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Vestel Elektronik (VESD)

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Thursday 07 May, 2009

Vestel Elektronik

Final Results

RNS Number : 8803R
Vestel Elektronik Sanayi Ve Ticaret
07 May 2009
 












































VESTEL ELEKTRONİK SANAYİ VE

TİCARET ANONİM SİRKETİ

CONSOLIDATED

FINANCIAL STATEMENTS AT

31 DECEMBER 2008

TOGETHER WITH AUDITOR'S REPORT



  








INDEPENDENT AUDITOR'S REPORT 


To the Shareholders and Board of Directors of 

Vestel Elektronik Sanayi ve Ticaret A.Ş.


We have audited the accompanying consolidated financial statements of Vestel Elektronik Sanayi ve Ticaret A.S. and its subsidiaries listed under note 1 (the 'Group'), which comprise the consolidated balance sheet as at 31 December 2008, and the consolidated statements of income, changes in equity and cash flow for the year then ended and a summary of significant accounting policies and other explanatory notes. 



Management's responsibility for the financial statements 


Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. 



Auditor's responsibility 


Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. 


An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements 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 entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management as well as evaluating the overall presentation of the financial statements.


We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.


  











Conclusion


In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of 31 December 2008, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.



EREN Bağımsız Denetim ve Yeminli Mali Müsavirlik A.Ş.

Member Firm of GRANT THORNTON International







Aykut Halit

Partner




Istanbul10.04.2009




  

1


VESTEL ELEKTRONIK SANAYİ VE TİCARET A.Ş.

CONSOLIDATED BALANCE SHEETS

AT 31 DECEMBER 2008 AND 2007





(All amounts in thousands  of Turkish Lira ('TL') unless indicated otherwise.)

 

 

 

 


Note

2008

2007

 




ASSETS

 

 

 


 

 

 

Current assets

 

 

 

Cash and cash equivalents

6

343.148 

512.130 

Trade receivables

7

1.148.066 

1.134.997 

Inventories

8

786.513 

1.091.379 

Other assets

9

195.406 

203.431 

 

 

 

 

Total current assets


2.473.133 

2.941.937 

 




Non-current assets




Trade receivables


1.349 

6.441 

Financial assets available-for-sale

10

794 

1.713 

Property, plant and equipment

11

1.016.997 

1.023.279 

Intangible assets

12

349.872 

301.844 

Other assets


23.790 

19.446 

Deferred tax asset

17

65.818 

42.304 

 

 

 

 

Total non-current assets


1.458.620 

1.395.027 

 




Total assets

 

3.931.753 

4.336.964 

 




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

  

2





VESTEL ELEKTRONIK SANAYİ VE TİCARET A.Ş.

CONSOLIDATED BALANCE SHEETS

AT 31 DECEMBER 2008 AND 2007





(All amounts in thousands of Turkish Lira ('TL') unless indicated otherwise.)






Note

2008

2007

 




LIABILITIES AND EQUITY








Current liabilities




Borrowings

13

306.894 

236.948 

Trade payables

14

1.995.187 

2.062.835 

Taxation on income

17

587 

11.642 

Provision for expenses

15

99.753 

58.474 

Other liabilities

16

108.626 

109.433 

 

 

 

 

Total current liabilities


2.511.047 

2.479.332 

 




Non-current liabilities




Borrowings

13

406.900 

425.417 

Trade payables


1.351 

--

Employee termination benefits

18

17.883 

19.208 

Provision for expenses

15

12.617 

11.700 

Other liabilities


63 

112 

Deferred tax liability

17

62.409 

56.841 

 

 

 

 

Total non-current liabilities


501.223 

513.278 

 




Equity




Share capital

19

593.218 

576.862 

Translation reserve

 

17.695 

23.724 

Minority interest

 

136.374 

142.788 

General reserves

20

172.196 

600.980 

 

 

 

 

Total equity


919.483 

1.344.354 

 




Commitments and contingencies

21



 




Total liabilities and equity

 

3.931.753 

4.336.964 

 




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

  


3





VESTEL ELEKTRONIK SANAYİ VE TİCARET A.Ş.

CONSOLIDATED INCOME STATEMENTS

FOR THE YEARS ENDED 31 DECEMBER 2008 AND 2007

 

 

 

 

(All amounts in thousands of Turkish Lira ('TL') unless indicated otherwise.)

 

 

 

 

 

Note

2008

2007

 

 

 

 

Revenue

 

4.693.941 

4.627.011 

Cost of sales

 

(3.795.280)

(4.101.699)

 

 

 

 

Gross profit

 

898.661 

525.312 

 

 

 

 

Warranty expenses

 

(48.640)

(35.612)

Selling expenses

 

(427.807)

(417.484)

General and administrative expenses

 

(219.383)

(168.913)

Other income

23

65.896 

49.857 

Other expense

23 

(28.766)

(48.120)

 

 

 

 

Operating profit /(loss)

 

239.961 

(94.960)

 

 

 

 

Financing income

24 

1.004.134 

849.227 

Financing expense

24 

(1.651.306)

(692.472)

 

 

 

 

Profit / (loss) before taxation

 

(407.211)

61.795 

 

 



Taxation on income

17 

4.499 

(30.929)

 

 

 

 

Net profit (loss) for the year

 

(402.712)

30.866 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

Equity holders of the Company

 

(411.509)

14.662 

Minority interest

 

8.797 

16.204 

 

 

 

 

Net profit (loss) for the year

 

(402.712)

30.866 

 

 

 

 

Basic and fully diluted earnings (loss)  per share - TL

 

(0,02)

0,00 

 

 

 

 

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


  


4


VESTEL ELEKTRONIK SANAYİ VE TİCARET A.Ş.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED 31.12.2008 AND 2007


(All amounts in thousands of Turkish Lira ('TL') unless indicated otherwise.)

 

 

Share
 capital

Translation reserve

General reserves

Minority interest

Total
 equity

Balance at 01.01.2007

576.862 

29.782 

585.286 

130.253 

1.322.183 







Translation differences

--

(6.058)

--

247 

(5.811)

Change in minority interest

--

--

914 

(914)

--

Acquisition of subsidiary

--

--

(117)

5.410 

5.293 

Gain on investments taken to equity

--

--

235 

--

235 

Dividends paid

--

--

--

(8.412)

(8.412)

Net profit for the year

--

--

14.662 

16.204 

30.866 

 

 

 

 

 

 

Balance at 31.12.2007

576.862 

23.724 

600.980 

142.788 

1.344.354 







Share capital increase

16.356 

--

(16.356)

--

--

Translation differences

--

(6.029)

--

(639)

(6.668)

Change in minority interest

--

--

--

(477)

(477)

Loss on investments taken to equity

--

--

(919)

--

(919)

Dividends paid

--

--

--

(14.095)

(14.095)

Net profit (loss) for the year

--

--

(411.509)

8.797 

(402.712)

 






Balance at 31.12.2008

593.218 

17.695 

172.196 

136.374 

919.483 







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


  

5





VESTEL ELEKTRONIK SANAYİ VE TİCARET A.Ş.

CONSOLIDATED CASH FLOW STATEMENTS

FOR THE YEARS ENDED 31.12.2008 AND 2007

 

(All amounts in thousands of Turkish Lira ('TL') unless indicated otherwise.)





 

Note

2008

2007





Profit (loss) before taxation


(407.211)

61.795 





Adjustment to reconcile profit (loss) before taxation to net 
 cash provided from operating activities:

25

312.756 

270.741 


 

 

 

Operating (loss) profit before changes in working capital


(94.455)

332.536 





Changes in operating assets and liabilities

25

188.029 

153.969 

Taxes paid


(21.137)

(34.683)


 

 

 

Net cash provided by operating activities


72.437 

451.822 





Cash flows from investing activities




Purchases of financial assets available-for-sale 


--

(3.892)

Purchases of property, plant and equipment


(120.304)

(162.124)

Purchases of intangible assets


(80.903)

(50.459)

Proceeds from sale of property, plant and equipment


12.138 

2.498 


 

 

 

Net cash used in investing activities


(189.069)

(213.977)





Cash flows from financing activities




Changes in current borrowings


61.268 

(296.249)

Changes in non-current borrowings


(18.517)

30.758 

Interest received


37.799 

37.284 

Interest paid


(68.218)

(80.801)

Dividends paid


(14.095)

(8.412)


 

 

 

Net cash used in financing activities


(1.763)

(317.420)





Translation differences


(50.784)

7.021 





Net decrease in cash and cash equivalents


(169.179)

(72.554)

Cash and cash equivalents at beginning of year


512.130 

584.684 





Cash and cash equivalents at end of year

 

342.951

512.130 





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



 

1.        ORGANISATION AND NATURE OF ACTIVITIES
 
Vestel Elektronik Sanayi ve Ticaret Anonim Sirketi (the “Company” or “Vestel Elektronik”) was founded in March 1983 under the name of Ferguson Elektronik Sanayi ve Ticaret A.Ş. under the Turkish Commercial Code and was registered in İstanbul, Turkey. The name was changed to Star Elektronik Sanayi ve Ticaret A.Ş. during the same year. In April 1984 Polly Peck Group acquired the Company and changed its name to Vestel Elektronik Sanayi ve Ticaret Anonim Sirketi which has been its current name. In 1990 18% of the Company’s shares were issued to the public at the Istanbul Stock Exchange. The Company has been operating under the Foreign Capital regulations in Turkey since July 1985. In 1991 Polly Peck Group transferred all of its shares to one of its subsidiaries named Collar Holding BV based in the Netherlands and in the same year, following the collapse of the Polly Peck Group, the Company was placed in administration. In November 1994 Ahmet Nazif Zorlu acquired the Company from the administrator of the Polly Peck Group by buying the entire share capital of Collar Holding BV which at the time held 82% of the Company’s issued share capital.
 
The registered office address of the Company is located at Ambarli, Petrol Ofisi Dolum Tesisleri Yolu, Zorlu Plaza, Avcilar / Istanbul- Turkey
 
For the purpose of the consolidated financial statements, the Company and its consolidated subsidiaries are referred to as the “Group”.
 
Nature of Activities of the Group
 
The Group is organized into three product divisions given below;
 
A.    Television production:
 
Vestel Elektronik Sanayi ve Ticaret A.Ş.
The Company is mainly engaged in the production of colour televisions. The Company’s production facilities are located in Manisa industrial site (Aegean Region, Turkey). As of the balance sheet date, production capacity for colour televisions was 14.000.000 (2007: 19.000.000) units per year respectively.
 
B.    Refrigerator, air conditioning units, washing machines and cookers
 
Vestel Beyaz Esya Sanayi ve Ticaret A.Ş.. (“Vestel White”)
Vestel White started working actively in 1999 and has been engaged in the production of refrigerators, room air conditioning units, washing machines and cookers. Vestel White’s production facilities are located in Manisa industrial site (Aegean Region, Turkey). As of the balance sheet date, production capacity for refrigerators, room air conditioning units, washing machines, cooker and dishwasher unit was 3.700.000, 600.000, 2.700.000, 1.250.000 and 500.000 (2007: 3.000.000, 700.000, 2.000.000, 1.500.000 and 500.000) units per year respectively.
 
Vestel CIS
During 2005, Vestel CIS commenced construction of white goods production facilities and started production by end of 2005.
 
C. Digital Devices                                                                 
 
Vestel Komünikasyon Sanayi ve Ticaret A.Ş.. (“Vestel Kom”)
Vestel Kom is engaged in the production of electronic devices. Vestel Kom’s production facilities are primarily located in İzmir Aegean free zone industrial site.
 
Vestel Dijital Üretim Sanayi A.Ş.. (“Vestel Dijital”)
Vestel Dijital is engaged in the production of electronic devices. Vestel Dijital’s production facilities are located in Manisa industrial site. As of the balance sheet date, production capacity for digital devices, computer and panel was 11.260.000 (2007: 5.260.140) units per year.
Vestel Elektronik has always exercised effective control over the management of each of the companies included in the group consolidation.
 

 
 
2008
2007
Consolidated company
Location
Ownership interest
Economic interest
Ownership interest
Economic interest
 
 
 
 
 
 
Vestel Beyaz Eşya Sanayi ve Ticaret A.Ş.
Turkey
72,6
72,6
72,6
72,6
Vestel Komünikasyon Sanayi ve Ticaret A.Ş.
Turkey
99,4
99,3
99,4
99,3
Vestel Dış Ticaret A.Ş.
Turkey
99,7
99,7
99,7
99,7
Vestel Dayanıklı Tüketim Malları Pazarlama A.Ş.
Turkey
100,0
100,0
100,0
100,0
Vestel CIS Ltd.
Russia
100,0
100,0
100,0
100,0
Deksar Multimedya ve Telekomünikasyon A.Ş.
Turkey
99,9
99,9
99,9
99,9
Vestel Savunma Sanayi A.Ş.
Turkey
30,0
29,9
30,0
29,9
Aydın Yazılım Elektronik ve Sanayi A.Ş.
Turkey
60,0
18,0
60,0
18,0
Vestel Iberia SL 
Spain
100,0
99,7
100,0
99,7
Vestel France SA
France
99,9
99,5
99,9
99,5
Vestel Italy SRL
Italy
100,0
99,7
51,0
50,8
Vestel Holland BV
Holland
100,0
99,7
100,0
99,7
Veseg Video Handelsgesellschaft GmbH
Germany
100,0
99,7
100,0
99,7
Cabot Communications Ltd.
UK
90,8
90,9
90,8
90,9
Vestel Benelux BV
Holland
51,0
50,8
51,0
50,8
Vestel UK Ltd.
UK
100,0
99,7
100,0
99,7
Cabot İzmir Donanım Sanayi ve Ticaret A.Ş.
Turkey
58,0
52,7
58,0
52,7
Vestel Dijital Üretim Sanayi A.Ş.
Turkey
99,8
99,3
99,8
99,3
Electronics Outlet SRL
Italy
100,0
99,7
100,0
50,8
Vestek Elektronik Araştırma Geliştirme A.Ş.
Turkey
94,0
94,0
94,0
94,0
Vestel Trade Ltd.
Russia
100,0
100,0
100,0
100,0
Birim Bilgi Teknolojileri Ticaret A.Ş.
Turkey
45,0
45,0
45,0
45,0
OY Vestel Scandinavia AB
Finland
100,0
99,7
100,0
99,7
Deksarnet Telekominikasyon A.Ş.
Turkey
99,9
99,9
99,9
99,9
Intertechnika LLC
Russia
99,9
99,9
99,9
99,9
 
Vestel Savunma Sanayi A.Ş., Aydin Yazılım Elektronik Sanayi ve Ticaret A.Ş. and Birim Bilgi İşlem ve Müşavirlik Ticaret A.Ş. with group shares of respectively 29,9%, 18% and 45% are consolidated because they are under the effective control and management of the Group.
 
The consolidated financial statements for the year ended 31 December 2008 (including comparatives) were approved by the board of directors on 10.04.2009.

2.        BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS
 
The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as developed and published by the International Accounting Standards Board (“IASB”).
               
The Company, which is quoted at the İstanbul Stock Exchange, maintains its books of account and prepares its statutory financial statements in accordance with the Turkish Commercial Code, accounting policies prescribed by the Turkish Capital Markets Board and tax legislation and since 1994 has adopted the Uniform Chart of Accounts issued by the Ministry of Finance (collectively “Turkish Practices”). Its subsidiaries which are incorporated in Turkey maintain their books of account and prepare their statutory financial statements in accordance with the Turkish Commercial Code and Tax Legislation and the Uniform Chart of Accounts issued by the Ministry of Finance. The foreign subsidiaries maintain their books of account and prepare their statutory financial statements in their local currencies and in accordance with the regulations of the countries in which they operate. The financial statements of overseas subsidiaries are converted into Turkish Lira (TL) by closing rate method. The consolidated financial statements have been prepared from statutory financial statements of the Company and its subsidiaries and presented in Turkish Lira (TL) with adjustments and reclassifications for the purpose of fair presentation in accordance with IFRS. Such adjustments mainly comprise deferred taxation, employee termination benefits, fixed assets and borrowing costs, receivables, interest expense accruals on bank loans. 
 
2.1 Measurement currency and reporting currency
The financial statements have been prepared under the historical cost convention, other than financial assets which are stated at fair value.
 
The restatement for the changes in the general purchasing power of TL as of 31 December 2005 is based on IAS 29 (“Financial Reporting in Hyperinflationary Economies”). IAS 29 requires that financial statements prepared in the currency of a hyperinflationary economy be stated in terms of the measuring unit current at the balance sheet date and the corresponding figures for previous periods be restated in the same terms. One characteristic (but not limited to) that necessitates the application of IAS 29 is a cumulative three year inflation rate approaching or exceeding 100%. As of 31 December 2005, the three year cumulative rate was 36% (31 December 2004: 70% - 31 December 2003: 181%) based on the Turkish countrywide wholesale price index published by the State Institute of Statistics.
 
As from 1 January 2006 it has been decided to discontinue the adjustment of financial statements for inflation after taking into account that hyperinflation period has come to an end as indicated by existing objective criteria and that other signs indicating the continuance of hyperinflation have largely disappeared.
 
The effects of ending the adjustments for inflation on financial statements are summarized as follows:
 
The financial statements as of 31 December 2006, 2007 and 2008 have not been subjected to any inflation adjustment whereas the financial statements for previous periods have been adjusted for inflation on basis of the measuring unit current at the preceding balance sheet date namely 31 December 2005.
 
Together with the ending of the hyperinflationary period the balances adjusted for inflation as of the last preceding balance sheet date form the opening balances of the assets, liabilities and equity accounts as of 1 January 2006.
 
According to the law numbered 5083 related to the currency of Republic of Turkey and the decision of the Council of Ministers dated 04.04.2007 numbered 2007/11963 the expression of “new” has been cancelled on New Turkish Lira and New Kurush effective from 01.01.2009. After this conversion 1 New Turkish Lira is held equal to 1 Turkish Lira and 1 New Kurush is held equal to 1 Kurush. All laws, legislations, administrative and legal transactions, court decisions, commercial papers and all kind of documents referencing New Turkish Lira will be considered in Turkish Lira with the conversion rate mentioned above. Beginning from 01.01.2009, in the presentation of financial statements New Turkish Lira has been replaced by Turkish Lira. In the attached financial statements, this conversion has been made retrospectively for convenience purposes.


 

2.2Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Company
 
At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the Company.
Interpretations effective in January 2008 but not relevant:
 
·    IFRIC 11, “IFRS 2 – Group and treasury share transactions”
 
·    IFRIC 12, “Service concession arrangements”
 
·    IFRIC 13, “Customer loyalty programmes”
 
·    IFRIC 14, “IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction”
 
(a) Standards, amendments and interpretations effective in January 2009 but not early adopted by the Company:
 
·    IFRIC 15, “Agreements for construction of real estates”
 
·    IFRIC 16, “Hedges of a net investment in a foreign operation”
 
·    IAS 1 (Revised), “Presentation of financial statements”
 
·    IAS 23 (Amendment), ‘Borrowing costs”, Capitalisation of Borrowing Costs
 
·    IAS 32 (Amendment), “Financial instruments: Presentation”, and IAS 1 (Amendment), “Presentation of financial statements” – “Puttable financial instruments and obligations arising on liquidation”
 
·    IAS 39 (Amendment), “Financial instruments: Recognition and measurement”
 
·    IFRS 1 (Amendment), “First time adoption of IFRS”
 
·    IFRS 2 (Amendment), “Share-based payment”
 
·    IFRS 8 “Operating segments”
 
(b) Standards, amendments and interpretations effective in July 2009 but not early adopted by the Company:
 
·    IAS 27 (Revised), “Consolidated and separate financial statements”
 
·    IAS 28 (Amendment), “Investments in associates”
 
·    IAS 31 (Amendment), ‘Interests in joint ventures”
 
·    IFRS 3 (Revised), “Business combinations”
 
·    IFRS 5 (Amendment), “Non-current assets held-for-sale and discontinued operations”
 
Management of the Company anticipates that all of the pronouncements detailed in (a) and (b) above will be adopted in the Company's accounting policy for the first period beginning after the effective date of the pronouncement. Management of the Company has decided that these new standards and interpretations have been issued but are not expected to have a material impact on the Company's financial statements.
 
2.3 Comparable financial information and reclassification of prior period financial statements
The balance sheets with the accompanying notes as of 31.12.2008 and 31.12.2007 and statement of income, cash flow and changes in equity with the accompanying notes for the year ended 31.12.2008 and 31.12.2007 are presented as comparatively.
 
For the compatibility of the current financial statements these financial statements are reclassified if necessary.
2.4 Critical accounting estimates, assumptions and judgments
The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. These estimates are reviewed periodically and as adjustments become necessary they are reported in earnings in the periods in which they become known.
 
The key assumption concerning the future and other key sources of estimation uncertainty at the balance sheet date and the significant judgments with the most significant effect on amounts recognized in the financial statements are set out below:
 
- Allowance for doubtful debts reflect the amount set aside for the losses in the future related to receivables which exist the balance sheet date but which, in the opinion of the management carry the risk of collection due to current economic conditions. When evaluating whether receivables has suffered a loss in value the past performance of the debtors, their credibility in the market and their performance between the balance sheet date and report date together with changed circumstances are taken in the considerations. In addition the collaterals existing as balance sheet date together with new collaterals obtained between the balance date and report date are also taken into consideration. The allowance for doubtful receivables as of the balance sheet dates are explained under note 7.
 
- When setting aside the provision for legal claims the probability of loosing the related case and the results to expect to be suffered in the event that the legal counsel of the Group and management of the Group make their best estimates to calculate the provision required under note 21.
 
- As for the diminution in value of stocks, all stocks are subjected to review and their usage possibility ascertained on basis of the opinion of the technical personnel; provisions are set aside for items expected not to have usage possibility. Calculation of net realizable values of stocks is based on selling prices as disclosed by selling price lists after deduction for average discounts given during the year and selling expenses to be incurred for the realization of stocks. If the net realizable value of any stock falls under its cost price appropriate provisions are therefore set aside.
 
- In accordance with the accounting policy outlined under note 3 goodwill is reviewed every year for impairment; if circumstances call for it this review for impairment is made at more frequent intervals. The recoverable value of cash generating units is ascertained on basis of their value in use. Calculations have been made in this respect and these revealed an impairment in value of TL 3.470 (2007 – nil).
 
- Property, plant and equipment and intangible assets held for use in the production or supply of goods or services, or for administrative purposes, are stated in the balance sheet at cost, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. The Group estimates that the useful lives of tangible and intangible assets. Depreciation is charged using the straight line basis over the useful lives which depend on the best estimation of the management. Useful lives of property, plant and equipment and intangible assets are reviewed at each balance sheet dates and make changes if necessary.
 
- Deferred tax assets are accounted for only where it is likely that related temporary differences and accumulated losses will be recovered through expected future profits. When accounting for deferred tax losses it is necessary to make important estimations and evaluations with regard to taxable profits in the future periods. As mentioned under note 17 the related companies of the Group included in the consolidated statements have taxable losses of TL 139.720 (2007 – 36.155) carried forward to future periods and deferred tax assets have been calculated on basis of the expectation that taxable profits will be created in future periods.
 
2.5 Offsetting
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to set off the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.

3.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
The significant accounting policies followed in the preparation of the accompanying financial statements are summarized below:
 
Group accounting
 
Subsidiary undertakings
The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company. Control is achieved where the company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities.
 
On acquisition, assets and liabilities of a subsidiary are measured at their fair values at the date of acquisition. The interest of minority shareholders is stated at the minority’s proportion of their fair values of the assets and liabilities recognized.
 
The balance sheet and income statement of the subsidiaries are consolidated on a line by line basis, and the carrying value of the investment held by the Company is eliminated against related equity and reserves accounts.
 
All significant inter-company transactions and balances between group enterprises are eliminated on consolidation.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
 
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the Group.
 
Foreign currency translations
 
Foreign currency transactions and translation - Transactions in foreign currencies during the period have been translated into TL at the exchange rates prevailing at dates of these transactions. Balance sheet items denominated in foreign currencies have been translated at the exchange rates prevailing at the balance sheet dates. Exchange gains or losses arising from settlement and translation of foreign currency items have been included in the income or expense accounts as appropriate.
 
 
The foreign exchange rates used by the Company are as follows:
 

 
2008
2007
 
 
 
US Dollar
1,5123
1,1647
EURO
2,1408
1,7102
 
Foreign entities - Foreign consolidated subsidiaries are regarded as foreign entities since they are financially, economically and organizationally autonomous. Their reporting currencies are the respective local currencies. Financial statements of foreign consolidated subsidiaries are translated at year-end exchange rates with respect to the balance sheet and at exchange rates at the dates of the transactions with respect to the income statement. All resulting translation differences between the closing balances and opening balances due to the difference in inflation and devaluation are included in currency translation adjustment in equity.
 
 
 
Property, plant and equipment
Property, plant and equipment held for use in the production or supply of goods or services, or for administrative purposes, are stated in the balance sheet at cost, restated in equivalent purchasing power at 31 December 2005 less any subsequent accumulated depreciation and subsequent accumulated impairment losses.
 
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. The recoverable amount of property, plant and equipment is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
 
Property, plant and equipment in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less any identified impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalized in accordance with the Company’s accounting policy. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.
 
Depreciation is charged so as to write off the cost or valuation of assets, other than land and properties under construction, over their estimated useful lives, using the straight line basis over the following years stated below:
 


 
Years
 
 
Land improvements
10 to 20
Buildings
25 to 50
Machinery, equipment and moulds
10 to 15
Furniture and fixtures
 5 to 12
Motor vehicles
 5 to 10
 
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in income.
 
Leases
 
Finance lease - Assets held under finance leases are recognized as assets of the Company at their fair value at the date of acquisition. The corresponding liability to the Company is included in the balance sheet as a finance lease obligation. Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are charged to the income statement over the term of the relevant lease so as to produce a constant periodic rate of interest on the remaining balance of the liability for each accounting period.
 
Operating lease - Leases of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease payments on operating lease are recognized as an expense on a straight-line basis over the lease term.

 
Intangible assets
 
Goodwill – Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of Vestel Dayanıklı Tüketim Malları ve Pazarlama A.Ş., Vestel Dış Ticaret A.Ş., Vestel Komünikasyon Sanayi ve Ticaret A.Ş. and Vestel Beyaz Eşya Sanayi veTicaret A.Ş. at the date of acquisition. Goodwill is initially recognized as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.
 
On disposal of a subsidiary the attributable amount of unamortized goodwill is included in the determination of the profit or loss on disposal.
 
Research and development costs – Research expenditure is recognized as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognized as intangible assets to the extent that the expenditure is expected to generate future economic benefits. Development costs that have been capitalized are amortized on straight line basis over 3 - 5 years which is the estimated period over which technology is expected to lead the market and have commercial value. The carrying values of capitalized research and development expenditure are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.
 
Other intangible assets – These are amortized using the straight line basis over their useful lives which vary between 5 to 10 years.
 
Impairment of intangible assets – Where an indication of impairment exists, the carrying amount of any intangible asset including goodwill is assessed and written down immediately to its recoverable amount.
 
 
Financial assets
Financial assets other than hedging instruments are divided into the following categories:
 
• available-for-sale financial assets
• held-to-maturity investments.
 
Financial assets are assigned to the different categories on initial recognition, depending on the characteristics of the instrument and its purpose. A financial instrument's category is relevant for the way it is measured and whether any resulting income and expenses is recognised in profit or loss or directly in equity.
 
Generally, the Group recognises all financial assets using settlement day accounting. An assessment of whether a financial asset is impaired is made at least at each reporting date. All income and expense relating to financial assets are recognised in the income statement line item 'finance costs' or 'finance income', respectively.
 
Available-for-sale financial assets are non-derivative financial assets that do not qualify for inclusion in any of the other categories of financial assets. The Group’s available-for-sale financial assets include unconsolidated investments and a listed security.
 
The fair value of listed security, Zorlu Enerji Elektrik Üretim A.Ş., is based on current bid prices at the balance sheet date. Unconsolidated investments which are not quoted at any stock exchange are reported at cost less any impairment charges, as its fair value can currently not be reliably estimated.
 
Gains and losses arising from financial instruments classified as available-for-sale are only recognised in profit or loss when they are sold or when the investment is impaired. In the case of impairment, any loss previously recognised in equity is transferred to the income statement. Losses recognised in the income statement on equity instruments are not reversed through the income statement but charged to equity. Losses recognised in prior period consolidated income statements resulting from the impairment of debt securities are reversed through the income statement, if the subsequent increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss.
 
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity. Investments are classified as held-to-maturity if it is the intention of the Group's management to hold them until maturity. The Group currently holds time deposits that fall into this category.
 
Held-to-maturity investments are subsequently measured at amortized cost using the effective interest method. In addition, if there is objective evidence that the investment has been impaired, the financial asset is measured at the present value of estimated cash flows. Any changes to the carrying amount of the investment are recognized in profit or loss.
 
Inventories
Inventories are stated at the lower of cost and net realizable value. Costs comprise direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition but excludes borrowing cost. Cost is calculated by using the weighted averagemethod. Net realizable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marketing, selling and distribution.
 
Trade receivables
Trade receivables are measured at initial recognition at fair value and are subsequently measured at amortized cost using the effective interest rate method to set an allowance for unearned interest. Appropriate allowances for estimated irrecoverable amounts are recognized in profit or loss when there is objective evidence that the asset is impaired. The allowance recognized is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.
 
Trade payables
Trade payables are initially measured at fair value and are subsequently measured at amortized cost using the effective interest rate method to set an allowance for unearned interest.
 
Related parties
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making the financial and operating decisions. For the purpose of these financial statements shareholders are referred to as related parties. Related parties also include individuals that are principle owners, management and members of the Company's Board of Directors and their families. In the course of conducting its business, the Company conducted various business transaction with related parties on commercial terms (see note 26).
 
Bank borrowings
Interest-bearing bank loans and overdrafts are recognized at fair value at initial recognition which equate to the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption, are accounted for on an accruals basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
 


 

Recognition and derecognition of financial instruments
The Company recognizes a financial asset or financial liability in its balance sheet when and only when it becomes a party to the contractual provisions of the instrument. The Company derecognizes a financial asset or a portion of a financial asset when and only when it loses control of the contractual rights that comprise the financial asset or a portion of a financial asset or when a financial asset or a portion of a financial asset expires. The Company derecognizes a financial liability when and only when a liability is extinguished and that is when the obligation specified in the contract is discharged, cancelled and expires.
 
Commitments and contingencies
Transactions that may give rise to contingencies and commitments are those where the outcome and the performance of which will be ultimately confirmed only on the occurrence or non occurrence of certain future events, unless the expected performance is not very likely. Accordingly, contingent losses are recognized in the financial statements if a reasonable estimate of the amount of the resulting loss can be made. Contingent gains are reflected only if it is virtually certain that the gain will be realized.
 
Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group.
 
The Group manufactures and sells a range of television sets and monitors, electronic devices and white goods in the wholesale market. Sales of goods are recognized when a group entity has delivered products to the wholesaler, the wholesaler has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the wholesaler’s acceptance of the products. Delivery does not occur until the products have been shipped to the specified location, the risks of obsolescence and loss have been transferred to the wholesaler, and either the wholesaler has accepted the products in accordance with the sales contract, the acceptance provision have lapsed, or the Group has objective evidence that all criteria for acceptance have been satisfied.
 
Other revenues earned by the Company are recognized on the following bases:
Rental income – on an accrual basis.
Interest income – on an effective yield basis.
 
Income taxes
Tax expense (income) is the aggregate amount included in the determination of net profit or loss for the period in respect of current and deferred tax.
 
Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognized for all taxable temporary differences.
 
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
 


 

Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the cost of those assets. All other borrowing costs are recognized in net profit or loss in the period in which they are incurred.
 
Employee termination benefits
Under Turkish labour law, the Company and its Turkish subsidiaries are required to pay termination benefits to each employee who has completed one year of service and whose employment is terminated without due cause, or who retires in accordance with social insurance regulations or is called up for military service or dies. The reserve for retirement pay is made for the maximum amount payable to employees, based on their accumulated period of service at the balance sheet date.
                                                                    
Provisions
 
Warranty provision– The Company recognizes the estimated liability to repair or replace products still under warranty at the balance sheet date. The provision is calculated based on past history of level of repairs and replacements.
 
Other provisions - Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Company expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain.
 
Earnings per share
Earnings per share (“EPS”) disclosed in the income statements are determined by dividing net income by the weighted average number of shares that have been outstanding during the related year or period and taking into account bonus issues and right issues. There is no difference between basic and diluted earnings per share for any class of shares for any of the years.
 
Cash and cash equivalents
For the purpose of cash flow statement, cash and cash equivalents comprise cash in hand; deposits with banks and other financial institutions with the original maturity of three months or less.
 
 
4.        EARNINGS PER SHARE
 

 
2008
2007
 
 
 
Net profit attributable to shareholders
(402.712)
30.866
Weighted average number of ordinary shares in issue('000)
17.545.628
17.545.628
 
 
 
Basic and diluted earnings per share - TL
(0,02)
0,00
 
5.         SEGMENT INFORMATION
 
The Group is currently organized into three major production divisions. The basis on which the Group reports its primary segment information is as follows:
 
Television and monitor       :Produced by Vestel Elektronik Sanayi ve Ticaret A.Ş. (Manisa/Turkey).
                                           
Electronic devices             :Produced by Vestel Komünikasyon Sanayi ve Ticaret A.Ş. (Izmir/Turkey).
                                         Produced by Vestel Dijital Üretim Sanayi A.Ş.. (Manisa/Turkey).
 
White Goods                    :Produced by Vestel Beyaz Eşya Sanayi ve Ticaret A.Ş.(Manisa/Turkey).
                                         Produced by Vestel CIS (Vladimir Region/Russia)
 
The segment results for the year ended 31.12.2008 are as follows:
 

 
Television and electronic devices
White
goods
Other
Total
 
 
 
 
 
Revenue
3.022.033
1.555.423
116.485
4.693.941
Cost of sales
(2.442.747)
(1.239.501)
(113.032)
(3.795.280)
 
 
 
 
 
Gross profit
579.286
315.922
3.453
898.661
 
Other segment items included in the income statement:
 

Depreciation
92.184
54.808
11.035
158.027
Amortisation
16.241
6.792
7.011
30.044
Impairment of inventory
14.912
2.838
890
18.640
 
 
 
 
 
 
123.337
64.438
18.936
206.711
 
The segment results for the year ended 31.12.2007 are as follows:
 

Revenue
2.971.923
1.373.990
281.098
4.627.011
Cost of sales
(2.711.757)
(1.139.736)
(250.206)
(4.101.699)
 
 
 
 
 
Gross profit
260.166
234.254
30.892
525.312
 
Other segment items included in the income statement:
 

Depreciation
94.853
43.457
9.006
147.316
Amortisation
5.192
1.204
8.712
15.108
Impairment of inventory
10.177
1.708
(146)
11.739
 
 
 
 
 
 
110.222
46.369
17.572
174.163
 


 

The segment assets and liabilities as of the balance sheet dates and capital expenditure for the year then ended are as follows:
 

 
Television and electronic devices
White
goods
Other
Total
 
 
 
 
 
2008
 
 
 
 
Trade receivables
910.342
203.857
35.216
1.149.415
Inventories
435.464
345.881
5.168
786.513
Property, plant and equipment
495.053
512.189
9.755
1.016.997
Intangible assets
153.499
179.823
16.550
349.872
Unallocated assets
 
 
 
628.956
 
 
 
 
 
Total assets
 
 
 
3.931.753
 
 
 
 
 
Trade payables
1.498.926
363.554
134.058
1.996.538
Unallocated liabilities
 
 
 
1.015.732
 
 
 
 
 
Total liabilities
 
 
 
3.012.270
 
 
 
 
 
Capital expenditure
104.861
55.622
40.724
201.207
 
 
 
 
 
 
 
 
 
 
2007
 
 
 
 
Trade receivables
898.000
217.678
25.760
1.141.438
Inventories
802.124
283.125
6.130
1.091.379
Property, plant and equipment
532.778
484.850
5.651
1.023.279
Intangible assets
153.270
146.326
2.248
301.844
Unallocated assets
 
 
 
779.024
 
 
 
 
 
Total assets
 
 
 
4.336.964
 
 
 
 
 
Trade payables
1.734.861
291.455
36.519
2.062.835
Unallocated liabilities
 
 
 
929.775
 
 
 
 
 
Total liabilities
 
 
 
2.992.610
 
 
 
 
 
Capital expenditure
108.277
80.622
24.500
213.399
 
 
 
 


 

Segment assets and liabilities are reconciled to entity assets and liabilities as follows:
 

 
2008
2007
 
Assets
Liabilities
Assets
Liabilities
 
 
 
 
 
Cash and cash equivalents
343.148
--
512.130
--
Deferred tax
65.818
62.409
42.304
56.841
Other assets
219.196
--
222.877
--
Financial assets available-for-sale
794
--
1.713
--
Current tax
--
587
--
11.642
Current borrowings
--
306.894
--
236.948
Non-current borrowings
--
406.900
--
425.417
Employee termination benefits
--
17.883
--
19.208
Provisions
--
112.370
--
70.174
Other liabilities
--
108.689
--
109.545
 
 
 
 
 
 
628.956
1.015.732
779.024
929.775
 
 


 

Geographical segments:
 

Segment assets
2008
2007
 
 
 
Turkey
2.601.381
2.897.173
Europe
981.371
1.176.231
Russia
349.001
263.560
 
 
 
 
3.931.753
4.336.964
 

Revenue
 
 
Turkey
1.154.485
1.213.326
Europe
3.153.745
3.172.222
Rest of the world
385.711
241.463
 
 
 
 
4.693.941
4.627.011
 

Capital expenditure on property plant and equipment
 
 
Turkey
110.267
132.212
Europe
692
841
Asia
9.345
29.071
 
 
 
 
120.304
162.124
 

Capital expenditure on intangible assets
 
 
Turkey
79.138
48.149
Europe
1.765
2.310
Asia
--
816
 
 
 
 
80.903
51.275
 

Depreciation expenses of property plant and equipment
 
 
Turkey
147.634
143.053
Europe
902
901
Asia
9.491
3.362
 
 
 
 
158.027
147.316
 

Depreciation expenses of intangible assets
 
 
Turkey
28.618
14.465
Europe
1.426
643
Asia
--
--
 
 
 
 
30.044
15.108
 
 
6.        CASH AND CASH EQUIVALENTS
 

 
2008
2007
 
 
 
Cash at bank and in hand
158.403
175.972
Time deposits
181.843
320.385
Other
2.902
15.773
 
 
 
Cash and cash equivalents
343.148
512.130
Bank overdrafts (-)
(197)
--
 
 
 
 Cash and cash equivalents presented in cash flow statement
342.951
512.130
 
Time deposit accounts mature in January 2009 (2007: January 2008).
 
 
 
7.        TRADE RECEIVABLES
 

Current
 
 
Current accounts
 
 
 - Third parties
849.838
858.055
 - Related parties, note 26
13.931
15.799
Notes receivable
 
 
 - Third parties
333.937
296.505
Others
274
4.364
 
 
 
 
1.197.980
1.174.723
Unearned interest on receivables (-)
(20.738)
(19.058)
Allowance for doubtful receivables (-)
(29.176)
(20.668)
 
 
 
 
1.148.066
1.134.997
 
Movement of doubtful receivables is given below:
 

Beginning balance
20.668
13.739
Charge for the period
9.653
8.251
Amounts utilized during the year
(1.548)
(1.322)
Translation differences
403
--
 
 
 
Ending balance
29.176
20.668
 
 
 
 
8.        INVENTORIES
 

 
2008
2007
 
 
 
Raw materials
391.062
585.278
Work in process
35.363
45.793
Finished goods and merchandise
385.758
468.968
Other
13.264
11.634
 
 
 
 
825.447
1.111.673
Provision for diminution in value (-)
 
 
 Raw materials
(18.007)
(10.439)
 Finished goods and merchandise
(20.927)
(9.855)
 
 
 
 
786.513
1.091.379
 
Movement of allowance for diminution in value of inventories is as follows:
 

Beginning balance
20.294
8.555
Charge for the period
19.220
13.201
Disposal of impaired stocks during the period
(919)
(1.462)
Translation differences
339
--
 
 
 
Ending balance 
38.934
20.294
 
The cost of inventories recognized as expense and included in cost of sales during the year amounted to TL 2.897.741 (2007: TL 3.333.667).
 
 
9.        OTHER ASSETS
 

Current
 
 
Prepaid expenses
16.965
23.518
VAT receivable
80.949
115.289
Work advances
1.156
2.636
Due from related parties, note 26
3.058
2.079
Project expenses
48.133
44.554
Receivables from insurance company (*)
--
2.912
Fair value of forward contracts
9.965
--
Prepaid taxes
8.177
2.444
Other
27.003
9.999
 
 
 
 
195.406
203.431
 
(*) The property, plant and equipment related to TV division and a part of white good production division, a part of stocks of finished goods, components and raw materials of Vestel CIS Ltd. (Russia), a 100% subsidiary of the Company were destroyed as a result of fire on 14 November 2005. As of 31 December 2007 the remaining balance receivable from the insurance claims by Vestel CIS amounted TL 2.912 which was duly collected during January-April 2008.
10.      FINANCIAL ASSETS
 

 
2008
2007
 
 
 
Financial assets available-for-sale
 
 
Unconsolidated investments
35
35
Other investments
759
1.678
 
 
 
 
794
1.713
 

 
 
Share %
Amount
Entity
Country
2008
2007
2008
2007
 
 
 
 
 
 
Unconsolidated investments
 
 
 
 
 
Vestpro Electronics SA
Romania
52%
52%
301
301
Vestel USA Inc.
USA
100%
100%
233
233
Vestel Elektronika S.R.L
Romania
100%
100%
19
19
Vestel India
India
100%
100%
10
10
Uts-United Technical Services, S.R.O
Romania
60%
60%
6
6
 
 
 
 
 
 
 
 
 
 
569
569
Allowance for diminution in value (-)
 
 
 
 
Vestpro Electronics SA
 
 
 
(301)
(301)
Vestel USA Inc.
 
 
 
(233)
(233)
 
 
 
 
 
 
 
 
 
 
35
35
 
 
 
 
 
 
Other investments
 
 
 
 
 
Zorlu Enerji Elektrik Üretim A.Ş.
Turkey
Less than 1%
Less than 1%
684
1.603
Tursoft A.Ş.
Turkey
7%
7%
13
13
Zorlu Endüstriyel Enerji A.Ş.
Turkey
1%
1%
50
50
İzmir Teknoloji Geliştirme A.Ş.
Turkey
5%
5%
12
12
 
 
 
 
 
 
 
 
 
 
759
1.678
 
The above companies in which the Company has a controlling interest or significant influence are not consolidated because: 
 
- Vestpro Electronics SA and Vestel USA Inc. have been inactive since 2002.

- Vestel Electronica SRL, Vestel India and Uts-United Technical Services, S.R.O are newly established companies. As of balance sheet dates, the above noted companies in which the Company has a controlling interest or significant influence are not consolidated as they are immaterial individually and in aggregate to the results and financial position of the Group.
 
11.      PROPERTY, PLANT AND EQUIPMENT

 
Land and buildings
Machinery and equipment
Motor vehicles
Furniture and fixtures
Construction in progress
Total
 
 
 
 
 
 
 
Cost
 
 
 
 
 
 
Balance at 01.01.2007
256.390
1.344.013
5.722
114.903
54.341
1.775.369
Additions
5.698
44.998
1.037
27.179
83.212
162.124
Disposals
--
(6.479)
(478)
(3.762)
--
(10.719)
Acquisition of subsidiary
1.652
48
--
12
--
1.712
Translation differences
(6.015)
(3.679)
(194)
(387)
(2.386)
(12.661)
Transfers
28.213
72.150
36
1.418
(102.523)
(706)
 
 
 
 
 
 
 
Balance at 31.12.2007
285.938
1.451.051
6.123
139.363
32.644
1.915.119
Additions
7.345
51.921
1.250
24.105
35.683
120.304
Disposals
(1.252)
(17.459)
(2.759)
(3.881)
--
(25.351)
Translation differences
17.333
17.298
671
2.399
5.253
42.954
Transfers
13.896
29.561
1.290
1.979
(47.330)
(604)
 
 
 
 
 
 
 
Balance at 31.12.2008
323.260
1.532.372
6.575
163.965
26.250
2.052.422
 
 
 
 
 
 
 
Accumulated depreciation
 
 
 
 
 
 
Balance at 01.01.2007
32.965
650.476
2.309
68.018
--
753.768
Additions
6.877
122.712
1.105
16.622
--
147.316
Disposals
(29)
(4.308)
(227)
(2.919)
--
(7.483)
Acquisition of subsidiary
--
293
--
--
--
293
Translation differences
(93)
(1.752)
(56)
(153)
--
(2.054)
 
 
 
 
 
 
 
Balance at 31.12.2007
39.720
767.421
3.131
81.568
--
891.840
Additions
9.106
130.824
1.132
16.965
--
158.027
Disposals
(50)
(15.061)
(805)
(1.915)
--
(17.831)
Translation differences
582
1.987
249
571
--
3.389
 
 
 
 
 
 
 
Balance at 31.12.2008
49.358
885.171
3.707
97.189
--
1.035.425
Net book value as of
 
 
 
 
 
 
31.12.2007
246.218
683.630
2.992
57.795
32.644
1.023.279
31.12.2008
273.902
647.201
2.868
66.776
26.250
1.016.997
 
Leased assets included in the table above comprise plant and machinery amounting to TL 21.394 (31.12.2007: TL 24.986) net of accumulated depreciation. Leased assets are pledged as security for the related finance lease obligations.  
 
The Company’s policy is to trace all material and significant fixed asset additions under construction in progress and transfer to the related fixed asset accounts when the construction process is completed. Significant portion of the construction-in-progress balance represented investment made in Vestel White to increase its refrigerator and washing machine production capacity and new investment made in cooker and dishwasher segment.


 

 
12.      INTANGIBLE ASSETS

 
Goodwill
Development cost
Other intangible assets
Total
 
 
 
 
 
Cost
 
 
 
 
Balance at 01.01.2007
202.896
32.001
174.538
409.435
Additions
816
44.075
6.384
51.275
Disposals
--
(1.175)
(13)
(1.188)
Translation differences
(846)
--
(659)
(1.505)
Transfers
--
645
61
706
 
 
 
 
 
Balance at 31.12.2007
202.866
75.546
180.311
458.723
Additions
--
58.566
22.337
80.903
Disposals
(3.470)
--
(1.670)
(5.140)
Translation difference
292
365
839
1.496
Transfers
--
--
604
604
 
 
 
 
 
Balance at 31.12.2008
199.688
134.477
202.421
536.586
 
 
 
 
 
Accumulated amortisation
 
 
 
 
Balance at 01.01.2007
14.095
13.355
114.472
141.922
Additions
--
2.033
13.075
15.108
Disposals
--
--
(2)
(2)
Translation differences
(103)
--
(46)
(149)
 
 
 
 
 
Balance at 31.12.2007
13.992
15.388
127.499
156.879
Additions
--
16.900
13.144
30.044
Disposals
--
--
(519)
(519)
Translation difference
--
--
310
310
 
 
 
 
 
Balance at 31.12.2008
13.992
32.288
140.434
186.714
 
Net book value as of
 
 
 
 
31.12.2007
188.874
60.158
52.812
301.844
31.12.2008
185.696
102.189
61.987
349.872
 
In mid 2001, the Group established the Digital Research and Development Department within Aegean Free Zone – İzmir to contribute to the expansion of the product range in line with technological developments. The Department continues development of digital satellite receivers with common Interface and Personal Video Recording (PVR) capabilities, digital terrestrial receivers, DVD A/V receivers and recordable DVD players. Research and Development Department in Manisa continues development of Integrated Digital TV (DTV), Hybrid TV, Digital TV, TV-DVD, Large Digital TV and Large Flat Screen TV. Development costs principally comprise internally generated expenditure on development costs on the above projects where it is reasonably anticipated that costs will be recovered through future commercial activity. 
 
Other intangible assets include mainly expenditure on computer software, rights and trade marks.
13.      BORROWINGS
 

 
Current
Non-current
 
Foreign Currency
TL
equivalent
Foreign Currency
TL
equivalent
 
 
 
 
 
2008
 
 
 
 
New Turkish Lira bank loans
 
1.967
 
--
Foreign currency bank loans
 
 
 
 
-USD ('000)
106.834
161.565
220.467
333.413
-EUR ('000)
66.535
142.439
33.608
71.949
Finance lease liabilities, net
 
 
 
 
-USD ('000)
396
599
777
1.175
-EUR ('000)
43
93
--
--
-TL ('000)
 
231
--
363
 
 
 
 
 
 
 
306.894
 
406.900
 
 
 
 
 
2007
 
 
 
 
New Turkish Lira bank loans
--
3.439
--
--
Foreign currency bank loans
 
 
 
 
-USD ('000)
112.889
131.482
287.707
335.093
-EUR ('000)
59.078
101.035
52.755
90.223
Finance lease liabilities, net
 
 
 
 
-USD ('000)
610
710
--
--
-EUR ('000)
165
282
59
101
 
 
 
 
 
 
 
236.948
 
425.417
 
Summary maturity schedule of total borrowings is given below:
 

 
2008
2007
 
 
 
Due in one year
306.894
236.948
One to two years
62.657
80.148
Two to three years
322.123
16.135
Three to four years
8.422
37.333
Four to five years
5.111
282.113
Over five years
8.587
9.688
 
 
 
 
713.794
662.365
 
Letters of guarantee and notes amounting to TL 32.893 (EUR 15.365 thousand) have been given as collateral for Turkish Eximbank and other credits (31.12.2007: TL 27.569 (EUR 16.120 thousand)).
Payment schedule of finance lease liabilities is given below:
 

 
2008
2007
 
 
 
Finance lease liabilities - minimum lease payments:
 
 
Payable with in one year
937
1.021
Payable later then one year and not later than four years
1.969
110
 
 
 
 
2.906
1.131
Future finance charges on finance leases
(445)
(38)
 
 
 
Present value of finance lease liabilities
2.461
1.093
 
 
 
The present value of finance lease liabilities is as follows:
 
 
 
 
 
Payable with in one year
923
992
Payable later then one year and not later than four years
1.538
101
 
 
 
 
2.461
1.093
 
 
 
 
14.      TRADE PAYABLES
 

Current
 
 
Current accounts
 
 
 - Third parties
1.391.508
1.473.400
 - Related parties, note 26
5.120
3.671
 - Letters of credit
284.924
266.498
 - Letters of credit discounted
311.651
248.374
Notes payable
 
 
 - Third parties
5.639
73.627
Other
116
1.024
 
 
 
 
1.998.958
2.066.594
Unearned interest on payables (-)
(3.771)
(3.759)
 
 
 
 
1.995.187
2.062.835
 
 
 
15.      PROVISION FOR EXPENSES
 

 
2008
2007
 
 
 
Current
 
 
Warranty provision
56.018
38.397
Expense accruals
43.735
20.077
 
 
 
 
99.753
58.474
 
 
 
Non-current
 
 
Warranty provision
12.617
11.700
 
Movement of provisions is as follows:
 

 
Warranty expense
Expense accruals
 
 
 
Balance at, 01 January
50.097
20.077
Additions
67.178
43.735
Disposals
(48.640)
(20.077)
 
 
 
Balance at, 31 December
68.635
43.735
 
 
 
16.    OTHER LIABILITIES
 

Income tax and social security payables
23.867
23.468
Advances received
21.065
27.724
Deferred project income
47.400
45.654
Due to personnel
7.835
8.576
Other
8.459
4.011
 
 
 
 
108.626
109.433
 
 
 
 
 
 
 
17.      TAXATION ON INCOME
 

 
2008
2007
 
 
 
Current
(10.082)
(39.008)
Deferred
14.581
8.079
 
 
 
 
 
 
Taxation on income
4.499
(30.929)
 
 
In Turkey, the corporation tax rate on the profits for the calendar year 2008 is 20% (2007: 20%). Taxable profits are calculated by modifying accounting income for certain exclusions and allowances for tax purposes from the profit disclosed in the statutory income. No other taxes are paid unless profits are distributed.
 
In Turkey no taxes are withheld from undistributed profits, profits added to share capital (bonus shares) and dividends paid to other resident companies. Other than those, profits distributed in dividend to individuals and non-resident companies are subject to withholding at the rate of 15%.
 
In Turkey, the tax legislation does not permit a parent company and its affiliates to file a consolidated tax return. Therefore, provision for taxation charge, as reflected in the accompanying consolidated financial information, has been calculated on a separate-entity basis.
 
In Turkey the exemption period granted on profits from the sale of investment shares and immovable property by Corporation Tax Law transitory articles No. 28 and 29 expired on 31 December 2004. However this exemption was re-enacted by Law No. 5281 on permanent basis in effect from 1 January 2005. Accordingly, 75% of profits from the sale of investments and immovable held for a minimum of two years will be tax exempt provided the sale proceeds are collected within two years and 75% of the profit is added to share capital or is kept in a special reserve account for a minimum of five years.
 
In Turkey companies were allowed to deduct 40% of the value of fixed assets (exceeding TL 6.000) purchased after 24 April 2003 (investment allowances) from their taxable profits as investment incentive. Such investment deduction is also not subject to income tax withholding. The investment deductions not used in any year because of insufficient profits may be carried to future periods. Investment allowances related to fixed assets purchased or to be purchased under Investment Incentive Certificates granted or applied for before 24 April 2003, may be based on up to 100% of the investment value in fixed assets, but these are subject to tax at 19.8%. Investment allowances have been cancelled as from 1 January 2006 but investment allowances earned prior to this date may be used up to 31 December 2008; any balance unused after this date may not be carried forward; if this option is exercised the balance of taxable profit after deduction of investment allowances is to be taxed at 30%.
 
In Turkey tax losses that are reported in the Corporation Tax in Turkey return may be carried forward and deducted from the corporation tax base for a maximum of five consecutive years.
The Turkish Tax Procedural Law does not include a procedure for formally agreeing tax assessments. Tax returns must be filed within three and half months of the year-end and may be subject to investigation, together with their underlying accounting records, by the tax authorities at any stage during the following five years. 
 
 
The taxation liabilities of foreign subsidiaries are calculated in accordance with the regulations of the respective country where the subsidiary is situated, as follows:
 

Country
% of taxable profit
 
 
Germany
31,5
France
33,3
The Netherlands
25,5
UK
28,0
Spain
30,0
Italy
37,3
Russia
20,0
 
As the balance sheet date, taxation on income for the year is reconciled to the profit per income statements as follows:
 

 
2008
2007
 
 
 
Profit (loss) before tax
(407.211)
61.795
 
 
 
Corporation tax using applicable tax rates
10.082
39.008
Disallowable expenses
15.547
37.963
Income not subject to tax
(29.276)
(45.303)
Research and development allowances
(852)
(739)
 
 
 
Taxation on income
(4.499)
30.929
 
The Group’s prepaid income and Corporation taxes are netted off against the current income tax provision on the balance sheet as stated below:
 

Corporation and income taxes
10.082
39.008
Prepaid taxes (-)
(9.495)
(27.366)
 
 
 
 
587
11.642
 
 
 
Deferred tax asset
(65.818)
(42.304)
Deferred tax liability
62.409
56.841
 
 
 
 
(2.822)
26.179
 


 

Deferred taxation
The Group recognizes deferred tax assets and liabilities based upon temporary differences between its financial statements as reported for IAS purposes and its statutory tax financial statements. These differences usually result in the recognition of revenue and expenses in different reporting periods for IAS and tax purposes.
 
The composition of cumulative temporary differences and the related deferred tax assets/liabilities in respect of items for which deferred tax has been provided at the balance sheet dates using the expected future tax rates were as follows:
 

 
Cumulative temporary difference
Deferred tax
 
2008
2007
2008
2007
 
 
 
 
 
Deferred tax asset
 
 
 
 
Warranty expense provision
42.141
43.953
8.428
8.791
Employee termination benefits
17.426
18.854
3.501
3.780
Unearned interest on receivables
20.169
19.237
4.034
3.847
Capitalized financing expenses written off
45.273
21.748
9.056
4.378
Provision for doubtful receivables
23.576
17.382
4.715