ÜLKER BİSKÜVİ SAN. A.Ş. Annual Report 2009

Transcription

1 ÜLKER BİSKÜVİ SAN. A.Ş. Annual Report 2009

2 Contents 2 Ülker Bisküvi in Brief 4 Overview of Yıldız Holding 6 Key Financial and Operational Indicators 8 Capital and Shareholder Structure 10 Performance of Ülker Bisküvi Shares 12 Message from the Chairman of the Board 14 Board of Directors 18 Message from the General Manager 22 The Food Industry Worldwide and in Turkey 25 Activities in 2009 Ülker Bisküvi in 2009 Production and Capacity Marketing and Distribution Investments Subsidiaries Birlik Pazarlama İdeal Gıda İstanbul Gıda-Birleşik Dış Ticaret Biskot Gıda Atlas Gıda Pazarlama Godiva Other Subsidiaries 42 Corporate Governance Ülker Bisküvi Family: Human Resources Environment, Quality and R&D Activities Shareholder Relations and Profit Distribution Policy Social Responsibility Projects Corporate Governance Principles Compliance Report 59 Profit Distribution Proposal 61 Audit Board Report 65 Independent Audit Report

3 For 65 years, we have been working for happy moments. Ülker Bisküvi, one of the giant food producers of the world with 280 assorted biscuit and cracker products supplied to both national and international markets, is the indisputable leader of the sector. Ülker Bisküvi s main goal is to make its customers happy and it has held a place in everyone s memory with Happy Moments since Meeting the needs and expectations of its customers at the highest level, Ülker Bisküvi will continue to carry out consumer-oriented activities to increase Happy Moments even more. 1

4 Ülker Bisküvi in Brief Ülker Bisküvi has found itself a place in everyone s life since 1944 and is always remembered with Happy Moments. Ülker Bisküvi, which started to operate in Eminönü, Istanbul 65 years ago in a small bakery with six or seven pots, a small oven and three workers, is now the flagship of Yıldız Holding in respect of both sales volume and profitability. Ülker Bisküvi produces biscuits, crackers, chocolate covered biscuits and wafers at its factories in Topkapı/ Istanbul and Ankara. As the indisputable leader of the sector, Ülker Bisküvi is one of the giant food producers of the world with 280 assorted biscuit and cracker products supplied to both domestic and international markets. In 1996, Ülker Bisküvi received the ISO 9002 certificate for quality standards in production, and in 2001, the HACCP certificate for quality standards in food safety. In 2002, it won the top mark of High Level in an analysis conducted by the Europe-based quality certification firm BRC, thus, further secured its success in the field of quality control. Ülker Quality in Global Markets Ülker Bisküvi introduces approximately 60 new products to the market annually. It constantly takes its innovative approach to higher levels with its independent laboratories and expert and experienced R&D staff. This innovative approach is the reason why Ülker has become one of the food brands most in demand. Ülker Bisküvi s products are exported mainly to the Middle East, Russia and Central Asian republics, as well as to Europe, Africa and the US. Ülker Bisküvi successfully represents Turkey s approach to quality on a global scale. Ülker Bisküvi has an effective quality control system that injects synergy into the entire process from production to consumption, and it conducts its investments based on its strategy which is focused on sustainable and profitable growth. 2 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

5 Ülker and Happy Moments Closely known by three generations from 1944 to today, Ülker Bisküvi has a place in everyone s memory with Happy Moments. The advertising campaign launched on the 65 th anniversary of the brand and incorporation of the Company was built on this concept. Surveys conducted show high levels of loyalty to the Ülker brand. In the Brands 2008 survey by AC Nielsen, Ülker ranked first in the biscuits category, and second and third in the categories of the brands that consumers feel closest to and top-of-the-mind firms and brands, respectively. According to research carried out by the Istanbul Chamber of Commerce in 2008, Ülker Bisküvi ranked 105 th among the top industrial enterprises of Turkey. Local distribution of biscuits and chocolate covered products produced by Ülker Bisküvi and its subsidiaries is undertaken by the subsidiary, Atlas Gıda Pazarlama, and other companies of Yıldız Holding, namely Esas Pazarlama, Merkez Gıda Pazarlama and Rekor Pazarlama. Ülker Bisküvi has written its industrial history with its consumers. From the very beginning up to today, from production to sales, from marketing to distribution, Ülker s management philosophy has always been to put its customers first Ülker Bisküvi was established by Sabri Ülker in 1944 in the Eminönü district of Istanbul. It started out as a small bakery with just three workers, producing 200 kg of biscuits per day. A few years later, the Company relocated to the Topkapı district of Istanbul and had four 20 m 2 ovens, which enabled it to achieve what was considered a high level of production at the time. Meeting the needs and expectations of its customers at the highest level, Ülker Bisküvi will continue to carry out consumer-oriented activities to increase Happy Moments even more. 3

6 Overview of Yıldız Holding Having created value on a global scale with the spirit of entrepreneurship, honesty, vision, innovation, determination, trust and courage Yıldız Holding, achieved a consolidated gross turnover of TL 8.8 billion in 2009 just from its food related businesses. Yıldız Holding With a total of 53 factories, seven of which are located abroad, 22,500 employees, a strong distribution network, product variety, production and sales power, Yıldız Holding is one of the leading pioneers compared with both local and international peers. The Holding attained this nature through its eight major business groups. The Ülker (Biscuit-Chocolate) Group and the Food, Beverages, Candy and Chewing Gum Group under the Holding go beyond meeting all the nutritional demands of the consumers, forecasting possible demands and planning products for the future. The Food, Frozen Food and Personal Care Group manages the subsidiaries in the areas of tea and frozen food as well as overseeing the investments undertaken in personal care products. The IT and Packaging Groups fulfill the requirements of the Yıldız Holding companies and are constantly growing within their respective sectors with a visionary approach. While the Real Estate Investments Group continues to develop as a new business area, the International Operations Group manages the investments held by the Holding abroad. 4 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

7 The Financial Subsidiaries Division facilitates coordination between the subsidiaries of the Holding in the area of financial services. Godiva, one of the world s leading producers of premium brand chocolate, became a member of Yıldız Holding at the end of Yıldız Holding is one of the enterprises favored by the giant global brands for strategic partnership and is in cooperation with important global companies such as Kellogg s, Hero Baby, Cargill, Gumlink and Laurens Spethmann Holding. Having strengthened its long-established reputation thanks to its social awareness, reflected in various projects in such areas as the environment, sports, education, health and the arts, Yıldız Holding contributes to the development of society with social responsibility and sponsorship projects Producing a total of 75 tons of biscuits in 1944, Ülker Bisküvi tripled its capacity at its Topkapı factory, built in 1948 specifically in order to increase the production volume. Representing a system of values that reaches from the first half of the 20 th century into the 21 st century, Yıldız Holding creates value on a global scale with the spirit of entrepreneurship, honesty, vision, innovation, determination, trust and courage. 5

8 Key Financial and Operational Indicators The gross real operating profit of Ülker Bisküvi in 2009 was TL million; whereas the net profit for the year was TL million. With the investment made in the wafer production facility at the Ankara Factory in 2009, the total production capacity increased by 4,800 tons. The total production amount in the Istanbul and Ankara factories was 120,621 tons and the total capacity utilization was 72%. Key Financial Indicators (TL) Shareholder s Equity 708,417,130 1,125,668,600 Gross Profit 306,330, ,735,490 Operating Profit 97,272, ,079,597 EBITDA 120,673, ,941,880 Net Profit for the Year 15,685, ,917,554 Production Amount (*) 127, ,621 Sales Volume (*) 128, ,137 (*) Amounts are given in tons. Net Profit for the Year (TL) Production Amount (Tons/Year) 116,054,667 15,685, ,917, , , , ÜLKER BİSKÜVİ ANNUAL REPORT 2009

9 1955 Gross Real Operating Profit (TL) 321,792, ,330, Sales Volume (Tons/Year) ,735,490 Ülker Bisküvi decided to distribute its products throughout Turkey at factory prices and achieved a huge production increase with this innovation. The Company s marketing efforts with door-to-door vendors in big cities had revolutionary characteristics in terms of the presentation strategy of biscuits, chocolates and similar products. 131, , ,

10 Capital and Shareholder Structure The shareholder structure of Ülker Bisküvi as of December 31, 2009 is as below. No real person owns more than 10% of the shares of the Company directly. 32% of the shares of Ülker Bisküvi are open to public as of December 31, Shareholder Amount (TL) % Yıldız Holding A.Ş. 113,049, Others 155,550, Total 268,600, Yıldız Holding A.Ş % Other 57.91% 8 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

11 1970 In line with the growth strategy of Ülker Bisküvi, Anadolu Gıda Sanayii A.Ş. was founded in Ankara as a multiple-shareholder company. As a result of this, the production capacity of Ülker Bisküvi was doubled. 9

12 Performance of Ülker Bisküvi Shares Company Ülker Bisküvi Reuters & Foreks Code ULKER.IS ISIN Code TREULKR00015 Industry Food XU100 XU050 ISE Index Listings XUTUM XUSIN XGIDA XSANK Price (TL) (December 31, 2009) 3.54 Free Float (%) Market Value (US$ thousand) 950,844 Free Float Market Cap (US$ thousand) 304,270 Average Trading Volume (US$ thousand) ( ) 9,775 Beta 0.61 Source: Reuters and Bizim Menkul Değerler Ülker Bisküvi January 2, 2009-December 31, 2009 XU100 ÜLKER February March April May June July August September October November December ÜLKER BİSKÜVİ ANNUAL REPORT 2009

13 1974 The first biscuit export was made after choosing the Middle East as the target market. Opportunities for international competition were increased with the creation of the R&D department in the same year. 11

14 Message from the Chairman of the Board Ülker Bisküvi successfully finished 2009 with its determination and resilience, gained through long-standing experience, its commitment to quality and innovation, and the importance it attaches to its consumers. The net sales of Ülker Bisküvi were TL 1,552 million and the operating profit was TL 147 million in Dear Shareholders, The course of the global economy in 2009 was set in the last quarter of 2008, with the onrush of the harsh conditions of an inevitable global crisis. Starting from the financial systems of the developed economies, the global crisis affected the real economy and spread to the whole world in While the developed and developing economies were suffering from these negative effects, the Asian countries resisted the crisis, which was among the spectacular events of the last year. Although their growth rate decreased, China and India were the national economies which did not contract and they were the first to emerge from the global crisis. The indicators tell us that we have taken a turn for the better and that the global economy will enter a positive growth phase in Turkey was among the countries that weathered the global crisis with relatively less damage than the European economies. The greatest problem that the global crisis caused across the world as well as in Turkey was unemployment. Estimates for the year 2010 agree that Turkish economy will enter into a growth process. It is very important that this growth be supported with investments that will create new employment opportunities. 12 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

15 Whilst the economy was struggling under such harsh conditions, Ülker Bisküvi celebrated a happy event: its 65 th anniversary. Ülker, a source of pride for Turkish industry since 1944, has always stood for Happy Moments for its consumers. For this reason, we emphasized at our 65 th anniversary that we have been working and will continue to work to increase these happy moments even more. Another pleasing event for Ülker Bisküvi in 2009, was the positive echo of our global experience with Godiva. The Godiva acquisition story was presented in the December 2009 issue of Harvard Business Review, one of the most prestigious academic publications in the world, as a successful business model. The article entitled Don t integrate your acquisitions, partner with them, which examined the strategy we pursued, focused on the success of the period following the acquisition of Godiva. In our projections for 2009, we foresaw growth for Ülker Bisküvi despite the negative environment that might be created by the macroeconomic conditions and the anticipated increase in costs. Ülker Bisküvi successfully finished 2009 with its determination and resilience, gained through long-standing experience, its commitment to quality and innovation, and the importance it attaches to its consumers. The net sales of Ülker Bisküvi were TL 1,552 million and the operating profit was TL 147 million in The facts underlying our success can be listed as; keeping our prices at the optimum level for our customers, continuing production and investment with new launches, developing new products and associations in harmony with the time, and implementing models that will increase efficiency. Ülker Bisküvi has accepted environmentally friendly production as one of its corporate priorities since its establishment and will continue to operate in awareness of its responsibilities towards the society. Ülker Bisküvi will carry on creating value for its shareholders, consumers, employees and its country in the forthcoming period. With my best regards, Murat Ülker Chairman of the Board 13

16 Board of Directors Murat Ülker Chairman of the Board Murat Ülker was born in Istanbul in He began his business career in 1982, after graduating from the Management Department Faculty of Economics and Administrative Sciences at Boğaziçi University. He worked as the Control Coordinator in the Group in 1984, and afterwards, attended various training courses (AIB and ZDS) abroad and worked as a trainee at the Continental Baking Company in the US. Mr. Ülker worked in the export field for two years in the Middle East. He also oversaw about 60 factories and facilities operating in the biscuit, chocolate and food industry in the US and Europe for three years. Mr. Ülker participated in various IESC projects, and undertook many investments keeping in line with the principle of vertical integration. After working as Assistant General Manager for Enterprises, General Manager, Executive Committee Member and Board Member in various companies of the Group, Murat Ülker was elected the Chairman of the Board of Yıldız Holding in Murat Ülker speaks English and German and his hobbies include sailing, as well as traveling with his family. He is married with three children. Orhan Özokur Deputy Chairman of the Board Orhan Özokur was born in Balıkesir in Having begun working during his high school years, Orhan Özokur pursued his academic and business life hand in hand. He graduated from the Academy of Economic and Business Studies. Mr. Özokur joined the Group as a Commercial Manager in 1973, and served as Chairman of the Board and Board Member in different companies of the Group. He was appointed Deputy Chairman of the Board of Directors of Yıldız Holding in Orhan Özokur speaks English, has a special interest in basketball, and his hobbies include tennis, listening to music and playing the guitar. He is married with three children. 14 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

17 Ali Ülker Board Member (Executive Director) Born in Istanbul in 1969, Ali Ülker graduated from the Economics and Business Management Department Faculty of Economics and Administrative Sciences at Boğaziçi University. He began his business career in 1985 as a trainee in the Quality Control Department of Ülker Gıda A.Ş. Ali Ülker attended various academic programs at IMD, Harvard and Wharton. Mr. Ülker took part in the De Boccard & Yorke consultancy company s Internal Kaizen Study (1992) and the IESC Sales System Improvement and Internal Organization Project (1997). He served as a trainee, Sales Executive, Sales Coordinator, Product Group Coordinator and Product Group Manager during at the chocolate production facilities and Atlas Gıda Pazarlama A.Ş. He served as the General Manager of Atlas Gıda Pazarlama A.Ş. in 1998, Deputy Chairman of the Consumer Group for Marketing and Chain Stores in 2000, General Manager of Merkez Gıda Pazarlama A.Ş. in 2001 and Deputy Chairman of the Food Group in In 2005, he was appointed Chairman of the Ülker (Biscuit, Chocolate, Candy) Group. Ali Ülker speaks English and German and his hobbies include fishing, watching movies, reading books, and playing basketball and billiards. He is married with three children. Necdet Buzbaş Board Member Born in Samsun in 1948, Necdet Buzbaş graduated from the Faculty of Chemistry at Istanbul University. He began his business career at Adeka İlaç Sanayii in Samsun. Mr. Buzbaş joined the Ülker Group in 1975 for a new chapter in his professional career. He worked as Plant Chief Officer, Production Manager, Assistant General Manager and General Manager at Ülker Gıda Sanayi A.Ş. before being appointed Chairman of the Ülker Group as part of the 2000 reorganization of the Company. He was appointed a member of the Advisory Committee in Mr. Buzbaş has also served as a member of the Governing Body of the Confederation of Turkish Employers Associations (TİSK), Chairman of the Turkish Food Industry Employers Association, member of the Assembly of the Istanbul Chamber of Industry (ICI), and member of the Executive Committee of the Association of the Sugar Products Industry (ŞEMAD). Mr. Buzbaş speaks English, and has also served in nongovernmental organizations including the Educational Volunteers Foundation of Turkey (TEGEV), KalDer (Quality Association) and Katek (Quality and Technology Advisory Committee of ISO). 15

18 Board of Directors Cengiz Solakoğlu Board Member (Independent) Cengiz Solakoğlu was born in Erzurum in After graduating from the Istanbul Academy of Economic and Business Studies in 1964, Cengiz Solakoğlu began his business career as a salesman at Beko Ticaret A.Ş in He became an Area Sales Manager in 1969, and Sales Director in After serving as the General Manager in Beko Ticaret A.Ş. between and in Atılım A.Ş. between , Mr. Solakoğlu was appointed Deputy Chairman in 1991 and Chairman in 1994 of the Consumption Group of Koç Holding. Also serving as a member of the Executive Committee of the Koç Group in , he was appointed Chairman of the Durables Consumption Group of Koç Holding in Having worked in the Koç Group continuously for 37 years and 8 months, Mr. Solakoğlu retired due to the Group s policy of mandatory retirement at age 60. He was one of the founders of the Educational Volunteers Foundation of Turkey and has been a Board Member since its foundation, serving as Chairman of the Board between He was elected a Leader of Civil Society by the Ekonomist magazine in In 2007, he reassumed the role of Chairman of the Board of the Educational Volunteers Foundation of Turkey. Mr. Solakoğlu is a Board Member of Ülker Çikolata A.Ş., Ülker Bisküvi A.Ş., Atlas Gıda Pazarlama A.Ş., Atlantik Gıda Pazarlama A.Ş., Fresh Cake San. A.Ş., İdeal Gıda A.Ş. and Anadolu Gıda San. A.Ş. He is married with two children and three grandchildren. Mahmut Mahir Kuşculu Board Member (Independent) Born in Istanbul in 1950, Mr. Kuşculu graduated from Istanbul Erkek Lisesi, and then the Faculty of Economics, Istanbul University. He completed his postgraduate education in international marketing in Georgia, the US. Mr. Kuşculu served as Executive Manager and Board Member in the family glass industry businesses, Tamcam A.Ş. and Arsal Cam Sanayii. He established Kutaş Dış Ticaret ve Pazarlama A.Ş. in 1982, and Erdem Dış Ticaret A.Ş. in 1985, also taking part in their management. Mr. Kuşculu continues to work as a Board Member in these companies and other companies. Mr. Kuşculu has served on the Professional Committees of the Istanbul Chamber of Commerce and the Istanbul Chamber of Industry for 20 years, and as a member of the Assembly of Istanbul Chamber of Industry for 14 years. He is also a Board Member of Ülker Çikolata A.Ş., Ülker Bisküvi A.Ş., Atlas Gıda Pazarlama A.Ş., Atlantik Gıda Pazarlama A.Ş., Fresh Cake San. A.Ş., İdeal Gıda A.Ş., Anadolu Gıda San. A.Ş., Polinas Plastik San. A.Ş., Sağlam Gayrimenkul Yatırım Ortaklığı A.Ş. and Godiva Chocolatier Inc. He is married and has two children. 16 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

19 Güven Obalı Board Member (Independent) Born in Cihanbeyli in 1943, Mr. Obalı graduated from Finance and Economics Department Political Sciences Faculty at Ankara University in He was appointed Assistant Tax Inspector in the same year and became a Tax Inspector in He was sent to Germany in order to study Value Added Tax Regulation and application for one year in In 1975, he left the Ministry of Finance and began working at the Industrial Development Bank of Turkey (Türkiye Sınai Kalkınma Bankası). Starting his career as a Financial Analyst, he continued with managerial positions in various units. During his tenure, he also acted as a representative of the bank in the management and audit boards of various companies, including Şişe Cam Group, Koruma Tarım İlaçları A.Ş., Çelik Halat A.Ş. and Bakırsan A.Ş. After retiring, he founded ABC Sworn Financial Advisor Company in He retired as Sworn Financial Advisor in Mr. Obalı continues to serve as Audit Board Member in Kuveyt Türk Katılım Bank and as a Board Member of Ülker Çikolata A.Ş., Ülker Bisküvi A.Ş., Atlas Gıda Pazarlama A.Ş., Atlantik Gıda Pazarlama A.Ş., Bizim Toplu Tüketim A.Ş. and Sağlam Gayrimenkul Yatırım Ortaklığı A.Ş. He is an honorary member of various associations and foundations. He is married with two children. Audit Committee Ataman Yıldız Member of the Audit Committee Nurettin Aliz Member of the Audit Committee 17

20 Message from the General Manager 2009 came with the excitement of our 65 th anniversary. We aim to reach our consumers with a series of events that started in 2009 and will continue in Factory tours are organized to show children how our products, each of which has had its happy moments within the memories of three generations, are produced. Dear Shareholders, 2009 was a special year for Ülker Bisküvi, for it was the 65 th anniversary of our incorporation. In this respect, we aim to reach our consumers with a series of events that started in 2009 and will continue in Factory tours are organized to show children how our products, each of which has had its happy moments within the memories of three generations, are produced. These tours are organized in our Istanbul and Ankara factories and in the İdeal Gıda factory in Gebze, one of our subsidiaries, in coordination with the Provincial Directorates of Education. They are invaluable experiences for our children. Though its importance for our Company, 2009 was also the year in which the effects of the global crisis that started in 2008 were felt at their worst. The Turkish economy kept contracting from the last quarter of 2008 to the third quarter of In the first quarter of 2009, the Turkish economy shrank by 14.7%, in the second quarter by 7.9%, and in the third by 3.3%. In 2009, our Company continued to implement the precautions introduced in 2008 without any compromises, and succeeded in increasing its turnover despite these difficult conditions. It demonstrated the same performance in operating profit and reached TL 147 million with a 51% increase over the previous year. I would like to share the progress, our Company made in 2009, with our esteemed shareholders. Strategic Business Unit In 2009, an important step was taken at Yıldız Holding, to which we are affiliated, and a Strategic Business Unit, which is responsible for gathering interrelated companies and organizations under the same roof and managing them, was set up. In this respect, a Vice Presidency (Biscuits-Cakes) was established under the Ülker Division. Our Company has been restructured under this division with all the other related organizations. With this change, our target is to increase our competitiveness by creating synergy and functioning in a more coordinated manner. Institutionalization Efforts Our institutionalization efforts continue at a fast pace. Under the guidance of the Corporate Governance, Audit and Risk Committees, established within this scope, Corporate Risk Management efforts were initiated in our Company in 2009 and began to be implemented in April The aims of the Corporate Risk Management are to provide early diagnosis of factors that may endanger the existence, development and continuity of our Company, to take the necessary precautions, to create and implement solutions, and to manage all risks. Thus, our Company has taken another important step towards realization of the Corporate Governance Principles, namely justice, transparency, accountability and responsibility. Production and Capacity Utilization Despite the severe crisis conditions in 2009, production reached 120,621 tons in total in our Istanbul and Ankara factories. Capacity utilization was 76% in the Istanbul factory and 69% in the Ankara factory. With these results, our capacity utilization was 72% overall. 18 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

21 One of the precautions we have taken against the global crisis is to review the investments that are not urgent. Heading this precaution, our Company made investments amounting to TL 8.5 million in 2009 in the areas of capacity increase, renewal, modification of production lines and increased efficiency. TL 1 million of this was in the Topkapı Factory and the remaining TL 7.5 million in the Ankara Factory. Constant Efficiency The Lean Production Project, which was initiated in our Ankara Factory in 2007, continued throughout 2009 in both the Ankara and Istanbul factories with new facilities. Its target is to simplify all processes and to prevent unnecessary expenditure in our Company. In 2009, we worked on 68 new projects in total in the R&D departments of our Istanbul and Ankara factories and ten of these projects were turned into products and offered to the market. Among our efforts within the scope of constant efficiency are best practice share applications between companies sharing the best practices to increase operational efficiency, cost reduction as a result of cooperation with suppliers, and rewarding improvement efforts in production-efficiency parameters. R&D and New Products As always, developing products in accordance with the expectations of our customers and consumers was among our main targets in In 2009, we worked on a total of 68 new projects in the R&D departments of our Istanbul and Ankara factories and 10 of these projects were turned into products and offered to the market. Hero Baby İyi Geceler Baby s Biscuit, Gogly Milk Baby s Biscuit, Mini Halley, Rondo Dark, Mavi Yeşil Cacao Cream Biscuit and Mavi Yeşil Wholewheat Cinnamon Biscuit are just a few of our new products introduced to the market. 19

22 Message from the General Manager The Lean Production Project, which was initiated in our Ankara factory in 2007, continued throughout 2009 with new facilities in both the Ankara and Istanbul factories. Our target is to simplify all processes and to prevent unnecessary expenditure in our Company. Quality, Environment and Social Contribution 2009 was a year in which all the quality certificates in both of our Company s factories were reviewed and renewed with an awareness of occupational safety, high quality production and environmental responsibility. We continued to maintain our high quality production philosophy, confirmed by the quality certificates we received, in every aspect of our operations in The ISO 9001:2000 Quality Management System, ISO Food Safety Management System, TS Occupational Health and Safety Management System, BRC and IFS certificates can be listed as some of the quality certificates that our factories received. As usual, with our awareness of social responsibility, we continued to provide our support to the social responsibility and sponsorship projects realized throughout Turkey in We gave special support to Bingöl Sabri Ülker Soup Kitchen project. Our Employees: Our Most Valuable Asset As of the end of 2009, the number of our employees reached 1,280. Despite the global crisis, we maintained the number of our employees and proceeded with our work without compromising our workforce. Training procedures to increase the personal competencies of our employees, whom we deem our most valuable assets, continued throughout 2009, and 28,229 hours of training were provided in total achieving maximum value in terms of quality and efficiency. We are committed to maintaining our training approach in 2010, focused on personal development and increasing the quality of work of our employees. Mind Cube, a personal suggestion system devised to benefit from the ideas of our employees and applied in our Company for years, was reviewed in 2009 with a new project entitled General Suggestion System. This extends the scope of our personal suggestion system and updates the process, and we believe we shall be able to see its outcome better in Our employees made 1,009 suggestions towards increasing efficiency in all of our processes during 2009, and 236 employees were rewarded for their suggestions. The Smile Group, carrying out activities aimed to increase the motivation and satisfaction of our employees, continued to operate in both our factories. In Industrial Relations Board meetings, regularly held with employee and union representatives, requests and suggestions were made at first hand and information about company policies was shared. This enabled trust, cooperation and empathy with our employees to rise to the highest level. With an application entitled Collective Communication Platform initiated in 2009, we made efforts to understand the requests and expectations of personnel who are not included in the collective bargaining agreements, and to implement solutions on our agenda. Within the scope of this application, half-time work on Saturdays was cancelled in The intention was to increase the time that our employees, especially women workers, whose number is increasing day by day, spend with their families. Also in 2009, the Career Planning 20 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

23 application, with recording on an electronic medium, was initiated within the HR department for launch in 2010, as requested by our employees on our communication platform for career management. Within the scope of the Employee Satisfaction Survey, completed in 2008, we started a Training and Development Program for foremen in Our activities for our employees will continue without even losing sight of our notion that our employees are our most valuable assets. Balanced Scorecard Activities Within the scope of the Balanced Scorecard Project, finalized in 2008 in order to transform our company strategies into operational objectives, the project of transferring the corporate and departmental scorecard to the SAP environment was completed at the end of Hence, from the beginning of 2010, we started to monitor the corporate and departmental scorecards on SAP. We shall make Corporate Risk Management, which holds an important place in our Company s institutionalization efforts, one of our essential processes. In 2010, we shall continue to work with all our power by dedicating ourselves to keeping our financial and operational results at the highest possible level, following budgetary and strategically planned objectives. Our driving forces are, as they have always been, your support as our valued shareholders and the efforts of our employees. We hope to see many years to come with our shareholders, employees and consumers. With my best regards, Dr. Cafer Fındıkoğlu General Manager Our Objectives for 2010 Our activities will continue in 2010 without compromising our customer-oriented and innovative approach and our high standards of quality and hygiene. We shall finalize the projects foreseen for the year 2010 in order to realize our strategic objectives as determined within the scope of our strategic plans. We will proceed with our efforts for transformation to the Lean Production philosophy, which we aim to extend to all of our facilities. 21

24 The Food Industry Worldwide and in Turkey After high expectations following 2007 and 2008; the long awaited 2009 finished as a very difficult year. In an environment where interest rates decreased and credit facilities were extremely restricted, the prices of the agricultural products increased due to global demand-supply disequilibrium. The Food Industry Worldwide The negative events in the economy, which started in the US and were observed in the global finance markets in the last quarter of 2008, increased in 2009 and affected the real economies. In 2009, when unemployment increased and demand continually decreased due to the global crisis, especially in the US, the EU member states and Japan supplied large sums of funds to the market in order to save their own financial spheres. In the food sector, the economic crisis, which began with the extreme increase in the prices of raw materials for food in 2007, escalated to recession in the first quarter of After high expectations following 2007 and 2008; the long awaited 2009 finished as a very difficult year. Besides the major movements of capital, weather conditions and investments delayed by the crisis caused a supply shortage. Under these circumstances, the financial investors headed towards agricultural food products, also called the soft commodities, which caused an increase in prices. In an environment where interest rates decreased and credit facilities were extremely restricted, agricultural products became a center of attraction. In the last days of 2009, the price of cacao beans increased by 28.6%, sugar increased by 165.1%, coffee increased by 30.2%, tea increased by 83.5% and orange juice increased by 88.8% when compared to the beginning of the year. Most of these products are produced in a few developing countries. Interruption of supply due to the causes such as the credit crunch because of the economic crisis, as well as political disturbances in these countries, negatively impacts the prices. 22 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

25 The Food Sector in Turkey In Turkey, which was affected by the global crisis, manufacturing industry shrank by 10.9% in 2009; whereas the food and beverages industry finished the year with a shrinkage of 1.3%. In the food sector, where product prices failed to reflect the rise in the prices of raw materials, costpush inflation was seen and the companies had to give up their profits. Besides the worldwide increase in the prices of unprocessed foods, the GMO Regulation enacted in Turkey on October 26, 2009 caused price movements especially in inputs based on import. Ups and downs in the prices of milk and meat were also discussed at length in the food industry Ülker products began to be packed in cellophane-based packaging. We hope that 2010 will be a year when relative stability will be assured with the positive effects of emergence from the global crisis, and that demand will increase, the installed capacity will be reasonably utilized and raw material prices will be stabilized. 23

26 24 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

27 Activities in 2009 Despite the severe crisis conditions in 2009, production reached 120,621 tons in total in our Istanbul and Ankara factories. Capacity utilization was 76% in the Istanbul Factory and 69% in the Ankara Factory. With these results, our capacity utilization was 72% overall. Surveys conducted show high levels of loyalty to the Ülker brand. In the Brands 2008 survey by AC Nielsen, Ülker ranked first in the biscuits category, and second and third in the categories of the brands that consumers feel closest to and top-of-the-mind firms and brands, respectively. 25

28 Ülker Bisküvi in 2009 In factories owned by Ülker Bisküvi, all of the production processes incorporate high technology. Most of the boxing, box handling, packaging and storage processes providing logistical support are carried out using robot technology and automation. The Risk Committee was established under the scope of the Corporate Governance Principles published by the Capital Market Board and the Articles of Incorporation of the Company, and work was initiated to establish a Corporate Risk Management System. Best practice share application between companies sharing the best practices continued throughout the year. Collective Communication Platform meetings were held with all employees. Business analysis and permanent staff work were implemented to increase operational efficiency. Industrial Relations meetings were held with the workers union. 26 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

29 We are working for a happy moment when you understand that laugh is everlasting 27

30 Production and Capacity In the Topkapı and Ankara factories of Ülker Bisküvi, equipped with the highest technology, 120,621 tons of biscuits were produced in total in The total quantity of the Company s sales amounted to 120,137 tons. The market share of Ülker Bisküvi, which carries out its production in factories in Topkapı/Istanbul and Ankara, is 53.3%. Besides these two main factories, Ülker Bisküvi also conducts production activities in the facilities of its subsidiaries, namely İdeal Gıda/Gebze and Biskot Gıda/ Karaman. In the Topkapı and Ankara factories of Ülker Bisküvi, equipped with the highest technology, 120,621 tons of biscuits were produced in total in Biscuits, chocolate covered biscuits and wafers are produced in 9 facilities in the Topkapı Factory and in 14 facilities in the Ankara Factory. Topkapı/Istanbul Factory The Topkapı Factory operated at high capacity in 2009, producing 48,655 tons of biscuits, and sold net 48,889 tons of biscuits. The actual average capacity utilization of the Factory, operating in three shifts, was 76% in In factories owned by Ülker Bisküvi, all of the production processes incorporate high technology. Most of the boxing, box handling, packaging and storage processes providing logistical support are carried out using robot technology and automation. Main Products Produced in the Topkapı Factory Pötibör (plain, with cacao, double baked) Çizi (with sesame seed) Aro Kraker Haylayf Çubuk Kraker Hanımeller (with hazelnut, chocolate chips, özbesi, negrita) Bebe Bisküvisi (iyi geceler, googly, with honey-banana) Biskrem (with chocolate, apple, fig, dark, hazelnut cream, duo) 28 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

31 Ankara Factory The Ankara Factory, which operates in an 80,000 m 2 enclosed space located on a total area of 110,000 m 2, has the biggest biscuit production and storage complex in the Middle East. For more than 39 years, the Ankara Factory has brought dynamism to the economy of the region. The Ankara Factory s 2009 production quantity was 71,966 tons and its net sales quantity was 71,248 tons. The actual average capacity utilization of the Factory, operating in three shifts, was 69% in In 2003, Ülker Bisküvi merged with Anadolu Gıda, taking important steps towards further institutionalization. Main Products Produced in the Ankara Factory Pötibör (plain, two colors) Krim Kraker Probis Çokoprens As Kraker Başak (plain, with chocolate, linseed) İkram (with chocolate, hazelnut, cheese) Canpare Rondo (with banana, strawberry, plain, coconut, orange, raspberry, cheesecake flavors) Altınbaşak Wafers (with hazelnut, banana, orange, strawberry, coconut, vanilla, cacao, chocolate flavors) Halley Kat Kat Tat Çubuk Kraker Alpella Ring Mavi Yeşil branded products Hasat Hanımeller Kurabiyem (with hazelnut, chocolate) 29

32 Marketing and Distribution Thanks to its powerful distribution network, customers can easily access Ülker Bisküvi products at anytime and anywhere. Ülker s distribution network has been specially designed on every level to respond to the demands of its consumers in the best possible manner. With two weeks production, Ülker Bisküvi and its subsidiaries are capable of providing a biscuit to everyone in the world. The domestic marketing and distribution of the biscuits and chocolate covered products of Ülker Bisküvi and its subsidiaries are performed by its subsidiary, Atlas Gıda Pazarlama, as well as Yıldız Holding companies Pasifik Pazarlama, Esas Pazarlama, Merkez Gıda Pazarlama and Rekor Pazarlama. Atlas Pazarlama performs nationwide distribution through its Regional Offices in Istanbul, Ankara, Izmir, Thrace region, Bursa, Samsun, Gaziantep, Adana and Erzurum, with 129 experienced, reputable and efficient distributors across Turkey. Atlas Pazarlama provides regular and high quality service to 181,000 points of sale weekly, with a total of more than 1,150 delivery vans. This powerful distribution network ensures that customers can easily access Ülker Bisküvi products at anytime and anywhere. Ülker s distribution network has been specially designed on every level to respond to the demands of its consumers in the best possible manner, in accordance with prevailing market conditions. 30 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

33 2007 The Company name was changed from Ülker Gıda to Ülker Bisküvi in 2007 as part of a move to provide a clearer definition of its field of business. 31

34 Investments In 2009, Ülker Bisküvi made investments in the Topkapı/Istanbul and Ankara factories in the areas of new facility establishments, capacity increase, renewal, modification of production lines, efficiency increase, hygiene and storing. Ülker Bisküvi fully achieved the investments foreseen in its strategic development plan in The common objective of the investments is to reinforce Ülker Bisküvi s leading position in the market, increase customer satisfaction, improve product quality, and contribute to efficiency and productivity so as to make the cost basis more competitive. In 2009, Ülker Bisküvi made investments in the Topkapı/ Istanbul and Ankara factories in the areas of new facility establishment, capacity increase, renewal, modification of production lines, efficiency increase, hygiene and storing. Whilst an investment in the amount of TL 1 million was made in the Topkapı Factory for enlargement and modernization purposes, the investment made in the Ankara Factory amounted TL 7.5 million. 32 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

35 We are working for a happy moment in which your life is at just the right consistency. 33

36 Subsidiaries Benefiting effectively from different Group companies, each holding a leading position in its sector, Ülker Bisküvi, besides the biscuit facilities in different cities in Anatolia, has formed a dynamic value production process that includes all the branches of the food industry, such as obtaining good quality flour, butter and packaging. Ülker Bisküvi Sanayi A.Ş. Subsidiary List as of 12/31/2009 Subsidiary Share (%) Field of Business Birlik Pazarlama 99.0 Flour production İdeal Gıda San. ve Tic. A.Ş Biscuit and cracker production İstanbul Gıda Dış Ticaret A.Ş International marketing Atlas Gıda Paz. San. ve Tic. A.Ş Domestic marketing Birleşik Dış Ticaret A.Ş Foreign trade Biskot Bisküvi San. ve Tic. A.Ş Biscuit and chocolate covered biscuit production G-New Inc. (Godiva) 25.2 International investment Godiva Belgium BVBA (Godiva) 25.2 Chocolate production and marketing PNS Pendik Nişasta A.Ş Starch and starch-based sugar production Netlog Lojistik A.Ş Logistics and transportation BİM Birleşik Mağazalar A.Ş Retail Sağlam GYO A.Ş REIT Fresh Cake A.Ş Cake production Besler Gıda A.Ş. 7.0 Oil and margarine production Tire Kutsan A.Ş. 1.9 Paper and cardboard box production 34 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

37 Birlik Pazarlama Birlik Pazarlama, one of the most important subsidiaries of Ülker Bisküvi Sanayi A.Ş., was incorporated in Birlik Pazarlama, which produces not only flour from every kind of grain based on the needs of the Group but also pasta, semolina, packaged wheat flour and rice flour for the market, moved its headquarters to Ankara in Located on the same site as Ülker Bisküvi s Ankara Factory on an area of 37,000 m 2, Birlik Pazarlama operates in an enclosed area of about 24,000 m 2. Together with three flour factories in Ankara, Birlik Pazarlama has a factory processing soya, oats and other grains and a rice plant, a Branch Office and a flour factory in Karaman, in addition to a rented pasta, flour and semolina factory in Hendek. Birlik Pazarlama has undertaken contractual planting in cooperation with agrarian research institutes, for the improvement, development and increased cultivation of varieties of wheat necessary for biscuit production, currently not sufficiently produced in Turkey Within the scope of Corporate Governance, the Articles of Incorporation were amended and Corporate Governance and Audit Committees were set up. At the beginning of 2008, Ülker Bisküvi took part in the acquisition of the premium chocolatier brand, Godiva, with a 25.23% share. Birlik Pazarlama holds TSE (Turkish Standards Institute) ISO-EN 9000, TSE TS and ISO certificates. In 2007, the HACCP certificate was replaced by ISO certificate. The subsidiaries of Birlik Pazarlama include Hero Gıda, PNS Pendik Nişasta and Birleşik Dış Ticaret. The Company s actual wheat processing capacity is 930 tons per day in total, including 730 tons per day in Ankara and 200 tons per day in Karaman. Birlik Pazarlama s rice processing capacity is 19 tons per day, its soya processing capacity is 7.5 tons per day and its oat processing capacity is two tons per day. In a survey published by the Istanbul Chamber of Industry in 2008, Birlik Pazarlama was listed as 427 th among the top 500 industrial enterprises in Turkey. With a total grain storage capacity of 35,000 tons, Birlik Pazarlama will continue its investments in 2010 to ensure higher quality production with more competitive prices. 35

38 Subsidiaries Having actively engaged in the production of biscuits and crackers since 2000, İdeal Gıda s capacity utilization in 2009 was 86%. Ideal Gıda, which continuously invests to develop its equipment pool and facilities and increase its production capacity, raised its biscuits and crackers production from 30,654 tons in 2003 to 43,902 tons in İdeal Gıda İdeal Gıda, which was established in the Gebze Organized Industrial Zone in 1997, operates on an area of 85,000 m 2 that includes 41,000 m 2 of enclosed space. İdeal Gıda has actively produced biscuits and crackers since 2000 and its capacity utilization was 86% in In İdeal Gıda, which has 433 employees, the production is carried out for four main product groups for domestic and international markets in nine production lines. Ideal Gıda, which continuously invests to develop its equipment pool and facilities and to increase its production capacity, raised its biscuits and crackers production from 30,654 tons in 2003 to 37,770 tons in 2004 and to 41,338 tons in The total production in 2006 was 37,337 tons, due to the fact that production had to stop for a month during the conversion of ovens to natural gas. The production in 2008 reached 42,166 tons, up from 40,205 tons in 2007, and it was 43,902 tons in The production is carried out in compliance with ISO , ISO 22000, ISO , OHSAS , BRC and IFS certification standards. İdeal Gıda was listed as 395 th in the Istanbul Chamber of Industry list of Turkey s Top 500 Industrial Enterprises in ÜLKER BİSKÜVİ ANNUAL REPORT 2009

39 İstanbul Gıda-Birleşik Dış Ticaret İstanbul Gıda was established in 1987 to undertake the international sales and marketing of all Ülker products. Birleşik Dış Ticaret undertakes exportation of the products of other brands. Established in 1999, Birleşik Dış Ticaret has a branch in the Atatürk Airport Free Trade Zone. Both of these companies finished 2009 with turnovers close to those of İstanbul Gıda and Birleşik Dış Ticaret, with the powerful sales and distribution channels they own, export Ülker products to more than 80 countries, including the Balkans and the Middle East in particular, and also the Turkic Republics, the United States, Europe, Africa and the Far East. İstanbul Gıda-Birleşik Dış Ticaret, which ranked 303 rd in the 500 Top Private Companies of Turkey in Capital magazine, made optimization efforts in order to reduce the logistics costs and thus ensured an increase of efficiency The article entitled Don t integrate your acquisitions, partner with them published in the December 2009 issue of Harvard Business Review, one of the most prestigious academic publications in the world, presented the process that followed Ülker s purchase of Godiva as a successful business model. An advertising campaign was launched for the 65 th anniversary celebrations of Ülker with the concept Happy Moments. 37

40 Subsidiaries Biskot Gıda Operating in four different factories in the Karaman Organized Industrial Zone, Biskot Gıda has been among the subsidiaries of Ülker Bisküvi since Biskot Gıda added the Chocolate-2 factory to its facilities in This includes a Winkler chocolate molding facility, one of the few in Europe and a facility for preparing semi-finished chocolate products. With these facilities, where approximately 2,750 people are employed, Biskot Gıda has become one of the leading industrial enterprises and the biggest employer of the region. In 2009, two wafer production facilities were added to the existing factory and in the Biscuit-2 factory automation efforts were initiated in four cream biscuit facilities. In three of the cream biscuit facilities, automation of the cream filling facility was finished; and in another one, packaging automation was finalized. In two facilities, packaging automation work is still continuing. When this work is completed, three cream biscuit production facilities will be fully automated. Furthermore, thanks to newly-purchased packaging machinery, an important capacity increase was achieved. Capacity utilization rates were approximately 79% in the Biscuit-1 factory, 80% in the chocolate factory, 64% in the Biscuit-2 factory, and 71% in total within the whole Company. Biskot Gıda increased its biscuit production from 5,221 tons in 1999 to 102,630 tons in 2009 through new investments and efficiency improvement works. Biskot Gıda s product portfolio includes Pötibör fingerpicnic, cream and sandwich biscuits, chocolate covered bar, chocolate flavored wafer, Rulokat, Çokomel, cream chocolate, special biscuits, special chocolate, crackers and products in the category of covered cakes. As well as its own products and in addition to the Ülker, Halk and Karsa brands, Biskot Gıda continues to produce private label crackers, marshmallows, wafers, chocolate and chocolate covered products in four different factories. Biskot Gıda holds the TSE-ISO-EN 9000 Quality Management System, TSE-ISO-EN Food Safety Management System and TSE-ISO-EN Environmental Management System certifications and the IFS-International Food Standard and BRC Global Standard for Food Safety quality certificates. Biskot Gıda, which ranked 208 th in the Istanbul Chamber of Industry list of Turkey s Top 500 Industrial Enterprises in 2007, was 181 st in ÜLKER BİSKÜVİ ANNUAL REPORT 2009

41 Atlas Gıda Pazarlama Established in 1987, Atlas Gıda Pazarlama is one of the leading companies of bakery products in terms of sales and reach. It issues invoices to 80% of 181,300 points of sale throughout Turkey, which are visited at least once a week. Atlas Gıda Pazarlama conducts an efficient and widespread distribution/marketing operation in 11 regions across Turkey, in addition to its head office organization in Istanbul. Atlas Gıda Pazarlama s organization of distribution channels consisted of distributors, chain markets, local markets and doorto-door vendors in 2007, and at the end of 2007 it transferred the chain markets to a newly established Group company, Pasifik Gıda Pazarlama. Distributors: Through their own sales network, Atlas Gıda Pazarlama s 129 distributors market the products they buy from the Company to their own regions and points of sale. Door-to-door vendors: Using vehicles hired from Atlas Gıda Pazarlama, door-to-door vendors organizations buy and sell products to points of sale allocated to them on their own behalf. There are 149 door-to-door vendors in total working for Atlas Gıda Pazarlama in İstanbul, Ankara and İzmir. Following the restructuring in 2005, Atlas Gıda Pazarlama has focused primarily on the domestic distribution of biscuits, cakes, crackers and some chocolate covered products. There are 40 brand names in Atlas Gıda s portfolio. The Company is able to implement different promotional and consumer initiatives for various product categories in parallel to its rapidly expanding product portfolio, to develop storage and logistics strategies on a product basis, and to measure its delivery efficiency more accurately. 39

42 Subsidiaries Godiva With the agreement signed in December 2007, the world s leading premium chocolatier brand, Godiva, became an official member of Yıldız Holding on March 18, During this process, Ülker Bisküvi played an active role by acquiring 25.23% of the shares in Godiva. Godiva was established in Brussels in 1926 by Joseph Draps, inspired by the legendary story and personality of Lady Godiva, and has been producing premium chocolate products for more than 80 years. The Godiva brand serves its customers through 450 stand-alone boutiques and 9,300 sales points worldwide, with more than 60 products ranging from premium chocolates to biscuits, coffee to cacao, cakes and chocolate bars to chocolate drinks. Having opened its first boutique on the Fifth Avenue in New York, the US, in 1972, Godiva offers its products throughout four geographic regions, including North America, Japan, the Pacific region and Europe. Other Subsidiaries Besler Gıda produces oil, the main raw material in biscuit and wafer production PNS Pendik Nişasta is one of the largest companies in the corn and starch sector Fresh Cake produces cakes Sağlam GYO is a real estate investment partnership which went public at the beginning of 2007 Tire Kutsan is a publicly traded company producing paper and cardboard boxes BİM Birleşik Mağazacılık is a publicly traded company operating in the field of markets and stores. The world trend, leaning towards a combination of biscuit and chocolate, has made a big imprint on Ülker Bisküvi s partnership with Godiva. For Ülker Bisküvi, this partnership is an important step towards sharing experience and acquiring a synergy in the international arena. 40 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

43 We are working for a happy moment in which you live your life the way you feel it. 41

44 Corporate Governance / Ülker Bisküvi Family Ülker Bisküvi is committed to ensuring and supporting the development of its employees, whom it defines as our biggest capital and our most valuable assets, not only for the Company s business targets and competitiveness but for their happiness as well. Human Resources Educational Breakdown (2009) Two-year degree 2.1% Graduate and above 8.9% High school 70.1% Primary education 18.9% Seniority Breakdown (2009) 5 years and below 65.4% 20 years and above 1.3% Between years 3.4% Between 6-10 years 29.9% 42 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

45 Breakdown of Age (2009) Between the ages % 45 and above 8.5% 30 and below 34.9% Ülker Bisküvi s human resources policy is conducted with a vision to shape and implement the highest caliber human resources organization in all the fields of business. Ülker Bisküvi s human resources operations are carried out in accordance with the Holding s policy. The Company s mission in human resources is to increase the competitiveness of Ülker Bisküvi through efficient management of human resources with a high quality of work, high motivation, company loyalty and collaboration. Under the conditions of global competition, the key to attaining high technology and achieving new opportunities in business life is a human resources policy open to development. Ülker Bisküvi organizes employee satisfaction surveys aimed at further increasing company loyalty and the motivation of employees and creates development programs in keeping with these results, as well as providing social activities for employees and their families. Employees are invited to give their opinions and put forward their ideas to ensure continuation of employee satisfaction and loyalty. Industrial Relations Board meetings are held twice a year through the workers union. In these meetings, communication between the employees and the employer are emphasized and efforts are made to promote continuing dialogue in every area. The Collective Communication Platform is intended to ensure communication between employees who are not included in the collective bargaining agreement and to increase employee satisfaction, thus taking proactive steps to prevent any possible problem. 43

46 Ülker Bisküvi Family Industrial Relations Board meetings are held twice a year through the workers union and efforts are made to promote continuing dialogue in every area. Activities for Employees Ülker Bisküvi, as in previous years, continued a series of activities in order to increase all employees motivation in the factories and to strengthen the social communication network and loyalty to the Company. With the technical visits between the factories, the employees social communication network was strengthened. Separately, various factory visits were organized for the families of employees to provide them with an opportunity to see the working environment and find out more about the Company. Employees were sent to the football games of Beşiktaş, sponsored by Ülker. The traditional football tournament was also successfully organized in Ranking teams were rewarded. A cultural visit to The Panorama 1453 Historical Museum on the Conquest of Istanbul was organized. A visit to the Darülaceze (alms house) was organized to develop the social responsibility awareness of employees. Among activities for National Independence and Children s Day on the 23 rd of April, a movie festival for employees children was organized under the sponsorship of Ülker. An LCD screen was installed in the dining room, showing videos to inform and educate employees on issues such as the H1N1 influenza virus and occupational health and safety. Feasible and successful ideas within the scope of the Mind Cube project were rewarded. Within the scope of the Koza Social Responsibility Project of YASED (International Investors Association of Turkey), internship opportunities were provided to two students from the Eastern and Southeastern Anatolia during the summer of ÜLKER BİSKÜVİ ANNUAL REPORT 2009

47 Ülker Bisküvi pursues a human resources policy that is always open to development, in order to reflect advanced technology and new opportunities in business life, while operating under globally competitive conditions in parallel with the developments throughout the world. Ülker Bisküvi maintains its competitive industrial advantage not only through technology but also by substantial investments in human resources. Corresponding to the idea that each manager should also be a good human resources manager, all managers are informed about human resources. Regarding employees as our biggest capital and our most important asset, Ülker Bisküvi is committed to ensuring and supporting the development of its employees, not only for the Company s business targets and competitiveness but for their happiness as well. Support for the personal and professional development of employees is given through training and development programs, so that they can maintain top performance in their job and prepare Ülker Bisküvi and themselves for the future. Training Ülker Bisküvi provides its employees with in-house and outsourced training opportunities in the following areas: Quality Systems (Hygiene, ISO Environment Management Systems, OHSAS Occupational Health and Safety, etc.) Personal Development (Professional Behavior in Business Life, Conflict Management, Innovation Management, Interpersonal Relations Management and Communication Skills, etc.) Foreign Languages (English, etc.) Technical Training (Pneumatic, Mechatronics, Siemens S7 200, Siemens S7 300, etc.) On-the-job (TQM and Management Systems Documentation, Issues to be Taken into Account with Hands and Overalls, Allergens, What Is the Operational Requirements Plan?, etc.) Job orientation (Job start program, factory visit, etc.) The results of the Employee Satisfaction and Loyalty Survey conducted in 2008 were analyzed and a new training-development program entitled Effective Leader - Manager Program was prepared. Ülker Bisküvi uses the Performance and Career Management System to identify and reward employees potential and achievements and to determine their potential development areas. The Performance and Career Management System is aimed at improving the competencies of each and every employee and their contribution to the vision of Ülker Bisküvi. These competencies have been defined under two headings as Company Competencies and Business Family Competencies. Company Competencies are Consumerfocused, Team Work Disposition, Innovation, Resultoriented, Effective Problem Solving. A Collective Labor Negotiation was signed in February 2010 with the Öz Gıda Labour Union for the period from January 1, 2010 to December 31, Ülker Bisküvi s senior and employee termination benefit fund, as of December 31, 2009, stood at TL 17,349,

48 Environment, Quality and R&D Activities Both Ülker Bisküvi factories hold the emission permission certificate. Fire systems in the facilities are regularly maintained in order to prevent fuel loss and increase efficiency. Environmental Policy The environmental policy of Ülker Bisküvi is based upon the following principles and objectives: To bring under control all wastes resulting from activities and all kinds of contamination, To educate employees, suppliers and business partners regarding this issue, To support efficient use of natural resources and energy sources and to prevent loss, To perform as per defined standards and regulations in this area. Training for employees and business partners was organized, and actions were taken to raise awareness for sustaining a habitable world in harmony with these principles and objectives. Both Ülker Bisküvi factories hold the emission permission certificate. According to the results of emissions measurements, it was reported that among the greenhouse gases, only carbon dioxide is produced in the facilities and that the resulting figure for the consumption of natural gas is far below the limit values as per regulation. Fire systems in the facilities are regularly maintained in order to prevent fuel loss and increase efficiency. In Ülker Bisküvi s Istanbul Factory, 404A refrigerant gas has started to be used in cooling systems instead of the Freon 22 refrigerant, which is one of the hydrofluorocarbons producing greenhouse gases that are subject to restrictions based on the Kyoto Protocol. 46 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

49 R&D and Quality Activities Ülker Bisküvi, offering innovative products that appeal to the traditional taste buds of Turkey and the world, defines the ethical principles in R&D practices as follows: Using scientific methods and techniques to search for, find and report the facts, Caring for the people, environmental health and the public good in adhering to the laws and regulations in effect as well as to the principles and targets of the Group, Giving the utmost importance to ensuring customer satisfaction and meeting customer needs, Providing food safety-quality-price-variety optimization in products, Acting in accord with the principle that we never offer our customers any product that we will not consume ourselves or give to our children. Ülker Bisküvi, with its professional and experienced R&D staff, continued to develop new products consistent with its sense of quality, and took its innovative approach to a higher level in In 2009, when the effects of the economic crisis were largely felt, the focus was on R&D projects to utilize the idle capacities of the facilities and at the end of the year, one of our facilities started production of a new product at full capacity. In 2009, we worked on 68 new projects in total in the R&D departments of our Istanbul and Ankara factories and 10 of these projects were turned into products and offered to the market. One of the greatest projects Ülker Bisküvi realized in 2009 was Mini Halley. In addition, the following projects were completed successfully within the biscuit, wafer and cracker group: Six new products in the Ankara Factory: Mini Halley, Mavi Yeşil with Cacao Cream, Mavi Yeşil Wholewheat Cinnamon, Rondo Dark, Original Gourmet Chocolate Wafer, Original Gourmet Vanilla Wafer, 32 new products in the Istanbul Factory: Hero Baby İyi Geceler Baby s Biscuit, morning biscuit in the shape of the sun, Gogly milk biscuit, Biskrem Caramel, Hanımeller special for mothers day, Hanımeller Coconut Biscuit, Hanımeller negrita white, Big Biskrem, Haylayf with Cacao, Haylayf with Caramel, Sour Cherry, Apple Cinnamon, Raspberry, pie bars, plain, almond crocant, hazelnut crocant shortbread, Pötibör with Cream, Passions cookie, Alpella Waynut, etc., One product development in Ankara: Crackers Snack, 16 product developments in Istanbul: Pötibör for the 65 th Anniversary, Halk Tatbeni with Cream, Alpella Riva, Biskrem Stick, Biskrem round, small round Albeni, Biskrem with fluid cream, Biskrem hazelnut in bag, Biskrem 60 gr. and 110 gr. for exports, etc., 11 packaging developments in Ankara: Original Gourmet Strawberry Wafer, Probis Box, Çokoprens Bim package, Çiziviç 3 in MP, Pötibör inner package, Altınbaşak Bim package, Pötibör 1,200 gr., Krim Kraker 500 gr., Başak Cake Recipes, Mavi Yeşil Apple Flavor 4 in MP, Mavi Yeşil with Lemon Flavor 4 in MP, 47 packaging developments (single Biskrem 11 gr., Mini Çizi cracker, Metro package works, Hanımeller Negrita double, Hero milk baby and honey and banana for Egypt, Poland, Czech Republic etc.). 47

50 Environment, Quality and R&D Activities In 2009, the products developed as a result of R&D activities represented 6.6% of the total product tonnage of the Ankara Factory, and 1.25% of the total product tonnage of the Istanbul Factory. The Ankara R&D Department is currently working on 63 new projects and the Istanbul Factory is working on 35 new projects. In 2009, the products developed as a result of R&D activities represented 6.6% of the total product tonnage of the Ankara factory, and 1.25% of the total product tonnage of the Istanbul factory. The Ankara R&D department is currently working on 63 new projects and the Istanbul factory is working on 35 new projects. Delicious, Healthy and Safe Products Ülker continued in 2009 to conduct routine tests and analyses in areas such as raw materials and packaging, as well as carrying out semi-finished and finished product evaluations, in order to guarantee the standardized, reliable production quality of Ülker products free from human error. Production trials with physical, chemical and microbiological analyses were performed on a total of 124 alternative raw materials in Ankara, and on a total of 47 alternative raw materials in Topkapı/Istanbul. In addition, results of analysis performed by accredited laboratories were requested from suppliers and recorded. Within the scope of defined analysis methods and plans, routine activities in process and CCP controls, shelf life analyses, scoring, appliances, environmental and employee hygiene supervision were continued as routine. For the standardized production of Ülker products, and to determine the differences between the similar products of competitive companies, a benchmarking was made on the product groups of Pötibör, Kremalı (cream biscuit), Çubuk Kraker, Gofret (wafer), Halley and Light Biscuit in ÜLKER BİSKÜVİ ANNUAL REPORT 2009

51 Employee Hygiene Training, Environment and Allergies and Allergens were organized in order to guarantee product safety and hygiene in Ülker Bisküvi s objective is to meet customer expectations at the highest possible level and to increase customer satisfaction constantly; therefore the Company carefully investigates customer feedback about the products and takes any necessary corrective action. In addition, tests and analyses were conducted in cooperation with the suppliers to prevent quality-related problems at source. Ülker Bisküvi, which adopts the principle of producing Delicious, Healthy and Safe products, in compliance with the laws and regulations, under hygienic conditions, consistently and with a superior quality, renewed its quality certificates in 2009: ISO 9001:2008 Quality Management System, ISO Food Safety Management System, TS 18001:2007 Occupational Health and Safety Management System, ISO Environment Management System BRC (Achieved Grade: A) IFS (at a Higher level) 49

52 Shareholder Relations and Profit Distribution Policy The ISE equity market performance of Ülker Bisküvi shares have moved in line with the general trends in 2009, as in the previous years. It is observed that the losses seen at the ISE, in parallel with the negative shocks at the international markets in 2008, recovered to some extent in 2009 and that the ISE national index has risen. Ülker Bisküvi shares have moved in line with general trends at the ISE in 2009, as in the previous years. Consequently, Ülker Bisküvi shares have been preferred by those investors who tend to make a long-term investment far from speculative considerations, seeking an attractive dividend alongside a balanced price course, and also looking for stable return compared to alternative investment opportunities. Ülker Bisküvi shares are traded on the ISE National Market with the Reuters ticker symbol ULKER.IS and Bloomberg s ULKER.TI. Relations with shareholders are coordinated by the Department of Finance. This unit manages the communication with the ISE, CMB, CRA (Central Registry Agency) and Takasbank (the ISE Settlement and Custody Bank), and informs shareholders of announcements from these bodies, in collaboration with the Investor Relations Unit. It also organizes meetings with shareholders upon their request, or on a project basis as required, in addition to the ordinary and extraordinary shareholders meetings. The Investor Relations Unit holds meetings with local and foreign investors, as well as attending investor conferences organized at home and abroad. To this end, the Investor Relations Unit met with many local and foreign corporate investors in ÜLKER BİSKÜVİ ANNUAL REPORT 2009

53 Profit Distribution Policy Ülker Bisküvi has adopted the principle of determining the amount of dividend to be distributed, no matter what not less than the proportion and amount set by the CMB, in accordance with the resolutions of the General Assembly within the framework of Turkish Commercial Code, the rules and regulations of the CMB and the provisions laid down in its Articles of Incorporation. The dividend amount is to be distributed within the legal periods designated by the CMB. Profit distribution proposals by the Board of Directors at the General Assembly are set by taking care of delicate balance between the shareholders expectations and the growth dynamics of the Company, in consideration of prevailing conditions of the national economy and the subject industry. The principle of distributing the dividends in cash and/ or as bonus shares is adopted. Type A and Type B shares, as well as the founding shares are entitled to have dividend privilege at the rates laid down in the Articles of Incorporation. Furthermore, the Articles of Incorporation also state that employees shall be paid merit bonuses from the profit according to their performance. Although there is a provision in the Articles of Incorporation for payment of advance dividend, this method has not been exercised to date. Company Ülker Bisküvi Reuters & Foreks Code ULKER.IS ISIN Code TREULKR00015 Industry Food XU100 XU050 ISE Index Listings XUTUM XUSIN XGIDA XSANK Price (as of December 31, 2009)(TL) 3.54 Free Float (%) Market Capitalization (US$ thousand) 950,844 Free Float Market Cap (US$ thousand) 304,270 Average Daily Trading Volume (US$ thousand) ( ) 9,775 Beta 0.61 Sources: Reuters and Bizim Securities Inc. Market Capitalization (US$ thousand) Maximum 1,085,083 1,069,449 1,131,223 1,081, ,896 Minimum 589, , , , ,314 Share Performance (%) TL (2.1) (20.9) 43.4 (61.9) US$ (1.3) (24.5) 73.9 (71.0) Relative Performance to ISE 100 (38.55) (19.57) 1.02 (21.18)

54 Social Responsibility Projects Ülker Bisküvi, which does not use trans fat in its products, differentiates itself by developing healthy products thanks to its technological infrastructure. Respect for the Environment in Production Ülker Bisküvi s environmental policy has been established not as a result of the legal obligations, but with the awareness of a citizen of Turkey and a habitant of the world. Activities are based on the strategy of reducing greenhouse gas emission, which is the greatest cause of global warming. With this objective, fuel systems used in the Company s production facilities are maintained regularly in order to prevent fuel loss and increase efficiency. Factory chimney gas emission measurements made according to the Control of Industrial Facilities Origination Air Pollution Legislation show that the smoke gas emission measurements of Ülker Bisküvi production facilities are below the legal limits prescribed by law. Ülker Bisküvi s activities for environmental protection are not only limited to greenhouse gases. The water issue becomes more and more important every day due to global warming. To use water more efficiently, the purification facilities in the Ülker Bisküvi factories each year clean more than 73,000 cubic meters of water and make it reusable. In addition to the above, used paper and similar materials are collected separately for recycling purposes and it is ensured that batteries are disposed of appropriately. Ülker Offers Healthy Products Ülker Bisküvi offers a wide range of products based on the different requirements of different consumer segments. Ülker Bisküvi, which has not used trans fat in its products since June 2007, differentiates itself by developing healthy products thanks to its technological infrastructure. 52 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

55 Ülker Bisküvi contributes to healthy nutrition with its products, not only in Turkey but also in its countries of export by strictly observing the food standards applicable in these countries. Projects Inviting Children to Get Involved with Life Since its inception, Yıldız Holding has undertaken social responsibility projects aimed at social development, as well as contributing to the economic development of Turkey. As the flagship of Yıldız Holding, Ülker Bisküvi continues to support the social responsibility and sponsorship projects undertaken by the Group. The wide-ranging social activities of the Group, which range from environmental protection to sports, focus especially on projects that invite children to get involved with life. Yıldız Holding, always in close relationships with youth and children, supports projects for children, who the Company considers to be the future of Turkish sports. The Grassroots project that aims to get children into the habit of participating in sports has been undertaken in cooperation with the Turkish Football Federation. Within the scope of this project to take outdoors children whose playgrounds are decreasing day by day and who consequently have to spend more and more time indoors, children between the ages of 6-12 can enroll for free at the Grassroots centers in Istanbul, Adana, Trabzon, Diyarbakır, Sinop and Muş. The Grassroots project also includes football villages. This activity was first organized in Van in 2007 and afterwards in Sinop, Bolu, Sivas and Isparta in 2008 and in Sakarya, Zonguldak, Kütahya, Malatya, Trabzon and Erzincan in In football villages children are not only taught to play football, but they are also given information on nutrition, personal development, chess and environmental awareness. The Football and Basketball Festival, inspired by the idea of combining sports with fun, gathers thousands of students from all over Turkey. The Festival is organized in a different city every year and students learn cooperation, fair play and friendship, in addition to sports. With the projects realized to date, approximately 50,000 children have taken the opportunity to play sports and to see new places. Each year, Ülker organizes the Children s Movie Festival on National Independence and Children s Day, which falls on April 23. Approximately 255,000 children found the chance to watch Nim s Island last year and The Secret of the Moonacre this year free and to meet with brand new worlds and to broaden their imagination. Yıldız Holding, while undertaking projects for the physical and mental development of children, also did not neglect its environment and the land and locations where it is situated. The Company is one of the initial supporters of TEMA s rural development projects and has supported three villages in Edirne and Kırklareli. Under this project, pastures in those villages have been cleared, new fruit saplings have been bought, and activities such as viniculture, apiculture and alternative seeds plantation have increased the income of the villages. Continuing its investments especially in children, education, environment and sports, Yıldız Holding also supports congresses and conferences which contribute to the development of the industry in which it is active. 53

56 Corporate Governance Principles Compliance Report 1. Declaration of Compliance with the Corporate Governance Principles Our Company is aware of the importance of the implementation of the principles included in the Corporate Governance Principles published by the Capital Market Board in 2003 and revised and finalized in 2005, and has undertaken necessary work and continues to show necessary care to make further progress in this process. Please find below the evaluations and findings of our Company in respect of the level of compliance with the Corporate Governance Principles, as well as its comprehensive opinion for the improvement of the level of compliance in terms of scope and nature. In brief: The Unit in charge of the Shareholders Relations has been restructured. Arrangements have been made in respect of trading of insider information. The working guidelines of Committees have been reshaped. The website has been designed as stated in the Principles. Work has been undertaken for the Compliance of the Articles of Incorporation with the Corporate Governance Principles. The Corporate Governance Committee and the Risk Committee, which will report to the Board of Directors, have been established and the Audit Committee has been reorganized. It is also planned gradually to implement those principles which have not yet been implemented, although this has not led to any conflict of interests between the interest owners to date. The following Corporate Governance Principles Compliance Report has also been disclosed to the public on the Company s website at SECTION I - SHAREHOLDERS 2. Shareholder Relations Unit Relations with shareholders are coordinated by the Department of Finance. This Department responds to the queries made by our shareholders in writing or via the Internet, as well as attending investor meetings held in Turkey and abroad. Contact details of the Shareholder Relations Unit are given below: İlhan Turan Usta Finance Director Davutpaşa Cad. No: Topkapı/Istanbul [email protected] Didar Sevdil Yıldırım Corporate Finance and Capital Markets Coordinator of Yıldız Holding Kısıklı Mah. Ferah Cad. No: 1 B. Çamlıca Üsküdar/Istanbul [email protected] Relations with shareholders are coordinated by the Department of Finance. This Department manages the communication with the ISE, CMB, CRA (Central Registry Agency) and Takasbank (the ISE Settlement and Custody Bank) and informs shareholders of announcements from these bodies. It also organizes meetings with shareholders upon their request, or on a project basis as required, in addition to the ordinary and extraordinary shareholders meetings. 3. Exercise of the Right of Access to Information by Shareholders The written or verbal requests for information from our shareholders during the period have been met, except those that are characterized as business secrets or not disclosed to the public. All information that might be required for the exercise of the shareholders rights is provided to our shareholders in our annual reports and material case announcements and through individual requests. Furthermore, necessary information is also made available to shareholders in general at the website: 4. Information on General Assembly One Annual Ordinary General Meeting was held in Ordinary General Meeting: The Ordinary General Meeting of 2008, held on May 26, 2009, was attended by our shareholders representing approximately 48% of the paid-in capital, which was TL 268,600,000. No interest owner or media came to the meeting. As provided in the Law and Articles of Incorporation, the invitation to the meeting containing venue, date, time, agenda and power of attorney form was duly made by a notice given in the Turkish Trade Registry Gazette No. 7304, dated May 5, 2009, in the daily newspapers Dünya and Referans of May 1, 2009 and via the Internet, as well as by sending registered mail to the holders of shares issued to name and to holders of shares issued to the bearer if they have lodged shares and notified the Company of their address in advance. The financial statements and reports, including the annual report, the profit distribution proposal, any necessary information document prepared in relation to the items on the agenda of the General Meeting, and 54 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

57 any other documents in support of the items on the agenda as well as the latest version of the Articles of Incorporation and the copy of amendments and grounds thereof, if any amendment will be in the Articles of Incorporation, are made available to our shareholders for review at the Head Office and branch offices of our Company from the date of notice given for the invitation to the General Assembly. In the General Meeting, information about the issues on the agenda was given in a straightforward and clear manner. Shareholders were offered equal opportunity to express their feelings and ask questions, and an atmosphere of healthy discussion was created. No questions were raised by the shareholders at the General Meeting of 2008, and no proposals were made other than the items on the agenda. 5. Voting Rights and Minority Rights Every share has one vote, as per our Articles of Incorporation. The capital of our Company consists of Group A, B, C and D shares. Four members of the Board of Directors can be elected from among the candidates nominated by the absolute majority of Group A shareholders, and one member can be elected from among the candidates nominated by the absolute majority of Group D shareholders. The other members can be elected from among the candidates nominated according to the general provisions. There is no relationship of mutual affiliation between any of our shareholders and our Company. The cumulative voting method is not exercised in our Company. There is no provision in our Articles of Incorporation that prevents voting by proxy as the representative of shareholders not present. 6. Profit Distribution Policy and Date of Profit Distribution Within the scope of the Corporate Governance Principles set forth by the CMB, our Board of Directors has adopted a profit distribution policy as mentioned herein below. Accordingly: Our Company has adopted the principle of determining the amount of dividend to be distributed according to the resolution adopted in the Shareholders Meeting within the framework of Turkish Commercial Law, the provisions of the CMB and the provisions laid down in the Articles of Incorporation. The dividend will not be less than the rate and amount fixed by the Capital Market Board, and will be distributed within the legal periods designated by the CMB. Profit distribution proposals made by the Board of Directors at the General Meeting maintain a sensitive balance between the expectations of shareholders and the growth requirements of Ülker Bisküvi, taking into consideration the prevailing conditions of the national economy and the industry in which the Company operates. The principle of distributing the dividends in cash and/or as free shares has been adopted, and the A and B shares and the founding shares are privileged to receive shares from the profit at the rates laid down in the Articles of Incorporation. Furthermore, the Articles of Incorporation also state that employees shall be paid merit bonuses from the profit according to their performance. Also, although there is a provision in the Articles of Incorporation for payment of advance dividend, this method has not been exercised to date. The shareholders were informed about the profit distribution policy of our Company at the General Meeting. This profit distribution policy is disclosed to the public and is also included in the Company s website and annual reports. 7. Transfer of Shares Article 10 of our Articles of Incorporation provides for the transfer of shares issued to name. According to the said Article, the shares issued to name can be transferred in principle. The transfer shall be effective as from delivery of share to the transferee and registration into the share book. The Company may refrain from registering the transfer into the share book without stating a reason. SECTION II - PUBLIC INFORMATION AND TRANSPARENCY 8. Company Information Policyı Company information policy is carried out in accordance with legal regulations, CMB legislation and the rules determined by legal announcements. The Company prepared a written document regarding public disclosure and information and published it on its website following the approval of the Board of Directors. Additionally, it is adopted as the basic principle to make available any information which has already been disclosed to the public, to the relevant person in the shortest time possible upon request. Shareholders requests for information are met in writing or verbally. In the event of any important developments requiring public information during the year, necessary material 55

58 Corporate Governance Principles Compliance Report case announcements are also made in a timely manner. Our annual report is prepared in detail to ensure public access to any information regarding the activities of the Company. 9. Material Case Announcements Our Company issued 14 material case announcements during the period of January - December 2009, pursuant to the CMB regulations. No additional explanation was requested by the CMB in reference to the material case announcements made by our Company in There are no material case announcements that have not been made in due time by our Company. 10. Company Website and its Content Our Company s website, in Turkish and English, is available at The information below is available on our website for the purpose of informing the shareholders in relation to our Company: Information on Ülker Bisküvi and its subsidiaries The Vision of the Company Ethical rules and principles Information on the Board of Directors and the General Manager Capital structure of the Company Organizational structure Social responsibility Trade registry information and Company profile Articles of Incorporation Financial Statements and footnotes Annual reports Material case announcements Corporate Governance Principles Report Information on General Meetings (Agenda, minutes, list of attendants and power of attorney form) Company Information Policy Committees Press announcements (General Meeting announcements, etc.) Insider information list Broker companies reports Rating reports Ülker Bisküvi at the ISE (ratios and graphic information regarding the shares) 11. Declaration of Individual Ultimate Controlling Shareholder(s) There is no individual ultimate controlling shareholder in our Company. Our shareholder structure is included in the annual report and on our website. 12. Public Disclosure of Persons who can have Insider Information Our Company has taken every precaution necessary to prevent the use of insider information. Our website lists these precautions and the executives who have access to information that can affect the value of capital market instruments, as well as other individuals/entities from whom it receives services. SECTION III - INTEREST OWNERS 13. Informing the Interest Owners In the event that the rights of interest owners are not regulated by the legislation or contract, their interests shall be protected within the framework of the rules of goodwill and by observing the prestige of Company to the extent permitted by the resources of the Company. Additionally, the employees have access to circulars and announcements through the Internet portal of the Company. Some of the important announcements are released simultaneously to all employees via Participation of Interest Owners in the Management The Board of Directors consists of seven members, as per our Articles of Incorporation, and these members are elected by the General Meeting upon recommendation of various shareholders according to the provisions laid down in the Articles of Incorporation. 15. Human Resources Policy The basic policy of the human resources department is to develop a high performance team with the improvement and development of human resources building upon what has been done to date. The human resources policy adopted by our Company is in general the policies adopted by Yıldız Holding. These policies are available at and No discrimination complaint has ever been made against the human resources policy implemented by our Company. 16. Information Regarding Relations with Customers and Suppliers Our Company seeks continuity of service quality and standards at all stages of production. The utmost care is taken with the confidentiality of the customers and suppliers information that has the nature of trade secrets. Customer satisfaction is one of the basic principles of our Company. 17. Social Responsibility The social responsibility activities of our parent holding company, namely, Yıldız Holding, are listed in our annual report and are also available at and Our Company takes the utmost care in implementing such policies which respect and support the environment, sports, education and public health. 56 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

59 SECTION IV - BOARD OF DIRECTORS 18. Structure and Composition of the Board of Directors, and the Independent Members The Board of Directors is composed of seven members. In line with the Articles of Incorporation, these members are elected by the General Meeting; four members are elected from among the candidates nominated by the absolute majority of Group A shareholders and one member is elected from among the candidates nominated by the absolute majority of Group D shareholders. The other members are elected from among the candidates nominated according to the general provisions. Details of members of the Board of Directors are provided below. Name and Surname Murat Ülker Orhan Özokur Ali Ülker Necdet Buzbaş* Mahmut Mahir Kuşculu Cengiz Solakoğlu Güven Obalı Title Chairman Deputy Chairman Member (Executive Director) Member Member Member Member Mahmut Mahir Kuşculu, Cengiz Solakoğlu and Güven Obalı serve on the Board of Directors as independent members. *Alain Strasser was appointed a Member of the Board of Directors to be effective as of April 14, Qualifications of Members of the Board of Directors The minimum qualifications required for election as a member of the Board of Directors are in line with the qualifications set forth in Articles 3.1.1, and of Section IV of the CMB Corporate Governance Principles. In the Articles of Incorporation, there is a provision requiring that the Board Members have sufficient knowledge of the legal framework which regulates the activities of the Company, and be qualified and experienced in company management and able to analyze the financial statements and reports of the Company. Additionally, as per the Articles of Incorporation, at least one third of the members of the Board of Directors are required to be elected from among university graduates. Our Board of Directors consists of seven members, and this number ensures efficient organization of the activities of the Board of Directors. 20. The Vision of the Company Our Company and all companies of Yıldız Holding have been founded with the belief that every person is entitled to enjoy a pleasant childhood no matter which country s/he may live in. The vision of Ülker Bisküvi is to strengthen its position as a brand most preferred by consumers, and to be among the top five companies in the world markets within the next ten years, particularly in the area of bakery products. The vision and mission of Yıldız Holding and our Company have been made public and are available at and Risk Management and Internal Control Mechanism Activities regarding risk management are carried out by the Risk Committee. Furthermore, our Company is also audited regularly by the audit units of Yıldız Holding A.Ş., its principal shareholder, and by independent auditors. The findings of these audits are submitted to members of the Committee in Charge of Audit and other members of the Board of Directors. Company workflows, procedures, and the authorities and responsibilities of employees have been placed under control, subjected to constant supervision within the framework of risk management. 22. Authorities and Responsibilities of Members of the Board of Directors and Executives The authorities and responsibilities of members of the Board of Directors and executives are clearly set forth in the Articles of Incorporation available at The Board of Directors exercises its powers having all the information required, prudently and within the framework of the rules of goodwill to ensure proper fulfillment of its role. 23. Principles of Activity of the Board of Directors The Board of Directors held 20 meetings in the period of January - December Utmost care is taken to determine the date of meetings to allow all members to attend. The Board of Directors meets regularly, whenever the businesses of the Company require. 24. Non-Transaction and Non-Competition with the Company Members of the Board of Directors do not have any transaction or activity that may be within the scope of prohibition of transaction and competition with the Company and which, hence, require permission from the General Meeting. 25. Ethical Rules Ülker Bisküvi is a member of a Group that produces quality and healthy products, respects its employees, cares for the rights of partners and shareholders, 57

60 Corporate Governance Principles Compliance Report suppliers and customers, is law-abiding, attaches importance to the values of society, bears social responsibility, has adopted principles of management that are based on the highest level of respect, cooperation, high performance of work, honesty, consistence, respect, confidence and responsibility between executives, employees, suppliers and customers, and endeavors to improve upon these principles. The ethical rules adopted by Yıldız Holding companies are implemented in all Group companies, and these ethical rules have been made public and are available for the information of our shareholders at and Number, Composition and Independence of the Committees in the Board of Directors Audit Committee: The Audit Committee, which was established with the decision of the Board of Directors dated May 22, 2006, has been reorganized as per Communiqué No. 22, Series X of the CMB following the decision of the Board on August 5, The Audit Committee ensures that the financial and operational activities of the Company are carried out on a solid and healthy basis. Working under the Board of Directors, the Committee is responsible for following up the processes of the accounting system, the auditing and disclosure of financial information, and the functioning and efficiency of the internal control system. This Committee meets whenever required, which should be no less than quarterly. The structure of the Audit Committee, amended with the Board of Directors decision dated March 31, 2010, is as follows: Position in the Name and Surname Title Company Mahmut Mahir Kuşculu Chairman Board of Directors Member (Independent) Güven Obalı Member Board of Directors Member (Independent) Halil Cem Karakaş Member Head of Department of Finance of the Holding Corporate Governance Committee: Following the decision of the Board on August 5, 2008, a Corporate Governance Committee was established within the Company as per CMB Corporate Governance Principles. The Committee reports to the Board of Directors. It meets whenever required, which should be no less than three times in a year. The structure of the Corporate Governance Committee, amended with the Board of Directors decision dated March 31, 2010, is as follows: Position in the Name and Surname Title Company Cengiz Solakoğlu Chairman Board of Directors Member (Independent) İlhan Turan Usta Member Finance Director Didar Sevdil Yıldırım Member Corporate Finance and Capital Markets Coordinator, Yıldız Holding Risk Committee: Following the decision of the Board on August 21, 2009, a Risk Committee was established within the Company as per CMB Corporate Governance Principles and the Articles of Incorporation. The Committee reports to the Board of Directors and meets whenever required. Details of the Risk Committee are as below: Position in the Name and Surname Title Company Necdet Buzbaş Chairman Board of Directors Member Mahmut Mahir Kuşculu Member Board of Directors Member (Independent) 27. Financial Benefits Provided for the Board of Directors The fees of members of the Board of Directors are determined separately for each by the General Assembly in view of the financial conditions of the Company. It was decided to pay a monthly gross fee of TL 2,310 to each member of the Board of Directors in 2009, pursuant to the decision adopted at the General Meeting. No member of the Board of Directors or executive has been either directly or through a third party, given any loan, or allowed to use any credit, or provided any guarantees during this period. 58 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

61 Profit Distribution Proposal At the Meeting with number 558, dated April 14, 2010, the Board of Directors of Ülker Bisküvi reviewed the consolidated income statement which was issued in accordance with the Capital Market Board s Communiqué No. 29, Series XI and which passed the independent audit, and the profit distribution table, which was prepared in view of the Capital Market Board s resolutions number 7/242, dated February 25, 2005, and number 21/537, dated May 5, 2006 as well as resolution number 02/51, dated January 27, 2010, regarding the calculation of the net distributable annual profit from the activities in 2009 in respect of the companies that are open to public offering; and decided to distribute dividends in cash against dividend coupons No. 7 for the founding shares and against dividend coupons 2009 for the group A, B, C and D shares. It was decided to submit a proposal to our shareholders at the Ordinary General Meeting to distribute the intended TL 14,000,000 gross and TL 11,900,000 net sum of dividends in accordance with article 34 of our Articles of Incorporation on profit distribution, on the basis of a cash dividend at the gross amount of TL (4.03%) and net amount of TL (3.42%) for each publicly traded ordinary share with a nominal value of TL 1, so that the gross amount of TL 10,818, (net 9,195,579.94) will be distributed to the ordinary shares and the gross amount of TL 1,909, (net 1,623,019.86) will be distributed to Group A and B shares, and gross amount of TL 1,272, (net 1,081,400.20) will be distributed to the founding shares, with the remaining revenue to be recorded in the account of Extraordinary Reserves. Profit Distribution Table for Paid-in / Issued Capital 268,600, Total Legal Capital Reserve (According to legal records) 41,050, As per the Articles of Incorporation, if there is a privilege in the profit distribution, information regarding this is as stated below: An amount of 17.65% of the first dividend will be distributed to A and B group shareholders, and an amount of 11.76% of the first dividend will be distributed to the registered dividend right certificate holders. As per CMB As per legal records (LR) 3. Term Profit 128,462, ,353, Taxes Due (-) (25,545,174.00) (12,689,864.23) 5. Net Term Profit (=) 102,917, ,663, Losses of previous years (-) Primary Reserve (-) 6,833, ,833, NET DISTRIBUTABLE TERM PROFIT (=) 96,084, ,830, ,01 9. Donations within the year (+) 359, Net distributable term profit that includes donation for 96,444, calculation of first dividends 11. First Dividend to Shareholders 10,818, Cash 10,818, Free Total 10,818, Dividend to privileged shareholders 1,909, Dividend to the members of the Board of Directors, 0.00 Employees etc. 14. Dividend to Redeemed Shareholders 1,272, Second dividend to shareholders (Free) Second Issue legal reserve funds 57, Statutory Reserves Special Reserves EXTRAORDINARY RESERVES 82,027, ,773, Other resources planned for distribution Profit of the previous year Extraordinary Reserves Other reserves to be distributed as per law and the Articles of Incorporation

62 Profit Distribution Proposal INFORMATION ON DISTRIBUTED PROFIT RATIO INFORMATION ON DIVIDEND PER SHARE TOTAL AMOUNT OF GROUP DIVIDEND (TL) GROSS NET DIVIDEND PER TL 1 NOMINAL VALUED SHARE RATIO (%) AMOUNT (TL) RATIO (%) A 1,279, , ,612, B 630, , ,612, C and D 10,818, FOUNDER 1,272, TOTAL 14,000, A 1,087, , ,320, B 535, , ,320, C and D 9,195, FOUNDER 1,081, TOTAL 11,900, RATIO OF THE DISTRIBUTED DIVIDEND OVER THE NET DISTRIBUTABLE TERM PROFIT INCLUDING DONATIONS AMOUNT OF DIVIDENDS DISTRIBUTED TO PARTNERS (TL) RATIO OF THE DISTRIBUTED DIVIDEND TO SHAREHOLDERS OVER THE NET DISTRIBUTABLE TERM PROFIT INCLUDING DONATIONS (%) 14,000, GROUP TOTAL DIVIDEND AMOUNT (TL) QUANTITY DIVIDEND PER SHARE (TL) FOUNDER SHARES GROSS 1,272, , NET 1,081, ÜLKER BİSKÜVİ ANNUAL REPORT 2009

63 Audit Board Report Company * Title : ÜLKER BİSKÜVİ SANAYİ A.Ş. * Head Office : ISTANBUL * Capital : TL 268,600,000 * Field of Business : Production of biscuits, chocolate covered products and wafers. Names and surnames of auditor(s), : Ataman Yıldız and Nurettin Aliz. terms of office, whether they are Their term of office is one year. shareholders or employees of the Company The auditors are neither shareholders nor employees of the Company. Number of the Board of Directors meetings : Attended five meetings of the Board of attended and meetings held number of Audit Committee Directors in 2009 and the Audit Committee meetings which were held monthly. Scope, dates and conclusion of review : Company accounts, books and documents were made on the Company accounts, books andduly audited at the end of every month, and it documents on the shareholders accounts was found that the statutory books were kept in compliance with the provisions of its Articles of Incorporation and the Turkish Commercial Code. Dates and results of counts made in the cash : Since the Company does not have any cash of the Company pursuant to sub-paragraph 3 in the Company cash office and all payments of paragraph 1 of Article 353 of the and receipts are realized through check and Turkish Commercial Code bank channels, no counts were made. Dates and results of review made pursuant : The required review was made at the end of to subparagraph 4 of paragraph 1 of Articleevery month, and the existing securities and 353 of the Turkish Commercial Code negotiable instruments were found in accordance with the records, and other duties assigned to the auditors in the other paragraphs of the same article were fulfilled. Any complaint or corruption reported : No complaint or corruption was reported and the action taken verbally or in writing to us during our term of office. We have reviewed the accounts and transactions of ÜLKER BİSKÜVİ SANAYİ A.Ş. for the period January 1, 2009 to December 31, 2009 in accordance with the Turkish Commercial Code, its Articles of Incorporation, other applicable regulations and generally accepted accounting principles and standards. In our opinion, the operations of the Company, summarized in the report prepared by the Board of Directors and, accordingly, the annexed balance sheet dated December 31, 2009 reflects the financial status of the Company at that date, and the income statement for the period from January 1, 2009 to December 31, 2009 reflects the results of activities in that period accurately and correctly, of which we agree with the contents, and the profit distribution proposal appears to be in compliance with the laws and Articles of Incorporation of the partnership. In conclusion, we hereby kindly request you to consider and vote for the approval of the balance sheet and income statement and to grant discharge to the Board of Directors. Auditor Ataman Yıldız Auditor Nurettin Aliz 61

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65 ÜLKER BİSKÜVİ SANAYİ A.Ş. Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes AND to ITS the Consolidated SUBSIDIARIES Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (TRANSLATED INTO ENGLISH FROM THE ORIGINAL TURKISH REPORT) 63

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67 CONVENIENCE TRANSLATION OF THE REPORT AND FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH INDEPENT AUDITORS REPORT To the Board of Directors of Ülker Bisküvi Sanayi A.Ş. We have audited the accompanying consolidated financial statements of Ülker Bisküvi Sanayi A.Ş. ( the Company ) and its subsidiaries (together the Group ) comprising the consolidated balance sheet as of 31 December 2009, and the consolidated statement of comprehenive income, consolidated statement of changes in shareholders equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management s Responsibility Management is responsible for the preparation and fair presentation of these financial statements in accordance with the financial reporting standards issued by the Capital Market Board. 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 auditing standards published by Capital Markets Board. 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 judgement, 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. Opinion In our opinion, the accompanying financial statements give a true and fair view of the consolidated financial position of Ülker Bisküvi Sanayi A.Ş as of 31 December 2009, and of its financial performance and its cash flows for the year then ended in accordance with the financial reporting standards published by the Capital Market Board. Istanbul, 8 April 2010 DRT BAĞIMSIZ DENETİM VE SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş. Member of DELOITTE TOUCHE TOHMATSU Burç Seven Partner 65

68 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Consolidated Balance Sheet As Of 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) ASSETS Notes 31 December 2009 (As Restated) 31 December 2008 Current Assets Cash and Cash Equivalents Financial Assets Trade Receivables -Trade Receivables from Related Parties Other Trade Receivables Other Receivables -Non-trade Receivables from Related Parties Other Short Term Receivables Inventories Other Current Assets Non-Current Assets Trade Receivables Other Receivables Financial Assets Investments Accounted for Under Equity Method Tangible Assets Intangible Assets Goodwill Deferred Tax Assets Other Non-current Assets TOTAL ASSETS The accompanying notes form an integral part of these financial statements. 66 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

69 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Consolidated Balance Sheet As Of 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) LIABILITIES Notes 31 December 2009 (As Restated) 31 December 2008 Current Liabilities Finacial Liabilities Other Financial Liabilities Trade Payables -Trade Payables to Related Parties Other Trade Payables Other Payables -Other Payables to Related Parties Other Payables Corporate Tax Payable Debt Provisions Provisions for Employee Benefits Other Liabilities Non-Current Liabilities Financial Liabilities Provisions for Employee Benefits Deferred Tax Liabilities SHAREHOLDERS EQUITY Total Equity Attributable To Equity Holders of the Parent Share Capital Inflation Adjustments to Share Capital Valuation Funds Restricted Reserves Appropriated from Profits Translation Gain/Loss Retained Earnings Net Profit for the Year Minority Interest TOTAL LIABILITIES AND SHAREHOLDERS EQUITY The accompanying notes form an integral part of these financial statements. 67

70 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Consolidated Statement Of Comprehensive Income for the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Notes January 1- December 31, 2009 (As Restated) January 1- December 31, 2008 Sales Revenue Cost of Sales (-) 28 ( ) ( ) GROSS PROFIT Marketing, Sales and Distribution Expenses (-) ( ) ( ) General Administrative Expenses (-) ( ) ( ) Research and Development Expenses (-) ( ) ( ) Other Operating Income Other Operating Expenses (-) 31 ( ) ( ) OPERATING PROFIT Share in Net Profit of Investments Accounted for Under Equity Method 16 ( ) ( ) Finance Income Finance Expenses (-) 33 ( ) ( ) PROFIT BEFORE TAXATION Tax Charge from Continued Operations 35 ( ) ( ) Current Tax Charge ( ) ( ) Deferred Tax (Charge)/Benefit ( ) PROFIT FOR THE YEAR Reconciliation of the Profit for the Year Minority Interest Equityholders of the Parent Earnings per Share From Operating Activities 36 0,38 0,06 Other Comprehensive Income: Change in Financial Asset Valuation Fund ( ) Change in Currency Translation Reserve ( ) Share on other comprehensive income of investments valued using equity method ( ) COMPREHENSIVE INCOME/(EXPENSE) AFTER TAX TOTAL COMPREHENSIVE INCOME/(EXPENSE) Distribution of Total Comprehensive Income Minority Interest Equity Holders of the Parent The accompanying notes form an integral part of these financial statements. 68 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

71 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Consolidated Statement Of Changes In Shareholders Equity For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Share Capital Inflation Adjustments to Share Capital Valuation Fund Gain on Sale of Property to Share Capital Currency Translation Reserve Net Profit/ Loss Retained Earnings Total Equity Attributable to Equity Holders of the Parent Minority Interest Total Previously Reported Balance as of 31 December Total comprehensive income - - ( ) Transfer to Retained Earnings & Reserves ( ) Dividend Paid ( ) ( ) - ( ) Balance as of 31 December Effect of Restatement of Godiva Financial Statements(Not 2.1) Balance as of 1 January 2009 (Restated) Total comprehensive income ( ) Transfer to Retained Earnings & Reserves ( ) Dividend Paid ( ) ( ) ( ) ( ) Balance as of 31 December The accompanying notes form an integral part of these financial statements. 69

72 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Consolidated Statement Of Cash Flows For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Notes 1 January- 31 December 2009 (As Restated) 1 January- 31 December 2008 CASH FLOWS FROM OPERATING ACTIVITIES Net profit for the year Adjustments to reconcile net profit/(loss) to net cash provided by operating activities Depreciation expenses of tangible assets Amortization expenses of intangible assets Allowance for doubtful receivables 10 ( ) Provision for employment termination benefits ( ) Interest accrual Unrealized foreign currency loss/(gain) ( ) Gain on sales of assets 31 ( ) ( ) Provision for Impairment of inventory 13 ( ) ( ) (Income)/loss from investments accounted for under equity method Income from acquisition of affiliates 31 ( ) - Accrued taxation Operating cash flows provided before changes in working capital (Increase) in trade receivables 10 ( ) (Increase)/Decrease in trade receivables from related parties 37 ( ) Decrease in inventories 13 ( ) ( ) (Increase) in other receivables and other current assets ( ) (Decrease) in trade payables ( ) (Increase)/Decrease in payables to related parties Increase/(Decrease) in other liabilities Cash (utilized in)/generated from operations Taxes paid 35 ( ) ( ) Employee termination benefits paid 24 ( ) ( ) Collections from doubtful trade receivables Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of tangible assets 18 ( ) ( ) Acquisitions of intangible assets 19 ( ) ( ) Net cash outflow from sales of fixed assets (Increase)/Decrease in non-trade receivables from related parties 37 ( ) ( ) Acquisitions of long term financial assets 7-16 ( ) ( ) Net cash (used in) investing activities ( ) ( ) The accompanying notes form an integral part of these financial statements. 70 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

73 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Consolidated Statement Of Cash Flows For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Notes 1 January- 31 December 2009 (As Restated) 1 January- 31 December 2008 CASH FLOWS FROM FINANCING ACTIVITIES -Loan repayments 8 ( ) ( ) -Loans acquired Change in leasing expenses Dividends paid ( ) ( ) -Change in other reserves Changes in non-trade receivables from related parties Changes in minority interest (net) (4.983) Net cash (used in)/provided by financing activities NET CHANGE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR The accompanying notes form an integral part of these financial statements. 71

74 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) 1. ORGANIZATION AND OPERATIONS OF THE GROUP Organization and Shareholders: Ülker Bisküvi Sanayi A.Ş. Group, ( the Group ), comprises of the parent Ülker Bisküvi Sanayi A.Ş. ( the Company ), nine subsidiaries in which the Company owns the majority share of the capital or which are controlled by the Company, two joint ventures and two subsidiaries. Ülker Bisküvi Sanayi A.Ş. was established in The Company s core business activities are manufacturing of biscuits, chocolate coated biscuits and wafers. Ülker Bisküvi Sanayi A.Ş. which is registered at the Capital Market Board, merged under its own title with Anadolu Gıda Sanayi A.Ş., whose shares have been quoted on İstanbul Stock Exchange since 30 October 1996, as of 31 December Ülker Bisküvi Sanayi A.Ş. is located in Davutpaşa Cad. No:10 Topkapı Zeytinburnu / İstanbul. As of 31 December 2009, the total number of people employed by the Group is which contains employees who worked as subcontractors (31 December 2008: 5.846, subcontractor: 1.459). The parent and the controlling party of the Group is Yıldız Holding A.Ş. As of 31 December 2009 and 31 December 2008, the names and percentages of the shareholders owning more than 10% of the Company s share capital are as follows: 31 December December 2008 Name of the Shareholders Share Percentage Share Percentage Yıldız Holding A.Ş %42, %42,09 Dynamic Growth Fund %26, %26,57 Other %31, %31, % 100, % 100,00 As of 31 December 2009 and 31 December 2008, the details of the subsidiaries in terms of share of ownership and principal business activities are as follows: Subsidaries 72 ÜLKER BİSKÜVİ ANNUAL REPORT December December 2008 Ratio of Direct Ownership % Ratio of Effective Ownership % Ratio of Direct Ownership % Ratio of Effective Ownership % Nature of Operations İdeal Gıda Sanayi ve Ticaret A.Ş. %97,5 %97,9 %97,5 %97,9 Manufacturing Biskot Bisküvi Gıda Sanayi ve Ticaret A.Ş. %50,5 %50,8 %50,5 %50,8 Manufacturing İstanbul Gıda Dış Ticaret A.Ş. %83,8 %83,8 %83,8 %83,8 Sales&Marketing Atlas Gıda Pazarlama Sanayi ve Ticaret A.Ş. %78,2 %78,2 %78,2 %78,2 Sales&Marketing Birleşik Dış Ticaret A.Ş. %68,0 %69,0 %68,0 %69,0 Sales&Marketing Birlik Pazarlama Sanayi ve Ticaret A.Ş. %99,0 %99,0 %99,0 %99,0 Manufacturing Rekor Gıda Pazarlama A.Ş. - %46,6 - %46,6 Sales&Marketing Lord Food International Ltd (*) - %50,8 - - Sales&Marketing KBF Ltd (*) - %50,8 - %50,8 Manufacturing (*) The acquisition of KBF Ltd. ve Lord Food International Ltd., operating in Ukraine, have been completed in 21 January The group management have identified these two companies to be a single cash generating unit and thus following their acquisition have included them in the consolidated financial statements as of 31 December 2009 for the first time. The related subsidiaries were previously recorded under Assets Held of Sale.

75 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) İdeal Gıda Sanayi ve Ticaret A.Ş. and Biskot Bisküvi Gıda Sanayi ve Ticaret A.Ş. manufacture and sell similar products with those of Ülker Bisküvi Sanayi A.Ş. On the other hand İstanbul Gıda Dış Ticaret A.Ş., Atlas Gıda Pazarlama Sanayi ve Ticaret A.Ş., Birleşik Dış Ticaret A.Ş. and Rekor Gıda Pazarlama A.Ş are involved in domestic and international sales and marketing of products of the above mentioned companies and other food products purchased from the domestic market. Birlik Pazarlama Sanayi ve Ticaret A.Ş. provides raw materials to manufacturing companies. Based on the decision of the Group management, KBF Ltd. and Lord Food International Ltd. have been consolidated for the first time in the current year. The investments in associates and joint ventures of Ülker Bisküvi Sanayi A.Ş. which are accounted for under equity method in consolidation are as follows: Associates and Joint Ventures 31 December December 2008 Ratio of Ratio of Ratio of Ratio of Direct Effective Direct Effective Ownership Ownership Ownership Ownership % % % % Nature of Operations Pendik Nişasta Sanayi ve Ticaret A.Ş. %23,00 %23,99 %23,00 %23,99 Manufacturing Hero Gıda Sanayi ve Ticaret A.Ş. - %39,59 - %39,59 Manufacturing Godiva Belgium BVBA %25,23 %25,23 %25,23 %25,23 Manufacturing G New Inc. %25,23 %25,23 %25,23 %25,23 Investment Dividend Paid: Group have made a dividend payment of TL in the current year. Approval of Financial Statements The Board of Directors has approved the financial statements and given authorization for the issuance of the financial statements on 8 April The General Assembly has the authority to amend/modify the statutory financial statements. 2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS 2.1 Basis of the presentation: The Company and its Turkish subsidiaries maintain their books of account and prepare their statutory financial statements in accordance with accounting principles in the Turkish Commercial Code and tax legislation. Subsidiaries operating in foreign countries maintain their books of account in the currencies of those countries and prepare their statutory financial statements in accordance with the legislation effective in those counties. Capital Market Board (CMB) Decree No XI-29 Capital Markets Financial Reporting Standards provides principals and standards regarding the preparation and presentation of financial statements. This Decree became effective for periods beginning after 1 January 2008 and with its issuance Decree No XI-25 Capital Markets Accounting Standards was annulled. Based on this Decree, the companies are required to prepare their financial statements based on International Financial Reporting Standards ( IFRS ) as accepted by the European Union. However during the period in which the differences between the standards accepted by European Union and the standards issued by International Accounting Standards Board ( IASB ) are announced by Turkish Accounting Standards Board ( TASB ), IAS/ IFRS will be applied. In this scope, Turkish Accounting/ Financial Reporting Standards issued by TASB which do not contradict to the standards accepted will be adopted. 73

76 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) The accompanying consolidated financial statements have been prepared in accordance with IFRS and comply with CMB s decree announced on 17 April 2008 and 9 January 2009 regarding the formats of the financial statements and footnotes since at the date of the issuance of these financial statements the differences of IAS/ IFRS accepted by the European Union are not declared by the TASB. In this scope, some reclassifications are made in the prior year financial statements. Financial statements are prepared on the basis of historical cost principal except for revaluation of some financial instruments. Determination of Functional Currency Financial statements of each subsidiary of the Group are presented in the currency of the primary economic environment in which the entities operate (its functional currency). The results and financial position of the each subsidiary are expressed in Turkish Lira, which is the functional and presentation currency of the Group. The functional currency of the Group s subsidiaries, KBF Ltd. and Lord Food International Ltd. is Hryvnia. The Group s consolidated reporting currency is TRY. In accordance with IAS 21 (The Effects of Changes in Foreign Exchange Rates), in the preparation of the Group s consolidated financial statements, balance sheet items of the related subsidiaries are translated at the balance sheet date Hryvnia rate, whereas income, expenses and cashflows are translated either at the rates prevailing at the trade date (historical rate) or the annual average rate. Exchange difference arising from the consolidatation of such subsidiaries using the afiliates is recognized under the exchange difference account in equity. The functional currency of the Group s associates, Godiva Belgium BVBA and G New Inc. is Euro and US $, respectively. The Group s consolidated reporting currency is TRY. Exchange difference arising from the consolidatation of such subsidiaries using the equity method is recognized under the exchange difference account in equity. As of 31 December 2009, Central Bank of Republic of Turkey declared foreign currency rates are 1 Hryvnia= 0,1894 TL, 1 Euro = 2,1603 TL, 1 U.S.D. = 1,5057 TL. Between the period of 1 January 31 December 2009, average foreign currency rates declared by Central Bank of Republic of Turkey are 1 Euro = 2,1507 TL, 1 U.S.D = 1,5456 TL., 1 Hryvnia=0,1990 TL (Between the period of 1 January-31 December 2008, average foreign currency rates declared by Central Bank of Republic of Turkey are 1 Euro =1,8969,1 U.S.D=1,2976) Preparation of Financial Statements in Hyperinflationary Periods: CMB, with its resolution dated 17 March 2005 and decree no 11/367 declared that companies operating in Turkey which prepare their financial statements in accordance with CMB Accounting Standards, effective 1 January 2005, will not be subject to the application of inflation accounting. Consequently, in the accompanying financial statements IAS 29 Financial Reporting in Hyperinflationary Economies was not applied. 74 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

77 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Comparative Information and Restatement of Prior Period Financial Statements Consolidated financial statements of the Group have been prepared comparatively with the prior period in order to give information about financial position and performance. If the presentation or classification of the financial statements is changed, in order to maintain consistency, financial statements of the prior periods are also reclassified in line with the related changes. While preparing its financial statements in line with the Capital Market Board (CMB) issued Decree No XI-29, the Group reclassified its previous period financial statements accordingly in order to compare with the current period financial statement. The natures, reasons and amounts of the reclassifications are explained below: The Group management has reviewed and corrected its calculation of the goodwill arising from the acquisition of its Godiva Belgium BVBA and G New Inc. subsidiaries presented in its consolidated financial statements for 31 December This correction does not have an effect on the financial statements, however, the revised goodwill calculation has been presented in note 16. The Group management has noted that there has been a transition between the Investments Accounted for Under the Equity Method and Translation Gain/Loss amounting to TL in its 31 December 2008 consolidated financial statements and has corrected this error with a reclassification. The Group management has noted that there has been a transition within its Tangible Assets and Intangible Assets in its 31 December 2008 consolidated financial statements and has corrected this error with a reclassification. The Group management has reclassified a balance of TL of Dividend income presented under Other Operating Income in its 31 December 2008 consolidated financial statements to Finance Income for comparative presentation purposses. The Group management has reclassified a balance of TL of Dues to personnel presented under Other Receivables and Payables in its 31 December 2008 consolidated financial statements to Provision for Employee Benefits for comparative presentation purposses. The Group management has netted the Foreign exchange gain and Foreign exchange loss balances recorded under Finance Income and Finance Expense in its 31 December 2008 consolidated financial statements. The Group management has reclassified a balance of TL of Performance and premium provision presented under Other Assets and Liabilities in its 31 December 2008 consolidated financial statements to Provision for Employee Benefits for comparative presentation purposses. The Group management has presented a balance of TL of Derivative Financial Liabilities presented under Other Assets and Liabilities in its 31 December 2008 consolidated financial statements to Other Financial Liabilities for comparative presentation purposses. 75

78 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Consolidation: The consolidated financial statements include the financial statements of the companies controlled by the Group stated in Note 1. Necessary adjustments are posted for the elimination of Subsidiaries, all the intercompany transactions, and balances between the Company and its Subsidiaries ( Group ). The results of subsidiaries acquired or disposed of during the year are included in the consolidated comprehensive comprehensive 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 subsidiary to bring its accounting policies into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Noncontrolling interests ( Minority interests ) in the net assets of consolidated subsidiaries are identified separately from the Group s equity therein. Minority interests consist of the amount of those interests at the date of the original business combination and the minority s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority s interest in the subsidiary s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. The acquisition of subsidiaries from third parties is accounted for using the purchase method. On acquisition, the assets and liabilities of a subsidiary are measured at their fair values as at the date of acquisition. The interest of minority shareholders is stated at the minority s proportion of the fair values of the assets and liabilities recognized if applicable. Where necessary, adjustments are made to the annual financial statements of subsidiaries to bring the accounting policies used by them in line with those used by the Group. The results of subsidiaries acquired or disposed of during the year are included in the consolidated comprehensive income statement from the effective date of acquisition up to the effective date of disposal, as appropriate. Goodwill arising on acquisitions is recognized as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognized. If, after reassessment, the Group s interest in the net fair value of the acquiree s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognized immediately in profit or loss. Investments in Associates An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. Results and assets and liabilities of associates are incorporated in the accompanying consolidated financial statements using the equity method of accounting, except when the investment is classified as held for sale, in that case they are accounted for under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group s share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group s interest in that associate (which includes any long-term interests that, in substance, form part of the Group s net investment in the associate) are not recognized. 76 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

79 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Any excess of the cost of acquisition over the Group s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognized at the date of acquisition is recognized as goodwill. Goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. Any excess of the Group s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss. Where a Group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group s interest in the relevant associate. Joint Ventures Results and assets and liabilities of associates are incorporated in the accompanying consolidated financial statements using the equity method of accounting. Under the equity method, associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group s share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group s interest in that associate (which includes any long-term interests that, in substance, form part of the Group s net investment in the associate) are not recognized. Netting: Financial assets and liabilities are offset and the net amount reported in the consolidated 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. 2.2 Changes in the Accounting Policies: Financial statements of the Company have been prepared comparatively with the prior period in order to give information about financial position and performance. The Group has not made any changes to its accounting policies in the current period. 2.3 Changes and Errors in Acccounting Estimates: If the changes in the accounting polices are related to one period they are applied in the current year; if they are related with the future period they are applied both in the current period and future periods. The Group did not have any changes in the accounting estimates in the current period. 2.4 Adoption of New and Revised International Financial Reporting Standards: The following new and revised standards and interpretations were implemented in the current period and this implementation had an impact on the reported amounts and disclosures of financial statements. Other standards and interpretations that implemented in the financial statements but had no effect on reported amounts are also explained in the further parts of this article. 77

80 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Standards and Interpretations affecting reported results or financial position of 2009 IAS 1, (as revised in 2007) Presentation of Financial Statements IFRS 8, Operating Segments Improving Disclosures about Financial Instruments (Amendments to IFRS 7, Financial Instruments: Disclosures ) IAS 1(2007) has introduced terminology changes (including revised titles for the financial statements) and changes in the format and content of the financial statements. The Group presents in the consolidated statement changes in equity all owner changes in equity, whereas all non-owner changes in equity are presented in the comprehensive statement of income. IFRS 8 is a disclosure Standard that has resulted in a redesignation of the Group s reportable segments (Note 5). The amendments to IFRS 7 expand the disclosures required in respect of fair value measurements and liquidity risk. Standards and Interpretations that are effective in 2009 that do not impact the 2009 financial statements The following new and revised Standards and Interpretations have also been adopted in these financial statements. Their adoption has not had any significant impact on the amounts reported in these financial statements but may may impact accounting for future transactions or arrangements. Amendments to IFRS 2 Share-based Payment-Vesting Conditions and Cancellations The amendments clarify the definition of vesting conditions for the purposes of IFRS 2, introduce the concept of nonvesting conditions, and clarify the accounting treatment for cancellations. IAS 23 (as revised in 2007) Borrowing Costs Amendments to IAS 32 Financial Instruments:Presentation and IAS 1 Presentation of Financial Statements Puttable Financial Instruments and Obligations Arising on Liquidation Amendments to IAS 39 Financial Instruments: Recognition and Measurement Eligible Hedged Items The principal change to the Standard was to eliminate the option to expense all borrowing costs when incurred. This change has had no impact on these financial statements because it has always been the Company s accounting policy to capitalise borrowing costs incurred on qualifying assets. The revisions to IAS 32 amend the criteria for debt/equity classification by permitting certain puttable financial instruments and instruments (or components of instruments) that impose on an entity an obligation to deliver to another party a pro-rata share of the net assets of the entity only on liquidation, to be classified as equity, subject to specified criteria being met. The amendments provide clarification on two aspects of hedge accounting: identifying inflation as a hedged risk or portion, and hedging with options. 78 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

81 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Embedded Derivatives (Amendments to IFRIC 9 and IAS 39) IFRIC 15 Agreements for the Construction of Real Estate IFRIC 16 Hedges of a Net Investment in a Foreign Operation IFRIC 18 Transfers of Assets from Customers (adopted in advance of effective date of transfers of assets from customers received on or after 1 July 2009) Improvements to IFRSs (2008) IFRIC 13, Customer Loyalty Programmes Amendments to IAS 38, Intangible Assets Amendments to IAS 20, Accounting for Government Grants and Disclosure of Government Assistance The amendments clarify the accounting for embedded derivatives in the case of a reclassification of a financial asset out of the fair value through profit or loss category as permitted by the October 2008 amendments to IAS 39 Financial Instruments: Recognition and Measurement (see above). The Interpretation addresses how entities should determine whether an agreement for the construction of real estate is within the scope of IAS 11 Construction Contracts or IAS 18 Revenue and when revenue from the construction of real estate should be recognized. The requirements have not affected the accounting for the Company s construction activities. The Interpretation provides guidance on the detailed requirements for net investment hedging for certain hedge accounting designations. The Interpretation addresses the accounting by recipients for transfers of property, plant and equipment from customers and concludes that when the item of property, plant and equipment transferred meets the definition of an asset from the perspective of the recipient, the recipient should recognize the asset at its fair value on the date of the transfer, with the credit recognized as revenue in accordance with IAS 18 Revenue. In addition to the changes affecting amounts reported in the financial statements described above, the Improvements have led to a number of changes in the detail of the Company s accounting policies some of which are changes in terminology only, and some of which are substantive but have had no material effect on amounts reported. The majority of these amendments are effective from 1 January Under IFRIC 13, customer loyalty programs should be recognized as a separately identifiable component of the sales transaction(s). A portion of the fair value of the consideration received in respect of the initial sale shall be allocated to the award credits and the consideration allocated to award credits should be recognized as revenue when awards credits are redeemed. As part of Improvements to IFRSs (2008), IAS 38 has been amended to state that an entity is permitted to recognize a prepayment asset for advertising or promotional expenditure only up to the point at which the entity has the right to access the goods purchased or up to the point of receipt of services. As part of Improvements to IFRSs (2008), IAS 20 has been amended to require that the benefit of a government loan at a below-market rate of interest be treated as a government grant. This accounting treatment was not permitted prior to these amendments. 79

82 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Amendments to IAS 39, Financial Instruments: Recognition and Measurement and IFRS 7, Financial Instruments: Disclosures regarding reclassifications of financial assets The amendments to IAS 39 permit an entity to reclassify non-derivative financial assets out of the fair value through profit or loss (FVTPL) and available-for-sale (AFS) categories in very limited circumstances. Such reclassifications are permitted from 1 July Reclassifications of financial assets made in periods beginning on or after 1 November 2008 take effect only from the date when the reclassification is made. Standards and Interpretations that are issued but not yet effective in 2009 and have not been early adopted IFRS 3 (as revised in 2008) Business Combinations IFRS 9 Financial Instruments: Classification and Measurement IAS 24 (revised 2009) Related Party Disclosures IAS 27 (as revised in 2008) Consolidated and Separate Financial Statements IFRIC 17 Distributions of Non-cash Assets to Owners IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments Amendments Related to Annual Improvements to IFRS (2009) 2.5 Summary of Significant Accounting Policies The accounting policies applied in preparation of the accompanying financial statements are as follows: Revenue: Most of the revenue is generated from sale of biscuit, chocolate covered biscuit and wafer. Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates, and other similar allowances 80 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

83 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Sale of goods Revenue generated from biscuit, chocolate covered biscuit and wafer are recognised when all the following conditions are satisfied: The Group has transferred to the buyer the significant risks and rewards of ownership of the goods, The Group 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 the transaction can be measured reliably. Sales discounts are granted at the point of sale based on a percentage and are recorded as a reduction of revenue in the period of the sale. Sale discount percentages vary depending on the product sold. Sales returns are granted based on agreements with the third party distributors, sales agents, and chain grocery stores and recorded as a reduction of revenue in the period of sale. Dividend and interest revenue Interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset s net carrying amount. Dividend revenue from investments is recognized when the shareholders rights to receive payment have been established. Rent income Rent income from real estates is accounted by the linear method during the respective rent agreement. Inventories: Inventories are stated at the lower of cost and net realizable value. Costs, including an appropriate portion of fixed and variable overhead expenses, are assigned to inventories held by the method most appropriate to the particular class of inventory, with the majority being valued on an average basis. Net realizable value represents the estimated selling price less all estimated costs of completion and costs necessary to make a sale. Group has provided provision for diminishing in value of inventories which are unsalable or useless.provision set for slow moving inventories can be found in note 13. Tangible Assets: Tangible assets that are acquired before 1 January 2005 are carried at their restated costs adjusted to the effects of inflation as of 31 December 2004, less any accumulated depreciation and any impairment loss and tangible assets that are acquired after 1 January 2005 are carried at cost of acquisition, less any accumulated depreciation and any impairment loss. Depreciation is charged so as to write off the cost of assets, other than land and construction in progress, over their estimated useful lives, using the straight line method. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets, or, when shorter, the term of the relevant lease. 81

84 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) 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 item of tangible fixed assets is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss. Leasing Transactions The Group as lessor: Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term. Information on operational leases of the Group was given in Note 8. The Group as lessee: Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are initially recognized as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Group s general policy on borrowing costs. Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred. Business Combinations and Goodwill The acquisition of subsidiaries and businesses are accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of fair value, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree s identifiable assets, liabilities and contingent liabilities that meet the recognition criteria under IFRS 3, Business Combinations are recognized at fair value at the date of acquisition, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations, which are recognized and measured at fair value less costs to sell. Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognized. If, after reassessment, the Group s interest in the net fair value of the acquiree s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognized immediately in profit or loss. 82 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

85 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) If the initial accounting for a business combination can be determined only provisionally by the end of the period in which the combination is effected because either the fair values to be assigned to the acquiree s identifiable assets, liabilities or contingent liabilities or the cost of the combination can be determined only provisionally, the combination is accounted using such provisional values. Any adjustments to those provisional values as a result of completing the initial accounting are recognized within twelve months of the acquisition date. The interest of minority shareholders in the acquiree is initially measured at the minority s proportion of the net fair value of the assets, liabilities and contingent liabilities recognized. In business combinations under common control, assets and liabilities subject to business combination are accounted for at carrying value in consolidated financial statements. Statements of income are consolidated starting from the beginning of the fiscal year in which the business combination is realized. Financial statements of previous fiscal years are restated in the same manner in order to maintain consistency and comparability. Any positive or negative goodwill arising from such business combinations is not recognized in the consolidated financial statements. Residual balance calculated by netting off investment in subsidiary and the share acquired in subsidiary s equity is directly accounted under equity as effect of business combinations under common control. Intangible Assets: Intangible assets that are acquired before 1 January 2005 are carried at their restated costs adjusted to the effects of inflation as of 31 December 2004, less any accumulated amortization and any impairment loss and intangible assets that are acquired after 2005 are carried at cost of acquisition, less any accumulated amortization and any impairment loss. Impairment of Assets: At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Borrowing Costs: All borrowing costs are recorded in the consolidated comprehensive income statement in the period in which they are incurred.the Group does not have any borrowing costs that should be capitalized as per IAS 23 (Revised) Borrowing costs. 83

86 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Financial Instruments: Financial assets: Investments are recognised and derecognised on a trade date where the purchase or sale of an investments under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value. Financial assets are classified into the following specified categories: financial assets as at fair value through profit or loss (FVTPL), held-to-maturity investments, available-for-sale (AFS) financial assets and loans and receivables. Effective interest method: The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period. Income is recognised on an effective interest basis for debt instruments other than those financial assets designated as at FVTPL. Financial assets at FVTPL: Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term. Derivatives are also categorized as held for trading unless they are designated as hedges. Assets in this category are classified as current assets. Available-for-sale financial assets: Investments other than held-to-maturity debt securities and held for trading securities are classified as availablefor-sale, and are measured at subsequent reporting dates at fair value except available-for-sale investments that do not have quoted prices in active markets and whose fair values cannot be reliably measured are stated at cost and restated to the equivalent purchasing power. Gains and losses arising from changes in fair value are recognized directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognized in equity is included in the profit or loss for the period. Impairment losses recognized in profit or loss for equity investments classified as available-for-sale are not subsequently reversed through profit or loss. Impairment losses recognized in profit or loss for debt instruments classified as available-for-sale are subsequently reversed if an increase in the fair value of the instrument can be objectively related to an event occurring after the recognition of the impairment loss. 84 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

87 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Loans and receivables Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method less any impairment. Impairment of financial assets Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. In respect of AFS equity securities, any increase in fair value subsequent to an impairment loss is recognised directly in equity. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments which have an original maturity of three months or less from date of acquisition and that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. The carrying amount of these assets approximates their fair value. Financial Liabilities Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out below. Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities. 85

88 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Financial liabilities at FVTPL Financial liabilities are classified as at FVTPL where the financial liability is either held for trading or it is designated as at FVTPL. Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability. Other financial liabilities Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis The effective interest method is a method of calculating the amortised 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. Derivative financial instruments and hedge accounting The Group is exposed to currency and interest rate risks arising from its operations. The main reason of the interest rate risk is bank loans. The Group uses derivative financial instruments (mainly uses interest swap contracts) to hedge its financial risks associated with specific firm commitments and interest rate fluctuations of its expected future transactions. Derivative financial instruments are initially measured at fair value at the contract date, and are remeasured to fair value at subsequent reporting dates. Foreign Currency Transactions The individual financial statements of each Group group are presented in the currency of the primary economic environment in which the group operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each group are expressed in TL, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements. In preparing the financial statements of the individual entities, transactions in currencies other than TL (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognized in profit or loss in the period in which they arise except for: Exchange differences which relate to assets under construction for future productive use, which are included in the cost of those assets where they are regarded as an adjustment to interest costs on foreign currency borrowings; Exchange differences on transactions entered into in order to hedge certain foreign currency risks. Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur, which form part of the net investment in a foreign operation, and which are recognized in the foreign currency translation reserve and recognized in profit or loss on disposal of the net investment. 86 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

89 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group s foreign operations are expressed in TL using exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group s translation reserve. Such exchange differences are recognized in profit or loss in the period in which the foreign operation is disposed of. Earnings Per Share Earnings per share disclosed in the accompanying consolidated statement of income is determined by dividing net income by the weighted average number of shares in existence during the year concerned. In Turkey, companies can raise their share capital by distributing Bonus Shares to shareholders from retained earnings. In computing earnings per share, such bonus share distributions are assessed as issued shares. Accordingly, the retrospective effect for those share distributions is taken into consideration in determining the weighted-average number of shares outstanding used in this computation. Events After Balance Sheet Date: Events after balance sheet date are those events, favourable and unfavourable, that occur between the balance sheet date and the publication date of the balance sheet. Should any evidence about the events that are prior to the balance sheet date or any related events arise subsequent to the balance sheet date, should be explained in the relevant disclosure. Provisions, Contingent Liabilities and Contingent Assets: Provisions The Group shall recognise a provision only when it has a present obligation as a result of a past event, and it is probable that the entity will be required to transfer economic benefits in settlement; and the amount of the obligation can be estimated reliably (note 22). Contingent assets and liabilities A contingent assets and liabilities are defined as a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity, and are disclosed where an inflow or outflow of economic benefits is probable. Related Parties: In the accompanying consolidated financial statements the key management personnel and Board of Directors, close members of the family of any individual who directly or indirectly controls the Company are considered and referred to as Related Parties. Government Grants and Incentives: The Group is exempt from the stamp tax and duties attributed to the export transactions and other profitable foreign exchange operations to the extent of the procedures and basis determined by the Ministry of Finance and Undersecretariat of Foreign Trade. The government grants are paid to support the participation of attending fairs abroad according to the decision dated 16 December 2004 and numbered 2004/11 of Money Credit and Coordination Committee which was prepared on the basis of Decisions of Export-oriented Government Grants. 87

90 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Based on the Cash Loan Coordination Board s resolution dated 20/6, the Group also receives tax refunds for the export of its agricultural products in accordance with the Communiqué No: 2000/5 on Export Refunds for Agricultural Products. In the current period, the Group has utilized grants given under the Law No Governing the Changes Made to Certain Laws Regarding Investment and Employment Grants issued on 6 February 2004 at the Official Gazette Numbered 25365, allowing for various tax and insurance premium grants, and energy supports and free of charge lands for investments to increase investment and employment at certain cities. Taxation and Deferred Income Taxes: Turkish tax legislation does not permit a parent company and its subsidiary to file a consolidated tax return. Therefore, provisions for taxes, as reflected in the accompanying consolidated financial statements, have been calculated on a separate-entity basis. Income tax expense represents the sum of the tax currently payable and deferred tax. Current Tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the comprehensive income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred Tax Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. 88 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

91 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Current and Deferred Tax Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items credited or debited directly to equity, in which case the tax is also recognised directly in equity, or where they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is taken into account in calculating goodwill or determining the excess of the acquirer s interest in the net fair value of the acquiree s identifiable assets, liabilities and contingent liabilities over cost. Employee Benefits / Retirement Pay Provision: Benefits such as bonus, allowance for heating, marriage allowance, leave of absence, religious holidays, education incentive, birth and death allowance are provided to the Group employees. Moreover, under the Turkish law and union agreements, lump sum payments are made to employees retiring or involuntarily leaving the Group. Such payments are considered as being part of defined retirement benefit plan as per IAS 19 (revised): Employee Benefits. The provision has been calculated by estimating the present value of the future probable obligation of the Group arising from the retirement of employees. The principal assumption is that the maximum liability for each year of service will increase parallel with inflation. Thus, the discount rate applied represents the expected real rate after adjusting for the anticipated effects of future inflation. Future retirement payments are discounted to their present value at the balance sheet date at an interest rate determined as net of an expected inflation rate and an appropriate discount rate. Cash Flow Statement: In statement of cash flow, cash flows are classified according to operating, investment and finance activities. Cash flows from operating activities reflect cash flows generated from the manufacturing and marketing of biscuits, chocolate coated biscuits and wafers activities. Cash flows from investment activities express cash used in investment activities (direct investments and financial investments) and cash flows generated from investment activities of the Group. Cash flows relating to finance activities express sources of financial activities and payment schedules of the Group. Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments which their maturities are three months or less from date of acquisition and that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. 89

92 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Capital and Dividends Ordinary shares are classified as equity. Dividends distributed over the ordinary shares are classified as dividend liability after deducting retained earnings at the period in which the dividend distribution decision is made. 2.6 Critical Accounting Judgments and Key Sources of Estimation Uncertainty Group s Critical Accounting Judgments In the process of applying the entity s accounting policies, which are described in Note 2.5, management has made the following judgments that have the most significant effect on the amounts recognized in the financial statements: Useful life of property, plant and equipment: Group has calculated the depreciation amounts regarding the useful lifes specified on Note 18. Impairment of inventories: In the current year, a provision has been set for inventories that are not expected to be used and the slow moving inventories. In the current year the group has identified certain inventories with net realizable values lower than costs. Based on the anlaysis, TL impairment provision has been booked for inventories (2008: TL). Doubtful receivables provision: In the current year, a provision has been set for receivables that are not expected to be collectible and those that have not been collected for long time. As of 31 December 2009, a provision for TL of the trade receivables have been provided for as doubtful receivable provision (2008: TL). Impairment of goodwill: In the current period, impairment of goodwill is measured by using the discounted cash flow method and accordingly no impairment is recognized. Impairment of associates: Under the equity method, associates are carried in the consolidated balance sheet at cost as adjusted for postacquisition changes in the Group s share of the net assets of the associate, less any impairment in the value of individual investments. In the discounted cash flow calculation, 8% is used as the discount rate, in terms of US Dollars, and 3% is used in the growth rate of carrying amount. Deferred taxes: Deferred tax assets and liabilities are recorded using substantially enacted tax rates for the effect of temporary differences between book and tax bases of assets and liabilities. In the subsidiaries of the Group, there are deferred tax assets resulting from tax loss carry-forwards and deductible temporary differences, all of which could reduce taxable income in the future. Based on available evidence, both positive and negative, it is determined whether it is probable that all or a portion of the deferred tax assets will be realized. The main factors which are considered include future earnings potential; cumulative losses in recent years; history of loss carry-forwards and other tax assets expiring; the carry-forward period associated with the deferred tax assets; future reversals of existing taxable temporary differences; tax-planning strategies that would, if necessary, be implemented, and the nature of the income that can be used to realize the deferred tax asset. As a result of the assessment made, the Group has recognized deferred tax assets in certain entities because it is probable that taxable profit will be available sufficient to recognize deferred tax assets in those entities. 90 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

93 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Fair values of derivative instruments and other financial instruments: The Group determines the fair values of its financial instruments without an active market using various market infromation for similar transactions, similar instruments with fair values and discounted cash flow analysis. 3. BUSINESS COMBINATIONS The Group has completed the acquisition of KBF Ltd. And Lord Food International Ltd., subsidiaries, on 21 January Group management believes that these two copmanies (previously presented under Assets Held for Sale ) constitute a single cash generating unit and has included in the consolidation for the first time in its consolidated financial statements dated 31 December The goodwill generated at the acquisition of KBF Ltd. and Lord Food International Ltd. have been presented below: Carrying Value Fair Value Adjustments Fair Value Group s Share Current Assets Cash and cash equivalents Trade receivables Inventories Other current assets Non-Current Assets Tangible and intangible assets Current Liabilities ( ) - ( ) Trade payables ( ) - ( ) Other payables ( ) - ( ) Non-Current Liabilities - ( ) ( ) Deferred tax liabilities - ( ) ( ) Total Net Assets Total Cash Paid Gain generated from the acquisition as of 1 January 2009 (*) ( ) Gain generated from the acquisition as of 31 December 2009 (*) ( ) (*) The gain generated during the acquisition of KBF Ltd. and Lord Food International Ltd. have been accounted under Other Income in accordance with IFRS JOINT VENTURES Hero Gıda Sanayi ve Ticaret A.Ş. and Pendik Nişasta Sanayi ve Ticaret A.Ş. have been presented as joint ventures in the accompanying consolidated financial statements and have been consolidated using the equity method. Joint ventures have been explained in detail in Note 2. 91

94 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) 5. SEGMENTAL INFORMATION The Group s core business activities are manufacturing of biscuits, chocolate coated biscuits and wafers. The decision makers of the Group routinely review the Ülker Bisküvi Sanayi A.Ş. and its subsidiaries consolidated financial statements. Since the Group has operations in only one production area and the decision makers use the consolidated financials, segmental reporting in accordance with IFRS 8 have not been provided in the accompanying consolidated financial statements. 6. CASH AND CASH EQUIVALENTS 31 December December 2008 Cash Demand deposits Time deposits (*) Other liquid assets (*) Time deposists consist of repurchase agreements amounted as TL (31 December 2008: TL ). Cash and cash equivalents include bank deposits amounting to TL at Türkiye Finans Katılım Bankası A.Ş. which is a related party (31 December 2008: TL ). The detail of time deposits is as follows: Currency Type Interest Rate (%) Maturity 31 December 2009 TL %5,75 January USD %0,19-%2,75 January Currency Type Interest Rate (%) Maturity 31 December 2008 TL %14,00-%16,75 January USD %1,75-%3,50 January FINANCIAL ASSETS Short Term Financial Assets: 31 December December 2008 Available for sale financial assets Financial assets at fair value through profit or loss The Company s short term financial assets compose of various liquid funds and shares. Long Term Financial Assets: 31 December December 2008 Available for Sale Financial Assets ÜLKER BİSKÜVİ ANNUAL REPORT 2009

95 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Long Term Available for Sale Ratio % 31 December 2008 Ratio % 31 December 2008 BİM Birleşik Mağazalar A.Ş. (i) 12,03% ,03% Tire Kutsan O.M.K. ve K. San. A.Ş. (ii) 1,94% ,83% KBF Ltd. (iii) 50,76% - 50,76% Sağlam GYO A.Ş. (i) 10,71% ,71% Besler Gıda ve Kimya San. A.Ş. 7,00% ,00% Netlog A.Ş. (iv) 15,91% ,91% Fresh Cake Gıda A.Ş. 10,00% ,00% Dünya Gümrükleme Müş. A.Ş. (v) 79,58% ,58% Igit Ulus.Nak. Turizm Mak. San. Tic. A.Ş.(v) 50,77% ,84% Other (i) The shares are traded on a stock exchange and have been valued at their fair value. (ii) Ülker Bisküvi Sanayi A.Ş. and Mondi Packaging have agreed to continue their cooperation in Tire Kutsan San. A.Ş. (Tire) as a partnership for a period of 3 years. Ülker Bisküvi Sanayi A.Ş. s shares which has a nominal value of TL ,61, equals to the 1,94% of Tire s equity share. According to this agreement, Ülker Bisküvi Sanayi A.Ş. will transfer number of Tire Kutsan A.Ş. shares to Mondi Pacakaging after three years following the date, 3 September 2007 on the basis of a share price of 0, USD and an annual interest of 6%. As of 31 December 2008 and 31 December 2009, the valuation of the shares of Tire Kutsan A.Ş. are done on the basis of the terms on this agreement. (iii) The subsidiary; in period periods, due to its small size and low transaction volume has been presented under Available for Sale Assets and not included in the consolidation, has now been inlcuded in the consolidation for the first time in the current year based on the Group management s decision. (iv) An agreement for the sale of Netlog Lojistik Hizmetleri A.Ş. s shares have been signed and the sale has been completed in March (v) The subsidiary, due to its small size and low transaction volume and because its operations are outside the scope of the Grop, has not been included in the consolidation. Those equity instruments that are traded in an active market are presented at their fair values. The difference in the fair values of such instruments of TL (2008: TL) has been presented under other comprehensive income under equity. As the expected value gaps for those financial assets that are not traded in an active market are high and expected values are not reliable, available for sale assets presented above of TL have been presented at cost. 93

96 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) 8. FINANCIAL BORROWINGS 31 December December 2008 Short Term Financial Borrowings: Short term bank loans Short term financial lease payables Long Term Financial Borrowings: Long term loans Long term financial lease payables December 2009 Currency Type Maturity Interest Rate (%) Short Term Long Term TL February 2010 %8,5-%10, USD January 2010-March 2013 %2,73-%9, December 2008 Currency Type Maturity Interest Rate (%) Short Term Long Term TL January 2009 %25-% USD January 2009-March 2013 %1,64-%10, Repayment schedule of financial borrowings is as follows: 31 December December 2008 to be paid within 1 year to be paid within 1-2 years to be paid within 2-3 years to be paid within 3-4 years to be paid within 4-5 years TL of financial borrowings are due to Fon Finansal Kiralama A.Ş., which is a related party (2008: TL). The Company signed the credit agreement amounting to USD 950 million regarding the takeover of Godiva Belgium BVBA and G New Inc. with Yıldız Holding A.Ş. and Ülker Çikolata Sanayi A.Ş, and undertook its own qutoa amounting to USD 240 million. In addition the Company bailed together with Yıldız Holding A.Ş and Ülker Çikolata Sanayi A.Ş. for the loan amounting to USD 710 million.a payment of USD 33 million of principle have been made in the current year. As of 31 December 2009 the burden has been decreased to USD 577 million. 94 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

97 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) a) The detail of short term financial lease payables is as follows: ShortTerm Financial Lease Payables 31 December December 2008 Financial lease payables Deferred financial lease payables (-) ( ) ( ) b) The detail of long term financial lease payables is as follows: Long-Term Financial Lease Payables 31 December December 2008 Financial lease payables Deferred financial lease payables (-) ( ) ( ) The maturity detail of the financial lease payables is as follows: 31 December December 2008 to be paid within 1 year to be paid within 1-2 years to be paid within 2-3 years to be paid within 3-4 years OTHER FINANCIAL LIABILITIES 31 December December 2008 Derivative Financial Liabilities TRADE RECEIVABLES AND PAYABLES 31 December December 2008 Due From Related Parties Due from related parties (Note: 37) Other Trade Receivables Trade receivables Provision for doubtful receivables(-) ( ) ( ) Total Short Term Trade Receivables Trade receivables are disclosed at discounted net realizable value using the effective yield method. Net realizable value has been calculated over discount rate of 10% based on the Group s cash sales. (31 December 2008: 20%). The allowance for trade receivables is provided based on the estimated irrecoverable amounts from the sale of goods, determined by reference to past default experience. 95

98 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) The movement of the allowance for doubtful receivables as of 31 December 2009 and 31 December 2008 is as follows: 1 January 31 December January 31 December 2008 Opening balance ( ) ( ) Charge for the period (3.049) ( ) Translation gain or loss 321 ( ) Cancelled provisions Collections Closing balance ( ) ( ) Long Term Trade Receivables 31 December December 2008 Notes Receivable Short Term Trade Payables 31 December December 2008 Trade payables to related parties (Note:37) Trade payables OTHER RECEIVABLES AND PAYABLES 31 December December 2008 Other Receivables Non trade receivables from related parties (Note: 37) Short term other receivables Other Short Term Receivables Other short term receivables Tax receivables Deposits and guarantees given Receivables from personel Other Long Term Receivables 31 December December 2008 Deposists and guarantees given Other Payables 31 December December 2008 Non trade payables torelated parties (Note: 37) Other payables to related parties ÜLKER BİSKÜVİ ANNUAL REPORT 2009

99 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Other Short Term Payables 31 December December 2008 Advances received Other Payables Deposists and guarantees received RECEIVABLES AND PAYABLES FROM FINANCIAL SECTOR OPERATIONS None (31 December 2008: None). 13. INVENTORIES The detail of inventories is as follows: 31 December December 2008 Raw materials Work in progress Finished goods Trade goods Other inventories Inventory impairment provision (-) ( ) ( ) Inventory is presented on cost value and allowence for impairment on inventory is booked. The movement of allowence for impairment on inventory for the periods ending 31 December 2009 and 31 December 2008 are below: 1 January- 31 December January- 31 December 2008 Opening balance ( ) ( ) Charge for the year ( ) ( ) Used allowence Closing balance ( ) ( ) 14. BIOLOGICAL ASSETS None (31 December 2008: None). 15. ASSETS RELATED TO ONGOING CONSTRUCTION CONTRACTS None (31 December 2008: None). 97

100 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) 16. INVESTMENTS ACCOUNTED FOR UNDER THE EQUITY METHOD Associates and joint ventures are accounted for under the equity pick-up method: Associates and Joint Ventures Share % 31 December 2009 Share % 31 December 2008 Hero Gıda San. ve Tic. A.Ş. %39, %39, Pendik Nişasta San. ve Tic. A.Ş. %23, %23, Godiva Belgium BVBA %25, %25, G New Inc. %25, %25, December December 2008 Indexed cost Profits arising after the acquisition date and net-off with dividends received(-) The financial information for the Group s associates and joints ventures accounted for under the equity pick-up method are as follows: 31 December December 2008 Total assets Total liabilities ( ) ( ) Net assets Group s share in net assets January- 31 December January- 31 December 2008 Net sales Net loss for the period ( ) ( ) Group s share in net loss for the period ( ) ( ) On the basis of IFRS 3, the Company took over 25,23% shares of Godiva Belgium BVBA and G New Inc. for U.S.D. ( TL) and U.S.D ( TL) respectively. The goodwill resulting from this acqusition is stated in below: 98 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

101 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Goodwill resulting from the acqusition of G-New Inc. is presented below: Carrying Value Adjustments Fair Value Portion of Group Current Assets Cash and Cash Equivalents Receivables and Other Current Assets Inventories Tangible and Intangible Noncurrent Assets Short-term Liabilities ( ) - ( ) ( ) Financial Liabilities ( ) - ( ) ( ) Trade Payables ( ) - ( ) ( ) Other Liabilities Long-term Liabilities ( ) - ( ) ( ) Financial Liabilities ( ) - ( ) ( ) Debt Provisions ( ) - ( ) ( ) Net Total Assets ( ) Total Cash Paid March 2008 Positive Goodwill December 2009 Positive Goodwill(*) (*) Goodwill from the acquisition of G New Inc. is disclosed in investments based on the equity method. Goodwill resulting from the acqusition of G-New Inc. is presented below: Carrying Value Adjustments Fair Value Portion of Group Current Assets Cash and Cash Equivalents Receivables and Other Current Assets Inventories Non-Current Assets Receivables and other Non-current Assets Tangible and Intangible Assets Short-term Liabilities ( ) - ( ) ( ) Financial Liabilities ( ) - ( ) ( ) Trade Payables ( ) - ( ) ( ) Other Liabilities ( ) ( ) ( ) ( ) Long-term Liabilities ( ) - ( ) ( ) Financial Liabilities ( ) ( ) ( ) ( ) Other Provisions - ( ) ( ) ( ) Net Total Assets Total Cash Paid March 2008 Positive Goodwill December 2009 Positive Goodwill(*) (*) Goodwill from the acquisition of Godiva Belgium BVBA is disclosed in investments based on the equity method. 99

102 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) 17. INVESTMENT PROPERTY None (31 December 2008: None). 18. TANGIBLE ASSETS (NET) Movements of tangible assets between 1 January 2009 and 31 December 2009 are as follows: Cost 1 January 2009 Addition Disposal Transfers Change in Consolidation Structure Translation Gain / Loss 31 December 2009 Land Land improvements (35.131) Buildings ( ) ( ) Machinery, plant and equipment ( ) ( ) Vehicles ( ) (2.080) Furniture and fixtures ( ) (6.180) Leasehold improvements (1.092) Other tangible assets (2.565) Construction in progress ( ) (9.873) ( ) ( ) Accumulated Depreciation 1 January 2009 Addition Disposal Transfers Change in Consolidation Structure Translation Gain / Loss 31 December 2009 Land improvements ( ) ( ) ( ) Buildings ( ) ( ) ( ) Machinery, plant and equipment ( ) ( ) ( ) ( ) Vehicles ( ) ( ) (30.333) ( ) Furniture and fixtures ( ) ( ) (72.545) ( ) Leasehold improvements ( ) ( ) - - (18.067) ( ) Other tangible assets ( ) ( ) - - (45.702) ( ) ( ) ( ) ( ) ( ) Net Book Value In amortization expenses, TL (31 December 2008: TL) is included cost of goods sold, TL (31 December 2008: TL) is included in research and development expenses, TL (31 December 2008: TL) is included in marketing and selling expenses and TL (31 December 2008: TL) is included in general administrative expenses. 100 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

103 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Movements of tangible assets between 1 January 2008 and 31 December 2008 are as follows: Cost 1 January 2008 Addition Disposal Transfers 31 December 2008 Land ( ) Land improvements Buildings ( ) Machinery, plant and equipment ( ) Vehicles ( ) Furniture and fixtures ( ) Leasehold improvements (2.449) Other tangible assets Construction in progress ( ) ( ) Accumulated Depreciation 1 January 2008 Addition Disposal Transfers 31 December 2008 Land improvements ( ) ( ) - - ( ) Buildings ( ) ( ) ( ) Machinery, plant and equipment ( ) ( ) ( ) Vehicles ( ) ( ) ( ) Furniture and fixtures ( ) ( ) ( ) Leasehold improvements ( ) ( ) ( ) Other tangible assets ( ) ( ) - - ( ) ( ) ( ) ( ) Net Book Value (*) The Group performed reclassifications between Tangible Assets and Intangible Assets to the closing balance of 31 December The useful lifes of tangible assests are as follows: Buildings Land improvements Machinery and equipment Vehicles Other tangible assets Furniture and fittings Leasehold improvements Useful life years years 4 15 years 4 10 years 4 10 years 3 10 years 5 10 years 101

104 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) 19. INTANGIBLE ASSETS (NET) Movements of intangible assets between 1 January 2009 and 31 December 2009 are as follows: Cost 1 January 2009 Addition Disposal Changes due to Consolidation Translation Differences 31 December 2009 Rights Other intangible assets (7) (7) Accumulated amortization 1 January 2008 Addition Disposal Changes due to Consolidation Translation Differences 31 December 2008 Rights ( ) ( ) ( ) Other intangible assets ( ) (49.106) - (130) 30 ( ) ( ) ( ) - (130) 30 ( ) Net Book Value Movements of intangible assets between 1 January 2008 and 31December 2008 are as follows: Cost 1 January 2008 Addition Disposal 31 December 2008 Rights Other intangible assets Accumulated Amortization 1 January 2008 Addition Disposal 31 December 2008 Rights ( ) ( ) - ( ) Other intangible assets ( ) (38.700) - ( ) ( ) ( ) - ( ) Net Book Value The intangible assets are amortized on a straight-line basis over their estimated useful lives for the period. Rights Other intangible assets Useful Life 2 15 years 5 12 years 20. GOODWILL Ülker Bisküvi Sanayi A.Ş., acquired 4,725% share, which corresponds to shares, of the total equity of Atlas Gıda Pazarlama Sanayi ve Ticaret A.Ş. for TL from Dynamic Growth Fund on 19 October As a result of this acquisition a positive goodwill amounting TL has been generated. The impairment calculations have been performed as of 31 December 2009 and as a result of this assessment no impairment for the goodwill was noted (31 December 2008:TL ). The goodwill resulting from the acquisition of Godiva Belgium BVBA and G-New Inc is presented in Note ÜLKER BİSKÜVİ ANNUAL REPORT 2009

105 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) 21. GOVERNMENT GRANTS AND INCENTIVES Group has received government incentive in the current period amounting TL (31 December 2008:TL ). This benefit is considered as government incentives and explained on Note 2. In 2009 the of amount relating to law 5084; TL is from energy grants, TL is from employment grants (2008: TL relating to energy grants). 22. PROVISIONS, CONTINGENT ASSETS AND LIABILITIES Short-Term Provisions 31 December December 2008 Provision for lawsuits Movement of the legal case provision 1 January- 31 December January- 31 December 2008 Opening Balance Current year charge Provision released ( ) A significant portion of the legal case provision as of 31 December 2009 and 2008 are relating to legal filings made by the personnel. a) Guarantees Given (Balances denominated in foreign currencies have been presented in their original currency) 31 December December 2008 TL USD TL USD Euro A) Total Guarantees Pledges and Liens ( GPL )Given in the Legal Name of the Company B) Total GPL Given in the Name of Fully Consolidated Companies C) Total GPL Given to Manage Trading Operations of Entity in the name of 3rd parties D) Total-Other GPL Given i. Total GPL Given in the Name of the Parent ii. Total GPL Given in the name of other Group Companies not included in B) and C) iii. Total GPL given in the name of 3rd parties not included in C) Total The proportion of guarantees, pledges and liens given by the Group to its equity as of 31 December 2009 is 49% (31 December 2008: 94%). 103

106 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) b) Lawsuits Filed by and Against to the Group ba) As of 31 December 2009; Lawsuits filed by the Group: TL USD Compensation litigations Foreclosure proceedings Tax litigations Action of debt Penalty proceedings Lawsuits filed against to the Group: TL USD Action of debts (*) Execution files (*) Compensation ligitations (*) bb) As of 31 December 2008; Lawsuits filed by the Group: TL Compensation litigations Foreclosure proceedings Tax litigations Action of debt Penalty proceedings Lawsuits filed against to the Group: TL Action of debts (*) Compensation litigations (*) (*) A provision of TL has been provided for various court cases filed against the Group. For the rest of the lawsuits it is decided not to book any provision because no cash outflow is projected. (31 December 2008: TL ). Operational Leasing Agreements The operating leases of the company are for one year period. All operational leasing agreements include a clause allowing the re-arrangement of the terms of the lease had the lessee renewed the contract under the current market conditions. The lessee does not have a right to purchase the asset at the end of the term. Group s rental income from its operational leasing agreements for assets leased are TL in the year (2008: TL). In the current year opeational leasing expenses are TL (2008: TL). Due to noncancellable rent agreements, the Gropu s rental revenue to be received in the future periods is TL and are all to be realized in a one year period. Due to non-cancellable rent agreements, the Group s rental expense to be incurred in the future periods is TL and are all payable in a one year period. 104 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

107 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) 23. COMMITMENTS The Group s export commitments amount is TL as of 31 December 2009 (31 December 2008: ) 24. EMPLOYEE BENEFITS Shor Term Provision 31 December December 2008 Unused vacation accrual Dues to personnel Performance and premium provision Long Term Provisions 31 December December 2008 Retirement pay provision Under Turkish Labor Law, the Group is required to pay employment termination benefits to each employee who has qualified. Also, employees are required to be paid their retirement pay who retired by gaining right to receive according to current 506 numbered Social Insurance Law s 6 March 1981 dated, 2422 numbered and 25 August 1999 dated, 4447 numbered with 60th article that has been changed. The amount payable consists of one month s salary limited to a maximum of TL 2.365,16 for each period of service at 31 December 2009 (31 December 2008: TL 2.173,19). As the maximum liability is revised semi annually, the maximum amount of TL 2.427,04 effective from 1 January 2008 has been taken into consideration in calculation of provision from employment termination benefits. The liability is not funded, as there is no funding requirement. The provision has been calculated by estimating the present value of the future probable obligation of the Group arising from the retirement of employees. IAS 19 requires actuarial valuation methods to be developed to estimate the entity s obligation under defined benefit plans. Accordingly, the following actuarial assumptions were used in the calculation of the total liability: The principal assumption is that the maximum liability for each year of service will increase parallel with inflation. Thus, the discount rate applied represents the expected real rate after adjusting for the anticipated effects of future inflation. Consequently, in the accompanying financial statements as at 31 December 2009, the provision has been calculated by estimating the present value of the future probable obligation of the Group arising from the retirement of the employees. The provisions at the respective balance sheet dates have been calculated assuming an annual inflation rate of % 4,80 and a discount rate of %11, resulting in a real discount rate of approximately %5,92 (31 December 2008: % 6,26). Movement of retirement pay provision is as follows: 1 January 31 December January 31 December 2008 Opening balance Service costs Interest costs Actuarial gain ( ) Provision released in the current period - ( ) Payment ( ) ( ) Closing balance

108 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) 25. RETIREMENT BENEFITS None (31 December 2008: None). 26. OTHER ASSETS AND LIABILITIES Other Current Assets 31 December December 2008 VAT carried forward Order advances given Prepaid expenses Prepaid taxes and funds Other Other non-current assets 31 December December 2008 Advances given Other Current Liabilities 31 December December 2008 Taxes and funds payable Social security premiums payable Expense accruals Other liabilities SHAREHOLDERS EQUITY The composition of the Company s paid-in share capital as of 31 December 2009 and 31 December 2008 is as follows: 31 December December 2008 Shareholders TL Share (%) TL Share (%) Yıldız Holding A.Ş %42, %42,09 Dynamic Growth Fund %26, %26,57 Other %31, %31, % 100, % 100,00 Subsequent to the acquisition of Anadolu Gıda Sanayi A.Ş., the Company increased its registered share capital ceiling to TL with the permission of Capital Market Board dated 23 January 2004 and numbered Considering additional profit share distribution, Class A and B share certificate owners have been granted a privilege out of the primary dividend at an additional rate of 17,65%. Additionally, the owners of founder certificates not included in the capital structure have been granted privilege out of the primary dividend at the rate of 11,76%. Class A and D share certificate owners have also been granted privilege for 4 and 1 vote respectively, for appointing candidates for board of directors. b) Valuation Fund Financial Asset Valuation Fund: Financial Asset Valuation Fund is generated from the valuation of available for sale instruments with their fair values.when a financial asset valued at its fair value is disposed, the related portion in the valuation fund is directly recognized in that period s profit and loss. When a financial instrument is revalued and a decrease in value is observed, the related portion in the valuation fund is directly recognized in that period s profit and loss. 106 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

109 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) As of 31 December 2009 the Group has a financial asset valuation fund of TL (31 December 2008: TL). c) Restricted Reserves Appropriated from Profit Restricted reseves appropriated from profit are composed of legal reserves. Legal reserves comprise of first and second legal reserves, appropriated in accordance with the Turkish Commercial Code. The first legal reserve is appropriated out of historical statutory profits at the rate of 5% per annum, until the total reserve reaches 20% of the historical paid-in share capital. The second legal reserve is appropriated after the first legal reserve and dividends, at the rate of 5% per annum of all cash dividend distributions. In accordance with the CMB s requirements which were effective until 1 January 2008, the amount generated from the first-time application of inflation adjustments on financial statements, and followed under the accumulated loss item was taken into consideration as a reduction in the calculation of profit distribution based on the inflation adjusted financial statements within the scope of the CMB s regulation issued on profit distribution. The related amount that was followed under the accumulated loss item could also be offset against the profit for the period (if any) and undistributed retained earnings and the remaining loss amount could be offset against capital reserves arising from the restatement of extraordinary reserves, legal reserves and equity items, respectively. In addition, in accordance with the CMB s requirements which were effective until 1 January 2008, at the first-time application of inflation adjustments on financial statements, equity items, namely Capital issue premiums, Legal reserves, Statutory reserves, Special reserves and Extraordinary reserves were carried at nominal value in the balance sheet and restatement differences of such items were presented in equity under the Shareholders equity inflation restatement differences line item in aggregate. Shareholders equity inflation restatement differences related to all equity items could only be subject to the capital increase by bonus issue or loss deduction, while the carrying value of extraordinary reserves could be subject to the capital increase by bonus issue; cash profit distribution or loss deduction. However, in accordance with the CMB s Decree Volume: XI; No: 29 issued on 1 January 2008 and other related CMB s announcements, Paid-in capital, Restricted reserves and Premium in excess of par should be carried at their registered amounts in statutory records. Restatement differences (e.g. inflation restatement differences) arising from the application of the Decree should be associated with: - Capital restatement differences account, following the Paid-in capital line item in the financial statements, if such differences are arising from Paid-in Capital and not added to capital; - Retained earnings/accumulated loss, if such differences are arising from Restricted reserves and Premium in excess of par and has not been subject to profit distribution or capital increase. Other equity items are carried at the amounts that are valued based on the CMB s Financial Reporting Standards. Capital restatement differences can only be included in capital. 107

110 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Profit Distribution: In accordance with the Capital Markets Board s (the Board ) Decree issued on 27 January 2010, in relation to the profit distribution of earnings derived from the operations in 2009, minimum profit distribution is not required for listed companies (December 31, 2008: 20%), and accordingly, profit distribution should be made based on the requirements set out in the Board s Communiqué Serial:IV, No: 27 Principles of Dividend Advance Distribution of Companies That Are Subject To The Capital Markets Board Regulations, terms of articles of corporations and profit distribution policies publicly disclosed by the companies. Furthermore, based on the afore-mentioned decree, companies that are required to prepare consolidated financial statements should calculate their net distributable profits, to the extent that they can be recovered from equity in their statutory records, by considering the net profit for the period in the consolidated financial statements which are prepared and disclosed in accordance with the Communiqué Serial: XI, No: 29. Legal Reserves and Share Issuance Premiums which are considered as legal reserves under the Turkish Commercial Code No: 446, have been presented at their values in legal books. Thus, the inflation adjustment differences from the valuation studies for IFRS purposses for those as of the balance sheet date that have not been subject to profit distribution or capital increase have been presented under retained earnings. Resources Available for Profit Distribution: The Group has in its legals books a profit for the period of TL (31 December 2008: TL ) and other reserves of TL TL (31 December 2008: TL ) that can be utilized for profit distribution. d) Retained Earnings Details of the retained earnings is as follows: 31 December December 2008 Retained earnings Capital-investment elimination ( ) ( ) Extraordinary reserves Inflation restatement differences of shareholders equity accounts other than capital and legal reserves Other Reserves e) Minority interest The amount of minority interest as of 31 December 2009 is equal to TL (31 December 2008: TL ). The minority share of TL on operating results for the period between 1 January 31 December 2009 has been presented separately from the net profit for the same period in the accompanying consolidated statements of income (1 January 31 December 2008: TL) 108 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

111 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) f) Foreign Currency Translation Difference Financial statements of each subsidiary of the Group are presented in the currency of the primary economic environment in which the entities operate (its functional currency). The results and financial position of the each subsidiary are expressed in Turkish Lira, which is the functional and presentation currency of the Group. Details and calculation methods of the foreign currency translation differences have been explained in Note REVENUE AND COST OF SALES a) The detail of operating income is as follows: 1 January 31 December January 31 December 2008 Domestic sales Export sales Other operating income Sales returns (-) ( ) ( ) Sales discounts (-) ( ) ( ) Sales Income (net) b) Cost of sales 1 January 31 December January 31 December 2008 Raw materials used ( ) ( ) Personnel expenses ( ) ( ) Production overheads ( ) ( ) Depreciation expenses ( ) ( ) Change in work-in-progress inventories Change in finished goods inventories Cost of merchandises sold ( ) ( ) Cost of trade goods sold ( ) ( ) Cost of sales ( ) ( ) 109

112 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) 29. RESEARCH AND DEVELOPMENT EXPENSES, MARKETING, SELLING AND DISTRIBUTING EXPENSES, GENERAL ADMINISTRATIVE EXPENSES 1 January- 31 December January- 31 December 2008 Marketing, selling and distribution expenses ( ) ( ) General administrative expenses ( ) ( ) Research and development expenses ( ) ( ) ( ) ( ) 30. EXPENSES BY NATURE The detail of operating expenses are as follows; 1 January- 31 December January- 31 December 2008 Research and Development Expenses Personnel expenses ( ) ( ) Materials used ( ) ( ) Depreciation and amortization expenses (13.926) (7.020) Consultancy expenses ( ) ( ) Other ( ) ( ) ( ) ( ) Marketing, Sales and Distribution Expenses Personnel expenses ( ) ( ) Marketing expenses ( ) ( ) Depreciation and amortization expenses ( ) ( ) Other ( ) ( ) ( ) ( ) General Administrative Expenses Personnel expenses ( ) ( ) Operating expenses(*) ( ) ( ) Depreciation and amortization expenses ( ) ( ) Consultancy expenses ( ) ( ) Taxes,duties and levies ( ) ( ) Other ( ) ( ) ( ) ( ) Total Operating Expenses ( ) ( ) (*) The operating expenses of the Group mainly comprises of management support, information technology and administaration expenses reflected by Yıldız Holding. 110 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

113 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) 31. OTHER OPERATING INCOME / (EXPENSES) a) The detail of other operating income is as follows; 1 January- 31 December January- 31 December 2008 Gain on sale of property, plant and equipment Collected doubtful receivables Provisions released Rent income Income from acquisition of affiliates Other ordinary income and profits b) The detail of other operating expenses is as follows; 1 January- 31 December January- 31 December 2008 Provision expense ( ) ( ) Loss on sale of property, plant and equipment ( ) ( ) Other expenses ( ) ( ) ( ) ( ) 32. FINANCE INCOME 1 January- 31 December January- 31 December 2008 Dividend income Foreign exchange gain Financing Income from forward sales Foreign currency and interest gain from financing Discount income Other FINANCE EXPENSES 1 January- 31 December January- 31 December 2008 Foreign exchange loss ( ) ( ) Foreign currency and interest gain from financing ( ) ( ) Financing expense from forward purchases ( ) ( ) Discount expense ( ) ( ) Other ( ) ( ) ( ) ( ) 34. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS None. 111

114 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) 35. DEFERRED TAX ASSETS AND LIABILITIES The Group, accounts deferred tax assets and liabilities for temporary timing differences rooted from differences between legal financial statements and financial statements prepared in accordance with IFRS. Those differences in question are caused generally by the fact that some profit and loss accounts come up in different periods in legal financial statements and financial statements prepared in accordance with IFRS. Turkish tax legislation does not permit a parent company and its subsidiary to file a consolidated tax return. Therefore, provisions for taxes, as reflected in the accompanying consolidated financial statements, have been calculated on a separate-entity basis.the rate applied in the calculation of deferred tax assets and liabilities is 20% (2008: 20%). Subsidiaries that have deferred tax asset: Deferred tax bases 31 December 2009 Deferred tax assets 31 December 2008 Deferred tax liabilities 31 December December 2008 Indexation and useful life differences of tangible and intangible assets ( ) Financial instruments valuation differences ( ) Profit margin elimination on inventory - - ( ) ( ) Discount of trade receivables / payables (net) ( ) Allowance for employee termination benefits ( ) ( ) ( ) ( ) Allowance for doubtful receivables ( ) ( ) ( ) - Previous year losses ( ) ( ) (42.730) - Provision for lawsuits - - ( ) ( ) Derivative financial liabilities - - ( ) ( ) Other ( ) ( ) ( ) ( ) ( ) Deferred tax asset / liabilities 31 December 2008 Deferred tax assets 31 December 2008 Deferred tax liabilities 31 December December 2008 Indexation and useful life differences of tangible and intangible assets ( ) Financial instruments valuation differences (78.961) Profit margin elimination on inventory - - ( ) ( ) Discount of trade receivables / payables (net) ( ) Allowance for employee termination benefits ( ) ( ) ( ) ( ) Allowance for doubtful receivables (44.355) ( ) ( ) - Previous year losses ( ) ( ) (8.546) - Provision for lawsuits - - ( ) ( ) Derivative financial liabilites - - ( ) ( ) Other ( ) ( ) ( ) ( ) ( ) ÜLKER BİSKÜVİ ANNUAL REPORT 2009

115 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Movement of Deferred Tax Liabilities: 1 January 31 December January 31 December 2008 Opening balance Taxes netted against funds transfered under equity ( ) Change in consolidation structure Translation difference (82.501) - Deferred tax expense / (income) ( ) The Group is subject to Turkish corporate taxes. Provision is made in the accompanying financial statements for the estimated charge based on the Group s results for the year. Corporate Tax The Company and its Turkish subsidiaries are subject to Turkish corporate taxes. Provision is made in the accompanying financial statements for the estimated charge based on the Group s results for the period. Corporate tax is applied on taxable corporate income, which is calculated from the statutory accounting profit by adding back non-deductible expenses, and by deducting dividends received from resident companies, other exempt income and investment incentives utilized. The effective tax rate in 31 December 2009 is 20% (31 December 2008: 20%). In Turkey, advance tax returns are filed on a quarterly basis. The advance corporate income tax rate is 20% in 2009 (31 December 2008: 20%). Losses are allowed to be carried 5 years maximum to be deducted from the taxable profit of the following years. However, losses occurred cannot be deducted from the profit occurred in the prior years retroactively. In Turkey, there is no procedure for a final and definitive agreement on tax assessments. Companies file their tax returns between 1-25 April following the close of the accounting year to which they relate. The companies with special accounting periods, file their tax returns between 1st-25th of fourth month after fiscal year end. Tax authorities may, however, examine such returns and the underlying accounting records and may revise assessments within five years. Income witholding tax In addition to corporate taxes, companies should also calculate income withholding taxes and funds surcharge on any dividends distributed, except for resident companies in Turkey which include this dividend income in their taxable profit for the related period and Turkish branches of foreign companies. The rate of income withholding tax is 10% starting from 24 April This rate was changed to 15% with the code numbered 5520 article 15 commencing from 21 June However until the resolution of council of ministers, it was used as 10%. After the resolution, declared in Official Gazette in 23 July 2006, this rate is changed to 15% effective from 23 July Undistributed dividends incorporated in share capital are not subject to income withholding taxes. As the Group did not use any investment incentives, the Company has used 20% corporate tax rate. 113

116 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Provision for taxation as of 31 December 2009 and 31 December 2008 are as follows: 31 December December 2008 Current tax provision ( ) ( ) Prepaid taxes and funds Taxation in the balance sheet ( ) January- 31 December July- 31 December 2008 Current tax provision ( ) Deferred tax benefit ( ) ( ) Taxation in the statement of income ( ) The reconciliation of taxation as of 31 December 2009 and 2008 are as follows: Reconciliation of taxation: 1 January 31 December January 31 December 2008 Profit before tax Effective tax rate 20% 20% Expected taxation Tax effects of: -Non-deductible expenses Dividends and other non-taxable income ( ) ( ) -Carryforward tax losses ( ) (34.348) -Exempt from tax ( ) ( ) -Farklı vergi oranına sahip yabancı iştiraklerin etkisi Consolidation adjustment Taxation in the statement of income EARNINGS PER SHARE A summary of the Group s weighted average number of shares outstanding as of 31 December 2009 and 2008 and computation of earnings per share set out here as follows (cash increases are assumed to exclude founder shares): 1 January 31 December January 31 December 2008 Weighted average number of common stock outstanding Net profit Basic Earnings Per Share (1 TL par value each) 0,38 0, ÜLKER BİSKÜVİ ANNUAL REPORT 2009

117 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) 37. BALANCES AND TRANSACTIONS WITH RELATED PARTIES a) The detail of receivables from related parties is as follows: 31 December December 2008 Trade receivables Non-trade receivables Trade receivables from retaled parties is mainly composed of sales transactions and approximate maturity is 2 months. Non-trade receivables are loans given to related parties, and interest is received as quarterly based on effective market interest rate. The interest rate used in 31 December 2009 is %10 for TL, %7 for foreign currencies. (31 December 2008: 18% for TL, 8% for foreign currencies). The detail of trade and non-trade receivables is as follows: 31 December December 2008 Trade Non-Trade Trade Non-Trade Principle Shareholders Yıldız Holding A.Ş Subsidiaries Hero Gıda Sanayi ve Ticaret A.Ş Other Companies Controlled by the Principle Shareholders Pasifik Tük. Ürün. Satış Ve Ticaret A.Ş Teközel Gıda T.Sağ. Mrk. Hiz. San. Tic. A.Ş Esas Pazarlama ve Tic. A.Ş Hamle Company Ltd (Kazakistan) Merkez Gıda Pazarlama San. ve Tic. A.Ş Anadolu Gıda San.A.Ş Ülker Çikolata Sanayi A.Ş Atlantik Gıda Paz.Tic.A.Ş GF Lovell Deutshland GMBH Bizim Toplu Tük.Paz.San.Tic.A.Ş Della Gıda San.ve Tic.A.Ş Fresh Cake Gıda San.ve Tic.A.Ş Other In addition to the balances above, there are bank deposits amounting to TL at Türkiye Finans Katılım Bankası A.Ş. (31 December 2008: TL ) The trade receivables from related parties mainly comprises the sales to Atlantik Gıda Pazarlama ve Tic. A.Ş and Pasifik Tük. Ürün. Satış Ve Ticaret A.Ş. which undertakes the sales of biscuit and chocolate covered biscuit in domestic market under Ülker brand. The non-trade receivables from related parties comprises the interest invoices issued to Yıldız Holding, Ülker Çikolata Sanayi A.Ş, Ak Gıda San. ve Tic. A.Ş. and Della Gıda San.ve Tic. A.Ş. 115

118 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) b) The detail of payables to related parties is as follows: Payables to related parties is due to purchases and approximately matured in 2 months. 31 December December 2008 Short-Term Payables Trade payables Non-trade payables The detail of trade and non-trade payables is as follows: 31 December December 2008 Trade Non-Trade Trade Non-Trade Principle Shareholders Yıldız Holding A.Ş Subsidiaries Hero Gıda Sanayi ve Ticaret A.Ş Pendik Nişasta Sanayi A.Ş Other Companies Controlled by the Principle Shareholders Pasifik Tük. Ürün. Satış Ve Ticaret A.Ş Fresh Cake Gıda San. ve Tic. A.Ş Besler Gıda ve Kimya San. Tic. A.Ş Öncü Pazarlama ve Ticaret A.Ş Önem Gıda San.ve Tic.A.Ş Anadolu Gıda San.A.Ş Ak Gıda San.Tic.A.Ş Tire Kutsan O.M.K ve K.San.A.Ş Ülker Çikolata Sanayi A.Ş Netlog Lojistik Hizmetleri A.Ş Örgen Gıda San.ve Tic.A.Ş Other The trade payables to related parties mainly comprises the raw materials and finished goods purchases from Fresh Cake Gıda San.ve Tic.A.Ş, Besler Gıda ve Kimya San. Tic. A.Ş. and Önem Gıda San. ve Tic. A.Ş and the advances given to Pasifik Tük. Ürün. Satış Ve Ticaret A.Ş. The non-trade payables to related parties mainly comprises the information service, management and corporate support received from Yıldız Holding A.Ş. 116 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

119 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) c) The detail of purchases from and sales to related parties is as follows: 1 January 31 December January 31 December 2008 Purchases Sales Purchases Sales Subsidiaries Hero Gıda San. ve Tic. A.Ş Pendik Nişasta San. A.Ş Other Companies Controlled by the Principle Shareholders Besler Gıda ve Kimya Sanayi ve Ticaret A.Ş Fresh Cake Gıda Sanayi ve Ticaret A.Ş Önem Gıda San. ve Tic. A.Ş Ak Gıda Sanayi ve Ticaret A.Ş Anadolu Gıda San.Tic.A.Ş Ülker Çikolata San.A.Ş Örgen Gıda San ve Tic.A.Ş Esas Pazarlama ve Tic.A.Ş Merkez Gıda Paz.San ve Tic.A.Ş Pasifik Tük.Ürünleri Satış ve Tic.A.Ş Teközel Gıda Tem.Sağ.Mark.Hizm.A.Ş Atlantik Gıda Paz.ve Tic.A.Ş Other Other Tire Kutsan O.M.K ve K.San.A.Ş Other than those described above as of 31 December 2009 the Group has finance leasing payables of TL to Finansal Kiralama Anonim Şirketi (2008: TL). The Group mainly acquires raw materials from Besler Gıda ve Kimya Sanayi ve Ticaret A.Ş which produces vegetable oil and margarine, Pendik Nişasta San.A.Ş, Ak Gıda Sanayi ve Tic.A.Ş and Önem Gıda San ve Tic.A.Ş.The Group sells its products to Esas Pazarlama Ve Ticaret A.Ş., Atlantik Gıda Pazarlama ve Tic. A.Ş, Pasifik Tük. Ürün. Satış Ve Ticaret A.Ş 117

120 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) d) The detail of income and expenses pertaining to interest, rent and services arising from transactions with related parties is as follows: For the twelve months period ended 31 December 2009; Interest Income Interest Expense Rent Income Rent Expense Service Income Service Expense Principle Shareholders Yıldız Holding A.Ş ( ) ( ) ( ) Subsidiaries Hero Gıda Sanayi ve Tic.A.Ş ( ) Pendik Nişasta Sanayi ve Tic.A.Ş Other Companies Controlled by Principle Shareholders Della Gıda San.ve Tic.A.Ş (86.941) Mavi Yeşil Koz.Gıda San.Tic.A.Ş Ülker Çikolata San.A.Ş (4.662) ( ) Ak Gıda San.ve Tic.A.Ş ( ) Pasifik Tük.Ür.Satış ve Tic. A.Ş. - ( ) ( ) FFK-Fon Finansal Kiralama A.Ş. - ( ) Öncü Paz.ve Tic.A.Ş. - ( ) ( ) ( ) Natura Gıda San.ve Tic.A.Ş. - (26) (2.330) Netlog Lojistik Hizm.A.Ş ( ) ( ) Atlantik Gıda Paz.ve Tic.A.Ş ( ) Başak Sağlık ve Eğt.Hizm.A.Ş ( ) 928 ( ) Other ( ) ( ) ( ) ( ) ( ) ( ) 118 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

121 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) For the twelve months period ended 31 December 2008; Interest Income Interest Expense Rent Income Rent Expense Service Income Service Expense Principle Shareholders Yıldız Holding A.Ş ( ) ( ) ( ) Subsidiaries Hero Gıda Sanayi ve Tic.A.Ş (180) ( ) Pendik Nişasta Sanayi ve Tic.A.Ş Other Companies Controlled by Principle Shareholders Netlog Lojistik Hizmetleri A.Ş. - (20.000) ( ) ( ) Öncü Pazarlama ve Ticaret A.Ş - ( ) ( ) ( ) Ülker Çikolata San.A.Ş (5.009) ( ) Pasifik Tük.Ürn. Satış ve Tic.A.Ş (500) ( ) Başak Sağlık Hizm.A.Ş ( ) ( ) Besler Gıda ve Kim. San. ve Tic.A.Ş ( ) - (42.350) (89.478) Anadolu Gıda Sanayi A.Ş (60.380) Natura Gıda Sanayi ve Ticaret A.Ş (16.433) Della Gıda Sanayi ve Ticaret A.Ş (14.408) Seher Gıda Paz. San. ve Ticaret A.Ş (8.358) Fon Finansal Kiralama A.Ş ( ) (859) Other (14.439) ( ) ( ) Other Tire Kutsan O.M.K. ve K. San. A.Ş (3.954) ( ) ( ) ( ) e) Benefits provided to board members and key management personnel: 31 December December 2008 BOD Members Senior management

122 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) f) The detail of guarantees, commitments and advances given in favour of related parties is as follows (in original currencies). 31 December December 2008 TL USD TL USD A) Total Guarantees Pledges and Liens ( GPL )Given in the Legal Name of the Company B) Total GPL Given in the Name of Fully Consolidated Companies C) Total GPL Given to Manage Trading Operations of Entity in the name of 3rd parties D) Total-Other GPL Given i. Total GPL Given in the Name of the Parent ii. Total GPL Given in the name of other Group Companies not included in B) and C) iii. Total GPL given in the name of 3rd parties not included in C) Total NATURE AND LEVEL OF RISKS DERIVED FROM FINANCIAL INSTRUMENTS (a) Capital risk management The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximizing the return to stakeholders through the optimization of the debt and equity balance. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 8, cash and cash equivalents disclosed in note 6 and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in note 27. The management of the Group considers the cost of capital and the risks associated with each class of capital. The management of the Group aims to balance its overall capital structure through the payment of dividends, new share issues and the issue of new debt or the redemption of existing debt. The Group controls its capital with the liability / total capital ratio.net liability is divided by total capital in this ratio. Cash and cash equivalents is substracted from total liabilities to calculate the net liability. The shareholder s equity is added to net liabilties to calculate the total capital. 120 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

123 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Net liability / Total capital ratio as of 31 December 2009 and 31 December 2008 is as follows; 31 December December 2008 Total liabilities Negative: Liquid assets ( ) ( ) Net liabilities Total shareholder s equity Total capital Net Liability/Total Capital Ratio %45 % 58 b) Financial Risk Factors The risks of the Group, resulted from operations, include market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The Group s risk management program generally seeks to minimize the effects of uncertainty in financial market on financial performance of the Group. Risk management is implemented by finance department according to the policies approved by Board of Directors. The Group s finance department provides services to the business, co-ordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Group through internal risk reports which analyses exposures by degree and magnitude of risks. The written procedures are formed by Board of Directors to manage the foreign currency risk, interest risk, credit risk, use of derivative and non-derivative financial instruments and the assessment of excess liquidity. 121

124 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) (b-1) Credit Risk Management Receivables Credit Risk of Financial Instruments Trade Receivables Other Receivables 31 December 2009 Related party Third party Related party Third party Deposits in Bank Derivative Instruments Other Maximum net credit risk as of balance sheet date (*) The part of maximum risk under guarantee with collateral etc. (**) A. Net book value of financial assets that are neither past due nor impaired B. Net book value of financial assets that are renegotiated, if not that will be accepted as past due or impaired C. Carrying value of financial assets that are past due but not impaired The part under guarantee with collateral etc D. Net book value of impaired assets Past due (gross carrying amount) Impairment (-) - ( ) The part of net value under guarantee with collateral etc Not past due (gross carrying amount) Impairment (-) The part of net value under guarantee with collateral etc E. Off-balance sheet items with credit risk (*) Items that increase the credit reliability, such as; letter of guarantees received, are not taken into account in the calculation (**)Guarantees include letter of guarantees, gurantee notes and mortgages. 122 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

125 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Receivables Credit Risk of Financial Instruments Trade Receivables Other Receivables 31 December 2008 Related Party Third Party Related Party Third Party Deposits in Bank Derivative Instruments Other Maximum net credit risk as of balance sheet date (*) The part of maximum risk under guarantee with collateral etc. (**) A. Net book value of financial assets that are neither past due nor impaired B. Net book value of financial assets that are renegotiated, if not that will be accepted as past due or impaired C. Carrying value of financial assets that are past due but not impaired The part under guarantee with collateral etc D. Net book value of impaired assets Past due (gross carrying amount) Impairment (-) - ( ) The part of net value under guarantee with collateral etc Not past due (gross carrying amount) Impairment (-) The part of net value under guarantee with collateral etc E. Off-balance sheet items with credit risk (*) Items that increase the credit reliability, such as; letter of guarantees received, are not taken into account in the calculation (**) Guarantees include letter of guarantees, guarantee notes and mortgages 123

126 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Aging of the past due receivables are as follows: Receivables 31 December 2009 Trade Receivables Other Receivables Total Past due 1-30 days Past due 1-3 months Past due 3-12 months Past due 1-5 years Past due more than 5 years Total past due receivables The part under guarantee with collateral Receivables 31 December 2008 Trade Receivables Trade Receivables Total Past due 1-30 days Past due 1-3 months Past due 3-12 months Past due 1-5 years Past due more than 5 years - - Total past due receivables The part under guarantee with collateral Collaterals held for the trade receivables that are past due but not impaired as of balance sheet date are as follows: 31 December December 2008 Nominal Value Nominal Value Guarantees Received Mortgages Collaterals - - Notes Received Collaterals held for the trade receivables that are past due and impaired as of balance sheet date are as follows: 31 December December 2008 Nominal Value Nominal Value Guarantees Received When one part of the financial instrument does not fulfill their obligations, that results in a financial loss risk to the Group and that risk is defined as credit risk. Group s credit risk is basically related to their trade receivables. The balance shown in the balance sheet is the net amount that is obtained when doubtful receivables are written off accoriding to Group management s previous experiences and current economic conditions. Group s non-trade receivables from related parties are mostly due to Yıldız Holding. b.2) Liquidity risk management The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. 124 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

127 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Liquidity risk tablesmanagement The following table presents the maturity of Group s non-derivative financial liabilities. The table includes both interest and principal cash flows.. Contractual Maturity Analysis December, Non-derivative financial liabilities Carrying value Total cash outflow according to contract (I+II+III+IV) Less than 3 months (I) 3-12 months (II) 1-5 years (III) More than 5 years (IV) Bank borrowings Financial lease liabilities Trade payables Other financial liabilities Total liabilities Contractual Maturity Analysis December, Derivative financial liabilities Carrying value Total cash outflow according to contract (I+II+III+IV) Less than 3 months (I) 3-12 months (II) 1-5 years (III) More than 5 years (IV) Other financial liabilities Total liabilities The expected maturities are same as the maturities per contracts. Contractual Maturity Analysis December, Non-derivative financial liabilities Carrying value Total cash outflow according to contract (I+II+III+IV) Less than 3 months (I) 3-12 months (II) 1-5 years (III) More than 5 years (IV) Bank borrowings Financial lease liabilities Trade payables Other financial liabilities Total liabilities The expected maturities are same as the maturities per contracts. Contractual Maturity AnalysisDecember, Derivative financial liabilities Carrying value Total cash outflow according to contract (I+II+III+IV) Less than 3 months (I) 3-12 months (II) 1-5 years (III) More than 5 years (IV) Other financial liabilities Total liabilities

128 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) (b)-3 Market risk management The Group, is subject to financial risks related with the fx rates ((b)-3.1) and interest rates ((b)-3.2). Market risk management is also followed by sensitivity analysis. In the current year, the Group s market risk management method or its market risk exposure have not changed when compared to prior year. (b)-3.1 Foreign currency risk management Transactions in foreign currencies expose the Group to foreign currency risk. This risk mainly arises from fluctuation of foreign currency used in conversion of foreign assets and liabilities into Turkish Lira. Foreign currency risk arises as a result of trading transactions in the future and the difference between the assets and liabilities recognized. In this regard, the Group manages this risk with a method of netting foreign currency denominated assets and liabilities. The management reviews the foreign currency open position and provide measures if required. The Group is mainly exposed to foreign currency risk in USD, EUR, GBP, CHF, GRV and DKK. The foreign currency denominated assets and liabilities of monetary and non-monetary items are as follows: 31 December 2009 TL Equivalent (Functional Currency) USD EURO CHF GBP DKK SAR GRV 1. Trade Receivables a. Monetary Financial Assets b. Non-Monetary Financial Assets Other CURRENT ASSETS Trade Receivables a. Monetary Financial Assets b. Non-Monetary Financial Assets Other NON-CURRENT ASSETS TOTAL ASSETS ÜLKER BİSKÜVİ ANNUAL REPORT 2009

129 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) 31 Aralık 2009 TL Equivalent USD EURO CHF GBP DKK SAR GRV 10. Trade Payables Financial Liabilities a. Other Monetary Financial Liabilities b. Other Non-Monetary Financial Liabilities CURRENT LIABILITIES Trade Payables Financial Liabilities a. Other Monetary Financial Liabilities b. Other Non-Monetary Financial Liabilities NON-CURRENT LIABILITIES TOTAL LIABILITIES Net foreign currency liability position ( ) ( ) ( ) ( ) ( ) Net foreign currency asset / liability position of monetary items (1+2a+5+6a a a) ( ) ( ) ( ) ( ) ( )

130 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) 31 December 2008 TL Equivalent (Functional Currency) USD EUR CHF GBP DKK 1. Trade Receivables a. Monetary Financial Assets b. Non-Monetary Financial Assets Other CURRENT ASSETS Trade Receivables a. Monetary Financial Assets b. Non-Monetary Financial Assets Other NON-CURRENT ASSETS TOTAL ASSETS Trade Payables Financial Liabilities a. Other Monetary Financial Liabilities b. Other Non-Monetary Financial Liabilities CURRENT LIABILITIES Trade Payables Financial Liabilities a. Other Monetary Financial Liabilities b. Other Non-Monetary Financial Liabilities NON-CURRENT LIABILITIES TOTAL LIABILITIES Net foreign currency asset liability position ( ) ( ) ( ) Net foreign currency asset / liability position of monetary items items (1+2a+5+6a a a) ( ) ( ) ( ) ( ) The Group s import and export totals for the twelve month periods are presented below: 1 January- 31 December January- 31 December 2008 Total exports Total imports Foreign currency sensitivity The Group is exposed to foreign exchange risk arising primarily from US Dollar and TL currency exposures. In the table below, the foreign currency sensitivity of the Company arrising from %10 change in US dolar and TL rates. 10% is the rate used when reporting to senior management of the Company. This rate is the anticipated rate change of the Company s senior management. Sensitivity analysis includes only the monetary items in foreign currency at year end and shows the effect of %10 increase in US dolar and TL foreign currency rates. Positive value implies the effect of %10 increase in US dolar and TL foreign currency rates on net profit increase against EURO. 128 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

131 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Appreciation of foreign currency 31 December December 2008 Income / Expense Income / Expense Depreciation of foreign currency Appreciation of foreign currency Depreciation of foreign currency If US Dollar appreciated against TL by 10% 1-US Dollar net asset / liability ( ) ( ) Part of hedged from US Dollar risk (-) 3- US Dollar net effect (1 +2) ( ) ( ) If Euro appreciated against TL by 10% 4-Euro net asset / liability ( ) ( ) 5-Part of hedged from Euro risk (-) 6- Euro net effect (4 +5) ( ) ( ) Total (3+6) ( ) ( ) (b)-3.2 Interest risk management Financial liabilities based on fixed and floating interest rates expose the Company to interest rate risk. The related risk is controlled by interest rate swap agreements and floating interest rate agreements by balancing the fixed and floating intrest rate borrowings. Risk strategies are reviewed periodically considering the interest rate expectations and predetermined interest risks; which aims to establish optimum interest risk management regarding the balance sheet position and the interest expenses. Interest rate sensitivity Sensitivity analysis has been determined based on the interest rate risk that the non-derivative instruments are exposed with on the balance sheet date. Assumption related to the analysis of floating rate liabilities is that the year end balance exists for the whole year. The Company management expects a fluctuation of 1% in TL interest rates. %1 increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management s assessment of the reasonably possible change in interest rates. On the reporting date if the Euribor/ libor interest rates had been 1% higher, and all other variables held constant, net income of the Company would have decreased by TL (1 January-31 December 2008: a decrease of TL ). This is mainly attributable to the Group s exposure to interest rates on its variable rate borrowings. The financial instruments that are sensitive to interest rate are as follows: Interest Position Table 31 December December 2008 Fixed interest rate financial instruments Financial assets Cash and Cash Equivalents Non-trade payables to related parties Financial liabilities Loans Non-trade payables to related parties Floating interest rate financial instruments Financial assets - - Financial liabilities Loans

132 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) (b)-3.3 Price risk The Group is exposed to price risk due to the fluctuations in exchange rate and interest rate. The investigation on market information is examined and followed through appropriate valuation method regarding price risk by the Group. In current year, there has not been any changes compared to prior year in the market risk that the Group is exposed to or the administration or calculation methods of these risks. (b)-3.4 Equity investments price sensitivity The sensitivity analysis presented below has been prepared based on the equity investments price risks exposed. As of reporting date, assuming that all other variables are held constant and when the values used in the valuation method increase/decrease by 10%: As of 31 December 2009, as long as the equity investment are classified as available for sale and not disposed of or they are not impaired the net profit/loss will not be effected. The other funds in the shareholders equity will increase/decrease by TL (2008: incerase/decrease of TL ). This situation is the result of the changes in the value of available for sale securities. 39. FINANCIAL INSTRUMENTS Categories and fair values of financial instruments: 31 December 2009 Financial assets at amortized cost Loans and receivables Available for sale financial assets Financial liabilities at amortized cost Carrying value Financial assets Cash and cash equivalents Trade receivables Due from related parties Other financial assets Financial liabilities Financial liabilities Trade payables Due to related parties Other financial liabilities Notes 130 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

133 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) 31 December 2008 Financial assets at amortized cost Loans and receivables Available for sale financial assets Financial liabilities at amortized cost Carrying value Financial assets Cash and cash equivalents Trade receivables Due from related parties Other financial assets Financial liabilities Financial liabilities Trade payables Due to related parties Other financial liabilities (*) The Company management believes that the carrying values of the financial assets reflect their fair values. Notes Derivative Financial Instruments The Group entered into interest rate swap agreement to control part of its borrowings by replacing floating interest rate with fixed interest rate swaps. The nominal value of the related loan is USD. The floating interest rate of the related loan is confined against the change in six months libor rate. The expected fair value of the transaction corresponds to TL (2008:TL ). Fair value of financial instruments The fair values of financial assets and financial liabilities are determined as follows: First level: The fair value of financial assets and financial liabilities are determined with reference to actively traded market prices; Second level: Other than market prices specified at first level, the fair value of financial assets and financial liabilities are evaluated with reference to inputs that used to determine directly or indirectly observable price in market; Third level: The fair value of financial assets and financial liabilities are evaluated with reference to inputs that used to determine fair value but not relying on observable data in the market. 131

134 Ülker Bisküvi Sanayi A.Ş. and its Subsidiaries Notes to the Consolidated Financial Statements For the Year Ended 31 December 2009 (Amounts expressed in Turkish Lira [TL] unless otherwise stated.) Level classifications of financial assets at fair value are as follows: Level of fair value as of reporting date 31 December 2009 Level 1 TL Level 2 TL Level 3 TL Financial assets Fair value difference through profit and loss Held for trading Fair value difference through com prehensive income statement Shares Total Financial liabilities Fair value difference through profit and loss Other financial liabilities ( ) - ( ) - ( ) - ( ) - Level of fair value as of reporting date Financial assets 31 December 2009 Level 1 TL Level 2 TL Level 3 TL Fair value difference through profit and loss Held for trading Fair value difference through comprehensive income statement Shares Total Financial liabilities Fair value difference through profit and loss Other financial liabilities ( ) - ( ) - ( ) - ( ) EVENTS AFTER THE BALANCE SHEET DATE Netlog Lojistik Hizmetleri A.Ş., an associate of Ülker Bisküvi Sanayi A.Ş., has been sold to Gökalp Çak in March Ülker Bisküvi Sanayi A.Ş. s shares in KOMAŞ Kocatepe Modern Mağazacılık İşletmeleri San. ve Tic. A.Ş., have been transfered to Pasifik Tüketim Ürünleri Satış ve Tic. A.Ş. for a fee of TL. 132 ÜLKER BİSKÜVİ ANNUAL REPORT 2009

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