VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

CONVENIENCE TRANSLATION INTO ENGLISH OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD

1 JANUARY- 30 JUNE 2020 (TOGETHER WITH INDEPENDENT AUDITOR'S LIMITED REVIEW REPORT)

(ORIGINALLY ISSUED IN TURKISH)

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

CONTENTS

PAGE

CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS ...................................................................

1-5

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF PROFIT OR LOSS AND

OTHER COMPREHENSIVE INCOME............................................................................................................................

6-7

bbCONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN

SHAREHOLDERS' EQUITY...............................................................................................................................................

8

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS.........................................

9-11

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

NOTE 1

GROUP'S ORGANISATION AND NATURE OF OPERATIONS...............................................................

12-13

NOTE 2

BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS...........................

13-34

NOTE 3

INTERESTS IN OTHER ENTITIES.........................................................................................................................

35-36

NOTE 4

SEGMENT REPORTING...............................................................................................................................................

37-38

NOTE 5

CASH AND CASH EQUIVALENTS..........................................................................................................................

39

NOTE 6

FINANCIAL ASSETS.......................................................................................................................................................

39-40

NOTE 7

FINANCIAL LIABILITIES............................................................................................................................................

40-42

NOTE 8

RELATED PARTY DISCLOSURES..........................................................................................................................

43-46

NOTE 9

TRADE RECEIVABLES AND PAYABLES...........................................................................................................

46-47

NOTE 10

OTHER RECEIVABLES.................................................................................................................................................

48

NOTE 11

INVENTORIES...................................................................................................................................................................

48-49

NOTE 12

PREPAID EXPENSES.....................................................................................................................................................

49

NOTE 13

INVESTMENTS RECOGNIZED BY EQUITY PICKUP METHOD...........................................................

50-51

NOTE 14

PROPERTY, PLANT AND EQUIPMENT.............................................................................................................

52-54

NOTE 15

RIGHT OF USE ASSETS................................................................................................................................................

55

NOTE 16

INTANGIBLE ASSETS...................................................................................................................................................

56-57

NOTE 17

PROVISIONS, CONTINGENT ASSETS AND LIABILITIES........................................................................

57-60

NOTE 18

COMMITMENTS..............................................................................................................................................................

60

NOTE 19

EMPLOYEE BENEFITS.................................................................................................................................................

61-62

NOTE 20

OTHER ASSETS AND LIABILITIES.......................................................................................................................

62-63

NOTE 21

CAPITAL, RESERVES AND OTHER EQUITY ITEMS ..................................................................................

63-65

NOTE 22

SALES .....................................................................................................................................................................................

66

NOTE 23

EXPENSES BY NATURE..............................................................................................................................................

66

NOTE 24

GENERAL ADMINISTRATIVE EXPENSES, MARKETING EXPENSES, RESEARCH

AND DEVELOPMENT EXPENSES.........................................................................................................................

67

NOTE 25

OTHER INCOME AND EXPENSES FROM OPERATING ACTIVITIES...............................................

68

NOTE 26

FINANCIAL INCOME AND FINANCIAL EXPENSES...................................................................................

69

NOTE 27

TAXES ON INCOME (INCLUDING DEFERRED TAX ASSETS AND LIABILITIES)....................

69-73

NOTE 28

EARNINGS / (LOSS) PER SHARE..........................................................................................................................

73

NOTE 29

DERIVATIVE INSTRUMENTS .................................................................................................................................

74

NOTE 30

FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT............................................

74-78

NOTE 31

SUBSEQUENT EVENTS...............................................................................................................................................

78

NOTE 32

OTHER MATTERS THAT MAY AFFECT THE FINANCIAL STATEMENTS OR TO BE

EXPLAINED FOR THE FINANCIAL STATEMENTS TO BE INTERPRETABLE AND EXPLAINABLE ............

79

1

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS AS OF 30 JUNE 2020 AND 31 DECEMBER 2019

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

Reviewed

Audited

Footnotes

30 June 2020

31 December 2019

ASSETS

CURRENT ASSETS

Cash and Cash Equivalents

5

2.530.458

2.394.334

Trade Receivables

3.875.997

3.372.832

Trade Receivables Due from Related Parties

8

62.943

55.810

Trade Receivables Due from Third Parties

9

3.813.054

3.317.022

Other Receivables

1.102.168

800.384

Other Receivables Due from Related Parties

8, 10

780.285

550.383

Other Receivables Due from Third Parties

10

321.883

250.001

Derivative Financial Assets

50.171

45.487

Derivative Financial Assets Held for Trading

29

28.005

42.291

Derivative Financial Assets Held for Hedging

29

22.166

3.196

Inventories

11

2.972.911

2.833.115

Prepaid Expense

12

122.008

89.674

Current Tax Assets

27

-

7.259

Other Current Assets

20

45.748

65.496

TOTAL CURRENT ASSETS

10.699.461

9.608.581

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

2

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS AS OF 30 JUNE 2020 AND 31 DECEMBER 2019

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

Reviewed

Audited

Footnotes

30 June 2020

31 December 2019

NON-CURRENT ASSETS

Financial Investments

6

75.921

69.941

Investments in subsidiaries, joint ventures

and associates

13

893.138

974.192

Trade Receivables

9

43.245

67.595

Other Receivables

4.829.775

3.986.552

Other Receivables Due from Related Parties

8

4.822.997

3.981.045

Other Receivables Due from Third Parties

10

6.778

5.507

Property, Plant and Equipments

3.312.184

3.452.328

Land and Premises

14

602.546

635.564

Land Improvements

14

120.893

125.506

Buildings

14

1.364.679

1.428.183

Machinery and Equipments

14

1.144.383

1.115.091

Vehicles

14

2.747

2.705

Fixtures and Fittings

14

42.591

78.708

Leasehold Improvements

14

868

12.276

Construction in Progress

14

33.477

54.295

Right of Use Assets

15

190.758

163.776

Intangible Assets and Goodwill

857.721

815.521

Goodwill

197.793

197.793

Other Rights

16

15.618

15.779

Capitalized Development Costs

16

573.693

528.242

Other Intangible Assets

16

70.617

73.707

Prepayments

12

98.054

73.496

Deferred Tax Asset

27

328.615

230.498

Other Non-current Assets

20

10.603

9.925

TOTAL NON-CURRENT ASSETS

10.640.014

9.843.824

TOTAL ASSETS

21.339.475

19.452.405

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

3

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS AS OF 30 JUNE 2020 AND 31 DECEMBER 2019

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

Reviewed

Audited

Footnotes

30 June 2020

31 December 2019

LIABILITIES

CURRENT LIABILITIES

Current Borrowings

5.166.222

5.830.835

Current Borrowings from Related Parties

10.652

7.368

Lease Liabilities

7, 8

10.652

7.368

Current Borrowings from Third Parties

5.155.570

5.823.467

Bank Loans

7

5.078.967

5.766.814

Lease Liabilities

7

76.603

56.653

Current Portion of Non-current Borrowings

1.819.367

1.411.361

Current Portion of Non-current Borrowings from

Third Parties

1.819.367

1.411.361

Bank Loans

7

1.819.367

1.411.361

Trade Payables

6.412.064

6.127.709

Trade Payables to Related Parties

8

5.491

7.830

Trade Payables to Third Parties

9

6.406.573

6.119.879

Payables Related to Employee Benefit

19

173.422

200.055

Other Payables

78.267

56.799

Other Payables to Related Parties

8

64.728

56.195

Other Payables to Third Parties

13.539

604

Derivative Financial Liabilities

38.580

52.592

Derivative Financial Liabilities Held for Trading

29

4.093

42.532

Derivative Financial Liabilities Held for Hedging

29

34.487

10.060

Current Tax Liabilities

27

2.239

-

Current Provisions

17

580.230

582.081

Other Current Liabilities

20

489.179

391.043

TOTAL CURRENT LIABILITIES

14.759.570

14.652.475

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

4

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS AS OF 30 JUNE 2020 AND 31 DECEMBER 2019

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

Reviewed

Audited

Footnotes

30 June 2020

31 December 2019

NON-CURRENT LIABILITIES

Long Term Borrowings

1.492.396

568.081

Long Term Borrowings from Related Parties

21.599

15.759

Lease Liabilities

7,8

21.599

15.759

Long Term Borrowings from Third Parties

1.470.797

552.322

Bank Loans

7

1.375.957

456.424

Lease Liabilities

7

94.840

95.898

Trade Payables

9

506

6.747

Non-current Provisions

217.012

201.953

Non-current Provisions for Employee Benefits

19

168.917

156.116

Other Non-current Provisions

17

48.095

45.837

Deferred Tax Liabilities

27

259.856

233.589

Other Non-current Liabilities

803

9.649

TOTAL NON-CURRENT LIABILITIES

1.970.573

1.020.019

TOTAL LIABILITIES

16.730.143

15.672.494

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

5

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS AS OF 30 JUNE 2020 AND 31 DECEMBER 2019

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

Reviewed

Audited

Footnotes

30 June 2020

31 December 2019

EQUITY

Equity Attributable to Owners of Parent

4.447.359

3.690.656

Paid-in Capital

21

335.456

335.456

Inflation Adjustments on Capital

688.315

688.315

Share Premium (Discount)

100.897

103.776

Other Accumulated Comprehensive Income (Loss) that will

not be Reclassified in Profit or Loss

1.211.187

1.275.275

Gains (Losses) on Revaluation and Remeasurement

1.211.187

1.275.275

Increases (Decreases) on Revaluation of

Property, Plant and Equipment

21

1.251.946

1.310.274

Gains (Losses) on Remeasurements of Defined

Benefit Plans

(40.759)

(34.999)

Other Accumulated Comprehensive Income (Loss) that will

be Reclassified in Profit or Loss

504.604

406.591

Exchange Differences on Translation

500.191

406.932

Gains (Losses) on Hedge

(2.529)

(4.662)

Gains (Losses) on Cash Flow Hedges

(2.529)

(4.662)

Gains (Losses) on Revaluation and Reclassification

6.942

4.321

Gains (Losses) on Remeasurement

and/or Reclassification of

Available-for-sale Financial Assets

21

6.942

4.321

Restricted Reserves Appropriated from Profits

67.443

67.179

Legal Reserves

21

67.443

67.179

Retained Earnings/Accumulated Losses

21

939.366

490.017

Current Period Net Profit Or Loss

600.091

324.047

Non-controlling Interests

161.973

89.255

TOTAL EQUITY

4.609.332

3.779.911

TOTAL LIABILITIES AND EQUITY

21.339.475

19.452.405

Consolidated financial statements for the period 1 January - 30 June 2020, were approved by the Board of Directors of Vestel Elektronik Sanayi ve Ticaret A.Ş. on 19 August 2020.

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

6

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

CONDENSED CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE INTERIM PERIODS 1 JANUARY - 30 JUNE 2020 AND 2019

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

Reviewed

Reviewed

1 January -

1 January -

1 April -

1 April -

30 June

30 June

30 June

30 June

2020

2019

2020

2019

PROFIT OR LOSS

Revenue

8.354.599

7.825.967

4.423.797

4.263.434

Cost of Sales

(6.042.107)

(5.789.879)

(3.230.516)

(3.036.989)

GROSS PROFIT (LOSS)

2.312.492

2.036.088

1.193.281

1.226.445

General Administrative Expenses

(206.115)

(198.214)

(95.102)

(87.858)

Marketing Expenses

(968.264)

(871.841)

(482.469)

(465.863)

Research and Development Expense

(130.328)

(123.022)

(65.371)

(64.470)

Other Income from Operating Activities

551.922

717.697

223.462

391.794

Other Expenses from Operating Activities

(1.103.722)

(1.028.852)

(445.531)

(425.335)

PROFIT (LOSS) FROM OPERATIONS

455.985

531.856

328.270

574.713

Share of Profit (Loss) from Equity Accounted İnvestees for Using

Equity Method

(118.294)

(129.230)

(47.289)

(49.222)

PROFIT (LOSS) BEFORE FINANCING INCOME (EXPENSE)

337.691

402.626

280.981

525.491

Finance Income

1.526.180

1.340.922

623.379

591.228

Finance Costs

(1.297.767)

(1.718.768)

(610.102)

(832.904)

PROFIT (LOSS) FROM CONTINUING OPERATIONS

566.104

24.780

294.258

283.815

Tax (Expense) Income, Continuing Operations

60.034

26.155

95.406

37.392

Current Period Tax (Expense) Income

(4.356)

(4.456)

(929)

(3.026)

Deferred Tax (Expense) Income

64.390

30.611

96.335

40.418

PROFIT (LOSS) FROM CONTINUING OPERATIONS

626.138

50.935

389.664

321.207

PROFIT (LOSS) FOR THE PERİOD

626.138

50.935

389.664

321.207

Profit (loss), attributable to

Non-controlling Interests

26.047

15.457

19.622

11.309

Owners of Parent

600.091

35.478

370.042

309.898

Earnings per 100 share with a Kr 1 of Par Value (TL)

1,79

0,11

1,10

0,92

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

7

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

CONDENSED CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE INTERIM PERIODS 1 JANUARY - 30 JUNE 2020 AND 2019

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

1 January -

1 January -

1 April -

1 April -

30 June

30 June

30 June

30 June

2020

2019

2020

2019

OTHER COMPREHENSIVE INCOME

Other Comprehensive Income that will

not be Reclassified to Profit or Loss

(6.323)

(2.865)

(4.548)

(459)

Gains (Losses) on Remeasurements of Defined Benefit Plans

(7.904)

(3.581)

(5.685)

(573)

Taxes Relating to Components of Other Comprehensive Income

that will not be Reclassified to Profit or Loss

1.581

716

1.137

114

Taxes Relating to Remeasurements of Defined Benefit Plans

1.581

716

1.137

114

Other Comprehensive Income that will

be Reclassified to Profit or Loss

98.013

124.527

62.016

19.624

Exchange Differences on Translation

93.259

119.215

75.380

35.552

Gains (losses) on Remeasuring Available-for-sale Financial Assets

3.360

(400)

6.800

(481)

Other Comprehensive Income (Loss) Related with Cash Flow Hedges

2.735

7.210

(23.933)

(19.940)

Gains (Losses) on Cash Flow Hedges

2.735

7.210

(23.933)

(19.940)

Taxes Relating to Components of Other Comprehensive Income

that will be Reclassified to Profit or Loss

(1.341)

(1.498)

3.769

4.493

Taxes Relating to Gains (Losses) on Remeasuring or

Reclassification Adjustments on Available-for-sale Financial Assets

(739)

88

(1.496)

106

Taxes Relating to Cash Flow Hedges

(602)

(1.586)

5.265

4.387

OTHER COMPREHENSIVE INCOME

91.690

121.662

57.468

19.165

TOTAL COMPREHENSIVE INCOME

717.828

172.597

447.132

340.372

Total Comprehensive Income Attributable to

Non-controlling Interests

25.217

15.430

18.773

11.196

Owners of Parent

692.611

157.167

428.359

329.176

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

8

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE INTERIM PERIODS 1 JANUARY - 30 JUNE 2020 AND 2019 (Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

Other

Gains

Accumulat-

(Losses) on

Other

ed

Remeasur-

Accumulat-

Increases

Gains

Comprehen

ing and/or

Gains

ed

(Decreases)

(Losses) on

Gains

sive Income

Reclassificat

(Losses)

Comprehens

on

Remeasure-

(Losses)

That Will

Exchange

ion of

on

ive Income

Restricted

Equity

Inflation

Share

Revaluation

ments of

Revaluation

Not Be

Difference

Reserve

Available-

Revaluat

That Will Be

Reserves

Prior

attribut-

Non-

Adjustme

Premium

of Property,

Defined

s and

Reclassified

s on

Of Gains

for-sale

ion and

Reclassified

Appropria

Years'

able to

controll-

Issued

nts on

or

Plant and

Benefit

Remeasure

In Profit Or

Translatio

Cash Flow

or Losses

Financial

Reclassif

In Profit Or

ted From

Profits or

Net Profit or

Retained

owners of

ing

Capital

Capital

Discounts

Equipment

Plans

ments

Loss

n

Hedges

on Hedge

Assets

ication

Loss

Profits

Losses

Loss

Earnings

parent

interests

Equity

Previous Period

1 January -30 June 2019

Beginning of Period

335.456

688.315

103.776

1.338.777

(19.907)

1.318.870

1.318.870

262.586

(10.521)

(10.521)

1.965

1.965

254.030

48.821

108.719

371.153

479.872

3.229.140

89.115

3.318.255

Transfers

-

-

-

-

-

-

-

-

-

-

-

-

-

18.270

352.883

(371.153)

(18.270)

-

-

-

Total Comprehensive Income (Loss)

-

-

-

(14.152)

(2.831)

(16.983)

(16.983)

119.215

5.617

5.617

(312)

(312)

124.520

-

14.152

35.478

49.630

157.167

15.430

172.597

Profit (Loss)

-

-

-

(14.152)

-

(14.152)

(14.152)

-

-

-

-

-

-

-

14.152

35.478

49.630

35.478

15.457

50.935

Other Comprehensive Income (Loss)

-

-

-

-

(2.831)

(2.831)

(2.831)

119.215

5.617

5.617

(312)

(312)

124.520

-

-

-

-

121.689

(27)

121.662

Dividends Paid

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

(27.345)

(27.345)

End of Period

335.456

688.315

103.776

1.324.625

(22.738)

1.301.887

1.301.887

381.801

(4.904)

(4.904)

1.653

1.653

378.550

67.091

475.754

35.478

511.232

3.386.307

77.200

3.463.507

Current Period

1 January -30 June 2020

Opening Balance

335.456

688.315

103.776

1.310.274

(34.999)

1.275.275

1.275.275

406.932

(4.662)

(4.662)

4.321

4.321

406.591

67.179

490.017

324.047

814.064

3.690.656

89.255

3.779.911

Transfers

-

-

-

(47.735)

-

(47.735)

(47.735)

-

-

-

-

-

-

264

371.518

(324.047)

47.471

-

-

-

Total Comprehensive

Income (Loss)

-

-

-

-

(6.165)

(6.165)

(6.165)

93.259

2.133

2.133

2.621

2.621

98.013

-

-

600.091

600.091

691.939

25.889

717.828

Profit (Loss)

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

600.091

600.091

600.091

26.047

626.138

Other Comprehensive Income (Loss)

-

-

-

-

(6.165)

(6.165)

(6.165)

93.259

2.133

2.133

2.621

2.621

98.013

-

-

-

-

91.848

(158)

91.690

Transactions with

noncontrolling interests

-

-

(2.879)

(10.593)

405

(10.188)

(10.188)

-

-

-

-

-

-

-

77.831

-

77.831

64.764

46.829

111.593

Closing Balance

335.456

688.315

100.897

1.251.946

(40.759)

1.211.187

1.211.187

500.191

(2.529)

(2.529)

6.942

6.942

504.604

67.443

939.366

600.091

1.539.457

4.447.359

161.973

4.609.332

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

9

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE INTERIM PERIODS 1 JANUARY - 30 JUNE 2020 AND 2019

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

Reviewed

Reviewed

1 January -

1 January -

30 June

30 June

Footnotes

2020

2019

CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES

1.061.841

1.171.575

Profit (Loss)

626.138

50.935

Profit (Loss) from Continuing Operations

626.138

50.935

Adjustments to Reconcile Profit (Loss)

843.187

1.418.407

Adjustments for Depreciation and Amortisation Expense

14,15,16

340.188

299.236

Adjustments for Impairment Loss

(Reversal of Impairment Loss)

21.594

35.240

Adjustments for Impairment Loss

(Reversal of Impairment Loss) of Receivables

9

10.591

27.010

Adjustments for Impairment Loss

(Reversal of Impairment Loss) of Inventories

11

11.003

8.230

Adjustments for Provisions

15.733

(62.990)

Adjustments for (Reversal of) Provisions Related with

Employee Benefits

19

15.326

13.582

Adjustments for (Reversal of) Lawsuit and/or

Penalty Provisions

17

2.702

(23.285)

Adjustments for (Reversal of) Warranty Provisions

17

25.564

(1.585)

Adjustments for (Reversal of) Other Provisions

17

(27.859)

(51.702)

Adjustments for Interest (Income) Expenses

198.822

263.319

Adjustments for Interest Income

26

(232.904)

(291.008)

Adjustments for Interest Expense

26

431.726

554.327

Adjustments for Unrealised Foreign

Exchange Losses (Gains)

7

222.899

228.235

Adjustments for Fair Value Losses (Gains)

(15.961)

(146.458)

Adjustments for Fair Value (Gains) Losses on

Derivative Financial Instruments

(15.961)

(146.458)

Adjustments for Undistributed Profits of Investments Accounted

for Using Equity Method

118.294

129.230

Adjustments for Tax (Income) Expenses

(60.034)

(26.155)

Adjustments for Losses (Gains) on Disposal of

Non-Current Assets

(54.412)

(1.725)

Adjustments for Losses (Gains) Arised from

Sale of Tangible Assets

(54.412)

(1.725)

Other Adjustments to Reconcile Profit (Loss)

5

56.064

700.475

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

10

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE INTERIM PERIODS 1 JANUARY - 30 JUNE 2020 AND 2019

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

Reviewed

Reviewed

1 January -

1 January -

30 June

30 June

Footnotes

2020

2019

Changes in Working Capital

(401.593)

(282.636)

Decrease (Increase) in Financial Investments

6

(5.980)

(81)

Adjustments for Decrease (Increase) in Trade Accounts Receivable

(489.406)

357.655

Decrease (Increase) in Trade Accounts Receivables from

Related Parties

(7.133)

(5.182)

Decrease (Increase) in Trade Accounts Receivables from

Third Parties

(482.273)

362.837

Adjustments for Decrease (Increase) in Other Receivables

Related with Operations

(73.153)

7.040

Decrease (Increase) in Other Third Party Receivables Related

with Operations

(73.153)

7.040

Adjustments for Decrease (Increase) in Inventories

11

(156.197)

(289.283)

Decrease (Increase) in Prepaid Expenses

(56.892)

(65.477)

Adjustments for Increase (Decrease) in Trade Accounts Payable

278.114

(299.095)

Increase (Decrease) in Trade Accounts Payables to

Related Parties

(2.339)

4.677

Increase (Decrease) in Trade Accounts Payables to Third

Parties

280.453

(303.772)

Increase (Decrease) in Employee Benefit Liabilities

19

(26.633)

28.305

Adjustments for Increase (Decrease) in Other

Operating Payables

12.935

4.816

Increase (Decrease) in Other Operating Payables to Third

Parties

12.935

4.816

Other Adjustments for Other Increase (Decrease) in

Working Capital

115.619

(26.516)

Decrease (Increase) in Other Assets Related

with Operations

26.329

(43.334)

Increase (Decrease) in Other Payables Related

with Operations

89.290

16.818

Cash Flows from (used in) Operations

1.067.732

1.186.706

Payments Related with Provisions for Employee Benefits

19

(10.429)

(9.608)

Income Taxes Refund (Paid)

27

4.538

(5.523)

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

11

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE INTERIM PERIODS 1 JANUARY - 30 JUNE 2020 AND 2019

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

Reviewed

Reviewed

1 January -

1 January -

30 June

30 June

Footnotes

2020

2019

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES

(1.148.744)

(1.258.691)

Cash Outflows Arising from Purchase of Shares or Capital

Increase of Associates and/or Joint Ventures

6

-

(14.786)

Proceeds from Sales of Property, Plant, Equipment and

Intangible Assets

298.868

3.601

Proceeds from Sales of Property, Plant and Equipment

298.868

3.601

Purchase of Property, Plant, Equipment and

Intangible Assets

(375.758)

(294.329)

Purchase of Property, Plant and Equipment

14

(259.310)

(206.980)

Purchase of Intangible Assets

16

(116.448)

(87.349)

Cash Advances and Loans Made to Third Parties

(1.071.854)

(953.177)

Cash Advances and Loans Made to Related Parties

8

(1.071.854)

(953.177)

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES

225.446

128.864

Proceeds from Borrowings

3.746.293

2.371.024

Proceeds from Loans

7

3.746.293

2.371.024

Repayments of Borrowings

(3.322.174)

(1.870.852)

Loan Repayments

7

(3.321.116)

(1.868.217)

Cash Outflows from Other Financial Liabilities

(1.058)

(2.635)

Increase in Other Payables to Related Parties

8.533

4.675

Payments of Lease Liabilities

7

(10.458)

(34.954)

Dividends Paid

-

(27.345)

Interest Paid

(429.652)

(604.692)

Interest Received

232.904

291.008

NET INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS BEFORE EFFECT OF EXCHANGE RATE CHANGES

138.543

41.748

Effect of Exchange Rate Changes on Cash and

Cash Equivalents

53.645

23.764

NET INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS

192.188

65.512

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE

PERIOD

5

2.283.040

2.278.962

CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD

2.475.228

2.344.474

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

12

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 1 - GROUP'S ORGANISATION AND NATURE OF OPERATIONS

Vestel Elektronik Sanayi ve Ticaret Anonim Şirketi ("Vestel Elektronik" or "the Company") and its subsidiaries (together "the Group"), mainly produce and sell a range of brown goods and white goods. The Company's head office is located at Levent 199, Büyükdere Caddesi No: 199, 34394 Şişli / Istanbul. The Group's production facilities are located in Manisa Organized Industrial Zone, İzmir Aegean Free Zone and Russia.

The ultimate controller of the Company is Zorlu Family.

Vestel Elektronik is registered to Capital Market Board ("CMB") and its shares have been quoted to Borsa Istanbul ("BİST") since 1990. As of 30 June 2020, 35,59 % of the Company's shares are publicly traded (2019: 35,59%).

As of 30 June 2020 the number of personnel employed at Group is 16.672 (31 December 2019: 16.775).

The Company's subsidiaries and associates are as follows:

Subsidiaries

Country

Nature of operations

Vestel Beyaz Eşya Sanayi ve Ticaret A.Ş.

Turkey

Production

Vestel Komünikasyon Sanayi ve Ticaret A.Ş.

Turkey

Sales

Vestel Ticaret A.Ş.

Turkey

Sales

Vestel CIS Ltd.

Russia

Sales

Vestel Electronica SRL

Romania

Sales

Vestel Iberia SL

Spain

Sales

Vestel France SA

France

Sales

Vestel Holland BV

Holland

Sales

Vestel Germany GmbH

Germany

Sales

Cabot Communications Ltd.

UK

Software

Vestel Benelux BV

Holland

Sales

Vestel UK Ltd.

UK

Sales

Vestek Elektronik Araştırma Geliştirme A.Ş.

Turkey

Software

Vestel Trade Ltd.

Russia

Sales

Vestel Electronics Shanghai Trading Co. Ltd

China

Service

Intertechnika LLC

Russia

Service

Vestel Central Asia LLP

Kazakhstan

Sales

Vestel Ventures Ar-ge A.Ş.

Turkey

Service

Vestel Poland sp. z.o.o.

Poland

Sales

Vestel Polska Technology Center sp. z o.o.

Poland

Sales

Vestel Electronics Gulf DMC

UAE

Sales

Vest Batarya Sistemleri A.Ş.

Turkey

Production

(*) OY Vestel Scadinavia AB of which Vestel Ticaret A.Ş. is 100% shareholder was liquidated on 10 February, 2020.

13

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 1 - GROUP'S ORGANISATION AND NATURE OF OPERATIONS (Cont'd)

Investments

Country

Nature of operations

Vestel Savunma Sanayi A.Ş.

Turkey

Production/ Sales

Aydın Yazılım Elektronik ve Sanayi A.Ş.

Turkey

Software

Meta Nikel Kobalt Madencilik San. ve Tic. A.Ş

Turkey

Mining

Türkiye'nin Otomobili Girişim Grubu Sanayi ve Ticaret A.Ş

Turkey

Automotive

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS

2.1 Basis of presentation 2.1.1 Statement of compliance

The accompanying condensed consolidated interim financial statements are prepared in accordance with the Communiqué Serial II, No: 14.1, "Principals of Financial Reporting in Capital Markets" published in the Official Gazette numbered 28676 on 13 June 2013. According to the article 5 of the Communiqué, consolidated financial statements are prepared in accordance with Turkish Accounting Standards / Turkish Financial Reporting Standards ("TAS" / "TFRS") and its addendum and interpretations ("IFRIC") issued by the Public Oversight Accounting and Auditing Standards Authority ("POAASA") Turkish Accounting Standards Board.

The Company and its subsidiaries operating in Turkey maintains its accounting records and prepares its statutory financial statements in accordance with the Turkish Commercial Code ("TCC"), tax legislation and the uniform chart of accounts issued by the Ministry of Finance. The condensed consolidated interim financial statements, except for land, buildings and land improvements and the financial assets and liabilities presented with their fair values, are prepared based on historical costs in TL.

The Group prepared its condensed consolidated interim financial statements for the period ended 30 June 2020 in accordance with ("TAS") 34 "Interim Financial Reporting" in the framework of the Communiqué Serial II, No: 14.1, and its related announcement. The condensed consolidated interim financial statements and its accompanying notes are presented in compliance with the format recommended by CMB including its mandatory information.

In compliance with the TAS 34, entities have preference in presenting their interim financial statements whether full set or condensed. In this framework, the Group preferred to present condensed interim financial statements.

The Group's condensed consolidated interim financial statements do not include all disclosure and notes that should be included at year-end financial statements. Therefore the condensed interim financial statements should be read together with the year-end financial statements.

14

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)

2.1.1 Statement of compliance (Cont'd)

Consolidated subsidiaries operating in foreign countries have prepared their financial statements in accordance with the laws and regulations of the countries in which they operate with the required adjustments and reclassifications reflected in accordance with CMB Financial Reporting Standards. These financial statements are based on the statutory records which are maintained under historical cost conversion, with the required adjustments and reclassifications reflected for the purpose of fair presentation in accordance with the TAS/TFRS.

With the decision taken on 17 March 2005, the CMB announced that, effective from 1 January 2005, the application of inflation accounting is no longer required for the companies operating in Turkey and preparing their financial statements in accordance with CMB Financial Reporting Standards. Accordingly, TAS 29, "Financial Reporting in Hyperinflationary Economies" issued by the IASB, has not been applied in the financial statements for the accounting year commencing from 1 January 2005.

2.1.2 Currency used

  1. Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("functional currency"). The condensed consolidated interim financial statements are prepared and presented in Turkish Lira ("TL"), which is the functional currency of the parent company.

  1. Transactions and balances

Transactions in foreign currencies have been translated into functional currency at the exchange rates prevailing at the date of the transaction. Exchange gains or losses arising from the settlement and translation of monetary assets and liabilities denominated in foreign currency at the exchange rates prevailing at the balance sheet dates are included in consolidated comprehensive income, except for the effective portion of foreign currency hedge of cash flow and net investment which are included under shareholders' equity.

  1. Translation of financial statements of subsidiaries operating in foreign countries

Assets and liabilities of subsidiaries operating in foreign countries are translated into TL at the exchange rates prevailing at the balance sheet dates. Comprehensive income items of those subsidiaries are translated into TL using average exchange rates for the period (if the average exchange rates for the period do not reasonably reflect the exchange rate fluctuations, transactions are translated using the exchange rates prevailing at the date of the transaction).

Exchange differences arising from using average and balance sheet date rates are included in "currency translation differences" under the shareholders' equity.

15

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)

2.1.2 Currency used (Cont'd)

The balance sheet date rates and average rates used for translation of income statement items for the related periods are as follows:

Period End:

30 June 2020 31 December 2019

Turkish Lira/EUR

0,1297

0,1504

Turkish Lira/GBP

0,1186

0,1286

Turkish Lira/RUB

10,2849

10,469

Turkish Lira/PLN

0,5784

0,6398

Türk Lirası/ USD

0,1462

0,1683

Türk Lirası/ KZT

59,1017

64,2674

1 January -

1 January -

Average:

30 June 2020

30 June 2019

Turkish Lira/EUR

0,1404

0,1578

Turkish Lira/GBP

0,1229

0,1380

Turkish Lira/RUB

10,7794

11,6944

Turkish Lira/PLN

0,6191

0,6768

Türk Lirası/ USD

0,1547

0,1782

Türk Lirası/ KZT

59,0884

65,7284

2.1.3 Basis of consolidation

The consolidated financial statements include the accounts of the Company, and its subsidiaries from the date on which the control is transferred to the Group until the date that the control ceases. The financial statements of the companies included in the scope of consolidation have been prepared as of the date of the consolidated financial statements and have been prepared in accordance with CMB Financial Reporting Standards by applying uniform accounting policies and presentation.

a) Subsidiaries

The Group has control over an entity when it has existing rights that give it the current ability to direct the relevant activities, i.e. the activities that significantly affect the entity's returns. On the other hand, the Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

In order to be consistent with accounting policies accepted by the Group, accounting policies of the subsidiaries are modified where necessary.

The balance sheet and statement of income of the subsidiaries are consolidated on a line-by-line basis and all material intercompany payable /receivable balances and sales / purchase transactions are eliminated. The carrying value of the investment held by Vestel Elektronik and its subsidiaries is eliminated against the related shareholders' equity.

16

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)

2.1.3 Basis of consolidation(Cont'd) a) Subsidiaries(Cont'd)

The non-controlling share in the net assets and results of subsidiaries for the period are separately classified as "non-controlling interest" in the condensed consolidated statements of comprehensive income and the condensed consolidated statements of changes in shareholders' equity.

As of the balance sheet date, consolidated companies and the proportion of ownership interest of Vestel Elektronik in these subsidiaries are disclosed in note 3.

Financial assets in which the Group has direct or indirect voting rights equal to or above 50% which are immaterial to the Group financial results or over which a significant influence is not exercised by the Group are carried at cost less any provisions for impairment.

b) Investments in associates

Investments in associates are accounted for by the equity method and are initially recognized at cost. These are entities in which the Group has an interest which is more than 20% and less than 50% of the voting rights or over which a significant influence is exercised. Unrealized gains on transactions between the Group and its associate are eliminated to the extent of the Group's interest in the associates, whereas unrealized losses are eliminated unless they do not address any impairment of the asset transferred. Net increase or decrease in the net asset of associates is included in the consolidated statements of comprehensive income in regards with the Group's share.

The Group ceases to account the associate using the equity method if it loses the significant influence or the net investment in the associate becomes nil, unless it has entered to a liability or a commitment. After the Group's interest in the associates becomes nil, additional losses are provided for, and a liability recognized, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. If the associate subsequently reports profits, the Group resumes including its share of those profits only after its share of the profits equals the share of net losses not recognized.

Since Vestel Savunma and Aydın Yazılım has net liability position as of 30 June 2020 and 2019, carrying value of those investment in associates accounted for by equity method is resulted as nil in the consolidated balance sheets.

The Group's voting rights and effective ownership rates in Vestel Savunma and Aydın Yazılım are

35% and 21% respectively (31 December 2019: 35%, 21%).

The carrying amounts of the investments accounted for using the equity method are reviewed whether there is any indication of impairment at each reporting date. If such an indicator exists, the recoverable amount of the asset is estimated.

The recoverable amount of the investments accounted for using the equity method refers to the higher of value-in-use or fair value less cost to sell. Value-in-use is the present value of future cash flows expected to be generated from an asset or cash generating unit.

17

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)

2.1.3 Basis of consolidation(Cont'd) b) Investments in associates(Cont'd)

If the carrying amount of the investments accounted for using the equity method exceeds the recoverable amount, the impairment is accounted for. Impairments are recognized in profit and loss accounts. Impairments are recorded in the statement of profit or loss and other comprehensive income. In investments accounted for using the equity method, impairments allocated in previous periods are re-evaluated in each reporting period in the event that impairment decreases or there are indicators that impairment is not valid. Impairment is reversed in case of changes in the estimates used when determining recoverable amount. The increase in the carrying amount of the investments due to the reversal of the impairment loss is accounted in such a way that it does not exceed the carrying amount determined if the impairment loss has not been included in the consolidated financial statements in the previous years.

2.2 Comparatives

Consolidated financial statements of the Group have been prepared comparatively with the preceding financial period, in order to enable determination of trends in financial position and performance. Comparative figures are reclassified, where necessary, to conform to changes in presentation in the consolidated financial statements.

2.3 Restatement and errors in the accounting estimates

Major changes in accounting policies are applied retrospectively and any major accounting errors that have been detected are corrected and the financial statements of the previous period are restated. Changes in accounting policies resulting from the initial implementation of a new standard, if any, are implemented retrospectively or prospectively in accordance with the transition provisions. If the changes in accounting estimates only apply to one period, then they are applied in the current period in which the change occurred; if the changes also apply to future periods, they are applied in both the period of change and in the future periods, prospectively.

2.4. Amendments in Turkish Financial Reporting Standards

a) Standards issued but not yet effective and not early adopted as at 30 June 2020

A number of new standards, interpretations of and amendments to existing standards are not effective at reporting date and earlier application is permitted; however the Group has not early adopted are as follows.

Classification of Liabilities as Current or Non-current (Amendments to TAS 1)

On 23 January 2020, IASB issued Classification of Liabilities as Current or Non-Currentwhich amends TAS 1 Presentation of Financial Statements to clarify its requirements for the presentation of liabilities in the statement of financial position which is issued by POA on 12 March 2020.

18

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)

2.4. Amendments in Turkish Financial Reporting Standards(Cont'd)

The amendments clarify one of the criteria in TAS 1 for classifying a liability as non-current-that is, the requirement for an entity to have the right to defer settlement of the liability for at least 12 months after the reporting period.

The amendments include:

  1. Specifying that an entity's right to defer settlement must exist at the end of the reporting period;
  2. Clarifying that classification is unaffected by management's intentions or expectations about whether the entity will exercise its right to defer settlement;
  3. Clarifying how lending conditions affect classification; and
  4. Clarifying requirements for classifying liabilities an entity will or may settle by issuing its own equity instruments.

The Group shall apply retrospectively these amendments for annual periods beginning on or after 1 January 2022 with earlier application permitted. However, the amendment published on 15 July 2020, IASB decided to defer the effective date of TAS 1 until 1 January 2023.

The Group does not expect that application of these amendments to TAS 1 will have significant impact on its consolidated financial statements.

Covid-19 related rent concession (Amendments to TFRS 16)

In May 2020, IASB issued Covid-19 related rent concession which amends TFRS 16 Leases which is issued by POA on 5 June 2020 (Amendments to TFRS 16).

The amendments allow lessees not to account for rent concessions as lease modifications if they arise as a direct consequence of COVID-19.

The practical expedient will only apply if:

  • the revised consideration is substantially the same or less than the original consideration;
  • the reduction in lease payments relates to payments due on or before 30 June 2021
  • no other substantive changes have been made to the terms of the lease.

No practical expedient is provided for lessors. Lessors are required to continue to assess if the rent concessions are lease modifications and account for them accordingly.

The Group shall apply these amendments for annual periods beginning on or after 1 June 2020 with earlier application permitted.

19

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)

Amendments are effective on 1 January 2020

Changes that have become effective and have been adopted for annual periods beginning on or after 1 January 2022.

The changes that become effective as of January 1, 2020 are as follows:

1-) The revised Conceptual Framework (Version 2018)

2-) Amendments to TFRS 3 - Definition of a Business

The application of the amendment in TFRS 3 did not have a significant impact on the [consolidated] financial statements of the Group

3-) Amendments to TAS 1 and TAS 8 - Definition of Material

The application of the amendment to TAS 1 and TAS 8 does not have a significant impact on the [consolidated] financial statements of the Group.

4-) Interest Rate Benchmark Reform (Amendments to TFRS 9, TAS 39 and TFRS 7)

The application of this amendment is not expected to have a significant impact on the consolidated financial statements of the Group.

The new standards, amendments and interpretations that are issued by the International Accounting Standards Board (IASB) but not issued by POA

Reference to the Conceptual Framework (Amendments to IFRS 3)

In May 2020, IASB issued Reference to the Conceptual Framework, which made amendments to IFRS 3 Business Combinations.

The amendments updated IFRS 3 by replacing a reference to an old version of the Board's Conceptual Framework for Financial Reporting with a reference to the latest version, which was issued in March 2018.

The Group shall apply these amendments for annual periods beginning on or after 1 January 2022 with earlier application permitted.

Property, Plant and Equipment-Proceeds before Intended Use (Amendments to IAS 16)

In May 2020, IASB issued Property, Plant and Equipment-Proceeds before Intended Use, which made amendments to IAS 16 Property, Plant and Equipment. The amendments prohibit a company from deducting from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, a company will recognise such sales proceeds and related cost in profit or loss.

20

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)

The amendments improve transparency and consistency by clarifying the accounting requirements-specifically, the amendments prohibit a company from deducting from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, a company will recognise such sales proceeds and related cost in profit or loss.

The Group shall apply these amendments for annual periods beginning on or after 1 January 2022 with earlier application permitted.

Onerous Contracts-Cost of Fulfilling a Contract (Amendments to IAS 37)

In May 2020, IASB issued Onerous Contracts-Cost of Fulfilling a Contract, which made amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

The amendments specify which costs an entity includes in determining the cost of fulfilling a contract for the purpose of assessing whether the contract is onerous.

IASB developed amendments to IAS 37 to clarify that for the purpose of assessing whether a contract is onerous, the cost of fulfilling the contract includes both the incremental costs of fulfilling that contract and an allocation of other costs that relate directly to fulfilling contracts.

The Group shall apply these amendments for annual periods beginning on or after 1 January 2022 with earlier application permitted.

Annual Improvements to IFRS Standards 2018-2020

Improvements to IFRSs

IASB issued Annual Improvements to IFRSs - 2018-2020 Cycle for applicable standards in May 2020. The amendments are effective as of 1 January 2022. Earlier application is permitted. The Group does not expect that application of these improvements to IFRSs will have significant impact on its consolidated financial statements.

IFRS 1 First-time Adoption of International Financial Reporting Standards

This amendment simplifies the application of IFRS 1 for a subsidiary that becomes a first-time adopter of IFRS Standards later than its parent - i.e. if a subsidiary adopts IFRS Standards later than its parent and applies IFRS 1.D16 (a), then a subsidiary may elect to measure cumulative translation differences for all foreign operations at amounts included in the consolidated financial statements of the parent, based on the parent's date of transition to IFRS Standards. This amendment will ease transition to IFRS Standards for subsidiaries applying this optional exemption by i)reducing undue costs; and ii) avoiding the need to maintain parallel sets of accounting records.

IFRS 9 Financial Instruments

This amendment clarifies that - for the purpose of performing the ''10 per cent test' for derecognition of financial liabilities - in determining those fees paid net of fees received, a borrower includes only fees paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other's behalf.

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VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)

IFRS 16 Leases, Illustrative Example 13

The amendment removes the illustration of payments from the lessor relating to leasehold improvements. As currently drafted, this example is not clear as to why such payments are not a lease incentive. It will help to remove the potential for confusion in identifying lease incentives in a common real estate fact pattern.

2.5 Summary of significant accounting policies 2.5.1 Revenue recognition

Group recognizes revenue in accordance with TFRS 15 "Revenue from contracts with customers" standard by applying the following five step model:

  • Identification of customer contracts
  • Identification of performance obligations
  • Determination of transaction price in the contract
  • Allocation of price to performance obligations
  • Recognition of revenue when the performance obligations are fulfilled.

Revenue from sale of goods is recognized when all the following conditions are satisfied:

  1. The parties to the contract have approved the contract (in writing, orally or in accordance with other customary business practices) and are committed to perform their respective obligations,
  2. Group can identify each party's rights regarding the goods or services to be transferred,
  3. Group can identify the payment terms for the goods or services to be transferred,
  4. The contract has commercial substance,
  5. It is probable that Group will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer. In evaluating whether collectability of an amount of consideration is probable, an entity shall consider only the customer's ability and intention to pay that amount of consideration when it is due.

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VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)

Revenue from sale of goods

Group recognizes revenue based on the production and sale of white goods, consumer electronics, air conditioners and home appliance. Revenue is recognized when the control of the goods is transferred to the customer. In addition, Group provides legal warranty commitment to its customers depending on the type of goods and the location of sale between 1-3 years. These legal warranty commitments are mandatory by regulations, have not a separate price apart from the good and are not separately sold. Therefore, they are not treated as a separate good or service apart from the sale of good.

2.5.2 Inventories

Inventories are stated at the lower of cost and net realizable value. Costs, including an appropriate portion of fixed and variable overhead expenses, are assigned to inventories held by the method most appropriate to the particular class of inventory. Group uses moving weighted average method for costing.

When the net realizable value of inventory is less than cost, the inventory is written down to the net realizable value and the expense is included in statement of income in the period the write-down or loss occurred.

When the circumstances that previously caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase in net realizable value because of changed economic circumstances, the amount of the write-down is reversed. The reversal amount is limited to the amount of the original write-down.

2.5.3 Property, plant and equipment

Land, land improvements and buildings are stated at fair value, based on valuations performed as at 31 December 2018 by professional independent valuer approved by CMB and registered in CMB "Real Estate Appraisal Companies", Çelen Kurumsal Gayrimenkul Değerleme ve Danışmanlık A.Ş.

Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the relevant asset, and the net amount is the revalued amount of the asset.

Property, plant and equipment except for land, land improvements and buildings acquired before 1 January 2005 are carried at cost in the equivalent purchasing power of TL as at 31 December 2004 and items acquired after 1 January 2005 are carried at cost, less accumulated amortization and impairment losses, if any.

Any revaluation increase arising on the revaluation of such land, land improvements and buildings is credited in equity to the revaluation reserve, except to the extent that it reverses a revaluation decrease for the same asset previously recognized in profit or loss, in which case the increase is credited to profit or loss to the extent of the decrease previously charged. A decrease in carrying amount arising on the revaluation of such land, land improvements and buildings is charged to profit or loss to the extent that it exceeds the balance, if any, held in the properties revaluation reserve relating to a previous revaluation of that asset. Depreciation on revalued land improvements and buildings is charged to profit or loss.

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VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)

Each period, the difference between depreciation based on the revalued carrying amount of the asset (the depreciation charged to the statements of comprehensive income) and the depreciation based on the asset's original cost is transferred from revaluation reserves to the retained earnings.

Land is not depreciated. Plant and equipment are carried at cost less accumulated depreciation and any accumulated impairment losses.

Depreciation is charged so as to write off the cost or valuation of assets, other than land and properties under construction, over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis.

Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use.

Gains or losses on disposals of property, plant and equipment are determined by reference to their carrying amounts and are included in the related income and expense accounts, as appropriate. On the disposal of revalued assets, amounts in the revaluation reserve relating to that asset are transferred to the retained earnings.

Subsequent costs such as repairs and maintenance or part replacement of plant and equipment are included in the asset's carrying value or recognized as separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company. All other costs are charged to the statements of comprehensive income during the financial period in which they are incurred.

Leases

The Group - as a lessee

At inception of a contract, the Group assesses whether a contract is, or contains a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset. The Group assess whether:

  1. The contract involved the use of an identified asset - this may be specified explicitly or implicitly.
  2. The asset should be physically distinct or represent substantially all of the capacity of a physically distinct asset, If the supplier has a substantive substitution right, the asset is not identified.
  3. The Group has the right to obtain substantially all of the economic benefits from the use of an asset throughout the period of use; and

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VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)

  1. The Group has the right to direct use of the asset, The Group concludes to have the right of use, when it is predetermined how and for what purpose the Group will use the asset. The Group has the right to direct use of asset if either:
  1. The Group has the right to operate (or to have the right to direct others to operate) the asset over its useful life and the lessor does not have the rights to change the terms to operate or;
  2. The Group designed the asset (or the specific features) in a way that predetermines how and for what purpose it is used

At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.

The group rents various buildings, warehouses, forklifts and machinery equipment. Rental contracts are generally made for 5 years for machinery and equipment, and for fixed periods for warehouses, usually between 2 and 10 years.

Lease Liability

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date. Lease liabilities are discounted to present value by using the interest rate implicit in the lease if readily determined or with the Group's incremental borrowing rate.

Lease payments included in the measurement of the lease liability comprise the following:

  1. Fixed payments, including in-substance fixed payments;
  2. Variable lease payments that depend on an index or a rate, initially measured using the index or rate as the commencement date.
  3. The exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewable period if the Group is reasonably certain to exercise an extension option. and penalties for early termination of a lease unless the Group is reasonably certain to terminate early.

After initial recognition, the lease liability is measured:

  1. Increasing the carrying amount to reflect interest on lease liability,
  2. Reducing the carrying amount to reflect the lease payments made and
  3. Remeasuring the carrying amount to reflect any reassessment or lease modifications or to reflect revised in-substance fixed lease payments.

The duration of the contracts, which constitute the lease obligation of the company, varies between 1 - 10 years.

The Group - as a lessor

The Group's activities as a lessor are not material.

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VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)

Right of use assets:

The cost of the right-of-use asset comprises:

  1. the amount of the initial measurement of the lease liability,
  2. any lease payments made at or before the commencement date, less any lease incentives received,
  3. any initial direct costs incurred by the Group

To apply the cost model, the Group measures the right-of-use asset at cost less any accumulated depreciation and any accumulated impairment losses and adjusted for any remeasurement of the lease liability. The Group applies the depreciation requirements in TAS 16 Property, Plant and Equipment in depreciating the right-of-use asset.

2.5.4 Intangible assets

a) Research and development costs

Research costs are recognized as expense in the period in which they are incurred. Intangible assets arising from development (or from the development phase of an internal project) are recognized as intangible assets when the following criteria are met;

  • It is technically feasible to complete the intangible asset so that it will be available for use;
  • Management intends to complete the intangible asset and use or sell it;
  • There is an ability to use or sell the intangible asset;
  • It can be demonstrated how the intangible asset will generate probable future economic benefits;
  • Adequate technical, financial and other resources to complete the development and to use or sell the intangible asset are available; and
  • The expenditure attributable to the intangible asset during its development can be reliably measured.

In other cases, development costs are expensed as incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period. In cases where it is difficult to separate the research phase from the development phase in a project, the entire project is treated as research and expensed immediately.

b) Rights and other intangible assets

Rights and other intangible assets consist of acquired computer software, computer software development costs and other identifiable rights. Rights and other intangible assets are recognized at their acquisition costs and are amortized on a straight line basis over their expected useful lives which are less than fifteen years.

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VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)

c) Goodwill

Goodwill arising on acquisition is the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities recognized. Within the scope of TFRS 3 "Business Combinations", beginning from 1 January 2005 the Group has stopped amortizing goodwill. Goodwill recognized on acquisitions before 31 December 2004 was being amortized until 31 December 2004 on a straight line basis over their useful lives not to exceed twenty years.

Goodwill is tested for impairment annually or more frequently when there is an indication of impairment. Goodwill arising on acquisitions measured at cost less any impairment losses.

Impairment losses calculated on goodwill cannot be reversed in the statement of income even if the impairment ceases to exist in the following periods. Goodwill is linked to cash generating units during the impairment test.

In case the consideration transferred in a business combination includes any contingent considerations, the Group recognizes the acquisition date fair value of the contingent consideration as part of the consideration transferred. During the measurement period, contingent considerations recognized at the acquisition date fair value are retrospectively adjusted when necessary. The measurement period is the period after the acquisition date during which the acquirer may adjust the provisional amounts recognized for a business combination. This period shall not exceed one year from the acquisition date.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. The provisional amounts are adjusted during the measurement period or additional assets or liabilities are recognized to reflect new information obtained about facts and circumstances that existed as of the acquisition date and, if known, would have resulted in the recognition of those assets and liabilities as of that date.

2.5.5 Financial instruments a) Financial assets

The Group recognizes its financial assets in three categories: financial assets that are recognized at amortized cost, whose fair value is reflected in profit or loss, and whose fair value is reflected in the other comprehensive income. Classification is made on the basis of the business model determined according to the purpose of benefiting from financial assets and the expected cash flows. The Group classifies its financial assets on the date of purchase.

Financial assets carried at amortized cost

Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest, whose payments are fixed or predetermined, which are not actively traded and which are not derivative instruments are measured at amortized cost.

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VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)

2.5.5 Financial instruments(Cont'd)

The Group's financial assets carried at amortized cost comprise "trade receivables" and "cash and cash equivalents" in the statement of financial position.

Group has applied simplified approach and used impairment matrix for the calculation of impairment on its receivables carried at amortized cost, since they do not comprise of any significant finance component. In accordance with this method, if any provision to the trade receivables as a result of a specific event, Group measures expected credit loss from these receivables by the life-time expected credit loss. The calculation of expected loss is performed based on the past experience of the Group and its expectations for the future indications.

Financial assets carried at fair value

Assets that are held by the Group for collection of contractual cash flows and for selling the financial assets are measured at their far value.

Impairment of financial assets

Impairment of the financial and contractual assets measured by using "expected credit loss model" . The impairment model applies for amortized financial and contractual assets.

Group has preferred to apply "simplified approach" for the recognition of impairment losses on trade receivables, carried at amortized cost and that do not comprise of any significant finance component (those with maturity less than 12 months). In accordance with the simplified approach, Group measures the loss allowances regarding its trade receivables at an amount equal to "lifetime expected credit losses" except incurred credit losses in which trade receivables are already impaired for a specific reason.

b) Financial liabilities

Financial liabilities are measured initially at fair value. Transaction costs which are directly related to the financial liability are added to the fair value.

c) Derivative financial instruments and hedge accounting

Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value.

The derivative instruments of the Group mainly consist of foreign exchange forward contracts. These derivative transactions which are treated as derivatives held for trading in the financial statements under risk accounting, do not generally qualify for hedge accounting under the specific rules. The fair value changes for these derivatives are recognised in the profit or loss statement.

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VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)

The hedging transactions of the Group that qualify for hedge accounting are accounted regarding to TFRS 9. As TFRS 9 does not change the general principles of how an entity accounts for effective hedges, applying the hedging requirements of TFRS 9 will not have a significant impact on Group's financial statements.

Cash flow hedges:

As long as a cash flow hedge meets the qualifying criteria, the hedging relationship shall be accounted for as follows:

  1. the separate component of equity associated with the hedged item (cash flow hedge reserve) is adjusted to the lower of the following (in absolute amounts):
    1. the cumulative gain or loss on the hedging instrument from inception of the hedge; and (ii) the cumulative change in fair value (present value) of the hedged item (i.e. the present value of the cumulative change in the hedged expected future cash flows) from inception of the hedge.
  2. the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge shall be recognised in other comprehensive income.
  3. any remaining gain or loss on the hedging instrument is hedge ineffectiveness that shall be recognised in profit or loss.

2.5.6 Foreign currency transactions

Transactions in foreign currencies during the period are recorded at the rates of exchange prevailing on the dates of the transactions. Monetary items denominated in foreign currencies are translated to TL at the rates prevailing on the balance sheet date. Exchange differences on foreign currency denominated monetary assets and liabilities are recognized in profit or loss in the period in which they arise except for the effective portion of the foreign currency hedge of net investments in foreign operations. Monetary items which are denominated in foreign currency and measured with historical costs are translated using the exchange rates at the dates of initial transactions.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are expressed in TL using exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period. Exchange differences arising are recognized in other comprehensive income and in equity.

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VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)

On the disposal of a foreign operation, all of the exchange differences accumulated in equity in respect of that operation attributable to the owners of the company are reclassified to profit or loss.

2.5.7 Provisions, contingent assets and liabilities

Provisions are recognized when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation, and a reliable estimate can be made of the amount of the obligation.

Possible assets or obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Group are not included in the consolidated financial statements and treated as contingent assets or liabilities.

2.5.8 Warranty and assembly expenses provision

Warranty expenses include repair and maintenance expenses of products sold and labor and material costs of authorized services for products under the scope of warranty terms without any charge to the customers. Based on estimations using past statistical information, warranty expense provision is recognized for the products sold with warranty terms in the period, for possible repair and maintenance expenses to be incurred during the warranty period.

Based on estimations using past statistical information, assembly expenses provision is recognized for products sold during the period but not yet installed in the sites of the end customers, against the cost of free of charge installments.

2.5.9 Related parties

Shareholders, key management personnel and board members, their close family members and companies controlled, jointly controlled or significantly influenced by them and Zorlu Holding Group companies are considered and referred to as related parties.

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VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)

2.5.10 Taxation on income

Tax expense for the period comprises current and deferred tax. Tax is recognized in the income statement, except to the extent that it relates to items directly recognized in equity. In that case, tax is recognized in shareholders' equity.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases which is used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

Investment incentives that are conducive to payment of corporate taxes at reduced rates are subject to deferred tax calculation when there is reasonable assurance that the Group will benefit from the related incentive.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

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VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)

2.5.11 Employee benefits

Employment termination benefits, as required by the Turkish Labor Law and the laws applicable in the countries where the subsidiaries operate, represent the estimated present value of the total reserve of the future probable obligation of the Group arising in case of the retirement of the employees. According to Turkish Labor Law and other laws applicable in Turkey, the Group is obliged to pay employment termination benefits to all personnel in cases of termination of employment without due cause, call for military service, be retired or death upon the completion of a minimum one year service. Employment termination benefits are considered as being part of defined retirement benefit plan as per TAS 19. All actuarial gains and losses are recognized in consolidated statements of income.

The effects of the significant forecasts used in employment termination benefits provision calculations have been recognized as actuarial gains and losses and they have been explained in the relevant note.

2.5.12 Government grants

Government grants, including non-monetary grants at fair value, are recognized in consolidated financial statements when there is reasonable assurance that the entity will comply with the conditions attaching to them, and the grants will be received.

Incentives for research and development activities are recognized in consolidated financial statements when they are authorized by the related institutions.

2.5.13 Earnings per share

Earnings per share disclosed in the consolidated statement of income is determined by dividing consolidated net income attributable to equity holder of the parent by the weighted average number of such shares outstanding during the year concerned.

2.5.14 Statement of cash flows

In the consolidated statement of cash flows, cash flows are classified into three categories as operating, investment and financing activities. Cash flows from operating activities are those resulting from the Group's production and sales activities. Cash flows from investment activities indicate cash inflows and outflows resulting from property, plant and equipments and financial investments. Cash flows from financing activities indicate the resources used in financing activities and the repayment of these resources. Cash and cash equivalents comprise of cash in hand accounts, bank deposits and short-term, highly liquid investments that are readily convertible to known amounts of cash with maturities equal or less than three months.

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VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)

2.5.15 Segment reporting

Operating segments are identified on the same basis as financial information is reported internally to the Group's chief operating decision maker. The Group Board of Directors has been identified as the Group's chief operating decision maker who is responsible for allocating resources between segments and assessing their performances. The Group management determines operating segments by reference to the reports reviewed by the Board of Directors to make strategical decisions.

The Group management evaluates the operational results at industrial and geographical level. An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses.

Group's operations are reported under three industrial segments:

  • Television and electronic devices
  • White goods
  • Other

Group's operations are reported under three geographical segments:

  • Turkey
  • Europe
  • Other

2.5.16 Offsetting

All items with significant amounts and nature, even with similar characteristics, are presented separately in the financial statements. Insignificant amounts are grouped and presented by means of items having similar substance and function. When the nature of transactions and events necessitate offsetting, presentation of these transactions and events over their net amounts or recognition of the assets after deducting the related impairment are not considered as a violation of the rule of non-offsetting. As a result of the transactions in the normal course of business, revenue other than sales are presented as net if the nature of the transaction or the event qualify for offsetting.

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VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)

2.5.17 Events after the balance sheet date

Events after the balance sheet date, announcements related to net profit or even declared after other selective financial information has been publicly announced, include all events that take place between the balance sheet date and the date when balance sheet was authorized for issue.

In the case that events require a correction to be made occur subsequent to the balance sheet date, the Group makes the necessary corrections to the financial statements. Moreover, the events that occur subsequent to the balance sheet date and that do not require a correction to be made are disclosed in accompanying notes, where the decisions of the users of financial statements are affected.

2.5.18 Going Concern

The Group prepared consolidated financial statements in accordance with the going concern assumption.

2.6. Critical accounting estimates and judgments

Preparation of consolidated financial statements requires the use of estimates and assumptions that may affect the amount of assets and liabilities recognized as of the balance sheet date, disclosures of contingent assets and liabilities and the amount of revenue and expenses reported. Although these estimates and assumptions rely on the Group management's best knowledge about current events and transactions, actual outcomes may differ from those estimates and assumptions. Significant estimates of the Group management are as follows:

  1. Revaluation of land, buildings and land improvements:

Land, land improvements and buildings are stated at fair value, based on valuations performed at 31 December 2018 by professional independent valuer Çelen Kurumsal Gayrimenkul Değerleme ve Danışmanlık A.Ş. (Note 14).

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VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)

As there were no recent similar buying/selling transactions nearby, revaluations of land were based on the method of reference comparison whereas revaluations of buildings and land improvements and machinery and equipment were based on the method of cost approach and based on the following valuation techniques and assumptions:

  • Revaluations of land were based on the method of reference comparison whereas revaluations of buildings and land improvements were based on the method of cost approach, considering existing utilization of the aforementioned property, plant and equipments are consistent to the highest and best use approach.
  • In the market reference comparison method, current market information was utilized, taking into consideration the comparable property in the market in recent past in the region, price adjustment was made within the framework of criteria that could affect market conditions, and accordingly an average m2 sale value was determined for the lands subject to the valuation. The similar pieces of land found were compared in terms of location, size, settlement status, physical conditions, real estate marketing firms were consulted for up-to-date valuation of the estate market, also, current information and experience of the professional valuation company was utilized.
  • In the cost approach method, fair value of the buildings and land improvements was calculated by considering recent re-construction costs and related depreciation. In the cost approach method, above explained market reference comparison method was used in calculation of the land value, one of the components.

The carrying values of land, land improvements and buildings do not necessarily reflect the amounts that would result from the outcome of a sales transaction between independent parties.

As of initial recognition and as of balance sheet date, the Group performs impairment assessment for buildings and land improvements of which valuations are based on cost approach, accordance with the TAS 36 "Impairment of Assets", and no impairment indicator is identified.

35

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 3 - INTERESTS IN OTHER ENTITIES

Subsidiaries:

As of 30 June 2020 and 31 December 2019 the Group's significant subsidiaries are as follows:

30 June 2020

31 December 2019

Voting

Effective

Voting

Effective

Consolidated subsidiaries

rights

ownership

rights

ownership

Vestel Beyaz Eşya Sanayi ve Ticaret A.Ş. (*)

92,5

92,5

95,2

95,2

Vestel Komünikasyon Sanayi ve Ticaret A.Ş.

100

100

100

100

Vestel Ticaret A.Ş.

100

100

100

100

Vestel CIS Ltd.

100

100

100

100

Vestel Iberia SL

100

100

100

100

Vestel France SA

100

100

100

100

Vestel Holland BV

100

100

100

100

Vestel Germany GmbH

100

100

100

100

Cabot Communications Ltd.

90,8

90,8

90,8

90,8

Vestel Benelux BV

100

100

100

100

Vestel UK Ltd.

100

100

100

100

Vestek Elektronik Araştırma Geliştirme A.Ş.

100

100

100

100

Vestel Trade Ltd.

100

100

100

100

OY Vestel Scandinavia AB

100

100

100

100

Intertechnika LLC

99,9

99,9

99,9

99,9

Vestel Central Asia LLP

100

100

100

100

Vestel Poland sp. z.o.o.

100

100

100

100

Vestel Polska Technology Center sp. z o.o.

100

100

100

100

  1. Vestel Elektronik Sanayi ve Ticaret A.Ş. sold 5,000,000 Vestel Beyaz Eşya Sanayi ve Ticaret A.Ş. shares on Borsa Istanbul on 29 June 2020. Following the transaction, Vestel Elektronik Sanayi ve
    Ticaret A.Ş.'s share in Vestel Beyaz Eşya declined to 92.54%.

Financial information of Vestel Beyaz Eşya Sanayi ve Ticaret A.Ş. which is not wholly owned by the

Group and has significant non-controlling interests is as follows.

30 June 2020 31 December 2019

Accumulated non-controlling interests

166.460

94.414

Comprehensive income attributable to

non-controlling interests

25.217

27.485

The financial statements of the subsidiary is adjusted to include the effects of revaluation of land,

buildings and land improvements in accordance with the Group's accounting policies applied in

preparation of the consolidated financial statements.

36

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 3 - INTERESTS IN OTHER ENTITIES (Cont'd)

Condensed balance sheet:

30 June 2020 31 December 2019

Current assets

3.422.875

3.167.744

Non-current assets

1.940.963

1.816.058

Current liabilities

(2.962.520)

(2.991.718)

Non-current liabilities

(255.500)

(185.856)

Net assets

2.145.818

1.806.228

Condensed statement of comprehensive income:

1 January -

1 January -

30 June

30 June

2020

2019

Net sales

3.510.378

3.203.318

Income / (loss) before tax

348.425

314.404

Tax benefit / (expense)

2.295

3.957

Net income / (loss) for the period

350.720

318.361

Total comprehensive income

339.590

317.801

Condensed statement of cash flows:

Operating activities:

Changes in working capital

(343.736)

(132.930)

Net cash provided by operating activities

183.004

246.443

Investing activities:

Net cash used in investing activities

11.089

8.522

Financing activities:

Proceeds from bank borrowings

573.242

751.446

Repayment of bank borrowings

(603.536)

(524.349)

Other payables to related parties

-

566.828

Net cash (used in) / provided by financing activities

(119.216)

(319.580)

Cash and cash equivalents at the beginning of the period

82.287

103.283

Cash and cash equivalents at the end of the period

157.164

34.662

The financial information of Company's 50% associate META which is accounted for using the equity method, is disclosed in note 13.

Other financial information of Group's subsidiaries are not presented on the grounds of materiality.

37

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 4 - SEGMENT REPORTING

Operating segments are identified on the same basis as financial information is reported internally to the Group's chief operating decision maker. The Group Board of Directors has been identified as the Group's chief operating decision maker who is responsible for allocating resources between segments and assessing their performances. The Group management determines operating segments by reference to the reports reviewed by the Board of Directors to make strategical decisions.

Considering the fact that the Group's risks and rate of returns are dissimilar between product types and between geographical areas, The Group management uses industrial segments as primary reporting format and geographical segments as secondary reporting format.

Industrial segments

Television and

electronic

devices

White goods

Total

1 January -30 June 2020

Revenue

3.653.861

4.700.738

8.354.599

Cost of sales

(2.771.781)

(3.270.326)

(6.042.107)

Gross profit

882.080

1.430.412

2.312.492

Depreciation and amortization

164.417

175.771

340.188

1 January -30 June 2019

Revenue

3.738.362

4.087.605

7.825.967

Cost of sales

(2.765.497)

(3.024.382)

(5.789.879)

Gross profit

972.865

1.063.223

2.036.088

Depreciation and amortization

153.171

146.065

299.236

1 April -30 June 2020

Revenue

1.933.954

2.489.843

4.423.797

Cost of sales

(1.513.675)

(1.716.841)

(3.230.516)

Gross profit

420.279

773.002

1.193.281

Depreciation and amortization

79.030

114.559

193.589

38

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 4 - SEGMENT REPORTING (Cont'd)

Television and

electronic

devices

White goods

Total

1 April -30 June 2019

Revenue

1.946.135

2.317.299

4.263.434

Cost of sales

(1.410.119)

(1.626.870)

(3.036.989)

Gross profit

536.016

690.429

1.226.445

Depreciation and amortization

83.020

68.204

151.224

Capital expenditure

Television and

electronic

devices

White goods

Total

1 January -30 June 2020

200.782

174.976

375.758

1 January -30 June 2019

139.346

154.983

294.329

Geographical segments:

1 January -

1 January -

1 April -

1 April -

30 June

30 June

30 June

30 June

Segment revenue

2020

2019

2020

2019

Turkey

2.702.051

1.941.445

1.587.015

1.125.770

Europe

5.876.792

5.757.232

3.109.095

3.028.473

Other

510.200

717.704

139.287

423.332

Gross segment sales

9.089.043

8.416.381

4.835.397

4.577.575

Discounts (-)

(734.444)

(590.414)

(411.600)

(314.141)

Net sales

8.354.599

7.825.967

4.423.797

4.263.434

The amount of export for the

period 1 January - 30 June

2020 is TL 6.386.992 thousand

(1 January - 30 June 2019: TL 6.474.936 thousand). Export sales are denominated in EUR, USD and other

currencies as 63,7%, 27,5%, and 8,8% of total exports respectively. (1 January - 30 June 2019: 64,7% EUR, 26,2 % USD, 9,1 % other)

The carrying value of segment assets and costs incurred in order to obtain these assets are not separately disclosed since significant portion of assets of the Group are located in Turkey.

39

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 5 - CASH AND CASH EQUIVALENTS

30 June 2020 31 December 2019

Cash

1.870

1.618

Bank deposits

2.344.480

2.167.320

- Demand deposits

2.318.474

2.104.712

- Time deposits

26.006

62.608

Cheques and notes

72.570

93.401

Other

56.308

20.701

Blocked deposits

55.230

111.294

Cash and cash equivalents

2.530.458

2.394.334

Effective interest rates(%)

30 June 2020 31 December 2019

USD

-

1,00

EUR

4,00

0,00

PLN

7,50

8,93

KZT

-

9,50

As of 30 June 2020 and 31 December 2019 the Group's time deposits have an average maturity of less than 3 months.

NOTE 6 - FINANCIAL ASSETS

Ownership(%)

Amount

30 June 31 December

30 June 31 December

Country

2020

2019

2020

2019

Financial assets available for sale:

Zorlu Enerji Elektrik Üretim A.Ş.

Turkey

< 1

< 1

13.337

13.337

Tursoft A.Ş.

Turkey

7

7

11

11

Zorlu Endüstriyel Enerji A.Ş.

Turkey

1

1

51

51

İzmir Teknoloji Geliştirme A.Ş.

Turkey

5

5

11

11

Other

Turkey

-

-

200

200

13.610

13.610

40

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 6 - FINANCIAL ASSETS (Cont'd)

Ownership(%)

Amount

30 June

31 December

30 June

31 December

Non-consolidated subsidiaries :

Country

2020

2019

2020

2019

Vestel Ventures Ar-ge A.Ş.

Turkey

100,00

100,00

60.095

54.115

Vestel Electronics Gulf DMC

UAE

100,00

100,00

1.409

1.409

Vestel Electronica SRL

Romania

100,00

100,00

1.778

1.778

Vestel Electronics Shanghai

Trading Co. Ltd

China

100,00

100,00

751

751

Vest Batarya Sistemleri A.Ş.

Turkey

100,00

100,00

50

50

Other

100,00

100,00

6

6

64.089

58.109

Impairment of subsidiaries (-)

Vestel Electronica SRL

(1.778)

(1.778)

62.311

56.331

NOTE 7 - FINANCIAL LIABILITIES

30 June 2020

31 December 2019

Short term financial liabilities

Short term bank loans

5.078.967

5.766.814

Short term portion of long term bank loans

1.819.367

1.411.361

Short term lease liabilities

87.255

64.021

6.985.589

7.242.196

Long term financial liabilities

Long term bank loans

1.375.957

456.424

Long term lease liabilities

116.439

111.657

1.492.396

568.081

41

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 7 - FINANCIAL LIABILITIES (Cont'd)

Details of the Group's short term bank loans are given below:

30 June 2020

31 December 2019

Weighted

Weighted

average of

average of

effective interest

Original

TL

effective interest

Original

Currency

rates per annum

currency

Equivalent

rates per annum

currency

TL Equivalent

- USD

0,03

240.384

1.644.757

0,04

231.736

1.376.559

- EUR

0,02

196.222

1.512.515

0,03

214.139

1.424.156

- TL

0,13

1.921.695

1.921.695

0,20

2.966.099

2.966.099

5.078.967

5.766.814

Details of the Group's long term bank loans are given below:

30 June 2020

31 December 2019

Weighted

Weighted

average of

average of

effective interest

Original

TL

effective interest

Original

Currency

rates per annum

currency

Equivalent

rates per annum

currency

TL Equivalent

- USD

0,06

51.514

352.472

0,07

62.298

370.065

- EUR

0,06

11.180

86.177

0,05

18.681

124.239

- TL

0,16

1.380.718

1.380.718

0,26

917.057

917.057

Short term portion

1.819.367

1.411.361

- USD

0,05

33.126

226.655

0,09

41.054

243.871

- EUR

0,06

13.740

105.914

0,06

18.619

123.825

- TL

0,16

1.043.388

1.043.388

0,17

88.728

88.728

Long term portion

1.375.957

456.424

3.195.324

1.867.785

Total amount of Group's floating bank loans is TL 1.716.402 thousand (31 December 2019: TL 480.738 thousand).

42

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 7 - FINANCIAL LIABILITIES (Cont'd)

The maturity schedule of Group's long term bank loans is given below:

Uzun vadeli finansal borçların ödeme planı

30 June 2020

31 December 2019

One to two years

1.262.742

269.599

Two to three years

94.718

162.200

Three to four years

13.201

14.045

Four years and over

5.296

10.580

1.375.957

456.424

The analysis of Group's bank loans in terms of periods remaining to contractual re-pricing dates is as follows:

30 June 2020 31 December 2019

6 months or less

1.716.402

480.738

1.716.402480.738

Guarantees given for the bank loans obtained are presented in note 17.

Fair values of short term bank borrowings are considered to approximate their carrying values due to immateriality of discounting. Fair values are determined using average effective annual interest rates. Long term bank borrowings are stated at amortized cost using effective interest rate method and their fair values are considered to approximate their carrying values since loans usually have a re-pricing period of six months.

As of 30 June 2020 and 2019, the Group's net financial debt reconciliation is shown below:

30 June 2020

30 June 2019

Net financial debt as of 1 January

5.527.237

4.898.069

Cash inflows from loans

3.746.293

2.371.024

Cash outflows from loan payments

(3.321.116)

(2.017.942)

Payments of lease liabilities

(10.458)

145.529

Unrealized Fx gain/loss

222.899

228.235

Accrued interest

287.846

84.054

Change in cash and cash equivalents

(192.188)

(65.512)

Net financial debt at the end of the period

6.260.513

5.643.457

43

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 8 - RELATED PARTY DISCLOSURES

  1. Short term trade receivables from related parties

30 June 2020 31 December 2019

Vestel Central Asia

6.200

-

Vestel Electronica S.R.L. (3)

16.138

19.255

Zorluteks Tekstil Sanayi ve Ticaret A.Ş.

371

3.415

Vestel Electronics Gulf DMCC . (3)

21.256

15.812

Other related parties

18.978

17.328

62.943

55.810

b) Short term trade payables to related parties

30 June 2020

31 December 2019

Vestel Electronics Shanghai Trading Co. Ltd. (3)

2.177

2.072

ABH Turizm Temsilcilik ve Ticaret A.Ş. (1)

605

3.094

Other related parties

2.709

2.664

5.491

7.830

c) Other short term receivables from related parties

30 June 2020

31 December 2019

Zorlu Holding A.Ş. (2)

547.379

376.015

Vestel Ventures A.Ş (3)

174.218

148.579

Türkiyenin Otomobil Girişim

Grubu Sanayi ve Ticaret A.Ş. (3)

57.950

25.650

Other related parties

738

139

780.285

550.383

(1) Zorlu Holding Group Company, (2) Parent (3) Subsidiary

44

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 8 - RELATED PARTY DISCLOSURES (Cont'd) d) Other long term receivables from related parties

30 June 2020 31 December 2019

Zorlu Holding A.Ş. (2)

1.787.633

1.647.724

Vestel Savunma Sanayi A.Ş. (3)

1.880.091

1.470.762

Meta Nikel Kobalt Madencilik Sanayi Ve Ticaret A. Ş. (3)

1.155.273

862.559

4.822.997

3.981.045

As of 30 June 2020, the annual average effective interest rate of other receivables in USD is 7%, average effective interest rate of other receivables in EUR is 5%,average effective interest rate of other receivables in TL is 15% (31 December 2019: USD 7%, TL 21%).

e) Other payables to related parties

30 June 2020 31 December 2019

Zorlu Family (2)

64.728

56.195

f) Lease liabilities to related parties

30 June 2020 31 December 2019

Zorlu Gayrimenkul Geliştirme ve Yatırım A.Ş.(1)

28.206

22.943

Zorlu Yapı Yatırım A.Ş.(1)

4.045

184

32.251

23.127

g) Transactions with related parties

1 January -

1 January -

1 April -

1 April -

30 June

30 June

30 June

30 June

2020

2019

2020

2019

Sales

Vestel Electronica S.R.L. (3)

14.177

19.349

6.459

10.044

Zorluteks Tekstil Sanayi ve Ticaret A.Ş. (1)

1.757

2.663

609

938

Vestel Electronics Gulf DMCC . (3)

21.669

20.378

9.417

13.800

Other related parties

2.052

1.644

1.012

1.111

39.655

44.034

17.497

25.893

(1) Zorlu Holding Group Company, (2) Parent (3) Subsidiary

45

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 8 - RELATED PARTY DISCLOSURES (Cont'd)

1 January -

1 January -

1 April -

1 April -

30 June

30 June

30 June

30 June

2020

2019

2020

2019

Operating expenses

ABH Turizm Temsilcilik ve Ticaret A.Ş. (1)

6.108

11.138

155

6.072

Zorlu Holding A.Ş. (2)

30.636

19.671

14.362

9.759

Zorlu Gayrimenkul Gel. ve Yat. A.Ş. (1)

6.342

5.445

3.076

2.685

Zorlu Air Havacılık A.Ş. (1)

1.699

2.820

670

1.541

Other related parties

3.660

4.429

2.073

2.957

48.445

43.503

20.336

23.014

Financial income

Zorlu Holding A.Ş. (2)

387.596

391.224

155.837

110.433

Vestel Savunma Sanayi A.Ş. (3)

209.186

109.839

90.935

53.595

Other related parties

199.241

12.034

199.241

6.222

796.023

513.097

446.013

170.250

Financial expense

Zorlu Holding A.Ş. (2)

396

-

266

-

Other related parties

2.942

301

1.522

31

3.338

301

1.788

31

(1) Zorlu Holding Group Company, (2) Parent (3) Subsidiary

46

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 8 - RELATED PARTY DISCLOSURES (Cont'd)

  1. Guarantees received from and given to related parties are disclosed in note 17.

ı) Compensation paid to key management including directors, the Chairman and members of Board of Directors, general managers and assistant general managers

Compensation paid to key management for the six months period ended 30 June 2020 is TL 19.442 thousand (1 January - 30 June 2019: TL 9.872 thousand).

NOTE 9 - TRADE RECEIVABLES AND PAYABLES

30 June 2020 31 December 2019

Short term trade receivables

Trade receivables

- Related parties (note 8)

62.943

55.810

- Other parties

3.505.771

3.084.681

Cheques and notes receivables

336.443

261.793

Other

163.475

146.437

4.068.632

3.548.721

Unearned interest expense (-)

- Related parties (note 8)

-

-

- Other parties

(16.632)

(10.966)

Allowance for doubtful receivables (-)

(176.003)

(164.923)

Total short term trade receivables

3.875.997

3.372.832

Long term trade receivables

Cheques and notes receivables

46.616

77.527

Unearned interest expense (-)

(3.371)

(9.932)

Total long term trade receivables

43.245

67.595

The Group provides allowance for doubtful receivables based on historical experience.

47

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 9 - TRADE RECEIVABLES AND PAYABLES (Cont'd)

1 January -

1 January -

30 June 2020

30 June 2019

Opening balance, 1 January

164.923

118.450

Current year additions

10.591

27.010

Provisions no longer required

(3.480)

(3.283)

Currency translation differences

3.969

1.931

Balance at 30 June

176.003

144.108

30 June 2020 31 December 2019

Short term trade payables

Trade payables

- Related parties (note 8)

5.491

7.830

- Other parties

6.413.592

6.116.995

Notes payables

- Other parties

13

59

Other

3.551

3.491

6.422.647

6.128.375

Unearned interest income (-)

- Other parties

(10.583)

(666)

Total short term trade payables

6.412.064

6.127.709

Long term trade payables

Trade payables

- Other parties

506

6.747

Total long term trade payables

506

6.747

48

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 10 - OTHER RECEIVABLES

30 June 2020 31 December 2019

Short term other receivables

Receivables from official institutions

238.334

187.448

Receivables from related parties (note 8)

780.285

550.383

Deposits and guarantees given

77.790

59.075

Other

95.400

92.854

1.191.809

889.760

Allowance for doubtful receivables (-)

(89.641)

(89.376)

1.102.168

800.384

Long term other receivables

Deposits and guarantees given

6.778

5.507

Receivables from related parties (note 8)

4.822.997

3.981.045

Other

8.278

8.278

4.838.053

3.994.830

Allowance for doubtful receivables (-)

(8.278)

(8.278)

4.829.775

3.986.552

The Group provides allowance for doubtful receivables.

NOTE 11 - INVENTORIES

30 June 2020 31 December 2019

Raw materials

1.586.476

1.115.649

Work in process

124.263

94.662

Finished goods

1.178.952

1.520.401

Merchandise

147.351

155.044

Other

10.139

5.228

3.047.181

2.890.984

Provision for impairment on inventories (-)

(74.270)

(57.869)

2.972.911

2.833.115

Cost of the inventory included in the consolidated statement of comprehensive income in the period 1 January - 30 June 2020 is TL 5.157.275 thousand (2019: TL 5.064.636 thousand).

49

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 11 - INVENTORIES (Cont'd)

As of 30 June 2020 the Group does not have inventories pledged as security for liabilities (31 December 2019: None)

Allocation of provision for impairment on inventories in terms of inventory type is as follows:

30 June 2020 31 December 2019

Raw materials

27.322

21.005

Finished goods and merchandise

46.948

36.864

74.270

57.869

Movement of provision for impairment on inventories is as follows:

1 January -

1 January -

30 June 2020

30 June 2019

Opening balance, 1 January

57.869

32.801

Current year additions

18.058

16.289

Realised due to sale of inventory

(7.055)

(8.059)

Currency translation differences

5.398

4.497

Balance at 30 June

74.270

45.528

NOTE 12 - PREPAID EXPENSES

30 June 2020 31 December 2019

Prepaid expenses in current assets

Order advances given

27.615

29.423

Prepaid expenses

85.982

56.664

Business advances given

8.411

3.587

122.008

89.674

Prepaid expenses in non-current assets

Advances given for fixed asset purchases

80.555

64.471

Prepaid expenses

17.499

9.025

98.054

73.496

50

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 13 - INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

30 June 2020

31 December 2019

%

Amount

%

Amount

Subsidiaries

Meta Nikel Kobalt Madencilik San. ve Tic. A.Ş.

50%

885.778

50%

961.272

Türkiyenin Otomobil Girişim Grubu Sanayi ve

Ticaret A.Ş.

19%

7.360

19%

12.920

893.138

974.192

As on 29 June 2018, pursuant to the Group's goal to diversify its lines of business and achieve profitable growth by investing in new-generation technologies, in order to secure the supply of nickel sulphate and cobalt sulphate compounds, which are critical raw materials for the production of EV batteries, of Meta Nikel Kobalt Madencilik Sanayi ve Ticaret A.Ş. ("META"), which is a Zorlu Holding A.Ş. subsidiary and is involved in nickel-cobalt mining. The Group has purchased 916.335.000 shares (each with a nominal value of TL1 and representing 50% of the Group's share capital) from Ahmet Nazif Zorlu, Olgun Zorlu, Mehmet Emre Zorlu, Selen Zorlu Melik, Meta Madencilik Enerji Turizm Danışmanlık Sanayi ve Ticaret A.Ş. and Zorlu Holding AŞ, for a total consideration of US$250 mn. The acquisition value is in accordance with the valuation range of US$447,2 million and US$572 million stated in June 29, 2018 the independent appraisal report prepared by Ernst & Young Advisory Services, which is licensed by the Capital Markets Board.

META was founded in 2000 to undertake nickel mining in Turkey, has been operating under Zorlu Group since 2007. The Group's nickel cobalt mining facility in Gördes, Manisa was commissioned at the end of 2014. The facility has a production capacity of 10.000 tons of nickel content and 550 tons of cobalt content per annum. Besides Gördes, META also has a licensed field in Eskişehir and undertakes surveying activities in various regions of Turkey. Currently, META produces nickel-cobalt hydroxide (MHP), which is an intermediate product, and plans to undertake an investment for the production of nickel sulfate and cobalt corbonat compounds, which are critical for Li-ion battery production in the upcoming period.

Within the framework of Turkey's Automobile Project, following the work undertaken by the Joint Initiative Group, to which Group's controlling shareholder, Zorlu Holding AŞ was a party, Vestel Elektronik Sanayi ve Ticaret AŞ decided has participated with a 19% share in "Türkiye'nin Otomobili Girişim Grubu Sanayi ve Ticaret A.Ş.", which is planned to be established to produce mainly electric passenger cars and carry out supporting activities. In this respect, the Shareholders Agreement and Articles of Association have been signed on 31 May 2018. Establishment of the new Group is completed on 28 June 2018.

The Group's voting rights and effective ownership rates in Vestel Savunma and Aydın Yazılım are 35% and 21% respectively (31 December 2019: 35%, 21%).

51

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 13 - INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (Cont'd)

The movements of META, which is an investment accounted for using the equity method during the period 1 January - 30 June is as follows:

1 January -

1 January -

30 June 2020

30 June 2019

Balance at 1 January

961.272

1.131.130

Shares from profit / loss

(112.694)

(129.230)

Shares from other comprehensive

income / expense

37.200

40.446

Balance at 31 March

885.778

1.042.346

Condensed financial statement informations of META is given below:

30 June 2020 31 December 2019

Total Assets

3.988.361

3.482.654

Total Liability

(3.550.998)

(2.894.281)

Net assets

437.363

588.373

1 January -

1 January -

30 June 2020

30 June 2019

Net sales

184.667

75.069

Income / (loss) before tax

(141.848)

(242.211)

Tax benefit / (expense)

(83.541)

(16.250)

Net income / (loss) for the period

(225.388)

(258.461)

Total comprehensive income

(150.988)

(177.569)

52

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020 (Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 14 - PROPERTY, PLANT AND EQUIPMENT

Currency

1 January

translation

30 June

2020

Additions

Disposals

differences

Transfers

2020

Cost or revaluation

Land

635.564

-

(29.941)

(3.077)

-

602.546

Land improvements

132.438

341

(2.773)

4.892

-

134.898

Buildings

1.489.078

5.389

(137.883)

71.968

4.169

1.432.721

Leasehold improvements

156.981

1.155

-

1.962

55

160.153

Plant and machinery

3.168.798

215.080

(101.781)

54.622

36.406

3.373.125

Motor vehicles

7.546

664

(2.106)

1.476

-

7.580

Furniture and fixtures

427.429

13.106

(11.405)

10.525

6.788

446.443

Other tangible assets

849

-

-

-

-

849

Construction in progress

54.295

23.575

(40)

184

(44.537)

33.477

6.072.978

259.310

(285.929)

142.552

2.881

6.191.792

Accumulated depreciation

Land improvements

6.932

491

(955)

7.537

-

14.005

Buildings

60.895

20.104

(45.192)

32.235

-

68.042

Leasehold improvements

144.705

6.808

-

7.772

-

159.285

Plant and machinery

2.053.707

182.731

(20.038)

12.342

-

2.228.742

Motor vehicles

4.841

581

(1.967)

1.378

-

4.833

Furniture and fixtures

348.721

19.500

(9.400)

43.477

1.554

403.852

Other tangible assets

849

-

-

-

-

849

2.620.650

230.215

(77.552)

104.741

1.554

2.879.608

Net book value

3.452.328

3.312.184

53

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020 (Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 14 - PROPERTY, PLANT AND EQUIPMENT (Cont'd)

Currency

1 January

translation

30 June

2019

Additions

Disposals

differences

Transfers

2019

Cost or revaluation

Land

625.381

-

-

8.852

-

634.233

Land improvements

126.962

177

-

4.339

-

131.478

Buildings

1.407.645

6.912

(862)

56.261

1.906

1.471.862

Leasehold improvements

154.233

573

(1.000)

416

402

154.624

Plant and machinery

2.756.625

153.541

(18.351)

27.505

21.643

2.940.963

Motor vehicles

7.725

330

(613)

300

-

7.742

Furniture and fixtures

407.792

8.222

(4.636)

3.304

909

415.591

Other tangible assets

849

-

-

-

-

849

Construction in progress

39.874

37.225

-

3

(24.945)

52.157

5.527.086

206.980

(25.462)

100.980

(85)

5.809.499

Accumulated depreciation

Land improvements

-

2.948

-

755

-

3.703

Buildings

-

24.225

(140)

12.644

-

36.729

Leasehold improvements

129.113

8.478

(755)

243

-

137.079

Plant and machinery

1.744.385

156.864

(18.242)

21.008

-

1.904.015

Motor vehicles

4.546

543

(515)

295

-

4.869

Furniture and fixtures

313.486

19.450

(4.503)

2.942

-

331.375

Other tangible assets

849

-

-

-

-

849

2.192.379

212.508

(24.155)

37.887

-

2.418.619

Net book value

3.334.707

3.390.880

54

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 14 - PROPERTY, PLANT AND EQUIPMENT (Cont'd)

Additions to property, plant and equipment in the period 1 January - 30 June 2020 mainly consist of machinery and equipment investments made to television and electronic devices factory, first and second refrigerator, cooker, dishwasher, washing machine and tumbler drier factories.

As of 30 June 2020 the Group does not have property, plant and equipment pledged (2019: None)

Useful lives of property, plant and equipment is as follows:

Useful life

Land improvements

5

- 35 years

Buildings

25

- 50 years

Leasehold improvements

3

- 10 years

Plant and machinery

2

- 25 years

Motor vehicles

5

- 10 years

Furniture and fixtures

5

- 14 years

Allocation of current year depreciation and amortization expenses is as follows:

1 January -

1 January -

30 June

30 June

2020

2019

Cost of sales

201.812

170.700

Research and development expenses

83.128

72.249

Marketing, selling and distribution expenses

37.972

36.077

General administrative expenses

14.569

17.156

Other operating expense (idle capacity depreciation expense)

2.707

3.054

340.188

299.236

55

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 15 - RIGHT OF USE ASSETS

1 January

Effect of change in

30 June

2020 accounting policies Additions

2020

Cost

Land and buildings

141.468

-

59.815

201.283

Machinery

66.316

-

1.454

67.770

Motor vehicles

15.271

-

3.409

18.680

223.055

-

64.678

287.733

Accumulated amortization

Land and buildings

37.068

-

24.864

61.932

Machinery

15.765

-

9.633

25.398

Motor vehicles

6.446

-

3.199

9.645

59.279

-

37.696

96.975

Net book value

163.776

-

-

190.758

1 January

Effect of change in

30 June

2019 accounting policies Additions

2019

Cost

Land and buildings

-

119.364

-

119.364

Machinery

-

34.612

-

34.612

Motor vehicles

-

13.836

-

13.836

-

167.812

-

167.812

Accumulated amortization

Land and buildings

-

-

15.746

15.746

Machinery

-

-

4.693

4.693

Motor vehicles

-

-

3.252

3.252

-

-

23.691

23.691

Net book value

-

167.812

-

144.121

56

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 16 - INTANGIBLE ASSETS

Currency

1 January

translation

30 June

2020 Additions Disposals differences Transfers

2020

Cost

Rights

70.878

30

-

1.083

(2.881)

69.110

Development cost

1.169.884

112.239

(111)

82

-

1.282.094

Other intangible assets

180.684

4.179

(37.507)

20.309

-

167.665

1.421.446

116.448

(37.618)

21.474

(2.881)

1.518.869

Accumulated amortization

Rights

55.099

1.184

-

(1.237)

(1.554)

53.492

Development cost

641.642

66.759

-

-

-

708.401

Other intangible assets

106.977

4.334

(35.033)

20.770

-

97.048

803.718

72.277

(35.033)

19.533

(1.554)

858.941

Net book value

617.728

659.928

Currency

1 January

translation

30 June

2019 Additions Disposals differences Transfers

2019

Cost

Rights

70.832

24

(716)

455

-

70.595

Development cost

975.596

84.574

(114)

-

-

1.060.056

Other intangible assets

167.259

2.751

(455)

3.848

85

173.488

1.213.687

87.349

(1.285)

4.303

85

1.304.139

Accumulated amortization

Rights

52.070

1.609

(716)

438

-

53.401

Development cost

527.517

56.977

-

-

-

584.494

Other intangible assets

93.503

5.106

-

3.324

-

101.933

673.090

63.692

(716)

3.762

-

739.828

Net book value

540.597

564.311

57

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 16 - INTANGIBLE ASSETS(Cont'd)

Development costs, incurred by the Group on development projects relating to television and electronic devices, refrigerators, split air conditioners, washing machines, cookers and dish washers are capitalized as intangible assets when it is probable that costs will be recovered through future commercial activity and only if the cost can be measured reliably.

Useful lives of intangible assets are as follows:

Useful life

Rights

2 - 15

years

Development cost

2 - 10

years

Other

2 - 15

years

NOTE 17 - PROVISIONS, CONTINGENT ASSETS AND LIABILITIES

a) Provisions

30 June 2020 31 December 2019

Short term provisions

Warranty and assembly provision

289.666

266.042

Other provisions

262.953

291.130

Provision for lawsuit risks

27.611

24.909

580.230

582.081

Long term provisions

Warranty and assembly provision

44.818

42.878

Other provisions

3.277

2.959

48.095

45.837

With reference to Group management's and legal advisors' assessments, no provision is provided for those cases that are expected to be finalized in favor of the Group. As of 30 June 2020, the amount of provision provided for the cases for which the probability of losing the case is assessed to be high by the Group management and legal advisors is TL 27.611 thousand (31 December 2019: TL 24.909 thousand).

58

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 17 - PROVISIONS, CONTINGENT ASSETS AND LIABILITIES (Cont'd)

As of 30 June movements of warranty and assembly provisions are as follows:

1 January -

1 January -

30 June 2020

30 June 2019

Opening balance, 1 January

308.920

297.326

Current year additions (Note 23)

192.701

178.321

Provisions no longer required

(167.137)

(179.906)

Balance at 30 June

334.484

295.741

b) Waste Electrical and Electronic Equipment Directive

Legal regulation prepared in conformity with European Union Waste Electrical and Electronic Equipment Directive ("WEEE") has been effective in Turkey since 2012. The Directive set collection, recycling and recovery targets for all types of electrical and electronic goods upon manufacturers. The Group fulfills these obligations.

c) Guarantees received by the Group

Guarantee letters, collaterals, cheques and notes received

30 June 2020 31 December 2019

Guarantee letters

567.302

550.767

Cheques and notes

9.859

387.751

Collaterals and pledges

1.393.133

1.407.870

1.970.294

2.346.388

Vestel Beyaz Eşya Sanayi ve Ticaret A.Ş. and Vestel Ticaret A.Ş. has given collaterals to various banks on behalf of the Company for its forward contracts and loans utilized.

59

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 17 - PROVISIONS, CONTINGENT ASSETS AND LIABILITIES (Cont'd)

  1. Collaterals, pledges and mortgages ("CPM's") given by the Group

USD

EUR

CPM's given by the Group

('000)

('000)

TL

TL Equivalent

30 June 2020

A. CPM's given on behalf of its own legal entity

5.290

27.891

82.115

333.299

B. CPM's given on behalf of fully consolidated

subsidiaries (*)

1.903.578

240.764

2.981.184

17.861.700

C. CPM's given on behalf of third parties for

ordinary course of business

-

-

-

-

D. Total amount of other CPM's given

31.695

-

26.592

243.456

i. Total amount of CPM's given on behalf of the

parent company

-

-

-

-

  1. Total amount of CPM's given to on behalf of other group companies which are not in scope of B

and C.

31.695

-

26.592

243.456

iii.Total amount of CPM's given on behalf of third

parties which are not in scope of C.

-

-

-

-

Total

1.940.563

268.655

3.089.891

18.438.455

(*)Fully consolidated subsidiaries have given collaterals to various financial institutions on behalf of each other for their forward contracts and for the total amount of loans utilized.

60

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 17 - PROVISIONS, CONTINGENT ASSETS AND LIABILITIES (Cont'd)

USD

EUR

CPM's given by the Group

('000)

('000)

TL

TL Equivalent

31 December 2019

A. CPM's given on behalf of its own legal entity

5.993

22.493

196.638

381.833

B. CPM's given on behalf of fully consolidated

subsidiaries

1.918.972

239.495

2.900.583

15.892.446

C. CPM's given on behalf of third parties for

ordinary course of business

-

-

-

-

D. Total amount of other CPM's given

36.437

-

22.001

238.444

i. Total amount of CPM's given on behalf of the

parent company

-

-

-

-

  1. Total amount of CPM's given to on behalf of other group companies which are not in scope of B

and C.

36.437

-

22.001

238.444

iii.Total amount of CPM's given on behalf of third

parties which are not in scope of C.

-

-

-

-

Total

1.961.402

261.988

3.119.222

16.512.723

As of 30 June 2020 proportion of

other CPM's given by

the Group

to its equity is

5%

(31 December 2019: 6%).

NOTE 18 - COMMITMENTS

As of the balance sheet date the Group has committed to realize exports amounting to 980.888 thousand USD (31 December 2019: 1.041.140 thousand USD) due to the export and investment incentive certificates obtained.

As of 30 June 2020 the Group has forward foreign currency purchase contract that amounts to USD 807.292 thousand, EUR 207.374 thousand, GBP 13.686 thousand, PLN 26.680 thousand, RON 1.412 thousand and TL 981.364 thousand against forward foreign currency sales contract that amounts to USD 373.438 thousand , EUR 341.508 thousand, GBP 64.429 thousand, RUB 1.255.420 thousand, RON 11.681 thousand, PLN 26.314 thousand, SEK 9.447 thousand, CHF 250.139 and TL 498.708 thousand. (31 December 2019: USD 857.412 thousand, EUR 334.503 thousand, GBP 52.928 thousand, PLN 40.850 thousand, RON 4.270 thousand, RUB 30.750 thousand and TL 1.489.514 thousand against forward foreign currency purchase contract; USD 616.000 thousand, EUR 309.307 thousand, GBP 118.911 thousand, RUB 1.381.929 thousand, RON 8.669 thousand, PLN 133.695 thousand, SEK 9.447 thousand, CHF 249.707 and TL 748.328 thousand against forward foreign currency sales contract).

61

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 19 - EMPLOYEE BENEFITS

Liabilities for employee benefits:

30 June 2020 31 December 2019

Due to personnel

76.570

91.078

Social security payables

96.852

108.977

173.422

200.055

Long term provisions for employee benefits:

30 June 2020 31 December 2019

Provision for employment termination benefits

168.917

156.116

Under Turkish law, the Group is required to pay employment termination benefits to each employee whose employment is terminated without due cause. In addition, under the existing Social Security Law No.506, clause No. 60, amended by the Labor Laws dated 6 March 1981, No.2422 and 25 August 1999, No.4447, the Group is also required to pay termination benefits to each employee who has earned the right to retire by receiving termination indemnities.

The amount payable is the equivalent of one month's salary for each year of service and is limited to a maximum of 6.730,15 TL/year as of 30 June 2020 (31 December 2019: 6.379,86 TL/year).

Provision for employment termination benefits is not subject to any funding.

The provision is calculated by estimating the present value of the future obligation of the Group arising from retirement of employees. TAS 19 ("Employee Benefits") requires actuarial valuation methods to be developed to estimate the enterprise's obligation under defined employee plans. Accordingly actuarial assumptions were used in the calculation of the total liability which are described below:

62

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 19 - EMPLOYEE BENEFITS (Cont'd)

The principal assumption is that the maximum liability for each year of service will increase in line with inflation. Thus, the discount rate applied represents the expected real rate after adjusting for the anticipated effects of future inflation. An expected inflation rate and appropriate discount rate should both be determined, the net of these being real discount rate. Consequently in the accompanying financial statements as of 30 June 2020, the provision is calculated by estimating the present value of the future obligation of the Group arising from retirement of employees. As of 30 June 2020 provision is calculated based on real discount rate of 5,21% (31 December 2019: 5,21%) assuming 7% annual inflation rate and 12,21% discount rate.

The movement in the provision for employment termination benefit is as follows:

1 January -

1 January -

30 June 2020

30 June 2019

Balance at 1 January

156.116

111.100

Increase during the year

5.607

4.524

Payments during the year

(10.429)

(9.608)

Actuarial (gain) /loss

7.904

3.581

Interest expense

9.719

9.058

Balance at 30 June

168.917

118.655

NOTE 20 - OTHER ASSETS AND LIABILITIES

30 June 2020 31 December 2019

Other current assets

VAT carried forward

8.748

9.588

Rebates from suppliers and incentives income accurals

19.398

23.194

Other

17.602

32.714

45.748

65.496

Other non - current assets

Assets held for sale

10.603

9.925

10.603

9.925

63

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 20 - OTHER ASSETS AND LIABILITIES (Cont'd)

30 June 2020 31 December 2019

Other current liabilities

Advances received

176.796

108.124

Tax payables

79.622

83.479

Other

232.761

199.440

489.179

391.043

NOTE 21 - CAPITAL, RESERVES AND OTHER EQUITY ITEMS

a) Paid in capital

30 June 2020 31 December 2019

Shares of par value Kr 1 each

limit on registered share capital

1.000.000

1.000.000

Issued share capital

335.456

335.456

As of 30 June 2020 and 31 December 2019 the shareholding structures are as follows:

Shareholding

Amount

30 June 31 December

30 June 31 December

2020

2019

2020

2019

Zorlu Holding A.Ş.

64,41%

64,41%

216.054

216.054

Shares held by public

Other shareholders

28,37%

26,34%

95.154

88.359

Zorlu Holding A.Ş.

7,23%

9,25%

24.248

31.043

100%

100%

335.456

335.456

b) Adjustment to share capital

Adjustment to share capital (restated to 31 December 2004 purchasing power of money) is the difference between restated share capital and historical share capital.

64

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 21 - CAPITAL, RESERVES AND OTHER EQUITY ITEMS (Cont'd)

c) Share premium

Share premium account refers the difference between par value of the company's shares and the amount the company received for newly issued shares. The share premium account is disclosed under equity as a separate line item and may not be distributed. It may be used in capital increase.

d) Legal reserves

The legal reserves consist of first and second legal reserves appropriated in accordance with the Turkish Commercial Code ("TCC"). The first legal reserve is appropriated out of the statutory profits at the rate of 5%, until the total reserve reaches a maximum of 20% of the Company's share capital. The second legal reserve is appropriated at the rate of 10% of all distributions in excess of 5% of the Company's share capital. Under TCC, the legal reserves can only be used to offset losses and are not available for any other usage unless they exceed 50% of paid in share capital

30 June 2020 31 December 2019

Legal reserves

67.443

67.179

e) Revaluation reserve

30 June 2020 31 December 2019

Fair value gains on financial assets

6.942

4.321

Revaluation of property, plant and equipment

1.251.946

1.310.274

1.258.888

1.314.595

f) Accumulated deficit

30 June 2020 31 December 2019

Extraordinary reserves

512.541

512.541

Previous year's loss

307.107

(142.242)

Other inflation adjustment of share capital

119.718

119.718

939.366

490.017

65

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 21 - CAPITAL, RESERVES AND OTHER EQUITY ITEMS (Cont'd)

g) Dividend distribution

For quoted companies dividends are distributed in accordance with the Communiqué Serial II -19.1 on "Principals Regarding Distribution of Interim Dividends" issued by the CMB effective from 1 February 2014.

Companies distribute dividends in accordance with their dividend payment policies settled and dividend payment decision taken in general assembly and in conformity with relevant legislations. The communiqué does not state a minimum dividend rate. Companies distribute dividends in accordance with the method defined in their dividend policy or articles of association. Additionally, dividend can be distributed in fixed or variable installments and dividend advances can be paid over the profit on interim financial statements.

Unless the general reserves that has to be appropriated in accordance with TCC or the dividend to shareholders as determined in the articles of association or dividend policy are set aside; no decision can be taken to set aside other reserves, to transfer reserves to the subsequent year or to distribute dividends to holders of usufruct right certificates, to board of directors members or to employees; and no dividend can be distributed to those unless the determined dividend to shareholders is paid in cash.

On the other hand, in accordance with the Articles of Association of the Company, the net period income is allocated after deducting the accumulated losses from the previous years, if any, as follows:

  1. As per Article 519 of the Turkish Commercial Code, 5% is allocated to a general legal reserve.
  2. A dividend is allocated from the remaining amount, at the rate determined by the General Assembly over an amount to be found after the addition of a donation, which is made in line with the Turkish Commercial Code and Capital Market Legislation.
  3. After the deductions above, the General Assembly has the right to decide how to allocate the dividend to members of the board of directors and officers, employees and workers, foundations established with various purposes, and similar persons and corporations.
  4. After the amounts stated in paragraph (a), (b) and (c) are deducted from the net period profit, the General Assembly is authorized to allocate the remaining amount as a second dividend or to allocate the remaining amount to its own reserve as per Article 521 of the Turkish Commercial Code.
  5. One tenth of the amount obtained after a dividend of 5% of the paid in capital and other legal reserve are deducted from the amount that is agreed to be allocated to the shareholders and other persons participating to the profit is added to the general legal reserve as per paragraph (c) of the second clause of article 519 of the Turkish Commercial Code.

66

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 22 - SALES

1 January -

1 January -

1 April -

1 April -

30 June

30 June

30 June

30 June

2020

2019

2020

2019

Domestic sales

2.702.051

1.941.445

1.587.015

1.125.770

Overseas sales

6.386.992

6.474.936

3.248.382

3.451.805

Gross sales

9.089.043

8.416.381

4.835.397

4.577.575

Sales discounts (-)

(734.444)

(590.414)

(411.600)

(314.141)

Net sales

8.354.599

7.825.967

4.423.797

4.263.434

Cost of sales

(6.042.107)

(5.789.879)

(3.230.516)

(3.036.989)

Gross profit

2.312.492

2.036.088

1.193.281

1.226.445

NOTE 23 - EXPENSES BY NATURE

1 January -

1 January -

1 April -

1 April -

30 June

30 June

30 June

30 June

2020

2019

2020

2019

Raw materials, supplies and

finished goods

4.837.734

5.263.675

2.475.571

2.772.243

Changes in finished goods, work in

process, trade goods

319.541

(199.039)

281.518

(81.846)

Personnel expenses

701.060

604.973

363.485

323.125

Depreciation and amortization

337.481

296.182

192.206

150.021

warehouse expenses

353.288

312.135

188.674

172.088

Warranty and assembly expenses

192.701

178.321

103.786

94.810

Advertising expenses

96.567

82.602

47.670

38.335

Other

508.442

444.107

220.548

186.404

7.346.814

6.982.956

3.873.458

3.655.180

67

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 24 - GENERAL ADMINISTRATIVE EXPENSES, MARKETING EXPENSES, RESEARCH AND DEVELOPMENT EXPENSES

a) General administrative expenses:

1 January -

1 January -

1 April -

1 April -

30 June

30 June

30 June

30 June

2020

2019

2020

2019

Personnel expenses

75.444

69.130

35.961

37.339

Depreciation and amortization

14.569

17.156

7.661

9.179

Consultancy expenses

34.359

17.875

12.958

9.305

Information technology expenses

20.884

19.214

10.967

9.474

Rent and office expenses

13.720

17.046

5.847

8.169

Tax and duties

7.174

7.518

3.162

3.861

Insurance expenses

4.864

5.915

2.312

3.244

Travelling expenses

2.562

3.972

838

2.172

Benefits and services provided externally

943

923

(49)

414

Other

31.596

39.465

15.445

4.701

206.115

198.214

95.102

87.858

b) Marketing expenses:

Export, transportation, warehouse expenses

332.017

290.243

177.496

159.290

Depreciation and amortization

37.972

36.077

15.816

26.561

Warranty and assembly expenses

192.701

178.321

103.786

94.810

Personnel expenses

176.571

159.436

89.555

86.876

Advertising expenses

86.675

74.843

43.409

33.805

Other

142.328

132.921

52.407

64.521

968.264

871.841

482.469

465.863

c) Research and development expenses:

Personnel expenses

20.459

17.212

9.391

8.885

Depreciation and amortization

83.128

72.249

42.840

36.990

Travelling expenses

2.000

3.483

131

1.849

Other

24.741

30.078

13.009

16.746

130.328

123.022

65.371

64.470

68

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 25 - OTHER INCOME AND EXPENSE FROM OPERATING ACTIVITIES a) Other income from operating activities:

1 January -

1 January -

1 April -

1 April -

30 June

30 June

30 June

30 June

2020

2019

2020

2019

Credit finance gains arising from

trading activities

27.383

46.004

4.755

30.855

Foreign exchange gains arising

from trading activities

382.516

568.779

172.793

296.079

Reversals of provisions

3.449

24.431

1.887

23.970

Other income

138.574

78.483

44.027

40.890

551.922

717.697

223.462

391.794

b) Other expense from operating activities:

Debit finance charges arising from

trading activities

27.691

104.405

17.500

46.014

Foreign exchange expenses arising

from trading activities

979.869

762.812

373.974

286.292

Provision expenses

22.344

26.210

20.005

14.163

Other expenses

73.818

135.425

34.052

78.866

1.103.722

1.028.852

445.531

425.335

69

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 26 - FINANCIAL INCOME AND FINANCIAL EXPENSE a) Financial income:

1 January -

1 January -

1 April -

1 April -

30 June

30 June

30 June

30 June

2020

2019

2020

2019

Foreign exchange gains

908.009

499.544

344.479

244.720

Gains on derivative financial instruments

385.267

550.370

155.531

198.982

Interest income

232.904

291.008

123.369

147.526

1.526.180

1.340.922

623.379

591.228

b) Financial expense:

1 January -

1 January -

1 April -

1 April -

30 June

30 June

30 June

30 June

2020

2019

2020

2019

Foreign exchange losses

447.175

440.546

180.268

290.984

Losses on derivative financial instruments

416.558

715.395

180.817

245.510

Interest and commision expense

431.726

554.327

248.565

288.087

Other finance expenses

2.308

8.500

452

8.323

1.297.767

1.718.768

610.102

832.904

NOTE 27 - TAXES ON INCOME (INCLUDING DEFERRED TAX ASSETS AND LIABILITIES)

30 June 2020 31 December 2019

Corporation and income taxes

4.960

10.182

Prepaid taxes (-)

(2.721)

(17.441)

Current income tax liabilities - net

2.239

(7.259)

Deferred tax liabilities

(259.856)

(233.589)

Deferred tax assets

328.615

230.498

68.759

(3.091)

Turkish Tax Legislation does not permit a parent company its subsidiaries and investments in associates to file a consolidated tax return. Therefore, tax liabilities as reflected in these consolidated financial statements have been calculated on a separate entity basis for the fully consolidated subsidiaries.

70

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 27 - TAXES ON INCOME (INCLUDING DEFERRED TAX ASSETS AND LIABILITIES) (Cont'd)

Corporate tax is applied on taxable corporate income, which is calculated from the statutory accounting profit by adding back non-deductible expenses and by deducting other exempt income. In addition to corporate taxes, companies should also calculate income withholding taxes on any dividends distributed at the rate of % 15, except for companies receiving dividends who are resident companies in Turkey. Undistributed dividends incorporated in share capital are not subject to income withholding taxes.

In Turkey, advance tax returns are filed on a quarterly basis at the rate of 22%, until the 14th day of the following month and paid until the 17th day. Advance tax returns files within the year are offset against corporate income tax calculated over the annual taxable corporate income.

According to the Corporate Tax Law, 50% of the capital gains arising from the sale of tangible assets and 75% of the earning from investments in equity shares owned for at least two years are exempted from corporate tax on the condition that such gains are reflected in the equity.

Under the Turkish taxation system, tax losses can be carried forward to be offset against future taxable income for up to five years. Tax losses cannot be carried back.

There is no procedure for a final and definitive agreement on tax assessments. Tax returns are filed between 1-25 April following the close of the accounting year to which they relate. Tax authorities may however examine such returns and the underlying accounting records and may revise assessment within five years.

For the years 2006-2017, corporate tax rate in Turkey is 20%. In accordance with the regulation numbered 7061, published in Official Gazette on 5 December 2017, corporate tax rate for the years 2018, 2019 and 2020 has increased from 20% to 22%. Therefore, deferred tax assets and liabilities as of 30 June 2020 are calculated with 22% tax rate for the temporary differences which will be realized in 2020, and with 20% tax for those which will be realized after 2021 and onwards.

Russian Federation

In Russia, corporate tax rate applicable is 20% (2019: 20%). Under the Russian Federation taxation system, tax losses can be carried forward to be offset against future taxable income for up to ten years. There are no restrictions on the amounts subject to net off. On the other hand, tax, currency and customs legislations are subject to various interpretations and changes which can occurs frequently in Russian Federation. Management's interpretation for such legislation, which is applied to the Company's operations and activities, can be interpreted by regional and federal authorities in different ways.

71

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 27 - TAXES ON INCOME (INCLUDING DEFERRED TAX ASSETS AND LIABILITIES) (Cont'd)

The events of the recent past in Russian Federation, shows that risk could be possible on approval of operations and activities, which approved in the past may not be approved in the future as a result of reviews by the tax authorities on legislation. According to a review by the tax inspection authorities, without exceptional circumstances, tax inspection covers three years prior to the final inspection. Under certain circumstances, such views may cover longer periods.

As of 1 January - 30 June 2020 and 2019 tax benefit in the consolidated statement of income is as follows:

1 January -

1 January -

30 June 2020

30 June 2019

Current period tax expense

(4.356)

(4.456)

Deferred tax benefit

64.390

30.611

Total tax (expense) / benefit

60.034

26.155

Due to modernization, plant extension and investments incentive documents in Manisa Organized Industrial Zone, the Group has reduced rate of corporate tax advantage.

Deferred tax assets and liabilities

The Group recognizes deferred tax assets and liabilities based upon temporary differences arising between their financial statements prepared in accordance with CMB Communiqué II, No. 14.1 and their statutory financial statements. These temporary differences usually result from the recognition of revenue and expenses in different reporting periods for the Communiqué and tax purposes.

As of 30 June 2020, the Group has not recognized deferred tax assets arising from its investment incentive certificate, in accordance with conservatism principle of accounting.

72

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 27 - TAXES ON INCOME (INCLUDING DEFERRED TAX ASSETS AND LIABILITIES) (Cont'd)

The breakdown of cumulative temporary differences and the resulting deferred tax assets and liabilities provided using principal tax rate as of the balance sheet dates is as follows:

Cumulative temporary

differences

Deferred tax

30 June

31 December

30 June

31 December

2020

2019

2020

2019

Deferred tax assets

Employment termination benefits

(168.917)

(151.080)

33.783

30.216

Warranty provision

(100.850)

(108.750)

22.187

23.925

Provision for doubtful receivables

(90.723)

(177.777)

19.959

39.111

Unearned interest expense

-

(21.082)

-

4.638

Net difference between book values

and tax bases of tangible and

intangible assets

(25.050)

-

5.010

-

Provision for impairment on

inventories

(18.059)

(16.291)

3.973

3.578

Derivative financial instruments

(38.582)

(7.105)

7.716

1.556

Carryforward tax losses

and R&D incentives

(730.955)

(607.600)

146.191

121.520

Other

(408.164)

(179.755)

89.796

39.546

328.615

264.090

Deferred tax liabilites

Income accruals of derivative

transactions

50.171

-

(11.038)

-

Useful life and valuation differences on

property, plant and equipment and

intangible assets

-

71.025

-

(14.205)

Revaluation of tangible fixed assets

1.216.250

1.091.436

(243.250)

(251.322)

Other

25.309

7.518

(5.568)

(1.654)

(259.856)

(267.181)

Deferred tax assets / (liabilites) - net

68.759

(3.091)

73

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 27 - TAXES ON INCOME (INCLUDING DEFERRED TAX ASSETS AND LIABILITIES) (Cont'd)

The movement of net deferred tax assets and liabilities is as follows:

1 January -

1 January -

30 June 2020

30 June 2019

Opening balance, 1 January

(3.091)

(54.287)

Tax benefit recognized in income statement

64.390

30.611

Recognized in shareholders' equity

240

(782)

Currency translation differences

7.220

(1.538)

Deferred tax (liabilities) / assets

at the end of the period, net

68.759

(25.996)

NOTE 28 - EARNINGS / (LOSS) PER SHARE

1 January -

1 January -

30 June

30 June

2020

2019

Net income / (loss) attributable to equity holders

of the parent

600.091

35.478

Weighted number of ordinary shares with a Kr 1 of par

value (hundred shares)

33.546.000

33.546.000

Earnings per share

1,79

0,11

74

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 29 - DERIVATIVE INSTRUMENTS

30 June 2020

31 December 2019

Fair Value

Fair Value

Contract

Assets /

Contract

Assets /

amount

(Liabilities)

amount

(Liabilities)

Derivative financial assets:

Held for trading

Forward foreign currency transactions

4.708.048

28.005

4.349.967

42.291

Cash flow hedge

Forward foreign currency transactions

855.705

22.166

250.574

3.196

Derivative financial liabilities:

Held for trading

Forward foreign currency transactions

443.288

(4.093)

3.702.635

(42.532)

Cash flow hedge

Forward foreign currency transactions

2.260.066

(34.487)

988.469

(10.060)

8.267.107

11.591

9.291.645

(7.105)

NOTE 30 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

Foreign currency risk:

The Group is exposed to exchange rate risk due to its foreign currency denominated transactions. The main principle of foreign currency risk management is to maintain foreign exchange position at the level that minimizes the impact of foreign exchange fluctuations.

Derivative instruments are used in foreign currency risk management where necessary. In this respect the Group mainly prefers using foreign exchange forward contracts.

75

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 30 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (Cont'd)

Other (TL

30 June 2020

USD

EUR

Equivalent)

TL Equivalent

1. Trade receivables

80.417

78.816

-

1.157.759

2a. Monetary financial assets (including

cash and cash equivalents)

23.293

22.759

1.807.170

2.141.976

2b. Non-monetary financial assets

-

-

-

-

3. Other

112.487

46.856

-

1.130.834

4. Current assets (1+2+3)

216.197

148.431

1.807.170

4.430.569

5. Trade receivables

-

-

-

-

6a. Monetary financial assets

-

-

-

-

6b. Non-monetary financial assets

501

5.093

-

42.686

7. Other

601.729

-

-

4.117.150

8. Non-current assets (5+6+7)

602.230

5.093

-

4.159.836

9. Total assets (4+8)

818.427

153.524

1.807.170

8.590.405

10. Trade payables

636.809

109.830

16.248

5.220.014

11. Financial liabilities

291.899

129.401

-

2.994.681

12a. Other monetary liabilities

3.073

1.379

11.282

42.938

12b. Other non-monetary liabilities

-

-

-

-

13. Current liabilities (10+11+12)

931.781

240.610

27.530

8.257.633

14. Trade payables

-

-

-

-

15. Financial liabilities

33.126

13.740

-

332.569

16a. Other monetary liabilities

-

-

-

-

16b. Other non-monetary liabilities

-

-

-

-

17. Non-current liabilities (14+15+16)

33.126

13.740

-

332.569

18. Total liabilities (13+17)

964.907

254.350

27.530

8.590.202

19. Off-balance sheet derivative instruments

net asset / (liability) position (19a+19b)

433.854

(134.134)

(22.528)

1.912.057

19a. Hedged total assets

807.292

207.374

48.359

7.170.493

19b. Hedged total liabilities

(373.438)

(341.508)

(70.887)

(5.258.436)

20. Net foreign currency asset/ (liability)

position (9-18+19)

287.374

(234.960)

1.757.112

1.912.260

21. Net foreign currency monetary asset/

(liability) position

(=1+2a+5+6a-10-11-12a-14-15-16a)

(861.197)

(152.775)

1.779.640

(5.290.467)

22. Fair value of financial instruments used

in foreign currency hedging

-

-

-

11.591

23. Export

243.299

513.241

495.083

6.386.992

24. Import

444.923

73.174

2.065

3.370.726

76

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 30 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (Cont'd)

Other (TL

31 December 2019

USD

EUR

Equivalent)

TL Equivalent

1. Trade receivables

120.347

166.085

454.618

2.274.068

2a. Monetary financial assets (including

cash and cash equivalents)

62.236

21.927

1.525.566

2.041.088

2b. Non-monetary financial assets

-

-

-

-

3. Other

96.936

-

-

575.819

4. Current assets (1+2+3)

279.519

188.012

1.980.184

4.890.975

5. Trade receivables

-

-

-

-

6a. Monetary financial assets

-

-

-

-

6b. Non-monetary financial assets

1.936

4.031

-

38.309

7. Other

514.071

117

-

3.054.463

8. Non-current assets (5+6+7)

516.007

4.148

-

3.092.772

9. Total assets (4+8)

795.526

192.160

1.980.184

7.983.747

10. Trade payables

757.779

128.994

12.612

5.371.858

11. Financial liabilities

294.035

154.820

-

2.776.272

12a. Other monetary liabilities

9.461

2

5.537

61.751

12b. Other non-monetary liabilities

-

-

-

-

13. Current liabilities (10+11+12)

1.061.275

283.816

18.149

8.209.881

14. Trade payables

-

905

-

6.019

15. Financial liabilities

41.054

18.619

-

367.696

16a. Other monetary liabilities

-

-

-

-

16b. Other non-monetary liabilities

-

-

-

-

17. Non-current liabilities (14+15+16)

41.054

19.524

-

373.715

18. Total liabilities (13+17)

1.102.329

303.340

18.149

8.583.596

19. Off-balance sheet derivative instruments

net asset / (liability) position (19a+19b)

241.412

25.196

(2.320.891)

(719.287)

19a. Hedged total assets

857.412

334.503

484.285

7.802.129

19b. Hedged total liabilities

(616.000)

(309.307)

(2.805.176)

(8.521.416)

20. Net foreign currency asset/ (liability)

position (9-18+19)

(65.391)

(85.984)

(358.856)

(1.319.136)

21. Net foreign currency monetary asset/

(liability) position

(=1+2a+5+6a-10-11-12a-14-15-16a)

(919.746)

(115.328)

1.962.035

(4.268.440)

22. Fair value of financial instruments used

in foreign currency hedging

-

-

-

(7.105)

23. Export

647.153

1.207.925

1.261.120

14.363.541

24. Import

1.095.309

196.440

2.217

7.462.087

77

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 30 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (Cont'd)

As of 30 June 2020 and 31 December 2019 sensitivity analysis of foreign exchange rates is presented in below tables. Secured portions include impact of off-balance sheet derivative instruments.

Gain / Loss

Equity

Foreign

Foreign

Foreign

Foreign

exchange

exchange

exchange

exchange

30 June 2020

appreciation

depreciation

appreciation

depreciation

+/- 10% fluctuation of USD rate:

USD net asset / liability

(589.248)

589.248

(589.248)

589.248

Secured portion from USD risk (-)

70.814

(70.814)

294.960

(294.960)

USD net effect

(518.434)

518.434

(294.288)

294.288

+/- 10% fluctuation of EUR rate:

EUR net asset / liability

(117.762)

117.762

(117.762)

117.762

Secured portion from EUR risk (-)

40.968

(40.968)

(103.987)

103.987

EUR net effect

(76.794)

76.794

(221.749)

221.749

+/- 10% fluctuation of other currency

rates:

Other currencies net asset / liability

177.964

(177.964)

177.964

(177.964)

risk (-)

(206.440)

206.440

(245.264)

245.264

Other currency net effect

(28.476)

28.476

(67.300)

67.300

78

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 30 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (Cont'd)

Gain / Loss

Equity

Foreign

Foreign

Foreign

Foreign

exchange

exchange

exchange

exchange

31 December 2019

appreciation

depreciation

appreciation

depreciation

+/- 10% fluctuation of USD rate:

USD net asset / liability

(546.347)

546.347

(546.347)

546.347

Secured portion from USD risk (-)

89.603

(89.603)

141.573

(141.573)

USD net effect

(456.744)

456.744

(404.774)

404.774

+/- 10% fluctuation of EUR rate:

EUR net asset / liability

(76.700)

76.700

(76.700)

76.700

Secured portion from EUR risk (-)

61.738

(61.738)

15.948

(15.948)

EUR net effect

(14.962)

14.962

(60.752)

60.752

+/- 10% fluctuation of other currency

rates:

Other currencies net asset / liability

196.204

(196.204)

196.204

(196.204)

risk (-)

(246.481)

246.481

(246.481)

246.481

Other currency net effect

(50.277)

50.277

(50.277)

50.277

NOTE 31 - SUBSEQUENT EVENTS

None.

79

VESTEL ELEKTRONİK SANAYİ VE TİCARET ANONİM ŞİRKETİ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 30 JUNE 2020

(Amounts expressed in thousands of Turkish Lira ("TL") unless otherwise indicated.)

NOTE 32- OTHER MATTERS THAT MAY AFFECT THE FINANCIAL STATEMENTS OR TO BE EXPLAINED FOR THE FINANCIAL STATEMENTS TO BE INTERPRETABLE AND EXPLAINABLE

The necessary actions were taken by the management to minimize the possible effects of the COVID-19 pandemic on the Group's activities and financial status, which occurred in China at the end of 2019 and influenced the whole world. In order to avoid disruptions in the production processes, the raw material procurement processes were similar to the pre-pandemic period, considering the condition of the countries where the raw material was supplied. Production was suspended for a week during the peak of the pandemic.

With the start of normalization process in the countries where the Group exports goods, the desired level of demand is reached and it has contributed positively to the Group's financial stability. While preparing the interim financial statements dated 30 June 2020, the Group re-evaluated the effects of the COVID-19 pandemic and the estimates and assumptions used in the financials. Impairments that may occur in Group's assets have been tested and no impairment has been identified.

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Vestel Elektronik Sanayi Ve Ticaret AS published this content on 19 August 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 21 August 2020 08:45:00 UTC