1

2017 DESA ANNUAL REPORT

ContentsDesigning, manufacturing and creating ultimate value for a fashionable and profitable future …

1022

12 2025

4p. p. p.

p. p. p.

p. p. p.26

6 8DESA at a glanceMain information

Main Performance

Indicators

Samsonite

DESA NINETEENSEVENTYTWO

Design Director

DESA NINETEENSEVENTYTWO

STORES

Countries of Export

DESA in the World Press

3534

40 423641

96

38

98

p. p. p.

p. p. p.

p. p.

p. p. p.

30 32

Investor Relations

Board Members

Audit Report

The Vertical Integrated Business Model Distinguishing

DESA

Chairman’s Message

Vision & Mission & Our

Value Chain

Management Team

Events After Reporting Period

Human Resources

History of DESA

Contact Support

MAIN INFORMATION

InternationalDesign

Team

207,4Million TL

Revenues

17.545 m2Total area of stores

10K m2Düzce Facility spanning an

indoor area of

20K m2Indoor area for leather tanning facility in Çorlu

127Total

Stores

1.747Employees

69,9Million TL

Equity

252,6Million TLTotal Assets

20,1Million TLEBITDA

6K m2Production Facility and Headquarters in Sefaköy built on

an area of 6.000 m2 have an indoor area of

15,500 m2

www.desa.com.trOnline Store

17Exporting countries

Export Champion for

4 years175Overseas

Stores

56Samsonite

Stores

11 Yearsof

Partnership(%40-%60 JV)

24Yearsof

Distributorship

Solution Provider of International

Brandswww.desa1972.com

Solution Provider of

International Brands

6 7

Distinguishing in the sector with product quality and design

Founded as a family company in 1972, Desa has been continuing its operations as a producer of leather and leather products, signing off significant accomplishments for 45 years. Taking the justified pride to become “Turkey’s Export Champion” in 2010, 2011, 2012 and 2014 in its field and owning a unique and vertically integrated business model, Desa continues striving to be a prestigious international brand by strengthening its current profile with its high quality products.

Desa’s operations include a tannery, two plants for production of women, men wear, handbags and accessories as well as distribution of those products via whole and retail channels. Desa’s retail operations are mainly domestic with 67 Desa, 37 Desa Samsonite, 3 Desa Franchaise and 17 Samsonite JV, 2 Tumi and 1 virtual store totaling 127 stores in Turkey. In addition to production facilities with a total area of 25.500 m2 in İstanbul

and Düzce, Desa owns a tannery with an area of 20.000 m2 located in Çorlu. Company provides integrated solutions for several international brands such as Prada, Miu Miu, Tumi and Lipault. After 24 years of distribution for Samsonite in Turkey, world’s biggest travel products manufacturer, Desa strengthened its international profile further by establishing a 40%-60% joint venture with Samsonite in 2007. Desa gives significant importance to materials and craftsmanship of high standard that provide its products with high quality and durability. The company also offers its products via online store on www.desa.com.tr. With the perfectionist mentality it embraces in its service quality, Desa always makes investments to human source through designs, researches and developments. Company’s strategic goal in long term is to increase Desa brand products both locally and internationally. Desa is a public company that has been traded in Borsa Istanbul A.Ş. with “DESA” code since May 2004. With its total assets reaching TL 252,6 million as of December 31st, 2017, Desa reported TL 207,4 million total revenues. 54,3% of Desa’s share capital is held by Çelet Holding, 10,0% by Mr. Melih Çelet, 0,8% by others while the remaining 34,9% is free float.

Establishment Date (Registration) 29.01.1982 – DESA received the title “Joint Stock Company”.Issued capital TL 49.221.969,86Upper limit of registered capital TL 150.000.000Corporate headquarters HALKALI CAD. NO.208 SEFAKÖY-İSTANBULTrade Registry Office and No. İstanbul / 185047/132561Tax Office and No Büyük Mükellefler ( Large Taxpayer ) Office Directorate / 293 004 8627BIST Transaction Code DESAWeb site www.desa.com.trE-mail Address desa@desa.com.tr / yatirimci.iliskileri@desa.com.tr / investor.relations@desa.com.tr

DESA AT A GLANCE

COUNTRIES OF EXPORT

Desa Company is continuing to take firm steps to strengthen its position and increase brand awareness in the international market with its own brand “DESA”. As Desa brand, it is carrying out its ready-made collection sales over strong showrooms and sale agencies of the region it is in cooperation with, primarily in Germany, Italy, France, the United States and Canada.

Within the scope of Turquality, it has strengthened R&D, designing and brand management infrastructures in its organization for branding and reflected this strength to the market with the sale campaigns it has organized in the markets mentioned above. The fully integrated Company with advanced know-how and technology in its R&D studies and sense of integral quality in following from the leather purchased to the materials used is selling leathers manufactured at its tanning yard to respectful luxury brands of France and Italy. At the fairs organized in parallel with fashion weeks in Berlin, Milano, Paris and New York, Desa always takes place with its brand at its own stand. Desa conducts the sales of its branded products through its USA operations headquartered in New York and Miami as well as Canada operations headquartered in Toronto. Desa brand, positioned with premium segment intention, is being sold at famous, prestigious and popular multi-stage boutiques of Europe and USA side-by-side with world known luxury brands at sale corners special for Desa. It is conducting its promotion activities with a multi-perspective approach by making agreements with the strong advertising agencies of the relevant markets in marketing activities.

Desa brand, positioned with Premium segment intention, is being sold at famous, prestigious and popular multi-stage bou-tiques of Europe and USA side-by-side with world known luxury

brands at sale corners special for Desa.

GERMANY // USA // BELGIUM // BULGARIA // DENMARK // FRANCE // FINLAND // HONG KONG // ENGLAND // SWITZERLAND // ITALY // JAPAN //

QATAR // CANADA // MEXICO // PORTUGAL // TRNC

MAIN PERFORMANCE INDICATORS

Summary IncomeStatement (TL Million) 2016 2017

Sales Revenues 151,5 207,4Gross Profit 73,3 100,4Gross Profit Margin %48,3 %48,4Operating Profit (1,2) 14Operating Profit Margin (%1) %6,8Net Profit (13,3) (0,1)Net Profit Margin (%9) (%0,5)EBITDA 4,7 20,1EBITDA Margin %3,1 %9,69

Summary BalanceSheet (TL Million) 2016 2017

Current Assets 146,3 180,0Fixed Assets 45,2 72,5Total Assets 191,5 252,6

Short Term Liabilities 92,40 157,8Long Term Liabilities 49,50 24,9Total Finacial Liabilities 82,20 85,7Net Financial Debt 75,50 77,04Shareholder’s Equity 49,60 69,9

%66Retail Sale

%3Wholesale

%31Export

2016 2017 2016 2017

2016 20172016 2017

INCOME%37

EBITDA%327

NUMBEROF STORES

%17,6

STOREAREA%9,1

151,5 Million TL

207,4 Million TL 4,7

Million TL

20,1 Million TL

17.545Square meter16.082

Square meter108 Stores

127Stores

10 11

1312

NINETEENSEVENTYTWO

www.desa1972.com

1514

S S 1 8 M i l a n o Fa s h i o n We e k & L a Te n d a I n t r o d u c t o r y I n v i t a t i o n / S S 1 8 P a r i s Fa s h i o n We e k / S S 1 7 M i l a n o Fa s h i o n We e k & B a g l i o n i H o t e l I n t r o d u c t o r y I n v i t a t i o n / F W 1 7 M i l a n o Fa s h i o n We e k / F W 1 7 Pa r i s Fa s h i o n We e k / F W 1 6 P r e m i u m M u n i c h / F W 1 6 D ü s s e l d o r f Fa s h i o n We e k / F W 1 6 P r e m i u m B e r l i n / F W 1 6 P i t t i U o m o / F W 1 6 Pa r i s Fa s h i o n We e k / F W 1 6 M i l a n o Fa s h i o n We e k / S S 1 6 S u p r e m e M u n i c h / R e s o r t 1 6 P r e fa l l Pa r i s Fa s h i o n We e k / S S 1 6 D ü s s e l d o r f Fa s h i o n We e k / S S 1 6 S h ow & O r d e r B e r l i n / S S 1 6 Pa r i s Fa s h i o n We e k / S S 1 6 M i l a n o Fa s h i o n We e k / R e s o r t P r e s u m m e r 1 6 Pa r i s Fa s h i o n We e k / F W 1 5 P a r i s Fa s h i o n We e k / F W 1 5 M i l a n o Fa s h i o n We e k & Pa l a z z o S e r b e l l o n i I n t r o d u c t o r y I n v i t a t i o n / S S 1 5 Pa r i s Fa s h i o n We e k / S S 1 5 M i l a n o Fa s h i o n We e k & Pa l a z z o B ova r a I n t r o d u c t o r y I n v i t a t i o n / R e s o r t P r e s u m m e r S S 1 5 Pa r i s Fa s h i o n We e k / F W 1 4 M i l a n o Fa s h i o n We e k / S S 1 4 M i l a n o Fa s h i o n We e k / F W 1 3 M i l a n o Fa s h i o n We e k

Desa, the f irst Turkish brand, which has taken par t in the off icial calendar of Milano Fashion Week, meets the fashion addicts in about 40 luxury boutiques with the col lect ion prepared in the memory of the year 1972 when the f irst handbag col lect ion was offered to sale.

A NEW DIMENSION TO THE LUXURY CONCEPT

FASHION WEEKS WE PARTICIPATED

DESA STAGES FORMIDABLE VENTURE INTO WORLD’S HIGH FASHION

DESA gaining a reputation deservedly since its establishment thanks to its collections introduced its products to the international arena during the last nine seasons under DESA NINETEENSEVENTYTWO brand dedicated to 1972, the year in which it has offered its first handbag collection to sale. DESA introducing the leather to the world with high quality, contemporary and functional designs also takes dynamic steps in order to increase its brand recognition all around the world.

DESA, the first Turkish brand participated in Milano Fashion Week, takes the pulse of the global fashion in total 175 points with its NINETEENSEVENTYTWO handbag collection offered to sale in nearly 40 different locations as well as NINETEENSEVENTYTWO ready-made garment collection offered to sale in nearly 135 different locations worldwide, particularly, in İtaly, Germany, France and Japan. DESA participates in showroom events and fairs organized in parallel with Milano, Paris and fashion weeks with its own brand. DESA NINETEENSEVENTYTWO appearing before its targeted customers with the collections designed by Yoseph Cohen, famous fashion designer in ready-made garment wins considerable recognition both with its ladies’ and men’s collections. DESA preparing a collection of 100 pieces minimum containing ladies’ and men’s products every year carries out marketing and advertising activities for the purpose of penetrating into new potential markets in addition to the existing markets.

NINETEENSEVENTYTWO

DESA meets with leather fashion addicts in showrooms of its dealers in Milano, Paris and Toronto. NINETEENSEVENTYTWO handbag collection, which is composed of more than 70 pieces, emphasizes the importance of accessories concept with its sophisticated, innovative and personal line. The collection bearing the signature of the design team lead by Yoseph Cohen, internationally famed designer in his field, combines the traditional lines with the contemporary technology. This special collection, which is not yet offered for sale in Turkey and exhibited at Milano and Paris Fashion Weeks for the last nine seasons, gives a new dimension to the luxury concept.

NINETEENSEVENTYTWO

NINETEENSEVENTYTWO

16 17

NINETEENSEVENTYTWO

1918

D E S A AT WO R L D P R E S S

N I N E T E E N S E V E N T Y T W O

20 21

AUSTRALIA

Fells/ MELBOURNE

Lusso by Paris/ CANBERRA

AUSTRIA

Mode Harrys - Fedyniak GMBH/ KARNTEN

Frauenschuh/ KITZBÜHL

CANADA

Hangar 9 London/ LONDON

Girl Candy Shop/ MANITOBA

Tocca Finita/ OAKVILLE

The Oyster/ ONTARIO

Avenue Road Showcase/ TORONTO

Hangar 9 Toronto/ TORONTO

Cabo/ VANCOUVER

CHINA

Harvey Nickols Hk/ HONG KONG

FRANCE

D3P Victoire/ LILLE

Victoire Hommes Lyon/ LYON

Lea/ NICE

Victoire Homme Sas/ PARIS

Victoire S.a./ PARIS

Victore Faw Sarl/ PARIS

Victore S.a. Rue Madame/ PARIS

Intemporel/ REIMS

Cairns/ PARIS

Sarl Vicmege/ MEGEVE

GERMANY

Jöring/ EGERN

Papenbreer/ ERFURT

Colett / HAMBURG

Modehaus Hüsken/ LIPPSTADT

Anthony Muroni/ SAARBRÜCKEN

P2/Mode Accessories/ DARMSTADT

Ciolina/ BERN

Engelhorn Mode Gmbh/ MANNHEIM

Fabelhaft/ MÜNCHEN

Markenherberge/ MÜNCHEN

Pilenghi Mode/ FILIALE

Traudel Prüfer/ GÖPPINGEN

Wild Munich/ MUNICH

GREECE

Chic And Clever/ ATHENS

ITALY

Vincenti Boutique/ ALBA

Brana / Kabardin/ ALTAMURA

Il Faro/ AVELLINO

Domini /Mimma Ninni/ BARI

London SRL/ BARI

Mida Srl/ BARI

Nugnes 1920 Srl Donna/ BARI

Nugnes 1920 Srl Uomo/ BARI

Saraceno Michele/ BELLAGIO

Biagetti SRL/ BOLOGNA

P.D.B Srl/ BOLOGNA

Catalina Spa Bruschi/ BOLZANO

Thilda/ BOLZANO

Faccioli Boutique/ BORGOMANERO

Faccioli Nadia/ BORGOMANERO

Spazio Donna S.R.L./ BRA

Spazio Uomo S.R.L./ BRA

Motta Belli / BRIANZA

Magenta Femme/ BRESCIA

Magenta Homme / BRESCIA

Penelope/ BRESCIA

53 Srl/ BRESCIA

Calzature Mottadelli/ BRIANZA

Donne SRL/ CAGLIARI

CLUB 70/ CALTANISSETTA

Centurior Srl/ CAPRI

Papini/ CATANIA

Loschi/ COLFOSCO

Sam Srl/ COMO

Zamboni SNC/ EMILIA

Break SRL Firenze / FIRENZE

Break SRL / FORTE DEI MARMI

Leccese SRL / GIOA DEL COLLE (BA)

Maurizio Zatti/ ISEO

Dedos Srl/ LECCE

White 7 Srl/ LECCE

Romatre SNC Di

Ripamonti A&C/ LECCO

Guerciotti Tessuti/ LEGNANO - MI

Motta Martino Di Guiseppe/ Motta Fashion/ LISSONE -MI

Lungolivigno/ LIVIGNO

Upla SNC/ LODI

Break SRL Lucca/ LUCCA

Sala di Sala Pierangelo/ MACHERIO

Bernardelli di Gozzoli/ MANTOVA

Stefano & C.Snc/ MANTOVA

Etre di Bruna Casella/ MANTOVA

Pradella Srl/ MANTOVA

Paleari Abbigliamento/ SEVESO

Gualemi Paola/ MEZZAGO(MB)

Aldo Savorani Srl/ MENAGGIO

Biffi Boutique SPA/ MILANO

La Tenda 3/ MILANO

Marco Longoni/ MILANO

Bronx/ MILANO

Four La Tenda/ MILANO

Incontri Boutique/ MILANO

La Boutique Di Adani/ MODENA

Volpi Uomo/ LUCCA

Marcos Mondovi/ MONDOVI

Clan Srls/ MONZA

White S.R.L./ NAPOLI

Umberto Giugliano/ NOLA

Caron SRL/ NOVARA

White SRL/ NOVARA

Rebellato S.a.s/ NOVE

Catalina Spa Padova/ PADOVA

Dell’oglio/ PALERMO

Sinagra S.R.L./ PALERMO

O’ Srl/ PARMA

Chiaro Scuro/ PIANCOGNO

Birba’s Details Donna/ PORDENONE

Birba’s Details Uomo/ PORDENONE

Alibi Srl/ PORTOMAGGIORE

Babylon Bus Donna Srl/ PRATO

Babylon Bus SRL/ PRATO

Preview Snc. Di Palumbo Nino e Casadei

Flavio/ RAVENNA

Save Srl / Block 60/ RICCIONE

Calzaturificio Mary Claud/ RIMINI

Atelier Simone Padoin/ SERIATE

Eko/ SIRACUSA

Di Pierro Giovanni/ TARANTO

C Srl/ TORINO

Regina/ TORINO

San Carlo 1973/ TORINO

Verdelilla/ VIELLE/TORINO

Bugatti Donna/ UDINE

Bugatti Uomo/ UDINE

Pier Abbigliamento/

Pier di Oriani/ VAILATE

Gestimoda/ Modamica/ VALBREMBO

Garibaldi 56/ VARESE

Spina 95 SRL/ VENEZIA

POINT OF SALESN I N E T E E N S E V E N T Y T W O

22 23

Yoseph Cohen worked as the Creative Director of p.a.p. 365 Fendi Collection for a period of three years.He supervised Les Copains collection for 5 years

following this unique experience.He supervised visual and fashion design of brands such as Add – Les Copains – Pinko Group – Max Mara Group

– TruTrussardiYoseph Cohen has been serving as the Creative Director

of DESA NINETEENSEVENTYTWO brand since July 2012.

Creative Director of the brand DESA NINETEENSEVENTYTWOYoseph COHEN

DESIGN DIRECTOR

Catalina Spa Verona/ VERONA

PD. Verona Srl/ VERONA

Ottantasei Srl/ VIBO VALENTIA

Catalina Spa Vicenza/ VICENZA

G&B Negozio/ FLERO

G&G Srl/ CHIARAVALLE

Parimbelli/ TRESCORE BALNEARIO

Ademark Pedroni/ VILLAGUARDIA

ALINA SRL/ VILLARICCA

Chez Moi Atelier/ ROMA

Nova Homo Srl/ ROMA

Degli Effetti/ ROMA

Il Sellaio/ CASATENOVO

Manari/ GENOVA

Noi Per Voi/ Magda/ RAVENNA

Pier Francesca Donna/ VIAREGGIO

Sorelle Ramonda/ ALTE DI MONTECCHIO

MAGGIORE

Bugatti Donna/ UDINE

JAPAN

Ital style-LCR Escogita/ KYOTO

Bush Boutique/ OKAYAMA

Johnbull / KURASHIKI

Opus Japan Cathedral/ OSAKA

Anayi Marubenı/ TOKYO

Lidea/ TOKYO

Ueno-Shokai Co.,LTD-B’2ND/ TOKYO

United Arrows L.T.D/ TOKYO

Yagi Tsusho/ TOKYO

Takashimaya Group/ TOKYO

HOLLAND

Pauw/ AMSTERDAM

Nivoo/ VENLO

PORTUGAL

Sliandniki/ VM Concept LDA/ LISBOA

QATAR

51 EAST Modern Home/ DOHA

RUSSIA

Brownwood/ MOSCOW

Litz Boutique/ Olivia/ MOSCOW

Mercury Distribution

S.A. - DLT / MOSCOW

SOUTH KOREA

Marie Showroom/ SEOUL

Mj Global Inc./ SEOUL

SPAIN

Blonda/ BARCELONA

Rialto Living/ PALMA DE MALLORCA

Chapeau Boutique/ VALENCIA

SWITZERLAND

Wicky/ BASEL

Lock Trand SA/ CHIASSO

Moda In SA/ CHIASSO

Centaure/ LAUSANNE

Shuga Sa/ LUGANO

La Scala Shoes And Fashion Gmbh/

RORSCHACH

UNITED STATES

OF AMERICA

Merci/ NEBRASKA

Lux Couturenewton/ HIGHLANDS

Madison International/ BEVERLY HILLS

Alan Bilzerian/ BOSTON

Maddy’s 390/ NY

24 25

SAMSONITE

In 1983, DESA has become the Turkey distributor of Samsonite, the World’s greatest travel products brand. DESA has blazed the trail in development of this sector in our country by offering comfortable and practical suitcase alternatives to travel products market bymeans of this distributorship. Following a 26 year distributorship in Turkey, a joint venture, of which the shares are owned by Samsonite and DESA at a rate of 60% and 40% respectively, has been established with Samsonite, having a strong international profile. With the acquisition of Tumi by Samsonite, 37 out of 56 Samsonite stores in Turkey, of which 2 are Tumi stores, belong to Desa and other 19 of them belong to the joint venture as of year-end 2017.

• 56 Samsonite stores • 37 Stores belong to DESA• 19 Stores belong to the Joint Venture • 24 years distributorship (between the years 1983 – 2007) • 11 years partnership (40%-6%0 JV) (Since 2007)

26

563719

Total Samsonite Stores

DESA Samsonite StoresPartnership Stores

Years Distributorship24

Years Partnership113.912 m2Total Area of Stores

27

2928

SAMSONITE

Stores of DESASales volume of 99.972 pieces has been achieved in 37 stores owned by DESA. 37 stores in total carry on business on an area of 2.540 m² and revenue of these stores has been 38.9 million TL in 2017.

Stores of the Joint VentureSales volume of 97.002 pieces has been achieved in 19 stores owned by the Joint Venture. 19 stores in total carry on business on an area of 1.372 m² and revenue of these stores has been 36.3 million TL in 2017.

asd

CHAIRMAN’S MESSAGE

The year 2017 was a year when the negative impacts of the Turkish economy in 2016 were gradually eliminated. Despite the continuation of geopolitical risks, exports of our country were realized as 156,8 billion dollars with a 10% increase compared to the previous year. This increase in our exports has also led to a parallel increase in leather sector and with an increase of 9%, our sector’s exports reached 1.5 billion dollars.

At the beginning of 2.quarter of year 2017, we signed a three-year production agreement with Prada Spa, where we had many successes many achievements together . Again in 2017, a production agreement was signed with our 34-year business partner SAMSONITE, and orders for the production of LIPAULT and TUMI brands started to be received.

By leaving behind year 2017 in which the opportunity-focused shopping mentality was placed as a consumer habit and competition was even more challenging and the sector’s growth was at a rather limited level in the domestic market, where profit-oriented working principles were ignored; DESA has succeeded in expanding both its retail and export operations in this atmosphere and has also began to take on the consequences of the importance that it attaches to the sale of DESA branded products in overseas channels. With the DESA N INEETEENSEVENTYTWO brand, by reaching 175 sales points in 17 countries, including Germany, Italy, Canada and France, we have positioned our brand at a more visible and more consumer-friendly point. Moreover, the decision to continue with the target market based on the Turquality program, which is one of the important incentives of the Ministry of Economy, which we have received great support for becoming a brand, will further increase the number of sales points reached for DESA in reaching new markets.

While making our brand even more visible internationally, we continue to work as creative director of the DESA NINETEENSEVENTYTWO brand with Yoseph Cohen, who is

the design Director of brands such as FENDI, Maxmara, Tru-Trussardi by strengthening our design side at the same rate. In 2018, we will continue to increase our efforts for the promotion and sales activities of this collection.

In 2017, we obtained a total of 207,4 million TL of revenue. While we increased our revenues by 37% under difficult

conditions, we succeeded to increase our EBITDA by 327% by not compromising profitability with our efficiency-oriented approach. During the year, due to both the exchange rates increase and labor costs increase, we encountered the cost increases. In order to minimize the effects of these increases, we took measures to control such cost increases. As a result of our efficiency and performance assessments, we decided to close some of our stores. On the other hand, we continued to open stores by evaluating alternatives in newly opened locations. We will continue our investment in the coming period.

We believe that our productivity and profitability will increase in 2018 compared to 2017. In this period, again, as DESA, will make our inefficient stores to be more efficient, and will close those not becoming productive. In addition to this, the contribution of our export revenues which enable us to naturally be protected against possible exchange risks and which makes us stronger against fluctuations by creating approximately 31.4% of our total revenues, will be an important

factor in the increase in our productivity.

Eventually, I would like to express my thanks to all our employees, customers, suppliers and, of course, our investors walking along with us in this path we go ahead with sound steps towards being world’s leading brand thanks to our design, hand workmanship and product quality at international standards in addition to our integrated business model for their precious contributions.

Melih Çelet Chairman of the Board

31

We take firm steps toward the target of being a world brand

Melih ÇeletChairman of the Board

30

B O A R D M E M B E R S

1 234 5

Melih ÇELETChairman of the Board

Burak ÇELETBoard Member, General Manager

Osman TAVTAYIndependent Board Member

Burçak ÇELETBoard Member

Mehmet Kaan KOZIndependent Board Member

Osman TAVTAY Independent Board Member

Completed his bachelor’s degree at Istanbul Technical University, Department of Geophysical Engineering in 1986, Mr. Osman TAVTAY served as Stock Exchange Representative and Specialist at Can Menkul Değerler, Piramit Menkul Kıymetler ve Ekinciler Yatırım between 1990 and 1996, and Senior Trader at Koç Menkul Değerler between 1996 and 1998. Served as Domestic Transactions Manager at ABN Amro Yatırım A.Ş. between 1998 and 2004, Mr. TAVTAY was appointed as independent board member for two years in our Company’s 2015 ordinary general assembly dated 31.03.2016.

Mehmet Kaan KOZ Independent Board Member

Mr. Mehmet Kaan KOZ graduated from Deutsche Schule Istanbul in 1995 and completed his undergraduate education at Bogaziçi University, Department of Mechanical Engineering in 1999. He started his professional career as a member of Koç Holding Management Trainee Program at Arçelik A.Ş. Research and Technology Development Center and then became Manager Partner of Anova Ltd. Şti., the foundation of which he participated in. Mr. KOZ was appointed as independent member for two years at our Company’s 2015 ordinary general assembly dated 31.03.2016.

Melih Çelet Independent Board Member

Founded DESA in 1972, Mr. Melih ÇELET graduated from Ankara College in 1968 and received his undergraduate education at Istanbul University, Faculty of Pharmacy. Mr. Melih ÇELET speaks English.

Burçak ÇELET Board Member

Mrs. Burçak ÇELET completed her bachelor’s degree at Yıldız Technical University, Department of Industry Engineering in 1999. Served as Planning Director at Toys”R”Us between 1999 and 2001, Mrs. Burçak ÇELET received her master’s degree in retail management at University of Surrey in 2002 and served as Maxitoys - Category Manager at Joker between 2003 and 2004. Ms. Burçak ÇELET, who has been serving as a Board Member in our Company since December 22nd 2006, speaks Italian, English and French.

Burak ÇELET Board Member - General Manager

Graduated from Bogaziçi University, Department of Mechanical Engineering in 1999, Mr. Burak ÇELET received his MBA degree in from the University of Wisconsin-Madison in 2001. He obtained a Master of Science degree in Leather Technology at Northampton College in 2002. Mr. Burak ÇELET serves as Board Member in United Brands Association, Board Member in Istanbul Association of Exporters of Leather and Leather Products, Board Member responsible for Leather Promotion Group, Member of Turquality Working Group as well as General Manager in our Company. Mr. Burak ÇELET speaks English and German.

3332

Completed his bachelor’s degree at Uludağ University, School of Business Administration in 1989, Mr. Hilmi İlker SÜREK accomplished the Foreign Trade Certification Programme in Bournemouth, UK on 1991. Begun his career at Ditaş Doğan Yedek Parça İmalat ve Teknik A.Ş., as Foreign Trade Manager on 1991, Mr. SÜREK served as Product Manager at Valeo Otomotiv Dağıtım A.Ş. between 1995 - 1998. He served as General Manager at Tanca Ayakkabıcılık San. ve Tic. Ltd. between 2015 - 2016 after serving as Foreign Trade Manager, Production Manager, Sales Director and Operation Director at İnci Deri Mamulleri San. ve Tic. A.Ş. between 1998 - 2015. Mr. SÜREK is serving as Executive Vice President of Sales and Marketing at Desa Deri ve Ticaret A.Ş. since April 2016.

Executive Vice President of Sales and Marketing

Hilmi İlker SÜREK

Completed his undergraduate education at Mugla University, School of Business Administration in 1994, Mr. Ayhan DİRİBAŞ received his master’s degree in business administration at Lasalle University and Marmara University in 2003. Begun his career at Doğuş Holding in Finance Department in 1992, Mr. DİRİBAŞ served as Internal Auditor at Oger Holding between 1996 and 1998, as General Manager at Reysaş Holding A.Ş. between 1999 and 2004, as Accounting and Finance Director for Retail Group at Unitim Holding A.Ş. between 2005 and 2010. Mr. DİRİBAŞ was appointed as Executive Vice President of Financial Affairs in our Company in January 2013.

Executive Vice President of Financial

Affairs

Ayhan DİRİBAŞ

M A N A G E M E N T T E A M

Customer Satisfaction

DESA operates in both production and retail sector by its business model. DESA aims to provide unconditional customer satisfaction before and after sales by offering its products to the customer with an understanding of flawless service.

Quality

Our product quality, tradition of handcraft, modern and functional designs and our brand are our most important assets. We strive to offer a different style, understanding and lifestyle without compromising our quality rather than offering just clothing and leather accessories to our customers. Profitability

Profitability is the main source that DESA utilize for financing the new investments and R&D operations. For this reason, the most important criteria that we consider when evaluating the performance of our Company’s performance is profitability. By this way, our goal is to grow by making profit in long term and become the indisputable leader of every field we operate in.

O U R TA R G E T S

To become a fashion brand, powered by İstanbul but still a global citizen, which is elating and exciting its customers with the products and services it offers by means of its expertise in design and leather.

To become a fashion brand drawing its strength from its investments in design and its expertise on leather, having a corner on the leather fashion sector in Turkey and the world by means of its high quality and stylish products bearing the best values, providing its customers with a pleasant shopping environment, maximizing its shareholders’ profitability, respecting to the society, environment and its employees as well as remaining as a leader fashion brand of leather in the consumers’ mind.

V I S I O N & M I S S I O N OUR STORES We are maximizing shopping experience thanks to our contemporary and inviting stores

OUR GLOBAL PRESENCEWe transcend national boundaries with our overseas stores.

OUR PR ACTIVITIESWe are strengthening our brand image and awareness with our effective and innovative communication.

FLEXIBLE SUPPLY CHAIN We have a supply chain that adapts quickly and flexibly to rapid changes.

FLEXIBLE PRODUCTION CAPACITY We have a production capacity in a manner adjusting itself according to the increasing demand and meeting the needs of the future growth.

INTEGRATED BUSINESS MODEL We save on costs through vertical integration we provided in production.

BROAD EXPERIENCE We have a management team that seeks strategical opportunities and is experienced and competent in their field.

TECHNOLOGY We have an advanced technological infrastructure supporting our growth.

DESIGN The unique skill of our designers embodying artisan craftsmanship.

OUR HUMAN RESOURCE We bring expert handcraft together with contemporary design.

OUR BRAND With our vertically integrated production model, we are capable to always reveal brand value.

O U R VA L U E C H A I N

V İ Z Y O N & M İ S Y O N

34 35

1974

1983

1990

1982

1999

1989

1972

2002

2004

2001Crowned its faith in quality withISO 9001:2000 Quality Certificateand took justified proud ofranking 250th in ISO 500 listand the first place in its sector.

DESA became a joint-stock company.

Established the leather processing plantin Çorlu in accordance with the goal tobuild an integrated business model.

Managed to rank 937th in ISO 1000list thanks to its business concept thatalways prioritizes quality, DESA openedthe new tannery in Çorlu the same yearin order to enhance its producing forcefurther and carry its cost control tothe high levels.

First store was opened onBağdat Caddesi Istanbul.

Listed on Istanbul Stock Exchange Market,considering the values that joining thecapital markets will add values to the

company from the point of transparency,reliability and accountability. An investment

incentive certificate was received forthe investment in Düzce Organized Industrial

Zone, and an investment of TL3.2 million was realized.

Became distributorof theglobally-renowntravel products brand

“Samsonite” in Turkey.

Opened the production facilityin Sefaköy that has an

indoor space of15.500 square meters.

Decided to take a path with globalvision and opened DESA U.K.

o�ce in London.

Founded by Mehmet, Melihand Semih Çelet brothersas a collective company.

DESA’NIN HİKAYESİ

Moved up to 449th place in the Fortune 500 list.DESA purchased Çorlu Plant includingwith the building, land and all fixtures.

2007

2009

2014

2011

2008

2012

2010

2013

TODAY

DESA maintains it confidence in qualityalso in 2015 through ISO 9001:2000

quality certificate it obtained in 2002. 2015

NINETEENSEVENTYTWO collection dedicated to 1972, the year which the first handbag collection is launched, prepared

and o�ered for sale at almost 40 luxurious boutiques only abroad, has been exhibited at Milano Fashion Week in September 21st

– 23rd, 2013, and at the Showroom organized in Ecape Commines within the

scope of Paris Fashion Week in September 28th – October 4th, 2013 and proved with

this special collection that a Turkish brand has reached to summit in terms of design

and quality.

While putting its online shopping site into customers’ service, the company took the first steps for carrying its position as the leading fashion retailer of Turkey into foreign markets with 2 new UK store. Becoming the export champion of Turkey in 2010 according to the figures declared by Association of Exporters of Leather and Leather Products, DESA rank 210th in Istanbul Chamber of Commerce’s second list of the biggest 500 industrial company.

Took the pride of deserving sector’s first place in export once again. In the same

year, Covent Garden store was chosen one of the best 60 stores of the world in VMSD

International Store Design Competition in which brands from all over the world participates. DESA was given a wide

coverage in the book named “Retail Spaces / Small Stores” in which the stores ranked

as a result of the competition are included.

Deserving sector’s first place in export for the third time, DESA took serious steps for proving the brand on the international platform. One of those steps was to commission Graeme Black who worked with the giants like John Galliano, Giorgio Armani, Salvatore Ferragamo and started as Designing Director at Desa to create AW 12-13 collection. The designing director showed his di�erences in this field and created a collection to be able to compete with world’s giants on the international platform. Desa distinguished once again with its two-sided designs in 2012.

DESA renewed its online sale website through which it reaches its customers everywhere independent of location on 7/24 basis by means of its investment. DESA enhanced customer experience in its website www.desa.com.tr where all of its garment, shoe, accessory, textile and travel product collections are just a click away for the customers. Desa Deutschland GmbH headquartered in Düsseldorf /Germany was established in July.

desa.com.tr

Founded a joint venture with Samsonite of which it had been a

distributor for 26 years. Desa owns 40%; Samsonite owns 60% of this

venture. Acollaboration was made with Genex, an English brand consultancy firm, for consultancy on branding in accordance with the goal of being a world brand. To this end, important

changes were made in logo, corporate identity and store concepts.

The first franchising store was opened in Jeddah. Taking the

355th place in Istanbul Chamber of Commerce’s the biggest 500

industrial company list, the company moved up to the 471st

place in the Fortune 500 list.

Ninenteenseventytwo Srl was established in Italy and Leather Fashion Bulgaria EOOD in Bulgaria. In the survey conducted by Turkish Time in 2017, the

167th company that invested the most in RD was DESA.

In addition to production facilities with a total area of 25.500 m2 in İstanbul, Sefaköy and Düzce and its tannery with an area of 20.000 m2 located in Çorlu, Desa became a fully integrated leather products manufacturer owning 45.500 m2 production area in total. In 2017, 254.000 units of handbags, 199.459 of leather accessories, 41.893 of garments, 372.322 pairs of shoes and 5.183 units of textiles have been sold. 67 Desa,

37 Desa Samsonite, 3 Desa Franchaise and 17 Samsonite JV, 2 Tumi and 1 piece virtual store totaling 127 stores are available throughout Turkey.The company has

continued its belief in quality as well in 2017 and continued its belief also by obtaining the ISO/IEC 2007:2013 quality certificate.

36 37

39

The element that makes DESA different from its peers is that DESA controls all stages of the service process it provides through the company’s tanneries, production skill of leather garments, bags and accessories and retail stores under control.

Leading its sector in production, export and retail fields, DESA makes important investments in R&D, human resources and education fields to increase customer satisfaction through products of good quality and flawless service appropriate for today’s trends.

Weekly Capacity

28.850 kg Cattle raw leather

processing

Leather production in the Çorlu tannery

20.000 m2

Indoor production area

170.200 kg Small cattle raw leather

processingSuede, Napa, Fur, Calf

leather processing

127 Total Stores

67 Desa MonoBrand Stores

37 Desa Samsonite

3 Desa Franchises

1 Virtual StoreDesa.com.tr

Production of leather garments, handbags and

accessories

International Design Team

Düzce Facility

10.000 m2 Indoor production area

Weekly Capacity

14.000 pieces of handbags

İstanbul Facility

15.500 m2 Indoor production area

Weekly Capacity

2.000 pieces of leather garment

1.000 pieces of textile

6.000 pieces of handbags

RAW MATERIAL PRODUCTION

PRODUCTION RETAIL STORES

17.545 m2

Store Area

%60JV Samsonite

%40 DESA

Partnership

17 Samsonite2 TumiStores

THE

INTE

GRA

TED

BUSI

NES

S M

OD

EL

DIS

TIN

GU

ISH

ING

DES

A

4140

Having a labor-intense business model, our Company’s number of employees is 1.747. as of end of the 2017.

Looking at the world from DESA...

EMPLOYEE

783614

MALE

FEMALE

TOTAL

2016 2017

1.7471.496

964882

HEAD COUNTBLUE COLLAR 2016 2017

1.054847WHITE COLLAR

693649

H U M A N R E S O U R C E S

We take our strength that we turned into a worldwide success from our principles which we defined according to our priorities and committed strictly. Unconditional customer satisfaction, flexibility and fast response to the customers’ queries are the most important criteria at this point to which we have come without compromising on quality and forgetting the fact that our most important foundation and resource is people.

DESA miracle of 46 years is a product of the high performance and quality mentality we provide at every point. As our Company aims to have a competent human resource that lives today but thinks about the future, all of our employees strive to maintain the positive image of our company and products both locally and internationally.

Created the brand of custom products by working in the light of these principles, proved its quality and leadership inside and outside the country, our Company makes its employees enjoy being a part of a world brand. We offer our employees the opportunity of specializing, building a career in the sector and getting awarded for their works.

DESA, which ensures its success with the adherence to the principles, plans its future by knowing its biggest foundation is human resource. With this approach, we summarize our company’s philosophy of human resource development:

“We will train our human resource at every stage by ourselves.”

DESA conducts the operations of training and development in house to train and improve its employees in accordance with this philosophy.

Desa Training System depends on raising and improving its own workforce by considering sector-specific conditions.

2017 DESA Relative Share Performance

Share Information

Stock Exchange Code DESA

Reuters Code DESA.IS

Bloomberg Code DESA.TI

Public Offering Date 06.05.2004

Market Value TL 49,7 million

* As of 31.12.2017

35% of DESA shares are publicly traded. The shareholding structure of our Company as of 31.12.2017 is as stated below:

Since the public offering in May 2004, our Investor Relations Department has aimed to build close relationships with our shareholders at an equal distance and provided them with maximum value in parallel with the corporate governance standards that our Company embraces in accordance with honesty, accountability and reliability principles. Total 41 material disclosures were made, and queries delivered by the analysts and investors to our investor relations department via telephone or e-mail in 2017 were replied in accordance with the Capital Markets Legislations.

Share Performance and Market ValueDESA shares have been publicly traded with DESA code on Borsa Istanbul (BIST) on May 6th, 2004. The Company was registered in the registered capital system in 2007 and the registered capital ceiling is TL 150.000.000. Paid-in capital is TL 49.221.970 and divided into 4.922.196.986 shares with 1 Kr nominal value each. Market capitalization of DESA as of December 31ST, 2017 was TL 49.714.189 million with an average daily volume at TL 269.529 in 2017.

SHAREHOLDERSHARE

NOMINAL VALUE (TL)

SHAREPERCENTAGE

TOTAL 49.221.974 %100

Çelet Holding-1 26,717,682 %54,3

%54,3

4,922,197 %10

%10

Public-3 17,188,315

0,8

%34,9

%34,9

Other-4 393,780 0,8

I N V E S TO R R E L AT I O N S

Melih Çelet-2

4342

PART I - STATEMENT OF COMPLIANCE WITH CORPORATE GOVERNANCE PRINCIPLES

Desa Deri Sanayi ve Ticaret A.Ş. (“DESA”) has identified the principles contained in the Corporate Principles published by the Capital Markets Board as a target for itself.

The ability to operate at international standards is also of utmost importance besides creating value to the shareholders with a stable and profitable growth performance in order to effectively take a place in the financial markets developing with the depth emerging as a result of globalization trends in the financial markets.Good corporate governance has a significant contribution to the sustainability of the Company as well as increase of its reliability and prestige in the finance and capital markets.

DESA communicates the necessary information to all its investors and analysts simultaneously in a timely, secure, stable and proper manner under the legal and regulatory rules. Investors and other shareholders can access DESA-related historical and current information in real-time and full presented on our website in the Investor Relations section.

The Company’s management aims at complying with the obligations arising from the Corporate Governance Principles Communiqué No: II-17.1 published by the Capital Markets Board Communiqué as a whole, and has taken the necessary actions for this purpose. The principles mandated for our company within the scope of the Corporate Governance Principles Communiqué are complied with.

PART II – SHAREHOLDERS

2.1. Investor Relations Department

2.1.1. Investor Relations Department and its Duties

The legislation and the Articles of Association are complied for the exercise of shareholders’ rights and practices that will ensure the exercise of these rights are available. Desa Deri San. ve Tic. A.S. established an “Investor Relations Department” to manage relations with the investors from the date of the public offering in 2004. All relationships between DESA and the shareholders are carried out under the responsibility of the “Investor Relations Department” as a result of the joint efforts conducted with the relevant departments in accordance with the following principles.

The Investor Relations Department is responsible for informing on the Company’s activities and financial condition, excluding confidential information and trade secrets of the shareholders and potential investors, on a regular basis so as to not to cause an information inequality and managing the communication between the shareholders and the Company in coordination with the other departments.

In this context, the Investor Relations Department is responsible for:

• Presenting the Company to the existing and potential investors and brokerage institutions, replying the queries of analysts and researchers working in these institutions,

• Answering questions and requests from the shareholders,

• Ensuring investor-related databases and records to be kept up to date and orderly,

• Providing a two-way information flow acting as a bridge between the shareholders and the Company’s senior management and the Board of Directors,

• Reporting to the relevant departments within the Company and senior management about developments in the capital markets and stock performance,

• Ensuring the shareholders to Access the most accurate, quick and complete information by updating the webpage, activity report, investor presentations, investor bulletins, corporate films and so on communication means on a regular basis which the shareholders can receive information about DESA,

In addition, the Department helps executing the General Assembly Meetings conducted within the Company in accordance with the legislation in force and the Articles of Association and other internal regulations. Minutes of the General Assembly meetings ensures keeping voting results recorded and the through the minutes of the General Assembly meeting and relevant reports are submitted to the shareholders by the Investor Relations Department.

The Investor Relations Department performs all kinds of public disclosures, such as disclosing financial reports prepared by the Department of Accounting and particular events as required by legislation.

Contact information of the Investor Relations Department is provided below.

Pınar Kaya – Investor Relations ManagerPhone: 0212 473 18 00Fax: 0212 698 98 12E-mail: pinar.kaya@desa.com.trE-mail: yatirimciiliskileri@desa.com.tr

Bülent Uyarlar – Accounting ManagerPhone: 0212 473 18 00Fax: 0212 698 98 12E-mail: bulent.uyarlar@desa.com.trE-mail: yatirimciiliskileri@desa.com.trE- mail : yatirimciiliskileri@desa.com.tr

Investor Relations Manager Pınar Kaya and Accounting Manager Bülent Uyarlar carry out their duties in a manner affiliated to Ayhan Diribaş, our Company’s Executive Vice President of Financial Affairs. The report with respect to the investor relations activities carried out in 2017 has been submitted to the Board of Directors on February 27th 2018. Investor Relations Manager Pınar Kaya holds an Advanced Level and Corporate Governance Grading License on Capital Market Activities. In addition, Investor Relations Manager Pınar Kaya has been appointed as the Corporate Governance Committee Member as per the Board of Directors’ resolution dated April 18th 2016.

2.1.2. Information on Activities of the Investor Relations Department in 2017

Questions that were addressed to the investor relations department by phone or e-mail were answered. The Company’s web-page was regularly updated in order to ensure investors to monitor up-todate information. Disclosures which are important to investors were published on the Company’s web-page after announced in the Public Disclosure Platform (PDP).

Totally 54 material disclosures were announced to the public during 2017 in accordance with the Capital Markets Legislations.

The agreement on primary dealer activities regarding the shares of our Company, which has been concluded by and between İş Yatırım Menkul Değerler A.Ş. and our Company and enter into force upon approval of the Stock Exchange General Directorate dated 07.07.2015 , was extended for a further period of one year.

Updates in the investor tools are made on a quarterly basis. Compliance with the legislation is observed to the maximum extent for fulfilling the investor demands, and no complaint against the Company about the exercise of the shareholders’ rights or administrative and legal proceedings brought against the Company in this regard was made in the past year to the best of our knowledge.

2.2. SHAREHOLDERS’ RIGHT TO OBTAIN INFORMATION

2.2.1. Principles regarding Exercise of the Right to Obtain and Review Information

No distinction is made between the shareholders regarding the exercise of the right to obtain and review information. Apart from information in trade secret nature from the shareholder, all requests to obtain information are discussed with the relevant departments and answered and communicated to the shareholders by telephone or e-mail.

Any kind of information that would interest to the shareholders during the year is disclosed with the necessary explanations and published on the website.

2.2.2. Right to Request a Private Auditor

Although there is no arrangement regarding appointment of a private auditor in the Articles of Association, no request has been received from the shareholders in this direction. The Company’s activities are periodically audited by an Independent Auditor and Statutory Auditors determined at the General Assembly. The independent auditing company, selected in the Ordinary General Assembly for 2016 held on March 31st 2017 is RSM Turkey Bağımsız Denetim ve YMM Anonim Şirketi. Pursuant to the notice made by Public Oversight Accounting and Auditing Standards Authority on 07.11.2017, we have been informed that the operation permit of RSM Turkey Bağımsız Denetim ve YMM Anonim Şirketi has been abolished for a period of 2 years as from 21.07.2017. Accordingly, an application has been filed with the Commercial Court of First Instance in accordance with Article 6 of the Law No. 6102 (Turkish Commercial Act), and it has been resolved to appoint As Bağımsız Denetim and YMM A.Ş. for 2017 basing on the order to the Court.

2.3. INFORMATION ON GENERAL ASSEMBLY

The General Assembly meetings are held taking into account the Turkish Commercial Code, the Capital Markets Legislation and the Corporate Governance Principles to allow the shareholders to obtain adequate information and broad participation.

2.3.1. General Assembly Pertaining to 2016

The General Assembly meeting was held on March 31st 2017 with a quorum of 80%. No specific period of time was provided to register the registered shareholders into the share ledger and the relevant provisions of the Turkish Commercial Code were applied. The General Assembly meeting was held in the Company’s headquarters in order to facilitate the participation under the supervision of the Commissioner appointed by the Ministry of Industry and Trade. The location where our General Assembly meetings are held is arranged in a manner allowing participation of all shareholders. A separate agenda item on the donations and aids during the year was included in the agenda of the General Assembly. No proposal with respect to the agenda was submitted by the shareholders separately. Media did not participate in the meeting.Annual General Meeting for 2016 was held in a manner allowing electronic voting pursuant to the Turkish Commercial Code.

AUDIT REPORT

4544

2.3.2. Invitations and Announcements Invitations to the General Assembly meetings are made by the Board of Directors in accordance with the Turkish Commercial Code (TCC), the Capital Market Law and the provisions of the Company’s Articles of Association. When the Board of Directors adopts a resolution for a General Assembly, the necessary announcements are made via the PDP and the public is informed.

Announcement for a General Assembly meeting is published on all editions of a newspaper published daily in Turkey and on the Trade Registry Gazette to reach the greatest possible number of shareholders within the framework of the necessary legal provisions.

Announcement including information on the date and time of the Ordinary General Assembly meeting for 2016, the meeting place, the agenda items, attendance procedure to the Ordinary General Assembly of the shareholders, power of attorney sample and information on issuance procedure thereof have been published on Turkish Trade Registry Gazette issue no. 9279 dated 08.03.2017 and the issue of Yeni Söz gazette no. 1991 dated 08.03.2017, which is published throughout Turkey.

In the General Assembly announcements published on the Website along with the General Assembly Information Document; meeting day and time, meeting place, agenda, and invitation being made by the Board of Directors and attendance procedure of the shareholders to the General Assembly are explained.

Along with these, total number of shares and voting rights reflecting the shareholding structure of the Company, number of shares and voting rights representing each of the privileged share group, if there is privileged shares in the Company’s capital, changes and amendments in the management and activities of the Company as well as the prominent affiliates and subsidiaries of the Company in the previous fiscal year or planned to be made in the following fiscal year which shall affect the Company’s activities significantly and the reasons of these changes and amendments along with the activity reports and the annual financial statements of the last two fiscal periods of all the corporations subject to these changes; reasons of dismissals or replacement of the Members of the Board of Directors, if the Agenda of the General Assembly includes dismissal, replacement or election of the Members of the Board of Directors; information about the persons nominated for the Membership of the Board of Directors; along with the resolution of the Board of Directors on the amendment of the Articles of Association taking place in the agenda, the previous and the new versions of the Articles of Association amendments; curriculum vitae of the persons to be nominated for the Memberships of the Board of Directors, duties they’ve performed within the last ten years and reasons for departure from these positions, quality and significance level of their relations with the Company and the Company’s related parties and whether they have the qualification of independence as well as information on the similar which might affect the Company’s activities in case they are elected as the Members of the Board of Directors have been disclosed to public within 1 week as from the date of the announcement of the General Assembly.

Announcements on the General Assembly, along with procedures stipulated by the legislation, have been published in the Company’s registered office and the website (www.desa.com.tr) in a way to reach to a majority of the shareholders not later than 21 days before the General Assembly.

There is no question which was not answered during the General Assembly meeting but answered by the Investor Relations Department in writing later on.

2.3.3. Methods of Voting

The example of the power of attorney for shareholders who will be represented by a proxy in the General Assembly Meeting is available on the Company’s web-page and newspaper advertisement.

2.3.4. Principles for Participating in the General Assembly

Group A shares are registered shares and Group B shares are bearer shares in our Company. The records in the Shareholders List of the shareholders, whose shares were in the investor accounts under the Intermediary Institutions before the Central Registry Agency and who wished to attend the General Assembly Meeting, were taken into account under the provisions governing the General Assembly Procedures of the Central Registry Agency in the Company’s 2016 annual general meeting held on March 31st 2017. These shareholders may attend the General Assembly meetings themselves as well as being represented by a third party. Such representatives are not required to be a shareholder.

The shareholders may have themselves represented by other shareholders or by a proxy to be appointed externally in the General Assembly meetings in accordance with the Capital Markets Board regulations governing voting by proxy. Representatives, who are shareholders of the Company, are also authorized to vote on behalf of the shareholders that they represent other than their own votes.

2.3.5. Meeting Minutes

Meeting minutes are available at www.kap.gov.tr and www.desa.com.tr immediately after the end of the meeting. In addition, these minutes are available review by the shareholders at the Company’s headquarters and are shared with investors who request to access these minutes.

2.4. VOTING RIGHTS AND MINORITY RIGHTS

2.4.1. Exercise of Voting Right

The Company avoids practices that make exercising voting rights difficult and provides all shareholders with an equal, easy and convenient voting possibility. Nonpreferential shareholders having the right to vote in the Company may vote themselves as well as through a third party who is not a shareholder. No provision that prevents any person, who is not a shareholder, to vote by proxy as a representative for the unprivileged shares exists in the Articles of Association.

It was decided, by the resolution of our Board of Directors dated 06.01.2016, to make an application to the Capital Markets Board for the purpose

of amending the subparagraph d entitled “Voting and Appointment of Proxy” of the article 20 entitled “General Meeting” of our Company’s Articles of Association in order to ensure compliance with the Turkish Commercial Code 6102. The application for amendment to the Articles of Association was approved by the letter no. 29833736-110.03.02-E.520 of the Capital Markets Board dated 15.01.2016. The amendment draft was also approved by the Ministry of Customs and Trade, General Directorate of Domestic Trade with its letter no. 67300147 – 431.02 dated 26.01.2016. The test of the amendment was submitted for approval and adopted by the shareholders in our Company’s Annual General Meeting for 2015 held on 31.03.2016. According to the said amendment in articles of association, the shareholders of group A are entitled to 15 (fifteen) votes for 1 (one) share and the shareholders other than group A are entitled to 1 (one) vote for 1 (one) share in annual and special General Meetings.

2.4.2. Minority Rights

The Company pays attention to exercise of the minority rights. No criticism or complaint was made in this regard in 2017. Since we privileged shares for the voting rights, there is no regulation on the cumulative voting.

Group A shares have the right to determine 4 out of 5 board members. No company with any crossshareholding relations exists. Cumulative voting method is not included in the Company’s Articles of Association. There is no provision in the Articles of Association for determining the minority rights in a manner less than one twentieth of the capital.

2.5. DIVIDEND DISTRIBUTION POLICY AND DIVIDEND DISTRIBUTION PERIOD 2.5.1. Dividend Distribution Policy

DESA Deri Sanayi Ve Ticaret A.S. carries out dividend distribution in accordance with the CMB regulation. The Company unanimously resolved to follow a wellbalanced and prudent dividend distribution policy by taking into consideration utilizing internal and external investment opportunities as well as the shareholders in the market and the Company’s interests in order to consider additional investments to be made abroad and prevent possible effects of a global economic crisis in line with the targets of “DESA” brand of growing, developing and being a global company with a strong financial structure in accordance with the Corporate Governance Principles of the Capital Markets Board. This dividend distribution policy is available in the annual report and at the Company’s official web-page. There is no privilege as to participation in the Company’s profit.

2.5.2. Dividend Distribution Period

The approval of the General Assembly and the legal time limits are observed based on the provisions of the Turkish Commercial Code, the Capital Market Board regulations and the provisions of the Company’s Articles of Association for dividend distribution.

2.6. TRANSFER OF SHARES

The Articles of Association does not include any provisions that make public Group B shareholders to freely transfer their shares difficult and restrict share transfer. Bearer shares shall be transferred and assigned in accordance with the provisions of the Turkish Commercial Code and other relevant legislation. For non-public Group A shares owned by a controlling shareholder, other Group A shareholders have a pre-emption right in proportion to their shares before the Company according to Article 9 of the Articles of Association.

PART III –PUBLIC DISCLOSURE AND TRANSPARENCY

3.1 CORPORATE WEBSITE AND ITS CONTENT

The official website of Desa Deri San. Ve Tic. A.S. (www.desa.com.tr) is periodically updated and in addition, the website includes prospective information. The necessary information is published on the Company’s website in accordance with the CMB’s Corporate Governance Principles. The Company’s Annual Reports are published both in English and Turkish. Our investors are informed regularly on the following matters including the issues specified by the Corporate Governance Principles in the investor relations section of the website to provide the existing and potential investors and intermediaries with a more comprehensive flow of information.

• The Company’s Articles of Association

• Trade registry information

• Financial Data

• Audit Reports

• Annual Reports

• Corporate Governance Practices and Compliance Report

• Duty and Working Principles of Corporate Governance Committee

• Material Disclosures

• Agenda of the General Assembly

• Minutes of the General Assembly Meetings

4746

• Attendance Sheet

• Partnership Structure

• Company Policies

• Board Members

• Sample of power of attorney

• Frequently asked questions

• Communication information

3.2. Annual Report

Annual reports are prepared in a manner to allow our shareholders, the public and all other stakeholders to obtain full and accurate information about the activities of the Company and with details stipulated in Turkish Commercial Code as well as Capital Markets Legislation.

PART IV – STAKEHOLDERS

4.1. DISCLOSURES TO STAKEHOLDERS

Stakeholders will be informed on the matters that concern them through the press, material disclosures, and press and analyst meetings and in electronic media in line with the Company’s disclosure policy.

Participation in the management requires to be elected to the Board of Directors; however, employees are encouraged to participate in the management with various business processes. There is no restriction for the stakeholders to transmit the Company’s actions that are contrary to the legislation and unethical to the Company’s Corporate Governance Committee and the Audit Committee.

Ensuring compliance with the legal regulations as well as supervision thereof is under the responsibility of the Audit Committee and examining as well as settling the complaints from shareholders and stakeholders about the matters related with the corporate governance is under the responsibility of the Corporate Governance Committee.

4.2. PARTICIPATIONS OF STAKEHOLDERS TO MANAGEMENT

No model was formed with respect to inclusion of the stakeholders to the management of the company. On the other hand, the requests and the proposals submitted in the meeting held with the employees and the other stakeholders are evaluated by management and policies as well as practices related thereto are developed.

4.3. HUMAN RESOURCES POLICY

Without forgetting the fact that our most important resource is human, we summarize the human resource development philosophy of our company targeting to have human resources necessary for the future while living today as follows: “We will train our human resources at every level by ourselves.”

We carry out the training and development activities under our own structure in order to train and develop DESA employees in accordance with this philosophy. Furthermore, we try to ensure the conformity of the qualifications that we look for the personnel to be employed in our company with the job to be performed by such personnel and choose individuals who are prescient as well as have career expectations for the success of this policy. We clearly explain their duties and responsibilities to all of the personnel employed in our company during employment interview; provide them with orientation training after employment and deliver their job definitions in writing.

“Joint Working Committee” was formed in order to ensure conveying the problems encountered by the employees to the management systematically for solution and to evaluate the demands of the employees within the scope of the social responsibility standard and share the same with the management for the purpose of increasing the motivation within the business as well as paralleling the corporate and individual targets. This committee is constituted by the representatives from each department elected by our personnel with their own votes and carries out its activities in accordance with its written regulations.

There is no complaint with respect to discrimination in our company and also no complaint arisen in social responsibility inspections carried out by independent auditors regularly related thereto upon requests of our customers. Furthermore, the text of “the social responsibility policy” is placed in locations visible by all of the employees throughout the workplace.

The Company’s total number of employees as of December 31st 2017 is 1.747.

4.4. CODES OF CONDUCT AND SOCIAL RESPONSIBILITY

Codes of conduct were created for the Company and employees, and these codes of conduct determined were disclosed to the employees with the Human Resources Manual and to the public in accordance with the disclosure policy. In its history of 45 years, the corporate culture of Desa in compliance with honesty, respect, ethical behaviour and the laws and regulations always has been at the forefront.

Aiming at offering a healthy development, universal quality and standards of products and services by ensuring customer satisfaction together with its employees and in this way, becoming a symbol of credibility, continuity and prestige before our country, its customers, shareholders, the companies it exports to, the values of Desa shed light to the path to be followed to achieve these objectives, and these are shared with the public through its website. The ethical values of Desa are the key factors lying behind its success and to achieve the future objectives.

Desa has been attaching importance to support social and cultural activities since its foundation. For this purpose, the Company sponsors various activities.

Desa operates in line with the system that it has created within the framework of the Labour Law and Laws on Social Security and Employee Health and Safety. In addition, Desa have the ETI BASE CODE audits performed by the companies accredited by Sedex system and all the reports are loaded to the Sedex system. Audits are performed on various subjects including quality, environment, management system and SA8000.

The Company observes the industry-specific norms on the environment in production under the Environmental Policy and System created by the Company itself. No lawsuit was filed against the Company for damage to the environment during the period. The Company’s codes of conduct are available at our website (www.desa.com.tr).

PART V – BOARD OF DIRECTORS

5.1. STRUCTURE AND FORMATION OF BOARD OF DIRECTORS

Turkish Commercial Code, Capital Markets Board regulations and the Corporate Governance Principles apply to the election of board members. The Board of Directors consists of five members totally two of which are independent members.

Melih ÇELET-Executive Member – ChairmanBurak ÇELET- Executive Member – General ManagerBurçak ÇELET- Non-executive Member - Corporate Governance Committee MemberOsman Tavtay- Non-executive Independent MemberMehmet Kaan Koz – Non-executive Independent Member

Any event which would render the independency of the independent board members null and void did not occurred as of the respective activity period. The statements of independency of the independent board members are as follows.

Since I have been elected as “Independent Member” of the Board of Directors in the General Assembly meeting dated March 31st 2017, I hereby submit the following issues for our Board of Directors’, our shareholders’ and all other stakeholders’ information pursuant to the regulations of the Capital Markets Board regarding corporate governance;• No direct or indirect relationship in terms of employment, capital or other important trading activities has been formed between me, spouse or my blood or affinity relatives up to the third degree and any of Desa Deri San. Ve Tic. A.Ş’s related parties or legal entities which have management or capital relation with shareholders having shares at a rate of 5% or more in the capital of Desa Deri directly or indirectly within last five years,• I have not been employed in a company, primarily serving as auditing, consulting and rating company, which undertakes full or partial activities or organization of Desa Deri under an agreement and held any position in such a company as a member of the board of directors within the last five years,• I have not been employed in, been a partner or a member of the board of directors of a company, which is providing significant amount of services and products to Desa Deri within the last five years,• I have the required professional training, knowledge and experience for performing the duties of which I would assume with my capacity as an independent member of the board of directors properly,• I am not a full-time employer of any public institution or organization,• I am considered as a resident in Turkey in accordance with the Income Tax Law• I have strong standards of ethics, Professional reputation and experience for adding positive contribution in activities of Desa Deri, for securing my independency about subjects in relation with the conflicts of shareholders and for making independent decisions with taking into account of stakeholders’ rights,• I am able to allocate necessary time for businesses of the company at a level sufficient for monitoring the processes and the activities of Desa Deri as well as fulfilling the requirements of my duties.

The CVs of the members of the Board of Directors are as follows:

Melih ÇELET – Chairman of the BoardMr. Melih ÇELET, founded Desa in 1972, graduated from Ankara College in 1968 and studied at Istanbul University, Faculty of Pharmacy. Mr. Melih ÇELET speaks English.

Burak ÇELET – Board Member - General ManagerMr. Burak ÇELET graduated from Boğazici University in 1999, with a Bachelor’s degree in Mechanical Engineering. He received an MBA degree in Corporate Finance from University of Wisconsin, Madison, in 2001. He obtained a Master of Science degree in Leather Technology from Northampton College in 2002. Mr. Burak ÇELET serves as a Board Member of the United Brands Association, Board Member of the Istanbul Leather and Leather Products Exporters’ Association, Board Member responsible for Leather Promotion Group as well as Member of the Turquality Working Group in addition to his duty as General Manager in our Company. Mr. Burak ÇELET speaks English and German.

Burçak ÇELET – Board MemberMs. Burçak ÇELET completed her bachelor’s degree in Industrial Engineering at Yıldız Technical University in 1999. Between 1999 and 2001, she worked as Planning Director at Toys’R’Us. She received her Master of Science degree in Retail Management from University of Surrey in 2002

4948

and she served as Category Director at Joker Maxitoys between 2003 and 2004. Ms. Burçak ÇELET, who has been serving at the Department of E-Trade as well as a Board Member in our Company since 2004, speaks Italian, English and French.

Mehmet Kaan KOZ – Independent Board MemberMr. Mehmet Kaan KOZ completed his undergraduate education at Boğazici University, Department of Mechanical Engineering in 1999 that he entered in 1995 after graduating from the German High School. He began his professional career in Arçelik A.S. Research and Technology Development Centre as a member of Koç Holding’s Management Trainee Program in 1999 and then he had a start in the business life and became the Managing Partner of Anova Ltd. Şti. established in 2003. Mr. KOZ was elected as an independent member for a period of two years with the resolution dated March 31st 2016 taken in the Company’s annual general meeting for the year 2015.

Osman TAVTAY – Independent Board MemberMr. Osman TAVTAY, who completed his bachelor’s degree in Geophysical Engineering at Istanbul Technical University in 1986, served as a Senior Trader at Koç Menkul Değerler between 1996 and 1998 after serving as a Stock Exchange Agent and Expert at Can Menkul Değerler, Piramit Menkul Kıymetler and Ekinciler Yatırım between 1990 and 1996. Mr. TAVTAY, who served as Domestic Operations Director at ABN Amro Yatırım A.S. between 1998 and 2004, was elected as an independent member for a period of two years at the Company’s 2015 annual general meeting dated March 31st 2016.

Our independent Members of the Board of Directors have submitted their Declaration of Independence to the Corporate Management Committee executing also the duty of the Nomination Committee. Corporate Management Committee has submitted the nominating report prepared for the independent candidate members of the Board of Directors to the Board of Directors on 08.03.2016. At the Ordinary General Assembly dated March 31st 2016, Mr. Osman Tavtay and Mr. Mehmet Kaan Koz have been elected in the capacity of “Independent Member” to the Board of Directors for 2 (two) years. Members of the Board of Directors participating in duties out of the company is not conditioned and of the members, Mr. Mehmet Kaan Koz is performing a duty as the Administrative Partner of Anova Ltd. Şti. There is one female member in the current Board of Directors of our Company.

5.1. PRINCIPLES FOR ACTIVITIES OF BOARD OF DIRECTORS

Activities of the Board of Directors are carried out under the provisions of the Turkish Commercial Code and the Articles of Association. The number of resolutions taken by the Board of Directors increased to 48 with the resolutions taken within the framework of the paragraph 4 of Article 390 of the Turkish Commercial Code No. 6102 in 2017. The members of the Board of Directors do not have the right of casting vote and each member is entitled to one vote.

Votes are announced as accepted or rejected at the meetings of the Board of Directors. Those who have a counter vote shall write the justification of the decision and sign. However, no public disclosure has been made in this regard recently as such kind of opposition or difference of opinion has not been declared. The Board Members pay attention to the participation in the meeting of the Board of Directors of the Company in person.

The damages to the Company which may be caused by the defaults of the Board Members during the performance of their duties have not been insured yet.

5.1. NUMBER, STRUCTURE AND INDEPENDENCY OF COMMITTEES ESTABLISHED IN BOARD OF DIRECTORS

Efforts on Corporate Governance were launched in 2005. The Audit Committee acting under the Board of Directors was established with decision of the board of directors numbered 18, dated May 26th 2004.

The Corporate Governance Committee has been established with the decision of the board of directors numbered 22, dated June 19th 2012 within the framework of the Principles of Corporate Governance in the activity period of the year 2012. The duties and responsibilities for Candidate Nomination Committee, Committee for Early Detection of Risk and Remuneration Committee were assigned to the established committee. The Committee for Early Detection of Risk was established with decision of the board of directors numbered 16, dated May 20th 2013. Osman Tavtay was elected as the chairman of the committee and Burçak Çelet as the member.

5.1.1. Audit Committee

The Audit Committee fulfils the duties provided for the audit committee in the Capital Markets Regulation. In this context, the Company’s accounting system performs disclosure of the financial information to the public, independent audit and supervision of the operation and effectiveness of the internal control system of the partnership.

Selecting the independent auditing company, preparing independent audit contracts and initiating independent audit process and activities of the independent auditing organization at each step take place under the supervision of the audit committee.

The Audit Committee must submit the annual and interim financial statements to be disclosed to the public to the Board of Directors in writing with its own evaluations by obtaining the views of the responsible executives and independent auditors of the partnership regarding the compliance of the statements with the accounting principles of the partnership, the truth and accuracy, and shall convene at least four times in a year and more frequently if necessary.The Audit Committee together with the Company’s management are responsible for maintaining the internal and external auditing carefully and ensuring compliance of the records, procedures and reports with the relevant laws, rules and regulations as well as the principles of the CMB and IFRS. This committee consists of non-executive independent members.

Members of the Audit Committee:Chairman: OSMAN TAVTAYMember: MEHMET KAAN KOZ

5.1.2. Corporate Governance Committee

The Corporate Governance Committee performs acts to support and assist the Board of Directors by performing efforts for compliance of the Company with the corporate governance principles, determination of the board members and senior executives, assessment of remuneration, reward and performance evaluation and career planning, investor relations and public disclosure. The reason for Mehmet Kaan Koz, independent member, is assigned to the both committees is that two of our independent members are assigned to the audit committee due to the requirement that the audit committee must consist of independent members. He carries out these duties because the members of the Corporate Governance Committee must consist of non-executive members.

Corporate Governance Committee Members:Chairman: MEHMET KAAN KOZMember: BURÇAK ÇELETMember: Pınar KAYA

5.1.3. The Early Detection of Risk Committee

Duties of the Early Detection of Risk Committee; determining fields which may create administrative risks and weaknesses and receive opinions of the management and the related parties on the plans for correcting the deficiencies. Early detection of the risks which may endanger the existence, development and continuity of the Company, applying the necessary precautions about the determined risks and performing studies on risk management. Reviewing risk management systems at least once a year. Examining significant complaints about the administration received by the Company, providing the settlement of the problem and ensuring the employees’ notices on these subjects to be transmitted to the administration within the framework of confidentiality principle.

Members of the Early Detection of Risk Committee:Chairman: OSMAN TAVTAYMember: BURÇAK ÇELET

5.4. RISK MANAGEMENT and INTERNAL CONTROL MECHANISM

Risk management of the Company includes examining periodically the financial risks, market risks and operational risks. Internal audit evaluates the sufficiency and efficiency of the controls including the management and activities of the company and information systems depending on the results of the risk assessments. These evaluations involve financial and operational information reliability, efficiency and productivity of the activities, protection of assets, complying laws, regulations and agreements. Tuncay Erol is the Expert Responsible from Internal Audit of our Company.

5.5. COMPANY’S STRATEGIC TARGETS

Desa’s mission, vision, targets and ethical values are added to the corporate identity file and published on the Company’s website.

The Board of Directors agrees on and approves the creation of strategic objectives prepared by the managers. Activities are assessed on monthly, quarterly, semi-annual, 9 months and annual basis. The strategic objectives for the year 2018 have been established and review of the sale-marketing and production targets has been started. Efforts for spread of the targets are ongoing. The next 5-year strategic planning process has begun. The actual situation for the year 2017 has been determined by creating all the indicators for financial, customer, process and learning, development targets for all the departments, and the forecast for the year 2018 has been established.

5.6. FINANCIAL RIGHTS TO THE BOARD OF DIRECTORS

The rights, the interests and the fees provided to the members of the Board of Directors are applied based on the decisions taken at the General Assembly. No benefit, such as debt, surety, credit and etc., was provided to the Board Members during the reporting period. The financial rights in remuneration provided to the Board of Directors are discussed at the General Assembly, and the public is informed through the meeting minutes. The rights determined are informed not on an individual basis but whether or not they are provided to the executive members or independent members. The principles with respect to remunerations of the members of the board of directors and the manager having administrative responsibilities have been adopted with decision of the board of directors numbered 15, dated May 20th 2013 and posted in investor relations section of the Company’s website. Policy also was submitted for the shareholders’ information in the Ordinary General Assembly meeting for 2013.

5150

INDEPENDENT AUDITOR’S REPORT ON THE BOARD OF DIRECTORS’ ANNUAL REPORT

To the Board of Directors of Desa Deri Sanayi ve Ticaret A.Ş.

1) Opinion

We have audited the accompanying annual report of Desa Deri Sanayi ve Ticaret A.Ş. (“the Company”) for the period of 01.01.2017 – 31.12.2017.

In our opinion, the financial information included in the annual report and the analysis of the Board of Directors about the financial position of the Company are consistent, in all material aspects, with the audited complete set of financial statements and information obtained during the audit and provides a fair presentation.

2) Basis for Opinion

We conducted our audit in accordance with the Independent Auditing Standards (“IASs”) which is a component of the Turkish Auditing Standards issued 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 Annual Report section of our report. We declare that we are independent of the Company in accordance with the Code of Ethics for Independent Auditors issued by POA (the Code of Ethics) and the ethical requirements included in the legislation regarding independent auditing. We have also fulfilled our other ethical responsibilities include in the scope of Code of Ethics and legislation. We believe that the audit evidences we have obtained during the independent audit are sufficient and appropriate to provide a basis for our opinion.

3) Auditor’s Opinion on Complete Set of Financial Statements

We have expressed a limited positive opinion on the complete set of financial statements for the period of 01.01.2017 – 31.12.2017 in our auditor’s report dated 01.03.2018.

4) Board of Directors’ Responsibility for the Annual Report

In accordance with the Articles 514 and 516 of the Turkish Commercial Code No.6102 (“TCC”), the Company’s management is responsible for the following issues regarding the annual report:

a) The Company’s management prepares its annual report within the first three months following the balance-sheet date and submits it to the general meeting.

b) The Company’s management prepares its annual report in such a way that it presents accurately, completely, directly, true and fairly the flow of annual operations and financial position of the Company in all aspects. In this report, the financial position is assessed in accordance with the Company’s financial statements. The annual report also clearly indicates the details about the Company’s development and risks that might be encountered. The assessment of the board of directors on these matters is included in the report as well.

c) The annual report also includes:

- Significant events which have taken place in the Company after expiration of the reporting period,

- The Group’s research and development activities,

When preparing the annual report, the board of directors also considers the related regulations issued by the Ministry of Customs and Trade and related institutions.

5) Auditor’s Responsibility for the Independent Audit of the Annual Report

Our objective is to express an opinion on whether the financial information included in the annual report and analysis of the Board of Directors are consistent with the audited financial statements of the Company and the information obtained during the independent audit and give a true and fair view and to prepare a report that include this opinion in accordance with the provisions of the TCC.

We conducted our independent audit in accordance with the IASs. Those standards require compliance with ethical requirements and planning of the independent audit to obtain reasonable assurance on whether the financial information included in the annual report and analysis of the board of directors are consistent with the financial statements and the information obtained during the audit and provides a fair presentation.

6) Other Obligations Arising from Legislation

No significant fact, which must be reported, implying that Desa Deri Sanayi ve Ticaret Anonim Şirketi would be unable to maintain its operation in foreseeable future has been discovered under IAS 570 “Going Concern” pursuant to the third paragraph of the Article 402 of the TCC.

As Bağımsız Denetim ve YMM A.Ş. (Member of NEXIA INTERNATIONAL)

Osman Tuğrul ÖZSÜT Cap Auditor

/seal & signature/

01.03.2018 İstanbul, Turkey

5352

DESA DERİ SANAYİ VE TİCARET A.Ş.

Financial Statements and Independent Auditor’s Report for the accounting period of January 01st - December 31st, 2017

To the Board of Directors of Desa Deri Sanayi ve Ticaret A.Ş.

A. Independent Audit of the Financial Statements

1. Limited Positive Opinion

We have audited the accompanying financial statements of Desa Deri Sanayi ve Ticaret A.Ş.( Group”), which comprise the statement of financial position dated 31 December 2017, the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the accounting period ended on the same date, and notes summarizing the significant accounting policies and other explanatory notes.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of 31st December 2017, and its financial performance and its cash flows for the year then ended in accordance with Turkish Accounting Standards (“TASs”) except for the effects of matters mentioned on section of Basis for Limited Positive Opinion.

2. Basis for Limited Positive Opinion

The Company recognizes its subsidiaries and affiliates as financial assets at cost in its financial statements pursuant to TAS 39 as detailed in footnotes regarding Financial Investments (Note: 4). An impairment study has not been carried out for these financial assets at the end of the period by the Company.

We conducted our audit in accordance with Independent Auditing Standards (IASs) which is a component of the 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 Financial Statements section of our report. We declare that we are independent of the Company in accordance with the Code of Ethics for Auditors issued by POA (“POA’s Code of Ethics”) and the ethical requirements in the regulations issued by POA that are relevant to audit of financial statements, and we have fulfilled our other ethical responsibilities in accordance with the POA’s Code of Ethics and regulations. We believe that the independent audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

3. Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in independent audit of the financial statements of the current period. These matters were addressed in the context of the independent 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.

6. Bağımsız Denetçinin Finansal Tabloların Bağımsız Denetimine İlişkin Sorumlulukları

Bir bağımsız denetimde, biz bağımsız denetçilerin sorumlulukları şunlardır:

FINANCIAL STATEMENT AND ANNUAL REPORT APPROVED BY THE BOARD OF DIRECTORSRESOLUTION DATED: 01 / 03 / 2018RESOLUTION NO: 4 / 2018

OUR STATEMENT AS PER ARTICLE 9 OF SECOND CHAPTER OFTHE CAPITAL MARKETS BOARD COMMUNIQUÉ NO: II-14.1

1- We have reviewed independently audited Financial Statements and Annual Report of our Company for the period 01.01.2017 – 31.12.2017.

2- According to information to which we have access as a part of our duties and responsibilities within the

Company, the Financial Statements and the Annual Report do not contain any material inaccurate disclosures or any shortcomings which may prove to be misleading because of the date of disclosure.

3- According to information to which we have access as a part of our duties and responsibilities within the Company, the Financial Statements, which have been prepared in accordance with the Financial Reporting Standards in force, reflect the truth relating to the assets, liabilities, financial standing as well as profits and losses of the Company fairly and the Annual Report faithfully reflects the development and performance of the business and the financial standing of the Company along with the risks and uncertainties that it is facing.

Board Chairman General Manager Vice General Manager MELİH ÇELET BURAK ÇELET AYHAN DİRİBAŞ

5554

6. Independent Auditor’s Responsibilities for the Independent Audit of the Financial Statements

Responsibilities of auditors in an independent audit are as follows:

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an independent auditor’s report that includes our opinion. Reasonable assurance provided as a result of an independent audit conducted in accordance with the IASs is a high level of assurance, but is not a guarantee that an existing significant misstatement would be discovered in any case. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As a requirement of an independent audit conducted in accordance with the IASs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the 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 to provide 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 the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’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 the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our report to the related disclosures in the financial statements or, if such disclosures are inadequate, to provide an opinion other than a positive one. Our conclusions are based on the audit evidence obtained up to the date of the independent auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether these financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the independent 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 to bear on the independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the independent audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our independent auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

B. Other Legal and Regulatory Requirements

1) Pursuant to the fourth paragraph of Article 398 of Turkish Commercial Code (“TCC”) no. 6102; Auditors’ Report on System and Committee of Early Identification of Risks is presented to the Board of Directors of the Company on 28 February 2018.

2) Pursuant to the fourth paragraph of Article 402 of the TCC; no significant matter has come to our attention that causes us to believe that for the period of 1 January - 31 December 2017, the Company’s bookkeeping activities and financial statements are not in compliance with the Law and provisions of the Company’s articles of association in relation to financial reporting.

3) Pursuant to the fourth paragraph of Article 402 of the TCC; the Board of Directors provided us the necessary explanations and required documents in connection with the audit.

As Bağımsız Denetim ve YMM A.Ş. (Member of NEXIA INTERNATIONAL) Osman Tuğrul ÖZSÜT Cap Auditor 01.03.2018 İstanbul, Turkey

Provisions for tax fines

Provisions for tax fines

As a result of limited tax audit against the Company for 2012, a tax fine amounting to TL 1.672.039,22 totally consisting of original tax amounting to TL 209.747,11 excluding delay fine, fine for loss of tax amounting to TL 803.963,12 and special irregularity fine amounting to TL 148.034,30 in terms of Corporate Tax, original tax amounting to TL 9.717.78 and fine for loss of tax amounting to TL 9.717,78 in terms of VAT, original tax amounting to TL 93.237,83 and fine for loss of tax amounting to TL 93.237,83 in terms of income tax withholding, original tax amounting to TL 1.857,53 and fine for loss of tax amounting to TL 1.857,53 in terms of stamp tax and TL 300.668,41 in terms of advance corporate tax has been calculated. An action has been initiated against the aforementioned tax fines before İstanbul 11th Tax Court on 22.01.2018 by the Company and the necessary provisions related thereto have been made. (Note 33)

The auditing procedure we applied with respect to this matter includes calculating the aforesaid provision and understanding the recognition process related thereto, assessing accuracy and completeness of the amounts constituting basis for the calculations, assessing whether the amount reflected on the financial statements as provision is a liability arising from events taken place in previous periods and assessing the possibility regarding outflow of resources embodying economic benefits from the Company, in brief.

How the key matter was addressed in the auditKey audit matters

Revaluation in tangible fixed assets

Lands and buildings reported under tangible fixed assets in the Company’s financial statements are recognized at their re-appraised value. Fair values of lands and buildings have been determined by the appraisers of TSKB Gayrimenkul Değerleme A.Ş. licensed by the CMB. Accordingly, the value appraised for the lands is TL 11.025.000 and the value appraised for the buildings is TL 27.940.000. Revaluation of said lands and buildings does not create a significant influence on the financial statements.

How the key matter was addressed in the auditKey audit matters

Within the scope of the audit works carried out, suffi-ciency of revaluation performed by the appraisers of the independent appraisal company, expedience and reasonability of findings and conclusions obtained by the appraisers as well as consistency of these findings and conclusions with other audit evidences have been assessed.

Reconciliation of values determined by the apprais-ers for the real estates as specified in revaluation re-ports with the values explained in footnote 14 has been checked. No significant finding has been discovered in such study which we have carried out in connection with revaluation in tangible fixed assets.

4. Other Issues

The audit on the Company’s financial statements pertaining to accounting period of January 1st – December 31st 2016 has been carried out by RSM Turkey Bağımsız Denetim ve YMM A.Ş. and limited positive opinion has been provided in the independent audit report dated March 1st, 2017 which has been drawn up by the aforesaid independent auditing company.

5. Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with TASs and for such internal control as management determines is necessary to enable the preparation thereof in a manner free from material misstatement, whether due to fraud or error.In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management 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 supervision of the Company’s financial reporting process.

5756

DESA DERİ SANAYİ VE TİCARET ANONİM ŞİRKETİSTATEMENT OF FINANCIAL POSITION AS OF 31ST DECEMBER 2017(All amounts expressed in “TL”)

NoteReferences

Current PeriodIndependently

Audited 31st December 2017

Previous PeriodIndependently

Audited 31st December 2016

ASSETSCurrent AssetsCash and Cash Equivalents 53 8.888.394 6.785.223 Trade Receivables 7 12.155.786 5.469.346

Trade Receivables from Related Parties 6 6.108.401 813.154 Trade Receivables from Non-Related Parties 7 6.047.385 4.656.192 Other Receivables 9 844.681 2.001.785

Other Receivables from Related Parties 6 723.812 1.872.273 Other Receivables from Non-Related Parties 9 120.869 129.512 Inventories 10 152.297.658 125.341.205 Prepaid Expenses 12 1.603.248 5.208.137

Prepaid Expenses of Related Parties 6 - 85 Prepaid Expenses of Non-Related Parties 12 1.603.248 5.208.052 Assets Related to Current Period Tax 38 10.272 439 Other Current Assets 29 1.508.352 1.534.678 Fixed assets classified for sale 39 2.772.277 -

TOTAL CURRENT ASSETS 180.080.668 146.340.813 Fixed Assets Financial Investments 4 7.724.212 7.664.316 Other Receivables 9 202.384 190.174

Other Receivables from Related parties 6 - - Other Receivables from Non-Related Parties 9 202.384 190.174 Investments Valued by Equity Method 4 8.796.352 6.845.387 Tangible Fixed Assets 13 53.436.694 29.037.330 Intangible Fixed Assets 16 655.959 725.926 Deferred Tax Assets 38 1.768.246 777.401 TOTAL FIXED ASSETS 72.583.847 45.240.534 TOTAL ASSETS 252.664.515 191.581.347

DESA DERİ SANAYİ VE TİCARET ANONİM ŞİRKETİSTATEMENT OF FINANCIAL POSITION AS OF 31ST DECEMBER 2017(All amounts expressed in “TL”)

NoteReferences

Current PeriodIndependently

Audited 31st December 2017

Previous PeriodIndependently

Audited 31st December 2016

LIABILITIES Short Term LiabilitiesShort Term Financial Liabilities 47 45.092.956 7.601.800 Short Term Parts of Long Term Financial Liabilities 47 19.744.830 28.409.763 Trade Payables 7 76.784.648 45.866.363 Trade Payables to Related Parties 6 12.076.678 8.506.313 Trade Payables to Non-Related Parties 7 64.707.970 37.360.050 Payables within the Scope of Benefits to Employees 27 4.506.976 3.700.895 Other Payables 9 5.425.464 3.335.650 Other Payables to Related Parties 6 - - Other Payables to Non-Related Parties 9 5.425.464 3.335.650 Deferred Income 12 1.065.231 1.167.430 Deferred Income from Related Parties 6 941.972 452.180 Deferred Income from Non-Related Parties 12 123.259 715.250 Short Term Provisions 25 5.227.887 2.284.354 Short Term Provisions for Benefits to Employees 25 2.103.962 1.807.273 Other Short Term Provisions 25 3.123.925 477.081 TOTAL SHORT TERM LIABILITIES 157.847.992 92.366.255 Long Term Liabilities 44 21.097.433 46.258.999 Trade Payables 7 20.279 44.841 Trade Payables to Related Parties 6 - - Trade Payables to Non-Related Parties 7 20.279 44.841 Other Payables 9 15.375 33.824 Other Payables to Related Parties 6 - - Other Payables to Non-Related Parties 25 15.375 33.824 Long Term Provisions 25 3.766.804 3.195.569 Long-Term Provisions for Benefits to Employees 25 3.766.804 3.195.569 TOTAL LONG TERM LIABILITIES 24.899.891 49.533.233 SHAREHOLDER’S EQUITYShareholder’s Equity of Parent Company 69.916.632 49.681.859 Paid in capital 30 49.221.970 49.221.970 Capital Adjustment Distinction 30 5.500.255 5.500.255 Other Accumulated Comprehensive Incomes or Expense not to be Reclassified as Profit or Loss 30 27.983.510 7.562.591

Revaluation and Evaluation Earnings/Losses 30 29.122.123 8.680.485 Other Earnings/Losses 30 (1.138.613) (1.117.894)Reserves on Retained Earnings 30 960.423 960.423 Accumulated Profit/Loss 30 (13.563.380) (263.260)Net profit/loss for the period 30 (186.146) (13.300.120)TOTAL SHAREHOLDER’S EQUITY 69.916.632 49.681.859 TOTAL LIABILITIES 252.664.515 191.581.347

5958

DESA DERİ SANAYİ VE TİCARET ANONİM ŞİRKETİPROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME STATEMENT

PERTAINING TO THE PERIOD 1ST JANUARY - 31ST DECEMBER 2017(All amounts expressed in “TL”)

Current PeriodIndependently

Audited

Previous PeriodIndependently

Audited

Note

References 01.01-31.12.2017 01.01-31.12.2016

PROFIT OR LOSS PARTRevenue 31 207.421.540 151.465.709 Cost of Sales (-) 31 (106.987.512) (78.198.157)Gross Profit/Loss from Business Operations 100.434.028 73.267.552 GROSS PROFIT / LOSS 100.434.028 73.267.552 General Administrative Expenses (-) 33 (13.379.757) (12.486.139)Sales and Marketing (-) 33 (83.682.116) (69.452.765)Research and Development Expenses (-) 33 (1.747.847) (1.919.559)Other Incomes from Real Activities 34 27.644.945 14.354.854 Other Expenses of Real Activities (-) 34 (15.257.141) (4.954.999)OPERATING PROFIT / LOSS 14.012.112 (1.191.056)Incomes from Investing Activities 35 13.673 12.891 Expenses from Investing Activities (-) 35 - -Profit/Loss Share on Investments Valued by Equity Method 4 1.950.965 1.453.937

OPERATING PROFIT/LOSS BEFORE FINANCING EXPENSES 15.976.750 275.772 Financing Expenses (-) 37 (19.674.392) (13.806.726)CONTINUING OPERATIONS PROFIT/LOSS BEFORE TAX (3.697.642) (13.530.954)Continuing Operations Tax Expenses/Incomes 3.511.496 230.834 Deferred Tax Expenses/Incomes 38 3.511.496 230.834 CONTINUING OPERATIONS PROFIT/LOSS FOR THE PERIOD (186.146) (13.300.120)DISCONTINUED OPERATIONS PROFIT/LOSS FOR THE PERIOD - - PROFIT/LOSS FOR THE PERIOD (186.146) (13.300.120)Earnings per Share (0,000038) (0,002702)Earnings per Share from Continuing Operations 41 (0,000038) (0,002702)OTHER COMPREHENSIVE INCOMENot to be Reclassified in Profit or Loss 20.420.919 (558.434)Tangible Fixed Assets Revaluation Increases/Decreases 22.968.133 (180.286)Earnings (Losses) from Remeasurement of Defined Benefit Plans (26.563) (483.952)Taxes pertaining to other comprehensive income not to be Reclassified as Profit or Loss 36Tangible Fixed Assets Revaluation Increases (Decreases), Tax effect 36 (2.526.495) 9.014 Earnings (Losses) from Remeasurement of Defined Benefit Plans, Tax Effect 36 5.844 96.790 TOTAL COMPREHENSIVE INCOME 20.234.773 (13.858.554)

DESA DERİ SANAYİ VE TİCARET ANONİM ŞİRKETİCASH FLOW STATEMENT

PERTAINING TO THE PERIOD 1ST JANUARY - 31ST DECEMBER 2017(All amounts expressed in “TL”)

Current Period Previous PeriodNote

References31st December

201731st December

2016A. CASH FLOWS FROM OPERATING ACTIVITIES 7.114.990 (13.610.223)Profit / Loss for the Period (186.146) (13.300.120)Adjustments relating to Profit/Loss Reconciliation for the Period 2.551.535 886.314Adjustments relating to Depreciation and Amortization Expenses 28-33 4.133.751 4.465.444Adjustments relating to Provisions Adjustments relating to Provisions (Cancellation) for Benefits to Employees 25 867.923 (50.107)Adjustments relating to case and/or punishment provisions (cancellation) 25-34 2.573.765 (542.972)Adjustments relating to Interest Expenses 37 178.563 451.915Deferred financing expenses arising from forward purchases 34 1.005.999 -Unearned financing incomes arising from forward sales 34 (1.904.334) -Adjustments relating to the Undistributed Earnings of investments valued by equity methodAdjustments relating to the Undistributed Earnings of Affiliates 4 (1.950.965) (1.453.937)Adjustments relating to Tax Expenses/Incomes 40 (3.511.496) (230.834)Adjustments related with losses (earnings) arising from sale of tangible fixed assets 34-35 170.724 -Adjustments relating to Incomes from government promotion - (1.772.304)Other Adjustments relating to Profit/Loss Reconciliation 987.603 (891)Changes Realized in Operating Capital 4.759.433 (1.175.978)Adjustments relating to Decrease (Increase) in Trade ReceivablesDecrease (Increase) in Trade Receivables from Related Parties 6 (5.121.753) 5.689.661Decrease (Increase) in Trade Receivables from Non-Related Parties 7 (1.627.771) (843.805)Adjustments relating to Decrease (Increase) in Other Receivables relating to ActivitiesDecrease (Increase) in Other Receivables from Related Parties relating to Activities 6 1.148.461 (1.872.273)Decrease (Increase) in Other Receivables from Non-Related Parties relating to Activities 9 (3.567) (56.730)Adjustments relating to Decrease (Increase) in Inventories 10 (26.956.453) (9.518.368)Decrease (Increase) in Prepaid Expenses 12 3.604.889 (3.032.228)Adjustments relating to Increase (Decrease) in Trade PayablesIncrease (Decrease) in Trade Payables to Related Parties 6 3.570.365 2.773.396Increase (Decrease) in Trade Payables to Non-Related Parties 7 28.250.625 2.561.002Increase (Decrease) in Payables under Benefits to Employees 27 806.082 589.096Adjustments relating to Increase (Decrease) in Other Payables relating to ActivitiesIncrease (Decrease) in Other Payables to Related Parties relating to Activities 6 - -Increase (Decrease) in Other Payables to Non-Related Parties relating to Activities 9 2.071.365 996.329Increase (Decrease) in Deferred Income 12 (102.199) (1.696.314)Adjustments related with other increases (decreases) in working capital Decrease (Increase) in Other Assets relating to Activities 29 (953.687) 3.234.256Increase (Decrease) in Other Liabilities relating to Activities 29 73.079 -Cash Flows from Operations 7.124.823 (13.609.784)Tax Payments/Tax Rebates (9.833) (439)B. CASH FLOWS ARISING FROM INVESTMENT OPERATIONS (8.497.913) (4.675.108)Cash Inflows relating to Sales, which don’t cause the loss of Subsidiaries’ control 4 (59.896) 21.164Cash outflows arising from purchase of fixed assets held for sale 39 (2.772.277) -Cash Outflows arising from Purchase of Tangible and Intangible Fixed Assets Cash Outflows arising from Sale of Tangible Fixed Assets 14 (5.641.736) (4.673.945)Cash Outflows arising from Sale of Intangible Fixed Assets 17 (53.212) (63.051)Cash Inflows arising from Purchase of Tangible and Intangible Fixed Assets Cash Inflows arising from Sale of Tangible Fixed Assets 14 29.208 40.724C. CASH FLOWS ARISING FROM FINANCIAL OPERATIONS 3.486.094 24.102.595Cash Inflows arising from Borrowings Cash Inflows from Loans 22.228.540 25.943.384Cash Outflows relating to Discharge of debtCash Outflows from Loans (15.295.251) -Interest Paid 37 (3.447.195) (1.840.789)NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS BEFORE EFFECT OF FOREIGN CURRENCY CONVERSION ADJUSTMENTS 2.103.171 5.817.264

D. EFFECT OF FOREIGN CURRENCY CONVERSION ADJUSTMENTS ON CASH AND CASH EQUIVALENTSNET INCREASE / DECREASE IN CASH AND CASH EQUIVALENTS 2.103.171 5.817.264E. CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD 6.785.223 967.959 CASH AND CASH EQUIVALENTS AT THE END OF PERIOD 8.888.394 6.785.223

6160

DES

A D

ERİ S

AN

AYİ V

E Tİ

CA

RET

AN

ON

İM Ş

İRK

ETİ

IND

EPEN

DEN

TLY

AU

DIT

EDST

ATEM

ENT

OF

CH

AN

GES

IN E

QU

ITY

DAT

ED 3

1ST

DEC

EMB

ER 2

017

(All

amou

nts

expr

esse

d in

“TL

”)

Acc

umul

ated

Oth

er

Com

preh

ensi

ve In

com

es

and

Expe

nses

not

to b

e R

ecla

ssif

ied

in P

rofi

t or

Loss

Ret

aine

d Ea

rnin

gs

Not

eR

efer

ence

s

Paid

in

Cap

ital

Dis

tinct

ion

from

Sha

re

Cap

ital

Adj

ustm

ent

Rev

alua

tion

and

Mea

sure

men

t Ea

rnin

gs /

Lo

sses

Act

uari

al

(Los

s) /

Ea

rnin

gs fr

om

Ben

efits

to

Empl

oyee

s

Res

erve

s on

Ret

aine

d Ea

rnin

gs

Acc

umul

ated

P

rofi

t/(L

oss)

Net

Inco

me

/ (L

oss)

for

the

Peri

od

Shar

ehol

ders

’Eq

uity

Bal

ance

s of

1st

Jan

uary

201

7N

ote

3049

.221

.970

5.50

0.25

58.

680.

485

(1.1

17.8

94)

960.

423

(263

.260

)(1

3.30

0.12

0)49

.681

.859

Tran

sfer

s-

--

--

(13.3

00.12

0)13

.300

.120

-

Tota

l Com

preh

ensi

ve In

com

e-

-20

.441

.638

(20.

719)

--

(186.

146)

20.2

34.7

73

Bal

ance

s of

31s

t Dec

embe

r 20

1749

.221

.970

5.50

0.25

529

.122.

123

(1.13

8.61

3)96

0.42

3(13

.563

.380

)(18

6.14

6)69

.916

.632

Bal

ance

s of

1st

Jan

uary

201

6N

ote

3049

.221

.970

5.50

0.25

58.

851.7

57(7

30.7

32)

960.

423

3.83

4.79

9(4

.098

.059

)63

.540

.413

Tran

sfer

s-

--

-(4

.098

.059

)4.

098.

059

-

Tota

l Com

preh

ensi

ve In

com

e-

-(1

71.2

72)

(387

.162

)-

-(1

3.30

0.12

0)(1

3.85

8.55

4)

Bal

ance

s of

31s

t Dec

embe

r 20

1649

.221

.970

5.50

0.25

58.

680.

485

(1.1

17.8

94)

960.

423

(263

.260

)(1

3.30

0.12

0)49

.681

.859

1. COMPANY’S ORGANIZATION AND SUBJECT OF ACTIVITY

1.1. Subject of Activity

Desa Deri Sanayi ve Ticaret A.Ş. (“Company”) has been established in January 29, 1982 and engages in manufacturing, sales, import and export of leather ready-to-wear, bags, shoes and all variety of leather craft products.

The Company’s registered office is located in Halkalı Cad. No: 208 Sefaköy- Küçükçekmece / İstanbul. The Company has also a branch operating in Tuzla Free Zone. Additionally, the Company has three factories, one of which is located at the address of its registered office and the others in Ergene and Düzce at the following addresses:

Ergene Factory: Sağlık Mahallesi Kuzey Caddesi No: 14-24 Ergene / Tekirdağ

Düzce Factory: Organize Sanayi Bölgesi 9. Ada 4-5 Parsel Beyköy / Düzce

The Company’s contact information is as follows.

Tel : 0090 212 473 18 00

Fax : 0090 212 698 98 12

Web : www.desa.com.tr

Company’s stocks have been offered to the public on April 29-30, 2004 and 34.92% thereof are traded at the Istanbul Stock Exchange (“BİST”) as of December 31, 2017.

The Company has 1.747employees as of December 31, 2017. (December 31, 2016 - 1.496 employees)

1.2. Capital Structure

The Company has shifted to registered capital system in 2007 and its registered authorized stock amounts to TL 150.000.000. Its paid capital is TL 49.221.970 as of December 31, 2017 (December 31, 2016: TL 49.221.970) and has been divided into 4.922.196.986 (December 31, 2016: 4.922.196.986) stocks each of which has a nominal value of 1 Kr.

Issued and paid in capital amounts as of December 31, 2017 and December 31, 2016 are as follows at their book value:

31st December 2017 31st December 2016Name Surname/Title Share Percentage Share Amount Share Percentage Share AmountÇelet Holding A.Ş. 54,28% 26.717.682 54,28% 26.717.682Melih Çelet 10,00% 4.922.197 10,00% 4.922.197Free Float (*) 34,92% 17.188.312 34,92% 17.188.312Other 0,80% 393.779 0,80% 393.779Total 100% 49.221.970 100% 49.221.970

(*)The share with a nominal value of TL 4.129.566 representing 8.39% of the share capital in the free float belongs to Çelet Holding A.Ş. and the share with a nominal value ofTL 3.958.808 representing 8,04% belongs to Melih Çelet as of 31.12.2017. (See Note 30/b)

(*)The share with a nominal value of TL 4.129.566 representing 8.39% of the share capital in the free float belongs to Çelet Holding A.Ş. and the share with a nominal value of TL 3.749.151 representing 7,61% belongs to Melih Çelet as of 31.12.2016. (See Note 30/b)

6362

NOTE 1- COMPANY’S ORGANIZATION AND SUBJECT OF ACTIVITY (Continued)

1.3. Affiliates and Subsidiaries

Titles, subjects of activity and headquarters of the Company’s affiliates and subsidiaries are as follows.

31st December 2017 31st December 2016Field of Activity Location Participation Rate % Participation Rate %

Affiliate Marfar Deri San.ve Tic.Ltd.Şti. Textile Istanbul-Turkey 50% 50%Samsonite Seyahat Ür. A.Ş. Textile Istanbul-Turkey 40% 40%Subsidiary Leather Fashion Limited Textile Moscow-Russia 100% 100%Sedesa Deri San. ve Tic. Ltd. Şti. Textile Istanbul-Turkey - 99%Desa International Textile London-England 100% 100%Desa SMS Ltd. Textile London-England 100% 100%Desa International (UK) Ltd. Textile London-England 100% 100%Desa Deutschland GmbH Textile Düsseldorf-Germany 100% 100%Leather Fashion Bulgaria EOOD Textile Sofia-Bulgaria 100% -Desa Nineteenseventytwo SRL Italy Textile Milano-Italy 100% -

Financial statements dated December 31, 2016 of Samsonite Seyahat Ürünleri A.Ş., which is one of the affiliates of the Company, have been consolidated with the Company’s financial statements of the same term through equity method. Other affiliates and subsidiaries are entered into the financial statements at their cost values pursuant to the article 46 of TAS 39. (Note 4)

1.4. Approval of Financial Statements:

The Company’s financial statements have been approved on March 01, 2018 by the Board of Directors. General Board and certain regulatory boards are entitled to change financial statements.

2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS

a. Basis of Presentation

Applied Accounting Standards

The accompanying interim condensed consolidated financial statements have been prepared in accordance with the provisions of the Communiqué serial II, No: 14.1 on Principles Regarding Financial Reporting in Capital Market of the CMB published in official gazette issue no 28676 dated June 13th,2013 and Turkish Accounting Standard 34 (“TAS 34”) “Interim Financial Reporting” issued by Public Oversight Accounting and Auditing Standards Authority of Turkey (“POA”) has been based on pursuant to the Article 5 of the Communiqué.

The companies are free to prepare their interim financial statements as full set or condensed according to TAS 34 standard. In this context, the Company has preferred to prepare condensed consolidated financial statements for interim periods. The Company’s interim condensed consolidated financial statements do not contain all of the explanations and the footnotes which they should contain and therefore, they should be read together with the Company’s financial statements dated December 31st 2016.

The Company complies with principles and requirements issued by the CMB, the Turkish Commercial Code (the TCC”), the tax legislation and the Uniform Accounting Plan requirements issued by the Ministry of Finance in keeping its accounting records and preparation of its statutory financial statements. Interim condensed consolidated financial statements have been prepared on the basis of historical cost principle and issued by reflecting the necessary adjustments and classifications to the statutory records for the purpose of accurate presentation pursuant to TASs.

Functional and presentation currency

Functional currency of the financial reports is TL and decimal parts of the amounts have been rounded up.As of December 31st, 2017 Dollar currency rate is 1 USD = TL 3,7719 (December 31st, 2016: 3,5192); 1 EUR = TL 4,5155 ( December 31st, 2016 = TL 3,7099); 1 GBP = TL 5,0308 (December 31st, 2016: TL 4,3189); 1 CHF = 3,8548 (December 31st, 2016: TL 3,4454); 1 BGN = 2,9958 (December 31st, 2016: 1,8860); 1 CNY = 0,57622 (December 31st, 2016: 0,50375); 1 DNK = 0.60551 (December 31st, 2016: 0.49825) which are published by The Central Bank of Republic of Turkey.

Adjustment of Financial Statements in Hyperinflationary Periods

The companies, carrying out their operations in Turkey and preparing their financial tables according to CMB Accounting Standards, do not apply inflation accounting with effect from January 01st, 2005 according to the resolution adopted by the CMB on March 17th, 2005. In line with the said resolution adopted by the CMB, preparation and presentation of the financial statements in accordance with TAS 29 “Financial Reporting in Hyperinflationary Economies” is not applied anymore.

2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (CONTINUED)

Comparative Information and Restatement of Prior Period Financial Statements

The Company has prepared its statement of financial position dated December 31st, 2017 by comparing the same with its statement of financial position valid as of December 31st, 2016; its statement of other comprehensive income as well as statement of cash flows pertaining to the period of January 1st – December 31st, 2017 by comparing the same with its statement of comprehensive income as well as statement of cash flows valid as of December 31st, 2016 and its statement of changes in equity pertaining to the period of January 1st – December 31st, 2017 by comparing the same with its statement of changes in equity valid for the period of January 1st – December 31st, 2016.

a. Changes in Accounting Policies

If adjustments on accounting policies are applied retroactive, the company should adjust the previous opening balance of each effected equity item in the report and should provide comparative data which is presented in accordance with the new accounting policies in terms of current years.

Changes in accounting policy need to application for previous periods and also for current period or if the company cannot determine the change effect of the financial statements as in cumulative, it wouldn’t make any application for previous periods.

b. Changes in Accounting Estimates and Errors

If changes in accounting estimates effect a change in assets, liability and equities, book value of related assets, liability and equities should change at related period.

In case of shifting effects of changes in accounting estimate to next financial statements, it means that it applied to transactions, events and conditions after the date of changes in forecast.

Errors related to previous periods adjust by using readjust method for previous periods except the cases in which it is not possible to calculate the cumulative and current period’s effects of error.

At the preparation of the consolidated financial statements, the Company management has to do assumptions and forecasts about the amount which will affect assets and liabilities, amounts which affect liabilities and commitments as of the time of the statement of financial position and amounts of income and expenses for reporting period. Results happened in real would be different than forecasts and assumptions. These forecasts and assumptions are considered in regular time bases, all necessary adjustments are made and the results adjusted to related period.

Significant estimates used are related with economic life and compensation of the main tangible and intangible assets.

c. Going concern

The Company has prepared its interim condensed consolidated financial statements on going concern basis.

d. Netting/Offsetting

Financial assets and liabilities are offset and reported in the net amount when there is a legally enforceable right or when there is an intention to settle the assets and liabilities on a net basis or realize the assets and settle the liabilities simultaneously

e. Comparative Information and Restatement of Financial Statements of Previous Period

The financial statements of the Company are prepared by comparing thereof with the previous period in order to enable the determination of the financial position and performance trends. Comparative information is reclassified, when necessary, in order to ensure conformity with the presentation of the current period consolidated financial statements and the significant changes are explained. Changes in TFRS Standards New and amended standards and interpretations

The accounting policies are consistent with those of the previous financial year, except for new and amended TFRS standards and IFRIC interpretations effective as of 31st December, 2017. The effects thereof on the Company’s financial standing and performance have been disclosed in the related paragraphs.

New standards, amendments and interpretations which are effective as of January 1st, 2017TAS 7 Statement of Cash Flows (Amendments)

The IASB has issued amendments to “IAS 7 Statement of Cash Flows” standard in January 2016. The amendments are intended to clarify IAS 7 to improve information provided to users of financial statements about a company’s financing activities. The improvements to the footnote disclosures require companies to provide information about changes in their financing liabilities. These amendments are to be applied for annual periods beginning on or after January 1st, 2017. The amendments have not had any significant impact on the Company’s financial statement footnotes.

6564

2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (CONTINUED)

TAS 12 Income Taxes: Recognition of Deferred Tax Assets for Unrealized Losses (Amendments)

The IASB has issued amendments to “IAS 12 Income Taxes” standard in January 2016. The amendments clarify the recognition of deferred tax assets related to debt instruments measured at fair value. The amendments intend to eliminate the existing differences in practice with respect to the requirements on recognition of deferred tax assets for unrealized losses. These amendments are to be retrospectively applied for annual periods beginning on or after January 1st, 2017. However, on initial application of the amendment, the change in the opening equity of the earliest comparative period may be recognized in opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. If the Group applies this relief, it shall disclose that fact. The amendments have not had any significant impact on the Company’s financial statement footnotes.

TFRS 12 Disclosure of Interests in Other Entities (Amendments)

A clarification has been made in the scope of “TFRS 12 Disclosure of interests in other entities” standard. The amendments are to be retrospectively applied for annual periods beginning on or after January 1st, 2017. The amendments have not had any significant impact on the Company’s financial statement footnotes.

New standards, amendments and interpretations which are effective as of January 1st, 2016Said amendments have not had any significant impact on financial position and performance of the Company.

TFRSs issued but not yet effective and not early adopted

New standards, interpretations and amendments to existing standards issued but not yet effective for the current reporting period and not early adopted by the Company as of the approval date of the financial statements are as follows. The Company will make the necessary changes, if not specified otherwise, which will be affecting the consolidated financial statements and disclosures, when the new standards and interpretations become effective.

TFRS 9 Financial Instruments – Classification and Measurement

As amended in December 2012 and February 2015, the new standard shall be effective for the annual periods beginning on or after January 1, 2018. The first phase of TFRS 9 Financial Instruments standard introduces new requirements for classifying and measuring financial instruments. The amendments made to TFRS 9 shall mainly affect the classification and the measurement of the financial assets as well as the measurement of financial liabilities classified as carried at fair value through profit or loss and require that the portion of the changes in fair values of such financial liabilities liability attributable to credit risk is presented in under other comprehensive income statement. Earlier application of the standard is permitted. The Company is in the process of assessing the impact of the standard on its financial position or performance.

TFRS 15 Revenue from Contracts with Customers

In September 2016, POA has issued “TFRS 15 Revenue from Contracts with Customers” standard. The new standard issued includes the clarifying amendments to IFRS 15 made by IASB in April 2016. The new five-step model in the standard provides the recognition and measurement requirements of revenue. TFRS 15 will be applied for annual periods beginning on or after January 1st, 2018. Early adoption is permitted. Two alternative application have been provided for transition to TFRS 15; full retrospective approach or a modified retrospective approach. When the modified retrospective approach is preferred, no restatement will be made for previous periods, but comparative figures will be provided in financial statement footnotes. The Company is in the process of assessing the impact of the standard on its financial position or performance.

New and amended standards and interpretations issued by International Accounting Standards Board (IASB) but not issued by POA

The new standards, interpretations and amendments in the existing IFRS standards listed below have been issued by IASB but not yet effective for the current reporting period. However, these new standards, interpretations and amendments have not been adopted to TFRS/issued by POA yet and therefore they shall not constitute a part of TFRS. The Company shall make necessary amendments in its financial statements and notes once these standards and interpretations become effective in TFRS.

TFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments)

In December 2015, the IASB postponed the effective date of this amendments to TFRS 10 and IAS 28 indefinitely pending the outcome of its research project on the equity method of accounting. However, early application thereof is still permitted.

Annual Improvements – 2010–2012 CycleTFRS 13 Fair Value Measurement

As clarified in the Basis for Conclusions, short-term receivables and payables with no stated interest rates can be held at invoice amounts when the effect of discounting is immaterial. The amendment is effective immediately.

2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (CONTINUED)

TAS 40 Investment Property: Transfers of Investment Property (Amendments)

The IASB has issued amendments to “IAS 40 Investment Property” standard. The amendments have state that a change in intended use occurs when the property meets, or ceases to meet, the definition of “investment property” and there is evidence of the change in use. These amendments are to be applied for annual periods beginning on or after January 1st, 2018. Earlier application is permitted. The amendments will not have any impact on the financial position or performance of the Company.

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

In June 2016 the IASB has issued amendments to “IFRS 2 Share-based Payment” standard. The amendments clarify how to recognize the certain types of share-based payment transactions. The amendments cover the recognition of the followings: the effects of vesting conditions on the measurement of cash-settled share-based payments; share-based payment transactions with a net settlement feature for withholding tax obligations; the terms and conditions of a share-based payment that changes the classification of the transaction from cash settled to equity-settled.

These amendments are to be applied for annual periods beginning on or after January 1st, 2018. Earlier application is permitted. The Company is in the process of assessing the impact of the standard on its financial position or performance.

IFRS 16 Leases

The IASB has published “IFRS 16 Leases” standard in January 2016. The new standard requires inclusion of most leases into the balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. Standard supersedes IFRS 16, IAS 17 and interpretations related with IAS 17 and is effective for periods beginning on or after January 1st, 2019 and earlier adoption is permitted as long as “IFRS 15 Revenue from Contracts with Customers” standard has also been applied. The Company is in the process of assessing the impact of the standard on its financial position and performance.

IFRS Interpretation 22: Foreign Currency Transactions and Advance Consideration

This interpretation clarifies recognition of transactions that include the receipt or payment of advance consideration in a foreign currency. The Interpretation states that the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income is the date on which a company initially recognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. A company is not required to apply this Interpretation to income taxes; or insurance contracts (including reinsurance contracts) it issues or reinsurance contracts that it holds.The interpretation is to be applied for annual reporting periods beginning on or after January 1st, 2018. Earlier application is permitted. The Company is in the process of assessing the impact of the standard on its financial position and performance.

Annual Improvements to IFRSs - 2014-2016 Cycle

The IASB has issued Annual Improvements to IFRS Standards 2014–2016 Cycle, amending the following standards:

• IFRS 1 “First-time Adoption of International Financial Reporting Standards”: This amendment deletes the short-term exemptions about some IFRS 7 disclosures, IAS 19 transition provisions and IFRS 10 Investment Entities. These amendments are to be applied for annual periods beginning on or after January 1st 2018.

- IAS 28 “Investments in Associates and Joint Ventures”: This amendment clarifies that the election to measure an investment in an associate or a joint venture held by, or indirectly through, a venture capital organization or other qualifying entity at fair value through profit or loss applying IFRS 9 Financial Instruments is available for each associate or joint venture, at the initial recognition of the associate or joint venture. These amendments are to be applied for annual periods beginning on or after January 1st, 2018. Earlier application is permitted.

The Company is in the process of assessing the impact of amendments on its financial position or performance.

d. Summary of Important Accounting Policies

Cash and Cash Equivalents

Cash can be implied as cash in the company and cash equivalent can be implied as short term investments which have unimportant risk to lose value, higher liquidity and can be converted easily to cash.

Cash equivalents are assets which are used for investment purpose, kept for short term cash liabilities and they cannot be used for other purposes. (Note:53)

Trade Receivables

Trade Receivables are the receivables sourced from company which are come from a debtor cause of a direct supply of goods or services. They are valued by using effective interest method thought discounted cost. Without a specified term, short-term trade receivables are valued on their amount of invoice when accrued interest has insignificant effects. (Note:7)In case of receivables become impossible to collect, group will make a provision as a risk provision. This provision amount is the difference between the book value of receivables and possible collection amount of receivables. Possible collection amount is the rediscounted value which is calculated with effective interest method on amount of original trade receivables, collectible guarantees and other cash transactions. (Note:7)

6766

2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (CONTINUED)

If the amount of low value decreases after written as a loss, the amount of decrease will record in other income in the current period.

Related Parties

The Company will consider as a related party if one the conditions below are met.a) If the party directly or indirectly with one or more agent:

i) Controls the enterprise, controlled by enterprise or is present under the same control with the enterprise (including parent companies, subsidiaries and subsidiaries at the same line of business);

ii) Has share which allows it to have big impact on the group; oriii) Has associated control on the group;

b) If the party is an affiliate of the group;c) If the party is an business partnership where the group is a party;

d) If the party is a member of the key personnel in the group or Company’s main partnership;e) If the party is a close family member of any person mentioned in the a) or d);

f) If the party is an enterprise which is controlled, partnered or under important effect or any person mentioned in d) or e) has right to vote in important decisions of the party; or

g) If the party, the company or the entity which is a related party of the company has profit plans about a possible leaving job of their employees.

Financial Instruments

Financial assets

Financial assets are recorded with their appropriate value and expenses directly related to purchase except financial assets reflected to profit or loss of the appropriate value difference and recorded on their appropriate value. In the case of purchase or selling of financial assets which are bound to a contract that has a condition on deliverance date of financial instruments set by the market are recorded at the date of transaction.

Financial assets are classified as “financial assets reflected to profit or loss of the realizable value difference”, “financial assets kept in hand till its maturity”, “marketable financial assets” and credits and receivables.

Effective Interest Method

It is the method in which interest income of financial asset distribute to related period and amortized cost of financial asset earning value. Effective interest rate; Estimated future cash value which will be charged in a shorter time period during the expected lifetime of financial instrument or in case in which life time of financial instrument is appropriate, is the reduced rate of net present value of related financial assets.

Fair value difference, financial assets classified apart from the financial assets reflected to profit or loss and related incomes are calculated by using active interest method.

a) Net realizable value difference of financial assets which recorded as profit/(loss)Financial assets measured at fair value through profit and loss are the assets which are the owned one to sell or buy. If a financial asset is bought to sell in short term, it will classify in this category and in current assets. Financial assets which constitute derivative products that have not an effective protection tool against financial risk are also considered as financial assets reflected to profit or loss of the appropriate value difference. Assets in this category are classified as current assets.

b) Investments held to maturityDebt instruments with constant terms which has constant and determinable payment plan, for which company has an intention to keep in hand till its maturity can be classified as financial assets kept in hand till its maturity. Financial assets kept in hand till its maturity can be shown in financial statement by the amortized cost according to effective interest method deducted from amount of decrease in value.

c) Assets available for saleThe company has equity instruments which are not open to capital market but ready to be sold. Since their appropriate value could not be defined in an accredited way, they are shown with their cost values.

d) Loans and receivablesLoans and receivables which are not in the capital market and have steady and computable payments are classified in this category. Credits and receivables are shown by deducting loss in value decrease from the cost which was calculated by using effective interest method. (Note:7)

2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (CONTINUED)

Financial Liabilities

Financial liabilities and equity instruments issued by the company are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. Agreement which represents right of company on assets after deducting all liabilities can be count as financial instrument on equity. The accounting policies adopted for specific financial liabilities and equity instruments are set out below.

Financial liabilities are classified as either financial liabilities at fair value difference recorded as profit and loss or other financial liabilities.

a) Financial liabilities at fair value through profit and lossFinancial liabilities at fair value difference recorded as profit and loss are stated at their fair value, and they revalue at financial statement date and every reporting period. Change in fair value record in comprehensive income statement. The net earnings or loss recognized in comprehensive income statement incorporates any interest paid on the financial liability.

b) Other financial liabilitiesOther financial liabilities, including borrowings, are initially recorded at fair value after deduction of transaction costs.

Other financial liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis.

The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

Inventories

Inventories are evaluated with the ratio less than net realizable value of cost charge. Considerations consisting the cost included to inventories are workmanship and general production expenses. Cost is calculated via weighted average method. Net realizable value is the value once estimated sales cost required for fulfillment of sales are deducted and estimated sales completion cost is deducted from the estimated sales price emerged within the usual trade activity. When the inventories drop below the net realizable value cost, the inventories are reduced to the net realizable value cost and reflected to the income statement as outcome in the year when impairment occurs. Losing validity of the conditions previously caused inventories to be reduced to net realizable value or when there are increases in the net realizable value due to changing economic conditions, reserved impairment provision is cancelled. The cancelled amount is limited to previously reserved impairment. (Note 10)

Tangible Fixed Assets

Tangible assets are reflected to financial statements according to their acquit ion date: if they are acquired before January 1st, 2005 they will state on acquisition cost which are rearranged with buying power of TL in December 31st, 2004 and if they are acquired after January 1st, 2005, they will state with its acquisition cost after deduction of accumulated depreciation and accumulated impairment loss. Depreciation is calculated according to normal amortization method on amounts which are rearranged according to inflation.

There is no applicable amortization method for land in the report because of their nature and useful life is unlimited. Tangible fixed assets are amortized with rates below according to their economic useful live:

Type of Tangible Asset Years Buildings 40Machinery & Equipment 5 - 20Fixtures 5 - 15Transport Vehicles 5 - 10Leasehold improvements 5 - 10

If book value of an asset is bigger than the recovered value of this asset, book value of this asset can be discount to its recovered value. Recovered value of an asset is bigger than net sales price or value at use. Net sales price can calculate after deduction of all cost to sell from its fair value. Value at use will determine after addition of discounted amounts at the date of statement of financial position to estimated cash flows in future in condition of continuing to use the related asset.

The loss or profit from sales of tangible asset determine with comparison of arranged amounts and collected amounts and it is reflected to income and expense accounts in related period.

Maintenance or repair cost of tangible asset can be recorded as expense under normal conditions. However, in exceptional cases if maintenance and repair are resulted with improvement in tangible assets, the cost in question can be recorded as asset and it will be counted in amortization of related asset with remaining useful life. (Note: 14)

6968

2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued)

Intangible Assets

Intangible assets, acquired information systems contain franchise rights, computer software and development costs. Intangible assets are recorded over the acquisition cost and subjected to amortization via linear amortization method over their estimated useful lives for a period not more than 15 years after the date they are acquired. Amortizations for the brands is not reserved since they have unlimited lives. In the event of impairment, registered value of the intangible assets is brought to its recoverable value. (Note 17)

Leasing Transactions

Financial Leasing Transactions:

Assets acquired under finance lease agreements are capitalized at the inception of the lease at the fair value of the leased asset, net of grants and tax credits receivable, or at the present value of the lease payment, whichever is the lower. Lease payments are treated as comprising capital and interest elements, the capital element is treated as reducing the capitalized obligation under the lease. Interest element is charged as expense to the statement of income during the lease period.Depreciation on the relevant asset is also charged to the statement of income over its useful life.

Operational Leasing Transactions: Lease agreements where the lessor holds Good’s all risks and benefits are called as operational lease. The Company becomes a party to the operational lease transactions both in the capacity of lessor and lessee. Rent amounts paid due to operational leases made in the capacity of lessee are recorded as expense according to the normal method during the lease period. Rent incomes collected in the capacity of lessor are recorded as income during the lease period.

Investment propertiesThe real estates like lands and buildings held for use in production of goods or services or for administrative purposes or for acquiring lease and/or capital gain instead of sale in the ordinary course of business or for both are classified as investment properties and stated at their cost minus depreciated value according to the cost method (except for the lands). The costs of the investment properties of which the construction is carried out by the company are stated at its cost on the date in which the construction or the improvement works are completed. On the said date, the respective asset transforms into an investment property and thus, transferred into the account item of investment properties.

Borrowing CostsCompany reflects borrowing costs as financing cost during credit period in its comprehensive income statement. Financing cost which is sourced from credits is recorded to comprehensive income statement when they occur.

Acquiring, constructing, or borrowing costs that can be directly related to producing of a specialty asset is added to cost of the asset. This kind of borrowing costs is capitalized as a part of specialty asset’s cost for a dependable measure and for a possible situation that it can make an economic contribution to company. Acquiring, constructing, or borrowing costs that can be directly related to producing of a specialty asset are borrowing costs that will not appear in case that there will be no expense done related to specialty asset.

If a company is get into debt in order to acquire a specialty asset, the borrowing cost amount that will be capitalized will be determined by deducting income that is gained via temporary exploiting aforesaid funds from borrowing cost of the aforesaid borrowing in the related period.

In the case of a company uses a part of the funds that it is get in to debt for general purposes in order to finance a qualifying asset; the borrowing cost amount that can be capitalized; is determined via using capitalizing rate that will be applied to expenses that related asset. This capitalizing rate is the weighted average of the all existing borrowing of the related period to borrowing costs, except the borrowings that is done for acquiring the qualifying asset. The borrowing cost amount that is capitalized for a period, cannot exceed consisted the borrowing cost in related period.

When the all necessary proceedings virtually is completed for asset’s intended usage and getting ready for sale, the capitalizing of borrowing costs will end. In the situation of a qualifying asset is completed in parts and every part can be used while other parts continue to constructing; When the all necessary proceedings virtually is completed for certain part’s intended usage and getting ready for sale, the capitalizing of borrowing costs of the related part will end.

Provisions, Contingent Liabilities and Assets

ProvisionsProvisions which are present in company as of the statement of financial position date can be accounted in case where there is a legal liability sourced from past or a structural liability and it is highly possible to realize exit of resources to fulfill this liability, there is a reliable estimated amount of liability. In cases where here is more than one a like liability, the need for the possibility of exit of resources which can provide economic profit evaluate by taking in account of all same liabilities in same quality. Even if there is a little possibility to realize exit of resources for a liability in same quality, group allocates provision. Group does not allocate provision for operational loss in future. In cases when the value effect of money is important, amount of provision determine with present value of expenses which will be needed to fulfill liability.

2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (CONTINUED)

Contingent Liabilities and Assets

Assets and liabilities which are related to the cases whether it will or will not realize one or more than one cases, which are not entirely in group’s control to realize in future, and which are sourced from past, can be accepted as contingent liabilities and assets.

Company does not reflect assets and liabilities related to condition to its records. Contingent liabilities are explained in explanatory notes of financial statements during the possibility of exit for an economic profit is not far and contingent assets are explained in explanatory notes of financial statements if the possibility of entering for economic profit is high.

Employee Benefits

a) Defined Benefit Plan

Provisions for termination indemnity reflect upon to actuarial work according to TAS 19 “employee benefit”.

Liability of termination indemnity means value of estimated total provisions for possible liabilities which will occur in future cause of ending the agreement between company and its personnel for defined reasons according to Turkish Labor Law or retirement of personnel according to related law as of statement of financial position date.

Company calculates termination indemnity by predicting discounted net value of deserved benefits or based on the information from company’s experience about fire a personnel or quit of the personnel and reflects to its financial statements.

b) Defined Contribution Proportions

Company has to pay social insurance premium to Social Insurance Intuition. There will be no other liability if the group continues to pay the premiums. These premiums reflect to personnel expenses in its accrual periods.

Revenue

Revenue is recognized on accrual basis at the fair value of the amount received or to be received. Estimated after the sales returns, discounts and provisions are deducted from aforesaid amount.

Sales Income

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

• The company has transferred to the buyer the significant risks and rewards of ownership of the goods;

• The company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

• The amount of revenue can be measured reliably,

• It is probable that the economic benefits associated with the transaction will flow to the entity; and

•The costs incurred or to be incurred in respect of transactions can be measured reliably.

Earnings per Share

Earnings per share presented at the bottom of the Income Statements are calculated by dividing the net profit for the period to the number of shares. In case of increasing capital from sources in group in period, when calculating weighted average of number of shares, the value found after that is accepted also to use as valid at the beginning of period. This matter is addressed in TAS 33 as follows:

Ordinary shares may be issued, or the number of ordinary shares outstanding may be reduced, without a corresponding change in resources. Examples include:

(a) a capitalization or bonus share issue (sometimes referred to as a stock dividend);(b) a bonus element in any other issue, for example a bonus element in a rights issue to existing shareholders;(c) a share split; and(d) a reverse share split by increasing the nominal value (consolidation of shares).

In a capitalization or bonus share issue or a share split, ordinary shares are issued to existing shareholders for no additional consideration. Therefore, the number of ordinary shares outstanding is increased without an increase in resources. The number of ordinary shares outstanding before the event is adjusted for the proportionate change in the number of ordinary shares outstanding as if the event had occurred at the beginning of the earliest period presented.

7170

2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (CONTINUED)

Subsequent Events after statement of financial position date

Subsequent events cover all events between authorization dates for publishing statement of financial position and statement of financial position date even if they are related to an announcement related to profits or if they occur after publishing financial information to public.

In case of occurring events which are necessary to make adjustments after statement of financial position date, company adjusts the amounts in financial statements in an appropriate way to this situation. Subjects which are not necessary to make adjustment occurred after statement of financial position date is explained in explanatory notes of financial statements if they will affect economic decision of financial statements user.

Statement of Cash Flow

In cash flow statement, the Company reports cash flows in period based on classification as operating, investing and financing activities. Cash flows sourced from operating activities shows cash flows sourced from Company’s activities. Cash flow related to investing activities shows cash flows that group use at present time or they gain from investing activities such as intangible asset investing and financial investing. Cash flow related to financing activities shows the resources used by company and back payment of these resources for financing activities. Cash and cash equivalents are consist of cash and bank deposit, investment with certain amount at 3 months term or less than 3 months, short term with high liquidity.

e. Important Accounting Estimates, Assumptions and Evaluation

Preparing of financial statements make need of using estimates and assumptions which will effect income and expense amount which are reported at account period, explanation of contingent assets and liability and amount of assets and liabilities which are reported as of statement of financial position date. These estimates and assumptions give the most reliable information about company managements’ present events and transactions. Although realized results can show differences from assumptions.

Deferred Tax Assets

The Company recognizes deferred tax assets and liabilities for the temporary timing variations arising from the differences between its financial statements constituting basis for taxation and the financial statement prepared in accordance with the TAS reporting standards. The amount of the deferred tax assets which is recoverable partially or completely has been estimated under the prevailing conditions. During the assessment, future profit projections and expiration dates of the other tax assets as well as tax planning strategies which can be used when necessary have been taken into the consideration.

Determination of fair values

A number of the Company’s various accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

According to levels, the valuation method are listed as follows.

Level 1: Recorded (unadjusted) prices in active market for identical assets and liabilities;

Level 2: Directly observable data (through prices) or indirectly observable data (derived from prices) for assets or liabilities except for the recorded prices included in Level 1;

Level 3: Data not based on observable market data in connection with assets and liabilities (unobservable data).

3. BUSINESS COMBINATIONS

None. (December 31, 2016: None)

4. SHARES IN OTHER ENTITIES

a) Financial Investments

All of the financial investments are financial assets ready-to-sell and consist of securities not traded at stock exchange. Since Desa International Limited and Leather Fashion Limited companies having the nature of subsidiary as of December 31, 2017 and which are not consolidated due to due to their negligible revenues have lost their equities, they have been registered under the Financial Investments account by calculating impairment value at the same amount included in the total assets.

4. SHARES IN OTHER ENTITIES (CONTINUED)

31st December 2017 31st December 2016Equity Security 38 38GSD Holding A.Ş. 38 38Affiliates 10.000 10.000Marfar Deri San. ve Tic. Ltd. Şti. 40.000 40.000Associations Capital Subscription (-) (30.000) (30.000)Subsidiaries 7.714.174 7.654.278Leather Fashion Limited 6.871 6.871Provisions for losses of Leather Fashion Limited (-) (6.871) (6.871)Desa International Ltd. 3.100.203 3.100.203Provisions for losses of Desa International Ltd (-) (3.100.203) (3.100.203)Desa SMS Ltd. 4.689.823 4.689.823Desa International (UK) Ltd. 2.891.695 2.891.695Desa Deutschland GMBH 72.760 72.760Leather Fashion Bulgaria EOOD 20.421 -Desa Nineteenseventytwo SRL Italy 39.475 -TOTAL 7.724.212 7.664.316

b) Investments valued by equity method are as follows:

As of December 31st, 2017;

Location Share Percentage Value at Cost Parent companyProfit/Loss share

Parent company retained and

outstanding profit /loss share

Net Value

Samsonite Sey. Ürünleri A.Ş. Turkey 39,99% 1.539.980 1.950.965 5.305.407 8.796,352

Capital amount of Samsonite SeyahatÜrünleri San. ve Tic. A.Ş., affiliate of which financial statements are consolidated by the Company by the equity method is TL 3.850.000 while participation value of the company is TL 1.539.980. Balance sheet value of the affiliate valued by the equity method is TL 8.796,352. (31.12.2016: 1.453.937 TL)

As of December 31, 2016;

Location Share Percentage Value at Cost

Parent companyProfit/Loss

share

Parent company retained and outstanding profit /loss

share

Net Value

Samsonite Sey. Ürünleri A.Ş. Turkey 39,99 % 1.539.980 1.453.937 3.851.470 6.845.387

Summary financial information of Samsonite SeyahatÜrünleri San.ve Tic. A.Ş. are as follows:

Samsonite Seyahat Ürünleri A.Ş 01st January - 31st December 2017 01st January - 31st December 2016

Total assets 33.880.340 20.786.564 Total liabilities (11.889.176) (3.672.874) Net assets 21.991.165 17.113.690 Net profit / loss 4.877.474 3.634.890 Affiliate net profit/loss share (39,99%) 1.950.965 1.453.937 Profit/Loss share of investment valued by equity method 1.950.965 1.453.937

7372

NOTE 5 – REPORTING BY SEGMENTS

The Company does not make any reporting according to sector because there were not any geographic or operating sector differences on risks and profits from the Company’s product or service presentation.

6. RELATED PARTY DISCLOSURES

Balances with related parties as of December 31st, 2017 and December 31st, 2017

1. Details of receivables from related parties are as follows:

31st December 2017 31st December 2016Trade receivables 6.108.401 813.154Other receivables 723.812 1.872.273Prepaid expenses - 85Total 6.832.213 2.685.512

a) Trade receivables from related parties:

31st December 2017 31st December 2016Group companies and ShareholdersAdesa Deri 3.624.857 492.520Çelet Holding 311.236 293.107Burcu Çelet Özden - 27.528Desa Deutschland Gmbh 1.382.535 -Desa SMS 517.812 -Serga Deri 188.446 -Desa International UK 30.437 -Marfar Deri 23.504 -Desa International Ltd. 22.574 -Desa Nineteenseventytwo SRL Italy 7.000 -Total 6.108.401 813.155

b) Other trade receivables from related parties:

Details of “trade receivables” from related parties are as follows:

31st December 2017 31st December 2016Group companies and ShareholdersDesa Deutschland Gmbh 45.960 1.163.961Desa SMS 22.002 436.950Serga Deri 77.691 154.965Desa International UK - 65.019Marfar Deri 586 33.349YapıÇimento - 18.029Adesa Deri 373.300 -Çelet Holding 87.002 -Burcu Çelet Özden 69.389 -Desa Nineteenseventytwo SRL Italy 14.849 -Leather Fashion Bulgaria 33.032 -Total 723.812 1.872.273

c) Prepaid expenses from related parties

Group companies and Shareholders 31st December 2017 31st December 2016Adesa Deri - 85Total - 85

6. RELATED PARTY DISCLOSURES (Continued)

2. Details of payable amounts to related parties are as follows:

31st December 2017 31st December 2016Trade payables 12.076.678 8.506.313Deferred incomes from related parties 941.972 452.180Total 13.018.650 8.958.493

a) Trade payables to related parties:

31st December 2017 31st December 2016Trade payables 12.076.678 8.506.313Samsonite SeyahatÜrünleri 12.063.835 8.505.447Sedesa Deri 12.143 -Real person shareholders - 866Desa Int Ltd 699,91 -

Deferred incomes from related parties 941.972 452.180Adesa 941.972 452.180Total 13.018.650 8.958.493

3. Sale and purchase transactions with related parties:

31st December 2017 31st December 2016

Group company Purchases Sales Purchases Sales

Adesa Deri - 64.859.877 - 33.668.397

Samsonite SeyahatÜrünleri 20.640.235 - 13.422.626 -

Desa SMS Ltd 16.525 - 13.889 -

Desa International UK - - - 15.689

Desa Deutschland 176.166 13.804

Total 20.656.760 65.036.043 13.436.515 33.697.890

a) Interest, rent and etc. received from and paid to related parties:

31st December 2017 31st December 2016

Rents paid to Related Companies 17.363 14.316

Rents paid to shareholders 706.538 992.806

Service charges paid to Related Companies 600.807 420.169

Interest expenses paid to Related Companies 391.750 31.624

Other expenses 1.316 958Rents paid to related parties which are not shareholders 614.874 -

Total paid 2.332.648 1.459.873

31st December 2017 31st December 2016

Office rent received from shareholder - 27.900

Service charges billed to shareholdes 32.849 70.103

Interest income received from shareholder - 11.986

Vehicle rents received from shareholders 45.000 -

Service charge invoiced to Related Companies 484.300 -

Office rent invoiced to Related Companies 23.400 -Interest incomes collected from Related Companies 98.470 70.292

Rent received from affiliate 2.036.848 1.848.042

Service charges billed to affiliates 3.777.520 3.077.878

Total collected 6.498.388 5.106.201

7574

6. RELATED PARTY DISCLOSURES (CONTINUED)

4. Wages and similar benefits provided to top Executives:

Total of wages and other similar benefits provided to top executives is TL 1.698.671 as of December 31st, 2017 (December 31st, 2016 – TL 1.684.608)

NOTE 7 – TRADE RECEIVABLES AND PAYABLES

a) Short-term trade receivables

31st December 2017 31st December 2016Trade receivables from related parties 6.108.401 813.154Trade receivables from related parties (Note 6) 6.108.401 813.154Other trade receivables 6.047.385 4.656.192Buyers 2.544.543 1.955.697Credit card receivables 3.531.774 2.714.182Rediscount of credit card receivables (-) (28.931) (13.687)Doubtful trade receivables 697.707 557.205Provisions for doubtful trade receivables (-) (697.707) (557.205)Total 12.155.786 5.469.346

Movement table of provision for doubtful receivables is as follows:

31st December 2017 31st December 2016Beginning of period (557.205) (2.850.579)Provision allocated in the period / adjustment (+) (140.502) -

Provision collected in the period (-) - -Uncollectable receivables - 2.293.374

End of period (697.707) (557.205)

Aging of doubtful trade receivables for which a provision is reserved is as follows:

31st December 2017 31st December 2016Receivables overdue up to 90 days - -Receivables overdue more than 90 days - -Receivables overdue more than 180 days (697.707) (557.205)End of period (697.707) (557.205)

b) Short-term trade payables

31st December 2017 31st December 2016Trade payables to related parties 12.076.678 8.506.313Trade payables to related parties (Note 6) 12.076.678 8.506.313Other trade payables 64.707.970 37.360.050Suppliers 33.484.618 15.275.921Cheques and notes payable 33.121.543 23.056.036Deferred financing income (-) (1.898.191) (971.907)Total 76.784.648 45.866.363

c) Long-term trade payables

31st December 2017 31st December 2016Other trade payables 20.279 44.841Trade payables to non-related parties 20.279 44.841Total 20.279 44.841

NOTE 8 – RECEIVABLES AND PAYABLES FROM FINANCIAL ACTIVITIES

Not available. (31.12.2016: Not available)

NOTE 9 – OTHER RECEIVABLES AND PAYABLES

a) Other short-term receivables

31st December 2017 31st December 2016Other receivables from related parties 723.812 1.872.273Other receivables from related parties 723.812 1.872.273Other receivables from non-related parties 120.869 129.512Receivables from Tax Office 112.909 124.945Deposits and guarantees given 4.710 1.317Receivables from Execution Office 3.250 3.250Total 844.681 2.001.785

b) Other long-term receivables

31st December 2017 31st December 2016Other receivables from non-related parties 202.384 190.174Deposits and guarantees given 202.384 190.174Total 202.384 190.174

c) Other short-term payables

31st December 2017 31st December 2016Other payables to non-related parties 5.425.464 3.335.650Taxes and funds payable 1.297.381 868.110SSI premiums payable (*) 4.103.444 2.442.902Other liabilities 24.638 24.638Total 5.425.464 3.335.650

(*) This item consists of SSI premiums payable for November and December 2017. The SSI premiums pertaining to November amounting to TL 1.524.658 have been paid on January 2, 2018 since December 31, 2017 has coincided with Sunday.

d) Other long-term payables

The other long-term payables of the Company are amounting to TL 15.375 as of December 31st, 2017 (December 31st, 2016 – TL 33.824).

NOTE 10 – INVENTORIES

31st December 2017 31st December 2016Raw materials and supplies 43.461.966 29.736.705Semi-finished goods 44.086.957 40.740.589Finished goods 37.108.801 34.474.006Trade goods 22.762.168 17.092.934Other inventories 4.877.766 3.296.971Total 152.297.658 125.341.205

Total insurance amount on inventories is TL152.854.991 (December 31st, 2016 – TL 124.108.857).

NOTE 11 – BIOLOGICAL ASSETS

Not available. (December 31st, 2016: Not available.)

NOTE 12 – PREPAID EXPENSES AND DEFERRED INCOMES

a) Details of short-term prepaid expenses are as follows:

31st December 2017 31st December 2016Prepaid expenses of related parties (Note 6) - 85Order advances given to related parties - 85Prepaid expenses of non-related parties 1.603.248 5.208.052Order advances given to suppliers 112.803 4.405.099Work advances 149.939 435.760Prepaid expenses for future months 1.456.518 684.201Provision for doubtful receivables related to work advances (-) (126.261) (303.446)

Provision for doubtful receivables related to order advances given to suppliers (-) (25.637) (25.637)

Advances given to personnel 35.886 12.075Total 1.603.248 5.208.137

7776

NOTE 12 – PREPAID EXPENSES AND DEFERRED INCOMES (continued)(*) The advance for real estates amounting to TL 2.800.000 reported under account of advances given for orders in 2016 are now classified as asset held for sale since real estate has been delivered actually in 2017. (Note 39) b) There are no long-term prepaid expenses available. (December 31st, 2016: Not available.)

c) Details of short-term deferred incomes are as follows:

31st December 2017 31st December 2016Order advances received from related parties (Note 6) 941.972 452.180

Adesa Deri 941.972 452.180Other payables to non-related parties 123.260 715.250Order advances received 123.260 715.250Total 1.065.231 1.167.430

NOTE 13 – INVESTMENT PROPERTIES

Not available. (December 31st, 2016: Not available)

NOTE 14 – TANGIBLE FIXED ASSETS

a) Movements of tangible fixed assets as of December 31st, 2017 are as follows:

Cost 01.01.2017 Entry Exit Valuation 31.12.2017Lands and Parcels 4.910.000 - - 6.115.000 11.025.000Land improvements 12.703 - - - 12.703

Buildings 14.319.152 - 16.853.133 31.172.285

Machinery, Equipment 8.417.712 1.463.749 - - 9.881.461Vehicles 1.492.993 - - - 1.492.993Fixtures 17.086.419 1.935.225 (15.340) - 19.006.304Other Tangible Fixed Assets 24.943.438 2.182.322 (344.767) - 26.780.993Construction in progress 99.199 60.440 - - 159.639Total 71.281.616 5.641.736 (360.107) 22.968.133 99.531.378Accumulated depreciation 01.01.2017 Entry Exit Valuation 31.12.2017

Land improvements (8.011) (638) - - (8.649)

Buildings (2.722.171) - - - (2.722.171)Machinery, Equipment (4.712.927) (1.041.700) - - (5.754.627)Vehicles (1.117.576) (124.799) - - (1.242.375)Fixtures (13.124.055) (1.318.167) 194 - (14.442.028)Other Tangible Fixed Assets (20.559.546) (1.525.268) 159.980 - (21.924.834)Total (42.244.286) (4.010.572) 160.174 - (46.094.834)Net Value 29.037.330 53.436.694

Total insurance amount on fixed assets is TL 373.356.173 as of December 31st, 2017.

b) Movements of tangible fixed assets as of December 31st, 2016 are as follows:

Cost 01.01.2016 Entry Transfer Exit Valuation 31.12.2016Lands and Parcels 4.910.000 - - - - 4.910.000Land improvements 12.703 - - - - 12.703

Buildings 14.319.152 - - - - 14.319.152

Machinery, Equipment 5.130.963 412.438 2.874.311 - - 8.417.712Vehicles 1.481.961 29.661 - (18.629) - 1.492.993Fixtures 14.981.606 2.126.908 - (22.095) - 17.086.419Other Tangible Fixed Assets 22.838.499 2.104.939 - - - 24.943.438Construction in progress 99.199 - - - - 99.199Total 63.774.083 4.673.945 2.874.311 (40.724) - 71.281.616Accumulated depreciationLand improvements (7.373) (638) - - - (8.011)Buildings (2.350.067) (191.818) - - (180.286) (2.722.171)Machinery, Equipment (4.078.466) (634.461) - - - (4.712.927)Vehicles (1.015.203) (121.002) - 18.629 - (1.117.576)Fixtures (11.773.253) (1.351.996) - 1.194 - (13.124.055)Other Tangible Fixed Assets (18.598.909) (1.960.637) - - - (20.559.546)Total (37.823.271) (4.260.552) - 19.823 (180.286) (42.244.286)Net Value 25.950.812 - 29.037.330

Total insurance amount on fixed assets is TL 204.992.101 as of December 31st, 2016.

NOTE 15 – RIGHTS ON SHARES ARISING FROM RETIREMENT, RESTORATION AND ENVIRONMENT REHABILITATION FUNDS

Not available. (December 31st , 2016: Not available)

NOTE 16 – MEMBER’S SHARES IN COOPERATIVE ENTERPRISES AND SIMILAR FINANCIAL INSTRUMENTS

Not available. (December 31st, 2016: Not available)

NOTE 17 – INTANGIBLE FIXED ASSETS

The Company has no internally-generated intangible fixed asset.

a) Movements of intangible fixed assets as of December 31st, 2017 are as follows:

Cost 01.01.2017 Entry Exit 31.12.2016Rights 1.474.018 53.212 - 1.527.230

Total 1.474.018 53.212 - 1.527.230

Accumulated depreciationRights (748.092) (123.179) - (871.271)

Total (748.092) (123.179) - (871.271)Net Value 725.926 655.959

b) Movements of intangible fixed assets as of December 31st, 2016 are as follows:

Cost January 1st, 2016 Entry Exit December 31st, 2016Rights 1.410.969 63.049 - 1.474.018Total 1.410.969 63.049 - 1.474.018Accumulated depreciationRights (543.202) (204.890) - (748.092)Total (543.202) (204.890) - (748.092)Net Value 867.767 725.926

NOTE 18 – GOODWILL

Not available. (December 31st, 2016: Not available)

NOTE 19 – RESEARCH AND EVALUATION OF MINERAL RESOURCES

Not available. (December 31st, 2016: Not available)

NOTE 20 – LEASING TRANSACTIONS

a) Financial Leasing Transactions

The Company does not have any financial leasing payables as of December 31, 2017. (December 31, 2016: Not available)

b) Operational Leasing Transactions

ba) Leases by the Company in the capacity of Tenant

31st December 2017 31st December 2016Car Rental Expenses 287.096 312.487Shop Rental Expenses 32.367.120 27.806.010Administrative Buildings and Warehouses Rental Expenses (*) 1.338.775 1.115.314Total 33.992.992 29.233.811

(*) The term of contracts for leasing relating to administrative buildings is one year or less.

Minimum lease payment commitments due to the lease contracts arising from store leasing transactions of the Company are as follows:

31st December 2017 31st December 2016Less than a year 29.821.626 29.594.660More than a year – Less than 5 years 54.578.553 46.007.231More than 5 years 12.718.698 8.002.017Total 97.118.877 83.603.908

7978

NOTE 20 – LEASING TRANSACTIONS (CONTINUED)

Minimum lease payment commitments due to the lease contracts arising from car rental transactions of the Company are as follows:

31st December 2017 31st December 2016Less than a year 348.932 354.875More than a year – Less than 5 years 406.996 362.915Total 755.928 717.790

bb) Leases by the Company in the capacity of Lessor

The total rental income arising from the operational leasing transactions realized by the Company in the capacity as lessor and collected within the period as well as reflected in the income statement is amounting to TL 2.105.248. (December 31, 2016: TL 1.937.510). The term of contracts for leasing is one year or less.

NOTE 21 – PREFERRED SERVICE CONTRACTS

Not available. (December 31, 2016: Not available)

NOTE 22 – IMPAIRMENT OF ASSETS

Since Desa International Limited and Leather Fashion which are subsidiaries and not consolidated due to their negligible revenues have lost their equities , impairment has been calculated at the amount (TL 3.107.074) given in assets and presented in Financial Investments account in previous years, but no impairment has been calculated in 2017.

NOTE 23 – GOVERNMENT INCENTIVES AND SUPPORTS

a) The Company has got Inward Processing Licenses. The Company has made import amounting to USD 9.007.621 as of December 31, 2017 under those licenses and benefited from VAT incentive related to those purchases. (December 31, 2016 – USD 2.512.960).

b) Right to benefit from the Turquality incentive amounting to TL 783.933 has been entitled during the period of twelve months within the scope of the Communiqué No. 2006/4 on Branding of Turkish Products, Establishing Image of Turkish Products Abroad and Supporting Turquality. (Right to benefit from incentive amounting to TL 1.143.288 has been entitled as from December 31, 2016.)

c) Income taxes of minimum-wage workers employed in Düzce factory in the Organized Industrial Zone provide 5% exemption from payment of SSI premiums under Law No. 5084 on Making Amendments to Certain Laws by Encouragement of Investments and Employment. Also the Company has been entitled to benefit from an additional incentive of 6% as from January 1, 2013 in accordance with the decree no.2013/4966 of the Council of Ministers. The Company has been entitled to an incentive in the amount of TL 371.753,48 as from December 31, 2017 and registered the same as revenue. (December 31, 2016: TL 908.398)

d) The amount corresponding to five-point part of employer’s share from disability, old-age and death insurance premiums of insured employers are paid by the Treasury under sub-clause (ı) added to first clause of Article 81 of Social Securities and General Health Insurance Law No. 5510. In this context, the five-point part of the Company’s employer’s share recorded as revenue as of December 31,2017 is TL 2.586.156,31. (December 31, 2016: TL 1.705.544)

e) The subsidy for employer’s contribution to the minimum wage provided in order to lessen the burden of additional cost emanated as a result of increase in minimum wage by 30 % is covered by the Treasury pursuant to the article 17 of the Law No.6661 on Amending Military Service Law and Some Other Laws. In this context, the five-point part of the Company’s employer’s share recorded as revenue as of December 31, 2017 is TL 1.327.068,36 (December 31, 2016: TL 739.470)

NOTE 24 – BORROWING COSTS

The total borrowings costs suffered as from December 31, 2017 are amounting to TL 19.674.392 (TL 14.302.988 of this amount is exchange difference) and are registered directly as expenses. (December 31, 2016: TL 13.806.726 registered directly as expenses). (See Note 37)

NOTE 25 – PROVISIONS, CONTINGENT ASSETS AND PAYABLES

a) Details of provisions for unused vacation payment of Company’s employees are as follows:

31st December 2017 31st December 2016Provisions for Leaves 2.103.962 1.807.273Total 2.103.962 1.807.273

Movements of provisions for vacation payment within the period are as follows:

31st December 2017 31st December 2016Beginning of period 1.807.273 1.833.203Increase within the Period (+) 296.689 -Provisions cancelled within the Period (-) - (25.930)End of period 2.103.962 1.807.273

NOTE 25 – PROVISIONS, CONTINGENT ASSETS AND PAYABLES (CONTINUED)

b) Details of provisions for short-term payables are as follows:

31st December 2017 31st December 2016Provision for Lawsuits 450.221 473.025Provision for Other Costs (*) 2.673.704 4.056Total 3.123.925 477.081

c) Details of provisions for long-term payables are as follows:

31st December 2017 31st December 2016Provisions for Seniority Indemnity 3.766.804 3.195.569Total 3.766.804 3.195.569

Provisions for seniority indemnity:

As per laws of the Republic of Turkey, the Company is obliged to pay seniority indemnityto each employee that has retired completing minimum one year service time after 25-year workinglife (for women – age 58; for men – age 60); has been dismissed; has been called for military service; or has passed away.

Such indemnity must be in the amount of one-month wage for ach service year and such amount has been limited to TL 4.732,48 as of December 31, 2017 (December 31, 2016: TL 4.297,21).

The liability to pay seniority indemnityis not legally subject to any funding. Reserve for seniority indemnity is calculated by estimating current value of future potential liability amount arising from retirement of the Company personnel. IAS 19 (“Employee Benefits”) provides that liabilities of a company shall be developed using the actuarial valuation methods under defined benefit pension plans. In this context, actuarial assumptions used in calculation of total liabilities are given below:

Main assumption is that maximum liability amount for each service year would increase in parallel with the inflation. Therefore, discount rate applied indicates the real rate expected after adjustment of future inflation impacts. For this reason, as of December 31, 2017, provisions in the attached financial statements are calculated by estimating current value of potential future liability that would arise from retirement of employees. Provisions on the balance sheet date have been calculated using the real discount rate obtained as approximately 6,20 % (December 31, 2016: 6,90 %) according to the assumptions of an annual inflation of 10,57 % (December 31, 2016: 10,63 %) and of a discount rate of 4,11 % (31st December 2016: 3,49 %). Estimated rate of seniority indemnity which shall not be paid and remain with the Company due to voluntary leave of employment by the employee has also been taken into account. Upper limit of the seniority indemnity is revised semi-annually.

31st December 2017 31st December 2016Beginning of period 3.195.569 2.717.082Service cost 2.670.430 2.193.239Interest cost 398.151 110.169Indemnities paid (2.523.910) (2.308.873)Actuarial (Gain) / Loss 26.563 483.952End of period 3.766.804 3.195.569

d) Guarantees Received and Given

da) Details of mortgages, guarantees and warrants received by the Company are as follows:

31st December 2017 31st December 2016Letters of Guarantee 330.000 330.000Surety Bonds 1.505.000 1.495.000Total 1.835.000 1.825.000

db) Details of off-balance sheet liabilities which are not included in liabilities are as follows:

31st December 2017 31st December 2016Letters of Guarantee 63.532.812 48.126.777TL 5.786.234 4.701.863USD 2.467.098 1.813.808EURO 55.279.480 41.611.106(*)Total 63.532.812 48.126.777

(*)For the loan amounting to Euro 10.249.000 (TL 38.022.765) extended by Eximbank, a letter of guarantee in the same amount has been given.

8180

NOTE 25 – PROVISIONS, CONTINGENT ASSETS AND PAYABLES (CONTINUED)

dc) The Company’s guarantee/pledge/mortgage position table is as follows as of December 31, 2017 and December 31, 2016.

GPMs given by the Company 31st December 2017 31st December 2016A. Total Amount of GPMs given on behalf of its own Legal Entity 63.532.812 48.126.777B. Total Amount of GPMs given in favor of Ventures included in Full - - Consolidation - -C. Total Amount of GPMs given to Guarantee Liability of Other 3rd Parties for - -

purposes of carrying out Ordinary Business Activities - -D. Total Amount of Other GPMs Given - - 1) Total Amount of GPMs given in favor of the Parent Company - - 2) Total Amount of GPMs given in favor of Other Group Companies not - -

included in Items B and C - - 3) Total Amount of GPMs given in favor of 3rd Parties not included in Item C - -

Total 63.532.812 48.126.777

The total amount of CMPs (Collaterals, Mortgages and Pledges) put up by the Company as of 31.12.2017 constitutes 91 % of its equity.

dd) Forward foreign exchange purchase and option contracts:

Not available. (December 31, 2016: Not available)

26 – COMMITMENTS

Not available. (December 31, 2016: Not available)

27 – PAYABLES WITHIN EMPLOYEE BENEFITS

31st December 2017 31st December 2016Accrued Wages of Employees 4.506.976 3.700.895Total 4.506.976 3.700.895

28 – EXPENSES BASED ON THEIR NATURE

Distribution of significant expense items based on their nature is as follows:

1st January –

31st December 2017

1st January –

31st December 2016

Wage Expenses 77.411.667 61.866.080For Production Cost 36.906.910 29.559.897For General Management 8.600.517 7.775.464For Marketing, Sales and Distribution 31.271.381 23.863.932For Research and Development 632.859,47 666.787Depreciation Expenses 4.133.751 4.465.442For Production Cost 1.173.813 930.233For General Management 483.195 858.773For Marketing, Sales and Distribution 2.468.354 2.667.117For Research and Development 8.389 9.319Total 81.545.418 66.331.522

29– OTHER ASSETS AND LIABILITIES

Details of other current assets are as follows:

31st December 2017 31st December 2016Accrued Turquality Incentive Income 786.304 787.660Interest Income Accruals 7.285 -Deferred VAT - 206.200Other VAT 586.908 351.247Other current assets 127.855 189.571Total 1.508.352 1.534.678

30 – CAPITAL, RESERVES AND OTHER EQUITY ITEMS

a) Equity Details

Equity of the Company as of December 31, 2017 is TL 69.916.632 (December 31, 2016 – TL 49.681.859) and its details are as follows:

31st December 2017 31st December 2016Paid in capital 49.221.970 49.221.970Adjustment Differences of Capital Accounts 5.500.255 5.500.255Revaluation and Measurement Gains/Losses 29.122.123 8.680.485Actuarial (Gain) / Loss relating to Employee Benefits (1.138.613) (1.117.894)Reserves on Retained Earnings 960.423 960.423Previous Period Profit/Loss (13.563.380) (263.260)Net Profit/Loss for the Period (186.146) (13.300.120)Equity 69.916.632 49.681.859

b) Paid in capital

The Company has switched to registered capital system in 2007 and its registered authorized stock amounts to TL 150.000.000. Its paid in capital is TL 49.221.970 (December 31, 2016: TL 49.221.970) and has been divided into 4.922.196.986 (December 31, 2016: 4.922.196.986) shares each of which has a nominal value of 1 Kr.

4 (Four) members of the Board of Directors and auditors are elected amongst the candidates to be nominated by Group (A) shareholders. In Ordinary and Extraordinary General Meetings, Group (A) shareholders have 15 voting rights for 1 share while other shareholders have 1 voting right for 1 share. There is no preference share in financial terms.

Issued and paid in capital amountsas of December 31, 2017 and December 31, 2016 are as follows at their book value:

31.12.2017 31.12.2016Name Surname/Title Share Rate Share Amount Share Rate Share AmountÇelet Holding A.Ş. 54,28% 26.717.682 54,28% 26.717.682Melih Çelet 10,00% 4.922.197 10,00% 4.922.197Free Float (*) 34,92% 17.188.312 34,92% 17.188.312Other 0,80% 393.779 0,80% 393.779Total 100% 49.221.970 100% 49.221.970

(*)The share with a nominal value of TL 4.129.566 representing 8.39% of the share capital in the free float belongs to Çelet Holding A.Ş. and the share with a nominal value of TL 3.958.808 representing 8,04% belongs to Melih Çelet as of 31.12.2017.

(*)The share with a nominal value of TL 4.129.566 representing 8.39% of the share capital in the free float belongs to Çelet Holding A.Ş. and the share with a nominal value of TL 3.749.151 representing 7,61% belongs to Melih Çelet as of 31.12.2016.

c) Adjustment Differences of Capital Accounts

Inflation adjustment difference for capital accounts is TL 5.500.255 as of December 31, 2017. (December 31, 2016: TL 5.500.255)

8382

30 – CAPITAL, RESERVES AND OTHER EQUITY ITEMS (CONTINUED)

d) Revaluation and Measurement Gains/Losses

The tangible fixed asset revaluation surplus of TL 8.680.485 on December 31, 2016 has resulted from the revaluation of the factory and office buildings on December 31, 2012 and its details are as follows: (Note 14)

Total Surplus Deferred Tax Impact Revaluation Surplus (Net)

Factory Land 3.515.615 (175.781) 3.339.834Factory and Office Building 6.342.883 (317.145) 6.025.738Depreciation Impact as of January 01, 2016 (540.859) 27.044 (513.815)

Depreciation Impact as of December 31, 2016 (180.286) 9.014 (171.272)

Total 9.137.353 (456.868) 8.680.485

The tangible fixed asset revaluation surplus of TL 29.122.123 as of December 31st, 2017 has resulted from the revaluation of the factory and office buildings in 2017 and its details are as follows. (Note 14)

Total Surplus Deferred Tax Impact Revaluation Surplus (Net)

Factory Land 6.115.000 (672.650) 5.442.350Factory and Office Building 16.853.133 (1.853.845) 14.999.288Depreciation Impact as of January 01, 2017 - - -

Depreciation Impact as of December 31, 2017

Total 22.968.133 (2.526.495) 20.441.638

01.01.2017 Open 8.680.485

31.12.2017 Net 29.122.123

e) Actuarial (Loss)/Gain relating to Employee Benefits

31st December 2017 31st December 2016Opening balance (Net) (1.117.894) (730.732)Remeasurement Losses of Current Period Defined Benefit Plans (Net) (20.719) (387.162)Current Period Actuarial Difference (26.563) (483.952)Deferred Tax of Current Period Actuarial Difference 5.844 96.790Total (1.138.613) (1.117.894)

f) Reserves on Retained Earnings

31st December 2017 31st December 2016Primary Legal Reserves 960.423 960.423Total 960.423 960.423

g) Previous Period Profit/Loss

31st December 2017 31st December 2016Accumulated Profit / Loss Opening (263.260) 3.834.799Transfer from Retained Net Profit / Loss (13.300.120) (4.098.059)Previous Period Profit/Loss (13.563.380) (263.260)

31 – COST OF REVENUE AND SALES

Detail of sales are as follows:

01st January - 31st December 2017 01st January - 31st December 2016 Domestic Sales 312,821,037 TL 223.265.671Export Sales 64.416.203 37.698.348Other Incomes 682.569 429.227Gross Sales 377.919.809 261.393.246Returns (-) (10.647.706) (9.108.610)Sales Discounts (-) (159.266.110) (100.385.235)Discounts ( - ) (584.453) (433.692)Net Sales 207.421.540 151.465.709Cost of Sales( - ) (106.987.512) (78.198.157)Operating Income ( Net ) 100.434.028 73.267.552

01.01.2017-31.12.2017 01.01.2016-31.12.2016 COST OF PRODUCTIONA- Direct raw materials and supplies expenses 35.969.057 14.240.714B- Direct labour expenses 23.332.619 16.502.863C- General production expenses 6.304.415 6.978.370D- Use of Semi-finished goods (1.740.946) 56.1271. Inventory at the beginning of period (+) 3.373.038 3.249.1652. Inventory at the end of period (-) (5.113.984) (3.373.038)COST OF GOODS MANUFACTURED 63.865.145 37.778.074E-Change in Finished Goods Inventory (3.123.430) 4.256.0411. Inventory at the beginning of period (+) 32.790.157 36.032.5422. Other return (+) 1.179.750 1.016.8193. Consumption Outflow (-) - (3.164)4. Inventory at the end of period (-) (37.093.337) (32.790.157)I- COST OF GOODS SOLD 60.741.715 42.034.115BUSINESS OPERATIONA- Stock in trade at the beginning of period (+) 17.092.524 15.209.510B- Purchases within the period (+) 49.642.633 33.788.275C- Stock in trade at the end of period (-) (22.757.331) (17.092.524)II- COST OF TRADE GOODS SOLD 43.977.826 31.905.261III- COST OF SERVICE SOLD 589.553,16 619.987,06IV- COST OF OTHER SALES 1.678.417 3.638.794COST OF SALES (I+II+III+IV) 106987512 78.198.157

32 – CONSTRUCTION CONTRACTS

Not available. (December 31, 2016: Not available)

33. GENERAL ADMINISTRATIVE EXPENSES, MARKETING EXPENSES, RESEARCH AND DEVELOPMENT EXPENSES

1ST January - 31st December 2017 1ST January - 31st December 2016 General Administrative Expenses 13.379.757 12.486.139Marketing, Sales and Distribution Expenses 83.866.513 69.452.765Research and Development Expenses 1.747.847 1.919.559Total 98.994.118 83.858.463

a) General Administrative Expenses

The details of the general administration expenses pertaining to the periods of January 1st – December 31st, 2017 and January 1st – December 31st, 2016 by their features are as follows.

31st December 2017 31st December 2016 Personnel Expenses 8.600.517 7.775.464

8584

Rental Expenses 1.406.753 1.094.986Consultancy Expenses 716.326 888.452Depreciation Expenses 483.195 858.773Travel and Transport Expenses 473.872 409.778Communication Expenses 406.649 290.101Utility and Fuel Oil Expenses 303.689 266.787Insurance, Repair & Maintenance Expenses 158.465 163.442Taxes and Other Legal Duties 157.998 142.243Stationery and Advertising, Announcement Expenses 70.213 52.959

Representation and Entertainment Expenses 23.294 19.022Trade Mark Registration Expenses 7.500 3.896Donations and Grants - 71.035Other 571.288 449.201Total 13.379.757 12.486.139

b) Marketing, Sales and Distribution Expenses

The details of the marketing, sales and distribution expenses pertaining to the periods of January 1st – December 31st, 2017 and January 1st – December 31st, 2016 by their features are as follows.

January 1st – December 31st, 2017 January 1st – December 31st, 2016Real Estate Rental Expenses 32.367.120 27.806.010Personnel Expenses 31.271.381 23.863.932Bank Commission Expenses 3.659.474 2.842.139Advertising and Announcement Expenses 3.031.875 2.797.976Depreciation Expenses 2.468.354 2.667.117Cargo Expenses 2.966.884 2.450.744Utility and Fuel Oil Expenses 1.801.955 1.601.489Maintenance & Repair Expenses 883.695 895.802Taxes, Duties and Charges 588.986 415.968Shelf, Sign and Printed Material Expenses 530.497 477.408Transport Expenses 447.314 418.542Travel Expenses 413.605 418.595Product, Repair and Export Duty Expenses 346.651 249.646Overseas Fair Attendance Expenses 226.007 157.098Phone, Fax and Data Line 191.074 136.935Insurance Expenses 189.408 276.575Representation and Entertainment Expenses 28.090 22.175Other 2.269.746 1.954.614Total 83.682.116 69.452.765

c) Research and Development Expenses

The details of the research and development expenses pertaining to the periods of January 1st – December 31st, 2017 and January 1st – December 31st, 2016 by their features are as follows.

January 1st – December 31st, 2017 January 1st – December 31st, 2016Design and Modeling Expenses 931.168 1.050.989Personnel Expenses 632.859 666.787Travel Expenses 119.055 117.158Representation and Entertainment Expenses 33.097 33.544Maintenance Repair Expenses 9.334 21.216Depreciation Expenses 8.389 9.319Utility and Fuel Oil Expenses - 914Other 13.945 19.632Total 1.747.847 1.919.559

NOTE 34 –OTHER OPERATING INCOMES AND EXPENSES

a) Details of other operating incomes are as follows:

January 1st – December 31st, 2017 January 1st – December 31st, 2016

Financing Incomes arising from forward sales 8.976.328 943.002Subsidy (SGK ve Withholding tax) 4.625.842 3.353.412Cargo Logistics Service Incomes 4.056.030 2.470.832Exchange Profits 3.262.024 1.258.399Rental Incomes 2.060.248 1.937.510Rediscount Income 1.904.334 568.216Subsidy (Turquality and ITKIB) 783.933 1.143.288Cancelled Import 577.640 455.627Provisions for Receivables No Longer Required 303.446 133.930Income from damage indemnity 252.628 261.470Interest Incomes 160.484 86.665Expense Contribution Incomes 30.016 308.333Provisions for Lawsuits No Longer required 23.116 510.721Price Differences 1.445 114.896Receivables and payables waived - 479.396Other 627.432 329.157Total 27.644.945 14.354.854

b) Details of other operating expenses are as follows:

January 1st – December 31st, 2017 January 1st – December 31st, 2016

Financing Expenses arising from forward purchases 7.224.602 3.376.919

Exchange Losses 3.642.974 1.481.802Other provision (Note 25) 2.183.343 -Rediscount Expense 1.005.999 13.687Provision Expenses (Trade Receivables) 716.984 -Loss on sale of assets 184.398 -Previous Period Expenses - 3.392Other 298.841 79.199Total 15.257.141 4.954.999

As a result of limited tax audit against the Company for 2012, a tax fine amounting to TL 1.672.039,22 totally consisting of original tax amounting to TL 209.747,11 excluding delay fine, fine for loss of tax amounting to TL 803.963,12 and special irregularity fine amounting to TL 148.034,30 in terms of Corporate Tax, original tax amounting to TL 9.717.78 and fine for loss of tax amounting to TL 9.717,78 in terms of VAT, original tax amounting to TL 93.237,83 and fine for loss of tax amounting to TL 93.237,83 in terms of income tax withholding, original tax amounting to TL 1.857,53 and fine for loss of tax amounting to TL 1.857,53 in terms of stamp tax and TL 300.668,41 in terms of advance corporate tax has been calculated.

An action has been initiated against the aforementioned tax fines before İstanbul 11th Tax Court on 22.01.2018 by the Company. A provision amounting to TL 2.183.343,22 has been made for the said tax fines including default interest. Such provisions of TL 2.183.343,22 has been reported under “Other Short Term Provisions”.

NOTE 35 – INCOMES AND EXPENSES FROM INVESTING ACTIVITIES

January 1st – December 31st, 2017 January 1st – December 31st, 2016

Income from Fixed Asset Sales 13.673 12.891Total 13.673 12.891

NOTE 36 – EXPENSES CLASSIFIED ON KIND BASIS

See, Note 33

33. GENERAL ADMINISTRATIVE EXPENSES, MARKETING EXPENSES, RESEARCH AND DEVELOPMENT EXPENSES (CONTINUED)

8786

NOTE 37 – FINANCING EXPENSES

January 1st – December 31st, 2017 January 1st – December 31st, 2016Loan Exchange Difference Expenses 14.302.988 10.111.878Loan Interest Expense 3.447.195 2.292.704Bank Charges 232.037 583.782Credit Card Commission 454.911 368.399Factoring Interest Expenses 273.328 -Bank Letter of Guarantee Commission 571.970 231.014Other Financing Expenses 391.961 187.324Total 19.674.392 13.806.726

NOTE 38 – ANALYSIS OF OTHER COMPREHENSIVE INCOME ITEMS

See, Footnote 30/d-e

NOTE 39 – FIXED ASSETS HELD-FOR-SALE AND DISCONTINUED OPERATIONS

31st December 2017 31st December 2016Fixed Assets Hold-For-Sale 2.722.777 -Total 2.722.777 -

NOTE 40 – INCOME TAXES (INCLUDING DEFERRED TAX ASSETS AND LIABILITIES)

31st December 2017 31st December 2016Provision for Current Corporate Tax (-) - -Prepaid taxes and funds within the period 10.272 439Net Tax Asset/(Liability) of Current Period 10.272 439

Current Tax Expense/Income1st January –

31st December 2017

1st January –

31st December 2016Deferred Tax Expense/Income - -Deferred Tax Income/(Expense) 3.511.496 230.834Total Tax Income/(Expense) 3.511.496 230.834

The Company is subject to corporate taxes applicable in Turkey. Necessary provisions are made in the enclosed financial statements for the estimated tax charge based on the Company’s results for the current accounting period.

Corporate tax to be accrued on taxable corporate income is calculated over the tax base used in determination of business profit remaining after adding non-exempt expenses which cannot be deducted from the tax base to and deducting tax exempt income, non-taxable revenues and other deductions (losses from the previous years, investment allowances and R&D incentives, if any) from business income.

The corporate tax rate applicable in Turkey is 20%. (2016: 20%)

In Turkey, advance tax returns are filled and advance tax is accrued on a quarterly basis. Advance tax at a rate of 20 % over the corporate income has been calculated at the stage of taxing the corporate incomes for 2017 as of advance tax periods. (2016: 20%)

The provision stipulating that “the corporate tax rate of 20% specified in the first paragraph of the Article 32 of the Corporate Tax Law No.5520 is applied as 22% for corporate incomes pertaining to taxation periods of 2018, 2019 and 2020” has been brought by the Law No.7061 on “Amendments to Certain Tax Laws and Some Other Laws” adopted on November 208th, 2017 through a provisional article. Furthermore, the provision stipulating that “an exemption rate of 75% applied over the income derived by corporate taxpayers from the sales of immovable properties held in their assets for a period of two full years minimum” specified in subparagraph e of the first paragraph of the Article 5 of the Corporate Tax Law No.5520 has been amended as 50% also by the same “Omnibus Law”.

Deferred Tax Asset / Liability Movements 31st December 2017 31st December 2016Opening Balance as of 1st January 777.401 440.763Deferred Tax Income / (Expense) 3.511.496 230.834Actuarial (Gain) / Loss 5.844 96.790Deferred Tax for Revaluation Surplus (Note 30/e) (2.526.495) 9.014Closing Balance at the End of Period 1.768.246 777.401

31.12.2017 31.12.2016

Total Temporary Differences

Deferred Tax

Asset/Liability

Total Temporary Differences

Deferred Tax

Asset/Liability

Rediscount of Trade Receivables 28.932 6.365 13.687 2.737Financial Liabilities Reduction Differences 178.563 39.284 45.401 9.080Expense Accruals 953.452 209.759 1.640.503 328.101Provision for Doubtful Receivables 140.502 30.910 894.995 178.999Currency Valuation Differences 207.646 45.682 393.306 78.661Provision for Leaves 296.689 65.272 1.807.273 361.455Provision for Seniority Indemnity 3.766.804 140.034 3.195.569 639.114Provision for Liabilities/Expenses 249.920 54.984 477.081 95.415Provision for Financial Investments Impairment - - 3.107.074 621.416

Calculated under Accumulated Losses 14.462.870 3.181.831 - -Provision for Losses 2.183.343 67.065 - -Deferred Tax Asset 22.468.721 3.841.186 11.574.889 2.314.978Rediscount for trade payables (927.267) (203.999) (1.024.856) (204.971)Fixed Assets Depreciations (371.267) (81.679) (3.592.384) (718.477)Other (173.494) (38.169) - - Fixed Assets Increment Value (22.968.133) (2.526.494) (9.137.353) (456.868)Income Accruals - - (786.304) (157.261)Deferred Tax Liability (24.440.161) (2.850.341) (14.540.897) (1.537.577)Deferred Tax Asset (Net) - 990.845 - 777.401

NOTE 41 – EARNINGS PER SHARE

Earnings per share as specified in the income statement has been determined by dividing net profit for the current period by weighted average number of shares available in the market throughout the period.

Companies in Turkey can increase their capital by means of “bonus share” distribution to their existing shareholders from accumulated earnings and revaluation funds. Such “bonus share” distributions are considered issued share in calculation of earnings per share. Accordingly, weighted average number of shares used in such calculations has been found by calculating retrospective effects of share distributions.

Profit per share calculations have been made by dividing net profit by weighted average number of shares issued.

There is no financially preference share. Accordingly, profit/loss per share based on share groups is as follows.

Profit per share 1st January –31st December 2017

1st January –31st December 2016

Net profit / (loss) (186.146) (13.300.120)Weighted average number of ordinary shares 4.922.196.986 4.922.196.986Profit / (Loss) per share having a nominal value of TL 1 (0,000038) (0,002702)

NOTE 42 – SHARE-BASED PAYMENTS

None.(December 31, 2016: Not available.)

8988

NOTE 43 – INSURANCE CONTRACTS

Not available. (December 31, 2016: Not available)

NOTE 44 – EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES

31st December 2017 31st December 2016Financing Expenses 14.302.988 10.111.878Loan Exchange Difference Expenses (Note 37) 14.302.988 10.111.878Real Operating Income / Expense 380.950 223.403Foreign Exchange Gains (Note 34/a) 3.262.024 1.258.399Foreign Exchange Losses (Note 34/b) 3.642.974 1.481.802

NOTE 45 – FINANCIAL REPORTING IN HIGH INFLATION ECONOMIES

Not available. (December 31, 2016: Not available)

NOTE 46 – DERIVATIVE FINANCIAL INSTRUMENTS

Not available. (December 31, 2015: Not available)

NOTE 47 – FINANCIAL INSTRUMENTS

31st December 2017 31st December 2016Short-Term Borrowings 45.092.956 7.601.800- Bank Loans 45.043.791 7.567.532- Credit Card Payables 49.165 34.268

Short-Term Parts of Long-Term Borrowings 19.744.830 28.409.763

- Bank Loans 19.744.830 28.409.763Total Short-Term Borrowings 64.837.786 36.011.563Long-Term Borrowings 21.097.433 46.258.999- Bank Loans 21.097.433 46.258.999Total Long-Term Borrowings 21.097.433 46.258.999Total Borrowings 85.935.219 82.270.562

a) Details of bank loans included in short-term borrowings are as follows:

31st December 2017 31st December 2016

Currency Amount in Foreign Currency Amount in TL Effective Interest %

Amount in Foreign Currency

Amount in TL Effective Interest %

USD 666.667 2.514.601 5,77% - - -EURO 6.923.509 31.263.106 2,50% - - -TL - 11.266.084 14,73% - 7.567.532 12%

Total 45.043.791 7.567.532

b) Details of short-term parts of long-term borrowings are as follows:

31st December 2017 31st December 2016

Currency Amount in Foreign Currency Amount in TL Effective Interest %

Amount in Foreign Currency

Amount in TL Effective Interest %

EURO 4.372.679 19.744.830 2,50% 6.980.992 25.898.781 %0,96-%3,32USD - - - 713.509 2.510.982 5,23%

Total 19.744.830 28.409.763

c) Details of long-term borrowingsare as follows:

31st December 2017 31st December 2016

Currency Amount in Foreign Currency Amount in TL Effective Interest %

Amount in Foreign Currency

Amount in TL Effective Interest %

USD - - - 635.484 2.236.396 5,23%EURO 4.662.237 21.097.433 2,50% 11.866.251 44.022.603 %0,96-%4,32

Total 21.097.433 46.258.999

NOTE 48 – NATURE AND LEVEL OF RISKS ARISING FROM FINANCIAL INSTRUMENTS

Main risks arising from financial instruments are credit risk, liquidity risk, market risk as well as interest rate and exchange risk.

48.1. Credit Risk: Credit risk consists of deposits kept at banks and customers exposed to credit risk including outstanding receivables and guaranteed transactions. Risk control evaluates credit quality of the customer considering financial position and past experiences of the customer and other factors. The Company management corresponds to such risks by limiting average risk for counterparty in every agreement and taking security if required. The management is not expecting any loss due to nonperformance of the parties.

48.1.1. Credit risks incurred are as follows by financial instrument types:

As of December 31, 2017

31.12.2017

Receivables

Deposit in Banks

Trade Receivables Other Receivables

Related Party Other Party Related Party

Other Party

Maximum credit risk incurred as of reporting date 6.108.401 6.047.385 723.812 323.253 7.235.707

(A+B+C+D+E) (1) 6.108.401 6.047.385 723.812 323.253 7.235.707

Guaranteed part of maximum risk through security etc. - - - - -A. Net book value of financial assets undue or not impaired - - - - - - Guaranteed part through security etc. - - - - -B. Book value of financial assets of which conditions have been re-discussed, otherwise which would be considered as overdue or impaired (2)

- - - - -

C. Net book value of assets overdue, but not impaired (3) - - - - - - Guaranteed part through security etc. - - - - -D. Net book values of impaired assets - - - - -

- Overdue (gross book value) - 697.707 - - - - Impairment (-) - (697.707) - - -

- Guaranteed part of net value through security etc. - - - - -

- Undue (gross book value) - - - - -

- Impairment (-) - - - - -

- Guaranteed part of net value through security etc. - - - - -

E. Elements involving off-balance sheet credit risk

(*) In determination of the amounts given, elements increasing credit reliability such as securities received have not been taken into account.

9190

NOTE 48 – NATURE AND LEVEL OF RISKS ARISING FROM FINANCIAL INSTRUMENTS (Continued)

As of December 31, 2016

31.12.2016

ReceivablesDeposit in

BanksTrade Receivables Other Receivables

Related Party Other Party Related Party

Other Party

Maximum credit risk incurred as of reporting date (A+B+C+D+E) (1) 813.154

4.656.192 1.872.273 319.686 6.373.690

Guaranteed part of maximum risk through security etc. - 173.244 - - -

A. Net book value of financial assets undue or not impaired 813.154 4.482.948 1.872.273 319.686 6.373.690

- Guaranteed part through security etc. - - - - -B. Book value of financial assets of which conditions have been re-discussed, otherwise which would be considered as overdue or impaired (2)

- - - - -

C. Net book value of assets overdue, but not impaired (3) - - - - - - Guaranteed part through security etc. - - - - -D. Net book values of impaired assets - - - - -

- Overdue (gross book value) - 557.205 - - - - Impairment (-) - (557.205) - - -

- Guaranteed part of net value through security etc. - - - - -

- Undue (gross book value) - - - - -

- Impairment (-) - - - - -

- Guaranteed part of net value through security etc. - - - - -

E. Elements involving off-balance sheet credit risk

(*) In determination of the amounts given, elements increasing credit reliability such as securities received have not been taken into account.

48.1.2. Details and fair values of securities taken for receivables are as follows:

Total amount of securities taken by the Company for its receivables is TL 940.000 as of December 31, 2017. (December 31, 2016: TL 800.000)

48.1.3. Disclosures on credit quality of financial assets undue or not impaired as well as financial assets of which conditions have been re-discussed, otherwise which would be considered as overdue or impaired:

The Company has no financial asset of which conditions have been re-discussed, otherwise would be considered as overdue or impaired. There is no problem with collection of financial assets undue and not impaired and average collection time of trade receivables ranges between 30-365 days. (December 31, 2016: 30-365 days)

48.1.4. Disclosures on which factors have been taken into account for determination of provision for impairment reserved for impaired financial assets:

Since Desa International Limited and Leather Fashion (Russia) which are subsidiaries as of December 31, 2016 and not consolidated due to their negligible revenues have lost their equity, impairment at the amount included in the assets (3.107.074 TL) has been calculated and presented in the Financial Investments account.

48.1.5. Aging table of financial assets overdue, but not impaired:

Not available. (December 31, 2016: Not available)

48.1.6. Assets acquired by the Company by taking possession of guarantees kept as an assurance or using other elements increasing credit reliability:

- Nature and book value;

NOTE 48 – NATURE AND LEVEL OF RISKS ARISING FROM FINANCIAL INSTRUMENTS (Continued)

Not available. (December 31, 2016: Not available)

-In case such assets cannot be converted into cash currently, approach of the enterprise regarding disposal of or use of such assets in business activities:

Not available. (December 31, 2016: Not available)

48.2. Liquidity Risk: Liquidity risk is the possibility for the Company to fail to fulfill its net funding liabilities. Occurrence of events resulting in decrease in fund resources such as disruptions in markets or decrease of credit rating creates the liquidity risk. The Company has been exposed to the liquidity risk as of December 31, 2017 and December 31, 2016. The Company is planning to carry out the liquidity management by extending maturities of trade payables and giving weight to raw material stocks instead of purchase of new raw materials.

The Company has able to collect its export proceeds and domestic incomes in cash during the periods ended on December 31st, 2016 and December 31st, 2017 as a measure against liquidity risk and to reduce its indebtedness level in Euro despite high exchange differences during the said periods thanks to its export proceeds. The Company intends to reduce its financial indebtedness also during 2018 as it has managed during 2017 through its surplus liquidity acquired from its export activities and to manage its liquidity by concentrating on its raw material stocks as well.

48.2.1. Distribution of derivatives and non-derivatives financial liabilities based on their remaining maturity is as follows:

The following table has been prepared without discounting liabilities of the Company and based on the earliest due dates. Interests to be paid over such liabilities have been included in the following table. Maturity of trade payables is approximately 183 days. (December 31, 2016 – 140 Days)

Current Period:

Maturities as per Agreement Book value

Total cash outflows as

per agreement (=I+II+III+IV)

Less than 3 months (I)

Between 3-12 months (II)

Between 1-5 years

(III)

More than 5 years (IV)

Non-Derivative Financial Liabilities 168.180.985 167.579.018 17.592.845 109.576.362 40.409.811 -Financial Payables 85.935.219 85.378.041 2.690.033 42.353.752 40.334.256 -Trade Payables 76.804.927 76.760.137 9.461.973 67.222.610 75.554 -Other Payables 5.440.839 5.440.839 5.440.839 - - -

Previous Period:

Maturities as per Agreement Book value

Total cash outflows as

per agreement (=I+II+III+IV)

Less than 3 months (I)

Between 3-12

months (II)

Between 1-5 years (III)

More than 5 years (IV)

Non-Derivative Financial Liabilities 131.551.240 135.923.325 44.206.451 42.392.862 49.324.012 -

Financial Payables 82.270.562 85.665.584 9.807.427 26.584.145 49.274.012 -

Trade Payables 45.911.204 46.888.267 31.029.550 15.808.717 50.000 -

Other Payables 3.369.474 3.369.474 3.369.474 - - -

48.3. Market Risk For in- and off-balance sheet positions, it is the possibility of incurring loss due to risks resulted from interest, exchange difference and share price changes arising from fluctuations in financial markets.

48.3.1. Exchange Risk: Exchange risk means the effects that may arise from exchange rate movements in case of having assets, liabilities and off-balance sheet liabilities in foreign currency.

9392

FOREIGN EXCHANGE POSITION TABLE

31.12.2017Equivalent in

TL (Functional Currency)

USD EURO GBP BGN OTHER

1.Trade Receivables 4.319.065 75.419 430.975 411.103 - -2a. Monetary Financial Assets (including Cash and Bank Accounts) 7.260.545 1.177 1.604.442 2.009 443 457

2b. Non-Monetary Financial Assets - - - - - -

3.Other - - - - - -

4.Current Assets (1+2+3) 11.579.610 76.596 2.035.417 413.111 443 457

5.Trade Receivables - - -

- - -

6a. Monetary Financial Assets - - - - - -

6b. Non-Monetary Financial Assets - - - - - -

7.Other - - -

- - -

8.Fixed Assets (5+6+7) - - -

- - -

9.Total Assets (4+8) 11.579.610 76.596 2.035.417 413.111 443 457

10.Trade Payables 22.040.693 479.990 4.284.377 174.028

11.Financial Liabilities 74.574.861 666.666 15.958.424 - - -

12a.Other Monetary Liabilities

12b.Other Non-Monetary Liabilities

13.Short-Term Liabilities (10+11+12) 96.615.555 1.146.655 20.242.801 174.028,40 - -

14.Trade Payables - - - - - -

15.Financial Liabilities - - -

- - -

16a. Other Monetary Liabilities

16b. Other Non-Monetary Liabilities - - -

17. Long-Term Liabilities (14+15+16) -

- - -

18.Total Liabilities (13+17) 96.615.555 1.146.655 20.242.801 174.028,40 - - 19. Net Asset / (Liability) Position of Off-Balance Sheet Derivatives (19a-19b)

- - -

- - -

19a. Total Amount of Hedged Assets - - - - - -

19b. Total Amount of Hedged Liabilities 20. Net Asset/(Liability) Position in Foreign Currency (9-18+19) -85.035.945 -1.070.059 -18.207.385 239.083 443 457

21. Monetary Items Net Asset / (Liability) Position in Foreign Currency (=1+2a+5+6a-10-11-12a-14-15-16a)

-85.035.939 -1.070.059 -18.207.385 239.083 443 457

22. Total Fair Value of Financial Instruments Used for Currency Hedging

- - -

- - -

23.Import 43.576.156 1.185.845 8.508.134 28.557 - 1.682.375

24.Export 69.701.489 225.180 13.353.339 1.661.708 - -

(*) The equivalents of respective export and import amounts in Turkish Lira are expressed at market exchanges rate in effect on purchase or sales dates.

December 31, 2016Equivalent in

TL (Functional Currency)

USD EURO GBP CHF OTHER

1.Trade Receivables 7.683.412 213.389 1.238.063 541.618 - 642a. Monetary Financial Assets (including Cash and Bank Accounts) 5.977.437 1.603 1.607.743 1.672 1 -

2b. Non-Monetary Financial Assets - - - - - -

3.Other 253.020 27.497 35.164 5.974 - -

4.Current Assets (1+2+3) 13.913.869 242.489 2.880.970 549.264 1 64

5.Trade Receivables - - - - - -

6a. Monetary Financial Assets - - - - - -

6b. Non-Monetary Financial Assets - - - - - -

7.Other - - - - - -

8.Fixed Assets (5+6+7) - - - - - -

9.Total Assets (4+8) 13.913.869 242.489 2.880.970 549.264 1 64

10.Trade Payables (4.427.726) (517.347) (700.379) - (2.538) -

11.Financial Liabilities (28.409.763) (713.508) (6.980.992) - - -

12a.Other Monetary Liabilities - - - - - -

12b.Other Non-Monetary Liabilities (538.806) (65.035) (77.657) (5.056) - -

13.Short-Term Liabilities (10+11+12) (33.376.295) (1.295.890) (7.759.028) (5.056) (2.538) -

14.Trade Payables - - - - - -

15.Financial Liabilities (46.258.999) (635.484) (11.866.251) - - -

16a. Other Monetary Liabilities - - - - - -

16b. Other Non-Monetary Liabilities - - - - - -

17. Long-Term Liabilities (14+15+16) (46.258.999) (635.484) (11.866.251) - - -

18.Total Liabilities (13+17) (79.635.294) (1.931.374) (19.625.279) (5.056) (2.538) -19. Net Asset / (Liability) Position of Off-Balance Sheet Derivatives in Foreign Currency (19a-19b)

- - - - - -

19a. Amount of Off-Balance Active Derivatives in Foreign Currency - - - - - -

19b. Amount of Off-Balance Passive Derivatives in Foreign Currency - - - - - -

20. Net Asset/(Liability) Position in Foreign Currency (9-18+19) (65.721.425) (1.688.885) (16.744.309) 544.208 (2.537) 64

21. Monetary Items Net Asset / (Liability) Position in Foreign Currency (IFRS 7.B23 (=1+2a+5+6a-10-11-12a-14-15-16a)

(65.435.639) (1.651.347) (16.701.816) 543.920 (2.537) 64

22. Total Fair Value of Financial Instruments Used for Currency Hedging

23. Amount of Hedged Part of Foreign Currency Assets

24. Amount of Hedged Part of Foreign Currency Liabilities

25.Export 47.996.766 523.541 9.694.982 2.355.778 - 12.535

26.Import 17.385.456 1.405.498 2.980.072 40.598 2.720 399.250

(*) The equivalents of respective export and import amounts in Turkish Lira are expressed at CBRT’s buying rate of exchanges in effect on December 31, 2016.

NOTE 48 – NATURE AND LEVEL OF RISKS ARISING FROM FINANCIAL INSTRUMENTS (Continued) NOTE 48 – NATURE AND LEVEL OF RISKS ARISING FROM FINANCIAL INSTRUMENTS (Continued)

9594

NOTE 48 – NATURE AND LEVEL OF RISKS ARISING FROM FINANCIAL INSTRUMENTS (Continued)

Exchange Rate Sensitivity Analysis Table Profit/Loss Equity

Current Period Appreciation of Foreign Currency

Depreciation of Foreign Currency

Appreciation of Foreign Currency

Depreciation of Foreign Currency

In case of change in value of USD against TL at a rate of 20%:

1- Net asset/liability in USD (1.284.071) 1.284.071

2- Amount protected from USD risk (-)

3- USD Net Effect (1+2) (1.284.071) 1.284.071 - -

In case of change in value of EUR against TL at a rate of 20%:

4- Net asset/liability in Euro (21.848.862) 21.848.862

5- Amount protected from Euro risk (-)

6- Euro Net Effect (4+5) (21.848.862) 21.848.862 - -

In case of change in value of GBP against TL at a rate of 20%:

7- Net asset/liability in British Pound 286.899 (286.899)

8- Amount protected from British Pound risk (-)

9- British Pound Net Effect (7+8) 286.899 (286.899) - -In case of change in value of Bulgarian Leva against TL at a rate of 20%:

10- Net asset/liability in BGN 532 (532)

11- Amount protected from BGN risk (-)

12- BGN Net Effect (10+11) 532 (532) - -In case of change in value of Chinese Yuan against TL at a rate of 20%: 13- Net asset/liability in Chinese Yuan 10 (10)

14- Amount protected from Chinese Yuan risk (-)

15- Chinese Yuan Net Effect (10+11) 10 (10) - -In case of change in value of CHF against TL at a rate of 20%:

16- Net asset/liability in Swiss Franc 7 (7)

17- Amount protected from Swiss Franc (-)

18- Swiss Franc Net Effect (10+11) 7 (7) - -

TOTAL (3+6+9+12+15+18) (22.845.485) 22.845.485 - -

Exchange Rate Sensitivity Analysis Table Profit/Loss Equity

Previous Period Appreciation of Foreign Currency Depreciation of Foreign Currency

In case of 10% change in USD exchange rate:

1- Net asset/liability in USD (594.353) 594.353 - -

2- Amount protected from USD risk (-)

3- USD Net Effect (1+2) (594.353) 594.353 - -

In case of 10% change in Euro exchange rate:

4- Net asset/liability in Euro (6.211.972) 6.211.972 - -

5- Amount protected from Euro risk (-)

6- Euro Net Effect (4+5) (6.211.972) 6.211.972 - -In case of 10% change in Swiss Franc exchange rate on average:

7- Net asset/liability in Swiss Franc (874) 874 - -

8- Amount protected from Swiss Franc risk (-)

9- Swiss Franc Net Effect (7+8) (874) 874 - -In case of 10% change in British Pound exchange rate on average:

10- Net asset/liability in British Pound 235.038 (235.038) - -

11- Amount protected from British Pound risk (-)

12- British Pound Net Effect (10+11) 235.038 (235.038) - -

In case of 10% change in other currencies exchange rate on average:

13- Net asset/liability in other currencies 18 (18) -

14- Amount protected from other currencies exchange rate risk (-) - -

15- Other Currencies Net Effect (13+14) 18 (18)

TOTAL (3+6+9+12+15) (6.572.143) 6.572.143 - -

48.3.1. Interest Risk: Fluctuations in financial instrument prices due to changes in market interest rates require the Company to cope with interest rate risk. Sensitivity of the Company to interest rate risk is related to inconsistency of maturities of asset and liability accounts. This risk is managed by meeting the assets affected from interest changes with the same type of liabilities.

Interest Position Table

Fixed rate financial instruments Current Period Previous Period

Financial Liabilities Bank Loans 29.501.267 25.808.294

Financial Liabilities Credit Cards 49.165 32.224

Banks Time Deposits 7.235.707 5.959.520

Floating rate financial instruments

Financial Liabilities Bank Loans 56.388.849 56.430.044

48.4 Sensitivity Analysis for Other Risks:

Not available. (December 31, 2016: Not available)

NOTE 49 – FINANCIAL INSTRUMENTS (FAIR VALUE DISCLOSURES AND DISCLOSURES UNDER HEDGE ACCOUNTING)

a) Fair Value

Fair value is the amount occurring when an asset changes hands between a knowledgeable buyer and a knowledgeable seller in a mutual bargain environment or when a debt is paid.

Financial assets are valued at their “Fair Value” for periods following their inclusion in the balance sheet.

Fair value of financial assets is determined by the company management using current market information and proper valuation methods. However, it is necessary to use estimations in interpretation of market data to determine fair value. Accordingly, estimations provided may fail to give the real value that the Company would be able to get in current market transactions.

Fair value of publicly-traded shares is their “Stock exchange price”.

It is deemed that book value of cash and cash equivalents, short-term trade receivables and payables is close to their fair value.

Financial assets in foreign currency are valued at period-end rate and therefore their fair value gets close to their book value.

Since affiliates and subsidiaries of the Company are not traded in an active market, their fair value could not be measured reliably. The Company does not intend to dispose of such financial instruments in the short term.

b) Hedge Accounting

Hedge accounting requires inclusion of hedging instruments (future contracts, option, forward and swaps) and hedged items (exchange rate in financial statements, liabilities subject to interest and interest risk, and performance bonds subject to the same impacts and not included in financial statements) to financial statements as profit or loss by netting any change in their fair value to each other.

There are three type of hedging relationships:

- Fair value hedging

- Cash flow hedging

NOTE 48 – NATURE AND LEVEL OF RISKS ARISING FROM FINANCIAL INSTRUMENTS (Continued)

9796

NOTE 49 – FINANCIAL INSTRUMENTS (FAIR VALUE DISCLOSURES AND DISCLOSURES UNDER HEDGE ACCOUNTING) (Continued)

- Net investment hedging (in foreign affiliates)

c) Estimation of Fair Value

The Company’s classifications of financial assets and liabilities related to fair value are as follows:

Level 1: Those based on actively traded market prices (not adjusted);

Level 2: Those based on observable market data directly (through actively traded market prices) or indirectly (by being derived from actively traded market prices);

Level 3: Those not based on observable market data.

The Company’s assets and liabilities measured at fair value as of December 31, 2017 and December 31, 2016 are as follows:

December 31, 2017

Assets Level 1 Level 2 Level 3 Total

Financial Investments - - 7.724.212 7.724.212

Total Assets - - 7.724.212 7.724.212

Liabilities Level 1 Level 2 Level 3 Total

Total Liabilities - - - -

December 31, 2016

Assets Level 1 Level 2 Level 3 Total

Financial Investments - - 7.664.316 7.664.316

Total Assets - - 7.664.316 7.664.316

Liabilities Level 1 Level 2 Level 3 Total

Total Liabilities - - - -

d) Fair Value

Fair value is defined as price between willing parties who are into making a sale or purchase.

Financial assets and liabilities in foreign currency are converted to market prices at statement of financial position date.

Methods and assumptions below are used to predict fair value of each financial instrument in case when it is possible to determine fair value of these instruments.

e) Financial Assets

The carrying values of cash and cash equivalents assets plus the respective accrued interest and other financial assets are considered to approximate their fair values since they are short termed and subject to a negligible credit risk. The carrying values of the trade receivables net of provisions for uncollectible receivables are considered to approximate their fair values.

f) Financial Liabilities

Values of monetary liabilities and trade payables are considered close to their fair value because of short term nature. Bank loans are stated with their discounted cost and transaction cost will be added to initial cost of loans. Book value of loans is considered close to its fair value because of updates in changed market conditions and interest rates. Book value of trade payables is considered as close to its fair value cause of being short termed.

NOTE 50 – EVENTS AFTER THE REPORTING PERIOD

50.1 The legal process, in connection with tax fines constituting the subject of material disclosure dated 28.12.2017 and explained in footnote 34, has been initiated through bringing an action before İstanbul Tax Courts on 22.01.2018.

50.2 The provision stipulating that “the corporate tax rate of 20% specified in the first paragraph of the Article 32 of the Corporate Tax Law No.5520 is applied as 22% for corporate incomes pertaining to taxation periods of 2018, 2019 and 2020” has been brought by the Law No.7061 on “Amendments to Certain Tax Laws and Some Other Laws” adopted on November 208th, 2017 through a provisional article. Furthermore, the provision stipulating that “an exemption rate of 75% applied over the income derived by corporate taxpayers from the sales of immovable properties held in their assets for a period of two full years minimum” specified in subparagraph e of the first paragraph of the Article 5 of the Corporate Tax Law No.5520 has been amended as 50% also by the same “Omnibus Law”.

NOTE 51 – OTHER ISSUES SIGNIFICANTLY AFFECTING THE FINANCIAL STATEMENTS OR REQUIRED TO BE DISCLOSED FOR FINANCIAL STATEMENTS TO BE CLEAR, INTERPRETABLE AND UNDERSTANDABLE

Not available. (December 31, 2016: Not available)

NOTE 52 – INITIAL TRANSITION TO TAS (TURKISH ACCOUNTING STANDARDS)

Not available. (December 31, 2016: Not available)

NOTE 53 – EXPLANATION IN RESPECT OF CASH FLOW STATEMENT

Cash and Cash Equivalents

31st December 2017 31st December 2016

Cash 489.691 214.451

-TL 481.823 209.215

-USD 3.769 3.165

-EUR 3.077 1.445

-GBP - 626

-BGN 1.017 -

-CNY 5 -

Banks 8.286.625 6.373.690

Time Deposit 7.235.707 5.959.520

-EUR 7.235.707 5.959.520

Demand Deposit 1.050.918 414.170

-TL 1.033.948 401.489

-USD 672 2.478

-EUR 6.072 3.601

-GBP 10.204 6.597

-CHF 22 5

Other liquid assets 112.078 197.082

Barter cheques 112.078 197.082

Total 8.888.394 6.785.223

There is a blocked account of TL 9.250 in bank deposits of the Company as of December 31st, 2017.

(December 31st, 2016- TL 9.250).

Breakdown of the interest rates of time deposits is as follows:

31st December 2017 31st December 2016

Quantity Interest rate (%) Quantity Interest rate (%)

EURO (VALUE IN TL ) 7.235.707 2,45 5.959.520 1,7

Total 7.235.707 5.959.520

NOTE 54 – EXPLANATION IN RESPECT OF THE STATEMENT FOR CHANGES IN EQUITY

The Company’s statement of changes in equity has been presented in accordance with the financial statement and note presentation principles rendered compulsory by the announcement published by the CMB in Weekly Bulletin issue no.2013/9 dated 07.06.2013.

The effects of the changes in accounting policies explained in the Note 2 as well as the effects of the other retained earnings/expenses not to be reclassified in profit or loss and presented in the account of the retained earnings/losses and other comprehensive incomes have been presented in the statement of changes in equity.

9998

ADANAAdana, Optimum Samsonite

ANKARAAnkamall SamsoniteKentpark SamsoniteEsenboğa SamAsoniteOptimum SamsoniteMetromall Samsonite

ANTALYAHavalimanı SamsoniteHavalimanı Dış Hatlar Samsonite Terra City SamsoniteMigros SamsoniteMarkaantalya SamsoniteDeepo SamsoniteAgora Samsonite

AYDINNovada Samsonite

BİLECİKSarar Bozuyuk Samsonite

BURSAMarka Samsonite

GAZİANTEPSankopark Samsonite

İSTANBULGöztepe SamsoniteCity’s Samsonite

Headquarters and FactoryHalkalı Cad. No: 20834295 Sefaköy / İstanbulT. (0212) 473 18 00 (pbx) / (0212) 698 98 12 - 697 57 96

Çorlu TanneryTabakhaneler Mevkii Kuzey Cad. 2.Sok. No: 14 Ergene-TekirdağT. (0282) 686 31 39-40 / (0282) 686 40 11

Düzce Factory1. Organize Sanayi Bölgesi 250 Ada 4. Parsel Beykoz - DüzceT. (0380) 553 73 01 (7 Hat) / (0380) 553 73 08

Desa Contact Support 444 33 72 (444 DESA)www.desa.com.tr - desa@desa.com.tr

ADANADesa Real

ANKARADesa MigrosDesa CepaDesa PanoraDesa ArmadaDesa KentparkDesa EsenboğaDesa Next Level Desa Metromall

ANTALYADesa MigrosDesa DeepoDesa TerracityDesa Land Of LegendsDesa Antalya Agora

AYDINDesa Novada

AFYONDesa Ikbal

BALIKESİRDesa Susurluk

BİLECİKDesa Sarar Bozuyuk

BURSADesa KoruparkDesa Marka

DENİZLİDesa Forum

ESKİŞEHİRDesa Espark

GAZİANTEPDesa ForumDesa Sankopark

İSTANBULDesa Ataköy GalleriaDesa BeyogluDesa CapitolDesa Nişantaşı Abdiipekci Desa SuadiyeDesa FabrikaDesa Kozyatağı CarrefourDesa CarouselDesa NautilusDesa PalladiumDesa IstinyeparkDesa OptimumDesa ViaportDesa Atakoy KonaklariDesa Marmara ForumDesa AirportDesa GöztepeDesa StarCityDesa BuyakaDesa Cevahir

Desa AkbatiDesa Hilton Desa AkasyaDesa Mall OfDesa PerlavistaDesa EmaarDesa MarmaraparkDesa Aqua FloryaDesa Nurolpark

İZMİRDesa EgsDesa MavibahçeDesa AgoraDesa ForumDesa SelweyDesa BornovaDesa Optimum

İSKENDERUNDesa PrimeMall

KAYSERİDesa Forum

MERSİNDesa Forum

SAMSUNDesa LowelettDesa Piazza

TEKİRDAĞDesa AvantajDesa Orion

FRANCHISEDesa Go MuglaDesa Go MarmarisDesa Go Alanya

ONLINE STORESwww.desa.com.tr

Palladium Samsoniteİstinyepark SamsoniteAtaköy Konakları SamsoniteAkasya SamsoniteMarmarapark SamsoniteAqua Florya SamsoniteAkbatı SamsoniteOptimum SamsoniteTepe Nautilus SamsoniteForum SamsoniteAkmerkez SamsoniteOlivium SamsoniteEmaar Samsonite

İZMİROptimum SamsoniteAgora Samsonite

KAYSERİForum Samsonite

KONYAKentplaza Samsonite

MUĞLAMidtown Samsonite

ANKARA

Acity Autlet

Armada

BURSA

Carrefour

MUĞLA

Bodrum Havalimanı

Dalaman Havalimanı

İSTANBUL

Kanyon

Cevahir

Atatürk Havalimanı

Atatürk Havalimanı 2

Atatürk Havalimanı 3

Viaport

Buyaka

Marmara Forum

Kanyon Tumi

Akmerkez Tumi

TRABZON

Forum

İZMİR

Adnan Menderes Havalimanı İç Hatlar

Adnan Menderes Havalimanı Dış Hatlar

TEKİRDAĞ

Tekira

SAMSONITE SAMSONITE JV

CONTACT SUPPORT

100