Annual Report 2019

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KARSAN Annual Report 2019

Contents
2

Kıraça Holding

3

Karsan Overview

4

Karsan’s Timeline

8

Chairman’s Message

10 Board of Directors
14 CEO’s Message
16 Senior Management
18 Vision, Mission, Our Values
19 The Karsan Business Model
20 Karsan Brands

22 The Automotives Industry andPosition of Karsan in the Sector
28 2019 Activities
44 Sustainability
52 Independent Auditor’s Report on
the Board of Directors’ Annual
Report54 Board of Directors’ Annual Reportfor the Year 201976 Consolidated Financial
Statements for the Year
Ended 31 December 2019 andIndependent Auditor’s Report1

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KARSAN Annual Report 2019

Kıraça Holding
Members of the Kıraça Group are active in the areas of commercial
vehicles, automotives spare parts, sailing and motor yachts, andenergy.

Kıraça Holding
generates added value
for the Turkish economy
by creating jobs andinnovative products inthe business lines inwhich it is active.

Kıraça Holding was established in1998 under the leadership of İnanKıraç, prominent name of the Turkish
automotive industry, under the title ofKıraça Group Companies.
The founding mission of the Holding
is to carry all of its stakeholders andTurkey a step forward by generating
profitability and enabling sustainable
development through effective businessmodels and innovative products in its
fields of activity. In this context, theHolding benefits from its founders’ 50
years of experience in automotive andother industry sectors with its brands
in the commercial vehicles, automotive
spare parts, sailboat and motor yachts,
energy sector, and provides added value
to the Turkish economy by generating
employment and developing innovative
products.

Shareholding Structure of Karsan (%)

63.46%
36.54%

34.56%
As at 2019 year-end, the ratio of
Karsan’s publicly-traded sharescorresponds to 34.56% of theCompany’s capital.

Total: TL 900,000,000

Kıraça Holding

Other

Karsan’s shares have been trading on Borsa İstanbul under the “KARSN” symbol since 2000. Asof end-2019, the company’s shares were being included in the exchange’s BIST All Shares, BIST
Metal Products & Machinery, BIST 100, BIST Stars, BIST Industrials, BIST Bursa, and BIST 100-30
indexes.

Kıraça Holding, undertaking all its
activities with a commitment tohuman rights, high moral values,
professionalism, high quality,
responsibility and environmental
awareness, implements this mission withan experienced team in its managementlevel.
Suna ve İnan Kıraç Foundation, foundedby İnan Kıraç - one of the founders ofKıraça Holding -, Suna Kıraç - his wife and İpek Kıraç - their daughter -, serves
to our country by empowering Turkish
culture, art, education and health, andconducts projects with its two prominent
institutions, Pera Museum and İstanbul
Research Institute.

KARSAN Annual Report 20193

Karsan Overview
Manufacturing commercial vehicles since 1966, Karsan’s nimble
business model and business partnerships allow the company torespond to changing urban transportation needs.

Karsan’s story began in 1966 with adesire to “move the country forward”.
Today with half a century of experiencein the Turkish automotives industry,
Karsan is not just a strong and successful
brand whose reach embraces all ofTurkey but also a manufacturer for someof the world’s leading automotives giants
and the developer of Karsan-branded
public transportation products. Karsan
continues to move forward on the samejourney while also delivering marketing,sales, and after-sales services throughan extensive service network.
Karsan’s business partnerships andtrailblazing innovations give it a service
presence today in twenty countries
around the globe.

Karsan’s Hasanağa
plant in Bursa has asingle-shift production
capacity of 19,870 units
a year.

At its Hasanağa plant in Bursa, which has
been turning out commercial vehicles
since 1966, Karsan has a single-shift
production capacity of 19,870 units ayear. Designed with built-in flexibility
that allows production to shift quickly
across a wide range of every sort ofvehicle from cars to buses and fromminivans to heavy lorries, the Hasanağa
plant is located 30 km from downtown
Bursa on 207,000 m2 of grounds with
91,000 m2 of enclosed space.

Karsan today produces three different
versions (bus, van, truck) of Hyundai
Motor Company’s H350 series,
Bozankaya electric buses, Menarinibusbranded buses for Industria Italiana
Autobus, and its own Karsan-branded
Jest, Karsan Jest Electric, Karsan Atak,
Karsan Atak Electric, and Karsan
Star vehicles. In addition to vehiclemanufacturing, Karsan also provides
industrial services from its plant locatedin the Bursa Industrial Park.

Karsan produces all-electric vehicles(EV) which have been innovatively
developed and designed with a focus
on addressing the needs of businesses
and communities and which are capableof satisfying the unique requirements
of individual countries and even ofindividual cities.

Supplying innovative product solutions
which it develops in order to ensure thata better world is passed on to future
generations, Karsan’s story continues
today as it helps move cities all over theworld towards the future, communities
towards a greener world, businesses
towards profitability, and business
partnerships towards success. In keepingwith its sustainable world/sustainableproduction vision, Karsan launched the
Karsan Jest in the minibus segment in2018 and EV models of the Karsan Atakin the midibus segment in 2019. The
company’s EV offerings have attracted
the attention not just in Europe butaround the world.

With innovation inherent in the DNA
of its brand and with its mission ofcoming up with sustainable solutions,Karsan keeps a close watch on current
developments in the kinds of EV that the
future is going to need as the company
continues to carry out its operations andexpand its product line day by day.

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KARSAN Annual Report 2019

Karsan’s Timeline

1966

1979

1981

Karsan is founded by 269 independent
investors.

The majority of shares are acquired by Koç
Holding.

Karsan starts producing J9 minibuses for
Automobiles Peugeot.

2000

2006

2007

Karsan shares are offered to the public.

Karsan acquires the brand and licencerights of the J9 Premier of the J series.

Hyundai HD light truck production starts.

2014

2015

2017

Karsan Atak and Karsan Star are launched.

Hyundai H350 production for HMC starts.

Karsan Jest undergoes facelift and Jest+ islaunched.

Peugeot Boxer and Fiat Ducato production
starts.

KARSAN Annual Report 2019

5

1997

1998

1999

The first local minivan Peugeot Partner
production is initiated.

The majority of shares are acquired by
Kıraça Holding.

The new plant in the Bursa Hasanağa
Organized Industrial Zone is built.

2008

2010

2013

Renault Trucks and Citroen Berlingo
production starts.

Karsan reaches the finals in the “Taxi ofTomorrow” tender held in New York.

Karsan Jest, the first product of Karsanbranded public transport family, is launched

Karsan signs a strategic cooperationagreement with BredaMenarinibus.

2018

2019

Karsan launches the Karsan Jest Electric
equipped with BMW i battery.

In line with its mission of maintaining asustainable future and protecting thenatural resources of cities, Karsan starts
the production of its second electricvehicle, Atak Electric.

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KARSAN Annual Report 2019

KARSAN Annual Report 2019

Innovating sustainable solutions with the passion toleave a greener future for next generations, the storyof Karsan today continues on by carrying; cities to the
future, communities to a greener world, companies
to profitability, and business partners to success allaround the world.

7

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KARSAN Annual Report 2019

Chairman’s Message

We continue to distinguish ourselves in the automotives industry by
investing in people, the environment, and technological progress.

We believe that the newstrategic partnershipsthat we have enteredinto in Europe havefurther reinforced ourstrength and vision,
especially in the French
and German export
markets.

Dear Esteemed Stakeholders,Turkey’s leading sector, the automotives
industry, has just been through a rather
difficult year in which there occurreda serious contraction in the domestic
market that major players attempted tocounter by having recourse to exports.
By registering a foreign trade surplus
worth USD 17 billion in 2019, the sector
once again was the driving force ofTurkey. Of course Turkey’s superiorquality workforce also played an
important role in our ability to defend our
position in global markets. For our own
part, we had the pleasure of registering
yet another year of high-level exportdriven operational profitability madepossible by Karsan’s good businessmodels and strategic positioning.
Turkey today is an important production
base for the manufacture of commercial
vehicles. Last year we continued ourefforts to keep pace with the demands
which this makes and to do even betterin our export sales. We have added a newmodel to the lineup of electrical vehicles(EV) that we are working on in parallelwith BMW. The two powerful EV thatrolled off the assembly line last year are
adding significant momentum to ourefforts in this direction.

We believe that the new strategic
partnerships that we have entered into
in Europe have further reinforced ourstrength and vision, especially in the
French and German export markets.
With a corporate structure that is more
flexible and robust, we continue to move
forward with each passing day growing
and strengthening array of products andservices.
Because all of our processes–frombusiness models to the solutions that
we come up with–are informed by oursense of responsibility towards people,
the environment, and technologicalprogress, we continue to distinguishourselves in the automotives industry by
investing in such matters. For the sake ofsustainable development, we continue
to support the empowerment of womenand to promote gender equality bothin the workforce and in society at large.
We continue to develop and implementcompany policies aimed at such issues asincreasing the number of women on our
payroll, supporting them in management
roles, and helping them to balance their
public and private lives. Our success inthis is attested to by the awards andrecognitions that Karsan has received.

KARSAN Annual Report 2019

At a time whensustainability andenvironmental policies
have become more
important than ever,Karsan will continue
to demonstrate andto further develop its
awareness of such
issues.

As a result of its efforts to increase
manufacturing output and productdevelopment capabilities, Karsan has
been certified by Ministry of Industry
and Technology as a R&D center. This
will contribute to our ability to focus oneven more innovative technologies in theyears ahead.
At a time when sustainability andenvironmental policies have become
more important than ever, Karsan willcontinue to demonstrate and to further
develop its awareness of such issues.
As the Covid-19 pandemic continues to
unfold around us, we foresee that 2020is going to be a year that will make itnecessary for us to deploy our businesscollaborations, sustainable solutions,and corporate agility in order to keep aclose watch on all developments and to
take action quickly.

9

Wishing our world the speediest
recovery possible from this affliction,
I acknowledge my debt of thanks toour shareholders, our customers, ourbusiness partners, our employees, andall of our stakeholders for remaining
steadfastly at our side.
Very truly yours,İnan KIRAÇ
Chairman of the Board of Directors
Karsan Otomotiv Sanayii ve Ticaret A.Ş.

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KARSAN Annual Report 2019

Board of Directors

KARSAN Annual Report 201911

From left to right
MEHMET ALTAN SUNGAR
Independent Board Member
OKAN BAŞ
Executive Director
GIANCARLO BOSCHETTI
Vice ChairmanİNAN KIRAÇ
Chairman
NEVZAT TÜFEKÇİOĞLU
Independent Board Member
FATMA FÜSUN AKKAL BOZOK
Board MemberMUHSİN MENGÜTÜRK
Board Member

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KARSAN Annual Report 2019

Board of DirectorsİNAN KIRAÇ
Chairmanİnan Kıraç began his career as a sales officer in 1961 at Ormak A.Ş., a division of Koç Group. In 1966, he was promoted
as the General Manager of Otoyol, the manufacturing company of Fiat trucks and midibuses. He later became theGeneral Manager of Tofaş Oto Ticaret, the sales and distribution company of Fiat cars produced in Turkey. Mr. Kıraç wasthen promoted as the Vice President and later on President of Koç Holding Automotive Group. He served as CEO of Koç
Holding until his retirement in 1998. İnan Kıraç was privy to every development in the Turkish automotive industry andleft his signature on many great automotive factories.

GIANCARLO BOSCHETTI
Vice Chairman
After graduating from mechanical engineering and economics, Giancarlo Boschetti, started to work in FIAT Group in
1964, where he occupied different positions for nearly 40 years. He served as Global CEO of Iveco S.p.A from 1991
to 2001, as Global CEO of FIAT Auto between 2002-2003. Giancarlo Boschetti serves as board member to many
international companies.

OKAN BAŞ
Executive Director
Having received his undergraduate and graduate degrees from Boğaziçi University, Department of MechanicalEngineering and Clemson University (USA), Department of Mechanical Engineering, respectively, Mr. Baş embarked
upon his professional career at TOFAŞ Bursa Plant in 1987 in Engineering Support Department in the capacity of
Mechanical Engineer. He served at various positions at TOFAŞ until June 2016. Mr. Baş served at TOFAŞ Bursa Plant
as Workshop Production Supervisor, Engine Production Unit Manager, Body Production Unit Manager, Assembly
Production Unit Manager and Doblo Product Manager between 1991 and 2002, and worked at Tofaş Head Officeİstanbul between 2002 and 2016 in various positions such as After-Sales Director, Mini-Cargo Project Manager, AfterSales Spare Part Director, FIAT Business Unit Director, and Aegea Project and Business Development Director.

NEVZAT TÜFEKÇİOĞLU
Independent Board Member
After graduating from Ankara University Faculty of Political Sciences, Nevzat Tüfekçioğlu was appointed as Ministry of
Finance Junior Accountant in 1963 and Ministry of Finance Senior Accountant in 1966. He resigned from public service
in 1974 and served in Koç Holding Financial Group as Assistant Coordinator, Coordinator, Vice President and Presidentof Audit and Financial Group retiring in 2001. Mr. Tüfekçioğlu served as Koç Holding A.Ş Auditor between 2001-2006,
Evyap A.Ş Board Member between 2005 - 2006 and Kıraça Holding A.Ş Board Member between 2013 - 2017. Presently
continuing to serve as Koç Tüketici Finansmanı A.Ş Board Member, Entek Elektrik Üretimi A.Ş Board Member.

KARSAN Annual Report 201913

MEHMET ALTAN SUNGAR
Independent Board Member
In 1963, Mehmet Altan Sungar started to work as an intern at Royal Lastikler Tevzi A.Ş, a Koç Holding company, while
he was still a student in Academy of Economics and Commercial Sciences. He took different positions in the same
company, and took part in the establishment of the dealer network while he was serving as Regional Director in various
regions across Turkey. Taking part in the foundation of Otoyol Pazarlama in 1975, Sungar worked in several positions
such as the Marketing Manager, Assistant General Manager and Deputy General Manager in the same company. He
also worked in Istanbul Oto A.Ş. between 1985 and 2001. During the same period, Sungar worked as a member of
the automotive professional community of Istanbul Chamber of Commerce. Having served as the General Manager
and Board Member in Karsat A.Ş. between 2001 and 2004, Sungar worked as a shareholder and counsel in TURAVEL(Tourism, Education and Consultancy) between 2004 and 2012.

FATMA FÜSUN AKKAL BOZOK
Board Member
Fatma Füsun Akkal Bozok, completed her academic studies by obtaining a master’s degree from the Faculty of
Administrative Sciences, Boğaziçi University, and by obtaining a doctoral degree from the Faculty of Business, Istanbul
University. After her graduation, she began her business career at Arthur Andersen Audit Company in 1980. She joined
Koç Group in 1983, and she initially served as Audit Specialist and Assistant Coordinator in the Audit and Financial
Group Department within the body of the Holding. She was appointed as the Audit and Financial Group Coordinatorin 1992, and she served in this position for 11 years. Akkal, who served as the Director of Financing Group between
2003 and 2006, is an academic member of Sabancı University. Akkal is also an Independent Board Member of Akis GYO,
Independent Board Member of Bizim Toptan Mağazaları A.Ş., Independent Board Member of Ford Otomotiv Sanayii andIndependent Board Member of İzocam Ticaret ve Sanayi A.Ş.

MUHSİN MENGÜTÜRK
Board Member
Prof. Dr. Muhsin Mengütürk completed his academic studies in Duke University Faculty of Engineering in USA (Durham,
North Carolina) earning master’s and doctoral degrees. After graduation, his career began at Westinghouse ResearchCenter (Pittsburgh, Pennsylvania) in 1974 as the Leader of Turbine Erosion Department of US Government’s Renewable
Energy Project. Mr. Mengütürk returned to Turkey in 1976 and served respectively as Assistant Professor then
Associate Professor, then he was appointed as Vice Dean of Istanbul Technical University Aeronautics and Astronautics
Faculty after attaining Professorship in 1984. Appointed as Turkish Eximbank’s Founding Vice President between 1988
- 1992, then Prof. Dr. Mengütürk served as the Founding President of Bayındır Hayat Sigorta between 1992 - 1995 andPresident of Capital Markets Board between 1997 - 2000. After completing his duty in CMB, he served as the Chairmanof the Board of Directors in Güneş Hayat Sigorta, Vakıf Emeklilik, Ankara Sigorta and Ankara Emeklilik and Board Member
in Ata Holding between 2001 - 2006; Prof. Dr. Mengütürk served as a Board Member in Doğuş Holding between 2006 2018. Mengütürk is also a Board Member of Global Relations Forum (GRF).

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KARSAN Annual Report 2019

CEO’s Message
In 2019, we chose to pursue growth by focusing on exports, although
we were also careful to keep supplying our home market with no lossof momentum.

In just a year’s time theJest Electric and AtakElectric buses that weshipped to more thanten countries together
racked up more than amillion kilometers.

Dear Esteemed Stakeholders,
We are pleased to have recently
completed 2019, a year in which Karsan’s
fusion of Turkey’s excellent manpower,
superior commercial vehicle production,and technological capabilities began tomake the company a preferred choicein global markets, with an operating
profit of TL 258 million generated
both by our high-tech vehicle exports
to target markets and by our otheractivities. 2019 was also a year in which
we became an even greater force inTurkey’s export trade thanks both tothe international events that we hosted
and to the strategic and robustlygrounded business undertakings that
we entered into with others. In 2020 wewill continue to expand the scope of ourinternational operations without letup.
As the contraction in the Turkish
automotives industry became even moreevident in 2019, we chose to pursue
growth instead by focusing on exports,
although we were also careful to keepsupplying our home market with no lossof momentum. Our net sales proceeds
were up by 15% year-on and reachedTL 1.7 billion in value. Driven by thisincrease in net sales, our operating profit
grew by 13% in 2019 and amounted toaround TL 258 million. The USD 203.9
million in foreign sales generated by the
successful conduct of our manufacturing
and exporting operations made a big
contribution to the performance of theTurkish automotives industry as a wholein 2019.

In 2019 Karsan opened a new windowof opportunity and growth in public
transport vehicle manufacturing. At
a time when Europe stands at thethreshold of a “zero-emissions” world
and many long-established automotives
makers are still at the prototyping stage,
Karsan succeeded in readying its own
electric bus for mass production in the
short space of just a year. Following thelaunch of the Jest Electric in November
2018, in June 2019 we introduced ourAtak Electric model in Germany, the very
heart of Europe’s automotives industry.
In just a year’s time the Jest Electric andAtak Electric buses that we shipped tomore than ten countries together racked
up more than a million kilometers.
Last year we continued to take part,as we always do, in important projects
aimed at creating and fostering publicawareness. Under the “Improving
Social Dialogue In Working Life” project
conducted jointly by the Ministry of
Family, Labor and Social Services andthe ILO Office for Turkey (the first of its
kind ever undertaken anywhere in theworld) Karsan received a “Workplace
Social Dialogue Best Practices” award.
For its cooperation with the ILO Office
for Turkey in the conduct of “ILO-led
Gender Equality Training”, the company
also received the “Women’s Employment”
award from the Turkish Federation ofAutomotive Service Associations.

KARSAN Annual Report 2019

In 2020, Karsan willcontinue to do whatever
it can to be in theforefront of sustainablechange.

In 2019 we continued to workon projects that we undertake inorder to keep a close watch on thetechnological developments brought onby the changes that the world is going
through. After undergoing a Ministry ofIndustry and Technology audit, Karsan
was awarded ministry R&D center
certification. This certification will guide
us in our efforts to move forward indeveloping the electric and self-driving
vehicle technologies that we believe will
be shaping the decade ahead of us.
Along with all of these developments,
we also continued to work on seeking
out and entering into significant
collaborations and strategic partnerships
in our ongoing efforts to expand ourinternational presence. In a move
designed to increase our role in the
French market, we signed an agreementwith our French distributor Hervouet
Corporate Industry SAS last year underwhich we have acquired a 50% stakein that firm. The sale of 47 vehicles injust the last six months of 2019 showsthat this acquisition has the potential
to make a significant contribution
to our bottom line. Keeping Europe’s
roads supplied with the Menarinibus
Citymood vehicles that we make in
Bursa under our partnership with
Industria Italiana Autobus SpA, lastyear and in order to expand our sales
and services network in Germany, we
also signed a distributorship agreementwith Quantron AG, a subsidiary of

15

that country’s Haller Group, which has
well over a century of experience incommercial vehicle manufacturing.
Here in the early months of 2020 as weare being reminded more forcefully thanever of the importance of protecting
human health, Karsan for its partwill continue to do whatever it can
to be in the forefront of sustainablechange. In closing and expressing myhopes that our world will be restored
to good health as quickly as possible, I
offer my respects and regards to all of
our valued shareholders, employees,
customers, business partners, andother stakeholders for their unceasing
and close support as Karsan advances
confidently along the path of becoming atruly global brand.

Okan BAŞ
CEO
Karsan Otomotiv Sanayii ve Ticaret A.Ş.

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KARSAN Annual Report 2019

Senior Management
OKAN BAŞ
Executive Director
Having received his undergraduate and graduate degrees from Boğaziçi University, Department of MechanicalEngineering and Clemson University (USA), Department of Mechanical Engineering, respectively, Mr. Baş embarked
upon his professional career at TOFAŞ Bursa Plant in 1987 in Engineering Support Department in the capacity of
Mechanical Engineer. He served at various positions at TOFAŞ until June 2016. Mr. Baş served at TOFAŞ Bursa Plant
as Workshop Production Supervisor, Engine Production Unit Manager, Body Production Unit Manager, Assembly
Production Unit Manager and Doblo Product Manager between 1991 and 2002, and worked at Tofaş Head Officeİstanbul between 2002 and 2016 in various positions such as After-Sales Director, Mini-Cargo Project Manager, AfterSales Spare Part Director, FIAT Business Unit Director, and Aegea Project and Business Development Director.

KENAN KAYA
Deputy General Manager of Financial Affairs and Finance
Kenan Kaya received his undergraduate degree from the Public Finance Department, Marmara University. He
began his career at the Finance Department of Döktaş Dökümcülük A.Ş. in 2006 and continued with treasury andreporting responsibilities until 2011. Between 2011-2013, he held several managerial positions, and took over
responsibilities in Finance, Budget Planning, Reporting and Control in Aktaş Holding. He acted as the Country
Supervisor and Manager of Financial and Administrative Affairs at Sofiteks between 2013-2016. After joining Karsan
on 1 February 2016, Mr. Kaya took over the positions of Budget Planning and Control Manager, and Accounting
Manager (acting). As of 1 January 2019, Mr. Kaya was appointed as the Deputy General Manager of Financial Affairs
and Finance.

AHMET MUZAFFER ARPACIOĞLU
Deputy General Manager of Business Affairs
Ahmet Muzaffer Arpacıoğlu received his undergraduate degree from Marmara University, Business Administration(English) Department and his MBA degree at Birmingham University. He began his career as sales coordinator at
Kofisa Foreign Trade Company in 1988, and then, he continued his career at Tofaş Oto Ticaret as Regional Manager
and Fleet Sales Manager between 1990-1997. He was appointed to the role of Assistant General Manager at Karsan
Pazarlama, the marketing arm of Karsan, in 1997. His executive experience included Sales Directorate position in
Automobiles Peugeot between 2000 -2009, General Manager position in Karland A.Ş. between 2009-2016 andGeneral Manager position at Karsan Pazarlama between April 2016-February 2017. Since then, Mr. Arpacıoğlu,serves as an executive member at the Board of Directors at Karland Otomotiv and as the Deputy General Manager ofBusiness Affairs at Karsan.

ALPER BULUCU
Deputy General Manager of Industrial Operations
Alper Bulucu received his undergraduate degree at Mechanical Engineering Department, İstanbul University, after
which he joined Karsan Otomotiv Sanayii ve Ticaret A.Ş. as a Welding Engineer at Bodywork and Welding Department
in 2000, and has performed in various positions. Between 2000-2009 he served as Welding Engineer, Dye andAssembly Method Responsible, Assembly Factory Production Senior Supervisor, and continued his career as Programand Business Development Manager between 2009-2015, when he also supervised the Hyundai Motor Company
and Renault Trucks programs. Mr. Bulucu was promoted to Production Director position in 2015 and has been acting
as the Deputy General Manager of Industrial Operations since March 2020.

ASLI ÖR
Marketing and Export Director
Aslı Ör graduated from Marmara University, Department of Business Administration (German). She began her
professional career at Anadolu Isuzu in 2006 as a Marketing Specialist, and joined Tofaş in 2007. She worked invarious areas of marketing such as CRM, pricing, marketing programs and campaign management at Tofaş andserved as Product Marketing Supervisor and Marketing Business Development Manager between 2014-2017. Ms. Ör
served as the Marketing Manager in Karsan from 2017 until her assignment as the Marketing and Export Director in
March 2020.

KARSAN Annual Report 201917ÇAĞATAY UYSAL
Purchasing DirectorÇağatay Uysal graduated from the Middle East Technical University, Mechanical Engineering Department. He began
his career in 1997 at the Factory Engineering Department of Vestel Manisa Production Facility. He worked as amember of Vestel until July 1999, and left the company to complete his military service. Since 2001, Mr. Uysal has
worked in various positions at Karsan Bursa Production Facility including Purchasing Engineer, Direct Purchasing
Manager, Project Purchasing Manager, Jest Model Vehicles Project Manager, Bus Purchasing and Ordering Manager,
Infrastructural Purchasing Manager, and his current role of Purchasing Director since 2018.

HAZIM KUBİLAY DİNÇER
After-Sales and Spare Parts Director
Hazım Kubilay Dinçer, holding an undergraduate degree in Mechanical Engineering from the Middle East Technical
University, began his career at Tofaş Bursa Factory, as Mechanical Engineer in the Method Bodywork Department
in 1992 and took over several responsibilities in Tofaş until April 2017. Between 1992-2006, he acted as Workshop
Engineer, Product Process Specialist, Body Production Engineering Specialist, Industrial Product Specialist, PalioAlbea-Doblò Quality Model Manager, R&D Doblò Platform Quality Manager at the Tofaş Bursa Factory. He has been
the After-Sales Technical Manager at Tofaş Central Office in İstanbul from 2006 until his assignment as the AfterSales Services Manager at Karsan Otomotiv Sanayii ve Ticaret A.Ş. on 1 April 2017. He has been acting as the After
Sales and Spare Parts Director since March 2020.

TAYFUN TÜRKKAN TÜRKMEN
R&D Director
Tayfun Türkkan Türkmen graduated from the Mechanical Engineering Department of the Middle East Technical
University, after which he began his career at Tofaş Bursa Factory, Method Bodywork Department in 1990 where
he worked as a member of the Tempra Launch Project team until December 1991. By 1992, he transferred to
Karsan Engineering Department to work as a Product and Method Engineer until his promotion to the Engineering
Department Manager position in 1994. Between 1992-2005 he designed and deployed critical infrastructure,system and processes, which laid the foundations for the efficient product development, production and ordermanagement flows which were highly essential for the company. Mr. Türkmen supported the infrastructuredevelopment works of the new Group Company, Hexagon Engineering, and took over the leadership role of productmanagement as a Platform Director (2006-2017). He has been acting as the R&D Director at Karsan since February
2017.

ÇAĞATAY GÜLERSOYLULAR
Quality ManagerÇağatay Gülersoylular received his undergraduate degree in Mechanical Engineering (2001) and graduate degree
in Industrial Product Design (2003) at İstanbul Technical University, and embarked upon his career as Automation
Engineer at Shell & BP JV Storage Premises in 2001. Starting from 2005, he continued his professional career in
Karsan Otomotiv serving as a Welding Production Engineer, and has taken over the responsibilities of Welding
Method Engineer (2007), Assembly Production Supervisor (2009), MB Product Family Supervisor (2013) and Quality
Assurance Manager (2015), respectively. Mr. Gülersoylular was appointed to his current position of Quality Manager
in 2017.

MÜCAHİT KORKUT
Human Resources Manager
Mücahit Korkut received his undergraduate degree in the Mechanical Engineering Department, Middle East Technical
University, and began working at Çemtaş Çelik Makina Sanayi ve Ticaret A.Ş. as Maintenance Investments Engineer
in 1989. After completing his military service in 1991, Mr. Korkut joined Tofaş and began working at Tofaş’s Bursa
Factory Engineering Department as Mechanical Engineer. Until July 2018, he has taken over various responsibilities
including Method Bodywork Engineer, Total Quality Supervisor, Product Supervisor, Model Manager at Tofaş Bursa
Factory between 1991-2002, After-Sales Technical Training Manager, Vendor HR Manager, Tofaş Academy Manager
between 2002-2014, and Tofaş HR Field Manager between 2015-2018. Mr. Korkut has been Karsan Human
Resources Manager since 3 July 2018.

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KARSAN Annual Report 2019

VisionOur Values

To become a primarily preffered company inglobal markets and the most valuable company init’s field domestically.

Respect for Humanity

MissionTo provide creative, sustainable, inspiring
solutions and suggestions for customer needs inthe global transportation markets.

Behind the brand of Karsan, our people stand as one
big family. Our relationships with our colleagues andall our stakeholders determine the value we give tohumans and human dignity. As we work, we conduct
ourselves professionally, take responsibility, develop
both ourselves and Karsan, using current technology
and methods while we aim to inspire others.

Our Reputation

Behind our reputation is our focus on quality, ourapproach to customers and hundreds of behaviors
that we all carry out every day. We aim for the highest
quality in everything we do, we always work for the
better.

Our Quality

Behind our quality lies the high-performance,
innovative, flexible and sustainable products We aim
for the highest quality in everything we do, we always
work for the better. While maintaining our quality,
our actions are environmentally responsible, we aim
to reduce our carbon footprint and bring innovative
solutions to environmental problems.

Our Customers

We have the satisfaction of our customers at the heartof our business. We take responsibility to regain theirtrust every day, to make their lives easier.

KARSAN Annual Report 201919

The Karsan Business Model
Pursue constant growth anddevelopment together withstrong partners
Uniquely positioned in Turkey’s
automotives industry, Karsan has
formulated a business model that is
supported by three pillars.

The first of these consists of developing,
manufacturing, marketing, selling,
and providing after-sales services for
Karsan-branded vehicles that it ships todomestic and international customers in
its capacity as an original equipment
manufacturer (OEM). The second pillar
consists of operations carried out under
the heading of “strategic partnerships
and contract-based production”.
Karsan enters into strategic partnerships
with other brands that want to expand
the scope of their operations andit provides them with spare-parts
manufacturing, marketing, sales, andafter-sales services.

Strategic Partnerships& Contract-Based
Production

The third pillar consists of “integrated
services”, by means of which Karsan
offers turnkey-delivery transportation
solutions that encompass everythingfrom identifying a customer’s uniquetransportation needs to developing andproducing customized products andservices.

Integrated & Industrial
Solutions• Garage Management• MAAS• Strategic Partnerships• Menarinibus• BMW• Contract-Based
Production• Tractor Cabs
• Hyundai

OEM Services

20

KARSAN Annual Report 2019

Karsan Brands
Karsan produces own-branded class-creating Karsan Jest minibuses
and Atak midibuses as well as its line of Karsan Star business-classcompact coaches. The company’s Jest Electric and Atak Electricvehicles are innovative and inspiring all-electric solutions thatsuccessfully combine Karsan’s enduring entrepreneurial spirit andmore than half a century of automotives industry experience.

KARSAN Annual Report 2019

Karsan produces all-electric vehicles whichhave been innovatively developed anddesigned with a focus on addressing theneeds of businesses and communities andwhich are capable of satisfying the uniquerequirements of individual countries andeven of individual cities.

21

22

KARSAN Annual Report 2019

The Automotives Industry andPosition of Karsan in the Sector
While the European automotives market sales increased by 1.4%
in terms of quantity in 2019, the Turkish automotive market
contracted by 23.3%.

European Automotives Market - Production(thousand units) (1)20,000European Automotives Market - Sales(thousand units) (2)18,604

18,196

17,73518,00018,442

16,00014,00012,00010,000
8,000
6,000
4,000
2,000
0

2018

2019

2018

Although overall sales in theEuropean city bus market
increased by 7.2% in 2019,
sales of electric vehicles grewby 195.3% and boosted theirshare of the total from 2.9%
to 8%.

European City Bus Market(thousand units) (3)
25

23

21

2

0.6

20
15

21

10

21

5

EU27. Source: OICA.
EU27 + EFTA. Source: ACEA.
Heavy vehichles (3.5 tons and above).
Source: Chatrou CME Solutions(4)
Excluding trolleybuses(1)

0

Electric buses (4)Others

2018

2019

2019

(2)
(3)

KARSAN Annual Report 2019

Turkish Automotives Market - Production(thousand units) (1)
1,600

1,550

23

Turkish Automotives Market - Sales(thousand units) (1)

1,461

1,400
1,200
1,000

642

800

492

600
400
200
0

2018

2019

2018

Turkish Automotives Market - Commercial Vehicles
Production (thousand units) (1)
600

524

2019

Turkish Automotives Market - Commercial Vehicles
Sales (thousand units) (1)

479

500
400
300

155

200

105

100
0

2018

2019

2018

Turkish Automotives Market - Minibus Sales(thousand units) (2)
12

11
2

10

7

8

1

6

9

4

In the Turkish automotives
market, sales of all commercial
vehicles fell by nearly a third(32.6%) in 2019, with somewhat
worse contractions of 36.6%
and 40.9% in the minibus and13+1 14+1 minibus segments
respectively.

6

2
0

2019

Source: Automotive
Manufacturers Association (OSD)
Source: Automotive Distributors
Association (ODD).
(3)
Karsan’s data
(1)

13+1 ve 14+1 Segment (3)Others

2018

2019

(2)

24

KARSAN Annual Report 2019

The Automotives Industry
and Karsan’s Position in it
Karsan’s Sales - Breakdown by Brands - 2018
(units)
5,200
282

957

55

1,169

208
4

Hyundai H350
Menarinibus
Bozankaya
Karsan
Jest
Atak
Star

Karsan’s Sales - Breakdown by Brands - 2019
(units)
3,806
534

563

7

56
662
43

Product Type
Karsan
Jest
Atak
Star
Menarinibus
Bozankaya
Hyundai H350
TOTAL

2019
Sales (units)
662
563
56
43
534
7
3,806
5,009

2018
Sales (units)
1,169
957
208
4
282
55
5,200
6,706

Hyundai H350
Menarinibus
Bozankaya
Karsan
Jest
Atak
Star

%
Change
(43)
(41)
(73)
975
89
(87)
(27)
(25)

KARSAN Annual Report 201925

Karsan’s Sales Revenus - Breakdown by Brands - 2018(%)
48.4%(*)
10.7%(**)
3.6%

12.6%
0.1%

8.9%

25.3%

3.0%

Hyundai H350
Menarinibus
Bozankaya
DiğerKarsan
Jest
Atak
Star

Karsan’s Sales Revenus - Breakdown by Brands - 2019(%)
35.0%(*)
12.2%(**)

1.8%

1.7%

13.2%
0.5%

9.6%

39.2%

Product Type
Karsan
Jest
Atak
Star
Menarinibus
Bozankaya
Hyundai H350 (*)
Other (**)
TOTAL

Hyundai H350
Menarinibus
Bozankaya
DiğerKarsan
Jest
Atak
Star

2019
Sales Revenues (TL)
227,744,080
166,798,017
30,649,222
30,296,841
678,312,534
7,809,461
606,782,947
211,216,784
1,731,865,807

2018
Sales Revenues (TL)
188,967,065
133,362,620
54,124,773
1,479,672
381,285,351
45,868,609
727,790,828
160,699,552
1,504,611,404%
Change
21
25
(43)
1948
78
(83)
(17)
31
15

The amount of reimbursement that our Company is entitled within the scope of H350 HMC project is included to the revenue of Hyundai H350.
Other section consisted of sales of spare parts and materials, and Industrial services including cataphoresis coating, part pressing, painting, and cabin manufacturing
for automotive basic and supplier industries, and sales of end-of-life vehicles, gross income from finance sector activities.

(*)

(**)

26

KARSAN Annual Report 2019

KARSAN Annual Report 2019

With its business partnerships and game-changing
innovations, Karsan today operates in 20 different
countries around the world.

27

28

KARSAN Annual Report 20192019 Activities
KARSAN SHOWCASES NEW ATAK ELECTRIC
IN GERMANY!
The dynamic design,
cutting-edge
technology, high level ofcomfort, fast-charging
and an unrivalled rangeof 300 km made AtakElectric an instantwinner at the event.

Mobility redefined with Karsan AtakElectric!
As a creator of modern transport
solutions in its Turkish facility for themobility needs of the modern age,Karsan showcased its newest electricbus Atak Electric at the launch event
in Munich. Co-organized with BMW,
this year’s event embraced the themeof “New Definition of Mobility” andprovided an opportunity for many press
members, clients and distributors fromall over the world to give Atak Electricand Jest Electric a try. Electrified by five
BMW i batteries with a total capacityof 220 kWh, Atak Electric was testedby the participants for the first time
at BMW and MINI Driving Academy in
Maisach. The dynamic design, cuttingedge technology, high level of comfort,
fast-charging and a long range of
300 km made Atak Electric an instantwinner at the event. At the event also
the redesigned Atak line was unleashedwhich is the pioneer in 8-meter segment.

KARSAN Annual Report 2019

An all-day performance with 300 km
range
Noting that Jest Electric, the first productfrom their cooperation with BMW, hasbeen an instant favorite, Karsan CEO
Okan Baş reported that “In collaboration
with BMW, which is a pioneer
automotive brand in terms of electricvehicle technologies, we are producing
electrically-powered mass transport
solutions for the whole world. We arethrilled to launch Atak Electric, a pioneerin the market with its long range, unique
technologies and dimensions, and witha brand new look. As a 100% Turkish
brand, we also became the first company
to develop and start mass production of
two electric vehicles in one year.”Atak Electric has a unique 300 km range.
The vehicle’s batteries can be charged
in 5 hours with double AC charging,and in 3 hours with fast DC charging
units. A regenerative braking system
also recycles power which enables thebatteries to self-recharge up to 25%.
Atak Electric comes with brand new anddynamic front and rear lines, and creates29

a striking look with its LED lamps. It has
a 10.1-inch multimedia touchscreen,
fully digital 12.3-inch cluster, keylessstart & stop, USB ports and Wi-Fi-readybase, adding higher functionality to its
superior technology, comfort, long range
and high battery capacity manifesting
the paramount in modern mass transport
solution. Thanks to its electricallyoperated air suspension system, it brings
the same level of comfort as private cars.
Atak Electric offers two seating layout
options, 18+4 or 21+4 seats and a total
capacity of 52 passengers.

30

KARSAN Annual Report 20192019 Activities

HUGE DELIVERY TO ROME FROMKARSAN IN FIVE MONTHS!
Karsan has delivered 227
Menarinibus Citymoodbuses to the Municipalityof Rome.

227 Citymood buses on the roads ofRome!
Karsan has delivered 227 Menarinibus
Citymood buses, which were
manufactured in Karsan’s Bursa factoryas part of the partnership with theIndustria Italiana SpA (IIA). Karsan holds
28.6% of the company’s shares.

Holding its strong momentum in exports,
Karsan delivered 10-meter and 12-meter
diesel and CNG buses for public service
in Rome in just five months. Karsan CEO
Okan Baş stated that including the 227
vehicles delivered to the Municipalityof Rome, Karsan received orders for
the Citymood worth EUR 90 million
in 2019 and that they manufactured
more than 500 units of Citymood by theend of 2019; “Since our collaboration
with IIA, our export of Citymood buses
exceeded 1,000 units by the end of
2019. Our vehicles currently in use at theMunicipality of Rome operates twenty
hours a day, every day of the week with
99% serviceability at full performance
without interruption. This shows that
we provide a huge added value to theMunicipality in terms of profits.”

Citymood; offers comfort forpassengers and profits for business!
In Rome, which hosts approximately
7.2 million tourists every year, IIA
undertakes all the maintenance, repair
and after sale services for the 227
Menarinibus Citymood buses that
operates every day of the week as partof the activities of the Municipalityof Rome. Citymood resolves public
transportation problems with its
12.1-meter and 10.6-meter versions
with respective capacities of 96 and 84
passengers. While Citymood minimizes
diesel/gas consumption, maintenanceand procurement costs by full capacity
utilization; it also offers passengers highquality transportation with features suchas practical accessible ramp, wheelchairarea, original low floor structure andindependent front suspension.

KARSAN Annual Report 201931

KARSAN ELECTRIFIESROMANIA!
Karsan will deliver
twenty 100% electric
public transport vehicles
within 2020.

Karsan exports 20 electric buses to
Romania!
Karsan has reached an agreementwith the Romanian municipality of
Dej to deliver 14 Atak Electric and 6
Jest Electric buses. Together with its
distributor Anadolu ROM, Karsan won
the tender funded by the European
Union Regional Development Fund forthe modernization of public transportsystems run by the municipality of Dej
and will deliver twenty units 100%
electric vehicles within 2020.

Jest Electric, the first member of Karsan’s
electric vehicles range, stands out with
its compact size of 6 meters and superiormaneuverability in the city. Equippedwith a BMW electric motor producing
125 kW power and 290 Nm torque with
optional 44 or 88 kWh batteries again
made possible by BMW, Jest Electricoffers the best performance in its classwith a range of up to 210 km. The motorof Atak Electric generates 230 kW
engine power and 2400 Nm torque,
providing users with a high performance
driving experience. Running on a total
220 kWh battery capacity with five 44kWh batteries developed by BMW, the8-meter Atak Electric boasts a unique
300 km range to outpace its rivals. The
vehicle’s batteries can be charged in 5
hours with AC charging, and in 3 hours
with DC charging units.

32

KARSAN Annual Report 20192019 Activities

KARSAN MAKES A NEW STRATEGICPARTNERSHIP DEAL IN FRANCE!
HCI’s know-how andits experience in the
French market coupledwith its extensive client
portfolio will contributeto Karsan’s developmentin this market.

Karsan becomes 50% shareholder of
HCI, its distributor in France!
Offering modern solutions for public
transport and pushing forward with its
investments to expand its product andservice network and boost its alreadyrobust sales to overseas markets, Karsan
signed a partnership agreement with its
French-based distributor HCI (Hervouet
Corporate Industry) and became a 50%
shareholder. With this partnership,
Karsan has taken an important step
towards increasing its share in the
French market and involvement in publictenders.

Stating their readiness to add newchapters to their success story inoverseas markets, Deputy GM of
Karsan Commercial Affairs, Muzaffer
Arpacıoğlu said the following on thepartnership: “We have taken our current
distribution partnership with HCI, one
of France’s long-standing companies
in the sector, a step further and forgedthis new partnership.”HCI’s knowhow and its experience in the Frenchmarket coupled with its extensive client
portfolio will contribute to Karsan’s
development in this market. We intend
to do business with major corporations
such as Transdev, RATP and Keolis as
well as local companies. Our Jest Electricand Atak Electric vehicles with theircompact dimensions of 6 and 8 meters
are especially in high demand in France,
where we wish to see more of our rangeof electrical products on the roads.”

France’s public transport supplier: HCIHCI has been supplying the Frenchmarket for many years with its
environmentally friendly, reliable, highperformance vehicles and professional
staff. An affiliate of the HCI Group, it
caters to the requirements of the public
transport sector with its wide rangeof products. The Group’s distribution
network includes France, Luxembourg
and Belgium.

KARSAN Annual Report 201933

KARSAN STARTS EXPORTING ELECTRICMINIBUSES TO EUROPE!
European countries
want to see Jest
Electric in their cities
with unique physicaldimensions and genuine
battery technology
which separate it fromits competitors.

Karsan Jest Electric is receiving great
attention in Europe.

Environmental awareness, mobility
and time-saving

With a range up to 210 km using BMW
i technology, Karsan Jest Electric hasreceived 18 separate orders from various
European countries including Franceand Greece. Karsan Commercial Unit
Deputy General Manager, Muzaffer
Arpacıoğlu, stated “We now have orders
from countries such as France, Romania,
Portugal, Slovakia and Greece. European
countries are intrigued by Jest Electric’s
unique physical dimensions and genuine
battery technology which differentiates
it from its competitors. They want to see
Jest Electric in their cities.”

Emphasizing that Jest Electric began
a new era in terms of the export ofcommercial vehicles from Turkey toEurope, Arpacıoğlu went on to say“Environmental awareness, mobility
and time-saving are among the more
pertinent topics in the world, particularly
in Europe. For the new generation, it ismore important to get to point B frompoint A in the shortest time rather thanto own a vehicle. At Karsan, we haveestablished our vision to invest in theenvironmental vehicles of the future. We
are bringing this vision to life throughthe partnerships we have established.
The electric Jest, which we first exported
to Europe, will soon be joined by ourAtak model and together they will raiseworldwide awareness”.

34

KARSAN Annual Report 20192019 Activities

KARSAN ONCE AGAIN BECOMES
ROMANIA’S TOP CHOICE!
Karsan continues to be
the brand of choice forEuropean municipalities
and public transport
fleets.

Galați Municipality has ordered 20
Jest + minibuses!

Jest+ brings comfort and efficiency
along with it

Karsan continues to be the brand of
choice for European municipalities andpublic transport fleets. Offering modern
solutions with its diverse product range
and maintaining its steady European
export figures.

With their size and carrying capacity,
Jest minibuses have changed westerncountries’ perspective of public
transport. As for the diesel Jest+ which
will be delivered to Romania, theseminibuses offer perfect performance andfuel economy with their Euro 6 engines
and 6 forward gearbox while at the sametime ensuring a safe and comfortable
drive thanks to features such as a LED
monitor, a 5-camera video monitoring
and recording system, validator
preparation and a GPS fleet tracking
system.

Standing out for its innovative productrange and highly profitable tenders it
has won Karsan has also received 20
orders from the city of Galați for Jest+
minibuses.

KARSAN Annual Report 201935

KARSAN ENTERS INTO STRATEGICCOOPERATION IN GERMANY!
Karsan aims to grow inGermany, the leading
country in Europe witha bus market size of
7,000.

Quantron AG becomes Karsan’sGerman business partner!
Karsan signed a dealership agreementwith Quantron AG, a subsidiary of Haller,
one of the country’s well-establishedcompanies, to expand its sales andservice network in Germany. Quantron
AG, Karsan’s distributor in Germany, hasover 200 service points throughout thecountry. In line with this agreement,

Karsan will increase its sales, service
network and spare parts availability andaims to grow with its electric vehicles inGermany, the leading country in Europe
with a bus market size of 7,000.
Karsan is especially the first
choice of the cities which have anenvironment-friendly vision
Underlining that service penetrationand spare parts availability are very
important for the German customer,
Muzaffer Arpacıoğlu, Deputy General
Manager for Commercial Affairs at
Karsan, said “We will respond to
customer expectation in this fieldwith our dealership agreement with
Quantron AG. On the other hand, we
keep exporting 100% electric buses Jest
Electric and Atak Electric, which we haveintroduced to the market as part of ourcooperation with BMW. We are especiallythe first choice of the cities which pay
attention to carbon emission and havean environment-friendly vision. Also, wewill develop our dealership relations thatare similar to Quantron AG in order toincrease our sales in Europe”.
A total of 220 service points inGermany
Quantron AG, a subsidiary of Haller,
which started to perform the sales andservice of Karsan’s commercial vehicle
models Jest Electric and Atak Electric asfrom November, operates in the fieldof emission-free road transportation
just like Karsan. In addition to electricvehicles it offers for a more efficienteconomy and greener transport, thecompany also performs the conversionof diesel engines into electric vehicles.
Having a widespread service network
throughout Europe, Quantron AG has atotal of 220 service points in Germany.
Quantron AG also performs innovative
activities on different commercial
vehicles ranging from municipality
service vehicles to airport transport
buses.

36

KARSAN Annual Report 20192019 Activities

KARSAN ATAK RAISES THE BAR FURTHERWITH ITS SECOND GENERATION!
A brand-new exterior design and an
eco-friendly technology that meets
the Euro VI emission standards
Developing and producing modern
public transportation and commercial
vehicles for the mobility needs of ourage, Karsan offers both technology andcomfort with its Atak which is among
the most important models of the
8-meter bus class. Second generation
Atak introduces a modern appearancewith its brand-new exterior design and
LED daytime running lamps while raising
the bar further in comfort with its new
driver’s cab equipped with cutting-edge
technology. New Karsan Atak provides
advantages to users both in terms of low
fuel consumption and maintenance costsin addition to easy serviceability.
A focus on maximum efficiency
Having gained a sportive front design
with its sharp eye lamps, curved front
overhang, and LED daytime runninglamps placed in “L” shaped sockets, New
Atak reduces service costs thanks to its
front bumper consisting of three parts,and focuses on maximum efficiency
by offering easy and rapid service
response. Grill details and vertical LED
lamps positioned on a piano blacksurface on the rear complete the elegant
appearance. New Atak also offers
improvements focused on operational
profitability. Atak’s design makes it
easier to respond to the vehicle from asingle point, enabling serviceability andallowing the vehicle to quickly resume
its duty.
Maximum comfort for everybody
Interior of New Atak, on the other hand,offers many technologic and ergonomic
innovations both for passengers anddrivers. For drivers, New Atak boasts
base features such as heated side
mirrors, a new sportive steering wheel
design, user-friendly button layout
and a 6-way adjustable driver’s seat in
the isolated and ergonomic driver’s cab

which is in line with the VDV (German
Transporters Association) standards.
Atak also raises standards by providing
a comfortable trip to passengers withofferings such as renewed seats,kneeling feature, wheelchair ramp, USB
ports and WiFi router.
An eco-friendly and powerful new
generation engine
New Atak’s 4.5 liter FPT NEF4 turbo
diesel engine produces 186 HP and
further increases its power by offering
680 Nm torque. Featuring the EuroVI emission level, this engine is also
committed to offer cutting-edge
technology to its users when it comes toenvironmental protection.

New Karsan Atakprovides advantages tousers both in terms oflow fuel consumption
and maintenance costsin addition to easy
serviceability.

KARSAN Annual Report 201937

KARSAN STAR AND THE STAR SCHOOL BUS
HAVE BRAND-NEW LOOKS!
The redesigned bus also
distinguishes itself asa first-class business
partner that increases
the profitability ofbusinesses through its
low fuel consumption
and low maintenancecosts.

Offering modern public transport
solutions for every city
Offering modern public transport
solutions for urban environments,
Karsan introduced a whole new look for
its 8-meter comfortable and fuel-savingline of coaches, Star, and its Star School
Bus. With new features in interior andexterior design the Star Series featurea brilliant black front bumper, an eyecatching new rear design and LED
illuminated rear lights. Inside the cabin,
the refreshed dashboard that complies
to the German Transporters Association(VDV) standards, the 5-inch digital
display, a more spacious driver cockpit
area, ergonomically optimized button
positioning and a more elegant looking
steering wheel with a growing diameterensure a pleasant driving experience.
Star of passenger transport,
brimming with pluses!
Used for touristic purposes andpassenger transport, Star now has a
new interior and exterior design togo with outstanding luggage volume
and comfortable space. Featuring a
monocoque chassis, Star pulls ahead
with its 31 comfortable passenger seats,a luggage compartment accessible
from both sides, an accessible lift
and air suspension for utmost driving
comfort and convenience. Karsan Star
offers carriers a high performance andcost advantage with its engine thatgenerates 137 kW of power and 680
Nm of torque, its 6-speed automatictransmission and low fuel consumption.
Star School Bus comes with thesafest equipment!
Offering students and drivers alike afirst-class travel experience with its
cutting edge technological features andsafety systems, Star School Bus fittedwith 33 passenger seats has seat belt
sensors which ensure full passenger
discharge, safe start-up with alcohol
meter, an emergency exit door, a luggage
compartment accessible from both sides
and an accessible lift. Star School Bus’s
diesel engine generates 137 kW of power
and 680 Nm of torque for excellent climb
and maneuverability, while its manual &automatic 6-speed transmission, wide
field of vision, and air suspension (ECAS)
enhance the driving experience. The
redesigned bus also distinguishes itself
as a first-class business partner that
increases the profitability of businesses
through its low fuel consumption andlow maintenance costs.

38

KARSAN Annual Report 20192019 Activities

KARSAN TO SHOWCASE ITS JEST ELECTRIC AND ATAK ELECTRIC
EXPANDS FROM EUROPE TO THE REST OF THE WORLDCreated its own market
and delivered more than
40 units in Europe andnow entered the SouthAmerica!

Jest Electric and Atak Electric
attracted a great deal of attention
from visitors at Busworld Europe
Brussels Fair.
Karsan showcased its electric models at
Busworld Europe (Brussels), the mostimportant event for the bus industry
now in its 25th year. Karsan’s Jest Electricand Atak Electric models designed
and produced as a result of a strategic
collaboration with BMW, a leading
automobile brand in electric vehicle
technologies, manifested the company’s
innovative vision and attracted a great
deal of attention from visitors at the fair.

Success in production reflected in
global sales!
Karsan is proud to have attended the
Busworld Europe as the first and only
Turkish company which developed
two electric vehicles and started mass
production in the recent year and which
added to its success story with orders
from different continents, according
to Karsan CEO Okan Baş who added:“At Karsan, we first launched the Jest
Electric in November 2018 as a result of
our strategic collaboration with BMW,a leading automobile brand in electricvehicle technologies, and then thisyear we started the mass productionof Atak Electric prototype of which
was developed by our R&D team to
respond to the needs of the 8-meter

KARSAN Annual Report 2019

electric vehicle segment. The design
and production of our vehicles, as wellas their launching in the global market
showcases our commercial successwhich has been constantly increasing
thanks to our strong engineering basedon our over 50 years of experience andour mission of generating sustainable
solutions. We have so far delivered morethan 40 Jest Electric vehicles to countries
including France, Germany, Greece, Italy,
Lithuania, Spain, Portugal, Romania andSlovakia where the brand created its own
markets, and we have recently entered
the South American market. We havealso contributed to the transformation
process of this region’s public
transportation vehicles into electricvehicles and started to send Jest Electricvehicles to Mexico for the first time.”

Orders began as Atak took to thestage!
Okan Baş said that Jest Electric paved theway for demands from foreign markets
for Atak Electric and continued: “Weenjoy the excitement and the justified
pride of presenting Atak Electric, which
we developed and produced in a shortspan of time, on stage before the world
for the first time at an international fair
like Busworld following its introductionin the BMW Driving Academy in
Munich at the end of last June. Witha range of 300 km, Atak Electric beatits competitors by a long way andattracted a great deal of attention fromseveral European countries includingFrance, Romania, Bulgaria, Lithuania,
Germany, and Italy. The first order for

39

Atak Electric came from a company thatcarries out the first electric-driven public
transportation operations in Paris, andwe are anticipating a fresh set of orders.
The orders by this company, which alsopurchased Jest Electric vehicles in thepast, showed the company’s satisfaction
with Karsan’s vehicles and services. Also
for Atak Electric, the leading inner-city
public transportation companies inFrance stated that they would be happy
to work with us in all their potential
future projects. After Busworld Europe,
we will continue with a roadshow eventto display our vehicle all over Europe
so as to ensure that people are closely
familiar with Atak Electric.”

40

KARSAN Annual Report 20192019 Activities

RESEARCH AND DEVELOPMENTCENTER TITLE AWARDED TO KARSAN!
Karsan has been awarded the“Research and Development Center”
title with its projects on innovativetechnologies!
Taking firm steps towards becoming a
globally accomplished brand, Karsan,
adds another chapter to its successstory through faithful pursuit of its
mission to be a close follower of newtechnologies and develop projects
in that regard, not compromising its
core value of innovation and progresssince its foundation half a century ago.
Karsan’s application to the Ministryof Industry and Technology to get
official recognition as a research anddevelopment center has been accepted.
With the Ministry’s decision following
inspections, Karsan has earned theright to benefit from the incentives andexemptions granted to research anddevelopment centers. Karsan will be able
to benefit from the incentives granted
to R & D Centers following thanks to theaward.
Delivering his opinions on the topic,
Karsan CEO Okan Baş underscored thefact that the technology of the nextten years would be defined by electricand autonomous vehicles. Emphasizingthat Karsan’s primary focus will be on
developing such technologies, Baş said:“Our determined approach with regards
to innovation manifests itself in the
shape of our new line of vehicles, Jest
Electric and Atak Electric. Karsan has
redefined its corporate strategy to give
more weight to such technologies.
We have gone through a process aredesign, so to say, to develop the
products of the next 10 - 15 years
by carrying on with our research anddevelopment activities. And on the basisof these goals, we have founded our
research and development center. We
believe this reward will prove to be a vital
impetus that pushes us to keep up thework we have been doing.”

A focus on new technologies!
With this certificate of recognition,
Karsan will be giving more weight todesigning new projects, developing newtechnologies, getting patent rights for
its innovative ideas and utilizing themin its projects. Flexing its innovative
prowess on the global stage through its
brand-new line of two electric vehicles,
Karsan will be especially focusing on
its innovative technologies for electricvehicles.
Placing importance on projects comanaged by universities and privatecompanies, Karsan will be concentrating
on more value - added products
and activities through projects withsubsidiary industries and other researchand development centers. Karson is
also making plans for contributing to
the efforts of subsidiary industries todevelop new technologies to support
their progress forward.

Flexing its innovative
prowess on the global
stage, Karsan will beespecially focusing
on its innovativetechnologies for electricvehicles.

KARSAN Annual Report 201941

KARSAN’S WEBSITE HAS BEEN CROWNEDWITH HIGHLY REPUTABLE AWARDS
Karsan’s website offers
services in 12 different
languages.

Karsan’s website wins two StevieAwards!
Karsan’s website, which had a facelift
last year, was awarded two prizes in
two different categories at the StevieAwards, one of the most prestigious
awards in the international businessworld. At the Stevie Awards, which
attracted more than 4,000 participantsfrom 74 countries, leading juries of theindustry honored Karsan with two Silver
Stevie Winner Awards in the Automotive& Transport Equipment and Best Overall
Web Design categories.

Second award for the user-friendly
website is from the Muse Creative
Awards!
Designed to meet user-friendly design
standards, Karsan’s website contains
information on the production, sales,
service and after-sales service ofcompany’s signature minibus and bus
models. On the website, users canview all models with a 360° panoramic
display module, submit bids, download
brochures and request a callback
Karsan’s website also won the Silver
Winner award at the Muse Creative
Awards this year, one of the world’s
most prestigious web design awards. In
addition to Turkish, the website offers
services in 12 different languages,
including English, Lithuanian, Bulgarian,
German, French, Italian, Romanian,Portuguese, Polish, Greek and Slovak.

42

KARSAN Annual Report 2019

KARSAN Annual Report 2019

Boasting an innovative brand DNA and a mission toprovide sustainable solutions, Karsan moves forwardwith full momentum and expands its product range
continuously by integrating innovations in electricvehicle technology.

43

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KARSAN Annual Report 2019

Sustainability
When dealing with sustainability matters, Karsan takes an approachthat is equally mindful of environment, climate change, humanresources & OHS policy, corporate social responsibility, and economic
performance issues.

The zero-emission
ratings of the electricbuses and minibuses
that Karsan began
making in 2019 help
contribute to global
efforts to reduce theenvironmental impact ofmotor vehicles.

Karsan’s approach to sustainableproduction is to achieve efficiency
in natural resource and raw material
utilization by making so-called “5R”
(Refuse, Reduce, Reuse, Repurpose,
Recycle) improvements in all of its
production processes.
Adhering to World Class Manufacturing(WCM) methods in the conduct of its
operations, Karsan engages in manyefforts to improve energy efficiency
and to reduce waste. In keeping with
WCM precepts, the company maps its
waste-generation on a per-vehicle
basis and, through kaizen projects, it
has substantially reduced the amountsof hazardous contaminated packaging,
contaminated waste, and wastewater
treatment sludge that are created.
During 2019, a total of eight suchprojects were carried out, by means ofwhich the amount of waste generated

per vehicle was reduced by 13 kgs
while a 47% reduction in wastewater
treatment sludge was also achieved. In
addition to WCM criteria, these projects
also complied with their applicable ISO
standards.
Along with the introduction of WCM,
Karsan has also been carrying out a large
number of energy-efficiency projects
as well since 2018. As a result of theseprojects the company has saved about
1,000 MW of energy. Through theintroduction of energy & environmental
loss reporting in late 2019, Karsan is
now able to get a clearer idea of where
inefficiencies occur and it has begun toinitiate projects and put together project
teams to deal with such losses.

ENVIRONMENT
Ensuring environmental sustainability
through the effective management ofenvironmental risks is a matter of great
importance from the standpoint not justof the continuity of our own businessbut also that of protecting environmental
wellbeing for future generations.
When managing our environmental
performance we therefore focus on
minimizing the direct and indirectenvironmental risks entailed by ouroperations.
In the management of environmental
issues, Karsan complies strictly with allapplicable and associated environmental
laws, regulations, and administrative
provisions. The company additionallyregards it as a fundamental duty to also
be in accord with current international
standards. To ensure the effectivenessof its environmental management,
Karsan has undergone ISO 14001
Environmental Management System

KARSAN Annual Report 201945

auditing and has been awarded thatstandard’s certification. In 2019 thecompany also initiated a projectto qualify for ISO 50001 Energy
Management System certification.
Completing this project and being
awarded this certification is one of theCompany’s high-priority goals in 2020.
In its capacity as a member of the
Bursa Chamber of Commerce andIndustry, of the Environment &Cleaner Production Council, andof the Automotive Manufacturers
Association’s Environment & Energy
Council, Karsan supports private-sector
efforts to protect the environment andto increase energy efficiency. As an
active member of both the Automotive
Battery & Recycling Association and of
the Portable Battery Manufacturers &Importers Association, the company also
takes part in those organizations’ efforts
to manage the environmental impact of
discarded batteries and other electricalcharge storage devices.
With its introduction of World Class
Manufacturing in 2018, Karsan also
committed itself to conforming to WCM
environment and energy management
rules as well. The company strives toabide by the principles of “Zero Waste”,“Zero Environmental Accidents”, and“Zero Energy Losses” in the conduct of allof its operations.
As required by its ISO 14001 certification,
Karsan measures and reports its
environmental performance on thebasis of its use of natural resources, ofthe impact of its operations on soil andwater resources and on flora and fauna,and of its contributions to greenhousegas and other emissions. The company
has published an environment policy inwhich it commits itself both to reducing
hazardous and non-hazardous waste atsource and to recycling and recovering
materials insofar as is possible. All
hazardous waste, recyclable waste, andnon-recyclable industrial waste that is
generated in the course of production
operations is collected, sorted, anddealt with as prescribed by company
policy. All non-hazardous waste that canbe recycled is turned over to licensed

recovery/recycling firms while all nonhazardous waste that cannot be recycled
is sent to cement plants for use as fuel.
In 2019 Karsan underwent two
ministry inspections and one ISO 14001
review, none of which turned up any
instances of non-compliance with rules,
regulations, or standards.

GREEN PRODUCTS
The zero-emission ratings of the electricbuses and minibuses that Karsan began
making in 2019 help contribute to global
efforts to reduce the environmental
impact of motor vehicles.

CLIMATE CHANGE
Karsan contributes to efforts tocombat climate change by reducing its
greenhouse gas emissions. The company

has initiated a project to improve theenergy efficiency of its manufacturing
operations by bringing them into
compliance with the ISO 50001 standard
while also striving to reduce greenhousegas emissions in all of its processes. In
2019 Karsan helped reduce net carbon
emissions by conserving approximately
1,000 MWh of electricity through theuse of energy-efficient LED bulbs
for illumination, by opting for lowenergy-consumption technologies in
newly-installed production lines, and byintegrating its energy and automation
systems.
Karsan strives to further reduce
production-related greenhouse gas
emissions through the manufacturingstage energy-efficiency projects that it
undertakes. By making zero-emission
motor vehicles, the company also helps
reduce the greenhouse gas emissions
caused by vehicular traffic.

Energy Consumption at Karsan: 2017-2019

2017
2018
2019

Electricity (kWh)11,643,635
11,497,070
10,924,798

Natural gas (kWh)10,903,680
11,165,786
9,831,086

46

KARSAN Annual Report 2019

Sustainability

Under the protocol agreement to promote gender equality in the social
sphere and to increase women’s participation in the workforce signed
jointly by Kıraça Holding, and the ILO, Karsan supports an important
step in the direction of the empowerment of women in Turkey.

CORPORATE SOCIALRESPONSIBILITY
Karsan joins forces with ILO in efforts
to increase gender equality in theworkplace
International Labor Organization(ILO), Kıraça Holding, and Karsan takean important step in the direction of
workplace gender equality
Gender equality is one of the United
Nations Development Program’s(UNDP) seventeen broad-based
and interdependent “Sustainable

Development Goals” that were ratified
by the UN General Assembly in 2016. It
is embodied in the fifth UNDP goal as“Achieve gender equality and empower
all women and girls.” At a ceremony thattook place at the company’s HOSAB plantin Bursa on 25 July 2019, Karsan, Kıraça
Holding, and the ILO signed a protocol
agreement to promote gender equality
and to increase the employment of
women in the formal economy. Under
this agreement, plans to improve genderequality at Karsan are to be drawn up
and comprehensive efforts ranging
from formulating company policies toincreasing gender-equality awarenessand from improvements in the workplaceenvironment to the creation of
mentoring mechanisms are to be made.
Karsan also fulfills its commitments
under this agreement by formulating
policies, undertaking projects, andinvesting in employees in order topromote gender equality in society atlarge by encouraging men and women
to be active in all aspects of life on an
equal footing. The company strives toencourage women to be members of theworkforce, to be gainfully employed, andto play active roles in decision-making
mechanisms.

KARSAN Annual Report 2019

Karsan takes an important to support
women
In July a protocol agreement to promote
gender equality in the social sphereand to increase women’s participationin the workforce was signed jointly by
Karsan, its parent Kıraça Holding, andthe ILO, a United Nations agency that
proposes and approves international
labor standards. Karsan believes that theaction it takes to fulfill its commitments
under this protocol will be an important
step in the direction of supporting theempowerment of women in Turkey.
Within the framework of this protocol, a“Positive Equality Committee” consistingof an equal number of male and female
volunteers that has been set up at thecompany was charged with creating amodel for making the protocol’s aims
a reality. The committee’s activities
include undertaking company-wide,47

people-focused efforts to promote
gender equality not just in the company
but likewise in the social sphere andto formulate plans and to take action
aimed at increasing the participation of
women in the workforce. An “Internal
Trainers Team” has been formed
and given the mission of conducting
seminars and providing training for
newly-hired personnel in order to ensure
the continuity and sustainability of thecompany’s gender-equality culture.

women to play more active roles inall aspects of life have earned thecompany the Bursa Industrialists’ andBusinessmen’s Association’s 2018 Doğan
Ersöz award.

Karsan wins Women’s Employment
Award / Karsan’s gender-equality
practices earn it a BUSİAD award

As a result of its efforts
led by the ILO, Karsan
received the 2018Doğan Ersöz award fromthe Bursa Industrialists’and Businessmen’s
Association.

Karsan’s efforts, undertaken jointlywith the ILO, to promote sustainableeconomic and social development
through women’s-employment andgender-equality projects and practices
capable of serving as models for all
sectors and to make it possible for

Karsan proudly accepted the award for
its exemplary women’s-employment andgender-equality projects and practices
at the “Future Summit” organizedby the Turkish Automotive Servicing
Associations Federation.

48

KARSAN Annual Report 2019

Sustainability
Karsan - Bursa Kızılay Blood Donation
Center collaboration
As it does every year, Karsan once
again supported the annual blood drive
conducted by the Bursa Kızılay Blood
Donation Center. Thousands of people
die every year because the type of blood
they need isn’t readily available. Donating
blood is a way of saving someone’s life but
it’s also good for the health of the donor
as well. Officials of the Bursa Kızılay Blood
Donation Center visited Karsan’s HOSAB
plant and thanked the large number of
Karsan employees who took part in the
campaign by donating blood for theirawareness and support.

We took our step for children with
autism.”The Karsan Track & Field Team put
their best foot forward to help autisticspectrum kids by starting a campaign
and collecting donations for the Tohum
Autism Foundation. The TL 15,324
in donations contributed during the
campaign is sufficient to cover the costof providing 93 training sessions to one
autistic-spectrum child. Foundation
representatives visiting Karsan thanked
campaign participants and donors fortheir support.

Toys for Kids Project
Having contacted the Tohum Autism
Foundation to ask them if they needed
anything, Karsan supported a project torespond to their needs. Toys that were
donated by company employees werecollected and classified and then taken
to the foundation to be handed out
to their young charges. A total of 150
autistic-spectrum children benefitted
from this project.

KARSAN Annual Report 201949

LÖSEV Assistance Project
Having got in touch with the Bursa
branch of LÖSEV, a foundation dedicatedto the treatment and education ofchildren suffering from leukemia, Karsan
opened a stand on its premises for thesale of handicrafts made by mothersof leukemia sufferers and by mothers
who were cancer survivors. About sixty
Karsan employees took part in the
project, which generated TL 3,214 indonations for the foundation.

Arkeopark excavations sponsorship
Karsan supports explorations down thecorridors of time
In support of excavations at Archaeopark
Mound & Open Air Museum being carriedout by Bursa Metropolitan Municipality
to discover and protect Bursa’s historicaland cultural heritage, Karsan has been a
proud meal sponsor of the excavations
ever since they began.

World Water Day
In order to ensure the continuity of its
environmental-protection efforts and tofoster environmental awareness among
youngsters, every year Karsan interacts
with schoolchildren and tells them about
what the company is doing to protect theenvironment and why.
On the occasion of the 22 March 2019
observances of World Water Day,
Karsan played host to TED Bursa Koleji
students visiting its Akçalar plant.

During the visit, whose aim was toincrease environmental awarenessamong youngsters, the students wereshown what the plant was doing toconserve and protect water resources.
The visit included a tour of the Karsan
Wastewater Treatment Plant and ademonstration of wastewater treatmentthat was given at Karsan’s laboratory.
The visit was rounded out with a viewof the hazardous waste storage area
and an explanation of the measures thatneed to be taken to prevent such wastefrom causing environmental harm.

50

KARSAN Annual Report 2019

KARSAN Annual Report 2019

Financial Reports• Independent Auditor’s Report on the Board of Directors’ Annual Report• Board of Directors’ Annual Report• Corporate Governance Principles Compliance Report• Independent Auditor’s Report and Financial Statements

51

52

KARSAN Annual Report 2019(CONVENIENCE TRANSLATION OF INDEPENDENT AUDITOR’S REPORT ON THE MANAGEMENT’S ANNUAL REPORT ORIGINALLY ISSUED IN TURKISH)

Independent Auditor’s Report on the Board of Directors’

Annual Report

To the General Assembly of Karsan Otomotiv Sanayii ve Ticaret A.Ş.
1) Opinion
We have audited the annual report of Karsan Otomotiv Sanayii ve Ticaret A.Ş. (‘‘the Company’’) and its subsidiaries (‘‘Group’’) for theperiod between 1 January- 31 December 2019.
In our opinion, the consolidated financial information provided in the Management’s annual report and the Management’s
discussions on the Group’s financial performance based on the information provided in the audited consolidated financial
statements, are fairly presented except the effects of “Basis for Qualified Opinion” paragraph, and are consistent with the full set
audited consolidated financial statements and the information obtained from our audit.
2) Basis for Opinion
We conducted our audit in accordance with Independent Auditing Standards, which is a part of Turkish Auditing Standards issued
by the Public Oversight Accounting and Auditing Standards Authority (“POA”). Our responsibility is disclosed under Responsibilitiesof the Independent Auditor on the Independent Audit of the Annual Report in detail. We declare that we are independent fromthe Group in accordance with The Ethical Rules for the Independent Auditors issued by Public Oversight Accounting and AuditingStandards Authority (“POA”) and ethical provisions stated in the regulation of audit. We have fulfilled other responsibilities related
to ethics within the scope of the Ethical Rules and regulation. We believe that the audit evidence we have obtained is sufficientand appropriate to provide a basis for our audit opinion.
3) Auditor’s Opinion for the Full Set Consolidated Financial Statements
We have presented a qualified opinion for the Group’s full set consolidated financial statements for the period between 1 January31 December 2019 in our Auditor’s Report dated 6 March 2020.
4) Management’s Responsibility for the Annual Report
The Group’s Management is responsible for the following in accordance with Article 514 and 516 of the Turkish Commercial CodeNo. 6102 (“TCC”) and “Communiqué on Principles of Financial Reporting in Capital Markets” with No.14.1 of the Capital Markets
Board (“the Communiqué”):a) Preparing the annual report within the three months following the reporting date and presenting it to the General Assembly,b) Preparing the annual report with the all respects of the Group’s flow of operations for that year and the Group’s consolidated
financial performance accurately, completely, directly and fairly. In this report, the consolidated financial position is assessed inaccordance with the consolidated financial statements. The development of the Group and risks that the Group may probably
face are also pointed out in this report. The Board of Director’s evaluation on those matters are also stated in this report.
c) The annual report also includes the matters stated below:- The significant events occurred in the Group’s activities after the financial year ends,- The Group’s research and development activities,- The compensation of key management personnel and members of Board of Directors including financial benefits such as
salaries, bonuses and premiums, allowances, travelling, accommodation and representation expenses, in cash and kindfacilities, insurances and other similar guarantees.
The Board of Management also considers the secondary regulations performed by the Ministry of Customs and Trade and related
institutions while preparing the annual report.

KARSAN Annual Report 201953

5) Responsibilities of the Independent Auditor on the Independent Audit of the Annual Report
Our aim is to express an opinion and prepare a report about whether the Board of Director’s discussions based on the informationin the audited consolidated financial statements and consolidated financial information in the annual report within the scope of
the provisions of the TCC and the Communiqué are fairly presented and consistent with the information obtained from our audit.
We conducted our audit in accordance with Independent Auditing Standards. Those standards require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whether the Management’s discussions
on the Group’s financial performance based on the information provided in the audited consolidated financial statements, arefairly presented in all material respects, and are consistent with the full set audited consolidated financial statements and theinformation obtained from our audit
The independent audit is conducted and concluded by the engagement partner Özkan Yıldırım.

Özkan Yıldırım, SMMM (CPA)
Partnerİstanbul, 6 March 2020

54

KARSAN Annual Report 2019

Board of Directors’ Annual Reportfor the Year 2019
I. GENERAL INFORMATION
a. Accounting period of the report:
b. Trade name of the company:
MERSIS No. of the company:
Tax office and no. of the company:
Trade registration no. of the company:
Contact information of the company:
Headquarters and Factory
Address:
Telephone:
Fax:
Organized Industrial Zone Factory
Address:
Telephone:
Fax:İstanbul Office
Address:
Telephone:
Fax:
Website:01.01.2019 - 31.12.2019
Karsan Otomotiv Sanayii ve Ticaret A.Ş.
0525000190600031
Bursa - Ertuğrulgazi T.O. - No: 5250001906
13366

Hasanağa Organize Sanayi Bölgesi (HOSAB), Sanayi Caddesi 16225 Nilüfer / Bursa+90 (224) 484 21 70 (25 lines) / +90 (224) 280 30 00+90 (224) 484 21 69
Organize Sanayi Bölgesi Mavi Cad. No: 13 16159 Nilüfer / Bursa+90 (224) 243 33 10 (4 lines)+90 (224) 243 74 50
Emek Mah. Ordu Cad. No: 10 34785 Sarıgazi/ Sancaktepe / İstanbul+90 (216) 499 65 50+90 (216) 499 65 53
www.karsan.com

c. Changes during the period regarding the organization, capital and shareholding structure of the company(TL)
900,000,000
900,000,000 (*)

Registered Capital Ceiling:
Issued Capital:

As per the Board of Directors Resolution numbered 2019/26 and dated 22 July 2019, it is decided that our Company’s issued capital of TL 600,000,000 was increased
50% to reach TL 900,000,000, which is to be realized as TL 300,000,000 capital increase through rights issues over nominal share value (TL 0.01) without limiting therights of shareholder to purchase new shares.. Within this context, our application to Capital Markets Board on 9 August 2019 evaluated at the Capital Markets Board
meeting dated 7 November 2019 and numbered 64/ 1422 and the explanation note regarding the capital increase was approved. The new version of Article 6 titled“Registered Capital” of our Articles of Association which shows that the issued capital amounts to TL 900,000,000 was registered by Bursa Registry of Commerce on
9 January 2020 and published at Turkish Registry of Commerce Gazette on 15 January 2020.

(*)

Company’s Title
Kıraça Holding A.Ş.
Group A PreferredGroup B
Other
Group A PreferredGroup B
Total

31.12.2019
Share Amount (TL)
Share Ratio (%)
571,118,812
63.46
64,028,614
7.11
507,090,199
56.34
328,881,188
36.54
1,554,775
0.17
327,326,413
36.37
900,000,000
100.0031.12.2018
Share Amount (TL)
Share Ratio (%)
380,745,875
63.46
42,685,742
7.11
338,060,132
56.34
219,254,125
36.54
1,036,517
0.17
218,217,609
36.37
600,000,000
100.00

As of year-end of 2019, our free-float rate listed under the Central Registry Agency (CRA) is 34.56%.
Within this financial period, in the Organizational Structure of the Company; Production Management (CS, H350) and Production
Management Bus, (CXL, OSB) were abolished to be merged and replaced as Production Management. Foreign Trade Management
position was abolished, reporting line of the Foreign Trade Administration which was reporting to this position was linked to theProcurement Chain Management. Corporate Risk Management and Internal Audit Management which previously reported to theAssistant General Manager for Finance now reports to the CEO.

KARSAN Annual Report 201955

d. Disclosure on preferred shares and voting rights of shares
According to Article 8 of the Articles of Association, the article on Board of Directors, Group A shares possesses a right of “privilege
to nominate candidates for the election of members of the Board of Directors”. The Company’s Articles of Association does notfeature a privilege on the use of votes.
e. Information on the Board of Directors, executives and number of employees
i. Board of Directors
Members of the Board of Directors were appointed in the Ordinary General Assembly held on 5 April 2019 in accordance with the
Articles of Association, pursuant to the Turkish Commercial Code and relevant regulations; for a period of one year; or, in any case,until the appointment of their successors.
Board of Directors (as of 31 December 2019):
Board of Directorsİnan Kıraç
Giancarlo Boschetti
Okan Baş
Nevzat Tüfekçioğlu (*)
Mehmet Altan Sungar
Fatma Füsun Akkal Bozok
Muhsin Mengütürk (**)

Position
Chairman
Deputy Chairman
Executive Board Member
Independent Board Member
Independent Board Member
Board Member
Board Member

Commencement Date
05.04.201905.04.201905.04.201905.04.201905.04.201905.04.201905.04.2019

Our Company’s Independent Board Member, Mr. Nevzat Tüfekçioğlu was appointed to the said membership at the Ordinary General Assembly dated 5 April 2019
replacing Mr. Nadir Özşahin.

(*)

(**)

Our Company’s Board Member Mr. Muhsin Mengütürk, was appointed as Board Member at the Ordinary General Assembly dated 5 April 2019.

The Board of Directors convened 25 times in 2019 and passed a total of 38 resolutions in these meetings. Board members
participated in a majority of the Board meetings.
At the Ordinary General Assembly held on 5 April 2019, no selection of members for Audit Committee was made in line with
the new Turkish Commercial Code provision stating that Audit Committee was optional, and as is proposed by the Committee
responsible from Audit and with the decision of the Board of Directors dated 11 March 2019 and numbered 2019/8, it wasapproved that DRT Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. (Member of Deloitte Touche Tohmatsu Limited),
which was elected as the Independent External Audit Firm would serve as the independent external audit firm for 1 year. DRTBağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. is selected at the same time to conduct auditing of the accuracy ofdata pursuant to Article 7 of the Regulation on Procedures and Principles concerning Monitoring of Transactions Affecting Foreign
Exchange Position by Central Bank of the Republic of Turkey.
Detailed information on tasks performed by Independent Members of the Board of Directors and Independence Declarations ofIndependent Members of the Board of Directors is provided in Annex 1 and Annex 2.
ii. Evaluation of the committees of the Board of Directors
The duties and working principles of the Committees of the Board of Directors were disclosed to the public when posted on the
Public Disclosure Platform and in the Investor Relations section of the corporate website: www.karsan.com.tr.
Board of Directors Committees as of 31 December 2019:
Committee

Committee Members

Position

NatureConvention Frequency

Nevzat Tüfekçioğlu
Mehmet Altan Sungar
Mehmet Altan Sungar
Corporate Governance Committee Muhsin Mengütürk
Deniz Özer (*)
Committee on Early Detection of Nevzat Tüfekçioğlu
Risks

ChairmanMemberChairmanMemberMemberChairmanMemberIndependent member
Independent member
Independent member
Non-Executive Member
Executive
Independent member
Non-Executive Member

Every three months, aminimum of 4 times a year

Audit Committee(*)

A minimum of 2 times ayear
In every two months,
minimum 6 times a year

Head of the Investor Relations Department was assigned to the Corporate Governance Committee under Article 11 of the Communiqué No. SPK II-17.1.

56

KARSAN Annual Report 2019

Board of Directors’ Annual Reportfor the Year 2019

In this financial period, the Audit Committee worked in accordance with the CMB legislation and its Duties and Working Principles inrelation to selection of an independent audit firm, disclosure of financial statements to the public, and issued 7 reports.
In this financial period, the Corporate Governance Committee worked in accordance with the CMB legislation and its Duties andWorking Principles in relation to preparation of Corporate Governance Compliance Report, supervision of activities of Investor
Relations Unit, and nomination of candidates to become Independent Board Members as a part of its function as the Nomination
Committee; and carrying out Remuneration Committee activities as a part of its function as the Remuneration Committee, andissued 5 reports.
During this period, the Committee on Early Detection of Risks worked in accordance with the CMB legislation and its Duties andWorking Principles, and issued 7 reports.
The effectiveness of the Committees has been evaluated as positive by the Board of Directors.
iii. Executives
Executives as of 31 December 2019:
Executives

Position

Okan Baş (*)

CEO

Kenan Kaya (**)
Ahmet Muzaffer Arpacıoğlu (***)

Commencement Date
2016

Deputy General Manager of Financial Affairs
and Finance
Deputy General Manager of Business Affairs

Profession
Mechanical Engineer(M.Sc)

2019

Economist

2017

Business Administrator(*)
Mr. Okan Baş is at the same time the Chairman of the Board of Europe Srl., Chairman of the Board of Karsan İç ve Dış Ticaret A.Ş., Board Member of Türkiye’nin OtomobiliGirişim Grubu Sanayi ve Ticaret A.Ş. (Legal Entity Representative on behalf of Kök Teknoloji A.Ş.) and Industria Italiana Autobus S.p.A., MaaS Global OY and Karsan USA LLC.
(**)

Mr. Kenan Kaya is at the same time Vice-Chairman of the Board of Karsan İç ve Dış Ticaret A.Ş., Board Member of Karsan Europe Srl and Hervouet Corporate Industry SAS.

Mr. Ahmet Muzaffer Arpacıoğlu is at the same time a Board Member of Karsan İç ve Dış Ticaret A.Ş. and Karsan Europe Srl and Chairman of Hervouet Corporate Industry
SAS.
(***)

iv. Movements of white and blue collar employees

Karsan Otomotiv
Karsan Europe
Karsan İç ve Dış Ticaret A.Ş.
Hervouet Corporate Industry SAS (HCI).
Total

31 December 2019White Collar
Blue Collar
224
847
2
0
0
0
10
0
236
847

Total
1,071
2
0
10
1,083

31 December 2018 (*)
White Collar
Blue Collar
209
870
2
0
0
0
211
870

Total
1,079
2
0
1,081

As of 31.12.2019, the Group had a total number of 1,083 employees. Of these, 236 employees were white collar and 847 were blue
collar.
f. Information on transactions of the Board of Directors’ with the company on their own behalf or on behalf of others
within the context of the General Assembly’s authorization, and Board of Directors’ activities within the context ofprohibition of competition
Although the Company’s Articles of Association do not have provisions on not making transactions with the Company and notbreaching the non-competition rule; it was decided at the Ordinary General Assembly meeting held regarding year 2018 on
5 April 2019 that, pursuant to Articles 395 and 396 of the Turkish Commercial Code, members of the board of directors shallbe allowed to perform transactions with the Company on their own behalf and on the behalf of others; to perform commercial
transactions within the field of activity of the Company on their own behalf or on the behalf of others, and to become a partnerwith an unlimited liability in any company engaged in the same kind of trade as the Company. Also, during this ordinary general
assembly meeting, it was disclosed that in 2018, shareholders controlling the management, members of the Board of Directors,
executives who had administrative responsibilities and their spouses and second degree relatives/kin did not perform any materialtransaction that might cause a conflict of interest with the Company or its affiliates and/or perform any commercial transaction
within the field of activity of the Company or its affiliates on their behalf or on behalf of others, or become a partner with unlimited
liability in any company engaged in the same kind of trade with the Company.

KARSAN Annual Report 201957

In 2019, shareholders controlling the management, members of the Board of Directors, executives who had administrative
responsibilities and their spouses and second degree relatives/kin did not perform any transactions that might cause a conflict ofinterest with the Company or its affiliates and/or perform any commercial transaction within the field of activity of the Company or
its affiliates on their own behalf or on the behalf of others, or become a partner with unlimited liability in any company engaged in
the same kind of trade as the Company.
II. FINANCIAL RIGHTS OF THE MEMBERS OF THE BOARD OF DIRECTORS AND EXECUTIVES
The total amount of rights, benefits and fees provided to the members of the Board of Directors and senior executives in 2019 was
TL 3,697,365 and this amount is reported in footnotes to the financial statements, and these footnotes are included in the annual
report and on the corporate website. At the Ordinary General Assembly Meeting held on 5 April 2019, it was decided that as of thefirst day of the month following the General Assembly Meeting, Independent Members of the Board of Directors would be paid
TL 12,500 (gross) per month and other members of the Board of Directors would be paid TL 10,000 (gross) per month.
III. RESEARCH AND DEVELOPMENT ACTIVITIES OF THE COMPANY
Our Company disclosed on Public Disclosure Platform via Material Disclosure dated 24 July 2019 that our application, which aims
to benefit from the incentives and exemptions granted by the Law on Supporting Research and Development Activities numbered
5746, made to the Ministry of Industry and Technology, R&D Incentives General Management regarding the R&D Center was
evaluated and our Company was found eligible to be given the R&D Center Certificate,
Our electric minibus/midibus projects, postal delivery vehicle project, bus tenders and R&D activities related to Karsan branded
minibus, midibus and product development in addition thereof are conducted by our Company.
Six prototypes were ordered to our Company by the tender authority, which accepted our proposal to “call for prototype
development” for the Next Generation Delivery Vehicle Purchasing Process of US Postal Service and all of the ordered prototypes
were delivered in October 2017. Our Company, which is invited by the contracting authority to submit price quotation for
production until end of first quarter 2020, posted a related disclosure on the Public Disclosure Platform on 30 December 2019 andany developments will be shared with the public and our shareholders in due course.
IV. COMPANY’S ACTIVITIES AND IMPORTANT DEVELOPMENTS WITH REGARDS TO COMPANY’S ACTIVITIESa. Investments made during the relevant financial period and incentives used for such investments
The Group invested a total of TL 46,220,098 in 2019.
Karsan Otomotiv continues its activities by means of producing Karsan minibuses and Hyundai light commercial vehicles andthrough contract-based production agreements, and it also continues to work and invest to become an original equipment
manufacturer by creating its own brands and predominantly producing under its own brands within the context of its vision of
offering limitless transportation solutions.
The incentive certificate no. A-107742 dated 27 November 2012 obtained for product diversification/modernization investment
was revised on 14.08.2013 with no. 55221, on 28.01.2014 with no. 06888, on 03.07.2014 with no. 45008, on 18.02.2015 withno. 22555 and finally on 17.08.2016 with no 97357. The amount of the revised investment incentive certificate is TL 80,423,761(Domestic) and USD 38,387,627 (Import). Within the framework of our application, in addition to the incentive certificate and on
condition that the incentive certificate dated 28.01.2014 is used within the investment period, an exemption from customs duty
and resource utilization support fund was obtained until 17.10.2018 for USD 254,473,068 in relation to the global list belonging
to import CKD equipment and import of CKD components and parts to be used in H350 model light commercial vehicles to be
manufactured on a contract basis for our business partner Hyundai Motor Company (HMC), provided that the said incentive
certificate was used within the investment period. As a result of the present CKD list, CKD import list with the amount of FOB
USD 287,320,247 and unit vehicle CKD accessories and parts list annexed therein are cancelled.
The factors of the support relating to Region 1 that has been provided for the investment considered within the scope of “Regional
Incentive Practices” are below:····

VAT exemption
Exemption from Customs Duty
Corporate Tax Rebate applied for Regional Incentive
The completion visa of the Incentive Certificate numbered 107742 was realized by the Ministry of Industry and Technology on
10 July 2019.

58

KARSAN Annual Report 2019

Board of Directors’ Annual Reportfor the Year 2019b. Information on the company’s internal control system and internal auditing activities, and the opinion of the Board of
Directors on this issue
The Corporate Risk Management Department that was established in 2014 was reorganized as the Corporate Risk Management
and Internal Auditing Department as of 1 October 2015. Corporate Risk Management and Internal Auditing Department, together
with the Committee Responsible from Audit and the Committee on Early Detection of Risks that was appointed by the Board of
Directors are functionally reporting to the Karsan CEO. Risks that are identified as a result of activities carried out in accordancewith a plan approved by the Committee on Early Detection of Risks, are evaluated taking the corporate risk taking profile into
account, and organization of an effective internal control system structuring is aimed with action plans that are created as a resultof risk oriented Internal Auditing activities.
c. Company’s direct or indirect affiliates and information with respect to their shareholding rates

Company Name

Field of Activity

Karsan Otomotiv Sanayi Mamulleri
Pazarlama A.Ş.
Karsan USA LLC (*)
Karsan Europe SRL
MaaS Global OY (**)
Industria Italiana Autobus S.P.A (***)

Distributor

Karsan İç ve Dış Ticaret A.Ş.
Hervouet Corporate Industry SAS(HCI) (****)
Hervouet Corporate Lease SAS (*****)(*)

Sales, Marketing
Sales, Marketing
Transportation solutions
Bus production,
distribution, sales andmarketingDomestic and foreign
sales and marketing ofvehicles and spare parts
Automotive and SpareParts Marketing
Financial Leasing

Company’s Shareholding Rate
31.12.2019
31.12.2018
Direct andEffective
Direct andEffective
Indirect Shareholding
Indirect Shareholding
Shareholding
Rate Shareholding
Rate
Rate
Rate
25%
25%
25%
25%
100%
100%
10.03%

100%
100%
10.03%

100%
100%
10.03%

100%
100%
10.03%

28.59%

28.59%

70%

70%

100%

100%

100%

100%

50%

50%

-

-

50%

50%

-

-

Karsan founded a company in New York, US, with the trade name Karsan USA LLC that is wholly owned by the Company in order to participate in the tenders held by

local authorities for its taxi model project, and this company did not require any capital transfer at the time of its foundation. There have been no capital transfers to thecompany so far, and it has no effect on the financial position of the Group.
(**)

As the Company’s 10.03% share in MaaS Global OY is not significant in consolidated financial statements, the said partnership is shown with the final transaction costin the financial statements.
(***)

Our Company subscribed to the capital of Industria Italiana Autobus (IIA), which manufactures Menarinibus branded vehicles under the license and procurementagreement dated 5 July 2015, with a price of EUR 3,629,642 as described in detail in material event disclosure dated 12 December 2018, and the shareholding ratioof the Company in IIA increased from 5% to 70%. However, the fact that INVITALIA S.P.A., which is an Italian State Company, has the right to subscribe to capitalincrease proportionately and the possibility that Company’s said share may drop to 5% subject to the ratio of such subscription in case this right is exercised is taken
into consideration, and IIA is not included to consolidated financial statements due to non-controlling interest as of 31 December 2018. Following the participation of
INVITALIA S.P.A. to the capital increasing realized in the General Assembly of IIA on 29 January 2019, our Company’s shareholding ratio in IIA is decreased to 28.59%.
(****)

It was disclosed on Public Disclosure Platform on 26 April 2019, that our Company will be 50% shareholder to our distributor located in France, Hervouet Corporate

Industry (HCI), by participating its capital increase. Following the registration of the capital increase, our Company became 50% shareholder of HCI by July 2019.
(*****)

Hervouet Corporate Lease SAS is a 100% subsidiary of HCI, hence is a 50% indirect subsidiary of Karsan.

Our Company does not have any reciprocal shareholding relationship exceeding 5% level with any company.
d. Information on company shares acquired by the company
The Company has not acquired its own shares within the period.
e. Information on special audits and public audits during the financial period
No special audit has been requested in the 2019 financial year under Article 438 of the Turkish Commercial Code.

KARSAN Annual Report 201959

f. Information on legal actions taken against the company which may affect the company’s financial position andoperations, and probable outcome of such legal actions
No material legal actions were taken against the Company in 2019.
g. disclosure of administrative and legal sanctions imposed on the company, directors, and managers due to violationsof applicable legislation
In 2019, there have been no legal or administrative sanctions imposed on the Company or its directors and managers due to aviolation of any applicable legislation.
H. Information and comments on whether targets set in previous periods were reached, decisions of the General
Assembly meeting were implemented and, if not, justifications for not achieving such targets or implementing suchdecisions
An annual budget is drafted in accordance with the targets set by the Board of Directors of the Company, and the conformity ofoperating results to the budget is monitored. Our Company implemented decisions of the Ordinary General Assembly Meeting heldin April 2019 relating to 2018 operations.
i. If an extraordinary General Assembly meeting was held during the year, information on such a meeting, including thedate of the meeting, decisions taken therein, and any associated transactions
No Extraordinary General Assembly Meeting was held during the period.
j. Information on donations and grants provided by the company during the year
During the Ordinary General Assembly Meeting of our Company held on 5 April 2019, the cap of donations to be made in 2019 was
determined as TL 300,000. However, no donations and grants were made by our Company in 2019.
k. Significant changes in the environment where the company operates, and the policies applied by the company
against these changes
No significant change occurred in the relevant period in the geographical environment where the company operates.
l. If the company is a part of a group of companies, legal transactions performed with the controlling company or its
subsidiaries or in the interest of the controlling company or its subsidiaries under guidance of the controlling company
and all other measures taken or avoided in the past financial year in the interest of the controlling company or its
subsidiaries,
There have been no legal transactions performed with the controlling company or its subsidiaries or in the interest of thecontrolling company or its subsidiaries under the guidance of the controlling company and there are no measures taken or avoided
in the past financial year in the interest of the controlling company or its subsidiaries.
m. should the company be a part of a group of companies: if any legal transaction mentioned in item (l) is performed
or any measure is taken or avoided, whether an appropriate counter performance was required under conditions andterms known to them for each legal transaction and whether taking or avoiding such measures caused the company toincur any damages and if the company incurred any damages, whether it was compensatedSince there are no legal transactions set forth in item (l), no transaction was made under this Article.
n. Information on legislative amendments that may have a material effect on the operations of the company
There have been no legislative amendments that may have a material effect on the operations of the Company.
o. Amendments to the Articles of Association in the relative period and justification of such amendments
No amendment was made on the Articles of Association in the relative period.

60

KARSAN Annual Report 2019

Board of Directors’ Annual Reportfor the Year 2019

p. Information on manufacturing units of the company
The Company is engaged in manufacturing in two plants in Bursa. Hasanağa Organized Industrial Zone (HOSAB) factory, where
minibus, bus and light commercial vehicles production is conducted, has 207 thousand m2 area in total with a 91 thousand m2
closed space. Bursa Organized Industrial Zone (BTSO) Plant, where tractor cabins, cataphoresis coating, and spare parts are
manufactured, has a 30 thousand m2 total area and 20 thousand m2 of this area is covered. Karsan Otomotiv publicly announced
the decision to sell its OIZ (Organized Industrial Zone) facility to Kök Ziraat Turizm Sanayi ve Ticaret A.Ş. via Material Disclosure
dated 29 April 2019 posted on Public Disclosure Platform.
The units of the Company are listed below
Units at the Hasanağa Organized Industrial Zone and BTSO Industrial Zone
· Welding Unit
· Paint Shop
· Assembly Unit
Bus Enterprise· Bus Cabin Production Unit
· Paint Shop
· Assembly Unit
Support Units for All Enterprises
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·

R&D
Human Resources
Finance
Corporate Risk Management and Internal Auditing
Investor Relations
Accounting
Budget Planning and Control
Procurement
Business Planning, Development and Projects
EU tenders
Quality
Supply Chain
Sales
ExportMarketingAfter Sales Services

q. Products
The Company’s products in 2019 included Karsan Jest, Karsan Atak, Karsan Star, Hyundai H350, Menarinibus Series and Bozankayaelectric buses.
r. Efficiency
Capacity Utilization Rate

2019
27.5%

The existing capacity of our Company is 18,200 vehicles/year. By producing 5,013 unit vehicles in 2019, the Company had acapacity utilization rate of 27.5%.

2018
36.9%

61

KARSAN Annual Report 2019s. Developments in production and sales
Production volume in comparison to the previous period is given below on a product type basis.
Product Type
Karsan
Jest
Atak
Star
Menarinibus
Bozankaya
Hyundai H350
TOTAL

2019 (Units)
680
565
70
45
520
7
3,806
5,013

2018 (Units)
1,171
962
205
4
296
55
5,200
6,722

Change (%)
(42)
(41)
(66)
1025
76
(87)
(27)
(25)

Our Company’s sales quantities and revenues by product type, in comparison to the previous period, are indicated below.

Product Type
Karsan
Jest
Atak
Star
Menarinibus
Bozankaya
Hyundai H350
TOTAL

2019 (Units)
662
563
56
43
534
7
3,806
5,009

2018 (Units)
1,169
957
208
4
282
55
5,200
6,706

Change (%)
(43)
(41)
(73)
975
89
(87)
(27)
(25)

Product Type2019
Sales Revenue (TL)
227,744,080
166,798,017
30,649,222
30,296,841
678,312,534
7,809,461
606,782,947
211,216,784
1,731,865,807

2018
Sales Revenue (TL)
188,967,065
133,362,620
54,124,773
1,479,672
381,285,351
45,868,609
727,790,828
160,699,552
1,504,611,404

Change (%)

Karsan
Jest
Atak
Star
Menarinibus
Bozankaya
Hyundai H350 (*)
Other (**)
TOTAL

21
25
(43)
1948
78
(83)
(17)
31
15

The amount of reimbursement that our Company is entitled within the scope of H350 HMC project is included to the revenue of Hyundai H350.

(*)

(**)

Other section consisted of sales of spare parts and materials, and Industrial services including cataphoresis coating, part pressing, painting, and cabin manufacturing

for automotive basic and supplier industries, and sales of end-of-life vehicles, gross income from finance sector activities.

t. Collective bargaining agreements
No labor dispute or movement has occurred in Karsan Otomotiv during the financial period of 2019. A collective bargaining
agreement for the period 1 September 2019- 31 August 2021 was signed between the Turkish Metal Workers Union and the MESS
on 29 January 2020.
Pursuant to the CMB Communiqué on Principles of Financial Reporting (II.14.1) the amount set aside for indemnity pay at the end of
the period for the Group is TL 33,199,743.

62

KARSAN Annual Report 2019

Board of Directors’ Annual Reportfor the Year 2019u. Information on social benefits and occupational training for employees, and on corporate social responsibility
activities regarding company operations with social and environmental consequences
In addition to wages and bonuses, our Company provides its employees with cash benefits such as allowances for birth, death,marriage, child, military service, holiday pay and annual paid leave, and benefits in kind such as food, transportation, clothing andcleaning allowances.
Internal and external trainings are planned in accordance with the needs of our employees. Trainings provided in 2019 are as below
by ratios; vocational training (12%), occupational health, safety and environmental trainings (31.6%), information systems (1.5%),
administrative/personal development (40.1%), lean manufacturing techniques (6.6%), quality management system (0.2%)
method trainings (5.6%) and environmental and energy management system (2.3%).
Our company obtained ISO 14001 Environmental Management System Certificate for the first time in January 2004. With
the documentation renewal audit conducted in 2018, our environmental management system was switched to ISO 14001:
2015 revision with zero errors, and document validity is extended to 03.11.2020. In 2019, the Company passing with zero
nonconformities from an Integrated Environmental Audit conducted before Provincial Directorate of Environment and Urbanization,
has renewed its Environmental Permits for Hasanağa facility on 18 Nisan 2018 and Bursa OIZ Facility on 07 August 2018.
Furthermore, for both of the facilities, Industrial Waste Management Plan approvals which are updated in every two years wererenewed in 2018. At the same time, the Company switched to ISO 14001:2015 version on July 2018, and passed from the ISO
14001:2015 supervision audit conducted on 6 - 7 November 2019 again with zero nonconformities, hence maintaining its ISO
14001:2015 certificate.
Karsan established an Environmental Management System in order to control and minimize the environmental effects, and tocontinuously improve environmental performance through compliance with all national environmental laws and regulations inorder to protect the environment and ensure its permanence. When evaluated in terms of environmental legislation, Karsan has
fully complied to all of the provisions of legislations issued within the scope of Environment and Urbanization, and its current
Environmental Permit on Air Emission is renewed on 18.04.2018.
With its Environmental Management System efforts, KARSAN aims to reduce the use of energy and natural resources, and tominimize the amount of waste by supporting recovery operations. In line with this, a decrease of 13 kg per vehicle contaminatedwaste was achieved as a result of 8 kaizen effort. After physical and chemical treatment, the wastewater is sent to the BOSB andHOSAB Centralized Sewage Treatment Plant, to be reduced and kept at a level below the receiver’s discharge standards, and theoutput water analysis and controls are made regularly by the competent authorities. The waste management system ensuresthat the wastes requiring recycling, recovery and disposal resulting from production and other activities are collected separately,and some of them are contributed to the national economy, and those requiring disposal are treated in accordance with theregulations without causing environmental pollution. Furthermore, our facility has a Hazardous Waste Temporary Storage Sitefulfilling the requirements of Waste Management Regulation, and the approval of the said site was renewed on 11.06.2018. The
validity date of the approval is 11.06.2020. Our waste management system, with zero landfill waste, is continuously improvedby setting new objectives and targets, consistent with Karsan Otomotiv Environmental Policy, to reduce the use of energy
and its new environmental impacts. Every year, the Company provides “Basic Environmental Consciousness and Zero Waste
Management” trainings for its employees and raise their environmental consciousness. Furthermore, Karsan aspires to enhancethe environmental consciousness of the neighboring community around its head office, the supplier industries and all employees,
and organizes trainings and meetings for raising awareness, with an emphasis on continuous training.
No action has been filed against Karsan due to environmental damages. In line with its Environmental Policy, Karsan is committed
to protecting and sustaining the environment by complying with all environmental laws and regulations, keeping environmental
impact under control, reducing adverse effects, continuously improving environmental performance, increasing environmental
awareness and, by reaching “Operational Excellence” in all production operations, leaving a clean environment behind for future
generations.
v. Information on any conflict of interest with the institutions providing investment consultancy and rating services tothe company, and on measures taken by the company to avoid such conflicts
In the Credit Rating report prepared by Kobirate Uluslararası Kredi Derecelendirme ve Kurumsal Yönetim Hizmetleri A.Ş. (Kobirate)
dated 18 April 2019; National Long-Term Credit Rating of our Company was “KR BBB+”; Short Term National Credit Rating was“KR A3”; the Company’s status was revised as “Stable”. There is no conflict of interest between Kobirate and our Company.
V. FINANCIAL POSITION
a. Summary of the financial statements
Financial Statements were consolidated and audited independently under CMB Series II.14.1.

KARSAN Annual Report 201963

Summary Balance Sheet (TL)
AssetsCurrent Assets
Non-Current Assets
Total Assets

2019
1,300,368,086
1,235,582,188
2,535,950,274

2018
1,035,696,081
1,324,188,952
2,359,885,033

Liabilities
Short-term Liabilities
Long-Term Liabilities
Shareholders' Equity
Total Liabilities

2019
1,376,060,307
496,354,546
663,535,421
2,535,950,274

2018
1,242,154,323
790,166,839
327,563,871
2,359,885,033

2019
1,731,865,807
315,221,160
257,984,267
20,304,037

2018
1,504,611,404
279,809,800
227,382,713(23,387,670)

Summary Income Statement (TL)
Revenues (*)
Gross Profit
Operating Income/Loss
Period Profit/Loss(*)

Gross income from finance sector activities was included in sales revenues.

Total assets of the company increased by 7% from the level of TL 2,359,885,033 at the end of 2018, and reached to
TL 2,535,950,274 as of 31 December 2019. The amount of revenues recorded as TL 1,504,611,404 in 2018 increased by 15%
reaching TL 1,731,865,807 in 2019. With the effect of the said rise, operating profit of 2019 reached to TL 257,984,267, and theperiod profit was recorded as TL 20,304,037.
Financial requirement of the Company increased as a result the investments expenditures it incurred in order to become an
OEM and to make our trademark recognized in the international arena, and measures were taken against sudden increases anddecreases in exchange rates by keeping foreign currency debts and receivables under control mutually in order to decreasefinancial liabilities and to not to be affected negatively from exchange rates. We aimed particularly to decrease financial debt
instruments originated by export, as well as financial costs by finding low cost resources.
b. Key financial indicators and ratio analysis
Key Financial Indicators (TL)
Gross Profit Margin
Operating Profit Margin
Net Profit Margin

2019
0.18
0.15
0.01

2018
0.19
0.15
(0.02)

Liquidity Ratios
Current Ratio
Liquidity Ratio
Cash Ratio

2019
0.94
0.85
0.03

2018
0.83
0.69
0.07

Financial Structure Ratios
Total Liabilities/ Shareholders’ Equity
Short Term Liabilities / Total Assets
Long Term Liabilities / Total Assets
Tangible Fixed Assets /(Shareholders’ Equity+Long-term Liabilities) Liabilities)

2019
2.82
0.54
0.20
0.40

2018
6.20
0.53
0.33
0.50

Profitability Ratios
Net Profit For The Period / Total Assets
Net Profit For the Period / Shareholders’ Equity

2019
0.01
0.03

2018
(0.01)(0.07)64

KARSAN Annual Report 2019

Board of Directors’ Annual Reportfor the Year 2019c. Findings and evaluation of the management on whether the company capital is unsecured due to a loss or thecompany has excess liabilities over assets
According to the calculation made taking into account the ratios set forth in Article 376 of the Turkish Commercial Code, the capital
is not unsecured.
d. Measures planned to be taken to improve the financial structure of the company
Various alternatives involving several monetary and capital market instruments are evaluated for short and long term fundingneeds of the Company.
e. Information on dividend policy and if no dividends will be distributed, the reason underlying such decision andsuggestions as to how the undistributed profit will be used
The Company’s Dividend Policy was approved at the 2013 Ordinary General Meeting of Shareholders dared 27 June 2014 with
Agenda Item No. 8 and disclosed to the public by posting on the Company website. Dividend Policy is explained below.
“Dividend Policy
There are no privileges regarding participation in the Company’s profit and distribution of dividends. Our Company distributes
profit in accordance with the Turkish Commercial Code, Capital Market Legislation, Tax Legislation and other applicable legislation
as well as the provisions of the Articles of Association governing profit distribution. When deciding on distributing the dividends,
applicable regulations, financial position, long-term strategy, investment and financing policies, profitability and cash flow of ourCompany are taken into account, and our shareholders are distributed maximum amount of profit in cash and/or in the form of
bonus shares to the extent that the net distributable period profit calculated according to Capital Market Regulations, is coveredin our statutory records. It is aimed to perform dividend distribution in maximum 3 months after the relevant General Assembly
Meeting, at the latest the end of the accounting period in which the distribution decision is made, and the dividend distribution
date is determined at the General Assembly Meeting. Dividends may be paid in equal or different installments in compliance withapplicable legislation, provided that it is decided at the same General Assembly Meeting in which dividend distribution is decided.
Dividends shall be distributed pro rata to all of the shares existing as of the distribution date, notwithstanding date of issue andacquisition of such shares. The Board of Directors aims to take all measures in respect of place, time and method to ensure thetransfer of annual profit to shareholders within the shortest time possible, in accordance with the legislation. Pursuant to the
Articles of Association of the Company, the Board of Directors may distribute advance dividends, provided that it is authorized at
the General Assembly Meeting, and Capital Market Regulations are complied with.”
As a result of 2019 operations a consolidated profit of TL 20,304,037 was made, and after deduction of the loss from the previous
year, there remained no profit share subject to distribution.
f. Financial sources of the company
The Company’s financial sources consist of shareholders’ equity, loans used by the Company, bonds issued to qualified investors,
and time deposit revenues.
g. Nature and amount of issued capital market instruments
As per the Board of Directors Resolution numbered 2019/26 and dated 22 July 2019, it is decided that Company’s issued capitalof TL 600,000,000 was increased 50% to reach TL 900,000,000, which is to be realized as TL 300,000,000 capital increase
through rights issues over nominal share value (TL 0.01) without limiting the rights of shareholder to purchase new shares.. Within
this context, our application to Capital Markets Board on 9 August 2019 evaluated at the Capital Markets Board meeting dated
7 November 2019 and numbered 64/ 1422 and the explanation note regarding the capital increase was approved. The new version
of Article 6 titled Registered Capital of our Articles of Association which shows that the issued capital amounts TL 900,000,000
was registered by Bursa Registry of Commerce on 9 January 2020 and published at Turkish Registry of Commerce Gazette on
15 January 2020.
Regarding issuance of bonds on 11 August 2017 with TL 200 million nominal value to be sold to qualified investors, and for the
total of which our controlling shareholder Kıraça Holding A.Ş. have given guarantee, our Company has obtained permission fromthe Capital Markets Board. The sale of two bond tranches of nominal value of TL 88 million with a term of 1092 days, coupon
payment with 3-month variable interest and of nominal value of TL 67 million, with a term of 728 days, coupon payment with
3-month variable interest within the scope of the hereby issue limit was carried out on 13 October 2017, and the coupon paymentsof the said bonds were completed within the year. Redemption of bond with nominal amount of TL 67 million, maturity period of
728 days, coupon and principle payable every 3 months and at maturity respectively, was effected on 15 October 2019. On theother hand, coupon payments of the bond with TL 88 million continue to be made.

KARSAN Annual Report 201965

Disclosures on bond issue coupon payments on bonds are posted on the Public Disclosure Platform and corporate website (www.
karsan.com.tr) in line with the CMB legislation.
h. Information on the company’s sector and the company’s position in the sector
It is possible to summarize the developments in the sector and in Karsan Otomotiv in 2019 as follows, in accordance with thedata from the Automotive Manufacturers’ Association: Total vehicle production dropped to 1,461,244 units in January-December
2019 representing a 5.7% decrease compared to the same period in 2018, and the automobile production decreased by 4.3% anddropping to 982,642 units.
Below mentioned data may be provided in relation with the fields of business of our company;· Compared to the previous year of Turkey’s Light Commercial Vehicles production; there was a 8.2% increase in production of
Minibuses, 23.8% decrease in production of Midibuses and 10% decrease in production of Light Trucks.
· Compared to the previous year of Turkey’s Heavy Commercial Vehicles production, there was a 7.7% increase in production ofBuses, 47.3% decrease in production of Light Trucks and 23.1% increase in production of Heavy Trucks.
In the light commercial vehicles group in Turkish market, there were 31.8% and 27.1% decreases in 2019 in total light commercial
vehicle sales and domestic light commercial vehicle sales, whereas there was a 36.5% decrease in imported light commercial
vehicle sales. The market share of imports in the light commercial vehicle market was 46.7% in 2019.
Karsan presents turn-key delivery commercial vehicle production solutions including design, engineering and production to theworld’s selected brands with over 50-years’ experience in the automotive industry and a flexible production capacity, and produces
commercial vehicles under its own brand. Karsan is the leader of contract-based production model in the Turkish Automotive
Industry, and in addition to production of Hyundai Truck&Bus branded commercial vehicles, Menarinibus branded buses, andKarsan minibuses, midibuses and buses, it is engaged in domestic sales activities.
Responding to the mobility needs of the era with sustainable solutions, the Company developed and released Karsan Jest Electricand Karsan Atak Electric in 2018 and 2019 respectively which are compatible with European market. Within this context, theCompany continues its activities for compatibility with the new model year properties of existing brands and local regulative
standards of new markets with potential for sales mainly European Community and United States of America.
On 27 November 2012, our Company signed an agreement with Hyundai Motor Company (HMC) for production of a total of 200
thousand units of H350 model vehicles in seven years, including panel vans, light trucks, and minibuses recently developed by HMC
with a maximum loaded weight of 3-6 tons, and necessary industrial investments under this agreement have been completed.
Upon completion of these investments, the trial production stage has also been completed and the start of mass production wasannounced on 3 April 2015 on the Public Disclosure Platform. Since the starting date of the mass production was postponed - fromthe date specified in the main agreement, which was the beginning of 2015 - to April 2015, negotiations were made between theparties, and an additional protocol was signed in October 2015, which extended the term of the contract from 7 to 8 years, withoutchanging the total production quantity, which is minimum 200 thousand vehicles.
In the light commercial vehicle series, which is a part of the same product group, Karsan Pazarlama, where our Company is ashareholder, and HMC, our business partner signed an exclusive domestic distributorship agreement on 20 May 2014. With this
distributorship agreement, Karsan Pazarlama became the exclusive provider of marketing, sales, and aftersales services in Turkey
for H350 vehicles to be produced by our Company for HMC.
Within the framework of Facility Utilization Agreement made by and between our Company and Industria Italiana Autobus S.p.A.
(IIA); IIA ordered full and semi-manufactured bus production with a total of EUR 86 million for different customers in 2019, and thesaid orders are completely delivered in 2019.
Karsan, closely following the changes in cities and mass transportation systems in order to develop products and services thatmeet current needs, had a 45% decline in domestic retail sales in 2019 compared to the previous year in Jest minibus sales. Karsan
Jest’s market share in the total minibus class became 7.1%.
Furthermore, our 8-meter-long Karsan Atak launched in 2014, reached 46 units of domestic retail sales in 2019, taking a 20.6%
share in its segment.
In addition to vehicle production, Karsan also offers industrial services including cataphoresis, painting, truck haulage, bus chassis
and tractor cabin production.
In 2019, the Company generated USD 203.9 million export revenues in total.

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KARSAN Annual Report 2019

Board of Directors’ Annual Reportfor the Year 2019

VI. RISKS AND ASSESSMENT BY THE BOARD OF DIRECTORS
a. Information on risk management policy to be adopted against risks, if any
Karsan carries out its activities in a transparent, accountable, fair and responsible manner. The Board of Directors develops internal
control systems that also include risk management and information systems and processes which help to minimize impact of risks
that may affect stakeholders of the Company, particularly the shareholders, and opinions of the relevant committees of the Boardof Directors are taken into account during development of such systems. Board of Directors of Karsan Otomotiv adopts a prudent
and cautious risk management approach and manages and represents the Company with its strategic decisions, giving priority to
the Company’s long-term interests and maintaining a balance among risks, growth and earnings.
b. Information on proceedings and reports of the committee on early detection and management of risks, if suchcommittee has been created,
Karsan Otomotiv Risk Management and Reporting is carried out in coordination with various departments under the leadership of
the Corporate Risk Management and Internal Auditing Department operating under the CEO. Risks are questioned and assessedin detail through periodical workshops. The Committee on Early Detection of Risks is composed of members selected among fromthe members of board of directors, and this Committee issued 6 reports to us in 2019. The Committee on Early Detection of Risks
makes recommendations and proposals related to early detection, assessment of all kinds of strategic, financial, operational, andother risks that may influence the Company, and calculation of the impact and probability of such risks, management and reportingof risks in accordance with the corporate risk taking profile, taking necessary measures, considering these risks in decision
mechanisms, and development and integration of efficient internal control systems.
VI. INFORMATION THAT HAS TO BE PROVIDED TO SHAREHOLDERS UNDER THE LEGISLATION ON RELATED PARTY
TRANSACTIONS AND BALANCES OF SUCH TRANSACTIONS, AND CONCLUSION OF THE 2018 AFFILIATES REPORTIn accordance with Article 199 of the Turkish Commercial Code No 6102, which came into force on 1 July 2012, the Board of
Directors of Karsan Otomotiv is required to prepare a report within the first three months of the financial year on relations withthe controlling shareholder and companies affiliated to the controlling shareholder, and include the conclusion of such a report inits annual report. Information on Karsan Otomotiv’s transactions with the related parties is included in footnote 5 to the financial
statements.
With the report prepared by the Board of Directors of Karsan Otomotiv dated 6 March 2020 provides that “It is concluded that in
all transactions made in 2019 between Karsan Otomotiv Sanayii ve Ticaret A.Ş. and its controlling shareholder and the controllingshareholder’s affiliates, an appropriate counter performance was required according to conditions and circumstances known to us
at the time such transaction was made and there was no measure taken or avoided which would cause the company to incur any
damage, and there was no transaction or measure that needed to be compensated.”
Within the framework of the article 10 on Common and Continuous Transactions of CMB (Capital Markets Board) Corporate
Governance Communique (II-17.1);· Since it is anticipated that ratio of sales transaction planned between our Company and Industria Italiana Autobus S.p.A. (IIA)
in 2019, to the revenue amount of the latest yearly financial table that was disclosed, i.e. 2018, would exceed 10%, a report
was issued by the Board of Directors and Final Remarks section of this report was posted on Public Disclosure Platform at
5 August 2019.
In the event it is foreseen that the transactions to be made in 2020 will reach the ratios specified in this Communiqué, a report will
be prepared and disclosed on the PDP in compliance with the legislation.
VIII. OTHER ISSUES - INFORMATION FOR SHAREHOLDERSThe Company disclosed on the Public Disclosure Platform at 29 January 2020 that it is informed by the Turkish Employers’
Association of Metal Industries (MESS) that the Collective Bargaining Agreement Minutes covering the period 1 September 2019 31 August 2021 was signed between Turkish Metal Workers Union and Turkish Employers’ Association of Metal Industries (MESS).
Karsan Otomotiv, in its Material Disclosure dated 27 February 2020, announced that based on the authority granted to theBoard of Directors within the framework of the article numbered 7 of our Company’s Articles of Association, it is decided to issueborrowing instrument to be sold to dedicated and/or qualified investors up to TL 400,000,000 (four hundred million Turkish Liras)
nominal value, without making any public offering, to be effected within Turkey and in one or more than one rounds, the borrowing
instruments that are planned to be issued to be 4 year-term, in different terms when required, to be discounted, variable and/or fixed coupon payable, bearing fixed or variable interest and to be principle payable at maturity date, for determination of theKARSAN Annual Report 201967

terms and conditions regarding the above mentioned subjects on issuance, all necessary applications to be made including theones before the government agencies and for all other subjects including the designation of the authorized Firm, when deemednecessary, Company Executive Board Member - CEO and any one of the Deputy General Manager of Financial Affairs and Finance or
Deputy General Manager of Business Affairs to have the authority to represent and bind the Company with joint signatures.
IX. CORPORATE GOVERNANCE PRINCIPLES COMPLIANCE REPORTa. Corporate Governance Compliance Statement
Within the context of Capital Markets Board’s (CMB) Decision numbered 2/49 dated 10.01.2019 and CMB’s Corporate GovernanceCommuniqué II-17.1, the basis format for companies obliged to prepare Corporate Governance Principles Compliance Report has
been re-determined, and our Company has prepared Corporate Governance Principles Compliance Reporting for 01.01.2019- 31.12.2019 period in accordance with the said format as “Corporate Governance Compliance Report (URF)” and “Corporate
Governance Information Form (KYBF)”; the said published in Public Disclosure Platform. Said notifications can be accessed fromhttps://www.kap.org.tr/tr/Bildirim/825114 and https://www.kap.org.tr/tr/Bildirim/825111 links.
In this context, our Company has complied with mandatory principles of CMB Corporate Governance Principles and put its maximum
efforts to comply with non-compulsory principles, and compliance efforts are on-going. Below are the major Corporate GovernancePrinciples that are not mandatory under the relevant regulation, and with which full compliance has not been achieved yet. The
principles that have not been implemented yet have not created any conflict of interests between the stakeholders.
- As regards principle no. 1.5.2., minority rights have not been defined in Articles of Association to those holding less than one intwentieth of the capital, and the rights that are granted comply with the general practice stipulated in the Turkish Commercial
Code.
- As regards principle no. 4.2.8., the Company is insured against any damage that could be incurred as a result of fault of themembers of board of directors when performing their duties, and the insurance amount is less than 25% of the capital of theCompany.
- Regarding principle numbered 4.3.9.; our Company has not yet determined a target rate, provided that it is not less than 25%
and a target time for membership of women in the board of directors and form a policy for this target. However, the structure of
the Board of Directors is reviewed annually, and this matter is considered in the process of identifying candidates. Currently one
woman serves in the Company Board of Directors.
- As regards principle no. 4.4.5, Articles of Association of the Company describes how meetings of the Board of Directors are held,
and there is no other internal regulations issued solely for this purpose.
- As regards principle no. 4.4.7, members of Board of Directors are not restricted from assuming other duties outside the Company
since their experience in the industry contributes significantly to our Company.
- As regards principle no. 4.5.5, some of our Board Members were appointed to more than one committee considering the fact thatthe committee chairmen should consist of independent members, chief executive manager/general managers should not be
appointed to committees and in consideration of the extensive knowledge and experience of our Board Members.
- As regards principle no. 4.6.5., remunerations provided to Members of the board of directors and executives with administrative
responsibilities are disclosed to the public in annual reports. Payments that are made are disclosed to the public collectively inparallel to the general practice.
b. Relations with shareholders
i. Activities of Investor Relations Department
In our Company, Investor Relations Department directly reports to the Deputy General Manager in charge of Financial
Affairs and Finance. The report prepared on activities that have been carried out was submitted to the Board of Directors on
27 February 2020.
Investor Relations Department
Deniz ÖzerNeslihan Aydoğdu

Title
Investor
Relations
Administrator
Investor
Relations
Responsible

License Type
Capital Markets Activities Level 3 License (License No: 204658);
Corporate Governance Rating License (License No: 700469); Derivative
Instruments License (License no: 305184)
Capital Markets Activities Level 3 License (License No: 902328);
Corporate Governance Rating License (License No: 903021); Derivative
Instruments License (License No: 902330)

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Board of Directors’ Annual Reportfor the Year 2019

Investor Relations Department aims providing accurate, timely and consistent information to existing and potential investors on
the Company, decreasing the Company’s cost of capital by complying with Corporate Governance Principles, and ensuring twoway communication between Board of Directors and the capital markets participants. The Department works in coordination with
relevant Company units to immediately respond to questions and inquiries of shareholders, excluding confidential informationand trade secrets. In 2019, 101 questions were received in total from individual investors, 71 by e-mail and 30 by telephone, whichwere replied by writing and verbally in accordance with the principle of ‘equality in information’. Five meetings were conducted withcorporate investors and analysts.
The Company Disclosure Policy requires treating all capital market participants equally in terms of exercise of their right to be
informed and to review; and making announcements simultaneously and with the same content. In case of occurrence of any
event, which may affect the exercise of shareholders’ rights, the Company immediately makes an announcement to the public on
the Public Disclosure Platform; and any information that is provided is based on the content already disclosed to the public. Suchinformation and disclosures are made available to investors up-to-date on the corporate website.
Investor Relations Unit Contact information:
Telephone No:
Fax No :E-mail :+90 224 484 21 80+90 224 484 21 69
yatirimciiliskileri@karsan.com.tr

ii. General Assembly meetings
During the period, announcement to the Ordinary General Assembly Meeting for the year 2018; has been made within the legal
time period which is minimum 3 weeks before the meeting date by announcing the date, venue and the agenda of the meeting at
the Electronic General Assembly System of the Central Registry Agency (CRA), at Public Disclosure Platform and at the Company’s
website (www.karsan.com.tr). Announcement of the general assembly meeting, other announcements and disclosures requiredby the Company under the applicable legislation plus General Assembly Meeting Information Document prepared according tomandatory Article 1.3.1 of the Corporate Governance Principles were published on the Public Disclosure Platform, Company’s
website and CRA’s Electronic General Assembly System.
Our Ordinary General Assembly Meeting has been held in accordance with the laws and regulations, Articles of Associations andother company regulations, on 5 April 2019 at the Company headquarters at Hasanağa Organize Sanayi Bölgesi, Sanayi Caddesi
16225 Nilüfer / BURSA and participants were able to attend the General Assembly Meeting in person and via Electronic General
Assembly System with 65.7% quorum.
c. Structure and operation of the Board of Directors
Board of Directorsİnan Kıraç
Giancarlo Boschetti
Okan Baş
Nevzat Tüfekçioğlu (*)
Mehmet Altan Sungar
Fatma Füsun Akkal Bozok
Muhsin Mengütürk (**)(*)

Position
Chairman
Deputy Chairman
Executive Board Member
Independent Board Member
Independent Board Member
Board Member
Board Member

Commencement Date
05.04.201905.04.201905.04.201905.04.201905.04.201905.04.201905.04.2019

Our Company’s Independent Board Member, Mr. Nevzat Tüfekçioğlu was appointed to the said membership at the Ordinary General Assembly dated 5 April 2019

replacing Mr. Nadir Özşahin.
(**)

Our Company’s Board Member Mr. Muhsin Mengütürk, was appointed as Board Member at the Ordinary General Assembly dated 5 April 2019

KARSAN Annual Report 2019

69

Additionally, our Independent Members’ declarations of independence are included in Annex 2. Additionally, our Independent
Members’ declarations of independence are included in Annex 2.
The Corporate Governance Committee performs functions of the Nomination Committee and the Remuneration Committee incompliance with the Corporate Governance Communiqué. Nevzat Tüfekçioğlu and Mehmet Altan Sungar were nominated as
the Independent Board Members by the Corporate Governance Committee, and the report indicating whether candidates meet
independence criteria was submitted to the Board of Directors on 5 March 2018. In line with the Board of Directors decision
no. 2019/11 dated 11 March 2019, together with the announcement of the general assembly meeting on the Public Disclosure
Platform, Nevzat Tüfekçioğlu and Mehmet Altan Sungar were nominated to the Board of Directors as Independent Members to
the approval of the General Assembly Meeting, and résumés of the candidates were included in the General Assembly Meeting
Information document. In the Ordinary General Assembly Meeting of our Company held on 5 April 2019, Nevzat Tüfekçioğlu andMehmet Altan Sungar were elected as the independent Board Members.
The Board of Directors convened 25 times in 2019 and passed a total of 38 resolutions in these meetings. Board members
participated in a majority of the Board meetings. Board of Directors is convened whenever it is necessary for the Company
business.
d. Number, composition and independence of the committees formed in the Board of Directors
Members of the Audit Committee
Nevzat Tüfekçioğlu
Mehmet Altan Sungar

Position in the Committee - Powers (Executive/Non-Executive/
Independent Member
Chairman of Committee - Independent Board Member
Member of Committee - Independent Board Member

Members of the Corporate GovernanceCommittee
Mehmet Altan Sungar
Muhsin Mengütürk
Deniz Özer (*)

Position in the Committee - Powers (Executive/Non-Executive/
Independent Member
Chairman of Committee - Independent Board Member
Member of Committee - Non-Executive
Member of Committee - Executive(*)

Head of the Investor Relations Department was assigned to the Corporate Governance Committee under Article 11 of the Communiqué No. SPK II-17.1.

Members of the Committee on Early
Detection of Risks
Nevzat Tüfekçioğlu
Fatma Füsun Akkal Bozok

Position in the Committee - Powers (Executive/Non-Executive/
Independent Member
Chairman of Committee - Independent Board Member
Member of Committee - Non-Executive

The duties and working principles of the Committees of the Board of Directors were disclosed to the public when posted on the
Public Disclosure Platform and in the Investor Relations section of the corporate website: www.karsan.com.tr
In this financial period, the Audit Committee worked in accordance with the CMB legislation and its Duties and Working Principles
in relation to selection of an independent audit firm, disclosure of financial statements to the public, systemic risk data monitoring
system and issued 7 reports. In this financial period, the Corporate Governance Committee worked in accordance with the
CMB legislation and its Duties and Working Principles in relation to preparation of Corporate Governance Compliance Report,
supervision of activities of Investor Relations Unit, and nomination of candidates to become Independent Board Members as apart of its function as the Nomination Committee; and carrying out remuneration committee activities as a part of its function
as the Remuneration Committee, and issued 7 reports. During this period, the Committee on Early Detection of Risks worked inaccordance with the CMB legislation and its Duties and Working Principles, and issued 6 reports.
Since our Company is in the Third Group pursuant to the list published by the Capital Markets Board within the context of the
Corporate Governance Communiqué, it is sufficient to have 2 Independent Members in the Board of Directors. Therefore, ourCompany has 2 Independent Members in the Board of Directors. Since the head of each committee must be an independent board
member, Mr. Nevzat Tüfekçioğlu is the head the Audit Committee and, the Committee on Early Detection of Risks, whereas Mehmet
Altan Sungar is the head of the Corporate Governance Committee.

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KARSAN Annual Report 2019

Board of Directors’ Annual Reportfor the Year 2019

X. CONCLUSION
The financial statements, explanatory notes and ratios regarding the results of our activities in 2019 are also presented for yourreview in other sections of our report.
Esteemed Shareholders,
We hereby submit the Financial Statements to your approval with good wishes for our company and country in the forthcoming
years and we assure you of our highest consideration.
Respectfully,
6 March 2020İnan Kıraç
Chairman of the BoardKARSAN Annual Report 2019

71

Appendix 1: Resumes of the Members of the Board of Directors and the CEOİnan Kıraç - Chairmanİnan Kıraç began his career as a sales officer in 1961 at Ormak A.Ş., a division of Koç Group. In 1966, he was promoted as the General
Manager of Otoyol, the manufacturing company of Fiat trucks and midibuses. He later became the General Manager of Tofaş Oto
Ticaret, the sales and distribution company of Fiat cars produced in Turkey. Mr. Kıraç was then promoted as the Vice President andlater on President of Koç Holding Automotive Group. He served as CEO of Koç Holding until his retirement in 1998. İnan Kıraç was
privy to every development in the Turkish automotive industry and left his signature on many great automotive factories.
Giancarlo Boschetti - Vice Chairman
After graduating from mechanical engineering and economics, Giancarlo Boschetti, started to work in FIAT Group in 1964, where
he occupied different positions for nearly 40 years. He served as Global CEO of Iveco S.p.A from 1991 to 2001, as Global CEO of FIAT
Auto between 2002-2003. Giancarlo Boschetti serves as board member to many international companies.
Okan Baş - Executive Director
Having received his undergraduate and graduate degrees from Boğaziçi University, Department of Mechanical Engineering andClemson University (USA), Department of Mechanical Engineering, respectively, Mr. Baş embarked upon his professional careerat Tofaş Bursa Plant in 1987 in Engineering Support Department in the capacity of Mechanical Engineer. He served at various
positions at Tofaş until June 2016. Mr. Baş served at Tofaş Bursa Plant as Workshop Production Supervisor, Engine Production UnitManager, Body Production Unit Manager, Assembly Production Unit Manager and Doblo Product Manager between 1991-2002,
and worked at Tofaş Head Office İstanbul between 2002-2016 in various positions such as After-Sales Director, Mini-Cargo ProjectManager, After-Sales Spare Part Director, FIAT Business Unit Director, and Aegea Project and Business Development Director.
Nevzat Tüfekçioğlu - Independent Board Member
After graduating from Ankara University Faculty of Political Sciences, Nevzat Tüfekçioğlu was appointed as Ministry of Finance
Junior Accountant in 1963 and Ministry of Finance Senior Accountant in 1966. He resigned from public service in 1974 and servedin Koç Holding Financial Group as Assistant Coordinator, Coordinator, Vice President and President of Audit and Financial Groupretiring in 2001. Mr. Tüfekçioğlu served as Koç Holding A.Ş Auditor between 2001-2006, Evyap A.Ş Board Member between 20052006 and Kıraça Holding A.Ş Board Member between 2013-2017. Presently continuing to serve as Koç Tüketici Finansmanı A.Ş
Board Member, Entek Elektrik Üretimi A.Ş Board Member.

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Board of Directors’ Annual Reportfor the Year 2019

Mehmet Altan Sungar - Independent Board Member
In 1963, Mehmet Altan Sungar started to work as an intern at Royal Lastikler Tevzi A.Ş, a Koç Holding company, while he was stilla student in Academy of Economics and Commercial Sciences. He took different positions in the same company, and took part in
the establishment of the dealer network while he was serving as Regional Director in various regions across Turkey. Taking part in
the foundation of Otoyol Pazarlama in 1975, Sungar worked in several positions such as the Marketing Manager, Assistant General
Manager and Deputy General Manager in the same company. He also worked in Istanbul Oto A.Ş. between 1985 and 2001. During
the same period, Sungar worked as a member of the automotive professional community of Istanbul Chamber of Commerce.
Having served as the General Manager and Board Member in Karsat A.Ş. between 2001 and 2004, Sungar worked as a shareholder
and counsel in TURAVEL (Tourism, Education and Consultancy) between 2004 and 2012.
Fatma Füsun Akkal Bozok - Board Member
Fatma Füsun Akkal Bozok, completed her academic studies by obtaining a master’s degree from the Faculty of Administrative
Sciences, Boğaziçi University, and by obtaining a doctoral degree from the Faculty of Business, Istanbul University. After her
graduation, she began her business career at Arthur Andersen Audit Company in 1980. She joined Koç Group in 1983, and she
initially served as Audit Specialist and Assistant Coordinator in the Audit and Financial Group Department within the body of theHolding. She was appointed as the Audit and Financial Group Coordinator in 1992, and she served in this position for 11 years.
Akkal, who served as the Director of Financing Group between 2003 and 2006, is an academic member of Sabancı University. Akkal
is also an Independent Board Member of Akis GYO, Independent Board Member of Bizim Toptan Mağazaları A.Ş., Independent Board
Member of Ford Otomotiv Sanayii and Independent Board Member of İzocam Ticaret ve Sanayi A.Ş.
Muhsin Mengütürk - Board Member
Prof. Dr. Muhsin Mengütürk completed his academic studies in Duke University Faculty of Engineering in USA (Durham, North
Carolina) earning master’s and doctoral degrees. After graduation, his career began at Westinghouse Research Center (Pittsburgh,
Pennsylvania) in 1974 as the Leader of Turbine Erosion Department of US Government’s Renewable Energy Project. Mr. Mengütürk
returned to Turkey in 1976 and served respectively as Assistant Professor then Associate Professor, then he was appointed asVice Dean of Istanbul Technical University Aeronautics and Astronautics Faculty after attaining Professorship in 1984. Appointed
as Turkish Eximbank’s Founding Vice President between 1988-1992, then Prof. Dr. Mengütürk served as the Founding Presidentof Bayındır Hayat Sigorta between 1992-1995 and President of Capital Markets Board between 1997-2000. After completing his
duty in CMB, he served as the Chairman of the Board of Directors in Güneş Hayat Sigorta, Vakıf Emeklilik, Ankara Sigorta and Ankara
Emeklilik and Board Member in Ata Holding between 2001-2006; Prof. Dr. Mengütürk served as a Board Member in Doğuş Holding
between 2006-2018. Mengütürk is also a Board Member of Global Relations Forum (GRF).

KARSAN Annual Report 2019

Duties performed by the Members of the Board of Directors outside the company
Board Membersİnan KIRAÇ
(Chairman)

Giancarlo BOSCHETTI(Deputy Chairman)
Okan BAŞ
(Executive Board Member)

Nevzat TÜFEKÇIOĞLU
(Independent Board Member)
Mehmet Altan SUNGAR(Independent Board Member)
Fatma Füsun AKKAL BOZOK(Board Member)
Muhsin MENGÜTÜRK
(Board Member)(*)

Non-group companies.

Current Positions other than Partnership
Chairman of Karsan Otomotiv Sanayi Mamulleri Pazarlama A.Ş.
Chairman of Kök Ziraat Turizm Sanayi Ticaret A.Ş. (*)
Chairman of Kıraça Holding. A.Ş.
Chairman of Karland Otomotiv Ürünleri San. ve Tic. A.Ş. (under liquidation)
Chairman of Kök Finansal Danışmanlık A.Ş. (*)
Chairman of Kök Enerji Yatırımları A.Ş. (*)
Silco S.A. Board Member (*)
Vice-Chairman of Sirena Marine Denizcilik Sanayi ve Tic. A.Ş.
Chairman of Sirmar Denizcilik Sanayi ve Ticaret A.Ş.
Chairman of Adabey Turizm Sanayi ve Ticaret A.Ş. (*)
Chairman of Vaniköy Gayrimenkul Yatırım A.Ş. (*)
Chairman of Board of Managers of Vaniköy Gayrimenkul Yatırım ve Danışmanlık A.Ş. (*)
Chairman of Kepi Turizm Danışmanlık Gayrimenkul Yatırımları ve Ticaret A.Ş. (*)
Chairman of Kepi Gayrımenkul Danışmanlık ve Ticaret Ltd. (*)
Chairman of Kök Ulaşım Taşımacılık A.Ş. (*)
Chairman of Kök Teknoloji A.Ş. (*)
Türkiye’nin Otomobili Girişim Grubu Sanayi ve Ticaret A.Ş. Board Member (legal person
representative on behalf of Kök Ulaşım Taşımacılık A.Ş.) (*)
Diasorin S.p.A Board Member (*)
Finde S.p.A. Board Member (*)
Chairman of Karsan Europe Srl
Chairman of Karsan İç ve Dış Ticaret A.Ş.
Türkiye’nin Otomobili Girişim Grubu Sanayi ve Ticaret A.Ş. Board Member (legal entity
representative on behalf of Kök Teknoloji A.Ş. ) (*)
MaaS Global OY Board Member
Karsan USA LLC Board Member
Koç Tüketici Finansmanı A.Ş Board Member
Entek Elektrik Üretimi A.Ş Board MemberAkiş GYO Independent Board Member (*)
Bizim Toptan Mağazaları A.Ş. Independent Board Member (*)
Ford Otomotiv Sanayi Independent Board Member (*)İzocam Ticaret ve Sanayi A.Ş. Independent Board Member (*)
Global Relations Forum (GRF) Board Member (*)

73

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Board of Directors’ Annual Reportfor the Year 2019

Appendix 2: Declarations of Independence by the Candidates for Board Membership
KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş.
DECLARATION OF INDEPENDENCE BY THE CANDIDATE FOR BOARD MEMBERSHIPI hereby accept and declare that
· Karsan Otomotiv Sanayii ve Ticaret A.Ş. (Company), I do not have a relationship in terms of employment at an administrative levelto take upon significant duty and responsibilities within the last five years, I do not own more than 5% of the capital or voting
rights or privileged shares either jointly or solely or I have not established a significant commercial relation between Karsan
Otomotiv Sanayii ve Ticaret A.Ş (Company)., companies on which the Company holds control of management or significant effectand shareholders who hold control of management of the Company or have significant effect in the Company and legal entities
on which these shareholders hold control of management and myself, my spouse and my relatives by blood or marriage up tosecond degree;· I have not been a shareholder (5% and more), an employee at an administrative level to take upon significant duty andresponsibilities or member of board of directors within the last five years in companies that the Company purchases or sells
goods or service at a significant level within the framework of the contracts executed, especially on audit (including tax audit,
statutory audit, internal audit), rating and consulting of the Company, at the time period when the Company purchases or sells
services or goods;· I have professional education, knowledge and experience in order to duly fulfill the duties assigned for being an independent
board member;· As of the day of my nomination I am not and in the event that I am elected, for the term of my duty I will not be a full time
employee at public authorities and institutions except being an academic member at university that is in compliance with therelevant legislation;· I am deemed to be residing in Turkey according to the Income Tax Law No.193 of 31/12/1960;· I can make positive contributions to the operations of the Company, maintain my objectivity in conflicts of interests between
the Company and the shareholders, and I have strong ethical standards, professional reputation and experience to freely takedecisions by considering the rights of the stakeholders;· I will be able to allocate time for the company business sufficient to follow up operations of the Company and to duly fulfill theassigned duties;· I hereby acknowledge and agree that I have not been serving as a member in the Board of Directors of the Company for morethan six years in the last decade;· I am not an independent board member in more than three of the companies whose management is controlled by the Company
or the controlling shareholders of the Company and in more than five companies in total which are traded on the stock exchange;· I have not been registered or announced on behalf of the legal entity selected as the member of Board of Directors;· I shall immediately inform the Board of Directors and resign in case of occurrence of any event which conflicts with myindependence.
Nevzat TÜFEKÇİOĞLU
06.03.2019

KARSAN Annual Report 201975

KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş.
DECLARATION OF INDEPENDENCE BY THE CANDIDATE FOR BOARD MEMBERSHIPI hereby accept and declare that
· Karsan Otomotiv Sanayii ve Ticaret A.Ş. (Company), I do not have a relationship in terms of employment at an administrative levelto take upon significant duty and responsibilities within the last five years, I do not own more than 5% of the capital or voting
rights or privileged shares either jointly or solely or I have not established a significant commercial relation between Karsan
Otomotiv Sanayii ve Ticaret A.Ş (Company)., companies on which the Company holds control of management or significant effectand shareholders who hold control of management of the Company or have significant effect in the Company and legal entities
on which these shareholders hold control of management and myself, my spouse and my relatives by blood or marriage up tosecond degree;· I have not been a shareholder (5% and more), an employee at an administrative level to take upon significant duty andresponsibilities or member of board of directors within the last five years in companies that the Company purchases or sells
goods or service at a significant level within the framework of the contracts executed, especially on audit (including tax audit,
statutory audit, internal audit), rating and consulting of the Company, at the time period when the Company purchases or sells
services or goods;· I have professional education, knowledge and experience in order to duly fulfill the duties assigned for being an independent
board member;· As of the day of my nomination I am not and in the event that I am elected, for the term of my duty I will not be a full time
employee at public authorities and institutions except being an academic member at university that is in compliance with therelevant legislation;· I am deemed to be residing in Turkey according to the Income Tax Law No.193 of 31/12/1960;· I can make positive contributions to the operations of the Company, maintain my objectivity in conflicts of interests between
the Company and the shareholders, and I have strong ethical standards, professional reputation and experience to freely takedecisions by considering the rights of the stakeholders;· I will be able to allocate time for the company business sufficient to follow up operations of the Company and to duly fulfill theassigned duties;· I hereby acknowledge and agree that I have not been serving as a member in the Board of Directors of the Company for morethan six years in the last decade;· I am not an independent board member in more than three of the companies whose management is controlled by the Company
or the controlling shareholders of the Company and in more than five companies in total which are traded on the stock exchange;· I have not been registered or announced on behalf of the legal entity selected as the member of Board of Directors,· I shall immediately inform the Board of Directors and resign in case of occurrence of any event which conflicts with myindependence.
Mehmet Altan SUNGAR
06.03.2019

76

KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIESCONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019 AND
INDEPENDENT AUDITOR’S REPORT(Convenience Translation of the Report and the Consolidated Financial Statements Originally Issued in Turkish)KARSAN Annual Report 201977

INDEPENDENT AUDITOR’S REPORTTo the General Assembly of Karsan Otomotiv Sanayii ve Ticaret A.Ş.
A) Report on the Audit of the Consolidated Financial Statements
1) Qualified Opinion
We have audited the consolidated financial statements of Karsan Otomotiv Sanayii ve Ticaret A.Ş (“the Company”) and its
subsidiaries (“the Group”), which comprise the consolidated statement of financial position as at 31 December 2019, and theconsolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statementof cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant
accounting policies.
In our opinion, except for the effects of the matter mentioned in the “Basis for Qualified Opinion” paragraph, the accompanying
consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31
December 2019, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordancewith Turkish Financial Reporting Standards (TFRS).
2) Basis for Qualified Opinion
The company increased its total investment amount in Industria Italiana Autobus (“IIA”) from TL 26,926,649 to TL 78,634,649 byparticipating in capital increases in 2018 and 2019. On 22 April 2019, 28.59% of IIA’s share purchasing was completed. In line withthe requirements of TFRS 3, in order to determine the value of the company subject to share purchase and distribute the purchaseprice to the relevant balance sheet items; an independent valuation firm started working, but the related work has not been
completed until the year-end audit process. Therefore, the temporary goodwill amount of TL 78,634,649 continued to be carriedin the financial statements under the financial investments item. The valuation study is expected to end in the first half of thisyear, and it is aimed to reflect the necessary adjustments to the financial statements as of 30 June 2020 (Note 3).
We conducted our audit in accordance with the standards on auditing issued by Capital Markets Board and the Standards
on Independent Auditing (“SIA”) which is a part of Turkish Auditing Standards published by the Public Oversight Accounting
and Auditing Standards Authority (“POA”). Our responsibilities under those standards are further described in the Auditor’s
Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group inaccordance with the Code of Ethics for Independent Auditors (“Code of Ethics”) published by the POA, together with the ethicalrequirements that are relevant to our audit of the consolidated financial statements, and we have fulfilled our other ethicalresponsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we haveobtained is sufficient and appropriate to provide a basis for our qualified opinion.
3) Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole,and in forming our opinion thereon, and we do not provide a separate opinion on these matters. By us; in addition to the issue
described in the “Basis for Qualified Opinion” section, the issues described below have been identified as key audit matters and arereported in our report.

78

KARSAN Annual Report 2019

INDEPENDENT AUDITOR’S REPORT

3) Key Audit Matters (cont’d)
Key Audit Matters
Warrant Provision

How the Matter was Addressed in the Audit

As of 31 December 2019, the Group has TL 46,797,128
provision for warranty in consolidated financial statements.

Details of the audit procedures we have applied for Warranty
Provisions are as follows:

The Group provides warranty service for vehicles that are soldfor a period of time following the date of sale, depending on
the model of the vehicle. The Group estimates the probabilityof return for each vehicle, repair and maintenance costs
and expenses incurred in the previous periods, and reflects
the warranty provision amount in the consolidated financialtables.

Audit procedures include, testing of the detailed studiesof the calculation method applied by the Group and theaccounting period, the accuracy of the data used in thecalculations and the conformity of the past year expectancies
and the expenses incurred, the control of contracts related tosuch instruments, the guarantee periods varying according
to vehicle models, and the assessment of the accuracy ofmanagement’s estimates and assumptions.

These warranty provisions have been identified as the key
audit topic in the consolidated financial statements because
they are based on estimates of the methods involved indetermining their significance and amounts when considered
as a whole.
(Explanations on the provisions are presented on Note 2.5
Summary of Significant Accounting Policies and Note 15.)

It was controlled that warranty expenses realized in thecurrent year are accounted correctly under profit or loss. In
addition, the provisions that were realized and canceled during
the period were tested by comparing the documents related
to the sampling method.
In addition, the Note “Provisions, Contingent Assets andLiabilities” has been evaluated by us in accordance with
Turkish Accounting Standards 37 (TAS).

Capitalized Development Costs

How the Matter was Addressed in the Audit

The Group has capitalized development expenses
amounting to TL 222,084,186 as of 31 December 2019. The
capitalization amount is TL 68,970,435 in 2019. The share of
related expenses has been identified as key audit matter atconsolidated financial statements because of the importanceof the projects that are subject to development costs and the
management’s estimates that related projects are likely toprovide economic benefits in the future.

Our audit procedures for the capitalization of development
costs consist of an assessment of the Group’s accounting
policies for capitalization, project costs subject tocapitalization, examination of future prospects for the
projects and investigation the impairment of assets processes.

(Explanations on the capitalized development costs arepresented on Note 2.5 Summary of Significant Accounting
Policies and details are presented on Note 12 Capitalized
Development Costs.)

In accordance with our audit procedures, prospective
profitability study for the projects subject to capitalization
were taken from the Group management. Then, realizationof prior period evaluations and future estimates of the
management have been controlled by us. It was discussedwith the engineering and project managers on project life.
Period expenses have been tested by sampling and therecoverability of the capitalized costs of the related projects
has been assessed.
In addition, the adequacy of the disclosures in the Note
“Intangible Assets” has been evaluated by us within the scopeof TFRS.

KARSAN Annual Report 2019

794) Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with
TFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as agoing concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unlessmanagement either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
5) Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Responsibilities of independent auditors in an independent audit are as follows:
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are freefrom material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonableassurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the SIA will always detecta material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individuallyor in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements.
As part of an audit in accordance with the standards on auditing issued by Capital Markets Board and SIA, we exercise professional
judgement and maintain professional skepticism throughout the audit. We also:-- Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion (The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control).
-- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
-- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
-- Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on theGroup’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention
in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate,
to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However,
future events or conditions may cause the Group to cease to continue as a going concern.
-- Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, andwhether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fairpresentation.

80

KARSAN Annual Report 2019

INDEPENDENT AUDITOR’S REPORT

5) Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements (cont’d)-- Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within theGroup to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision andperformance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought tobear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significancein the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe
these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremelyrare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences ofdoing so would reasonably be expected to outweigh the public interest benefits of such communication.
B) Report on Other Legal and Regulatory Requirements(“TCC”), the auditor’s report on the system and the committee of early detection of risk has been submitted to the Board of
Directors of the Company on 6 March 2020.
In accordance with paragraph four of the Article 402 of TCC, nothing has come to our attention that may cause us to believe that
the Group’s set of accounts and financial statements prepared for the period 1 January-31 December 2019 does not comply with
TCC and the provisions of the Company’s articles of association in relation to financial reporting.
In accordance with paragraph four of the Article 402 of TCC, the Board of Directors provided us all the required information anddocumentation with respect to our audit.
The engagement partner on the audit resulting in this independent auditor’s report is Özkan Yıldırım.

Özkan Yıldırım, CPA
Partner
Istanbul, 6 March 2020

81

KARSAN Annual Report 2019

INDEX

		

PAGE

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

82

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

84

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

86

CONSOLIDATED STATEMENT OF CASH FLOWSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

88
89-180NOTE 1ORGANIZATION AND OPERATIONS OF THE GROUP

89

NOTE 2BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS

90

NOTE 3

INTERESTS IN OTHER ENTITIES AND BUSINESS COMBINATIONS

117

NOTE 4

SEGMENT REPORTING

120

NOTE 5

RELATED PARTY DISCLOSURES

122

NOTE 6

TRADE RECEIVABLES AND PAYABLES

125

NOTE 7ASSETS AND LIABILITIES FROM FINANCE SECTOR OPERATIONS128

NOTE 8OTHER RECEIVABLES

128

NOTE 9INVENTORIES

129

NOTE 10

PREPAID EXPENSES AND DEFERRED INCOME

130

NOTE 11PROPERTY, PLANT AND EQUIPMENT

131

NOTE 12INTANGIBLE ASSETS

134

NOTE 13LEASES137

NOTE 14

GOVERNMENT GRANTS AND INCENTIVES

138

NOTE 15PROVISIONS, CONTINGENT ASSETS AND LIABILITIES138

NOTE 16

COMMITMENTS

140

NOTE 17EMPLOYEE BENEFITS

142

NOTE 18

OTHER ASSETS AND LIABILITIES143

NOTE 19

PAID-IN CAPITAL, RESERVES AND OTHER EQUITY ITEMS

144

NOTE 20

REVENUE AND COST OF SALES

145

NOTE 21ADMINISTRATIVE EXPENSES, MARKETING EXPENSES, RESEARCH AND DEVELOPMENT EXPENSES

146

NOTE 22OTHER INCOME AND EXPENSES FROM OPERATING ACTIVITIES148

NOTE 23

INCOME AND EXPENSES FROM INVESTING ACTIVITIES149

NOTE 24

EXPENSES BY NATURE

150

NOTE 25

FINANCE EXPENSES

150

NOTE 26

ANALYSIS OF OTHER COMPREHENSIVE INCOME ITEMS151

NOTE 27

INCOME TAXES (INCLUDING DEFERRED TAX ASSETS AND LIABILITIES)152

NOTE 28

INCOME/(LOSS) PER SHARE

155

NOTE 29

DERIVATIVES FINANCIAL INSTRUMENTS

156

NOTE 30

FINANCIAL INSTRUMENTS

157

NOTE 31

NATURE AND LEVEL OF RISKS ARISING FROM FINANCIAL INSTRUMENTS

161

NOTE 32

FINANCIAL INSTRUMENTS (FAIR VALUE DISCLOSURES AND EXPLANATIONS ON HEDGE ACCOUNTING)

174

NOTE 33

EVENTS AFTER THE REPORTING PERIOD176

NOTE 34DISCLOSURES OF OTHER MATTERS THAT MAY AFFECT CONSOLIDATED FINANCIAL STATEMENTS SIGNIFICANTLYNOTE 35

OR IS NECESSARY FOR FINANCIAL STATEMENTS TO BE CLEAR, INTERPRETABLE AND COMPREHENSIBLE

176

NOTES ON STATEMENT OF CASH FLOWS

176

82

KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED CONSOLIDATED STATEMENT OFFINANCIAL POSITION AS AT 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

ASSETS
Current Assets
Cash and cash equivalents
Financial investments
Trade receivables
Trade receivables from related parties
Trade receivables from third parties
Receivables from finance sector operations
Receivables from finance sector operations from third parties
Other receivables
Other receivables from third parties
Derivative financial instruments
Inventories
Prepaid expenses
Assets related to current tax
Other current assets

Non-Current Assets
Financial investments
Trade receivables
Trade receivables from third parties
Receivables from finance sector operations
Receivables from finance sector operations from third parties
Derivative financial instruments
Property, plant and equipment
Right of use assets
Intangible assets
Goodwill
Other intangible assets
Prepaid expenses
Deferred tax assets
Other non-current assets
TOTAL ASSETS

Notes

35
30
5
6
7
8
29
9
10
27
18

30
6
7
29
11
2.4
12

10
27
18

AuditedCurrent Year
31 December 2019

AuditedPrior Year
31 December 2018

1,300,368,086
47,238,953
2,465,708
855,940,460
383,951,625
471,988,835
64,382,157
64,382,157
99,21399,21344,867,703
124,280,288
14,946,349
1,720,158
144,427,097

1,035,696,081
82,769,148
48,225,635
522,505,326
197,805,746
324,699,580
42,386,884
42,386,884
73,73273,732
29,102,154
184,366,071
21,973,731
738,891
103,554,509

1,235,582,188
150,612,827
85,880,403
85,880,403
89,735,406
467,628,209
663,950
235,455,284
10,644,658
224,810,626
443,464
90,974,223
114,188,422
2,535,950,274

1,324,188,952
98,904,827
84,373,034
84,373,034
136,195,638
136,195,638
87,306,462
561,416,085
195,607,116
195,607,116
539,557
100,075,97859,770,255
2,359,885,033

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

KARSAN Annual Report 201983

KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED CONSOLIDATED STATEMENT OFFINANCIAL POSITION AS AT 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

LIABILITIESCurrent Liabilities
Short-term borrowings
Short-term portion of long-term borrowings
Short-term lease liabilities
Trade payables
Trade payables from related parties
Trade payables from third parties
Payables related to employee benefits
Derivative financial instruments
Deferred income
Current tax liabilities
Short-term provisions
Short-term provisions for employee benefits
Other short-term provisions
Other current liabilities
Non-Current Liabilities
Long-term borrowings
Long-term lease liabilities
Derivative financial instruments
Long-term provisions
Long-term provisions for employee benefits
Other long-term provisions
Deferred income
EQUITY
Equity Attributable to Owners of the Company
Paid-in capital
Adjustments to share capital
Additional contribution to equity due to business combinations
Share premiums/discounts
Other comprehensive income or expenses that will not bereclassified subsequently to profit or loss
Gains/(Losses) on revaluation reserve
Gains/(Losses) on remeasurement of defined benefits plans
Other comprehensive income or expenses that will be reclassified
subsequently to profit or loss
Currency translation reserves
Losses on cash flow hedge
Restricted reserves appropriated from profit
Prior years’ losses
Net income/(loss) for the year
Non-Controlling Interests
TOTAL LIABILITIES AND EQUITY

Notes

30
30
2.4
5
6
17
29
10
27
17
15
18

30
2.4
29
17
15
10

19
19

19

AuditedCurrent Year
31 December 2019

AuditedPrior Year
31 December 2018

1,376,060,307
904,833,663
145,984,469
487,028
229,845,353
12,775,009
217,070,344
6,865,670
14,183,181
14,729,588
157,128
46,451,956
3,147,112
43,304,844
12,522,271

1,242,154,323
380,706,236
501,725,031
247,332,650
24,038,648
223,294,002
5,798,965
9,249,620
63,932,923
174,775
29,469,392
2,864,688
26,604,704
3,764,731

496,354,546
446,296,457
294,773
49,593,355
33,199,743
16,393,612
169,961

790,166,839
725,051,509
16,061,827
35,728,260
21,279,033
14,449,227
13,325,243

663,535,421
669,164,910
900,000,000
22,585,778
5,305,130
6,778,544

327,563,871
327,563,871
600,000,000
22,585,778
5,305,130
6,165,231

145,890,647
153,912,990(8,022,343)

192,030,952
198,484,656(6,453,704)

1,496,339
1,496,339
1,045,086(431,961,126)
18,024,512(5,629,489)
2,535,950,274(24,885,359)
704,585(25,589,944)
1,045,086(451,295,277)(23,387,670)
2,359,885,033

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

84

KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIESCONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHERCOMPREHENSIVE INCOME FOR THE PERIOD 1 JANUARY - 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

Notes

AuditedCurrent Year
1 January31 December 2019

AuditedPrior Year
1 January31 December 2018

Revenue
Cost of sales (-)
Gross Profit from Business Activities

20
20

1,704,291,496(1,416,644,647)
287,646,849

1,441,587,850(1,224,801,604)
216,786,246

Revenue from Finance Sector Operations
Cost from Finance Sector Operations (-)
Gross Profit from Finance Sector Operations

20
20

177,836,871(150,262,560)
27,574,311

241,606,076(178,582,522)
63,023,554

315,221,160

279,809,800(56,743,391)(63,460,120)(9,518,695)
102,422,343(29,937,030)(47,101,954)(83,190,637)(9,284,865)
117,984,842(30,834,473)

257,984,267

227,382,713

83,364,405(2,827,069)

70,024,308(354,994)

338,521,603

297,052,027(313,796,056)(334,154,984)

INCOME/(LOSS) BEFORE TAX

24,725,547(37,102,957)

Tax (Expense)/Income(4,421,510)

13,715,287(2,145,272)(2,276,238)(476,986)
14,192,273

INCOME/(LOSS) FOR THE YEAR

20,304,037(23,387,670)

Non-Controlling Interests
Owners of the Company
Income/(Loss) per share (1 TL per share)

2,279,525
18,024,512
0.0298(23,387,670)(0.0390)

GROSS PROFIT
Administrative Expenses (-)
Marketing Expenses (-)
Research and Development Expenses (-)
Other Income from Operating Activities
Other Expenses from Operating Activities (-)

21
21
21
22
22

OPERATING PROFIT
Income from Investing Activities
Expenses from Investing Activities (-)

23
23

OPERATING PROFIT BEFORE FINANCE EXPENSE
Finance Expenses (-)

25

Current Tax Expense
Deferred Tax (Expense)/Income

27
27

28

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

KARSAN Annual Report 201985

KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIESCONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHERCOMPREHENSIVE INCOME FOR THE PERIOD 1 JANUARY - 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

AuditedCurrent Year
1 January31 December 2019

AuditedPrior Year
1 January31 December 2018

(1,568,639)

44,850,786

11-

51,074,697

27
17
27

(1,960,799)
392,160(7,811,477)
1,984,458(396,892)

26,381,698(21,025,454)

791,754
32,807,621(7,217,677)

488,881(27,582,481)
6,068,146

Other Comprehensive Income

24,813,059

23,825,332

TOTAL COMPREHENSIVE INCOME

45,117,096

437,662

Total Comprehensive Income Attributable To:
Non-Controlling Interests
Owners of the Company

45,117,096
2,279,525
42,837,571

437,662437,662

Notes
OTHER COMPREHENSIVE (EXPENSE)/INCOME:
Items That Will Not Be Reclassified Subsequently to
Profit or Loss
Gain on Revaluation of Property, Plant and Equipment
Tax Effect of Gain on Revaluation of Property, Plant andEquipment
Loss on Remeasurement of Defined Benefits Plans
Tax Effect of Loss on Remeasurement of Defined Benefits Plans
Items That Will Be Reclassified Subsequently to Profit or
Loss
Currency Translation Reserves
Losses on Hedge
Tax Effect of Losses on Hedge

26
26
27

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

86

KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD 1 JANUARY – 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

Additional
contribution
to equity due
to business
Adjustments
to capital combinations
Paid-in capital

Accumulated othercomprehensive income or losses
not be reclassified to profit or loss
Gains/(Loss) on
Share
Gains/(Loss) remeasurement
premiums/of definedon revaluation
discounts
benefits plans
reserve

As restated Balance at 1 January 2018
(Beginning of the period)
Transfers
Total comprehensive income/(loss)

600,000,000-

22,585,778-

5,305,130-

6,165,231-

155,774,429(552,993)
43,263,220(8,041,270)
1,587,566

Balance at 31 December 2018 (End of
the period)

600,000,000

22,585,778

5,305,130

6,165,231

198,484,656(6,453,704)

Balance at 1 January 2019 (Beginningof the period)
Capital increase (Note 19)
Transfers
Acquisition of subsidiary
Total comprehensive income/(loss)

600,000,000
300,000,000-

22,585,778-

5,305,130-

6,165,231
613,313-

198,484,656(44,571,666)-(6,453,704)(1,568,639)

Balance at 31 December 2019 (End of
the period)

900,000,000

22,585,778

5,305,130 6,778,544

153,912,990(8,022,343)

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

KARSAN Annual Report 2019

Accumulated othercomprehensive income
or losses be reclassified to
profit or loss
Currencytranslation
reserve

Gains/losses
on hedge

Restricted
reserves
appropriatedfrom profit

215,704
488,881(4,075,609)(21,514,335)

1,031,613
13,473-

704,585(25,589,944)

704,585
791,754

1,496,339

87

Accumulated profits
Net gains/ Attributable to(loss) for the equity holders Non-controllinginterests
year of the company

Shareholder’sequity(458,741,662)
7,446,385-

6,906,865(6,906,865)(23,387,670)

327,126,209
437,662-

327,126,209
437,662

1,045,086(451,295,277)(23,387,670)

327,563,871-

327,563,871(25,589,944)
25,589,944

1,045,086-(451,295,277)
21,183,996(1,849,845)-(23,387,670)
23,387,670
18,024,512

327,563,871
300,613,313(1,849,845)
42,837,571(7,909,014)
2,279,525

327,563,871
300,613,313(9,758,859)
45,117,096-

1,045,086(431,961,126)

18,024,512

669,164,910(5,629,489)

663,535,421

Prior year’s
losses88

KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE PERIOD 1 JANUARY – 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

AuditedCurrent Year
1 January31 December 2019

AuditedPrior Year
1 January31 December 2018(19,224,079)
20,304,037
275,375,611
60,814,437
2,481,629
2,079,935
401,694
50,000,014
11,979,240
38,020,774
172,423,444(25,181,733)
197,605,177
74,296,137(11,128,266)(11,128,266)
4,421,510(77,933,294)

47,702,860(23,387,670)
232,704,127
53,083,445
5,316,616
4,046,089
1,270,527
40,157,454
7,773,348
32,384,106
87,871,232(38,401,482)
126,272,714
118,053,998(55,607,375)
6,503,410(62,110,785)(13,715,287)(2,455,956)(286,116,450)(244,386,701)(193,940,630)(50,446,071)
75,152,633
1,317,849(60,685,893)(11,263,639)(49,422,254)(57,514,338)(142,410,210)(69,604,954)(157,879,371)
88,274,417(75,769,116)(70,468,774)
57,279,096
16,006,024
41,273,072
16,153,538

9,563,198
22,577,691(25,649,392)(1,736,905)(3,708,302)(20,270,369)

66,906,247
24,867,532(16,374,541)(1,481,297)(1,041,102)(25,173,979)

55,397,873(68,417,145)

146,728,083(32,652,514)(13,567,584)
2,604,042(47,714,154)

6,822,844(43,593,507)(7,499,180)
2,924,399(27,071,701)(70,429,619)
716,939,433(839,181,787)(22,911,054)
300,613,313(67,000,000)(158,889,524)

86,752,842
437,199,411(233,230,624)(6,272,926)(20,000,000)(90,943,019)(34,255,825)

66,038,557

Foreign Exchange Translation Differences Impact On Cash and Cash Equivalents(1,274,370)

488,881

INCREASE IN CASH AND CASH EQUIVALENTS(35,530,195)

66,527,438

Notes
CASH FLOWS FROM OPERATING ACTIVITIESIncome/(Loss) for the period
Adjustments to Reconcile Net Loss For The Period- Adjustments Related to Depreciation and Amortization Expenses- Adjustments Related to Provision for Impairment Loss
- Adjustments Related to Impairment on Receivables- Adjustments Related to Impairment on Inventories- Adjustments Related to Provisions- Adjustments Related to Provisions For Providing Benefits to Employees- Adjustments Related to Other Provisions- Adjustments Related to Interest (Income) and Expenses- Adjustments Related to Interest Income- Adjustments Related to Interest Expense- Adjustments Related to Unrealized Foreign Currency Translation Differences- Adjustments Related to Fair Value Losses- Adjustments Related to Fair Value Losses of Derivative Financial Instruments- Other Adjustments Related to Fair Value Gains- Adjustments Related to Tax Expenses- Adjustments Related to Losses/(Gains) On Sale or Disposal of Fixed Assets

2.4-11-12
6-21-22
9
17
15
22-23
22-25

25
30
27
23

Changes In Working Capital- Adjustments Related to (Increase)/Decrease in Trade Receivables- Increase in Trade Receivables From Related Parties- (Increase)/Decrease in Trade Receivables From Third Parties- Adjustments Related to Decrease/(Increase) in Inventories- Increase in Other Receivables- Adjustments Related to (Decrease)/Increase in Trade Payables- (Decrease)/Increase in Trade Payables Due to Related Parties- (Decrease)/Increase in Trade Payables Due to Third Parties- (Decrease)/Increase in Other Payables
Cash Generated from Operations- Interest Received- Interest Paid
- Employment Benefits Paid
- Income Taxes Paid
- Other Cash Outflow

22
22
17
27
15

CASH FLOWS FROM INVESTING ACTIVITIES- Proceeds on Disposal of Property, Plant and Equipment and Intangible Assets- Payments for Purcahse of Property, Plant and Equipment- Payments for Purchase of Intangible Assets- Interest Received- Cash Outflows for Acquisition of Shares In Other Entities
CASH FLOWS FROM FINANCE ACTIVITIES- Cash Inflow from Loan
- Cash Outflow for Repayment of Loan
- Cash Outflow for Leases from Financial Leasing Transactions- Capital Increase- Cash Outflows from Issued Borrowing Instruments Payments- Interest Paid

11
12
23
30

19

NET INCREASE IN CASH AND CASH EQUIVALENTS BEFORE THE EFFECT OF FOREIGNCURRENCY TRANSLATION DIFFERENCESCASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD

35

82,769,148

16,241,710

CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD

35

47,238,953

82,769,148

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

KARSAN Annual Report 201989

KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

1. ORGANIZATION AND OPERATIONS OF THE GROUP
Karsan Otomotiv Sanayii ve Ticaret A.Ş. (“the Company”) is incorporated in Bursa, Turkey. The address of its registered office andprincipal place of business is Hasanağa Organize Sanayi Bölgesi (HOSAB), Sanayi Caddesi, 16225, Nilüfer-Bursa.
Related Group: Kıraça Holding A.Ş.
Registered Stock Exchange: Borsa İstanbul (BIST) Stars
The Company has been established to build any kind of vehicle assembly and bodywork facilities, purchasing and/or participatingin the already established facilities, importing vehicles for bodywork manufacturing and producing and selling any kind of vehicle
bodywork in Turkey. The activities of the Company are to produce, import and export motor vehicles to automotive brands.
Moreover, the Company provides industrial services to automotive companies.
The Group’s business segments in continuing operations and reporting details in accordance with geographic segments arepresented on Note 4.
As of 31 December 2019, the average personnel number of the Group is 1,088 (31 December 2018: 1,061).
The immediate parent and ultimate controlling party of the Group is Kıraça Holding A.Ş.
The details about companies’ subsidiaries, associates and joint ventures are below:
Subsidiaries

Traded stock market

Activity Type

Karsan İç ve Dış Ticaret A.Ş.
Karsan Europe S.R.L.
Karsan USA LLC (*)
Hervouet Corporate Industry (HCI) (**)
Hervouet Corporate Lease (HCL) (**)-

Sales marketing
Sales marketing
Sales marketing
Sales marketing
Sales marketing

Karsan Otomotiv founded a company on 26 April 2010, based in New York, US, with the trade name Karsan USA LLC that is wholly owned by the Company and does
not require a capital transfer during foundation process, in order to maintain the regular processes with local authorities, regarding the project of taxi model. There wasno capital transfer to the Company and as the Company is inactive, has not been included in consolidated financial statements.

(*)

The Entity, within the framework of the objective of increasing the competitiveness and efficiency in the foreign markets, in order to increase its market share in
France and participate in public tenders, acquired 2,400 shares of TL 4,515,280 (EUR 700,000) nominal value, with a 50% share in the capital of the French distributor
Hervouet Corporate Industry. The first capital payment of TL 2,652,640 (EUR 400,000) was made on 17 June 2019 and the second capital payment of TL 1,862,640(EUR 300,000) was made on 31 July 2019.

(**)

Participations

Traded stock market

Karsan Otomotiv Sanayi Mamulleri
Pazarlama A.Ş. (“Karsan Pazarlama”)
Maas Global OY (*)
Industria Italiana Autobus S.p.A. (IIA) (**)-

Activity Type
Sale and
distributor
Transportation solutions
Bus production,
distribution andmarketing

The Company has contributed to capital increase of Maas Global in 2018 that already have 10.03% of shares with amount of 903,118 Euro. After this participation the
Company’s share in the MaaS Global OY unchanged and continued at 10.03%.

(*)

As of 12 December 2018, the Entity participated in the capital of Industria Italiana Autobus (“IIA”), which produced the Menarinibus brand vehicles, with a price ofTL 21,882,749 (EUR 3,629,642) and its share of partnership increased from 5% to 70%. On the other hand, in the IIA General Assembly held on 29 January 2019,as a result of the Italian state institution INVITALIA S.P.A. used proportionally the right to increase capital, the Entity’s share in IIA decreased to 28.59%. The Entity
participated in the capital increase made in 2019 at the price of EUR 8,295,024 and increased the total investment amount in the capital of IIA from EUR 5,129,642 (TL
26,926,649) to EUR 11,924,666 (TL 78,634,649). As stated in TAS 28, while applying the equity method by the entity, the most up-to-date financial statements of thesubsidiary are used. With the valuation of the financial statements by an independent valuation firm of the Industria Italiana Autobus company, where 28.59% sharepurchase process of Karsan Otomotiv was completed on 22 April 2019, the goodwill amount temporarily held in the consolidated financial statements of the Company asof 31 December 2019 aimed to be corrected; however, since the valuation process has not been completed until the year-end audit, the temporary goodwill amount of
TL 78,634,649 has been continued to be carried in the financial statements.

(**)

90

KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

1. ORGANIZATION AND OPERATIONS OF THE GROUP (cont’d)
Dividend distribution:
Listed companies processes their dividend distributions according to the II-19.1 numbered CMB Communique on Dividends whichbecame effective on or after 1 February 2014.
Shareholders distributes their profits within the frame of dividend distribution policies determined by general assembly andaccording to the related regulation by the approval of general assembly. Within the mentioned regulation, minimum rate of
distribution is not determined. Companies distribute their profits according to the predetermined terms in their articles ofincorporation or profit distribution policies.
As a result of the Ordinary General Assembly Meeting on 5 April 2019 it has been decided not to distribute dividend. As there is no
distributable profit, dividend payments are not planned for the current year.
Approval of consolidated financial statements:
Board of Directors has approved the consolidated financial statements and delegated authority for publishing it on 6 March 2020.
General Assembly has the authority to modify the consolidated financial statements.
2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
2.1 Basis of Presentation
Statement of Compliance in TFRS
The accompanying financial statements are prepared in accordance with the requirements of Capital Markets Board (“CMB”)
Communiqué Serial II, No: 14.1 “Basis of Financial Reporting in Capital Markets”, which was published in the Official Gazette
No:28676 on 13 June 2013. The accompanying financial statements are prepared based on the Turkish Financial ReportingStandards and interpretations (“TFRS”) that have been put into effect by the Public Oversight Accounting and Auditing Standards
Authority (“POA”) under Article 5 of the Communiqué.
In addition, the financial statements are presented in accordance with the formats specified in the “Announcement About TFRS
Taxonomy” published by the Public Oversight, Accounting and Auditing Standards Authority (KGK) on 15 April 2019 and the
Financial Statement Examples and User Guide published by the Capital Markets Board (SPK).
The financial statements have been prepared on the historical cost basis except for derivative financial instruments and property,
plant equipment that are measured at revalued amounts or fair values. Historical cost is generally based on the fair value of theconsideration given in exchange for assets.
Currency Used
The individual financial statements of each Group entity are presented in the currency of the primary economic environment inwhich the entity operates (its functional currency). The results and financial position of each entity are expressed in TL, which isthe functional currency of the Company, and the presentation currency for the consolidated financial statements.
Preparation of Financial Statements in Hyperinflationary Economies
In accordance with the communique issued by CMB, for companies that operate in Turkey and prepare their financial statements
applying Turkish Accounting Standards, it is decided not to apply inflation accounting from 1 January 2005 which is published on 17
March 2005 numbered 11/367. Accordingly, as of 1 January 2005 No:29 “ Financial reporting in Hyperinflationary Economies” (“TAS29”) was not applied.

91

KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.1 Basis of Presentation (cont’d)Comparative Information and Reclassification of Prior Period Consolidated Financial Statements
Consolidated financial statements of the Group have been prepared comparatively with the prior period in order to give information
about financial position and performance. In order to maintain consistency with current year consolidated financial statements,
comparative information is reclassed and significant changes are disclosed if necessary. In the current year, the Group has
also made some reclassifications in the prior year’s consolidated financial statements. The nature, reason and the amounts ofreclassification are described below:-- The Group has presented factoring liability amounting to TL 1,157,754 in “Trade Payables” in the consolidated statement offinancial position at 31 December 2018. In the current year, the Group management has reclassified these factoring liability
under “Short-term Borrowings”
The Group also restated the opening financial statements as of 1 January 2019, based on the accounting policy changes stated in
Note 2.4. The effect of these changes is disclosed in Note 2.4.
Going Concern Assumption
The consolidated financial statements of the Group are prepared on a going concern basis, which presumes the realization ofassets and settlement of liabilities in the normal course of operations and in the next one year.
As at 31 December 2019, current liabilities excess current assets with amount of TL 75,692,221 and accumulated loss amounting
TL 431,961,126. Excluding the sales profit of TL 80,142,251 resulting from the sales of the TL 64,857,749 net book valued factoryof the Group located in Bursa Organized Industrial Zone to Kök Ziraat Turizm Sanayi ve Ticaret for TL 145,000,000, period loss is TL
59,838,214. Although these issues indicate the existence of uncertainties on the continuity of the enterprise, the Company does
not have any difficulty in finding funds from the money market. In addition, parent company Kıraça Holding A.Ş., has committed toprovide necessary support for the Company to continue its activities and fulfill its financing obligations through credit or capital.
The Company management plans to convert its loans within its short-term liabilities into long-term loans through loan refinancing
or bond issuance. In addition, the Company has generated operating profit of TL 257,984,267 as of 31 December 2019. The
Company Management expects an increase in net profitability with the reduction in the financing burden as well as the operating
profitability in budget and forecasting activities. Therefore, a risk to the net working capital related to the continuity of theenterprise is not foreseen by the Company management.
Basis of Consolidation
The details of the Company’s subsidiaries at 31 December 2019 and 31 December 2018 are as follows:

Name of company

Place of incorporationand operation

Functional
currency

Karsan İç ve Dış Ticaret A.Ş.
Karsan USA LLC (*)
Karsan Europe S.R.L.
Hervouet Corporate Industry (HCI)
Hervouet Corporate Lease (HCL)

Sales and Marketing
Sales and Marketing
Sales and Marketing
Sales and Marketing
Sales and Marketing

Turkish Lira
US Dollar
Euro
Euro
Euro

(*)

Proportion of ownershipinterest and voting power heldby the Group (%)
31 December
31 December
2019
2018
100%
100%
100%
50%
50%

As explained in detail in Note 1, it is not included in the financial statements for the year ended 31 December 2019 by full consolidation method.

100%
100%
100%
-

92

KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.1 Basis of Presentation (cont’d)
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by theCompany and its subsidiaries. Control is achieved when the Company:-- has power over the investee;-- is exposed, or has rights, to variable returns from its involvement with the investee; and-- has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one
or more of the three elements of control listed above.
When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting
rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company
considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient
to give it power, including:-- the size of the Company’s holding of voting rights relative to the size of holdings of the other vote holders;-- potential voting rights held by the Company, other vote holders or other parties;-- rights arising from other contractual arrangements; and-- any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct therelevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses
control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in
the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until thedate when the Company ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the noncontrolling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the noncontrolling interests even if this results in the non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with
the Group’s accounting policies.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of theGroup are eliminated in full on consolidation.
Changes in the Group’s ownership interests in existing subsidiaries
Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries
are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests areadjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the
non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity andattributed to owners of the Company.
When the Group loses control of a subsidiary, a gain or loss is recognized in profit or loss and is calculated as the difference
between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the
previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests.
All amounts previously recognized in other comprehensive income in relation to that subsidiary are accounted for as if the Group
had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to anothercategory of equity as specified/permitted by applicable TFRS). The fair value of any investment retained in the former subsidiary at
the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under TFRS 9 “Financial
instruments”, when applicable, the cost on initial recognition of an investment in an associate or a joint venture.

KARSAN Annual Report 201993

KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.1 Basis of Presentation (cont’d)Investments in Associates
The details of the Group’s investment in associates at 31 December 2019 and 31 December 2018 are as follows:

Name of company
Karsan Otomotiv Sanayi Mamulleri
Pazarlama A.Ş. (“Karsan Pazarlama”)
Maas Global OY
Industria Italiana Autobus S.p.A. (IIA)

Place of incorporation andoperation

Functional
currency

Distributor
Transportation solutions
Bus production, distribution andmarketing

Turkish Lira
Euro
Euro

Proportion of ownershipinterest and voting power heldby the Group (%)
31 December
31 December
2019
2018
25%
10.03%
28.59%

25%
10.03%
70%

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in thefinancial and operating policy decisions of the investee but is not control or joint control over those policies.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assetsof the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when
decisions about the relevant activities require unanimous consent of the parties sharing control.
The results and assets and liabilities of associates or joint ventures are incorporated in these consolidated financial statements
using the equity method of accounting, except when the investment, or a portion thereof, is classified as held for sale, in whichcase it is accounted for in accordance with TFRS 5. Under the equity method, an investment in associate or a joint venture is initiallyrecognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Group’s share of the
profit or loss and other comprehensive income of the associate or a joint venture. When the Group’s share of losses of an associate
or a joint venture exceeds the Group’s interest in that associate or a joint venture (which includes any long-term interests that, in
substance, form part of the Group’s net investment in the associate or a joint venture), the Group discontinues recognizing its shareof further losses. Additional losses are recognized only to the extent that the Group has incurred legal or constructive obligations
or made payments on behalf of the associate or a joint venture.
Profits and losses resulting from the transactions with the associate or joint venture are eliminated in the Group’s consolidated
financial statements only to the extent of interests in the associate or joint venture that are not related to the Group.
2.2 Changes in Accounting Policies
Significant changes in accounting policies have been applied retrospectively and prior period consolidated financial statements arerestated. In current year, Group has made some changes in its accounting policies as a result of amendments in standards. Detailsof these changes are shown under Note 2.4 clause.
2.3 Changes in Accounting Estimates and Errors
If changes in accounting estimates and errors are for only one period, changes are applied in the current year but if the estimatedchanges affect the following periods, changes are applied both on the current and following years prospectively. In the current
year, there are not any material errors and changes in accounting estimate methods of the Group.

94

KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.4 New and Amended Turkish Financial Reporting Standardsa) Amendments that are mandatorily effective from 2019 year
TFRS 16
TFRS Interpretation 23
Amendments to TAS 28
Amendments to TAS 19 Employee Benefits
Annual Improvements to TFRS
Standards 2015–2017 Cycle

Leases
Uncertainty over Income Tax Treatments
Long‑term Interests in Associates and Joint Ventures
Plan Amendment, Curtailment or Settlement
Amendments to TFRS 3 Business Combinations,
TFRS 11 Joint Arrangements, TAS 12 Income Taxes and TAS 23 Borrowing Costs

TFRS 16 Leases
General impact of application of TFRS 16 Leases
TFRS 16 provides a comprehensive model for the identification of lease arrangements and their treatment in the financial
statements for both lessors and lessees. TFRS 16 supersedes the current lease guidance including TAS 17 Leases and the relatedInterpretations for accounting periods beginning on or after 1 January 2019. The date of initial application of TFRS 16 for the Groupis 1 January 2019 retrospectively taking into account the cumulative effect in the financial statements.
In contrast to lessee accounting, TFRS 16 substantially carries forward the lessor accounting requirements in TAS 17.
Impact of the new definition of a lease
The Group made use of the practical expedient available on transition to TFRS 16 not to reassess whether a contract is or contains
a lease. Accordingly, the definition of a lease in accordance with TAS 17 and TFRS Interpretation 4 continue to apply to those leases
entered or modified before 1 January 2019.
The change in definition of a lease mainly relates to the concept of control. TFRS 16 distinguishes between leases and service
contracts on the basis of whether the use of an identified asset is controlled by the customer. Control is considered to exist if thecustomer has:-- The right to obtain substantially all of the economic benefits from the use of an identified asset; and-- The right to direct the use of that asset.
The Group applied the definition of a lease and related guidance set out in TFRS 16 to all lease contracts entered into or modified
on or after 1 January 2019 (whether it is a lessor or a lessee in the lease contract).
Impact on Lessee Accounting
Operating leases
TFRS 16 changes how the Group accounts for leases previously classified as operating leases under TAS 17, which were
off‑balance sheet.
On initial application of TFRS 16, for all leases (except as noted below), the Group has:a) Recognised right‑of‑use assets and lease liabilities in the consolidated statement of financial position, initially measured at thepresent value of the future lease payments;b) Recognised depreciation of right‑of‑use assets and interest on lease liabilities in the consolidated statement of profit or loss;c) Separated the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented
within operating activities) in the consolidated cash flow statement.

KARSAN Annual Report 201995

KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.4 New and Amended Turkish Financial Reporting Standards (cont’d)
TFRS 16 Leases (cont’d)
Impact on Lessee Accounting (cont’d)
Lease incentives (e.g. rent‑free period) are recognised as part of the measurement of the right‑of‑use assets and lease liabilities
whereas under TAS 17 they resulted in the recognition of a lease liability incentive, amortised as a reduction of rental expenses ona straight‑line basis.
Under TFRS 16, right‑of‑use assets are tested for impairment in accordance with TAS 36 Impairment of Assets. This will replace theprevious requirement to recognise a provision for onerous lease contracts.
For short‑term leases (lease term of 12 months or less) and leases of low‑value assets, the Group opted to recognise a lease
expense on a straight‑line basis as permitted by TFRS 16.
As at 1 January 2019, the impact of TFRS 16 on the financial statements of the Group is disclosed in “the effects of accounting
policy amendments” note.
Finance leases
The main differences between TFRS 16 and TAS 17 with respect to assets formerly held under a finance lease is the measurementof the residual value guarantees provided by the lessee to the lessor. TFRS 16 requires that the Group recognises as part ofits lease liability only the amount expected to be payable under a residual value guarantee, rather than the maximum amount
guaranteed as required by TAS 17. On initial application, the Group will present equipment previously included in property, plant andequipment within the line item for right‑of‑use assets and the lease liability, previously presented within borrowing, is presented ina separate line for lease liabilities.
TFRS Interpretation 23 Uncertainty over Income Tax Treatments
This interpretation addresses the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits andtax rates, when there is uncertainty over income tax treatments under TAS 12.
Amendments to TAS 28 Long-term Interests in Associates and Joint Ventures
This amendment clarifies that an entity applies TFRS 9 Financial Instruments to long-term interests in an associate or joint venturethat form part of the net investment in the associate or joint venture but to which the equity method is not applied.
Amendments to TAS 19 Plan Amendment, Curtailment or Settlement
The amendments clarify that the past service cost (or of the gain or loss on settlement) is calculated by measuring the defined
benefit liability (asset) using updated assumptions and comparing benefits offered and plan assets before and after the planamendment (or curtailment or settlement) but ignoring the effect of the asset ceiling (that may arise when the defined benefit
plan is in a surplus position).
Annual Improvements to TFRS Standards 2015–2017 Cycle
Annual Improvements to TFRS Standards 2015–2017 Cycle include amendments to TFRS 3 Business Combinations and TFRS
11 Joint Arrangements in when a party that participates in, but does not have joint control of, TAS 12 Income Taxes; income tax
consequences of dividends in profit or loss, and TAS 23 Borrowing Costs in capitalized borrowing costs.
Other than TFRS 16, these standards, amendments and improvements have no impact on the consolidated financial position andperformance of the Group.

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.4 New and Amended Turkish Financial Reporting Standards (cont’d)b) New and revised TFRSs in issue but not yet effective
The Group has not yet adopted the following standards and amendments and interpretations to the existing standards:
TFRS 17
Amendments to TFRS 3
Amendments to TAS 1 and TAS 8
Amendments to TFRS 9, TAS 39 and TFRS 7

Insurance Contracts
Definition of a Business
Definition of MaterialInterest Rate Benchmark Reform

TFRS 17 Insurance Contracts
TFRS 17 requires insurance liabilities to be measured at a current fulfillment value and provides a more uniform measurement andpresentation approach for all insurance contracts. These requirements are designed to achieve the goal of a consistent, principlebased accounting for insurance contracts. TFRS 17 supersedes TFRS 4 Insurance Contracts as of 1 January 2021.
Amendments to TFRS 3 Definition of a Business
The definition of “business” is important because the accounting for the acquisition of an activity and asset group varies
depending on whether the group is a business or only an asset group. The definition of “business” in TFRS 3 Business
Combinations standart has been amended. With this change:-- By confirming that a business should include inputs and a process; clarified that the process should be essential and that theprocess and inputs should contribute significantly to the creation of outputs.
-- The definition of a business has been simplified by focusing on the definition of goods and services offered to customers andother income from ordinary activities.
-- An optional test has been added to facilitate the process of deciding whether a company acquired a business or a group ofassets.
Amendments to TAS 1 and TAS 8 Definition of Material
The amendments in Definition of Material (Amendments to TAS 1 and TAS 8) clarify the definition of ‘material’ and align thedefinition used in the Conceptual Framework and the standards.
Amendments to TFRS 9, TAS 39 and TFRS 7 Interest Rate Benchmark Reform
The amendments clarify that entities would continue to apply certain hedge accounting requirements assuming that the interest
rate benchmark on which the hedged cash flows and cash flows from the hedging instrument are based will not be altered as aresult of interest rate benchmark reform.

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.4 New and Amended Turkish Financial Reporting Standards (cont’d)Financial impact of initial application of TFRS 16
A number of new or amended standards became applicable for the current reporting period, and the Group had to change its
accounting policies and make retrospective adjustments as a result of adopting TFRS 16 Leases. The impact of the adoption of theleasing standard and the new accounting policies are disclosed in this note. The financial statements did not require retrospective
adjustments in line with the first time adoption of TFRS16. The reclassifications and the adjustments arising from the new leasing
rules recognised in the opening balance sheet on 1 January 2019 are as follows:
TL
Operating lease commitments at 31 December 2018
Amount reduced by the lessee’s alternative borrowing interest rate at the first implementation date(Less): short-term leases that are expensed according to the linear method(Less): low value leases that are expensed according to linear method

4,587,069
4,197,768(1,997,551)(494,041)

Lease liabilities recognised at 1 January 2019
Short-term lease liabilities
Long-term lease liabilities

1,706,176
108,438
1,597,738

On adoption of TFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as‘operating leases’ under the principles of TAS 17 Leases. These liabilities were measured at the present value of the remaining
lease payments, discounted using the lessee’s incremental borrowing rate as of 1 January 2019. The weighted average lessee’s
incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 29%.
The recognised right-of-use assets relate to the following types of assets:
31 December 2019

1 January 2019

VehiclesReal estates

371,569
292,3811,340,699
365,477

Total right of use assets

663,950

1,706,176

Amount of 1,094,633 TL depreciation expense regarding the right of use assets is shown in the consolidated financial statements(Note 21).
The change in accounting policy affected the following items in the balance sheet on 1 January 2019:-- Right of use assets – increased by TL 1,706,176-- Lease liabilities – increased by TL 1,706,176
In applying TFRS 16 for the first time, the group has used the following practical expedients permitted by the standard:-- the use of a single discount rate to a portfolio of leases with reasonably similar characteristics-- reliance on previous assessments on whether leases are onerous-- the accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-termleases-- the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application, and-- the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.4 New and Amended Turkish Financial Reporting Standards (cont’d)Financial impact of initial application of TFRS 16 (cont’d)
The Group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, forcontracts entered into before the transition date the Group relied on its assessment made applying TAS 17 and TFRS Interpretation 4.
2.5 Summary of Significant Accounting Policies
Related Parties
A related party is a person or entity that is related to the entity that is preparing its financial statements.
a)

A person or a close member of that person’s family is related to a reporting entity if that person:(i) has control or joint control over the reporting entity;(ii) has significant influence over the reporting entity; or(iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.

Revenue from the sale of goods is recognized as soon as all of the following conditions are met:b)

An entity is related to a reporting entity if any of the following conditions applies:(i)

The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow
subsidiary is related to the others).

(ii)

One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group ofwhich the other entity is a member).

(iii) Both entities are joint ventures of the same third party.
(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
(v)

The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity
related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to thereporting entity.

(vi) The entity is controlled or jointly controlled by a person identified in (a).
(vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel ofthe entity (or of a parent of the entity).
A related party transaction is a transfer of resources, services or obligations between a reporting entity and a related party,
regardless of whether a price is charged.
RevenueGroup recognises revenue based on the following five principles:-- Identification of customer contracts-- Identification of performance obligations-- Determination of the transaction price in the contracts-- Allocation of transaction price to the performance obligations-- Recognition of revenue when the performance obligations are satisfied
Group evaluates each contracted obligation separately and respective obligations, committed to deliver the distinct goods or
perform services, are determined as separate performance obligations.

KARSAN Annual Report 201999

KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.5 Summary of Significant Accounting Policies (cont’d)
Revenue (cont’d)Group determines at contract inception whether the performance obligation is satisfied over time or at a point in time for every
performance obligation. When the Group transfers control of a good or service over time, and therefore satisfies a performanceobligation over time, then the revenue is recognised over time by measuring the progress towards complete satisfaction of that
performance obligation.
When a performance obligation is satisfied by transferring promised goods or services to a customer, the Group recognises
the revenue as the amount of the transaction price that is allocated to that performance obligation. The goods or services aretransferred when the control of the goods or services is delivered to the customers.
Following indicators are considered while evaluating the transfer of control of the goods and services:-- presence of Group’s collection right of the consideration for the goods or services,-- customer’s ownership of the legal title on goods or services,-- physical transfer of the goods or services,-- customer’s ownership of significant risks and rewards related to the goods or services,-- customer’s acceptance of goods or services.
If Group expects, at contract inception, that the period between when the Group transfers a promised good or service to acustomer and when the customer pays for that good or service will be one year or less, the promised amount of consideration for
the effects of a significant financing component is not adjusted. On the other hand, when the contract effectively constitutes afinancing component, the fair value of the consideration is determined by discounting all future receipts using an imputed rate ofinterest. The difference between the fair value and the nominal amount of the consideration is recognised on an accrual basis asother operating income.
Vehicle sales within the scope of Hyundai Motor Company (“HMC”) project
The Group recognizes the revenue related with HMC project to the financial statements as HMC product acceptance procedures
are completed and vehicles are delivered to HMC or HMC’s related parties. Additionally, the Group has the right to demandcompensation from HMC in accordance of number of yearly production stays under the determined number in the contract. The
Group calculates the amount of compensation based on the criteria determined in the contract and accounts for as accrued income
within the scope of TFRS 15 in consolidated financial statements (Note 6).
Sales of Karsan brand vehicles
The Group recognizes the revenue from its brand vehicles in financial statements when the risks and the rewards have beentransferred to the dealers.
Revenue from extended warranty and maintenance service sales
The Group sells warranty and maintenance services for the period starting from the end of the statutory periods required by thelaw for its products. The price of additional commitments is considered as a different service that is committed in the contract
separately from the products sold. For this reason, the Group is accounted for as a separate performance obligation due toextended warranty sales and maintenance services.
Bus Sales (Tenders)
The Group recognizes the revenue from the public tenders (municipality) when the buses are delivered. The Group provides theservice of repair and maintenance in the following 5 years of the sale. Related to the cost of services, provisions for repair andmaintenance is accounted for simultaneously with the revenue.

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.5 Summary of Significant Accounting Policies (cont’d)
Revenue (cont’d)Finance sector operations
Finance sector operations include the financial leasing transactions where the Group is the lessee according to the TFRS
16-“Leases”.
The Group has evaluated the signed contract conditions within “TFRS 4- Determining whether an agreement contains leasetransaction”. In this scope;(a) Fulfilment of the terms of the agreement depends on the investments being financed by the Group.
(b) The agreement has transferred the right to use to HMC.
(c) The right of control over the products produced by an investment has been fully transferred to HMC.
(d) Lease payments to be made for investment is separated from the other payments under the agreement.
In conclusion, the Group has classified the related investments as financial leasing transactions where all the risks belong to HMC.
Leased assets are tracked in the financial statements as a receivable equal to the net lease investment in financial leasing. Income
related to leasing is determined to bring a constant periodic return on the net investment. Lease payments to reduce the principal
and the unearned finance charges are deducted from the gross amount of the lease investments (Note 7). Unearned financeincome is the difference between gross investments in lease rental on the implied interest rate on the present value of grossinvestment. Implied interest rate, at the inception of the lease, the minimum lease payments and guaranteed residual values havenot been total, the reality is the fair value of the leased asset and the discount rate that equates to the sum of the initial cost.
Rental period projected sales revenues in the financial statements at the beginning of the fair value of the asset, or, as calculated
in the case of market interest rates, provided it is below this value and to be received by the lessor is the present value of theminimum lease payments. The cost of sale recognized at the inception of the lease is the cost of the leased asset. The difference
between the sales revenue and sales cost is the sales profit.
Dividend and interest income:
Dividend income from investments is recognized when the shareholder’s right to receive payment has been established (provided
that it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably).
Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Group and theamount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding
and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the
expected life of the financial asset to that asset’s net carrying amount on initial recognition.
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, with the
majority being valued on a weighted average basis. Net realizable value represents the estimated selling price less all estimatedcosts of completion and costs necessary to make the sale. When the net realizable value of inventory is less than cost, theinventory is written down to the net realizable value and the expense is included in statement of profit or loss in the period thewrite-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, theamount of the write-down is reversed. The reversal amount is limited to the amount of the original write-down.

KARSAN Annual Report 2019101

KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.5 Summary of Significant Accounting Policies (cont’d)
Property, Plant and Equipment
Fair Value Method
Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in
the consolidated statement of financial position at their revalued amounts, being the fair value at the date of revaluation, lessany subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations are performed with
sufficient regularity such that the carrying amounts do not differ materially from those that would be determined using fairvalues at the end of each reporting period. The Group has adopted “revaluation model” for land and property, plant and equipment
effective from March 2009 and for buildings from May 2015. The Group has made the latest valuation for the land and buildings on
10 December 2018.
Any revaluation increase arising on the revaluation of such land and buildings is recognized in other comprehensive income andaccumulated in equity, 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 expensed. A decreasein the carrying amount arising on the revaluation of such land and buildings is recognized in 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.
Properties in the course of construction for production, supply or administrative purposes are carried at cost, less any recognizedimpairment loss. Cost includes professional fees. Such properties are classified to the appropriate categories of property, plant andequipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets,commences when the assets are ready for their intended use.
Depreciation on revalued buildings is charged to profit or loss. On the subsequent sale or retirement of a revalued property, theattributable revaluation surplus remaining in the properties revaluation reserve is transferred directly to retained earnings.
Depreciation is recognized so as to write off the cost or valuation of assets, other than freehold land and properties underconstruction, less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual
values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate
accounted for on a prospective basis.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. However,when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated overthe shorter of the lease term and their useful lives.
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected toarise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant andequipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in
profit or loss.

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.5 Summary of Significant Accounting Policies (cont’d)
LeasesThe Group as Lessee
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use
asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-termleases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For these leases, the Group
recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless anothersystematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement
date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental
borrowing rate.
Lease payments included in the measurement of the lease liability comprise:-- fixed lease payments (including in-substance fixed payments), less any lease incentives;-- variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;-- the amount expected to be payable by the lessee under residual value guarantees;-- the exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and-- payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.
The lease liability is presented as a separate line in the consolidated statement of financial position. The lease liability issubsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest
method) and by reducing the carrying amount to reflect the lease payments made. The Group remeasures the lease liability (andmakes a corresponding adjustment to the related right-of-use asset) whenever:-- the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the leaseliability is remeasured by discounting the revised lease payments using a revised discount rate.
-- the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual
value, in which cases the lease liability is remeasured by discounting the revised lease payments using the initial discount rate(unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).
-- a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability isremeasured by discounting the revised lease payments using a revised discount rate at the effective date of the modification
The Group did not make any such adjustments during the periods presented.
The right of use assets include the first measurement of the corresponding lease liability, lease payments made before or before
the lease actually starts, and other direct initial costs. These assets are subsequently measured at cost by deducting accumulated
depreciation and impairment losses.
A provision is recognized in accordance with TAS 37 in cases where the group is exposed to the costs required to disassemble andeliminate a lease asset, to restore the area on which the asset is located, or to restore the main asset in accordance with the terms
and conditions of the lease. These costs are included in the relevant right of use assets, unless they are used for stock production.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a leasetransfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise apurchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts
at the commencement date of the lease.
The right-of-use assets are presented as a separate line in the consolidated statement of financial position.

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KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.5 Summary of Significant Accounting Policies (cont’d)
Leases (cont’d)
The Group as Lessee (cont’d)
The Group applies TAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as
described in the ‘Property, Plant and Equipment’ policy.
Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability and the right-ofuse asset. The related payments are recognised as an expense in the period in which the event or condition that triggers thosepayments occurs and are included in ‘Other expenses’ in profit or loss.
As a practical expedient, TFRS 16 permits a lessee not to separate non-lease components, and instead account for any lease andassociated non-lease components as a single arrangement. The Group has not used this practical expedient.
Leasing Policy Applied Until 31 December 2018
Finance Lease
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards ofownership to the lessee. All other leases are classified as operating leases.
Lease - The Group as Lessee
Assets held under finance leases are initially recognized as assets of the Group at their fair value at the inception of the lease or, if
lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated
statement of financial position as a finance lease obligation.
Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rateof interest on the remaining balance of the liability. Finance expenses are recognized immediately in profit or loss, unless they
are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Group’s general policy on
borrowing costs. Contingent rentals are recognized as expenses in the periods in which they are incurred.
Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where anothersystematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred.
Intangible Assets
Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization andaccumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimateduseful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate
being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried atcost less accumulated impairment losses (1-20 years).

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.5 Summary of Significant Accounting Policies (cont’d)Intangible Assets (cont’d)Computer software
Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specificsoftware. These costs are amortized over their estimated useful lives (1-20 years).
Costs associated with developing or maintaining computer software programmes are recognized as an expense as incurred. Costs
that are directly associated with the development of identifiable and unique software products controlled by the Group, and thatwill probably generate economic benefits exceeding costs beyond one year, are recognized as intangible assets. Costs include thesoftware development employee costs and an appropriate portion of relevant overheads.
Internally-generated intangible assets – research and development expenditure
Capitalized development costs for the improvement of vehicles produced consists of expenditure incurred by the company.
Intangible assets created within the business providing future economic benefits where possible to the Group are capitalized at
cost
Expenditure on research activities is recognized as an expense in the period in which it is incurred.
An internally-generated intangible asset arising from development (or from the development phase of an internal project) is
recognized if, and only if, all of the following have been demonstrated:-- The technical feasibility of completing the intangible asset so that it will be available for use or sale;-- The intention to complete the intangible asset and use or sell it;-- The ability to use or sell the intangible asset;-- How the intangible asset will generate probable future economic benefits;-- The availability of adequate technical, financial and other resources to complete the development and to use or sell theintangible asset; and-- The ability to measure reliably the expenditure attributable to the intangible asset during its development
The amount initially recognized for internally-generated intangible assets is the sum of the expenditure incurred from the datewhen the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can berecognized, development expenditure is recognized in profit or loss in the period in which it is incurred.
Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortization andaccumulated impairment losses, on the same basis as intangible assets that are acquired separately.
Derecognition of intangible assets
An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains orlosses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and thecarrying amount of the asset, are recognized in profit or loss when the asset is derecognized.

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KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.5 Summary of Significant Accounting Policies (cont’d)
Impairment of Tangible and Intangible Assets Other Than Goodwill
At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible toestimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating
unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also
allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units forwhich a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least
annually, and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value lesscosts to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using
a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying
amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately
in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as arevaluation decrease.
When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to therevised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount thatwould have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A
reversal of an impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount,in which case the reversal of the impairment loss is treated as a revaluation increase.
Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets thatnecessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until
such time as the assets are substantially ready for their intended use or sale.
When the Group borrows funds specifically for the purpose of the qualifying assets, the amount of borrowing costs eligible forcapitalization is the actual borrowing costs incurred on that borrowing during the period less any investment income on thetemporary investment of those borrowings. The capitalization rate is the weighted average of the borrowing costs applicable tothe borrowings of the entity that are outstanding during the period, other than borrowings made specifically for the purpose ofobtaining a qualifying asset.
Borrowing costs amounting to TL 7,611,274 relating to the loans used have been capitalized in the accounting period ending as of
31 December 2019 are capitalized (31 December 2018: TL 30,688,036). The capitalization rate used to calculate the amount of
capitalization is 23.5% (2018: 22.39%). All other borrowing costs are recognized in the statement of profit or loss in the period inwhich they are incurred.
Financial instruments
Financial assets and financial liabilities are recognised in the Group’s statement of financial position when the Group becomes aparty to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value.
Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other thanfinancial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of thefinancial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisitionof financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

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AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.5 Summary of Significant Accounting Policies (cont’d)Financial instruments (cont’d)Financial assets
All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis.
The Group classifies its financial assets as (a) Business model used for managing financial assets, (b) financial assets subsequently
measured at amortised cost, at fair value through other comprehensive income or at fair value through profit or loss based on thecharacteristics of contractual cash flows. The Company reclassifies all financial assets effected from the change in the businessmodel it uses for the management of financial assets. The reclassification of financial assets is applied prospectively from thereclassification date. In such cases, no adjustment is made to gains, losses (including any gains or losses of impairment) or interest
previously recognized in the financial statements.
Classification of financial assets
Debt instruments that meet the following conditions are measured subsequently at amortised cost:-- the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash
flows; and-- the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal andinterest on the principal amount outstanding.
Debt instruments that meet the following conditions are measured subsequently at fair value through other comprehensive
income (FVTOCI):-- the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows andselling the financial assets; and-- the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal andinterest on the principal amount outstanding.
By default, all other financial assets are measured subsequently at fair value through profit or loss (FVTPL).
Despite the foregoing, the Group may make the following irrevocable election at initial recognition of a financial asset; the Groupmay irrevocably elect to present subsequent changes in fair value of an equity investment in other comprehensive income if
certain criteria are met.
(i) Amortised cost and effective interest method
Interest income on financial assets carried at amortized cost is calculated using the effective interest method. The effective
interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the
relevant period. This income is calculated by applying the effective interest rate to the gross carrying amount of the financial asset:(a) Credit-impaired financial assets when purchased or generated. For such financial assets, the Company applies the effective
interest rate on the amortized cost of a financial asset based on the loan from the date of the recognition in the financial
statements.
(b) Non-financial assets that are impaired at the time of acquisition or generation but subsequently become a financial asset thathas been impaired. For such financial assets, the Company applies the effective interest rate to the amortized cost of the asset
in the subsequent reporting periods.
Interest income is recognised using the effective interest method for debt instruments measured subsequently at amortised costand at FVTOCI.

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AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.5 Summary of Significant Accounting Policies (cont’d)Financial instruments (cont’d)Financial assets (cont’d)Classification of financial assets (cont’d)(i) Financial assets at FVTPL
Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI are measured at FVTPL.
Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses
recognised in profit or loss to the extent they are not part of a designated hedging relationship (see hedge accounting policy).
Foreign exchange gains and losses
The carrying amount of financial assets that are denominated in a foreign currency is determined in that foreign currency andtranslated at the spot rate at the end of each reporting period. Specifically,-- for financial assets measured at amortised cost that are not part of a designated hedging relationship, exchange differences arerecognised in profit or loss in the ‘other gains and losses’ line item ;-- for debt instruments measured at FVTOCI that are not part of a designated hedging relationship, exchange differences on theamortised cost of the debt instrument are recognised in profit or loss in the ‘other gains and losses’ line item;. Other exchange
differences are recognised in other comprehensive income in the investments revaluation reserve;-- for financial assets measured at FVTPL that are not part of a designated hedging relationship, exchange differences arerecognised in profit or loss in the ‘other gains and losses’ line item; and-- for equity instruments measured at FVTOCI, exchange differences are recognised in other comprehensive income in theinvestments revaluation reserve.
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses on investments in debt instruments that are measured atamortised cost or at FVTOCI, lease receivables, trade receivables and contract assets, as well as financial guarantee contracts. No
impairment loss is recognised for investments in equity instruments. The amount of expected credit losses is updated at eachreporting date to reflect changes in credit risk since initial recognition of the respective financial instrument.
The Group utilizes a simplified approach for trade receivables, contract assets and lease receivables that does not have significant
financing component and calculates the allowance for impairment against the lifetime ECL of the related financial assets.
For all other financial instruments, the Group recognises lifetime ECL when there has been a significant increase in credit risk sinceinitial recognition. However, if the credit risk on the financial instrument has not increased significantly since initial recognition, theGroup measures the loss allowance for that financial instrument at an amount equal to 12-month ECL.

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.5 Summary of Significant Accounting Policies (cont’d)Financial instruments (cont’d)Financial assets (cont’d)
Measurement and recognition of expected credit losses
The measurement of expected credit losses is a function of the probability of default, loss given default (i.e. the magnitude of theloss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is basedon historical data adjusted by forward-looking information as described above. As for the exposure at default, for financial assets,
this is represented by the assets’ gross carrying amount at the reporting date.
For financial assets, the expected credit loss is estimated as the difference between all contractual cash flows that are due to theGroup in accordance with the contract and all the cash flows that the Group expects to receive, discounted at the original effective
interest rate.
Derecognition of financial assets
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it
transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.
On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount and thesum of the consideration received and receivable is recognised in profit or loss. In addition, on derecognition of an investment in a
debt instrument classified as at FVTOCI, the cumulative gain or loss previously accumulated in the investments revaluation reserveis reclassified to profit or loss. In contrast, on derecognition of an investment in equity instrument which the Group has elected on
initial recognition to measure at FVTOCI, the cumulative gain or loss previously accumulated in the investments revaluation reserve
is not reclassified to profit or loss, but is transferred directly to retained earnings.
Financial liabilities
Financial liabilities are classified as at FVTPL on initial recognition. On initial recognition of liabilities other than those that arerecognised at FVTPL, transaction costs directly attributable to the acquisition or issuance thereof are also recognised in the fairvalue.
A financial liability is subsequently classified at amortized cost except:(a) Financial liabilities at FVTPL: These liabilities including derivative instruments are subsequently measured at fair value.
(b) Financial liabilities arising if the transfer of the financial asset does not meet the conditions of derecognition from the financial
statements or if the ongoing relationship approach is applied: When the Group continues to present an asset based on theongoing relationship approach, a liability in relation to this is also recognised in the financial statements. The transferred asset
and the related liability are measured to reflect the rights and liabilities that the Company continues to hold. The transferredliability is measured in the same manner as the net book value of the transferred asset.
(c) A contingent consideration recognized in the financial statements by the entity acquired in a business combination where TFRS
3 is applied: After initial recognition, the related contingent consideration is measured as at FVTPL.
The Company does not reclassify any financial liability.

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AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.5 Summary of Significant Accounting Policies (cont’d)Financial instruments (cont’d)Derecognition of financial liabilities
The Group derecognises financial liabilities only when, the Group’s obligations are discharged, cancelled or have expired. The
difference between the carrying amount of the financial liability derecognised and the consideration paid and payable, including
any non-cash assets transferred or liabilities assumed, is recognised in profit or loss.
Derivative financial instruments
Explanations in detail on derivative financial instruments are stated in Note 29.
Derivatives are recognised initially at fair value at the date a derivative contract is entered into and are subsequently remeasured
to their fair value at each reporting date. The resulting gain or loss is recognised in profit or loss immediately unless the derivativeis designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on thenature of the hedge relationship.
A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised
as a financial liability. Derivatives are not offset in the financial statements unless the Group has both legal right and intention tooffset.. A derivative is presented as a non‑current asset or a non‑current liability if the remaining maturity of the instrument ismore than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current
assets or current liabilities.
Hedge accounting
The Group designates certain derivatives as hedging instruments in respect of foreign currency risk and interest rate risk in fairvalue hedges, cash flow hedges, or hedges of net investments in foreign operations as appropriate. Hedges of foreign exchange
risk on firm commitments are accounted for as cash flow hedges.
At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged
item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the
inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument is effective in offsettingchanges in fair values or cash flows of the hedged item attributable to the hedged risk, which is when the hedging relationships
meet all of the following hedge effectiveness requirements:-- there is an economic relationship between the hedged item and the hedging instrument;-- the effect of credit risk does not dominate the value changes that result from that economic relationship; and-- the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Groupactually hedges and the quantity of the hedging instrument that the entity actually uses to hedge that quantity of hedged item.
If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio but the risk management
objective for that designated hedging relationship remains the same, the Group adjusts the hedge ratio of the hedging relationship(i.e. rebalances the hedge) so that it meets the qualifying criteria again. The Group designates the full change in the fair value ofa forward contract (i.e. including the forward elements) as the hedging instrument for all of its hedging relationships involving
forward contracts.
Note 29 and Note 31 set out details of the fair values of the derivative instruments used for hedging purposes.
Movements in the hedging reserve in equity are detailed in Note 26.

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.5 Summary of Significant Accounting Policies (cont’d)
Business Combinations
The acquisition of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred ina business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets
transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by
the Group in exchange for control of the acquiree. Acquisition-related costs are generally recognized in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value, except that:-- deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are recognized and measuredin accordance with TAS 12 Income Taxes and TAS 19 Employee Benefits respectively;-- liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment
arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured inaccordance with TFRS 2 Share-based Payment at the acquisition date; and-- assets (or disposal groups) that are classified as held for sale in accordance with TFRS 5 Non-current Assets Held for Sale andDiscontinued Operations are measured in accordance with that Standard.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in theacquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisitiondate amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-dateamounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amountof any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any),
the excess is recognized immediately in profit or loss as a bargain purchase gain.
Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net
assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate
share of the recognized amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on atransaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on thebasis specified in another TFRS.
When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from acontingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included aspart of the consideration transferred in a business combination.
Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted
retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise
from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date)
about facts and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement
period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity
is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Other contingent
consideration is measured to fair value at subsequent reporting dates with changes in fair value recognized in profit or loss.
When a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is remeasured tofair value at the acquisition date (i.e. the date when the Group obtains control) and the resulting gain or loss, if any, is recognizedin profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognizedin other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were
disposed of.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination
occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts areadjusted during the measurement period (see above), or additional assets or liabilities are recognized, to reflect new information
obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts
recognized at that date.

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KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.5 Summary of Significant Accounting Policies (cont’d)Goodwill
Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business lessaccumulated impairment losses, if any. For the purposes of impairment testing, goodwill is allocated to each of the Group’s cashgenerating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there isan indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount,the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the otherassets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognizeddirectly in profit or loss in the consolidated statement of profit or loss. An impairment loss recognized for goodwill is not reversed insubsequent periods.
On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit
or loss on disposal.
The Group’s policy for goodwill arising on the acquisition of an associate is described Participations note.
Effect of Foreign Exchange Fluctuations
Foreign Currency Balances and Transactions
The ind ividual financial statements of each Group entity are presented in the currency of the primary economic environment inwhich the entity operates (its functional currency). The results and financial position of each entity are expressed in TL, which isthe functional currency of the Company, and the presentation currency for the consolidated financial statements.
In preparing the financial statements of the individual entities, transactions in currencies other than TL (foreign currencies) arerecorded at the rates of exchange prevailing on the dates of the transactions. At the end of each reporting period, monetary items
denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair valuethat are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined.
Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences are recognized in profit or loss in the period in which they arise except for:-- Exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which
are included in the cost of those assets where they are regarded as an adjustment to interest costs on those foreign currency
borrowings;-- Exchange differences on transactions entered into in order to hedge certain foreign currency risks (see below for hedging
accounting policies); and-- Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither
planned nor likely to occur, which form part of the net investment in a foreign operation, and which are recognized in the foreign
currency translation reserve and recognized in profit or loss on disposal of the net investment.

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.5 Summary of Significant Accounting Policies (cont’d)Effect of Foreign Exchange Fluctuations (cont’d)Financial Statements of Associates, Subsidiaries and Joint Ventures Operating in Other Countries
Assets and liabilities of the Group’s foreign operations, are presented in TL considering exchange rates valid at the reporting
date. Income and expenses are translated by using the average rate calculated for the year when the transaction occured, unlesssignificant fluctuation has happened in exchange rates. In case of any significant fluctuation in exchange rates, the transaction
is translated by using the exchange rate at the transaction date. The translation difference is accounted under comprehensive
income as a component of equity.
Earnings Per Share
Earnings per share disclosed in the consolidated statement of comprehensive income are determined by dividing net earnings by
the weighted average number of shares that have been outstanding during the related period.
In Turkey, companies can increase their share capital by making a pro-rata distribution of shares “bonus shares” to existing
shareholders from retained earnings on equity items. Such kind of bonus shares are taken into consideration in the computation of
earnings per share as issued share certificates. For the purpose of earnings per share computations, the weighted average numberof shares outstanding during the period has been adjusted in respect of bonus shares issues without a corresponding change inresources, by giving them retroactive effect for the year in which they were issued and each earlier year.
Events After the Reporting Period
Events after the reporting period are those events that occur between the balance sheet date and the date when the financial
statements are authorized for issue, even if they occur after an announcement related with the profit for the year or public
disclosure of other selected financial information.
The Group adjusts the amounts recognized in its financial statements if adjusting events occur after the balance sheet date.
Provisions, Contingent Assets and Liabilities
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probablethat the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the endof the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured
using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, thereceivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivablecan be measured reliably.
The Group provides free of charge maintenance services for the sold vehicles during different periods of time for different models
of vehicle after the date of sale. Warranty provision is periodically reviewed and reassessed in accordance with the realized
expenses in the previous periods (Note 15).
Warranties
Provisions for the expected cost of warranty obligations are recognized at the date of sale of the relevant products, atmanagement’s best estimate of the expenditure required to settle the Group’s obligation.

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KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.5 Summary of Significant Accounting Policies (cont’d)Reporting of Financial Information According to Segments
Segmental reporting, with the reporting to the competent authority to make decisions regarding the Group’s activities areorganized in order to ensure the uniformity. The authority to make decisions regarding the activities of the Group, and part ofthe decisions about resources to be allocated to the section responsible for the evaluation of performance. “Other” under the
combined section by section due to be sufficient to meet the quantitative thresholds for reportable segments are combined forsegment reporting.
A reportable segment is a business segment or a geographical segment identified based on the foregoing definitions for which
segment information is required to be disclosed. A business segment is a distinguishable component of an enterprise that is
engaged in providing an individual product or service or a group of related products or services and that is subject to risks andreturns that are different from those of other business segments. A geographical segment is a distinguishable component of anenterprise that is engaged in providing products or services within a particular economic environment and that is subject to risks
and returns that are different from those of components operating in other economic environments.
A business segment or geographical segment should be identified as a reportable segment if a majority of its revenue is earned
from sales to external customers and if its revenue from sales to external customers and from transactions with other segments
is 10% or more of the total revenue, external and internal, of all segments; or its segment result, whether profit or loss, is 10%
or more of the combined result of all segments in profit or the combined result of all segments in loss, whichever is the greater inabsolute amount; or its assets are 10% or more of the total assets of all segments. Management for information on the financial
statement users about the segment if believed to be useful, industrial or geographical segments that do not meet any of thequantitative thresholds can also be considered as a reportable segment and information about them can be explained separately(Note 4).
Government Grants and Incentives
Government grants are not recognized until there is reasonable assurance that the Group will comply with the conditions attaching
to them and that the grants will be received.
Government grants are recognized in profit or loss on a systematic basis over the periods in which the Group recognizes as
expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primarycondition is that the Group should purchase, construct or otherwise acquire non-current assets are recognized as deferred revenue
in the consolidated statement of financial position (balance sheet) and transferred to profit or loss on a systematic and rational
basis over the useful lives of the related assets.
Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving
immediate financial support to the Group with no future related costs are recognized in profit or loss in the period in which they
become receivable.
The benefit of a government loan at a below-market interest rate is treated as a government grant, measured as the difference
between proceeds received and the fair value of the loan based on prevailing market interest rates.
Income Taxes
Turkish tax legislation does not permit a parent company and its subsidiary to file a consolidated tax return. Therefore, provisions
for taxes, as reflected in the accompanying consolidated financial statements, have been calculated on a separate-entity basis.
Income tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from ‘profit before tax’ as reported in the
consolidated statement of profit or loss because of items of income or expense that are taxable or deductible in other years and it
excludes items that are never taxable or deductible. The Group’s current tax is calculated using tax rates that have been enacted or
substantively enacted by the end of the reporting period.

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AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.5 Summary of Significant Accounting Policies (cont’d)Deferred tax
Deferred tax liability or asset is recognized on temporary differences between the carrying amounts of assets and liabilities in thefinancial statements and the corresponding tax rates which are used in the computation of taxable profit. Deferred tax liabilities
are generally recognized for all taxable temporary differences. 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. Such deferred tax assets and liabilities are not recognized if the temporary difference arises fromgoodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that
affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries andassociates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference andit 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 toreverse in the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability issettled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of thereporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from themanner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current
tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis.
Current and deferred tax for the period
Current and deferred tax are recognized as in profit or loss, except when they relate to items that are recognized in othercomprehensive income or directly in equity.
Employee Benefits
Employee Termination Benefits:
Under Turkish law and union agreements, lump sum payments are made to employees retiring or involuntarily leaving the Group.
Such payments are considered as being part of defined retirement benefit plan as per TAS 19 (Revised) Employee Benefits (“TAS19”).
The employee termination benefit liability recognized in the consolidated statement of financial position represents the present
value of the defined benefit obligation. The actuarial gains and losses are recognized in other comprehensive income.
Statement of Cash Flows
In statement of cash flows, cash flows are classified according to operating, investing and financing activities.
Share Capital and Dividends
Common shares are classified as equity. Dividends on common shares are recognized in equity by deducting the dividend amountfrom accumulated profits in the period in which they are approved and declared.

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AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.6 Critical Accounting Judgements and Key Sources of Estimation Uncertainty
Critical judgements in applying the entity’s accounting policies
In the process of applying the entity’s accounting policies, which are described in Note 2.5, management has made the following
judgements that have the most significant effect on the amounts recognized in the financial statements (apart from those
involving estimations, which are dealt with below):(a) Judgements in determining the timing of satisfaction of performance obligations
Management takes into account the detailed conditions stated in TFRS 15, in particular the control of goods and services, to thecustomer regarding the fulfillment of the performance obligations and the recording of the allocated transaction costs as revenue.
(b) Useful lives of tangible and intangible assets
Property, plant and equipment (except land and property, plant and equipment) are carried at cost less accumulated depreciationand impairment (if any). Depreciation on property, plant and equipment is calculated using the straight-line method to allocate
their cost or revalued amounts to their residual values over their estimated useful lives. Useful lives depend on best estimates ofmanagement, are reviewed in each financial period and necessary corrections are made.
(c) Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probablethat an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. The Groupconsiders the realizations in the period and period when determining the provisionary estimations (Note 15).
(d) Carry forward tax losses
The Group is accounting deferred income tax asset and liabilities for temporary timing differences arise from the difference
between tax base financial statements and financial statements prepared in accordance with TFRS. The Group has deferredincome tax assets consist of unused financial losses could reduce from taxable income in the future and other reducible temporary
differences. The Group considered its future profit projections and the maturity dates of the tax losses generated in the current
period while recognising deferred income tax assets. Where the final tax outcome of these matters is different from the amounts
that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period inwhich such determination is made (Note 27).
(e) Provision for doubtful receivable
The Company reserves for doubtful trade receivables that overdue and the possibility of collection is decreased according to theexperience of past uncollected receivables (Note 6).
(f) Constructions in Progress and Capitalised Research and Development Expenses
As of 31 December 2019, the constructions in progress amounting to TL 205,272,627 (31 December 2018: TL 233,627,430)
consist of tangible and intangible investments related to ongoing projects. Following the completion of these projects, they
are going to be capitalized and depreciated. In addition, the Group has development expenses related to the projects that arecapitalized under intangible assets amounting to TL 222,084,186 (31 December 2018: TL 189,981,622). Besides, investments thathave no longer economic benefit and are part of construction in progress are going to be offsetted. Based on best estimates of theGroup management, it is predicted that the economic benefit from investments will exceed their book value.

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AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
2.6 Critical Accounting Judgements and Key Sources of Estimation Uncertainty (cont’d)
Critical Judgements in applying the entity’s accounting policies (cont’d)(g) Capitalization of borrowing costs
The Group capitalizes borrowing costs that are directly attributable to the production of qualifying assets. The details of theborrowing costs capitalized during the period are disclosed in Note 11.
(h) Impairment of Inventory
Impairment of inventory is determined according to the Group’s accounting policy. It is calculated by evaluating non-moving
inventory and possible depreciation (Note 9).
(i) Investment Allowance, R&D Allowance and Allowance of Interest of Cash Capital Increase
The Group, upon the assessment in the frame of Corporate Tax Law No. 5520 Article 32/A, deferred tax asset amounting TL
35,052,047 (31 December 2018: TL 31,576,948) corresponding to TL 248,424,454 (31 December 2018: TL 231,240,330)
investment within the scope of government grants and incentives was recognized with the anticipation of benefiting from reduced
corporate tax in the forthcoming periods (Note 27). In case the amount of investment within the scope of government grants andincentives differ from the findings in the current period of investment incentives that may affect the Group’s deferred tax assets
following the finalization of the amount of investments.
(j) Measurement of expected credit loss
The Group uses reasonable and supportable forward-looking information that is based on assumptions about future economic
conditions and how these conditions will affect each other while measuring expected loss provision. The loss of default is an
estimate of default losses. Taking into account the cash flows arising from collateral and credit enhancements, it is based on the
difference between the receivables that the lender expects to collect and the cash flows in contracts. The probability of default is
an important input in measuring expected credit losses. The probability of default is an estimate of the probability of default in agiven time period; The calculation includes historical data, assumptions and expectations of future conditions.
(k) Control over HCI
Since the Group has 50% shares of the HCI company, the company is defined as a subsidiary of the Group in Note 3. Based on theagreements signed between the Group and other investors, the Group has the power to change and appoint members of the boardof directors that will enable HCI to manage its activities. Therefore, the Group management has found that the Company has theauthority to manage the company’s activities, and therefore the Entity has control over the HCI company.
(l) Impairment of goodwill
In accordance with the accounting policy stated in Note 2.5, the Group subjected the goodwill amount to impairment test
every year. The recoverable amounts of cash generating units are determined according to the value calculations in use. These
calculations require estimation.

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AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

3. INTERESTS IN OTHER ENTITIES AND BUSINESS COMBINATIONSParticipations
Details of material participations:
Details of each of the Group’s material participations as of 31 December 2019 and 31 December 2018 are as follows:

Name of company
Karsan Otomotiv Sanayi
Mamulleri
Pazarlama A.Ş. (“Karsan
Pazarlama”) (*)
Industria Italiana Autobus
S.p.A. (IIA)

Place of incorporationand operation

Functional
currency

Sales and marketing

Turkish LiraBus production, distribution
and marketing

Euro

Proportion of ownership interest andvoting power held by the Group (%)
31 December 201931 December 2018

25

25

28.59

70

Summarized financial information related to of each of the Group’s material participations is explained below. The summarized
financial information below represents amounts shown in the participation’s financial statements prepared in accordance with
TFRS.
Karsan Otomotiv Sanayi Mamulleri Pazarlama A.Ş.
The Group discloses Karsan Otomotiv Sanayi Mamulleri Pazarlama A.Ş., its participation, at zero cost in the consolidated financial
statements, since the amount of net assets of Karsan Otomotiv Sanayi Mamulleri Pazarlama A.Ş. is negative.
Karsan Otomotiv Sanayi Mamulleri
Pazarlama A.Ş.
31 December 201931 December 2018
Current Assets
Non-Current Assets
Current Liabilities
Non-Current Liabilities
Total

Revenue
Net profit/loss for the year
Other comprehensive loss
Total comprehensive loss
Dividends received from subsidiary

6,417,488
41,699(217,566)
6,241,621

6,244,423
180,910(12,543,456)(6,118,123)

1 January31 December 2019

1 January31 December 2018

1,327,616(1,885,255)(1,885,255)-

2,639,697(11,030,851)(11,030,851)-

Reconciliation of the financial information summarized above with the book value of the participation in the consolidated financial
statements:
31 December 201931 December 2018

Net assets of subsidiary
Proportion of Group’s ownership interest in subsidiary

6,241,621
25%(6,118,123)
25%

Carrying amount of the Group’s interest in subsidiary

-

-

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AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

3. INTERESTS IN OTHER ENTITIES AND BUSINESS COMBINATIONS (cont’d)Participations (cont’d)
Details of material participations (cont’d):Karsan Otomotiv Sanayi Mamulleri Pazarlama A.Ş. (cont’d)Shares of participation gains/(losses) that are not reflected in the consolidated financial statements:

Shares of participation gains/(losses) that are not reflectedin the consolidated financial statements (*)

31 December 201931 December 2018

1,560,405(1,529,531)

The entire capital advance payment made to Karsan Otomotiv Sanayi Mamulleri Pazarlama A.Ş. during the period was made by its main partner Kıraça Holding. For thisreason, the net assets of the company were evaluated as negative in terms of Karsan Otomotiv and continued to be disclosed in the consolidated financial statements atzero cost.

(*)

Industria Italiana Autobus
As of 12 December 2018, the Entity participated in the capital of Industria Italiana Autobus (“IIA”), which produced the Menarinibus
brand vehicles, with a price of TL 21,882,749 (EUR 3,629,642) and its share of partnership increased from 5% to 70%. On theother hand, in the IIA General Assembly held on 29 January 2019, as a result of the Italian state institution INVITALIA S.P.A. used
proportionally the right to increase capital, the Entity’s share in IIA decreased to 28.59%. The Entity participated in the capitalincrease made in 2019 at the price of EUR 8,295,024 and increased the total investment amount in the capital of IIA from EUR
5,129,642 (TL 26,926,649) to EUR 11,924,666 (TL 78,634,649). As stated in TAS 28, while applying the equity method by theentity, the most up-to-date financial statements of the subsidiary are used. With the valuation of the financial statements by anindependent valuation firm of the Industria Italiana Autobus company, where 28.59% share purchase process of Karsan Otomotiv
was completed on 22 April 2019, the goodwill amount temporarily held in the consolidated financial statements of the Company
as of 31 December 2019 aimed to be corrected; however, since the valuation process has not been completed until the year-end
audit, the temporary goodwill amount of TL 78,634,649 has been continued to be carried in the financial statements.
Industria Italiana
Autobus
Total assets
Total liabilities
Net asset of the subsidiaryGroup’s share in the subsidiary
Carrying amount of Group’s share in the subsidiary

100,925,395
110,950,139(10,024,744)
28.59%-

Goodwill amount as of 31 December 2018 (Note 30)

26,926,649

Goodwill amount as of 31 December 2019 (Note 30)

78,634,649

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AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

3. INTERESTS IN OTHER ENTITIES AND BUSINESS COMBINATIONS (cont’d)Subsidiaries Acquired
Hervouet Corporate Industry
The Entity, within the framework of the objective of increasing the competitiveness and efficiency in the foreign markets, in order
to increase its market share in France and participate in public tenders, acquired 2,400 shares of TL 4,515,280 (EUR 700,000)
nominal value, with a 50% share in the capital of the French distributor Hervouet Corporate Industry. The first capital payment
of TL 2,652,640 (EUR 400,000) was made on 17 June 2019 and the second capital payment of TL 1,862,640 (EUR 300,000) was
made on 31 July 2019.
Hervouet
Corporate
Industry (HCI)
Current Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets

33,354,283
714,376
15,593,132
15,468,544
1,578,231

Non-current Assets
Financial investments
Property, plant and equipments
Intangible assets
Other non-current assets

15,900,140
4,871,851
5,093,011
5,935,278

Current Liabilities
Trade and other payables
Other legal payables
Other current liabilities(48,282,962)(43,198,596)(1,382,237)(3,702,129)

Non-current Liabilities
Borrowings(13,230,217)(13,230,217)(12,258,756)
Hervouet Corporate
Industry (HCI)

Transferred amount
Plus: Non-controlling interests
Less: Alınan şirketlerin net varlıklarının gerçeğe uygun değeri

4,515,280(6,129,378)
12,258,756

Goodwill (Note 12)

10,644,658

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

4. SEGMENT REPORTING
Reporting segment is an industrial or geographical segment where the information must be declared. Industrial segments are
sections with different characteristics from particular goods or services, or other parts of the Group in terms of providing goods orservices or the risks and benefits associated with each group. Geographical segment is engaged in providing products or services
within a particular economic environment and returns that are different from those of segments operating in other economic
environments in terms of risks and benefits.

Italy
Export registered sales
TurkeyRomania
FrancePortugal
Lithuania
GreeceGermany
Switzerland
Bulgaria
PolandSpain
Slovakia
Macedonia
Other (*)(*)

1 January31 December
2019

1 January31 December
2018593,560,623
521,131,634
275,968,886
243,146,072
53,541,940
21,494,753
8,369,937
4,108,764
2,441,839
2,076,660
1,692,971
1,623,806
1,286,919
55,145
1,365,858

335,406,439
453,745,684
654,413,603
44,947,909
233,325435,756
3,365
1,463,027
55,772438,476
3,132,736
721
2,295,437
7,633,293
405,861

1,731,865,807

1,504,611,404

Consist of Netherland, Hungary, South Korea, Austria and Georgia (2018: Consist of Hong Kong, Hungary, South Korea, Austria and Georgia).

The Group’s main activity is the production of spare parts for automotive and other vehicles. The Group has five operating
segments for evaluating the performance of Group Management as well as for making decisions about resource allocation. These
operating segments of Group are responsible for the reporting of production and local distribution of vehicles are performed on acontractual basis; Buses for which the reporting of production of buses for municipalities are performed as a reserve of tenders;
Karsan for which the reporting associated to production of commercial vehicles with its own brand are performed, Spare Parts forwhich the reporting associated to the production of spare parts are performed and lastly Industrial Sales for which the reporting
associated to cataphoresis processes and tractor cabin are performed. Segment performance is evaluated on a regular basis
in main operations, although considered profit or loss, other expenses from main activities and their income is not distributed.
Segmental reporting has not been made for assets and liabilities since any periodic notification regarding authority to take decision
for assets and liabilities have not been performed.

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AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

4. SEGMENT REPORTING (cont’d)

Total
1,704,291,496(1,416,644,647)

KarsanBrandedProducts
227,380,938(170,202,271)

Industrial andSpare Parts
148,022,776(127,446,017)

Other
Branded Sales
1,265,330,631(1,060,722,512)

Other
63,557,151(58,273,847)

287,646,849

57,178,667

20,576,759

204,608,119

5,283,304

177,836,871--

177,836,871-(150,262,560)--(150,262,560)-

27,574,311--

27,574,311-

Gross Profit/(Loss)

315,221,160

57,178,667

20,576,759

232,182,430

5,283,304

Marketing expenses (-)
General administrative expenses (-)
Research and development costs (-)
Other income from operating
activities
Other expenses from operating
activities (-)(63,460,120)(56,743,391)(9,518,695)(20,126,693)(17,670,453)(2,118,316)(3,073,979)(4,243,017)-(40,259,448)(34,131,592)(7,400,379)(698,329)-

102,422,343

16,143,167

9,369,246

75,367,911

1,542,019(29,937,030)(4,718,487)(2,738,537)(22,029,289)(450,717)

Operating profit/(loss)

257,984,267

28,687,885

19,890,472

203,729,633

5,676,277

Total
1,441,587,850(1,224,801,604)

KarsanBrandedProducts
187,541,444(192,434,052)

Industrial andSpare Parts
135,013,973(105,060,598)

Other
Branded Sales
1,091,515,438(898,505,316)

Other27,516,995(28,801,638)

216,786,246(4,892,608)

29,953,375

193,010,122(1,284,643)

241,606,076--

241,606,076-(178,582,522)--(178,582,522)-

63,023,554--

63,023,554-

Gross Profit/(Loss)

279,809,800(4,892,608)

29,953,375

256,033,676(1,284,643)

Marketing expenses (-)
General administrative expenses (-)
Research and development costs (-)
Other income from operating
activities
Other expenses from operating
activities (-)(83,190,637)(47,101,954)(9,284,865)(40,685,807)(9,686,176)(2,995,660)(5,499,461)(4,264,142)(224,099)(37,005,369)(33,028,411)(6,065,106)(123,225)-

117,984,842

13,940,852

11,710,061

90,701,628

1,632,301(30,834,473)(4,168,678)(3,002,862)(23,259,016)(403,917)

Operating profit/(loss)

227,382,713(48,488,077)

28,672,872

247,377,402(179,484)

1 Janury - 31 December 2019
Revenue
Cost of sales (-)
Gross Profit/(loss) fromcommercial operations
Revenue from finance sector
operations
The cost of finance sector
operations (-)
Gross profit from finance sector
operations

1 January - 31 December 2018
Revenue
Cost of sales (-)
Gross Profit/(loss) fromcommercial operations
Revenue from finance sector
operations
The cost of finance sector
operations (-)
Gross profit from finance sector
operations

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AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

5. RELATED PARTY DISCLOSURES
Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated duringconsolidation process and are not disclosed in this note.
The receivables from related parties arise mainly from sale transactions and are due 75 days.
The payables to related parties arise mainly from purchase transactions and are due 75 days.
Details of transactions between the Group and other related parties are disclosed below:
31 December 2019

Balances with related parties

Receivables
Current Trade

PayablesCurrent Trade

Kıraça Holding A.Ş.
Karland Otomotiv A.Ş.
Sirena Marine Denizcilik ve Ticaret A.Ş.
Industria Italiana Autobus S.p.a.
Kök Ziraat Turizm San. ve Tic. A.Ş.
Kırsan Turizm ve Otomotiv San. ve Tic. A.Ş.
Kar İnşaat Taahhüt San. ve Tic. A.Ş.
Other

1,262,048
382,689,577-(2,310,721)(8,057,028)(2,325,863)(77,559)(1,679)(2,159)383,951,625(12,775,009)

31 December 2018

Balances with related parties
Kıraça Holding A.Ş.
Karland Otomotiv A.Ş.
Heksagon Mühendislik A.Ş.
Sirena Marine Denizcilik ve Ticaret A.Ş.
Industria Italiana Autobus S.p.a.
Kök Ziraat Turizm San. ve Tic. A.Ş.
Kırsan Turizm ve Otomotiv San. ve Tic. A.Ş.
Kök Ulaşım Taşımacılık A.Ş.
Karsan Otomotiv Sanayi Mamülleri Pazarlama A.Ş.
Kar İnşaat Taahhüt San. ve Tic. A.Ş.
Kaynak Sigorta Acenteliği A.Ş.
Mercan Sigorta Aracılık Hizmetleri A.Ş.
Other
Allowance for confirmation differences with related parties
Heksagon Mühendislik A.Ş.

Receivables
Current Trade

PayablesCurrent Trade

850,766
184,684,503
173,497
12,096,353
627-(2,472,821)(2,927,025)(5,184,128)(442,199)(217,120)(1,076)(2,718)(2,159)-(12,789,402)

197,805,746(24,038,648)

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

5. RELATED PARTY DISCLOSURES (cont’d)
1 January - 31 December 2019
Transactions withrelated parties
Kıraça Holding A.Ş.
Kırsan Turizm ve
Otomotiv San.ve Tic. A.Ş.
Heksagon Mühendislik
A.Ş. (1)Karsa Otomotiv
Pazarlama Ticaret A.Ş.
Karland Otomotiv A.Ş.
Kök Ziraat Turizm San. ve
Tic. A.Ş. (2)Kar İnşaat Taahhüt San.
ve Tic. A.Ş.
Kaynak Sigorta
Acenteliği A.Ş.
Sirena Marine Denizcilik
ve Ticaret A.Ş.
Karsan Otomotiv Sanayi
Mamülleri Pazarlama A.Ş.
Industria Italiana
Autobus S.p.a.

(1)

Sales

Interest
IncomeInterestExpenseRent
Expense

Other
Incomes/(Expenses)(7,200)--(264,287)-

196(4,130,989)

-

-

-

-

-

-

(1,600,881)(257,532)

-

-

-

-

(10,392)(10,227)(4,237)(525,479)

3,350,990

-

-

-

-

(635,668)---(179,520)(1,632,573)

142,825,000

-

-

-

-

-

-

(2,273)(1,149,888)

-

-

-

-

-

-

-

(16,175,378)

5,192

-

(253,732)---(147,875)-

2,139,487

-

-

6,595

-

(3,796,742)

571,236,342

-

-

-

39,629(14,372,771)(20,914,443)

574,592,524

2,139,487(697,539)(1,632,573)

142,858,755

Service
Received

Purchases(6,845,118)

Heksagon Mühendislik A.Ş. is not disclosed anymore as related party as of 5 August 2019.

With the decision of the Board of Directors dated 29 April 2019, it was decided to sell the factory of the Entity, which has a net book value of 64,857,749 TL in Bursa
Organized Industrial Zone, to Kök Ziraat Turizm Sanayi ve Ticaret A.Ş. amounted to 145,000,000 TL.

(2)

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

5. RELATED PARTY DISCLOSURES (cont’d)
1 January - 31 December 2018
Transactions withrelated parties
Kıraça Holding A.Ş.
Kırsan Turizm ve
Otomotiv San.ve Tic. A.Ş.
Heksagon MühendislikA.Ş.
Karsa Otomotiv
Pazarlama Ticaret A.Ş.
Karland Otomotiv A.Ş.
Kök Ziraat Turizm San.
ve Tic. A.Ş.
Kar İnşaat Taahhüt San.
ve Tic. A.Ş.
Kaynak Sigorta
Acenteliği A.Ş.
Sirena Marine Denizcilik
ve Ticaret A.Ş.
Karsan Otomotiv Sanayi
Mamülleri Pazarlama
A.Ş.
Kök Ulaşım TaşımacılıkA.Ş.
Mercan Sigorta Aracılık
Hizmetleri A.Ş.

Sales

Interest
IncomeInterestExpenseRent
Expense

Other
Incomes/(Expenses)(6,000)130,467-(80,940)-590(4,330,943)

-

-

-

-

-

406

(18,739,296)(8,842)

-

-

-

-

(12,978,069)(164,997)(1,167)(383,244)

3,227,398

2,403

-

-

993

(524,672)-

138,664--(128,742)

-

-

-

-

-

-

-

(2,401)(826,671)

-

-

-

-

-

-

(142,834)(13,025,790)

72,759-(80,422)---(330,103)-

8,667,175--

322,304

-

-

-

-

-

-

173,497

-

-

-

-

-

-

(11,671)(29,852,214)(13,755,146)

3,569,288

8,669,578(161,362)(128,742)(12,494,351)

Service
Received

Purchases(5,122,801)

Industria Italiana Autobus S.p.a., a related party of the Group, has not been disclosed in the details of transactions with relatedparties since it has acquired the related company status as of 12 December 2018.

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AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

5. RELATED PARTY DISCLOSURES (cont’d)
The Group gets the information technology, human resource, financing and other consulting services from Kıraça Holding.
The Group procures some parts such as interior trim etc. and tools and equipments for these parts from Sirena Marine due to
produce of minibus, midibuses and bus.
The Group pays monthly rent to Kök Ziraat A.Ş. for İstanbul office. Other expenses of Istanbul office are related to security, naturalgas, repair and maintenance, cleaning and other common administrative expenses that are invoiced monthly by Kök Ziraat A.Ş.
The Group gets engineering and design services for vehicles produced or to be produced from Heksagon Mühendislik A.Ş.
Compensation of key management personnel:
The Entity’s senior management team consists of the members of the Board of Directors, the Executive Committee and the
Entity’s general manager and assistants. Benefits provided to senior executives include wages, premiums, health insurance andtransportation. The benefits provided to senior executives during the period are as follows:
1 January31 December 2019

1 January31 December 2018

3,697,365

3,369,968

3,697,365

3,369,968

31 December 201931 December 2018306,950,141
24,269,430
383,951,625
148,437,535(2,655,937)(5,012,334)

190,454,115
34,333,863
197,805,746
105,377,172(1,942,298)(3,523,272)

855,940,460

522,505,326

Salaries and other short term benefits

6. TRADE RECEIVABLES AND PAYABLESa) Trade Receivables:
The details of the Group’s trade receivables as of balance sheet date are as follows:
Current trade receivables
Trade receivables
Notes receivable
Trade receivables from related parties (Note 5)
Income accruals (*)
Allowance for doubtful receivables (-)
Loss allowance (-)(*)

Income accruals consist of compensation income which have been accrued for the Group’s project.

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

6. TRADE RECEIVABLES AND PAYABLES (cont’d)a) Trade Receivables (cont’d)Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. Trade
receivables are classified as short term trade receivables which are generally with a maturity of 30 - 60 days and trade receivablesfrom municipalities with a short term maturity. The group holds the trade receivables with the objective to collect the contractual
cash flows and therefore measures them subsequently at amortised cost using the effective interest method.
Movement of Allowance for Expected Loss

1 January31 December 2019

1 January31 December 2018

Opening balance as of January 1
Effect of change in accounting policy
Restated opening balance as of January 1
Period charge (Note:21)(3,523,272)(3,523,272)(1,489,062)(352,872)(352,872)(3,170,400)

Closing balance(5,012,334)(3,523,272)

The Group always measures the loss allowance for trade receivables at an amount equal to lifetime ECL. The expected credit losseson trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysisof the debtor’s current financial position, adjusted for factors that are specific to the debtors, general economic conditions of theindustry in which the debtors operate and an assessment of both the current as well as the forecast direction of conditions at thereporting date. The Group has recognised a loss allowance of 100% against all receivables over 90 days past due because historicalexperience has indicated that these receivables are generally not recoverable.
In the current period, there are no significant change in the estimates and assumptions of the management.
Non-current trade receivables
Income accruals
Trade receivables (*)

31 December 201931 December 2018-

9,059,132
75,313,902-

84,373,034

Represents the Group’s trade receivables due to tender of Kocaeli Metropolitan Municipality dated 10 February 2015 and tender of Konya Municipality dated 5 May
2015. In accordance with signed agreements, Group’s total receivables amounting to TL 84,706,382 (31 December 2018: TL 153,212,186) of which TL 36,229,480 from
Konya Metropolitan Municipality and TL 48,476,902 from Kocaeli Metropolitan Municipality, has been classified as short term as of current period. As of 31 December
2019, the receivables from Konya and Kocaeli Metropolitan Municipality amounting to EUR 12,493,917 is assigned for the long term loans in the same amount borrowed
from banks.

(*)

The standard maturity of the Group is between 30 days and 60 days (31 December 2018: 30 days and 60 days).
Allowances for doubtful receivables are recognized against financial assets based on estimated irrecoverable amounts determinedby reference to past default experience of the counterparty. Accrued exchange rate differences for the foreign currency doubtfulreceivables get involved to the provisions, related balance has been reflected to the foreign exchange gain and loss accounts.

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

6. TRADE RECEIVABLES AND PAYABLES (cont’d)
Movements on the Group’s allowance of for doubtful receivables are as follows:
1 January31 December 2019

1 January31 December 2018

Opening balance
Provision for the year (Note 21)
Effect of acquisition
Collections (Note 22)
Cancelled provisions (Note 22)
Foreing currency translation difference(1,942,298)(622,215)(122,047)
31,342(719)(1,081,609)(875,689)
15,000-

Closing balance(2,655,937)(1,942,298)

Movement of allowance for doubtful receivables

Explanations about the nature and level of risks related to other receivables are provided in Note 31.
b) Trade Payables:
The details of the Group’s trade payables as of balance sheet date are as follows:
Current trade payables
Trade payables
Trade payables to related parties (Note 5)
Allowance for confirmation differences with related parties (Note 5)

31 December 201931 December 2018

(217,070,344)(12,775,009)-(223,294,002)(11,249,246)(12,789,402)(229,845,353)(247,332,650)

The average payment maturity regarding to trade payables of the Group is 90-120 days (31 December 2018: 90-120 days).
The Group has financial risk management policies to guarantee the repayment of its debts within its credit terms.

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

7. ASSETS AND LIABILITIES FROM FINANCE SECTOR OPERATIONS
31 December 201931 December 2018

64,382,157

42,386,884

64,382,157

42,386,884

85,880,403

136,195,638

85,880,403

136,195,638

150,262,560

178,582,522

Short term financial lease receivables (*)

Long term financial lease receivables (*)

Total lease receivables

Investments related to the contract signed with HMC, considering the terms of contracts concerning the financial leasing transaction within the scope of IFRIC 4, areconsidered as financial lease receivables as a result of the evaluation. There are EUR 22,593,835 financial lease receivables as of 31 Decemer 2019 (31 December 2018:
EUR 29,625,501). The interest rate of the financial lease receivables is 6% (31 December 2018: 6%).

(*)

Payment schedule of receivables from financial leasing transactions is as follows:
31 December 2019
Minimum
lease
receivables
Interest
2019
2020
2021

Total
asset

Minimum
lease
receivables

64,382,157
85,880,403

164,213,291 (13,950,731) 150,262,560

73,292,938
90,920,353(8,910,781)(5,039,950)

31 December 2018

Interest

Total
asset

52,977,078
66,431,574
82,408,788(10,590,194)(8,076,592)(4,568,132)

42,386,884
58,354,982
77,840,656

201,817,440(23,234,918)

178,582,522

31 December 201931 December 201899,21373,732

99,21373,732

8. OTHER RECEIVABLES
Other Current Receivables
Other receivables

129

KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

9. INVENTORIES

Raw materials
Work in progress
Finished goods
Trade goods
Goods in transit
Allowance for impairment on inventory (-)

31 December 201931 December 2018

80,788,541
18,230,236
10,868,733
22,808,358
720,340(9,135,920)

73,854,730
75,285,587
21,970,547
21,808,327
181,106(8,734,226)

124,280,288

184,366,071

For the period between 1 January - 31 December 2019, the cost of goods sold of the Group is amounting to TL 1,056,671,898 (1January - 31 December 2018: TL 1,092,165,168) related to the raw materials and supplies expense.
The Group has determined unused inventories for various periods in the current year. Therefore, provision for impairment of
inventories has been allocated amounting to TL 9,135,920 (2018: TL 8,734,226).
1 January31 December 2019

1 January31 December 2018

Opening balance
Period charge (Note 20)
Provisions released (Note 20)(8,734,226)(401,694)-(7,463,699)(1,309,305)
38,778

Closing balance(9,135,920)(8,734,226)

Movement of allowance for impairment on inventory130

KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

10. PREPAID EXPENSES AND DEFERRED INCOME
Short-Term Prepaid Expenses
Order advances given for inventory purchases
Prepared expense for the following months

Long-Term Prepaid Expenses
Prepared expense for the following years
Advances given for fixed asset purchases

Short-Term Deferred Income
Deferred income for the following months (*)
Order advances received

Long-Term Deferred Income
Deferred income for the following years (*)

31 December 201931 December 2018

9,020,799
5,925,550

17,210,778
4,762,953

14,946,349

21,973,731

31 December 201931 December 2018

443,464-

272,214
267,343

443,464

539,557

31 December 201931 December 2018

9,016,183
5,713,405

59,555,751
4,377,172

14,729,588

63,932,923

31 December 201931 December 2018

169,961

13,325,243

169,961

13,325,243(*)
TL 8,509,466 of deferred income consists of extended warranty and maintenance services within the scope of TFRS 15 effects. TL 8,349,516 of this amount isdisclosed under short-term deferred income.

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

11. PROPERTY, PLANT AND EQUIPMENT

Cost Value
Opening balance as of 1
January 2019
Additions
Disposals
Transfers
Transfers fromconstructions in progress
Assets acquired bypurchasing (Not 3)
Foreign currencytranslation differences
Closing balance as of 31
December 2019

Accumulated
Depreciation
Opening balance as of 1
January 2019
Charge of the year
Disposals
Foreign currencytranslation differences
Closing balance as of 31
December 2019
Carrying value as of 31
December 2019

Land

Land
Improvements

143,521,190(53,980,000)-

Buildings

Plant,
Machinery andEquipment

16,599,477
9,825(199,000)-

89,128,561
192,953(11,144,527)
-

-

-

-

VehiclesFurnitureand Fixtures

Leasehold
Improvements

Constructionin Progress

Total

244,874,844
6,805,221(120,948)
8,325,875

4,974,849
1,442,061(4,441,613)-

34,872,371
643,309(3,626)-448,676(12,547)-

233,627,430
33,613,273-

768,047,398
42,706,642(69,902,261)
8,325,875-

3,826,081-

11,559-(61,968,076)(58,130,436)-

4,716,504

128,474-

26,873--4,871,851--

86,314

11,346

1,397

3,093

632

-

102,782

89,541,190

16,410,302

82,979,805

263,850,893

1,976,694

35,553,579

436,761

205,272,627

696,021,851-(8,042,112)(568,044)
40,949(8,982,712)
309,138(169,371,036)(12,635,362)
114,858(3,839,966)(576,900)
3,222,356(25,117,188)(2,622,762)
3,626(261,011)(36,957)
11,915-(206,631,313)(25,422,737)
3,702,842--(28,795)(10,817)(329)(2,493)--(42,434)-(8,569,207)(8,702,369)(181,902,357)(1,194,839)(27,738,817)(286,053)-(228,393,642)

89,541,190

7,841,095

74,277,436

81,948,536

781,855

7,814,762

150,708205,272,627

467,628,209

TL 19,914,724 (2018: TL 20,667,026) of period amortization have been charged in ‘cost of goods sold’ (Note 20), TL 1,018,683(2018: TL 534,766) in ‘marketing expenses’ (Note 21), TL 2,037,782 (2018: TL 1,610,880) in ‘administrative expenses’ (Note 21),
TL 8,694 (2018: TL 8,476) has been charged in ‘research and development expenses’ (Note 21) and TL 2,442,854 (2018: TL
1,457,407) in ‘costs of an investment’. In current period, there is no amortization expense has been offsetted from provisions formaintenance and repair costs (2018: TL 48,298).
Borrowing costs amounting to TL 7,611,274 (31 December 2018: TL 30,688,036) related to purchases of property, plant andequipment are capitalized in 2019 and the related amount is shown by net-off in “Cash Outflows from Purchase of Tangible Fixed
Assets” in the cash flow statement.

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

11. PROPERTY, PLANT AND EQUIPMENT (cont’d)

Cost Value
Opening balance as of 1
January 2018
Additions
Revaluation fundDisposals
Transfers fromconstructions in progress
Closing balance as of 31
December 2018

Accumulated
Depreciation
Opening balance as of 1
January 2018
Charge for the year
Disposals
Revaluation fundClosing balance as of 31
December 2018
Carrying value as of 31
December 2018

Land

Land
Improvements

121,969,669
21,551,521-

Buildings

Plant,
Machinery andEquipment

16,594,977
4,500-

119,259,336
993,877(31,197,002)---

143,521,190

VehiclesFurnitureand Fixtures

Leasehold
Improvements

Constructionin Progress

Total

236,774,845
9,079,873(1,437,572)

4,863,462
2,355,679(2,244,292)

34,017,409
960,212(110,150)

454,611(5,935)

174,214,975
62,393,107-

708,149,284
75,787,248(9,645,481)(3,797,949)

72,350457,698

-

4,900

-

(2,980,652)(2,445,704)

16,599,477

89,128,561

244,874,844

4,974,849

34,872,371

448,676

233,627,430

768,047,398-(7,468,430)(573,682)-(54,024,465)(6,695,713)
60,720,178(156,900,561)(13,221,970)
751,495-(3,575,825)(696,356)
432,215-(22,106,177)(3,102,175)
91,164-(224,054)(36,957)--(244,299,512)(24,326,853)
1,274,874
60,720,178-(8,042,112)-(169,371,036)(3,839,966)(25,117,188)(261,011)-(206,631,313)

143,521,190

8,557,365

89,128,561

75,503,808

1,134,883

9,755,183

187,665

233,627,430

561,416,085

The following useful lives are used in the calculation of depreciation:
Land improvements
Buildings
Plant, machinery and equipment
VehiclesFurniture and fixtures
Leasehold improvements

Useful life
5-25 years
7-50 years
1-25 years
4-5 years
3-20 years
5 yearsKARSAN Annual Report 2019133

KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

11. PROPERTY, PLANT AND EQUIPMENT (cont’d)Fair value measurement of the Group’s freehold land and buildings
The Group’s freehold land and buildings are stated at their revalued amounts, being the fair value at the date of revaluation, lessany subsequent accumulated depreciation and subsequent accumulated impairment losses. The fair value measurements of
the Group’s freehold land and buildings as at 31 December 2018 were performed by TSKB Gayrimenkul Değerleme A.Ş. (TSKB),
independent valuers not related to the Group. TSKB, which is authorized by Capital Markets Board and they have appropriatequalifications and recent experience in the valuation of properties in the relevant locations.
The fair value of the freehold land was determined based on the market comparable approach that reflects recent transaction
prices for similar properties.
Cost analysis method and direct capitalization analysis method have been used in determining the fair value of the buildings.
As of 31 December 2019, freehold land and buildings owned by the Group and the fair value hierarchy for related assets are shownin the following table:

Akçalar and Nilüfer
Land
Building

Akçalar and Nilüfer
Land
Building

31 December 201989,541,190
74,277,436

31 December 2018
143,521,190
89,128,561

Fair value as at 31 December 2019
Level 1
Level 2TL
TL-

89,541,190
74,277,436

Fair value as at 31 December 2018
Level 1
Level 2TL
TL-

143,521,190
89,128,561

Level 3TL-

Level 3TL-

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

11. PROPERTY, PLANT AND EQUIPMENT (cont’d)Fair value measurement of the Group’s freehold land and buildings (cont’d)
The Group’s freehold land and buildings were revaluated by independent experts on 10 December 2018. Revaluations were
performed based on current market conditions. Revaluations fund which have been offset deferred tax are presented in the othercomprehensive income table.
If land and buildings were stated on the historical cost basis, the amounts would be as follows:
31 December 201931 December 2018

Freehold land
Building

37,386,152
46,104,850

37,386,152
49,967,971

Net book value

83,491,002

87,354,123

31 December 201931 December 2018

2,312,236
347,4544,360,561
472,592

2,659,690

4,833,153

Cost Value
Opening balance as of 1 January 2019
Additions
Disposal
Transfers
Transfers from constructions in progress
Assets acquired by purchasing (Note 3)
Foreign currency translation differences
Closing balance as of 31 December 2019

RightsCapitalized
development costs

Total

15,752,016
2,152,007(8,325,875)
575,578
4,937,991
78,272
15,169,989

282,330,104
11,415,577(4,235,293)
57,554,858
155,020
21,276347,241,542

298,082,120
13,567,584(4,235,293)(8,325,875)
58,130,436
5,093,011
99,548362,411,531

Accumulated Depreciation
Opening balance as of 1 January 2019
Charge of the year
Disposals
Foreign currency translation differences
Closing balance as of 31 December 2019(10,126,522)(2,314,060)(2,967)(12,443,549)(92,348,482)(34,425,861)
1,639,923(22,936)(125,157,356)(102,475,004)(36,739,921)
1,639,923(25,903)(137,600,905)

Carrying value as of 31 December 2019

2,726,440

222,084,186

224,810,626

Net book value of tangible assets
acquired through financial leasing
Machinery and equipment
Furniture and fixtures

12. INTANGIBLE ASSETS135

KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

12. INTANGIBLE ASSETS (cont’d)

Cost Value
Opening balance as of 1 January 2018
Additions
Disposal
Transfers from constructions in progress
Closing balance as of 31 December 2018

RightsCapitalized
development costs

Total

13,773,231
1,942,678(11,699)
47,80615,752,016

276,576,299
5,817,104(2,461,197)
2,397,898
282,330,104

290,349,530
7,759,782(2,472,896)
2,445,704
298,082,120

Accumulated Depreciation
Opening balance as of 1 January 2018
Charge for the year
Disposal
Closing balance as of 31 December 2018

(8,723,199)(1,415,022)
11,699(10,126,522)(63,857,989)(29,107,877)
617,384(92,348,482)(72,581,188)(30,522,899)
629,083(102,475,004)

Carrying value as of 31 December 2018

5,625,494

189,981,622

195,607,116

Other intangibles include internally generated capitalized software development costs and other internally generated costs thatmeet the definition of an intangible asset.
TL 33,224,106 of amortization expenses (2018: TL 27,094,889) has been charged in ‘cost of goods sold’ (Note 20), TL 684,073(2018: TL 450,611) in ‘research and development expenses’ (Note 21), TL 445,337 (2018: 936,568 TL) in ‘marketing expenses’(Note 21) and TL 2,386,405 (2018: TL 1,780,229) has been charged in ‘administrative expenses’ (Note 21). In current period, there
is no amortization expense has been offsetted from provisions for maintenance and repair costs (2018: 260,602).

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

12. INTANGIBLE ASSETS (cont’d)Goodwill
The Entity, within the framework of the objective of increasing the competitiveness and efficiency in the foreign markets, in order
to increase its market share in France and participate in public tenders, acquired 2,400 shares of TL 4,515,280 (EUR 700,000)
nominal value, with a 50% share in the capital of the French distributor Hervouet Corporate Industry. The first capital payment
of TL 2,652,640 (EUR 400,000) was made on 17 June 2019 and the second capital payment of TL 1,862,640 (EUR 300,000)
was made on 31 July 2019. The temporary goodwill amounting to TL 10,644,658 arising from the acquisition is shown in the
consolidated financial statements.
Cost
Opening balance
Additional amounts recognised from business combinations occuring during
the year
Balance end of year

2019

2018

-

-

10,644,658
10,644,658

-

-

-

10,644,658-

Accumulated impairment
Opening balance
Balance end of year
Carrying amountOpening balanceEnding balance
The following useful lifes are used in the calculation of amortization:
Capitalized development costs
RightsUseful life
2-10 years
1-20 years

137

KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

13. LEASES
Minimum lease payments

Present value of minimum
lease payments

31 December 201931 December 201831 December 201931 December 2018

44,692,599

70,846,798

41,764,503

63,698,775

Within one year
In the second to fifth years
inclusive

32,918,522

30,338,125

30,358,891

25,775,974

11,774,077

40,508,673

11,405,612

37,922,801

Less : Future finance charges(2,928,096)(7,148,023)--

41,764,503

63,698,775

41,764,503

63,698,775(30,358,891)(25,775,974)

11,405,612

37,922,801

Finance Lease Payables
Amounts payable underfinance leases

Present value of financelease obligations
Less: Amounts due tosettlement
within twelve months (shown
undercurrent liabilities) (Note: 30)
Amounts due for settlement
after 12 months (Note:30)

Financial leases include machinery and equipment related to production line. The Group’s obligations under finance leases are
secured by the lessors’ title to the leased assets. At the date of contract, interest rates on financial leasing transactions are fixed
for the entire lease term. The contractual effective interest rate is approximately 0.24% (2018: 0.24%).

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

14. GOVERNMENT GRANTS AND INCENTIVESIn order to mitigate the negative effects of the global financial crisis, the Law No. 5838 entered into force after publication in
the Official Gazette on 28 February 2009. With the relevant articles of the law for encouraging investments, the applicationof reduced corporate income tax rate has been brought forward. Reduced corporate income tax rate shall be subject to the
incentive certificate by the under secretariat of Treasury ROI. Accordingly, the discount rate will be applied to the earnings fromthe investment starting from the partial or complete launch of operations related to the investment until it reaches the statedinvestment amount. “Investment amount” in the law that reduced corporate income tax by applying a tax means the amount tobe borne by the state subject to amnesty, it is stated that through decision 2009/15199 made on 16 July 2009 by the Council of
Ministers to benefit from the investments made with certain conditions and determinations of Law On State Aid No.5838 has
made the arrangement actually feasible.
Incentive certificate numbered as A-107742 received for product diversification/modernization investments on 27 November
2012 has been revised with 55221 number on 14 August 2013, with 06888 number on 28 January 2014, with 45008 number on
3 July 2014, with 22555 number on 18 February 2015 and lastly with 97357 number on 17 August 2016. The revised investment
incentive certificates amounts to TL 80,423,761 (local) and USD 38,387,627 (imported).
The Group, as a result of the assessment as well as prediction of benefiting from subsequent periods of reduced corporate
tax in the frame of Corporate Tax Law No. 5520. Article 32/A, has accounted deferred tax assets amounting to TL 35,052,047(31 December 2018: TL 31,576,948) balance of total TL 248,424,454 (31 December 2018: 231,240,330) within the scope ofgovernment grants and incentives (Note 27).
15. PROVISIONS, CONTINGENT ASSETS AND LIABILITIESCurrent provisions
Guarantee expense provisions (i)Labor contract provision (ii)
Legal provision (iii)
Sales discount provisions (iv)
Additional service provision (v)Other

Non-current provisions
Guarantee expense provisions (i)(i)

31 December 201931 December 2018

30,403,516
4,152,272
1,700,000
463,975
6,585,081

14,215,186
1,700,000
1,324,103
3,674,454
5,690,961

43,304,844

26,604,704

31 December 201931 December 201816,393,612

14,449,227

16,393,612

14,449,227

The Group provides warranty service for vehicles which sold under guarantee commitment are made. The guarantee period varies depending on the vehicle models.

(ii)

It consists of the 2019 salary differences of the Collective Bargaining Agreement, which expired as of September 2019 but signed in 2020.

(iii)

It represents the Group’s provisions reserved for various litigation risks.

(iv)

It represents the Group’s price difference reductions applied to dealers.

(v)

The Group’s subsequent period modification costs of some vehicles which have been sold in 2018

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AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

15. PROVISIONS, CONTINGENT ASSETS AND LIABILITIES (cont’d)
The movements of provision for warranty expenses within the period are as follows:
2019

2018

Balance at 1 January
Additional provisions (Note 21)
Payments
Provisions released (Note 21)

28,664,413
30,320,152(9,982,658)(2,204,779)

21,579,374
20,030,689(12,945,650)-

Balance at 31 December

46,797,128

28,664,413

The movements of provisions for Collective Bargaining Aggreement within the period are as follows:

Balance at 1 January
Additional provisions
Payments
Balance at 31 December

2019

2018

4,152,272
4,152,272

3,731,198(3,731,198)
-

2019

2018

1,324,103
5,753,129(6,613,257)

1,142,271
8,678,963(8,497,131)

463,975

1,324,103

2019

2018

3,674,454(3,674,454)

3,674,454--

3,674,454

The movements of provisions for sales discounts within the period are as follows:

Balance at 1 January
Additional provisions (Note 20)
Payments
Balance at 31 December
The movements of provision for additional services within the period are as follows:

Balance at 1 January
Additional provisions
Payments
Balance at 31 December

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

16. COMMITMENTS
Guarantees-Pledge-Mortgage (“GPM”)
The Group’s guarantees/pledge/mortgage position as at 31 December 2019 and 31 December 2018 are as follows:
31 December 2019
A. GPMs given for Company’s own legal
personality- Guarantee- Mortgage- Bill of guarantee- Letters of credit
B. GPMs given on behalf of fully consolidated
companies- Guarantee- Pledge- Mortgage
C. GPMs given in the normal course of businessactivities on behalf of third parties- Guarantee- Pledge- Mortgage
D. Total amount of other GPMs
i. Total amount of GPMs given on behalf ofthe parent- Guarantee- Pledge- Mortgage
ii. Total amount of GPMs given to on behalfof other Group companies which are notin scope of B and C- Guarantee- Pledge- Mortgageiii. Total amount of GPMs given on behalf ofthird parties which are not in scope of C
- Guarantee- Pledge- Mortgage

TL equivalent

Turkish Lira

US Dollar

Euro573,177,302
266,313,200
9,949,570

36,479,536
120,000,000-

1,526,260-

79,335,921
22,000,000
1,496,041

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Total

849,440,072

156,479,536

1,526,260

102,831,962

The ratio of other given GPM’s by the Group to equity is 0% as of 31 December 2019 (31 December 2018: 0%).
As of 31 December 2019, it is comprised of guarantee letters given to Custom offices, tax offices and other public institutions
amounting to TL 36,479,536, US Dollar 1,526,260 and EUR 79,335,921 letters of credit amounting to EUR 1,496,041 which was
opened to buy raw materials and kits, but hadn’t been actually imported; and mortgages amounting to TL 120,000,000 and EUR
22,000,000 given for the long-term loans.

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

16. COMMITMENTS (cont’d)Guarantees-Pledge-Mortgage (“GPM”) (cont’d)
31 December 2018
A. GPMs given for Company’s own legal
personality- Guarantee- Mortgage- Bill of guarantee- Letters of credit
B. GPMs given on behalf of fully consolidated
companies- Guarantee- Pledge- Mortgage
C. GPMs given in the normal course of businessactivities on behalf of third parties- Guarantee- Pledge- Mortgage
D. Total amount of other GPMs
Total amount of GPMs given on behalf ofthe parent- Guarantee- Pledge- Mortgage
ii. Total amount of GPMs given to on behalfof other Group companies which are notin scope of B and C- Guarantee- Pledge- Mortgageiii. Total amount of GPMs given on behalf ofthird parties which are not in scope of C
- Guarantee- Pledge- Mortgage

TL equivalent

Turkish Lira

US DollarEuro

470,627,157
274,616,000
68,152,111

13,463,315
142,000,000-

2,796,444-

73,399,474
22,000,000
11,305,924

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

813,395,268

155,463,315

2,796,444

106,705,398

i.

Total

Letters and cheques of guarantees received
Direct debiting system

31 December 201931 December 2018

58,062,078
37,851,791

49,785,840
5,500,000

95,913,869

55,285,840

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

17. EMPLOYEE BENEFITS
Current payables arising from employee benefits

Social security premiums payable
Payables to personnel

31 December 201931 December 2018

4,904,944
1,960,726

4,112,400
1,686,565

6,865,670

5,798,965

31 December 201931 December 2018

3,147,112

2,864,688

3,147,112

2,864,688

Short-term provisions for employee benefits

Unused vacation provision (*)(*)

The Group has paid TL 139,660 (2018: TL 182,862) related to unused vacations within the year.

Long-term provisions for employee benefits
Provision for employee termination benefits liability:
Under Turkish Labor Law, the Group is required to pay termination benefits to each employee who has completed certain yearsof service and whose employment is terminated without due cause, who is called up for military service, dies or retires after
completing 25 years of service and reaches the retirement age (58 for women and 60 for men).
The amount payable consists of one month’s salary limited to a maximum of TL 6,017.60 for each period of service at 31 December
2019 (31 December 2018: TL 5,434.42).
Employee termination benefit liability is not subject to any kind of funding legally. Provision for retirement pay liability is calculated
by estimating the present value of probable liability amount arising due to retirement of employees. TAS 19 Employee Benefits
stipulates the development of company’s liabilities by using actuarial valuation methods under defined benefit plans. In thisdirection, actuarial assumptions used in calculation of total liabilities are described as follows:
The principal assumption is that the maximum liability for each year of service will increase parallel with inflation. Thus, thediscount rate applied represents the expected real rate after adjusting for the anticipated effects of future inflation. Consequently,
in the accompanying financial statements as at 31 December 2019, the provision has been calculated by estimating the present
value of the future probable obligation of the Company arising from the retirement of the employees. The provisions at therespective balance sheet dates have been calculated with the assumption of 4.67% (31 December 2018: 5.48%) real discount rate
calculated by using 7% annual inflation rate and 12% discount rate. Estimated amount of retirement pay not paid due to voluntary
leaves is also taken into consideration as 2.1% for employees with 0-19 years of service, and 0% for those with 19 or more years ofservice. Ceiling amount of TL 6,730.15 which is in effect since 1 January 2020 is used in the calculation of the Groups’ provision for
retirement pay liability (1 January 2019: TL 6,017.60).

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

17. EMPLOYEE BENEFITS (cont’d)Long-term provisions for employee benefits (cont’d)
Provision for employee termination benefits liability (cont’d):
The principal assumptions used in the calculation of retirement pay liability are discount rate and anticipated turnover rate.
-- If the discount rate would have been 1% higher while all other variables were held constant, provision for employee termination
benefits would decrease by TL 3,044,185.
-- If the discount rate would have been 1% lower while all other variables were held constant, provision for employee termination
benefits would increase by TL 3,617,812.
-- If the anticipated turnover rate would have been 1% higher while all other variables were held constant, provision for employee
termination benefits would increase by TL 600,524.
-- If the anticipated turnover rate would have been 1% lower while all other variables were held constant, provision for employee
termination benefits would decrease by TL 668,208.
1 January31 December 2019

1 January31 December 2018

Provision at 1 January

21,279,033

17,593,975

Service cost
Interest cost
Employee termination benefits paid
Actuarial loss/(gain)

10,391,182
1,165,974(1,597,245)
1,960,799

6,141,943
826,008(1,298,435)(1,984,458)

Provision at 31 December

33,199,743

21,279,033

31 December 201931 December 2018

140,666,233
3,760,864

103,076,456
478,053

144,427,097

103,554,509

31 December 201931 December 2018

114,038,279
129,246
20,89759,651,022
119,233-

114,188,422

59,770,255

18. OTHER ASSETS AND LIABILITIESOther Current Assets
Deferred VAT
Other current assets

Other Non-Current Assets
Deferred VAT
Deposits and guarantees given
Other receivables

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

18. OTHER ASSETS AND LIABILITIES (cont’d)
Other Current Liabilities

31 December 201931 December 2018

Taxes and funds payables
Other current liabilities

8,211,196
4,311,075

2,270,722
1,494,009

12,522,271

3,764,731

19. PAID-IN CAPITAL, RESERVES AND OTHER EQUITY ITEMSa) Paid-in Capital/Reciprocal Interests
As of 31 December 2019 and 2018, the paid-in capital held is as follows:
Shareholders%

31 December 2019%31 December 2018

Kıraça Holding A.Ş.
Publicly traded part
Other

63.46
34.58
1.97

571,118,812
311,091,540
17,789,648

63.46
34.58
1.97

380,745,875
207,462,221
11,791,904

Nominal capital

100

900,000,000

100

600,000,000

Inflation adjustment

22,585,778

22,585,778

Adjusted capital

922,585,778

622,585,778

As of 31 December 2019, the Group’s share capital consists of 6,558,338,851 Group A shares and 83,441,661,149 Group B shareswith par value TL 0.01 for both share groups. All issued shares are fully paid.
In the meeting of the Board of Directors dated 22 July 2019 and numbered 2019/26; It has been decided to increase the issued
capital of the Company from TL 600,000,000 to TL 900,000,000 all by cash and in accordance with the Capital Markets Law,capital increase transactions which have been prepared for the issuance of shares with a nominal value of TL 300,000,000 andstarted with the prospectus approved by the board have been completed.
According to Article 8 of Articles of Association, Group (A) shareholders are privileged to introduce five members out of seven for
selection to the board of directors as long as board of directors is consisted of seven members; six members out of nine as long asboard of directors is consisted of nine members.
b) Restricted Reserves Appropriated from Profit

Legal reserves

31 December 201931 December 2018

1,045,086

1,045,086

1,045,086

1,045,086

According to the Turkish Commercial Law, reserves 5% of the historical statutory profit as first legal reserve, until the total reserve
reaches 20% of the paid-in share capital. The other legal reserve is appropriated at the rate of 10% per annum of all cash dividend
distributions after the payment of dividends to the shareholders at a rate of 5%. According to Turkish Commercial Law, general
legal reserves can only be used if it does not exceed the capital or issued capital for close the losses, continue the business whenbusiness is not going well or end the unemployment and to take suitable precautions to reduce the results of unemployment.

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

19. PAID-IN CAPITAL, RESERVES AND OTHER EQUITY ITEMS (cont’d)b) Restricted Reserves Appropriated from Profit (cont’d)
As of 31 December 2019, the extraordinary reserves of the Group included in its retained earnings is TL 5,620,054 (31 December
2018: TL 5,620,054).
Dividend Distribution:
Listed companies processes their dividend distributions according to the II-19.1 numbered CMB Communique on Dividend, whichbecame effective on or after 1 February 2014.
Shareholders distribute their dividends within the frame of dividend distribution policies determined by general assembly andaccording to the related regulations by the approval of general assembly. Within the mentioned regulation, minimum rate of
distribution is not determined. Companies distribute their dividends according to the predetermined terms in their articles ofincorporation or dividend distribution policies.
As a result of the Ordinary General Assembly Meeting on 5 April 2019, it has been decided not to distribute dividend. As there is no
distributable profit, dividend payments are not planned for the current year.
20. REVENUE AND COST OF SALESa) Sales1 January31 December 2019

1 January31 December 2018

663,907,057
1,054,317,563
26,233,530(30,563,873)(9,602,781)

725,902,875
807,119,634
6,403,967(84,407,450)(13,431,176)

1,704,291,496

1,441,587,850

Domestic sales
Export sales
Other income
Sales returns (-)
Sales discounts (-) (*)(*)

TL 5,753,129 (2018: TL 8,678,963) of the sales discounts consist of provision for sales expenses (Note: 15).

The Group derives its revenue from the transfer of goods and services over time and at a point in time in the following major
product lines. This is consistent with the revenue information that is disclosed for each reportable segment under TFRS 8 (Note 4):

Karsan Branded Products
Industrial and Spare Parts
Other Branded Sales
Other branded vehicle sales
After sales services
Other
Total

1 January31 December 2019

1 January31 December 2018

227,380,938
148,022,776
1,265,330,631
1,238,680,129
26,650,502
63,557,151

187,541,444
135,013,973
1,091,515,438
1,082,186,203
9,329,235
27,516,995

1,704,291,496

1,441,587,850

Management expects that 98% of the transaction price allocated to the unsatisfied contracts as of the year ended 2019 will berecognised as revenue during the next reporting period (TL 8,349,516). The remaining, 2% will be recognised in the 2021 financial
year (TL 159,950).

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

20. REVENUE AND COST OF SALES (cont’d)b) Cost of Sales
Raw materials
Production overheads
Amortization expenses (Note 11-12)
Cost of labour expense
Change in work-in-progress inventories
Change in finished goods inventories
Cost of merchandises soldCost of services rendered
Change in impairment of inventory (Note 9)c) Income from finance sector operations
Revenue from finance sector operations (*)
Cost from finance sector operations (-)(*)

1 January31 December 2019

1 January31 December 2018

(1,056,671,898)(56,322,597)(53,138,830)(65,183,177)(57,055,351)(11,101,814)(1,092,165,168)(46,442,511)(47,761,915)(51,684,003)
67,076,023
15,137,666(94,349,779)(22,419,507)(401,694)(57,524,987)(10,166,182)(1,270,527)(1,416,644,647)(1,224,801,604)

1 January31 December 2019

1 January31 December 2018

177,836,871(150,262,560)
27,574,311

241,606,076(178,582,522)
63,023,554

Represents accrued rental income from financial leasing contracts.

21. ADMINISTRATIVE EXPENSES, MARKETING EXPENSES, RESEARCH AND DEVELOPMENT EXPENSES

Marketing expenses (-)
Administrative expenses (-)
Research and development expenses (-)

1 January31 December 2019

1 January31 December 2018

(63,460,120)(56,743,391)(9,518,695)(83,190,637)(47,101,954)(9,284,865)(129,722,206)(139,577,456)

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

21. ADMINISTRATIVE EXPENSES, MARKETING EXPENSES, RESEARCH AND DEVELOPMENT EXPENSES (cont’d)a) Marketing Expenses
1 January31 December 2019

1 January31 December 2018(28,115,373)(13,651,196)(7,650,844)(1,889,885)(1,741,021)(1,512,891)(1,464,020)(833,121)(671,464)(5,930,305)(20,030,689)(12,204,338)(8,019,576)(2,013,227)(1,201,461)(1,993,490)(1,471,334)(1,327,690)(884,351)(25,581,211)(8,463,270)(63,460,120)(83,190,637)

1 January31 December 2019

1 January31 December 2018(24,226,190)(6,077,713)(5,971,981)(4,424,187)(3,711,254)(1,489,062)(1,374,905)(1,294,337)(1,094,633)(830,174)(622,215)(618,018)(501,329)(465,147)(259,758)(241,376)(3,541,112)(22,712,246)(5,215,571)(4,470,892)(3,391,109)(1,740,349)(3,170,400)(1,505,622)(853,687)(861,240)(875,689)(582,993)(402,693)(559,365)(233,282)(206,955)(319,861)(56,743,391)(47,101,954)

Guarantee expenses (Note 15)
Personnel expenses
Advertising expenses
Dealer and authorised service meeting expenses
Transportation and insurance expenses
Subcontract work expenses
Depreciation and amortization expenses (Note 11-12)
Rent expenses
Customer and channel management expenses
Repair and maintenance expenses (*)
Other

(*)

Maintenance and repair expenses include expenses related to the maintenance contracts expired in 2018.

b) Administrative Expenses

Personnel expenses
Subcontract work expenses
Consulting expenses
Depreciation and amortization expenses (Note 11-12)
Holding service expenses
Allowance for expected credit loss (Note 6)
Travel expenses
Subscription and dues expenses
Depreciation expenses on right of use assets (Note 2.4)
Licenses and patents
Allowances for doubtful receivables (Note 6)
Energy expense
Insurance expenses
Rent expenses
Tax and penalty expenses
Litigation, execution and notary expenses
Other

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

21. ADMINISTRATIVE EXPENSES, MARKETING EXPENSES, RESEARCH AND DEVELOPMENT EXPENSES (cont’d)c) Research and Development Expenses

Services and benefits rendered by third parties
Personnel expenses
Depreciation and amortization expenses (Note 11-12)
Other

1 January31 December 2019

1 January31 December 2018

(5,617,031)(2,682,199)(692,767)(526,698)(5,388,870)(3,050,953)(459,087)(385,955)(9,518,695)(9,284,865)

22. OTHER INCOME AND EXPENSES FROM OPERATING ACTIVITIESThe details of other income from operating activities for the years ended 31 December 2019 and 2018 are as follows:

Foreign exchange gains from operations
Maturity difference income on trade receivables
Unrecognized provision for doubtful receivables (Note 6)
Other (*)(*)

1 January31 December 2019

1 January31 December 2018

53,347,888
22,577,691
31,342
26,465,422

74,690,684
35,477,083
15,0007,802,075

102,422,343

117,984,842

The related amount includes the guarantee and resource usage fees reflected to other parties with a value of 14,250,000 TL.

The details of other expense from operating activities for the years ended 31 December 2019 and 2018 are as follows:

Term difference expense from trading activities
Adjustments related to confirmation differences (Note 5-6)
Other

1 January31 December 2019

1 January31 December 2018(25,649,392)(4,287,638)(16,374,541)(12,789,402)(1,670,530)(29,937,030)(30,834,473)

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

23. INCOME AND EXPENSES FROM INVESTING ACTIVITIESThe details of other income from investing activities for the years ended 31 December 2019 and 2018 are as follows:

Gain on sale of fixed assets (*)
Time deposits interest income
Net gain arising on financial assets designated as at FVTPL (**)
Painting line investment income

1 January31 December 2019

1 January31 December 2018

80,760,363
2,604,042-

2,810,950
2,924,399
62,110,785
2,178,174

83,364,405

70,024,308

The factory of the Entity, which has a net book value of 64,857,749 TL in Bursa Organized Industrial Zone, has been sold to Kök Ziraat Turizm Sanayi ve Ticaret A.Ş.
amounted to 145,000,000 TL at 23 May 2019.

(*)

Group’s financial investment Maas Global OY, which the Group has a shareholding of 10.03%, prepared a fair value report to an independent valuation institution on
31 December 2018 in order to determine the market value of the company. As a result of related report, Karsan’s share has determined as TL 62,110,785 and has been
evaluated as “ Fair value difference will be reflected profit or loss” under TFRS 9 and displayed under “Income from investing activities”.

(**)

The details of other expense from investing activities for the years ended 31 December 2019 and 2018 are as follows:

Loss on sale of fixed assets

1 January31 December 2019

1 January31 December 2018

(2,827,069)(354,994)(2,827,069)(354,994)

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

24. EXPENSES BY NATURE

Raw material usage
Cost of merchandises soldDirect labour expenses
Deprecation and amortization expenses (Note 11-12)
Production overheads
Personnel expenses
Guarantee expenses
Cost of services rendered
Advertising expenses
Subcontract work expenses
Consulting expenses
Holding service expenses
Dealer and authorised service meeting expenses
Transportation and insurance expenses
Allowance for expected credit loss (Note 6)
Rent expenses
Customer and channel management expenses
Allowances for doubtful receivables (Note 6)
Change in impairment of inventory
Repair and maintenance expenses for busses
Change in finished goods inventories
Change in work-in-progress inventories
Other

1 January31 December 2019

1 January31 December 2018

(1,056,671,898)(94,349,779)(65,183,177)(59,719,804)(56,322,597)(40,559,585)(28,115,373)(22,419,507)(7,650,844)(7,590,604)(5,971,981)(3,711,254)(1,889,885)(1,741,021)(1,489,062)(1,298,268)(671,464)(622,215)(401,694)(11,101,814)(57,055,351)(21,829,676)(1,092,165,168)(57,524,987)(51,684,003)(53,083,445)(46,442,511)(37,967,537)(20,030,689)(10,166,182)(8,019,576)(7,209,061)(4,470,892)(1,740,349)(2,013,227)(1,201,461)(3,170,400)(1,887,055)(884,351)(875,689)(1,270,527)(25,581,211)
15,137,666
67,076,023(19,204,428)(1,546,366,853)(1,364,379,060)

1 January31 December 2019

1 January31 December 2018

(139,442,387)(156,247,333)(15,708,452)
11,128,266(13,526,150)(211,539,810)(99,103,780)(10,794,393)(6,503,410)(6,213,591)(313,796,056)(334,154,984)

25. FINANCE EXPENSES

Net foreign exchange losses
Interest expense
Factoring expenses
Unrealized interest income/(expense) on derivative financial instruments
Other

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AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

26. ANALYSIS OF OTHER COMPREHENSIVE INCOME ITEMS
31 December 201931 December 2018

153,912,990(8,022,343)
1,496,339-

198,484,656(6,453,704)
704,585(25,589,944)

147,386,986

167,145,593

1 January31 December 2019

1 January31 December 2018

Balance at the beginning of the year
(Decrease)/Increase arising on revaluation of properties
Transferred to previous years’ losses

198,484,656(44,571,666)

155,774,429
43,263,220(552,993)

Balance at the end of the year

153,912,990

198,484,656

Properties revaluation reserve
Loss on remeasurement of defined benefit plans
Foreign currency translation reserve
Losses on cash flow hedges

Properties revaluation reserve:

The Law numbered 7061 on Amendment of Certain Taxes and Laws and Other Acts was published on the Official Gazette dated 5
December 2017 and numbered 30261. Article 5 entitled “Exceptions” of the Corporate Tax Law has been amended in Article 89 of
the Law. In accordance with (a) clause in the first paragraph of the Article, the exemption of 75% applied to gains from the sales oflands and buildings held by the entities for two full years has been reduced to rate of 50%. This regulation has been effective from
5 December 2017.
The properties revaluation reserve arises on the revaluation of land and buildings. When revalued land or buildings are sold, theportion of the properties revaluation reserve that relates to that asset is transferred directly to retained earnings.
(Gain)/loss on remeasurement of defined benefit plans:

Balance at the beginning of the year
Loss recognized on period
Balance at the end of the year

1 January31 December 2019

1 January31 December 2018

(6,453,704)(1,568,639)(8,022,343)(8,041,270)
1,587,566(6,453,704)

1 January31 December 2019

1 January31 December 2018(25,589,944)
25,589,944(4,075,609)--(21,514,335)-(25,589,944)

Losses on cash flow hedges:

Balance at the beginning of the year
Reclassed to profit or loss table
The loss resulting from the recognitionof the hedging of cash flows
Balance at the end of the year

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AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

26. ANALYSIS OF OTHER COMPREHENSIVE INCOME ITEMS (cont’d)Foreing currency translation reserve:

Balance at the beginning of the year
Translation gain in the period
Balance at the end of the year

1 January31 December 2019

1 January31 December 2018704,585
791,754

215,704
488,881

1,496,339

704,585

31 December 201931 December 2018

(1,720,158)
157,128(1,563,030)(738,891)
174,775(564,116)

31 December 201931 December 2018

(2,145,272)
3,708,302
1,563,030(476,986)
1,041,102
564,116

27. INCOME TAXES (INCLUDING DEFERRED TAX ASSETS AND LIABILITIES)Current Assets Related to Current Tax
Prepaid other taxes and funds
Current tax liabilities

Current tax asset/(liability):
Current corporate tax provision
Less: prepaid taxes and funds

Tax effects of other comprehensive income are as follows:
1 January - 31 December 2019
Before tax
Tax loss/amountincomeNet of tax
amountActuarial gains (loss) on post employment benefit
obligations
Change in cash flow hedging reserve
Change in currency translation reserves(1,960,799)
32,807,621
791,754392,160(7,217,677)-(1,568,639)
25,589,944
791,754

Other comprehensive income/(loss) for theperiod31,638,576(6,825,517)

24,813,059

1 January - 31 December 2018
Before tax
Tax loss/amountincomeNet of tax
amountActuarial gains (loss) on post employment benefit
obligations
Change in cash flow hedging reserve
Change in revaluation reserve of properties
Change in currency translation reserves

1,984,458(27,582,481)
51,074,697
488,881(396,892)
6,068,146(7,811,477)-

1,587,566(21,514,335)
43,263,220
488,881

Other comprehensive income/(loss) for theperiod25,965,555(2,140,223)

23,825,332

KARSAN Annual Report 2019

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AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

27. INCOME TAXES (INCLUDING DEFERRED TAX ASSETS AND LIABILITIES) (cont’d)Corporate Tax
The Group is subject to Turkish corporate taxes. Provision is made in the accompanying financial statements for the estimatedcharge based on the Group’s results for the years and periods. Turkish tax legislation does not permit a parent company and its
subsidiary to file a consolidated tax return. Therefore, provisions for taxes, as reflected in the accompanying consolidated financial
statements, have been calculated on a separate-entity basis.
Corporate tax is applied on taxable corporate income, which is calculated from the statutory accounting profit by adding backnon-deductible expenses, and by deducting dividends received from resident companies, other exempt income and investment
incentives utilized.
The effective tax rate in 2019 is 22% (2018: 22%).
The Law numbered 7061 on Amendment of Certain Taxes and Laws and Other Acts was published on the Official Gazette dated 5
December 2017 and numbered 30261. Article 5 entitled “Exceptions” of the Corporate Tax Law has been amended in Article 89 of
the Law. In accordance with (a) clause in the first paragraph of the Article, the exemption of 75% applied to gains from the sales oflands and buildings held by the entities for two full years has been reduced to rate of 50%. This regulation has been effective from
5 December 2017.
In accordance with the decision on the amendment of the decision of the Council of Ministers on Government Grants andIncentives No. 2017/9917 published in the Official Gazette dated 22 February 2017 and numbered 29987, within the scope ofdecision numbered 2012/3305 and investment incentive certificates issued for manufacturing sector (“US-97 Code: 15-37”), for
the investment expenditures between 1 January 2019 and 31 December 2019. Tax reduction that can be utilized for large–scale
investments, investments made in the scope regional practices, primary investments and strategic investments shall be applied
as 100% of the corporate tax or rate of contribution to investments for each region shall get 15 points additionally income tax
reduction in all regions by adding 15 points to the contribution rate of investment which is effective in each region and 100% of
the investment contribution amount which will be performed in the earnings from other activities of the investor in investment
period without any action on the incentive certificate.
Deferred Tax
The Group recognizes deferred tax assets and liabilities based upon temporary differences arising between its financial
statements as reported for TFRS purposes and its statutory tax financial statements. These differences usually result in therecognition of revenue and expenses in different reporting periods for TFRS and tax purposes and they are given below.
Tax rate used in the calculation of deferred tax assets and liabilities was 22% over temporary timing differences expected to bereversed in 2020 and 20% over temporary timing differences expected to be reversed in 2021 and the following years (2018:22%).
In Turkey, the companies cannot declare a consolidated tax return, therefore subsidiaries that have deferred tax assets position
were not netted off against subsidiaries that have deferred tax liabilities position and disclosed separately.

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AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

27. INCOME TAXES (INCLUDING DEFERRED TAX ASSETS AND LIABILITIES) (cont’d)Deferred Tax (cont’d)Deferred tax assets/(liabilities):
Carry forward tax losses
Revaluation and amortisation difference for tangible and intangible assets
Investment incentives (Note 14)
Income accruals
Loan exchange differences
Provision for guarantee expenses
Derivative instruments
Provision for maintenance and repair expenses
Provision for employment termination benefits
Inventory adjustments
Bond adjustments
Legal provision
Provision for unused vacation and salaries
Provision for sales discounts
Provision for doubtful receivables
Unearned credit finance income, expense (net)Cut-off adjustments
Other

31 December 201931 December 2018

89,017,539(11,611,828)
35,052,047(32,671,493)(27,866,934)
9,849,789
3,120,300
6,648,206
1,994,528
694,201
374,000
2,448,122
130,947
528,729(376,569)
3,772,331
9,870,308

108,661,224(39,355,974)
31,576,948(25,558,312)(17,228,133)
6,227,130
5,568,518
4,694,382
4,261,107
2,119,128
1,750,876
374,000
1,490,431
135,482
635,828
477,108
760,579
13,485,656

90,974,223

100,075,978

The Group has accumulated tax losses amounting to TL 546,824,749 as of 31 December 2019 (31 December 2018: TL
660,285,240). The Group management has accounted for TL 89,017,539 (31 December 2018: TL 108,661,224) of deferred
tax asset for accumulated tax losses amounting to TL 445,087,693 (31 December 2018: TL 543,306,118) in the accompanying
financial statements after accounting for a provision for carry forward tax losses amounting to TL 101,737,056 (31 December
2018: TL 116,979,122) which the Group will not be able to utilize according to the five year projections.
The expiration dates of unused accumulated losses over which deferred tax assets calculated are as follows:

Expiring in 2019
Expiring in 2020
Expiring in 2021
Expiring in 2022
Expiring in 2023
Expiring in 2024

31 December 201931 December 2018

1,737,056
206,818,908
120,534,134
216,855,507
879,144

115,242,066
1,737,056
206,818,908
120,534,134
215,953,076-

546,824,749

660,285,240

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AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

27. INCOME TAXES (INCLUDING DEFERRED TAX ASSETS AND LIABILITIES) (cont’d)Deferred Tax (cont’d)
Movement of deferred tax assets/(liabilities) for years ended 31 December 2019 and 2018 are as follows:
Movement of deferred tax assets/(liabilities):

2019

2018

Opening balance at 1 January
Effect of change in accounting policy
As restated opening balance at 1 January
Charged to profit or loss
Charged to equity

100,075,978
100,075,978(2,276,238)(6,825,517)

80,160,836
7,863,092
88,023,928
14,192,273(2,140,223)

Closing balance at 31 December

90,974,223

100,075,978

31 December 201931 December 2018

Income/(loss) before tax

24,725,547(37,102,957)

Tax at the domestic income tax rate of 22% (2018: 22%)5,439,620(8,162,651)(31,001,176)(18,720,790)

16,472,078
19,819,514(3,475,099)(1,533,257)(1,300,170)

6,222,363
16,700,560(7,272,678)(356,430)(2,125,661)

4,421,510(13,715,287)

Total charge for the year can be reconciled to the accounting profit as follows:
Tax reconciliation:

Tax effect:- revenue that is exempt from taxation- expenses that are not deductible
in determining taxable profit- tax losses- deferred tax effect calculated from investment allowance- change of the tax rate from 20% to 22%- other
Income tax expense recognised in profit or loss
28. INCOME/(LOSS) PER SHARE

A summary of the weighted average number of shares outstanding for the year ended in 31 December 2019 and 2018 and thebasic earnings per 1 TL share calculation is as follows (assumed that cash increases do not include any bonus share):

The average number of available shares during the year
Net income/(loss) of shareholders (TL)
Income/(loss) per share (TL) (1 TL per share)

1 January31 December 2019

1 January31 December 2018

60,575,342,466
18,024,512
0.029860,000,000,000(23,387,670)(0.0390)

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AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

29. DERIVATIVES FINANCIAL INSTRUMENTS
31 December 2019
AssetsLiabilities

31 December 2018
AssetsLiabilities

Current
Forward contracts
Money trading options
Fair value hedge contracts

44,867,703
44,867,703

14,183,181
7,422,223
6,760,958-

29,102,154
29,102,154

9,249,620
2,600,857
6,648,763-

Non-current
Forward contracts
Money trading options
Fair value hedge contracts

89,735,406
89,735,406-

87,306,462
87,306,462

16,061,827
8,300,843
7,760,984-

134,603,109

14,183,181

116,408,616

25,311,447

Currency derivatives:
The Group utilizes currency derivatives to hedge significant future transactions and cash flows. The Group is party to a variety offoreign currency forward contracts and options in the management of its exchange rate exposures. The instruments purchased areprimarily denominated in the currencies of the Group’s principal markets.
At the end of the reporting period, the total notional amount of outstanding forward foreign exchange contracts to which theGroup is committed are as follows:

Fair value hedge accounting contracts
Foreign exchange contracts

31 December
2019

31 December
2018272,548,292
42,563,845

296,819,570
129,474,325

315,112,137

426,293,895

At 31 December 2019, the fair value of the Group’s currency derivatives is estimated to be approximately TL 14,183,181 (2018: TL
25,311,447). That amount of liability is valuated based on quoted market prices for equivalent instruments at the balance sheet
date.

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

29. DERIVATIVES FINANCIAL INSTRUMENTS (cont’d)
As of 31 December 2018, TL 32,807,621 of unrealized foreign exchange differences related to the Group’s loan amounting to
EUR 25,000,000, as a hedging instrument, has been associated with long term Euro receivables and shown as TL 25,589,944
which is offset deferred tax asset of TL 7,217,677 under equity as loss of hedging. As of 31 December 2019, since this transaction
associated with the Company’s long term Euro receivables is not effective, the Group does not have any cash flow hedge
accounting policy in which unrealized foreign exchange difference is shown under equity.
Hedge fund
The Group’s hedging fund includes the following hedging tools:

Notes
1 January 2018 - opening balance
Change in the fair value of the hedged instrument recognized inother comprehensive income
Effect of deferred tax
31 December 2018 - closing balance
Change in the fair value of the hedged instrument recognized inother comprehensive income
Effect of deferred tax
31 December 2019 - closing balance

Cash flow hedge fund
Cost of
Total
hedging fundhedging fund27

(4,075,609)(4,075,609)

27(27,582,481)
6,068,146(25,589,944)(27,582,481)
6,068,146(25,589,944)

32,807,621(7,217,677)-

32,807,621(7,217,677)-

31 December 201931 December 2018

2,465,708

48,225,635

2,465,708

48,225,63527
27

30. FINANCIAL INSTRUMENTS
Financial Assets
Short Term Financial Investments

Blocked deposits (*)(*)

These short-term financial investments consist of bank balances which are restricted within the framework of contracts for fair value hedging.

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

30. FINANCIAL INSTRUMENTS (cont’d)Financial Assets (cont’d)Long Term Financial Investments
The details of the Group’s financial investments at fair value through profit or loss are as follows:
Non-traded in stock exchange
Industria Italiana Autobus
S.p.A. (IIA) (*)
Maas Global OY

Share Ratio %31 December 2019

Share Ratio %31 December 201828.59%
10.03%

78,634,649
71,978,178

70%
10.03%

26,926,649
71,978,178

150,612,827

98,904,827

As of 12 December 2018, the Entity participated in the capital of Industria Italiana Autobus (“IIA”), which produced the Menarinibus brand vehicles, with a price ofTL 21,882,749 (EUR 3,629,642) and its share of partnership increased from 5% to 70%. On the other hand, in the IIA General Assembly held on 29 January 2019,as a result of the Italian state institution INVITALIA S.P.A. used proportionally the right to increase capital, the Entity’s share in IIA decreased to 28.59%. The Entity
participated in the capital increase made in 2019 at the price of EUR 8,295,024 and increased the total investment amount in the capital of IIA from EUR 5,129,642 (TL
26,926,649) to EUR 11,924,666 (TL 78,634,649).

(*)

Financial Liabilities
Details of the financial debts which are disclosed at amortized value are as follows:
Financial Borrowings
Short Term Bank Loans
Short Term Portion of Long Term Bank Loans
Short Term Issued Debt Instruments
Short Term Financial Leasing Liabilities (Note 13)
Short-term lease liabilities
Factoring Liabilities

Long Term Bank Loans
Long Term Issued Debt Instruments
Long Term Financial Leasing Liabilities (Note 13)
Long-term lease liabilities

31 December 201931 December 2018759,117,007
145,984,469
91,155,458
30,358,891
487,028
24,202,307

267,431,580
501,725,031
70,721,928
25,775,974
16,776,754

1,051,305,160

882,431,267

434,890,845
11,405,612
294,773446,591,230

594,892,107
92,236,601
37,922,801
725,051,509

1,497,896,390

1,607,482,776

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AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

30. FINANCIAL INSTRUMENTS (cont’d)Financial Liabilities (cont’d)Bank Loans:
Currency Type

Weighted Average
Effective Interest Rate

TL
EUR

20.46%
2.81%

Currency Type

Weighted Average
Effective Interest RateTL
EUR
US Dollar

16.68%
4.28%
7.65%

31 December 2019
Current

Non-current

256,923,065
648,178,411

83,650,000
351,240,845

905,101,476

434,890,845

31 December 2018
Current

Non-current

186,439,802
487,584,286
95,132,523

110,120,758
484,771,349-

769,156,611

594,892,107

31 December 201931 December 2018

905,101,476
216,277,472
126,928,071
40,023,441
15,034,790
36,627,071

769,156,611
280,837,120
118,734,859
109,347,547
38,059,728
47,912,853

1,339,992,321

1,364,048,718

31 December 201931 December 2018

Long-term bank loans

434,890,845

594,892,107

Total borrowings

434,890,845

594,892,107

The borrowings are repayable as follows:

To be paid within 1 year
To be paid between 1-2 years
To be paid between 2-3 years
To be paid between 3-4 years
To be paid between 4-5 years
To be paid in 5+ years

Fair value of long term borrowings are as follows:

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AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

30. FINANCIAL INSTRUMENTS (cont’d)Financial Liabilities (cont’d)Reconciliation of liabilities arising from financing activities
The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non–cashchanges. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in
the Group’s consolidated statement of cash flows as cash flows from financing activities.

Bank loans andother financial liabilities

Bank loans andother financial liabilities

1 January 2019

Financing
cash flows

Non-cash changes
Fair value
adjustments

31 December 2019

1,607,482,776(371,042,932)

261,456,546

1,497,896,390

1 January 2018

Financing
cash flows

Non-cash changes
Fair value
adjustments

31 December 2018

1,173,048,215

86,752,842

347,681,719

1,607,482,776

31 December 201931 December 2018

91,155,458-

70,721,928
92,236,601

91,155,458

162,958,529

Issued Debt Instruments:

Short-term portion of issued bonds
Long-trm portion of issued bonds

A bond with a nominal value of TL 180 million sold in October 2015 within the scope of the issue ceiling of TL 200 million permitted
by the Capital Market Board in 2014 was amortized on 17 October 2017. The second order bond issuance with a nominal value of TL
20 million sold within the same ceiling was amortized on 23 March 2018.
The Company has obtained permission from the Capital Markets Board for issuance of bonds with a nominal value of TL 200 million
as of 11 August 2017 to be sold to qualified investors by guaranteeing the payment obligations related to all bonds by controllingshareholder Kıraça Holding A.Ş.. Within the scope of this issuance ceiling, tranches of two bonds were sold with variable interest
coupon payments quarterly with a maturity of 1092 days, amortization date: 13 October 2020 and with a nominal value of TL 88
Million, and with variable interest coupon payments quarterly with a maturity of 728 days, amortization date : 15 October 2019 andwith a nominal value of TL 67 Million on 13 October 2017.

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

30. FINANCIAL INSTRUMENTS (cont’d)Financial Liabilities (cont’d)Terms of bonds are as follows:
Currency Type

Effective Interest Rate %TL

4.03% + DIBS (*)

Currency Type

Effective Interest Rate %TL

4.02% + DIBS (*)(*)

31 December 2019
Current
91,155,458
91,155,458
31 December 2018
Current
70,721,928
70,721,928

Non-current-

Non-current
92,236,601
92,236,601

Represents interest rate of the indicative government domestic debt instruments.

31. NATURE AND LEVEL OF RISKS ARISING FROM FINANCIAL INSTRUMENTSa) Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximizing thereturn to stakeholders through the optimization of the debt and equity balance.
The capital structure of the Group consists of debt, which includes the borrowings disclosed in Note 30, cash and cash equivalents
and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings.
The Group’s risk Board of Directors reviews the capital structure of the Group collectively on a semi-annual basis. As a part of thisreview, the committee considers the cost of capital and the risks associated with each class of capital. Based on recommendationsof the committee, the Group will balance its overall capital structure through the payment of dividends, new share issues and sharebuy-backs as well as the issue of new debt or the redemption of existing debt.
In addition and consistent with others in the industry, the group monitors capital on the basis of the gearing ratio. This ratio
is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including ‘current and non-current
borrowings’ as shown in the consolidated statement of financial position) less cash and cash equivalents. Total capital is calculated
as ‘equity’ as shown in the consolidated statement of financial position plus net debt.

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AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

31. NATURE AND LEVEL OF RISKS ARISING FROM FINANCIAL INSTRUMENTS (cont’d)During 2019, the Group’s strategy, which was unchanged from 2018. The gearing ratios at 31 December 2019 and 2018 were as
follows:

Financial borrowings
Less: Cash and Cash Equivalents
Net Debt
Total Equity
Total Capital
Gearing Ratio (Net Debt/Total Capital)

31 December 201931 December 2018

1,497,896,390(47,238,953)
1,450,657,437
663,535,421
2,114,192,858

1,607,482,776(82,769,148)
1,524,713,628
327,563,871
1,852,277,499

69%

82%

b) Financial Risk Factors
The Group’s activities expose it to a variety of financial risks including interest rate risk, liquidity risk, currency risk and credit risk.
The Group’s risk management programme generally focuses on uncertainty in financial markets and minimizing potential negative
effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures.
Risk management, is conducted by a treasury department with some politic approved by the board of management. Treasury
department of the Group defines and evaluates the financial risk, and by working with the operation units, they use tools todecrease the risk.
b.1) Credit risk management
In order to minimize credit risk, the Group has adopted a policy of only dealing with creditworthy counterparties and obtaining
sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults.
Before accepting any new customer, credit limits by customer are determined and defined after the assessment of the potential
customer’s credit quality.
Credit approvals and other monitoring procedures are also in place to ensure that follow-up action is taken to recover overdue
debts. Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing
credit evaluation is performed on the financial condition of accounts receivable and, where appropriate, credit guarantee insurance
cover is purchased. Additionally, the Group management evaluates the trade payables and financial assets on a customer andasset basis at the end of the period and ensures that the required provisions for the non-collectible amounts are reflected in the
consolidated financial statements. In this context, the Group management believes that the Group’s credit risk has decreased
significantly as of the reporting date.

KARSAN Annual Report 2019163

KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

31. NATURE AND LEVEL OF RISKS ARISING FROM FINANCIAL INSTRUMENTS (cont’d)b) Financial Risk Factors (cont’d)b.1) Credit risk management (cont’d)
Details of credit risk by class of financial instruments

31 December 2019
Maximum credit risk exposed as of balance sheet
date (A+B+C+D) (*)-

Secured portion of the maximum credit risk by
guarantees (**)

A. Net book value of financial assets that areneither past due nor impaired
B. Net book value of financial assets that are past
due but not impaired- Secured portion of the net book value by
guarantees, etc.
C. Net book value of the impaired assets- Past due (gross amount)- Impairment (-)- Secured portion of the net book value by
guarantees, etc.
- Not past due (gross amount)- Impairment (-)- Secured portion of the net book value by
guarantees, etc.
D. Off-balance sheet items exposed to credit risk(*)

Receivables
Trade
Other
Receivables
Receivables
RelatedThird
RelatedThird
Parties
Parties
Parties Parties

Deposits at
Banks

Receivables fromfinance sector
operations

383,951,625 471,988,835-

99,213

48,767,906

150,262,560-

2,877,975

-

-

-

-

202,033,894 424,992,810--

48,767,906

150,262,560

181,917,731

46,996,025

-

-

-

-

-

2,501,520

-

-

-

-

3,174,238(3,174,238)

4,494,033(4,494,033)

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

The factors that increase the credit reliability, such as guarantees received are not considered in the determination of the balance.

(**)

Guarantees consist of guarantee checks and guarantee notes obtained from the customers.

164

KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

31. NATURE AND LEVEL OF RISKS ARISING FROM FINANCIAL INSTRUMENTS (cont’d)b) Financial Risk Factors (cont’d)b.1) Credit risk management (cont’d)
Details of credit risk by class of financial instruments

31 December 2018
Maximum credit risk exposed as of balance sheet
date (A+B+C+D) (*)-

Secured portion of the maximum credit risk by
guarantees (**)

A. Net book value of financial assets that areneither past due nor impaired
B. Net book value of financial assets that are past
due but not impaired- Secured portion of the net book value by
guarantees, etc.
C. Net book value of the impaired assets- Past due (gross amount)- Impairment (-)- Secured portion of the net book value by
guarantees, etc.
- Not past due (gross amount)- Impairment (-)- Secured portion of the net book value by
guarantees, etc.
D. Off-balance sheet items exposed to credit risk(*)

Receivables
Trade
Other
Receivables
Receivables
RelatedThird
RelatedThird
Parties
Parties
Parties Parties

Deposits at
Banks

Receivables fromfinance sector
operations

197,805,746 409,072,614-

73,732130,840,152

178,582,522-

7,370,000

-

-

-

-

139,837,702

375,105,748--

130,840,152

178,582,522

57,968,044

33,966,866

-

-

-

-

-

781,560

-

-

-

-

549,072(549,072)

4,916,498(4,916,498)

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

The factors that increase the credit reliability, such as guarantees received are not considered in the determination of the balance.

(**)

Guarantees consist of guarantee checks and guarantee notes obtained from the customers.

165

KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

31. NATURE AND LEVEL OF RISKS ARISING FROM FINANCIAL INSTRUMENTS (cont’d)b) Financial Risk Factors (cont’d)b.1) Credit risk management (cont’d)
Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group. The
Group is aiming to decrease credit risk by transacting only with parties who has credit assurance and where possible, obtaining
sufficient guarantee. Credit risks which the Group is exposed and credibility of customers are being watched continuingly. Credit
risk is being controlled by the risk management committee through limits which are determined and annually controlled by the
management.
Trade receivables comprise lots of customers spreaded to variety of sectors and geographic segments. Credit assessments arecontinuingly performed for trade receivables balances from customers and receivables are insured where necessary.
Aging of overdue receivables is as follows:
31 December 2019
Past due up to 30 days
Past due 1 - 3 months
Past due 3 - 12 months
Past due 1 - 5 year
Total past due receivables
Secured portion of receivables
by guarantees, etc.
31 December 2018
Past due up to 30 days
Past due 1 - 3 months
Past due 3 - 12 months
Past due 1 - 5 year
Total past due receivables
Secured portion of receivables
by guarantees, etc.

Trade Receivables

Total

99,721,418
21,368,538
57,018,734
50,805,067
228,913,756

99,721,418
21,368,538
57,018,734
50,805,067
228,913,756

2,501,520

2,501,520

Trade Receivables

Total

33,398,761
31,714,450
19,782,137
7,039,562
91,934,910

33,398,761
31,714,450
19,782,137
7,039,562
91,934,910

781,560

781,560166

KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

31. NATURE AND LEVEL OF RISKS ARISING FROM FINANCIAL INSTRUMENTS (cont’d)b.2) Liquidity risk management
The ultimate responsibility for liquidity risk management belongs to the Board of Directors. The Board of Directors has establisheda liquidity risk management in order to meet short, mid and long term financing, and liquidity requirements of the management.
The Group manages liquidity risk by tracking actual and projected cash flows closely, and by maintaining sustainability of credibility
reserve and sufficient funds through matching maturities of financial assets and liabilities.
The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities and its derivative
financial liabilities. The tables below have been drawn up based on the undiscounted cash flows of financial liabilities based on
the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. The liquidity
analysis for its derivative financial instruments has been drawn up based on the undiscounted net cash inflows/(outflows) on
the derivative instrument that settle on a net basis and the undiscounted gross inflows and (outflows) on those derivatives that
require gross settlement. When the amount payable or receivable is not fixed, the amount disclosed has been determined byreference to the projected interest rates as illustrated by the yield curves existing at the reporting date.
Liquidity risk table:
31 December 2019

Contract Terms

Carrying
value

Total
Contracted
Cash Outflows(I+II+III+IV)

Less than
3 months (I)

3 to 12months (II)

1 to
5 years (III)5years + (IV)1,339,992,321
91,155,458

1,461,165,382
104,170,278

323,575,682
4,117,769

641,147,344
100,052,509

453,968,293-

42,474,063-

41,764,503
781,801
24,202,307
229,845,353
4,311,075

44,692,599
781,801
24,202,307
229,845,353
4,311,075

8,298,770
121,757
24,202,307
229,845,353-

24,619,752
365,271
4,311,075

11,774,077
294,773--

14,183,181

18,328,374

3,327,467

15,000,907--

1,746,235,999 1,887,497,169 593,489,105 785,496,858 466,037,143

42,474,063

Non-derivative
financial liabilities
Bank loans
Bonds issued
Obligations underfinance leases
Lease liabilities
Factoring liabilities
Trade payables
Other payables
Derivatives
Derivative Liabilities
Total liabilities

-

167

KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

31. NATURE AND LEVEL OF RISKS ARISING FROM FINANCIAL INSTRUMENTS (cont’d)
31 December 2018

Contract Terms

Total
Contracted
Carrying Cash Outflows
value(I+II+III+IV)

Less than
3 months (I)

3 to 12months (II)

1 to
5 years (III)5years+ (IV)Non-derivative
financial liabilities
Bank loans
Bonds issued
Obligations underfinance leases
Trade payables
Factoring liabilities
Other payables
Derivatives
Derivative Liabilities
Total liabilities

1,364,048,718
162,958,529

1,509,501,363
208,141,587

227,910,437
10,982,903

629,961,188
93,404,040

595,701,515
103,754,644

55,928,223-

63,698,775
247,332,650
16,776,754
1,494,009

70,846,798
269,776,387
16,776,754
1,494,009

7,732,675
192,281,198
14,991,563-

22,605,450
77,495,189
1,785,191
1,494,009

40,508,673--

25,311,447

32,479,393

4,900,907

14,385,313

13,193,173-

1,881,620,882 2,109,016,291 458,799,683 841,130,380 753,158,005

55,928,223

The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The
Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk,
including:-- Currency swaps to manage the foreign currency risk associated with foreign currency denominated borrowings
Market risk exposures are measured by sensitivity and stress scenario analyses.
During the current year, any change to either exposed risks or management and measurement methods of these risks, was not
happened compared to the previous year.
b.3.1) Foreign currency risk management
Transactions denominated in foreign currencies result in foreign currency risk. Foreign currency risk is managed within approved
policy parameters utilizing forward foreign exchange contracts.

168

KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

31. NATURE AND LEVEL OF RISKS ARISING FROM FINANCIAL INSTRUMENTS (cont’d)b.3.1) Foreign currency risk management (cont’d)
The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting
period are as follows:

1.
2a.
2b.
3.
4.
5.
6a.
6b.
7.
8.
9.
10.
11.
12a.
12b.
13.
14.
15.
16a.
16b.
17.
18.
19.

Trade Receivables
Monetary Finacial Assets
Non-Monetary Finacial Assets
Other
CURRENT ASSETS
Trade Receivables
Monetary Finacial Assets
Non-Monetary Finacial Assets
Other
NON-CURRENT ASSETSTOTAL ASSETS
Trade Payables
Financial Liabilities
Other Monetary Liabilities
Other Non-Monetary Liabilities
CURRENT LIABILITIES
Trade Payables
Financial Liabilties
Other Monetary Liabilities
Other Non-Monetary Liabilities
NON-CURRENT LIABILITIESTOTAL LIABILITIES
Off-balance sheet derivative instruments
net asset/liability position (19a-19b)
19..a. Amount of active off-balance sheet foreign
currency derivatives
19.b. Amount of passive off-balance sheet foreign
currency derivatives
20.
Net foreign currency assets/liabilities
position (9-18+19)
21.
Monetary items net foreign currency
assets/liabilities(1+2a+5+6a-10-11-12a-14-15-16a)
22.
Fair value of financial instruments used for
currency hedge
23.
Hedged foreign currency assets
24.
Amount of portion of foreign exchange
liabilities
25.
Export26.
Import31 December 2019

TL Amount(Functional
Currency)
633,954,019
47,941,628
233,693,905
915,589,553
86,068,492
86,068,492
1,001,658,045
23,919,803
702,739,609
726,659,412
362,646,457
550,856
363,197,313
1,089,856,724

US Dollar
1,411,893
4,663
7,743
1,424,299
30,54030,5401,454,839
835,672
835,672
835,672

Euro
93,983,048
4,450,976
34,478,743
132,912,767
12,914,185
12,914,185
145,826,952
1,619,918
105,665,595
107,285,513
54,528,382
82,82854,611,210
161,896,723

RON
378,422
13,235,659
2,883,049
16,497,130
16,497,130
5,889,494
5,889,494
5,889,494

GBP
605
17,75918,364
18,364
57
57
57

Other
47,96547,96547,965
7,774
7,774
7,774

21,281,920-

3,200,000

-

-

-

-

-

-

-

-

-

(21,281,920)-(3,200,000)

-

-

-

(66,916,759)

619,167(12,869,771) 10,607,636

18,30740,191(407,961,077)

580,884 (63,462,699)

7,724,587

548(7,774)(7,422,223)
324,852,469-(1,116,023)
48,845,588

-

-

-

782,910,002
658,389,396

772,890

117,720,206
97,604,242-

60,929925,090

169

KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

31. NATURE AND LEVEL OF RISKS ARISING FROM FINANCIAL INSTRUMENTS (cont’d)b.3.1) Foreign currency risk management (cont’d)

1.
2a.
2b.
3.
4.
5.
6a.
6b.
7.
8.
9.
10.
11.
12a.
12b.
13.
14.
15.
16a.
16b.
17.
18.
19.

Trade Receivables
Monetary Finacial Assets
Non-Monetary Finacial Assets
Other
CURRENT ASSETS
Trade Receivables
Monetary Finacial Assets
Non-Monetary Finacial Assets
Other
NON-CURRENT ASSETSTOTAL ASSETS
Trade Payables
Financial Liabilities
Other Monetary Liabilities
Other Non-Monetary Liabilities
CURRENT LIABILITIES
Trade Payables
Financial Liabilties
Other Monetary Liabilities
Other Non-Monetary Liabilities
NON-CURRENT LIABILITIESTOTAL LIABILITIES
Off-balance sheet derivative instruments
net asset/liability position (19a-19b)
19.a. Amount of active off-balance sheet foreign
currency derivatives
19.b. Amount of passive off-balance sheet
foreign currency derivatives
20.
Net foreign currency assets/liabilities
position (9-18+19)
21.
Monetary items net foreign currency
assets/liabilities(1+2a+5+6a-10-11-12a-14-15-16a)
22.
Fair value of financial instruments used for
currency hedge
23.
Hedged foreign currency assets
24.
Amount of portion of foreign exchange
liabilities
25.
Export26.
Import31 December 2018

TL Amount(Functional
Currency)
397,784,494
326,587,172
119,386,996
843,758,662
75,313,330
9,225,928
84,539,258
928,297,920
164,464,303
622,490,332
786,954,635
538,911,125
37,460,105
576,371,230
1,363,325,865

US Dollar
8,753,215
6,079
172,447
8,931,741
30,54030,5408,962,281
1,665,827
19,469,767
21,135,594
1,577,837
1,577,837
22,713,431

Euro
56,937,822
50,134,068
17,975,637
125,047,527
12,493,917
1,503,859
13,997,775
139,045,302
24,905,694
86,274,359
111,180,053
88,024,267
220,071
88,244,338
199,424,391

RON
18,923,242
7,431,016
26,354,258
26,354,258
892,886
892,886
30,146,658
30,146,658
31,039,544

GBP
950
12,231
13,181
13,181
994
994
994

Other
100
124,450
124,550
124,550-(4,967,833)

7,000,000(6,933,333)

-

-

-

36,826,300

7,000,000

-

-

-

-

41,794,133-

6,933,333---(439,995,778)(6,751,150)(67,312,422)(4,685,286)

12,187

124,550(563,640,869) (13,954,137) (79,858,584)(12,116,303)

(44)

100

(12,491,294)
339,739,853-(2,072,212)
56,360,294

-

-

-

846,322,108
635,925,605

2,500,000
896,117

138,216,632
104,570,943-

27,717673,182

170

KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

31. NATURE AND LEVEL OF RISKS ARISING FROM FINANCIAL INSTRUMENTS (cont’d)b.3.1) Foreign currency risk management (cont’d)Foreign currency sensitivity analysis
The Group is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to US Dollar andEuro.
The following table details the Group’s sensitivity to a 10% appreciation and depreciation in US Dollar and Euro against TL.
10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents
management’s assessment of the possible change in foreign exchange rates. The sensitivity analysis includes only outstanding
foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign
currency rates. The sensitivity analysis includes external loans as well as loans to foreign operations within the Group where thedenomination of the loan is in a currency other than the currency of the lender or the borrower. A positive number below indicatesan increase in profit/loss or equity.
Company management, have the opinion that sensitivity analyses does not exactly reflect the currency risk because sensitivity
analyses made at the end of the year does not reflect exchange risk occurred within the year.
31 December 2019

Profit/LossAppreciation
Depreciationof Foreignof Foreign
Currency
Currency
In case of US Dolar appreciation by 10% against TL
1 - US Dolar net asset/liability
2- US Dolar hedges (-)
3- Net effect of US Dollar (1 +2)

EquityAppreciation
Appreciationof Foreignof Foreign
Currency
Currency

367,798
367,798(367,798)(367,798)

367,798
367,798(367,798)(367,798)

In case of Euro appreciation by 10% against TL
4 - Euro net asset/liability
5 - Euro hedges (-)
6- Net effect of Euro (4+5)(8,559,170)
32,485,247
23,926,077

8,559,170(32,485,247)(23,926,077)(8,559,170)
32,485,247
23,926,077

8,559,170(32,485,247)(23,926,077)

In case of RON appreciation by 10% against TL
7 - RON net asset/liability
8 - RON hedges (-)
9- Net effect of RON (7+8)

1,467,248
1,467,248(1,467,248)(1,467,248)

1,467,248
1,467,248(1,467,248)(1,467,248)

In case of GBP appreciation by 10% against TL
10- GBP net asset/liability
11- GBP hedges (-)
12- Net effect of GBP (10+11)

14,236
14,236(14,236)(14,236)

14,236
14,236(14,236)(14,236)

In case of other currencies appreciation by 10%
against TL
13- Other currencies net asset/liability
14- Other currencies hedges (-)
15- Net effect of other currencies (13+14)

18,237
18,237(18,237)(18,237)

18,237
18,237(18,237)(18,237)

25,793,596(25,793,596)

25,793,596(25,793,596)

TOTAL (3 + 6 + 9 + 12 + 15)

171

KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

31. NATURE AND LEVEL OF RISKS ARISING FROM FINANCIAL INSTRUMENTS (cont’d)b.3.1) Foreign currency risk management (cont’d)Foreign currency sensitivity analysis (con’t)
31 December 2018
Profit/Loss
EquityAppreciation
Depreciation
Appreciation
Appreciationof Foreignof Foreignof Foreignof Foreign
Currency
Currency
Currency
Currency
In case of US Dolar appreciation by 10% against TL
1 - US Dolar net asset/liability
2- US Dolar hedges (-)
3- Net effect of US Dollar (1 +2)(3,551,712)(3,551,712)

3,551,712
3,551,712(3,551,712)(3,551,712)

3,551,712
3,551,712

In case of Euro appreciation by 10% against TL
4 - Euro net asset/liability
5 - Euro hedges (-)
6- Net effect of Euro (4+5)(40,575,928)
37,482,977(3,092,951)

40,575,928(37,482,977)
3,092,951(40,575,928)
37,482,977(3,092,951)

40,575,928(37,482,977)
3,092,951

In case of RON appreciation by 10% against TL
7 - RON net asset/liability
8 - RON hedges (-)
9- Net effect of RON (7+8)(602,809)(602,809)

602,809602,809(602,809)(602,809)

602,809602,809

In case of GBP appreciation by 10% against TL
10- GBP net asset/liability
11- GBP hedges (-)
12- Net effect of GBP (10+11)

8,108
8,108

(8,108)(8,108)

8,108
8,108

(8,108)(8,108)In case of other currencies appreciation by 10%
against TL
13- Other currencies net asset/liability
14- Other currencies hedges (-)
15- Net effect of other currencies (13+14)

48,09048,090(48,090)(48,090)

48,09048,090(48,090)(48,090)(7,191,274)

7,191,274(7,191,274)

7,191,274

TOTAL (3 + 6 + 9 + 12 + 15)

172

KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

31. NATURE AND LEVEL OF RISKS ARISING FROM FINANCIAL INSTRUMENTS (cont’d)b.3.1) Foreign currency risk management (cont’d)Foreign currency sensitivity analysis (cont’d)Forward foreign exchange contracts
The Group’s derivative financial instruments consist of forward transactions to protect against exchange risk arising fromfluctuations in currency and call and put options on various banks. Derivative financial instruments are registered at fair value with
their costs of transactions are recognized at transaction date and fair value is determined for each derivative financial instrument
in subsequent periods.
The following tables detail the foreign currency forward contracts outstanding at the end of the reporting period, as well as
information regarding their related hedged items. Foreign currency forward contract assets and liabilities are presented in the line
‘Derivative financial instruments’ (either as asset o as liabilities) within the statement of financial position:
Outstanding contracts:
Average rate
2019 TL 2018 TL
Sell EuroLess than 3 months
More than 3monthsBuy EuroLess than 3 months
More than 3monthsForeign currency
2019 TL
2018 TL

Contract value
2019 TL
2018 TL

Fair value
2019 TL
2018 TL

4.65

4.31

3,546,987

6,429,867

2,502,293

4,599,360(1,077,916)(2,013,285)

4.82

4.68

17,734,936

32,149,333

12,955,467

24,966,400(5,683,042)(12,370,110)

4.51

4.07

3,546,986

9,644,800

2,405,600

4,342,933(1,194,972)(1,114,843)

4.69

4.53

17,734,936

70,728,525

12,499,253

53,189,280(6,227,251)(14,508,326)

-

4.85

-

10,521,800-

33,970,000-

4,695,117

42,563,845

129,474,325

30,362,613

121,067,973(14,183,181)(25,311,447)

Buy US Dollar
More than 3monthsFair value hedge accounting transactions:
The following table details the fair value hedge accounting contracts that have not been realized as of the reporting date:
Fair value hedge accounting contracts:
Average rate
2019 TL 2018 TL
More than
3 months

3.66

3.66

Foreign currency
2019 TL
2018 TL

Contract value
2019 TL
2018 TL

Fair value
2019 TL
2018 TL

272,548,292

296,819,570

165,658,541

180,410,953

134,603,109

116,408,616

272,548,292

296,819,570

165,658,541

180,410,953

134,603,109

116,408,616

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KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

31. NATURE AND LEVEL OF RISKS ARISING FROM FINANCIAL INSTRUMENTS (cont’d)b.3.1) Foreign currency risk management (cont’d)Cash flow hedge accounting transactions (cont’d):
The following table details the cash flow hedge accounting contracts that have not been realized as of the reporting date:Cash flow hedge accounting contracts:
Average rate
2019 TL 2018 TL
More than
3 months-

5.05

Foreign currency
2019 TL
2018 TL

Contract value
2019 TL
2018 TL

Fair value
2019 TL
2018 TL-

150,700,000-

126,177,500-(25,589,944)-

150,700,000-

126,177,500-(25,589,944)

The Group has commitments related to production to some of its customers. The Group arranges forward purchase/sales
agreements to protect against cash flow risk in order to hedge against financial risks associated with exchange rate fluctuations
related to future transactions.
It is expected that sales will be realized after balance sheet date and therefore related fund in equity will be transferred to the
profit and loss statement.
b.3.2) Interest rate risk management
The Group is exposed to interest rate risk as entities in the Group borrow funds at both fixed and floating interest rates. The risk ismanaged by the Group by maintaining an appropriate mix between fixed and floating rate borrowings, by the use of interest rate
swap contracts. Hedging activities are evaluated regularly to align with interest rate views and defined risk appetite; ensuring themost cost effective hedging strategies are applied.
Information on interest rates of the Group in financial assets and financial liabilities is detailed in the liquidity risk management
section of this note.
Interest rate sensitivity analysis
The details of the interest-bearing financial assets of the Group are as follows:
Fixed interest rate instruments
Financial liabilities

31 December 201931 December 2018

713,998,708

919,575,326

783,115,881

687,907,450

Variable interest rate instruments
Financial liabilities

The Group’s sensitivity to interest rates has decreased during the current period mainly due to the reduction in variable rate debt
instruments and the increase in interest rate swaps.
If interest rates had been 100 basis points higher/lower and all other variables were held constant, the Group’s profit before
tax and minority share for the year ended 31 December 2019 would increase/decrease by TL 7,831,159 (31 December 2018: TL
6,879,075).

174

KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

32. FINANCIAL INSTRUMENTS (FAIR VALUE DISCLOSURES AND EXPLANATIONS ON HEDGE ACCOUNTING)

31 December 2019

Financialassetsat amortized
cost

Fair value
through othercomprehensive
incomeFair value
through thestatementof profit or
loss

Financialliabilities
at amortized
cost

Carrying
value

Notes

Financial assets
Cash and cash equivalents
Trade receivables
Trade receivables from related parties
Finance lease receivables
Financial investments
Derivatives

47,238,953
471,988,835
383,951,625
150,262,560
2,465,708--

71,978,178
134,603,109-

47,238,953
471,988,835
383,951,625
150,262,560
74,443,886
134,603,109

35
6
5
7
30
29

-

-

(14,183,181)-(1,497,114,589)(781,801)(217,070,344)(12,775,009)(4,311,075)(1,497,114,589)(781,801)(217,070,344)(12,775,009)(14,183,181)(4,311,075)

30
2.4
6
5
29
18

Financialassetsat amortized
cost

Fair value
through othercomprehensive
incomeFair value
through thestatementof profit or
loss

Financialliabilities
at amortized
cost

Carrying
value

Notes

82,769,148
409,072,614

-

-

-

82,769,148
409,072,614

35
6

197,805,746
178,582,522
48,225,635--

71,978,178
116,408,616-

197,805,746
178,582,522
147,130,462
116,408,616

5
7
30
29

-

-

(25,311,447)-(1,606,325,022)(224,451,756)(24,038,648)(1,494,009)(1,606,325,022)(224,451,756)(24,038,648)(25,311,447)(24,038,648)

30
6
5
29
18

Financial liabilities
Borrowings
Lease liabilities
Trade payables
Trade payables to related parties
Derivatives
Other payables

31 Aralık 2018
Financial assets
Cash and cash equivalents
Trade receivables
Trade receivables from relatedparties
Finance lease receivables
Financial investments
Derivatives
Financial liabilities
Borrowings
Trade payables
Trade payables to related parties
Derivatives
Other payables

Group management considers that the carrying values of financial instruments reflect their fair values.

KARSAN Annual Report 2019175

KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

32. FINANCIAL INSTRUMENTS (FAIR VALUE DISCLOSURES AND EXPLANATIONS ON HEDGE ACCOUNTING) (cont’d)Fair Value of Financial Instruments
The fair values of financial assets and financial liabilities are determined and grouped as follows:-- Level 2: The fair value of other financial assets and financial liabilities are determined in accordance with generally accepted
pricing models based on discounted cash flow analysis using prices from observable current market transactions.
Fair value hiearchy of financial assets and liabilities that are measured at fair value:
Some of the Group’s financial assets and financial liabilities are measured at fair value at the end of each reporting period. The
following table gives information about how the fair values of these financial assets and financial liabilities are determined:
Financial Assets/
Financial
Liabilities
Foreign currency
forward and option
contracts

Financial assets atfair value throughprofit or loss

Fair value
31 December 31 December Fair value
20192018 hierarchy Valuation technique(14,183,181) (25,311,447) Second
Future cash flowslevelestimated using
forward exchange
rates (observable
future exchange
rates at the end of
the reporting period)and contract rates are
discounted using a ratethat reflects the credit
risk of the various
parties.
71,978,178
71,978,178 Third level The fair value
determination isbased on the market
approach and theventure capitalvaluation model.

Significant
Relationship ofunobservable unobservable
inputsinputs to fair value

The effect ofcontinuous
growth anddiscount rates
on the value ofthe financial
asset

The positive change
in the continuous
growth rate of therelated financial
asset causes anincrease in the fairvalue of the financial
asset. Furthermore,
the increase in the
discount rates, which
are the basis for theestimates used, havea diminishing effecton the fair value ofthe financial asset.

176

KARSAN Annual Report 2019KARSAN OTOMOTİV SANAYİİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

AUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(Amounts expressed in Turkish Lira (TL))

33. EVENTS AFTER THE REPORTING PERIOD
In the Material Event Disclosure dated 27 February 2020, with the authorization given to the Board of Directors within theframework of Article 7 of the Company’s Articles of Association, it is decided to that up to a nominal value of 400,000,000 TL,
at domestic, to issue debt instruments without public offering for sale to dedicated and/or qualified investor; debt instrument
planned to be issued have a maturity up to 4 years, in different terms when needed, discounted, variable and/or fixed coupon
payments, fixed or floating interest rates and principal payments at end of the maturity.
At 29 January 2020, has been reported to the Entity by the Türkiye Metal Industrialist Union (MESS) that Group Collective
Bargaining Agreement Minutes has been signed between the employers union MESS and Turkish Metal Union covering the periodof 1 September 2019 - 31 August 2021.
34. DISCLOSURES OF OTHER MATTERS THAT MAY AFFECT CONSOLIDATED FINANCIAL STATEMENTS SIGNIFICANTLY OR IS
NECESSARY FOR FINANCIAL STATEMENTS TO BE CLEAR, INTERPRETABLE AND COMPREHENSIBLE
The Entity acquired 2,400 shares of TL 4,515,280 (EUR 700,000) nominal value, with a 50% share in the capital of the French
distributor Hervouet Corporate Industry. The first capital payment of TL 2,652,640 (EUR 400,000) was made on 17 June 2019 andthe second capital payment of TL 1,862,640 (EUR 300,000) was made on 31 July 2019. Due to the Entity has control over the HCI
management, the financial statements of HCI are included by full consolidation method in the consolidated financial statements
dated 31 December 2019.
35. NOTES ON STATEMENT OF CASH FLOWS
31 December 201931 December 2018

46,302,198
45,902,198
400,000
936,755

82,614,517
77,754,517
4,860,000
154,631

47,238,953

82,769,148

Cash at banks
Demand deposits
Time deposits up to 3 months maturity
Other cash equivalents

Explanations about the nature and level of risks related to cash and cash equivalents are provided in Note 31.
Detail of time deposits of the Group as of 31 December 2019 and 2018 are as follows:
Currency

Interest Rate (%)

Maturity Date

Original Amount

31 December 2019

TL

10%

2 January 2020

400,000

400,000
400,000

Currency

Interest Rate (%)

Maturity Date

Original Amount

31 December 2018

TL

21.75%

2 January 2019

4,860,000

4,860,000
4,860,000

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