For 66 years, we have worked hard to become our customers sweet memories...

Transcription

1 INTRODUCTION ACTIVITIES CORPORATE GOVERNANCE FINANCIAL INFORMATION 2010 ANNUAL REPORT 1 For 66 years, we have worked hard to become our customers sweet memories...

2 Contents 2 Ülker Biscuits in Brief 4 An Overview of Yıldız Holding 6 Key Financial and Operational Indicators 6 Performance of Ülker Biscuits Shares 7 Capital and Shareholder Structure 8 A Message from the Chairman of the Board 10 Board of Directors 12 A Message from the General Manager 16 Milestones 18 The Food Sector in Turkey and Abroad Business Activities Production and Capacity Marketing and Distribution Investments Subsidiaries Birlik Pazarlama Ideal Gıda Istanbul Gıda Birleşik Dış Ticaret Biskot Gıda Atlas Gıda Pazarlama Godiva Other Subsidiaries 40 Corporate Governance Human Resources Environmental, Quality and R&D Acivities Shareholder Relations and Profit Sharing Policy Social Responsibility Projects Corporate Governance Principles Compliance report 53 Profit Sharing Proposal 55 Audit Board Report 57 Independent Audit Report

3 66 years of happy moments Everything began with a happy moment. Exactly 66 years ago Ülker Biscuits, a giant in the food production industry, continues its leading role in the sector with 280 varieties, sold both nationally and internationally. The organization strives to create hundreds of thousands of Happy Moments and to be part of our customers most memorable moments - at little girls tea parties, for students who are moving to a new city, for university students stranded by snow, for newlywed couples moving into their first homes. Our aim is to create more Happy Moments

4 2 ÜLKER BİSKÜVİ 2010 ANNUAL REPORT Ülker Biscuits in Brief Since 1944, products with the Ülker Biscuits brand name have been creating memorable Happy Moments for three generations of customers. 60 Average number of products introduced to the market by Ülker Biscuits annually The expert and experienced R&D staff constantly takes its innovative approaches to higher levels. Ülker Biscuits began operations 66 years ago in a small Eminönü workshop with only 6 7 cooking vessels, one small oven and three workers. Today, both in volume of sales and profitability, Ülker Biscuits is the flagship company of the Yıldız Holding organization. Ülker Biscuits production facilities in Istanbul/Topkapı and Ankara produce biscuits, cakes, chocolatecovered biscuits and wafers. Ülker Biscuits consolidated production volume of 559,679 tons of biscuits and crackers are sold to domestic and international markets. With 280 varieties, Ülker Biscuits is one of the giants in the world s food industry and one of its unrivaled leaders in the sector. In 1996 the Company obtained the production quality standard certification ISO 9002, and in 2001 Ülker Biscuits was granted European HACCP certification for its food quality and safety standards. In 2002 Ülker Biscuits success was recognized by the BRC, which awarded the Company with its highest level degree of quality certification. Ülker s Quality in the World Markets Ülker Biscuits introduces approximately 60 new products to the market annually. It constantly takes an innovative approach to higher levels in its independent laboratories and with expert and experienced R&D staff. This innovative approach is the reason why Ülker is one of the brands that are most in demand. Ülker Biscuits products are exported mainly to the Middle East, Russia and Central Asian republics, as well as to Europe, Africa and the USA. In 2010, Ülker Biscuits successfully represented Turkey s approach to quality on a global scale and had consolidated export sales of 275,000,000 TL. Ülker Biscuits efficient quality control system injects synergy into the entire range of processes, from production to consumption. The Company continues to make timely investments, based on a strategy that focuses on sustainable growth and profitability. Ülker and Happy Moments Since 1944, Ülker Biscuits has been a part of the lives of three generations. Everyone has Happy Moments of their own, of which Ülker was a part. The advertising campaign that was launched to celebrate the 65th anniversary of the Ülker brand and the incorporation of Ülker Biscuits, was developed around this concept. According to surveys that have been conducted, loyalty to the Ülker brand remains at a high level. In the 2009 AC Nielsen Brand Names Report, Ülker ranked first in the biscuits category. Ülker ranked second in the category of Best Perceived Brand and third in the categories of Most Recalled Company and Most Recalled Brand Name. According to research carried out in 2009 by the Istanbul Chamber of Commerce, Ülker Biscuits was ranked 104th among the top 500 Turkish Industrial Enterprises. Local distribution of biscuits and chocolate-covered products produced by Ülker Biscuits and its companies is undertaken by the subsidiary Atlas Gıda Pazarlama and other companies in the Yıldız Holding group including Esas Pazarlama, Merkez Gıda Pazarlama and Rekor Pazarlama. Throughout every phase, from manufacturing to sales, from marketing to distribution, Ülker s management philosophy has always been focused solely on the satisfaction of its customers. By meeting the needs and living up to the expectations of its customers in the best possible way, Ülker Biscuits continues to carry out consumeroriented activities that continue to create more Happy Moments.

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6 4 ÜLKER BİSKÜVİ 2010 ANNUAL REPORT An Overview of Yıldız Holding The food companies of Yıldız Holding are managed by its Ülker Division and the Foods- Beverages Division With a total of 56 factories, ten of which are located abroad, Yıldız Holding employs a workforce of 24,400. Its strong distribution network, depth of knowledge of current consumer trends, range of products and years of experience has made Yıldız Holding a leading force in national and international arenas. Yıldız Holding has reached its current position through the combined efforts of the Company s 10 major business divisions, and a deep and strong corporate culture. Yıldız Holding s pioneering Ülker Division (Biscuits-Chocolate-Cake), while concentrating on satisfying the demands of consumers for Foods, Beverages, Candy and Chewing Gum, also focuses on bringing new food products innovations to the market. The Foods, Frozen Foods and Personal Care Division manage subsidiaries that produce and process tea and frozen foods. At the same time, this division oversees the Company s investments in the personal care products sector. The Information, Packaging and Real Estate Divisions fulfill the requirements of Yıldız Holding subsidiaries for these services and carry on marketing activities in their own respective sectors. The Corporate Strategy, Marketing and International Operations Division is responsible for developing brand name strategies for the Ülker brand and other brand name products. The group prepares and plans marketing strategies for foreign investments. The Retail Division and the Supply Chain Division are responsible, respectively, for retail investments and all purchasing and procurement functions of Yıldız Holding. The Chief Financial Office is responsible for managing the financial affairs of all subsidiaries. Financial Subsidiary Division and Auditing Division are responsible for the financial affairs of the subsidiaries, internal auditing and Human Resources and Information Technology. At the end of 2007, Yıldız Holding welcomed Godiva world-renowned and global leader in the production of fine chocolate, into its family of companies. In the pursuit of globalization, Yıldız Holding has formed partnerships with many foreign international companies including Kellogg s, Hero Baby, Cargill, Gumlink, Laurens Spethmann Holding, Eckes Granini and McCormick. Through its strategic partnerships, Yıldız Holding establishes itself as a global entity. 24,400 Yıldız Holding s total workforce 24,400 employees, an extensive distribution network, a wide range of products and superior production and marketing have put Yıldız Holding as a sector leader, domestically and internationally. Yıldız Holding, known for its social responsibility projects targets the environment, sports, education, health and the arts, is being perceived more and more as an integral component in community growth and economic development. Beginning in the first half of the 20th century and extending into the 21st century, the value system of Yıldız Holding, entrepreneurship, honesty, vision, innovation, decisiveness, trust and courage of spirit has created these differences which can be measured on a global scale.

7 INTRODUCTION ACTIVITIES CORPORATE GOVERNANCE FINANCIAL INFORMATION 5 An Essential Element of every Little Lady s Tea Party: Ülker Çokoprens My name is Ezgi Kılıç. I am a 5th grade student and I love my friends very much. Especially my girl friends. I like the boys in my class too. However, they are generally more interested in playing football and other active games. The favorite thing my girl friends and I like to do is to have tea parties. My friends and I organize a monthly tea party, just like my mother and her friends. At these parties we discuss our lessons, school and how naughty boys are. Ülker Çokoprens always plays key role at our parties, and has become a symbol for our Happy Moments Ezgi Kılıç (11), student

8 6 ÜLKER BİSKÜVİ 2010 ANNUAL REPORT Key Financial and Operational Indicators Gross real operating profit TL million Net profit for the year TL million Production amount, Istanbul, Ankara, Gebze and Karaman factories total 267,934 tons Consolidated investments TL 41.7 million Key Financial Indicators (TL) Shareholder s Equity 1,125,668,600 1,458,891,511 Gross Profit 378,642, ,135,004 Operating Profit 147,079,597 58,038,298 EBIDTA 177,941,880 84,905,909 Net Profit for the Year 102,917, ,846,830 Total Investment 27,522,772 41,701,452 Production Amount (*) 265, ,934 Sales Amount (*) 266, ,659 (*) Amounts are given in tons. Performance of Ülker Biscuits Shares Ülker Biscuits Price Performance Full Year January February March April May June July August September October November December 2010 XU100 ÜLKER

9 INTRODUCTION ACTIVITIES CORPORATE GOVERNANCE FINANCIAL INFORMATION 7 Capital and Shareholder Structure 15,685, ,917, ,846, Profit for the Year (TL) 271, , , Production Volume (Tons/year) The shareholder structure of Ülker Biscuits as of December 31, 2010 was as indicated below. No real person directly owns more than 10% of the Company s shares. 29% of the shares of Ülker Biscuits have been publicly traded since December 31, ,999, % Yıldız Holding A.Ş. 306,330, ,642, ,135, , , , ,600, % Diğer 268,600, % Total Gross Real Operating Profit (TL) Sales Volume (Tons/year) Company Reuters & Forex Code Sector Ülker Biscuits ULKER Foods Price (TL) ( Dec 31,2010) 5.50 Publicly Traded Shares (%) 29 Market Value (USD) 960,783,039 Within the Scope of ISE Indexes XU100 XU050 XUTUM XUSIN XGIDA XYUZO XSANK XULUS Publicly Traded Value (USD) 307,450,572 Average Trading Volume (USD) (Jan 1,2010-Dec 31,2010) Source: Reuters 7,523,553 Beta 0.84

10 8 ÜLKER BİSKÜVİ 2010 ANNUAL REPORT A Message from the Chairman of the Board During 2010, our management strategy was implemented that was aimed at re-defining the role of Ülker both in Turkey and throughout the world. This strategy, which was backed by innovation, focused on attaining high productivity and sustainable growth targets, based the changing demands of consumers. Esteemed Shareholders, We are living in times when it is impossible to interpret the conditions in our country without communicating with the rest of the world. The concept known as globalization and the virtual shrinking of the world was never demonstrated more fully than during the economic crisis of Along with the economic conditions of that time, the world underwent a number of other challenges. The momentum of Turkey s economy, which surfaced from this period relatively unscathed, is reflected in encouraging indicators. In 2009, the Turkish Economy contracted by 4.7%. If we compare this with other regions and countries, the interpretation of the damage done is much easier to digest. By emerging from 2009 with this rate of contraction, we had estimated that we would enter a period of economic growth in Economic indicators from 2010 proved that this prediction had been correct, and the Turkish Economy entered 2011 with a 8.9% growth rate. In a period when our closest neighboring economies were still experiencing economic difficulties, Turkey had the second fastest growing economy of all European countries. This is a real indication that the country s economy is no longer the fragile structure to which we had become accustomed in the past. Some of the credit for all of these developments, along with our optimistic forecast, must also be given to developments that took place in the region and the world. The political developments in the region that took place at the beginning of 2011, the huge economic losses created by events in the Middle East, and the economic woes that natural disasters have created for the world s largest economy, Japan, are all factors that will all have consequences that are yet to be determined for the coming year. It is our fervent hope that the Turkish economy will achieve its goals aimed at increasing the country s regional strength in 2011 by continuing to grow. In 2009, despite negative macroeconomic conditions and increased costs, Ülker Biscuits reached levels of growth which had worked so hard to achieve. The most difficult period, 2009, we survived because of our experience, fighting spirit, our innovative approach, focus on productivity and our consumers. In 2010, the Company went through a period of recovery and returned to its pre-crisis form. Compared to 2009 sales figures, 2010 showed an increase. During 2010, strategy was implemented that was aimed at re-defining Ülker s role in the domestic and international markets. The Company s objectives were achieved due to the setting of correct goals for growth, instituting cost-controls, austerity measures and efficiency principles, focusing on main tasks, meeting the demands of the consumer and encouraging innovation. Ülker Biscuits has achieved success and created value for our esteemed shareholders by following the principles of sustainable growth and the application of a profitable business model. I am happy to announce that the success of Ülker Biscuits has been recognized and honored by the Turkish American Business Council, which has presented Ülker Biscuits with the council s Business Leader Award. We will continue to closely monitor developments in Turkey and the rest of the world to increase our global competitiveness in Without losing sight of our goals, we will continue to work to provide our shareholders, customers, employees and the national economy with maximum benefits. Respectfully, Murat Ülker Chairman of the Board of Directors

11 INTRODUCTION ACTIVITIES CORPORATE GOVERNANCE FINANCIAL INFORMATION 9

12 10 ÜLKER BİSKÜVİ 2010 ANNUAL REPORT Board of Directors Murat Ülker Chairman of the Board Orhan Özokur Deputy Chairman of the Board Ali Ülker Board Member (Executive Director) Alain Strasser Board Member 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, Mr. Ülker was elected the Chairman of the Board of Yıldız Holding in Mr. Ülker speaks English and German and his hobbies include sailing, as well as traveling with his family. He is married with three grown children. 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 within Group. He was appointed Deputy Chairman of the Board of Directors of Yıldız Holding in Mr. 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 grown children. 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. Mr. 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 from 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. Mr. Ülker speaks English and German and his hobbies include fishing, watching movies, reading books, and playing basketball and billiards. He is married with three grown children. Mr. Strasser was born in After graduating in 1964 from the Faculty of Mathematics and Philosophy, in 1968 he obtained an MBA from the E.S.C. in Paris and a Masters in Economics from the same university in Until 1972 he was employed at Senegal s Dakar University as an instructor. His career in the private sector began when he held several positions at Unilever, mainly in France, in sales and marketing departments. Mr. Strasser, who had become an expert in cleaning products, began his employment with the Tambrands Firm in 1982 where he served as the France Sales and Marketing Director ( ), France General Manager ( ), England General Manager ( ), European Division Deputy Head ( ) and International Head ( ). After the acquisition of Tambrands by P&G, Mr. Strasser was appointed to Campell Soup in 1994 as President of Campbell Biscuits Europe. He was instrumental in the Campbell s Soup acquisition of Danone s Liebig Soup and was President of Delacre Biscuits and Liebig Soup until From 1998 to 2007 Mr. Strasser was employed by Artal, a Belgian private equity firm, as CEO of Harry s SAS in Paris active in the company s restructuring and strategic processes. After that company was sold to Barilla, in 2008 he joined the Ülker group as Ülker International Division President. Mr. Strasser has been a member on the Board of several companies including as SSL in London, Mood Media, Benedicta sauces, Galapagos, Alpina in France and Mankattan in China. Mr. Strasser is married with three grown children.

13 INTRODUCTION ACTIVITIES CORPORATE GOVERNANCE FINANCIAL INFORMATION 11 Cengiz Solakoğlu Board Member (Independent) Mahmut Mahir Kuşculu Board Member (Independent) Güven Obalı 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 of Beko Ticaret A.Ş. between 1977 and 1983, and Atılım A.Ş. between 1983 and 1991, 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 more than 37 years, 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 2002 and 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 Biscuits 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 has three grandchildren. 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 Biscuits 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. 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 In 1971, Mr. Obalı studies value added tax regulation & application in Germany. 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 Ilaçları 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 Biscuits 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

14 12 ÜLKER BİSKÜVİ 2010 ANNUAL REPORT A Message from the General Manager We are working diligently to continue the tradition and carry forward the Happy Moments experience which we have been providing for 66 years. As a company, we are constantly striving to do better. 66 Number of Years that Children Remember Ülker with Happiness During Ülker s 66th year of creating Happy childhood memories, children will be treated to tours of our factories so that they can learn where and how their favorite products that made them so happy are manufactured Total Amount of Investment Realized in 2010 by Ülker Biscuits (million TL) The total amount of Ülker Biscuits real investments in 2010 was TL 12.1 million. At the Topkapı Factory TL 2.1 million was invested to increase the factory s capacity and make modifications in the production lines, which consequently resulted in a higher production rate. The remaining TL 10 million was invested in the Ankara Factory. Esteemed Shareholders, 2010 was a year in which we strove to overcome the effects of the global economic crisis. It was also a year in which we continued to celebrate the 65th Anniversary of Ülker s founding, extending celebrations into Whether within the company or in the community, we steadfastly continued to share the concept of happy moments and to instill that notion into our employees and shareholders. The full force of the economic crisis was felt in 2009 as markets hit bottom, however during the last quarter of 2009 the economy started to rally and that momentum continued throughout Turkey s economy, which had contracted by 4.7% in 2009 bounced back in 2010 and reached a growth rate of 8.9%. Compared to the previous year, sales in 2010 increased by 5.3% and once again reached pre-crisis levels. Our Company, operating on the principle of discipline, maintained its increased savings and efficiency policies, which had seen it through the crisis, into In spite of numerous increases in materials costs, Ülker not only achieved an increase in net sales but also increased its profit before taxes from TL 138 million in 2009 to TL 223 million in Our Company, by adopting a primarily finance-focused strategy in 2010, sold its 12.5% stake in Netlog Logistic Services to the Company s partners, including 1.9% of the shares in Tire Kutsan Paper and Packaging which had been sold to Mondi Packaging Corrugated BV under the terms of a 2007 sales agreement. Ülker Biscuits continues its business relations with both companies. By means of the Company s Risk Committee, in 2009 corporate risk studies began to be conducted. The studies were successfully completed toward the end of 2010 and the components of the necessary action plan procedures were prepared. As well, the applications which had been installed in both Ülker Biscuits factories to facilitate the transition to a plain production philosophy were completed successfully in These studies are key elements of the sustainability and efficiency of production. It is my great pleasure to announce that our Company is now recognized for its successes not only in Turkey, but is also being recognized by foreign countries. This fact was demonstrated by acknowledgement of the Turkish American Business Council s Business Leader Award to Ülker Biscuits, in a 2010 ceremony held in New York. I would also like to share with you some of the other studies and evaluations that were carried out in 2010 with regard to our Company.

15 INTRODUCTION ACTIVITIES CORPORATE GOVERNANCE FINANCIAL INFORMATION 13 Our Production Activities At the end of 2010, our production volume in the Istanbul and Ankara factiories had reached a total of 126,928 tons. The capacity utilization ratio in the Istanbul factory was 89% while in Ankara it was 68%. This indicates that, compared to the previous year, the capacity utilization ratio in 2010 had increased from 72% to 77%, respectively. The Company invested a total of TL 12.1 million in its facilities in We invested TL 2.1 million in the Topkapı factory and TL 10 million in the Ankara factory to increase efficiency and modify production lines. R&D, Quality and New Product Research Ethical R&D principles were determined and implemented in 2010 by Ülker Biscuits. In parallel to the R&D staff s expertise and experienced understanding of quality, new products are being developed and the concept of innovation was taken to higher levels. Within this scope, R&D projects that are targeted at more efficient capacity utilization are being stressed by initiating the manufacture of new products. The R&D units of our Istanbul and Ankara factories worked on 73 new products in Of those products, 18 are currently being manufactured and presented for sale in the marketplace. One of the biggest projects brought into being by Ülker Biscuits in 2010 was one based on the Bolero Gofret. In addition to this product, in the biscuits, wafer and cracker group, six new products produced by the Ankara factory and 12 new products manufactured by the Istanbul factory were launched in In Ankara, two product developments and 11 packaging development studies came to fruition, while in Istanbul 41 packaging development studies were completed successfully. Products that were developed in 2010 by the R&D units made up 6.3% of the production tonnage in Ankara and 5% of the production tonnage manufactured in Istanbul. Delicious, Healthy and Trusted Products Ülker conducts a number of routine tests and analyses on its raw materials, packaging, semi-manufactured and end products in 2010, this is to ensure the highest standard, quality and safety of products and to eliminate the risks associated with human error. Besides these routine tests, analyses requested from suppliers and conducted on raw materials by accredited laboratories are performed and recorded. Recognized analysis procedures and plans including process controls are utilized; critical control points (CCP), shelf-life analyses, scorings, equipment, location and employee hygiene control studies are also conducted on an ongoing basis. Each of the studies that are conducted is carried out in compliance with consideration for Ülker s high standards of quality control and puts the health and tastes of consumers as priority. To better assure the safety and hygiene of our products, in 2010 a number of training sessions were organized that included Employee Hygiene, The Environment and Allergens. To meet the expectations of consumers at the highest level, and to promote increased standards of customer satisfaction, Ülker Biscuits carefully examines consumer data and makes the necessary adjustments to ensure quality. On the other hand, by working with suppliers to examine and carry out tests, problems with the quality of resources can be avoided before they occur. With regard to food safety, to ensure that our products are handled under the strictest of hygienic condition until they reach the consumer, distributor warehouses in various provinces undergo rigid inspection procedures. In compliance with legal regulations and methods, hygienic conditions and constant standards of high quality, Ülker Biscuits manufactures delicious, healthy and trusted products. The Company was the first to obtain the following certifications: ISO 9001:2008 Quality Management System, ISO Food Safety Management System, ISO Environmental Management System, TS Worker Health and Safety Management System, BRC (Achieved Grade: A), IFS (Higher Level) which were renewed in 2010, along with becoming a icix member. Our employees are our greatest asset At the end of 2010 our Company employed a workforce totalled of 1,254. In order for our workers to be the best at their jobs and to prepare them for the future, Ülker Biscuits supports training and development programs focusing on personal and career growth.

16 14 ÜLKER BİSKÜVİ 2010 ANNUAL REPORT njnj A Message from the General Manager Seeing our employees as our most important asset, in 2010 many sessions were organized for the purpose of increasing their personal skills. In the past year our employees were provided with a total of 26,645 hours of training. Ülker Biscuits employees were provided with training sessions on subjects such as Quality Systems, Personal Development, Managerial Development, Managerial Preparation, Upper Management Leadership, Foreign Languages and Technology, as well as On-the-Job Training and Orientation Classes, both internally and externally. Ülker Biscuits utilizes a Performance and Career Management System aimed at rewarding employees and determining employee success and potential. Under the Performance and Career Management System, Ülker Biscuits strives to develop the roles and skills of every employee who contributes to the vision of the Company. The Performance Simplification Project and the Performance and Career Management System underwent changes in 2010 to make them more user-friendly. At the end of 2010, the 360 Degree Evaluation System and Balanced Score Card methods of measuring performance were introduced for both managers and lower level employees, within the scope of the Performance and Career Management System. We are working diligently to continue the tradition and carry the Happy Moments experience which we have been both providing and experiencing for 66 years. As a company, we are constantly striving to do better and to further develop our further processes. Within a short period of time during 2010, in order to reward workers who were not directly employed by Yıldız Holding and its associated companies, we initiated the Moments Awards to recognize those who, within the framework of Ülker values and core competencies, had achieved better results than expected, displayed exemplary behavior and generally made a difference with their extraordinary job performance. In order to increase the retention ratio and job satisfaction of our employees the Company keeps an open dialogue regularly accepting suggestions and opinions. This management principle was reflected twice in 2010 during meetings held with the participation of our workers and the workplace union and a Partner Relations Platform meeting attended by workers not directly employed by Yıldız Holding or its companies, organized in cooperation with the Industrial Relations Board. At the meetings, the relationship between employees and employers was discussed and it was stressed that the continued progress of Ülker Biscuits could be facilitated and developed through continued dialogue between employees and employers. As in previous years, in 2010 a series of events were organized for all employees, aimed at increasing motivation, expanding social interaction and strengthening the bonds between workers and the Company. These events and activities included the Traditional Ülker Picnic, Award Ceremonies for those with 10 or more years of employment with Ülker Biscuits, International Day of the Disabled, Price Reduction Agreements, etc. In the future we will continue to hold events and demonstrate our belief that our employees are our most valuable asset. Corporate Social Responsibility In 2010, Ülker Biscuits and Yıldız Holding s general sense of social responsibility and their numerous sponsorship of related projects, played an important role in the life of the community. The scope of Yıldız Holding s social activities are concentrated for the most part, on making a difference in the lives of children. As examples: Ülker encourages children to develop a healthy habit of playing sports, the Football For Everybody and Futbol Villages projects and a series of football and basketball festivals have been established. In addition to these projects, the Holding has opened the Sabri Ülker soup kitchen, in cooperation with the Red Crescent in Bingöl. Our Goals for 2011 As the leading firm in the sector, Ülker Biscuits has the task of fullfilling the expectations of our shareholders and to especially meet the expectations of our customers with the high quality and nutritional integrity of our products. In 2011, in spite of intense competition and rising costs, we are confident that we will once more be able to achieve our financial and operational targets, with the support of our consumers and shareholders. Our wish is to continue to meet the expectations of our customers at the highest level and reward our shareholders with strong financial return for many years to come, and to do so hand in hand with our employees, producing high quality and hygienic products, increasing our efficiency without sacrificing our simple production principles. Respectfully, Dr. Hasan İrfan DEMİRYOL General Manager

17 Enjoy new experiences with Ülker Bolero For me, 2010 was a year filled with many new and different experiences. After a difficult period of preparation, to my great joy, I was finally enrolled in the Faculty of Architecture at Istanbul Technical University, leave Çorum where I had lived since I was born and move to Istanbul to live with my older sister. During the year I was able to cope with all these new experiences (Istanbul, University, architecture, new friends) rather easily because these new experiences were things that I had dreamed about since my childhood. It was during this enjoyable time that I had another new experience, namely Ülker s new Ülker Bolero. I especially appreciated the strawberry and banana varieties because they helped make all of my new experiences even more delicious. Yeşim Akın (19), University Student

18 16 ÜLKER BİSKÜVİ 2010 ANNUAL REPORT Milestones Steps toward Happy Moments 1955 In 1955, Ülker Biscuits decided to provide the entire country with biscuits at factory prices. This enterprising decision brought about a huge increase in demand. By hiring sales representatives to sell its products door-to-door in large cities, the Company s unorthodox strategy created a revolution in the marketing of biscuits, chocolate and similar products Ülker Biscuits was founded by Sabri Ülker in 1944, started operations with only on an oven and three workers and initially produced only 200 kg of biscuits a day. The Company grew and within a few years it was relocated to Topkapı. Under the conditions of the time, the Company s four 20 m3 ovens were sufficient to allow the Company to achieve a high production capacity In 1970, during a preriod of growth, Ülker Biscuits formed a multi-partner company with Anadolu Gıda Sanayi A.Ş. which was located in Ankara. This virtually doubled the production capacity of Ülker Biscuits Total production volume in 1944 was 75 tons. By 1948 that volume had tripled Recognizing that the Middle East was a potential market for its products, in 1974 Ülker Biscuits exported its first biscuits. In the same year the Company established an R&D department to enhance its competiveness internationally.

19 INTRODUCTION ACTIVITIES CORPORATE GOVERNANCE FINANCIAL INFORMATION Ülker began to package its products in cellophane-based material in In 2008, Corporate Governance and Audit Committees were established, within the scope of the Company s Articles of Incorporation. Also in 2008, the premium chocolate producer, Godiva, became a 25.23% subsidiary of the Company With the merger in 2003 with Anadolu Gıda, Ülker Biscuits grew even larger and, with its institutionalization it began to bring important projects to life Harvard Business Review, one of the world s most respected academic publications, published an article about Godiva s acquisition entitled Don t integrate your acquisitions, partner with them and cited the process as a successful business model. Ülker s 65th anniversary celebrations got underway with an advertising campaign based on the concept of Happy Moments The Company changed its name from Ülker Gıda to Ülker Biscuits to reflect its core business offering One of the largest projects undertaken in 2010 by Ülker Biscuits was the Ülker Bolero Wafer campaign. In the Biscuit, Chocolate and Cracker group, in Ankara; six new products and in Istanbul 12 new products were developed and successfully launched.

20 18 ÜLKER BİSKÜVİ 2010 ANNUAL REPORT The Food Sector in Turkey and Abroad Though its dynamism in domestic consumption, food sector was affected intimately by the global economic crisis. The Global Food Sector The global economic crisis which became apparent in 2008 caused major damage and recession of the world s economy. Forecasters predicted that the effect on production and trade would dissipate in 2010, but the countries of the European Union and many other developed countries were still experiencing financial struggles and it is likely that these will continue well into The most significant development in the global food sector was a rapid increase in the cost of raw materials, particularly in the last quarter of 2010 when fluctuations in world commodity markets sent deep shockwaves through the food sector. Though there were many reasons for the rise in the cost of raw materials, the most important reason was global warming, which caused severe droughts or flooding over vast areas of farmland. New data released by the UN shows that food prices are at an unprecedented level throughout the world. Sugar, grains, oil and meat products that make up the virtual food basket, upon which the food price index is based, jumped to points in December 2010, setting a new record. The world s largest producers (Russia, Australia, Canada, etc.) had experienced unseasonable weather conditions and natural disasters which had badly damaged crops. Some basic raw material components in 2010: Palm oils: During the year, the world s stock of palm oil fell 28% from the previous year. The low levels of the stock pushed 2010 prices up 42% more than they were at the beginning of the year to Ringgit/ton. Wheat prices: Wheat prices on the Chicago Stock Exchange at the beginning of 2010 stood at USD 200/ton. By year s end, the price of wheat had climbed to USD 300/ton. The fluctuations experienced in wheat prices were exascerbated by an unforeseen drought which resulted crop losses triggering sky-rocketing prices in the countries affected. Corn prices: Corn commodities were being traded on the Chicago Stock Exchange for USD 165/ton at the beginning of By the last quarter of the year, as a result of bans on exports by Russia and the Ukraine, the imposition of quotas and a rise in the prices of wheat and soy beans, the price of corn soared to USD 245/ton by year-end. Cocoa beans: The price of cocoa beans which was USD 3,500/ton at the beginning of 2010 fell to USD 3,000/ ton at the end of the year. The latest forecast from the International Cocoa Organization (ICCO) states that cocoa prices will stay within 2010 levels in In the last year, steadily increasing raw materials and food prices and the rise in inflation, even in countries with a relatively low rate of unemployment, have resulted in the fall of the governments in countries like Algeria, Tunisia and Egypt. The political unrest in petrol exporting countries after the global financial crisis sent petrol prices soaring. Together with a host of other factors, the price of petrol increased the costs for energy and transportation which, in turn, caused a significant rate of increase in the prices of raw materials and foods. At this time, while an economic turnaround is expected in 2011, the possibility remains that negative factors could affect our economic situation.

21 INTRODUCTION ACTIVITIES CORPORATE GOVERNANCE FINANCIAL INFORMATION 19 77% is the total capacity utilization ratio of Ülker Biscuits in 2010 Parallel to the recovery of total capacity utilization ratio both in Turkey and internationally, Ülker Biscuits total capacity utilization ratio in 2010 rose to 77%. The Turkish Food Sector 2010 was considered to be a period of recovery for the Turkish economy. become problematic. Another area where the effects of the crisis are still apparent is the rate of employment. Due to delayed investments and the shifts that were experienced, despite the recovery of the economy in 2010, the unemployment rate remained above 11%. On the other hand, in 2010 the number of jobless increased by nearly a million, even though the rate of unemployment fell. The food sector in Turkey is a US$142 billion industry that feeds almost 73 million people and 30 million tourists each year. According to Household Consumption Expenditure figures compiled by the Turkish Statistical Institute, Turkish families spend an average of 23% of their incomes on food. Food expenditures classified into income groups shows that of the 20% households with the highest income levels, 17.4% goes for food while in the bottom 20% households with the lowest level of income, food expenditures average 34% of income. Therefore, the global crisis has seriously affected the the food industry and the important dynamic in domestic consumption in the food sector. The table below compares the total producton in all industry and the increase of food producton over the last five years. Beginning in September, 2008, a global crisis began that lasted for all of In 2010, many countries, including Turkey, began to recover. The Turkish economy contracted in 2009 by 4.7%, however in 2010 it recovered and grew by 8.9%. Within that period, while indicators in the Turkish economy like production and domestic consumption reached pre-crisis levels, other indicators such as export and unemployment were not rebounding as quickly. In addition, the increase in exports and lagging imports created more significant deficits. Contrary to the crisis of 2001, after the main crisis of 2010, in Turkey the economic recovery was propelled by domestic consumption rather than exports. During the last year, despite the significant rate of diversification in export markets, the European countries, which are Turkey s largest export markets, recovered more slowly, and exports were being negatively affected. The rate of loss in Turkey s volume of exports, compared to precrisis levels remains at 15%. Although there is rapid growth in the GDP, the fall in exports and at current deficits had Increase in Industrial Production, by year (%) Food Industry Total Industry In 2009 the decrease of total production also affected revenues, however, with the rise in production in 2010, a healthy increase in revenue was achieved Production 0.4% 7.2% Financial turnover 5.3% 16.2% Capacity Utilization Ratio 71.0% 68.3% The decrease in domestic demand led food companies to direct their efforts toward exporting. In 2010 the value of exports, according to values over the last ten years rose 48.1% and was worth US$ 6.5 billion.

22 20 ÜLKER BİSKÜVİ 2010 ANNUAL REPORT

23 2010 Business Activities For Ülker Biscuits, 2010 was a year filled with accomplishments. A lean manufacturing philosophy was implemented and corporate risk studies were completed. By targeting increased capacity, renovation, modification of production lines and improving efficiency, a production volume of 126,928 tons was achieved. Below is a summary of the corporate applicatiıons that took place in 2010 within Ülker Biscuits: Under the leadership of the Risk Committee, the corporate risk studies that had begun in 2009 were completed; action plans were subsequently developed and adopted as one of the Company s business processes. A lean manufacturing philosophy was successfully implemented in Ülker Biscuits two main production facilities. The best practice application which was implemented to share best practices among the companies continued throughout the year. A Partner Communication Platform in which all employees participated was held. To increase operational productivity, work studies and permanent staff studies were carried out. The Workers Syndicate organization held Industial Relationships meetings at the Ülker Biscuits factories.

24 22 ÜLKER BİSKÜVİ 2010 ANNUAL REPORT Production and Capacity Ülker Biscuits which has two factories, one in Istanbul/Topkapı and one in Ankara, is the sector leader. Apart from these two main factories, Ülker Biscuits also carries on production operations in the İdeal Gıda/ Gebze and Biskot Gıda/Karaman manufacturing facilities. Ülker Biscuits Istanbul and Ankara factories, which are fitted with the latest technological equipment, manufactured 126,928 tons of biscuits for comsumption market in In the Topkapı factory there are nine installations and in the Ankara factory there are 19 installations devoted to the manufacture of biscuits, chocolate-covered biscuits and wafers. Istanbul/Topkapı Factory At Ülker Biscuits Topkapı factory, with three workshifts were initiated in 2010, an actual capacity utilization ratio of 89% achieved. This translates into the production of 54,697 tons of biscuits and net sales of 54,156 tons of biscuits during the year At the Topkapı factory, logistical support such as boxing, box handling, packaging, and storage are almost fully automated, and the facility s technology is extensive. Main Products Manufactured in the Topkapı Factory Pötibör (plain, chocolate, double baked) Çizi (sesame) Krispi Haylayf Mavi Yeşil Hanımeller (hazelnut, chocolate chip, nutritional, negrita, salty, shortbread) Bebe Biscuits (good night, googly, honey-banana) Biskrem (chocolate, apple, fig, dark, hazelnut krem, duo) 128, , , Ülker Biscuits Sales (Tons)

25 INTRODUCTION ACTIVITIES CORPORATE GOVERNANCE FINANCIAL INFORMATION 23 The Ankara Factory The Ankara factıory is located in a covered area measuring 80,000 m² on a 110,000 m² tract, making it the largest biscuit manufacturing and warehousing facility in the Middle East. The factory has been one of the region s most important economic contributors for more than 39 years. In 2010, three workshifts were adopted which resulted in actual capacity utilization ratio of 68% for the year. In other terms, 72,231 tons of biscuits were manufactured, which resulted in the net sale of 72,305 tons. 127, , ,928 Main Products Manufactured in the Ankara Factory Pötibör (plain, two-color) Krim Kraker Probis Çokoprens As Kraker Başak (plain, chocolate, flax seed) Ikram (chocolate, hazelnut, cheese) Canpare Rondo (banana, strawberry, plain, coconut, orange, raspberry, cheesecake) Altınbaşak Wafers (hazelnut, banana, orange, strawberry, coconut, vanilla, cocoa, chocolate) Halley Kat Kat Tat Çubuk Kraker Alpella Ring Mavi Yeşil brand products Hasat Hanımeller Kurabiyem (hazelnut, chocolate) Bolero (strawberry, banana) Istanbul and Ankara Factories Total Production Volume (Tons)