35.

Financial instruments

Credit risk

Exposure to credit risk:

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date is:


		2018		2017
Trade receivables	19		2,620,991		3,004,206
Contract assets			715,441		—
Receivables from financial services	20		4,170,929		4,248,120
Cash and cash equivalents*	24		7,419,095		4,712,141
Participating cross currency swap and FX swap contracts	32		1,356,062		981,396
Other current assets**	22		287,469		316,042
Held to maturity investments			—		11,992
Financial asset at fair value through profit or loss			9,409		—
Financial asset at fair value through other comprehensive income			42,454		—
Due from related parties	37		13,533		5,299

			16,635,383		13,279,196

*	Cash in hand is excluded from cash and cash equivalents.

**	Prepaid expenses, receivable from personnel, receivable from the Ministry of Transport and Infrastructure of Turkey, other and advances given are excluded from other current assets and other non-current assets.

Credit quality:

The maximum exposure to credit risk for trade and subscriber receivables, other assets and cash and cash equivalent arising from sales transactions including those classified as due from related parties at the reporting date by type of customer is:


*Other Assets at 31 December 2018()**	Not Due		More Than 30 Days Past Due		More Than 60 Days Past Due		More Than 90 Days Past Due		More Than 120 Days Past Due		More Than 150 Days Past Due		More Than 150 Days -3 years Past Due		More Than 3 - 4 years Past Due		More Than 4 - 5 years Past Due		Total
Gross Carrying Amount		8,656,954		214,351		80,762		57,761		43,038		25,543		755,982		272,547		319,298		10,426,236
Loss Allowance		24,864		4,567		5,238		4,900		6,368		6,028		214,893		182,431		281,522		730,811

(*)	Other Assets includes trade receivables, subscriber receivables, other assets, cash and cash equivalent and due from related parties.


Contract Assets at 31 December 2018	Not Due		More Than 30 Days Past Due		More Than 60 Days Past Due		More Than 90 Days Past Due		More Than 120 Days Past Due		More Than 150 Days Past Due		More Than 150 Days - 3 years Past Due		More Than 3 - 4 years Past Due		More Than 4 - 5 years Past Due		Total

Gross Carrying Amount		715,441		—		—		—		—		—		—		—		—		715,441
Loss Allowance		7,370		—		—		—		—		—		—		—		—		7,370

Credit quality:


Other Assets as at 1 January 2018(*)	Not Due		More Than 30 Days Past Due		More Than 60 Days Past Due		More Than 90 Days Past Due		More Than 120 Days Past Due		More Than 150 Days Past Due		More Than 150 Days - 3 years Past Due		More Than 3 - 4 years Past Due		More Than 4 - 5 years Past Due		Total
Gross Carrying Amount		6,021,990		194,517		81,804		35,799		52,851		20,493		823,359		208,127		141,717		7,580,657
Loss Allowance		24,936		6,136		5,662		4,279		9,766		7,076		323,124		158,198		122,751		661,928

(*)	Other Assets includes trade receivables, subscriber receivables and other assets.


Contract Assets as at 1 January 2018	Not Due		More Than 30 Days Past Due		More Than 60 Days Past Due		More Than 90 Days Past Due		More Than 120 Days Past Due		More Than 150 Days Past Due		More Than 150 Days - 3 years Past Due		More Than 3 - 4 years Past Due		More Than 4 - 5 years Past Due		Total
Gross Carrying Amount		514,223		—		—		—		—		—		—		—		—		514,223
Loss Allowance		5,128		—		—		—		—		—		—		—		—		5,128

Impairment losses

Individual receivables which are known to be uncollectible are written off by reducing the carrying amount directly. The other receivables are assessed collectively to determine whether there objective evidence that an impairment has been incurred but not yet is been identified. The Group considers that there is evidence of impairment if any of the following indicators are present:

•

significant financial difficulties of the customer

•

probability that the customer will enter bankruptcy or financial reorganisation, and

•

default or delinquency in payments

Receivables for which an impairment provision was recognized are written off against the provision when there is no expectation of recovering additional cash.

Impairment losses are recognized in profit or loss within net impairment losses on financial and contract assets (Note 10). Subsequent recoveries of amounts previously written off are credited against Net impairment losses on financial and contract assets (Note 10).

Movements in the provision for impairment of trade receivables and due from related parties are as follows:


	31 December 2018 Contract Asset		31 December 2018 Other Asset**
Opening balance		—		705,440
IFRS 9 effect		5,128		(43,512	)
Provision for impairment recognized during the year		2,242		416,557
Amounts collected		—		(166,641	)
Unused amount reversed (*)		—		(73,023	)
Receivables written off during the year as uncollectible		—		(118,553	)
Exchange differences		—		10,540
Disposal of subsidiaries		—		3

Closing balance		7,370		730,811


	31 December 2017 Contract Asset		31 December 2017 Other Asset**
Opening balance		—		964,311
Provision for impairment recognized during the year		—		180,948
Amounts collected		—		(224,460	)
Unused amount reversed (*)		—		(79,958	)
Receivables written off during the year as uncollectible		—		(138,529	)
Exchange differences		—		3,128

Closing balance		—		705,440

(*)	The Company signed a transfer of claim agreement with a debt management company to transfer some of its doubtful receivables stemming from the years between 1998 to 2016, Transferred doubtful receivables comprise of balances that the Company started legal proceedings.

(**)	Other Assets includes trade receivables, subscriber receivables and other assets.

Movements in the provision for impairment of receivables from financial services are as follows:


	31 December 2018			31 December 2017
Opening balance		72,992			10,170
IFRS 9 effect		52,951			—
Provision for impairment recognized during the year		190,509			117,293
Amounts collected		(96,278	)		(37,503	)
Unused amount reversed (*)		(19,901	)		(16,968	)

Closing balance		200,273			72,992

(*)	The Company signed a transfer of claim agreement with a debt management company to transfer some of its doubtful receivables stemming from the year 2017. Transferred doubtful receivables comprise of balances that the Company started legal proceedings.

Liquidity risk

The table below analyses the Group’s financial liabilities into relevant maturity groupings based on their contractual maturities for:

•

all non-derivative financial liabilities, and

•

gross settled derivative financial instruments for which the contractual maturities are essential for an understanding of the timing of the cash flows,


	31 December 2018																						31 December 2017
	Carrying		Contractual			6 months			6-12			1-2			2-5			More than 5			Carrying		Contractual			6 months			6-12			1-2			2-5			More than 5
	Amount		cash flows			or less			Months			years			years			Years			Amount		cash flows			or less			months			years			years			Years
Non-derivative financial liabilities
Secured bank loans		4,180		(4,712	)		(1,272	)		(1,209	)		(2,231	)		—			—			4,390		(5,011	)		—			(1,117	)		(2,045	)		(1,849	)		—
Unsecured bank loans		13,526,847		(14,353,989	)		(4,354,548	)		(2,065,424	)		(3,587,398	)		(2,503,531	)		(1,843,088	)		10,533,518		(11,094,697	)		(3,275,230	)		(955,637	)		(2,575,807	)		(3,035,914	)		(1,252,109	)
Finance lease liabilities		—		—			—			—			—			—			—			122,720		(133,570	)		(18	)		(17,429	)		(16,789	)		(38,933	)		(60,401	)
Debt securities issued		5,210,562		(7,733,943	)		(228,838	)		(149,564	)		(299,128	)		(897,385	)		(6,159,028	)		1,875,521		(2,753,486	)		(54,221	)		(54,221	)		(108,442	)		(325,326	)		(2,211,276	)
Lease liabilities		1,413,956		(2,497,426	)		(372,682	)		(273,273	)		(410,826	)		(666,760	)		(773,885	)		—		—			—			—			—			—			—
Trade and other payables*		2,372,512		(2,440,300	)		(2,440,300	)		—			—			—			—			2,527,152		(2,548,365	)		(2,548,365	)		—			—			—			—
Due to related parties		45,331		(45,331	)		(45,331	)		—			—			—			—			6,980		(6,980	)		(6,980	)		—			—			—			—
Consideration payable in relation to acquisition of Belarusian Telecom (Note 35)		358,304		(526,090	)		—			—			—			(526,090	)		—			323,691		(377,190	)		—			—			—			(377,190	)		—
Derivative financial liabilities Participating Cross Currency Swap and FX swap contracts		165,265		97,761			55,377			—			12,960			14,522			14,902			107,862		23,428			18,982			—			4,446			—			—
Buy				3,444,271			2,519,383			—			193,800			249,288			481,800					1,838,554			1,471,106			—			367,448			—			—
Sell				(3,346,510	)		(2,464,006	)		—			(180,840	)		(234,766	)		(466,898	)				(1,815,126	)		(1,452,124	)		—			(363,002	)		—			—
Currency forward contracts		—		—			—			—			—			—			—			2,246		(2,246	)		(2,246	)		—			—			—			—
Buy																								190,185			190,185			—			—			—			—
Sell																								(192,431	)		(192,431	)		—			—			—			—

TOTAL		23,096,957		(27,504,030	)		(7,387,594	)		(2,489,470	)		(4,286,623	)		(4,579,244	)		(8,761,099	)		15,504,080		(16,898,117	)		(5,868,078	)		(1,028,404	)		(2,698,637	)		(3,779,212	)		(3,523,786	)

*	Advances received, license fee accruals, taxes and withholding taxes payable are excluded from trade and other payables.

Foreign exchange risk

The Group’s exposure to foreign exchange risk at the end of the reporting period, based on notional amounts, was as follows:


	31 December 2018
	USD			EUR			RMB
Foreign currency denominated assets
Other non-current assets		222			11			—
Financial asset at fair value through other comprehensive income		—			7,043			—
Due from related parties-current		1,965			223			—
Trade receivables and contract assets		15,786			52,140			—
Other current assets		70,710			18,977			—
Cash and cash equivalents		786,322			384,800			—

		875,005			463,194			—
Foreign currency denominated liabilities
Loans and borrowings-non current		(481,438	)		(748,142	)		(224,519	)
Debt securities issued-non- current		(921,102	)		—			—
Lease obligations-non-current		(4,719	)		(24,068	)		—
Other non-current liabilities		(68,107	)		—			—
Loans and borrowings-current		(390,876	)		(523,595	)		(29,244	)
Debt securities issued-current		(55,074	)		—			—
Rent lease obligations-current		(2,951	)		(8,223	)		—
Trade and other payables-current		(233,805	)		(32,946	)		(70,553	)
Due to related parties		(686	)		(52	)		—

		(2,158,758	)		(1,337,026	)		(324,316	)

Exposure related to derivative instruments
Participating cross currency swap and FX swap contracts		1,082,036			811,167			202,600

Net exposure		(201,717	)		(62,665	)		(121,716	)


	31 December 2017
	USD			EUR
Foreign currency denominated assets
Other non-current assets		72			2,681
Due from related parties-current		571			407
Trade receivables and accrued income		18,890			57,283
Other current assets		43,039			35,049
Cash and cash equivalents		688,717			237,697

		751,289			333,117

Foreign currency denominated liabilities
Loans and borrowings-non current		(557,180	)		(960,629	)
Debt securities issued-non- current		(469,387	)		—
Other non-current liabilities		(85,816	)		—
Loans and borrowings-current		(206,535	)		(285,827	)
Debt securities issued-current		(27,848	)		—
Trade and other payables-current		(328,323	)		(29,442	)
Due to related parties		(1,172	)		(394	)

		(1,676,261	)		(1,276,292	)

Exposure related to derivative instruments
Participating cross currency swap and FX swap contracts		937,011			748,650
Currency forward contracts		50,000			—

Net exposure		62,039			(194,525	)

Sensitivity analysis

The basis for the sensitivity analysis to measure foreign exchange risk is an aggregate corporate-level currency exposure. The aggregate foreign exchange exposure is composed of all assets and liabilities denominated in foreign currencies, the analysis excludes net foreign currency investments.

10% strengthening/weakening of the TL, UAH, BYN against the following currencies at 31 December 2018 and 31 December 2017 would have increased/ (decreased) profit or loss before by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.


Sensitivity analysis
31 December 2018
	Profit/(Loss)					Equity
	Appreciation of foreign currency			Depreciation of foreign currency		Appreciation of foreign currency			Depreciation of foreign currency
1- USD net asset/liability		(106,121	)		106,121		—			—
2- Hedged portion of USD risk (-)		—			—		(9,596	)		9,596
3- USD net effect (1+2)		(106,121	)		106,121		(9,596	)		9,596

4- EUR net asset/liability		(37,775	)		37,775		—			—

5- Hedged portion of EUR risk (-)		—			—		(23,613	)		23,613

6- EUR net effect (4+5)		(37,775	)		37,775		(23,613	)		23,613

7- Other foreign currency net asset/liability (RMB)		(9,275	)		9,275		—			—
8- Hedged portion of other foreign currency risk (-) (RMB)		—			—		364			(364	)
9- Other foreign currency net effect (7+8)		(9,275	)		9,275		364			(364	)

Total (3+6+9)		(153,171	)		153,171		(32,845	)		32,845


Sensitivity analysis
31 December 2017
	Profit/(Loss)						Equity
	Appreciation of foreign currency			Depreciation of foreign currency			Appreciation of foreign currency		Depreciation of foreign currency
1- USD net asset/liability		23,400			(23,400	)		—		—
2- Hedged portion of USD risk (-)		—			—			—		—

3- USD net effect (1+2)		23,400			(23,400	)		—		—

4- EUR net asset/liability		(87,838	)		87,838			—		—
5- Hedged portion of EUR risk (-)		—			—			—		—

6- EUR net effect (4+5)		(87,838	)		87,838			—		—

7- Other foreign currency net asset/liability (RMB)		—			—			—		—
8- Hedged portion of other foreign currency risk (-) (RMB)		—			—			—		—
9- Other foreign currency net effect (7+8)		—			—			—		—

Total (3+6+9)		(64,438	)		64,438			—		—

Interest rate risk

As at 31 December 2018 and 2017 the interest rate profile of the Group’s variable rate interest-bearing financial instruments was:


			31 December 2018						31 December 2017
			Effective			Carrying			Effective			Carrying
			Interest			Carrying			interest			Carrying
	Note		Rate			Amount			rate			Amount
Variable rate instruments		28
USD floating rate loans				4.3	%		(4,589,157	)		3.2	%		(2,880,615	)
EUR floating rate loans				2.1	%		(6,975,890	)		2.1	%		(5,511,579	)

Sensitivity analysis

Cash flow sensitivity analysis for variable rate instruments:

An increase/decrease of interest rates by 100 basis points would have (decreased)/increased equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign exchange rates, remain constant. The analysis is performed on the same basis at 31 December 2018 and 2017:


	Profit or loss					Equity
	100 bps increase			100 bps decrease		100 bps increase		100 bps decrease
31 December 2018
Variable rate instruments (financial liability)		(234,196	)		234,196		—		—

Cash flow sensitivity (net)		(234,196	)		234,196		—		—

31 December 2017
Variable rate instruments (financial liability)		(83,922	)		83,922		—		—

Cash flow sensitivity (net)		(83,922	)		83,922		—		—

Fair values

Fair value of the Group’s financial assets and financial liabilities that are measured at fair value on a recurring basis

This section explains the judgements and estimates made in determining the fair values of the financial instruments that are recognized and measured at fair value in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Group has classified its financial instruments into the three levels prescribed under the accounting standards. An explanation of each level is as follows:

•

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

•

Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

•

Level 3 inputs are unobservable inputs for the asset or liability.

Valuation inputs and relationships to fair value

The following table summarizes the quantitative information about the significant unobservable inputs used in level 3 fair value measurement of contingent consideration,

Fair value at

Inputs

31 December

2018

31 December
2017

Unobservable

Inputs

31 December
2018

31 December
2017

Relationship of unobservable inputs to fair
value

Contingent consideration

358,304

323,691

Risk-adjusted discount rate

9,5%

4,8%

A change in the discount rate by 100 bps would increase/decrease FV by TL (13,582) and TL 14,250 respectively,

Expected settlement date

first quarter of 2023

first quarter of 2021

If expected settlement date changes by 1 year FV would increase/decrease by TL (31,047) and TL 33,896 respectively,

Changes in the consideration payable in relation to acquisition of Belarusian Telecom for the years ended 31 December 2018 and 31 December 2017 are stated below:


	2018		2017
Opening balance		323,691		295,062
Gains recognized in profit or loss		34,613		28,629

Closing balance		358,304		323,691

Financial assets:

Carrying values of significant portion of financial assets do not differ significantly from their fair values due to their short-term nature.

Financial liabilities:

Fair values of financial liabilities are assumed to approximate their carrying values due to their short term nature and floating interest rates.

As at 31 December 2018, the fair value of debt securities issued by the Company in 2015 with a nominal value of USD 500,000 and fixed interest rate (Note 28), is TL 2,380,855 (31 December 2017:2,063,972).

As at 31 December 2018, the fair value of debt securities issued by the Company in 2018 with a nominal value of USD 500,000 and fixed interest rate (Note 28), is TL 2,329,011 (31 December 2017:None).

Fair value of cash and cash equivalents and debt securities issued are classified as level 1 and fair value of other financial assets and liabilities are classified as level 2.