continued) |
Unrecognised deferred tax assets (continued) |
As at 30 June 2007, expiration of net operating loss carry forwards are as follows: |
Year Originated |
|
Amount |
Expiration Date |
2002 |
|
634 |
2007 |
2003 |
|
5,465 |
2008 |
2004 |
|
3,324 |
2009 |
2005 |
|
1,961 |
2010 |
2006 |
|
6,500 |
2011 |
2007 |
|
5,058 |
2012 thereafter |
As at 30 June 2007, net operating loss carry forwards which will be carried indefinitely are as follows: |
Year Originated |
Amount |
2004 |
24,562 |
2005 |
63,861 |
2006 |
111,911 |
2007 |
30,588 |
Recognised deferred tax assets and liabilities |
Deferred tax assets and liabilities as at 30 June 2007 and 31 December 2006 are attributable to the following: |
|
|
Assets |
|
Liabilities |
|
Net | ||||||
|
|
30 June |